Currency and Stock Markets. Daily Insights

[stoch]

Market Jitters, Surprising Retail Sales, and the Dollar's Rollercoaster Ride


Events in the Middle East are keeping the market on edge. Stock markets, if they go up at all, are doing so with caution. There's a little bit of growth followed by some corrections. Today, the main European exchanges and U.S. index futures are down by about half a percent. Gold is hanging onto its gains from last Friday, thanks to the geopolitical tension, making it a hot item.

The dollar is holding its ground.

The big deal today in terms of economic news is the report on U.S. retail sales. This report is probably the third most important after the NFP (non-farm payrolls) and the inflation report. Despite a negative sign from household credit card spending, the report surprised on the upside. Retail sales for the month increased by 0.7% compared to the previous month, and core sales, which give a better idea of consumption trends, rose by 0.6%. These numbers are much higher than the expected 0.3% and 0.2%. Notably, the previous figures were also revised significantly upward, to 0.8% and 0.9% respectively. This data pulled the dollar out of the red where it started the session and put it on an upward trend:

Yields on long-term bonds, like the 10-year Treasuries, shot up on the news, challenging recent highs around 4.90%. Verbal interventions from the central bank officials about high long-term bond yields having a tightening effect on the economy, reducing the need for tightening by the central bank, triggered a correction in Treasuries. This correction only lasted a week, and then rates started rising again, effectively ignoring the events in the Middle East:

This week, on Thursday, Federal Reserve Chairman Powell is speaking. In light of recent comments from several Fed top brass that recent yield curve behavior might reduce the need for a rate hike, Powell has a tough task ahead. He'll have to somehow comment on the incoming data to give the impression that the Fed has everything under control. It's known that the effectiveness of the Fed's policy depends heavily on whether it influences market expectations. If the Fed 'misses the mark' by suggesting one thing and the economy requires another, market participants may start making their own forecasts about what the Fed will do. That's why the Fed's influence on their expectations will diminish, and the efficiency of monetary policy will take a hit.

Also, today we'll get data on international capital flows into U.S. Treasury bonds (TIC Flow) for August. This publication updates us on what major foreign countries are doing with their U.S. debt. China's holdings of U.S. debt have fallen from $1.04 trillion at the beginning of 2022 to $821 billion. Further decreases could cause problems in the U.S. bond market and raise questions about whether rising U.S. bond yields due to an increase in the term premium are actually good news for the dollar.





Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Global Economic Snapshot: China's Resilience, Surprising US Data, and UK Inflation Shockwaves


Significant improvements were seen on the macroeconomic front on Wednesday following the release of data from China. The third-quarter GDP growth came in at 4.9% on an annual basis, surpassing expectations of 4.4%. Industrial production (4.5% versus a forecast of 4.3%) and even often-underperforming retail sales (5.5% versus 4.9%) also exceeded expectations. Official unemployment in China has dropped to 5%. Among the key implications for global markets, we can consider improved forecasts for energy consumption (China being the second-largest net oil exporter) and a revision of growth forecasts for all major economies. This is because the growth of the Chinese economy largely reflects external demand for Chinese goods and services. Following this news, oil prices rose by more than 1%, with Brent crude testing the $93 per barrel mark, its highest since early October. Since the escalation in the Middle East, prices have risen by nearly 10%, putting pressure on countries heavily dependent on energy imports:

In the United States, retail sales figures released yesterday also exceeded expectations. September's growth compared to the previous month more than doubled forecasts. US industrial production also surprised on the upside, with a month-on-month increase of 0.3%. The Federal Reserve is striving to keep its policy flexibility, stating that more time is needed to assess the possibility of another rate hike this year. Richmond Fed Chief Barkin made this announcement yesterday. Meanwhile, US Treasury yields reached local highs today, with the yield on the 10-year bond reaching 4.85% and the 2-year bond hitting 5.24%, its highest level since 2006:

Today's inflation data in the UK also surprised on the upside, increasing the likelihood of a tightening by the Bank of England in the upcoming meeting. Core inflation came in at 6.1% (forecast 6%), while headline inflation reached 6.7% against a forecast of 6.6%. The report prevented the British pound from falling, and GBPUSD is consolidating near the opening level (around 1.22). However, the price remains within a descending channel with attempts by buyers to take the initiative:

From the chart, it's evident that the short-term resistance level for the pair will be around 1.2250. If it breaks and holds above 1.225 for at least a few days, the pound is likely to attract more buyers. However, if sellers manage to defend this level, pound weakness from a technical perspective may intensify, and the pair could head toward the recent low at 1.20.

