Table of Contents
Last Week Summary
Israel and Palestinian war
The war between Israel and Palestine took the headlines last week, the Israeli military has announced that it will be mobilizing 300,000 reservists in response to the recent attack by Hamas militants. This is an unprecedented move and a comprehensive blockade has also been implemented in the Gaza Strip. This suggests the possibility of a ground assault by Israel.
The ongoing conflict has resulted in significant casualties with at least 1,900 Palestinians killed and 7,696 wounded in Israeli airstrikes on Gaza. Israel has also reported 1,300 fatalities and 3,400 injuries.
Israel aims to disrupt Hamas’s international financial network, particularly its cash-to-crypto operations, to cut off support from charitable organizations and sympathetic nations.
As major U.S. corporations began reporting quarterly earnings, some company executives addressed the Israel-Hamas conflict, and a few businesses initiated fundraising initiatives.
Bank earnings kick-off
The bank earnings season has kicked off with JPMorgan and Wells Fargo being the first to report. There are concerns about how the surging interest rates and increase in non-performing loans could impact their earnings. American banks are wrapping up another quarter, marked by the resurgence of interest rates, which has raised worries about reduced profit margins and a rise in loan defaults. However, some analysts see a potential positive aspect amidst the challenges faced by the industry. Just like what happened during the regional banking crisis in March, the expected effect of higher interest rates is likely to result in greater losses on banks’ bond holdings, adding to funding difficulties as institutions are required to offer higher rates for deposits.
New data released by the Bureau of Labor Statistics on Thursday shows that inflation remained high in September due to high gas and rent prices, which put additional strain on consumers. However, the most recent Consumer Price Index (CPI) indicates that certain inflation measures are at their lowest levels in over two years. For the 12 months ending in September, the Consumer Price Index increased by 3.7%, maintaining its pace from August’s annual increase and slightly surpassing economists’ expectations of a 3.6% rise. Every month, prices rose by 0.4%, which exceeded Refinitiv’s forecasts of a 0.3% increase. The CPI report released on Thursday also revealed positive developments in areas crucial to American households and the Federal Reserve, while the annual headline inflation rate remained stable.
This week outlook
We have economic data released this week. Traders should note the calendar below in +2 GMT.
The euro ended the week on a downward trend as the US dollar gained strength from the increasing geopolitical tensions in the Middle East. This made the dollar more attractive as a safe haven. If this trend continues, the euro-dollar pair, which typically moves in a pro-cyclical manner, is likely to continue its decline.
The recent US Consumer Price Index (CPI) and the Michigan consumer sentiment report have both indicated that inflationary pressures are still present, which has boosted the US dollar. Although an interest rate hike in November is unlikely, there could be downstream effects, particularly if crude oil prices continue to rise.
Looking ahead to the coming week, there are only a few significant data releases, including the US retail sales report and euro area core inflation figures. Retail sales are expected to be lower, which might lead to a more dovish reassessment of the Federal Reserve’s interest rate projections. Anticipated lower euro core inflation, combined with European Central Bank officials being cautious about premature accommodation withdrawal, may have a negative impact on the euro. To conclude the week, Federal Reserve Chair Jerome Powell will speak and may provide insights into the Fed’s stance following recent economic data.
China’s softening inflation has raised concerns about its growth, although it has been somewhat overlooked recently. The euro has a strong relationship with China’s economic performance. Despite the Chinese government’s efforts to stimulate the economy, weak data persists, which doesn’t bode well for euro bulls.
The EURUSD has been in an enclosed channel movement since mid-July. The pattern has been reliable and so far there has not been a break out of the channel. Last week this pair closed at the previous support level of 1.04976; which confirmed this pair is still under bearish pressure.
It will be a challenging task to determine a clear directional preference in the market due to its susceptibility to the developments in the Israel-Palestine conflict. Any escalation or de-escalation of this conflict could cause significant movements in the currency pair. As a result, traders are advised to exercise caution during this period and use effective risk management strategies.
Breaking through the 150.00-152.00 range may be challenging for USD/JPY as it currently resides within the intervention zone. This is particularly relevant given some indications from certain Fed officials that interest rates may have peaked. This pair has also been enclosed in an upward channel since the third quarter of 2023. The key area to watch will be the 151.953
The market is currently taking a neutral stance with a possibility of further consolidation in trading for this week. However, if the price falls below the minor support level at 147.2420, it is likely that the market will shift towards a downside bias, potentially leading to another downward move towards 144.570. Conversely, if there is a strong breakthrough above the level of 150.15, then it would signal a continuation of the broader upward trend, with the potential to test the 152.00 mark.
