• The US Dollar is under pressure on the back of the US CPI report. 
• Markets are in two minds as to whether this is the end of the bull cycle. 

The US Dollar has been sent into a critical support level as the following charts will illustrate. The markets are in a phase of hysteria on the back of one inflation print that undershot expectations on Thursday. US Consumer Price Inflation rose 0.3% MoM in October as goods prices fell and service price inflation, ex-shelter, eased. Food price inflation also moderated, rising 0.6% MoM versus 0.8% in September.

With pent-up demand for risk, investors have run with the idea that the Federal Reserve will react to the report and pivot and as a result, they are stampeding away from the US Dollar. Indeed, the softer-than-expected US CPI has bolstered the case for risky assets as the data gave some investors confidence that consumer prices may have finally started trending lower. Consequently, the data sent US Treasury yields below key trendlines, with the benchmark 10-year hitting 3.8387%, its lowest in about a month - narrowing gaps between yields on US and foreign government debt that have burnished the greenback's appeal.

However, ''the Federal Reserve will not put too much weight on one month’s numbers,'' analysts at ANZ Bank said. ''It wants to see a sustained moderation in monthly inflation before being confident that inflation is on track to return to target.''

On Thursday, Fed's Cleveland President Loretta Mester spoke in recent trade and commented on the CPI data. She said, ''this morning’s October CPI report also suggests some easing in overall and core inflation,'' but added, “there continue to be some upside risks to the inflation forecast.” This type of rhetoric will guide the market to think that even when Fed policy rates peak, they are likely to remain higher for longer.

This could be significantly bullish for the greenback over the horizon of today's CPI data. Additionally, Fed's Daly spoke and said that there is no evidence of wage prices spiralling and that inflation is one of the most lagging variables, adding, the Fed needs ''policy to be sufficiently restrictive until see inflation is well on its way to 2%.''

The analysts at ANZ Bank said they expect that the Fed will raise rates by 50bp in December and 25bp in February and March anticipating some moderation in core inflation in the fourth quarter, Q4. ''We maintain that profile and see the fed funds rate peaking at 5.0% in Q1.''

Indeed, plenty of investors are cautious about betting on a lasting dollar reversal. Analysts at Rabainak said it is their view that even when Fed policy rates peak, they are likely to remain higher for longer, with no interest rate cut until 2024. 

''This is a message already mooted by Fed speakers including Daly who spoke last month about the persistence of inflation. Even when price pressures fall from their peak, they could remain buoyed by wage rises which may be a function of factors such as an ageing demographic and the fall in the US labour force participation rate.''     

In addition to the outlook for rate increases, the analysts said that in their view, the USD is set to remain supported by safe-haven flows. ''Like many other assets including equities and property, cryptocurrencies performed well in an era of cheap money.  This year, higher US interest rates have been undermining the outlook for risky assets and promoted the attraction of the safe haven USD.''

US Dollar, DXY, weekly chart

Indeed, looking back over the charts, the dollar index has fallen by 3% or more three times over the last two years, only to resume its upward trend:

In summary, we will get one more jobs report and another set of inflation and Retail Sales data before the December 13-14 meeting. If there are signs that inflation is picking up again or an escalation of geopolitical and COVID risks to global growth, the greenback could be seen as the cleanest shirt in the laundry basket once again. ''Simultaneously USD strength is a constraint on global trade and world growth which feeds back into demand for USDs,'' the analysts at Rabobank said. The USD may be approaching the later stages of its rally, but we consider it far too soon to expect the USD to reverse course.''

US Dollar daily chart

The DXY is now well below the counter trendline and has formed a sopping M-formation.

this is a reversion pattern, however, that could see the price move back into the Fibonacci scale from this first support juncture in the coming days.

US Dollar, DXY, H1 & H4 chart

However, the hourly picture is less bullish and a test of the 50% mean reversion mark could lead to another jolt to the downside before the week is out. On the other hand, profit-taking ahead of the weekend could ensure and leave the US dollar hanging over the edge of the abyss at around current support 107.50/ 108.20 and put to 109.00:

• Silver price remains sidelined around 4.5-month high, pares the biggest daily jump in a week.
• Nearly overbought RSI suggests limited upside unless crossing June’s peak.
• Sellers need validation from $21.50 for fresh entry, $20.00 appears the key support.

Silver price (XAGUSD) struggles to defend buyers around the highest levels since late June, marked the previous day, while taking rounds to $21.70-65 during Friday’s Asian session.

In doing so, the bright metal dribbles above the key $21.50 resistance-turned-support confluence including the 200-DMA and an upward-sloping trend line from early August.

Even if the $21.50 breakout keeps the commodity buyers hopeful, nearly overbought RSI (44) conditions challenge the quote’s further advances, which in turn highlight the 50% Fibonacci retracement level of the metal’s April-September downside, near $21.90.

Also acting as the near-term upside hurdle for the XAGUSD is the June 2022 peak surrounding $22.50.

It’s worth noting that the 61.8% Fibonacci retracement level appears the last defense of the Silver bear before directing the price towards the late March swing low of around $24.00.

Alternatively, a downside break of the $21.50 resistance-turned-support will need validation from the tops marked during October and September, around $21.25 and $20.85 in that order, to convince silver bears. Following that, a downward trajectory toward $20.00 can’t be ruled out.

Silver: Daily chart

Trend: Limited upside expected

• NZDUSD has witnessed fresh demand around 0.6000 amid euphoria in the risk profile.
• Fed policymakers still favor the continuation of policy tightening despite a noteworthy decline in US CPI.
• Kiwi bulls have not reacted much to the downbeat Business NZ PMI data.

The NZDUSD pair has recovered after a mild correction to near the psychological support of 0.6000 in the early Asian session. The corrective move has provided an opportunity to smart money to get injected amid the euphoric market mood. Noteworthy signs of a cool down in red-hot US inflation have improved the risk appetite of the market participants significantly.

A sheer decline in the US Consumer Price Index (CPI) has brought a bloodbath in the US Treasury yields. Investors went strongly for loading US government bonds, which dragged the 10-year US Treasury yields to 3.8%. Meanwhile, the US dollar index (DXY) is eyeing an establishment below 108.00 as investors are expecting a slowdown in the current pace of policy tightening by the Federal Reserve (Fed).

On contrary, Fed policymakers are of the view that the Fed will continue its restrictive policy measures given the persistent nature of inflation. San Francisco Fed President Mary Daly and Dallas Fed President Lorie Logan cheered a slowdown in the price growth but still warn that fight against inflation is far from over.

On Friday, US markets will remain closed on account of Veterans Day. Investors will focus on the release of the US Michigan Consumer Sentiment Index (CSI) data, which is seen lower at 59.5 vs. the prior release of 59.9. It seems that vulnerable inflationary pressures have impacted consumers’ sentiment.

Meanwhile, downbeat Business NZ PMI data has failed to impact the Kiwi bulls. In early Asia, the economic data landed at 49.3, lower than the projections of 52.7 and the prior release of 51.7. Going forward, investors will keep an eye on Business NZ Services data, which will release on Monday.

• WTI Crude Oil fails to defend the rebound from the lowest levels in 12 days.
• Covid woes in China, easy headlines over Russia-Ukraine war challenge energy buyers.
• Softer US inflation, fears surrounding EU’s “correction mechanism” probe sellers.
• Risk catalysts will be more important for near-term directions.

WTI buyers relinquish control, following the black gold’s bounce off a two-week low, as traders seek fresh clues to defend the US inflation-led recovery during early Friday. That said, the energy benchmark retreats to $85.50 by the press time.

In addition to a lack of major data/events, as well as the US bank holiday, mixed signals surrounding the demand-supply matrix also challenge the WTI buyers to extend the post-US Consumer Price Index (CPI) run-up.

Among them, concerns surrounding China’s coronavirus conditions act as a major drawback. The dragon nation reported a slight decline in the daily covid figures the previous day but the outcome still remained near the highest levels in six months. Also, multiple lockdowns and fears of worsening virus conditions, as well as the zero-covid policy, highlight fears of lesser demand from the world’s biggest commodity user.

Elsewhere, Russia’s retreat from Kherson and a lack of major negatives over the previously dominant geopolitical fears seem to also weigh on the black gold prices. It should be noted that the increase in weekly oil inventories and looming fears of global recession also exert downside pressure on the black gold.

That said, a surprise eight-month low in US CPI triggered the WTI’s run-up the previous day as the US Dollar Index (DXY) dropped towards the lowest levels in two months after the inflation data pushed back the hawkish Fed bets.

Further, the European Union’s (EU) readiness to curb the gas price, despite witnessing mixed responses for its method citing a firm price cap, suggests further action from Russia and may help the oil prices. The European Commission will propose a gas price "correction mechanism" to the 27 EU states on Friday, a measure aimed at easing price spikes but not the firm cap sought by many countries, according to sources and documents seen by Reuters.

It’s worth noting that the risk-on mood keeps the oil buyers hopeful but the US bank holiday and a light calendar test the traders of late.

Technical analysis

WTI buyers need to provide a daily closing beyond the support-turned-resistance line from late September, around $87.15 by the press time, to regain the market’s confidence.

• GBPJPY trims some of its Thursday losses as the Asian session starts.
• A head-and-shoulders chart pattern in the GBPJPY daily chart targets a fall to 158.40.
• GBPJPY Price Analysis: A rise above 169.00 would invalidate the pattern; otherwise, the downtrend will resume.

The GBPJPY extended its losses for three consecutive days following the release of the US inflation report, which triggered a US Dollar (USD) sell-off. Therefore, the USDJPY sank more than 500 pips and weighed on the Pound Sterling, which weakened 0.71% vs. the Japanese Yen (JPY) on Thursday. As the Asian session begins, the GBPJPY trades at 165.76 and stages a comeback, pairing some of Thursday’s losses.

GBPJPY Price Analysis: Technical outlook

On Thursday, the GBPJPY pierced the 50-day Exponential Moving Average (EMA) but bounced off, achieving a daily close above 165.00. GBPJPY price action during the last 30 days formed a head-and-shoulders chart pattern, though, at the time of typing, the cross exchanges hands above the neckline. Nevertheless, to invalidate the pattern, the GBP needs to lift the cross above the right-shoulder swing high at 169.00. Otherwise, if the GBPJPY resumes its downward path below the neckline, which passes at around 165.30, it would validate the head-and-shoulders chart pattern.

Therefore, the GBPJPY’s first support would be the psychological 165.00 figure. Break below will expose the 50-day EMA at 164.80, followed by the November 10 swing low at 164.36, ahead of the 164.00 mark. Once cleared, the following demand area will be the 100-day EMA at 163.95, on its way, towards the head-and-shoulders target of 158.00.

GBPJPY Key Technical Levels

• USDCAD is eyeing more weakness towards the 1.3300 cushion as red-hot US inflation cools down.
• The risk profile has turned solid as the Fed may not continue its 75 bps rate hike cycle.
• Loonie bulls have strengthened on hawkish BOC Macklem’s commentary and a recovery in oil prices.

The USDCAD pair is declining towards the round-level cushion of 1.3300 in the early Asian session. The Greenback bulls have faced a massive sell-off on soft October’s inflation report released on Thursday. This sent the US Treasury yields extreme towards the south and put the positive market sentiment into the driving seat.

The 10-year US Treasury yields plummeted to 3.8% as the Fed may continue its 75 basis points (bps) rate hike spell, according to probability from the CME FedWatch tool. S&P500 witnessed a juggernaut rally as a significant decline in odds of a bigger rate hike by the Federal Reserve (Fed) in its December monetary policy trimmed sharply.

The mighty US dollar index (DXY) nose-dived to near a two-month low at around 107.68. A significant rise in bets for a 50 bps rate has trimmed the safe-haven’s appeal. Minting cool down in red-hot inflationary pressures has delighted Fed policymakers. San Francisco Fed President Mary Daly and Dallas Fed President Lorie Logan have cheered a note-worth slowdown in the price growth but still warn that fight with the inflation monster is far from over.

Cleveland Fed Bank President Loretta Mester supported the view of other Fed policymakers and believes that the restrictive policy measures should continue given the persistent nature of inflation.

Meanwhile, Loonie investors are supporting their domestic currency on hawkish commentary from Bank of Canada (BOC) Governor Tiff Macklem. BOC Governor cited that “Canadians should expect even more rate hikes to come on top of six that have already happened this year,” during an interview with CBC News in the late New York session.

He further added that layoffs will increase and the growth rate may come to zero in the next few quarters, and the central bank is fine with a mild recession as a price to bring down inflation to desired levels.

On the oil front, the price of fossil fuels rebounded after dropping to near $84.00 as softer inflationary pressures have infused optimism in oil bulls. This has also strengthened the Canadian dollar as Canada is a leading exporter of oil to the US.

It is worth noting that the US and Canadian markets are closed on Friday on account of Veterans Day and Remembrance Day respectively.

• USDCHF remains sidelined after falling to the seven-week low.
• Clear break of 100-DMA, three-month-old ascending support line favor bears.
• RSI conditions suggest another bounce off the key 200-DMA.

USDCHF bears take a breather around two-month low as it seesaws near 0.9635-40 during Friday’s initial Asian session, following a biggest daily fall in five months.

Even so, the Swiss currency (CHF) pair sellers remain hopeful as the quote broke important supports, namely the 100-DMA and an ascending trend line from August, during the previous day’s slump.

As a result, the quote appears vulnerable to testing the 200-DMA support, around 0.9625 by the press time.

However, the nearly oversold RSI conditions seem to challenge the USDCHF pair’s downside past the 200-DMA.

Also acting as a downside filter is the eight-month-old support line and September’s low, respectively around 0.0.9490 and 0.9480.

Meanwhile, recovery remains elusive unless the quote stays below the support-turned-resistance line from August, around 0.9685 by the press time. Following that the 100-DMA level near 0.9745 could challenge the USDCHF buyers.

Overall, the USDCHF pair’s downside break of the previously key support levels confirms its further declines. However, the RSI (14) appears to challenge the quote’s heavy fall, which in turn highlights the 200-DMA as a crucial support.

USDCHF: Daily chart

Trend: Limited downside expected

• AUDUSD bulls take a breather after rising the most in 11 years.
• Hawkish Fed bets recede on softer US inflation, the US Dollar drowned.
• Equities also cheered downbeat US CPI for October and underpinned the run-up.
• Preliminary readings of the US Michigan Consumer Sentiment Index for November will be important for fresh impulse.

AUDUSD stays defensive around 0.6620, following the heaviest daily run-up since October 2011, as bulls seek more clues to extend the previous day’s rally during early Friday. That said, the Aussie pair jumped the most in 11 years on Thursday after the US Consumer Price Index (CPI) pushed back hawkish expectations from the US Federal Reserve (Fed).

US CPI for October surprised markets by declining to 7.7% YoY, the lowest since last March, versus 8.0% expected and 8.2% prior. More importantly, the Core CPI dropped to 6.3% compared to 6.5% market forecasts and 6.6% previous readings.

Following the data, Dallas Federal Reserve President Lorie Logan said that October CPI inflation data is a welcome relief while adding that (it) may soon be appropriate to slow pace of rate increases. On the same line, Federal Reserve Bank of Philadelphia President Patrick Harker said on Thursday that the US Federal Reserve could slow the rate hike pace in the coming months, as reported by Reuters. It should be noted that Kansas City Federal Reserve President Esther George, Federal Reserve Bank of Cleveland President Loretta Mester and San Francisco Fed President Mary Daly also recently promoted easy rate hikes for future meetings.

The much-needed fall in the US inflation triggered a rally on Wall Street as S&P 500 rose 5.54% and Nasdaq rallied 7.35% on a day, not to forget the 3.70% daily gains of the Dow Jones. On the other hand, the US 10-year Treasury yields slumped to a five-week low of 3.80%, which in turn drowned the US Dollar Index (DXY) towards testing the lowest levels in two months. It’s worth mentioning that the chance of the Fed’s 50 basis points (bps) rate hike in December now has around 80% probability, as per the CME’s FedWatch Tool, versus around 55% just following the last week’s Fed meeting.

Alternatively, multiple officials from the Reserve Bank of Australia (RBA) confirmed the need for softer rate hikes the previous day and teased AUDUSD bears. Additionally challenging the pair buyers are the looming covid concerns in China. However, Australia’s Consumer Inflation Expectations rose to 6.0% for November versus 5.7% expected and 5.4% prior.

Moving on, the first readings of the US Michigan Consumer Sentiment Index (CSI) for November, expected 59.5 versus 59.9 prior, will be closely eyed for clear AUDUSD directions amid a light calendar at home.

Technical analysis

AUDUSD stays on the bull’s radar, despite the latest inaction, unless it drops back below the 0.6500 support confluence, comprising the previous resistance line from August and the 50-DMA.

• GBPUSD is advancing towards 1.1738 as a decline in US inflation has trimmed hawkish Fed bets.
• Bloodbath in US Treasury yields and cheerful market mood have underpinned risk-sensitive currencies.
• Going forward, the UK GDP data will be of utmost importance.

The GBPUSD pair is advancing firmly to kiss the two-month high at 1.1738 in the early Tokyo session. A significant drop in the US inflationary pressures has infused an adrenaline rush into risk-sensitive assets. Euphoria in the market mood has improved the risk appetite of investors vigorously.

S&P500 soared like there is no tomorrow as mounting price pressures in the US economy have been hammered. A meaningful decline in price growth has trimmed downside risks to economic projections and the risk of a recession situation. Earlier, economists were expecting that continuous policy tightening measures by the Federal Reserve (Fed) would shift the US economy into a recession. And, when the US sneezes, developing countries catch a cold.

Meanwhile, the US dollar index (DXY) nose-dived to 107.80 as every chance of a risk-off impulse in the market was kicked-off. The returns on US government bonds remained a major victim as long-term bonds’ yields have witnessed a bloodbath and have dropped to 3.8%.

The headline Consumer Price Index (CPI) has dropped to 7.7% vs. the projections of 8.0% and the core CPI declined to 6.3% against the expectations of 6.5%. This has paused chatters of a higher terminal rate by the Fed as price pressures have displayed signs of significant exhaustion. Also, rumors of recession and bleak economic outlook may dim as Fed chair Jerome Powell won’t continue the 75 basis points (bps) rate hike cycle.

On Friday, US markets will remain closed on account of Veterans Day.

Talking on the UK front, investors are focusing on the UK Gross Domestic Product (GDP) data, which will release on Friday. The GDP data on an annual basis is seen lower at 2.1% vs. the prior release of 4.4%. And, the quarterly regime is expected to display negative growth by 0.5% against an expansion of 0.2%.

• CPI data in the United States cooled down, weighing on the American Dollar.
• US Treasury bond yields plummeted as traders expected a less aggressive Federal Reserve.
• Fed officials remain committed to tackling inflation after welcoming October’s report.
• European Central Bank policymakers to keep raising rates, albeit recession fears increased.

The Euro rallies sharply amid broad US Dollar (USD) weakness, spurred by a softer US October Consumer Price Index (CPI) report. Increasing speculations during the week that the Federal Reserve (Fed) might slow the pace of rate hikes was further confirmed by investors’ reaction, with US equities rallying while US Treasury bond yields plunged. The EURUSD is trading at 1.0209, above its opening price by 2%.

US CPI bolsters the EUR to the USD detriment

Before Wall Street opened, the US Department of Labor reported that headline inflation, as reported by the CPI, rose by 7.7% YoY, below estimates of 7.9%. Even though the CPI continued its downtrend for the fourth last months, the core CPI bucked the trend. Nevertheless, October’s core CPI, which exclude volatile items inflation, like food and energy, fell to 6.3% YoY, vs. 6.5% expected and beneath the previous month’s 6.6% reading. Traders reacted, and the Euro soared more than 200 pips after the release, toward 1.0150, while the USD tanked.

The US Dollar Index (DXY), a gauge that measures the American Dollar value against six currencies, including the EUR, dives almost 2.50%, down from 110.992 to 107.804. It’s the DXY’s most significant drop since March 18, 2009, when it fell by 3%.

Meanwhile, additional US data crossed newswires. The US Initial Jobless Claims for the week ending on November 5 rose by 225K, exceeding estimates of 220K, signaling that the labor market might be easing.

US Treasury yields sank

Given that inflation in the US eased, the US Treasury yields plunged severely. The US 10-Treasury bond yield tumbled 28 bps, from 4.117% to 3.814%, as traders began to reprice gradual interest-rate increases by the Fed. The CME FedWatch Tool shows that the odds for a 50 bps rate hike by the Fed’s December meeting are at 80.6%, up from Wednesday’s 50%.

Fed policymakers cheered the inflation report

Meanwhile, some Fed officials welcomed October’s CPI report, though they acknowledged there’s more work to do. The Dallas Fed President Lore Logan said, “there is still a long way to go.” Meanwhile, San Francisco Fed President Mary Daly said, “stepping down is an appropriate thing to think about,” while foreseeing the Federal Funds rate (FFR) to peak at 4.90%.

Cleveland’s Fed President Loretta Mester said that inflation will moderate and reach the Fed’s target by 2025. Mester added that the US economy’s behavior would determine how high the Fed needs to go.

ECB members remained hawkish, although recession fears arose

Elsewhere, some European Central Bank (ECB) speakers led by the German Bundesbank President Joachim Nagel crossed wires. Joachim Nagel said that there is potential for interest rate hikes. Echoing his comments was the ECB Governing Council (GC) member Isabel Schnabel, saying that inflation is gaining traction and it’s stickier. She commented that rates need to be raised into restrictive territory, even though recession risks have increased.