The dynamics of European currencies are now heavily influenced by the conflict in the Middle East. Markets vividly remember the recession in developed countries caused by the energy crisis of 1973 when Arab OPEC members sharply reduced production to influence global prices in their favor. The markets are likely to be inclined to consider this risk now, preparing for further rallies, and the likelihood of this scenario increases with each new escalation.



Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Rising Treasury Yields and Labor Market Resilience: Shifting Tides in U.S. Financial Markets



Yields on Treasury bonds have revisited recent local highs, compelling equity investors to reassess their discounted cash flow stock valuations. The yield on the 10-year bond touched 4.99% on Thursday, while the 2-year bond yield advanced to 5.25%. The market capitalization of major U.S. stock indices dipped by 1-1.5% yesterday, and today, there's cautious growth. However, the risks are skewed toward further declines.

Several robust macroeconomic reports on the U.S. economy today included initial claims for unemployment benefits, which increased by only 198,000, close to the current business cycle's low of 182,000, which began post-pandemic:

In the U.S., individuals classified as unemployed are those who have been unable to find work for more than four weeks. Thus, a decrease in initial claims for unemployment benefits suggests that finding employment has become easier. This aligns with the growth in job vacancies reported by the JOLTS agency. The latest figures indicated a sharp rise in job openings compared to the previous month:

When the influx of unemployed individuals slows down, it generally reflects increased household confidence in future income, leading to higher consumer optimism and a greater willingness to spend rather than save. In turn, this fuels economic growth.

Reduced initial claims for unemployment benefits also mirror increased corporate confidence, reflecting business owners' expectations regarding changes in demand for their goods or services. If they anticipate higher demand, they are more likely to increase their workforce.

However, the shift in U.S. Treasury bond yields does not entirely resemble a mid-term Fed cycle reassessment. Data on U.S. government debt ownership shows that China is actively reducing its holdings of U.S. debt obligations, with its share shrinking by another $16 billion in August:

Since the beginning of 2022, China has sold $235 billion worth of U.S. bonds. There is a risk that at some point, the correlation between U.S. Treasury bond yields and the U.S. dollar will shift from positive to negative. For now, though, investors are focused on incoming data on the U.S. economy and the Fed's response to this information.

Considering that the incoming data is increasing pressure on the Fed to signal another rate hike to the markets, there's a growing risk that the upward movement of the dollar will persist, and risk assets will face even greater pressure. Regarding the S&P 500, the risk of a retest of the lower trendline of the ascending channel is rising, as the initial failed attempt did not lead to a sustainable rebound and a return to an upward trajectory:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

US Treasuries Surge as Yields Reach Critical 5% Level




US Treasuries Surge as Yields Reach Critical 5% Level

In a surprising turn of events, US Treasuries witnessed a sharp rise in demand, driving the 10-Year US yield to a key psychological level of 5%. The sudden surge was not attributed to any specific catalysts, such as new economic data or statements from Federal Reserve officials. Instead, it appears to be a technical pullback, where market participants on both sides recognized the critical importance of the 5% level.

Bill Ackman's comments, suggesting that the US economy might be weaker than it seems, played a role in bolstering the argument for Treasuries. Additionally, according to him, there is a growing sense of key risks accumulating on the downside. Another contributing factor to the Treasuries' rally is the pressure from foreign Treasury holders, who are slowly offloading their holdings, possibly in anticipation of a deterioration in US credit ratings or public finances.

As Treasuries surged, other asset classes responded. The US dollar index dropped to the vicinity of 105.50:

However, the dollar started to recover on Tuesday, causing the EURUSD pair to drift closer to 1.06, while GBPUSD moved to 1.22. USDJPY has been consolidating near the 150 level, a crucial threshold where the Bank of Japan (BoJ) or the Japanese government may initiate interventions to protect the yen.

Gold Corrects Despite Rising Yields

Despite rising yields, gold experienced a correction after nearly touching $2,000 per troy ounce. The price of gold tends to move inversely to yields, as it is a zero-yield asset. However, geopolitical tensions have been the driving force behind gold's rise, and there are no imminent signs that this trend will reverse.