The EURJPY has broken out of its upward channel trend line, unlike the USDJPY. However, it is currently trading within a range between 158.000 and 156.850. To get a clear indication of the market’s expectations, the pair needs to break out of this range.
In my opinion, the pair is likely to break below the 156.850 level and retest it before continuing to sell off. However, the bears might find it difficult to break through this level, as the pair has been moving in a range since the beginning of the month. Therefore, a break of this range and a retest could either signal a continuation of the upward trend or a downward spiral, with sellers entering the market and pushing the pair down.
Like many other Japanese pairs, this particular pair has also been moving within a range since the last week of September. The previous week saw a rejection of 184.00, but the range support at 180.200 wasn’t broken. Therefore, it is expected that this week may start with the price testing the support level of 180.200. If this support level is broken, the price may decrease to 179.680 and further down to 179.550. If buyers are unable to take control, sellers are likely to push the price down to 176.400, as seen in July.
On Friday, this pair rejected the 95.825 resistance level after breaking out of the bullish momentum, which was rejected by sellers, this area was a retest of an upward bullish momentum; which severed but buyers deemed this too expensive.
It’s possible that resistance could remain at the previous peak and breakpoints around the 95.850 area. There’s also potential resistance in the 96.918 area.
On the downside, nearby support could be found near the 93.59 breakpoint, followed by a series of prior lows and breakpoints in the 93.800 support zone.
Further down, support may be found at the 94.070 breakpoint, which is at the 0.618 Fibonacci Retracement level. Beyond that, there is support at 93.064.
The Fibonacci and the range movements are the key indicators for this pair. A sell or buy should be opened just below the Fibonacci levels.
The S&P 500 managed to secure its second consecutive weekly gain, but it’s important to note that the index surrendered some of its gains towards the end of the week, resulting in a cautious overall performance on the upside. Despite this, the broader technical outlook still maintains an upward bias. Let’s take a closer look at the reasons behind this perspective.
Upon examining the 200-day moving average (200MA) and the support region around 4260.00, it becomes evident that the ongoing upward trend is likely to persist. This is despite Thursday’s price displaying a rejection at the 50-day moving average (50MA) and significant resistance at 4400. When applying a Fibonacci retracement, it’s noticeable that as of Friday, the price was positioned at the 0.382 retracement level of 4309. A further rejection could indicate a bearish move, potentially taking the price down to the 4200-4150 range. However, if there is a rejection in this zone, it would suggest a breakout above the 4400 level, with a potential move towards 4520.
Gold prices (XAU/USD) have surged to $1,929.20, marking a gain of over 3% in response to the escalating conflict between Israel and Palestine. Once again, gold has proven its status as a safe-haven asset during times of market uncertainty, serving as a reliable choice for investors amid wartime and economic instability.
The XAUUSD has attracted buyers as it climbed more than 3% in reaction to reports that Israel is transitioning from aerial to ground operations in the Gaza Strip, raising concerns that the conflict could potentially spread to other Middle Eastern regions. As a result, safe-haven assets are in demand as the weekend approaches, with the likelihood of gold reaching the $2,000 mark increasing if the Israel-Palestine conflict persists in the coming weeks.
The movement of this pair in the upcoming week will be influenced by several factors. The possibility of the United States brokering peace between Israel and Palestine appears unlikely. If such a peace agreement were to occur, gold prices would likely move into bearish territory. Conversely, any further escalation in the conflict could propel gold prices towards the $2,000 mark.
This safe-haven instrument is expected to be primarily influenced by fundamental factors rather than technical indicators in the week ahead. Therefore, it’s essential to closely monitor news and economic data.
From a technical perspective, the price of gold has broken above the $1,929.00 level and the 200-day moving average on the daily time frame. The only notable resistance standing in the way for buyers is the $1,953 area, where a significant obstacle is observed. However, the bullish close of the weekly candle suggests that even if the price of gold encounters resistance at $1,953, it is likely to find support at the $1,902 level before resuming its upward trajectory.
The weekly time frame showed an engulfing candle which signifies buyers taking over; therefore short/sellers should be aware; hence might be used as liquidity. No matter the movement, the price of gold is likely to be bullish as indicated by the 1 day time frame below.
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