Navigating the Forex market? Keep a close watch on the U.S. Treasury market and upcoming policy meetings.
Headlines That Matter Today:
Oil Prices Decline, Brent Crude Drops Below $89
S&P 500 Futures Gain 0.3% Despite Previous Fall
Dollar Remains Stable Against Major Currencies
10-Year Treasury Yield Increases by Four Basis Points
Gold Prices Slip, Staying Around $2,000
Asian Markets Down; Australian, Japanese, Hong Kong Equities Fall
VIX Index Rises to Above 21
Central Bank Meetings Scheduled in Japan, US, and UK
US Treasury to Unveil Quarterly Bond Sales Plan
Big news from these sectors can trigger major shifts in trading pairs. Let's break down what's happening and how to seize the opportunities.
The Week That Was and What's Coming Next
A busy week lies ahead. Not only is the FOMC meeting scheduled, but the Bank of England and the Bank of Japan will also hold policy meetings.
Inflation data from the Eurozone and employment figures from the US, New Zealand, and Canada will be released.
Additionally, the ISM Services report is due in the US and Chinese PMIs.
Geopolitical developments also remain key factors. Investors will continue to digest corporate earnings results.
Here is what you need to know for the coming week:
The US Dollar: The US Dollar Index rebounded from one-month lows and posted weekly gains, trading around 106.50 and holding near the year-to-date highs.
The Dollar's rally is regaining momentum, with a critical resistance level around the 107.00 area. The US economic data remains a crucial driver for the Dollar.
This week, US Q3 GDP data exceeded expectations, showing economic acceleration at the fastest pace since mid-2021.
The Fed's Next Moves: Next week, the Federal Reserve (Fed) will announce its monetary policy decision.
Market expectations suggest no change in policy despite the robust economy and tight labor market, as inflation slows but remains above target. In terms of economic data, the focus will be on employment figures, including the ADP Private Employment report on Wednesday, Jobless Claims on Thursday, and Nonfarm Payrolls on Friday.
The Employment Cost Index, scheduled for release on Tuesday, one day before the FOMC decision, will also be important.
Treasury Yields and Wall Street: Despite declining Treasury yields, the DXY posted weekly gains.
Robust US economic data and risk aversion supported the Greenback.
Major Wall Street indices recorded their lowest weekly closes in months due to corporate results, geopolitical risks, expectations of higher interest rates for a longer period, and a gloomy global economic outlook.
The ECB's Stance: The European Central Bank (ECB) kept interest rates steady, and market consensus suggests they are done with rate hikes.
The ECB ended a streak of ten consecutive rate hikes as inflation slowed down and amid increasing economic uncertainty with the Eurozone on the brink of recession.
Euro's Journey: The Euro finished the week lower against the US Dollar, retreating from the monthly highs reached on Tuesday. EUR/USD encountered resistance at 1.0690, the confluence of the 55-week and 100-week Simple Moving Averages (SMA), and pulled back.
The pair managed to avoid a close below 1.0500, which would indicate further weakness.
Eurozone Inflation: Eurozone inflation data is due next week, with preliminary figures for October. It will be crucial for market expectations and also for the ECB's outlook.
A rebound in inflation could change the perception of the central bank, but it may not necessarily boost the Euro. The headline Consumer Price Index (CPI) for the region is expected to fall to 3.1% from 4.4%.
Bank of Japan: The Bank of Japan will announce its monetary policy decision on Tuesday.
There could be news regarding an increase in the 10-year yield cap. A no change in policy here could impact the Japanese Yen, potentially increasing fears of intervention from Japanese authorities to curb the Yen's weakness.
Market participants will also closely analyze the updated macro forecasts from the BoJ. USD/JPY pulled back sharply on Friday, ending the week in negative territory below 150.00.
The Pound's Plunge: GBP/USD failed to hold onto gains and finished the week with losses, posting the lowest weekly close since March.
However, the pair avoided hitting new year-to-date lows, and stayed above 1.2100. The Bank of England (BoE) will have its monetary policy meeting, with consensus expecting no change.
Now, let's dig deeper into how these upcoming events could influence Forex trading pairs, especially the majors, and what opportunities you should be keeping an eye on.
What Are U.S. Treasuries?
Think of U.S. Treasuries as loans you give to the American government.
When the government needs to fund projects or pay off older debt, they sell Treasury bonds to investors.
These bonds come with a promise: The government will pay you back with interest over time. The rates and demand for these bonds can give us clues about the economy, inflation, and much more.
Why Is This Week So Important?
1. New Bonds to be Issued
The U.S. government will reveal its plans to issue new bonds. More bonds mean more supply, and this changes how much people are willing to pay for them, affecting their yield (or interest rate).
2. Updates from Central Banks
The U.S. Federal Reserve and the Bank of Japan will make big announcements. Their words can influence interest rates and the value of the U.S. dollar and the yen.
3. Employment Data Release
We’ll get fresh employment data, a key indicator of the U.S. economy's health. Good or bad numbers could stir the financial markets.
4. Global Political Events
With escalating tensions in the Middle East, investors might look for safer assets, like U.S. bonds. This can impact the value of the dollar.
How Does This Affect Forex Pairs?
For USD Pairs
The Scenario: If the U.S. plans to issue lots of new bonds while showing strong job numbers, the U.S. dollar could get stronger.
The Forex Impact: A stronger U.S. dollar usually leads to lower EUR/USD rates, presenting a selling opportunity.
For JPY Pairs
The Scenario: An unexpected move by the Bank of Japan could shake up the yen's value.
The Forex Impact: This could lead to sharp moves in USD/JPY, giving you both buying and selling opportunities.
Trading Opportunities to Look For
1. Go Long on USD
If the U.S. economy looks robust based on the announcements, consider buying USD pairs like USD/EUR or USD/AUD.
2. The Yen's Momentum
A surprise from the Bank of Japan could trigger sudden moves in USD/JPY. Be ready to jump in or out of trades.
3. Safe-Haven Trades
In times of uncertainty, investors flock to safe currencies like USD and JPY. Look for chances to buy these currencies.
Final Thoughts and Suggestions
This week is full of big news that could rock the forex market. As a trader, stay alert, digest the news, and be ready to act. Opportunities don't always knock twice. So, be prepared to seize them when they come.
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