EURUSD Price Analysis: Technical outlook

Given the abovementioned backdrop, from a technical perspective, the EURUSD is neutral-to-upward biased. Of note, EUR buyers reclaimed the 100-day Exponential Moving Average (EMA) at 1.0028, and it’s aiming toward 1.0300. The break above will expose the August 10 high at 1.0368, ahead of the 1.0400 figure. Once cleared, the next stop would be the 200-day EMA at 1.0437. On the other hand, key support levels lie at 1.0200, which, once cleared, would open the door towards 1.0100, followed by a re-test of the 100-day EMA at 1.0028.

“Canadians should expect even more rate hikes to come on top of six that have already happened this year,” said Bank of Canada (BOC) Governor Tiff Macklem during an interview with CBC News late Thursday.

Also read: BoC’s Macklem: Canadian economy in excess demand, inflation too high

Additional comments

USDCAD stays pressured

USDCAD bears take a breather at a seven-week low, around 1.3323 by the pres time, after witnessing the US inflation-inspired slump.

• Gold price is marginally from the 200-EMA as Fed may slow down the current pace of rate hikes.
• The 10-year US Treasury yields have witnessed a bloodbath as bets over 75 bps rate hike have plummeted.
• A sheer decline in consumer spending is responsible for lower-than-projected US CPI data.

Gold price (XAUUSD) has witnessed a juggernaut rally after a sheer decline in US inflation figures on Thursday. The precious metal gained around 3% from Wednesday’s closing price and is now expected to recapture a 10-week high at $1,765.58 ahead.

Meanwhile, the US dollar index (DXY) nose-dived to 107.80 as a bumper decline in the US Consumer Price Index (CPI) has accelerated the odds for a less-hawkish commentary from Federal Reserve (Fed) policymakers for December monetary policy meeting. The 10-year US Treasury yields have witnessed a bloodbath and have dropped to 3.8% as chances for a fifth consecutive 75 basis point (bps) rate hike have plummeted below 15%, as per the CME FedWatch tool.

Thanks to the sheer decline in consumer spending in the third quarter of CY2022 that the headline CPI dropped to 7.7% and core CPI declined to 6.3%. Now, chatters over increasing peak for the terminal rate by the Fed may pause for a while and Fed chair Jerome Powell will also discuss supporting the economic prospects too to safeguard the economy from a recession situation.

The market participants should be aware of the fact that the US markets will remain closed on Friday on account of Veterans Day.

Gold technical analysis

On the daily scale, the gold price is marginally far from kissing the 200-period Exponential Moving Average (EMA) at $1,758.00 for the first time in the past five months. The horizontal resistance placed from August 10 high at $1,807.93 will act as major hurdle ahead.

The Relative Strength Index (RSI) (14) has overstepped 60.00 for the first time in seven months, showing no signs of divergence and overbought.

Gold daily chart

• NZDUSD bulls remain in play as the greenback keeps shedding ground.
• US CPI surprised to the downside and the relief rally in high beta currencies is in play. 

NZDUSD rallied on Thursday on the back of the US inflation data which was a relief to markets as it missed the mark and fanned the flames of a Federal Reserve pivot. As per the past series of technical analyses on NZDUSD this week, NZD/USD Price Analysis: Bears move in from key highs for the week, and the more recent, NZDUSD Price Analysis: Bears in control with eyes on daily trendline, the trajectory was adhered to ahead of the CPI and downside extremes reached as follows:

NZDUSD prior analysis

As for the daily chart,  the price was bounded by resistance and it was stated that the doji could turn out to be pivotal for the pair and week:

It was stated, if the bears were to commit, then there would be prospects of a test of the broader trendline and a move into the key Fibonacci near 0.5850 in a 50% mean reversion:

The engulfment of the doji was noted as a potentially significant feature.

For the hourly template, this meant a continuation was in order:

Update:

The target was reached before US CPI sent the bird on a tear through all of the mark-down.

Where now?

We need to bring up the daily chart again:

As seen, the trendline has been respected as we are clearing through resistance and we are now moving in on a price imbalance between 0.6026/85:

Such a continuation would coincide with a further downside in the US dollar vs. a basket of currencies:

The price of the US dollar index keeps falling on the day and while there could be more to go, we have the 107.86 target in as a possible support considering it made up a foundation for the highs of the cycle when last visited as support. A break there could be significant but the M-formation is a reversion pattern and a correction to the resistance near 109.63 could be in play if the bulls commit strong hands over the course of the coming days. Nevertheless, a vulnerable US Dollar gives the commodity complex fuel and the bird can glide higher on that. 

• The Pound fails at 167.10 and returns to the support area at 165.00.
• Below 165.00 the pair may activate an "H&S" pattern targeting 160.00 or lower.

The Pound headed south against the Japanese Yen for the third consecutive day on Thursday, extending its reversal from Monday’s high at 169.05 to test the neckline of a Head & Shoulders pattern at 165.00.

The Yen surged after US CPI data

The mild recovery attempt seen during the Asian and early European sessions lacked follow-through above 167.00, and the pair dropped sharply during the early US trading session, with the Japanese Yen skyrocketing after the release of US inflation data.

Yen strength has pulled the pair to test an important support level at 165.00, where the October 14 and 21 and November 3 and 4 lows meet the 50-day SMA.

Hourly charts show the pair close to overbought levels, which might favor some consolidation before further movement takes place.

A confirmation below 165.00 would increase negative pressure and send the pair to test the 100-day SMA, now at 164/05 area, and the 200-day SMA, at 162.10 before aiming for October’s low at 159.80.

On the flip side, the pair should breach intra-day resistance at 167.50 to ease negative pressure, and extend towards November 6 and 7 high at 167.11, which closes the path to the 170.00 psychological level.

GBP/JPY daily chart

Technical levels to watch

What you need to take care of on Friday, November 11:

The American Dollar plummeted on Thursday against all of its major rivals as market participants rushed to price in a pivot in the US Federal Reserve monetary policy as soon as next December. The October Consumer Price Index unexpectedly declined by more than anticipated, as annual inflation rose by 7.7%. The core reading, which excludes volatile food and energy prices, resulted at 6.3%, easing from 6.6% in September.

Following the release, the CME Group FedWatch Tool showed that markets are pricing in an 80% probability of a 50 basis points rate hike in December, compared to 52% just before the release. Time for the US Federal Reserve to pivot. 

Optimism returned. Stocks soared, yields plunged, and risk-on flows came back to life. US indexes are up over 3% each, with the Nasdaq Composite adding a whopping 6%. On the other hand, Treasury yields shed over 20 bps, with the 10-year Treasury note currently yielding 3.83%.

EURUSD trades near a monthly high of 1.0184, while GBPUSD extends its gains ahead of the US close, now approaching 1.1700. The AUDUSD pair is about to challenge the 0.6600 area, while USD/CAD is down to 1.3350. Finally, The USDJPY pair trades around 141.80, while USDCHF is down to 0.9660.

Gold soared to fresh three-month highs, now trading at around $1,754 a troy ounce. Crude oil prices remained subdued, barely recovering some ground after the latest slump. WTI is currently changing hands at around $86.40 a barrel.

On a down note, the Politburo Standing Committee (PSC) of the Chinese Communist Party held a coronavirus-related meeting and urged to stick to the zero-covid policy. Another negative sentiment factor is the collapse of the crypto exchange FTX earlier this week, said to have a black hole of $ 6 billion. The crisis is spreading like wildfire in the crypto world, and the end is yet to be seen. Investors, however, hardly paid attention to the headlines after the CPI release, which even support the crypto market.

• Australian Dollar's rally from the 0.6385 area, capped at 0.6600.
• The pair remains 2.2% up on the day, consolidating above 0.6540 previous resistance level.
• Greenback's weakness after US CPI data has boosted the AUD.

The Australian Dollar’s rally from session lows at 0.6385 has been capped at a fresh six-week high a few pips shy of 0.6600, although the pair remains steady in the upper range of the 0.6500s.

On the daily chart, the pair moves 2,2% above the opening levels. The Aussie surged on Thursday’s early US session, following the release of US CPI data to break the top of the last six weeks’ trading range, at 0.6545.

The US Dollar plunges on weak CPI data

US inflation slowed down beyond expectations in October, which sent US Treasury yields and the Greenback lower, and boosted equity markets on hopes that the Federal Reserve might shift to softer interest rate hikes over the next months.

The overall CPI increased at a 0.4% pace, unchanged from September, against market expectations of an acceleration to 0.6%. The Core inflation, the Fed’s preferred inflation gauge, slowed down to 0.3% from 0.6% over the previous month.

Furthermore, US weekly jobless claims showed an increment of 225,000 claims in the week of November 4, up from 228,000 claims over the previous week and above the market expectations of 220,000. These figures suggest a certain loosening in the labor market and provide additional reasons to expect some easing on the Fed’s tightening plan.

Technical levels to watch

Reuters reported that the Bank of Mexico hiked its key interest rate by 75 basis points to a record 10.00% on Thursday, in line with forecasts and following in the footsteps of the U.S. Federal Reserve's own recent three-quarter of a percentage point increase.

''In a departure from recent decisions, the bank's five board members did not vote unanimously for the increase, with deputy governor Gerardo Esquivel voting to hike the key rate by 50 basis points.''

USDMXN bears in play 

Meanwhile, USDMXN is down around 1% on the day following a move lower in the greenback, supporting the emerging market complex:

DXY is offered below daily support on US inflation data miss on Thursday:

Reuters reported that the Kansas City Federal Reserve President Esther George on Thursday reiterated her support for a slower pace of US interest rate increases, calling for a "more measured" approach that allows the central bank time to judge how the rises in borrowing costs are affecting the economy.

"I continue to see several advantages for a steady and deliberate approach to raising the policy rate," George said in remarks prepared for delivery to an energy conference co-hosted by her regional bank and the Dallas Fed.

Key quotes

"Without question, monetary policy must respond decisively to high inflation to avoid embedding expectations of future inflation."

"A more measured approached to rate increases may be particularly useful as policymakers judge the economy's response to higher rates." 

"As the tightening cycle continues, now is a particularly important time to avoid unduly contributing to financial market volatility, especially as volatility stresses market liquidity with the potential to complicate balance sheet run-off plans." 

"The degree of tightening necessary will only be determined by observing the dynamics of the economy and inflation and cannot be predetermined by theory or pre-pandemic benchmarks." 

US dollar update

Meanwhile, the greenback has crumbled below a key level of daily support on the DXY index, measuring the currency vs. a basket of currencies:

Should investors be of the mind that even when Fed policy rates peak, that they are likely to remain higher for longer, then the greenback could be seen as a discount near the upper quarter of the 107 area as illustrated above. The M-formation is also a reversion pattern so the resistance could be revisited in the coming days. 

• Oil prices bounce up from $84.70 lows to reach levels past $87.00.
• The Dollar plunges on soft US CPI data.
• Hopes of Fed easing have boosted risk appetite.

WTI prices appreciated on Thursday to hit session highs right above $87 following a 7.5% sell-off over the last three days. The US Oil benchmark, however, has been rejected at $87.25 before pulling back to the $86.50 area.

The Dollar plummets on soft US CPI figures

Consumer inflation eased beyond expectations in October. The monthly CPI increased 0.4%, unchanged from September, against market expectations of a 0.6% advance. Yearly inflation increased by 7.7%, down from 8.2% in September, while the market had anticipated an 8% reading.

The Core CPI, a gauge closely observed by the Federal Reserve to assess inflation trends, accelerated at a 0.3% pace, from 0.6% in September. Year-on-year, the core inflation increased 6,3% from 6.5% in September, while the market has forecasted a softer deceleration, to 6.5%.

These figures suggest that inflation might have peaked and provide some room for the Federal Reserve to consider slowing down its monetary tightening plan. This has brought back the idea of a softer rate hike in December, which has hurt the US dollar, boosting equity markets across the world.

At the same time, the US weekly jobless claims data revealed that 225,000 workers filed for unemployment benefits in the week of November 4, up from 218,000 in the previous month and above the 220,000 expected. These figures add to the evidence that labor market conditions might be loosening, offering further reasons for the Fed to lift its foot off the rate hike pedal.

Technical levels to watch

• Silver reached a fresh four-and-half-month high, around $21.83, after a soft US inflation report.
• October’s inflation in the US was lower than estimated, increasing the likelihood of lower-interest-rate increases by the Federal Reserve.
• US initial jobless claims jumped the most, flashing that the labor market is beginning to ease.

Silver price is skyrocketing to a fresh four-and-half-month high, in the mid-North American session, following a US inflation report that came softer than economists’ expectations, and weighed on the US Dollar, while US Treasury yields plunged, a tailwind for precious metals prices. The XAGUSD is trading at $21.63.

US economic data portrays the effect of the Fed’s aggressive policy as inflation gets down and unemployment claims rise

The US Consumer Price Index (CPI) report for October showed that inflation is finally easing, with headline CPI figures jumping 7.7% YoY, below expectations of 7.9%, while the core CPI, which excludes volatile items like food and energy, fell to 6.3% YoY, below estimates of 6.5%. That said, the US Dollar weakened across the board, while US Treasury bond yields plunged, with the 10-year down 24 bps at 3.857%.

At the time of typing, US equities are rallying sharply, led by the Nasdaq, up by almost 6%. The US Dollar Index, which tracks the greenback’s value vs. a basket of peers, slides 1.71% at 108.527, a tailwind for the white metal.

At the same time, the US labor market updated the unemployment claim figures, which were overshadowed by the US inflation report. Initial Jobless Claims for the last week rose by 225K vs. 220K estimates

Aside from this, Fed officials crossed newswires after the release of US economic data. Dallas Fed President Logan said that October CPI data is welcomed, but there’s a long way to go. She added that the process of cooling the economy is just getting started. Of late, the San Francisco Fed President Mary Daly said October’s CPI was good and is just one “example of encouraging data.” She favors slow, steady rises to the Federal Funds rate (FFR), expecting it would peak at around 4.9%.

Silver (XAGUSD) Key Technical Levels

• Oil prices bounce up from $84.70 lows to reach levels past $87.00.
• The Dollar plunges on soft US CPI data.
• Hopes of Fed easing have boosted risk appetite.

WTI prices appreciated on Thursday to hit session highs right above $87 following a 7.5% sell-off over the last three days. The US Oil benchmark, however, has been rejected at $87.25 before pulling back to the $86.50 area.

The Dollar plummets on soft US CPI figures

Consumer inflation eased beyond expectations in October. The monthly CPI increased 0.4%, unchanged from September, against market expectations of a 0.6% advance. Yearly inflation increased by 7.7%, down from 8.2% in September, while the market had anticipated an 8% reading.

The Core CPI, a gauge closely observed by the Federal Reserve to assess inflation trends, accelerated at a 0.3% pace, from 0.6% in September. Year-on-year, the core inflation increased 6,3% from 6.5% in September, while the market has forecasted a softer deceleration, to 6.5%.

These figures suggest that inflation might have peaked and provide some room for the Federal Reserve to consider slowing down its monetary tightening plan. This has brought back the idea of a softer rate hike in December, which has hurt the US dollar, boosting equity markets across the world.

At the same time, the US weekly jobless claims data revealed that 225,000 workers filed for unemployment benefits in the week of November 4, up from 218,000 in the previous month and above the 220,000 expected. These figures add to the evidence that labor market conditions might be loosening, offering further reasons for the Fed to lift its foot off the rate hike pedal.

Technical levels to watch

• CAD is strong on US dollar weakness following CPI miss.
• The price is correcting into prior support with the 38.2% Fibonacci not far off. 
• Bears eye 1.32 the figure as a downside initial swing target. 

The Canadian Dollar strengthened on Thursday, hitting the best level against the greenback since September 20th. The moves were inspired by lower-than-expected inflation reading for the US in the day's Consumer Price Index data. This has increased bets the Fed will raise rates by a smaller 50bps next month.

The greenback fell sharply as the data pointed to underlying inflation has peaked. CPI rose 0.4% in October to match the prior month's increase, the Labor Department said. Economists polled by Reuters had forecast the CPI would advance 0.6%. Excluding volatile food and energy, core CPI increased 0.3% month-over-month after gaining 0.6% in September. the markets reacted in such a manner that this might allow the Federal Reserve to ease up on aggressively hiking interest rates.  Money markets see a 70% chance that the central bank would hike its benchmark rate by 25 basis points rather than 50 basis points at its next policy decision on Dec. 7, up from about 50% before the US inflation data.

Meanwhile, in Canada, CPI figures are due next week. This brings the Bank of Canada to the fore. The BoC lifted rates by 50 bps on October 26th, a sixth consecutive rate hike. However, this was below a 100bps hike in July and a 75bps increase in September. Still, the central bank is expected to tighten further and raise rates by another 50bps in December as the inflation remains elevated. BoC Governor Tiff Macklem spoke before the Public Policy Forum today. He said the Canadian economy is in excess demand while inflation is too high. However, he added that wage growth ''now looks to be plateauing''. 

Update:

BoC's Governor Macklem: ''As for the next rate announcement, it might be another larger-than-usual step or a return to the more routine 25 basis point range.''

Markets might have jumped the gun on CPI

While this is deemed to be good news for the Fed, central bank watchers will now have a series of other data to monitor leading up to the next meetings, primarily with a focus on the Fed. We will get one more jobs report and another set of inflation and Retail Sales data before the December 13-14 meeting. Fed's Cleveland President Loretta Mester spoke in recent trade and commented on the CPI data. She said, ''this morning’s October CPI report also suggests some easing in overall and core inflation,'' but added, “there continue to be some upside risks to the inflation forecast.” This type of rhetoric will guide the market to think that even when Fed policy rates peak, that they are likely to remain higher for longer. This could be significantly bullish for the greenback over the horizon of today's CPI data. Additionally, Fed's Daly spoke and said that there is no evidence of wage prices spiralling and that inflation is one of the most lagging variables, adding, the Fed needs ''policy to be sufficiently restrictive until see inflation is well on its way to 2%.''

USD/CAD and US Dollar technical analysis

Nevertheless, as the following analysis will show, the US dollar is under pressure and could be headed for more of a clearout across its major counterparts.

The US dollar, as measured by the DXY, is taking out a key trendline support and the impulse carries momentum. This puts the support at 107.80 in view. In such a followthrough, the CAD will set to gain ground but a micro correction is in play at the time of writing: 

The price is correcting into prior support with the 38.2% Fibonacci not far off. Nevertheless, with continued headwinds for the greenback, for the meanwhile at least, there are going to be prospects of a downside continuation. Measuring the geometry of the recent range between 1.3570 and the prior lows of 1.3390, a 50% expansion meets close to the -0.618% Fibonacci around 1.32 the figure as a downside initial swing target. 

• The Euro pares gains on Thursday and dives to the 0.8700 area.
• A brighter market mood has eased negative pressure on the GBP.
• EURGBP to remain consolidating between 0.8600 and 0.8800 – Barclays.

The Euro is trading lower on Thursday, extending its reversal from the four-week highs at 0.8820 seen on Wednesday. Failure to breach 0.8800 during the early European session has increased negative pressure, pulling the pair to session lows right above 0.8700.

The Pound picks up amid a brighter risk sentiment

The Sterling has managed to pare losses on Thursday, shrugging off the negative witnessed over the previous days on the back of the Bank of England’s negative outlook for the UK economy.

In the absence of key macroeconomic data in the UK or the Eurozone, an improved risk sentiment, with world equity markets surging after the release of US CPI data, has contributed to easing negative pressure on the Pound.

In the Eurozone, European Central Bank Governing Council member, Isabel Schnabel, has reiterated the bank’s hawkish stance, affirming that “there is no time for monetary policy pause” as inflation expectations remain broadly anchored. The impact of these comments on the EURGBP, however, has been muted.

EURGBP expected to remain between 0.8600 and 0.8800 – Barclays

From a wider point of view, currency analysts at Barclays Research see the pair trapped within a consolidation range: “GBP received little support from the BoE last week which yet again pushed against what they see as excessive market pricing. Accordingly, the recent 0.86-0.89 range will likely continue to define the sterling path versus the EUR in the near term.” 

Technical levels to watch

• The Pound Sterling gets a respite and climbs more than 300 pips on soft US inflation data.
• US October CPI missed expectations, signaling inflation is easing, though slower than the Fed’s projections.
• Fed’s Daly: Expects the Federal Funds rate (FFR) to peak at around 4.9%.

The Pound Sterling soars toward the 100-day Exponential Moving Average (EMA) following a cooler-than-expected US inflation report, which weighed on the US Dollar amidst speculations that the Federal Reserve would tighten at a slower rhythm than 75 bps increases. At the time of writing, the GBPUSD is trading at 1.1647.

GBPUSD  advanced sharply on lower-than-expected US inflation report

Thursday’s US Consumer Price Index (CPI) report for October showed that inflation is finally easing a touch. The headline CPI was 7.7% YoY, below estimates of 7.9%, while the core CPI, which excludes volatile items like food and energy, followed suit, at 6.3% YoY, below expectations of 6.5%. That said, the US Dollar weakened across the board, while US Treasury bond yields plunged, with the 10-year down 24 bps at 3.857%.

The US Dollar Index, which tracks the buck’s value vs. a basket of six rivals, edged down 1.91% at 108.332, a tailwind for the GBPUSD, which bounced 300 pips after hitting a daily low of 1.1345.

At the same time, the US labor market updated the unemployment claim figures, which were overshadowed by the US inflation report. Initial Jobless Claims for the last week rose by 225K vs. 220K estimates. Even though the last week’s Nonfarm Payrolls report added more jobs than economists foresaw, the unemployment rate ticked up to 3.7%, meaning that the labor market remains tight but begins to feel the impact of restrictive policy.

