17.10.202312:33 Forex Analysis & Reviews: Declining US economy, strong corporate earnings, and weak retail sales in the US may exert pressure on dollar

Although market tensions somewhat eased, investors, in the face of uncertainty, continue to look for new trading opportunities.

The upcoming corporate earnings season in the US appears to be positive, and this could lead to a local rally in the markets, with consideration of the Middle East crisis. Signals from Fed members indicating the necessity of leaving interest rates unchanged can also serve as a stimulus. For instance, the President of the Philadelphia Fed Patrick Harker stated that he advocates keeping interest rates at their current level because businesses, especially small ones, already suffer from tight monetary policy. This could also be seen in the labor market dynamics.

Meanwhile, the situation of uncertainty stimulates the rise in Treasury yields, which, after decreasing last week, approached recent highs once again. Dollar gains support from this, but expecting a significant increase seems to be unlikely. Several limitations could also be seen, as the Fed may or may not raise interest rates again by the end of the current year.

The labor market, remaining the same, with the average number of new jobs consistently below the average number of unemployment benefit claims, will result in the Fed taking a pause both at the November and December meetings. The situation will change radically if inflation surges again. But for now, with the balance of labor market influence, overall economic slowdown, and inflation, the Fed sees no reason to raise rates.

Given this situation, market players need to closely monitor incoming economic data from the US, as well as the situation in the Middle East. Any negative news such as an escalation of the crisis could lead to a resurgence in oil and gold prices. In this situation, dollar may also receive some support, albeit minor, only if Treasury yields continue to rise.

Today, the focus of the market will be on the publication of retail sales data. If they confirm a significant expected decline, dollar will come under pressure due to another shift in expectations toward the continuation of the Fed's pause in interest rate hikes.

Forecasts for today:

EUR/USD

The pair trades below the resistance level of 1.0560. An improvement in market sentiment could lead to a local increase towards 1.0620.

XAU/USD

Gold currently trades below 1922.50. Weak retail sales data from the US may put pressure on dollar, as they would reduce the likelihood of an increase in the Fed's interest rates. In this case, market players should expect another rise in gold prices, rushing to 1946.20.