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11.11.202109:19 Forex Analysis & Reviews: US market: Inflation hikes sharply. Market falls and dollar increases. November 11.

Exchange Rates 11.11.2021 analysis

S&P500

The US market fell amid rising inflation. The dollar strengthened sharply.

The US market fell for the second straight day before the holiday. The US indices decreased at Wednesday's close: Dow Jones fell by 0.7%, NASDAQ decreased by 1.7%, S&P500 dropped by 0.8%.

The US market is closed on Thursday as the country celebrates Veterans Day.

On the contrary, Asian markets rose on Thursday: Japanese indices increased by 0.5%, Chinese indices hiked by 1.3%.

Energy. Oil fell sharply by $2 yesterday following the US market decline. Brent was $82.70 on Thursday. US oil inventories rose by 1 million barrels. The US crude oil stockpile is up by 1.5 million barrels.

COVID-19 in the world. The number of cases increased by almost 100,000 in the US yesterday reaching 94,000 cases, an increase of cases in Germany was by 45,000 taking second place in the world by their number. Russia and the UK have 39,000 cases each. The US and Russia had over 1000 deaths yesterday.

The S&P500 index is marked at 4646. The trading range is between 4610 and 4680. Yesterday, an important October inflation report was released in the US. The US inflation did not decrease, contrary to the Fed's expectations. The inflation rose sharply above the September reading and above the forecast. The inflation in October was higher by 0.9% monthly, the expected rise was 0.6%, and in the previous month, it was 0.4%. Thus, the US inflation is above 5% and is not going to fall. Such readings are quite unusual for the US and Europe. Wall Street Journal has posted on their website a comparative graph of inflation and recessionary trends over the last 35 years, and these inflation rates have always coincided with recessions, just as they are in the US now. It is obvious that the Fed cannot indefinitely keep the inflation at 5% or higher with its inflation target at 2.5%. The regulator will have to move from waiting for the inflation to go down to raising the rate. A sharp rise in the cost of credit may stop economic growth and cause a big drop in the stock market.

The labor market report for the week showed strong statistics. Unemployment claims stabilized below 300,000 reaching 270,000. The number of long-term unemployed logged near 2.1 million.

US President Joe Biden said yesterday that fighting inflation is the priority now. The inflation level has risen to its highest level in 30 years. Biden sees rising energy prices as the main cause of inflation and suggested taking measures against rising fuel prices. At the same time, Biden is insisting on more government spending, while pushing large packages on social spending and infrastructure. The administration's high spending has contributed significantly to accelerating inflation along with the Fed injecting money into the markets. The US budget deficit was $165 billion last month.

The US and China unexpectedly agreed on combating carbon emissions in the next 10 years at the UN Climate Change Conference in Glasgow. However, the countries did not support the UK's proposal to tighten emissions standards as early as the end of next year.

The USDX is trading at 94.90 within the range between 94.60 and 95.20. The dollar index rose sharply yesterday to 94.90 from 93.90 while receiving support from rising US inflation on the expectation that high inflation will force the Fed to start increasing the rates earlier than planned. The dollar is likely to continue its rally.

The USD/CAD pair is trading at 1.2504 within the range of 1.2450-1.2560. The dollar's sharp upward reversal has completely changed the situation on the chart. The pair reached the weekly highs again and it might continue rising in case the dollar index increases again.

In conclusion, the US market is expected to bounce back up on Friday. However, that does not mean the correction is over as it has just started.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Jozef Kovach,
Analytical expert of InstaSpot
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