US Dollar Correction Deepens As ‘Fed Pivot’ Speculation Builds

The US Dollar fell to its lowest level in over a month yesterday as speculation regarding a potential Fed pivot intensified. The Bank of Canada was seen hiking rates by just 50bps, citing concerns over the growing slowdown and the impact of its tightening program as reasons for refraining from a larger move. With both the BOC and RBA having recently opted for smaller-than-expected hikes, traders are wondering whether the Fed will take a similar stance either at the upcoming November meeting or in December, fuelling the
current USD unwind.

Key Factors for Today

- USD falls further as focus shifts elsewhere – Fed pivot talk grows further
- Equities rally amidst USD weakness and falling bond yields
- BOC hikes by less than expected – ECB up today
- Meta misses earnings forecasts – Apple next
- Oil and metals higher on softer USD

Coming Up

- EUR ECB October Rates meeting
- USD US Durable goods
- USD US unemployment claims

Equities Continue Higher as USD Correction Continues

Equities were well supported again yesterday. A weaker US Dollar along with a smaller-than-forecast rate hike from the BOC helped lift markets as bond yields softened further. However, today’s ECB meeting holds the potential to undo the bullishness we’ve seen (particularly in Europe), if the ECB is seen pushing ahead with the projected 75bps of tightening and hawkish guidance for the coming months. For now, indices are sitting at their highest levels in well over a month though US stocks were seen softening a little into the close yesterday following some key earnings misses.

Meta Misses Forecasts – Apple Next

Meta earnings undershot forecasts yesterday, raising concerns for the broader tech sector on the back of similar misses from big names such as Google and Microsoft. Meta reported Q3 EPS of $1.64, less than the $1.89 expected though revenues were better at $27.7 billion vs $27.4 billion expected. The company also lowered profit guidance for the coming quarter in line with the huge losses being suffered through its Reality Labs division which is focusing on VR and AR. Traders now turn to Apple which is due to report today amidst fears that it too will see weaker-than-forecast performance, weighing heavily on the tech sector as a whole.

JPY Rallies as Japan to Unveil New Stimulus Package

In FX, the Japanese Yen surged higher over the European open on Thursday, taking the lead as the strongest performer in the G10 space. The move comes on the back of Japanese authorities announcing that they will unveil a huge new stimulus package on Friday (around $200 billion) in an attempt to help curb inflation. However, the strength of the moves also has traders wondering if the BOJ is undertaking any stealth operations, almost one week after its latest intervention.

ECB In Focus Today

On the back of yesterday’s BOC meeting, attention now turns to the ECB. The bank is well-expected to hike rates by a further 75bps today along with signalling the need for further rate hikes to come as inflation remains intolerably high. However, given that this news is baked in, it will likely take a hawkish surprise in the outlook/guidance to drive EUR meaningfully higher with risks of a fall back on any bearish details.

Metals & Oil Continue Higher as USD Fall Deepens

In the metals and commodities space, both gold and silver saw better levels again yesterday as the US Dollar sell off continued. Falling bonds are helping lift demand for gold and silver though sharply higher equities prices are having an offsetting impact. Crude prices were seen moving firmly higher yesterday also, breaking several days of stagnant price action. The move came despite the EIA reporting an unexpected inventories build of more than 2 million barrels with traders reacting to news of the US exporting record amounts of oil last week as price tensions continue.