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The Week Ahead – Back in the game

Equities rally as rate cut speculation grows

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USDJPY steadies as BoJ may stay dovish

The Japanese yen struggles as the end of the massive monetary stimulus seems elusive. As the exchange rate hits its yearly high, market participants are awaiting signs that the Bank of Japan will end the negative rate policy. With inflation above the 2% target for over a year, Governor Kazuo Ueda is under pressure to scrap the stimulus. In a tight labour market, economists widely expect substantial wage growth next year with calls for pay hikes from the government and trade unions. A stable wage inflation would be a pivotal point for the BOJ to exit its controversial policy. 151.70 is a major ceiling and 145.00 the closest support.

NZDUSD bounces as RBNZ guidance looms


The New Zealand dollar recoups some losses ahead of the RBNZ’s policy meeting. Inflation expectations in the country fell to two-year lows in the fourth quarter, cementing the argument that past aggressive rate hikes are having their full effect. As long as the price growth trajectory stays downward, the central bank would shift the rhetoric from needing further increases to keeping the cash rate at its 15-year high to bring inflation within its target. An upbeat guidance from the RBNZ may support the kiwi and combined with the US counterpart’s general softness may send the pair above 0.6210 with 0.5870 as a fresh support.

XAUUSD rallies as dollar weakens

Gold advances as the dollar index retreats amid softer US data. Fed officials have stressed that interest rates would only need to be raised again if data showed insufficient progress on subduing inflation. The market took the message as a green light to stay on course in their wager on a steady slowdown of the economy, and recent CPI and home sales data would only cement this conviction. As markets price out any additional Fed rate hikes, bond yields and the US dollar could be in for a prolonged slide, which in turn would boost demand for the precious metal. The price is on its way to the record high of 2080 with 1930 as a support.

SPX 500 hits 4-month high amid rate cut speculation

The S&P 500 hits a four-month high as investors look beyond the Fed’s pause in monetary tightening. More balanced minutes from the latest policy meeting saw the central bank’s hawkishness tempered, prompting more bulls to reposition for a post-hike era. Speculation about the Fed initiating a rate cutting cycle would raise the appeal of risk assets. A rebound in 10-year Treasury yields might dent the short-term mood, but weaker economic data that flirt with a recession that may not actually manifest itself seems to offer a sweet spot. 4380 is the closest support and a rise above the major obstacle of 4600 may lead to a Santa rally.

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