Table of Contents
Last Week Summary
The S&P 500 stock index has recently experienced a decline of more than 10%, which meets the definition of a ‘market correction.’ This has raised concerns among forex traders who are closely monitoring the situation due to factors such as geopolitical tensions, interest rates, and less-than-stellar third-quarter corporate earnings.
The US stock market witnessed a significant surge in the first seven months of this year, driven by the excitement surrounding artificial intelligence and the belief that the Federal Reserve was nearing the end of its interest rate hike campaign. However, the market is currently facing its third consecutive month of losses, which is the longest monthly downturn since the COVID-19 pandemic began in 2020. The Nasdaq Composite index has also entered a correction phase, although it did show a slight recovery on Friday.
Forex markets have been further impacted by interest rate pressures caused by the conflict between Israel and Hamas. This has led to a flight towards safe-haven assets such as gold and the Swiss franc. The ongoing conflict, which involves a significant ground offensive in Gaza and intense aerial bombardment, has disrupted communications in the region.
As a result of the escalation in the Israel-Hamas conflict and increasing demand for safe-haven assets, the price of gold has crossed the $2,000 mark. Forex traders are also closely watching the upcoming U.S. Federal Reserve policy meeting scheduled for next week, which could further influence currency markets.
EURUSD Weekly Forecast
Last week was relatively uneventful for the Euro currency, mainly due to the lack of significant changes in the European Central Bank’s (ECB) monetary policy decision. President Lagarde’s comments reiterated the standard key points, with the only noticeable variation being a more cautious outlook when discussing the economy’s future. The President emphasized the ‘higher for longer’ narrative more prominently than during the September meeting and expressed disappointment in recent macroeconomic data and signs of labor market weakening. This suggests a somewhat dovish stance, which could continue to exert downward pressure on the Euro. President Lagarde also indicated an expectation that monetary policy will continue to influence the economy into Q4 and the next year. Therefore, the ECB staff projections could potentially be revised downwards come the December meeting.
Despite this, the Euro currency did not depreciate significantly following the ECB decision, and even gained ground after a brief dip. This is partly due to the current dynamics of the US Dollar, which has experienced significant declines recently.
Given the Euro Area’s diminishing growth prospects, the dovish outlook is not unexpected. However, there are inflation-related risks that could prompt a reassessment by the Central Bank. The upcoming week’s focus will be on the Flash Inflation data for October and the Quarter-over-Quarter GDP growth rate. Inflation takes center stage, especially given the recent uptick, which could potentially nudge the ECB towards a more hawkish rhetoric as we head into the December meeting. It’s worth noting that forecasts indicate a drop in both inflation and the Month-over-Month data. Forex traders will be closely monitoring these developments for potential market impact.
Since hitting a low on October 4th around the 1.04500 mark, the EURUSD pair has been experiencing higher highs and higher lows. It has also broken the long-term descending trendline that had been in play since the mid-July highs.
On Monday and Tuesday, the EURUSD price briefly managed to break the resistance level at 1.06750. However, it was rejected twice by the 50 Moving Average on the daily chart, and the price was sent back to the support zone.
If the EURUSD manages to hold the support level at 1.05000, we can expect a retest of the resistance around 1.06960 this week. This will be followed by 1.07655 and 1.09520. On the other hand, if the price breaks below the 1.0500 mark, it will need to navigate support at 1.0450 before attention turns to the 1.0300 level.
EURJPY Weekly Forecast
EURJPY has been trading within a narrow range for almost three months, specifically between the levels of 156.70 and 160.00. During this period, the possibility of FX intervention has kept the Yen strong, while the Euro’s weakness has also contributed to this range-bound behavior.
At this point, the pair requires a catalyst to break out of this range. This catalyst could be in the form of FX intervention from the Bank of Japan or any indication of a bullish resurgence in the Euro. The candle on Friday closed bearish, indicating potential bearish price action at the beginning of the week. EURJPY may continue to remain range-bound, with short-term positions remaining the most favorable
Last week, EURJPY also failed to re-enter the channel and was also unable to break above the 160.00 level, which is a significant resistance level. Furthermore, the pair was not able to break below the 50 MA, as shown on the daily chart on Friday, confirming the range bias.
