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The ECB is hesitant to hike as the economy continues to weaken

Forex Signals Brief September 14: Dovish Hike or Hawkish Hold by the ECB?

Posted Thursday, September 14, 2023 by
Skerdian Meta • 4 min read

The ECB is hesitant to hike as the economy continues to weaken

Yesterday’s Market Wrap

Yesterday the markets were holding steady as they awaited the release of the US CPI inflation report, which was released in the afternoon. The dollar maintained modest gains versus the major currency bloc after some slight advances in the Asian session, while being more stable overall. Traders were waiting for the inflation data before solidifying any convictions, although at the end of the day, the trading ranges in most assets still left much to be desired.

The odds of a September Fed rate hike, were valued at about 7% and could not be significantly changed by one data report. But this would have an impact on November and December meetings. The headline CPI number jumped to 3.7% from 3.2% previously, beating expectations fo 3.6%, although it was helped by a 10.6% MoM increase in petrol costs, while the core was helped by a 4.9% increase in airline ticket prices, making the results somewhat hotter than anticipated. Used car sales declined 1.2%, which was a drag.

However, the core CPI YoY cooled off to 4.3% from 4.7% previously. The market typically favors the core number as a stronger indicator of the underlying trend, although the response might not be immediate. The market reaction was mixed, so nothing changed after all.

Today’s Market Expectations

Today starts with the employment report from Australia, which surprised markets last week with a decent GDP reading, although that was from Q2. The employment change was expected to show an increase in August after the decline in July.

Although the ECB is predicted to maintain the deposit rate at 3.75%, the likelihood of a rate increase is really closer to 60%, making the decision more of a coin toss. Recently, we have seen continuous negative economic figures from the Eurozone, and the decline has been rapid. Although the signs for the labor market and inflation are still positive, the central bank may be concerned that it will take too long to get to the 2% objective. In fact, the longer high inflation persists in the economy, the greater the likelihood that expectations for inflation will unmoor and the more difficult it will be to lower inflation in the future.

Later we will have the US Jobless Claims remains a key weekly labour market indicator and it’s been showing continued strength with the data last week beating expectations by a big margin. This week the consensus sees Initial Claims at 226K vs. 216K prior, while Continuing Claims are seen at 1,693K vs. 1,679K prior.

Forex Signals Update

Yesterday the volatility was lower than on Tuesday and the markets turned around a few times, so there was not really space to book much profit. We opened several trading signals, but only had one signal closed during the slight advance in the USD during the Asian session.

Booking Profit in GOLD

Gold had been moving in a downward direction; however, in the last two weeks, there had been a noticeable turnaround, and the price of Gold was able to surpass $1,950 per ounce. When the price of Gold approached the 100-day Simple Moving Average (SMA), which is shown as the green line on the daily chart, the positive momentum in the metal came to a stop. There were additional doji candlesticks that followed, which are often used to signal market turbulence and probable trend reversals.

After the doji candlesticks last week, Gold turned downward, and buyers tried to retest the upside. They were unable to raise the price beyond $1,930, and as a result, it turned back to the 200-day SMA, which is shown on the chart as the purple line. Our Gold trades have been profitable remaining short and we have another open sell Gold signal.

XAU/USD – Daily chart

Gold Sell Signal
Entry Price: $1,911.48
Stop Loss: $1,925.48
Take Profit: $1,903.48

Boking Profit in NZD/USD

The USD has become bullish on a less dovish FED, as they refuse to stop raising rates even if markets do not foresee any more rate increases. This has put pressure on commodity dollars since July. Although there was some purchasing pressure yesterday, which caused the price to rise over 0.59, the overall trend in NZD/USD is still rather negative. We choose to go short on this pair in spite of the 100 SMA’s continued resistance and that trade closed yesterday.Nw buyers are testing that same moving average again.

NZD/USD – 240 minute chart

Cryptocurrency Update

BITCOIN Bounces Off Support at $25,000

On Monday, the cryptocurrency market had a sharp downturn, falling just below the $25,000 support zone where we had our Stop Loss (SL) target set for the buy BTC signal. The market for bitcoin is expected to have a big support and resistance level around $25,000. We were keeping an eye on it to see if it would hold since it is a significant psychological threshold or whether the decline would continue and result in further losses. BTC, however, quickly reversed course today, rising over $1,000 to reach $26,280. This surge in value seems to have been triggered by comments made by BOE (Bank of England) member Breeden. It would be preferable, he claimed, for cryptocurrencies to be governed by the financial services sector.

BTC/USD – Daily chart

We decided to open another buy Bitcoin signal yesterday after the pullback, going in long just above the 100 MS Aon the H4 chart above.

ETHEREUM Returns Above $1,600

The price of Ethereum jumped higher last month indicating that there was a level of buying interest and demand for Ethereum at the sone around $1,600. Buyers have stepped in on several occasions at the area above this level but the 20 SMA (gray) has been acting as resistance on the daily chart. It has been pushing the highs lower which was a strong bearish signal, and yesterday sellers finally pushed ETH/USD below the support zone.