“Need to make sure inflation pressures don't broaden further,” said Chicago Fed President Charles Evans on early Thursday in Asia.

more to come

• USD/JPY oscillates around 149.80 as US Treasury yields rise, underpinning the US Dollar.
• The US housing market keeps deteriorating while the Federal Reserve pushes the pedal to the metal, ready to lift rates in November.
• Bank of Japan (BoJ) policymakers expressed that volatility surrounding the yen must reflect fundamentals,

The Japanese yen prolonged its agony against the US Dollar, printing a fresh 32-year low, as the USD/JPY reached a YTD high of 149.88 as market players tested the prospects of another intervention by the Bank of Japan (BoJ). As the Asian Pacific session begins, the USD/JPY is trading at 149.85, almost flat.

The Japanese yen weakened as US Treasury yields soared

Wall Street finished Wednesday’s session trading in the red. The Eurozone (EU), the UK, and Canada reported September’s inflation which remained stubbornly high, though the UK and Canada figures exceeded and were nearby estimates, while the EU’s inflation ticked lower vs. previous and foreseen figures, but by a minuscule margin. Given that backdrop, worldwide bond yields skyrocketed as expectations for further central bank tightening increased. Hence, the US 10-year T-bond yield rose by 12 bps, up at 4.138%, a tailwind for the USD/JPY.

In the meantime, US housing data revealed during the New York session still flashes the effect of the US Federal Reserve’s interest-rate hikes. Housing Starts for September were worse-than-expected, tumbling by 8.1% MoM vs. August’s 13.7% gain, as mortgage rates in the US keep climbing, reaching a 20-year high at 6.94%.

Aside from this, Japanese authorities continued their verbal interventions, led by the BoJ Governor Haruhiko Kuroda, who said that it is extremely important for the FX market moves to reflect fundamentals. Echoing his comments was his college, BoJ’s Adachi, who added that using monetary policy to respond to FX moves would increase uncertainty over the BoJ’s guidance.

On Thursday, the Japanese economic calendar will feature the Trade Balance, alongside Exports and Imports and Foreign investments. Meanwhile, the US economic docket will feature Initial Jobless Claims, Existing Home Sales, and the Philadelphia Fed Business Index.

USD/JPY Key Technical Levels

• GBP/USD sellers poke three-week-old support line after reversing from multi-day-old resistance.
• Ascending trend line from late September, 21-DMA adds to the downside filters.
• Buyers need validation from 50-DMA to retake control.
• Steady oscillators, pullback from key hurdle favor sellers.

GBP/USD holds lower ground near 1.1220, fading the bounce off 1.1185 after a two-day downtrend. In doing so, the cable pair flirts with a short-term key support line during Thursday’s Asian session after taking a U-turn from the two-month-old resistance line earlier in the week.

In addition to the immediate support of 1.1220, an upward-sloping trend line from September 29, around 1.1155, will precede the 21-DMA level near 1.1130 to also challenge the short-term downside of the Cable pair.

It should, however, be noted that the quote’s weakness past 1.1130 will direct it toward the monthly low of 1.0923 which acts as the last defense of the GBP/USD buyers.

In a case where the Cable pair renews the monthly low, 1.0650 and the recently flashed record low of 1.0339 will be in focus.

Alternatively, a descending resistance line from late August, around 1.1345, restricts the GBP/USD pair’s nearby upside.

Following that, the 50-DMA level surrounding 1.1445 will challenge the buyers before directing them to the monthly high of 1.1495. Also acting as the upside filter is the 1.1500.

GBP/USD: Daily chart

Trend: Further weakness expected

• USD/CAD bulls depend on ongoing moves in the US yields embarking on critical long-term levels. 
• The week's highs in USD/CAD are eyed for the remaining stretch of the week.

USD/CAD bears are back in town, although judging by the eagerness of the US dollar bulls, perhaps not for much longer. The following illustrates the potential trajectory for the US dollar and CAD vs the greenback:

USD/CAD M15 chart

The week's template shows that the highs are within reach yup near 1.1399 the figure. A series of peak formations on the downside while the price edges higher could lead to a significant bullish move for the remaining days of the week following the peak low that was put in at the start of the week near 1.3656. 

The outcome will most probably depend on the path of the Us yields and the greenback though and the following illustrates the bullish bias for both:

DXY, daily chart

The greenback has been a laggard behind US yields which are making marks on weekly highs on Thursday, however, the momentum is solid and a break into deeper bullish territory could be on the cards as per the 2-year and 10-year chart respectively:

As seen, both are on the right side of the trendlines for continuations. 

• The presence of hurdles around the upper portion of the triangle has escalated the consolidation phase.
• A rebound in risk-off impulse and declining 20-and 50-EMAs are supporting the greenback bulls.
• The RSI (14) has failed to sustain in the bullish range of 60.00-80.00.

The EUR/USD pair has turned sideways after dropping to near the immediate support of 0.9760 in the early Tokyo session. A rebound in the risk-off profile terminated the two-day winning spell. The asset witnessed a steep fall after multiple attempts of establishing an auction above the critical hurdle of 0.9850. Meanwhile, the US dollar index (DXY) has recovered the majority of its losses and has recaptured the resistance of 113.00.

On a four-hour scale, the major has continued its oscillation in a Symmetrical Triangle chart pattern after facing barricades at the downward-sloping trendline. The downward-sloping trendline of the above-mentioned chart pattern is placed from September 12 high at 1.0198 the upward-sloping trendline is plotted from September 28 low at 0.9536. An explosion of a neutral triangle results in wider ticks and heavy volume.

The asset has slipped below the 20-and 50-period Exponential Moving Averages (EMAs) at 0.9800 and 0.9785 respectively, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has failed to sustain longer above the bullish range of 60.00-80.00, which indicates a loss of upside momentum.

The shared currency bulls could lose their grip if the asset drops below October 13 low of 0.9632, 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.

For an upside move, the euro bulls need 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 asset bulls to hit September 20 high at 1.0050.

EUR/USD four-hour chart

• AUD/USD holds lower ground after reversing from weekly high and snapping two-day uptrend.
• Risk-aversion, strong yields underpinned US dollar’s demand amid hawkish Fed bets.
• Geopolitical, covid fears surrounding China exert additional downside pressure.
• A corrective bounce can be witnessed on strong Aussie job numbers but bearish trend is likely to prevail.

AUD/USD remains depressed around 0.6270, despite the recent bounce off weekly low, as traders await the key Australia employment report during early Thursday. That said, the Aussie pair printed the first daily loss on turnaround Wednesday amid a risk-off mood. However, anxiety ahead of an important data set for Australia seems to chain the bears of late.

Market’s sentiment soured the previous day as UK-inspired risk-on mood faded after the strong inflation in the leading economies renewed fears of recession amid the central bankers’ aggressive stands despite economic slowdown fears. The price pressures in Britain, Eurozone and Canada were mostly nearly multi-month high and the core numbers, as well as services inflation, were firmer enough to push the central banks towards higher rates.

Also contributing to the risk-aversion wave were headlines concerning China. The dragon nation registered four-month high covid numbers while the US readiness to tie up with Taiwan to co-produce American weapons, per Nikkei, adds to the Sino-American tussles. Given the Aussie ties with Beijing, any negatives from the world’s second-largest economy weigh on Australia.

It’s worth noting that hawkish Fedspeak ignored mixed housing data from the US while Australia’s Westpac Leading Index also couldn’t impress the AUD/USD pair buyers.

While portraying the mood, the US Treasury yields refreshed a multi-year high and Wall Street closed in the red for the first time in three.

Moving on, Australia’s September month jobs report will precede the monetary policy meeting by the People’s Bank of China (PBOC) to entertain AUD/USD traders. Forecasts suggest that the headline Australia Employment Change to ease by 25K from 33.5K prior but the Unemployment Rate remains steady at 3.5%. Further, the PBOC is likely to keep its current monetary policy unchanged with the benchmark rate at 3.65%.

Given the downbeat forecasts from the Aussie jobs report, any positive surprises may help AUD/USD to reverse the previous day’s losses. However, the broad market fears could defend the bearish trend.

Also read: Australian Employment Preview: Near-term relief to the long-lasting pain

Technical analysis

A pullback from the 10-DMA, around 0.6285 by the press time, directs AUD/USD towards support line of the six-week-old bearish channel, close to 0.6060 at the latest.

• EUR/JPY edges slightly up as the Asian Pacific session begins.
• The Euro weakened due to an adverse market sentiment spurred by recession fears.
• Short term, the EUR/JPY could tumble towards 145.40 once it clears the 146.00 figure.

The EUR/JPY tumbled from weekly highs around 147.00, for fundamental reasons, like the Eurozone (EU) inflation report, with September’s CPI around 9.9% YoY, less than estimates but elevated. Also, expectations for further central bank tightening spurred concerns of a global recession as risk-perceived assets edged lower. Therefore, safe-haven peers, like the Japanese yen (JPY), appreciated against the Euro. At the time of writing, the EUR/JPY is trading at 146.44, almost flat, as the Asian session begins.

EUR/JPY Price Forecast

From a technical perspective, the EUR/JPY tested the YTD highs of 147.25 on Wednesday, though failure to hold the fort around the 147.00 figure exacerbated a drop towards the October 18 daily lows at 145.81. EUR/JPY traders should be aware that a bearish-harami candle chart pattern surfaced at the daily chart, warring downward action. Nevertheless, a break below October’s 18 daily low at 145.81 is needed to pave the way for further losses.

If that scenario plays out, the EUR/JPY first support would be the September 12 high-turned-support at 145.63. A breach of the latter will expose the 145.00 figure, followed by the October 5 swing high/support around 144.08.

EUR/JPY Daily Chart

Near term, the EUR/JPY hourly chart illustrates the cross as neutral biased, with prices sliding below the 20 and 50-Exponential Moving Averages (EMAs), with the former crossing below the latter, opening the door for further losses. Notably, a symmetrical triangle on a downtrend surfaced, meaning that EUR/JPY risks are skewed to the downside.

Hence, the EUR/JPY first support would be October’s 19 daily low at 146.07. Break below will expose the S1 daily pivot point at 145.90, followed by the 100-EMA at 145.70, ahead of the S2 daily pivot level at 145.40.

EUR/JPY Hourly Chart

• Gold price may revisit two-year low at $1,614.85 as central banks are prepared for a fresh rate hike cycle.
• The 10-year US yields have printed a fresh 14-year high at 4.14%.
• A rebound in risk-off impulse has pushed the DXY to near 113.00.

Gold price (XAU/USD) has shifted its business below $1,630.00 after surrendering the cushion in the last New York session. The precious metal has witnessed a steep fall as yields sky-rocketed. The 10-year US Treasury yields refreshed its 14-year high at 4.14% in New York.

Returns on US government bonds approached the sky as odds remain firm for a fourth consecutive 75 basis point (bps) rate hike by the Federal Reserve (Fed). As per the CME FedWatch tool, the chances of a 75 bps rate hike announcement by the Fed in November stand at 94.5%. Price pressures in the global economy have not softened in response to the extent of rate hikes by the central banks.

The European Central Bank (ECB) is set to announce a bigger rate hike to curtain inflationary pressures next week. Also, a reclaim of double-digit inflation figures in the UK economy has bolstered the chances of the Bank of England (BOE)’s bumper rate hike announcement.

Meanwhile, the US dollar index (DXY) has reclaimed the critical resistance of 113.00 as the risk-on market mood has faded. S&P500 faced pressure after a two-day rally as investors shifted to long liquidation after making returns on value bets.

Gold technical analysis

On an hourly scale, gold prices have witnessed a steep fall after dropping below the 61.8% Fibo retracement (placed from a two-year low at $1,614.85 to October high at $1,729.58) at $1,659.00. The precious metal looks set to re-visit a two-year low at $1,614.85.

A declining 50-period Exponential Moving Average (EMA) at $1,643.66 indicates more weakness ahead.

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

Gold hourly chart

• GBP/JPY remains on the backside of the counter-trendline. 
• Bears are lurking and eager to pounce and bullish advancements into the resistance. 

GBP/JPY was another inside day on Wednesday which makes for a coiled market that could be about to spring before the week is out. The following is an illustration of such a scenario that could play out over Thursday:

GBP/JPY prior analysis, H1 charts

It was illustrated that the market was an inside day and that there were prospects of a bullish megaphone breakout to the upside if the trendline broke. Instead, the doom and gloom around UK politics and the economy has sunk the pound across the board. There has been a move lower into levels 1 and 2 long positions from the prior day as follows: 

GBP/JPY H1 chart update

While on the backside of the counter trendline, if the 167.50s hold, there could be a move up into the highs for the day to test the commitments of the bears prior to the capitulation of the bulls for a significant sell-off into the rising trend as illustrated in the chart above. 166.43, 165.02 and 162.32 are all key levels on the way down a cascade of market orders. 

• The kiwi remains steady above 0.5650 after its reversal at 0.5730.
• The greenback appreciates as risk appetite fades.
• NZD/USD's broader outlook remains bearish – Credit Suisse.

The New Zealand dollar has trimmed some of the previous two days’ gains on Wednesday, weighed by a strong US recovery and a sourer market mood. Downside attempts, however, have been contained at 0.5650 so far.

The kiwi suffers against a stronger US dollar

The risk appetite observed at the start of the week waned on Wednesday, which has favored the US dollar on the back of its safe-haven status. The world’s major stock indexes have posted moderate gains following a two-day rally at the start of the week.

Furthermore, US Treasury bonds have pushed higher, with the benchmark 14-year note trading above 4% for the first time in 14 years. This, coupled with market hopes of another aggressive rate hike by the Fed in November, has increased the attractiveness of the USD.

NZD/USD’s broader outlook remains bearish – Credit Suisse

Analysts at Credit Suisse see the pair biased lower with the current upside correction limited at 0.5798/5813: “Whilst both daily RSI and MACD are holding bullish divergences, which suggests that the recovery will extend for now, our broader outlook remains outright bearish and we thus see this development only as a correction (…) “Whilst we expect a better near-term ceiling to be found at the 0.5798/5813 level, above here would see scope to test the falling 55-day average at 0.5978.”

Technical levels to watch

Federal Reserve Bank of St. Louis President James Bullard left open the possibility that the central bank would raise interest rates by 75 basis points at each of its next two meetings in November and December while saying that he won't predate what rate move he backs at the December FOMC meeting.

The Fed hiked rates by 75 basis points for the third straight meeting last month, to a target range of 3% to 3.25%. The US central bank is expected to lift rates by another 75 basis points when it meets on November 1-2, with an additional 50 or 75 basis point increase also likely in December. 

Key quotes

Have to react if inflation doesn't fall as expected.

Won't predate what rate move he backs at the December FOMC meeting.
    
In 2023, if inflation starts to decline meaningfully, Fed can stay where it is at higher rate level.
    
First have to get to right rate level, then move to data dependency.
    
Sees the possibility of good inflation dynamics in 2023.
    
 Des not appear to be a lot of financial stress now in the US economy.
    
Not clear that equity pricing should be the main metric of financial liquidity.
    
US is still in a low productivity growth regime.
    
He thinks US GDP will be revised higher for first half of the year at some point but too late to be useful for monetary policy.
    
Big negative productivity number for the first half of 2022 is 'questionable'.
    
US GDP probably was really flat in the first half of the year, not negative, third quarter looks to be positive.
    
Fed in great shape on the employment side of the mandate, a great time to 'nip inflation in the bud.
    
Fed shouldn't react to declines in the stock market.

Inflation expectations are looking good now, at least based on tips markets.

US dollar update

As for the US dollar bounced, it has from two-week lows on Wednesday with a rise in US Treasury yields that made 14-year highs as investors maintained expectations that the Federal Reserve will continue to aggressively raise rates.

The DXY index has recovered on Wednesday as follows:

DXY daily chart

The W-formation's neckline is holding up as support and the DXY index has started to recover from a 50% mean reversion.  

What you need to take care of on Thursday, October 20:

A souring market mood benefited the American Dollar on Wednesday, which extended its latest advance against its major rivals.

The day rotated around fresh inflation reports that reminded market players of the high risk of an upcoming global recession. The European Union published the second estimate of the September Consumer Price Index, which was downwardly revised to 9.9% YoY, barely below the 10% previously estimated. Core inflation was confirmed at 4.8%.

The United Kingdom also released the September annual CPI, which surged by 10.1% YoY, higher than the previous 9.9% and also above the 10% expected, a fresh multi-decade high. The reading, which excludes volatile food and energy prices, rose by 6.5% in the year to September, surpassing the previous 6.3%.

Finally, the Canadian CPI contracted in September, up 6.9% YoY from 7.0% in August. The Bank of Canada's core CPI, however, unexpectedly climbed to 6.0%.

Stubbornly high inflation revived recession-related concerns, as most central banks from around the globe are focused on taking it down, regardless of their actions' negative effects on economic growth. Persistent price pressures hint at continued aggressive quantitative tightening.

Meanwhile, the US Federal Reserve’s Beige Book showed that pessimism increased amid weakening demand and as price growth remained elevated, further fueling markets’ concerns.

European and American indexes closed in the red, reflecting market concerns. Government bond yields, on the other hand, surged, with the US 10-year Treasury note yield reaching to 4.13% and the 2-year note yield peaking at 4.55%.

The EUR/USD pair finished the day around 0.9770, while GBP/USD settled at 1.1215. The AUD/USD is currently trading at 0.6260, while USD/CAD is marginally higher, at 1.3770. The USD/JPY pair trades at a fresh multi-year high, not far from the 150.00 threshold.

Gold came under strong selling pressure and currently changes hands at $1,629. Crude oil prices, on the other hand, managed to recover some ground, and WTI is now at $84.30 a barrel.

The upcoming Asian session will bring the Australian monthly employment report.

Polkadot beats Ethereum, Solana and Bitcoin in terms of development activity 

• The pound attempts to consolidate losses in the 1.1200 area.
• Investors scale down hopes of aggressive BoE tightening despite hot CPI data. 
• GBP/USD's decline could extend below 1.10 – ING.

The pound seems to be attempting to set a bottom at 1.1185 after its reversal from 1.1445 highs earlier this week. The pair dropped for the second consecutive day on Wednesday, weighed by negative inflation data and political uncertainty in the UK.

Sterling dives further following hot CPI figures

Consumer inflation accelerated beyond expectations in September, the annual CPI increased to 10.1% from 9.9% in the previous month, against market expectations of a 10.0% reading. The market, however, has scaled down hopes of an aggressive BoE rate hike to fight inflation on the back of the looming recession risks, which has hit GBP demand.

Furthermore, the turmoil in the UK government, with the ruling Tory party plotting to replace the recently elected Prime Minister Liz Truss after her tax cut fiasco is adding negative pressure on the pair.

On the other end, the sourer market mood has favored the safe-haven US dollar, which surged higher on Wednesday, underpinned by hopes of aggressive monetary tightening by the Fed and higher US bond yields.

GBP/USD: A return below 1.10 is on the cards – ING

FX analysts at ING see the pair depreciating lower, probably below 1.1000: “We still struggle to see a return to 1.15+ levels in cable, as a combination of political instability, risks of a deeper recession and smaller rate hikes by the BoE along the path of fiscal rigour – along with a strong dollar - may more than offset the benefits of quieter debt-related concerns (…) It’s too early to dismiss a return to sub-1.10 levels.”

Technical levels to watch

• EUR/GBP oscillates around 0.8710s, courtesy of a risk-off impulse, bolstering the Euro.
• The cross-currency pair remains trapped within the 20/50-day Exponential Moving Averages (EMAs).
• A bearish-harami is forming in the EUR/GBP daily chart, warranting further downside.

The Euro prolonged its gains against the Pound Sterling amidst a volatile trading session that witnessed both currencies featuring reports that inflation in the Eurozone and the UK remains higher, meaning that further central bank actions are needed to control stubbornly elevated inflation. From a technical point of view, the EUR/GBP is trading above its opening price by 0.16%, hoovering around 0.8710s, trapped between the 20 and the 50-day Exponential Moving Averages (EMAs).

EUR/GBP Price Forecast

The EUR/GBP daily chart illustrates the pair as neutral-to-upward biased, though contained within last Tuesday’s price action (0.8633-0.8731). If the EUR/GBP breaks the October 18 high of 0.8731, that could pave the way for further gains, exposing the 20-day EMA at 0.8775. Otherwise, a bearish-harami candle pattern would emerge, warranting downside action in the pair. If that scenario plays out, EUR/GBP’s key support areas lie at the 50-day EMA at 0.8656, followed by the confluence of the October 17 low and the 50-day EMA around 0.8656/57.

EUR/GBP Daily Chart

Short term, the EUR/GBP one-hour chart portrays the pair as neutral, consolidated in the 0.8700-0.8723 area. On top, the 200-EMA at 0.8723 would be a difficult hurdle to surpass. Once cleared, it could send the EUR/GBP towards the R1 daily pivot at 0.8745, followed by the R2 pivot point at 0.8787, ahead of the 0.8800 figure.

