The coming week is filled with anticipation for the macroeconomic community. A plethora of data releases are scheduled, including crucial reports on the US labor market. These events will occur alongside significant happenings such as the Treasury refunding announcement and policy meetings from the Federal Reserve, the Bank of England, and the Bank of Japan. Such a flurry of activity is bound to create a deluge of headlines, potentially sparking immense trading activities.

Regarding the policy meetings, it’s projected that the Federal Reserve will retain its current position, the Bank of Japan might contemplate but is unlikely to modify its yield-curve control, and the Bank of England will share its perspective on the UK’s upcoming stagflationary challenges.

EUR/USD Surges Past 1.0600 Despite Subdued German Inflation Data

The EUR/USD currency pair has experienced an uptick in traction, advancing beyond the 1.0600 mark on Monday, following a subdued Asian trading session. This gain comes despite Germany’s annual Consumer Price Index (CPI) inflation witnessing a drop from 4.5% in September to 3.8% in October.

EURUSD Live Chart

Technical Analysis and Future Projections

From a technical perspective, the EUR/USD pair currently holds a neutral position. However, the risk appears to lean towards the upside. The 20 Simple Moving Average (SMA) offers immediate support around 1.0565, while the 100 and 200 SMAs converge around the 1.0810 mark. Technical indicators are gaining upward momentum, particularly as the EUR/USD accelerates north above the 1.0600 level.

In the 4-hour chart, the signs point to a potential upward continuation. The pair is developing above all its moving averages, although the 20 SMA still trails below the longer ones. Technical indicators are consolidating well above their midlines, showing no signs of bullish exhaustion. A robust static resistance level is present at 1.0650, which needs to be surpassed to confirm a bullish extension in the upcoming trading sessions.

Key support levels to watch include 1.0565, 1.0520, and 1.0485, while resistance levels stand at 1.0640, 1.0690, and 1.0725.

Market Sentiment and Influencing Factors

The EUR/USD pair has been trading marginally higher on Monday as investors prepare for several first-tier events and assess developments in the Middle East. Last Friday saw financial markets buoyed by Qatar’s diplomatic intervention in the Israel-Hamas conflict. Despite Israel launching a military operation on the Gaza Strip over the weekend, the cautious approach did not trigger a significant demand for safe-haven assets, thereby putting pressure on the US Dollar.

Simultaneously, encouraging data from Europe has helped bolster the Euro. Germany’s preliminary estimate of the Q3 Gross Domestic Product (GDP) indicated a contraction at an annualized pace of 0.1% in the three months leading up to September, a decline better than the 0.3% anticipated by market players.

GBP/USD Bounces Back Above 1.2100 as US Dollar Eases

Meanwhile, the GBP/USD currency pair rebounded, surging towards 1.2150 following a bearish start to the European trading session. The shift towards a more positive risk sentiment hindered the US Dollar’s ability to consolidate strength, thereby propelling the GBP/USD pair’s bullish momentum.

GBP/USD Daily Chart

During the Asian trading hours, the GBP/USD pair saw limited fluctuations before retracting to the 1.2100 region in the European morning. Despite this recovery, the short-term technical outlook indicates that the bearish bias remains firmly in place.

However, the US Dollar continues to show resilience against its counterparts, posing a challenge for the GBP/USD pair to gain significant traction. If the risk rally intensifies during the day’s second half, the USD could see diminished appeal. It is important to note that no high-impact data releases are expected from the US economic docket today.

Japanese Yen Dips Preemptively Prior to BoJ Conference

The Japanese Yen is experiencing a downward trend (USD/JPY escalating) following its substantial comeback last Friday. Though USD/JPY has made a recovery, it remains under pressure beneath the significant short-term trendline. Currently, USD/JPY is trading in the 149.00 range, persistently below the pivotal 150 ‘intervention’ threshold.

USDJPY Daily Chart

The inclination leans towards an upward trajectory, with the next substantial target at the highs of 152.00 reached in October 2022. A breakthrough above last Thursday’s peak of 150.80 would provide renewed affirmation of an ongoing climb.

Technical Analysis of the Trend

However, the pair has slipped beneath a crucial trendline on the 4-hour chart, even though the break wasn’t decisive, and the price has rebounded on Monday, surpassing the trendline again. A re-break beneath the lows of 149.28 would confirm this break. Such a move would also certify a reversal of peaks and troughs on the 4-hour chart, which is commonly used to evaluate the short-term trend. This combination of the trendline break and the peak and trough reversal would shift the short-term trend to bearish.

Breakouts from channels are forecasted to drop at least a Fibonacci 61.8% of the channel’s height, providing a minimum downside target of 147.58. The 50-day Simple Moving Average (SMA) at 148.24 will pose a formidable challenge for bears attempting to break through, and 148.74 could potentially act as a deterrent on the descent.

Impact of Bank of Japan’s Policy Meeting

The Japanese Yen (JPY) is gradually declining on Monday, with the main event, the Bank of Japan (BoJ) policy meeting, looming on Tuesday. The BoJ is not anticipated to increase interest rates, but with inflation exceeding its 2.0% target, it could adjust its Yield Curve Control (YCC) mechanism, which regulates Japanese Government Bond Yields (JGB). If this occurs, it could bolster the Yen in its pairs (a negative for USD/JPY).

To counterbalance a higher CPI projection and maintain credibility, the BoJ might modify its yield curve control program, permitting long-term government bond rates to slightly float above the current cap of 1.0%. Such a YCC adjustment is likely to positively impact the yen, even if policymakers avoid categorizing it as a step towards ‘policy normalization.

