• AUD/USD stays indecisive, grinding lower, despite posting two-week uptrend.
• Market sentiment dribbles even as Dow Jones braces for the best month since 1976.
• Hopes of RBA’s 0.25% rate hike versus Fed’s 75 bps lift keep sellers hopeful ahead of the key data/events.
• Australia Retail Sales, China PMI could offer immediate directions, risk catalysts may test the buyers.

AUD/USD stays defensive around 0.6400 while portraying the market’s anxiety ahead of the bumper data and the key events. Even so, the bears remain hopeful during the early Monday’s Asian session amid the anticipated divergence among the monetary policy moves between the US Federal Reserve (Fed) and the Reserve Bank of Australia (RBA).

Recently increasing risks from the Russia-Ukraine tussles appeared to have joined the hawkish hopes from the Fed to exert downside pressure on the AUD/USD, due to the pair’s risk barometer status. On the same line are expectations of a softer print of the Aussie Retail Sales for September and likely downbeat China official PMIs for October.

“Russia, which invaded Ukraine on Feb. 24, halted its role in the Black Sea deal on Saturday for an ‘indefinite term’ because it could said it could not ‘guarantee safety of civilian ships’ traveling under the pact after an attack on its Black Sea fleet,” reported Reuters.

Elsewhere, economists at Goldman Sachs raised the Fed rates outlook and saw the peak at 5% in March. On the same line was the CME’s FedWatch Tool which suggests an 80% chance of the Fed’s 75 bps rate hike during Wednesday’s Federal Open Market Committee (FOMC).

Alternatively, Christopher Kent, Assistant Governor (Economic) at the RBA mentioned that the size and timing of rate increases will depend on incoming data. The same join the Reuters poll suggesting the RBA will raise interest rates by a more modest 25 basis points for a second straight month on Tuesday and is set to do so again in December despite the highest inflation in three decades,

That said, Friday’s upbeat prints of the Fed’s preferred inflation gauge, namely the US Core Personal Consumption Expenditures (PCE) Price Index, also challenge the AUD/USD buyers. It should be noted that the inflation gauge rose to 5.1% YoY for September versus 5.2% expected and 4.9% prior.

Against this backdrop, the yields are down and the equities are bracing for a good month with Dow Jones bracing the biggest monthly jump since 1976. The same teases the first monthly gain of the AUD/USD pair in three ahead of Australia’s September month Retail Sales, expected to remain unchanged at 0.6%, as well as China’s NBS Manufacturing PMI for October, likely easing to 50.0 versus 50.1 prior.

Technical analysis

A clear downside break of a two-week-old ascending trend line, around 0.6370 by the press time, appears necessary for the AUD/USD bears to retake control. Also acting as short-term key support is the 21-DMA level surrounding 0.6360.

• GBP/USD is eyeing more gains after a break above 1.1600 amid improved risk appetite.
• The odds of a 75 bps rate hike by the Fed helped yields to rebound.
• Tightening fiscal and monetary policy would give a strong fight double-digit inflation riddle.

The GBP/USD pair is playing near the round-level resistance of 1.1600 in the early Tokyo session. The cable rebounded firmly on Friday after dropping to near the major cushion of 1.1500 amid a cheerful market mood. The risk-on impulse regained its traction after S&P500 shrugged off tech’s forward earnings uncertainty and rose sharply around 2.5%.

The US dollar index (DXY) remained capped in a 45-pips range as bumper risk-appetite restricted bulls to have a ball while higher chances of a bigger rate hike by the Federal Reserve (Fed) kept bears at the place. Also, the 10-year US Treasury yields reclaimed the 4% mark as a fourth consecutive 75 basis point (bps) rate hike by the Fed looks real.

A report from Goldman Sachs cites that the US central bank could go beyond its desired terminal rate of 4.75% to 5%. The road to a 5% terminal rate will go through the phases of 75 bps this week, 50 bps in December, and 25 bps in February and March, the report added.

But before that, the US ISM Manufacturing PMI data will remain in focus. The economic data is seen lower at 50.0 vs. the prior release of 50.9. Also, the ISM New Orders Index will be the crucial catalyst that displays forward demand and is seen significantly higher at 49.1 against the former figure of 47.1.

On the UK front, Tuesday’s monetary policy will be of utmost importance as it will be the first after UK novel leadership. To combat the double-digit inflation monster, Bank of England (BOE) Governor Andrew Bailey will prefer to go with expensive chips. Analysts at Rabobank look for a 75 bps rate hike to 3.00% from 2.25%. They explain that it would still be the largest rate hike of this cycle. They expect to see rates peaking at 4.75%.

