The Week Ahead – USD Strengthens As Fed Stays On Taper Course

November 5, 2021

EURUSD weakens on solid US jobs

The US dollar rallied as the Fed began to reduce its $120 billion asset-buying program as previously announced. The central bank has stayed elusive about its rate hike agenda though.

With inflation for the last five months over twice the 2% target, policymakers are striving to keep their heads cool. Jerome Powell emphasized that supply disruptions and rising prices are still temporary and patience is the keyword.

The Fed has its focus on boosting job growth, making October’s solid job gains a bullish argument. The euro has met resistance at 1.1690. 1.1330 would be the next target as the downtrend resumes.

GBPUSD plunges on BOE’s dovish backstep

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The sterling continues to suffer after the Bank of England poured cold water on an early interest rate rise.

The BOE left rates unchanged despite hawkish signals over the past few weeks. The backstep has thrown traders into disarray, calling the central bank’s credibility into question.

Now that most major central banks have pushed back hike expectations, the market would once again focus on the Federal Reserve. A faster tightening of monetary policy in the US would favor the greenback as divergence grows.

A break below 1.3420 may deepen the correction to 1.3100. A rebound would be temporary and capped by 1.3700.

NAS 100 rallies as low rates persist

The Nasdaq 100 rises to a new all-time high after the Fed pledged to maintain its accommodative policy. Officials have set the tapering amount data-dependent after December, which gives the market much leeway for interpretation.

The disconnection between tapering and hiking interest rates is what drives the stock market. In their pursuit for full employment, the Fed has vowed not to rush into a rate hike.

Recovery optimism, robust corporate earnings, and an ultra-low rate environment are exactly the right cocktail mix for the bull run to go on. 16800 is the next hurdle with 15500 the first support in case of a retracement.

UKOIL retreats as Iran’s talks may resume

Oil prices came to a halt in anticipation of a revival of Iran’s 2015 nuclear deal. Specifically, Iran and six global powers have agreed to resume talks in Vienna on 29 November.

If a deal goes through, lifting of sanctions would open the floodgates to Iranian oil exports. However, negotiations remain uncertain, the news may be more of an excuse to take profit after a two-month-long rally.

The same logic goes to the ebb and flow in US stockpiles. The only constant is OPEC’s commitment to keeping its output tightly controlled, which ultimately would support the market. 79.00 is the immediate support and 86.50 a fresh resistance.

Article by Orbex

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