• Gold price takes offers to refresh intraday low, stretches U-turn from one-week high.
• Hawkish comments from Fed Chair Powell propelled US dollar, geopolitical/covid woes also weigh on XAU/USD.
• US ISM Services PMI, NFP will be crucial for near-term directions.

Gold price (XAU/USD) renews its intraday low near $1,632 while extending the post-Fed slump during Thursday’s Asian session. In doing so, the quote takes clues from the recently deteriorating market sentiment amid a light calendar.

North Korea’s firing of missiles and Japan’s warning to residents appear the latest blow to the risk appetite, which in turn weighed on the gold price. On the same line could be the coronavirus fears from China as the lockdown surrounding the area involving the world’s largest iPhone factory defied hopes of easing the dragon nation’s zero-covid policy.

On Wednesday, Fed’s 75 bps increase in the benchmark rate initially triggered the US dollar’s slump as the rate statement highlighted the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.  However, Powell’s speech propelled the greenback as it cited the need to bring down inflation “decisively” while also suggesting a bit longer play for the restrictive policy.

Elsewhere, fears of economic slowdown in the UK and Eurozone, as well as higher rates intensify ahead of Thursday’s Bank of England (BOE) meeting, which in turn keeps markets dicey and exerts downside pressure on the XAU/USD.

Amid these plays, the US Treasury Yields are back near the multi-month high above 4.0% while the Wall Street benchmarks closed in the red. Further, the S&P 500 Futures print mild losses at the latest.

Looking forward, China’s Caixin Services PMI for October, prior 49.3, will offer immediate directions along with the risk catalysts. However, major attention will be given to the US ISM Services PMI as it bears downbeat forecasts of 55.5 for October compared to 56.7 previous readings. Following that, Friday’s US Nonfarm Payrolls (NFP) will be the key, mainly due to the strong ADP data.

Technical analysis

A swift pullback from a weekly top joins bearish MACD signals to highlight the impending death cross as the 100-HMA pokes the 50-HMA from above. With this, the gold price drops towards the weekly bottom of $1,630 before targeting the previous monthly low near $1,617.

In a case where XAU/USD remains bearish past $1,617, the year’s low marked in September around $1,614 and the $1,600 threshold could lure the bears.

Alternatively, recovery remains elusive unless crossing the stated HMA confluence surrounding $1,647. Following that, $1,657 and $1,670 will be on the buyer’s radar.

Overall, gold is likely to decline further but the downside appears limited.

Gold: Hourly chart

Trend: Further downside expected

• WTI crude oil eases from three-week high, snaps two-day uptrend.
• Firmer RSI and successful trading above 50-DMA favor buyers.
• 100-DMA adds to the upside filters, bears need validation from $85.30 to retake control.

WTI crude oil pares recent losses around $88.50 while posting the first intraday loss in three during Thursday’s Asian session.

The black gold rose to the highest level since October 12 during the previous day before reversing from a four-month-old descending resistance line. The pullback move, however, remains beyond the 50-DMA and keeps the buyers hopeful. Also challenging the bearish bias is the steadily rising RSI (14), not overbought.

That said, the quote’s latest pullback remains elusive unless breaking the 50-DMA support of $85.80. Also acting as the short-term key support is an upward-sloping trend line from September 27, near $85.30.

In a case where the energy benchmark drops below $85.30, $81.30 and an early September low of $80.95 can please the WTI bears before directing them to the $80.00 and September’s monthly bottom of $76.08.

Meanwhile, the aforementioned resistance line from early July, close to $89.50 at the latest, guards the quote’s immediate run-up ahead of the 100-DMA hurdle surrounding $91.45.

Following that, the tops marked during October and late August, near $92.65 and $97.30 in that order, could lure the WTI crude oil buyers.

WTI: Daily chart

Trend: Limited downside expected

• GBP/JPY is displaying back-and-forth moves around 168.50 as the focus has shifted to BOE policy.
• A rate hike of 75 bps by the BOE could be followed by dovish guidance to scrap recession fears.
• The risk profile has been harmed as Japan-North Korea tensions have renewed.

The GBP/JPY pair is oscillating around the immediate hurdle of 168.50 in the early Tokyo session as investors are awaiting the announcement of the interest rate decision by the Bank of England (BOE). The cross is declining continuously since the Bank of Japan (BOJ) announced an unchanged interest rate policy to support its economic prospects.

Meanwhile, the risk aversion theme has been underpinned as the Federal Reserve (Fed) has hiked its interest rate for the fourth time. Also, Japan-North Korea tensions have renewed as North Korea has fired an unidentified ballistic missile over Japan, as broadcast by NHK. Also, Japan administration has warned residents to take shelter from missile threats. This could bring volatility for the Japanese yen.

Going forward, the interest rate decision by BOE Governor Andrew Bailey will be of utmost importance. Economists at Goldman Sachs have voted in favor of the biggest rate hike of 75 basis points (bps) by the UK central bank since 1989. What is surprising now is that the bigger rate hike will be followed by dovish guidance on interest rates as recession fears have accelerated in the UK economy.

Goldman Sachs’ Chief European Economist Sven Jari Stehn wrote in his latest research note that the UK economic recession is likely to be deeper than previously forecast. “The country is likely to have a four-quarter cumulative fall in the gross domestic product (GDP) of 1.6%.” The investment banking firm has also lowered UK’s growth projections to 1.4% from -1.0% for 2023 on an annual basis.

North Korea fired an unidentified ballistic missile toward east sea that has since been reported to have flown over Japan.

Nevertheless, Japan warns residents to take shelter in the threat of the North Korean missile.

Meanwhile, the BBC reported that the North launched its most missiles in a single day - at least 23 - including one that landed less than 60km (37 miles) off the South's city of Sokcho.

