• Gold price is forming a base of around $1,650.00 for a fresh rebound amid a joyful market mood.
• Yields have dropped to near 4.10% and are making way for more downside amid S&P500’s bullish bets.
• Households have dropped their plans of buying a new house due to accelerating interest obligations.

Gold price (XAU/USD) is building a base around the critical support of $1,650.00 after correcting from Tuesday’s high at $1,662.45. The precious metal could resume its upside journey as the spirits of market participants are extremely optimistic.

A third consecutive bullish settlement of the S&P500 has brought a sense of optimism to the market. On the contrary, alpha on US Treasuries has dropped sharply and may display more decline ahead as optimism will stay for longer. In the opinion of economists at Morgan Stanley, the rally in S&P500 could be extended well into the 4000/4150 area.

This indicates that the market mood will remain cheerful, which could have a devastating impact on yields. At the press time, the 10-year US Treasury yields are trading at 4.10% and could surrender the cushion of 4.0% ahead as clouds of uncertainty are fading away.

Meanwhile, the US dollar index (DXY) has been dragged to 110.75 as the appeal for safe haven has trimmed significantly. In today’s session, the New Home Sales data will be a major trigger. The economic data is seen lower at 0.585M vs. the prior release of 0.685M on a monthly basis. Accelerating interest rates have resulted in higher installment obligations for households, which are forcing them to postpone their demand for a new house.

Gold technical analysis

On an hourly scale, gold prices have bounced back sharply after dropping below the horizontal support placed from Thursday’s high at $1,640.55. The precious metal is expected to display a sideways movement ahead as the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range. The 20-period Exponential Moving Average (EMA) near $1,651.50 is acting as major support for the counter.

Gold hourly chart

• AUD/USD bulls start to move out ahead of CPI data today. 
• Big moves in the forex space keep prospects of volatility alive. 

Aussie Consumer Price Index is on the cards for the day ahead and the market structure is showing the data could make or break for the pair after a series of whipsaw in recent sessions.

The sentiment around the Federal Reserve monetary tightening and the policy direction of top trading partner China after President Xi Jinping have seen a lot of volatility in the price with the ATR picking up to over 100 pips for any given day. 

if the data comes in hot, given that the Reserve Bank of Australia only delivered a smaller-than-expected 25 basis point rate hike earlier this month, then there could be [prospects of stronger action next time around that will only feed into the bullish AUD playbook. 

AUD/USD daily chart

The daily charts are neutral with both the upside and downside to play for at this juncture. However, the double top on the hourly chart shows the price under pressure:

AUD/USD H1 chart

The price is coiling within a geometrical pattern and is forming an M-top with prospects of a move into mitigating the price imbalance of the hourly impulse towards trendline support. 

• EUR/USD broke solid resistance levels and reclaimed 0.9900 on overall US Dollar weakness.
• Short term, the EUR/USD formed a bullish-pennant that targets 1.0010 as its profit target.

The EUR/USD remains above the descending channel drawn from February 2022 highs and above the 50-day Exponential Moving Average (EMA) on Tuesday as the US Dollar weakened. Factors like speculations of a Fed pivot and solid US corporate earnings keep risk-perceived assets bid. At the time of writing, as the Asian session begins, the EUR/USD Is trading at 0.9967, slightly up by 0.05%.

EUR/USD Price Analysis: Technical outlook

Even though the EUR/USD hurdle several resistance levels, the major is neutral-to-downward biased, as depicted by the daily chart. EUR buyers should be aware that to shift the bias to neutral, they need to reclaim parity and hold prices above it so they can challenge the 100-day EMA at around 1.0091. Once cleared, the following resistance would be the 1.0200 figure. Conversely, if the EUR/USD tumbles below 0.9900, it would exacerbate a re-test of the YTD lows around 0.9530s.

In the near-term, the EUR/USD formed a bullish-pennant in the hourly chart, meaning further upside pressure mounting on the pair. The Relative Strength Index (RSI) is at overbought conditions at 70.91, suggesting that the EUR/USD is consolidated before resuming the uptrend. Therefore, the EUR/USD first resistance would be October 25 daily high at 0.9976. The break above will expose the 1.0000 figure, followed by the bullish-pennant profit target, the R1 daily pivot at 1.0010, and the R2 pivot point at 1.0060. On the flip side, the EUR/USD key support levels lie at 0.9930, the daily pivot point, followed by the 20-EMA at 0.9910, ahead of the 0.9900 figure.

EUR/USD Key Technical Levels

• NZD/USD is aiming to reclaim 0.5800 as the risk profile soars.
• The 10-year US Treasury yields have dropped to 4.10% while the DXY has shifted its business below 111.00.
• Higher consensus for the US GDP could fetch demand for the DXY ahead.

The NZD/USD pair is gradually heading towards the round-level resistance of 0.5800 as the risk-on profile is strengthening significantly. The asset witnessed fresh demand from 0.5680 on Tuesday, which turned into a vertical rally to near 0.5780. The major is holding its gains amid an improvement in investors’ risk appetite.

S&P500 rose consecutively for the third day and has turned the table in the favor of risk-perceived assets. The 500-stocks basket has settled above 3,800 amid a stellar start of the quarterly result season. The US dollar index (DXY) displayed a perpendicular fall due to a vigorous drop in safe-haven’s appeal and surrendered the cushion of 111.00.

Meanwhile, returns on US government bonds have witnessed an intense drop as investors shifted their liquidity into bonds due to a steep fall in the DXY. The 10-year U Treasury yields have dropped dramatically to 4.10%. However, the odds of a fourth consecutive 75 basis point (bps) rate hike by the Federal Reserve (Fed) for the first week of November are rock solid.

Now, investors are focusing on the release of the US Gross Domestic Product (GDP) data, which will release on Thursday. The annualized GDP is expected to improve significantly to 2.4% vs. a decline of 0.6% reported earlier.

But before that, the US New Home Sales data will hog the limelight. The economic data is expected to decline to 0.585M vs. the prior release of 0.685M on a monthly basis. As interest rates are accelerating sharply, individuals have postponed their real estate demand due to higher interest obligations.

• GBP/USD bulls step it up towards key resistance. 
• US dollar bears eye a run to test DXY critical support. 

GBP/USD stays bid into the close of Wall Street near 1.1475 and tallies up over 1.7% in gains as the US dollar sinks below a key micro trendline and UK politics save the day for sterling bulls.

Investors have welcomed Rishi Sunak as the new UK prime minister where, in his first speech, he reiterated to place economic stability and confidence at the heart of the government's agenda. Generally, there has been bullish sentiment around his appointment, with the FTSE 100 and sterling both rallying on the news..It comes as a relief after the pound fell as low as 1.1100 vs the greenback on Friday and government borrowing costs rose amid fresh warnings about the UK economy.

Sunak, a former banker, is more moderate than Liz Truss and had criticized many of her policies, including the unfunded tax cuts that started this whole mess. Financial markets have steadied since the country U-turned on those policies. Nevertheless, there is a mountain to climb and GBP/USD remains on the front end of a bearish trendline, as illustrated below, as traders get set for a slew of central bank meetings that kick off this week with the Europen Central Bank, Bank of Canada, Bank of Japan and conclude next month with the Federal Reserve and Bank of England. Experts are mixed on the UK’s future and there are questions as to whether the UK may be forced to ask the IMF for a bailout.

Meanwhile, despite the appointment of Sunak,  the bar for a dovish pivot is high. UK bond yields have already fallen sharply and the UK can expect austerity, low growth and rising inflation as utility bills continue to increase, analysts at ANZ Bank argued. ''Markets are now pricing in only a 20% chance of a 100bp rate rise when the Bank of England meets next week but are fully priced for 75bps.''

GBP/USD technical analysis

The price is headed towards a key resistance line while the US dollar sinks:

The outcome of these moves will be dependent on the central bank meetings next month. However, the weekly M-formation is compelling in the DXY as price heads towards a critical layer of support that could result in a correction into the neckline near 112.00. In such a scenario, GBP will struggle to make much headway beyond the daily resistance line in the foreseeable future unless we see a sizeable and convincing break of the DXY weekly support. 

What you need to take care of on Wednesday, October 26:

The American dollar gave up in the US session, finishing the day with losses against all of its major rivals. The EUR/USD pair trades near parity early Wednesday and ahead of first-tier events scheduled for next Thursday, when the United States is expected to report that the economy grew in the three months to September. The Q3 Gross Domestic Product growth is foreseen at 2.4%, reversing the negative trend from the previous two quarters.

At the same time,  the European Central Bank will announce its latest monetary policy decision. The central bank is expected to hike rates by 75 bps, upgrading the pace of tightening amid signs of a fast deterioration in economic conditions. The focus will be more on what policymakers are planning ahead rather than on the actual hike. Market players would be quite surprised if President Christine Lagarde comes out with a hawkish message.

US data and central banks’ announcements will define whether the dollar reached an interim bottom.

On Wednesday, the focus will be on the Bank of Canada's monetary policy decision.

The GBP/USD pair settled at 1.1465, helped by the broad dollar’s weakness and despite of continued political noise in the United Kingdom. The UK's new Prime Minister, Rishi Sunak, was once again on the wires, anticipating “difficult decisions” ahead. Meanwhile, Justice Secretary  Brandon Lewis and Business Secretary Jacob Ress-Mogg have resigned. Jeremy Hunt has been reappointed as Chancellor.

Commodity-linked currencies benefited from higher US equities. AUD/USD flirts with 0.6500 while the USD/CAD is about to pierce the 1.3600 level.

A dollar’s sell-off unexpectedly aided the Bank of Japan. USD/JPY trades below 148.00 as investors moved away from the safe-haven greenback.

Gold edged marginally higher and trades at around $1,653, while crude oil prices finished the day little changed. WTI currently trades around $84.90 a barrel.

• Euro's reversal from the 0.8900 area finds support at 0.8750.
• The pound appreciates as Sunak cams the market.
• EUR/GBP likely to reach 0.90 in the coming months – SocGen.

The euro has given away gains on Tuesday against a stronger British pound, buoyed by the market’s enthusiasm as Rishi Sunak became Prime Minister.

The pair has reversed Monday’s gains pulling back from levels neat 0.8760 to session lows at 0.8665 area where it seems to have found support to consolidate below 0.8700.

The pound rallies as Sunak calms the markets

UK’s new Prime Minister Rishi Sunak's first speech, pledging to restore economic stability has brought back confidence to the markets. Furthermore, the re-appointment of Jeremy Hunt as chancellor of the exchequer has increased hopes of a market-friendly cabinet, which has buoyed the pound across the board.

On the macroeconomic docket, the German IFO Business Climate Index showed that sentiment remains practically unchanged from the previous month. These figures have passed virtually unnoticed, as the focus is set on the outcome of the ECB’s monetary policy meeting, due next Thursday.

EUR/GBP expected to crawl towards 0.90 – SocGen

In a bigger picture, Kit Juckes, Chief Global FX Strategist at Société Générale, sees the pair advancing toward 0.90: “With the economy surely already in recession and set to suffer from possibly even tighter fiscal policy, sterling is unlikely to enjoy much more of a relief bounce and over time, EUR/GBP is likely to meander slowly up to 0.90 or so.”

Technical levels to watch

• Gold price grinds higher by 0.24%, though facing solid resistance around $1660.
• If XAU/USD clears $1670, a test of $1700 is on the cards.
• A formation of a bullish flag in the XAU/USD hourly chart opens the door for further upside.

Gold price advances steadily during the North American session, though it remains capped below the 20-day Exponential Moving Average (EMA), despite falling US Treasury yields underpinning the yellow metal prices, as gold recovers after hitting a daily low of $1638.40. At the time of writing, the XAU/USD is trading at $1653 a troy ounce, above its opening price by 0.24%.

XAU/USD Price Forecast: Technical outlook

From a daily chart perspective, XAU/USD is downward biased, as it has remained since sliding below the 200-EMA in mid-June 2022. Worth noting that Tuesday’s daily high was shy of hitting a downslope trendline, drawn from October highs, which confluences with the 20-day EMA. So XAU buyers need to clear $1670, to exacerbate a rally towards the 100-day EMA at $1690, ahead of $1700. On the flip side, a daily close below Monday’s low of $1644 would cement gold’s downward biased, which would be unable to capitalize, despite lower US bond yields, opening the door for further losses.

Short-term, the XAU/USD hourly chart illustrates the formation of a bullish flag, opening the door for further gains. Worth noting that gold is neutral-to-upward biased, and once it clears, the October 24 high of $1670 will exacerbate a rally toward $1700.

The XAU/USD first resistance would be the R1 daily pivot at $1665, ahead of $1670. Break above will expose the R2 pivot at $1681, followed by the R3 daily pivot level at $1692.42, ahead of $1700.

On the other hand, if XAU/USD slumps below the confluence of several EMAs, lead by the 50, 20, and 200-EMA around $1647-$1651, would send the yellow-metal price toward the convergence of the 100-EMA and the S1 daily pivot around $1639-41. Once cleared, the following demand zone would be the bullish-flag bottom trendline around $1636.

XAU/USD Key Technical Levels

• Silver (XAG/USD) advances sharply in the New York session after hitting a weekly low of $18.79.
• XAG/USD remains neutral-to-downward biased, though a break above the 100-DMA will pave the way to $20.00.
• Short term, the XAG/USD could clear the R1 daily pivot at $19.58, putting in play the 100-day EMA.

Silver price reclaims the 50 and 20-day Exponential Moving Averages (EMAs) on Tuesday amidst broad US Dollar weakness, as risk-perceived assets advance while US bonds rally. Consequently, US Treasury yields fall, a tailwind for the white metal. At the time of writing, XAG/USD is trading at $19.37, above its opening price by 0.77%.

XAG/USD Price Forecast: Technical outlook

The XAG/USD daily chart portrays silver as neutral-to-downward biased, even though it reclaimed the 20 and 50-day EMAs. For XAG/USD buyers to further cement the case of turning the bias to neutral, they need to reclaim the 100-day EMA at $19.61, which could send XAG/USD rallying to $20.00 a troy ounce, before testing the 200-day EMA at $21.65. Additionally, the Relative Strength Index (RSI) at bullish territory, with a minimal-bullish slope, suggests prices could aim higher, opening the door for a test of the 100-day EMA.

In the near term, XAG/USD is neutral-to-upward biased, as depicted by the hourly chart, with prices oscillating around the daily pivot level at $19.30. The Relative Strength Index (RSI), around 58.64, is in bullish territory, though directionless. Therefore, XAG/USD might consolidate amid the lack of a catalyst.

Upwards, the first resistance would be the R1 daily pivot at $19.58, followed by the October 24 high at $19.67, ahead of the R2 pivot level at $19.95. On the flip side, the XAG/USD first support would be the confluence of the 50 and 20-EMAs at $19.23 and $19.18, respectively, followed by the S1 daily pivot point at $18.94. Break below will expose the 100 and 200-EMAs, each at $18.90 and $18.78, ahead of the S2 pivot level at $18.65.

XAG/USD Key Technical Levels

• US dollar's reversal from the 149.00 area found support at 147.50. 
• The US dollar loses ground on hopes of Fed easing.
• The yen will remain on the defensive on BoJ's dovishness.

The greenback dropped sharply across the board on Tuesday and the USD/JPY retreated from levels right below 149.00 to session lows at 147.50, where the pair has found buyers to attempt to regain the 148.00 level.

US dollar dives on Fed easing hopes

The US dollar plunged in the early US session on Tuesday following downbeat US housing prices and consumer confidence readings. These figures and the disappointing S&P PMI index released on Monday have revived fears that the Federal Reserve might be damaging growth with its radical monetary tightening plan.

Investor’s hopes that the Fed might be open to slowing down its rate hike path over the next months have boosted risk appetite. US stock markets extended gains after a mixed opening, while Treasury yields retreated, weighing on the USD.

Today’s decline gives some respite to the Japanese authorities, which are suspected of having stepped in, two times, attempting to curb yen weakness.

Last week, an alleged intervention by the Bank of Japan and the Ministry of Finance pulled the part from levels close to 152.00 to 146.20 area. The dollar, however, managed to retake more than half of the ground lost over the next couple of days.

A dovish BoJ will keep hurting the yen 

In the longer term, the Japanese yen remains weighed by the monetary policy differential, an aspect that might gain relevance over the coming days.

While the Bank of Japan is expected to maintain its ultra-expansive policy on Friday, keeping bond yields near zero, the Fed is widely expected to hike rates by 75 basis points over the next week. This is highly likely to negative pressure on the JPY.

Technical levels to watch

• WTI bulls eye a break of key resistance on the backside of the bear channel. 
• Bears will look for failures here and a move down to test prior lows of $82bbls. 

West Texas Intermediate, (WTI), crude oil rose on Tuesday as US recession concerns continue, sapping up the hawkish sentiment in markets and enabling risk assets to rally. This comes ahead of production cuts next month from OPEC+ and the Federal Reserve meeting. WTI crude oil was last seen at $85bbls, trading 0.17% higher between a low of $83.08 and $86.01. 

The black gold is trying to recover from the start of the week's slump that followed weak delayed economic data in China that raised concerns over demand. The third quarter Gross Domestic Demand came in at 3.9% YoY, while Retail Sales growth slowed to 2.5% in September due to the spectre of ongoing virus controls which weighed on sentiment.

''President Xi Jinping secured a third term in power and installed loyalists in the top ranks of the party. He didn’t indicate any departure from the zero-COVID strategy that has weighed on economic activity. The recent recovery in China’s oil imports faltered in September. Independent refiners failed to utilise increased quotas amid ongoing lockdowns weighing on demand. This was exacerbated by falling refinery margins and product export curbs,'' analysts at ANZ Bank explained.

However, the focus is back on the tight physical market amid ongoing supply constraints and the prospects for the implications with regard to the EU sanctions on Russian oil. Seaborne shipments from Russia fell to a five-week low in the seven days to 21 October. Meanwhile, the oil price correction came in light of better earnings reports and speculation that the monetary policy tightening cycle may be nearing its end.

