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Weekly Market Outlook For November 7th To November 13th

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Written by:
Myrsini Giannouli

07 November 2022
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Important calendar events

  • November 7, EUR: German Industrial Production, Sentix Investor Confidence, Eurogroup Meetings
  • November 7, USD, Loan Officer Survey, Consumer Credit
  • November 8, JPY: Average Cash Earnings, Household Spending, BOJ Summary of Opinions, Leading Indicators
  • November 8, EUR: French Trade Balance, Italian Retail Sales, Eurozone Retail Sales
  • November 8, USD: NFIB Small Business Index, IBD/TIPP Economic Optimism, Congressional Elections
  • November 9, JPY: Bank Lending, Current Account, Economy Watchers Sentiment, 30-y Bond Auction
  • November 9, EUR: German 30-y Bond Auction, German 10-y Bond Auction
  • November 9, USD: Final Wholesale Inventories, Crude Oil Inventories, 10-y Bond Auction
  • November 10, JPY: M2 Money Stock, Preliminary Machine Tool Orders
  • November 10, EUR: ECB Economic Bulletin, EU Economic Forecasts, Italian Industrial Production
  • November 10, USD: Monthly CPI and Core CPI, Annual CPI, Unemployment Claims, Mortgage Delinquencies, Federal Budget Balance, FOMC Financial Stability Report
  • November 11, JPY: Core Machinery Orders, Annual PPI
  • November 11, GBP: Monthly GDP, Preliminary quarterly GDP, Construction Output, Goods Trade Balance, Index of Services, Industrial Production, Manufacturing Production, Preliminary Business Investment, NIESR GDP Estimate
  • November 11, EUR: German Final CPI, German WPI, ECOFIN Meetings
  • November 11, USD: Bank Holiday, Preliminary UoM Consumer Sentiment, Preliminary UoM Inflation Expectations, Treasury Currency Report

USD

The US Federal Reserve voted to increase interest rates by 75 basis points last Wednesday, bringing its benchmark interest rate in a range of 3.75% to 4.0%.

The dollar experienced heavy volatility last week, with the dollar index dropping to 110.6 ahead of the Fed policy meeting, then climbing above 113 mid-week before collapsing to 110.7 on Friday. The announcement of the Fed rate hike on Wednesday boosted the dollar, which continued to rise on expectations of future rate hikes. The dollar, however, has been trading in overbought territory and plummeted on Friday on weak jobs data, marking its worst daily drop in seven years. 

US Treasury yields were also volatile last week, starting the week low and then climbing after the outcome of the Fed meeting. The US 10-year bond was yielding close to 3.95% mid-week, but skyrocketed above 4.1% towards the end of the week, closing near 4.16% on Friday. The US 2-year bond yielded above 4.7% last week, representing its highest level since 2007.

The US Federal Reserve voted to increase interest rates by 75 basis points at its highly-anticipated monetary policy meeting on Wednesday. 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%. Wednesday’s rate hike of 75 bps was in line with expectations, however, and had already been priced in by markets. Several market participants were even expecting a bigger rate hike. As a result, the dollar plummeted following the interest rate announcement but recovered shortly afterward.

The FOMC Statement issued by the Fed contained a subtle change in forward guidance. The tone of Wednesday’s statement was more cautious than before, indicating that the Fed may be pondering slowing the pace of rate hikes. Market expectations are currently in favor of a 50-bps rate hike in December and a 25-bps hike in January. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate.

The FOMC Statement raised some doubts about whether the US central bank was already considering a pivot in its monetary policy. Fed Chair Jerome Powell re-affirmed the Fed’s commitment to bringing inflation down. At the press conference following the monetary policy meeting, Powell stated that it would be very premature to think about pausing rate hikes, saying that "we still have some ways to go." 

High-risk aversion sentiment has been prevalent throughout the year, increasing the safe-haven dollar’s appeal. At the same time, the Fed’s increase in interest rates is attracting investors who seek higher returns, boosting the dollar. 

