Volatility will be triggered in the Forex markets as investors focus on key GDP and inflation data from major economies. Wednesday is packed with important releases, including GDP figures from the Eurozone, Spain, Italy, and Germany; the US Bureau of Economic Analysis' first estimate of Q3 GDP growth;. These statistics will reflect economic performance and different inflation paths across the world's regions, which drive currencies. Given the ongoing influence of inflation on financial markets, the upcoming releases may make a longer-term impact on the going forward prospects for currency pairs such as EUR/USD, GBP/USD, and AUD/USD.
Key Takeaways
This week, the volatility in the forex markets may be driven by the GDP and inflation data out of the Eurozone and the U.S.
EUR/USD and GBP/USD tend to be sensitive to European releases, whereas USD/JPY and AUD/USD are geared more toward overall economic conditions.
The US Dollar Index and ADP data may see shifts that are dependent on the strength of the GDP report.
European GDP and Inflation Data in Focus
During the European session, Spain, Italy, and Germany will release GDP and inflation data; the broader Eurozone will also follow suit. These numbers will, no doubt, be closely observed by investors for any signs of economic resilience. With the economic growth and inflation trends in the Eurozone carrying a lot of weight on the EUR/USD pair, especially since the inflationary pressures are still very much rampant in the region, trading is around 1.0820, relatively stable as traders look forward to the results.
Outlook for EUR/USD Trading Following Release
The EUR/USD pair gained a little on Tuesday, pulling back below 1.0800 but recovered to finish flat for the day. A surprise upside in GDP and inflation numbers later this week could see the euro gain further momentum, propelling the EUR/USD pair upwards. On the contrary, if weaker results are seen than anticipated, the EUR/USD would decline further.
While GDP figures are important, the release of the European Commission's business and consumer sentiment data will add further color to the region's economic well-being and could, in turn, impact the near-term directional bias of EUR/USD.
Key European Currency Impact
Still paired with the euro, the pound remains in the lime light in view of the upcoming presentation of the UK government's Autumn Budget. Hints at austerity could prop up the GBP/USD, particularly when combined with growth-enhancing policies. GBP/USD currently trades just above 1.3000, with its nearest support and resistance at 1.2943 and 1.3016, respectively. The combination of the GDP and inflation reports with the details in the budget could be expected to add volatility to the pair.
US GDP and Inflation Data's Impact on Forex Markets
Later in the session, one of the most closely watched events for investors is the third-quarter GDP growth estimate due out from the U.S. Bureau of Economic Analysis. The report also contains the PCE Price Index, a key inflation indicator that is followed by the Fed. These GDP and inflation numbers could have significant ramifications for the USD and set the tone for expectations around Federal Reserve policy changes over the coming months.
USD INDEX MOVEMENT-RECORDOR OF EMPLOYMENT DATA IMPACT
The US Dollar Index, a measure of the greenback against a basket of key currencies, lost steam on Tuesday after the disappointing JOLTS job openings data. However, it managed to keep above 104.00 as markets are looking ahead to the GDP and inflation numbers. The dollar will most likely take its directional bias in the ensuing sessions from the relative strength of the GDP report, whereby any significant deviation from expectations should keep the USD's position volatile in forex markets.
ADP Employment Data: A Harbinger for GDP Impact
Aside from the GDP and inflation figures, the October ADP Employment Change will also further provide insight into U.S. labor market conditions. Solid labor data would favor the greenback dollar, which would indicate the resilience of the economy, while weak numbers would weigh on it, especially considering the disappointing GDP growth rates. With the volatile U.S. dollar, today's key pairs are bound to be exceptionally sensitive: the USD/JPY, EUR/USD, and GBP/USD, considering the raft of economic releases throughout the day.
GDP and Inflation Trends: A Reaction in the Asian Markets
The Asian markets have already reacted to regional GDP and inflation trends. Australian inflation came in a little more subdued than expected. The quarterly Consumer Price Index rose 0.2% in Q3 versus the 0.3% forecast, while annual inflation reached 2.8%. This softer inflation data applied some bearish pressure to the AUD/USD, currently trading near 0.6550.
Australia's Inflation and Implications on Currency
Of late, the Australian dollar has failed to glitter with softer inflation figures and broader market trends. Analysts said continued pressure from inflation could still call for policy action by the RBA; however, the weaker-than-expected CPI reduces the likelihood for this in the short term. The release of GDP and inflation data from Australia underlined the regional economic uncertainties, thereby keeping subdued trading in the AUD/USD pair.
Gold at Record High on Fears of Inflation
Gold has recently benefited from inflation concerns and reached a new high in flight-to-safety by investors. The bullish momentum of the price clearly indicates that fear of high inflationary pressures remains afloat. This can be expected to continue for as long as GDP and inflation data around the world indicate economic troubles are far from over. For this reason, trading higher towards the $2,800 level, gold has turned into a strong hedge against inflation.
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