<p class=“MsoNormal“>UPCOMING
EVENTS:</p><p class=“MsoNormal“>Monday: S&P
Global US PMI.</p><p class=“MsoNormal“>Tuesday:
German IFO Survey and US Consumer Confidence.</p><p class=“MsoNormal“>Wednesday:
Australian CPI and BoC Policy Announcement.</p><p class=“MsoNormal“>Thursday: ECB
Policy Announcement and US Q3 GDP Adv.</p><p class=“MsoNormal“>Friday: BoJ
Policy Announcement and US PCE.</p><p class=“MsoNormal“>The last
week was pretty much a mess. Volatility was high and markets were all over the
place. The US Dollar gained and lost, even against the yen after the Japanese
decided to intervene on Friday after days of continuing yen selling. The
intervention came almost exactly one month after the first one. </p><p class=“MsoNormal“>Last time it
offered a great dip buying opportunity as fundamentals didn’t change and the
monetary policy divergence remained solid. One month forward to now and the
fundamentals are still in place, but this time we are near the FOMC meeting and
if the WSJ story is true, looks like Fed officials want to start a less
aggressive approach from December onwards as the risk of overtightening is
making them uncomfortable. </p><p class=“MsoNormal“>There’s also
a good support in the 145.00 area if one wants to fade the intervention again,
otherwise the pair may go to 140.00 if the USD correction intensifies.</p><p class=“MsoNormal“>Overall, the
big picture didn’t change much, inflation is still high, and the core measure
keeps on climbing. As per the inflation nowcast from the Cleveland Fed, we may
see another hot print in the November CPI report and it’s hard to see the Fed
not getting uncomfortable with another hot CPI report. The leading indicators, on
the other hand, keep on printing a bleak picture going forward. Last week the
NAHB Housing Market Index fell more than expected to 38 from the prior 46
reading. The worst of the recession is yet to come. The NAHB index generally
leads unemployment rate by 6-12 months as shown in the picture below.</p><p class=“MsoCaption“ align=“center“>NAHB Index
(inverted) vs. Unemployment Rate</p><p class=“MsoNormal“>This week
the Fed is in blackout period, so we will not hear the same thing again and
again from them until November 2nd when we will get the policy
announcement and Powell’s press conference. Nevertheless, this week we will get
some tier one data and some central bank policy announcements.</p><p class=“MsoNormal“>Monday: We will
get the latest S&P Global PMIs for the US which surprised to the upside the
last time. Such blips are common, but the general trend is for further
deterioration. Although, this indicator is important, the ISM PMIs are
considered the best and most reliable measures and we will need to wait another
week to see those. The market may cheer a bad report with USD under pressure or
get discouraged if the report surprises to the upside and bid the USD. </p><p class=“MsoNormal“>Tuesday: German IFO
Survey is expected to weaken further as the recession coupled with a more hawkish
ECB add to the bleak future. The US Consumer Confidence is expected to weaken a
bit although remains high. This indicator is more correlated with the
employment situation as opposed to the UMich Survey which is correlated with
the financial situation and that explains why they diverged so much. Generally,
when the spread between the two indicators becomes very wide a recession has
followed as you can see in the chart below. </p><p class=“MsoCaption“ align=“center“>Chart by
Michael McDonough (twitter)</p><p class=“MsoNormal“>Wednesday: We will
see the latest CPI report for Australia. The Q/Q measure is expected to cool to
1.6% from 1.8% but the Y/Y measure is seen picking up to 7.0% from the prior
6.1%. The RBA favoured data, the Trimmed Mean figures, are seen matching the
prior for the Q/Q at 1.5% but the Y/Y is expected to rise to 5.6% from 4.9%. The
RBA surprised last time with a lower-than-expected hike, which contributed to
create a policy divergence between the RBA and RBNZ and resulted in AUD/NZD
falling for several pips. A surprisingly hot CPI may make the market to expect
the RBA to revert back to a more aggressive stance.</p><p class=“MsoNormal“>The Bank of
Canada is expected to hike by 75 bps in wake of the latest hot Core CPI report
and the recent commentary from Governor Macklem saying that if the CAD
depreciation against the Dollar persists, they will have to do more work on
interest rates. The problem is that even if the BoC hikes more than the Fed,
the global recession favours the USD anyway, so for USD/CAD to reverse the
general upward trend we need to see the Fed to reverse course, which is not expected
for 6 months at very least. </p><p class=“MsoNormal“>Thursday: As
inflation in EZ continues to advance the ECB is seen to hike rates again by 75
bps. ECB members already signalled this move and more to come in the next
“several meetings”. The ECB is also expected to begin QT sometime in Q2 2023
(doubt they will be able to do that when things will be much worse by then).
