Monday kicked off on a positive note as encouraging economic data and upbeat earnings fuelled the risk-on mood. In the currency space, the greenback entered November on a shaky note while gold derived strength from subdued Treasury yields.
Our trade of the week was none other than the dollar. We discussed the possibility of increased volatility due to the Federal Reserve meeting and highly anticipated US jobs report on Friday. At the start of the week, the equally traded USD Index was trapped within a range with support at 1.0730 and resistance at 1.0810. Prices concluded the week at 1.0864.
A sense of caution returned to markets on Tuesday ahead of key risk events this week. Earlier in the morning, the Reserve Bank of Australia (RBA) scrapped its ultra-low target for bond yields. Such a move was seen as a step to winding back the emergency measures to support the economy during the coronavirus pandemic.
Mid-week, it was all about the Federal Reserve rate decision. However, before the pivotal meeting, we covered JPY crosses in our technical outlook. There were a couple of breakout setups, especially on the EURJPY and GBPJPY.
After talking about talking about tapering for many months, the Fed has finally taken steps away from its emergency policy. On Wednesday evening, the US Fed announced it is winding down the massive stimulus programme it enforced during the Covid-19 pandemic. When in the spotlight, Fed Chair Jerome Powell made it clear that tapering is not tightening with the central bank in no rush to pull the trigger on higher rates.
In other news, OPEC+ maintained plans for a gradual return of output despite pressure from the United States to raise supply. Despite the sharp rebound in oil prices on Friday, it was a rough week for the commodity after industry data pointed to a larger than expected build in crude oil inventories last week. Oil could be experiencing early signs of a technical pullback that may drag prices lower before bulls re-enter the scene.
Closer to home, the Bank of England defied markets by keeping interest rates unchanged on Thursday. Despite a series of hawkish comments from Governor Andrew Bailey in the run-up to this meeting, he was among those opting to keep policy unchanged this month. Sterling tumbled like a house of cards following the decision with the GBPUSD tumbling as low as 1.3424 this week.
Across the Atlantic, the US economy created 531,000 jobs in October, beating the 450,000 expectations and higher than the 312,00 revised number for September. In regards to the unemployment rate, it fell to 4.6% from 4.8% – also beating market estimates. Average hourly earnings rose 0.4% on a month-over-month basis for a 4.9% annual gain.
While the jobs report certainly paints an encouraging picture of the job market, this needs to be consistent in order to force the Fed to become more focused on raising rates. The S&P500 rallied following the NFP report, closing at a record high for the sixth straight day.
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