Important calendar events
The dollar dipped last week, and the dollar index plummeted to the 103.4 level. US treasury yields retreated mid-week, with the US 10-year bond yielding approximately 4.36% but rallied towards the end of the week, rising to 4.45%.
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.
The minutes of the Fed’s November meeting were released on Tuesday. The meeting minutes did not hold any surprises and market reaction to their release was subdued. The minutes, however, emphasized that interest rates will likely remain in restrictive territory for some time.
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.
On the data front, US unemployment data on Wednesday showed the number of Americans filing new claims for unemployment benefits fell more than expected last week, dropping to 209K. US business activity remained steady in November. Flash Manufacturing PMI came out at 49.4 versus the 49.9 forecast. The Services sector beat expectations slightly with Flash Services PMI at 50.8 against estimates of 50.4.
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.
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.
This week is going to be packed with news for the dollar. On Tuesday, CB consumer confidence is scheduled to be released, which is a leading indicator of economic activity and health. On Wednesday, preliminary US GDP data are due for the third quarter of the year. Wednesday’s GDP data will likely show that the US economy expanded by 5% in the third quarter of 2023, putting recession fears finally to rest.
The all-important Core PCE price index is due on Thursday. This is the Federal Reserve’s preferred inflation gauge. Market analysts are predicting that the Core PCE price index rose by only 0.2% in October indicating that price pressures in the US are cooling. Manufacturing PMI data on Friday will provide information on the performance of the US manufacturing sector.
The Fed is in focus again this week, with several policymakers delivering speeches throughout the week. Fed chair Jerome Powell’s speech on Friday is expected to attract the markets’ attention and is likely to cause volatility in the price of the dollar.
EUR/USD gained strength last week, rising above the 1.095 level. If the EUR/USD pair declines, it may find support at 1.082, while resistance may be encountered near 1.096.
The ECB decided to keep its benchmark 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 will likely 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.
On Tuesday, Lagarde delivered a speech that confirmed the ECB’s wait-and-see stance. Lagarde warned that headline inflation in the Eurozone may rise again in the coming months. Lagarde stressed, however, that the central bank has raised interest rates sufficiently, which will buy them some time to watch the progress of inflation.
ECB policymakers earlier in the week stressed that interest rates will remain at high levels for a long time. Pablo Hernandez de Cos stated that it was premature to talk about rate cuts, while Francois Villeroy de Galhau argued that rates have reached a plateau where they will likely remain for the next few quarters. The minutes of the latest ECB meeting, which was released last week were inconclusive, stressing data dependency going forward, keeping the door open for further rate hikes.
Eurozone fundamentals released last week were mixed. German final GDP data revealed that the EU’s largest economy slumped into contractionary territory in the third quarter of the year. Germany's economy shrank slightly in the third quarter, registering a 0.1% contraction. Business activity in the Euro area improved slightly though. Flash Manufacturing PMI data rose to 43.8 in November from 43.1 in October, beating expectations of 43.3, but remained firmly below the threshold of 50 that denotes industry expansion. The Services sector also improved slightly, with Flash Services PMI rising to 48.2 in November from 47.8 in October against expectations of 48.0.
The economic outlook of the Eurozone appears to be deteriorating, putting pressure on the Euro. Flash GDP data for the Euro area 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.
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 Sterling gained strength last week and GBP/USD was catapulted to the 1.261 level. If the GBP/USD rate goes up, it may encounter resistance near 1.280, while support may be found near 1.237.
British Prime Minister Rishi Sunak stated on Tuesday that the government would be cutting taxes after a fall in inflation. British Finance Minister Jeremy Hunt announced on Wednesday the Autumn update on the British budget. Hunt announced tax cuts in an attempt to stimulate the stagnant economy. The latest budget update included a forecast of higher government debt issuance, which boosted the Sterling.
BOE Governor Andrew Bailey speaking at the Monetary Report Hearings on Tuesday, revealed a more hawkish stance than anticipated, bolstering the Sterling. Bailey warned that inflation risks may need more aggressive action and reiterated that the central bank will be watching closely to see if further rate hikes are needed. Bailey has also emphasized that it is too early to consider rate cuts and that the BOE will be holding interest rates in restrictive territory long enough to see inflation down to the bank’s 2% target.
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.
