Important calendar events
The dollar experienced high volatility last week, with the dollar index ranging from 112.2 to 113.8. US Treasury yields also experienced volatility, with the US 10-year bond yield starting the week above 3.8% and ending above 4.0%.
Robust US economic data boosted the dollar on Friday. Core retail sales, which exclude automobiles, rose by 0.1% in September, compared to a 0.1% drop in August. Retail sales on the other hand remained the same, after rising by 0.4% the previous month. Preliminary UoM Consumer Sentiment climbed to 59.8, exceeding expectations, and rising above the previous reading of 58.6.
US inflation rose by 0.4% every month in September according to Thursday’s CPI data. Annual inflation reached 8.2%, dropping only slightly from last month’s 8.3%. Even though annual inflation decreased, it exceeded expectations that it would drop to 8.1% in September. Core CPI, which excludes food and energy, rose by 0.6% in September exceeding forecasts.
The release of the CPI report brought market volatility, with the US dollar and gilds shooting upwards immediately after, and stocks plummeting. Increased price pressures boosted the dollar and increased risk aversion sentiment, as rising inflation increases the odds of another steep Fed rate hike. The tide turned soon afterward though, as many market participants were anticipating high inflation data and the results had largely been priced in.
Core PPI, which excludes food and energy was in line with expectations on Wednesday, increasing by 0.3%, which was lower than August’s 0.4% increase. Monthly PPI exceeded expectations, rising by 0.4%, versus the 0.2% predicted, which represents a significant increase compared to the previous month’s drop of 0.1%.
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. In addition, September’s data represent a period with lower fuel prices than previous months, which should have led to lower inflation rates.
So far, 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.
Global recession concerns are causing high market volatility ahead of the US inflation data on Thursday. Sharp rate hikes and continuous fiscal tightening run the risk of tipping some of the world’s leading economies into recession. World Bank President David Malpass and International Monetary Fund Managing Director Kristalina Georgieva warned last week of a growing risk of global recession while stressing the need to bring inflation under control.
In the past few weeks, Hawkish Fed rhetoric has been increasing the odds of a steep rate hike at the Fed’s next monetary policy meeting. FOMC member Loretta Mester stated on Tuesday that US inflation is unacceptably high and persistent and that the Fed’s goal for next year is to bring it down to 3.5%. On Monday, FOMC member Charles Evans stated there was a strong consensus at the Fed to raise its interest rate to around 4.5% by March and hold it there until inflation was under control. Fed Reserve Vice Chair Lael Brainard also emphasized the central bank’s priority to fight the highest inflation in 40 years and stressed the risks of easing fiscal tightening prematurely.
The US Federal Reserve 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 economic activity indicators are scheduled to be released this week for the US, which may affect the dollar. FOMC members’ speeches are expected to have an additional impact on dollar prices this week, after the release of the US inflation data last week.
The Euro traded sideways against the dollar last week, exhibiting high volatility mid-week after the release of the US inflation data and the EUR/USD pair fluctuated around the 0.972 level. If the EUR/USD pair declines, it may find support near the 0.953 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.
The release of the CPI report brought market volatility as many market participants were anticipating high inflation data and the results had largely been priced in. US inflation exceeded expectations in September, putting extra strain on the Federal Reserve to continue with its policy of monetary tightening.
Eurozone inflation also peaked in September, climbing to 10% on an annual basis, compared to 9.1% in August. 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.
Last week, ECB rhetoric remained hawkish, with European Central Bank Vice-President Luis de Guindos stating on Friday that the ECB is prepared for a possible technical recession to bring down inflation. ECB President Christine Lagarde also delivered a hawkish speech on Wednesday, stressing that interest rate increases are the ECB’s best tool to rein in inflation.
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.
On the data front, trade balance data released on Friday showed that the Eurozone posted its largest trade deficit in August since 2015, as high energy prices boosted its import bill. The deficit in trade balance runs to 47.3B, increasing significantly from the previous month’s 40.5B. German inflation data released on Thursday for September fell within expectations at 1.9%, which was unchanged from last month’s print. German inflation remains at 10% on an annual basis, while Eurozone inflation is on the rise, intensifying the EU’s economic crisis.
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. The ongoing geopolitical crisis is putting pressure on Eurozone economies resulting in pressure on the Euro.
Several indicators of economic activity are due to be released this week for the Eurozone and may affect the Euro. Especially important are the Final Annual CPI and Core CPI data due on the 19th, which may affect the ECB’s future monetary policy.