The market sees the peak rate in late Q2 at around 3%. It’s been kind of a
pattern fading the ECB event with an almost 100% success rate, although some
were better than the others in terms of follow through action. This is of
course because no matter what the ECB does, the recession will be bad, and the
USD is favoured in a global recession. In the chart below you can see the ECB
policy decisions and how the EUR/USD pair is trading cleanly in the downward
channel. </p><p class=“MsoNormal“>We will also
see the US Adv. Q3 GDP report, which is expected to show a 2% annualised growth
after two consecutive negative prints, which triggered a technical recession
talk. Generally, GDP isn’t a market mover as it’s a very lagging indicator. </p><p class=“MsoNormal“>Friday: The BoJ is expected to keep monetary policy
unchanged with rates at -0.10% and QQE with Yield Curve Control (YCC) to
flexibly target 10yr JGBs at around 0% with 0.25% as the ceiling. Inflation in
Japan remains much lower than the other advanced economies and it’s not adding
any pressure to the central bank. The BoJ may even get away with its policy as
the global recession intensifies and price pressures recede. </p><p class=“MsoNormal“>US PCE
hasn’t been a market mover as the market is focused on the timelier CPI report.
The headline PCE Y/Y is expected at 5.8% down from the prior 6.2% and the M/M
reading is seen at 0.5%, up from the prior 0.3%. The Core measures are expected
at 5.2% for the Y/Y figure, up from the prior 4.9% and the M/M reading is seen
at 0.5%, down from the prior 0.6%. </p><p class=“MsoNormal“>This article
was written by Giuseppe Dellamotta.</p>
EVENTS:</p><p class=“MsoNormal“>Monday: S&P
Global US PMI.</p><p class=“MsoNormal“>Tuesday:
German IFO Survey and US Consumer Confidence.</p><p class=“MsoNormal“>Wednesday:
Australian CPI and BoC Policy Announcement.</p><p class=“MsoNormal“>Thursday: ECB
Policy Announcement and US Q3 GDP Adv.</p><p class=“MsoNormal“>Friday: BoJ
Policy Announcement and US PCE.</p><p class=“MsoNormal“>The last
week was pretty much a mess. Volatility was high and markets were all over the
place. The US Dollar gained and lost, even against the yen after the Japanese
decided to intervene on Friday after days of continuing yen selling. The
intervention came almost exactly one month after the first one. </p><p class=“MsoNormal“>Last time it
offered a great dip buying opportunity as fundamentals didn’t change and the
monetary policy divergence remained solid. One month forward to now and the
fundamentals are still in place, but this time we are near the FOMC meeting and
if the WSJ story is true, looks like Fed officials want to start a less
aggressive approach from December onwards as the risk of overtightening is
making them uncomfortable. </p><p class=“MsoNormal“>There’s also
a good support in the 145.00 area if one wants to fade the intervention again,
otherwise the pair may go to 140.00 if the USD correction intensifies.</p><p class=“MsoNormal“>Overall, the
big picture didn’t change much, inflation is still high, and the core measure
keeps on climbing. As per the inflation nowcast from the Cleveland Fed, we may
see another hot print in the November CPI report and it’s hard to see the Fed
not getting uncomfortable with another hot CPI report. The leading indicators, on
the other hand, keep on printing a bleak picture going forward. Last week the
NAHB Housing Market Index fell more than expected to 38 from the prior 46
reading. The worst of the recession is yet to come. The NAHB index generally
leads unemployment rate by 6-12 months as shown in the picture below.</p><p class=“MsoCaption“ align=“center“>NAHB Index
(inverted) vs. Unemployment Rate</p><p class=“MsoNormal“>This week
the Fed is in blackout period, so we will not hear the same thing again and
again from them until November 2nd when we will get the policy
announcement and Powell’s press conference. Nevertheless, this week we will get
some tier one data and some central bank policy announcements.</p><p class=“MsoNormal“>Monday: We will
get the latest S&P Global PMIs for the US which surprised to the upside the
last time. Such blips are common, but the general trend is for further
