17 October 2022 Weekly Analysis
GCMAsia Weekly Report: October 17 – 21
Market Review (Forex): October 10 – 14
US Dollar
The Dollar Index which traded against a basket of six major currencies received significant bullish momentum on last week amid the background of a series of upbeat economic data. Last week, the Dollar Index closed its market price at 113.09.
Early last week, the Dollar Index rallied after a series of bullish data has been released. The US Unemployment Rate and Nonfarm Payrolls has given a reading which better-than-expected figures, which indicated that the current US labor market remained strong while provide more rooms for Fed to continue the path of aggressive rate hike. Besides that, another crucial inflationary data —– CPI and PPI, had also came in at the reading which higher-than-expected. In this situation, it increased the odds of aggressive contractionary monetary policy implementation as the inflation risk in the US did not have the sign of cooling down. As of now, part market participant started to anticipate a higher range of rate increase, says 100 basis point in the upcoming FOMC meeting. On the other hand, the US Dollar extend its gains following the International Monetary Fund cut its global economic growth forecast in 2023. According to CNBC, The International Monetary Fund predicts global growth will slow to 2.7% next year, 0.2 percentage point lower than its July forecast, which prompting investors to shift their capitals toward safe-haven assets such as US Dollar.
However, the gains of the dollar index were limited after UK government reversed its tax-cut plan. The news of reversing the tax-cut plan revived the market sentiment in the UK as it could lead to the expansion of UK government income in order to avoid budget deficit, which stoked a shift in sentiment from US market to Pound Sterling.
USD/JPY
The pair of USD/JPY rose significantly last week while closing its market price at 148.62. The Japan is currently struggling to cope with high inflation and expensive commodity imports, both of which jeopardizing the Japan’s economy this year. On the other hand, the aggressive rate hike expectation from Federal Reserve had also widened the interest rate gap between Japanese and US Treasury yield. The Bank of Japan has so far shown no indication to increase their interest rates from ultra-low levels, citing continued recession risk in the Japanese region. Thus, investors choose to flee away from the Japan currency market.
EUR/USD
The pair of EUR/USD edged down last week while closing its market price at 0.9726. The EUR/USD received significant bearish momentum over the rising tension of Ukraine and Russia. Earlier of the week, Russia unleashed its most widespread strikes against Ukraine in a month, knocked out power and water, shattered buildings and killed people in Ukraine. Ukraine’s Emergency Services claimed that nearly 100 people were wounded in the morning rush hour attacks that Russia launched from the air. The strike would likely to intensify the tensions between European countries and Russia, leading to a more aggressive sanction as tit-for-tat for Russia. However, the losses experienced by Euro was limited amid the soaring inflation risk in German. The Germany Consumer Price Index (CPI) YoY in September has notched up from the previous reading of 7.9% to 10%, which would likely to lead a higher inflation rate in Eurozone as well as the tightening monetary policy might be implemented.
GBP/USD
The pair of GBP/USD appreciated last week while ending last week session at the price of 1.1235. Pound Sterling surged against the dollar on last week following the reports that UK Prime Minister Liz Truss may be preparing to revise the government’s fiscal plans. The move follows a number of reports that the UK government is in talks to scrap some of its unfunded tax cuts. In addition, Sky News reported that Downing Street was discussing whether to reconsider some of the market-shaking tax cuts announced by the Treasury secretary, Kwasi Kwarteng, on 23 September. It is believed that changes to corporation tax and dividend tax will be reconsidered. Last week Mr Kwarteng withdrew a plan to scrap the 45% top rate of income tax for those earning more than £150,000 ($167,646) a year, after much of the public opposed it. In the perspective of investors, the cancellation of tax-cut would boost up the income of UK government, which brought the positive prospects toward economic progression of UK. Though, the gains of GBPUSD was limited following the Bank of England announced to end the bond buying program on 16 October, saying that the UK central bank stopped to provide financial support to stabilize its financial market.
