Daily Market Analysis from ForexMart

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Is the yen deflating?The dollar-yen pair is gradually recovering from a collapse that happened last week. At the start of Tuesday, the major pair received a new breath from the economic data of Japan.Recall that last week the USD/JPY pair experienced the most dramatic fall in 14 years. According to the results of five sessions, it sank by almost 6% and fell below 139.The ground from under the dollar's feet was knocked out by data on inflation in the United States. The statistics for October turned out to be much softer than the forecast, which increased traders' fears about a possible slowdown in the pace of tightening in America.The greenback was able to return to life only after the weekend. It was revived a bit by a hawkish commentary by Christopher Waller.On Sunday, a member of the Federal Reserve's Board of Governors said it's unreasonable to judge the weakening of inflation by just one month. The central bank will need to get some more hard evidence before moving to a less aggressive policy.Hints of further sharp rate hikes in the US helped USD/JPY recover slightly. Yesterday, the quote rose by more than 0.5% and crossed the threshold of 140.This morning, the pair has confidently settled above this level, having received support from Japan's macro statistics. Shocking data on GDP for the third quarter came out at the beginning of the day, which not only fell short of the forecast, but also turned out to be much worse than preliminary estimates.The report showed that on a quarterly basis, the Japanese economy fell by 0.3% against expectations of growth of 0.3%. And in annual terms, the indicator fell by 1.2%, while an increase of 1.1% was predicted.According to analysts at Bloomberg, the unexpected contraction in Japan's GDP reflects the impact of a weaker yen on the economy.This year, the JPY has fallen by more than 20% against the dollar due to the strong divergence in the monetary policy of the Bank of Japan and the Fed.Unlike its American counterpart, which actively fights inflation by raising rates, the Japanese central bank adheres to an ultra-soft rate and maintains ultra-low rates.The weakness of the currency led to an increase in the country's spending on imports, which significantly undermined the growth of Japan's economy, which was already very fragile.Japan has yet to recover from the COVID-19 pandemic. It is for this reason that the BOJ continues to go the dovish route and pump liquidity into the economy.Recall that last month, Japanese Prime Minister Fumio Kishida developed another stimulus package, and his cabinet approved an additional budget of $207 billion to fund these measures.As you can see, the circle is closed: the soft monetary rate necessary for GDP growth weakens the yen, and this further slows down the economy. Japan has found itself in a trap into which it has driven itself, and is unlikely to find a way out in the near future.Now, as fears of a global recession are rising amid a massive increase in rates, it is becoming increasingly clear that the recovery of the Japanese economy is once again being postponed.And given the latest data on GDP, many analysts have no doubt that the BOJ can further strengthen the dovish rhetoric at its next meeting. This will be another blow to the yen.Experts predict that the JPY's downtrend will continue despite speculation about a possible slowdown in US rate hikes, especially since the market has already taken this risk into account.Most investors are well aware that the US central bank has not yet finished its fight against rising prices. To return inflation to its target, it will have to raise rates a few more times.But even if the central bank does it less abruptly than before, the dollar-yen pair should still get at least the slightest benefit from each round of rate hikes.

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Gold breaks the trendDashing trouble began. After Jerome Powell's fiery speech about a higher peak federal funds rate, who would have thought that gold would not just bounce back but return to 3-month highs? In fact, the slowdown in the rate of tightening of the Fed's monetary policy is a bullish driver for XAUUSD. If inflation remains at elevated levels for a long time, and the Central Bank slows monetary restrictions and eventually pauses, real yields on Treasury bonds will fall, allowing the precious metal to rise above $1,800 an ounce.The main catalysts of the 9.5% November gold rally were the releases of data on consumer prices and producer prices. Both indicators slowed down more than Bloomberg experts predicted, which gave rise to talk that the Fed is doing its job well and can afford less aggression. In the end, the tightening of monetary policy affects the economy with a time lag, rates are already at restrictive levels, so you can not go as fast as before.However, in order to defeat inflation, you need to understand its causes well. The Fed and the White House have gone too far with stimulus in response to the pandemic. As a result, domestic demand grew by 21.4% in the three years to the end of the second quarter of 2022, which is equivalent to an annual GDP growth of 6.7%. No wonder inflation is so high and the job market is strong as a bull. Americans sitting on a mountain of dollars are in no hurry to return to work.Dynamics of domestic demand in the US, Britain and the EurozoneSooner or later, the money runs out, which will lead to a slowdown in consumer prices in the US by itself. The Fed's aggressive monetary restriction can strengthen their decline. There will be a risk of deflation on the horizon, as in Japan. Ark Invest agrees with this scenario. The company sets the example of the beginning of the 20th century, which was overshadowed by the First World War and the Spanish flu epidemic. Inflation in 1920 in the United States exceeded 20%, but thanks to an aggressive increase in the federal funds rate from 4.6% to 7%, it fell to -15% in 2021.Current conditions have much in common with the period of a hundred years ago. The same scenario of the development of events is not excluded, but in my opinion, it is unlikely. Its implementation would be disastrous for gold, returning its quotes to $1,610 per ounce.On the contrary, a scenario where the Fed slows down and eventually pauses while inflation remains at elevated levels creates a tailwind for the precious metal. Simultaneously with the fall in real yields of Treasury bonds, the US dollar is also weakening.Technically, on the daily chart of gold, due to the implementation of the triple bottom pattern the long-term bearish trend was broken. Quotes have gone beyond the descending trading channel and are moving away from the moving averages. I recommend holding the longs formed on the decline to the support at $1,702 and periodically increasing on pullbacks. The targets are $1,790 and $1,815 per ounce.

