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Too early to bet on rebound On Monday, risk assets rebounded as reports over the weekend suggest that the bout of covid hysteria on Friday could be an overreaction. Air travel halts have apparently eased off over the weekend, while the WHO and South African researchers alleviated concerns with a statement that there are no evidences yet that the new covid strain is more dangerous than dominating delta strain. In this regard, the flow of negative news for the market, mainly related to new shocks in air transportation, is likely to slow down this week. Nevertheless, it is too early to say that correction is over - the lack of reliable data on the new strain should keep risk appetite largely subdued this week. According to the WHO, it will take from several days to several weeks to understand whether a new variant of the virus is more aggressive and resistant to vaccines. With regard to contagiousness, there is a reason for concern. South Africa saw a jump in reported cases of covid in November before the news about the new strain hit the wires, which may be indirect evidence that the virus is more easily transmitted from person to person: New updates on covid, important for the markets, will appear today - Britain will gather ministers of the Ministry of Health of the G7 countries to discuss options for response, in the evening Biden will deliver a message. It should help to understand the readiness of the governments to take painful preventive decisions. A barometer of expectations for a tightening of the Fed's policy - long-term rates, halved declines on Monday thanks to the relief rally. The yield on 10-year Treasury bonds rose 7 basis points to 1.54%, and the yield on 2-year bonds also gained about the same amount. European markets rose cautiously – gains do not exceed 1%, and it’s difficult to expect more. The optimism of buyers in the oil market is now mainly based on rumors that OPEC will postpone the planned hike in production by 400K barrels in January, but if we see more reports more countries opted to close borders, a larger drop cannot be avoided. Noteworthy reports this week are Germany's CPI in November (slated for release today), ADP and NFP US November report. In addition, the first two days of the week are full of speeches from Fed representatives (Powell, Williams). Markets are unlikely to be able to react in cold blood to the comments which may touch on the topic of the new strain, as this will call into question the Fed's intentions to accelerate the phasing out of stimulus measures (QE). In general, one way or another, trading in the market this week should be reduced to reactions to news associated with covid, and should be characterized by more or less homogeneous risk-off/risk-on. There is a risk of further decline in EURUSD, since Europe’s bullish rate expectations are under pressure due to recent trend to reinstate lockdowns, besides, it is geographically closer to South Africa and, if the new virus is indeed infectious, a new wave may hit it earlier than the United States. Considering the dollar index (DXY), the pullback after strong growth sets the stage for a further rally towards 97.70, where the next key resistance may reside: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Technical pullback looms in EURUSD The dollar rises a new high of this year (96.50 on DXY) amid Biden’s decision to extend the term of the current Fed Chairman Powell. Considering that Powell's main rival, Lael Brainard, is a champion of soft credit policy, the news had a positive effect on the dollar and a negative effect on the US sovereign debt, since fixed income definitely priced in the risk of the Fed changing its monetary policy to softer one under the new head so there was a retreat of those expectations. The yield on 2-year bonds increased by 6 bp, on 5-year bonds - by 7 bp. (new highs since the beginning of the pandemic), 10-year bond yields also rose, but local high of 1.70% hasn’t been challenged yet. Yields at the near end of the yield curve are predominantly responsive to news related to the Fed, while those at the far end to the news related to inflation. In the Eurozone, consumer confidence fell by 2 points to -6.8 points in November. Historically, a value of -5 points characterizes a fairly high level of consumer confidence, so we can talk about a possible tipping point in the positive trend: Covid and new lockdowns in the EU are hitting consumer confidence, and market participants are likely to revise their forecasts for consumer spending growth this quarter. Accordingly, this will affect expectations related to when the ECB will phase out PEPP and start raising rates. Angela Merkel said yesterday that the current wave of covid is worse than previous ones and urged local authorities to impose tougher social restrictions. There is a risk that the rest of the EU will also be forced to return some of the restrictions by Christmas, despite the fact that their vaccination rates is higher than in Germany and Austria. Naturally, the current forecasts for the growth of the Eurozone are under threat, and the Euro is looking towards new lows. Nevertheless, from a technical point of view, EURUSD is overbought, the RSI on the daily timeframe has dropped to 26 points. The last time such an intensity of decline was observed in February 2020 and a pullback is probably not far off: Consolidation prevails in the foreign exchange market today. The wait-and-see attitude may remain in place until the release of minutes of the Fed's November meeting on Wednesday. The US economic calendar includes Markit reports and the Richmond Fed survey. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Gold heads for a test of $1900 For the first time in a while, a threat of covid restrictions becomes an overriding market theme again. Austria has announced a new lockdown, Germany could follow suit. The Swiss franc, dollar, yen led the growth in FX on Friday. At the same time, the yen, traditional safe-haven asset, rallies against USD which adds to the case that risk-off becomes again the key driver of market moves. Risk assets are under pressure, while still minor, European indices lost about half a percent. Oil prices are pulling back on rising energy consumption risks. Money markets are cutting rates on tightening the ECB's policy in 2022, which is not surprising, because the risks of new restrictions are now primarily concentrated in the Eurozone. Gold is at its highs since June and after the key trendline has been broken, it consolidates in the wedge pattern, likely indicating preparations for a new rally targeting next resistance at $1900- $1910: The strengthening of the dollar this week proved to be more or less stable, as data on the US economy continues to stand out. Of course, we are talking about the data on retail sales, which significantly exceeded the forecast. In particular, core retail sales jumped 1.7% MoM against the 1.0% forecast. The indicator shows positive growth rates for the third month in a row, pointing to an impulse in consumer spending, which forces investors to think about the growth of inflation risks in the American economy: A $1.4 trillion fiscal spending package over the next 10 years, which may soon be passed by the US Congress, should have reflationary consequences for the economy, so the dollar is now following the news from Congress. If the spending package is approved, market participants may reconsider the pace of the Fed's QE curtailment and rate hikes, since the task of economic stimulus (at least part of the task) will be taken over by fiscal policy. The UK retail sales data also exceeded expectations, but the GBP hardly got any relief from that. Nonetheless, the GBP is holding better than the EUR this week as the chances of a rate hike by the Bank of England increase in December. Excluding fuel, monthly sales growth was 1.6%, exceeding the forecast by as much as 1%. Given that European countries have not been able to dodge the new wave of covid despite the high rates of vaccination, the main risk for this situation is an increase in covid hospitalization rates in the United States. If the country is swept by a new covid wave, a full-fledged risk-off will most likely begin in the markets and it will be possible to forget about policy tightening from major central banks next year. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The Dollar still has chances to rise this week The week began with a broad greenback retreat, but with varying intensity, from weak to moderate. Industrial output and retail sales in China slowed less than expected, dampening risk aversion somewhat on fears of a slowdown in the Chinese economy. Despite the weak dollar at the beginning of the week, there is potential for strengthening, especially in light of the Fed's as yet unclear reaction to the strong positive inflation shock in October. There is a risk that the Fed may respond by accelerating the pace of the QE rollback or bringing the rate hike closer. Among the reports for the United States, it is worth paying attention to October retail sales and industrial output. The Fed's speech calendar this week includes Williams, Evans, Bostic and Clarida. Investors are waiting for their reaction to the controversial inflation report, which may well lead to a rise in the US currency, as inflation becomes more difficult to deny. The cost of living in the United States is growing rapidly, so consumer confidence is showing an increasingly depressing trend. The consumer confidence index from W. Michigan fell to 66.8 points, data showed on Friday. This is the minimum since 2011: However, the relationship between consumer sentiment and spending has been weak over the past few years, and the fall in the index primarily reflects concerns about inflation. The details of the report showed that only 36% of the surveyed households believe that income will grow faster than inflation over the next 5 years. This share has been steadily declining over the past few months. Most of them felt that now was not the time for high-value purchases such as a home, car, and real estate. With regard to the JOLTS report on the US labor market, it showed that the share of layoffs rose to 3.4% of the workforce in the private sector, while in the hospitality and entertainment sector it was 6.4%, 4.4% in retail and 3.6% in trade and the sector of passenger transportation. In fact, this is further evidence that companies have to fight for workers by raising wages. This trend is reflected in the Labor Cost Index - which rose to a multi-year high in the third quarter: At the same time, the NFIB in its latest report pointed to a record number of companies that are going to raise salaries in the coming months. The number of job openings remains very high at 10.4 million and based on the job growth we saw in October, it will take 20 months to fill these vacancies. Particular attention should be paid to labor “reserves” - if the level of labor force participation continues to recover as slowly as now, the pressure on wages will persist, and therefore the risks of inflation will also remain high. The third quarter of the Japanese economy was very disappointing, which leaves no chance at all that the Bank of Japan will switch to hawkish rhetoric. GDP contracted by 3% in the third quarter, with a forecast of -0.8%, and investments in fixed assets also suffered a lot, declining by 3.8% (forecast -0.6%). It is clear that firms are reluctant to increase production volumes, or they cannot do so due to shortages of components, supply chain disruptions, high prices for raw materials and labor, etc. USDJPY reacted mildly positively to the data, as with such data it is increasingly difficult for the Bank of Japan to move to lower monetary stimulus level. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

GBP, EUR may soon find support thanks to strong technical levels Much of the fall in EURUSD this week was due to the widening of the rate differential between short-term EU and US bonds. Following the CPI release on Wednesday, the yield gap rose 4 bps. and then added another 6 bp over the next two days. reaching 1.267% (maximum since the beginning of the pandemic): The potential for further decline in the pair next week remains due to the prospects of the Fed to announce more aggressive measures compared with the relatively dovish position of the ECB. The dollar index feels quite comfortable above 95 points and is holding close to the opening point on Friday. EURUSD could be pressed down to 1.14 - 1.138, from where a corrective wave of purchases is expected, which looks very attractive, given that a rebound will occur from the lower border of the medium-term descending channel: It should also be remembered that price pressures haven’t likely topped out in the US yet, because the shopping season is ahead, which is a powerful seasonal driver of price increases. This year, the full-fledged season of Christmas discounts in the US will likely be missed, as we discussed earlier, inventories in the US (especially of durable goods like cars) are at a relatively low level and making discounts, knocking down inflation, is not a particularly attractive idea for retailers right now. The British economy data on Thursday was disappointing. Manufacturing and industrial output growth missed estimates, with the impact of Brexit being felt, creating additional disruption to supply chains, in addition to the global trend. GDP in September grew less than forecast, so the recent unexpected twist at the meeting of the Bank of England, which was that the Central Bank refused to raise the rate, looks quite justified. The market may start to price in the outcome in which the Bank of England will disappoint in December as well, announcing that it extends the pause in tightening till the next meeting. In this situation, there is a risk of further expansion of the yield differential between UK and US assets and, accordingly, an increase in pressure on GPBUSD. As in the case of EURUSD, a bearish channel can be seen in the technical picture of the pair, and GBPUSD is also apparently preparing to test its lower border. At the same time, given the presence of a clear steep downtrend line, a short-term rally to 1.3460 is possible and then a sharp movement down to the lower border of the channel (1.3270): The focus today is a report from U. Michigan on consumer sentiment, as well as a speech by Fed rep Williams. A rebound in the consumer sentiment index, and in particular the expectations index, after several months of rather weak readings will reinforce the argument that the US Christmas season may further accelerate inflation, so a moderately positive dollar reaction to the strong data can be expected. In turn, Williams' comments will be examined for concerns about entrenched inflation and the Fed's potential reaction to it. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Three key inflation factors in the US to watch for according to Goldman The dollar came under pressure on Tuesday, as bond yields of longer maturity fell in the US and risk assets, in particular US stock indices, find little resistance near recently set new ATH. The SPX managed to closed above 4700 again on Monday while Nasdaq extended winning streak to 11th session (the longest streak since July 2009). SPX futures are slightly down today. Treasuries rose yesterday on speculation that Powell's successor as head of the Central Bank could be another Fed official, Layle Brainard, a well-known advocate of low rates and soft monetary policy. Speaking yesterday, Fed official Richard Clarida said the Fed expected supply shocks but their depth was unexpected. A statement of this kind can be regarded as an attempt to leave room for the Fed's hawkish maneuver if inflation turns out to be higher and more persistent than expected. Meanwhile, Goldman has significantly revised inflation forecast for December 2021 for the sixth time in a row since April, which speaks of underestimation of inflation and supply-demand imbalances not only by the Fed, but also by market forecasters. According to the latest forecast, CPI will exceed 6% (headline inflation), and PCE - 5% in annual terms: Back in April, the CPI forecast was 2.77%, PCE - 2.37%. Inflation will remain high until relatively low inventory levels begin to recover and competition drives prices down. Indeed, new car inventories and retail stock-to-sales ratios are unusually low in the United States: Apart from robust recovery of consumer demand, ubiquitous supply disruptions and rising input prices serve as additional headwind to replenishment of low inventories. According to Goldman, two other key inflation factors that need to be monitored are wages and shelter rent. Employment costs remain in the rising path (QoQ), while shelter inflation after posting the highest growth rate in a decade in June 2021, somewhat subsided in the second half: In the near term, the latest US PMI data for services and manufacturing indicated that inflation-propelling data persisted in October - entry prices rose and new orders increased from the previous month. On Wednesday, the US inflation report for October is due to release and given preliminary data, a hawkish surprise looks likely (headline inflation 6% and above). Yesterday's comments from Fed officials, in particular Clarida and Evans, showed that some Fed officials allow for the possibility of a rate hike during QE tapering. Therefore, there is a clear bias in market rumors that the trajectory of tightening the Fed's policy may be revised upwards which undoubtedly lends heft to bullish dollar case in the medium-term. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Dollar consolidates after a pullback, traders eye US CPI report High inflation and central banks’ reaction function to it continue to remain the major trading themes this week. On Wednesday, bond and FX USD markets will zero in on October US CPI report, where an upside surprise (inflation of 6% or higher), may add bearish pressure to Treasury market and lift greenback. Today, Richard Clarida will comment economic expansion and possibly express some views on current and near-term Fed policy, which will be scrutinized for hints about what the Fed will do after it completes QE next year. Rising oil prices favor resumption of USD and commodity currencies rally. The relatively strong US labor market report for October helped greenback to flirt again with the highs of this year (94.50) on Friday, however conclusive breakout didn’t follow. It’s worth to note that November looks to be a better month for an upside breakout as seasonal headwinds increase for USD in December. Nevertheless, greenback may breach the key resistance area as early as this week. The move may be triggered with the release of US October CPI report. Consumer Prices are expected to rise by 5.8-5.9% YoY in October, however preliminary data such as PMI in services and manufacturing, data from the US labor market showed that input prices, wages rose in October at a faster pace compared to September. It means that slow supply adjustment to demand continues and likely exerted more pressure on consumer prices. The Atlanta Fed, which calculates its own estimate of US GDP growth based on high-frequency data, has updated its forecast and assumes growth at solid 8.5% in the fourth quarter: With such prospects for GDP growth and the Fed's shift to asset purchase tapering, the fixed income market, especially Treasuries with longer maturity could be hit again. Earlier, some Fed officials said about the risks of a slow unwinding of QE and comments of today's centrist Clarida in a similar vein may further put pressure on short-term bonds and support the dollar. The technical picture for the dollar index (DXY) indicates high breakout potential: OPEC's decision to gradually increase production helped oil prices rise a little more. Bullish momentum is gas prices in Europe is also gaining attention given the impact of this trend on oil prices. The upward movement of oil heats up the topic of the impact of commodity inflation on consumer prices and, accordingly, pressure on central banks to move to a tougher policy. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

USD may extend the rally on the FOMC hawkish surprise The dollar rose sharply on Friday, breaking through a corrective channel and bouncing off a key bullish support line (scenario discussed on Friday): One of the key drivers of the rally was US inflation report. Despite the fact that consumer inflation (Core PCE) rose by 3.6%, falling short of the forecast of 3.7%, the market was more concerned about dynamics of the labor cost index in the US - in the third quarter it rose by 1.3% against the forecast of 0.9%. Recall that both the Fed and the ECB have repeatedly said that a "second round" of inflationary effects may occur if inflation seeps into wages, since in this case further growth in consumer demand and accompanying inflation can be expected. By the way, the annual growth rate of labor costs in the United States is now at its highest level in more than 15 years: Today, the US Dollar index is consolidating around 94 points ahead of the release of two important news this week - the decisions of the Fed and the NFP. After the latest update on labor costs data, chances are high that the Fed will announce the start of QE rollback on Wednesday. Further dollar upside will undoubtedly depend on pace of bond purchase tapering. The closest target for USD index is the previous resistance at 94.50-94.75, which the dollar is likely to test on Wednesday before the Fed decision. It should also be noted that along with increased chances of imminent tightening of the Fed's policy, long-dated US Treasury bonds are beginning to price in future slowdown in inflation, possibly pricing in Fed policy error (i.e., that Fed starts to tighten too early, harming growth and inflation). This translates into decline of the spread between 10 and 2-year US Treasury bond yields: Nevertheless, USD retains its short-term bullish prospects. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Key USD bearish threshold remains intact Eurozone inflation was materially higher than the consensus forecast in October, making it slightly difficult for the ECB to maintain a huge stimulus bias in the monetary policy. The data on Friday showed that the broad rise in prices in October amounted to 4.1% (forecast 3.7%). At the same time, core inflation, which doesn’t include fuel and other goods with volatile prices, also beat the forecast - 2.1% versus the expected 1.7%: At a meeting on Thursday, the ECB gave a signal that officials are closely monitoring inflation, but still expect it to decay sooner than markets fear. Some officials, though, see a second round of inflationary effects, primarily caused by wage inflation, so they do not exclude that consumer inflation will remain above the target level of the ECB in 2023. In general, we can say that the European Central Bank signaled a reduction in asset purchases in December, which caused widening spreads between sovereign bonds of Eurozone countries and a positive reaction from the euro. The spread between the 10-year bonds of Italy and Germany jumped by 7 bp on Thursday as market participants became more confident that the ECB's artificial support for "second tier" EU sovereign bonds will soon begin to decline. Today this spread has added another 10 bp: In addition to the factor of December tapering, Eurozone sovereign bonds are declining in price due to the risks of an early start of the ECB tightening cycle. Although Lagarde said it was important not to overreact to temporary supply shocks, the effects of which would soon wear off, market participants shifted their expectations of the ECB's first rate hike to October 2022, i.e. even earlier than previously expected. It is clear that the opinion of market participants regarding persistence of inflation is now very different from the opinion of the ECB, and if inflation risks do not materialize, battered bond prices may quickly recover, since the inflation premium will ultimately unwind. The euro will definitely benefit from this trend. Today, the data is due on US inflation and consumer sentiment from U. Michigan for October, key for the Fed's policy. A higher-than-expected rate of inflation, measured in terms of percentage growth of consumer spending, could mean a more aggressive pace of phasing out the Fed's asset purchases, which it is likely to announce in November. Next week, market participants will focus on the October Non-Farm Payrolls report, which will additionally help to improve expectations about the Fed’s policy move in the near future. Risks for the dollar are biased towards further growth next week as this week's correction appears to have been run out of steam. If DXY manages to close above 93.50 mark, this should be another strong technical signal for recovery next week, since a key bullish trendline will remain intact: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Bearish signals mount for the European currency The S&P 500 hit a fresh high on Monday, despite the growing chances of policy tightening by the Fed as investors focus on surprises in US corporate reports and sliding Treasury yields. Tesla's capitalization has exceeded $ 1trillion on the back of the news that car-sharing company Hertz ordered 100K Teslas. Despite incriminating investigations, Facebook has delighted investors with solid user growth and an intention to buy back $50 billion in shares. The momentum may push the US market to a new high, as earnings surprises from Twitter, Alphabet and Microsoft, which are reporting today, are likely to be positive as well. As of October 20, of the 500 companies included in the S&P 500, 67 companies reported. Earnings of 86.6% of them beat expectations, 11.9% disappointed, indicating potential presence of bullish bias in the US stock market. In the FX, the dollar is trying to develop an upward movement after breakout of a two-week bearish channel. In the last few sessions, the dollar index consolidated close to the upper border of the channel, in addition, three tests of the support zone 93.50 lacked meaningful continuation: A potential surge of optimism amid positive reporting by large US companies this week may nevertheless exert short-term pressure on the dollar. The weakening of the euro amid a price shock in the commodity market will likely force the ECB to revise its short-term inflation forecast, which may become known at tomorrow's meeting. If the ECB does not clarify the timing of the curtailment of the main asset purchase program, in combination with the economic forecast, this could be a blow to the real yields of European bonds and lead to an additional Euro downside. Yesterday's data showed that Germany's leading indicator of economic activity, the IFO index, declined for the fourth straight month in October The indices of both the current situation and expectations deteriorated, which increases the risk of stagnation of the German economy in the fourth quarter. Given the slowdown in the bloc's leading economy, the ECB's bias to cut stimulus measures or report upcoming cuts may be small right now, which is definitely a bearish Euro signal. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Stagflation may be soon become the biggest worry for financial markets Worries about so-called stagflation - a combination of low growth and high inflation - continue to mount among asset managers, the latest BofA report shows. In the last survey, the share of respondents who believe that both inflation and economic growth will be above the long-term trend for some time has decreased, but the share of managers who believe that the global economy will face a combination of high inflation and weak growth rates rose: In financial markets, these fears are mainly reflected by the flight from longer maturity bonds, which are more sensitive to changes in inflation rates. If, until recently, the United States stood out among the leading economies with this trend, which incidentally supported the dollar, then the rate of sell-off has recently increased as well in the sovereign debt markets of the Eurozone, Great Britain, Switzerland, Japan and other countries with low interest rates. The source of inflation remains the slow adjustment of supply, coupled with fiscally stimulated demand, as evidenced by the decline in delivery times index and the jump in the indexes of input prices and new orders in the global PMI: Signs of bond sell-offs extended this week, and the upcoming meetings of the Bank of Canada, the ECB and the Bank of Japan will be viewed in the context of central banks' responses to inflation challenges. Rate hikes are not on the agenda, however, central banks' expectations regarding persistence of inflation and its forecast for the next year are likely to cause volatility in EUR, JPY, CAD. The ECB seems to be reluctant to make or communicate about any possible tweaks in policy in the near-term. As chief economist Lane recently stated, despite rising price pressures, service sector price increases and wage growth remain weak, so raising rates could simply disrupt economic growth. Christine Lagarde has about the same opinion. Despite this, the bond market prices in one 10bp rate hike by the end of 2022. If the ECB insists on a cautious approach, these expectations are subject to correction, which will have a negative impact on the euro. At its meeting on Wednesday, the Bank of Canada may announce a new cut in the quantitative easing program. The September employment dynamics allowed the latter to reach the pre-crisis level. The forecast for further cuts in stimulus by the central bank will have an impact on the CAD, however, given the monthly weakening of inflation in August and September, the central bank may prefer to refrain from hawkish comments. The net effect for CAD can also be negative with the following technical scenario for the USDCAD pair: In turn, the Bank of Japan is even further away from the inflation target. In September, it hit only 0.2% YoY and is far from the 2% target. Therefore, the Bank of Japan has the least incentive to do anything in the policy. Considering the technical picture of USDJPY, it can be noted that the correction, after reaching the maximums since 2018 (level 114.50), may come to an end, as the price approached the lower border of the trend channel, from where support is expected: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

UK employment report opens the door for Pound’s short-term gains The pound battles for a place under the sun after release of the latest jobs report. British firms increased hiring at a record pace in August, shortly before the end of the government's furlough scheme. Favorable dynamics of the key macroeconomic parameter for the Bank of England's policy is likely to bring the date of the first rate hike closer, which the Central Bank may hint at the upcoming meeting. The number of employees in UK companies rose by 207K, while unemployment fell 0.1% to 4.5%. The dynamics of employment may allow the Bank of England to be the first among the large Central Banks to raise the interest rate. This is also indicated by inflation, which is now almost double the target level of 2%. The growth rate of wages, which makes a significant contribution to inflation, has slowed down, but remains at an elevated level (6.0%). The furlough scheme has been discontinued on September 30 and the key question is how negatively this will affect the level of unemployment. At least 1 million Britons have benefited from the program. The BoE is rumored to make its first tightening step on December meeting. By this time, the pound has a good opportunity to rise on corresponding expectations especially against EUR. However, in regards to performance against USD, the key piece of the puzzle is the tightening path of the Fed, which will likely be clarified at the key November meeting of the Fed. Considering GBPUSD technical setup, we can note a positive short-term disposition for the pound and slightly downbeat in the medium term. The chart below shows how the pair bounced from the lower bound of medium-term downtrend (1.345), currently trying to extend its short-term uptrend, with the help of which buyers intend to gain a foothold above 1.36 As part of the current short-term uptrend, there is a chance to make a short movement to the upper border of the channel with a potential spike to 1.37 area. Positive expectations for the upcoming meeting of the Central Bank should contribute to this. From a technical point of view, this can also be facilitated by the movement of the dollar to the lower border of the current pattern - a triangle: Nevertheless, the figure in the dollar indicates high chances of an upside breakout, so one should closely monitor the prospect of the dollar moving above the previous resistance zone - 94.50. From the steep slope of the lower bound of the pattern, we can see some solid bullish pressure of USD buyers which supports the outlook for trend resumption. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Bond markets discount weak NFP, focus is back on inflation Weaker-than-expected September NFP report put a drag on broad USD rally. On Monday greenback index struggles to resume advance, hovering not far from 94 points, forming a breakout “triangle” pattern. At the same time, the price continues to consolidate near September 2020 highs: US job growth totaled 194,000 in September, with more than 11 million job openings in the same month. The labor supply deficit continues to restrain employment growth, which should translate into even greater wage inflation. By the way, the growth of wages again exceeded the forecast and amounted to 0.6% instead of the expected 0.4%. Earlier NFIB reports showed that the share of small businesses with open vacancies and experiencing shortage of skilled workers is at record levels: The fact that the US government cut the number of jobs at once by 123K in September helped markets to discount the weak Payrolls figure. The Treasuries market also ignored weak job growth as, after a short-term decline, bond yields began to rise again, signaling that the market was quickly discounting fears of a slowdown in economic activity due to the weak NFP print and again focused on inflation risks: Chances that the Fed will announce QE tapering in November remain high, supporting the dollar and keeping bonds under pressure. It is difficult to expect inflation expectations to stabilize or turn into decline when there is a strong uptrend in the oil market and fears of possible deficits are not abating. On Monday, the WTI price tested $ 81.50, the highest since October 2014. Gas storage facilities in Europe are 76% full, with a 5-year average of 91% before the heating season. China is trying to ramp up coal production, but heavy rains in Shanxi are forcing some mines to suspend production. Considering the recent rally, it was expected to see the growth of long positions of speculators in the COT data. The long position in WTI increased by 18K lots to 316K lots, but if you look at the July high of 426K lots, there is still room to build up long positions. On Brent, the growth in the net-long position of speculators turned out to be more modest - only 3.7K lots. Also on the agenda of this week are OPEC and IEA forecasts for the growth of oil consumption. Investors will analyze growth forecasts, taking into account the demand that has arisen due to the transition from expensive gas to oil, because the stabilization and decline in gas prices could strongly affect the forced demand for oil and hit the prospects for a rally. