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Weekly Market Outlook For September 12th To September 18th

Home >  Weekly Outlook >  Weekly Market Outlook For September 12th To September 18th

Written by:
Myrsini Giannouli

12 September 2022
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Forex

Important calendar events

  • September 12, GBP: GDP, Construction Output, Goods Trade Balance, Index of Services, Industrial Production, Manufacturing Production
  • September 13, GBP: Average Earnings Index, Claimant Count Change, Unemployment Rate
  • September 13, EUR: Italian Quarterly Unemployment Rate, ZEW Economic Sentiment, German ZEW Economic Sentiment, ECOFIN Meetings
  • September 13, USD: CPI and Core CPI, Federal Budget Balance
  • September 14, JPY: Core Machinery Orders, Revised Industrial Production
  • September 14, GBP: CPI and Core CPI, PPI Input and Output, RPI, HPI
  • September 14, USD: PPI and Core PPI
  • September 15, JPY: Trade Balance, Tertiary Industry Activity
  • September 15, USD: Core Retail and Retail Sales, Empire State Manufacturing Index, Philly Fed Manufacturing Index, Unemployment Claims
  • September 16, GBP: Retail Sales
  • September 16, EUR: Final Annual CPI and Core CPI
  • September 16, USD: Preliminary UoM Consumer Sentiment, Preliminary UoM Inflation Expectations

USD

As more major Central Banks are shifting toward a tighter monetary policy, the divergence between interest rates with the Fed becomes less apparent, putting pressure on the dollar.

The dollar exhibited high volatility last week. The dollar index reached a fresh 20-year high of 110.7 mid-week but ended the week on a lower note, below 109. US Treasury yields remained strong throughout the week, with the US 10-year bond yielding approximately 3.3%. 

Last week, the ECB raised its interest rates by an unprecedented 75 bps. ECB President Christine Lagarde hinted at another steep rate hike at the EU Central Bank’s next meeting in October. As more major Central Banks are shifting toward a tighter monetary policy, the divergence between interest rates with the Fed becomes less pronounced, putting pressure on the dollar. Even the BOJ, which has so far adopted a persistently dovish policy, is showing signs of wavering.

Fed rhetoric propelled the dollar to 20-year highs in the past couple of weeks amidst mounting expectations of a steep Fed rate hike in September. Fed rhetoric remained hawkish last week, although markets perceived FOMC members’ speeches as more cautious and the dollar plummeted. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike in September.

During their speeches on Friday, FOMC members George and Waller appeared to be determined to move forward with interest rate increases. Waller pointed to a ‘significant’ rate hike this month, hinting that he may back a 75-bps raise, but most Fed members refrained from committing to a specific number last week.

Fed Chair Jerome Powell delivered a speech on Thursday for the Cato Institute, reiterating the Fed’s commitment to bring inflation down. Powell stated that the US Central Bank would continue raising interest rates until the job is done. Powell’s hawkish speech increased rate hike bets, boosting the dollar. 

FOMC member Loretta Mester stressed on Wednesday that the Fed needs to continue increasing its short-term interest rate to fight soaring inflation. She also pointed out the risks of the US economy entering a recession, which hints that the US Central Bank might need to move less aggressively. Fed Vice Chair Lael Brainard’s speech was slightly more hawkish, vowing to press the fight against inflation on Wednesday. In her speech, Brainard however avoided committing to a specific course of action. 

US Unemployment Claims data released on Thursday were more optimistic than expected, showing that the important jobs sector is moving in a positive direction.

US inflation remains at a multi-decade high of 9.1%, but its ascend seems to have been arrested for the time being, mainly due to a slowdown in energy costs. Cooling inflation shows that the Federal Reserve’s aggressive monetary tightening yields results and removes some pressure on the Fed to increase interest rates. 

Several important US economic indicators are scheduled to be released this week. Inflation CPI data are due on the 13th and PPI data on the 14th and may affect the dollar significantly.

TRADE USD PAIRS

EUR 

In an unprecedented move on Thursday, the ECB raised its benchmark interest rate by 75 basis points, making a decisive turn towards a hawkish fiscal policy.