Economic activity data last week for the US were overall mixed. Non-farm payrolls, released on Friday for October, exceeded expectations printing at 261K versus 197K expected, but were still lower than September’s 315K, pushing dollar price down. Average hourly earnings came in as expected at 4.7%, while the unemployment rate was higher than expected, climbing to 3.7% against 3.5% the previous month and 3.6% expected. ADP Non-Farm Employment Change rose to 239K in October from 192K in September, beating expectations of a drop to 178K, as employers hired more workers. 

JOLTS Job Openings exceeded expectations, rising to 10.72M in September, versus 10.28M in August and 9.75M expected. Construction Spending in September exceeded expectations, rising by 0.2%, against a contraction of 0.6% the previous month. ISM Manufacturing PMI in October was slightly higher than expected at 50.2 against the 50.0 predicted but was still lower than September’s reading of 50.9. 

US inflation rose by 0.4% every month in September, reaching 8.2% on an annual basis, dropping only slightly from last month’s 8.3%. Price pressures continue to increase in the US, putting extra strain on the Federal Reserve to continue with its policy of monetary tightening. Inflation rates have proved to be resistant to economic tightening and continue to rise. 

Several indicators of economic activity are scheduled to be released for the US and are expected to affect the dollar in the wake of last week’s Fed meeting. Monthly CPI and Core CPI, as well as Annual CPI data due on the 10th, are especially important, as US inflation data may determine the aggressiveness of the US central bank’s future rate hikes.

TRADE USD PAIRS

EUR 

Lagarde stated that the ECB will continue raising interest rates to bring inflation down to the central bank’s 2% target and would not be deterred even by a recession in the Eurozone.

The Euro continued trading below the parity level with the dollar last week, declining mid-week but gaining strength at the end of the week. EUR/USD dropped as low as 0.972 during the week, then pared the week’s losses on Friday, closing at 0.995. If the EUR/USD pair declines, it may find support near the 0.963 level and further down at the 0.953 level representing the 2002 low. If the currency pair goes up, it may encounter resistance at the parity level and higher up near 1.009.

The Euro exchange rate has been heavily influenced by the dollar’s surge in the past few months, as the US Federal Reserve continues to raise interest rates in an aggressive fight against inflation. The US Fed raised interest rates by 75 bps at its policy meeting last week, bringing its interest rate up to 4.0%. In its latest monetary policy meeting last week, 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. 

The ECB however, cannot match the Fed’s aggressively hawkish pace, as Eurozone economic outlook is poor, showing signs that the EU is entering a recession. ECB President Christine Lagarde highlighted the unique problems that have been plaguing the Eurozone economy in her speeches last week after the Fed monetary policy meeting. Lagarde stated that the ECB will continue raising interest rates to bring inflation down to the central bank’s 2% target and would not be deterred even by a recession in the Eurozone. She warned, however, that the EU cannot mirror the Fed’s rate hikes as the EU economy cannot withstand such aggressive tightening. 

Eurozone's economic outlook is poor, with analysts predicting stagnation later this year and in the first quarter of 2023, limiting the ECB’s ability to raise interest rates. 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 last week indicated that the ECB’s efforts to tackle inflation have not been successful so far. CPI Flash and Core CPI Flash data last week far exceeded expectations. 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. Core CPI, which excludes food and energy, was also up though, reaching 5.0% in October against expectations that it would remain at last month’s level of 4.8%. The ECB will need to continue its aggressive monetary tightening to tame soaring inflation rates.

Economic activity indicators released last week for the Euro were overall mixed, indicating that the Eurozone’s economic outlook remains unstable. Final Services PMI exceeded expectations, printing at 48.6 against the 48.2 expected. French, German, and Spanish service's PMI beat expectations for October, increasing considerably from September’s readings, although the Italian service's PMI was lower than expected. French, German, Spanish, and Italian manufacturing PMI data for October were lower than September’s data pointing to a contraction in the manufacturing sector. German trade balance for September exceeded expectations, however, rising to 3.7B from 1.2B in August and against the 1.5B expected. German import prices in September declined by 0.9% against a 4.3% increase in August. This is an indication that price pressures are going down in the EU’s leading economy and may point to cooling inflation in the coming months. 

