Weekly Market Outlook: October 21st - October 27th
Forex
USD
The dollar gained strength last week due to the rising prospects that Donald Trump might win the US presidential elections.
The dollar gained strength last week and the index rose from 103.0 to 103.8 mid-week but retreated to 103.5 by the end of the week. US treasury yields remained firm, with the US 10-year bond yielding approximately 4.08%.
One of the key drivers of the dollar right now is the outcome of the US Presidential race. The US elections on November 5th are attracting considerable market attention. The dollar gained strength last week due to the rising prospects that Donald Trump might win the elections. Trump’s proposed tariffs and tax policies will support economic growth, boosting the dollar. If, on the other hand, Kamala Harris wins, she might adopt a more moderate approach to fiscal policy, which will put pressure on the dollar. The implications of the election outcome, however, are complex and will likely cause volatility in the price of the dollar in the weeks to come.
On the data front, Jobless Claims dropped to 241K the week ending October 11, down from the previous week's 260K. US retail sales expanded by 0.4% in September to reach $714.4B in total, rising above expectations of 0.3% growth and a 0.1% rise in August. Core retail sales, which exclude the sales of automobiles, rose by 0.5% in September against expectations of 0.2% growth, while August’s print was revised upward to reflect a 0.2% advance.
US manufacturing data released on Tuesday were disappointing, putting pressure on the dollar. The Empire State Manufacturing Index for October fell into contractionary territory, with a print of -11.9 against 3.4 growth expected and a positive print of 11.5 for September.?
The Federal Reserve cut its benchmark interest rate by 50 basis points to a target range of 4.75% to 5.00% in September, after holding interest rates steady since last July. The Fed launched its easing cycle with an aggressive rate cut, signaling the end of its restrictive monetary policy. Fed Chair Jerome Powell stated that the central bank aims to strengthen the US economy and labor market. Powell has hinted that the Fed has launched its easing cycle and that more rate cuts will follow.?
Market odds of a 25-bp rate cut in November are currently above 80%. The dollar remains sensitive to rate-cut expectations and will likely continue to fluctuate strongly in the next few weeks.
On Monday, FOMC member Neel Kashkari stated that the Fed’s economic policy needs to remain restrictive and hinted that future rate cuts will likely be more modest. Fed’s Bostic, however, delivered a dovish speech on Tuesday, stating that he is confident that US inflation is heading back to the central bank’s 2% target.?
US inflation is proving to be sticky despite the Federal Reserve’s efforts to bring it down to its 2.0% target. US inflation data surprised on the upside last week, reigniting Fed rate cut expectations and boosting the dollar. CPI data came in hotter than expected, with headline inflation cooling slightly to 2.4% in September from 2.5% in August against expectations of a drop to 2.3%. Monthly CPI rose by 0.3% in September, surpassing expectations of 0.2% growth. Annual core CPI, which excludes food and energy, rose to 3.3% in September from 3.2% in August. Monthly core CPI rose by 0.3% exceeding expectations of 0.2% growth.
The US economy expanded by 3.0 in the second quarter of the year after expanding by just 1.4% in the first quarter of the year. The US economy is suffering from prolonged tightening, raising recession concerns.
Several economic activity data are scheduled to be released this week for the US, which may affect the dollar. US Manufacturing and Services PMI data are due on Thursday, as well as unemployment claims. Durable Goods orders and Consumer Sentiment data on Friday are also expected to attract traders’ attention.?
EUR?
ECB President Christine Lagarde stated that the decision to cut interest rates was unanimous, but did not commit to future rate cuts.
EUR/USD dipped last week, dropping from 1.092 to 1.082 after the ECB policy decision on Thursday, then paring some losses towards the end of the week and rising to 1.086. If the EUR/USD pair declines, it may find support at 1.078, while resistance may be encountered near 1.099.
The Euro dipped on Thursday after the ECB lowered its benchmark interest rate by 25 basis points, bringing its main refinancing rate to 3.40%. The ECB started its easing cycle in June, lowering interest rates by 25bps for the third time this year on Thursday.?
