Dollar takes a breather as investors brace for an action-packed week

Event-packed week 

An important week commences with pivotal US data releases, key earnings announcements and the last chance for Fed officials to express their opinions ahead of the usual blackout period. The focus is obviously on Wednesday’s CPI report that is key for Fed rate expectations. However, despite its significant market-moving potential, the CPI report appears to be less pivotal than two weeks ago, as the October rate hike has been almost completely priced out. Only a very strong CPI report could change the dynamics within the FOMC regarding the upcoming meeting.

Meanwhile, there have been mixed price movements during the Asian trading session, although the drop in the Korean KOSPI is quite noticeable, as Japan is observing a rare bank holiday. If one adds the US Columbus Day, with US equity markets trading normally but the US cash bond market being closed, then it feels like a confusing start to a key week

President Trump was quite active during the weekend 

Investors are evaluating the weekend developments regarding the US-Russia agreement on diesel, which President Trump hopes will lower US diesel prices just three weeks before the midterm elections. Interestingly, despite reports that the flow of oil from Gulf countries has jumped, which could explain the fresh Houthi attacks on Saudi Arabian soil, the supply of oil products, including diesel, is still quite low, with some estimates putting it at 50% of pre-conflict levels. 

The oil market is edging lower today, partly on hopes that the energy ceasefire between Ukraine and Russia will actually be implemented, in line with the short-term bearish trend since the September 15 peak. However, a drop below $90 would require significant developments in other conflicts, especially in the Middle East, restoring, to a certain degree, the flow of oil and reducing the current risk premium.

Meanwhile, Trump’s comments about Ukraine needing to replace Zelenskyy with another leader, who would eventually agree to end the current Ukraine-Russia conflict, are confirming the US President’s anger about Zelenskyy targeting Russian oil installations and refineries. This animosity remains one of the key barriers for a peace agreement in the region, with the Ukrainian side becoming increasingly worried about a US-Russia reconciliation, and Europeans feeling rather unhappy about it as well.

Earnings in sight, as dollar rally pauses and gold slides

The countdown to Tuesday’s and Wednesday’s US bank earnings releases is underway, although most investors would probably focus more on Thursday’s TSMC earnings call, especially on its full-year guidance. A strong start to the current earnings season appears pivotal for market sentiment, as the technology sector of the S&P 500 index is showing signs of rally fatigue so far in October. 

Following four consecutive weeks of dollar outperformance, the greenback is experiencing a mixed performance today ahead of another plethora of Fedspeak this week. Cleveland Fed President Hammack – an uber-hawk and 2026 voter – will kick off the busy week today, with Fed Chair Warsh scheduled to speak on Friday at the WB/IMF meeting in Bangkok, Thailand, and investors are also awaiting commentary from Board members and doves Waller and Bowman. 

The euro has started the week on a brighter note, but a single headline about political developments could quickly turn sentiment negative, with EU leaders also preparing for a potentially challenging summit in Brussels about the next seven-year EU budget. Meanwhile, this pause in dollar outperformance has not given much breathing space to gold. Following a strong finish to the week, another strong performance is needed to confirm Friday’s jump above the downward sloping trendline from the August 25 peak. If gold manages to remain above the $4,190 level, the door could be open for a move towards the busy $4,275 area.