Important calendar events
The dollar had a volatile week, with the dollar index climbing to a fresh 20-year high of 114.7 at the start of the week, before retreating and closing at 112.1 on Friday. US Treasury yields also peaked last week, with the US 10-year bond yield reaching 15-year highs of 4.0% early in the week, but deflated later in the week, closing at 3.8% on Friday.
The dollar, which had been trading in overbought territory, retreated at the end of the week, despite robust US economic data, rampant inflation, and hawkish Fed rhetoric. On Friday, Core PCE Price Index, the Fed’s favorite inflation gauge, increased 0.6% month-on-month, compared to a forecast of 0.5%, with the annual reading climbing to 4.9%. Inflation in the US remains high, putting pressure on the Fed to maintain its hawkish stance. Odds of another steep rate hike at the Fed’s next policy meeting in November increased, providing support for the dollar.
The US Federal Reserve has recently voted to raise its interest rate by 75 basis points to curb soaring US inflation rates. The US Central Bank has increased interest rates by a total of 300 basis points this year, bringing its benchmark interest rate from 2.50% to 3.25%.
Hawkish Fed rhetoric propelled the dollar to fresh 20-year highs early last week on expectations of steep rate hikes. On Thursday, Fed’s Bullard defended the central bank’s hawkish stance, stating that the US job market is healthy and can withstand further economic tightening. He added that markets are expecting further rate hikes and that the US economy is unlikely to be affected significantly by the recent turmoil in UK markets. Atlanta Fed President Raphael Bostic said on Wednesday his baseline outlook is for the U.S. central bank to hike rates by three-quarters of a percentage point at its November policy meeting and by half a percentage point in December. FOMC member James Bullard delivered a hawkish speech on Tuesday, emphasizing the risks of increased inflation and minimizing recession concerns, stating that recessions fears should be more global than U.S. FOMC member Loretta Mester also delivered a hawkish speech on Monday, stating emphasizing that further rate hikes are needed to bring rampant inflation under control. Federal Reserve Chair Jerome Powel has also raised expectations of future rate hikes, stating that the Fed is determined to curb inflation even at the expense of economic growth.
US GDP data released last week were in line with expectations, while unemployment claims were lower than expected, dropping to 193K from 209K the previous month. US economic indicators were lower than expected, driving the dollar down. Pending Home Sales fell by 2.0%, compared to a drop of only 0.6 the previous month. CB Consumer Confidence rose to 108.0 from 103.6 the previous month, exceeding expectations. New Home Sales climbed to 685K from 532K the previous month, when a drop in sales was predicted.
Several economic activity indicators are scheduled to be released this week for the US. More notably, ISM Manufacturing PMI and ISM Services PMI on the 3rd and the 5th respectively, are strong indicators of economic health. In addition, important employment indicators are due on the 7th. More importantly, several FOMC members are due to deliver speeches this week, which may cause some volatility in the currency.
The Euro declined early last week but gained strength mid-week as the dollar retreated. The EUR/USD pair tested the support at the 0.961 level early in the week, but climbed later in the week, closing near 0.979 on Friday. If the EUR/USD declines further it may find support near the 0.961 level and further down at the 0.845 level representing the 2002 low. If the currency pair goes up, it may encounter resistance at 1.019 and further up at 1.036.
EU CPI and Core CPI data released on Friday showed that Eurozone inflation is on the rise, intensifying the EU’s economic crisis. Eurozone inflation reached double digits in September, climbing to 10% on an annual basis, compared to 9.1% in August, beating estimates of 9.7%. On Thursday, German CPI data showed that inflation in Germany rose unexpectedly, touching double digits and boosting the Euro. German CPI rose by 1.9% in September, compared to only 0.3% in August, reaching 10% on an annual basis. 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.
ECB vice president Luis de Guindos stressed last week that inflation in the EU remains very high and stated that the central bank will do whatever it takes to lower inflation. ECB President Christine Lagarde delivered a decisively hawkish speech last Wednesday, stating firmly that the ECB will continue raising interest rates at the EU Central Bank’s next few meetings. Other ECB members also maintained a hawkish tone, not discounting the possibility 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. Soaring inflation rates in the EU increase the chances of another 75-bp rate hike in October, boosting the Euro.
Economic activity indicators released last week for the Eurozone were overall disappointing though, pushing the Euro down. In addition, Europe is facing an energy crisis driven by the EU’s dependency on Russian energy. EU’s energy crisis intensified last week, as there were leaks in three major Russian gas pipelines, raising suspicions of sabotage. High energy costs in the Eurozone are driving the Euro down, while inflationary pressures mount.
This week, Eurogroup meetings will be held on the 3rd and ECOFIN meetings on the 4th, and their outcome may affect the Euro. In addition, ECB President Christine Lagarde is due to deliver a speech on the 4th, which may cause volatility in the Euro price. ECB Monetary Policy Meeting Accounts due on the 6th may also affect the currency, as market participants are trying to gauge the Central Bank’s future direction.