On the flip side, the EUR/GBP failure to crack 0.8731, the weekly high, would exacerbate a fall toward fresh weekly lows. Hence, the EUR/GBP first support will be the 20-EMA at 0.8702, followed by the confluence of the daily pivot and the 50-EMA at 0.8690. Break below will expose the 100-EMA at 0.8673, followed by the S1 pivot level at 0.8650.

EUR/GBP Hourly Chart

• The US dollar regains lost ground and returns above parity.
• Fed tightening hopes, and higher US yields are underpinning the USD.
• USD/CHF is at a key resistance area of 1.0065/75.

The US dollar is going through a solid recovery against the Swiss franc on Wednesday. The pair has retraced all the ground lost on the previous two days and is testing levels above parity after having reached session highs at 1.0065.

USD, boosted by a sourer market mood and Fed tightening hopes

The positive market mood seen over the past two days waned on Wednesday, which has increased US dollar demand, on the back of its safe-haven status. European stock markets closed with moderate losses, while in the US, the Dow Jones dips 0.5%, the S&P Index trades 0.8% lower and the Nasdaq drops about 1%.

US Treasury bonds have also pushed higher on Wednesday, with the benchmark 10-year yield trading above 4%. Market hopes of another aggressive rate hike by the Federal Reserve after November’s meeting have buoyed US yields, dragging the USD up with them.

USD/CHF reaches a key resistance area at 1.0065/75

The pair has reached an important resistance area at 1.0065/75 (October 13, 14 highs) which, so far remains capping upside attempts. Confirmation above that level would set the pair at three-year highs, aiming for May 20, 2019, high at 1.0120 ahead of April 25, 2019, high at 1.0225.

On the downside, initial support lies at 0.9920 (Oct .18 low and the 100-period SMA in the four-hour chart) below here 0.9780 (Oct. 4 and 6 lows) and 0.9740 (Sept. 30 low).

Technical levels to watch

• EUR/USD tumbled to the 20-day Exponential Moving Average (EMA), which could pave the way for further losses.
• Eurozone inflation rising, the economy weakening, and the ECB hiking rates paint a gloomy scenario for the bloc.
• EUR/USD Price Forecast: Failure to crack 0.9900 exposed the major to selling pressure.

EUR/USD snaps two days of gains, tumbles below 0.9800, after Eurozone (EU) inflation remained elevated, while the US housing market continues to feel the “pain” of higher interest rates, which would continue to increase, as reiterated by Fed speakers. At the time of writing, the EUR/USD is trading at 0.9770, down by 0.88%, after reaching a daily high of 0.9872.

The Euro tumbles on high EU inflation as stagflation looms

September’s inflation in the Euro area jumped by 1.2% MoM and 9.9% YoY, increasing the likelihood of a third straight 75 bps interest-rate hike by the European Central Bank (ECB). A slew of policymakers had justified the case of a ¾ percent lift to the bank rate, even though during the last week, the International Monetary Fund (IMF) foresaw a recession in Germany and Italy in 2023.

Given the backdrop of mixed sentiment in the Euro area, as shown by October’s ZEW survey, hinting at a recession, the EUR/USD appreciated. Factors like overall US Dollar weakness, and a stable UK bond market, sparked a relief rally on risk-perceived assets.

Aside from this, US economic data, namely the US Housing Starts for September, shrank by 8,1% MoM, due to the US Federal Reserve’s aggressive monetary policy tightening, with rates about to hit the 4% threshold, as speculations of another big-size rate hike mounted.

Hawkish Fed rhetoric continues

Aside from this, Minnesota Fed President Neil Kashkari said that inflation is too high while saying that the Federal funds rate (FFR) needs to get to the 4.5-4.75% to tackle inflation. He added that the Fed would need to continue its restrictive policy if inflation remains high.

EUR/USD Price Forecast

The EUR/USD refrained from testing the top-trendline of a descending channel drawn from February 2022, around the 0.9900 figure, exposing the Euro to selling pressure. Factors like fundamentals and the Relative Strength Index (RSI) crossing to bearish territory and about to pierce its 7-day RSI’s SMA would pave the way for further losses. Therefore, key resistance levels would be tested, like the October 13 swing low of 0.9631, followed by the YTD low at 0.9536.

There are rumours that the Tory Chief Whip Wendy Morton, has resigned.

This is yet to be confirmed, but if it is true, this will be the second resignation of the day. Suella Braverman has resigned as interior minister after just 43 days in the role, citing a breach of rules as well as concerns over the direction of the government.

More to come...

The Federal Reserve's Beige Book has been released that states that price growth remained elevated with some easing was noted across several districts

Here is an extract from the report:

Overall Economic

''Activity National economic activity expanded modestly on net since the previous report; however, conditions varied across industries and Districts. Four Districts noted flat activity and two cited declines, with slowing or weak demand attributed to higher interest rates, inflation, and supply disruptions. Retail spending was relatively flat, reflecting lower discretionary spending, and auto dealers noted sustained sluggishness in sales stemming from limited inventories, high vehicle prices, and rising interest rates. Travel and tourist activity rose strongly, boosted by continued strength in leisure activity and a pickup in business travel. Manufacturing activity held steady or expanded in most Districts in part due to easing in supply chain disruptions, though there were a few reports of output declines. Demand for nonfinancial services rose. Activity in transportation services was mixed, as port activity increased strongly whereas reports of trucking and freight demand were mixed. Rising mortgage rates and elevated house prices further weakened single-family starts and sales, but helped buoy apartment leasing and rents, which generally remained high. Commercial real estate slowed in both construction and sales amid supply shortages and elevated construction and borrowing costs, and there were scattered reports of declining property prices. Industrial leasing remained robust, while office demand was tepid. Bankers in most reporting Districts cited declines in loan volumes, partly a result of shrinking residential real estate lending. Energy activity expanded moderately, whereas agriculture reports were mixed, as drought conditions and high input costs remained a challenge. Outlooks grew more pessimistic amidst growing concerns about weakening demand.

Labor Markets

Employment continued to rise at a modest to moderate pace in most Districts. Several Districts reported a cooling in labor demand, with some noting that businesses were hesitant to add to payrolls amid increased concerns of an economic downturn. There were also scattered mentions of hiring freezes. Overall labor market conditions remained tight, though half of Districts noted some easing of hiring and/or retention difficulties. Competition for workers has led to some labor poaching by competitors or competing industries able to offer higher pay. Wage growth remained widespread, though an easing was reported in several Districts. Some businesses said elevated inflation and higher costs of living were pushing wages up, coupled with upward pressure from labor market tightness. Contacts expect wage growth to continue as higher pay remains essential for retaining talent in the current environment.

Prices

Price growth remained elevated, though some easing was noted across several Districts. Significant input price increases were reported in a variety of industries, though some declines in commodity, fuel, and freight costs were noted. Growth in selling prices was mixed, with stronger increases reported by some Districts and a moderation seen in others. Some contacts noted solid pricing power over the past six weeks, while others said cost passthrough was becoming more difficult as customers push back. Looking ahead, expectations were for price increases to generally moderate.

About the Beige Book

The Beige Book is a Federal Reserve System publication about current economic conditions across the 12 Federal Reserve Districts. It characterizes regional economic conditions and prospects based on a variety of mostly qualitative information, gathered directly from each District’s sources. Reports are published eight times per year.''

• The aussie retreats from 0.6330 and reaches 0.6250 low.
• The greenback rallies on Fed tightening hopes and higher US yields.
• AUD/USD might revisit 2020 lows at 0.5506 – Credit Suisse.

The Australian dollar is giving away previous gains on Wednesday, weighed by a stronger US dollar in a deteriorated market mood. The pair has pulled back from Tuesday’s high at  0.6330, returning to the mid-range of 0.6200.

The USD appreciates as risk appetite ebbs

The positive risk sentiment seen over the last two days faded on Wednesday. The major stock markets are going through moderate declines, which is undermining demand for the risk-sensitive Australian dollar.

The greenback is going through a strong recovery, fuelled by hopes of another aggressive Fed rate hike in November. In this backdrop, US Treasury bonds have pushed higher, with the benchmark 10-year note jumping to levels above 4% for the first time since the 2008 financial crash.

Besides, the Reserve Bank of Australia’s decision to slow down the pace of monetary tightening has increased negative pressure on the Australian Dollar.

AUD/USD could revisit 2020 low at 0.5506 – Credit Suisse

FX analysts at Credit Suisse maintain their negative outlook on the pair and warn about further decline to 0.5506: “AUD/USD maintains its medium-term downtrend and (…) we continue to look for further sustained downside (…) We expect a fall to the 78.6% retracement of the 2020/21 uptrend and the low from April 2020 at 0.6041/5978 initially. Whilst we would stay wary of another pause here, a convincing break lower would be seen to open the door for a move all the way to 0.5506 – the low of 2020.”

Technical levels to watch

US President Joe Biden said the US will sell 15 million barrels of crude oil from the SPR from the nation's Strategic Petroleum Reserve (SPR) by the year's end and detailed a strategy to refill the stockpile when prices drop, Reuters reported.

''Biden's plan is intended to add enough supply to prevent oil price spikes that could hurt consumers and businesses, in the wake of a decision by OPEC+ oil-producing nations, let by Saudi Arabia, to cut oil production ahead of U.S. midterm elections. Biden and his Democrats could lose control of one or both houses of Congress in November voting.''

Key notes

• Could also make extra oil available for sale if needed.
• To refill SPR when us oil prices are at or below $72/bbl’.
• Biden urges oil companies to increase US production and investment and offer consumers appropriate prices.
• Biden US needs to pass permitting reform bill.
• Biden says timing of SPR release is not politically motivated.

WTI Update

The price of oil moved higher early on Wednesday ahead of an expected release of additional US strategic supplies to counter OPEC+ cuts as supply remains tight and US oil inventories fell last week.

Spot West Texas Intermediate crude is up 2.90% at the time of writing and close to the highs of the day at $86.19bbls.

Minneapolis Fed President Neel Kashkari is participating in a public Q&A session as part of a weekly series hosted by Travelers. Travelers Institute President Joan Woodward moderates the session.

He said its possible headline inflation has peaked but he is yet to see evidence of that. 

Key quotes

He is seeing little evidence of the labour market softening.

Says surging mortgage costs have a 'profound' impact on the housing sector.
    
''Still working hard to achieve a soft landing.
    
Mixed signals make it hard to get a firm read on economy.
    
Some data points to slower consumer spending.
    
Hasn't seen evidence core inflation has peaked.
    
Fed committed to getting inflation back to 2%.
    
Open to discussing inflation target level once price pressures back to 2%.
    
Some evidence points to improving supply chains.

Possible headline inflation has peaked.

It takes a year or so for fed rate changes to work through economy,
    
Risk of undershooting on rate hikes is bigger than overdoing it,
    
Favors rate hikes until core inflation start to cool,
    
Best guess is that the Fed can pause on rate hikes sometime next year,
    
Fairly confident stagflation won't occur.''

US dollar update

As for the US dollar bounced, it has from two-week lows on Wednesday with a rise in US Treasury yields that made 14-year highs as investors maintained expectations that the Federal Reserve will continue to aggressively raise rates.

The greenback also hit a 32-year peak against the yen and approached the 150 level where some traders think the Ministry of Finance and Bank of Japan might intervene in the tumbling currency.

The Fed expected is expected to lift rates by another 75 basis points when it meets on November 1-2, with an additional 50 basis points or 75 basis points also increase likely in December. 

DXY daily chart

The W-formation's neckline is holding up as support and the DXY index has started to recover from a 50% mean reversion.  

• Silver extends its losses below $19.00 as rising inflation justifies the need for higher interest rates.
• Global bond yields climb, led by US Treasury yields, a headwind for silver.
• US 10-year TIPS, a proxy for real yields, surpasses the 1.70% threshold.

Silver price slid for the first time in the week following the release of UK, EU, and Canada inflation data, which remained stubbornly high, sparking a jump in global bond yields, a headwind for the precious metals segment, namely silver and gold. At the time of writing, the XAG/USD is trading at $18,42, below its opening price.

Inflation is the name of the game

In the European session, the Eurozone (EU) and the UK reported inflation, which remained stubbornly high, with the EU’s HICP for September jumping by 9.9% YoY, a tick lower than August’s reading, while UK CPI rose 10.1% YoY. Given the backdrop, market players are betting that the European Central Bank (ECB) and the Bank of England (BoE) would need to tighten further, probably 75 bps each, as they try to tame inflation.

Also, Canada added to the mix before Wall Street opened, with September’s inflation steadily hanging to the previous month’s readings, except for the core Consumer Price Index (CPI) on its monthly/annual readings, exceeding estimates by a tick.

Bond yields rally, pressuring precious metals

Worldwide bond yields jumped on data, with the US 10-year T-bond yield extending its gains above the 4.10% threshold, a headwind for silver, which appreciates as nominal and real yields fall. Speaking about the latter, the US 10-year TIPS bond rate, a proxy for real yields, keeps going north at 1.716%, up by ten bps.

Consequently, the greenback is printing gains. The US Dollar Index, a gauge of the buck’s value against a basket of peers, is back above the 113.00 figure, gaining close to 1%, propelled by US T-bond yields.

Elsewhere, the Minnesota Fed President Neil Kashkari reiterated that inflation is too high. Kashkari added that If the Federal funds rate (FFR) hits 4.5-4.75% and inflation remains high, he does not see the case for pausing interest-rate increases.

Silver (XAG/USD) Price Forecast

XAG/USD remains downward biased, although it recovered some ground and hurdled the $19.00 mark last Friday. Nevertheless, higher US bond yields mean a stronger US Dollar, so buyers could not hold to gains above $19.00 a troy ounce. Therefore, XAG/USD dropped below October’s 17 low of $18.55, opening the door for a test of the week’s low at $18.23. Once cleared, the next support would be the MTD low of $18.09.

In recent trade, there has been news that Suella Braverman has resigned as interior minister after just 43 days in the role, citing a breach of rules as well as concerns over the direction of the government:

In the resignation letter posted to Twitter, she said, “It is with the greatest regret that I am choosing to tender my resignation.”

The political shake-up is just one of a number of themes weighing on the pound at a hugely turbulent time for the government, with Truss under intense pressure to resign after a budget on September 23 set of turmoil in financial markets.

On Friday, Truss fired her finance minister, Kwasi Kwarteng, over the incident.

GBP/USD update

Meanwhile, the pound is down 1% on the day and has dropped from a high of 1.1357 to a low of 1.1184 so far and the markets expect sterling to remain under pressure amid an outlook for rising inflation and a recession in Britain.

The Bank of England is expected to increase rates by 75 basis points rather than 100 bps at its November meeting following Wednesday's Consumer Price Index inflation data. The UK Office for National Statistics has reported the headline Consumer Price Index (CPI) at 10.1%, higher than the expectations of 10% and the prior release of 9.9%. Also, the core CPI has escalated to 6.5% than the projections of 6.4% and the former figure of 6.3%.

GBP/USD H1 chart

• Gold accelerates its decline and hits fresh three-week lows below $1,630.
• The USD rallies on Fed tightening hopes and higher US yields.
• XAU/USD focusing on $1.614 or lower – Credit Suisse. 

Gold futures accelerated their downtrend on Wednesday to reach fresh three-week lows right below $1,630. The yellow metal dives nearly 1.5% so far today on the back of a strong USD recovery as risk appetite waned.

Fed tightening hopes and higher bond yields boost the USD

After the moderate decline of the previous two days, the dollar is going through a solid recovery on Wednesday. The USD has bounced back amid a  sourer market mood and the rebound on US Treasury bond yields. The benchmark 10-year bond yield has jumped to 4.12%, its highest level since the 2007 crisis

Beyond that, the investors have shifted their focus to the Federal Reserve’s monetary policy meeting due on November 1 and 2. With the market anticipating another 75 basis point hike, the aggressive tightening cycle of the US central bank is acting as a tailwind for the USD.

The USD has regained most of the ground lost over the previous two days. The US Dollar Index bounced up from levels right below 112.00 and has rallied beyond 1% on the day, returning to the 113.00 area at the time of writing.

XAU/USD: Next support is $1,614 – Credit Suisse

Analysts at Credit Suisse point out that gold futures have activated a double top, which anticipates further declines: “Gold below $1,691/76 has reinforced its existing large ‘double top’. Hence, with a top in place, we expect gold to come under renewed pressure. We note that the next support is seen at $1,614, then $1,560, and eventually $1,451/40.”

Technical levels to watch

Data released on Wednesday showed the annual inflation rate in Canada eased less-than-expected from 7.0% to 6.9%. Analysts at CIBC now believe the Bank of Canada (BoC) will need to with a 75 basis points rate hike next week, against the 50 bps previously anticipated. 

Key Quotes: 

“There will be some long faces at the Bank of Canada this morning as inflation cooled less than expected. Unadjusted headline CPI increased 0.1% in September, with the annual rate easing only one tick to 6.9% (consensus -0.1%, 6.7% y/y). This is the third consecutive deceleration in headline CPI driven mainly by the fall in gasoline prices.”

“Given that those prices have since reversed, the next month could see headline inflation temporarily heading in the wrong direction again. But that is not the main focus for the Bank of Canada, who is paying closer attention to core inflation. CPI excluding food and energy rose by 0.4% seasonally adjusted on the month, faster than last month, and at a pace that's too high to be consistent with the 2% target.”

“The Bank of Canada has clearly not slayed the inflation dragon yet and is therefore set for another large rate hike next week. The pace of growth in seasonally adjusted inflation excluding food and energy picked up by more than expected this month and is too high for comfort. As such, we now believe the Bank will need to go with a 75 bps hike next week rather than the 50 bps we previously anticipated. The Bank might then be left with a last 25 bps in December if growth numbers support it.”

• WTI prices tick up above $84, bulls remain capped at $84.50.
• Fears of a global recession and lower Chinese demand hurt crude prices.
• US commercial oil stocks declined unexpectedly.

WTI futures are trading without clear direction on Wednesday, despite the unexpected decline in US oil inventories. The West Texas Intermediate retreated to session lows at 82.60 earlier today, before attempting to pare losses, although recovery attempts remained capped below 84.50.

Oil prices suffer amid global recession fears

Crude prices have depreciated about 10% over the last two weeks amid a combination of increasingly negative global economic perspectives and fears of a decline on Chinese demand.

The Chinese Government has delayed the release of key indicators scheduled to be published this week, including the third quarter’s GDP, which was due on Wednesday. This decision has been taken negatively by the market and has increased doubts about China’s economic momentum and its potential impact on oil demand.  

Furthermore, US President Joe Biden has confirmed his commitment to keep releasing crude from the country’s oil reserves, which has increased negative pressure on prices.

Against this backdrop, the unexpected decline in US commercial oil inventories has been unable to push crude prices higher. The EIA reported earlier on Wednesday a 1.725M decline in inventories in the week of October 14 against market expectations of a 1.38M increase.

Technical levels to watch

• US dollar up across the board on Wednesday on higher US yields. 
• Canada: Inflation above expectations in September.
• USD/CAD up for the second day in a row, rebound from the 20-day SMA.

The USD/CAD printed a fresh daily high during the American session at 1.3808 and then pulled back to 1.3770. It is hovering slightly below 1.3800, on its way to the second daily gain in a row supported by a stronger US dollar across the board. 

Canadian inflation numbers disappoint

Canadian CPI rose 0.1% in September and the annual rate eased from 7.0% to 6.9%, against market expectations of a 6.8% reading. “After some respite in August, price growth picked up in September. Economists were expecting gasoline prices to fall but did not foresee the dramatic jump in food prices”, noted analysts at the National Bank of Canada. They are seeing “significant divergences in core inflation between Canada and the US over the past 3 months, as it has moderated substantially on this side of the border. In both cases, the global slowdown, less acute supply chain issues and lower transportation costs should translate into weak goods inflation prints going into 2023”.

The loonie rose modestly after the numbers but not enough to push USD/CAD to the downside. The pair is rising after avoiding on Tuesday a daily close below the 20-day Simple Moving Average, currently at 1.3710. 

On the upside, if the pair holds above 1.3800 it could gain momentum for a test of the next resistance area at 1.3830. On the flip side, a daily close below 1.3700 should open the doors to more losses. 

Technical levels

• GBP/USD failed to cling to the 1.1300 figure on concerns that the BoE would hike less than estimated.
• UK Inflation rose to fresh 4-decade highs above 10%, exerting pressure on the Bank of England.
• The US housing market continued to deteriorate amidst the Federal Reserve’s tight monetary policy.

The British Pound slides to fresh two-day lows below 1.1300 against the US Dollar after UK inflation extended to double digits, to a new 40-year high, while United States (US) housing data extends its decline due to Federal Reserve (Fed) aggressive policy. The GBP/USD is trading at 1.1220 at the time of writing after hitting a daily high at 1.1358.

Heightened UK Inflation pressures the BoE to act amid the ongoing economic slowdown

Early during the European session, the UK Office for National Statistics (ONS) revealed the Consumer Price Index (CPI) for September rose by 10.1% YoY, above estimates, and higher than August’s 9.9%, cementing the case for further tightening by the Bank of England (BoE). Also, core CPI jumped from 6.3% YoY vs. 6.4% foreseen.

