Important calendar events
The dollar gained strength last week, with the dollar index ending the week close to the 106.6 level. US bond yields declined on the other hand, with the US 10-year bond yield dropping from 5.00% to approximately 4.85%.
The crisis in Israel has increased risk-aversion sentiment, providing support for the haven dollar. Fears of the conflict between Israel and Hamas spreading further in the Middle East have turned traders towards safer investments.
The US economy seems to be recovering, boosting the dollar. US economic activity data last week were overall positive, indicating economic growth. Advance GDP data for the third quarter of 2023 showed that the US economy expanded by 4.9%, against expectations of 4.5% growth and far surpassing the 2.1% growth of Q2. Advance GDP price index for the 3rd quarter of the year reached 3.5%, exceeding expectations of a 2.7% print. Durable goods orders rose by 4.7% in September, above market forecasts of a 1.7% rise, and rebounding from a 0.1% contraction in August.
Both the Manufacturing and Services sectors started to expand in October. Flash Manufacturing and Services PMI data last week, showed that both sectors left the previous contractionary territory, with a PMI print above the threshold of 50 denoting industry expansion.
Core PCE Price Index, which is the Fed’s preferred inflation gauge, rose by 0.3% in September, in line with expectations. Core PCE Price Index dropped to 3.7% year-on-year in September from a 3.8% print the previous month. Inflationary pressures in the US are easing, reinforcing the notion that the Federal Reserve will not have to raise interest rates further. US headline inflation in September, however, remained at August's levels of 3.7% year-on-year, while market analysts were expecting a drop to 3.6%.
In September’s monetary policy meeting, FOMC members voted to keep interest rates unchanged at a target range of 5.25% to 5.50%. The Fed decided to pause rate hikes, but interest rates are likely to remain in restrictive territory for longer.
This week all eyes are going to be on the Fed monetary policy meeting on November 1st. Markets widely expect the Fed to hold rates steady this week, after FOMC members’ dovish comments in the past couple of weeks. Fed Chair Jerome Powell’s speech after the conclusion of the meeting is going to attract the attention of traders. A pause in rate hikes this week is almost considered a given and has already been priced in, and market participants will focus mostly on the Fed’s forward guidance.
Markets anticipate that Fed rates will remain the same this year, with an approximately 95% probability of a pause at this week’s meeting and a more than 70% probability of an end to rate hikes through 2023. The probability of another rate hike within the year has decreased. Still, the possibility of another increase in interest rates cannot be completely discounted and is likely to affect the dollar in the coming weeks.
EUR/USD was volatile last week, surging to 1.069 at the beginning of the week and then plummeting to 1.052 after the ECB policy rate decision on Thursday before paring some losses and climbing back to 1.058 on Friday. If the EUR/USD pair declines, it may find support at 1.052, while resistance may be encountered near 1.069.
The ECB policy rate announcement on Thursday held few surprises. The ECB decided to keep interest rates unchanged at 4.50%. The pause in rate hikes was widely expected and market reaction was somewhat muted. The Euro dipped even further after the rate announcement, as markets expect that the ECB has hit its rate ceiling, putting pressure on the Euro.
The ECB is tasked with assessing the risk to the fragile Eurozone economy against high inflation rates. In its monetary policy statement, the ECB indicated that inflation will likely remain high for a long time. The central bank, however, stressed that interest rates have already been raised to high levels, and will continue to be transmitted into financing conditions.
ECB President Christine Lagarde, speaking at the end of the monetary policy meeting has hinted at an end to rate hikes. Lagarde highlighted the risks to the Eurozone economy stressing that the economy is likely to remain weak for the remainder of the year. Lagarde also stated that it is too early to talk about rate cuts and warned that interest rates will remain at sufficiently restrictive levels for as long as necessary.
Disappointing economic activity data put pressure on the Euro this week. German business activity fell further into contractionary territory according to PMI data released on Tuesday, raising recession concerns for the Eurozone’s leading economy. PMI data for the Euro area were also weak. EU Flash Manufacturing PMI fell to 43.0 in October from 43.4 in September, with a print below 50 indicating industry contraction. The Service sector also dropped further into contractionary territory in October, with Flash Services PMI falling to 47.8 from 48.7 in September, indicating that the sector is shrinking at an accelerating pace.
Headline inflation in the Eurozone fell to its lowest level in two years in September. Flash CPI cooled to 4.3% year-on-year in September from 5.2% in August against expectations of a 4.5% print. Core CPI Flash Estimate, which excludes food and energy, also came in cooler than anticipated. Core CPI eased to 4.5% in September from 5.3% in August versus 4.5% predicted. The ECB’s efforts to curb inflation rates are paying off, even at the cost of decreased economic growth.
Final GDP data for the Euro area showed that the Eurozone economy expanded by only 0.1% in the second quarter of the year against expectations of 0.3% growth. The Eurozone economy barely expanded in the second quarter after contracting by 0.1% in Q1 of 2023. The EU economy is struggling and cannot withstand much further tightening.