After the disaster of the mini-Budget in late September, UK PM Rishi Sunak and Chancellor Jeremy Hunt are targeting to curtail the higher debt situation through fiscal policy, which will also be supportive of fighting against soaring price pressures. Reports from Financial Times claim that Sunak is exploring tax rises and spending cuts of up to GBP 50 billion, which is in line with the agenda of the bank of England (BOE) of bringing price stability.

• EUR/USD takes offers to renew intraday low, pauses two-week uptrend.
• Fears of Eurozone recession, geopolitical concerns join ECB’s dovish hike to weigh on EUR.
• USD bulls cheer hawkish Fed bets, firmer US data even as yields challenge the upside momentum.
• Eurozone GDP, inflation can entertain traders but FOMC, US NFP will be crucial for clear directions.

EUR/USD begins the key week on a negative note, declining to 0.9940 during the early hours of Monday’s Asian session, as traders rush to the US dollar for risk safety ahead of crucial data/events. Also exerting downside pressure on the major currency pair could be the latest comments from the European Central Bank (ECB) official, as well as the market’s bets on the US Federal Reserve’s (Fed) next move.

During the weekend, European Central Bank (ECB) policymaker Klaas Knot said that a 75bps increase is feasible in December but has not yet been decided. “A recession is growing becoming likely,” adds ECB’s Knot. On the other hand, Goldman Sachs raises Fed rates outlook and sees peak at 5% in march. Additionally, Russia’s halt to the grain deal citing attacks on its ships from Odessa joins the ongoing US-China tension to add strength to the bearish bias.  

On Friday, Annual inflation in Germany, as measured by the Consumer Price Index (CPI), climbed to 10.4% in October from 10% in September, Germany's Destatis reported on Friday. This reading came in higher than the market expectation of 10.1%. Meanwhile, the Harmonised Index of Consumer Prices (HICP), the European Central Bank's (ECB) preferred gauge of inflation, jumped to 11.6% from 10.9%, compared to analysts' estimate of 10.9%.

On the other hand, the Fed’s preferred inflation gauge, namely the US Core Personal Consumption Expenditures (PCE) Price Index rose to 5.1% YoY for September versus 5.2% expected and 4.9% prior.

It should be noted that ECB’s indirect signals of a slowdown in the further rate hikes and a fifth consecutive fall in the US private consumption challenges the EUR/USD traders.

Amid these plays, the yields are down and the equities are bracing for a good month, which in turn teases the first monthly gain of the EUR/USD pair in five ahead of the first readings of the Eurozone Q3 GDP and the inflation data for October, expected 0.2% QoQ and 1.2% MoM respectively versus 0.8% and 1.0% priors in that order. Should the actual data ease the quote could witness further downside amid hawkish bias for this week’s Fed and upbeat US jobs report for October.

Technical analysis

EUR/USD sellers need validation from a downward sloping previous resistance line from June, around 0.9900 by the press time, to retake control.

“Goldman Sachs economists said the US Federal Reserve (Fed) could bump up interest rates to as high as 5% by March 2023, 25 basis points above its earlier predictions, Bloomberg News reported on Sunday,” per Reuters.

Key quotes

Also read: EURUSD Weekly Forecast: Roles invert with US Federal Reserve and EU Gross Domestic Product coming up next

• Gold price is looking for a pullback to near $1,650.00 as a cheerful market mood could weigh on DXY.
• Growing expectations for a 75 bps rate hike by the Fed helped yields to rebound.
• Higher consensus for US ISM New Orders Index indicates that forward demand is strong.

Gold price (XAU/USD) has witnessed fresh demand after a vertical drop to near $1,640.00. The precious metal is aiming for a pullback move to near the critical resistance of $1,650.00 as long liquidation hogs the limelight.

The US dollar index (DXY) remained restricted on Friday as the upbeat market sentiment capped gains around 111.00 while odds of a bigger rate hike by the Federal Reserve (Fed) remained a major cushion for the counter. As per the projections, Fed chair Jerome Powell will announce a fourth consecutive 75 basis point (bps) rate hike on Wednesday.

Higher odds for further policy tightening by the Fed helped yields to rebound after a major decline. The 10-year US Treasury yields reclaimed the psychological hurdle of 4%.

Going forward, the US ISM Manufacturing PMI data will remain in the spotlight. The economic data is seen lower at 50.0 vs. the prior release of 50.9. Also, the ISM New Orders Index will be a crucial catalyst that displays forward demand and is seen significantly higher at 49.1 against the former figure of 47.1.

Gold technical analysis

On an hourly scale, gold prices have rebounded after sensing less selling pressure while testing weekly lows at $1,638.15, recorded on Tuesday. The precious metal is playing with the 20-period Exponential Moving Average (EMA) at $1,644.39 while the 50-EMA at $1,651.15 is still higher.

