Markets await the ECB decision
Markets Await the ECB Decision – US equities began yesterday’s trading lower, following the uptick in the Core CPI MoM. However, they managed to recover quickly led by tech stocks. Nasdaq100 ended the day higher by 2.17%, while the S&P500 gained 1.07% and Dow Jones closed the day higher by 0.31% only. Out of the 12 sectors in the US, five closed the day lower, while consumer staples had the biggest decline with over 0.7%.
The Fed Funds Futures have changed significantly. Currently, the market is only giving a less than 25% chance of a 50-basis-point rate cut by the Federal Reserve in September. However, the market is still pricing in a 100-basis-point rate cut by the end of the year. This means that if the Fed decides to cut rates by 25 basis points in September, there is still a possibility that one of the remaining two meetings this year might see a 50-basis-point rate cut.
The recent increase in the Core CPI MoM is just one aspect to consider. Many other indicators still show that the economy is slowing down. In addition, there have been numerous revisions since the beginning of the year.
DXY at resistance
The US Dollar Index decreased to 101.27 during yesterday’s trading but managed to rally at the end of the day, forming a bullish shooting star on the daily chart. It is important to note that it remains below the 101.80 resistance area, which should be monitored closely. Additionally, the technical indicators are not yet bullish enough to support a breakout.
The current upward movement is seen as a short-term retracement before downward pressure returns. If the price breaks above 101.80, it could rise further to around 102.20 and possibly 102.40. On the downside, immediate support is at 101.20, followed by 100.65 for now.
Eyes on the ECB today
The European Central Bank (ECB) is expected to reduce interest rates, but will refrain from disclosing the pace and extent of further action until inflation is fully under control.
After a first reduction in June, followed by a pause in July, the deposit rate is expected to be decreased by a quarter point to 3.5% on Thursday. This information comes from a survey of 68 economists conducted by Bloomberg. Two other rates are also expected to be adjusted as part of a policy revamp unveiled in March, but with few immediate consequences.
While euro-area inflation has decreased and the 20-nation economy’s rebound is faltering, ECB officials are closely monitoring persistent price pressures in the services sector, particularly due to rapidly rising wages.
EURUSD holding above 1.10
The value of the Euro has been gradually decreasing since it reached its peak on August 23rd, when it was around 1.1200. It dropped to as low as 1.1004 during yesterday’s trading, but it remained above 1.10 for some time. The technical indicators still show a bullish trend on most timeframes, indicating that the decrease since August is likely a short-term movement before the upward trend continues.
In the meantime, there is solid support between 1.10 and 1.09. As long as the pair continues to hold this level, it is highly possible that it will move higher. On the upside, the next resistance levels are at 1.1040, followed by 1.11 and 1.1140. If these levels are broken, it could lead to a retest of the peak in August at 1.12.
Gold remains stuck under record high
Gold has been trading within a tight range for about a month, attempting to reach a new record high. It has repeatedly been rejected between $2525 and $2531 with no clear break. However, the overall outlook remains bullish because Gold is forming a pattern of higher lows on the daily chart.
The technical indicators mostly indicate a bullish trend across various timeframes, which could result in a breakout in the coming days. However, a catalyst is necessary for this, which could potentially come from today’s ECB decision and/or the US economic releases during the US session. Otherwise, it is more likely for another downward move to occur, retesting the $2500 followed by the $2475 area.
Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.
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