London 02/11/2022

Markets and investors are in a wait-and-see mood ahead of the FOMC in a few hours and the NFPs on Friday. So far, the week is quiet enough without high volatility and extreme trends. The US dollar has a slightly bullish trend, helped by yesterday’s PMIs announcements. Manufacturing PMI in October was announced at 50.2, above the price of 50 which was the market expectation and the dollar took some uptrend boosting.
Europe has already announced most of the important news and macroeconomic results. Eurozone’s inflation was announced in October at 10.7%, much higher than the 9.9% of September and even higher than the 10.2% that the markets estimated. Maybe this result will force the ECB to apply new interest rate hikes. In any case, the expected recession has not come to the Eurozone yet, as the main macros remain strong: Eurozone had a 2.1% growth in 2022 Q3 (YoY), the German trade balance was surprisingly announced at 3.7 bn, far above the estimations and the unemployment rate in Germany remained unchanged at 5.5%.
The major stock indices are mildly bearish ahead of the major US events, commodities like gold and oil are bullish and the bond yields do not have important changes with the US 10-year bond yield moving a bit above 4%.
EURUSD (current price at 0.9908) is mildly bearish this week even if today there are some attempts at a bullish recovery. The macroeconomic results did not help the euro enough: higher inflation and good results in GDP normally should create anticipation that the ECB can increase the interest rates in the next sessions. Probably, the prescribed interest rate hikes by the Fed (today and in the future sessions) have already shaped a divergence between the two central banks. Christine Lagarde in her speech today, underlined that the inflation is too high and that the recession probability has increased and concluded that ECB has not reached the destination of interest rates yet. FOMC and NFPs are very critical events for the pair. The volatility is expected to increase and if the EURUSD breaks out above the parity of 1:1, it may move even higher. In the south, the most important support is at 0.97.

GBPUSD (current price at 1.1509) is bearish this week as the strength of the US dollar holds the pair below last week’s highest prices. There is also a restrained mood regarding the sterling and the interest rates decision by the Bank of England tomorrow. The majority of investors and market analysts expect a 0.75% hike but some voices support that a 0.50% hike is not excluded as an existing probability. If this scenario comes true the pair can easily drop to the 1.10 area, given that the Fed will indeed do the 0.75% rate hike later today. If the Bank of England decision is finally a 0.75% hike and the pair can stay above 1.15, the bullish scenario prevails.

USDJPY (current price at 146.96) is bearish this week although the dollar is still in a higher position compared to the weekly price and even the bond yields are in a sideways consolidation. Earlier today, the Bank of Japan released the monetary policy minutes, and the bank’s governor Haruhiko Kuroda reiterated that the monetary easing will continue to support the Japanese economy and that there is no need to raise the interest rates. He also gave a hint regarding a possible change of the policy “if prospects rise for inflation to head towards 2%, accompanied by wage hikes”. According to the above analysis, since the bonds are not rising and since the yen remains weak, the sellers of the USDJPY consider a possible weakness of the dollar based on a Fed’s softer approach in the next period. Below 145 the downtrend may become more robust.

DISCLAIMER: The information produced by a-Quant is of a general nature only. It is not personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

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