Oil Markets and Currencies

Oil prices are teetering around the $90 mark on Brent, which is considered a significant resistance level. Lower oil prices provide relief for currencies of oil-importing nations, aiding them in their battle against the strong US dollar.

Equity Markets Show Signs of Recovery

US equities and European markets are showing signs of recovery, though gains remain limited to around half a percent. The S&P 500 (SPX) closed yesterday at its lowest level since early June and is currently trading below its 200-day Simple Moving Average (SMA), a key technical support level. This is the second test of the 200-day SMA, indicating that there may not have been enough bullish pressure to initiate a reversal from this critical level.

European PMI Indices Disappoint

European economic data added to the day's uncertainty, with German services PMI falling below 50 points to 48, and European services PMI dropping to 47.8, well below the forecast of 48.7 points. These weak data releases seem to coincide with the decline in EURUSD, suggesting that the market may be reacting to the incoming data. The increased risk of stagflation in the European Union creates additional dilemmas for the European Central Bank (ECB), complicating its monetary policy decisions. In PMI data, the 50-point mark divides contraction from expansion.

Dollar Index in a Descending Channel

Despite the apparent strength of the US Dollar (DXY), a closer look at the Dollar Index on the daily timeframe reveals a clear descending channel since it reached its high in early October. Considering market sentiment, there is a possibility that the price may gravitate towards the 105 level, where the lower boundary of the channel currently resides:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Daily Market Update: US PMI Surprises, Currency Market Reactions, Oil Retreats, and Fed Chair's Balancing Act



US Dollar Resilience Amid Surprising PMI Data

The US Dollar, often at the center of the currency markets, exhibited resilience in the face of mounting bearish pressure. This defiance was fueled by the release of Composite PMI data from S&P Global, which exceeded expectations by rising to 51 points in October. This figure indicates a slight MoM expansion in both the manufacturing and services sectors in the United States, even as multiple headwinds and downside risks persist. The Services PMI, in particular, delivered a positive surprise, climbing from 50.1 in September to 50.9 in October, surpassing the consensus estimate of 49.8 points:

PMI data is a vital leading indicator for investors, providing valuable insights into economic health and potential trends. The Purchasing Managers' Index (PMI) measures business conditions, and a reading above 50 signifies expansion, while a reading below 50 suggests contraction. Investors closely monitor PMI data as it offers a glimpse into the direction of economic growth and can significantly influence financial markets.

Australian Dollar's Rollercoaster Ride

The Australian Dollar experienced a rollercoaster ride as inflation slowed less than expected in the third quarter, dropping from 6% to 5.4% year-on-year, slightly missing the estimated 5.3%. The initial optimism surrounding the possibility of RBA tightening gave way to the broader strength of the US Dollar, causing the AUDUSD to erase its gains. Compounded by a lackluster performance in commodity markets and renewed concerns over China's economic performance, commodity-based currencies like the AUD and NZD faced downside pressure.

Oil Prices Extend Retreat Amid Easing Geopolitical Concerns

The retreat in oil prices continued as the escalation of Middle East tensions began to ease, alleviating market concerns about OPEC supply disruptions. WTI oil prices found support near the $83 per barrel mark, effectively erasing previous gains that were driven by geopolitical instability. Market focus is now shifting toward data that may impact the outlook for oil demand.

Gold's Dance with Uncertainty

Gold, often seen as a safe-haven asset, exhibited a swift rise amid the Middle East crisis, which had driven investors toward safety. However, in recent days, Gold has been moving within a descending channel as buying pressure wanes, though sellers remain cautious:

Uncertainty surrounding the ongoing crisis continues to hang over the market, preventing a clear direction for this precious metal.

Germany IFO Business Climate Report and Its Impact on EURUSD

Germany's IFO Business Climate report exceeded expectations with a headline reading of 86.9 points, surpassing the estimated 85.9. However, despite this positive news, the Euro faced headwinds due to Dollar strength, driven by robust US data and rising yields. This dynamic played out as EURUSD struggled to sustain upward momentum.

Equity Markets and the Bond Yields Conundrum

European stocks and US equity futures remained under bearish pressure on Wednesday. Concerns about the potential rise in market interest rates (bond yields) were reignited by positive US data updates and the de-escalation of geopolitical tensions. While US stocks managed to stage a bounce on Tuesday, the influence of US rates may soon reassert itself.