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Tips for beginner traders in EUR/USD and GBP/USD on November 17, 2022Details of the economic calendar of November 16Inflation in the UK reached a 41-year high. The consumer price index rose from 10.1% to 11.1%. Consequently, the Bank of England will continue to raise interest rates at the same pace.Prime Minister Rishi Sunak said on this occasion that inflation control is a key goal of the government.As for the US ballot count, the preliminary totals are:House of Representatives: Democrats 211 - Republicans 218. Control requires 218 seats out of 435.Senate: Democrats 50 - Republicans 49. Control requires 51 seats out of 100.Although counting of votes is still ongoing, President Joe Biden officially congratulated the future House speaker Kevin McCarthy on his election victory.The Republican Party gains control of the US House of Representatives in the midterm elections.Analysis of trading charts from November 16The GBPUSD currency pair is in the stage of a pullback-stagnation relative to the psychological level of 1.2000. The absence of a transition to a full-size correction suggests that traders' interest in long positions on the pound sterling is still maintained in the market.The EURUSD currency pair formed a stagnation at the conditional peak of the ascending cycle. This occurred after the quote came close to the 1.0500 resistance level.Economic calendar for November 17Today, the final data on inflation in the European Union is expected, the growth rate of which should accelerate from 9.9% to 10.7%. The market is more ready for these indicators, so if they coincide, you should not expect anything drastic. In any case, rising inflation is a clear signal that the ECB will continue to raise interest rates at the current pace.During the American trading session, weekly data on jobless claims in the United States will be published, where figures are expected to rise. This is a negative factor for the US labor market.Statistics details:The volume of continuing claims for benefits may increase from 1.493 million to 1.5 million.The volume of initial claims for benefits may remain at the same level of 225,000.Time targeting:EU Inflation – 10:00 UTCUS Jobless Claims – 13:30 UTCTrading plan for EUR/USD on November 17In this situation, the stagnation of the past day can serve as a catalyst for trading forces, in which there was a regrouping of working positions. In this case, subsequent price jumps are not excluded. The following values are considered as signal levels: 1.2050, in case of an upward scenario, which may lead to the prolongation of the current cycle; 1.1750, while holding below this value, a transition from the pullback stage to the full-size correction stage is possible.Trading plan for GBP/USD on November 17Little has changed on the chart compared to the previous day—the quote is standing still. This means that there is a process of accumulation of trading forces before a new speculative price jump.From a technical analysis point of view, the signal levels are in the values: 1.0500 for an upward scenario and 1.0300 for a downward price development.What is shown in the trading charts?A candlestick chart view is graphical rectangles of white and black light, with sticks on top and bottom. When analyzing each candle in detail, you will see its characteristics of a relative period: the opening price, closing price, and maximum and minimum prices.Horizontal levels are price coordinates, relative to which a stop or a price reversal may occur. These levels are called support and resistance in the market.Circles and rectangles are highlighted examples where the price of the story unfolded. This color selection indicates horizontal lines that may put pressure on the quote in the future.The up/down arrows are the reference points of the possible price direction in the future.

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USD/JPY. The yen ignores the record inflation report and follows the dollarThe dollar-yen pair earlier this week updated a three-month price low, reaching 137.70. However, the USD/JPY bears failed to settle in the area of the 137th figure - dollar bulls stopped the downward momentum and turned the pair 180 degrees.In general, the trajectory of the pair's movement correlates with the trajectory of the US dollar index. Once again, we are convinced that the yen is not an independent player against the greenback. The Japanese currency certainly has its trump card, but it rather serves as a "stop tap". We are talking about a currency intervention, the risk of which increases along with the USD/JPY rate. In this context, we can say that the Japanese government controls the upper limit of the price range within which the pair is traded. According to most analysts, this limit is in the area of the 150.00 mark: exceeding this target is fraught with consequences. As for the lower limit of the conditional price range, everything depends on the "well-being" of the US currency. USD/JPY bears are forced to follow the greenback, which determines the end point of any downward surge. The yen has no arguments of its own to strengthen – primarily due to the divergence of the Federal Reserve and the Bank of Japan rates.The events of the last days serve as evidence of this. They eloquently illustrated the stated disposition, the essence of which boils down to an uncomplicated conclusion: the downtrend ends exactly where the dollar recovery begins.As you know, the US currency significantly sank throughout the market after the release of the latest data on the growth of inflation in the United States. The market started talking about the fact that the Fed will slow down the pace of monetary policy tightening at the next meeting, which will be held in December. A little later, these assumptions were confirmed by many representatives of the Fed: according to them, the central bank can afford to reduce the speed, while maintaining the final goal at the same level (that is, above the 5.0% mark).At first, traders mostly focused their attention directly on the fact of slowing down the pace of tightening of the monetary policy. But then they "listened" to the signals from the Fed representatives, who made it clear that no one was going to curtail the hawkish course – only the speed of achieving the goal slows down. In particular, Christopher Waller, a member of the Board of Governors, said that the markets should now pay attention to the "end point" of the rate hike, and not to the pace of its achievement. At the same time, he noted that the end point is probably "still very far away." Some of his colleagues also stated that, firstly, inflation in the United States is still at too high a level; secondly, it is impossible to make any long-term organizational conclusions based on only one report.Such messages eased the pressure on the dollar, and, accordingly, cooled the ardor of bears of the USD/JPY pair. Turning to the upside, the pair gradually began to gain momentum, rising by 250 points in two days. At the same time, traders ignore Japanese statistics, even when it comes to the inflation report.Key data on the growth of inflation in Japan was published during the Asian session on Friday. The report reflected a record growth of key indicators. For example, the overall consumer price index rose by 3.7% in October, which is the strongest growth rate of the indicator since 1982. The core CPI, which does not include fresh food, but includes energy prices (petroleum products), also updated the 40-year record. The consumer price index, excluding food and energy prices, jumped 2.5% year-on-year in October.All components of the above report came out in the green zone, significantly exceeding the forecast levels. It is worth noting that inflation has been exceeding the BOJ's 2% target for seven months, but at the same time BOJ Governor Haruhiko Kuroda continues to "hold the line", maintaining a soft monetary policy. This, in fact, explains such a phlegmatic reaction of USD/JPY traders to the report published today. Market participants reasonably doubt that Kuroda will toughen his rhetoric in response to the published figures.Thus, the fate of the USD/JPY downward trend depends solely on the behavior of the US currency, which is gradually beginning to "come to its senses". After all, even taking into account the slowdown in the rate hike, the Fed continues to act as an ally of the greenback, and even more so in tandem with another, which cannot count on the support of the BOJ. In my opinion, the rhetoric of the Fed representatives will only tighten ahead of the December meeting (at least in the context of determining the upper limit of the current cycle), while Kuroda will once again ignore the inflation report, declaring the preservation of the accommodative policy.All this suggests that the USD/JPY pair may demonstrate a more confident growth in the near future – at least to the Tenkan-sen line on the daily chart, which corresponds to the 142.40 mark. If we talk about the medium term, the main target here is 145.50: at this price point, the upper line of the Bollinger Bands indicator coincides with the upper limit of the Kumo cloud on the D1 timeframe.