Optimistic fundamentals for the British economy boosted the Sterling last week. Flash Manufacturing and Services PMI data beat expectations, indicating that the British economy is starting to recover after a prolonged slump. The S&P Global/CIPS UK PMI, which includes both the services and manufacturing sectors, showed a preliminary reading of 50.1 in November, up from 48.7 in October, and above the threshold of 50 for growth for the first time since July. The services sector started to expand in November with Flash Services PMI rising to 50.5 from 49.5 in October. The manufacturing sector remained in contractionary territory, with a PMI below the threshold of 50 which denotes industry expansion. November’s print of 46.7 though, was significantly improved from October’s 44.8, showing that contraction is slowing down. GfK Consumer Confidence data also exceeded expectations in November, indicating that British consumers are more optimistic about the country’s economic outlook.
CPI data 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.
Recent fundamentals have shown that the British economy remains fragile, reinforcing 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 traded sideways against the dollar last week, and USD/JPY oscillated around the 149.5 level. If the USD/JPY pair declines, it may find support near 147.1. If the pair climbs, it may find resistance at 149.7.
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. 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.
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.
Preliminary GDP data 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.
National Core CPI, which excludes food and energy, continued to accelerate in October increasing the odds that the BOJ will soon end its ultra-accommodating policy. National Core CPI rose by 2.9% year-on-year in October from 2.8% in September against expectations of a 3.0% print. 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 edged higher last week, benefiting from the dollar’s decline, touching $2,010 per ounce level. If gold prices increase, resistance may be encountered near $2,007 per ounce, while if gold prices decline, support may be found near $1,984 per ounce.
Gold prices continued to rise for the second week in a row, rising above the key $2,000 per ounce level. Gold prices are propped up by the dollar’s weakness as well as by increased expectations that the Fed has reached its rate ceiling.
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 dipped last week, and the dollar index plummeted to the 103.4 level. US treasury yields retreated mid-week, with the US 10-year bond yielding approximately 4.36% but rallied towards the end of the week, rising to 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.
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.
Oil prices retreated last week, with WTI price plunging to the $75.2 per barrel level on Friday. If WTI price declines, it may encounter further support near $72.4 per barrel, while resistance may be found near $78.5 per barrel.
Speculation about further OPEC supply cuts boosted oil prices on Monday. The organization was scheduled to meet again over the weekend, and it was reported that its members would decide on further production cuts to maintain oil prices above the $80 a barrel mark. On Wednesday, however, the organization announced that the meeting would be postponed till November 30, without providing a reason. Reports that the meeting was delayed due to a disagreement between OPEC members on further production cuts put pressure on oil prices last week.
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.
In addition, the Energy Information Administration reported a much higher build in US crude oil stockpiles than anticipated. US crude oil stockpiles rose by 8.7M in the week ending on November 17th against estimates of 0.9M growth. Oil prices rebounded later as the upcoming Thanksgiving holiday boosted the oil demand outlook.
Oil prices have been supported by geopolitical risks. The crisis between Israel and Hamas continues, propping up 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.
Global economic concerns are dampening the oil demand outlook, putting pressure on oil prices. Oil prices are also 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.
Crypto markets currencies had a volatile week with the Binance exchange and spot ETFs in the spotlight. Cryptocurrencies weakened on Tuesday as regulatory concerns offset spot ETF expectations. The US Department of Justice announced on Tuesday new cryptocurrency enforcement actions, putting pressure on crypto markets.
Crypto markets rallied on Wednesday, shaking off regulatory concerns on renewed spot exchange-traded funds (ETF) approval expectations. A bullish trend prevailed on Wednesday following reports that the US DOJ would accept a settlement for the charges against Binance, the world's largest crypto exchange. The deal forced Binance to pay a hefty $4.3 billion fine, forcing CEO Changpeng Zhao to step down. The drawn-out case against Binance has been a major stumbling block in crypto spot ETF approvals and its settlement renewed expectations of spot ETF approvals shortly.
Cryptocurrencies are propped up by expectations that the Securities and Exchange Commission (SEC) will shortly grant spot Bitcoin 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, delaying the decision possibly until January. BlackRock has also filed an ETH spot ETF for approval, causing Ethereum prices to surge.
Bitcoin gained strength last week, climbing above the key $37,000 level, and trading around the $37,700 level over the weekend. If BTC price declines, support can be found near $35,150, while resistance may be encountered near $38,000.
Ethereum price edged higher last week, touching the $2,080 level over the weekend. If Ethereum's price declines, it may encounter support near $1,900, while if it increases, resistance may be encountered near $2,130.
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.
BTC/USD 1h Chart
ETH/USD 1h Chart
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Written by:
Myrsini Giannouli
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