Daily Market Analysis By FXOpen

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Bank of England Initiates Stress Test In Aftermath of Liz Truss Budget Disaster

In a groundbreaking move, the Bank of England has called upon more than 50 financial institutions in the City to conduct a comprehensive stress test, simulating the repercussions of a sudden and drastic movement in bond prices. This initiative marks the first financial system-wide stress test of its kind, reflecting the central bank's proactive stance in assessing and fortifying the resilience of the financial sector.

The call for stress testing follows the turmoil experienced in bond markets and the sterling aftermath triggered by Liz Truss's mini-budget in September 2022. During this period, pension funds faced significant pressure, and some teetered on the brink of collapse. The pronounced shift in bond prices and corresponding interest rates underscored the inherent risks associated with specific forms of liability-driven investing (LDI), particularly concerning retirement savings.

This pivotal stress test, involving major players such as big banks, asset managers, hedge funds, pension funds, and major insurers, aims to evaluate how these entities would fare in the face of an unforeseen swing in bond prices. The participants are required to model and analyse the potential impacts on their operations, with results due to be shared with the central bank by January.

The stress test encompasses abrupt and sustained fluctuations in the value of both corporate bonds and sovereign debt, encompassing renowned government bonds like UK gilts. The Bank of England's scenario involves a 10-day-long "shock to rates and risky asset prices," combining multiple elements to simulate a comprehensive market disruption.

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Dollar Falls against Euro and Rises against Yen

Last week, markets analyzed the results of the speech of US Federal Reserve Chairman Jerome Powell at a meeting organized by the International Monetary Fund (IMF). Representatives of the American regulator doubt that borrowing costs have reached their peak. Thus, the head of the US Federal Reserve noted that he fully admits one or more interest rate increases if the current economic situation requires it. Officials supported the idea of a possible tightening of monetary conditions if the rate of decline in inflation lags behind expectations. At the same time, the department is aware of the additional risks that a further increase in borrowing costs brings with it, but considers the American economy to be quite stable. In addition, on Friday, investors were disappointed by data on the consumer confidence index from the University of Michigan: in November, the indicator fell sharply from 63.8 points to 60.4 points, while the forecast was 63.7 points. Today in the United States the October report on federal budget execution is expected to be published: forecasts suggest a significant reduction in the deficit from -$171.0 billion to -$30.0 billion.

EUR/USD

The EUR/USD pair shows mixed trading dynamics, consolidating near the 1.0685 mark. The immediate resistance can be seen at 1.0690, a breakout to the upside could trigger a rise towards 1.0711. On the downside, immediate support is seen at 1.0664, a break below could take the pair towards 1.0648.

On Friday, the single currency fell moderately, updating local lows from November 3 against the backdrop of statements by representatives of the US Federal Reserve regarding the prospects for monetary policy. Last Friday's European statistics also failed to significantly support buying sentiment in the market. Thus, industrial production in Italy showed zero dynamics in September after growing by 0.3% in the previous month, while analysts expected -0.2%, and in annual terms the figure rose from -4.2% to -2.0 %. The focus of investors' attention today will be a summary of economic forecasts from the European Commission.

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BTC/USD Analysis: JP Morgan Analysts Warn of a Possible Correction

Last week, the BTC/USD rate rose to the level of USD 38k per coin on the excitement associated with the expected launch of a spot Bitcoin ETF.

However, as the week begins, bitcoin price performance shows signs that the hype appears to be waning:

→ the speed with which the price dropped from the upper boundary of the channel and the high of the year to the middle of the channel (about -USD 1,700 in a few hours) indicates the aggressiveness of sellers;
→ the price tried to resume its upward trend, but failed. This can be seen from the downward reversals from the level of 37,500
→ the fact that the slopes of trend lines (shown in black) become less sharp is also a sign of weakening bullish sentiment.

It turns out that after a pronounced surge last week, the price has already dropped below the median line of the channel, and the MACD remains in the red zone.

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Morgan Stanley Analysts Raise Forecasts for S&P 500

According to them:
→ the price of the S&P 500 index will reach 4,500 at the end of the year (previous forecast = 4,200);
→ the dollar will continue to remain strong.