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The Fed writes between the lines. The dollar is lost in speculation. No clear strategy or desire to play with the marketsThe dollar index is showing signs of recovery. Perhaps it will show even stronger signs in the coming sessions. However, traders will refrain from making bold attempts to push the dollar higher before the release of the Federal Reserve minutes. The fact that we are facing a short week may also play a role here. The United States will be celebrating its Thanksgiving holiday on Thursday, which will lead to lower activity in markets and limited reaction to market data and other news.Wednesday will be an important trading day. A series of macroeconomic data will be released on this day, as well as the minutes. There might be a flurry of activity before holidays and weekends. It is possible that there will be a delayed reaction to all of this as early as next week. In the meantime, markets are evaluating or rather quietly studying the fresh opinions of the Fed members on the central bank's further steps.The main question is whether the central bank will eventually shorten the time period during which it is not expected to pause in policy tightening. No matter what the Fed members say, investors are hoping for less aggressive measures and an early transition to dovish rhetoric. They will be looking for signals for such a scenario in all publications, statements and other news reports.News from the FedThe speech of the head of the San Francisco Fed, Mary Daly, was quite long. The members of the central bank don't seem to have a definite line on what they plan to do next. Now is the time when they are thinking and discussing their next steps.Citing new research from her regional bank, Daly said that "the level of financial tightening in the economy is much higher than what the (federal) funds says." Financial markets are acting as if it is about 6%.Markets have priced in QE parameters that far exceed those outlined by the Fed. In this regard, Daly noted that "it will be important to remain conscious of this gap between the federal funds rate and the tightening in the financial markets. Ignoring it raises the chances of tightening too much."Anyway, the Fed still has a lot of work to do to steer monetary policy in the right direction to curb inflation. Those were probably the key words.Daly, speaking to reporters, made no secret of the fact that she has yet to decide which rate hike she will support at the December FOMC meeting. We need to look at new economic data before making a decision.The central bank representative also warned against using the market funds rate of 6% as a benchmark for determining the actual policy."I use the proxy rate as a point of reference, not as an indication that we should stop early," Daly summarized.In economic forecasts released in September, the central bank's policy makers outlined an average target rate of 4% for the next year. Most officials have since assumed that, given the dynamics of inflation and the continuing strength of the labor market, they may want to go higher. Daly did not rule out the possibility of an increase to 5.25%.At the same time, everyone understands and knows that raising rates too sharply will cause great damage to the economy, so the possibility of reducing the size of individual rate hikes is being discussed in parallel. In addition, recent data showing signs that inflation may slow down has given officials some room for such a maneuver.Daly said in her formal remarks that the next stage for the Fed will be "in many ways more difficult". She added that officials will need to be "mindful" of their choices and its consequences. Too much adjustment can lead to an unnecessarily painful recession. At the same time, "adjusting too little will leave inflation too high".The dollar reflectsBNP Paribas has provided a number of new interesting research for dollar bulls. According to analysts' calculations, the bottom of the stock market in the current bear market has not yet been reached.After analyzing 100 years of crashes, BNP Paribas finds market bottoms typically require a capitulation event – which is associated with a coordinated spike in volatility, skew, and convexity."We have not yet seen this, suggesting that the bottom is not yet in," says Calvin Tse, Head of US Macro research, at BNP Paribas. "Recessionary bear markets historically have often ended with a capitulation. We are calling for a capitulation in equities next year."Therefore, if the bottom of the stock market has not yet been reached, then neither is the dollar's peak.The dollar is countercyclical and rises in bad market conditions as investors seek cash as protection against asset depreciation. If the BNP Paribas economists' assessment has merit, then those who advocate for a stronger dollar could win.Meanwhile, the dollar index rose for the third consecutive session and is trading near the key barrier at 108.00. Although, the bulls' grip eased somewhat.The uptrend meets obstacles in the way. However, if it breaks through the 109.18 resistance and then the 109.70 level, it could encourage the exchange rate to rise in the short term.Today's dollar losses could be due to the fact that investors are cautiously awaiting the latest Fed meeting's minutes, which could affect the U.S. rate forecast. Traders also analyzed various comments from Fed officials and found them largely soft. Central Bank officials are still sticking to their version of lower inflation, but doubts are certainly present.Meanwhile, the dollar index jumped 1% on Monday due to the worsening Covid situation in China. This factor is known to have a short-term effect.

