Dollar Index Overview (as of September 18, 2023):
As of September 18, 2023, the US Dollar Index (USDX) stands at 104.877. This week, a series of crucial events are on the horizon that could potentially impact the USD. These events include central bank decisions from four major banks, including the Federal Reserve, which has the potential to affect currency markets significantly. Additionally, economic data such as New Zealand’s GDP, Canada’s and the UK’s CPI data, and PMI reports from various countries may influence market sentiment.
Despite robust economic data last week and the promising data expected this week, the US Dollar has been on a strong uptrend due to positive US economic indicators.
Key Events for the Week:
Eurozone CPI (Aug): Any significant deviation from the consensus CPI figure could lead to market volatility. Higher-than-expected CPI may raise expectations of European Central Bank (ECB) tightening, potentially strengthening the Euro (EUR).
UK Inflation Rate YoY (Aug): A YoY inflation rate above the consensus could lead to GBP appreciation. It may also influence the Bank of England’s (BoE) monetary policy decisions.
US Fed Interest Rate Decision: Any change in interest rates by the Federal Reserve can significantly impact the USD. Statements about future rate changes from the Federal Reserve can also influence USD strength.
UK BoE Interest Rate Decision: Any change in the BoE’s interest rates can significantly impact the GBP. Forward guidance from the BoE regarding future monetary policy can influence market sentiment.
US Initial Jobless Claims (Sep/16): Significant differences from the consensus number can affect USD strength and labor market sentiment.
Japan Inflation Rate YoY (Aug): Deviations from the consensus can affect market sentiment and the Japanese Yen (JPY). It may also impact the Bank of Japan’s (BoJ) policy stance.
Japan BoJ Interest Rate Decision: Changes in the BoJ’s interest rate or forward guidance can substantially impact the JPY and market sentiment.
The US Federal Reserve’s interest rate decision is especially critical for EUR/USD traders. Any deviation from the expected rate can significantly impact USD strength. An unexpected rate hike by the Fed could strengthen the USD, potentially causing EUR/USD depreciation.
EUR/USD Outlook:
The Eurozone’s Consumer Price Index (CPI) for August is a crucial factor. Deviations from the consensus figure could have repercussions. A higher-than-expected CPI might prompt expectations of tighter monetary policy by the ECB, leading to EUR appreciation. Conversely, a CPI figure below consensus may weaken the EUR relative to the USD.
The US Federal Reserve’s interest rate decision is also paramount. Any deviation from expectations can significantly impact USD strength. An unexpected rate hike by the Fed could strengthen the USD, potentially causing EUR/USD depreciation. Conversely, a rate cut or dovish statements from the Fed may weaken the USD, potentially leading to EUR/USD appreciation.
EUR/USD Technical Summary:
Scenario 1 (Bullish): If prices continue to rise, they may reach levels between 1.06889 and 1.06964, with potential further gains.
Scenario 2 (Bearish): Alternatively, if prices turn around, they could drop to the 1.06505 level and potentially lower levels, with 1.05449 as a major support level.
GBP/USD Outlook:
The UK’s Inflation Rate YoY for August is critical. Deviation from the consensus figure could impact the currency pair. A higher-than-expected YoY inflation rate may lead to GBP appreciation. Conversely, a figure below consensus may result in GBP depreciation against the USD.
The Federal Reserve’s Interest Rate Decision in the US holds sway over GBP/USD. Any deviation from expectations can lead to market volatility. An unexpected rate hike by the Fed could strengthen the USD, potentially causing GBP/USD depreciation. Conversely, a rate cut or dovish statements from the Fed may weaken the USD, supporting GBP/USD.
Moreover, the UK’s Retail Sales MoM data for August will be closely watched, with deviations from consensus figures potentially influencing market perceptions.
GBP/USD Technical Summary:
Scenario 1 (Bullish): If the price retests 1.2429 successfully, it could move upwards to resistance levels.
Scenario 2 (Bearish): Alternatively, if prices decline, they might test support levels, with 1.2280 as a significant support.
USD/JPY Outlook:
Several economic events and central bank decisions may impact USD/JPY. Japan’s Inflation Rate YoY and the Bank of Japan’s Interest Rate Decision are crucial. Deviations from expectations in these events can impact market sentiment and the JPY.
The S&P Global Manufacturing PMI for September in the US can also affect USD/JPY. A figure below 50 may weaken market sentiment and favor safe-haven assets like the JPY.
USD/JPY Technical Summary:
Scenario 1 (Bearish): Possible downward movement in price with key support levels.
Scenario 2 (Bullish): Suggests a bullish scenario with higher price movement and potential resistance levels.
XAU/USD Outlook:
Gold prices may be influenced by the Eurozone’s CPI, Japan’s Balance of Trade data, and the US Federal Reserve’s Interest Rate Decision. These events can impact demand for Gold as a hedge against inflation and market sentiment.
XAU/USD Technical Summary:
Scenario 1 (Bullish): Price could rise with potential resistance levels to watch.
Scenario 2 (Bearish): Alternatively, gold’s price could drop with potential support levels.
Volatility Considerations:
Eurozone Inflation Surges: If the Eurozone’s CPI exceeds expectations, the Euro (EUR) could strengthen due to potential ECB actions against inflation.
Japanese Trade Shock: A significant trade deficit in Japan may weaken the Japanese Yen (JPY) and raise concerns about Japan’s economy.
UK Rate Hike: A more aggressive interest rate hike by the Bank of England (BoE) could lead to a sharp rally in the British Pound (GBP).
US Economic News: Negative economic news from the US, such as high jobless claims and declining home sales, may weaken the US Dollar (USD) and affect market sentiment.