Aside from this, Fed officials crossed newswires after the release of US economic data. Philadelphia’s Fed Harker said inflation remains too high and added that rate hikes below 75 bps “are still significant.” He said that future policy decisions would be data-dependant. Of late, the Dallas Fed President Logan said that October CPI data is welcomed, but there’s a long way to go. She added that the process of cooling the economy is just getting started.

San Francisco Fed President Mary Daly said October’s CPI was good and is just one “example of encouraging data.” She favors slow, steady rises to the Federal Funds rate (FFR), expecting it would peak at around 4.9%.

On the UK front, the release of the UK’s GDP for the third quarter is scheduled for release on Friday, which would shed some light on the status of the British economy. Late in the next week, the UK fiscal statement announced on November 17 would be the next catalyst for GBPUSD traders.

GBPUSD Key Technical Levels

Reuters reports that Federal Reserve Bank of Cleveland President Loretta Mester said Thursday that while there are some new hopeful signs of moderating inflation, the main risk still facing the US central bank is that it doesn’t act aggressively enough to tame very high price pressures.

“Given the current level of inflation, its broad-based nature, and its persistence, I believe monetary policy will need to become more restrictive and remain restrictive for a while in order to put inflation on a sustainable downward path to 2%,” Mester said in a speech text.

She said“despite the moves we have made so far, given that inflation has consistently proven to be more persistent than expected and there are significant costs of continued high inflation, I currently view the larger risks as coming from tightening too little.”

“This morning’s October CPI report also suggests some easing in overall and core inflation,” she said.

“There continue to be some upside risks to the inflation forecast.”

US Dollar update

Meanwhile, the greenback has crumbled below a key level of daily support:

The bulls could look to engage from deeper down around the upper quarter of the 107 area as illustrated above, should they be of the mind that even when Fed policy rates peak, that they are likely to remain higher for longer. 

“There continue to be some upside risks to the inflation forecast,” could be the key comment to take away from Mester today. 

The Canadian economy is in excess demand while inflation is too high although wage growth 'now looks to be plateauing', the Bank of Canada's Tiff Macklem explained. 

More to come..

• Gold rallies to 2 1/2-month highs at $1,750 as the US Dollar tumbles.
• US CPI eased beyond expectations in October.
• Inflation data boosts hopes of a softer Fed rate hike in December.

Gold futures have shrugged off the soft tone seen earlier today to rally $40 higher and reach the mid-range of the $1,700s. The precious metal has been boosted by the broad-based US Dollar weakness following the release of US inflation data.

US Dollar dives after softer-than-expected CPI data

Consumer inflation rose at a slower-than-expected pace in the US, which has set the scene for the US Federal Reserve to ease its aggressive monetary policy path. This has spurred risk appetite, hammering the US Dollar and Treasury bonds and pushing precious metals higher.

US CPI increased by 0.4% in October, unchanged from the previous month, against market expectations of a 0.6% reading, according to data from the US Bureau of Labor Statistics. Year-on-year, the CPI cooled down to a 7.7% rate, beyond the consensus of 8%, and after an 8.2% increase in September.

The core CPI, the Federal Reserve’s preferred gauge for inflationary trends, has eased to 0.3% in October, from 0.6% in September, against expectations of a 0.5% increase. Year on year, the core CPI has retreated to 6.3% from 6.6% in September.

Furthermore, US weekly jobless claims increased above expectations in the week of November 4; 225,000 new claims against the 220,000 expected, from 218,00 in the previous month. This adds to evidence that labor market conditions are starting to loosen.

The US Dollar Index, which had appreciated more than 16% so far this year, buoyed by the Federal Reserve’s aggressive monetary tightening has retreated about 2.2% after the data. The benchmark US 10-yeat Treasury bonds have dropped 30 basis points to 3.83%.

Technical levels to watch

Commenting on the October Consumer Price Index (CPI) report, San Francisco Fed President Mary Daly noted that it was good news but added that one month of data was not enough to declare victory, as reported by Reuters.

Additional takeaways

"Inflation expectations have been remarkably well anchored."

"We are not hanging our hats on inflation expectations."

"We have to be resolute to bring inflation down."

"We are going to continue to adjust policy until that job is fully done."

"Labor market report showed easing, but not at all close to what we need."

"Job growth stronger than we need it to be."

"Policy is now modestly restrictive."

"We need to watch data, there is considerable uncertainty."

"Time is now to step down on rate hike pace."

"There's a lot of uncertainty about what will be the peak fed funds rate."

"Support a gradual pace of getting to the peak fed funds rate."

"Pausing is not a subject of discussion."

"The real conversation should be about the level at which we hold the interest rate."

"Likely some more rate hikes in our future."

"Would rather move a little too high on rates than not high enough."

"We don't want to overtighten, but do want to fully do the job."

"We need to make sure inflation doesn't get embedded."

Market reaction

The US Dollar selloff continues after these comments and the US Dollar Index was last seen losing nearly 2% on the day at 108.32.

• USDCHF plunges towards a fourth-month-old upslope support trendline, around 0.9680s.
• A softer US inflation report weakened the American Dollar, as investors expected the Federal Reserve to hike less aggressively.
• Fed officials commented that September’s rate hike projections need to move higher.

The USDCHF tumbled below the 50 and 100-day Exponential Moving Averages (EMAs) following the release of a much-awaited US inflation report which was lower-than-expected, spurring a risk-on impulse in the financial markets, as speculators priced in a less aggressive Federal Reserve policy stance. At the time of writing, the USDCHF is trading at 0.9676, below its opening price.

Inflation in the US eases, with headline inflation below 8%

A cooler-than-expected US inflation report revealed by the US Department of Labor weighed on the American Dollar. The US Consumer Price Index for October rose by 7.7% YoY, below estimates close to 7.9&. In the meantime, excluding volatile items like food and energy, the so-called core CPI increased by 6.3% YoY, below the 6.5% expected. Once the data crossed wires, the US Dollar Index, which tracks the buck’s value against six peers, plunged and, at the time of typing, extended its losses to 2%, at 108.222.  

At the same time, the Initial Jobless Claims for the last week jumped more than estimated, portraying the Federal Reserve monetary policy’s effects on the labor market.

Following the release, the USDCHF dived towards a four-month-old upslope support trendline, drawn from the August 2022 lows that pass at around the 0.9670-80 area. The USD weakness was triggered due to Fed officials signaling the pace of interest-rate hikes would slow down at a specific time, so the October figures are opening the door towards its first 50 bps rate hike at the December meeting.

Meanwhile, the CME FedWatchTool showed that money market futures have priced in a 50 bps rate hike by the Federal Reserve, as odds are at 80%, while a day ago, the chances were at 50%.

Elsewhere. Fed officials crossing newswires said that even though the October inflation report was positive, the FOMC has to do all it can to tackle inflation, according to the Dallas Fed President Logan. Meanwhile, Cleveland’s Fed Daly and Philadelphia’s Harker said that the current Federal fund rates (FFR) are in the restrictive territory, though Daly said that rates need to be higher than September forecasts.

USDCHF Key Technical Levels

• The euro bounces at 0.9930 and surges to 1.0180 after US CPI data.
• Cool inflation figures boost hopes of a "dovish pivot' by the Fed.
• The dollar plunges and equity markets soar.

The Euro has skyrocketed from session n lows at 0.9930 area to reach two-month highs at 1.0180 as the release of US inflation figures have sent the Greenback tumbling across the board.

US inflation eases beyond expectations

Consumer inflation increased by 0.4% in October, unchanged from the previous month, against market expectations of a 0.6% reading. The year-on-year figure slowed down to a 7.7% rate, beyond the consensus of 8%, after having risen by 8,2% in September.

The core CPI, which excludes the impact of volatile food and energy prices and is closely observed by the Federal Reserve to assess inflation trends has eased to 0.3% in October, from 0.6% in September, against expectations of a 0.5% increase. Year on year, the core CPI has retreated to 6.3% from 6.6% in September.

These figures suggest that inflation might have started to moderate and provide some leeway for the Federal Reserve to moderate its rate-hiking path over the next months.

With the market extremely sensitive to all news that might determine December’s monetary policy decision, these readings have sent the US Dollar and Treasury bond yields lower and equity markets sharply higher.  

Technical levels to watch

US inflation rose less than expected in October, triggered a rally in Wall Street and sent the Dollar sharply lower. According to analysts at Wells Fargo, the data reduces the likelihood of another 75 basis points rate hike at the December 14 FOMC meeting. 

Key Quotes: 

“The overall consumer price index (CPI) rose 0.4% in October, which was lower than expected. Gasoline prices helped to push up the overall CPI, but consumers caught a break with a smaller increase in food prices.”

“October's moderation in inflation is welcome, but there remains a long way to go before inflation returns to a rate the Fed will tolerate. Weaker goods prices are merely the low-hanging fruit for getting inflation back on track. The torrid rise in goods inflation since COVID has reflected the unique aspects of the pandemic-driven shock, with the degree of price increases in weighty sectors like autos unsustainable.”

“Today's news on inflation is certainly welcome, and it reduces the likelihood of another 75 bps rate hike at the December 14 FOMC meeting. That said, the core CPI rose at an annualized rate of 5.8% between July at October, which is still much too high for the Committee's liking. It likely will be a number of months yet until the FOMC feels confident that inflation is indeed receding back toward its target of 2%. In short, we expect that the Fed policymakers will remain biased toward over-tightening rather than under-tightening for the foreseeable future.”
 

• Japanese yen soars after US CPI numbers on expectations of a less aggressive Fed.
• US Dollar tumbles, USDJPY is down more than 400 pips.
• EURJPY testing critical support area 144.00.  

The EURJPY cross is having the biggest daily decline in months on the back of a stronger Japanese yen across the board amid lower US yields. It bottomed 143.98, the lowest since October 24.

The US October CPI showed numbers below expectations and triggered a rally in Wall Street and Treasuries. The sharp decline in US yields strengthened the Japanese Yen, the best performer on Thursday, with USDJPY falling more than 450 pips.

Acceleration below 144.00?

EURUSD’s rally is keeping losses limited in EURJPY. The cross is testing a critical support area around 144.00. A break lower would open the doors more losses. The euro needs to keep that level in order to avoid deterioration in the already negative technical outlook.

On the upside, resistance in EURJPY emerges at 145.50; although the cross needs to rise and hold above 147.00 for the euro to strengthen. If EURUSD keeps rising and risk appetite prevails, the on-course correction could find some reasons to slow down. The resumption of the uptrend would need US yields to turn to the upside again. 

EURJPY daily chart

Technical levels

The UK growth numbers are slated for release on Friday, November 11 at 07:00 GMT as we get closer to the release time, here are forecasts from economists and researchers of six major banks regarding the upcoming Gross Domestic Product (GDP) data.

The British economy is set to contract by 0.5% inter-quarter in the three months to September. On an annualized basis, the GDP is likely to have risen by 2.1% in Q3, down by more than double from the 4.4% reported in the previous quarter. The September month GDP is expected to fall by 0.5% vs. -0.3% booked in August. 

Danske Bank

“We expect UK GDP growth for Q3 will be in negative territory (-0.3% QoQ), marking an official start of the recession.”

TDS

“The cost-of-living crisis coupled with the Queen's passing likely weighed sharply on UK GDP in September. We think the services sector will be the hardest hit and forecast a 0.5% fall in output in the sector. Overall, we think this will leave Q3 GDP growth in line with the BoE's forecast of -0.5% QoQ, and moreover, expect this to mark the beginning of a UK recession.”

SocGen

“The GDP data for September will be biased downwards by the disruption to activity from the Queen’s funeral, leading to output falling by 0.4% MoM. The result for 3Q as a whole should be a fall in GDP of 0.5% QoQ which should signal the start of a recession that is likely to extend to the middle of next year.”

ING

“We forecast a 0.5% QoQ contraction, which should all but endorse the BoE’s more cautious approach.”

Citibank

“We expect UK Q3 GDP to print at -0.7% QoQ, below the Bank’s estimates of -0.5%. The primary driver is a sharper fall in output in September (-0.9% MoM) owing to a large Bank Holiday impact. Implication is growth in Q4 may be a little stronger than MPC expects (we expect a fall of -0.2% QoQ).”

Wells Fargo

“Consensus forecasts believe the UK economy contracted 0.4% QoQ in Q3. As far as our forecast, we are a bit more pessimistic and believe the UK economy declined 0.5% QoQ. In our view, the UK recession has started, and we agree with the Bank of England's outlook that the economic downturn will last for an extended period of time. With an economic outlook that is quite dire, we also believe BoE policymakers will probably not deliver on the amount of tightening currently priced by markets. In that sense, as markets adjust to a more gradual pace of tightening, depreciation pressures on the pound are likely to persist going forward.”

• The Kiwi bounces off 0.5840 and surges to 0.6000.
• Softer-than-expected US inflation data have crushed the USD.
• Stock markets rally on hopes of Fed easing over the coming months.

The New Zealand Dollar skyrocketed after the release of cooler-than-expected US inflation figures. The pair, which has been trading lower during the Asian and European sessions, bounced up at 0.5840 to hit session highs right above 0.6000.

The Dollar slumps as US inflation cools off

US inflation remained unchanged, at 0.4% against market expectations of a 0.6% reading, while year-on-year consumer prices eased to a 7.7% rate, well beyond the consensus 8%, following an 8,2% reading in September.

The core CPI, the Federal Reserve’s preferred gauge to assess inflationary pressures, which excludes volatile food and energy prices, has eased to 0.3% in October, from 0.6% in September, while the market had anticipated a softer decline to 0.5%. Year on year, the core CPI has retreated to 6.3% from 6.6% in September.

These figures increase evidence that inflation might have peaked, which eases the pressure for the Federal Reserve to maintain its aggressive monetary tightening cycle and boost expectations of a softer rate hike in December.

The USD and US Treasury bonds have dropped sharply. The US Dollar Index, which had appreciated more than 16% in 2022 so far, boosted by the US Fed’s hawkish stance, has lost about 2.2% after the data. Likewise, the benchmark US 10-year Treasury yield lost 30 basis points to 3.83%.

On the other hand, US stock markets have surged after the data, with the Dow Jones 2.5% up, the S&P500 appreciating 4% and the Nasdaq Index 5.42% above the opening levels.

Technical levels to watch

Recent weeks had brought plenty of signs that investors have been looking for bargains in risky assets. However, economists at Rabobank do not see sufficient reason to move away from their bullish USD outlook.  

USD may be approaching the later stages of its rally

“In addition to the outlook for rate increases, in our view, the USD is set to remain supported by safe-haven flows.” 

“This year, higher US interest rates have been undermining the outlook for risky assets and promoted the attraction of the safe-haven USD. Simultaneously USD strength is a constraint on global trade and world growth which feeds back into demand for USDs.” 

“The USD may be approaching the later stages of its rally, but we consider it far too soon to expect the USD to reverse course.” 

• The US Consumer Price Index (CPI) for October was lower-than-expected, which weighs on the US Dollar.
• US Treasury yields are plummeting, with the 10-year benchmark note, down by almost 30 bps.
• Fed’s Harker: Rates are in the restrictive territory, and the Fed could pause around 4.50%.

The Loonie extends its gains against the American Dollar, as shown by the USDCAD plummeting more than 1% following the release of the US inflation report, which showed that the Federal Reserve monetary policy is beginning to cool down inflation. At the time of writing, the USDCAD is trading at 1.3350 after hitting a daily high of 1.3571.

A cooler US CPI report weakens the US Dollar

US equities are skyrocketing, after the release of the US CPI, with the Nasdaq putting a staggering comeback, up by more than 5.50%. Inflation in the United States was lower-than-estimated as monetary policy is beginning to catch on to stubbornly high prices. The Consumer Price Index (CPI) for October rose by 7.7% YoY, below estimates of 7.9%. In the same tone, the core CPI, which excludes volatile items like food and energy, crept lower by 6.3% YoY, beneath the 6.5% foreseen by street analysts.

At the same time, the US Department of Labor released the Initial Jobless Claims for the last week, showing that the labor market is also easing. Claims jumped by 225K exceeding the 220K foreseen. It should be noted that the previous week’s US Nonfarm Payrolls report showed that the Unemployment Rate ticked up from 3.5% to 3.7%.

The USDCAD plunged at the release, after hoovering around the 1.3530 area down beneath the 1.3400 area, as the report would ease pressure on the Federal Reserve, as the US central bank prepares to slow the pace of interest-rate increases. Concerning the latter, the CME FedWatchTool reports that chances of a 50 bps jumped to 80%, vs. 56% a dar before.

Following the release, the US Treasury bond yields are plunging, with the US 10-year benchmark note rate at 3.812%, down 28 bps, a headwind for the US Dollar. The US Dollar Index, a gauge of the buck’s value against a basket of six peers, is down 1.93%, at 108.311.

At the time of typing, the Philadelphia Fed President Patrick Harker is crossing newswires, and he said that the restrictive Fed Policy stance is seen above 4% and added that rate hikes could pause when the Federal Funds rate (FFR) hits 4.5%. Harker said that monetary policy lags “about a year or so.”

USDCAD Key Technical Levels

• US Dollar drops dramatically after October US CPI data.
• Banxico to announce monetary policy decision: a dovish last hike?
• USDMXN consolidating bearish bias, 19.00 on the radar.

The USDMXN dropped from above 19.50 to 19.35, hitting a fresh cycle low. It is hovering around 19.40, under pressure after US CPI numbers that weighed on the Dollar and ahead of Banxico’s decision.

Peso strengthens, while Dollar tumbles

The US Consumer Price Index (CPI) climbed 0.4% in October below the 0.6% of market consensus. The annual reading fell to 7.7%, the lowest level since January. The greenback collapsed after the reports and equity prices jumped.

In Wall Street, the Dow Jones is up by 2.45% and the Nasdaq by 5.68%. US yields are falling by almost 6%. The US Dollar Index is losing 1.77%, at the lowest since mid-September.

The inflation numbers from the US are welcome news not only for the Fed and the White House but also should be cheered in Mexico. With the Fed being less aggressive in raising rates, Banxico could face less pressure.

The CPI report came out just as the Bank of Mexico holds its monetary policy meeting. A decision will be announced in a few hours. A 75 basis points rate hike is expected, bringing the key rate to 10%. A dovish tone seems likely, not only after inflation figures from the US and Mexico, but also as the Dollar tumbles across the board.

A dovish Banxico is not necessarily bad for the Mexican Peso. US yields and risk appetite are also key factors for the performance of MXN which so far during 2022 is among the biggest gainers.

Technical levels

The Mexican central bank (Banxico) is likely to mirror the Fed’s pace again today. Economists at Commerzbank expect the Peso to shrug off the decision if a 75 basis points hike is delivered.

Banxico likely to remain in sync with the Fed

“Banxico is expected to hike its key rate by 75 basis points to 10%. Moreover, we expect Banxico to signal further rate hikes.”

“We assume that the rate decision and statement will be in line with expectations thus not having much of an effect on the Peso.”

“If doubts were to arise on the market whether Banxico will continue to move in sync with the Fed or if participants were to find suggestions of an imminent end of the rate hike cycle, this is likely to put a dampener on the rate hike expectations, which have already gone a long way, thus putting pressure on the Peso.”

• Annual US inflation rate drops to the lowest since January.
• US Dollar plummets on expectations of a less aggressive Fed.
• AUDUSD heads for the highest daily close since September 22.

The AUDUSD jumped following the release of inflation numbers in the US that came in below expectations. Speculation above smaller rate hikes from the Federal Reserve sank the dollar. The pair hit at 0.6564, the highest level since late September.

Before and after CPI

The US Consumer Price Index (CPI) rose 0.4% in October below the 0.6% of market consensus. The annual reading dropped to 7.7%, the lowest level since January. The numbers sent Wall Street and Treasuries sharply higher. “Evidence is accumulating that inflation has peaked and is now falling again. The Fed's next rate hike is therefore likely to be smaller”, said analysts at Commerzbank.

The expectations of a less aggressive Fed pushed the dollar sharply to the downside and it continues to look vulnerable. The AUDUSD is back above the 0.6520/40 area, which is an important technical zone. While above, more gains seem likely.

Earlier on Wednesday, AUDUSD fell to 0.6390, matching the 20-day Simple Moving Average that is now heading clearly north suggesting that a bottom has been stabilized, at least in the short term. A potential target of the current rally could be seen at 0.6700/10. Before that level resistance levels are located at 0.6615 and 0.6665.

USD daily chart

Economists at Crédit Agricole CIB Research maintain a cautious bias on the British Pound in the near term despite the currency has become a far less volatile currency since the election of Prime Minister Rishi Sunak.

BoE could disappoint the still relatively hawkish rate hike expectations

“Abating UK sovereign credit risks, receding Brexit fears and easing UK financial conditions could continue to push GBP volatility lower in the very near term. The latest developments should not mean that the GBP is out of woods just yet, however. Indeed, we think that the very weak UK economic outlook would be made even worse by the aggressive fiscal austerity measures that Chancellor Jeremy Hunt will announce next week.”

“In the near term, however, the prospect for a sharp economic downturn could mean that the BoE would disappoint the still relatively hawkish market rate hike expectations. We, therefore, maintain a cautious outlook on the GBP.”

Dallas Federal Reserve President Lorie Logan said that October CPI inflation data is a welcome relief but added that they still have a long way to go, as reported by Reuters.

Breaking: US annual CPI inflation declines to 7.7% in October vs. 8% expected.

