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Weekly Analysis
December 15, 2024

Forex Week Ahead – Dec 15, 2024 – Anticipating Central Bank Decisions and Key Economic Indicators

Key Insights

​This week is crucial for Forex market participants as major central banks finalize their year-end policy decisions.​ Anticipated moves from the Federal Reserve, Bank of Japan, and Bank of England will significantly impact currency valuations. The U.S. Federal Reserve is expected to implement a 25 basis point rate cut, reflecting a cautious approach amid persistent inflation and a solid labor market. Traders should also monitor the upcoming Purchasing Managers’ Index (PMI) releases and inflation data across several economies, as these will provide insight into economic health and central bank strategies.

Market Overview

Last week’s Forex market saw the U.S. Dollar Index (DXY) gain about 1.3%, reflecting a robust market response to ongoing economic data releases. The prevailing sentiment was supported by sticky inflation figures that complicate the Fed’s rate-cut plans. Key reports showed the U.S. Consumer Price Index (CPI) rose by 2.7% year-on-year, slightly surpassing forecasts and reinforcing the narrative of sustained inflation pressures. The Euro faced headwinds, remaining under 1.0500 against the Dollar due to uncertain economic conditions in the Eurozone, while the British Pound showed resilience amid better-than-expected economic data, supported by a hawkish stance from the Bank of England.

In global contexts, the Japanese Yen saw mixed reactions ahead of the BoJ’s decision, which is expected to maintain a dovish approach despite some upward pressure from strong domestic consumption data. The outlook for the Canadian Dollar is contingent on inflation reports following the Bank of Canada’s aggressive rate cut. Overall, the Forex market is likely to experience heightened volatility as investors digest the ramifications of central bank announcements and incoming economic data.

Currencies Summary

🇺🇸 U.S. Dollar (USD): Last week, the DXY posted steady gains bolstered by inflation data showing a 2.7% rise in CPI, thereby adding doubts to the possibility of aggressive rate cuts. The upcoming Fed meeting is crucial, as a dovish tone could lead to a pullback in USD momentum, presenting opportunities for currency traders.

🇬🇧 British Pound (GBP): The GBP remained strong as UK economic data outperformed expectations, particularly in labor market statistics. Market sentiment suggests that the BoE will likely maintain rates, providing the pound with ongoing support. The upcoming CPI and labor data this week will be vital in gauging the economic trajectory and the pound’s resilience.

🇪🇺 Euro (EUR): The Euro struggled against the advancing USD, maintaining pressure below the 1.0500 mark due to ongoing challenges within the Eurozone economies. Preliminary PMIs this week could signal further economic deterioration, impacting the Euro’s stability against the Dollar and other currencies.

🇯🇵 Japanese Yen (JPY): With expectations for no rate changes from the BoJ, the Yen faces a crucial period that may see further weakening unless there are unexpected hawkish signals from policymakers. The strength of the Yen remains intertwined with global economic trends and local inflation metrics.

🇨🇦 Canadian Dollar (CAD): The CAD is under scrutiny following a significant rate cut from the BoC last week. The Friday release of inflation data will be critical, as continued inflation could mitigate prospects for further rate cuts, affecting CAD valuations through investor confidence.

Upcoming Economic Calendar

The upcoming economic calendar features critical data releases such as the U.S. Core Personal Consumption Expenditures (PCE) Price Index on Friday, which is closely watched by the Fed. Additionally, preliminary PMIs from the Eurozone will be released on Monday, UK job data on Tuesday, and UK CPI on Wednesday. These events are essential as they provide insights into economic health and inflationary pressures, helping traders make informed decisions about their positions and strategies based on central bank outlooks.

Conclusion

This week’s Forex market is poised for significant movements due to central bank decisions and pivotal economic data releases. Traders should focus on how these factors will shape currency valuations and the broader economic landscape. Engaging with these insights can help traders navigate the potential volatility and make strategic trading decisions in a dynamic market environment.

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Weekly forex market analysis, USD, NFP, EUR, CAD, JPY
Weekly Analysis
December 1, 2024

Forex Week Ahead – Dec 2, 2024, Economic Data Sets the Stage, Eyes on U.S data, JOLTS Job Openings, NFP

Key Insights

The upcoming week is pivotal for the Forex market, centered on the Non-Farm Payrolls (NFP) data, which is expected to show an increase of roughly 195,000 jobs. Analysts are also watching key metrics including the ISM manufacturing and services PMIs, ADP employment numbers, and JOLTs job openings, all of which will influence market sentiment as traders adjust their expectations around Federal Reserve interest rate policies.

