Choose country & language:

Weekly Market Outlook For October 24th To October 30th

Home >  Weekly Outlook >  Weekly Market Outlook For October 24th To October 30th

Written by:
Myrsini Giannouli

24 October 2022
Share the article

Forex

Important calendar events

  • October 24, JPY: Flash Manufacturing PMI
  • October 24, EUR: French, German and Eurozone Flash Services PMI, French, German and Eurozone Flash Manufacturing PMI 
  • October 24, GBP: UK Flash Services PMI, Flash Manufacturing PMI
  • October 24, USD: US Flash Services PMI, Flash Manufacturing PMI, Treasury Secretary Yellen Speech
  • October 25, JPY: Annual BOJ Core CPI
  • October 25, EUR: German Import Prices, German IFO Business Climate, Belgian NBB Business Climate
  • October 25, USD: CB Consumer Confidence, Richmond Manufacturing Index
  • October 26, EUR: German Retail Sales, M3 Money Supply, Private Loans
  • October 26, USD: Goods Trade Balance, Preliminary Wholesale Inventories, New Home Sales
  • October 27, EUR: Main Refinancing Rate, Monetary Policy Statement, ECB Press Conference
  • October 27, USD: Advance GDP, Advance GDP Price Index, Core Durable Goods Orders, Durable Goods Orders, Unemployment Claims
  • October 28, JPY: Tokyo Core CPI, Unemployment Rate, BOJ Outlook Report, Monetary Policy Statement, BOJ Press Conference, BOJ Policy Rate
  • October 28, EUR: French, Spanish, Italian, and German Preliminary CPI
  • October 28, USD: Core PCE Price Index, Employment Cost Index, Personal Income, Personal Spending, Pending Home Sales, Revised UoM Consumer Sentiment, Revised UoM Inflation Expectations

USD

US Treasury yields soared, with the US 10-year bond yield climbing above 4.3%, its highest level since June 2008, and the two-year yield surging above 4.6%, its highest level since August 2007.

The dollar was volatile last week, with the dollar index seesawing between 112 and 114. Dollar bulls and bears battled last week, causing the currency to fluctuate without a clear direction. The dollar price toppled on Friday though and the dollar index ended the week near 111.9. US Treasury yields soared, with the US 10-year bond yield climbing above 4.3%, its highest level since June 2008. The two-year yield, a more direct indicator of rate expectations, surged above 4.6%, its highest level since August 2007.

Political developments in the UK, rising inflation in Europe and the UK, as well as a currency intervention in Japan, caused high fluctuations in dollar prices last week. The dollar trimmed gains on Friday, amid reports that the Fed may be considering a lower-than-anticipated rate hike in November. The dollar’s upwards trajectory is supported by firm economic parameters though and the currency tends to bounce back. High-risk aversion sentiment has been prevalent throughout the year and is increasing the safe-haven dollar’s appeal. 

At the same time, the Fed’s interest rate increase is attracting investors seeking higher returns, boosting the dollar. The US Central Bank has increased interest rates by a total of 300 basis points this year, bringing its benchmark interest rate to 3.25%. Another 75-bps rate hike is expected at the Fed’s next monetary policy meeting in November and has already been largely priced in by markets.

Fed rhetoric remains mostly hawkish. On Friday, FOMC member James Bullard emphasized that interest rates need to be hiked until there is significant downward pressure on inflation. Fed’s Dally on the other hand was more dovish, saying that although another 75bp rate hike was probable, increases in interest rates need tapering off at some point. Fed’s Cook stressed on Thursday that inflation remains stubbornly and unacceptably high and that further rate increases would be necessary to bring inflation down. Fed’s Harker spoke along the same lines, admitting that little progress has been made in lowering inflation and hinting that the Fed may increase interest rates to well above 4% by the year’s end, then stop hiking rates sometime in 2023 and assess the impact. On Wednesday, FOMC member James Bullard pointed to an aggressive rate hike at the Fed’s November meeting, stating that the Fed should follow through with anticipated rate hikes, but he expects the aggressive hikes to end by early 2023. FOMC policymakers Esther George and Mary Daly commented over the weekend that the US Central Bank may need to step up its rate hikes to combat soaring inflation. 

