EURUSD Hangs Primarily on US Data
LAST WEEK, the US dollar soared to a 16-month high against the euro, following a CPI read economists have not seen in 30 years. The US consumer price index rose to 6.2 percent in October, well above forecasts and what policymakers had expected.
Although Fed’s Powell reiterated a view that inflation is “transitory” in the last FOMC meeting, the CPI data proved precisely the opposite. And despite Fed Chair having pledged “patience” towards rate hikes, market participants started pricing in an earlier rate hike at the getgo, which was evident in the US bonds markets.
As US bonds fell, the greenback soared across all markets.
The EURUSD pair was sent down to a July 2020 low after a successful attempt to break below $1.15. During last week the pair received rejection at $1.16 and slid to a close of $1.1443 by Friday. Whether the weakness continues into the end of this week will partially depend on Tuesday’s Retail Sales.
In addition, there is word that ECB will raise hikes later than the Fed now and only should inflation decelerate below 2 percent. At this pace, this is likely to take effect closer to the end of 2023.
Technically, the pair is nearing the June 8, 2020 resistance, which is likely to turn into support, although temporarily. A break below the $1.1425 support would see prices stall at $1.1352 next as it is the March 9, 2020, weekly open. Once recaptured, the room to $1.1173 will open up. On the flip side, $1.1557 would be the week’s top.
UK Labor Data Could Support the Pound
Some worry the Bank of England has an issue with communication as it hinted at a 25 basis points hike that never took effect in November. Instead, the MPC decided to back off despite publishing higher inflation forecasts of 5 percent, citing pressures on the labor market.
With markets having already had reacted to the expectation of a rate rise, the pound fell sharply following the last MPC meeting. Now, investors shift their attention to Tuesday’s employment figures to decide whether it’s worth remaining invested in the British pound or not.
Following Tuesday’s figures, the UK will also post the yearly inflation rate on Wednesday. A higher-than-expected CPI figure might positively impact how the MPC decides on the December meeting. However, should inflation slow down, it would likely be detrimental for the sterling.
GBP is relatively weak across the board, but it managed to hold off to some gains against the Swiss franc last week. However, this is not suggesting biased is bullish.
Last week’s price action indicates that bears remain under control as bulls received rejection at the 50% of the weekly candlestick near fr 1.2410. Any attempt to move higher than the said resistance will likely meet additional pressure at fr 1.2442, fr 1.2482, and fr 1.2546. However, a break of the week’s low at fr 1.276, and subsequently fr 1.2257, would find support near fr 1.21.
Turkish CB Expected to Impact Lira
The Central Bank of Turkey seems prepared to keep the pressure on the Lira growing as it is expected to cut rates for yet another time on Thursday. Despite a massive 20 percent inflation lingering, TCMB’s new governor insists that continuous cuts will help the country fight not only a weakening Lira and soaring inflation but mainly the country’s long-lasting account deficit.
In all truthiness, Turkey posted a surplus in August after a year. However, analysts believe this was due to tourism and is likely to switch to an account deficit sooner than later.
Regardless of increasing arguments on whether the bank’s policy continues to allow inflation to run hot or curb it, it certainly isn’t succeeding in strengthening Lira as it trades nearly 20 percent lower against the dollar.
If Turkey decides to push ahead with further cuts, the USDTRY pair would likely stay above ₺ 10 for the foreseeable future and may reach ₺ 10.68 and ₺ 10.89 as an intermediate resistance. However, a short-term rejection can be expected at the round ₺ 10 level with immediate support at ₺ 9.75 and ₺ 9.43. Should the bank regain its faith in conventional policymaking, the Lira could strengthen against the greenback and break below the latter support, opening the room to ₺ 9.
Evergrande’s Footprint on Metals
Since the economic calendar does not contain default events, it is vital to keep a keen eye on the Evergrande situation and its impact on the Chinese housing markets.
Despite the recent bonds relief rally amidst Evergrande’s last-minute payment to bondholders, the Chinese conglomerate has more debts coming due and could default any time.
Monday’s Housing Price Index in China printed its worst figures since January 2016 at 3.4 percent YoY, showing how bad the situation is. And the worst it gets, the more likely it is to see metal prices soaring as their safe-haven status will gain more traction. Metals such as copper and steel would usually be affected negatively. However, high electricity prices keep demand high as their production is power intensive.
In addition, US inflation keeps surging, wages increase, and supply disruptions keep metal prices running hotter as industrial demand rises ahead of Christmas.
Silver has made a comeback recently after breaking to a 5-month high last Friday at $25.37. With China’s data suggesting the housing situation is getting out of hand, silver might continue to move higher and eventually reach resistance at $27.88. However, a technical break of the intermediate resistance laying at $25.49 will be needed. If the market sees that China’s broader economy is doing well regardless as the index saw growth, the prices of silver might retrace back to $24.11 or even correct lower towards $22.32 before shooting back up.
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