''Seoul responded with warplanes firing three air-to-ground missiles over the disputed maritime demarcation line.

Later Pyongyang fired six more missiles and a barrage of 100 artillery shells.

The North says the launches are in response to large-scale military exercises current being held by South Korea and the United States, which it calls "aggressive and provocative".

On Tuesday, Pyongyang warned they would pay "the most horrible price in history" if they continued their joint military drills, seen as a veiled threat to use nuclear weapons.

US secretary of state, Antony Blinken, and his South Korean counterpart, Park Jin, condemned North Korea's "escalatory launch of ballistic missiles".

The North has tested a record number of missiles this year as tensions have risen.''

The BBC has also warned that despite crippling sanctions, Pyongyang has conducted six nuclear tests between 2006 and 2017, and is rumoured to be planning a seventh. ''It has continued to advance its military capability - in breach of United Nations Security Council resolutions - to threaten its neighbours and potentially even bring the US mainland within striking range.''

• The Euro is at the mercy of a hawkish Federal Reserve, as Eurozone PMIs show a recession is lurking.
• The Federal Reserve’s dovish statement and a hawkish Jerome Powell spurred turmoil in the market, benefitting the safe-haven American dollar.
• The EURUSD downtrend remains intact, and once sellers clear 0.9770, a test of the 2022 lows is on the cards.

The Euro tumbled against a buoyant US Dollar on Wednesday, following the release of a dovish perceived US Federal Reserve (Fed) 75 bps rate hike, on which the EURUSD rallied and hit a fresh weekly high at 0.9975. However, Jerome Powell, the Chairman of the Federal Reserve, turned hawkish, sending the markets into turmoil, while the safe-haven USD pared its earlier losses. At the time of writing, the EURUSD is trading at 0.9814, at fresh weekly lows, as the Asian session begins.

Jerome Powell lifted the USD to the detriment of the EUR

Sentiment shifted sour after the Federal Reserve decision, but volatility increased once Jerome Powell took the stand. In its Q&A, Powell said that interest rates in the United States would go higher than September’s projections, a powerful “hawkish” statement that sent the EURUSD diving from around 0.9975 to 0.9827, almost a 150 pip drop. It should be noted that the Federal Reserve Open Market Committee (FOMC) monetary policy statement was slightly dovish, as shown by the EURUSD bouncing from around 0.9860 toward its weekly highs, on a sentence that mentioned: “the Committee will take into account the cumulative tightening of monetary policy.”

High inflation and a tight labor market in the United States will deter a Fed pivot

Even though the Fed’s “cumulative tightening” of 375 bps In the year shocked some parts of the United States economy, like housing, inflation remains stubbornly high, the unemployment rate is low, and job vacancies are rising, which means the Fed has work to do.

Regarding that, in its monetary policy statement, the Federal Reserve Open Market Committee (FOMC) noted that ongoing increases will be needed to a restrictive level to bring inflation to the 2% goal. Meanwhile, for the Federal Reserve’s December meeting, money market futures expect a 50 basis points move to the Federal funds rate (FFR), peaking by the end of the year at 4.25-4.50%

Interest rate differentials and a Eurozone recession looming will keep the EURUSD on the defensive

Therefore, the Euro might be under pressure due to interest-rate differentials between the Fed and the European Central Bank (ECB). Albeit both institutions are laying the ground for a slower pace of interest rate increases, the United States will enjoy rates at 4.50% by the end of 2022, while the Eurozone will likely be at 2%. Also, Manufacturing PMIs from the Eurozone flashing a recession contrarily to the United States will undermine the appetite for the Euro. Therefore, the EURUSD will retain its downward bias.

EURUSD Price Analysis: Technical outlook

The EURUSD downtrend is intact, though it should be noted that sellers did not have the strength to clear the 0.9800 figure, which could have opened the door for a YTD challenge at 0.9535. Even though the Relative Strength Index (RSI) suggests that selling pressure is mounting, a one-month-old upslope trendline drawn from YTD lows that pass at around 0.9770 should be broken to pose a real threat for EURUSD buyers. Once cleared, the next demand zone would be 0.9700 and the October 13 low at 0.9631.

• USD/CHF seesaws around the highest levels in two weeks.
• Fed Chair Powell pushed back doves by hesitating over softer rate increases.
• FOMC matched market forecasts of announcing 75 bps rate hike.
• Swiss CPI, US ISM Services PMI may entertain traders, risk catalysts are key too.

USD/CHF grinds higher past the 1.0000 psychological magnet during early Thursday as bulls take a breather after a volatile move around the Federal Open Market Committee (FOMC) announcements. That said, the Swiss currency (CHF) pair picks up bids to 1.0030 by the press time. In addition to the post-Fed calm, the anxiety ahead of the Swiss Consumer Price Index (CPI) data for October and the US ISM Services PMI for the said month also challenge the pair buyers of late.

That said, Fed’s 75 bps increase in the benchmark rate initially triggered the US dollar’s slump as the rate statement highlighted the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”  However, Powell’s speech propelled the greenback as it cited the need to bring down inflation “decisively” while also suggesting a bit longer play for the restrictive policy.

Also helping the USD/CHF bulls were geopolitical fears surrounding Taiwan and Ukraine, as well as the covid woes emanating from China. Furthermore, the strong points of the US ADP Employment Change for October, to 239K versus 195K expected and a revised down prior figures of 192K, also propelled the quote.

Against this backdrop, the US Treasury Yields are back near the multi-month high while the Wall Street benchmarks closed in the red. Further, the S&P 500 Futures print mild losses at the latest.

Moving on, Swiss CPI is expected to ease on YoY to 3.2% during October versus 3.3% prior while the US ISM Services PMI also bears downbeat forecasts of 55.5 for the said month compared to 56.7 previous readings. Should the actual releases match the market consensus, the USD/CHF prices are likely to grind higher due to the aftershocks of the Fed. Also likely to keep the pair on the bull’s radar is the optimism ahead of Friday’s US Nonfarm Payrolls (NFP), mainly due to the strong ADP data.