The GBP/USD tumbled below 1.1300 on the news after political turmoil in the country, linked to the new Prime Minister’s tax-cut plan, witnessed the sacking of Finance Minister Kwarteng, replaced by Jeremy Hunt, who scrapped Liz Truss’s budget. Meanwhile, market participants anticipate that the BoE will hike 75 bps rather than 100 as the UK economy further deteriorates.

Fed’s aggression weighing on the US housing market

Across the pond, US Housing Starts for September declined by 8.1% MoM after August’s data surprisingly grew by 13.70%. The housing market continues to bear the brunt of the Fed interest-rate increases, as the US central bank embarked on a mission to bring inflation towards its 2% target, despite tipping the US economy into a recession.

On Tuesday, Minnesota Fed President Neil Kashkari reiterated that inflation is too high, and he does not see the case for pausing interest-rate increases. Kashkari added that if the Federal funds rate (FFR) hits 4.5-4.75% and inflation remains high, the Fed would need to continue its restrictive policy.

In the meantime, the US Dollar Index, a gauge of the greenback’s value against six currencies, is up by almost 0.80% at 112.778, underpinned by US Treasury bond yields, with the 10-year benchmark note yielding 4.098%, gaining eight bps.

GBP/USD Price Analysis

The GBP/USD extended its losses, below October’s 18 low, putting in play a fall towards Monday’s 1.1208 daily low, which, once cleared, could send the Pound Sterling toward the 20-day Exponential Moving Average (EMA) at 1.1127. If it gives way, the GBP/USD next stop would be the 1.1100 figure, followed by the October 12 1.0923 cycle low.

• The dollar continues marching higher and reaches the 149.70 area.
• Investors hold their breath for a potential BoJ intervention at 150.00
• USD/JPY's rally could reach 160.00 – Nordea.

The greenback resumed the upside on Wednesday and appreciates for the 11^th consecutive day, with the pair reaching session highs at 149.70 so far, approaching the psychological 150.00 level, which according to some market sources, might trigger an intervention by the Bank of Japan.
 

All eyes are on a potential BoJ intervention

With the Japanese yen declining across the board, the USD/JPY has surged about 30% since march, to reach 32-year highs. The US dollar is now moving well above the 145.00 level, which triggered the first BoJ intervention since 1998 in September.

US Treasury yields picked up on Wednesday, with the market shifting its focus towards the Federal Reserve’s monetary policy meeting, due on November 1 and 2. The bank is widely expected to increase the Federal Funds Rate by 75 basis points for the fourth consecutive time, which has provided a fresh boost to the USD after having traded without clear direction over the last two days.

Monetary policy divergence is the main reason behind yen's weakness. The Bank of Japan is lagging behind all the major central banks, already in a monetary tightening cycle, which is crushing demand on the yen.

USD/JPY could reach 160.00 – Nordea

FX analysts at Nordea Bank observe more upside potential on the pair and point out a potential 160.00 target: “With a continued worsening of rate differentials, we see USD/JPY trading as high as 160 at times, even with the intervention from the Japanese government (…) What will stop the weakening of the JPY is a shift in monetary policy from the Bank of Japan or a 180-degree shift from all other G10 central banks.

Technical levels to watch

Suella Braverman is understood to have departed as UK Secretary of State for the Home Department, reported The Guardian. According to them, UK PM Liz Truss “cleared her diary and called off a planned visit amid desperate attempts to save her premiership”.

Braverman was eliminated in the second round of the Conservative Party leadership election after Boris Johnson’s resignation. She then supported Liz Truss and was appointed Home Secretary on September 6.

The Guardian reports that a former Transport secretary, Grant Shapps could replace Braverman. He backed Rishi Sunak in the Tory race.

The Bank of England (BoE) Deputy Governor Jon Cunliffe said on Wednesday that recent market tensions regarding LDI are “mostly behind us”. He mentioned financial markets have to adjust to government fiscal policies and the market panic was caused by politicians.

Regarding LDIs (Liability Driven Investment), Cunliffe said they have got to the point where on average they could absorb an increase of 200 basis points in yields. He said they do not run stress tests on LDIs.

According to the BoE policymaker, there needs to be more coordination between security regulators and central banks.

Market reaction

The pound remains steady on Wednesday after volatile days. GBP/USD is hovering around 1.1255, down near 70 pips amid a stronger US dollar across the board.

Brent Crude Oil is back below key averages. Strategists at Credit Suisse expect further weakness from here.

Only a solid rise back above $93.78/102.57 would improve the technical picture

“Brent Crude Oil is back below key averages and we expect further weakness towards the 50% retracement of the whole 2020/2022 upmove at $77.56. If this level would break as well, we then identify next support levels at $65.72, December 2021 low and then $63.02, the 61.8% retracement, where we would expect a more sustainable consolidation/countermove to be established. Nevertheless, below would open the door for the March 2021 low at $60.27.”

“Only a solid rise back above the crucial intersection of the 55 and 200-day averages, currently seen at $93.78/102.57, would improve the technical picture again, which is not our base case.”

The weekly report from the US Energy Information Administration (EIA) showed a decline in crude oil inventories of 1.725M against expectations of an increase by 1.38M during the week ending October 14.  Cushing crude oil inventories rose by 583K and gasoline inventories by declined by 114K.

Key takeaways:

• US crude oil refinery inputs averaged 15.6 million barrels per day during the week ending October 14, 2022 which was 132,000 barrels per day less than the previous week’s average.
   
• Refineries operated at 89.5% of their operable capacity last week. Gasoline production increased last week, averaging 9.4 million barrels per day. Distillate fuel production increased last week, averaging 5.0 million barrels per day.
   
• US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.7 million barrels from the previous week. At 437.4 million barrels, U.S. crude oil inventories are about 2% below the five year average for this time of year

Market reaction

Crude oil prices remained steady after the report, holding onto to modest daily gains. The West Texas Intermediate (WTI – cash) rose to test the daily high around $83.40 and then pulled back toward $82.50.

S&P 500 above 3687/77 can keep the immediate risk higher for a test of 3807/10. Nonetheless, a break above the latter is needed to see a base established, analysts at Credit Suisse report.

Move below 3687 to suggest more choppy sideways phase

“Support at 3687/77 holding can see the immediate risk stay higher for strength back to 3763 and then the current October high and 38.2% retracement of the August/October fall at 3807/10. Beyond here is needed to mark a near-term base though and a more concerted recovery for a test of the 630-day average, currently at 3947.”

“Below 3687 can instead raise the likelihood we are set to see a more choppy sideways phase and a retest of the 200-week average at 3606/04.”

• AUD/USD comes under renewed selling pressure on Wednesday amid resurgent USD demand.
• Aggressive Fed rate hike bets, surging US bond yields, the risk-off impulse lifts the greenback.
• Bears, however, remain on the sidelines ahead of the key Australian jobs report on Thursday.

The AUD/USD pair fails to capitalize on its modest recovery gains recorded over the past two trading sessions and meets with a fresh supply on Wednesday. The pair maintains its offered tone through the early North American session and is currently placed near the daily low, around the 0.6280-0.6275 region.

The US dollar makes a solid comeback in the wake of a breakout rally in the US Treasury bond yields and turns out to be a key factor exerting downward pressure on the AUD/USD pair. In fact, the benchmark 10-year Treasury note hits its highest level since 2008 and the yield on the rate-sensitive 2-year US government bond rallies to a new 15-year peak amid hawkish Fed expectations.

The markets seem convinced that the US central bank will stick to its aggressive policy tightening path to tame inflation and have been pricing in another supersized 75 bps rate hike in November. This, in turn, remains supportive of elevated US Treasury bond yields. This, along with the risk-off impulse, lifts the safe-haven buck and weighs on the risk-sensitive Australian dollar.

The market sentiment remains fragile amid growing worries about the economic headwinds stemming from rapidly rising borrowing costs, geopolitical risks and China's strict zero-COVID policy. The anti-risk flow is evident from a fresh leg down in the equity markets. This, to a larger extent, overshadows mixed US housing market data and does little to dent the intraday USD bullish move.

Apart from this, the Reserve Bank of Australia's (RBA) decision to slow the pace of policy tightening earlier this month suggests that the path of least resistance for the AUD/USD pair is to the downside. Hence, a subsequent slide back below the 0.6200 round-figure mark, towards challenging the YTD low near the 0.6170 region touched last week, looks like a distinct possibility.

That said, traders seem reluctant to place placing aggressive bearish bets and prefer to wait for the monthly employment details from Australia, due for release during the Asian session on Thursday. In the meantime, the USD price dynamics will continue to influence the AUD/USD pair, which, along with the broader risk sentiment, should allow traders to grab short-term opportunities.

Technical levels to watch

In the opinion of economists at TD Securities, dips into and below 1.37 in USD/CAD should be faded and a return to a 1.40 handle is likely.

There is zero reasons to like the loonie

“We see strong markers of support and dips in USD/CAD should be shallow. Dips into 1.36/37 should be strongly faded.” 

“We look for the pair to top 1.40 again in the coming weeks.”

“To get CAD to strengthen will need to see a relaxation of positive USD catalysts primarily through a Fed pivot and a series of moderation in month-on-month US core CPI. Neither is happening near-term.”

• EUR/USD fades the recent advance and breaks below 0.9800.
• The October low near 0.9630 comes next on the downside.

EUR/USD reverses the uptick to the 0.9870/80 band and comes under pressure below the 0.9800 support on Wednesday.

The inability of the pair to surpass the area of weekly highs near 0.9880 in the very near term could lure extra selling pressure in and pave the way for a probable test of the October low at 0.9631 (October 13).

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0553.

EUR/USD daily chart

AUD/USD maintains its core downtrend, with scope of reaching the 2020 low at 0.5506, analysts at Credit Suisse report.

Current pause may stay in place for now

“AUD/USD maintains its medium-term downtrend and though the current pause may stay in place for now, we continue to look for further sustained downside.”

“We expect a fall to the 78.6% retracement of the 2020/21 uptrend and the low from April 2020 at 0.6041/5978 initially. Whilst we would stay wary of another pause here, a convincing break lower would be seen to open the door for a move all the way to 0.5506 – the low of 2020.”

• A combination of factors drags gold to a fresh three-week low on Wednesday.
• Hawkish Fed expectations, rising US bond yields, stronger USD exert pressure.
• The risk-off impulse could lend some support and help limit any further losses.

Gold continues losing ground through the early North American session and hits a fresh three-week low, around the $1,630 area in the last hour. The downtick is exclusively sponsored by a strong pickup in demand for the US dollar, which tends to weigh on the dollar-denominated commodity.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, has now recovered a major part of its weekly losses amid rising bets for aggressive rate hikes by the Fed. The US central bank remains committed to bringing inflation under control and is expected to deliver another supersized 75 bps rate increase at the next policy meeting in November.

Hawkish Fed expectations trigger a fresh leg up in the US Treasury bond yields and continue to act as a tailwind for the buck. In fact, the yield on the rate-sensitive 2-year US government bond rallies to a new 15-year peak and the benchmark 10-year Treasury note hit its highest level since 2008. This is seen as another factor driving flows away from the non-yielding gold.

The USD maintains its strong bid tone and seems rather unaffected by mixed US housing market data. This, along with rising bets for a jumbo rate hike by the European Central Bank and the Bank of England, suggests that the path of least resistance for the XAU/USD is to the downside. Hence, a slide back towards the YTD low, around the $1,615 area, remains a distinct possibility.

That said, a turnaround in the global risk sentiment - as depicted by a generally weaker tone around the equity markets, could lend support to the safe-haven gold. That said, any attempted recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch

• DXY reclaims part of the ground lost and advances to 2-day highs.
• The surpass of the 114.00 region could pave the way for extra gains.

DXY sets aside two daily pullbacks in a row and extends further the recent breakout of the 112.00 barrier on Wednesday.

So far, the index looks poised to keep navigating within a 112.00-114.00 range at least until the next FOMC event. In case bulls break above the 114.00 region, gains could then accelerate to the 2022 peak near 114.80.

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 8-month support line near 108.10.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.52.

• Inflation in Canada falls at a slightly slower-than-expected pace.
• USD/CAD trims a part of its intraday gains in reaction to the data.

Inflation in Canada, as measured by the Consumer Price Index (CPI), fell to 6.9% in September from 7.0% in August, data published by Statistics Canada showed this Wednesday. This reading is slightly better than the market expectation of 6.8%.

The Bank of Canada's (BOC) Core CPI, which excludes volatile food and energy prices, unexpectedly climbed to 6.0% on a yearly basis from 5.8% in August, again beating estimates for a reading of 5.6%.

Market reaction

The initial market reaction, however, is limited amid a goodish pickup in the US dollar demand, which continues to act as a tailwind for the USD/CAD pair.

• EUR/JPY comes under pressure after printing new cycle highs.
• Further up aligns the December 2014 top at 149.78.

EUR/JPY returns to the negative territory after six consecutive sessions closing with gains.

Considering the current price action in the cross, the door still looks open to extra upside. 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 near 141.00.

In the longer run, while above the key 200-day SMA at 136.68, the constructive outlook for the cross should remain unchanged.

EUR/JPY daily chart

Gold has reinforced its “double top.” Strategists at Credit Suisse expect the yellow metal to suffer further weakness.

Only a convincing weekly close above $1,712 would ease the pressure

“Gold below $1,691/76 has reinforced its existing large ‘double top’. Hence, with a top in place, we expect gold to come under renewed pressure. We note that the next support is seen at $1,614, then $1,560 and eventually $1,451/40.”

“Only a convincing weekly close above the 55-day average at $1,712 would ease the pressure on the precious metal, with next resistance then seen at the even more important 200-day average, currently at $1,817, which we would expect to cap at the very latest.”

The rally in USD/JPY has gained further strong momentum. Economists at Credit Suisse believe that the pair has potential to test the 149.78 high of 2014.

Support is seen at 144.85/24

“Although we are wary of a potential top in USD/JPY around 150-153, we look for the rally here to extend further still. 

“Resistance is seen initially at 147.23/27, above which can see resistance next at 148.43/45 and potentially back to the 149.78 high of 2014. We would look for this to prove a tougher barrier if tested.”

“Support is seen at 146.54/40 initially, with a break below 146.23 needed to see a setback into the 144.85/24 zone, which we look to try and hold.”

USD/CAD’s sharp appreciation through September is showing signs of flattening out. In the view of economists at Scotiabank, the pair needs to break below the 1.3650 mark to sustain further losses.

More choppy range trading in the short run

“Price action is choppy and daily/weekly trend signals are showing some signs of weakening; intraday (1 and 6-hour) DMI oscillator measures have turned decidedly flat. These signals suggest more, choppy range trading in the short run at least.”

“We note that last week’s spike high at 1.3972 was followed by the formation of a bearish key reversal signal (new cycle high, lower close) on the daily chart.”

“USD-bearish price signals are not prompting a significant reaction at this point and the longer run DMIs indicate a lot of residual upside momentum remains in this market. Still, we note the bearish reversal signal came at a sensitive point (near the 1.40 level) and that high has not been challenged again so far.” 

“More obvious USD weakness (we think below 1.3650) is needed to inspire a deeper drop at this point.”  

Canada CPI Overview

Statistics Canada will release the consumer inflation figures for September later during the early North American session on Wednesday, at 12:30 GMT. The headline CPI is expected to remain flat during the reported month as compared to a 0.3% fall in July. The yearly rate, meanwhile, is expected to ease from 7.0% to 6.8% in September. More importantly, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, is estimated to rise by 0.4% MoM in September and came in at 5.6% on a yearly basis, down from 5.8% in August.

Analysts at Citibank offer their take on the upcoming macro data and write: “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.”

How Could it Affect USD/CAD?

Ahead of the key release, a goodish pickup in the US dollar demand assists the USD/CAD pair to gain some positive traction on Wednesday. That said, an intraday bounce in crude oil prices underpins the commodity-linked loonie and acts as a headwind for the major. A softer-than-expected Canadian CPI print should allow the major to build on the overnight recovery move from over a one-week low.

Conversely, a stronger reading could provide a modest lift to the domestic currency, though the immediate market reaction is more likely to remain limited. The prospects for more aggressive rate hikes by the Federal Reserve, along with looming recession risks, should continue to benefit the safe-haven buck and act as a tailwind for the USD/CAD pair. This, in turn, suggests that the path of least resistance for spot prices is to the upside.

Key Notes

  •   Canadian CPI Preview: Forecasts from seven major banks, signs of easing price pressures?

  •   USD/CAD clings to gains above mid-1.3700s, lacks follow-through ahead of Canadian CPI

  •   USD/CAD: Next potential objectives located at 1.4040 and 1.4210 – SocGen

About Canadian CPI

The Consumer Price Index (CPI) released by Statistics Canada is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of CAD is dragged down by inflation. The Bank of Canada aims at an inflation range (1%-3%). Generally speaking, a high reading is seen as anticipatory of a rate hike and is positive (or bullish) for the CAD.

NZD/USD is seeing a minor recovery, which economists at Credit Suisse look to be held at 0.5798/5813.

Move below 0.5510 needed to turn near-term risk back lower

“Whilst both daily RSI and MACD are holding bullish divergences, which suggests that the recovery will extend for now, our broader outlook remains outright bearish and we thus see this development only as a correction prior to an eventual move lower.”

“Immediate support is seen at 0.5649 and next at 0.5617, though a move below the recent price low at 0.5510 is needed to turn near-term risk back lower and prompt a move to a major support level at the 2020 low at 0.5468.” 

“Whilst we expect a better near-term ceiling to be found at the 0.5798/5813 level, above here would see scope to test the falling 55-day average at 0.5978.”

GBP/USD remains under intense selling pressure below 1.1300. Economists at MUFG Bank do not expect further improvement in confidence from here. 

GDP forecasts will remain grim

“We still see renewed GBP weakness ahead with a danger of a rush to retrieve investor credibility going too far and worsening notably the already grim economic outlook.”

“The BoE indicated its determination yesterday by denying the FT report that it would delay the start of QT, scheduled for 31st October. Given that is the same day as the updated fiscal details, the BoE probably wants to maintain pressure on the government.”

“Starting QT in the current environment is likely to weigh on investor sentiment and coupled with a deeper than previously expected contraction in GDP, the pound is likely to suffer.”

The USD/ZAR pair formed an intermittent high near 18.50 recently. A break above the latter could clear the way towards the 19.20/35 area, in the view of economists at Société Générale.

The 17.55/17.30 area should be an important support zone

“The 50-Day Moving Average (DMA) near 17.55/17.30 should be an important support zone. Defending this can lead to the next leg of up move.” 

“A cross above 18.50 can take the pair towards 18.80 and perhaps even towards 2020 high of 19.20/19.35.”

• A combination of diverging forces fails to provide any meaningful impetus to EUR/GBP.
• The UK political uncertainty undermines The British pound and extends some support.
• Resurgent USD demand weighs on the common currency and seems to cap spot prices.

The EUR/GBP cross struggles to gain any meaningful traction and oscillates in a narrow band, around the 0.8700 mark through the first half of the European session on Wednesday.

The UK political uncertainty is seen as a key factor undermining the British pound, which, in turn, acts as a tailwind for the EUR/GBP cross. 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, looming recession risks might force the Bank of England to adopt a gradual approach towards raising interest rates This, to a larger extent, overshadows hotter-than-expected UK CPI, which jumped to a 40-year high, though did little to impress the GBP bulls.

The shared currency, on the other hand, draws support from rising bets for another jumbo 75 bps rate increase by the European Central Bank at the upcoming policy meeting on October 27. ECB President Christine Lagarde earlier this month referred to rate increases as the best tool to fight stubbornly high inflation. In fact, the final reading of the Eurozone Harmonised Index of Consumer Prices (HICP) report showed that inflation in the Eurozone surged to 9.9% YoY in September. That said, resurgent USD demand acts as a headwind for the euro and caps the upside for the EUR/GBP cross.

The mixed fundamental backdrop, though seems tilted in favour of bullish traders, warrants some caution before positioning for any further appreciating move. The market focus now shifts to the flash Eurozone PMI prints, due for release next week. The data might influence the common currency and provide some meaningful impetus to the EUR/GBP cross ahead of the crucial ECB monetary policy meeting.

Technical levels to watch

The Japanese daily, the Nikkei Asian Review, reported on Wednesday, “the US is in talks with Taiwan to co-produce American weapons.”

Earlier on, the South China Morning Post (SCMP) stated that China’s Defence Minister vowed to be on high alert and ready for war amid mounting tension with the US, on the sidelines of the party congress.

Over the weekend, China’s President Xi Jinping said that Beijing would try its best to bring Taiwan back into the fold by peaceful means, but would not renounce the use of force if needed.

To which, US Secretary of State Antony Blinken responded that China’s government is pursuing its plans to annex Taiwan on a “much faster timeline” under Xi Jinping.

Market reaction

Tensions continue brewing between the US and China over Taiwan but so far it has a little to no impact on risk sentiment. The Chinese proxy, AUD/USD, is trading on the back foot at around 0.6300 amid a broad US dollar rebound.

EUR/USD is expected to see a short-term consolidation, ahead of a fresh push lower later in the year towards Credit Suisse’s core objective at 0.9331/03. 

