Forex and Cryptocurrency Forecast for November 14 - 18, 2022
EUR/USD: Is the Dollar's Growth Over?
Has the dollar rally come to an end? The answer to this question sounds more and more affirmative day by day. The reason for the weakening of the US currency lies in the interest rate of the Fed. This, in turn, depends on the state of the labor market and inflation in the US, which determine the regulator's monetary policy.
Recent data have shown that the labor market is doing well at least. The number of new jobs created outside the US agricultural sector (NFP) was 261K in October, which is higher than the forecast of 200K. Although the number of initial jobless claims increased, the growth was insignificant and, with the forecast of 220K, it actually amounted to 225K (218K a month ago).
As for inflation, the data published on Thursday, November 10, turned out to be much better than both previous values and forecasts. Core consumer inflation (CPI) increased by 0.3% in October, which is lower than both the forecast of 0.5% and the previous September value of 0.6%. The annual growth rate of core inflation slowed down to 6.3% (against the forecast of 6.5%, and 6.6% a month ago).
This rate of change in CPI is the slowest in the last 9 months and suggests that a series of sharp interest rate increases have finally had the desired effect. Market participants have immediately decided that the Fed is now likely to slow down the pace of interest rate increases. As a result, the DXY Dollar Index went into a steep peak, losing 2.1%, which was a record drop since December 2015.
The probability that the US Federal Reserve will increase the rate by 75 basis points (bp) at the next December meeting of the FOMC (Federal Open Market Committee) is now close to zero. The futures market expects it to rise by only 50 bp. The maximum value of the rate in 2023 is now predicted at 4.9%, and it can be reached in May (a forecast a week ago predicted a peak of 5.14% in June).
All this does not exclude a new wave of dollar strengthening in the coming months of course. But much will depend on the geopolitical situation and the actions of other regulators. Many analysts believe that a slowdown in the pace of monetary tightening by the Fed (QT) will allow rival currencies to counter the dollar more effectively. The Central Banks of other countries are currently playing the role of catching up, not having time to raise their rates at the same pace as in the United States. If the Fed moves more slowly (and at some point, slows down altogether), they will be able, if not to overtake their American counterpart, at least to close the gap or catch up with it.
Here we can cite the Eurozone as an example. According to preliminary Eurostat data for October, inflation here reached a record 10.7%. And this despite the fact that the target level of the ECB is only 2.0%. So, as stated by the head of the European Central Bank, Christine Lagarde, the regulator has no choice but to continue to raise rates, even despite the slowdown in economic growth.
The change in market sentiment resulted in a northward reversal of the EUR/USD pair. It was trading in the 0.9750 zone just a week ago, on November 04, and it fixed a local maximum at the height of 1.0363 on Friday, November 11. The last chord of the five-day period sounded almost nearby, at the level of 1.0357.
Most analysts expect the pair to return to the south in the near future, 60%, and only 10% expect further movement to the north. The remaining 30% of experts point to the east. The picture is different among the oscillators on D1. All 100% of the oscillators are colored green, while a third of them are in the overbought zone. Among trend indicators, the green ones also have an advantage: 85% advise buying the pair and 15% advise selling. The immediate support for EUR/USD is at 1.0315, followed by the levels and zones at 1.0254, 1.0130, 1.0070, 0.9950-1.0010, 0.9885, 0.9825, 0.9750, 0.9700, 0.9645, 0.9580, and finally the September 28 low of 0.95. The next target of the bears is 0.9500. Bulls will meet resistance at levels 1.0375, 1.0470, 1.0620, 1.0750, 1.0865, 1.0935.
Highlights of the upcoming week include the release of preliminary Eurozone GDP data on Tuesday November 15. The ZEW Economic Sentiment Index in Germany and the Producer Price Index (PPI) in the US will be announced on the same day. Data on retail sales in the US will arrive on Wednesday, October 16, and the market will be waiting for the publication of such an important inflation indicator as the Consumer Price Index (CPI) in the Eurozone on Thursday, October 17. In addition, ECB President Christine Lagarde is scheduled to speak on November 16 and 18.
GBP/USD: UK Economy Plunged into Recession
Recall that the Bank of England (BoE), raised the key rate by 0.75%, from 2.25% to 3.00%, at its meeting on November 3, as well as the Fed. This move was the strongest one-time rate hike since the late 1980s. At the same time, the head of the Bank of England (BoE), Andrew Bailey, said on Friday November 11 that "more interest rate hikes are likely in the coming months" and that "efforts to curb inflation are likely to take from 18 months to two years." Silvana Tenreiro, a member of the Monetary Policy Committee of the British Central Bank, announced approximately the same dates. According to her, monetary policy will have to be loosened, possibly in 2024.
However, it is not yet clear when and how much the BoE will raise the pound rate. The United Kingdom's GDP data released last week, although below the forecast of -0.5%, still moved into the negative zone, showing a drop in the economy in Q3 by -0.2%. This was the first fall in 6 quarters, and it looks like it started the country's plunge into a long recession, which, if quantitative tightening (QT) continues, according to the Bank of England, could last about 2 years.
Economists at Bank of America Global Research analyzed how energy prices and the pace of Central bank policy normalization will affect G10 currencies. As a result, they concluded that the dynamics of the balance of payments will be a deterrent for currencies such as the euro, the New Zealand dollar and the British pound in 2023.
In the meantime, against the backdrop of data on slowing inflation in the US, GBP/USD, as well as EUR/USD, went up, adding almost 555 points over the week and reaching the weekly high at 1.1854. The final point of the trading session was set at 1.1843. And, according to the strategists at the American investment bank Brown Brothers Harriman (BBH), the pound may soon test the August 26 high at 1.1900.
As for the median forecast of analysts for the near future, here the bulls have received 25% of the vote, the bears 35%, and the remaining 40% of experts prefer to remain neutral. Among the oscillators on D1, 100% are on the green side, of which 25% signal that the pair is overbought. Among trend indicators, the situation is exactly the same as in the case of EUR/USD: 85% to 15% in favor of the greens. Levels and zones of support for the British currency: 1.1800-1.1830, 1.1700-1.1715, 1.1645, 1.1475-1.1500, 1.1350, 1.1230, 1.1150, 1.1100, 1.1060, 1.0985-1.1000, 1.0750, 1.0500 and the September 26 low of 1.0350. When the pair moves north, the bulls will meet resistance at the levels 1.1900, 1.1960, 1.2135, 1.2210, 1.2290-1.2330, 1.2425 and 1.2575-1.2610.
Of the events of the upcoming week, data on unemployment and wages in the UK, which will be released on Tuesday 15 November attract attention. The value of the Consumer Price Index (CPI) will become known the next day, on Wednesday, November 16, and the UK Inflation Report will also be heard. And data on retail sales in the United Kingdom will be published at the very end of the working week, on Friday, November 18.
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