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Forex Market Developments
In October, the United Kingdom recorded 65,018 mortgage approvals, surpassing the forecast of 64,400. This figure reflects the actual number of approvals during that month.
Gold trades above $4,250, retaining momentum from October 21. There is increased speculation about a potential interest rate cut by the US central bank.
The EUR/USD pair advanced above 1.1600, driven by broad US Dollar weakness. Attention is on US PMI data as anticipation builds for another potential rate cut.
The GBP/USD pair remained over 1.3200, maintaining its previous positive trend. The US Dollar is under pressure from dovish expectations regarding the Federal Reserve’s decisions.
The US ISM Manufacturing PMI data release is set for 15:00 GMT. This release is being monitored to gauge overall factory activity performance.
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The persistent weakness in the US Dollar is the dominant theme we see, driven by strong market expectations for a Federal Reserve rate cut this month. The CME FedWatch Tool now shows an over 85% probability of a 25-basis point cut at the December 18th meeting. This follows last month’s Core PCE Price Index data, which came in at 2.8%, showing a continued cooling trend from the highs we saw back in 2024.
With the US Dollar under pressure, we should look at going long on currencies like the British Pound. The surprise jump in UK mortgage approvals to over 65,000 is a strong signal for the housing market, building on recent ONS data showing UK inflation dipping to 3.1% in October. This suggests buying call options on GBP/USD, targeting a move towards the 1.3300 level, could be a smart play.
The push above 1.1600 for EUR/USD reflects a clear policy divergence between the Fed and the European Central Bank. While we anticipate a Fed cut, ECB President Lagarde’s comments last week emphasized that the fight against inflation in the Eurozone is not over, giving the Euro a relative strength advantage. This reinforces the case for long positions in EUR/USD futures through December.
Gold breaking past $4,250 is a significant technical and psychological level, fueled by both the diving dollar and a risk-off mood around the Ukraine peace talks. We are seeing large inflows into gold ETFs, with recent data for November indicating the strongest monthly net buying by funds since the banking turmoil of 2023. Given the inverse correlation, call options on gold futures look attractive as long as the US Dollar Index remains under pressure.
Today’s US ISM Manufacturing PMI is the next major catalyst and presents a short-term risk. A much weaker-than-expected number would accelerate bets on a Fed rate cut, but a surprise to the upside could cause a sharp, temporary dollar rebound. Traders might consider using options straddles on major pairs like EUR/USD to profit from increased volatility regardless of the direction.
