• AUD/JPY is expected to drop to near 94.00 as the risk-off impulse has escalated.
• Japan’s headline and core CPI are seen higher at 3.1% and 2.0% respectively.
• The BOJ announced a bond-buying program worth $667 million.

The AUD/JPY pair has turned sideways in early Tokyo after a vertical downside move from above 95.00 in the New York session. The risk-off impulse heated further after escalating UK political crisis due to the resignation of new UK Prime Minister Liz Truss and soaring returns on US government bonds. In early Tokyo, the asset is oscillating in a narrow range of 94.17-94.38 as investors are awaiting the release of Japan’s National Consumer Price Index (CPI) data.

As per the consensus, the headline CPI will land higher at 3.1% vs. the prior release of 3.0%. While, the core CPI which excludes food and energy prices from the calculation, could accelerate to 2.0% against the former release of 1.6%.

Suspicious commentary from Japan’s top currency diplomat Masato Kanda narrates that the vertical fall in the risk barometer could be an intervention action by the Bank of Japan (BOJ). On Thursday, Japan’s Kanda cited that he “will not comment on whether we are intervening now or have intervened today.” He further cited that, “Excessive and disorderly forex moves have a negative impact on the economy.” the economy is ready to take action in forex markets but will not comment on forex levels.

On Thursday, an emergency bond-buying program worth $667 million announced by the Bank of Japan (BOJ) triggered the risk of further weakness in the Japanese yen. The announcement followed commentary from Japan Prime Minister Fumio Kishida in which he cited the risk of weaker economic prospects due to external demand shocks.

On the Australian front, weaker job market data has impacted the aussie bulls. The Employment Change dropped sharply to 0.9k than the projections of 25k and the prior release of 33.5k. While the Unemployment Rate was released in line with the estimates and the former figure of 3.5%.

• USD/CAD picks up bids to pare weekly losses.
• Oil prices reversed from one-week high as hopes of China demand, supply crunch wanes amid recession fears.
• Yields remain firmer around multi-year high, underpinning USD demand.
• Canada Retail Sales for August will be crucial amid a light calendar, risk catalysts are more important for clear directions.

USD/CAD licks its wounds during a quiet start to Friday’s trading in Asia, following the volatile day that refreshed the weekly low before reversing the move. Even so, the Loonie pair braces for the weekly loss.

The quote’s latest rebound could be linked to the market’s risk aversion, as well as softer prices of Canada’s main export item WTI crude oil. Additionally, the cautious mood ahead of Canada’s monthly Retail Sales for August also underpins the recovery moves.

WTI crude oil remains pressured around $84.30, after a failed attempt to weekly gain due to the firmer US inventories and news surrounding China’s easing of quarantine rules. The reason could be linked to the growing fears of recession, which in turn underpin the US Treasury yield and the US dollar. “Recessions in the euro area and the UK are inevitable, as is a period of contraction in the US next year,” stated the Australia and New Zealand (ANZ) Banking Group in its latest report.

Elsewhere, a slump in Canada’s Employment Insurance Beneficiaries Change by 4.1% in August versus addition of 2.9% in the previous readings joined initial optimism to weigh on the USD/CAD prices before the risk-off mood recalled the buyers.

On the other hand, US Initial Jobless Claims eased to 214K for the week ended on October 07 versus 230K expected and a revised down 226K prior. Further, Philadelphia Fed Manufacturing Survey Index dropped to -8.7 for October versus the -5 market consensus and -9.9 previous reading. Additionally, US Existing Home Sales rose past 4.7M expected to 4.71M but eased below 4.78M prior. Recently, Federal Reserve Governor Lisa Cook mentioned that ongoing rate increases will be required.

While portraying the mood, Wall Street closed in the red following an initially upbeat performance while the US 10-year Treasury yields rose to the highest since 2008.

Moving on, risk catalysts will be important to watch for fresh impulse ahead of Canada’s Retail Sales for August, expected 0.2% MoM versus -2.5% prior, which in turn could weigh on the USD/CAD prices if other things remain positive to the Loonie buyers. Also important will be the Fedspeak and the bond market moves.

Technical analysis

USD/CAD pair’s recovery from the 21-day EMA, around 1.3670 by the press time, needs validation from the 1.3800 level to convince buyers.

• The cable is on the verge of an explosion of the symmetrical triangle.
• Resignation from novel UK Prime Minister Liz Truss underpinned the risk-aversion theme.
• The 20-EMA is acting as a major barricade for the pound bulls.

The GBP/USD pair is struggling to surpass the immediate hurdle of 1.1240 in the early Tokyo session. The pound bulls witnessed a steep fall from 1.1336 on Thursday as the risk appetite of investors was trimmed led by soaring yields and UK political crisis after novel UK Leader Liz Truss resigned.

The returns on 10-year US government bonds skyrocketed amid a dismal market mood as the market participants are considering the 75 basis points (bps) rate hike by the Federal Reserve (Fed), a certainty now. Apart from that, soaring yields also supported the greenback in vaporizing early gains and ending the New York session with negligible losses of around 113.00.

On a four-hour scale, the cable is on the verge of exploding the symmetrical triangle chart pattern. The downward-sloping trendline of the above-mentioned chart pattern is placed from September 13 high at 1.1738 while the upward-sloping trendline is plotted from September 26 low at 1.0339. An explosion of volatility contraction pattern results in wider ticks and heavy volume.

The 200-period Exponential Moving Average (EMA) at 1.1300 is acting as a major barricade for the counter.

Meanwhile, the Relative Strength Index (RSI) has shifted into the 40.00-60.00 range, which signals a consolidation ahead.

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

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

GBP/USD four-hour chart

• NZD/USD remains sidelined following a pullback from the weekly top.
• New Zealand’s Trade Balance improved in September, Exports grew as well but Imports eased.
• Upbeat mood initially favored Kiwi pair before dragging it on the recession woes.
• RBNZ, Fed both are likely to announce 75 bps rate hike but the rush to risk-safety put USD ahead.

NZD/USD pays little heed to New Zealand’s (NZ) trade data for September amid the early hours of Friday’s Asian session. That said, the Kiwi pair seesaws around 0.5680 after retreating from the weekly high near 0.5745. Even so, the quote is likely bracing for the strongest week since early August.

NZ Trade Balance improved to $-11.95B YoY in September versus $-13.19B expected and $-12.5B prior (revised from $-12.2B). Further, Imports eased to $7.64B from $7.92B prior while Exports rose to $6.03B compared to 5.29B previous readings. Overall, the Pacific nation’s trade numbers were positive enough to favor the NZD/USD bulls but could not.

The reason could be linked to the shift in the market’s mood, mainly due to the fears of recession and higher rates, which in turn propelled the Treasury bond yields and the US dollar.

That said, mostly firmer US data and hawkish Fedspeak also favored the greenback to pare recent losses even as the initial optimism weighed on the quote.

US Initial Jobless Claims eased to 214K for the week ended on October 07 versus 230K expected and a revised down 226K prior. Further, Philadelphia Fed Manufacturing Survey Index dropped to -8.7 for October versus the -5 market consensus and -9.9 previous reading. Additionally, US Existing Home Sales rose past 4.7M expected to 4.71M but eased below 4.78M prior.

Recently, Federal Reserve Governor Lisa Cook mentioned that ongoing rate increases will be required.

It’s worth noting that China’s debate on reducing quarantine time for international visitors seemed to have favored the Kiwi pair buyers earlier on Thursday.

Moving on, a lack of major data/events could keep the NZD/USD on a dicey floor but the risk catalysts will be crucial to watch for clear directions. Also to keep in mind that the NZD/USD downside appears limited due to the hawkish bias over the Reserve Bank of New Zealand’s (RBNZ) next move.

Technical analysis

The first daily closing beyond the 21-DMA in two months join a weekly support line to keep the NZD/USD buyers hopeful unless the quote breaks 0.5640 level. The recovery moves, however, need validation from monthly high of 0.5815.

• GBP/JPY clings to gains as the Asian session begins, following Thursday’s 200 pip volatile session, on speculation of BoJ’s FX intervention.
• Short term, the GBP/JPY might test 170.00 but needs to clear 169.73; otherwise, a fall to the weekly lows below 167 is on the cards.

The GBP/JPY seesawed within a large range on Thursday on what looks like an intervention in the FX markets by Japanese authorities after hitting a daily low/high of 167.42-169.73, respectively, for a total of 220 pips difference between Thursday’s price extremes. At the time of writing, the GBP/JPY is trading at 168.60, down by a minimal 0.02%, as the Asian Pacific session begins.

GBP/JPY Price Forecast

The daily chart delineates the GBP/JPY remains upward biased. However, Thursday’s candlestick engulfed the price action of Tuesday and Wednesday’s sessions, though with a smaller-than-expected body, meaning that buying and selling pressure is at equilibrium. The Relative Strength Index (RSI) at 62.85 is almost flat, despite lying a bullish territory, while the 20-day Exponential Moving Average (ËMA) at 163.27 crossed above the 50-day EMA, eyeing the 100-day EMA lying at 163.54, which, once surpassed, could spark another leg-up in the pair. Key resistance levels lie at 169.00, followed by October 20 cycle high at 169.73, closely followed by 170.00.

In the near term, the GBP/JPY one-hour time frame depicts the pair consolidating. The hourly EMAs, namely the 20, 50, and 100, are almost flat below the current exchange rate, with the 200-EMA lying at 165.73. The RSI in the hourly chart is at 53.86, in bullish territory, validating the neutral to upward bias, though a break above Thursday’s high at 169.73 is needed to pave the way for further gains and will expose key resistance levels like the 170.00 figure, and 171.00.

On the flip side, the GBP/JPY needs to break below 168.43 to retest the weekly low at 166.95, though it would face some hurdles on the way south. The first support would be the S1 daily pivot at 167.45, followed by the 167.00 figure, ahead of 166.95.

GBP/JPY Key Technical Levels

• AUD/USD remains sidelined after a volatile day that refreshed weekly top before retreating.
• Risk sentiment sours following an initial optimism, yields dribble around multi-year high.
• Australia reported downbeat job numbers for September, firmer Q3 NAB Business Confidence.
• Fears of recession propel yields, DXY while China’s covid headlines battled the bears.

AUD/USD treads water around 0.6280 during early Friday morning in Asia, after marking notable activity the previous day. The Aussie pair refreshed its weekly top initially on Thursday amid cautious optimism in the market. However, fears of recession unearthed afterward and triggered the quote’s pullback. Even so, the quote is up for posting the first weekly gain in six.

Be it upbeat prints of Australia’s quarter National Australia Bank’s (NAB) Business Confidence or China’s debate on reducing quarantine time for international visitors, AUD/USD had some positives to renew the weekly top. However, the political jitters in the UK joined downbeat Aussie Employment Change for September to weigh on the quote.

Australia’s headline Employment Change rose 0.9K versus 25K expected and 33.5K prior while the Unemployment Rate and Participation Rate matched market forecasts of printing 3.5% and 66.6% figures respectively. On the other hand, National Australia Bank's (NAB) quarterly Business Confidence figures rose to 9 versus 5 expected and 7 prior and restrict the AUD/USD pair’s immediate downside.

Also, mixed US statistics and upbeat Treasury yields seem to keep the US dollar on the bull’s radar despite the latest pullback that teases the greenback gauge’s firmer weekly loss in three.

US Initial Jobless Claims eased to 214K for the week ended on October 07 versus 230K expected and a revised down 226K prior. Further, Philadelphia Fed Manufacturing Survey Index dropped to -8.7 for October versus the -5 market consensus and -9.9 previous reading. Additionally, US Existing Home Sales rose past 4.7M expected to 4.71M but eased below 4.78M prior.

Elsewhere, Wall Street closed in the red following initially upbeat performance while the US 10-year Treasury yields rose to the highest since 2008.

Despite the mixed data and recently cautious optimism, the fears of high inflation pushing policymakers towards more/heavier rate hikes challenge the AUD/USD buyers. That said, risk catalysts are likely to be important for clear directions amid a light calendar ahead of the US session.

Technical analysis

AUD/USD is up for challenging the six-week-old bearish channel, backed by a weekly support line and upbeat MACD signals. However, sustained trading beyond 0.6305 is necessary to convince the buyers.

• Gold price has resumed its downside journey after the pullback move faded.
• The precious metal failed to extend the rebound move as the risk-off impulse rebounded.
• The 10-year US yields have soared further to 4.23% as a bigger rate hike by the Fed looks certain.

Gold price (XAU/USD) has witnessed a steep fall after the termination of the pullback move at around $1,646.00. The precious metal has resumed its downside journey and is revisiting the two-year low at $1,614.85. Cat got gold prices tongue as the market impulse turned risk-averse again after S&P500 surrendered their gains in the New York session.

Meanwhile, returns on US government bonds have reached the rooftop as odds for a fourth consecutive 75 basis point (bps) rate hike by the Federal Reserve (Fed) has heated further. The 10-year benchmark US Treasury yields have soared to 4.23%.

Fed Beige Book, released this week, cited that inflationary pressures are here to stay led by rising input prices. This has strengthened the need of tightening monetary policy further. As per the CME FedWtch tool, the probability of a 75 bps rate hike announcement is stable above 95%.

Firmer yields fetched strength for the US dollar index (DXY) after it dropped below 112.20 when market sentiment was bewildered. The DXY has recaptured the critical hurdle of 113.00.

Gold technical analysis

On an hourly scale, the gold prices are declining towards the two-year placed at $1,614.85, recorded on 28 September 2022. The 100-period Exponential Moving Average (EMA) at $1,645.63 acted as a major barricade for the counter.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, and a shift into the bearish range of 20.00-40.00will trigger the downside momentum

Gold hourly chart

• EUR/USD bears pressing into key support territory.
• US dollar bulls are mindful of the risk of BoJ intervention ahead of the next Fed meeting. 

EUR/USD is up into the close on Wall Street by some 0.12% as the US dollar lags the soaring US yield environment and despite markets pricing in the Federal Reserve's terminal rate of around 5%. Risk sentiment has been fickle this week, playing into the hands of the euro bulls at times of risk-on. Earnings season and UK politics have been a drive in that regard, but the focus will now turn to the central banks again, which is the US dollar's playing field, casting a dark cloud over stocks and high beta currencies, such as the euro for the week ahead. 

In trade on Thursday, the US dollar found some relief on the comments from Federal Reserve Bank of Philadelphia President Patrick Harker who said the central bank is not done with raising its short-term rate target amid very high levels of inflation. His most hawkish of remarks sent yields to fresh cycle highs, the strongest in a decade. He said the Fed has made disappointing progress at lower inflation and added that inflation in 2023 would fall to around 4% and 2.5% in 2024, which is still well above the 2%. as such risk sold off, yield and the greenback rallied weighing on the euro in the latter part of the US morning trade. Bond yields rose, with the US 2-year note last seen paying 4.593%, up 0.75%, after reaching to the highest since 2008 at 4.614%. The US dollar weakened, with the DXY index last seen down 0.15 points to 112.85 having moved between a low of 112.16 and 113.09.

As for events on the week and today's session, a spate of mixed quarterly corporate results and economic indicators provided some evidence of an economic slowdown, but a dip in jobless claims showed the Fed's aggressive campaign of interest rate hikes has had little effect on the tight US labour market. Financial markets have now fully priced in yet another 75 basis point interest rate hike from the Federal Reserve when it meets next month, according to CME's FedWatch tool, and there is where the euro bulls' hard work could come undone as per the technical analysis below. 

EUR/USD technical analysis, H4, H1 & daily chart

The price is under pressure within a coil and is testing the outer rims of the triangle to the downside, pressured by rising US yields and the US dollar:

(US 2-year yields at a decade high).

The US dollar, as per the DXY index could be on the verge of another surge to catch up with soaring US yields, which does not bode well for the euro: 

The confluence of the bullish flag pattern and W-formation, with the correction, supported the neckline meeting a 50% mean reversion and trendline likely give fuel for the bulls.

Meanwhile, a bearish scenario on the hourly chart could be as follows: 

We have seen three pushes into the topside of the coil and a subsequent blow-off into longs with perhaps more of a long squeeze to play out before a correction. This will put the 0.9780/75 under pressure which guards the 0.9750 support block and 0.97 the figure below there. in doing so, the bears will be in control below the triangle with lower lows on their radar:

However, risks to the bearish thesis may lie in the hands of the Bank of Japan as the threat of intervention, by selling the US dollar and buying the yen, guarding the 150.00s area. This could have widespread ripple effects in the forex markets, potentially stripping the greenback of such a move as outlined above, at least for the while the market is impacted by intervention:

If the market decides to front run such a risk, considering no trader wants to be offside by 500 pips on actual intervention, as what happened on 22 September during the BoJ's bid for the yen (resulting in a 90 pip rally in the euro and a sharp drop in US yields), a 100 pip move to 149.00 could evolve in the near term, ahead of the Federal Reserve November 1/2.

• The dollar consolidates right below long-term highs at 1.0075.
• A pullback in risk appetite has favored the USD.
• Upside moves remain capped by a key resistance area of 1.0065/75.

The US dollar remains steady above parity levels on Thursday, at a short distance to the 1.0075 three-year high. The pair’s reversal from 1.0065 has been supported at 0.9995 and the pair appreciated again during the US session to reach the 1.0050 area.

The USD picks up as risk appetite fades

The greenback depreciated across the board earlier today as UK Prime minister Liz Truss’s resignation triggered a risk-on sentiment. Optimism, however, has been short-lived and the US dollar regained lost ground later on.

The upcoming Federal Reserve monetary policy meeting, which is expected to deliver a fourth consecutive 0.75% rate hike continues underpinning the US dollar.

Furthermore, US macroeconomic data has been moderately positive. Initial jobless claims increased below expectations on the week of October 14^th, while existing home sales declined less than expected.

USD/CHF limited below a key resistance area at 1.0065/75

The pair is moving now right below an important resistance area at 1.0065/75 (October 13, 14 highs). Confirmation above that level would set the pair at three-year highs, aiming for the 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 know

What you need to take care of on Friday, October 21:

The American Dollar started Thursday on the back foot but trimmed intraday losses and finished the day little changed against most major rivals. The greenback eased at the beginning of the day on the back of stable US Treasury yields and firmer equities. Wall Street rallied ahead of the opening following solid earning reports, but US indexes finished the day in the red as bond yields soared to their highest since 2008.

The yield on the 10-year US Treasury note picked at 4.23%, while the 2-year note yield hit 4.62%, as inflation and recession made it to the top of investors’ concerns.

It is worth noting that the Türkiye Central Bank slashed interest rates by 150 bps for the third consecutive month, with the main rate now at 10.5%, despite annual inflation surpassing 80%.

Another risk-off factor came from the United Kingdom. Prime Minister Liz Truss resigned after 44 days in office, after failing to order the financial system, but instead triggering more chaos. The 1922 Committee announced they would start the Conservative Party's leadership on Monday, October 24.

The EUR/USD pair trades around 0.9770, while GBP/USD settled at 1.1210, trimming early gains. The AUD/USD pair met sellers around a fresh weekly high of 0.6355 and finished the day unchanged, around 0.6260, while USD/CAD settled at 1.3780.

The USD/JPY pair hit a multi-decade high of 150.28, slowly grinding higher. Market players are cautious as BOJ’s intervention seems imminent.

Gold nears the weekly high, now trading at around $1,626 a troy ounce after trading as high as $1,645. Crude oil prices are stable, with WTI now at $84.80 a barrel.

Bitcoin price will fall to these levels if bulls continue evading support

• The US dollar bounces from 1.3685 and returns to 1.3775.
• The Canadian dollar loses ground as oil prices dip.
• USD/CAD to continue appreciating towards 1.40 – MUFG.

The US dollar has bounced up strongly after hitting session lows at 1.3685 earlier on Thursday. The pair firmed up as risk appetite triggered by UK PM Liz Truss’s resignation faded, turning positive on daily charts and reaching the 1.3775 area so far.

