Important calendar events
The dollar has had a volatile week, starting the week strong, then falling mid-week but rallying towards the end of the week, as the dollar index climbed back up above 112.7. US Treasury yields followed a similar pattern, with the US 10-year bond yielding above 3.8% by the end of the week.
US employment data released on Friday were optimistic indicating healthy job growth. Unemployment rates in September went down to 3.5% compared to 3.7% in August and Average hourly earnings rose 0.3% every month. Non-Farm Employment Changes were also higher than expected. The U.S. economy added 263K workers in September versus expectations of a gain of 248K payrolls, although it was less than August’s 315K gain. The dollar rose on positive US employment data, as they increase the likelihood that the Fed will maintain its aggressively tight fiscal policy.
ISM Services PMI data for September were released on Wednesday for the US, which are strong indicators of economic health. These exceeded expectations reaching 56.7 this month against the 56.0 expected but were still lower than August’s, which was at 56.9. ADP Non-Farm Employment Change data for September were also higher than expected, rising to 208K from 185K the previous month. Unemployment claims released on Thursday however were disappointing for the US economy, climbing to 219K, compared to the previous reading of 190K.
US economic data released on Tuesday were disappointing, pushing the dollar down. JOLTS Job Openings fell to 10.5M in August, compared to 11.17M the previous month and 11.07 projected, indicating that the labor market may be cooling. The ISM Manufacturing PMI Index, which is a leading indicator of economic health, fell short of expectations, dropping to 50.9, compared to 52.5 expected and 52.8 the previous month. Construction spending in August fell by 0.7%, against a 0.6% drop in July and only a 0.1% drop predicted.
Hawkish Fed rhetoric propelled the dollar to fresh 20-year highs last week on expectations of steep rate hikes. The dollar had been trading in overbought territory and has been suffering a correction, despite continued hawkish Fed rhetoric this week. Fed’s Jefferson stressed on Tuesday that inflation remains the central banks’ most serious problem and warned it may take some time to control. Similarly, FOMC member Loretta Mester stated on Thursday that the Fed must remain “singularly focused on inflation”. Fed’s Waller also delivered a hawkish speech on Thursday, indicating that the US Central Bank should not lower the pace of rate hikes until US inflation drops closer to the Fed’s target.
US inflation does not show signs of cooling at the expected rate, despite the Fed’s efforts. Core PCE Price Index, the Fed’s favorite inflation gauge, increased 0.6% month-on-month in August, compared to a forecast of 0.5%, with the annual reading climbing to 4.9%. Inflation in the US remains high, putting pressure on the Fed to maintain its hawkish stance. Odds of another steep rate hike at the Fed’s next policy meeting in November increased, providing support for the dollar.
The US Federal Reserve has recently voted to raise its interest rate by 75 basis points to curb soaring US inflation rates. The US Central Bank has increased interest rates by a total of 300 basis points this year, bringing its benchmark interest rate from 2.50% to 3.25%.
Several important indicators are scheduled to be released this week for the US. Monthly PPI and Core PPI data on the 12th are strong inflation indicators and may affect the dollar. The Minutes of the latest Fed meeting are due on the same day. On the 13th, the release of Monthly CPI and Core CPI, as well as Annual CPI data is highly anticipated. These are key inflation indicators and are likely to affect the dollar. Retail Sales and Consumer Sentiment data on the 14th may also cause some volatility in dollar price.
The Euro was volatile last week, gaining strength against the dollar mid-week, but paring its gains towards the end of the week. The EUR/USD pair traded below the parity level last week, almost touching parity on Tuesday, but dropping to 0.973 on Friday. If the EUR/USD pair declines, it may find support near the 0.961 level and further down at the 0.845 level representing the 2002 low. If the currency pair goes up, it may encounter resistance at 1.005 and further up at 1.019.
Weak EU economic data last week, drove the currency down. German Industrial Production and Retail Sales, French Trade Balance, and Italian Retail Sales, all fell below expectations. The EU economic outlook remains poor and especially Germany, the Eurozone’s largest economy, appears to be fragile.
