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Weekly Market Outlook For September 26th To October 2nd

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Written by:
Myrsini Giannouli

26 September 2022
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Forex 

Important calendar events

  • September 26, JPY: BOJ Governor Kuroda's speech
  • September 26, EUR: German IFO Business Climate, Belgian NBB Business Climate, German Buba President Nagel Speech, ECB President Lagarde Speech
  • September 26, GBP: MPC Member Tenreyro Speech
  • September 26, USD: FOMC Members Collins and Mester's Speeches
  • September 27, GBP: MPC Member Pill Speech
  • September 27, USD: FOMC Member Bullard and Fed Chair Powell Speeches, Core Durable Goods Orders, Durable Goods Orders, CB Consumer Confidence, New Home Sales, Richmond Manufacturing Index
  • September 28, JPY: Monetary Policy Meeting Minutes
  • September 28, EUR: German GfK Consumer Climate, ECB President Lagarde Speech
  • September 28, GBP: MPC Member Cunliffe's Speech
  • September 28, USD: Goods Trade Balance, Preliminary Wholesale Inventories, Pending Home Sales, FOMC Member Bullard Speech
  • September 29, GBP: Nationwide HPI, M4 Money Supply, Mortgage Approvals, Net Lending to Individuals
  • September 29, USD: Final GDP, Unemployment Claims, Final GDP Price Index, FOMC Member Mester Speech
  • September 30, JPY: Unemployment Rate, Preliminary Industrial Production, Retail Sales, Consumer Confidence, Housing Starts
  • September 30, GBP: Current Account, Final GDP, Revised Business Investment
  • September 30, EUR: French Consumer Spending, German Unemployment Change, Italian Monthly Unemployment Rate, CPI Flash Estimate, Core CPI Flash Estimate, Italian Prelim CPI, EU Unemployment Rate
  • September 30, USD: Core PCE Price Index, Personal Income, Personal Spending, FOMC Member Mester and Williams Speeches, Revised UoM Consumer Sentiment, Revised UoM Inflation Expectations

USD

Fed Chair Jerome Powel stated that the Fed is determined to curb inflation, even to the expense of economic growth, raising expectations of future rate hikes.

The dollar price surged last week as the Fed tightened its monetary policy further, with the dollar index reaching a fresh 20-year high above the 113 level. US Treasury yields soared, with the US 10-year bond yielding touching 3.8%, its highest value since 2011, and the 2-year bond yielding above 4.2% for the first time since 2007.  

The dollar price was volatile last week as a result of Wednesday’s Fed policy meeting. Unexpected developments from the BOJ and the BOE also contributed to a climate of uncertainty. On Friday, Fed Chair Jerome Powell delivered a speech that was in line with the US Central Bank’s hawkish stance, boosting the dollar. 

The US Federal Reserve voted to raise its interest rate by 75 basis points on Wednesday 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%. The Fed’s move was in line with market expectations and had largely been priced in, while some analysts were even predicting a 100-bp rate hike. 

In a hawkish statement after the Fed meeting, US policymakers downgraded their GDP estimates, while revising upwards the inflation outlook. Inflation in the US is not cooling at the expected rate, putting pressure on the Fed to maintain its hawkish stance. CPI increased by 0.1% in August and Annual CPI through August increased by 8.3%, prompting the Fed to continue tightening its monetary policy.

Federal Reserve Chair Jerome Powel in a Press Conference after the meeting raised expectations of future rate hikes. Powel stated that the Fed is determined to curb inflation, even at the expense of economic growth, pointing to more rate hikes. Powell’s speech fuelled recession concerns, boosting the safe-haven dollar and pushing stock markets down.

Indicators of economic activity released last week for the US presented an overall optimistic economic outlook, bolstering the dollar. US Flash Services and Manufacturing PMI data exceeded expectations and were considerably higher than last month’s values, indicating that the US economy is expanding. US Unemployment claims were lower than anticipated, dropping to 213K from 220K forecasted. Trade Balance data released on Thursday also exceeded expectations, boosting the dollar.

Several indicators of economic activity are scheduled to be released this week for the US and may affect the dollar in the wake of last week’s policy meeting. More importantly, FOMC members’ speeches are expected to cause some volatility in the currency and especially Fed Chair Powell’s speeches on the 27th and 28th.

TRADE USD PAIRS

EUR

The Euro retreated last week after Russian President Vladimir Putin announced the partial mobilization of Russian military reserves and renewed threats to halt energy exports.

The Euro plummeted last week, crashed by a hawkish Fed and developments in the Ukrainian crisis. The EUR/USD pair tumbled below the strong parity level support and below the support at the 0.987 level, closing near 0.968 on Friday. If the EUR/USD declines further it may find support near 0.961 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. 

The Euro retreated last week after Russian President Vladimir Putin announced the partial mobilization of Russian military reserves from civilian conscripts. Putin also renewed threats to halt energy exports and threatened western allies with nuclear action. A risk aversion sentiment prevailed, driving down riskier assets such as the Euro. 