According to Goldman Sachs analysts, published yesterday, the price of the S&P 500 index will fluctuate around current levels, forming a consolidation zone.

That is, a decline in the S&P 500 is not a priority scenario. An important test that will provide more important information about current market sentiment will occur today: US inflation data will be published at 16:30 GMT+3. According to forecasts, it will slow down from 3.7% to 3.3%.

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London Markets Anticipate Opening Decline with Focus on US Inflation and UK Jobs Data

As investors remain attuned to the imminent US inflation report and scrutinise the latest UK jobs data, London stocks are poised to open on a downward trajectory.

The FTSE 100 opened approximately 10 points lower at 7,416 this morning in the London session.

Earlier figures from the Office for National Statistics unveiled that wage growth in the three months to September experienced a mild deceleration. However, earnings growth surpassed inflation, while the unemployment rate maintained its stability.

Including bonuses, average wage growth dipped to 7.9%, down from an upwardly-revised 8.2% the previous month. This contrasts with the 6.7% inflation rate. Economists had anticipated a decline to 7.4% in wage growth, including bonuses.

Excluding bonuses, wage growth eased to 7.7% in the same period, slipping from 7.8%. The unemployment rate remained steady at 4.2%.

The Office for National Statistics in the UK noted that labour market figures depict a relatively unaltered scenario, with proportions of employed, unemployed, and those not actively seeking employment showing marginal changes from the previous quarter.

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Major Currency Pairs in Correction Phase

After a sharp strengthening of the American currency at the end of the week, the main currency pairs entered the correction phase. The dollar's rise was largely due to the hawkish statements of Jerome Powell. The head of the Federal Reserve said that if necessary, the American regulator will continue to raise the base rate, taking into account incoming macroeconomic indicators. Jerome Powell's statements contributed to the USD/JPY pair renewing its recent high at 151.70. Commodity currencies fell to recent lows, with the pound and euro giving up much of their recent gains.

GBP/USD

The British currency, after a spectacular rise to 1.2400, returned to 1.2200. However, buyers of the pair managed to gain a foothold above the alligator lines on the daily timeframe, and as long as the range 1.2200-1.2180 remains in support status, the likelihood of a resumption of the upward movement is quite high.

Today is an important fundamental day for the British currency. At 9:00 GMT+3 we are waiting for the publication of data on average wages for September, taking into account bonuses. Indicators on the unemployment rate for the same period will also be released.

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EUR/USD Rallies Post US CPI While USD/JPY Takes Hit

EUR/USD started a fresh increase above the 1.0775 resistance. USD/JPY is declining and showing bearish signs below the 151.00 level.

Important Takeaways for EUR/USD and USD/JPY Analysis Today

• The Euro is rising and trading well above the 1.0835 resistance zone.
• There is a key bullish trend line forming with support near 1.0775 on the hourly chart of EUR/USD at FXOpen.
• USD/JPY is trading in a bearish zone below the 151.00 and 150.70 levels.
• There was a break below a major bullish trend line with support at 151.65 on the hourly chart at FXOpen.

EUR/USD Technical Analysis

On the hourly chart of EUR/USD at FXOpen, the pair started a fresh increase from the 1.0660 zone. The Euro climbed above the 1.0750 resistance zone against the US Dollar.

The pair even settled above the 1.0775 resistance and the 50-hour simple moving average. Finally, it tested the 1.0885 resistance. A high is formed near 1.0887 and the pair is now consolidating gains.

If there is a downside correction, the pair might test the 23.6% Fib retracement level of the upward move from the 1.0665 swing low to the 1.0886 high at 1.0835. The next major support is forming near a key bullish trend line at 1.0775.

The trend line is close to the 50% Fib retracement level of the upward move from the 1.0665 swing low to the 1.0886 high. The next key support is near the 50-hour simple moving average at 1.0750. If there is a downside break below 1.0750, the pair could drop toward the 1.0705 support. The main support on the EUR/USD chart is near 1.0660, below which the pair could start a major decline.

On the upside, the pair is now facing resistance near 1.0885. The next major resistance is near the 1.0920 level. An upside break above 1.0920 could set the pace for another increase. In the stated case, the pair might rise toward 1.0980.