Market Overview

Last week, the Forex market saw significant activity amid a slew of economic reports. The dollar began cautiously as traders anticipated the NFP report and other employment data set for release this coming week. Analysts project a slight rise in the unemployment rate to 4.2%, which could maintain the pressure on the Federal Reserve to consider a 25 basis point rate cut during its December 18 meeting. The dollar index recorded fluctuations but managed to close the month with a 1.8% gain, despite last week’s downturn.

As the markets anticipated the upcoming FOMC meeting, the discussion surrounding interest rates gained momentum. The expectations around employment metrics reinforced the view that strong job creation could result in adjustments to anticipated rate cuts. Geopolitical factors and inflation concerns also played a role, with persistent inflation reportedly complicating the economic outlook.

Currencies Summary

🇺🇸 US Dollar: The dollar has shown volatility, with last week’s decline stemming partially from cooling rate cut expectations. The upcoming NFP report will be crucial in shaping future movements.

🇪🇺 Euro: The euro gained against the dollar due to stronger-than-expected economic outlooks in the Eurozone, but political uncertainties remain a concern.

🇯🇵 Japanese Yen: The yen maintained strength as expectations rose regarding interest rates, bolstered by recent comments from the Bank of Japan.

🇨🇦 Canadian Dollar: The Canadian dollar’s movements were influenced by the performance of energy prices, with upcoming employment data also likely to impact its direction.

🇦🇺 Australian Dollar: The Aussie dollar remains sensitive to global economic conditions, and data releases next week will be pivotal for its valuation.

Upcoming Economic Calendar

Next week, traders should closely monitor significant calendar events, including the ISM manufacturing and services PMIs, JOLTs job openings, and the ADP employment report on Wednesday. The highlight of the week will be the NFP release on Friday, which is forecasted to show a gain of 195,000 jobs, crucial for shaping market sentiment. These events are critical as they provide insights into labor market health and influence expectations for the Federal Reserve’s monetary policy, impacting currency valuations and trading strategies.

Conclusion

The coming week will be essential for Forex traders as key employment metrics are released, shaping expectations for monetary policy decisions. Notably, the NFP report will be the focal point, which could realign market sentiments and impact currency movements significantly. Traders should prepare to adjust their strategies based on these pivotal economic indicators.

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Weekly Analysis
November 25, 2024

Forex Week Ahead – Nov 25, 2024, RBNZ Rate Cuts, US PCE Data, and Eurozone CPI Insights

Key Insights

The upcoming week is pivotal for the Forex market with several influential data releases. ​Key highlights include the Reserve Bank of New Zealand (RBNZ) expected to slash rates by 50 basis points, significant PCE inflation data in the US, and flash CPI results from the Eurozone.​ The outcomes of these events will likely influence currency valuations, particularly for the New Zealand dollar, the Euro, and the US dollar.

Market Overview

As traders brace for the week ahead, the Forex market is set for heightened volatility influenced by important economic data and central bank decisions. Last week, the US dollar extended its rally following Donald Trump’s election victory, raising questions about future Federal Reserve actions and economic policy direction. The RBNZ’s anticipated rate cut could weaken the New Zealand dollar, potentially leading it to fresh annual lows. On the European front, rising inflation could deter the European Central Bank (ECB) from aggressive rate cuts, thus providing some support for the Euro against the dollar.

Currencies Summary

🇺🇸 USD: The recent uptrend continued with strong data, positioning the dollar as a formidable force. The focus next week is on the PCE inflation report, with core inflation expectations possibly rising from 2.7% to 2.8%, impacting Fed rate-cut decisions.

🇪🇺 EUR: The Eurozone may see volatile movements as flash CPI reports are released. With expectations of CPI rising from 2.0% to 2.4%, the Euro could find itself supported, countering aggressive cuts from the ECB.

🇳🇿 NZD: The New Zealand dollar is likely to be pressured by the RBNZ’s anticipated 50 bps rate cut. A more aggressive reduction could escalate losses for the Kiwi, pushing it closer to 2024 lows.

