Daily Market Analysis from ForexMart

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  1. #1211
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    Daily Market Analysis from ForexMart
    Hot forecast for EUR/USD on 10/11/2022

    The first thing you should pay attention to is that since the beginning of the week, the dollar has fallen sharply in price, and the rebound was asking for it. Moreover, it was only the political factor that put pressure on it, in the form of uncertainty about the results of the midterm elections. So as soon as it became clear that the Democrats were apparently gaining control of the Senate, the US currency immediately began to actively rise in price. Although the counting of votes is still ongoing, and less than half of the ballots have been counted at some polling stations. Nevertheless, so far everything is going to the fact that the Democrats take the Senate, while the Republicans take the House of Representatives. The main driver of the dollar's weakening was the assumption that the Republican Party would win a crushing victory and gain control of both chambers of Congress.

    There is a high probability that the dollar will be able to further strengthen its position today. The reason for this may be the US inflation report. And although the growth rate of consumer prices is likely to slow down from 8.2% to 8.1%, this still means that the Federal Reserve will continue to raise interest rates. Firstly, inflation remains at an extremely high level. Secondly, on a monthly basis, consumer prices should increase by 0.5%, whereas a month earlier they increased by 0.4%. In other words, prices continue not only to grow, but there are signs of even a possible acceleration of this process. Consequently, the US central bank will continue to pursue an extremely tight monetary policy.

    Inflation (United States):

    The EURUSD currency pair bounced precisely from the area of the local high in October. As a result, there was a pullback in the direction of the parity level.

    During the price rebound, the RSI H4 indicator came out of the overbought zone. This is a fairly good technical signal about the regrouping of trading forces. It is worth noting that the indicator has not gone below the average line of 50, which indicates the bullish mood in the market.

    The moving MA lines on Alligator H4 and D1 are directed upwards, which corresponds to an ascending cycle.

    Expectations and prospects

    In this situation, the parity level serves as a support in the market. Thus, it is possible to strengthen long positions. We expect the euro to rise only if the price stays above October's local high in a four-hour period.

    As for the downward scenario, in order to consider it, the quote must first stay below the 0.9950 mark. This price move may restart short positions.

    Comprehensive indicator analysis in the short-term and intraday periods has a sell signal due to the recent price rebound. In the medium term, the signal from the indicator is focused on an upward corrective move from the low of the trend.
    Regards, PR-Manager ForexMart

  2. #1212
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    Hot forecast for GBP/USD on 11/11/2022

    Inflation, or rather the reassessment of the Federal Reserve's succeeding actions, turned out to be much more important for the market than the results of the midterm elections in the United States. Moreover, the counting of votes is still ongoing. So as soon as it became known that the growth rate of consumer prices in the United States slowed from 8.2% to 7.7%, a real rally began in almost all markets. The only exception was probably the oil market. But the pound jumped by more than three hundred points. After all, if inflation slows down much faster than forecasts, and the most desperate optimists expected it to fall to 8.0%, then the Fed has no reason to further tighten monetary policy. In other words, the US central bank may well start lowering interest rates next year. It was this change in expectations that caused the dollar to fall sharply.

    Inflation (United States):

    But the movement turned out to be so impressive that a rebound, or even a local correction, would only take a matter of time. And it is quite possible that today's preliminary data on UK GDP will just be an excellent reason for this. Indeed, according to forecasts, the economic growth rate of the United Kingdom should slow down from 4.4% to 2.3%.

    GDP growth Rate (UK):

    The pound has strengthened in value by more than 350 points against the US dollar. This strong inertial move led to a control tracking of the price with subsequent resistance levels of 1.1750.

    The RSI H1 technical instrument entered the overbought zone during such an intense price move, which corresponds to a convergence with the resistance level. RSI D1 is moving confidently in the upper area of the 50/70 indicator, which indicates ongoing upward interest in the market.

    The MA moving lines on Alligator H4 and D1 are directed upwards, this signal corresponds to the general mood of market participants.

    Expectations and prospects

    In this situation, the technical signal about the overbought pound still takes place on the market. For this reason, traders are considering the scenario of a price pullback from the resistance level of 1.1750.

    As for the subsequent upward cycle, market participants will consider it in case the price stays stable above the 1.1750 level. With this development, the overbought signal will be ignored by traders.