Scope for lengthier consolidation

“EUR/USD is seeing consolidation and we continue to look for this to extend for a while yet for a potential retest of 55-day average and price resistance at 0.9950/1.000 which we look to ideally cap again. A closing break higher though would warn of a deeper recovery to 1.0198, potentially 1.0350/69.”

“Post a consolidation phase though we look for an eventual sustained move below 0.9592 with support then seen next at 0.9331/03.”

EU Commissioner for Interinstitutional Relations and Foresight Maroš Šefčovič said on Wednesday, the EU will propose a new power market design in Q1 2023.

“The new EU power market design is to sever link to gas prices,” Šefčovič noted.

Related reads

• German Economy Ministry presents plans for skimming power prices on November 18
• Eurozone final inflation arrives at 1.2% MoM in September vs. 1.2% expected

Japanese Finance Minister Shunichi Suzuki said on Wednesday that he is communicating frequently with the Ministry of Finance FX Chief.

He added that there is “no change to thinking on forex.”

Market reaction

At the time of writing, USD/JPY is holding higher ground near 32-year highs at 149.49, up 0.14% on the day.

• Silver extends the overnight retracement slide from the $19.00 neighbourhood.
• The technical setup favours bears and supports prospects for additional losses.
• A sustained move beyond the $19.00 mark is needed to negate the negative bias.

Silver comes under fresh selling pressure on Wednesday and extends the previous day's modest pullback from the vicinity of the $19.00 mark. The white metal remains on the defensive through the first half of the European session and is currently flirting with the daily low, around mid-$18.00s.

From a technical perspective, the recent bounce from a nearly three-week low touched last Friday faces rejection near the 100-hour EMA. Meanwhile, oscillators on the daily chart are holding in the bearish territory and have again started gaining negative traction on the 1-hour chart. This, in turn, supports prospects for an extension of the intraday depreciating move.

Hence, a subsequent slide back towards challenging a pivotal support, around the $18.00 mark, remains a distinct possibility. Some follow-through selling will be seen as a fresh trigger for bearish traders and drag the XAG/USD back towards the YTD low, around the $17.55 area. Spot prices could eventually drop to the next relevant support near the $17.00 round figure.

On the flip side, the 100-hour SMA, around the $18.90-$19.00 area, might act as an immediate hurdle.  A sustained move beyond might trigger a short-covering rally and lift XAG/USD towards the $19.70-$19.80 supply zone en route to the $20.00 psychological mark. The latter should act as a pivotal point for bulls, which if cleared should pave the way for further gains.

The subsequent move up has the potential to lift the XAG/USD further beyond the $20.50 intermediate resistance, towards reclaiming the $21.00, which coincides with the 200-day EMA.

Silver 1-hour chart

Key levels to watch

• GBP/USD is feeling the pull of gravity below 1.1300 after hot UK inflation.
• Risk-off flows seep back in on growth fears and revive the dollar demand.
• Cable eyes 21DMA after facing rejection at the rising trendline resistance.

GBP/USD is off the two-day low at 1.1245 but remains under intense selling pressure below 1.1300 in the European session this Wednesday. Bears are taking a breather before kicking off the next leg lower.

Despite the hotter-than-expected UK annualized Consumer Price Index (CPI), markets are pricing a less aggressive BOE rate hike after the government’s fiscal U-turn and ongoing political instability. This is weighing heavily on the sterling amid fears of a looming recession.

On the other side, investors have turned cautious, reviving the safe-haven demand for the US dollar across the board. The upswing in the US Treasury yields is also boding well for the greenback at the pound’s expense.

The focus now shifts towards the US housing data, Fedspeak and the Beige Book for fresh trading impetus. The US earnings reports will also have a significant impact on the risk-sensitive cable.

From a short-term technical perspective, GBP/USD faced rejection once again at the falling trendline resistance, now at 1.1360.

The sell-off is, therefore, likely to extend towards the bearish 21-Daily Moving Average (DMA) at 1.1140 should Monday’s low at 1.1171 give way.

The 14-day Relative Strength Index (RSI) is lurking just beneath the midline, suggesting that the tide has changed against bulls.

GBP/USD: Daily chart

On the upside, acceptance above the aforesaid resistance at 1.1357 is critical for any recovery to kick in.

The next stop for bulls is seen at the 1.1400 round figure, above which the descending 50DMA at 1.1466 could be challenged.

GBP/USD: Additional technical levels

USD/CAD is trading above 1.3750 ahead of the Canadian Consumer Price Index (CPI) report. Economists at Société Générale expect the pair to target 1.4040 and then 1.4210.

1.3500 should provide support

“Weekly MACD is firmly anchored within positive territory denoting prevalence of upward momentum.”

“Currently a pause is underway however 1.3500, the 23.6% retracement from 2021 should provide support.”

“Next potential objectives are located at projections of 1.4040 and 1.4210.”

See – USD/CAD: Risks appear slightly skewed to the upside for loonie today – ING

The trade-weighted dollar remains close to its highs. Economists at ING expect the greenback to see a consolidation phase around the current level.

Dollar corrections should prove short-lived

“As long as the Fed retains its hawkish stance (we suspect well into 2023), dollar corrections should continue to prove short-lived.”

“We expect a consolidation in the dollar around current levels, and retain a bullish view on the greenback into year-end.”

See – Fed: Another 75 bps rate hike in November looks a done deal – ABN Amro

• USD/CAD regains positive traction on Wednesday and is supported by a combination of factors.
• Bearish oil prices undermine the loonie and act as a tailwind amid a pickup in the USD demand.
• Traders now look to the Canadian CPI report and the US housing market data for a fresh impetus.

The USD/CAD pair attracts fresh buying near the 1.3720-1.3715 region on Wednesday and maintains its bid tone through the first half of the European session. The pair is currently trading near the 1.3770-1.3765  area and seems poised to build on the previous day's bounce from over a one-week low.

The rising possibility of a global recession raises concerns about the outlook for energy demand and continues to weigh on crude oil prices. This is seen undermining the commodity-linked loonie, which, along with a goodish pickup in the US dollar demand, turn out to be key factors lending support to the USD/CAD pair.

Firming expectations for a more aggressive policy tightening by the Fed triggers a fresh leg up in the US Treasury bond yields and assists the US dollar to regain some positive traction. In fact, the current market pricing indicates a nearly 100% chance of another supersized 75 bps Fed rate hike in November.

The bets were reaffirmed by the overnight hawkish remarks by Minneapolis Fed President Neel Kashkari, reiterating the US central bank's commitment to bring inflation under control. Kashkari noted that the benchmark policy rate could rise above 4.75% if underlying inflation does not stop rising.

Apart from this, a turnaround in the global risk sentiment provides an additional lift to the safe-haven buck and remains supportive of the bid tone surrounding the USD/CAD pair. The market sentiment remains fragile amid worries that rapidly rising borrowing costs might lead to a deeper economic downturn.

Furthermore, concerns about economic headwinds stemming from the protracted Russia-Ukraine war and China's strict zero-COVID policy keep a lid on the recent optimistic move in the equity markets. Despite the supporting factors, the USD/CAD pair, so far, has been struggling to gain any meaningful traction.

Traders now seem reluctant and prefer to wait for the release of the latest Canadian consumer inflation figures. The US economic docket features housing market data - Building Permits and Housing Starts. This might provide some impetus to the USD/CAD pair later during the early North American session.

Technical levels to watch

• Eurozone inflation arrives at 9.9% YoY in September, revised down.
• Monthly HICP in the bloc rises by 1.2% in September.
• EUR/USD keeps a range around 0.9820 on the mixed Eurozone data.

Eurozone’s Inflation surged 9.9% in September, on an annualized basis, according to Eurostat’s final reading of the Eurozone Harmonised Index of Consumer Prices (HICP) report for the month.

The reading missed expectations of 10.0% while against the 10.0% previous. Core figures rose by 4.8% YoY, meeting the 4.8% market estimates and 4.8% last.       

The bloc’s HICP rose by 1.2% MoM versus 1.2% expected and 1.2% first estimate.

The core HICP numbers came in at 1.0% MoM versus 1.0% expected and 1.0% previous.

Key details (via Eurostat):

“The lowest annual rates were registered in France (6.2%), Malta (7.4%) and Finland (8.4%). The highest annual rates were recorded in Estonia (24.1%), Lithuania (22.5%) and Latvia (22.0%). Compared with August, annual inflation fell in six Member States, remained stable in one and rose in twenty.”

“In September, the highest contribution to the annual euro area inflation rate came from energy (+4.19 percentage points, pp), followed by food, alcohol & tobacco (+2.47 pp), services (+1.80 pp) and non-energy industrial goods (+1.47 pp).”

FX implications:

At the press time, EUR/USD is trading at 0.9815, down 0.38% on the day. The inflation data weighed slightly on the shared currency, as the downward revision to the annualized inflation could temper super-sized ECB rate hike expectations.

It will take more time before higher rates work through the economy. Therefore, risk-sensitive currencies such as the Norwegian krone and the Swedish krona are set to remain under pressure.

Better outlook for the NOK than the SEK longer out

“Risk-sensitive currencies like the NOK and SEK will continue to feel the pressure of higher global rates, falling equity markets, and a gloomy global economic outlook. We do not see this changing in the short-term.”

“Over time, when central banks reach peak rates, risk sentiment could improve as markets focus on potential rate cuts that could be in the cards in a year or two. Improved risk sentiment and a retraction of the US dollar dominance should be good news for both the NOK and the SEK.”

“Our view of relatively high energy prices and rising petroleum investments in Norway over the coming years imply a better outlook for the NOK than the SEK longer out.”

EUR/USD has been stabilising in the 0.98-0.99 area after the rally from 0.9700. Analysts at ING expect the pair to challenge the 0.9540 on the round of dollar appreciation.

Domestic picture remains grim

“Dollar strength remains the main hindrance to recovery in the pair, but the domestic picture is still far from looking appealing to investors. Despite a smaller-than-expected slump in the ZEW expectations index, the current situation survey plunged dramatically to -72.2 in October. These are levels last seen only in 2020 and 2009.”

“The easing in gas prices is likely preventing a return to the 0.9540 lows, but we think the next round of dollar appreciation will heavily test that support.”

• EUR/USD loses momentum after hitting the 0.9870/80 band.
• Final EMU Inflation Rate for the month of September comes next.
• US housing data, Fed’s Beige Book next of note across the pond.

The optimism around the risk complex and the European currency appears somewhat dwindled on Wednesday, with EUR/USD giving away part of the weekly advance and revisiting the 0.9820 region, or 2-day lows.

EUR/USD looks to data, dollar

Sellers appear to have regained the upper hand and now put EUR/USD under some pressure following two consecutive daily advances. The return of the selling bias seems to have been triggered by the inability of spot to quickly leave behind the area of weekly tops in the 0.9870/80 band.

On the opposite side of the road, the dollar regains some upside traction and motivates the USD Index (DXY) to extend the march north past the 112.00 barrier amidst the firm recovery in US yields across the curve. In Germany, the 10-year bund yields also edge up and extend at the same time the consolidative theme in the upper end of the range and close to multi-year peaks.

In the domestic calendar, the final inflation figures in the euro zone are due later in what will be the sole release this side of the Atlantic. In the NA session, MBA Mortgage Applications are due in the first turn seconded by Housing Starts and Building Permits while the Fed’s Beige Book will close the daily docket.

What to look for around EUR

EUR/USD meets some selling bias after faltering once again in the 0.9870 region on Wednesday.

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 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 retreating 0.27% at 0.9827 and 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). On the flip side, the next resistance aligns at 0.9875 (weekly high October 18) followed by 0.9999 (monthly high October 4) and finally 1.0050 (weekly high September 20).

The Japanese yen has continued its relentless fall. Economists at Nordea believe that the USD/JPY could soar as high as 160.

BoJ’s rate policy will keep JPY weak

“With a continued worsening of rate differentials, we see USD/JPY trading as high as 160 at times, even with the intervention from the Japanese government.”

“What will stop the weakening of the JPY is a shift in monetary policy from the Bank of Japan or a 180-degree shift from all other G10 central banks. The shift from the BoJ could easily come when the current BoJ Governor Kuroda retires in April 2023.”

• Gold slides to a three-week low on Wednesday amid a goodish pickup in the USD demand.
• Aggressive Fed rate hike bets trigger a fresh leg up in the US bond yields and lift the buck.
• A modest pullback in the equity markets could offer some support to the safe-haven metal.

Gold comes under some renewed selling pressure on Wednesday and drops to a three-week low during the early European session. The XAU/USD is currently trading just above the $1,640 level and is pressured by a combination of factors.

Growing acceptance that the Fed will continue to tighten its monetary policy at a faster pace triggers a fresh leg up in the US Treasury bond yields and weighs on the non-yielding yellow metal. In fact, the FedWatch tool indicates a nearly 100% chance of the fourth successive supersized 75 bps rate increase at the next FOMC meeting in November. The bets were reaffirmed by hotter US consumer inflation figures released last week and the recent hawkish remarks by several Fed officials.

Reiterating the Fed's commitment to bring down inflation, Minneapolis Fed President Neel Kashkari said on Tuesday that the policy rate could rise above 4.75% if underlying inflation does not stop rising. This, in turn, lifts the yield on the rate-sensitive 2-year to a 15-year peak and the benchmark 10-year Treasury note to its highest level since 2008, which assists the US dollar to regain positive traction. A modest USD strength exerts additional pressure on the dollar-denominated gold.

That said, a pullback in the US equity futures might turn out to be the only factor that could offer some support to the safe-haven XAU/USD. Investors remain concerned about the economic headwinds stemming from rapidly rising borrowing costs. Apart from this, China's strict zero-COVID policy has been fueling recession fears and keeping a lid on the recent optimistic move. The fundamental backdrop, however, seems tilted in favour of bearish traders and supports prospects for further losses.

Hence, any attempted recovery move might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Market participants now look forward to the US housing market data - Building Permits and Housing Starts - for a fresh impetus later during the early North America session. This, along with the US bond yields, will drive the USD demand and provide some impetus to gold. Apart from this, traders will further take cues from the broader risk sentiment.

Technical levels to watch

USD/CAD is advancing above 1.3750 ahead of the Canadian inflation data. Economists at ING believe that the loonie could see some gains today.

Inflation to steer rate expectations

“We still want to highlight how the Canadian dollar is in a good position to benefit from any recovery in risk sentiment (although that may only materialise from 1Q23 onwards), thanks to Canada’s limited exposure to the two major poles of geopolitical and economic risk: Russia and China. But growing uncertainty about global demand dynamics may further postpone any strong rebound in the loonie.”

“Today, September CPI numbers will be published, and the consensus is centred around a slowdown in headline inflation from 7.0% to 6.7%. With markets currently pricing in 60 bps ahead of next week’s meeting, any upside or downside surprise can definitely direct rate expectations towards 50 bps or 75 bps, and generate CAD volatility in both directions.” 

“The balance of risks appears slightly skewed to the upside for CAD today, but there is still room for USD/CAD appreciation (1.38-1.40) into year-end.”

See – Canadian CPI Preview: Forecasts from seven major banks, signs of easing price pressures?

UOB Group’s Markets Strategist Quek Ser Leang and Economist Lee Sue Ann see the upside momentum in USD/CNH facing the next resistance at 7.2670 in the short term.

Key Quotes

24-hour view: “Our expectation for USD to ‘trade sideways within a range of 7.1850/7.2200’ was incorrect as it popped to a high of 7.2332 before closing of a firm note at 7.2250 (+0.25%). Upward momentum has improved, albeit not by much. USD is likely to trade with an upward bias but any advance is expected to face strong resistance at 7.2380. Support is at 7.2100, followed by 7.2000.”

Next 1-3 weeks: “Last Friday (14 Oct, spot at 7.1880), we highlighted that 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. Yesterday, USD rose to a high of 7.2332 before closing at 7.2250 (+0.25%). The risk of USD breaking above 7.2380 is increasing. A break of this level would shift the focus to the Sep high near 7.2670. Overall, only a breach of 7.1800 (‘strong support’ level was at 7.1500 yesterday) would indicate that the upside risk has subsided.”

FX option expiries for Oct 19 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9750 1.35b
• 0.9785-00 550m
• 0.9850 260m
• 0.9900 523m
• 0.9925 227m
• 0.9940-50 518m
• 0.9975 221m

- USD/JPY: USD amounts                     

• 147.00-05 896m
• 147.75 230m
• 148.00 1.1b
• 149.10 318m
• 149.25 451m
• 149.40 475m
• 150.00 360m

- USD/CAD: USD amounts       

• 1.3800 696m
• 1.3900 250m
• 1.4100 250m

- EUR/GBP: EUR amounts        

• 0.8650 570m

• The index regains the smile and advances to the 112.50 region.
• The selling pressure in the risk complex props up the dollar.
• Weekly Mortgage Applications, housing data, Fed Beige Book next on tap.

The greenback, in terms of the USD Index (DXY), manages to regain some upside traction and climbs to the 112.50 region on Wednesday.

USD Index looks to data, risk trends

The index reverses two daily drops in a row and trades with decent gains so far in the European morning on Wednesday.

The improvement in the dollar comes in line with an equally healthy move higher in US yields across the curve, all against the backdrop of the generalized soft tone in the risk complex.

From the Fed’s backyard, N.Kashkari (2023 voter, dove) suggested that rates could reach the 4.5% area during next year, at the time when he left the door open to further interest rate hikes as long as inflation remains elevated.

Later in the US data space, usual weekly Mortgage Applications tracked by MBA come in the first turn seconded by Housing Starts and Building Permits, while the release of the Fed’s Beige Book will close the calendar.

What to look for around USD

The dollar manages to reverse the pessimism seen in the first half of the week so far on Wednesday.

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: 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 gaining 0.24% at 112.26 and faces the next hurdle at 113.88 (monthly high October 13) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the other hand, 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).

EUR/USD has moved up from close to 0.95 to trading around 0.98. Nonetheless, economists at Nordea expect the pair to move back lower and bottom around the start of 2023.

A terms-of-trade shock will weigh on EUR/USD

“Some might wonder whether the rally for USD is finally behind us, but we don’t think so and believe this relief rally in financial markets is temporary – we have seen similar episodes many times over the past year.”

“More pain ahead for financial markets will continue to favor safe havens such as the USD. Moreover, the US economy is still resilient and will likely fare better than energy-importing major economies in Europe and Asia.” 

“We see EUR/USD pushing slightly below 0.95 over new-year, supported by higher USD interest rate differentials and the term-of-trade crisis in the euroarea.”

German Economy Ministry presented a draft document, citing that the cabinet should talk about power and gas prices brakes on November 18.

Key takeaways

GBP/USD is trading under pressure below 1.1300. In the view of economists at ING, the pair could trade back below the 1.10 level.

GBP downside risks persist

“We still struggle to see a return to 1.15+ levels in cable, as a combination of political instability, risks of a deeper recession and smaller rate hikes by the BoE along the path of fiscal rigour – along with a strong dollar - may more than offset the benefits of quieter debt-related concerns.”

“It’s too early to dismiss a return to sub-1.10 levels.”

Despite the current overbought conditions, USD/JPY could still attempt a move to the 150.00 region in the short term, note UOB Group’s Markets Strategist Quek Ser Leang and Economist Lee Sue Ann.

Key Quotes

24-hour view: “Yesterday, we held the view that ‘as long at 147.75 is not breached USD could continue to rise but 150.00 is still unlikely to come into view’. USD subsequently rose to 149.34 before closing with a modest gain of 0.15% (149.26). Conditions remain deeply overbought but USD could continue to advance even though we still think that 150.00 is unlikely to come into view for now (there is a minor resistance at 149.60). On the downside, a break of 148.40 (minor support is at 148.70) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “There is not much to add to our update from Monday (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 147.90 (‘strong support’ level was at 147.20 yesterday) would indicate that USD is unlikely to strengthen further.”

Economists at Credit Suisse still think the central bank will sell from its reserves in order to prevent excess lira weakness. They stick to an end-year target of 20.00 for USD/TRY.

Another rate cut is expected

“The Turkish central bank is widely expected to deliver a third consecutive policy rate cut tomorrow (20 October). We do not expect a lasting impact on the lira from tomorrow’s meeting.”

“Our core view remains that the central bank will sell from its reserves in order to prevent excess lira weakness amid rising funding pressures from the balance of payments in coming months.”

“We stick to an end-year target of 20.00 for USD/TRY.”

Today’s Canadian Consumer Price Index (CPI) data will offer markets the opportunity to recalibrate their expectations for Bank of Canada (BoC) policy, ahead of next week’s rate decision. A very large surprise is needed for CAD to overcome its disadvantage versus the USD, economists at Credit Suisse report.

End-Q4 target in USD/CAD is 1.41

“Expectations are set for a further -0.1% MoM decline in headline CPI (from -0.3% MoM in Aug), but the performance of the previously lightly observed trim core CPI and median core CPI indicators will also attract attention, given the recent focus on them in BoC Governor Macklem’s speech. Expectations on that front are for effectively unchanged readings (5.2% YoY and 4.8% respectively in Aug).”