Several economic activities and health indicators are scheduled to be released this week and may affect the Euro considerably. 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.

EURUSD 1hr chart

TRADE EUR PAIRS

GBP 

BOE Governor Andrew Bailey warned that the country is already in recession, which could point to a shift in the BOE’s priorities, from battling inflation to surviving recession.

The Sterling had a volatile week, collapsing after the Fed monetary policy meeting on Wednesday but recovering after the dollar plummeted on Friday. GBP/USD dropped to 1.115 in the wake of the BOE monetary policy meeting but rallied at the end of the week, closing near 1.133 on Friday. If the GBP/USD rate goes up, it may encounter resistance near 1.149 and higher up at 1.164, while support may be found near 1.125 and further down at the new all-time low of 1.035. 

The Fed increased interest rates by 75 bps last Wednesday, putting pressure on the Sterling. 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%. The BOE matched the Fed’s rate hike only a day later, bringing the total bank rate to 3.0%. BOE members voted unanimously to raise the official bank rate by 75 basis points to tackle soaring inflation in the UK. 

A 75-bps rate hike had already been priced in however and the Sterling plummeted after the conclusion of the BOE monetary policy meeting. BOE Governor Andrew Bailey’s speech after the end of the meeting was more dovish than anticipated, casting doubt on whether the BOE would continue its aggressive fiscal tightening. The BOE did not offer specific forward guidance, suggesting that future rate hikes may be softer than expected. Bailey warned that the country is already in recession, which could point to a shift in the BOE’s priorities, from battling inflation to surviving the recession. The BOE predicts that the recession could last for almost two years, with expansion not expected again till mid-2024.

The British economy is still struggling and policymakers will have to assess how much tightening it can withstand to bring inflation down. 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. 

On the data front, economic activity indicators released last week for the UK were overall mixed. Monthly HPI in October declined by 0.9% against predictions of a smaller decline of 0.4%. This is the earliest indicator of housing prices and a reduction in this indicator points to declining sector health and may signal the beginning of a property slump. Final Manufacturing PMI on the other hand was up to 46.2 in October from 45.8 in September, indicating an expansion in the Manufacturing sector. Construction PMI was up in October, rising to 53.2 from 52.3 in September, against expectations of 50.2.

The Sterling has also been weakened from a prolonged period of political instability. 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. 

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 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. 

The BOE has also announced a new round of bond buying. The British central bank will hold 8 bond sales Between November 1st and the end of the year, which will be evenly distributed across the short and medium-maturity sectors only in the 4th quarter of 2022. 

Important economic activity indicators are scheduled to be released this week on the 11th and primarily Monthly GDP and Preliminary quarterly GDP. The UK is in the grip of recession fears and the future financial outlook of the BOE is expected to depend heavily on the country’s GDP in the coming months.

GBPUSD 1hr chart

TRADE GBP PAIRS

JPY

According to BOJ meeting minutes, BOJ Governor Haruhiko Kuroda acknowledged the need to adjust the monetary policy in the future, if inflation consistently remains at the 2% target.

The USD/JPY rate rose at the beginning of last week but ended the week lower, near 146.6. If the USD/JPY pair falls, support might be found near 145 and further down at 143.5. If the pair climbs, it may find resistance at 149.5, further up at 151.9, and higher still at the 1990 high near 160.

Yen's price last week depended highly on the dollar. The highly-anticipated Fed meeting on Wednesday caused high volatility in dollar price, as FOMC members voted on another 75-bp rate hike. The dollar gained strength after the Fed meeting, but it had been trading in overbought territory and collapsed on weak US economic activity data on Friday. 

The release of the BOJ minutes of the latest monetary policy meeting also boosted the Yen last week. According to the meeting minutes, BOJ Governor Haruhiko Kuroda reiterated the need to maintain the bank’s dovish policy to support the country’s fragile economy. Kuroda however, acknowledged for the first time the need to adjust the monetary policy in the future, if inflation in Japan consistently remains at the 2% target.

