Forex. Euro/dollar forecast (EUR/USD)
Last week, the euro/dollar pair was little changed in price, declined for most of the week and recovered to 1.1385 by the end of the session.
The news agenda was crucial to the pair's dynamics. Throughout the week, the news that Angela Merkel announced at a press conference that she had decided not to run for president of the Federal Government in 2021 and not to be re-elected in the european government was a destabilizing factor. as leader of the Christian Democratic Union.
The second main reason for the depreciation was the negative GDP data of the Eurozone. According to the report published on Tuesday, the index increased by 0.2% in the third quarter of 2018 with an expected 0.4%, which is the lowest value for the last 4 years. Year-on-year, the Eurozone's GDP grew by 1.7%, although an increase of 1.8% was forecast. Gdp data stimulated a negative trend in the euro, as the market played out throughout the previous week, especially against the background of the overall weak outlook for the world economy from the International Monetary Fund.
The long-term pressure on the euro continues to be the situation with the Italian budget. It became known that Italy intends to give the European Commission a response by November 13 on plans to reduce the debt. So far, traders have significant fears that this conflict will be resolved by a compromise, as the previous actions of the Italian government and its populist rhetoric clearly indicate a reluctance to adjust the budget deficit.
The weakening of the Chinese yuan contributed to the strengthening of the dollar, which affected the euro. Moreover, the dollar received support from statements by U.S. President Donald Trump about the possibility of a trade agreement with China, which could defuse the situation in the U.S.-China trade war.
Monetary policy of the European Central Bank against the background of the growing difference in the level of interest rates negatively affects the euro. Low inflation in the Eurozone implies a continuation of the policy of low rates of the ECB, while the probability of a rate hike by the Federal Reserve at the next meeting is estimated by analysts at 80%.
Remarkably, other key reporting in the Eurozone, excluding GDP reporting, had good performance. The consumer price index, which is the main criterion for inflation, strengthened by 2.2% in annual terms in October after rising by 2.1% in the previous month. The unemployment rate in the Eurozone remained the same at 8.1%. But even these indicators, traditionally strengthening the single currency, failed to become an obstacle to the euro down in the first half of the week.
The recovery factor for the euro in the second half of the trading week was the news of a possible Brexit agreement. Last week, European stock markets were characterized by positive dynamics, acting as one of the few factors inhibiting the fall of the euro.
In the coming week, the main releases in the Eurozone will be indices of business activity in various sectors of the economy by the end of October. In general, analysts predict the preservation of data at the September level, and therefore their destabilizing potential is minimal. On the contrary, the data of retail sales on Thursday may negatively affect the euro, as it is expected to continue the trend of decline.
In our forecast for the coming week, we expect a further increase in the euro/dollar pair's quotations to resistance levels of 1.1400, 1.1430, 1.1455, 1.1475 and 1.1500.
Forex. Pound/dollar currency pair forecast (GBP/USD)
The exchange rate of the pound against the dollar steadily decreased at the beginning of last week and reached the minimum value of the current year at 1.2690. Later, the pair moved into the growth stage and by the end of the trading week reached the mark of 1.2960.
The correctional growth of the British currency was helped by the news on Brexit. The EU and the UK have reached a compromise, so British companies in the financial services sector will be able to maintain access to European markets after Brexit. Investors see this as a signal that larger trade relations will also be settled, especially given Prime Minister Theresa May's announcement of the possibility of a deal before November 21. In addition, the positions of the existing European tariff quotas between the EU states and the UK after Brexit were agreed, which also was a positive signal for the pound.
The Bank of England's warning that future interest rate hikes could be slightly faster than in August 2019 due to a possible overheating of the economy has played a definite impact on the value of the pound. At the moment, the Bank did not change the value of the base interest rate of 0.75% at the end of last Thursday's meeting. The regulator also cut the forecast for growth of the British economy for 2018 and 2019 by 0.1 percentage points, to 1.3% and 1.7% respectively.
Inflation in the UK will remain above the target of 2% in annual terms in the near term, which has caused a reaction in the market – waiting for tighter monetary policy. Macroeconomic indicators of the last week mainly favored the growth of the pound/dollar pair. Data from the report on the autumn forecast of the British Treasury, released on Monday, caused the pound to fall. Despite the fact that it was announced that the uk GDP was expected to grow by 1.6% in 2019 against 1.3% according to the previous estimate in March, the information about the increase in reserves for Brexit by 2 billion pounds has caused fears of traders.