On the data front, the Philly Fed Manufacturing Index, which is a leading indicator of economic health, was lower than anticipated, putting pressure on the dollar on Thursday. US Unemployment Claims, on the other hand, was more optimistic than anticipated, dropping to 214K from 226K last week. The US Empire State Manufacturing Index released on Monday was particularly disappointing for the state of the US economy, putting pressure on the dollar. The index reached -9.1, against the previous month’s reading of -1.5 and predictions of -4.5. A negative value shows declining economic health conditions.

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%. 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. 

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. 

This week, US Flash Services and manufacturing PMI data are due on the 24th, leading economic health indicators. Advance GDP data on the 27th are also likely to affect the currency by providing information on the US economic outlook. Core PCE Price Index on the 28th is the Federal Reserve's primary inflation measure and is likely to affect the currency.

No FOMC members’ comments are expected this week, as a black-out period started on Saturday, preventing further comments until the central bank’s next policy meeting in November.

TRADE USD PAIRS

EUR 

Markets will be awaiting the Central Bank’s response to soaring inflation rates in the Eurozone, which cooled only to 9.9% year to year in September.

The Euro exhibited high volatility last week, with the EUR/USD pair remaining rangebound between 0.972 and 0.987. The currency pair fluctuated wildly within this range throughout the week though, as markets responded to the many unexpected events of the week. 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 further up at 1.019.

Eurozone inflation seems to be cooling, albeit at a glacial pace. EU inflation in September dropped to 9.9% on an annual basis, after reaching an alarming 10% in August. Eurozone inflation fell short of expectations, which were again at double digits for September. Annual Core CPI, which excludes food and energy, was at 4.8% as expected. Lower than expected CPI caused the Euro to plummet last week, as it eases some of the pressure on the ECB to hike interest rates. With the next ECB policy meeting coming up this week, markets will be awaiting the Central Bank’s response. The ECB will need to continue its aggressive monetary tightening to tame soaring inflation rates.

Macroeconomic data released last week were overall optimistic for the EU economic outlook. ZEW Economic Sentiment and German ZEW Economic Sentiment indicators both exceeded expectations, bolstering the Euro. The ZEW Economic Sentiment Index in the Eurozone improved in October, reaching -59.7 from -60.7 in September. German investor sentiment was also less pessimistic than expected in October, rising to -59.2 in October from -61.9 in September, beating a particularly grim forecast of -66.7.

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. In addition, the Euro has been pushed down by the gap in interest rates with the US, as the US Federal Reserve has increased its benchmark interest rate to 3.25% versus the ECB’s 0.75%.

This week, French, German, and Eurozone Flash Services and manufacturing PMI data are due on the 24th. These are leading indicators of economic health and may ahead the Euro ahead of the ECB’s monetary policy meeting.

All eyes, however, are going to be at the ECB meeting on the 27th. Soaring EU inflation rates and hawkish ECB rhetoric increase the odds of a 75-bp rate hike this week. The ECB has been reluctant to raise interest rates, trying to balance soaring inflation against a poor economic outlook. Lately, however, ECB rhetoric has remained steadily hawkish, indicating a decisiveness in prioritizing inflation against economic growth. Markets have largely priced in a 75bp rate hike this week and the ECB will need to fulfill market expectations to keep the Euro’s recent upwards momentum. A rate hike of 50 bps or less, however, may see the Euro plummeting.

EURUSD 1hr chart

TRADE EUR PAIRS

GBP 

The Sterling went up immediately after Truss’ resignation, indicating the market’s distrust in the British government, but plummeted again on fears of political instability.

It was a tumultuous week for the Sterling, as the currency responded to political and economic developments in the UK. The GBP/USD rate seesawed throughout the week between 1.106 and 1.143, before closing near 1.130 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 near 1.092 and further down at the new all-time low of 1.035. 