“A much stronger than expected surprise in the inflation data is likely needed for markets to consider the possibility of the BoC hiking 75 bps at the 26 Oct meeting (vs ~55 bps priced in). In absence of that, the path of least resistance in USD/CAD will remain to the upside, towards our end-Q4 target at 1.4100.”

See – Canadian CPI Preview: Forecasts from seven major banks, signs of easing price pressures?

• AUD/USD takes offers to renew intraday low, print the first daily loss in three.
• Market sentiment roils as economic calendar gets active.
• Four-month high covid numbers from China, hawkish Fed bets favor bears.
• Risk catalysts are important ahead of Thursday’s Aussie jobs report.

AUD/USD takes offers to renew intraday low around 0.6300 as markets fade the previous risk-on mood during early Wednesday in Europe. Also exerting downside pressure on the risk-barometer pair could be the firmer US Treasury yields and anxiety ahead of Thursday’s Australian employment data for September.

The US 10-year Treasury yields added six basis points (bps) near 4.06% mark at the latest. In doing so, the US bond coupons rush towards the 14-year high marked earlier in the week amid hawkish Fedspeak and mixed US data.

Earlier in the day, Minneapolis Federal Reserve Bank President Neel Kashkari said, “Until I see some compelling evidence that core inflation has at least peaked, not ready to declare a pause in rate hikes.” With this, the CME’s FedWatch Tool signals that markets are pricing in a nearly 95% chance of the Fed’s 75 rate hike in November. That said, US Industrial Production for September improved but the NAHB Housing Market Index for October dropped, respectively around 0.4% MoM and 38 versus the market expectations of 0.1% and 43 in that order.

Other than the Fed-linked catalysts, increasing covid woes in China and the market’s rush towards risk-safety amid higher inflation data from the major economies, recently by the UK, also propel the US Treasury yields and weigh on the AUD/USD prices.

Additionally, Russia’s strong fight in Ukraine joins the political pessimism in the UK to exert additional downside pressure on the market’s previously positive mood and favor the Aussie pair sellers.

It should be noted, however, that the firmer equities and cautious mood ahead of Thursday’s Australia jobs report for September put a floor under the AUD/USD prices. That said, the headline Aussie Employment Change is expected to ease to 25K versus 33.5K prior while the Unemployment Rate may remain unchanged at 3.5%. Should the scheduled Aussie job numbers match downbeat forecasts, the recently mixed comments from the Reserve Bank of Australia (RBA) could push back the hawks and please sellers.

Technical analysis

Failure to provide a daily closing beyond the 10-DMA hurdle around 0.6300 keeps the AUD/USD bears hopeful inside a six-week-old bearish channel, currently between 0.6345 and 0.6090.

USD/JPY is approaching the 150 mark. Economists at Commerzbank expect even further yen weakness while the Bank of Japan stands pat.

Interventions can at best dampen the speed of the depreciation

“If the Ministry of Finance (MOF) and the BoJ should once again intervene in support of JPY this would constitute only a drop in the ocean. It would instead be an invitation to the market to sell the yen at temporarily better levels.”

“Until the BoJ’s approach on the monetary policy front changes, JPY is likely to remain under pressure. The BoJ is unlikely to have sufficient time to wait for an end of the rate cycle in the US and even less so rate cuts – unless it is willing to accept that the yen will continue to depreciate significantly until then.”

Japanese Prime Minister Kishida warned on Wednesday that “excess FX volatility based on speculation cannot be tolerated.”

Additional quotes

“No comment on FX.”

“Need to take appropriate action against excess forex move.”

Market reaction

Kishida’s comments come as USD/JPY is gradually closing in on the 150.00 mark, trading at the highest level since the 1990s, at the time of writing.

Economists at Credit Suisse came into Q4 looking for GBP/USD to trade largely within a 1.0350-1.1400 range. Following the UK’s fiscal U-turn, they compress the expected Q4 GBP/USD range to 1.0750-1.1500.

GBP vulnerable due to BoE’s inability to deliver anything close to priced-in rates

“The market is still pricing in UK base rates of at least 5.00% by mid-2023. We see a peak at 4.50% due to growth fragility combined with the now-less-expansionary Hunt fiscal stance. This leaves GBP vulnerable still to the same problem it faced all year, which is the BoE’s inability to deliver anything close to priced-in rates.”

“We now compress our expected GBP/USD range for the rest of Q4 to 1.0750-1.1500, with the tail risk of a new test of 1.0350 now much reduced. But we still look to sell rallies towards 1.1400 as before, with a stop loss at 1.1500.”

Here is what you need to know on Wednesday, October 19:

The US dollar finds demand across its main competitors amid a mixed market sentiment heading into early European trading this Wednesday. Investors assess strong US corporate earnings, China’s covid resurgence and aggressive ECB and Fed rate hike expectations. Therefore, Asian stocks remained a mixed bag, with Chinese indices as the main laggard. The US S&P 500 futures track the extended risk rally on Wall Street after earnings reports from Goldman Sachs, United Airlines Holdings and Netflix outpaced expectations. The US Treasury yields extend their advance, capitalizing on hawkish Fed commentary from Minneapolis Fed President Neal Kashkari and Atlanta Fed Chief Raphael Bostic. At the moment, the benchmark 10-year US rates are trading above 4.05%, nearing weekly highs.

However, a sense of caution prevails amid looming recession fears, especially with Beijing reporting the highest covid cases in four months and markets betting on steeper global rate hikes to fight rampant inflation. The UK annualized Consumer Price Index (CPI) surged 10.1% vs. 10.0% expected and 9.9% previous, exerting pressure on the BOE to act tough amidst the UK’s fiscal policy reversal. GBP/USD is trading under pressure below 1.1300, meeting fresh supply despite hotter-than-expected UK inflation data. Markets are focussed on the UK political scenario, with many Tory members rooting for PM Liz Truss’ replacement.

Attention now turns towards the final reading of the Eurozone HICP due later in the day at 0900 GMT. The data is likely to have limited impact on the euro, as it is the final revision, with EUR/USD seen maintaining its range play around 0.9850. Increased expectations of a 75 bps rate hike by the ECB next week fail to offer any encouragement to EUR buyers.

USD/JPY shows resilience to the jawboning attempts by the Japanese government authorities time and again. BOJ Governor Haruhiko Kuroda and board member Seiji Adachi, however, continue advocating easy monetary policy, exacerbating the pain in the yen against the dollar. The USD/JPY pair is advancing towards 149.50, in a bid to refresh 32-year highs.

Meanwhile, the Antipodeans lost the upside traction yet again, as risk trades turned sour and the dollar bulls jumped back into the bids. Although the losses remain capped by expectations of big rate hikes by the central banks down under. AUD/USD is pressured around 0.6300 while NZD/USD faces rejection just above 0.5700.

USD/CAD is advancing above 1.3750, benefiting from the broad US dollar rebound and falling oil prices, ahead of the Canadian inflation data. WTI is fading a minor bounce, holding a lower ground just above the $82 level. Demand concerns from China and increased US crude supplies weigh negatively on US oil.

Gold is extending its decline towards the critical $1,640 support, with the downside opening up towards 2022 lows at $1,615 amid firmer yields. 

Bitcoin price is attacking the $19,000 support, as a fresh selling wave sweeps crypto markets. Ethereum surrenders the $1,300 threshold.

The hawkish pace at the Federal Reserve is much stronger than the Bank of Canada (BoC). Canadian Consumer Price Index (CPI) data is unlikely to alter the path of the central bank if it eases as expected, economists at Commerzbank report. 

September data likely to confirm easing inflation trends

“The Bloomberg consensus expects a further fall of the overall inflation rate from 7.0% in the previous month to 6.8% for the September inflation data due today. It is expected that two of the core rates (common, median and trim) will also have fallen slightly.”

“Results in line with expectations are not likely to impress the BoC’s rate expectations and thus CAD very much. That means the gap towards the rate expectations for the Fed, where the market expects a rate peak at approx. 5%, remains in place. Against this background, CAD is likely to struggle to gain significant ground against USD for the time being.”

“If today’s inflation data were to surprise significantly on the upside today, rate hike expectations might at least rise on a temporary basis, thus causing USD/CAD to trade at slightly lower levels.”

See – Canadian CPI Preview: Forecasts from seven major banks, signs of easing price pressures?

Open interest in natural gas futures markets shrank by 822 contracts on Tuesday, reaching the third consecutive daily drop, as per advanced prints from CME Group. Volume extended the choppy activity and went down by around 73.1K contracts, partially reversing the previous day’s build.

Natural Gas: Next support comes at $5.30

Prices of natural gas extended the recent breach of the $6.00 mark on Tuesday, dropping for the third session in row. The downtick was on the back of shrinking open interest and volume and is supportive of a near term rebound. In the meantime, the next contention area for the commodity emerges at the July low at $5.325 per MMBtu (July 5).

The Japanese yen continues to weaken despite the threat of intervention. The 150.00 target is now within easy reach in principle and analysts at Credit Suisse are open to fresh surges higher.

Markets have accepted possible break above 150

“It feels like the market has already accepted the idea that the 150 level will break soon enough. What’s interesting is that this is happening even as 1-year USD/JPY implied volatility makes new cycle highs, suggesting the market is a) getting ready for a rough ride as and when the BoJ is finally forced to abandon YCC and b) open to fresh surges higher if the BoJ stands pat, with minimal respect for the capacity of FX intervention to compress movement.” 

“We are not minded to fade the pair even as our original target approaches and instead would look to run existing longs once that level is breached.”

In the opinion of UOB Group’s Markets Strategist Quek Ser Leang and Economist Lee Sue Ann, AUD/USD is expected to remain side-lined between 0.6190 and 0.6390 in the near term.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘the rapid rise in AUD has room to extend but a break of 0.6350 is unlikely’. Our view turned out to be correct as AUD rose briefly to 0.6340 before easing off. The underlying tone still appears a tad firm and we see chance for AUD to test 0.6350. However, a sustained rise above this level is unlikely. Support is at 0.6285, followed by 0.6265.”

Next 1-3 weeks: “There is no change in our view from yesterday (18 Oct, spot at 0.6295). As highlighted, AUD is not weakening further and AUD is likely to consolidate and trade between 0.6190 and 0.6390 for the time being.”

EUR/USD is trading back above the 0.98 mark. What does the thermometer have to do with the euro? Economists at Commerzbank believe that this is going to be a good indicator of the direction of the shared currency.

Risk of gas rationing and a strong recession have diminished

“Due to the mild autumn weather in Europe, the full gas stores and the prospect of additional nuclear energy there is reason to assume that the risk of gas rationing and thus a pronounced collapse of the economy over the winter months might have become smaller. That in turn might suggest that the ECB could implement its tight rate cycle to fight inflation as signalled, which would be positive for the euro.”

“Officially winter does not start until 21st December. There is still plenty of time for Europe to be in the grips of cold weather, causing the levels of the gas stores to drop rapidly. Let us hope that we don’t get to that stage, but the weather over the coming six months remains the big unknown in connection with the ECB’s monetary policy decisions and thus the euro. So that a glance at the thermometer might be a good indicator for the development of the euro over the coming months – to put it simply.”

• EUR/USD takes offers to extend pullback from a two-week high.
• Steady RSI, failure to cross immediate hurdle direct sellers towards 21-DMA support.
• Bulls remain off the table unless crossing a descending resistance line from June.

EUR/USD sellers return to the desk in early Wednesday in Europe, after a two-day absence. As a result, the quote takes a U-turn from a downward-sloping trend line from mid-September.

Given the steady RSI and the pair’s multiple failures to cross the immediate resistance line, around 0.9870 by the press time, EUR/USD is likely to stretch the latest declines towards the 21-DMA support of 0.9775.

However, three-week-old horizontal support near 0.9670-65 appears a tough nut to crack for the bears.

If the EUR/USD bears manage to conquer the 0.9665 support, the odds of witnessing a fresh yearly low, currently around 0.9535, can’t be ruled out.

Alternatively, an upside break of the aforementioned resistance line, near 0.9870, isn’t an open invitation to the EUR/USD bulls as another falling trend line from June, close to 0.9995 at the latest, will challenge the upside momentum.

Also acting as the key hurdle to the north is the 1.0000 parity mark, a break of which will direct prices towards the previous monthly peak near 1.0200.

To sum up, EUR/USD is likely to decline further but the downside room is limited.

EUR/USD: Daily chart

Trend: Further weakness expected

Gold price is seen in the red for the first time this week. In the view of FXStreet’s Dhwani Mehta, the yellow metal could extend its slide towards the lowest level seen this year at $1,615.

XAU/USD gearing up for a big breakdown towards $1,615

“The new support, in the rising trendline, now at $1,642, still appears at risk amid a bearish 14-day Relative Strength Index (RSI).”

“Sellers continue guarding the mildly bearish 21-Daily Moving Average (DMA) at $1,669. A sustained break above the latter on a daily closing basis is needed to initiate a meaningful recovery towards the $1,700 barrier. The immediate resistance, however, is seen at the previous intermittent lows at around $1,660.”

“Acceptance below the $1,640 demand area is critical to kicking off a fresh downswing towards en-route the $1,600 threshold. Ahead of that, the 2022 lows of $1,615 will challenge bearish commitments.”

The UK Finance Minister Jeremy Hunt said after the inflation data release on Wednesday, “this government will prioritize help for the most vulnerable while delivering wider economic stability and driving long-term growth that will help everyone.”

Separately the country’s Foreign Minister James Cleverly said that “another leadership contest would not help financial markets stay calm.”

“Don't think it's a good idea to focus on Conservative Party internal frustrations,” Cleverly added.

Market reaction

At the time of writing, GBP/USD is trading 0.20% lower at 1.1292, feeling the heat of higher inflation.

• GBP/JPY has slipped strongly to near 168.54 on higher-than-projected UK inflation data.
• The headline and core CPI figures have elevated by 10 bps than estimates to 10.1% and 6.5% respectively.
• Japanese yen could face more pressure post the growing risk of deflation due to external demand shock.

The GBP/JPY pair has declined to near 168.54 as the UK Office for National Statistics has reported the headline Consumer Price Index (CPI) at 10.1%, higher than the expectations of 10% and the prior release of 9.9%. Also, the core CPI has escalated to 6.5% than the projections of 6.4% and the former figure of 6.3%.

A headline CPI has recaptured the double-digit figure again, the Bank of England (BOE) policymakers could sound extremely hawkish, going forward. It is worth noting that the BOE escalated its interest rates by 50 basis points (bps) to 2.25% in its September monetary policy meeting.

On Tuesday, the BOE announced that it will start its delayed gilt sale operation from the first day of November. The operation was delayed by the central bank citing financial instability. The move will trigger liquidity squeezing from the market.

Meanwhile, UK political affairs are becoming vulnerable further as UK ministers are losing their confidence in the leadership style of UK PM Liz Truss. A YouGov poll of Tory members found that 55% would now vote for Rishi Sunak, who lost out to Ms. Truss if they were able to vote again, while just 25% would vote for Ms. Truss.

On the Tokyo front, investors have shifted to the sidelines amid anxiety over a possible Bank of Japan (BOJ)’s intervention in the currency markets to safeguard yen against speculative FX moves. Apart from that Japan’s officials have cited the risk of deflation due to global demand shocks. The situation of deflation would force the BOJ to release more liquidity into the economy.

According to preliminary readings from CME Group for crude oil futures markets, open interest rose marginally by 4 contracts on Tuesday after four consecutive daily retracements. In the same line, volume went up by around 316.2K contracts after three daily drops in a row.

WTI: Rising bets for a test of $80.00

Tuesday’s strong pullback in prices of the WTI was on the back of a marginal uptick in open interest and a sharp increase in volume. Against that, a deeper decline appears on the cards with the immediate target at the key $80.00 mark per barrel in the very near term.

• GBP/USD fails to cheer upbeat British inflation data, extends pullback from key resistance line.
• UK CPI rose to 10.1% YoY in September versus 10% expected, 9.9% prior.
• BOE’s QT, U-turn from “mini-budget” keep buyers hopeful but British political jitters, hawkish Fedbets challenge upside moves.

GBP/USD extends pullback from a short-term crucial resistance despite upbeat UK inflation data, published during early Wednesday morning in London. In doing so, the Cable pair renews its intraday low around 1.1300.

As per the latest inflation data from the UK Statistics, the headline Consumer Price Index   (CPI) refreshes a 30-year high with a 10.1% YoY figure versus 10.0% expected and 9.9% prior.

Also read: Breaking: UK annualized inflation rises to 10.1% in September vs.10.0% expected

That said, the reduction in UK Chancellor Jeremy Hunt inspired optimism, due to the reversal of “mini-budget” proposals, which weigh on the GBP/USD prices. The reason for the British market’s latest pessimism could be linked to a fresh political plot to topple Prime Minister Liz Truss and recall the ex-leader Boris Johnson. Even so, Reuters mentioned that British Prime Minister Liz Truss warned of tough times ahead after she scrapped her vast tax-cutting plan and said she would carry on to try to put the economy on a stronger footing, defying calls for her resignation.

On the other hand, the Bank of England (BOE) again turned down the Financial Times (FT) news suggesting the “Old Lady”, as the UK central bank is informally known, will delay the Quantitative Tightening (QT) amid shaky gilt markets. While doing so, the British central bank stated, per Reuters, that it would start selling some of its huge stock of British government bonds from Nov. 1 but would not sell this year any longer-duration gilts that have been in the eye of a recent storm in the British government bond market. Despite the hawkish BOE, traders remain doubtful and weigh on the Cable prices.

Elsewhere, the US Dollar Index (DXY) picks up bids while tracking the recently firmer US Treasury yields amid sluggish early hours of trading in the West. That said, the US 10-year Treasury yields added three basis points (bps) near 4.03% mark at the latest. The uptick in the US bond coupons could be linked to the latest hawkish Fedspeak despite the mixed data. Earlier in the day, Minneapolis Federal Reserve Bank President Neel Kashkari said, “Until I see some compelling evidence that core inflation has at least peaked, not ready to declare a pause in rate hikes.” With this, the CME’s FedWatch Tool signals that markets are pricing in a nearly 95% chance of the Fed’s 75 rate hike in November.

Moving on, the recently firmer yields and the UK’s political pessimism may challenge the GBP/USD pair buyers amid a light calendar.

Technical analysis

GBP/USD not only needs to cross the immediate resistance line from late August, around 1.1365 by the press time, but should also cross the 50-DMA hurdle of 1.1466 and refresh the monthly peak of 1.1495 to convince buyers. Until then, the odds of witnessing a pullback toward the 21-DMA support near 1.1140 can’t be ruled out.

GBP/USD: Daily chart

Trend: Pullback expected

• UK CPI climbs to 10.1% YoY in September vs. 10.0% expected.
• Monthly UK CPI arrives at 0.5% in September vs. 0.4% expected.
• GBP/USD falls to test 1.1300 on upbeat UK CPIs.

The UK Consumer Prices Index (CPI) 12-month rate came in at 10.1% in September when compared to 9.9% booked in August while outpacing estimates of a 10.0% print, the UK Office for National Statistics (ONS) reported on Wednesday. The index surged to its highest level since 1982.

Meanwhile, the core inflation gauge (excluding volatile food and energy items) rose to 6.5% YoY last month versus 6.3% seen in August, beating the forecasts of 6.4%.

The monthly figures showed that the UK consumer prices accelerated by 0.5% in September vs. 0.4% expectations and 0.5% previous.

The UK Retail Price Index for September arrived at 0.7% MoM and 12.6% YoY, above estimates across the time horizon.

FX implications

In an initial reaction to the UK CPI numbers, the GBP/USD pair eroded nearly 20 pips to test 1.1300 once again.

The pair was last seen trading at 1.1299, down 0.17% on the day. The US dollar extends recovery in the early European morning.

Why UK inflation matters to traders?

The Bank of England (BOE) is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Bank Indonesia (BI) will hold its monthly governor board meeting on Thursday, October 20. Here you can find the expectations as forecast by the economists and researchers of four major banks regarding the upcoming central bank's rate decision. 

BI is expected to hike rates by 50 basis points (bps) to 4.75%. However, some analysts see a smaller 25 bps move. At the last policy meeting on September 22, the bank hiked rates by 50 bps to 4.25%.

SocGen

“We expect the central bank to raise the policy rate by 25 bps in the next meeting in October and follow that up with additional 25 bps rate hikes in the next two months, taking the year-end policy rate to 5.0%. We also expect BI to raise the policy rate by another 75 bps in 2023, taking the terminal rate to 5.75%. While we expect a 25 bps hike at the upcoming policy meeting, a bigger hike might be required to insulate the IDR from further weakness. A higher-than-expected rate increase by BI could exacerbate the widening of the front-end bond yield differential.”

ANZ

“With the IDR under pressure, reserves falling and price pressures building, we think the odds are tilted in favour of BI maintaining a ‘pre-emptive’” stance and delivering a 50 bps hike. Stabilising the IDR was one of the factors cited behind September’s decision to go with an outsized hike, and the current IDR weakness, coupled with a thinning reserve buffer, will raise the impetus for another assertive response. The continued rise in price pressures as the impact of the hike to fuel prices in September continues to filter through to other goods and services also adds to the case for front-loading rate hikes, not least because monetary transmission tends to lag by about four quarters according to BI estimates.”

