Russell Shor

NFP Live Trade - 04 November 2022

Tech earnings have disappointed over the Q3 earnings seasons, and with the prospect of higher rates, the present value of the NAS100 will likely come under further pressure. As a result, the NAS100 has fallen back into its bearish area between the lower blue and red bands. The longer it stays in this channel, the greater the probability of lower index prices ahead.

A policy rate above neutral is, in effect, a contractionary monetary policy. Given that the Fed may only have just hit neutral, the Fed's hawkishness is understandable. Chair Powell admitted as such, saying that "the level of interest rates will...be higher than previously expected."

There is optimism that China will reopen from their strict Covid policy. Given that it is the 2nd largest energy consumer, this will be significant. An unverified note on social media suggested that a "Reopening Committee" had been formed. With the OPEC+ cuts, this may catalyse further price appreciation and a higher peak.

The ISM manufacturing number came in at 50.2, higher than the 50 that was forecast. As a result, the real rate gapped up on the print (red arrow), and FXCM's USDOLLAR basket followed upwards (green arrow).

Forex markets this week will likely take their directionby the Fed announcement on Wednesday, 2 November. However, given the PCE data on Friday, and the resilience of median inflation, a Fed pivot has long odds, in our opinion. The central bank will deliver 75bps for this meeting, but it is unclear if it will provide 50bps or 75bps in December (48% vs 47% probabilities). FXCM's USDOLLAR basket gapped up on…

The market will listen to the statement's tone and Fed Chair Powell's press conference. How it is perceived will be market-moving. The real rate looks to be setting up for a trough (green arrow). If so, bitcoin may be charting a peak. I.e. if the tone is hawkish and the real rate moves up, bitcoin is likely to come under pressure.

The Fed's preferred indicator of inflation, the core PCE printed at 5.1% YoY, higher than the previous release of 4.9% YoY. This increase is because everyday items such as food and medical care cost more. Next week the Fed is expected to increase interest rates by another 75bps.

The BoJ kept its short-term target at -0.1% and its 10Y at 0%. This dovishness was a unanimous decision, with the bank reiterating that it would take additional easing measures if needed. In addition, it raised its expectation of core inflation to 2.9% for 2022, dropping to 1.6% in the next two years.

The EURUSD daily is positioned favourably in its upper channel, between the blue and red bands. Moreover, the red Bollinger bands are diverging (green ellipses). This expansion suggests that volatility is increasing. It will be regarded as bullish if this is true and the EURUSD maintains its current channel

The Bank of Canada surprised the market with a softer interest rate hike of 50bps vs the 75bps expected. The statement states that "the effects of recent policy rate increases by the Bank are becoming evident in interest-sensitive areas of the economy: housing activity has retreated sharply, and spending by households and businesses is softening.