Important calendar events
The dollar plummeted last week, with the dollar index dropping below the 107 level as US inflation unexpectedly cooled. US Treasury yields also fell sharply, with the US 10-year bond yield dropping to 3.8%. Diminishing Fed rate hike expectations are putting pressure on US bond yields and dollar price, which had been trading in the overbought territory over the past few months.
The dollar collapsed last week after US inflation data for October fell below expectations. US Monthly CPI in October rose by 0.4% against expectations of 0.6%. Annual CPI printed at 7.7%, compared to 8.2% the previous month and the 7.9% expected. Core CPI, which excludes food and energy, rose only by 0.3% in October, versus 0.6% in September and the 0.5% expected. US inflation is cooling faster than expected, causing the dollar to plummet. Slowing price pressures may induce the Fed to pivot towards a more dovish policy reducing the aggressiveness of future rate hikes.
US consumer sentiment data released on Friday for November were also disappointing, putting more pressure on the dollar. Consumer sentiment in November fell to 54.7 from 59.9 in October against expectations of 59.5. The drop in consumer sentiment points to a more pessimistic outlook on the state of the US economy.
The Fed’s recent increase in interest rates, however, is attracting investors who seek higher returns providing support to the dollar. Fed rhetoric last week remained hawkish, even after the release of optimistic US inflation data mid-week, pointing to further rate hikes this year. Fed’s Loretta Mester delivered a speech with strong hawkish undertones on Thursday. Mester stressed that US inflation remains widespread and prices of services are not slowing, but hinted that the central bank may adjust the restrictiveness of its monetary policy. FOMC member Mary Daly hailed the announcement of easing price pressures but stated that one month's reduce inflation does not constitute a victory and that the Fed must remain steadfast to reduce inflation. Earlier in the week on Wednesday, Fed’s Williams emphasized the need to bring inflation under control, stating that it is currently far above the Fed's long-run goal of 2%.
The US Federal Reserve voted to increase interest rates by 75 basis points at its monetary policy meeting last week. The Fed has so far increased interest rates by a total of 375 basis points this year, bringing its benchmark interest rate in a range of 3.75% to 4.0%. Market expectations of future rate hikes were considerably trimmed after last week’s inflation report. Market odds are currently between a 50-bps and a 25-bps interest rate increase in December. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate.
The US mid-term Congressional elections last week have put pressure on the dollar, with the fate of the US Senate hanging in the balance. Concerns that the Democratic party might lose control of Congress in the mid-term elections, leading to political instability in the US, pushed the dollar down last week. Votes were still being tallied over the weekend, but the Democratic party victory in the key State of Nevada has secured control of the Senate for the ruling party. US President Joe Biden stated that he was incredibly pleased with the election turnout.
This week, high volatility is expected for the dollar as markets will be digesting the news of the US mid-term elections outcome. The announcement that the ruling party will retain control of the Senate may have a stabilizing effect on dollar price over time, after last week’s turbulence.
Fedspeak is also of primary importance this week, as traders will pay special attention to Fed members’ speeches in an attempt to gauge any changes in the central bank’s future policy direction.
Several indicators of economic activity are scheduled to be released this week for the US and may cause high volatility in dollar prices. Most notably, US PPI data due on the 15th will provide an additional measure of US inflation and may affect the dollar considerably. Retail sales data on the 16th, as well as the Philly Fed Manufacturing Index on the 17th, may provide information on the US economic outlook.
The Euro gained strength last week, benefitting from the dollar’s decline. EUR/USD rose above the parity level, climbing above the 1.009 level resistance, reaching 1.035. The EUR/USD rate marked its steepest one-day rise in two years on Friday. If the EUR/USD pair declines, it may find support at the parity level and further down near 0.973. If the currency pair goes up, it may encounter further resistance near 1.036.
Cooler than-expected US inflation print caused the dollar to plummet last week, benefitting competing currencies, such as the Euro. Uncertainty over the outcome of the US congressional elections also put pressure on the dollar last week.