US economic data released shows consumer confidence is still falling while house prices are also now dropping, indicating the monetary policy tightening may be starting to impact consumer decisions and therefore ease inflationary pressures. This in turn is stripping out the Fed narrative and pointing to an earlier pivot from the central bank, enabling risk to rally. 

Nonetheless, analysts at TD Securities who noted that crude oil prices have remained range-bound since the OPEC+ group of producers announced their largest output cut since the pandemic, argue that time spreads have rallied sharply in a sign of tighter markets ahead. ''Our gauge of energy supply risk remains at its highest levels of the year, highlighting that supply risk premia are still offering an insulating force for the complex with an 'imminent Iran deal' off the table. In the imminent term, a buying program in Brent crude is expected to follow suit, after a trend following selling program was whipsawed by range-bound trading.''

WTI technical analysis

The price could be on the verge of an upside rally on a break of structure, with bulls accumulating the recent price drop. However, regardless that the price is now on the backside of the channel, the prior bullish trend's support could be regarded as the most dominant and should bulls fail to break above $87bbls, below $82 will be regarded as the mark-down level and open risks to lower prices for the foreseeable future. 

• The EUR/USD cleared the confluence of a descending channel up trendline and the 50-DMA, exacerbating a move beyond 0.9900.
• US economic data hints at an economic slowdown spurred by Fed’s aggression.
• As measured by the Ifo, business sentiment in Germany was unchanged, though recession fears remain.
• EUR/USD Price Forecast: To test parity if it breaks 0.9980; otherwise, a fall to 0.9800 is on the cards.

The EUR/USD advances sharply due to a soft US Dollar blamed on the Fed’s pivot narrative surrounding the financial markets. Also, solid US corporate earnings keep investors’ mood positive, despite the ongoing global economic slowdown. At the time of writing, the EUR/USD is trading at 0.9969 after hitting a three-week high at around 0.9976.

US equities remain trading in the green, supported by earnings. Meanwhile, US economic indicators continue to paint a gloomy picture for the economy, as conditions in the housing market continue to dampen, albeit Fed officials prepare to slow down the pace of tightening. According to St. Louis Fed President James Bullard, discussions of “where the Fed should go and then become data-dependent” will be held at the November meeting.

In the meantime, early in the US session, housing data reported that prices cooled down, reflecting the impact of higher borrowing costs, given that the Fed had tightened 300 bps during the year. The S&P CoreLogic Case Shiller Price Index for August increased by 13%, less than July’s 15.6%, while the Federal Housing Finance Agency showed that home prices in August rose by 11.9% YoY, lower than the previous month’s 13.9%.

Of late, the Conference Board (CB) Consumer Confidence missed forecasts of 105.9, falling to 102.5 in October. Consumers’ worries are high inflation in food and energy, alongside a possible recession in 2023.

The EUR/USD continued its advance, despite the narrative of bad data for the US being good data. However, the sudden shift regarding a possible “lower size” of Fed interest-rate hikes was headwinds for the US Dollar, as Euro buyers capitalize in the short term.

Across the pond, in the European session, business conditions in Germany continued to deteriorate, as shown by the IFO Business Climate Conditions, at 84.3, vs. September’s downward revised 84.3 reading, unchanged. According to sources cited by Reuters, “Today’s business climate reading does nothing to change the looming recession. In the coming months, further gloom is more likely than an increase.”

Worth noting that the ECB is expected to hike rates by 75 bps in the October meeting, despite recession fears and worries growing in the Eurozone. Money market futures estimates rates to peak at around 2.50% by March of 2023.

EUR/USD Price Forecast: Technical outlook

The EUR/USD is neutral-downward biased, though traders should note that the major cleared the descending channel drawn since February 2022 to the upside, meaning buyers are gathering momentum ahead of the ECB monetary policy meeting. Also, the 50-day Exponential Moving Average (EMA), at 0.9893, was broken, exacerbating a rally toward a three-week high. If the EUR/USD reclaims parity, the following supply zone to be tested would be the 100-day EMA around 1.0099. Once cleared, the next stop would be 1.0200. On the other hand, the EUR/USD first support is the 0.9900 mark. Break below will expose the 50-day EMA at 0.9893, which, if broken, will send the EUR/USD sliding toward the 20-day EMA at 0.9805.

• The New Zealand dollar rallies from 0.5670 to consolidate at the 0.5750 area.
• Risk appetite and a weak US dollar are underpinning kiwi's rally.
• NZD/USD is expected to be capped at 0.5800 – UOB.

The New Zealand dollar appreciated sharply on Tuesday, after bouncing from session lows at 0.5670, to retrace Monday’s reversal and consolidate around 0.5750.

The USD tumbles amid Fed easing hopes

The US dollar depreciated across the board on Tuesday, weighed by lower US Treasury bonds, as a set of downbeat US indicators have spurred concerns about the negative impact of the Federal Reserve's sharp tightening path.

A larger-than-expected contraction in US housing prices and the second consecutive decline in consumer confidence seen Tuesday, plus the disappointing PMI data released on Monday are increasing pressure on the Fed to start contemplating lower hikes over the coming months.

Furthermore, the UK's new Prime Minister, Rishi Sunak’s first speech, committing to restore market confidence, and the re-appointment of Jeremy Hurt as Chancellor of the Exchequer have been welcomed by the investors. The sentiment-linked New Zealand dollar has appreciated nearly 1.20% on the day with the safe-haven US dollar losing ground.

NZD/USD: seen capped below 0.5800 – UOB

On the longer run, FX analysts at UOB expect the pair to remain in the current range, with the upside capped below 0.5800: “The price actions appear to be part of a consolidation phase and we expect NZD to trade between 0.5590 and 0.5800 for the time being. Looking ahead, NZD has to break clearly above 0.5810 before a sustained advance is likely.”

Technical levels to watch

• The tide could be going out on the greenback with speculation of a less hawkish Fed.
• Gold is poised for a significant correction, setting up for next week's Fed. 

The gold price is higher by some $1,654 on the day following a switch up in confidence in the Federal Reserve's path of interest rate hikes given the cracks in the economy. Consequently, fixed income has seen a rally, sinking yields and the US dollar along with it. Gold has benefitted as the move in the greenback makes it less expensive for buyers of gold. 

The dollar index, DXY, which measures the greenback vs. a basket of currencies fell to a low of 110.759 on Tuesday from a high of 112.127 in a sizeable drop that led to strong and rapid gains in risk assets and forex. The index is now below the 111 mark, a level not seen in almost three weeks, as speculation that the Federal Reserve would slow the pace of interest rate hikes later this year has diminished the greenback's appeal.  

US stocks and risk have climbed following weaker consumer confidence and manufacturing readings. The Dow Jones Industrial Average climbed to 31,805, with the S&P 500 up 1.1% and the Nasdaq Composite 1.5% higher. The 10-year yield sank to 4.052%, and the 2-year rate dropped 4.398%.

In data, the Conference Board's measure of consumer confidence dropped to 102.5 in October from 107.8 in September. This came in below the 105.3 expected and was the weakest since July. Meanwhile, the Richmond Fed's monthly manufacturing index fell to minus-10 in October from 0 in September, below expectations for a decline to minus-5. The Philadelphia Federal Reserve Bank's monthly nonmanufacturing activity index fell to minus-14.9 in October from 2.5 in the previous month, indicating a sharp contraction in the sector. All in all, this is accompanying poorer data of late and shaking the foundations for continued aggressive tightening expectations from the Fed ahead of next week's expected 75bps hike. 

Big moves in the greenback

The moves in the US dollar have stemmed from, 1) Bank of Japan's suspected intervention through the Ministry of Finance, 2) arguably due to the pronounced selling activity in the greenback against the British pound as investors welcomed Rishi Sunak as the new UK prime minister, and 3), last Friday's Wall Street Journal article, entitled, ''Fed Set to Raise Rates by 0.75 Point and Debate Size of Future Hikes''.

However, some analysts would argue that it is too soon to expect the Fed, and other banks for that matter, to pivot. ''Notably, despite the recent move lower in natural gas prices longer-term market-based inflation expectations continue to creep higher,'' analysts at Danske Bank wrote in a note. ''In our view, that highlights that it is still too early for central banks including the Fed to turn into a more accommodative mode since this risks jeopardizing the fight against higher inflation.''

In any case, markets are thinking twice with regard to next week's hike, positioning for a possible hike of less than 75bps. Moreover, speculators switched to net short positions of 20,633 contracts in COMEX gold in the latest week, as per the U.S. Commodity Futures Trading Commission (CFTC) data on Friday. This leaves the market wide open for a capitulation of shorts should we see a less hawkish Fed next week. 

Gold technical analysis

As for the technical outlook, we had a break in daily structure back on Oct 3 to take the gold price on the back side of the daily trendline resistance. The price moved back into Wednesday 22 Sep bullish peak formation lows in a micro daily bear trend. We have broken on the backside of the micro (secondary) daily trendline on Fri 22 Oct and we have two inside days including today so far. This could be the formation of an inverse head and shoulders for a 200% measured move of this week's inside range so far to target last month's highs of near $1,735. A break of and close above the $1,670 neckline could be the trigger point to start looking for the set-up on lower time frames.

• GBP/JPY pares losses and reaches 170.00 area.
• Breach of 170.00 might drive the pair to 175.00.
• Downside attempts remain limited above 168.00.

The pound rallied across the board on Tuesday, fuelled by the market enthusiasm about the victory of Rishi Sunak in the Tory race to Downing Street. The GBP/JPY has extended its rebound from levels right below 168.00 earlier today to scratch the door of 170.00 which might activate an inverted “Head & Shoulders” pattern, driving the pair to the 175.00 area.

Technical indicators show the pair biased higher, supported above the 50 and 100-period SMA in the 4-hour chart. The RSI, however, is approaching overbought territory suggesting that bulls might take a pause.

Downside attempts remain limited above 167.75/168.00 where session lows meet the 50-period SMA. Below here, the next downside targets would be at 165.25 (October 14 and 21 lows) and 162.45 (October 13 lows).

GBP/JPY 4-hour chart

Technical levels to watch

• The dollar dives below parity, gives away previous gains.
• Downbeat US data spur hopes of a slower Fed tightening pace.
• USD/CHF: Further depreciation below 0.9950 might increase negative pressure.

Greenback’s recovery from the 0.9940 area has been capped at 1.0030 on Tuesday’s US trading session, as the pair gave away gains and retreated to the mid-range of the 0.99s.

The USD tumbles following weak US data

The US dollar is dropping sharply across the board as a set of downbeat US indicators has increased concerns that the Federal Reserve’s fast tightening pace might be damaging economic growth.

US housing prices contracted at a 0.7% pace in August, beyond the -0.3% expected and consumer confidence deteriorated for the second consecutive month in October. On Monday, the S&P PMIs reflected a further contraction in business activity. These figures are putting pressure on the Fed to consider shorter rate hikes in the coming months.

Hopes of Fed easing have boosted risk appetite. US stock markets expanded gains after a lackluster opening and Treasury bond yields dropped sharply. The US dollar, as a result, lost ground across the board.  

USD/CHF: Breach of 0.9950 support might increase negative pressure

The pair is now trading right above the 100-period SMA in the four-hour chart, at 0.9950, below here, bears might increase their pressure, pushing the pair towards  0.9780 (Oct. 4 and 6 lows) and 0.9740 (Sept. 30 low).

On the upside, October 24 high at 1.0035 should be cleared to aim toward 1.0065/75 (October 13 and 14 highs). Confirmation above that level would set the pair at three-year highs, aiming for May 20, 2019 high.

Technical levels to watch

• USD/CAD slumps below its opening price by 0.57% as a Fed pivot narrative weakens the US Dollar.
• Poor US housing data and consumer confidence deterioration, headwinds for the greenback, justify the Fed pivot.
• TD Securities estimates that the Bank of Canada (Boc) will lift rates by 75 bps on Wednesday.

The USD/CAD creeps lower in the North American session as the greenback weakens due to the Federal Reserve’s slowing the pace of tightening, while unfavorable US economic data was headwinds for the US Dollar. Also, US companies reporting better-than-expected earnings keep a risk-on appetite. At the time of writing, the USD/CAD is trading at 1.3613, below its opening price, after hitting a high of 1.3734.

The Canadian dollar appreciates as the BoC’s decision looms

The financial markets narrative shifted since last Friday on news that the Federal Reserve might slow the pace of interest-rate hikes, further clarified by the San Francisco Fed President Mary Daly and the St. Louis Fed President James Bullard, with both saying that 75 bps would not be the standard. At the same time, Bullard added that would be discussed at November’s Federal Reserve Open Market Committee (FOMC).

Data-wise, the US docket featured US housing data, which added to the ongoing economic slowdown in the US. August’s Home Prices rose by 13%, less than July’s 15.6% reading, as reported by S&P CoreLogic Case Shiller. Meanwhile, the Federal Housing Finance Agency featured that home prices in August jumped by 11.9% YoY, below July’s 13.9%.

Meanwhile, the Conference Board (CB) Consumer Confidence dropped to 102.5, below estimates of 105.9, primarily blamed on growing concerns about inflation and a possible recession in 2023.

Lynn Franco, Senior Director of Economic Indicators at The Conference Board, commented that consumers plan to buy a home over the next six months, even though borrowing costs are increasing. She added that “inflationary pressures will continue to pose strong headwinds to consumer confidence and spending, which could result in a challenging holiday season for retailers.”

Aside from this, the Canadian calendar is empty ahead of Wednesday’s Bank of Canada (BoC) monetary policy decision. TD Securities analysts said that they expect the BoC to lift 75 bps in October and a further 25 bps in December and forecast the BoC rates to peak at around 4.25%.

USD/CAD Key Technical Levels

• The Australian dollar shrugs off weakness and jumps to 0.6400.
• Hopes of Fed easing have sent the US dollar tumbling.
• AUD/USD is now testing resistance at 0.6410.

The Australian dollar has shrugged off previous weakness and surged nearly 100 pips in the early US Trading session, reaching levels right above 0.6400. The pair appreciates 1.3% on the day, to erase Monday’s reversal amid a broad-based US dollar weakness.

The US dollar plunges on Fed easing hopes

The downbeat US housing prices and consumer confidence, contracting beyond expectations, and the disappointing S&P PMIs seen on Monday have increased concerns about the negative impact on the economy of the Federal Reserves' sharp tightening path,  boosting hopes that the bank might ease its normalization cycle over the coming months. 

Stock markets have extended gains after a mixed US session opening and the US Treasury bonds dropped sharply, with the 10-year gilt falling from 4.25% to 4.06 so far. The brighter market sentiment has hurt the USD, which lost ground against its main peers.

The Australian dollar, which had retreated to the 0.6300 area after the Labor Cabinet released its first budget, bounced up sharply during the early US session. Risk appetite has pushed the aussie to test 0.6400 resistance area, which, so far remains unbroken, with the pair trading at 0.6385.

AUD/USD testing resistance at 0.6410

The aussie lies now right below 0.6410 (October, 24 high) which could hold for some time, as the pair seems a bit exhausted following a nearly 100-pip rally. Above here, the next potential targets would be 0.6430 (October 7 high) and the 200-period SMA in the 4-hour chart, now at the 0.6500 area.

On the downside, a negative reaction below 0.6300 might give air to bears and drive the pair towards 0.6275 (Oct 24 low) on the way to 0.6215 (Oct 21 low).

Technical levels to watch

Last week, the USD/INR hit a new record high at 83.28, before pulling back under 82.50. Analysts at MUFG Bank continue to see weakness ahead for the Indian rupee and see USD/INR at 84.00 by year-end. 

Key Quotes:

“USD/INR volatility picked up last week after it rose to a record high of 83.29 versus its Mumbai close at 82.35 on 14 October. The INR’s depreciation to new record lows against the USD last week was mainly driven by stronger USD demand by oil importers. According to newswires, the RBI may have sold off USD1 bn last Thursday to bring USD/INR back below 83.00.”

“We maintain our view that the sharp decline in foreign reserves by around USD101 bn so far this year limits the scope for aggressive RBI intervention in the near term, with future rounds of intervention to be done sporadically. This puts more upside risks to USD/INR particularly during bouts of USD strength.” 

“We are maintaining our year-end USD/INR forecast at 84.00. For the week ahead. 83.00 is likely to be the first level of topside resistance for USD/INR, followed by 83.50.”

On Wednesday, the Bank of Canada will announce its decision on monetary policy. Analysts at Rabobank expect at rate hike of 75 basis points to 4%. They see it as the last hike of 75 bps, before returning to a 50 bps increase at the next meeting on December 7. 

Key Quotes: 

“We expect the Bank of Canada to raise rates another 75bp on Wednesday, October 26th, taking the policy rate up to 4.00%. Canada has not felt interest rates that high since the beginning of 2008, after rates had been cut 50bp (two 25bp) from the 4.50% peak in 2007.”

“Given the divergence of views heading into this meeting, we are likely to see significant repricing of the curve and FX volatility in the aftermath of the decision. This will be compounded by the release of a new Monetary Policy Report and all the projections within, and volatility won’t end there given that Governor Macklem will hold a press conference an hour after the decision. In short, this week’s decision could prove a lively one for BoC watchers and CAD traders.”

“In terms of the Bank’s forecasts, expect upward revisions to inflation and downward revisions to growth. At Rabo, we expect GDP growth of 1% in 2023 and CPI inflation of 3.4% by 2023 yearend, with risk skewed to lower growth and stickier inflation.”

“We remain of the view that USD/CAD will trade north of 1.40 before the end of this year.”

The Korean won weakened last week amid risk aversion, point out analysts at MUFG Bank. They forecast USD/KRW at 1470 by the end of the fourth quarter and at 1420 by the second quarter of next year. 

Key Quotes:

“Despite a zero net change of US dollar and KOSPI index, Korean won weakened 0.8% last week as the postponement of China’s key figures release last week. The weakness of the Japanese yen which hit a 32-year low in the week has a negative spill-over effect on KRW.”

“Newly released trade data accentuated concerns over the export outlook for South Korea. 

“There was news saying South Korea is considering temporarily banning short selling of shares and activating a stock market stabilization fund if there is a risk that the benchmark stock index will fall below 2,000 level.”

