• USD/CAD seesaws within 30-pip immediate trading range after first monthly negative in five.
• Market sentiment dwindles amid firmer inflation fears head of the Fed, downbeat China data also challenge commodities, Antipodeans.
• US/Canada PMIs can entertain traders, risk catalysts are important too.

USD/CAD struggles to extend Friday’s recovery moves, edges higher around 1.2380 amid Monday’s Asian session. Alike all majors, the Loonie pair also had to respect the broad US dollar gains the previous day but a lack of major greenback positives afterward challenge the quote’s latest moves. Even so, the pair bears refrain from entry amid downbeat prices of oil, Canada’s biggest export item.

Steady prints of the Fed’s preferred inflation gauge joined optimism concerning the US stimulus to propel the US Dollar Index (DXY) the most since mid-June on Friday. That said, the US Core PCE Inflation data remained firmer around 3.6%, versus a 3.7% market forecast, for September. The same bolstered traders’ fears over the US inflation and Fed tapering chatters, as could also be sensed in the latest speech from Fed Chairman Jerome Powell, on October 22, where he dumped ‘transitory’ concern for inflation.

It should be noted that a softer-than-expected monthly Canadian GDP for September, 0.4% versus 0.7% market consensus, joined the heaviest jump in the US Employment Cost Index since 2001 to propel the USD/CAD prices the previous day.

Also, escalating fears that China’s economy is losing momentum weigh on the oil prices and keep the Loonie pair buyers hopeful. On the same side were recently escalating US-China tussles, the latest update being the US-EU accord to solve steel and aluminum issues and indirectly battle China.

Amid these plays, S&P 500 Futures print 0.30% intraday gains, majorly on increasing hopes of US stimulus, whereas the US 10-year Treasury yields rise two basis points (bps) to 1.575% by the press time. Further, the WTI crude oil prices drop 0.50% intraday, near $82.10 at the latest, to favor the USD/CAD bulls.

Looking forward, October’s monthly Markit PMI for Canada and the US ISM Manufacturing PMI may entertain USD/CAD traders but major attention will be given to US infrastructure deal headlines and China news for fresh impulse.

Technical analysis

USD/CAD recovery remains less legitimate until the quote stays below July’s low surrounding 1.2425. Alternatively, 61.8% Fibonacci retracement of June-August upside, near 1.2365, can entertain short-term sellers ahead of directing them to the last month’s bottom surrounding 1.2290.

• GBP/USD holds lower ground after printing the heaviest daily fall in a month.
• Clear break of 50-DMA, monthly ascending trend line favor sellers.
• Key Fibonacci retracements, October’s high add to the upside filters.

GBP/USD remains depressed around a fortnight low, despite refraining to break Friday’s low surrounding 1.3670. In doing so, the cable pair keeps the previous day’s downside break of 50-DMA, as well as 50% Fibonacci retracement (Fibo.) of July-September downside, during the initial Asian session on Monday.

In addition to the 50-DMA break, a clear south-run past an ascending trend line from late September and MACD conditions also keep the pair sellers hopeful.

Hence, the quote’s further weakness towards early October levels surrounding 1.3650 becomes imminent. However, August month’s low around the 1.3600 round figure and the mid-October’s swing bottom near 1.3570 may challenge the GBP/USD bears afterward.

Should the quote drop past 1.3570, 23.6% Fibo. near 1.3545 will be in the spotlight.

Meanwhile, 50% Fibonacci retracement level and 50-DMA, respectively around 1.3700 and 1.3715, question the GBP/USD pair’s corrective pullback.

Following that, the 61.8% Fibo. and the support-turned-resistance line, 1.3765 and 1.3825 in that order, will precede the last month’s peak of 1.3833 to stop the pair buyers.

To sum up, GBP/USD bears tighten the grips after Friday’s firmer signal towards the south.

