The US Dollar was boosted towards the end of last week as the yield curve flattened which is likely indicating the rising hawkish Federal Reserve monetary policy prospects. This followed a week where US GDP slowed faster than expected in the third quarter. Meanwhile, the Fed’s preferred inflation gauge, core PCE, remained well above the central bank’s target.
Traders turn their focus to the November FOMC monetary policy announcement due on Wednesday. Following a move in the central bank’s attitude on inflation, the monthly asset purchase tapering is expected to begin. This is anticipated at a pace of US$10 trillion per month, which is expected to be completed by June 2022. How soon will rate hikes follow though?
Looking forward, on Monday French and Italian banks will be closed in observance of All Saints Day and in the US the ISM Manufacturing PMI will be released. On Tuesday, Investor’s focus will be at the Australian Cash rate and Rate statement in the early hours and during the day the European manufacturing PMIs. On Wednesday, Japanese banks will be closed in observance of Culture Day but later a series of important economic data from the US will be release like the ADP Non-Farm Employment Change, ISM Services PMI and FOMC statements at night. Thursday will be filled by UK Central Bank monetary policy decisions.
The week will also wrap up with October’s non-farm payrolls report. Markets may pay closer attention to wage data, which can have inflationary impacts on the economy. Average hourly earnings are expected to shoot higher to 4.9% y/y from 4.6% prior. This is still well above pre-pandemic trends and may influence the timing of Fed rate hikes down the road. On balance, the risks seem tilted to the upside for USD.
Major Currencies Performance and Signals
EUR/USD
The EURUSD pair ended the week down despite a bullish move on Thursday after US GDP. The weak US yields helped the Euro to regain some momentum. The US NFP, Fed, and Eurozone economic forecast are the key events to watch next week.
FORECAST: SELL
Resistance: 1.1600, 1.1650, 1.1700
Support: 1.1550, 1.1500, 1.1450
GBP/USD
The Cable fell dramatically on Friday, dragged down by a general US dollar strength. Markets are betting on a 15-basis-point rate hike at the November meeting, and they don’t seem that they will get disappointed.
FORECAST: NEUTRAL
Resistance: 1.3700, 1.3750, 1.3800
Support: 1.3650, 1.3600, 1.3550
AUD/USD
With the tightening cycle of central banks in progress, interest now turns to the rate of easing. In Australia, the yield on the April 2024 bond surged above 0.7%. While the Aussie is still ready to increase in the long term, it may correct lower before regaining its former strength.
FORECAST: BUY
Resistance: 0.7550, 0.7600. 0.7650
Support: 0.7500, 0.7450, 0.7400
USD/JPY
The dollar bounces at 113.25 and reaches levels past 114.00. The US Dollar appreciates on higher inflation expectations. The USDJPY pair expected to dive towards 112.00 in three months – Rabobank.
FORECAST: NEUTRAL
Resistance: 114.00, 114.50, 115.00, 115.50
Support: 113.50, 113.00, 112.50
USD/CAD
The Canadian Dollar fell for a second consecutive week against the US Dollar with USDCAD up just 0.24% for the week. The pair seems to be ranging between 1.24 and 1.23 prices, but traders are waiting for the NFP on Friday for a new momentum.
FORECAST: NEUTRAL
Resistance: 1.2400, 1.2450, 1.2500
Support: 1.2350, 1.2300, 1.2250
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