    Complex indicator analysis in the short, intraday and medium-term periods has a buy signal due to the upward cycle.
    Regards, PR-Manager ForexMart

  3. #1213
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    Tips for beginner traders in EUR/USD and GBP/USD on November 14, 2022

    Details of the economic calendar of November 11
    The macroeconomic calendar focused only on statistics from the UK, which came out better than expected. The final estimate of GDP for the 3rd quarter reflected a slowdown in the economy from 4.40% to 2.40%, with forecast of 2.10%. Meanwhile, the rate of decline in industrial production is slowing down from -4.3% to -3.1%, although forecast assumed that the indicators would remain at the same level.

    As a result, the pound sterling, overbought in recent days, continues to hold its positions in the market.

    As for the US ballot count, the preliminary totals are:

    House of Representatives: Democrats 204 - Republicans 212. Control requires 218 seats out of 435.

    Senate: Democrats 50 - Republicans 49. Control requires 51 seats out of 100.

    The data is not final, the ballots are still being counted.

    Analysis of trading charts from November 11
    The EUR/USD currency pair appreciated more than 450 points during the past week. This strong inertial move led to the update of the corrective cycle from the low of the downward trend. As a result, the euro reached the subsequent resistance level of 1.0350.

    The GBP/USD currency pair gained more than 550 points during the past week. This unprecedented inertial move overcame the local autumn highs. As a result, the corrective movement from the low of the downward trend was prolonged, where the overall scale of the strengthening of the pound sterling is about 14.5%, which is about 1500 points.

    Economic calendar for November 14
    The new trading week starts with data on the industrial production of the European Union, whose growth rate may accelerate from 2.5% to 3.3%. This is a positive factor for the EU economy, which can stimulate the euro.

    Trading plan for EUR/USD on November 14
    In view of the clear signal that the euro is oversold, a price rebound from the 1.0350 resistance level is allowed. In this case, sellers will receive local support in the market, and buyers will be able to regroup their positions.

    Traders will consider the subsequent upward movement if the price holds above the level of 1.0350, at least in a four-hour period. In this case, we will receive a technical signal about the prolongation of the ascending cycle.

    Trading plan for GBP/USD on November 14
    The new trading week was opened with a downward GAP, where the overbought pound sterling entered the stage of a technical pullback. The previously passed 1.1750 resistance level now serves as support, where the quote returned during the pullback.

    Presumably, the upward inertial mood still takes place in the market. For this reason, a price return above 1.1855 could restart long positions. As for the current pullback, for its prolongation and transition to the correction mode, it is necessary to be consistently below the level of 1.1750.

    What is shown in the trading charts?
    A candlestick chart view is graphical rectangles of white and black light, with sticks on top and bottom. When analyzing each candle in detail, you will see its characteristics of a relative period: the opening price, closing price, and maximum and minimum prices.

    Horizontal levels are price coordinates, relative to which a stop or a price reversal may occur. These levels are called support and resistance in the market.

    Circles and rectangles are highlighted examples where the price of the story unfolded. This color selection indicates horizontal lines that may put pressure on the quote in the future.

    The up/down arrows are the reference points of the possible price direction in the future.
    Regards, PR-Manager ForexMart

  4. #1214
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    Is the yen deflating?

    The dollar-yen pair is gradually recovering from a collapse that happened last week. At the start of Tuesday, the major pair received a new breath from the economic data of Japan.

    Recall that last week the USD/JPY pair experienced the most dramatic fall in 14 years. According to the results of five sessions, it sank by almost 6% and fell below 139.

    The ground from under the dollar's feet was knocked out by data on inflation in the United States. The statistics for October turned out to be much softer than the forecast, which increased traders' fears about a possible slowdown in the pace of tightening in America.

    The greenback was able to return to life only after the weekend. It was revived a bit by a hawkish commentary by Christopher Waller.

    On Sunday, a member of the Federal Reserve's Board of Governors said it's unreasonable to judge the weakening of inflation by just one month. The central bank will need to get some more hard evidence before moving to a less aggressive policy.

    Hints of further sharp rate hikes in the US helped USD/JPY recover slightly. Yesterday, the quote rose by more than 0.5% and crossed the threshold of 140.

    This morning, the pair has confidently settled above this level, having received support from Japan's macro statistics. Shocking data on GDP for the third quarter came out at the beginning of the day, which not only fell short of the forecast, but also turned out to be much worse than preliminary estimates.

