European Markets Bracing for ECB Rate Cut as Dollar Weakens

European markets outlook: An ECB rate cut may pressure the EUR, while USD stability hinges on PPI and unemployment claims. Oil prices buoyed by Hurricane Francine.

Asia Session Recap

The Asian session was marked by a lull in major news, with the Dollar Index (DXY) retreating to around 101.70. This dip boosted gold, with spot prices climbing above $2,515 per ounce by midday. Crude oil prices remained buoyed by concerns over Hurricane Francine’s potential impact on production as it nears landfall after moving through the Gulf of Mexico, pushing WTI oil back toward $68 per barrel.

Outlook for Europe & U.S. Sessions

Following July’s decision to keep interest rates unchanged, the European Central Bank (ECB) is poised for a significant move today. The ECB plans to cut the primary refinancing rate by 60 basis points from 4.25% to 3.65%, a more considerable reduction than June’s 25 basis points cut. ECB President Christine Lagarde’s press conference, scheduled half an hour after the statement, may add further dovish sentiment, potentially placing significant pressure on the Euro.

Dollar Index (DXY)

Key News Events:

• Producer Price Index (PPI) at 12:30 pm GMT
• Unemployment Claims at 12:30 pm GMT

Expectations for DXY: The PPI data, which tracks wholesale inflation, showed a moderation in July, with headline and core PPI easing to 2.2% and 2.4%, respectively. Given the current pressure on crude oil prices and ongoing manufacturing contraction, prices may continue to reduce in August, possibly serving as a bearish catalyst for the dollar. Meanwhile, a stable forecast of 227K for unemployment claims could bolster the dollar if actual claims come in lower than expected.

Central Bank Notes:

• The Federal Reserve’s Federal Funds Rate target range remains 5.25% to 5.50%.
• The Fed aims for maximum employment and 2% inflation over the longer term, maintaining a cautious stance on rate adjustments until inflation shows sustainable movement towards the target.
• The Fed continues to reduce holdings of Treasury and agency securities, gradually reducing monthly redemption caps.

Next 24 Hours Bias: Weak, Bullish

Gold (XAU)

Key News Events:

• Producer Price Index (PPI) at 12:30 pm GMT
• Unemployment Claims at 12:30 pm GMT

Expectations for Gold: With the PPI showing a slowdown in inflation and stable unemployment claims, gold prices may experience volatility. The ongoing strength in crude oil prices and a weaker dollar could provide some support, but the overall trend may remain bearish.

Next 24 Hours Bias: Weak Bearish

Australian Dollar (AUD)

Key News Events:

• No major news events.

Expectations for AUD: Stronger-than-expected U.S. core CPI data led to a dip in the Aussie, falling below 0.6650. However, as the Asian session progresses, the AUD has stabilized around 0.6700, with key support and resistance levels set at 0.6580 and 0.6750, respectively.

Central Bank Notes:

• The Reserve Bank of Australia (RBA) maintained the cash rate at 4.35% on August 6, marking six consecutive pauses.
• Inflation remains above the target range, with expectations for a return to the 2-3% range by late 2025.
• Economic activity is weak, with slow growth and a deteriorating labor market.

Next 24 Hours Bias: Weak Bearish

Kiwi Dollar (NZD)

Key News Events:

• No major news events.

Expectations for NZD: The Kiwi fell sharply to near 0.6100 following stronger U.S. core CPI readings. It was trading around 0.6130 in the Asia session. Key support and resistance levels are at 0.6080 and 0.6235, respectively.

Central Bank Notes:

• The Reserve Bank of New Zealand (RBNZ) reduced the Official Cash Rate (OCR) by 25 basis points to 5.25% in August.
• Inflation aligns with the 1-3% target band, with weak economic activity.

Next 24 Hours Bias: Weak Bearish

Japanese Yen (JPY)

Key News Events:

• No major news events.

Expectations for JPY: Hawkish comments from Bank of Japan (BoJ) board member Junko Nakagawa caused the Yen to surge, with USD/JPY dropping to 140.67. As of the Asia session, the pair is trading around 142.50. Support and resistance levels are set at 140.65 and 143.70, respectively.

Central Bank Notes:

• The BoJ maintains an accommodative stance with a 0.25% target for the uncollateralized overnight call rate and reduced JGB purchases.
• Expect inflation to remain around 2% in the medium term, with growth anticipated to exceed potential.

Next 24 Hours Bias: Weak, Bullish

European Markets Bracing for ECB Rate Cut as Dollar Weakens

Euro (EUR)

Key News Events:

• ECB Monetary Policy Statement at 12:15 pm GMT
• ECB Press Conference at 12:45 pm GMT

Expectations for EUR: The ECB will announce a significant rate cut today. With a reduction of 60 basis points anticipated, the Euro may face substantial pressure if President Lagarde delivers further dovish rhetoric.

Central Bank Notes:

• The ECB kept rates unchanged in July after a 25 basis points cut in June.
• The Eurozone economy grew slower in Q2, with mixed performance across sectors.

Next 24 Hours Bias: Weak Bearish

Swiss Franc (CHF)

Key News Events:

• SNB Chairman Jordan Speaks at 2:25 pm GMT

Expectations for CHF: SNB Chairman Thomas Jordan’s speech may provide insights into future monetary policy, potentially impacting the franc. The SNB will hold its next meeting on September 26.

Central Bank Notes:

• In June, the Swiss National Bank (SNB) lowered its key policy rate to 1.25%.
• Inflation forecasts suggest moderate levels, with GDP growth anticipated around 1% this year.

Next 24 Hours Bias: Medium Bullish

Pound Sterling (GBP)

Key News Events:

• No major news events.

Expectations for GBP: The Pound fell sharply due to stronger U.S. core CPI data, with the currency pair stabilizing around 1.3000. Key support and resistance levels are at 1.2950 and 1.3100, respectively.

Central Bank Notes:

• The Bank of England cut the Official Bank Rate by 25 basis points to 5.00% on August 1.
• Inflation can rise to around 2.75% in the year’s second half, with the BoE monitoring inflation risks closely.

Next 24 Hours Bias: Weak Bearish

Canadian Dollar (CAD)

Key News Events:

• No major news events.

Expectations for CAD: Higher-than-expected U.S. core CPI readings led to a brief spike in USD/CAD to 1.3623, but the pair has since pulled back towards 1.3560. Key support and resistance levels are at 1.3490 and 1.3650, respectively.

Central Bank Notes:

• The Bank of Canada reduced its target rate to 4.25% on September 4.
• Economic growth was slightly stronger than expected in Q2, but inflation remains a concern.

Next 24 Hours Bias: Weak, Bullish

Oil

Key News Events:

• No major news events.

Expectations for Oil: Crude oil prices surged overnight as Hurricane Francine impacted key oil-producing areas. Despite a recent increase in inventories, prices will likely remain supported at around $67 per barrel.

Next 24 Hours Bias: Weak, Bullish

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