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

The Euro retreated even further after a hawkish Fed policy meeting and statement boosted the dollar. The US Federal Reserve voted to raise its interest rate by 75 basis points last week to curb soaring US inflation rates. 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. ECB President Christine Lagarde delivered another hawkish speech on Tuesday, pointing to further rate hikes.

French and German Flash Services and Manufacturing PMI, as well as Eurozone Flash Services and Manufacturing PMI, released last week, were overall in line with expectations. The PMI data showed contraction in these two important sectors for the Eurozone, compared to last month’s data. EU economic activity is shrinking putting pressure on the Euro.

At the start of the week, markets are expected to be still in the grip of the recent Fed and BOE monetary policy meetings, absorbing the implications of continued monetary tightening. Market participants will follow closely ECB members’ speeches this week for hints into the future monetary policy of the EU Central Bank. ECB President Christine Lagarde’s speeches on Monday and Wednesday may generate some volatility for the currency in the wake of the Fed’s monetary policy meeting last week. The aftermath of the Italian Parliamentary elections on Sunday may also be felt by the Euro at the start of the week.

EURUSD 1hr chart

TRADE EUR PAIRS

GBP

The BOE raised its interest rate by 50 bps on Thursday, bringing the total interest rate to 2.25%, while markets were pricing in a steeper rate hike of 75 basis points.

The Sterling collapsed last week after the Fed and BOE policy meetings. The GBP/USD rate fell at multi-decade lows against the dollar, closing near the 1.108 level on Friday. If the GBP/USD rate goes up, it may encounter resistance near the 1.173 level and higher up near 1.190. 

The Sterling retreated even further against the dollar on Friday, after the announcement of the new government’s first ‘mini-budget’. The Sterling has already dropped to a 37-year low mid-week, following Putin’s threats and the Fed’s aggressively hawkish stance compared to the BOE’s more moderate policy. On Friday, the new British Chancellor announced a preliminary budget including substantial tax cuts and energy subsidies. Chancellor Kwasi Kwarteng’s ‘mini budget’ aims to tackle soaring UK inflation and poor economic outlook. The announcement of the budget was met with skepticism by markets and the Sterling tumbled. 

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. Liz Truss became UK’s next Prime Minister, bringing a measure of stability. 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. announce details of the energy plan on Wednesday, stating that British households will be burdened with high energy bills as the price of independence from Russian energy imports. 

UK Flash Services PMI released last week fell below expectations, dropping to 49.2 from 50.9 the previous month. Manufacturing PMI data on the other hand exceeded expectations, rising to 48.5 from 47.3 the previous month, indicating that the UM manufacturing sector expanded.

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%. 

The Bank of England raised its interest rate by 50 bps on Thursday, bringing the total interest rate to 2.25%. Markets were expecting a steeper rate hike, with odds favoring a 75-bp raise. 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 on Wednesday. The Fed is expected to continue hiking its interest rates in the following months, as signaled by Fed Chair Jerome Powell on Wednesday.

This week, MPC members’ speeches throughout the week are expected to affect the Sterling in the wake of last week’s BOE policy meeting. Market participants will scan these speeches to gain insight into the BOE’s future stance.

GBPUSD 1hr chart

TRADE GBP PAIRS

JPY

The Japanese Ministry of Finance intervened in the Foreign Exchange market for the first time since 1998, buying Yen for dollars to stem the Yen's weakness.

The Yen had a volatile week, with the USD/JPY rate spiking above the 145 level resistance, then dropping to the 142 level after an intervention by the government of Japan, and finally closing near 143.3 on Friday. 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. 

In a surprise move, the Japanese government intervened to stem the Yen's weakness after it became clear that the BOJ would not move to support the currency any time soon. The Japanese Ministry of Finance intervened in the Foreign Exchange market for the first time since 1998, buying Yen for dollars. Japan's Vice Finance Minister for international affairs Masato Kanda stated that the government has taken decisive action to support the Yen, which had crossed the 145-mark with the dollar. The sudden move propelled the Yen upwards, although it is unlikely that this boost can be sustained.

The BOJ monetary policy meeting on Thursday held a few surprises. 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 statement following the policy meeting was neutral in tone, further weakening the currency. The BOJ kept the target for the 10-year bond yield at 0%. The BOJ keeps bond yields low, weakening the Yen. BOJ Governor Haruhiko Kuroda re-affirmed the BOJ’s commitment to maintaining economic stimulus, stating that the Bank would provide further easing if necessary and was prepared to maintain its dovish stance for a long time.

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 on Wednesday to curb soaring US inflation rates. While the Fed rate hike was in line with market expectations and had largely been priced in, the wide difference in interest rates is putting pressure on the Yen.

