Week Ahead: US Inflation in Focus Following FOMC Fireworks

Weekly Recap

It’s been a scary week for markets, and we’re not just talking about Halloween on Monday. We’ve seen a slew of big events and developments sharpening price action this week headlined by the Fed on Wednesday and the BOE on Thursday. It really has been a case of trick or treat for markets with some noteworthy moves to digest. 

First thing to note is the return of the US Dollar we’ve seen this week. Ahead of the FOMC on Wednesday, USD was tentatively firmer with traders expecting a further 75bps hike from the Fed. However, there was a sense of caution given split expectations over whether the Fed would signal a coming shift on rates with some arguing that the central bank would look to reduce the impact of its tightening on the economy, similar to what we saw from the RBA and BOC. 

However, USD rallied firmly as the Fed pushed ahead with a further 75bps hike and signalled that further hikes would be necessary with rates likely to run higher than currently projected, given still-rampant inflation. The Fed argued that an over-supplied labour market was keeping upward price pressures alive, retaining the need for further hikes. 

The BOE then followed on Thursday and sent GBP the opposite way to USD. Along with hiking rates by 75bps, the largest hike in 30 years, the BOE struck a highly bearish tone on the UK economy, warning of a prolonged recession. GBP was seen falling sharply on the back of the meeting as traders digested the BOE’s outlook. 

Risk sentiment was seen deteriorating over the week. The sharp rise in USD, the Fed’s warning of higher rates and the BOE’s warning of a prolonged recession in the UK, hit sentiment hard. Stocks tumbled across the board with US stocks the biggest losers of the week despite some bright spots in the week’s earnings schedule from the likes of PayPal and Starbucks among others. 

Coming Up This Week

US CPI 

On the back of the November FOMC, the upcoming US CPI release this week will attract extra attention as traders attempt to gauge the Fed’s actions in December. The first of two big CPI prints before that meeting, any upside surprise will keep expectations geared towards a further, larger hike in December. However, should we see any unexpected downside, this skews expectations in favour of a reduced hike, pulling USD lower near-term. 

UK GDP 

The latest UK GDP reading this week will be closely watched on the back of a solemn November BOE meeting. The UK central bank was seen hiking rates while citing the likelihood that the UK is at the start of a long (potentially two-year) recession. With GBP under pressure, further weakness in growth readings will no doubt drive the Pound further lower. 

US Midterms 

The US mid-terms take place on Tuesday and are seen as make or break for the Biden administration. With energy prices still at highs, the Russian-Ukraine conflict in full swing, several mass-shootings this year and abortion rights having been violated around the country, there is a great deal of attention on this vote. Most importantly, a Republican win will be seen as laying the groundwork for Trump to run for president again in 2024 which will no doubt exacerbate global uncertainty leaning on risk sentiment. 

Forex Heat Map 

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Technical Analysis

Our favourite technical chart of the week –  NASDAQ

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The bearish channel which has framed price action in the NASDAQ over the course of the sell off from last year’s highs looks set to take another leg lower in the near-term. The key level to watch will be the 9735.47 level. While we might see a short term bounce from that level, provided price stays below the 11038.11 level, the outlook looks skewed towards further downside. Bulls will need to see a break of that level and the channel top to encourage a shift in momentum. 

Economic Calendar

Plenty to keep an eye on this week data-wise, with the November BOE and FOMC meetings and US labour reports among other key events and releases. See the calendar below for the full schedule. 

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Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

Sources: Bloomberg, CNBC, Reuters

Original article provided by Trading Writers

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