German factory orders for August were released on Thursday and they fell considerably below expectations, showing a decline of 2.4%, compared to a rise of 1.9$ the previous month. Spanish, Italian, French, and German Services PMI, as well as EU Final Services PMI data for September were released on Wednesday. Overall, the data were disappointing, showing a decline from August’s readings.
Final Manufacturing PMI data were released on Monday, for some of the Eurozone’s leading economies and the EU as a whole. These were mostly in line with expectations and were overall disappointing especially Germany’s data, as the EU economic outlook does not seem to be improving.
The ECB Monetary Policy Meeting Accounts were released on Thursday, reinforcing expectations of a large rate hike at future meetings. EU policymakers expressed concern for “self-reinforcing” inflation, as fiscal packages and a declining Euro increase price pressures. Meanwhile, Germany is pursuing a 200bn Euro borrowing package to help its economy against the energy crisis, raising concerns in other EU countries. ECB President Christine Lagarde delivered a hawkish speech on Tuesday, pointing to further rate hikes ahead to combat inflation. Lagarde stated that the European Central Bank must at a "minimum" stop stimulating the economy through its monetary policy.
Eurozone inflation is on the rise, intensifying the EU’s economic crisis. Eurozone inflation reached double digits in September, climbing to 10% on an annual basis, compared to 9.1% in August, beating estimates of 9.7%. Inflation in the EU is expected to rise even further in the following months driven by the high cost of energy in the Eurozone. Increased price pressures are forcing the ECB to take swift action to tackle inflation. In addition, Europe is facing an energy crisis driven by the EU’s dependency on Russian energy. High energy costs in the Eurozone are driving the Euro down, while inflationary pressures mount.
Soaring EU inflation rates and hawkish ECB rhetoric increase the odds of a 75-bp rate hike at the Bank’s next meeting in October. The Euro has been pushed down by the gap in interest rates with the US. The US Federal Reserve recently voted to raise its interest rate by 75 basis points, bringing its benchmark interest rate to 3.25%. In its latest monetary policy meeting, the ECB raised its benchmark interest rate by 75 basis points as well, but its interest rate is still only 0.75%, putting pressure on the Euro.
Minor indicators of economic activity are due to be released this week for the Eurozone and may affect the Euro.
The Sterling gained strength against the dollar mid-week but pared its gains by the end of the week. GBP/USD rose as high as 1.150 last week but fell back to 1.109 on Friday. If the GBP/USD rate goes up, it may encounter resistance near 1.146 and higher up at 1.173, while support may be found at the new all-time low of 1.035.
UK Final Services PMI data for September released on Wednesday exceeded expectations, reaching 50.0, compared to 49.2 the previous month. Construction PMI data on Thursday were also higher than expected, climbing to 52.3 in September from 49.2 in August.
The announcement of the new government’s first ‘mini-budget’ drove the pound to an all-time low. British Chancellor, Kwasi Kwarteng, announced a preliminary budget including substantial tax cuts and energy subsidies. The announcement of the budget was met with skepticism by markets, and the Sterling tumbled. The budget included major tax cuts, which the British government would fund through borrowing at a time when the country is facing a debt crisis.
British Prime Minister Liz Truss defended the budget initially, and the new Government received heavy criticism for some parts of the plan. Last week, however, the British Government made a U-turn, scraping some of the most controversial parts of the mini-budget. The heavy tax cuts originally planned, would primarily benefit the highest earners in a time of heightened economic pressure on British households. The announcement of the decision to reverse the tax cuts has propped up the Sterling.
The BOE had to resort to a new bond-buying program, to restore order to markets. The BOE aimed to stem the sell-off in the UK gilt market by buying long-dated gilts, which have been strongly affected by repricing.
Recession concerns are weighing the currency down. The BOE has warned that recession is expected to hit the UK in the fourth quarter of this year, and is forecasted to last for five quarters, until the end of 2024 with GDP falling to 2.1%.
