• AUD/USD finds a short-term cushion around 0.6400 as the risk-off impulse is still sold.
• Hawkish commentaries from Fed policymakers will strengthen the DXY further.
• The US NFP will remain a mega event for the currency market ahead.

The AUD/USD pair has sensed buying interest from 0.6400 and is marching higher gradually in early Tokyo. The aussie bulls have attempted a rebound despite the stability of the risk-off impulse in the market. The 10-year US Treasury yields are solid around 8.3% and have not displayed any sign of correction yet. Also, S&P500 is hovering around lower levels and is still far from any pullback move. Therefore, odds are favoring a mere pullback in the commodity-linked currency after a vertical fall.

The mighty US dollar index (DXY) is expected to strengthen further on hawkish commentary from Federal Reserve (Fed) policymakers.

Chicago Fed Bank President Charles L. Evans has provided crisp guidance for rate hikes in the remaining 2022. Fed policymaker believes that the central bank will reach the targeted rate of 4.5-4.75% by the spring of 2023. He sees no impact on Unemployment Rate and believes a good amount of strength in the US economy. He further added that policymakers are looking to raise borrowing rates by 125 basis points (bps) collectively in the remaining two monetary policy meetings in 2023.

Also, Fed Governor Christopher Waller crosses wires on Thursday, stating that he sees little reason for the slow down of policy tightening pace by the central bank. He further added that "Inflation is far from the FOMC’s goal and not likely to fall quickly,"

In today’s session, investors will keep an eye on US Nonfarm Payrolls (NFP) data. The payroll data is expected to land at 250k, lower than the prior release of 315k. While the Unemployment Rate is seen as stable at 3.7%.

Aussie bulls are still in the hangover of weak Trade Balance data. The economic data landed lower at 8,324M, lower than the projections of 10,500M and the prior release of 8,733M. Going forward, the Australian Westpac Consumer Confidence data will remain in focus.

• EUR/USD is attempting to rebound from below 0.9800, downside seems favored.
• The DXY could stay sideways ahead of the US NFP data.
• EU officials to discuss more on price cap of Russian oil shipments for third countries with G7.

The EUR/USD pair is attempting to defend the extension of weakness below 0.9790 and is sensing buying interest in the early Tokyo session. The asset is displaying sigs of exhaustion in the downside momentum, which could result in a pullback move ahead. Risk sentiment is still negative and the US dollar index (DXY) has not displayed any sign of exhaustion in the uptrend, therefore, the downside momentum in the asset could resume sooner.

The major could shift into a chartered territory as investors are awaiting the release of the US Nonfarm Payrolls (NFP) data. As per the consensus, the employment generation data is expected to underperform. The job additions are seen at 250k, lower than the prior release of 315k. The US labor market is extremely tight, therefore, jobs will continue to rise but at a diminishing rate.  

Apart from that, the Average Hourly Earnings data will be of utmost importance. The projections display a downward shift to 5.1%, 10 basis points (bps) lower than the prior release. Price pressures in the US economy have yet not displayed a meaningful downward shift yet, therefore, lower earnings won’t be able to offset the higher payouts by the households.

Odds of a bigger rate hike by the Federal Reserve (Fed) have become strong as Fed Governor Christopher Waller crosses wires on Thursday, stating that he sees little reason to slow down the policy tightening pace by the central bank. He further added that "Inflation is far from the FOMC’s goal and not likely to fall quickly,"

On the Eurozone front, the discussions over the implementation of a price cap for Russian oil shipments for third countries with G7 countries will stretch to work out the exact mechanism to set a specific cap, EU officials told Reuters on Thursday. On the economic data front, weaker Eurozone Retail Sales data weakened the shared currency bulls. The Retail Sales data is contaminated with inflationary pressures but still has declined by 2% vs. the projections of a decline of 1.7%.

• GBP/USD bears are lurking and eye a run into the 1.0900s.
• The focus will be on the US NFP data and how US yields and the US dollar react. 

GBP/USD has been sold heavily towards the remaining sessions of the week. On Thursday, the bears moved in below the countertrend line on the hourly chart.

The price moved into the low 1.1100s with the groundwork being done in London. Traders in the US session finished off what the bears started in Europe and there could be more to come depending on the outcome of Friday's key US event in Nonfarm Payrolls: 

US 10-year yield H1 charts

The W-formation, zoomed in, is bullish as price meets support at the neckline. This is a bearish scenario for cable. 

DXY H1 chart

Despite downbeat Initial Jobless Claims, the DXY index, which measures the US dollar vs a basket of currencies, including the pound, rose and extended its gains from the previous day. 

On Thursday, the greenback is back above 112.00, recovering from when it was initially falling against most majors at the start of the week before regaining ground. The question here is whether it can extend the gains towards the high of the week through 112.50. If Friday's NFP is terrible, then the 111 level will potentially come under pressure, whereas if the data is in line, it will be another disappointment for those looking for a Fed pivot and positive for the greenback, bearish for GBP: 

GBP/USD weekly chart

The price has come up to test the trendline in a strong move through key Fibonacci levels. However, there is a daily price imbalance, as per the greyed area and while below resistance, the focus remains on the downside. 

GBP/USD daily chart

On the other hand, should the bears stay the course and a bullish outcome for the US dollar in today's Nonfarm Payrolls, then the following illustrates the prospects of a move into the 1.0900s according to the hourly structure:

• GBP/JPY remains positive in the week, up by 0.32%, despite falling in the last couple of days.
• The cross-currency failure to crack the 200-EMA in the 4-hour chart will exacerbate a fall toward 160.00.

The GBP/JPY extended its losses amid worries that a Fed dovish pivot should be put on a drawer, with US economic data giving mixed signals ahead of a crucial US employment report on Friday. Therefore, sentiment shifted sour as US equities finished with substantial losses. At the time of writing, the GBP/JPY is trading at 162.05, testing the confluence of several DMAs.

GBP/JPY Price Forecast

From a daily chart perspective, the GBP/JPY is testing a busy area, with the 20 and 50-day EMAs hoovering around the 162.05-18 region. Notably, the GBP/JPY tumbled below the 100-day EMA, exacerbating a fall toward the daily low of 161.08. Nevertheless, buyers stepping in around the 161.00 figure trimmed some of Thursday’s losses, trying to achieve a daily close above important DMAs.

Near-term, the GBP/JPY four-hour chart portrays the pair as neutral-to-downward biased due to the cross falling below the 20 and the 200-EMAs. At the time of typing, the GBP/JPY is testing the 200-EMA at 162.13, which, once cleared, could open the door for a rally toward the 20-EMA at 163.90.

Nevertheless, the path of least resistance is downwards, so failure to crack the 200-EMA will expose essential support levels. Therefore, the GBP/JPY first support will be the 142.00 mark. A breach of the latter will expose the confluence of the S2 and the 100-EMA at 161.12, followed by the 50-EMA at 160.22.

GBP/JPY Additional Technical Levels

Governor Christopher Waller said on Thursday in a hawkish speech that he sees little reason to ease the pace of Fed policy tightening.

The US Federal Reserve needs to keep raising interest rates into early next year to bring down stubbornly high inflation, he argued. 

"Inflation is far from the FOMC’s goal and not likely to fall quickly," Waller said.

"I imagine we will have a very thoughtful discussion about the pace of tightening at our next meeting," he said, noting that there has been little progress on inflation and "until that progress is both meaningful and persistent, I support continued rate increases, along with ongoing reductions in the Fed’s balance sheet, to help restrain aggregate demand."

Key notes

I support continued rate hikes until we see meaningful, persistent progress on US inflation.
    
Monetary policy can and must be used aggressively to bring down inflation.
    
Likely not enough data before the November meeting to significantly alter my view of economy.
    
I anticipate additional rate hikes into early next year.
    
The stance of policy is slightly restrictive, beginning to see some adjustment in sectors like housing.
    
Will have a 'very thoughtful discussion' about the pace of tightening at the next meeting.
    
The availability of swap lines, and the existence of standing repo facilities are stabilizing forces.
    
Not considering slowing rate increases or halting them due to financial stability concerns.
    
Markets are operating effectively.
    
US economy set for below-trend growth in 2h 2022.
    
The labour market is strong and very tight.
    
The focus of monetary policy needs to be fighting inflation.
    
Cannot dismiss the possibility of a larger drop in demand, and house prices before the market normalize.
    
Friday's jobs report likely will not alter the view fed should be 100% focused on reducing inflation.
    
Inflation is much too high, and not likely to fall quickly.

US dollar update

The US dollar, despite downbeat Initial Jobless Claims, rose and extended its gains from the previous day. 

On Thursday, ahead of today's Nonfarm Payrolls data in the US session, the greenback is back above 112.00, recovering from when it was initially falling against most majors at the start of the week before regaining ground:

• Gold bears move in at critical daily restaice. 
• The focus will be on the US jobs market at the end of the week.

The price of gold is back to flat on the day in what has been a correction of this week's rally into daily resistance near $1,730. The price fell from a high of $1,725.60 to a low of $1,706.95 but held above the prior day's lows despite firmer US yields and a stronger US dollar. 

Overall, the yellow metal has been more robust of late, making its way back into the $1,700's this week, recovering from last month's lows that were made as US bond yields surged to multi-year highs. The sentiment surrounding the Federal Reserve has been the driver, as fickle as it is. However, with data ebbing and flowing in and out of the inflationary territory, the yellow metal has been able to benefit at times of less hawkish speculation surrounding the Fed's next moves with participants betting on a pivot at the start of the week. 

However dovish hopes were dashed following the OPEC+ announcement of big oil production cuts to support oil prices, thereby sending other commodity prices, such as lumber higher:

The classic falling wedge and M-formation is bullish for the outlook in lumber. From sawmills to store shelves, lumber can tell the markets a lot about what’s going on in the US economy and with prospects of higher prices in oil and lumber, inflation would be expected to stay elevated. This in turn coincides with a chorus of Fed's hawkish speakers this week.

Charles L. Evan who is the chief executive officer of the Federal Reserve Bank of Chicago has said in recent trade that inflation is very high right now and that's the issue that's top of mind for the Fed. ''At Fed's next meeting will discuss whether 50 bps or 75 bps,'' he said, adding, ''policymakers are looking for 125 bps of rate hikes over next two meetings.''

Meanwhile, analysts at TD Securities argued that ''in reality, inflation's rising persistence suggests the Fed is unlikely to stop hiking preemptively.''

''A prolonged period of restrictive rates suggests traders should ignore gold's siren calls, as a sustained downtrend will likely prevail, while quantitative tightening continues to drive real rates higher.''

''In the meantime, however, the margin of safety against a change in trend signals has eroded, which places a low bar for additional buying activity from CTAs. While the cohort has continued to add to their silver length in recent sessions, gold prices need only rise north of $1755/oz to catalyze a trend following buying program.''

As for price action on the day, so far, the US dollar,  despite downbeat Initial Jobless Claims, rose and extended its gains from the previous day. On Thursday, the greenback is back above 112.00, recovering from when it was initially falling against most majors at the start of the week before regaining ground:

As for the 10-year yield, this too headed higher and there could be more to come before the week is out: 

US benchmark Treasury yields whose recent gains have helped to drive the greenback higher, were up to test the prior resistance at 3.841%. The yield was piercing those highs on Thursday and printing 3.844% as Wall Street cash markets fell in the open.

NFP in focus

The focus will be on the Nonfarm Payrolls to close out the week. ''Employment likely continued to advance strongly in September but at a less robust pace compared to recent months,'' analysts at TD Securities explained. 

''We also look for wage growth to moderate to 0.3% m/m. Separately, regional surveys continue to point to the loss of momentum in mfg activity. While we look for a decline in the ISM index, we note that it has failed to match prior weakness suggested by other indicators.''

Gold technical analysis

A break of the recent $1,735 highs opens the risk of a significant bullish extension. However, it is make-or-break time and the price could easily retreat, depending on Friday's NFP and next week's inflation data. 

• NZD/USD remains gaining during the week, more than 1%.
• US central bank policymakers continued with the higher interest rates-for-longer narrative for the fourth consecutive day.
• Fed’s Evans estimates the Federal funds rate (FFR) to peak around 4.50-4.75%.

The NZD/USD plummeted as Wall Street’s entered its last hour of trading due to risk aversion, as US jobs data was mixed, while Fed officials’ hawkish narrative persists, as stubbornly as high inflation impacting the US economy.

A the time of writing, the NZD/USD is trading at around 0.5650s after hitting a daily high of 0.5813, shy of the 20-day EMA, diving close to 100 pips in the day, despite Wednesday’s RBNZ 50 bps rate hike, which bolstered the NZD/USD, keeping price action above the 0.5700 thresholds.

The Fed parade continued on Thursday. Fed Governor Lisa Cook expressed that inflation is “stubbornly and unacceptably high” and added that she supported the three 0.75% rate hikes, as front loading will accelerate the impact of the monetary policy.

Of late, the Chicago Fed President Charles Evans said that the Federal funds rate (FFR) is headed towards 4.5-4.75% by  March 2023 and added, “we have further to go in rates.” According to him, the Federal Reserve needed to hike 125 bps in the last two meetings of the year, emphasizing the need to get more restrictive.

Earlier, the Minnesota Fed President Neil Kashkari expressed that the fed needs “more work to do” to temper inflation down while adding that a pause in hiking rates is “quite a ways away.” Kashkari commented that he’s not “comfortable saying that we (the Fed) are going to pause” unless they see compelling evidence that inflation is cooling.

Data-wise, the US Initial Jobless Claims for the week that ended on October 1, rose by 219K, above estimates of 204K, signaling that the labor market is cooling. Nevertheless, it should be noted that Wednesday’s ADP Employment Change showed that private hiring increased by 208K. Exceeding estimates of just 132K. All that said, traders’ focus is on the Nonfarm Payrolls report.

In the meantime, the US Dollar Index, a measure of the buck’s value against its peers, is climbing almost 1%, at 112.233, a headwind for the NZD/USD.

Elsewhere, on Wednesday, the Reserve Bank of New Zealand hiked rates by 50 bps. Initially, the NZD/USD was contained from falling and recorded a weekly high at 0.5813. However, as the Fed pivot narrative dissipated and sentiment shifted sour, broad US dollar strength was a headwind for the NZD/USD.

What to watch

An absent New Zealand docket will leave traders leaning on the US Nonfarm Payrolls report, alongside further Fed speaking, led by NY Fed John Williams, Minnesota Fed Neil Kashkari and Atlanta’s Fed Raphael Bostic.

NZD/USD Key Technical Levels

What you need to take care of on Friday, October 7:

The American dollar recovered its positive momentum and closed Thursday with gains against most major rivals. The tepid tone of global equities and rising US Treasury yields underpinned the greenback while reflecting investors’ concerns.

The EUR/USD pair trades just below the 0.9800 figure, as worse-than-anticipated EU data added pressure on the EUR.  German Factory Orders declined by 2.4% MoM in August. The annual reading, however, was better than anticipated, still down by 4.1%. Meanwhile, EU Retail Sales contracted a modest 0.3% MoM in August but were sharply down compared to a year earlier, shedding 2%.

Also, the  European Central Bank published the Monetary Policy Meeting Accounts, which showed that some officials preferred a bigger rate hike of 50 bps. Additionally, the median three-year inflation expectations remained at 3%. Policymakers noted that the EUR depreciation could exacerbate inflationary pressures, adding that acting “decisively” now will prevent the need to hike at a more aggressive pace later.

Bank of Canada Governor Tiff Macklem hit the wires and said that while easing inflation is welcome news, it would not disappear on its own. Market players rushed to price in higher chances of the BOC hiking rates by 50 bps in October. The USD/CAD pair is up to 1.3740.

In the US several US Federal Reserve officials were on the wires, all of them aligned with the aggressive monetary tightening. Wall Street extended its slide after starting the day with modest losses. US Treasury yields, on the other hand, reached fresh weekly highs.

The Australian dollar was among the worst performers, trading against the dollar at around 0.6400 and not far from the 2022 low at 0.6362. GBP/USD also resumed its decline and is now hovering at around 1.1150.

The greenback appreciated against its safe-haven rivals. USD/CHF is hovering around 0.9910, while USD/JPY ticked higher and stands just above 145.00.  

Spot gold shed some ground but held above the critical $1,700 threshold. It currently changes hands at $1,713 a troy ounce. Crude oil prices kept advancing, with WTI now trading at $88.80 per barrel.

The focus on Friday will be on US employment data, as the country will publish the September Nonfarm Payrolls report.

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• EUR/JPY tumbles but remains above the 20-day EMA, despite RSI’s shifting bearish.
• Short term, the EUR/JPY might re-test the October 5 low of 142.44 before resuming its downtrend towards 141.00.

EUR/JPY continues to fall for the second straight day due to market sentiment turning sour, as portrayed by Wall Street’s set to finish with losses, while US Federal Reserve policymakers remain committed to crushing inflation. At the time of writing, the EUR/JPY is trading at 142.24, down by 0.51%.