Meanwhile, the Relative Strength Index (RSI) (14) is attempting to ditch the bearish range of 20.00-40.00.

Gold hourly chart

Reuters reported that the European Central Bank (ECB) could hike its interest rates by 75 basis points again at its next policy meeting in December, ECB governing council member Klaas Knot said on Sunday.

'We will take a significant interest step again in December,' Knot said in an interview with Dutch TV programme Buitenhof, adding that is was likely that the next raise would be between 50 and 75 basis points.''

For the open, the prices are indicating US dollar strength, however, EUR/USD is hovering above a void of liquidity towards 0.9870, but if the bulls can hang on above 0.9950 for the start of the week, there will be prospects of a move above 1.0000 with 1.0050 eyed.

EUR/USD H1 chart

• EUR/USD Price Analysis: The bulls are in play for the open, but bears ready to pounce

• NZD/USD is pressured by the resurgence of the US dollar.
• Key data events will be challenging for the bird. 

NZD/USD ended the day a little lower on Friday, losing some 0.26% from the high of 0.5873 and reaching a low of 0.5782. The US dollar firmed into the final days of the week from a significant trendline support as traders get set for a very busy schedule this week that includes the Federal Reserve and US Nonfarm Payrolls as the highlights. 

While there is little in the way of domestic risks to start the week, the Reserve Bank of Australia is this week which could have an influence on the bird and there will be NZ jobs also. We also have the Chinese Official PMI (Oct) to start off the week. However, the event risk that is front and centre this week will be the FOMC and whether the board will decide not only a 75bp hike but due to the considerable uncertainty around the degree of hawkishness in the Fed’s guidance, the presser will be key. 

''The US PCE deflator may have come in a touch below expectations, but the core inflation is still very elevated,'' analysts at ANZ Bank argued. ''Locally, it’s almost guaranteed that the Q3 labour market statistics (out Wednesday) will clock the labour market at inflationary levels (we estimate the NAIRU is around 4.5%), but as is always the case, the volatile HLFS data is capable of producing a decent miss vs market expectations. Wages will be key, and while the hurdle is high to beat the RBNZ’s forecast (8.3% YoY for the QES), these data will at least confirm how advanced the wage-price spiral has become.''

RBA outlook

As for the RBA, it is expected to raise its cash rate by 25bps, according to 28 out of the 32 respondents polled by Reuters, whilst a handful look for a 50bps increase. Westpahas have been calling for a 50bps increase “in November for a terminal rate of 3.85% by March, revised up from 3.6%.” Analysts at NAB have argued for just a25bps hike. "In these circumstances, the RBA will need to move monetary policy into a more clearly restrictive territory to ensure inflation returns to target," NAB argued.

• EUR/USD is poised for a move higher for the open.
• EUR/USD bears eye a break of key support structures longer-term.

For the open, EUR/USD is hovering above a void of liquidity towards 0.9870, but if the bulls can hang on above 0.9950 for the start of the week, there will be prospects of a move above 1.0000 with 1.0050 eyed.

EUR/USD H1 chart

We have a W-formation in place that could act as a firm support considering the price has moved to the backside of the trendline with accumulation in play. 

EUR/USD bearish scenario

On the other hand, if bulls do not commit thereafter, while below the recent peaks in the 1.0090s, a continuation to 0.9750 could be on the cards into the Federal Reserve: 

(Hourly chart above)

(Daily chart below)

The daily chart shows that while the price has tried to get above the trend, it has yet to breach the resistance zone and the tweezer tops could prove to be the peak of the breakout. A move below 0.9875 will be significant in this regard, putting the price back into line with the dominant trend with prospects of a move below the counter trendline and back into the hands of the bears to target a critical break of 0.9705. 

• AUD/USD broke a key technical micro trendline.
• While on the backside of that trend, the bias is to the downside on a break of 0.6350. 

AUD/USD is below the dominant trendline but longs are in the market as per the past prior days of trade and inside bars of the Wednesday bullish candle and breakout. The following illustrates prospects, however, of a correction into those longs across the daily, 4-hour and hourly timeframes. 

AUD/USD daily chart

The price broke out of the micro trend and made a subsequent rally into the resistance of the more dominant bearish trendline. We have seen a correction into support.

AUD/USD H4 chart

This support could be significant and result in a retest higher into shorts that sold the break of the micro bullish trend that would now be expected to act as a counter trendline. 

AUD/USD H1 chart

The support is made up of September lows, last Friday's lows and prior resistance such as the prior week's high. Last week's high, however, is where the bulls need to be. At this juncture, while on the backside of the trend, the bias is to the downside on a break of 0.6350.