Economic activity data for the Eurozone last week were overall optimistic, further boosting the currency. Germany’s inflation continued to rise at an alarming pace as German CPI data showed on Friday. Monthly German CPI increased by 0.9% in October, with annual inflation reaching a record high. Rising energy and food prices caused Germany's annual inflation rate to climb to an all-time high of 10.4% in October.
Eurozone retail sales data released on Tuesday showed that EU retail sales in September went up by 0.4%, after remaining stagnant in August. French trade balance data for September were lower than expected though, dropping to -17.5B against expectations of -14.7B.
German industrial production data released on Monday for September exceeded expectations, rising by 0.6% against the 0.2% expected and a decline of 1.2% in August. The Sentix Investor Confidence index on Monday was also higher than expected, even though it was still negative, it printed at -30.9 against expectations of -35.2 and -38.3 the previous month. This is a key indicator of economic health in the EU and, although a negative result indicates pessimism, the EU economic outlook appears to be improving.
In its latest monetary policy meeting, the ECB raised its interest rate by 75 basis points to 1.5%, the highest since 2009. Soaring EU inflation rates are forcing the central bank to hike rates aggressively to reduce price pressures. Market odds are currently in favor of a 50-bps rate hike at the ECB’s next monetary policy meeting.
ECB rhetoric this week was especially hawkish, raising expectations of future rate hikes. Deutsche Bundesbank Joachim Nagel warned on Tuesday that the ECB needs to continue raising interest rates even if it weighs on the economy. ECB Vice President Luis De Guindos stated that further rate hikes are needed to combat inflation. In addition, ECB member Schnabel mentioned the need to raise rates into restrictive territory, while Vasle stated that inflation is becoming more broad-based.
Eurozone economic outlook is poor though, showing signs that the EU is entering a recession, limiting the ECB’s ability to raise interest rates. Eurozone's economic outlook is poor, with analysts predicting stagnation later this year and in the first quarter of 2023. Even though further rate hikes seem certain, the magnitude of the hikes may decrease if the EU shows signs of entering a recession. Preliminary Flash GDP data seem to support this scenario. Flash GDP for the third quarter of 2022 showed economic growth of only 0.2% against an expansion of 0.8% in the previous quarter. Stagflation becomes a real headache for the ECB, which will be forced to battle inflation without the support of a robust economic background.
Record-high Eurozone inflation data indicate that the ECB’s efforts to tackle inflation have not been successful so far. Eurozone inflation in October reached 10.7% versus September’s print of 9.9%. Price pressures continue to increase in the EU, driven primarily by energy prices.
Several economic activities and health indicators are scheduled to be released this week and may affect the Euro. The ECB Financial Stability Review due on the 16th especially may provide important information on the economic state of the Eurozone. The ECB is forced to adjust its monetary policy on a meeting-by-meeting basis, raising interest rates as far as the Eurozone’s fragile economic outlook will allow, and will rely on economic indicators to determine the aggressiveness of its fiscal policy.
The Sterling gained strength last week, benefitting from the dollar’s collapse. GBP/USD rose past the 1.164 level resistance, closing near 1.183 on Friday. If the GBP/USD rate goes up, it may encounter further resistance near 1.228, while support may be found near 1.114 and further down near 1.092.
The dollar’s decline last week propped up competing currencies. Uncertainty over the results of the US mid-term elections caused the dollar to retreat sharply and unexpectedly low US inflation data pushed the dollar further down.
The Sterling, however, is under pressure from a risk aversion sentiment seeping through from crypto markets over the past few days. The collapse of the FTX crypto exchange due to liquidity problems caused market turmoil last week. The pound is also threatened by political uncertainty in the UK. Political instability has been playing a major part in the currency’s decline over the past few months, driving the pound to an all-time low.