    The report showed that on a quarterly basis, the Japanese economy fell by 0.3% against expectations of growth of 0.3%. And in annual terms, the indicator fell by 1.2%, while an increase of 1.1% was predicted.

    According to analysts at Bloomberg, the unexpected contraction in Japan's GDP reflects the impact of a weaker yen on the economy.

    This year, the JPY has fallen by more than 20% against the dollar due to the strong divergence in the monetary policy of the Bank of Japan and the Fed.

    Unlike its American counterpart, which actively fights inflation by raising rates, the Japanese central bank adheres to an ultra-soft rate and maintains ultra-low rates.

    The weakness of the currency led to an increase in the country's spending on imports, which significantly undermined the growth of Japan's economy, which was already very fragile.

    Japan has yet to recover from the COVID-19 pandemic. It is for this reason that the BOJ continues to go the dovish route and pump liquidity into the economy.

    Recall that last month, Japanese Prime Minister Fumio Kishida developed another stimulus package, and his cabinet approved an additional budget of $207 billion to fund these measures.

    As you can see, the circle is closed: the soft monetary rate necessary for GDP growth weakens the yen, and this further slows down the economy. Japan has found itself in a trap into which it has driven itself, and is unlikely to find a way out in the near future.

    Now, as fears of a global recession are rising amid a massive increase in rates, it is becoming increasingly clear that the recovery of the Japanese economy is once again being postponed.

    And given the latest data on GDP, many analysts have no doubt that the BOJ can further strengthen the dovish rhetoric at its next meeting. This will be another blow to the yen.

    Experts predict that the JPY's downtrend will continue despite speculation about a possible slowdown in US rate hikes, especially since the market has already taken this risk into account.

    Most investors are well aware that the US central bank has not yet finished its fight against rising prices. To return inflation to its target, it will have to raise rates a few more times.

    But even if the central bank does it less abruptly than before, the dollar-yen pair should still get at least the slightest benefit from each round of rate hikes.
    Regards, PR-Manager ForexMart

  5. #1215
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    Gold breaks the trend

    Dashing trouble began. After Jerome Powell's fiery speech about a higher peak federal funds rate, who would have thought that gold would not just bounce back but return to 3-month highs? In fact, the slowdown in the rate of tightening of the Fed's monetary policy is a bullish driver for XAUUSD. If inflation remains at elevated levels for a long time, and the Central Bank slows monetary restrictions and eventually pauses, real yields on Treasury bonds will fall, allowing the precious metal to rise above $1,800 an ounce.

    The main catalysts of the 9.5% November gold rally were the releases of data on consumer prices and producer prices. Both indicators slowed down more than Bloomberg experts predicted, which gave rise to talk that the Fed is doing its job well and can afford less aggression. In the end, the tightening of monetary policy affects the economy with a time lag, rates are already at restrictive levels, so you can not go as fast as before.

    However, in order to defeat inflation, you need to understand its causes well. The Fed and the White House have gone too far with stimulus in response to the pandemic. As a result, domestic demand grew by 21.4% in the three years to the end of the second quarter of 2022, which is equivalent to an annual GDP growth of 6.7%. No wonder inflation is so high and the job market is strong as a bull. Americans sitting on a mountain of dollars are in no hurry to return to work.

    Dynamics of domestic demand in the US, Britain and the Eurozone

    Sooner or later, the money runs out, which will lead to a slowdown in consumer prices in the US by itself. The Fed's aggressive monetary restriction can strengthen their decline. There will be a risk of deflation on the horizon, as in Japan. Ark Invest agrees with this scenario. The company sets the example of the beginning of the 20th century, which was overshadowed by the First World War and the Spanish flu epidemic. Inflation in 1920 in the United States exceeded 20%, but thanks to an aggressive increase in the federal funds rate from 4.6% to 7%, it fell to -15% in 2021.

    Current conditions have much in common with the period of a hundred years ago. The same scenario of the development of events is not excluded, but in my opinion, it is unlikely. Its implementation would be disastrous for gold, returning its quotes to $1,610 per ounce.

    On the contrary, a scenario where the Fed slows down and eventually pauses while inflation remains at elevated levels creates a tailwind for the precious metal. Simultaneously with the fall in real yields of Treasury bonds, the US dollar is also weakening.