In addition, on Monday the UK presented a draft budget, which does not lay down the probability of Brexit without a trade agreement, which also causes a negative reaction of investors due to the likely large costs. Even the announced end of the austerity regime was not a supporting factor in the British currency.
The U.S. consumer confidence index hit its highest level in 18 years in October, supporting the U.S. currency and offsetting the low data from the housing market composite index.
Another catalyst for the dollar's growth was the repatriation of profits at the end of the month in the U.S. from abroad, technical in nature, but nevertheless, a strong factor. The positive dynamics of The American stock markets was also the impetus for the growth of the dollar.
Next week, the pair's dynamics will continue to be determined by information related to Brexit and the publication of the index of business activity in the services sector and data of economic growth of the UK at the end of the third quarter of this year. GDP data are able to support the pound due to positive forecasts and positive dynamics of the previous period.
In our forecast for the coming week, we expect a further recovery of the pound/dollar pair to resistance levels of 1.2980, 1.3000, 1.3025, 1.3050 and 1.3090.
Forex. Gold price forecast
Last week was characterized by significant volatility of the precious metal. And this is despite the fact that the troy ounce started and ended the week at 1233 dollars, the price fluctuated in a wide range. On Monday, the quotes reached a three-month high at 1243 dollars per ounce, then fell sharply to the level of 1212 dollars and recovered to the opening price by the end of Friday's session.
The main factor influencing the correctional decline in the exchange rate of gold quotes during the week was the positive dynamics of The American stock indices. For the first time in six weeks, the SP500 has seen growth in three consecutive sessions. The market played out positive corporate reporting, among which the first step is to highlight the performance of Coca-Cola and Apple. The sell-off in the stock market supported gold only on Tuesday, it was the shares of companies of the technology sector, the reporting of which caused fears of investors, because in their memory were still fresh events of trading on October 22-26, when companies in this sector became the reason for the colossal collapse of American indices and even gave analysts a reason to talk about a full-scale correction before the next crisis.
Donald Trump's statement that the U.S. is considering a trade deal to reduce tensions with China has had a negative impact on gold as a protective asset in the face of political instability. Taking into account the general state of the world economy, we can assume that the decline in the value of gold on certain days was corrective. The final trajectory of the metal in October was upward, gold rose by 1.6% after the permanent fall of the rate for the last six months.
On Thursday, the world Gold Council's report was released, according to which global demand for the precious metal increased by 0.6% in the third quarter. Total gold demand was 964.3 tons, showing an increase of 6.2 tons compared to the same period of 2017. The increase in demand was due to the recovery in consumer activity and increased purchases by some central banks. The data of the report also show that gold quotes have a long-term upward momentum.
As of Friday, the yield on ten-year U.S. Treasury bonds rose 7 basis points to 3.20%, which affected the rate of gold quotes downwards, but it failed to globally change the overall upward trend.
On Thursday, the market will focus on the statement of the Open Market Committee of the US Federal Reserve following the monetary policy meeting on Thursday. After the November meeting, the US interest rate will not be raised, but the statement will give a general understanding of the further course of monetary policy of the Fed.
It is very likely that the interest rate will be raised at the December meeting, to which gold will react negatively in the near future, as the increase in rates is the key to a strong dollar, which, in turn, demonstrates an inverse correlation with the precious metal. However, at present gold is no longer so vulnerable because of its increase, in contrast to stock markets, which are likely to react by recession, giving impetus to gold. Predicting this, investors will not rush to get rid of gold assets and will not reduce their interest in them.
In our forecast for the coming week, we assume that gold will maintain an upward momentum and will be able to test resistance levels of 1236, 1238, 1241, 1244 and 1248 dollars per troy ounce.
Forex. North American Oil Forecast (WTI)
Last week, oil prices were characterized by steady downward trend, fell sharply from $67.27 per barrel on Monday to $62.88 by the end of Friday trading and updated August lows.
First of all, the decline in oil quotations is due to the decrease in fears of oil traders of supply and demand parity for raw materials. Iranian oil futures, which were traded on Monday, calmed the market. With an offer of 1 million barrels, demand was 350,000 barrels. Already on the first day we managed to sell 28% of raw materials. Since, through exchange sales, end-buyers will be able to purchase oil through intermediary brokers rather than directly from the National Iranian Oil Company, this could be a mechanism to circumvent U.S. sanctions against Iran that will take effect. November 5. The U.S. State Department has said it will not impose sanctions on individual states that continue to purchase oil from Iran after the sanctions take effect if they at least reduce Iranian energy imports. This was another reason for reducing fears of a shortage of raw materials.
