The Yen Gets a Wild Card

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Nothing lasts forever. After a decade and a half of dominance in Japan's political arena, the Liberal Democratic Party has lost its majority in the House of Representatives. It and its ally, Komeito, must bring new members into their coalition. Political uncertainty and increasing fiscal stimulus risks are pushing USD/JPY higher to the point where the government has had to resort to verbal interventions.

According to Finance Minister Katsunobu Kato, authorities monitor Forex developments with heightened vigilance. Previously, such statements have foreshadowed currency interventions, which have cost Tokyo over $100 billion in 2024 alone. However, speculators are more concerned about the Bank of Japan's limited options. Ahead of parliamentary elections, hedge funds have turned bearish on the yen for the first time since early October.

Speculative Position Dynamics on the Yen

Bloomberg experts had anticipated signals from Kazuo Ueda about continuing the monetary policy normalization cycle in December or January. However, political uncertainty will likely render the October Governing Council meeting a formality. It's doubtful that the BOJ will discuss a near-term rate hike. If investors do not receive hints, USD/JPY's rally may continue.

Yet, the yen's weakness against the U.S. dollar doesn't mean it's lost ground against other major currencies. According to Vanguard research, the yen performs well as a safe-haven asset during U.S. presidential elections. Japan's $20 billion current account surplus, high liquidity, and relatively low inflation reflect the currency's reliability.

Global Currencies' Response to U.S. Elections

Thus, it's too early to discount USD/JPY bears. They still have some advantages, and if the U.S. dollar weakens, the pair's rally could quickly reverse into a sharp decline.

There's also a reason for this: Reuters experts predict a slowdown in U.S. nonfarm payrolls growth for October from 254,000 to 125,000. Hurricanes and strikes could push the actual figure below 100,000. Should this happen, markets may revisit the possibility of a 50 basis point federal funds rate cut in December. This would be bad news for the U.S. dollar and great news for its competitors, including the yen.

Technically, on the USD/JPY daily chart, the pair has approached the 161.8% target according to the AB=CD harmonic trading pattern. This forms a convergence zone between 153.85 and 154.20 with pivot levels. A reversal would justify profit-taking on long positions and a shift to short positions.

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Forecast for AUD/USD on October 29, 2024

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Yesterday, the Australian dollar couldn't rally like European currencies due to a sharp drop in commodity prices (oil -1.18%). Investors were also unsettled by the rise to power of the Liberal National Party in Queensland (D. Crisafulli, with elections held over the weekend), which, through its policies, downplays official inflation by excluding certain compensations for gas usage and other utilities. As a result, investors believe that the Reserve Bank of Australia may begin lowering rates sooner.

The Australian dollar nearly reached its target support at 0.6570. As the Marlin oscillator begins to turn upward, the price may rebound from this level into a correction. The fact that the price hasn't broken below the 0.6570 support makes rising to the first level at 0.6640 easier.

On the four-hour chart, the price and oscillator have formed a convergence. The nearest signal resistance, a break of which would signal the price's determination and readiness to continue upward toward 0.6640, is the MACD line around the 0.6603 mark.

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Trading Recommendations and Analysis for EUR/USD on October 29: The Euro Sees No Reason to Correct

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EUR/USD 5-Minute Analysis

The EUR/USD currency pair attempted an upward correction on Monday but failed again. Looking closely at the illustration above, you can see that despite efforts over the past five days to move upward, each new high is lower than the previous one. This means that there is currently no corrective movement. We warned that breaking the trendline does not guarantee the start of a correction and could be a false breakout. The trendline has recently been very close to the price, so almost any upward move could break it. If not for the significant data scheduled for release in the Eurozone and the U.S. this week, we would have said that the euro would continue falling without any correction.

As mentioned before, the euro is highly overbought and overvalued and will likely continue declining in the medium term. The minimum target is 1.0435. Reaching this target would mean that the price on the weekly time frame has reached the lower boundary of the horizontal channel. The overall trend is still downward. The market has been correcting the pair upward for two years due to the Federal Reserve's monetary easing. Even without external factors, restoring a fair EUR/USD exchange rate is necessary. Therefore, we expect a decline in the euro under almost any scenario.

Only one trading signal was generated in the 5-minute time frame yesterday, but Monday's volatility was very weak, and there was no significant fundamental or macroeconomic data. After consolidating above the critical line, traders could open long positions, but they likely saw no gain or loss, as the price did not move significantly upwards nor fall below the Kijun-sen line by the end of the day. This week, the pair's fate will largely depend on macroeconomic releases.

