Volatility spiked across many assets last week, producing notable breakouts and breakdowns in the process. First off, U.S. Treasury yields plummeted across the board, with the 2-year yield sinking below its 200-day simple moving average and reaching its lowest level since early June at 4.54%.
Falling U.S. bond yields, coupled with bullish sentiment on Wall Street, boosted stocks, pushing the Dow Jones 30 above its July peak and close to its all-time high. The Nasdaq 100 also advanced, but failed to take out overhead resistance near 16,100.
The market dynamics also benefited precious metals, triggering a strong rally among many of them. Gold spot prices, for example, rose by 3.5% and came within striking distance from overtaking its record near $2,075. Silver, meanwhile, gained 4.7%, closing at its best level since May.
In the FX space, USD/JPY plummeted 1.77% on the week, breaking below its 100-day simple moving average – a bearish technical signal that could portend further losses for the pair. EUR/USD, for its part, was largely flat, with lower-than-expected Eurozone inflation reducing the single currency’s appeal.
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Looking ahead, if U.S. interest rate expectations continue to shift lower, U.S. yields are likely to come under further downward pressure, setting the stage for a weaker dollar. Against this backdrop, risk assets and precious metals could remain supported moving into 2024.
Upcoming U.S. data, including ISM services PMI and non-farm payrolls (NFP), will give us the opportunity to better assess the Fed’s monetary policy outlook. Soft economic figures could reinforce dovish expectations, while strong numbers could result in the unwinding of rate-cut bets. The latter scenario might induce a reversal in recent trends across key assets.
For a deeper dive into the catalysts that could guide financial markets and drive volatility in the coming trading sessions, explore the DailyFX’s carefully curated week-ahead forecasts.
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UPCOMING US ECONOMIC DATA
Source: DailyFX Economic Calendar
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FUNDAMENTAL AND TECHNICAL FORECASTS
The British Pound has risen consistently against the United States Dollar since late September, but most of the rally has been a ‘Dollar weakness’ story rather than a vote of confidence in Sterling.
Crude oil prices slumped last week after OPEC+ announced voluntary cuts into 2024 as US factors play an important role in short-term guidance this week.
The Euro has sold off against a range of other currencies this week as expectations of an ECB rate cut grow and bond yields slump.
Gold prices rallied to end the week well above the $2000 mark as XAU/USD heads into the overbought zone.
This article focuses on the technical outlook for major U.S. dollar pairs such as EUR/USD, USD/JPY and GBP/USD. The piece also examines key price levels that could come into play ahead of the November U.S. jobs report.
If you’re looking for an in-depth analysis of U.S. equity indices, our Q4 stock market trading forecast is packed with great fundamental and technical insights. Request a free copy now!
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Breaking Records: Dow Surges and NFP Looms for EUR/USD and USD/JPY
The global financial market is experiencing significant activity as we approach the end of the first quarter of 2021. The stock market is breaking records, with the Dow Jones Industrial Average (DJI) reaching all-time highs, and the forex market is buzzing with anticipation as the U.S. Nonfarm Payrolls (NFP) report looms for major currency pairs like EUR/USD and USD/JPY. Let’s take a closer look at these developments and what they may mean for traders and investors.
Record-Breaking Dow Jones Industrial Average (DJI)
The Dow Jones Industrial Average, also known as the Dow, is one of the most widely watched stock market indices in the world. It is a price-weighted index that measures the performance of 30 large US companies listed on the New York Stock Exchange and the NASDAQ. On March 18, 2021, the Dow reached a record high of 33,015 points, surpassing its previous high of 32,953 points in February.
There are several factors behind this surge in the Dow. Firstly, the ongoing vaccinations and stimulus packages in the United States have boosted investor confidence in the economy’s recovery. Furthermore, the Federal Reserve’s commitment to maintaining its accommodative monetary policy has also contributed to the stock market’s impressive performance. Additionally, the recent strong corporate earnings reports from top companies like Nike, Microsoft, and Johnson & Johnson have further fueled the rally.
What does this mean for traders and investors?
The stock market’s record-breaking rally signifies a strong economy and a positive outlook for future growth. As the economy rebounds from the impacts of the pandemic, investors are optimistic and continue to pour money into the market, driving prices higher.
For traders, this presents an opportunity to capitalize on the bullish market sentiment. However, it is crucial to remain cautious and mindful of potential market corrections that may occur due to various factors, such as rising inflation rates or any unforeseen events.
NFP Report and its Impact on EUR/USD and USD/JPY
The US NFP report, published by the U.S. Department of Labor, is a key economic indicator that measures the number of new jobs added in the non-farm sector of the economy. It is considered a crucial piece of data for evaluating the health of the labor market and the overall economy. The NFP report for March is scheduled to be released on April 2, 2021.
The EUR/USD and USD/JPY currency pairs are two of the most widely traded pairs in the forex market. The performance of these currency pairs is closely tied to the strength of the US economy. Therefore, the NFP report can significantly impact their movements.
In February, the EUR/USD pair saw an impressive rally, reaching a high of 1.2242, the highest level since 2018. This was a result of the US dollar’s weakness due to concerns over rising inflation. On the other hand, the USD/JPY pair has been relatively stable over the past few weeks, trading between 108.00 and 110.00 levels.
What can we expect from the upcoming NFP report?
The market consensus for the March NFP report is that 650,000 new jobs were created, lower than the 916,000 in February. A better-than-expected NFP report could strengthen the US dollar and push the EUR/USD pair lower. On the other hand, a weaker-than-expected NFP report can lead to a drop in the USD and potentially boost the EUR/USD pair.
For USD/JPY, the NFP report may not have as much of an impact as the pair is currently driven more by the safe-haven status of the Japanese yen. However, any surprising figures from the NFP report could still cause significant fluctuations in the currency pair.
Practical Tips for Trading EUR/USD and USD/JPY
Here are some practical tips for traders looking to capitalize on the potential market movements in the EUR/USD and USD/JPY pairs:
1. Stay tuned to economic calendar: Keep track of important economic releases, such as the NFP report, and their potential impact on the market.
2. Use risk management tools: Implement risk management tools like stop-loss orders to manage potential losses and protect your capital.
3. Pay attention to technical indicators: Monitor technical indicators, such as support and resistance levels, to identify entry and exit points for trades.
4. Diversify your portfolio: Diversifying your portfolio by trading multiple currency pairs can help minimize risk and increase potential profits.
In conclusion, the record-breaking Dow and the upcoming NFP report are major developments that will significantly impact the financial market, particularly the EUR/USD and USD/JPY currency pairs. As a trader, it is essential to stay informed and be prepared to adjust your trading strategies accordingly. With proper research, risk management, and strategic trade execution, traders can potentially benefit from the market’s high volatility and capitalize on these record-breaking events.