The Canadian dollar weakens as oil prices retreat

Crude oil prices, which had rallied earlier today, underpinning the commodity-linked loonie are losing ground on Thursday’s US afternoon trading. The WTI oil has retreated nearly 3% to prices below $85.00.

Furthermore, the market has shifted the focus to the upcoming Federal Reserve’s monetary policy meeting, after Truss’s resignation effect ebbed. The Fed is expected to hike rates by 0.75% for the fourth consecutive time in November, which is acting as a tailwind for the US dollar.

On the macroeconomic front, US data has been fairly positive on Thursday. Initial jobless claims increased below expectations on the week of October 14^th, while existing home sales declined less than expected.

USD/CAD expected to move towards 1.40 – MUFG

Currency analysts at MUFG see the risk skewed to the upside, with the pair aiming to 1.40: “The BoC is expected to bring an earlier end to their rate hike cycle than the Fed, reflecting in part expectations that Canada’s economy will prove more sensitive to rate hikes than the US economy given household debt is much more elevated in Canada (…) We expect USD/CAD to keep moving up closer to 1.4000.”

Technical levels to watch

• AUD/USD is registering minimal gains amidst a risk-on impulse.
• Fed officials to keep increasing rates, amidst mixed US economic data reported.
• Australia’s employment figures justified the RBA’s ¼ increase to the OCR.

The AUD/USD advances in the North American session, though below its daily high reached at the London fix, of 0.6356, amid the Fed’s hawkish commentary and a risk-on impulse, which kept the greenback pressured, as shown by the US Dollar Index (DXY). At the time of writing, the AUD/USD is trading at 0.6276, up 0.13%.

On Thursday. Fed officials continue to express worries about high inflation in the US. Given the scenario of CPI hitting 8% in September and the tightness of the labor market, Philadelphia’s Fed Patrick Harker and Fed board member Lisa Cook commented that the Fed would need to keep increasing rates. Harker commented that he is “disappointed of the lack of progress curtailing inflation,” while he added that he expects rates to be above 4% in 2023.

Aside from this, a tranche of US economic data gave mixed signals to market participants, given that the Fed has hiked 300 bps in the year. The US Department of Labor reported that last week’s claims for unemployment rose by just 214K, less than estimates, reflecting the labor market resilience. In the meantime, US Existing Home Sales slid for the eighth consecutive month, as higher mortgage rates, around 7% sparked by the Federal Reserve’s monetary stance, had cooled down the housing market.

Aside from this, Australia’s job data in September disappointed, as the economy added just 900 workers to the economy, well below the 25K estimated, and trailed the August jump of 36K. Australia’s jobs data miss justified the Reserve Bank of Australia’s (RBA) minuscule rate hike early in October as the bank slowed its tightening pace. In the same report, the Unemployment Rate stood steady at 3.5%.

Given that backdrop, the Federal Reserve tightening cycle will leave the greenback on the front foot against the Australian dollar. Money market futures expect the Federal funds rate (FFR) to peak around 5%, while the RBA Overnight Cash Rate (OCR) will hit 4%. Therefore, the interest rate differential, and the safe-haven status of the US Dollar, will keep the AUD/USD downward pressured.

AUD/USD Price Forecast

The AUD/USD downtrend remains intact, despite jumping off the daily lows. Worth noting that the AUD/USD registered fresh weekly highs around 0.6356, but Fed hawkish commentary, and elevated US bond yields, were headwinds for the AUD/USD. However, with the Relative Strength Index (RSI) reaching higher lows, contrarily to AUD/USD’s price action, a positive divergence surfaced, the spark for the earlier gains. Unless buyers keep the major from registering a negative day, a re-test of the 0.6300 figure is on the cards.

• Gold bears could come under pressure into the closing sessions of the week.
• The US dollar has lagged behind the rise in yields but is making a comeback from a confluence of key daily support.

The gold price has moved back to a flat position on the day to print around $1,629.25 at the time of writing having travelled between a low of $1,622.54 and $1,628.93 thus far, reversing two losing sessions as the US dollar eased.  

There has been a disparity in the price of the US dollar and US yields which may come back to bite the gold bugs before the week is out, however. Federal Reserve Bank of Philadelphia President Patrick Harker said Thursday the central bank is not done with raising its short-term rate target amid very high levels of inflation. His most hawkish of comments sent yields to fresh cycle highs, the strongest in a decade. He said the Fed has made disappointing progress at lower inflation and added that inflation in 2023 would fall to around 4% and 2.5% in 2024, which is still well above the 2%. as such risk sold off, yield and the greenback rallied weighing on the price of gold. 

Bond yields rose, with the US 2-year note last seen paying 4.593%,0.75%after reaching to the highest since 2008 at 4.614%:

Meanwhile, the US dollar weakened, with the DXY index last seen down 0.15 points to 112.85 having moved between a low of 112.16 and 113.09.

The index, however, remains in a bullish trend, near term and long term. The confluence of the bullish flag pattern and W-formation, with the correction, supported the neckline meeting a 50% mean reversion and trendline likely give fuel for the bulls to play catch up with US yields, weighing on gold's outlook for the remaining session of the week.

It's been a particularly troubling time in markets this week, with UK politics a major driver of volatility, feeding into the doom loop for gold prices at times of risk-off. However, the bearish themes could well intensify for the yellow metal as jumbo rate hikes are around the corner. As analysts at ANZ Bank explained, ''with the Truss soap opera over, global investors can now refocus on upcoming central bank meetings.'' The war on inflation will be firmly on the minds of investors as we head into these meetings, and in this context, gold will likely continue to struggle given inflation's increasing persistence.

''For the time being, we have found that US wage growth trends are validating near-term household inflation expectations, but appear to have settled at levels that would sustain a CPI inflation rate of 5-6% going forward, far removed from the 2.5% rate consistent with the Fed's inflation target,'' analysts at TD Securities said.

''In turn, don't count on investors to grow their appetite in the yellow metal. Physical demand for bullion has remained elevated, but seasonal considerations suggest that this tailwind could soon fade following India's festive season.''

Gold technical analysis

At the start of the week, within the pre-open market analysis on gold, Chart of the Week, Gold Price: Halloween comes early, XAU/USD back below critical bearish structure $,1670, the downside was marked as the path of least resistance as follows:

Gold, pre-open analysis October 16

Gold update, daily chart

As illustrated, that path continues to play out with the $1,614 lows potentially just a session or two, or three, away. Beyond there, we have the 2020 $1,570s clocked as the midpoint of the March 2020 range:

• The pound rally fails at 1.1330 and the pair returns to 1.1220.
• Investors scale back BoE hike hopes after Truss's demise.
• GBP/USD likely to reach 1.10 – ING.

The pound has given away most of the ground taken after the announcement of Prime Minister Truss's resignation and remains practically unchanged on the daily chart.  

The pair rallied to session highs at 1.1330 with the market celebrating the departure of Truss’s controversial government, to lose steam shortly afterward and return to the lower ranges of 1.1200.

The market scales back BoE hike hopes

The U-turn on the tax cuts plan and finally the Prime Minister’s demise has prompted investors to scale down hopes of an aggressive BoE rate hike in November. MPC member Broadbent affirmed earlier on Thursday that the bank will respond to Britain’s tax and spending policies, in a hint that interest rates might not rise as much as expected.

Truss came to power with an economics program that roiled financial markets in September, triggering a sharp sell-off on the British pound that forced the Bank of England to step in with a bond-buying program.

The tax-cuts fiasco divided the Tory party and caused the resignation of two of her ministers in less than six weeks, hurting the country’s credibility

GBP/USD could dive to 1.10 – ING

FX analysts at ING see the current downtrend likely to extend towards 1.1000: “Political infighting and the uncertainty of policy continue to demand a risk premium for sterling, where GBP/USD could easily slip back to the bottom end of its wide 1.10-1.15 range.”

Technical levels to watch

• Silver price capitalizes on US Dollar weakness, despite US bond yields hurdling the 4% threshold.
• Fed officials continued reiterating that inflation is too high, that rates need to be restrictive, and may peak close to 5% in 2023.
• Silver Price Forecast (XAG/USD): An ongoing upside correction is on the cards and may test the 50-day EMA around $19.15.

Silver price bounces off weekly lows around $18.20s and climbs to the $18.70 area amidst elevated US Treasury yields. The US Dollar could not capitalize on the hawkish rhetoric of Philadelphia’s Fed Patrick Harker, while US economic data was mixed.

Silver climbs despite Fed’s hawkish commentary and mixed US data

Philadelphia Fed President Patrick Harker said that the Fed would continue to hike rates “for a while” and expected the Federal funds rate (FFR) to be “well above 4%” by the end of the year. Of late, the Federal Reserve Governor Lisa Cook said that to curb high inflation, it would require to continue to tighten monetary conditions and then keep them “for some time.”

Given that the Federal Reserve’s measures had already impacted segments of the economy, some are lagging, like the labor market. The US Department of Labor reported that unemployment claims for the last week rose by just 214K less than the 228K foreseen by analysts. At the same time, the Philadelphia Fed reported business conditions for the area contracted by 8.7, more than estimates but less than September’s 9.9 fall.

Later, the US housing market prolonged its deterioration as September’s Existing Home Sales shrank by 1.5%, to 4.71 million houses, vs. estimates of a 2.14% contraction.

In the meantime, the US Dollar Index, a gauge of the buck’s value against a basket of peers, is trimming some earlier losses, down by just 0.05% at 112.849, a headwind for XAG/USD. US bond yields continue to rise, with the 10-year rate extending its gains by eight bps, hitting 4.215%, its highest level since 1990.

Silver Price Forecast

XAG/USD is downward biased, despite the ongoing bounce from weekly lows, around $18.20s. Even though the Relative Strength Index (RSI) is about to cross over its 7-day RSI Simple Moving Average (SMA), which would be a bullish signal, it would mean an upside correction to the ongoing trend. Therefore, XAG/USD might test the 50-day Exponential Moving Average (EMA) around $19.15 before resuming its downtrend.

• The euro bounces up at 0.8675 lows and returns above 0.8700.
• The pound loses steam after having rallied following Truss's resignation.
• EUR/GBP remains neutral while below 0.8750. 

The euro is paring losses with the British pound retreating from session highs as the dust from UK PM Liz Truss's resignation settles. The pair found support at 0.8675 to reach 0.8715 at the moment of writing.

Prime Minister Truss’ withdrawal boosts the pound

The market welcomed the announcement of Prime Minister Liz Truss’s resignation earlier today, which sent the pound surging against its main peers and pushed world stocks to session highs.

Sterling’s rally, however, has been short-lived. The ongoing political uncertainty in the UK, with a Tory leadership election scheduled for next week, is keeping GBP bulls in check.

Furthermore, the market has scaled down hopes of an aggressive BoE rate hike at November’s MPC meeting. BoE member Broadbent affirmed on Thursday that the bank will respond to Britain’s tax and spending policies, but has not given any further information about the next monetary policy decision.

EUR/GBP: In a consolidative mood while below 0.8750

From a longer-term perspective, the pair remains trading sideways within recent ranges. On the upside, the pair should extend beyond 0.8750, where the 100 and 200-period SMA on the four-hour chart meet, before aiming for the October 12 high at 0.8865.

On the downside, immediate support lies at 0.8675 (October 19 low). Below here, the next potential targets could be at 0.8565 (September 6 low) and 0.8390/00 (August 8, 17, and 24 lows).

Technical levels to watch

Federal Reserve Governor Lisa Cook crossed the wries in recent trade and was reported to have that inflation remains unacceptably high and interest rates will need to keep rising to get it under control.

“Inflation is too high, it must come down and we will keep at it until the job is done,” she said Thursday during opening remarks at a panel discussion with business and community leaders in Spartanburg, South Carolina. “This likely will require ongoing rate hikes and then keeping policy restrictive for some time.” She noted ongoing rate increases will be required. 

US dollar update

Meanwhile, the US dollar index weakened below the 113 mark on Thursday to a low of 112.16 before recently picking up to a recent high of 112.80.

Meanwhile, earlier this session, the dollar traded at its highest level against the Japanese yen in more than 30 years, crossing the 150.00 psychological level. 

The 1922 committee announced that the first ballot of MPs in the Conservative Party's leadership election will be held on Monday 24th, between 3:30 PM and 5:30 PM UK time.

Candidates competing to become Britain's next prime minister will need the backing of 100 Conservative Party lawmakers to get on the ballot on Monday, organisers said.

If two candidates emerge, they will go to an online vote of members of the wider Conservative Party, with the winner declared by next Friday.

Candidates competing to become Britain's next prime minister will need the backing of 100 Conservative Party lawmakers to get on the ballot on Monday, organisers said.

If two candidates emerge, they will go to an online vote of members of the wider Conservative Party.

GBP/USD update

The British pound fell to a low of 1.1171 on  Thursday, after Liz Truss announced she was resigning as British Prime Minister while investors rushed for safety amid concerns over fiscal uncertainty in Britain and prospects of aggressive US Federal Reserve interest rate hikes.

At the time of writing, GBP/USD is trading at 1.1227 and is 0.1% higher amid market volatility.

On the macro front, Britain's annual rate of consumer price inflation inched up to 10.1% last month, returning to a 40-year high and beating market forecasts, while the core rate hit an all-time high of 6.5%. The Bank of England is seen stepping up its interest rate hiking campaign next month to combat inflation, despite ongoing recession risks.

• The New Zealand dollar fails at 0.5740 and reruns to 0.5700.
• The kiwi trims losses as risk appetite fades.
• NZD/USD: Upside attempts to be capped below 0.5755 – UOB.

The New Zealand dollar is struggling to find acceptance above 0.5700 as the pair’s rebound from 0.5620 was capped at 0.5740 on Thursday’s US trading session. The pair remains positive on the daily chart although bullish momentum seems to have faded.

The kiwi appreciated on risk appetite

The negative price action observed during Thursday’s Asian session gave way to a solid recovery as the market sentiment improved during the European session. The positive reaction to the news of UK Prime Minister Liz Truss's resignation has weighed on the safe-haven USD, pushing the pair to levels past 0.5700.

Risk trade, however, has weakened through the US session as the enthusiasm about Truss's departure fades and the market acknowledges the ongoing political uncertainty in the UK. Equity markets have retreated from session highs and the USD regains lost ground, sending the sentiment-linked kiwi back to previous ranges.

NZD/USD seen limited below 0.5750 – UOB

Analysts at UOB are skeptical about a relevant NZD recovery in the near-term: “We highlighted yesterday that NZD ‘could rise above 0.5725 but a sustained advance above this level still appears unlikely (…) Our update from two days ago (18 Oct, spot at 0.5675) still stands. As highlighted, NZD appears to have moved into a consolidation phase and is likely to trade between 0.5570 and 0.5755 for the time being.”

Technical levels to watch

• USD/JPY edges up during the New York session, following a test of the 150.00 figure, as BoJ intervention lurks.
• Japanese authorities, namely the Bank of Japan and the Finance Ministry, continued to express worries about the yen’s weakness.
• Mixed US economic data would not deter the Federal Reserve from hiking in the last two meetings of 2022.

The USD/JPY marched firmly after hitting the 150.00 mark for the first time in 32 years but retraced below the figure, at around 149.90s, at the time of writing, as market players weighed on a possible “stealth” intervention by Japanese authorities, even though the Bank of Japan’s loose monetary policy, and the Fed’s aggression, justifies higher exchange rates in the major, meaning a weaker Japanese yen, and a strong American Dolar.

Traders are testing Japanese authorities

During the Asian session, Japanese authorities ramped up their verbal intervention in the markets as the USD/JPY surpassed the 150.00 figure. Additionally, the 10-year JGB’s yield shot through the upper band imposed by the BoJ, above 0.25%, propelling the central bank to buy $667 million in government debt to put a lid on the 10-year JGB yield rise.

US economic indicators flashed mixed signals on Fed’s aggressive policy

Aside from this, the US Department of Labor revealed that claims for unemployment for the week ending on October 15 rose by 214K less than the 228K estimated by the street’s economists, flashing the labor market tightness. At the same time, the Philadelphia Fed reported its Business Conditions Index for October, which came at -8.7, below the -5.0 forecasts, but better than September’s -9.9 number.

In the meantime, the US housing market prolonged its deterioration as September’s Existing Home Sales shrank by 1.5%, to 4.71 million houses, vs. estimates of a 2.14% contraction.

Given the backdrop, Fed’s aggressive monetary policy continues to deliver mixed shocks. Even though is already known that housing and construction are the first segments of the economy to feel the shocks, the labor market lags sharply. Meanwhile, a slew of Fed speakers led by St. Louis Fed President James Bullard, Minnesota’s Neil Kashkari, and Chicago Fed Charles Evans, reiterated the Fed needs to continue front-loading through the remainder of 2022 and could shift towards gradual increases in 2023.

Therefore, due to central bank divergence between the BoJ and the Federal Reserve, further upside pressure in the USD/JPY is expected. However, FX verbal interventions would likely keep the pair advancing steadily without spectacular waves above 150.00, as the next key resistance lies around 151.65.

USD/JPY Price Forecast

The USD/JPY daily chart confirms the pair as upward biased, though Japanese verbal intervention might refrain traders from opening fresh bets against the Japanese yen (JPY) fall. Nevertheless, if the USD/JPY continues to advance steadily, the next key resistance areas lie at July’s 1990 swing high at 151.65, followed by the June 1990 pivot high at 155.80.

Philadelphia Fed President Patrick Harker said on Thursday they are not done with raising its short-term interest rate target amid very high levels of inflation, as reported by Reuters. He added the Fed will find space “next year to pause the tightening process”. According to him, the interest rate will be above 4% by the end of 2022.

Additional takeaways

Market reaction

After a decline following the beginning of the American session, the US Dollar trimmed losses. The DXY bottomed at 112.16 and as of writing, trades at 112.62, down by 0.25% for the day.

• The euro appreciates again on Thursday to test seven-year highs at 147.25.
• Yen weakness has boosted speculation of BoJ intervention.
• Monetary policy divergence is crushing yen demand.

The euro is crawling higher again on Thursday after the previous day’s reversal, and the pair has regained lost ground to retest the resistance area at 147.25 on the US morning session.

The yen remains weak with all eyes on the BoJ

The battered Japanese currency maintains its negative tone across the board. The USD/JPY crossed the psychological 150.00 mark earlier on Thursday, reaching its highest level in 32 years and boosting speculation of a potential intervention by the Bank of Japan to curb JPY weakness.

The Japanese authorities reiterated their commitment to defend the yen's stability on Thursday. Masato Kanda, a top currency diplomat assured that the Japanese Government is ready to take action “as excessive volatility becomes increasingly unacceptable.”

In the long run, however, the yen remains under pressure on the back of the monetary policy divergence between the BoJ and the rest of the major world central banks, especially the US Federal Reserve.

The Fed is widely expected to increase rates by 0.75% for the fourth consecutive time in November and, according to a recent poll by Reuters, the ECB might also approve a 75-basis-points hike next week. In this scenario, the Japanese central bank's ultra-expansive policy is crushing demand for the Japanese currency.

Technical levels to watch

UK PM Liz Truss resigned on Thursday, becoming the shortest-serving prime minister in history. Attention is now set on the Tory leadership race.

The election at the Conservative Party is likely to take place Friday, Saturday and Sunday, according to The Telegraph. In the event of having an outright winner, the new PM could be known by Monday. Graham Brady, the leader of the 1922 Committee, expects a new prime minister to be announced by October 28. More details about the race will be presented during the day.

Potential candidates for Tory leadership include former PM Boris Johnson, Rishi Sunak, Penny Mordaunt, Sajid Javid, Kemi Badenoch, Ben Wallace, Kit Malthouse, and Grant Shapps. On the contrary, James Cleverly ruled out making a bid.

• WTI prices appreciate for the second consecutive day to reach an $87.10 high.
• Sanctions on Russian oil and lower reserves are buoying petrol prices.
• China is considering relaxing COVID-19 lockdowns.

