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The dollar is strengthening, the euro is falling: all attention is on the US labor market

The DXY dollar index soared to a 3-week high of 102.05, bringing the EUR/USD pair to strong support at 1.10. The dollar's recovery is driven by strong data on the US economy and labor market, as well as expectations of a slowdown in the Fed's rate cuts.

On Thursday, the dollar index reached a six-week high, supported by indicators of the service sector and a positive picture on the labor market. The probability of a Fed rate cut by 50 bps in November fell to 32%, which led to a 1.5% strengthening of the dollar over the week.

At the same time, the euro is losing 1.2% amid the likelihood of an ECB rate cut this month to 90%. The slowdown in inflation and the deterioration of the economic situation in the eurozone may force the regulator to soften the PREP.

On Friday, all attention will be focused on the Non-farm payrolls report on the US labor market. The number of employees is expected to increase by 150 thousand. High indicators can strengthen the growth of the dollar.

Against the background of geopolitical tensions in the Middle East, the USD/JPY pair is also strengthening, reaching 147.0. The Japanese authorities are not planning new currency interventions yet.

In the UK, the index of business activity in the service sector slowed down, but remained steady. The GBP/USD pair is trading around 1.315.
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Investor concerns are slowing down the growth of the Brazilian economy

The easing of the monetary policy of the US Federal Reserve and China's intention to stimulate its economy create favorable conditions for Brazil.

Despite this, Moody's, which upgraded Brazil's rating to the highest junk level, could not convince investors. The Brazilian real and the country's stock market are showing weak results.

Experts note that rating agencies are focused on past events, and markets are looking to the future. Since the beginning of 2024, the Brazilian real has lost about 11% of its value, and the benchmark Bovespa Brazilian stock index has declined by 1.9%.

Despite the positive external factors, the Brazilian real continues to fall. Investors fear that the Brazilian economy is overheated, which could lead to a tightening of monetary policy. Last month, the Brazilian Central Bank raised the rate by 0.25% to 10.75% per annum, which also does not inspire optimism.
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Oil returned to below $80 after a sharp rise

On Tuesday, oil declined from the area of local highs, as investors began to take profits after a significant increase the day before.

Yesterday, Brent reached new highs since the end of August, breaking the $81 per barrel mark. The current quote of the asset is $79.20 per barrel. North American WTI crude is trading near $75.40 after yesterday's rise to $77.70 per barrel.

Last week, oil strengthened amid geopolitical tensions in the Middle East, where traders fear possible Israeli attacks on Iran's oil facilities. An additional risk arose in the Gulf of Mexico, where Chevron temporarily stopped work on its Blind Faith oil and gas platform due to the hurricane.

The API report on oil and petroleum products reserves in the United States is expected to be released today, preceding the official data of the Ministry of Energy. However, traders are now primarily focused on geopolitics, which has a greater impact on market sentiment.
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British economy: growth after two months of stagnation

According to operational data from the Office for National Statistics, published on Friday, the British economy grew by 0.2% in August compared with the previous month.

After stagnating in June and July, following modest but steady growth at the beginning of the year, the UK emerged from a mild recession earlier this year.

The release of economic growth data coincided with the upcoming autumn budget, which Treasury Secretary Rachel Reeves will present at the end of the month. The budget, expected by many, will include tax increases and spending cuts aimed at eliminating the estimated deficit in public finances, estimated at 22 billion pounds ($29 billion). However, the Conservative Party, which ruled the country before the snap elections, denies there is a deficit.

Reeves also did not rule out the possibility of revising the rules on the country's debt obligations in order to attract more investment.

The government claims that these measures are part of its «national renewal» program aimed at restoring optimism in society after warnings about the state of the economy.
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Bank of America: inflation will remain moderate in September

Bank of America forecasts moderate growth in both the core and core consumer price index in September, indicating stable core inflation without alarming signals.

The bank expects a monthly increase of 0.1% for the main index and 0.3% for the base index. Lower energy prices will soften the growth of the main indicator, while higher rents and used car prices will support the growth of the base indicator.