EUR/JPY Price Forecast

The EUR/JPY daily chart portrays the pair’s faced solid support at the 20-day EMA around 142.08. Even though Thursday’s daily low was 141.95, sellers could not hold the fort, so the EUR/JPY reclaimed 142.00. It should be noted that the Relative Strength Index (RSI) just crossed below the 7-day RSI’s SMA, indicating that sell orders could be beginning to pile in the pair. Unless the EUR/JPY registers a daily close below 142.00, the pair is still neutral-to-upward biased.

Short term, the EUR/JPY is neutral to downward biased, hoovering around the S1 daily pivot at 142.28. On Thursday, the pair stumbled below the 50, 20, and 100-EMAs, opening the door for further losses, but the fall stalled at 142.00.

Although the cross-currency is downward biased, the Relative Strength Index (RSI) crossed above its 7-RSI’s SMA, meaning buyers are gathering some strength. So a re-test of October 5 daily low at 142.44 is on the cards before continuing downwards.

If that scenario plays out, the EUR/JPY first support would be 142.00. Break below will expose the S2 daily pivot at 141.50, ahead of the next demand zone, and the 200-EMA at 141.28, followed by the 141.00 figure.

EUR/JPY Hourly Chart

EUR/JPY Key Technical Levels

• USD/JPY bulls have moved up into the 145.00 area and eye a run towards 146.00.
• The US dollar and US yields are running higher. 

On Thursday, despite downbeat Initial Jobless Claims, the US dollar rallied as per the DXY index which measures the greenback vs. a basket of currencies. This is turn has seen USD/JPY rally on the back of higher US yields, extending their gains from the previous day as illustrated in the technical analysis below. 

Fundamentally, the focus is now going to be on the Nonfarm Payrolls (NFP) tomorrow and then next week, the Fed receives the latest report on consumer inflation.

US 10-Year Yield H1 chart

US benchmark Treasury yields whose recent gains have helped to drive the greenback higher, were up to test the prior resistance at 3.841%. The yield was piercing those highs on Thursday and printing 3.844% as Wall Street cash markets fell in the open.

Meanwhile, forex has been volatile this week and the US dollar along with it. The greenback has struggled to find a clear direction following a dramatic third quarter, but on Thursday, higher by some 0.8% and back above 112.00, it has been regaining ground and is up about 17% for the year so far:

DXY H1 chart

USD/JPY H1 chart

As for USD/JPY, if the dollar starts to fold at the top of the rising channel, as illustrated above, then there will be prospects of a move lower to test the bulls commitments at the trendline support between 144.90 and 144.70. The bears will be back in charge below 144.35 and 144.05. 

• AUD/USD dives more than 1% but remains above the 0.6400 figure.
• Fed’s Governor Cook expressed that inflation is “stubbornly high” and said more interest rate increases are needed.
• US claims for unemployment exceeded forecasts but remained at lower levels.
• Australia’s Trade Balance was positive but was short of estimations.

The AUD/USD extended its losses to three consecutive days after the Reserve Bank of Australia (RBA) lifted rates by “just” 25 bps, seeing as a dovish hike by market participants and the source of a possible Fed pivot. Nevertheless, Fed officials’ hawkish posture remains, reiterated by Fed’s Cook and Kashkari Thursday’s speeches.

At the time of writing, the AUD/USD is trading at 0.6418 after hitting a daily high of 0.6540, plunging more than 100 pips, weighed by the RBA’s dovish posture and a strong US dollar.

US unemployment jobs data revealed by the US Labor Department showed signs that the labor market might be easing. Unemployment claims for the week ending on  October 1 jumped by 219K, exceeding estimates and the third increase since the end of July.

Aside from this, at the time of typing, one of the newest Fed Governor Lisa Cook expressed that inflation is “stubbornly and unacceptably high,” according to her, still needing interest rate increases to ensure that it begins to fall towards the Fed goal. Cook said that she backed the three-quarter points increases at her first meetings as governor, agreeing that “front-loading” will quicken the policy impact on the economy.

Earlier, the Minnesota Fed President Neil Kashkari crossed newswires. He said that the Fed is “quite a ways away from pausing rates,” adding that the Fed has “more work to do” to tackle inflation down.

All that said, the US Dollar Index, a gauge of the buck’s performance against six currencies, edges up by 0.31%, at 112.082, a headwind for the AUD/USD.

The interest rate differential would likely favor the USD vs. the AUD. Money market futures expect the Federal funds rate (FFR) to peak around 4.5%, while the RBA Cash Rate is expected to top around 3.6%, a headwind for the AUD/USD.

Elsewhere, Australia reported its Trade Balance, which showed a surplus of $8.3 billion, shorter than estimated, and according to ANZ analysts, “the days of record trade surpluses are over.” Imports jumped by 4.5% MoM, and Exports also increased at a modest 2.6% MoM.

According to ANZ analysts, the already battered China’s real estate sector weighed on lower demand for Iron ore, but “strong coal and LNG exports counterbalanced sluggish iron ore exports.”

What to watch

An absent Australia’s economic docket would leave traders leaning on US economic data. On the US front, the calendar will feature September’s Nonfarm Payrolls report and the Unemployment Rate.

AUD/USD Price Forecast

The AUD/USD consolidates for the eighth consecutive day, within the 0.6400-0.6550 range. However, the Relative Strength Index (RSI) shifted downwards in the last four trading days, meaning sellers are gathering momentum. Still, unless the exchange rate tumbles below 0.6400 and challenges the YTD low at 0.6363, the AUD/USD bias will remain subdued.

Charles L. Evan who is the chief executive officer of the Federal Reserve Bank of Chicago has said in recent trade that inflation is very high right now and that's the issue that's top of mind for the Fed.

He joins a chorus of hawkish Fed officials speaking today advocating for rate rise. 

Key comments

''There is a good amount of strength in the US economy.

I suspect the unemployment rate will creep up.

The labour market is still good and will be more challenging with higher interest rates.

We will bring inflation down by making policy restrictive.

At momentum of core inflation, and that's what has us most nervous.

Need a more restrictive seeing of monetary policy because inflation is high.
    
We should have started rate hikes earlier.
    
We have further to go on rate hikes.
    
We are headed to 4.5%-4.75%, likely by springtime.''

I believe the balance sheet reduction will be completely within 3 years.
    
At Fed's next meeting will discuss whether 50 bps or 75 bps.
    
Policymakers are looking for 125 bps of rate hikes over next two meetings.

US dollar update

On Thursday, despite downbeat Initial Jobless Claims, the US dollar rose, extending its gains from the previous day.

Forex has been volatile this week and the US dollar with it. It has struggled to find a clear direction following a dramatic third quarter. On Thursday, the greenback is higher by some 0.8% and back above 112.00. The dollar initially fell against most majors at the start of the week before regaining ground:

The focus is now going to be on the Nonfarm Payrolls tomorrow and then next week, the Fed receives the latest report on consumer inflation.

Federal Reserve governor Lisa Cook said in her first public remarks on monetary policy since joining the central bank's Washington-based board "inflation remains stubbornly and unacceptably high, and data over the past few months show that inflationary pressures remain broad-based."

"The widespread nature of the inflation pressures suggests that the overall economy is very tight," she said.

"The path of policy should depend on how quickly we make progress toward our inflation goal," Cook said.

Cook said she "fully supported" the large rate increases of three-quarter points approved at her first meetings as a governor, and she also agreed with the policy of "front-loading" monetary tightening to quicken its impact and felt changes in policy needed to be rooted in inflation actually falling, not on forecasts of it doing so.

Key comments

''Restoring price stability will likely require ongoing rate hikes, then the restrictive policy for some time.
    
Need to keep the restrictive policy until confident inflation is firmly on the path to 2%.
    
Inflation is too high, will keep at it until the job is done.
    
I fully supported the front-loading of policy over the past three FOMC meetings.
    
Front-loading puts restraint in place more quickly, and may rein in inflation expectations; this preemptive approach is appropriate.
    
At some point will be appropriate to slow the pace of rate hikes to assess the effects of tightening.
    
The labour market is 'very strong,' inflation remains 'stubbornly and unacceptably high, the overall economy is 'very tight'.
    
My focus is on bringing inflation back down to 2%.
    
Focused on the lag between signs of easing price pressures and actual inflation coming down.
    
Policy judgments must be based on inflation falling in the data, not just forecasts.
    
The risk management approach requires a strong focus on taming inflation.
    
Critical to preventing inflationary psychology from taking hold; I have revised up my assessment of the persistence of high inflation.
    
There are reasons to expect core goods inflation to slow in the coming months.
    
Cannot assume an improvement in supply constraints will be steady.
    
My colleagues and I are very attuned to foreign developments including monetary policy abroad.
    
Financial market spillovers are a two-way street, and there is substantial uncertainty about the size.''

US dollar update

The focus is on the Nonfarm Payrolls tomorrow and then next week, the Fed receives the latest report on consumer inflation. On Thursday, despite downbeat Initial Jobless Claims, the US dollar rose, extending its gains from the previous day. All in all, forex has been volatile and the greenback has struggled to find a clear direction this week, following a dramatic third quarter. The dollar initially fell against most majors, before regaining ground:

• Silver price retreats from its daily highs around $20.85, down by 0.50% on Thursday.
• Fed policymakers remain “resolute” to tackle inflation, pushing back against rate cuts in 2023.
• US unemployment claims exceeded estimates for the first time since July 2022.
• Silver Price Forecast: Neutral-to-upward biased, but the RSI’s is flashing that buyers are getting a respite before attacking $21.00.

Silver price retraces from daily highs of $20.85 as US Treasury bond yield rise due to US central bank policymakers, led by the Minnesota Fed President Kashkari commenting that it would take longer for the Fed to pause rate hikes. At the time of writing, the XAG/USD is trading at $20.54, losing 0.92%.

XAG/USD drops as US bond yields edge up; traders focus on Friday’s jobs report

US equities trading in the red portrays a sour market sentiment. In the last couple of days, Fed officials have reiterated that inflation is too high and that it would be premature to pause or slash rates, even if the economy gets into a recession. Nevertheless, Fed members have been cautious when speaking about the “R” word, though they acknowledged that the US economy is slowing.

In the meantime, US employment data, revealed by the Bureau of Labor Statistics, reported that Initial Jobless Claims for the week ending on October 1 rose by 219K, more than estimates of 204K. Of note that the rise in claims was just the third increase since the end of July 2022.

Even though bad data is perceived as good data for market players, meaning that as the labor market deteriorates, the Fed would likely tighten at a slower pace. Nevertheless, risk aversion persists, as the greenback remains in the driver’s seat as the US Dollar Index rises 0.42%, back above the 112.000 thresholds, ahead of Friday’s US Nonfarm Payrolls report.

Furthermore, elevated US Treasury bond yields keep the precious metals heavy. The US 10-year T-bond rate yields 3.813%, up by five basis points, while the 10-year Treasury Inflation-Protected Securities (TIPS) bond yield, a proxy for real yields, gains the same amount of bps as the nominal bond, remains at 1.60%.

What to watch

The US docket will feature the Nonfarm Payrolls report. Expectations for September’s figure are that 250K new jobs would be added to the economy, while the Unemployment Rate is expected to remain unchanged at 3.7%.

Also read: NFP Preview: Forecasts from nine major banks, employment trend slows down

Silver (XAG/USD) Price Forecast

The white metal is neutral-to-upward biased. Silver recovered from around $18.00, reclaimed the 20, 50, and 100-day EMAs, and is facing solid resistance at $21.00 a troy ounce on its way north. The Relative Strength Index (RSI) shows that buyers might be getting a respite before challenging the 200-day EMA at $21.90, but first will need to surpass the $21.00 mark.

"We've been pretty clear that interest rates need to continue to move up," Bank of Canada (BoC) Governor Tiff Macklem reiterated on Thursday, as reported by Reuters.

Key takeaways

"How high interest rates need to go and for how long is going to really depend on how inflation and the economy evolve."

"We are more concerned about the upside shocks to inflation than the downside."

"We certainly wouldn't want to see inflation go up further."

"When we assess impact of higher interest rates on demand, will factor in high household indebtedness levels."

"Interest rates might have a bit more traction because of high levels of household indebtedness."

"Below trend growth is low growth, it doesn't need to be a recession."

"Whether we can get to a soft landing or not will depend in part on how sticky inflation is in Canada."

"Path to a soft landing in Canada is a narrow path and there are risks."

Market reaction

USD/CAD preserves its bullish momentum after these comments and was last seen rising 0.92% on the day at 1.3740.

• USD/CAD climbs above 1.3700 as traders eye a break of 1.3800 as they focus on Friday’s NFPs.
• The Bank of Canada’s Governor Macklem said, “further interest rate increases are warranted,” reiterating the BoC’s hawkish stance.
• USD/CAD Price Forecast: An inverted head-and-shoulders in the hourly chart remains in play.

The USD/CAD climbs sharply during the North American session, as Fed officials remained focused on bringing inflation down, disregarding a possible US recession, while markets’ expectations for a Fed pivot dwindled, as shown by US equities, registering losses. Therefore, the USD/CAD is trading at 1.3722, above its opening price by 0.81%.

At the time of writing, the Bank of Canada’s Governor Tiff Macklem expressed in prepared remarks that while Canada’s economy begins to slow, the labor market remains tight, while demand is still eclipsing supply. Macklem commented that the bank needs clear evidence that inflation is coming down.

Hence, BoC’s Macklem added that “there is more to be done,” paving the way for additional rate hikes. The next Bank of Canada’s interest rate decision would be October 26.

Also read: BoC’s Macklem: More rate hikes will be needed

Market’s reaction

The USD/CAD reacted downwards on his remarks crossing newswires, dropping below 1.3700, but quickly reversed its move and testing the daily highs.

Earlier, Canada’s Ivey PMI index for September rose by 55.9 in September, unadjusted, while seasonally adjusted, came at 59.5, below previous figures.

Aside from this, US data, even though it flashed signs that the labor market might begin to feel the Fed’s monetary policy, traders remain at bay, waiting for Friday’s Nonfarm Payrolls figures. Initial Jobless Claims reported by the US Labor Department outpaced expectations in the week ending on October 1, rising to 219K, higher than estimates of 203K, while the 4-week average persisted unchanged at 206.5K.

Before Wall Street opened, the Minnesota Fed President Neil Kashkari said that the Fed is “quite a ways away from pausing rates,” reiterating the that there’s “more work to do” to bring inflation towards the Fed 2% target. Elsewhere, on Wednesday, Atlanta’s Fed Bostic and San Francisco Fed Daly expressed the need to hike rates higher for longer, disregarding possible rate cuts in 2023.

USD/CAD Price Forecast

The USD/CAD one-hour chart grabbed the attention as an inverted head-and-shoulder chart pattern emerged. Earlier, the USD/CAD dived towards its daily low at 1.3564 but is staging a recovery, above 1.3720, testing the previously mentioned head-and-shoulders pattern neckline around current exchange rates. Once cleared, it could open the door for further gains, with the R2 daily pivot being the immediate target at 1.3800, ahead of the 1.3877 head-and-shoulders targets.

• Pound among worst performers on Thursday. 
• Euro drops versus dollar, remains firm against Swiss franc. 
• EUR/GBP is up for the third day in a row, back above the 20-day SMA. 

The EUR/GBP is rising for the third day in a row and recently reached a three-day high at 0.8818 before pulling back to 0.8790. A weaker GBP is driving the cross to the upside on Thursday. The cross bottomed on Tuesday at 0.8644, and since then, it had been moving to the upside. It is back above the 20-day Simple Moving Average. The next resistance area is seen at the weekly top around 0.8830, followed by 0.8895. The critical support for the current bias might be seen at 0.8740, an uptrend line from Wednesday’s low. 

The euro and the pound are falling versus the dollar, trimming weekly gains. The decline in GBP/USD is faster and is approaching 1.1100, while EUR/USD is moving toward 0.9800. EUR/CHF remains steady near 0.9700. 

Market participants see the Bank of England and the European Central Bank on the path of further rate hikes over the coming meetings. Although, the actions from the BoE are not only to curb inflation but also to preserve stability in the gilt market. 

The BoE defended on Thursday last week’s interventions in the gilt market, mentioning it prevented a £50bn fire sale of UK bonds that would have led to the brink of a financial crisis. The pound is not yet out of the woods. It remains among the most volatile currencies, and after a sharp recovery, weakness is emerging again.

The minutes of the ECB released on Thursday showed discussions about the magnitude of rate hikes and concerns about the impact of the depreciation of the euro on inflation expectations. “The account of the ECB Council meeting in September point to a growing number of arguments for further significant ECB rate hikes in the near term, while the exact level of the terminal rate remains unclear,” said analysts at Commerzbank. 

Technical levels 

Bank of Canada (BoC) Governor Tiff Macklem said on Thursday more rate hikes will be needed to since there is more to be done on inflation, as reported by Reuters.

Additional takeaways

"We need additional information before we consider moving to a more finely balanced decision-by-decision approach."

"We have yet to see clear evidence that underlying inflation in Canada has come down; domestic inflationary pressures have yet to ease."

"Even after stripping out CPI components that are volatile or don't reflect generalized price changes, inflation is running at about 5%; that's too high."

Forward-looking indicators suggest the Canadian economy is slowing but labor markets remain tight and the economy is in excess demand."