USDJPY Weekly Forecast
Wednesday will be a significant day for the US Dollar as the US Federal Reserve will announce its monetary policy decision. The market expects the Federal Open Market Committee (FOMC) to keep the interest rates unchanged, which means that the benchmark rate will remain within the 5.25% to 5.50% range. However, everyone will be keen on hearing what Chairman Powell says during his press conference, especially about the forward guidance.
In September, the central bank hinted that there could be potential policy tightening in 2023. However, some policymakers have recently expressed doubt over another rate hike, as the bond market is effectively tightening financial conditions through elevated yields. Therefore, Powell’s comments will be crucial in this context.
If Powell favors another quarter-point rate hike later this year, the U.S. dollar may see a robust rally against the Japanese yen as traders adjust their expectations for the Fed’s terminal rate. Considering the strength of the U.S. economy and the persistence of inflation, this scenario is still a possibility.
On the other hand, if the central bank chief takes a more cautious approach and suggests that the aggressive tightening initiated in 2022 is coming to an end, we may see a retracement in USD/JPY’s recent gains.
Looking at this week, USD/JPY is expected to continue its upward trajectory in the short term. However, a closer look reveals a gradual loss of momentum among buyers. Consequently, it’s plausible that this pair may make one final bullish move toward the 152.000 resistance level before declining towards 148.200, followed by the 144.500 support level.
GOLD (XAUUSD) Weekly Forecast
Gold, a traditional safe-haven asset, has recently surged by nearly 10% from its recent low, showing its well-known responsiveness to geopolitical tensions. However, the strong bullish momentum seems to have hit a pause earlier last week as traders evaluate the commodity’s overbought status and closely monitor ongoing negotiations concerning a potential ceasefire and the release of civilian hostages.
Early signs indicate progress in these negotiations, but Israel has continued its efforts, taking action to clear mines, neutralize anti-tank defenses, and gather intelligence on Hamas’ positions in a Thursday evening operation.
Last week, gold experienced a slight dip at the beginning of the week but rebounded as the week progressed, ultimately closing above the psychological and resistance level of $2,000. Elevated U.S. yields suggest that gold’s primary driving factor remains its appeal as a safe-haven asset.
Looking ahead, the next resistance levels to watch are at $2,010, followed by $2,047, and the all-time high of approximately $2,081.80. Additionally, gold is now comfortably above its 200-day simple moving average (SMA). In case of a pullback, potential support can be found at $1,937, which coincides with the 200 SMA.
For those considering a long-term selling position, it’s advisable to exercise caution and potentially wait until gold reaches the $2,081 to $2,100 range. Both technical and fundamental factors suggest that gold may be poised to approach these levels at the moment.
- 2081.00 – 2100.00
USOIL (WTI CRUDE OIL) Weekly Forecast
The past week has been a turbulent one for USOIL prices due to escalating geopolitical tensions, particularly between Israel and Gaza. Brent futures saw a noticeable 3% increase, reaching $90.48 per barrel, and U.S. WTI rose to $85.54. Although there haven’t been any global oil supply disruptions, traders are on edge about the future outlook, which has resulted in a flurry of activity on the trading floor.
Despite the price volatility, investors are being cautious and refraining from shorting oil over the weekend due to the unpredictability of developments in the Middle East. The market sentiment remains highly sensitive, and any news could serve as a potential catalyst. For example, earlier in the week, USOIL prices surged by over $2 per barrel when the U.S. military conducted strikes on Iranian targets in Syria, only to reverse course as reports of mediation talks between Hamas and Israel were processed.
From a technical perspective, US OIL is showing resistance at the $82.10 level but is still trading below the 50-day Moving Average at $82.20. A sustained position below the 50-day Moving Average suggests the potential for US OIL to decline toward the $77.80 level. Conversely, a breakout above the 50-day Moving Average could pave the way for US OIL to revisit the resistance levels in the range of $94.00 to $96.00.
US OIL’s price dynamics are heavily influenced by fundamental factors, particularly the situation in the Middle East. If the conflict between the U.S. and Hamas escalates and expands to involve oil-producing countries like Syria and Iran, it is likely to trigger an upward spike in oil prices. However, if tensions de-escalate during the upcoming week or do not spread further, oil prices could trend lower, potentially revisiting the support level around $64.00.
- 94.00 – 96.00
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