ECB President Christine Lagarde delivered a press conference after the meeting, explaining the reasons behind the central bank’s decision. Lagarde stated that the decision to cut interest rates was unanimous, but did not commit to future rate cuts. Lagarde stressed that economic activity in the Eurozone is slowing down inducing the ECB to lower interest rates. She also stated that policymakers are confident that inflation will drop to the central bank’s 2% target in 2025 but stressed that there are both upside and downside risks to inflation.?
On the data front, Eurozone inflation fell to its lowest level in three years in September, according to CPI data released on Thursday. EU Final CPI dropped to 1.7% year-on-year in September from 2.2% in August, against previous estimates of 1.8%. Core CPI, which excludes food and energy, was in line with expectations, dropping from 2.8% in August to 2.7% in September.?
Economic sentiment in the Eurozone remained positive in October according to data released on Tuesday, propping up the Euro. The ZEW Economic sentiment index rose to 20.1 in October from 9.3 in September, against expectations of 16.9. German ZEW Economic sentiment rose to 13.1 in October from 3.6 in September exceeding expectations of 10.2.?
The Eurozone economy expanded by just 0.2% in Q2 of 2024 against initial estimates of 0.3% growth. The Eurozone economy also expanded by 0.3% in the first quarter of 2024. The economic outlook of the EU remains fragile as prolonged tightening has brought the Euro area economy to the brink of recession.
This week markets will focus on the release of Manufacturing and Services PMI data for the Eurozone due on Thursday. German and Belgian Business Climate data on Friday, are expected to attract traders’ attention as well.?
GBP?
British inflation came in cooler than expected last week, dropping to 1.7% year-on-year in September from 2.2% in August against 3.4% anticipated.
GBP/USD traded sideways last week, fluctuating around the 1.304 level. If the GBP/USD rate goes up, it may encounter resistance near 1.317, while support may be found near 1.290. ?
The Sterling plummeted on Wednesday after British inflation came in cooler than expected. The Sterling rallied on Thursday, however, as markets had time to digest the news. Headline inflation in the UK dropped to 1.7% year-on-year in September from 2.2% in August against expectations of a print of 1.9%. Core annual inflation, which excludes food and energy, dropped to 3.2% in September from 3.6% in August against 3.4% anticipated. Inflation in the UK has cooled to its lowest level since April 2021 and may induce the BOE to start cutting interest rates more aggressively.?
UK consumer spending rose in September, exceeding expectations. Retail Sales rose by 0.3% in September against expectations of a 0.4% contraction. The Sterling rose after the release of the retail sales data on Friday as the data indicated that the British economy remains robust.
British labor data released last week were overall mixed. The British unemployment rate dropped to 4.0 in September from 4.1% in August against 4.1% anticipated. Claimant counts change, however, rose to 27.9K in September from 0.3K in August, exceeding expectations of 20.2K.
The BOE voted to maintain its restrictive monetary policy in September, while the US Federal Reserve pivoted to a more dovish policy and voted in favor of a sharp 50-bp rate cut. The difference in policy outlook between the Fed and the BOE is boosting the Sterling against the dollar.?
The BOE kept its official rate at 5.25% to 5.00% after cutting interest rates in July. BOE policymakers voted to keep interest rates steady with a majority of 8-1. Bank of England Governor Andrew Bailey has stated that he is optimistic that inflationary pressures in the UK will ease sufficiently to allow for the BOE to cut interest rates further.?
Markets anticipate that there will be one more 25bps BOE rate cut in 2024, bringing the total decrease in interest rates to 50bps for the entire year. In contrast, two more Fed rate cuts of 25 bps each are priced in this year. After September’s 50-bps Fed rate cut, this will mean that the Fed will lower interest rates by a total of 100 bps in 2024. The Fed’s recent dovish shift compared to the BOE’s more hawkish policy is putting pressure on the Sterling against the dollar.
GDP data showed that the British economy grew unexpectedly in August. The UK economic outlook has improved as the British economy expanded by 0.2% in August after remaining stagnant in June and July. The British economy expanded by just 0.5% in the second quarter of the year, failing projections of 0.6% and following 0.7% growth in the first quarter of 2024.?
