Weekly Trading Forecast: FX Traders Prepare for Heavy Volatility on FOMC, GDP and ECB Stimulus
This past week's calm optimism was likely an interlude for a bigger shift in market conditions. With a FOMC decision, US GDP, ECB Stress test and much more ahead; stability will be put to the test.
The US Dollar managed to muscle out a modest advance this past week despite favorable winds for investor sentiment (through benchmarks like S&P 500 and volatility indexes) as well as a persistent dovishness in rate forecasts.
If there was ever a chance for the Euro to take advantage of near-term conditions, the moment may be ripe for the elusive Euro short covering rally. The fuel here, of course, is the stretched futures market positioning.
The fundamental outlook for USD/JPY remains bullish as Federal Open Market Committee (FOMC) moves away from its easing cycle, but the dollar-yen may struggle to press fresh highs next week should the Bank of Japan (BoJ) refrain from further expanding its asset-purchase program.
The New Zealand Dollar may fall if the RBNZ withdraws its promise of future rate hikes while a status-quo FOMC statement sees Fed tightening bets rebuild.
The Aussie may remain under pressure over the coming week as elevated volatility caps carry demand, while US-centric event risk offers potential “breakout” catalysts.
Gold prices are softer this week with the precious metal off by 0.55% to trade at $1231 ahead of the New York close on Friday.
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