Big Week Ahead for Forex Traders
Forex markets continued to trade with a subdued tone for most of the week, with the Dollar broadly higher. This trend be being driven by generalized market uncertainty on news that the US and a coalition of forces is serioulsy considering military strike attacks on Syria. This is pushing oil prices higher, along with safe haven assets like the US Dollar and gold. For the most part, however, trading activity wassluggish and the EUR/USD forex pair saw its smallest monthly trading range in nearly six years. This essentially indicates market indecision, as forex investors wait for clues that indicate the direction of the market’s next major trend.
Some of these clues might be discovered next week, however, as five major central banks will release monetary policy decisions and the always critical Non Farm Payrolls will tell us the underlying strength or weakness that is present in the labor market. Because of the importance of these events, the trend of slowing volatility is likely to continue at least into the early parts of next week, as there is little incentive to commit to new positions ahead of the market-moving event calendar.
Trading activity during the summer months usually follows this type of pattern, but it is important for forex traders to remember that we are on the tail-end of this period and that the market volatility we have seen in recent weeks should be ending very soon.
The Week Ahead in Forex
Into next week, we will have five central bank interest rate decisions (in Australia, Canada, Japan, England, and in the Eurozone). To say the least, these interest rate decisions will impact the currencies most closely associated, but what this schedule really means for forex traders is that we are in store for a much more volatility week in currency markets. Because of this, it could actually be a good idea to hold off of new positions for most of next week until the dust settles.
For the more aggressive trader, new trading opportunities will be seen after Friday’s Non Farm Payrolls data is released before New York markets open. Analysts are currently expecting a relatively strong number at 180,000 new jobs for the month of August. If this number is matched (or bettered) it is likely we will see a major rally in the US Dollar. This would be the case for two reasons: First, a strong jobs number indicates the US economy is on a stable footing and in a good position to continue its recovery.
The second reason will come from renewed central bank speculation that will likely side with the argument for reduced stimulus. Both of these factors are Dollar positive, so it will be important to watch the Friday outcome to look for new opportunities to buy or sell the Dollar. In either case, we have a significant data calendar next week, and the potential for enhanced volatility picks up greatly into the second half of next week.