What happened in the US session?
Canada’s inflation accelerated in August as both the headline CPI and core CPI readings increased over the previous month and were also higher than the respective estimates. Headline CPI increased from 3.3% YoY in July to 4.0% YoY while core CPI rose from 3.2% YoY to 3.3% YoY. Hotter than expected inflation data caused the Canadian dollar to strengthen significantly overnight with USD/CAD falling as low as 1.3378.
Meanwhile, 1.54M building permits were registered in August which was higher than the forecast of 1.44M while 1.28M housing starts were registered versus the estimate of 1.44M – data for the residential construction sector was mixed. The dollar index (DXY) jumped from a low of 104.80 to 105.17 following this news release.
What does it mean for the Asia Session?
The DXY started to drift lower towards the 105-level at the start of Asian trading hours. Price action could be subdued for most parts of today as markets await the highly anticipated FOMC meeting coming up in the latter part of the US session.
The Dollar Index (DXY)
Key news events today
FOMC Statement (6:00 pm GMT)
FOMC Press Conference (6:30 pm GMT)
What can we expect from DXY today?
The Federal Reserve is widely expected to keep the Fed Funds Rate on hold at 5.50% at September’s FOMC meeting. Despite this expected ‘pause’ in rate hikes, the DXY has made strong gains recently. The press conference will also be closely watched as Chairman Jerome Powell could still jawbone the US dollar higher with any hawkish outlook or remarks regarding monetary policy.
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 bearish overall momentum, driven by several factors contributing to its downward trajectory. A significant factor in this bearish sentiment is the recent break below an ascending support line, which has triggered the potential for a bearish move. In this context, there’s a plausible scenario where the price may experience a bearish reaction upon reaching the 1st resistance level at 105.16, subsequently declining towards the 1st support at 104.86. The 1st support is of notable importance, classified as an overlap support, signifying its historical relevance as a potential strong support zone. Similarly, the 2nd support at 104.43 is identified as an overlap support, reinforcing its role as a key support level.
On the resistance side, the 1st resistance at 105.16 is pivotal, categorized as an overlap resistance, and it carries the potential to act as a resistance barrier. Beyond the 1st resistance, the 2nd resistance at 105.44 is also characterized as a multi-swing high resistance, further emphasizing its significance.
The Euro (EUR)
Key news events today
German PPI (6:00 am GMT)
What can we expect from EUR today?
The Producer Price Index (PPI), which measures wholesale inflation, declined by 6% YoY for the first time in 30 months in Germany as energy and electricity prices tumbled. With Germany’s manufacturing PMI data contracting since mid-2022, inflation for this sector could continue to moderate lower and potentially drive the Euro down.
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 is on 26 October 2023.
Next 24 Hours Bias
Weak Bearish
Technical
The EUR/USD chart currently exhibits a bullish overall momentum, with several factors contributing to its upward trajectory. One notable factor is the recent break above a descending resistance line, which has triggered the potential for a bullish move. In this context, there’s a plausible scenario where the price may experience a bullish bounce upon reaching the 1st support level at 1.0673 before advancing towards the 1st resistance at 1.0705.
The 1st support at 1.0673 is considered significant, characterized as an overlap support, and it also aligns with the presence of the 61.80% Fibonacci Retracement, highlighting its potential as a strong support zone. Similarly, the 2nd support at 1.0634 is identified as a multi-swing low support, further emphasizing its role as a key support level.
On the resistance side, the 1st resistance at 1.0705 plays a pivotal role, categorized as an overlap resistance and aligning with the 61.80% Fibonacci Retracement, underscoring its potential as a barrier to further upward movement. Beyond the 1st resistance, the 2nd resistance at 1.0766 is also identified as an overlap resistance, further highlighting its significance.
The Pound (GBP)
Key news events today
CPI (6:00 am GMT)
PPI (6:00 am GMT)
What can we expect from GBP today?
Consumer inflation in the UK remains stubbornly high with the core CPI remaining unchanged at 6.9% YoY while the headline CPI edged marginally lower to 6.8% YoY in July. If UK inflation remains elevated in August, the Bank of England may continue to raise its official cash rate at this week’s monetary policy meeting which could provide some support for the Pound.
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 bearish overall momentum, influenced by several factors contributing to its downward trajectory. A key contributor to this bearish sentiment is the price’s position below a major descending trend line, signaling the potential for continued bearish momentum in the market. However, in the short term, there’s a potential scenario where the price may experience a temporary rise towards the 1st resistance level at 1.2407 before reversing and heading downwards towards the 1st support at 1.2305.
