HIGH INFLATION IN THE US. ACTIONS WILL PROBABLY NOT BE LONG.
Inflation that was reported in the US in September was above expectations, at 5.4%, and this restored concerns in the international community about prolonged high inflationary pressures. These developments logically accelerate the early reduction of the Fed’s bond-buying program (tapering). Another area of focus has to do with the Interest Rates, which will logically increase in the coming months, with the probability that it will now be over 50% in the US during the next summer. OPEC’s recent decision not to increase oil production exacerbates the energy crisis and may push further for immediate decisions.
In Europe, the loose Monetary Policy of the ECB continues, but it seems that nothing will change soon. Yields on bonds are also an interesting area to mention, with the US 10-year bond yield falling to 1.57% from 1.63% it had recorded during the week.
Most major stock markets rose mainly due to better-than-expected third-quarter results from major US companies, mainly in the financial sector. The dollar fell slightly. It was the first correction for the dollar after five consecutive weeks of an uptrend and this means that its uptrend has not yet changed. Gold also rose slightly while oil continued its explosive rally. Also noteworthy is the rally we saw in cryptocurrencies and especially in Bitcoin.
This week is milder regarding the regular financial announcements, which include inflation announcements in the Eurozone, Germany, and Canada, the European Council meeting on Thursday, and the PMIs in Germany, the Eurozone, the United Kingdom, and the United States.
The US SP500 Index closed last week with a rise, to 4,464 points and profits close to 2%. The third-quarter results of several companies were unexpectedly good and especially in the big banks were accompanied by optimistic forecasts for the near future. In addition, some macroeconomic data announced, such as Initial Jobless Claims and Retail Sales in the US, were higher than expected and this gave another note of optimism to investors. This week we have continuity in the corporate results that will set the tone in the market. Any negative surprises will correct the market significantly downwards and will increase nervousness and volatility. We prefer long positions this week.
The German Index DAX40 moved strongly upwards last week, closing at 15,575 points, having profits of over 2.50%. Inflation in Germany was announced at 4.1% as expected and the Index followed the trend of all the main Indices that had an uptrend this week. There is a resistance of 15,770 points which is the main obstacle for the Index to return to 16,000 points. The relatively weak euro also helps DAX40 and valuations of German companies. We’re keen to open long positions this week.
The British FTSE100 Index moved strongly up last week, closing at 7,215 points and profits that exceeded 2%. On a positive note, most of the announcements for the UK last week such as Industrial Production, while the Unemployment Rate remained stable at 4.5%. Some issues remain open concerning Brexit but there is optimism that they will be resolved. The Index reached a new high of 20 months and there is optimism for even higher levels. We believe that the UK stock market presents the greatest opportunities among European markets based on valuations and prospects so long positions is our selection for the current week.
Last week was bullish for gold, closing at $ 1,768 and gaining just over 0.60%. High inflation in most economies favored gold, which managed to marginally exceed $ 1,800 during the week, but on Friday the strengthening of bond yields brought a big correction. There is a price range between $ 1,720 and $ 1,800 in which gold has been moving for a few weeks and needs more news, mainly from the central banks, to get out of it. A well-established $ 1,800 breakout favors the uptrend, and below $ 1,740, the correction earns more points. We may try short positions this week.
Last week was also bullish for oil, with next month’s futures closing at $ 81.96. It was the eighth consecutive week of rising oil, which stabilized above $ 80 a barrel. There were some processes in OPEC to increase production, but this decision was opposed by Saudi Arabia, which insists on the pre-determined increase of 400,000 barrels per day from November onwards. In addition, the very large increase in natural gas prices favors oil even more as many companies and industries now use oil since the use of natural gas has become unprofitable. With this data, it is very difficult to predict where the uptrend rally can stop while there is a case of a correction scenario below $ 80. We insist on opening long positions for one more week.
EURUSD (Euro vs US Dollar)
The EURUSD closed slightly higher last week, opening at 1.1565 and closing at 1.1599. Until Wednesday, the pair fell to a 15-month low near 1.15 but since the announcement of US inflation and after the weakening of the dollar, there has been a recovery to the area of 1.16. The expected tapering as well as the market expectations for an increase in Interest Rates by the Fed may strengthen the dollar and restore the downtrend that has been prevailing in the pair lately. There are few important announcements for this week and so EURUSD will probably move based on the expectations of the markets from the central banks. Inflation in the Eurozone announced on Wednesday, may play a role. We may try sell positions for one more week.
