USD Retreats As Market Sentiment Improves

Sep 24 21, 08:37 GMT

The USD tended to weaken against its major counterparts yesterday as the market sentiment improved erasing the gains made from the Fed’s interest rate decision and at some point, the USD index reached a one week low. On the other hand, US stockmarkets rallied as more risk on sentiment pushed the bulls forward given that concerns of a contagion from a potential default of China’s Evergrande developing group eased considerably. Also, gold prices edged higher, during today’s Asian session recovering some ground, possibly encouraged by the weakening USD after a wide drop marked yesterday. No major financial releases are expected today from the US; hence fundamentals could be in the epicenter, yet we have a high number of Fed officials scheduled to speak among them Fed Chairman Powell, who could draw the market’s attention to monetary policy issues once again.

The USD index dropped yesterday breaching the 93.20 (R1) support line now turned to resistance. In its downward motion the index also broke the upward trendline guiding it since the 16th of September hence we temporarily switch our bullish outlook in favor of a sideways bias. It should also be noted that the RSI indicator below our 4-hour chart is at the reading of 50, implying a rather indecisive market as to what direction to follow. Should a buying interest be displayed for the USD we may see it breaking the 93.20 (R1) resistance line and aim for the 93.70 (R2) level, practically causing the prior upward trendline to shift. Should the selling of the USD be renewed, we may see the index breaking the 92.85 (S1) support line and aim for the 92.40 (S2) support level.

BoE’s interest rate decision pushed the pound higher

The pound strengthened against the USD, EUR and JPY after the release of BoE’s interest rate decision yesterday. The bank maintained its interest rate at 0.10% and its asset purchases program remained also unchanged at £895 billion in total. For the bank inflationary pressures are still considered as transitory, there are worries for the employment market after the furlough scheme closes at the end of September, while industrial production is adversely affected by supply chain issues. Yet the dissidents regarding the banks’ QE program seem to have increased to two as the Committee voted by a majority of 7-2 for a continuance of the government bond purchases. The last part may have been the one providing support for the pound as it is the hawkish signal of the accompanying letter, while also there seem to be some preparations for a potential rate hike possibly in 2022. On the other hand, UK fundamentals seem to still be worrisome, given the energy crunch and the supply chain issues and could weigh on the pound. We may see pound traders today keeping an eye out for CBI distributive trades for September while on the monetary front, BoE’s Silvana Tenreyro is scheduled to speak.

GBP/USD rose yesterday reaching the 1.3750 (R1) resistance line. We tend to switch our bearish outlook in favor of a sideways movement bias for now, as the pair in its upward movement broke the downward trendline guiding since the 14th of September. Some slight bullish tendencies could be present for the pair as the RSI indicator below our 4-hour chart is above the reading of 50, yet the indicator’s downward slope seems to imply that they tend to fade away. Should the bulls actually get control over cable’s price action, we may see it breaking the 1.3750 (R1) line and aim for the 1.3875 (R2) level. Should the bears be in charge we may see the pair aiming if not breaching the 1.3600 (S1) support line.

Other economic highlights today and the following Asian session:

Today we note the release of Germany’s Ifo indicator’s for September, while we also get a high number of speakers from various central banks which could gain on attention.

USD Index H4 Chart