The latest BOJ policy meeting held few surprises, since 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. 

The BOJ revised core CPI projections for 2022 to 2.9% from 2.3% previously, as recent inflation data in Japan exceeded expectations. The central bank also kept its 10-year Japanese Government Bond yield target at plus or minus 25 basis points around 0.00%. With the corresponding US bonds yielding above 4.0%, the difference in bond yields is putting pressure on the Yen. 

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. 

Economic data for Japan released last week were overall mixed, providing little support for the currency. Final Manufacturing PMI data released on Tuesday were in line with expectations and did not affect the currency significantly. Manufacturing PMI in October was 50.7, the same as in September and exactly as predicted, indicating that the manufacturing sector in Japan is stable. Retail sales in Japan for September showed a 1.1% increase against the 0.8% expected, with annual retail sales increasing by 4.5% versus the 4.1% forecasted. Preliminary industrial production for September showed a decline of 1.6% against the 0.8% expected, indicating increased contraction in this sector.

The USD/JPY rate is expected to hinge largely on the dollar’s movement this week, although market participants remain wary of further surprise interventions from the government of Japan. Several economic activities and health indicators are also due to be released this week for Japan and may affect the Yen's price.

USDJPY 1hr chart

TRADE JPY PAIRS

Gold 

Surging US treasury yields put pressure on gold prices last week, causing them to drop mid-week, but the dollar’s collapse at the end of the week buoyed gold prices.

Gold prices were volatile last week, depending primarily on USD price and US bond yields. Gold started the week off strong, trading near $1,650 per ounce, but plummeted after the highly-anticipated Fed meeting dropping to $1,617 per ounce. Towards the end of the week, gold prices skyrocketed, rising past the $1,674 per ounce resistance, and closing the week near $1,681 per ounce. If gold prices decline, support may be found near $1,616 per ounce and further down at the 2020 low near $1,441 per ounce. Resistance may be found at around $1,729 per ounce.

The dollar experienced heavy volatility last week, with the dollar index dropping to 110.6 ahead of the Fed policy meeting, then climbing above 113 mid-week before collapsing to 110.7 on Friday. The announcement of the Fed rate hike on Wednesday boosted the dollar, which continued to rise on expectations of future rate hikes. The dollar, however, has been trading in overbought territory and plummeted on Friday, marking its worst daily drop in seven years. 

US Treasury yields were also volatile last week, starting the week low and then climbing after the outcome of the Fed meeting. The US 10-year bond was yielding close to 3.95% mid-week but skyrocketed above 4.1% towards the end of the week, closing near 4.16% on Friday. The US 2-year bond yielded above 4.7% last week, representing its highest level since 2007. Surging US treasury yields put pressure on gold prices, which sagged mid-week. The dollar’s collapse at the end of the week though buoyed gold prices.

High-risk aversion sentiment has been prevalent throughout the year, increasing the safe-haven dollar’s appeal. At the same time, the Fed’s increase in interest rates is attracting investors who seek higher returns, boosting the dollar. 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 decided to increase its interest rate by 75 basis points at its monetary policy meeting on Wednesday. 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%. Wednesday’s rate hike of 75 bps was in line with expectations, however, and had already been priced in by markets. 

The FOMC Statement issued by the Fed contained a subtle change in forward guidance. The tone of Wednesday’s statement was more cautious than before, indicating that the Fed may be pondering slowing down the pace of rate hikes. Market expectations are currently in favor of a 50-bps rate hike in December and a 25-bps hike in January. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate.

XAUUSD 1hr chart

TRADE GOLD

Oil 

Reports that the Chinese government would ease Covid measures boosted oil prices last week on increased oil demand expectations.

Oil prices continued to rise last week, with WTI price climbing above $90.3 per barrel resistance, closing near $92.9 per barrel on Friday. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found at $93.4 per barrel. 