WTI futures are trading higher for the second consecutive day on Thursday, to shrug off the last two weeks’ negative trend. The US benchmark oil has extended its recovery from Tuesday’s lows at $82.15 to session highs at $87.10 before retreating to the $86.00 area.

Sanctions on Russia and lower supplies boost oil prices

A European ban on Russian crude oil that will come into effect in December, amid a new set of sanctions for the Ukrainian war, is pushing prices higher as the eurozone leaders struggle to find alternative providers ahead of the winter.

US official data has revealed that the country’s Strategic Petroleum reserves fell last week to their lowest level since 1984. These figures have offset the announcement of US President Joe Biden’s plan to sell 15 million barrels from the strategic reserves to tame crude prices.

Beyond that, the EIA reported a 1.725M decline in crude oil inventories in the week of October 14, against market expectations of a 1.38M increase, which has contributed to push prices higher.

Besides, news that China, the world’s larger importer, is considering shortening the COVID-19 quarantine for visitors has eased market concerns about a decline in demand thus adding bullish pressure on prices.  

Technical levels to watch

• Liz Truss resigns as Prime Minister after 45 days.
• Pound up across the board, among top performers of the American session.
• GBP/USD up more than a hundred pips on Thursday.

The GBP/USD printed a fresh daily high during the American session at 1.1335, boosted by a rebound of the pound following PM Liz Truss's resignation and a weaker US dollar.

Truss and USD down, risk appetite and GBP up

The greenback is falling across the board as Wall Street posts gains with main indexes up around 1%. The DXY is under 112.30, down by 0.55% even as US yields move rise.

The pound strengthened following the resignation of Liz Truss as Prime Minister after only 45 days. The new PM will emerge from a new leadership election at the Conservative Party next week.

Market participants reduced their bets on Bank of England interest rate hikes. They now see a less aggressive BoE. Now attention will turn to the potential successors that could include Rishi Sunak and Boris Johnson.

The GBP/USD ran to 1.1305 initially, following the announcement and more recently printed a fresh daily high at 1.1336, amid a decline of the dollar. It is hovering around 1.1300. EUR/GBP is modestly lower for the day, trading under 0.8700 while GBP/JPY is up approaching 170.00.

Technical levels

• US Initial Jobless Claims flashed the tight labor market, while Existing Home Sales continued to fall, feeling the shocks of the Fed’s policy.
• Higher-than-expected inflation in Canada keeps investors reassessing another large-size rate hike by the Bank of Canada.
• USD/CAD tumbled below 1.3700 after hitting a daily high of 1.3806.

The USD/CAD plunged from around 1.3800 as the US Dollar losses against most G8 currencies, despite high US Treasury yields and expectations of the Fed hiking rates by a larger size at November’s meeting. Also, a risk-on mood spurred by China’s cutting quarantine for arrivals was cheered by investors as US equities are trading with gains. At the time of writing, the USD/CAD is trading at 1.3695.

The US Dollar weakened as claims for unemployment dropped

In the Asian session, wires reported that China could ease quarantines for arrivals from 10 to 7 days. That said, risk-perceived assets edged higher on the headline, as shown by global equities advancing. Aside from this, US economic data revealed before Wall Street opened reported that US Initial Jobless Claims for the last week dropped unexpectedly to 214K, less than the 231.5K estimated. Given the Federal Reserve hikes more than 300 bps to the Federal funds rate to the 3.25% area, the labor market is still showing resilience, as shown by the report. It should be noted that September’s Unemployment Rate ticked lower, meaning the Fed job is not done.

Of late, US Existing Home Sales fell 1.5%, less than the 2.4% contraction estimated, though it has been the eighth month in a row, as elevated mortgage rates and higher prices keep prospective buyers at bay.

Canada’s inflation topped estimates; TD Securities foresees a 75 bps hike by the BoC

On the Canadian front, Wednesday’s September inflation report surprised the upside, jumping 6.9% YoY, above estimates of 6.7%, so market participants ratchet up expectations for the Bank of Canada’s additional rate hikes, with a 75 bps lift for the next meeting fully priced in. Following the report, the USD/CAD trimmed some of its gains. However, throughout Thursday’s session, positioning ahead of the BoC’s meeting in the next week underpinned the Loonie, with the USD/CAD tumbling more to the 20-DMA.

Analysts at TD Securities changed their view and expected the BoC to lift rates by 75 bps. They noted, “The Bank has grown increasingly concerned with the inflation backdrop and potential for long-term inflation expectations to become unanchored, and this data does not provide any evidence that inflation has turned. This should tip the scales to a 75bp move next week.”

USD/CAD Key Technical Levels

In the view of economists at Société Générale, the GBP/USD pair could suffer a substantil drop on a break under the 1.0920 mark.

Break of the resistance zone at 1.1495/1.1550 essential for extension in bounce

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

“In case recent pivot low at 1.0920 gets violated, there could be a risk of next leg of downtrend towards 1.0550/1.0520 and September levels of 1.0350.”

S&P 500 has staged a sharp rebound. The index could extend its move higher on a break above the 3810/40 area, economists at Société Générale report.

Defense of 3585 essential to avert deeper fall

“Holding above the 3585 mark, a short-term bounce can’t be ruled out.”

“It would be interesting to see if the index can form a base and reclaim the recent high near 3810/3840. If this break materializes, an extended up-move could take shape towards 4000 and September high of 4120.”

• Existing Home Sales in the US declined slightly less than expected in September
• US Dollar under pressure amid risk appetite.

Existing Home Sales in the US declined for the eighth straight month in September, after posting a 1.5% slide to a seasonally adjusted annual rate of 4.71 million, above the 4.70 million of market consensus. Sales were down 23.8% on a yearly basis, the National Association of Realtors (NAR) reported on Thursday.

“The median existing-home sales price increased to $384,800, up 8.4% from one year ago,” noted NAR in its publication. “The median existing-home sales price increased to $384,800, up 8.4% from one year ago.

Market reaction

The US dollar is falling on Thursday, amid risk appetite. The DXY drops by 0.53% an trades near daily lows at 112.30.  

EUR/USD downtrend has undergone a pause recently. Looking ahead, economists at Société Générale expect the world’s most popular currency pair to resume its decline toward 0.9535.

Break below 0.9535 to open up next projections at 0.9200/0.9150

“The high formed earlier in October at 1.0000 is near-term resistance. Failure to cross this would mean persistence in the downtrend.”

“The pair is expected to head lower towards the recent low of 0.9535. A break below can extend the decline towards 0.9380 and next projections at 0.9200/0.9150.”

• AUD/USD stages a solid intraday bounce amid the emergence of fresh selling around the USD.
• A stable risk tone weighs on the safe-haven greenback and benefits the risk-sensitive aussie.
• Elevated US bond yields, recession fears should limit losses for the USD and cap the major.

The AUD/USD pair rallies over 100 pips from a three-day low touched earlier this Thursday and hits a fresh daily high, around the 0.6330 area, during the early North American session. The pair, however, retreats a few pips and is currently placed near the 0.6300 round-figure mark, still up around 0.50% for the day.

As investors look past the mixed Australian employment details, the emergence of fresh US dollar selling turns out to be a key factor offering support to the AUD/USD pair. A modest recovery in the risk sentiment - as depicted by a mildly positive tone around the equity markets - undermines the safe-haven buck and benefits the risk-sensitive aussie.

The intraday USD selling remains unabated following the release of the weaker Philly Fed Manufacturing Index, which remains in the contraction territory for the second successive month in October. This, to a larger extent, overshadows an unexpected fall in the US Initial Jobless Claims and does little to impress the USD bulls or provide any impetus.

That said, growing worries about a deeper global economic downturn should keep a lid on any optimistic move. Apart from this, elevated US Treasury bond yields, bolstered by firming expectations for a more aggressive policy tightening by the Fed, should act as a tailwind for the greenback. This, in turn, warrants some caution for the AUD/USD bulls.

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, it will be prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out and positioning for further gains.

Technical levels to watch

• EUR/USD reclaims part of the ground lost on Wednesday’s decline.
• The 8-month resistance line caps the upside near 0.9960.

EUR/USD regains some composure and trades close to the 0.9800 neighbourhood on Thursday.

In case of the continuation of the rebound, the pair faces an interim hurdle at the 55-day SMA, today 0.9941, ahead of the more relevant 8-month resistance line around 0.9960. The surpass of the latter is needed to mitigate the downside pressure and spark a more lasting/serious recovery to, initially, the October peak at 0.9999 (October 4).

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0544.

EUR/USD daily chart

Gold has flirted with three-week lows near $1,620 earlier in the day. Hawkish Federal Reserve expectations after US inflation data came in hotter-than-expected last month are set to continue weighing on the yellow metal, strategists at TD Securities report.

Gold positions continue to unwind

“Gold positions continue to unwind, with ETF holdings reduced by over 400K ounces in the last session, the largest one day decline since March of last year.” 

“Hawkish Fedspeak continues to push forward the narrative that we are set for a persistently hawkish central bank regime. In this context, gold prices are unlikely to rise with a deteriorating growth outlook until the Fed makes progress in the war on inflation.”

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

The US Dollar Index (DXY) uptrend has paused. Nevertheless, only a break under the 110/109.30 region could open up further losses, economists at Société Générale report.

50-DMA at 110/109.30 is short-term support

“Steep ascending trend line and 50-DMA near 110.00/109.30 is first layer of support near-term.”

“The uptrend could resume once a break above recent lower high at 113.90 materializes. Beyond 113.90, next potential hurdles are located at 117 and 2001 high of 121/122.”

“It is worth noting that monthly RSI is at its best levels since 2015 denoting an overstretched move. This doesn’t signal a reversal, however, a consolidation is not ruled out. Only if 50-DMA near 110/109.30 gets violated would there be a risk of a deeper downtrend.”

• GBP/USD catches fresh bids on Thursday and is supported by a combination of factors.
• The UK PM Liz Truss’ resignation ends the political crisis and boost the British pound.
• Signs of stability in the financial markets weigh on the USD and remain supportive.
• Hawkish Fed expectations act as a tailwind for the USD losses and cap the upside.

The GBP/USD pair gains strong intraday positive traction and rallies over 130 pips from the weekly low touched earlier this Thursday, though struggles to find acceptance above the 1.1300 mark. The pair quickly retreats to the 1.1255-1.1250 region, still up nearly 0.50% for the day.

The British pound strengthens after Liz Truss resigned as Prime Minister of the UK, marking an end of a chaotic chapter that led to the recent chaos in the financial markets. There will be a new leadership contest within a week and Truss will stay as Prime Minister until that is complete. Apart from the UK political developments, a weaker US dollar is seen as another factor offering support to the GBP/USD pair.

Signs of stability in the equity markets fail to assist the safe-haven greenback to capitalize on the previous day's strong move up. The USD bulls remain on the defensive following the disappointing release of the Philly Fed Manufacturing Index, which remains in contraction territory for the second straight month and came in at -8.7 for October. This overshadows an unexpected fall in the US weekly Jobless Claims.

That said, elevated US Treasury bond yields, bolstered by hawkish Fed expectations, act as a tailwind for the greenback. Apart from this, looming recession risks hold back traders from placing aggressive bullish bets around the GBP/USD pair. Nevertheless, spot prices, for now, seem to have snapped a two-day losing streak, though remain below a downward sloping trend-line extending September monthly swing high.

Technical levels to watch

• DXY comes under pressure and revisits the 112.30 zone.
• The resumption of the upside still targets 114.00 and above.

DXY partially fades Wednesday’s strong advance after the index failed to extend the bounce further north of the low-113.00s on Thursday.

The index, in the meantime, 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 108.20.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.61.

DXY daily chart

GBP/USD remains vulnerable around 1.12. Economists at Crédit Agricole keep the bearish bias intact around the British pound. 

Bank of England to disappoint market rate hike expectations

“We think that for the GBP to extend its recent gains, we need to see a further retreat of UK sovereign credit risks.”

“We further continue to see the risks to the downside for the currency in the coming weeks. This is because the announced and future fiscal austerity measures will increase the UK recession risks but dampen some of the inflation pressures given the government’s support for household energy bills.” 

“We think that the BoE will disappoint market rate hike expectations in the coming months. In addition, the UK external imbalances are expected to deteriorate further and add to the pressure on the GBP.”

The recently-elected UK Prime Minister Liz Truss makes a statement this Thursday and says that she will resign.

Truss will remain in place until a new leader is chosen and the leadership election will be completed in the next week.

Given that the markets have been anticipating the UK PM's resignation, the announcement does little to influence the British pound or provide any meaningful impetus to the GBP/USD pair, which has now eased a bit from the daily high touched in the last hour.

• Initial Jobless Claims in the US fell by12K in the week ending October 14.
• US Dollar Index remains depressed near the daily low after the release.

There were 214,000 initial jobless claims in the week ending October 14, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print follows the previous week's downward revised reading of 226,000 and beats market expectations for a rise to 230,000.

Further details of the publication revealed that the 4-week moving average was 212,250, an increase of 1,250 from the previous week's downwardly revised reading of 211,000.

Market reaction

The US dollar bulls seem rather unimpressed by the data amid a modest recovery in the risk sentiment. This, along with a goodish pickup in demand for the British pound, keeps the USD depressed near the daily low.

• EUR/JPY resumes the upside and challenges the 2022 high.
• The continuation of the uptrend could extend to the 149.80 region.

EUR/JPY leaves behind Wednesday’s negative price action and retakes the area beyond 147.00 the figure, closer to the 2022 peak.

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 high 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 136.76, the constructive outlook for the cross should remain unchanged.

EUR/USD daily chart

• Philadelphia Fed Manufacturing Index remains in negative territory for the second straight month.
• The USD maintains its offered tone and flirts with the daily low following the latest US macro data.

The Federal Reserve Bank of Philadelphia's Manufacturing Business Outlook Survey's diffusion index for current general activity remains in contraction territory for the second successive month in October. The gauge came in at -8.7 for the reported month as compared to -9.9 in September, missing estimates pointing to a reading of -5.

Market reaction

The US Dollar Index maintains its offered tone and is currently flirting with the daily low. A modest recovery in the global risk sentiment - as depicted by a positive tone around the equity markets - continues to undermine the safe-haven greenback.

According to the latest headlines floating on the wires, the UK conservative lawmaker Jill Mortimer was quoted saying that they have submitted a letter of no confidence in Prime Minister Liz Truss.

This comes amid reports that the 1922 Committee is co-ordinating optics to help soften the blow for the Prime Minister.

Next on tap is a statement by the UK PM Truss at 1330 GMT.

Market Reaction:

The British pound strengthens a bit in reaction to the news, lifting the GBP/USD to a fresh daily high, around the 1.1275-1.1280 region in the last hour.

Gold prices have come down considerably from their year-to-date highs. Strategists at HSBC expect the yellow metal to be mostly on the defensive to early 2023, before gaining ground later next year.

A pause in US rate rises in 2023 may allow gold to have a modest bounce

“The Fed is likely to continue to deliver rate hikes before taking a pause after the February 2023 meeting. If US rates keep rising until next February 2023, gold may be subject to further downward pressure. A subsequent pause in rate hikes may allow gold to rally, but a lack of rate cuts would likely limit potential gains.”

“While the financial climate has turned decisively against gold, elevated geopolitical risks, higher oil prices and general firm underlying physical demand for gold may be cushioning gold’s declines.”

“A firmer USD will help keep gold on the defensive into 2023, but limits to USD strength may offer gold an opportunity to increase later in 2023.”

Bank Indonesia (BI) hiked rates by 50 bps as expected. Nonetheless, economists at TD Securities expect the USD/IDR to advance nicely toward the 15,832 resistance.

Another 50 bps hike cannot be discounted if IDR weakens aggressively

“BI hiked by another 50 bps, bringing the 7-day reverse repo rate to 4.75%. BI Governor Warjiyo noted that the hike was a ‘front-loaded, pre-emptive and forward-looking step to lower inflation expectations that are too high or overshooting’. However, we think the policy path ahead leans more on the pace of IDR depreciation given BI's historical focus on FX. Further, Warjiyo commented that the Bank wants to control the IDR to prevent imported inflation.”

“We see a gradual move for USD/IDR higher towards its next technical resistance level at 15,832 (76.4% Fib level over 5 yr-window).” 

“BI likely won't tolerate any sharp one-sided moves in IDR and another 50 bps hike cannot be discounted if IDR weakens aggressively against the USD and compared to its regional peers.”

• USD/TRY stays pretty much unchanged around 18.59.
• The CBRT cut rates by 150 bps, more than expected.
• Single digit interest rate could be a couple of meetings away.

USD/TRY remains directionless just below the 18.60 region for yet another session on Thursday.

USD/TRY apathetic post-CBRT

USD/TRY keeps exchanging gains with losses, always within the broader range bound theme and below the 18.60 region for the time being.

Thursday’s price action appears as no exception despite the Turkish central bank (CBRT) reduced the One-Week Repo Rate by 150 bps at its event, more than the full-point raise estimated by the broad consensus.

Indeed, the CBRT walked (President Erdogan’s) talk and kept the easing cycle well and sound in October, leaving at the same time the door open to a similar move at the next meeting, which could be the end of the ongoing cycle, as per the bank’s statement.

No big news from the statement, as it emphasizes the stronger job creation in Türkiye vs. peer economies, while weakening foreign demand could ring some alarms in the near term. The stronger than expected performance of tourism revenue continued to collaborate with the improvement of the current account.

What to look for around TRY

USD/TRY keeps navigating the area of all-time highs near 18.60, paying little to nil attention to the latest CBRT interest rate decision.

So far, price action around the Turkish lira is expected to keep gyrating around the performance of energy and commodity prices - which are directly correlated to developments from the war in Ukraine - the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating (despite rising less than forecast in the last three months), real interest rates remain entrenched well in negative territory and the omnipresent political pressure to keep the CBRT biased towards a low-interest-rates policy.

In addition, the lira is poised to keep suffering against the backdrop of Ankara’s plans to prioritize growth via transforming the current account deficit into surplus, always following a lower-interest-rate recipe.

Key events in Türkiye this week: CBRT Interest Rate Decision (Thursday) – Consumer Confidence (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress of the government’s scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.07% at 18.5950 and faces the next hurdle at 18.5980 (all-time high October 11) followed by 19.00 (round level). On the downside, a break below 18.2560 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low).

UK PM Liz Truss's spokesman said in a statement on Thursday, “PM Truss will lead the Conservative Party into the next election.”

Additional takeaways

Related reads

• GBP/USD remains vulnerable around 1.1200 amid UK political crisis
• Downing Street confirms UK PM Truss is meeting 1922 Committee Chair Brady

The Central Bank of the Republic of Türkiye (CBRT) cut its benchmark interest rate, the one-week repo rate, by 1.50% from 12.0% to 10.50% on Thursday.

Markets had expected the central bank to slash rates by 1% to 11.0% this month.

Key takeaways from policy statement

Market reaction

USD/TRY came under heavy selling pressure, despite a bigger-than-expected rate cut by the CBRT. The spot was last seen trading at 18.59, modestly flat on the day.

GBP/USD is on the back foot around 1.1200 as the UK political drama deepens. The British pound remains vulnerable as market pricing for rate hikes looks excessive, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

UK political soap opera continues

“The UK political soap opera continues, but Jeremy Hunt’s appointment as Chancellor has separated the politics from economic policy.”

“Ignoring the noise in Westminster, we are left with a dramatic U-turn in fiscal policy, which is now tight enough to harden the economic landing and make the 5.2% that is priced-in for UK rates in 12 months’ time look excessive, outright and relative to the 4.9% priced in for the Fed, or the 3.1% priced for the ECB. This leaves sterling vulnerable, even from here, though surely volatility will drift lower.”

• Silver catches fresh bids on Thursday and pushes through the 100-hour EMA resistance.
• Some follow-through buying beyond the weekly high will set the stage for further gains.
• A convincing break below the $18.00 pivotal support will pave the way for further losses.