On an annual basis, Bank of America forecasts a decrease in core inflation to 2.3%, while the core CPI will remain at 3.2%. BofA analysts, based on data on inflation forecasts by component, expect core inflation at 0.18% on a monthly basis.

Despite the fact that inflation continues to move in the right direction, the upcoming report is likely to have no significant impact on the central bank's rate. The findings confirm the possibility of further rate cuts, but do not give grounds for concern about the current inflation rate.

If the report shows an acceleration in the pace of price growth in September, this could be a positive for the dollar, which has been strengthening for eight consecutive sessions at Wednesday's auction.
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Bitcoin at $70,000: market expectations against the background of elections

On Monday, the price of bitcoin reached a three-month high, exceeding $69,500. This growth is associated with increased speculation about the likely victory of Donald Trump in the upcoming elections.

Recent polls and forecast markets show an increase in Trump's chances of winning, which causes increased interest in bitcoin. Trump has repeatedly expressed support for cryptocurrencies, promising to build «the future of bitcoin in America,» even accepting donations in cryptocurrencies during his campaign.

If he wins, traders expect more loyal regulation of cryptocurrencies in the United States, which can be a powerful incentive for the growth of the bitcoin exchange rate.

Experts also note that breaking the $70,000 mark will be a key bullish signal for bitcoin.

At the same time, there are only two weeks left before the vote, which creates instability in the markets. Investors in search of «safe havens» prefer gold and the dollar, which reached a record high on Monday. Despite this, the latest capital movement data shows that institutional investors resumed buying cryptocurrencies last week.
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The euro is weakening, the dollar is rising amid the upcoming elections in the United States

The dollar index continues to grow, reaching two-month highs and approaching 104.0.

This growth is due to investors' expectations that the US Federal Reserve will maintain a cautious position on lowering interest rates. Recent economic data show the stability of the American economy, and inflation is decreasing smoothly.

At the same time, the euro continues to weaken after the recent decision of the European Central Bank to cut key interest rates. The situation is aggravated by weak inflation data in Germany, indicating a slowdown in economic growth in the eurozone. The Chinese yuan also weakened against the dollar, returning to 1.5-month highs at 7,125.

Against the background of the upcoming US elections, investors predict a different dollar exchange rate depending on the results of the US elections. Historically, the Republican presidency is associated first with a strong and then a weakening dollar, while Democratic presidents, on the contrary, usually start with a weak dollar, which then strengthens.

In the near future, attention will be focused on the publication of preliminary business activity indices (PMI) for the eurozone, which will provide updated information on economic indicators in October.
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Investors are leaving thematic ETFs en masse: AI, video games and other topics are losing popularity

There is a change of favorites in the global investment market. Investors are increasingly moving from exchange-traded funds (ETFs) specializing in certain topics to traditional ETFs linked to stock indexes.

Analyst data indicate that the outflow of funds from thematic ETFs has continued for the third year in a row. This year, $5.8 billion has been withdrawn so far, which already exceeds the outflow for the whole of 2023 ($4.8 billion).

The growth of stock indexes, which are near record highs, is one of the reasons for this phenomenon. The five largest ETFs tracking the S&P 500 and Nasdaq 100 indices have received inflows of $170 billion this year.

Experts believe that investors may prefer the stability and broad diversification offered by index ETFs. They also point out that thematic investing itself involves risks. Choosing the right topic, the stocks that will benefit most from this topic, and accurately determining the time of purchase of the fund — all this requires high qualifications and experience.

This trend may indicate that investors are becoming more conservative in their investments. But it's worth noting that thematic ETFs can return to favor if certain topics, such as AI or the metaverse, show strong growth.
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Oil ends the week with growth amid geopolitical uncertainty

The oil market ended the week with growth, recovering some of the losses on Monday and Tuesday. Brent crude futures rose 0.77% to $75.15 per barrel, while U.S. WTI rose 0.85% to $70.79, despite continued uncertainty in the Middle East.