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USD unable to regain momentum; GBP to face strong resistance levelNext week, the trajectory of some pairs may change dramatically. The US dollar is also expected to resume an upward movement. If so, it will increase pressure on its rivals. Fed policymakers could also provide more comments on future plans for monetary policy. Some Fed members could even speak in favor of the fifth consecutive rate increase by 75 basis points at the December meeting.Yesterday, the pound sterling rose above 1.2000 for the first time since August. Such a sharp increase occurred amid the falling US dollar before Thanksgiving Day and fundamental factors. As trading floors in the US are closed, the pound sterling will be able to climb higher in the coming sessions.Why has the pound sterling started steady growth? Is there a likelihood of a rise in the greenback next week?GBP maintains bull runThe British currency jumped against the US dollar, the euro, and other major currencies on Wednesday and Thursday, following the news about a surge in the UK's government debt.The GBP/USD pair was trading around a high of 1.2110.Falling government bond yields are signaling confidence in the improving economic conditions in the UK.As a reminder, Treasury yields grew considerably after the announcement of the September mini-budget of former Prime Minister Liz Truss. Investors demanded higher interest premiums to purchase UK debt.Following a jump in government bond yields, the cost of borrowing increased drastically. It led to the destabilization of the UK financial sector and worsened the economic downturn. The pound sterling reacted with a nosedive.The current decline in Treasury yields indicates an improvement in the UK's economic prospects.The GBP/USD pair grew by 16% after the political woes in late September.After several months of volatility and lows, the pound sterling may finally recover. Naturally, not all problems have disappeared completely but it is easier to assess risks at the current levels, analysts HSBC pointed out.In their latest forecast, they predicted a rally during 2023.As for growth yesterday, it was facilitated by some internal factors. The economic reports turned out to be better than expected. The PMI Indices for November increased after a long time of contraction.There is no denying that the country is in a recession but traders are well aware of it. Therefore, the market reaction is likely to be quite strong to positive reports. In other words, traders will pay more attention to upbeat reports, ignoring bad ones.Besides, traders are no longer concerned about another bearish factor that has been weighing on the British currency for some time. The UK Supreme Court ruled that the Scottish government cannot hold a referendum for independence without the UK government's approval.This news also supported the pound sterling today.USD not ready to give upOn Wednesday, the greenback saw a big sell-off. It dropped lower after the release of the economic reports. The Manufacturing PMI Index slid below 50. The labor market seems to be losing steam as well. Analysts were not surprised.Economists at Pantheon Macroeconomics believe that the number of initial jobless claims has been gradually rising for some time as firms are facing challenges due to the Fed's aggressive tightening.The Manufacturing and Services PMI Indices fell at the fastest pace since August and the 2008 financial crisis. Recessions in both sectors have become deeper.Meanwhile, new home sales soared by 632,000 in October after a downwardly revised figure of 588,000. It was the first increase in three months. The US dollar managed to recover slightly amid this report. However, this data is quite controversial given a decrease in mortgage demand.The University of Michigan's inflation expectations has declined this month. The Fed is sure to take notice of this survey. The greenback may start a short-term rally.As seen, the US economic reports are rather controversial. It is hard to get a clear picture of the economic situation.ING economists are concerned that a 7% fall in the US dollar against its rivals and a drop in the 10-year government bond yield has led to a significant weakening of financial conditions. The result is the exact opposite of what the central bank is trying to achieve.It would not be surprising if the Fed's rhetoric becomes even more hawkish next week.One year ahead inflation expectations decreased to 4.9% from 5%. At the same time, the figures remain at a level more than twice exceeding the Fed's target of 2%. Five years ahead inflation expectations also remained above the target.Inflation expectations will hardly force the Fed to change its hawkish stance. Investors may again abandon their expatiations of a softer stance next week after studying the November meeting minutes and returning to the market after the holiday.Traders are likely to pay attention to how many Fed policymakers are backing further aggressive tightening. At the press conference, Fed Chair Jerome Powell said that officials could raise interest rates even higher than 4.5-4.75% than initially projected in September.

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GBP/USD. End of the "Scottish issue"The GBP/USD pair tested the 21st figure on Thursday - for the first time since the beginning of August. This is mainly due to the dollar getting weaker, as it stopped moving upward across the market. U.S. trading floors were closed yesterday (Thanksgiving Day in America), and the minutes of the November FOMC meeting, published the day before, were interpreted against the dollar. Such a fundamental background made it possible for GBP/USD bulls to hit a new multi-month high, marking 1.2152.Take note that the bulls were getting closer to the area of 20 figures during the last two weeks. After almost a week-long flat in the range of 1.1800-1.1950, the bulls decided to make a swift upward move, which enabled them not only to cross the level of 1.2000, but to also probe the area of the 21st figure. Do remember that the pound's growth was caused not only by the dollar getting weaker, but because it also had political overtones.The fact is that this week the British Supreme Court rejected the Scottish referendum bid for independence. According to the court's verdict, the Scottish government cannot initiate a second referendum without the UK Parliament's approval.In other words, the Supreme Court put an end to a long-playing story that has emerged (making GBP/USD traders nervous) and then disappeared into oblivion. Therefore, this court ruling is strategically important for the British currency. The pound got rid of a threat that had been hanging over it for several years, threatening to collapse. After all, if the Supreme Court verdict had been the opposite, next year the UK could have experienced events comparable to those of 2016, when the historic referendum on Brexit was held.As mentioned, the so-called "Scottish issue" has been hyped from time to time in the global press, going beyond local discussions in the local media. The last time this topic was actively discussed was at the end of last year, when the problems associated with the Coronavirus receded into the background. Back in September 2021, Scottish Prime Minister Nicola Sturgeon confirmed at the Scottish National Party conference that she was planning to hold a second independence referendum before the end of 2023. She stressed that these plans, put on pause because of the pandemic, are "unchanged."Recall that in the 2014 Scottish independence referendum, 45% of those who voted "for" and 55% voted "against." That is, the majority voted for union with Great Britain. This plebiscite was held two years before another - historic - referendum, where the majority of British residents (though by a slim margin) voted for secession from the European Union. The Scots, in turn, were unequivocal: nearly 70% of the region's population voted against Brexit. After that "separatist" sentiments intensified in the region. According to experts, Scotland is now essentially divided 50/50 on independence. But analysts don't rule out a possibility that many politically neutral residents of Scotland can mobilize if necessary and use the chance that fell out. After all, it would obviously present itself to them next time in several decades. That is why sociologists have repeatedly warned that at the "X hour", when hypothetical plans for a new referendum take shape, the scales will tip in favor of the region's independence.But to the disappointment of supporters of Scottish independence, the Supreme Court did not allow the local authorities to organize a second vote without an approval from the British Parliament.Downing Street has already rushed to say that the Cabinet will not allow another plebiscite. According to the government, this is a "once in a generation" event. It is obvious that the Conservatives, who control the House of Commons (and will control it at least until 2024) will not allow the Scottish nationalists to realize the idea of another referendum. Therefore, this issue can be considered closed: for the foreseeable future, all slogans and calls for Scottish independence will have no effect on the pair.However, despite the importance and significance of the Supreme Court ruling, the pair's fate now depends on the dollar's behavior. The "Scottish issue" usually flares up brightly, but fades quickly. And it looks like this time it will fade today and for a long time. Next week traders of dollar pairs will focus on the Federal Reserve representatives' rhetoric. The market's tumultuous reaction to the minutes of the November FOMC meeting suggests that the dollar continues to "rule" the currency pairs of the major group. Traders in the second round played back the news that the U.S. central bank will slow down the pace of monetary policy tightening as early as December. But at the same time, the question of what level of the rate the central bank will stop at in the current cycle is still a matter of debate. And this discussion, the degree of "hawkishness" of which will be determined by members of the Fed, will allow GBP/USD traders to determine the vector of price movement.In my opinion, the Fed's minutes will fade into the background at the beginning of next week (Fed representatives have already announced all the theses of this document). The focus will be on U.S. statistics (Nonfarm) and comments of the Fed members. If they reiterate that it is not the speed of rate hikes that matters but the end of the current cycle, then the dollar may come out on top again. The probability of this scenario is quite high, given the earlier statements of Fed Chairman Jerome Powell and many of his hawkish wing colleagues.Bulls on GBP/USD, who are taking advantage of the moment (shortened trading session on Friday, low liquidity), may try to cross the resistance level of 1.2150 (the upper line of the Bollinger Bands on the D1 timeframe) again. However, taking into account the current fundamental background, it is better to wait for the upward momentum to end, and by next week, you should consider short positions with the first target being 1.1940 (the Tenkan-sen line on D1) and the main target at 1.1700 (the middle line of Bollinger Bands on the same timeframe).