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Inflation threat worries US bonds American markets closed with gains, but US equity futures today are on a slippery slope largely due to the pressure from rising Treasury yields. The yield on 10-year securities broke through the local high of 1.55%, signaling the resumption of the rally after a brief respite: After a short period since the Fed September meeting, during which the Treasury yields has been rising thanks to the rise of real interest rate (as seen from the recovery of TIPS yield), inflation premium apparently becomes again the main component of rally in yields. Yesterday, the 5-year average expected inflation premium jumped 6 bps. - from 2.53 to 2.59%. Since the start of 2021, intraday increments of the bonds’ inflation premium were stronger only in 5% of cases: Inflation expectations keep rising in the wake of rising energy prices, which set the stage for higher costs for firms, which may eventually be forced to transfer this pressure onto consumers. After a short break, the dollar went on the offensive again. Higher US rates stimulate the inflow of foreign investors into fixed income instruments. Before the Fed meeting in November, in which the policymakers are expected to clarify the prospects for tightening next year, the current policy of the Central Bank is likely to be slightly stimulating, so bonds in the US are depreciating, sometimes taking short pauses. It follows from this that there is a high risk that risk assets will experience difficulties with growth due to the trend in bonds. As alternative investment instruments, they offer ever higher returns. Yesterday's data showed that the US economy is doing well, the service sector PMI from ISM more than met expectations, showing an increase from 61.7 to 61.9 points (59.9 points forecast). Creation of new firms have slowed down, labor costs have risen, and labor shortages persist. Costs remained generally elevated, indicating the risk of higher consumer prices in the coming months, i.e. inflation. The corresponding sub-index rose from 75.4 to 77.5 points and is at its highest since 2008. The biggest event of economic calendar today is ADP report which is the first part of US labor data in the NFP week. A gain of 428K is expected, but the number could easily beat forecasts given positive preliminary employment data and retreat of Covid in the US in early September, which, as recent history shows, creates the risk of underestimating the positive dynamics of hiring. In case of positive news, the dollar index will likely be poised to target resistance at the previous local high (level 94.50). Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

ISM data may boost chances for hawkish NFP outcome FX price action on late Monday showed that investors still favor dollar despite recent gains, and the story of China defaults weighs on demand for risk. Among the G10 currencies, NZD has the largest growth potential due to anticipated RBNZ rate hike tomorrow and possible hint of another hike this year. Lagarde's comments are unlikely to move the EUR, and the British pound seems to have become less responsive to the risks related to the UK divorce from the EU. Yesterday, the US currency retreated on almost all fronts with the equities’ downside providing surprisingly little relief. The source of additional pressure on USD was OPEC+ decision to hike output by 400K b/d which was considered as a bullish outcome as recent energy shortages worldwide stirred market rumors of supply failing to catch up with demand growth. The rapid rise in oil prices was also perceived as a reflection of dwindling world reserves, to which OPEC+ could respond with a more aggressive increase in production and it might look perfectly reasonable move. The decision to modestly boost production pushed prices higher by more than 2% on Monday, limiting demand for risk assets somewhat amid heightened expectations that central banks will rush to tighten policy as commodity markets, especially energy, indicate more cost-push inflation is ahead. Demand for safe haven assets was also boosted by news that another Chinese developer, Fantasia, was unable to pay $205M on its bonds on Monday. The news was a warning that China's real estate problems could extend beyond Evergrande. China's high yield bond yields posted its biggest jump since 2013, indicating strong investor outflows. In general, the junk debt market in China has become, in a sense, a barometer of the situation associated with defaults, and now correlates with the demand for risk in foreign markets. This also implies that the risks of default by large companies in China is a highly supportive factor for the US currency. Monday USD decline proved to be short-lived with the index rebounding back to 94 handle on Tuesday with a short-term uptrend line staying largely intact: In terms of eco data, non-mfg. PMI from ISM could revive bullish USD momentum, as a positive reading will boost chances of a strong Payrolls report, which in turn will weigh on Fed confidence in its exit from stimulus programs. It is worth paying special attention to the hiring component of this index, since a large share of employment in the US works in the services sector, and dynamics of the sub-index may shed light on possible direction of surprise of the NFP report on Friday. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Inflation threat puts central banks on alert Financial markets are increasingly discussing inflation surge as shortages arising in the commodity markets increase risk of price pressures being far more persistent that policymakers expect. After period of consolidation, commodity prices resumed rally in September and this coincided with major central bank becoming more hawkish in their guidance (including the Fed) with separate members increasingly voicing their concerns about “second round” of inflation effects: It is clear that it is becoming more and more difficult to argue about temporary nature of inflation, and central banks are forced to adjust their guidance accordingly. The dynamics of exchange rates in the near future will be determined by expectations of how seriously local central banks will take price increases. Those central banks that continue to defend the old point of view (inflation is temporary and does not require policy adjustments) are likely to face more bearish pressure on their currencies. By the way, the prospect of tighter Fed policy and associated growth in real rates in the US induced a soft downtrend in gold around the beginning of September. This week, expectations for US labor data and the report itself on Friday will most likely allow sellers to test the lower border of the downtrend and the key horizontal level: On Monday, the ECB official Guindos said that supply disruptions (one of the key supply-side inflation factors) saw emergence of a structural driver, which means there could be more than one "round" of consequences for wages and consumer inflation. Thus, the official hinted that the increased inflation could worry the ECB more than the markets had previously assumed, and perhaps one should expect some policy implications, in particular changes in duration of current asset purchases. The euro gained on the back of hawkish hints of the ECB official, in addition broad correction of the dollar contributed to rebound of EURUSD. From a technical point of view, the EURUSD rebound from the November 2020 lows is unlikely to develop above 1.17, as key US data are expected this week: This week's Non-Farm Payrolls report should help the Fed to announce QE tapering at November or December meeting and move to policy tightening later. There is much uncertainty remaining about possible timing of the start of the Fed rate hiking cycle next year, and labor data may affect expectations related to the tightening. A strong Payrolls report may well allow EURUSD sellers to test 1.15 this week. In the first half of the week, the markets will be focused on the OPEC+ meeting. An increase in production by more than 400 thousand barrels could pull oil prices lower, and NOK and RUB could erase their recent growth. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Pullback in oil has well-defined support level The rotation of investors from developed economies with low interest rates to the US continued on Thursday. The core driver of this trend is accelerating growth of real interest rate in the US economy: The dollar index struggled to extend gains near 94.50 resistance area. Recall that from this level, large-scale dollar dump began in November 2020 after US election and vaccine results were announced i.e., where strong shift in expectations occurred. It means that selling pressure will likely be particularly high near this level: Speaking on Wednesday, Powell acknowledged that heightened inflation prevents the Fed from using monetary policy to its fullest to stimulate employment growth. Thus, the Fed recognized that temporary inflation turns into permanent and starts to require tighter monetary policy. The confrontation in the Senate on raising / freezing the public debt ceiling continues and fuels Treasuries sell-off as uncertainty related to possible government shutdown affects US sovereign risk. In case of progress on this issue, selling pressure in US bonds may ease what should have bearish implications for USD price. Data on Thursday showed that activity in China's factories eased, but services sector returned to recovery. The fact that factories in China are reducing output adds to concerns about global inflation, which is largely caused by delays in production and supply chain disruptions. Risk aversion due to the threat of default by Chinese developer Evergrande persists. The company's shares plunged another 5.2% on Thursday, as the company was unable to pay interest on its foreign currency bonds on Wednesday. Oil prices decline ahead of the OPEC + meeting. There are growing signs that supply growth is not keeping pace with demand, so OPEC+ may take the risk and announce a more aggressive output hike. The meeting of oil-producing countries will be held on October 4. From the technical point of view, current leg of oil decline followed a retest of three-year high. Also, the pullback occurs within the short-term uptrend with its lower border acting as the next potential support. It means that the pullback may be completed near the level of $72 on WTI: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Oil prices poised to challenge yearly highs before the OPEC meeting The week of central bank meetings is over and the focus of market participants shifts to the US politics, energy markets, Treasuries sell-off and Eurozone inflation figures. If the US Congress cannot find a way out of the existing dilemma regarding the public debt ceiling, the demand for risk will probably alternate with a flight to quality, and USD may extend this rally on the back of risk-off. Risk assets started the week on a positive note, except for Nasdaq futures, which went into negative territory due to rotation of investors in falling Treasury bonds. On Monday, the yield on 10-year Treasury bonds continued to rise, which began last week after the Fed meeting, and reached its highest level since the end of June - 1.5%. The past meeting of the Fed showed that the number of FOMC members expecting that the first rate hike will take place next year has risen sharply - from 3 to 9 members. This circumstance forces investors to re-consider the likelihood of the first rate hike in 2022, which hits bonds with longer maturities. In addition, there are technical patterns that pointed to the risks of flight from Treasuries: Congress needs to agree on a freeze or increase in the public debt ceiling to avoid a government shutdown in mid-October. So far, there are no signs that Senate Republicans are willing to cooperate on this issue, so risk assets may face several more weeks of nervousness. Congress will also discuss a $ 550 billion infrastructure spending package, but the amount of aid, as we can see, is much more modest than originally proposed. The rise in energy prices is also attracting attention, be it oil, gas or coal. Oil prices are poised to retest yearly highs on the back of strong upside momentum. Extremely high gas prices are forcing consumers to switch to oil, which propels oil prices higher in the short-term. From a technical point of view, a new leg of the price rally can be in its early phase, since on September 10 the price broke correction channel and so far has slightly deviated from key moving averages on the daily timeframe, indicating modest risks of overbought: Prices are likely to extend gains before the OPEC meeting on October 4, providing support for the currencies of the countries that export oil and gas - the Norwegian krone and the ruble. A number of Fed officials will speak this week and, judging by their interest rate projections expressed in dot plot, they are likely to advocate the benefits of an early rate hike. At the same time, the situation with Evergrande remains uncertain and the presence of a constraining factor of demand for risk is likely to provide support for the dollar. A retest of the annual high on the DXY (93.50 zone) and an exit to the target of October 2020 - the level of 94.00 is likely. The first estimate of inflation in the Eurozone for September will appear on Thursday. On Thursday, there will be data on Germany, on Friday - a preliminary estimate for the entire Eurozone. Perhaps the release of inflation data will be the best chance for EURUSD to catch on to the 1.17 level. In addition, the ECB Symposium will be held in Sintra on September 28-29, where the regulator may shed light on plans to reduce asset purchases in December, which in turn may also support the euro. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The Fed is about to unwind stimulus, but is the US economy ready for it? Risk assets came under serious pressure at the beginning of the week, although the first signs of a sell-off appeared as early as last Friday. S&P 500 futures were down 1% on Monday, the first support line can be expected in the 4300-4320 area after a 50-day MA test: The flight from risk was more pronounced in European equities where major indices erased more than 2%. Hong Kong's Hang Seng fell more than 3% on Monday as China's Evergrande and its huge $300bn debt continue to fuel risk aversion not only in offshore China, but is also beginning to echo in overseas asset markets. At the heart of risk aversion are investors’ doubts that the Fed picked the right time to signal that it moves to unwinding stimulus. This week the FOMC meeting is due at which the policymakers are expected to clarify the central bank position on QE tapering and interest rate outlook (aka dot plot). The likely shift in monetary policy may come at the time of slowdown in hiring pace and falling consumer expectations. Recall that employment gains in August was three times lower than projections, and consumer expectations, according to the report of U. Michigan, failed to rebound in September after falling to 70 points in August. The index of consumer expectations ticked higher just by 0.7 points, i.e., it remained for the second month in a row at the lowest level in almost 10 years: At the same time, it was a little strange to see retail sales rebounding by 0.7% August, but let’s make it clear that the survey data of U . Michigan consists primarily of leading indicators, therefore, retail sales may catch up with the decline in consumer expectations in the next months. And if expectations regarding the start of QE tapering are more or less priced in (respective announcement in November or December), changes in dot plot are far less certain. A number of FOMC members have already signaled that first rate hike could be done in 2022, if we see more peers joining their camp and the median of expectations shifts to 4Q of 2022, then the pressure on risk assets is likely to increase significantly. In addition, we cannot rule out medium-term strengthening of greenback against this background, since the US will pull ahead in comparison with other economies in terms of expected growth of bond yields. Also, this week there will be meetings of a number of other central banks - England, Japan and Switzerland. The big uncertainty for the pound is that the Bank of England has given a signal that it is ready to raise rates earlier, but the data on the economy over the past month, in particular retail sales, began to deteriorate. Therefore, the Central Bank will have to choose a more cautious position, and the scale of disappointment for the Cable will depend on how much the pain the Bank is ready to deliver to the market. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