UK Prime Minister Liz Truss resigned her premiership on Thursday after remaining only six weeks in office, stating that she is unable to deliver on the mandate that she was elected on. Truss resigned following the chaotic scenes emerging from the House of Commons on Wednesday and Home Secretary Suella Braverman’s resignation. A Conservative party leadership election will be held next week to decide the UK’s next PM. The election of a new Conservative Party leader is expected to be finished by the 28th and Truss will stay on as PM until her successor has been decided.  

The Sterling went up immediately after Truss’ resignation, indicating the market’s distrust in the British government. After the immediate reaction died down though, the Sterling plummeted as markets digested the fact that the UK would once again be plunged into a period of political instability.

Political instability has been playing a major part in the currency’s decline over the past few weeks, driving the pound to an all-time low. Rising controversy on the government’s first mini-budget forced British Chancellor Kwasi Kwarteng to resign. The budget included major tax cuts, which would primarily benefit the highest earners in a time of heightened economic pressure on British households. Jeremy Hunt has been named the New Chancellor of the Exchequer and the British Government made a U-turn last week, revising its fiscal policy. Hunt announced on Monday that he would be reversing "almost all" the tax measures and PM Truss apologized for the new government’s economic mistakes. The apology did little to reverse the distrust towards the new government, which has been putting pressure on Sterling.

The ailing currency was further hit on Wednesday by the release of the UK CPI data. Hotter-than-expected inflation print for September fuelled recession concerns driving the Sterling down. Annual inflation returned to 40-year highs in September, climbing to 10.1%, after cooling to 9.9% in August. The biggest jump in food prices since 1980 was largely responsible for the rising inflation. Core CPI, which excludes food and energy though, was up as well, rising to 6.5% on an annual basis in September, compared to 6.3% in August. 

Rising UK inflation is forcing the BOE to make some tough choices. The British economy is still struggling and policymakers will have to assess how much tightening it can withstand to bring inflation down. 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 adopted a moderate stance, trying to strike a balance between battling inflation and supporting the sluggish economy. 

With the BOE’s November meeting drawing near, market odds are split between a mega-hike of 100bps and a less aggressive 75bps increase. After September’s inflation report, the odds remain slightly more in favor of the larger rate hike. Even though a sharp rate hike is being priced in, the Sterling continues to move toward its recent all-time low.

The BOE also announced a new round of bond sales on Thursday. 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. The BOE completed a short-term bond-buying program last week, buying long-dated gilts, which have been strongly affected by repricing. 

 This week, UK Flash Services and manufacturing PMI data are due on the 24th, leading economic health indicators. The Sterling is more likely to be affected by developments on the political front though.

GBPUSD 1hr chart

TRADE GBP PAIRS

JPY

Japanese authorities likely staged another intervention on Friday to support the collapsing Yen, in what was undoubtedly large-scale selling of dollars and buying Yen.

The Yen had a turbulent week, reaching 32-year lows against the dollar, before jumping abruptly high on Friday. USD/JPY went above the psychological barrier of 150 for the first time since 1990, touching the 152 level on Friday in early trading. The currency pair collapsed suddenly to 146 on Friday, with market participants suspecting another government intervention. 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 psychological level of 150 and higher still at the 1990 high near 160.

Japanese authorities likely staged another intervention on Friday to support the collapsing Yen. The Yen had moved well above the psychological level of 150 against the dollar early on Friday, as many traders had begun to suspect that intervention would not take place. The Yen jumped abruptly against the dollar in what was undoubtedly large-scale selling of dollars and buying Yen. Japan's top currency diplomat Masato Kanda and Finance Minister Shunichi Suzuki declined to comment on whether there was an intervention from the Japanese government to bolster the Yen.

The USD/JPY has been trading above the 145 level for the past couple of weeks. This level represented a line in the sand for the Japanese government, which had rushed to intervene when the currency pair threatened to cross this level in September and back in 1998, buying Yen for dollars. 

