Foreign Exchange Weekly Review: Good news stimulus, USD/JPY interprets weekly six consecutive positives

In the past week, the U.S. dollar fell after its new high, the euro bottomed out against the U.S. dollar and rebounded, and the U.S. dollar against the yen further expanded its gains. The overall market news has stimulated the bulls, and the upward momentum has not diminished. The economic data next week will also affect the overall market trend, which is worthy of attention.

The U.S. dollar index fell 0.19% on a weekly basis, the highest touched 94.56, the lowest touched 93.75, and closed at 93.94. The technical form continued to be supported around the weekly 5. This trend reflects the price trend of the foreign exchange market in the past few days, profit-taking and Liquidation dominates the transaction. However, the overall data shows that the net exposure to the US dollar has changed very little, and investors have generally held long positions in the US dollar.

U.S. companies' profits exceed expectations, and economic stagflation concerns ease

The US dollar index fell slightly on Friday, as the unexpected growth in US retail sales last month and strong corporate earnings boosted market risk appetite. The yen fell to a three-year low, and the pound performed best among G-10 currencies.

As U.S. corporate profits exceeded expectations and concerns about economic stagflation have eased, global stock markets rebounded this week.

The unexpectedly strong September retail sales data in the US also boosted market sentiment. Retail sales last month increased by 0.7% compared with the previous month, which was partly due to rising prices, which are expected to fall by 0.2%.

Boris Schlossberg, managing director of BK Asset Management's foreign exchange strategy department, said, "Risk appetite is still very, very strong. This has helped riskier currencies such as the pound, euro and Australian dollar simply because the market feels more optimistic," he said.

Marc Chandler, chief market strategist at Bannockburn Global Forex, said that the U.S. dollar has strengthened sharply because the Fed may start raising interest rates earlier than expected, but this expectation may be excessive and the U.S. dollar is currently consolidating.

Since the beginning of September, the U.S. dollar has risen against major currencies. The market expects that facing economic improvement and soaring energy prices, the Fed will tighten monetary policy faster than previously expected.

The U.S. dollar fell from a one-year high on Wednesday as the yields on longer-term Treasury bonds fell, after US inflation data showed strong price increases last month, and the Fed’s September meeting minutes confirmed that “soon” will begin to reduce bond purchases.

Edward Moya, senior market analyst at Oanda, said that the market is now seeing an important fulcrum, that is, inflation shows more persistent signs than temporary signs, which may force the Fed to raise interest rates much earlier than people expected.

(U.S. dollar daily chart)

U.S. dollar against Japanese yen

The U.S. dollar rose 1.76% against the yen on a weekly basis to close at 114.220, marking six consecutive positives on the weekly basis, setting a new high in three years.

In its October economic report, the Japanese government sharply lowered its export expectations for the first time in seven months. This, coupled with the prevailing risk appetite, weakened the yen’s safe-haven demand. The bulls took further clues from the slight increase in U.S. Treasury yields. The 10-year Treasury bond yields rebounded decisively after falling for three consecutive days, which seemed to promote the upward movement of USD/JPY before the weekend.

Karen Jones, head of Commerzbank's fixed income technical analysis and research department, predicts that the U.S. dollar against the yen will hit an October 2018 high of 114.55.

He said that the U.S. dollar against the yen has consolidated its recent gains for two consecutive days, but has broken through the high point again. As long as the currency pair is above its accelerating upward trend line 112.43, it will still be favored by buyers, and will soon challenge the October 2018 high of 114.55, where we may see some profit taking.

In the long term, the next target is 115.60, the 61.8% Fibonacci retracement level that has fallen since 2015, and then the 1998-2021 resistance line at 117.06.

(Daily chart of USD/JPY)

Euro to U.S. Dollar

The euro rose 0.28% weekly to close at 1.1601. After climbing to a daily peak near 1.1620 on October 15, the euro encountered some selling pressure against the dollar and gave up all the intraday gains due to good US retail sales data As expected.

The lack of follow-up to the earlier bullish attempts in the 1.1620 area forced the EURUSD to give up its initial gains and return to around 1.1600.

Prior to this, US retail sales in September increased by 0.7% month-on-month, and sales other than automobiles increased by 0.8% month-on-month. Both figures were better than expected.

Further US data showed that export prices rose 0.1% month-on-month and import prices rose 0.4% last month. In addition, the New York Fed Index fell to 19.8 this month (previously 34.3).

European reports show that as of September, France's final CPI rose 2.2% year-on-year, while Italy's CPI rose 2.5% over the same period. In addition, the Eurozone trade surplus suddenly shrank to 4.8 billion euros in August.


(Daily chart of the euro against the dollar)

Swiss Franc to Japanese Yen

The Swiss franc rose 2.31% against the yen on a weekly basis to close at 123.7590, because people are worried that the global economy is moving towards a higher-than-normal inflation, but growth is minimal or stagnant. The Swiss franc is demonstrating its status as a safe-haven currency.

Deutsche Bank analysts said that the Swiss franc is a good hedging tool, thanks to the hawkish stance of the country’s central bank, and the country’s economy is less susceptible to current price pressures.

Given that the Swiss National Bank has a strict inflation mission, it may strengthen the Swiss franc to resist imported inflation. This means that the central bank's intervention in the spot exchange market-a key pillar of Swiss franc resistance-will disappear, which may encourage investors to increase their long positions in the Swiss franc to hedge.

Except for commodity currencies, the Swiss franc has shown the strongest resilience against the US dollar among the G-10 currencies in the past month. As the Swiss franc rose against the euro on Thursday, according to traders, large barrier options were triggered in areas where the Swiss National Bank was reported to have been buying in the past.


(Swiss franc against yen daily chart)

It is worth noting that this week, the pound sterling against the dollar has risen by 0.99% on a week-to-week basis. Investors are in high sentiment to do more due to the rising interest rate expectations. The gains of the Australian dollar against the US dollar and the New Zealand dollar against the US dollar have also expanded further, and market risky sentiment has risen. In addition, the rise in commodities has led to a rise of more than 20% in LME zinc and over 9% in LME copper. Due to energy shortages, more production cuts have occurred. Manufacturers ranging from aluminum to steel have restricted production due to power restrictions or rising energy costs.

Prospects

In terms of economic data next week, China’s third quarter GDP, the United States’ September housing starts, the United States’ September construction permits, Japan’s September non-seasonally adjusted merchandise trade account, the United States’ initial jobless claims this week, and the Eurozone’s October consumer confidence index , Euro zone PMI initial value, US PMI initial value.

In terms of events, the Reserve Bank of Australia announced the minutes of the monetary policy meeting, the Governor of the Bank of England Bailey delivered a speech, the FOMC vote committee and the chairman of the Atlanta Fed Bostic participated in an online event in 2021, the Federal Reserve Governor Waller gave a speech on economic prospects, and national statistics The bureau's monthly report on residential sales prices in 70 large and medium-sized cities is worthy of attention.