COT Report Analysis

The latest COT report, dated October 22, shows that the net position of non-commercial traders has remained bullish for a long time, and the bears' recent attempt to gain dominance failed. However, last week saw a sharp increase in the number of short positions opened by professional traders, and the net position became negative for the first time in a while, indicating that the euro is now sold more frequently than bought.

We still see no fundamental reasons for euro strength, and technical analysis suggests that the price is in a consolidation zone – essentially flat. The weekly time frame shows that since December 2022, the pair has been trading between levels 1.0448 and 1.1274, extending from a seven-month flat phase into an 18-month phase. Thus, a further decline remains more likely.

The red and blue lines have crossed and reversed their relative positions. During the last report week, the number of longs in the non-commercial group decreased by 16,200, while shorts increased by 29,500, causing the net position to drop by 45,700. The euro still has strong downward potential.

EUR/USD 1-Hour Analysis

On the hourly time frame, the pair continues to trend downward, which may mark the beginning of a new prolonged downtrend. There's little reason to discuss fundamental or macroeconomic reasons for a new dollar decline – they do not exist. In the medium term, we anticipate nothing but further euro depreciation. While a short-term correction is possible, the market currently shows little interest in buying euros, and there are insufficient technical signals to expect an upward move.

For October 29, we highlight the following trading levels: 1.0658-1.0669, 1.0757, 1.0797, 1.0843, 1.0889, 1.0935, 1.1006, 1.1092, and 1.1147, as well as the Senkou Span B (1.0873) and Kijun-sen (1.0801) lines. The Ichimoku indicator lines can move throughout the day, which should be considered when identifying trading signals. Remember to set a Stop Loss to break even if the price moves 15 pips in the intended direction to protect against potential losses if the signal proves false.

On Tuesday, no significant events are scheduled in the Eurozone, while in the U.S., the JOLTs report on job openings will be released. This is a medium-importance report but could be a starting point for price movement this week.

Chart Explanations:

Support and resistance levels: thick red lines around which movement may end. They are not sources of trading signals.

Kijun-sen and Senkou Span B lines: Ichimoku indicator lines transferred from the 4-hour to the 1-hour timeframe. These are strong lines.

Extreme levels: thin red lines where the price previously rebounded. They are sources of trading signals.

Yellow lines: Trend lines, trend channels, and other technical patterns.

Indicator 1 on COT charts: The net position size for each category of traders.

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Forecast for USD/JPY on October 28, 2024

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The USD/JPY pair enthusiastically responded to the risky play on Japan's stock market (Nikkei 225 rose by 1.86% this morning) following the ruling Liberal Democratic Party's "near failure" in Saturday's election. The question of Japan's next prime minister remains open until coalition agreements are finalized.

The pair began the day with a gap up, hitting resistance at 153.60. A consolidation above this level could fuel further growth towards 156.79, with a potential reversal afterward to close today's gap. However, if a significant breakout does not occur—as early signs suggest—the price may reverse from the current levels to close the gap, serving as a "clean-up" before the U.S. elections. The Marlin oscillator moves sideways, maintaining a neutral stance but with a possible upward bias.

On the H4 chart, Marlin's signal line surged sharply after three reversals from the zero line. However, this swift ascent has resulted in the formation of convergence. Should the price consolidate below 153.60, it would signal an intent to close the gap, potentially bringing the pair down to 151.80, the support level near the MACD line.

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How to Trade the EUR/USD Pair on October 28? Simple Tips and Trade Analysis for Beginners

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Friday's Trade Analysis:

1H Chart of EUR/USD Pair

The EUR/USD currency pair traded lower again on Friday. The saying goes, "The music didn't play for long." The euro rose for a mere day and a half before turning downward again. On Friday, there were no significant data releases in the Eurozone, but earlier in the week, Christine Lagarde's remarks set the tone for the euro's sustained decline. However, we believe the euro should be falling regardless of Lagarde's influence, as the market has already priced in the Federal Reserve's monetary easing, and now it's time to factor in the European Central Bank's monetary easing, which is unfolding faster than the market expected.

Additionally, the ECB rate may even be lowered below the "neutral level," as several central bank representatives suggested. As we can see, there are plenty of reasons for the euro's decline, especially considering it has been rising for two years. Even crossing the trendline has yet to lead to a correction. As before, we continue to support the pair's decline, as any correction will merely present a good opportunity for fresh sales.