🇨🇦 CAD: The Canadian dollar’s recent performance has suffered amid aggressive rate cuts from the Bank of Canada. Upcoming GDP data may provide hints about future monetary policy shifts, which could lead to market fluctuations.

🇦🇺 AUD: Australia’s CPI figures will be scrutinized closely. An increase to 2.3% could foster support for the Australian dollar, despite its overall weaker tone compared to the US dollar.

Upcoming Economic Calendar

The upcoming week features a series of critical economic events. On November 27, the RBNZ will announce its rate decision, likely slashing rates by 50 bps. The US PCE inflation data will be released on the same day and is crucial for assessing future Fed cuts, predicted to influence market trends significantly. Eurozone flash CPI data on November 29 could deter immediate ECB cuts, while in Australia, October’s CPI and Q3 capital expenditure data will be released on November 27 and 28, respectively. Each of these events is essential in shaping traders’ strategies for the upcoming week due to the influence they wield over currency movements.

Conclusion

The Forex market stands on the precipice of several potential shifts influenced by critical upcoming economic data releases and central bank meetings. With traders closely monitoring the impact of the RBNZ, Fed, ECB, and other central banks, the week ahead promises to be filled with uncertainties and opportunities.

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federal reserve
Analysis
September 6, 2023

FED interest rate hike probability

Based on the latest market pricing, the probability of an interest rate hike by the Federal Reserve in November has increased to 52%

The rise in expectations followed a surprise survey of the services sector by the Institute for Supply Management in August, which showed an acceleration in economic activity, including prices paid. The overall index rose to 54.5 from 52.5, and the prices sub-index increased from 56.8 to 58.9, reflecting rising price pressures in the economy. Market participants are currently grappling with uncertainty about how much the Federal Reserve will raise interest rates and how long interest rates will remain high. Federal Reserve officials have made it clear they will keep interest rates on hold for now, but will closely monitor economic data to determine their next steps. While some economic indicators have begun to moderate, the strong performance of the US services sector serves as a forward-looking indicator of continued economic strength.

An interesting perspective to consider is that earlier in the year, there was considerable talk of an impending recession, causing companies to take a cautious approach and potentially causing consumers to cut back on spending as well. However, the predicted recession never materialized and companies now find themselves with empty inventories but still experiencing high demand. As a result, they are putting aside their previous concerns and are actively investing in replenishing their inventories. It is important to realize that most of the stagnation is caused by psychological factors and this psychological barrier may have been removed, at least from a business perspective.

However, the impact of higher interest rates on consumers, especially in terms of the affordability of items such as new cars and mortgages, can be a gradual process. The market is currently pricing in an 89 basis point cut in interest rates by December 2024, but that forecast still depends on how the economic data unfolds. The possibility of higher interest rates for a longer period is certainly a possibility. Currently, the key point of these developments is the strengthening of the dollar in the currency market; Because expectations of a possible increase in interest rates in November continue to affect currency valuation and financial markets.

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Japan
News
April 2, 2023

IMF Says BOJ Should Avoid Premature Exit from Monetary Easing

The International Monetary Fund said the Bank of Japan should avoid a premature exit from monetary easing, advising it to maintain its policy framework.

  • IMF advises BOJ to keep current monetary policy framework
  • Fund reiterates recommendations on long-term yield flexibility

The recommendation from the International Monetary Fund is to ensure that Japan’s economy continues to recover from the pandemic. The Bank of Japan should maintain its current monetary policy until inflation sustainably reaches its 2 percent target, according to the International Monetary Fund’s annual report on Japan released on Thursday. The Bank of Japan should also be ready to implement additional measures if necessary to support the economy, the report said. The IMF report acknowledges that Japan’s economy has shown signs of recovery, with increased exports and industrial production, as well as increased business and consumer sentiment. However, the report also highlights challenges facing Japan’s economy, including a shrinking population and the risk of a resurgence in Covid cases.

The Bank of Japan has taken a number of measures to support the economy during the pandemic, including negative interest rate policy and large-scale asset purchases. However, the IMF report suggests that the Bank of Japan could do more to support the economy, such as expanding its asset purchases and implementing yield curve controls to lower long-term interest rates further. The report also urges Japan to implement structural reforms to increase productivity and support growth. The IMF recommended that Japan implement measures to increase labor force participation, promote competition in product markets, and improve corporate governance. Overall, the IMF report on Japan highlights the importance of continued support for the Japanese economy as it recovers from the pandemic.

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