The Sterling exhibited high volatility last week, plummeting on Wednesday after the BOE announced a bond-buying program, but rallying strongly later in the day, benefitting from the dollar’s decline. The GBP/USD rate sank to the 1.035 level in the week, but ended the week higher, near the 1.115 level. If the GBP/USD rate goes up, it may encounter resistance near the 1.146 level and higher up near 1.173, while support may be found at the new all-time low of 1.035.
The Sterling collapsed nearing parity with the dollar early last week, as markets pondered the implications for the economy of the new government’s first ‘mini-budget’. The new British Chancellor, Kwasi Kwarteng, has recently announced a preliminary budget including substantial tax cuts and energy subsidies. The announcement of the budget was met with skepticism by markets, and the Sterling tumbled. The budget includes major tax cuts, which the British government will fund through borrowing at a time when the country is facing a debt crisis. The Sterling was pushed down mid-week after British Prime Minister Liz Truss defended economic plans and heavy tax cuts, which have been criticized heavily in the past few days. At the end of the week, however, the Sterling rallied, supported by emergency BoE bond buying.
The BOE announced a new bond-buying program last week with the object to restore order to markets. The BOE aims to stem the sell-off in the UK gilt market by buying long-dated gilts, which have been strongly affected by repricing. The Sterling dropped after the BOE’s announcement but recovered later in the day after the dollar fell.
The Sterling hit an all-time low last week, as recession concerns are weighing the currency down. The pound had already taken a beating after the BOE delivered a lower-than-expected rate hike. BOE Governor Andrew Bailey stepped in on Monday to provide some support for the currency by announcing that the BOE would not hesitate to change interest rates if needed. The announcement propped up the Sterling briefly and raised expectations of an emergency rate hike. As, however, it became clear that there would be no emergency intervention, the pound started to retreat towards the new all-time low again.
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 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.
UK economic outlook remains poor, with high inflation and rising recession concerns, although annual inflation in August dropped to 9.9% from 10.1% in July. 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%.
Several economic activity indicators are scheduled to be released for the UK and may affect the Sterling somewhat. The new British government’s fiscal policy, however, is likely to be one of the primary drivers of the Sterling this week, in light of recent events.
The Yen traded mostly sideways against the dollar last week, with the USD/JPY rate remaining close to the 144.5 level. The Yen’s weakness had recently prompted an intervention, as the currency pair had threatened to cross the 145 level. If the USD/JPY pair falls, support might be found near 141.5 and further down at 138.0. If the pair climbs, it may find further resistance at the 145 level and higher up at the 1998 high of 147.7.
The BOJ Monetary Policy Meeting Minutes were released last week and provided a little support for the currency. The meeting minutes indicated that BOJ members are concerned about Japan’s rising inflation and the weakening yen. It is clear, however, that the BOJ does not intend to change its monetary policy to support the ailing currency.
Instead, the Japanese government recently intervened to stem the Yen's weakness after it became clear that the BOJ would not move to support the currency. The Japanese Ministry of Finance intervened in the Foreign Exchange market for the first time since 1998, buying Yen for dollars. The sudden move propelled the Yen upwards. Last week though, the Yen retreated again, as the intervention provided only a temporary boost and further interventions seem unlikely.
BOJ Governor Haruhiko Kuroda made a speech in support of Japan’s recent bond-buying program on Monday, defending the intervention. Markets, however, seemed unfazed by Kuroda’s support, especially as the BOJ does not seem to have any intention to act in support of the 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 BOJ also kept the target for the 10-year bond yield at 0%. The BOJ keeps bond yields low, weakening the Yen.
The difference in interest rates with other major Central Banks puts the Yen at a disadvantage, driving its price down. The US Federal Reserve voted to raise its interest rate by 75 basis points last week and the wide difference in interest rates is putting pressure on the Yen.
Several key economic indicators are scheduled to be released this week for Japan, especially the Tankan indexes on the 3rd the Tokyo Core CPI on the 4th, and Average Cash Earnings on the 7th. These will provide important information on the state of the Japanese economy and may affect the currency given the Yen’s current fragile state. More importantly, BOJ Governor Haruhiko Kuroda is due to deliver a speech on the 6th, which will be scanned by traders for signs of a shift in the BOJ’s monetary policy. Market participants will also keep an eye on announcements from the Japanese government about further interventions on the Yen.
Gold prices were volatile last week affected by market turmoil but overall benefitted from the weakening dollar, closing near $1,660 per ounce. If gold prices continue to decline, support may be found at the 2020 low near $1,441 per ounce. Resistance may be found at around 1,740 per ounce and higher up at $1,765 per ounce.
Market sentiment has been uncertain last week, as market participants have been pondering the effects of the Fed’s latest rate hike. Early in the week, hawkish Fed rhetoric propelled the dollar to fresh 2-year heights, with the dollar index touching the 114.7 level. Gold retreated to its lowest level since April 2020 on increased rate hike bets. The BOE’s decision to buy bond yields mid-week destabilized markets further providing support for gold prices, as demand for the metal increased. The BOE aims to stem the sell-off in the UK gilt market by buying long-dated gilts, which have been strongly affected by repricing.
