- Gold gained on the back of risk appetite, a weakening dollar and declining yields in the US. After the speech, Powell lost profits.
- Powell reaffirmed the Fed's plans to cut asset purchases and sends gold down.
- In October, the services PMI and the composite PMI from Markit exceeded expectations.
- The index of business activity in the US manufacturing sector for October was disappointing.
- The yield on 10-year bonds by the close of trading returned to the level of 1.636%.
- Developer Evergrande has announced plans to prioritize the growth of its EV business. Resumed work on 10 projects.
- In China, the number of Covid-19 infections increased over the weekend
By the end of the week, most of the major currencies showed growth. The largest gains against the US dollar were shown by the New Zealand dollar (+ 1.07%). A smaller increase was recorded by the Swiss franc (+ 0.76%), the Australian dollar (+ 0.67%), the Japanese yen (+ 0.64%), the euro (+ 0.43%), the British pound (+ 0.05%) ). A decline was shown by the Canadian (-0.07%).
On Friday, October 22, at the end of the day, the EUR / USD pair increased by 0.17%, to 1.1643. In the Asian session, the price slipped to 1.1620 and was very volatile in the European and American sessions. The euro received support from the growth of the cross after the release of British statistics. UK retail sales were below expectations. As a result, the British pound was unable to benefit from the increased risk appetite for other assets.
Economic activity in the US manufacturing sector continued to rise in October, albeit at a slower pace than in September, with the Markit Manufacturing PMI falling to 59.2 (preliminary) from 60.7 (forecast was 60.3).
Major currencies and precious metals came under pressure after the comments of the head of the US Federal Reserve J. Powell. He reiterated the central bank's plan to cut bond purchases and downplayed the likelihood of a rate hike in the coming months. He also added that high inflation is likely to continue next year. The Bank still expects inflation to return to the 2% target when supply problems disappear.
The market reacted with dollar purchases, putting pressure on equity markets and commodities. The yield on 10-year bonds jumped to 1.676% and by the close of trading returned to the level of 1.636%. As a result, the dollar index closed down anyway.
Scheduled statistics (GMT +3):
- At 11:00, in Germany, there are three IFO indices.
- At 13:00, The Bundesbank's monthly report will be released.
- At 16:00, Sylvanas Tenreiro, MPC Member of the Bank of England, will deliver a speech.
Current situation:
In Asia, major currencies are trading in positive territory, except for the yen. New Zealand and Australian dollars became the leaders. Market participants ignored the news that the number of Covid-19 infections increased in China over the weekend and the authorities expect the further spread of the virus.
Rice asset demand rose on news from Evergrande. The developer announced plans to prioritize the growth of its EV business over its core real estate business. Over the weekend, the head of the company said that work has resumed on more than 10 projects in Shenzhen, Dongguan and other cities.
The news is positive for risky assets, but there is a factor that will continue to have a negative impact on the market. Evergrande paid interest on dollar bonds last week. The default was delayed. The next grace period ends on October 29th. Closer to this number, the market participants will have new worries.
Technical analysis:
The new week for shoppers started off well. The pair recovered to 1.1665. Buyers held support at 1.1620 thanks to the EUR / GBP rally and weak UK statistics.
Powell is all it takes, said. The FOMC meeting is approaching. Experts expect QE to be cut by $ 15 billion. The reduction is included in the prices. If the demand for risky assets persists on Monday and Tuesday, then with the declining yield on 10-year bonds, buyers will try to raise the rate to 1.1725.
The return of the rate to the level of 1.1620, on the contrary, will increase the pressure on buyers. K. Lagarde insists that the jump in inflation is temporary and the ECB will continue to buy bonds. If buyers have a target of 1.1725, sellers have a target at 1.1575.
Summary: on Friday, the euro closed higher thanks to an increase in the EUR/GBP cross pair. US Federal Reserve Chairman J. Powell had a strong impact on gold with his statements. The euro has held back. The new week for shoppers started off well. The pair recovered to 1.1665. If the demand for risky assets persists, buyers will try to raise the rate to 1.1725. Support remains at 1.1620.