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04.12.202309:51 Forex Analysis & Reviews: Market rally may continue while dollar will weaken further

Global stock markets ended the week on a positive note, driven by the sustained expectations that central banks, led by the Federal Reserve, will conclude the two-year cycle of interest rate hikes.

Reportedly, the US PCE index and data on expenditures and incomes showed a decline, while Fed Chairman Jerome Powell said something positive. Although he indicated that interest rates would remain unchanged after the December meeting and that the baseline interest rate would stay in the current range of 5.25-5.50% for some time, the dovish tone of his speech allowed market participants to believe that not only has the rate hike stopped but the easing may start in the new year.

Of course, much will depend on the dynamics of production indicators, the labor market, and, above all, inflation. If inflation continues to decline, it will eventually reach the target of 2% or thereabouts in the first quarter of the new year. In this case, the timing of the start of monetary policy easing will become more tangible.

The US debt market also demonstrated a steady decline in Treasury yields for the second consecutive month, confirming market expectations and exerting pressure on dollar.

Considering all this, the positive sentiment in stock markets, primarily in US and Europe, will continue this week. A decline in production indicators will stimulate the trend through expectations of the start of rate cuts in the new year. Significant this week will be publications, primarily of the US labor market data. The number of new jobs less than 200,000 and, conversely, an increase in initial jobless claims above this level will confirm the trend toward the probability of further inflation decline and the easing of interest rates.

Similarly, if employment data from both ADP and the US Department of Labor do not exceed expectations, and the presented production indicators, unemployment benefit claims, and several other indicators also turn out to be not above forecasts, markets will perceive this as a signal for a rally and a further weakening of dollar.

Forecasts for today:

Exchange Rates 04.12.2023 analysis

Exchange Rates 04.12.2023 analysis

USD/CAD:

The pair remains trading within the range of 1.3160-1.3885 on the daily chart. If data from the US falls below expectations and oil prices stabilize, the price will decline below 1.3500, with a potential drop to 1.3385.

USD/JPY:

The pair continues its decline amid the overall weakness of dollar. It already fell by 23% according to Fibonacci. A breakthrough below the support level of 146.23 may serve as a basis for the resumption of the price decline towards 144.75.

*这里的市场分析是为了增加您对市场的了解,而不是给出交易的指示。

Pati Gani,
Analytical expert of InstaSpot
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