    Technically, on the daily chart of gold, due to the implementation of the triple bottom pattern the long-term bearish trend was broken. Quotes have gone beyond the descending trading channel and are moving away from the moving averages. I recommend holding the longs formed on the decline to the support at $1,702 and periodically increasing on pullbacks. The targets are $1,790 and $1,815 per ounce.
    Regards, PR-Manager ForexMart

  6. #1216
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    Tips for beginner traders in EUR/USD and GBP/USD on November 17, 2022

    Details of the economic calendar of November 16
    Inflation in the UK reached a 41-year high. The consumer price index rose from 10.1% to 11.1%. Consequently, the Bank of England will continue to raise interest rates at the same pace.

    Prime Minister Rishi Sunak said on this occasion that inflation control is a key goal of the government.

    As for the US ballot count, the preliminary totals are:

    House of Representatives: Democrats 211 - Republicans 218. Control requires 218 seats out of 435.

    Senate: Democrats 50 - Republicans 49. Control requires 51 seats out of 100.

    Although counting of votes is still ongoing, President Joe Biden officially congratulated the future House speaker Kevin McCarthy on his election victory.

    The Republican Party gains control of the US House of Representatives in the midterm elections.

    Analysis of trading charts from November 16

    The GBPUSD currency pair is in the stage of a pullback-stagnation relative to the psychological level of 1.2000. The absence of a transition to a full-size correction suggests that traders' interest in long positions on the pound sterling is still maintained in the market.

    The EURUSD currency pair formed a stagnation at the conditional peak of the ascending cycle. This occurred after the quote came close to the 1.0500 resistance level.

    Economic calendar for November 17
    Today, the final data on inflation in the European Union is expected, the growth rate of which should accelerate from 9.9% to 10.7%. The market is more ready for these indicators, so if they coincide, you should not expect anything drastic. In any case, rising inflation is a clear signal that the ECB will continue to raise interest rates at the current pace.

    During the American trading session, weekly data on jobless claims in the United States will be published, where figures are expected to rise. This is a negative factor for the US labor market.

    Statistics details:

    The volume of continuing claims for benefits may increase from 1.493 million to 1.5 million.

    The volume of initial claims for benefits may remain at the same level of 225,000.

    Time targeting:

    EU Inflation – 10:00 UTC

    US Jobless Claims – 13:30 UTC

    Trading plan for EUR/USD on November 17
    In this situation, the stagnation of the past day can serve as a catalyst for trading forces, in which there was a regrouping of working positions. In this case, subsequent price jumps are not excluded. The following values are considered as signal levels: 1.2050, in case of an upward scenario, which may lead to the prolongation of the current cycle; 1.1750, while holding below this value, a transition from the pullback stage to the full-size correction stage is possible.

    Trading plan for GBP/USD on November 17
    Little has changed on the chart compared to the previous day—the quote is standing still. This means that there is a process of accumulation of trading forces before a new speculative price jump.

    From a technical analysis point of view, the signal levels are in the values: 1.0500 for an upward scenario and 1.0300 for a downward price development.

    What is shown in the trading charts?
    A candlestick chart view is graphical rectangles of white and black light, with sticks on top and bottom. When analyzing each candle in detail, you will see its characteristics of a relative period: the opening price, closing price, and maximum and minimum prices.

    Horizontal levels are price coordinates, relative to which a stop or a price reversal may occur. These levels are called support and resistance in the market.

    Circles and rectangles are highlighted examples where the price of the story unfolded. This color selection indicates horizontal lines that may put pressure on the quote in the future.

    The up/down arrows are the reference points of the possible price direction in the future.
    Regards, PR-Manager ForexMart

  7. #1217
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    USD/JPY. The yen ignores the record inflation report and follows the dollar

    The dollar-yen pair earlier this week updated a three-month price low, reaching 137.70. However, the USD/JPY bears failed to settle in the area of the 137th figure - dollar bulls stopped the downward momentum and turned the pair 180 degrees.

    In general, the trajectory of the pair's movement correlates with the trajectory of the US dollar index. Once again, we are convinced that the yen is not an independent player against the greenback. The Japanese currency certainly has its trump card, but it rather serves as a "stop tap". We are talking about a currency intervention, the risk of which increases along with the USD/JPY rate. In this context, we can say that the Japanese government controls the upper limit of the price range within which the pair is traded. According to most analysts, this limit is in the area of the 150.00 mark: exceeding this target is fraught with consequences. As for the lower limit of the conditional price range, everything depends on the "well-being" of the US currency. USD/JPY bears are forced to follow the greenback, which determines the end point of any downward surge. The yen has no arguments of its own to strengthen – primarily due to the divergence of the Federal Reserve and the Bank of Japan rates.