The Sterling traded sideways against the dollar last week, with the GBP/USD rate closing near the 1.117 level on Friday. If the GBP/USD rate goes up, it may encounter resistance near 1.149 and higher up at 1.173, while support may be found at the new all-time low of 1.035.
The Sterling has been declining for the past couple of weeks, as the announcement of the first ‘mini-budget’ brought the market’s distrust of the new British government, driving the pound to an all-time low. The budget included major tax cuts, which would primarily benefit the highest earners in a time of heightened economic pressure on British households. Last week, however, the British Government made a U-turn, scraping some of the most controversial parts of the mini-budget, and boosting the Sterling.
The Sterling has been declining for the past couple of weeks, as the announcement of the first ‘mini-budget’ brought the market’s distrust of the new British government, driving the pound to an all-time low. British Chancellor, Kwasi Kwarteng, announced a preliminary budget including substantial tax cuts and energy subsidies. The budget included major tax cuts, which would primarily benefit the highest earners in a time of heightened economic pressure on British households.
The new British government seems to be off to a rocky start. Karen faced a barrage of criticism at the IMF Annual Meetings last week and resigned, after only six weeks in office. Jeremy Hunt has been named the New Chancellor of the Exchequer and the British Government has made a U-turn, scraping some of the most controversial parts of the mini-budget. PM Truss held a press conference on Friday, announcing that she will follow through with the previous government’s plan of raising corporate taxes to 25%.
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.
The Bank of England announced on Monday that it would increase its gilt market purchase program from a daily maximum limit of GBP5 billion to GBP10 billion for the rest of the week. The BOE had recently announced its bond-buying program, aiming to stem the sell-off in the UK gilt market by buying long-dated gilts, which have been strongly affected by repricing. On Monday, the BoE increased market liquidity ahead of the end of the gilt buying program on Friday. The BOE has re-affirmed its commitment to end its emergency bond-buying program as scheduled on Friday, although reports indicate that the program may continue a while longer, creating market uncertainty.
Economic activity indicators released on Wednesday for the UK were disappointing for the state of the British economy. Monthly GDP data showed that Britain’s economy unexpectedly shrank by 0.3% in August, which represents a considerable decrease compared to the previous month’s economic expansion of 0.1%. The GDP data fell short of market expectations, with projections showing neither economic expansion nor contraction for August. In addition, industrial and manufacturing data for August missed expectations by a wide margin, indicating that the UK’s economic outlook remains grim. Recession concerns are weighing the currency down, as 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%.
UK Employment data released on Tuesday were robust, with the unemployment rate for August dropping to 3.5% compared to 3.6% the previous month. Average earnings of British workers for the past 3 months went up by 6.0%, compared to 5.9% during the same period last year. The number of claimants for unemployment in the UK however, went up to 25.5K in September from only 1.1K in August.
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.
Several indicators of economic activity are due to be released this week for the UK and may affect the Sterling. Especially important are the Final Annual CPI and Core CPI data due on the 19th, which may affect the BOE’s future monetary policy.
The Yen continued to decline against the dollar last week and the USD/JPY pair reached a new 24-year high. The currency pair breached the resistance at the 147.7 level representing 1998 high, and almost touched the 149 level. If the USD/JPY pair falls, support might be found near 143.5 and further down at 141.5. If the pair climbs, it may find further resistance higher up at the 1990 high near 160.
The release of the US CPI data brought volatility in dollar prices last week, with the USD gaining strength first and then plummeting. The Yen continued to decline even after the dollar lost strength though. The USD/JPY has been trading above the 145 level since last week. This level seems to represent a line in the sand, as the Japanese government rushed to intervene when the currency pair threatened to cross this level in September and back in 1998.
The Japanese Ministry of Finance intervened last month in the Foreign Exchange market for the first time since 1998, buying Yen for dollars. It remains to be seen whether Japan will continue to defend the 145 level in the following days, although the government of Japan cannot sustain such a plan indefinitely. A Japanese government representative stated in a press conference on Tuesday that they will continue to monitor the FX market closely and take appropriate responses against excessive moves, hinting at another intervention.
On the other hand, the BOJ is unlikely to reverse its dovish policy to aid the struggling Yen. 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.
