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Weekly Market Outlook For October 31st To November 6th

Home >  Weekly Outlook >  Weekly Market Outlook For October 31st To November 6th

Written by:
Myrsini Giannouli

31 October 2022
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Forex 

Important calendar events

  • October 31, JPY: Preliminary Industrial Production, Retail Sales, Consumer Confidence, Housing Starts
  • October 31, EUR: German Import Prices, German Retail Sales, CPI Flash Estimate, Core CPI Flash Estimate, Preliminary Flash GDP
  • October 31, GBP: M4 Money Supply, Mortgage Approvals, Net Lending to Individuals
  • November 1, USD: Final Manufacturing PMI, ISM Manufacturing PMI, JOLTS Job Openings, Construction Spending, ISM Manufacturing Prices
  • November 2, JPY: Monetary Base, Monetary Policy Meeting Minutes
  • November 2, EUR: German Trade Balance, French Government Budget Balance, Spanish, French, Italian, and German Manufacturing PMI
  • November 2, USD: ADP Non-Farm Employment Change, FOMC Statement, Federal Funds Rate, FOMC Press Conference
  • November 3, GBP: Final Services PMI, BOE Monetary Policy Report, MPC Official Bank Rate Votes, Monetary Policy Summary, Official Bank Rate, BOE Gov Bailey Speech
  • November 3, USD: Unemployment Claims, Trade Balance, Final Services PMI, ISM Services PMI, Factory Orders
  • November 4, EUR: German Factory Orders, French Industrial Production, Spanish, French, Italian, German, and Eurozone Final Services PMI
  • November 4, USD: Average Hourly Earnings, Non-Farm Employment Change, Unemployment Rate

USD

All eyes are going to be on the Fed monetary policy meeting on Wednesday with the odds in favor of another rate hike of 75-bps, bringing the interest rate to 4.0%.

The dollar had a turbulent week with the dollar index dropping below the 110 level mid-week but recovering towards the end of the week, touching 111 on Friday. US Treasury yields also declined, failing to provide support for the dollar, with the US 10-year bond yield dropping from 4.25% to 4.0%.

The dollar has been trading in overbought territory and has been slipping ahead of the Fed meeting this week. A Fed black-out period started last Saturday, preventing further comments until the central bank’s next policy meeting this week. Without the fortifying effect of hawkish Fed speeches, the dollar becomes more vulnerable to the release of US economic activity and health indicators. 

High-risk aversion sentiment has been prevalent throughout the year, 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. 

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. In addition, September’s data represent a period with lower fuel prices than previous months, which should have led to lower inflation rates. 

Macroeconomic data released last week were overall disappointing for the state of the US economy. Poor economic outlook decreases the odds of a steep Fed rate hike, putting pressure on the dollar. US Core PCE Price Index, which is the Federal reserve’s primary inflation measure was released on Friday. US PCE rose by 0.5% month over month for September, bringing the annual rate to 5.1%, up from 4.9% in August, indicating that price pressures remain elevated. Home sales in September dropped by 10.2% against expectations of only 4.4% and a smaller drop of 1.9% in August. September U.S. consumer spending advanced 0.6% every month, versus the 0.4% expected.

Quarterly Advance GDP released on Thursday was higher than expected, registering an expansion of 2.6% versus a contraction of 0.6% for the previous quarter, indicating that the US economy is moving in a positive direction. Advance GDP Price Index on the other hand was lower than expected, falling to 4.0% against 9.0% in the previous quarter. This represents the broadest measure of inflation and is a primary instrument that the central bank uses to assess inflation. The decline of these indicators shows that the Fed’s efforts to bring inflation down are starting to have an impact that will likely become more pronounced long term. Durable Goods Orders and Core Durable Goods Orders were lower than expected though, as US economic activity is still slow. 

Goods trade balance fell short of expectations on Wednesday, plunging to -92.2B in September from -87.3B in August. New home sales also dropped to 603K in September compared to 677K in August but exceeded expectations of only 579K.

US CB Consumer Confidence and Richmond Manufacturing Index released on Tuesday fell short of expectations. U.S. consumer confidence dropped to 102.5 in October from 107.8 in September, against expectations of a more moderate decline to 106.5. The Richmond Manufacturing Index was also disappointing for October, showing a shrinking of 10, while expectations were for a shrink of 5, indicating worsening conditions in the manufacturing sector.