GBP/USD: Daily chart

Trend: Further weakness expected

• Gold remains pressured following the heaviest daily fall in a fortnight.
• US dollar remains firmer as reflation fears, Fed tapering tantrums strength.
• Risk catalysts join US activity data to keep traders busy.

Gold (XAU/USD) prices stay depressed around $1,781 following the first weekly negative closing in three. That said, the yellow metal prints 0.10% intraday loss by the early Asian session on Monday.

The fresh fears over inflation and the Fed tapering recently underpinned the US dollar and negatively affected gold prices. Friday’s Core PCE Inflation data, the Fed’s preferred inflation gauge, remained firmer around 3.6%, versus a 3.7% market forecast, bolstered traders’ concern over the US inflation. The escalating price pressure could also be sensed in the latest speech from Fed Chairman Jerome Powell, on October 22, where he dumped ‘transitory’ concern for inflation.

The US-China tussles also gain momentum as the US joins hands with the European Union (EU) over steel and aluminum tariffs to challenge Beijing’s steel industry, which in turn back the US dollar’s safe-haven demand and tame the gold prices.

Also, fears that escalating economic hardships in China, be it from Evergrande or energy crisis, could ease demand from one of the top two gold consumers tease the commodity sellers. Recently showing China’s hardships was the official PMI data for October. As per the release, the headline NBS Manufacturing unexpectedly dropped to 49.2 in October from 49.6 booked in September, versus 49.7 forecast. Further, the Non-Manufacturing PMI fell to 52.4 in the reported month from September’s reading of 53.2 and against the expectations of 52.9.

It should, however, be noted that the World Gold Council (WGC) report citing increased gold demand from India and hopes of more intake joins the progress in the US stimulus talks to challenge the gold bears of late. "The fourth quarter is likely to be one of the best quarters in recent years. Pent-up demand, softening of gold prices and weddings will drive the demand," Somasundaram PR, regional chief executive officer of WGC's Indian operations, per Reuters.

Amid these plays, market sentiment remains mixed as the equities poke record tops and the yield curve flatten to push hopes of monetary policy tightening. At the latest, the S&P 500 Futures rise 0.30% whereas the Wall Street benchmarks remained positive on Friday.

Looking forward, US ISM Manufacturing PMI for October, expected 60.4 versus 61.1, will be eyed after the recent firming of activity data and amid Fed tapering chatters. Also important will be the headlines covering China, US stimulus and inflation.

Technical analysis

Gold breached $1,785 support confluence, now resistance, comprising 100-DMA and an ascending trend line from October 12.

In addition to the support break, receding bullish bias of the MACD and steady RSI, not to forget a downside break of 61.8% Fibonacci retracement (Fibo.) of September’s fall, also favor the gold sellers.

However, 50% Fibonacci retracement level and early October high, respectively around $1,778 and $1,770, may probe short-term bears ahead of directing them to $1,760 and October’s low near $1,746.

Should gold prices refrain from bouncing off $1,746, the downside can aim at late September’s swing low near $1,737 and $1,721.

Meanwhile, the corrective pullback may struggle to regain $1,785 support-turned-resistance while 61.8% Fibo. and October’s high, respectively near $1,791 and $1,813, could challenge gold buyers afterward.

Overall, gold buyers seemed to have tired during late October and finally shown the sign of defeat with Friday’s downside break of $1,785.

Gold: Daily chart

Trend: Further weakness expected

“He is concerned the (UK) Government will refuse to engage with proposals put forward by Brussels,” the UK Telegraph came out with the Brexit news quoting Maroš Šefčovič, Vice-President of the European Commission in charge of Interinstitutional Relations and Foresight.

The news also mentioned that Maros Sefcovic has urged Lord Frost to back down and reconsider the EU’s proposals.

“Brussels has warned the UK not to “embark on a path of confrontation”, amid tensions over Northern Ireland and post-Brexit fishing rights,” said the Telegraph.

Market reaction

With this news, GBP/USD bears get another reason, in addition to the firmer US dollar, to poke a fortnight low surrounding 1.3670.

