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Weekly Market Outlook For September 19th To September 25th

Home >  Weekly Outlook >  Weekly Market Outlook For September 19th To September 25th

Written by:
Myrsini Giannouli

19 September 2022
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Forex 

Important calendar events

  • September 19, JPY: Bank Holiday
  • September 19, GBP: GDP, Bank Holiday – Funeral of Queen Elizabeth
  • September 20, EUR: German PPI, Current Account
  • September 20, USD: Building Permits, Housing Starts
  • September 21, GBP: Public Sector Net Borrowing, CBI Industrial Order Expectations
  • September 21, USD: Existing Home Sales, FOMC Economic Projections, FOMC Statement, Federal Funds Rate, FOMC Press Conference
  • September 22, JPY, BOJ Core CPI, BOJ Policy Rate, Monetary Policy Statement, BOJ Press Conference
  • September 22, GBP: MPC Official Bank Rate Votes, Monetary Policy Summary, Official Bank Rate
  • September 22, USD: Unemployment Claims, Current Account, CB Leading Index
  • September 23, EUR: French and German Flash Services and Manufacturing PMI, Eurozone Flash Services and Manufacturing PMI
  • September 23, GBP: UK Flash Services and Manufacturing PMI
  • September 23, USD: US Flash Services and Manufacturing PMI

USD

The US Federal Reserve is expected to raise its benchmark interest this week to combat persistently high inflation rates, with markets pricing in another 75 basis points rate hike.

The dollar remained strong last week, as the dollar index flirted with the 110 level throughout the week, closing above 109.6 on Friday. US Treasury yields rose, with the US 10-year bond yielding above 3.45% on Friday. 

Several economic activity indicators were released last week for the US, which were overall positive for the US economy. 

UoM Consumer Sentiment, which is a leading indicator of financial confidence and consumer spending, rose to 59.5 in August from 58.2 the previous month. Core Retail sales, which exclude automobiles, fell short of expectations, dropping by 0.3%, while projections showed zero change compared to last month’s values. Retail sales on the other hand rose by 0.3%, even as projections predicted a drop of 0.1%, indicating that especially the automobile industry performed better than expected in August. The Empire State Manufacturing Index, which is a leading indicator of economic health, exceeded expectations rising to -1.5 from – 31.3 last month. US Unemployment claims were lower than expected, providing support for the dollar, falling to 213K compared to 225K predicted. 

US CPI data released last week exceeded expectations, propelling the dollar upwards. US inflation forecasts before the release of the CPI data indicated that headline inflation was going to decline, due to decreased fuel costs. Monthly CPI was projected to decrease by 0.1%. Instead, CPI increased by 0.1% in August. Annual CPI through August increased by 8.3%, which presents an improvement compared to July’s 8.5% and June’s peak of 9.1%. US inflation, however, was expected to decelerate at a faster pace this month due to a slowdown in energy costs. The monthly core CPI in August increased by 0.6% against the 0.3% forecasted. US PPI data were in line with expectations, with monthly PPI dropping by 0.1%, compared to last month’s drop of 0.5%, and Core PPI climbing by 0.4%, compared to last month’s 0.2%. 

Fed rhetoric propelled the dollar to 20-year highs in the past few weeks amidst mounting expectations of a steep Fed rate hike. The US Federal Reserve is expected to continue raising its benchmark interest to combat persistently high inflation rates. Inflation in the US is not cooling at the expected rate, putting pressure on the Fed to maintain its hawkish stance. Recent US economic and employment data were robust, indicating that the US economy can withstand aggressive tightening. 

This week, all eyes are going to be on the much-anticipated Fed monetary policy meeting on the 21st as Fed is set for another steep rate hike. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike on Wednesday, with odds favoring a 75-bp rate hike, while recently traders have started betting on a 100-bp rate hike. 

The Fed policy meeting is expected to generate high volatility for the dollar. The ensuing FOMC statement might also affect the dollar strongly, as well as Federal Reserve Jerome Powell’s press conference following the Fed meeting. As this week’s rate hike has been largely priced in, market participants will pay close attention to Fed statements to gauge the Fed’s future direction.

TRADE USD PAIRS

EUR 

Eurozone inflation hit a record high of 9.1% in August on an annual basis, as price pressures increased despite the fall in global fuel prices.

The Euro struggled to maintain parity with the dollar last week. The EUR/USD pair was testing the support at the strong psychological parity level of 1.000 throughout the week, finally closing near 1.001 on Friday. If the EUR/USD declines further, it may find support 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. 

Eurozone inflation hit a record high of 9.1% in August on an annual basis, as price pressures increased despite the fall in global fuel prices. According to EU CPI data released last week, monthly EU CPI rose 0.6% in August, while Annual Core CPI climbed to 4.3%.

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. 

Economic activity indicators released for the Eurozone last week were overall disappointing, indicating that the economic outlook in the EU remains poor and pushing the Euro down. Eurozone Trade Balance fell by 40.3B in August, while projections estimated a drop of 31.9B. French CPI data were higher than expected, with inflation in France rising by 0.5% in August against 0.4% the previous month. 