Influence of Federal Reserve’s Policy Meeting

The Federal Reserve’s policy meeting on November 1, happening on Wednesday, will also influence USD/JPY. The Fed is unlikely to alter interest rates i.e. according to the CME Fedwatch tool, which employs Fed Funds Futures to measure market expectations, there’s only a 1.4% chance of a 0.25% rate hike.

Market Expectations and Economic Indicators

The Euro Zone Economic Sentiment Indicator for October came in at -17.9, matching the previous reading and market expectations. Additionally, comments from Peter Kazimir, a member of the European Central Bank’s Governing Council, suggested that it’s premature to assume the rate hike cycle is over, as policymakers cannot guarantee the task is complete.

Lastly, Germany’s preliminary estimate of the October Harmonized Index of Consumer Prices (HICP) confirmed a YoY rate of 3%, down from September’s 4.3% and below the expected 3.6%. The US macroeconomic calendar will next feature the October Dallas Fed Manufacturing Business Index, previously at -18.1.

The Spotlight on the US Treasury

While the release of the October jobs report is significant in the US, the spotlight arguably falls on the Treasury’s financing estimates and refunding announcement. The ongoing selloff in the long end of the Treasury yield curve has raised concerns about oversupply, particularly when price-insensitive buyers have reduced their market activity. This situation has left the market in a state of uncertain price discovery.

Recent auction results have heightened these supply concerns, setting the stage for the Treasury’s refunding announcement. There are speculations that the Treasury might introduce a “twist” in their approach, although it’s unclear how much room exists for a game-changing move.

Market-Moving Events

The financing estimate on Monday and the refunding announcement on Wednesday could potentially be market-moving events. The latter could result in a “buy the news” event in the bond market if higher borrowing needs have already been factored into the price due to significant selling pressure in the US long-end.

Non-Farm Payrolls Report

Friday brings the Non-Farm Payrolls (NFP) report, with economists predicting a headline figure of 183,000 jobs. A favorable jobs report would certainly be beneficial for the Federal Reserve, particularly if it doesn’t indicate a significant imbalance in the labor market.

The pace of hiring reported in September wasn’t in line with achieving price stability, considering job availability and competitive wages are key factors driving consumer spending.

Preliminary Insights and Detailed Look at Job Market

Before the NFP report, traders will receive preliminary insights from the October ADP employment report and a detailed look at the job market from the September JOLTS report.

Economists expect around 9.22 million job openings in the headline figure. A positive turn of events in this area would definitely benefit the Federal Reserve, especially as the last JOLTS report showed a significant increase in open positions, reversing months of progress in balancing the labor market.

The Role of Job Openings

America’s 9.6 million job openings play a crucial role in labor market normalization, much like the Federal Reserve’s Reverse Repo Program facility, which was vital for managing Treasury’s cash rebuild.

In conclusion, this week’s calendar is packed with a wide range of data and policy events, making it one of the busiest in recent memory.

Economic Events for the Week Ahead: October 30 – November 3, 2023

Monday, October 30, 2023

• German Preliminary Consumer Price Index (CPI) (MoM): Keep an eye on this as it can impact the Euro’s value. A higher than expected reading should be taken as bullish for the EUR, while a lower than expected reading should be taken as bearish.
• Spanish Flash CPI (YoY): This could affect the Euro’s value as well. The same rules apply here: a higher than expected reading is bullish for the EUR, a lower one is bearish.
• BOC Governor Macklem’s speech: Any hints about future monetary policy can move the Canadian Dollar. Be ready for potential volatility during this event.

Tuesday, October 31, 2023

• BOJ Policy Meetings: Watch out for potential changes in monetary policy or economic forecasts. These could cause fluctuations in the Yen.
• Eurostat Core CPI Flash Estimate (YoY), Canadian GDP (MoM), U.S. Employment Cost Index (QoQ), and U.S. CB Consumer Confidence: These data releases could cause significant movements in the respective currencies.

Wednesday, November 1, 2023

• New Zealand Employment Change and Unemployment Rate: Any unexpected figures could trigger volatility in the NZD.
• U.S. ADP Non-Farm Employment Change, ISM Manufacturing PMI, JOLTS Job Openings, Federal Funds Rate, FOMC Statement and Press Conference: These US-centric events are likely to cause USD volatility. Pay close attention to any changes in the Fed’s tone or outlook.
• BOC Governor Macklem’s speech: If you’re trading CAD pairs, be aware of potential volatility during this speech.

Thursday, November 2, 2023

• China’s CPI (MoM): This data could impact the AUD and NZD due to their close economic ties with China.
• BOE Monetary Policy Report, Monetary Policy Summary, Official Bank Rate, and Speech by BOE Governor Bailey: Any changes in the BOE’s stance could cause significant GBP volatility.
• U.S. Unemployment Claims: This weekly data can cause short-term USD volatility.
• SNB Chairman Jordan’s speech: Watch out for any hints about future monetary policy from the SNB, which could move the CHF.

Friday, November 3, 2023

• Canada’s Employment Change, Unemployment Rate, Average Hourly Earnings (MoM), Non-Farm Employment Change and Unemployment Rate: These key labor market figures could cause significant CAD volatility.
• U.S. ISM Services PMI: This is a leading indicator of economic health and could cause USD volatility.

Stay alert and manage your risk wisely during these events. Happy trading!

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