Bond yields affect equity prices through the discount rate. When bond yields rise, it makes alternative investments, like bonds, more attractive compared to equities, which can lead to lower stock prices.

Fed Chair Powell's Balancing Act

The day ahead holds a significant event in the form of Fed Chair Powell's speech. Powell faces the challenging task of balancing the strong US data that implies the need for interest rate hikes with the Fed's desire to remain patient and gather more data. There is a recognition of the potential for policy transmission lags, which can skew the true impact of high interest rates and make additional rate hikes potentially harmful to the economy.



Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Market Update: Bond Yields Recede, Dollar Faces Downside Risks, and Labor Market Signals



Bond Market Dynamics: Yields Retreat and Fed Speculation

In the last couple of sessions, bond yields have been on a roller-coaster ride, witnessing declines both at the short and long end of the curve. The 10-year bond yield, which peaked at 5% last week, has now retreated to 4.62%, while the 2-year bond yield has fallen from 5.24% to 4.98%. These movements have significant implications, primarily due to their impact on the market's perception of the Federal Reserve's monetary policy.

The market has effectively priced out the possibility of a rate hike from the Fed in December, while expectations for rate cuts in 2024 have increased. This shift is attributed to the market's dovish interpretation of the recent Fed meeting. Chairman Jerome Powell's stance during the meeting raised doubts about the need for further tightening, given the batch of weaker-than-expected fundamental data on the U.S. economy this week. Key data points from the first half of the week, such as Manufacturing PMI, ADP jobs data, and an unexpected uptick in initial claims data, have all added to the argument against imminent tightening.

For instance, the unexpected cessation of the recent downward trend in unemployment claims data is noteworthy. The headline reading revealed 217K new claims, slightly missing the consensus estimate of 210K. The previous week's figure was also revised higher to 212K. Continued claims, an indicator of people remaining unemployed, ticked higher to 1818K, surpassing the 1800K estimate. Continuing claims has been on the rise from September indicating that difficulty in finding new job increases:

This rising trend in unemployment claims may signify a deterioration in the labor market, which, in turn, could have a dampening effect on inflation. The link between rising unemployment claims and the labor market's health is crucial. As more people struggle to find employment, it can lead to reduced consumer spending and demand, thereby acting as a potential brake on inflation.

Dollar's Bullish Momentum and Overbought Status

The U.S. dollar has displayed bullish momentum, reaching its highest level since late November 2022. However, it's essential to consider that the dollar could be considered overbought, especially given the Federal Reserve's proximity to the end of a tightening cycle, as indicated by Powell during the last meeting. This scenario suggests that the risks for the dollar are currently skewed towards the downside:

Non-Manufacturing PMI and NFP

Today, essential reports to watch are the NFP and the PMI report for the non-manufacturing sector from the Institute for Supply Management (ISM). The services sector, accounting for nearly 70% of U.S. output, is a vital indicator for measuring the overall health and direction of the U.S. economy. The consensus estimate stands at 53 points, slightly lower than the September reading of 53.6 points. This report, along with two additional PMI reports from S&P Global, though less crucial than the ISM's report, will collectively provide investors with a clearer picture of the U.S. economy's performance in October.

Consensus estimate for growth in jobs count is 180K, significantly less than stellar September print of 336K. The range of estimate is 125K – 300K. A reading below 100K should be the clear signal for dollar fall, however if jobs growth will be in line with estimates or slightly weaker, we are unlikely to see significant dollar downtrend. Wage growth is expected to decelerate from 4.2% to 4.0% and unemployment to remain unchanged at 3.8%.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

US Market Rally Faces Crucial Test as S&P 500 Nears 4500 Points


S&P 500 and other US stock indices closed with a solid gain on Friday. After breaking through the bearish channel last week, the SPX index spent most of the week consolidating near the 4350 level, but on Friday, it made a confident leap, surpassing the 4400 mark. The rally since early November has been quite impressive, with SPX showing intraday growth, resulting in a 6.5% increase in its market capitalization, excluding two trading days. Such episodes in the index's history have been no more than 10.

The outlook for the continuation of the US market rally will depend on the upcoming economic data this week. Comments from Federal Reserve Chair Powell and other officials last week suggest that the Fed could raise rates again in December if the data indicates the need for such a move. Key reports this week include the Consumer Price Index on Tuesday, retail sales data on Wednesday, unemployment claims on Thursday, and housing construction data on Friday.

