Forex. Euro/dollar forecast (EUR/USD)
Last week, the euro/dollar pair quotes resumed their decline and reached the support level of 1.1600 by the end of the session.
The main factor that influenced the end of the couple's corrective movement was the Fed meeting on Wednesday. The U.S. regulator raised the rate and expressed optimism about further plans to tighten monetary policy. Most members of the Federal Open Market Committee are now in favour of a fourth rate hike in December, and the likelihood of this event, according to investors, has risen to 80%. The Fed slightly changed its forecast for economic growth upwards. The forecast of average GDP growth this year was raised to 3.1% on the background of strong data in the second and third quarters. The growth of core inflation will remain unchanged at 2.1%, which allows the Fed to continue tightening monetary policy.
In its accompanying statement, the Fed removed the phrase that monetary policy remains stimulative, but Jerome Powell said it did not signal a change in the interest rate trajectory. The Fed still plans to reach a neutral level of 3% next year. In addition, Powell noted that the new duties imposed as part of the trade war between the United States and China, can lead to higher prices and higher inflation in the future. The Fed again demonstrated the belief that gradual rate hikes will continue, and economic growth will not slow down in the near term. The final estimate of GDP growth in the United States remained unchanged at 4.2%, which was the highest value for the last four years. Forecasts for the third and fourth quarters remain extremely favourable, which will boost market confidence in the fourth rate hike this year in December.
On Friday, preliminary data of inflation changes in the Eurozone for September were published. While the growth of the consumer price index is expected to add 0.1%, the base index fell by the same value contrary to forecasts. In addition to low economic growth and stagnant core inflation, the Eurozone will face political risks in the near future, which will have a negative impact on the European currency. Italy's government has set a budget deficit target for next year at 2.4 percent of GDP after the ruling parties demanded more money from the finance minister to deliver on campaign promises. The EU's response to the high budget deficit was negative. According to the EU, Italy has broken its obligations, as the new authorities have made it clear that they will seek a deficit of 1.9%. Adoption of a high budget deficit will lead to an increase in the yield of Italian bonds and will put pressure on the euro.
By the end of last week, the euro/dollar pair had fallen again to the lower boundary of the broad range in which most of this year is located. Fundamental factors suggest that the pair will be able to test the support level of 1.1560 in the near future.
In our forecast for the coming week, we expect the euro/dollar pair to decline to support levels of 1.1580, 1.1560, 1.1530, 1.1500 and 1.1470.
Forex. Pound/dollar currency pair forecast (GBP/USD)
The quotations of the pound/dollar pair decreased slightly last week and reached the mark of 1.3017 by the end of trading on Friday. In the first half of the week, the pair recovered from a sharp fall on Friday, but a strong dollar did not allow the quotes to develop an advantage and led to a decline at the end of the week.
The UK's macroeconomic calendar was virtually empty last week, so market participants continued to assess the likelihood of the UK leaving the European Union without an agreement. The EU leaders' summit in Salzburg a week earlier dramatically changed the mood of the markets regarding a possible agreement. As it turned out, the contradictions between the European Union and the UK are not resolved, and there is no real progress on key issues. After the summit, Prime Minister Theresa May said the UK would offer an alternative solution on the Irish border, but that could only happen after a Conservative Party meeting in the first half of this week. The prime minister will face fierce intra-party criticism at the congress as a number of conservatives do not share May's position and are not prepared to strike compromise agreements with the EU. If May's plan is not adopted, then the active discussion of a repeat of the referendum on secession from the European Union or new parliamentary elections will resume. These options have no real basis, but can significantly worsen the domestic political background in the UK and seriously complicate Theresa May's work.
The Bank of England still appreciates the likelihood of Brexit without an agreement, although it admits this option is highly undesirable. The deputy head of the Bank of England Dave Ramsden noted last week that despite the negative background on Brexit, wage growth and inflationary pressures are encouraging, and the interest rate could be raised within a few years. Consumer confidence, meanwhile, continued to decline and has almost reached its lowest level this year. Consumer activity is declining amid a reduction in the remaining time for a treaty between the EU and the UK.
The quotations of the pound/dollar pair almost came close to the key level of 1.3000. A strong dollar and growing uncertainty around Brexit are likely to lead to further declines in the pair in the near future. It is unlikely that the pair will reach its recent low of 1.2662, but a decline to the level of 1.2800 is quite likely.
In our forecast for the coming week we expect a further decline in the quotations of the pound/dollar pair to the support levels of 1.3000, 1.2970, 1.2940, 1.2910 and 1.2875.
Forex. Gold price forecast
Gold prices decreased at the end of last week and reached the mark of 1192 dollars per troy ounce.
The outcome of the Fed meeting and another increase in the US rate led to a decline in the gold rate well below the level of 1200 dollars per ounce. The downward momentum immediately after the meeting was quite strong, and the price fell to the support level of 1180 dollars, and then slightly recovered on Friday. Strong forecasts of economic growth in the United States before the end of this year and the high probability of another increase in the interest rate at the meeting in December led to the end of the correctional growth of gold and return to the downtrend. Now it is difficult to assume that for the remaining three months before the end of the year the price of gold will be able to return to the resistance level of 1250 dollars per ounce.
