The US Dollar Index is again rising as the US PCE Price Index increases to its highest since June 2023. However, economists still believe the Federal Reserve is unlikely to increase interest rates while bond yields aim for 5.000%. According to the CM Exchange, only 25% of participants believe the Fed will hike in December. There are no economists who believe there will be a hike in November. According to most economists, if the Unemployment Rate declines below 3.8% and the JOLTS Job Vacancies remain above 9 million, the chances of a rate hike will increase. However, the deciding factor will be if inflation increases above 3.7%. According to Bloomberg, even an increase to only 3.8% will be enough to push the Fed to a more hawkish tone.
If the possibility of another 25 basis point rate hike rises, the US Dollar Index is again likely to rise above 107.00. In addition to this, the stock market will decline due to pressure from high bond yields and another rate hike. The US stock market on Friday mainly witnessed a decline, with only the NASDAQ increasing in value. However, the week’s futures market opened on a bullish price gap and increased. In addition, European indices such as the DAX and Euro Stoxx 50 are witnessing significant gains. This is also a possible indication that the US stock market may experience a higher investor sentiment.
EUR/USD
The exchange rate is trading in both directions but has risen in value during the opening of the European Open. The exchange rate is now trading 0.9% higher than the day’s open but is still honoring its established price range from Friday. The US Dollar Index is trading slightly higher this morning, up 0.07%. However, the Euro is trading higher against all other currencies this morning.
However, technical analysts are pointing out that, at times, the price action is forming significant bearish waves. Therefore, the price range and downward price movement are still a possibility. The price of the exchange rate is trading above the regression channel, which is an indication of upward price movement, and the asset is forming a bullish crossover. However, the price is at the 140-bar EMA and is yet to cross above. This indicates that even though in the short term there is bullish momentum, bearish momentum can still return.
The data on the core price index of personal consumption expenditures is one of the key indicators for the Fed. The changes corresponded to expert forecasts: the figure increased from 0.1% to 0.3% month over month, but it decreased from 3.8% to 3.7% year-on-year. However, citizens’ incomes dropped from 0.4% to 0.3 %, and expenses increased from 0.4% to 0.7%, exceeding the predicted 0.5%. The index indicates that a pivot is impossible over the next 3-months, as some economists believe. However, for the announcement to point to a hike, investors would also need higher job vacancies, Non-Farm Employment Change and inflation.
For the Euro to hold onto gains, investors will be looking for higher-than-expected German inflation. If German inflation does not read higher, the European Central Bank will struggle to not pivot in the first half of 2024. So far, the German Gross Domestic Product has read slightly higher than expected, -0.1%, but still indicating economic contraction. Spanish inflation reads 3.5%, lower than expected.
NASDAQ
The NASDAQ has formed an ascending triangular pattern on a 2-hour chart and is trading slightly higher this morning. However, to obtain a clearer upward indication, the price will need to rise above $14,368. The price movement of the index will largely depend on this week’s employment data and earnings season. If employment data reads stronger than expected, the chances of a hike will rise and the stock market can decline.
The main quarterly earnings data this week will be from the following companies:
- Apple – the index’s most influential stock – Thursday after market close – Analysts expect higher earnings and revenue compared to the previous quarter.
- Qualcomm – the index’s 22nd most influential stock – Wednesday after market close – Analysts expect higher earnings and revenue than the previous quarter.
- AMD – the index’s 17th most influential stock – Tuesday after market close – Analysts expect higher earnings and revenue than the previous quarter.
- Amgen – the index’s 19th most influential stock – Tuesday after market close – Analysts expect higher earnings and revenue than the previous quarter.
If the above company releases earnings data which is higher than Wall Street’s current expectations, the NASDAQ has a higher possibility of forming an upward trend. However, this will only be possible if interest rate hikes remain unlikely.
