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Wednesday, November 13, 2024 (Week 46)
If you've been watching the markets this week, you'll know we're in the middle of some pretty big changes. Trump's surprise win and Germany's political mess have really shaken things up for the euro and dollar.
Trading involves a possibility of losing money therefore all decisions in market speculation are undertaken at your own financial risk.
Political Drama on Both Sides
Last week gave the euro a beating, dropping from 1.093 to 1.071 as Germany's government fell apart when Chancellor Scholz fired his Finance Minister over budget fights and then Trump won the election. The markets are concerned about tariff plans on European goods. Looking ahead through December, we'll need to watch how Germany handles its political crisis and what moves Trump makes during his transition.
New Story Developing: Central Banks Going Different Ways
While politics grabs the headlines, there's another story brewing. The European Central Bank has cut rates to 3.25%. Meanwhile, the Fed's latest move (down to 4.5%-4.75%) came with hints they might slow down their rate cuts. This gap between how the two central banks are acting could keep pushing the euro lower against the dollar.
Today's Big Event: US Inflation Report
Today's inflation numbers are the first we'll see since Trump's win and they are being watched to determine how Trump's policies might push prices higher.
The experts think we'll see inflation at 2.6%, up from September's 2.4%. The core rate (which leaves out food and energy) should stay at 3.3%. Watch the monthly numbers too - they're expecting 0.2% on the main number and 0.3% on core.
Trade Plan
If Inflation Comes in hot (Above 2.6%): The dollar would likely jump as traders bet the Fed will keep rates higher for longer. Watch for EUR/USD to test 1.0600 first, maybe even 1.0500 if the numbers are really high.
If Inflation is lower Than Expected (Below 2.6%): We might see a relief rally in EUR/USD, though Trump's plans for tariffs might keep gains limited. 1.0850 is possible if the numbers are really low.
Sources: European Central Bank, Federal Reserve, Bureau of Labor Statistics, German Federal Statistical Office, Bloomberg, Reuters.