“Look ahead, the rise in US Treasury yields could continue to weigh on the KRW, but potential smoothing operations by authorities may help limit the degree of the currency’s depreciation. Q3 data will be released this week.”

• USD/MXN with bearish bias while under 19.95.
• Consolidation under 19.80, opens the doors to more losses.
• Immediate resistance at 19.95; critical barrier at 20.15/20.

The USD/MXN is falling on Tuesday on the back of a weaker US dollar across the board. The pair has been consolidating under 19.95, leaving the doors open to more losses. So far, it bottomed at 19.86, the lowest level in a month.

The critical support is located at 19.80. Some rebound from this level might be seen, but in the case of a daily close below, the bearish bias would be reinforced, exposing the 19.50 key level (intermediate support at 19.70).

The 19.95 has become the immediate resistance is the previous support at 19.95. A recovery above would alleviate the bearish pressure and would point to a consolidation between 20.15 and 19.95.

On the upside the zone is 20.15/20.20. A break higher would suggest more gain ahead, targeting 20.45, with intermediate resistance at 20.30.

USD/MXN daily chart

• The pound rallies to 1.1500 on the back of broad-based USD weakness.
• Rishi Sunak's victory has restored investors' confidence.
• GBP/USDaiming to 1.10 later this year – ING.

The pound has surged from levels right above 1.1300 on Tuesday’s early US market session, rallying all the way to 1.1500 where it seems to have found some resistance. The pair appreciates about 1.70% on the day to erase previous losses and test its highest levels in more than one month.

Sunak’s victory has eased investors’ fears

The victory of Rishi Sunak in the Tory race and his pledge to restore economic stability are bringing back confidence to the markets, terrified with his predecessor’s economic plan. The re-appointment of Jeremy Hunt as chancellor of the exchequer has increased hopes that the next cabinet will be more market-friendly, which is acting as a tailwind for the British pound.

On the other end, the weaker-than-expected US housing prices and consumer confidence data on Tuesday, coupled with the downbeat S&P PMIs released on Monday are increasing concerns about the negative impact on the economy of the Federal Reserve’s radical tightening pace. These latest figures are offering further reasons for the Central Bank to take its foot off the pedal over the coming months.

In this backdrop, the US dollar is losing ground against its main peers, with US Treasury Bonds dropping sharply. The benchmark 10-year yield has plunged from 4.25% earlier on Tuesday to 4.06% at the moment of writing.

GBP/USD expected to drop towards 1.10 later in the year – ING

FX analysts at IONG, however, are skeptical about the pound’s current bullish reaction: “Clearly, 31 October is going to be another massive day for UK financial markets as Sunak/Hunt present their fiscal fix. But backing the dollar as we do, we doubt GBP/USD needs to trade above 1.15 and retain sub 1.10 targets for later in the year.”

Technical levels to watch

• Gold price rises as US Treasury bond yields fall due to market players’ expectations of the Fed slowing the pace of tightening.
• The US housing market continues to deteriorate, while the CB Consumer Confidence missed estimations on inflation concerns.
• Gold Price Forecast: Buyers need to clear $1668, to test the 50-DMA; failure will pave the way towards $1617.

Gold price advances early in the New York session, up by 0.33% courtesy of falling US Treasury yields, while bonds climb amidst the ongoing narrative in the markets that the US Federal Reserve might slow the pace of its rate hikes. All that said, the US Dollar (USD) weakened, a tailwind for the yellow metal. Therefore, XAU/USD is trading at $1655 a troy ounce at the time of writing.

Fallings US T-bond yields weaken the US Dollar, a tailwind for XAU

The sentiment is upbeat, as shown by global equities trading in the green. As previously mentioned, market players are positioning for a possible Fed pivot, while economic data in the US continues to show further deterioration in the country, which, coupled with high inflation and lower bond yields, boosted gold prices.

On Tuesday, US economic data flashed that the housing market, as shown by housing prices cooling down due to higher mortgage rates, which climbed to almost 7%, as the Fed embarked on a tightening cycle trying to tame inflation. Further data revealed by the Conference Board (CB), reported that Consumer Confidence dropped from 107.8 to 102.%, less than estimates of 105.9, decreasing for the second consecutive month, according to the survey.

Lynn Franco, Senior Director of Economic Indicators at The Conference Board, commented that inflation is the primary concern, with gas and food prices serving as the main drivers. She added that “inflationary pressures will continue to pose strong headwinds to consumer confidence and spending, which could result in a challenging holiday season for retailers.”

Aside from this, the US Dollar Index, a gauge of the buck’s value vs. a basket of peers, edges down by 0.88%, down at 111.00, weighed by falling US Treasury yields, as the 10-year rate slips from 4.230% to 4.089%.

XAU/USD Price Forecast: Technical outlook

XAU/USD remains downward biased, as shown by the daily chart, with price action remaining below the 20, 50, 100, and 200-day Exponential Moving Averages (EMAs). Gold unsuccessfully tested the 20-day EMA in the last seven days at around $1668, with prices falling afterward. So a break above the latter is needed to clear the way towards the 50-day EMA at $1690.63. Otherwise, a retest of the MTD low at $1617.30, ahead of $1600, is on the cards.

• US Dollar tumbles across the board amid lower US yields.
• Japanese yen up versus dollar but holds onto loses against other rivals.
• USD/JPY down more than a hundred pips, no intervention seen.

The USD/JPY is falling on Tuesday on no signs of interventions and driven by a weaker US Dollar across the board. The pair is trading under 148.00 after ending with hours of calm hovering around 148.80.

The pair bottomed at 147.50 and then rebounded modestly, unable to hold above 148.00. Below the daily low, the next support stands at 147.00.

Following the beginning of the American session, the greenback fell sharply. The DXY is falling by 0.90%, and trades under 111.00, at the lowest level in 19 days.

US yields are sharply lower, favoring the downside in USD/JPY. The US 10-year yield stands at 4.08%, down 3.70% for the day; while the 2-year stands at 4.43%, after hitting at 4.40%, the lowest since October 13.

The demand for Treasuries rose despite weaker US data and even amid the improvement in market sentiment. US equity markets are rising after trading in negative ground during the pre-market. The Dow Jones is up by 0.57% at fresh monthly highs, and the Nasdaq gains 1.60%.

The decline in USD/JPY offers some relief to Japanese authorities. On Thursday, the Bank of Japan will have its monetary policy meeting. Also that day, the US will release the first estimate of Q3 GDP growth.

Technical levels

Australian Consumer Price Index (CPI) figures are due on Wednesday, October 26 at 00:30 GMT and as we get closer to the release time, here are forecasts from economists and researchers of seven major banks regarding the upcoming inflation data.

The headline inflation is set to accelerate to 7.0% vs. the prior release of 6.1% on an annual basis. If so, headline would be the highest since Q2 1990 and further above the 2-3% target range. Meanwhile, Q3 Trimmed Mean is expected at 5.6% year-on-year vs. 4.9% in Q2. Quarter-on-quarter inflation is expected at 1.5%.

ANZ

“We have lifted our Q3 trimmed mean inflation forecast to 1.6% QoQ (previous forecast: 1.4% QoQ), which represents a modest acceleration from the Q2 pace, but left our headline inflation forecast unchanged at 1.6% QoQ. This would see annual inflation reach 7.0% YoY for headline and 5.6% YoY for trimmed mean in Q3. This would not be inconsistent with the RBA’s current Q4 picks of 7.75% YoY and 6% YoY respectively. An upside surprise would be problematic for the RBA after it slowed the pace of hiking in October, but a 25 bps cash rate hike in November still seems the most likely outcome in this case. It would make a move in December more likely than we currently anticipate though.”

Westpac

“We forecast a 1.1% print, lifting the annual pace from 0.4% to 6.5%. The reason for the step down from 1.8% print in Q2 is the significant state energy rebates, particularly in WA and Victoria. Due to these rebates, utility cost are forecast to fall 10.5% subtracting 0.48% from the September quarter CPI. Without the rebates, our CPI forecast would have been 1.8%. The Trimmed Mean is forecast to lift 1.5% in September, matching the March and June quarters, taking the annual pace to 5.6% YoY from 4.9%, well up from the March 2021 low of 1.1% YoY. Our forecast peak is 5.8% YoY in December 2022.” 

ING

“We don’t think the 6.1% inflation reading in Q2 22 was the peak, and look for the inflation rate to increase to 6.4% YoY, following a 1.0% QoQ increase. The Reserve Bank of Australia has already stated that it expects inflation to rise further, so this doesn’t necessarily imply any deviation from their recent slower pace of tightening at forthcoming meetings, or for that matter, the outlook for the AUD.”

TDS

“We expect a more dovish headline CPI print at 1.3% due to the significant offset from the rebates and lower pump prices. However, trimmed-mean CPI may stay elevated at 1.6% QoQ as broader price pressures are still brewing, especially in the housing and food categories. Unless trimmed-mean inflation surprises strongly higher, we expect the RBA to stick with 25 bps hikes till March 2023.”

NAB

“We forecast headline of 1.3% QoQ and 6.7% YoY. For the more closely watched core trimmed mean measure, we look for an increase of 1.6% QoQ and 5.7% YoY. For the November RBA meeting, we expect a 25 bps hike, but a shift back to 50 bps cannot be fully discounted if the CPI surprises sufficiently high and broad.”

SocGen

“Headline and core (i.e., trimmed mean) inflation are likely to have risen further in  Q322 (1.3% and 1.5%, respectively), which would continue to support the RBA’s rate-hike campaign.  Trimmed mean and weighted median inflation may also rise further in YoY terms (5.6% and 4.7%), confirming the broad-based nature of the ongoing rise in inflation. We expect an additional jump in Q4 22 headline inflation, as retail electricity prices should finally rise to reflect the recent energy price increase in Q4.”

Citibank

“Australia’s CPI should see headline and underlying CPI rise by 1.6% over the quarter, implying a yearly reading of 7% and 5.4%, respectively. But the bar for a hawkish surprise for the RBA is high because the Bank already has bullish year-end inflation forecasts for headline and underlying CPI at 7.8% and 6%, respectively.”

The question on most investors' minds is when will the USD peak and what are the catalysts? The USD could reinforce recent gains until the Fed pivots or growth elsewhere bounces back, economists at TD Securities report.

Stagflation risks easing but not out of the woods yet

“Most importantly, a peak in the USD will require a shift in global growth and a pause in Fed terminal rate pricing (we're at 5%).”

“While a Fed shift could stall the rally, a nadir in the global growth outlook is likely a more crucial signal to start leaning against the USD.”

“There are some early signs of stagflation risk peaking, but we think it will take a bit more pain before moving on to a new set of themes.”

“We don't expect Plaza 2.0 to reverse the USD, while sporadic FX intervention, ironically, works in its favor.”

EUR/USD has been in a very clearly defined downward-sloping channel since February. Unexpected bad news is needed to keep the channel trending down, Kit Juckes, Chief Global FX Strategist at Société Générale, reports. 

Is the weather going to break EUR/USD out of its downtrend?

“Warm weather is fuelling (relative) optimism about the energy crisis, even if Germany’s IFO data is deep into recessionary territory and the ECB’s Bank Lending survey shows financing conditions getting tougher.” 

“If recession is ‘in the price’ maybe a hawkish ECB message, 75 bps rate hike and plans for mid-23 QT won’t come as a surprise, but still could trigger some short-covering in EUR/USD.” 

“Some new unexpectedly bad news would be needed to keep the channel trending down.”

• Consumer confidence in the US deteriorated in October.
• US Dollar Index trades deep in negative territory below 111.00.

The data published by the Conference Board showed on Tuesday that the Consumer Confidence Index declined to 102.5 in October from 107.8 in September (revised from 108). This reading came in worse than Reuters' estimate of 105.9.

Further details of the publication revealed that the Consumer Present Situation Index fell to 138.9 from 150.2 and the Consumer Expectation Index dropped to 78.1 from 79.5. 

Market reaction

The dollar selloff picked up steam with the initial reaction to the disappointing sentiment data and the US Dollar Index was last seen losing 1.1% on the day at 110.78.

AUD/USD remains at the mercy of the robust greenback. Therefore, economists at Rabobank believe that the aussie could sustain further losses in the short-term.

EUR/AUD could drop below 1.50

“Given our expectation that USD strength is set to persist, we see risk of AUD/USD dipping back a little further in the near-term. However, Australian fundamentals are relatively strongly positioned.”

“We favour the AUD vs. both the EUR and the GBP (despite the likelihood of larger incremental rate hikes from the ECB and the BoE) and see scope for AUD/USD to move back to 0.64 early next year.”

“We see scope for EUR/AUD to drop below 1.50 on a three-month view.”

• The index gathers downside momentum and approaches 111.00.
• The appetite for the risk complex picks up pace and weigh on the USD.
• The CB Consumer Confidence gauge comes next in the docket.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main rivals, accelerates its decline to the vicinity of the 111.00 neighbourhood, or 3-week lows.

USD Index looks to data

The index sinks further and maintains the negative tone for the second consecutive week on the back of the strong improvement in the sentiment surrounding the risk-associated universe.

The knee-jerk in the dollar follows the equally marked pullback in US yields across the curve, where the short end and the belly flirt with multi-day lows.

Data wise in the US, the FHFA House Price Index contracted at a monthly 0.7% in August, while the Consumer Confidence print tracked by the Conference Board will be in the limelight later in the session.

What to look for around USD

The dollar comes under heavy selling pressure and puts the 111.00 zone to the test on turnaround Tuesday.

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: FHFA House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, New Home Sales, Building Permits, Advanced Goods Trade Balance (Wednesday) – Flash Q3 GDP Growth Rate, Durable Goods Orders (Thursday) – PCE/Core PCE Price Index, Personal Income/Spending, Pending Home Sales, Final Michigan Consumer Sentiment (Friday).

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

USD Index relevant levels

Now, the index is retreating 0.77% at 111.13 and the breach of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13). On the other hand, the next up barrier lines up at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).

EUR/USD holds gains near key resistance above 0.99. The pair could gain more positive momentum recapturing parity, economists at Scotiabank report.

Ifo highlights recession risk

“Germany’s Ifo survey revealed slightly firmer than expected business confidence in Oct; the index fell only marginally from Sep’s upwardly revised 84.4 to 84.3. Expectations data were also slightly better than forecast (75.6) and up a fraction from Sep’s reading but the combination of a weak current assessment and expectations clearly point to recession risks in Germany.”

“We think gains above 0.9900/10 should allow for a test of major trend (off the Feb high) at 0.9935/40. Regaining 1.00+ would add to the positive technical tone in the near-term.”

“Support is 0.9810/15.”

• EUR/USD’s bullish attempt falters ahead of 0.9900 once again.
• The 55-day SMA at 0.9923 offers interim hurdle so far.

The weekly upside in EUR/USD appears to have met quite a solid hurdle around the 0.9900 region so far.

The surpass of this barrier could expose a rapid move to the interim resistance at the 55-day SMA at 0.9923 prior to the 8-month resistance line, today near 0.9940. Beyond the latter, the selling pressure is expected to mitigate.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0522.

EUR/USD daily chart

S&P 500 Index enjoyed its best week since the summer highs in June. In the opinion of economists at Morgan Stanley, the rally could be extended well into the 400/4150 area.

The door is left open for a trade higher

“Given the strong technical support just below current levels, the S&P 500 can continue to rally toward 4000 or 4150 in the absence of capitulation from companies on 2023 earnings guidance. Conversely, should interest rates remain sticky at current levels, all bets are off on how far this equity rally can go beyond current prices. As a result, we stay tactically bullish as we enter the meat of what is likely to be a sloppy earnings season.”

“We just don't have the confidence that there will be enough capitulation on 2023 earnings to take 2023 earnings per share forecasts down in the manner that it takes stocks to new lows. Instead, our base case is, that happens in either December when holiday demand fails to materialize or during fourth-quarter earnings season in January and February when companies are forced to discuss their outlooks for 2023 decisively. In the meantime, enjoy the rally.”

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

Key Takeaways

“Headline inflation eased for the first time in six months to 4.5% y/y in Sep, confirming our view that consumer price pressures had tentatively peaked at 4.7% in Aug. The reading came in a tad lower than our estimate and Bloomberg consensus of 4.6%. The faster-than-expected abatement was primarily thanks to lower prices of food, non-subsidized fuels and maintenance & repair of dwelling despite a weaker currency and year-ago low base effects.”

“Owing to base effects, stickier global inflation conditions and heightened currency volatility, we keep the view that Malaysia’s consumer price inflation will likely stay above the 4.0% level for the rest of the year before decelerating towards the 2.0% level by 4Q23. Hence, we maintain our full-year inflation forecast at 3.5% for 2022 (MOF est: 3.3%, 2021: 2.5%) and 2.8% for 2023 (MOF est: 2.8%-3.3%), barring any changes in domestic policy particularly the fuel and electricity subsidies as well as ceiling prices for staple food.”

“Given that inflation expectations are anchored to official targets and risks to the domestic growth outlook are tilting to the downside, we believe Bank Negara Malaysia (BNM) will tread more cautiously despite a more aggressive Fed rate hike path. We expect BNM to take an intermittent pause to assess the effect of its cumulative 75bps rate hikes to date, domestic policy outcomes, as well as higher external risks and weaker global outlook. We expect the Overnight Policy Rate (OPR) to be left unchanged at 2.50% at the coming 2-3 Nov meeting, which is the final monetary policy meeting for the year.”

• House prices in the US continued to decline in August.
• US Dollar Index trades in negative territory below 112.00.

The monthly data published by the US Federal Housing Finance Agency showed on Tuesday that the Housing Price Index fell by 0.7% on a monthly basis in August. This print followed July's decrease of 0.6% and came in lower than the market expectation of -0.3%.

Meanwhile, the S&P/Case-Shiller Home Price Index arrived at 13.1% on a yearly basis in August, compared to analysts' estimate of 14.4%.

Market reaction

With the initial market reaction, the greenback weakened against its rivals with the US Dollar Index losing 0.17% on the day at 111.80.