Standard Chartered

“We expect BI to hike the 7-day reverse repo rate by 25 bps to 4.5% to maintain IDR stability amid aggressive Fed hikes and rising inflation expectations from the increase in subsidised fuel prices. The large increase in the Fed rate will narrow Indonesia’s interest rate premium, likely affecting IDR stability. We think BI may need to continue hiking the policy rate to anchor IDR stability, as the interest rate spread is diminishing and FX reserves are declining. While domestic inflation is rising, it remains under control. Inflation rose to 6% in September, below our expectation, due to lower food prices. We expect BI to hike by a total of 75 bps to 5% by the end of this year.”

ING

“BI will likely tighten monetary policy again. Accelerating inflation and depreciation pressure on the Indonesian rupiah will likely convince Governor Perry Warjiyo to hike aggressively and increase policy rates by 50 bps.”

Further gains in GBP/USD depend on a breakout of the 1.1440 level in the near term, suggest UOB Group’s Markets Strategist Quek Ser Leang and Economist Lee Sue Ann.

Key Quotes

24-hour view: “We expected GBP to ‘trade sideways between 1.1280 and 1.1440’. GBP subsequently traded within a range of 1.1257/1.1410 before closing at 1.1319 (-0.34%). The price movements still appear to be part of a consolidation and we expect GBP to trade between 1.1260 and 1.1420 for today.”

Next 1-3 weeks: “There is no change in our view from yesterday (18 Oct, spot at 1.1355) wherein the risk for GBP remains on the upside but it has to break clearly above 1.1440 before further sustained advance is likely. The next resistance above 1.1440 is at 1.1500. Overall, only a break of 1.1220 (no change in ‘strong support’ level from yesterday) would indicate that GBP is not strengthening further.”

CME Group’s flash data for gold futures markets noted traders resumed the uptrend and added around 1.6K contracts to their open interest positions on Tuesday. Volume followed suit and rose by around 15.3K contracts, reversing at the same time two consecutive daily pullbacks.

Gold: Another test of $1,640 appears likely

Gold prices charted an inconclusive session on Tuesday. The lack of direction was on the back of increasing open interest and volume, hinting at the likelihood of further side-lined trading in the very near term. In the meantime, another move to the October low at $1,640 (October 14) per ounce troy should not be ruled out.

• EUR/JPY has pursued consolidation ahead of possible BOJ intervention.
• Japan officials have warned risks of deflation due to global demand shock.
• According to a Reuters poll, the ECB is set to announce a 75 bps rate next week.

The EUR/JPY pair is hanging around 147.00 after a mild correction from a fresh seven-year high at 147.25. The asset is expected to pursue a rangebound structure as investors are awaiting fresh developments on the Bank of Japan (BOJ)’s intervention plans in the currency market to support yen against speculative forex moves.

Continuous warnings from Japan’s officials of potential intervention have kept investors on the sidelines as the supportive move for Japan will trigger volatility in the yen-linked FX pair. Chatters over possible BOJ’s intervention heated after the Japanese yen fell to its record lows near 150.00 against the dollar in the past 32 years.

On Wednesday, Japan’s Finance Minister Shunichi Suzuki, and BOJ’s Governor Haruhiko Kuroda crossed wires, citing that Japan's economy is vulnerable to external demand shock, which could tip it back to deflation. This clears the fact that the concept of policy tightening is far from thought.

This week, Japan’s Consumer Price Index (CPI) data will remain in the spotlight. As per the projections, the headline CPI could move to 3.1% vs. the prior release of 3.0%. While the core CPI could accelerate to 2% against the former print of 1.6%.

On the Eurozone front, the odds for a bigger rate hike by the European Central Bank (ECB) are skyrocketing. A Reuters poll on ECB’s rate hike extent states that ECB President Christine Lagarde will step up the interest rates by 75 basis points (bps) on October 27. As the European Harmonized Index of Consumer Prices (HICP) is trading at 5x than the targeted rate of 2%, efficiency in policy tightening is highly required.

Bank of Japan (BOJ) Governor Haruhiko Kuroda is speaking about the implications of monetary policy and inflation outlook on Wednesday.

Key quotes

Market reaction

Kuroda’s comments are being ignored by the local currency, with USD/JPY reaching fresh intraday highs above 149.30, up 0.05% on the day.

• Gold price takes offers to renew intraday low, prints the first daily loss in three.
• Hawkish Fedspeak, expectations of higher rates from major central banks underpin DXY rebound.
• Risk catalysts, second-tier US data may entertain traders, bond market moves are the key.

Gold price (XAU/USD) renews its intraday low around $1,645 while diverging from the early-week rebound heading into the European session on Wednesday. In doing so, the precious metal justifies the US dollar’s latest upswing amid a sluggish session and light calendar ahead of the key inflation data from the UK, Eurozone and Canada.

The US Dollar Index (DXY) picks up bids while tracking the recently firmer US Treasury yields. That said, the US 10-year Treasury yields added two basis points (bps) near the 4.02% mark at the latest.

It should be noted that the market’s inaction could be linked to the lack of major data/events, as well as mixed catalysts surrounding China and Russia. The recently mixed covid numbers from China join Russia’s strong fight in Ukraine to challenge the sentiment. However, upbeat earnings and hopes of more stimulus from Beijing, Tokyo and the Eurozone keep the riskier assets firmer. On the same line could be the UK’s optimism due to the recent U-turn from the fiscal policies.

Additionally, hawkish Fed bets also weigh on the XAU/USD prices as the CME’s FedWatch Tool signals that markets are pricing in a nearly 95% chance of the Fed’s 75 rate hike in November.

Even so, the upbeat performance of equities and the stock futures joins the hopes of upbeat gold demand, as per the latest industry survey, challenging the gold sellers.

Moving on, firmer inflation data from the key economies may exert downside pressure on precious metal prices. However, major attention will be given to the US bond market’s move for clear directions.

Technical analysis

Gold bears jostle with a three-week-old support line near $1,644, quickly followed by a monthly horizontal support area surrounding $1,640.

In doing so, the XAU/USD sellers track downbeat MACD and RSI, as well as the quote’s sustained trading below a downward sloping resistance line from September 07, around $1,653 by the press time.

Also favoring the metal sellers is the price momentum below the 200-HMA, around $1,669 at the latest.

Meanwhile, a downside break of $1,640 will quickly drag the metal toward the yearly low near $1,615 before highlighting the $1,600 for the bears.

Gold: Hourly chart

Trend: Further weakness expected

UOB Group’s Markets Strategist Quek Ser Leang and Economist Lee Sue Ann see a rising probability that EUR/USD could break above the 0.9900 level in the next weeks.

Key Quotes

24-hour view: “Yesterday, we held the view that EUR is likely to strengthen further even though we noted that ‘in view of the overbought conditions, a sustained rise above 0.9900 is unlikely’. However, EUR did not strengthen much as it edged to a 2-week high of 0.9875 before settling at 0.9852 (+0.14%). Despite the relatively quiet price actions, the underlying tone appears firm and EUR is likely to edge higher for today. That said, a sustained rise above 0.9900 still appears unlikely (next resistance is at 0.9950). Support is at 0.9840, but only a break of 0.9820 would indicate that the upward pressure has eased.”

Next 1-3 weeks: “Our update from yesterday (18 Oct, spot at 0.9845) still stands. As highlighted, upward momentum is beginning to build and the risk of EUR breaking above 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 0.9770 (‘strong support’ level was at 0.9730 yesterday) within the next couple of days. Looking ahead, a clear break of 0.9900 will shift the focus to 0.9950, a critical resistance level.”

The Bank of Japan (BOJ) board member Seiji Adachi is back on the wires this Wednesday, noting that “recent yen fall are very rapid,” which “could heighten uncertainty for firms planning capex.”

Additional comments

“Japan's consumer inflation may accelerate quite rapidly in Oct.”

“Japan's inflation to remain high for some time early next year.”

“Don't see immediate need to take additional steps to address worsening functioning of JGB market.”

Market reaction

These comments have little to no impact on the Japanese currency, as it resumes its drop versus the US dollar in early Europe. The pair is trading modestly flat at around daily highs of 149.30, as of writing.

• USD/CHF edges higher on Wednesday amid a modest pickup in the USD demand.
• Hawkish Fed expectations, elevated US bond yields act as a tailwind for the buck.
• The risk-on mood undermines the safe-haven CHF and offers support to the pair.

The USD/CHF pair attracts some buying near the 0.9925-0.9930 area on Wednesday and moves away from a one-week low touched the previous day. The pair is currently trading around the mid-0.9900s, though the modest intraday uptick lacks bullish conviction.

The prospects for a more aggressive policy tightening by the Fed assist the US dollar to regain some positive traction, which, in turn, is seen offering some support to the USD/CHF pair. The markets seem convinced that the Fed will continue to hike interest rates at a faster pace to tame inflation and have now priced in a nearly 100% chance of another supersized 75 bps increase in November.

The bets were reaffirmed by hotter US consumer inflation figures released last week and the recent hawkish remarks by several Fed officials. This remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the greenback. In fact, the yield on the rate-sensitive 2-year US government bond and the benchmark 10-year Treasury note stand tall near a multi-year peak.

Apart from this, the prevalent risk-on environment - as depicted by the follow-through rally in the equity markets - undermines the safe-haven Swiss francs and acts as a tailwind for the USD/CHF pair. Despite the supporting factors, spot prices, so far, have struggled to gain any meaningful traction. This, in turn, warrants some caution before positioning for any further appreciating move.

Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders and suggests that the path of least resistance for the USD/CHF pair is to the upside. Traders now look to the US housing market data - Building Permits and Housing Starts - for a fresh impetus. This, along with the US bond yields, will drive the USD demand and produce short-term opportunities around the USD/CHF pair.

Technical levels to watch

• Asian equities are displaying a mixed performance due to individual factors.
• Chinese investors are having anxiety ahead of PBOC’s monetary policy.
• Oil prices have printed a fresh two-week low amid escalating recession fears.

Markets in the Asian domain are displaying a mixed response despite the strengthening of the risk-on mood in global markets. S&P500 futures have raised intermittent highs after two-consecutive bullish trading sessions. Rally in US markets is backed by a bumper start of the quarterly result season despite the headwinds of higher interest rates and soaring price pressures.

At the press time, Japan’s Nikkei225 gained 0.63% and Nifty50 added 0.48% while ChinaA50 tumbled more than 1% and Hang Seng dived 1.20%.

The US dollar index (DXY) has attempted a rebound move after sensing buying interest around the immediate cushion of 112.00. The rebound move seems less confident amid the absence of a risk-aversion theme. Further, investors are awaiting the release of the US Housing Starts data. The real estate catalyst could get impacted by soaring interest rates by the Federal Reserve (Fed).

Meanwhile, Chinese investors have shifted their focus toward the People’s Bank of China (PBOC) monetary policy, which will be announced on Thursday. The central bank could adopt a dovish tone as economic prospects are deteriorating. The continuation of the zero Covid-19 policy by the Chinese administration to contain the epidemic and weak property sector needs monetary easing to get back on the growth track.

On the oil front, oil prices have rebounded after printing a fresh two-week low at around $81.20. The rebound move could derail amid headwinds of the central bank's monetary policy tightening and escalating recession fears in the US. Rising US Treasury yields have bolstered the case of a recession situation in the coming months.

• EUR/GBP steps back from weekly top, grinds lower of late.
• Bearish MACD signals, steady RSI favors the sellers.
• Ascending trend line from August, 100-DMA restricts immediate downside.

EUR/GBP holds lower ground near 0.8690 as traders keenly await inflation data from the UK and Eurozone heading into Wednesday’s European session.

In doing so, the cross-currency pair takes a U-turn from the downward-sloping resistance line from September 26, around 0.8710 by the press time.

In addition to the immediate trend line resistance, the bearish MACD signals and the steady RSI keeps EUR/GBP bears hopeful.

However, the 2.5-month-long upwards-sloping support line, near 0.8690, appears a tough nut to crack for the pair sellers.

Additionally, the 100-DMA support of 0.8585 also acts as the last defense of the EUR/GBP buyers, a break of which could drag the quote towards September’s low near 0.8565.

On the contrary, an upside break of the 0.8710 trend line resistance isn’t an open invitation to the EUR/GBP bulls as the 21-DMA level of 0.8775 also acts as a short-term resistance.

Should the pair remains firmer past 0.8775, the monthly high near 0.8865 and the 0.8900 threshold could challenge the pair buyers.

Overall, EUR/GBP remains on the bear’s radar but the downside remains elusive until the quote stays beyond .8585.

EUR/GBP: Daily chart

Trend: Further weakness expected

• USD/CAD struggles to extend the recovery from two-week low, grinds near intraday top.
• US readiness to use SPR to battle OPEC+ supply cuts weighs on oil prices.
• Sluggish markets restrict immediate moves but firmer yields tease DXY buyers.
• With the BOC’s likely softer rate hike than the Fed’s the pair buyers remain hopeful.

USD/CAD steadies near 1.3750 amid sluggish markets during Wednesday’s European morning. In doing so, the Loonie pair seesaws around intraday high while trying to stretch the previous day’s rebound.

The quote’s resistance to decline could be linked to the latest retreat in oil prices, due to Canada’s reliance on WTI crude oil export, as the US eyes releasing more oil from its Strategic Petroleum Reserve (SPR) to battle the OPEC+ supply cut. WTI crude oil remains mildly bid at the fortnight low marked the previous day, retreating to around $83.70 at the latest.

On the other hand, the US Dollar Index (DXY) picks up bids while tracking the recently firmer US Treasury yields. That said, the US 10-year Treasury yields added two basis points (bps) near 4.02% mark at the latest.

The market’s inaction could be linked to the lack of major data/events, as well as mixed catalysts surrounding China and Russia. That said, the recently mixed covid numbers from China join Russia’s strong fight in Ukraine to challenge the sentiment. However, upbeat earnings and hopes of more stimulus from Beijing, Tokyo and the Eurozone keep the riskier assets firmer. On the same line could be the UK’s optimism due to the recent U-turn from the fiscal policies.

Elsewhere, Fed bets and the comments suggesting heavy rate hikes from the US central bankers underpin the US Treasury yields and the DXY of late. Earlier in the day, Minneapolis Federal Reserve Bank President Neel Kashkari said, “Until I see some compelling evidence that core inflation has at least peaked, not ready to declare a pause in rate hikes.” With this, the CME’s FedWatch Tool signals that markets are pricing in a nearly 95% chance of the Fed’s 75 rate hike in November.

It’s worth noting that the latest second-tier data from the US and Canada have been mixed but the Bank of Canada (BOC) and the Fed have both shown readiness to battle inflation and increase the benchmark rates. Even so, the hawkish pace at the Fed is much stronger than the BOC and hence the USD/CAD pair is likely to witness further upside if today’s Canadian Consumer Price Index (CPI) eases.

Forecasts suggest the CPI ease to 6.8% from 7.0% prior while the closely watched BOC CPI could also decline to 5.8% YoY versus 5.6% previous readings.

Technical analysis

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 it successfully crosses the 1.3850 immediate hurdle comprising the wedge’s lower line.

• USD/JPY is seen consolidating its recent strong bullish run to the highest level since August 1990.
• The Fed-BoJ policy divergence weighs on the JPY and acts as a tailwind amid modest USD strength.
• Speculations that Japanese authorities will intervene again hold back bulls from placing fresh bets.

The USD/JPY pair extends its consolidative price moves and remains confined in a narrow trading band through the Asian session on Wednesday. The pair is currently placed comfortably above the 149.00 mark, just a few pips below the highest level since August 1990 touched the previous day.

Traders prefer to move to the sidelines amid speculations that Japanese authorities might intervene in the markets to stem any further weakness in the domestic currency. In fact, Japan's Finance Minister Shunichi Suzuki warned on Tuesday that the government will take decisive action against excessive, speculator-driven currency moves. This, in turn, is seen offering some support to the Japanese yen and acting as a headwind for the USD/JPY pair.

The downside, however, remains cushioned amid the emergence of some dip-buying around the US dollar, bolstered by expectations for a more aggressive policy tightening by the Fed. Investors seem convinced that the US central bank will continue to hike interest rates at a faster pace to tame inflation and have priced in a nearly 100% chance of a 75 bps increase in November. This remains supportive of elevated US Treasury bond yields and underpins the USD.

In fact, the yield on the rate-sensitive 2-year US government bond and the benchmark 10-year Treasury note stand tall near a multi-year peak. In contrast, the 10-year JGB yield is capped at 0.25%. This resultant widening of the US-Japan rate differential continues to weigh on the JPY and offers support to the USD/JPY pair amid a more dovish stance adopted by the Bank of Japan. This, along with the prevalent risk-on mood favours bullish traders.

This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside and any meaningful pullback might still be seen as a buying opportunity. Market participants now look forward to the US housing market data - Building Permits and Housing Starts - for a fresh impetus later during the early North American session. This, along with the US bond yields, will drive the USD demand and influence spot prices.

Technical levels to watch

• AUD/USD is displaying volatility contraction inside the ascending triangle.
• Advancing 20-and 50-EMAs have tilted the bias in favor of aussie bulls.
• The upside momentum will get triggered if the RSI (14) enters into the bullish range of 60.00-80.00.

The AUD/USD pair has comfortably established above the critical hurdle of 0.6300 as the risk-on impulse has strengthened. The market sentiment has shifted into a positive trajectory amid a booster rally in the S&P500 led by a solid start of the quarterly result season. The US dollar index (DXY) has attempted a rebound after picking demand around 112.00, however, considering it a reversal would be too early.

On an hourly scale, the asset is displaying a balanced auction in an Ascending Triangle chart pattern. The horizontal resistance of the above-mentioned chart pattern is plotted from October 11 high at 0.6346 while the upward-slopping trendline is placed from Friday’s low at 0.6194. An explosion of the chart pattern will display wider ticks and heavy volume.

The 20-and 50-period Exponential Moving Averages (EMAs) at 0.6310 and 0.6296 respectively are advancing, which adds to the upside filters.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range but is attempting to shift into the bullish range of 60.00-80.00. An occurrence of the same will trigger an upside momentum.

Going forward, a decisive break above October 11 high at 0.6346 will strengthen the aussie bulls. This will drive the asset towards October 7 high at 0.6432, followed by October 4 high at 0.6548.

On the flip side, a downside break of Tuesday’s low at 0.6266 will drag the asset toward the round-level support at 0.6200 and by April 2020 low at 0.5991.

AUD/USD hourly chart

The UK CPIs Overview

The cost of living in the UK as represented by the Consumer Price Index (CPI) for September month is due early on Wednesday at 06:00 GMT.

Given the recently released unimpressive employment data, coupled with the Bank of England’s (BOE) readiness for Quantitative Tightening (QT), today’s British inflation data will be watched closely by the GBP/USD traders.

The headline CPI inflation is expected to refresh a 30-year high with a 10.0% YoY figure versus 9.9% prior while the Core CPI, which excludes volatile food and energy items, is likely to improve a bit to 6.4% YoY during the stated month, from 6.3% previous readouts. Talking about the monthly figures, the CPI could ease to 0.4% versus 0.5% prior.

It’s worth noting that the recent pressure on wage prices and upbeat jobs report also highlights the Producer Price Index (PPI) as an important catalyst for the immediate GBP/USD direction.

That being said, the PPI Core Output YoY may ease to 12.7% from 13.7% on a non-seasonally adjusted basis whereas the monthly prints may rise to 0.9% versus 0.3% prior. Furthermore, the Retail Price Index (RPI) is also on the table for release, expected to ease to 0.5% on MoM from 0.6% previous reading while likely keeping the 12.3% YoY figures unchanged.

In this regard, Westpac said,

On the same line, FXStreet’s Yohay Elam says,

Deviation impact on GBP/USD

Readers can find FXStreet's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined around 20-pips in deviations up to + or -2, although in some cases, if notable enough, a deviation can fuel movements over 60-70 pips.

How could it affect GBP/USD?

GBP/USD retreats from a five-week-old descending resistance line near 1.1350 ahead of the key UK inflation numbers, near 1.1330 at the latest. In doing so, the Cable pair portrays the market’s indecision amid a lack of major data/events, as well as anxiety before the crucial CPI number.

Although the BOE has already confirmed its QT starting from November 01, today’s inflation numbers will be important as UK PM Liz Truss’ leadership keeps pushing the “Old Lady”, as the British central bank is informally known, towards faster rate hikes. It should be noted that the political jitters surrounding the UK and the market’s indecision amid a light calendar elsewhere also challenge the UK CPI’s importance for the GBP/USD traders.

Should the inflation numbers manage to stay firmer on the MoM, in addition to posting the multi-year high YoY numbers, GBP/USD is likely to cross the immediate trend line resistance and rush towards the monthly high near 1.1500. Alternatively, pullback moves may have another chance of reversing amid the market’s optimism and the UK’s political drama.

Technically, the 50-DMA level near 1.1470 adds to the upside filters, in addition to the aforementioned resistance line near 1.1250. Meanwhile, a convergence of the 21-DMA and a three-week-long ascending trend line highlights 1.1140 as the short-term key resistance.

