European Central Bank Surprised with an Interest Rate Cut, USD Remains Strong

There was a lot of information to digest this week as four major central banks released their interest rate decisions and statements.

The Bank of England, Reserve Bank of Australia, and the Bank of Canada all decided in keeping their respective interest rates unchanged (0.50 percent, 2.50 percent, and 1 percent, respectively).

Meanwhile, the spotlight was on the European Central Bank as they strayed from the pack and announced on Thursday a surprise cut in its benchmark interest rate to 0.05 percent from 0.15 percent. It also slashed its deposit rate by 10 basis points to -0.20 percent from -0.10 percent. The ECB “will purchase a broad portfolio of simple and transparent securities” in line with its plan to incite economic growth and hold against possible deflation. Draghi hinted on QE-style action in the coming months, and said “the governing council is unanimous in its commitment to using additional unconventional instruments.”

In other news, Manufacturing PMI in the UK, Spain, and Italy all came in weaker than expected. Spain and UK Services PMI, however, beat expectations.

Germany’s Factory Orders showed a strong rebound in July, rising 4.6 percent after posting two consecutive monthly declines.

Commodities

Gold resumed its decline this week after a successful bear defense of the $1,300 level. Price indeed rolled down further toward $1,250, reaching a weekly low of $1,257. Expect increase bearish pressure in the coming week toward potential support area at $1,240-$1,250.

Oil mirrored the prior week’s price range after the $96 level successfully held in the first three days. Price is nearing the 69-week low set on January in the low-$91s. If price breaks the $90-$91 area, price could tailspin to a swift toward $84-$86.

 Currency Pairs

USD is on a strong roll right now and EURUSD is manifesting this clearly. The pair is now in an 8-week losing streak after the 1.3000 level easily got broken this week. The weekly close at 1.2950 is very bearish; however, long-term support is just around the corner at 1.2750-1.2800.

GBPUSD dropped big time this week. Price went down nearly 370 pips, its widest trading range in close to 30 weeks. The easy break of 1.6500 imposes a serious concern in bulls’ minds. The 1.6000-1.6200 area is now at risk.

USDJPY resumed its advance this week after making a temporary pause around the 104 level. The strong bullish weekly close this week indicates there is a possibility of this pair moving to new highs. If it does not, bulls should create support in the 104-105 zone.

The Week Ahead

The second week of September will be evenly busy throughout the week.

On Monday, keep an eye on Japan’s Current Account and Final GDP; Australia’s ANZ Job Advertisement; China’s Trade Balance; Switzerland’s Retail Sales, CPI, and Jobless Rate; Germany’s Trade Balance; UK Halifax HPI; and Canada’s Building Permits.

On Tuesday, traders will look forward to the release of Japan’s BOJ Monetary Policy Meeting Minutes and Tertiary Industry Activity; Australia’s NAB Business and Home Loans; UK Trade Balance, NIESR GDP Estimate, and Manufacturing Production; Canada’s Housing Starts; US JOLTS Job Openings.

On Wednesday, there will be Japan’s Core Machinery Orders; Australia’s Westpac Consumer Sentiment; China’s New Loans; France’s Industrial Production; UK Inflation Report Hearings.

On Thursday, RBNZ will have its Rate Announcement, Press conference, and Monetary Policy Statement. Other economic releases include Japan’s BSI Manufacturing Index; Australia’s MI Inflation Expectations and Jobs data; China’s CPI and PPI; ECB Monthly Bulletin; Spain’s HPI; US Unemployment Claims.

Friday ends the week with New Zealand’s FPI and Business NZ Manufacturing Index; BOJ Kuroda’s speech; Eurogroup Meetings; US Retail Sales, Import Prices, and Preliminary UoM Consumer Sentiment