Technical analysis

An impending bull cross on the MACD and sustained trading beyond the 21-DMA immediate support, around 0.9980 at the latest, keep the USD/CHF buyers hopeful.

• US dollar turns on a dime following hawkish Fed Powell. 
• DXY bulls ere 114.00 with prospects of a higher terminal rate at the Fed. 

It was one of the most eventful Federal Reserve meetings since the start of the year with respect to market volatility. The US 10-year Treasury note yield bounced back above 4% as investors continue to see interest rates extending substantially higher until inflation is under control. The Fed's chairman, Jerome Powell flipped the switch on the day when he signalled a higher terminal rate, combatant in the face of risk-on markets that took off following a dovish FOMC statement. 

Fed Chair Powell said during the press conference that incoming data since the last meeting suggested the terminal level of interest rates will be higher than expected. He said this after the FOMC decided to raise interest rates by 75bps, signalling more hikes, though possibly in smaller increases. 

"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial deviations," the statement reads. 

However, rates shot higher when Powell's hawkish comments at the presser started to sink in, sending the US dollar in a U-turn:

• Powell speech: Very premature to be thinking about pausing

• Powell speech: Will likely need restrictive stance of policy for some time

• Powell speech: Longer-term inflation expectations are still well anchored

• Powell speech: Will take time for full effects of monetary restraint to be realized

• Powell speech: Time for slower hikes may come as soon as December or February

US dollar & 10-year yield technical analysis

The 10-year yield has carved out the M-formation with the yield moving gin on the neckline and hugging the counter trendline. However, the retracement has potentially run its course in a 50% mean reversion. The bulls will need to get above 4.20% for a convincing upside continuation bias. 

As for the greenback, DXY has rallied sharply into test 112.00.

Looking forward, if the bulls can get above 112.00 and then 112.50, there will be prospects of a move to 114.00. 

• AUD/USD may continue its downside momentum conclusion of a less-confident pullback from 0.6350.
• Fed’s fourth consecutive 75 bps rate hike as widened Fed-RBA policy divergence.
• Australian Trade Balance is seen higher at 8,850M for the September month vs. the former release of 8,324M.

The AUD/USD pair has attempted a recovery after registering a fresh weekly low at 0.6350 in the early Asian session. The greenback bulls are extremely solid after the rate hike announcement by the Federal Reserve (Fed). As Fed chair Jerome Powell has pushed interest rates to 3.75-4%, negative market sentiment has sky-rocketed, which could terminate the less-confident pullback move by the aussie bulls.

The major won’t be able to sustain its rebound and will display more weakness on hawkish guidance by the Fed. A fourth consecutive rate hike of 75 basis points (bps) was highly expected as the odds for the event were at the rooftop. What has soured the market sentiment is the commentary from Fed policymakers that it is premature to consider a pause in the policy tightening spree. The reason behind the absence of consideration of a pause in restrictive measures is the accelerating inflationary pressures.

The inflation rate is extremely higher than Fed’s target and remained stronger than expected last month. Households are facing the headwinds of higher payouts due to de-anchored short-term inflation. Consumer spending has trimmed dramatically but still needs time to show its impact on price growth.

A bigger rate hike by the Fed has widened the divergence in the Reserve Bank of Australia (RBA)-Fed policy. The Australian central bank accelerated its interest rates too this week. RBA Governor Philip Lowe continued with a 25 bps rate hike structure, keeping in mind, economic prospects should remain firmer along with the agenda of bringing price stability.

On Thursday, Australian external activities data will remain in focus. The Aussie Trade Balance data for September month is seen higher at 8,850M vs. the prior release of 8,324M. A better-than-projected Trade Balance data may support aussie dollar against the greenback.

• NZD/USD remains depressed after reversing from six-week high.
• Bulls are safe above 0.5790 but oscillators and failure to cross 50-DMA tease sellers.
• Multiple hurdles stand ready to challenge buyers past 50-DMA, bears may aim for yearly low on breaking 0.5790.

NZD/USD readies the move to defy the three-week-old ascending trend channel by holding lower ground near 0.5825 amid Thursday’s Asian session.

That said, the Kiwi pair jumped to the highest since September 20 during the initial announcements from the US Federal Open Market Committee (FOMC) meeting.

However, the post-Fed slump portrays the quote’s inability to cross the 50-DMA hurdle. The same joins recently easing bullish signals from the MACD and a sluggish RSI (14) line to keep sellers hopeful of breaking the stated channel’s support, around 0.5790 by the press time.

Following that, a slump to the 23.6% Fibonacci retracement level of the NZD/USD pair’s August-October downturn, around 0.5740, will precede multiple supports around 0.5580-70 to challenge the bears on their way to the yearly low of 0.5511.

Alternatively, an upside break of the 50-DMA hurdle surrounding 0.5840 will find it difficult to cross the 38.2% Fibonacci retracement level and the aforementioned channel’s upper line, close to 0.5880 and 0.5945 in that order.

Even if the NZD/USD bulls manage to cross the 0.5945 hurdle, the 50% Fibonacci retracement near 0.5995 and the 0.6000 psychological magnet will be crucial for them to conquer before rising further.

NZD/USD: Daily chart

Trend: Further downside expected

• GBP/USD holds lower ground near one-week low, pokes five-week-old support line.
• Fed’s 75 bps rate hike, Chairman Powell’s hawkish press conference propelled DXY of late.
• “Old Lady” is expected to announce 75 bps rate hikes, revise economic forecasts.
• Cable is up for a lose-lose situation unless BOE surprises markets.