“The United States and the European Union on Sunday ended a dispute over steel and aluminum tariffs and said they would work on a global arrangement to combat ‘dirty’ production and overcapacity in the industry,” said Reuters.

The news also cites the positive development as a challenge for China as it produces over 50% of the global steel and is accused of creating overcapacity, which in turn challenges the survival of the EU and the US steel.

Key quotes

The United States will not apply Section 232 duties imposed by former President Donald Trump and will allow duty-free importation of steel and aluminum from the EU at a historical-based volume.

The EU will suspend tariffs on U.S. products like whiskey, power boats and Harley-Davidson motorcycles, imposed in retaliation for the steel and aluminum tariffs.

The two sides said they will work to restrict access to their markets for "dirty steel" and limit access to "countries that dump steel" in their markets, both of which contribute to worldwide oversupply.

The United States also published a consultation that brought on board what it called "like-minded nations" like Japan and Britain on issues related to steel and aluminum, with a focus on the impacts of overcapacity on the global steel and aluminum markets.

FX implications

The news offers a positive start to the market’s risk appetite as the S&P 500 Futures rise 0.30% by the press time of early Monday morning in Asia.

• EUR/USD consolidates the biggest daily fall since mid-June.
• Reversal from 50-DMA, downward sloping MACD line keep sellers hopeful.
• Latest September’s peak adds to the upside filters.

EUR/USD licks its wounds near 1.1560 during Monday’s Asian session, following the heaviest daily slump in 4.5 months portrayed on Friday.

The currency major’s U-turn from 50-DMA takes clues from the MACD line’s inability to reach the positive region, also tilt southwards before that, to favor the bears. Also signaling the quote’s further weakness is the downside break of three-week-old horizontal support, now resistance around 1.1590.

Hence, EUR/USD sellers are determined to smash the yearly low of 1.1524 and aim for the 1.1500 threshold.

However, the quote’s further weakness will be challenged by a downward sloping support line from August 20, around 1.1470 by the press time.

Alternatively, corrective pullback remains less worrisome until crossing the immediate support-turned-resistance line near 1.1590.

Following that, 38.2% Fibonacci retracement of September-October downside and 50-DMA, respectively around 1.1670 and 1.1690, will be tough nuts to crack for EUR/USD buyers.

Even if the pair buyers manage to cross the 1.1690 hurdle, the 1.1700 round figure and late September’s peak near 1.1760 will be challenging them.

EUR/USD: Daily chart

Trend: Further weakness expected

• NZD/USD remains pressured inside short-term trading range near five-month high.
• Virus woes regain traction in NZ, PM Ardern says daily infections could rise to 200.
• Reflation fears escalate across the board, China official PMIs remain softer.
• China Caixin PMI can entertain, US ISM PMI may entertain traders ahead of Tuesday’s speech from RBNZ’s Orr.

NZD/USD kick-starts November’s trading within a seven-day-old trading range, taking rounds to 0.7150 during early Monday morning in Asia. The kiwi pair printed a three consecutive weekly upside at the latest, not to forget posting the biggest monthly gain of 2021. However, Friday was a spoiler with the biggest daily losses amid fresh fears concerning the coronavirus and reflation, not to forget month-end positioning.

With the US Employment Cost Index and Core PCE Inflation numbers giving additional reasons for the Fed to announce tapering, the US Dollar Index (DXY) portrayed the heaviest daily gains since June 16. The inflation fears earlier got a push from Fed Chair Jerome Powell’s speech where he dumped statements terming them as ‘transitory’.

On a different page, the greenback strength could also be linked to the hopes of US stimulus as President Joe Biden remains ready to do push Senators for a deal on the much-awaited infrastructure spending this week.

Other than the US catalysts, recently rising COVID-19 numbers in New Zealand (NZ) also challenge NZD/USD bulls. As per the latest comments from NZ PM Jacinda Ardern, quoted by NZ Herald, “Daily Covid cases could peak at 200 in November.” The Pacific nation witnessed record daily covid cases of 160 on Saturday, per the news. “Cabinet will review alert level settings in Auckland and Waikato today, with both regions eyeing a move out of strict lockdown restrictions,” add NZ Herald.

