(MENAFN– Daily Forex) Fundamental Analysis & market Sentiment

I wrote on 10th November that the best trade opportunities for the week were likely to be:

Long of bitcoin in USD terms. Bitcoin has risen by 12.55% over the past week.

Long of the S&P 500 index . The Index fell by 2.30% over the past week.

Long of the nasdaq 100 Index . The Index fell by 3.51% over the past week.

The weekly gain of 6.74% equals 2.25% per asset.Last week’s key takeaways were:

US CPI (inflation) – all the inflation metrics were exactly as forecasted, and the annualized rate rose to 2.6% .

US PPI – as expected, reinforcing no news on inflation.

US Retail Sales – slightly stronger than expected, at a month-on-month increase of 0.4% compared to the forecasted 0.3%. This may increase the chance of a rate hike by the Fed at its December policy meeting.

UK GDP – considerably worse than expected, showing a month-on-month contraction of 0.1% when an increase of 0.2% was expected. This increases the chance of a rate cut and has helped make the Pound the weakest of all major currencies right now.

Australian Wage Price Index – a fraction lower than expected at a quarterly increase of 0.8%. In a very small way, this may increase the case for a further rate cut.

New Zealand Inflation Expectations = 2.12%.

UK Claimant Count Change (Unemployment Claims) – more or less as expected.

Australian Unemployment Rate – as expected at 4.1%.Last week, the most important factors driving the market were not so much economic data but a growing digestion of what the Trump / Republican victory in the USA will mean economically and for markets generally. The strong slump in stock markets towards the end of the week, especially in the USA, should be cause for concern, as the major indices have almost retreated back to where they were when news of Trump’s victory began to emerge Week Ahead: 18th – 22nd NovemberThe coming week’s schedule is lighter, with the most important scheduled events likely to be inflation data releases in the UK and Canada.

UK CPI (inflation)

Canada CPI (inflation)