Expectations for headline US inflation MoM in October are set at 0.1%, while core inflation is expected to be at 0.3%, following the previous 0.3% in October. The sharp drop in gasoline prices this month is likely to trigger a "domino effect," reducing inflationary pressure in other categories, potentially keeping the overall Consumer Price Index and Producer Price Index near the previous month's level:

Preliminary statistics indicate a decline in car sales in October, and credit card spending has also fallen short of expectations, indicating a potential slowdown in consumer spending. US industrial production is also facing a downward impetus, as evidenced by the weak ISM index in the manufacturing sector, which is likely to impact the Producer Price Index (PPI) published on Thursday. Risks are also growing in the construction sector, considering that mortgage rates have risen to 8%, apparently acting as a catalyst for a significant slowdown in potential buyer traffic.

Regarding core inflation, market participants are likely to focus on two main components: service inflation and rental inflation (Shelter). Despite moderate overall figures last month, markets viewed changes in the CPI as a hawkish risk, given the accelerated inflation in the services sector.

As the SPX index approaches the key psychological resistance level of 4500 points, market participants may use the incoming data this week to secure profits, likely causing a slight correction before the market can readjust for a pre-holiday rally with a potential test of the 4500 level as a breakout point. A correction in the stock market would be a positive development for the dollar, which could strengthen up to the upper limit of the current bearish channel, corresponding to the 106.30 area:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

US Inflation Report for October Alters Dollar Outlook


The latest US inflation report for October appears to have cast doubt on the prospects of a strengthening dollar in the medium term. Details from the report revealed that two crucial components of the index – the service sector and rental rates – experienced a sharp slowdown in price growth. Alongside the production price index, which indicated monthly deflation, these data significantly reduced the likelihood of a December Federal Reserve rate hike (futures are currently pricing in a 0% probability). Additionally, the market has begun factoring in the scenario that the Fed's rate cut in 2024 may commence earlier, with the overall size of cuts for the year exceeding previous expectations (now around 100 basis points). Despite a positive retail sales report, the situation failed to recover, leading to a dollar and Treasury bond yield collapse. The US dollar index has clearly formed resistance around the 104.50 level in the latter half of this week:

Unexpectedly weak initial jobless claims data were released on Thursday – a high-frequency indicator allowing assessment of the weekly pace of layoffs in the US economy. The number of initial claims rose to 231K, while long-term unemployment claims also increased more than anticipated, indicating that the job search difficulty for the unemployed continued to rise:

Following the release of weak labor market statistics, the dollar index fell to 104 but rebounded by the end of the day. Today, towards the end of the week, the downward movement resumed, though the 104 level is likely to hold. There was a surge in buying in both short-term and long-term Treasuries at the beginning of the European session, triggering dollar sales. However, closer to 104, selling pressure noticeably diminished.

Today also saw disappointing retail sales data in the UK and the Eurozone's second estimate of inflation, which met expectations. Considering the openness and size of the US economy, markets are likely to begin factoring in deteriorating economic data in EU countries, the UK, Japan, and other developed nations. The ongoing downward trend of the dollar, without clear signals from the Fed indicating a pause, will likely need to be accompanied by stability in economic indicators in those countries or positive surprises in the data. In this regard, attention should be directed to next week's Eurozone PMI data, scheduled for Thursday, and Japanese inflation figures, set to be released on Friday.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Currency Market Analysis: Dollar Weakness, Bond Auction Strength, and Global Economic Signals



The dollar index continues its search for lows this week; however, seller activity has diminished as the market overall remains relaxed, given that this week marks Thanksgiving in the United States:

It is worth noting that the price has dropped below all three key moving averages (50, 100, 200-day), increasing the likelihood of a rebound next week.

The auction of 20-year US Treasury bonds showed strong demand on Monday. The fact that investors have shown increased interest in these securities, even after a sharp decline in yields over a short period and despite the uncertainty related to partisan opposition regarding the government budget (which undermines the impeccable credit rating of the USA), has become a signal for the market to buy bonds across all maturity spectrums. As a result, almost the entire US yield curve decreased by an additional 4-5 basis points yesterday, weakening the dollar.

Today, the market will trade the report on existing home sales in the US and the minutes of the FOMC meeting on November 1. According to the initial report, the consensus forecast is 3.88 million units, which, by the way, is the lowest value since 2010. The basis for such weak figures is the relatively high mortgage rate (around 8% for 30 years) and a low level of mortgage applications in October. Weak data will confirm that the high Fed rate is beginning to fully impact key macro variables.

