The US Dollar, of late, has been exposed to some severe pressures owing to some recent economic data that seem to reflect a slowdown in inflation. It can be unsettling for a trader because such fluctuations in the Forex markets are usually dominated by the USD.
Therefore, further weakening of the US Dollar has led traders to ask questions whether the greenback is indeed in trouble and how such a scenario will impact the FX majors in the future. The problem is determining what this means for your trades and to be in position for these potential opportunities.
The Forex market, especially as it relates to currency pairs and relative strength, is an appropriate point to evaluate these developments in relation to how terribly key economic data, such as inflation figures, affect them. Markets have already reacted with news of softer-than-expected readings on US inflation data, and traders need to assess whether FX majors, paired with the USD, will keep on rallying.
We’ll run through US inflation activity and tease out some implications for the US Dollar. We also present a weekly forex forecast that identifies the most promising currency pairs to keep an eye on as well as some critical numbers—the likes of GBP/USD, XRP/USD, and the Dow Jones—and how this market will play out, present tips on positioning yourself in this fluid environment.
US Inflation Data Put the Dollar on the Sidelines
It began quietly but very quickly heated up, with the release of softer-than-expected US inflation data. The slowing US inflation figures released will send a reaction throughout markets, catapulting the US Dollar to new yearly lows. Sellers pummelled the greenback, and this shift might be a critical turning point for the dollar as we move through the final months of the year.
With the inflation going down, it usually creates this feeling that the central bank, in this case, the Federal Reserve, might go dovish. This would eventually result in lower interest rates and, therefore, makes the currency less appealing to investors. Presently, the US dollar is already under pressure, and this would be a rallying point for other currencies such as the Euro, GBP, and even commodity-based currencies, such as the Australian Dollar.
FX Majors to Bounce
As the U.S. Dollar losses continue to unfold, it would be expected that a number of FX majors will rip higher. These include GBP/USD, EUR/USD, and commodity currencies like AUD/USD. Here is a quick look at three potential trades this week:
1. GBP/USD – More Upside Room
The GBP/USD has shown significant bullishness with this being mainly due to the softening of the US Dollar. One of the technical formations worth watching here is the inverted head and shoulders pattern on the daily chart. This pattern confirms the expectation that the pair will look for a higher rise, especially when the US Dollar is under pressure.
Although, traders should be cautious in a move to try and catch the peak of a rally. The GBP/USD has had a strong advance, but there is room for a pull back. Cautiously look for topping signs on an hourly chart, where a pull back may be at hand. The pull back to near 1.28 would provide an excellent opportunity to scale into long positions.
2. XRP/USD – Headline News Fuels Volatility
In crypto, there have been huge tides of news for XRP following a significant court win—the US District Court ruled that XRP is not a security, significantly boosting the credibility of Ripple’s native token. News quickly propelled XRP from around 47 cents up to 77 cents, which has been a huge rally over a short period of time.
Traders should be careful not to chase the market at these inflated heights. News surrounding XRP remaining bullish, wait for consolidation or pullback before entering. There could be support around the 60-65 cents levels and if the market stabilizes, there might be a further leg up toward the $1 level. XRP/USD is definitely one to watch this week as further developments would lead to more volatility.
3. Dow Jones – Wary and Watching Breakout Above 35,000
The Dow Jones Industrial Average has been locked in range for weeks, but it is one to watch for breakout plays. There is an interesting technical pattern emerging on the weekly chart—an inverted head and shoulders. A move above 35,000 would be bullish in its own right, suggesting the index is setting up for a fresh leg higher.
Breaking above that level would confirm a fresh bull run. However, the risks remain high; even the least piece of bad news or adverse data should have the ability to reverse it back. Do look out for the key data this week—it includes the release of Chinese GDP and UK CPI, and this affects and influences global sense and may change the direction US equities go.
Key Economic Events to Follow
1. Chinese GDP and Industrial Production
We will begin by moving our focus to China, where the release of GDP and industrial production data is slated for this week. These figures should give us some measure of how China’s economic recovery is doing. With China casting a huge shadow over a significant chunk of the global markets, particular attention will be paid to the commodity prices and risk sentiment.
2. UK CPI Data
On the docked today is the UK’s Consumer Price Index for Wednesday. This is a very significant inflation indicator, so we are going to be watching closely, particularly since inflation has been one of the top concerns for the Bank of England. This report might deliver some shockers that will trigger huge swings in GBP pairs, especially to the GBP/USD pair.
3. Jobless Claims – USA
The US Initial Jobless Claims will close off the week on Thursday. The data is not as impactful as some of the announcements, but provides very good information with regards to the health of the US labor market. This data may well be supportive to the US Dollar if the jobs report is stronger than expected; otherwise, the weaker report may add further downward pressure on the greenback.
Conclusion
The USD was under a lot of pressure after softer than expected inflation data, and there is indeed a real possibility for further weakness in the greenback. This opens a window for possible rallies on FX majors like GBP/USD and EUR/USD and even on the cryptocurrency market with XRP/USD.
So for the traders, Dollar’s weakness opens quite a bit of scope for them to squeeze in the potential benefits although cautiously on it and cryptos as these are considered to be volatile. One should remember the key economic indicators like China’s GDP report, UK CPI as well as US jobless claims which could have a widespread impact on the markets and hence decide for Dollar’s move.
The FX majors are expected to rebound in the aftermath of declining US inflation. Keep on the lookout, be alert for technical signals, and make sure that your trading strategies are true to the shifting market dynamics, as having adequate information about evolving market conditions is necessary to place a trader at the right juncture for achievements.