Japanese officials on Monday tried to stem the tide, warning that the Japanese government would offer a firm response to overly rapid Yen declines. Vice Finance Minister for International Affairs Masato Kanda said that each country would respond appropriately and firmly to excessive currency moves and Finance Minister Shunichi Suzuki stated that authorities would act decisively against excessive currency fluctuations. Suzuki also said on Wednesday that he was checking currency rates meticulously and with more frequency, alerting markets to the possibility of an intervention. As no definite plans for helping the currency were revealed though, the Japanese officials’ statements had made little impact on markets.

On the data front, CPI data released on Friday revealed that annual inflation in Japan rose to 3% in September, exceeding expectations. BoJ Governor Haruhiko Kuroda did not appear worried about inflation rising above the central bank’s 2% goal. Kuroda stated that CPI is expected to slow down after peaking at the year’s end. Japanese Trade balance data released on Thursday show that the trading deficit reached -2.01T for September, which was slightly lower than expected and had decreased compared to August’s -2.34T. Japan’s import costs remained high, however, mainly due to the high price of imported energy. 

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. Surging US yields especially are putting pressure on the Yen.

All eyes are going to be on the BOJ policy meeting this week on the 28th, as pressure mounts on the central bank to end its negative rates policy, which is held largely to blame for the Yen’s weakness.  The BOJ is unlikely to reverse its dovish policy to aid the struggling Yen, though, as BOJ Governor Kuroda is a staunch supporter of its dovish policy.

USDJPY 1hr chart

TRADE JPY PAIRS

Gold 

Rampant US inflation has raised expectations of another 75-bps rate hike at the Fed’s next policy meeting in November, putting pressure on gold prices.

Gold ended the week on a higher note, paring its losses, after retreating for most of the week. Gold prices close near $1,657 per ounce on Friday, as the dollar collapsed. 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 around 1,683 per ounce and higher at $1,729 per ounce.

The dollar was volatile last week, with the dollar index seesawing between 112 and 114. Dollar bulls and bears battled last week, causing the currency to fluctuate without a clear direction. The dollar price toppled on Friday though and the dollar index ended the week near 111.9. US Treasury yields soared, with the US 10-year bond yield climbing above 4.3%, its highest level since June 2008. The two-year yield, a more direct indicator of rate expectations, surged above 4.6%, its highest level since August 2007. 

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. Rampant US inflation has raised expectations of another steep rate hike at the Fed’s next policy meeting in November, putting pressure on gold prices. The US Central Bank has increased interest rates by a total of 300 basis points this year, bringing its benchmark interest rate to 3.25%. Another 75-bps rate hike is expected at the Fed’s next monetary policy meeting in November and has already been largely priced in by markets. Sharp rate hikes and continuous fiscal tightening run the risk of tipping some of the world’s leading economies into recession though.

Continued hawkish Fed rhetoric fuels expectations of sharp rate hikes, boosting dollar prices at the expense of competing assets, such as gold. On Friday, FOMC member James Bullard emphasized that interest rates need to be hiked until there is significant downward pressure on inflation. Fed’s Dally on the other hand was more dovish, saying that although another 75bp rate hike was probable, increases in interest rates need tapering off at some point. Fed’s Cook stressed on Thursday that inflation remains stubbornly and unacceptably high and that further rate increases would be necessary to bring inflation down. Fed’s Harker spoke along the same lines, admitting that little progress has been made in lowering inflation and hinting that the Fed may increase interest rates to well above 4% by the year’s end, then stop hiking rates sometime in 2023 and assess the impact. On Wednesday, FOMC member James Bullard pointed to an aggressive rate hike at the Fed’s November meeting, stating that the Fed should follow through with anticipated rate hikes, but he expects the aggressive hikes to end by early 2023. FOMC policymakers Esther George and Mary Daly commented over the weekend that the US Central Bank may need to step up its rate hikes to combat soaring inflation.

No FOMC members’ comments are expected this week, as a black-out period started on Saturday, preventing further comments until the central bank’s next policy meeting in November.

XAUUSD 1hr chart

TRADE GOLD

Oil 

US President Joe Biden announced a plan to sell 15 million barrels from the US Strategic Petroleum Reserves, representing the latest tranche of the 180-million-barrel program.