GBP/USD holds onto post-Fed pessimism as it stays pressured around a seven-day low near 1.1400 during early Thursday morning in Asia. The Cable pair’s latest losses could be linked to the US Federal Reserve’s (Fed) rate action and Chairman Jerome Powell’s surprising press conference.

Fed’s 75 bps increase in the benchmark rate initially triggered the US dollar’s slump as the rate statement highlighted the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”  However, Powell’s speech propelled the greenback as it cited the need to bring down inflation “decisively” while also suggesting a bit longer play for the restrictive policy.

It’s worth noting that the strong points of the US ADP Employment Change for October and fears emanating from China’s covid-led lockdown, as well as a US diplomat’s visit to Taiwan, added strength to the US Dollar Index (DXY). That said, the greenback’s gauge versus the six major currencies refreshed a one-week high following the Federal Open Market Committee (FOMC) meeting.

Amid these plays, Wall Street closed in the red and the yields are back up with the 10-year benchmark rising to 4.10% by the end of Wednesday’s North American session.

Moving on, GBP/USD traders will pay attention to the Bank of England’s (BOE) monetary policy announcements for clear directions. The “Old Lady”, as the central bank is informally known, is likely to unveil a 75 bps rate hike but is also divided over the 50 bps move. Also increasing the importance of the event is the quarterly monetary policy statement that makes it the “Super Thursday”.

Given the fears of the UK’s recession, or maybe London is already in one, the BOE is less likely to impress the GBP/USD buyers even by announcing the 75 bps rate hike.

Also read: BoE Interest Rate Decision Preview: A close call between 50 bps and 75 bps, GBP/USD set to suffer

On the other hand, the second-tier US data and risk catalysts might also offer extra directives to the Cable pair.

Technical analysis

An upward-sloping support line from September 26, around 1.1395, precedes the 50-DMA support near 1.1350 to restrict the short-term GBP/USD downside. That said, the RSI (14) and MACD suggest further downside of the Cable pair.

• USD/CAD has registered a fresh weekly high at 1.3710 as Fed pushes interest rates to 3.75-4%.
• Market mood has turned extremely soured on Fed’s hawkish guidance.
• Canada’s employment change is seen lower at 10k vs. the prior release of 21.1k.

The USD/CAD pair witnessed a steep reversal after dropping below 1.3560 and registered a fresh weekly high at 1.3710 in no time in the early Tokyo session. The asset picked bids as the Federal Reserve (Fed) has announced the fourth consecutive 75 basis point (bps) rate hike to safeguard the economy from the headwinds of mounting inflationary pressures.

The risk profile has turned extremely negative as guidance from Fed chair Jerome Powell is hawkish as US central bank sees no pause in further policy tightening. This has sent S&P500 into a negative trajectory as earnings guidance has turned subdued. Meanwhile, the US dollar index (DXY) has scrolled above 112.00 after dropping to near 110.43 as rates have been pushed to a 4% trajectory. The 10-year US Treasury yields have jumped to 4.1%.

After a wild gyration, the asset is expected to display a volatility contraction and the focus of investors will shift to the US Nonfarm Payrolls (NFP) data. But before that, Wednesday’s release of US Automatic Data Processing (ADP) Employment Change has remained upbeat. The US economy has added 239k fresh jobs in the labor market, which will support the Fed to keep up the pace of the hiking rate further.

The US NFP is seen lower at 200k vs. the prior release of 263k. While the unemployment Rate will increase to 3.6%.

Meanwhile, loonie investors are also awaiting the release of the employment data. The Net Change in Employment is seen lower at 10k against the former figure of 21.1k. While the jobless rate is seen lower at 5.2%.

On the oil front, oil prices are looking to recapture the critical hurdle of $90.00 for the first time in the past three weeks. A decline in crude oil inventories reported by the Energy Information Administration (EIA) has infused fresh blood in the oil bulls. The oil stockpiles dropped by 3.115M barrels against the projection of an increment of 0.367M barrels.

• Gold retraces from weekly highs, eyeing a test of the $1600 figure, following a hawkish Fed.
• XAU/USD hit a daily high at $1669 before erasing its gains.
• If XAU/USD clears the $1617.30 support, a re-test of $1600 is on the cards.

Gold price erased Tuesday’s gains following the release of the November monetary policy meeting of the Federal Reserve, which finished with the US central bank lifting rates by 75 bps to 3.75-4.00%, the highest level reached since 2008, at around the financial crisis. At the time of writing, XAU/USD is trading at $1635.16, down by 0.81%.

Gold Price Analysis: Technical outlook

After the Fed’s decision, the XAU/USD remains neutral-to-downward biased, aiming to break to fresh two-week lows below $1634. Of note, the 20-day Exponential Moving Average (EMA) was pierced as gold hit a fresh four-day high at $1669.52 before retreating to current price levels.

That said, a triple-bottom chart pattern is forming, which would be confirmed by the break of the last swing high, the October 4 daily high at $1729.48.

If that scenario is to play out., the XAU/USD needs to hurdle some key resistance levels in the daily chart. Firstly the 20-day EMA at $1656.26, followed by the 50-day EMA at $1678.25, and the 100-day EMA at $1723.82, ahead of the October monthly high.

On the other hand, if XAU/USD extends its losses, the first support will be the October 21 swing low at $1617.30. A breach of the latter will send XAU sliding towards March 2020 lows at around $1567.80, followed by the $1500 figure.

XAU/USD Key Technical Levels

•  USD/JPY bulls are back in the game following FOMC.
• BoJ will be disappointed and threats of intervention may keep a lid on the pair. 

USD/JPY has been taken back by the bulls in trade on Wednesday following an eventful FOMC meeting and outcome for financial markets. The price initially dropped to test a low of 145.66 before it rallied to wipe out all of the losses and leave gins for the New York session to a post-Fed high of 147.89 so far. 

