Trading Signals 05/02 – 09/02
Forex: Major Economic News. December.
2023 is nearing its end, but there are still important news ahead that could cause market volatility. This includes economic indicators, central bank rate decisions, and possibly geopolitical events. Let’s analyze the key points and the potential reaction of currency pairs.
The most anticipated news will be:
- Nonfarm Payrolls (NFP) (Nov)
- U.S. Consumer Price Index (CPI) YoY
- Fed Interest Rate Decision
In October 2023, the number of non-farm jobs in the United States saw an increase of 150,000. According to projections and expectations from analysts, this figure is anticipated to reach around 100,000 by the end of the current quarter. Looking ahead, it’s projected that the non-farm payroll numbers in the U.S. will stabilize at about 180,000 in 2024 and around 170,000 in 2025.
Inflation rate in the U.S.fell to 3.20 percent, down from 3.70 percent in September. According to forecasts from analyst expectations, the inflation rate in the U.S. is projected to decrease to 3.00 percent by the end of this quarter. Looking into the future, it is anticipated that the inflation rate in the United States will average around 2.50 percent in 2024 and slightly reduce to 2.40 percent in 2025.
In November, the Federal Reserve maintained the federal funds rate at a 22-year peak of 5.25%-5.5% for the second time in a row. This decision reflects their aim to bring inflation back to the 2% target while avoiding overly aggressive monetary tightening. The Fed will consider the total impact of past rate increases, the delay in monetary policy effects, and economic and financial market trends in any future policy adjustments. Fed Chair Powell indicated that the September forecast of an additional rate hike this year might no longer be valid and mentioned that rate cuts haven’t been discussed yet, with the focus on potential further rate increases.
Currently, the U.S. benchmark interest rate stands at 5.50 percent. It’s expected to remain at this level through this quarter. Looking ahead, the Fed Funds Interest Rate in the U.S. is expected to average around 5.00 percent in 2024 and decrease to 4.00 percent in 2025.
Besides, it’s crucial to keep an eye on other news that could trigger market volatility:
- ISM Manufacturing PMI (Nov)
- U.S. ISM Non-Manufacturing Purchasing Managers Index (PMI)
- PPI (MoM) (Nov)
- Retail Sales (MoM) (Nov)
Traders are anticipating just one key piece of news from the European Union:
- ECB Interest Rate Decision (Dec)
In its October meeting, the European Central Bank (ECB) held interest rates at multi-year highs, ending a 15-month streak of hikes amid easing inflation and recession concerns. After ten rate increases since July 2022, the main refinancing rate is at a 22-year high of 4.5%, and the deposit rate at a record 4%. The ECB aims to keep rates high until inflation stabilizes at its 2% target.
Currently, the Euro Area’s benchmark interest rate is 4.50 percent, expected to remain so this quarter. It’s projected to decrease to around 3.75 percent in 2024 and 2.75 percent in 2025.
The leading financial institution of the UK will make its interest rate decision the day after its American counterparts, with investors also eagerly awaiting data on the health of the economy:
- U.K. Interest Rate Decision
- U.K. Gross Domestic Product (GDP) MoM
During its November meeting, the Bank of England held its key interest rate steady at a 15-year peak of 5.25%, marking the second time in a row amidst signs of economic slowdown and high inflation in the UK. The decision was made with a 6-3 vote, where three members were in favor of a 25 basis point hike. The central bank indicated a continued restrictive monetary policy to bring inflation down to the 2% target, with a willingness to tighten further if needed. Inflation forecasts were slightly raised, while GDP growth is expected to be stagnant in the last quarter, with only slight growth towards the year’s end.
The UK’s benchmark interest rate is currently at 5.25 percent and is expected to remain so this quarter. It’s projected to decrease to around 4.50 percent in 2024 and 3.50 percent in 2025.
The UK’s GDP grew by 0.2% in September 2023, outperforming the previous month’s 0.1% increase and beating flat growth forecasts. This rise was led by the services and construction sectors. However, consumer services and production output lagged. Annually, the GDP saw a 1.3% increase.
For September, the UK’s monthly GDP growth was 0.20 percent, expected to be around 0.10 percent by quarter’s end. In 2024, it’s projected to average around 0.30 percent.
At the same time, it’s important not to overlook events that might not be marked as highly significant in the calendar but could still impact the movement of the pound:
- U.K. Manufacturing Production MoM
- U.K. Industrial Production MoM
- U.K. Claimant Count Change
The central bank of the Koala country will also be making a rate decision and will report on its GDP:
- Australia Interest Rate Decision
- Australia Gross Domestic Product (GDP) YoY
The Reserve Bank of Australia raised its cash rate to 4.35% in November, a 25 basis point increase from the previous 4.1%, in line with expectations. This marks the highest rate since January 2011 and the 13th hike since May 2022, driven by ongoing inflation and rising service costs. CPI inflation is expected to be around 3.5% by the end of 2024 and at the upper end of the 2-3% target by the end of 2025. New governor Michelle Bullock indicated future rate decisions will be data-dependent. The board also raised the Exchange Settlement balances rate to 4.25%.
Australia’s benchmark interest rate is currently 4.35 percent, expected to stay there this quarter. It’s projected to trend around 3.85 percent in 2024 and 2.85 percent in 2025.
Country’s economy grew 0.4% in Q2 2023, continuing its growth trend and slightly surpassing expectations. Key drivers were strong public investment and a positive trade balance, with exports outpacing imports. While government spending increased, household consumption remained weak due to high interest rates, leading to the lowest savings ratio since 2008.
Australia’s GDP growth is expected to be 0.30% for the current quarter and is projected to trend around 0.50% in 2024 and 0.60% in 2025.
Here, we are anticipating just one important event:
- Canada Interest Rate Decision
In its October 2023 meeting, the Bank of Canada maintained its overnight rate at 5%, a 22-year high, aligning with market expectations. The bank indicated that future rate decisions will hinge on new economic data. This marks the second pause in rate hikes, as previous increases have already slowed economic activity and curbed price growth. Recent data shows a slowdown in inflation and stagnation in GDP growth and retail sales. The Bank anticipates inflation to fluctuate before settling at 2% by 2025, mindful of risks like high energy prices and wage growth.
Currently, Canada’s benchmark interest rate stands at 5 percent and is expected to remain there this quarter. It’s projected to decrease to around 3.50 percent in 2024 and 3.00 percent in 2025.
Major Currency Pairs
The main currency pair has been consistently rising for the past four weeks. Within its upward trend channel, the euro might hit 1.10638 by year-end if it can surpass the key resistance level at 1.09433. The RSI remains significantly above 50, and the 200-day moving average is also trailing. These factors collectively point towards a potential continuation of the upward momentum. Traders should keep their ears to the ground for the Fed Chair’s speech at the press conference following the interest rate decision.
The pound also maintains its upward trend. The pair is challenging the resistance level at 1.26135. If it breaks through, within the ascending channel, it could reach the mark of 1.27480. Key indicators like the RSI and the 200-day moving average support this outlook.
The Aussie dollar is riding the wave, gaining ground against a softer US dollar. It’s moving up in its uptrend channel. The key resistance level to watch is 0.65965. If it can crack that, we could see it heading towards 0.66986. The price is just above the 200-day MA, and the RSI is sitting pretty over 50. Keep your ears peeled for any chatter from the bigwigs after the interest rate decision.