Silver attracts some buying near the $18.25-$18.20 area on Thursday and continues gaining traction through the first half of the European session. The XAG/USD pushes through the 100-hour EMA barrier and hits a fresh daily high, around the $18.70-$18.75 area in the last hour.

The XAG/USD has now moved to the top end of its weekly trading range, around the $18.90-$19.00 region. Some follow-through buying should pave the way for a further near-term appreciating move towards the next relevant resistance near the $19.70-$19.80 supply zone.

This is closely followed by the $20.00 psychological mark, which if cleared decisively will be seen as a fresh trigger for bulls. The XAG/USD could then climb beyond the $20.50 intermediate hurdle and aim to reclaim the $21.00 mark, coinciding with the 200-day EMA.

On the flip side, the $18.50-$18.40 zone now seems to protect the immediate downside ahead of the daily low, around the $18.25-$18.20 region, and the $18.00 pivotal support. A convincing break below the latter will negate any positive bias and make the XAG/USD vulnerable.

The subsequent downfall has the potential to drag spot prices further towards the YTD low, around the $17.55 area touched in September. The downward trajectory could eventually drag the XAG/USD to the next relevant support near the $17.00 round-figure mark.

Silver 1-hour chart

Key levels to watch

The UK’s Daily Mail reported that Downing Street confirmed that Prime Minister Liz truss is meeting 1922 Committee Chair Graham Brady now.

developing story ....

• GBP/USD is meandering near weekly lows amid the looming UK political crisis.
• Markets are risk averse but the US dollar fails to capitalize ahead of data, Fedspeak.
• Cable needs daily closing below 1.1222 to extend the ongoing bearish momentum.

GBP/USD is trading on the back foot in the European session, keeping its range around 1.1200, as sellers retain control amid looming concerns over the UK leadership crisis. Although some Conservative (Tory) MPs continue to show their confidence in the UK PM Liz Truss, several backbenchers are calling for leadership replacement after the recent fiscal fiasco.

According to the ITV television channel, some ministers noted that PM Truss will be asked to resign, either in the coming days or after October 31. Meanwhile, TimesRadio reported that three Tory MPs told the British media outlet that Liz Truss needs to resign now. Britain's Interior Minister Suella Braverman’s abrupt resignation on Wednesday raises doubts about PM Truss’ leadership authority and the UK political tensions are keeping cable at weekly lows.

Further, comments from BoE deputy governor Ben Broadbent are also exerting downside pressure on the pound. Broadbent casts doubts on market pricing prompting a further reduction in expectations for the terminal rate by around 15 bps since the close on Wednesday. The BoE deputy governor said that "whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen.”

However, losses in the major appear capped by a broadly weaker US dollar even as the Treasury yields hold near multi-year highs. Attention now turns towards the US Jobless Claims and Housing data while speeches from Fed officials will be also closely scrutinized for fresh dollar valuations.

From a short-term technical perspective, GBP/USD has breached the rising trendline support on the daily chart, aligned at 1.1222.

A daily close below the latter is needed to confirm a downside break and extend the downtrend towards the mildly bearish 21-day Simple Moving Average (SMA) at 1.1132.

Further south, the 1.1100 figure will be on sellers’ radars. The 14-day Relative Strength Index (RSI) is inching lower below the midline, favoring the bearish bias going forward.

GBP/USD: Daily chart

On the flip side, recapturing the abovementioned trendline support-turned-resistance is critical for any meaningful recovery in the pair.

The next upside barrier for bulls is seen at the previous day’s high of 1.1358, above which the descending 50 DMA at 1.1444 could come into play.

GBP/USD: Additional technical levels

• GBP/JPY remains under some selling pressure for the third successive day on Thursday.
• The UK political uncertainty weighs on sterling and contributes to the modest downtick.
• Speculations that Japanese authorities will intervene again keep bulls on the defensive.

The GBP/JPY cross edges lower for the third successive day on Thursday and retreats further from its highest level since February 2016 touched earlier this week. The cross, however, manages to recover a few pips from a three-day low and is currently trading around the 167.80-167.75 region.

The UK political uncertainty continues to weigh on the British pound, which, in turn, is seen as a key factor exerting some downward pressure on the GBP/JPY cross. In fact, reports indicate that lawmakers will try to oust the new-elected UK Prime Minister Liz Truss in the wake of the recent tax cut fiasco. This comes amid growing worries about a deeper economic downturn and might force the Bank of England to adopt a gradual approach towards raising interest rates despite persistently high inflation.

The Japanese yen, on the other hand, draws support from speculations that authorities might intervene again to stem any further weakness in the domestic currency. This, along with the cautious market mood, further benefits the JPY's relative safe-haven status and further contributes to the offered tone surrounding the GBP/JPY cross. That said, a big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks continues to act as a tailwind for spot prices.

The BoJ, so far, has shown no inclination to hike interest rates from ultra-low levels and remains committed to continuing with its monetary easing. Furthermore, the Japanese central bank announced emergency bond-buying worth $667 million to keep the yields on the Japanese Government Bonds (JGB) below the 0.25% cap. The mixed fundamental backdrop warrants some caution before placing aggressive directional bets, though the bias seems tilted slightly in favour of bullish traders.

Technical levels to watch

US Dollar Index (DXY) alternates gains with losses near the 113.00 zone. In the view of Kit Juckes, Chief Global FX Strategist at Société Générale, DXY is more likely to plunge towards 100 than climb to 125.

Short-term dollar bullish bias still makes sense

“In the US, data remains mostly robust, and the Beige Book gave bond bulls no encouragement; concerns about slower potential growth don’t help limit the need for Fed tightening. Surely, we have all the information we need ahead of the November 2 FOMC, with a 75 bps hike ‘in the bag’ and warnings of more to come, more than likely.”

“There’s enough juice left to get USD/JPY ‘properly’ through 150 but while a short-term dollar bullish bias still makes sense, DXY is much more likely to fall to 100 before we ever see 125. Mind you, I very much doubt we see either of those levels any time soon!”

Bank of England (BOE) Deputy Governor Ben Broadbent said on Thursday that they are not clear if rates must rise as much as the market is forecasting.

Additional comments

“Market pricing of the bank rate path implies a pretty material hit to demand.”

“The rise in inflation expectations `nothing like' the 1970s.”

“The bank allocates £15 mln at short-term repo operation.”

Related reads

• BOE’s Broadbent: Not clear if rates must rise as much as the market sees
• GBP/USD Outlook: Bears look to seize control below 1.1200 amid UK political crisis

Japan’s top currency diplomat Masato Kanda said on Thursday that they “will not comment on whether we are intervening now or have intervened today.”

Additional comments

“We are always ready to take action in the forex market.”

“Excessive and disorderly forex moves have a negative impact on the economy.”

“Will not comment on forex levels.”

Market reaction

The Japanese yen has shrugged off the above comments, with USD/JPY trading almost unchanged on the day at 149.85, as of writing.

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the latest trade balance figures in Malaysia.

Key Takeaways

“Malaysia recorded the biggest ever trade surplus of MYR31.7bn in Sep (Aug: +MYR17.0bn) as exports continued to post strong double-digit growth of 30.1% y/y (Aug: +48.1%) while import growth more than halved to 33.0% (from +67.3% in Aug). The latest export reading came in above our estimate (+29.0%) but below Bloomberg consensus (+31.5%), largely underpinned by higher shipments of electrical & electronics (E&E) and oil & gas products with strong global energy prices lending further support.”

“In 3Q22, exports surged 38.3% y/y (2Q22: +29.9%) while imports jumped 46.5% (2Q22: +36.0%), leaving a cumulative trade surplus of MYR64.3bn during the quarter (2Q22: +MYR58.0bn). A 10.8% q/q gain in trade surplus implies a wider current account surplus for 3Q22, which we estimate at MYR7.5bn (2Q22: +MYR4.4bn).”

“Given that exports averaged 30.3% year-to-date as of Sep and risks to the trade outlook continue to tilt towards the downside, we maintain our export growth projection at 26.0% for 2022 (MOF est: +17.4%, 2021: +26.1%) and 1.5% for 2023 (MOF est: +2.2%). Rising global recession risk and global tech downcycle are key deterrents to trade growth momentum while statistical base and commodity price effects are wildcards for the outlook going into 2023.”

If the USD/CNY approaches 7.8, it will rekindle concerns about HKD’s dollar pegging. The Hong Kong Monetary Authority (HKMA) needs to reiterate its stance to prevent herd behaviour in the market, in the opinion of economists at ANZ Bank.

Policymakers unlikely to abolish the HKD’s dollar peg

“Unpegging HKD from the USD is undesirable amid current FX volatility, so we believe that policymakers will not abolish the HKD’s dollar peg.”

“USD/CNY is now above 7.20; a further weakening in the yuan may trigger some concerns about the HKD peg.”

“To cope with market noises, Hong Kong policymakers need to reiterate their defence of the peg so that herd behaviour will not trigger massive capital outflows.”

• Gold stages a modest recovery from over a three-week low touched earlier this Thursday.
• The emergence of some USD selling offers support, though the uptick lacks follow-through.
• Aggressive Fed rate hike bets, elevated US bond yields act as a headwind for the XAU/USD.

Gold bounces off a new three-week low touched earlier this Thursday and sticks to its modest gains through the first half of the European session. The XAU/USD is currently placed near the daily high, just below the $1,635 region, though any meaningful upside still seems elusive.

The US dollar edges lower and trims a part of the previous day's strong gains, which turns out to be a key factor offering some support to the dollar-denominated gold. Apart from this, growing worries about a deeper global economic downturn and the prevalent cautious market mood act as a tailwind for the safe-haven precious metal.

That said, the prospects for a more aggressive policy tightening by major central banks keep a lid on any meaningful upside for the non-yielding gold. The markets have been pricing in jumbo rate hikes by the European Central Bank and the Bank of England. The Federal Reserve is also expected to stick to its aggressive rate-hiking cycle.

In fact, the CME's FedWatch tool indicates a nearly 100% chance of the fourth successive supersized 75 bps rate increase at the next FOMC policy meeting in November. The bets were reaffirmed by the recent hawkish remarks by several Fed officials, reiterating that the US central bank is committed to its aggressive fight against soaring prices.

This, in turn, pushes the yield on the rate-sensitive 2-year US government bond to a new 15-year peak and the benchmark 10-year Treasury note to its highest level since the 2008 financial crisis. Elevated US bond yields should limit any meaningful USD downfall. This, in turn, suggests that the path of least resistance for gold is to the downside.

Market participants now look to the US economic docket, featuring the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales data. This, along with speeches by influential FOMC members and the US bond yields, will drive the USD demand. Apart from this, the broader risk sentiment should provide some impetus to gold.

Technical levels to watch

The 10-year US Treasury yields crossed the pivotal level of 4.15%. Economists at Société Générale believe that 10Y UST could head higher towards 4.50%.

Immediate support aligns at 4.00%

“The break of 4.15% in the US could be significant technically. Levels are technically overbought and a reversal is overdue but longer-term charts open a possible extension to 4.50%.”

“September high of 4.00% and a steeper ascending trend line at 3.84% are immediate supports.”

See – USD/JPY: Widening yield differentials continue to encourage higher levels – MUFG

CEE continues to rally driven by lower gas prices. Economists at ING expect EUR/HUF to return to sub-410 levels while EUR/PLN is set to slip back below 4.78.

Favourable conditions for CEE to continue to rally

“In addition to lower gas prices, we see rising interest rate differentials across the region. In Hungary, we are at a new all-time high after Friday's NBH emergency rate hike and in Poland we are at the highest levels since early September.”

“With EUR/USD above recent lows, we thus see favourable conditions for CEE to continue to rally, driven by further gas price declines if the European Commission approves the proposed measures.”

“We see a good chance for the Hungarian forint to erase last week's losses and return below 410 EUR/HUF and the Polish zloty to move below 4.780 EUR/PLN.”

According to the latest Reuters poll of analysts and fund managers, the bearish bets on most Asian currencies have gathered strength amidst unabated US dollar strength and global recession fears.

Key findings

“Short positions in the yuan, which have been at multi-year highs in recent weeks, rose marginally in the last two weeks.”

“Similar bets on the Malaysian ringgit and the Indian rupee also inched higher.”

“Short positions in the Singapore dollar, however, narrowed in the past weeks as the island-state's currency was better positioned to handle the storm of rising rates.”

Related reads

• USD/INR Price News: Shifts into an unchartered territory above 83.00 amid upbeat yields
• USD/CNH Price Analysis: Grinds near record high amid PBOC inaction

• EUR/USD bounces off lows near the 0.9750 region.
• German 10-year bund yields surpass the 2.45% level.
• Weekly Claims, Philly Fed index, Fedspeak come next in the NA session.

The European currency regains a small smile and motivates EUR/USD to rebound from earlier lows in the mid-0.9700s on Thursday.

EUR/USD supported near 0.9750 so far

EUR/USD manages to regain some buying interest and recoup part of the ground lost following Wednesday’s strong decline, retargeting the 0.9800 region amidst the so far tepid downside momentum in the dollar.

Also underpinning the daily uptick in spot, the German 10-year benchmark bund yields rise past the 2.45% level for the first time since August 2011, in line with the uptrend observed in their US pees across the curve.

In the domestic calendar, the EMU’s Current Account deficit widened to €26.32B in August.

Across the pond, usual weekly Initial Claims are due followed by the Philly Fed manufacturing gauge, the CB Leading Index, Existing Home Sales and speeches by FOMC’s Harker, Jefferson, Cook and Bowman.

What to look for around EUR

EUR/USD’s weekly corrective move seems to have met some decent contention near 0.9750 for the time being amidst the ongoing knee-jerk in the dollar.

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

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

Key events in the euro area this week: 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 advancing 0.02% at 0.9776 and faces the next up barrier at 0.9875 (weekly high October 18) followed by 0.9999 (monthly high October 4) and finally 1.0050 (weekly high September 20). On the flip side, the breakdown 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).

The Indian rupee slipped to a fresh record low of 83.21 against the US dollar on Wednesday. The USD/INR could now target 84.20, then 85.90, economists at Société Générale report.

Signals of a meaningful pullback are not yet visible

“Weekly MACD is close to the high achieved in 2020 and diverging away from trigger line denoting an overstretched move, however, signals of a meaningful pullback are not yet visible.”

“Next projections are located at 84.20 and 85.90.”

“Low formed earlier this week at 82.00 must be defended to avert a short-term down move.”

Bank of England (BOE) Deputy Governor Ben Broadbent said on Thursday that they are not clear if rates must rise as much as the market is forecasting.

Additional comments

Market reaction

Amidst UK political tensions, GBP/USD is keeping its range near 1.1200, down 0.18% on the day.

As the USD/JPY pair briefly surpassed 150.00 in the last hour, Japanese Finance Minister Shunichi Suzuki was quick to cross the wires, via Reuters, noting that they “will take action against any speculative, excessive and sudden moves.”

Additional quotes

Also read: USD/JPY pierces key 150.00 level, Japan intervention imminent?

Market reaction

The verbal intervention continues from Japan, having little to no impact on the USD/JPY pair. The spot is trading at 149.94, up 0.04% on the day, consolidating its spike to the highest level since August 1990 at 150.09.

The gilt market in the UK has continued to rally following the government’s plans to tighten fiscal policy at the start of this week. Nonetheless, the pound is unlikely to stage a sustained rebound, economists at MUFG Bank report.

Tighter fiscal policy will be less supportive for growth

“We still believe that the pound is vulnerable to further weakness now that the gilt market is becoming more stable again.”

“Tighter fiscal policy will be less supportive for growth with the UK economy already facing a high risk of falling into recession, and while financing conditions are improving they are likely to remain tighter than pre-mini budget.” 

“There is now less pressure as well on the Bank of England to raise rates as much as priced into the UK rate market (>5.00%) which will lead to some disappointment and pound weakness.”

German Chancellor Olaf Scholz said in a statement on Thursday, “Europe can withstand Putin's energy blackmail.”

Additional comments

Supplier countries such as the US, Canada and Norway have an interest in energy not becoming too expensive in Europe.

The EU must coordinate closely with other gas consumers.

Gas-price cap could end up crimping supplies to Europe.

We have signed contracts to import gas with several countries and continue to sign with other countries to secure the needs during the winter.

We have freed ourselves from dependence on Russian gas.

Market reaction

EUR/USD was last seen trading at 0.9788, up 0.19% on the day.

Markets Strategist Quek Ser Leang and Economist Lee Sue Ann at UOB Group still see the likeliness of USD/CNH breaking above the 7.3000 region in the next weeks.

Key Quotes

24-hour view: “While we expected USD to strengthen yesterday, we were of the view that ‘any advance is expected to face strong resistance at 7.2380’. However, USD not only blew past 7.2380 but also notched a fresh record high of 7.2743. While deeply overbought, the rally is not showing any signs of weakening just yet. That said, the next major resistance at 7.3000 is unlikely to come under challenge for now (there is another resistance at 7.2850). On the downside, support is at 7.2550 but only a break of 7.2400 would indicate that the current strong upward pressure has eased.”

Next 1-3 weeks: “We turned positive on USD late last week. After USD soared to 7.2380 and eased off, we indicated that USD has to break above this level before a sustained rise is likely. Yesterday (19 Oct, spot at 7.2230), we highlighted that the risk of USD breaking above 7.2380 is increasing. We added, ‘A break of this level would shift the focus to the Sep high near 7.2670’. While our view was not wrong, we did not expect the strong and swift surge as USD blew past both 7.2380 and 7.2670. Not surprisingly, upward momentum is strong and there is a good chance for USD to break 7.3000 next. The upside risk remains intact as long as USD does not break the ‘strong support at 7.2150 (level was at 7.1800 yesterday).”

The US dollar index (DXY) is hovering around the 113.00 level. Economists at ING expect the greenback to enjoy a calm session and trade a 112-113 range.

US data set looks unlikely to move the needle

“We do not see any major market drivers today (though USD/JPY breaking 150 could elicit quite a few headlines and probably some more FX intervention).”

“Certainly, some of the softer US housing data already seen this week has failed to dent expectations for the Fed tightening cycle. And today's US data set (existing home sales and jobless claims) looks unlikely to move the needle either.”

“DXY to trade a 112-113 range.”

• USD/JPY rises for the twelfth consecutive day to renew a multi-decade high.
• US 10-year Treasury yields refresh 14-year high, 2-year bond coupons rally to the highest since 2007.
• Japan policymakers keep jawboning the prices without actual intervention.
• Risk catalysts, market meddling will be crucial for near-term directions, bulls can keep the reins.

USD/JPY overcomes the early Asian session inaction as bulls approach the highest levels since 1990 while renewing the 32-year high at 150.09 on Thursday.

Earlier in the day, the Bank of Japan (BOJ) announced emergency bond-buying worth $667 million as the yields on the Japanese Government Bonds (JGB) briefly surpassed the central bank’s 0.25% limit.

The buying resurgence seen around the US Treasury yields could be associated with the latest leg higher in the USD/JPY pair, as bulls briefly recaptured the critical 150.00 mark.The benchmark 10-year US rates are at their highest level in 14 years above 4.15%, up 1.20% on the day while the pair is easing to near 149.90, at the time of writing.

The Fed-BOJ policy divergence continues widening, as the US central bank is expected to remain on course for aggressive tightening to tame red-hot inflation. Meanwhile, the BOJ policymakers stick to their stance that an easy monetary policy is required to support economic growth. 

The spike, however, got quickly sold off above 150.00, as sellers resurfaced amid looming risks of another Japanese intervention. There is speculation that Japanese authorities may have conducted a "stealth" intervention in recent days, though Japanese officials have remained mum, per Kyodo News. 

USD/JPY: 15-minutes chart

USD/JPY: Technical levels to watch

At its October monetary policy meeting on Thursday, Indonesia’s central bank, Bank Indonesia (BI), hiked its 7-day reverse repo rate by 50 bps from 4.25% to 4.75%, as widely expected.