GBPUSD (Great Britain Pound – US Dollar)
We saw a significant rise last week for the GBPUSD which opened at 1.3611 and closed at 1.3744. It was not only the temporary weakness of the dollar that led to this move but mainly a strong pound since rumors of Interest Rate hikes by the Bank of England are now very strong and expressed by official lips. Strong inflationary pressures in the UK may be the driver of this increase. The next strong resistance for the pair is the area of 1.3920 and this is the obvious target of buyers, and this is what we will go after with our buy positions this week.
USDJPY (US Dollar – Japanese Yen)
We saw an explosive rise last week for the USDJPY which opened at 112.15 and closed at 114.25. All central banks are ready to start reducing quantitative easing programs and plan to raise Interest Rates except for the Bank of Japan as the country still has very low inflation. This puts a lot of pressure on the yen and leads to an explosive rise in the pair which if it exceeds 114.55 can reach much higher levels. We’ll keep on opening buy positions for one more week.
EURJPY (Euro – Japanese Yen)
The EURJPY, which opened at 128.80 and closed at 132.52, rose strongly last week. The euro is weak due to the loose Monetary Policy of the ECB but much weaker is the yen due to low inflation in Japan. The country’s central bank is not expected to reduce the quantitative easing program or raise Interest Rates any time soon. The multi-year high above 134.12 is the obvious target of buyers now and this is our target too for our buy positions this week.
EURGBP (Euro – Great Britain Pound)
Last week, the EURGBP was bearish, opening at 0.8491 and closing at 0.8425, below the support of 0.8450. This move is due to the weakness of the euro but also due to the latest upward momentum of sterling because of the strong rumors and statements about raising Interest Rates by the Bank of England, soon enough. Based on this picture, it is possible to see the pair at much lower levels, even below 0.83 so sell positions is what we will open this week.
USDCAD (US Dollar – Canadian Dollar)
It was the fourth consecutive week of decline for USDCAD opened at 1.2475 and closed at 1.2359. The pair due to the temporary weakness of the US currency but also the continuing rise in oil prices that always favors the Canadian currency is in an obvious downtrend. What the US dollar and oil will do shortly are the factors that will determine the trend and volatility of USDCAD. There is no obvious support until 1.2250 while any recovery presupposes values above 1.25. We will stay out this week.
USDCHF (US Dollar – Swiss Franc)
Last week was bearish for the USDCHF with an opening at 0.9270 and closing at 0.9231. The weakness of the dollar from Wednesday onwards was the main reason for this downward movement. The uptrend that has started since the beginning of the summer has not changed yet and concerns for further correction will be more valid with a bearish break out of 0.91. On the contrary, the upward trend will probably return with prices above 0.9315. We may try buy positions this week.
AUDUSD (Australian Dollar – US Dollar)
Another week that we saw an increase in the AUDUSD which opened at 0.7306 and closed at 0.7417. The US currency had a downturn but also the Australian dollar strengthened due to the sharp rise in commodity prices, especially metals. Copper, for example, had one of the most bullish weeks in years. This picture of the Australian dollar is further strengthened by the recovery of the Australian economy that analysts expect and by the recent macroeconomic data such as the Unemployment Rate, which fell to 4.6%. If the US currency regains its strength, we may see a move for the pair to 0.73 otherwise the upward reaction could continue up to 0.7480. Sell positions is our selection for the current week.
It was the third strong consecutive bullish week for Bitcoin, which closed at $ 61,575 and profits that exceeded 12.50%. The United States is now the number one country in Bitcoin mining, and this gives optimism to the markets as there is a perception that the regulatory framework, when and if formulated, will be favorable. The first ETF futures in Bitcoin is expected to be released this week, but under the time these lines are written, it has not been officially approved by the SEC. With such an explosive rise, it makes sense for Bitcoin investors to dream of breaking the all-time high of near $ 65,000 last April with correction concerns below $ 59,000. We prefer long positions this week.