Dollar heads into the week buoyed by significant risk-off sentiment ahead of key FED interest rate decision on Wednesday.
Dollar
The Dollar begins the week on the front foot, mainly driven by risk aversion in a week where key central bank events are lined up across the spectrum. The caution generally displayed by investors ahead of major central bank rate decisions tends to often benefit the safe-haven currency and help it outperform its rivals.
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The main theme going into the week is the high probability that borrowing costs will rise across the globe, with the FED being at the centre of it all. Markets have already priced in a 75-basis point rate hike from the FED, with a slight 20% probability leaning in favour of a full percentage point hike.
Technical Analysis (H4)
In terms of market structure, price moved correctively towards the 107.67 area in the form of a descending channel, where it found support and created a reversal pattern which was validated by the impulsive wave that yielded itself out of the structure. Current price action is locked in a range, potentially forming a bull flag, which if validated will see the bulls take control of price to test the key 110.66 area.
Euro
The euro kicks off the week with the currency being driven back down to levels below parity ahead of a week where the FED will come into the spotlight on Wednesday. Key factors influencing the Euro’s performance will be centred around dollar dynamics, the difference between the FED vs ECB, geopolitical as Ukraine pushes Russian troops back, as well as the ongoing risk of a recession in the bloc amid historically high energy prices. Events to look out for this week include ECB Lagarde’s speech on Tuesday and the flash consumer confidence figures that will be released on Thursday.
Technical Analysis (H4)
In terms of market structure, price moved correctively towards the 1.019 area in the form of an ascending channel, where it found resistance and created a reversal pattern which was validated by the impulsive wave that yielded itself out of the structure. Current price action is locked in a range, potentially forming a bear flag, which if validated will see the bears take control of price to test the 2022 low located at the 0.986 area.
Pound
Sterling begins the week under severe pressure as investors look ahead towards the FOMC and BoE policy meetings this week for a sense of fundamental direction. Factors driving weakness in the currency continue to be dollar strength and a miserable economic outlook as Friday’s monthly retail sales for August came out at their lowest since December 2021, which is indicative of the fact that the economy is on the brink of sliding into a recession. With the absence of any pertinent economic data on Monday as the UK observed a holiday for the passing of their Queen, price will likely be driven by dollar dynamics heading further into the week.
Technical Analysis (H4)
In terms of market structure, price moved towards the 1.175 area correctively, forming an ascending channel reversal pattern which was validated by an impulsive wave to the downside. Since then, sellers have been driving price and are approaching key levels from last week which represent lows not touched since 1985 around the 1.135 area.
Gold
Gold heads into the new week with investors keenly eyeing the FED rate decision this week which is applying significant pressure to the risk complex and as a result, the price of gold. Weighing heavily on sentiment is the probability of a 75-basis vs a full point rate hike, which will undoubtedly affect the price of Gold as it nears a two year low around the $1 650 area. The long-term outlook seems bearish for the yellow metal as data representing inflationary slowdowns is expected to only trigger a neutral response from Policymakers and that is only forecast to begin early in 2023.
Technical Analysis (H4)
In terms of market structure, current price action has printed out a rising wedge corrective pattern with the peak formation located at the $1 729 level. The subsequent impulsive wave confirmed the bearish continuation pattern cited above and current price action is sitting at a two-year low around the $1 650 area. Henceforth a correction is likely to move back into the $1 680 area below the broken pattern before sellers potentially take another swing at driving the price down even further.
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Ofentse Waisi
Financial Market Analyst
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