WEEKLY OUTLOOK

18.09.2023-22.09.2023

Good afternoon traders. We look back at these last five trading days with a focus on the events that had the most impact on the financial market. USD is making a powerful rally last week, breaking through near-term resistance levels against all its major counterparts.  Despite Monday’s losses, the dollar still remains near its highest levels in six months, helped by a recent run of resilient economic data. USD remained relatively unmoved this week’s even after the most positive data and hotter inflation print, leaving traders to pin their hopes on next week’s FOMC rate decision and economic projections for a more decisive direction.

On Monday, September 11, the forex market remained steady with no significant movement among major pairs and crosses.  Yen has reverted to its previous week’s range, as BOJ head Kazuo Ueda stirring market chatter about a potential departure from negative interest rates by early next year.

The European Commission, in its Summer 2023 interim forecast, revised down its growth projections for Eurozone for the current year and next on Tuesday, September 12.

The August U.S. inflation data on Wednesday September 13, showed U.S. consumer prices increased by 0.6% , the largest gain since June 2022. However, core inflation, which is of greater concern to the Fed as it strips out food and energy prices, ran at a 4.3% year-on-year rate in August from 4.7% the previous month. The good news is it did not change expectations for a pause in Fed hikes next week on Sept. 20, but data showing inflation remains sticky could point to another hike later in the year. November expectations – while recently as high as ~50% – are now showing a more moderate 36% probability. In other words, we buy some time to get more data before the November meeting.

On Thursday September 14, the US retail sales and PPI figures emerged strong, coupled with data pointing to a hearty employment market echoed by jobless claims report.  On the same day ECB delivers a dovish 25bps rate hike, lifting the main refinancing rate to 4.50% from 4.25% previously, the accompany statement indicated that the current tightening cycle could have reached its peak already. Also, core inflation and growth forecasts for 2024 and 2025 were revised down.

Most Asian stocks rose sharply and AUDUSD advanced on Friday September 15 as China rolled out more measures to support economic growth, the Chinese central bank’s decision to cut RRR(reserve requirement ratio) for all banks by 25bps and the injection of CNY 191B of fresh liquidity into the banking system by PBoC. This marks the second such reduction in this calendar year, aiming to spur liquidity in the market and support the economy.

Crude oil prices were set for a third week of increases today, lifted by the growing imbalance between demand and supply, and by China’s latest industrial output report, which showed faster-than-expected growth in August. As supplies are set to stay tight this year, while confidence about the demand outlook remains strong. According to the International Energy Agency (IEA), Russia’s and Saudi Arabia’s extension of 1.3 million barrels per day (BPD) of crude oil production reductions by the end of 2023 is set to result in a significant market deficit in the fourth quarter.

Compared to last week, the price of gold is down 1.54%. The gold price remain focused lower from the dollar charges toward multi-month highs. Diminished chances of a U.S. recession weighed on safe haven demand for the yellow metal, as recent data signaled continued resilience in the world’s largest economy.

Looking ahead.  Next week’s macro highlights include FOMC, BOE and Global PMIs, The economic calendar is full of key market-moving data next week.  The focus will remain on US dollar, with the upcoming FOMC meeting slated for September 19-20

The Bank of England may have little option but to raise rates again next week despite comments recently indicating the debate will be balanced. Markets leaning towards possibly one last BOE rate hike (implied rate peak of 5.527% at Feb 1st, 2024 meeting) as the consumer is quickly weakening.

In the eurozone, the ECB meets next week on Thursday September 21, and investors are very uncertain of the outcome as price pressures remain elevated while data shows economic activity is now slowing sharply.

Have a lovely weekend and a nice week ahead.