Week Ahead: US dollar set for scary rollercoaster ride?

• High-risk events could “trick or treat” investors next week
• Watch out for central bank decisions, key data & earnings
• US dollar to be influenced by Fed decision & NFP
• USDInd trapped within a range on daily chart
• Key levels of interest at 105.50 and 107.20

An exceptional list of high-risk events could “trick or treat” investors in the week ahead.

All eyes will be on rate decisions by the Federal Reserve (Fed), Bank of England (BoE), and Bank of Japan (BoJ) to top-tier data from major economies including the latest US employment report. This will be complemented by a barrage of corporate earnings from the largest economies in the world.

Here are the major economic data releases and events on the week of Halloween:

Monday, October 30th 

• AUD: Australia retail sales
• EUR: Eurozone confidence, Germany CPI and GDP

Tuesday, October 31st 

• Halloween
• CNH: China PMI’s
• EUR: Eurozone CPI, GDP
• JPY: BoJ rate decisions, unemployment, retail sales
• USD: Conference Board consumer confidence

Wednesday, November 1st 

• CNH: China Caixin manufacturing PMI
• NZD: New Zealand unemployment
• GBP: UK S&P Global/CIPS Manufacturing PMI
• USD: FOMC rate decision, ISM Manufacturing

Thursday, November 2nd 

• AUD: Australia trade balance
• EUR: Eurozone/Germany S&P Global Manufacturing PMI
• GBP: BoE rate decision
• USD: US factory orders, initial jobless claims
• NQ100_m: Apple earnings

Friday, November 3rd 

• CNH: China Caixin services PMI
• EUR: Eurozone unemployment
• GBP: BoE’s Jonathan Haskel, BoE’ Huw Pill speech
• CAD: Canada unemployment
• USD: US October nonfarm payrolls (NFP)

The scheduled data releases and events may create fresh opportunities across the board. Our focus falls on the USD Index which is set to be influenced by the Fed decision and US employment report.

The USD Index tracks how the dollar is performing against a basket of six different G10 currencies, including the Euro, British Pound, Japanese Yen, and Canadian dollar.

It is worth noting that the dollar has appreciated against almost every single G10 currency month-to-date excluding the Swiss Franc.

Dollar bulls found a friend in rising Treasury yields as sticky US inflation supported expectations around rates remaining “higher for longer”.

The USD Index could kick off November with a bang! Here are some things to watch out for:

1. Federal Reserve rate decision

The Fed is widely expected to leave interest rates unchanged at its next meeting on November 1st, a second consecutive pause.

This is in line with recent dovish comments from Fed officials including Jerome Powell and mixed US economic data. Investors will be paying close attention to Powell’s press conference for any fresh clues on future rate moves.

• The USDInd could find itself under fresh selling pressure if the Fed strikes a dovish tone and signals that no more hikes are on the cards for the rest of 2023.
• Should the central bank sound hawkish and leave the doors open for a December move, this may give the USDInd a boost.

As of writing, traders are currently pricing in a 1 in 5 chance of a 25 basis point Fed hike by the end of 2023.

2. US October nonfarm payrolls (NFP)

Markets expect the US economy to have created 168,000 jobs in October, essentially half of the whopping 336,000 jobs in September, while the unemployment rate is forecast to remain unchanged at 3.8%.

• A stronger-than-expected US jobs report may leave the doors open to a December rate hike, pushing the USDInd higher as a result.
• However, evidence of a cooling US jobs market may support the argument that the Fed is done with hikes this year – dragging the USDInd lower.

3. Technical forces: breakout?

The USDInd has been trapped within a range since late September with support at 105.50 and resistance at 107.20. Prices are trading above the 50, 100, and 200-day SMA while the MACD trades above zero. Although technical forces are in favour of bulls, the fundamentals could throw the USDInd on a scary rollercoaster ride. 

• A solid breakout and daily close above 107.20 could push prices to levels not seen since November 2022 at 107.80.
• Should the USDInd slip back below the 105.50 support, this may open the doors towards 104.60.