Volatility is likely to spike across all markets as the Federal Reserve and Bank of England announce their rate decisions and the United States will release their latest employment figures.
The Federal Reserve has become increasingly hawkish during the course of 2021 and is preparing for the end of its QE program. One-and-a-half years after the pandemic started, the U.S. labor market is looking healthy, and inflation is running well above the Fed´s long-term target of 2%.
The pandemic is far from over and the Delta variant is still a concern. However, the situation remains under control and a strong labor market plus planned government spending should keep the economy growing.
At Wednesday´s press conference, the U.S. central bank is likely to announce a plan to unwind its QE program and the timeline could be even more aggressive than initially thought. Interest rate hikes are unlikely to be far away either, as inflation pressures don´t appear to be easing yet.
The Fed is likely to strike a hawkish tone, and this will support the U.S. Dollar. As risk appetite remains high and commodity prices continue to rise, traders may want to look at USD/JPY instead of buying the Dollar against AUD, CAD or NZD. The currency pair had a healthy pullback and is not looking overbought anymore on the Daily chart, while the broad uptrend remains intact. A breakout above 115 would be a major victory for USD/JPY bulls and could pave the way for an extension of gains towards 118.
The Bank of England will announce its rate decision on Thursday. The market has already priced in a 15bps rate hike, but there are still some doubts whether the BoE will pull the trigger, especially since we could potentially be heading into another uncertain winter with possible COVID-19 spikes. Furthermore, the Coronavirus Job Retention Scheme ended at the end of September and we are yet to see the effects of that.
However, the Bank of England sounded quite hawkish recently, and a 15bps rate hike is still more likely than not. The disappointment might come from markets pricing in further rate hikes in 2022 too aggressively. GBP bulls could retreat after the BoE meeting.
A hawkish Fed could mean that GBP/USD could end up being particularly under pressure. Don´t expect too much from EUR/GBP as the ECB is still far away from hiking rates, and the positive risk sentiment makes shorting GBP/JPY less attractive too. However, the downside pressure on GBP/AUD could intensify further. A break below 1.8090 support could pave the way for a retracement to at least 1.78.
After last month´s disappointing NFP figure, markets are expecting a solid 413k print on Friday. The unemployment rate is expected to decline even further to 4.7% while average hourly earnings are anticipated to have grown at 4.9% year-on-year.
The U.S. labor market remains strong and recent economic data suggests that the trend hasn´t changed. October´s NFP print is therefore likely to come in slightly strong than expected.
A strong earning season has boosted the U.S. stock market and going against the trend doesn’t seem wise at the moment. Even if the Fed again shows its hawkish side and the NFP print beats expectations, we might only see a slight pullback in stocks. The FX market is the preferred way to trade the NFP on this occasion, and along with GBP/USD and USD/JPY, EUR/USD is another currency pair to watch as the divergence between the U.S. and the Euro Zone is only going to widen.
Euro bears need a clear break below 1.15 support. This would pave the way for a correction towards 1.12 and eventually 1.10.
Risk appetite has picked up again and equities are advancing towards fresh record highs. GER30 is worth keeping an eye on as a daily close above the 15,772 level (78.6% Fibonacci of the August-October decline) would pave the way for a test of the all-time high at 16,034 points.
Bitcoin is consolidating within a descending channel, and we could see another test of the $58,000 support level soon. A pullback might be healthy considering the cryptocurrency´s rapid rise in the past six weeks. However, a break below $58k could signal the beginning of a deeper correction towards at least $52,900. It would be crucial for BTC bulls that this level of support holds.
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US stimulus stalemate weighs on all markets; Oil perilously perched on the Covid curve; Traders sell the earnings news. Without stimulus, gold gets no bounce.