    The events of the last days serve as evidence of this. They eloquently illustrated the stated disposition, the essence of which boils down to an uncomplicated conclusion: the downtrend ends exactly where the dollar recovery begins.

    As you know, the US currency significantly sank throughout the market after the release of the latest data on the growth of inflation in the United States. The market started talking about the fact that the Fed will slow down the pace of monetary policy tightening at the next meeting, which will be held in December. A little later, these assumptions were confirmed by many representatives of the Fed: according to them, the central bank can afford to reduce the speed, while maintaining the final goal at the same level (that is, above the 5.0% mark).

    At first, traders mostly focused their attention directly on the fact of slowing down the pace of tightening of the monetary policy. But then they "listened" to the signals from the Fed representatives, who made it clear that no one was going to curtail the hawkish course – only the speed of achieving the goal slows down. In particular, Christopher Waller, a member of the Board of Governors, said that the markets should now pay attention to the "end point" of the rate hike, and not to the pace of its achievement. At the same time, he noted that the end point is probably "still very far away." Some of his colleagues also stated that, firstly, inflation in the United States is still at too high a level; secondly, it is impossible to make any long-term organizational conclusions based on only one report.

    Such messages eased the pressure on the dollar, and, accordingly, cooled the ardor of bears of the USD/JPY pair. Turning to the upside, the pair gradually began to gain momentum, rising by 250 points in two days. At the same time, traders ignore Japanese statistics, even when it comes to the inflation report.

    Key data on the growth of inflation in Japan was published during the Asian session on Friday. The report reflected a record growth of key indicators. For example, the overall consumer price index rose by 3.7% in October, which is the strongest growth rate of the indicator since 1982. The core CPI, which does not include fresh food, but includes energy prices (petroleum products), also updated the 40-year record. The consumer price index, excluding food and energy prices, jumped 2.5% year-on-year in October.

    All components of the above report came out in the green zone, significantly exceeding the forecast levels. It is worth noting that inflation has been exceeding the BOJ's 2% target for seven months, but at the same time BOJ Governor Haruhiko Kuroda continues to "hold the line", maintaining a soft monetary policy. This, in fact, explains such a phlegmatic reaction of USD/JPY traders to the report published today. Market participants reasonably doubt that Kuroda will toughen his rhetoric in response to the published figures.

    Thus, the fate of the USD/JPY downward trend depends solely on the behavior of the US currency, which is gradually beginning to "come to its senses". After all, even taking into account the slowdown in the rate hike, the Fed continues to act as an ally of the greenback, and even more so in tandem with another, which cannot count on the support of the BOJ. In my opinion, the rhetoric of the Fed representatives will only tighten ahead of the December meeting (at least in the context of determining the upper limit of the current cycle), while Kuroda will once again ignore the inflation report, declaring the preservation of the accommodative policy.

    All this suggests that the USD/JPY pair may demonstrate a more confident growth in the near future – at least to the Tenkan-sen line on the daily chart, which corresponds to the 142.40 mark. If we talk about the medium term, the main target here is 145.50: at this price point, the upper line of the Bollinger Bands indicator coincides with the upper limit of the Kumo cloud on the D1 timeframe.
    Regards, PR-Manager ForexMart

  8. #1218
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    The Fed writes between the lines. The dollar is lost in speculation. No clear strategy or desire to play with the markets

    The dollar index is showing signs of recovery. Perhaps it will show even stronger signs in the coming sessions. However, traders will refrain from making bold attempts to push the dollar higher before the release of the Federal Reserve minutes. The fact that we are facing a short week may also play a role here. The United States will be celebrating its Thanksgiving holiday on Thursday, which will lead to lower activity in markets and limited reaction to market data and other news.

    Wednesday will be an important trading day. A series of macroeconomic data will be released on this day, as well as the minutes. There might be a flurry of activity before holidays and weekends. It is possible that there will be a delayed reaction to all of this as early as next week. In the meantime, markets are evaluating or rather quietly studying the fresh opinions of the Fed members on the central bank's further steps.