Key takeaways

"Inflation is much too high."

"It may soon be appropriate to slow the pace of rate increases so Fed can better assess how financial and economic conditions are evolving."

"Not seeing the decision about slowing the pace of rate hikes as being particularly closely related to the incoming data."

"Monetary policy must focus now on promptly restoring price stability."

"Adjustments in the financial system in response to interest rates are expected and appropriate to moderate demand and reduce inflation."

"We are seeing a normal financial market response to tighter monetary policy."

"Process of the Fed's cooling of the economy is just getting started."

"Labor market remains very tight."

"Wages continue to grow considerably faster than the rate consistent with 2% inflation."

"A slower pace should not be taken to represent easier policy related to the incoming data."

"Will look to a wide range of information to assess whether policy is sufficiently restrictive."

Market reaction

The US Dollar Index continues to push lower and was last seen losing 1.6% on the day at 108.65.

• The index makes a U-turn and breaks below 109.00.
• US yields drop to multi-session lows following US inflation results.
• US Inflation Rate rose 7.7% YoY and 6.3% when it comes to the Core CPI.

The USD Index (DXY), which tracks the greenback vs. a basket of its main rivals, rapidly loses momentum and breaches the 109.00 to chart new multi-week lows on Thursday.

USD Index (much) weaker post-CPI

The selling pressure in the dollar was exacerbated after US inflation figures surprised to the downside in October, rising 7.7% vs. the same month of 2021 and 0.4% on a monthly basis. In addition, prices excluding Food and Energy costs – the Core CPI – also missed consensus and rose 6.3% over the last twelve months.

USD-sellers quickly return to the market after lower-than-expected CPI figures reignite speculation of a potential pivot in the Fed’s policy in the relatively short-term horizon. Against that, the index sinks to an area last visited in mid-September around 108.70 amidst further losses in US yields across the curve.

Additional data in the calendar saw usual Initial Jobless Claims rise by 225K in the week to November 5.

Later in the session, the October’s Monthly Budget Statement is due along with speeches by Other than the publication of the US CPI, the US docket includes the usual Initial Jobless Claims, the Monthly Budget Statement and speeches by Philly Fed P.Harker (2023 voter, hawk), Dallas Fed L.Logan (2023 voter, centrist), Cleveland Fed L.Mester (voter, hawk) and Kansas City Fed E.George (voter, hawk).

What to look for around USD

The dollar sees its downside renewed following disappointing US inflation figures in line with rising speculation of a slower pace of the Fed’s normalization process in the near term.

In the meantime, investors’ repricing of a probable pivot in the Fed’s policy now emerges as a fresh and quite reliable source of weakness for the dollar, in line with a corrective decline in US yields across the curve.

Key events in the US this week: Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Preliminary Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: US midterm elections. 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. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is retreating 1.61% at 108.67 and the breakdown of 108.62 (monthly low November 10) would open the door to 107.68 (monthly low September 13) and finally 104.73 (200-day SMA). On the other hand, the next up barrier aligns at 113.14 (monthly high November 3) followed by 113.88 (monthly high October 13) and then 114.76 (2022 high September 28).

• Gold price advances following the release of a weak US CPI report.
• The US core Consumer Price Index (CPI) for October creeps lower, suggesting the Fed might slow the pace of rate hikes.
• Unemployment claims in the US rose, flashing signs of easing.

Gold price rallied after a report on inflation in the United States showed that prices are easing, opening the door for less aggressive action by the Federal Reserve at December’s meeting. That said, investors’ risk appetite improved as US equity futures jumped while US Treasury yields were getting smashed. At the time of writing, the XAUUSD is trading at around $1739, above its opening price by almost 2%.

Gold climbs sharply on lower US CPI report

On Thursday, the US Department of Labor reported the Consumer Price Index (CPI) for October rose 0.4% MoM, less than’0.6% estimated, while the annual basis reading was 7.7%, below the 7.9% foreseen. Meanwhile, the core CPI, which Federal Reserve officials closely follow, jumped 0.3% MoM, less than the 0.5% expected by analysts, and the year-over-year figure was 6.3%, lower than the 6.5% estimates.

At the same time, US Initial Jobless Claims for the week ending on November 5 rose by 225K, above estimates of 220K, flashing signs that the labor market is easing, while Continuing Claims increased to 1493K from 1487K in the previous reading. During the last week’s employment data, the US economy added 261K jobs exceeding estimates, but the unemployment rate edged toward 3.7%.

Following the release, the US Treasury bond yields are plunging, with the US 10-year benchmark note rate at 3.912%, down 18 bps, a headwind for the US Dollar. The US Dollar Index, a gauge of the buck’s value against a basket of six peers, is down 1.47%, at 108.819.

At the time of typing, the Philadelphia Fed President Patrick Harker is crossing newswires, and he said that the restrictive Fed Policy stance is seen above 4% and added that rate hikes could pause when the Federal Funds rate (FFR) hits 4.5%. Harker said that monetary policy lags “about a year or so.”

Gold (XAUUSD) Key Technical Levels

USDMXN has gradually pulled back towards the lower band of the range at 19.41. A break below hre would clear the way towards 2020 lows near 18.60/18.50, economists at Société Générale report.

An initial rebound is not ruled out

“An initial rebound is not ruled out, however, failure to cross October peak at 20.18 would denote risk of a potential breakdown.” 

“In case the pair establishes itself below 19.41, next leg of down move could materialize towards projections of 19.28 and 19.00 with possibility to revisit 2020 lows near 18.60/18.50.”

US inflation moderated in October. Economists at Commerzbank expect a slower Fed pace as inflation has probably peaked and is falling again.

US inflation heading down

“US consumer prices rose by only 0.4% in October, less than expected. The inflation rate fell further to 7.7%.”

“Evidence is accumulating that inflation has peaked and is now falling again. The Fed's next rate hike is therefore likely to be smaller.”

“We maintain our forecast that the Fed will raise rates by only 50 basis points at the next meeting on December 13/14. Even smaller steps are to be expected at the beginning of 2023.”

• US Dollar collapses following the October US CPI reading.
• USDJPY falls to the lowest in more than a month.
• Greenback seems vulnerable to more losses.

The USDJPY lost almost 300 pips in a few minutes following the release of US inflation data. The pair dropped from above 146.00 to as low as 143.14, reaching the lowest level since September 23.

The US Consumer Price Index annual rate dropped from 8.2% to 7.7% in October, below the 8.0% of market consensus and hitting the lowest since January. Also core reading showed lower-than-expected numbers.

The inflation reading sent US bond yields sharply lower. The US 10-year dropped to 3.90% from 4.10%, while the 2-year fell from 4.60% to 4.38%. Equity prices in Wall Street jumped. The yen jumped versus the dollar and remained steady against other currencies, not affected by risk appetite and supported by the decline in US yields. Despite showing already massive losses, the Dollar still looks vulnerable.

The USDJPY broke the key support area of 145.00. While below, the bias should point to the downside. The next strong support is seen around 141.50, with an intermediate area at 142.60.

Technical levels

Gold holds above the key $1,700 mark. Nonetheless, economists at ANZ Bank expect the yellow metal to remain under pressure as the USD holds its ground.

US real yields and the US Dollar on a strong footing

“The hawkish tone of the central banks is keeping US real yields and the US Dollar on a strong footing.”

“While recession fears grow due to rising rates and sticky inflation, we should see some haven flows but not enough to reverse the bearish trend anytime soon.”

“We expect Gold to remain under pressure.”

Federal Reserve Bank of Philadelphia President Patrick Harker said on Thursday that the US Federal Reserve could slow the rate hike pace in the coming months, as reported by Reuters.

Additional takeaways

"Fed will need to assess how rate hikes are impacting economy."

"Fed needs sustained decline in inflation to moderate rate hike campaign."

"Inflation remains far, far too high."

"Future Fed hikes will be driven by the data."

"Seeing signs economy’s pace of activity is moderating."

"Job market still hot, but expecting unemployment to rise to 4.5% next year."

"Job market to remain healthy going forward."

"Core PCE inflation to moderate to 4.8% this year."

Market reaction

The US Dollar Index stays under heavy bearish pressure and was last seen losing 1.3% on the day at 109.02.

• EURUSD rises to 2-month highs near 1.0160 on Thursday.
• The dollar plummets following lower-than-expected US inflation.
• US headline CPIP rose 0.4% MoM in October and 7.7% YoY.

EURUSD saw its downside abruptly reversed and quickly climbed to the 1.0160 region in the wake of the release of US inflation figures.

EURUSD jumped to multi-week highs post-CPI

EURUSD regains upside traction on the back of the collapse in the dollar after US inflation figures rose less than estimated in October. Indeed, inflation measured by the headline CPI rose 0.4% MoM in October and 7.7% over the last twelve months. Additionally, the Core CPI advanced 6.3% from a year earlier, also below initial expectations.

The greenback, in the meantime, rapidly breaks below the 109.00 support and trades in levels last seen back in mid-September in the 108.70/65 band.

Adding to the U-turn in the buck, US yields dropped to fresh multi-session lows pari passu with increasing speculation of a potential Fed’s pivot in the near term.

What to look for around EUR

EURUSD accelerates the upside and now refocuses on the next target of note near the 1.0200 mark, or September peaks.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The recent decision by the Fed to hike rates and the likelihood of a tighter-for-longer stance now emerges as the main headwind for a sustainable recovery in the pair.

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 fragile sentiment around the euro in the longer run.

Key events in the euro area this week: Italy Industrial Production (Thursday) – Germany Final Inflation Rate (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook.

EURUSD levels to watch

So far, the pair is advancing 1.07% at 1.0115 and faces the next up barrier at 1.0159 (monthly high November 8) seconded by 1.0197 (monthly high September 12) and finally 1.0368 (monthly high August 12). On the other hand, a breach of 0.9730 (monthly low November 3) would target 0.9704 (weekly low October 21) en route to 0.9631 (monthly low October 13).

• GBPUSD rallies hard following the release of the softer-than-expected US CPI report.
• The headline US CPI decelerated to 7.7% and core CPI dropped to 6.3% in October.
• The data lifts bets for less aggressive Fed rate hikes and weighs heavily on the USD.

The GBPUSD pair catches aggressive bids during the early North American session and rallies beyond the 1.1550 area in reaction to softer US consumer inflation figures.

The US Bureau of Labor Statistics reported that the headline CPI rose 0.4% in October and the yearly rate eased to 7.7% from 8.2% in September, both missing expectations. Additional details revealed that core inflation, which excludes food and energy prices, decelerated more than anticipated to a 6.3% YoY rate from 6.6% previous.

The data adds to speculations that the Federal Reserve will slow the pace of its policy tightening and drags the US Dollar to a fresh multi-week low. This, in turn, is seen as a key factor behind the GBPUSD pair's sharp rally of over 170 pips in the last hour, taking along some intraday trading stops placed near the 1.1500 psychological mark.

It, however, remains to be seen if bulls are able to capitalize on the move amid a bleak outlook for the UK economy, which might continue to act as a headwind for the British Pound. Hence, the focus now shifts to the Priliminary UK Q3 GDP report, due on Friday. The key UK macro data should provide a fresh directional impetus to the GBPUSD pair.

Technical levels to watch

The US Bureau of Labor Statistics reported on Thursday that inflation in the US, as measured by the Consumer Price Index (CPI), declined to 7.7% on a yearly basis in October from 8% in September. This reading came in below the market forecast of 8%.

The Core CPI, which excludes volatile food and energy prices, fell to 6.3% from 6.6% on a yearly basis, compared to analysts' expectations of 6.5%. 

On a monthly basis, the CPI and the Core CPI arrived at 0.4% and 0.3% respectively, with both of these readings falling short of experts' projections.

Follow our live coverage of the market reaction to US inflation data.

Market reaction

The US Dollar (USD) came under heavy selling pressure with the initial reaction and the US Dollar Index was last seen losing nearly 1% on the day at 109.45.

European Central Bank (ECB) Governing Council member Isabel Schnabel noted on Thursday that inflation expectations in the Eurozone are still broadly anchored but added that risks of high inflation persistence had increased further, as reported by Reuters.

Additional takeaways

"Only a deep recession with a sharp rise in unemployment would dampen inflation but this is unlikely now."

"There is no time for monetary policy to pause."

"We need to raise rates into restrictive territory."

Market reaction

EURUSD pair showed no immediate reaction to these comments and was last seen losing 0.5% on the day at 0.9960.

USDCAD easily regained a 1.35 handle yesterday. Economists at Scotiabank do not expect the Loonie to strengthen against the US Dollar.

Weak risk appetite

“The USD’s rebound through 1.35 undoes a lot of the good work the CAD had done earlier in the week to strengthen versus the USD and shows just how fickle market sentiment can be at the moment.”

“A swift return to sub-1.3495 levels (today) could restore some of the downward momentum in the market but there are only tentative signs at this point that the USD rise to the mid/upper-1.35s is running out of momentum.”

“Support intraday is 1.3500/10. Resistance is 1.3595/05.”

• USDJPY remains confined in a narrow trading band through the early North American session.
• Some follow-through USD buying offers support to the pair ahead of the crucial US CPI report.
• A sustained break below the 145.00 mark is needed to confirm a near-term bearish breakdown.

The USDJPY pair struggles to capitalize on the previous day's bounce from the 145.15-145.10 support, or a nearly two-week low and oscillates in a narrow band through the early North American session. Spot prices, however, manage to hold comfortably above the 146.00 round figure and remain well supported by some follow-through US Dollar buying.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, adds to the overnight recovery gains and scales higher for the second successive day on Thursday. The uptick lacks any obvious fundamental catalyst and could be attributed to some repositioning trade ahead of the crucial US consumer inflation figures.

From a technical perspective, the upside for the USDJPY pair remains capped near a support breakpoint, marking the 200-period SMA on the 4-hour chart. The said barrier is currently pegged around the 146.75 region and should act as a pivotal point for intraday traders. A sustained strength beyond should pave the way for some meaningful upside.

The USDJPY pair might then surpass the 147.00 round figure and aim to challenge a three-week-old descending trend-line barrier, around the 147.85 region. Some follow-through buying beyond the 148.00 mark will negate any near-term bearish bias and lift spot prices towards the next relevant resistance near the 148.45-148.50 supply zone.

On the flip side, weakness back the 146.00 mark now seems to find some support near the mid-145.00s. Any subsequent decline might continue to attract some buying near the 145.15-145.10 region, which if broken decisively will make the USDJPY pair vulnerable. The downfall could get extended to the 144.45 horizontal zone en route to the 144.00 mark.

USDJPY 4-hour chart

Key levels to watch

Sterling outperforms on the day – the backdrop remains challenging, however, economists at Scotiabank report.

The broader technical tone looks negative

“Chancellor Hunt has his work cut out to restore investor faith in government finances.”

“Cable looks to have formed a bearish ‘evening star’ candle on the daily chart, reflecting a strong rejection of the long-term bear trend resistance at 1.1535 which the pound tested earlier this week.”

“Unless spot can – quickly – regain the low/mid.1.15s and advance, deeper losses seem more likely to resume.”

US CPI Overview

Thursday's US economic docket highlights the release of the critical US consumer inflation figures for October, scheduled later during the early North American session at 13:30 GMT. On a monthly basis, the headline CPI is anticipated to rise by 0.6% during the reported month as compared to the 0.4% increase recorded in September. The yearly rate, however, is expected to ease to 8.0% in October from the 8.2% previous. Meanwhile, core inflation, which excludes food and energy prices, is projected to come in at 0.5% for October and tick lower to 6.5% on yearly basis from 6.6% in September.

According to Analysts at ING: “The focus is on the MoM core (ex-food and energy) number. Over the past six months, we have had one 0.7%, four 0.6% and one 0.3% print. We need to see numbers closer to 0.2% to bring the annual rate down toward the 2% target over time. The consensus right now is for 0.5% next week, which is also our prediction. There is a second bite of the cherry ahead of the December FOMC meeting on 14 December given November CPI is published on 13 December. Nonetheless, if we get a downside surprise we could see markets looking to price in a greater chance of a 50 bps December hike and possibly a slightly lower terminal rate.”

How Could it Affect EURUSD?

Ahead of the key release, the US Dollar is seen building on the previous day's goodish rebound from a multi-week low and dragging the EURUSD pair lower for the second successive day on Thursday. A stronger US CPI print will revive bets for a faster rate-hiking cycle by the Fed and boost the USD. That said, the immediate market reaction is likely to remain limited amid talks of a more aggressive policy tightening by the European Central Bank, which might continue to act as a tailwind for the shared currency.

Conversely, a softer-than-expected reading could prompt fresh selling around the buck and assist the EURUSD pair to regain positive traction. This, in turn, suggests that the ongoing corrective pullback from the vicinity of the 1.0100 mark, or a nearly two-month high, could still be seen as a buying opportunity and is more likely to remain limited.

Eren Sengezer offers a brief technical outlook and outlines important technical levels to trade the major: “EURUSD was last seen trading slightly below 1.0000, where the Fibonacci 23.6% retracement of the latest uptrend is located. In case the pair confirms that level as resistance, it could decline toward 0.9950 (Fibonacci 38.2% retracement) and 0.9920 (100-period Simple Moving Average on the four-hour chart, Fibonacci 50% retracement).”

“On the upside, EURUSD is likely to face interim resistance at 1.0020 before targeting 1.0080 (the end-point of the latest uptrend) and 1.0100 (psychological level, static level),” Eren adds further.

Key Notes

  •   US October CPI Preview: US Dollar to weaken on a CPI-inspired risk rally

  •   US Inflation Preview: Markets set to seize on falling Core CPI to revive pivot play, three scenarios

  •   EURUSD Forecast: It's all about US CPI

About the US CPI

The Consumer Price Index released by the US Bureau of Labor Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of the USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish).

• EURUSD adds to the weekly decline below the parity level.
• The continuation of the downside could see the 55-day SMA retested.

EURUSD retreats for the second consecutive session and breaches the key parity mark on Thursday.

If spot accelerates losses, it could then challenge the 55-day SMA, today at 0.9888, prior to another visit to the 9-month support line around 0.9840. Below the latter, the pair could see the near-term bearish outlook reinstated.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0442.

EURUSD daily chart

EURUSD slides below parity. The Euro looks vulnerable again, in the view of economists at Scotiabank.

Euro stocks may support

“Ironically, the recent gains in spot have perhaps been getting some support from relatively better equity market returns in Europe versus North America which has seen better relative investor interest in FX unhedged European equity ETFs, data suggests. Investors want exposure to European stocks and the (cheap looking) EUR, in other words.” 

“Intraday patterns – very tentatively –  suggest some better EUR demand is emerging in the mid-0.99s but the failure to press higher after a strong advance from last week's low leaves the EUR looking somewhat fragile again.” 

“Support is 0.9890/00. Resistance is 1.0040/50.”

• DXY picks up extra upside traction and flirts with 111.00.
• The 55-day SMA emerges as the next target near 111.10.

DXY adds to Wednesday’s buying interest and trades just pips away from the key 111.00 mark on Thursday.

Extra recovery now faces the immediate hurdle at the interim 55-day SMA at 111.08. If the index manages to leave behind this level, then the next target of relevance is expected at the so far November top at 113.14 (November 3).

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 104.74.

DXY daily chart

Economists at Barclays Research expect the EURGBP to continue moving within a 0.86-0.89 range as the Bank of England misses to offer support to the Pound.

British economy set to shrink 0.5% in Q3 2022

“GBP received little support from the BoE last week which yet again pushed against what they see as excessive market pricing. Accordingly, the recent 0.86-0.89 range will likely continue to define the sterling path versus the EUR in the near-term.” 

"We expect Q3 GDP to print at -0.5% QoQ, echoing the Bank’s forecast. This week, however, we expect GBP to be more driven by the broad Dollar, with focus on US CPI. While near-term China reopening signals will bring a pause in the broad Dollar, the gloomy outlook and the monetary divergence still caps sterling from a long-term perspective.”. 

• EURJPY extends the weekly leg lower for the third session in a row.
• Immediately to the downside now comes the 144.00 region.

EURJPY clinches the third straight day with losses and breaks below the key 146.00 support on Thursday.

The cross seems to have embarked on a corrective phase and the continuation of this stance could challenge the so far November low at 144.03 (November 3) in the short term. Further south awaits the 55-day SMA, today at 143.28.

In the short term the upside momentum is expected to persist while above the October lows near 141.00.

In the longer run, while above the key 200-day SMA at 138.03, the constructive outlook is expected to remain unchanged.

EURJPY daily chart

The release today of the latest US Consumer Price Index (CPI) for October could prove pivotal for the US Dollar in the near-term especially as it is currently threatening to break lower. A downside surprise could trigger a deeper sell-off, economists at MUFG Bank report.

All eyes on the US CPI report

“Market participants will be closely scrutinizing today’s report to see if there is any evidence that underlying pressures are beginning to ease as well given that the headline rate has already peaked back in June at just over 9%.”

“The Bloomberg consensus though is looking for the third consecutive firmer core inflation reading of around 0.5% MoM which is roughly in line with the year-to-date trend.” 

“We continue to believe that the USD could prove more sensitive to downside surprise for core inflation triggering a deeper sell-off, while another firm reading would offer some much-needed support right now.” 

See – US CPI Preview: Forecasts from 13 major banks, inflation coming down only slowly

• NZDUSD continues losing ground for the second straight day amid sustained USD buying.
• Retreating US bond yields, a positive risk tone does little to lend any support to the pair.
• Investors now look forward to the crucial US CPI report for a fresh directional impetus.