Gold prices exhibited high volatility last week, gaining strength at the beginning of the week but plummeting towards the end of the week, closing near $1,643 per ounce on Friday. If gold prices decline, support may be found near $1,614 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 experienced high volatility last week, affecting gold prices, with the dollar index ranging from 112.2 at the beginning of the week, to 113.8 towards the end of the week. US Treasury yields also experienced volatility, with the US 10-year bond yield starting the week above 3.8% and ending above 4.0%.
US inflation rose by 0.4% every month in September and annual inflation reached 8.2%, dropping only slightly from last month’s 8.3%. The release of the CPI report brought market volatility, with the US dollar and gilds shooting upwards immediately after, and stocks plummeting. Increased price pressures boosted the dollar and increased risk aversion sentiment, as rising inflation increases the odds of another steep Fed rate hike. The tide turned soon afterward though, as many market participants were anticipating high inflation data and the results had largely been priced in. Gold prices mirrored those of the dollar, falling heavily as the dollar rallied after the release of the US inflation data.
Price pressures in the US continue to increase, putting extra strain on the Federal Reserve to continue with its policy of monetary tightening. Sharp rate hikes and continuous fiscal tightening run the risk of tipping some of the world’s leading economies into recession. World Bank President David Malpass and International Monetary Fund Managing Director Kristalina Georgieva warned last week of a growing risk of global recession while stressing the need to bring inflation under control.
Continued hawkish Fed rhetoric has rekindled expectations of sharp rate hikes, boosting dollar prices at the expense of competing assets, such as gold. 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 slipped last week, as recession concerns trumped oil production cuts. WTI's price dropped from $93 per barrel at the start of the week to almost $85 per barrel towards the end of the week. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found at the $93.7 per barrel level.
Global recession fears outweighed tight supply concerns last week, as markets had time to digest OPEC’s recent output cut. Increasingly hawkish Fed rhetoric promoted a risk aversion sentiment, boosting the dollar and putting pressure on oil prices. Aggressive rate hikes stifle economic activity, undercutting oil demand, and pushing oil prices down. World Bank President David Malpass and International Monetary Fund Managing Director Kristalina Georgieva warned last week of a growing risk of global recession while stressing the need to bring inflation under control.
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. The US and the EU have been striving to convince the Saudis to increase oil output and provide some relief to the energy crisis and also to deprive Russia of its huge earnings from oil exports. OPEC however seems to have turned its back on the West. US President Joe Biden hasn’t ruled out drawing down from the strategic petroleum reserves in an attempt to tame rising oil prices.
A recent flare-up of Covid cases in China has forced the local authorities to ramp up anti-Covid measures providing support for oil prices. China is the world’s largest energy importer and concerns of renewed lockdowns are reducing oil demand, putting pressure on oil prices.
Unexpectedly low diesel stocks released on Thursday, boosted oil prices, as distillate stockpiles fell by 4.9 million barrels. Tight supplies boost oil prices ahead of the winter season.
Oil prices are also supported by the recent escalation in the Ukraine crisis with a series of Russian missile attacks against Ukrainian cities. U.S. President Joe Biden spoke with Ukrainian President Volodymyr Zelensky last week condemning the latest attacks, while G-7 leaders vowed to help Ukraine for ‘as long as it takes.
Crypto markets exhibited high volatility as risk sentiment remained unstable 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 release of the CPI report on Thursday brought high market volatility, with the US dollar and gilds shooting upwards immediately after, and stocks plummeting. The tide turned soon afterward though, as many market participants were anticipating high inflation data and the results had largely been priced in. Stock markets and crypto markets, which had been slipping ahead of the US inflation data, rallied in late-day trading on Thursday.
US inflation rose by 0.4% every month in September according to last week’s CPI data. Annual inflation reached 8.2%, dropping only slightly from last month’s 8.3%. Soaring inflation is putting pressure on the Fed to continue raising interest rates. 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. Cryptocurrency prices slipped towards the end of last week, as recession concerns fueled a risk aversion sentiment.
Bitcoin traded below the key $20,000 level all week, dropping to $19,100 during the weekend. If BTC declines, support can be found at $18,200, while resistance may be encountered near $19,800.
Ethereum price dropped below $1,300 towards the end of the week, trading below this level during the weekend. If Ethereum's price declines, it may encounter support at $1,190 and further down at the psychological level of $1,000. If Ethereum's price increases, resistance may be encountered near $1,400.
BTC/USD 1h chart
ETH/USD 1h Chart
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