Pound Faces Pressure; Canadian Dollar Rides Oil Wave

US stocks hold their value while European and Asian stocks collapse as investors await major central bank decisions. Analysts expect some central banks to opt for another interest rate hike, while others may hold. Economists are advising a recession is a higher possibility as the market will experience both rising inflation and high-interest rates for the first time. Previously, inflation was high and interest rates were significantly lower, but rising. However, interest rates are at a 20-year high and inflation is now on the rise. Furthermore, the best performing currency of the day is the Canadian Dollar benefiting from rising commodity prices. 

As mentioned over the past week, a concern for investors and central banks is the rise in the price of Crude and Brent Oil. Crude Oil rose to a new high increasing to $91.285 and Chevron CEO, Mike Wirth, advises the price may rise above $100 per barrel. However, some economists advise this will be unlikely if central banks continue to hike, harming economic stability. The People’s Bank of China is expected to keep the rate unchanged as is the Bank of Japan. The Bank of England is expected to hike as is the Swiss National Bank. Analysts expect the Federal Reserve to keep interest rates at 5.50%, but signal a hike in November. According to the CM Exchange, there is a 35% chance of a hike in November, which is relatively high. 

SNP500 - Price Range Significant for Traders

The SNP500 was unchanged after experiencing minor bearish and bullish impulse waves, similar to the Dow Jones. European competitors such as the DAX, saw a significant decline and only the NASDAQ saw a very slight rise. The price is trading within a price range which market participants are pricing based on the current circumstances. Therefore, throughout the day, a breakout may potentially be followed by a correction back to the price range. After tomorrow’s central bank decisions and UK inflation data, the price range will likely be broken with a new trend. The price of the index is trading at a support level, forming a psychological price for market participants. However, the price on larger timeframes such as the 3-hour chart continues to show the SNP500 below the trend line and regression channels. 

SNP500 20-Minute Chart on September 19th 

The third most influential stock within the SNP500 is NVIDIA, which has depreciated by 6.40% over the past month. NVIDIA stocks hold a weight of 2.90%. The stock has been under pressure by the latest decision from its main competitor, AMD, to discount its best-selling RTC4070 cards. The video processors are identical in terms of parameters, and recently, there has been a tendency for users to choose AMD because of the lower price. This is a slight concern for shareholders, particularly as the stock trades at an all-time high. 

The top three influential stocks within the SNP500, Apple, Microsoft and Amazon are trading slightly higher during the pre-market hours. However, investors will monitor the pre-market price closer to the opening of the US trading session. The three stocks hold a weight of 17%. Apple stocks rose by 1.69%, which is essential as it has the highest weight. However, other stocks with a high “weight” saw more substantial declines, such as Tesla declining 3.32% and a further 0.10% pre-market.  A positive factor for the stock market is the slight decline in US bond yields, which have fallen from 4.3530% to 4.323%. However, it is vital to monitor the yield movement again as it trades at its highest level since the banking crisis of 2007.

GBP/CAD - Canadian Dollar Rides Oil Wave

The asset which is seeing strong fundamental factors is the Pound and the Canadian Dollar. With the Canadian dollar, it is important for investors to note the correlation between the Canadian Dollar and the price of Oil. Canada is the fifth largest exporter of Crude Oil to the UK, exporting 102 million Pounds worth. As the price of Oil rises, the order flow in terms of value moves towards the Canadian Dollar as more units are required to purchase the same commodity. 

In addition to this, the market is concentrating on the upcoming inflation data. Analysts expect Canadian inflation to remain at 3.7% and, on a monthly basis, decline from 0.6% to 0.2%. At the same time, the UK inflation rate is expected to rise from 6.8% to 7.0%. The higher inflation rate indicates more interest rate hikes for the Pound, which is positive for the Pound. However, this would also put the UK at a higher risk of recession, which is harmful. Therefore, the Canadian stability central continues to benefit the currency and prompt a decline in the exchange rate. 

The Bank of Canada holds its target for its interest rate unchanged at 5% in its September committee meeting. The central bank so far is also signaling that a pause will remain the reality unless economic data changes. On the other hand, the market expects the Bank of England to increase interest rates from 5.25% to 5.50%, which outcompetes the Bank of Canada. 

The price action of the exchange rate continues to form a bearish trend pattern with no signs of the Pound forming a correction yet. However, the instrument is now close to the previous support level from June 2023. Technical indicators are signaling a downward trend, with the price trading below the 100-bar and 75-bar Moving Average and below the daily VWAP. The price is also trading in the lower channel of the Bollinger Bands which is also a downward trend indication. If the price rises above 1.66875, the price action will signal a 0.12% rise forming a retracement. If the price regains downward momentum after retracing again, traders can look at breakouts signaling a continuation of the downward trend at a more competitive level.

GBP/CAD 15-Minute Chart on September 19th 

Summary:

• Analysts expect the Federal Reserve to keep interest rates at 5.50%, but signal a hike in November. According to the CM Exchange, there is a 35% chance of a hike in November, which is relatively high. 
• The SNP500 trades within a price range and shows potential signs of breakouts being followed by corrections back to the current range. 
• A positive factor for the stock market is the slight decline in US bond yields, which have fallen from 4.3530% to 4.323%.
• The CAD rises against the Pound as the UK recession risks rise and the CAD profits from rising oil prices. Technical analysis points towards a continued downward trend.