• USD/JPY refreshed 32-year highs, around 149.39, on Tuesday.
• US economic data showed mixed signals, with NY Fed Mfg. Index missing estimates, while Industrial Production rose.
• Minnesota Fed Kashkari: Expects the Federal funds rate (FFR) to hit 4.50% at least.

The USD/JPY oscillates around the 149.00 figure amidst a risk-on impulse caused by Britain’s new Finance Minister Jeremy Hunt, scrapping the PM Liz Truss economic draft alongside better-than-estimated US corporate earnings. At the time of writing, the USD/JPY is trading at 149.20, almost flat as the Asian session begins.

USD/JPY advances slightly as Japanese authorities extended their verbal interventions

US equities finished Tuesday’s session in the green, while Asian stocks are set for a mixed open. According to sources cited by Bloomberg, “A better-than-feared earnings season may well be the catalyst the market needs to see a break in the steady grind lower.”

US economic data released during the New York session showed positive signals, contrary to Monday’s New York Fed Manufacturing Index, which is contracting further. US Industrial Production exceeded estimates for the third straight month amidst one of the most aggressive tightening cycles by the US  Federal Reserve.

In the meantime, Fed officials led by Minnesota’s Fed President Neil Kashkari adhere to the Fed’s current narrative. Kashkari said that inflation remains high and that data is showing mixed signals. Furthermore, he commented that he could see rates up to mid-4%,  and if inflation has not peaked, he doesn’t “see why rates should not go higher.”

Elsewhere, the US Dollar Index, a gauge of the buck’s value, edges lower by 0.06%, dragged down by a risk-on impulse, at 111.994, while the US 10-year benchmark note rate, is flat, at 4%, a headwind for the USD/JPY.

On the Japanese front, Japanese authorities verbal intervention put a lid on the yen’s weakness but could not stop the USD/JPY from printing a fresh 32-year high above 149.00.

Data-wise, an absent Japanese economic docket, will leave traders adrift to pure US dollar dynamics, on the US front, the calendar will feature tier 3 info with Housing Starts, Building Permits, the Fed Beige Book, and Fed speaking.

USD/JPY Key Technical Levels

• USD/CAD struggles to extend the bounce off 21-DMA near fortnight low.
• Confirmation of bearish chart pattern, downbeat MACD signals favor sellers.
• Recovery remains elusive unless crossing three-week-old resistance line.

USD/CAD fades bounce off a short-term moving average while keeping the bearish break of a rising wedge around 1.3740 during Wednesday’s Asian session. In doing so, the Loonie pair stays depressed near the two-week low.

Given the bearish MACD signals and the confirmation of the five-week-old rising wedge formation on Monday, USD/CAD is likely to remain on the bear’s radar unless successfully crosses the 1.3850 immediate hurdle comprising the wedge’s lower line.

Even if the quote rises past 1.3850, the 1.4000 psychological magnet and the upper line of the bearish chart pattern, around 1.4030 by the press time, will challenge the upside momentum.

However, a clear run-up beyond 1.4030 won’t hesitate to challenge the May 2020 peak surrounding 1.4175.

Alternatively, the 21-DMA level near 1.3690 restricts the immediate downside of the USD/CAD pair before directing the sellers toward the monthly low of around 1.3500.

It should be noted that the 50-DMA, close to 1.3320 at the latest, appears strong support for the bears to conquer past 1.3500.

Overall, USD/CAD is likely to remain on the bear’s radar despite the latest rebound from the 21-DMA support.

USD/CAD: Daily chart

Trend: Pullback expected

• EUR/USD bulls attack five-week-old resistance while taking rounds to fortnight high.
• US dollar traces subdued yields amid firmer sentiment, mixed data.
• EU/German ZEW numbers were upbeat for October, European Commission proposed ‘dynamic cap’ to gas price.
• Final readings of EU inflation, second-tier US housing data to entertain traders.

EUR/USD bulls take a breather around an important resistance as it seesaws near 0.9860-65 during Wednesday’s Asian session. That said, the major currency pair refreshed a two-week high of 0.9875 as a risk-on mood and sluggish yields weighed on the US dollar the previous day.

US Dollar Index (DXY) remains mildly offered near the lowest levels since October 06 during the second loss-making day on Tuesday. In doing so, the greenback’s gauge versus the six major currencies traced the sluggish Treasury yields amid the risk-on mood.

However, firmer US Industrial Production for September and softer NAHB Housing Market Index for October, respectively around 0.4% MoM and 38 versus the market expectations of 0.1% and 43 in that order, pushed back the bears during the later hours of the day.

At home, the German ZEW Economic Sentiment Index improved to -59.2 for October versus forecast of -65.7 and -61.9 previous. Further, the same gauge for Eurozone stood at -59.7 for the said period as compared to the -60.6 expected and -60.7 previous reading.

The risk profile remains rosy as equities cheered the absence of the UK’s market collapse, even if the political plays are fishy in Britain. Also likely to have gained little response is the European Commission’s (EC) proposal to purchase gas in bulk and cap the prices in case of extreme volatility. Amid these plays, the US 10-year Treasury yields remained sidelined around the 4.0% threshold.

Looking forward, final readings of September inflation data for the bloc, expected to confirm the initial 10.0% figure, as per the HICP figure, could entertain the EUR/USD traders ahead of the US Building Permits and Housing Starts.

Above all, risk catalysts will be more important for the pair traders to watch for fresh impulses amid a lack of major data and the US dollar’s pullback from the multi-day high.

Technical analysis

The first daily closing beyond the 21-DMA, around 0.9775 by the press time, keeps EUR/USD buyers hopeful of overcoming the immediate trend line hurdle surrounding 0.9860-65, which in turn could propel the quote towards the 50-DMA resistance of 0.9925.

• AUD/USD is aiming to shift its business above 0.6300 amid a cheerful market mood.
• A decline in US Housing Starts could weigh pressure on the DXY.
• Employment opportunities in Australia are rising at a diminishing rate amid a solid labor market.

The AUD/USD pair picked bids after dropping to near 0.6266 and reclaimed the round-level hurdle of 0.6300 in the late New York session. The pair is oscillating above 0.6300 in early Asia and is expected to shift business higher amid positive market sentiment.

On Tuesday, S&P500 witnessed topsy-turvy moves but settled the traded session around the day’s high. Back-to-back positive trading sessions in the US market are signaling that an all-around risk-on profile is gaining traction. Meanwhile, the US dollar index (DXY) is displaying a sluggish price action around the cushion of 112.00 and is preparing for further weakness.

An upside momentum will be triggered for the aussie bulls if they manage to counter the critical hurdle of 0.6344 confidently. The antipodean may gain strength ahead of the employment data, which will release on Thursday. As per the projections, the Employment Change for September will decline to 25k vs. the prior release of 33.5k. Australia’s tight labor market has left less room for growth in employment opportunities. While the Unemployment Rate will remain steady at 3.5%.

Apart from that, the People’s Bank of China (PBOC)’s monetary policy will be keenly watched. Considering the continuation of the no-tolerance Covid-19 policy and weak real estate demand, the central bank may adopt a ‘dovish’ tone on Prime Lending Rate (PLR). It is worth noting that Australia is a leading trading partner of China.

In the US docket, investors will focus on Wednesday’s Housing Starts data, which reflects retail demand for real estate. The economic data is expected to decline by 1.475M against the former release of 1.575M. It seems that accelerating interest rates by the Federal Reserve (Fed) have started displaying their consequences.

“Until I see some compelling evidence that core inflation has at least peaked, not ready to declare a pause in rate hikes,” Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday per Reuters.

Additional comments

EUR/USD grinds higher

The news failed to get any major response from the market, may be due to the usual inactive hours of trading, while the EUR/USD pair remains sidelined near the five-week-old resistance surrounding 0.9860.

• Gold price is juggling in a limited territory amid lackluster DXY.
• The precious metal has underperformed against risk-perceived currencies amid firmer yields.
• Solid bets for a hawkish Fed policy have kept the 10-year US yields above 4%.

Gold price (XAU/USD) is displaying back-and-forth moves after defending the downside bias below the critical support of $1,650.00. The precious metal is oscillating in a narrow range of $1,645.91-1,657.33 range in early Tokyo. Firmer risk-on sentiment in the market has failed to underpin the yellow metal.

S&P500 has delivered back-to-back bullish trading sessions as the quarterly earnings season has kicked off. Apart from that, risk-perceived currencies have also capitalized on every pullback. The US dollar index (DXY) has logged losses and is hovering around 112.00. The mighty DXY is expected to surrender the 112.00 support further.

The catalyst which is restricting a reversal in the gold prices is the firmer yields that have not surrendered their elevated levels. The 10-year US Treasury yields are holding above the critical hurdle of 4% as the odds for a 75 basis point (bps) rate hike by the Federal Reserve (Fed) are extremely solid. As per the CME FedWatch tool, chances of an increment in the interest rates by 75 bps consecutively for the fourth time stand at around 95%.

Gold technical analysis

Gold prices are auctioning in a symmetrical triangle on an hourly scale as volatility has contracted amid the absence of a trigger in the economic calendar. The downward-sloping trendline is placed from Thursday’s high at $1,682.53 while the upward-sloping trendline is plotted from Friday’s low at $1,640.23.

The precious metal is overlapping with the 20-period Exponential Moving Average (EMA) at $1,652.30, which indicates a consolidation ahead.

Also, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which indicates the unavailability of a potential trigger.

Gold hourly chart

• The GBP/JPY tumbled 0.17% on Tuesday due to waning GBP demand.
• The cross-currency daily chart suggests the GBP/JPY might print a leg-down before resuming its uptrend.
• Short term, the GBP/JPY is upward biased, and if it cleats 169.50, a test of 170.00 is on the cards.

The GBP/JPY surpasses the previous YTD high of around 168.73 but retraces from daily highs at about 169.80, below its opening price by a minimal 0.19%, despite a risk-on impulse. At the time of writing, the GBP/JPY is trading at 168.89.

Sentiment remains upbeat, with US equities registering gains between 0.90% - 1.14%, while the greenback registers slight losses of 0.03%, as shown by the US Dollar Index. In the FX space, the Japanese yen is the laggard, while the British pound is still appreciating after UK’s U-turn on Liz Truss’s minimal budget.

GBP/JPY Price Forecast

Given the backdrop, the GBP/JPY is gaining 1.63% so far in the week. The GBP/JPY daily chart portrays the pair as upward biased, but Tuesday’s price action formed a hanging-man candle pattern, meaning that additional downward pressure is expected. Therefore, GBP/JPY key support lies at 167.58, which, once cleared, could send the GBP/JPY sliding toward the October 17 daily low at 166.43.

The GBP/JPY hourly chart is also upward biased, though price action fluctuates above/below the 20-EMA with no clear trend. However, below the exchange rate, the rest of the EMAs suggest that the upside is warranted, but firstly it will need to clear some hurdles on its way north.

Hence the GBP/JPY first resistance would be the 169.00 figure, followed by the R1 pivot at 169.97,  ahead of the 170.00 mark.

GBP/JPY Key Technical Levels

• US dollar is not going down without a fight, supported at key levels.
• The embded fundamentals could see the greenback resurge this week.

The greenback, as measured by the DXY index vs. a basket of currencies, moved a touch higher against a basket of currencies on Tuesday, resurging from the lows seen in the prior day, although there was little conviction from a technical perspective as shown below. 

Meanwhile, it's been a mixed day in terms of risk appetite as investors weigh up the earnings outlook against rising interest rates. The narrative surrounding the Federal Reserve remains the key driver, which continues to weigh on the global financial markets. Wall Street's main indexes gapped to the upside at Tuesday's open as strong earnings from Goldman Sachs and Johnson & Johnson that lifted hopes that upbeat corporate reports could soothe market worries about a potential recession due to rising inflation and interest rates. However,  at the time of writing, the S&P was up just 1.00%, but still up from the lows of 3,686.53 and down from the 3,762 highs. US treasuries were little changed, with the 10-year yield at 4.01%. The DXY was trading flat at 112.07 and had moved between a low of 111.773 and 112.455.

UK politics in the spotlight

In fundamentals, the Bank of England and UK politics remained front and centre, although there was a sense of calm in the sentiment that gave some stability to markets, The BoE announced its plans to start bond sales on 1 November. however,  these won’t include the longer-dated debt recently purchased in the wake of the mini-budget saga. Size and frequency are expected to be similar to that announced prior to the delay, but the BoE will be watching market conditions closely. 

The UK's Chancellor, Jeremy Hunt, has announced that he was scrapping "almost all" of the tax cuts announced by the government last month, in a bid to stabilise the financial markets. However, uncertainties remain over the leadership qualities of PM Liz Truss who was said to be hiding "under a desk" after the prime minister did not attend a clash with Sir Keir Starmer in the Commons. Five of her own MPs have now called on her to resign and that does not bode well for the pound. Many more Conservative MPs are calling on the prime minister to quit in anonymous briefings the BBC reported that wrote in an article that Tuss intends to lead the Conservatives into the next general election and apologised for making mistakes.

US dollar remains in demand

With the geopolitical strife happening, the US dollar remains under demand and especially so due to the rates advantage it yields for investors due to the Federal Reserve's hawkish stance. On Tuesday,  Raphael Bostic, the head of the central bank’s Atlanta district said that inflation is too high and they have to get it under control. such rhetoric has led to speculators’ net long USD index positions edging higher for the third consecutive week on the back of a persistent string of hawkish Fed speak. Even so, net longs remained below recent averages which would allow for additional length in the coming days and weeks. 

Meanwhile, US Industrial Production lifted 0.4% in September, stronger than expected, and driven largely by a solid rise in manufacturing output (+0.4%). ''These results go against the signal in the ISM data, which has been on a softening trajectory for some months now,'' analysts at ANZ Bank explained. 

''Part of the strength in manufacturing of late has been an auto production catch-up story, and therefore isn’t expected to persist. But nonetheless, resilience in these data in the face of rapidly tightening monetary policy remains clear. Stepping back, solid growth in goods production as the demand impulse continues to slow will help contain goods inflation, but for the Fed it’s services inflation that tends to be sticky, and currently causing the most concern.''

US yields and the dollar's technical analysis

The 2-year yield is under pressure which has left the US dollar hanging out to dry below last week's low. However, should both of their trendline supports hold up, we could see some upward pressure in both assets. 

The US 10-Year Treasury yield, which ended Friday at 4.006%, being its highest weekly finish since July 2008, remains close to the mark which is a supportive factor for the greenback longer term, with the yield closing up for an 11th-straight week last week. Since the yield's March 2020 record-low, pronounced weekly winning streaks have marked some significant highs and only a reversal below 3.81% can put the 3.5620%/3.4980% area at risk, with potential for a much deeper, surprise decline. For now, the W-formations and necklines remain a supportive feature for both the yield and the greenback: 

What you need to take care of on Wednesday, October 19:

The American Dollar finished Tuesday mixed across the FX board, not far from its daily opening levels. Financial markets lacked clear direction, as government bond yields remained steady, while macroeconomic data was mixed.

The main focus was once again on the United Kingdom. During London trading hours, the Financial Times suggested the Bank of England could delay the start of the quantitative tightening bond-selling program, sending the Pound up and adding pressure on the greenback. However, the BOE quickly denied the headline, saying it was “inaccurate.” As a result, the dollar ticked marginally higher but was unable to retain gains amid rising equities and stable government bond yields.

The GBP/USD pair seesawed with the headlines, ending the day with modest losses at around 1.1320. EUR/USD extended its weekly advance by a few pips to 0.9875 to settle around 0.9850.

The USD/JPY pair kept rallying and surpassed 149.00, its highest in over 30 years. It suffered a near-term knee-jerk during European trading hours, shedding some 100 pips before bouncing back. It is now trading at around 149.20. The 20-year Japanese government bond yield is up to its highest since 2015.

AUD/USD ticked higher, now battling with 0.6300, while USD/CAD also advanced and stands at 1.3740. The Loonie was affected by further slides in crude oil prices, with WTI now trading at around $82.40 a barrel. Gold was also under pressure but finished the day little changed at around $1,650 a troy ounce.

On Wednesday, the EU, the UK, and Canada will publish updated inflation data that could spur volatile moves.

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• The pound treads water at 1.5600 after rejection at 1.5700.
• The GBP loses momentum on Tuesday.
• Lower oil prices have weighed on the Canadian Dollar's demand.

The pound has been trading back and forth, both sides of 1.5600 on Tuesday, after Monday’s rejection from the 2, 1/2-month highs at 1.5700. The pair, however, remains steady above 1.5500 after having bounced from 1.5100 last week.

Sterling loses traction on Tuesday

The cable lost momentum on Tuesday following a sharp rally on Monday after the new UK finance minister, Jeremy Hunt announced that he will scrap most of the aspects of the tax cuts plan presented by his predecessor last month. The British Government’s U-turn has dampened hopes of an aggressive rate hike by the Bank of England, which has undermined GBP’s upside momentum.

Furthermore, the pound saw some positive price action after the Financial Times suggested earlier today that the Bank of England might be considering delaying the start of its quantitative tightening (QT). The report was denied by the bank later on, which sent the GBP lower again.

On the other end, the lower oil prices have kept CAD bulls subdued. WTI oil plunged 4% on Tuesday, weighed by global recession fears and increased selling pressure on the commodity-linked loonie.

GBP/CAD: capped below resistance at 1.5625

From a technical perspective, the pair’s recovery is facing resistance at 1.5625 (October 13, and 14 highs) which is closing the path toward the October 17 high at 1.5705. Above here, the next target would be the August 2 high at 1.5770.

On the downside the pair remains contained above 1.5500 (session low) with a next potential support area at the 100-day SMA, currently around 1.5445 ahead of the 50-day SMA at 1.5260.

Technical levels to watch

• USD/CAD marches 1.3770s due to a risk-on appetite and falling oil prices.
• US September Industrial Production surprisingly exceeded estimates, though Monday’s NY Fed Manufacturing Index contracted for the third month.
• Despite BoC’s rate hike cycle, Canada’s housing starts jumped to its highest levels in almost a year.

The USD/CAD trims some of its Monday’s losses and rises back above the 1.3700 figure after hitting a daily low of 1.3657, below the 20-day EMA, but recovered some ground amid a risk-on impulse, as shown by US equities rising. At the time of writing, the USD/CAD is trading at 1.3774, up by 0.43%.

USD/CAD climbs from under 1.3700, on falling oil prices, and some US dollar strength

Investors’ mood is upbeat, improving their appetite for risk-perceived assets. However, in the case of the USD/CAD, falling crude oil prices keep the loonie on the defensive vs. the greenback. Positive US Industrial Production in September, improving for the third consecutive month, underpinned the greenback.

The Federal Reserve reported that manufacturing production jumped 0.4% MoM, above 0.2% estimates by economists polled by Reuters. Regarding Capacity, Utilization ticked up 2 points, from 80% to 80.3%. Albeit manufacturing production was better than expected, Monday’s New York Fed Empire State Index fell for the third consecutive month, with the survey showing that businesses are pessimistic regarding the future economic outlook.

In the meantime, the US Dollar Index, a measure of the buck against six currencies, edges up 0.06%, at 112.132, underpinning the USD/CAD. Meanwhile, WTI plunges 3.30%, with US crude oil hitting $82.86 PB, a tailwind for the major.

Of late crossing newswires was the Atlanta Fed President Raphael Bostic, who said the Fed couldn’t solve all the problems causing actual inflation.

On the Canadian front, housing starts jumped 11% in September, its highest level in 10 months. The SAAR of housing starts rose by 299,589 units in the last month from an upwardly revised 270,397. Even though data is positive, the Bank of Canada (BoC) BOS survey showed that companies upwardly revised their inflation expectations in Q3, though long-term inflation remains anchored to the BoC’s target.

Analysts at TD Securities are pricing in another rate hike by the BoC. They noted, “While the Bank can draw some comfort that long-term inflation expectations have not become unanchored, we do not expect them to change course amid further erosion to shorter-term measures and ongoing price pressures, particularly in light of recent hawkish comments from Governor Macklem. We think this report supports a 50bp move in October, but recent BoC rhetoric very clearly suggests a 75bp move is in play.”

USD/CAD Key Technical Levels

• The euro retreats below 0.9850 after failure at 0.9880.
• The positive market sentiment has acted as a tailwind for the euro.
• EUR/USD correction seen capped below 0.9980/1.0000 – ING.

