The risk of a hard landing in the U.S.
economy is growing and may even increase in 2024. Statistics show that the Fed
has successfully curbed inflation by raising key rates. After hiking it 11
times, the U.S. Fed has contained its enthusiasm for three consecutive meetings
by keeping the rate hike on pause. On this basis, we can assume that the
regulator’s restraining cycle is over, and it is time to assess the effect on
the economy.

The risk of a hard landing in the U.S.
economy is growing and may even increase in 2024. Statistics show that the Fed
has successfully curbed inflation by raising key rates. After hiking it 11
times, the U.S. Fed has contained its enthusiasm for three consecutive meetings
by pausing the rate hiking. The regulator’s restraining cycle is over, and it
is time to assess the effect on the economy.

Hard landing of the U.S. economy

The Fed interest rate hike usually does
not immediately lead to a slowdown in economic growth. It takes time for the
effect of high rates to be transferred through the mortgage and consumer credit
market into the economy. Historical data show that, on average, 2–3 years pass
from the beginning of a rate hike cycle to the start of a recession in the U.S.
Its economy shows a weakening of consumer spending due to a compounding
increase in borrowing costs with periodic renewed storms in the banking sector.

In turn, in the labour market, we are
seeing a smooth rise in unemployment and a slowdown in wage growth. Whether
this growth will turn into a more severe recession depends on how hard the cuts
in fiscal stimulus, rising mortgage rates (and the cooling of the property
market as a consequence), and soaring fuel prices hit American households. We
may see only a slight cooling of demand—or perhaps a full-blown recession.

‚In this context, continued high rate
policy by the Federal Reserve is disastrous and is unlikely to be used further
because the current level of rates is sufficient to contain inflation,‘ said
Kar Yong Ang, the Octa financial market analyst. ‚This approach will maintain
positive (albeit marginal, creeping) growth in the economy as a whole‘, he
added.

Recent inflation data refreshes the big
picture—the U.S. dollar is weakening

According to the data released by the U.S. Bureau of Labor
and Statistics on 14 November 2023, the U.S. consumer price growth rate (CPI)
in October decreased to 3.2% from 3.7% in September. The reported results were
better than economists‘ forecasts of 3.3%. As core inflation came in below
expectations, this was perceived as a factor that the Fed rate hike in December
has been ruled out. These market expectations caused a sharp drop in the U.S.
Dollar Index (DXY) to a 2-month low.

Before the release of the Labor Ministry
report, traders were estimating an 86% chance that the Fed would keep the
benchmark interest rate unchanged at the December meeting and a 25% chance of a
25bp hike in January 2024. However, after the release of the data, these
expectations have changed dramatically: investors are almost 100% confident
that the Fed has completed the current tightening cycle and may even cut rates
at least four times in 2024.

‚Investors now bet the world’s major
central banks will end their long series of interest rate hikes. Based on
market expectations, no changes should be expected in the current and next
quarter,‘ said Kar Yong Ang, the Octa financial market analyst. ‚Deflation is
likely to force the Fed to lower the benchmark rate in late 2024 to the
2.50%–2.75% range‘, he added.

The slowdown in the U.S. labour market,
lower inflation, and market expectations of a rate cut in 2024 make it possible
to capitalise on the weakening dollar in the short term. The USDJPY currency
pair looks like the most exciting instrument—a solid technical picture confirms
the dollar’s decline here. The price tested the previous year’s high, which is
now a resistance level, ensuring the potential decrease of USDJPY to the range
of 144.00–144.50 by the end of the current year.

Octa is an
international broker that has been providing online trading services worldwide
since 2011. It offers commission-free access to financial markets and various
services already utilised by clients from 180 countries with more than 42
million trading accounts. Free educational webinars, articles, and analytical
tools they provide help clients reach their investment goals.

The company is
involved in a comprehensive network of charitable and humanitarian initiatives,
including the improvement of educational infrastructure and short-notice relief
projects supporting local communities.

