- Markets are strongly expecting, and have fully priced in, that the European Central Bank will announce at its policy meeting today that it has raised its deposit rate from 2.25% to 2.50%. Eurozone inflation accelerated to 3.3% in August from 2.9% in July, while the renewed energy shock is likely to keep policymakers concerned about upside inflation risks. Markets will be focusing mostly on the statement and press conference with President Lagarde, to determine whether a further hike in December will be likely to happen. Ahead of the meeting, the EUR/USD currency pair is holding up near its recent highs.
- Brent Crude oil has broken above $100, while WTI broke $95. The move higher has been driven by escalating US-Iran tensions and continuing concerns that shipping and supply flows through the Strait of Hormuz could be disrupted. Rising energy prices are now a key reason why the ECB, Fed, and other central banks may need to keep policy tighter for longer. However, crude oil prices have been descending in recent hours after making a clear short-term high price.
- The Japanese Yen remains strong near a seven-month high. USD/JPY is trading near 153.35, as markets continue to expect the Bank of Japan to raise rates to 1.25% next week. The Yen’s rally has paused, but it remains the strongest major currency over the recent period and reflects a significant repricing of Japanese monetary-policy expectations.
- Agricultural commodities remain in bullish long-term trends. Soybeans and Sugar remain technically attractive following their recent multi-month breakouts, while Corn is also holding near its highs. Wheat has experienced a sharp correction, showing why traders should use carefully sized positions and trailing stops even when the broader trend is bullish. Buying commodities when they break out to multi-month highs and trailing the stop has historically been a very profitable trading strategy.
- The US Dollar remains soft despite higher yields. The Dollar Index is near 98.7, as the Dollar has found little support even while US Treasury yields continue to rise. The 10-year Treasury yield reached approximately 4.84%, a level which reflects mounting inflation concerns and an expected increase in government bond supply.
- US PPI data are due today. Today’s US producer-price inflation data will provide an early indication of whether the oil-price shock is beginning to filter through into broader US price pressure. A higher-than-expected reading could lift Treasury yields and revive Dollar buying ahead of tomorrow’s CPI report.
- US CPI data are scheduled for tomorrow. This is likely to be the week’s most important US release and the final major data point before the Federal Reserve’s 15–16 September meeting. Higher-than-expected CPI would likely increase the probability of a 0.25% Fed rate hike, supporting the Dollar and weighing on Gold; a softer reading would likely produce the opposite result. According to the CME FedWatch tool, markets currently see a 60% probability of a Fed hike next week.
- Gold is consolidating above $4,300 which looks like an obvious pivotal point. Gold remains caught between opposing forces: a weak Dollar and geopolitical risk are supportive but rising yields and the increasing prospect of more central-bank tightening are bearish. Tomorrow’s US CPI data may determine whether Gold can regain the $4,450 area or breaks below $4,300
Forex Today: Markets Expect ECB Hike; Brent Crude Breaks $100
Chief Analyst and Director of ContentAdam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked with...
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Chief Analyst and Director of ContentAdam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.
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