The Euro struggled to maintain the parity level against the dollar early last week, finally regaining parity with the dollar after Thursday’s ECB policy meeting. The EUR/USD climbed above the parity level on Friday, after markets had time to absorb the ECB news, reaching the 1.010 level. If the EUR/USD declines it may again find support at the strong psychological level of 1.000 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. 

In an unprecedented move on Thursday, the ECB raised its benchmark interest rate by 75 basis points, hiking its deposit rate to 0.75% from zero. The ECB will start paying interest on government deposits in a bid to keep that cash from flooding an already replete market facing a squeeze in bonds. Even though this was the ECB’s largest rate hike in history, it had already been priced in by markets and the effect on the Euro was rather muted.

The ECB statement following the conclusion of the policy meeting was perceived as cautious, sending mixed messages to investors on the future ECB fiscal direction. ECB President Christine Lagarde delivered a speech following the ECB meeting that was again perceived as contradictory, stating that the ECB would raise interest rates further if needed, but that this massive rise in interest rates was part of a "front-loading exercise" and "not the norm”. Lagarde left the door open for another ECB 75-bps raise in October if inflationary pressures remain high.

Lagarde’s speech at the Eurogroup meetings on Friday was more decisive, stating that the ECB’s top priority is to deliver price stability and the Euro rose on Friday following Lagarde’s statements.

In addition, Europe is facing an energy crisis, which seems to be escalating, driven by the EU’s dependency on Russian energy. G7 finance ministers have agreed to impose a cup on Russian oil prices in an attempt to reduce Russia's ability to fund its war against Ukraine. Gazprom has shut down the Nord Stream 1 gas pipeline in retaliation, leaving the EU vulnerable to the winter ahead and plunging the EU deeper into the energy crisis, spreading fears of energy rationing and blackouts. High energy costs in the Eurozone are driving the Euro down, while inflationary pressures mount.

Eurozone headline CPI jumped to 9.1% on an annual basis in August, the highest on record. Inflation in the EU is expected to rise even further in the following months, possibly reaching double digits, driven by the high cost of energy in the Eurozone. Increased price pressures are forcing the ECB to take swift action to tackle inflation. Rising Eurozone inflation is expected to figure largely in determining the future ECB monetary policy. 

Several economic indicators are scheduled to be released this week for the EU, which may affect the Euro in the wake of the ECB meeting. 

EURUSD 1hr chart

TRADE EUR PAIRS

GBP 

Last week marked historic changes for Britain, as the country saw a new monarch and Prime Minister within a few days.

The Sterling ended the week stronger, after touching its lowest level since 1984 mid-week. The GBP/USD climbed to the 1.165 level on Friday, paring the week’s losses. If the GBP/USD rate goes up, it may encounter resistance near the 1.190 level, while if it declines, support may be found near 1.140, representing the 2020 low. 

The Sterling has been under pressure by the ascend of the competing dollar for the past few weeks. The dollar, however, had been trading in overbought territory and retreated at the end of the week, benefitting competing currencies.  

Last week marked historic changes for Britain, seeing a new monarch and Prime Minister within a few days. The Sterling dropped after Queen Elizabeth’s death on Thursday but did not exhibit high volatility, as the Queen’s health had been deteriorating for some time.

A climate of political uncertainty has been putting pressure on the GBP over the past few months, especially after former PM Boris Johnson’s resignation in July. On Tuesday, Former Foreign Secretary Liz Truss formally became UK’s next Prime Minister, bringing a measure of stability and propping up the Sterling. 

Truss’ appointment provoked mixed reactions to markets, as she had questioned the BOE’s mandate in the past and her future stance towards the BOE may undermine the Sterling. On Thursday however, Britain’s new PM announced an ambitious plan to prop up energy in the UK and reduce the average cost of energy for households, by funneling billions to the sector.

The much-anticipated BOE monetary policy meeting, which had been scheduled for the 15th, has been postponed to the 22nd following the death of Queen Elizabeth. In its latest monetary policy meeting, the Bank of England raised its interest rate by 50 bps, bringing the total interest rate up to 1.75%. The BOE has adopted a moderate stance, trying to strike a balance between battling inflation and supporting the sluggish economy. Markets are pricing in a rate hike of at least 50 bp at the next BOE policy meeting in September.

The latest UK GDP data have shown that the British economy is contracting, confirming the BOE’s forecast of reduced economic growth. 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%. 

