The Week Ahead 9th – 13th October: Will Inflation Cool Further?

Currency Pair Performance

5-day performance as of October 5, 2023.

10 Big Stories Last Week

US treasury selloff intensified. Longer-term US yields rose to a fresh 16-year high this week before easing lower. Bill Ackman warned that the 10-year yield could soon hit 5%.

Oil posted the biggest daily drop in a year. Oil prices slumped over 5% on fuel demand concerns amid a bleaker economic outlook and as the USD hovered around a 10-month high.

Gold fell to a new 6-month low. The precious metal extended its selloff to $1815 on the back of rising treasury yields, a stronger USD, and bets that the Fed could keep rates higher for longer.

Yen intervention？ USD/JPY rose above 150.00 before falling sharply, fueling speculation that Japanese authorities intervened to support the yen.

Birkenstock is valued at $9.2 billion. The German sandal maker is set to be valued at $9.2 billion when it floats on the US stock market later this month.

Tesla Q3 deliveries fell. The EV maker revealed 435,059 deliveries in Q3, below forecasts of 456,722, with planned factory closures to blame.

Apple CEO made the largest share sale in 2 years. Tim Cook sold 511,000 Apple shares, worth around $88 million, netting him a total of $41.5 million.

EUR/USD fell to a 2023 low. The pair fell to the lowest level since December last year amid a surging USD and concerns over the eurozone economic outlook.

US government avoided a shutdown. Congress agreed to a last-minute deal to avert a Federal government shutdown, although speaker Kevin McCarty could be ousted.

Intel plans to IPO its programmable chip unit. The chipmaker said that it will treat its programmable chip unit as a standalone business and plans an IPO within the next 2-3 years.

Chart of the Week

Japanese authorities adopted a strategic silence on Wednesday as intervention speculation swirled. The governments top currency official declined to comment on whether the government stepped in to support the yen.

If it wasn‘t for Japanese authorities, there are other possible explanations, including jittery markets, trading algorithms responding to the yen’s slide below 150.00, and low volumes amid Chinas Golden Week holiday.

The seeds of doubt could work in the BoJs favour. However, if there was an intervention, the paring of some of the immediate yen gains could be a cause for concern, which could suggest that the impact of the intervention was smaller than in previous forays into the market.

5 Things to Watch This Week

1. US CPI & FOMC minutes

CPI inflation figures will be released on Thursday, the 12th of October. US inflation continued to cool in September to 3.7% YoY. However, on a monthly basis, CPI rose 0.6%. The markets will be watching closely to see whether the cooling trajectory continues, particularly given the more hawkish bias at the Feds September meeting. Hotter-than-expected inflation could help to cement another interest rate hike this year. The minutes of the September meeting will also be in focus, although they are likely to play second fiddle to inflation data.

2. UK GDP

The UK economy contracted by 0.5% MoM in July amid growing concerns over the health of the UK economy. More timely PMI data has shown that business activity contracted in the July to September period, although the September figures werent as bad as initially feared. Still, the outlook for the UK economy remains bleak, with a downturn expected in the second half of the year.

3. Q3 Banks earnings

U.S. banks kick off earnings season next week, with the likes of Wells Fargo, JP Morgan& Co, and Citigroup expected to release Q3 earnings on Friday, the 13th of October. While the banks are expected to have benefited from the high-interest rate environment boosting net interest income, investment banking fees are likely to be down sharply in the third quarter due to the challenging economic backdrop. Bad loan provisions will be under the spotlight.

4. Q3 PepsiCo earnings

PepsiCo will announce Q3 earnings on Tuesday, the 10th of October, and is expected to deliver another strong quarter. The food and snacks producer is expected to report EPS of $ 2.15, which is up 9% from the same quarter a year earlier. Revenues are expected to rise 7% annually to $23.43 billion. PepsiCo had benefited from passing on price increases, which management put down to strength in the jobs market.

5. China CPI

Friday, the 13th of October, sees a range of data being released from China, including consumer and producer price inflation as well as exports, imports, and the trade balance. Recent data from China has suggested that the economy could finally be turning a corner. Investors will be keen to see if consumer prices are finally able to push higher. Expectations are for CPI to rise 0.2% YoY up from 0.1%.

Economic Calendar Highlights

Technical Analysis:

TA of the major asset classes (Forex – Commodities – Indices…).

EUR/USD (Daily Candlestick Chart)

EUR/USD is in a downtrend, making lower highs and lows below the 50 SMA. RSI is oversold with bullish divergence. Price has steadied around the 2023 lows at 1.05, having reached oversold on the weekly chart. This is major support, which could mean a near-term rebound.

GBP/USD (Daily Candlestick Chart)

GBP/USD is in a downtrend, forming lower lows and lower highs beneath the 50 SMA. RSI has rebounded from being heavily oversold below 20 to create bullish divergence. A bullish engulfing candlestick off the 1.203 level could be early signs of a reversal.

USD/JPY (Daily Candlestick Chart)

USD/JPY is in an uptrend, making higher highs and lows above the 50 SMA. RSI just came out of overbought territoryl. The price reversed sharply from the big 150.0 level, but dip-buyers at 147 created a long wick, a potential bearish hanging man pattern, meaning a correction could be near, otherwise, 152 is the next resistance.

Gold (Daily Candlestick Chart)

XAU/USD is in a downtrend, making lower lows and highs below the 50 SMA. RSI is heavily oversold under 20. Price followed through on its break of 1900 with a quick slide down to 1820, the lowest since March. So far there seems little evidence of buying at the lows, suggesting more downside to come.

Brent Oil (Daily Candlestick Chart)

XBRENT has reversed from an uptrend, now below the 50 SMA. RSI is now oversold. Momentum has slowed around 85 but next major support is 81-82, with 87 a possible resistance to any rebound.

US500 (Daily Candlestick Chart)