Eurodollar’s recovery from last week’s lows at 0.9635 has lost steam right below 0.9900 and the pair pulled back to 0.9850 on Tuesday’s afternoon US Trading session. The euro, however, remains moderately positive on the daily chart.

The euro, favoured by the risk-on mood

The common currency managed to extend gains in the early European session, pushing the pair to session highs at 0.9875. European and US stock markets have advanced for the second consecutive day as the enthusiasm for Britain’s U-turn on the tax cuts plan is offsetting concerns about the deterioration in the global economic perspectives.

The mixed German ZEW report, which has shown better than expected sentiment readings in Germany and the Eurozone, while the current situation view has deteriorated beyond expectations, has not dented the EUR recovery.

In the US, a brighter-than-expected industrial report has offered some respite to the USD. Industrial production increased 0.4% in September, beating expectations of a 0.1% increment, while capacity utilization reached a level of 80.3% against the market consensus of 80.0%.

EUR/USD correction to be limited at 0.9980/1.0000 – ING

Currency analysts at ING observe the current euro recovery as a mere correction, which is expected to be capped below 1.0000: Energy shock is temporarily going into reverse as European gas prices drop sharply on the warmer weather and European governments having largely achieved their gas storage targets (…) “A quiet week for US data (just soft US housing) creates a corrective window for EUR/USD, where an obvious target is the top of this year's bear channel at around the 0.9980/1.0000 area. We would assume that this continues to hold the correction.”

Technical levels to watch

Fitch, on the US, says it expects a very strong consumer balance sheet, the strongest labour market in decades to cushion the impact of likely recession starting in the second quarter, of 2023.

Key notes

• Fitch, on the US says the Fed’s aggressive tightening cycle will increasingly weigh on job growth and consumer demand in 2023.
• Says a drag on real wages from high inflation will prove to be too much of a drain on aggregate household income and consumer spending.
• Says more aggressive interest rate policy and higher inflation pose risks to consumer spending in 2023.
• Says a slowdown in job growth and rising unemployment in 2023 will take a wider toll on consumer spending.

US dollar and yields update

The 2-year yield is under pressure which has left the US dollar hanging out to dry below last week's low. However, should both of their trendline supports hold up, we could see some upward pressure in both assets. 

• New Zealand dollar's reversal from 0.5720, contained at 0.5645.
• The kiwi remains moderately positive amid a risk-on mood.
• NZD/USD is expected to consolidate between 1.5570 and 1.5755 – UOB.

The New Zealand dollar remains bid for the second consecutive day on Tuesday. The pair’s reversal from the 0.5700 area has found support at the mid-0.5600, before picking up again to the 0.5685 area.

The kiwi extends recovery as risk appetite prevails

Monday’s positive market sentiment seems to have extended into Tuesday. European stock markets closed with advances between 0.2% and 0.9%, while the US indexes are posting gains beyond 1%, which is underpinning New Zealand dollar's moderate positive tone.

In the macroeconomic docket, the higher-than-expected New Zealand Consumer Price Index has fed hopes of further monetary tightening by the Reserve Bank of New Zealand, which has provided some support to the NZD.

Kiwi bulls, however, seem to be capped below 0.5700 as hopes of another aggressive Fed rate hike in September, are keeping USD weakness on a leash. The market is pricing in a nearly 100% chance that the Fed will hike rates by 75 basis points in November which provides significant support to the USD.

NZD/USD expected to consolidate between 0.5570 and 0.5755 – UOB

Regarding the near-term perspective, FX analysts at UOB expect the pair to consolidate at current levels: “The breach of our ‘strong resistance’ level at 0.5560 indicates that the weakness in NZD has ended. NZD appears to have moved into a consolidation phase and is likely to trade between 0.5570 and 0.5755 for the time being.”

Technical levels to watch

Raphael Bostic, the head of the central bank’s Atlanta district has said that inflation is too high and they have to get it under control.

Key comments

There is a need for stable prices for maximum employment growth. 

More to come...

• Gold prices remain under pressure below a key dominant bearish trendline. 
• The US dollar could find support from a resurgence in US yields. 

The spot gold price is trading at $1,650.57  and flat on the day at the time of writing. The yellow metal has been trading within a $1,645 / $1,660.93 range on the day so far while the US dollar remains pressured towards the middle of the week which hit its lowest level since Oct. 6, making bullion cheaper for overseas buyers.

However, as the following technical analysis will show, DXY remains on the front side of a key trendline, although further weakness, from a technical standpoint below last week's lows, should serve to support the precious metal. US yields, in that regard, remain around 4% in the 10-year yields with a daily bullish structure which should serve to prop up the US dollar. The 2-year yield is pulling back slightly from the daily highs of 4.53%. This is weighing on the greenback this week and supporting gold as rising interest rates dim gold's appeal as they increase the opportunity cost of holding the non-yielding asset.

Slightly further afield, gold has also been subject to the UK's money markets and the shenanigans in UK politics this month. The UK government's decision to u-turn on vast unfunded fiscal stimulus seemed to boost investors' confidence and some stability is being priced back into the gilt market. The yield on Britain’s 10-year gilt stabilized around 3.9%, but it remains well below the 14-year high of 4.6% reached on October 12th.

The good news, however, came with the New Chancellor Jeremy Hunt saying on Monday that he was reversing almost all tax measures announced in the mini-budget, including cutting the basic rate of income tax from 20% to 19% from April next year. Traders also got the news that 

Meanwhile, traders also took note of the Bank of England announcing that sales of government bonds are set to go ahead as planned for November 1. This rebutted an article by the Financial Times that warned that another postponement was likely because of the turmoil in the money markets. While this is important news, the main driver for gold remains with the Federal Reserve. 

Its all about the Fed

''Inflation's increasing persistence is a constraint for the Fed, which suggests that a restrictive rates regime may persist for longer than historical precedents. In this context, gold prices are unlikely to rise with a deteriorating growth outlook until the Fed makes progress in the war on inflation,'' analysts at TD Securities explained. 

''For the time being, TD Securities has found that US wage growth trends are validating near-term household inflation expectations, but appear to have settled at levels that would sustain a CPI inflation rate of 5%-6% going forward, far removed from the 2.5% rate consistent with the Fed's inflation target. In turn, don't count on investors to grow their appetite in the yellow metal. Physical demand for bullion has remained elevated, but seasonal considerations suggest that this tailwind could soon fade following India's festive season.''

Gold and USD technical analysis

The price of gold is under pressure below the dominant trendline resistance following a retest that failed earlier in the week.  A move below $1,650 opens the risk of a significant move towards the recent lows of $1,615, as per the following daily chart:

Meanwhile, this will depend on the outcome of the US dollar:

The trendline support could be tested in the coming day (s) and if this holds, should the index move back above last week's lows, then gold would be respected to crumble as the greenback makes bullish headway from out of key demand area. 

• The pound attempts to extend below 1.1300 on retreat from 1.1445.
• Investors scale down hopes of aggressive BoE tightening.
• GBP/USD might decline towards the mid-1.11s – Scotiabank.

The pound is giving away gains on Tuesday, following a 1% rally on Monday as the UK Government ditched most of the tax cuts plan announced in September. The sterling us testing prices sub-1.1300 on retreat from Monday’s highs at 1.1445.

The pound retreats as the market resize BoE hike hopes

UK finance minister’s U-turn on the controversial mini-Budget plan has dampened hopes of aggressive monetary tightening by the Bank of England. This has discouraged GBP buyers, which has been one of the main reasons behind Tuesday’s reversal.

Earlier in the day, the pound saw some positive price action after the Financial Times reported that the Bank of England might be considering delaying the start of its quantitative tightening (QT) gilt sales from the scheduled date of Oct. 31, after having already delayed it from Oct. 6.

The Bank, however, denied the Financial Times ‘report later on. The BoE assured that they do not contemplate any postponement of the start of government bonds’ sales, which has sent the GBP lower again.

GBP/USD: The risk of further decline to the mid-1.11s – ScotiaBank

FX analysts at UBS Scotiabank maintain their negative outlook on the pair, pointing out to targets below 1.1200:  “Intraday support in the upper 1.12s is coming under pressure. Below here, cable risks dipping back to the mid-1.11s (…) Political and economic risks for the GBP remain elevated.”

Technical levels to watch

• EUR/JPY printed a fresh YTD high above 147.00 as buyers eye December’s 2014 high.
• A risk-on impulse keeps safe-haven currencies, like the yen, on the defensive.
• EUR/JPY Price Analysis: Negative divergence in the daily and hourly charts to pave the way for a correction towards 145.00.

The EUR/JPY continues extending its gains, eyeing December’s 2013 high of 149.78, while the Japanese yen continues to weaken, despite further verbal interventions by Japanese authorities, which have failed to move the markets in favor of the battered yen. At the time of writing, the EUR/JPY is trading at 147.04. shy of the YTD high of 147.12.

Sentiment-wise, investors’ mood is upbeat, as portrayed by European bourses closing in the green, while US stocks followed suit. Therefore, safe-haven currencies like the Japanese yen, and the Swiss franc, would remain the weakest links in favor of other G8 currencies.

EUR/JPY Price Analysis

The daily chart shows that the EUR/JPY is upward biased. On Monday, the cross-currency pair broke into fresh eight-year highs and, earlier in the North American session, reached a YTD high at 147.12. Of note is that as the EUR/JPY climbs, registering higher highs, the Relative Strength Index (RSI) didn’t, so a negative divergence between RSI and price action could pave the way for a mean-reversion move before continuing to rally.

Hence, the EUR/JPY first support would be the September 12 daily high at 145.63. Break below will expose the October 5 cycle high-turned-support at 144.08, ahead of the 20-day EMA at 142.12.

EUR/JPY Daily chart

In the near term, the EUR/JPY one-hour chart shows price action as overextended, registering higher highs, while the RSI prints lower highs, as in the daily chart. Therefore, a negative divergence surfaced, opening the door for a correction.

Therefore, the EUR/JPY first support would be the 20-EMA at 14.70, which, once cleared, would expose a busy area, with the confluence of the daily low, the 50-EMA, and the central pivot point at around 145.84. A breach of the latter will expose the S1 pivot at around 145.00.

EUR/JPY Hourly chart

EUR/JPY Key Technical Levels

• The dollar bounces up at 0.9920 to trim Monday's losses.
• The ongoing risk-on mood is keeping a lid on USD bulls.
• USD/CHF: A break of 0.9876 support will increase downside pressure – Credit Suisse.

The US dollar edged up on Tuesday to pare losses after Monday’s sharp decline. USD/CHF has bounced up from the one-week low at 0.9920 to reach a session high at 0.9975.

The greenback appreciates as US bonds tick up

The uptick in US bond yields seen on Tuesday has provided a fresh boost for the USD to trim previous losses in spite of the positive market sentiment. The risk-on mood seen on Monday, after the historical U-turn on the British Government's mini-Budget plan, seems to have extended into Tuesday.

World stocks have traded higher for the second consecutive day, with the Dow Jones, the S&P, and the Nasdaq, all three appreciating posting advances of about 1% at the time of writing. This positive market mood is keeping a lid on dollar bulls.

On the macroeconomic front, the German ZEW Survey has reflected a larger-than-expected deterioration in the current economic conditions. The report has also revealed higher chances of a decline in the GDP over the next six months, yet without a remarkable impact on the risk-on market mood.

The US dollar has been favoured by a brighter-than-expected performance of the US industrial sector in September. US Industrial Production accelerated at a 0.4% pace, beating expectations of a 0.1% improvement, while the capacity utilization reached 80.3% against market consensus of a mild decline to 80%.

USD/CHF: Breach of 0.9876 will increase downward pressure  – Credit Suisse

On the downside, FX analysts at Credit Suisse point out to a key support area at 0.9876: “USD/CHF’s surge was capped at the major resistance at the trendline from 2016 at 1.0075. This strong reversal lower paired with daily RSI holding a bearish divergence continues to strengthen the case for a near-term weakness (…) “Immediate support is seen at the recent low and the 13-day exponential average at 0.9929/13, though only a close below 0.9876 would raise more serious thoughts of the near-term risk shifting lower again.” 

Technical levels to watch

Band of England confirms the first gilt sale operation will take place on November 1 which has put some short-term volatility into GBP/USD.

The Monetary Policy Committee's decision at the September meeting to reduce the stock of purchased gilts is ‘unaffected and unchanged.

This puts to rest the speculation that there would be a delay to the sales and coupled with the U-turn in UK politics, the pound is now driven by the Bank of England's rate hike expectations again. There is less speculation for an aggressive hiking path given the concerns over the economy and cable has been pressured again on Tuesday. 

GBP/USD has been as low as 1.1255 on the day, down from 1.1410. It is testing 1.13 at the time of writing. 

• Silver price steadily advances, bouncing off daily lows around $18.55.
• The US 10-year Treasury bond yield rises above 4%, underpinning the buck.
• XAG/USD Price Forecast: Is neutral-downwards, a fall below $18.00 would exacerbate a test of the YTD low.

Silver price climbs as the North American session progresses, trimming earlier losses as US Treasury bond yields rise, as bets that the Federal Reserve would likely hike rates for the fourth time 75 bps increased, putting a lid on the precious metals segment. At the time of writing, XAG/USD is trading at $18.66, above its opening price by 0.33%.

XAG/USD falls as the US 10-year yield rises above 4%

The market sentiment remains upbeat, with most US equities remaining in the green. US Industrial Production exceeded estimates for the third consecutive month in September, increasing 0.4% MoM vs. estimates of 0.1%, while Capacity Utilization ticked up 2 points, from 80% to 80.3%.

Even though Tuesday’s data is encouraging, on Monday, the New York Fed Empire State Manufacturing Index disappointed market participants, contracting for the third straight month, as the survey showed that responders were downbeat about future business conditions.

A reflection of that is the greenback, which dropped more than 1% on Monday, as the US Dollar Index (DXY) portrays. Nevertheless, at the time of typing, the DXY is recovering some ground, gaining 0.12%, at 112.19, underpinned by the 10-year bond yield, which is yielding 4.027%, up one bps.

Hence, XAG/USD hovers around $18.64, pairing some of its earlier losses, while US T-bond yields, namely the 10-year, hold to the 4% threshold. Worth noting that the white metal recovery happened as Fed speakers have not crossed newswires. Silver traders should be aware that Atlanta’s Fed President Raphael Bostic and Minnesota Neil Kashkari would hit wires late in the day.

XAG/USD Price Forecast

XAG/USD remains neutral-to-downward biased, as the daily moving averages (DMAs) reside above the spot price, but with the 20-DMA trapped between the 50 and 100-DMA. Of note, a cross of the 20-DMA below the 50-DMA would mean that sellers gather momentum, further confirmed by the Relative Strength Index (RSI) at bearish territory, which is almost flat. If the 20-DMA crosses below the 50-DMA, and the RSI crosses below its 7-SMA RSI, that could send XAG/USD tumbling towards $18.00, which, once cleared, could pave the way towards a YTD low of $17.56.

• The pound's reversal from 170.00 contained above 168.40.
• The pair trims Monday's gains as hopes of an aggressive BoE hike wane.
• Investors remain wary about a BoJ intervention.

The British pound’s reversal from seven-year highs right above 170.00 seen on Monday found support above 168.40 on Tuesday, before stalling right ahead of 169.00 amid increasing rumors of a BoJ intervention.

The pound gives away Monday’s gains

The new British finance minister’s announcement of the reverse of most of the aspects of its predecessor’s tax cuts plan has generated concern that the Bank of England may not hike rates as aggressively as expected, which has sent the pound moderately lower on Tuesday.

The sterling has seen some positive price action during the European session, as the Financial Times suggested that the Bank of England was planning to delay the start of its quantitative tightening (QT) gilt sales from the scheduled date of Oct. 31, after the initial delay from Oct. 6.

The Bank, however, denied the report later on affirming that they do not contemplate any postponement of the start of government bonds’ sales, which sent the GBP lower again.

On the other end, Investors remain on the watch for the possibility of an intervention by the Bank of Japan to strengthen the JPY. The yen has actually exceeded the level that triggered an intervention by the BoJ last month, and the Japanese Government reiterated on Monday their commitment to a “firm response” to avoid rapid yen declines.

Technical levels to watch

Analysts at MUFG Bank see the EUR/USD with a bearish bias for the next weeks, trading in the range 0.9400/1.0200. They war the risk/reward balance for the pair moving lower is becoming less complelling. 

Key Quotes:

“The deteriorating growth outlook in the euro-zone is not sufficient yet to shift the ECB’s focus from fighting upside risks to inflation. The latest CPI report revealed that headline inflation moved into double digits in September.”

“ECB policymakers have sent a clear signal that they want to lift rates back towards neutral territory (around 2.00%) by the end of this year. They are also set to begin discussions over shrinking their balance sheet by allowing maturing asset holdings to roll off, although those plans are unlikely to be implemented until the 1H of next year. Overall, the developments still favour holding a bearish EUR bias for the month ahead but the risk/reward balance is becoming less compelling.”

“The main upside risk to our bearish EUR/USD bias could be triggered by a further paring back of more acute energy supply concerns in Europe. If the price of natural gas continues to fall/settles at much lower levels over the winter it could help to ease fears over an even sharper slowdown for the euro-zone economies. At the same time, the EUR could strengthen more than expected if the ECB keeps raising rates at a faster pace while the Fed signals that is considering slowing hikes helping to further narrow expectations for monetary policy divergence.”
 

The USD/JPY is trading above 149.30, at fresh multi-decade highs. Analysts at MUFG Bank, see the pair likely to break above 150.00 in the short term. They doubt over the ability of Japanese authorities to turn the weak yen trend. 

Key Quotes:

“We are maintaining the unusually wide range we set last month after the Japanese authorities had intervened to stem the depreciation of the yen. We decided against a bearish bias despite the yen-buying intervention on the view that there would be appetite to buy at lower USD/JPY levels. That proved correct and the yen now today is trading at slightly weaker levels than when the intervention took place in September. We expressed doubts over the ability of the Japanese authorities to turn the weak yen trend without a change in fundamentals.”

“We have turned bullish again on USD/JPY based on the fact that the US dollar backdrop dictates a higher USD/JPY and we see the Japan authorities as being reluctant to protect a specific level. Hence a breach to new highs over 150.00 looks more likely than not over the short-term.”

“The threat of intervention is high and hence a risk to our bullish bias is that the authorities conduct intervention that is more aggressive and more persistent than we assume that would then have a bigger impact on driving USD/JPY lower. There are also risks surrounding the FOMC meeting on 2nd November. A risk to our view is that the FOMC decide to slow the pace of tightening by hiking by only 50bps or hikes by 75bps but provides a dovish communication on the outlook going forward. We think after the CPI data last week this is unlikely.”

• AUD/USD loses ground and retreats below 0.6300.
• Fed tightening hopes are buoying demand for the USD.
• The dovish RBA minutes weigh on the AUD.

The Australian dollar is giving away gains on the US morning session. The upside attempt featured during the European trading has been unable to break beyond the 0.6340 resistance area, and the pair has pulled back below the 0.6300 level at the time of writing.

The aussie loses steam with the US dollar picking up

The positive risk sentiment seen during the European and early US trading, with the European and US stock indexes in the green, has failed to boost the AUD above recent ranges. The pair remains dangerously close to the 2, 1/2 -year low at 0.6170 as the US dollar crawls higher.

The uptick in US Treasury bonds, with the 10-year benchmark back above 4% has provided a fresh boost to the US dollar, which was trading at one-week lows against a basket of currencies.

Fed tightening hopes are buoying the USD

As the dust from the British U-Turn on its mini-Budget plan settles, the investors seem to have shifted their focus back to the US Federal Reserve’s tightening cycle.

The market is pricing in a practically 100% chance of another 75 basis point rate in November, which is underpinning the US dollar’s strength to the detriment of the AUD, which has depreciated nearly 15% against the US Dollar this year.

On the other hand, the minutes of the latest RBA monetary policy meeting have been dovishly tilted, as the committee members apparently opted to reduce the size of the rate hike and wait to see the impact of monetary tightening on household spending.

Technical levels to watch

• WTI drops from daily highs of $86.40s to $82.20s on Tuesday.
• Chinese economic indicators remain delayed, with no rescheduling assigned by the government.
• The US will release oil from its SPR reserve to keep gasoline prices down.

The US crude oil benchmark, also known as Western Texas Intermediate or WTI, dived more than 3% on Tuesday amidst a risk-on impulse on fears that a global economic slowdown might dent oil’s demand. At the same time, the delayed Chinese GDP release weighs on investors’ moods. At the time of writing, WTI is trading at $82.69 per barrel, losing more than 3%.

