Important calendar events
The dollar slipped last week as US inflation surprised on the downside. The dollar index dropped below the 104 level for the first time since August, closing near 103.8 on Friday. US treasury yields plunged, dragging the dollar down. Expectations of a pivot in the Fed’s policy drove bond yields down, with the US 10-year bond yielding approximately 4.45%.
On the data front, US jobless claims on Thursday exceeded expectations, reinforcing the notion that the Fed is done raising interest rates. Unemployment claims rose to 231K for the week ending on November 11th against expectations of a 221K print. US retail sales rose by 0.1% in October exceeding expectations of a 0.1% drop. In addition, September’s print was revised higher from 0.7% to 0.8%.
The Fed’s hawkish stance over the past year has been paying off and US price pressures are cooling. Inflation in the US eased more than expected in October, driving down rate hike expectations and putting pressure on the dollar.
Headline inflation rose by 3.2% year-on-year in October from a 3.7% reading in September and against expectations of a 3.3% print. Monthly CPI remained unchanged from the previous month in October, while markets were anticipating a 0.1% raise. Core CPI, which excludes food and energy, also surprised on the downside. Core CPI increased by 0.2% every month, compared to 0.3% anticipated.
US PPI data released on Wednesday confirmed that price pressures in the US are easing. Monthly PPI shrank by a whopping 0.5% in October, falling below expectations of a 0.1% growth. Core PPI, which excludes food and energy, remained stable, against expectations of a 0.2% growth.
At the latest Fed meeting in November, FOMC members voted to keep interest rates unchanged at a 22-year high within a target range of 5.25% to 5.50%. The Fed has made it clear that its approach from now on will be data-driven and Tuesday’s inflation data have brought the odds of a rate hike in December to zero. Markets are always ahead of events and are already pricing at an end to the Fed’s tightening policy. Market odds of another rate hike in December have dropped to zero, while markets are pricing in rate cuts as early as March.
Market expectations of rate cuts have been driving the US dollar and treasury yields down. The Fed, however, has been relying on high treasury yields to complement its tightening policy. Plummeting treasury yields may derail the Fed's plans to end rate hikes or force the Fed to keep interest rates at high levels for longer.
The US economy seems to be recovering, boosting the dollar. Advance GDP data for the third quarter of 2023 showed that the US economy expanded by 4.9%, against expectations of 4.5% growth and far surpassing the 2.1% growth of Q2. Advance GDP price index for the 3rd quarter of the year reached 3.5%, exceeding expectations of a 2.7% print.
Core PCE Price Index, which is the Fed’s preferred inflation gauge, rose by 0.3% in September, in line with expectations. Core PCE Price Index dropped to 3.7% year-on-year in September from a 3.8% print the previous month. Inflationary pressures in the US are easing, reinforcing the notion that the Federal Reserve will not have to raise interest rates further. US headline inflation in September, however, remained at August's levels of 3.7% year-on-year, while market analysts were expecting a drop to 3.6%.
One of the key events this week is the release of the Fed’s latest meeting minutes on Tuesday. The meeting minutes may provide valuable insight into the central bank’s future policy and are likely to affect the dollar.
EUR/USD gained strength last week, rising to the 1.090 level. If the EUR/USD pair declines, it may find support at 1.065, while resistance may be encountered near 1.094.
The economic outlook of the Eurozone appears to be deteriorating, putting pressure on the Euro. Flash GDP data for the Euro area last week showed that the Eurozone economy contracted by 0.1% in the third quarter of the year, which was in line with expectations. The Eurozone economy barely expanded in the second quarter by 0.1%, after contracting by 0.1% in Q1 of 2023. The EU economy is struggling and cannot withstand much further tightening.
The ECB decided to keep interest rates unchanged at 4.50% in October. Markets anticipate that the ECB has hit its rate ceiling, putting pressure on the Euro. The ECB is tasked with assessing the risk to the fragile Eurozone economy against high inflation rates.