Traders are closely monitoring the development of the situation in the Gaza Strip, where ceasefire negotiations are expected to resume. Tensions in the Middle East caused by Iran's missile attacks and the expected Israeli reaction are putting pressure on oil prices. Some analysts predict that possible strikes on Iran's oil infrastructure could lead to higher prices.

At the same time, expectations regarding China's stimulus policy have a restraining effect on the market. Despite hopes for an increase in oil demand, experts do not expect that Chinese measures will have a significant impact on prices.

Goldman Sachs confirmed its forecast for oil prices at $70-85 per barrel for Brent in 2025, citing that the impact of Chinese incentives will be modest compared to other factors such as the supply of oil from the Middle East.
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Oil has fallen in price after Israeli strikes on Iran

On Monday, oil prices fell by more than 5% after Israel's retaliatory actions against Iran did not affect key oil and nuclear facilities. Trading on the oil market began with a sharp decline, and Brent futures fell 5.5% to $71.05 per barrel. WTI contracts also fell by almost 5.8%, trading around $67.20.

Last week, oil prices showed significant volatility, increasing by 4%. The growth was driven by expectations of a wide range of Israeli responses to the Iranian missile attack on October 1.

On Saturday, the Israeli Air Force launched three waves of strikes against military installations near Tehran and in western Iran. However, the absence of strikes on oil and nuclear facilities has led to a decrease in geopolitical tensions and, as a result, to a decrease in the «risk premium» embedded in oil prices.

Analysts note that the market will now focus on negotiations on a cease-fire between Israel and the Hamas group. Some financial institutions, such as Citi, are already revising their oil price forecasts, lowering target levels due to reduced geopolitical risk.
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The United States will limit investments in Chinese technology

In an effort to protect its technological interests and contain China's military potential, President Biden's administration took a decisive step. On October 28, the U.S. Treasury Department unveiled new rules that significantly limit investments and technical assistance from American companies in the development of key sectors of the Chinese economy.

The focus turned to technologies that are important for future military, cybersecurity and intelligence operations: semiconductors and microelectronics, quantum computing and artificial intelligence.

The introduction of these rules, which take effect on January 2, is part of a broader U.S. strategy to limit China's access to technologies that can be used to pose a threat to national security.

The Biden administration stresses that the purpose of these measures is to prevent China from receiving «intangible benefits» from US financial support, including improving its reputation, market access and attracting highly qualified personnel.
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Gold hits historical high: $2,800 per ounce

The price of gold has reached an unprecedented level — for the first time in history it exceeded $2,800 per ounce. The current price of the precious metal is $2794.

Such a rapid price increase exceeding 30% this year is attributed to several factors. First, central banks are actively buying gold, making it more in demand on the market. Secondly, during the period of geopolitical instability caused by conflicts in the Middle East and Ukraine, investors are increasingly turning to gold as a «safe haven.»

Also, the uncertainty caused by the upcoming presidential elections in the United States supports interest in gold as a reserve asset. Analysts are recording a strengthening market position, expecting not only a reduction in Fed rates, but also broader market and geopolitical uncertainty.

Global demand for gold reached a record high in the third quarter, exceeding $100 billion. According to the World Gold Council, sales volumes increased to 1,313 tons, due to active investment flows, including from wealthy individuals from Western countries.
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The European economy grew in the third quarter

In the third quarter, the eurozone economy showed unexpectedly strong growth, reaching 0.4%. France and Spain became the key drivers of this growth, and Germany, which was previously under threat of recession, increased GDP by 0.2%. In Italy, the production level remained at the level of the previous quarter.

Inflation in Spain accelerated slightly to 1.8%, remaining within the ECB's target range of 2%. Consumer prices in Germany rose by 2.4% y/y in October.

Germany still faces challenges such as loss of competitiveness due to high energy costs and a shortage of qualified personnel. Nevertheless, growth in the third quarter was supported by consumer and government spending.