According to the report of the American Petroleum Institute on commercial oil reserves in the United States, in the past week they showed an increase of 5.69 million barrels. At the same time, oil reserves at the Cushing terminal, which is a barometer of u.S. crude oil supplies, fell by 14.4 million barrels. These statistics were played back by the market with a temporary correction of oil prices upwards.
On Wednesday, data released of U.S. crude oil inventories and oil inventories in Cushing according to Energy Department statistics. According to the report, oil reserves increased by 3.22 million barrels in the past week, with expectations of an increase of 4.11 million barrels. However, traders did not react to this news by buying up raw materials against the background of data of oil production growth in the world. Bloomberg published statistics showing that the level of raw material production by OPEC states increased at the end of October to a record value since November 2016 and amounted to 33.33 million barrels per day. According to the Same Ministry of Energy, the United States began to produce 300,000 barrels per day more, thus increasing the total to 11.2 million barrels per day. In turn, stocks in Cushing showed an increase of 1.9 million barrels.
According to Baker Hughes, which became known on Friday, the number of active drilling rigs for oil production in the previous week in the U.S. decreased by one unit, and now their number is 874. In the previous three weeks there was an increase in installations, so such a minimal decline in oil production will not have a significant impact on the upcoming trades.
Next week, oil quotes may be affected by the publication of data on weekly crude oil reserves according to the American Petroleum Institute and data on crude oil reserves in the United States according to statistics of the Department of Energy. In addition, on Friday will release from Baker Hughes about the number of operating drilling rigs in the United States. Information from the API and the Ministry of Energy is likely to contribute to lower prices due to the expected increase in inventories.
We expect further declines in oil prices in the coming week to support levels of 62.80, 62.65, 62.40, 62.10 and 61.80 dollars per barrel.
Forex. Cryptocurrency forecast
Cryptocurrency market began last trading week with a sharp collapse, however, by Friday the assets managed to recover and show growth in the moderate range.
Bitcoin started the move with $6,500 and was trading at an average of $6,400 by the end of the week.
Ethereum almost completely duplicated the dynamics of the benchmark currency: fell from 205 to 196 dollars on the first day of trading and recovered to 199 dollars by Friday.
XRP fell from 0.4630 to 0.4420, and later showed a reversal to 0.4593.
The reason for such a sharp pullback of the market at the beginning of the week analysts consider the financial report of the Japanese exchange Coincheck, according to which there was a drop in the company's revenue. Traders also reacted to Sunday's hacking attacks on Canada's MapleChange exchange, a small episode that reflects a deep security vulnerability problem.
The growth of cryptocurrencies was facilitated by the news that the capitalization of the American exchange Coinbase exceeded 8 billion dollars thanks to a successful round of financing, which attracted 300 million dollars. This news was played in a positive way, as attracting such serious investments speaks about the confidence of large investors in the industry as a whole.
A positive news context for Ethereum was the announcement of the upcoming transition of the network to a new stage called Serenity. The innovations are expected to increase the speed and security of the system and increase the number of transactions per second.
The general upward trend in the cryptocurrency market at the moment is quite vividly illustrated by Commitments of Traders provided by the Commodity Futures Trading Commission. Large market participants reduced the net position for the sale of contracts for Bitcoin, and small ones, on the contrary, reduced the net position for the purchase of Bitcoin-contracts. Institutional investors are gradually reducing their net position on the decline of Bitcoin, increasing its purchase by 6%. If the trend is sustainable, then it can affect the growth of Bitcoin, which can set the trend to the entire market of virtual currencies. Smaller traders last week mainly reduced purchases, the overall decline was 17%. Expectations of a depreciation among such market participants tend to have little impact on it, as they own small amounts of assets.
For the coming week, we consider the scenario of growth of the cryptocurrency market to be likely against the background of positive expectations of large traders. Bitcoin will move to resistance levels of 6460, 6500, 6550, 6590 and 6630 dollars.
For Ethereum, the likely resistance levels will be 201, 203, 206, $210 and $215.
XRP will attempt to test resistance levels at 0.4620, 0.4658, 0.4680, 0.4700 and $0.4750.