UK Monetary Policy Report Hearings

US Unemployment Claims

UK Retail Sales

Canada Retail Sales

US, German, UK, French Services & Manufacturing PMIMonthly Forecast November 2024 I made no monthly forecast for November, as the long-term trends in the Forex market were too unclear Forecast 17th November 2024I made no weekly forecast this week, as there were no unusually strong directional price movements over the past week, which is the basis of my weekly trading strategy.Last week, the US Dollar was the strongest major currency, while the British Pound was the weakest. One third of the most important Forex currency pairs and crosses changed in value by over 1%.You can trade these forecasts in a real or demo Forex brokerage account .Key Support/Resistance Levels for Popular Pairs Top Forex Brokers1 Get Started 74% of retail CFD accounts lose money Technical AnalysisUS Dollar IndexLast week, the US Dollar Index printed a large bullish candlestick that broke out beyond the resistance level at 105.81, as well as the upper trend line of the formerly dominant consolidating triangle chart pattern , which can be seen in the price chart below. These are bullish signs, but it should be noted that the candlestick has a large upper wick, showing that the Dollar struggled to hold some of its earlier gains as it consolidated towards the end of last week.The price is now above its levels from both three months ago and six months ago, suggesting a long-term bullish trend in the greenback, which should be exploitable.The strong US Dollar is supported by the expectation that the new Trump / Republican control of the executive and legislature in the USA will lead to a more hawkish monetary policy. This has been evidenced by the strong increase in US Treasury Yields over recent weeks.I have plenty of technical and fundamental reasons to be bullish on the US Dollar. The only bearish note comes from the price not clearing the 1-year+ high at 107.00, which was previously a major bearish inflection point, so I would be more bullish above 107.00 if the price gets established up there.
EUR/USDLast week, the EUR/USD currency pair printed a relatively large bearish candlestick, which made the lowest weekly close seen in one year. The weekly candlestick closed not far from its low, although there is enough of a lower wick on the candlestick for it to be worth noting. The price is below its levels from both 3 and 6 months ago, which is my preferred metric for calling a long-term bearish trend. The US Dollar Index is also in a long-term bearish trend. A final bearish signal is that the 50-day moving average has crossed below the 100-day moving average, which validates the trend.So, there are plenty of reasons to go short here, but I remain concerned that the price area being reached was a bullish inflection point when it was last tested, around the $1.0500 area, and there may still be demand here. This concern is strengthened by the fact that for almost 2 years, the price has ranged approximately between $1.0500 and $1.1250.The best approach here is to look for short swing trades from retests and rejections of resistance levels above the current price. GBP/USDLast week, the GBP/USD currency pair printed a large bearish candlestick, making the lowest weekly close seen in 6 months. It was the largest bearish candlestick range in several months, suggesting strong bearish momentum. The weekly candlestick closed near its low, and the British Pound was the weakest of all major currencies last week. The price is below its levels from both 3 and 6 months ago, which is my preferred metric for calling a long-term bearish trend. The US Dollar Index is also in a long-term bearish trend.There are several bearish technical signs. Turning to fundamentals, one of the reasons the Pound is weak is that the Bank of England may be forced to cut rates more quickly after last week’s very poor UK GDP data, which showed a contraction of economic activity over the month. The weakening British economy may require a faster rate cut, which will help sink the Pound.The US Dollar also remained strong following the Republican victory in the US general election, so the price could continue falling for several reasons. However, I don’t want to be short here until the trend is established for longer – I like to see the 50-day moving average below the 100-day moving average before going short. Day traders may be interested in this pair on the short side. USD/JPYThe USD/JPY currency pair gained last week in line with the general rise in the US Dollar but gave up most of its gains by the end of the week, as can be seen by the large upper wick on the most recent weekly candlestick shown within the price chart below.The moving average positions still need to be fully bullish for the long term, so I do not see this pair as fully trending. Additionally, the price is above its level of 3 months ago but still needs to reach its level of 6 months ago, reinforcing the lack of true trend. European currencies like the Euro are considerably weaker than the Yen.So, although there are reasons not to trade this pair for trend or momentum, what it does have – in conjunction with almost all the Yen crosses – is a high level of volatility, making this an interesting currency pair for Forex day traders to focus on. USD/CADThe USD/CAD currency pair made a strong gain last week, as it made a bullish breakout to a new 4-year high price, which is a significant long-term high price.The weekly close was located quite near the top of the weekly range, which is another bullish sign.The technical picture could hardly be more bullish and is supported by the fundamental picture, which sees a strong US Dollar boosted by the upcoming Trump presidency and Republican Congress, and also a weak Canadian Dollar, which is being driven lower by the global decline in the price of crude oil – WTI Crude Oil closed last week at its lowest weekly closing price in 18 months.There are many reasons to think about going long here, but remember that this currency pair typically trends little as the American and Canadian economies are so intertwined. However, there are periods in which this is not true. As we have seen some divergence between the Federal Reserve and the Bank of Canada on monetary policy in recent months, this may be such a period now. BitcoinBitcoin saw another week of extraordinary gains as it powered to new all-time highs, topping to date above $93,000. The price rose by more than 10% over the week.There is no reason not to be bullish except that the price is now not far from the huge six-figure round number at $100,000. If the price arrives at, or very close to, that point, we will likely see massive profit taking as there will be a 25% gain within just a few weeks, an enormous rise in value for any asset. So, this leg of the bull run, or maybe this whole trend, maybe does not have much further to run.Bitcoin received a significant boost from the election victories of President Trump and Congressional Republicans in both Houses. Republicans are seen as more likely to favour lighter regulation of cryptocurrency, so their ascendancy has boosted both crypto in particular and risk sentiment in general, which also helps a risky asset like Bitcoin.I think it is smart to be long of Bitcoin, just be mindful of $100,000 as a potentially strong barrier. With such momentum and strong gains, a trend or momentum trader should be interested.Note that Bitcoin ETFs are not getting the full gain made by the underlying, not in some way, so if you can afford it, you might want to buy Bitcoin futures instead of a Bitcoin ETF or even spot Bitcoin. There are Bitcoin micro futures available on the CME, which are only sized at 10% of the value of one Bitcoin. NASDAQ 100 IndexThe NASDAQ 100 Index fell last week, especially on Friday, when it made its strongest daily fall since September. The daily chart below shows that after making a new record high recently following the Trump/Republican victory in the US election, the price printed classing topping price action triggered the big drop at the end of the week.The price is now almost where it was when it became clear Trump had won the Presidency, which is an ominous sign for the market. It was expected Trump would boost stocks quite strongly, but if the price falls just a bit further, we will be in negative Trump territory.There is a long-term bullish trend here, so there are still plenty of reasons to expect the price to turn bullish again.The price is now approaching a critical technical area just below the big round number at 20,000 – there is a confluence here of an obvious horizontal area of support and the lower trend line of the linear regression channel, which I have drawn to cover the recent bullish leg of the price action. If the price continues to fall and gets established below 19,800, it might quickly fall considerably.I do not see the NASDAQ 100 Index as a buy for now, especially below 19,800. Bottom LineI see the best trading opportunities this week as

Long of Bitcoin in USD terms.