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Trading Signal for GBP/USD on November 28-29, 2022: buy above 1.2025 (21 SMA - GAP)Early in the European, session the British pound (GBP/USD) is trading around 1.2043. The currency pair is going through a slight technical bounce, having reached a low of around 1.2025.According to the 4-hour chart, we can see that the British pound has formed a bearish GAP around 1.2089 which was Friday's close. If GBP/USD bounces above the 21 SMA located at 1.2020, it could cover the gap and could reach the top of the downtrend channel around 1.2096.In case the British pound breaks above the downtrend channel formed on November 23 and settles above 1.2097, it will be a clear signal to resume buying and the price could reach +2/8 Murray located at 1.2207.Conversely, if GBP/USD breaks below the psychological 1.20 level, it could fall rapidly towards 1.1962 (+1/8 Murray) and could even reach the area between the support of 8/8 Murray (1.1718) and 200 EMA (1.1649).The eagle indicator is trading above a downtrend channel. A technical correction is expected in the next few hours and then the pair will resume its bullish cycle. Therefore, the British pound is expected to trade above the psychological 1.20 level, which will be a signal to continue buying.The strength of the US dollar (USDX), observed in the last hours of trading on Friday, was boosted by risk aversion, causing a reversal in GBP/USD. The British pound is likely to make a strong technical correction in the coming days due to overbought levels on the daily chart.According to the daily chart, we can see that the British pound has a 200 EMA located at 1.21. As long as GBP/USD trades below this level, any technical bounce will be seen as a clear signal to sell, with short-term targets around 1.1697.Our trading plan in the next few hours is to buy the British pound above 1.2035, with targets at 1.2096 and 1.2207 (+2/8 Murray). On the other hand, if the pound falls below the psychological level of 1.20, it will be a signal to sell with targets at 1.1650.

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EUR/USD. The euro has two problems - Lagarde and ChinaAnother attempt to attack the 4th figure ended in failure. On Monday, EUR/USD bulls hit a five-month price high at 1.0498. However, the pair did not stay at this level for long - the price fell during the US session and finished the trading day at 1.0340. If the impulsive growth was unreasonable and unusual (despite the news from China), then the downward momentum was provoked by quite a specific person - European Central Bank President Christine Lagarde.Lagarde delivered her semi-annual report to members of the European Parliament Committee on Economic and Monetary Affairs. The theme of the report was directly related to monetary policy, so the speech triggered increased volatility in the pair. And it was not in favor of the euro. It's notable that Lagarde voiced quite contradictory rhetoric. There were different ways to evaluate her speech, both in its favor and against. In the end, traders chose the second option: as a result, the euro weakened not only against the greenback, but also in many cross-pairs.So, on the one hand, Lagarde said that the ECB will continue to raise rates, despite the slowdown in business activity in the eurozone. She acknowledged that high levels of uncertainty, tighter financial conditions, and declining global demand are putting pressure on economic growth in the European Union. But the record growth of inflation in the eurozone, according to her, is forcing the ECB to move on. Lagarde expressed doubt that the consumer price index in the eurozone has reached its peak values. She noted that the cost of wholesale energy supplies continues to rise (which is the main driver of headline inflation), so a slowdown in CPI growth in November seems extremely unlikely.Lagarde said that she "would be surprised" if inflation reached its peak in October.Certainly, the talking points are hawkish. In other circumstances, EUR/USD bulls would have taken advantage of the situation and rushed upwards, building on their success (i.e. in our case they would have settled in the area of the 5th figure).If it were not for one "but".The fact is that Lagarde made it clear in the European Parliament that slowing down the pace of interest rate increases in December is still a matter of debate. In doing so she took a neutral position in the corresponding dispute of many ECB representatives. Mario Centeno, Philip Lane, Francois Villeroy de Galo and Klaas Knot, among others, spoke publicly in favor of a lower rate of monetary policy tightening. Whereas the hawkish wing of the central bank, such as Robert Holzmann, Isabelle Schnabel and Joachim Nagel, came out in favor of a 75-point rate hike in December. Lagarde stayed "above the fray." According to her, the central bank will make an appropriate decision based on many factors: "...it will be based on our updated outlook, the persistence of the shocks, the reaction of wages and inflation expectations, and on our assessment of the transmission of our policy stance". Based on a comprehensive analysis of these factors, the ECB will decide how far rates should be raised and how fast.Such statements sobered up the EUR/USD bulls and then the price rolled back and headed to the daily lows, to the area of the third figure. Even in the first half of Monday, the ball was on the side of euro-dollar pair bulls, which took advantage of the weakening of the greenback and the strengthening of the hawkish mood regarding the ECB's further actions. But the diplomatic wording of Lagarde, which allows for various scenarios (both dovish and hawkish) did not allow the bulls to consolidate their success. The bears took the initiative and pulled the price back to its previous positions.On top of that, in the afternoon, the market finally reacted to events in China, which unfolded too dynamically and unexpectedly.First, the number of coronavirus cases in China is surging. Last Thursday, Beijing reported 31,000 new infections, noting that this was the strongest daily rate of increase in the history of the pandemic. But a little later, it turned out that PRC anti-records are updated almost daily. For example, the number of diseases has already exceeded the 40,000 mark on Monday. COVID outbreak in China is fraught with another wave of lockdowns. Strict quarantine has already been imposed in many cities across the country, with millions of people locked in their homes. Enterprises and firms have moved their employees to remote work schedules (where this is possible due to the nature of their work). China is known to have a "zero tolerance" policy for the Coronavirus, so it is not surprising that the authorities reacted to the situation with the utmost severity. And this circumstance gave rise to a second problem: Anti-Coronavirus protests broke out in China.At the moment, it is difficult to talk about the prospects of the protest movement. In most cases, people are protesting against the "zero Covid" policy, which, in their opinion, does not bring results, but hits hard on the pocket. However, in some cases, demands for the resignation of Chinese leader Xi Jinping are also heard among the demonstrators. In any case, these protests are already considered the largest in China for the last 33 years, since the 1989 protests (the events on Tiananmen Square).Judging by the dynamics of the dollar index, traders are wary of the unfolding events. The situation is, in a sense, a stalemate: on one side of the coin - possible turbulence in the markets due to the protests, on the other side of the coin - negative consequences from large-scale lockdowns in major cities of China.Thus, the current fundamental background is clearly not favorable for the euro's upward movement (first of all, if we speak about a stable development, but not an impulsive breakthrough). Therefore, it is better to either take a wait-and-see position or consider short positions. The main bearish target is still at 1.0210 (the middle line of the indicator Bollinger Bands on the daily chart). Crossing this target will pave the way for the bears to reach the parity level.