The British economy is still struggling and policymakers will have to assess how much tightening it can withstand to bring inflation down. On Friday, UK's monthly GDP for September dropped by a staggering amount, indicating that the country is already in the grip of recession. Monthly GDP dropped by 0.6%, against expectations of a more modest, 0.4% drop and a decline of only 0.1% in August. Quarterly preliminary GDP for the third quarter of 2022 also came out negative on Friday, printing at -0.2%, compared to a 0.2% growth in the second quarter. The BOE predicts that the recession could last for almost two years, with expansion not expected again till mid-2024.
British economy continues to contract at an alarming pace, restricting the BOE’s ability to hike interest rates. This could potentially lead to a shift in the BOE’s priorities, from battling inflation to surviving recession. Annual inflation returned to 40-year highs in September, climbing to 10.1%, after cooling to 9.9% in August. Rising UK inflation is forcing the BOE to make some tough choices against a weak economic backdrop.
Housing data last week showed falling prices in October, reflecting the higher mortgage rates from interest rate hikes. Housing mortgages are expected to rise further as the full effect of the recent rate hikes is factored in. Higher interest rates are taking their toll on the housing market, risking a housing crisis in the UK.
PM Sunak has vowed that economic stability will be at the heart of his administration’s agenda. Foreign minister James Cleverly has indicated that the much-anticipated new fiscal plan is expected this week on November 17th and is reported to be a complete reversal of the previous government’s controversial budget. Instead of tax cuts, the current government is likely to go with tax hikes, which will be a tough sell on the British public.
BOE members voted to increase interest rates by 75 bps last week, matching the Fed’s rate hike. The Fed has so far increased interest rates by a total of 375 basis points this year, bringing its benchmark interest rate up to 4.0%. Currently, the BOE’s interest rate is at 3.0% and the difference with the Fed’s rate is putting pressure on the Sterling. In addition, the BOE did not offer specific forward guidance last week, suggesting that future rate hikes may be softer than expected.
Important economic activity indicators are scheduled to be released this week for the UK. Primary among those is the Claimant Count Change on the 15th and the annual CPI on the 16th, which is likely to determine the height of future rate hikes.
The Yen gained strength last week as the dollar collapsed. The USD/JPY rate plummeted, falling below the 139.9 level of support, and closing near 138.7 on Friday. If the USD/JPY pair continues to decline, support might be found near 130.4. If the pair climbs, it may find resistance at 148.9 and further up at 151.9.
Lower than-expected US inflation print on Thursday brought the dollar down, benefitting competing currencies. Cooling price pressures in the US may lead the Fed to adopt a more dovish stance, reducing the aggressiveness of future rate hikes.
The release of the BOJ Summary of Opinions on Tuesday also bolstered the Yen. The report is based on the latest BOJ policy meeting ad was more hawkish than expected. BOJ members reaffirmed their commitment to the bank’s ultra-easy policy for the time being. Rising inflation in Japan, however, led to a debate on a future exit from the central bank’s dovish policy. The BOJ revised core CPI projections for 2022 to 2.9% from 2.3% previously, as recent inflation data in Japan exceeded expectations.
In its latest policy meeting, the BOJ left its monetary policy unchanged, as expected. The BOJ maintained its ultra-easy monetary policy keeping its main refinancing rate at -0.10%. Japan continues to pour money into the economy, while other countries are adopting a tighter fiscal policy. The difference in interest rates with other major Central Banks, especially with the Fed, puts the Yen at a disadvantage, driving its price down.
On the data front, economic activity and health indicators released last week for Japan were mixed overall. Japan’s Producer Price Index released on Friday, slowed to 9.1% in October from 10.2% in September, but still exceeded expectations of 8.8%.
Annual bank lending in Japan released on Wednesday, rose to 2.7% in October against 2.3% in September, exceeding expectations of 2.5%. The current account in September, which provides a measure of the currency’s appeal, climbed to 0.67T from 0.10 T in August, against expectations of 0.01T. Economy Watchers Sentiment released on Wednesday printed at 49.9 in October, climbing from 48.4 in September. Wednesday’s values were just below expectations of 50.0, which is the value above which economic sentiment turns positive.