Short of the EUR/USD currency pair.

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November 17, 2024 – Written by Frank Davies

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Slides as Republicans Gain Control of Congress

The Pound to US Dollar (GBP/USD) exchange rate dropped to a new multi-month low on Thursday as investor demand for the USD remained strong.

At the time of writing, GBP/USD was trading around $1.2644, down approximately 0.5% from Thursday’s opening levels.

The US Dollar (USD) climbed on Thursday, continuing its upward trend following Donald Trump’s election win.

The recent boost in USD came as Republicans secured a majority in the House of Representatives, granting the party control of all branches of the US government.

With Trump now poised to advance his economic policies more easily, USD exchange rates rose as investors anticipate his tax cuts and tariffs may fuel inflation, potentially leading the Federal Reserve to keep US interest rates elevated for longer.

The Pound (GBP) struggled to gain traction against the US Dollar on Thursday, as GBP investors remained cautious ahead of a speech from Bank of England (BoE) Governor Andrew Bailey.

Bailey’s comments will follow recent remarks by BoE official Catherine Mann, who discussed the risks of rising inflation in the UK and suggested rates might need to remain high.

If Bailey echoes this sentiment, it could dampen market expectations of a BoE rate cut in December and help the GBP/USD exchange rate recover from its current lows.

GBP/USD Forecast: Slowing UK GDP to Pressure the Pound?

Looking toward the end of the week, the Pound to US Dollar (GBP/USD) exchange rate may face further headwinds with the release of the UK’s latest GDP figures.

Preliminary data for the third quarter is expected to show that UK economic growth slowed from 0.5% to just 0.2%, raising concerns about the country’s economic outlook and likely weighing on Sterling.

Meanwhile, the release of US retail sales data could limit the US Dollar’s recent gains if the figures indicate a slowdown in consumer spending last month.

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• Trump’s policies will likely boost economic growth and inflation.

• The Fed might be forced to keep rates at a restrictive level longer.

• The UK economy unexpectedly contracted.

The GBP/USD weekly forecast is bleak as the pound collapses against a strong dollar amid the Trump trade weaker UK GDP.

Ups and downs of GBP/USD

The GBP/USD pair had a very bearish week as the Trump trade boosted the dollar and weighed on the pound. Despite various economic reports from the UK and the US, markets were focused on the looming shift in policies in the US. 

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Trump’s policies will likely boost economic growth and inflation. Therefore, the Fed might be forced to keep rates at a restrictive level longer. High interest rates boost Treasury yields and the greenback. 

Meanwhile, US inflation data aligned with expectations, leaving rate-cut bets mostly unchanged. However, Powell’s remarks that there was no hurry to cut rates slashed bets to below 50%. On the other hand, the UK economy unexpectedly contracted, further weighing on the pound.

Next week’s key events for GBP/USD

Next week, market participants will focus on key economic reports from the UK, including consumer inflation, retail sales, and business activity. Inflation in the UK recently dropped below the Bank of England’s target to hit 1.7%. The decline was initially a big motivator for the central bank to lower borrowing costs.

However, policymakers remained cautious, noting that the economy might perform better than expected in the medium term. Therefore, inflation might rebound. A better-than-expected CPI reading will lower rate-cut expectations and boost the pound. Meanwhile, a downbeat report will weigh on the currency.

GBP/USD weekly technical forecast: Decline could pause at 1.2600  

On the technical side, the GBP/USD price has plunged to the 1.2600 support level. The new swing long has put the price well below the 22-SMA, showing bears are in the lead. At the same time, the RSI has reached the oversold region, suggesting solid bearish momentum.

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This week, the GBP/USD price only made bearish candles, showing a strong bias. The decline started after the price broke below and retested the 1.3002 key level. At the same time, the price was retesting the 22-SMA as resistance. It bounced lower, breaching the 1.2801 support before pausing at the 1.2600 level. However, after such a steep decline, the price might need a pause next week before it continues lower.

