Economic Data Releases
New Zealand's unemployment number (Q3) released earlier today has come in higher than expected of 3.2% yet in line with the previous of 3.3%, while German unemployment levels stabilized as expected at 5.5%.
Looking Ahead
Markets will watch closely the US interest rate decision tonight at 10:00 PM (UAE). The Fed is expected to hike rates by 75 basis points for the fourth time in a row taking current rates to their highest level in 14 years from 3.25% to 4.00% and to keep on reducing the Fed budget by $95Billion a month eying a decline to $6.7 Trillion by the end of 2024.
Investors will tune in to the Fed Chairman’s press conference at 10:30 PM (UAE) for any forward guidance however, it is unclear whether Mr. Powell will hint at any slowdown in the pace of current rate hiking, although he may emphasize a data-dependent approach to decide the size of any future rate hike.
Indices and Bonds Yields
The US major indices stabilized after declining yesterday on the back of the jobs opening data which revealed an increase in the number of vacancies by 437,000 jobs in September boosting the odds that the Fed could keep an ultra-tight monetary policy however, investors would get a better image of the US labor market from the NFP report of October due on Friday.
The market has already priced in a 75 bp hike in November and expects between a 50-75 bp rate hike by the end of this year. The size of the hike in December could provide a good hint of how the Fed policy may look like in 2023 ie, a 50bp rate hike makes a change in the policy of the Fed by the second half of next year more probable.
On the other hand, the US two-year bond yields stabilized at 4.5% while the 10-year bond yields remained moving above 4.0%. The difference between these yields reflects a yield curve inversion which is an indication that the US economy is heading into a recession.
Major FX Currencies
The US dollar index prices could fluctuate depending on the Fed’s meeting today, as any hint from Chairman Powell of a possible change in the current policy soon could put selling pressures on the US dollar prices however, it is highly unlikely to see a significant decline in the greenback prices due to the lack of a clear alternative to the US dollar due to the uncertainty coming from the Russian-Ukrainian war that keeps investors close to the safety of the US dollar in addition to the current macroeconomic situation in the Eurozone and China.
The rhetoric of some ECB speakers about more possible rate hikes on the horizon has boosted the Euro price against the US dollar. It should be noted that hiking the European interest rates greatly supported the euro, but it was not enough so far to maintain the EUR/USD rate above the parity level.
Technically, the EUR/USD may be on the way to retesting the parity level. A daily close above 1.0000 might encourage traders to push towards 1.0112 while any daily close below 0.9858 could trigger a selloff towards 0.9780 and 0.9701 respectively.
Commodities
The gold traders brace for the FOMC meeting today and Chairman Powell’s press conference tonight, as any hint of a pivot of current policy, soon could send the gold price higher otherwise, the US dollar strength limits the possibilities for the precious metal to rally.
Technically, the gold prices rebounded higher this week as some traders took profits and exited the market ahead of the Fed meeting. Therefore, any daily close above 1661 opens the door for the price to rally towards 1685 than 1705 while a daily close below 1645 could send the price to revisit $1628/oz.
Brent crude has rallied today to a three-week high due to a significant decline in US oil inventories. It is noteworthy that the oil price benefited from a weaker US dollar price and the OPEC+ decision of cutting production by two million barrels per day starting from November and from the market’s speculation of a possible exit from the Covid-zero policy in China which could boost demand for oil.
Technically, West Texas oil price overtook the 50-day moving average this week opening the door for a test of the 90.50 level. A daily close above 92.94 may embolden buyers to push toward 98.65. On the other hand, any failure in closing above 90.50 could send the price towards $85.15 PB.
Chart of the Day: The US Dollar Index (DXY) – Daily Price Chart
Chart Source: ThinkTrader
On October 13th, the US dollar index price corrected lower, and since then the index has started a sideways move creating a lower high with a higher
low.
This week, the price closed above the 50-day moving average signaling that the index may resume its uptrend sentiment. The Average Directional Index (ADX) moves below 20 indicating a weak momentum therefore any rise above 20 means that the price may start to move in a clear trend.
Currently, the DXY price trades between 109.42 - 112.95 and could be heading for a test of the high end at 112.95. A daily close above this level could encourage buyers to extend the rally towards 115.44 however, resistance levels at 114.26 and 115.09 should be watched closely. On the other hand, a daily close below 109.42 opens the door for more retreat towards 105.47 although support levels at 108.11 and 106.18 should be monitored.
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