The growth of the French economy is associated with the Olympic Games, as well as with increased government spending, despite the difficult financial situation. Although the increase in French GDP has brought some relief to the government, weak investment figures and a slowdown in consumer spending continue to negatively affect the budget.

Austria also showed growth of 0.3%, while Portugal and Lithuania have seen an acceleration in GDP growth.
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Oil soared amid Iran's threats

Tensions in the Middle East have brought the market's attention back to the escalation of hostilities, which has led to a sharp rise in oil prices. Reports of a possible Iranian attack on Israel from Iraq in the coming days forced investors to pay attention to geopolitical risks.

On Friday, Brent and WTI recorded significant growth, exceeding $74.80 and $70.2, respectively. At the beginning of the week, prices fell after a limited Israeli attack in response to rocket fire from Iran, but experts warned that the market «relaxed too quickly.»

Despite some encouraging signals, including the American proposal for a cease-fire in Lebanon and Israel's stated willingness to respond decisively, market participants continue to anxiously observe the growing tensions in the region.

The oil market will be under the close attention of investors in the near future, as a number of key events may significantly affect prices. Next week, the United States will hold presidential elections and a meeting of the highest legislative body in China. Also, the decision of OPEC+ to gradually resume production from December will have significant weight for the price trend.
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German industry is looking for salvation abroad

A study conducted in September 2024 among the top managers of 115 industrial companies in Germany revealed alarming trends.

Almost half of the respondents (45%) plan to expand abroad. And only a few companies (13%) are interested in new branches within the country. Moreover, 29% of enterprises reported readiness to transfer jobs from Germany, and only a tiny part (4%) is considering the reverse process of returning immigrated employees.

The results of the study confirm the fears of managers that more than two thirds of the survey participants are confident that the number of jobs in Germany will decrease in the coming years. Only about half expect the situation to improve in five years, while the rest are skeptical about the prospects for the development of the German economy.

Experts point to a number of reasons underlying the current trend. The majority of respondents consider excessive bureaucracy to be the main obstacle to economic recovery. «Wrong policy decisions,» according to almost half of the respondents, also play a significant role in slowing growth. «Insufficient management efficiency» is considered a problem by every fourth participant in the survey.
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Bitcoin has broken the historical maximum of $81000

The bitcoin exchange rate exceeded $81,000 for the first time after Donald Trump's victory in the US presidential election. Traders expect a relaxation of cryptocurrency regulation by Trump, who has previously expressed his support for them.

On Monday, bitcoin rose 2.8% to $81,241. Over the past week, the growth was 14%, over 25% in a month, and over 100% in a year.

Republicans, in addition to Trump's victory, are approaching full control of Congress. This will allow the new administration to implement policies that will support cryptocurrencies.

Experts suggest that the new administration will bring positive changes, in particular, in the work of the Securities and Exchange Commission. These changes will lead to a softer regulatory stance on digital assets.

They also note that the increased demand for bitcoin is due to a combination of favorable factors: reduced regulatory risks, improved financial conditions and optimistic macroeconomic prospects for the United States.
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Why the US Dollar Will Continue to Strengthen

Yesterday, the euro and pound quickly lost ground against the US dollar after Federal Reserve Chair Jerome Powell confirmed traders' concerns by stating that recent data provides the central bank with room to lower interest rates cautiously.

"The economy is not signaling any need for us to rush into rate cuts," Powell said on Thursday in Dallas. "The current state of the economy allows us to approach our decisions cautiously."

The Fed began lowering borrowing costs in September with an aggressive half-point cut, followed by a quarter-point reduction last week. The Fed indicated readiness to continue lowering rates if inflation remains subdued. However, Powell's remarks align with several colleagues who advocate for a more gradual approach to future rate cuts.

Powell's comments have tempered market expectations for a December rate cut. Policy-sensitive two-year Treasury yields rose by eight basis points to 4.36%, while swap traders reduced the odds of a December rate cut to less than 55%, down from about 88% the day before.