• DXY keeps the erratic performance well in place near 112.00.
• The loss of the 111.50 area could trigger a deeper pullback.

DXY fades the optimism seen at the beginning of the week and retreats to the 112.00 neighbourhood, where it now attempts to consolidate.

If the index drops below recent lows near 111.50 (October 24), sellers could then attempt to challenge the October low near the key 110.00 support (October 4,5).

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 8-month support line near 108.30, an area coincident with the 100-day SMA.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.86.

DXY daily chart

Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said on Tuesday that Saudi Arabia is the most secure and reliable oil supplier and argued that the current crisis may be the worst energy crisis, as reported by Reuters.

Additional takeaways

"We are engaged with many European governments regarding the current crisis."

"Last year Saudi Aramco was supplying Europe with 490,000 barrels, this September it was 950,000 barrels."

"It’s not about recession, it's about how severe the recession might be."

"People are depleting their emergency stock and using it as a mechanism to manipulate the market when its purpose was to mitigate shortages of supply."

"Using emergency stocks may become painful in the months to come."

Market reaction

Crude oil prices continue to decline on Tuesday and the barrel of West Texas Intermediate was last seen trading at $83.65, where it was down 1.4% on a daily basis.

Gold price has recently settled down at just below $1,650. The yellow metal remains under pressure due to rate hike outlook, strategists at Commerzbank report.

Investors are still giving gold the cold shoulder

“There have been some indications of late that the pace of rate hikes could slow following the 75 bps step that is anticipated next week. This drove gold up to $1,670. This can be interpreted as a sign that gold will have substantial upside potential just as soon as an end to the aggressive rate increases comes into view. This is not the case as yet, however, which is why most of the price gains were reversed again.”

“Investors are still giving gold the cold shoulder, thereby generating persistent headwind. Speculative financial investors significantly expanded their net short positions in the last reporting week, i.e. the majority are continuing to bet on a falling gold price. ETF investors sold sizeable holdings again last week. Here too, only signs of an end to the aggressive rate hikes are likely to trigger a shift in sentiment.”

Economists at ING expect the European Central Bank (ECB) to hike by 75 bps at the October meeting. Nonetheless, the hike should fail to offer substantial and long-lasting support to the euro, according to economists at ING.

Hawks can’t lend their wings to the euro

“We see limited upside risks for EUR/USD in the aftermath of the ECB announcement. This is mainly due to the weakened correlation between short-term rates and currency dynamics in the eurozone. This means that additional tightening being priced into the EUR curve on the back of a hawkish statement still looks unlikely to offer a sizeable, and above all, sustainable support to the euro.”

“In line with our expectations of a stronger dollar, as the Fed keeps tightening policy and keeps risk sentiment weak into the new year, we expect a drop below 0.9500 in EUR/USD by the end of this quarter.”

18 of 30 economists surveyed by Reuters said that they expect the Bank of England (BoE) to hike its policy rate by 75 basis points at the next policy meeting on November 3. The remaining 12 economists expect a bigger rate increase.

The BoE is projected to reach the upper limit of its policy rate at 4.25% in the first quarter of 2023, the same as the September 30 poll, Reuters further noted.

Market reaction

Thie headline failed to trigger a noticeable market reaction. As of writing, the GBP/USD pair was up 0.43% on the day at 1.1323.

The ongoing upside momentum is expected to keep the bullish bias around USD/IDR unchanged, according to Markets Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

“We highlighted last Monday that ‘USD/IDR is still strong and further advance to 15,580 would not be surprising’. We added, ‘For this week, a break of the next resistance at 15,750 appears unlikely’. Our view for USD/IDR to strengthen was not wrong as it rose to a high of 15,633.”

“While overbought, further USD/IDR strength appears likely and a break of 15,750 would not be surprising. For this week, the next major resistance at 15,900 is unlikely to come into the picture. Support is at 15,500, followed by 15,400.”

• EUR/JPY keeps the erratic activity around the 147.00 area.
• Immediately to the upside comes the 2022 peak at 148.40.

EUR/JPY corrects lower after climbing to the 147.40 region earlier on the session on Tuesday.

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 2022 high at 148.40 (October 21) prior to the December 2014 top 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 137.00.

EUR/JPY daily chart

The yen is steadier after Friday’s fireworks. When will it be a buy? Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes the USD/JPY pair.

US yields could get USD/JPY under 140

“If Bank of Japan Governor Kuroda were to spring a surprise u-turn on BOJ policy, that would have a major impact on the currency, but I can’t see it. 

“On the basis of the move this year, a 5% 10-year Note would get USD/JPY above 160. A 3.5% 10-year Note yields might get USD/JPY under 140. We’re not yet at the point where the latter is on the horizon.”

USD/MYR faces prospects for extra gains, although a convincing breakout of 4.7500 appears not favoured for the time being, notes Markets Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

“We expected USD/MYR to strengthen last week but we were of the view that ‘4.7500 is unlikely to come into view’.” Our view was wrong as USD/MYR rose to a high of 4.7370 before closing at 4.7360. Not surprisingly, conditions are overbought.”

“However, as long as 4.7000 is not breached (minor support is at 4.7150), USD/MYR could rise above 4.7500 this week. In view of the overbought conditions, USD/MYR is unlikely to be able to maintain a foothold above this level. Looking ahead, the next resistance above 4.7500 is at 4.7650”.

New British Prime Minister, Rishi Sunak, said on Tuesday that they are currently facing a profound economic crisis and added that he will place economic stability at the heart of government agencies, as reported by Reuters.

Additional takeaways

"I understand I have to restore trust."

"There will be difficult decisions."

"Will bring compassion to challenges we face."

"Won't leave next generation with debt to settle."

"We will have professionalism and accountability at every level."

"Will deliver 2019 mandate."

"Will build an economy that makes most of the Brexit opportunities."

"Ukraine war must be seen successfully to its conclusion."

Market reaction

The British pound showed no immediate reaction to these comments and was last seen gaining 0.45% on the day at 1.1325.

Economists at Wells Fargo expect to see further gains in the greenback, anticipating a peak in Q1-2023. 

US dollar has yet to reach its cyclical peak

“Our view remains for further gains in the trade-weighted US dollar, with a forecast cyclical peak in the greenback expected in Q1 2023.”

“Relative US economic resilience and ongoing Fed rate hikes, combined with unsettled global markets, are factors that should see the trade-weighted dollar gain around a further 4% over the next three to six months.”

“With US policy rates likely to remain elevated even in the face of US recession, we forecast only a modest softening in the greenback as 2023 progresses.”

EUR/USD advanced for a fourth day on Monday. If bad news is ‘in the price’, the pair is unlikely to slip back to the 0.9550 low, economists at Société Générale report.

The 0.9950 area is significant resistance

“The bad news is priced in and so the hurdle for a return towards the low nearer 0.9550 is high even with the German economy flirting with recession.” 

“The 0.9950 area is significant resistance for those targeting a test of parity.”

See – EUR/USD: There will likely be a deadlock for now – Commerzbank

Following the release of the Australian Federal Budget, S&P Global Ratings was quick to offer its review on the same.

Key takeaways

“The budget won't greatly add to inflationary pressures.“

“High commodity prices delivering large windfall in Australia budget.”

“Improved fiscal outcomes underpins sovereign rating for Australia.“

“Sharp correction in commodity prices could reverse recent gains in Australia's external accounts and, along with rising interest costs, could present downside to the AAA rating.”

Market reaction

AUD/USD is keeping its range just above 0.6300 on the above headlines. The spot is trading at 0.6310, almost unchanged on the day.

Australian Treasurer Jim Chalmers presented Labor's first budget on Tuesday, with the key forecasts noted below.

Market reaction

AUD/USD broke its consolidative range to the downside on the budget release, now testing 0.6300 once again. The pair is bearing the brunt of risk-off flows seeping back into markets, despite upbeat sentiment data from Germany. Meanwhile, the US dollar is struggling to find demand, exerting additional downside pressure on the aussie.

EUR/GBP has settled above 0.87. Kit Juckes, Chief Global FX Strategist at Société Générale, believes that the pair could advance nicely towards the 0.90 level. 

Sterling unlikely to enjoy much more of a relief bounce

“EUR/GBP has reversed the spike which we saw in late September but remains well above the post-Brexit average, and GBP/USD is even further above average than EUR/GBP. Both measures of volatility should fall further, as the pound settles down.” 

“But with the economy surely already in recession and set to suffer from possibly even tighter fiscal policy, sterling is unlikely to enjoy much more of a relief bounce and over time, EUR/GBP is likely to meander slowly up to 0.90 or so.”

As Federal Reserve-People’s Bank of China monetary policy divergences continue, the renminbi should continue to weaken into early 2023. Therefore, economists at Wells Fargo forecast USD/CNY at 7.40 by the end of the quarter.

Additional PBoC easing as well as weaker Chinese currency 

“Our below-consensus view on China's growth prospects for the next few years leads us to believe further easing via Reserve Requirement Ratio (RRR) cuts is imminent.” 

“Additional PBoC easing would further place the direction of local monetary policy at odds with the trajectory of Fed monetary policy. These diverging paths for monetary policy should widen interest rate differentials in favor of the US dollar and place depreciation pressure on the renminbi through the end of this year.”

“We believe the USD/CNY and USD/CNH exchange rates can trend toward 7.40 by the end of Q4-2022 before experiencing a modest recovery over the longer term.”

Speaking at an Office for National Statistics (ONS) conference on Tuesday, Bank of England (BOE) Chief Economist Huw Pill criticized criticism the outgoing Prime Minister Liz Truss’ government for lack of cooperation with the country’s other economic institutions.

Key quotes

"That's a model for how macro policymakers in the UK should respect the institutional framework when they interact with one another."

"In my view, we might have benefited in recent weeks if the interactions amongst other institutions had followed that pattern."

Outgoing UK Prime Minister Liz Truss said on Tuesday that “we need to be bold to face our challenges.”

Additional takeaways

Market reaction

GBP/USD is ufazed by the above comments, trading at 1.1323, up 0.46% so far.

The Hungarian central bank meeting is on the agenda today while EUR/HUF has stabilised at 412.00. Economists at ING expect the EUR/HUG to move back to a 405-410 range.

The forint should remain supported

“Although the National Bank of Hungary does not need to hike rates again at the moment, we expect the central bank to confirm its readiness to act if the forint decides to weaken again.”

“Considering that HUF remains sensitive to global risk aversion, we cannot rule out some periodic correction. For the time being, however, the forint should remain supported and enjoy this moment of peace created by recent central bank actions and global conditions.”

“We expect the forint to return to the 405-410 EUR/HUF range.”

The Bank of Canada (BoC) is set to deliver “only” a 50 basis points rate hike on Wednesday. Still, economists at the Bank of America stick to their USD/CAD year-end forecast at 1.36.

BoC to slow down the pace 

“We expect the BoC to slow down the pace and hike the overnight rate by 50 bps to 3.75%. Inflation and inflation expectations remain high and the labor market is still tight, so another higher-than-normal rate hike is very likely. Still, the risk of another 75 bps hike is relatively high.”

“We expect the actual delivery of a BoC downshift to allow CAD rates to continue to outperform those of the US. USD/CAD appeared to be overbought in September due to the August inflation surprise and broad risk-off sentiment in the market. The latest inflation prints should provide some short-term tailwind for CAD ahead of the BoC meeting.”

“We keep our year-end forecast at 1.36 for USD/CAD.”

Markets Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research suggests USD/THB is expected to trade within the 37.90-38.46 range in the short-term horizon.

Key Quotes

“We highlighted last Monday that ‘There is room for USD/THB to test Sep‘s high of 38.46 before the risk of a pullback increases’. While USD/THB rose to a high of 38.46 last Thursday, the pullback from the high has been relatively limited.”

“The price movement appears to be part of a consolidation phase. For this week, USD/THB is likely to trade sideways, expected to be between 37.90 and 38.4. Looking ahead, if USD/THB breaks above 38.46, the focus will shift to 38.55.”

Economists at Wells Fargo doubt the Bank of Japan's FX intervention will prevent yen weakness and forecast a softer yen, which will lift the USD/JPY to 153.

Further softness in the yen

“Japanese growth and inflation are moderate, meaning we do not anticipate any change in accommodative Bank of Japan monetary policy for an extended period.”

“We expect FX intervention by Japanese authorities will have limited effect in preventing further yen declines and forecast the USD/JPY exchange rate to reach 153.00 by Q1-2023.”

• EUR/USD keeps the trade close to the 0.9900 hurdle.
• Germany Business Climate remained unchanged in October.
• US Consumer Confidence will take centre stage later in the session.

The absence of a clear direction prevails around the European currency and prompts EUR/USD to trade with a bearish bias near 0.9860 on turnaround Tuesday.

EUR/USD focuses on risk trends, dollar

EUR/USD falters once again ahead of the key barrier at 0.9900 the figure and comes under some mild downside pressure, all against the backdrop of the equally lack of a defined trend in the dollar.

The inconclusive price action around the pair also comes in tandem with the third drop in a row in the German 10-year bund yields, which hover around the 2.25% region so far.

In the domestic calendar, there was no reaction in the pair to the release of the Business Climate gauged by the IFO Institute, which remained unchanged at 84.3 for the month of October.

Across the Atlantic, the FHFA will release its House Price Index ahead of the more relevant Consumer Confidence print measured by the Conference Board.

What to look for around EUR

EUR/USD comes under pressure following another failed attempt to test/surpass the 0.9900 mark on Tuesday.

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: Germany IFO Business Climate (Tuesday) – France Consumer Confidence (Wednesday) - Germany GfK Consumer Confidence, Italy Consumer Confidence, ECB Interest Rate Decision, ECB Lagarde (Thursday) – France/Italy/Germany Flash Inflation Rate, Germany Preliminary Q3 GDP Growth Rate, EMU Final Consumer Confidence, Economic Sentiment

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

EUR/USD levels to watch

So far, the pair is retreating 0.02% at 0.9871 and 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). On the flip side, the next up barrier comes at 0.9899 (weekly high October 24) followed by 0.9999 (monthly high October 4) and finally 1.0050 (weekly high September 20).

Here is what you need to know on Tuesday, October 25:

Markets stay relatively quiet on Tuesday as investors prepare for the week's key macroeconomic events. The US Dollar Index moves sideways at around 112.00, US stock index futures trade flat and the benchmark 10-year US Treasury bond yield posts modest daily losses near 4.2%. The US economic docket will feature Housing Price Index and S&P/Case Shiller Home Price Indices data. Additionally, the Conference Board will release its Consumer Confidence Index for October. 

The S&P Global PMI surveys from the US revealed that business activity in the private sector continued to contract at an accelerating pace in early October. Despite the disappointing data, Wall Street's main indexes gained between 1% and 1.3%.

On Monday, Sir Graham Brady, chair of the 1922 Committee, announced that Rishi Sunak is elected as leader of the Conservative Party and new prime minister following Penny Mordaunt's decision to drop out of the contest. The market reaction to this development was muted as it was widely expected. Meanwhile, Bank of England (BoE) Deputy Governor Dave Ramsden reiterated that they will take necessary steps to get inflation back to the target while adding that they have to take into account the fall in the value of the pound when deciding on the policy. GBP/USD closed modestly lower on Monday and seems to have gone into a consolidation phase near 1.1300 early Tuesday.

Following Monday's volatile action, USD/JPY stayed relatively quiet during the Asian trading hours on Tuesday. Citing Bank of Japan (BOJ) Governor Haruhiko Kuroda, a Japanese government official said that the recent "sharp, one-sided yen weakness" was not good for the economy. In the meantime, Japanese Finance Minister Shunichi Suzuki reiterated that he saw no contradiction between the government's yen-buying currency intervention and the central bank's ultra-loose monetary policy. As of writing, USD/JPY was flat on the day at 149.00.

EUR/USD staged a late rebound on Monday but lost its bullish momentum near 0.9900. The pair trades in a narrow range below that level early Tuesday. The data from Germany showed that the IFO Expectations Index edged higher to 75.6 in October from 75.3 in September, surpassing the market expectation of 75. The IFO Current Assessment Index, however, declined to 94.1 from 94.5 in the same period.

Gold failed to gather bullish momentum on Monday as the 10-year US yield held steady above 4.2%. XAU/USD stays on the backfoot in the early European session on Tuesday and trades below $1,650.

Bitcoin lost more than 1% but ended up closing the day above $19,000 on Monday. BTC/USD was last seen moving sideways near $19,300. Ethereum stays calm slightly above $1,300 on Tuesday after having dropped 1.5% on Monday.

Following the release of the German IFO Business Survey, the institute’s Economist Klaus Wohlrabe said that “a winter recession is coming.”

Additional quotes

Market reaction

EUR/USD was last seen trading at around 0.9865, down 0.07% on the day.

• German IFO Business Climate Index came in at 84.3 in October.
• IFO Current Economic Assessment for Germany dropped to 94.1 this month.
• October German IFO Expectations Index arrived at 75.6, an upside surprise.

The headline German IFO Business Climate Index eased slightly to 84.3 in October versus the previous reading of 84.4 the market consensus of 83.3.

Meanwhile, the Current Economic Assessment dropped to 94.1 points in the reported month as compared to July's 94.5 and 92.4 expected.

The IFO Expectations Index – indicating firms’ projections for the next six months, rose to 75.6 in October from the last month’s 75.3 and against the estimates of 75.0.

Market reaction

EUR/USD draws some support from the upbeat German IFO survey. At the time of writing, the pair is trading at 0.9864, down 0.07% on the day.

About German IFO

The headline IFO business climate index was rebased and recalibrated in April after the IFO Research Institute changed the series from the base year of 2000 to the base year of 2005 as of May 2011 and then changed the series to include services as of April 2018. The survey now includes 9,000 monthly survey responses from firms in the manufacturing, service sector, trade and construction.

Having tried to stabilise it since late September, a much higher USD/CNY fixing overnight suggests the People’s Bank of China is prepared to let market forces have a greater say. This is a dollar-positive story, in the opinion of economists at ING.