ECB President Christine Lagarde has hinted at an end to rate hikes. Lagarde highlighted the risks to the Eurozone economy stressing that the economy is likely to remain weak for the remainder of the year. Lagarde also stated that it is too early to talk about rate cuts and warned that interest rates will remain at sufficiently restrictive levels for as long as necessary.
Final CPI data for the Eurozone last week showed that headline inflation in the Eurozone fell to its lowest level in two years in October, mainly due to a drop in energy prices. CPI cooled to 2.9% year-on-year in October from 4.3% in September. Core CPI Estimate, which excludes food and energy, eased to 4.2% year-on-year in October from 4.5% in September. The ECB’s efforts to curb inflation rates are paying off, even at the cost of decreased economic growth.
The GBP/USD rate surged last week as the dollar weakened, climbing above the 1.245 level. If the GBP/USD rate goes up, it may encounter resistance near 1.255, while support may be found near 1.218.
CPI data last week showed that British inflation cooled more than forecast in October, reinforcing expectations that the Bank of England has ended its hiking cycle and will be cutting interest rates by the middle of next year. Headline inflation in the UK rose by 4.6% year-on-year in October, registering a dramatic drop from September’s 6.7% increase. Annual Core CPI, which excludes food and energy, grew by 5.7% in October versus 6.1% in September and 5.8% forecast.
British retail sales volumes fell unexpectedly in October, contracting by 0.3% against expectations of a 0.5% expansion. Claimant Count Change, which represents the change in the price businesses pay for labor, increased by 17.8K in the three months to September compared to the same period a year earlier. This is a leading indicator of consumer inflation, and the sharp rise shows increasing inflationary pressures. Average Earnings Index data released on Tuesday showed UK workers’ wages grew by 7.9% in the three months to September, which was slightly lower than the previous record pace of 8.2%, but surpassed expectations of 7.4%. Rightmove HPI data released on Monday showed that UK housing prices have fallen at their quickest pace in five years in November, pushed down by economic tightening.
Odds that the BOE has reached its rate ceiling are putting pressure on the Sterling. Markets are pricing in more than a 50% chance of rates being unchanged until June 2024. On the other hand, interest rates are expected to remain at their current 15-year high for a long time, with markets predicting a rate cut in August next year.
The BOE maintained its official rate at 5.25% at its latest meeting, which was in line with expectations. The BOE has likely reached its rate ceiling but will keep interest rates on hold for a long time to bring inflation down.
BOE Governor Andrew Bailey has stated that the central bank will be watching closely to see if further rate hikes are needed. Bailey has also emphasized that the BOE will be holding interest rates in restrictive territory long enough to see inflation down to the bank’s 2% target.
Recent fundamentals have shown that the British economy remains fragile, reinforcing the notion that the BOE has reached its peak interest rates. Prolonged tightening has taken its toll on the labor market and other vital economic sectors.
UK GDP data revealed that the British economy remained stagnant during the third quarter of 2023. The British economy expanded by 0.3% in the first quarter of the year and 0.2% in the second quarter. Economic growth is slowing down in the UK and the country is on the brink of recession.
A combination of a struggling economy and high inflation is making the BOE’s task more difficult. Further tightening is needed to bring inflation down at the risk of tipping the British economy into recession.
The Yen rallied last week, and the USD/JPY ended the week below the key 150 level. The Fed’s hawkish policy seems to be gradually coming to an end, relieving some of the pressure on the Yen, which has been weakened by the BOJ’s dovish policy. If the USD/JPY pair declines, it may find support near 148.8. If the pair climbs, it may find resistance at 152.
Preliminary GDP data on Wednesday showed that Japan's economy contracted in the third quarter of the year. The world's third-largest economy contracted by 0.5% in the third quarter against estimates of a 0.1% contraction. The Japanese economy expanded by 1.2% in the second quarter of 2023, showing that the country’s economy is shrinking and is on the brink of recession. Preliminary GDP Price Index showed a 5.1% annual expansion in Q2, versus 3.5% the previous quarter. This is a measure of inflation, which shows that inflationary pressures are rising in Japan, increasing the odds of a hawkish shift in the BOJ’s policy.