    The main question is whether the central bank will eventually shorten the time period during which it is not expected to pause in policy tightening. No matter what the Fed members say, investors are hoping for less aggressive measures and an early transition to dovish rhetoric. They will be looking for signals for such a scenario in all publications, statements and other news reports.

    News from the Fed

    The speech of the head of the San Francisco Fed, Mary Daly, was quite long. The members of the central bank don't seem to have a definite line on what they plan to do next. Now is the time when they are thinking and discussing their next steps.

    Citing new research from her regional bank, Daly said that "the level of financial tightening in the economy is much higher than what the (federal) funds says." Financial markets are acting as if it is about 6%.

    Markets have priced in QE parameters that far exceed those outlined by the Fed. In this regard, Daly noted that "it will be important to remain conscious of this gap between the federal funds rate and the tightening in the financial markets. Ignoring it raises the chances of tightening too much."

    Anyway, the Fed still has a lot of work to do to steer monetary policy in the right direction to curb inflation. Those were probably the key words.

    Daly, speaking to reporters, made no secret of the fact that she has yet to decide which rate hike she will support at the December FOMC meeting. We need to look at new economic data before making a decision.

    The central bank representative also warned against using the market funds rate of 6% as a benchmark for determining the actual policy.

    "I use the proxy rate as a point of reference, not as an indication that we should stop early," Daly summarized.

    In economic forecasts released in September, the central bank's policy makers outlined an average target rate of 4% for the next year. Most officials have since assumed that, given the dynamics of inflation and the continuing strength of the labor market, they may want to go higher. Daly did not rule out the possibility of an increase to 5.25%.

    At the same time, everyone understands and knows that raising rates too sharply will cause great damage to the economy, so the possibility of reducing the size of individual rate hikes is being discussed in parallel. In addition, recent data showing signs that inflation may slow down has given officials some room for such a maneuver.

    Daly said in her formal remarks that the next stage for the Fed will be "in many ways more difficult". She added that officials will need to be "mindful" of their choices and its consequences. Too much adjustment can lead to an unnecessarily painful recession. At the same time, "adjusting too little will leave inflation too high".

    The dollar reflects

    BNP Paribas has provided a number of new interesting research for dollar bulls. According to analysts' calculations, the bottom of the stock market in the current bear market has not yet been reached.

    After analyzing 100 years of crashes, BNP Paribas finds market bottoms typically require a capitulation event – which is associated with a coordinated spike in volatility, skew, and convexity.

    "We have not yet seen this, suggesting that the bottom is not yet in," says Calvin Tse, Head of US Macro research, at BNP Paribas. "Recessionary bear markets historically have often ended with a capitulation. We are calling for a capitulation in equities next year."

    Therefore, if the bottom of the stock market has not yet been reached, then neither is the dollar's peak.

    The dollar is countercyclical and rises in bad market conditions as investors seek cash as protection against asset depreciation. If the BNP Paribas economists' assessment has merit, then those who advocate for a stronger dollar could win.

    Meanwhile, the dollar index rose for the third consecutive session and is trading near the key barrier at 108.00. Although, the bulls' grip eased somewhat.

    The uptrend meets obstacles in the way. However, if it breaks through the 109.18 resistance and then the 109.70 level, it could encourage the exchange rate to rise in the short term.

    Today's dollar losses could be due to the fact that investors are cautiously awaiting the latest Fed meeting's minutes, which could affect the U.S. rate forecast. Traders also analyzed various comments from Fed officials and found them largely soft. Central Bank officials are still sticking to their version of lower inflation, but doubts are certainly present.

    Meanwhile, the dollar index jumped 1% on Monday due to the worsening Covid situation in China. This factor is known to have a short-term effect.
    Regards, PR-Manager ForexMart

  9. #1219
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    USD unable to regain momentum; GBP to face strong resistance level

    Next week, the trajectory of some pairs may change dramatically. The US dollar is also expected to resume an upward movement. If so, it will increase pressure on its rivals. Fed policymakers could also provide more comments on future plans for monetary policy. Some Fed members could even speak in favor of the fifth consecutive rate increase by 75 basis points at the December meeting.

    Yesterday, the pound sterling rose above 1.2000 for the first time since August. Such a sharp increase occurred amid the falling US dollar before Thanksgiving Day and fundamental factors. As trading floors in the US are closed, the pound sterling will be able to climb higher in the coming sessions.