The Federal Reserve statement was written with dovish rhetoric while the Chair's presser turn risk appetite on a dime with hawkish comments from Jerome Powell. 

DXY daily chart

USDJPY H1 chart

The price has left a 3-line strike on the hourly chart which is a change of direction candle, breaking through the structure to leave a bullish bias on the charts for the day ahead. However, the Bank of Japan will be disappointed with Jerome Powell's pushback against risk in today's meeting and investors will be wary of subsequent intervention hazards. 

What you need to take care of on Thursday, November 3:

The dollar finished Wednesday higher across the FX board following a volatile American session. The US Federal Reserve was behind the wild moves, as the central bank delivered as expected, but Chair Jerome Powell surprised with a hawkish speech.

The central bank pulled the trigger by 75 basis points, and the accompanying statement suggested policymakers would soon slow the pace of QT. “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”  The greenback plummeted to fresh weekly lows against most major rivals as investors rushed to price in a 50 bps rate hike in December.

However, Chair Jerome Powell’s speech brought dollar buyers back to life. The head of the central bank noted that inflation needs to be taken down “decisively,” adding they are ready to change the monetary policy as needed. He mentioned that slowing the pace of rate hikes will become necessary at some point but also that it may take time for inflation to come down, and therefore, a restrictive policy stance should stay for some time. Finally, he added that the ultimate level of rates would be higher than previously expected. His words revived the odds of a fifth 75 bps in December. Stocks fell, yields surged, and the dollar soared.

Meanwhile, speculation that China could ease its zero-covid policy was erased after the country announced a new lockdown, this particular one, involving the area around the world's largest iPhone factory, spurred concerns at the beginning of the day.

The EUR/USD pair trades in the 0.9820 price zone after posting a fresh weekly high of 0.9975.  GBP/USD plummeted below 1.1400, while AUD/USD trades around 0.6350. The USD/CAD pair is currently advancing above 1.3700.

The dollar also gained against safe-haven rivals. USD/CHF is above parity, while USD/JPY  trades around 147.80.

Gold advanced at the beginning of the day but finished it at around $1,636 a troy ounce.

According to preliminary EIA data, US imports of Saudi crude oil increased 208k bpd to 533k bpd for the week ending Oct. 28, according to preliminary EIA data, unexpectedly boosting oil prices. WTI eased at the end of the day amid plummeting equities but still closed in the green at $89.20 a barrel.  

The Bank of England is having a Super Thursday next. 

• GBP/USD falls on the back of hawkish comments from Powell.
• The US dollar is back in the driving seat and cable is meeting channel support. 

Risk markets were whipsawed around the FOMC event on Wednesday when the Federal Reserve statement was written with dovish rhetoric while the Chair's presser started out and ended with a hawkish tilt. 

His hawkish comments wiped out almost 100% of the FOMC dovish statement drop in the US dollar:

GBP/USD H1 chart

The price has dropped into the channel's support following Powell's pushback against rallying risk markets when pressed for commentary around the timings of a pivot. However, on a break of support, there is a void of liquidity according to the rally that took place on October 25. 

Given the timings of the day, the most likely trajectory from here would be for a correction prior to the next impulse to the downside: 

• The aussie U-turns from 0.9490 and dives to one-week lows at 0.9350.
• Fed Powell takes a hawkish stance and sends the USD higher.
• The dollar suffered following a dovish tilted FOMC statement.

The US dollar whipsawed following the outcome of the Federal Reserve’s meeting. The Aussie spiked up to session highs right above 0.6500 following a dovish monetary statement before plummeting to 0.6350 on the back of Powell’s press release.

Fed Powell takes the hawkish side and boosts the USD

The dollar made a dramatic U-turn following Fed President Jerome Powell’s comments at the bank’s press release. Powell struck a more hawkish tone in front of the journalists, offsetting the impact of the previously released statement, and sending the US dollar higher.

Jerome Powell refuted the idea that the bank might have overtightened and reaffirmed the need for ongoing rate hikes to get policy sufficiently restrictive.

Beyond that, he affirmed that economic data suggests that “we may eventually move to higher levels than we anticipated at the September meeting”, which has curbed expectations of a dovish pivot in December.

In regards to the next meeting, Powell assured that there will be a discussion, as no decision has been taken yet and that the time to slow the pace of rates could be as soon as December or at February’s meeting.

Previously, the FOMC statement affirmed that the pace of future rate hikes will be decided considering “cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

The bank met expectations and hiked rates by 75 basis points for the fourth consecutive time, leaving the Federal Funds Rate at the 3.75% - 4.00% range.

Technical levels to watch

• Fed hikes rates by 75 basis points as expected could slow down in December.
• Fed Chair Powell does not sound so dovish, triggers a recovery USD recovery.
• EUR/USD dropped from 0.9970 back to the 0.9860 area.

The EUR/USD reversed sharply from the highest level since Friday at 0.9975 and broke below 0.9850, reaching the lowest level in a week at 0.9830. The words from Fed Chair Powell strengthened the greenback. 

Dovish FOMC, hawkish Powell

The Federal Reserve raised interest rates by 75 basis points on Wednesday, for the fourth time in a row. The vote was unanimous. The FOMC said it would take into account the cumulative effect of monetary tightening and the lag between the rate hikes and the impact on the economy. During the press conference, Powell said time for slower hikes may come as soon as December or February. 

After the FOMC statement the US dollar, US yields tumbled while equity markets soared. During Powell’s press conference the dollar bottomed and then started recover. It is back at the levels it had before Fed’s decision. Stocks and Treasuries gave back all gains. The moment of the reversal was when Fed Chair said the ultimate level of interest rates will likely be higher than earlier estimates. 