WTI drops on fears of a global economic slowdown

US equities are trading in the green, supported by earnings. The delay of important Chinese data weighs on WTI traders’ mood, as speculation that growth could have weakened means less demand for black gold. Also, extending its Covid-19 zero-tolerance program might hurt the development of the world’s second-largest economy.

In the meantime, according to Reuters, the US Biden administration plans to sell additional oil from the Strategic Petroleum Reserve (SPR) as the White House tries to control gasoline prices before November’s mid-term elections.

Meanwhile, on Tuesday, OPEC’s secretary general Haitham al-Ghais said that the cartel unanimously decided to cut oil output to prevent a crisis and stem a tide of volatility.

“With macro-economic headwinds forecast for the months ahead and the very real potential for a global recession, which some might say has already started in some parts of the world, there was a consensus amongst the ministers of the need to act now and prevent a crisis later on,” he added.

WTI Price Analysis

WTI is neutral-to-downward biased, as shown by the daily chart. On Tuesday, prices tumbled below the 20-day EMa, extending its losses as sellers eye $80.00 per barrel, which is likely to happen as the Relative Strength Index (RSI), crossed below 50, with enough room before reaching oversold conditions. Therefore, WTI’s first support would be the S3 daily pivot at $82.08, followed by the $81.00 mark, ahead of the S4 pivot point at $80.83, and then the $80.00 mark.

• Pound among worst performers on Tuesday.
• Bank of England denies it will delay gilts sales.  
• EUR/GBP bullish, finds resistance at 0.9730.

The EUR/GBP is rising on Tuesday on the back of a weaker pound, hit by the ongoing political and fiscal drama in the UK. The cross peaked at 0.8731, the highest level since last Thursday and then pulled back toward 0.8700.

UK drama weighs on GBP

The pound is among the worst performers on Tuesday hit by the ongoing political crisis in the United Kingdom. Gilts tumbled after the Bank of England dismissed an Financial Times report that it could delay the sale of bonds, scheduled for October 31. That same day, the government will announce more fiscal plans. With all that is going on, there is a long time until that date and the UK could even have a new PM by then.

Inflation figures are due in the UK on Wednesday and also the final reading of Eurozone September inflation numbers.

Regarding the energy crisis, the European Commission is proposing member countries to buy gas collectively. It also proposed a cap on excessive and volatile gas prices.

EUR/GBP up but unable to break 0.8730

The EUR/GBP is moving with a bullish bias in the very short-term. The upside found resistance at 0.8730.  A break higher would open the doors for a recovery above 0.8800. The next crucial area is seen at 0.8810 with a break higher, strengthening the outlook for the euro.

A slide below 0.8660 would be positive for the pound, exposing the 0.8600/10 area. A daily close below should open the doors to more losses in the short-term.

Technical levels

Aggressive Federal Reserve rate hike bets as inflation expectations remain high are set to weigh on gold, strategists at TD Securities report. 

Investors unlikely to grow their appetite for gold

“A flat and inverted yield curve has historically been associated with a slowing growth outlook and concurrently rising gold prices. This cycle, however, inflation's increasing persistence is a constraint for the Fed, which suggests that a restrictive rates regime may persist for longer than historical precedents. In this context, gold prices are unlikely to rise with a deteriorating growth outlook until the Fed makes progress in the war on inflation.”

“US wage growth trends are validating near-term household inflation expectations, but appear to have settled at levels that would sustain a CPI inflation rate of 5%-6% going forward, far removed from the 2.5% rate consistent with the Fed's inflation target. In turn, don't count on investors to grow their appetite for the yellow metal.” 

“Physical demand for bullion has remained elevated, but seasonal considerations suggest that this tailwind could soon fade following India's festive season.”

Statistics Canada will release September Consumer Price Index (CPI) data on Wednesday, October 19 at 12:30 and as we get closer to the release time, here are the forecasts by the economists and researchers of seven major banks regarding the upcoming Canadian inflation data.

Headline is seen falling two ticks to 6.8% year-on-year, while Core, which excludes volatile food and energy prices, is expected to fall one tick to 5.6% YoY. On a monthly basis, Canadian CPI is seen flat.

RBC Economics

“The backward-looking September CPI numbers should confirm that current price pressures are still too high and broadly based to take the BoC off its rate hiking path. Headline inflation readings have been declining since early summer as gasoline and oil prices retrench. We expect the rate to tick lower again, to 7% in September. But measures of ‘core’ inflation (measures designed to provide a better gauge of underlying inflation pressures) were likely stickier. We expect YoY price growth excluding food and energy products increased in September and the Bank of Canada’s preferred ‘median’ and ‘trim’ core CPI measures are not expected to repeat the small dip in August. That contrast between ‘headline’ and ‘core’ inflation measures will persist in the near-term. Indeed, core inflation isn’t likely to meaningfully slow until December. Upside surprises, either from little improvements in inflation expectations or a worsening reading in the actual CPI, risk tilting that to a bigger 75 bps increase.”

TDS

“We look for inflation to edge 0.2% lower to 6.8% as a large drag from energy leaves prices unchanged from August. A rebound in rents and motor vehicles will offset the drag from energy, and core inflation should edge lower by ~0.1%. Even though a 6.8% inflation rate remains uncomfortably high for the Bank of Canada, our forecast would leave the Q3 average ~0.9pp below projections from the July MPR at 7.1%, and we should also see some modest improvement across core inflation measures.”

NBF

“While price increases could still have been sustained in the services sector, we expect goods inflation to have continued to weaken on lower prices for transportation and thanks to an easing of supply chain issues. Slumping gasoline prices might also have helped cooling price pressures. As a result, the headline index could have decreased by 0.2% MoM before adjustments for seasonality, allowing the YoY rate to drop from 7.0% to 6.6%. The annual rate of trim (from 5.2% to 5.0%) and median CPI (from 4.8% to 4.6%) might have declined as well.”

Citibank

“We expect a modest -0.1% MoM decline in September CPI, with the YoY measures moderating further to 6.6%. Most important will be the trend in core inflation measures after the first signs of a pullback in August. Continued moderation in core CPI measures would be consistent with leading survey indicators that suggest further easing into year-end. These will be key for BoC’s decision in October. We expect a further easing in inflation data to support a shift to a 50 bps pace of hikes by the BoC in October.”

CIBC

“Unadjusted prices are expected to drop by 0.2% MoM with the annual rate easing to 6.5%, from 7.0% in the prior month. Food prices, including another rise in dairy prices, will partly offset the decline in energy costs. The trend in ex-food/energy prices is once again likely to be more subdued in Canada than in the US, thanks largely to the differing treatment of shelter costs. With house prices continuing to fall and building costs no longer escalating, the homeowner replacement and other housing components of CPI will remain weak MoM. These components combined account for roughly 11% of the overall CPI basket. While mortgage interest costs will continue to escalate, this area is a smaller 3% of the basket and tends to be looked past by the Bank of Canada in its policy setting deliberations.”

BMO

“The sudden spill in the Canadian dollar complicates the Canadian inflation outlook – the loonie is now down more than 10% from a year ago, its sharpest yearly drop in almost seven years. This weakness will almost instantaneously translate into higher food and energy prices, and will also seep into a wide variety of other imported costs. Still, we expect CPI to ease to below 7% on lower gasoline prices, while we also look for some further retreat in core inflation.”

Wells Fargo

“The release of Canada's September CPI is expected to show a further deceleration of inflation, with the consensus forecast calling for headline inflation to slow to 6.6% YoY, from 7.0% in August. That would mark the third straight slowdown in inflation, a trend that has been driven in particular by falling gasoline prices, which could also decline further in September. It is not yet apparent whether broader price pressures are showing a significant slowdown, with food prices, in particular, continuing to quicken in August. In fact, the consensus forecast is for the trimmed mean CPI to remain steady at 5.2% YoY. While the slowing in headline inflation might be enough for the Bank of Canada to slow the pace of rate increases, we don't think it will be enough to dissuade the central bank from further tightening. As of now, we expect the BoC to raise its policy rate by 50 bps in late October, which would be less than the 75 bps increase it delivered in September.”

Economists at Scotiabank update their USD/CAD forecast. The pair is now expected to trade above 1.30 throughout next year.

Q4 forecast lifted to 1.35

“We are marking the Q4 forecast for USD/CAD to 1.35 (from 1.30) and lifting the 2023 profile for the USD somewhat.” 

“We now only anticipate the USD weakening below the 1.30 the year after next.”

“Relatively firm growth, a hawkish central bank and elevated commodity prices have done little to slow the USD/CAD rise this year and it is hard seeing any of those drivers delivering any additional support to the CAD right now.”

“The CAD retains a very tight, positive correlation with US equities at present and weak risk appetite seems likely to persist while inflationary pressures are elevated and geo-political tensions are high. This will keep the CAD tone soft.”

• NZD/USD rallies on hotter-than-expected Q3 inflation figures from New Zealand.
• The risk-on mood weighs on the USD and further benefits the risk-sensitive kiwi.
• Hawkish Fed expectations help limit the USD downside and seem to cap the pair.

The NZD/USD pair gains strong positive traction for the second successive day on Tuesday and climbs to a fresh one-and-half-week high during the early North American session. Spot prices, however, struggle to find acceptance above the 0.5700 mark and retreat a few pips from the daily peak.

The New Zealand dollar gets a strong boost in reaction to hotter domestic consumer inflation for the third quarter, which lifts bets for more rate hikes by the Reserve Bank of New Zealand. On the other hand, the ongoing rally in the equity markets undermines the safe-haven US dollar and offers additional support to the risk-sensitive kiwi.

The USD downtick, however, remains cushioned amid firming expectations that the Federal Reserve will stick to its aggressive policy tightening path to combat stubbornly high inflation. In fact, the current market pricing indicates a nearly 100% chance of another supersized 75 bps rate hike in November, which acts as a tailwind for the USD.

Furthermore, better-than-expected US Industrial Production data, which recorded a growth of 0.4% in September as compared to -0.1% previous, offers some support to the greenback. This turns out to be a key factor capping the upside for the NZD/USD pair and warrants some caution before positioning for any further near-term appreciating move.

Market participants now look forward to a slew of important Chinese macro data, due for release during the Asian session on Wednesday. This will play a key role in influencing the broader market risk sentiment. Apart from this, the USD price dynamics should provide a fresh impetus to the NZD/USD pair and help determine the near-term trajectory.

Technical levels to watch

• EUR/USD keeps the optimism well and sound near 0.9870.
• EMU, Germany Economic Sentiment surprised to the upside.
• US Industrial Production expanded 0.4% MoM in September.

The buying interest in the single currency gathers extra impulse and lifts EUR/USD to the area of multi-session highs past 0.9870 on Tuesday.

EUR/USD stronger on USD-selling, risk appetite

EUR/USD remains well bid in the upper-0.9800s as the selling pressure around the greenback seems to have picked extra pace on Tuesday.

In addition, the prevailing risk-on mood continues to support the pair’s upside bias despite German yields now give away initial gains and return to the negative territory, adding to Monday’s decline.

Extra support for the European currency also came after the Economic Sentiment measured by the ZEW institute in Germany and the Euroland unexpectedly came in above estimates in October, reversing at the same time the previous downtrend.

In the US, Industrial Production expanded at a monthly 0.4% in September and 5.3% from a year earlier. Next in the calendar comes the NAHB Index, TIC flows and the speech by Minneapolis Fed N.Kashkari (2023 voter, dove).

What to look for around EUR

EUR/USD remains in recovery-mode and now set sails to the 0.9900 neighbourhood amidst faltering price action surrounding the dollar.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Following latest results from key economic indicators, the latter is expected to extend further amidst the ongoing resilience of the US economy.

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

Key events in the euro area this week: EMU, Germany ZEW Economic Sentiment (Tuesday) – EMU Final Inflation Rate, European Council Meeting (Thursday) - European Council Meeting, EMU Flash Consumer Confidence (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.

EUR/USD levels to watch

So far, the pair is gaining 0.23% at 0.9860 and expects the next resistance at 0.9875 (weekly high October 18) followed by 0.9999 (monthly high October 4) and finally 1.0050 (weekly high September 20). On the other hand, a breach of 0.9631 (monthly low October 13) would target 0.9535 (2022 low September 28) en route to 0.9411 (weekly low June 17 2002).

EUR/USD holds a tight range above 0.98. The pair needs to break past 0.9970 in order to see further gains, economists at Scotiabank report.

Broader downtrend remains very much intact

“Yesterday’s EUR gains through the low 0.98s was a technical positive for the EUR, in our opinion, but the broader downtrend in this market remains very much intact; a break above 0.9970 – major trend resistance –  is needed for the EUR rally to really extend meaningfully.”

“Intraday support is 0.9825/30. Resistance is 0.9880.”

• GBP/USD stages a modest intraday recovery, though lacks any follow-through buying.
• Subdued USD demand offers support; the UK political uncertainty caps the upside.
• A move beyond the 1.1400 handle is needed to support prospects for additional gains.

The GBP/USD pair rebounds a few pips from the daily low and climbs back above the 1.1300 mark during the early North American session. The modest recovery is sponsored by the emergence of some US dollar selling, though lacks bullish conviction amid the UK political uncertainty.

In fact, rebels within the ruling Tory Party are coming together to replace the newly-elected UK Prime Minister Liz Truss in the wake of the recent tax cut fiasco. Apart from this, reports that the Bank of England is set to further delay quantitative tightening to help stabilize bond markets act as a headwind for sterling and cap the GBP/USD pair.

Moreover, oscillators on the daily chart have been struggling to gain any traction, suggesting that any subsequent move up might confront resistance near the 1.1400-1.1410 area. This is followed by the overnight swing high, around the 1.1440 area, above which the GBP/USD pair could climb to the monthly peak, just ahead of the 1.1500 psychological mark.

The latter coincides with the 50-day SMA, which if cleared decisively should pave the way for an extension of the recent recovery from an all-time low touched in September. The GBP.USD pair might then accelerate the momentum towards the 1.1555-1.1560 intermediate resistance before eventually climbing to the 1.1600 round-figure mark.

On the flip side, weakness below the 1.1300 mark now seems to find some support near the daily low, around the 1.1255 region. Some follow-through selling would expose the 1.1200 level, below which the GBP/USD pair could slide to the next relevant support near the mid-1.1100s. The latter should now act as a pivotal point for spot prices.

Failure to defend the mentioned support levels will negate any near-term positive bias and shift the bias back in favour of bearish traders. The GBP/USD pair could then accelerate the fall towards testing the 1.1100 mark and the 1.1055-1.1050 support zone.

GBP/USD daily chart

Key levels to watch

GBP/USD weakens as it fades an uptick above 1.1400. Economists at Scotiabank expect the pair to slump to the mid-1.11s on failure to hold support in the upper 1.12s.

Resistance aligns at the 1.1340/50 area

“Intraday support in the upper 1.12s is coming under pressure. Below here, cable risks dipping back to the mid-1.11s.”

“Resistance is 1.1340/50 and then 1.1450/60.” 

“Political and economic risks for the GBP remain elevated.”

See – GBP/USD: 1.15 is not realistic without a further round of dollar selling – SocGen

• USD/CAD struggles to capitalize on its goodish rebound from over a one-week low.
• The risk-on impulse is weighing on the safe-haven buck and acting as a headwind.
• Bearish oil prices undermine the loonie and should help limit any meaningful slide.

The USD/CAD pair stages a goodish recovery from a one-and-half-week low touched earlier this Tuesday, though the momentum falters near the 1.3780 region. Spot prices retreat to the 1.3700 mark during the early North American session and remain at the mercy of the US dollar price dynamics.

The prevalent risk-on mood - as depicted by a strong follow-through rally in the equity markets - fails to assist the safe-haven buck to capitalize on its modest intraday gains. This, in turn, acts as a headwind for the USD/CAD pair, though a combination of factors warrants caution for bearish traders and before positioning for deeper losses.

The prospects for a more aggressive policy tightening by the Fed might continue to lend support to the greenback and warrant some caution before placing bearish bets around the USD/CAD pair. In fact, the current market pricing indicates a nearly 100% chance of the fourth successive supersized 75 bps Fed rate hike move in November.

Furthermore, worries that a deeper global economic downturn will dent fuel demand weigh on crude oil prices. This could undermine the commodity-linked loonie and further contribute to limiting the downside for the USD/CAD pair. Hence, it will be prudent to wait for strong follow-through selling before confirming that spot prices have topped out.

Market participants now look to Industrial Production data and Capacity Utilization Rate for some impetus. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand. Traders will further take cues from oil price dynamics, though the focus will remain on the Canadian consumer inflation figures on Wednesday.

Technical levels to watch

• EUR/USD trades without conviction around the 0.9830 region.
• Next on the upside aligns the 55-day SMA at 0.9956.

EUR/USD gives away the initial advance to the 0.9870 region and deflates to the 0.9830 area on Tuesday

Further recovery in the pair looks probable in the very near term. Against that, the 55-day SMA at 0.9956 emerges as the next temporary hurdle prior to the more relevant October top at 0.9999 (October 4).

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0561.

EUR/USD daily chart

Gold ended up snapping a two-week winning streak, losing over 2% on a weekly basis. Chinese growth data and action in the US bond market will be watched closely this week, FXStreet’s Eren Sengezer reports.

Gold to remain sensitive to fluctuations in US bond yields

“The Chinese economy is forecast to expand at an annualized rate of 3.4% in the third quarter following the dismal 0.2% growth recorded in the second quarter. In case the GDP data comes in below the market expectation, gold could have a hard time finding demand and vice versa.”

“Wednesday may be important as September Housing Starts will be featured in the US economic docket. A significant decline in this data could cause the dollar to lose strength, helping gold higher. September Existing Home Sales on Thursday could also have a similar impact on the greenback’s market valuation.”

“Since markets are already fully pricing in another 75 bps Fed rate hike in November, US yields might not have a lot of room on the upside. Hence, XAU/USD could see that as an opportunity to make a technical rebound/correction.”

• DXY attempts a mild rebound after bottoming out near 111.80.
• Further range bound remains on the cards for the time being.

DXY bounces off multi-session lows in the 111.80/75 band on Tuesday.

So far, the index looks poised to keep navigating within a 112.00-114.00 range at least until the next FOMC event.

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 8-month support line near 108.00.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.43.

DXY daily chart

The US dollar has stayed lower. In the opinion of economists at Société Générale, the US Dollar Index (DXY) could see a fall of another 2%.

DXY unable to revisit last month’s high of 114.78

“The DXY has not managed to revisit last month’s high of 114.78 despite the new high for 2Y UST yields, and that’s certainly not positive.”

“There could be another 1.5-2% in this down-move if we follow the logic of early October, but cheaper levels could attract buyers before the November FOMC.”

• EUR/JPY advances to new highs around the 147.00 mark.
• Next on the upside comes the December 2014 high at 149.78.

EUR/JPY accelerates the upside momentum and reaches fresh tops around the 147.00 hurdle, an area last seen back in December 2014.

Considering the current price action, further gains remain favoured. That said, the immediate target now emerges at the December 2014 peak at 149.78 (December 8).

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

In the longer run, while above the key 200-day SMA at 136.60, the constructive outlook for the cross should remain unchanged.

EUR/JPY daily chart

• AUD/USD surrenders its modest gains amid the emergence of fresh USD buying.
• Aggressive Fed rate hike bets, elevated US bond yields offer support to the buck.
• The risk-on mood limits the downside for the risk-sensitive aussie, at least for now.

The AUD/USD pair struggles to capitalize on its modest intraday uptick and attracts fresh sellers near the 0.6330 area on Tuesday. Spot prices retreat below the 0.6300 round-figure mark during the first half of the European session, with bears now awaiting a sustained break through the 100-hour SMA support.

Elevated US Treasury bond yields assist the US dollar to stage a goodish bounce from over a one-week low, which turns out to be a key factor exerting some pressure on the AUD/USD pair. Investors seem convinced that the Federal Reserve will continue to tighten its monetary policy at a faster pace to tame inflation. The current market pricing suggests a nearly 100% chance for another supersized 75 bps Fed rate hike in November. This, in turn, continues to act as a tailwind for the US bond yields and the greenback.

