GemForex - weekly analysis

As investors evaluate the most recent events, markets remain comparatively calm at the start of the week. The sole data presented on the US economic docket later in the day will be September Consumer Credit Change. For new inspiration, the eurozone's November Sentix Investor Confidence report will be examined. Finally, investors will closely monitor the remarks made by central bank officials.

The United States Federal Reserve (Fed) surprisingly strengthened the US Dollar mid-week by impressing market participants with a hawkish monetary policy stance. This was the biggest news of the previous week. Policymakers at the Federal Reserve increased rates by 75 basis points, and Chair Jerome Powell delivered a speech that was quite hawkish and indicated that rate hikes would continue. This precipitated a sharp reversal in the financial markets, though the statement also hinted that the rate of quantitative tightening may begin to slow. Gold staged a significant correction early on Monday and was last spotted dropping 0.85% on the day at $1,667 after surging over 3% and reaching its highest level since mid-October at $1,682 on Friday. At the same time as Wall Street crashed, the American Dollar surged to new weekly highs.

Christine Lagarde, the president of the European Central Bank, maintained a more conservative position. Speaking at several venues, she suggested further measures that may be taken to prevent inflation from getting entrenched and pointed out that a recession alone would not be enough to control prices. Lagarde appears to be oblivious to the fact that the European Union is in an increasingly downward spiral that maintains the Euro below parity with the US Dollar.

However, macroeconomic data from the EU and Germany continue to show that the economic recession is getting worse rather than a better month after month. In keeping with this, German statistics showed that Industrial Production increased by 0.6% on a monthly basis in September. Despite exceeding market expectations for a 0.8% decline, this reading did not prove helpful for the Euro.

Early in the day, China published its trade surplus figures for October, which mildly increased from $84.74 billion to $85.15 billion but fell far short of the market's anticipation of $95.95 billion. In contrast to experts' expectations of a 14.8% growth in exports, actual growth in imports was 6.8%, which was somewhat higher than the market consensus of 6%.

The greatest story this week that came from the other side of the Yellow Sea and went unnoticed was a change in the Bank of Japan's tone. To prepare for future normalization of policy, Governor Kuroda suggested his central bank might change its yield curve control technique to be “more flexible” in the future. The first step toward a yen trend reversal would be to alter this approach. Nevertheless, a wind of change is blowing, and investors will be looking for more hints on this topic in the BoJ's summary of comments on Tuesday.

Monday, the first day of the week, lacks significant data on both sides of the Atlantic, but Federal Reserve policymakers will keep markets occupied. The publication of new statistics will be less frequent next week, while the European Union will still provide some noteworthy numbers. While the European Commission releases its economic growth forecasts, the area will disclose September retail sales. Germany will release the final readings of its October Harmonized Index of Consumer Prices at the end of the week.

In the absence of any significant US or UK economic statistics, Bank of England Chief Economist Huw Pill will talk on Tuesday. The results of the midterm Congressional elections in the US will be widely monitored since they will affect the landscape of the 2024 presidential race and, therefore, the US Dollar values and risk movements. In terms of important economic reports, Wednesday is quite quiet.

The October Consumer Price Index (CPI) for the United States will be released on Thursday. The core reading is anticipated to have increased to 6.9% from 6.6%. A high inflation reading would put the gold market once again under negative pressure and serve as a reminder to investors that the Federal Reserve is determined to continue its aggressive tightening course. On the other hand, a Core CPI figure that is less than expected will probably allow markets to reduce their expectations for a 75-bps rate rise in December, giving the near-term performance of instruments like XAUUSD a boost.

On Friday, the University of Michigan's Consumer Sentiment Survey for November 7, 2022, will be featured on the economic calendar for the United States. Veterans Day will be observed in the US, however preliminary results from the University of Michigan's Consumer Sentiment and Inflation Expectations survey will be released.

Finally, on Friday, preliminary Q3 GDP statistics for the UK will be released along with data on industrial production and monthly growth rates.

 The Bank of England resisted market expectations for rapid rate rises last week and reiterated its predictions for a protracted recession in 2019. This caused the sterling to suffer significantly. GBPUSD is now trading in a constrained channel just above 1.1300 and struggling to consolidate Friday's gains.

With interest rate expectations having changed to reflect reality and the political environment stabilizing, the key driver of the pound's future performance may once again be the perception of global risk. Following a hectic and exciting week, traders in the pound prepare for a tranquil start to another data-heavy week.