This week, BOJ Governor Haruhiko Kuroda’s speech on the 26th may cause some volatility for the Yen in the wake of last week’s policy meetings. The Monetary Policy Meeting Minutes are scheduled to be released on the 28th and may provide insight into the BOJ’s future policy direction.

USDJPY 1hr chart

TRADE JPY PAIRS

Gold 

The dollar price reached a 20-year high last week as the Fed tightened its monetary policy putting pressure on competing assets and driving gold prices down.

Gold prices retreated last week, falling below the $1,681 per ounce support and closing near $1,643 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 around 1,740 per ounce and higher at $1,765 per ounce.

The dollar’s rally last week put pressure on competing assets, driving gold prices down. The dollar price surged last week as the Fed tightened its monetary policy further, with the dollar index reaching a fresh 20-year high above the 113 level. Elevated US bond yields also diminish the appeal of gold. US Treasury yields soared last week, with the 10-year bond yielding touching 3.8%, its highest value since 2011, and the 2-year bond yielding above 4.2% for the first time since 2007.  

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. On Thursday, the BOE voted to raise its interest rate by 50 basis points, while the US Fed raised its interest rate by 75 basis points on Wednesday. Federal Reserve Chair Jerome Powel has raised expectations for future rate hikes, stating that the Fed is determined to curb inflation even at the expense of economic growth. 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. 

Gold prices are supported by increased risk aversion sentiment. Russian President Vladimir Putin has announced the partial mobilization of Russian military reserves from civilian conscripts. Putin has also renewed threats to halt energy exports and threatened western allies with nuclear action. 

XAUUSD 1hr chart

TRADE GOLD

Oil 

Oil prices tumbled to their lowest level since January last week on fears that rising interest rates may tip major economies into recession, limiting oil demand.

Oil prices tumbled to their lowest level since January last week as monetary tightening intensified global recession concerns. Fears that rising interest rates may tip major economies into recession, limiting oil demand, and pushing oil prices down. WTI price dropped below the $82 per barrel support closing near $79.6 per barrel on Friday. If the WTI price declines it may encounter support near $66.5 per barrel, while resistance can be found near $90.5 per barrel and higher up at the $98 per barrel level. 

Aggressive rate hikes stifle economic activity fuelling recession fears and pushing oil prices down. Last week the BOE voted to raise its interest rate by 50 basis points, while the US Fed raised its interest rate by 75 basis points on Wednesday. Federal Reserve Chair Jerome Powel has raised expectations for future rate hikes, stating that the Fed is determined to curb inflation even at the expense of economic growth. 

Oil prices are also 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. 

Oil prices are supported by fears of further escalation in the Ukraine crisis. On Wednesday, Russian President Vladimir Puthe tin announced the partial mobilization of Russian military reserves from civilian conscripts. Putin also renewed threats to halt all energy exports and threatened western allies with nuclear action. His speech renewed fears of a global energy crisis driving oil prices up. 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.

Supply woes are keeping oil prices up. OPEC+ reportedly missed its production target by 3.583 million barrels per day in August. In addition, 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. Despite mounting global recession risks, OPEC+ members strive to defend the $100 per barrel key level. 

WTI 1hr chart

TRADE WTI

Bitcoin and major Cryptocurrencies 

Cryptocurrency prices and stock markets retreated last week as Central Banks around the world raised interest rates and a risk aversion sentiment prevailed in markets.

Cryptocurrency prices retreated last week, as a risk aversion sentiment prevailed in markets. Stock markets went down as Central Banks around the world raised interest rates. Fears that monetary tightening may lead some of the world’s largest economies into recession are putting pressure on riskier assets, such as cryptocurrencies.

The US Fed raised its interest rate by 75 basis points on Wednesday, driving down crypto markets. Federal Reserve Chair Jerome Powel raised expectations for future rate hikes, stating that the Fed is determined to curb inflation even at the expense of economic growth. Steep rate hikes increase global recession concerns, putting pressure on risk assets, such as cryptocurrencies. The Fed’s rate hike was largely expected and had already been priced in by markets. Cryptocurrencies have been retreating for the past couple of weeks in expectations of a hawkish Fed outcome and so the effect of the rate hike was somewhat muted.

On Thursday, the BOE voted to raise its interest rate by 50 basis points. The BOE’s raise was lower than anticipated, as markets had priced in a rate hike of up to 75 bp, and the more moderate outcome propped up cryptocurrencies. The EU, Switzerland, and Canada have also tightened their monetary policies recently. 

Bitcoin price below the key $20,000 level throughout the week, dropping below the $19,200 level support and reaching $18,900 during the weekend. If BTC declines further, support can be found at $17,600, while resistance may be encountered near $20,500. 

Ethereum price also declined and retreated below the $1,300 level during the weekend. If Ethereum's price declines, it may encounter support at the psychological level of $1,000. If the Ethereum price increases, resistance may be encountered near $1,640.

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.

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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