Britain’s poor economic outlook is preventing a more hawkish fiscal policy and is hampering the BOE’s attempts to bring inflation down. UK inflation reached double digits in July, with CPI climbing to 10.1% on an annual basis and is expected to rise even higher in the following months. Soaring energy and food prices put pressure on British households. 

This week, several important economic indicators are due for the UK and are expected to affect the currency considerably. GDP data on the 12th are especially crucial, as the UK is facing a possible recession this year. Inflation CPI and PPI data on the 14th may have a considerable impact on the currency ahead of the next BOE monetary policy meeting next week.

GBPUSD 1hr chart

TRADE GBP PAIRS

JPY

The Yen’s extreme weakness seems to have finally caught the attention of Japanese officials, as BOJ Governor Haruhiko Kuroda stated that sudden Yen moves are undesirable.

The Yen regained some ground against the dollar at the end of last week, after plummeting to a 24-year low mid-week. The USD/JPY was catapulted to the 145 level on Wednesday before finally closing near the 143 level on Friday. If the USD/JPY pair falls, support might be found near 138.0 and further down at 134.2. If the pair climbs, it may find further resistance at the 1998 high of 147.7. 

The Yen’s extreme weakness seems to have finally caught the attention of Japanese officials. Japanese Finance Minister Shunichi Suzuki stated on Tuesday that sharp yen moves were "undesirable" and that he was monitoring market volatility with a great sense of urgency. On Friday, BOJ Governor Haruhiko Kuroda held a meeting with Prime Minister Fumio Kishida to discuss economic developments. Following the conclusion of the meeting, Kuroda stated that sudden moves in the currency increase uncertainty and are undesirable. Kuroda’s statement was seen as less dovish than his usual stance, propping up the Yen.

The increased divergence between the US and Japanese monetary policies has widened the gap between their respective bonds, putting pressure on the Yen. The BOJ keeps bond yields low, weakening the Yen. On Wednesday, the BOJ announced that it would buy JPY550 billion of bonds, up from a prior level of JPY500 billion, aiming to keep the 10-year bond yield below 0.25%.  

The BOJ maintains 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. 

Final GDP and Final GDP Price Index data released last week for Japan were more optimistic than expected, showing that the economic outlook of Japan is improving and providing support for the currency. Final quarterly GDP rose by 0.9% against 0.7% expected and the Final GDP Price Index retreated by 0.3%, which was lower than the 0.4% drop expected. 

Inflationary pressures are increasing in Japan, mainly due to the high cost of imported energy. A weak currency, low wages, and rising inflation are burdening Japanese households. 

USDJPY 1hr chart

TRADE JPY PAIRS

Gold 

Gold prices are driven down by the shift of major Central Banks towards a tighter monetary policy, as assets yielding interest become a more appealing investment than gold.

Gold prices retreated at the beginning of the week but rallied towards the end of the week, closing near $1,717 per ounce on Friday. If gold prices continue to decline, the $1,700 per ounce level may provide support, while further support may be found at the yearly low near $1,681 per ounce. Resistance may be found around 1,765 per ounce and higher up at $1,802 per ounce.

Gold prices were volatile last week, affected by conflicting market forces. The ECB’s unprecedented rate hike put pressure on gold prices but the dollar’s decline boosted gold prices.

The ECB performed its largest ever rate hike on Thursday, raising interest rates by 75 basis points, putting pressure on gold prices. ECB President Christine Lagarde hinted at another steep rate hike at the EU Central Bank’s next meeting in October. 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. 

Gold has been pushed down by the rise of competing assets, such as the dollar and US treasury yields. The dollar exhibited high volatility last week and the dollar’s decline towards the end of the week boosted demand for gold. The dollar index reached a fresh 20-year high of 110.7 midweek but ended the week on a lower note, below 109. US Treasury yields remained strong throughout the week, with the US 10-year bond yielding approximately 3.3%. 

Fed rhetoric propelled the dollar to 20-year highs in the past couple of weeks amidst mounting expectations of a steep Fed rate hike in September. Fed rhetoric remained hawkish last week, although markets perceived FOMC members’ speeches as more cautious and the dollar plummeted. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike in September.