"Recent decline in overall Canadian inflation is welcome news but inflation will not fade away by itself; price pressures remain high and continue to broaden."

"Inflation increasingly reflects what we are seeing in Canada; there is some evidence global inflationary pressures have begun to ease."

"Surveys show consumers and businesses are more uncertain about inflation and more of them expect it to be higher for longer."

"So far, longer-term inflation expectations remain reasonably well-anchored but Canadians will need to see inflation clearly coming down to sustain this confidence."

"We can't count on easing global price pressures to lower inflation in Canada."

"Recent depreciation of C$ vs USD will offset some of the global improvement in inflation trends by making US goods and vacations more expensive."

"Bank will focus more on CPI trim and CPI median measures of inflation; the bank is reassessing CPI common measure, which is becoming more difficult to use."

Market reaction

The USD/CAD pair largely ignored these comments and was last seen rising 0.8% on the day at 1.3725.

On Friday, the US official employment report will be released. Market consensus is for an increase in payrolls of 250K. Analysts at TD Securities see another strong advance in September and warn that such a scenario would represent another disappointment for those looking for a pivot at the Federal Reserve. 

Key Quotes: 

“We look for payrolls to have continued to advance strongly in September (TD: 300k), which would represent little change vs the 315k increase registered in August. We look for this solid net gain in employment to be reflected in a decline in the UE rate to 3.6% following its unexpected 0.2pp jump to 3.7% in August.”

“Stronger payrolls would be another disappointment for those looking for a Fed pivot. USD dips are an opportunity to accumulate longs against currencies that have yet to be hit by that wrecking ball. We set our sights on CAD again. Expect EURUSD downtrend channel to remain intact, though a disappointment in payrolls could see a test above parity.”

“We think the rates market is priced for a strong report, as the terminal rate has risen to 4.5% and the market has pushed out the timing and magnitude of rate cuts.”
 

The Bank of England's (BoE) Monetary Policy Committee (MPC) has the tools and the resolve to return inflation to target in the medium term, BoE policymaker Jonathan Haskel said on Thursday, as reported by Reuters.

Key takeaways

"A sidelined Office for Budget Responsibility (OBR) generates more uncertainty by worsening everyone’s information base."

"We welcome the usual close involvement in the budget process of the OBR."

"Government is right to stress the importance of economic growth."

"Changes in labour force participation are emerging as the key economic legacy of covid in the UK."

"Rise in economic inactivity will hold UK growth back."

Market reaction

These comments failed to help the British pound find demand and the GBP/USD pair was last seen losing 1.25% on the day at 1.1184.

According to the Research Department at BBVA, the RMB to USD exchange rate is set to depreciate due to the diverging monetary policy between China and the United States. They see the USD/CNY at 7.1 at the end of the year. 

Key Quotes: 

“Chinese economy has experienced a bumpy recovery after the Shanghai lockdown was lifted. We lowered our 2022 prediction from 4.5% to 3.6%.”

“RMB to USD exchange rate is anticipated to depreciate to 7.1 at end-2022 reflecting the recent interest rate cut and the recent breaking-7 trend, amid the diverging monetary policy between China and the US, a stronger USD DXY, slower exports, and capital outflows etc.”

“Depreciation pressure is not only for RMB, but for all EM currencies AM currencies that have a slower pace of rate hike than the FED (JPY, GBP, Euro etc.) , and among all EM currencies, RMB probably depreciated modestly due to capital control measures.”

“We predict RMB to USD exchange rate will be tightly related to USD DXY trend. Based on our forecast of FED interest rate hike path, RMB will depreciate to 7.1 at end-2022, 7 at end-2023 and 6.9% at end-2024.”

• GBP/USD fails to hold to gains above 1.1300 and tumbles below 1.1200.
• Fed’s Kashkari said that the Fed has “ways away from pausing rates,” killing Fed pivot hopes.
• US jobless claims jumped, but the focus shifted to Friday’s Nonfarm Payrolls.

The GBP/USD extends its losses to two-consecutive days after snapping six days of gains, which bolstered the major towards the 1.1500 area. Sentiment deterioration amidst a possible Fed pivot waning, as Fed policymakers insist on higher rates, alongside good US data, being bad data, keeps the GBP/USD heavy.

Therefore, the greenback is appreciating against most G8 currencies. At the time of writing, the GBP/USD is trading at 1.1180 below its opening price by almost 1.30% after hitting a daily high of 1.1383.

GBP/USD drops due to further Fed hawkish commentary

Early Thursday, the Minnesota Fed President Neil Kashkari crossed newswires. He said that the Fed is “quite a ways away from pausing rates,” adding that the Fed has “more work to do” to tackle inflation down. He echoed Wednesday’s comments of San Francisco Fed Mary Daly and Atlanta’s Fed Bostic, both not expecting to cut rates through 2023, contrary to what money market futures expect.

Data-wise, the US Department of Labor reported that unemployment claims increased, a positive sign for the Federal Reserve. Initial Jobless Claims for the week ending on October 1 rose by 219K, higher than the 203K estimated by analysts. The four-week moving average, which smooths volatile week-to-week results, was almost unchanged at 206.5K.

On the UK’s front, businesses inflation expectations rose to 9.5% in September, from 8.4% in August, according to a Bank of England Survey on Thursday. Even though the Bank of England is expected to keep rates higher, Wells Fargo analysts expect further British pound weakness.

“We expect further significant weakness in the pound. With the UK still seen falling into recession and CPI inflation expected to peak lower than previously, we expect BoE rate hikes to fall well short of the Fed.”

Traders should be aware that EU and UK officials are re-engaging in Brexit negotiations regarding the Northern Ireland Protocol, as the Irish Foreign Minister Simon Coveney said on Wednesday.

What to watch

The UK calendar will feature Halifax House Prices. On the US front, further Fed speaking for the remainder of the day, alongside Friday’s Nonfarm Payrolls and the Unemployment Rate.

GBP/USD Technical Analysis

The GBP/USD tumbled below the 20-day EMA, extending its losses beyond the 61.8% Fibonacci retracement at 1.1210, exposing the 50% Fibonacci retracement at 1.1047. Traders should note that the Relative Strength Index (RSI) is back below the 50-mid line aiming downwards and recently crossed below its 7-day RSI’s SMA, showing that sellers are gathering momentum.

Therefore, the GBP/USD first support would be the 1.1100 figure, followed by the 50% Fibonacci level at 1.1047, ahead of the 38.2% Fibonacci retracement at 1.0884.

• US dollar gains impulse on American hours as US yields keep rising.
• US Jobless Claims below expectations, focus turns to NFP.
• EUR/USD down for the second day in a row.

The EUR/USD dropped further after the beginning of the American session and bottomed at 0.9817, the lowest level in two days. The intraday bias is bearish with the US dollar looking stronger ahead of the NFP.

Dollar gains, despite data

On Thursday, economic data released in the US showed a larger-than-expected increase in Initial Jobless Claims to the highest level in five weeks. Despite the numbers, the dollar remains firm. Fed talk about the need to continue rising rates, keeps giving the dollar support.

The key drivers of dollar’s strength on Thursday are US yields. The US 10-year yield rose to the highest level in a week at 3.84% and the 2-year climbed above 4.20%. The DXY is up by 0.90%, at 111.20.

In Wall Street, US stocks area falling with the Dow Jones losing 0.47% and the Nasdaq down by 0.20%. The cautions tone also helps the dollar ahead of critical data on Friday. The US official employment report is due and its numbers could trigger more volatility. Market consensus is for an increase in payrolls of 250K.

At the 0.9830 zone

The EUR/USD bottomed at 0.9817 and then bounced back above the 0.9830 area. A consolidation under 0.9830 would leave the euro vulnerable. The next support stands at 0.9800 and then 0.9780 before the barrier around 0.9750.

On the upside, at 0.9855 emerges a resistance area, followed by the 0.9900 zone. A recovery above would alleviate the bearish pressure.

Technical levels

The European Union's decision to implement a price cap for Russian oil shipments for third countries needs to be discussed more with G7 to work out the exact mechanism to set a specific cap, EU officials told Reuters on Thursday.

Additional takeaways

"27 EU countries will need another unanimous decision to approve price-setting mechanism under the cap once that clear within G7."

"Eighth round of sanctions adds oil cap for transport services, on top of banking and insurance services already agreed under the sixth package; price cap on top affects all areas."

"Cap will have to adapt to market prices, be set below market but at a level Russia would still want to sell."

"Oil price cap for transport services has exemptions for pilot services to avoid accidents."

"New oil cap must be agreed in full before December 5 or otherwise the previous blanket ban on banking and insurance services kicks in."

"Still discussing with G7 ways to avoid reflagging as a way around the oil cap."

"Level playing field important for EU seafaring nations vis-a-vis countries like Panama."

Market reaction

These remarks don't seem to be having a noticeable impact on the shared currency's performance against its rivals. As of writing, the EUR/USD pair was down 0.4% on the day at 0.9840.

Gold price decreased by 8.3% in the third quarter, extending the year-to-date loss to -9.0%. Nevertheless, strategists at Erste Group Research expect XAU/USD to stablize around $1,700 in the coming quarter.

Uncertain economic environment supports the gold price

“The strong USD and the rising US Fed funds rate and yields are a negative factor for the gold price performance. However, the global slowdown in economic growth and the falling earnings growth among companies should support demand for gold in the medium-term. The high geopolitical risks remain an important factor as well, facilitating a positive performance.”

“We expect the price to increase to about $1,700 in the fourth quarter.”

The US Bureau of Labor Statistics (BLS) will release the September jobs report on Friday, October 7 at 12:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of nine major banks regarding the upcoming employment data.

Economists expect a slowdown in US job growth to 250K in September following the 315K increase in August. Meanwhile, the Unemployment Rate is expected to remain steady at 3.7%.

NBF

“Hiring could have slowed down in the month if previously released soft indicators such as S&P Global’s Composite PMI are any guide. Layoffs may also have eased judging from a decrease in initial jobless claims. With these two trends cancelling each other, payroll growth come in at a still decent 250K. The household survey is expected to show a smaller gain, a development which could nonetheless leave the unemployment rate unchanged at 3.7%, assuming the participation rate stayed put at 62.4%.”

Commerzbank

“We expect the labor market to continue to lose momentum only slowly and, from the Fed's perspective, to probably still be too strong. Thus, we forecast a job gain of 280K, after 315K in August. The unemployment rate is likely to remain at an extremely low 3.7%.”

CIBC

“Early indications of the health of the US labor market in September suggest that hiring continued at a brisk pace, with 240K jobs likely added. That’s consistent with the improvement seen in initial jobless claims and the Conference Board’s labor differential measure. While that pace of hiring would typically cause the unemployment rate to fall, there is still room for participation gains in the prime-age group, and the unemployment rate could have remained at 3.7% with some increase in participation. We’re not far enough from the consensus to see a material market reaction.”

SocGen

“We project a 280K gain. The unemployment rate for September is expected to decline to 3.6% from 3.7% in August. The monthly flows are volatile. If there are no returnees, or if there is a net exodus from the labor force rather than re-entrants, the unemployment rate could drop even more than the 3.6% we project. Wages are expected to rise 0.5% MoM in September. We view the shortfall seen in August, when wages rose 0.3%, as noise in the data rather than the beginning of a new trend.” 

Citibank

“US September Nonfarm Payrolls – Citi: 265K, prior: 315K; Private Payrolls – Citi: 245K, prior: 308K; Average Hourly Earnings MoM – Citi: 0.4%, prior: 0.3%; Average Hourly Earnings YoY – Citi: 5.1%, prior: 5.2%; Unemployment Rate – Citi: 3.6%, prior: 3.7%. An overall slowing trend in monthly payroll growth should continue in September and as the Fed acts to weigh on activity, slowing job growth into 2023 will likely also reflect falling demand for labor and likely job losses. The change in the unemployment rate will also be one of the most important aspect of the jobs report. We expect the unemployment rate to decline modestly to 3.6% but with risk that it remains at 3.7%.” 

ING

“We for a solid 200K increase in jobs and the unemployment rate staying low at 3.7% – both pointing to another 75 bps hike from the Federal Reserve on 2 November.” 

Wells Fargo

“We look for another solid 275K increase. Another sizable increase in labor force participation would be a welcome development for Fed officials as they attempt the high wire act of bringing labor supply and demand into a healthy balance.”

TDS

“We expect more moderation in payrolls in September to 300K, which still represents a strong pace of job growth. We look for this still very solid gain in employment to also be reflected in a decline in the unemployment rate to 3.6%.”

Barclays

“We expect 250K in NFP, steady unemployment and participation rates, and average hourly earnings to move up 0.4% MoM (5.0% YoY). A strong report could drive the market to fully price a 75 bps rate hike in November, expectations of which had declined recently, and this would further support the dollar.”

• AUD/USD struggles to capitalize on its early uptick and attracts fresh sellers near the 0.6540 area.
• A combination of factors lifts the USD for the second straight day and exerts pressure on the pair.
• The recent range-bound price action marks a consolidation phase and favours bearish traders.

The AUD/USD pair meets with a fresh supply following an early uptick to the 0.6540 area and turns lower for the third straight day on Thursday. The intraday downfall extends through the early North American session and drags spot prices to a fresh daily low, around the 0.6440 region in the last hour.

The US dollar catches fresh bids and looks to build on the overnight goodish bounce from a two-week low, which, in turn, is seen exerting pressure on the AUD/USD pair. The prospects for a more aggressive policy tightening by the Fed, along with the risk-off mood, act as a tailwind for the safe-haven buck and drive flows away from the risk-sensitive aussie.

Looking at the broader picture, the AUD/USD pair has been oscillating in a narrow trading band over the past two weeks or so. The range-bound price action constitutes the formation of a rectangle and points to indecision over the next leg of a directional move. Given a sharp fall from the August swing high, this could be categorized as a bearish consolidation phase.

Furthermore, technical indicators on the daily chart - though have been recovering from lower levels - are still holding in the bearish territory. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside. Hence, a subsequent fall towards the trading range support, around the 0.6400 mark, remains a distinct possibility.

Some follow-through selling will expose the YTD low, around the 0.6365 region touched in September. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for an extension of the downward trajectory. The AUD/USD pair could then drop towards challenging the next relevant support near the 0.6300 round-figure mark.

On the flip side, the 0.6500 psychological mark now seems to act as an immediate hurdle ahead of the 0.6530-0.6540 supply zone. Sustained strength beyond will negate the bearish bias and set the stage for some meaningful appreciating move in the near term. The AUD/USD pair might then aim to reclaim the 0.6600 round-figure mark and test the 0.6620-0.6625 resistance zone.

AUD/USD 4-hour chart

Key levels to watch

The eurozone is entering a recession and economists at ING expect a deeper downturn over the winter months. Therefore, the EUR/USD pair is set to tumble toward the 0.90 level.

Potential turnaround in 2Q23

“Three-quarters of negative growth in the eurozone into 2Q23 and a still hawkish Fed is a bearish cocktail for EUR/USD.”

“EUR/USD is not particularly cheap and a pick-up in gas prices this winter will keep the eurozone trade balance under pressure. This could see the pair falling towards the lower end of a 0.90-0.95 range over the next three to six months before a potential turnaround in 2Q23 if the Fed is more dovish and both the US and the eurozone exit recession.”

• The index looks bid and gathers further traction around 111.80.
• Further upside in US yields also bolsters the upbeat mood in the buck.
• Initial Claims rose more than expected by 219K WoW.

The greenback, in terms of the USD Index (DXY) extends the weekly recovery to the 111.80 region on Thursday, or 3-day tops.

USD Index now focuses on NFP

The index looks to extend the advance following Wednesday’s strong bounce, while it remains supported by the continuation of the upside momentum in US yields across the curve.

In addition, further loss of momentum in the risk-associated universe collaborates with the second consecutive daily gains in the buck, all ahead of the key Nonfarm Payrolls for the month of September due on Friday.

In the calendar, Initial Claims increased by 219K in the week to October 1, while Challenger Job Cuts went up by 29.989K in September.

What to look for around USD

The index suffers the recovery in the risk complex and returns to the area below the 111.00 level on Thursday.

While the near-term outlook for the dollar looks somewhat dented, the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market continues to prop up the underlying positive tone in the index.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Initial Jobless Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change, Wholesale Inventories (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is gaining 0.38% at 111.62 and faces the next up barrier at 114.76 (2022 high September 28) seconded by 115.00 (round level) and then 115.32 (May 2002 high). On the other hand, a breach of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).

International Monetary Fund (IMF) Managing Director Kristalina Georgieva said on Thursday that they will downgrade the global growth forecast of 2.9% for 2023 and noted risks of a global recession were rising, as reported by Reuters.

Key takeaways

"Countries accounting for one-third of the global economy expected to report at least 2 consecutive quarters of contraction this year or next."

"IMF expects global output loss of $4 trillion by 2026."

"Fiscal measures should be targeted, temporary, policymakers must avoid indiscriminate response."

"Central banks should continue to respond to high inflation even as the economy slows."

"China, private creditors must act to address the risk of widening debt crisis in emerging markets."

