GemForex - weekly analysis

The Dollar continues to dominate all market prices. It has risen to 114.00s, with an average movement of 57 pips per day since at least 2016, regardless of Fed raising or lowering interest rates to any desired level. Overall, the markets are dependent on the DXY for every move.

On Friday, the greenback ended the day higher against the majority of its peers on Friday as data showed U.S. consumer spending rebounded in August, signaling that the measures taken by the Federal Reserve were working. 

In the important financial news of last week, the price surge hit double digits in Europe while the Feds preferred gauge in the US (PCE (core) deflator) topped expectations too. 

And while the US is still strong, investors at the same time unwound some very popular short bets on JPY, EUR, and GBP. According to Credit Suisse, EURUSD remains in a downtrend with levels as low as 0.9200 possible if fiscal difficulties pick up or Russia-related energy difficulties worsen. The market is very conscious of the risks of a deep euro area recession and the possibility of major hits to both consumer spending and industrial production. Fiscal outlays will need to fill many gaps, reinforcing expectations for another interest rate hike by the ECB in October, and in the meantime, EURUSD is expected to continue its weakening. 

With all that in mind, let us hop to the most notable events of the week ahead! 

Todays economic calendar contains US manufacturing. Another important economic input for the Dollar follows on Wednesday (ADP job report, non-manufacturing ISM) and Friday (September payrolls). For the Euro, we expect a major news on Wednesday, with the S&P Global Composite PMI coming out for the Eurozone and as well as for Germany, Italy, and France. On Thursday, EU retail sales and German factory orders, and on Friday Germany Industrial production and German Retail sales are the last major EUR news for the week. 

For the pound, the news of the week will be on Wednesday with the S&P Global Composite PMI. 

According to sources, OPEC+ at its meeting in Vienna on Wednesday is considering an output reduction of 1 mln barrels per day (or more). A cut of 1 mln barrels p/d would be the biggest reduction since the start of the pandemic in 2020. If so, the move could raise tensions between the US and Saudi Arabia as the US and other consumers asked the country to raise production to give breathing space to the global economy and as lower prices would reduce Russias oil revenues. To keep prices from surging in the US (and US refiners from profiting on Europe's energy woes), Biden Officials Float Fuel Export Limit in Meeting with Refiners. Oil futures at the time of writing, jumped 3.2%, currently trading at 82.45$. The Oil futures tumbled 25% in the last quarter. 

From the other side of Asia, the quarterly Tankan Survey of the Bank of Japan showed an unconvincing picture. The manufacturing index for large companies unexpectedly dropped, and the outlook amongst large manufacturers also declined. The assessment of large non-manufacturers increased slightly but the outlook also deteriorated. Large manufacturers also indicated to take into account an average rate of USD/JPY of 122.73 for this fiscal year. This is much stronger than the current rate near 145. With respect to currency weakness, Japanese Finance Minister Suzuki this morning again warned Japan stands ready to take decisive action to prevent excessive moves in the FX markets. The USDJPY consolidated in the 144.00-145.00 area following last weeks Bank of Japan (BoJ) intervention. 

We also expect news from the distant lands of Australia, where on Tuesday, the Royal Bank of Australia will decide on its interest rate decision. With a focus on the greenback, the RBA Board judged back in September that the economy is still holding up well, but at some point, they will have to scale back with the rate hikes. Until then, the domestic growth is set to be slow, and a pullback to AUD is expected in relation to the US Dollar. 

From the island of the Kiwis, NZDUSD is expected to remain at the mercy of external forces, at least until the Reserve Bank of New Zealand (RBNZ) meeting next week. That is unlikely to change soon, but this weeks RBNZ MPR may provide a degree of support, especially if the RBNZ remains hawkish, which is appropriate given the inflation backdrop. But until then, the NZD is at the mercy of global forces.