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Forex Forecast: EUR, GBP, AUD, CAD, Gold Ahead of Fed Hike

On Monday, the dollar failed to gain traction and was trading near five-month lows as traders ignored stronger-than-expected US job data while rising hopes of China reopening lifted risk sentiment. The dollar index was down 0.18% at 104.28, its lowest level since June 28. The Federal Reserve is likely to raise interest rates by another 50 basis points. Australia and Canada will also be deciding on rates.

The US Dollar Index

The dollar failed to gain traction and was trading near five-month lows as traders ignored stronger-than-expected US job data while rising hopes of China reopening lifted risk sentiment.

The dollar index, which compares the greenback to six major currencies, including the yen and euro, was down 0.18% at 104.28, its lowest level since June 28.

The dollar rose initially on Friday as statistics indicated that employers added 263,000 jobs in November, well-exceeding expectations of 200,000, but lost ground as traders booked profits, with some Fed speakers assuaging market concerns.

The data supported the ‘soft landing’ argument and is unlikely to change the Fed’s course, where a 50 basis point hike next week remains the firm default position.

With limited data to drive the market this week and no Fed speakers, the market may start to think for itself and look at adjusting exposures ahead of next week.

The emphasis of investors will be squarely on US consumer price inflation data due on December 13, one day before the Fed closes its two-day meeting. 

EUR/USD

The EUR/USD had another strong week, breaching above the 50-week EMA. In addition, the market broke over the 1.05 barrier. This is clearly an extremely optimistic turnaround, predicated on the possibility that the Federal Reserve may halt the rate of interest rate hikes. 

It’s expected to go further to the upside, but we are likely due for a downturn. The 1.03 level is the most visible support on the chart right now.

EUR/USD Weekly Chart

EUR/USD Weekly Chart

GBP/USD

While the GBP/USD has been steadily rising, day traders may still be challenged with reversals downward, which can put wagers with excessive leverage to the test. Trying to predict when the GBP/USD will see a surge in buying is a risky game that can result in costly losses.

GBP/USD Weekly Chart

GBP/USD Weekly Chart

The GBP/USD rising momentum is not guaranteed, and some financial institutions may consider the gains were made too quickly. If the 1.21000 level is found to be vulnerable, a test of the 1.20500 level may be necessary. 

If traders stay bullish, they may feel compelled to pursue GBP/USD buying positions if the lower support level is seriously tested.

If current support levels hold, the GBP/USD may continue to experience some buying pressure on the assumption that the 1.23000 to 1.24000 levels are solid goals and good value under current conditions.  

AUD/USD

During the trading week, the Australian dollar has broken through to the 0.68 mark, indicating that it is reviving. At this time, we are challenging historical support. Therefore, it’s expected that there is going to be a retreat soon.

It’s also worth noting that we arrived quickly, so the choppiness in this location is probably not surprising. We continue to see some hesitancy, and if we see any hawkish conduct from the Fed or possibly a “risk of the rally,” this could be the pair to short again.

AUD/USD chart

AUD/USD chart

The RBA will decide on interest rates on Tuesday. The market is split about evenly on a 25 basis point increase, with 13 basis points already priced in. Australian GDP figures will be revealed on Wednesday, with economists predicting 6.1% year-on-year growth until the end of October. That would be a fantastic statistic except that inflation is right on top of it, making actual growth negative. 

USD/CAD

The US dollar has gained strength this week but has already given back those gains, breaking below the 1.35 mark. As a result, the market appears to be continuing to experience a lot of loud behavior, and I believe we’re in for some problems.

Keep in mind that crude oil is attempting to recover, which may put some pressure on this market. We had both countries post jobs statistics on Friday, which added a lot of volatility to the mix. However, the 1.32 level beneath should provide major support. 

Gold

The gold rate was up on Monday due to favorable global indications, while the silver rate was up 1.13%. Gold February futures were trading at Rs 54,209 per 10 kilos on the Multi Commodity Exchange, up Rs 359 or 0.67%. On the MCX, silver March futures were trading Rs 749 higher at Rs 67,198 per kilogram.

According to analysts, the yellow metal reached a five-month high on Monday as the dollar fell owing to fading COVID limitations and easing Chinese lockdowns. Gold was up 0.5% at $1,807.21 per ounce, having reached its highest level since July 5 at $1,808.20 earlier in the session. 

Gold futures in the United States rose 0.6% to $1,819.60. 

BoC Interest Rate Decision

The Bank of Canada will have to make a difficult decision at its forthcoming policy meeting on December 7. Governor Tiff Macklem has maintained that additional hikes are necessary to keep inflation under control, but the central bank has been under fire from a number of key stakeholders.

There are indicators of an economic slowdown, but a 25bp boost at this point may not appeal to Governor Macklem because the US Federal Reserve is projected to continue hiking, albeit at a slower rate.

The Canadian Dollar has suffered against the US Dollar this year, and a halt now or a 25bp boost might expose the loonie to greater losses in the months ahead.

Friday’s jobs report added to the Bank of Canada’s concerns, as the unemployment rate fell to 5.1%, while employment change numbers exceeded expectations, coming in at 10.1K. The strong jobs data could provide the rationale for the Bank of Canada to raise interest rates by 50 basis points. 

US Economic Data Week Ahead

This week’s US economic data are expected to be quiet, and Federal Reserve policymakers are in their typical blackout period ahead of their final policy meeting for 2022.

Investors will be watching Friday’s producer price inflation data in the United States for signs of how hawkish the central bank will be following four consecutive big rate hikes to combat decades-high inflation. 

The headline figure is predicted to rise 7.2% year on year, slowing somewhat from the previous month’s 8% gain. The core PPI excludes food and energy expenses and is also forecast to fall.

This week’s economic schedule also includes the ISM services PMI on Monday, the University of Michigan’s consumer mood index, and the weekly report on initial jobless claims on Thursday.

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  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.