Forex Today: A busy week is approaching, between data and geopolitics

A busy week is coming up in terms of the economic calendar. The PMI surveys will provide the first glimpse of global economic activity during the month of October. The Bank of Canada and the European Central Bank will announce their monetary policy decisions. In the United States, among the data to be published are the first estimate of GDP for the third quarter and consumer inflation with the core PCE.

Here’s what you need to know for next week:

The Dollar Index lost 0.30% for the week, its worst performance since early July. Although the drop does not change the positive outlook for the Dollar, it suggests that the DXY could continue to consolidate around 106.50.

Fundamental factors continue to favor the Dollar as economic data continues to indicate a tight US labor market. Next week, US data includes the S&P Global PMI, the first reading of third-quarter gross domestic product (GDP) growth on Thursday. Additionally, consumer inflation data, including underlying personal consumption expenditure (PCE), will be released on Friday. These numbers will be critical ahead of the next FOMC meeting on November 1. Federal Reserve (Fed) Chairman Jerome Powell and other central bankers have suggested that rates will remain in the short term and could have peaked unless inflation rebounds.

TD Securities analysts weigh in on GDP:

We expect GDP growth to increase in the third quarter, following the trend recorded in the first half of the year. Activity is likely to have been largely supported by strength in consumption, although we expect volatile inventories and net exports categories to explain about 1 percentage point of overall growth. We expect the momentum from the third quarter to fade in the fourth as consumer moderation from excess summer spending.

The bond market remains volatile, with the 10-year Treasury yield closing the week at 4.92%, a level not seen since 2007. On the short end of the yield curve, rates hit multi-year highs , but then they backed away. US economic data continues to support the upward move in yields.

Despite Rising Bond Yields, Gold experienced a significant jump of over $50, approaching $2,000. XAU/USD hit a high of $1,997 on Friday, the highest level since May, before paring some gains. The yellow metal chart continues to show bullish signs. Silver rose during the week and closed around $23.30, just below the 20-week SMA.

Geopolitics will continue to play an important role, with a focus on the Middle East. Corporate earnings will also be relevant to risk sentiment. Next week, large technology companies such as Microsoft, Alphabet, Meta and Amazon, as well as health companies and major oil companies, will report.

The EUR/USD pair It rose about 70 points, which is the largest weekly increase since July. The pair held above 1.0500 but faced resistance around the 1.0600 area. Although there are no clear bullish signals, the consolidation phase is starting to look more solid.

The Euro has a busy week ahead, in which the key event will be the meeting of the European Central Bank (ECB) on Thursday. No changes in rates are expected, and the Deposit Rate is likely to remain at 4.00%. Market participants will closely follow the language and press conference of ECB President Christine Lagarde. Additionally, preliminary results from the region’s PMI survey will be released on Tuesday, offering a first glimpse of October’s results. A summit of European Union leaders will be held on Thursday and Friday.

Nomura analysts on the ECB:

We do not expect substantial changes to the ECB’s initial statement. Importantly, we expect the guidance language – that “rates have reached levels that, maintained over a sufficiently long period, will contribute substantially to bringing inflation back on target in a timely manner” – will remain in place.
of inflation to the target”.

The Pound languished during the week, with GBP/USD finishing slightly higher, around 1.2160, while EUR/GBP posted its highest weekly close since May. The Bank of England’s dovish stance in September and subsequent data weighed on the currency. UK employment data will be published on Tuesday.

USD/JPY continues to trade dangerously close to 150.00. A break higher could unleash volatility and prompt intervention by Japanese authorities. The Tokyo CPI will be published on Friday.

The AUD/USD pair finished the week modestly higher, but still far from its high, indicating that it is approaching the critical support level of 0.6285. It will be a decisive week for Australian economic data, with the monthly and quarterly Consumer Price Index (CPI) on Wednesday, followed by the Producer Price Index on Friday. These reports will determine expectations ahead of the next Reserve Bank of Australia (RBA) meeting on November 7. RBA Governor Michele Bullock will deliver a speech on Tuesday.

USD/CAD posted its highest weekly close since March, around 1.3700, maintaining a bullish tone. The Bank of Canada (BOC) will hold its monetary policy meeting on Wednesday, and is expected to keep the overnight rate unchanged at 5.00%, with a hawkish tone.

The New Zealand Dollar (NZD) was the worst performing G10 currency. The NZD/USD pair broke below 0.5860 and fell to 0.5815, the lowest level since November last year. The chart suggests further losses, with the next support zone at 0.5740.

An improvement in risk sentiment would be beneficial for antipodean currencies. This boost could be even more significant if it coincided with a decline in US yields. Conversely, a negative impact on market sentiment would increase demand for safe-haven assets, which could strengthen the US dollar as investors seek refuge.


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Source: Fx Street

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