As global markets brace for a slowdown in US growth, attention turns to Japan, where inflation pressures are already driving key decisions from the country’s central bank.
The Bank of Japan’s decision to maintain its short-term interest rate at 0.25% has continued to spark discussion among market participants. This move comes in the wake of persistent inflation, which has now reached a ten-month high with the National Core CPI rising to 2.8%.
Governor Ueda has signalled that the BOJ is prepared to raise rates further if inflation continues to climb, particularly as wage growth remains strong and private consumption drives the economy forward
For traders, the implications of the BOJ’s policies are clear. As Japan diverges from the Federal Reserve, which is expected to lower rates, the interest rate differential between the two economies may narrow. This shift could strengthen the yen against the dollar, particularly if Ueda’s signals for future rate hikes materialise in December.
We expect that the USDJPY pair, currently trading near the 141.70 area, will experience heightened volatility. If the yen continues to strengthen, traders may see the pair drop toward the 138.00–140.00 range, in line with economists’ predictions.
This potential strengthening of the yen also raises the likelihood of increased intervention from Japanese authorities. Vice Finance Minister for International Affairs, Atsushi Mimura, has reiterated the government’s readiness to act in case of excessive currency volatility. The fear is that if the yen appreciates too rapidly, it could disrupt Japanese exporters and hurt corporate profits, leading to broader economic repercussions.
Intervention in the forex market is not off the table, as Japan’s history shows that they will step in if currency movements deviate from underlying fundamentals, a scenario traders should closely monitor in the coming months.
As inflation remains above the central bank’s 2% target, we anticipate more market participants to take a cautious approach toward USDJPY trades, particularly if macroeconomic data in the US weakens and pressures the Federal Reserve into further dovish policies.
If this happens, the yen could gain considerable strength, putting downward pressure on the pair and intensifying volatility in the forex market.
Moving our gaze to the Forex market, the USDX saw little movement on Friday but could retest the 100.00 level before moving higher. If it drops below this threshold, it may dip to 99.20 before a potential upward shift. This could lead to an early-week decline in USDX before it stabilises mid-week.
The EURUSD pair, while maintaining its current position, has the potential to move higher and test the 1.1200 zone before a correction. Price action around 1.1040 could signal the start of a larger corrective structure, which may drive volatility in the short term. Similarly, GBPUSD is expected to maintain an upward trajectory due to the Bank of England’s non-committal stance towards rate cuts, coupled with the Federal Reserve’s rate reduction plans. Monitoring the 1.3400 area will be crucial as any correction here could fuel further bullish momentum.
USDJPY continues to trade higher, driven by a 141.70 level breakout. The next critical price point to monitor is 144.90, as any rejection here could lead to a reversal. Conversely, USDCHF has been moving upward from the 0.8460 zone, with traders eyeing potential bearish action around 0.8640. On the AUDUSD front, the pair could aim for the 0.6870 high before consolidating, indicating potential strength in the Australian dollar early in the week.
Gold prices remain robust, having traded above the 2600 mark. Key price points to watch are 2650 and 2670, which could trigger consolidation or a continuation of the upward trend. Oil prices also display potential consolidation around the $74.00 level. The energy market could see a pause before the next directional move is determined by external factors, such as geopolitical developments or supply dynamics.
The SP500 index continues its upward movement, approaching new highs at 5790 and 5850. Traders should keep an eye on consolidation near 5570, as this could signal a potential reversal or a continuation of the bullish trend. Bitcoin, on the other hand, is hovering near the 65054 swing high, a critical resistance level. If the cryptocurrency consolidates before breaching this point, bullish action around 59900 could drive further upside momentum.
Natural gas has followed expectations with a new swing high, and traders should watch price action at 2.47 for potential consolidation. The energy sector, particularly natural gas, may experience further fluctuations as market participants react to global supply and demand factors.
This week’s economic schedule is packed with pivotal data releases that could influence market sentiment across various asset classes.
One of the first major releases comes from Europe, with the German Flash Manufacturing PMI expected to hit 42.4. This figure is unchanged from the previous report, signalling continued contraction in the German manufacturing sector. Although this is not a positive reading, the stability in the figure could indicate that the downturn is slowing.