The market is also focused on the yuan's revaluation, actively supported by Chinese authorities. Although China is trying to avoid its excessive devaluation, the rapid strengthening of the yuan, in pure economic terms, will not necessarily be beneficial, given the significant role of exports in the economy. Nevertheless, authorities actively support its strengthening, and today they set the reference rate stronger than expected – close to 7.14. A strong yuan pulls up the entire Asian currency bloc, which, in aggregate, may also have a negative impact on the dollar.

For EURUSD, today presents an opportunity to break through 1.10 on the potentially weak report on existing home sales in the USA, but consolidation is unlikely. To achieve this, we probably need to see a decisive reduction in the interest rate on the two-year US Treasury bond, which continues to stubbornly hold near 5%, even after a series of recent soft US data. Upward movement is also temporarily hindered by concerns that several European PMI indices due on Thursday will remind us that the weakness of the European economy has not disappeared and may have even intensified.

The Canadian dollar is awaiting an inflation report. A slowdown in growth from 3.8% to 3.2% is expected. Today, USDCAD is slightly in the negative against the backdrop of calm trading in the currency market overall. On the daily chart, technical figures formed by the pair resemble preparation for a downward breakthrough – a triangle near the lower boundary of the main upward trend. The inflation report may well contribute to this today:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Dollar Under Pressure: Assessing Markets and Trends in Light of Key Developments



Major currency pairs are treading water this Monday as markets gradually get back into the swing of things following the Thanksgiving Holiday last week. The AUDUSD saw a slightly more noticeable upward push, climbing 0.3%, exerting pressure against the 0.66 round level—the highest since August. The bullish sentiment on the pair is underpinned by better-than-expected data from China last week and signs of persistent price pressures in the Australian economy.

European equities kicked off the week on a weak note, with key EU stock indices drifting lower by 0.2-0.3%. US futures are also on a downward trend, although losses are capped at 0.5%. Equity markets seem to be taking cues from the crude oil market, where prices slumped due to concerns that OPEC may not reach an agreement on production quotas during the Thursday meeting, conducted remotely. Key crude oil benchmarks, WTI and Brent, both erased more than 1% on Monday. The decline may be associated with a worrisome demand outlook, adding pressure on risk assets.

Gold prices broke through the key psychological mark of $2K per troy ounce, continuing their upward march with a 0.6% gain. As mentioned last week, the breakout resulted from the second retest of the round level since October. The US interest rate outlook is turning more dovish due to the waning economic expansion momentum seen in the latest US data, leading to expectations of a less hawkish stance by the Fed. Gold prices are inversely related to expectations of real interest rate in the US as the demand for it is a function of the level of overall uncertainty about growth outlook and opportunity cost from not investing into risk-free assets (US inflation-indexed bonds, TIPS).

The US Dollar has retreated by 3.5% from its October peak, driven primarily by market perception that the Fed is nearing the end of its tightening cycle. This sets the stage for risk-taking behavior in equities, easing selling pressure in bond markets, allowing investors to put money to work in fixed income. Note that seasonal factor comes with minus sign into dollar equation in November and December which also an important technical bearish signal. As we noted in our previous technical analysis update for USD, Dollar index after breakout of bearish channel consolidated in a triangle which was eventually broken on Monday:

The current short-term outlook for the dollar suggests a heightened vulnerability to further decline, with the next significant support level anticipated near 102 level. This level could hold significance as it aligns with the upper bound of the previous medium-term bearish channel. The idea is that this bound will transition from strong resistance to support level.
It’s crucial for the markets participants to remain vigilant, as a breach of this level could signal a continuation of the downward trend, while its successful validation as support may introduce a shift into current trajectory.

The economic landscape this week appears relatively calm, with a scarcity of events that might attract widespread attention. Scheduled are comments from Fed speakers tomorrow (Waller, Bowman, Barr, Goolsbee), on Wednesday (Mester), on Thursday (Williams), and on Friday (Powell). Thursday will also bring unemployment claims, Beige Book, and Core PCE reports, while Friday sees ISM releasing the PMI report for the US manufacturing sector. Additionally, Thursday will feature flash estimates of Eurozone inflation, with the core figure likely decreasing from 4.2% to 3.9%, potentially lifting the Euro even higher against the dollar.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.