7.40 looks like the direction of travel for USD/CNY now

“USD/CNY has been pressing the upper limit of its +/- 2% daily trading range around the onshore fix. Notably, the People's Bank of China (PBoC) had been fixing USD/CNY flat near 7.11 since late September. But overnight, the PBoC has allowed an onshore fixing much higher at 7.1668. This suggests it will now allow market forces to play a greater role in setting the USD/CNY rate. 

“7.40 certainly looks like the direction of travel for USD/CNY now. A move in USD/CNY to 7.40 or higher should provide a supportive backdrop to the dollar over the coming weeks.”

Extra gains in USD/CNH now target the 7.3500 barrier prior to 7.4000, comment UOB Group’s Markets Strategist Quek Ser Leang and Economist Lee Sue Ann.

Key Quotes

24-hour view: “USD surged to a fresh record high of 7.3322 before closing higher by a whopping 1.37% (7.3257). Solid upward momentum is likely to lead to further advance. A break of 7.3500 would not be surprising but in view of the deeply overbought conditions, 7.4000 is unlikely to come into view for today. Support is at 7.3000 followed by 7.2800.”

Next 1-3 weeks: “Yesterday, USD cracked the major resistance at 7.3000 and jumped to a fresh record high of 7.3322. The USD strength that started about 2 weeks ago is deep in overbought territory but the rally is not showing any sign of weakness just yet. In other words, the overbought rally will most likely continue. The next resistance level of note is at 7.3500, followed by 7.4000. On the downside, a break of 7.2600 (‘strong support’ level) would indicate that the USD strength has ended.”

• The index exchanges gains with losses around 112.00.
• Speculation around the Fed’s pivot weighs on the dollar.
• Housing data, CB Consumer Confidence next of note in the docket.

The greenback, in terms of the USD Index (DXY), hovers around Monday’s close near the 112.00 yardstick on turnaround Tuesday.

USD Index looks to data releases

The index advances marginally although amidst a narrow range against the backdrop of the still unclear direction in the risk appetite trends in the global markets on Tuesday.

Indeed, Monday’s lower-than-expected results from the US calendar seem to have re-ignited the speculation among investors regarding the likelihood that the Fed could start slowing the pace/size of the next interest rate hikes, which eventually lent support to the risk complex.

In the US money market, yields fade the uptick seen at the beginning of the week, although they manage well to keep the trade near recent tops for the time being.

Later in the NA session, all the attention is expected to be on the Consumer Confidence print by the Conference Board seconded by the FHFA’s House Price Index during August.

What to look for around USD

The dollar gyrates around the 112.00 region and looks to add to Monday’s small uptick.

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: FHFA House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, New Home Sales, Building Permits, Advanced Goods Trade Balance (Wednesday) – Flash Q3 GDP Growth Rate, Durable Goods Orders (Thursday) – PCE/Core PCE Price Index, Personal Income/Spending, Pending Home Sales, Final Michigan Consumer Sentiment (Friday).

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

USD Index relevant levels

Now, the index is gaining 0.07% at 112.08 and faces the next up barrier at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the other hand, the breach of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).

GBP/USD has dropped below the 1.13 mark. Economists at ING expect the pair to return to levels under the 1.10 figure later in the year.

EUR/GBP to trace out a 0.8650-0.8800 range for now

“Clearly, 31 October is going to be another massive day for UK financial markets as Sunak/Hunt present their fiscal fix. But backing the dollar as we do, we doubt GBP/USD needs to trade above 1.15 and retain sub 1.10 targets for later in the year.”

“EUR/GBP to trace out a 0.8650-0.8800 range for the time being.”

China's Foreign Minister Wang Yi said on Tuesday that there is “no information to offer on possible meeting between the country’s President Xi Jinping and his US counterpart Joe Biden.

Meanwhile, the Chinese Finance Ministry said that they will impose a consumption tax on e-cigarettes sold in China starting November 1.

Separately, China's foreign exchange regulator sent a survey to some banks late on Monday asking them about their positioning in the currency market, Reuters reported, citing three sources with direct knowledge of the matter.

Market reaction

more to come ...

USD/CAD treads water around 1.3700. Economists at Citibank expect the pair to advance nicely towards 1.40 over the next months.

Bank of Canada approaching a pause

“Weaker economic data from Canada, a Fed that is determined to continue tightening into a global recession, and a BoC that is starting to back off will continue to weigh on CAD in the short-medium term, so we revise our 0-3m USD/CAD forecast to 1.40, but leave the 6-12m forecast unchanged at 1.31.”

“We have previously flagged the dovish risk posed to the BoC’s policy path from the recent slowdown in housing data, employment, and growth, and we are now closer to the point at which the BoC will pivot, or at least pause.”

• USD/JPY remains indecisive after a volatile start to the week.
• Immediate resistance line joins previous support from late September to restrict nearby moves.
• Sustained trading above the key SMAs, the receding bearish bias of MACD keeps buyers hopeful.

USD/JPY holds onto the day-start inaction around 149.00 as European traders brace for Tuesday’s work. In doing so, the yen pair remains inside a 40-pip trading area established after a rollercoaster start to the week.

That said, the support-turned-resistance line from September 22, around 149.00 by the press time, restricts the yen pair’s immediate downside. Alternatively, a descending trend line joining the quote’s retreat from early Monday’s peak, near 148.60, acts as the adjacent resistance.

It’s worth noting that the USD/JPY remains well above the key moving averages and has been getting less bearish signals from the MACD of late, which in turn suggests the quote’s run-up towards the 150.00 threshold.

Following that, the recently flashed 32-year high near 152.00 and June 1990 peak surrounding 155.80 will be in focus.

Alternatively, a downside break of 148.60 could drag the USD/JPY prices toward the 100-SMA and 200-SMA, respectively near 147.00 and 145.30.

If the quote drops below 145.30, the 61.8% Fibonacci retracement level of the pair’s run-up between September 22 and October 21, close to 144.80, could act as the last defense of the bulls.

Overall, USD/JPY remains on the buyer’s radar but the short-term moves appear less impressive.

USD/JPY: Four-hour chart

Trend: Further recovery expected

Germany’s Economy Minister Robert Habeck said on Tuesday that they “expect the gas price mechanism decision at the next EU Council.”

“Joint EU purchases are the best way to keep the gas price low,” Habeck added.

Market reaction

EUR/USD was last seen trading at 0.9864, daily lows, down 0.09% on the day.

Economists at Wells Fargo expect significant weakness in the pound, targeting a GBP/USD low around 1.0600 in early 2023.

BoE to under-deliver on monetary tightening

“Although political and policy uncertainty may be reduced to some extent by the change in leadership and reversal of fiscal stimulus proposals, the outlook for the U.K. economy remains challenging.”

“Not only do we expect UK recession, but we also forecast the Bank of England will raise policy rates less than market participants currently expect – the combination of which could see the pound drop to around 1.0600 by Q1-2023.”

Financial investors and companies are better to invest in the United States than in the eurozone for several reasons. How can this trend be corrected? Analysts at Natixis explain why capital will be diverted from the eurozone to the US. 

Is financial and corporate investment flowing more heavily into the US than the eurozone?

“The greater appeal of the United States over the eurozone (higher potential growth, greater corporate dynamism, higher-quality university system, lower tax burden) is leading (financial and physical) capital to shift from the eurozone to the United States.” 

“How can this trend be corrected? The levers for action in the eurozone are clear: innovation and investment drive to lift productivity gains, greater investment in higher education, more selective public spending.”

The Swedish krona is struggling to record gains. In the opinion of economists at Commerzbank, SEK will continue to struggle

The great unknown – the weather this winter

“Many negative factors have already been priced into SEK, but as long as it is unclear how the eurozone and its economy will get through the winter it will be difficult to price the risk of ‘a deep recession in the eurozone with the resulting effects on the Swedish economy’ out of SEK. In particular, as rate hikes will also affect the economy, in particular the housing market.”

“I fear that SEK will be unable to record significant gains over the winter half.”

Gold remains confined in a tight range. In view of FXStreet’s Dhwani Mehta, XAU/USD could extend range trade around $1,650.

Any recovery attempt will need acceptance above 21-DMA at $1,666

“Gold price is likely to extend its range play between the 21-Daily Moving Average (DMA) at $1,666 and the strong support near $1,615 ahead of the critical events this week.”

“Any recovery attempt will need acceptance above the 21-DMA on a daily closing basis. The next upside barrier is seen at Monday’s high of $1,671. The October 13 high at $1,683 will challenge bearish commitments should the recovery gather steam.”

“If the latest leg down extends, then Monday’s low at $1,644 will offer immediate support, below which the $1,630 round number will be tested.”

“Core inflation in the eurozone continues to rise, reaching 6% year-on-year in August 2022. Its acceleration is inevitable. The European Central Bank (ECB) will therefore have to decide whether to tolerate core inflation remaining high into 2024 or switch to a far more restrictive monetary policy than is currently expected, analysts at Natixis report.

Core inflation lingers

“The ECB can no longer claim that core inflation will rapidly subside, because of its inertia. If core inflation is higher than 6% in early 2023, the inertia of this inflation forces will lead it to at least around 6% at least in early 2024.” 

“Econometric analysis shows that core inflation is perfectly inert (core inflation has an eigenvalue of 0.98). The ECB will therefore have to accept: Either core inflation of around 6% at least in 2024; Or a more restrictive monetary policy than is currently expected.”

• Gold price stays defensive after reversing from 21-DMA.
• DXY picks up bids to reverse early Asian session losses amid mixed concerns.
• Yields stay downbeat in absence of Fedspeak, pre-data anxiety.
• XAU/USD may remain sidelined ahead of US CB Consumer Confidence, Q3 GDP.

Gold price (XAU/USD) remains directionless while bouncing off intraday low to $1,650 heading into Tuesday’s European session.

That said, the yellow metal lured buyers earlier in the day amid a softer US dollar but the greenback’s latest rebound appears to have weighed on the quote of late. It should be noted that the negative concerns surrounding China, one of the world’s biggest gold consumers, also challenge the precious metal prices of late.

US Dollar Index (DXY) picks up bids to regain the 112.00 threshold while paring the first weekly loss in three amid an absence of Fedspeak. It should be noted that the hawkish Fedspeak and downbeat US PMIs also underpin the DXY’s safe-haven demand.

China’s efforts to defend the struggling economy and global pessimism over Xi Jinping's third term, not to forget Hang Seng’s slump to a 13-year low, exert downside pressure on the market sentiment and the XAU/USD prices.

Amid these plays, the US 10-year Treasury yields remain pressured around 4.21%, down two basis points (bps) while the US stock futures and stocks in the Asia-Pacific region are mildly bid.

Moving on, second-tier US Housing data and Consumer Confidence figures may entertain gold traders ahead of Thursday’s US Gross Domestic Product for the third quarter (Q3).

Technical analysis

Gold retreats inside a two-week-old bearish megaphone. That said, the recent downside RSI and the quote’s pullback from the trend-widening pattern’s resistance line direct it toward the 100-EMA support near $1,645.

However, the metal’s further downside appears elusive as the yearly bottom near $1,614 and the lower line of the stated megaphone, close to $1,608, could challenge the XAU/USD bears afterward. Also acting as a downside filter is the $1,600 threshold, a break of which could direct the prices toward the April 2020 low near $1,572.

Meanwhile, the stated formation’s upper line and the 61.8% Fibonacci retracement of the metal’s upside from September 28 to October 04, around $1,658-60, appear a tough nut to crack for the gold buyers.

Overall, the bullion prices are likely to remain pressured but the south run could be a slower one.

Gold: Hourly chart

Trend: Further weakness expected

According to UOB Group’s Markets Strategist Quek Ser Leang and Economist Lee Sue Ann, USD/JPY is now expected to trade between 144.00 and 152.00 in the next few weeks.

Key Quotes

24-hour view: “Yesterday, USD traded in a volatile manner and within a wide range (145.61/149.69) before settling at 148.96. The volatile price actions have resulted in a mixed outlook and USD could continue to trade in a choppy manner for today, likely between 147.40 and 150.10.”

Next 1-3 weeks: “The highly volatile price actions in USD over the past couple of days have resulted in a mixed outlook. Further volatility is not ruled out and USD could trade within a wide range of 144.00/152.00 for the time being.”

EUR/USD remains to trade below the 0.99 mark. Economists at Commerzbank note that there is a deadlock in the world's most popular currency pair.

The speed od Fed rate hikes will ease somewhat

“It should not come as a complete surprise that the FOMC is beginning to refer to the fact that the steps will be smaller as of December and this should not put much pressure on the dollar. However, that also means that monetary policy will not provide further support for the dollar, but that this argument has now been sucked dry.”

“ECB members have signaled that a recession should not prevent the central bank from pursuing its normalization process though. In view of very high inflation rates, it would be necessary to act much more decisively as otherwise inflation expectations risk becoming de-anchored. In case of too hesitant an approach, there was a risk of monetary policy having to be tightened more severely at a later stage, which makes a hawkish rate decision on Thursday likely.”

“There will likely be a deadlock in EUR/USD for now with the euro standing up well against the dollar as long as there is no surprise news on the monetary policy or geopolitical front. At present, the latter seems more likely.”

• A minor rebound in risk-off impulse has dragged the cable below 1.1300.
• The DXY has reclaimed the critical resistance of 112.00.
• A symmetrical triangle formation indicates a consolidation head.

The GBP/USD pair has witnessed mild selling pressure and has dropped below the critical support of 1.1300 in the early European session. A soft decline in the S&P500 futures has delivered a rebound in the risk-off profile. The US dollar index (DXY) has reclaimed the critical resistance of 112.00 and has also delivered an upside break of the morning consolidation range.

On an hourly scale, the cable is oscillating in a Symmetrical Triangle chart pattern that signals a volatility contraction. The upward-sloping trendline of the chart pattern is placed from October 12 low at 1.0924 while the downward-sloping trendline is plotted from October 5 high at 1.1496.

The 50-period Exponential Moving Average (EMA) at 1.1291 is overlapping with the asset, which indicated a rangebound structure.

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

Going forward, an upside break of October 17 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 Friday’s low at 1.1060 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 hourly chart

Open interest in natural gas futures markets dropped by around 6.5K contracts on Monday after three consecutive daily builds, according to preliminary readings from CME Group. Volume followed suit and went down by around 60.5K contracts, offsetting the previous daily build.

Natural Gas still targets the $4.30 region

Natural gas prices regained the smile and the area above the $5.00 mark on Monday. The strong advance seen at the beginning of the week, however, was on the back of shrinking open interest and volume, opening the door to the continuation of the downtrend in the very near term. That said, the next support of note now emerges at the March low near the $4.30 mark per MMBtu (March 1).

• AUD/USD fades early Asian session gains amid sluggish markets.
• Cautious mood ahead of the key data/events challenges buyers.
• DXY remains pressured amid downbeat yields, doubts over China exert downside pressure on prices.
• Aussie budget needs to ignore downbeat forecast to defend buyers, US Q3 GDP is also important for fresh impulse.

AUD/USD portrays the pre-event anxiety as it retreats from the intraday high to 0.6320 heading into Tuesday’s European session. The Aussie pair initially cheers softer US dollar but has been easing of late as traders await the first budget from Australia's Labour government.

"The immediate focus is on the Australian budget where strong commodity prices have cut estimates for the FY2023 deficit in half to A$36.9 billion, a fiscally positive backdrop for the Aussie dollar," said analysts at ANZ in their latest report. “Australia's Labor government will unveil its first budget on Tuesday as economic growth slows both at home and abroad, emphasizing its spending will focus on easing the cost-of-living crisis without lighting a fire under the already high inflation,” stated Reuters previously.

Elsewhere, mixed concerns surrounding China’s efforts to defend the struggling economy and global pessimism over Xi Jinping's third term, not to forget Hang Seng’s slump to a 13-year low, also exert downside pressure on the risk barometer pair.

It should be noted that the sluggish US dollar and a lack of major data/events challenge bears. That said, the US Dollar Index (DXY) remains on the back foot around 111.85, taking rounds to intraday low while struggling to extend the week-start gains amid downbeat Treasury bond yields and cautious optimism in the markets.

While portraying the mood, the US 10-year Treasury yields remain pressured around 4.21%, down two basis points (bps) while the US stock futures and stocks in the Asia-Pacific region are mildly bid.

Looking forward, the Aussie budget and Wednesday’s inflation data can entertain AUD/USD traders ahead of Thursday’s US Gross Domestic Product for the third quarter (Q3). While expectations of stimulus from Australia contrast with the recently softer tone from the Reserve Bank of Australia (RBA) to keep bears hopeful, US GDP should remain firmer to keep recall sellers.

Technical analysis

Although the 21-DMA challenges AUD/USD buyers around 0.6365, a convergence of the weekly support line and the previous resistance line from September 13, around 0.6260, appears a tough nut to crack for the bears to retake control.

• Copper price has sensed selling pressure amid mounting recession fears.
• The Fed is behaving extremely aggressively ever to downsize the inflation rate.
• Copper imports in China have climbed significantly as the proposed infrastructure spending kick-off.

Copper prices drop below Monday’s lowest price as recession fears have escalated in the US economy. The base metal has delivered a south-side break of the consolidation formed in a narrow range of $3.41-3.44 and is aiming for more weakness as accelerating interest rates are challenging growth rate projections.

A poll from Reuters claims that a fourth consecutive 75 basis point (bps) rate hike by the Federal Reserve (Fed) in the first week of November is a done deal. It is worth noting that the Fed is behaving extremely aggressively ever to downsize the inflation rate. Therefore, policy-tightening measures have been continuously trending.

This has triggered the risk of recession ahead as the growth rate has been slashed sharply and unemployment levels are expected to ditch downside levels. Fears of a recession have bolstered further post commentary from US Treasury Chief Janet Yellen that “Cannot rule out risk” of a recession, reported MSNBC news.

Meanwhile, in China, copper imports have jumped by 25.6%, from a year ago. Infrastructure spending has accelerated amid the announcements of stimulus packages by the Chinese administration to dodge the consequences of the no-tolerance Covid approach and a real estate meltdown. Winters in Asia are known for a rebound in construction and real estate businesses after monsoons.