deterioration. Although, this indicator is important, the ISM PMIs are
considered the best and most reliable measures and we will need to wait another
week to see those. The market may cheer a bad report with USD under pressure or
get discouraged if the report surprises to the upside and bid the USD. </p><p class=“MsoNormal“>Tuesday: German IFO
Survey is expected to weaken further as the recession coupled with a more hawkish
ECB add to the bleak future. The US Consumer Confidence is expected to weaken a
bit although remains high. This indicator is more correlated with the
employment situation as opposed to the UMich Survey which is correlated with
the financial situation and that explains why they diverged so much. Generally,
when the spread between the two indicators becomes very wide a recession has
followed as you can see in the chart below. </p><p class=“MsoCaption“ align=“center“>Chart by
Michael McDonough (twitter)</p><p class=“MsoNormal“>Wednesday: We will
see the latest CPI report for Australia. The Q/Q measure is expected to cool to
1.6% from 1.8% but the Y/Y measure is seen picking up to 7.0% from the prior
6.1%. The RBA favoured data, the Trimmed Mean figures, are seen matching the
prior for the Q/Q at 1.5% but the Y/Y is expected to rise to 5.6% from 4.9%. The
RBA surprised last time with a lower-than-expected hike, which contributed to
create a policy divergence between the RBA and RBNZ and resulted in AUD/NZD
falling for several pips. A surprisingly hot CPI may make the market to expect
the RBA to revert back to a more aggressive stance.</p><p class=“MsoNormal“>The Bank of
Canada is expected to hike by 75 bps in wake of the latest hot Core CPI report
and the recent commentary from Governor Macklem saying that if the CAD
depreciation against the Dollar persists, they will have to do more work on
interest rates. The problem is that even if the BoC hikes more than the Fed,
the global recession favours the USD anyway, so for USD/CAD to reverse the
general upward trend we need to see the Fed to reverse course, which is not expected
for 6 months at very least. </p><p class=“MsoNormal“>Thursday: As
inflation in EZ continues to advance the ECB is seen to hike rates again by 75
bps. ECB members already signalled this move and more to come in the next
“several meetings”. The ECB is also expected to begin QT sometime in Q2 2023
(doubt they will be able to do that when things will be much worse by then).
The market sees the peak rate in late Q2 at around 3%. It’s been kind of a
pattern fading the ECB event with an almost 100% success rate, although some
were better than the others in terms of follow through action. This is of
course because no matter what the ECB does, the recession will be bad, and the
USD is favoured in a global recession. In the chart below you can see the ECB
policy decisions and how the EUR/USD pair is trading cleanly in the downward
channel. </p><p class=“MsoNormal“>We will also
see the US Adv. Q3 GDP report, which is expected to show a 2% annualised growth
after two consecutive negative prints, which triggered a technical recession
talk. Generally, GDP isn’t a market mover as it’s a very lagging indicator. </p><p class=“MsoNormal“>Friday: The BoJ is expected to keep monetary policy
unchanged with rates at -0.10% and QQE with Yield Curve Control (YCC) to
flexibly target 10yr JGBs at around 0% with 0.25% as the ceiling. Inflation in
Japan remains much lower than the other advanced economies and it’s not adding
any pressure to the central bank. The BoJ may even get away with its policy as
the global recession intensifies and price pressures recede. </p><p class=“MsoNormal“>US PCE
hasn’t been a market mover as the market is focused on the timelier CPI report.
The headline PCE Y/Y is expected at 5.8% down from the prior 6.2% and the M/M
reading is seen at 0.5%, up from the prior 0.3%. The Core measures are expected
at 5.2% for the Y/Y figure, up from the prior 4.9% and the M/M reading is seen
at 0.5%, down from the prior 0.6%. </p><p class=“MsoNormal“>This article
was written by Giuseppe Dellamotta.</p>
This article was written by ForexLive at forexlive.com.