The U.S. Inflation is expected to breach the 4.1% YoY record in October, up from the previous 3.6%

22 November 2021, 02:56

Market Focus

Stocks looked set to fall Monday, weighed by growing concerns over nationwide COVID-19 lockdowns in Europe that have raised fears about new restrictions beyond the continent, and the risk of a faster withdrawal of Federal Reserve stimulus. The Treasury yield curve was near the flattest since the pandemic’s onset. Stocks ended mixed on Friday, Dow Jones slid 200 points, or 0.6%, settling at its lowest levels in 3 weeks and down 1% on the week, while the S&P 500 notched a slim daily gain, 0.32% throughout the week. However, the Nasdaq Composite set a fresh record, bolstered by rallying technology shares.

Former Credit Suisse Group AG bankers have told criminal investigators that the bank is still helping U.S. clients hide accounts from the Internal Revenue Service, even after the firm paid $2.6 billion in penalties in 2014 and promised to stop the practice.

The latest allegations of wrongdoing come during a tumultuous year for the Zurich-based bank, which lost $5.5 billion in the blowup of family office Archegos Capital Management and had to unwind client funds that were managed with collapsed lender Greensill Capital. It is also happening weeks after the U.S. Justice Department vowed to crack down on corporations that repeatedly violate the law.

The bankers who came forward said that Credit Suisse opened accounts for South American clients who held dual citizenship, but bank documents failed to indicate they were U.S. citizens, according to people familiar with the matter. Some of the accounts held were in the tens of millions of dollars, the people said. U.S. taxpayers are supposed to pay taxes on income earned anywhere in the world and disclose their offshore accounts to the Treasury Department, even if they have dual citizenship.

Over the summer, those bankers were interviewed by U.S. tax prosecutors, IRS criminal agents and U.S. Senate investigators, the people said. Credit Suisse still faces fallout from the 2014 guilty plea of its main banking unit, which admitted helping thousands of Americans evade taxes.

Main Pairs Movement

The Greenback may remain its robust northern momentum in the week ahead as markets turn to important macro risks from the U.S. Inflation has been a hot topic in the country, with headline price growth at its most aggressive since the early 1990s using YoY timeframes. Now, the Federal Reserve’s preferred gauge of inflation, core PCE, is in focus.

It is expected to breach the 4.1% YoY record in October, up from the previous 3.6%. That would be the fastest pace since January 1991. Ongoing elevated price readings above the central bank’s target would likely continue to keep Fed policymakers on their toes. Still, the broader argument from the central bank remains that the recent bout of inflation is ‘transitory’.

EUR/USD closed on Friday with another dip below the 1.1300 threshold, while GBP/USD also dropped hard to around 1.3440. Commodity-linked currencies slumped severely as well, as USD/CAD regained 1.2650, AUD/USD fell to the 0.7230 level, and erased its gains on Thursday, again falling underneath 0.7000. The Japanese yen was the top performer among the majors, outplaying the vigorous US dollar amid lower US yields and falling equity prices。

Amid the strength of the US dollar, gold price slipped to $1845 a troy ounce, and crude oil prices savagely plummeted over 3%, with WTI plunging 4.07% to $75.30, and Brent diving 3.23% to $78.45.

Technical Analysis

EURUSD (4- Hour Chart)

EUR/USD declined on Friday amid US dollar strength, ending its previous rebound from 2021 lows near 1.126. The pair flirted with the 1.136 level during the Asian session, then started to see heavy selling in the early European session. At the time of writing, EUR/USD has rebounded moderately and pared some of its losses, currently losing 0.50% on a daily basis. The stronger US dollar across the board is mainly due to risk-off market sentiment, as the DXY index touched a yearly high above 96.2. In Eurozone, the German PPI report today showed that Producer Prices rose more than expected in October at a monthly 3.8%. But ECB’s Chairwoman Lagarde kept her dovish tone, saying that there was no rush to tighten the current monetary conditions, which put the EUR/USD pair under pressure.

On the technical side, the RSI indicator is at 38 as of writing, suggesting tepid bear movement ahead. For the MACD indicator, a diminishing positive histogram also indicates a downward trend for the pair. Looking at the Bollinger Bands, the price has moved out of the lower band first and moved immediately back inside the band, which means a bull movement. In conclusion, we think the market will be bearish as the greenback’s appreciation should keep weighing on the pair. If the price breaks below the 1.1250 support, the slide could extend further to 1.1168, which was touched in June 2020.

Resistance: 1.1374, 1.1464, 1.1608

Support: 1.1250, 1.1168

GBPUSD (4- Hour Chart)

In line with EUR/USD’s price movement today, GBP/USD also declined on Friday and dropped to a fresh daily low under 1.341 in the early European session. Despite trying to rebound back above the 1.347 level, the pair still stayed in negative territory and is currently losing 0.17% on a daily basis. The UK Retail Sales data released today showed that retail sales in October rose by 0.8% on a monthly basis, better than the market’s expectation for an increase of 0.5%. But the upbeat data failed to support the cable, as the risk-off market mood underpinned the safe-haven US dollar and dragged the cable lower.

As for the technical analysis, the RSI indicator reads 52 as of writing, suggesting tepid bull movement ahead. As for the Bollinger Bands, the price crossed above the moving average after rising from the lower band, and is moving alongside the upper band, therefore an upward trend continuation could be expected. In conclusion, we think the market will be bullish as the pair might attract some dip-buyers and re-test the 1.3514 resistance. A break above that level should clear the way towards the 1.3607 mark.

Resistance: 1.3514, 1.3607, 1.3698, 1.3834

Support: 1.3397, 1.3353

USDCAD (4- Hour Chart)

After the previous day’s pullback from monthly highs, USD/CAD saw heavy buying and advanced on Friday amid falling oil prices. The pair remained its bullish traction and touched the highest level since October 1 near 1.266 area, currently posting a 0.32% gain on a daily basis. WTI crude oil dropped below $76, weighing on the commodity-linked loonie and pushing the USD/CAD pair further. The falling oil prices were caused by the increasing global oil supply and concerns about resurging Covid-19 cases. On top of that, recent strength witnessed in the US dollar also lifted the pair higher.

On the technical side, the RSI indicator is at 68 as of writing, suggesting that the pair is near the overbought zone, a trend reversal could be expected. But looking at the MACD indicator, the MACD is now sitting above the signal line, which means that the upward trend could persist. As for the Bollinger Bands, the price rose from the moving average and now sit near the upper band, therefore the bullish tone remained. In conclusion, we think the market will be bullish as the pair is testing the 1.2648 resistance.

Resistance: 1.2648, 1.2775, 1.2849

Support: 1.2493, 1.2387, 1.2288