What happened in the US session?
It was a pretty volatile period when US CPI data for the month of August was released overnight. Headline CPI printed at 3.7% YoY which was higher than the forecast of 3.6% and of course higher than the previous month’s reading of 3.2%. Meanwhile, core CPI remained unchanged at 4.3% YoY but the monthly reading increased from 0.2% to 0.3% – this was the first acceleration in six months. As a whole, consumer inflation appears to be resurging in the last couple of months and could raise concerns for the Federal Reserve. The dollar index (DXY) swung wildly between 104.55 and 104.95 when the data was released but it then proceeded to consolidate around 104.70.
What does it mean for the Asia Session?
The DXY has ranged between 104.40 and 105.00 this week thus far. As Asian traders digest the latest CPI data from the US, the DXY is likely to trade within this range today. Following a decline of 14.6k in July, the Australian labour market is anticipated to add nearly 26k jobs for the month of August while the unemployment rate is expected to remain unchanged at 3.7%. A much stronger than anticipated labour force report could provide a boost for the Aussie.
The Dollar Index (DXY)
Key news events today
PPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
Retail Sales (12:30 pm GMT)
What can we expect from DXY today?
US PPI, which measures inflation in the wholesale sector, rose to 0.8% YoY in July from 0.2% from the previous month. With the forecast for August pointing to another increase, inflationary pressures also appear to be returning to the forefront for this sector. After yesterday’s ‘hot’ CPI print, this should most certainly cause the Federal Reserve to maintain its hawkish monetary policy stance and perhaps even increase interest rates once more at next week’s FOMC meeting. A hotter than expected PPI reading is more than likely to function as yet another bullish catalyst for the DXY.
In addition, employment claims will also be released today. Over the past three weeks, claims have been coming in much lower than their forecasts and another below par reading is more than likely to fuel demand for the US dollar.
Central Bank Notes:
- The federal funds rate target range will be 5.25% to 5.50%.
- The Committee is strongly committed to returning inflation to its 2.0% target.
- The Committee will adjust monetary policy if risks emerge that could hinder achieving its goals.
- Various factors will be considered, including labour market conditions, inflation pressures, inflation expectations, and international and financial developments.
- Next meeting runs from 19 to 20 September 2023.
Next 24 Hours Bias
Weak Bearish
Technical
The DXY (US Dollar Index) chart currently reflects a neutral overall momentum, indicating a lack of a clear bullish or bearish bias.
There’s a potential scenario where the price may oscillate within a range, fluctuating between the 1st support and 1st resistance levels.
The 1st support level at 104.41 is considered significant as it represents an overlap support. Additionally, the 2nd support at 103.94 aligns with the 50% Fibonacci Retracement and the 161.80% Fibonacci Extension levels, indicating potential confluence and strength as a support area.
On the resistance side, the 1st resistance at 104.91 is characterized as a swing high resistance, potentially acting as a barrier to any bullish movements. Similarly, the 2nd resistance at 105.16 is identified as a swing high resistance
The Euro (EUR)
Key news events today
ECB Main Refinancing Rate (12:15 pm GMT)
ECB Press Conference (12:45 pm GMT)
What can we expect from EUR today?
The ECB is widely expected to hold the main refinancing rate steady at 4.25% as consumer inflation as a whole has been retreating quite steadily in the Eurozone over the past nine months. The recent decline in inflation could provide the ECB with sufficient justification to ‘pause’ at today’s meeting. Traders will also be paying close attention to ECB President Christine Lagarde’s press conference as she will provide further insight into future monetary policy actions by the European central bank. The Euro dropped as low as 1.0710 overnight and could slide lower during the ECB press conference.
Central Bank Notes:
- The ECB raised the three key interest rates by 25 basis points.
- Economic growth projections have been slightly lowered.
- The Governing Council will ensure interest rates are sufficiently restrictive to achieve the inflation target and keep them at those levels as long as needed.
- Rate decisions will be data-dependent, considering inflation outlook, economic data, underlying inflation dynamics, and monetary policy transmission strength.
- Next meeting on 14 September 2023.
Next 24 Hours Bias
Weak Bearish
Technical
The EUR/USD chart exhibits a bearish overall momentum, driven by its position within a descending channel.
There’s a potential scenario for a bearish continuation towards the 1st support level at 1.0689, which is considered strong due to its alignment with a swing low support. Additionally, the 2nd support at 1.0634 provides further reinforcement as a swing low support.
On the resistance side, the 1st resistance at 1.0773 is marked as an overlap resistance, potentially acting as a barrier to any bullish movements. The 2nd resistance level at 1.0837 is also identified as an overlap resistance, further suggesting resistance in this area.
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound initially dived as low 1.2435 in the aftermath of US CPI data but then recovered the losses to climb as high as 1.2510. It is now drifting lower as Asia markets come online.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0% while another two preferred to increase it by 0.5 percentage points.