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Will gold fall for the Fed's entreaties?The external calm often hides internal tension. Despite gold's stabilization near $1,750 an ounce, we can't say the periods of turbulent XAUUSD quotes are far behind. The precious metal paused ahead of Federal Reserve Chairman Jerome Powell's speech and is trying to see if he can do what the other FOMC members failed to do. Can he use hawkish rhetoric to persuade stock indices to fall and the U.S. dollar to strengthen? Both are fundamentally important to gold.As a rule, when evaluating the prospects for XAUUSD, the dynamics of the USD index and Treasury bond yields are analyzed. The fall of the first of them below 106, according to DeCarley Trading, will contribute to the continuation of the peak to 98, raising the quotes of the precious metal significantly higher. Many factors have already been factored into the U.S. dollar, including a 5–5.25% federal funds rate ceiling and a shallow recession that the U.S. economy will plunge into in the second and fourth quarters of 2023, according to Barclays.Dynamics of gold and US dollarAt the same time, capital flows also affect the value of gold. Queen Anne's Gate Capital says the current rally in XAUUSD is due to an outflow of money from the crypto market. In 2020, investors actively invested in ETFs and crypto assets. As a result, specialized exchange-traded funds grew from 80 million ounces to 110 million ounces. By now, they have fallen to 95 million ounces. Many are still under water, that is, in losses. They will take advantage of the rise in gold to close their positions. If ETFs shrink another 20 million ounces, the precious metal will plummet to $1,300.The collapse of cryptocurrency broker FTX accelerated the collapse of BTCUSD, and money poured into gold, but a stabilization of bitcoin will reverse that process.Gold and Bitcoin DynamicsHowever, if the capital outflow from specialized exchange-traded funds stops and the demand for physical assets in Asia starts to fall, the downward trend of XAUUSD can be considered broken not only technically but also fundamentally. The fact is that, in an upward trend, gold tends to flow from the East to the West and vice versa during downturns—from China and India to the USA and Europe.In this regard, a sharp drop in October imports of China's precious metal from Hong Kong to 18.7 tons, which is 45% less than in September, indicates a decrease in demand. However, Commerzbank believes that the dynamics of the indicator was affected by restrictions imposed by Beijing due to COVID-19. According to customs data from Switzerland, gold exports to China in October decreased slightly from 44 to 43.7 tons.In the near term, the fate of XAUUSD will be affected by Powell's speech and the U.S. labor market report for November.In technical terms, the 1-2-3 pattern can work out on the daily chart of the precious metal. However, for this, quotes must fall below $1,725, which will be a reason for selling. A fair price break of $1,762 per ounce is more likely to be a reason to buy.

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USD/JPY: that's it, no movie!Federal Reserve Chairman Jerome Powell's dovish speech pulled down the dollar. Yesterday, the U.S. currency experienced a resounding sell-off on all fronts, but saw the biggest loss against the yen.A crushing blow from PowellAt the middle of the week, Powell spoke about the economic outlook, inflation and US employment at the Brookings Institution.It was Powell's first public speech since the November FOMC meeting, so traders were looking forward to his comments on the central bank's future course.The market has been in a state of strong uncertainty. Softer inflation provoked speculations about a possible slowdown of tightening in the US, and recent hawkish comments made by Fed representatives have cast doubts on this.Until yesterday, dollar bulls had illusions about further sharp rate hikes in the US. However, Powell just shattered their hopes: the central bank intends to slow down.He said it makes sense to 'moderate' the pace at this stage to balance risks. He also hinted that the Fed might take less aggressive steps at its next meeting.After Powell's dovish rhetoric, the likelihood of a 50 bps rate hike in December rose from 69.9% to more than 90%.The sharp weakening of hawkish market expectations took a heavy toll on the dollar. It interrupted its 3-day climb and went into free-fall.Yesterday, the DXY index posted its biggest daily loss of the week, falling more than 1% from its major peers.Goodbye USD/JPYThe U.S. currency showed the worst dynamics on Wednesday against the yen. The USD/JPY plummeted 1.2%, testing the 3-month low at 136.50 in one moment.A steep peak in yields on 10-year U.S. Treasuries contributed to the yen's sharp growth. The index fell to a one-month low of 3.6% after Powell's comments."The dollar is losing more altitude as the market embraces a less hawkish than feared message from the Chair," said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney. The "big decline in 10-year Treasury yields sees the yen at the top of the leaderboard."Recall that this year the Japanese currency suffered the most from the aggressive Fed rate, and the Bank of Japan's dovish policy adds more pressure on it.The BOJ is the only major central bank that has never raised interest rates this year.The hope that appeared last month that the Fed might soon slow down the pace of tightening helped the yen recover from its multi-year lows.The JPY showed the best uptrend against the dollar in November. It strengthened by more than 7%. This is the biggest monthly gain for the JPY in 14 years.Now, when Powell actually gave the signal to start a slowdown in interest rates in the U.S., many analysts have revised their forecasts for the pair - downward.According to experts, the asset has already exhausted its bullish potential and is unlikely to return to spectacular and confident growth in the near future.In the short term, the major will move mainly downwards, still weighed down by Powell's dovish statement.Also, US economic data may become a headwind for the dollar-yen pair. If the market sees another symptom of the approaching recession, it will finally convince traders that the US central bank will hit the brakes this month.Analysts predict this is likely to happen. The ISM manufacturing activity index for November will be released today. Economists are predicting that the index will fall from 50.2 to 49.8.Another headwind for the dollar will be the return of risk sentiment to the market due to the easing of anti-Covid measures in China. This should also favor USD/JPY bears.

