Sterling Ease on BoE Rate Cut

• BoE cut rate by 25 bps, Pound Sterling’s strength softened.
• Japanese Yen continues to strengthen as the market anticipates another 25 bps rate hike from the BoJ by the end of this year.
• Eyes on today’s NFP will be a pivotal factor for the dollar. 

Market Summary

The spotlight was on the Bank of England (BoE) yesterday as the market awaited its interest rate decision. The BoE's decision to cut rates by 25 basis points came in line with market consensus, leading to a decline in the Pound Sterling, which trailed to a one-month low against the dollar. In contrast, the Japanese Yen continued to strengthen following the Bank of Japan's (BoJ) 15 basis point rate hike last Wednesday. The market is anticipating another 25 basis point hike by the end of the year, bolstering the Yen's strength. However, the rising borrowing costs have negatively impacted the Nikkei, the Japanese Equity index, which has plunged by more than 6% this week.

Traders should keep an eye on today’s U.S. Non-Farm Payroll (NFP) and unemployment rate data, as the dollar remains buoyed above the $104 mark despite the dovish narrative from the FOMC meeting minutes released days ago.

In the commodity market, gold is poised at its highest level in a week as the market observes developments in the Middle East. Oil prices, however, have plunged from their one-week high as Middle East tension-led sentiment faded and a pessimistic demand outlook weighed on prices.

Current rate hike bets on 18th September Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (88.5%) VS -25 bps (11.5%) 

Market Movements

DOLLAR_INDX, H4

The Dollar Index, which trades against a basket of six major currencies, rebounded slightly as rising geopolitical tensions in the Middle East sparked demand for safe-haven assets. Concerns about a widening conflict intensified after the assassination of Hamas leader Ismaeil Haniyeh in Tehran. Previously, the dollar tumbled following the Federal Reserve's dovish tones but managed to rebound as a safe-haven investment. 

The Dollar Index is trading higher following the prior rebound from the support level. MACD has illustrated increasing bullish momentum, while RSI is at 51, suggesting the index might extend its gains since the RSI stays above the midline.  

Resistance level: 104.75, 105.15

Support level: 104.00, 103.65

XAU/USD, H4

Gold prices continued to hover around a two-week high, driven by expectations for the Fed to begin reducing interest rates from September and rising Middle East tensions. Iran vowed to retaliate for the killing of Ismail Haniyeh, stating that Israel will pay a heavy price. Moving ahead, another major catalyst for the gold market will be the US Nonfarm Payrolls and Unemployment rate, which investors should watch for further trading signals.

Gold prices are trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 64, suggesting the commodity might enter overbought territory. 

Resistance level: 2450.00, 2485.00

Support level: 2420.00, 2380.00

GBP/USD，H4

Pound Sterling tumbled aggressively after the Bank of England (BoE) decided to cut interest rates by 25 basis points to 5%. Five of the nine Monetary Policy Committee members voted to cut, while four voted to hold. With expectations that UK inflation might reach 2.70% later this year, around the BoE target, and in line with other major central banks like the ECB and the Fed, the BoE considered aligning with the rate cut expectations.

GBP/USD is trading lower while currently testing the support level. MACD has illustrated an increasing bearish momentum. However, RSI is at 28, suggesting the pair might enter oversold territory. . 

Resistance level: 1.2775, 1.2855

Support level: 1.2705, 1.2615

EUR/USD，H4

The EUR/USD edged lower in the last session, dropping to its lowest level in a month. The euro was weighed down by the eurozone unemployment rate, which came in at 6.5%, the highest level in three months. Meanwhile, the dollar's strength is also affected by downbeat job data and mediocre PMI readings. Traders should keep an eye on today’s U.S. Non-Farm Payroll (NFP) report, which could catalyse a technical rebound for the pair.

The pair continues to trade in its downtrend trajectory, and bearish momentum remains. The RSI remains close to the oversold zone, while the MACD flows below the zero line. 

Resistance level: 1.0853, 1.0895

Support level: 1.0765, 1.0732

GBP/JPY, H4

The GBP/JPY pair has traded to its lowest level since April as the interest rate gap between the two central banks has narrowed. The Bank of England (BoE) cut interest rates by 25 basis points yesterday, while the Bank of Japan (BoJ) raised its rate by 15 basis points on Wednesday. The contrasting monetary policies between the two central banks have caused the pair to plummet by more than 4% this week.

The pair is trading with extreme bearish momentum, and the RSI and the MACD suggest the bearish momentum is still strong. The RSI remains in the oversold zone, while the MACD is edging lower below the zero line. 

Resistance level: 192.75, 194.85

Support level: 188.30, 185.90

NZD/USD, H4

The NZD/USD pair has rebounded from its three-month low and broken above its downtrend channel. Currently poised at its highest level in a week, the pair is awaiting a catalyst. With the New Zealand dollar lacking significant drivers, the pair's movement will largely depend on the U.S. dollar's strength. The U.S. Non-Farm Payroll (NFP) report and the Unemployment rate are scheduled to be announced later today, with downbeat expectations likely to soften the dollar.

The pair has performed a trend reversal and is currently traded sideways at its one-week high level. The RSI remains near the overbought zone, while the MACD has surged past the zero line from below, suggesting that the bullish momentum remains intact with the pair. 

Resistance level: 0.6020, 0.6080

Support level: 0.5906, 0.5860

NASDAQ (US100), H4

The Nasdaq failed to maintain its momentum after recording a strong rebound on Wednesday. Amazon's lacklustre earnings performance weighed down the tech-heavy index, which fell short of expectations. Additionally, the ISM PMI readings released yesterday came in below market consensus, further reducing risk appetite and contributing to the Nasdaq's decline.

Nasdaq continues to trade with bearish solid momentum and has plunged to below the 19,000 mark. The RSI has been kept below the 50 level while the MACD edged lower in the last session, suggesting the index remains trading with bearish momentum. 

Resistance level: 19460.00, 19930.00

Support level: 18500.00, 17950.00

CL OIL, H4

Oil prices tumbled sharply as investors expected global supply to remain largely unaffected by the rising Middle East tensions for now. Additionally, a meeting of top OPEC+ ministers decided to keep oil output policy unchanged, including a plan to start unwinding one layer of output cuts from October. On the China front, investor confidence in Chinese oil demand remains low, especially after a string of downbeat economic reports. A private sector survey showed that China’s manufacturing activity in July shrank for the first time in nine months, slipping to a five-month low.

Oil prices are trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 46, suggesting the commodity might extend its losses after breakout since the RSI stays below the midline. 

Resistance level: 78.55, 80.90

Support level: 76.10, 74.35