The central bank Governor Warjiyo said in the policy statement that “Indonesia to monitor forex supply, strengthen policy to stabilize rupiah.”

Additional Comments

Market reaction

On the expected rate decision by the Indonesian central bank, the Indonesian Rupiah (IDR) rebounded against its American counterpart, driving the USD/IDR from two-year highs of 15,587.50. At the press time, the spot trades 0.47% higher at 15,567.50.

• The index alternates gains with losses near the 113.00 mark.
• US yields keep the march north unabated on Thursday.
• Weekly Claims, Philly Fed Index, Fedspeak next of note in the docket.

The greenback, in terms of the USD Index (DXY), trades without a clear direction around Wednesday’s close near the 113.00 zone.

USD Index now looks to data, Fedspeak

The weekly recovery in the index appears to have met some initial and decent resistance just above 113.00 the figure on Thursday despite the move higher in US yields remains unabated for the time being.

On the latter, the short end of the curve now flirts with the 4.60% region for the first time since August 2007, while the key 10-year benchmark note hover around 4.16%, an area last seen back in June 2008.

Firm expectations around the continuation of the Fed’s tightening stance have been behind the upside in US yields since early August, although the persistent elevated inflation have nothing but exacerbated that trend as of late.

In the US data space, usual Initial Jobless Claims are due in the first turn seconded by the Philly Fed Manufacturing Index, the CB Leading Index and Existing Home Sales.

In addition, Philly Fed P.Harker (2023 voter, hawk) and FOMC’s permanent voters P.Jefferson (centrist), L.Cook (centrist) and M.Bowman (centrist) are also due to speak later in the NA session.

What to look for around USD

The dollar’s recovery seems to have met some initial hurdle in the area just past the 113.00 mark so far on Thursday.

In the meantime, the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market continues to prop up the underlying positive tone in the index.

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

Key events in the US this week: Initial Jobless Claims, 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 losing 0.08% at 112.91 and the breakdown of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13). On the other hand, the next hurdle comes at 113.88 (monthly high October 13) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).

USD/JPY is moving to within a touching distance of the 150.0 0level for the first time since August 1990. As economists at MUFG note, rising yields outside of Japan are encouraging yen selling.

Bank of Japan remains committed to their YCC policy

“In contrast to rising yields overseas, the BoJ remains committed to their Yield Curve Control policy which is helping to keep the 10-year JGB yield at just above 0.25%. Overnight the BoJ held the first unscheduled bond buying operation this month in response to renewed upward pressure from rising global yields. It has offered to purchase an unlimited quantity of 10-year JGBs at a yield of 0.25%.”

“The widening yield differentials between the US and Japan are continuing to encourage a higher USD/JPY even as the risk of intervention is increasing as the pace of yen weakness has picked up again recently. As we have already seen over the past month though, it is unlikely to reverse the yen weakening trend unless accompanied by a change in fundamentals as well.”

GBP/USD flirts with the 1.12 level. In the view of analysts at ING, the pair could slump to the bottom of the 1.10-1.15 range.

The UK is struggling to regain lost credibility

“Political infighting and the uncertainty of policy continue to demand a risk premium for sterling, where GBP/USD could easily slip back to the bottom end of its wide 1.10-1.15 range.”

“The wild card is what happens to the top job and whether the re-emergence of former Chancellor Rishi Sunak would represent a steadying of the ship or merely split the Conservative party asunder. One can understand why foreign investors will want to steer clear of sterling until the political environment becomes a lot clearer.”

The rally in USD/JPY could surpass the 150.00 yardstick and allow for a potential move to the 150.60 region, comment Markets Strategist Quek Ser Leang and Economist Lee Sue Ann at UOB Group.

Key Quotes

24-hour view: “Yesterday, we highlighted that USD ‘could continue to advance even though we still think that 150.00 is unlikely to come into view for now’. Our view was not wrong as USD rose to a high of 149.90. Despite the advance, upward momentum has not improved by much. That said, a break of 150.00 would not be surprising but USD is unlikely to be able to maintain a foothold above this level. The next resistance at 150.60 is unlikely to come into view as well. On the downside, a break of 149.20 (minor support is at 149.50) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “We turned positive on USD late last week. As USD rose, in our latest narrative from Monday (17 Oct, spot at 148.50), we indicated that while conditions are deeply overbought, further USD strength to 150.00 is not ruled out. Yesterday (19 Oct), USD rose to a high of 149.90. From here, a break of 150.00 is likely to lead to further USD strength. That said, it might take a while before the next resistance at 150.60 comes into view. Overall, only a breach of 148.50 (‘strong support’ level was at 147.90 yesterday) would indicate that USD is unlikely to strengthen further.”

• Gold price fades bounce off three-week-old horizontal support.
• Covid updates from China offered intermediate bounce amid a light calendar.
• Strong yields, hawkish central banks keep XAU/USD bears hopeful.

Gold price (XAU/USD) reverses from intraday high, after a brief jump from the monthly low, as it drops to $1,630 during early Thursday morning in Europe.

Headlines suggesting China’s debate on reducing quarantine time for international travelers seemed to have triggered the bullion’s previous rebound. The intermediate bounce, however, couldn’t last long as the US Treasury yields remain near the multi-year high flashed earlier in the day.

US 10-year Treasury yields refreshed a 14-year high above 4.0%, around 4.15% by the press time while its two-year counterpart stays strong near the highest level since 2007, up 0.30% intraday near 4.57% at the latest.

With the firmer yields, stock futures and equities in the Asia-Pacific region keep the red, tracking Wall Street’s close. Though, the US dollar fades the previous day’s rebound amid a sluggish session. That said, the US Dollar Index (DXY) reverses the Asian session gains and prints 0.10% loss on the day as it stays depressed near the intraday low of 112.80 at the latest.

While tracing the firmer yields and the risk-off mood, the market’s fears of higher inflation and the global central banks’ aggressive rate hike, led by the Fed, gain major attention. On the same line could be the headlines surrounding the US-China tussles over Taiwan and the Russia-Ukraine tension.

Looking forward, a light calendar with second-tier US data relating to jobs and housing can restrict short-term XAU/USD moves but the bears are likely to keep the reins amid broad pessimism.

Technical analysis

The oversold RSI (14) line joins a horizontal support area from September 26 to challenge the short-term gold price downside near $1,620. Even so, the metal’s sustained trading below the 200-SMA level surrounding $1,678 and bearish MACD signals favor sellers.

That said, recovery needs validation from a two-week-long resistance line, close to $1,643 by the press time, to lure short-term buyers.

Meanwhile, a one-week-old descending trend line offers immediate support to the quote near $1,618 before directing it to the latest trough near $1,614-15.

Hence, the XAU/USD is likely to witness further downside but the room to the south appears limited.

Gold: Four-hour chart

Trend: Limited downside expected

EUR/USD is attempting a minor bounce towards 0.9800. But in the view of economists at ING, any uptick is set to stall at the 0.9850/0.9870 resistance zone.

Lower gas prices have failed to provide much of a boost

“Earlier this week, we had felt that the sharp fall in European natural gas prices could give the euro a boost. EUR/USD, so far anyway, has failed to enjoy much of a recovery. We can therefore conclude that EUR/USD price action has been poor.”

“0.9850/0.9870 resistance may continue to hold any uptick and prevent a move closer to big channel resistance at 0.9970.” 

“0.92 remains our year-end target for EUR/USD.”

USD/JPY is trading just below the 150 mark. And as a result, everyone is talking about whether the Japanese Ministry of Finance (MOF) will intervene once again. In the view of economists at Commerzbank, intervention at levels of 150 will be a mistake.

MOF is currently not aiming to defend a particular USD/JPY level

“I am of the view that the MOF is currently not aiming to defend a particular USD/JPY level. Otherwise, it would not have remained inactive when the 146-level was breached after all a few days ago.”

“A strong intervention at 150 would be a technical mistake on the MOF's side. I am certain that in the 1990s and early 2000s the MOF would not have made that mistake. But as that was a long time ago, I cannot be certain that the MOF still knows how leaning against the wind works. For that reason, I cannot promise that we will not see interventions as 150 after all. But I would be surprised.”

GBP/USD depreciated a second session by 0.9% to 1.1219. Economists at DBS Bank expect the pair to test 1.10 on a break under 1.1150.

Political backdrop still a drag

“While the Bank of England intends to start reducing its bond holdings from 1 November, it will refrain from selling longer-dated bonds this year. Meanwhile, speculation remains high that Prime Minister Liz Truss would not survive the Tory rebellion before the Budget announcement on 31 October.” 

“GBP must trade below 1.1150-1.1450, the range set since last Friday, before it can fall to the next support around 1.10.”

• AUD/USD recovers early lost ground amid the emergence of some selling around the USD.
• A positive risk tone undermines the safe-haven buck and benefits the risk-sensitive aussie.
• A combination of factors might continue to act as a headwind and favour bearish traders.

The AUD/USD reverses an intraday dip to a three-day low and climbs back above mid-0.6200s in the last hour, though lacks any follow-through buying.

A modest bounce in the US equity futures prompts some selling around the safe-haven US dollar, which, in turn, offers some support to the risk-sensitive aussie. That said, a combination of factors acts as a headwind for the AUD/USD pair and should continue to keep a lid on any meaningful recovery.

Rising bets for aggressive interest rate hikes by the Federal Reserve remain supportive of elevated US Treasury bond yields. In fact, the rate-sensitive 2-year US government bond stands near a 15-year peak and the benchmark 10-year Treasury note hits its highest level since the 2008 financial crisis.

Furthermore, any optimistic move is likely to remain capped amid growing worries about a deeper global economic downturn, which could further benefit the greenback's relative safe-haven status. Apart from this, the softer Australian jobs report might also contribute to capping gains for the AUD/USD pair.

In fact, the Australian Bureau of Statistics reported that the number of employed people rose by 0.9K in September, well below expectations for a reading of 25K. This, to a larger extent, overshadows the fact that the unemployment rate held steady at 3.5% - the lowest level since the early 1970s.

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 slide back towards the YTD low, around the 0.6170 area, remains a distinct possibility.

Traders now look to the US macro data - the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Existing Home Sales data. This, along with speeches by influential FOMC members and the US bond yields, will drive the USD demand and provide some impetus to the AUD/USD pair.

Technical levels to watch

FX option expiries for Oct 20 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9695-05 1.9b
• 0.9715-25 744m
• 0.9750 942m
• 0.9775-85 878m
• 0.9800 1.98b
• 0.9825-3.0 364m
• 0.9850 1.25b
• 0.9870-80 1.01b

- GBP/USD: GBP amounts        

• 1.1145 481m
• 1.1400 343m
• 1.1455 435m

- USD/JPY: USD amounts                     

• 147.75 445m
• 147.90-00 3.74b
• 149.50-60 405m

- USD/CHF: USD amounts        

• 1.000 550m

- AUD/USD: AUD amounts  

• 0.6280 218m
• 0.6350 578m

- USD/CAD: USD amounts       

• 1.3685 235m

- EUR/GBP: EUR amounts        

• 0.8765 210m

- EUR/JPY: EUR amounts

• 146.00 928m

- EUR/CHF: EUR amounts

• 0.9500 339m

JPY depreciated for the 11th session by 0.4% to 149.90 per USD, its weakest level since 1990. Economists at DBS Bank believe that the USD/JPY pair could reach the 159.90 high of April 1990.

No one expects the BoJ to abandon its YCC control policy

“The Bank of Japan has ruled out abandoning its loose monetary policy to counter the yen’s depreciation. Despite the pressure on the 10Y JGB yield around 0.25%, no one expects the BoJ to abandon its yield curve control policy.”

“USD/JPY has traded above 147.26, the peak of August 1998, and opened the door to the 159.90 high in April 1990.”

Australia’s Employment Change rose less than expected. Nonetheless, economists at ANZ Bank still expect the Reserve Bank of Australia to deliver a 25 basis points rate hike next month.

Labour market stalls in September

“The September labour market data were softer than expected but support the view that a 25 bps cash rate hike by the RBA is the most likely outcome in November, even if there is an upside surprise in the Q3 CPI on Wednesday.”

“A softer labour market also increases the likelihood of a December pause by the RBA, but the Q3 CPI data will be an important factor here.” 

“We still think there is room for the labour market to improve. While leading indicators have started to ease, they remain extremely high relative to pre-pandemic levels. And the share of businesses reporting labour as a constraint on output increased 2ppt to 91% in Q3, according to NAB’s business survey).”

Here is what you need to know on Thursday, October 20:

The US dollar loses its recovery mode in early European hours, despite Treasury yields riding higher near multi-year highs on expectations of steeper Fed rate hikes. The tide turned against USD bulls after the US S&P 500 futures flipped to gains on renewed optimism that China could be moving away from its zero-Covid policy. Bloomberg reported, citing people familiar with the discussions, Chinese officials are debating whether to reduce the number of time people coming into the country must spend in mandatory quarantine. Most of the Asian indices cut losses, tracking the upswing in Chinese stocks.

Investors, however, still remain cautious amid elevated bond yields and simmering US-China tensions over Taiwan and chip manufacturing. China convened chip firms for emergency talks after US President Joe Biden announced curbs. On Wednesday, Nikkei reported that the US is in talks with Taiwan to co-produce American weapons. Meanwhile, global yields surged on Wednesday after the UK and euro area inflation showed no signs of abating, raising recession threats. The US Treasury yields rallied hard amid policy contrast between the Fed and most major global central banks. The benchmark 10-year US rates climbed to the highest level in 14 years above 4.15%.

Markets also remain on tenterhooks amid an imminent risk of Japanese FX market intervention, as USD/JPY challenges the key 150.00 mark, the level unseen since August 1990. The Bank of Japan (BOJ) announced an unscheduled emergency bond-buying in early Asia but it failed to stem the yen decline. The ongoing Japanese verbal intervention also did little to rescue JPY bulls.

GBP/USD is on the back foot around 1.1200, as the UK political drama deepens. Britain's Interior Minister Suella Braverman’s abrupt resignation undermines PM Liz Truss’ leadership authority. “Officers from 1922 committee, in charge of running Britain's Conservative Party leadership contests, are set to meet on Thursday to discuss the escalating leadership crisis,” according to The Telegraph. Meanwhile, the 40-year high UK inflation rate continues to cast clouds on the BOE’s next policy move, keeping the bearish bias intact around the pound.

EUR/USD is attempting a minor bounce towards 0.9800, helped by the retreat in the US dollar but higher yields continue to cap the upside attempts. Hot factory-gate inflation in Germany supports calls for a 75 bps ECB rate hike next week, favoring EUR bulls ahead of Eurozone Current Account data.

Meanwhile, the commodity currencies bear the brunt of rallying yields, making them less attractive. AUD/USD keeps the red around 0.6250 amid softer Australian Employment data. China’s central bank kept the Loan Prime Rate (LPR) unchanged across the time horizon. Fresh record lows in the yuan vs. the US dollar are also boding ill for the aussie as well as the kiwi.

USD/CAD is holding the lower ground near 1.3750, as the US dollar retreats while WTI rebounds 1% on the day above the $85 mark.

Gold is capitalizing on the latest leg down in the dollar, having recaptured $1,630 on the road to recovery. But the further upside appears elusive amid higher yields. The US weekly Jobless Claims, Existing Homes Sales and Fedspeak will be closely eyed for fresh hints on the Fed rate hike outlook.  

Bitcoin price is recovering ground after hitting fresh weekly lows below $19,000 while Ethereum is keeping its range below $1,300.

The fight against inflation is much softer in the eurozone than in the United States because of the risk of a social crisis, analysts at Natixis report.

The US government and central bank are not afraid of a social crisis

“The US strategy is to rapidly reduce inflation, whatever the cost of this strategy (loss of household purchasing power, increase in unemployment), and this strategy can be implemented due to the lack of risk of a social crisis even if households suffer from this policy of rapid inflation reduction.”

“The eurozone’s strategy is to reduce inflation very slowly, with the ECB hiking interest rates slowly and household purchasing power being boosted by fiscal deficits.”

“The reason for this difference between the strategy of the US and the eurozone is fear in Europe of a social crisis if household purchasing power declines or if the unemployment rate rises.”

• USD/JPY renews the multi-year high but struggles to overcome 150.00 hurdle.
• Overbought RSI challenge the further upside towards the late 1990 top.
•  Previous resistance line from April restricts the immediate downside.
• Bears should wait for 149.60 before taking entry.

USD/JPY buyers keep the reins between the 149.90 and 149.95 area ever since the yen pair refreshed the 32-year during early Thursday.

It should, however, be noted that the overbought RSI (14) joins an upward-sloping resistance line from late Wednesday to challenge the USD/JPY bulls near 150.00.

On the contrary, a convergence of the 50-SMA and immediate support line highlights the 149.89 level as the immediate key support.

USD/JPY: 15-minute chart

Trend: Limited upside expected

Looking at the D1 (daily) chart, the USD/JPY pair remains well above the six-month-old resistance-turned-support of 149.60, which in turn joins bullish MACD to direct buyers toward the August 1990 high near 151.65.

Following that, the mid-1990 peak around 155.80 will be in focus.

Alternatively, a daily close below 149.60, could drag the quote to September’s peak of 145.90.

USD/JPY: Daily chart

Trend: Limited upside expected

Overall, USD/JPY is ready to refresh the multi-year high by crossing the 150.00 immediate resistance. However, any further upside appears limited room unless crossing the 151.65 level.

Meanwhile, the sellers should wait for a clear break of 149.60 to take even intraday short positions.

Considering advanced prints from CME Group for natural gas futures markets, traders added around 7.5K contracts to their open interest positions on Wednesday, reversing at the same time three consecutive daily pullbacks. Volume followed suit and increased by around 35.6K contracts, keeping the choppy activity well and sound for yet another session.

Natural Gas: Next on the downside comes $5.00

Further decline in prices of the natural gas appear on the horizon following Wednesday’s daily retracement amidst increasing open interest and volume. Against that, the loss of the $5.00 mark per MMBtu should trigger further losses in the very near term.

Gold price is looking to extend the previous sell-off. As FXStreet’s Dhwani Mehta notes, XAU/USD remains on track to test $1,600.

Any recovery attempt could test $1,647

“The fresh downtrend opens doors for a test of the 2022 lows at $1,615 before the $1,600 threshold can be probed.”

“The 14-day Relative Strength Index (RSI) lurks below the midline, keeping the downside potential intact.”

“Any recovery attempt could test the previous trendline support turned resistance, now at $1,647. The next upside target is seen at intermittent lows at around $1,660. Bulls will then yearn for acceptance above the mildly bearish 21-Daily Moving Average (DMA) at $1,666.”

According to Markets Strategist Quek Ser Leang and Economist Lee Sue Ann at UOB Group, NZD/USD faces further side-lined trading in the next weeks, likely within the 0.5570-0.5755 range.

Key Quotes

24-hour view: “We highlighted yesterday that NZD ‘could rise above 0.5725 but a sustained advance above this level still appears unlikely’. However, after rising to 0.5706, NZD dropped to a low of 0.5650. The current price movement is likely part of consolidation and NZD is likely to trade sideways between 0.5625 and 0.5695 for today.”

Next 1-3 weeks: “Our update from two days ago (18 Oct, spot at 0.5675) still stands. As highlighted, NZD appears to have moved into a consolidation phase and is likely to trade between 0.5570 and 0.5755 for the time being.”

• USD/CHF holds steady near a multi-year peak, though lacks follow-through buying.
• A modest USD pullback holds back bulls from placing fresh bets and caps the upside.
• Aggressive Fed rate hike bets and elevated US bond yields still favour the USD bulls.

The USD/CHF pair trades with a positive bias for the second successive day on Thursday and is currently placed near the 1.0045-1.0050 area, just below its highest level since May 2019.

