Table of Contents
Last Week Summary
The financial markets are experiencing a lot of volatility and uncertainty due to geopolitical tensions. The bond market is susceptible, with the 10-year Treasury yield reaching 5% for the first time since 2007. This is due to a combination of factors, including an expanding bond supply and ongoing geopolitical crises.
The US yield curve is also rapidly normalizing, historically associated with a bear steepening of the yield curve that foreshadows a recession. Global stock markets are also experiencing bearish sentiment, and gold prices are rising due to growing uncertainties.
Despite the risk-off sentiment and rising yields, the US Dollar has not fully capitalized. While the Dollar Index may continue to consolidate, the overall bullish outlook remains intact. In fact, rising yields and market risks are strengthening the Dollar’s standing, rather than undermining it.
Economic activity in the United States for September exceeded expectations, with both Industrial Production and Retail Sales outperforming. The Federal Reserve’s recent Beige Book report characterized the US economic situation as “stable,” offering no significant new insights since the previous September report.
Jobless Claims for the week ending on October 13 surpassed expectations, falling to 198,000 from the previous week’s 211,000.
Lastly, the probability of a 25 basis point interest rate hike at the December meeting has decreased to approximately 24%, according to the CME FedWatch tool. This marks a decline from nearly 40% at the beginning of the week.
EURUSD Weekly Forecast
President Christine Lagarde on Thursday, October 26, 2024, released the forward guidance on the Euro along with the ECB Interest Rate Decision for October. Traders must closely watch the forward guidance provided by President Christine Lagarde to determine the impact of a pause in the EURUSD. If Lagarde implies the end of the tightening campaign, the euro may suffer significant losses against the US dollar, causing a decline compared to the British pound. Alternatively, if the guidance suggests another rate hike, the EURUSD could recover in the near term, with a positive effect on EURGBP to a lesser extent. This scenario is likely to materialize and must not be taken lightly.
For the first time since mid-July, the EURUSD pair closed the weekly candle outside of the enclosed channel. However, it is still trading within the range of 1.06396 and 1.04473. The breakout of the channel could indicate that buyers are entering the market, and there is a possibility of a shift in the trend.
Traders should closely monitor the price action in the coming week, considering two possible scenarios: a break of resistance or a breach of support.
If the EURUSD price manages to break the resistance level at 1.06396, it could move higher, testing the 50 Moving Average on the daily chart. The next level to watch would be 1.07546.
However, if the price fails to break the top of the range at 1.06396, it is likely to drop towards 1.04180 and possibly even lower.
EURGBP Weekly Forecast
EURGBP has been experiencing significant upward momentum this month, breaking through several key technical barriers. These include surpassing the 38.2% Fibonacci retracement level from the 2023 selloff, the 200-day simple moving average, and key swing highs from July and September. If the current gains can be sustained, the bullish momentum may be strong enough to push prices above the resistance level at 0.87400. In the event of further strength, the focus would then shift to levels at 0.87940 and subsequently 0.88747.
However, if there is a setback, there is a support level at 0.86140 that is likely to attract buying interest from traders. Although it is possible for the exchange rate to stabilize within this range during a pullback, a breach of this support level may reignite bearish sentiment and potentially lead to a decline toward the 0.84960 level.
WTI OIL Weekly Forecast
Despite a somewhat sluggish Friday characterized by oil price fluctuations, Crude Oil is poised for another bullish week. Geopolitical developments are taking precedence over the usual fundamental factors such as inventory data and statements from OPEC officials.
Earlier in the week, the agreement between Venezuela and the United States to lift sanctions and grant a temporary 6-month license was initially seen as a potential positive development. Market participants had hoped that this move would flood the market with additional supply, potentially lowering oil prices. However, experts cautioned that this might not be the case due to the poor condition of oil fields and infrastructure resulting from underinvestment and sanctions. Similarly, OPEC stated that they do not anticipate a significant short-term impact from the lifting of sanctions, suggesting that it will take time for Venezuela to return to its pre-sanctions output levels.
The upcoming week promises a busy calendar with several high-impact data events from various countries. Key events include the release of US GDP figures and interest rate decisions from the Bank of Canada (BoC), as well as inflation data from oil-producing countries like Australia. These data releases will be crucial to monitor as they are expected to significantly impact the Crude Oil market.
A positive GDP reading from the US should maintain the interest of oil bulls. Concerns had arisen about a potential global slowdown in the fourth quarter of the year, including in the US, which could have led to increased fears about oil demand and, consequently, lower oil prices. However, despite signs of slowdown in some countries, oil bulls have not been deterred, especially with the extension of OPEC production cuts.
On the weekly chart for WTI, a strong uptrend is evident, and the likelihood of a higher high appears to be growing, especially with the weekly candle shaping up to close as a hammer. Conversely, the daily timeframe paints a more mixed picture, with Friday’s daily candle finishing on a bearish note. There is support at 85.90, just above the 50-day moving average (50MA). A breach of this support could potentially lead to a drop in the price of Crude Oil to the 78.10 support area. However, if the bulls manage to turn the market around on Monday, there is a significant resistance level at 94.90. A breakthrough above this resistance level could potentially propel the price of Crude Oil toward the 107.40 mark.
XAUUSD (GOLD) Weekly Forecast
Last week, the price of gold reached the mark of 1997, which was just 3 points shy of the psychological level of 2000 on Friday. However, it dropped back and closed at 1981. The current escalation of the Palestine-Israel war and the uncertainty in the U.S. economy have been the driving forces behind the bullish momentum of this safe-haven asset. Technically, gold has been in an upward cycle since 1812, and the 4-hour chart below shows a pattern of large bullish moves, small pullbacks, and another bullish move that follows immediately. If this pattern continues, which is likely due to the prolonged Palestine-Israel war, gold is expected to continue its upward movement towards 2040 before reaching the all-time high of 2080 later this week.
It is crucial to note that several events later this week are likely to have an impact on the price of XAUUSD (Gold), including US Building Permits, Bank of Canada Interest Rate Decision, Fed Chair Powell Speech, ECB Interest Decision for October, US GDP, Initial Jobless Claims, Core Durable Goods Orders, and Core PCE Price Index. Therefore, it is essential to keep an eye on these events and their impact on the price of gold if you are a gold trader or investor.
CADCHF Weekly Forecast
The CADCHF has been trading in a range since late April, and last week it closed at the bottom of the range. There is a possibility that this range-bound movement will continue, which could see the price of this pair move back up to the top of the range at 0.68278. However, both buyers and sellers should exercise caution as there will be an event release on Wednesday, October 25th, regarding Bank of Canada’s Interest Rate Decision, which could significantly impact this pair.
I personally recommend staying away from this pair until the interest rate decision has been made, and the market has fully digested the impact. Before the news is released on Wednesday, there is likely to be consolidation, making it even more important to stay away from this pair. After the news, a clear direction will be set, either the support level at 0.64600 will be broken, which will result in a continuation downward, or there will be a bullish momentum towards the top of the range at 0.68278, which is likely to end the current range-bound movement and set a new direction to the upside.
Key Area to watch
- 0.64600 level
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