Dollar slides after Fed’s Powell, Gold breaks above $1,970

During the Asian session, trade data from New Zealand and the National Consumer Price Index for Japan are expected. Market expectations are that China will keep its Loan Rates unchanged. Later in the day, UK Retail Sales and German Producer Price Index figures will be published. While there are scheduled speeches from Fed officials, it appears there might not be much additional impact following Powell’s speech on Thursday.

Here is what you need to know on Friday, October 20:

In the week ending October 14, US Initial Jobless Claims dropped to 198,000, the lowest level since January, indicating that the labor market remains tight. However, Continuing Claims rose to 1.734 million in the week ended October 7, the highest level since July. Existing Home Sales experienced a smaller decline than expected but still reached the lowest level in 13 years.

Federal Reserve (Fed) Chair Jerome Powell suggested that the central bank will not raise rates in the short term. However, he explained that further monetary policy tightening could be warranted if there is more evidence of above-trend growth or if the labor market stops easing. Powell also mentioned that the risk is still inflation. 

Despite three consecutive declines in US stocks, the US dollar dropped during the American session. The US Dollar Index (DXY) consolidated losses after Powell’s remarks but remained above 106.00. The bond market remains volatile, with the 10-year Treasury yield settling at 4.99%, the highest since 2007, while the 2-year yield decreased from 5.26% to 5.16%.
Geopolitical tensions continue to weigh on market sentiment, with Israel preparing for a ground invasion of Gaza. US President Biden is scheduled to address the nation late on Thursday.

China is expected to keep the 1-year and 5-year Loan Prime Rates unchanged at 3.45% and 4.20%, respectively. There are no top-tier reports due in the US. Fed officials Logan, Mester, and Harker are scheduled to speak but are not expected to offer surprises.

EUR/USD traded above 1.0600 but later pulled back. The short-term bias is towards the upside, but the Euro faces growing resistance between 1.0630 and 1.0650. Germany will release the September Producer Price Index (PPI), with the annual rate expected to deepen into negative territory from -12.6% to -14.2%.

USD/JPY continues to trade near the 150.00 area, raising intervention expectations. Japan will release the National Consumer Price Index (CPI) for September.

Analysts at Commerzbank on JPY: 

In our central scenario, the yen appreciates moderately again on the back of our assumed Fed rate cuts. However, the biggest risk for this scenario is not a more pronounced JPY appreciation, but a very significant JPY depreciation if the MOF’s intervention strategy fails.

GBP/USD finished the day flat, around 1.2140, after hitting a weekly low at 1.2089 and then rebounding towards 1.2200. On Friday, the UK is set to report September Retail Sales and Public Sector Net Borrowing.

NZD/USD reached a bottom at 0.5814, the lowest level since November of 2022, but managed to trim losses, rising to 0.5850. The overall trend remains downward, although Thursday’s rebound provides some hope for the bulls. New Zealand will release September trade data.

USD/CAD saw a marginal rise and ended around 1.3720. Canada is expected to report a 0.3% decline in August Retail Sales on Friday.

AUD/USD trimmed its losses during the American session, supported by a weaker US dollar, and climbed to 0.6340. The pair managed to stay above the key support area at 0.6285.

Gold experienced (another) jump and reached $1,977, its highest level since late July. The precious metal continues to shine despite higher government bond yields. The following relevant resistance area is seen at $1,985; above that, a move beyond $2,000 seems likely. Silver rebounded during the American session, rising to $23.00.