Forex News

• The Dow Jones fell another 200 points on Friday as equities retreat on multiple fronts.
• The AI-centric tech segment is facing further declines in the face of high AI spend and low revenues.
• US consumer sentiment took a worrying turn, dragging market sentiment even lower.

The Dow Jones Industrial Average (DJIA) took another leg lower on Friday, testing below the 46,800 level for the first time in almost three weeks before barely managing to squeeze back to flat for the day as an AI stock pullback and withering consumer survey results drag down both sides of the investment-consumption equation. Friday would have seen the release of the latest US Nonfarm Payrolls (NFP) jobs report, but the ongoing US government shutdown, which is officially the longest shutdown in US history, is crimping the flow of official data, leaving investors to grapple with volatile private data, and putting deep question marks where key inflation and employment numbers should be.

US Senate Democrats prepared a minibus government funding solution for House Republicans to accept, which Republicans promptly rejected before headlines could even be written. Democrats were willing to suspend Affordable Care Act (ACA) healthcare provisions for an entire year in order to get the US government started back up, but Donald Trump's Republican supporters within the US government remain unwilling to reopen federal government services unless Democrats are fully willing to allow between 15 and 40 million Americans lose access to critical healthcare coverage. Supplemental Nutrition Assistance Program benefits, also known as the SNAP program, have also been shuttered during this federal closure, marking the first time in US history that SNAP has been withdrawn during a government shutdown. SNAP provides food benefits for over 9% of American households, 80% of which contain children. Donald Trump's administration has waffled severely on SNAP funding, stating that they will be fully, partially, or not funded depending on the day or who is asking the question.

Consumer sentiment takes a knee

University of Michigan (UoM) Consumer Sentiment survey results showed that US spenders and earners are far more bitter about worsening economic conditions than previously expected by investors. The UoM’s Consumer Sentiment Index and Consumer Expectations Index both declined to some of their lowest levels on record, with the Sentiment Index falling to 50.3 from 53.6, and the Expectations Index slumping to 49 from 50.3. The steep declines highlight the deteriorating economic outlook for consumers, who have been facing worse employment, income, and hiring conditions through the second half of the year. Markets struggled to grasp deteriorating conditions at the surface level of consumer data, with the upper ranks of income earners covering inflation and job cut holes with outsized consumption spending power in the post-COVID economic era.

The UoM’s 1-year and 5-year Consumer Inflation Expectations survey results also showed a steepening of the consumer expectations curve, with 1-year inflation expectations rising to 4.7% from 4.6% and the 5-year outlook falling to 3.6% from 3.9%. A tightening inflation expectations curve implies that consumer-level economic concerns are shifting from general malaise to growing fears of a near-term deterioration. 

Fed consumer sentiment results differ, but overall message remains the same

Fears of a 'K-shaped' economy, where a few high-income earners are outspending the lower portions of the income ladder just enough to paper over threats of steep economic downturns, have been growing through the year among academic circles, and now K-shaped data sources have been appearing to further complicate the issue. According to the Federal Bank of New York (Fed), consumer inflation expectations were relatively unchanged in October, with the New York Fed reporting a slight decline in 1-year inflation expectations to 3.2% from 3.4% and an unchanged 5-year inflation outlook at 3.0%. Despite the comparatively cooler data, even the New York Fed had to begrudgingly acknowledge that October’s household labor market outlook was “mostly negative”, while consumer perceptions of both current and future financial conditions worsened appreciably.

Shutdowns are the president's fault, except when they're not

The US government shutdown continues to roll on into record territory, and US President Donald Trump has the dubious honor of helming the federal government during the two longest shutdowns in US history, and also stands tall as the US President in office for the most federal closures. With official datasets frozen due to defunding, investors have been forced to pivot into sniffing out private datasets to try and estimate where inflation and labor market shifts are hitting, and the figures are not looking good. According to figures from DataWeave, major retailers Target (TGT) and Walmart (WLMT) have seen their average prices rise 5.5% and 5.3%, respectively, a stark reminder that inflation figures tend to be a collection of assumptions, estimates, and averages, and can frequently mask steep, unbalanced price hikes that pummel a large number of lower-income consumers’ wallets.