US Flash Services and Manufacturing PMI data released on Monday for October fell short of expectations. US business activity declined further this month, indicating increased economic weakness. Services PMI sank to 46.6 from 49.3 in September, versus the 49.2 expected. Manufacturing PMI fell slightly to 49.9 from 50.0 in September, versus the 51.0 expected. 

This week, all eyes are going to be on the Fed monetary policy meeting on Wednesday, November 2nd. The US Central Bank has so far increased interest rates by a total of 300 basis points this year, bringing its benchmark interest rate to 3.25%. Another rate hike of at least 75 bps is expected at Wednesday’s meeting and has already been largely priced in by markets.

Of equal importance to the interest rate announcement are the FOMC Statement and Press Conference following the monetary policy meeting. Market participants will focus on these in an attempt to gauge the central bank’s future policy direction. 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.

Final Manufacturing PMI, ISM Manufacturing PMI, and JOLTS Job Openings are scheduled to be released on the 1st, a day before the much-anticipated Fed meeting. In the absence of Fed speech, economic activity data may affect the dollar considerably.

TRADE USD PAIRS

EUR 

ECB President Christine Lagarde’s speech lacked a forward bias, stating that future rate hikes will be considered on a ‘meeting by meeting’ basis.

Risk on sentiment prevailed last week, driving down the safe-haven dollar and boosting riskier assets. The Euro broke through the parity level with the dollar mid-week for the first time in over a month but fell from a one-month high of almost 1.010 versus the dollar on Friday. The Euro retreated after the ECB rate decision moving below parity with the dollar and closing near 0.994 on Friday. 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 again and higher up near 1.019.

In its monetary policy meeting on Thursday, 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. Markets had already priced in a 75-bp rate hike however and the increase in interest rates failed to provide support for the Euro. In addition, the US Fed has a much-larger interest rate of 3.25%, which is expected to reach 4.0% or higher after the US central bank’s policy meeting this week.

The ECB monetary policy statement and press conference following the announcement of the main refinancing rate had bearish undertones, further weakening the Euro. ECB President Christine Lagarde’s speech lacked a forward bias, stating that future rate hikes will be considered on a ‘meeting by meeting’ basis. 

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 economy cannot withstand aggressive tightening.

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 eases some of the pressure on the ECB to hike interest rates. The ECB will need to continue its aggressive monetary tightening to tame soaring inflation rates.

On the data front, economic activity indicators released last week were mixed for the Eurozone. German inflation released on Friday exceeded expectations with monthly preliminary CPI for October rising by 0.9% against predictions of 0.6%. Italian inflation also exceeded expectations, although Spanish inflation dropped in October. Quarterly German preliminary GDP was higher than expected, providing support for the Euro. German GDP for the second quarter of 2022 rose by 0.3% versus expectations of a decline of 0.2%.

German IFO Business Climate released on Tuesday was 84.3 for September, versus 83.4 expected and 84.4 in August. Belgian NBB Business Climate data were disappointing though, dropping to -15. 5 in September against -11.8 in August.

Economic health data released on Monday were overall disappointing. The manufacturing sector led the decline, with the German Flash Manufacturing PMI falling short of expectations. Eurozone Flash Manufacturing PMI data plummeted to 46.6 in October, against 48.4 in September, registering a 29-month low. Flash Services PMI dropped to 48.2 in October compared to 48.8 in September.

Several economic activity data are scheduled to be released this week for the Eurozone and may affect the Euro in the wake of the ECB policy meeting. Primary among those are CPI Flash and Core CPI Flash data, as well as Preliminary Flash GDP on October 31st. Manufacturing PMI data for some of the Eurozone’s leading economies are due on November 2nd and Services PMI data on the 4th.

EURUSD 1hr chart

TRADE EUR PAIRS

GBP 

Coming a day after the Fed monetary policy meeting, the BOE meeting on Thursday is likely to generate high volatility for the Sterling and the combined events may provide direction for GBP/USD.

The Sterling gained strength last week, benefitting from the dollar’s decline and a renewed sense of political stability. The GBP/USD rate reached a six-week high, climbing above the key 1.150 level and reaching above 1.161. If the GBP/USD rate goes up, it may encounter resistance near 1.173, while support may be found near 1.092 and further down at the new all-time low of 1.035. 