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EUR/USD regains upside position, dollar left with one trump cardMarkets prefer to shoot first and then think later. Otherwise, they would miss the moment. When ECB President Christine Lagarde said that central banks should pursue policies that would anchor inflation expectations, investors began to buy the euro with renewed vigor, pushing EURUSD quotes to the highest levels since June. In reality, however, Lagarde's phrase does not guarantee that the deposit rate will rise by 75 bps in December. No matter how this shot turned out to be a blank.The logic of investors selling the U.S. dollar is clear: inflation is slowing and will continue to do so, which means the Fed does not need to take giant steps down the road of tightening monetary policy. The factor of an aggressive federal funds rate hike, along with U.S. exceptionalism and high demand for safe haven assets, was the key driver of the EURUSD rally. If the ECB starts to catch up with the Fed, the dollar has one less trump card to play.Lately, the macrostatistics of the euro area has been pleasantly surprising, which is reflected in the growth of the index of economic surprises. It is quite possible that the currency bloc will either manage to avoid recession or the recession will be quick and insignificant. It looks like the U.S. is not as far from the eurozone as previously thought. A change in investors' outlook on the matter has given EURUSD a helping hand.Dynamics of Economic Surprise IndicesIn fact, the U.S. dollar has only one trump card left—its status as a safe-haven asset, and even that fails. When the yield of Treasury bonds grew, the competitors of the grenback in the face of gold, yen and franc were in disgrace. However, the decline in interest rates on debt has turned them from outsiders into favorites. As a global recession approaches, investors will no longer park their money in North America, but will prefer Japan, Switzerland, or a perpetual asset.Jerome Powell had a chance to turn things around. Had he voiced his dissatisfaction with financial conditions, the EURUSD pair would hardly have been able to soar above 1.05. The weakening of the latter makes it difficult for the Fed to fight inflation, but the central bank also seems to believe that the PCE will continue to slow.Dynamics of financial conditions in the USAUnlike Lagarde, who believes that the global economy is entering an era of volatile inflation. That is why central banks should anchor inflation expectations at the target level of 2%. Households must trust that their work will lead to price stability. That's the only way to win.Volatile inflation makes it doubtful that EURUSD will continue to go further upward in the same way as in October and early December. Most likely, it will be stormy.In technical terms, the euro approached the target by 161.8% by the Crab pattern within an arm's length. It is located near the $1.061 mark. A rebound may follow from it or from the 1.057 pivot point, which will allow to partially take profits on the longs formed above 1.0395. Subsequently, we use pullbacks to buy EURUSD.

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USD unlikely to start long-term rallyThe US dollar managed to settle at the current highs thanks to upbeat US macro stats. The euro. on the contrary, dived down. Nevertheless, analysts believe that the greenback will hardly will be able to start a long-term rally even though it has risen significantly in the short term.On December 5, the greenback grew markedly against the euro amid positive reports on the US PMI Indices. In November, the ISM Services Index increased to 56.5% from October 54.4%. The reading surpassed forecasts as economists had anticipated a decline to 53.3%.Unexpectedly strong macroeconomic reports helped the greenback regain momentum. On December 6, the uptrend continued but it was not as strong as the day before. The dynamic of the US currency is relatively calm as the economic calendar is empty. At the same time, the EUR/USD pair was trading at 1.0487, trying to consolidate at the recent highs.In October, factory and durable goods orders also exceeded forecasts. Market participants were surprised by a sharp increase in the ISM Services Index. According to economists, it signals a rise in inflationary pressure in the service sector although some signs of disinflation have already been seen in the commodity sector.Analysts at the St. Louis Fed point out that current inflation expectations in the United States somewhat reflect the effectiveness of the Fed's hawkish stance. They are mainly fueled by geopolitical woes and strong US macro stats. They also note that there may be a lull on Forex. Only on December 6, the US trade balance report is due. According to preliminary estimates, the trade deficit is expected to grow to $80 billion from the previous $73.3 billion.Next week, several central banks will hold their monetary policy meetings. Investors are curious to find out the size of the rate increase. The Fed is expected to hike the interest rate by 50 basis points, up to 4.25%-4.5% at the December meeting. There is also a chance that the Fed could take a pause in monetary tightening. Fed Chairman Jerome Powell admitted that "slowing down at this point is a good way to balance the risks." Yet, he added that the watchdog would keep raising rates as "restoring price stability will likely require maintaining a restrictive policy stance for some time."Against this background, a slight decline in the US currency is possible. Last month, the greenback noticeably weakened. However, it will hardly start a downtrend in the near term. A downward reversal could take place after a period of high volatility, analysts at MFK Bank pinpointed. They reckon that the US dollar could remain volatile in the next three to four months. By the end of 2023, it may drop significantly. At the same time, they see no reason for a prolonged decline of the greenback although it is unable to start a steady correction due to current economic conditions.The US currency may lose ground if the Fed takes a less hawkish stance. However, if the Fed remains strongly committed to aggressive tightening, it will boost a long-term rally of the US currency. Hence, It will recover next year.