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JPY
Inflation in Japan dropped to 2.4% year-on-year in September from 2.8% in August, lowering the odds of another BOJ rate hike this year.
USD/JPY rose from 149.0 to 149.5 last week as the dollar gained strength. If the USD/JPY pair declines, it may find support at 147.3. If the pair climbs, it may find resistance at the psychological level of 151.0.
National core CPI data released on Friday showed that inflation dropped to 2.4% year-on-year in September from 2.8% in August against expectations of a 2.3% print. Inflation in Japan remains weak lowering the odds of another BOJ rate hike this year. BOJ Core CPI remained at 1.8% year-on-year in August, the same as in July. Tokyo Core CPI fell to 2.0% in September from 2.4% in August, which was in line with expectations.
At its monetary policy meeting in September, the BOJ maintained its current monetary policy guidelines steady and its interest rate at 0.25%, as anticipated. The BOJ, however, removed the forward guidance from its statement.?
The BOJ had pivoted to a more hawkish policy at its meeting in July, raising interest rates by 15 basis points, the BOJ’s largest rate hike since 2007. The BOJ had already hiked interest rates once more in March, ending its negative interest rate policy.?
BOJ Governor Kazuo Ueda has hinted that further rate hikes within the year are not likely. Ueda stated that future rate decisions will be data-driven and will depend on economic and inflationary data. The US Federal Reserve is expected to cut interest rates in November, but the gap in interest rates between the BOJ and the Fed remains high, boosting the dollar against the Yen.?
Japan’s economy expanded by 0.7% in the second quarter of the year. The Japanese economy has started to expand, after shrinking by 0.5% in the first quarter of the year.?
Gold?
Gold prices hit a new all-time high of $2,721 per ounce last week and may reach new record highs in the following days.?
Gold prices soared last week, breaking through the key $2,700 per ounce level and registering a new all-time high of $2,721 per ounce. If gold prices rise, they may encounter resistance at the psychological level of $2,800 per ounce, while if gold prices decline, support may be encountered near $2,600 per ounce.?
Geopolitical tensions raise the appeal of safe-haven assets propping up gold prices. Gold prices hit a new all-time high of $2,721 per ounce last week and may reach new record highs in the following days. Fears that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high. The conflict between Israel and Hamas continues to escalate, raising the appeal of safe-haven assets. Hamas leader Yahya Sinwar was killed by Israeli forces in Gaza on Wednesday. Sinwar was one of the leaders of the attack against Israel last year and reports of his death raised hopes that the war in Gaza might soon end.
Gold prices were boosted last week by the announcement of further economic stimulus plans for China. Chinese Finance Minister Lan Fo’an announced an economic stimulus programme, without giving specific figures, however, which dampened investors’ confidence. On Friday, however, the Bank of China announced two more funding packages that aim to facilitate economic growth and stabilize stock markets.
Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar gained strength last week and the dollar index rose from 103.0 to 103.8 mid-week but retreated to 103.5 by the end of the week. US treasury yields remained firm, with the US 10-year bond yielding approximately 4.08%. Gold prices remained unaffected by the dollar’s strength last week, however, and continue to rise.
Uncertainty over the upcoming US presidential elections is also boosting gold prices. The US elections on November 5th are attracting considerable market attention. The implications of the election outcome, however, are complex and will likely cause volatility in gold prices in the weeks to come.
Gold prices continue to rise on expectations of further Fed rate cuts. The US Federal Reserve pivoted to a more dovish policy last week, performing a sharp rate cut of 50 basis points. The Federal Reserve decided to end its restrictive monetary policy in September, bringing its interest rate down to a target range of 4.75% to 5.00%. Market odds of a 25-bp rate cut in November are currently above 80%.
Oil?
Reduced oil demand outlook put pressure on oil prices last week, as OPEC cut its oil demand forecast for 2024 and 2025.