Improved risk sentiment pushed the safe-haven dollar down this week, benefitting riskier assets, such as the Sterling. The announcement of the appointment of Rishi Sunak as the UK’s next PM brought a measure of stability to the UK, after the political turmoil of the past few months. 

PM Sunak stated on Wednesday that economic stability will be at the heart of his administration’s agenda eliciting a positive reaction from markets. Jeremy Hunt, who will remain as Chancellor of the Exchequer, met with BOE Governor Andrew Bailey on Wednesday in an attempt to promote cooperation between the government and the BOE. 

Foreign minister James Cleverly stated on Wednesday that the much-anticipated new fiscal plan, which had been scheduled for October 31, may be delayed as the government would need more time to draft a solid budget. Repairing the country’s finances is bound to be a difficult task for the new government. The new fiscal statement 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. 

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 first mini-budget, the government’s subsequent U-turn on the budget, as well as the resignation of several ministers, sealed the fate of Truss’ government, forcing her to resign after remaining only six weeks in office.

Economic activity indicators were overall disappointing for the state of the British economy last week. UK Flash Services and manufacturing PMI data for October fell short of expectations, as business economic activity in the UK continues to contract. Flash Manufacturing PMI plummeted to 45.8 versus 48.4 in September, registering a 29-month low. Flash Services PMI slumped to 47.5 from 50.0 in September, against the 48.0 expected, which was a 21-month low. 

The BOE also announced a new round of bond sales last week. 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. 

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. 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. 

This week, the much-anticipated BOE policy meeting is scheduled for Thursday, November 3rd. Coming a day after the Fed monetary policy meeting, the BOE meeting is likely to generate high volatility for the Sterling and the combined events may provide direction for GBP/USD.

Markets are expecting a shift towards a more aggressively hawkish policy after September’s inflation report, with odds in favor of a 75-bps increase. A 75-bps rate hike has already been priced in and will likely not affect Sterling's price significantly. Market participants will follow the Monetary Policy Summary and BOE Governor Andrew Bailey’s speech closely, for hints into the central bank’s future policy direction.

GBPUSD 1hr chart

TRADE GBP PAIRS

JPY

Japan’s Prime Minister Fumio Kishida announced an extra 29.1 Trillion Yen in budget stimulus measures that include steps to curb electricity bills, which could tame inflation.

 

The Yen enjoyed a respite mid-week, benefitting from the dollar’s collapse but pared gains later in the week as the dollar rallied. USD/JPY fell as low as 145 during the week but ended the week near 147, testing the resistance at this 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 resistance further up at the psychological level of 150 and higher still at the 1990 high near 160.

Japanese authorities likely staged interventions over the past week to support the collapsing Yen, as evidenced by the currency’s sudden surges. The USD/JPY Yen had moved well above the psychological level of 150 the week before, but plummeted suddenly in what was undoubtedly large-scale selling of dollars and buying Yen. Analysts estimate that the Japanese Ministry of Finance spent over 5.4 trillion Yen on the first intervention and over 900 billion Yen on the second last Monday.

Government officials have so far declined to comment on whether there was an intervention from the Japanese government to bolster the 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. 

The USD/JPY has been trading above the 145 level for the past few 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. 

The BOJ policy meeting last week held few surprises, as 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 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. 

BOJ Governor Haruhiko Kuroda remained firm in his dovish stance, even as the weakening Yen caused anxiety in government officials. Kuroda stated that the currency’s decline could be beneficial for the economy and that only sudden moves in the currency exchange are a cause for concern.

Japan’s Prime Minister Fumio Kishida announced last week an extra 29.1 Trillion Yen in budget stimulus measures that include steps to curb electricity bills, which could tame inflation. 

On the data front, Tokyo CPI came above forecast at 3.5% year-on-year to the end of October. Flash manufacturing PMI released for October was at 50.7, showing a slight contraction compared to the previous month’s 50.8. Services PMI increased in October, climbing to 53.0, versus September’s 52.2. Annual BOJ core CPI exceeded expectations, climbing to 2.0 in September against 1.9% in August. 

USDJPY 1hr chart

TRADE JPY PAIRS

Gold 

Fed policymakers may signal a return to a less hawkish direction in the future, in which case the US dollar and treasury yields may suffer a correction, which could send gold prices soaring.

