Turbulent weather, October seasons – Forex action
The US dollar lost ground on the last trading day in September, but the theme remained volatility with sharp intraday swings increasingly frequent.
The 9-week temporary funding bill to prevent a government shutdown was passed yesterday, but the threat of a U.S. default still hangs as no agreement has been reached on the suspension of the limit of the federal debt. Ashraf shared a crucial FX chart for WhatsApp broadcast groups in Arabic and English with 4-cycle accuracy, suggesting a key inflection point ahead. We take a look at the seasonal trends for October. The EURUSD short was stopped, while the GBPJPY short and the long EURGBP added to the profit.
Wednesday’s trading was marked by another sharp rise in energy prices and another painful drop in stocks. The dollar’s strength at the start of the week reversed to some extent and gold rebounded strongly.
Strong fundamentals news was light, except for an increase in initial jobless claims to 362K from the expected 333K. This is the second week in a row of rising numbers, although it has been largely overlooked by the market.
Washington is increasingly the subject of special attention, but there has been no real progress on measures to resolve the debt ceiling, adopt the bipartite infrastructure agreement or move forward. hear about how to use reconciliation. Time is running out, however, and we may see votes fail before anything happens. This could represent a TARP-type buying opportunity, especially on the debt ceiling.
Energy prices in Europe and Asia continued to soar, while electricity prices in southern Europe reached crippling levels. A news report said that a senior Chinese official had given the order to guarantee supplies “at all costs” and that the title gave new impetus to energy, as well as commodity currencies.
The bad news for China and anyone else on the bad side of trade is that October is a particularly strong season for gas. It has increased in 15 of the last 20 years for an average gain of 6.65%. The first weather forecasts are temperate, however, which could help.
Gold is another market at extremes that could also face seasonal pressures. October is the second worst month for Buillon. A further drop here could create a fantastic buying opportunity ahead of the seasonal strength pattern from late November to February.
Oil is one place in the energy market that could benefit from help from seasonal workers. October and November are the two worst months for crude and on Thursday there was a report that OPEC may consider new ways to increase supply at next week’s meeting.
Other trends include moderate US dollar strength, CAD weakness, rising yields, and average stock performance through to traditional strength in November-December.
The dollar auction this week has been relentless and is now fueled by technical factors and potential squeeze. Cable broke through the July-September triple bottom and plunged to year-round lows, with little support nearby.
The euro is very close to last November’s lows and a break below would be a 15-month low. USD / JPY rose for the sixth best day since February 2020 in what looks like a major wake-up call from a long sleep in the pair.
These are all major moves and represent a possible change in the dollar’s trend. Of course, we are in the middle of the end of the quarter so the signals can be confusing.
The best explanation for the dollar rally is also the simplest: the Fed’s tapering. While this has been well known for some time and there was no immediate reaction, it certainly matches the latest price action.
Further down the rabbit hole is the picture of inflation. Powell said on Wednesday that supply chain bottlenecks were getting worse. This is going to put upward pressure on prices and – as we pointed out earlier this week – there is a change underway in the central bank messaging to acknowledge it. The next step would be a more hawkish message. We may see that in the price.
Another possibility is the American political drama around the debt ceiling, infrastructure and reconciliation. We have no doubt that the United States will pay its debts, but this drama has the gift of scaring the players in the market and we cannot exclude the turbulence. As we often repeat, political agreements are always the most tense at the end.
Beyond that, there is the signal from the energy and commodity markets. There was no easing in European gas prices with a 10% rise on Wednesday to a new closing record.
Finally, there is always the looming threat of a Chinese slowdown and Evergrande. Bond payments continue to be missed and we are awaiting signs that authorities will take action to stimulate growth – something Blackrock predicted in a note on Tuesday.