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US NFP DATA FOR OCTOBER
The US Non-farm payroll data for October fell short of expectations, with the actual figure coming in at 150,000 compared to the anticipated 180,000. Furthermore, the unemployment rate showed a slight increase from 3.8% to 3.9%. Although average hourly earnings exhibited an increase on a yearly basis, they cooled off slightly on a month-to-month basis.
This data release occurred after the recent FOMC meeting, where the Federal Reserve maintained its hawkish stance but expressed some dovish concerns regarding the ongoing tightening due to elevated US yields and the potential change in economic conditions leading up to the year-end.
Earlier in the week, other labor market indicators, such as the ADP employment change and the JOLTs report, also failed to meet estimates and showed little change in job openings. The Fed has been advocating for a period of below-trend growth and a modest increase in unemployment to help control inflation, and these conditions may be materializing.
The recent decline in the bond market may have already reached its peak as treasury yields and the US dollar are gradually trending downward. Furthermore, Fed funds futures are indicating a reduced probability of another interest rate hike before the end of the year, with the possibility of rate cuts moving closer. Market participants will closely scrutinize upcoming economic data for any signs of weakness that could reinforce the notion that US interest rates have already peaked.
Following the release, the 2-year US treasury yield declined by around 12 basis points, while the 10-year yields dropped by 11.5 basis points, as markets reassessed the likelihood of another rate hike from the Fed. Conversely, gold experienced a notable upward movement as the weaker US dollar offered an immediate discount to foreign buyers of the precious metal. There is potential for further increases in gold prices as more bidders enter the market over the weekend, especially if traders are concerned about potential escalations in the Middle East, although these concerns have diminished somewhat following the statement by the Israeli Prime Minister indicating a prolonged conflict.
Japanese Yen Weekly Analysis
Last week was an important one for the Japanese Yen, with several significant developments that could impact its future path. During the Bank of Japan (BoJ) meeting on October 31, 2023, the Central Bank made some adjustments to its Yield Curve Control (YCC) policy, marking another step towards policy normalization. The BoJ clarified that 1% is the upper boundary for the JGB 10-year yield, rather than an absolute cap, as had been the case before. This move indicated a dovish message, suggesting that the BoJ might not intervene immediately as the yield approaches 1%.
Currently, market participants are pricing in a 70% probability of a rate hike from the BoJ in April 2024. The upcoming week’s economic calendar for Japan is lighter, with no significant data releases. However, the BoJ meeting minutes may provide additional insights into the policymakers’ thought processes and their outlook for the future.
In the United States, the focus is on speeches from Federal Reserve Chair Powell on November 8th and 9th before the release of the Michigan Consumer Sentiment data. It will be intriguing to hear Chair Powell’s comments and whether he will push back against the dovish narrative that seems to be emerging regarding future rate hikes. However, following the recent jobs data, Chair Powell’s remarks may inadvertently add further support to the current dovish sentiment.
If this dovish trend continues, the BoJ could benefit the most, and USDJPY may enter a new phase of consolidation driven by ongoing weakness in the US Dollar. Of course, other potential factors could come into play, such as developments in the Middle East conflict. This is one of the few factors that could bolster the US Dollar if it shows signs of contagion next week and should be closely monitored. With all these factors in play, the Japanese Yen’s future path is anything but clear. Therefore, investors should remain vigilant and keep a close eye on unfolding events to make informed decisions.
GBPJPY Analysis and Forecast
On the monthly time frame, GBPJPY has found strong support at the level of 124.460, and since then, it has consistently moved upward. The next significant zone to monitor for a potential reversal this year is around 195.00. However, the aim is not to wait for several months before trading this currency pair.
Switching to the weekly time frame, the recent low for GBPJPY was at 149.090, and this level was promptly rejected, leading to a further bullish trend.
If we apply a Fibonacci extension to this low point, we can identify the 1.000 level, which acted as support at 178.323. Looking ahead, the next area of resistance where a short-term selling opportunity could arise is at the 1.618 Fibonacci extension level, around 192.488. This level corresponds to the monthly bearish zone from which the price previously declined.
