Key Briefs

• The Euro is trading flat against the U.S. Dollar.
• The Japanese Yen still requires defending by the BoJ.
• The Australian Dollar was weak.

The U.S. economy is not collapsing under the weight of the Fed’s aggressive rate hikes, according to Friday’s jobs report. However, the economy of the Euro Zone is on the verge of recession due to high inflation and rising energy costs. Furthermore, only a 50 basis point rate increase is anticipated from the European Central Bank (ECB).

Due to OPEC’s decision to reduce production by 2 million barrels per day, WTI Crude Oil prices increased.

As a result of President Putin’s aggressive speech and the annexation of Crimea by Russia, attention has once again been drawn to the conflict in Ukraine. Ukrainian forces appear to have successfully attacked a crucial bridge connecting Crimea to Russia.

Along with President Biden’s stern warning regarding implied Russian nuclear threats and last week’s North Korean missile test, this could contribute to the strengthening of the risk-off attitude. 

U.S. Dollar Index

The U.S. Dollar Index printed a bullish pin or hammer candlestick that closed up right near the high or its range, as seen on the weekly price chart below. Additionally, it rejected what appeared to be a new support level converging with the extraordinarily large round number at 110.00. These are bullish signs, and there is no question that the long-term trend is very bullish.

The week before last, the dollar was very inconsistent, but it has since gained enough strength to be advancing almost everywhere.

Because last week’s close was not a new high and because there was a fairly significant sell-off from the 114.00 area earlier in the week, bulls may have a slight reason to exercise caution.

Over the upcoming week, it might be a good idea to limit your search to long trades in the US Dollar. The strongest, longest-lasting bullish trend in the Forex market is currently occurring in the most significant currency. 

EUR/USD

The single currency may resume its downtrend despite today’s likely muted price movement after Friday’s positive U.S. labor market report reinforced bets on aggressive Fed rate hikes and investors braced for data later this week anticipated to show persistently high inflation.

The U.S. Dollar is now a more desirable asset because U.S. Treasury yields are trading strongly early on Monday with little movement. The Friday jobs report, which revealed unexpectedly lower U.S. unemployment rates in the previous month, is the catalyst generating the support.

The likelihood of a massive 75-basis point rate hike at the Fed’s policy meeting on November 1-2 increased as a result of this news.

In the meantime, Thursday’s U.S. inflation data is expected to show headline inflation at a scorching 8.1% year-over-year. Core inflation is expected to increase to 6.5%, as desired by policymakers.

 EUR/USD Daily Forex 

USD/JPY

Given that the US Dollar has recently gained strength, it is important to keep an eye on this currency pair this week. The price chart below demonstrates the strong long-term bullish trend that this pair is in. The Bank of Japan had intervened at this point to halt any further advance, which was a problem for bulls because it did not want the price to rise above the 145 handle.

USD/JPY Weekly 

The price appears to have successfully established itself above that important round number at 145, so it’s possible that the Bank will draw a higher line in the sand at which to intervene.

The price may rise sharply and even quickly reach $150 if the Bank of Japan’s intervention is unsuccessful or if the Bank decides not to intervene. 

AUD/USD

The AUD/USD currency pair printed a fairly sizable bearish hammer candlestick last week. The Australian Dollar was already weak when the Reserve Bank of Australia announced a smaller-than-expected rate hike last week, which contributed to a further decline in the currency’s value. This provides fundamental support for bearishness. This tailwind is bearish.

Despite the overall bearish picture, $0.6327 represents a significant resistance level that could pose problems for bears. It would be very bearish if the price could settle below that level. 

The Australian Dollar is currently the second-weakest major currency on the Forex market, trailing only the Japanese Yen, but unlike the latter, it is highly unlikely that its central bank will make any supportive interventions. 

The Week Ahead

The US CPI release, which has a lot of dramatic potential, will likely cause market volatility to increase this coming week.

Here are the upcoming releases:

• US CPI (inflation) data
• FOMC Meeting Minutes
• UK GDP
• US Producer Price Index data
• US Retail Sales data
• US Preliminary UoM Consumer Sentiment

It is a public holiday this Monday 10th October in the USA, Canada, and Japan.

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