- CPI inflation is expected to fall significantly to around 5% by the end of the year, accounted for by lower energy prices but services price inflation is projected to remain elevated in the near term.
- The updated projections show that CPI inflation is expected to decline to 2.0% and 1.9% at the two and three-year horizons, respectively.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bearish
Technical
The GBP/USD chart currently exhibits a neutral overall momentum, indicating a lack of a clear bullish or bearish trend.
In this neutral scenario, there is a potential for price to fluctuate within a range between the 1st support at 1.2448 and the 1st resistance at 1.2533.
The 1st support at 1.2448 and the 2nd support at 1.2372 are both identified as overlap supports, which suggests that these levels have historical significance and could act as strong areas of price support.
On the resistance side, the 1st resistance at 1.2533 is considered significant as it aligns with the 61.80% Fibonacci Retracement level, potentially serving as a barrier to any bullish movements.
Furthermore, the 2nd resistance at 1.2603 is also marked as an overlap resistance, reinforcing its potential role as a resistance level.
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Following the volatility in currency markets yesterday, USD/CAD jumped as high as 1.3585 before tumbling under 1.3550. As Asian traders digest the latest CPI figures from the US, this currency pair is edging higher this morning.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%.
- Canada’s economy was more substantial than expected in the second quarter of 2023, with GDP growth of 3.3%.
- The Bank expects CPI inflation to ease to around 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
Next 24 Hours Bias
Weak Bullish
Technical
The USD/CAD chart currently displays an overall bullish momentum, indicating the potential for an upward price trend. There is a possibility of a bullish continuation towards the 1st resistance level.
The 1st resistance level at 1.3573 is identified as an overlap resistance while the 2nd resistance level at 1.3636 is also noted as another overlap resistance, indicating potential resistance in this area.
To the downside, the 1st support level at 1.3501 is identified as an overlap support while the 2nd support level at 1.3434 is marked as a pullback support, further reinforcing its role as a potential support zone.
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
As soon as the US CPI data hit the news wires overnight, currency markets experienced high volatility but this was short-lived as USD/JPY swung wildly between 147.10 and 147.80 before consolidating around 147.40. Despite a ‘hot’ CPI reading, the demand for the US dollar was not sustained with USD/JPY remaining above the 147-level this morning.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- The Bank of Japan decided on the following measures:
- Yield curve control: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields around +0.5%.
- Inflation is expected to decelerate temporarily but is projected to accelerate moderately later, supported by improvements in the output gap and inflation expectations.
- Japan’s economy is expected to recover gradually.
- Next meeting is on 22 September 2023.
Next 24 Hours Bias
Weak Bullish
Technical
The USD/JPY chart currently exhibits a bearish overall momentum, suggesting a potential downward trend in price.
There is a possibility that price may continue its bearish movement towards the 1st support level at 146.56. This support level is considered significant as it aligns with a swing low support and coincides with both the 61.80% Fibonacci Projection and the 61.80% Fibonacci Retracement, indicating a strong potential support zone.
Additionally, the 2nd support level at 145.99 is marked as a multi-swing low support and aligns with the 100% Fibonacci Projection, further reinforcing its potential role as a support level.
On the resistance side, the 1st resistance at 147.78 is considered significant as it represents a multi-swing high resistance.
Furthermore, the 2nd resistance level at 148.76 is identified as a swing high resistance.
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi fell as low as 0.5880 overnight before recovering all the initial losses to climb as high as 0.5945 this morning. With no economic news for New Zealand, the Kiwi is likely to trade in tandem with the Australian dollar today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 2023.
Next 24 Hours Bias
Medium Bearish
Technical
The Australian Dollar (AUD)
Key news events today
Labour Force Report (1:30 am GMT)
What can we expect from AUD today?
Following a decline of 14.6k in July, the Australian labour market is anticipated to add nearly 26k jobs for the month of August while the unemployment rate is expected to remain unchanged at 3.7%. A much stronger than anticipated labour force report could provide a boost for the Aussie.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the third consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 3 October 2023.
Next 24 Hours Bias
Medium Bearish
Technical
The AUD/USD chart currently exhibits an overall bearish momentum, suggesting a potential downward trend in price movement. There is a possibility of a bearish continuation towards the 1st support level.
The 1st support level at 0.6386 is identified as an overlap support that aligns with the 61.80% Fibonacci retracement level. Additionally, the 2nd support level at 0.6359 is marked as a pullback support, further reinforcing its potential role as a support level.
To the upside, the 1st resistance level at 0.6449 is identified as a multiple swing-high resistance that aligns with the 61.80% Fibonacci retracement level. Furthermore, the 2nd resistance level at 0.6508 is marked as an overlap resistance, suggesting potential resistance in this area.