The EUR/USD is hovering around 0.9840, below the critical short-term support area of 0.9850, looking weak. Euro bulls need the pair to consolidate above 0.9920 in order to gain strength. 

Technical levels

• The kiwi loses steam at 0.5940 and returns to previous levels at 0.5860.
• The US dollar picks up supported by Fed Powell's hawkish comments.
• A dovish-tilted FOMC statement sent the USD tumbling.

The New Zealand dollar has given away all the ground taken immediately after the release of FOMC’s decision, with the US dollar picking up, supported by Fed President Powell’s comments at the press release.

Investors punished the US dollar after the release of the FOMC's statement, which sent the kiwi to five-week highs at 0.5940, before returning to previous levels in the mid-range of 0.5800 as Powell’s press release goes on.

The dollar picks up on the back of Fed Powell’s comments

The greenback has bounced up strongly with Fed President Jerome Powell taking a more hawkish stance to offset the negative impact of a dovish monetary policy statement.

Jerome Powell has denied the idea that the bank might have overtightened and assured that economic data suggests that “we may eventually move to higher levels than we anticipated at the September meeting”, which has eased expectations of a dovish pivot in December.

Regarding the next meeting, Powell assured that no decision has been taken yet and that the time to slow the pace of rates could be ass soon as December or at February’s meeting.

Previously, the US dollar dropped against its main rivals, after the FOMC statement affirmed that  the pace of future rate hikes will be decided considering “cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Technical levels to watch

• The S&P 500 rallied once the Federal Reserve’s decision was known, as the statement was perceived as dovish.
• Powell “rocked the boat” when he said that the “ultimate level of rates will be higher than previously expected.”
• The S&P 500 erased its gains achieved in reaction to the Fed’s decision.

The S&P 500 is seesawing in a volatile session after the US Federal Reserve raised rates as expected by 75 bps, and by its statement, announced that “cumulative tightening” in place would be taken into account and acknowledged that monetary policy is still lagging in specific sectors of the economy, namely the labor market and price stability. Therefore, the S&P 500 retreats some of its early gains, hoovering around 3842.16-3866.28 at the time of typing.

Jerome Powell’s press conference remarks

During his press conference, Federal Reserve Chairman Jerome Powell said that the central bank is strongly committed to bringing inflation down, and he added that the ongoing rate increases are “appropriate” to get policy sufficiently restrictive. Even though those are some of his usual remarks, once he said that the “ultimate level of rates will be higher than previously expected,” the S&P 500 tanked from its daily highs at 3894.44 to 3801.50, as it was perceived as a hawkish statement.

Powell’s additional remarks:

Summary of Fed’s monetary policy statement

Regarding the monetary policy statement, the Fed acknowledged that growth was slowing down in spending and production and commented that labor market conditions remain “robust” and the unemployment rate is slow. Policymakers added that inflation remains elevated, a reflection of the supply/demand imbalances blamed on the pandemic and higher food and energy prices.

Even though Fed policymakers mentioned that they are resolute in taming inflation and will continue to tighten monetary conditions, they laid the ground for a slower pace of interest-rate increases. Fed officials added to the statement, “the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Concerning the Fed’s balance sheet reduction, policymakers added that it would keep reducing as expected and added that the Federal Reserve Open Market Committee (FOMC) would be data-dependent, taking into account public health readings, labor market conditions, inflation pressures, and inflation expectations.

The market reacted negatively, sending the US Dollar down, and the S&P 500 rallied toward its daily highs as traders perceived the monetary policy statement. Nevertheless, the Federal Reserve Chair Jerome Powell press conference, shifted the initial markets reaction, as shown below by the S&P 500 5-minute chart.

S&P 500  5-minute chart

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3.75-4% following the November policy meeting.

Key quotes

"If we overtighten then we have the ability with our tools to support economic activity."

"On the other hand, if you undertighten, it is a year or two down the road you realize you haven't got inflation under control."

"A mistake in the direction of not tightening enough risks entrenched inflation, bigger employment costs."

"Employment costs of that go up with the passage of time."

"We are now focused on what's the level we need to get rates to."

"I don't know what we'll do when we get there by the way."

"I am trying to make sure our message is clear that we have a ways to go until we have got to a sufficient level on interest rates."

• The gold price has flipped over on the back of conflicting comments from the Fed's Chairman Powell. 
• The bid that bulls enjoyed following a dovish statement was wiped out by Chair Powell's hawkish presser. 

Gold has dropped back to the start again on the back of hawkish comments from the Federal Reserve's Chairman, Jerome Powell, that sent the 2-year Treasury yields higher when he said the ultimate rate level will be higher than previously expected. Markets had started to price in a slower pace of rate hikes based on the following from today's FOMS statement: 

 "In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial deviations."

However, rates shot higher when Powell's hawkish comments at the presser dropped, sinking gold prices:

• Powell speech: Very premature to be thinking about pausing

• Powell speech: Will likely need restrictive stance of policy for some time

• Powell speech: Longer-term inflation expectations are still well anchored

• Powell speech: Will take time for full effects of monetary restraint to be realized

• Powell speech: Time for slower hikes may come as soon as December or February

Gold & US dollar technical analysis

The daily gold chart above shows the price being whipsawed on the day as the US dollar battles back for ground on Powell's hawkish comments:

The daily outlook shows the US dollar price sandwiched between support and resistance.

The presser started out with a hawkish delivery from Powell which wiped out almost 100% of the FOMC dovish statement drop.

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3.75-4% following the November policy meeting.

Key quotes

"We keep close tabs on economic developments abroad."

"We are in frequent contact with our foreign counterparts."

"I have a meeting this weekend with many central bankers."

"Clearly this is a difficult time in the global economy."

"We're seeing China having issues with zero covid policy."

"Strong dollar is a challenge for some countries."

"We take all that into account in our models."

"In the US, we have a strong economy."