Donald Trump’s personal solution to growing concerns about an affordability crisis was to take to social media and make a post demanding that everyone “STOP LYIN”, and instead claiming that his administration has actually “whipped” inflation. In 2013, Donald Trump was an aspiring political candidate who claimed via a social media post that “a shutdown means the president is weak.” However, that was before Donald Trump was personally at the helm of the two longest government shutdowns ever.

Dow Jones daily chart

• USD/JPY rebounds, erasing prior 100-pip loss as yields stabilize and Dollar demand strengthens.
• Support sits near 20-day SMA and lower trend levels, while resistance capped near recent highs.
• RSI supports bullish continuation if price clears key resistance, signaling momentum buildup ahead.

The USD/JPY stages a recovery on Friday with buyers claiming 153.00, an indication that the uptrend might resume in the short term. The 100-pip or 0.68% Thursday’s loss was offset by traders buying the US Dollar due to its close correlation with the US 10-year Treasury note yield, which was steady during the trading day.

USD/JPY Price Forecast: Technical outlook

The USD/JPY technical picture shows that buyers regained momentum at around 153.00 with the next support level seen at the 20-day SMA at 152.52. Although buyers kept the exchange rate from falling to 152.80, a breach of the latter opens the door towards the 20-day SMA and on further weakness, the October 29 low lies next at 151.53.

However, buyers remain in charge as depicted by the RSI. That said, if USD/JPY rises above 154.00, the next resistance would be the November 4 peak at 154.48, followed by 155.00.

USD/JPY Price Chart – Daily

• EUR/USD rises 0.16% as markets digest extended US shutdown and weak sentiment data.
• US Dollar Index slips to 99.53 as investors favor Euro despite Wall Street’s AI-led selloff.
• German trade surplus narrows to €15.3B, while steady US inflation expectations signal cautious outlook ahead.

EUR/USD trimmed some of its previous losses and rises 0.16% on Friday’s late in the North American session, amid a scarce economic docket in both sides of the Atlantic. The US government shutdown extension to its 38^th day and the light docket in Europe, keeps the pair trading within familiar levels around 1.1560.

Euro gains modestly as traders shun the Dollar amid US government shutdown

That lack of data in the US increased uncertainty in the financial markets, as seen by Wall Street indices, plunging due to different reasons. Alongside the government shutdown, investors seem anxious about AI related companies being overvalued, triggering a sell-off in the four major US indices.

As investors became risk averse, one should expect Greenback to being the haven, but traders opted to buy the Euro instead of the Dollar. The US Dollar Index (DXY), which tracks the performance of six currencies, dives 0.16% at 99.53.

Economic data in the US showed that consumers had grown pessimistic about the economy, revealed the University of Michigan (UoM) Consumer Sentiment poll for November. At the same time, the New York Fed revealed that inflation expectations for one year dipped, while for a medium term stood steady, revealed the October’s survey.

In Europe, the German Trade Balance showed the surplus narrowed to €15.3 billion in September, beneath the €16.8 expected, following August’s downward revised surplus of €16.9 billion.

Daily digest market movers: EUR/USD to remain trapped within 1.15-1.16

• US Consumer Sentiment fell sharply to 50.3 in November from 53.6 in October, reflecting weaker household confidence said the UoM. The survey showed inflation expectations for the year ahead edged higher to 4.7% from 4.6%, while the five-year outlook eased to 3.6% from 3.9%.
• The New York Fed’s Consumer Expectations Survey showed that one-year inflation expectations slipped to 3.2% in October from 3.4% in September. Expectations for both the three-year and five-year horizons were unchanged at 3.0%.
• Federal Reserve Vice Chair Philip Jefferson said the central bank should move cautiously with additional rate cuts as monetary policy approaches a neutral stance. He added that decisions will be made on a meeting-by-meeting basis and noted the “potential lack of government data due to the shutdown” as a factor warranting prudence.
• In Europe, an unexpected decline in September retail sales dampened optimism following earlier upbeat services sector data, acting as a headwind to the euro’s recovery.

EUR/USD technical outlook: To remain subdued, tilted to the downside

The EUR/USD seems poised to remain downward biased, despite sellers lacking the strength of pushing the exchange rate towards the 200-day Simple Moving Average (SMA) at 1.1344. Nevertheless, in the short term if buyers regain the 20-day SMA at 1.1592 and 1.1600, then look for a recovery towards 1.1700.