GBP/USD was volatile last week, directed primarily by the dollar’s movement. The currency rate gained strength early in the week, then plummeted towards the end of the week, finally ending the week near 1.212. If the GBP/USD rate goes up, it may encounter resistance near 1.228, while support may be found near 1.206.
Disappointing economic activity data put pressure on the sterling last week. Britain’s unemployment rate held steady at 4.2% according to data released on Tuesday. The Manufacturing sector remained in contractionary territory in October, although the sector shrank at a slower pace than previously. Flash Manufacturing PMI in October rose to 45.2 from 44.3 in September. The Services sector also continued to contract with Flash Services PMI in October at 49.2, slightly down from September’s 49.3.
The British economy continues to struggle, registering only nominal growth. GDP data revealed that Britain’s economy only partially recovered in August after a sharp drop in July. The British economy expanded by 0.2% in August from a 0.6% contraction in July, in line with expectations.
Quarterly GDP data have shown that the British economy expanded at a higher pace than anticipated, expanding by 0.3% in the first three months of the year. GDP data for the second quarter of the year indicated a 0.2% expansion. More importantly, the UK's economy has grown by 1.8% since the pandemic started, beating the previous estimate of a 0.2% contraction.
The BOE maintained its official rate at 5.25% at its policy meeting in September against expectations of a 25-bp rate hike. The BOE has also signaled that it has likely reached its peak interest rate.
The BOE will announce its official rate at the end of its monetary policy meeting this week on November 2nd, a day after the Fed interest rate announcement. Market analysts are predicting that the BOE will hold interest rates steady this month. Traders will focus mainly on the Monetary Policy Summary, as well as on BOE Governor Andrew Bailey’s speech after the meeting. The BOE has likely reached its rate ceiling but will keep interest rates on hold for a long time to bring inflation down.
Last week’s fundamentals showed that the British economy remains fragile, reinforcing the notion that the BOE has reached its peak interest rates. Prolonged tightening has taken its toll on the labor market and other vital economic sectors.
BOE Governor Andrew Bailey has stated that the central bank will be watching closely to see if further rate hikes are needed. Bailey also emphasized that the BOE will be holding interest rates in restrictive territory long enough to see inflation down to the bank’s 2% target.
British Inflation is not cooling down fast enough, despite the BOE’s consistently hawkish policy. Headline inflation remained at 6.7% year-on-year in September, the same as in August, against expectations of a drop to 6.6%.
A combination of a struggling economy and high inflation is making the BOE’s task more difficult. Further tightening is needed to bring inflation down at the risk of tipping the British economy into recession.
The USD/JPY rate surged last week, trading firmly above the key 150 level for most of the week and touching 150.6. mid-week. The currency rate declined towards the end of the week though, closing near 149.6 on Friday. If the USD/JPY pair declines, it may find support near 149.3. If the pair climbs, it may find resistance at the psychological level of 151.0 and further up to its highest point in October 2022 of 151.9.
The Japanese government intervened recently to support the Yen as USD/JPY rose briefly above the 150 level, which is considered a line in the sand for an intervention. Last week, however, the currency rate rose above the key 150 level, but the Japanese government did not intervene to bring the currency rate down.
Japanese authorities have been repeatedly warning speculators against excessive short-selling of the Yen and have stepped in several times to provide support for the Yen. Japanese Finance Minister Shunichi Suzuki warned traders again last week against selling the Yen excessively. Suzuki stated that Japanese authorities were closely watching currency moves and would continue to respond to the currency market with a strong sense of urgency. Market participants are aware that another intervention may bring the currency rate down forcibly and are hesitant to bid excessively against the Yen.
The effect of an intervention, however, is usually short-lived and cannot be sustained for long before the USD/JPY resumes its bullish momentum. The main goal of the Japanese government is to discourage speculators from excessive short-selling of the Yen. Last week the Japanese government refrained from intervening, partly because the high USD/JPY rate was driven mostly by the dollar’s surge rather than speculative moves against the Yen.
The BOJ has maintained its dovish bias, putting more pressure on the Yen as other major central banks, and especially the Fed, have been moving in a hawkish direction for over a year. At its policy meeting in September, the BOJ maintained its short-term interest rate target steady at -0.10% and showed no signs of relaxing its ultra-easy policy.
The BOJ is meeting again this week and will announce its rate decision on October 31st. A pivot in the BOJ’s policy is not likely yet, and traders will focus mostly on the BOJ’s forward guidance for hints of a future shift in the central bank’s policy. However, there is speculation that the BOJ could tweak its yield curve control policy this week, amid rising global yields and inflation in Japan.
Market odds of a BOJ rate hike in January have increased above 60%. BOJ Governor Kazuo Ueda has hinted that a policy shift may finally be on the horizon.
National Core CPI dropped to 2.8% in September from 3.3% in August. Inflation in Japan has remained above the BOJ’s 2% target for more than a year, encouraging the BOJ to tighten its monetary policy.