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Important News on US Inflation Rock Financial Markets

According to data published yesterday, the actual CPI value was = 3.2%, expected = 3.3%, previous value = 3.7%. The Core CPI value also dropped from the previous value = 0.2% to the current value = 0.1%.

Thus, inflation in the United States is confidently approaching the target of 2%, which minimises the likelihood of further tightening of monetary policy.

The news was followed by a sharp weakening of the dollar as market participants believe the rate hike cycle is over. Now the topic of discussion "when the Fed will start cutting rates" is becoming more relevant. It is expected that monetary policy easing is just around the corner, and a more affordable dollar will create conditions for business development.

As a result, US dollar-denominated financial assets rose sharply in price amid news of falling inflation:
→ gold rose in price by approximately 1.2% to the resistance level of 1,970;
→ shares went up in price. The S&P 500 index even broke through the upper boundary of the channel, which we indicated in yesterday's analysis, indicating signals of increased demand;
→ currencies rose in price paired with the dollar.

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Sterling Makes Modest Gains Following Cabinet Reshuffle by PM Rishi Sunak

In a move that echoed through financial markets, British Prime Minister Rishi Sunak undertook a cabinet reshuffle on Monday, elevating former Prime Minister David Cameron to the position of foreign minister while simultaneously dismissing Interior Minister Suella Braverman.

The impact on the financial landscape was subtle, with analysts emphasising that short-term fluctuations in sterling would be steered more by economic indicators and the U.S. dollar's trajectory than immediate political developments in the UK.

As of the latest update, the British Pound exhibited a 0.2% increase, reaching $1.2248, and a similar uptick against the euro, standing at 87.28 pence.

While the reshuffle prompted a 0.6% rise in the FTSE 100 and a 3 basis points drop in the benchmark 10-year UK gilt yields, experts suggest that domestic political matters, including cabinet shifts, may not exert significant influence on global investors.

Investors are turning their attention to the upcoming release of the consumer price index (CPI) for October on Wednesday. Economists polled by Reuters anticipate a 4.8% year-on-year increase, a decrease from September's 6.7%. This shift is attributed to the slower ascent in the costs of essentials such as energy and food in recent months.

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The Dollar Falls amid Falling Inflation in the US

Corrective sentiment prevails in the market, as traders take profits on long positions against the backdrop of a rapid decline in the US dollar after the publication of October inflation statistics. Thus, the consumer price index in October showed zero dynamics on a monthly basis, while analysts expected an increase of 0.1%, and in the previous period the value was 0.4%. In annual terms, the indicator slowed from 3.7% to 3.2%, which was below expectations at 3.3%, and core inflation adjusted from 0.3% to 0.2% and from 4.1% to 4. 0%, respectively. Published data confirmed investors' assumption that the US Federal Reserve will not increase borrowing costs either this year or next. At the same time, experts note that it is still somewhat premature to talk about the possible timing of the start of the interest rate reduction cycle. The approach of inflation to the target levels of the US Federal Reserve was regarded as another signal to the end of the cycle of tightening monetary policy. Real macroeconomic statistics are more important for the market than the hawkish statements of the head of the regulator, Jerome Powell, who last week reiterated the potential for higher borrowing costs.

EUR/USD

The EUR/USD pair is trading in different directions, holding near the local highs of early September at 1.0872. The day before, the single currency showed its strongest growth in recent months, which was the market's reaction to a significant slowdown in inflationary pressure in the United States.

The day before, the eurozone published statistics on gross domestic product (GDP) for the third quarter, which remained at -0.1% in quarterly terms and 0.1% in annual terms. In addition, the region's employment rate rose marginally from 0.2% to 0.3% and 1.3% to 1.4%, respectively, and the Center for European Economic Research (ZEW) Business Sentiment Index rose from -1.1 points to 9.8 points with a forecast of 5.0 points.

Based on the highs of last and this week, a new ascending channel has formed. Now the price has moved away from the upper border of the channel and may continue to decline.

