Sept events should liven up Forex markets
September promises to be an active month for forex and could form the basis of new trends as it is jam packed with policy announcements involving monetary policy on the majors.
The situation is also somewhat muddied by the weaker than expected 151,000 jobs created in August in the US, against expectations of 180,000, and with slower wage growth. It's by no means a terrible figure, but it makes a rate hike by the US Federal Reserve on Sept 21 less likely and it may now wait until December.
In the meantime, the US Presidential election is entering its final months of campaigning with the establishment candidate Hilary Clinton looking likely to win at the moment. But any upsets could unleash market volatility. Also, September tends to be a soggy month for stocks, suggesting the potential for a diminished appetite for risk currencies.
Over in the UK, more details of the government’s plans on Brexit could start to take shape giving potential insights into its future relationship with the EU.
But the start of the week could be relatively subdued with the US and Canada holding a public holiday on Monday. After that the action could start to heat up.
Some of the highlights:
Sept 8 - the European Central Bank holds a press conference and is expected to say something about its quantitative easing programme, which could be extended following recent weak price data. This will be a closely watched event for the EUR and further policy action or a lack of it could establish a directional bias for the single currency.
Sept 15 – Then it’s the turn of the Bank of England. Given that the UK economy hasn’t plunged into oblivion after the vote to leave the EU, the BoE is unlikely to further cut interest rates on this date, but may give some details on its QE programme. This meeting is not expected to have a big impact on GBP, but the BoE may sound less dovish, which would be supportive for sterling.
Sept 20-21 - The Bank of Japan is set to reveal its comprehensive monetary review against a backdrop of a sluggish economy and deflation. Could it therefore announce something truly spectacular or just give up? The mood music from the BoJ suggests it’s still very much in combative mood. Either way it could have big implications for JPY’s direction for the rest of 2016.
Sept 21 – The Fed will also be talking about monetary policy with now diminishing expectations of a rate rise. The on / off rhetoric from Fed officials about rate rises is undermining their credibility. If there is strong economic data in the run up to the announcement there’s a chance it could see the Fed pull the trigger – that is after all what it really wants to do. This meeting or the next one in December could also set the tone for USD for the following quarter or so.
TECHNICAL ANALYSIS: EUR/USD: edging higher through a fog of uncertainty
In early December 2015, EUR/USD hit a low of 1.0593 and subsequently managed a high of 1.1616 in May 2016. Following that move, the market has potentially taken on a softer bias as implied by the 100-day moving average – though the pair are still well above their lows.
Deciphering direction going forward is difficult though that might be clarified by the policy meeting by the ECB on Sept 8 and the US Fed one on Sept 21.
In the shorter-term the slow stochastics imply that a fairly strong buy signal could be in the offering – though it had not been fully formed as of Friday. Indeed, waiting for the ECB on Thursday might be best course of action to see if the shorter-term trend which started at the end of July from a low of 1.0951 still has any momentum behind it.
Support can be seen at 1.1123, 1.1080 and 1.0956 and resistance at 1.1252, 1.1264 and 1.1352
By Justin Pugsley, Markets Analyst, MahiFX