Pound Hovers Around 1.3200 Ahead of Jobs; DXY Surged

Tuesday’s trading session was one enjoyed by all types of traders, in terms of volatility. All the major currencies experienced significant moves in either way. U.S. dollar index rose more than 0.5% yesterday, however, the bias could turn negative if it fails to overcome the 50-daily SMA near $95.87. Euro enjoyed a winning session against all the majors while the pound slid as U.K. inflation missed market expectations.

Greenback Appreciated Against all the Majors

The greenback was traded higher against all the major currencies on Tuesday’s and early Wednesday’s sessions, even though there were no market-driver U.S. data on the calendar and no commentary by Fed officials. As the Fed policy meeting looms, the currency is very sensitive on each comment or indicator coming up. The only indicator that is scheduled ahead and may take a small part of Fed's decision is August's inflation rate coming out on Friday. In our opinion, the weak August's jobs and the low inflation, far below Fed's 2% target, would not lead FOMC members to vote for a rate hike at the next meeting. 

The monthly budget statement revealed that economy’s deficit decreased to $-107B in August from $-113B before, better than market predictions of $-108B, however, the figure left the market indifferent, with investors reluctant to push the markets higher ahead of the two-day FOMC meeting on September 20-21.

U.S. Dollar Index – Technical Outlook

The Dollar Index (DXY) surged more than 0.5% over Tuesday’s session but is currently moving in a downtrend since July 25. The next potential move is a rebound on the falling trend line which is near with the strong resistance level at $95.87 and then back to the support level at $94.92. It should be noted, that the $95.87 level is considered to be a strong technical level since it coincides with both the 50-SMA on the daily chart and the descending trend line. Moreover, a penetration of the next obstacle at $94.92 will open the way for the key support zone at $94.05 – $94.43. On the other hand, a successful break above the $95.87 barrier will expose the price to $96.24 obstacle.

From a technical point of view, the price surpassed above the three SMAs (50-SMA, 100-SMA, and 200-SMA) on the 4-hour chart endorsing the thought of an upward correction. The MACD oscillator is rising and in the previous few hours entered the positive path. The RSI indicator is also rising and is moving above the 50 level.

Euro Higher on Increased Sentiment from ZEW Survey

For the second day in a row, the euro versus the U.S. dollar remained virtually unchanged, however, the euro won the battle again the rest of its G10 peers on Tuesday and Wednesday morning. Eurozone’s employment change remained unchanged at a pace of 1.4% yoy and 0.4% qoq for the second quarter of the year. On the other hand, the German ZEW survey revealed that investors are less confident than initially forecasted but their sentiment rose in September. Eurozone’s economic sentiment picked up to 5.4 from 4.6 before, missing expectations of 6.7, while in Germany remained on hold at 0.5, below market consensus of 2.5.

EUR/USD – Technical Outlook

For the fourth day in a row, the euro ended the day unchanged against the U.S dollar.
The EUR/USD pair was consolidating in a narrow 60 pips since Friday’s session as the Eurozone economic reports were minor. The common currency is currently moving above the three SMAs (50-SMA, 100-SMA, and 200-SMA) and tested again the 1.1205 support level but failed to pass below it.
Furthermore, the price is still trading in an uptrend move and if the pair surpasses the resistance zone at 1.1265 – 1.1285 will meet the 1.1330 barrier. On the other hand, a break below the 1.1200 psychological level which overlaps with the rising trend line will open the door for the next support level at 1.1140. On the 4-hour chart, technical indicators hold neutral within negative territory while the MACD oscillator is falling and is moving below its trigger line.

Pound Moved Lower on Missing Forecasts

The pound has experienced significant losses against its major counterparts following many disappointing economic indicators released on Tuesday. Firstly, the U.K. inflation rate didn’t manage to pick up by 0.1% as expected and remained steady at 0.6% yoy for August. The forecasts of consumer prices index to rise 0.7% compared with the year before, were based on the cheaper pound, that was expected to push prices higher. The core CPI also remained on hold, despite market prediction to rise slightly. Going to the housing sector, the U.K. house price inflation fell to 8.3% in the year to July, down from 9.7% in June according to the Office for National Statistics. The employment report that coming out later in the day will be closely eyed by investors, especially the indicator for wage growth.