Monday kicks off with a heavy focus on European data, particularly the German Flash Manufacturing PMI, which is forecasted at 42.4, in line with the previous reading. This figure reflects the ongoing contraction in Germany’s manufacturing sector, highlighting the continued struggles of Europe’s largest economy.
If the data confirms this forecast, it could suggest that the sector is still dealing with weak demand and high costs. EURUSD is expected to show initial strength early in the week before declining, as traders react to the weaker manufacturing outlook and brace for potential volatility in the euro.
The U.K. will also release its Flash Manufacturing PMI, forecasted at 51.1, slightly down from the previous 51.2. This signals that the U.K.’s manufacturing sector is still expanding, albeit at a slower pace. Market participants will closely monitor this release to gauge the health of the British economy, especially as the Bank of England continues to hold off on rate cuts.
Later in the day, the U.S. releases its own Flash Manufacturing PMI, which is forecasted at 52.3, down marginally from 52.5. This data could provide further insights into the state of the U.S. manufacturing sector, which has faced challenges from rising input costs and global supply chain disruptions.
The slightly lower forecast still signals expansion, but the momentum appears to be slowing. USDX could see some upward movement if the data exceeds expectations, though any weakness in the figure could trigger a sell-off in the dollar. Traders are keeping an eye on this release to determine the U.S. economy’s near-term trajectory, particularly in the face of possible rate cuts by the Federal Reserve later in the year.
On Tuesday, the Reserve Bank of Australia (RBA) will take centre stage with its latest cash rate decision. The market anticipates the RBA will maintain the rate at 4.35%, unchanged from the previous meeting. This decision comes as the Australian economy continues to grapple with elevated inflation, while also dealing with slowing growth.
Although traders expect the RBA to hold the rate steady, any hawkish commentary from the central bank regarding future rate hikes could fuel a short-term rally in the Australian dollar. AUDUSD is expected to rise further before entering a consolidation phase, providing a potential trading opportunity for those watching this currency pair.
Wednesday will see the release of Australia’s Consumer Price Index (CPI) year-over-year, with a forecast of 2.8%, down from the previous 3.5%. This slowdown in inflation could signal that the RBA’s earlier rate hikes are having their desired effect, cooling price increases.
However, a lower-than-expected CPI could weaken the Australian dollar, with AUDUSD potentially losing momentum after its early-week rally. Traders will need to carefully monitor how this data influences the market, especially with broader concerns about global growth and inflation dynamics in other major economies.
On Thursday, the Swiss National Bank is set to release its policy rate, which is forecasted to be reduced to 1.00% from 1.25%. This dovish shift signals a more cautious outlook on the Swiss economy, likely in response to slowing growth and subdued inflationary pressures. Any deviations from the expected rate could inject volatility into USDCHF, particularly given that the pair is already being monitored for potential bearish action around the 0.8640 level.
Most importantly in the midweek’s economic data are updates from the U.S., with the release of the final GDP quarter-over-quarter figure, expected at 2.9%. Although slightly below the previous 3.0% reading, indicating a marginal slowdown, this data still indicates solid growth in the U.S. economy. However, any downside surprise here could impact the USD, especially if paired with weak inflation data later in the week. Traders eyeing USDCHF should take note, as profit-taking could occur if the dollar shows signs of weakening after an early-week rally.
Then later in the week on Friday, all eyes will turn to the United States, where the Core PCE Price Index is forecasted at 0.2% month-over-month, a key inflation indicator closely monitored by the Federal Reserve. This means that inflationary pressures still persist at a stable level, with no signs of easing.
A weaker-than-expected reading could bolster the case for further rate reductions, applying additional pressure on the USD. Traders will need to pay attention to how this data fits into the broader inflation narrative, as any surprise deviations could lead to sharp moves in the dollar and related assets.
On the same day, Canadian GDP data will be released, with a 0.1% month-over-month increase expected. While modest, this rise may indicate that Canada’s economy remains resilient despite headwinds from global economic uncertainty.
With the USDCAD pair potentially targeting the 1.3500 level before moving up, this data could provide a key inflection point for the Canadian dollar’s movement, particularly if traders see it as an indicator of economic strength in the face of broader global weakness.
Official partners:
