DXY
The Fed Chair, Jerome Powell has made all possible efforts to make the QE tapering a calm one and not cause knee-jerking reactions in the various markets as witnessed following Bernanke's congressional testimony, yet, the effects will still suffice even if milder. Currency pairs of interest in the Forex market are most likely commodity currencies paired to the USD and precious metals especially Gold. Oil is at its highs and might be in danger as it's already showing technical signs of a Sell-off. Since Oil is Canada's main export, the appreciated USD, plus falling Oil prices might initiate a huge rally in the USDCAD pair which is currently reaccumulating.
Metals (Iron Ore/ Copper) exports. Exports are generally affected by the USD as the base transactional currency. The AUD is enjoying gains from recent exports, buoyed economy testified by the RBA's interest rate hike last week. However, the pair just concluded a rally slightly over a previous mid-range high forming another top. the taper effects could stimulate a Sell-Off or at least a deep retracement.
Both currencies are safe-haven currencies. Meanwhile, the Yen is facing an internal risk of uncertainty as Japan is about to hold its elections. Elections pose uncertainty and are bad for any currency. Investors don't want to take such chances. The USD on the other hand is about confirming a fully recovered economy with the tapering. This makes it the choicest with regards to the security of investments and even promising better yields. Technically, the pair is on the verge of a breakout showing resilience to pullbacks and willingness of Bids for higher interests having held its current price level as strong resistance for over a year now.
The pair is strongly negatively correlated to the Dollar Index -DXY. Therefore, for virtually every move in the DXY, the opposite is expected for the EURUSD. Furthermore, the ECB has decided not to taper on the ongoing QE as the Eurozone is yet to recover fully from the pandemic woes. The interest rates and monetary policies decided upon at the last week's meeting remained unchanged as inflation is reportedly yet to reach the 2% target before commencing any tapering process.
The Bank of England will also publish their decisions on interest rates, monetary policy, and asset purchases tapering on the 4th of November following the US' 3rd of November taper. Technical factors might not stand in the way of price moves on this pair from the 3rd to the 5th of this month. There's no short-term price direction, but investors will soon enough weigh the key takeouts from both giant economies to go risk o on any potential longer-term direction. Caution should be applied in trading the pair short term.
The tapering confirms a reinvigorated economy. Investors are more likely to dump stocks and Gold for the more attractive yields on short to medium-term US bonds. XAUUSD is in danger of a breakdown beyond the current levels of the tightening range.
Of more subtle impact yet much relevance are the features of this week's economic data reports including the ISM manufacturing and Services PMI, ADP Employment Change on Wednesday the 3rd, and the Non-Farm Payroll reports on Friday the 5th among others for the just-ended month of October. If the Actuals meet or exceed the consensus of these reports especially the NFP, it means a confirmation of and increased strength of the USD supporting short-term bids for it. However, disappointing reports might make no crazy negative moves against the USD. The taper would consume such effects.
Overall, the best analytical ideas are a fusing of technicals, fundamentals, and even investors sentiment. Pairing the weaker of currencies against the stronger at any point in time offers the best profit potentials.