That said, a V-shaped recovery in the global equity markets is holding back traders from placing fresh bets around the safe-haven buck and offering support to the risk-sensitive aussie. Any meaningful upside, meanwhile, remains elusive amid the Reserve Bank of Australia's (RBA) decision to slow the pace of policy tightening earlier this month. Furthermore, the RBA minutes released this Tuesday showed that policymakers opted to reduce the size of the rate hike and wait to see the impact of the recent tightening on household spending.

Furthermore, recession fears - amid concerns about the economic headwinds stemming from rapidly rising borrowing costs, geopolitical risks and China's strict zero-COVID policy - could keep a lid on the latest optimism. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside. Market participants now look forward to the US economic docket, featuring the release of Industrial Production data and Capacity Utilization Rate for a fresh impetus later during the early North American session.

The focus, however, will be on a slew of important Chinese macro data, due on Wednesday, which will play a key role in influencing the sentiment surrounding the China-proxy Australian dollar. Apart from this, Thursday's release of the monthly employment details from Australia should help investors to determine the next leg of a directional move for the AUD/USD pair.

Technical levels to watch

Gold is trading at $1,650, only somewhat above the low it posted on Friday. The yellow metal is set to remain under pressure as central banks are unlikely to stop hiking, strategists at Commerzbank report. 

Platinum holding its own fairly well thanks to robust car sales 

“The relative weakness of gold is probably attributable to the still high and virtually unchanged rate hike expectations, which have been fuelled by persistently hawkish comments by Fed and ECB representatives.”

“Platinum has been performing significantly better than gold recently. Platinum may be benefiting from the fact that passenger car sales figures in the EU have been picking up of late.”

GBP/USD was able to return above 1.14. However, the pair is on the back foot again. Economists at Société Générale believe that cable is unlikely to surpass the 1.15 level.

Break above 1.1495/1.1550 is essential for extension in bounce

“Cable is in vicinity to first resistance zone of 1.1495/1.1550 representing the 50-DMA and the 61.8% retracement from August. It is worth noting that the pair has struggled to establish itself beyond this MA since breaking it decisively in February.”

“Daily RSI is also near the upper end of bearish territory denoting a cross above zone of 1.1495/1.1550 is essential for extension in bounce. Failure can lead to continuation in downtrend.”

“1.15 for GBP/USD is not realistic we think without a further round of dollar selling.”

• Gold struggles to capitalize on its early uptick amid the emergence of some USD dip-buying.
• Aggressive Fed rate hike bets, elevated US bond yields act as a tailwind for the greenback.
• Growing recession fears offer some support to the XAU/.USD and helps limit the downside.

Gold surrenders its modest intraday gains to the $1,660 zone and retreats to the lower end of its daily trading range during the first half of the European session. Currently hovering around the $1,650 area, the emergence of some US dollar dip-buying is seen as a key factor weighing on the dollar-denominated commodity.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, rebounds swiftly from a one-and-half-week low touched earlier this Tuesday. The prospects for a more aggressive policy tightening by the Fed, reaffirmed by hotter US consumer inflation figures released last week, remain supportive of elevated US Treasury bond yields. This, in turn, assists the greenback to regain positive traction and drives flows away from the non-yielding gold.

Apart from this, a V-shaped recovery in the global risk sentiment - as depicted by the ongoing strong follow-through rally in the equity markets - further undermines the safe-haven XAU/USD. The downside, however, remains cushioned, at least for the time being, amid worries about a deeper global economic downturn. Rapidly rising borrowing costs, along with geopolitical risks and China's strict zero-COVID policy, have been fueling recession fears and should cap the optimism.

The mixed fundamental backdrop warrants some caution before placing aggressive directional bets, though the metal's inability to gain any meaningful traction favours bearish traders. Furthermore, the recent repeated failures near the $1,680-$1,682 supply zone suggest that the path of least resistance for gold is to the downside. Hence, any move up back towards the said barrier could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Market participants now look forward to the US economic docket, featuring the release of Industrial Production data and Capacity Utilization Rate. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to gold. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities around the XAU/USD.

Technical levels to watch

UAE Energy Minister Suhail Mohamed AlMazrouei said on Tuesday that “our commitment to increasing our production capacity is there.”

Additional comments

“We renew our confidence in OPEC+ with the output cut decision and we say that this was a correct decision.”

“There is nothing political about any decision we take in OPEC.”

“The decision we took made prices stabilize rather than just increase.”

“We are investing to increase production capacity to 5 mln bpd by 2030.”

Market reaction

WTI is consolidating its latest downswing at around the $84 mark, as bears keep cheering the latest comments by the UAE Energy Minister. The US oil failed to sustain yet another attempt aboive the $85 threshold amid a renewed buying interest seen in the dollar, despite a risk-on market environment.

Measures of the trade-weighted US Dollar Index are around 2.5% off their highs of the year. Corrective forces may dominate short-term but the core bull trend should remain intact, economists at ING report.

Corrective forces build

“A reversal in UK fiscal policies, some stability in equity markets, and a dip in European energy prices point to a further corrective period in FX markets.”

“A quiet week for US data could see the dollar correction extend a little. And the case could be made for DXY heading back to 110 (another 2% drop). But a core view of not just the Fed, but other central banks hiking into a looming recession should mean that the core dollar bull trend remains intact.”

Amidst the UK government’s fiscal policy U-turn, the long-term bearish bias on the pound has eased at the fastest pace since June 2016, as depicted by the options market, Bloomberg reports on Tuesday.

One-year risk reversals in cable, a measure of the spread between call and put prices rallied on Monday in favor of calls by the most since June 2016.

The gauge had reached a record bearish level last week on concern the policy put the government into a long-standing debt crisis and a persistently high inflation era.

In additional evidence of confidence in the British currency, “hedge funds  -- which flock to options markets to place large bets -- have been closing options structures that pay out should the pound weaken since Friday,” Bloomberg said.

At the time of writing, GBP/USD is seeing a fresh selling wave, losing 0.70% on the day to trade at 1.1270. Fading expectations of big BOE rate hikes combined with BOE’s denial of the Financial Times (FT) report on further delay in bond sales exacerbate the pain in the major.

Economist at UOB Group Lee Sue Ann suggests the Bank Indonesia (BI) could raise the policy rate further at its October 20 event.

Key Quotes

“To mitigate the risk of rising inflation, we continue to see BI hiking in months to come, with three more 25bps hikes in 4Q22, taking its benchmark rate now to 5.00% by the end of 2022 (previous forecast: 4.50%).”

• USD/JPY hits a fresh 32-year high on Tuesday, though lacks any follow-through buying.
• Speculations that Japanese authorities will intervene act as a headwind for the major.
• The Fed-BoJ policy divergence, the risk-on mood weighs on the JPY and offers support.

The USD/JPY pair reverses a knee-jerk intraday fall to the 148.00 neighbourhood and climbs back closer to a 32-year peak touched earlier this Tuesday. The pair is currently placed around the 149.00 mark, though lacks bullish conviction as traders await a fresh catalyst before positioning for any further appreciating move.

Japan's Finance Minister Shunichi Suzuki warns again on Tuesday that the government will take decisive action against excessive, speculator-driven currency moves. This turns out to be a key factor holding back bulls from placing aggressive bets around the USD/JPY pair and acting as a headwind for spot prices. The downside, however, remains cushioned amid a big divergence in the monetary policy stance adopted by the Bank of Japan and the Federal Reserve.

In fact, the BoJ remains committed to continuing with its monetary easing and so far, has shown no inclination to hike interest rates from ultra-low levels. The dovish bias was reaffirmed by Governor Haruhiko Kuroda's comments last Friday, saying that raising interest rates now was inappropriate in light of the country's economic and price conditions. Furthermore, reports that a fresh stimulus in Japan could have a target of ¥30 trillion weigh on the JPY.

The US central bank, on the other hand, is expected to stick to its rate-hiking cycle to curb inflation. The bets were reaffirmed by hotter US consumer inflation figures released last week and the recent hawkish remarks by several Fed officials. The current market pricing indicates a nearly 100% chance of another supersized 75 bps Fed rate hike move in November. This, in turn, remains supportive of elevated US Treasury bond yields and acts as a tailwind for the US dollar.

In fact, the yield on the benchmark 10-year US government bond holds steady near the 4.0% threshold, widening the US-Japan rate differential. Apart from this, a strong recovery in the global risk sentiment continues to undermine the safe-haven JPY and supports prospects for an extension of the well-established bullish trend. That said, extremely overbought conditions might hold back traders from placing aggressive bets around the USD/JPY pair.

Technical levels to watch

The Bank of England (BoE) is set to further delay quantitative tightening until gilt markets calm. This is unwelcome news for sterling, in the view of Kit Juckes, Chief Global FX Strategist at Société Générale.

BoE to delay the start of QT

“I can’t imagine anyone being very surprised that the BoE is reported to be delaying the start of QT, due to current gilt market volatility. It’s obviously not a sterling-friendly move, delaying the tightening in financial conditions that would result from QT, but the gilt market itself seems largely unmoved.”

“10-year yields have settled down just below 4% for now, and the next thing that should move them will be a re-pricing of the front end of the curve, which still prices rates getting to 5% (from 2.25%) within six months. That seems wrong, to me and if that’s what it takes to keep sterling here, then it has little or no upside.”

Amidst the relentless rally in the USD/JPY pair, Japan’s ruling Liberal Democratic Party (LDP) Chief Hagiuda said that the country’s economic stimulus package could have a target of as much as JPY30 trillion, per Kyodo news agency.

developing story ...

UK government action triggers broader relief rally for risk assets. However, this is just a temporary setback for the US dollar, economists at MUFG Bank report.

GBP unlikely to continue to strengthen once the initial relief rally fades

“We are not convinced that the UK’s weak macro fundamentals justify the pound continuing to strengthen once the initial relief rally fades.”

“We see the broader US dollar sell-off as just a temporary correction lower while the Fed remains committed to tighter policy and fears over a hard landing for the global economy remain in focus.”

• German ZEW Economic Sentiment arrived at -59.2 in October vs. -65.7 expected.
• The ZEW Current Situation for Germany came in at -72.2 in October vs. -68.0 expected.
• EUR/USD hovers above 1.0150 despite downbeat German and Eurozone data.

The German ZEW headline numbers for October showed that the Economic Sentiment Index improved to -59.2 while beating estimates of -65.7 vs. -61.9 previous.

Meanwhile, the Current Situation sub-index arrived at -72.2 in October vs. -68.0 expectations and September’s -60.5.

The Eurozone ZEW Economic Sentiment Index stood at -59.7 in the current month as compared to the -60.7 previous reading and -60.6 expected.  

Key takeaways

FX market reaction

The euro pays little heed to the mixed ZEW Surveys from Germany and Eurozone. EUR/USD was last seen trading at 0.9940, almost unchanged on the day.

The Bank of England (BOE) confirmed in a statement on Tuesday, the Financial Times report of a possible delay to start of the quantitative tightening bond-selling programme is inaccurate.

Earlier, the FT reported that the BOE was seen further delaying the quantitative tightening (QT) from its latest scheduled date of Oct. 31, having already delayed it from original date of Oct. 6.

Also read: GBP/USD tests 1.1300 after BOE spokesman declines to comment on FT bond report

Market reaction

In a knee-jerk reaction to the BOE headlines, GBP/USD briefly dipped below 1.1300 to hit the intraday low at 1.1288, before recovering ground to near 1.1315, where it now wavers. The pair is still down 0.29% on the day.

How far should sterling now rally? Economists at ING believe that the GBP/USD pair is unlikely to trade above the 1.15 level.

Do not chase sterling higher

“While there may be some more fiscal positives to come were the Conservatives to look at a windfall tax on the energy companies, we suspect cable will struggle to sustain gains over 1.15 this month.”

“News that the UK government is shortening the period of the Energy Price Guarantee to six months from two years may not be greeted well by the consumer and also raises the prospect of UK inflation staying higher for longer.”

“One month GBP/USD implied volatility (now at 16% versus a peak near 22% in late September) may struggle to return to pre-crisis levels of 12% – confirming that trust is hard won and easily lost.”

Economist at UOB Group Enrico Tanuwidjaja reviews the latest trade balance results in Indonesia.

Key Takeaways

“Sep’s trade surplus came in at USD5bn and with that, Indonesia’s cumulative trade surplus this year up to Sep 22 widened to just a touch below USD40bn. We believe it will exceed that mark by the end of this year and clinch a historic high for Indonesia’s trade position, currently already at record high.”

“However, exports and imports growth came in below expectations at 20.3% and 22.0% y/y respectively, well below forecast of 28.6% and 33.4% by a wide margin. Exports stood at USD24.8bn in Sep and imports at USD19.8bn.”

“Non-oil & gas exports continued to drive overall exports down while oil & gas imports remained elevated, though the latter was slightly down amidst easing crude oil prices.”

The Japanese yen weakened to a 32-year low. A less dovish Bank of Japan will reinforce the MoF’s actions and an undervalued JPY can be an automatic stabiliser. Therefore, economists at HSBC expect USD/JPY to tick down by year-end and further in 2023.

Light at the end of the tunnel

“The MoF may get some help from the BoJ if the BoJ relents on its dovishness. Indeed, the BoJ’s unlimited bond purchases are not only in stark contrast with the Federal Reserve (Fed), which is raising rates and shrinking its balance sheet but also in contradiction with the MoF’s FX intervention, which drains JPY liquidity.”

“An undervalued JPY may discourage outward direct investment and prompt more repatriation of overseas income among Japanese corporates, while it may attract direct investment from foreigners. Now that Japan’s borders are reopening, an undervalued yen may also help raise Japan’s tourism revenue which could help offset the large fuel trade deficit going forward.”

“We believe that USD/JPY is close to peaking and would correct modestly at the end of the year and further in 2023.”

• The upside momentum in EUR/USD falters near 0.9870.
• The dollar regains some composure despite lower US yields.
• EMU, Germany ZEW Economic Sentiment next on tap.

The European currency now comes under some selling pressure and motivates EUR/USD to recede from the area of daily highs near 0.9870.

EUR/USD focuses on data, USD-dynamics

EUR/USD looks to extend an auspicious start of the week against the backdrop of the inconclusive price action around the greenback, all within a context of persevering appetite for the riskier assets.

Price action around spot, in the meantime, is accompanied by an uptick in the German 10-year bund yields, always amidst the broader consolidation above the 2.30% level.

In the domestic calendar, the focus of attention will be on the Economic Sentiment in both Germany and the broader Euroland tracked by the ZEW institute for the current month. Across the pond, Industrial Production and the NAHB index are due along with the speech by FOMC’s N.Kashkari.

What to look for around EUR

EUR/USD remains in recovery-mode and now set sails to the 0.9900 neighbourhood amidst faltering price action surrounding the dollar.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Following latest results from key economic indicators, the latter is expected to extend further amidst the ongoing resilience of the US economy.

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

Key events in the euro area this week: EMU, Germany ZEW Economic Sentiment (Tuesday) – EMU Final Inflation Rate, European Council Meeting (Thursday) - European Council Meeting, EMU Flash Consumer Confidence (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.

EUR/USD levels to watch

So far, the pair is gaining 0.10% at 0.9846 and expects the next resistance at 0.9873 (weekly high October 18) followed by 0.9999 (monthly high October 4) and finally 1.0050 (weekly high September 20). On the other hand, a breach of 0.9631 (monthly low October 13) would target 0.9535 (2022 low September 28) en route to 0.9411 (weekly low June 17 2002).

EUR/USD continues its advance on Tuesday. Economists at ING expect the 0.9980/1.0000 region to cap the correction.

Corrective window for EUR/USD

“Energy shock is temporarily going into reverse as European gas prices drop sharply on the warmer weather and European governments having largely achieved their gas storage targets. It would thus be churlish of us to suggest that EUR/USD does not need to rally.”

“A quiet week for US data (just soft US housing) creates a corrective window for EUR/USD, where an obvious target is the top of this year's bear channel at around the 0.9980/1.0000 area. We would assume that this continues to hold the correction.”

Media outlets are reporting, citing sources, a Bank of England (BOE) spokesman declines to comment on the Financial Times (FT) report on the central bank’s bond sales.  

developing story ...

UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia suggest USD/CNH needs to clear 7.2380 to allow for a sustained upside in the near term.

Key Quotes

24-hour view: “Our view for USD to ‘trade with an upside bias’ did not materialize as it traded sideways within a range of 7.1903/7.2220 before closing largely unchanged at 7.2073 (-0.07%). Momentum indicators are mostly neutral and further sideway-trading would not be surprising. Today’s expected range is 7.1850/7.2200.”

Next 1-3 weeks: “There is not much to add to our update from last Friday (14 Oct, spot at 7.1880). As highlighted, further USD strength is not ruled out but 7.2380 is acting as a solid resistance now and USD has to break this level before a sustained rise is likely. Overall, only a breach of 7.1500 (no change in ‘strong support’ level) would indicate that the upside risk has subsided.”

US Dollar Index (DXY) has turned lower. The greenback could suffer further losses if US data disappoint, economists at OCBC Bank report.

US data may have an asymmetric effect on USD

“This week, we continue to watch US data – Industrial production on Tue and Beige book on Wed. We reiterate our call that US data may have an asymmetric effect on USD – i.e. strong US data may just keep USD broadly supported while downside surprise to US data may see more room for USD to fall.”

“Daily momentum is showing signs of turning mild bearish while RSI shows tentative signs of falling. Bias to lean against strength.” 

“Support at 111.85 levels (38.2% fibo), 111.20 (23.6% fibo).”

“Resistance at 112.40 (50% fibo retracement of Sep high top Oct low, 21 DMA), 113 and 113.70.”

• The index loses further momentum and breaks below 112.00.
• US yields trade in a mixed bias so far on turnaround Tuesday.
• Industrial Production, NAHB Index next of note in the docket.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main rival currencies, adds to the pessimism seen at the beginning of the week and drops below 112.00.

USD Index looks to data, risk trends

The index sheds ground for the second session in a row so far on Tuesday against the backdrop of further improvement in the risk-associated universe and the mixed performance in US yields.

Indeed, and amidst the absence of strong catalysts and with a 75 bps rate hike by the Fed almost fully priced in at the November 2 meeting, price action around the dollar has succumbed to the dynamic of the broad risk appetite trends. That said, US yields along the curve trade within marginal ranges, although they manage well to keep navigating the upper end of the recent range and near multi-year highs. 

Later in the NA session, Industrial Production figures will take centre stage seconded by the NAHB Housing Market Index and TIC Flows. In addition, Minneapolis Fed N.Kashkari (2023 voter, dove) is due to speak.

What to look for around USD

The corrective decline in the dollar remains unchanged in the first half of the week against the backdrop of the resurgence of the appetite for the risk-linked galaxy.

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 to prop up the underlying positive tone in the index.

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

Key events in the US this week: Industrial Production, NAHB Housing Market Index, TIC Flows (Tuesday) – MBA Mortgage Applications, Building Permits, Housing Starts, Fed Beige Book (Wednesday) – Initial Jobless Claims, Philly Fed Index, Existing Home Sales, CB Leading Index (Thursday).

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

USD Index relevant levels

Now, the index is retreating 0.08% at 111.97 and the breakdown of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13). On the upside, the immediate hurdle comes at 113.88 (monthly high October 13) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).

• AUD/USD retreats from intraday high during two-day uptrend.
• Bullish MACD signals, firmer RSI keeps buyers hopeful to overcome six-week-old bearish channel.
• Resistance-turned-support restricts immediate downside ahead of the yearly low.

AUD/USD grinds higher past 0.6300, seesaws around 0.6310-15 during Tuesday’s initial European session, as buyers approach the short-term key hurdle.

That said, a clear upside break of the eight-day-old previous resistance line, now support near 0.6280, keeps buyers hopeful.

However, a downward-sloping trend channel since early September, between 0.6055 and 0.6355, challenges the AUD/USD buyers of late.

Even so, the bullish MACD signals and recently firmer RSI, not overbought, suggests the Aussie pair’s upside break of the 0.6355 hurdle.

Following that, the 100-SMA level surrounding 0.6390 could act as a buffer during the run-up targeting the monthly high near 0.6540 and the 200-SMA resistance around 0.6560.

On the contrary, pullback moves remain elusive unless the AUD/USD prices stay above the resistance-turned-support trend line of 0.6280.

In a case where the pair sellers dominate past 0.6280, a quick fall toward Friday’s bottom surrounding 0.6200 can’t be ruled out.

Though, the yearly low and the stated channel’s support line, respectively near 0.6170 and 0.6055, will gain the market’s attention.

Overall, AUD/USD pair is likely to regain the buyer’s confidence should I manage to stay beyond 0.6355.

