. Daily FX Analysis - Dive into Forex Frenzy, Central Banks' Rollercoaster Ride

Daily FX Analysis – Dive into Forex Frenzy, Central Banks’ Rollercoaster Ride

Daily FX Analysis – Dive into Forex Frenzy, Central Banks’ Rollercoaster Ride

08 Dec 2023

Introduction

Introducing the latest developments in the financial world: Gold prices, having surged to record highs earlier this week, now navigate a landscape of uncertainty. In the midst of a potential softening U.S. nonfarm payrolls reading and anticipation around the upcoming Federal Reserve meeting, the precious metal remains perched above key levels. While profit-taking and fluctuating sentiments have caused gold to retract from its peak, it steadfastly maintains the $2,000 per ounce threshold, signaling sustained optimism among investors. As focus turns to the nonfarm payrolls data for November, markets speculate on its impact on the Federal Reserve’s monetary policy, providing a crucial backdrop for the trajectory of gold prices in the coming weeks.

Markets In Focus Today – EUR/USD

“EUR/USD Rebounds as ECB Suggests Rate Hike Pause; USD Weakens”

The EUR/USD currency pair staged a modest recovery today, breaking its six-day downtrend amid a broader sell-off of the US dollar and increased buying interest in the Japanese yen. Despite reaching a multi-week low since November 14, the pair found support in the mid-1.0700s. This rebound occurred against expectations that weaker equity markets might limit the US dollar’s losses and cap gains for the euro. The market’s focus on a potential shift in the European Central Bank’s (ECB) monetary policy influenced the euro’s movement. Comments from ECB Executive Board member Isabel Schnabel on Tuesday hinted at the possibility of the central bank pausing its rate hikes due to declining inflation rates. This dovish tone has fueled speculation about a significant ECB rate cut, with predictions totaling 142 basis points in 2024. In addition to the ECB’s stance, German industrial production in October fell more than expected by 0.4%, signaling potential economic headwinds for the eurozone. Investors are closely watching upcoming US employment data, including Jobless Claims and the Nonfarm Payrolls (NFP) report on Friday, for further cues on currency movements. In other currency news, the USD/CAD pair rose after the Bank of Canada decided to maintain interest rates at 5%. Meanwhile, GBP/USD remained subdued as strong demand for the US dollar persisted, with expectations that the Federal Reserve is unlikely to raise rates until at least July while UK interest rates are predicted to remain steady. Currency pairs like EUR/GBP are consolidating ahead of the Eurozone GDP forecast, expected to be flat following weak retail sales data. The AUD/USD faces continued selling pressure due to China’s economic challenges and speculation about an upcoming rate cut by the Reserve Bank of Australia. However, anticipations of a dovish stance from the Fed might limit further losses for these currencies.

Technical   Overview With Chart :

Moving Averages :

Exponential :

  • MA 10 : 1.08 | Negative Crossover | Bearish
  • MA 20 : 1.08 | Negative Crossover | Bearish
  • MA 50 : 1.08 | Positive Crossover | Bullish

Simple :

  • MA 10 : 1.09 | Negative Crossover | Bearish
  • MA 20 : 1.09 | Negative Crossover | Bearish
  • MA 50 : 1.07 | Positive Crossover | Bullish

RSI (Relative Strength Index) : 47.38 | Neutral Zone | Neutral

Stochastic   Oscillator : 9.62 | Buy Zone | Bullish

Resistance   And Support Levels :

  • R1 : 1.10 R2 : 1.11
  • S1 : 1.06 S2 : 1.05

Overall Sentiment : Neutral Market Direction : Sell

Trade Suggestion : Limit Buy : 1.07557 | Take Profit : 1.05620 | Stop Loss : 1.08444

GBP/JPY

Pound holds gains against yen on BoE hawkish stance and BoJ policy watch

The GBP/JPY currency pair is currently engaged in tight trading just below the 186.00 level, rebounding from a recent low of 184.45. This movement is occurring as traders anticipate potential shifts in the policies of the Bank of Japan (BoJ), given persistent inflation that has exceeded targets. The pound’s resilience is further supported by comments made by Bank of England (BoE) Governor Andrew Bailey during a Treasury Select Committee session on Tuesday, suggesting that additional rate hikes are still being considered. Bailey’s hawkish stance has provided strength to the British pound, allowing it to maintain its robust performance even in the absence of significant financial updates from the UK. Traders of the GBP/JPY pair are carefully assessing mixed signals from central banks, leading to cautious trading activity. The BoE’s willingness to continue adjusting interest rates to address inflation stands in contrast to the market’s anticipation regarding the BoJ’s policy direction amid sustained inflationary pressures. This cautious atmosphere among traders reflects a broader trend of heightened sensitivity to central bank communications in forex markets, where statements from officials can significantly impact currency valuations. Consequently, investors and analysts are closely monitoring developments from both the BoE and BoJ for further indications of how monetary policies might evolve in response to ongoing economic challenges.