US August inflation: more price gains ahead but not enough for September Fed policy shift US price pressures somewhat receded in August, reflecting mainly the cooling off in consumption hot spots which emerged after the lifting of social restrictions. These spots featured abnormal rise in prices, primarily driven by temporary factors, such as supply chain disruptions and bottlenecks and pent-up consumer demand. Overall, inflation has become more even, affecting more goods and services, while inflation expectations ticked higher, which may worry the Fed. US consumer prices increased by 0.3% MoM, which is slightly below the forecast of 0.4% while core inflation, which has higher significance for the Fed's policy, added just 0.1%, falling short of 0.3% expectations. The easing of core inflation was apparently the primary reason for disappointment and triggered sell-off of the US currency on Tuesday. Today sellers renewed pressure on the dollar while US bond yields trimmed down recent gains. Considering contribution of individual categories of goods and services, it can be seen that there is strong MoM deflation in the components, where prices have been recently rising at abnormal rates. Airline prices dropped 9.1%, used cars fell 1.5%, car and truck rentals tumbled 8.5%, and hotel bookings dropped 3.3%. These changes in prices basically made the key main contribution to the August slowdown in inflation. The NFIB's report on firms' decisions to raise / lower / hold prices calls into question the prospects of easing of inflation in the near future. According to the latest data from the agency, 49% of enterprises are raising prices, and 44% expect to make additional price hikes in the future. Both are at their highest level in 40 years. This important indicator of inflation was also mentioned by the Fed in the latest release of the Beige Book, which suggests that the US Central Bank takes these data into account as well. Another reason to expect persistence of inflation is the rise in house prices. In the United States, the dynamics of housing rent is about a year and a half lagging behind changes in real estate prices, given their sharp rise in 2021, rents’ upward adjustment in the future will likely lead to higher consumer inflation: Case Schiller US Home Price Index On Friday, there will be data on consumer inflation expectations from U. of Michigan. The latest reading is 2.9%, however, if inflation expectations rose again in August, the Fed officials may start to mull over the need to communicate a chance of a rate hike next year, since one of the main goals of the Fed's policy is to not let inflation expectations drift from their inflation goals. Given that firms are still willing to transfer rising costs to consumers after positive experience with the pent-up demand, higher expectations of inflation US households may be quite justified, which may eventually trigger some Fed response. However, in the FX market, the bets for the Fed's early move towards policy tightening seems to be decreasing. On Wednesday, we see that the dollar suffers the biggest losses in pairs with EUR, CHF, JPY - by 0.24, 0.38 and 0.39%, respectively. On Monday, before the release of the CPI, the opposite trend was observed - the dollar posted the largest gain against these currencies: Taken together, these phenomena may indicate an inflow and then an outflow of investors from countries with low interest rates on expectations that the Fed will begin to tighten policy and raise rates on Treasury securities and subsequent disappointment after release of the August CPI. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Preview of the trading week: Watch out for FX and equity rotations before the Fed meeting The beginning of the week turned out to be quite calm and measured for FX space as investors are making necessary rotations before a number of central bank meetings next week, including the Fed. The focus this week will be on US inflation and retail sales for August due out on Tuesday and Thursday. Strong prints could propel development of expectations that the Fed will follow in the footsteps of the Bank of England and the ECB, announcing that it is ending extraordinary support for the economy. The dollar index retests last week's high (92.86) after a two-day downward correction with mixed success. Among the major currency pairs, the dollar shows the greatest gains against the euro, franc and yen, that is, where low interest rates prevail. This may indicate that investors are buying dollars in advance, on expectations of higher government bond rates in the United States. It is easy to guess that such expectations may be tied to the Fed meeting next week. Weak performance of the US technological sector this week may become another signal that the market undergoes rotation from long-duration stocks to its primary substitutes - long-term bonds (mainly influenced by the Fed's QE). Since the beginning of August, the yield on the 10-year Treasury has consistently set lows above the previous ones, which may indicate a predominance of expectations for higher rates. However, the weakening of the US fundamental component still serves as an effective counterbalance to these expectations - the yield struggles to rise above 1.4%: European markets and futures for US indices hover in positive territory within 1%. In addition to preparing for the Fed, investors may also be preoccupied with a follow-through of infrastructure spending story in the United States. The Democrats said they plan to find means for the package by hiking corporate tax from 21 to 26.5% and the tax on capital gains from 20 to 25%. That's less than what was proposed earlier this year, but the Senate's push for the bill could once again spoil the mood of the stock market, as was the case with the initial tax hike announcements earlier in the year. The rebound of the European currency after the ECB meeting proved to be short-lived, since deeply negative rates allow the euro to maintain its status as a popular funding currency and, all other things being equal, increased demand for risk leads to a weakening of the euro. In addition, as mentioned above, expectations that the rate differential between bonds of European countries and the United States will widen after the Fed may now increase the supply of the euro. Strong inflation and retail sales in August may increase the flow to dollars, as the chances of a hawkish shift in the Fed's position in this case will be higher, although the US Central Bank is now "a fan of employment data". According to the dollar index, one can count on a test of the area where resistance has been concentrated for the last month and a half - the level of 93.20: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The RBA gives green light to AUD decline, Euro waits for hawkish signals from the ECB As market volatility continues to dwindle, investors are likely to favor currencies where central banks are raising interest rates. However, paths of monetary policy are still highly dependent on a country's success in the fight against the delta strain and the possible risks of a fresh autumn wave. Contrary to expectations, the Reserve Bank of Australia has become one of the first to indicate that it may be premature to scale back asset purchases. FX liquidity continues to improve after Monday's Labor Day in the United States. Expectations that the Fed will postpone tightening the policy until the end of the year are holding back the development of corrective sentiment in US equity market. The Reserve Bank of Australia gave a positive signal regarding the prospect of keeping rates low in developed countries at its meeting today, deciding to extend QE by three months to mitigate the impact of lockdowns introduced in response to the delta strain outbreak. There are no broad expectations that other Central Banks will follow the case, but clearly RBA gave food for thoughts with its unexpected dovish move. The prospect of developing the downside momentum in AUDUSD is becoming more realistic, given the fact that the RBA may start to lag behind the Fed in the tightening race after the US Central Bank meeting in mid-September. The nearest targets for the pair are the levels 0.735 and 0.73: European markets struggle to sustain gains today while futures for US indices are also tending to decline. The cryptocurrency market turned out to be even less stable and turned into a full-fledged correction. The US dollar is holding up and it is obvious that the support is provided by the growing risk-off. Interestingly, the dollar advance is not uniform. The American currency rose against all major opponents (including commodity currencies) except the euro. This can be explained by expectations of a hawkish shift in policy at the ECB meeting on Thursday. A hint of PEPP tapering will likely trigger Euro rally above 1.19, but if this does not happen, there may be pullback in hawkish expectations, which are priced in the euro. It should be tough for greenback to develop upward momentum given the technical resistance - the upper border of downward channel, which is guiding USD decline currently: Better-than-expected Chinese foreign trade data in August bolstered hopes that global expansion would not slow down much in the fourth quarter. At the same time, the index from ZEW on business sentiment in Germany came slightly worse than forecasted. Together with expectations that the ECB will make an announcement related to tighter monetary policy, this has led to a weak performance in European risk assets today, which is expected to continue until the ECB meeting. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Key reasons why weak August NFP wasn’t a surprise. EURUSD weekly setup. The odds of a September Fed shift in policy retreated further after release of August NFP report last Friday. The payrolls gain was a big miss as it was three times less than consensus of 725K. Judging by the greenback’s price action on Friday and Monday, there was no serious change in expectations: investors continue to expect that the Fed will taper QE this year, however expectations of the announcement completely shifted to November or December. The US economy created 235K thousand jobs in August, against the forecast of 750K. If it had happened a month ago, traders would probably have crossed out the Fed's tightening from the list of expectations, but August was not easy for the economy due to the action of an exogenous factor - the delta strain of the coronavirus. Consumer mobility declined in early August, and the service sector in some states faced restrictions again. The peak of impact was just in the reporting week for the NFP. Therefore, with regard to the service sector, it is probably correct to say that job growth did not slow down, but was restrained. Other aspects of the report also point to a temporary slowdown in job growth. For example, the growth of jobs over the previous month was revised up to 1.053 million, and wages rose surprisingly in both monthly and annual terms. For example, in August, the average hourly wages increased by 0.6% against the forecast of 0.3%: It is unlikely that we would have seen such a dynamic if the demand for labor was weak. Also released on Friday, ISM's US service sector activity index exceeded forecast, with the hiring component only slightly changed from the previous month (53.7 vs. 53.8 points in July): Again, weak labor demand would send the index below 50 points, which as we can see didn’t happen despite the fact that hiring slowed down. The dollar index tested the level of 92 after release of the NFP. Despite the attempt to break through, the price failed to gain a foothold below despite the large downbeat surprise in the data. Today buyers are developing an upward rebound amid weak trading activity. The rise will most likely fizzle out in the area of 92.40: The main risk event this week will be the ECB meeting. Last week, some of the ECB's monetary policymakers said publicly that they are ready to discuss cutting asset purchases. Considering EURUSD, it is clear that the main events on the side of the dollar have been priced in, therefore, for some time the pair may be influenced by events related, among other things, to the position of the ECB. This week, a meeting of the European regulator will take place on Thursday, and if Lagarde speaks about the possibility that in the near future it is worth starting to discuss cuts in anti-crisis measures, the euro will receive additional support amid expectations of an increase in European bond rates due to a decrease in ECB activity in the debt market. In my opinion, the risks for EURUSD are skewed towards more upside this week due to the upcoming ECB meeting, targets above 1.19 remain relevant, especially if the European Central Bank offers hawkish surprise this week. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Big negative surprise from the Conference Board. What are the takeaways for the NFP? Greenback struggles to take off from 92.50 support level ahead of US labor data for August. DXY rallied on Tuesday thanks to the outflow from Treasuries market as distant bond yields apparently rose in response to hawkish remarks of some ECB officials. The 10-year yield rose from 1.27% to 1.35% as the ECB policymakers hinted that it may be appropriate to start tapering of special asset purchase programs (the so-called PEPP). Given that the major central banks try to keep up with each other in terms of policy easing and tightening, this were interpreted as a hint that the Fed may be more eager to taper than previously expected. More specifically, here is a statement by the head of the Danish Central Bank, Knot: "The inflation forecast in the Eurozone has improved markedly and justifies an immediate reduction in PEPP, a complete curtailment of the program in March 2022 and a return to pre-crisis discipline in policy." However, Nomura's latest forecast does not anticipate a shift in PEPP until at least March 2022: The ECB is due to holding a meeting on Thursday, September 9 and based on emergence of hawkish rhetoric, there is growing risk that Lagarde will hint that PEPP cannot last forever. In anticipation of this surprise, the euro may extend gains against its peers, given that now the European currency has very low expectations for tightening, since the ECB until recently refrained from hawkish hints in every possible way. Ahead of the NFP, markets are closely watching data that may indirectly indicate a change in employment in the reported month. Among important indicators, one can single out the consumer confidence indices, the dynamics of which is tied to income and income expectations of households. Yesterday was published a report on consumer confidence from the Conference Board, which decreased compared to the previous month (129.1 against 113.9 points). In addition, the index did not live up to expectations and also came below the most pessimistic forecast. We can recall the depressing dynamics of the index from U. of Michigan in August (drop by 10 points), which may also indicate a tipping point in consumer sentiment and expectations in August. In general, consumer sentiment is deteriorating and either this is the result of expectations of sharply increased inflation or worsening income outlook. By the way, one-year inflation expectations, calculated on the basis of the report, rose to 6.8% - this is the maximum since 2008: Source: ZeroHedge It is clear that high inflation starts to negatively affect consumer decisions, from this point of view, it is time for the Fed to curb stimulus measures, since it is more and more difficult to assert about the temporary nature of inflation and this may at some point result in a loss of confidence by market participants in the Fed's actions, which is fraught with increased policy costs. The Conference Board report, together with the Michigan report, suggests that we will face moderate job growth in the United States. Nevertheless, inflation dynamics indicate that the Fed will not be profitable to deviate from its implicit QE promises made in Jackson Hole. The combination of these events - a weakening economic outlook and a course to cut stimulus from the Fed risk negatively affecting stock prices, inducing correction from ATH. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Record downturn in China's services sector could spark a new wave of risk-off After spending a day in consolidation, greenback could find enough buying interest and continued to fall in price on Tuesday. The US currency index tests support at 92.50 level. Long-term US bond yields continue to pull back in disappointment after a slight surge ahead of Powell's speech, 10-year bonds offer 1.28% to maturity on Tuesday, compared to 1.35% at their peak last week. Fears of inflation, to which long-term bonds are particularly sensitive, appear to be weakening, and there is a growing risk that the Non-Farm Payrolls report will surprise this week from the negative side. Sharp slowdown of activity in the Chinese services sector in August puts a deep dent on global recovery expectations. The corresponding official PMI gauge suddenly fell from healthy 53-56 points, landing in the depression zone at 47.5 points: The pace of MoM deceleration was only higher only in February 2020, when China hit the economy with the lockdown. The strong negative surprise will likely make investors doubt that global economy will be able to maintain current pace of expansion and market bets for extension of stimulus measures may rise. Strangely enough, the dollar's sell-off intensified after release of the Chinese data: Activity in the manufacturing sector also fell short of expectations, albeit to a much lesser extent: PMI has been declining for the fifth month in a row and in August it barely remained in the expansion zone at 50.1 points. The forecast was 50.2 points. Continuing at this pace, the index may find itself in depression zone as early as next month. Market participants associate the weak data with the dynamics of credit impulse in China, which has been weakening in the past few months entering contraction zone: Other fundamental factors include government crackdown on the tech and private tuition sectors (which should obviously suppress services sector activity), severe government response to the covid outbreak and reduced travel between provinces due to fears of being locked down in a non-hometown. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.