Forex Signals Brief August 24: Services Falling in Recession Too

Posted Thursday, August 24, 2023 by
Skerdian Meta • 4 min read

Yesterday’s Market Wrap

Yesterday the day started with a negative reading, as Q2 Retail Sales came at -1.0% against -0.4% expected, while core retail sales ex-autos for the same period came at -1.8% against -0.4% expected. Although NZD/USD ended the day higher after some soft economic numbers from the US as well.

However, market participants were closely focused on the manufacturing and especially the services PMI reports that were released in Europe and the US today. Unfortunately, most European countries saw unexpected negative surprises in these reports, as manufacturing remained in deep recession, but now services joined in as the activity contracted in August. This led to further losses in both the Euro and the Pound.

Additionally, Treasury yields also saw a decline for most of the day, with the 10 years reaching a low of 4.210%. The disappointing readings were mainly attributed to the services sector, indicating that European economies are facing notable challenges during the summer period. As a result of these events, traders have lowered their expectations regarding the likelihood of a rate hike by the European Central Bank (ECB) in September, with the probability now being around 50%. Furthermore, the initially optimistic predictions about the highest point of interest rates by the Bank of England (BOE) have been revised downward, indicating that the anticipated timing for such a move is now farther into the future.

Later in the day, the attention shifted to the economic releases from the US, which showed a similar picture, with manufacturing falling deeper into contraction, while the activity in the service sector also slowed. Although activity in both sectors is higher in the US than in Europe while services are still expanding. Nonetheless, the USD lost around 50 pips across the board after the softer readings.

Today’s Market Expectations

Today the attention will shift to the US employment and consumer spending reports which will come ahead of the Jackson Hole Sypmosium opening up. By the way, the BRICS Summit is still on. The unemployment claims are expected to remain steady at 239K which shows that the employment sector remains in decent shape in the US.

Retail sales will be released at the same time, with the headline number expected to show a 4.1% decline, but they come from a strong reading of 4.6% in June and several positive months, while core sales are expected to show an increase, so the surprise is likely going to be to the upside for the USD, in case headline sales don’t look as bad. Then we have the Jackson Hole Symposium and markets are expecting sort of hawkish remarks from Jerome Powell, but yesterday’s economic numbers were bad, so the surprise here might be to the downside.

Forex Signals Update

Yesterday, there was an increase in market volatility due to the softer services figures, leading us to initiate a total of six forex signals. We started the day with a winning trading signal but we got caught on the wrong side during the decline in the Euro and the GBP after services fell in contraction. Although the USD reversed lower itself after the softer readings later in the afternoon.

For more detailed updates, please refer to the section below.

GOLD Buyers Pushing Above MAs

In the XAU/USD (Gold to U.S. Dollar) trading pair, the 20-day Simple Moving Average (SMA), shown in gray on the chart, has been acting as a resistance level at the upper end. Although the downward momentum in the price of Gold has eased somewhat, this happened after the price stabilized below the critical support level of $1,900.00.

However in the last two days, we have seen a reversal and buyers have pushed the price above most moving averages, sending the price toward $1,920 yesterday. But despite this retrace, the possibility of further price decline remains significant as the main trend is still bearish.

XAU/USD – 240 minute chart

Selling the Bounce in EUR/GBP

The service sector in both the Eurozone and the UK experienced a contraction, indicating a decline in activity. These events prompted traders to lower their expectations of a rate hike by the European Central Bank (ECB) in September to around 50%. Additionally, their previously optimistic forecasts regarding the highest point of interest rates by the Bank of England (BOE) have been adjusted downward, leading to a delay in the anticipated timing.

As for the EUR/USD exchange rate, it initially stayed close to the 1.0860 mark but eventually fell to 1.08. However, the drop in the GBP (British Pound) was more pronounced, resulting in an increase in the EUR/GBP exchange rate. Although the 200 SMA (purple) held as resistance, rejecting the price and we decided to open a sell EUR/GBP signal since the main trend is bearish.

EUR/GBP – 60 minute chart

EUR/GBP Sell Signal
Entry Price: 0.8557
Stop Loss: 0.8597
Take Profit: 0.8527

Cryptocurrency Update

BITCOIN Looking Bearish As MAs Turn Into Resistance

Bitcoin has been facing selling pressure ever since it achieved its new yearly highs and eventually reversed below $30,000. The descent gained momentum last week as the cryptocurrency market experienced another drop, fueled by speculations that SpaceX had sold off all their Bitcoin holdings. The BTC/USD pair breached the 100-day Simple Moving Average (SMA) last week, and on Thursday, a significant crash occurred, briefly pushing BTC/USD below the $25,000 mark. While the decline temporarily halted at that point and there was a minor retracement upwards, the price is hanging around $26,000, where it has remained trading for the past few days.

BTC/USD – H1 chart

We’re looking to open another buy Bitcoin signal on Monday, playing the range again, buying BTC/USD around $26,000

ETHEREUM Breaks the 200 Daily SMA

Ethereum also crashed lower last week, following the SpaceX rumours and the Evergrande bankruptcy. It failed to hold the gains after climbing above $2,000. Despite the prevailing bearish trend that has persisted since the beginning of 2023, characterized by a series of progressively lower lows, Ethereum has exhibited a greater degree of resilience compared to Bitcoin. Although ETH wasn’t spared during this crypto crash and ETH/USD fell below $1,600, but the 200 SMA (purple) held as support on the weekly chart. So, we are thinking about going long on Ethereum again.