Technical   Overview With Chart :

Moving Averages :

Exponential :

  • MA 10 : 184.67 | Negative Crossover | Bearish
  • MA 20 : 185.22 | Negative Crossover | Bearish
  • MA 50 : 184.59 | Negative Crossover | Bearish

Simple :

  • MA 10 : 185.48 | Negative Crossover | Bearish
  • MA 20 : 186.20 | Negative Crossover | Bearish
  • MA 50 : 184.12 | Negative Crossover | Bearish

RSI (Relative Strength Index) : 32.65 | Neutral Zone | Neutral

Stochastic   Oscillator : 23.98 | Neutral Zone | Neutral

Resistance   And Support Levels :

  • R1 : 188.40 R2 : 189.79
  • S1 : 179.892 S2 : 176.233

Overall Sentiment : Bearish Market Direction : Sell

Trade Suggestion : Limit Buy : 179.892 | Take Profit : 176.233 | Stop Loss : 181.200

USD/JPY

“Asian FX Shows Muted Activity as Nonfarm Payrolls Awaited; Yen Hits 4-Month High”

“Most Asian Currencies Steady as Traders Await Softer U.S. Nonfarm Payrolls; Yen at Four-Month High” On Friday, most Asian currencies displayed limited movement as traders positioned themselves for a potentially softer U.S. nonfarm payrolls reading, while the Japanese Yen hovered near a four-month high against the dollar, driven by hawkish signals from the Bank of Japan (BOJ). The yen emerged as the best-performing Asian currency for the week, registering a gain of over 2%, following BOJ Governor Kazuo Ueda’s indications that the central bank was contemplating a move away from negative interest rates. The yen strengthened by 0.2% to 143.88 against the dollar on Friday. Ueda’s comments, made on Thursday, prompted a significant shift in expectations, reversing bets for further weakness in the yen and reinforcing the belief that the BOJ might end its negative rate regime in 2024. Despite data showing a larger-than-initially-estimated contraction in Japan’s economy in Q3, Ueda emphasized that policy would remain accommodative in the near term to support the Japanese economy. Meanwhile, broader Asian currencies exhibited muted activity, while the dollar stabilized after a recent decline. The dollar index and dollar index futures steadied in the mid-103s in Asian trade following a sharp fall on Thursday. Concerns about a cooling U.S. labor market were raised by soft readings in job openings and private payrolls, potentially setting the stage for a softer nonfarm payrolls report for November. Any signs of a weakening labor market could reduce the Federal Reserve’s incentive to maintain higher interest rates for an extended period. Markets are keenly awaiting the nonfarm payrolls reading, which is also anticipated just days before the Fed’s final meeting for the year, where the central bank is expected to maintain rates. However, there is continued speculation about when the Fed might begin cutting rates in 2024, with expectations that rate cuts could come as soon as March 2024. In the currency space, most regional units experienced minimal movements in anticipation of the payrolls reading. The Chinese yuan declined 0.1%, facing mild weekly losses amid persistent concerns about an economic slowdown in China. The Indian rupee remained flat after the Reserve Bank of India kept rates unchanged, stating that monetary policy would stay restrictive to address inflation risks. The Australian dollar gained 0.2% but was poised to lose 0.8% for the week, reflecting a series of weak economic readings and the impact of a slowdown in China, Australia’s largest export market.

Technical   Overview With Chart :

Moving Averages :

Exponential :

  • MA 10 : 146.67 | Negative Crossover | Bearish
  • MA 20 : 147.76 | Negative Crossover | Bearish
  • MA 50 : 148.34 | Negative Crossover | Bearish

Simple :

  • MA 10 : 146.86 | Negative Crossover | Bearish
  • MA 20 : 148.37 | Negative Crossover | Bearish
  • MA 50 : 149.25 | Negative Crossover | Bearish

RSI (Relative Strength Index) : 31.42 | Neutral Zone | Neutral

Stochastic   Oscillator : 29.67 | Neutral Zone | Neutral

Resistance   And Support Levels :