"Probability of portfolio outflows from emerging markets has risen to 40%."

Market reaction

These comments don't seem to be impacting the market mood in a noticeable way. As of writing, the S&P 500 was trading near Wednesday's closing level at around 3,785. 

"If we get help from the supply side, I'm more optimistic about avoiding a recession," Minneapolis Fed President Neel Kashkari said on Thursday and reiterated that he was hopeful they could bring inflation down without causing a recession, as reported by Reuters.

"We have more work to do on inflation," Kashkari added and noted that he was not worried about stagflation. 

Market reaction

The greenback continues to gather strength against its rivals during the American trading hours on Thursday. As of writing, the US Dollar Index was up 0.55% on a daily basis at 111.80.

USD/CHF continues to fluctuate in its range. Only a move below 0.9737 would signal further near-term downside and change Credit Suisse’s house view outlook to tactically bearish.

USD/CHF stays seen in a sensitive near-term range

“Further near-term consolidation is likely before making a more significant move higher/lower. Nonetheless, with daily MACD now rolling over, a fall below 0.9737 would still be seen as a signal that further near-term weakness is likely to follow.” 

“A move below 0.9737 would shift our outlook to bearish on a near-term tactical basis, whereby we would look for a decline towards the bottom of the broader range, with next support at 0.9557/24.” 

“Resistance moves to 0.9888/964, and then to the recent price highs at 0.9943/66, a break above which would instead signal a potential bullish triangle pattern for a move towards 1.0052/98.”

• Gold attracts some intraday selling at higher levels amid a modest USD strength.
• Aggressive Fed rate hike bets, elevated US bond yields underpin the greenback.
•  Recession fears, risk-off mood might offer support to the safe-haven XAU/USD.

Gold struggles to gain any meaningful traction on Thursday and seesaws between tepid gains/minor losses through the early North American session. The XAU/USD is currently placed in neutral territory, around the $1,715 region as traders await a fresh catalyst before positioning for the next leg of a directional move.

The US dollar edges higher for the second straight day and is looking to build on the overnight bounce from a two-week low, which, in turn, acts as a headwind for the dollar-denominated gold. The recent hawkish remarks by several Fed officials reinforced market expectations that the US central bank will continue to tighten its monetary policy at a faster pace to tame inflation. In fact, the markets have been pricing in another supersized 75 bps Fed rate hike move in November, which remains supportive of elevated US Treasury bond yields and continues to underpin the greenback.

Market players, meanwhile, remain concerned about the economic headwinds stemming from rapidly rising borrowing costs. Adding to this, the risk of a further escalation in the Russia-Ukraine conflict takes its toll on the global risk sentiment. This is evident from a generally weaker tone around the equity markets, which is seen offering some support to the safe-haven gold. The mixed fundamental backdrop is holding back traders from placing aggressive bets around the XAU/USD. Investors also prefer to move on the sidelines ahead of the closely-watched US monthly employment details.

The popularly known NFP report is due for release on Friday and will play a key role in influencing the near-term USD price dynamics. This, in turn, should provide some meaningful impetus to the non-yielding gold. In the meantime, the US bond yields and speeches by influential FOMC members will drive the USD demand. Apart from this, the broader market risk sentiment could provide some impetus to the yellow metal and allow traders to grab short-term opportunities.

Technical levels to watch

The German government expects the Gross Domestic Product (GDP) to contract by 0.4% in 2023, Reuters reported on Thursday, citing a source who has knowledge of provisional figures of the government's autumn projections.

The government is also said to lower the 2022 growth forecast to 1.4% while projecting inflation at 7.9% and 8% in 2022 and 2023, respectively. 

A spokesperson for the German economy ministry noted that figures were not finalized and that they would present the latest projections next week.

Market reaction

The EUR/USD pair showed no immediate reaction to this headline and was last seen posting small daily losses at 0.9870.

• EUR/USD treads water in the sub-0.9900 region on Thursday.
• Further pullbacks remain on the cards while below parity.

EUR/USD trades without a clear direction below the 0.9900 region on Thursday.

The pair failed to test/surpass the parity level in the last couple of sessions, opening the door to further weakness in the short-term horizon.

Ideally, EUR/USD should leave behind that key resistance zone in the near term to allow for the continuation of the rebound. The inability to break above the parity zone could leave the pair vulnerable to further pullbacks. That said, another visit to the 20-year low in the mid-0.9500s should not be ruled out for the time being.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0625.

EUR/USD daily chart

• Initial Jobless Claims in the US rose by 29,000 in the week ending October 1.
• US Dollar Index clings to modest daily gains above 111.00 after the data.

There were 219,000 initial jobless claims in the week ending October 1, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 190,000 (revised from 193,000) and came in worse than the market expectation of 200,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1% and the 4-week moving average was 206,500, an increase of 250 from the previous week's revised average.

"The advance number for seasonally adjusted insured unemployment during the week ending September 24 was 1,361,000, an increase of 15,000 from the previous week's revised level," the DOL reported.

Market reaction

The US Dollar Index retreated from session highs after this report and was last seen rising 0.2% on the day at 111.42.

• GBP/USD turns lower for the second straight day amid the emergence of some USD buying.
• Aggressive Fed rate hike bets and the risk-off mood acts as a tailwind for the safe-haven buck.
• The formation of a bearish flag supports prospects for the resumption of the pair’s downtrend.

The GBP/USD pair meets with a fresh supply following an uptick to the 1.1385 region and turns lower for the second successive day on Thursday. The downtick drags spot prices to mid-1.1200s, closer to the overnight swing low during the mid-European session and is sponsored by the emergence of some US dollar dip-buying.

Several Fed officials reaffirmed the US central bank's commitment to bring inflation under control and the prospects for another supersized 75 bps lift-off in November. This remains supportive of elevated US Treasury bond yields, which, along with growing recession fears, continue to act as a tailwind for the safe-haven greenback.

From a technical perspective, the 1.1235 area marks confluence support comprising the 200-period SMA and the 23.6% Fibonacci retracement level of the recent bounce from an all-time low. A convincing break below will suggest that the corrective rally has run out of steam already and shift the bias back in favour of bearish traders.

The GBP/USD pair might then turn vulnerable to weaken further below the 1.1200 mark and accelerate the downfall towards testing the 1.1100 round figure. The latter coincides with the lower end of a nearly two-week-old ascending trend channel, which now seems to constitute the formation of a bearish flag pattern on hourly charts.

Some follow-through selling, leading to a subsequent slide below the 38.2% Fibo. level around the 1.1050-1.1045 area will confirm the negative outlook and prompt aggressive technical selling. The downward trajectory could then drag the GBP/USD pair towards 50% Fibo. level, around the 1.0900 round-figure mark.

On the flip side, the 1.1375-1.1385 region now seems to have emerged as an immediate hurdle ahead of the 1.1400 mark. Sustained strength beyond should allow the GBP/USD pair to aim back to conquer the 1.1500 psychological mark, above which bulls might target the ascending channel resistance, currently around the 1.1625 zone.

GBP/USD 4-hour chart

Key levels to watch

Gold price has extended its gains above $1,720. Nonetheless, strategists at TD Securities still believe that XAU/USD is likely to trend lower.

Shanghai traders start to shy away from gold

“A prolonged period of restrictive rates suggests traders should ignore gold's siren calls, as a sustained downtrend will likely prevail, while quantitative tightening continues to drive real rates higher.”

“Money managers hold their largest net short in gold since 2018, driven by trend followers. We expect a break north of $1,740 could fuel CTA stop-outs, suggesting the squeeze could run further.” 

“Shanghai traders have shied away from precious metals, leaving the market with fewer offers.”

AUD/NZD continued to trade with a heavy downside bias amid growing policy divergence between the Reserve Bank of Australia and the Reserve Bank of New Zealand. Economists at OCBC Bank maintain a short bias targeting 1.12.

Risks remained skewed to the downside

“RBNZ’s accompanying MPS was slightly more hawkish than expected as it noted that the MPC considered 50, 75 bps at this meeting; core CPI is ‘too high’ and lower NZD if sustained poses further upside risk to CPI.”

“We maintain our tactical short play on AUD/NZD, targeting 1.12, 1.1050 objectives.”

“Daily momentum is bearish while RSI fell. Risks remained skewed to the downside.”

“Support at 1.1240, 1.1210 levels.”

“Resistance at 1.1305 (21 DMA), 1.1380 levels.”

The accounts of the European Central Bank's (ECB) September policy meeting revealed on Thursday policymakers saw that euro depreciation could add to inflationary pressure for the euro area.

Key takeaways as summarized by Reuters

"Inflation was far too high and likely to stay above the governing council’s target for an extended period."

"Inflation expectations were still anchored and wage growth remained moderate, with little evidence of second-round effects."

"Risks surrounding the projected inflation path remained tilted to the upside over the entire projection horizon."

"The size of the upward revision in the staff inflation projection for 2024 was not seen as sufficiently large as to require a more aggressive response."

"Expected weakening in economic activity would not be sufficient to reduce inflation to a significant extent."

"A response that was too aggressive could also exacerbate a recession, with few benefits for inflation in the short term."

"Some members expressed a preference for increasing the key ecb interest rates by 50 basis points. while a 25 basis point increase was seen as clearly insufficient."

"Acting forcefully now could avoid the need to increase interest rates more sharply later."

"It was argued that policy would remain expansionary after a 75 basis point rate hike."

"A very large number of members expressed a preference for raising the key ECB interest rates by 75 basis points."

"Without a timely reduction in monetary policy accommodation, inflationary pressures resulting from a depreciation of the euro might increase."

"Acting forcefully now could avoid the need to increase interest rates more sharply later in the economic cycle when the economy was slowing."

"Expected decline in inflation towards the end of the projection horizon was therefore seen to be surrounded by a higher than usual degree of uncertainty."

Market reaction

EUR/USD edged slightly lower with the initial reaction and was last seen losing 0.1% on the day at 0.9875.

• DXY gives away part of the strong gains recorded on Wednesday.
• The continuation of the range bound theme looks likely.

DXY trades on the defensive and returns to the low-111.00s on Thursday.

Despite the ongoing correction, the index could move into a consolidative phase in the next hours ahead of the key Nonfarm Payrolls due on Friday.

In the meantime, the breach of the 110.00 yardstick should open the door to a probable visit to the weekly low at 109.35 (September 20), while the YTD high near 114.80 emerges as the big magnet for bulls.

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 7-month support line near 107.50.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 102.75.

DXY daily chart

EUR/GBP weakness is slowing. Analysts at Credit Suisse look for a floor above support at 0.8585/57, with a break above 0.8832/52 needed to suggest the sell-off is over.

Close below 0.8657 would suggest a more concrete decline is underway

“The decline is showing signs of slowing ahead of what we see as more important support at the rising 55-day average, September low and uptrend from August at 0.8585/57.

Resistance is seen at 0.8778 initially, with a break above 0.8832/52 still needed to suggest the worst of the sell-off may have been seen for strength back to 0.8973/81 initially.”

“A close below 0.8657 though would suggest a more concrete decline is underway, opening the door to a test of the key rising long-term 200-day average, now at 0.8473.”

• EUR/JPY regains some buying interest after Wednesday’s retracement.
• Further upside is expected to retarget the 144.00 mark in the near term.

EUR/JPY partially reverses the recent pullback and looks slightly bid above the 143.00 mark on Thursday.

The continuation of the rebound from last week’s lows remains well in place despite Wednesday’s knee-jerk. Against that, if the cross extends the breakout of the weekly top at 144.04 (September 20), it could then dispute the 2022 high at 145.63 (September 12).

In the meantime, while above the key 200-day SMA at 136.10, the constructive outlook for the cross should remain unchanged.

EUR/JPY daily chart

Economist at UOB Group Lee Sue Ann reviews the latest interest rate decision by the RBA (October 4).

Key Takeaways

“The Reserve Bank of Australia (RBA) decided to increase the official cash rate (ORC) by 25bps to 2.60%. It also increased the interest rate on Exchange Settlement balances by 25bps to 2.50%. While most had expected for a 50bps hike, the increase was in line with our forecast.”

“It was previously indicated that the Board will debate the merits of hiking by a quarter-percentage point or a half-point at this Oct meeting. Nonetheless, the RBA continued to signal more increases ahead, with developments in the global economy, household spending and wage-price conditions driving the size and timing.”

“Our call on the OCR is unchanged – we have penciled in 25bps hikes for the remaining two meetings in 2022. That will take the OCR to 3.10% by year-end. We then look for a pause thereafter. The next RBA meeting is on 1 Nov. Before that, focus will be on key employment data for Sep and 3Q22 CPI data, due on 20 Oct and 26 Oct, respectively.”

Following a very strong week, a slate of bullish news is erasing oversupply fears. In the view of strategists at TD Securities, WTI is likely to trade comfortably above $90 in the coming months.

A surge into triple digits is not yet expected

“The most recent production targets from OPEC+ have very convincingly tilted price risks to the upside, but growing concerns surrounding a weak global economic environment that may sharply cut demand will serve as a mitigating dynamic, preventing crude oil prices from surging in the near-term.” 

“We expect WTI to trade materially above $90 in the coming months. However, a surge into triple digits is not yet expected, as it looks increasingly likely that the decline in global demand growth could offset much of the OPEC+ cut starting in November.”

• NZD/USD retreats from a nearly two-week high set earlier this Thursday amid fresh USD buying.
• Bets for more aggressive Fed rate hikes and elevated US bond yields continue to boost the buck.
• Recession fears weigh on investors’ sentiment and also exert pressure on the risk-sensitive kiwi.

The NZD/USD pair struggles to find acceptance above the 0.5800 mark for the second successive day and retreats sharply from a nearly two-week high touched earlier this Thursday. The steady intraday slide extends through the mid-European session and drags spot prices to a fresh daily low, with bears eyeing a sustained break below the 0.5700 round figure.

A combination of factors helps revive the US dollar demand, which, in turn, is exerting some downward pressure on the NZD/USD pair. Investors seem convinced that the Fed will stick to its aggressive policy tightening path to tame inflation and have been pricing in another supersized 75 bps rate increase in November. The bets were reaffirmed by the recent hawkish comments by several Fed officials, which remain supportive of elevated US Treasury bond yields and continue to act as a tailwind for the USD.

Apart from this, the prevalent risk-off environment provides an additional boost to the safe-haven buck and contributes to driving flows away from the risk-sensitive kiwi. Investors remain concerned that rapidly rising borrowing costs will lead to a deeper global economic downturn. Furthermore, the risk of a further escalation in the Russia-Ukraine conflict takes its toll on the risk sentiment. This, in turn, favours bearish traders and suggests that the path of least resistance for the NZD/USD pair is to the downside.

Market participants, however, might refrain from positioning for deeper losses and prefer to move to the sidelines ahead of the closely-watched US monthly jobs data, due on Friday. The popularly known NFP report will influence Fed rate hike expectations and play a key role in driving the USD in the near term. In the meantime, Thursday's release of the US Weekly Initial Jobless Claims, along with speeches by FOMC members and broader market risk sentiment, could provide some impetus to the NZD/USD pair.

Technical levels to watch

In Mexico, the focus is on inflation data due out tomorrow. A better-than-expected report could put downside pressure on the peso, economists at Commerzbank report.

Everything centres on inflation

“We expect that for the time being, Banxico will continue its tightening course in line with the Fed. The market clearly agrees, and a glance at the TIIE rates suggests that a lot has already been priced in.”

“If tomorrow’s inflation data were to be much more favourable than expected the market might lower its expectations, which would put pressure on the peso.”

EUR/USD seems to have gone into a consolidation phase. The pair is set to move sideways awaiting a fresh catalyst, in the view of analysts at OCBC Bank.

Sideways

“Daily momentum remains bullish though rise in RSI slowed. Sideways trade likely in absence of a fresh catalyst.”

“Immediate resistance at 1.0010 (50 DMA), 1.0050 levels. Support at 0.9890 (21 DMA), 0.9860 levels.”

“European Commission’s Ursula von der Leyen called for boosting common funding for EU’s strategy to shift away from Russian fossil fuel while also signalled that she’s open to discussing a temporary broad price cap on gas.”

See – EUR/USD: Parity becomes a tough nut to crack – ING

• USD/CAD reverses an intraday dip amid the emergence of fresh buying around the USD.
• Expectations for more aggressive Fed rate hikes, recession fears lift the safe-haven buck.
• A modest pullback in oil prices undermines the loonie and also offers support to the pair.

The USD/CAD pair attracts some dip-buying near the 1.3565 area and moves into positive territory for the second successive day on Thursday. The uptick lifts spot prices back above mid-1.3600s during the first half of the European session and is sponsored by a modest US dollar strength.

The recent hawkish comments by several Fed officials reaffirmed expectations that the US central bank will tighten its monetary policy at a faster pace to tame inflation. In fact, the markets have been pricing in another supersized 75 bps Fed rate hike move in November. This, in turn, remains supportive of elevated US Treasury bond yields, which, along with a weaker risk tone, continues to act as a tailwind for the safe-haven greenback.