Annual household spending on Tuesday increased by 2.3% for September, noting however a marked drop from the previous month’s 5.1%. Japanese households curbed spending in the face of higher inflation combined with a weaker economy. Average cash earnings climbed by 2.1% in September though, compared to 1.7% in August. Leading Indicators released on Tuesday were lower than expected, dropping to 97.4% in September from 101.3% in August against expectations of 97.9%.
Japanese authorities recently staged interventions to support the collapsing Yen, as evidenced by the currency’s sudden surges. The USD/JPY had moved well above the psychological level of 150 when it plummeted suddenly in what was undoubtedly large-scale selling of dollars and buying Yen. The suspected interventions failed to stem the tide, however, and the Yen continued to retreat. The Japanese government cannot support the Yen indefinitely, as continuous interventions would not be sustainable.
The USD/JPY rate is expected to hinge largely on the dollar’s movement this week, as markets will be digesting the news of the US mid-term elections outcome. The announcement that the ruling party will retain control of the Senate may have a stabilizing effect on dollar price over time, after last week’s turbulence.
Several economic activities and health indicators are also due to be released this week for Japan and may affect the Yen's price. These include Preliminary Quarterly GDP on the 15th and Annual national core CPI on the 18th.
Gold prices soared last week, climbing above the $1,729 per ounce resistance, rising just above the $1,765 per ounce resistance. If gold prices decline, support may be found near $1,666 per ounce and further down at $1,616 per ounce. Resistance may be found at around $1,802 per ounce.
The dollar plummeted last week, with the dollar index dropping below the 107 level as US inflation unexpectedly cooled. US Treasury yields also fell sharply, with the US 10-year bond yield dropping to 3.8%. The collapse of the US dollar and yields has caused gold prices to skyrocket. Diminishing Fed rate hike expectations are putting pressure on US bond yields and dollar prices, boosting gold prices.
Monthly CPI and Core CPI, as well as Annual CPI data released on Thursday, fell short of expectations. US Monthly CPI in October rose by 0.4% against expectations of 0.6%. Annual CPI printed at 7.7% compared to 8.2% the previous month and the 7.9% expected. Core CPI, which excludes food and energy, rose only by 0.3% in October, versus 0.6% in September and the 0.5% expected. US inflation is cooling faster than expected, causing the dollar to collapse. US inflation will determine the aggressiveness of the US central bank’s future rate hikes and slowing price pressures may induce the Fed to pivot towards a more dovish policy.
Gold prices are under pressure by the shift of most major Central Banks towards a tighter monetary policy to combat rising inflation rates. Assets yielding interest become a more appealing investment compared to gold as interest rates rise. The US Federal Reserve voted to increase interest rates by 75 basis points at its latest monetary policy meeting. Market expectations of future rate hikes were considerably trimmed after last week’s inflation report. Market odds are currently between a 50-bps and a 25-bps interest rate increase in December. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate.
The US mid-term Congressional elections last week have put pressure on the dollar, providing support for gold prices. Concerns that the Democratic party might lose control of Congress in the mid-term elections, leading to political instability in the US, pushed the dollar down, boosting gold prices. The Democratic party victory in the key State of Nevada however, has secured control of the Senate for the ruling party.
High volatility is expected for gold and dollar prices this week, as markets will be absorbing the news of the US mid-term elections outcome. The announcement that the ruling party will retain control of the Senate may have a stabilizing effect on dollar price over time, after last week’s turbulence.
Fedspeak is also of primary importance this week for gold prices. Traders will pay special attention to Fed members’ speeches in an attempt to gauge any changes in the central bank’s future policy direction.
Several indicators of economic activity are scheduled to be released this week for the US and may cause high volatility in dollar prices, which is likely to be mirrored by gold prices. Most notably, US PPI data due on the 15th will provide an additional measure of US inflation and may affect the dollar considerably in the aftermath of the CPI inflation report.
