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17 September 2020

Fed drives dollar higher, gold and stocks lower, BOE, jobless claims eyed

The Federal Reserve’s reluctance to signal more stimulus despite cautious forecasts is weighing on stock markets and boosting the safe-haven dollar. Weekly jobless claims and the Bank of England’s decision stand out on Thursday.

Fed: Jerome Powell, Chairman of the Federal Reserve, stressed that the outlook is uncertain yet said that the current level of bond-buying is appropriate. The Fed did not surprise markets by hinting that interest rates will likely remain at zero through 2023.

Powell also indicated that additional fiscal stimulus will likely be needed, seemingly passing the ball to lawmakers’ court. According to reports, Democrats and Republicans are getting closer to a deal on an injection of around $1.5 trillion.

The new impetus comes after retail sales disappointed with a meager increase of 0.6% in August. The Control Group dropped by 0.1% and all the recent figures came on top of downward revisions. The shortfall seems related to the lapse of government programs at the end of July

The focus shifts to the Bank of England, which is widely expected leave its policy unchanged. Investors will watch the BOE’s guidance amid a stop-start economy. Local lockdowns are enacted in various places in Britain and new restrictions may be added

AUD/USD is trading below 0.73 amid the risk-off mood. However, Australia reported an increase of 111,000 jobs in August, far above expectations and boosting the Aussie.

NZD/USD is trading around 0.67, down on the greenback’s strength and as second-quarter Gross Domestic Product dropped by 12.2%, within broad expectations.

OPEC+ members are set to leave oil production goals unchanged. WTI is trading closer to $40. While the damp market mood is weighing on petrol prices, Hurricane Sally and other brewing storms are limiting output and boosting oil prices.

EUR/USD nears critical support at 1.1750

“Euro/dollar is suffering from downside momentum on the 4-hour chart and has dropped below the 50, 100, and 200 Simple Moving Averages. The Relative Strength Index is nearing 30 – thus about to enter oversold conditions implying a bounce.”

“The critical battle line is 1.1750, which provided support twice in recent weeks. EUR/USD breached that level and hit 1.1737, yet the breakout is yet to be confirmed. Further down, 1.17 is another double-bottom to watch, and it is followed by 1.1625.”

“Some resistance is at 1.1785, a support line from this week and also from earlier in September. It is followed by 1.1830, which provided before the recent fall. Further above, 1.1875 and 1.1920 await the pair.”

Bank of England Preview: Fast recovery or trio of troubles? Bank’s tone to set pound’s direction

Glass half-full or half-empty? That is the dilemma for the Bank of England as it convenes for its September decision. Officials have been hinting that a change in policy is unlikely after slashing rates to 0.1% and raising the Quantitative Easing program to a total of £745 billion earlier this year.

Nevertheless, the BOE is set to rock the pound via its updated views on the economy. The accompanying meeting minutes will probably reveal a contrast between the relatively upbeat recovery and growing uncertainty – our outright fear about the next few months.

Promising recovery

The UK economy suffered badly from coronavirus and the ensuing lockdowns. However, it has rebounded better than many had expected. Andy Haldane, Chief Economist at the BOE, said “so far, so V” at some point – referring to a V-shaped graph of economic performance.

While most economists probably do not share the view of such a sharp comeback, the bounce has been impressive. Examining four-top-tier figures released in mid-August, they all exceeded economic expectations. Unemployment remains low, Gross Domestic Product tanked in the second quarter but rebounded, and even inflation is off the lows.

These economic figures are enough for the BOE to hold its horses at this junction. However, it may hint new action down the road if conditions deteriorate, and there are three reasons for them to fall.

Trio of troubles

1) Brexit uncertainty:

2) Coronavirus cases rising

3) The fate of the furlough scheme


The BOE is set to leave its policy unchanged in September but its views on recent developments – and the outlook moving forward are likely to rock the pound. The encouraging recovery so far is countered by uncertainty related to Brexit, the virus, and the furlough scheme.

GBP/USD Analysis: Recovery move falters near bearish flag resistance, focus shifts to BoE

Short-term Technical Outlook

From a technical perspective, the pair stalled its recovery move near a resistance marked by the top end of a short-term ascending channel. Given the recent sharp fall, the mentioned channel constitutes the formation of a bearish flag pattern on short-term charts. The pair was last seen hovering near the trend-channel support, around the 1.2925-20 region, which if broken decisively will be seen as a fresh trigger for bearish traders. The pair might then break below the 1.2900 mark and accelerate the downward trajectory further towards the 1.2840-35 horizontal support.

On the flip side, any meaningful positive move might continue to confront a stiff resistance near the 1.3000 mark. A sustained move beyond, leading to some follow-through buying above the 1.3035-40 region will negate the bearish set-up and set the stage for an extension of the recent positive move, towards reclaiming the 1.3100 round-figure mark. The momentum could further get extended towards the next major hurdle near the 1.3175-80

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