AUD/USD: Four-hour chart

Trend: Limited upside expected

USD/JPY was last seen trading just below the 149 level. Economists at OCBC Bank highlight that the 149.50-150 area is an important resistance zone.

Rising intervention risks

“Intervention risks are on the rise as the magnitude of USD/JPY gains is increasing.”

“Cautious ahead of 149.50-150 levels.”

“Bullish momentum on daily chart intact while RSI shows signs of turning from overbought conditions.”

“Resistance at 149.50. Support at 147.70, 146 levels.”

GBP/USD extended its run higher. Although the pound remains in a weak position, economists at OCBC Bank caution that U-turns in policies can also surprise on the upside.

GBP to trade in choppy fashion

“Bullish momentum on daily chart intact while rise in RSI shows tentative signs of moderation.”

“Immediate resistance at 1.1490 (50 DMA). Support at 1.1225, 1.1150 (21 DMA).”

“Renewed political uncertainties, U-turns in policies would continue to see GBP trade in choppy fashion.”

“Still-weak macro fundamentals (stagflation concerns), lingering political uncertainties, deterioration in twin deficits on current account and fiscal accounts may continue to support sell GBP on rallies though we continue to caution that U-turns in policies can also surprise on the upside.”

FX option expiries for Oct 18 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9750 378m
• 0.9765-75 459m
• 0.9785 539m
• 0.9800 994m
• 0.9845-50 918m
• 0.9880-85 899m
• 0.9900 398m

- GBP/USD: GBP amounts        

• 1.1200 620m
• 1.1450 360m

- USD/JPY: USD amounts                     

• 146.95-147.05 431m

- AUD/USD: AUD amounts  

• 0.6250 960m
• 0.6325 421m
• 0.6470 776m

- USD/CAD: USD amounts       

• 1.3750 467m

- EUR/GBP: EUR amounts        

• 0.8695-05 546m

USD/JPY is consolidating the upside just below 149. In the view of economists at Commerzbank, the pair is set to see another leg higher as the market's restraint should disappear.

Yen bears target next threshold

“USD/JPY is trading suspiciously stable at just below 149, probably because yen traders increasingly fear the risk of intervention from the MOF/BoJ at levels close to 150.”

“It seems to me that a new significant jump to the upside in USD/JPY is only a matter of time. Should the MOF/BoJ then not clearly resist the depreciation, the yen bears are likely to increasingly shed their restraint and the upward pressure in USD/JPY should increase all the more.”

• EUR/USD seesaws around one-week high, mildly bid during the second positive day.
• Risk-on mood weigh on the DXY despite hawkish Fed bets, firmer US inflation expectations.
• European Commission to propose gas price cap, “dynamic price” seems the last resort.
• EU ZEW numbers, risk catalysts can also challenge intraday buyers amid light calendar elsewhere.

EUR/USD bulls take a breather around mid-0.9800s while keeping the previous day’s rebound near the highest levels in eight days during early Tuesday morning in Europe. That said, the major currency pair recently retreats from the intraday high as traders turn cautious ahead of the second-tier data for Eurozone and Germany, as well as certain key risk catalysts.

The pair’s latest gains could be linked to the risk-on mood as traders still cheer the UK Chancellor’s reversal of the most “mini-budget” proposals that gained major criticism and raised fears of widespread recession.

Also favoring the EUR/USD buyers could be the recently hawkish comments from the European Central Bank (ECB) policymakers versus the downbeat US data. Bundesbank President Joachim Nagel, ECB Vice President Luis de Guindos and ECB Governing Council member Olli Rehn were among them. Not only rate hike concerns but the Quantitative Tightening (QT) has also been on the ECB’s agenda and favors the pair buyers.

On the other hand, NY Empire State Manufacturing Index for October dropped -9.5 versus -4.0 expected and -1.5 prior.

Additionally, Comments from the comments from US Treasury Secretary Janet Yellen, suggesting a strong US jobs market, as well as upbeat US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, also test the EUR/USD buyers.

Amid these plays, S&P 500 Futures track Wall Street’s gains but the US 10-year Treasury yields retreat to 3.97%, which in turn favors the US Dollar Index (DXY) bears of late.

Moving on, downbeat expectations from Germany’s ZEW figures for October contrast with the likely improvement in the Eurozone sentiment index, which in turn may trouble the EUR/USD buyers. Also likely to challenge the pair buyers are the pessimism surrounding the bloc’s gas price cap as the European Commission is up for proposing the issue. “The European Commission is set to propose this week a last-resort "dynamic" price cap for natural gas in the European Union and mandatory limits on the degree to which traded prices can fluctuate in a single day, according to a draft proposal,” stated Reuters.

Technical analysis

A five-week-old resistance line, near 0.9880, restricts short-term EUR/USD upside. Even so, the pair remains on the buyer’s radar unless reversing Monday’s breakout of the 21-DMA, around 0.9780 by the press time.

New Zealand’s consumer prices rose +7.2% year-on-year in the third quarter, thus cementing the prospect of further aggressive hikes by the Reserve Bank of New Zealand (RBNZ), economists at ANZ Bank report.

Inflation data puts a very large spanner in the works for the RBNZ

“We have changed our OCR call, and now expect the RBNZ to hike the OCR by 75 bps in both November and February before stopping to take stock. This takes the OCR to a peak of 5% by February (previously 4.75% by May).”

“Inflation remained far too strong in the September quarter, with consumer prices lifting 2.2% QoQ (7.2% YoY). While there were some big movements in volatile components of the CPI, prices across the CPI generally lifted by more than expected, which was reflected in core inflation measures continuing to rise.”

“With Q3 CPI inflation coming in miles ahead of the RBNZ’s August MPS forecast of 6.4%, and domestic inflation pressures only continuing to build, this is a very concerning inflation report for the Monetary Policy Committee.”

• USD/CAD drifts lower for the second straight day and is pressured by a combination of factors.
• An uptick in oil prices underpins the loonie and exerts pressure amid a modest USD weakness.
• Aggressive Fed rate hike bets, recession fears should limit the USD downside and cap the major.

The USD/CAD pair adds to the previous day's heavy losses and remains under some selling pressure for the second successive day on Tuesday. The intraday downfall drags spot prices closer to mid-1.3600s, or a one-and-half-week and is sponsored by a combination of factors.

The prevalent risk-on environment - as depicted by a strong follow-through rally in the equity markets - continues to weigh on the safe-haven US dollar. Apart from this, a modest recovery in crude oil prices, bolstered by a softer buck, underpins the commodity-linked loonie and contributes to the offered tone surrounding the USD/CAD pair.

That said, the prospects for a more aggressive policy tightening by the Fed should act as a tailwind for the greenback and help limit deeper losses for the USD/CAD pair, at least for the time being. In fact, the markets seem convinced that the Fed will continue to hike interest rates at a faster pace to combat stubbornly high inflation.

The fed funds futures indicate a nearly 100% chance of another supersized 75 bps rate increase at the next FOMC policy meeting in November. This remains supportive of elevated US Treasury bond yields and favours the USD bulls. Apart from this, growing recession fears should cap the latest optimism in the markets and benefit the safe-haven buck.

Investors remain concerned about economic headwinds stemming from rising borrowing costs, China's zero-COVID policy and geopolitical risks. Furthermore, expectations that a deeper global economic downturn will dent fuel demand should cap the black liquid. This, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair.

Market participants now look to the US economic docket, featuring the release of Industrial Production data and Capacity Utilization Rate for some impetus later during the early North American session. Traders will further take cues from oil price dynamics for short-term opportunities, though the focus will remain on the Canadian CPI report on Wednesday.

Technical levels to watch

EUR/USD has recaptured the 0.9850 barrier. However, the pair remains vulnerable and could turn back lower very quickly, economists at Commerzbank report.

The threat of the energy crisis remains central issue

“Comments from members of the ECB council suggest that there is disagreement as to how far interest rates should be hiked in the fight against inflation. And that in turn of course depends on how hard the European economy is hit by high energy costs.”

“Chief economist Philip Lane even pointed out that the central bank should deliberately leave the level at which interest rates will peak open so as to be able to react to developments with some flexibility.” 

“Any weak economic indicators, such as potentially the ZEW indicator today, might therefore dampen the positive EUR sentiment again very quickly.”

Despite the current overbought conditions in USD/JPY, a test of the 150.00 still remains on the cards, note UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia.

Key Quotes

24-hour view: “Yesterday, we held the view that ‘overbought advance in USD could extend above 149.00 but major resistance at 150.00 is unlikely to come into view’. USD subsequently rose to a high of 149.08. While upward momentum has improved, the advance in USD has moved deeper into overbought territory. However, as long at 147.75 is not breached (minor support is at 148.30), USD could continue to rise. That said, the major resistance at 150.00 is still unlikely to come into view (minor resistance is at 149.50).”

Next 1-3 weeks: “There is not much to add to our update from yesterday (17 Oct, spot at 148.50). As highlighted, conditions are deeply overbought but further USD strength to 150.00 is not ruled out. Overall, only a breach of 147.20 (‘strong support’ level was at 146.60 yesterday) would indicate that USD is unlikely to strengthen further.”

Here is what you need to know on Tuesday, October 18:

The US dollar resumes its bearish momentum on Tuesday, having lost the recovery momentum in the Asian session, as risk flows extend into the second straight day following the UK's dramatic U-turn over the tax-slashing mini-budget. The US S&P 500 futures, the risk barometer, is gaining roughly 1.70% so far while the Asian indices rally 1.20% to 1.80%, led by the rebound in the Chinese stocks.

In early dealing, China’s stocks turned south after the country’s junk dollar bonds dropped to a record low, as a property market crisis sparked by a crackdown on excessive borrowing. Meanwhile, Chinese traders digested comments from US Secretary of State Antony Blinken. The US official said on Monday, China has made a decision to seize Taiwan on a “much faster timeline” than previously thought.

Across the fx board, the Kiwi dollar emerges as the strongest heading into the European open, followed by its Antipodean partner, the aussie. Meanwhile, the yen pulled away from 32-year highs above 149.05 against the US dollar, dragged lower by weaker Treasury yields and Japanese verbal intervention. Top Japanese officials continued their jawboning, reiterating that they are ready to take necessary steps to avoid undesirable, as they watch the FX price action with a sense of urgency. USD/JPY was last seen trading around 148.85, consolidating the upside before the next push higher.

NZD/USD surges over 1% to challenge 0.5700, as hotter New Zealand’s Q3 Consumer Price Index (CPI) ramped up bigger RBNZ rate hike expectations. NZ inflation rose by 2.2% QoQ in the third quarter, beating expectations of a 1.6% increase. Meanwhile, the annualized inflation eased from a 32-year high of 7.3% to 7.2%, although outpaced expectations of +6.6%.

Hawkish comments from RBA Assistant Governor Michele Bullock and RBA minutes underpin the sentiment around the AUD/USD pair, as they suggest the need for more rate increases in the coming months. EUR/USD also capitalized on retreating Treasury yields and a renewed broad-based US dollar selling, having recaptured the 0.9850 barrier. Although bulls remain cautious ahead of the German and Eurozone ZEW sentiment surveys. Germany’s Economy Minister Robert Habeck said on Monday that “with fiscal policy in place, they can avoid deep recession in Europe without fuelling inflation.”

GBP/USD is fading an uptick above 1.1400, as investors assess the Financial Times (FT) report that stated the Bank of England (BOE) is set to delay quantitative tightening (QT) worth £838bn until bond markets calm. The report comes after the new UK Chancellor Jeremy Hunt ditched almost all of the mini-budget announced by PM Liz Truss on September 23. The gains in cable appear short-lived, as PM Truss braces for political challenges, with Tory backbenchers preparing to oust her.

Gold is holding its recovery momentum above the $1,650 barrier but is likely to remain in a defined range until buyers reclaim the critical $1,670 hurdle. The softer dollar keeps lending support to the metal.

Bitcoin price is gradually pushing higher while above $19,500 but bulls stay cautious amid a wall fall of healthy resistance levels on a daily timeframe.

With inflation continuing to run hot, economists at Westpac have revised up their forecast for the Official Cash Rate. They now expect the cash rate to peak at 5%.

Inflation refuses to die, activity holding firm

“We now expect the OCR to reach a peak of 5% for this cycle (previously 4.5%).”

We expect a 75 basis points hike to 4.25% at the upcoming November Monetary Policy Statement, a step up from the 50 bps increases in the last few reviews.” 

“Inflation is continuing to run red-hot across the economy, and core inflation is yet to show signs of easing despite the sharp rise in interest rates over the past year.”

“We are also seeing ongoing firmness in domestic economic conditions, including a drum-tight labour market and resilience in household demand.”

Considering advanced figures from CME Group for natural gas futures markets, open interest shrank for the second session in a row on Monday, now by around 13.1K contracts. Volume, instead, resumed the uptrend and rose by around 81.2K contracts, partially fading the previous drop.

Natural Gas: A deeper retracement to $5.50 is possible

Monday’s decline in prices of natural gas was on the back of declining open interest, which is supportive of a very near-term rebound. However, the strong build in volume does not discard further downside for the time being. Against that, the commodity could slip back further and challenge the July lows near $5.50 per MMBtu (July 5).

The Bank of England (BoE) might struggle to get inflation under control. Therefore, economists at Commerzbank expect sterling to remain under pressure.

BoE still wants to show consideration for the bond markets

“Doubts might soon arise as to whether the BoE will actually stick to its restrictive monetary policy if the economy were to fall into a significantly deeper recession than so far assumed. In addition, the BoE apparently still wants to show consideration for the bond markets and thus the treasury by wanting to delay its QT plans.” 

“We remain sceptical whether the central bank will hike rates sufficiently to get inflation under control, and as a result, we also remain rather pessimistic as far as sterling is concerned.”

• WTI has climbed above $85.00, the rally could be harmed due to multiple headwinds.
• US administration has announced an oil release of 10-15 million barrels from its SPR.
• The continuation of the no-tolerance approach towards Covid-19 by China has kept a lid on the oil demand.

West Texas Intermediate (WTI), futures on NYMEX, have extended their Tokyo gains above $85.00 and are oscillating above the same comfortably. The oil prices are still inside the woods, auctioning in a charted territory of $83.56-86.15 from Monday’s trading session.

The reason behind a rebound in oil prices could be tagged to a decline in the US dollar index (DXY), however, the rebound move could get faded amid the presence of multiple headwinds.

Signs of recession in the US economy are bolstering as the Federal Reserve (Fed) is on its way to tighten policy further to achieve its agenda of bringing price stability. Earlier, rate hikes by the Fed have done little in softening the price pressures. Therefore, the confidence lies in further deterioration of growth prospects rather than a slowdown in the price rise index.

Apart from that, a shift of J.P. Morgan liquidity from delivery equity to underweight bonds has undermined the equity class, reported Reuters. A drop in preference for equity doesn’t resemble a condition of a blissful economy.

On the supply front, US President Joe Biden's administration has announced an oil release from its emergency reserve to balance out the demand-supply mechanism. The US economy will release 10-15 million oil barrels from its Strategic Petroleum Reserve (SPR) this week.

Apart from that, the continuation of a no-tolerance approach towards Covid-19 by China has kept a lid on the oil demand.

NZD/USD is now seen navigating within the 0.5570-0.5755 range in the next few weeks, comment UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia.

Key Quotes

24-hour view: “Our view of NZD to ‘weaken further’ was incorrect as it soared to a high of 0.5649. The rapid advance is likely to extend but in view of the overbought conditions, a sustained rise above 0.5725 is unlikely. On the downside, a break of 0.5620 (minor support is at 0.5650) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “We expected NZD to weaken since late last week. In our latest narrative from yesterday (17 Oct, spot at 0.5575), we noted that while NZD is still weak, it has to break below 0.5510 further weakness is likely. NZD subsequently rebounded strongly to 0.5649 before extending its gain in early Asian trade. The breach of our ‘strong resistance’ level at 0.5560 indicates that the weakness in NZD has ended. NZD appears to have moved into a consolidation phase and is likely to trade between 0.5570 and 0.5755 for the time being.”

Gold price keeps its recovery mode intact. However, the mildly bearish 21-Daily Moving Average (DMA) at $1,670 continues to limit the upside attempts, FXStreet’s Dhwani Mehta reports.

XAU/USD defends the new support around $1,640, but for how long?

“The immediate upside barrier is seen at the previous intermittent lows around $1,660, above which the $1,670 key resistance will be retested. Unless bulls manage to find a strong foothold above the latter, any recovery attempts in the bright metal would be easily sold-off.”

“Sellers need a daily candlestick closing below the $1,640 demand area to kick off a fresh downswing towards the 2022 lows of $1,615. The last line of defense for bulls is envisioned at the $1,600 mark.”

CME Group’s flash data for crude oil futures markets noted traders trimmed their open interest positions by around 9.6K contracts on Monday, reaching the fourth consecutive daily drop. In the same line, volume dropped for the third straight day, this time by around 124.1K contracts.

WTI: Another test of $80.00 is not ruled out

Prices of the barrel of the WTI advanced marginally at the beginning of the week against the backdrop of diminishing open interest and volume. That said, a sustained rebound appears not favoured for the time being, leaving a potential visit to the $80.00 region on the table instead.

• Gold price extends the week-start recovery towards a short-term key hurdle.
• Risk-on mood weighs on DXY despite hawkish Fed bets, US inflation expectations.
• Lack of major directives facilitates the extension of the previous trend even as central banks, recession woes test XAU/USD.

Gold price (XAU/USD) remains on the front foot for the second consecutive day amid firmer market sentiment during early Tuesday. The metal’s latest recovery takes clues from the receding fears of the UK’s market collapse after the British Chancellor reversed the previous promises. Also favoring the yellow metal could be a lack of major data/events, as well as hopes of further stimulus from Japan, China and the UK. It’s worth noting that the chatters surrounding the easing recession woes in the bloc and hawkish comments from the European Central Bank (ECB) policymakers also contributed to the precious metal’s latest strength.

Moving on, a light calendar can keep XAU/USD buyers in command, considering the softer greenback. However, any negative surprises for the risk profile won’t be taken lightly as the latest recovery in prices remain doubtful, especially amid the hawkish central banks and recession woes.

Also read: Gold Price Forecast: XAU/USD defends the new support at $1,644, but for how long?

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is approaching the immediate resistance placed at $1,669, comprising Bollinger Band one-day Middle.

Following that, a convergence of the previous yearly low, 200-HMA and Fibonacci 61.8% on weekly constitute a tough nut to crack for the XAU/USD buyers around $1,679.

It’s worth noting, however, that a clear upside break of $1,679, as well as the $1,680 round figure, will need validation from the mid-month top surrounding $1,683 before directing the bulls toward the $1,700 threshold.

Alternatively, Fibonacci 23.6% on weekly and 50-HMA offers immediate support to the metal during the pullback moves around $1,655.

In a case where the commodity prices drop below $1,655, the previous daily low and Fibonacci 23.6% in one month could challenge the gold bears to around $1,643.

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.

• A combination of supporting factors pushes NZD/USD higher for the second straight day.
• Hotter-than-expected domestic consumer inflation figures boost the New Zealand dollar.
• A softer US bond yields, the risk-on impulse weighs on the USD and remains supportive.

The NZD/USD pair hits a one-and-half-week high during the first half of trading on Tuesday, with bulls now awaiting sustained strength beyond the 0.5700 round-figure mark.

A combination of factors allows the NZD/USD pair to gain strong follow-through traction for the second successive day and recover further from its lowest level since March 2020 touched last week. The New Zealand dollar gets a strong boost from hotter domestic consumer inflation figures, which smashed estimates and lifted bets for a more aggressive rate hike by the RBNZ. Apart from this, the prevalent US dollar selling bias further contributes to the ongoing positive move.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, drops to over a one-week low amid a softer tone surrounding the US Treasury bond yields. Apart from this, the risk-on impulse exerts additional downward pressure on the safe-haven buck and benefits the risk-sensitive kiwi. With the latest leg up, the NZD/USD pair seems to have confirmed a bullish breakout through the 0.5650 supply zone and seems poised to appreciate further.

That said, a combination of factors might hold back bulls from placing aggressive bets and keep a lid on any meaningful upside. Concerns about the economic headwinds stemming from rapidly rising borrowing costs, geopolitical risks and China's zero-COVID policy could cap the optimistic move in the markets. Furthermore, growing acceptance that the Fed will continue to hike interest rates at a faster pace should act as a tailwind for the USD. This, in turn, warrants caution for bullish traders.

