The EUR/USD pair is trading under the influence of the US dollar dynamics this week amid the absence of significant fundamental volatility catalysts from the eurozone.
Possible technical scenarios:
The EUR/USD pair is trading in the middle of the range between 1.1001 and 1.1064, maintaining a margin of movement to any of its boundaries. Amid increased volatility due to news from the US, the price may exit this sideways range up or down.
Fundamental drivers of volatility:
The US dollar weakened on Wednesday, supporting the EUR/USD pair, as investors increased expectations of a victory by Kamala Harris over Donald Trump in the upcoming presidential election. In the event of a Trump victory, the dollar is expected to strengthen due to the possible introduction of new tariffs and an increase in budget spending.
Market players are also waiting for the US inflation report, which may clarify further actions of the Fed to cut rates next week. On Wednesday at 12:30 p.m. GMT, the CPI data for August is expected to be released, and on Thursday, the PPI report will be released. The Core CPI is expected to remain at 0.2% month-over-month, while the annual index will decline from 2.9% to 2.6%. According to CME, the probability of a 25 basis point rate cut is 63%, and 37% for a 50 basis point rate cut.
Intraday technical picture:
As we can see on the 4H chart of EUR/USD, a downward trend has emerged, in which the price is recovering. The upward correction may end near 1.1110, from where, if the trend is confirmed, the price will reverse downwards. The target for a decline after the reversal will be the level of 1.1001.
The GBP/USD pair has regained some ground by midweek, influenced by recent macroeconomic data from the UK.
Potential technical scenarios:
On the daily GBP/USD chart, the pair has found support at the local level of 1.3044, marked with dotted lines. From this level, a recovery towards 1.3141 is possible. That being said, if the pair breaks out 1.3044 and consolidates below that level, it could drop to the next targets of 1.2989 and 1.2846.
Fundamental drivers of volatility:
On Wednesday, the pound strengthened against the dollar, despite data revealing stagnation in the UK economy in July, driven by a decline in industrial production. According to the Office for National Statistics, the economy showed no growth in July, contradicting forecasts for a 0.2% GDP increase.
Investors anticipate that the Bank of England will keep interest rates unchanged next week, though a potential rate cut in November is not ruled out. Meanwhile, market players are focused on expectations regarding the US Federal Reserve's rate decision, which hinges on key US inflation data set to be released this week.
Additionally, traders are closely monitoring the upcoming budget from the new UK Labour government, which will be presented next month.
Intraday technical analysis:
Judging by the unfolding situation on the 4H chart of GBP/USD, the price is seen retreating upwards from the support at 1.3044 marked with dotted lines, creating technical conditions for a potential recovery towards 1.3141.
The Japanese yen is gaining strength due to rising expectations of tighter monetary policy in Japan.
Possible technical scenarios:
According to the daily chart, USD/JPY has reached support at 140.69. If this level is broken out, the decline may continue towards the next target at 137.33. However, if the pair recovers, the target for growth would be 143.39.
Fundamental drivers of volatility:
Today’s strengthening of the yen comes amid heightened expectations of monetary tightening in Japan. The Japanese currency was bolstered by statements from the Governor of Bank of Japan Junko Nakagawa, who confirmed that the central bank will continue to raise interest rates if economic growth and inflation align with forecasts.
Nakagawa also highlighted that slowing economic growth in the US and China poses a risk to Japan, but increased consumer spending could accelerate inflation. These remarks were seen by markets as a strong signal of the Bank of Japan’s intent to continue tightening monetary policy this year.
Intraday technical picture:
Judging by the unfolding situation on the 4H chart of USD/JPY, the pair has rebounded upwards from the support at 140.69, which technically sets the stage for a potential recovery to the resistance at 143.39, provided that fundamental factors do not alter the technical outlook.
The USD/CAD pair saw growth earlier this week but experienced a pullback on Wednesday.
Possible technical scenarios:
The USD/CAD pair on the daily chart was unable to overcome the resistance level at 1.3605. A downward reversal from this level could lead the pair towards the support at 1.3544, and if this support is broken out, the next target would be 1.3439.
Fundamental drivers of volatility:
The Canadian dollar weakened against the US dollar due to declining oil prices and comments from the Bank of Canada about potential challenges in reaching the 2% inflation target amid global trade disruptions. Governor of the Bank of Canada Tiff Macklem pointed out that the slowdown in globalization could push inflation higher, as the cost of global goods may not decrease proportionally. However, Macklem also left open the possibility for deeper interest rate cuts if economic growth falls short of expectations. Last week, the Bank of Canada reduced rates to 4.25%, marking the third cut since June.
Intraday technical picture:
The 4H chart of USD/CAD shows no additional technical targets. The immediate downside target for the pair is the support level at 1.3544.
Oil prices are facing downward pressure this week due to ongoing concerns about sluggish global energy demand.
Possible technical scenarios:
On the daily chart of Brent, the price has dropped below the 70.85 level. If it consolidates below this level, a further decline towards the support at 64.59 could be triggered.
Fundamental drivers of volatility:
Oil prices rose by over 1% on Wednesday, partially recovering losses from the previous day. The market was supported by a decrease in US crude inventories by 2.793 million barrels, as well as concerns that Hurricane Francine could disrupt oil production in the United States. However, worries about weak global oil demand persist, especially after OPEC once again revised its demand growth forecast for 2024 downwards. Brent crude oil fell below $70 a barrel on Tuesday, marking its lowest level since December 2021.
According to the American Petroleum Institute, U.S. crude inventories decreased by 2.793 million barrels last week. Gasoline inventories also declined by 513,000 barrels, while distillate inventories increased by 191,000 barrels, according to market sources.
Intraday technical picture:
As evidenced by the 4H chart of Brent, the price is approaching the 70.85 level from below. From here, a downside reversal is possible, leading to a continuation of the decline towards the support at 64.59.
Alternatively, a breakout of the resistance at 70.85 and subsequent consolidation above it could allow the price to continue its rise toward the target of 75.18.
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