Octa has also won
over 60 awards since its foundation, including the ‚Best Educational Broker
2023‘ award from Global Forex Awards and the ‚Best Global Broker Asia 2022‘
award from International Business Magazine.

This article was written by FL Contributors at www.forexlive.com.

As we get into Q4, just about everyone is coming around to the idea that the Chinese economy has bottomed out. I still hold my reservations as we all know, data from China is well.. data from China. In any case, HSBC is the latest to revise higher their forecasts for China following their lower revisions in September here.

They now see 2023 GDP growth forecast at 5.2% from 4.9% previously and 2024 at 4.9% from 4.6% previously.

This article was written by Justin Low at www.forexlive.com.

The Dow Jones last week jumped following the miss
in the US CPI report
and went into consolidation ever since. The market doesn’t expect the Fed to
hike anymore and it’s pricing in the
first rate cut in May 2024.

At the moment, it looks like the market is still
trading based on inflation and interest rate expectations, but the softening in
the labour market as seen with the last NFP and Jobless Claims last
week, is gathering pace and it’s something to keep a close eye on.

Dow Jones Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Dow Jones is
consolidating at a key resistance level at
35000 following the incredible rally triggered by the miss in the US CPI
report. The rally was indeed overstretched as depicted by the distance from the
blue 8 moving average. In such
instances, we can generally see a pullback into the moving average or some
consolidation before the next move.

Dow Jones Technical
Analysis – 4 hour Timeframe

On the 4
hour chart, we can see that the price is now near the upward trendline. This is
where we can expect the buyers to step in with a defined risk below the
trendline to position for a break above the 35000 resistance. The sellers, on
the other hand, will want to see the price breaking lower to pile in and
position for a drop back into the 34000 support.

Dow Jones Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that the
price is diverging with
the MACD right
at the key resistance level. This is generally a sign of weakening momentum
often followed by pullbacks or reversals. In this case, it might be a
confirmation for the sellers that might indeed see a deeper pullback into the
34000 support. Watch out for what happens around these key levels.

Upcoming Events

This week is pretty empty on the data front with the US
on holiday for Thanksgiving Day in the final part of the week. Tomorrow, we
have the FOMC Meeting Minutes but it’s unlikely to be market moving given that
it’s three-weeks old data. On Wednesday, we have the US Jobless Claims report
which is probably going to be the most important release of the week. Finally,
on Friday, we conclude the week with the latest US PMIs.

This article was written by FL Contributors at www.forexlive.com.

• Now that inflation is halved, we can begin the next phase and turn attention to tax cuts
• We can’t do everything all at once, need to prioritise
• We can and will deliver tax cuts over time
• But we must avoid doing anything that risks the fight against inflation

With core inflation still closer to 6% at this stage, I’d be wary if I were Sunak to take it as a given that price pressures will continue to fall off in the same way it did over the last year. But as a politician, he does face tough questions and critique, so you can’t blame him for suggesting that they are well on course to claim victory already. We’ll see if he can say with such confidence the remarks above at the same time next year. I wouldn’t be surprised if we’re still revisiting the same conversation again by the middle of next year.

This article was written by Justin Low at www.forexlive.com.

If there’s any consolation for the dollar today, it is that there isn’t an overwhelmingly positive risk mood to pile on the misery for the greenback. US futures are still looking rather tentative, keeping little changed in European trading thus far. Meanwhile, European indices are trading more mixed and that isn’t really leaving much to work with for risk trades.

In the bond market, there is also a more tentative mood with 10-year Treasury yields up slightly by 1.4 bps to 4.454% on the day. Meanwhile, 2-year yields are down 0.9 bps to 4.898% so there’s no real conviction for the most part.

Going back to stocks, as long as the gains from the last two weeks are being consolidated, that is still a positive development. US indices continue to aim towards the highs for the year in the latest push higher and that remains the case as we get into trading this week: Stocks look poised for a potential retest of the year’s highs

This article was written by Justin Low at www.forexlive.com.