Key notes

Where inflation stands and what to expect, overview of 8 major currencies

GBP/USD eyes momentum above 1.1360 amid soaring market mood, UK CPI in focus

About the UK CPIs

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

Perry Warjiyo, Bank Indonesia (BI) Governor made some comments on the country’s growth and inflation outlook, during his appearance on Wednesday.

Key quotes

Market reaction

Amid discouraging comments from the central bank Governor, USD/IDR is rebounding towards two-year highs of 15,495. The pair is adding 0.12% on the day to trade at 15,483, as of writing.

• USD/INR prints mild gains after bouncing off one-week low the previous day.
• Hawkish Fed bets, oil price rebound favor buyers during inactive trading session.
• Risk-on mood underpins Asian currencies’ strength versus the greenback.
• US housing data, risk catalysts will be crucial for near-term directions, RBI intervention eyed as well.

USD/INR picks up bids to 82.35 during the second consecutive positive daily performance amid an inactive Asian session on Wednesday. In doing so, the Indian rupee (INR) pair fails to track its Asian peers even as risk appetite remains firmer.

The reason could be linked to the market’s indecision amid hawkish Fed bets and the comments suggesting heavy rate hikes from the US central bank. That said, CME’s FedWatch Tool signals that markets are pricing in a nearly 95% chance of the Fed’s 75 rate hike in November.

While tracing the clues, the latest comments from Minneapolis Federal Reserve Bank President Neel Kashkari could be held responsible. “Until I see some compelling evidence that core inflation has at least peaked, not ready to declare a pause in rate hikes,” said the policymaker.

It should be noted that the US Industrial Production for September improved but the NAHB Housing Market Index for October dropped, respectively around 0.4% MoM and 38 versus the market expectations of 0.1% and 43 in that order.

Other than the positive catalysts for the US dollar, firmer oil prices also propel the USD/INR prices, due to India’s heavy reliance on energy imports and the record deficit.

WTI crude oil remains mildly bid at the fortnight low marked the previous day, around $83.70 at the latest. The black gold’s recent weakness could be linked to the fears that the US will release more oil from its Strategic Petroleum Reserve (SPR) to battle the OPEC+ supply cut.

On the contrary, fears that the Reserve Bank of India (RBI) will again defend the Indian rupee's weakness, like it did multiple times in the past when the USD/INR rose to 82.40, seems to weigh on the pair’s upside momentum. In this regard, Reuters stated that some bankers it spoke to said the rupee's decline from the 82-level was due to dollar demand from oil companies and other importers, while two others said it was likely due to the Reserve Bank of India (RBI) buying USD/INR futures ahead of Friday's expiry.

Amid these plays, the S&P 500 Futures rise nearly 1.0% intraday to poke a two-week high, tracking Wall Street’s second daily gain, whereas the US 10-year Treasury yields add two basis points (bps) near 4.0% mark at the latest.

Moving on, a lack of major data/events could restrict USD/INR moves but risk-on mood and fears of RBI’s intervention can challenge the buyers.

Technical analysis

USD/INR sellers need a daily closing below a 10-day EMA level surrounding 82.17 to retake conviction.

• EUR/USD has displayed a mild correction amid a marginal DXY recovery.
• The risk-on profile is intact as S&P500 futures are stuck to their extended gains.
• ECB Lagarde may announce a rate hike by 75 bps to curtail price pressures.

The EUR/USD pair has witnessed selling pressure after multiple failed attempts of overstepping the critical hurdle of 0.9880. The asset has not turned bearish yet as the risk profile is extremely cheerful. This could be merely a healthy correction in the asset’s upside journey.

S&P500 futures have extended their gains after an upbeat Tuesday, which indicates that the market mood is solid. Meanwhile, the US dollar index (DXY) is defending the downside bias and holding itself above 112.00. The 10-year US Treasury yields have accelerated above 4.02%.

The euro bulls are expected to turn traction toward the north amid soaring bets for European Central Bank (ECB)’s hawkish monetary policy. Reuters poll on ECB’s rate hike extent states that ECB President Christine Lagarde will step up the interest rates by 75 basis points (bps) on October 27. European Harmonized Index of Consumer Prices (HICP) trades five times higher than the targeted rate of 2%. Therefore, efficiency in policy tightening is required to contain mounting inflation.

The outcome of a Reuters poll states that the bloc's central bank will take the deposit rate to 1.50% and the refinancing rate to 2.00%.

On the US docket, recession fears are accelerating as the Federal Reserve (Fed) is preparing to announce one more bumper rate hike in the first week of November. Price pressures have not softened in response to the pace of the Fed’s rate hiking spell. And, Fed’s foremost agenda is to bring price stability.

Going forward, Wednesday’s Housing Starts data that reflects retail demand for real estate will hog the limelight. The economic data is expected to decline to 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. Higher interest rates are forcing retailers to postpone their demand for personal property.

• Gold price is facing sheer volatility contraction, following the footprints of the DXY.
• Returns on US bonds have soared amid the absence of evidence claiming a slowdown in the price rise index.
• Soaring interest rates have forced households to postpone their housing demand.

Gold price (XAU/USD) has sensed selling pressure while attempting to sustain above the critical hurdle of $1,650.00. The gold prices are still inside the woods as firmer yields are capping the upside while the upbeat market sentiment is defending the downside.

The US dollar index (DXY) is displaying a lackluster performance in the Tokyo session amid the absence of potential triggers due to the light economic calendar. Also, an improvement in the risk appetite of the market participants has trimmed safe-haven’s appeal. The 10-year US Treasury yields have crossed 4.02% in the Tokyo session as little impact on price pressures in the US economy despite a long spell of Fed’s policy tightening has raised the odds of further rate hikes.

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

On Wednesday, the release of the US Housing Starts will remain in focus. As per the expectations, 1.475M new homes are constructed by nuclear families, lower than the prior release of 1.575M. This could be the consequence of soaring borrowing costs, which have forced households to postpone their demand for real estate.

Gold technical analysis

On an hourly scale, Gold prices are auctioning in a symmetrical triangle, which indicates that the volatility has contracted. The downward-sloping trendline of the above-mentioned chart pattern 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 $1,652.25, 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

• Market sentiment remains positive amid sluggish Asian session, light calendar.
• S&P 500 Futures stays firmer after US equities cheered upbeat earnings from Goldman, Netflix.
• Headlines from China, Russia have also been risk-positive even if UK Chancellor Hunt-inspired optimism fades in Britain.

The risk profile remains positive during the third consecutive day on early Wednesday even as a lack of major data/events restricts the market moves of late.

While portraying the sentiment, the S&P 500 Futures rise nearly 1.0% intraday to poke a two-week high, tracking Wall Street’s second daily gain, whereas the US 10-year Treasury yields add two basis points (bps) near 4.0% mark at the latest. It’s worth noting that the US Dollar Index (DXY) remains sidelined near 112.00 while crude oil recovers from a 12-day low marked the previous day, up 0.55% on the day near $84.15 as we write.

Wall Street closed with gains for the second consecutive day, led by S&P 500, as upbeat earnings from Goldman Sachs and Netflix joined Lockheed Martin to please bulls amid mixed US data. That said, US Industrial Production for September improved but the NAHB Housing Market Index for October dropped, respectively around 0.4% MoM and 38 versus the market expectations of 0.1% and 43 in that order.

Elsewhere, headlines suggesting the Russian soldiers’ struggle in Ukraine and UK Chancellor Jeremy Hunt’s ability to ward off the recession woes seem to propel the market’s optimism of late.

It should be noted that Minneapolis Federal Reserve Bank President Neel Kashkari said earlier in the day, “Until I see some compelling evidence that core inflation has at least peaked, not ready to declare a pause in rate hikes.” With this, the market's price in 94% chance of the Fed’s 75 bps rate hike in November and keep the DXY bulls hopeful despite the latest weakness.

Moving on, the second-tier US data, mainly relating to housing, will join Fedspeak to direct short-term market moves. Also important will be the inflation numbers from the UK, Canada and Europe.

Also read: Where inflation stands and what to expect, overview of 8 major currencies

A survey of the bullion industry, including the world’s top traders, refiners and miners, showed that they see gold prices rebounding firmly in 2023 notwithstanding higher interest rates.

Delegates gathered in Lisbon for the London Bullion Market Association’s (LBMA) annual conference.

Key findings

"Expect gold prices to rise to $1,830.50 an ounce by this time next year, about 10% above current levels." 

"Silver prices were predicted to boom 50% over the same period."

• Gold Price Forecast: XAU/USD fades bounce off $1,640 support amid hawkish Fedspeak

• USD/CNH retreats from three-week-old resistance line, prints mild losses on a day.
• 21-EMA, weekly support line defends buyers amid firmer RSI.
• 50-EMA adds to the downside filters, bulls can aim for September’s high past 7.2300.

USD/CNH pares recent gains around 7.2220 as it again steps back from the short-term descending resistance line during Wednesday’s Asian session. Even so, a convergence of the 21-EMA and a three-day-old support line, around 7.2000 restricts the immediate downside of the offshore Chinese yuan (CNH) pair.

In addition to the immediate support confluence, an upbeat RSI (14) also keeps the buyers hopeful.

That said, the 50-EMA and 23.6% Fibonacci retracement level of September 12-28 upside, near 7.1800, acts as an extra filter to the south, a break of which could direct USD/CNH bears towards the three-week-old horizontal support area around 7.1500-1470.

It should be noted that the USD/CNH weakness past 7.1470 won’t hesitate to renew the monthly low of 7.0126.

Alternatively, an upside break of the downward-slopping resistance line from September 28, close to 7.2300 at the latest, could quickly propel the USD/CNH prices towards the previous month’s peak and the all-time high of 7.2675.

During the quote’s run-up past 7.2675, the 7.3000 round figure may gain the market’s attention.

Overall, USD/CNH is likely to witness a short-term pullback but the overall bullish trend remains intact.

USD/CNH: Four-hour chart

Trend: Bullish

• NZD/USD prints mild gains during three-day uptrend, sidelined of late.
• Firmer NZ Q3 inflation propels hopes of RBNZ’s another 0.75% rate hike in November.
• DXY battles risk-on mood amid hawkish Fedspeak, sluggish yields.
• Second-tier US data, risk catalysts may help revive US dollar.

NZD/USD bulls struggle to keep the reins on early Wednesday, printing mild gains around 0.5700 during the three-day uptrend. In doing so, the Kiwi pair portrays the market’s sluggish performance amid the inactive US Dollar Index (DXY) and the risk-on mood. However, the hawkish bias for the Reserve Bank of New Zealand’s (RBNZ) next move keeps the pair buyers hopeful.

Multiple banks raised bullish forecasts for the RBNZ’s next move after witnessing strong prints of New Zealand’s (NZ) third quarter (Q3) Consumer Price Index (CPI).

That said, NZ 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. Considering the data, the Australia and New Zealand Banking Group (ANZ) said, “With inflation looking increasingly entrenched, and core inflation showing no signs of rounding a corner, the RBNZ will need to respond. We now expect back-to-back 75 basis point hikes in November and February, taking the OCR to 5%.”

Elsewhere, the risk-on mood also underpins the NZD/USD upside. While portraying the sentiment, the S&P 500 Futures rise 0.80% intraday, tracking Wall Street’s second daily gain, whereas the US Dollar Index (DXY) remains sidelined near 112.00 at the latest while the US 10-year Treasury yields seesaw near 4.0% mark.

Headlines suggesting the Russian soldiers’ struggle in Ukraine and UK Chancellor Jeremy Hunt’s ability to ward off the recession woes seem to propel the market’s optimism of late.

It should be noted that the DXY fails to capitalize on the firmer industrial production, as well as the hawkish Fedspeak, amid the risk-on mood and sluggish Treasury yields. Recently, Minneapolis Federal Reserve Bank President Neel Kashkari said, “Until I see some compelling evidence that core inflation has at least peaked, not ready to declare a pause in rate hikes.”

Moving on, the second-tier US data, relating to housing, will join the multiple Fed speakers to entertain NZD/USD traders. That said, the Kiwi pair is likely to remain firmer unless any risk-negative surprises, as well as the RBNZ’s unexpected announcements, land on the desk.

Also read: Where inflation stands and what to expect, overview of 8 major currencies

Technical analysis

NZD/USD’s first daily closing beyond the 21-DMA, at 0.5680 now, in two months keeps buyers hopeful to renew monthly high, around 0.5815 by the press time.

Japanese officials, including Finance Minister Shunichi Suzuki, the Bank of Japan's Seiji Adachi and governor Haruhiko Kuroda all crossed the wires on Wednesday,  warning that Japan's economy is vulnerable to external demand shock, which could tip it back to deflation.

Officials have warned that Japan would take appropriate and decisive action against excessive, speculator-driven currency moves, keeping alive the possibility of more market intervention after the yen hit another 32-year low.

USD/JPY H4 chart

Kuroda said that it is extremely important for fx to move stably reflecting econ fundamentals, noting that the recent yen weakening has been sharp and one-sided.    
Kuroda said that his kind of sharp, one-sided weakening is not desirable for the economy.

The Bank of Japan board member Adachi said the monetary policy does not directly control fx moves and there are times fx rates move rapidly short-term.
    
He also said that responding to short-term fx moves with the monetary policy would heighten uncertainty over BoJ's policy guidance and that it won't be good for Japan's economy.
    
In terms of monetary policy, he said it must be aimed at achieving 2% inflation stably.
    
''Inflation starting to rise,'' but he is not convinced yet that the BoJ's target will be achieved in a stable, sustained manner''
    
''Must be cautious about shifting toward monetary tightening as downside risks to japan's economy increasing,'' he said.
    
''Shifting toward monetary tightening would weaken demand, heighten risk Japan will revert to deflation.''
    
''Japan still halfway in meeting BoJ's 2% inflation target,'' he added.

• Silver price fails to extend two-day uptrend, eases from intraday top of late.
• 50-HMA adds strength to the weekly triangle’s support.
• Hidden bearish RSI divergence teases XAG/USD sellers but break of $18.60 is necessary.

Silver price (XAG/USD) remains sidelined around $18.75-80, fading the two-day uptrend during Wednesday’s Asian session as the bright metal trades inside a weekly symmetrical triangle.

The bullion’s latest inaction could be linked to the mixed technical signals as the 50-HMA defends buyers but hidden bearish RSI divergence and the sustained trading below 200-HMA keeps the XAG/USD sellers hopeful. Also acting as an upside filter is the descending trend line from October 04, near $19.50 by the press time.

Hence, the commodity prices are likely to remain sideways unless breaking the aforementioned triangle, currently between $18.90 and $18.65. However, the odds favoring the downside are high.

That said, a clear downside break of $18.65 could quickly drag the XAG/USD price toward the monthly low of $18.08. Following that, the yearly low marked in September at around $17.55 will be in focus.

On the flip side, silver buyers’ dominance past $18.90 will need validation from the $19.00 threshold to aim for the 200-HMA level surrounding $19.25. Even so, the previously stated two-week-old resistance line will challenge the bulls around $19.50.

In a case where XAG/USD remains firmer past $19.50, the $20.00 psychological magnet and the monthly peak of $21.25 should gain the market’s attention.

Silver: Hourly chart

Trend: Further weakness expected

• GBP/USD is needed to cross the 1.1360 hurdle for an upside momentum amid a cheerful market mood.
• The Fed is not ready to pause the rate hike spell until it sees compelling evidence of an inflation slowdown.
• Loss of confidence in UK PM Liz Truss's leadership has escalated UK’s political instability.

The GBP/USD pair is facing barricades around the immediate hurdle of 1.1360 in the Tokyo session. The hurdles around 1.1360 seem less powerful amid escalating risk appetite of the market participants. S&P500 futures have extended their gains in the Tokyo session after back-to-back upbeat trading sessions. The pound bulls will get strengthened after overstepping the above-mentioned hurdle.

Meanwhile, the US dollar index (DXY) is displaying a subdued performance of around 112.00. The asset could lose further amid a decline in safe-haven appeal. On contrary, returns on US bonds are still solid amid firmer hawkish Fed bets. The 10-year US Treasury yields have extended their gains above 4.01%, at the time of writing.

As per the CME FedWatch tool, chances for a fourth consecutive 75 basis point (bps) rate hike announcement stand around 96%.

In response to soaring inflationary pressures, Minneapolis Fed Bank President Neel Kashkari stated on Tuesday that “Until I see some compelling evidence that core inflation has at least peaked, not ready to declare a pause in rate hikes,” reported Reuters.

Fed’s continuous rate hike measures have done little in softening the inflation rate. The headline Consumer Price Index (CPI) has been trimmed amid lower gasoline prices while the core CPI is well-anchored amid rising prices in the service sector.

On the UK front, the Bank of England (BOE) has announced its bond-selling program belonged to Asset Purchase Facility (APF) from November 1. This will trim liquidity from the market.

UK’s political instability has reached the rooftop as officials have lost confidence in UK PM Liz Truss’s leadership. A YouGov poll of Tory members found that 55% would now vote for Rishi Sunak, who lost out to Ms. Truss if they were able to vote again, while just 25% would vote for Ms. Truss.

On Wednesday, the release of the UK inflation data will be of utmost importance for further direction. As per the projections, the headline and core inflation may incline by 10 basis points each to 10% and 6.4% respectively. A return to a double-digit inflation figure could trigger more headwinds for the UK economy.

• GBP/JPY has been creeping higher, but maybe into he hands of the bears?
• The UK CPI data will be key for the day ahead, but technically, the bulls are in control. 

GBP/JPY was an inside day on Tuesday and coupled with the bullish megaphone, this could be regarded as a highly bullish scenario for the day ahead as the hybrid would be thought to signal a strong continuation pattern. Therefore, if trading a breakout from the pattern, the highest probability trades are ones where the overall market direction aligns with the direction into and out of the two-day pattern:

GBP/JPY H1 chart

The price will be running into the UK inflation today, so volatility should be high on traders' agendas for this pair on Wednesday. If there is to be a sell-off, depending don't he data, Day 1 level 1 and Day 2 level 1,2 and 3 longs could be seen as targets by the bears:

The greyed areas represent long positioning in the market that could be vulnerable to sellers in the day ahead.

GBP/JPY H4 chart

There is a huge build-up in longs in the spot market. A break of the trendline could be significant for the remainder of the week and trigger an exodus of the bulls. 

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1105 vs. the estimate of 7.1192 and the previous 7.1086.

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.

The European Central Bank (ECB) will go for another jumbo 75 basis point increase to its deposit and refinancing rates when it meets on Oct. 27 as it tries to contain inflation running at five times its target, a Reuters poll found.

Key findings

Also read: EUR/USD Price Analysis: Retreats from five-week-old resistance towards 0.9820 EMA support

• AUD/USD retreats from intraday high while struggling to defend two-day uptrend.
• Australia’s Westpac Leading Index improved to 0.0% in September.
• Firmer equities, hawkish RBA Minutes underpin bullish bias but bears flex muscles as yields prepare to rebound.
• Fedspeak, second-tier US data keeps sellers hopeful ahead of Thursday’s Aussie jobs report.

AUD/USD struggles to defend the previous day’s upside break of the 10-DMA hurdle, taking rounds to 0.6315-20 after a two-day uptrend to Wednesday’s Asian session. In doing so, the Aussie pair fails to justify the firmer data from home, as well as the upbeat sentiment, as markets await fresh clues.

Australia’s Westpac Leading Index rose to 0.0% in September from -0.05% prior. On Tuesday, the Monetary Policy Meeting of the Reserve Bank of Australia (RBA), as well as comments from RBA Deputy Governor Guy Bullock, appeared hawkish.

That said, 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.

Elsewhere, the US Dollar Index (DXY) remains sidelined near 112.00 at the latest while the US 10-year Treasury yields seesaw near 4.0% mark to portray the market’s indecision. Alternatively, the S&P 500 Futures rise 0.80% intraday while tracking Wall Street’s second daily gain, which in turn restricts short-term AUD/USD downside due to the pair’s risk-barometer status.

It should be noted that the US dollar fails to capitalize on the firmer industrial production amid the risk-on mood and sluggish Treasury yields. That said, headlines suggesting the Russian soldiers’ struggle in Ukraine and UK Chancellor Jeremy Hunt’s ability to ward off the recession woes seem to propel the market’s optimism of late.

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

Hence, the AUD/USD bulls turn cautious amid the mixed signals and a lack of major data/events as traders prepare for Thursday’s Australia jobs report.

Technical analysis

Unless breaking the 10-DMA support near 0.6300, AUD/USD remains capable of crossing a five-week-old resistance line, around 0.6335 by the press time.

• AUD/NZD is eyeing more weakness below 1.1070 as odds for widening RBNZ-RBA policy divergence soar.
• A sheer RBA’s rate acceleration in a short span of time has resulted in a slowdown in the rate hike pace.
• The consensus for Australian payroll data is lower due to the already tight labor market.

The AUD/NZD pair is on the verge of delivering a downside break of the consolidation formed in a 1.1076-1.1103 range. The asset has turned sideways after a sheer downside movement and is likely to surrender Tuesday’s low at 1.1071. The aussie bulls have weakened after the release of the Reserve Bank of Australia (RBA) minutes on Tuesday.