The BOJ has so far maintained its dovish bias, putting more pressure on the Yen as other major central banks, and especially the Fed, have raised interest rates to high levels. Japanese authorities have been repeatedly warning speculators against excessive short selling of the Yen and have stepped in several times in the past year to provide support for the Yen.
Last week, however, Japanese officials were once again dovish in their statements, putting pressure on the Yen. Japan's Deputy Finance Minister Akazawa clarified that the Japanese government will only intervene to prevent excess volatility, not to arrest the weakening Yen. BOJ Governor Kazuo Ueda once again stressed that the central bank will only end its accommodating policy if inflation remains sustainably above the BOJ’s target.
The BOJ maintained its short-term interest rate target steady at -0.10% and that for the 10-year government bond yield around 0% set under its yield curve control, but redefined the 1.0% limit as a less restrictive ceiling rather than a rigid cap. Even though the BOJ tweaked its yield curve control policy slightly, markets were expecting a bigger shift in policy, and the Yen plummeted after the interest rate announcement.
National Core CPI dropped to 2.8% in September from 3.3% in August. Inflation in Japan has remained above the BOJ’s 2% target for more than a year, encouraging the BOJ to tighten its monetary policy.
Gold prices started to recover last week rising above $1,990 per ounce. If gold prices increase, resistance may be encountered near $2,000 per ounce, while if gold prices decline, support may be found near $1,900 per ounce.
Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar slipped last week as US inflation surprised on the downside. The dollar index dropped below the 104 level for the first time since August, closing near 103.8 on Friday. US treasury yields plunged, dragging the dollar down. Expectations of a pivot in the Fed’s policy drove bond yields down, with the US 10-year bond yielding approximately 4.45%.
Inflation in the US eased more than expected in October, driving down rate hike expectations and boosting gold prices. Headline inflation rose by 3.2% year-on-year in October from 3.7% in September, against expectations of a 3.3% print. Monthly CPI remained unchanged from the previous month in October, while markets were anticipating a 0.1% raise. Core CPI, which excludes food and energy, also surprised on the downside. Core CPI increased by 0.2% every month, compared to 0.3% anticipated.
US PPI data released on Wednesday confirmed that price pressures in the US are easing. Monthly PPI shrank by a whopping 0.5% in October, falling below expectations of a 0.1% growth. Core PPI, which excludes food and energy, remained stable, against expectations of a 0.2% growth.
Gold prices rallied last week on expectations that the Fed’s tightening cycle is coming to an end, signaling the start of a Fed pivot. Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. At the latest Fed meeting, FOMC members voted to keep interest rates unchanged at a 22-year high within a target range of 5.25% to 5.50%. The Fed has made it clear that its approach from now on will be data-driven and Tuesday’s inflation data have brought odds of a rate hike in December to zero. Market odds of another rate hike in December have dropped to zero, while markets are pricing in rate cuts as early as May.
The crisis in Israel has given rise to a risk aversion sentiment, boosting demand for gold. Gold prices increase in times of war as more traders shy away from riskier assets and invest in assets that are more likely to preserve their value. The crisis in Israel, however, so far remains contained and there seems to be little risk of spreading in the region. Market attention is moving away from the war in Gaza and safe haven demand is dropping, causing gold prices to drop.
Oil prices plummeted on Thursday, with WTI price dropping below the $72.0 per barrel level, but pared some of the week’s losses on Friday, with WTI price rising to the $75.9 per barrel level. If WTI price declines, it may encounter further support near $70.0 per barrel, while resistance may be found near $80.0 per barrel.
Oil prices dropped after the Energy Information Administration released US crude oil inventories on Wednesday. EIA data showed an unexpectedly large build in stockpiles, as US crude oil inventories increased by 3.6M barrels for the week to November 10, beating estimates of a 2.5M growth.