High US inflation rates are likely to force the Fed to perform another steep rate hike this month. Even though the ECB has also raised its interest rates, the Fed will probably continue moving at an aggressively hawkish pace. As the difference in interest rates between the Fed and the ECB remains high, the dollar gains ground against the Euro.

In its latest monetary policy meeting, the ECB raised its benchmark interest rate by 75 basis points, hiking its deposit rate to 0.75% from zero. Hawkish ECB rhetoric has propped up the Euro, with ECB officials pointing at further rate hikes this year.

Europe however, is facing an energy crisis, which seems to be escalating, driven by the EU’s dependency on Russian energy. High energy costs in the Eurozone are driving the Euro down, while inflationary pressures mount.

This week, especially important economic indicators are the Eurozone PMI data due on the 23rd. The Euro, however, is more likely to be affected this week by the outcome of the Fed monetary policy meeting on the 21st.

EURUSD 1hr chart

TRADE EUR PAIRS

GBP 

A moderate BOE rate hike of 50 basis points will likely weaken the Sterling even further, especially if the Fed hikes interest rates by 75 bp or more a day before.

The Sterling withdrew last week, with the GBP/USD rate briefly touching a 37-year low and finally ending the week near the 1.142 level. If the GBP/USD rate goes up, it may encounter resistance near the 1.173 level and higher up near 1.190, while if it declines, support may be found near 1.140, representing the 2020 low. 

These past few weeks have marked historic changes for Britain, seeing a new monarch and Prime Minister within a few days. 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. Former Foreign Secretary Liz Truss finally became UK’s next Prime Minister, bringing a measure of stability and propping up the Sterling. Truss has 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 UK's economic outlook remains poor, with high inflation and rising recession concerns. Annual inflation in August cooled unexpectedly, dropping to 9.9% from 10.1% in July. UK CPI was lower than expected in August, with forecasts again at double digits.  The Sterling has been hit hard this year by soaring UK inflation rates, and the cooling inflation data boosted the currency on Wednesday. 

UK monthly GDP data fell below expectations last week, putting pressure on the Sterling. Britain’s GDP grew by 0.2% in July, against expectations of a 0.3% 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. 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.

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. Markets are pricing in a rate hike of at least 50 bp at Thursday’s meeting, with a high probability for a 75 bp hike. A moderate BOE rate hike of 50 basis points will likely weaken the Sterling even further, especially if the Fed hikes interest rates by 75 bp or more a day before.

GBPUSD 1hr chart

TRADE GBP PAIRS

JPY

The BOJ is expected to keep its benchmark interest rate unchanged at Thursday’s meeting, regardless of recent statements by BOJ officials about the currency’s weakness.

Last week they remained mostly steady against the dollar, with the USD/JPY rate ending the week near the 142.9 level. 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. 

Indicators of economic activity released last week for Japan were disappointing, pushing the currency down. The monthly Trade Balance in August went down by 2.37T, which represents the largest monthly trade deficit on record. This was even lower than the projected drop of 2.08T and is a further decrease from July’s 2.16T deficit. Tertiary Industry Activity also decreased by 0.6% in August, falling below projections of just a 0.1% drop.

Last week, reports that the Bank of Japan is conducting a rate check in preparation for currency intervention, boosted the Yen. The Yen’s extreme weakness seems to have finally caught the attention of Japanese officials. BOJ Governor Haruhiko Kuroda has stated that sudden moves in the currency increase uncertainty and are undesirable. Seiji Kihara, the deputy chief cabinet secretary of the Japanese government, stated recently that Japan's government must take steps as needed to counter excessive declines in the Yen. Increasing comments by Japanese officials expressing concern about the Yen’s weakness may hint at a hawkish shift in the BOJ’s monetary policy.

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. 

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. 

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

This week, the Fed’s monetary policy meeting on the 21st and the BOJ policy meeting on the 22nd is expected to affect the Yen considerably. If the Fed hikes interest rates by 75 bp or more, it will likely add more pressure on competing assets, such as the Yen. 

The BOJ is expected to keep its benchmark interest rate unchanged at Thursday’s meeting, regardless of recent statements by BOJ officials about the currency’s weakness. Currency intervention is likely still far ahead and a BOJ shift towards a more hawkish policy is expected to be gradual. However, if the BOJ statement and Press Conference following the meeting have a more hawkish tone, this may signal the beginning of a change in BOJ policy.

USDJPY 1hr chart

TRADE JPY PAIRS

Gold 

A steep rate hike of 75 basis points or more will likely set gold prices tumbling again, especially if followed by a hawkish Fed Statement and Press Conference. 

Gold prices plummeted last week, dropping to their lowest level since June 2020. Gold fell below the yearly low of $1,681 per ounce support, finally closing near $1,675 per ounce on Friday. 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.

The dollar remained strong last week, as the dollar index flirted with the 110 level throughout the week, closing above 109.6 on Friday. US Treasury yields rose, with the US 10-year bond yielding above 3.45% on Friday. 