The minutes from RBA have cleared that the central bank will make gradual steps in hiking its Official Cash Rate (OCR). Rising risks from global and domestic demand have already resulted in a break of 50 basis points (bps) rate hike spell as RBA Governor Philip Lowe announced a rate hike by 25 bps in October monetary policy meeting.

RBA policymakers are of the view that the OCR has been accelerated to 2.6% in a short span of time. Therefore, the rate hike will be slow from now. Also, the RBA conducts monetary policy each month, therefore, it has sufficient chances to push the rates in line with global peers.

On the NZ front, kiwi bulls have picked demand after the release of higher-than-projected 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%.

Mounting inflationary pressures in the kiwi zone and less-hawkish policy adaptation by the RBA may lead to a significant widening in Reserve Bank of New Zealand (RBNZ)-RBA policy divergence. This has kept the cross on the tenterhooks.

This week, Thursday’s Australian employment data will be of utmost importance. 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%.

• EUR/USD struggles to extend two-day uptrend, renews intraday low of late.
• Bullish MACD signal, successful break of 21-day EMA suggests further advances.
• 50-day EMA, descending trend line from August adds to the upside filters.
• Three-week-old horizontal support appears important for the bears to watch.

EUR/USD snaps a two-day uptrend as it takes a U-turn from the short-term key resistance line to refresh the intraday low near 0.9850 during Wednesday’s Asian session.

Even so, the major currency pair’s successful upside break of the 21-day EMA and the bullish MACD signals keep the buyers hopeful of overcoming the 0.9875 resistance level comprising a downward-sloping trend line from September 13.

However, the 50-day EMA level of 0.9925 and a two-week-old descending trend line, at the parity level by the press time, will be tough challenges for the EUR/USD bulls to cross before aiming the previous monthly top near 1.0200.

Also acting as an upside filter is the 61.8% Fibonacci retracement level of the pair’s August-September moves, near 1.0050.

Meanwhile, pullback moves could initially aim for the 21-day EMA level surrounding 0.9820 before directing the EUR/USD bears toward the 23.6% Fibonacci retracement level of 0.9730.

Following that, a horizontal area including multiple levels marked since September 23, near 0.9675-80, will be crucial to watch for the bears.

EUR/USD: Daily chart

Trend: Limited downside expected

• USD/JPY pauses 10-day uptrend at the highest level since 1990.
• Market sentiment remains positive but signals of Japan meddling to defend yen probe the pair buyers.
• Inactive yields also test buyers despite hawkish Fedspeak, mixed US data.
• Risk catalysts are the key as sellers seek entries.

USD/JPY treads water around 149.20-30 as Tokyo opens on Wednesday. In doing so, the yen pair prints mild losses while snapping the 10-day uptrend as policymakers from Japan roll-up their sleeves to defend the currency that stays at the lowest levels in 30 years versus the USD.

Recently, Japanese Finance Minister Shunichi Suzuki said that he was checking currency rates "meticulously" and with more frequency, Jiji News reported, as the yen continues to weaken against the dollar and markets watch for signs of intervention, per Reuters. The news also quotes Japan’s Suzuki as saying that the government would "properly respond" in the foreign exchange market based on existing policy.

It should be noted, however, that the US dollar fails to capitalize on the firmer industrial production amid the risk-on mood and sluggish Treasury yields, which in turn challenges the USD/JPY buyers of late.

That said, the US Dollar Index (DXY) remains sidelined near 112.00 at the latest while the US 10-year Treasury yields seesaw near 4.0% mark. Additionally, the S&P 500 Futures rise 0.80% intraday while tracking Wall Street’s second daily gain.

To sum up, the sluggish yields and Japan policymakers’ jawboning challenge the USD/JPY bulls. However, the market’s risk-on mood and the US dollar’s failure to rebound keeps the buyers hopeful.

Above all, the monetary policy divergence between the Fed and the Bank of Japan (BOJ) propels the yen pair. Recently, Minneapolis Federal Reserve Bank President Neel Kashkari said, “Until I see some compelling evidence that core inflation has at least peaked, not ready to declare a pause in rate hikes.” On the other hand, BOJ Governor Haruhiko Kuroda defends the easy money policy in his latest speeches.

Moving on, second-tier housing data from the US will decorate the calendar but major attention will be given to Japan intervention and risk catalysts for clear directions.

Technical analysis

An upward-sloping resistance line from July, around 149.40 by the press time, restricts the immediate USD/JPY pair’s further upside.

• The DXY is oscillating below 112.00 and may display more weakness amid an upbeat market mood.
• Escalating US recession fears have capped the DXY’s upside.
• The continuation of the Fed’s policy tightening has resulted in lower estimates for retail real estate demand.

The US dollar index (DXY) has shifted its business below 112.00 as the risk-on impulse is catching up with severe recognition from the market participants. On Tuesday, the upside in the mighty DXY remained capped around 112.40 amid escalating recession fears in the US.

A sluggish performance by the DXY despite solid chances of the fourth consecutive 75 basis points (bps) rate hike announcement by the Federal Reserve (Fed) has exposed the asset for more support. While solid bets for a bigger Fed rate hike have kept yields at elevated levels. The 10-year US Treasury yields hold their status above 4%.

US recession fears escalate

Commentaries from shark banks amid the continuation of policy tightening measures by the Fed have accelerated the risk of recession. Strategists at J.P. Morgan this week 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.

Also, Fitch, on the US says that Fed’s aggressive tightening cycle will increasingly weigh on job growth and consumer demand in 2023. Higher inflation and interest rates will trim real wages and will have consequences on household income and eventually on consumer spending.

Lower consensus for US Housing Starts

Wednesday’s Housing Starts data that reflects retail demand for real estate will remain in the spotlight. The economic data is expected to decline to 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. Higher interest rates are forcing retailers to postpone their demand for personal property.

• Gold price remains sidelined after rising for the last two consecutive days.
• US Treasury yields remain indecisive at multi-month high amid light calendar.
• Risk appetite remains firmer despite hawkish Fedspeak but XAU/USD buyers fear amid DXY’s hesitant fall.

Gold price (XAU/USD) treads water around the mid-$1,600s while struggling to extend the previous gains during Wednesday’s Asian session. In doing so, the bullion traces the market’s inaction amid a lack of major data/events. Even so, the risk-on mood keeps the buyers hopeful ahead of the inflation data from Eurozone, the UK and Canada.

That said, headlines suggesting the Russian military’s hardships in Ukraine and the UK Chancellor’s U-turn on previous fiscal plans join sluggish Treasury yields to keep the market sentiment positive. Alternatively, hawkish Fedspeak and upbeat US data challenge the risk profile and the XAU/USD buyers.

“Until I see some compelling evidence that core inflation has at least peaked, not ready to declare a pause in rate hikes,” said Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday per Reuters. Elsewhere, the US Industrial Production for September rose to 0.4% versus the 0.1% expected while the softer NAHB Housing Market Index for October eased to 38 from 43 market consensus.

While portraying the mood, S&P 500 Futures trace Wall Street’s gains whereas the US 10-year Treasury yields remain sidelined.

Looking forward, the XAU/USD buyers need to have softer prints of the upcoming inflation numbers and additional positives for Ukraine, as well as the UK, to keep the reins.

Technical analysis

Although the gold price struggles to extend the recovery from a three-week-old horizontal support area near $1,640, the metal defends the previous day’s upside break of a fortnight-long descending resistance line, now support around $1,647.

That said, the bearish MACD signals and sluggish RSI, as well as the XAU/USD’s sustained trading below the 21 and 50-DMA, respectively around $1,669 and $1,703, keeps the sellers hopeful.

Hence, the bullion is on the bear’s radar but a clear downside break of $1,640 appears necessary to renew the fall toward the yearly low of $1,615.

It should be noted, however, that a clear upside break of the 50-DMA hurdle surrounding $1,703 will propel the quote toward the monthly high near $1,730.

Gold: Daily chart

Trend: Further weakness expected

President Biden is expected to authorize the release of more oil from the Strategic Petroleum Reserve in an effort to bring down gas prices, senior administration officials announced Tuesday.

Driving the news: 15 million barrels will be released in December as part of the 180 million barrels the administration had announced earlier this year, according to the officials.

Key notes

Biden will lay out plans on Wednesday to continue using strategic petroleum reserve to gain more stability in gas prices -senior administration official.
    
Biden will reiterate that gasoline company profits are too high and they should return them to consumers -senior administration official.
    
Biden administration agrees to make future oil purchases to refill emergency reserve at prices at or below $67 to $72 a barrel -senior administration official.
    
Biden will announce 15 million additional barrels for delivery from SPR in December, extending the initial timeline and completing the 180 million commitment - a senior administration official.
    
SPR remains the largest reserve and the energy dept is willing to do more sales beyond December if needed -senior administration official.
    
Biden has stressed to his advisers we need to be vigilant and if significant additional SPR sales are needed in the coming months, we'll be prepared to do so -senior administration official.
    
Biden administration keeping all tools on the table, including limiting fuel exports, to tackle energy prices -senior administration official.
    
Biden's intent is to make sure we have enough oil in the market in the US. to ensure whatever happens we have sufficient supplies - senior administration official.
    
The industry should take Biden's move as a signal to increase production - senior administration official.

Market Update

This is another of many attempts by the Biden administration to try and tame gas prices via the SPR.

WTI struggles around two-week low below $83.00 as US prepares to ease oil supply crunch

• AUD/JPY picks up bids to renew intraday top during three-week uptrend.
• Sustained break of five-week-old resistance, bullish MACD signals favor buyers.
• 50-DMA, tops marked since late September restrict immediate upside.

AUD/JPY stays on the front foot for the third consecutive day as bulls keep the reins at a fortnight high near 94.40 during Wednesday’s Asian session.

In doing so, the cross-currency pair extends the week-start breakout of a downward-sloping resistance line from September 13, now support around 92.45, amid the bullish MACD signals.

That said, the 50-DMA and tops marked since late September challenge the AUD/JPY buyers around 94.65 and 94.80.

During the quote’s run-up beyond 94.80, the 95.00 threshold and July’s peak surrounding 95.70 could challenge the AUD/JPY upside ahead of the late September swing high of around 96.65.

In a case where the bulls keep the reins past 96.65, an upward trajectory toward the previous monthly top near 98.75 can’t be ruled out.

Alternatively, pullback moves remain elusive beyond the previous resistance line near 92.45.

Even so, the 200-DMA level surrounding the 91.00 and the 90.00 psychological magnet could challenge the AUD/JPY bears afterward.

It’s worth noting that the low marked in May around 87.30 appears the last defense for the AUD/JPY buyers, a break of which won’t hesitate to direct the quote towards the yearly bottom near 80.35. The October 2020 peak around 86.35 may offer an intermediate halt during the anticipated fall

AUD/JPY: Daily chart

Trend: Further upside expected

• GBP/JPY has climbed above 169.00 strongly ahead of UK inflation data.
• An announcement of scheduled UK bond-selling has underpinned the cable bulls.
• 55% of Tory members are ready to support Rishi Sunak for the UK PM position now.

The GBP/JPY has soared firmly above 169.00 in early Tokyo after remaining sluggish in the New York session. The asset has gained strength amid positive market sentiment, which has improved the risk appetite of investors. On Tuesday, the cross declined to 168.00 after refreshing its six-year high above the psychological resistance of 170.00 as long liquidation kicked in.

The schedule announced for selling UK government bonds under Asset Purchase Facility (APF) has strengthened the pound bulls again. The Bank of England (BOE) has announced that it will start its delayed gilt sale operation from the first day of November. The operation was delayed by the central bank citing financial instability.

Meanwhile, UK political instability is taking more heat as Tory party members demand the removal of UK novel Prime Minister Liz Truss now. Loss of confidence in Truss’s leadership due to tedious decisions made and her inability to fetch confidence from international investors and domestic officials.

A YouGov poll of Tory members found that 55% would now vote for Rishi Sunak, who lost out to Ms. Truss if they were able to vote again, while just 25% would vote for Ms. Truss.

On Wednesday, the release of the UK inflation data will hog the limelight. As per the projections, the headline and core inflation may incline by 10 basis points each to 10% and 6.4% respectively. A return to a double-digit inflation figure could trigger more headwinds for the UK economy.

On the Tokyo front, investors are awaiting the intervention of the Bank of Japan (BOJ) in the currency market to provide support to the weakening yen. The intervention move by the BOJ will delight investors to make informed decisions. Japan officials are continuously remarking on potential intervention to support yen against speculative forex moves.

• WTI stays defensive at fortnight low, picking up bids of late.
• Biden administration prepares a plan to increase oil production, complete emergency sales.
• Bullish API, risk-on mood failed to impress oil buyers amid sluggish session, US-led efforts to ease supply crunch.
• EIA stockpiles, risk catalysts will be important for bears to watch.

WTI crude oil remains depressed around $82.80, despite bouncing off a two-week low, as the US administration brace for an oil supply plan on Wednesday. Also likely to have exerted downside pressure on the black gold could be the sluggish markets and a lack of major data/events.

US President Joe Biden will continue to sell barrels out of the nation's emergency reserves through December and lay out a plan on Wednesday to refill the storage at lower than current prices in a bid to help fill the current supply gap and push oil companies to produce more down the road, a senior administration official said reported Reuters. The news appears the US challenge the OPEC+ group after the oil producers rejected the US-led push to ease supply cuts.

The news also mentioned that the Biden administration agrees to make future oil purchases to refill emergency reserves at prices at or below $67 to $72 a barrel. “Biden will announce 15 million additional barrels for delivery from SPR in December, extending initial timeline and completing 180 million commitment,” adds Reuters.

Elsewhere, the weekly industry stockpile numbers from the American Petroleum Institute mentioned that the US crude oil stockpiles fell in the latest week. “Crude stocks fell by about 1.3 million barrels for the week ended Oct. 14. Gasoline inventories fell by about 2.2 million barrels, while distillate stocks fell by about 1.1 million barrels, according to the sources, who spoke on condition of anonymity,” mentioned the news.

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.

Moving on, the official weekly crude oil stocks change figures from the Energy Information Administration (EIA), expected to ease to 1.551M versus 9.88M prior, will decorate the calendar to direct the oil traders. However, major attention will be given to the risk catalysts and energy headlines from the US and Europe.

Technical analysis

Although the 21-DMA and a fortnight-old resistance line restrict short-term WTI upside around $84.00 and $85.70 in that order, six-week-long horizontal support near $81.50 appears as short-term key support to watch for the oil bears during the quote’s further weakness.

• The USD/CHF break below the bottom-trendline exerts downward pressure on the pair.
• USD/CHF Key support levels lie at 20, 50, and 100-DMAs, around 0.9899, 0.9741, and 0.9705, respectively.
• USD/CHF Price Forecast: The rising wedge targets a drop to the 200-DMA at around 0.9550s.

As the Asian Pacific session began, the USD/CHF tumbled below the bottom-trendline of a rising wedge on the daily chart, which could pave the way for further losses. Therefore, the USD/CHF is trading at 0.9933, slightly up by 0.05%, at the time of typing.

USD/CHF Price Forecast

Given the backdrop, the USD/CHF could be heading downwards. Additionally, the distance between the base of the top/bottom rising wedge trendlines also gives the profit target, so a fall toward the 200-day EMA at 0.9557 is on the cards.

But first, the USD/CHF needs to trip down below the 20-day EMA at 0.9899, which, once cleared, could exacerbate a fall towards an area where the 50 and 100-day EMAs lie, around 0.9741-0.9705, respectively. A breach of the latter will expose the 0.9600 figure, immediately followed by a fall toward the 200-day EMA at around 0.9557.

On the other hand, the USD/CHF first resistance would be the parity, which, once broken, would send the USD/CHF climbing to re-test the YTD high at 1.0074, ahead of 1.0121, the May 20 high of 2019.

USD/CHF Key Technical Levels

• NZD/USD bears are ready to feast on the bird. 
• Bears are lurking, eying-up the bear flag around, resistance around 0.5700/20.

NZD/USD is attempting to move in on the 0.5700 area again after printing fresh recovery highs on Tuesday following yesterday’s shock third-quarter Consumer Price Index inflation report. Forecasters have noted that still-surging core inflation pressures will see the Reserve Bank of New Zealand lift the OCR by 75bps at the November MPS. 0.5719 was the high, but the question is, ''will this be the high of the week?''

The following analysis attempt to unravel that mystery.

NZD/USD daily chart

From a daily perspective, while there is room for the upside to test the trend line resistance, the W-formation is bearish and would be expected to pull in the price, at least towards the neckline. If this were to fail as support, there will be prospects of a continuation to the downside, especially on the break of 0.5613, the daily candle's close low. The trading day's low was 0.5622. Both will be targets for the downside. 

NZD/USD H1 chart

Meanwhile, from a lower time-frame perspective, we have three days of longs in the market and little in the way of a shake-out, at least below Tuesday's US session lows of 0.5646. The price action took break-out traders up into 0.5720 area only to be hit by strong sellers, resulting in a move into Day-2 longs from the Asian and the Europen session and in doing so, causing a vacuum of bids that resulted in a break of the trend line.

This may encourage further selling below the US session highs for the day ahead and risks a sell-off, potentially back towards the lows of the week and into Day-1 longs. The bearish flag that is already looking pretty mature and the prospects of a head and shoulders topping pattern only go to reinforce the bearish thesis for the day ahead. 

• A formation of an inside candle pattern around the trendline has increased anxiety among investors.
• The cable is oscillating between the 20-and 50-EMAs.
• A range shift move by the RSI (14) indicates that the downside momentum has disappeared.

The GBP/USD pair has witnessed fresh demand around 1.1310 in early Asia and is aiming to overstep the crucial resistance of 1.1340. The pound bulls are having an edge of the risk-appetite theme over the greenback bulls. Meanwhile, the US dollar index (DXY) is displaying a sluggish performance marginally below the 112.00 support, and may witness an increment in volatility.

On the daily scale, the cable has formed an Inside Candle pattern at the edge of the downward-sloping trendline placed from September 13 high at 1.1738. The above-mentioned candlestick pattern indicates a squeeze in volatility and a volatility contraction near the critical area indicates an explosion ahead. Also, it acts as an inventory adjustment formation, which is difficult to confine as accumulation or distribution until a decisive move.

The asset is restricted between the 20-and 50-period Exponential Moving Averages (EMAs) at 1.1245 and 1.1447 respectively.

A range shift in the Relative Strength Index (RSI) (14) into a 40.00-60.00 range from the bearish range of 20.00-40.00 indicates that the momentum is not bearish for now. Also, the oscillator has sensed support around 40.00, which signals that a bullish reversal is on cards.

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 round-level support of 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 daily chart

• EUR/GBP remains sidelined after bouncing off 100-DMA on Monday.
• BOE’s commentary, UK’s political jitters weigh on GBP ahead of the key UK CPI.
• Firmer EU data, hawkish ECB speak keeps buyers hopeful.
• Risk of further upside appears minimal as BOE announces gilt operations.

EUR/GBP buyers struggle with a short-term key hurdle surrounding the 0.8700 threshold ahead of the key inflation data from the UK and the Eurozone on Thursday. In doing so, the cross-currency pair fades the week-start bounce off the 100-DMA amid mixed clues.

The UK-inspired optimism appears to fade amid a fresh political plot to topple Prime Minister Liz Truss and recall the ex-leader Boris Johnson. Even so, Reuters mentioned that British Prime Minister Liz Truss warned of tough times ahead after she scrapped her vast tax-cutting plan and said she would carry on to try to put the economy on a stronger footing, defying calls for her resignation.

Elsewhere, the Bank of England (BOE) again turned down the Financial Times (FT) news suggesting the “Old Lady”, as the UK central bank is informally known, will delay the Quantitative Tightening (QT) to wait for the gilt markets to stabilize. In doing so, the British central bank stated, per Reuters, that it would start selling some of its huge stock of British government bonds from Nov. 1 but would not sell this year any longer-duration gilts that have been in the eye of a recent storm in the British government bond market. It’s worth noting that UK’s new Chancellor Jeremy Hunt renewed the market’s optimism by reversing the unpopular “mini-budget” proposals earlier in the week.

Talking about the data, the latest updates from Reuters mentioned that the UK’s Federation of Small Businesses (FSB), a trade body, said its latest small business confidence index fell to -35.9 from -24.7, the worst reading outside of COVID-19 lockdowns.

On the other hand, numbers from the bloc were firmer and helped the regional currency amid hawkish comments from the European Central Bank (ECB) policymakers. That said, 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.

However, the European Commission’s (EC) proposal to purchase gas in bulk and cap the prices in case of extreme volatility challenges the risk appetite and the EUR amid fears of fresh Russia versus the West tussles.

Moving on, the UK and the Eurozone are both up for publishing the September month Consumer Price Index (CPI). While the old continent is expected to confirm the 10.0% HICP and CPI number, the UK CPI may rise past 9.9% prior to 10.0% and can help the GBP recover some of the latest losses.

Technical analysis

Although the 100-DMA restricts EUR/GBP downside around 0.8585, a downward-sloping resistance line from late September, near 0.8710 by the press time, appears a tough nut to crack for the bulls.