GBP/USD – Technical Outlook

The GBP/USD pair saw little action during yesterday’s session, confined to a tight range within 1.3165 and 1.3200, unable to attract investors amid a busy macroeconomic calendar. The ILO unemployment rate is coming out while tomorrow the BoE will have its monetary policy meeting.
Both of the events will create some swings to the GBP crosses.

From a technical point of view, the pound declined over the last few weeks by 300 pips, in what is considered a technical correction of the trend; considering that the pair is in an uptrend since the strong rebound from the 1.2875 level. At the moment, the pair it receives a strong support from the 200-SMA on the 4-hour chart, near 1.3165, and considering that the momentum indicators are moving south on the 1-hour chart, we could see a move towards the 1.3250 region, ahead of the employment data, if they come out positive. On the other hand, if we get a clear break below the key support level at 1.3165, then, as we mentioned above, I would consider the short-term downtrend to be just a correction of the uptrend.

USD/CHF – Technical Outlook

Ahead of the Swiss National Bank (SNB) policy meeting which the bank will issue its quarterly policy assessment, growth, and inflation forecasts, the USD/CHF pair remained in a fairly range with the 0.9900 and 0.9950 levels capping any moves to the upside and 0.9440 and 0.9500 prompting it up.
On Thursday, we expect the SNB to keep its policy unchanged including its policy rate at -0.75%, and the target range for the three-month Libor at -1.25/-0.25%.

Technically, the pair trades uneventfully around 0.9720, finding buying interest on approaches to the 0.9785 level. On the 4-hour chart, the price continues developing below its moving averages, whilst the technical indicators hold within positive territory, for now, although with no clear directional strength. A clear break above the mentioned 0.9785 level could see the pair advancing up to 0.9880, whilst beyond this last, the rally can extend up to 0.9954, although seems unlikely the pair can advance that much today. Therefore, we should expect the pair to continue the sideways move inside the symmetrical triangle until the SNB policy meeting, or at least until the Federal Reserve meeting on September 21, which could trigger some more aggressive volatility to the USD crosses.

AUD/USD – Technical Outlook

The AUD/USD pair edged sharply lower during yesterday’s session and plummeted more than 1% following the strong sell-off from the 0.7730 resistance level. It was a particularly tough day for the commodity currency as fell against the greenback and penetrated the ascending trend line to the downside which was holding since May 24. On Monday’s technical analysis, our suggestion for entry level was the lower barrier of the significant zone at 0.7485 – 0.7500 where the price slipped below it over Tuesday’s period. Currently, the pair is moving near the aforementioned area which overlaps with the 100-daily SMA and is also looking much more bearish. In addition, the price challenged the 200-SMA and had a pullback while the technical indicators have just entered the negative territory. The MACD oscillator lies below its trigger line whilst the RSI indicator is approaching the 30 level. The initial targets to watch is the next support area at 0.7410 – 0.7420 or even more may retest the 0.7300 psychological level.

What to watch today

Wednesday is an equally busy day with yesterday. In the UK, the employment report will be closely eyed. The ILO unemployment rate for the three months to July is expected to remain unchanged 4.9% while the claimant count change is forecasted to increase by 1.6K in August versus a drop of 8.6K in July. The average earning including bonus are predicted to increase 2.1% the three months to July, a slower pace than the previous figure of a 2.4% increase. Half an hour later, Eurozone’s industrial production indicator for July will reveal a drop of 0.5% yoy compared with an increase of 0.4% in June, according to market consensus.

In U.S., the weekly MBA mortgage applications will be released and thereafter, the market participants are expecting the import and export price indexes for August to be announced. Later in the second half of the day, New Zealand’s business PMI for August will be released but the highlight of the day for the country is the GDP growth for the second quarter. During the night, Australia will publish its consumer inflation expectations for the next twelve months and half an hour later, the employment report will be published. No changes are expected to August’s unemployment rate and the participation rate while the employed people are expected to increase by 15.0K lower from an increase of 26.2K the previous month.