The dollar had been trading in overbought territory and retreated towards the end of the week, however, despite robust US economic data and hawkish Fed rhetoric, the dollar index closed at 112.1 on Friday. US Treasury yields also peaked last week, with the US 10-year bond yield reaching 15-year highs of 4.0% early in the week, but deflated later in the week, closing at 3.8% on Friday.
Gold prices are driven down by the shift of most major Central Banks toward a tighter monetary policy to combat rising inflation rates. Assets yielding interest become a more appealing investment compared to gold as interest rates rise. The ECB has performed its largest ever rate hike, raising interest rates by 75 basis points, pushing gold prices down and ECB officials hint at another steep rate hike at the ECB’s next meeting in October. The UK, Switzerland, and Canada have also tightened their monetary policies recently.
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 last week. Last week, Core PCE Price Index, the Fed’s favorite inflation gauge, increased 0.6% month-on-month, compared to a forecast of 0.5%, with the annual reading climbing to 4.9%. Odds of another steep rate hike at the Fed’s next policy meeting in November increased, putting pressure on gold prices.
Oil prices rallied late last week, after falling to nine-month lows earlier in the week. WTI price fluctuated from $76.4 per barrel to over $82 per barrel, finally closing below $80 per barrel. If the WTI price declines, it may encounter support near $76.4 per barrel, while resistance can be found near $86.9 per barrel and higher up at the $90.5 per barrel level.
Supply concerns support oil prices. US crude oil inventories released on Wednesday were considerably lower than expected, dropping by 0.2M barrels, while an increase of 2.0M barrels was anticipated. In addition, a Hurricane in the Gulf of Mexico is disrupting oil distribution of about 190,000 barrels per day, propping up oil prices. The energy crisis in Europe intensifies, as there were leaks in three major Russian gas pipelines, raising suspicions of sabotage. The dollar’s sharp decline last week also boosted oil prices, increasing demand, as oil is priced in dollars.
OPEC+ will be meeting this week on the 5th, to discuss production levels amid an energy upheaval and there is much speculation ahead of OPEC’s meeting. In its last meeting, OPEC+ cut down production by 100,000 barrels per day. The organization is expected to further curtail oil production to keep oil prices high and there are reports of a substantial output cut of as much as 500.000 BPD. There are even reports that Russia may even propose that OPEC+ reduce oil output by 1 million BPD. Such a move would see oil prices skyrocketing again ahead of the winter’s increase in demand. OPEC+ members strive to defend the $100 per barrel key level, despite mounting global recession risks.
OPEC is determined to keep oil prices high, which have declined by as much as 25% since June. Slowing global economy and recession fears are undercutting oil demand pushing oil prices down. High oil prices may push fragile economies into recession even faster though, creating a vicious cycle. In addition, oil prices are driven down by the shift of most major Central Banks toward a tighter monetary policy. Aggressive rate hikes stifle economic activity, fuelling recession fears and pushing oil prices down.
Oil prices are also supported by fears of further escalation in the Ukraine crisis. Russian President Vladimir Putin recently renewed threats to halt all energy exports, after western allies agreed to impose a cap on Russian oil prices.
Most major cryptocurrency prices exhibited high volatility early last week amid overall market turbulence. Risk sentiment remains uncertain, creating turbulence in stock markets and crypto markets alike. Cryptocurrencies were under pressure last week from the risk-off sentiment that prevailed in markets, even as the dollar’s declining price provided some support for competing assets.
Bitcoin has been in a bear market almost continuously since last November, with its price registering a steep drop from an all-time high of over $68,000 in November 2021, to below $20,000 this month. Bitcoin ended the month with 3% losses. October however, has traditionally been a good month for the cryptocurrency, giving hope for the bulls to push on.
Bitcoin price briefly rose above the $20,000 level last week, but the bulls have failed to maintain that key level. Bitcoin retreated later in the week, trading near the $19,200 level during the weekend. If BTC declines further, support can be found at $17,600, while resistance may be encountered near $19,700.
Ethereum price exhibited low volatility last week, hovering around the $1,320 level. If Ethereum's price declines, it may encounter support at the psychological level of $1,000. If Ethereum's price increases, resistance may be encountered near $1,407.
Ethereum price had been boosted in anticipation of the merge from the Proof-of-Work to the Proof-of-Stake method. The hype created around the merger had created a bullish sentiment for the cryptocurrency, which deflated following its completion, triggering a selloff.
The US Fed recently raised its interest rate by 75 basis points, driving down crypto markets. Steep rate hikes increase global recession concerns, putting pressure on risk assets, such as cryptocurrencies. The EU, the UK, Switzerland, and Canada have also tightened their monetary policies recently.
BTC/USD 1h Chart
ETH/USD 1h Chart
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