Market Review (Commodities): October 10 – 14
GOLD
Gold price slumped last week while closing its market price at $1646.69 per troy ounce. The strengthening of US Dollar has dragged down the market sentiment on this yellow metal assets. With the upbeat economic data announced by the US and rising expectation of aggressive rate hike, investors was changing their attention from the non-yielding assets to US Dollar as the US currency had shown its prospects.
CrudeOIL
Crude oil price retreated from its previous gains while ending last week session at the price of $85.06 per barrel. Earlier of the week, the crude oil price has received significant bearish momentum over the increasing of Covid-19 cases in China. China suffered another wave of Covid-19 pandemic, which prompted local authorities hastily closing schools, entertainment venues and tourist spots. Besides that, the China government was currently standing with its zero-Covid policy, which would diminishing the economic activities in China while threatening the oil demand. On the other hand, with the background of global economy recession, OPEC+ had cut its 2022 forecast for growth in world oil demand for a fourth time since April, diminishing the appeal for the demand of this black-commodity. In addition, the crude oil price extended its losses following the surging of oil supply. The US API Weekly Crude Oil Stock has notched up from the prior figures of -1.770M to 7.054M. Furthermore, the US Crude Oil Inventories notched up from the previous reading of -1.356M to 9.880M, exceeding the consensus forecast of 1.75M.
Weekly Outlook: October 17 – 21
For the week ahead, investors would continue to focus on crucial event such as the Eurozone CPI data and Initial Jobless Claims this week to determine further direction. Besides that, the ongoing situation with Ukraine-Russia war will also be in the eyes of investors.
As for oil traders, they will be eyeing on US inventories level reported by API and EIA to gauge the strength of crude demand for world’s largest oil consumer.
Highlighted economy data and events for the week: October 17 – 21
| Time | Market | Event | Actual | Forecast | Previous |
| Monday – 17th October 2022 | |||||
| N/A | |||||
| Tuesday – 18th October 2022 | |||||
| 5:45 | NZD | CPI (QoQ) (Q3) | – | 1.60% | 1.70% |
| 8:30 | AUD | RBA Meeting Minutes | – | – | – |
| 10:00 | CNY | GDP (YoY) (Q3) | – | 3.40% | 0.40% |
| 10:00 | CNY | Industrial Production (YoY) (Sep) | – | 4.50% | 4.20% |
| 17:00 | EUR | German ZEW Economic Sentiment (Oct) | – | -66 | -61.9 |
| Wednesday –19th October 2022 | |||||
| 4:30 | USD | API Weekly Crude Oil Stock | – | – | 7.054M |
| 14:00 | GBP | CPI (YoY) (Sep) | – | 10.00% | 9.90% |
| 17:00 | EUR | CPI (YoY) (Sep) | – | 10.00% | 9.10% |
| 20:30 | USD | Building Permits (Sep) | – | 1.530M | 1.542M |
| 20:30 | CAD | Core CPI (MoM) (Sep) | – | – | 0.00% |
| 22:30 | USD | Crude Oil Inventories | – | – | 9.880M |
| Thursday – 20th October 2022 | |||||
| 8:30 | AUD | Employment Change (Sep) | – | 25.0K | 33.5K |
| 9:15 | CNY | PBoC Loan Prime Rate | – | – | 3.65% |
| 18:00 | EUR | EU Leaders Summit | – | – | – |
| 20:30 | USD | Initial Jobless Claims | – | 232K | 228K |
| 20:30 | USD | Philadelphia Fed Manufacturing Index (Oct) | – | -5 | -9.9 |
| 22:00 | USD | Existing Home Sales (Sep) | – | 4.69M | 4.80M |
| Friday – 21st October 2022 | |||||
| 14:00 | GBP | Retail Sales (MoM) (Sep) | – | -0.50% | -1.60% |
| 18:00 | EUR | EU Leaders Summit | – | – | – |
| 20:30 | CAD | Core Retail Sales (MoM) (Aug) | – | 0.40% | -3.10% |
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