The NZDUSD pair remains under some selling pressure for the second straight day on Thursday and retreats further from its highest level since September 19 touched earlier this week. The pair continues losing ground through the first half of the European session and drops to a fresh daily low, below mid-0.5800s in the last hour.

The US Dollar gains strong follow-through traction and builds on the previous day's solid bounce from a multi-week low, which, in turn, is seen as a key factor dragging the NZDUSD pair lower. The stronger USD move up could be attributed to some repositioning trade in anticipation of stronger US consumer inflation figures. That said, a modest pullback in the US Treasury bond yields might keep a lid on any further gains for the greenback.

Apart from this, a generally positive tone around the equity markets could act as a headwind for the safe-haven buck and offer some support to the risk-sensitive Kiwi. Traders might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the crucial US CPI report. The data will influence the Fed's rate-hiking cycle, which, in turn, will drive the USD demand and provide a fresh impetus to the NZDUSD pair.

The headline US CPI is expected to ease to the 8% YoY rate in October from last month’s reading of 8.2%. An upside surprise will revive bets for faster interest rate hikes by the Fed and boost the US currency, setting the stage for a further near-term depreciating move for the NZDUSD pair. Even from a technical perspective, this week's rejection near the 0.6000 psychological mark favours bearish traders and adds credence to the near-term negative outlook.

Technical levels to watch

EURUSD snapped a three-day winning streak on Wednesday. Today, investors await the US October Consumer Price Index (CPI) print. An upside surprise would end the recent correction in the pair, economists at ING report.

US inflation data will be a key driver

“Despite the recent recovery in equities, the external environment is still mixed, including lockdowns spreading across China.”

“Today's US data is big enough to put an end to the recent EURUSD correction – should inflation surprise on the upside.” 

See – US CPI Preview: Forecasts from 13 major banks, inflation coming down only slowly

• Silver reverses an intraday dip to sub-$21.00 levels, though lacks follow-through buying.
• Repeated failures to find acceptance above the 200 DMA warrant some caution for bulls.
• A convincing break below the weekly low is needed to negate any near-term positive bias.

Silver attracts some dip-buying on Thursday and stalls the previous day's retracement slide from the $21.60 area or the lowest level since June 22. The intraday bounce from sub-$21.00 levels, however, lacks follow-through as traders keenly await the release of the crucial US consumer inflation figures.

From a technical perspective, the XAGUSD, so far, has struggled to make it through the very important 200-day SMA resistance. Meanwhile, oscillators on the daily chart are holding comfortably in the bullish territory and support prospects for additional gains. That said, it will still be prudent to wait for a sustained move beyond the $21.60 area before confirming a fresh bullish breakout.

The XAGUSD might then accelerate the momentum and aim to reclaim the $22.00 round-figure mark. The next relevant hurdle is pegged near the $22.30-$22.35 region, which is closely followed by the June swing high, around mid-$22.00s. The latter should act as a key pivotal point, which if cleared decisively will set the stage for an extension of the recent rally from the vicinity of the $18.00 mark.

On the flip side, any meaningful pullback below the $21.00 mark could be seen as a buying opportunity and remain limited near the weekly low, around the $20.40 region. Failure to defend the said support might negate any near-term positive bias and drag the XAGUSD to the $20.00 psychological mark. The downward trajectory could get extended towards the $19.65 horizontal resistance breakpoint.

Silver daily chart

Key levels to watch

Economists at Rabobank expect Banxico to raise rates 75 basis points to 10.00%. In any case, USDMXN is set to trade above the 20 level again.

MXN to outperform the rest of the LatAm region

“We expect another 75 bps hike from Banxico on November 10, but after that meeting, we expect a 50 bps hike on December 15 and a final 25 bps hike on February 9, taking the policy rate up to a terminal rate of 10.75%.”

“In terms of USDMXN, we did recently see a dip below support at 19.50 but that didn’t last long and our indicators are pointing to a likely reversal, with a move back above 19.80 and a likely break back above 20 yet again.”

“If our 75 bps hike call is incorrect and Banxico raises rates 50 bps, then a break above 20 is likely to happen in the aftermath of the decision, but even if a 75 bps hike is forthcoming, we expect USDMXN to trade back above 20 before month-end but for MXN to outperform the rest of the LatAm region.”

• Gold price is fading the rebound but holds above the $1,700 mark.   
• The US Dollar resumes its correction but a weak CPI print could revive the downside.
•  XAUUSD buyers gather strength before the next push higher.

Gold price is posting small gains above the $1,700 mark, as bulls turn cautious ahead of the critical Consumer Price Index (CPI) from the United States. The US inflation data is of utmost significance in determining the US Federal Reserve’s rate hike outlook. A softer US core CPI print is likely to bolster expectations of a 50 bps December Fed rate hike. The monthly US CPI is seen rising to 0.6% while the annualized inflation rate is seen softening to 8.0%. The Core CPIs are likely to ease across the time horizon, suggesting signs of peak inflation. Gold price could resume its uptrend on a softer US CPI-induced renewed US Dollar weakness and a risk rally. Markets are currently pricing a 57% probability of a 50 bps December Fed rate hike.

Also read: Gold Price Forecast: 100DMA appears a tough nut to crack ahead of US Consumer Price Index

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is facing a wall of stiff resistance levels at around $1,710. At that level, the Fibonacci 38.2% one-day coincides with the SMA10 four-hour.

The next upside target is seen at the previous high four-hour at $1,713, above which a test of the $1,715 level cannot be ruled out, where the Fibonacci 61.8% one-day and SMA100 one-day meet.

Alternatively, a sustained break below the Fibonacci 23.6% one-day at $1,706 will revive the selling momentum toward the previous low four-hour at $1,704.  

The last line of defense for Gold price is seen at the confluence of the pivot point one-month R1 and one-week R1 at $1,703.

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.

US Consumer Price Index (CPI) data for October is out at 13:30 GMT. The figures will have implications for Fed policy, risk assets and the Dollar, economists at ING report.

USD Index to trade 109.50-110.50 range

“We favour a 0.5% core MoM figure, with the range of analyst expectations stretching from 0.3% to 0.6%.” 

“Today's release will have some bearing on what the market prices for the Fed meeting on 14 December, where a 56 bps rate increase is currently priced. Today's CPI data will not be the final say on that decision (we have jobs data and another CPI release before then), but it can set the tone regarding the Fed's comfort level.” 

“Expect the Dollar and the positively correlated bond and equity markets to trade off today's data – where any upside surprise could do some damage to the recent benign risk environment and end the recent correction in the Dollar.”

“DXY to trade 109.50-110.50 range, with a slight upside bias.”

See – US CPI Preview: Forecasts from 13 major banks, inflation coming down only slowly

• EURUSD adds to Wednesday’s pullback in the sub-parity zone.
• Industrial Production in Italy disappointed expectations in September.
• All the attention will be on the release of US inflation figures.

Sellers now push harder and force EURUSD to breach the parity barrier and print new 3-day lows in the vicinity of 0.9970 on Thursday.

EURUSD focuses on US CPI

EURUSD adds to Wednesday’s pessimism and drops further to the 0.9975/70 band on the back of the persistent recovery in the greenback, which appears in turn underpinned by rising prudence among traders ahead of the release of US inflation figures measured by the CPI.

Also adding to the prevailing cautiousness, the final results of the US midterm elections still remain inconclusive, as well as who will control the Senate and the House.

The second downtick in a row in the pair also comes in contrast to the small recovery in the German 10-year bund yields, which regain some ground after two daily retracements in a row.

In the domestic calendar, Italian Industrial Production contracted 1.8% MoM in September and 0.5% from a year earlier.

In the US and other than the Inflation Rate, the usual weekly Claims are due along with the Monthly Budget Statement for the month of October and speeches by FOMC’s Harker, Logan, Mester and George.

What to look for around EUR

EURUSD comes under extra downside pressure and slips back below the parity zone with some conviction ahead of key US data releases on Thursday.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The recent decision by the Fed to hike rates and the likelihood of a tighter-for-longer stance now emerges as the main headwind for a sustainable recovery in the pair.

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 fragile sentiment around the euro in the longer run.

Key events in the euro area this week: Italy Industrial Production (Thursday) – Germany Final Inflation Rate (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook.

EURUSD levels to watch

So far, the pair is retreating 0.34% at 0.9974 and a breach of 0.9730 (monthly low November 3) would target 0.9704 (weekly low October 21) en route to 0.9631 (monthly low October 13). On the other hand, initial resistance comes at 1.0096 (monthly high November 8) seconded by 1.0197 (monthly high September 12) and finally 1.0368 (monthly high August 12).

• AUDUSD remains under some selling pressure for the second successive day on Thursday.
• A less hawkish RBA weighs on the Aussie amid the emergence of some USD dip-buying.
• Investors now look forward to the key US CPI report before placing fresh directional bets.

The AUDUSD pair extends this week's pullback from mid-0.6500s, or its highest level since September 23 and remains under some selling pressure for the second straight day on Thursday. Spot prices hit a fresh weekly high during the first half of the European session, with bears now awaiting sustained weakness below the 0.6400 round figure.

The Australian Dollar is undermined by the fact that the Reserve Bank of Australia (RBA) has already downshifted its rate-hiking regime to 25 bps. Moreover, RBA Deputy Governor Michele Bullock noted on Wednesday that there are good reasons to think we are approaching the peak of inflation. This, in turn, suggests that the Australian central bank could further slow the pace of its policy tightening, which, in turn, continues to weigh on the AUDUSD pair.

The US Dollar, on the other hand, attracts some dip-buying and looks to build on the overnight goodish rebound from a multi-week low. This is seen as another factor exerting some downward pressure on the AUDUSD pair. That said, retreating US Treasury bond yields, along with a generally positive risk tone, might cap the safe-haven buck and offer some support to the risk-sensitive. Traders might also prefer to wait for the crucial US consumer inflation figures.

The headline US CPI is expected to ease to the 8% YoY rate in October from last month’s reading of 8.2%. An upside surprise will revive bets for faster interest rate hikes by the Fed and boost the US currency, setting the stage for a further near-term depreciating move for the AUDUSD pair. Hence, any attempted recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch

In an Economic Bulletin article published on Thursday; the European Central Bank (ECB) offered updates on the economic, financial and monetary developments in the Euro area.

Key highlights

The Governing Council will base the future policy rate path on the evolving outlook for inflation and the economy, following its meeting-by-meeting approach.

Inflation remains far too high and will stay above the target for an extended period.

The Governing Council also decided to change the terms and conditions of the third series of targeted longer-term refinancing operations (TLTRO III). 

Economic activity in the euro area is likely to have slowed significantly in the third quarter of 2022, and the Governing Council expects a further weakening in the remainder of 2022 and the beginning of 2023. 

Worsening terms of trade, as the prices paid for imports rise faster than those received for exports, are weighing on incomes in the euro area.

To limit the risk of fuelling inflation, fiscal support measures to shield the economy from the impact of high energy prices should be temporary and targeted at the most vulnerable. 

The incoming data confirm that risks to the economic growth outlook are clearly on the downside, especially in the near term.

Market reaction

EUR/USD is unfazed by the release of the ECB’s Economic Bulletin. The pair is shedding 0.21% on the day, currently trading at 0.9988.

The US inflation data is due out today. A softer month-over-month core print will exacerbate positioning which has moved to swiftly reduce USD longs recently and support risk. That risks testing key levels in EURUSD and USDJPY, economists at TD Securities report.

Modest Core CPI relief

“We are looking for core prices to have stayed strong on a MoM basis despite our expectation of slowing vs September. Indeed, we forecast a still solid 0.4% MoM gain in the core CPI series. In terms of the headline, we expect inflation to register its largest MoM increase in four months at 0.6%. Our MoM projections imply that headline and core CPI inflation likely lost speed on a YoY basis in October.”

“A softer monthly core CPI print will likely exacerbate risk-on sentiment that a terminal rate at or above 5% may be enough to curtail the worst inflation in decades. This is likely to extend FX positioning which has aggressively moved to reduce USD longs by our estimates.”

“We think there is a risk that even a positive surprise on CPI could trigger a positioning squeeze though the sustainability of that could be questioned.”

“We think USDJPY would risk a test of 143.75 if our core CPI print is realized, while EURUSD will be exposed to 1.01-1.02.”

See – US CPI Preview: Forecasts from 13 major banks, inflation coming down only slowly

• GBPUSD regains some positive traction on Thursday amid modest USD weakness.
• The upside potential seems limited as traders keenly await the key US CPI report.
• The BoE’s gloomy economic outlook also contributes to capping gains for the pair.

The GBPUSD pair attracts some dip-buying near the 1.1350 region on Thursday and recovers a part of the previous day's heavy losses. Spot prices stick to intraday gains through the first half of the European session, though seem to struggle to capitalize on the move beyond the 1.1400 round figure.

A modest downtick in the US Treasury bond yields, along with a positive tone around the equity markets, fail to assist the safe-haven US Dollar to build on the overnight bounce from a multi-week low. Apart from this, some repositioning trade ahead of the crucial US consumer inflation figures caps the upside for the greenback, which, in turn, is seen lending some support to the GBPUSD pair.

That said, a combination of factors is holding back traders from placing aggressive bets and acting as a headwind for spot prices. Despite expectations that the Federal Reserve will slow the pace of its policy tightening, the markets are still pricing in the possibility of at least a 50 bps rate hike in December. This should help limit the downside for the US bond yields and the greenback.

Furthermore, the Bank of England's gloomy outlook for the UK economy might continue to undermine the British Pound and contribute to capping the upside for the GBPUSD pair. Traders might also prefer to wait for a fresh catalyst from the highly-anticipated US CPI report. The data will influence future rate hikes by the Fed and play a key role in driving the USD demand in the near term.

This, in turn, warrants some caution for bulls and positioning for any further intraday appreciating move for the GBPUSD pair. The focus will then shift to the Preliminary UK Q3 GDP report, scheduled for release on Friday. Traders will further look to British Finance Minister Jeremy Hunt's planned fiscal statement on November 17 to determine the next leg of a directional move for the major.

Technical levels to watch

Spanish Economy Minister Nadia Calvino said on Thursday, she expects the country’s “inflation to remain at the current level until the end of the year.”

She said that “economic growth in fourth quarter going well so far.”

"The proposal presented by the European Commission is a good basis to start working on, it's balanced and responds to the paper Spain had presented with the Netherlands," Calvino added.

Market reaction

The Euro shows little to no reaction to the above comments, with EURUSD trading 0.21% lower on the day at 0.9989, as of writing.

Sterling saw a big intra-day sell-off yesterday while earlier today we saw the RICS house price balance data for October. In the view of economists at ING, GBPUSD could test the 1.1150 mark today.

House prices starting to feel the crunch

“UK estate agents now see house prices declining for the first time since the summer of 2020 – a clear response to the recent surge in mortgage rates. This will again question the market's pricing of the Bank of England's tightening cycle, where we think rates priced at 4.65% next summer are way too high.”

“1.1150 is a clear target for GBPUSD were the dollar to strengthen today. Again, we doubt any gains over 1.15 endure.”

• The index alternates gains with losses around 110.50.
• Markets’ attention will be on the release of US inflation figures.
• Weekly Jobless Claims, Fedspeak also on tap later in the day.

The greenback, when tracked by the USD Index (DXY), trades without a clear direction near Wednesday’s close around 110.50 on Thursday.

USD Index focuses on data

The index loses some momentum following Wednesday’s strong advance north of the 110.00 barrier amidst rising cautiousness ahead of the release of the US Inflation Rate for the month of October.

The inconclusive price action in the dollar comes in tandem with the equally lack of clear direction in US yields across the curve, all in response to the still unclear results from the US midterm elections.

Other than the publication of the US CPI, the US docket includes the usual Initial Jobless Claims, the Monthly Budget Statement and speeches by Philly Fed P.Harker (2023 voter, hawk), Dallas Fed L.Logan (2023 voter, centrist), Cleveland Fed L.Mester (voter, hawk) and Kansas City Fed E.George (voter, hawk).

What to look for around USD

The dollar’s recovery stalled around the 110.50 region so far this week ahead of the release of key US data on Thursday.

In the meantime, 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 be the main source of strength for the dollar so far.

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: Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Preliminary Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: US midterm elections. 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. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is advancing 0.08% at 110.53 and faces the next hurdle at 113.14 (monthly high November 3) followed by 113.88 (monthly high October 13) and then 114.76 (2022 high September 28). On the other hand, the breakdown of 109.35 (weekly low September 20) would open the door to 107.68 (monthly low September 13) and finally 104.74 (200-day SMA).

• USDCAD struggles to capitalize on its modest intraday uptick amid modest USD weakness.
• Bearish crude oil prices undermine the Loonie and help limit the downside for the major.
• Traders now look forward to the crucial US CPI report before placing fresh directional bets.

The USDCAD pair fades an early European session spike to a fresh weekly high and quickly retreats to the 1.3525-1.3530 region in the last hour. The downside, however, seems cushioned amid bearish crude oil prices, which tend to undermine the commodity-linked Loonie.

In fact, WTI crude extends this week's sharp pullback from over a two-month high and remains depressed for the third successive day amid concerns over fuel demand in China. A raft of weak economic data from China pointed to sluggish growth in the world’s largest oil consumer, which, in turn, acts as a headwind for the black liquid. That said, a modest US Dollar weakness is likely to keep a lid on any meaningful upside for the USDCAD pair.

Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the release of the latest US consumer inflation figures. The crucial US CPI report will play a key role in determining the Fed's policy tightening path, which, in turn, will influence the USD price dynamics. Hence, it will be prudent to wait for strong follow-through buying before confirming that the USDCAD pair has formed a near-term bottom.

Even from a technical perspective, the post-NFP breakdown below the 50-day SMA support near the 1.3500 psychological mark favours bearish traders. This further warrants some caution for bullish traders and positioning for any meaningful appreciating move for the USDCAD pair. That said, an upside surprise from the US CPI will revive bets for a more aggressive policy tightening by the Fed and boost the US currency, negating the negative bias.

Technical levels to watch

Markets pulled back bets for a Red Wave at the US mid-term elections to bolster equities and weaken the greenback. As economists at DBS Bank note, the US Dollar is still at risk from the Democrats losing at least one house of Congress.

Risk remains for GOP to wrest control of one house of Congress

“The Republicans did not make the significant gains suggested by the polls. Control of the US Senate hangs in the balance with the Georgia Senate race headed for a runoff on 6 December. The contest to control the House remains too close. However, sentiment could reverse again if the Republicans capture a thin majority.”

“The greenback is still at risk from the Democrats losing at least one house of Congress. The GOP has threatened to revive brinksmanship with the White House, demanding spending cuts in exchange for lifting the debt ceiling next year.”

“Spending cuts should help ease inflation worries, and together with a US debt default risk, will question the sustainability of the USD’s strength achieved this year.”

October inflation data is due in Norway. Norges Bank remains credible, cautious and flexible. Therefore, economists at Commerzbank expect EURNOK to ease towards 10 again.

New information for Norges Bank

“It seems that inflation is likely to have risen again. In all probability, Norges Bank will have to adjust its inflation projections to the upside again. On the other hand, Norges Bank pointed out last week that electricity and gas prices have fallen recently, which means that the rates for November and December might already be falling, thus confirming the smaller rate step in November. If prices were not falling, Norges Bank is likely to step up the speed of its measures again in December.”

“25 bps more or less are not the decisive factor, what matters is the fact that the central bank continues to take decisive action against the price risks even though it is keeping an eye on the economy – the second part of its mandate.”

“I stick to my view that the krone is actually trading too cheaply and that EURNOK should ease towards 10 again over the coming weeks.”

Here is what you need to know on Thursday, November 10:

The US Dollar (USD) stays relatively quiet early against its major rivals early Thursday as investors remain on the sidelines while awaiting the October Consumer Price Index (CPI) data. The risk-averse market environment helped the USD hold its ground and the market mood stays neutral in the European morning with US stock index futures trading flat on the day. The European Central Bank (ECB) is scheduled to release its Economic Bulletin later in the session. In addition to the inflation data, the US economic docket will feature the weekly Initial Jobless Claims figures as well. 

US Inflation Preview: Markets set to seize on falling Core CPI to revive pivot play, three scenarios.

Following the risk rally witnessed earlier in the week, the negative shift witnessed in risk sentiment caused Wall Street's main indexes to suffer heavy losses. Meanwhile, the benchmark 10-year US Treasury bond yield extends its sideways grind above 4% after having registered small losses on Tuesday. 

US October CPI Preview: US Dollar to weaken on a CPI-inspired risk rally.

According to the Associated Press, Republicans have 207 seats in the House, compared to 184 Democrat seats, and 48 seats in the Senate. 51 seats and 218 seats are required to gain the majority in the Senate and the House, respectively. The outcome of the US Midterm Election is unlikely to be finalized in the near term as the control of the Senate is expected to be decided following a runoff election in Georgia. 

EURUSD snapped a three-day winning streak on Wednesday but managed to close above the key parity mark. The pair was last seen moving sideways slightly above 1.0000. ,

GBPUSD lost nearly 200 pips on Wednesday but staged a modest rebound during the Asian trading hours on Thursday. The pair, however, stays below 1.1400 as the US Dollar's market valuation continues to drive the action.

Supported by the renewed USD strength, USDJPY closed in positive territory on Wednesday. The pair stays relatively quiet at around 146.50 on Thursday. Bank of Japan (BoJ) Governor Haruhiko said earlier in the day that he told Prime inister Fumio Kishida that they will conduct monetary easing to achieve the price target in tandem with wage growth.