A combination of diverging forces, however, is holding back bulls from placing fresh bets and keeping a lid on any further gains, at least for the time being. A recovery in the US equity futures undermines the safe-haven Swiss franc and acts as a headwind for the USD/CHF pair. That said, a modest US dollar pullback offsets the supporting factor and caps the upside.

The USD downtick, meanwhile, lacks any obvious catalyst and is more likely to remain limited amid the prospects for more aggressive policy tightening by the Federal Reserve. The markets are currently pricing a nearly 100% chance for another supersized 75 bps Fed rate hike move in November. This, in turn, remains supportive of elevated US Treasury bond yields.

In fact, the rate-sensitive 2-year US government bond stands tall near a 15-year peak and the benchmark 10-year Treasury note rises to its highest level since the 2008 financial crisis. The fundamental backdrop supports prospects for the emergence of some USD dip-buying and an eventual breakout for the USD/CHF pair beyond the 1.0065-1.0075 strong resistance zone.

Market participants now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Existing Home Sales data. This, along with speeches by influential FOMC members and the US bond yields, will drive the USD demand and produce short-term trading opportunities around the USD/CHF pair.

Technical levels to watch

CME Group’s flash data for crude oil futures markets note open interest extended the downtrend on Wednesday, now by nearly 18K contracts. Volume, instead, went up for the second straight session, this time by around 30.2K contracts.

WTI: A drop to $80.00 remains on the table

Wednesday’s decent advance in prices of the WTI was on the back of shrinking open interest and hints at the view that extra gains look unlikely in the very near term. That said, another visit to the $80.00 mark per barrel still appears on the cards for the time being.

• Oil prices have recovered sharply amid a drop in oil inventories and in anticipation of sanctions on Russia.
• Investors have shrugged off headlines of an additional oil supply of 15 million barrels from the US SPR.
• The black gold may face headwinds from unchanged PBOC policy and upbeat yields.

West Texas Intermediate (WTI), futures on NYMEX, have soared as a drawdown in crude oil stockpiles, reported by the Energy Information Administration (EIA) on Wednesday, returned optimism. The oil prices have extended their gains above the critical resistance of $85.00 to near $85.57 in the early European session.

On Wednesday, the EIA reported a drop in oil inventories by 1.725M barrels vs. expectations of an increment of 1.38M and the prior release of 9.88M. A surprise decline in oil stockpiles has infused optimism in the black gold, defended the pessimism from the oil release announcement by US President Joe Biden. US Biden announced a release of 15 million barrels from the Strategic Petroleum Reserve (SPR) to balance out the demand-supply mechanism.

Optimism in oil prices is also backed by anticipation of further sanctions on the oil supply from Russia, which may cripple the global oil supply.

On a broader note, headwinds for oil prices are far from over. An unchanged monetary policy by the People’s Bank of China (PBOC) may bring pessimism to black gold. Despite the economic turmoil due to the continuation of the zero-Covid-19 policy and vulnerable real estate demand, PBOC kept its Prime Lending Rates (PLR) unchanged. An absence of further monetary policy may impact the sentiment of the market participants.

Meanwhile, the US dollar index (DXY) has dropped sharply and has printed an intraday low of 112.77 as the risk aversion theme has faded. S&P500 futures have recovered their entire overnight losses amid a rebound in the risk-on market mood. Returns on 10-year US Treasuries are still solid.

• USD/TRY prints mild losses around all-time high as traders await CBRT Interest Rate Decision.
• Fresh risk-on mood also probes bulls ahead of the key event.
• Firmer yields, Fed vs. CBRT divergence can keep buyers hopeful.

USD/TRY bulls take a breather around the all-time high, taking rounds to 18.60 heading into Thursday’s European session. In doing so, the Turkish lira (TRY) pair portrays the typical pre-event anxiety as the pair traders await the Central Bank of the Republic of Türkiye (CBRT) interest rate decision.

In addition to the pre-event caution, the latest risk-on mood also weighs on the USD/TRY prices amid a sluggish session. China’s debate on reducing quarantine time for international travelers seemed to reverse the previous risk aversion.

It’s worth noting that the broadly firmer inflation numbers from Britain, Eurozone and Canada, as well as the hawkish Fed bets and pessimism conveyed by the Fed’s Beige Book, seemed to have propelled USD/TRY prices previously.

Ahead of the CBRT Interest Rate decision, Reuters mentions that Turkiye's central bank is expected to cut its policy rate by 100 basis points to 11% next week, a Reuters poll showed on Friday, after President Tayyip Erdogan called for more easing each month and said rates should be single digits by year-end. The survey update also states, “The central bank has shocked the markets twice in the past two months by cutting its policy rate by 100 basis points each time, lowering it to 12%, despite inflation soaring above 83% in September.”

Hence, the CBRT rate cut is likely to stop the USD/TRY bulls near the all-time high but the bulls aren’t off the table amid inflation woes. and strong yields. That said, US 10-year Treasury yields refreshed a 14-year high above 4.0%, around 4.15% by the press time while its two-year counterpart stays strong near the highest level since 2007, up 0.30% intraday near 4.57% at the latest.

As a result, any pullback around the CBRT decision could be elusive unless hearing major surprises.

Technical analysis

USD/TRY remains on the bull’s radar even as 18.60 appears immediate hurdle to cross on the daily basis to aim for the 19.00 threshold. Meanwhile, the previous weekly low of around 18.45 appears short-term key support.

GBP/USD is still seen trading between 1.1050 and 1.1370 in the near term, suggest Markets Strategist Quek Ser Leang and Economist Lee Sue Ann at UOB Group.

Key Quotes

24-hour view: “Our view for GBP to trade sideways was incorrect as it plummeted by 0.85% (NY close of 1.1223). The oversold GBP weakness has room to dip below 1.1150 first before stabilization is likely. On the upside, a break of 1.1280 (minor resistance is at 1.1245) would indicate that the weakness in GBP has stabilized.”

Next 1-3 weeks: “Last Friday (14 Oct, spot at 1.1310), we indicated that GBP could rise to 1.1440. After GBP rose to 1.1440, we highlighted on Tuesday (18 Oct, spot at 1.1355) that the risk for GBP remains on the upside but it has to break clearly above 1.1440 before further sustained advance is likely. Yesterday (19 Oct), GBP dropped sharply and took out our ‘strong support’ level at 1.1220. The break of the ‘strong support’ indicates that upward pressure has dissipated. In other words, GBP is not strengthening further. The current movement is viewed as part of a consolidation phase and we expect GBP to trade sideways, likely within a range of 1.1050/1.1370.”

Open interest in gold futures markets increased for the second session in a row on Wednesday, this time by around 8.5K contracts according to preliminary readings from CME Group. In the same line, volume rose for the second straight session, now by around 18.5K contracts.

Gold could revisit the 2022 low at $1,614

Gold prices dropped markedly on Wednesday amidst rising open interest and volume. That said, further downside is now on the cards and with immediate contention at the YTD low at $1,614 per ounce troy (September 28).

• A combination of factors fails to assist USD/CAD to preserve its modest intraday gains.
• A further recovery in oil prices underpins the loonie and acts as a headwind for the pair.
• A  USD downtick further contributes to the slide, though the downside seems cushioned.

The USD/CAD pair struggles to capitalize on the modest intraday uptick or find acceptance above the 1.3800 mark and retreats from a multi-day high touched earlier this Thursday. The pair drops to the lower end of its daily trading range heading into the European session and is currently placed just above the mid-1.3700s.

Crude oil prices add to the overnight strong recovery gains from over a two-week low, which, in turn, underpins the commodity-linked loonie. On the other hand, a goodish recovery in the US equity futures prompts some selling around the safe-haven US dollar and acts as a headwind for the USD/CAD pair. The USD downtick, however, is more likely to remain limited amid the prospects for a more aggressive policy tightening by the Fed.

The markets seem convinced that the US central bank will continue to hike interest rates at a faster pace to tame inflation. The CME's FedWatch tool indicates a nearly 100% chance for another supersized 75 bps at the November FOMC meeting. This remains supportive of elevated US Treasury bond yields. Moreover, recession fears could lend support to the buck and support prospects for the emergence of some dip-buying.

Investors, meanwhile, remain worried about the economic headwind stemming from rapidly rising borrowing costs and the protracted Russia-Ukraine war, which should keep a lid on any optimism in the markets. Furthermore, concerns that a deeper global economic downturn will dent fuel demand might cap the upside for the black liquid. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the upside.

Hence, any subsequent slide back towards the 1.3700 mark might still be seen as a buying opportunity. Traders now look forward to the US economic docket, featuring Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Existing Home Sales data. This, along with speeches by influential FOMC members, the US bond yields and the broader risk sentiment, will drive the USD and provide some impetus to the USD/CAD pair.

Technical levels to watch

• EUR/USD consolidates the biggest daily loss in a fortnight, picks up bids of late.
• Headlines from China, a pause in the yields’ run-up near multi-year high triggered latest rebound.
• Buyers remain unconvinced as fears of recession, aggressive central bank actions stay on the table.

EUR/USD renews its intraday high around 0.9790 amid the fresh decline in the US dollar heading into Thursday’s European session. In doing so, the quote pares the previous day’s losses, the biggest in two weeks, amid an absence of major data/events.

China’s debate on reducing quarantine time for international travelers seemed to have triggered the US dollar’s latest weakness amid a likely sluggish session. With this, the US Dollar Index (DXY) reverses the Asian session gains and prints 0.12% loss on the day as it refreshes intraday low to 112.77 at the latest.

Even so, the S&P 500 Futures print mild losses while staying around 3,700 by the press time.

Previously, US 10-year Treasury yields refreshed a 14-year high above 4.0%, around 4.15% by the press time while its two-year counterpart stays strong near the highest level since 2007, up 0.30% intraday near 4.57% at the latest.

It should be noted that the fears of higher inflation and the resulted aggressive rate hikes from the major central banks that previously propelled the US Treasury yields and the US dollar.

Moving on, a light calendar and a sudden shift in the risk profit could probe the EUR/USD from declining further. However, the recovery remains doubtful unless the yields start deteriorating and the DXY also ease, which is less expected.

Technical analysis

Unless staying below the weekly support line, now resistance around 0.9830, EUR/USD stays directed towards an upward-sloping trend line support from September 28, close to 0.9675 at the latest.

• An escalation in the risk-off impulse has accelerated nervousness in Asian equities.
• An unchanged PBOC monetary policy has triggered a sell-off in China’s indices.
• Oil prices soar as EIA reported a decline in oil stockpiles by 1.725M barrels.

Markets in the Asian domain are displaying a vulnerable performance following the weak trend from S&P500. Equities are facing an intense sell-off amid a firmer rebound in the risk-off sentiment. Upbeat returns on the US government bonds have dragged the risk-sensitive assets into a negative trajectory. The 10-year US Treasury yields have recorded a fresh 14-year high at 4.15%. Returns on US bonds have lured investors, which has resulted in the liquidation of equities.

At the press time, Japan’s Nikkei225 tumbled 1.04%, ChinaA50 dropped almost 1%, Hang Seng plunged 1.66%, and Nifty50 eased 0.27%.

When the mighty US sneezes other countries catch a cold. Weak economic prospects revealed in Federal Reserve (Fed)’s Beige Book triggered the risk-off market mood and a flight of safety to the US dollar index (DXY). The DXY pushed towards the round-level resistance of 113.00. At the time of writing, the DXY has slipped to near 112.80 as S&P500 futures have trimmed their losses, however, the sentiment has not turned positive yet.

An announcement of an emergency bond-buying program worth $667 million by the Bank of Japan (BOJ) has triggered the risk of further weakness in the Japanese yen. The announcement followed commentary from Japan Prime Minister Fumio Kishida in which he cited the risk of weaker economic prospects due to external demand shocks.

Meanwhile, Chinese equities have witnessed an intense sell-off after the People’s Bank of China (PBOC) maintained the status quo by keeping Prime Lending Rate (PLR) unchanged. The one-year and five-year PLR remained steady at 3.65% and 4.30% respectively.

On the oil front, oil prices have climbed above $85.00 firmly after the Energy Information Administration (EIA) disclosed in decline in oil stockpiles by 1.725M barrels last week ending October 16.

In the opinion of Markets Strategist Quek Ser Leang and Economist Lee Sue Ann at UOB Group, EUR/USD is now expected to navigate within the 0.9670-0.9860 range in the next few weeks.

Key Quotes

24-hour view: “The sharp drop in EUR to a low of 0.9755 came as a surprise (we were expecting EUR to edge higher). The rapid decline appears to have room to extend even though a break of 0.9715 appears unlikely. The major support at 0.9670 is not expected to come into view. Resistance is at 0.9790, followed by 0.9830.”

Next 1-3 weeks: “Our view from two days ago (18 Oct, spot at 0.9845) where ‘the risk of a clear break above 0.9900 is increasing’ was invalidated as EUR dropped below our ‘strong support’ level of 0.9770 yesterday. The price actions suggest EUR remains in a broad consolidation range and is likely to trade between 0.9670 and 0.9860 for the time being.”

• USD/CAD pares intraday gains inside a three-day-old triangle formation.
• RSI conditions, 50-HMA add to the downside filters.
• Bulls need a successful break of 1.3800 for conviction.

USD/CAD grinds lower around 1.3770 during early Thursday morning in Europe, after a two-day uptrend, as traders await a clear break of immediate triangle support. In doing so, the Loonie pair portrays the market’s indecision.

Other than the three-day-old symmetrical triangle’s support line, the firmer RSI (14) also keeps the USD/CAD buyers hopeful.

Even if the quote drops below 1.3765 immediate support, it needs validation from the 50-HMA support of 1.3750 to convince the USD/CAD sellers.

In that case, the pair could quickly drop to the weekly low near 1.3655 before declining toward the monthly low surrounding the 1.3500 round figure.

Meanwhile, recovery moves need to cross the aforementioned triangle’s resistance line, around 1.3800 by the press time, to recall the USD/CAD buyers.

Following that, 1.3900 and the monthly high near 1.3980 could entertain the bulls before flashing the 1.4000 mark on the chart.

It’s worth noting that the USD/CAD pair’s successful run-up beyond 1.4000 won’t hesitate to aim for the May 2020 high near 1.4175.

To sum up, USD/CAD is likely to remain on the bull’s radar despite the latest inaction. However, a downside break of 1.3750 might trigger a short-term correction.

USD/CAD: Hourly chart

Trend: Bullish

• GBP/USD languishes near the weekly low through the Asian session on Thursday.
• The UK political uncertainty, bullish USD continue to act as a headwind for the pair.
• A sustained weakness below the 1.1200 mark is needed to confirm a bearish break.

The GBP/USD pair slides back closer to the lower end of its weekly range during the Asian session on Thursday, though shows some resilience below the 1.1200 round-figure mark. The modest intraday bounce, however, meets with some supply ahead of the mid-1.1200s amid the underlying bullish sentiment surrounding the US dollar.

Firming expectations that the Federal Reserve will stick to its aggressive rate-hiking cycle to tame inflation remains supportive of elevated US Treasury bond yields and act as a tailwind for the buck. Apart from this, a weaker risk tone offers additional support to the safe-haven greenback and should cap the upside for the GBP/USD pair amid the UK political uncertainty.

From a technical perspective, spot prices earlier this week faced rejection near a resistance marked by a downward sloping trend-line extending from late August. The subsequent downfall reaffirms the hurdle and favours bearish traders. That said, oscillators on the daily chart are yet to confirm a negative bias and warrant some caution before positioning for further decline.

That said, sustained weakness below the 1.1200 mark should pave the way for a sharp fall towards the next relevant support near the mid-1.1100s. The downward trajectory could further get extended and drag the GBP/USD pair towards the 1.1100 mark en route to the 1.1055-1.1050 support sone. Spot prices could eventually drop back to challenge the 1.1000 psychological mark.

On the flip side, the daily peak, around the 1.1240 area, now seems to act as an immediate resistance, which, if cleared, might trigger a short-covering bounce. Any subsequent move up, however, is likely to attract fresh sellers near the 1.1300 mark. This, in turn, should cap the upside near the 1.1335-1.1345 region. This is closely followed by the aforementioned trend-line resistance.

GBP/USD daily chart

Key levels to watch

• GBP/JPY struggles fighting bears as it retreats from intraday high.
• Yields refresh multi-year top amid inflation woes but Japan policymakers resist meddling.
• UK PM Truss lost another supporter while Tory whips survived vote on fracking.
• Risk catalysts are crucial amid a light calendar, sellers could keep the reins unless Tokyo intervenes.

GBP/JPY extends pullback from intraday high heading into Thursday’s London open, retreating to 168.00 after a two-day downtrend. In doing so, the cross-currency pair portrays the market’s indecision amid strong yields and political pessimism in the UK.

That said, US 10-year Treasury yields refresh a 14-year high above 4.0%, around 4.14% by the press time while its two-year counterpart stays strong near the highest level since 2007, up 0.30% intraday near 4.57% at the latest.

It’s worth noting that China’s debate on reducing quarantine time for international travelers seemed to have triggered the GBP/JPY pair’s latest uptick, before it dropped.

Even so, the quote remains on the bear's radar amid wide divergence between the monetary policies of the Bank of Japan (BOJ) and the Bank of England (BOE), as well as due to the looming intervention by the Japanese policymakers to defend the yen.

Talking about the UK’s political jitters, UK PM Liz Truss had to forgo Interior Minister Suella Braverman, over a "technical" breach of government rules, per Reuters, after losing Kwasi Kwarteng, the ex-Chancellor.

However, the Tory Chief Whip and Deputy survived Wednesday’s voting in the British Parliament. “The motion by the main opposition Labour Party was defeated by 326 votes to 230 and the government proposal won, but some lawmakers said they were angry over the tactics, or lack of them, used by the government,” said Reuters.

Elsewhere, broadly firmer inflation numbers from Britain, Eurozone and Canada, as well as the hawkish Fed bets and pessimism conveyed by the Fed’s Beige Book, seem to weigh on the market’s risk appetite and the GBP/JPY prices.

Looking forward, GBP/JPY traders should pay attention to Japan’s money market moves and yields amid impending meddling from Tokyo, which in turn could propel the quote. However, the overall view remains bearish for the short term unless UK politics has anything major positive to cheer about.

Technical analysis

While failures to successfully cross the 170.00 psychological magnet lures GBP/JPY sellers, a convergence of the 10-DMA and monthly support line, around 165.20, appears crucial for buyers before relinquishing control.

• USD/INR has shifted into unchartered territory above 83.00 as DXY soars above 113.00.
• Fed’s Beige Book has cited risks of soaring inflation and weakening domestic demand.
• RBI’s intervention has failed to hold the USD/INR rally.

The USD/INR pair is holding itself above the critical hurdle of 83.00 in the opening session citing US yields as responsible for the sheer depreciation in the Indian rupee against the mighty greenback. On Wednesday, the asset made a historic move after smashing the 83.00 hurdle for the first time. Investors dumped the Indian currency amid a flight of safety to the US dollar index (DXY).

The market participants ditched risk-perceived currencies as the risk-off impulse shot after getting weaker cues on US economic prospects from Federal Reserve (Fed)’s Beige Book. Discretionary spending has been hit hard amid soaring interest rates, mounting inflationary pressures, and supply chain disruptions. Also, sales of automobiles have trimmed as investors have postponed demand for durables to avoid higher interest obligations.

In addition to that, inflation has remained elevated due to rising input prices. Headline inflation has been impacted due to declining gasoline prices. While labor demand has been moderated as firms have terminated recruitment services due to weaker demand ahead.

Cited risk of escalating inflation in the US economy has sent yields on fire. The 10-year US Treasury yields have refreshed a 14-year high at 4.15% amid accelerating odds for hawkish Fed bets.

Meanwhile, intervention attempts from the Reserve Bank of India (RBI) have failed to block the DXY. The USD/INR pair has shifted into unchartered territory.

On the oil front, oil prices have climbed above the crucial resistance of $85.00 vigorously. Investors have shrugged off the headwinds of additional oil release from the US Strategic Petroleum Reserve (SPR) for oil prices. It is worth noting that India is a leading importer of oil and costly oil widens its fiscal deficit.