5M Chart of EUR/USD Pair

No trading signals were generated on Friday in the 5-minute time frame. The pair barely reached the resistance area of 1.0845-1.0851 before falling to the 1.0792-1.0804 area. Entering buys or sells at the end of the trading day and week did not make sense.

How to Trade on Monday:

In the hourly time frame, the EUR/USD pair may start to correct after a month of decline. At the very least, some grounds exist for the euro to rise. We believe the pair could begin an upward correction, though it is unlikely to be strong and would require news supporting the euro. In the medium term, we still expect further decline.

On Monday, novice traders may trade from the 1.0792-1.0804 area again. If there's a breakout below, it would be an excellent opportunity for new sales. However, the trendline has been breached, so at least one more upward correction is possible.

In the 5-minute time frame, consider trading at levels 1.0678, 1.0726-1.0733, 1.0797-1.0804, 1.0845-1.0851, 1.0888-1.0896, 1.0940-1.0951, 1.1011, 1.1048, 1.1091, and 1.1132-1.1140. On Monday, no significant events are scheduled in either the Eurozone or the U.S., so volatility may again be low, and the euro may attempt at least one more round of correction.

Basic Trading System Rules:

1. The strength of a signal is determined by the time it takes to form (whether a bounce or breakthrough of a level). The quicker the formation, the stronger the signal.
2. If two or more trades have been made near a level due to false signals, any further signals from that level should be ignored.
3. In a flat market, a pair can generate many false signals or none at all. In any case, it's best to stop trading at the first signs of a flat market.
4. Trading occurs between the start of the European and middle of the US sessions, after which all trades should be manually closed.
5. On the hourly time frame, it's recommended to trade MACD indicator signals only when there is good volatility and a trendline or trend channel confirms a trend.
6. If two levels are too close together (5 to 20 pips apart), they should be treated as support or resistance areas.
7. After the price moves 15 pips in the intended direction, set the Stop Loss to breakeven.

What's on the Charts:

Support and Resistance Levels: Levels that serve as targets for opening buys or sells. Take Profit levels can be placed around these areas.

Red Lines: Channels or trend lines that indicate the current trend and the preferred trading direction.

MACD Indicator (14,22,3): Histogram and signal line—an auxiliary indicator that can also be used as a source of signals.

Major speeches and reports (always found in the news calendar) can significantly impact currency pair movements. Therefore, it's advised to trade cautiously or exit the market during their release to avoid sharp price reversals against prior movements.

Beginners trading on the forex market should remember that not every trade will be profitable. A clear strategy and money management are the keys to success in long-term trading.

The material has been provided by InstaForex Company - www.instaforex.com #

What to Watch on October 28? Analysis of Fundamental Events for Beginners

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Analysis of Macroeconomic Reports:

There are no scheduled macroeconomic events for Monday in the UK, Germany, the EU, or the U.S. It's unlikely we'll see significant currency market movements. The euro recently broke through the trendline but quickly fell back down, so it's possible that its decline could continue without a correction. Although a classic three-wave correction would make sense, the pair has declined for a month. If we see a correction, it would likely need to be stronger than 100 pips. As for the pound, there are no technical reasons for expecting growth since the price remains below the trendline.

Analysis of Fundamental Events:

There's nothing notable in Monday's fundamental events. No major speeches are scheduled, although there have been enough statements from European Central Bank and Federal Reserve representatives over the past week. Even Andrew Bailey spoke twice, although he didn't share anything impactful for the markets. We now have a clearer understanding that the Fed is unlikely to rush into lowering the key rate, while the ECB and Bank of England may accelerate easing measures, which is bearish for both the euro and the pound.

General Conclusions:

On the first trading day of the week, the euro and the pound have a good chance of resuming their declines. A correction is also possible, but buying the euro and pound during an evident correction may not be wise. The correction might reach 50% or more, or it could barely make it to 23.6%. It's better to trade with the trend rather than trying to predict reversals based on a correction.