One of the determining factors of oil prices in the past few months has been the uncertainty governing oil demand from China. China is the world’s largest energy importer and concerns about renewed lockdowns are stifling oil demand. China’s zero-Covid policy has isolated the country and has dealt a heavy blow to its economy. Reports that the Chinese government would ease Covid measures boosted oil prices last week on increased oil demand expectations. In addition, manufacturing PMI data for China released on Tuesday exceeded expectations, raising hopes for the recovery of the country’s industry. Lower than-expected factory activity data in China renewed fears of declining oil demand on Monday however, helping check oil prices. 

Oil prices continued to rise even after the US Federal Reserve raised interest rates by 75 basis points, bringing its interest rate to 4.0%. Aggressive rate hikes stifle economic activity, undercutting oil demand. The Fed’s rate hike however fell within market expectations, failing to curb the ascent of oil prices.

The dollar’s collapse at the end of the week propelled oil prices higher. Weak US non-farm payroll data on Friday heightened the odds of cooling rate hikes in the future, boosting the oil demand outlook. In addition, US crude oil inventories dropped by 3.1M barrels last week, against a gain of 2.6M barrels the week before. The large drop in inventories far exceeded expectations of a more modest drop by 0.2M barrels, boosting oil prices.

Oil prices remain high ahead of the US midterm elections, causing a headache for the US government. US President Joe Biden warned oil companies to stop profiteering from the war between Russia and Ukraine. Major oil companies have posted record profits this year, which may induce the US government to impose a windfall tax on them.

The Biden administration has recently announced the release more of barrels from the US Strategic Petroleum Reserves, checking the ascend of oil prices. US President Joe Biden announced a plan to sell 15 million barrels from the SPR representing the latest tranche of the 180-million-barrel program. 

OPEC+ recently decided on a massive output cut of 2 million BPD starting in November. OPEC performed the largest reduction since 2020 in a bid to raise prices, led by Saudi Arabia and Russia. OPEC+ members strive to reclaim the $100 per barrel key level despite mounting global recession risks. 

WTI 1hr chart

TRADE WTI

Bitcoin and major Cryptocurrencies

Risk appetite was renewed, boosting crypto markets, after the release of disappointing US non-farm payroll data raised doubts on whether the Fed can continue its aggressively hawkish policy.

Stock markets and crypto markets fell heavily after the Federal Reserve performed another steep rate hike on Wednesday but rallied spectacularly at the end of last week. Stock markets and crypto markets have been experiencing a roller coaster ride, with prices seesawing, as risk sentiment turns from positive to negative almost daily. 

The US Federal Reserve hiked its interest rate by 75 basis points at its monetary policy meeting on Wednesday. As central banks raise their interest rates, moving towards an increasingly hawkish fiscal policy, recession fears grow, pushing risk appetite down. The Fed has so far increased interest rates by a total of 375 basis points this year, bringing its benchmark interest rate to 4.0%. Wednesday’s rate hike of 75 bps was in line with expectations, however, and had already been priced in by markets. 

Risk appetite was renewed at the end of the week after the release of US non-farm payroll data. Friday’s US labor data were overall disappointing, raising doubts on whether the Fed can continue its aggressively hawkish policy. Reduced rate hike expectations increased risk-on sentiment, boosting crypto markets. Market expectations are currently in favor of a 50-bps rate hike in December and a 25-bps hike in January. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate.

Bitcoin continued trading above the key $20,000 level last week, breaking through the $21,000 level resistance on Friday and trading around $21,300 over the weekend. If BTC declines, support can be found at the psychological level of $20,000 and further down at $18,200, while resistance may be encountered near $21,800. 

Ethereum price traded above $1,500 last week, touching the $1,660 resistance level on Friday before dropping to $1,610 over the weekend. If Ethereum's price declines, it may encounter support at $1,480 and further down at $1,190, while if it increases, resistance may be encountered near $1,660 and further up at $1,780.

BTC/USD 1h Chart

BTCUSD 1hr chart

 

ETH/USD 1h Chart

ETHUSD 1hr chart

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

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