A note from ANZ Research claims that "Copper imports were up strongly as the outlook for demand from the power sector improves”

Going forward, policy announcements from China’s XI Jinping will remain the key after the continuation of his leadership for the third time.

NZD/USD is now seen navigating the 0.5590-0.5810 band in the next weeks, suggest UOB Group’s Markets Strategist Quek Ser Leang and Economist Lee Sue Ann.

Key Quotes

24-hour view: “The current movement is NZD appears to be part of a consolidation. For today, we expect NZD to trade between 0.5645 and 0.5750.”

Next 1-3 weeks: “Yesterday, NZD rose to a high of 0.5675 before pulling back sharply. The price actions appear to be part of a consolidation phase and we expect NZD to trade between 0.5590 and 0.5800 for the time being. Looking ahead, NZD has to break clearly above 0.5810 before a sustained advance is likely.”

• NZD/USD pares intraday gains, stays mildly bid amid softer USD.
• RBNZ’s Conway challenges hawkish bias ahead of November’s monetary policy meeting.
• Market sentiment dwindles amid mixed concerns surrounding China, light calendar.
• Risk catalysts could entertain buyers as DXY traces yields.

NZD/USD eases from intraday high, around 0.5710 heading into Tuesday’s European session, as the Kiwi pair buyers trace cautious comments from the Reserve Bank of New Zealand (RBNZ) official. Also challenging the quote’s upside momentum could be the mixed concerns surrounding China, the world’s biggest commodity user and an important customer of New Zealand.

RBNZ's Chief Economist Paul Conway stated that, per Reuters, the era of helpful tradeable inflation may have peaked. The policymaker also adds, “As interest rates have risen, there are early indications that the economy is cooling.”

The comments raise doubts about the RBNZ’s future cash rate hikes even as the central bank is up for announcing a 75 bps rate lift during its monetary policy decision in late November.

The same is the case with the US dollar that witnessed a slightly cautious Fedspeak before the pre-Fed blackout period and hence trace the softer Treasury yields to consolidate the latest gains. It should be noted that the softer US PMIs also weighed on the greenback.

That said, the US Dollar Index (DXY) remains on the back foot around 111.85, taking rounds to intraday low while struggling to extend the week-start gains amid downbeat Treasury bond yields and cautious optimism in the markets.

Against this backdrop, the US 10-year Treasury yields remain pressured around 4.21%, down two basis points (bps) while the US stock futures and stocks in the Asia-Pacific region are mildly bid.

Moving on, an absence of major data/events could test the NZD/USD buyers but the second-tier US Housing data and Consumer Confidence may entertain short-term traders ahead of Thursday’s US Gross Domestic Product for the third quarter (Q3).

Technical analysis

Given the bullish MACD signals and the firmer RSI (14), not overbought, the NZD/USD buyers are all set to cross the immediate hurdle, namely a two-month-old resistance line surrounding the mid-0.5700s. Meanwhile, pullback moves remain elusive unless the quote stays beyond the aforementioned DMA confluence of 0.5660-65.

CME Group’s flash data for crude oil futures markets noted traders added more than 2K contracts to their open interest positions at the beginning of the week, partially reversing the previous day’s drop. Volume, on the other hand, shrank for the third consecutive session, now by nearly 107K contracts.

WTI: A drop to $80.00 is not ruled out

Monday’s lack of direction in prices of the WTI was on the back of increasing open interest and declining volume, which supports the view that extra range bound seems the most likely scenario for the time being. The breakdown of this theme could leave WTI vulnerable to a test of the key $80.00 mark per barrel.

In the opinion of UOB Group’s Markets Strategist Quek Ser Leang and Economist Lee Sue Ann, further upside in GBP/USD is expected to meet a solid resistance around  1.1440.

Key Quotes

24-hour view: “GBP opened on a firm note yesterday before easing off to close at 1.1283 (-0.23%). Momentum indicators are turning neutral and GBP has likely moved into a consolidation phase and is likely to trade sideways. Expected range for today, 1.1225/1.1390.”

Next 1-3 weeks: “While GBP eased off from a high of 1.1402 yesterday, the price actions appear to be supportive of GBP, albeit mildly. It is premature to expect a sustained advance. From here, GBP could edge higher but any advance is expected to face solid resistance at 1.1440. Support is at 1.1225 but only a break of 1.1150 would indicate that the current upward pressure has subsided.”

Considering advanced prints from CME Group for gold futures markets, open interest resumed the uptrend and went up by around 2.4K contracts on Monday. Volume, instead, maintained the choppiness intact and shrank by nearly 102K contracts.

Gold looks supported around $1,615

Gold started the week in a negative fashion amidst increasing open interest, suggesting that further decline remains on the cards in the very near term. That said, the door remains open for bullion to revisit the 2022 low at $1,614 (September 28).

• USD/CHF has confidently reclaimed the psychological resistance of 1.0000 despite an upbeat market mood.
• The DXY is trading lackluster amid the unavailability of a potential trigger.
• Fed’s extreme tightening measures have opened doors for recession risk.

The USD/CHF pair has extended its recovery above 1.0004 in the Tokyo session after a rebound from 0.9980. The asset has picked bids despite a subdued performance by the US dollar index (DXY). The mighty DXY is displaying an intraday inventory adjustment phase, which could deliver an explosion of the volatility contraction in the European session.

The risk-on profile is getting back into the picture as S&P500 futures have extended their gains after recovering their morning losses. Meanwhile, the returns on US government bonds have slipped further as investors’ risk appetite is improving. 10-year US Treasury yields have dropped marginally below 4.21%.

The investing community is shifting its focus toward the US Gross Domestic Product (GDP) data, which is due on Thursday. As per the projections, the US growth rate is seen higher at 2.4% vs. a decline of 0.6% reported earlier. An occurrence of the same could delight the Fed as the labor market is losing its charm and inflationary pressures are not providing solid evidence of a slowdown in the pace of the inflation rate.

As accelerating interest rates have forced institutions to trim their economic projections for the US economy, eventually, fears of recession risk have escalated. US Treasury Chief Janet Yellen cited “Cannot rule out risk” of a recession, reported MSNBC news.

On the Swiss Franc front, investors are awaiting the release of the ZEW Survey-Expectations data. The economy catalyst is seen lower at -43.8 vs. the prior release of -69.2. An improvement in business and employment conditions could support the Swiss franc bulls ahead.

• EUR/USD prints four-day uptrend as buyers jostle with four-month-old resistance line.
• Lack of major data/events restricts immediate moves ahead of ECB, US GDP.
• Hawkish central bank bets, downbeat PMIs fail to entertain bears.
• Bulls would like to hear more about ECB’s QT as 75 bps rate hike is already given.

EUR/USD bulls struggle to keep the reins, despite printing a four-day uptrend around the fortnight top near 0.9900. In doing so, the major currency pair traces the sluggish markets heading into Tuesday’s European session.

It should, however, be noted that the US dollar’s weakness amid softer yields and an absence of Fedspeak allowed the buyers to keep the reins. Also likely to favor the upside momentum could be cautious optimism in the Asian session due to gains from China and Japan.

Furthermore, talks that the European Central Bank (ECB) is up for rolling back the bond actions to overcome covid-led woes, known as Quantitative Tightening (QT), also seem to underpin the EUR/USD upside momentum.

Additionally, the latest comments from the Fed policymakers haven’t been impressive amid concerns over easing the rate hike, which in turn allow the US dollar to retreat from the multi-year high. That said, the US Dollar Index (DXY) remains on the back foot around 111.85, taking rounds to intraday low while struggling to extend the week-start gains amid downbeat Treasury bond yields and cautious optimism in the markets.

The US 10-year Treasury yields remain pressured around 4.21%, down two basis points (bps) while the US stock futures and stocks in the Asia-Pacific region are mildly bid.

Moving on, Germany’s IFO sentiment figures for October will precede the second-tier US Housing data and Consumer Confidence to direct short-term EUR/USD moves. However, the pair is less likely to print any major moves, unless surprises erupt, but the buyers may keep the reins as the Fed hawks are obverting the pre-meeting silence period.

On Monday, fears of more tension concerning the West versus Russia issue and downbeat activity numbers for October, from the US, the UK and Europe, as well as Germany, favored the pair bears.

Technical analysis

EUR/USD pullback remains elusive beyond the one-month-old trend line support, close to 0.9700 at the latest. Meanwhile, a downward-sloping resistance line from early June around 0.9900 appears the key hurdle for the bulls before they challenge the monthly top near the parity level.

UOB Group’s Markets Strategist Quek Ser Leang and Economist Lee Sue Ann see EUR/USD facing extra gains once 0.9935 is cleared.

Key Quotes

24-hour view: “EUR rose to a 2-1/2 -week high of 0.9899 yesterday before closing at 0.9874 (+0.14%). Upward momentum is building and the risk for today is tilted to the upside. However, the chance of EUR breaking the major and solid resistance at 0.9935 is not high for now. On the downside, a breach of 0.9835 (minor support is at 0.9860) would indicate that the build-up in momentum has fizzled out.”

Next 1-3 weeks: “EUR closed at 0.9874 yesterday, its highest daily closing since early this month. Short-term upward momentum is beginning to build and the risk for EUR is shifting to the upside. That said, EUR has to break the major and solid resistance at 0.9935 first before a sustained advance is likely. The odds of EUR breaking 0.9935 will remain intact as long as it does not move below 0.9780 (‘strong support’ level) within the next few days. Looking ahead, the next resistance above 0.9935 is at 1.0000.”

• USD/JPY is continuously auctioning below 149.00 as investors await more clarity on BOJ’s intervention.
• S&P500 futures have recovered their morning losses which indicates that the risk-on impulse could rebound.
• Japanese importers have been hit hard by the sliding yen to the lowest levels in 32 years.

The USD/JPY pair is displaying a lackluster performance below the critical hurdle of 149.00 in the Tokyo session. The asset has turned sideways following back-and-forth cues from the US dollar index (DXY). The juggling of the DXY below 112.00 indicates that the market mood is extremely quiet.

S&P500 futures have recovered their marginal losses recorded in early Tokyo. Also, the 10-year US Treasury yields have extended their losses to near 2.21%, which could bring a rebound in the risk-on impulse ahead.

Knee-jerk reactions in an asset usually turn the asset into a sideways trend. The Bank of Japan (BOJ)’s stealth intervention in the currency markets against disorderly FX moves to safeguard the weakening yen has kept investors on the sidelines.

The weakening of the domestic currency due to speculative moves has harmed the spirits of Japanese investors. BOJ Governor Haruhiko Kuroda, a Japanese government official said that “the recent sharp, one-sided yen weakness is not good for the economy.” Japanese officials are paying ‘full attention’ to market volatility. The Tokyo government is continuously intervening in currency markets after yen recorded its lowest levels in 32 years.

The impact of the deteriorating yen is impacting the importers badly. From the purchase of oil to foodstuffs, Japan has a constant demand for dollars, that is sensitive to yield differentials, expectations from monetary policy, and technical levels reported Bloomberg.

On the US front, investors’ focus has shifted to the US Gross Domestic Product (GDP) data, which will release on Thursday. . The annualized GDP is expected to improve significantly to 2.4% vs. a decline of 0.6% reported earlier.

• Asian equities fail to track Wall Street amid mixed plays.
• Rishi Sunak’s victory in the UK PM race, softer PMIs allowed equity buyers to remain hopeful.
• Alleged meddling by Chinese officials to propel equities, BOJ’s “stealth intervention” fail to entertain traders.
• Yields remain pressured despite softer PMIs challenge hawkish central banks.

Asia-Pacific equities seesaw around a 2.5-year low as fears emanating from China and Japan flash mixed signals to defend the stocks during early Tuesday.

That said, a sharp jump in Chinese shares triggered fears of market intervention from Beijing, which in turn allowed traders to pare some losses. However, an absence of confirmation allowed equity bulls to pare some gains. Further, Japan’s stealth intervention also supported the Asia-Pacific equities.

While portraying the mood, MSCI’s index of Asia-Pacific shares outside Japan drops 4.5% intraday to a 2.5-year low. However, Japan’s Nikkei 225 rises 1.2% while Chinese equities are on an average 1.0% up on a day.

Amid these plays, Reuters stated that the Asian benchmark is nursing losses of nearly 32% so far this year, weighed by big falls in Hong Kong shares while emerging markets such as India and Indonesia have gained on improving growth prospects.

The news also mentioned that reports of the size of transactions on Friday and Monday, and moves in USD/JPY, leave no doubt in the minds of most that intervention took place. That said, this new strategy leaves open the possibility of smaller, perhaps more frequent interventions, and could keep market participants cautious for longer.

Elsewhere, the US Dollar Index (DXY) remains on the back foot around 111.85, taking rounds to intraday low while struggling to extend the week-start gains amid the mixed clues in the market and the downbeat US data, as well as an absence of Fedspeak. It should be noted that the US 10-year Treasury yields remain pressured around 4.21%, down two basis points (bps) while the US stock futures remain mildly offered. Also, stocks in the Asia-Pacific region are mostly negative led by China.

Moving on, a light calendar could test equity traders amid an absence of the Fed speakers. Though, looming risks to the major economies and likely central bank aggression favors the gold sellers ahead of Thursday’s US Gross Domestic Product for the third quarter (Q3).

• USD/INR takes offers to reverse the week-start gains.
• Softer oil prices, hopes of festive demand underpin INR amid sluggish session.
• DXY traces downbeat yields, absence of Fedspeak strengthens the greenback’s weakness.
• Calls of witnessing 85.00 as a quote gain market’s attention and challenge the bears.

USD/INR remains pressured around the intraday low of 82.55, reversing Monday’s gains, as it struggles to justify the risk-aversion in Asia amid a softer US dollar and sluggish markets during early Tuesday.

Indian markets resume after a Diwali holiday and benefit from the softer oil prices. That said, the WTI crude oil prices remain lackluster around $84.50, sidelined for the second consecutive week after reversing from a two-month high. India’s heavy reliance on energy imports makes the INR vulnerable to oil price moves.

Elsewhere, the ongoing annual New Year festivities also allow the Indian rupee (INR) traders to remain optimistic amid hopes of more demand.

In doing so, the INR also cheers the softer US dollar amid an inactive day. That said, the US Dollar Index (DXY) remains on the back foot around 111.85, taking rounds to intraday low while struggling to extend the week-start gains amid the mixed clues in the market and the downbeat US data, as well as an absence of Fedspeak.

It should be noted that the US 10-year Treasury yields remain pressured around 4.21%, down two basis points (bps) while the US stock futures remain mildly offered. Also, stocks in the Asia-Pacific region are mostly negative led by China.

Moving on, a light calendar may restrict immediate USD/INR moves and allow the pair to consolidate the previous losses. However, bearish calls from the prominent Indian forecaster seem to keep the pair buyers hopeful. That said, the IDFC first bank, which previously anticipated an 82.50 level by March, upwardly revise its outlook to say, “USD/INR to reach 85 by March on a combination of a decline in FX reserves cover and hawkish Fed,” reported Reuters.

Technical analysis

Unless breaking a one-month-old support line, around 82.35 by the press time, USD/INR remains on the front foot and suggests a fresh all-time high, currently around 83.42.

• Gold price is oscillating around $1,650.00 amid a quiet market mood.
• The odds of a fourth consecutive 75 bps rate hike by the Fed are skyrocketing.  
• Fed’s extreme policy tightening measures are approaching a recession situation.

Gold price (XAU/USD) has continued to auction sideways following the bewilderness in the US dollar index (DXY). The precious metal is displaying topsy-turvy moves in a $1,647.50-1,655.00 range in the Tokyo session. S&P500 futures have witnessed a mild correction, however, the risk-on profile is still solid and could trim the appeal for safe-haven assets ahead.

The US dollar index (DXY) is continuously oscillating below the critical hurdle of 112.00. The DXY is in a make or a break situation and minor volatility could drag it to test Monday’s low of 111.50. Meanwhile, the 10-year US Treasury yields are hovering around 4.21%.

The odds of a fourth consecutive 75 basis point (bps) rate hike by the Federal Reserve (Fed) are skyrocketing. A Reuters poll on Fed’s interest rate projections claims that a 75 bps rate hike is a done deal. As price pressures have not reacted in line with the projections, policy tightening is the only measure to contain the inflation mess.

Apart from that, recession fears in the US economy are gaining a lot of traction. US Treasury Chief Janet Yellen cited “Cannot rule out risk” of a recession, reported MSNBC news.

Gold technical analysis

On an hourly scale, gold prices have dropped after facing barricades of around $1,670.00. The precious metal has declined to near the horizontal support placed from Thursday’s high at $1,645.67. The yellow metal is hovering around the 200-period Exponential Moving Average (EMA) at $1,650.46.

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

Gold hourly chart

• AUD/USD has faced barricades around 0.6350 amid China’s Jinping-infused pessimism.
• A fourth consecutive 75 bps rate hike by the Fed looks likely.
• Fears of recession in the US economy have accelerates as US Yellen cited that the one cannot be ruled out.

The AUD/USD pair surrendered its pullback move to near 0.6350 in the Tokyo session. China’s Jinping-infused pessimism is weighing pressure on the aussie dollar. The risk-on impulse is still solid despite a minor fall in S&P500 futures after back-to-back bullish settlements. Meanwhile, the US dollar index (DXY) is attempting to recapture the critical hurdle of 112.00 after a subdued opening in Tokyo.

The 10-year US Treasury yields have trimmed to 4.21% amid a positive market sentiment. The chances for a fourth consecutive 75 basis point (bps) rate hike by the Federal Reserve (Fed) stand at 95%, according to the CME FedWatch tool.

A Reuters poll on Fed’s interest rate projections claimed that the central bank will announce a fourth consecutive 75 bps rate hike. Other outcomes of the Reuters poll state that the central bank should not pause until inflation falls to around half its current level. No, doubt the aggressive rate hike cycle by the Fed is also welcoming the risk of recession ahead.

Fears of recession risk have escalated significantly as US Treasury Chief Janet Yellen cited “Cannot rule out risk” of a recession, as reported by MSNBC news.