Market participants now look forward to the US economic docket, featuring the release of Industrial Production data and Capacity Utilization Rate later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and provide some impetus to the NZD/USD pair. The focus will then turn to important macro data from China, due for release during the Asian session on Wednesday.

Technical levels to watch

• S&P 500 futures have extended their recovery above 3,740 as the quarterly earnings season kicked off.
• BOFA released stellar earnings led by upbeat NII numbers.
• The risk profile is cheerful despite escalating recession fears in the US.
• The DXY has surrendered the critical support of 112.00 with sheer selling pressure.

Global markets are displaying a stellar performance following positive cues from US markets. S&P500 futures have extended their gains after a cheerful Monday, which has infused fresh blood in the global indices. The 500-stocks basket futures have extended their gains above 3,740 after surpassing the critical hurdle of 3,720. The risk-on sentiment has strengthened further as 10-year US Treasury yields have dropped further towards 3.97%.

US markets displayed a V-shape recovery on Monday after a bloody Friday as quarterly earnings season kick-started with a bang. Bank of America (Bofa) came out with decent earnings growth supported by upbeat Net Interest Income (NII).

The US dollar index (DXY) has surrendered the round-level support of 112.00 as the positive market sentiment has trimmed the safe-haven’s appeal. The odds of a bigger rate hike by the Federal Reserve (Fed) are still solid as the CME FedWatch tool displays 99% chances in favor of the fourth consecutive 75 basis points (bps) rate announcement.

Meanwhile, recession fears in the US economy have advanced after negative commentary from J.P. Morgan on financial instruments. Strategists at J.P. Morgan cited that they are cutting back on their delivery longs in equities and trimming their underweight position in bonds due to increased risk that central banks will make a hawkish policy error, reported Reuters. Returns on bonds are scaling higher as the Fed will continue its ultra-hawkish stance despite a slowdown in the inflation rate for several months.

In the opinion of UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia, extra upside in GBP/USD lies on a breakout of the 1.1440 region.

Key Quotes

24-hour view: “We expected GBP to ‘trade within a broad range of 1.1130/1.1330’ yesterday. Our expectation was incorrect as GBP soared to 1.1440 before pulling back. While upward momentum has waned with the pullback, the current price movement is regarded as part of a consolidation instead of a reversal. In other words, GBP is likely to trade sideways for today, with the expected range being between 1.1280 and 1.1440.”

Next 1-3 weeks: “Last Friday (14 Oct, spot at 1.1310), we highlighted that the rapid rally in GBP has gained momentum and we were of the view that GBP could rise to 1.1440. Yesterday (17 Oct), GBP soared to 1.1440 before pulling back. Upward momentum has improved further, albeit not by much. While the risk for GBP remains on the upside, it has to break clearly above 1.1440 before further sustained advance is likely. Note that there is another major resistance at 1.1500. Overall, only a break of 1.1220 (‘strong support’ level was at 1.1120 yesterday) would indicate that GBP is not strengthening further.”

Open interest in gold futures markets shrank by around 4.2K contracts at the beginning of the week, reversing at the same time three consecutive daily pullbacks, according to preliminary readings from CME Group. Volume followed suit and dropped for the second session in a row, this time by around 43.4K contracts.

Gold risks a drop below $1,640

Gold prices started the week in a positive tone and extended the rebound from last week’s lows near $1,640 per ounce troy. Monday’s uptick, however, was on the back of shrinking open interest and volume and leaves the door open to a corrective decline in the very near term.

• USD/TRY snaps three-day uptrend bit prints sluggish moves.
• CBRT revises securities maintenance ratio to 5% versus 3.0% prior.
• Sluggish markets, Fears of CBRT rate cut and risk-on mood restrict immediate downside.
• Buyers need to witness US dollar’s additional strength, backed by yields to retake control.

USD/TRY prints the first intraday loss in four on the Central Bank of the Republic of Türkiye’s (CBRT) policy moves during early Tuesday morning in Europe. That said, the Turkish lira (TRY) pair drops to 18.57 by the press time.

The CBRT said on Tuesday, per Reuters, that it revised the securities maintenance ratio to 5% from 3% and that further steps as part of its "liraization strategy" will be taken in the rest of the year and 2023. “It said in the statement that by the beginning of 2023 securities will be maintained based on the targets of the Turkish lira deposits share, instead of the conversion rate,” adds the news.

It should be noted, however, that hopes of the CBRT’s rate cut during Thursday, to 11% from 12%, challenge the USD/TRY bears. The reason could be linked to the record inflation in Turkiye.

On the other hand, US Dollar Index (DXY) renews a one-week low near 111.85. In doing so, the greenback’s gauge versus the six major currencies ignores the market’s Fed wagers as the CME’s FedWatch Tool prints a nearly 95% chance of a 75 bps Fed rate hike in November. On the same line are the upbeat comments from US Treasury Secretary Janet Yellen, suggesting a strong US jobs market, as well as upbeat US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data.

The market’s risk-on mood seemed to weigh on the USD/TRY prices amid receding fears of the UK’s market collapse.

Looking forward, USD/TRY traders may witness further downside but the buyers remain hopeful ahead of the CBRT Interest Rate decision.

Technical analysis

A fortnight-old ascending trend line restricts the short-term downside of the USD/TRY pair around 18.50. That said, 18.80 and 19.00 could restrict short-term moves of the pair before directing the buyers towards the 20.00 psychological magnet.

• EUR/GBP seesaws between tepid gains/minor losses through the Asian session on Tuesday.
• The UK political uncertainty undermines the British pound and offers support to the cross.
• A weaker USD benefits the shared currency and also contributes to limiting the downside.

The EUR/GBP cross struggles to capitalize on the overnight bounce from its lowest level since early September and oscillates in a narrow trading band on Tuesday. The cross is currently placed in neutral territory, around mid-0.8600s, as traders await a fresh catalyst before positioning for the next leg of a directional move.

The downside, however, remains cushioned, at least for now, amid the UK political uncertainty, which continues to act as a headwind for the British pound. In fact, rebels within the ruling Tory Party are coming together to replace the newly-elected UK Prime Minister Liz Truss in the wake of the recent tax cut fiasco. It is worth recalling that the new UK Finance Minister Jeremy Hunt reversed almost all tax measures set out in the mini-budget led to chaos in the financial markets.

The shared currency, on the other hand, draws some support from the prevalent selling bias around the US dollar. This is seen as another factor offering some support to the EUR/GBP cross. That said, soaring bets for a bigger 100 bps rate hike by the Bank of England (BoE) in November offer some support to sterling and keep a lid on any meaningful upside for the cross. This, in turn, warrants some caution for aggressive traders and positioning for a firm intraday direction.

The market focus now shifts to the latest UK consumer inflation figures, due for release on Wednesday. The data will influence BoE rate hike expectations and drive the British pound. Traders will further take cues from the final Eurozone CPI prints, which might further contribute to providing some meaningful impetus to the EUR/GBP cross.

Technical levels to watch

The likelihood of EUR/USD breaking above the 0.9900 mark remains on the rise, according to UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia.

Key Quotes

24-hour view: “The strong surge in EUR to a high of 0.9852 came as a surprise (we were expecting range-trading). The rapid rise has gained considerable momentum and further EUR strength appears likely. That said, in view of the overbought conditions, a sustained rise above 0.9900 is unlikely. Support is at 0.9815, followed by 0.9780.”

Next 1-3 weeks: “Our latest narrative was last Friday (14 Oct, spot at 0.9775) where EUR is likely to trade within a broad consolidation range of 0.9630/0.9900. Yesterday (17 Oct), EUR soared to a high of 0.9852 before closing on a strong note at 0.9838 (+1.22%). Upward momentum is beginning to build and the risk of a break above the top of the expected range at 0.9900 is increasing. The chance of a clear break above 0.9900 will continue to increase as long as EUR does not move below 0.9730 (‘strong support’ level) within the next few days. Looking ahead, a clear break of 0.9900 will shift the focus to 0.9950, a critical resistance level.”

• Asia-Pacific equities track Wall Street, stock futures, ignore downbeat catalysts at home.
• RBA Minutes, NZ Q3 CPI join fears of Japan intervention to challenges hawks.
• Britain-inspired optimism extends amid light calendar, lack of major headlines.

Shares in the Asia-Pacific region reverse the week-start losses while tracking their global counterparts during early Tuesday. In doing so, the riskier assets ignore fears emanating from the likely central bank and money market moves at home.

That said, the MSCI’s index of Asia-Pacific shares outside Japan rises around 1.0% to refresh a one-week high whereas Japan’s Nikkei 225 drops 1.50% intraday by the press time.

Talking about the negatives, the RBA Meeting Minutes stated that the board weighed a range of arguments for hiking by 50 basis points, as it had for four months straight, but decided to lift the cash rate by 25 basis points to 2.6%. On the same line, RBA Deputy Governor Guy Bullock mentioned that the board expects to increase interest rates further over the coming months. The policymaker also added that the pace and timing will be determined by data.

Further, New Zealand’s third quarter (Q3) CPI rose to 2.2% compared to the 1.6% market forecast and 1.7% prior. The details also mentioned that the YoY CPI increased to 7.2% versus the 6.6% expected and 7.3% prior.

Elsewhere, Japanese Prime Minister Fumio Kishida stated that he won't comment on specific yen levels but govt ready to take appropriate action as needed. On the other hand, Bank of Japan (BOJ) Governor Haruhiko Kuroda mentioned, “BOJ will keep a close eye on fx, market moves and their impact on the economy.”

Also challenging the equity bulls are the grim updates from China’s annual Communist Party Congress.

Alternatively, hopes that the UK will overcome the recession woes safely underpin the risk-on mood amid downbeat US Treasury yields. Also favoring the equity buyers could be the talks that the policymakers from Japan, China and the UK will announce more stimulus.

Against this backdrop, stocks in China, Australia and New Zealand are around 1.0% to 1.5% positive on a day while those from Indonesia and South Korea trade mixed. Elsewhere, India’s BSE Sensex rises 1.20% intraday by the press time. Furthermore, the risk-on mood allows WTI crude oil to gain half a percent on a day at around $85.10.

Moving on, risk catalysts will be important for fresh impulse amid a lack of major data/events, which in turn keeps the traders on their toes.

Yet another story carried by the Financial Times (FT) on a likely Bank of England (BOE) next move, stated that the UK central bank had already delayed the start of its sale of £838bn of gilts bought under its quantitative easing programme from October 6 to the end of this month. 

Additional takeaways

It is now expected to bow to investor pressure for a further pause until the market becomes calmer.

The bank’s top officials have come to this view after judging the gilts market to be “very distressed” in recent weeks, a view backed by its Financial Policy Committee.

Market reaction

GBP/USD has popped to recapture 1.1400 on the FT report, currently trading at 1.1400, up 0.43% so far.

• GBP/USD buyers attack 1.1400 on chatters about UK politics, BOE’s QT

• Silver edges higher for the second straight day, though remains below the $19.00 mark.
• The set-up warrants some caution for bulls and before positioning for any further gains.
• A sustained break below the $18.00 mark will be seen as a fresh trigger for bearish traders.

Silver gains traction for the second successive day on Tuesday and looks to build on its recent bounce from over a two-week low, around the $18.00 mark touched on Friday. The white metal, however, remains well within the previous day's broader trading range and below the $19.00 round figure.

Technical indicators on daily/4-hour charts - though have been recovering from the negative territory - are yet to confirm a bullish bias. Hence, it will be prudent to wait for a sustained move beyond the aforementioned handle before positioning for any further appreciating move. The XAG/USD might then accelerate the momentum towards the $19.70-$19.80 supply zone.

This is closely followed by the $20.00 psychological mark, which if cleared decisively will negate any near-term negative bias and trigger a fresh wave of the short-covering move. The subsequent move up has the potential to lift the XAG/USD further beyond the $20.50 intermediate hurdle, towards testing the $21.00-$21.10 barrier, or the 200-day EMA.

On the flip side, the Asian session low, around the $18.60 area now seems to protect the immediate downside. Any further decline could find support near the $18.00 mark, which should now act as a pivotal point.  A convincing break below will make the XAG/USD vulnerable to retest the YTD low, around the $17.55 area, before dropping to the $17.00 mark.

Silver daily chart

Key levels to watch

• GBP/USD stays firmer around a fortnight top, keeps the week-start strength.
• Expectations over BOE’s delay in Quantitative Tightening (QT) recently favored buyers.
• UK Chancellor Hunt’s U-turn on “mini-budget” propelled market’s optimism.
• Fears over UK PM Truss’ future, hawkish Fed bets challenge pair buyers of late.

GBP/USD takes the bids to refresh intraday high around 1.1410 during the early Tuesday morning in Europe, extending the previous day’s upside momentum. In doing so, the cable pair takes clues from the market’s latest concerns surrounding the Bank of England’s (BOE) next move, as well as the UK’s haywire political conditions.

Reports that the BOE is set to further delay QT until gilt markets calm, shared by the Financial Times (FT), recently fuelled the GBP/USD prices. “Central bank expected to bow to investor pressure for a fresh pause to start of £838bn government bond selldown,” adds FT.

Elsewhere, expectations that Britain will overcome the recession woes, despite political jitters, underpins the GBP/USD upside. The quote witnessed a notable upside and triggered the market’s optimism after British Finance Minister Jeremy Hunt, also called Chancellor, reversed the Tory government’s “mini-budget” announcements that created havoc in the UK markets.

It should, however, be noted that the doubts over the UK Prime Minister (PM) Liz Truss’ future, due to the outrage over the policy failure, seems to challenge the pair buyers. Reports also take rounds that some of the British policymakers are preparing to oust UK PM Truss by calling 1922 Chairman Sir Graham Brady. “British Prime Minister Liz Truss met earlier on Monday with lawmaker Graham Brady, who heads up the committee in charge of running Conservative Party leadership contests, The Guardian reported, citing sources from Truss's office,” per Reuters. The meeting couldn’t get any results and might have helped the GBP/USD to remain firmer.

On the other hand, US Dollar Index (DXY) renews a one-week low near 111.85. In doing so, the greenback’s gauge versus the six major currencies ignores the market’s Fed wagers as the CME’s FedWatch Tool prints a nearly 95% chance of a 75 bps Fed rate hike in November. On the same line are the upbeat comments from US Treasury Secretary Janet Yellen, suggesting a strong US jobs market, as well as upbeat US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data.

Against this backdrop, S&P 500 Futures track Wall Street’s gains but the US 10-year Treasury yields retreat to 3.97%, which in turn favors the US Dollar Index (DXY) bears of late.

Looking forward, a light calendar keeps the GBP/USD pair traders directed toward the macros for fresh impulse. That said, the quote is likely to witness further downside amid the DXY’s failures to cheer hawkish Fed concerns amid an absence of major data/events.

Technical analysis

A five-week-old resistance line, around 1.1370 by the press time, restricts short-term GBP/USD upside, which in turn joins doubts over the British economy recovery to highlight the 21-DMA support, close to 1.1145 at the latest.

• AUD/USD has soared to near 0.6320 as the risk-on impulse has strengthened further.
• The DXY has surrendered the cushion of 112.00 and is exposed to further weakness.
• Risks from global and domestic demand were responsible for a less-hawkish RBA policy.

The AUD/USD pair has sensed a fresh buying interest from around 0.6280 and has reclaimed the round-level resistance of 0.6300 firmly. The aussie bulls have been underpinned amid a short-lived pullback in the US dollar index (DXY). The pullback move in the DXY terminated around 112.25 and the asset revisited below the round-level cushion of 112.00.

The risk-on profile has strengthened as investors have shrugged off pessimism. Meanwhile, S&P500 futures have accelerated significantly.

In early Tokyo, the release of the Reserve Bank of Australia (RBA) minutes brought a slight fall in the asset. The minutes clarify that the central bank trimmed the pace of the rate hike to 25 basis points (bps) to safeguard the economy from shocks of domestic and global subdued demand. Also, the central bank has already pushed interest rates firmly in a short period of time.

On economic prospects, RBA policymakers stated that headline inflation has shown exhaustion signals due to a fall in oil prices while the core Consumer Price Index (CPI) is still solid due to escalating prices for services. The administration has achieved a jobless rate of 3.5%, the lowest in the past 50 years.

Meanwhile, hawkish commentary from Michele Bullock, who is the Assistant Governor (Financial System) at the RBA, has spoken today and said the central bank is looking to raise interest rates further over the coming months, adding the bank can achieve a similar rise in rates to its global peers through smaller hikes.

This week, the Australian employment data will hog the limelight. As per the preliminary estimates, the Employment Change will drop to 25k vs. the prior release of 33.5k. While the Unemployment Rate will remain steady at 3.5%.

• USD/INR remains mildly offered at one-week low but bears hesitate of late.
• UK-inspired optimism fades amid a lack of major catalysts, policymakers’ aggression.
• Hawkish Fed bets, strong inflation expectations keep buyers hopeful.
• Hopes of RBI’s intervention, softer oil restrict immediate upside.

USD/INR gradually extends the previous day’s losses as firmer sentiment weighs on the US dollar despite hawkish Fed bets during Tuesday morning in India.

Other than the market’s risk-on mood, mainly due to the receding fears of the UK’s recession, the softer oil prices and an absence of major data/events also weigh on the USD/INR prices of late. Alternatively, hawkish Fed wagers and upbeat US inflation expectations are challenging the pair’s downside moves during a sluggish session.

British Finance Minister’s, also called Chancellor, reversal of earlier policy announcement boosted the market’s hope that London will overcome the impending market collapse. “Under the new policy, most of Truss's 45 billion pounds of unfunded tax cuts will go and the two-year energy subsidy scheme for households and businesses - expected to cost well over 100 billion pounds - will now be curtailed in April,” stated Reuters.

That said, CME’s FedWatch Tool prints a nearly 95% chance of a 75 bps Fed rate hike in November. In doing so, the tool might have taken clues from upbeat comments from US Treasury Secretary Janet Yellen, suggesting a strong US jobs market, as well as upbeat US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data.

On a different page, India’s heavy reliance on oil and the record deficit helps the INR to cheer softer oil prices. Recently, talks that the White House is up for releasing oil from the US Strategic Petroleum Reserve (SPR) seem to weigh on the WTI crude oil prices. With this, the black gold remains sluggish around a two-week low, close to $84.80 by the press time.

It should be noted that the Reserve Bank of India’s (RBI) latest interventions around 82.40 also exerted downside pressure on the quote.

While portraying the mood, S&P 500 Futures track Wall Street’s gains but the US 10-year Treasury yields retreat to 3.99%, which in turn probes the US Dollar Index (DXY) bears of late.

Given the risk-on mood and the US dollar’s inability to cheer the hawkish Fed concerns amid a lack of major data/events, the USD/INR pair is likely declining towards the 81.80 support.

Technical analysis

The first daily closing below the 10-DMA level of 82.25 in over a month directs USD/INR sellers toward a three-week-old support line near 81.80.

• EUR/USD is likely to consolidate further on symmetrical triangle formation.
• The shared currency bulls are playing with the 200-EMA at around 0.9856.
• The RSI (14) has shifted into the bullish range, which advocates the Eurozone bulls.

The EUR/USD pair has dropped marginally after printing a day’s high at 0.9853 in the Tokyo session. After a juggernaut rally, the shared currency bulls are facing a corrective move as the US dollar index (DXY) has attempted a rebound move. Meanwhile, positive risk sentiment is still elevated as S&P500 is solid with recent gains.

On a four-hour scale, the asset is auctioning in a symmetrical triangle formation that indicates a volatility contraction. An explosion of volatility contraction leads to wider ticks and heavy volume in the counter. The downward-sloping trendline of the above-mentioned chart pattern is placed from September 13 high at 1.0187 while the upward-sloping trendline is plotted from September 28 low at 0.9536.

The asset is hovering around the mighty 200-period Exponential Moving Average (EMA) at 0.9856. An upside break of the same would strengthen the Eurozone bulls further.

However, the Relative Strength Index (RSI) (14) has entered into the bullish range of 60.00-80.00, which indicates more upside ahead.

For an upside move, the shared currency needs to push the asset above the round-level resistance of 0.9900, which will send the pair toward parity. A confident break above the parity will expose the Eurozone bulls to hit September 20 high at 1.0050.

Alternatively, the shared currency bulls could lose their grip if the asset drops below Thursday’s low of 0.9630, which will drag the asset toward September 28 low at 0.9536. A breakdown of the September low will strengthen the greenback bulls further and will drag the asset toward the critical support of 0.9500.