Many investment companies and banks have changed their forecast for gold downwards. At the same time, forecasts are still significantly higher than current price levels. The average price of an ounce of gold in the fourth quarter of this year is expected to be about 1275 dollars, and next year analysts expect to strengthen to the mark of 1350-1400 dollars. It is difficult to imagine what should happen for gold, which has lost about 7.5% of its value since the beginning of the year, to regain its losses. The U.S. economy is still far from recession, the Fed continues to tighten monetary policy, and economic and political difficulties in the UK, Italy and a number of developing countries are not yet able to support gold.
The most serious economic crisis erupted in Turkey, but it was generally unable to support gold prices. A number of economists suggest that this crisis may be the beginning of a large systemic trend, which in the end could lead to a significant growth of gold. Among other developing countries, Turkey has one of the largest trade deficits and a high level of foreign currency loans. Other developing countries have the same problems, so sooner or later they will face crises like Turkey's. We can recall the high level of u.S. foreign debt and trade deficit, so even the most developed economies can come to a similar crisis. In such periods of financial instability and turmoil, investors prefer to keep funds in the most protected and conservative assets, which will lead to a strong increase in demand for gold.
In our forecast for the coming week we expect a further decline in gold quotations to support levels of 1190, 1187, 1184, 1180 and 1175 dollars per troy ounce.
Forex. North American Oil Forecast (WTI)
WTI crude oil prices continued to strengthen and reached a new two-month high at $73.40 per barrel last week. At the same time, a barrel of Brent crude oil reached its highest level since 2014.
The weekly increase in the price of WTI oil was 3.5% and the monthly 4.9%. The main reason for the upward movement of quotations remain fears of a decline in oil supply in the global market due to U.S. sanctions against Iran and a decline in Iranian oil exports. Last week, U.S. Secretary of State Michael Pompeo denied reports that the U.S. plans to sell some of its strategic oil reserves to offset lower supplies from Iran and lower prices.
The largest buyers of oil from Iran – China and India have already begun to reduce the volume of supplies of raw materials. According to representatives of the Iranian oil company, oil exports in September amounted to 1.5 million barrels per day, compared with 2.3 million in June. Iranian representatives continue to state that they expect to continue cooperation with their partners from India and China, but most likely, the latter will not want to enter into a confrontation with the United States and, at the very least, will reduce supplies. At the official level, China and India have not yet made any statements, but a number of Indian companies are already planning to stop buying oil from Iran for fear of U.S. sanctions.
A number of countries have already drastically reduced oil imports from Iran without waiting for the official imposition of sanctions. For example, Japan last month reduced shipments from Iran by almost 23% compared to last year, increasing imports from other Middle Eastern countries.
Last week, U.S. President Donald Trump once again lashed out at OPEC, accusing the cartel of price manipulation and artificially inflating quotes. At the same time, the U.S. by its actions independently cause price increases, announcing sanctions against the largest suppliers and reducing the level of supply in the world market. Last week, Michael Pompeo said the U.S. wants to increase pressure on Venezuelan President Nicolas Maduro. This means a ban on the export of light oil, which is used by the South American country in the refining process.
To compensate for the decline in Iranian oil volumes on the world market, Saudi Arabia plans to increase production of raw materials in the near future, in spite of formal RESTRICTIONS of OPEC, which were announced at the meeting in September. Saudi Arabia plans to increase production by 200,000 to 300,000 barrels per day in October and send surpluses to Asian countries that will refuse supplies from Iran. The main buyers in this case will be Japan, South Korea and India, which plan to reduce the import of Iranian oil to zero, starting in November this year.
In our forecast for the coming week we expect further growth of WTI oil quotations to resistance levels of 73.50, 73.70, 74.00, 74.25 and 74.60 dollars per barrel.
Forex. Cryptocurrency forecast
Most cryptocurrency assets changed slightly in price last week after a sharp rise a week earlier. Bitcoin quotes fell to 6700, ethereum fell to 230, and XRP strengthened in price – 0.58 dollars.
The most successful of the top cryptocurrencies last week was Bitcoin Cash, which added almost 10% in price. The reasons for the rapid growth in the market were the receipt of the Gemini exchange approval of New York regulators for the listing of this cryptocurrency, as well as the news about Bitmain's application for an initial public offering. As you know, the Chinese company Bitmain is a large holder of Bitcoin Cash. After the appearance of this information, the price of Bitcoin Cash reached a local high of $575.
One of the important positive news of the past week was Google's statement, according to which from October advertising of cryptocurrency exchanges will again be allowed to users from Japan and the United States. So far, we are talking exclusively about regulated exchanges. Advertisers will be able to pass certification from the moment the changes take effect, that is, from October. Policy changes will be extended worldwide to all accounts advertising this type of financial product.
StellarX announced the launch of a decentralized exchange with zero commissions and support for fiat currencies. The new exchange offers the same functions as other decentralized exchanges on the ethereum blockchain, while taking on the commission costs of users. The most notable feature of StellarX is the support of fiat currencies. Currently, the exchange supports transactions from bank accounts in the U.S. through the network, and in the future also intends to add support to the euro, the Philippine peso, the Chinese yuan, the Hong Kong dollar and the British pound. In the future, the exchange plans to add support for multi-signature accounts and tokens issued on other blockchains besides Stellar, as well as a number of other features.
The Irish government has launched a five-year blockchain research programme for the use of technology in the banking and insurance sector.