All traders should watch out for a spike in volatility across global financial markets. The spike should ignite during the Asian session, intensify at the start of the European session and get an additional boost during the US session. Equity markets as well as forex markets will be impacted by this expected surge in volatility.
China will release its Manufacturing PMI and while current expectations still call for a modest expansion, squawk box chatter indicates that there is an increased potential for a disappointment in the numbers down to an actual contraction in the Chinese manufacturing data. This will likely initiate a severe sell-off in Asian equity markets which could exceed 2% given the extreme overbought condition of global equity markets.
A contraction in Chinese PMI will put downward pressure on the Australian as well as New Zealand Dollar and add to their correction from recent peaks which came on the back of US Dollar weakness. Forex traders should also expect to see a spike in the Japanese Yen should Chinese PMI data disappoint.
There won’t be any major economic reports during the European session which will allow traders to focus on negative reports out of Asia and view it as an excuse to take profits after a strong start to the fourth-quarter. Friday does mark the start of trading for November which will have a much bigger impact should Chinese PMI come n weaker than expected.
Prior to the open of the US session we will get the ISM Manufacturing data which should point to a slower expansion, but a weaker figure will provide fuel for the sell-off and the US Dollar will reverse its potentially earlier gains. A weak close to the US trading session will start Asia with a continue correction on Monday which could last for an extended period of time.
Forex traders should be prepared to see a seesaw session in the AUDUSD as well as NZDUS currency pairs and trade accordingly. New and inexperienced traders are best advised to take the day off and not be caught in the crossfire between bulls and bears. Should both manufacturing reports come in much weaker than expected we could see a much bigger sell-off in equity markets which will add volatility to forex markets.
Scalpers and those who have open positions with tight stop loss orders in place are likely to see their positions closed and adjustments to the trading strategy for Friday are advised. Prepare your forex portfolio today and tomorrow for what could be the start to a very volatile November and take advantage of the trading opportunities presented.