US CPI data released last week exceeded expectations, propelling the dollar upwards and pushing gold prices down. The Fed is likely to maintain a hawkish stance to combat persistently high inflation rates. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike in September, with odds favoring a 75-bp rate hike.

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. 

This week, all eyes are going to be on the much-anticipated Fed monetary policy meeting on the 21st as Fed is set for another steep rate hike. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike on Wednesday, with odds favoring a 75-bp rate hike, while recently traders have started betting on a 100-bp rate hike. A raise in the US Central Bank’s interest rates have already been priced in by markets, however. A lower-than-expected rate hike of 50 bp might easily provide support for gold prices at their current level below $1,680 per ounce. A steep rate hike of 75 basis points or more though, will likely set gold prices tumbling again, especially if followed by a hawkish Fed Statement and Press Conference. 

XAUUSD 1hr chart

TRADE GOLD

Oil 

New hurdles in the negotiations for reviving the 2015 Iran nuclear deal have raised doubts on whether Iran is committed to the deal.

Oil prices went down last week for a third consecutive week amid potentially diminished demand. WTI's price closed near $85 per barrel on Friday. If the WTI price declines, it may encounter further support near $82 per barrel, while resistance can be found near $90.5 per barrel and higher up at the $98 per barrel level. 

Last week, an oil spill at Iraq's Basra terminal boosted oil prices, as supply concerns grew. A US rail strike was averted after workers reached an agreement with the rail union. Oil prices had gone up amid concerns that the strike would hinder oil distribution and the news of the agreement brought prices back down.

Oil prices are weakened by concerns of declining demand, as China steps up Covid measures. China, which is the world’s largest oil importer, has introduced new Covid lockdowns in several parts of the country. 

Supply concerns prop up oil prices, as prospects of reviving the 2015 Iran nuclear deal have decreased considerably. New hurdles in the negotiations have raised doubts on whether Iran is committed to the deal. 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.

OPEC+ members have agreed 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. 

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 and Russian President Vladimir Putin has threatened to retaliate by halting oil and gas exports if price caps were imposed. 

Rising odds of aggressive rate hikes push oil prices down. Severe rate hikes stifle economic activity fuelling recession fears. 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. 

This week, oil prices will likely be affected by the outcome of two major monetary policy meetings, those of the Fed and the BOE, on the 21st and the 22nd respectively. The Fed is expected to perform a steep rate hike, with market odds in favor of a 75-bp increase in interest rates. The BOE is expected to set a more conservative tone and may opt for a 50-bp rate hike this time. Both rate hikes have been largely priced in by markets, but may still put pressure on oil prices. In case the Fed points towards a more hawkish fiscal policy, oil prices are likely to decline further.

WTI 1hr chart

TRADE WTI

Bitcoin and major Cryptocurrencies

The hype created around the merger had created a bullish sentiment for Ethereum, which deflated following its completion triggering a selloff.

Cryptocurrency prices plummeted last week as risk appetite fell, putting pressure on riskier assets. Risk sentiment remains unstable, affecting stock markets and crypto markets alike. 

Bitcoin price dropped below the key $20,000 support level last week, trading near $19,600 over the weekend. If BTC declines further, support can be found at the $19,200 level, while resistance may be encountered near $20,500. 

Ethereum's price plummeted last week, falling below the $1,550 level support, and continued falling over the weekend below the $1,420 level support. If Ethereum's price declines, it may encounter support further down at the psychological level of $1,000. If Ethereum's price increases, resistance may be encountered near $1,640.

The long-anticipated Merge was completed on Thursday, but Ethereum's price crashed by more than 15% after the merge. Ethereum price had been boosted in anticipation of the so-called ‘merge’ for months. The hype created around the merger had created a bullish sentiment for the cryptocurrency, which deflated following its completion triggering a selloff.

The Merge from the Proof-of-Work to the Proof-of-Stake method is a significant network upgrade that is expected to lead to an increase in demand for Ethereum. It is also a more environmentally-friendly consensus model, limiting drastically the energy consumption and carbon footprint of Ethereum.

Steep rate hikes increase global recession concerns, putting pressure on risk assets. This week, all eyes are going to be on the much-anticipated Fed monetary policy meeting on the 21st as Fed is set for another steep rate hike. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike on Wednesday, with odds favoring a 75-bp rate hike, while recently traders have started betting on a 100-bp rate hike. A raise in the US Central Bank’s interest rates have already been priced in by markets, though, and may have muted impact on cryptocurrency prices. Cryptocurrencies may even go up in case the Fed’s tone in the Statement and Press Conference following the policy meeting is more dovish than expected. A more aggressive rate hike and a more hawkish Statement though, are likely to set cryptocurrencies tumbling. 

BTC/USD 1h Chart

BTCUSD 1hr chart

 

ETH/USD 1h Chart

ETHUSD 1hr chart

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Written by:
Myrsini Giannouli

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