    Why has the pound sterling started steady growth? Is there a likelihood of a rise in the greenback next week?

    GBP maintains bull run

    The British currency jumped against the US dollar, the euro, and other major currencies on Wednesday and Thursday, following the news about a surge in the UK's government debt.

    The GBP/USD pair was trading around a high of 1.2110.

    Falling government bond yields are signaling confidence in the improving economic conditions in the UK.

    As a reminder, Treasury yields grew considerably after the announcement of the September mini-budget of former Prime Minister Liz Truss. Investors demanded higher interest premiums to purchase UK debt.

    Following a jump in government bond yields, the cost of borrowing increased drastically. It led to the destabilization of the UK financial sector and worsened the economic downturn. The pound sterling reacted with a nosedive.

    The current decline in Treasury yields indicates an improvement in the UK's economic prospects.

    The GBP/USD pair grew by 16% after the political woes in late September.

    After several months of volatility and lows, the pound sterling may finally recover. Naturally, not all problems have disappeared completely but it is easier to assess risks at the current levels, analysts HSBC pointed out.

    In their latest forecast, they predicted a rally during 2023.

    As for growth yesterday, it was facilitated by some internal factors. The economic reports turned out to be better than expected. The PMI Indices for November increased after a long time of contraction.

    There is no denying that the country is in a recession but traders are well aware of it. Therefore, the market reaction is likely to be quite strong to positive reports. In other words, traders will pay more attention to upbeat reports, ignoring bad ones.

    Besides, traders are no longer concerned about another bearish factor that has been weighing on the British currency for some time. The UK Supreme Court ruled that the Scottish government cannot hold a referendum for independence without the UK government's approval.

    This news also supported the pound sterling today.

    USD not ready to give up

    On Wednesday, the greenback saw a big sell-off. It dropped lower after the release of the economic reports. The Manufacturing PMI Index slid below 50. The labor market seems to be losing steam as well. Analysts were not surprised.

    Economists at Pantheon Macroeconomics believe that the number of initial jobless claims has been gradually rising for some time as firms are facing challenges due to the Fed's aggressive tightening.

    The Manufacturing and Services PMI Indices fell at the fastest pace since August and the 2008 financial crisis. Recessions in both sectors have become deeper.

    Meanwhile, new home sales soared by 632,000 in October after a downwardly revised figure of 588,000. It was the first increase in three months. The US dollar managed to recover slightly amid this report. However, this data is quite controversial given a decrease in mortgage demand.

    The University of Michigan's inflation expectations has declined this month. The Fed is sure to take notice of this survey. The greenback may start a short-term rally.

    As seen, the US economic reports are rather controversial. It is hard to get a clear picture of the economic situation.

    ING economists are concerned that a 7% fall in the US dollar against its rivals and a drop in the 10-year government bond yield has led to a significant weakening of financial conditions. The result is the exact opposite of what the central bank is trying to achieve.

    It would not be surprising if the Fed's rhetoric becomes even more hawkish next week.

    One year ahead inflation expectations decreased to 4.9% from 5%. At the same time, the figures remain at a level more than twice exceeding the Fed's target of 2%. Five years ahead inflation expectations also remained above the target.

    Inflation expectations will hardly force the Fed to change its hawkish stance. Investors may again abandon their expatiations of a softer stance next week after studying the November meeting minutes and returning to the market after the holiday.

    Traders are likely to pay attention to how many Fed policymakers are backing further aggressive tightening. At the press conference, Fed Chair Jerome Powell said that officials could raise interest rates even higher than 4.5-4.75% than initially projected in September.
    Regards, PR-Manager ForexMart

  10. #1220
    Senior Member KostiaForexMart's Avatar
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    GBP/USD. End of the "Scottish issue"

    The GBP/USD pair tested the 21st figure on Thursday - for the first time since the beginning of August. This is mainly due to the dollar getting weaker, as it stopped moving upward across the market. U.S. trading floors were closed yesterday (Thanksgiving Day in America), and the minutes of the November FOMC meeting, published the day before, were interpreted against the dollar. Such a fundamental background made it possible for GBP/USD bulls to hit a new multi-month high, marking 1.2152.