XAUUSD 1hr chart

TRADE GOLD

Oil

OPEC+ members agreed last week to cut down production by 100,000 barrels per day in an attempt to defend the $100 per barrel key level, despite mounting global recession risks.

Oil prices exhibited high volatility last week, testing the $82 per barrel support mid-week, but recovering towards the end of the week and closing above $86 per barrel on Friday. Oil prices edged higher later on Thursday however, and WTI touched $84.0 per barrel. If the WTI price declines, it may encounter further support near $66 per barrel, while resistance can be found near $98 per barrel and higher up at the $100 per barrel level. 

OPEC+ members agreed last week to cut down production by 100,000 barrels per day to offset the potential return of Iranian barrels to oil markets. The organization has seen oil pricing slipping over the past month and has decided to curtail oil production to keep oil prices high. OPEC+ members strive to defend the $100 per barrel key level, despite mounting global recession risks. OPEC’s announcement boosted oil prices temporarily, but the effect of OPEC’s decision soon waned and oil prices continued to decline.

Over the past few months, Russia’s war against Ukraine has destabilized oil markets. G7 finance ministers have agreed to impose a cap on Russian oil prices in an attempt to reduce Russia's ability to fund its war against Ukraine, which would potentially drive oil prices lower. Gazprom has shut down the Nord Stream 1 gas pipeline indefinitely, and gas prices in Europe have skyrocketed. Russian President Vladimir Putin threatened to halt oil and gas exports on Thursday if price caps are imposed on Russian oil exports. Oil prices rose immediately after Putin’s statements. 

Rising odds of aggressive rate hikes, however, push oil prices down. Severe rate hikes stifle economic activity fuelling recession fears. On Thursday, the ECB performed its largest rate hike ever, increasing its interest rate by 75 bps. The global economic slowdown and recession concerns are decreasing the oil demand outlook, putting pressure on oil prices. 

Oil prices are also weakened by low demand in China due to renewed Covid restrictions and by a potential deal with Iran. If the deal goes through, it can add more than a million barrels of oil per day to the global market providing some relief to oil demand.

WTI 1hr chart

TRADE WTI

Bitcoin and major cryptocurrencies

Bitcoin’s bearish rally represented its biggest price gain in six months, pushing crypto market capitalization back over $1 trillion.

Cryptocurrency prices exhibited high volatility last week. Both Bitcoin and Ethereum plummeted mid-week but rallied towards the end of the week. It was also an uncertain week for stock markets, with high volatility, which was transferred to crypto markets. Risk sentiment remains unstable, affecting stock markets and crypto markets alike. 

Global recession fears have been propping up safe-haven assets and pushing down cryptocurrency prices. Steep rate hikes put pressure on risk assets, as most major Central Banks shift towards a tighter fiscal policy. On Thursday, the ECB raised interest rates by an unprecedented 75 bps. 

Fed rhetoric propelled the dollar to 20-year highs in the past couple of weeks amidst mounting expectations of a steep Fed rate hike in September. Fed rhetoric remained hawkish last week, although markets perceived FOMC members’ speeches as more cautious and the dollar plummeted. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike in September.

The dollars ascend has pushed competing assets down, putting pressure on cryptocurrency prices. As the dollar weakened, however, most major cryptocurrencies started to rally. Bitcoin price gained upward momentum, rising past the $20,000 psychological level and above the $21,000 level. Bitcoin’s bearish rally represented its biggest price gain in six months, pushing crypto market capitalization back over $1 trillion.

Bitcoin fell to $18,500 last week but recovered towards the end of the week, rising above $21,500 during the weekend. If BTC declines again, support can be found at the key $20,000 level, while resistance may be encountered near $21,800. 

Ethereum also declined mid-week, falling below the $1,550 level support, but rose to $1,780 during the weekend. If Ethereum's price declines, it may encounter support near $1,550 again and further down at $1,420. If Ethereum's price increases, resistance may be encountered near $1,720.

Ethereum price has been boosted in anticipation of the so-called ‘merge’, which will pass through a series of phases in the next couple of weeks and is expected to be finalized on September 19th. The Merge from the Proof-of-Work to the Proof-of-Stake method will be a significant network upgrade that is expected to lead to an increase in demand for Ethereum. 

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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