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The USD/JPY pair was storming the 151.00 mark (we wrote about this in our previous review), gold is falling in price, and the dollar continues to advance. When this article was written the DXY dollar index was near 113.34, remaining in the upper part of the range formed between the local support and resistance levels of 114.74 and 109.96. At the same time, the general upward dynamics of the dollar remains, pushing the DXY index towards more than 20-year highs near 120.00, 121.00. The breakdown of the local round resistance levels of 114.00, 115.00 will be a signal that the DXY index will return to growth.
On Thursday, the dollar received support from statistics on the labor market: in its weekly report, the US Department of Labor reported a decrease in the number of initial applications for unemployment benefits (for the week of October 14) to 214,000 thousand (from 226,000 a week earlier ), which is better than economists' expectations of an increase to 230,000. The state of the labor market (together with data on GDP and inflation) is a key indicator for the Federal Reserve in determining the parameters of its monetary policy. The drop in the indicator (the number of initial and secondary claims for unemployment benefits) and its low value is a sign of a recovery in the labor market and has a short-term positive impact on the USD.
There were no important macro statistics for the US on Friday. It will appear next week (for more details, see Key economic events of the week 10/24/2022 – 10/30/2022).
Also next week, meetings of the three largest world central banks will be held at once: Japan, Canada, the eurozone. As for the latter, its leaders are, in general, set up for another interest rate hike. As expected, at a meeting on Thursday, European Central Bank leaders will again raise the level of key interest rates, by 0.50% or even 0.75%. According to the final estimate, annual inflation in the eurozone in September amounted to 9.9% (below the first estimate of 10.0%). Core annual CPI rose by +4.8%, which is in line with the forecast and the previous 4.8%. According to Eurostat, annual inflation fell in six of the bloc's member states, remained stable in one and rose in twenty.
A recent media poll of economists showed that they expect the ECB to raise its deposit and refinancing rates by 75 bps (deposits to 1.50% and the refinancing rate to 2.00%) at the October 27 meeting to contain inflation exceeding the target level by five times.
By the end of the year, deposit and refinancing rates are forecast to be 2.00% and 2.50%, respectively. At the same time, the ECB is in a difficult situation as the eurozone economy is facing a recession, with the probability of its onset within a year, and the nature of the recession can be deep and long, given the military conflict in Ukraine and confusion in the European energy market. Despite information from the previous EU leaders' summit, which "managed to reach a common agreement on energy security" with the prospect of creating a cartel of European gas buyers that would deal with the purchase and subsequent distribution, the shortage of gas and oil in Europe will continue to drive inflation. Whether the ECB, which is moving so far with cautious steps, will be able to cope with it is a question that remains open.
As for the EUR/USD pair, at the time when this article was written on Friday morning, it was trading near the 0.9740 mark, in the area of a stable bear market. From a fundamental point of view, we should expect at least a strong bearish momentum in the EUR/USD pair, and at a high, a further fall of the pair towards 20-year lows, when it was trading near 0.8700, 0.8600. In general, the downward dynamics of EUR/USD remains.
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