A recap of last week’s big news and price action with an analysis of what’s to come in the week ahead, including our chart of the week.
Weekly Recap
It was another solid week for the US Dollar with the dollar index breaking out to its highest levels since early 2002. The Dollar was propped up this week by further hawkish Federal Reserve commentary as well as some data bright spots. The strong momentum was on the back of hawkish comments from Fed Chair Jerome Powell at the Jackson Hole Symposium the prior week.
Both the Fed’s Williams and Mester voiced their support for further tightening, the latter saying she saw no likelihood of a rate cut next year. These comments further diluted the idea of a Fed pivot in the near term. Alongside these comments we saw upside surprises on both the CB Consumer Sentiment reading and the ISM manufacturing reading for August, helping lift USD sentiment into the headline NFP release on Friday.
With the Dollar on a fresh rampage, it was a savage week for the risk complex with equities and commodities prices plunging across the board. Hawkish central bank expectations took centre stage this week.
Record inflation in the Eurozone last month was seen amplifying ECB expectations ahead of the upcoming September meeting with traders now looking for a larger 75bps hike. With growth fears mounting as the combined elements of elevated inflation and central bank rates persist, recessionary fears have taken a toll on risk sentiment driving indices around the globe lower this week.
In FX, this latest wave of USD strength and the deterioration in risk sentiment fed into stronger demand for safe havens with the Swiss Franc benefiting from the current market mood. JPY, however, didn’t benefit, falling across the board this week as the divergence between the BOJ and other central banks continues to create a drag on sentiment for the Yen.
In the UK, political uncertainty ahead of the upcoming Conservative Party leadership change was seen leaning on GBP over the week. EUR was also weaker as growth fears linked to ECB rate-hike expectations weighed on sentiment.
Coming Up This Week
- RBA September meeting
The RBA kick off a week of central bank meetings on Tuesday. In line with the hawkish guidance given last time around, when the bank hiked rates by 50bps in August, the market is widely expecting the bank to press ahead with further tightening at this meeting. The RBA was firm in stating its intentions to focus on taming runaway inflation and, despite the downside risks that it acknowledged. The market is pricing in at least a further 50bps of hiking this week.
- BOC September meeting
Following the RBA on Tuesday, the BOC will take centre stage on Wednesday. As with the RBA, the BOC has been firmly hawkish in its outlook and again, while acknowledging the downside risks of doing so, signalled its intention to hike rates further this year. Following the 1% hike seen last time around, the BOC might have some room to ease off a little this month
Some market players are forecasting that the BOC will use this month’s meeting to end the current tightening cycle which, if so, would likely see CAD lower on the back of the meeting.
- ECB September meeting
The headline event of the week follows on Thursday. On the back of a hawkish set of July ECB meeting minutes and with eurozone inflation seen hitting fresh record highs of 9.1% in July, market expectations have turned increasingly hawkish. On the back of July’s larger-than-signalled 50bps hike, traders are now looking for the ECB to hike by 75bps along with upgrading its inflation outlook and signalling further hikes to come. A key focus will be on the bank’s economic guidance and outlook regarding recession risks.
Forex Heat Map
Technical Analysis
Our favorite technical chart of the week – XAUUSD
Source: OneRoyal / TradingView
The reversal lower from the latest test of the bear channel resistance line has seen the gold market breaking down through support at the 1760 level. Price is now fast approaching a test of major support at the 1676 level. This has been a key turning point for gold over the last few years. If bears manage to break below this level, this will be a significant development, putting the focus on a test of the 1592 level next and lower trendline of the bear channel.
Economic Calendar
Plenty to keep an eye on this week data-wise, with the latest rates meetings from the RBA, BOC and ECB, among other key events and releases. See the calendar below for the full schedule.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.