EUR/USD four-hour chart

• Gold price has failed to sustain above $1,650.00 amid a rebound in the DXY.
• The risk-on impulse is intact despite soaring recession fears.
• A fourth consecutive 75 bps rate hike by the Fed seems certain now.

Gold price (XAU/USD) has sensed selling pressure while attempting to sustain above the immediate hurdle of $1,650.00 in the Tokyo session. The pullback move in the precious metal after dropping to near $1,646.83 in the late New York session has terminated as the US dollar index (DXY) has rebounded.

The DXY has picked bids around 112.00 after remaining in the grip of bears. However, the risk-on sentiment is still intact. S&P500 futures are holding the overnight gains followed by a bullish Monday. Also, the 10-year US Treasury yields is oscillating below the critical figure of 4%. Going forward, the yellow metal may resume its downside journey towards $1,640.00 as bets for hawkish Federal Reserve (Fed) monetary policy are solid.

As per the CME FedWatch tool, the chances of an increment in the interest rates by 75 bps consecutively for the fourth time stand at 98.9%.

Meanwhile, recession fears have advanced after negative commentary from J.P. Morgan on financial instruments. Strategists at J.P. Morgan cited that they are cutting back on their delivery longs in equities and trimming their underweight position in bonds due to increased risk that central banks will make a hawkish policy error, reported Reuters.

Gold technical analysis

On an hourly scale, the gold prices have picked significant selling pressure in several attempts of surpassing the highest auction area placed in a range of $1,661.70-1,684.50. The precious metal has sensed barricades around the 20-period Exponential Moving Average (EMA) at $1,654.43.

The Relative Strength Index (RSI) (14) is hovering around 40.00, and a drop below the same will trigger the downside momentum.

Gold hourly chart

Australian Prime Minister Anthony Albanese said on Tuesday that Australia should collaborate with China where possible.

His comments come after US Secretary of State Antony Blinken said on Monday, China has made a decision to seize Taiwan on a “much faster timeline” than previously thought.

Chinese President Xi Jinping used his Congress speech on Sunday to say the “wheels of history are rolling on towards China’s reunification” with Taiwan.

Market reaction

Encouraging comments from the Australian PM fail to impress AUD bulls, as AUD/USD struggles below 0.6300 amid a broad US dollar recovery and falling Chinese stocks. The pair is trading at 0.6285, down 0.07% on the day.

• USD/CAD takes the bids to renew intraday high, extends bounce off one-week low.
• Hawkish Fed bets, easing risk-on mood underpin the DXY rebound.
• Hopes of US SPR release exert downside pressure on oil prices.
• Second-tier US/Canadian statistics can entertain traders, risk catalysts are the key to bull’s return.

USD/CAD refreshes intraday top around 1.3740 as markets reassess the week-start optimism amid a lack of data/events, as well as fears of intervention by major central banks. Also exerting downside pressure on the Loonie pair during Tuesday’s Asian session could be the hawkish Fed bets and the softer oil prices, Canada’s key export item.

US Dollar Index (DXY) recovers to 112.20 while paring the biggest daily fall in two weeks. That said, CME’s FedWatch Tool prints a nearly 95% chance of a 75 bps Fed rate hike in November. In doing so, the tool might have taken clues from upbeat comments from US Treasury Secretary Janet Yellen, suggesting a strong US jobs market, as well as upbeat US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data.

It should be noted that China’s zero-covid policy, delaying of the key data/events and determination to defend the might of taking control in Hong Kong and Taiwan also underpin the US dollar’s safe-haven demand.

Elsewhere, talks that the White House is up for releasing oil from the US Strategic Petroleum Reserve (SPR) seem to weigh on the WTI crude oil prices. With this, the black gold prints 0.40% intraday losses around $84.40 by the press time.

Talking about the risk catalysts, S&P 500 Futures track Wall Street’s gains but the US 10-year Treasury yields retreat to 3.99%, which in turn favors the US Dollar Index (DXY) buyers of late.

Looking ahead, headlines from the UK will be important for the USD/CAD traders as the same propelled the market’s risk-on mood and favored DXY bears the previous day. Also important will be the second-tier housing data from the US and Canada.

Overall, USD/CAD is likely to remain firmer but the bulls will need a strong catalyst to convince markets.

Technical analysis

Despite the latest rebound, the USD/CAD remains below a five-week-old resistance line, previous support around 1.3815, which in turn keeps the sellers hopeful.

The Reserve Bank of New Zealand (RBNZ) released its Sectoral Factor Model Inflation gauge for the third quarter of 2022 this Tuesday.

The gauge rose to 5.4% YoY in Q3 2022 vs. 5.2% seen in Q2 (revised up from 4.6%).

In early Asia, New Zealand’s Consumer Price Index (CPI) accelerated by 2.2% QoQ in the third quarter, beating expectations of a 1.6% increase. Meanwhile, the annualized inflation eased from a 32-year high of 7.3% to 7.2%, although outpaced expectations of +6.6%.

FX Implications

The Kiwi dollar is unperturbed by the RBNZ inflation gauge, as NZD/USD is reversing the latest rally to 0.5677, triggered by the above forecast Q3 CPI release.

At the time of writing, the kiwi is trading at 0.5648, up 0.24% on the day.

About the RBNZ Sectoral Factor Model Inflation

The Reserve Bank of New Zealand has a set of models that produce core inflation estimates. The sectoral factor model estimates a measure of core inflation based on co-movements - the extent to which individual price series move together. It takes a sectoral approach, estimating core inflation based on two sets of prices: prices of tradable items, which are either imported or exposed to international competition, and prices of non-tradable items, which are those produced domestically and not facing competition from imports.

• USD/JPY pares the first intraday loss in 10 days around the highest levels since 1990.
• Bullish channel, sustained trading beyond 50-SMA joins upbeat RSI to favor buyers.
• Downside break of weekly ascending trend line, bearish MACD signals keep sellers hopeful with eyes on 148.70.

USD/JPY picks up bids to consolidate Tuesday's losses around 148.90 during mid-Asian session. In doing so, the yen pair seesaws around the multi-year high while snapping a nine-day uptrend.

Even so, the quote’s sustained trading inside the three-day-old bullish channel and the 50-SMA, challenge the bears. On the same line could be the firmer RSI (14).

However, Monday’s U-turn from the previous support line from October 13, now resistance around 149.50, joins the bearish MACD signals to tease sellers.

That said, the USD/JPY pair is likely to grind higher between the stated channel’s support line, at 148.70, and the aforementioned support-turned-resistance near 149.50.

It should be noted that the 150.00 threshold and September’s peak of 145.90 act as extra filters for the pair traders to watch for clear directions.

Should the quote stays firmer past 150.00, the odds of witnessing a run-up towards the August 1990 high near 151.65 and then to the year 1990 peak of 160.20 can’t be ruled out.

Alternatively, multiple tops marked during early September around 145.00 could challenge the USD/JPY bears past 145.90.

USD/JPY: 30-minute chart

Trend: Further upside expected

Bloomberg is reporting that the White House is considering announcing a strategic petroleum reserve (SPR) release this week.

There is nothing further reported on the same.

Market reaction

WTI is meeting fresh supply on the above headlines, heading closer to the $84 mark, down 0.51% on the day.  

US inflation expectations remained firmer on Monday, despite the risk-on mood, which in turn underpins the hawkish Fed bets and keeps the US dollar buyers hopeful during early Tuesday.

That said, the inflation precursors, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, rose to the monthly high in their latest readings.

While noting the details, the longer-term inflation expectations rose to the highest level since September 14, 2022, whereas the 5-year benchmark matches the September 20, 2022’s high with the latest figures being 2.45% and 2.48% respectively.

The US Dollar Index (DXY) justifies the upbeat inflation expectations while picking up bids to 112.20, paring the biggest daily loss in two weeks.

It should be noted that the CME’s FedWatch Tool prints a nearly 95% chance of a 75 bps Fed rate hike in November. In doing so, the tool might have taken clues from upbeat comments from US Treasury Secretary Janet Yellen, suggesting a strong US jobs market.

Additionally, China’s zero-covid policy, delaying of the key data/events and determination to defend the might of taking control in Hong Kong and Taiwan also challenge the market’s sentiment and can renew the US dollar’s safe-haven demand.

Also read: US Dollar Index Price Index: DXY bears stay hopeful below 21-DMA around 112.00

• NZD/USD bears are moving in during a slow grind in Asia. 
• A 50% mean reversion could be ob the cards while below 0.5650.

A new day and fresh prospects for NZD/USD. The pair travelled in three levels of rising on Monday and has extended the rally in Asia on the back of the CPI data, falling within touching distance of Friday's highs around 0.5680.

At this juncture, the price is starting to cave in on level 3 on the new day and range so far but a break of structure at 0.5651 is required if there are going to be prospects of a meaningful correction into level 2 and 1 longs for the day ahead. The following illustrates the current structure of the market and the week's template so far. 

NZD/USD M15 chart

The price rallied on Monday and is now starting to run into resistance in the new 50 pip box (range of the day and session) so far on level 3 on Tuesday. The M-formation is a topping pattern and the price is breaking below the CPI highs and testing the last higher low of the Asian rally at 0.5651 on level 2. There are going to be prospects of a slide out of the front side of the trendline as time goes by if the bears stay in control:

Fresh Day 2 longs and old Day 1 longs that are committed to the upside are being squeezed at this point and as the weak hand's sell-out, a cascade of offers could result in a meaningful 50% mean reversion correction of the week's range so far ahead of the European session:

• EUR/JPY retreats from the highest levels since December 2014.
• Bullish MACD signals, sustained break of 4.5-month-old resistance favor buyers.
• Tops marked in September, June adds filters to the south.

EUR/JPY snaps a five-day uptrend while stepping back from the eight-year high, down 0.26% intraday near 146.30 during Tuesday’s Asian session.

Even so, the cross-currency pair keeps the previous day’s upside break of an ascending resistance line from early June, now support near 146.15. Also keeping the EUR/JPY buyers hopeful is the bullish MACD signals.

It’s interesting to know that the pair’s weakness past 146.15 isn’t an open welcome to the bears as highs marked during the last month, as well as in June, will challenge the downside moves respectively around 145.60 and 144.25.

Also acting as a downside filter is the one-month-old horizontal support around the 144.00 threshold.

Alternatively, the latest high around 146.75 and the 147.00 round figure could lure the EUR/JPY buyers during the pair’s further upside, which is more likely.

Following that, a gradual run-up towards the year 2014 high near 149.80 and then to the 150.00 psychological magnet appears more likely.

Overall, EUR/JPY bulls can stay hopeful unless witnessing a clear downside break of 144.00.

It's worth noting, however, that the looming intevention by Japanese policymakes is the key catalyst for the JPY pairs and should be watched carefully for fresh impulse. If the policymakers from Tokyo meddle to defend yen, EUR/JPY may witness further downside.

EUR/JPY: Daily chart

Trend: Bullish

Japanese Chief Cabinet Secretary Hirokazu Matsuno crossed wires, via Reuters, in the last hour, reiterating his take on the rapid yen decline.

Key comments

Market reaction

At the time of writing, USD/JPY is trading at 148.83, retreating slightly from 32-year highs of 149.05. The Japanese verbal intervemtion appears to have cautioned bulls above the 149.00 level. The pair down 0.14% on the day.

• AUD/JPY renews intraday low, reverses from eight-day high.
• RBA Minutes, Deputy Governor Bullock tried to defend hawks but failed.
• Multiple policymakers from Japan signal readiness to act even if no actual measures are taken.
• Japan’s action becomes necessary for the bear’s return, risk-on mood favors buyers.

AUD/JPY consolidates the week-start gains around 93.70, reversing from an eight-day high, as Japanese policymakers try hard to convince markets that they can defend the yen if needed. Also challenging the pair buyers is the latest Monetary Policy Meeting of the Reserve Bank of Australia (RBA), as well as comments from RBA Deputy Governor Guy Bullock.

With the USD/JPY prices rallying to the 30-year high, markets expect Japanese intervention to defend the domestic currency. However, the policymakers from Japan have been trying to cover up their resistance to meddle in the market while showing readiness to do so.

Recently, Japanese Prime Minister Fumio Kishida stated that he won't comment on specific yen levels but govt ready to take appropriate action as needed. On the other hand, Bank of Japan (BOJ) Governor Haruhiko Kuroda mentioned, “BOJ will keep close eye on fx, market moves and their impact on economy.”

Elsewhere, the RBA Meeting Minutes stated that the board weighed a range of arguments for hiking by 50 basis points, as it had for four months straight, but decided to lift the cash rate by 25 basis points to 2.6%.

On the same line, RBA Deputy Governor Guy Bullock mentioned that the board expects to increase interest rates further over the coming months. The policymaker also added that the pace and timing will be determined by data.

Furthermore, China’s zero-covid policy, delaying of the key data/events and determination to defend the might of taking control in Hong Kong and Taiwan also challenge the AUD/JPY buyers, due to the pair’s risk barometer status and ties with Beijing.

It should be noted that the risk-on mood, inspired by the UK’s latest U-turn on “mini-budget”, seemed to have restricted the AUD/JPY downside of late.

Moving on, Japan’s intervention is closely eyed and can drown the quote on announcements. Until then, a light calendar and cautious mood may restrict the AUD/JPY pair’s moves.

Technical analysis

Until dropping back below the resistance-turned-support from mid-September, near 92.60 at the latest, AUD/JPY bulls remain hopeful of challenging the 100-DMA hurdle surrounding 94.25.

• An explosion of a neutral triangle results in wider ticks and heavy volume.
• A bull cross, represented by 20-and 50-EMAs, indicates more upside ahead.
• For a confident upside, the RSI (14) is needed to sustain in the bullish range of 60.00-80.00.

The GBP/USD pair is displaying back-and-forth moves in a narrow range of 1.1344-1.1370 in the Tokyo session. The asset has turned sideways following the footprints of the US dollar index (DXY), which is indicating volatility contraction. The risk-off market mood is gaining more traction as S&P500 futures have extended their gains. Also, the 10-year US Treasury yields have surrendered the crucial support of 4% despite firmer bets for hawkish Federal Reserve (Fed) policy.

On a four-hour scale, the pound bulls are testing the north-side break of the symmetrical triangle chart pattern.  The downward-sloping trendline of the above-mentioned chart pattern is placed from September 13 high at 1.1738 while the upward-sloping trendline is plotted from September 26 low at 1.0339. An explosion of a neutral triangle results in wider ticks and heavy volume.

A bull cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at 1.1125, adds to the upside filters.

Adding to that, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00 but requires sustaining in the range comfortably.

Going forward, an upside break of Monday’s high at 1.1440 will drive the cable towards September 14 high at 1.1590, followed by September 13 high at 1.1738.

On the flip side, a drop below the 50-EMA at 1.1200 will drag the asset toward the psychological support of 1.1000. If cable surrenders the psychological support, it will expose to more downside towards October 12 low at 1.0924.

GBP/USD four-hour chart

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1086 vs. the estimated 7.1060 and the previous 7.1095.

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.

• EUR/USD struggles to extend Monday’s gains, seesaws around one-week top.
• Comments from US Treasury Secretary Yellen, inflation expectations probe the pair buyers.
• ECB hawks battle with the bears amid risk-on mood but recession woes keep buyers away.
• October’s ZEW Sentiment figures for EU/Germany will offer immediate directions, risk catalysts are more important.

EUR/USD treads water at the eight-day high, recently retreating to 0.9840, as buyers seek more clues to extend the previous day’s run-up during Tuesday’s Asian session. As a result, today’s European and German ZEW data for October will be important for fresh impulse amid a light calendar elsewhere.

The major currency pair’s latest inaction could be linked to a mixed play between the risk-on mood and the hawkish Fed speak. Also challenging the EUR/USD traders is a light calendar in the US.

On the positive side, Germany’s rejection of recession fears and hawkish comments from the European Central Bank (ECB) policymakers favor the pair buyers. Additionally, the broad US dollar weakness due to the receding fears of the UK’s market collapse also fuels the EUR/USD prices. Furthermore, downbeat US data adds strength to the upside momentum. That said, NY Empire State Manufacturing Index for October dropped -9.5 versus -4.0 expected and -1.5 prior.

Alternatively, hawkish Fed bets and fears of market intervention in Japan and China seem to challenge the EUR/USD buyers. That said, CME’s FedWatch Tool prints a nearly 95% chance of a 75 bps Fed rate hike in November. In doing so, the tool might have taken clues from upbeat comments from US Treasury Secretary Janet Yellen, suggesting a strong US jobs market, as well as upbeat US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data.

It should be noted that China’s zero-covid policy, delaying of the key data/events and determination to defend the might of taking control in Hong Kong and Taiwan also challenge the pair’s upside momentum.

Amid these plays, S&P 500 Futures track Wall Street’s gains but the US 10-year Treasury yields retreat to 3.99%, which in turn probes the US Dollar Index (DXY) bears of late.

Looking forward, downbeat expectations from Germany’s ZEW figures for October contrast with the likely improvement in the Eurozone sentiment index, which in turn may trouble the EUR/USD traders and can allow the intraday sellers to sneak in. However, major attention will be given to the risk catalysts for clear directions.

Technical analysis

A daily closing beyond the 21-DMA, around 0.9780 by the press time, directs buyers towards a five-week-old resistance line, close to 0.9880 at the latest.

''It's true recent sharp yen fall, coupled with raw material price rise, driving up Japan's prices,'' the Bank of Japan's governor, Kuroda said to parliament on Tuesday. 
    
''Consumer inflation likely to accelerate toward year-end before sliding below 2% next fiscal year,'' he added.

More to come ...

• AUD/NZD has surrendered its recovery and is looking to revisit the day’s low at 1.1106.
• RBA’s Lowe announced a rate hike of 25 bps due to mounting risks from global and domestic demand.
• Australian jobless rate at 3.5% is the lowest in the last 50 years.

The AUD/NZD pair has surrendered its intraday recovery recorded after dropping to near 1.1106 in the early Tokyo session. The release of the Reserve Bank of Australia (RBA)’s minutes has weighed pressure on the cross. October’s monetary policy minutes state that the reason behind announcing a lower-than-expected rate hike of 25 basis points (bps) was risks from global and domestic growth.

Apart from that, RBA policymakers believe that the central bank has already pushed its rate higher in a short span of time, which could impact household spending.

On the Australian economic condition, the country is maintaining the jobless rate lowest at 3.5% in the last 50 years led by a solid labor market. A decline in oil prices has weighed pressure on headline inflation but core inflation has remained elevated due to higher prices for services.

Going forward, the Australian employment data will remain in focus. As per the consensus, the Employment Change will drop to 25k vs. the prior release of 33.5k. While the Unemployment Rate will remain steady at 3.5%.

In early Tokyo, the cross was weakened after the release of the higher-than-projected NZ inflation data. The annual Consumer Price Index (CPI) landed extremely higher at 7.2% vs. the expectations of 6.6% but marginally lower than the prior release of 7.3%. While the quarterly inflation figure surpassed the projections of 1.6% and the former print of 1.7% to 2.2%.

This has bolstered the fact that the Reserve Bank of New Zealand (RBNZ) will stick to its current pace of hiking interest rates as price pressures have not displayed an expected slowdown. Currently, the Official Cash Rate (OCR) stands at 3.5%.

• US Dollar Index holds lower ground after the downbeat Monday.
• Sustained break of 21-DMA, bearish oscillators favor sellers.
• Ascending support line from August 10 lures bears, buyers need validation from 113.30.

US Dollar Index (DXY) remains pressured around the 112.00 threshold, keeping the week-start pessimism during Tuesday’s Asian session.

In doing so, the greenback’s gauge versus the six major currencies justifies the previous day’s downside break of the 21-DMA, the first in a fortnight, as well as the bearish MACD signals and downbeat RSI (14).

With this, the sellers are en route to an upward-sloping support line from early August, around 111.30 by the press time.

However, the quote’s further weakness appears difficult as early September’s peak and the monthly low, respectively around 110.80 and 110.00, will challenge the US Dollar Index bears afterward.

Meanwhile, recovery moves need to provide a daily closing beyond the 21-DMA hurdle of 112.45.

Even so, a three-week-old horizontal resistance near 113.30 will be a major challenge to the DXY bulls.

Following that, a run-up towards refreshing the 20-year high, currently around 114.80, can’t be ruled out.

Overall, DXY is likely to witness further downside but the road to the south is bumpy.