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Citi Analysts Expect Brent to Reach $73 in 2024

Since the beginning of November, the price of Brent oil has decreased by more than 5%. This is due, among other things, to easing concerns about the escalation of the military conflict in the Middle East. According to the latest news:
→ Reuters: Iran does not plan to fight with Israel on the side of Hamas;
→ the UN Security Council adopted a resolution regarding the conflict.

Data on the growth of oil reserves in the United States above expectations also contributed to the price decline. Commercial crude oil inventories rose 4% to 439.4 million barrels from 421.9 million barrels last week, according to the Energy Information Administration. This is the highest inventory level since August.

Technically, the price of Brent oil is in a downtrend (shown by red lines). Moreover:
→ on November 14, the Brent price tested the median line, which acted as resistance;
→ during this test, a bearish engulfing pattern was formed, which confirms the aggressiveness of sellers;
→ USD 81.81 may now serve as immediate resistance while another important level of USD 84.50 appears out of reach – at least in November.

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Dollar Declines as Labour Market Cools

EUR/USD

The euro stabilised against the dollar on Thursday as optimism around the peak of policy tightening and possible rate cuts driven by easing inflation in major economies faded. During the week, inflation data from the US and UK fueled hopes that their central banks are done raising rates. The focus now turned to eurozone inflation on Friday. The euro was flat at USD 1.0853, up 2.5% for the month, while the dollar index, which tracks the greenback against a basket of currencies from other major trading partners, was marginally higher. According to EUR/USD technical analysis, the immediate resistance can be seen at 1.0881, a breakout to the upside could trigger a rise towards 1.0912. On the downside, immediate support is seen at 1.0833, a break below could take the pair towards 1.0761.

The price has broken through the lower boundary of the ascending channel and may continue to decline.

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MSFT Analysis: New All-time High

Yesterday, Microsoft's share price exceeded USD 375 for the first time ever. This happened against the backdrop of news about the company's activities, which was favorably received by investors:

→ Microsoft introduced its own Maia 100 chip for cloud computing and AI programs that create content. The company is also testing Maia 100 for Bing and Office.
→ The company also presented Cobalt — a server processor,
→ and more: new AI tools from the Copilot series. For example, Copilot for Azure is an AI assistant for clients of a cloud computing service that works in chat mode.

Expectations that the Fed will cut rates, which intensified following Tuesday's inflation news, is another factor contributing to the bullish sentiment in Microsoft shares.

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BTC/USD Analysis: Bears Aggressively Defending 37,500 Level

The cryptocurrency market continues to be dominated by expectations for SEC approval of Bitcoin ETFs. A decision is expected by January 10. Although expectations alone do not seem to be enough at the moment to overcome the resistance level of 37,500, which became obvious this week.

The BTC/USD chart today shows that the bulls attacked the level 4 times.

At the same time, attempts 1-2-3 indicate a gradual weakening of the impulse.

Attempt number 4 had new fuel, as the growth rate was impressive. Moreover, the bulls even managed to overcome the level of 37,500. However, as the chart shows, not for long. The bears successfully coped with the attack and not only prevented the price from consolidating above 37,500, but also pushed it back to the lines from which the attack began.

Moreover, attempt number 4 brought an update to the maximum of the year, but the form in which it was made raises concerns. Because short-term exceeding top 1 is a bull trap.

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AUD/USD and NZD/USD Dips Could Be Attractive

AUD/USD is correcting gains from the 0.6540 zone. NZD/USD is also moving lower and might attempt a fresh increase from 0.5920.

Important Takeaways for AUD USD and NZD USD Analysis Today

• The Aussie Dollar started a downside correction from 0.6540 against the US Dollar.
• There is a key declining channel forming with resistance at 0.6480 on the hourly chart of AUD/USD at FXOpen.
• NZD/USD is also moving lower below the 0.5980 support zone.
• There is a major declining channel forming with resistance near 0.5975 on the hourly chart of NZD/USD at FXOpen.

AUD/USD Technical Analysis

On the hourly chart of AUD/USD at FXOpen, the pair started a fresh increase from the 0.6340 support. The Aussie Dollar was able to clear the 0.6450 resistance to move into a positive zone against the US Dollar.

