Forex Trading Library

The Week Ahead – Fed cautions quantitative tightening far from being over

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EURUSD bounces as market goes risk-on

The euro rallies over increased risk appetite post US-inflation data. After a six-month long rally against the euro, the dollar does need some breathing room and a cooling CPI might just have done the trick. The ECB has lifted rates at its fastest pace on record, but as the eurozone is in a much more vulnerable position than the US in terms of financial stability, doves have raised voices for a less aggressive stance. Looking forward, the difference between a cautious ECB and an assertive Fed as reflected in their rate spread would continue to drive the exchange rate. The pair is about to test 1.0600 with parity (1.0000) as the closest support.

NZDUSD recovers over hawkish RBNZ

The New Zealand dollar rallies as the RBNZ may deliver a large-sized rate increase. According to the central bank’s latest survey, the country’s near-term inflation rate is expected to ease next year but will remain stubbornly high. Bringing the housing market to a soft landing would be policymakers’ top priority as a decline of wealth tied up in the housing market would sap consumers’ confidence and put a lid on spending. As the RBNZ may accelerate the tightening with a 75bp hike, hopes of dovishness on the US dollar side would raise demand for the kiwi. The pair is heading towards 0.6460 with 0.6000 as a fresh support.

XAUUSD rides on US dollar correction

Gold hit a three-month high as the Fed warned that the tightening is still in progress. In a market dominated by the Fed’s narrative, a sharp correction in the greenback lately has most benefited risk-oriented currencies and gold alike. A slowing CPI growth is certainly an encouraging sign. But policymakers have reiterated that the market should not get ahead of itself, and a slowing the pace of rate hikes should not be confused with a softening hand. The peak policy rate is still anyone’s guess and further gains in the precious metal could be elusive if the dollar’s uptrend regains traction. 1805 is a key resistance ahead with 1720 as a fresh support.

SPX 500 consolidates over mixed Fed signals

The S&P 500 steadies as the market awaits further guidance from the Fed. While the index has pared this autumn’s losses, investors may wonder if it might seem too easy. Short-covering suggests unwinding of institutions’ hedging strategies, leading up to abnormal volatility. After all, fundamentals have barely changed. With cheap money a relic of the past, high cost of capital means the market could continue to deleverage and reduce exposures. Meanwhile, massive layoffs in previous corporate stars are a reminder that this could be merely the end of the beginning. The index may hit resistance at 4150 and test 3750.


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