The market sentiment remains fragile amid worries about the economic headwinds stemming from rapidly rising borrowing costs. Furthermore, investors remain concerned that a deeper global economic downturn will dent fuel demand. This leads to a modest pullback in crude oil prices from a three-week high touched earlier this Thursday and undermines the commodity-linked loonie, which further contributes to the USD/CAD pair's intraday move up.

Despite the uptick, spot prices remain confined well within the previous day's broader trading range. The fundamental backdrop, however, supports prospects for an extension of this week's bounce from the 1.3500 psychological mark. Traders now look forward to Thursday's economic docket, featuring the US Weekly Initial Jobless Claims data and Canadian Ivey PMI. This, along with oil price dynamics, could provide some impetus to the USD/CAD pair.

Technical levels to watch

The Bank of England (BOE) Deputy Governor Jon Cunliffe said in a letter published on Thursday, the bank and FPC continue to monitor market conditions and channels through which vulnerabilities could amplify future market stresses.

Further quotes

Market reaction

GBP/USD is feeling the heat from the BOE commentary, as it drops back below 1.1300, down 0.34% on the day.

USD/KRW faced stiff resistance near 1444 earlier this week resulting in a sharp decline. The pair could suffer further losses in case support at 1393/84 fails, economists at Société Générale report. 

Defending 1393/84 can result in a bounce towards 1426

“USD/KRW is in vicinity to potential support at 1393/1384 representing the daily Kijun line. Defending this zone can result in a bounce towards 1426, the 61.8% retracement of the pullback and 1444. It would be interesting to see if the pair can re-establish beyond this hurdle.” 

“In case the support at 1393/1384 gets violated, a retest of 50-DMA near 1360 is likely.”

Economists at ING analyze the outlook for the British pound. They see prevalent downside risks and expect GBP/USD to sink towards 1.10. Meanwhile, EUR/GBP is set to trade above 0.87 .

EUR/GBP to build a solid floor at 0.87

“We mostly see downside risks for cable from current levels, and expect a drop below 1.10 in the near-term.”

“In EUR/GBP, 0.8700 may emerge as an increasingly solid floor over the coming weeks.”

See: GBP/USD to remain vulnerable amid UK monetary and fiscal policy concerns – HSBC

In a letter to Treasury Committee, the Bank of England (BOE) wrote that “liquidity conditions were very poor in the run-up to the BOE gilt intervention.”

Additional takeaways

“The move in gilt yields last week threatened to exceed the size of the cushion for many LDI funds.”

“Market repricing has been largely orderly so far but pressures have been observed in parts of the financial system.“

“But there has not been a widespread crystallization of financial stability risks.”

“Had BOE not intervened, a large number of pooled LDI funds would have been left with negative net asset value and would have faced shortfalls in the collateral posted to banking counterparties.”

“The bank acted to restore core market functioning and reduce the material risks to financial stability and contagion to credit conditions for the UK households and businesses.”

“The bank’s operation is intended to give the affected LDI funds time to put their positions on a sustainable footing, increasing their resilience to future stresses. “

“The bank is studying market conditions and patterns of demand and will continue to use reserve pricing in order to ensure the backstop objective of the tool is delivered.”

“Once the purchase programme is complete, the operation will be unwound in a smooth and orderly fashion once risks to market functioning are judged by the bank to have subsided.”

Market reaction

The pound is little affected by the excerpts from the BOE letter, leaving GBP/USD hovering around 1.1300, at the time of writing. The pair is losing 0.15% on the day.

The Bank of England’s (BOE) Decision Maker Panel survey of chief financial officers showed on Thursday, British businesses' expectations for consumer price inflation continued its rise in September.

Key takeaways

“British businesses' expectations for consumer price inflation in one year's time rose to 9.5% last month, up from 8.4% in August.”

“Businesses expected output prices to rise by 6.6% in the year ahead, up from expectations of 6.5% in August.”

Market reaction

GBP/USD remains vulnerable near 1.1300 amid risk-aversion, US dollar rebound and UK financial woes. The spot is down 0.19% on the day.

• USD/JPY struggles to gain any meaningful traction and remains confined in a narrow band.
• The downside seems cushioned amid the Fed-BoJ policy divergence, modest USD strength.
• Investors now await the US NFP report on Friday before placing aggressive directional bets.

The USD/JPY pair struggles to capitalize on the previous day's bounce from the 143.50 area, or over a one-and-half-week low and oscillates in a narrow band on Thursday. The pair remains below the 145.00 psychological mark through the first half of the European session, though the bias still seems tilted in favour of bullish traders.

A big divergence in the policy stance adopted by the Bank of Japan and other major central banks might continue to undermine the Japanese yen. In fact, the Japanese central bank has been lagging behind other major central banks in the process of policy normalisation and remains committed to continuing with its monetary easing. This, along with the emergence of some US dollar dip-buying, supports prospects for some meaningful upside for the USD/JPY pair.

The recent hawkish remarks by several Fed officials reaffirmed expectations that the US central bank will tighten its monetary policy at a faster pace and continues to act as a tailwind for the USD. In fact, the markets have been pricing in the possibility of another supersized 75 bps Fed rate hike move in November. This remains supportive of elevated US Treasury bond yields, widening the US-Japan rate differential and adding credence to the constructive outlook.

Japan's finance minister Shunichi Suzuki, however, said on Monday that the government stands ready to intervene in currency markets to prevent deeper losses in the domestic currency. This is seen as a key factor holding back traders from placing aggressive bullish bets around the USD/JPY pair. Investors also seem reluctant and might wait for a fresh catalyst from the closely-watched US monthly employment details, popularly known as the NFP report on Friday.

In the meantime, the release of the US Weekly Initial Jobless Claims, speeches by FOMC officials and the US bond yields will drive the USD demand. Apart from this, traders will take cues from the broader market risk sentiment, which might influence the safe-haven JPY and produce short-term opportunities around the USD/JPY pair.

Technical levels to watch

• Eurozone Retail Sales came in at -0.3% MoM in August vs. -0.4% expected.
• Retail Sales in the bloc arrived at -2.0% YoY in August vs. -1.7% expected.

Eurozone’s Retail Sales dropped by 0.3% MoM in August versus -0.4% expected and -0.4% last, the official figures released by Eurostat showed on Thursday.

On an annualized basis, the bloc’s Retail Sales came in at -2.0% in August versus -1.2% recorded in July and -1.7% estimated.

FX implications

The euro pays little heed to the downbeat Eurozone data. At the time of writing, the major is trading at 0.9888, adding 0.07% on the day.

About Eurozone Retail Sales

The Retail Sales released by Eurostat are a measure of changes in sales of the Eurozone retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. Usually, positive economic growth anticipates "Bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

The dollar downtrend has started to prove unsustainable. In the view of economists at ING, a further USD recovery is likely from current levels as markets show reluctance to fully jump in on bets of a Fed pivot.

Room for further recovery

“It’s hard to see a clear trigger for the reversal in risk sentiment yesterday, and it probably boiled down to markets not being ready to bet heavily on the Fed pivot story.”

“The latter – hawkish – narrative should prevail for the Fed, ultimately capping the recovery in risk assets and offering widespread support to the dollar.”

“We expect a further dollar recovery into the weekend, with upside risks particularly concentrated around tomorrow’s payrolls release, when DXY may extend gains into the 112-113 area.”

• EUR/USD meets initial resistance near 0.9930 on Thursday.
• The dollar reverses the earlier pessimism and regains traction.
• EMU Retail Sales, ECB Accounts next on tap in the domestic docket.

EUR/USD now returns to the area below the 0.9900 mark after failing to advance further north of the 0.9930 region earlier in the session.

EUR/USD looks to dollar, ECB

EUR/USD clings to the daily gains and manages to regain some composure following Wednesday’s sharp pullback and amidst the persistent buying pressure around the greenback.

The bullish attempt in the pair comes in tandem with another uptick in the German 10-year bund yields, this time regaining the area north of the 2.00%. The daily upside in the German yields so far fall in line with their US peers, which flirt with the 3.75% area.

In the euro docket, the German Construction PMI eased to 41.8 in September, while Retail Sales in the euro area come next seconded by the publication of the ECB Accounts. Across the Atlantic, the weekly Claims will be the sole release along with speeches by FOMC’s Cook, Evans and Waller.

What to look for around EUR

EUR/USD looks to extend the bounce past the 0.9900 hurdle after Wednesday’s steep corrective decline.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The latter has been exacerbated further following the latest rate hike by the Fed and the persevering hawkish message from Powell and the rest of his rate-setters peers.

Furthermore, the increasing speculation of a potential recession in the region - which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals – adds to the sour sentiment around the euro

Key events in the euro area this week: Germany Construction PMI, EMU Retail Sales, ECB Accounts (Thursday) – Germany Retail Sales (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian post-elections developments. Fragmentation risks amidst the ECB’s normalization of its monetary conditions. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook.

EUR/USD levels to watch

So far, the pair is gaining 0.02% at 0.9882 and the breakout of 0.9999 (weekly high October 4) would target 1.0023 (55-day SMA) en route to 1.0050 (weekly high September 20). On the flip side, the initial support comes at 0.9535 (2022 low September 28) ahead of 0.9411 (weekly low June 17 2002) and finally 0.9386 (weekly low June 10 2002).

GBP/USD crashed to an all-time low on 26 September. Economists at HSBC expect the pound to remain under pressure amid concerns over the UK’s structural challenges and policy credibility.

BoE to buy long-dated gilts every weekday until 14 October 2022

“On 28 September, the Bank of England (BoE) surprisingly announced that it would buy long-dated gilts every weekday until 14 October 2022 to stabilise the gilts market, and the start of its quantitative tightening (QT) programme would be postponed to 31 October 2022. But for the GBP, this intervention does not address the underlying driver to that market dysfunction, which is the market’s discomfort with the divergent implications of UK monetary and fiscal policy.”

“With market concerns over the UK’s structural challenges and policy credibility, the GBP remains vulnerable.”

• AUD/USD struggles to preserve its intraday gains amid the emergence of some USD dip-buying.
• Aggressive Fed rate hike bets, elevated US bond yields continue to act as a tailwind for the buck.
• The cautious mood further benefits the safe-haven USD and weighs on the risk-sensitive aussie.

The AUD/USD pair surrenders a major part of its intraday gains and slips below the 0.6500 psychological mark, back closer to the daily low during the first half of the European session.

A combination of supporting factors helps to revive the US dollar demand, which, in turn, keeps a lid on the AUD/USD pair's early positive move closer to the 0.6550 supply zone. The recent hawkish remarks by several Fed officials reaffirmed expectations that the US central bank will tighten its monetary policy at a faster pace. In fact, the markets have been pricing in the possibility of another supersized 75 bps Fed rate hike move in November. This remains supportive of elevated US Treasury bond yields and acts as a tailwind for the buck. Apart from this, the prevalent cautious market mood further underpins the safe-haven greenback and contributes to capping the risk-sensitive aussie.

The market sentiment remains fragile amid concerns that rapidly rising borrowing costs will lead to a deeper global economic downturn. Adding to this, the risk of a further escalation in the Russia-Ukraine conflict tempers investors' appetite for riskier assets. This, along with the Reserve Bank of Australia's (RBA) decision to slow the pace of policy tightening and raise interest rates by 25 bps earlier this week, seems to weigh on the Australian dollar. The fundamental backdrop seems tilted in favour of bearish traders and suggests that the path of least resistance for the AUD/USD pair is to the downside. Hence, any attempted recovery move runs the risk of fizzling out quickly.

Traders, however, might refrain from placing aggressive bets and prefer to move to the sidelines ahead of the closely-watched US monthly employment details, due for release on Friday. The popularly known NFP report will play a key role in influencing Fed rate hike expectations. The outlook should help determine the next leg of a directional move for the greenback and the AUD/USD pair. In the meantime, traders on Thursday will take cues from the US Weekly Initial Jobless Claims data. Apart from this, speeches by influential FOMC members and the US bond yields will drive the USD demand. This, along with the broader risk sentiment, will be looked upon for short-term trading opportunities.

Technical levels to watch

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research noted further weakness in USD/CNH should face solid contention around 7.0000.

Key Quotes

24-hour view: “Yesterday, we highlighted yesterday that the ‘oversold decline in USD could extend but the major support at 7.0000 is unlikely to come into view’. Our view was not wrong as USD dropped to 7.0128. That said, we did not expect the strong rebound from the low (high has been 7.0929). Downward pressure has eased and USD is likely to trade between 7.0100 and 7.0850 for today.”

Next 1-3 weeks: “We continue to hold the same view as yesterday (05 Oct, spot at 7.0400). As highlighted, the risk for USD is on the downside but it remains to be seen if it can break the significant support at 7.0000. Overall, only a breach of 7.1170 (no change in ‘strong resistance’ level from yesterday) would indicate the downside risk in USD has subsided.”

EUR/USD showed some resistance at the 1.0000 level on Wednesday before falling back down. Economists at ING expect the pair to remain below parity.

Parity is an increasingly relevant level

“Considering the reluctance to turn more bullish on the euro into what should be a challenging winter for the eurozone, a sustained recovery to levels above parity in EUR/USD might now only be driven by markets buying more aggressively into the Fed pivot story and/or other drivers offering sustained support to risk assets.”

“For now, we feel comfortable in reiterating our call for EUR/USD to stay pressured into the 0.90-0.95 in the last months of the year.”

“The new pack of sanctions by the EU likely suggest a prolonged stand-off with Russia, while markets await more details on the proposed oil price cap.”

Here is what you need to know on Thursday, October 6:

Following another volatile day on Wednesday, financial markets stay relatively calm early Thursday as investors reassess their positions ahead of Friday's highly-anticipated jobs report from the US. The US Dollar Index stays in negative territory below 111.00, the US stock index futures trade flat and the benchmark 10-year US T-bond yield fluctuates above 3.7%. Later in the session, Retail Sales data from the euro area and the European Central Bank's policy meeting accounts will be looked upon for fresh impetus. The US economic docket will feature weekly Initial Jobless Claims and speeches by FOMC policymakers.

The risk-averse market environment amid escalating geopolitical tensions helped the greenback erase some of the losses it suffered against its major rivals earlier in the week. Moreover, the upbeat ADP private sector employment data and the ISM Services PMI report provided an additional boost to the dollar. During the American trading hours, hawkish Fed commentary revived expectations for one more big rate hike in November. According to the CME Group FedWatch Tool, markets are currently pricing in a nearly 70% probability of a 75 basis points rate Fed rate increase in November.

Fed's Bostic: Federal Reserve's fight against inflation is likely “still in early days”.

Fed's Daly: I see more rate increases as necessary.

Meanwhile, OPEC+ announced that it decided to lower crude oil production by 2 million barrels per day from November. In response, the White House said that US President Biden was disappointed by the group's "shortsighted" decision. The barrel of West Texas Intermediate, which is already up 10% this week, was last seen trading modestly higher on the day at $88.25.

Following its failed attempt to break above parity on Wednesday, EUR/USD seems to have gone into a consolidation phase slightly above 0.9900 early Thursday.

GBP/USD snapped a six-day losing streak on Wednesday but managed to close above 1.1300. In the absence of high-impact macroeconomic data releases from the UK, the pair fluctuates in a narrow range at around 1.1330 in the European morning. Later in the day, UK and EU officials are expected to restart discussion on the Northern Ireland protocol.

Gold suffered heavy losses but buyers successfully defended $1,700 on Wednesday. XAU/USD is trying to regather its bullish momentum and was last seen trading modestly higher on the day above $1,720.

USD/JPY extended its sideways grind below 145.00 and failed to make a decisive move in either direction. The pair stays within its 10-day-old trading range at around mid-144.00s.

Bitcoin failed to build on Tuesday's gains on Wednesday but ended up closing the day above the key $20,000 level before going into a consolidation phase early Thursday. Ethereum continues to edge higher toward $1,400 after having struggled to find direction on Wednesday.

• GBP/USD edges higher amid modest USD weakness, though lacks follow-through buying.
• Aggressive Fed rate hike bets, elevated US bond yields, recession fears limit the USD losses.
• Concerns about the UK government’s fiscal policy further contribute to capping the major.

The GBP/USD pair builds on the overnight bounce from the 1.1225 region and edges higher on Thursday, though lacks follow-through. The pair sticks to a mildly positive tone through the early European session and is currently placed around mid-1.1300s, up 0.20% for the day.

The US dollar struggles to capitalize on the previous day's solid bounce from a two-week low and meets with a fresh supply, which, in turn, offers some support to the GBP/USD pair. That said, a combination of factors is holding back bullish traders from placing aggressive bets and acting as a headwind for the major.

The USD downtick remains limited amid growing acceptance that the Fed will tighten its monetary policy at a faster pace to curb soaring inflation. The markets have been pricing in another supersized 75 bps Fed rate hike move in November. The bets were reaffirmed by the recent hawkish comments by several Fed officials.

This, in turn, remains supportive of elevated US Treasury bond yields, which, along with concerns about a deeper global economic downturn, continue to lend support to the safe-haven buck. The British pound, on the other hand, is undermined by concerns about the new UK government's fiscal policy amid looming recession risks.

