GemForex - weekly analysis

With the US Dollar Index trading at its lowest level since late June at 104.30 in the early European session, the US Dollar, which lost roughly 1.5% last week, is having a tough time finding demand.

In general, the news coming from both sides of the Atlantic last week was not promising for the Greenbacks strength. In October, the US's Personal Consumption Expenditures (PCE) Price Index increased by 6% YoY, slowing from 6.3% in September. Core PCE inflation decreased from 5.2% in September to 5% in the same period. Additionally, the ISM Manufacturing PMI dropped to 49 in November from 50.2 in October, the first time the indicator has indicated a decline since May 2020. The Fed is rumored to raise interest rates by 50 basis points in December due to easing inflation and growth.

According to figures released by the US Bureau of Labor Statistics on Friday, nonfarm payrolls increased by 263,000 in November, well above the market consensus of 200,000. Despite the forceful stance taken by the US Federal Reserve, the employment market expanded faster than expected. The task of combating inflation includes slowing the labor market, and a booming industry clearly indicates that the US central bank could continue its current pace of quantitative tightening.

In a speech on Wednesday, FED Chief Powell stated that the central bank could begin reducing the rate of quantitative tightening as early as December. However, he also stated that restrictive interest rates should continue for some time because the fight against inflation is far from over.

In response to a sharper decline in November, S&P Global updated its European Manufacturing PMIs lower at the same time. Additionally, preliminary estimates indicate that the German HICP, which measures consumer prices, increased by 10% YoY in November, down from 10.4% in October. The Euro Area HICP likewise registered 10% for the same period, down from 10.6% in October. Even if the inflation rate is decreasing, a 10% yearly increase is still too high to be considered favorable. Finally, October's German retail sales were shockingly down 2.8% MoM, while other smaller indicators of weakening economic activity also fell short of forecasts.

More indications that China is reducing its anti-epidemic measures as it spreads its reopening to the cities of Shanghai and Hangzhou are another factor that is negatively affecting the US dollar this Monday. In the midst of rising instances and widespread complaints, China's draconian Covid Zero regulation is being gradually relaxed, which is enhancing the market mood.

In the highlights of the week: 

Early on Monday, the EUR/USD exchange rate advanced toward 1.0600 and hit its highest point in more than five months. François Villeroy de Galhau, an ECB board member, stated on Sunday that he supports raising interest rates by 50 basis points in December, but this statement does not appear to be having a substantial effect on how the Euro is doing in comparison to its rivals. The pair appears to have entered a consolidation period in the European morning, although the technical picture points to buyers trying to keep the market under control.

The GBP/USD currency pair maintained its bullish momentum early on Monday and soared above 1.2300 for the first time since late June after closing the fourth consecutive week in positive territory. The pair is still trading in the green over 1.2300, despite a little decline in the early European morning.

The USD/JPY pair began this week with little volatility after losing roughly 500 pip the previous week. According to Japanese statistics, the Jibun Bank Services PMI registered at 50.3 in November, which was a little higher than the 50-point flash estimate. This information was ignored by USD/JPY, which was last seen oscillating above 134.50.

During the Asian trading session, AUD/USD gained momentum and moved over 0.6800. Early on Tuesday, the Reserve Bank of Australia will make its monetary policy announcements.

In the energy sector, OPEC, and its affiliated producers (OPEC) have decided to retain their present oil-output objectives despite a recent drop in energy prices following their meeting over the weekend. The decision did not immediately affect the price of crude oil, as the West Texas Intermediate barrel was last seen moving in a small channel at about $80.

Overall, the following week will include some intriguing data. While the latter will present October Retail Sales and the most recent estimate of the Q3 Gross Domestic Product, S&P Global will present the final November Services PMIs for the US and the EU. The official November ISM Services PMI, which is expected to rise to 55.6 from 54.4 in October, the November Producer Price Index and the advance estimate of the December Michigan Consumer Sentiment Index will all be released in the US.

The final November Composite PMI surveys for Germany, the Eurozone, the UK, and the US will be made public by S&P Global on Monday. The European economic docket will also include statistics from Sentix about Investor Confidence and Retail Sales. In the latter half of the day, market participants will pay close attention to the US ISM Services PMI.