RISING ENERGY PRICES AND INFLATIONARY PRESSURS IN MANY ECONOMIES OF THE WORLD. ALL EYES AT THE US LABOR MARKET
The return of economies to normal after the pandemic is not without problems and consequences. There are shortages of various goods, mainly in the United Kingdom, but also inflationary pressures as demand is high after a period when production was in hibernation due to quarantine. Rising energy prices, especially for oil and natural gas, are creating additional problems. On the same page were the statements of Jerome Powell of the Fed, who also stressed that high inflation is temporary but may eventually be more extended than originally expected. Another notable event in the US was the strong rise in bond yields.
Christine Lagarde pointed out the same problems, noting that there is progress in the economy but there is still a way since the shortages of goods combined with high energy prices are aggravating factors. It should be noted that Eurozone inflation for September was announced at 3.4%, the highest price in the last 13 years.
There is therefore concern in most central banks as to whether and when the quantitative easing program they have been pursuing to combat the effects of the pandemic for 1.5 years should be tightened. A milestone in this decision for the Fed is the employment in the US (NFPs) that will be announced next Friday as any strong recovery will accelerate developments.
Most major stock markets moved lower last week, while the dollar strengthened significantly. Gold had a slight recovery, while oil continued to rise strongly with the meeting of OPEC members expected with particular interest. Bitcoin and most cryptocurrencies rose sharply.
This week, apart from employment in the US and the meeting of OPEC members, does not contain significant financial announcements, with the possible exception of the PMIs in the Eurozone, Germany, the United Kingdom, and the USA and Retail Sales in the Eurozone.
The US SP500 Index was very bearish last week, closing at 4,351 points and losses that exceeded 2%. The risk-off mood of the investors due to rumors of tapering (reduction of the bond-buying program) in the US, as well as the possible postponement or reduction of the fiscal expansion program announced by Joe Biden at the beginning of his term, affect the stock markets. Also, new concerns have arisen in the last hours for Evergrande, with the company’s share has stopped trading on the Hong Kong Stock Exchange. 4,260 points is a critical price level for the Index because a bearish break out may create even greater correction. We prefer short positions this week.
The German Index DAX40 moved with a strong correction last week, closing at 15,214 points, with losses of more than 2%. The European economy is plagued by inflationary pressures and high energy prices, and so there is concern about the recovery, which is affecting stock markets. If the Index loses 15,000 points and remains below these levels for 1-2 days, it is possible that the correction channel, which started in mid-August, will acquire a downtrend so short positions is our selection for the current week.
The British FTSE100 Index had consolidative trends last week, closing at 7,025 points and very marginal losses. The Index had a much better picture than all the other major stock indices, even though the United Kingdom has very serious problems with fuel and food supply and some post-earthquake vibrations from Brexit. The current week has started downwards (as in most markets) and of course, the key to the further course of the FTSE100 is the 7,000 points and whether these levels will break down or not. We may try to open short positions below 7,000 points.
Gold rose slightly last week, closing at $ 1,760 and gaining about 0.60%. The week started sharply declining but on Thursday and Friday gold recovered as worries about the global economy due to rising energy prices prevailed over the aggravating factors for the price of gold which are not few: the strong dollar, rising bond yields, and a possible reduction in the quantitative easing program in the US. Of course, this anemic rise has not altered the downtrend of gold, which has started since May, and prices above $ 1,900. Below $ 1,720, the way may be opened for $ 1,700 or even lower levels so short positions is what we will open this week.
The rally in oil is unstoppable, with the sixth consecutive week rising and the futures of the next month closing at $ 75.68 and gains of about 2.30%. The OPEC meeting in a few hours will be crucial because if the member states decide to continue production at current levels, strong resistance at $ 76.95 (about 7 years high) may be a thing of the past. OPEC’s initial decision is to increase production in November by 400,000 barrels per day. If this is maintained then the rally will probably continue but if an increase in production is announced, we may see corrective trends prevail. Statements from China about securing energy after the recent blackouts in the country were interpreted by the markets as saying that the Chinese are willing to buy oil at any price and this re-ignites the rally. We need to wait & see OPEC’s decisions before we open any positions.