The Bank of England raised its interest rate by 50 bps in its latest meeting, bringing the total interest rate to 2.25%. The BOE continues to tighten its monetary policy to bring inflation under control, although annual inflation in August dropped to 9.9% from 10.1% in July. The BOE has adopted a moderate stance, trying to strike a balance between battling inflation and supporting the sluggish economy. In contrast, the Fed is ramping up efforts to combat US inflation by raising its interest rate by 75 basis points.
Important indicators of economic health and activity are scheduled to be released this week for the Sterling. The monthly GDP data due on the 12th are anxiously awaited, as they may show whether the UK is already entering a recession. MPC members’ speeches, and especially BOE Governors’ speeches on the 11th and the 15th may also affect the Sterling.
The Yen gained some reprieve early last week, but resumed its descent later in the week, with the USD/JPY pair crossing the 145 thresholds later in the week. The USD/JPY pair went above the 145-level resistance on Friday, closing at 145.3. If the USD/JPY pair falls, support might be found near 141.5 and further down at 138.0. If the pair climbs, it may find further resistance higher up at the 1998 high of 147.7.
As the dollar rallied late last week, the USD/JPY found itself at the 145 level again, which seems to represent a line in the sand, as the Japanese government rushes to intervene when the currency pair crosses this level. The Japanese government intervened last month to stem the Yen's weakness after the currency pair threatened to cross that level. The Japanese Ministry of Finance intervened in the Foreign Exchange market for the first time since 1998, buying Yen for dollars. On Monday, Japanese Finance Minister Shunichi Suzuki stated that Japan is ready to take action to stabilize the exchange rate. The news propped up the Yen which had crossed the 145 level against the dollar early on Monday.
On the other hand, the BOJ is unlikely to reverse its dovish policy to aid the struggling Yen. On Thursday, Bank of Japan Governor Haruhiko Kuroda stressed that recent cost-push inflation must be accompanied by higher wage growth for the central bank to consider tweaking its ultra-easy policy.
The Tokyo Core CPI for September released on Tuesday was at 2.8%, which was in line with expectations and higher than the previous month’s 2.6%. Inflation in Japan continues to increase past the BOJ’s 2% target, burdening households.
Economic activity indicators released last week for Japan were mixed. Annual Average Cash earnings released on Friday for August were higher than expected, rising by 1.7% versus 1.3% the previous month. Annual Household Spending rose by 5.1% in August compared to 3.4% in July but was still lower than the projected 6.8%.
The Tankan Manufacturing Index released on Monday, which is a leading indicator of economic health, fell short of expectations, but the Tankan non-Manufacturing Index, which measures activity in other sectors, exceeded expectations. Final Manufacturing PMI data in September dropped slightly to 50.8 from 51.0 in August.
In its latest monetary policy meeting, 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 puts the Yen at a disadvantage, driving its price down. The US Federal Reserve voted to raise its interest rate by 75 basis points last week and the wide difference in interest rates is putting pressure on the Yen.
Several minor economic indicators are scheduled to be released this week for Japan, but these are not expected to have a significant impact on the Yen.
Gold prices seesawed last week, affected by overall market volatility. Gold rose sharply early in the week peaking at $1,729 per ounce, but struggled to hold on to its gains later in the week, finally closing at $1,694 per ounce on Friday. If gold prices decline, support may be found at $1,681 per ounce and further down at the 2020 low near $1,441 per ounce. Resistance may be found around 1,735 per ounce and higher up at $1,765 per ounce.
The dollar has also had a volatile week, affecting gold prices. The USD started the week strong, but it had been trading in overbought territory and dropped mid-week, boosting gold prices. The dollar rallied towards the end of the week, however, and the dollar index climbed back up above 112.7 on Friday, putting pressure on competing assets, such as gold. US Treasury yields followed a similar pattern, with the US 10-year bond yielding above 3.8% by the end of the week.