UK Prime Minister Liz Truss defended the tax-cut plan during her at the Conservative Party conference on Wednesday and said that cutting taxes is the right thing to do morally and economically. This could derail the Bank of England's efforts to contain inflation, forcing it to turn more hawkish and creating additional economic headwinds.

The fundamental backdrop warrants some caution for aggressive bullish traders and positioning for an extension of the GBP/USD pair's recent strong recovery from an all-time low. Market participants now look forward to the UK Construction PMI for some impetus ahead of the Weekly Initial Jobless Claims data from the US.

This, along with the US bond yields, the broader market risk sentiment and speeches by influential FOMC members, will drive the USD demand and produce short-term trading opportunities around the GBP/USD pair. The focus, however, remains on Friday's release of the closely-watched US jobs data, popularly known as the NFP report.

Technical levels to watch

The US Dollar Index (DXY) hit a 20-year high recently. In the view of economists at HSBC, the USD is likely to continue to be resilient.

Fed to continue hiking

“Many central banks have delivered rate hikes to fight inflation. In particular, the Federal Reserve delivered its third straight 75 bps hike in September and signalled further sizeable hikes are likely to follow.” 

“We believe high US yields, weak global growth, and a fragile risk appetite are likely to remain supportive for the USD.”

• The index gives away part of Wednesday’s strong advance.
• The risk complex regains some composure and weighs on the dollar.
• US Initial Claims, Fedspeak next of relevance in the calendar.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main rival currencies, faces some downside pressure and slips back below the 111.00 mark on Thursday.

USD Index remains supported around 110.00

The index trades with moderate losses in the sub-111.00 zone in the second half of the week, as the riskier assets regain some balance and US yields so far extend the recovery sparked on Wednesday.

In the meantime, the hawkish message from Fed’s rate-setters remain on the hawkish side and everything points to a 75 bps interest rate hike at the November 2 gathering. This view was reinforced after better-than-expected results from the ISM Non-Manufacturing and the monthly ADP report, both for the month of September and released on Wednesday.

So far, CME Group’s FedWatch Tool sees the probability of such a scenario at nearly 70%.

In the US data space, usually weekly Claims are due along with speeches by FOMC ‘s Governors L.Cook (permanent voter, centrist) and C.Waller (permanent voter, hawk) and Chicago Fed C.Evans (2023 voter, centrist).

What to look for around USD

The index suffers the recovery in the risk complex and returns to the area below the 111.00 level on Thursday.

While the near-term outlook for the dollar looks somewhat dented, the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market continues to prop up the underlying positive tone in the index.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Initial Jobless Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change, Wholesale Inventories (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is retreating 0.27% at 110.89 and a breach of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13). On the other hand, the next up barrier emerges at 114.76 (2022 high September 28) seconded by 115.00 (round level) and then 115.32 (May 2002 high).

USD/JPY has been moving in a narrow range around 144/145. Nonetheless, economists at Commerzbank expect the pair to resume its race higher.

Recent stability of USD/JPY is less favourable than it seems

“The recent stability of the USD/JPY exchange rate is less favourable than it seems though, as the US currency has weakened against most currencies of industrialised nations since last week, which is not reflected in the exchange rate against the yen though as it has depreciated almost to the same extent.”

“As soon as the dollar is able to appreciate again – which we expect – upside pressure on USD/JPY is also likely to rise again.”

• Silver struggles to capitalize on its modest intraday gains to the $21.00 neighbourhood.
• The technical set-up favours bulls and supports prospects for some meaningful upside.
• Dips towards the 100 DMA could be seen as a buying opportunity and remain limited.

Silver builds on the previous day's goodish bounce from sub-$20.00 levels and edges higher during the first half of trading on Thursday. The uptick, however, falters ahead of the $21.00 round figure during the early European session, forcing spot prices to surrender modest intraday gains.

From a technical perspective, this week's sustained breakout through a nearly four-month-old descending trend-line resistance and the 100-day SMA favours bullish traders. The positive outlook is reinforced by bullish technical indicators on the daily chart, which are still far from being in the overbought territory.

That said, it will still be prudent to wait for a move back above the $21.00 mark before positioning for any further appreciating move. The XAG/USD might then aim to test the very important 200-day SMA, around the $21.90 area. Some follow-through buying beyond the $22.00 level should pave the way for further gains.

The XAG/USD could then accelerate the momentum and climb towards the next relevant resistance near the $22.40 region. The subsequent move up has the potential to lift spot prices towards the $23.00 round-figure mark.

On the flip side, the $20.00 psychological mark, or the 100-day SMA, now seems to have emerged as immediate strong support. This is followed by the descending trend-line resistance breakout point, around the $19.55 region. The latter coincides with the 50-day SMA and should now act as a strong base for the XAG/USD.

Silver daily chart

Key levels to watch

Economists at Scotiabank note a number of other challenges are perhaps developing for the Canadian dollar. Therefore, the loonie is set to keep a defensive tone.

CAD faces headwinds on a number of fronts

“CAD-positive yield differentials earlier this year have evaporated at the short end of the curve and now stand healthily in the USD’s favour. That may not last but it is a clear impediment for the CAD right now.”

“Commodity prices have been softening since mid-year as global growth expectations weaken. The CAD has decoupled from oil prices this year but broadly lower commodity prices and weaker terms of trade are clearly less supportive for the CAD.”

“While we think equity market trends are driving the bus in terms of the CAD trend in the short run, our correlation screens do note a strengthening in the CAD’s relationship between spreads and commodities at the moment. These factors may become more influential on the CAD’s performance if the equity market link weakens.”

Following the OPEC and its allies (OPEC+) output cut decision, Kuwait’s acting Oil Minister Mohammed Al-Fares said that the move by the alliance will have positive ramifications on the oil markets.

Additional quotes

“The decision places a big responsibility on us to follow up on market developments in case supply or output increases,” 

 “OPEC+ works to serve the global economy, not threaten it.”

Market reaction

WTI was last seen trading at $86.95, down 0.53% on the day. The US oil fails to find any support from the above comments amid the ongoing pullback from three-week highs.

Economists at DBS Bank expect the euro and the British pound to remain under pressure for the time being amid economic concerns. 

Staying defensive on EUR and GBP

“ECB President Christine Lagarde declined to say if inflation has peaked and acknowledged that rate hikes will be needed at several meetings to curb demand. However, the tightening is coming when Bloomberg consensus expects real GDP growth to flatten to 0% QoQ in 3Q22 (vs 0.7-0.8% growth in the previous two quarters) before turning negative in 4Q22 and 1Q23. Against this weak backdrop, we see no reason for EUR to push above parity.”

“Despite the U-turn on abolishing the 45% top income tax rate, Fitch downgraded UK’s ‘AA’ long-term foreign currency debt rating outlook to negative from stable. Attention is also turning to how the UK can attract foreign capital to fund a current account deficit that widened to 8.3% of GDP in 1Q22. As more questions arise over UK’s weakened fundamentals, it is probably best to remain defensive on the GBP.”

• EUR/GBP gains traction for the third successive day on Thursday, though lacks bullish conviction.
• Worries about the UK government’s fiscal plans weigh on sterling and continue to offer support.
• Recession fears act as a headwind for the euro and keep a lid on any further gains for the cross.

The EUR/GBP cross attracts some buying for the third straight day on Thursday and sticks to its intraday gains through the early European session. The cross is currently placed near the top end of its daily trading range, around mid-0.8700s, and is looking to build on the recovery from a nearly three-week low touched on Tuesday.

Concerns about the new UK government's fiscal policy turn out to be a key factor behind the British pound's relative underperformance and offers some support to the EUR/GBP cross. UK Prime Minister Liz Truss defended the tax-cut plan at the Conservative Party conference on Wednesday, saying that cutting taxes is the right thing to do morally and economically.

Investors remain worried that the tax cuts will worsen inflation and force the Bank of England to turn more hawkish, creating additional headwinds for the economy amid looming recession risks. It is worth recalling that the markets have been pricing in the possibility of a bumper 100 bps rate hike by the UK central bank at its next monetary policy meeting in November.

The shared currency, on the other hand, benefits from the emergence of fresh US dollar selling. This is seen as another actor factor acting as a tailwind for the EUR/GBP cross. The uptick, however, lacks bullish conviction amid fears of a deeper economic downturn in the Eurozone, which were further fueled by the disappointing release of German Factory Orders on Thursday.

The mixed fundamental backdrop warrants some caution before placing aggressive bullish bets around the EUR/GBP cross and positioning for any further appreciating move. Market participants now look forward to the UK Construction PMI and the Eurozone Retail Sales figures for a fresh impetus. The focus, however, will be on the ECB Monetary Policy Meeting Accounts.

Technical levels to watch

Economists at Danske Bank discuss the likelihood of broad-based global coordinated FX intervention with the intent to weaken the USD. In their view, FX intervention to weaken the USD is currently not aligned with US incentives to bring down inflation.

Low probability of coordinated USD FX intervention

“We still think the probability of broad-based global FX intervention to weaken the USD is very low; close to zero percent by end-2022 and 10% by end-2023.”

“A necessary condition for coordinated G10 FX intervention is the US supporting such action. As long as US inflation pressures are high, we do not expect such support.”

“We warn against regarding FX intervention as an appropriate tool at this stage. In our view, recent FX moves are fundamentally justified, FX intervention would only increase market volatility and a weaker USD only adds inflation pressures.”

The USD/JPY pair is set to hit the 150 level, according to economists at Bank of America who maintain a bullish bias through the first quarter of next year.

USD/JPY to correct on the Fed’s rate cuts later into 1H24

“USD/JPY rally may slow down as the Japanese government attempts to cap USD/JPY’s upside but the market would buy USD/JPY’s dip. Carry trades are likely to weigh over JPY if the market comes to realization that the Fed is expected to hold for some time.” 

“USD/JPY is likely to test 150 by 1Q23 before peaking out on a US recession concern first in the middle of 2023 and correcting on the Fed’s rate cuts later into 1H24.”

In the opinion of Economist Lee Sue Ann and Markets Strategist Quk Ser Leang at UOB Group’s Global Economics & Markets Research, a drop in USD/JPY to the 143.00 region seems to have lost momentum as of late.

Key Quotes

24-hour view: “Yesterday, we were of the view that USD ‘is likely to break 143.50 but is unlikely to challenge the next major support at 143.00’. However, USD did not break through 143.50 as it rebounded strongly from the support level (low has been 143.50). The volatile price actions have resulted in a mixed outlook. USD could continue to trade in a choppy manner, likely between 143.80 and 144.90.”

Next 1-3 weeks: “We noted yesterday (05 Oct, spot at 13.90), short-term downward momentum is building and we expected USD to trade with a downward bias towards 143.00. USD subsequently dropped to 143.50 before rebounding strongly to a high of 144.84. While our ‘strong resistance’ level at 144.90 is not breached, the odds of USD heading lower to 143.00 have diminished.”

FX option expiries for Oct 6 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9785-90 280m
• 0.9795-00 254m
• 0.9825 210m
• 0.9925 201m

- USD/JPY: USD amounts                     

• 143.00 420m
• 143.40-50 812m
• 143.71-75 260m
• 144.00 804m
• 145.00 886m
• 145.45-50 1.38b

- AUD/USD: AUD amounts  

• 0.6475 683m

- USD/CAD: USD amounts       

• 1.3500 201m
• 1.3600-10 210m

- EUR/GBP: EUR amounts        

• 0.8700 649m
• 0.8850 700m

Rising energy prices are a burden for the euro. Therefore, economists at Commerzbank expect the EUR/USD pair to remain below parity for now.

Considerable risk for the euro if the upward trend in energy prices continues

“The price increase on the energy markets and thus the negative effect on the euro is still limited. But there is a considerable risk for the euro exchange rate if the upward trend in energy prices continues. In particular, it would become critical for the single currency if price levels such as those seen in the middle of the year were to be reached again.”

“For the time being, uncertainty regarding the energy crisis in Europe is likely to remain high, which is why the EUR/USD exchange rate is likely to trade below rather than above parity for some time to come.”

• GBP/JPY has established above 164.00 comfortably on soaring market mood.
• Escalating Japan-North Korea tensions after frequent missile launches from Kin Jong-un have impacted yen.
• Fitch Ratings have affirmed a AA- rating to BOE sovereign, outlook revised to Negative from Stable.

The GBP/JPY pair is displaying back-and-forth moves in a narrow range of 164.03-164.46 range in the early European session. The asset has turned sideways after overstepping the intermediate hurdle of 164.00 and is expected to resume its upside journey amid a cheerful market mood. An improvement in risk appetite has increased demand for risk-sensitive currencies. Following positive cues from the GBP/USD, the cross is aiming to record more upside ahead.

Escalating geopolitical tensions between Japan and North Korea has weakened the yen bulls. Frequent missile launches from the Kin Jong-un region over Japan territory having unavailability of prior notice of testing technical improvements of weapons is been considered as message narrating international tensions.

Meanwhile, Japanese Deputy Chief Cabinet Secretary Seiji Kihara has condemned the missile launch activity by North Korea, as reported by Reuters. He further added that "North Korea may increase provocative operations, including nuclear tests."

Commentary from the White House claims that North Korean missile launches pose no immediate danger to allies, which has kept the risk-on mood in a sweet spot.

On the UK front, the rollback of tax cuts to support households from the headwinds of price pressures and soaring energy bills are keeping the pound bulls in the driving seat. The rumor of cable meeting parity has been puzzled further as a Reuters poll on the expectation of parity by the end of 2022 displays that analysts are divided on the fact.

Apart from that, Fitch Ratings have downgraded the Bank of England (BOE) Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to Negative from Stable, affirming AA-. This could impact the pound rally ahead.

Gold price is attempting a bounce. As FXStreet’s Dhwani Mehta notes, XAU/USD is poised to challenge September highs at $1,735.

Critical support aligns at $1,700

“The bearish 50-Daily Moving Average (DMA) at $1,724 continues to limit the upbeat momentum. A firm break above the latter could revive bullish interest, calling for a test of the $1,730 round figure. The next stop for bulls will be seen at the September high of $1,735, above which the $1,750 psychological level will come into play.

“Sellers could test the previous critical resistance now support at $1,700 before approaching Tuesday’s low of $1,695. The horizontal 21 DMA at $1,682 will be targeted on the additional declines.”

See – Gold Price Forecast: XAU/USD to avert downtrend on heroic recovery north of $2,000 – TDS

• German Factory Orders dropped 2.4% MoM in August vs. -0.7% expected.
• German Factory output fell 4.1% YoY in August vs. -11.4% expected.
• EUR/USD keeps its range near-daily highs of 0.9926 on the German data.

The German Factory Orders fell short of expectations once again in August, suggesting that the manufacturing sector activity is losing additional momentum.

Contracts for goods ‘Made in Germany’ fell by 2.4% on the month vs. -0.7% expected and -1.1% last, the latest data published by the Federal Statistics Office showed on Thursday.

On an annualized basis, Germany’s Industrial Orders arrived at -4.1% in the reported month vs. -11.4% expected and -13.6% previous.

FX implications

The shared currency remains unfazed by the disappointing German factory data.  At the time of writing, EUR/USD is adding 0.33% on the day, trading at 0.9915.

• USD/CAD meets with a fresh supply on Thursday amid the emergence of some USD selling.
• The overnight rally in oil prices underpins the loonie and further contributes to the downtick.
• Hawkish Fed expectations could act as a tailwind for the buck and lend support to the pair.

The USD/CAD pair extends the overnight pullback from the vicinity of the 1.3700 mark and edges lower through the first half of trading on Thursday. The pair is currently placed near the lower end of its daily trading range, around the 1.3570-1.3575 region, down nearly 0.30% for the day.

The US dollar struggles to capitalize on the previous day's solid bounce from a two-week low and meets with a fresh supply, which, in turn, exerts pressure on the USD/CAD pair. A modest downtick in the US Treasury bond yields, along with a recovery in the risk sentiment, further drives flows away from the safe-haven greenback.

Apart from this, the recent bullish run in crude oil prices underpins the commodity-linked loonie and contributes to the offered tone surrounding the USD/CAD pair. The black liquid shot to a three-week high after OPEC+ agreed to tighten the global supply and slash production by about 2 million bpd - the largest reduction since 2020.

That said, concerns that a deeper global economic downturn will dent fuel demand keep a lid on any further gains for the black liquid. Furthermore, expectations for a more aggressive policy tightening by the Fed should act as a tailwind for the US bond yields and the buck, which, in turn, should offer support to the USD/CAD pair.

Fed officials reiterated the US central bank's commitment to getting inflation under control and reaffirmed bets for another supersized 75 bps rate hike at the November FOMC meeting. This warrants caution before placing bearish bets around the USD/CAD pair ahead of the monthly employment details from the US and Canada on Friday.

In the meantime, traders on Thursday will take cues from the release of the US Weekly Initial Jobless Claims data and Canadian Ivey PMI. Apart from this, speeches by FOMC members and the Bank of Canada Governor Tiff Macklem should provide some meaningful impetus to the USD/CAD pair later during the early North American session.

