ECB’s interest rate decision and US GDP rates in the spotlight

The USD gained across the board yesterday, supported by the overall sentiment of the market and the rise in the number of new home sales for September. It should be noted that Fed Chairman Powell in his speech yesterday, avoided commenting on monetary policy, given the Fed’s meeting that lays ahead in the coming week. The strengthening of the USD forced the Japanese yen to retreat with the possibility of a market intervention by Japan to rescue the Yen being now more probable. Market focus now turns towards the US GDP advance rate for Q3, due out during today’s American session and a possible acceleration of the rate may provide some support for the USD as it would underscore the possibility of the US economy avoiding a recession and at the same time provide more leeway to the Fed to maintain rates at high levels for a prolonged period, if not hike again.

USD/JPY was on the rise yesterday, finally breaking the 150.10 (S1) resistance line, now turned to support. We maintain a bullish outlook for the pair given also that the RSI indicator is above the reading of 70, implying a strong bullish sentiment. On the other hand the RSI indicator’s level, may also be sending a warning signal that the pair has reached overbought levels and is ripe for a correction lower. Should the bulls remain dominant, we may see the pair aiming for the 151.90 (R1) line, a level reached in 2022 and marks a high point for over thirty years. Should the bears take over, we may see the pair dropping breaking the 150.10 (S1) support line and aim for the 148.00 (S2) support level. The situation though should also be examined on a fundamental level, as a possible market intervention of Japan may asymmetrically push the pair lower.

It should be noted that the Loonie continued to weaken and even BoC’s interest rate decision failed to provide some support. The bank as was widely expected remained on hold at 5.00% yet in its warned that more tightening may lay ahead. For the time being the markets seem to be betting that the bank has reached its terminal rate, a scenario that tends to weigh on the Loonie. Yet the Loonie proved to be insensitive even to the rise of oil prices yesterday as the market sentiment seems to be turning more cautious and thus weighs on the commodity currency.

EUR traders on the other hand are expected to keep a close eye on the release of ECB’s interest rate decision today. The bank is widely expected to remain on hold and the market seems to expect the bank to keep its monetary policy settings unchanged until Spring next year. Hence market focus is expected to be placed on the bank’s accompanying statement and ECB President Lagarde’s press conference, for any signals about the bank’s future intentions. Should the bank release signals that it intends to keep rates high for a prolonged period and at the same time maintain a hawkish tone, we may see the EUR getting some support.

EUR/USD continued to edge lower aiming for the 1.0515 (S1) support line. It should be noted that the pair in its drop has broken the secondary upward trendline, signaling an interruption of the upward movement hence we now adopt a bias for a sideways motion initially, yet bearish tendencies may continue as the RSI indicator nears the reading of 30. For a clear-cut bearish outlook, we would require the pair to break the 1.0515 (S1) support line and aim for the 1.0430 (S2) support base. Should a buying interest be expressed, EUR/USD could reverse course and break the 1.0635 (R1) resistance line, aiming for the 1.0735 (R2) hurdle.

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Today we note Turkey CBT’s interest rate decision, while Fed Board Governor Waller and BoE Deputy Governor Cunliffe speak. We also note the release from the US of the durable goods orders for September and the weekly initial jobless claims figure. During tomorrow’s Asian session, we get from Japan Tokyo’s CPI rates for October and Australia’s PPI rates for Q3.