Gold prices initially moved upwards last week, climbing above $1,670 per ounce, as the US dollar and yields plummeted. Towards the end of the week though, gold prices declined, paring the week’s gains as the dollar recovered, closing near 1,644 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 1,683 per ounce and higher up at $1,729 per ounce.

The dollar had a turbulent week with the dollar index dropping below the 110 level mid-week but recovering towards the end of the week, touching 111 on Friday. US Treasury yields also declined, failing to provide support for the dollar, with the US 10-year bond yield dropping from 4.25% to 4.0%.

The dollar has been trading in overbought territory and has been slipping ahead of the Fed meeting this week. A Fed black-out period started last Saturday, preventing further comments until the central bank’s next policy meeting this week. Without the fortifying effect of hawkish Fed speeches, the dollar becomes more vulnerable to the release of US economic activity and health indicators. 

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 this week, putting pressure on gold prices. 

The next Fed monetary policy meeting is on Wednesday, November 2nd and its outcome is expected to affect gold prices considerably. The US Central Bank has so far increased interest rates by a total of 300 basis points this year, bringing its benchmark interest rate to 3.25%. Another rate hike of at least 75 bps is expected at Wednesday’s meeting and has already been largely priced in by markets.

Of equal importance to the interest rate announcement are the FOMC Statement and Press Conference following the monetary policy meeting. Market participants will focus on these in an attempt to gauge the central bank’s future policy direction. Fed policymakers may signal a return to a less hawkish direction in the future, in which case the US dollar and treasury yields may suffer a correction, which could send gold prices soaring. 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 

Oil prices were bolstered last week by record-high US exports of 5.1 million barrels a day and low US imports, signaling an increase in demand.

Oil prices gained strength last week, with WTI price closing near $88.9 per barrel on Friday. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found at the $89.7 per barrel level. 

Oil prices were bolstered last week by record-high US exports of 5.1 million barrels a day and low US imports, signaling an increase in demand. US inventories, on the other hand, exceeded expectations but failed to bring oil prices down. Crude oil inventories increased by 2.6 million barrels last week when a drop of 0.3M was expected. A softer dollar also contributed to the rise in oil prices last week.

Supply concerns also raised oil prices last week. Saudi Arabia's energy minister, Prince Abdulaziz bin Salman warned that the use of emergency stockpiles might lead to shortages in the months to come.

The Biden administration has recently announced the release more of barrels from the US Strategic Petroleum Reserves, 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. 

Lower-than-expected data for Chinese oil demand put pressure on oil prices, however. Although demand increased in September compared to August, Chinese crude oil import data is approximately 2% lower than last year. 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. 

Aggressive rate hikes stifle economic activity, undercutting oil demand. The next Fed monetary policy meeting is on Wednesday, November 2nd and its outcome is expected to affect oil prices. The US Central Bank has so far increased interest rates by a total of 300 basis points this year, bringing its benchmark interest rate to 3.25%. Another rate hike of at least 75 bps is expected at Wednesday’s meeting and has already been largely priced in by markets.

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. Despite mounting global recession risks, OPEC+ members strive to reclaim the $100 per barrel key level. 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

Cryptocurrencies gained bullish momentum last week driving the cryptocurrency market capitalization back above $1 Trillion.

Cryptocurrencies gained traction last week, as improved risk sentiment benefitted stock markets and crypto markets. The appointment of Rishi Sunak as the UK’s next PM brought a measure of stability to the UK, after the political upheaval of the past few months. 

Global developments are causing fluctuations in risk sentiment, creating crypto market volatility. 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. In Japan, currency interventions are causing market turmoil, with the Yen seesawing wildly. 

Cryptocurrencies gained bullish momentum last week driving the cryptocurrency market capitalization back above $1 Trillion. Dogecoin price surged, gaining 39% after Elon Musk sealed a highly-anticipated $44 billion deal to take over Twitter.

Bitcoin rose above the key $20,000 level mid-week, trading near $20,700 during the weekend. 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 $21,800. 

Ethereum's price climbed above the $1,500 level resistance but struggles to overcome the $1,600 psychological barrier, testing the resistance at this level during the weekend. 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 $1,780.

This week, the Fed monetary policy meeting on Wednesday and the BOE policy meeting on Thursday are expected to cause market volatility that will likely extend to crypto markets as well. 

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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