There was a close above the 0.6500 resistance and the 50-hour simple moving average. Finally, the pair tested the 0.6540 zone. A high is formed near 0.6542 and the pair is now correcting gains.

There was a move below the 0.6500 level. The pair declined below the 23.6% Fib retracement level of the upward move from the 0.6357 swing low to the 0.6542 high. There is also a key declining channel forming with resistance at 0.6480.

On the downside, initial support is near the 50% Fib retracement level of the upward move from the 0.6357 swing low to the 0.6542 high at 0.6450.

The next support could be 0.6420. If there is a downside break below the 0.6420 support, the pair could extend its decline toward the 0.6400 level. Any more losses might signal a move toward 0.6340. On the upside, the AUD/USD chart indicates that the pair is now facing resistance near 0.6480.

The first major resistance might be 0.6500. An upside break above the 0.6500 resistance might send the pair further higher. The next major resistance is near the 0.6540 level. Any more gains could clear the path for a move toward the 0.6600 resistance zone.

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Watch FXOpen's 13 - 17 November Weekly Market Wrap Video

Weekly Market Wrap With Gary Thomson: EUR/GBP's NEW HIGH, US INFLATION, S&P500 FORECAST, BRENT CRUDE

Get the latest scoop on the week's hottest headlines, all in one convenient video. Join Gary Thomson, the COO of FXOpen UK, as he breaks down the most significant news reports and shares his expert insights.

• EUR/GBP: Price Reaches 6-month High #EURGBP
• Important News on US Inflation Rock Financial Markets #USInflation
• Morgan Stanley Analysts Raise Forecasts for S&P 500 #SP500
• Citi Analysts Expect Brent to Reach $73 in 2024 #BrentCrude

Stay in the know and empower yourself with our short, yet power-packed video. Watch it now and stay updated with FXOpen.

Don't miss out on this invaluable opportunity to sharpen your trading skills and make informed decisions.

FXOpen YouTube


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#fxopen #fxopenyoutube #fxopenuk #fxopenint #weeklyvideo

 

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GBP/USD Regains Strength While USD/CAD Weakens

GBP/USD started a fresh increase above the 1.2370 zone. USD/CAD is declining and trading below the 1.3730 support.

Important Takeaways for GBP/USD and USD/CAD Analysis Today

• The British Pound is eyeing a fresh increase above the 1.2500 resistance.
• There was a break above a key bearish trend line with resistance near 1.2430 on the hourly chart of GBP/USD at FXOpen.
• USD/CAD started a fresh decline after it broke the 1.3840 resistance.
• There was a break below a major bullish trend line with support near 1.3730 on the hourly chart at FXOpen.

GBP/USD Technical Analysis

On the hourly chart of GBP/USD at FXOpen, the pair formed a base above the 1.2185 level. The British Pound started a decent increase above the 1.2250 resistance zone against the US Dollar.

The pair gained strength above the 1.2300 level. The bulls even pushed the pair above the 1.2370 level and the 50-hour simple moving average and 1.2120. The pair cleared the 50% Fib retracement level of the downward move from the 1.2505 swing high to the 1.2373 low.

There was a break above a key bearish trend line with resistance near 1.2430. It is now trading above the 76.4% Fib retracement level of the downward move from the 1.2505 swing high to the 1.2373 low.

The RSI moved above the 65 level on the GBP/USD chart and the pair is now approaching a major hurdle at 1.2500. An upside break above the 1.2500 zone could send the pair toward 1.2550. Any more gains might open the doors for a test of 1.2620.

On the downside, the pair might find support near the 50-hour simple moving average at 1.2430. The next major support is 1.2370.

If there is a break below 1.2370, the pair could extend the decline. The next key support is near the 1.2300 level. Any more losses might call for a test of the 1.2185 support.

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NIKKEI Analysis: High of 33 Years

The Japanese stock market index, made up of shares of 225 companies, is showing high volatility today, attempting to break through the September high. Reuters wrote that the index had reached its highest level since 1990. The record is due to low rates from the Bank of Japan, which are helping the country's export-oriented industry (in particular, the automobile industry) and financial sector to grow.