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Will the dollar still be at war? USD/JPY forecast for 2023The USD/JPY pair plummeted in November, which made many question its bullish potential. However, the dollar's recent growth convinces investors otherwise. So what to expect from the major?The dollar is winning so farThe greenback rose 0.3% against its major peers on Wednesday night. The dollar was supported by rising concerns about the global recession.The day before, three leading U.S. banks - J.P. Morgan, Goldman Sachs and The Bank of America - said they expect a slowdown in global economic growth next year, as rising inflation is threatening consumer demand.The pessimistic outlook reinforced the anti-risk sentiment that prevailed for the third consecutive session. The MSCI All-Country World Index, which tracks stock market performance in 48 countries, fell 1.26%, down from a three-month high last week.The loss of appetite for equities and increased demand for the dollar was also triggered by strong US macrodata. Recall that earlier this week the Institute for Supply Management (ISM) said that economic activity in the services sector grew from 54.4 to 56.5 in November.The data followed Friday's report from the U.S. labor market, which also pleased dollar bulls. The nation's NonFarm Payroll employment rose more than forecast last month.The portion of optimistic data greatly strengthened the market's hawkish expectations for further monetary policy by the Federal Reserve.Currently, most traders expect the U.S. central bank to raise the rate by 50 bps next week. The probability of an increase by 75 bps is only 5%.However, talk of a higher peak in U.S. interest rates has returned to the market. Many investors believe the rate could reach 5.25% in 2023, whereas now it is in the 3.75-4% range.The hope that the Fed will continue to raise rates next year and keep them high for a long time acts as a very powerful trigger for the dollar at this point. This factor particularly helps the greenback against the yen.After USD/JPY plummeted to a 3-month low of 133.64 last week, it has now gained 3% and has managed to stay above 137.There aren't many new factors that can strongly influence the asset's dynamics now. In the coming days, investors will focus on two events: the US consumer price index for November and next week's Fed meeting.If investors see more robust inflation and hear hints of a higher peak in U.S. interest rates from U.S. officials, it will likely trigger a new wave of growth in the USD/JPY pair.What's in store for the USD/JPY next year?In November, the U.S. currency posted its worst monthly performance in 14 years against the yen. It fell by more than 7% due to fears that the US central bank is going to slow the pace of rate hikes.However, most currency strategists, recently surveyed by Reuters, believe that in the next few months, USD/JPY will be able to hold its annual growth, which amounted to 20%.The growing threat of recession in the U.S. and other countries should provide support to the dollar. In the backdrop of risk aversion, the greenback will once again feel a surge of strength, which will help it recover its recent losses on all fronts, even against the yen."For now, the forces that have supported the USD this year remain valid, despite the recent correction lower. Other currencies do not look as attractive yet," said Athanasios Vamvakidis, head of G10 FX strategy at Bank of America.In the BofA baseline, the U.S. dollar will remain strong early next year and will only start a more sustained downward path after the Fed pauses.Despite the dollar's recent pullback, major currencies are not expected to recoup their 2022 losses against the USD until at least late 2023, the survey showed.Analysts estimate that the Japanese yen, down nearly 20% for the year and currently trading around 136.50 per dollar, was expected to change hands around 139.17, 136.17 and 132.67 per dollar over the next three, six and 12 months respectively.

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EUR/USD. The Fed to set the stage for longer drop in USD in 2023The euro seems to leave its lows behind. What does the EU currency await next year?In 2022, the energy crisis affected the EUR/USD pair significantly. It triggered the strongest collapse of the European currency. According to analysts, the peak of fears about the energy crisis in the eurozone has passed. There are reasons for optimism now."Outside of an unseasonably harsh winter, the energy situation in Europe looks manageable given the securing of alternative energy supplies and double-digit energy demand erosion. The drawdown of critical stocks is already progressing better than feared," NatWest reported.The key factor for the euro/dollar pair exchange rate should continue to be seen primarily through the lens of the balance of payments and terms of trade shift driven by energy prices.The trade deficit has worsened this year. The cost of energy imports skyrocketed after Russia cut gas exports to the region. As a result, the region's current account became deficit for the first time in years.NatWest economists expect the euro area's new trade deficit to be counterbalanced by positive net capital flows."There is potential for earnings and holdings to be repatriated if the USD strengthens further," the experts noted.However, winter has just started and it is too early to make any conclusions. If temperatures in Europe fall below critical levels, investors may focus on the supply problem again.In December, a sharp cold snap is expected in the region, which could lead to a noticeable increase in consumption."The winter may turn out to be colder than average, but it's impossible to have that as a base case. Yet valuations appear to include an unrealistically high probability of such a risk case," NatWest added.It is unlikely that cyclical lows in the EUR/USD pair will be revised next year. Its decline should also be limited to a rebalancing of central bank reserves. The rebalancing should occur to the detriment of the greenback and to the benefit of currencies such as the euro.This could mean that market players will have to sell USD to buy other currencies in their reserves every time the US currency rallies.The downtrend for the dollar is inevitable, it is a question of timing. In the coming months, its exchange rate is expected to fall as the peak of the Fed's rate hikes is reached.NatWest's forecasts for the euro/dollar pair are relatively contained. At the end of the first quarter, the quote should remain below 1.0500, and it should grow up to 1.0600 by the end of the second quarter. At the end of the third quarter, it is projected to rise to 1.0700 and 1.0800 by year-end.Short-term outlookOn Thursday, the EUR/USD pair attempted to stabilize above 1.0500. The technical picture suggests that buyers maintain control over the market in the short term.On Thursday, markets expect the weekly US labor market data. Traders are likely to ignore this report. This means that the EUR/USD pair's direction will be driven by the market sentiment with regard to risk.The growth of the major US indices will hinder the upward trend of the US dollar, which will help the EUR/USD pair to rise. A negative shift in sentiment will have the opposite effect on the quote.The list of events for the euro includes a speech by ECB head Christine Lagarde at a virtual conference. However, we should not expect any important statements on the prospects of rates, as the ECB is in silent mode ahead of next week's monetary policy meeting.Thus, risk appetite will have a huge importance for the short-term outlook.The intermediate resistance level is at 1.0540, further - 1.0580, and 1.0600. The bearish scenario should be considered after the price breaks through 1.0500. Following this scenario, the euro may fall to the area of 1.0460 and 1.0430.Bulls need to protect the level of 1.0450 to prevent the bearish scenario.Since no fundamentally important events are expected in the short term, investors are again focused on recession risks. This now helps keep the greenback from falling.On Thursday, the US dollar index fixed above 105.00, continuing to rise this week and benefiting from risk aversion in the market. Support was also provided by speculation that the Fed will continue to raise rates and hold them higher longer after the release of unexpectedly strong US employment, services, and manufacturing data.Now traders are waiting for data on CPI in the US to be released next week, as well as the Fed meeting, where a more moderate rate hike of 50 bps is expected.In general, the US dollar looks oversold, it has experienced its strongest monthly drop since 2009. A correction is possible in the coming weeks. However, it will resume its decline next year. Prerequisites for a longer fall in the exchange rate may be created by the Fed.