After an exciting NFP report and a winning avoidance of a Fed taper frenzy the focus returns to inflation. Everything from earnings season, the regional Fed surveys, and the ISM reports suggest that global supply chain pressures remain strong, and that inflation will remain high. The October inflation report is projected to show inflation red alert.
The Federal Reserve is going to start tapering asset purchases this month to the amount of $15 billion, completing the process by the middle of next year. But the central bank still stays patient on rates. Even though there has been a rise in inflation as of late, policymakers expect trouble spots to gradually lift, bringing down general price growth.
This commentary, outlook on rates and the size of the balance sheet resulted in front-end government bond yield weakness. However, the US Dollar spent this past week appreciating.
It is expected that it will continue taking constant readings above target to shift the central bank’s tone on raising interest rates as well as the eventual shrinking of its balance sheet. This may be reinforced by a plethora of Fedspeak this week, including from Chair Jerome Powell.
On the other hand, major stock indexes in US and Europe surged to new record highs last week, including DOW, S&P 500, NASDAQ, DAX and CAC 40.
Looking forward the Germany’s ZEW economic sentiment index for November the highlight on Tuesday. On Wednesday investors will be watching the monthly US CPI and Unemployment Claims. On Thursday, the focus will shift in the early hours as the Australian Unemployment Rate will be released. Later, the UK’s quarterly preliminary GDP will be released. Note that on Thursday American, Canadian and French bank will be closed in observance of Veterans Day, Remembrance Day, and Armistice Day respectively. Lastly on Friday, traders will be watching the US’s JOLTS Job Openings and the Prelim UoM Consumer Sentiment which is a survey of about five hundred consumers which asks respondents to rate the relative level of current and future economic conditions.
Major Currencies Performance and Signals
EUR/USD
The only standout events come on Tuesday as we get the ZEW economic sentiment readings and hear from ECB President Christine Lagarde. We expect this week for the trend to remain in a range between 1.15 and 1.16.
FORECAST: NEUTRAL
Resistance: 1.1600, 1.1650, 1.1700
Support: 1.1550, 1.1500, 1.1450
GBP/USD
The British pound got squeezed last week after the Bank of England decided not to taper its bond purchasing program. We remain bearish this week.
FORECAST: SELL
Resistance: 1.3500, 1.3550, 1.3600
Support: 1.3450, 1.3400, 1.3350
AUD/USD
The Australian dollar fell significantly during last week, but on Friday turned around to show some positiveness. We remain bearish this week.
FORECAST: SELL
Resistance: 0.7400, 0.7450. 0.7500
Support: 0.7350, 0.7300, 0.7250
USD/JPY
The pair continues to range between 113.50 and 114.50, with its daily movements entirely correlated to the US/Japan interest rate disparities. We remain neutral this week.
FORECAST: NEUTRAL
Resistance: 113.50, 114.00, 114.50
Support: 113.00, 112.50, 112.00
USD/CAD
Canadian Employment Change report adds 31,2000 jobs, Unemployment Rate drops to 6.7% and the Federal Reserve concerns on rate hikes overrules taper announcement. West Texas Oil dropped 2.5% on the week to $80.37, after touching a 5-week low at $77.61 on Thursday. We remain bullish this week.
FORECAST: BUY
Resistance: 1.2450, 1.2500, 1.2550
Support: 1.2400, 1.2300, 1.2250
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