U.S. stocks sank in the third quarter, hurt by soaring U.S. Treasury yields. During this period, the Nasdaq 100 fell about 2.75% while the S&P 500 plunged approximately 3.40%. Meanwhile, the surge in nominal and real rates propelled the broader U.S. dollar (DXY) to the highest level since November 2022, creating a hostile environment for gold and silver.

The fourth quarter's trajectory for key financial assets could mirror that of the prior three months, particularly if U.S. yields continue their upward trajectory. As of the first week of October, there's scant evidence that bond market dynamics will reverse, with the U.S. economy's remarkable staying power giving Fed officials the leeway to maintain a restrictive position.

At the latest FOMC meeting, policymakers hinted at the possibility of further tightening in 2023 but stopped short of firm endorsement. For this reason, traders have not entirely priced in another quarter-point hike for this year, but the situation could change if incoming data continues to surprise to the upside, as was the case with the September U.S. employment report.

In the event that interest rate expectations reprice in a more hawkish direction on account of sticky inflation and economic resilience, the U.S. dollar’s upward momentum may persist, exacerbating weakness in the precious metals complex. In such a scenario, equity indices could also come under pressure, paving the way for further losses for the S&P 500 and Nasdaq 100.

With the U.S. dollar in a dominant position heading into Q4, the euro, British pound, and Japanese yen may find themselves in a vulnerable state, with a possible inclination toward further depreciation. Their prospects, however, could improve if the Fed begins to embrace a softer posture for fear of a potential hard landing. Traders should therefore keep a close eye on policy guidance.

Focusing on the yen now, Bank of Japan’s ultra-dovish will remain a headwind for the Asian currency in the early part of Q4, but the tide may turn in its favor toward the latter part of the year. As we approach 2024, the BoJ may start to signal a policy shift. As investors attempt to front-run the normalization cycle, USD/JPY, EUR/JPY, and GBP/JPY may head lower.

Different market dynamics are poised to unfold in the near term, potentially paving the way for increased volatility and attractive trading setups in major assets. To dive deeper into the catalysts that will affect currencies, commodities (gold, oil, silver) and digital assets (Bitcoin) in the fourth quarter, explore the comprehensive technical and fundamental forecasts put together by DailyFX's team of experts.

PERFORMANCE OF KEY ASSETS IN THE THIRD QUARTER

Source: TradingView

Q4 TOP TRADING OPPORTUNITIES

Short USD/JPY: A Reprieve in the DXY Rally and FX Intervention by the BoJ

The USD/JPY has held the high ground for the majority of Q3 with rallies to the downside proving short-lived at this stage. The potential for downside moves however remains in play and with the right fundamental developments.

Short USD/ZAR: Top Trade Opportunities

USD/ZAR in Q4 looks to the US for guidance while keeping a close eye on China and the local landscape.

Q4 Trade Opportunity: EUR/CAD Long-Term Reversal as Oil, Inflation Rise

EUR/CAD primed for a LT reversal upon ‘head and shoulders’ confirmation. Souring fundamentals in Europe combined with rising oil and interest rate expectations in Canada are considered in this article.

The Range Trade is Alive and Well as Markets Ponder Central Bank Rate Strike

Range trading unfolds as several major global central banks may have put the cue back in the rack on rate rises.

Q4 Top Trading Opportunity: Is the US Dollar Rally Coming to An End?

The U.S. dollar has been a one-way trade since the middle of July, rallying in excess of 6% since printing a 99.49 low. Will the Tide Turn in the Last Three Months of 2023?

Crude Oil Prices Might Have Ran Too Far in Q3 Amid a Deteriorating China Outlook

Crude oil prices might have run too far in the third quarter, setting the stage for potential disappointment amid deteriorating economic conditions in China.

https://www.dailyfx.com/news/forex-market-q4-outlook-gold-oil-stocks-us-dollar-euro-pound-yen-btc-at-tipping-point-20231008.html