Although buyers are gathering momentum as shown by the RSI, as long as the index is bearish, sellers have the upper hand. Hence, if EUR/USD drops below 1.1500, expect a test of the August 1 cycle low of 1.1391.

• Gold trades near $4,002, extending weekly gains as market uncertainty supports safe-haven demand.
• US consumer sentiment falls to its lowest since June 2022 amid prolonged government shutdown worries.
• Markets price 68% odds of a December Fed cut as job cuts surge to 20-year highs.

Gold price (XAU/USD) advances during the North American session on Friday, up 0.64% as the US government shutdown extends, while risk aversion keeps US equity markets poised for weekly losses. At the time of writing, Bullion trades at $4,002 after bouncing off daily lows of $3,974.

Bullion gains 0.64% amid risk aversion and growing bets for a December Fed rate cut

Uncertainty continues to surround the US economy, as shown by the University of Michigan preliminary Consumer Sentiment for November. The index reached its lowest level since June 2022 amid the COVID emergency, showing that households are expressing worries “about potential negative consequences for the economy” of the US government shutdown.

Consequently, Gold, which is usually sought as a hedge to uncertainty and lower interest rate environments, clung to its gains, up so far 0.13% in the week.

Meanwhile, the US job market might be slowing more sharply than expected, as the Challenger report prepared by Gray & Christmas showed on Thursday that employers fired over 150,000 people in October, the largest reduction for the month in more than 20 years.

Market participants see a 68% chance of a rate cut by the Federal Reserve (Fed) at the December meeting, according to data by the Prime Market Terminal interest rate probability tool.

Daily market movers: Gold advances amid steady US Treasury yields

• The US Dollar Index (DXY), which tracks the performance of the American currency against other six, slides 0.15%, down to 99.55.
• US Treasury yields with the 10-year Treasury note yield stabilized, following Thursday’s seven-and-a-half basis points plunge, and hovers at around 4.085%, unchanged. US real yields — which correlate inversely to Gold prices — climb nearly two basis points to 1.805%.
• The US government shutdown began its thirty-eighth day, and the chances of a reopening seem far even though the Republican Senate Leader John Thune has proposed a vote later Friday on a new continuing resolution to reopen the government through January.
• The White House Economic Adviser Kevin Hassett told CNN that the shutdown is hurting the economy more than they expected, anticipating a reduction of 1 to 1.5% in GDP growth this quarter.
• The New York Fed Consumer Survey showed that inflation expectations for one year in October dipped from 3.4% to 3.2%. For a three and five-year period, they remained unchanged at 3% each.
• The University of Michigan revealed that Consumer Sentiment in November plunged to 50.3 from 53.6 in October. The survey updated households’ inflation expectations. For a one-year period, it rose to 4.7% from 4.6%, and for a five-year period, dipped from 3.9% to 3.6%.
• Fed Vice Chair Philip Jeffferson said that “The Fed should proceed slowly with further rate cuts as policy approaches the neutral rate.” He commented that his approach would be meeting by meeting and cited “a potential lack of government data due to the shutdown.”
• Data from the World Gold Council (WGC) revealed that Gold ETFs recorded inflows of 54.9 tonnes in October, led by strong demand from North America (+47.2 tonnes) and Asia (+44.8 tonnes), while Europe saw outflows of 37.4 tonnes.

Technical outlook: Gold price climbs towards $4,000

Gold’s technical picture remains bullish, though bulls must achieve a daily close above $4,000 to remain hopeful of higher prices. Bullish momentum is increasing as depicted by the RSI.

If XAU/USD climbs above $4,000, bulls could target the 20-day Simple Moving Average (SMA) at $4,082. A breach of the latter will expose $4,100. Conversely, a drop below $4,000 would expose the $3,950, followed by the October 28 low of $3,886.

Federal Reserve Governor Stephen Miran spoke about stablecoins and monetary policy at the Blockchain & Venture Capital Summit in New York on Friday. He said that a lot of stablecoin usage would likely lower the neutral rate, and that Widespread stablecoin usage could push up the dollar's value.

Key Takeaways

Widespread stablecoin usage could increase risk of hitting zero lower bound.

Lots of stablecoin usage would likely lower the neutral rate.

I am encouraged by stablecoin integration into the financial system.

Wide stablecoin usage could push up the dollar's value.

The rise of stablecoins could drive even wider use of the dollar.

Widespread use of stablecoins could argue for lower Fed rates.”