Week 38 data: Central banks & Fed in focus

This week, the markets started with higher activity as oil continued its recent strong gains and gold’s recovery also seemed to be gathering pace. The dollar was near six-month highs while Asian and European shares were mostly more cautious. This preview of weekly data looks at XAUUSD and GBPUSD ahead of critical meetings of central banks over the next few days.

Last week the European Central Bank called for a single hike, which was not widely expected, taking the main refinancing rate to 4.5%. The Central Bank of the Russian Federation also hiked its key rate a full percent to 13%, citing inflation and the ongoing problems in the workforce as a result of the war. The euro made losses around the ECB’s statement but seems to have stabilised around $1.06.

This is a critically important week in monetary policy, with the Fed, BoE, PBoC, BoJ, SNB, Riksbank and Norges Bank all due to release their statements. The Fed is the most significant, with a hold at 5.25-5.5% likely although comments in the press conference are likely to drive the dollar. The BoE meanwhile is expected to hike to 5.5%, with the press conference there also important for sentiment on November’s decision.

Traders should not ignore regular data this week, primarily British, Japanese and Canadian inflation but also German PMI on Friday plus regionally important releases like South African inflation on Wednesday. Given the importance of monetary policy this week, some attention might shift back to forex from commodities.

Gold-dollar, daily

Gold has recovered cautiously over the last few weeks as it seems increasingly likely that the Fed has reached its peak rate of this cycle and demand for havens in China has strongly increased as the yuan continued to decline. Conversely, the overall fundamental situation for the yellow metal remains negative, with the funds rate almost guaranteed to remain higher than headline inflation until the second quarter of next year. According to the latest Commitment of Traders, the net positions of commercial traders are dropping and large speculators increasing.

On the chart, it seems that $1,900 is confirmed at a resistance, with the price having bounced from there last Thursday. The close bunching of all of the moving averages here – 20, 50 from Bands, 100 and 200 – might challenge further gains since each could function as a resistance. However, the slow stochastic, at around 32, is closer to oversold than neutral while ATR at around $11.90 has reached a fresh post-covid low.

That’s a normal situation in the run-up to a meeting of the Fed. Large participants in markets generally avoid entering before significant events which might lead to clear shifts in narrative or sentiment. Traders should be prepared for a strong reaction to the Fed’s meeting on Wednesday. The most favorable situation at the moment would be consolidation with possible further gains, but if Dr Powell’s comments are perceived to be hawkish, it’s likely that the price of gold will go down at least in the immediate aftermath of the press conference.

Key data this week

Bold indicates the most important release for this symbol.

Tuesday 19 September

• 12.30 GMT: American building permits (preliminary, August) – consensus 1.44 million, previous 1.443 million

Wednesday 20 September

• from 18.00 GMT: statement and press conference of the Federal Open Market Committee

Thursday 21 September

• 12.30 GMT: initial jobless claims (16 September) – consensus 225,000, previous 220,000

Cable, daily

The main fundamental narrative driving the pound down against the dollar in recent months is the American economy’s relative strength while Britain continues to struggle with significantly higher inflation and overall weaker growth. Generally decent GDP and job data in the US combined with clear progress on inflation suggest that the Fed has room to retain a restrictive policy for many months; the majority of traders don’t expect a pivot until late in the second quarter of 2024 according to CME Fedwatch Tool.

Meanwhile, the Bank of England still has more work to do to bring down inflation, with the headline figure remaining more than a percent above the bank rate and likely to go up to 7.1%. It’s critical for the BoE to balance between preventing a resurgence of inflation and avoiding a recession, so Andrew Bailey’s comments on the outlook for the economy in general as well as monetary policy specifically are very important on Thursday.

As for gold, activity has been lower since late last week as traders look ahead to the meetings of the central banks. However, cable has broken through support around $1.23 and seems likely to continue downward in the medium term. That seems to be confirmed by the death cross of the 50 SMA from Bands below the 100 and the clear break below the 200 SMA last week.

However, it’d be a challenge for a new seller to find a good entry at the moment. Assuming there are no major surprises from the Fed, the BoE, or British inflation, traders looking at the medium to long term might exploit volatility to sell from a higher level, preferably once there’s no longer such a strong oversold signal. That said, sustained trends are historically rare for forex. It’d be possible to see a bounce from May’s low of around $1.23.

Key data this week

Bold indicates the most important releases for this symbol.

Tuesday 19 September

• 12.30 GMT: American building permits (preliminary, August) – consensus 1.44 million, previous 1.443 million

Wednesday 20 September

• 6.00 GMT: British annual inflation (August) – consensus 7.1%, previous 6.8%

• 6.00 GMT: British annual core inflation (August) – consensus 6.8%, previous 6.9%

• from 18.00 GMT: statement and press conference of the Federal Open Market Committee

Thursday 21 September

• from 11.00 GMT: statement and press conference of the Bank of England

• 12.30 GMT: initial jobless claims (16 September) – consensus 225,000, previous 220,000

• 11.01 GMT: British Gfk consumer confidence (September) – consensus negative 27, previous negative 25

Friday 22 September

• 6.00 GMT: British monthly retail sales (August) - consensus 0.5%, previous negative 1.2%

This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.

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Author:

Michael Stark

Michael has been investing in shares and currencies for 12 years, with a focus in the past seven specifically on CFDs. As an associate of the Society of Technical Analysts, Michael's primary concentration is on charts and indicators. His goal in educating traders is to simplify matters wherever possible and help them find their 'aha!' moment when they achieve what they're looking for from speculation with CFDs.