Additionally, China’s official PMIs for October also exert an additional burden on the NZD/USD prices with the headlines NBS Manufacturing unexpectedly dropping to 49.2 in October from 49.6 booked in September, versus 49.7 forecast. Further, the Non-Manufacturing PMI fell to 52.4 in the reported month from September’s reading of 53.2 and against the expectations of 52.9.

Against this backdrop, US 10-year Treasury yields closed with nearly one basis point of a loss around 1.56% while Wall Street remained firmer around record tops.

It’s worth noting that the Reserve Bank of New Zealand (RBNZ) has already played its card of announcing rate hike and hence the Fed’s move is much awaited, offering an additional reason for the NZD/USD sellers amid reflation fears. The same highlights Tuesday’s speech from RBNZ Governor Adrian Orr, around 09:30 AM local NZ time (20:30 GMT).

Ahead of Orr’s speech, China’s Caixin Manufacturing PMI and US ISM Manufacturing PMI will entertain the NZD/USD traders. While China's numbers are likely to remain weak and please the pair sellers, further firming in the US data will escalate Fed tapering concerns and favor the US dollar bulls. Hence, the pair bears should wait for action ahead of the key week comprising the US Federal Reserve (Fed) monetary policy meeting.

Technical analysis

Although an area between 0.7130 and 0.7220 restricts short-term NZD/USD moves, recently easing RSI and MACD lines hint at a pullback towards the 200-SMA level surrounding the 0.7100 threshold. Meanwhile, an upside clearance of the 0.7220 hurdle should quickly propel the quote towards May month’s peak near 0.7320.

The Japanese Prime Minister Fumio Kishida's ruling LDP defied expectations and held on to a majority in Sunday's parliamentary election, exit polls showed, solidifying his position in a fractious party and allowing him to ramp up stimulus, Reuters reported. This adds to the prospects of additional stimulus spending and weighs on the yen.

''While Kishida's conservative Liberal Democratic Party (LDP) was projected to emerge with fewer seats in the powerful lower house than it won in the last election in 2017, the party retained its majority, exit polls by public broadcaster NHK showed early on Monday,'' Reuters reported, adding, ''the result was at odds with expectations and initial exit polls that suggested the LDP could lose sole majority. Kishida, a soft-spoken former banker who has struggled to shake off an image that he lacks charisma, is also likely to be emboldened by the win.''

''The vote was a test for Kishida, who called the election soon after taking the top post early this month, and for the long-powerful party, which has been hurt by perceptions it mishandled the coronavirus pandemic,'' the note ended with. 

USD/JPY ended up 0.37% on Friday and this news could add to the upside for the open with eyes above 114 the figure. 

• AUD/USD is on the verge of a downside continuation for the open. Trendline support is under pressure. 
• The RBA and Fed are the main highlights for the week ahead along with US jobs. 
• For the open, Chinese data will be taken into consideration. 

AUD/USD ended the day around 0.3% lower on Friday following a sharp rally in the US dollar. The Aussie closed at 0.7518 and had ranged between 0.7500 and 0.75550.  Volatility in the foreign exchange and interest rate markets increased in recent trading days as markets position for central bank actions and economic data. Friday was especially volatile due to the squaring up of month-end portfolios on the day of the week when markets tend to be the least liquid.

US Treasury yields climbed after the government's index of core personal consumption expenditures which supported the greenback. The PCE is the Fed's preferred inflation measure and climbed at a 4.4% annual rate in September, continuing a run of inflation at levels not seen in 30 years ahead of the Federal Reserve meeting this week. This measure showed prices continuing to rise faster than their 2% target. The data reinforces the idea that the Federal Reserve is going to raise rates around mid-2022.