At the same time, in various financial markets, Nikkei-related instruments may not have recorded a maximum in 33 years — the reason is liquidity and what appears to be the top of the market:
→ there was a massive liquidation of short positions;
→ major market participants recorded profits.

Therefore, the daily candlestick on European Monday morning has a long upper shadow. Note that today's high could be a false breakout of the September top, which in turn is a false breakout of the August top.

The chart shows that the price of NIKKEI is forming a tapering wedge pattern (shown with blue lines) pointing upward. A bearish breakout of this pattern could lead to the development of a downtrend.

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[FXOpen Trader]

Federal Reserve's 2024 Interest Rate Outlook: A Measured Descent Expected

In the ever-watchful eyes of the financial world, the Federal Reserve's stance on interest rates in 2024 takes centre stage. While market expectations align with a gradual decrease in rates, the nuances in projections and potential economic scenarios add layers of complexity to the narrative.

As of now, the Fed Funds target rate stands at 5.25% to 5.5%. According to the CME FedWatch Tool, a reliable measure of debt market expectations, there is an anticipation of approximately a 1% reduction in this rate by the close of 2024. This implies a plausible range for short-term rates between 4% and 5% in December 2024.

Interestingly, the Federal Reserve's own projections, disclosed on September 20, paint a slightly more hawkish picture compared to the market consensus. These projections hint at rates potentially residing in the 4.5% to 5.5% range by December 2024. The upcoming interest rate decision on December 1 will provide an opportune moment for Fed policymakers to revisit and update these projections.

Throughout 2024, the Federal Reserve is scheduled to conduct eight meetings to deliberate on interest rates, with the flexibility to adjust monetary policy based on economic developments. While the Fed has emphasised the possibility of rates moving upward, this is now framed as a contingent scenario dependent on specific economic conditions rather than the primary trajectory.

The key dates for interest rate decisions and policy announcements in 2024 include March, June, September, and December. The Federal Reserve will unveil its decisions through written statements at 2 pm E.T., accompanied by a subsequent press conference. Detailed minutes of each meeting will be released three weeks later.

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Dollar Falling Amid Falling Inflation

Market expectations that the Federal Reserve has completed its rate hike cycle are weighing on the US dollar. Cooler-than-expected US inflation data on Tuesday and Wednesday accelerated market expectations for how soon the Federal Reserve will cut rates. Such a move would weaken major support for the US dollar and could happen as early as the first quarter of next year. Negative dynamics are developing against the backdrop of a weakening US dollar after the publication of inflation data: the October consumer price index fell from 3.7% to 3.2% in annual terms, approaching the upper limit of the US Federal Reserve's target range. In response to this, investors adjusted their forecasts regarding the timing of the launch of the monetary policy easing programme, and the most optimistic experts believe that the regulator could launch it in the first quarter of 2024. The position of the American currency was supported by statistics. Thus, the number of issued construction permits in October increased from 1.471 million to 1.487 million, while analysts expected a slowdown to 1.450 million, and the volume of started construction of houses — from 1.346 million to 1.372 million, with a forecast of 1.350 million.

EUR/USD

According to EUR/USD technical analysis, the EUR/USD pair updates local highs from August 31, testing the 1.0930 mark for an upward breakout. On the downside, immediate support is seen at 1.0843, a break below could take the pair towards 1.0827.

Investors currently expect the ECB to cut interest rates by 100 basis points in 2024. However, representatives of the regulator Robert Holzmann and Joachim Nagel, who spoke last Friday, announced the possibility of another increase in the value if necessary. Macroeconomic statistics from the eurozone, published on November 17, did not have a noticeable impact on the dynamics of the instrument: the consumer price index in October added 0.1% in monthly terms and 2.9% in annual terms, and core inflation remained at 0.2% and 4.2 %, respectively.

The focus of investors' attention today is the October data from Germany on the producer price index. In monthly terms, the figure decreased by 0.1%, in annual terms — by 11.0%, as predicted. Also during the day, the publication of a monthly report from the Bundesbank is expected.

Based on the highs of last week, a new ascending channel has formed. Now the price has moved away from the upper border of the channel and may continue to decline.

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