Wednesday’s market volatility intensified late in the day, but key currency pairs ended near their starting positions. Fear of major events helps Greenback find buyers. Short-term US T-bond rates continue to rise, whereas the 10-year benchmark falls, leveling the yield curve and strengthening the Dollar.
The ECB’s policy choices will be announced at 1145 GMT, and Director Christine Lagarde will hold a press briefing at 1230 GMT. Q3 yearly GDP growth estimates will be released by the US Department of Economic Analysis. The US economic calendar includes September’s Prospective Home Sales and weekly Preliminary Unemployment Rate Claims. The Bank of Canada (BoC) surprised markets by ending its monetary stimulus scheme on Wednesday.
Moreover, the BoC hinted at a faster rate hike than predicted. Because of the BoC’s hawkish tilt, the yield on the one-year bond increased by over 20 basis points. Also, this scenario suggests monetary authorities may withdraw support earlier than projected to moderate inflationary pressures. The Bank of Japan kept its policy parameters intact but cut its expansion prediction for 2021/22 to 3.4 percent from 3.8 percent.
Consumer inflation in Japan is projected to steadily accelerate, the BoJ said. The USD/JPY has mostly ignored the BoJ’s inactivity and is trading near 114.00. The US reported on Wednesday that Durable Goods Sales fell 0.4% in September, versus the market projection of a 1.1% decrease. It rose from $89.4 billion to $96.3 billion. The US Dollar Index (DXY) closed unchanged for the second day. The EUR/USD is hovering around 1.1600 as speculators avoid big holdings ahead of the ECB session.
Review Of The Technical And Fundamental Aspects
EUR/USD CHART Source: Tradingview.com
With key rates fixed, the ECB will announce changes to its Pandemic Emergency Purchase Program (PEPP). While lowering PEPP may appear hawkish, ECB members have been downplaying inflation risks and opposing a market-priced 10-basis-point rate hike in the second half of 2022. Also, key European regions have recently cut down their growth estimates for 2021, compelling the ECB to keep supporting the recovery.
A positive prognosis for the economy and a focus on price stability is likely to put the euro on the rear leg against its peers. Because of macroeconomic policy differences, the Dollar and the Loonie are likely to surpass the Euro. At 1230 GMT, the US Department of Economic Statistics will announce its first forecast of third-quarter GDP growth. A greater GDP print will certainly strengthen the USD. A weak reading could cause investors to rethink the Fed’s tapering schedule, halting Dollar gains.
The four-hour chart’s RSI signal hovers around 50, indicating the pair is struggling to get traction in either direction. On the upswing, 1.1620 (Fibonacci 23.6% retrace of the September decline, 50-period SMA) is the initial technical support level until 1.1650 (20-period SMA) and 1.1670 (Fibonacci 38.2% retracement). The first level of support is at 1.1600 (psychological barrier, 100-period SMA), followed by 1.1570 (stationary level) and 1.1525. (2021 low).