"We know we need to use our tools to get inflation down, the world won't be better off if we don't do that."

"Price stability in the US is a good thing for the global economy."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3.75-4% following the November policy meeting.

Key quotes

"Housing significantly impacted by higher rates."

"Housing market needs to get back into balance."

"From a financial stability standpoint, we haven't seen poor credit underwriting on housing."

"We don't see financial stability issues from the housing sector."

"So it's a very different situation, with no apparent financial stability risks from housing."

"We had thought we would have better labor supply by now."

"Wages are a mixed picture."

"We keep looking for signs of gradual labor market signs, but it's not obvious to me."

"Wages are moving sideways right now not down."

"Vacancies have not come down as much as we thought."

"I don't see the case for real softening in labor market just yet."

"Wages have an effect on inflation, and vice versa."

"Wages are not the principal reason for inflation, not seeing a wage-price spiral."

• FOMC dovish statement sent the US dollar lower but Fed's Powell's hawkish presser came to the rescue for the greenback.
• DXY is whipsawed and retraced close to 100% of the initial drop. 

The US dollar has been whipsawed between a dovish FOMC statement followed by a hawkish delivery from Fed's Chair Jerome Powell who advocates for continued rate hikes with the potential to slow as soon as December, but without such a commitment to do so so soon. 

At the time of writing, DXY, an index that measures the greenback vs. a basket of currencies, is trading at around 110.89 and has been traded between a post-FOMC statement high of 111.598 and 1110.426 the low. 

Changes to FOMC statement

Firstly, DXY was offered heavily on the following in the statement:  "In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial deviations."

Before the FOMC statement, the terminal top was priced at 5.03% in May, it's down to 4.95% now after the new sentence in the FOMC statement that signals more increases but hints at possibly smaller increments.

The US dollar fell critical trendline support as shown on the hourly and daily charts below:

However, as the event progressed and Jerome Powell spoke, the dollar bounced back. 

• Powell speech: Will likely need restrictive stance of policy for some time

• Powell speech: Longer-term inflation expectations are still well anchored

• Powell speech: Will take time for full effects of monetary restraint to be realized

• Powell speech: Time for slower hikes may come as soon as December or February

US dollar technical analysis

The daily outlook shows the price sandwiched between support and resistance.

The presser started out with a hawkish delivery from Powell which wiped out alomost 100% of the FOMC dovish statement drop.

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3.75-4% following the November policy meeting.

Key quotes

"If we overtighten, can use our tools to respond."

"We want to be sure we don't make a mistake of not tightening enough or loosening too soon."

"If we don't tighten enough, inflation could get entrenched."

"As we move now into restrictive territory, it will be appropriate to think more about lags."

"It is very premature to be thinking about pausing, very premature to even talk about that."

"We will write down in December an updated sense of where rates will need to go."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3.75-4% following the November policy meeting.

Key quotes

"Financial conditions have tightened quite a bit."

"Shorter-term inflation expectations moved up since last meeting, we don't think those are as indicative."

"Still it's very concerning."

"We don't have a clearly identified way of knowing when inflation becomes entrenched."

"We need to use our tools forcefully but thoughtfully."

"That's why we need to get inflation under control."

"Policy lags are thought to be long and variable, newer literature suggests lags are shorter."

"Financial conditions now react well before policy moves."

"Plenty of economists think that once financial conditions change, effects are faster than before."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3.75-4% following the November policy meeting.

Key quotes

"Speed is becoming less important now."

"The time for slower rate hikes may come as soon as December of February."

"We will have discussion on that at next meeting, no decision made yet."

"Our principle focus is to keep rates restrictive."

"More important than pace of rate hikes will be how high rates need to go."

"Dont think we have overtightened."

"We had a discussion at this meeting about slowing rate hikes."

"There is still a need for ongoing rate increases, ground left to cover."

"We will want to get to real positive rates, we need real positive rates across the curve."

• The USD/CAD tumbled 80 pips on the release of the Fed’s decision.
• Fed officials will consider previous rate hikes increases, acknowledging that it would take some time to broaden the effects of monetary policy.
• Fed’s Powell: Officials project that the Federal funds rate (FFR) would peak at higher levels than estimated in September.

The USD/CAD plummets after the Federal Reserve hiked rates by 75 bps. However, it was dovish tilted, as officials said that they would take into account “the cumulative tightening of monetary policy” and acknowledge that the effects of policy affect economic activity and inflation. At the time of writing, the USD/CAD is trading at around 1.3550s, amid volatile conditions, after the FOMC’s decision.

Federal Reserve summary of the monetary policy statement

In its monetary policy statement, the Fed acknowledged that growth was slowing down in spending and production and commented that labor market conditions remain “robust” and the unemployment rate is slow. Policymakers added that inflation remains elevated, a reflection of the supply/demand imbalances blamed on the pandemic and higher food and energy prices.

Even though Fed policymakers mentioned that they are resolute in taming inflation and will continue to tighten monetary conditions, they laid the ground for a slower pace of interest-rate increases. Fed officials added to the statement, “the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” which initially is perceived as they acknowledge that monetary policy is not reacting as fast as expected, and would take into account that.

Concerning the Fed’s balance sheet reduction, policymakers added that it would keep reducing as expected and added that the Federal Reserve Open Market Committee (FOMC) would be data-dependent, taking into account public health readings, labor market conditions, inflation pressures, and inflation expectations.

USD/CAD Market’s reaction

The USD/CAD dived from around 1.3630 toward 1.3560, hitting a daily low of 1.3548. However, Federal Reserve Chair Jerome Powell said they would continue tightening monetary conditions; the USD/CAD erased some of its gains and is back at around 1.3600.

USD/CAD 5-minute chart

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3.75-4% following the November policy meeting.

Key quotes

"We think ongoing increases in rates will be appropriate to get policy sufficiently restrictive."