Despite the US Dollar's upbeat performance, gold fell only marginally on Wednesday as US yields edged lower. XAUUSD holds above key $1,700 mark ahead of the US CPI data.

Following Wednesday's heavy selloff in cryptocurrency markets, Bitcoin tries to stage a recovery. BTCUSD, which touched its weakest level in nearly two years at $15,500 late Wednesday, was last seen rising 5% on the day at $16,700. Ethereum lost nearly 18% on Wednesday and fell below $1,100 for the first time since July. ETHUSD was last seen rising 8% on the day at $1,200.

• EURGBP lacks any firm intraday direction and oscillates in a range on Thursday.
• A combination of factors, however, continues to act as a tailwind for the cross.
• Talks for aggressive tightening by the ECB underpin the Euro and offers support.
• The BoE’s bleak outlook for the UK economy supports prospects for further gains.

The EURGBP cross is seen oscillating in a range, around the 0.8800 round-figure mark through the early European session and consolidating the overnight strong gains to a nearly one-month high.

The Bank of England's gloomy outlook for the UK economy turns out to be a key factor behind the British Pound's relative underperformance and acts as a tailwind for the EURGBP cross. In fact, the UK central bank expects a recession to last for all of 2023 and the first half of 2024. Moreover, the BoE last week indicated a lower terminal peak than was priced into the markets.

The shared currency, on the other hand, continues to draw some support from bets for a more aggressive policy tightening by the European Central Bank (ECB). Several ECB policymakers, including President Christine Lagarde, indicated that the central bank will keep raising rates aggressively to tackle red-hot consumer inflation, which accelerated to a record high of 10.7% in October.

This, in turn, pushed Germany’s short-dated yields to fresh multi-year highs earlier this week and adds credence to the near-term positive bias for the EURGBP cross. Even from a technical perspective, the previous day's sustained move and acceptance above the 0.8775-0.8780 supply zone support prospects for an extension of a nearly three-week-old uptrend.

There isn't any major market-moving economic data due for release on Thursday, either from the Eurozone or the UK. Hence, the focus remains on the Preliminary UK Q3 GDP print on Friday. Investors will also look forward to British Finance Minister Jeremy Hunt's fiscal statement on November 17. Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders.

Technical levels to watch

Today, all eyes will be on US October Consumer Price Index (CPI) print. If inflation eases more than expected, the EURUUSD pair could advance towards 1.01, economists at Commerzbank report.

The Dollar is no longer a highflyer

“Inflation is likely to have eased a little. Data in line with market expectations is unlikely to support the Dollar notably any longer, on the contrary: if inflation eases even faster contrary than expected, EURUSD might rise towards 1.01 again. The Dollar is no longer the highflyer it was over the past months.”

“Things would look differently if surprisingly inflation rates had not eased or even risen further. This would lead to increased speculation that Fed interest rates would peak at even higher levels than currently expected and that we might have to face another big step in December. Surprisingly high inflation data would therefore cause the Dollar to rise and EURUSD to fall back below parity.”

See – US CPI Preview: Forecasts from 13 major banks, inflation coming down only slowly

Gold price is jumping back on the bids above the $1,700 mark, as investors gear up for Thursday’s critical Consumer Price Index (CPI) data from the United States, which is expected to have a significant market impact, FXStreet’s Dhwani Mehta reports.

100DMA appears a tough nut to crack ahead of US CPI report

“Monthly US CPI is seen rising to 0.6% while the annualized inflation rate is seen softening to 8.0%. The Core CPIs are likely to ease across the time horizon, suggesting signs of peak inflation. The US Dollar could come under additional selling pressure on a softer print, as it would mean that the US Federal Reserve (Fed) could opt for a smaller rate hike in December.”

“100-Daily Moving Average (DMA) at $1,715 continues to check buyers’ enthusiasm. Bulls, however, remain hopeful amid an extension of the descending triangle breakout on the daily chart. The bullish 14-day Relative Strength Index (RSI) also suggests that Gold buyers could likely retain control going forward.”

“On the downside, the $1,700 mark could offer strong support, below which a sharp drop toward the 50DMA at $1,674 cannot be ruled out. Ahead of that, the previous week’s high at $1,683 could come to the rescue of bulls.”

See – US CPI Preview: Forecasts from 13 major banks, inflation coming down only slowly

Bank of Japan (BoJ) Governor Haruhiko said on Thursday, he told Prime Minister Fumio Kishida that they will conduct monetary easing to achieve the price target in tandem with wage growth.

Additional quotes

Market reaction

At the time of writing, USDJPY is consolidating its recovery at around 146.30, still down 0.10% on the day.

Open interest in natural gas futures markets resumed the uptrend and went up by around 1.2K contracts on Thursday according to preliminary readings from CME Group. On the other hand, volume dropped for the second session in a row, this time by nearly 40K contracts.

Natural Gas: Another drop below $5.00 remains in store

Prices of natural gas added to Tuesday’s losses and broke below the $6.00 mark on Wednesday. The strong drop was accompanied by increasing open interest and put the likelihood of further losses back on the radar in the near term. Against that, the commodity could extend the decline further and revisit the October low at $4.75 per MMBtu in the short term.

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

- EUR/USD: EUR amounts        

• 0.9800 1.25b
• 0.9815-25 711m
• 0.9850 310m
• 0.9860-70 1.4b
• 0.9900 1.33b
• 0.9925-35 448m
• 0.9950-55 1.15b
• 0.9990-00 2.59b
• 1.0015-25 861m
• 1.0055-60 611m
• 1.0065-75 705m
• 1.0090-00 1.85b

- GBP/USD: GBP amounts        

• 1.1400 309m
• 1.1450 787m
• 1.1600 572m

- USD/JPY: USD amounts                     

• 145.00 1.02b
• 146.00-05 665m
• 146.50 381m
• 147.00 1.36b
• 147.50 320m
• 148.00 480m

- USD/CHF: USD amounts        

• 1.0000 460m
• 1.0125-30 280m

- AUD/USD: AUD amounts  

• 0.6500 651m
• 0.6530 229m
• 0.6600 375M

- USD/CAD: USD amounts       

• 1.3400 663m
• 1.3680 748m

- EUR/GBP: EUR amounts        

• 0.8725 431m
• 0.8750 352m
• 0.8790-00 615m

- EUR/JPY: EUR amounts

• 145.00 352m

The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) data on Thursday, November 10 at 13:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of 13 major banks regarding the upcoming US inflation print.

Headline CPI is expected to edge lower to 8% in October from 8.2% in September. The Core CPI, which excludes volatile food and energy prices, is forecast to retreat to 6.5% on a yearly basis from 6.6%. On a monthly basis, the CPI is expected to rise by 0.6% while the Core CPI is expected to have advanced by 0.5% last month, which is below September's 0.6% read. 

Commerzbank

“We expect a MoM increase of 0.7% (overall), while the core index excluding energy and food is likely to have risen by a slightly smaller 0.5%, although this would again be a very strong increase. However, since prices had increased even more in October 2021, the YoY rates would then fall slightly from 8.2% to 8.0% and from 6.6% to 6.5%, respectively. The October inflation report should fuel cautious optimism about the inflation outlook and support speculation of a somewhat slower pace by the Fed going forward. We expect a hike of only 50 bps at the next Fed meeting followed by two steps of 25 bps each at the beginning of 2023.”

Danske Bank

“We are looking for another high print at +0.7% MoM / +8.0% YoY.”

TDS

“Headline inflation likely ticked up to 0.6% MoM from September's 0.4% print. Core prices likely slowed modestly in Oct but to a still strong 0.4% MoM pace. Shelter inflation likely remained the key wildcard, though we look for used vehicle prices to retreat sharply. Importantly, gas prices likely shifted from offering relief to the CPI in recent months to contributing to it in Oct. All told, our MoM forecasts imply 7.9%/6.5% YoY for total/core prices.”

Deutsche Bank

“We believe energy will boost the headline (DB forecast at +0.62% vs. +0.39% previously.). Last month's core surprised on the upside (+0.6% MoM, vs +0.4% consensus) so this month’s reading will get the most focus (DB at +0.46% vs. +0.58% previously.). In terms of YoY, We expect headline to dip -0.2pp and core -0.1pp to 8.0% and 6.5%, respectively.”

RBC Economics

“The next inflation reading from the US will still be way too high to prevent another round of interest rate hikes. YoY consumer price growth is expected to edge lower, to 8.0% in October from 8.2% in September. But that is despite an expected large 0.7% MoM increase.”

NBF

“Rising gasoline prices, combined with another significant rise in the cost of food, could translate into a 0.7% gain for the headline index. Despite this increase, the 12-month rate could still come down from 8.2% to 8.1%, pulled down by a sizeable negative base effect. The core index, meanwhile, may have continued to be supported by rising rent prices and advanced 0.5% on a monthly basis. The YoY figure could remain unchanged at 6.6%.”

ING

“The focus is on the MoM core (ex-food and energy) number. Over the past six months, we have had one 0.7%, four 0.6% and one 0.3% print. We need to see numbers closer to 0.2% to bring the annual rate down toward the 2% target over time. The consensus right now is for 0.5% next week, which is also our prediction. There is a second bite of the cherry ahead of the December FOMC meeting on 14 December given November CPI is published on 13 December. Nonetheless, if we get a downside surprise we could see markets looking to price in a greater chance of a 50 bps December hike and possibly a slightly lower terminal rate.”

ANZ

“We expect US core CPI to rise by 0.4% MoM in October. Higher energy and food prices should result in headline inflation increasing by 0.7%. There are encouraging signs that price pressures are easing in some goods and services, but they remain too elevated. The cost of new rentals is easing, new and used car prices are softening, and health insurance premiums are set to fall from October. Wage growth looks to have peaked as the Employment Cost Index has eased across multiple industries in Q3. However, wage growth remains well in excess of what is needed to get 2% inflation. Although the Fed may soon slow the pace of its tightening, there remains much more work to be done as it remains singularly focused on inflation.”

CIBC

“The relief from higher prices at the pump ended in October, as prices climbed into mid-month, with OPEC+ announcing supply curtailments. Combined with broad price pressures in other categories, the total CPI likely accelerated to 0.7% on the month, leaving the annual rate of inflation lower at 8.0%. Excluding food and energy, core prices likely remained heated with a 0.5% gain on the month, reflecting continued pressure in the shelter price index as leases reset at higher rates, lagging housing market developments. High demand for other services likely added to that pressure, however, some easing in core goods prices could have been masked by the headline, as industry gauges of used car prices have fallen along with the fading of supply chain issues in that sector. We are in line with the consensus and market reaction should therefore be limited.”

BMO

“We expect both headline (+0.7%) and core (+0.5%) to print uncomfortably high monthly CPI readings, keeping the former at 8.0% YoY, and the latter at 6.6% YoY.”

Citibank

“After two months of strong 0.6% MoM increases in core CPI, we expect a somewhat more modest increase of 0.43% MoM in October. Meanwhile, headline CPI should rise 0.6% MoM in October, the strongest headline increase since June as retail gas prices rose again on average throughout the month.”

Wells Fargo

“While the headline index is expected to slip to 8.0% YoY, we look for the monthly gain to strengthen to 0.6%. We expect to see a rebound in the price of gasoline and a still-high, albeit moderating, rate of food inflation drive the headline increase. Core inflation is likely to slow a touch, but remain uncomfortably high with a 0.5% monthly increase. While softer core inflation in October, if realized, would indicate that inflation is at least no longer worsening, a return to the Fed's 2% target remains a long way off and will keep the Fed in tightening mode for some time.”

BofA

“Headline CPI likely increased by 0.5% MoM in October, owing in part to the first increase in energy prices in four months. On a YoY basis, headline inflation should fall from 8.2% in October to 7.8%. Core CPI, meanwhile, should moderate from 0.6% MoM to 0.4% MoM. This would result in YoY inflation falling from 6.6% to a still elevated 6.4%.”

• USDCHF remains pressured at one-month low, down for the fifth consecutive day.
• US Dollar drops amid mixed Fedspeak, softer yields.
• Markets remain dicey as S&P 500 Future print mild gains, Asian stocks track Wall Street’s losses.
• Traders brace for a softer US CPI, a surprise can recall buyers.

USDCHF takes offers to refresh the intraday low near 0.9825 during the early hours of Thursday’s European session. In doing so, the Swiss Franc (CHF) pair prints a five-day losing streak as it approaches the lowest levels since October 06, marked the previous day.

The quote’s latest weakness could be linked to the market’s hopes of softer US inflation data for October, as well as the recently downbeat comments from the US Federal Reserve (Fed) officials.

That said, Minneapolis Federal Reserve (Fed) President Neel Kashkari recently mentioned “Some things are out of our control on inflation.” Previously, New York Federal Reserve (Fed) President John Williams mentioned that the relatively stable long-term inflation expectations are good news. On the same line, Richmond Fed President Thomas Barkin also mentioned that the Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take.

It should be noted that comments suggesting an absence of the need for aggressive rate hikes from the monetary policymakers of Australia, New Zealand and Japan also recently favored the market sentiment and weighed on the USDCHF prices. Furthermore, a slight decline in China’s covid numbers and Russia’s retreat from Kherson exerted additional downside pressure on the US Dollar.

Earlier in the week, Swiss National Bank (SNB) Chairman Thomas Jordan said, “Our monetary policy decisions are not based exclusively on our inflation forecast.” The policymaker also mentioned that they are also experimenting with machine-learning models that are trained using a large set of economic and alternative indicators.

It’s worth noting that the fears of global recession and the US political gridlock, as well as China’s covid woes, underpinned the previous day’s tepid rebound.

Against this backdrop, the US Treasury yields remain pressured while the S&P 500 futures print mild gains. Further, the Asian equities trade mixed whereas the US Dollar Index (DXY) reverse the previous day’s rebound from the two-month low.

Moving on, US Consumer Price Index (CPI) for October, expected to ease to 8.0% YoY from 8.2% prior, appears the key catalyst for the USDCHF traders amid chatters over the easy Fed rate hike in December.

Also read: US October CPI Preview: US Dollar to weaken on a CPI-inspired risk rally

Technical analysis

Unless trading successfully beyond the previous support line from late September, around 0.9890 by the press time, USDCHF remains on the way to test the six-week low near 0.9740.

• USDJPY comes under some selling pressure on Thursday amid a modest USD weakness.
• The Fed-BoJ policy divergence should act as a tailwind and help limit losses for the pair.
• Traders also seem reluctant and prefer to wait for the release of the crucial US CPI report.

The USDJPY pair struggles to capitalize on the previous day's goodish rebound from the 145.15-145.10 support zone, or a nearly two-week low and meets with a fresh supply on Thursday. The pair remains on the defensive through the early European session and is currently placed near the daily low, just above the 146.00 round figure.

A modest US Dollar downtick, amid some repositioning trade ahead of the key US macro data, turns out to be a key factor prompting some selling around the USDJPY pair. The downside, however, remains cushioned as traders seem reluctant to place aggressive bets ahead of the latest US consumer inflation figures, due later this Thursday. The crucial US CPI report will play an important role in determining the Fed's policy tightening path, which should influence the near-term USD price dynamics and provide a fresh directional impetus to the major.

Nevertheless, the markets are still pricing in the possibility of at least a 50bps Fed rate hike move in December. In contrast, the Bank of Japan, so far, has shown no intentions to raise interest rates. Moreover, the BoJ remains committed to guiding the 10-year bond yield at 0%. In fact, BoJ Governor Haruhiko Kuroda reiterated on Thursday that the central bank must continue to underpin a fragile economic recovery with loose monetary policy. Kuroda added that economic uncertainty is extremely high and deeper negative rates are an option if needed.

This marks a big divergence in comparison to a more hawkish Fed and supports prospects for the emergence of some buying around the USDJPY pair. Furthermore, the fact that the BoJ chief brushed aside hopes for any direct forex market intervention to safeguard the domestic currency adds credence to the positive bias. Hence, any subsequent slide might continue to attract some buyers and is more likely to remain limited, at least for the time being. That said, a convincing break below the 145.00 psychological mark will negate the constructive outlook.

Technical levels to watch

Considering advanced prints from CME Group for crude oil futures markets, traders added around 4.3K contracts to their open interest positions after two daily builds in a row on Wednesday. Volume followed suit and advanced for the second straight session, this time by nearly 144K contracts.

WTI could slip back to $82.10

Prices of the barrel of WTI extended the weekly leg lower on Wednesday amidst increasing open interest and volume. That said, a deeper pullback remains well on the cards in the very near term and with the next target of note at the weekly low at $82.10 (October 18).

CME Group’s flash data for gold futures markets noted open interest rose for the third session in a row on Wednesday, this time by more than 3K contracts. Volume, instead, partially reversed the previous build and shrank by around 67.4K contracts.

Gold: Next on the upside comes $1,730

Prices of the ounce troy of gold charted new highs on Wednesday before ending the session in the negative territory. The downtick was on the back of rising open interest and could allow for further correction in the very near term. The continuation of the upside, in the meantime, continues to target the $1,730 region, or October high.

• GBPJPY grinds higher around intraday top, snaps two-day downtrend.
• Symmetrical triangle, 200-HMA challenge immediate recovery despite firmer oscillators.
• Sellers need validation from 165.00 to aim for previous monthly low.

GBPJPY seesaws around the intraday high as buyers struggle to defend the first daily gains in three heading into Thursday’s London open. In doing so, the cross-currency pair makes rounds to 166.60-70 of late.

That said, the quote’s latest rebound could be linked to its bounce off the one-week-old ascending trend line, as well as bullish MACD signals and firmer RSI, not overbought.

However, a horizontal area comprising multiple hurdle marked since November 03, as well as the 100-HMA, restrict the GBPJPY pair’s immediate upside between 167.20 and 167.30.

Even if the pair manage to cross the 167.30 resistance, the monthly resistance line and the 200-HMA, respectively around 167.80 and 168.30, could challenge the quote’s additional north-run.

It’s worth noting that the weekly high near 169.10 acts as an extra filter to the north.

On the flip side, GBPJPY sellers will wait for a clear downside break of the aforementioned weekly support line, close to 166.00 at the latest, to retake control.

Following that, the monthly low near 165.10 and late October’s trough near 165.00 could challenge the bears before directing bears toward the previous month’s bottom of 159.73.

During the fall, the early August swing high of around 164.00 and the 160.00 round figure could offer intermediate halts.

GBPJPY: Hourly chart

Trend: Limited upside expected

• Aussie bulls are weak despite a recovery in risk-off mood as Australian consumer inflation expectations soar.
• An establishment of the major below the 200-EMA may activate a bearish reversal.
• The RSI (14) has shifted into the bearish range which signals that the downside momentum is active.

The AUDUSD pair is underperforming against other risk-perceived currencies after a higher-than-projected release of consumer inflation expectations in Tokyo. The asset is hovering near the round-level support of 0.6400 in the early European session and has diverged to a negative correlation with US Treasury yields.

The 10-year US Treasury yields are continuously refreshing day’s low and are trading below 4.07%, at the press time. Meanwhile, the US dollar index (DXY) has refreshed its day’s low at 110.17 amid a recovery in positive market sentiment.

On an hourly scale, the asset has witnessed a steep fall after failing to sustain above the horizontal resistance placed from October 27 high at 0.6522. The major is hovering around the 200-period Exponential Moving Average (EMA) at 0.6427. This could be a make or a break move as an establishment below the mighty 200-EMA will trigger a bearish reversal.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which indicates that the downside momentum is active.

The Greenback bulls will remain in a dominant position if the asset drops below Monday’s low at 0.6406, which will drag the asset towards October 31 low at 0.6368. A slippage below the latter will exploit the asset to display more downside to near November 3 low at 0.6272.

On the flip side, a break above Tuesday’s high at 0.6551 will drive the asset towards the round-level resistance at 0.6600, followed by September 21 high at around 0.6700.

AUDUSD hourly chart

• Gold price reverses the previous day’s pullback from monthly high amid softer DXY.
• Markets remain dicey ahead of US CPI for October, central bankers’ comments underpin recent cautious optimism.
• Downbeat yields weigh on greenback amid hopes of softer US inflation, slower Fed rate hike in December.

Gold price (XAUUSD) extends the early-day recovery to $1,711 as European traders roll up their sleeves for the key US inflation data on Thursday. With this, the XAUUSD reverse the previous day’s U-turn from the highest levels in nearly two months. However, a technical hurdle surrounding $1,720 appears crucial for the bullion's further upside.

The metal’s latest run-up could be linked to the US dollar’s broad weakness amid multiple comments/updates from the central bankers of the US, Japan and Australia, not to forget from New Zealand.

While the US policymakers convey economic fears and recent data to suggest the need for softer rate increases, Bank of Japan (BOJ) Governor Haruhiko Kuroda defends the easy money policy in testimony to the Diet, the Japanese parliament. Elsewhere, officials from the Reserve Bank of Australia (RBA) also sound a bit relaxed and suggest less urgency for rate increases whereas the Reserve Bank of New Zealand’s (RBNZ) internal report regretted the delay in policy action.

Elsewhere, a slight decline in China’s covid numbers and Russia’s retreat from Kherson also appeared to have weighed on the US Dollar, as well as favored the XAUUSD buyers.

Amid these plays, the US Treasury yields remain pressured while the S&P 500 futures print mild gains. Further, the Asian equities trade mixed whereas the US Dollar Index (DXY) reverse the previous day’s rebound from the two-month low.