Oil prices ended the week with neither gains nor losses, and competing market forces canceled out each other. WTI price closed near $85.9 per barrel, on Friday, after fluctuating around this level throughout the week. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found at the $93.4 per barrel level. 

China has signaled that it would partially ease its Covid policy, boosting oil prices. A recent flare-up of Covid cases had forced the local authorities to ramp up anti-Covid measures and China’s 20th Party Congress decided over the weekend to continue with its zero-Covid policy. It appears, however, that China may be finally ready to relax some of its strict Covid regulations. China’s zero-Covid policy has isolated the country and has dealt a heavy blow to its economy. China is the world’s largest energy importer and concerns about renewed lockdowns are stifling oil demand.

US crude oil inventories declined by 1.7M in the past week, against expectations of a gain of 2.5M. The unexpected drop in inventories in a tight market also boosted oil prices. 

The Biden administration announced the release more of barrels from the US Strategic Petroleum Reserves on Wednesday, checking the ascend of oil prices. Oil prices remain high ahead of the US midterm elections, causing a headache for the US government. 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. 

Global recession fears are also pushing oil prices down. Increasingly hawkish Fed rhetoric has promoted a risk aversion sentiment boosting the dollar and putting pressure on oil prices. Aggressive rate hikes stifle economic activity, undercutting oil demand. Fed rhetoric remained hawkish last week, boosting the odds of a sharp rate hike at the Fed’s next monetary policy meeting in November. A 75-bps rate hike is expected in November and has already been largely priced in by markets. Sharp rate hikes and continuous fiscal tightening run the risk of tipping some of the world’s leading economies into recession though.

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. 

WTI 1hr chart

TRADE WTI

Bitcoin and major Cryptocurrencies 

Global developments caused fluctuations in risk sentiment, creating cryptocurrency volatility, with markets reacting wildly to British PM Liz Truss's resignation.

Cryptocurrency prices were volatile last week amid overall market turmoil. Most major cryptocurrencies were poised to end the week significantly lower but trimmed losses late on Sunday. 

Global developments caused fluctuations in risk sentiment, creating crypto market volatility. Markets reacted favorably at first to British PM Liz Truss's resignation, resulting in stock markets and crypto markets bouncing upwards. As, however, markets began digesting the fact that the UK would be re-entering a period of political instability, recession concerns grew and cryptocurrencies pared their gains. 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.

Eurozone inflation cooled slightly in September dropping to 9.9% year-to-year, while UK inflation climbed back to 40-year highs of 10.1%. US annual inflation reached 8.2% in September, putting pressure on the Fed to continue raising interest rates. Inflation remains high in some of the world’s leading economies forcing Central Banks to tighten their monetary policies. 

The Federal Reserve will likely continue its hawkish run, with a 75-bps rate hike expected at the next policy meeting in November. Rising dollar and US yields reduce the appeal of risk assets, pushing cryptocurrency prices down. US Treasury yields soared last week, with the US 10-year bond yield climbing above 4.3%, its highest level since June 2008. The two-year yield, a more direct indicator of rate expectations, surged above 4.6%, its highest level since August 2007. Continuous rate hikes, however, risk tipping the countries’ economies into recession.

Bitcoin price dropped to $18,700 mid-week, then climbed to the $19,500 level late on Sunday. If BTC declines, support can be found at the psychological level of $19,000 and further down at $18,200, while resistance may be encountered near $19,800. 

Ethereum price dropped as low as $1,250 during the week, then rose above $1,300 on Sunday. If Ethereum's price declines, it may encounter support at $1,260 and further down at $1,190, while if it increases, resistance may be encountered near $1,400.

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

Share the article:

Latest news

Why TopFX

10-years

10-years

industry presence
as a Liquidity Provider

Spreads

Spreads
from 0.0 pips

and reliable execution

Segregated

Segregated

client funds

First-class

First-class

customer support

Open your Live Account in 3 Steps

Step 1

Fill in the registration
form and click
"Create account".

Step 2

Once you are in the client secure area, please proceed with uploading your Proof of Identity and Proof of Residence.

Step 3

When your live account is approved, you can deposit funds and start trading on your chosen platform!