China data in focus

Meanwhile, Aussie traders will be taking note of the data from China that fell over the weekend. It has shown that growth has lost momentum, with construction and real estate under pressure. Supply-side pressures are evidently weighing on activity. Some restrictions are easing such as in coal, however, which will be expected to support electricity production and usage while there is a little softening in credit availability. 

The data arrived as follows: Manufacturing PMI 49.2 vs the expected 49.7, prior 49.6. This was the second month of contraction in a row. Meanwhile, Non-manufacturing PMI fell to 52.4 vs the expected 52.9, prior 53.2 leaving the Composite down at 50.8 vs the prior 51.7. 

October's manufacturing and non-manufacturing PMI demonstrated the effects of intensive policy actions on the economy. Still, to come, Caixin PMIs are up next for today's sessions being the private survey. Manufacturing PMI, expected 50, prior 50.  In other data for Asia, we will see Australian PMI, Melbourne Institute inflation and ANZ job ads, and the Japanese PMIs.  

Central banks and US jobs in focus

The credibility of established Fed and Reserve Bank of Australia guidance is under enormous pressure and the next meetings are going to be an opportune time to update it. The RBA tomorrow is expected to change its guidance following stronger core inflation by possibly abandoning its 3-year yield target. ''We expect the RBA to announce an end to its Yield Target Framework next week,'' analysts at TD Securities said. 

''This follows the RBA's decision to not defend the yield on the Apr'24s even after trading significantly above the 10bps target. As for QE we expect the Bank to leave its guidance unchanged, continuing to purchase bonds at a weekly A$4bn rate through to Feb.''

As for the Fed, tapering will be announced. ''We don't expect any definitive new "liftoff" signal, and we expect "elevated" inflation will continue to be seen as "largely reflecting transitory factors," but the chair will likely emphasize how tapering will lead to flexibility in responding if the economy evolves in a way that deviates significantly from expectations,'' the analysts at TDS explained.

For US payrolls, the analysts argued that they likely reaccelerated in October, consistent with a fading of Delta's drag as well as a smaller education-related drop in government jobs than in September. 

AUD/USD technical analysis

The price is on the verge of a critical test of the dynamic support following a touch of the 61.8% Fibonacci retracement level and a rejection at the 20-EMA. If the support breaks, the downside will be in play for the open this week. 

Iraqi Minister Ihsan Abdul Jabbar said late Saturday, OPEC and its allies (OPEC+) will be able to meet the oil demand by its planned increase to the monthly oil output, per Bloomberg.

Key quotes

“Rising prices for natural gas and coal in Asia and Europe could lead to a rise in oil demand this winter.”

“Monthly increases of 400,000 barrels a day will eventually help stabilize the oil market.”

His comments come days ahead of the OPEC+ meeting scheduled on November 4.

Related reads

• OPEC+ cuts 2022 oil demand growth forecast slightly to 5.7M bpd – Reuters
• WTI fades bounce off two-week low amid mixed concerns

The purchasing managers' index (PMI) for China's manufacturing sector unexpectedly dropped to 49.2 in October from 49.6 booked in September, the latest data published by the National Bureau of Statistics (NBS) showed Saturday.

The actual data missed the consensus estimate of 49.7 by a small margin. 

Meanwhile, the Non-Manufacturing PMI fell to 52.4 in the reported month from September’s reading of 53.2 and against the expectations of 52.9.

A reading above 50 indicates expansion, while a reading below suggests contraction.

Implications for AUD/USD

Disappointing Chinese NBS PMIs could exacerbate the pain in the aussie dollar, as AUD/USD could risk a fall below 0.7500 in the big week ahead. The RBA and Fed monetary policy decisions highlight the first week of November, with Friday likely to see the critical US NFP release.

On Friday, the aussie corrected sharply from three-month peaks of 0.7556 and tested the 0.7500 barrier before rebounding modestly to finish the week at 0.7523, down 0.28% on the day.

Read: AUD/USD Weekly Forecast: The RBA and the Fed coming with surprises under their sleeves