The 1st support at 1.2305 is a significant consideration, identified as a swing low support, highlighting its role as a key support level. Additionally, the downside confirmation level at 1.2372 is marked as an overlap support, signifying its historical relevance as a potential strong support zone.
On the resistance side, the 1st resistance at 1.2407 assumes a pivotal role, categorized as an overlap resistance, and it serves as a potential point of resistance in the short term. Beyond the 1st resistance, the 2nd resistance at 1.2456 is also identified as an overlap resistance, further emphasizing its importance. Moreover, this resistance level aligns with both the 23.60% and 61.80% Fibonacci Retracement levels, indicating a significant level of Fibonacci confluence.
The Canadian Dollar (CAD)
Key news events today
BoC Summary of Deliberations (5:30 pm GMT)
What can we expect from CAD today?
The Bank of Canada will release a detailed record of the Governing Council’s most recent meeting, providing an in-depth insight into the economic conditions that influenced their decision to hold the overnight rate steady at 5.00% on 6th September. Any potential hawkish statements could cause USD/CAD to resume its downturn, especially after yesterday’s hotter than expected Canadian inflation data.
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 is currently exhibiting an overall bullish momentum, indicating an upward trend with price making a bullish continuation towards the 1st resistance level.
The 1st resistance level at 1.3496 is identified as an overlap resistance that aligns with a confluence of Fibonacci levels i.e. the 38.20% retracement and the 61.80% projection levels. Additionally, the 2nd resistance level at 1.3539 is marked as a pullback resistance that also aligns with confluence of Fibonacci levels i.e. the 50% retracement and the 78.60% projection levels.
To the downside, the 1st support level at 1.3387 is identified as an overlap support, potentially acting as a strong support zone for price.
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie climbed as high as 0.6470 overnight before pulling back at the start of the Asia session and was falling towards 0.6450. It continues to range between 0.6400 and 0.6470.
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
Weak Bullish
Technical
The AUD/USD chart is currently displaying an overall bearish momentum, suggesting a bearish continuation towards the 1st support level.
The intermediate support level at 0.6429 is identified as an overlap support while the 1st support level at 0.6402 is also marked as an overlap support that aligns with the 78.60% Fibonacci retracement level.
Further down, the 2nd support level at 0.6365 is identified as a pullback support, acting as a potential bounce for price.
To the upside, the 1st resistance level at 0.6472 is identified as a swing-high resistance while the 2nd resistance level at 0.6514 is noted as an overlap resistance.
The Kiwi Dollar (NZD)
Key news events today
GDP (10:45 pm GMT)
What can we expect from NZD today?
New Zealand’s economy fell into a technical recession in the first quarter of 2023 as last year’s Q4 GDP reading was revised down to show a contraction of 0.7% YoY while the figure for Q1-23 pointed to a decline of 0.1% YoY. The forecast for the second quarter of 2023 indicates a small growth of 0.4% YoY – a stronger than expected reading could provide some lift for the Kiwi.
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
Weak Bullish
Technical
The NZD/USD chart currently exhibits a weak bearish momentum, potentially dropping towards the 1st support level should price break below the intermediate support level at 0.5933 which is identified as an overlap support.
The 1st support level at 0.5891 is identified as an overlap support while the 2nd support level at 0.5859 is marked as pullback.
The 1st resistance level at 0.5955 is identified as a pullback resistance that aligns with the 61.80% Fibonacci retracement level. Further up, the 2nd resistance level at 0.6001 is marked as a multi-swing-high resistance.
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
With demand for the US dollar remaining strong, USD/JPY was pushing higher this morning to rise towards 147.90 and could remain elevated going into the FOMC meeting later today.
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 maintains a bullish overall momentum, primarily due to its positioning above a major ascending trend line, suggesting the potential for further bullish movement in the market. However, there’s a plausible scenario where the price may experience a bearish reaction upon reaching the 1st resistance level at 147.94, subsequently declining towards the 1st support at 146.98.
The 1st support at 146.98 is considered significant, characterized as an overlap support, and it underscores its historical relevance as a potential strong support zone. Similarly, the 2nd support at 145.88 is identified as a swing low support, further emphasizing its role as a key support level.
On the resistance side, the 1st resistance at 147.94 assumes a pivotal role, categorized as a multi-swing high resistance, and it may serve as a point of resistance. Beyond the 1st resistance, the 2nd resistance at 148.51 is also identified as a swing high resistance and aligns with the presence of the 127.20% Fibonacci Extension, adding an extra layer of significance to its potential resistance role.