Basic Trading System Rules:

1. The strength of a signal is determined by the time it takes to form (whether a bounce or breakthrough of a level). The quicker the formation, the stronger the signal.
2. If two or more trades have been made near a level due to false signals, any further signals from that level should be ignored.
3. In a flat market, a pair can generate many false signals or none at all. In any case, it's best to stop trading at the first signs of a flat market.
4. Trading occurs between the start of the European and middle of the US sessions, after which all trades should be manually closed.
5. On the hourly time frame, it's recommended to trade MACD indicator signals only when there is good volatility and a trendline or trend channel confirms a trend.
6. If two levels are too close together (5 to 20 pips apart), they should be treated as support or resistance areas.
7. After the price moves 15-20 pips in the intended direction, set the Stop Loss to breakeven.

What's on the Charts:

Support and Resistance Levels: Levels that serve as targets for opening buys or sells. Take Profit levels can be placed around these areas.

Red Lines: Channels or trend lines that indicate the current trend and the preferred trading direction.

MACD Indicator (14,22,3): Histogram and signal line—an auxiliary indicator that can also be used as a source of signals.

Major speeches and reports (always found in the news calendar) can significantly impact currency pair movements. Therefore, it's advised to trade cautiously or exit the market during their release to avoid sharp price reversals against prior movements.

Beginners trading on the forex market should remember that not every trade will be profitable. A clear strategy and money management are the keys to success in long-term trading.

The material has been provided by InstaForex Company - www.instaforex.com #

Forecast for AUD/USD on October 25, 2024

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The Australian dollar is struggling to hold its ground at the 0.6640 level. Falling commodity prices are putting pressure on it, while the rise in European currencies helps to support it—the dollar index fell by 0.34% yesterday. The Marlin oscillator on the daily chart continues to move sideways, meaning that, as a leading indicator, it does not show growth potential.

A possible increase could occur if the euro and the pound rise are strong, but this might only happen after an initial test of 0.6570. If the commodity pressure eases today, we could see upward movement tomorrow. Today, however, it will likely focus on consolidation above the 0.6640 level, which could open up a target of 0.6727.

The price has yet to pull away from the MACD line in either direction on the four-hour chart. The Marlin oscillator is approaching the boundary with the growth territory but has yet to move into it. The situation remains neutral, and we await a resolution by the end of today.

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Overview of EUR/USD on October 25; A Laughable and Sad Situation as the Euro Gears Up for a Correction

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The EUR/USD currency pair failed to show growth on Thursday. Since early in the night, quotes seemed to be preparing for an upward move that day, but ultimately, nothing materialized. In the morning, the Eurozone released business activity indices for the manufacturing and services sectors, which were worse than expected, reaffirming that the Eurozone economy is not in its best shape. However, this was evident even without the business activity indices. The Eurozone's GDP has barely grown over the past two years, so there's no question whether the EU's economy is facing challenges.

The European Central Bank (ECB) has also started to pay attention to this issue. Interestingly, no one mentioned the slow economic growth in the Eurozone for two years, but in the past couple of months, officials and analysts have begun to note that the EU economy is hardly growing. This has sparked discussions about accelerating the pace of the ECB's monetary policy, easing faster than once every two meetings and consistently putting pressure on the euro. However, the Federal Reserve's monetary policy remains the main driver behind the decline of the EUR/USD pair. The fact that the market has fully priced in the Fed's easing over the last two years now supports the US dollar, as all anticipated rate cuts have already been accounted for. Thus, the market can now only focus on the ECB's rate cuts while locking in profits from selling the dollar, which triggers a renewed strengthening of the US currency.

There's not much more to add about the current situation. We have warned that the euro's rise was entirely illogical for months. We mentioned that the ECB would also need to lower its rate to a "neutral" level. In October, the ECB might lower the key rate below the "neutral" level because economic growth is too weak, and inflation has already dropped below the target level. Hence, discussions are now about reducing rates below 2-2.5%. This is yet another bearish factor for the euro.

From a technical perspective, there is no reason to expect a correction to end soon. The price remains below the moving average line, so the decline in the quote should continue. Of course, the current movement will end sooner or later, and an upward correction will begin. However, we have a year-and-a-half-long flat on the daily chart, with a downward trend on the weekly chart. Thus, we can only expect a decline in the medium term. What will happen if Donald Trump or Kamala Harris takes office is not worth speculating on now. It certainly makes no sense to guess how the dollar might react to the US presidential election results.

The average volatility of the EUR/USD currency pair over the last five trading days as of October 25 is 55 pips, characterized as "low." We expect the pair to move between the levels of 1.0768 and 1.0878 on Friday. The higher linear regression channel points upward, but the overall downward trend remains intact. After a series of moves into the overbought area, the CCI indicator has reached the oversold area and formed several bullish divergences, indicating a possible correction.

