Welcome to the first full week of September!
Forex playas are in for a busy week as we price in THREE central bank decisions, OPEC’s latest supply plans, and the U.K. getting a new PM. Exciting stuff!
Before that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the closely-watched potential market movers this week:
Major Economic Events:
New U.K. PM (Sept 5, 11:30 am GMT) – Britain will have a new PM today!
Pollsters widely favor Foreign Secretary Liz Truss, who is planning to deliver 30B GBP in tax cuts through an emergency Budget later this month. She has also promised to have a plan to deal with the U.K.’s energy bills “within one week.”
Political stability and concrete plans to deal with consumer challenges in the U.K. could push GBP higher against its counterparts.
Monthly OPEC meeting (Sept 5) – While some analysts aren’t ruling out an output cut, many expect the Organization of the Petroleum Exporting Countries (OPEC) and its oil-producing friends to keep their output quotas steady in October.
Keep an eye out for the crude oil gang talking output cuts should Iran’s crude oil stocks come into play. It would be hard for crude oil benchmarks to extend their losses if Iran’s output were “rebalanced” by OPEC+’s stocks!
RBA’s monetary policy decision (Sept. 6, 4:30 am GMT) – The Reserve Bank of Australia (RBA) is seen raising its interest rates by 50 basis points for a fourth consecutive month to help battle a 21-year high inflation!
But what happens after September? See, a 50-bps rate hike would put RBA’s rate at the bottom of what its officials call the “neutral zone” where the interest rates support maximum employment while keeping inflation steady.
Some believe that RBA will slow down its tightening in its next meetings, while others predict that RBA will push rates above the neutral zone until inflation slows down materially.
BOC’s monetary policy decision (Sept. 7, 2:00 pm GMT) – Bank of Canada (BOC) is expected to deliver a 75-basis-point rate hike after surprising markets with a full 100 bps rate hike in July.
This time, a 75-bps interest rate hike would put BOC’s rates at 3.25%, which is above the central bank’s 2% – 3% “neutral” rate.
If we see hints of BOC maybe slowing down its tightening pace after September, then CAD might have trouble getting buyers especially if global growth concerns continue to weigh on crude oil and other risk assets this week.
ECB’s monetary policy decision (Sept. 8, 12:15 pm GMT) – The European Central Bank (ECB) is expected to raise its interest rates by AT LEAST 50 basis points this week after inflation in the region hit a record high of 9.1% in August.
Before you buy EUR like there’s no tomorrow, though, you gotta consider that the Eurozone is also dealing with uninspiring GDP growth and potentially cold winter, and even colder growth prospects.
ECB won’t have as much room to raise its interest rates, which should limit its gains against currencies with more hawkish central banks.
Forex Setup of the Week: EUR/USD
EUR/USD 4-hour Forex Chart
EUR/USD is flirting with its August lows ahead of ECB’s policy decision!
Asian and European traders haven’t had a chance to price in Gazprom’s decision to indefinitely shut down its pipelines, so the common currency could see weakness at the start of the week.
A clear break below .9900 opens the pair to a move to the .9700 zone that EUR last visited in 2002.Of course, traders could also decide to take risks in the first full September week.
Stochastic is currently in neutral ground though Friday and today’s candlesticks point to indecision around the support zone.
Risk-taking could push EUR/USD from its 4-hour range support and revisit parity levels.
It could even go back to the 1.0050 range resistance and 100 SMA area if there’s enough momentum!
What do you think? Which way will EUR/USD go?