Going forward, Thursday’s US Gross Domestic Product (GDP) data will hog the limelight. The annualized GDP is expected to improve significantly to 2.4% vs. a decline of 0.6% reported earlier.

On the Australian front, the unprecedented third term for China’s leader XI Jinping has shaken the aussie bulls. Growth prospects in China are at stake which is impacting the trade projections of Australia. Apart from that, Australian Consumer Price Index (CPI) data is gaining more traction. According to the estimates, the headline inflation will accelerate to 7.0% vs. the prior release of 6.1% on an annual basis.

• GBP/USD cheers broad US dollar weakness, cautious optimism in the market to defend buyers.
• End of UK’s month-old political turmoil, Rishi Sunak’s credibility keeps buyers hopeful.
• Downbeat PMIs, geopolitical fears concerning Russia and hawkish Fed bets test upside momentum.
• Second-tier US data can entertain intraday buyers ahead of Thursday’s US Q3 GDP.

GBP/USD grinds higher past 1.1300, up 0.25% intraday, as buyers cheer a softer US dollar amid hopes of the end of the UK’s political crisis during early Tuesday. Even so, a lack of major data/events and sluggish markets, not forgetting the immediate technical hurdles, challenge the pair buyers after a downbeat start to the week.

After being elected as the third British Prime Minister in less than two months, the ex-Financial Minister Rishi Sunak told the supporters that, a “profound economic challenge" looms over the UK. The policymaker also mentioned, “We now need stability and unity, and I will make it my utmost priority to bring our party and our country together.”  Considering Sunak’s credibility, mainly due to his history of working in Goldman Sachs and aptly predicting the financial turmoil should Liz Truss announces her fiscal stimulus, the GBP/USD buyers are hopeful of overcoming the month-long political trauma.

Furthermore, Bank of England Deputy Governor Dave Ramsden said credibility was returning to British economic policymaking, judging by a recovery in the government bond market, which in turn helps the quote to remain mildly bid of late.

However, the downbeat UK activity numbers and mixed concerns over the Bank of England’s (BOE) next move, now that Truss-led pressure is off, appear to challenge the GBP/USD bulls. On the same line could be the hawkish Fed bets and the strong US inflation expectations.

That said, the US inflation precursors, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, rose to a two-month high in their latest readings. Further, the CME’s FedWatch Tool prints a nearly 95% chance of a 75 bps Fed rate hike in November.

Amid these plays, the US Dollar Index (DXY) remains on the back foot around 111.90 while the US 10-year Treasury yields remain pressured around 4.21%, down two basis points (bps). Further, the S&P 500 Futures fail to track Wall Street’s gains to print a mild 0.20% intraday loss by the press time.

Moving on, GBP/USD buyers need strong positives to overcome the immediate key hurdle and reverse the previous downtrend. However, the absence of Fedspeak and a light calendar may restrict the Cable pair’s moves ahead of Thursday’s US Gross Domestic Product for the third quarter (Q3).

Technical analysis

A daily closing beyond a six-week-old resistance line, near 1.1285 by the press time, as well as the 50-DMA hurdle surrounding 1.1400, becomes necessary for the GBP/USD bulls to retake control. Otherwise, hopes of revisiting the monthly support line near 1.1085 can’t be ruled out.

The People's Bank of China (PBOC) said in a statement on Tuesday, it raised a parameter on cross-border corporate financing under its macro-prudential assessments to 1.25 from 1.

“Tuesday's move will "increase the sources of cross-border funds for enterprises and financial institutions, and guide them to optimize the asset-liability structure,” the central bank said in an official statement published on its website.

Market reaction

USD/CNY caught a fresh bid wave and hit another record high at 7.3079 in the last hour. The pair is currently trading 0.61% higher on the day at 7.3075.

• USD/CNH justifies bullish options market signals to refresh all-time high

International Energy Agency (IEA) Chief Fatih Birol said on Tuesday that “the world is in the middle of the first truly global energy crisis.”

Additional quotes

Related reads

• WTI fails to cheer downbeat DXY amid recession fears

• Commodity prices surge on hopes of Fed pivot – What’s next? [Video]

Analysts at Goldman Sachs stick with their bullish outlook on the USD/JPY pair over the coming weeks.

Key quotes

"JPY took another hard round-trip on Friday after another apparent large-scale intervention. Japan's current policy mix is clearly unsustainable; it is intervening in both the fixed-income and foreign exchange markets, firmly entrenched in the classic "open-economy trilemma," as our economists explained this week. But, while ultimately unsustainable, it is "working" to some degree.”

"The Dollar is currently on a broad appreciation trend of historic proportions, which we think could last a little while longer.”

“So it may not be unreasonable for Japan's policymakers to use the resources at its disposal to try to buy time and limit the speed of JPY depreciation as much as possible. In the meantime, in a macro backdrop of more Fed hikes, higher global rates (ex-Japan), and our economists' forecast of a relatively soft landing, the trend in USD/JPY should still be higher.”

USD/CNH advances for the second consecutive day to renew the record high around 7.3740, before retreating to 7.3360 during Tuesday’s Asian session.

In doing so, the offshore yuan currency (CNH) pair tracks bullish signals from the options market as a one-month risk reversal (RR) ratio of calls to put rose for the second consecutive day, as well as snapped a two-week downtrend.

That said, the daily RR prints 0.045 as the latest figure, per Reuters, while the options market gauge prints the first weekly positive number of 0.045 in three by the end of Monday’s North American trading session.

USD/CNH upside could be linked to the fears surrounding China’s economic growth as Xi Jinping holds the lead command for the third consecutive term. “China's next premier, who will take office in March, will have few options but to step up stimulus to revive an economy ravaged by COVID-19, policy insiders and analysts said on Monday, as the unveiling of Xi Jinping's new leadership team rattled markets,” said Reuters.

Also read: USD/CNH Price Analysis: Stays firmer inside immediate rectangle despite upbeat China GDP

• EUR/USD bulls attempting to make a break for it 
• US dollar bears are pressing the bulls back below key trendline support. 

EUR/USD has been drifting to the upside as the US dollar tails off below micro daily trendline support as the following will illustrate. DXY has been pressured to below 111.50 but the pace of losses is slow and bulls are in play at times of bearish pressure. It's early days in what will be a busy week and coiled markets have a tendency to break out which could be on the cards for the week ahead. 

The downside channel is dominant but there are risks of the price moving out of it to the topside. 

The market is coiled and pressing against key resistance. If this holds, the downside will be in play, however. 

For now, so long as the greenback remains supported at the trendline support, there will be risks of a significant move in the euro on a break of trendline support. 

DXY technical analysis

The bull flag and combination with the rising trendline and W-formation make for a solid thesis for the upside. However, there are risks of a downside breakout with 111.00 vulnerable. Such a move will see the euro take off.

• USD/CAD struggles for clear directions inside a trend widening formation.
• Sustained trading beyond monthly support, 200-SMA keeps buyers hopeful.
• Monthly top, May 2020 peak could lure buyers past 1.3840, sellers have a bumpy road to return.

USD/CAD treads water around 1.3700 during Tuesday’s Asian session, taking rounds inside a one-week-old megaphone formation of late.

Although the latest bearish megaphone advocates a gradual pullback of the USD/CAD prices, the firmer oscillators and the pair’s sustained trading beyond the key supports to keep the buyer hopeful. Among the important supports, the one-month-old ascending trend line, the stated megaphone’s lower line and the 200-SMA are crucial.

Hence, the USD/CAD pair’s latest weakness could initially aim for the monthly support of 1.3640 before extending a rebound from the megaphone’s support, near 1.3585.

Should the quote fails to rebound from 1.3585, the following moves reject the trend-widening pattern and highlight the 200-SMA level of 1.3560 as the next strong support.

In a case where the USD/CAD bears dominate past 1.3560, the odds of witnessing a fresh low, currently around 1.3500 can’t be ruled out.

Alternatively, recovery moves may initially aim for the megaphone’s upper line, close to 1.3840 at the latest, before challenging the monthly top surrounding 1.3980.

During the quote’s run-up beyond 1.3980m, the 1.4000 psychological magnet could test the USD/CAD bulls before directing them to the mid-2020 peak near 1.4175.

USD/CAD: Four-hour chart

Trend: Grinding higher

• WTI takes offers to renew intraday low, remains mildly offered though.
• Softer yields, absence of Fedspeak weigh on DXY, downbeat PMIs magnify economic slowdown risk.
• API stockpile data, chatters over EU gas price cap could entertain oil traders.

WTI crude oil remains on the back foot for the second consecutive day, renewing its intraday low near $84.25 during Tuesday’s Asian session, as recession woes weigh on the energy prices. In doing so, the black gold fails to cheer the downside US dollar, as well as looming fears of a supply crunch due to geopolitical factors.

US Dollar Index (DXY) remains on the back foot around 111.80, taking rounds to intraday low while struggling to extend the week-start gains, as the downbeat US data joins an absence of Fedspeak. Also exerting downside pressure on the greenback’s gauge versus the six major currencies could be softer Treasury bond yields and mildly positive stock futures.

That said, downbeat prints of the preliminary PMIs for October suggest that major economies from the West have been facing hard times of late, which in turn challenge the oil demand. On the same line could be China’s covid-led lockdowns that resulted in a 2.0% fall in the crude import of the dragon nation.

Even so, talks surrounding the Eurozone’s push for the gas price cap on Russian output and the supply cuts from the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+, keep the oil buyers hopeful.

Looking forward, the weekly prints of the American Petroleum Institute’s (API) Crude Oil Stock data for the week ended on October 21, prior -1.27M, will be important for the oil traders to watch for intraday directions. However, major attention should be given to the growing concerns and geopolitical fears for a clear guide.

Technical analysis

Unless crossing the 50-DMA hurdle, around $86.30 by the press time, WTI crude oil sellers are likely targeting the previous week’s swing low near $81.30.

Citing Bank of Japan (BOJ) Governor Haruhiko Kuroda, a Japanese government official said that “the recent sharp, one-sided yen weakness is not good for the economy.”

Japan government official added that Kuroda said, the BOJ will collaborate closely with the government to monitor financial and currency market movements, as well as, the impact on the economy and prices.

Market reaction

The yen failed to find any impetus from the above comments, leaving USD/JPY gyrating in a familiar range near 149.00, at the time of writing.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at the weakest level since 2008, 7.1668 vs. the prior 7.1230 and the previous close of 7.2629.

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.

Reuters reports that the Japanese authorities are in constant touch with their US counterparts and stand ready to take appropriate action in the currency market against
volatile yen moves, Finance Minister Shunichi Suzuki said on Tuesday.

''In a post-cabinet meeting news conference, Suzuki also said he saw no contradiction between the government's yen-buying currency intervention and the Bank of Japan's ultra-loose monetary policy.''

Key notes

No comment on daily forex moves.
    
Forex rates move on various factors.
    
Ready to take appropriate actions on fx market movements if necessary.
    
Excess fx volatility by speculative trading is unacceptable.
    
Watching fx moves with high sense of urgency.
    
In constant touch with US authorities.
    
Aware of Yellen's comment that she did not know about Japan's intervention.
    
Excessive fx volatility due to speculative trading amplifies impact on households, businesses, must be smoothed out.
    
No comment on whether intervened in fx market.
    
Various currencies, not just yen, weak against dollar's solo strength.
    
Need to make sure economic measures are not delayed after ex-economy minister Yamagiwa's resignation.
    
Monetary policy up to BoJ to decide.
    
Price hikes are caused by global commodity inflation and weak yen.
    
Weak yen accounts for half of recent price hikes in Japan
    
Monetary policy and fx intervention are not contradictory.

USD/JPY update

The pair is coiled and a breakout could be on the cards with the downside favoured while on the backside of the trendline. 

• AUD/NZD is eyeing more gains post overstepping the critical hurdle of 1.1100.
• In addition to weak labor data, higher inflation consensus is joining as a headwind for the RBA.
• RBNZ sees that inflationary prices may top sooner.

The AUD/NZD pair is struggling to surpass the immediate hurdle of 1.1100 in the Tokyo session as investors are awaiting the release of the Australian inflation data. On a broader note, the asset is oscillating in a 1.1073-1.1100 range after a juggernaut rebound.

It seems that out of the two antipodeans, an unprecedented third term for China’s XI Jinping in power supported the aussie bulls. Well, the event has triggered the risk of a further slowdown in the Chinese economy as China’s Jinping could continue the no-tolerance Covid-19 approach.

This week, the event of the Australian Consumer Price Index (CPI) release will be keenly watched for taking cues about the likely monetary policy action by the Reserve Bank of Australia (RBA), which will take place next week. As per the projections, the headline inflation will accelerate to 7.0% vs. the prior release of 6.1% on an annual basis. On a quarterly basis, the plain-vanilla CPI could decline to 1.5% against the prior print of 1.8%.

It is worth noting that Australia’s employment data, released last week, was extremely poor, and now higher consensus for inflationary pressures could make the job for RBA Governor Philip Lowe more cumbersome.

On the NZ front, comments from Reserve Bank of New Zealand (RBNZ)'s Chief Economist, Paul Conway is hopeful that inflationary pressures are peaked now.  He believes that evidence is available citing a cool-off in price pressures. Housing prices are declining, which could slow down consumption. He further added that China is no longer the deflationary force it once was.

• NZD/USD refreshes intraday high, bounces off the short-term key DMA confluence.
• Bullish MACD signals, firmer RSI direct buyers toward a two-month-old resistance line.
• Weekly support line adds to the downside filters, monthly top also challenges bulls.

NZD/USD renews upside momentum targeting the key resistance line that defeated bulls the previous day.

In doing so, the Kiwi pair refreshes intraday high around 0.5715 while bouncing off the 21-DMA and 10-DMA confluence to aim for the descending trend line resistance from August 12, around 0.5745 at the latest.

Given the bullish MACD signals and the firmer RSI (14), not overbought, the buyers are all set to cross the immediate hurdle surrounding the mid-0.5700s.

However, the 0.5800 round figure and the monthly top around 0.5815 could act as extra upside filters to challenge the NZD/USD bulls before giving them control.

In that case, the 0.6000 psychological magnet and the previous monthly top of 0.6162 could gain the market’s attention.

Meanwhile, pullback moves remain elusive unless the quote stays beyond the aforementioned DMA confluence of 0.5660-65.

Also challenging the NZD/USD bears is an upward-sloping support line from October 13, close to 0.5630.

Should the pair sellers break the 0.5630 support, the odds of witnessing a fresh 2022 low, currently around 0.5510, can’t be ruled out.

Overall, NZD/USD is up for challenging the two-month-old bearish trend but the road to the north a bumpy and long.

NZD/USD: Daily chart

Trend: Further upside expected

RBNZ's Chief Economist, Conway, has shared views about the recent monetary policy decisions. There may be some disappointment felt by traders that were in anticipation of an indication of the Board being strongly reconsidering the 75bps hike option next month due to the lack of progress on curbing inflation. Instead, Conway has said that while interest rates have risen, there are early indications that the economy is cooling and that the fall in house prices is expected to slow consumption.

Key notes

• Era of helpful tradeable inflation may have peaked.
• The RBNZ underestimated the strength of tradable inflation.
• China is no longer the deflationary force it once was.

Comments on the inflation trajectory and the peak in the OCR will have garnered much attention.

NZD/USD update

Bulls are in control, hugging the trendline support with resistance eyed ahead. 

• Gold price picks up bids to reverse the week-start loss, renews intraday high of late.
• DXY struggles amid cautious optimism, downbeat PMIs, ignores hawkish Fed bets.
• Risk catalysts can entertain XAU/USD buyers ahead of Thursday’s US Q3 GDP.

Gold price (XAU/USD) renews its intraday high around $1,653, reversing the previous day’s pullback from a one-week top, as a softer US dollar favors the metal buyers during Tuesday’s Asian session.

That said, the US Dollar Index (DXY) remains on the back foot around 111.85, taking rounds to intraday low while struggling to extend the week-start gains amid the cautious optimism in the market and the downbeat US data, as well as an absence of Fedspeak.

It should be noted, however, the downbeat yields and mildly positive stock futures add strength to the XAU/USD’s recent run-up.

The US 10-year Treasury yields remain pressured around 4.21%, down two basis points (bps), while the S&P 500 Futures track Wall Street’s gains to print a mild 0.20% intraday upside.

The recent optimism surrounding the UK and the EU’s economies seemed to have joined the absence of the Fed policymakers’ speech seemed to have favored the XAU/USD prices. On the same line could be the downbeat US data.

Ex-Chancellor’s victory in the UK Prime Minister’s race joins the mildly positive German Services PMI for October, despite being in the contraction zone, keeps the market’s mood positive amid mixed earnings. Also, the latest round of the Fedspeak appeared to have faded the previous hawkish tone and might have been the reason to trigger the chatters over the easy rate hike from December, which in turn favor the cautious optimism and weigh on the DXY.

The US S&P Global PMIs for October suggest that the Manufacturing activities’ gauge dropped to 49.9 versus 51.2 expected and 52.0 prior while its services counterpart slid to 46.6 from 49.3 previous reading and 49.2 market forecasts. With this, the Composite PMI for the said month declined to 47.3 compared to 49.1 anticipated and 49.5 prior.

Alternatively, a jump in the inflation precursors, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, to a two-month high in their latest readings keep the gold bears hopeful. On the same line could be the CME’s FedWatch Tool that prints a nearly 95% chance of a 75 bps Fed rate hike in November.

Looking ahead a light calendar could test XAU/USD buyers amid an absence of the Fed speakers. Though, looming risks to the major economies and likely central bank aggression favors the gold sellers ahead of Thursday’s US Gross Domestic Product for the third quarter (Q3).

Technical analysis

A clear upside break of the previous resistance line from October 06, around $1,625 by the press time, joins upbeat oscillators to direct the gold price towards a convergence of the 100-SMA and the 200-SMA, near $1,670.

However, the hidden bearish divergence portrayed by the lower high on prices and the higher high on RSI (14) challenges the metal’s further upside.

