- At the end of last week's trading, the US dollar resumed its gains against other major currencies as investors flocked to buy it as a safe haven, alongside the continued strong expectations for the future of raising US interest rates.
- As a result, the gains of the euro/dollar currency pair, which last week reached the level of 1.0640, evaporated.
- The pair closed the week’s trading stable around 1.0500 level, which supports the bears’ control of the trend.
Inflation Is the Key Data to Watch
In last Friday's session, yields were trading lower, and the US dollar also became softer, but the damage had already been done to the recovery that was underway for the affected currencies such as the Euro and the British Pound. Accordingly, the yield on 10-year Treasury bonds jumped more than 15 basis points to the highest level at 4.7282% on Thursday, leading to gains of about 1% for the US dollar after the US consumer price index rose more than expected in September, dashing hopes that the Federal Reserve will end its interest rate-raising policy.
According to the official announcement, the Consumer Price Index for inflation rose by 0.4% on a monthly basis, exceeding expectations for an increase of 0.3%, while the annual figure was unchanged at 3.7% instead of declining to 3.6%. After a series of hawkish statements made by US Federal Reserve officials over the past week that halted the continued rise in Treasury bond yields, the latest US Consumer Price Index report was a stark reminder to investors that risks threatening inflation are still on an upward trend.
Gasoline prices also reportedly continued to exert upward pressure on core inflation in September, but to a lesser extent than in August. However, the biggest contribution to the monthly increase in the consumer price index came from rising rents - something that would make policymakers think twice before resorting to further tightening.
Market expectations that US interest rates would rise again in the coming months rose to around 40% in the wake of the inflation data, before falling slightly. In recent weeks, the focus has shifted to the December and January meetings, as the US Federal Reserve appears to want to take more time to evaluate matters in light of the recent mixed readings of the US economy. Therefore, the next meeting from October 31 to November 1 is no longer in the picture regarding an interest rate hike. However, with the odds of a rate hike falling below 30% in the run-up to the latest figures, moderate repricing in the futures markets was enough to spur significant moves in the bond and forex markets.
Following inflation data, market expectations for another US interest rate hike in the coming months had risen to around 40% before retreating slightly. The focus in recent weeks has shifted to December and January meetings where it appears that the US Federal Reserve wants to take more time to assess things in light of recent divergent readings of the US economy. Therefore, the next meeting from October 31 to November 1 is no longer in the picture regarding raising the interest rate. However, with the probability of raising interest rates falling to less than 30% in the period preceding the latest figures, moderate repricing in futures markets was enough to stimulate large movements in bond and forex markets.
Expectations for the Euro against the Dollar today:
According to the performance on the daily chart below, the stability of the price of the EUR/USD currency pair around and below the psychological support level of 1.0500 confirms the extent of the bears’ strength and control over the trend, and at the same time portends an upcoming downward move. The closest to the current performance are the support levels of 1.0450, 1.0380, and 1.0300, respectively. These are sufficient areas to push all technical indicators towards strong selling saturation levels.
On the other hand, over the same time period, there will be no first reversal of the general trend of the EUR/USD pair without moving towards the resistance levels of 1.0660 and 1.0800, respectively. It must be taken into account that there will be a round of statements by many US Federal Reserve policy officials, including the bank's governor, Jerome Powell, and it will have a strong reaction to the performance of the currency pair.
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