• AUD/USD stays offered near intraday low after breaking one-week-old support line.
• Bearish MACD signals, downbeat RSI adds strength to the downside bias.
• 61.8% FE levels could lure bears past yearly low.
• Convergence of 21 and 50 SMA could act restrict short-term recovery.

AUD/USD bears are en route to the yearly low as they keep the reins around 0.6230 after breaking short-term key support during early Thursday in Europe. Also keeping sellers hopeful are the bearish MACD signals and the downbeat RSI (14), not oversold.

That said, the 0.6200 and October 14 swing low near 0.6195 can offer an intermediate halt during the quote’s likely slump toward the 2.5-year low of 0.6170.

Following that, the 61.8% Fibonacci Expansion (FE) of the AUD/USD pair’s October 04-14 moves, close to 0.6110, will lure the sellers. Also acting as the downside filter is the 0.6100 round figure.

In a case where AUD/USD drops below 0.6100, it won’t hesitate to challenge the 0.6000 psychological magnet.

Alternatively, recovery moves will initially struggle around the support-turned-resistance from October 13, near 0.6255, before convergence of the 21-SMA and 50-SMA, around 0.6280 at the latest, could challenge the AUD/USD bulls.

Even if the pair crosses the 0.6280 hurdle, a broad resistance area established since late September could challenge the further upside between 0.6345 and 0.6365.

AUD/USD: Four-hour chart

Trend: Further downside likely

• Gold price has displayed a rebound move at $1,622.50, downside seems favored amid soaring yields.
• Risk sentiment turned extremely sour after Fed’s Beige Book warned risk of elevating inflation.
• US Labor demand has been moderated in anticipation of an economic slowdown.

Gold price (XAU/USD) has displayed a rebound move after refreshing a three-week low at $1,622.50. The precious metal has sensed buying interest as momentum oscillators have turned oversold at intraday timeframe. However, further downside is still favored amid negative market sentiment.

The US dollar index (DXY) has refreshed its day’s high at 113.06 and is aiming to establish above the 113.00 hurdle. Risk sentiment turned extremely sour on Wednesday after the minutes from Federal Reserve (Fed)’s Beige Book cited various risks.

According to the Fed’s Beige Book, price pressures are still elevating amid rising inputs prices used by firms for production, however, the fuel and freight costs have declined amid weaker gasoline prices. Labor demand has turned moderate as firms have preferred the postponement of recruitment services in anticipation of an economic slowdown.

Meanwhile, the 10-year US Treasury yields have climbed to near 4.15% amid soaring Fed bets. As per the CME FedWatch tool, chances for a fourth consecutive 75 basis point (bps) rate hike carry more than 95%.

Gold technical analysis

On an hourly scale, the gold prices are declining towards the two-year placed at $1,614.85, recorded on 28 September 2022. The 20-period Exponential Moving Average (EMA) at $1,631.90 is trending south, which adds to the downside filters.

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

• NZD/USD has recorded the day’s low below 0.5630 amid a heated market mood.
• Weaker economic prospects cited by Fed’s Beige Book have soured risk impulse.
• An unchanged PBOC’s monetary policy has brought volatility for the kiwi bulls.

The NZD/USD pair has tumbled to near 0.5630 as downside momentum was triggered after dropping below Wednesday’s low at 0.5650 in the Tokyo session. The asset has witnessed a steep fall amid headwinds of souring market mood and the maintenance of status-quo by the People’s Bank of China (PBOC).

Negative market sentiment has extended losses in the S&P500 futures after a bearish Wednesday. The US dollar index (DXY) is holding its gains above 113.00 and is likely to remain upbeat till further notice from the risk impulse. Meanwhile, the returns on US government bonds are skyrocketing amid accelerating odds for further policy tightening by the Federal Reserve (Fed). The 10-year US Treasury yields are playing around 4.15%.

Also, risks cited by Federal Reserve (Fed)’s Beige Book have triggered risk-off profile. According to the minutes from Fed’s Beige Book, economic activities have remained flat or scaled down in different districts led by a slowdown in retail spending.

In early Tokyo, an unchanged monetary policy by the PBOC weakened the kiwi bulls. The PBOC kept the Prime Lending Rate (PLR) stale despite a slowdown in economic prospects and the vulnerable real estate market. The one-year and five-year PLR remained steady at 3.65% and 4.30% respectively. It is worth noting that New Zealand is a leading trading partner of China and a stable PBOC monetary policy has dented the sentiment of kiwi investors.

This week, the NZ Trade Balance data will be of utmost importance. As per the consensus, the annual fiscal deficit will trim to $-13.19B vs. the prior release of $-12.28B. An occurrence of the same may bring volatility for the kiwi bulls.

• EUR/USD licks its wounds around intraday low during two-day downtrend.
• Inflation woes propel US Treasury yields towards multi-year high, hawkish Fedspeak strengthens bond rout.
• DXY ignores mixed housing data, EUR fails to cheer upbeat EU inflation amid risk-aversion.
• Second-tier US statistics can entertain traders as bears keep the driver’s seat.

EUR/USD seesaws around intraday low as bears take a breather after the biggest daily fall in two weeks during early Thursday morning in Europe. That said, the major currency pair takes rounds to 0.9760-70 despite picking up bids of late.

The quote’s weakness could be linked to the market’s growing fears of economic slowdown as inflation remains firmer and the central bankers refrain to step back from the hawkish path. Also weighing on the quote could be China’s covid conditions and Russia’s aggression in the fight with Ukraine, as well as the recent Sino-American tensions over Taiwan.

That said, Eurozone Inflation, as per the Harmonised Index of Consumer Prices (HICP) measure, surged 9.9% YoY in September versus 10.0% initial forecasts. Elsewhere, the UK’s Consumer Price Index (CPI) refreshed a multi-year high and price pressure in Canada also remained elevated.

Considering the data, policymakers from Europe and the US central banker reiterated their hawkish bias. Chicago Fed President Charles Evans said that (they) need to make sure inflation pressures don't broaden further, which in turn suggests more rate hikes despite the recession woes.

It should be noted that the Fed’s Beige Book added to the market’s fears by showing increased pessimism among the respondents. Also important to note is the latest print of the CME’s FedWatch Tool marking 95% chance of the Fed’s 75 bps rate hike in November.

Amid these plays, US 10-year Treasury yields refresh a 14-year high above 4.0%, around 4.14% by the press time while its two-year counterpart stays strong near the highest level since 2007, up 0.30% intraday near 4.57% at the latest. It should be noted that the S&P 500 Futures drop 0.60% intraday as bears attacked 3,685 level after reversing from a fortnight top the previous day.

Looking forward, EUR/USD traders may pay attention to the second-tier employment and housing numbers from the US, as well as Eurozone Producer Price Index (PPI) for intermediate directions. However, major attention will be given to the risk catalysts and yields for a clear view amid downside bias.

Technical analysis

A clear downside break of the weekly support line, now resistance around 0.9830, directs EUR/USD bears towards an upward-sloping trend line support from September 28, close to 0.9675 at the latest.

“Japan's central bank on Thursday said it would hold emergency bond-buying operations, offering to buy some $667 million in government debt, a move designed to put a floor under bond prices,” said Reuters.

Key quotes

USD/JPY stays around 149.90-95

The news seems to challenge the USD/JPY bulls who are on their way to 150.00 while refreshing the 32-year high.

Also read: Japan PM Kishida: Economy faces risks from overseas developments

Japanese Prime Minister Fumio Kishida said on Thursday the government will take into account heightening downside risks from overseas economies in deciding on the size of spending in an upcoming stimulus package.

"Overseas economic developments are likely to work against Japan's economy next year. We will take this into account in considering the size of the spending package," added Japan PM Kishida while speaking at the parliament.

USD/JPY flirts with 150.00 near 32-year high

USD/JPY remains sidelined around 149.90-95 after refreshing the 32-year high earlier in the day. The yen pair’s latest inaction could be linked to the cautious mood near the 150.00 psychological magnet, as well as a light calendar. However, strong yields keep buyers hopeful.

Also read: S&P 500 Futures stays bearish as Treasury yields renew multi-year high

• USD/CNH seesaws around all-time high, struggles to defend bulls of late.
• PBOC left benchmark one-year LPR unchanged at 3.65%.
• 13-day-old resistance line guards immediate upside, bears remain absent beyond two-month-old support.
• Overbought RSI, nearness to short-term key resistances suggest that bulls are running out of steam.

After refreshing the record high of 7.2790 earlier in the day, USD/CNH remains sidelined near 7.2660 during Thursday’s Asian session. In doing so, the offshore Chinese yuan (CNH) pair takes clues from the People’s Bank of China’s (PBOC) inaction, as well as overbought RSI (14) near the short-term key resistance.

“China kept its benchmark lending rates unchanged for a second straight month on Thursday, in line with expectations, as authorities held off unleashing more monetary stimulus to avoid stark policy divergence with other major economies,” said Reuters. The news also mentioned that PBOC kept one-year and five-year loan prime rates (LPR) unchanged at 3.65% and 4.30% respectively.

Also read: China left the one-year loan prime rate unchanged at 3.65%, five-year loan prime rate unchanged at 4.30%

Technically, USD/CNH has little room to the upside as overbought RSI (14) challenges the bulls near an upward-sloping resistance line from October 03, around 7.2930 by the press time,

Following that, an ascending resistance line from May, around 7.3380 will gain the USD/CNH buyer’s attention.

On the flip side, 21-DMA and a two-month-old support line, respectively near 7.1555 and 7.1220, restrict the short-term downside of the USD/CNH pair, a break of which could convince sellers to refresh the monthly low, around 7.0130 at the latest.

USD/CNH: Daily chart

Trend: Pullback expected

• Market sentiment remains sour as inflation woes join grim geopolitical catalysts.
• S&P 500 Futures extend Wednesday’s pullback from two-week high.
• US 10-year Treasury yields refresh 14-year high, 2-year bond coupons rally to the highest since 2007.
• Risk catalysts, Fedspeak the key to watch amid growing market fears.

Risk-aversion remains on the table during early Thursday, after returning from a break the previous day, amid fears of higher inflation and central bankers’ aggression recalling the economic slowdown. Also weighing on the mood could be the risk-negative headlines from China and Russia.

While portraying the mood, the S&P 500 Futures drop 0.60% intraday as bears attack 3,685 level after reversing from a fortnight top the previous day. It’s worth noting that Wall Street snapped a two-day uptrend on Wednesday amid the risk-off mood.

Elsewhere, US 10-year Treasury yields refresh a 14-year high above 4.0%, around 4.14% by the press time while its two-year counterpart stays strong near the highest level since 2007, up 0.30% intraday near 4.57% at the latest.

The sour sentiment could be the broadly firmer inflation numbers from Britain, Eurozone and Canada, as well as the hawkish Fed bets and pessimism conveyed by the Fed’s Beige Book.

As per the CME’s FedWatch Tool, markets price in around 95% chance of the Fed’s 75 bps rate hike in November. The hawkish Fed wagers seem to justify the upbeat comments from the Federal Reserve (Fed) policymakers and raise fears of economic slowdown.

Recently, Chicago Fed President Charles Evans said that (they) need to make sure inflation pressures don't broaden further, which in turn suggests more rate hikes despite the recession woes. It should be noted that the Fed’s Beige Book added to the market’s fears by showing increased pessimism among the respondents.

It should be noted that China’s covid conditions and Russia’s aggression in the fight with Ukraine, as well as the recent Sino-American tensions over Taiwan, seem to act as an additional challenge for the market players.

That said, fears of a recession could keep the risk-aversion intact amid a light calendar, which in turn could propel the US dollar’s safe-haven demand while challenging the prices of commodities and Antipodeans.

• Silver price remains pressured around intraday low, down for the second consecutive day.
• Bearish oscillators, U-turn from 61.8% Fibonacci retracement suggest XAG/USD’s further downside.
• 10-DMA adds strength to the $19.00 upside hurdle, three-month-old support challenge sellers.

Silver price (XAG/USD) stays on the back foot at around $18.30 as bears attack the short-term key support line during Thursday’s Asian session. In doing so, the bright metal extends the previous day’s losses while approaching the weekly low.

Given the metal’s pullback moves from the 61.8% Fibonacci retracement level of September-October upside joining the bearish MACD signals and downbeat RSI (14), not oversold, the XAG/USD is likely to remain weak.

However, the RSI line is quickly approaching the oversold territory and the prices are also near the strong support zone comprising multiple levels marked since early July, around $18.00.

Even if the quote declines below $18.00, the yearly low near $17.55 could act as the additional downside filter for the bullion.

Hence, the silver bears have limited downside room to cheer.

On the flip side, the 10-DMA joins the 61.8% Fibonacci retracement level to highlight the $19.00 as a strong near-term resistance.

Following that, multiple hurdles near $19.15-20 may test the silver buyers before directing them to the $20.00 threshold.

In a case where XAG/USD stays firmer past $20.00, tops marked in August and earlier in the month, respectively near $20.90 and $21.25, will be in focus.

Silver: Daily chart

Trend: Limited downside expected

• USD/CAD is marching towards 1.3800 as the market mood has soured amid soaring yields.
• Fed’s Beige Book has indicated labor demand moderation due to economic slowdown anticipation.
• Oil prices have recovered firmly despite an addition in global oil supply from US SPR.

The USD/CAD pair has picked bids around 1.3760 and is aiming to recapture the critical hurdle of 1.3800. The greenback bulls have been underpinned as the market mood has soured further. S&P500 futures have extended their losses after a weak Wednesday session.

The US dollar index (DXY) has climbed to Wednesday’s high at around 113.10 in the early trade and is expected to surpass the same with less effort. Also, the 10-year US Treasury yields have jumped to 4.15% amid soaring bets for a bigger rate hike by the Federal Reserve (Fed).

Fresh demand was witnessed in the mighty DXY after the Fed’s Beige Book cited risks of elevating inflation and weak domestic demand due to higher interest rates, supply chain disruption, and mounting price pressures. Sales for automobiles have turned sluggish amid higher vehicle prices and higher interest obligations upon the same.

Adding to that, economic activities have remained flat in major districts and labor demand has moderated as firms have ditched the recruitment process in anticipation of an economic slowdown.

Meanwhile, Chicago Fed President Charles Evans cited that the US central bank “Needs to make sure inflation pressures don't broaden further,” He believes that the Fed should have started tightening the monetary policy six months earlier than their first rate hike in March 2022 post-pandemic.

This week, Canada’s inflation data remained in the spotlight. The headline Consumer Price Index (CPI) escalated to 6.9% against projections of 6.8%. While the core CPI soared to 6.0% from the expectations of 5.6%.

In response to the higher-than-projected inflation rate, Analysts at CIBC believe the Bank of Canada (BOC) will need to hike rates by 75 basis points (bps) next week, against the 50 bps previously anticipated.

On the oil front, oil prices have rebounded firmly to near $85.00 despite the announcement of oil release by US President Joe Biden. A release of 15 million barrels of oil to balance the demand-supply mechanism from the US Strategic Petroleum Reserve (SPR) may conclude the rally sooner.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1188 vs. the estimated 7.1438 and the prior 7.1105.

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.

China left the one-year loan prime rate unchanged at 3.65% and the five-year loan prime rate unchanged at 4.30% as expected.

More to come. 

• GBP/USD remains pressured around intraday low during three-day downtrend.
• UK PM Truss loses another supporter but stays in power, Tory whips also sustain vote on fracking.
• Strong UK inflation, Hunt’s dismissal of “mini-budget” proposals fail to impress buyers.
• Risk-off mood, firmer yields underpin US dollar demand.

GBP/USD holds onto the bearish bias for the third consecutive day as sellers attack 1.1200 amid sluggish Thursday. The cable pair’s weakness could be linked to the broad risk-off mood, as well as the political pessimism in Britain.

After losing Kwasi Kwarteng, the ex Chancellor, UK PM Liz Truss had to forgo Interior Minister Suella Braverman, over a "technical" breach of government rules, per Reuters, which in turn raise questions on the future life of the present Tory government team. Even so, the Tory Chief  Whip and Deputy survived Wednesday’s voting in the British Parliament. “The motion by the main opposition Labour Party was defeated by 326 votes to 230 and the government proposal won, but some lawmakers said they were angry over the tactics, or lack of them, used by the government,” said Reuters.

Elsewhere, a jump in the US Treasury yields and risk-negative catalysts enables the US Dollar Index (DXY) regain its upside trajectory and weigh on the GBP/USD prices.

That said, US 10-year Treasury yields refreshed a 14-year high above 4.0% as market players rushed towards the risk-safety. The same weighed on the Wall Street and S&P 500 Futures afterward.

Behind the risk aversion could be the broadly firmer inflation numbers from Britain, Eurozone and Canada, as well as the hawkish Fed bets and pessimism conveyed by the Fed’s Beige Book.

As per the CME’s FedWatch Tool, markets price in around 95% chance of the Fed’s 75 bps rate hike in November. The hawkish Fed wagers seem to justify the upbeat comments from the Federal Reserve (Fed) policymakers and raise fears of economic slowdown. Recently, Chicago Fed President Charles Evans said that (they) need to make sure inflation pressures don't broaden further, which in turn suggests more rate hikes despite the recession woes. It should be noted that the Fed’s Beige Book added to the market’s fears by showing increased pessimism among the respondents.

Moving on, GBP/USD witness further downside amid a light calendar but the political jitters in the UK can keep the bears hopeful.

Technical analysis

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 GBP/USD pair.

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

''Interest rates that move too high could have a "nonlinear" impact on the economy as businesses become more pessimistic about the future, Chicago Fed President Charles Evans said on Wednesday, mapping out a case for caution in the central bank's battle against high inflation,'' Reuters reported in Tokyo trade:

The Fed currently projects its target federal funds rate will rise to 4.6% next year, and Evans said that "if we have to increase the path of the fund rate much more ... it really does begin to weigh on the economy." "I worry that it's sort of a nonlinear kind of impact ... with businesses becoming very pessimistic and changing their strategies in a sort of notable way," Evans said in remarks to reporters after an event at the University of Virginia.

Key notes

• If the Fed pushes the policy rate much further than planned it could start to weigh on the economy.
• Worried that at some point rate increases could have a "nonlinear" impact, with businesses becoming more pessimistic.
• Fed "honing in" on the proper level for restrictive monetary policy. 
• Following Sept. cpi still sees a policy rate next year of 4.5 to 4.75% range as appropriate.
• Don't think u.s. is embarking on a wage-price spiral, but inflation risk remains to the upside.
• Low unemployment, and consumer strength still leaves a path for a soft landing, though "closer call than normal".
• Fed facing hard communications challenge as it approaches a point to slow the pace of rate increases.

Meanwhile, the Fed 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. 

US dollar update

As for the US dollar, it rallied from two-week lows mid-week 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 and is now breaking structure on the DXY daily chart as follows:

• AUD/USD struggles for clear directions while staying low of late.
• Australia’s Employment Change rose less than expected, Unemployment Rate steadied in September, Q3 NAB Business Confidence improved.
• Bond bears take a breather after yields rally to multi-year high, restrict immediate downside of the pair.
• PBOC’s Interest Rate Decision, risk catalysts will be crucial for clear directions as bears keep the reins.

AUD/USD remains on the back foot around 0.6250 despite mixed Aussie statistics as risk-aversion and hawkish Fed bets propel the US dollar during Thursday. The Aussie pair’s resistance to refresh the weekly low could be linked to the anxiety ahead of the People’s Bank of China’s (PBOC) monetary policy meeting.

Australia’s headline Employment Change rose 0.9K versus 25K expected and 33.5K prior while the Unemployment Rate and Participation Rate matched market forecasts of printing 3.5% and 66.6% figures respectively.

Also read: Breaking: Aussie jobs sinks AUD as headline misses the mark

It should be noted that the National Australia Bank's (NAB) quarterly Business Confidence figures rose to 9 versus 5 expected and 7 prior and restricts the AUD/USD pair’s immediate downside.