EURUSD (Euro vs US Dollar)
The EURUSD was strongly bearish last week, opening at 1.1726 and closing at 1.1593. The strong dollar due to rumors about reducing the quantitative easing program in the US and due to the risk-off mood in investors, brought the pair below the strong support of 1.16, to a low of about 14 months. Another strengthening factor for the dollar is the rise in bond yields. In addition to the strong dollar, the euro is also anemic, since even if inflation in the Eurozone was announced at a high of 14 years at 3.4%, in the ECB’s intentions it is not currently a tighter Monetary Policy. A continuation of the current situation could potentially bring the EURUSD to even lower levels, with the first target of sellers being the price range of 1.1420 so sell positions is what we will open this week.
GBPUSD (Great Britain Pound – US Dollar)
GBPUSD moved lower last week, opening at 1.3666 and closing at 1.3544. Given the strong dollar for the reasons we analyzed above, the pair is also being pressured due to the weakness of the pound caused by the crunch in the UK economy, which has obvious shortages of goods in the market. The strong UK GDP announced for the second quarter of 2021, does not seem to have reassured investors. The pair does not have strong supports, up to the price range of 1.30 so sell positions is our selection for the current week.
USDJPY (US Dollar – Japanese Yen)
Last week was bullish for the USDJPY, which opened at 110.68 and closed at 111.06. The rise was limited from Thursday onwards because by then we had seen prices even above 112. Bond yields played a key role in these moves, with the US ten-year starting from 1.46%, reaching up to 1.57%, to finally decline at the end of the week to 1.47%. From the Bank of Japan, the messages are that quantitative easing will continue and if this is combined with the continuation of the strengthening of the dollar, then it is possible to see prices above 112 again. We will open buy positions this week.
EURJPY (Euro – Japanese Yen)
Last week was bearish for the EURJPY, opening at 129.80 and closing at 128.76. The euro has a strong weakness, with the loose Monetary Policy of the Eurozone but it seems that the emerging recovery of the Japanese economy, based on the macroeconomic data announced, favors the downtrend of the pair. An additional factor for this is the risk-off mood in the markets, which is almost always in favor of the yen. Values below 128, put the pair in a downtrend channel and by following these estimations we may try sell positions this week.
EURGBP (Euro – Great Britain Pound)
The EURGBP moved lower last week, opening at 0.8577 and closing at 0.8557. The pair’s volatility, though, was much higher than what the opening and closing shows and finally it seems that the EURGBP cannot get out of its balance point of the last 2.5 months, close to 0.8550. Weak euro, weak sterling, important announcements, or events may be needed for a clear trend. We will stay out this week.
USDCAD (US Dollar – Canadian Dollar)
The USDCAD was practically neutral last week, opening and closing in the price range of 1.2645. The US dollar was strong but the Canadian currency also strengthened with rising oil prices. Three key factors will play a key role in the pair’s trend and volatility this week: OPEC decisions on oil, the announcement of employment in the US on Friday, and the announcement of the Unemployment Rate in Canada on the same day. It is extremely difficult to make estimates in the current circumstances so we will stay out this week.
USDCHF (US Dollar – Swiss Franc)
Bullish was the last week for the USDCHF, opening at 0.9241 and closing at 0.9305. The strong dollar is the main reason for this, but this week is also important for the Swiss economy, with important announcements expected such as Retail Sales on Monday and the Unemployment Rate on Thursday. However, if there is an excess above 0.9370, it is possible to see prices even close to 0.95, in the medium term so we may try buy positions this week.
AUDUSD (Australian Dollar – US Dollar)
It was the second week in a row with consolidative trends for the AUDUSD that opened and closed in the price range of 0.7250 – 0.7260. In addition to the announcement of the NFPs in the US on Friday, the meeting of the Bank of Australia on Interest Rates and Monetary Policy on Tuesday is also expected with interest. Markets, however, do not expect any changes. Any negative developments on the Evergrande issue are likely to hurt the psychology of the Australian economy and its currency. The target of sellers at this time continues to be the price range of 0.71 and this is what we’ll go after too with our sell positions this week.
Last week we had a strong increase for Bitcoin, which closed at $ 48,236, and profits that exceeded 11%. Bitcoin seems to be overcoming the shock of the recently announced cryptocurrency trading ban in China, with a little help from the US rushing to announce that it does not intend to ban it. So, it makes sense for cryptocurrency investors to be optimistic about a short recovery of $ 50,000 or even higher price levels. On-chain analysis from the use of the blockchain network also supports this view so long positions is our selection for the current week.