Technical levels to watch

Preliminary readings from CME Group for natural gas futures markets saw open interest rise for the third session in a row on Wednesday, this time by around 5.6K contracts. Volume, instead, shrank by around 97.3K contracts after three consecutive daily builds.

Natural Gas remains supported by the $6.50 zone

Prices of natural gas extended the rebound on Wednesday amidst rising open interest, which is supportive of the continuation of this trend in the very near term. On this, the next hurdle for bulls come at the 100-day SMA at $7.88, while the 200-day SMA near $6.50 per MMBtu continues to hold the downside.

• AUD/USD has jumped to near a two-day high at 0.6547 amid a cheerful market mood.
• A seven-day long consolidation in a 0.6390-0.6547 range is likely to explode sooner.
• The RSI (14) has shifted its range to the bullish territory of 60.00-80.00.

The AUD/USD pair is advancing firmly right from the initial tick amid an improvement in the risk appetite of the market participants. The asset has reached near Tuesday’s high at around 0.6547 and is expected to overstep the same with sheer confidence as commodity-linked currencies have hogged the limelight.

A seven-day long consolidation on an hourly scale after reporting a fresh two-year low at 0.6363 is indicating a bullish reversal ahead. The asset is displaying the balanced auction profile in a 0.6390-0.6547 range. The chartered region will be marked as the most auctioned region forward.

The aussie bulls have driven the asset above the 50-and 200-period Exponential Moving Averages (EMAs) at 0.6492 and 0.6508, which adds to the upside filters. A formation of a golden cross, which is represented by the bullish cross of 50-and 200-EMAs, will strengthen the aussie bulls further.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted its oscillation range from 40.00-60.00 to 60.00-80.00, which indicates that upside momentum has been triggered.

Going forward, a break above Tuesday’s high at 0.6547 will drive the asset towards and September 22 high at 0.6670 and September 18 high at 0.6734.

Alternatively, a drop below the two-year low at 0.6363 will drag the asset towards the 16 April 2020 low at 0.6264, followed by the round-level support at 0.6100.

AUD/USD hourly chart

Further consolidation within the 0.5610-0.5810 range looks likely in NZD/USD in the short term, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

24-hour view: “Yesterday, we held the view that NZD ‘is likely to advance further but the chance of a break of the major resistance at 0.5810 is not high’. While NZD rose to a high 0.5805, it plummeted to 0.5664 in NY trade before rebounding quickly to end the day at 0.5746 (+0.24%). The rebound has gained some momentum and the bias for today is on the upside. However, a break of the major resistance at 0.5810 is unlikely. Support is at 0.5720, followed by 0.5680.”

Next 1-3 weeks: “Our update from Tuesday (04 Oct, spot at 0.5720) still stands. As highlighted, the recent weakness in NZD has stabilized. We view the current price movements as the early stages of a consolidation phase and we expect NZD to trade between 0.5610 and 0.5810 for now.”

CME Group’s flash data for crude oil futures markets noted traders added around 13.3K contracts to their open interest positions on Wednesday, reaching the second consecutive daily build. In the same line, volume rose for the third straight session, now by around 45.2K contracts.

WTI keeps targeting the $90.00 region

Wednesday’s gains in prices of the WTI came amidst increasing open interest and volume, opening the door to the continuation of the recent uptrend and with the next hurdle at the $90.00 mark per barrel.

The continuation of the upside in GBP/USD is expected to meet a tough barrier at the 1.1600 region, suggest Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

24-hour view: “We highlighted yesterday that GBP ‘could rise further to 1.1530 before a pullback is likely’. GBP subsequently rose to 1.1493, plummeted to 1.1230 before rebounding to close at 1.1319 (1.37%). The choppy price actions are likely part of a broad consolidation phase and we expect GBP to trade within a range of 1.1240/1.1440.”

Next 1-3 weeks: “Our update from yesterday (05 Oct, spot at 1.1450) still stands. As highlighted, there is room for GBP to advance further but it remains to be seen if it can break the next resistance at 1.1600. Overall, only a breach of 1.1230 (no change in ‘strong support’ level from yesterday) would indicate that the strong upward momentum that started last Friday has eased. Note that GBP dropped to 1.1230 in NY trade before rebounding strongly.”

Open interest in gold futures markets shrank for the second session in a row on Wednesday, this time by around 2.7K contracts according to advanced prints from CME Group. Volume followed suit and also dropped for the second consecutive day, now by almost 30K contracts.

Gold continues to target $1,735

Wednesday’s knee-jerk in gold prices was on the back of shrinking open interest and volume, hinting at the likeliness that extra decline looks out of favour for the time being. That said, the continuation of the uptrend appears on the cards and with the next target at the September high at $1,735 per ounce troy.

• Gold price is marching towards the critical hurdle of $1,730.00 ahead of US NFP data.
• A marginal decline in odds for a 75 bps rate hike has supported the gold bulls.
• The Fed's long spell of rate hikes is responsible for lower US NFP projections.

Gold price (XAU/USD) has extended its gains above the immediate hurdle of $1,720.00 and is aiming to test a three-week high at around $1,730.00. The precious metal is scaling higher gradually as the US dollar index (DXY) has displayed a subdued performance. A rebound has been witnessed in the DXY after refreshing the day’s low around 110.80 but the soaring market mood will keep a lid over the DXY bulls.

The 10-year benchmark US Treasury yields have fallen below 3.75% amid a minor decline in bets for a 75 basis point (bps) interest rate hike by the Federal Reserve (Fed). Per the CME Fedwatch tool, the probability of 67.8% for a three-quarter-to-a-percent rate hike, recorded in early Tokyo, has slipped to 64.7% in the early European session.

Wednesday’s upbeat US ISM Non-Manufacturing PMI data and US Automatic Data Processing (ADP) Employment figures brought a significant rally in the DXY but have turned subdued ahead of US Nonfarm Payrolls (NFP) data. The payroll data is expected to decline to 250k vs. the former release of 315k. The spell of rate hikes by the Fed has forced the corporate to postpone their capacity expansion plans, resulting in weaker consensus for the labor additions data.

Gold technical analysis

On an hourly scale, gold prices are marching towards the 61.8% Fibonacci retracement (from August 10 high at $1,807.93 to September low at $1,614.85) at $1,734.58. The 200-period Exponential Moving Average (EMA) at $1,697.00 has tilted towards the north, which indicates more upside ahead.

Meanwhile, the Relative Strength Index (RSI) (14) has picked demand at 60.00, which indicates that the market participants have capitalized on the pullback move for creating longs.

Gold four-hour chart

According to Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research, EUR/USD needs to clear 1.0050 to allow for a sustained upside.

Key Quotes

24-hour view: “We highlighted yesterday that EUR ‘could strengthen further but it is left to be seen if it can break the solid resistance at 1.0050’. However, 1.0050 did not come into view as EUR dropped sharply to a low of 0.9833 in NY trade before rebounding. Upward pressure has eased and EUR appears to have moved into a consolidation phase and is likely to trade between 0.9835 and 0.9960.”

Next 1-3 weeks: “Yesterday (05 Oct, spot at 0.9985), we indicated that while the risk for EUR has shifted to the upside, EUR ‘has to clear the significant and solid resistance at 1.0050 before further sustained advance is likely’. EUR subsequently dropped sharply and edged a couple of pips below our ‘strong support’ level at 0.9835 (low of 0.9833). We continue to hold the same view for now but a breach of 0.9800 would indicate that EUR is not ready to head higher to 1.0050.”

• EUR/USD attempts a bounce as the US dollar licks its wounds.
• US yields trade sluggish despite upbeat mood, underpinning the pair.
• 50 DMA remains a tough nut to crack for EUR bulls ahead of ECB minutes.

EUR/USD is making minor recovery attempts just above 0.9900 heading into the European open, as the dollar licks its wounds following the steep drop seen in the US last session.

Investors remain optimistic so far this Thursday, as mixed US ADP and ISM Services PMI doused expectations for aggressive Fed rate hikes. However, it has barely impacted the market pricing of a 75 bps November Fed rate increase, which now stands at 65%. The US Treasury yields trade on the defensive amid a lack of clarity on the Fed tightening outlook, underpinning the main currency pair.

Despite the renewed upside in the major, EUR bulls remain cautious amid escalating geopolitical tensions between the West and Russia over the Ukraine crisis. The European Union (EU) backed new sanctions against Russia, including the oil price cap on Wednesday.

All eyes now remain on the Eurozone Retail Sales, ECB minutes and Fedspeak for fresh incentives, as geopolitical headlines and risk trends will continue playing out.

EUR/USD: Technical outlook

Nothing seems to have changed technically for the major, as the extension of a falling wedge breakout remains capped by the bearish 50-Daily Moving Average (DMA) at 1.0008.

The rejection at higher levels has left the pair hovering around the horizontal 21 DMA at 0.9887. Failure to resist above the latter will expose the 9950 psychological level.

EUR/USD: Daily chart

The 14-day Relative Strength Index (RSI) is pointing higher above the 50.00 level, keeping bulls hopeful.

Daily closing above the 50 DMA barrier is critical to extending the recovery towards the September 20 high of 1.0050.

The next upside target is seen at the 1.1100 round figure, which will be the level to beat for bulls.

EUR/USD: Additional levels to consider

• Cheerful market mood and geopolitical tensions are keeping USD/JPY in a chartered territory.
• Advancing 20-and 50-EMAs add to the upside filters.
• A fakeout formation has tilted odds in favor of inventory accumulation.

The USD/JPY pair is displaying topsy-turvy moves in the Tokyo session as the risk-on impulse is defending the downside while the upside is capped due to Japan-North Korea geopolitical tensions. The major has traded in 114.40-114.70 in the Tokyo session and is likely to continue its consolidation till the availability of a potential trigger.

On a four-hour scale, the major is auctioning in an inventory adjustment process, which indicates a tad longer consolidation period. It is critical to state that the adjustment process is an accumulation or distribution by institutional investors. However, the formation of a fakeout has tilted the odds in favor of further accumulation.

The 20-and 50-period Exponential Moving Averages (EMAs) at 144.53 and 144.33 respectively are advancing, which adds to the upside filters.

While the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which indicates a consolidation ahead.

Should the asset manages to overstep September 22 high at 145.90, the greenback bulls will drive the asset towards August 1998 high at 147.67. A breach of the latter will send the major towards the psychological resistance of 150.00.

For a decisive bearish reversal, the asset is required to drop below September 22 low at 140.35. An occurrence of the same will drag the asset towards the August 30 low at 138.05 followed by the August 23 low at 135.81.

USD/JPY four-hour chart

• NZD/USD has jumped above 0.5800 firmly after positive commentary from NZ officials.
• Wednesday’s rate hike by the RBNZ has widened policy divergence with the Fed.
• The kiwi economy doesn’t see any recession situation to curtail price pressures.
• The DXY has refreshed its day’s low amid a risk-on profile.

The NZD/USD pair has crossed the day-old hurdle of 0.5805 strongly and is looking to establish above the same. At the time of writing, the kiwi pair is trading around 0.5810, 1.26% above Wednesday’s close, and is aiming to record more upside. Stable risk-on impulse has strengthened the commodity-linked currency while the US dollar index (DXY) is facing the heat.

The DXY has refreshed its day’s low at 110.78 and is expected to display sheer volatility expansion ahead. The current downside momentum has opened doors for testing Wednesday’s low around 110.00 as investors are shifting their focus towards the US Nonfarm Payrolls (NFP) data.

The consensus for the payroll data is indicating a decline to 250k vs. the prior release of 315k. Wednesday’s US Automatic Data Processing (ADP) Employment data shows that the economy has added 208k jobs in September. Therefore, cues are favoring a lower-than-expected release.

On the NZ front, the announcement of the fifth 50 basis points (bps) interest rate hike by the Reserve Bank of New Zealand (RBNZ) has widened the RBNZ-Federal Reserve (Fed) policy divergence. RBNZ’s Official Cash Rate (OCR) has been pushed to 3.5% and more hikes are also expected.

Meanwhile, the commentary from New Zealand (NZ) Deputy Prime Minister and Finance Minister Grant Robertson on monetary policy and exchange value has also strengthened the antipodean. The commentary states that the kiwi economy is not anticipating a recession situation to curtain inflationary pressures. They further added that higher interest rates will restrict demand and henceforth the inflation rate. And, the number one issue cited that the businesses are facing is tight labor supply.

Analysts at CitiResearch shared their afterthoughts on the OPEC and its allies (OPEC+) oil output cut decision in the latest note.

Key quotes

"Our projections for 2023 without this cut was for a 2.1 million barrels per day (bpd) average oversupply, given weak demand and relatively ample supply, so such a real over 1 million bpd cut could halve this surplus."

"US Congress could be compelled to resurrect the so-called NOPEC (No Oil Producing and Exporting Cartels) bill again ... while SPR policy might also shift, and there could be greater impetus to complete an Iran nuclear deal.”

“The possibility of further supply disruptions, potential reshuffle of trade flows amid the upcoming Russian oil price cap and European embargo, and deteriorating macro-economic environment would continue to drive volatility through the winter and 2023.”

• WTI defends $87 amid OPEC+ output cuts, impending bear cross

• WTI consolidates the three-day rally above the $87 mark on Thursday.
• Investors digest the 2M barrels/day OPEC+ output cuts and EU price cap on Russian oil.
• Drawdown in EIA crude stockpiles also supports the black gold amid a weaker US dollar.

WTI has entered a phase of upside consolidation while defending the $87 mark so far this Thursday, moving slightly away from three-week highs of $87.78.

The retreat in the black gold could be attributed to profit-taking after a three-day staggering rally. Also, bulls take a breather ahead of the all-important US Nonfarm Payrolls release, which could have a significant impact on the dollar valuations, and eventually affect the USD-sensitive oil.

Further, a Wall Street Journal (WSJ) report that the US intends to ease sanctions against Venezuela, allowing Chevron to resume oil production, is exerting bearish pressures on WTI.

The US oil has gained roughly 10% so far this week, with the recent upside fuelled by the OPEC+ output cuts announced on Wednesday. Joint Ministerial Monitoring Committee (JMMC) of the OPEC and allies including Russia, known collectively as OPEC+, agreed to cut oil production by 2 million barrels per day, per Reuters.

In response to the OPEC+ move, the White House said that US President Joe Biden is disappointed by the OPEC+ group's 'shortsighted decision'.

The black gold also found some support from a decline in the US crude oil and fuel stockpiles, according to the weekly data published by the Energy Information Administration (EIA). US commercial crude oil stocks dropped by 1.356 million barrels against expectations for a build of 2.052 million barrels.

Further, the European Union’s (EU) agreement to impose a price cap on Russian oil also boded well for the commodity price. Looking ahead, geopolitical tensions and the US employment data will hold the key to a fresh trading impetus in oil price.

On a daily timeframe, WTI is battling the bearish 50-Daily Moving Average (DMA) located at $87.45. Daily closing above the latter will kick in a fresh upswing towards the next horizontal trendline resistance placed at $89.65.

The 14-day Relative Strength Index (RSI) is holding firmer above the midline, suggesting that there is more room to the upside.

However, a potential 100 and 200 DMAs bearish crossover could temper the upbeat momentum. In case the bear cross materializes, then the price could drop back towards the $85 mark.

WTI: Daily chart

• GBP/USD has witnessed a minor pause while advancing towards 1.1400.
• The risk-on impulse is still solid and S&P500 is holding gains.
• Fitch Ratings have revised the BOE sovereign outlook to Negative from Stable.

The GBP/USD pair has sensed a minor selling pressure while attempting to hit the immediate hurdle of 1.1400 in the Tokyo session. Investors are continued with their longs in risk-perceived currencies. The 10-year US Treasury yields have recovered the decline and have scaled above 3.75%. While, the S&P500 is not ready to surrender gains and is sustaining at elevated levels.

The US dollar index (DXY) has dragged firmly after failing to cross the immediate hurdle of 111.00. The DXY is expected to remain on the tenterhooks as investors are awaiting the release of the US Nonfarm Payrolls (NFP) for making informed decisions. As per the expectations, the US economy has added 250k jobs vs. the prior release of 315k.

It is worth noting that the US economy is operating at full employment levels for the past several months. Therefore, space for creating fresh jobs is extremely low. Apart from that, the Average Hourly Earnings data holds significant importance. The labor cost index data is expected to remain subdued as projections display a decline of 10 basis points (bps) to 5.1% on an annual basis.

On the UK front, investors are worried that poor economic fundamentals could drag the cable to parity. Analysts are divided, according to a Reuters poll in which the outcomes were 3.6% strong British battered pound in a year and parity.

The rollback of the memorandum of historic tax cuts by Finance Minister Kwarteng saved the UK economy from unveiling the biggest increase in borrowing since 1972. But what is haunting the pound bulls now is the negative outlook on Bank of England's (BoE) Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) by Fitch Ratings. The revised outlook to Negative from Stable, affirming AA- could impact the recent rally in the pound vigorously.

New Zealand (NZ) Deputy Prime Minister and Finance Minister Grant Robertson is making some comments on the monetary policy and the exchange rate value on Thursday.

Key takeaways

“Monetary and fiscal policies need to be coordinated, to work together.”

“As interest rates rise they'll restrict demand.”