Also challenging the AUD/USD pair sellers are the sluggish Treasury yields as the bond traders take a breather after a volatile day. That said, US 10-year Treasury yields refreshed a 14-year high to 4.14% yesterday, around 4.13% by the press time, as market players rushed towards the risk-safety. The same weighed on the Wall Street and S&P 500 Futures afterward.

Fears of higher inflation and the central bank’s aggression joined downbeat headlines from China and the UK to weigh on the risk appetite and the AUD/USD.

As per the CME’s FedWatch Tool, markets price in around a 95% chance of the Fed’s 75 bps rate hike in November. The hawkish Fed wagers seem to justify the upbeat comments from the Federal Reserve (Fed) policymakers and raise fears of economic slowdown.

Recently, Chicago Fed President Charles Evans said that (they) need to make sure inflation pressures don't broaden further, which in turn suggests more rate hikes despite the recession woes. It should be noted that the Fed’s Beige Book added to the market’s fears by showing increased pessimism among the respondents.

Looking forward, the PBOC interest rate decision may act as another downside filter for the AUD/USD pair as it is likely to keep the benchmark rate unchanged at 3.65%. However, the sour sentiment and hawkish Fed bets, versus the Reserve Bank of Australia’s (RBA) reluctance to go strong with rate hikes, can keep the AUD/USD directed towards the south.

Technical analysis

Bears remain in the driver’s seat unless the quote defies a six-week-old descending trend channel, by surpassing the 0.6285 hurdle.

• AUD/NZD has turned volatile as Australian payroll data has trimmed to 0.9k.
• Australian jobless rate has remained in line with the estimates and the prior release of 3.5%.
• Consideration of a slowdown in the current pace of rate hike for the RBNZ is out of the picture.

The AUD/NZD pair is gyrating in a 1.1054-1.1064 range as the Australian Bureau of Statistics has reported weak labor market data. The Employment Change has dropped sharply to 0.9% than the projections of 25k and the prior release of 33.5k. While the Unemployment Rate has been released in line with the estimates and the former figure of 3.5%. 

Soft labor market data is not going to delight the Reserve Bank of Australia (RBA). The central bank won’t be able to hike the Official Cash Rate (OCR) unhesitatingly.

Apart from that, National Australia's Bank (NAB) Business Confidence has accelerated to 9 against the expectations of 7 and the prior figure of 5.

This week, the release of the RBA’s minutes hogged the limelight. The minutes dictated that RBA Governor Philip Lowe went for a slowdown in the pace of rate hike to safeguard the economy from domestic and global demand shocks. Also, the central bank pushed OCR to 2.6% in a short period of time, therefore, it has some liberty to prioritize the economic prospects too.

On the NZ front, kiwi bulls remained underpinned 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%.

Higher-than-anticipated kiwi inflation signaled that discussion over slowing the pace of rate hike for the Reserve Bank of New Zealand (RBNZ) is far from consideration.

Australia has released its jobs data as follows: 

• Australian Employment Change Sep: 0.9K (est 25.0K; prev 33.5K).
• Unemployment Rate Sep: 3.5% (est 3.5%; prev 3.5%).
• Participation Rate Sep: 66.6% (est 66.6%; prev 66.6%).

AUD/USD update

Australia was expected to have created 25,000 new job positions in September, so this is a downer for the Aussie.

AUD/USD has been somewhat supported by a hawkish outlook by the Reserve Bank of New Zealand and recent minutes from the Reserve Bank of Australia that underpinned sentiment for continuing policy to battle possible continued inflationary headwinds. However, the headline comes to the contrary and will likely unsettle the Aussie bulls. At the time of writing, the currency is pressured by some 10 pips on the knee jerk, so far.

More to come....

About the Aussie jobs report

The Employment Change released by the Australian Bureau of Statistics is a measure of the change in the number of employed people in Australia. Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, a high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or bearish).

Japanese Finance Minister Shunichi Suzuki said on Thursday that he would closely watch the foreign currency market with a sense of urgency. He made the comments to reporters as USD/JPY hovered around a 32-year high against the yen near a key psychological barrier of 150.

USD/JPY rallied to fresh bull cycle highs, touching 149.89 on Wednesday. 

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

• The DXY is expected to break above 113.00 as the risk-on impulse has faded.
• Fed policymakers have turned extremely hawkish amid accelerating price pressures.
• Fed’s Beige Book has cited risks of price growth, labor demand moderation, and sluggish demand.

The US dollar index (DXY) is hovering around the immediate hurdle of 113.00 in the Tokyo session. The asset has turned into a rangebound structure after a juggernaut rally at Tuesday’s low of 111.80. Losses recorded from the previous week’s high of 113.88 have recovered majorly after the risk-on impulse surrendered.

The release of the Federal Reserve (Fed)’s Beige Book cited the risk of elevating inflation, which faded the optimism in the S&P500 backed by quarterly results declaration. Apart from that, returns on US government bonds soared like there is no tomorrow. The 10-year benchmark US Treasury yields refreshed a 14-year high at 4.14% as bets for a bigger rate hike by the Fed have accelerated.

Fed policymakers turn extremely hawkish

St. Louis Fed Bank President James Bullard indicates that the central bank will remain hawkish for a longer period. Fed policymaker believed that the central bank is expected to lift rates by another 75 basis points (bps) when it meets on November 1-2, with an additional 50 or 75 bps increase also likely in December. He further added that the Fed needs to visit the right rate level first and then approach data dependency for further decisions.

Also, Chicago Fed President Charles Evans cited that the US central bank “Needs to make sure inflation pressures don't broaden further,” He believes that the Fed should have started tightening the monetary policy six months earlier than their first rate hike in March 2022 post-pandemic.

Fed’s Beige Book warns of price growth

The release of the Fed Beige Book cited a slowdown in discretionary demand, an elevation in inflationary pressures, and a moderation in labor demand. Four Districts noted flat economic activity and two cited declines due to flat retail spending and a slowdown in discretionary consumption led by higher interest rates and inflation, and supply disruptions.  Automobile sales have remained sluggish due to higher vehicle prices.

The price of inputs has elevated while fuel and freight costs have declined due to a decline in gasoline prices. This has impacted the EBITDA margins presented by firms. Apart from that, labor demand has moderated as firms have ditched the payroll process in anticipation of an economic slowdown.

• Gold price holds lower ground near monthly low after falling the most in 12 days.
• Higher inflation renewed recession woes, China-linked headlines adds strength to the risk-off mood.
• DXY rebounds as US 10-year Treasury yields refresh 14-year high.
• Risk-off mood, firmer US dollar can keep XAU/USD bears hopes of witnessing fresh 2022 low.

Gold price (XAU/USD) refreshes the monthly low near $1,626 during Thursday’s mid-Asian session. That said, the yellow metal snapped two-day recovery the previous day while falling the most in a fortnight as sour sentiment joined firmer Treasury yields to underpin the US dollar’s rebound.

The US Dollar Index (DXY) regains 113.00 threshold after bouncing off a two-week low the previous day. In addition to the risk sentiment, the hawkish Fed bets also favored the greenback’s gauge versus the six major currencies, which in turn weighed on the bullion prices.

As per the CME’s FedWatch Tool, markets price in around 95% chance of the Fed’s 75 bps rate hike in November. The hawkish Fed wagers seem to justify the upbeat comments from the Federal Reserve (Fed) policymakers and raise fears of economic slowdown.

Recently, Chicago Fed President Charles Evans said that (they) need to make sure inflation pressures don't broaden further, which in turn suggests more rate hikes despite the recession woes. It should be noted that the Fed’s Beige Book added to the market’s fears by showing increased pessimism among the respondents.

The same joins the broadly firmer inflation numbers from Britain, Eurozone and Canada to inflation the economic woes and weigh on the XAU/USD prices. On the same line 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 China’s status as one of the world’s gold consumers, negative from Beijing drown the metal prices.

The US 10-year Treasury yields refreshed a 14-year high above 4.0% as market players rushed towards the risk-safety. The same weighed on the Wall Street and S&P 500 Futures afterward.

Moving on, gold prices are likely to witness further downside amid a light calendar in the US and anticipated inaction from the People’s Bank of China (PBOC) during its monetary policy meeting.

Technical analysis

A fortnight-old resistance line joins bearish MACD signals and downbeat RSI to direct gold price towards a horizontal support zone comprising lows marked during late September, around $1,620.

It should, however, be noted that the same could test the XAU/USD bears amid a nearly oversold RSI (14), a break of which will direct the fall towards the yearly low of $1,614, highlighting the $1,600 threshold.

Alternatively, the aforementioned resistance line, around $1,643, guards the quote’s immediate recovery moves ahead of the 21-DMA hurdle surrounding $1,665.

Even so, the gold buyers remain cautious unless the bullion provides a daily closing beyond the 50-DMA, around $1,700 by the press time.

Overall, the bears are likely to keep the reins but the downside room appears limited.

Gold: Daily chart

Trend: Limited downside expected

• EUR/USD pressured by the revival in the greenback.
• Risks in the UK and from the Fed continue to weigh on market sentiment. 

EUR/USD is entering Tokyo offered on a stronger US dollar that has been coming up for air in the second half of the week so far. Risk sentiment has been doused by ongoing disruptions in UK politics and US monetary policy skewed heavily to the hawkish side. At the time of writing, the euro is trading at 0.9765 vs the greenback which has rallied from a two-week low.

The benchmark 10-year Treasury yields rose to 14-year highs, and the greenback has hit another 32-year peak against the yen, approaching the 150 level at which some traders think the Bank of Japan and Ministry of Finance might intervene. All in all, the markets are squeamish which is sending a bid into the safe haven US dollar as traders look ahead to the Federal Reserve blackout week before when the central bank is expected to lift rates by another 75 basis points when it meets on November 1-2. Moreover, an additional 50 or 75 basis point increase is also likely for December. 

''Risk sentiment deteriorated overnight. Market relief at the UK unwinding most of their mini-budget gave way to angst as the focus returned to the global inflation backdrop, and the aggressive rate hikes that will be needed to tame an increasingly persistent inflation pulse,'' analysts at ANZ Bank said. In this regard, the outlook for the UK economy remains touch and go which could be taking some of the limelight from the eurozone that has otherwise been taking the brunt of the spotlight and negative feedback loop in markets for the best part of 2022. The euro managed to climb to a high of near 0.9280 towards the end of September and is still holding in bullish territories while above 0.8600. ''How the Eurozone copes this winter will be a strong determinant of whether the EUR can pull back some ground vs. GBP in the months ahead,'' the analysts at Rabobank said.

''We have been bearish of GBP for many months, and while a lot of bad news is now on the price, there is still too much uncertainty in both the UK economic and political outlooks for us to turn constructive on the outlook for GBP. Our 3-month forecast of 1.06 appears a little further away than it did a few days ago. Even so, we have not yet seen enough good news to revise this higher.''

Domestically, 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%.

Meanwhile, the euro net long positions dropped back having reached their strongest levels since early June the previous week. ''While ECB comments have enhanced the risks of further rates hikes in the coming months, concerns are mounting about the impact on the economy (and in particular the pressure on Germany’s industrial sector) from high energy costs,'' the analysts at Rabobank noted. 

• WTI crude oil pares the biggest daily gains in a week, stays sidelined of late.
• US shows readiness to release 15 million barrels of oil from SPR.
• Risk-aversion also challenges commodity’s recovery despite bullish EIA inventories.
• Risk catalysts are the key for fresh impulse as bears try to retake control.

WTI crude oil prices retreat to $84.50 during Thursday’s Asian session, after bouncing off the weekly low the previous day.

The black gold’s latest weakness could be linked to the US announcement surrounding the release of the Strategic Petroleum Reserve (SPR). Also weighing on the quote could be the risk-off mood, which underpins the US dollar’s safe-haven demand.

As a part of the announcements, US President Joe Biden said that 15 million barrels of oil will be offered from the Strategic Petroleum Reserve (SPR) - part of a record 180 million-barrel release that began in May, and added the United States is ready to tap reserves again early next year to rein in prices.

On the other hand, 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.

Adding to the risk-off mood, and weighing on WTI prices, were news surrounding 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.

In doing so, the black gold ignores weekly prints of stockpile data from the US Energy Information Administration (EIA). That said, the EIA Crude Oil Stocks Change dropped to -1.725M during the week ended on October 14 versus 1.38M expected and 9.88M prior.

Moving on, oil prices may witness hardships as the US-led efforts to ease the supply crunch fears join the broad risk-off mood to weigh on the prices. However, the OPEC+ output cut may help the black gold to push back the bears.

Technical analysis

An eight-day-old resistance line near $84.60 precedes the 21-day EMA level surrounding $85.30 to restrict short-term WTI upside. That said, a six-week-long horizontal support near $81.50 appears a strong downside level to challenge the oil bears.

• A Spring formation above 0.5500 triggered a short-term reversal in the asset.
• The kiwi bulls are solid above the 200-EMA despite a rebound in the risk-off impulse.
• An upside break of the downward-sloping trendline will expose the asset to hit 0.6000.

The NZD/USD pair has sensed barricades while attempting to cross the round-level resistance of 0.5700 and has dropped to near 0.5662 in the Tokyo session. A rebound in the risk-off impulse has weighed pressure on the kiwi bulls. Meanwhile, the US dollar index (DXY) has accelerated to near 113.00. It is worth noting that the responsiveness of the decline in the asset is extremely lower than the DXY’s recovery.

On an hourly scale, the asset rebounded firmly after Richard Wyckoff’s Spring formation, which indicates the climax of the selling pressure and investors make a fresh demand, considering the asset a value buy. The Spring has formed above the psychological support of 0.5500. Apart from that, the downward-sloping trendline from October 6 high at 0.5815 is acting as a major barricade for the counter.

The 200-period Exponential Moving Average (EMA) at 0.5650 is acting as a major cushion for the counter.

Meanwhile, the Relative Strength Index (RSI) (14) has surrendered the bullish range of 60.00-80.00, which indicates a loss in the upside momentum.

Should the asset oversteps the downward-sloping trendline plotted from October 6 high at 0.5815 decisively, kiwi bulls will drive the asset towards September 29 high at 0.5911, followed by the psychological resistance at 0.6000.

Alternatively, the greenback bulls will regain strength if the asset surrenders the two-year low at 0.5536, which will drag the asset toward March 2020 low at 0.5469. A slippage below the latter will expose the asset to the round-level cushion at 0.5400.

NZD/USD hourly chart

September month employment statistics from the Australian Bureau of Statistics, up for publishing at 00:30 GMT on Thursday, will be the immediate catalyst for the AUD/USD pair traders.

Market consensus suggests that the headline Unemployment Rate may remain unchanged at 3.5% on a seasonally adjusted basis whereas Employment Change could ease with 25K figures versus 33.5K prior. Further, the Participation Rate is also expected to remain unchanged at 66.6%.

Considering the Reserve Bank of Australia’s (RBA) recently cautious comments, via the latest Minutes and Deputy Governor Guy Bullock’s speech, coupled with the trouble in China, today’s Aussie jobs report become crucial for the AUD/USD pair traders.

In addition to the employment data, National Australia Bank’s (NAB) Business Confidence for the third quarter (Q3), expected 7 versus 5 prior, will also entertain the AUD/USD pair traders.

Ahead of the event, analysts at Westpac said,

How could the data affect AUD/USD?

Ahead of the data, AUD/USD depressed around 0.6270, despite the recent bounce off the weekly low, as traders await the key Australian 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.

That said, hopes of an upbeat Aussie jobs report could propel the AUD/USD to be fewer amid the broad pessimism surrounding economic slowdown and 75 bps Fed rate hike in September, not to forget doubts over the RBA’s next move. However, strong prints of the Employment Change and softer Unemployment Rate won’t go unnoticed and hence can provide a knee-jerk upside to the quote.

Considering this, FXStreet’s Valeria Bednarik says,

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

Key Notes

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

AUD/USD: On the back foot below 0.6300 ahead of Australia employment, PBOC

About the Employment Change

The Employment Change released by the Australian Bureau of Statistics is a measure of the change in the number of employed people in Australia. Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, a high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or bearish).

About the Unemployment Rate

The Unemployment Rate released by the Australian Bureau of Statistics is the number of unemployed workers divided by the total civilian labor force. If the rate hikes, indicates a lack of expansion within the Australian labor market. As a result, a rise leads to weaken the Australian economy. A decrease of the figure is seen as positive (or bullish) for the AUD, while an increase is seen as negative (or bearish).

• USD/CHF is aiming to overstep the 1.0060 hurdle amid a dismal market mood.
• Fed’s Beige Book has stated that price pressures are still elevated while the labor market is moderating.
• The 10-year US Treasury yields have refreshed their 14-year high at 4.14%.

The USD/CHF pair has terminated its minor correction from 1.0063 in early Asia and has resumed its upside journey. Earlier, the asset displayed a juggernaut rally to near 1.0063 as the risk-on profile lost its traction.

 A mild sell-off in S&P500 after a two-day winning spell trimmed investors’ risk appetite and improved the appeal for safe-haven assets. The US dollar index (DXY) is oscillating marginally below the immediate hurdle of 113.00 and is preparing for a break of the same. Also, the 10-year US Treasury yields have refreshed their 14-year high at 4.14% amid soaring bets for a bigger rate hike by the Federal Reserve (Fed).

On the Swiss franc front, investors are awaiting the release of the Trade Balance data. The economic data is expected to improve to 3,558M vs. the prior release of 3,424M.

The roadmap provided by St. Louis Fed Bank President James Bullard indicates that the central bank will remain hawkish for a longer period. Fed policymaker believed that the central bank is expected to lift rates by another 75 basis points (bps) when it meets on November 1-2, with an additional 50 or 75 bps increase also likely in December. He further added that the Fed needs to visit the right rate level first and then will approach data dependency.

Meanwhile, concerns for price pressures are still solid as the release of the Fed’s Beige Book has stated that price growth remained elevated although some easing was noted across several districts. Inputs for firms have become more expensive while some declines have been noted in the cost of fuel and freight. The labor demand is moderate as some firms are reluctant to add more payrolls on expectations of an economic slowdown.

• AUD/JPY takes offers to refresh daily low, extends previous day’s pullback form a two-week high.
• Yields refresh multi-year high as inflation data renew recession woes.
• Japan’s verbal intervention lures JPY bulls of late but actual action is necessary to avoid risk of a slump.
• Australia jobs report may offer intermediate relief to buyers.

AUD/JPY renews its intraday low around 93.90 while extending the previous day’s losses during early Thursday in Asia. In doing so, the cross-currency pair portrays the market’s cautious mood and the pair trader’s anxiety ahead of Australia’s monthly employment report, not to forget the People’s Bank of China’s (PBOC) monetary policy meeting.

It’s worth noting that the return of the risk-off mood on Wednesday joined the Japanese policymakers’ verbal attack on the drastic fall of the yen to weigh on the AUD/JPY prices. Also favoring the first fall in three days were headlines suggesting a push to the Bank of Japan (BOJ) towards policy change and lesser odds favoring the Reserve Bank of Australia (RBA). In doing so, the cross-currency pair ignored the bond market rout.

The US 10-year Treasury yields refreshed a 14-year high above 4.0% as market players rushed towards the risk-safety after 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.

Adding to the risk-off mood, and weighing on AUD/JPY prices, were news surrounding 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.

Amid these plays, Wall Street closed negative for the first time in three days while the S&P 500 Futures also print mild losses by the press time.

Moving on, Aussie jobs report and PBOC will be important to watch together with a likely market meddling of Japan to defend the yen. Australia's Employment Change is likely to print a 25K figure versus 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%.

To sum up, AUD/JPY may witness a short-term relief on firmer data but Japan’s intervention and sour sentiment can weigh on prices.

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

Technical analysis

AUD/JPY remains indecisive unless trading between 50-DMA and weekly support line, respectively around 94.60 and 93.60.