As a result, any pullback in the GBPJPY should be viewed as a buying opportunity until the price reaches 192.488. At that point, we are likely to observe a gradual shift in momentum for this currency pair, signaling a potential shift toward a bearish trend.
USDJPY Analysis and Forecast
The USDJPY; just like its counterparty GBPJPY has both been on a bullish run, as shown on the chart below. However, last week’s candle closed as a shooting star, which is a bearish signal that suggests a potential downside move. Upon examining the weekly timeframe, the large wicks on the candles are similar to the patterns that occurred before the Bank of Japan’s (BoJ) FX intervention in 2022.
As we previously analyzed, USDJPY encountered resistance at the 151.700 level, which is only about 20 pips away from the 2022 highs. Following this resistance, the price declined and ended the week with a bearish candle. Any attempt to move upward is likely to face selling pressure. As a result, it looks like this currency pair is set for a potential sell-off.
NZDJPY Analysis and Forecast
The NZDJPY currency pair has been exhibiting a bullish momentum, maintaining a structure of higher highs and higher lows during its recent upward movements. However, this pattern may be approaching a turning point. Upon examining the monthly chart, it becomes clear that there is a significant resistance level at 94.065, which could cause sellers to step into the market. Therefore, there might be one final push to the upside, possibly reaching the level of 94.065, before the bullish momentum of this pair undergoes a potential shift toward a bearish trend.
EURUSD Analysis and Forecast
The Federal Reserve’s expected interest rate hike seems highly unlikely now, even though the US GDP growth in Q3 exceeded expectations. The Fed has been consistently observing the tightening financial conditions due to rising bond yields and signs of a slowing labor market, especially after the disappointing NFP data revealed fewer job additions than expected (150k vs. 180k) in October. The unemployment rate also inched slightly higher to 3.9%, and average hourly earnings declined both month-on-month and compared to the same period last year. These factors align with the Fed’s concerns about inflation.
As a result, the probability of a December rate hike is just 4.3%, according to implied probabilities from Fed funds futures. To put this in context, just a month ago, the probability was nearly 40%. This shift in data and market sentiment has led to a significant upward surge in the EUR/USD pair after the NFP data suggested a weakening job market. The pair had tried to maintain an ascending channel but repeatedly breached the lower boundary, indicating a potential bearish continuation. However, the recent shift in data and market sentiment has now led the pair to test the upper boundary of the same channel.
From a technical standpoint, EURUSD ended the week with a bullish tone, closing Friday on a strong note. However, the weekly candle failed to break above the resistance level at 1.07669. A breakthrough above this level, as well as the 200-day moving average, is likely to propel the pair higher toward the next resistance level at 1.09479. However, buyers may face challenges on the way up, so caution is advised. The strategy here is to consider buying on dips, as this pair seems poised for a bullish trend.
GBPCAD Analysis and Forecast
On the weekly time frame, we can observe that GBPCAD has followed a clear pattern of a three-wave movement followed by a pullback at the resistance level of 1.73346. This pattern is often seen in financial markets and is typically followed by a two-wave correction before a bullish continuation upwards.
As such, it is reasonable to expect that the pair will experience a range-bound movement that will help form the two-wave correction before the potential break above the resistance level of 1.73346. This could be a good opportunity for traders to buy GBPCAD at a more favorable price before its potential bullish continuation.
However, it’s important to consider the possibility of bearish pressure at 1.73346, which could cause sellers to take control of the market. This may be due to the presence of liquidity at this level, attracting sellers who believe that the price may not rise above it.
As a seller, it’s important to monitor the 1-day time frame, where GBPCAD is currently within a bullish channel. The pair has been trading within this channel for quite some time now, which is a sign of a potential upward trend. However, if this channel is broken to the downside, it could result in further downward movement for this currency pair, potentially targeting the support level of 1.60900.
Therefore, traders should keep a close eye on both the weekly and daily time frames, as they can provide important insights into the direction of GBPCAD. It’s important to remember that market movements can be unpredictable, and traders should always use risk management strategies to protect their capital.
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