GemForex - weekly analysis

The EUR/USD pair settled at about 0.9790 on Friday, continuing its consolidation phase for the third week in a row. As usual, everything revolved around the American Dollar and whether or not speculators chose to purchase or sell the USD. Wall Street increased its gains on optimism that the US economy will continue to be resilient to the global crisis, while government bond rates, which often indicate worries about inflation and growth, stayed constant.

Things began changing on Wednesday when the United Kingdom, the European Union, and Canada posted updates on inflation. The statistics were rather depressing since, despite the robust actions taken by central banks, the Consumer Price Index in the majority of the world's major nations remained at multi-year highs. The core reading remained at 4.8% as originally predicted, while the EU Consumer Price Index was verified to be 9.9% YoY in September. Worldwide monetary policy tightening has increased the likelihood of a global recession while doing nothing to control inflation, which has remained persistently high.

Record CPIs mean central banks, and particularly the US Federal Reserve, would keep raising interest rates until inflation comes down to more comfortable levels. Market participants hurried to price in an economic downturn as a result. While US Treasury bond yields rose to levels last seen in 2008, stocks fell. The yield on the 10-year note peaked at 4.29%, while the yield on the monetary policy-relevant 2-year note reached 4.63%. For more than three months, the curve has been inverted, suggesting investors' worries about economic growth.

The news caused the American dollar to surge, which put pressure on the EUR/USD and caused it to cut its early weekly gains. There are no signs that the present macro picture will improve any time soon, so the risk-off attitude will last into the next few days.

Meanwhile, the Eurozone keeps battling with energy prices, and Europe in general is facing more trouble than the US. Russian-initiated war has EU politicians on edge as winter approaches. Another meeting of the European Council was held on Friday, but once more there was no agreement on setting a cap on gas prices. But according to Ursula von der Leyen, president of the European Commission, they were able to create a "strong roadmap to keep on working on the problem of energy costs."

The macroeconomic calendar had few noteworthy data points. However, the decline in business confidence is well known. According to the German ZEW Survey, business confidence in the nation fell while staying low across the entire Union. According to early estimates, the EU Consumer Confidence fell to -30 in October.

S&P Global will release the early estimates of its October Purchasing Managers' Indexes for the EU, UK, and US on Monday, to kick off the final week of October. While services output is predicted to drop, even more, manufacturing activity is predicted to remain within contraction limits in Germany and the EU. The Services PMI and if it was able to recover into expansion territory will be the main topics of discussion in the US.

Tuesday will see the release of the October CB Consumer Confidence report in the US, which is forecast to have declined to 105.6 from 108 in September, and the October IFO Business Climate report in Germany.

We anticipate the Bank of Canada's fresh interest rate decision on Wednesday. The BoC is dedicated to bringing inflation down from its highest level in 30 years while keeping an eye on what the Federal Reserve is doing down south. The trick is to raise rates sufficiently to do so without completely paralyzing the economy. The Bank of Canada (BoC) wants to prevent a sharp decline in the value of the Canadian dollar; to do this, it needs to be able to stay up with the Fed.

The European Central Bank will make its monetary policy announcement on Thursday. The rate on major refinancing operations is anticipated to be 2%, while the ECB deposit facility rate has been factored in at a 75-basis point increase. However, market participants will be seeking guidance from hints regarding upcoming monetary policy actions. The ECB still lags behind the US Fed by two stages. Keeping dollars currently performs significantly better than holding euros under comparable economic circumstances. Rate differences play a crucial role in the direction of the EUR/USD movement.

The US will release its initial estimate of the Q3 Gross Domestic Product at the same time.

In the three months leading up to September, the economy is predicted to have increased by 2%, reversing the downward trend that saw growth decline for two consecutive quarters.

Additionally, the nation will present its Initial Jobless Claims and September Durable Goods Orders statistics. Germany will finally release its preliminary estimate of Q3 GDP on Friday, which is expected to increase by 0.4%, as well as its initial estimate of the Consumer Price Index for the same month.

A fresh record high of 11.5% YoY inflation is predicted for October. However, the US will release its core Personal Consumption Expenditures Price Index for September, the Fed’s favorite inflation measure, previously at 4.9% YoY.

From the opposite side of the globe, we anticipate two significant financial reports, the Tokyo CPI for October, and the Unemployment Rate from Japan. The Bank of Japan will be better able to predict the trajectory of its interest rates going forward with the help of these two indicators, and we anticipate that decision to be made on Friday. After the USDJPY fell last week on rumors about a BOJ intervention, other markets also experienced volatility. It could be difficult for the Bank of Japan to stick to its position that 10-year Japanese bond rates should be kept to a maximum of 0.25%. When rising prices reach Japan's shores, the BOJ may decide to stop printing as much yen and allow the currency to appreciate.