Powell also addressed recent data, noting that inflation remains on a bumpy path: "The economy shows no urgency for rate cuts, as inflation demonstrates some signs of picking up," Powell stated on Thursday. He added that uncertainty about the neutral rate—where policy neither stimulates nor restrains growth—warrants caution. This week, several Fed officials highlighted the importance of defining the new neutral rate as a key factor in shaping future policy.

"We should be cautious in this environment," Powell said. "As the central bank approaches the plausible range of neutral levels, it may be the case that we slow the pace of what we're doing."

As I noted above, recent data showed that headline inflation in October remained unchanged, while the core Consumer Price Index (CPI), excluding food and energy costs, rose 0.3% for the third consecutive month. "Inflation is approaching our long-term 2% target, but it hasn't reached it yet," Powell said. "We are committed to finishing the job. With labor-market conditions in rough balance and inflation expectations well anchored. I expect inflation to continue its descent toward 2%, albeit on a bumpy trajectory."

Powell refrained from commenting on the likelihood of a December cut.

Monetary policy could face new headwinds following President-elect Donald Trump's potential tax cuts, immigration restrictions, and tariffs. Political uncertainty may further reinforce the Fed's cautious stance on rate cuts.

The US dollar has gained significant strength over the past two weeks and now dominates the forex market.

As for the current technical picture of EUR/USD, buyers need to reclaim the 1.0580 level to target a test of 1.0615. A move beyond this level could lead to 1.0655, although such progress will require support from major market players. The most distant target is 1.0690. If the trading instrument declines in 1.0540, I expect major buyers to take action; failing that, it would be good to wait for the 1.0495 low to be updated or to open long positions from 1.0460.

As for the current technical picture of GBP/USD, pound buyers need to break through the nearest resistance at 1.2680 to aim for 1.2725, above which breaking through will be quite problematic. The furthest target will be 1.2760, followed by a potential sharp rally to 1.2796. Bears will aim to regain control of the 1.2630 area if the pair declines. A breakdown here would deal a significant blow to bullish positions, pushing GBP/USD toward 1.2585, with a further target at 1.2550.
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Electricity prices in Germany have soared to record levels

In Germany, electricity prices have peaked in the last 12 months. The driver of growth was the upcoming cold snap and a decrease in the production of renewable energy sources.

Futures for next month in Europe's largest economy rose 4.4%, reaching their highest value since October last year.

Despite a relatively mild autumn, a colder winter is expected in most of the continent, which will lead to increased demand for electricity and natural gas. Weather forecasts point to lower temperatures in the coming days, especially in Berlin, where temperatures are expected to drop to 1°C.

A decrease in the projected wind energy production in Germany for most of this week also has a negative impact on the market.

The cold weather also encourages utilities to consume more natural gas from storage facilities, which contributes to higher fuel prices. Uncertainty about supplies from Russia adds even more risks to the market.

As a result, the price of electricity in Germany for the next month increased to €108 per MWh, and in France – to €101.5.
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ECB: AI bubble threatens financial stability

The European Central Bank (ECB) has expressed alarm about a possible bubble in the stock market related to artificial intelligence (AI).

In its semi-annual financial stability review, the ECB noted that the stock market, especially in the United States, is increasingly dependent on several companies considered leaders in the field of AI. This concentration raises concerns about the possibility of an AI asset bubble. Investors demand a low premium for owning stocks and bonds, and funds have reduced their cash reserves, which can cause a shortage of cash and forced asset sales.

The central bank warned that if investors' expectations for the revenues of these companies are not met, then a sudden drop in asset prices may occur, which threatens adverse global consequences.

The ECB expressed concern about the low liquidity of assets and the reduction of funds' cash reserves, which could lead to forced asset sales and a decrease in their value. Among other risks, the ECB noted the vulnerability of the eurozone to trade fragmentation and possible negative consequences from the introduction of tariffs, as well as an increase in borrowing by eurozone countries at higher interest rates.
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