    Take note that the bulls were getting closer to the area of 20 figures during the last two weeks. After almost a week-long flat in the range of 1.1800-1.1950, the bulls decided to make a swift upward move, which enabled them not only to cross the level of 1.2000, but to also probe the area of the 21st figure. Do remember that the pound's growth was caused not only by the dollar getting weaker, but because it also had political overtones.

    The fact is that this week the British Supreme Court rejected the Scottish referendum bid for independence. According to the court's verdict, the Scottish government cannot initiate a second referendum without the UK Parliament's approval.

    In other words, the Supreme Court put an end to a long-playing story that has emerged (making GBP/USD traders nervous) and then disappeared into oblivion. Therefore, this court ruling is strategically important for the British currency. The pound got rid of a threat that had been hanging over it for several years, threatening to collapse. After all, if the Supreme Court verdict had been the opposite, next year the UK could have experienced events comparable to those of 2016, when the historic referendum on Brexit was held.

    As mentioned, the so-called "Scottish issue" has been hyped from time to time in the global press, going beyond local discussions in the local media. The last time this topic was actively discussed was at the end of last year, when the problems associated with the Coronavirus receded into the background. Back in September 2021, Scottish Prime Minister Nicola Sturgeon confirmed at the Scottish National Party conference that she was planning to hold a second independence referendum before the end of 2023. She stressed that these plans, put on pause because of the pandemic, are "unchanged."

    Recall that in the 2014 Scottish independence referendum, 45% of those who voted "for" and 55% voted "against." That is, the majority voted for union with Great Britain. This plebiscite was held two years before another - historic - referendum, where the majority of British residents (though by a slim margin) voted for secession from the European Union. The Scots, in turn, were unequivocal: nearly 70% of the region's population voted against Brexit. After that "separatist" sentiments intensified in the region. According to experts, Scotland is now essentially divided 50/50 on independence. But analysts don't rule out a possibility that many politically neutral residents of Scotland can mobilize if necessary and use the chance that fell out. After all, it would obviously present itself to them next time in several decades. That is why sociologists have repeatedly warned that at the "X hour", when hypothetical plans for a new referendum take shape, the scales will tip in favor of the region's independence.

    But to the disappointment of supporters of Scottish independence, the Supreme Court did not allow the local authorities to organize a second vote without an approval from the British Parliament.

    Downing Street has already rushed to say that the Cabinet will not allow another plebiscite. According to the government, this is a "once in a generation" event. It is obvious that the Conservatives, who control the House of Commons (and will control it at least until 2024) will not allow the Scottish nationalists to realize the idea of another referendum. Therefore, this issue can be considered closed: for the foreseeable future, all slogans and calls for Scottish independence will have no effect on the pair.

    However, despite the importance and significance of the Supreme Court ruling, the pair's fate now depends on the dollar's behavior. The "Scottish issue" usually flares up brightly, but fades quickly. And it looks like this time it will fade today and for a long time. Next week traders of dollar pairs will focus on the Federal Reserve representatives' rhetoric. The market's tumultuous reaction to the minutes of the November FOMC meeting suggests that the dollar continues to "rule" the currency pairs of the major group. Traders in the second round played back the news that the U.S. central bank will slow down the pace of monetary policy tightening as early as December. But at the same time, the question of what level of the rate the central bank will stop at in the current cycle is still a matter of debate. And this discussion, the degree of "hawkishness" of which will be determined by members of the Fed, will allow GBP/USD traders to determine the vector of price movement.

    In my opinion, the Fed's minutes will fade into the background at the beginning of next week (Fed representatives have already announced all the theses of this document). The focus will be on U.S. statistics (Nonfarm) and comments of the Fed members. If they reiterate that it is not the speed of rate hikes that matters but the end of the current cycle, then the dollar may come out on top again. The probability of this scenario is quite high, given the earlier statements of Fed Chairman Jerome Powell and many of his hawkish wing colleagues.

    Bulls on GBP/USD, who are taking advantage of the moment (shortened trading session on Friday, low liquidity), may try to cross the resistance level of 1.2150 (the upper line of the Bollinger Bands on the D1 timeframe) again. However, taking into account the current fundamental background, it is better to wait for the upward momentum to end, and by next week, you should consider short positions with the first target being 1.1940 (the Tenkan-sen line on D1) and the main target at 1.1700 (the middle line of Bollinger Bands on the same timeframe).
    Regards, PR-Manager ForexMart

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