OPEC released its monthly report on Monday, stating that the oil demand outlook is not waning and providing support for oil prices. According to the report, oil market fundamentals remain robust and oil demand in the US and China has not weakened. Global economic concerns though, are dampening the oil demand outlook, putting pressure on oil prices.
OPEC+ kept its output policy unchanged at its latest meeting, maintaining its recent cuts by Russia and Saudi Arabia, which have already been extended till the end of the year. Russia and Saudi Arabia recently reaffirmed their commitment to maintain these voluntary supply cuts. Many market analysts even predict that the rate cuts will be extended into the first quarter of 2024. Bloomberg reported on Wednesday that Russia will cut its crude oil export duty by 5.7% for December, citing the Russian Finance Ministry. Oil prices, however, continued to decline, even on concerns of limited supply.
Oil prices have been supported by geopolitical risks within the past month. The crisis between Israel and Hamas continues, propping up oil prices. Especially fears of a potential Iranian involvement are buoying oil prices. Fears that the war in Israel would disrupt oil supply are easing, however, causing oil prices to slip. The crisis seems to be contained so far and risks of the war spreading in the region abate.
The release of the US CPI report on Tuesday caused a temporary uptick in oil prices but oil prices suffered a correction immediately after and failed to form an uptrend.
Oil prices are kept in check by a strong US dollar and high-interest rates. Most major central banks, however, are hitting pause on rate hikes, boosting oil prices. FOMC members have voted to keep interest rates unchanged at a target range of 5.25% to 5.50%.
The Fed’s approach remains largely data-driven and will depend on how fast inflationary pressures may ease in the next months. After US headline inflation surprised on the downside on Tuesday, market expectations of future rate hikes went down to zero. Even if the Fed has reached its interest rate ceiling though, rates are likely to stay high for longer, driving oil demand outlook and oil prices down.
Bitcoin price was volatile last week, dropping below the key $36,000 level on Thursday, but rebounding over the weekend and reclaiming the $37,000 level. If the BTC price declines, support can be found near $34,500, while resistance may be encountered near $38,000.
Ethereum also declined mid-week, dropping to $1,920 but rallied over the weekend touching the $2,000 key level. If Ethereum's price declines, it may encounter support near $1,880, while if it increases, resistance may be encountered near $2,140.
Cryptocurrencies are propped up by expectations that the Securities and Exchange Commission (SEC) will shortly grant spot Bitcoin exchange-traded funds (ETF) applications. BlackRock and other institutions have applied for a Bitcoin ETF, which would bring more institutional and retail money into crypto markets. The SEC has been hesitant regarding the future of Bitcoin ETFs, but it seems that the first batch of Bitcoin ETF applications will gain approval within the next few days. BlackRock has also filed an ETH spot ETF for approval, causing Ethereum prices to surge.
Increases in central banks’ interest rates are putting pressure on risk assets. Most major central banks, however, are hitting pause on rate hikes, propping up crypto markets. FOMC members have voted to keep interest rates unchanged at a 22-year high within a target range of 5.25% to 5.50%. The Fed’s decision to pause rate hikes has increased risk appetite, boosting cryptocurrencies, especially since markets anticipate that the Fed has reached its rate ceiling.
The Fed’s hawkish stance over the past year has been paying off and US price pressures are cooling. Inflation in the US eased more than expected in October, driving down rate hike expectations and boosting risk appetite. Inflation in the US surprised on the downside, as headline inflation rose by 3.2% year-on-year in October from 3.7% in September, against expectations of a 3.3% print. US PPI data released on Wednesday confirmed that price pressures in the US are easing. Monthly PPI shrank by a whopping 0.5% in October, falling below expectations of a 0.1% growth. Core PPI, which excludes food and energy, remained stable, against expectations of a 0.2% growth.
BTC/USD 1h chart
ETH/USD 1h Chart
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Written by:
Myrsini Giannouli
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