Every week in the forex world is a new adventure. With countries like the US showing strength and others like Europe and China facing challenges, the currency market is buzzing with activity. Some see these changes as challenges, while others see opportunities.
Whether you've been trading for years or are just starting, it's crucial to stay informed. This overview will break down the major events and trends for the week, giving you a clear picture of what to expect.
So, let's jump in and get a grasp on this week's forex highlights.
The Big Picture:
Three driving forces continue to define the current investment climate:
US Economic Strength: Despite predictions of a slowdown, the US economy seems unstoppable, with indications suggesting an acceleration beyond the 2.4% annualised pace observed in Q2.
Monetary Tightening: As the monetary tightening cycle reaches its twilight, experts predict the first rate cuts by major central banks, including the Federal Reserve and European Central Bank, by mid-2024.
Europe and China's Economic Hiccups: While the US thrives, Europe and China flounder. Europe hesitates to roll out economic support measures, and China's reforms appear less and less convincing to investors.
Preliminary August PMI Data (Release Date: August 21)
What is it? The Purchasing Managers' Index (PMI) is an indicator of economic health for the manufacturing and service sectors. A reading above 50 indicates expansion, while one below 50 signals contraction.
What to Expect:
Manufacturing: The latest data hints that manufacturing remains below the 50 boom/bust level. This suggests that the sector may be experiencing challenges, possibly due to supply chain disruptions or decreased demand.
Services: The service sector, which encompasses industries like hospitality, finance, and retail, also appears to be hovering near the contraction zone, closely trailing manufacturing.
BRICS Summit (August 22-24)
What is it? The BRICS group consists of Brazil, Russia, India, China, and South Africa – five major emerging economies. They come together annually to discuss cooperation in various areas, from economics to politics.
What to Expect:
Gold-Backed Currency Talk: Rumors are swirling about the possibility of BRICS nations introducing a gold-backed currency. However, given the complexities and potential resistance from global powers, this might be more of a speculative bubble than a reality.
Expansion of Membership: The BRICS nations might be contemplating expanding their membership base. Inviting new countries can diversify the group's economic and political clout, though no official names have been put forth.
Jackson Hole Symposium (August 24-26)
What is it? An annual gathering of central bankers, finance ministers, academics, and financial market participants from around the world, organized by the Federal Reserve Bank of Kansas City. The symposium discusses long-term trends and future policies.
What to Expect:
Global Economic Shifts: Given the ever-changing dynamics between major economies, especially with the aforementioned US strength and challenges in Europe and China, discussions will revolve around adapting to these shifts.
Market Approach: With the US economy performing strongly, many expect central bankers to adopt a dovish stance during the symposium. This means they might advocate for maintaining or reducing interest rates to support economic growth.
US: Economic resilience is in focus, with rising retail sales and industrial outputs. Watch out for the Dollar Index, which crossed its 200-day moving average recently.
DXY- Dollar Index
Scenario: Continued bullishness of the USD based on US economic resilience and potential rate cuts.
Entry Point: If the Dollar Index continues to sustain above 103.50.
Japan: Q2 GDP showed promise, but the growth is export-driven rather than domestic. The dollar's performance against the yen will be critical.
Scenario: BOJ may intervene if the USD/JPY keeps appreciating.
Entry Point: Shorting USD/JPY on signs of BOJ's intervention or if it breaks below 144.60.
Eurozone: Awaiting the preliminary August PMI, the economy remains sluggish. The euro's decline continues.
Scenario: Diverging economic performances between the US and Eurozone.
Entry Point: Shorting EUR/USD if it breaks below $1.0790.
Australia: The composite PMI fell below 50 in July, suggesting potential economic contraction. The Australian dollar's performance is bleak.
Scenario: Downward pressure on the Australian dollar.
Entry Point: Selling AUD/USD if it breaks below $0.6365.
Support: Around $0.6300
Forex Week Ahead:
The coming week promises a plethora of critical economic events and data releases. Investors need to be profit-wise to navigate this challenging terrain effectively. As always, staying updated and informed will be the key to ensuring you're not left behind in the fast-paced world of forex.
Disclaimer: Trading and investing carry financial risks and could lead to partial or complete loss of funds. Invest only what you can afford to lose and seek advice from an independent financial advisor if you have doubts about your investment choices.