In line with our expectations, the US dollar continued its broad correction down. The market’s risk sentiment was negative. Volatility has picked up as the outlook for global growth and inflationary pressure worsened. There were many sharp spikes in the major currency pairs.
American currency was affected by weak US producer prices and retail sales data. It seems that lower growth in other countries really is having a negative impact on the US. The expectations of the Federal Reserve’s earlier rate increases have declined. However, traders are still unsure and don’t know what to expect in the medium and long term. Despite the weaker greenback, USD bulls don’t want to give up. The dollar index has recovered from the 3-week low hit on Wednesday.
This situation won’t become clearer until the Fed’s meeting on Oct. 29 when the central bank will have to decide whether to end QE or not. In our view, next week investors will remain cautious. Such environment is supportive for gold. If the metal rises above $1,240.50 (June low, it may get to $1,268 (April lows). Japanese yen is also in demand, and USD/JPY will be vulnerable to the downside. Next week pay great attention to the American CPI figures on Wednesday – the lower is the US inflation, the stronger will be the bearish pressure on the US dollar – and the US corporate earnings.