DXY: Daily chart

Trend: Limited downside expected

• AUD/USD takes the bids to refresh intraday high after RBA’s Bullock, Minutes favored buyers.
• RBA Minutes cited domestic/global uncertainty to justify 0.25% rate hike, Deputy Governor Bullock defends central bank hawks.
• Firmer sentiment battles with hawkish Fed bets, fears emanating from China to challenge buyers.
• Risk catalysts will be more important for fresh directions amid a lack of major data/events.

AUD/USD extends the week-start uptrend to refresh intraday high near 0.6315 as upbeat comments from the RBA policymakers and minutes favored the bulls during early Tuesday. Also keeping the pair buyers hopeful is the firmer sentiment.

As per the latest Monetary Policy Meeting of the Reserve Bank of Australia (RBA), the “Board weighed a range of arguments for hiking by 50 basis points, as it had for four months straight, but decided to lift the cash rate by 25 basis points to 2.6%.”

Earlier in the day, RBA Deputy Governor Guy Bullock mentioned that the board expects to increase interest rates further over the coming months. The policymaker also added that the pace and timing will be determined by data. It should, however, be noted that the comments stating, “RBA can achieve a similar rise in rates to its global peers through smaller hikes,” seemed to have probed the AUD/USD bulls while suggesting softer rate increases moving forward.

Also read: RBA minutes: Likely to require further increases in interest rates over the period ahead

Elsewhere, hawkish Fed bets and fears of market intervention in Japan and China seem to challenge the AUD/USD bulls, especially when the UK-led risk-on mood fades. That said, CME’s FedWatch Tool prints a nearly 95% chance of a 75 bps Fed rate hike in November. In doing so, the tool might have taken clues from upbeat comments from US Treasury Secretary Janet Yellen, suggesting a strong US jobs market, as well as upbeat US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data.

It should be noted that China’s zero-covid policy, delaying of the key data/events and determination to defend the might of taking control in Hong Kong and Taiwan also challenge the AUD/USD buyers, due to the pair’s risk barometer status and ties with Beijing.

While portraying the market mood, S&P 500 Futures track Wall Street’s gains but the US 10-year Treasury yields retreat to 3.99%, which in turn probes the US Dollar Index (DXY) bears of late.

Looking forward, the second-tier housing data from the US will decorate the calendar but major attention will be given to the risk catalysts for clear directions. That said, bears are likely to retake control if the hawkish Fed bets propel the yields, DXY.

Technical analysis

Unless crossing a six-week-old bearish channel, currently between 0.6365 and 0.6100, the AUD/USD pair’s recovery remains elusive.

The Reserve Bank of Australia (RBA) has published the minutes of its monetary policy meeting as follows, as reported by Reuters:

''Minutes of the Oct 4 policy meeting out on Tuesday showed the Reserve Bank of Australia's (RBA) Board weighed a range of arguments for hiking by 50 basis points, as it had for four months straight, but decided to lift the cash rate by 25 basis points to 2.6%.''

''The RBA Board noted rates had already risen by 250 basis points since May and much of that had yet to feed through into mortgage payments. The tightening had also hit home prices and household wealth and could cool consumption over time.''

''While the labour market was very tight, wage growth had not spiked like in some developed nations and could still some more before threatening inflation expectations, the minutes showed.''

''Many central banks abroad had also been increasing rates which was likely to cause a period of "significantly lower output growth" and help lessen inflationary pressures."Members noted that, in an uncertain environment, there was an argument to slow the adjustment of policy for a time to assess the effects of the significant increase in interest rates to date and the evolving economic outlook," the minutes showed.

''Still, the Board emphasised that inflation in Australia was too high at 6.1% and likely to rise toward 7.75% by year-end, with rents and utilities adding to cost pressures. The Board was resolute in returning inflation to its 2-3% target band and recognised this required keeping inflation expectations well anchored.''

"This was likely to require further increases in interest rates over the period ahead," the minutes showed.'

AUD/USD update

AUD/USD Price Analysis: Bulls eye a run to test September lows

About the RBA minutes

The minutes provide a detailed record of the discussions held between the RBA’s board members on monetary policy and economic conditions that influenced their decision on adjusting interest rates and/or bond buys, significantly impacting the AUD. The minutes also reveal considerations on international economic developments and the exchange rate value.

• USD/JPY is aiming to kiss the 150.00 despite the upbeat market mood.
• The odds for BOJ’s intervention are getting air as the USD/JPY is advancing despite the vulnerable DXY.
• Japan’s exports would accelerate amid overall weakness in the Japanese yen.

The USD/JPY pair is hovering around the immediate hurdle of 149.00 in the Tokyo session. The asset has delivered an upside break of the rangebound structure formed in a 148.41-148.89 area despite the cheerful market mood.

The mighty US dollar index (DXY) is underperforming against other risk-perceived currencies amid a decline in safe-haven’s appeal. Meanwhile, risk sentiment has turned extremely positive. S&P500 displayed a V-shape recovery on Monday after a bloody Friday. However, the 10-year US Treasury yields are still holding the critical figure of 4% as bets on a 75 basis point (bps) rate hike by the Federal Reserve (Fed) are significant.

The ongoing north-side momentum in the USD/JPY is appealing to hit the psychological hurdle of 150.00, backed by dovish policy guidance by the Bank of Japan (BOJ). On Friday, BOJ’s Governor Haruhiko Kuroda stated that “It is appropriate to continue monetary easing,” reported Reuters. He further added that the central bank sees inflationary pressures declining to 2%, therefore, a continuation of dovish monetary policy is highly required.

This has left no other option for the BOJ than to intervene in the currency market. Japan’s officials are repeatedly conveying the preparedness of the BOJ for intervening in FX moves to support the Japanese yen due to excess forex moves based on speculation. Japan's Finance Minister Shun'ichi Suzuki cited that “they are constantly watching FX movements with a sense of urgency”

Going forward, Tuesday’s Japan Trade data will be keenly watched. As per the consensus, imports will decline to 45% from the prior release of 49.9% while exports will scale to 27.1% vs. the former release of 22.1% due to the weak yen.

Michele Bullock, who is the Assistant Governor (Financial System) at the Reserve Bank of Australia, has spoken today and said the central bank expects to raise interest rates further over the coming months, adding the bank can achieve a similar rise in rates to its global peers through smaller hikes.

Bullock was appointed to her current position in October 2016. In this role, she is responsible for the Bank's work on financial stability, including the production of the twice-yearly Financial Stability Review, as well as the Bank's oversight of the payments system.

Key notes

The board expects to increase interest rates further over the coming months; pace and timing will be determined by data.
    
Factors the board will monitor closely include the global economy, household spending and wage- and price-setting behaviour.
    
Board is determined to do what is necessary to return inflation to target.
    
Our policy rate trajectory has been as steep, or steeper, than other central banks.
    
A very tight labour market starting to put upward pressure on wages.
    
Rate rises and price rises are starting to put pressure on household budgets.
    
Board felt a 25 basis point rate rise was warranted in October while it took stock of developments in consumption, wages and the international economy.
    
Was an active discussion internally and at the board meeting about the appropriate size of the October rate increase.
    
As the board meets more frequently than most peers, it can achieve similar tightening with smaller individual rate rises.

AUD/USD update

AUD/USD Price Analysis: Bulls eye a run to test September lows

• Gold price fades the week-start recovery, eyes to retest three-week-old horizontal support.
• DXY licks its wounds after falling the most in a fortnight, yields retreat.
• Hawkish Fed bets, looming intervention from Japan test XAU/USD buyers.
• Light calendar could keep gold traders struggling inside bearish channel.

Gold price (XAU/USD) struggles to extend the previous day’s recovery from a fortnight low, easing back to $1,650 during Tuesday’s Asian session, as the week-start optimism fades amid a lack of major positives. Also challenging the metal buyers could be the looming fears of market intervention by the Japanese and Chinese policymakers to defend their respective currencies, as well as hawkish Fed bets.

Japanese Finance Minister Shunichi Suzuki said that they are keeping a close eye on the fx market with a sense of urgency. The comments become important as the USD/JPY hits the highest levels since 1990. Elsewhere, Reuters quotes six anonymous sources to mention that China's major state-owned banks were spotted swapping yuan for U.S. dollars in the forwards market and selling those dollars in the spot market on Monday morning.

It should be noted that the market’s bets, as per the CME’s FedWatch Tool, suggest a 75 bps Fed rate hike in November, which in turn probe the XAU/USD buyers. The hawkish Fed bets could have recently taken clues from upbeat comments from US Treasury Secretary Janet Yellen, suggesting a strong US jobs market, as well as upbeat US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data.

On Monday, the British Finance Minister’s, also called Chancellor, reversal of earlier policy announcements boosted the market’s hope that London will overcome the impending market collapse, which in turn favored the XAU/USD buyers. “Under the new policy, most of Truss's 45 billion pounds of unfunded tax cuts will go and the two-year energy subsidy scheme for households and businesses - expected to cost well over 100 billion pounds - will now be curtailed in April,” stated Reuters.

Also favoring the gold buyers was the downbeat US data. That said, NY Empire State Manufacturing Index for October dropped -9.5 versus -4.0 expected and -1.5 prior.

Alternatively, China’s zero covid policy and determination to keep the power in Hong Kong and Taiwan join the energy crisis in Eurozone to challenge the XAU/USD bulls.

Moving on, a light calendar may allow the metal sellers to go slowly but any positive surprises for the US dollar, in terms of market meddling by Japan and/or China won’t be ignored.

Technical analysis

Gold price remains inside a five-week-old bearish channel amid sluggish MACD and RSI (14), which in turn suggests the metal to stay on the seller’s radar unless crossing the formation’s upper line, around $1,664 by the press time.

Even if the quote rises past $1,664, the 50-EMA hurdle surrounding $1,670 will be important for the XAU/USD bulls to watch before trying to retake control.

Following that, a one-week-old horizontal resistance area near $1,683 could act as the last defense of the gold bears.

Alternatively, multiple levels marked since September 27 restrict immediate gold price moves near $1,640 ahead of the stated channel’s support line, close to $1,631 at the latest.

Gold: Four-hour chart

Trend: Further weakness expected

• GBP/JPY has dropped marginally to near 169.00 as BOJ’s intervention bets escalate.
• A continuation of dovish policy has left BOJ’s intervention as last resort to support nosediving yen.
• As per the consensus, the UK headline CPI could return to a double-digit figure.

The GBP/JPY pair has corrected gradually towards 169.00 in early Asia after printing a fresh six-year high around 170.00 on Monday. The marginal correction doesn’t resemble any reversal signal as risk sentiment is upbeat. On Monday, the asset witnessed a perpendicular upside after a north-side break of the consolidation formed in a 165.05-167.32 range after dovish guidance from the Bank of Japan (BOJ).

Considering the sheer weakness of the Japanese yen, the odds of potential intervention in the currency market by the BOJ have soared. BOJ Governor Haruhiko Kuroda is clear with his intentions of monetary policy easing to support the overall demand, therefore, intervention in FX moves is the last resort.

The USD/JPY pair smashed 149.00 despite the vulnerable performance of the US dollar index (DXY). The upside momentum in USD/JPY is still solid and may kiss the psychological hurdle of 150.00.  On Friday, Japan's Finance Minister Shun'ichi Suzuki stepped in and said that they will take decisive action against excess forex moves based on speculation. He further added that they are constantly watching FX movements with a sense of urgency.

On the UK front, the rollback of almost all tax measures announced on the mini-budget by now UK Finance Minister Jeremy Hunt has kept the pound bulls in the bullish docket. Liquidity tightening measures in the UK economy support the pound bulls but political instability has climbed to the rooftop. UK Prime Minister Liz Truss’s topple fears could dent the pound run.

Going forward, the UK Consumer Price Index (CPI) data will remain in the spotlight. The headline and core inflation may incline by 10 basis points each to 10% and 6.4% respectively. A return to double-digit inflation figure could trigger more headwinds for the UK economy.

Japan's finance minister, Shun'ichi Suzuki said that they are we are keeping a close eye on the fx market with a sense of urgency.

Suzuki said they cannot tolerate excessive fx moves driven by speculators

He said he won't comment on whether conducting stealth fx intervention but that they will respond appropriately to excessive fx moves
    
''Generally speaking, there are times when we disclose the fact that we intervened in the fx market but some other times we don't.''

Meanwhile, Haruhiko Kuroda, governor of the Bank of Japan will be speaking shortly, 00.50 GMT. He will speak before parliament and would be expected to jawbone the currency higher. 

USD/JPY rallied to fresh bull cycle highs on Monday, touching 149.08. 

The yen has declined nearly 30% against the dollar this year already as the divergence between the US Federal Reserve's hawkish stance and the Bank of Japan's ultra-lose policy. Last month, Japanese authorities conducted their largest-ever currency intervention to support the rapidly falling yen, having spent 2.84 trillion yen for its efforts which yielded a fleeting effect.

• AUD/JPY grinds higher around eight-day top as bulls await more clues.
• Risk-on mood, firmer yields and no sign of Japan intervention keep buyers hopeful.
• Fears of Tokyo’s meddling, wait for clues of the RBA’s surprise 0.25% rate hike probe further upside.
• Bulls to have a bumpy road ahead, bears will have a tough time returning unless any surprises erupt from Japan, Australia.

AUD/JPY struggles to portray the risk-on mood around a two-week high near 93.85 during Tuesday’s Asian session, after witnessing a strong positive start due to the firmer sentiment. The reason could be linked to the cautious sentiment ahead of the Reserve Bank of Australia’s (RBA) Meeting Minutes.

In addition to the pre-event anxiety, mainly due to the RBA’s surprise 0.25% rate hike, the absence of major data/events and expectations of Japan’s intervention also seems to challenge the AUD/JPY prices. Also, hawkish Fed bets and updates from China’s annual Communist Party Congress meeting add filters for the pair’s upside.

That said, the cross-currency pair rose the most in a fortnight the previous day after the global markets welcomed the UK’s U-turn from a “mini-budget” proposals that were perceived as detrimental to the British economy. Also favoring the risk-on mood could be the hopes of more stimulus from China, Europe and Japan to defend the respective economies from slipping into the recession.

It’s worth noting that China President Xi Jinping’s comments suggested a firm determination to zero-covid policy and sounded challenging for geopolitical concerns. However, statements from China’s Premier Li seemed to have favored the sentiment of late. China’s Li stated that the economy continues its upward trend. “China will keep economic operations within a reasonable range," Li added.

Elsewhere, hawkish Fed bets also challenge the AUD/JPY pair buyers. As per the latest readings of the CME’s FedWatch Tool, there is nearly 95% chance of a 75 bps Fed rate hike in November.

While portraying the mood, the US Dollar Index (DXY) dropped 1.09% while Wall Street also reversed Friday’s losses the previous day amid firmer sentiment. Additionally, the US Treasury yields marked mild gains after witnessing a downbeat start whereas the S&P 500 Futures add nearly 0.80% intraday by the press time.

Looking forward, it all depends upon the RBA Minutes as bears seek clues supporting the latest price-negative surprise, which in turn could help AUD/JPY to pare the latest gains. Also likely to challenge the pair buyers are the increasing odds of Japan’s market intervention to defend the yen as it drops to the lowest levels in 32 years versus the US dollar. Recently, Japanese Finance Minister Shunichi Suzuki said that they are keeping a close eye on the fx market with a sense of urgency.

Technical analysis

A clear upside break of the monthly resistance line, now support around 92.60, directs AUD/JPY bulls towards the 100-DMA hurdle surrounding 94.25.

• EUR/JPY rallied more than 1.40% on Monday due to an upbeat sentiment.
• The cross-currency pair printed a new eight-year high at 146.71.
• Negative divergence in the EUR/JPY daily opens the door for a mean reversion fall to 145.00; otherwise, a test of 147.00 is on the cards.

The EUR/JPY prints a fresh eight-year high at around 146.71, courtesy of broad Japanese yen weakness, as the Bank of Japan (BoJ) pledges to its dovish stance, despite other Japanese authorities' verbal intervention in the FX markets, saying that exchange rates must reflect fundamentals. At the time of writing, the EUR/JPY is trading at 146.67.

EUR/JPY Price Forecast

The EUR/JPY edges higher, breaking to fresh YTD highs, though the last leg-up appears to be happening with insufficient strength, as shown by the Relative Strength Index (RSI). The RSI in the EUR/JPY daily chart suggests that buyers are losing momentum, with RSI registering lower peaks, contrary to the cross-currency pair price action, printing higher highs. Therefore, in the near term, the EUR/JPY could fall toward the 145.00 figure before the EUR/JPY continues to extend its gains.

If that scenario plays out, the EUR/JPY first support would be 146.00. Break below will expose the September 12 daily high of 145.63, followed by the 145.00 target.

On the flip side, the EUR/JPY first resistance would be 147.00. Once cleared, the following key resistance levels would be the December 20134 high of 149.78, followed by the July 2008 high of 169.96.

EUR/JPY Key Technical Levels

• USD/CHF bears take a breather after the biggest daily fall in two weeks.
• Doubts about the previous risk-on mood, absence of major data/events join firmer yields to challenge USD/CHF bears.
• UK Chancellor Hunt-led market optimism fades as traders seek more clues to extend the week-start moves.
• Risk catalysts are more important for clear directions.

USD/CHF seesaws around 0.9950, after dropping the most in a fortnight, as bears seek more clues to extend the latest declines during Tuesday morning in Asia.

That said, the Swiss currency (CHF) pair tracked the broad US dollar moves, as well as the risk catalysts to portray the USD/CHF south-run amid an absence of major data/events. Other than the pause in the risk-on mood, hawkish Fed bets also put a floor under the USD/CHF prices. As per the latest readings of the CME’s FedWatch Tool, there are nearly 95% chance of a 75 bps Fed rate hike in November.

The reason could be linked to the British Finance Minister’s, also called Chancellor, reversal of earlier policy announcements boosted the market’s hope that London will overcome the impending market collapse. “Under the new policy, most of Truss's 45 billion pounds of unfunded tax cuts will go and the two-year energy subsidy scheme for households and businesses - expected to cost well over 100 billion pounds - will now be curtailed in April,” stated Reuters.

On the same line was the Bank of England’s (BOE) readiness for debt buybacks, starting November 07, as well as downbeat US data and receding hawkish bets on the BOE’s next move.

It’s worth noting that the US Dollar Index (DXY) dropped 1.09% while Wall Street also reversed Friday’s losses the previous day amid firmer sentiment. Additionally, the US Treasury yields marked mild gains after witnessing a downbeat start.

Talking about the data, NY Empire State Manufacturing Index for October dropped -9.5 versus -4.0 expected and -1.5 prior.

Looking forward, USD/CHF traders may witness lackluster trading amid a lack of major data/events, which in turn suggests the pair’s consolidation move, which in turn could renew the pair’s recovery.

Technical analysis

A six-week-old rising wedge bearish pattern restricts immediate USD/CHF moves between 0.9925 and 1.0085. That said, the looming bear cross on the MACD and sluggish RSI favor sellers.

• A downside break of the rising channel has triggered a bearish reversal.
• Edging down from the 50-and 200-EMA is indicating more weakness ahead.
• The RSI (14) has shifted into the bearish range of 20.00-40.00 like a cakewalk.

The USD/CAD pair is hovering around the multi-tested support of 1.3150 in the early Asian session. Upbeat market sentiment has resulted in a significant decline in the asset from the round-level resistance of 1.3900 on Monday. The US dollar index (DXY) has shifted into an inventory adjustment phase and may surrender the critical support of 112.00.

On an hourly scale, the asset has delivered a south-side break of the Rising Channel chart pattern that indicates a bearish reversal. The upper portion of the above-mentioned chart pattern is placed from September high at 1.3838 while the lower portion is plotted from October 5 low at 1.3504.

The major has dropped below the 50-and 200-period Exponential Moving Averages (EMAs) at 1.3784 and 1.3758 respectively, which adds to the downside filters.

Adding to that, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which signals that the downside momentum has been triggered.

Should the asset drops below the round-level support of 1.3700, the Canadian bulls will drag the asset toward October 6 low at 1.3565. A breakdown of the latter will bring further weakness in the asset towards October 5 low at 1.3504.

On the contrary, the greenback bulls could regain their glory if the asset oversteps the round-level hurdle of 1.3800. An occurrence of the same will drive the asset towards Friday’s high at 1.3898, followed by Thursday’s high at 1.3978.

USD/CAD hourly chart