Should the XAU/USD bulls manage to cross the $1,670 hurdle, the mid-month peak around $1,684 can test the upside momentum before directing buyers toward the monthly high near $1,730.

Meanwhile, a one-month-old horizontal support area, around $1,620, acts as an additional downside filter, other than the previous resistance line near $1,625, to challenge the bears trying for a fresh yearly low.

Gold: Four-hour chart

Trend: Limited upside expected

• USD/JPY has sensed offers around 149.00 as investors have underpinned risk-perceived assets.
• Investors seek clarity on BOJ’s intervention plans for decisive action.
• The BOJ may continue its ultra-dovish stance to safeguard the economy from external demand shocks.

The USD/JPY pair has witnessed mild selling pressure from around 148.00 in the Tokyo session. The pair has turned sideways after recovering the knee-jerk reaction, witnessed on Monday that dragged the asset to near 145.50. An improvement in investors’ risk appetite is supporting the yen bulls now as the US dollar index (DXY) has surrendered the immediate cushion of 112.00.

Well, returns on US government bonds are mildly impacted in Tokyo despite mounting bets over an ultra-hawkish monetary policy announcement by the Federal Reserve (Fed). As per the CME FedWatch tool, the chances for a fourth-consecutive 75 basis point (bps) rate hike stand at 95.5%. The 10-year US Treasury yields have declined to near 4.22% as the risk-on impulse is gaining more traction.

Monday’s downbeat US S&P PMI weakened the DXY and restricted them from overstepping the critical hurdle of 112.50. The Manufacturing PMI landed lower at 49.9 vs. the projections of 51.2. Also, the Services PMI reported a weak performance as dropped to 46.6 against the expectations of 49.2. A significant decline in PMI figures raises questions about the extent of economic activities and current growth prospects in the US economy.

Meanwhile, investors seek more clarity on the Bank of Japan (BOJ)’s intervention plans in the currency market against speculative moves that are impacting their home currency. It is worth noting that Japan’s officials have denied commenting on their intervention in FX markets but promise to take necessary action against disorderly market moves.

Going forward, the BOJ monetary policy is the key event this week. BOJ policymakers are worried that the inflation rate could return below 2% ahead due to external demand shocks. Therefore, the ultra-loose monetary policy stance will stay for longer.

Reuters states that the US Federal Reserve will go for its fourth consecutive 75 basis point interest rate hike on Nov. 2. The poll said the central bank should not pause until inflation falls to around half its current level.

''Its most aggressive tightening cycle in decades has brought with it ever bigger recession risks. The survey also showed a median 65% probability of one within a year, up from 45%.

Still, a strong majority of economists, 86 of 90, predicted policymakers would hike the federal funds rate by three-quarters of a percentage point to 3.75%-4.00% next week as inflation remains high and unemployment is near pre-pandemic lows.

Results in the poll are in line with interest rate futures pricing. Only four respondents predicted a 50 basis point move.''

US dollar update

The US dollar is in a bullish trend while within the bull flag and front side of the trendine. However, if the bears take over, a break of support willlikely seal the deal for risk assets. 

• US Dollar Index holds lower ground following the first weekly loss in three.
• Cautious optimism, downbeat US PMIs challenge DXY bulls amid pre-Fed silence.
• Hawkish Fed bets, geopolitical concerns challenge the bearish bias.

US Dollar Index (DXY) remains on the back foot around 111.85, taking rounds to intraday low while struggling to extend the week-start gains during Tuesday’s Asian session. That said, the cautious optimism in the market and the downbeat US data, as well as an absence of Fedspeak, weigh on the DXY.

That said, the recent optimism surrounding the UK and the EU’s economies seemed to have joined the absence of the Fed policymakers’ speech and the mildly bid equities to weigh on the greenback’s gauge versus the six major currencies.

Ex-Chancellor’s victory in the UK Prime Minister’s race joins the mildly positive German Services PMI for October, despite being in the contraction zone, keeps the market’s mood positive amid mixed earnings. Also, the latest round of the Fedspeak appeared to have faded the previous hawkish tone and might have been the reason to trigger the chatters over the easy rate hike from December, which in turn favor the cautious optimism and weigh on the DXY.

That said, the US S&P Global PMIs for October suggest that the Manufacturing activities’ gauge dropped to 49.9 versus 51.2 expected and 52.0 prior while its services counterpart slid to 46.6 from 49.3 previous reading and 49.2 market forecasts. With this, the Composite PMI for the said month declined to 47.3 compared to 49.1 anticipated and 49.5 prior.

Even so, the inflation precursors, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, rose to a two-month high in their latest readings and keep the buyers hopeful. On the same line could be the CME’s FedWatch Tool that prints a nearly 95% chance of a 75 bps Fed rate hike in November.

While portraying the mood, Wall Street closed with gains while the US Treasury yields also ended the day on the positive side after a downbeat start. That said, the S&P 500 Futures remain mildly bid while the US Treasury yields grind higher amid a lackluster market session.

Looking forward, a light calendar will challenge the DXY moves and can praise the bears despite risk aversion.

Technical analysis

An upward-sloping support line from August 11, 2022, around 111.55, challenges the DXY’s downside move. The recovery, however, remains elusive unless crossing the monthly resistance line near 112.75.

• GBP/USD bulls are trying to take back control.
• Bulls are building up outside of key trendline resistances. 

The bulls have been moving in slowly over the course of the month and reached a milestone in a critical break of a dynamic trendline. GBP/USD is trying to catch a breakout from the trendline resistance as the following charts will illustrate:

GBP/USD daily chart

The price is climbing trendline support on a micro basis following the slide out of the broader descending resistance. 

GBP/USD H1 charts

The bullish scenario is in play with the price balanced up against opposing trendlines in the form of a triangle. The coil would suggest that the market wants to break out, one way or the other. If the W-formation's neckline holds, then there will be a bias to the upside in this respect. 

• EUR/GBP is approaching weekly highs around 0.8780 as an ECB rate hike may trim BOE/ECB policy divergence.
• A pile of debt is ready to weigh down the confidence of new UK PM Rishi Sunak.
• A second consecutive 75 bps rate hike by the ECB would push interest rates to 2%.

The EUR/GBP pair is concluding its time correction move to near 0.8740 and is aiming to test weekly highs at 0.8781. The cross is picking up bids as clarity over novel UK leadership has trimmed favors for pound bulls. Also, Thursday’s monetary policy announcement by the European Central Bank (ECB), will trim the Bank of England (BOE)-ECB policy divergence ahead.

It is clear that Rishi Sunak will be the next UK Prime Minister after the shortest-ever service-serving UK PM Liz Truss after the former won the leadership contest. Followed by a withdrawal from contestants short-listed for UK PM: Boris Johnson and Penny Mordaunt, Rishi Sunak is ready to hold the UK’s highest chair ahead.

Well, big power is coming with much bigger responsibilities amid the pile-up of debt in the UK economy, the highest since 1960. It would be worth watching how newly appointed Finance Minister Jeremy Hunt and UK’s novel leader Rishi Sunak will fetch the confidence of international investors and bring financial stability.

Apart from financial stability, the deepening energy crisis is also a critical issue for the novel leadership. Headlines from Bloomberg revealed that the EU may join hands with the UK and Switzerland to combat escalating energy prices. The EU is planning a price cap on energy prices to delight households against soaring energy bills. The strategy is to be executed without boosting demand or delivery of electricity to foreign consumers at subsidized prices.

In response to that, the Trading bloc’s executive arm is advising EU members that such a price limit would have to be extended to power-importing countries like the UK or Switzerland for it to be effective, reported Bloomberg.

This week, ECB President Christine Lagarde may tighten its policy further to contain the soaring inflationary pressures. As per analysts from Rabobank, the ECB may announce a second consecutive 75 basis point (bps) interest rate hike, which will push rates to 2%. They see the deposit rate reaching 3% by March next year.

• AUD/USD renews intraday high while reversing the pullback from two-week top.
• Firmer MACD, RSI joins a sustained bounce off 200-HMA to favor bulls.
• Sellers need validation from 0.6250 to retake control.

AUD/USD picks up bids to refresh intraday high near 0.6330 during Tuesday’s Asian session. In doing so, the Aussie pair extends the previous day’s bounce off the 200-HMA while staying firmer inside a weekly bullish channel.

That said, the AUD/USD pair’s latest run-up aims for the 50% Fibonacci retracement level of October 04-13 downside, near 0.6360.

However, a convergence of the stated channel’s upper line and the 61.8% Fibonacci retracement, also known as the golden ratio, around 0.6410, appears a tough nut to crack for the pair buyers.

Should the quote rises past 0.6410, the 0.6500 round figure may act as a buffer during the anticipated run-up toward the monthly high of 0.6547.

Alternatively, pullback moves need to conquer the 200-HMA support of 0.6288 to convince intraday sellers of the AUD/USD.

Even so, the aforementioned bullish channel can challenge the bears unless the quote stays beyond 0.6250.

Following that, the yearly low of 0.6170 and the April 2020 bottom around 0.5980 will gain the market’s attention.

Overall, AUD/USD remains on the buyer’s radar unless breaking 0.6250. However, the upside room appears limited.

AUD/USD: Hourly chart

Trend: Further upside expected

• GBP/JPY is range-bound, lacking clear direction due to the recent Bank of Japan (BoJ) interventions in the FX markets.
• From a daily chart perspective, the GBP/JPY is neutral-to-upwards biased, though it will face solid resistance around 170.00.
• Short term, the GBP/JPY is neutral biased, though as the RSI shifts bearish, it could exert downward pressure on the GBP.

The GBP/JPY meanders around 168.36 as the Asian session begins, following a huge volatile Monday trading session, with the GBP/JPY registering a daily high and low of 169.78/165.41, respectively, as traders speculate of another BoJ intervention in the FX markets.

GBP/JPY Price Forecast: Technical outlook

The GBP/JPY daily chart illustrates the pair as neutral to upward biased, consolidated near the year-to-date highs around 165.00-170.00. The price action shows large price swings in the last three days due to the BoJ stepping into the markets, delineating a solid resistance area at around 170.00. Even though the day's lows were capped around 165.00, the GBP/JPY might continue to trade around 168.00-170.00, opening the door for further gains. On the flip side, if the GBP/JPY slides below 168.00, a fall toward 165.00 is on the cards.

The GBP/JPY one-hour time frame depicts the pair as range-bound, forming a top in the 168.00-170.00 area, which GBP buyers had been unable to crack, on its way towards new YTD highs. Worth noting that the Relative Strength Index (RSI) turned bearish, which could exacerbate a move downwards, exposing key support areas.

Hence the GBP/JPY first support would be the 200-Exponential Moving Average (EMA) around 167.50, which, once cleared, would send the GBP/JPY tumbling towards the S1 daily pivot at 165.62, followed by the October 21 daily low at 164.87, ahead of the S2 pivot level at 163.33.

GBP/JPY Key Technical Levels

US inflation expectations remained firmer on Monday, despite the recent risk-on mood, which in turn underpins the hawkish Fed bets and helps the US dollar to pare recent losses.

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

While noting the details, the longer-term inflation expectations rose to the highest level since August 24, 2022, whereas the 5-year benchmark jumped to August 26, 2022’s high with the latest figures being 2. 59% and 2.72% respectively.

The US Dollar Index (DXY) justifies the upbeat inflation expectations while picking up bids to 112.00, paring the first weekly loss in three.

It should be noted that the CME’s FedWatch Tool prints a nearly 95% chance of a 75 bps Fed rate hike in November.

On the flip side, pre-Fed silence of the US central bank policymakers and downbeat S&P Global PMIs for the US challenge the greenback buyers.

• Silver price picks up bids to reverse the week-start pullback from 100-DMA.
• Impending bull cross on MACD, sustained bounce off 50-DMA lure buyers.
• Monday’s candlestick challenge upside moves unless offering a positive close beyond $19.65.

Silver price (XAG/USD) regains upside momentum after a downbeat start as it again approaches the 100-HMA hurdle while picking up bids to $19.30 during Tuesday’s Asian session.

In doing so, the bright metal challenges the previous day’s bearish candlestick formation that needs validation from Tuesday’s close. That said, the looming bull cross on the MACD, as well as the successful U-turn from the 50-DMA, keeps the XAG/USD buyers hopeful.

Should the quote cross the 100-DMA hurdle near $19.65, the bearish hopes raised from the previous day’s candles wanes, which in turn propels the quote towards the $20.00 threshold.

However, multiple hurdles surrounding the 50% Fibonacci retracement of the commodity’s June-September moves, near $20.05, could challenge the XAG/USD bulls afterward, a break of which could quickly propel prices towards the 61.8% Fibonacci retracement level near $20.65.

Even so, the tops marked during August and October, respectively near $20.90 and $21.25, could challenge silver’s further upside.

Alternatively, pullback remains elusive beyond the 50-DMA support of $19.10.

Also acting as the key downside level is $18.35, comprising an upward-sloping support line from late August, a break of which won’t hesitate to refresh the yearly low.

Silver: Daily chart

Trend: Limited upside expected

• EUR/JPY has established above 147.00 as a hawkish ECB would widen ECB-BOJ policy divergence.
• The ECB may trigger a 75 bps rate hike to fight against mounting price pressures.
• EU may join hands with the UK and Switzerland to put a price cap on energy prices.

The EUR/JPY pair has reached near the suspected Bank of Japan (BOJ) intervention level at around 147.26 in the early Asian session. The asset is oscillating in an extremely lower range above 147.00, making it a critical make or a make situation ahead. As the cross has recovered the entire gyration to near 144.00, the shared currency bulls look curious for further adventure to near a seven-year high at 148.40.

The Japanese officials have denied unveiling clear information on interventions, therefore, the knee-jerk reactions are considered intervention areas by the Bank of Japan (BOJ). As per the statement from Japanese officials, the BOJ is intervening to safeguard the Japanese yen against disorderly FX moves. Market veterans believe that the intervention moves are mere short-lived attempts of safeguarding yen. And, a hawkish policy seldom could support Tokyo.

This week, the interest rate decision by the BOJ will hog the limelight. As external demand shocks are impacting the economic prospects of Tokyo, BOJ Governor Haruhiko Kuroda may follow the current ultra-dovish stance. More helicopter money will be infused to spurt the growth rate and the overall demand.

On the Eurozone front, investors are awaiting the announcement of the monetary policy by the European Central Bank (ECB). Considering the mounting price pressures, ECB President Christine Lagarde will announce a bigger rate hike. According to analysts from Rabobank, a 75 basis point (bps) interest rate hike is a done deal. They see the deposit rate reaching 3% by March next year.

In the fight against accelerating energy prices, the EU may join hands with the UK and Switzerland. The EU is planning a price cap on energy prices to delight households against soaring energy bills. The strategy is to be executed without boosting demand or delivery of electricity to foreign consumers at subsidized prices.

In response to that, the Trading bloc’s executive arm is advising EU members that such a price limit would have to be extended to power-importing countries like the UK or Switzerland for it to be effective, reported Bloomberg.

• EUR/USD grinds higher around two-week top, prints four-day uptrend.
• Downbeat PMIs couldn’t derail upside momentum amid hopes of getting hints over ECB’s QT and 75 bps rate hike.
• US dollar struggles to rebound amid absence of Fed speakers, cautious optimism in the market.
• Second-tier data may entertain buyers ahead of ECB, US Q3 GDP.

EUR/USD bulls attach the 0.9900 threshold as they poke the fortnight top while staying firmer for the fourth consecutive day to early Tuesday in Asia. The major currency pair’s latest gains could be linked to the recently soaring hawkish bets surrounding the European Central Bank (ECB) monetary policy decision, up for this Thursday, despite the latest mixed data. It should be noted, however, that the recent geopolitical chatters seemed challenging the upside moves but the pre-Fed silence of the US central bank policymakers allowed the quote to remain firmer amid cautious optimism in the market.

Recently, Bloomberg came out with the news suggesting that the European Union (EU) warned the UK and Switzerland to support the bloc’s gas price cap to make it effective. “The bloc’s executive arm is advising EU members that such a price limit would have to be extended to power-importing countries like the UK or Switzerland for it to be effective, the person added,” said the news.

As per the first readings of Eurozone S&P Global PMIs for October, the Manufacturing activities’ gauge dropped to 46.6 versus 47.8 expected and 48.4 prior while its services counterpart matched 48.2 market forecasts versus 48.8 previous readings. Even so, the Composite PMI for the said month declined to 47.1 compared to 47.5 anticipated and 48.1 prior. On the same line, Germany’s S&P Global/BME PMIs for October also marked dismal prints of Manufacturing and Composite indices but signaled an improvement in Services PMI.

On the other hand, the US S&P Global PMIs for October suggest that the Manufacturing activities’ gauge dropped to 49.9 versus 51.2 expected and 52.0 prior while its services counterpart slid to 46.6 from 49.3 previous reading and 49.2 market forecasts. With this, the Composite PMI for the said month declined to 47.3 compared to 49.1 anticipated and 49.5 prior.

Other than the downbeat data and fears surrounding the bloc’s gas price cap on Russian output, the hawkish bets on the ECB and the Fed’s next move also challenged the EUR/USD buyers. However, the absence of Fed speakers and firmer prints of Germany’s Services PMIs, as well as hopes of the earlier Quantitative Tightening (QT) from the ECB than the Fed appear positive for the EUR/USD.

Against this backdrop, Wall Street closed with gains while the US Treasury yields also ended the day on the positive side after a downbeat start. That said, the S&P 500 Futures remain mildly bid while the US Treasury yields grind higher amid a lackluster market session.

Moving on, EUR/USD traders may witness a lack of major move ahead of the ECB and the US Gross Domestic Product for the third quarter (Q3), scheduled for release on Thursday. However, the market’s cautious optimism allows the quote to remain mildly bid as it pokes the short-term key resistance.

Technical analysis

A downward sloping resistance line from early June around 0.9900 appears the key hurdle for the EUR/USD bulls before they challenge the monthly top near the parity level. Alternatively, the pullback moves remain elusive beyond the one-month-old trend line support, close to 0.9700 at the latest.