  • R1 : 150.92 R2 : 152.15
  • S1 : 143.142 S2 : 140.462

Trade Suggestion : Limit Buy : 143.142 | Take Profit : 140.462 | Stop Loss : 144.142

USD/CAD

“The US Dollar Index Hits Two-Week High at 104.00 on Positive Economic Indicators”

The US Dollar Index continued its ascent, reaching a two-week peak around the 104.00 mark, propelled by positive economic indicators. The greenback’s strength is evident amidst a series of mixed economic data, presenting a nuanced view of the US economy. Today’s economic releases included a notable drop in JOLTS Job Openings to 8.73 million in October, signaling a potential cooling in the job market. However, the ISM Services PMI painted a more optimistic picture, surpassing expectations with a rise to 52.7, indicating ongoing expansion in the service sector. The impact of the US dollar’s performance is evident in various currency pairs. The EUR/USD pair dipped below the critical 1.0800 threshold after a continuous five-day decline. Similarly, the Australian Dollar weakened, with the AUD/USD falling below the significant level of 0.6550, and the AUD/NZD closing at its lowest level since mid-autumn. Market attention is turning to upcoming economic reports, with a keen focus on the US labor market, featuring the ADP employment data and the Q3 Unit Labor Costs report. Additionally, global markets are anticipating Australia’s Q3 GDP figures following the Reserve Bank of Australia’s decision to pause rate hikes. Eurozone retail sales numbers are also set to be released, alongside a positively revised Eurozone PMI report from November. In the commodities market, gold prices experienced a downturn, reaching a weekly low at $2,010 per ounce, while silver faced selling pressure, sliding to $24 per ounce. Cryptocurrencies, on the other hand, bucked the trend of traditional assets, with Bitcoin surpassing $43K and Ethereum breaking above $2,250, both reaching multi-month highs. The Canadian dollar is under scrutiny as USD/CAD climbs toward 1.3600, with markets anticipating that the Bank of Canada will keep rates steady at an unchanged high of 5%.

Technical   Overview With Chart :

Moving Averages :

Exponential :

  • MA 10 : 1.36 | Negative Crossover | Bearish
  • MA 20 : 1.36 | Negative Crossover | Bearish
  • MA 50 : 1.36 | Negative Crossover | Bearish

Simple :

  • MA 10 : 1.36 | Positive Crossover | Bullish
  • MA 20 : 1.36 | Negative Crossover | Bearish
  • MA 50 : 1.37 | Negative Crossover | Bearish

RSI (Relative Strength Index) : 42.19 | Neutral Zone | Neutral

Stochastic   Oscillator : 37.43 | Neutral Zone | Neutral

Resistance   And Support Levels :

  • R1 : 1.38 R2 : 1.39
  • S1 : 1.35 S2 : 1.34

Overall Sentiment : Bearish Market Direction : Sell

Trade Suggestion : Limit Buy : 1.3495 | Take Profit : 1.33829 | Stop Loss : 1.3700

Elsewhere In The Forex Market

“Indian Rupee Sees Slight Fluctuations Ahead of RBI Monetary Policy Review” The Indian rupee experienced minor fluctuations this week as traders awaited the Reserve Bank of India’s (RBI) monetary policy announcement. On Friday, the currency appreciated by two paise, trading at 83.34 against the US dollar, buoyed by positive equity trends. Market analysts expect the rupee to fluctuate narrowly due to balanced inflows and outflows. Contrastingly, Thursday saw the rupee settle at 83.36 versus the dollar following significant share sales by Foreign Institutional Investors (FIIs), totaling ₹1,564.03 crore. The Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, commenced discussions on Wednesday, with expectations for interest rates to remain unchanged. This comes amid a minor rise in the dollar index to 103.59 and an increase in Brent crude oil prices to $75.31 per barrel. The stock market responded positively, with the BSE Sensex surging by over 229 points and the NSE Nifty by around 70 points. Previously, the rupee appreciated by five paise on Wednesday, settling at 83.32, supported by the RBI’s efforts to maintain critical exchange rate thresholds. Market participants are closely monitoring the outcome of the RBI’s review, which has implications for both domestic equities and the broader forex market. Meanwhile, Brent crude oil prices dipped to a six-month low of $74.63 per barrel on Thursday, traditionally supporting the rupee’s value against stronger international currencies like the US dollar.

Key Economic Events & Data Release Today:

7:00PM(IST)-USD-Average Hourly Earnings m/m, Non-Farm Employment Change, Unemployment Rate 8:30PM(IST)-USD-Prelim UoM Consumer Sentiment