Oil prices dipped last week and WTI price dropped from $75.2 to $69.5 per barrel. If oil prices retreat, they may encounter support near $66.9 per barrel, while resistance may be found near $78.8 per barrel.
Reduced oil demand outlook put pressure on oil prices last week. OPEC released its monthly report on Monday, cutting its oil demand forecast for 2024 and 2025. OPEC expects oil demand to grow by 1.9 million barrels per day in 2024, down from 2 million bpd in its previous forecast. In addition, the organization cut its oil demand outlook for 2025 to 1.6 million bpd from 1.7 million bpd the previous month.?
The ongoing crisis in the Middle East threatens to disrupt oil distribution. Concerns of a broadening conflict in the Middle East are boosting oil prices. The conflict between Israel and Hamas continues to escalate, threatening to affect oil supply and distribution. The leader of Israel’s opposition party in the government called for an immediate attack on Iranian oil fields last week, boosting oil prices. Oil pressures dipped on Wednesday, however, on reports that Israel is not planning to attack Iran’s oil infrastructure. Israel’s Prime Minister, Benjamin Netanyahu assured US President Joe Biden that a retaliatory attack against Iran would hit military targets rather than oil or nuclear sites. Hamas leader Yahya Sinwar was killed by Israeli forces in Gaza on Wednesday. Sinwar was one of the leaders of the attack against Israel last year and reports of his death raised hopes that the war in Gaza might soon end, putting pressure on oil prices. Israeli strikes have continued after his death, however, dashing hopes of a peaceful resolution to the crisis.
Oil prices are weighed down by global economic concerns. China’s sluggish economic growth is lowering the oil demand outlook, putting pressure on oil prices. Chinese Finance Minister Lan Fo’an announced an economic stimulus program last week, without giving specific figures, however, which dampened investors’ confidence, putting pressure on oil prices. On Friday, however, the Bank of China announced two more funding packages that aim to facilitate economic growth and stabilize stock markets.
Oil prices are also kept in check by high central banks’ interest rates. The Federal Reserve cut its benchmark interest rate by 50 basis points to a target range of 4.75% to 5.00% in September, after holding interest rates steady since last July. Market odds of a 25-bp rate cut in November are currently above 80%.
Cryptocurrencies
Risk sentiment improved last week with the announcement of economic stimulus plans for China, boosting crypto markets.
Bitcoin surged from $62,400 to $68,600 last week. If BTC price declines, support can be found at $59,000, while resistance may be encountered at $70,000.?
Ethereum skyrocketed from $2,450 to $2,720 last week. If Ethereum's price declines, it may encounter support near $2,310, while if it increases, resistance may be encountered near $2,730.
Fluctuating risk sentiment is causing volatility in crypto markets. Risk sentiment improved last week with the announcement of economic stimulus plans for China, boosting crypto markets. Chinese Finance Minister Lan Fo’an announced an economic stimulus programme, without giving specific figures, however, which dampened investors’ confidence. On Friday, however, the Bank of China announced two more funding packages that aim to facilitate economic growth and stabilize stock markets.
Concerns of a broadening conflict in the Middle East are promoting a risk aversion sentiment, lowering the appeal of high-risk assets such as cryptocurrencies. The conflict between Israel and Hamas continues to escalate, putting pressure on risk assets such as cryptocurrencies. Hamas leader Yahya Sinwar was killed by Israeli forces in Gaza on Wednesday. Sinwar was one of the leaders of the attack against Israel last year and reports of his death raised hopes that the war in Gaza might soon end, boosting crypto markets.??
Cryptocurrency prices are affected by central banks’ interest rates. High interest rates are restricting economic growth, putting pressure on risk assets, while the promise of rate cuts boosts crypto markets. The US Federal Reserve performed a drastic rate cut of 50 basis points in September, bringing its interest rate down to a target range of 4.75% to 5.00%.?
Persistent inflationary pressures in the US are raising the odds of another rate cut in November, boosting crypto markets. Market odds of a 25-bp rate cut in November are currently above 80%.
Read the full article for more information, and take a look at this week's important Forex calendar events.
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