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Powell reiterates the urgency to begin tapering, while at the same time stating that it is not time for a rate hike yet

Market Focus

All three major U.S. stock indices recorded weekly gains on the back of better-than-expected 3rd quarter earnings results from major companies. The Dow notched another record close on Friday to close at 35677.02, the S&P 500 lost 0.1% to close at 4544.9, while the Nasdaq lost 0.8% to close at 15090.2. The U.S. 10-year Treasury yield trended higher to close at 1.638%.

Major companies including Procter & Gamble and Netflix both reported their 3rd quarter earnings results during this week. Procter & Gamble reported Q3 earnings that beat Wall Street’s estimate as consumers continue to demand cleaning supplies and beauty products. Netflix also posted better-than-expected earnings as the company was able to add 4.4 million subscribers over the quarter. Facebook, AMD, Alphabet Inc, Amazon Inc, and Berkshire Hathaway are among the major companies that will report their Q3 earnings for this week.

Cryptocurrencies enjoyed a healthy rise over the past week as Bitcoin rallied past $60,000 and reached historical heights. Ethereum and other alternative coins also experienced healthy gains. As of writing, Bitcoin is trading at $61,071, Ethereum is trading at $4088, and XRP is trading at $1.0803.

This week’s economic docket is headlined by the Australian CPI, U.S. GDP for Q3, U.S. Initial Jobless Claims, and the European Union CPI.

Main Pairs Movement

The Greenback rose on Friday as Fed Chair Jerome Powell’s speech, once again, affirms the Fed’s previously adopted hawkish stance. In his speech, Powell reiterates the urgency to begin tapering, while at the same time stating that it is not time for a rate hike yet. Powell also provided a positive outlook on the recent supply chain crunch as he expects constraints to ease as expected, and it is “very possible” that the Fed’s full employment goal would be met by next year.

Most currency pairs against the dollar struggled as the Greenback gained steam. USDJPY, however, experienced a 0.44% daily slide as the pair could have already reached the level where some investors have begun taking profits. GBPUSD saw a 0.3% intraday decline. The Pound struggled due to weaker-than-expected September retail sales. USDCAD gained 0.03% as the Dollar strengthened to help the pair extend yesterday’s winning session.

Technical Analysis

USDJPY (Daily Chart)

The USDJPY pair dived deeper on Friday, extending its southern corrections from multi-year highs at 114.70 to session lows right above 113.40. The pair started its intraday slide since the early European session, rebounding slightly as Fed Chair Jerome Powell’s speech indicated an upcoming taper from the Fed, and then resumed its downside slide afterwards.

In Friday’s speech, Powell said that he thinks it is the time to start reducing asset purchases, which reaffirmed the investors’ anticipation of November tapering, creating sudden panic in the market. The dollar surged for a bit, though it did not stop the selling stream of the USDJPY. A possibility for that may be profit-taking, as some investors might have closed their long positions after the prolonged USDJPY uptrend.

On the technical front, both the daily MACD histogram and the RSI indicator are still on the bullish side. The price actions have been away from the top of the Bollinger Bands, sparing some rooms for further rally.

Resistance: 113.75, 114.70

Support: 112.65, 110.97, 109.17

GBPUSD (Daily Chart)

Cable continues yesterday’s decline, edging lower to end the week at 1.3755. The pair climbed higher to a daily top in the early European session but failed to preserve its bullish momentum afterwards, as the Fed’s Chair Powell brought up tapering issues in his speech during the American trading hours, which led the pair to suddenly plummet over 40 pips.

Sterling’s weakness may derive from dismal retail sales data. The UK retail sales released Friday showed a -0.2% reading in September, a big miss to the market’s expectation of 0.5%. The downbeat macros also revived Covid concerns as UK policymakers rejected restrictions, further weighing on the British Pound.

On the technical front, both the MACD histogram and RSI indicator remain in bullish territory, suggesting the demand for the Pound is still robust. Considering the looming UK rates hike plan, it is reasonable to expect the pair to get back on its upward track.

Resistance: 1.3830, 1.4000, 1.4220

Support: 1.3720, 1.3580, 1.3410

USDCAD (Daily Chart)

Loonie defended its gains on Thursday and successfully closed in the green amid broader Greenback strength. The pair once climbed to a daily high at 1.2383, which matches Thursday’s high, and consolidated near the high afterwards with a strong bullish impulse. A break higher would clear the way for a test of 1.2400.

A stronger US dollar across the board has been the critical driver in the Loonie pair. Fed Chair Powell mentioned that high inflation will likely last well into next year. He affirmed that it is time to taper the Fed’s Quantitative Easing measures, but not the time to raise rates. Commodities including crude oils reversed sharply after Powell’s speech.

On the technical front, both the daily MACD histogram and the RSI indicator are still deeply under the bearish territory. The price actions lingered around the 61.8% Fibonacci throughout the day, some catalysts may be required to break through this awkward situation.

Resistance: 1.2478, 1.2727, 1.2949

Support: 1.2229, 1.2007

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