EUR/USD
Friday brought a surprise to the markets. Even two - one pleasant and expected, the second is not expected, especially the reaction of investors to it. GDP for the 3rd quarter showed 3.5% against the forecast of 3.3%, and this is an expected surprise, but investors began to actively close positions, trading volumes were higher than the previous day. This was especially evident in the British pound, which showed higher volumes at a lower dynamics than on Thursday. As it turned out, the reason was weak quarterly inflation. The GDP deflator, which includes the components of the goods of GDP itself, showed an increase of only 1.4% q/q against the forecast of 2.1% q/q, and the basic price index of personal consumption expenditure showed a slowdown from 2.1% y/y to 1.6% y/y.The exchange markets immediately seized the rumor about the possible failure to raise the Fed rate in December. The market likelihood of a rate hike at the December Fed meeting, determined by futures on Federal funds, fell from 78.4% to 66.9%. The yield on 5-year US government bonds fell from 2.949% to 2.909%.
The stock market lived its own life – fell by -1.73% (S&P 500). And here, in our opinion, lies a deeper reason for Friday's events. As we have already noted in a recent review, the main driving force of the stock market over the past 2.5 years was the purchase of large companies' own shares from the market (Buyback). After the companies sold their shares at the peak in September (as the volumes of trading on the securities of the largest companies show), the market went into free fall. The released money was sent to investors in government bonds and in the sale of counter dollar currencies. But on Friday, the course of events was a little disrupted - investors are now waiting for the Fed's reaction to the events.
It seems to us that in reality nothing extraordinary, crisis, occurs. The rate of bankruptcy of commercial organizations, according to the American bankruptcy Institute, this year is lower than last year (5070 organizations at an annual rate against 5760 in 2017), in September, 308 organizations went bankrupt against 363 in August, which is less in the same months of last year: 445 and 492, respectively. The labor market in the US is healthy – the number of applications for unemployment benefits is stable at historical lows, the number of new jobs in the non-agricultural sector in October is expected to 191 thousand.
What actions can the Fed take? Following the task of preventing the increase in the cost of debt servicing with its increase, the regulator can indeed reduce the rate of rate increase, but, on the other hand, with increased demand for public debt, the Fed and the Treasury may not be afraid of this. Following this strategy, we assume a further decline in the stock market, until the last short-term players are knocked out of it, and then its slow and uncertain recovery, now by the forces of middle-hand players. The link between the foreign exchange market and the debt market will increase, as will its hidden manipulation.
In the current situation, the market reversal is out of the question, of course. On the four-hour chart, a convergence was formed, but before the price there are powerful resistances: the price level 1.1432, the Krusenstern indicator lines and the balance on the graphs of both scales. We are waiting for the price reversal from any resistance (1.1432, 1.1475, 1.1520).
