Market Overview

The U.S. economic data showed this week that it is unlikely that the Fed will start raising its interest rates this year. Inflationary pressures remain at very low level. Only U.S. consumer price index excluding food and energy rose to 1.9% in September from 1.8% in August. It is unclear if this inflation data will be enough for the Fed's interest rate hike. Fed Governors Lael Brainard and Daniel Tarullo said this week that they would like to see clear signals that the inflation was accelerating toward the 2% target.

The inflation remains low due to low oil prices. But oil prices are expected to remain low as there are no signs of the decline in the global oil production. There are only expectations that non-OPEC countries will cut its oil production and the global oil demand will rise. But the International Energy Agency's (IEA) agency said in its monthly report on Tuesday that global oil oversupply will remain next year as global demand is expected to slow.

Venezuelan Oil Minister Eulogio del Pino said on Tuesday that eight non-OPEC countries (Azerbaijan, Brazil, Colombia, Kazakhstan, Norway, Mexico, Oman and Russia) have been invited to a meeting on October 21. Russian Energy Minister Alexander Novak said on Thursday that Russia is ready to discuss price floors and production cuts.

Market participants are awaiting the release of the U.S. housing market and manufacturing purchasing managers' (PMI) data next week. It is likely that the U.S. housing market will continue to strengthen. But the manufacturing PMI could slow down further as a stronger U.S. dollar and low oil prices weigh on the manufacturing sector. If the data is weaker than expected, it will add to speculation that the Fed will not start raising its interest rates this year.

Stock markets were mainly driven by Chinese economic data this week. The weak Chinese data weighed on stocks on Tuesday and Wednesday.

The Chinese economic data will remain in focus next week. Chinese gross domestic product will be released on Monday. Analysts expect the Chinese economy to expand only 6.8% in the third quarter, after a 7.0% growth in the second quarter.

It is likely that stock markets remain volatile on Chinese growth data and oil prices next week.

The foreign exchange market is also likely to remain volatile as market participants will look for further clues for the Fed's monetary policy.

The European Central Bank's (ECB) interest rate decision will be also in focus next week. Market participants will be looking for signals for further stimulus measures. Comments by the ECB Governing Council Member Ewald Nowotny added to speculation on the expansion of the ECB's asset-buying programme. He said on Thursday that further stimulus measures are needed as the central bank's inflation target will be missed.

It is likely that the currency pair EURUSD will test the level at $1.1500, if the U.S. economic data will negative and there will be no negative news from the Eurozone. There needed strong economic data from the Eurozone or very weak economic data from the U.S. to break through this level.

If the U.S. economic data is positive and in case of the negative news from the Eurozone, the currency pair EURUSD may test the level of $1.1291. In case of signals for further stimulus measures by the ECB, the currency pair may decline to the level at around $1.1200.