Looking forward, softer DXY can favor the gold buyers as they approach the $1,720 key hurdle. However, a mild weakness in the US inflation data is already priced in and hence a surprisingly strong CPI for October won’t hesitate to pull the quote back below $1,700. Forecasts suggest that the headline CPI will ease to 8.0% YoY from 8.2% prior while the more important Core CPI may remain mostly unchanged near 6.5%, compared to 6.6% previous readings.

Technical analysis

Gold’s refrain from extending the previous day’s pullback below the $1,700 joins the bullish MACD signals and firmer RSI (14) direct buyers towards the $1,720 key hurdle comprising the 100-DMA and a two-month-old resistance line.

The metal’s upside past $1,720, however, remains bumpy as tops marked in October and September, respectively near $1,730 and $1,735, could challenge the bulls.

Meanwhile, pullback moves may aim for the 38.2% Fibonacci retracement level of August-September downside, close to $1,688.

However, the XAUUSD bears remain unconvinced beyond the $1,673-75 support confluence, encompassing the 50-DMA and previous resistance line from August.

Overall, gold price appears bullish but the room towards the north is limited.

Gold price: Daily chart

Trend: Further upside expected

• EURJPY has resurfaced after dropping to near 146.50 as bets escalate for hawkish ECB policy.
• It is premature to determine Eurozone’s interest rate peak as the current inflation rate is far from target.
• An end to BOJ’s easy policy seems not in vision as the administration has announced more stimulus packages.

The EURJPY pair has witnessed fresh demand after declining gradually to near 146.40 in the Tokyo session. The cross may turn the trend tide towards the bullish trajectory after overstepping the immediate resistance of 146.70. The positive risk impulse is gaining traction as S&P500 futures have rebounded significantly. Also, the long-term US Treasury yields are facing downside pressure led by rising content for a lower rate hike by the Federal Reserve (Fed) than the prior extent.

The Shared Currency bulls are gaining strength as bets for a hawkish monetary policy by the European Central Bank (ECB) have accelerated. ECB President Christine Lagarde may opt for a continuation of bumper rate hikes as Harmonized Index of Consumer Prices (HICP) is hovering in double-digit figures.

A survey conducted by the ECB to gauge consumer expectations for inflation provided that consumers still see inflation at 3% in three years and 5.1% over the next 12 months.

ECB Governing Council member Martins Kazaks preferred not to dictate a peak for the interest rate in an interview in Riga, reported Bloomberg. He cited that Borrowing costs “are still way below where they should be” and must move to levels that equate to monetary tightening, not just a withdrawal of stimulus.

Meanwhile, in Japan, Bank of Japan (BOJ) Governor Haruhiko Kuroda has clarified that it is premature to debate an exit of loose policy by asking about an end of ultra dovish stance on interest rates. It is worth noting that the administration has announced back-to-back stimulus packages this week to spurt the aggregate demand. Therefore, the chances for termination of an ultra-dovish monetary policy seem a little.

• EURUSD picks up bids to refresh intraday high, reversing Wednesday’s losses.
• Two-month-old horizontal resistance area challenge bulls.
• Previous support line from Monday, bearish MACD signals restrict immediate upside.
• Sellers need validation from six-week-old support line to refresh yearly low.

EURUSD braces for the fourth weekly uptrend as it refreshes the intraday high near 1.0035 during the early Thursday morning in Europe. In doing so, the major currency pair seesaws around the key hurdle to the north while flashing signals that the buyers are running out of steam.

That said, the quote’s latest rebound parted ways from the bearish MACD signals while rising towards the four-day-old support-turned-resistance line near 1.0065.

Even if the EURUSD buyers manage to cross 1.0065, a horizontal area comprising multiple levels marked since early September, between 1.0100 and 1.0110, could challenge the further upside.

It’s worth noting that the RSI (14) is near the overbought conditions and hence suggests further upside room, which in turn highlights the 1.0100-10 zone as the key resistance.

Should the EURUSD prices rally beyond 1.0110, a quick upside towards the September month’s peak of 1.0200 can’t be ruled out.

Alternatively, pullback moves could aim for the early October’s swing high near the parity before directing the bears towards the 61.8% Fibonacci retracement of September 12-28 downside, around 0.9945.

Even so, the EURUSD sellers remain unconvinced before marking a clear break of an upward-sloping support line from September 28, close to 0.9770 at the latest.

EURUSD: Four-hour chart

Trend: Limited upside expected

• Asian stocks have been prey to sheer volatility ahead of the US inflation data.
• Massive sell-off at Facebook's helm brought a sell-off in S&P500.
• Long-term US yields have tumbled in anticipation of a 50 bps rate hike in the December policy meeting.

Markets in the Asian domain have witnessed an intense sell-off after fetching negative cues from S&P500. A significant recovery in the risk-off market mood has forced investors to stay away from equities till the release of the US Consumer Price Index (CPI) and the outcome of mid-elections outcome.

At the press time, Japan’s Nikkei225 tumbled 1.05%, ChinaA50 dropped 0.43%, Hang Seng plummeted 1.87%, and Nifty50 surrendered 0.70%.

Massive lay-off announced at Facebook dented sentiment of market participants. This has triggered the risk of a slowdown in overall demand. Well, US equities are facing the consequences of accelerating interest rates by the Federal Reserve (Fed). Also, a majority win of Republicans would snap some command from Democratic in passing bills and laws.

The US dollar index (DXY) is hovering around the day’s low at 110.20 as investors are restricting themselves ahead of the US CPI for making informed decisions. The 10-year US Treasury yields have tumbled to 4.07% as odds are not favoring a rate hike of 50 basis points (bps) in December monetary policy by the Federal Reserve (Fed). Going forward, the extent of deviation in inflationary pressure will provide meaningful cues about the likely monetary policy action by the Fed.

Meanwhile, Nikkei225 has witnessed selling pressure despite the announcement of economic stimulus packages this week. To spurt the aggregate demand, the Japanese administration has decided to provide stimulus budgets and hike taxes for big pockets.

On the oil front, oil prices have nosedived by more than 3% after the head of the International Energy Agency (IEA) Fatih Birol slammed OPEC+’s decision to cut oil production as it might worsen the outlook for developing countries that are sliding towards recession, reported Bloomberg. He further added that the move is fueling inflation, especially in developing countries, and may require a “rethink,”

NZDUSD fails to cheer the US dollar weakness during early Thursday as it stays pressured around the intraday low of 0.5865 heading into the European session.

In doing so, the Kiwi pair takes clues from the options market, as well as downbeat signals from the Reserve Bank of New Zealand (RBNZ).

That said, the one-month RR of the NZD/USD pair, the key options market gauge, braces for the biggest weekly loss in six while printing the -0.025 figure. It’s worth noting that the RR is the difference between the call options and the put options and hence indicates the market’s bias.

It should be noted that the daily RR, however, snaps a two-day downtrend with a +0.065 figure and challenges the NZDUSD bears.

On a different page, Reuters said, “The New Zealand central bank's dramatic easing in monetary policy was largely warranted over the COVID-19 pandemic, but with hindsight policy tightening should have occurred earlier in 2021, an internal report released by the bank on Thursday found.”

Also read: NZDUSD Price Analysis: Bears in control with eyes on daily trendline

• USDCAD grinds higher after bouncing off six-week low the previous day.
• 100-HMA breakout, bullish MACD signals keep buyers hopeful.
• 200-HMA act as extra filter to the north, sellers may wait for 1.3460 break for fresh entry.

USDCAD struggles to defend buyers around 1.3540 heading into Thursday’s European session. In doing so, the Loonie pair approaches the one-week-old horizontal resistance area following its rebound from the 100-HMA.

Given the bullish MACD signals supporting the 100-HMA breakout, the USDCAD prices are likely to cross the immediate hurdle near 1.3550. However, the 200-HMA surrounding 1.3580 challenges the pair buyers.

It should be noted that the USDCAD pair’s successful trading above 1.3580 enables the buyers to aim for a monthly high of near 1.3810.

Meanwhile, the 100-HMA restricts the quote’s immediate downside to around 1.3510.

Following that, an upward-sloping trend line from Tuesday, around 1.3455, precedes the latest trough near 1.3385 to challenge the USDCAD bears.

Should the pair remains weak past 1.3385, highs marked during July 2022, around 1.3225, can’t be ruled out.

Overall, USDCAD remains on the bull’s radar but further upside appears limited unless the quote breaks the 200-HMA hurdle.

USDCAD: Hourly chart

Trend: Further weakness expected

• GBPUSD takes the bids to refresh intraday high, extends bounce off 50-DMA.
• High hopes form UK PM Sunak underpin recovery despite pessimism surrounding British property markets and hirings.
• Mixed Fedspeak, downbeat US inflation expectations favor buyers amid sluggish session.
• US CPI for October could entertain traders ahead of British GDP data, limited upside expected.

GBPUSD renews its intraday high around 1.1410 amid a broad US dollar weakness early Thursday as traders prepare for the all-important US Consumer Price Index (CPI) for October. In doing so, the Cable pair rebounds from the 50-DMA while re-approaching a two-month-old descending resistance line.

The quote’s latest run-up could be linked to the downbeat US Treasury yields following the comments from Minneapolis Federal Reserve (Fed) President Neel Kashkari. Also likely to have favored the pair buyers are the hopes of the UK’s new government led by Prime Minister (PM) Rishi Sunak.

That said, the US 10-year Treasury yields print a three-day downtrend around 4.077% by the press time, which in turn pulled back the US Dollar Index (DXY) to reverse the previous day’s bounce off 100-DMA.

Fed’s Kashkari mentioned, “Some things are out of our control on inflation.” Previously, New York Federal Reserve (Fed) President John Williams mentioned that the relatively stable long-term inflation expectations are good news. On the same line, Richmond Fed President Thomas Barkin also mentioned that the Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take.

At home, UK PM Sunak will be the first British leader in 15 years to attend the British-Irish Council summit. The Tory leader will also meet his Scottish and Welsh counterparts to rebuild relations on Thursday. Additionally, the UK government is up for cutting the surcharge on bank profits to 3% to keep the industry competitive, per Bloomberg.

Alternatively, a survey from the UK’s Recruitment and Employment Confederation (REC) said, “With the Bank of England now warning of the risk of the longest recession in at least a century, permanent placements fell for the first time since February 2021.” On the same line are the fears surrounding the British property market amid the first fall in the UK housing prices in 28 months during October.

Amid these plays, the US stock futures are mildly bid but the Asia-Pacific equities are sluggish amid anxiety ahead of US CPI. Forecasts suggest that the headline CPI will ease to 8.0% YoY from 8.2% prior while the more important Core CPI may remain mostly unchanged near 6.5%, compared to 6.6% previous readings. Given the hopes of softer inflation, the GBPUSD prices may witness further upside amid downbeat inflation data. However, the fears of a recession in the UK may keep the upside limited ahead of Friday’s British Gross Domestic Product (GDP) for the third quarter (Q3), expected -0.5% QoQ versus 0.2% prior.

Technical analysis

Unless providing a daily closing beyond the two-month-old resistance line, close to 1.1600 by the press time, the GBPUSD bears are likely to retest the 50-DMA support near 1.1320.

• USDINR is hovering around the critical hurdle of 81.60 amid the risk-off market mood.
• Volatility ahead of the US inflation release has underpinned the Greenback against the Indian Rupee.
• A decline in consumer spending and gasoline prices could impact US inflation figures.

The USDINR pair is attempting a break above the immediate hurdle of 81.60 in the Tokyo session. The asset is gaining bids as the Indian rupee bulls retreated despite a subdued performance by the US dollar index (DXY). Escalating anxiety ahead of the US inflation data release has brought a sense of pessimism in the risk-perceived currencies.

Meanwhile, the alpha generated by the 10-year US Treasury yields has witnessed immense selling pressure. The returns on long-term US government bonds are continuously refreshing their day’s low as a slowdown in the rate hike pace by the Federal Reserve (Fed) looks imminent. The 10-year US Treasury yields are trading at 4.07%, 1.62% lower from its previous close, at the time of writing.

The deviation between current interest rates and the proposed terminal rate is extremely low. However, Economists at ABN AMRO carry a contrary view. They predicted that the Fed will shift its peak higher than the projected terminal rate to 5% (with a 25 bps rate hike in the first two monetary policies in CY2023 after a 50 bps rate hike in December).

Talking over the US inflation data, projections are pointing to a decline in the headline Consumer Price Index (CPI) to 8.0% and core CPI to 6.5%. A decline in consumer spending in the third quarter of CY2022 to 1.4% vs. the prior release of 2.0% might impact the inflation figures. A slowdown in retail demand is a leading indicator, which indicates that the price growth will start declining significantly.

 On the Indian rupee front, price pressures have remained higher than the desired target of 4% in the past three quarters consecutively. Therefore, the Reserve Bank of India (RBI) will likely announce a jumbo rate hike to curtail the roaring inflation.

 Economists at Goldman Sachs have escalated their interest rates projections to 50 bps, instead of 35 bps, at its monetary policy committee (MPC) meeting next month. Also, RBI Governor Shaktikanta Das may elevate interest rates further by 35 bps in February 2023 vs. the prior projections of 25 bps.

• USDJPY takes offers to reverse the previous day bounce off a two-week low.
• Yields remain sidelined amid downbeat US inflation expectations, mixed Fedspeak.
• BOJ’s Kuroda defends easy money policy, hopes slowdown in consumer inflation.
• US CPI for October will be crucial as downbeat forecasts tease bears.

USDJPY sellers return to the table, after the previous day’s absence, amid bearish bias for the US inflation and downbeat Fedspeak. Also exerting downside pressure on the Yen pair are the sluggish yields and the latest comments from Bank of Japan (BOJ) Governor Haruhiko Kuroda. That said, the quote drops towards the intraday low surrounding 146.10 during early Thursday morning in Europe, fading Wednesday’s rebound from the lowest levels in a fortnight.

BOJ’s Kuroda reiterated his favorite speech in testimony to Diet, the Japanese parliament, while defending the Japanese central bank’s easy money policy. The BOJ Boss also turned down the hopes of any direct forex market intervention by the central bank to safeguard the national currency.

Elsewhere, the US Treasury yields remain mixed after declining in the last two consecutive days. While portraying the mood of the bond traders, the 10-year Treasury yields pause the two-day downtrend near 4.10% whereas the US two-year bond coupons print the first daily gains, so far, in three around 4.60% at the latest.

On the other hand, Minneapolis Federal Reserve (Fed) President Neel Kashkari recently mentioned, “We will do what we need to do to bring inflation back down.” Before him, New York Federal Reserve (Fed) President John Williams previously mentioned that the relatively stable long-term inflation expectations are good news. On the same line, Richmond Fed President Thomas Barkin also mentioned that the Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take.

It’s worth noting that the US inflation expectations, as per the 5-year and 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, also weigh on the USDJPY prices.

Furthermore, a cautious optimism portrayed by the S& 500 Futures and stocks in the Asia-Pacific region also help the USDJPY bears to reverse the previous day’s gains. Headlines surrounding Russia also seemed to have favored the latest cautious optimism as Moscow appears to retreat from the only Ukrainian regional capital captured, namely Kherson. Furthermore, President Vladimir Putin is less likely to attend the upcoming G-20 summit in Bali, starting on November 15. Additionally, a slight reduction in China’s daily covid numbers, from 1,294 to 1,133 in Mainland, joins the receding hopes of Democrats to gain major power share in the US midterm elections to help favor the optimists.

Having witnessed a tumultuous week so far, USDJPY traders are likely preparing for the pair’s further downside amid hopes that easy US Consumer Price Index (CPI) for October could back the softer rate hikes in December. Forecasts suggest that the headline CPI will ease to 8.0% YoY from 8.2% prior while the more important Core CPI may remain mostly unchanged near 6.5%, compared to 6.6% previous readings.

Also read: US October CPI Preview: US Dollar to weaken on a CPI-inspired risk rally

Technical analysis

Although the 50-DMA defends USDJPY buyers around 145.50, the upside momentum needs to cross the three-week-old resistance line, around 147.00 by the press time, to reverse the latest bearish trend.

• Gold price has rebounded from $1,702.00 as yields are continuously facing downside pressure.
• Rising anticipation for a slowdown in Fed’s policy tightening measures has kept US yields on tenterhooks.
• A slowdown in consumer spending and gasoline prices may trim the US inflation figures.

Gold price (XAUUSD) has witnessed fresh demand from around $1,702.00 in the Tokyo session as the US dollar index (DXY) is displaying a subdued performance. The DXY is striving for a break above the intraday hurdle of 110.40. The precious metal has picked bids as the risk profile has turned mildly positive amid a sheer decline in the returns from US government bonds.

Rising anticipation for a slowdown in policy tightening measures by the Federal Reserve (Fed) has dragged the 10-year US Treasury yields below 4.09%. S&P500 futures have attempted recovery in Tokyo after a sell-off on Wednesday. Volatility ahead of the US mid-term elections outcome, and the announcement of a mass lay-off of employees at Facebook now punished the US 500-stock basket.

Now, investors are keeping an eye on the US inflation data-the show-stopper event. A decline in consumer spending in the third quarter of CY2022 and a significant fall in gasoline prices are pointing to a downside in the inflation figures. The headline inflation could trim to 8.0% while the core Consumer Price Index (CPI) could drop a little lower by 10 bps to 6.5%.

Gold technical analysis

On an hourly scale, the gold price is oscillating in a range of $1,702.10-1,722.40 after a sheer upside move. The precious metal is still holding the 50-period Exponential Moving Average (EMA) at $1,698.40, which signals that the upside is intact.

The Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 after remaining in the bullish range, which indicates that the upside momentum has exhausted but that doesn’t warrant a bearish reversal.

Gold hourly chart

• AUDUSD has slipped marginally to near 0.6400 as Australian consumer inflation expectations sky-rocketed.
• US yields are facing pressure led by falling bets for a fifth consecutive 75 bps rate by the Fed.
• RBA Bullock is of the view that the central bank has already rates aggressively.

The AUDUSD pair has sensed selling pressure at 0.6440 and has slipped to near 0.6410 in the Tokyo session. The asset has faced a minor sell-off despite a subdued performance by the US dollar index (DXY). Meanwhile, the risk-on profile has attempted a rebound as S&P500 futures have displayed signs of recovery after a bearish Wednesday.

The DXY is failing to cross the immediate hurdle of 110.40. Meanwhile, the 10-year US Treasury yields are continuously facing downside pressure and have dropped below 4.09%. Declining chances for a fifth consecutive 75 basis point (bps) rate hike, as per the CME FedWatch tool, is weighing pressure on returns generated by US government bonds.

It seems that the release of a higher-than-projected Australian Consumer Inflation Expectation has impacted Aussie bulls. The University of Melbourne released the Australian Consumer Inflation Expectations at 6.0% against the projections of 5.7% and the prior release of 5.4%. Inflationary pressures in the Australian economy are skyrocketing and the Reserve Bank of Australia (RBA) has trimmed the pace of hikes in the Official Cash Rate (OCR).

RBA Governor Philip Lowe might face problems in containing the price pressures as the current pace in rate hikes is not in the status quo with other global central banks. On the contrary, RBA Deputy Governor Michele Bullock cited that, “we have already raised rates aggressively.” However, the gate for faster rate hikes is open if inflation doesn’t come down as expected.

On Thursday, the US inflation figures will remain in the spotlight. As per the preliminary estimates, the headline US CPI will decline to 8.0% vs. the prior release of 8.2%. Also, the core CPI is seen marginally lower at 6.5%.

• EURUSD struggles after reversing from two-month high, retreats of late.
• Mixed headlines surrounding key risk catalysts, mostly dovish Fedspeak keep buyers hopeful.
• US inflation expectations drop but those from Eurozone stay firmer of late.
• Bulls can cheer a likely softer US CPI for October if ECB Bulletin paint recession fears with a lighter shade.

EURUSD aptly portrays the market’s anxiety ahead of the key US inflation data during early Thursday. In doing so, the major currency pair fades the late Wednesday’s corrective bounce off 0.9992. It’s worth noting that the quote reversed from a two-month high the previous day amid a broad risk-off mood.

That said, the quote’s latest retreat could be linked to the comments from Minneapolis Federal Reserve (Fed) President Neel Kashkari as he said, per Reuters, “We will do what we need to do to bring inflation back down.”

Though, the previous Fedspeak has been dovish and challenged the US dollar buyers as New York Federal Reserve (Fed) President John Williams previously mentioned that the relatively stable long-term inflation expectations are good news. On the same line, Richmond Fed President Thomas Barkin also mentioned that the Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take.

Downbeat US inflation expectations, as per the 5-year and 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, weigh on the US dollar.

On the contrary, the latest European Central Bank (ECB) survey of consumer expectations for inflation stated, “After HICP inflation rose above 2% in July 2021, consumers’ inflation perceptions and expectations started to move upwards too.”

Headlines surrounding Russia also seemed to have favored the latest cautious optimism and probe the EURUSD bears as Russia appears to retreat from the only Ukrainian regional capital captured, namely Kherson. Furthermore, President Vladimir Putin is less likely to attend the upcoming G-20 summit in Bali, starting on November 15. Additionally, a slight reduction in China’s daily covid numbers, from 1,294 to 1,133 in Mainland, joins the receding hopes of Democrats to gain major power share in the US midterm elections to help favor the optimists.

Amid these plays, S&P 500 Futures print 0.20% intraday gains near 3,765, after dropping the most in a week, whereas the US 10-year Treasury yields pause the two-day downtrend near 4.10% at the latest. That said, the Wall Street benchmarks snapped a three-day uptrend the previous day amid fears of US government gridlock, as well as China’s covid woes.