“A recession is not needed for New Zealand.”

“Not concerned on the long-term outlook for the New Zealand dollar.”

Market reaction

NZD/USD is extending its upsurge on the above comments, trading at around 0.5800, up 1.12% on the day.

Japanese Deputy Chief Cabinet Secretary Seiji Kihara is out on the wires now, via Reuters, condemning the missile launches by North Korea.

Key quotes

"North Korea's frequent missile launches cannot be permitted."

"North Korea may increase provocative operations, including nuclear tests."

Meanwhile, the White House said in the last hour that North Korean missile launches pose no immediate danger to allies.

Also read: North Korea appears to have fired missiles again towards Japan

Market reaction

At the time of writing, USD/JPY is trading modestly flat around 144.65, unperturbed by the geopolitical headlines.

• Gold price is back on the bids amid a subdued US dollar alongside yields.
• Investors assess mixed US data and the Fed rate hike bets amid a better mood.
•  XAU/USD bulls keep their sight on the $1,735 barrier ahead of US NFP.

Gold price is finding fresh demand in Thursday’s trading so far, reverting towards three-week highs amid a broadly subdued US dollar and lackluster performance in the Treasury yields. Markets are in a risk-on mood, implying that they are ignoring the impact of surging oil prices while cheering hopes for not-so-aggressive Fed, especially after the US ISM Services Price Paid component softened more than expected in September. However, the US ADP employment data outpaced expectations of 200K, arriving at 208K in the reported month. All eyes now remain focused on Friday’s US Nonfarm Payrolls release for a fresh direction in the dollar, as well as, in the yellow metal.  

Also read: Gold Price Forecast: Bulls not ready to give up

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is yearning for acceptance above the convergence of the SMA50 one-day and pivot point one-month R1 at $1,724.

The previous day’s high of $1,728 will test bulls’ immediate upside, above which the pivot point one-day R1 at $1,730 needs to be cleared to kickstart a fresh rally towards the previous month’s high of $1,735.

On the flip side, bulls will draw support from the Fibonacci 61.8% one-day at $1,718, below which sellers will target the previous low four-hour at $1,715.

The confluence of the Fibonacci 38.2% one-day and pivot point one-week R2 at $1,712 will be a tough nut to crack for XAU bears.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

• USD/CAD bears are in town, attempting to take over control.
• USD/CAD bulls could be back for more is the US dollar can stabilise in support.

The Canadian dollar has attempted a comeback following a resurgence in the US dollar and key events surrounding the oil market. USD/CAD is currently down 0.155 in Asia at 1.3595. The US dollar index, DXY has dropped from its overnight high of 111.735 that came about following a tear in US yields as markets price out overall optimistic speculation over a Federal Reserve pivot. The yield on the US 10-year note was up a high of to 3.78%. In trade today, DXY is down -0.22%.

US data went some ways in supporting the greenback as it failed to buttress recent hopes the Fed might adopt a less hawkish policy stance. The September ISM services index showed significant resilience in the face of rapid Fed tightening since March.

''At 56.7, the index rose for the 28th consecutive month and is more or less in line with the 20-year long-run average (57.5). In sum, service sector activity is not yet sufficiently below trend to exert strong downward pressure on inflation. Indicators of price pressures are slowing. The prices component was 68.7 vs 71.5 and the supplier deliveries index eased 0.6 to 53.9. Employment rebounded to 53.0 (+2.8) and new exports rose (+3.2 to 65.1), despite the strength in the US,'' analysts at ANZ Bank explained. 

Meanwhile, West Texas Intermediate crude was higher by some 1.5% having climbed from a low of $87.52 to a high of $88.41that rallied due to a significant cut to production expected from OPEC+ that meets in Vienna. The cartel looks to buoy oil prices that have dropped by nearly 30% from their July highs.

The worries over a slowing global demand had dragged the price of WTI down 37% from its peak in June," economist Jenny Duan at TD Economics said in a note, " and reports have said the group is considering cutting quotas by as much as two million barrels per day, This is coming at the same time that Russia seeks to handicap a G7 initiative to cap the price paid for the country's oil to hamper its ability to fund its war in Ukraine. Oil prices were also supported after the American Petroleum unexpected drop in US oil inventories of 1.77-million barrels last week, against analyst expectations for a 333,000-barrel rise. The Energy Information Administration will release official inventory figures later on Wednesday morning.

USD/CAD technical analysis

USD/CAD's breakout is flaking away following a move lower in the greenback again as the following technical analysis shows: 

The price accelerated out of the downside trend on Wednesday but has run into offers as the US dollar corrects its resurgence and commodities pick up, even leading into Asia.

However, as the following DXY chart illustrates, there is the case for an upside correction as per the M-formation's chart pattern which could see a turn around in USD/CAD for the day ahead. 

• The DXY has surrendered 111.00 ahead of US NFP data.
• Soaring hawkish Fed bets have failed to support the DXY.
• The US jobless rate is seen unchanged at 3.7%.
• Yields have fallen sharply on the soaring market mood.

The US dollar index (DXY) has turned extremely volatile after opening as investors have shifted their focus toward the US Nonfarm Payrolls (NFP) data. The DXY has surrendered the critical support of 111.00 as the risk-off impulse has faded away and investors are channelizing their funds into the risk-sensitive assets.

That said, yields have fallen sharply despite the soaring bets over a hawkish stance expected by the Federal Reserve (Fed). At the time of writing, the 10-year US Treasury yields have fallen dramatically below 7.40%. As per the CME Fedwatch tool, 67.8% chances are favoring a fourth consecutive 75 basis points (bps) rate hike by the Federal in the scheduled monetary policy meeting in the first week of November.

On Wednesday, the DXY displayed a firm pullback after dragging to near 110.00. The DXY bulls got an adrenaline rush on upbeat US ISM Services PMI data and Automatic Data Processing (ADP) Employment Change figures. The Non-Manufacturing PMI landed at 56.7, higher than the expectations of 56.0. Also, the payrolls have increased to 208k vs. the expectations of 200k.

US NFP to display lucid employment status

Cues from US ADP Employment data indicate that the US Nonfarm Payrolls (NFP) numbers will remain upbeat. As per the expectations, the US economy has added 250k jobs in the labor market against the prior projection of 315k. The Unemployment Rate is seen unchanged at 3.7%. Apart from them, the Average Hourly Earnings data will hog the limelight. The labor cost index is expected to decline to 5.1%, 10 bps lower than the prior release.

• AUD/USD bulls eye a break of the H&S resistance.
• US dollar is under pressure in Asia, but bulls are lurking.

AUD/USD bulls are in play as they knock on the doors of a key resistance despite the miss in the Trade Balance.

At the time of writing, AUS/USD is trading close to 0.6510 following a mixed bag in the August trade data:

The surplus came in slightly lower than forecast (A$8.32bn, versus A$10bn expected) due to the stronger than expected import growth at +4%, versus +1% forecast. Exports were also firmer, +3% (+2% forecast), more details to follow on this. 

However, a weaker US dollar in trade on Thursday is giving the commodities a boost. The greenback is correcting the move from Wednesday when the DXY, rallied to 111.735. 

A tear in US yields had helped to prop up the US dollar as the money markets price out overall optimistic speculation over a Federal Reserve pivot. The yield on the US 10-year note was up a high of to 3.78%. The US data went some ways in supporting the greenback as it failed to buttress recent hopes the Fed might adopt a less hawkish policy stance. The September ISM services index showed significant resilience in the face of rapid Fed tightening since March.

''At 56.7, the index rose for the 28th consecutive month and is more or less in line with the 20-year long-run average (57.5). In sum, service sector activity is not yet sufficiently below trend to exert strong downward pressure on inflation. Indicators of price pressures are slowing. The prices component was 68.7 vs 71.5 and the supplier deliveries index eased 0.6 to 53.9. Employment rebounded to 53.0 (+2.8) and new exports rose (+3.2 to 65.1), despite the strength in the US,'' analysts at ANZ Bank explained. 

However, er are seeing a turnaround in flows in Asia on Thursday:

AUD/USD and US dollar technical analysis

The M-formation on the DXY is bullish, but if the index continues lower, then the Aussie will likely benefit significantly and this could be the makings of an inverse head and shoulders breakout to the upside:

The trade balance released by the Australian Bureau of Statistics came out missing expectations:

• Australia's August exports +3% Mom vs. the prior -9.9% & imports +4% vs. the prior +5.2%.

AUD/USD is testing into the 0.6520s on US dollar weakness in Asia but finding resistance there:

However, the head and shoulders is a bullish prospect.

About the Trade Balance

This is the difference in the value of its imports and exports of Australian goods. Export data can give an important reflection of Australian growth, while imports provide an indication of domestic demand. Trade Balance gives an early indication of the net export performance. If a steady demand in exchange for Australian exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the AUD.

South Korea president Yoon said the firing of an intermediate-range ballistic missile is aimed at hitting strategic assets. 

North Korea fired missiles again according to the Japanese coast guard.

The United States condemns North Korea's ballistic missile launch, the state department said the missile launches pose threat to regional neighbours and the international community.

The US remains committed to a diplomatic approach to North Korea and call on the North to engage in dialogue.

Earlier in the week, Japan urged residents to take shelter after North Korea had been reported to have fired a ballistic missile over the north of the country.

It was the North's first missile launch over Japan since 2017.

The US, Japan and South Korea conducted their own military drills in response.

This escalation of Pyongyang’s missile tests has prompted immediate backlash from Tokyo and has put markets on risk-off alert. 

• USD/JPY is looking to surrender the immediate support of 144.40 amid a volatile DXY.
• The yen bulls are not giving much importance to the geopolitical tensions.
• A decline in the US labor cost index won’t offset the impact of soaring inflationary pressures.

The USD/JPY pair is hovering around the crucial support of 144.40 in the Tokyo session. The asset has established firmly below 144.50 and is expected to display sheer volatility as the US dollar index (DXY) has sensed a firmer selling interest. The DXY has dropped sharply below 111.00 and may test Wednesday’s low at around 110.00.

An improvement in the risk appetite of the market participants has been observed as S&P500 futures have rebounded strongly after a subdued New York session. Last hour recovery in New York and continuation of upside momentum in Tokyo has underpinned risk-on impulse, which is also hurting the DXY.

It seems that Japanese yen investors have shrugged off uncertainty over geopolitical tensions with North Korea for a while but things have not been fixed yet. The Japanese military has prepared military drills in response to ballistic missiles from North Korea without any prior intimation. Meanwhile, comments have arrived from South Korea President Yoon Suk-yeol that the firing of an intermediate-range ballistic missile is aimed at hitting strategic assets.

Going forward, the US Nonfarm Payrolls (NFP) data will be of utmost importance. The employment generation process is elevating but at a diminishing rate. As per the estimates, the US NFP will release lower at 250k vs. the former figure of 315k. The catalyst that is expected to impact much is the Average Hourly Earnings data, which is seen declining by 10 basis points (bps) to 5.1% on an annual basis.

Price pressures in the US economy are at elevated levels and higher earnings are required to offset the same. A decline in the labor cost index may dent the sentiment of households.

• NZD/USD is breaking towards the RBNZ highs on Thursday.
• A move above 0.5800 will open risk to the price imbalance between 0.5820 and 0.5835 on the way to 0.5850. 

NZD/USD crash-landed mid-week, tumbling out of the blue skies made on the back of the Reserve Bank of New Zealand's hawkish hike of 50bps. However. the US dollar has found its feet again and the DXY index was last seen dipping below 111.00 but it had been as high as 111.735 on Wednesday.

A tear in US yields has helped to prop up the US dollar as the money markets to price out overall optimistic speculation over a Federal Reserve pivot. The yield on the US 10-year note was up a high of 3.78%. It has come under some pressure in the Tokyo session, however:

The yield is resisted but the M-formation is bullish. This in turn could put a floor in the downside for the greenback and weigh on the bird going forward:

DXY H1 

The price of the index is extending the downside in Asia which may give rise to a bullish continuation on the kiwi:

NZD/USD H1 

The bird is breaking towards the RBNZ highs on Thursday and a move above 0.5800 will open risk to the price imbalance between 0.5820 and 0.5835 on the way to 0.5850. 

• EUR/USD has overstepped the major hurdle of 0.9900 as the risk-off market tone has started fading away.
• The DXY is going through a tough time ahead of US NFP data.
• Weaker projections for Eurozone Retail Sales indicate a decline in retail demand.

The EUR/USD pair has crossed the immediate hurdle of 0.9900 confidently and is expected to establish above the same. The risk profile is getting cheerful now as S&P500 has rebounded firmly. Also, yields have cooled somehow as investors are shifting their focus toward the US Nonfarm Payrolls (NFP) data. The 10-year benchmark yields have slipped below 3.75%.

Meanwhile, the US dollar index (DXY) has slipped sharply to near 111.00. It seems that the DXY is facing volatility amid lower consensus for the US employment data. Escalating interest rates by the Federal Reserve (Fed) to combat the mounting inflation has trimmed employment opportunities.

The corporate has left with no other option than to postpone the capacity expansion and investment plans to avoid higher interest obligations. This is resulting in a slowdown in the job creation process.

As per the expectations, the US Nonfarm Payrolls (NFP) data will decline to 250k vs. the prior release of 315k. The jobless rate is seen as stable at 3.7%. Apart from that, the Average Hourly Earnings data will remain in focus, which is expected to trim by 10 basis points (bps) to 5.1% on an annual basis.

However, the upbeat release of the US Automatic Data Processing (ADP) payroll data on Thursday is not supporting the case for a slowdown in the recruitment process by the corporate sector. But the US NFP data is expected to display a clear picture of employment status in the US economy.

On Thursday, the eurozone bulls will dance to the tunes of Retail Sales data. According to the estimates, the economic catalyst will decline by 1.7% against the former print of 0.9%. This indicates a slowdown in the overall retail demand and the mounting price pressures are responsible for the same. Apart from that, firms in the trading bloc are facing a serious decline in operating margins due to soaring energy prices.

• AUD/JPY is aiming to establish above 94.00 as yen bulls may face volatility on geopolitical tensions.
• In response to North Korean missile tests, Japan military has formed drills with defensive agenda.
• Australian Trade Balance will be the major trigger for further guidance.

The AUD/JPY pair is gathering momentum to cross the immediate hurdle of 94.00 as the yen bulls are expected to face volatility amid ongoing tensions between Japan and North Korea. The market sentiment is expected to remain negative as the continuous firing of missiles from King Jong-un's economy is discarding Japan’s harmony.

In the past 10 days, North Korea has fired more than five rounds of missiles. Tensions between Japan and North Korea scaled when it flew a missile for the first time since 2017. The unavailability of a prior warning has tangled things and forced the Japanese administration to conduct military exercises with a defensive agenda.

For now, investors are keeping an eye on Australian Trade balance data, which could be a meaningful trigger for further guidance. As per the projections, the Australian Bureau of Statistics will report the monthly Trade Balance for August month at 10,500M vs. the prior release of 8,733M. The projections indicate that trading activity has spurted in the Australian region, which will support the aussie bulls further.

While the AiG Performance of Construction Index for September has slipped to 46.5 vs. the prior release of 47.9 but didn’t make any major impact on the antipodean.

On Friday, the Japanese yen will dance to the tunes of Overall Household Spending data. An increment in the economic data indicates the confidence of consumers in the economy. The economic data is seen higher at 6.7% against the former figure of 3.4%. This indicates that the retail demand has soared firmly and may also support the inflation rate to remain intact above 2%.

• The GBP/JPY daily chart delineates the pair as neutral-biased from a technical perspective.
• However, the pair meanders around the 78.6% Fibonacci retracement, which, once broken, will resume the GBP/JPY downtrend.
• Contrarily, a break above 164.00 could open the door for a re-test of the weekly high.

The GBP/JPY reached a fresh weekly high on Wednesday at 165.71 but plunged towards its daily low at 162.60 before retracing to current exchange rates for some reasons. Firstly, expectations of a possible Fed pivot extended the GBP/JPY uptrend since Monday. Nevertheless, Fed officials’ rhetoric emphasized the need for higher rates for longer, spurring a risk-off impulse. Therefore, as the Asian session begins, the GBP/JPY is trading at 163.77, below its opening price.

The GBP/JPY is neutral-biased from a daily chart perspective, even though the pair managed to stay above the 100, 50, and 20-day EMAs. Nevertheless, it’s meandering around the 78.6% Fibonacci level, drawn from the September 13-26 high at 167.94/low at 148.63, which, if broken to the downside, might pave the way for further losses.

If that scenario plays out, the GBP/JPY first support would be the 100-day EMA at 163.07, which, once cleared, will expose the confluence of the 50 and 20-day EMAs, around 162.10/20. A decisive break might send the pair plummeting to the junction of the 200-day EMA and the 61.8% Fibonacci retracement at 160.57.

On the other hand, if GBP/JPY buyers hold the price above 163.81, it could open the door for further gains. The GBP/JPY’s first resistance would be the 164.00 figure, followed by 165, and then the October 5 daily high at 165.71.

GBP/JPY Daily Chart

GBP/JPY Key Technical Levels