Final GDP data for the second quarter of the year showed that the Japanese economy expanded by 1.2%, disappointing expectations of 1.4% growth. The final GDP Price Index showed a 3.5% annual expansion, versus 3.4% the previous quarter. Japan’s economic recovery increases the odds of a hawkish pivot in BOJ’s monetary policy.
Gold prices surged last week, rising above the key $2,000 per ounce level. If gold prices increase, resistance may be encountered near $2,077 per ounce, while if gold prices decline, support may be found near $1,900 per ounce.
The crisis in Israel has given rise to a risk aversion sentiment, boosting demand for gold. Fears of the Israeli war spreading to the Middle East are increasing the appeal of haven assets such as gold. Fears of regional escalation into Iran are boosting gold prices. Gold prices increase in times of war as more traders shy away from riskier assets and invest in assets that are more likely to preserve their value.
Risk sentiment is improving, however, despite the continued crisis in Israel. The US Federal Reserve has hinted that it has reached its rate ceiling, boosting the economic world economic outlook. Market expectations that US interest rates have peaked are raising the comparative appeal of gold against the dollar as a haven asset.
Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar gained strength last week, but gold prices were buoyed by demand for haven assets and boosted further by a decline in US treasury yields. The dollar index ended the week close to the 106.6 level, while US bond yields declined, with the US 10-year bond yield dropping from 5.00% to approximately 4.84%.
Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. FOMC members kept interest rates unchanged at a target range of 5.25% to 5.50% at the Fed’s September meeting. The Federal Reserve paused rate hikes at its latest meeting but is likely to keep interest rates at high levels for longer to bring inflation down.
This week, all eyes are going to be on the Fed monetary policy meeting on November 1st. Markets widely expect the Fed to hold rates steady this week, after FOMC members’ dovish comments in the past couple of weeks, and market participants will focus mostly on the Fed’s forward guidance.
Oil prices were volatile last week, with WTI price plummeting from $89.0 per barrel to $83.0 per barrel mid-week but rallying on Friday and closing near $86.0 per barrel on Friday. If WTI price declines, it may encounter support near $83.0 per barrel, while resistance may be found near $91.0 per barrel.
Oil prices have been supported by geopolitical risks in the past few weeks. The crisis between Israel and Hamas continues, propping up oil prices. Especially fears of a potential Iranian involvement are buoying oil prices.
Oil prices dropped last week after a rise in US crude stockpiles. The Energy Information Administration announced a rise in US Crude oil inventories by 1.4M barrels in the week ending on October 20th. This exceeded expectations of a drop by 0.5M barrels and supply concerns eased, putting pressure on oil prices.
OPEC+ kept its output policy unchanged at its latest meeting, maintaining its recent cuts by Russia and Saudi Arabia, which have already been extended till the end of the year.
Oil prices are kept in check by a strong US dollar and high-interest rates. The Fed decided to pause rate hikes at its September policy meeting and has likely reached its rate ceiling. This week, all eyes are going to be on the Fed monetary policy meeting on November 1st. Markets widely expect the Fed to hold rates steady this week, and market participants will focus mostly on the Fed’s forward guidance. Even if the Fed has reached its interest rate ceiling though, rates are likely to stay high for longer, driving oil demand outlook and oil prices down.
Bitcoin prices surged early last week on news that the iShares Bitcoin Trust had been listed on the Depositary Trust & Clearing Corporation, which clears Nasdaq trades. Bitcoin prices spiked, breaching the $34,000 resistance level, and crypto markets, in general, were boosted. iShares Bitcoin Trust was soon delisted from the DTCC and crypto markets pulled back. Bitcoin’s rally was halted later in the week, but BTC price remained strong as markets anticipate a Bitcoin ETF launch soon.
Bitcoin price surged early last week, touching the $35,000 level. Bitcoin price edged slightly lower during the week but retained most of its gains, trading around the $34,500 level over the weekend. If BTC price declines, support can be found near $28,500, while resistance may be encountered near $35,000.
Ethereum price gained strength early last week, testing the 1,850 level resistance, but retreated later in the week, oscillating around the $1,790 level during the weekend. If Ethereum's price declines, it may encounter support near $1,500, while if it increases, resistance may be encountered near $1,850.
Crypto markets are under pressure, however, as geopolitical events sour risk sentiment. The war between Israel and Hamas is driving cryptocurrency prices down. The conflict rages on in the Gaza area, causing market turmoil.
Increases in central banks’ interest rates are also putting pressure on risk assets. Global economic concerns are driving risk sentiment down, as prolonged economic tightening restricts economic growth.
The Fed kept interest rates stable at its September policy meeting, but interest rates are likely to stay in restrictive territory for a longer period, hindering economic growth. Risk sentiment has improved lately though, as dovish Fed Rhetoric has raised expectations of an end to rate hikes. Markets widely expect the Fed to hold rates steady this week at the monetary policy meeting on November 1st, and market participants will focus mostly on the Fed’s forward guidance.
BTC/USD 1h Chart
ETH/USD 1h Chart
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