Market sentiment has been uncertain in the past few weeks, causing volatility in the gold price. Renewed risk sentiment this week has driven the dollar down. Fed rate hike bets had cooled during the week, driving the dollar down and boosting gold prices. Continued hawkish Fed rhetoric, however, has rekindled expectations of sharp rate hikes, boosting dollar prices again. Robust US jobs data on Friday also increased Fed rate hike bets, threatening to drive gold prices down.
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. In its latest monetary policy meeting, the US Fed raised its interest rate by 75 basis points. Rampant US inflation has raised expectations for another steep rate hike at the Fed’s next policy meeting in November, putting pressure on gold prices.
Oil prices rose to five-week highs on Friday, as markets digested the news of OPEC’s output cuts on Wednesday. Crude oil is up 17% from the September low and WTI has marked its largest weekly gain since March. WTI price climbed above the $90.5 per barrel resistance, reaching the $93.3 per barrel level. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found at the $90.5 per barrel level.
OPEC+ met on Wednesday to discuss production levels amid a global energy crisis. The cartel 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. Despite mounting global recession risks, OPEC+ members strive to reclaim the $100 per barrel key level. Oil prices have been rising since OPEC’s unexpected decision, and many analysts predict that oil prices will climb back above $100 per barrel before the end of the year.
The US and the EU have been striving to convince the Saudis to increase oil output, provide some relief to the energy crisis, and deprive Russia of its huge earnings from oil exports. OPEC however seems to have turned its back on the West. The White House released a statement following OPEC’s decision, indicating disappointment in the “shortsighted decision… to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine.” US President Joe Biden hasn’t ruled out drawing down from the strategic petroleum reserves in an attempt to tame rising oil prices.
OPEC is determined to keep oil prices high, which have declined by as much as 25% since June. The slowing global economy and recession fears are undercutting oil demand and pushing oil prices down. High oil prices may push fragile economies into recession even faster though, creating a vicious cycle. In addition, oil prices are driven down by the shift of most major Central Banks towards a tighter monetary policy. Aggressive rate hikes stifle economic activity, fuelling recession fears and pushing oil prices down.
Oil prices are also supported by fears of further escalation in the Ukraine crisis. Russian President Vladimir Putin has renewed threats to halt all energy exports after western allies agreed to impose a cap on Russian oil prices. In addition, the energy crisis in Europe intensifies, as there were leaks in three major Russian gas pipelines, raising suspicions of sabotage. The cap on Russian oil prices is to be enforced soon and will provide further support to oil prices.
Oil demand is on the rise, as China, the world’s largest energy importer, is ending lockdowns. The start of the winter season will also signal a rise in oil demand boosting oil prices.
Stock markets were volatile last week, causing volatility in crypto markets. Stocks waver as market sentiment remains uncertain. Crypto bulls seemed to be gaining ground at the beginning of the week, as the rivaling dollar plummeted. Towards the end of the week though, a risk-off appetite prevailed in markets, favoring the dollar and putting pressure on cryptocurrencies.
An increasing number of Central Banks are tightening their monetary policy to combat soaring inflation. Successive rate hikes and tighter fiscal policies give rise to global recession concerns. Last week, cryptocurrencies struggled to hold on to their gains, as recession concerns intensified, diminishing risk appetite.
Bitcoin price struggled to hold on to the key $20,000 level last week, dropping to $19,400 over the weekend. If BTC declines support can be found at $18,500 and further down at $17,600, while resistance may be encountered near $19,700.
Bitcoin has been in a bear market almost continuously since last November, with its price registering a steep drop from an all-time high of over $68,000 in November 2021, to below $20,000 this month. Bitcoin ended the month with 3% losses. October however, has traditionally been a good month for cryptocurrency, giving hope for the bulls to push on.
Ethereum traded sideways last week, fluctuating around the $1,330 level. If Ethereum's price declines, it may encounter support at $1,255 and further down at the psychological level of $1,000. If Ethereum's price increases, resistance may be encountered near $1,407.
BTC/USD 1h chart
ETH/USD 1h chart
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