Oil prices had a volatile week, plummeting at the beginning of the week, then rallying towards the end of the week. WTI price dropped as low as $85.0 per barrel mid-week, then pared some of the week’s losses, reaching $89.0 per barrel. If the WTI price declines, it may encounter support near $85.7 per barrel, while resistance can be found at $90.3 per barrel and further up at $97.8 per barrel.
Oil prices benefitted from the dollar’s collapse towards the end of last week, halting the downward spiral of the past few days. October’s US inflation print came below expectations on Thursday, bringing the dollar down. Cooling US inflation has reduced Fed rate hike odds, diminishing global recession concerns. Aggressive rate hikes stifle economic activity, undercutting oil demand. As central banks turn towards a more hawkish monetary policy, global recession concerns rise, putting pressure on oil prices.
The uncertainty over oil demand from China has influenced oil prices considerably over the past few months. The country continues to grapple with rising Covid cases, with heavy restrictions impacting economic output. Reports of renewed lockdowns in the manufacturing hub of Guangzhou in China weighed on oil prices last week. On Friday however, some of the restrictions connected to the latest increase in infections were lifted and oil prices spiked upwards on a positive oil demand outlook. China is the world’s largest energy importer and the possibility of lifting zero-Covid restrictions has increased oil demand expectations buoying oil prices. Health authorities in China, however, seem committed to keeping the strict lockdowns and quarantines in place for the time being.
An unexpected build in US crude oil inventories pushed oil prices further down on Wednesday. US Crude oil inventories increased by 3.9M barrels during the past week, against expectations of only 0.3M barrels and a drop of 3.1M barrels the week before.
Concerns of political uncertainty in the US caused market turmoil last week, putting pressure on oil prices. Concerns that political instability may tip the country into recession, reducing oil demand, have sent oil prices plummeting. This week, markets will be digesting the news of the US mid-term elections outcome. The announcement that the ruling party will retain control of the Senate may have a stabilizing effect on dollar and oil prices.
Souring risk sentiment hit crypto markets hard last week, after the collapse of FTX. The FTX token faced liquidity issues, triggering a generalized crypto market sell-off. On Monday, Changpeng Zhao, the CEO of Binance, stated that the exchange will liquidate all the FTT holdings in its books. However, an agreement was reportedly reached later on Tuesday for Binance to acquire FTX and absorb its losses. Late on Wednesday, it was announced that Binance backed off from the deal on reviewing FTX’s books and on reports that the US Justice Department would investigate FTX. As it became known that the deal fell through, crypto markets posted heavy losses. On Friday, FTX CEO Sam Bankman-Fried resigned and the company declared bankruptcy. These recent developments have undermined confidence in the crypto industry, giving rise to concerns of a cascading crypto crisis.
Bitcoin price plummeted from $21,000 to $15,500 during the week, hitting its lowest price in two years. Bitcoin price started to recover during the weekend though, reaching $16,500. If BTC declines, support can be found at $15,000, while resistance may be encountered at the psychological level of $20,000 and higher up near $21,000.
Ethereum price also fell sharply, from $1,600 at the beginning of the week to $1,070 early on Thursday. Ethereum price rallied on Friday, trading around $1,250 over the weekend. If Ethereum's price declines, it may encounter support at $1,190 and further down at the psychological level of $1,000, while if it increases, resistance may be encountered near the psychological level of $1,500 and further up at $1,660.
Cryptocurrency prices are pushed down by aggressive rate hikes. As central banks raise interest rates, recession fears grow, reducing risk appetite. Market expectations of future Fed rate hikes were considerably trimmed after last week’s US inflation report though. Market odds are currently between a 50-bps and a 25-bps interest rate increase in December. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate.
Uncertainty over the US mid-term elections and renewed lockdowns in China have added further pressure on crypto markets. Risk sentiment improved on Thursday, after the US inflation print for October was lower than expected, diminishing global recession concerns.
Markets will be absorbing the news of the US mid-term elections outcome this week. The announcement that the ruling party will retain control of the Senate may have a stabilizing effect on markets over time, after last week’s turbulence.
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