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The Week Ahead 5th – 9th September: the week of the central banks

Started by PocketOption, Sep 02, 2022, 01:06 pm

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PocketOption

The Week Ahead 5th - 9th September: the week of the central banks

Welcome to the Key to Markets preview of the Week Ahead.


Currency Pair Performance


5-day performance as of September 1st, 2022. 10:30 GMT.



Source: Forex Performance (finviz.com)



10 Big Stories Last Week


In case you missed it...


Eurozone inflation hits a record high. Inflation in the bloc rose to 9.1% YoY in August, up from 8.9% in July, piling pressure on the ECB to hike rates by 75 basis points rather than 50 next week.


Gold falls to a 6-week low. The precious metal lost its shine as bets of a more aggressive Federal Reserve ramped up after the Jackson Hole Symposium. Gold tests $1700 after falling $100 per ounce in August.


GBP/USD falls to a 2.5-year low. Recession fears mount after Ofgem approves an 80% hike on the energy price cap, fuelling the cost-of-living crisis.


European gas prices tumble. News that Germany and Europe have reached gas storage targets two months early pulled gas prices in Europe sharply lower,


China stocks are ready for US audit. After reaching a landmark deal with China, US regulators have picked companies, including Alibaba, to be first in line for audit checks.


DAX trades at a 6-week low. 40-year high German inflation, contracting manufacturing activity, and energy security worries hit demand for German stocks.


China's COVID lockdowns ramp up. Megacity Chengdu will lockdown 21 million residents, with supply chains again at risk of disruption.


Oil prices fall 5%. WTI crude drops below $90 per barrel as recession fears hit the demand outlook. Rumours that the US-Iran nuclear deal could be revived soon also pull oil lower.


USD/JPY rises to a 24-year high. Central bank divergence saw the pair jump to 139.68 on Thursday, a level last visited 24 years ago.


Goldman Sachs warns UK inflation could hit 22%. The investment bank said the energy crisis could result in consumer prices surging by 22%. The bank also forecasts a UK recession in Q4 of this year.



Chart of the Week



Source: Bloomberg


After hawkish ECB rhetoric at the Jackson Hole Symposium and inflation reached a new record high, the ECB is expected to pull another super-sized rate hike out of the bag next week.


Market expectations for the ECB end-of-year rate rose to a new high this week.


Markets had been expecting a 50 basis point hike. However, ECB's Kazaks said, "We should be open to discussing both 50 and 75 basis points as possible moves."


The more hawkish expectations are being reflected in the market. EUR/USD is set to gain 0.5% this week despite DXY rising 0.2%. EUR/GBP is pointing to a 2% jump across the week.



5 Things to Watch This Week

1. ECB rate decision

This week is all about central banks. The ECB raised interest rates in July for the first time in 11 years by a larger than expected 50 basis points. Since then, Eurozone inflation has climbed to a new all-time high of 9.1%. The ECB is expected to make another hefty rate hike at a time when economic growth is slowing considerably. The big question is whether the hike will be 50 or 75 basis points. EUR/USD trades at parity.


2. BoE monetary policy hearing

The BoE Governor, Andrew Bailey, and several MPC members will testify before the Parliament's Treasury Committee. This comes after the BoE hiked interest rates by 50 basis points, its largest rate hike in 27 years, in August, and as inflation reached double digits. The central bank expects inflation to keep rising and to peak at 13% in the coming months. Andrew Bailey's comments will be scrutinised for clues on the future path of interest rates. GBP/USD currently trades at $1.1550 after falling to a 2.5-year low.


3. RBA & BoC rate decision

The RBA is expected to announce a fourth straight 50 basis point rate hike as inflation in Australia shows no signs of cooling yet. CPI is at 6.1%, a record in the second quarter, and more hikes will be needed to tame runaway prices. Meanwhile, the BoC is also expected to agree on another big rate hike of 0.75% even as growth slows and inflation cools.


4. OPEC+ meeting

OPEC+ will meet to decide on oil production levels. The meeting comes after an OPEC report suggests that the oil surplus will be less than forecast in 2022 due to the underproduction of its members. Saudi Arabia warned that they could cut oil output to stabilise prices. Oil prices have fallen over 10% in July and August.


5. UK Tory Leadership

After seven long weeks of campaigning, the Tory leadership battle ends next week, and the new Prime Minister will be announced on September 5th. Liz Truss remains the bookie's favourite. She promises tax cuts and no new taxes, in contrast to Rishi Sunak, who considers that tax cuts would fuel inflation, but he has struggled to convince fellow MPs.


Economic Calendar Highlights



Source: Economic Calendar – FXStreet



Technical Analysis:

TA of the major asset classes (Forex – Commodities – Indices...).


EUR/USD (H4 Candlestick Chart)




EUR/USD trades inside a horizontal channel where the market is just above the strong support (0.994). If the price on the daily time frame manages to close below this support, then the price might continue its move all the way down toward the 0.964 mark. Failing to move beyond the 0.994 mark could prompt a reversal and a move higher toward the 1.009 mark.


GBP/USD (H4 Candlestick Chart)




The British Pound is in a clear downward movement where the price might retrace to the area of confluence made of the bearish trend line, the 50% Fibonacci retracement level and the resistance line (1.176). More sellers could rejoin the downtrend around this area and push the price toward the 1.143 mark. A move beyond 1.176 to the upside would negate our bearish bias.


USD/JPY (H4 Candlestick Chart)




USD/JPY successfully broke above the consolidation phase and posted a big bullish-bodied bar above the resistance level (139). A slight correction to the new support (previously resistance) around 139 could be seen before a new bullish impulsive wave toward the 141 mark. A close below 139 could cause a move back towards 137.4.


AUD/USD (H4 Candlestick Chart)




The Aussie broke below solid support (0.687) after a break out of the bearish flag pattern. The market might continue its move to the downside toward the 0.673 mark. But before that, a corrective move higher could be seen to 0.687. However, if the market moves back above 0.687, it could prompt a reversal and a move higher toward 0.695.


USD/CAD (H4 Candlestick Chart)




Loonie is in a clear upward movement where higher highs and lows have been posted. The market is about to test the 1.322 mark to complete the ABCD pattern. If the market succeeds in breaking and closing above the 1.322 mark on the daily time frame, this could lead to a further move to the upside toward 1.339. Failing to close above the 1.322 mark could lead to a bearish reversal toward the 1.308 level.


Gold (H4 Candlestick Chart)




Gold is moving to the downside by posting lower lows and highs. Recently the price broke below the 1,773 mark. Further movement to the downside is expected, but a slightly higher correction could take the price back to the bearish trend line before that move. A close above 1,733 could cause a move higher toward 1,765.


Brent Oil (H4 Candlestick Chart)

After posting a double top, Brent Oil broke the bullish trend line to the downside. The market is now in a downtrend and is about to test the 92 mark. Breaking the 92 mark could lead to a move lower again toward the 89 mark. However, if the price fails to break the 92 mark, this could lead to a bullish reversal and a move higher toward 98.


US500 (H4 Candlestick Chart)




Sellers have hammered the US500 with lower highs and lows printed along with big-bodied bearish bars. The price is about to test 3,912. There is a good chance that the 3,912 mark will be broken, and this could lead to a further movement to the downside toward the 3,805 mark. Failing to close below 3,912 could lead to a move higher toward the 4,010 mark.


Thank you very much for reading - and have a great week trading!


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