Closest support levels:

• S1 – 1.0803
• S2 – 1.0742
• S3 – 1.0681

Closest resistance levels:

• R1 – 1.0864
• R2 – 1.0925
• R3 – 1.0986

Trading Recommendations:

The EUR/USD pair continues its downward movement. In recent weeks, we have consistently stated that we expect the euro to continue falling in the medium term, and we fully support the bearish trend direction. There is a chance that the market has already priced in all or almost all future Fed rate cuts. If that's the case, the dollar has no further reasons to fall, although there were few. Short positions can still be considered with targets at 1.0768 and 1.0742 if the price remains below the moving average. If you trade based on "pure" technical analysis, long positions will become relevant if the price consolidates above the moving average line. However, such consolidation in the near term would likely indicate only a correction.

Illustration Notes:

Linear Regression Channels: help determine the current trend. If both are directed the same way, the trend is strong.

Moving Average Line (settings 20,0, smoothed): defines the short-term trend and the direction in which trading should be conducted.

Murray Levels: target levels for movements and corrections.

Volatility Levels (red lines): the likely price range the pair will trade in the next 24 hours, based on current volatility readings.

CCI Indicator: entering the oversold area (below -250) or the overbought area (above +250) signals that a trend reversal in the opposite direction is near.

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No One Believes in the Euro

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It could worsen, and it almost certainly will for Europe if Donald Trump returns to power in the United States. Business activity in the Eurozone remained nearly unchanged in October, staying below the psychologically important level of 50, which indicates a contraction in GDP. Meanwhile, the threat of Republican protectionism looming over Europe drives EUR/USD quotes lower and lower.

Eurozone Business Activity Dynamics

In October, the US dollar had its best performance since 2022, which, according to Standard Chartered, is 60% attributed to Trump-related trading. The significant rise in Trump's poll ratings prompts traders to hedge against the risks associated with his potential actions. Donald Trump's intention to reshape the international trade system through large-scale import tariffs threatens severe market disruptions, pushing investors toward safe-havens. And they find that safety in a reliable currency like the US dollar.

For the euro, whose economy is already struggling, the return of a Republican to the White House would be a death sentence. The weakened Eurozone is unlikely to withstand a trade war, and a global economic slowdown would deal a heavy blow to pro-cyclical currencies like the euro and the pound. Unsurprisingly, the cost of hedging against a decline in the regional currency has reached its highest level since 2017, when the French elections unsettled Europe.

Dynamics of Euro Depreciation Hedging Costs

The negative results from business activity once again highlighted the Eurozone's vulnerabilities. Chief among these is Germany, whose economy suffers from the struggles of its industrial giants with high energy costs and weak Chinese demand. The second-largest economy in the currency bloc, France, isn't helping much either. Paris is attempting to achieve the impossible—balancing its budget, which it hasn't managed in the past 50 years. Even a slight failure by the government could result in a vote of no confidence and a new political crisis.

The Bundesbank believes Germany will enter stagnation in October-December after a recession in the second and third quarters. GDP will neither grow nor fall. One might have expected a strong recovery post-pandemic, but the armed conflict in Ukraine and the energy crisis have brought the Eurozone back to earth.

The European Central Bank (ECB) is in the spotlight, and its slow pace in easing monetary policy could lead to a prolonged recession. The export-oriented Eurozone desperately needs a weaker currency, a fact the ECB understands and is prepared to act upon—by aggressively cutting the deposit rate. If this scenario happens, the euro is in for a rough time.

Technically, on the daily EUR/USD chart, the bulls' inability to hold above the pivot level of 1.0805 is a sign of their weakness and a reason to sell, targeting the previously indicated levels of 1.0710 and 1.0600.

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Forecast for GBP/USD on October 24, 2024

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Yesterday's weak attempt by the price to initiate a minor correction was suppressed. The quote dropped by 62 pips, reaching the lower boundary of the ascending price channel.

It might seem that the target has been reached, and the bears could take a break and allow for a small correction. However, it opened below the channel boundary today, shifting the sentiment toward continuing the movement to the next target of 1.2859.

On the four-hour chart, the price has consolidated below the price channel line (at the 1.2925 level).

The Marlin oscillator is weak, and the probability of a decline to the specified first target stands at 70%. The continued pressure from the dollar today could be tempered by PMI indexes and new home sales data in the US, which are forecasted to show slight improvements.

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