Looking forward, the European Central Bank’s (ECB) monthly Economic Bulletin will be the first catalyst the EURUSD traders should watch amid impending fears of economic slowdown and the policymakers’ readiness for higher rates, as well as the Quantitative Tightening (QT). Following that, US Consumer Price Index (CPI) for October will be crucial as forecasts suggest that the headline CPI will ease to 8.0% YoY from 8.2% prior while the more important Core CPI may remain mostly unchanged near 6.5%, compared to 6.6% previous readings.

Also read: US October CPI Preview: US Dollar to weaken on a CPI-inspired risk rally

Technical analysis

Despite reversing from a two-month-old resistance line, around 1.0065 by the press time, EURUSD bears need validation from the early October swing high, at 0.9999, to tighten the grips.

Further comments are crossing the wires, via Reuters, from Bank of Japan (BoJ) Governor Haruhiko Kuroda, as he now speaks on the exchange rate value.

Key quotes

Market reaction

The Japanese Yen is finding some support from the above comments, driving USDJPY lower to near-daily lows  of 146.12. The spot is down 0.18% on a daily basis.

Michele Bullock, Deputy Governor at the Reserve Bank of Australia (RBA) and Christopher Kent, Assistant Governor (Financial Markets) are appearing before the Australian parliament's Senate Economics Legislation Committee (Budget Estimates).

Bullock said while responding to the Q&A that “interest rates may have to go a little higher.”

Additional quotes

Market reaction

Amid a cautious market mood, AUDUSD is extending losses toward 0.6400 while digesting the dovish remarks from RBA’s Bullock. The pair is down 0.21% on the day, as of writing.

• Market sentiment improves amid hopes of softer US inflation, mixed headlines from Russia, China.
• S&P 500 Futures pares the biggest daily loss in a week, US 10-year Treasury yields struggle after two-day downtrend.
• Fedspeak keeps promoting higher rates but inflation forecasts, expectations appear helping optimists.
• China reports slight dip in covid cases, US government gridlock looms.

Risk appetite remains sluggish, slightly positive, as traders await the key US inflation data during early Thursday. Mixed headlines surrounding the key risk catalysts and the latest Fedspeak also challenge the sentiment of late.

While portraying the mood, S&P 500 Futures print 0.20% intraday gains near 3,765, after dropping the most in a week, whereas the US 10-year Treasury yields pause the two-day downtrend near 4.10% at the latest. It’s worth noting that the US two-year bond coupons print the first daily gains, so far, in three around 4.60%.

Recently, Minneapolis Federal Reserve (Fed) President Neel Kashkari stated, “We will do what we need to do to bring inflation back down.” However, New York Federal Reserve (Fed) President John Williams previously mentioned that the relatively stable long-term inflation expectations are good news. On the same line, Richmond Fed President Thomas Barkin also mentioned that the Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take.

It should be noted that the softer inflation expectations also underpin the market’s cautious optimism. That said, the US inflation expectations per the 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, dropped to the lowest levels since October 20, to 2.53% versus 2.61% prior. Even so, a bit broader inflation expectations, however, remained a bit less weak as the 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data slid to 2.42% while refreshing the weekly low.

Elsewhere, headlines surrounding Russia also seemed to have favored the latest cautious optimism as Russia appears to retreat from the only Ukrainian regional capital captured, namely Kherson, whereas President Vladimir Putin is less likely to attend the upcoming G-20 summit in Bali, starting from November 15.

It should be noted that a slight reduction in China’s daily covid numbers, from 1,294 to 1,133 in Mainland, joins the receding hopes of Democrats to gain major power share in the US midterm elections to help favor the optimists.

However, a lack of data/events and a light calendar, not to forget indecision over the Fed’s next moves, keeps the traders on their toes ahead of the key US Consumer Price Index (CPI) for October. Market consensus suggests that the headlines US CPI will ease to 8.0% YoY from 8.2% prior while the more important Core CPI may remain mostly unchanged near 6.5%, compared to 6.6% previous readings, during October.

Also read: US October CPI Preview: US Dollar to weaken on a CPI-inspired risk rally

Minneapolis Federal Reserve (Fed) President Neel Kashkari is out with a barrage of comments on the central bank’s inflation outlook, in his appearance ahead of Thursday’s Consumer Price Index (CPI) data release from the United States.

Key quotes

Market reaction

The US Dollar Index is back in the red at around 110.25, down 0.25% on the day. The spot is unperturbed by the above comments.

Michele Bullock, Deputy Governor at the Reserve Bank of Australia, is crossing the wires again, this time accompanied by the Assistant Governor (Financial Markets), Christopher Kent. They are appearing before the Australian parliament's Senate Economics Legislation Committee.

Bullock said previously this week that further increases in interest rates will be required. She said size and timing of rate hikes will depend on the data and wants that inflation is too high, and increasingly broad-based while watching the inflationary impact of rising electricity prices and rents.''

She said in recent trade that she is seeing wider inflation pressure in the economy and that we must raise interest rates to influence demand.

Meanwhile, AUD/USD is trading at 0.6432, flat on the day and within a range of 0.6422 and 0.6436 following a volatile day on Wednesday, suffering a blow on the back of a strong US dollar and yields that rallied due to a soft US Treasury auction. 

• GBPUSD picks up bids to refresh intraday high, pares the biggest daily loss in a week.
• Sluggish MACD, RSI suggests further hardships for buyers unless crossing two-month-old resistance line.
• Ascending trend line from early October adds to the downside filters.

GBPUSD stretches the late Wednesday’s rebound from 50-DMA towards 1.1400 during early Thursday, around 1.1385 by the press time. In doing so, the Cable pair also consolidates the biggest daily slump in one week, marked the previous day.

However, sluggish MACD and RSI (14) conditions challenge the quote’s latest recovery, which in turn highlights the two-month-old descending resistance line, around 1.1600.

Even if the GBPUSD buyers manage to cross the 1.1600 hurdle, the tops marked during October and September, at around 1.1645 and 1.1740 in that order, could restrict the pair’s further advances.

Meanwhile, 50-DMA puts a floor under the GBPUSD prices around 1.1320, a break of which could direct the bears towards an upward-sloping support line from early October, close to 1.1200 by the press time.

It’s worth noting that the monthly low and October’s bottom, respectively around 1.1150 and 1.0925, act as the additional downside filters to watch during the pair’s additional weakness.

Overall, the GBPUSD pair’s trend remains elusive unless it stays between 1.1200 and 1.1600. However, the short-term recovery can’t be ruled out.

GBPUSD: Daily chart

Trend: Limited upside expected

• A Shooting Star formation indicates the availability of significant sellers at elevated levels.
• An oscillating below the 200-EMA indicates that the long-term trend is bearish.
• The RSI (14) is trading in a bearish range, which indicates that the downside momentum is active.

The AUDNZD pair has witnessed a steep fall after facing barricades around 1.0930 in the Tokyo session. The cross has turned sideways after a vertical fall from Wednesday’s high at 1.0970 and is expected to display more weakness ahead.

In the Tokyo session, the University of Melbourne released the Australian Consumer Inflation Expectations at 6.0% against the projections of 5.7%. It seems that a slowdown in the rate hike pace by the Reserve Bank of Australia (RBA) has resulted in higher short-term inflation expectations. Investors are worried that the RBA would remain behind average global interest rates.

On a daily scale, the asset formed a Shooting Star candlestick pattern on Wednesday, which indicates that the upside is capped and investors are using pullback for initiating shorts. The cross is oscillating in an Inverted Flag chart pattern, which results in sheer downside after a breakdown of the consolidation.

The pair is auctioning below the mighty 200-period Exponential Moving Average (EMA) at 1.0090, which indicates that the major trend is bearish.

Also, the Relative Strength Index (RSI) (14) is oscillating in a bearish range of 20.00-40.00, which indicates that the downside momentum is intact.

Going forward, a downside break of Wednesday’s low at 1.0906 will activate the Shooting Star formation and will drag the asset towards Friday’s low at 1.0877, followed by August 25 low at 1.0825.

On the contrary, the Aussie bulls will regain strength if the cross surpasses Wednesday’s high at 1.0971. This will drive the asset toward the psychological resistance of 1.1000 and August 19 low at 1.1046.

AUDNZD daily chart

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.2422 vs. the estimated 7.2456 and the previous 7.2189.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.

Bank of Japan Governor Haruhiko Kuroda said on Thursday that Japan's economy is picking up and is likely to recover as the impact of supply constraints and the pandemic eases. 

Key quotes

Japan's economy is likely to recover as the impact of supply constraints, pandemic eases.
    
Uncertainty regarding Japan's economy is extremely high,
    
Must be vigilant to the impact of fx, market moves on the economy, and prices.
    
BoJ will maintain an easy monetary policy to sustainably, and stably achieve 2% inflation accompanied by wage growth.
    
Japan's consumer inflation is likely to slow back below 2% next fiscal year.

Japan's consumer inflation recently exceeded 2% but that is almost entirely driven by firms passing on rising import costs to consumers.
    
Must leave room for policy response to ensure japan never returns to deflation.
    
We may be seeing slight signs of change in firms' cautious sentiment that was behind prolonged deflation.

More to come...

• USDCAD remains sidelined after rising the most in a month, bouncing off seven-week low.
• Oil bears cheer China’s covid woes, higher inventories at monthly low.
• Cautious optimism defends sellers but challenges to risk, fears of higher inflation keep buyers hopeful.
• US CPI for October, comments from BOC Governor Macklem will be crucial for clear directions.

USDCAD aptly portrays the pre-data/event anxiety as it seesaws near 1.3530 during early Thursday. In doing so, the Loonie pair justifies the market’s cautious mood ahead of the US Consumer Price Index (CPI) for October and a speech from the Bank of Canada (BOC) Governor Tiff Macklem. Also restricting the quote’s latest moves could be the inaction of Canada’s main export item, namely the WTI crude oil.

That said, the quote bounced off the lowest levels in two months the previous day as risk-aversion joined softer oil prices. However, downbeat comments from the US Federal Reserve (Fed) officials and a shift in the sentiment joined the pre-data/event caution to limit the USDCAD moves afterward.

Fears emanating from China’s coronavirus conditions joined the chatters over the US government gridlock, due to the midterm elections, to weigh on the market sentiment the previous day, which in turn favored the USDCAD bulls.

China marked the biggest daily jump in covid numbers in six months and also announced a fresh lockdown in one more district of Guangzhou. On the other hand, a tug-of-war between Democrats and Republicans raises fears of government gridlock.

Elsewhere, the New York Federal Reserve (Fed) President John Williams made some comments on inflation expectations in the text of a speech to be delivered to an audience in Zurich. “Relatively stable long-term inflation expectations are good news,” stated the policymaker. On the same line, Richmond Fed President Thomas Barkin also mentioned that the Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take.

Headlines surrounding Russia also seemed to have favored the latest cautious optimism as Russia appears to retreat from the only Ukrainian regional capital captured, namely Kherson, whereas President Vladimir Putin is less likely to attend the upcoming G-20 summit in Bali, starting from November 15.

Further, the US inflation expectations per the 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, dropped to the lowest levels since October 20, to 2.53% versus 2.61% prior, which in turn exerted downside pressure on the USDCAD prices.

It’s worth mentioning that the fears of less demand from China, the world’s largest commodity user, mainly due to covid, joined the higher weekly oil inventory data to weigh on the oil prices. However, the recently softer US dollar restrict the black gold’s downside.

Moving on, USDCAD traders may witness a sluggish session amid the downbeat forecasts for the US inflation data, as well as amid fears of hearing dovish comments from BOC Governor Macklem.

Technical analysis

Unless providing a daily closing below a three-month-old ascending support line, near 1.3415 by the press time, USDCAD remains on the buyer’s radar.

• AUDUSD bears are still in play on the hourly chart while below the 50% mean reversion level with 0.6400 the figure eyed.
• Bulls are in the backside of the daily trendline which poses risks to the upside.

AUDUSD is trading at 0.6430, flat on the day and within a range of 0.6422 and 0.6436 following a volatile day on Wednesday, suffering a blow on the back of a strong US dollar and yields that rallied due to a soft US Treasury auction. This comes ahead of the US inflation data that will be out today in the US session. Meanwhile, the price is technically meeting a key resistance following a retracement into the 0.6430s, rising from the overnight lows and a slide some 100 pips higher.

AUDUSD daily chart

From a daily perspective, however, the price has been building a bullish outlook on the backside of the trendline, albeit now rubbing up against a new trendline resistance as illustrated above. However, the bearish engulfment could be problematic for the bulls while below 0.6500/16.

AUDUSD H1 chart

Meanwhile, the bears are still in play on the hourly chart while below the 50% mean reversion level and there are prospects of a downside extension to test 0.6400 the figure.

• Gold price remains sidelined inside a bullish chart pattern after reversing from a monthly high the previous day.
• Markets remain cautiously optimistic but a light calendar restricts immediate XAUUSD moves.
• Downbeat forecasts from US CPI, bullish channel keeps gold buyers hopeful.

Gold price (XAUUSD) picks up bids to reverse the previous day’s pullback from a one-month high, mildly bid near $1,707 as traders await the key US inflation data on early Thursday. In doing so, the precious metal justifies downbeat forecasts for the Consumer Price Index (CPI) while also cheering the cautious optimism in the market.

Market consensus suggests that the headlines US CPI will ease to 8.0% YoY from 8.2% prior while the more important Core CPI may remain mostly unchanged near 6.5%, compared to 6.6% previous readings, during October.

On the same line, the US inflation expectations per the 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, dropped to the lowest levels since October 20. That said, the 5-year inflation precursor eased to 2.53% versus 2.61% prior. That said, a bit broader inflation expectations, however, remained a bit less weak as the 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data slid to 2.42% while refreshing the weekly low.

Elsewhere, downbeat Fedspeak and optimism surrounding Russia also seemed to have favored gold buyers.

The New York Federal Reserve (Fed) President John Williams made some comments on inflation expectations in the text of a speech to be delivered to an audience in Zurich. “Relatively stable long-term inflation expectations are good news,” stated the policymaker.

On the same line, Richmond Fed President Thomas Barkin also mentioned that the Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take.

It should be noted that the recently published US statistics also fail to impress the DXY bulls amid fears of slower rate hikes in December, which in turn favor the XAUUSD buyers.

Russia appears to retreat from the only Ukrainian regional capital captured, namely Kherson, whereas President Vladimir Putin is less likely to attend the upcoming G-20 summit in Bali, starting from November 15.

Amid these plays, equities returned to the red after a three-day absence while the US Treasury yields also remained depressed. That said, the S&P 500 Futures struggle for clear directions by the press time, despite posting mild gains.

Moving on, gold prices may witness further upside in case of downbeat US inflation numbers.

Technical analysis

Gold price remains inside a one-week-old ascending trend channel, despite the previous day’s pullback from a one-month high. It should be noted, however, that the impending bear cross on the MACD and a likely pullback of the RSI (14) from the overbought territory tease intraday sellers.

That said, the downside remains elusive unless breaking the stated channel’s support line, around $1,690 by the press time.

Following that, multiple levels marked since October 11, around $1,684-82, will precede the 200-SMA level surrounding $1,664 to restrict short-term XAUUSD downside.

Alternatively, recovery moves may aim for the previous monthly peak of $1,730 but the aforementioned channel’s upper line, at $1,738 by the press time, could challenge the metal’s further advances.

Gold price: Four-hour chart

Trend: Limited recovery expected

• A test of accumulation breakout around 0.8780 will infuse confidence in the Euro bulls.
• Advancing 20-and 50-EMAs add to the upside filters.
• The RSI (14) has shifted into the bullish range, which indicates more upside ahead.

The EURGBP pair is displaying back-and-forth moves in a narrow range below the critical hurdle of 0.8820 in the Tokyo session. The cross registered a perpendicular upside move on Wednesday after surpassing the critical hurdle of 0.8740. The asset is showing strength ahead of the UK Gross Domestic Product (GDP) data, which will release on Friday.

On a four-hour scale, the cross has delivered a breakout of the accumulation phase that indicates a transfer from inventories from retail investors to institutional participants. A confident breakout usually tests the breakout region before resuming a rally.

The 20-and 50-period Exponential Moving Averages (EMAs) at 0.8716 and 0.8753 respectively are advancing, which adds to the upside filters.

Also, the Relative Strength Index (RSI) (14) has shifted into a bullish range of 60.00-80.00, which indicates that the upside momentum is intact.

For a rally, the cross is expected to test the breakout region around October 21 high of 0.8781, which will drive the asset towards Wednesday’s high at 0.8829. A breach of the latter will send the cross toward October 12 high at 0.8867.

Alternatively, the Pound bulls could regain strength if the asset drops below Monday’s low at 0.8690. An occurrence of the same will drag the asset toward October 26 low at 0.8646, followed by October’s low at 0.8572.

EURGBP four-hour chart

The market’s expectations of softer US inflation seem to weigh on the US Dollar Index (DXY) during early Thursday. In doing so, the DXY retreats towards the seven-week low while fading the previous day's bounce, retreating to 110.30 by the press time.

That said, the inflation precursors, as per the 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, dropped to the lowest levels since October 20 in its latest print published at the end of Wednesday’s North American session, to 2.53% versus 2.61% prior.

A bit broader inflation expectations, however, remained a bit less weak as the 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data slide to 2.42% while refreshing the weekly low.

It should be noted that the market forecasts suggest an 8.0% YoY print for the US Consumer Price Index for October, which in turn could exert downside pressure on the DXY considering the latest talks surrounding the easy rate hikes in December.

Also read: US Dollar Index pares recent gains above 110.00 ahead of US inflation

• USDJPY has slipped sharply to near 146.20 despite overall pessimism in the market.
• The alpha generated on US government bonds tumbled on expectations of a slowdown in Fed’s rate hike pace.
• The headline and core US CPI are seen lower at 8.0% and 6.5% respectively.

The USDJPY pair slipped to near 146.20 in the early Tokyo session after facing barricades around the critical hurdle of 146.80. The asset has turned volatile ahead of the US Consumer Price Index (CPI) event. The risk profile has turned mildly supportive for the risk-perceived currencies as S&P500 futures have displayed a marginal recovery after a vertical decline on Thursday.

The headwinds of volatility ahead of the US mid-term elections outcome and October’s inflation report, and warning signs from Federal Reserve (Fed) policymaker on US economic prospects forced investors to dump US equities. Also, a massive lay-off plan by Facebook now Meta hurt investors’ sentiment.

Richmond Fed President Thomas Barkin on Wednesday cited that Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take, reported Reuters.

While the US dollar index (DXY) capitalized on anxiety among investors and displayed a smart recovery after printing a seven-week low at 109.35 and moving firmly to near 110.50.

The 10-year US Treasury yields have dropped to 4.09% as odds of a slowdown in the pace of rate hikes by the Fed are escalating. As per the CME FedWatch tool, the odds of a 75 basis point (bps) rate hike for December monetary policy have trimmed dramatically to 38.5%.

On the Tokyo front, the Japanese government is announcing economic stimulus packages to support the economy. This week, the administration confirmed a second budget worth 29.1 trillion Japanese Yen after a budget of $198 Billion to spurt the aggregate demand.

Going forward, the major trigger will be the US CPI data. The headline CPI is seen lower at 8.0% against the former release of 8.2%. While the core inflation that doesn’t inculcate oil and food prices is seen at 6.5%.

• US Dollar Index fades bounce off seven-week low, consolidates the biggest daily jump in a week.
• Downbeat yields, pre-data anxiety allow buyers to relinquish controls, mixed Fedspeak adds strength to the pullback moves.
• Fears emanating from China, US midterm elections keep buyers hopeful.
• Strong prints of US CPI for October needed to defend the bulls.

US Dollar Index (DXY) takes offers to reverse the previous day’s corrective bounce off the lowest levels in seven weeks as traders await the US inflation data on Thursday. In addition to the pre-Consumer Price Index (CPI) anxiety, the downbeat comments from the US Federal Reserve (Fed) authorities also weigh on the DXY near 110.30 by the press time.

That said, the New York Federal Reserve (Fed) President John Williams made some comments on inflation expectations in the text of a speech to be delivered to an audience in Zurich. “Relatively stable long-term inflation expectations are good news,” stated the policymaker.

On the same line, Richmond Fed President Thomas Barkin also mentioned that the Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take.

It should be noted that the recently published US statistics also fail to impress the DXY bulls amid fears of slower rate hikes in December.

Furthermore, mixed headlines surrounding Russia also tried to tame the risk-off mood but failed to gain major attention. Russia appears to retreat from the only Ukrainian regional capital captured, namely Kherson, whereas President Vladimir Putin is less likely to attend the upcoming G-20 summit in Bali, starting from November 15.

Alternatively, China-linked risk aversion and recent updates from the US midterm elections seem to defend the DXY bulls ahead of the key US inflation numbers for October. On Wednesday, China marked the biggest daily jump in covid numbers in six months and also announced a fresh lockdown in one more district of Guangzhou. On the other hand, a tug-of-war between Democrats and Republicans raises fears of government gridlock.

While portraying the mood, equities returned to the red after a three-day absence while the US Treasury yields also remained depressed. That said, the S&P 500 Futures struggle for clear directions by the press time.

Given the downbeat forecasts for the US CPI, expected 8.0% YoY versus 8.2% prior, as well as the recent dovish concerns over the Fed’s next move, the DXY may witness further downside in case of the softer inflation numbers.

Technical analysis

Although a convergence of the 21 and 50 DMAs restrict DXY upside near 110.30-40, bears need to conquer the 100-DMA support of 109.36 to retake control. That said, MACD and RSI are both recently in favor of a slower grind towards the south.