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• The Pound Sterling sellers refused to give up as the US Dollar remained in command.
• GBP/USD eyes UK and US economic data for some relief.
• Technically, downside risks remain intact for the Pound Sterling on a daily bearish RSI.

The Pound Sterling (GBP) booked the seventh straight weekly loss against the US Dollar (USD), with the GBP/USD pair falling as low as 1.2630 during the week.

Pound Sterling gave in to the US Dollar’s dominance

The USD rode the Trump trades optimism wave higher following US President-elect Donald Trump’s victory, clinching the highest level in a year against its major currency rivals. Markets build on the narrative that Trump’s tax cuts and trade tariff policies will likely rekindle inflationary pressures, calling for higher interest rates and eventually supporting the Greenback, US stocks and US Treasury bond yields.

The buying interest around the USD remained unabated, slamming the GBP/USD pair to the lowest level since July at 1.2630. The Greenback received an added boost from fading expectations that the US Federal Reserve (Fed) will continue its easing trajectory after the US election outcome.

Fed Chair Jerome Powell echoed his colleagues’ caution on inflation and that the Fed could remain patient with its policy approach. Powell said in his speech on Thursday that there was no need to rush rate cuts with the economy still growing and the job market solid, despite inflation still above the 2.0% target, tempering expectations for a rate cut next month, per Reuters.

The sticky US Consumer Price Index (CPI) and hot Producer Price Index (PPI) data for October also backed the hawkish shift in the Fed’s policy stance. US CPI rose 2.6% annually in October, coming in higher than the 2.4% growth in September while meeting the forecast. The annual core CPI inflation steadied at 3.3% in the same period vs. 3.3% expected.

Meanwhile, the annual headline factory-gate inflation rose to 2.4% in October after increasing 1.9% in September, indicating that disinflation is losing momentum. Markets now price in a less than 60% chance of a 25 basis points (Fed) rate reduction next month, the CME Group’s Fed Watch Tool showed, down from 82.5% in the prior session.

The bullish undertone in the Greenback hindered the Pound Sterling from capitalizing on prudent remarks from the Bank of England (BoE) policymakers concerning the bank’s path forward on interest rates. BoE Chief Economist, Huw Pill, said that the latest “labor data shows pay growth still at high levels,” adding that “further rate cuts is likely to be a gradual process.”

Meanwhile, his colleague Catherine Mann, the hawkish dissenter, noted that “central banks must ensure these inflation pressures do not get embedded. I do not think high interest rates are bad for high productivity.”

Heading into the weekend, Pound Sterling sellers took a breather as they awaited the US Retail Sales report for October for further incentives in trading the GBP/USD pair.

The US Dollar gained some pips following upbeat data, as Retail Sales rose by 0.4% MoM in October, better than the 0.3% anticipated by market players. Additionally, the September reading was upwardly revised from 0.4% to 0.8%.

The week ahead: UK inflation data and global PMIs eyed

After a busy second half of the last week, the early part of this week seems to be quiet data-wise from both sides of the Atlantic until the release of the UK CPI inflation report on Wednesday.

In the meantime, the appearances by the BoE and Fed policymakers and mid-tier US housing data will keep traders entertained.

Wednesday’s UK CPI data will hold the key to influencing the market expectations of future rate cuts by the BoE as policymakers assess the impact of the Autumn Budget on the economy and inflation prospects.

BoE official Dave Ramsden is due to speak about monetary policy at the University of Leeds later on Wednesday.

Central bankers’ speeches will dominate on Thursday amid the weekly US Jobless Claims data release.

S&P Global preliminary Purchasing Managers’ Index (PMI) data from the UK and the US will wrap a relatively data-quiet week.

GBP/USD: Technical Outlook

The daily technical setup for the GBP/USD pair suggests that sellers will continue jumping on any recovery attempts as the 14-day Relative Strength Index (RSI) remains in negative territory.

With the previous week’s dual Bear Crosses in play, the downside risks remain intact for the pair.

The Pound Sterling needs a weekly candlestick closing below the August 8 low of 1.2665 to stretch the downside momentum.

If the selling pressure intensifies, sellers could attack the 1.2550 psychological barrier. On a failure to defend that level, the May 9 low of 1.2446 will be challenged.  

However, the pair could see a brief upside correction before the next leg down kicks in.

Recapturing the 200-day Simple Moving Average (SMA) at 1.2819 is critical to initiating any meaningful recovery in the near term.  

The next topside barrier aligns at the 21-day SMA at 1.2908.