"Financial conditions have tightened significantly."

"Will take time for full effects of monetary restraint to be realized."

"At some point will become appropriate to slow pace of rate hikes."

"There is significant uncertainty around that level of interest rates."

"We still have some ways to go."

"Data suggest ultimate level of interest rates will be higher than previously expected."

"Taking forceful steps to moderate demand."

• The dollar dives to session lows at 0.9925 after the FOMC statement.
• Investors see the bank's rhetoric tilted to the dovish side.
• The bank affirms that policy lags will be observed to decide further rate hikes.

The US dollar depreciated across the board on Wednesday, immediately after the release of the Federal Reserve’s Monetary policy decision. The pair retreated from the 1.000 area to hit session lows at 0.9925 so far.

US dollar suffers as the Fed strikes a dovish tone

The Federal Reserve has met expectations and hiked the Federal Funds rate by 75 basis points, for the fourth consecutive time, to the 3.75% - 4.00% range.

Investors, however, had been focused on the statement, and this has been tilted to the dovish side. The committee affirmed that the pace of future rate hikes will be decided considering “cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Furthermore, the bank has reaffirmed that interest rate increases will be necessary to return inflation to the 2% level, although warning about recent indicators pointing to modest growth in spending and production.

Technical levels to watch

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3.75-4% following the November policy meeting.

Key quotes

"Activity in housing has weakened."

"Slower output growth also weighing on business fixed investment."

"Job vacancies still very high."

"Labor market is extremely tight, still out of balance."

"Demand substantially exceeding supply there."

"Inflation is still well above our goal."

"Recent inflation data has come in stronger than expected."

"Longer-term inflation expectations are still well anchored."

"That is not grounds for complacency though, acutely aware high inflation imposes significant hardship."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3.75-4% following the November policy meeting.

Key quotes

"Strongly committed to bringing down inflation."

"Without price stability, will not achieve sustained strong labor market."

"We are moving policy stance purposefully."

"We will likely need restrictive stance of policy for some time."

"US economy has slowed significantly from last year."

"Growth in consumer spending has slowed, in part due to tighter financial conditions, lower real incomes."

• Fed raises interest rates by 75 basis points for the fourth time in a row, as expected.
• FOMC signals it could slow down rate hikes soon.
• US Dollar tumbles across the board as US yields drop sharply.

The USD/JPY broke below 146.80 and tumbled to 146.03, hitting the lowest level since last Friday following Fed’s monetary policy decision. A decline in US yields and a weaker dollar are keeping the pair under pressure, near daily lows.

Fed moves as expected, analysts look at clues

The US central bank raises interest rates by 75 basis points on Wednesday, for the fourth time in a row. The vote was unanimous. The FOMC said it would take into account the cumulative effect of monetary tightening and the lag between the rate hikes and the effects on the economy, probably suggesting it would consider a slowdown as soon as the next meeting.

The considerations from the FOMC pushed the US Dollar to the downside and sent equity markets to the upside. Fed Chair Powel’s post-meeting press conference is underway.

USD/JPY weaker

The DXY turned negative and hit the lowest level in two days under 111.00. At the same time, the Dow Jones turned positive and it was up by 0.85%.

Treasuries rose following the FOMC statement. The US 10-year yield fell from 4.05% to as low as 3.97%, before bouncing back to 4.00%. The US 2-year yield fell from above 4.55% to 4.44%.

The decline in yields with the possibility of a slowdown in Fed rate hikes sent USD/JPY to the downside. The pair remains under pressure but volatility is set to remain elevated during Powell’s press conference.

Below 146.00, important support emerges at 145.50 and then attention would turn to 145.00. A consolidation below should increase the bearish pressure, suggesting more losses ahead. On the upside, now 146.90 is the immediate resistance area followed by 147.45. If USD/JPY rises above 148.00, a test of the weekly high at 148.85 seems likely.

Technical levels

• The aussie hits session highs at 0.6475 after Fed's decision.
• The market has seen the bank's statement tilted to the dovish side.
• The FOMC will take the cumulative tightening into account for future hikes.

The US dollar reacted negatively immediately after the release of the Federal Reserve’s monetary policy meeting. The Aussie, which had been trading within a tight range above 0.6400,  has surged to session highs at 0.6470 so far.

Investors see a dovish tone in the Fed’s statement

As was widely expected, the bank has hiked the Federal Funds rate by 75 basis points, for the fourth consecutive time,  to the 3.75% - 4.00% range.

The bank’s statement, however, has seen tilted to the dovish side. The committee observes that in determining the pace of future rate hikes, they will consider “cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Beyond that, the bank has warned about recent indicators pointing to modest growth in spending and production.
 

Technical levels to watch

• The US Federal Reserve hiked rates by 75 bps and would take into account the “cumulative tightening of monetary policy.”
• Hence, the GBP/USD rallied as the rate hike was perceived as dovish.
• The GBP/USD rallied more than 100-pips in the first 5-minute candle, registering the high of the day at 1.1559.

The GBP/USD soars as the Federal Reserve decided to hike rates by 75 bps and also acknowledged that the tightening pace would depend on the cumulative tightening of monetary policy, inflation, and financial markets developments. At the time of writing, the GBP/USD is rallying, though in a volatile trading range within 1.1450-1.1550.

Summary of the Federal Reserve’s monetary policy statement

So the Fed pulled the trigger and hiked rates as expected. However, they added to the statement, “the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” which initially is perceived as they acknowledge that monetary policy is not reacting as fast as expected, and would take into account that. That said, the GBP/USD rallied sharply in a dovish-perceived rate hike.

Regarding the Fed’s balance sheet reduction, the policymakers said it would keep reducing as expected and added that the Federal Reserve Open Market Committee (FOMC) would be data-dependent, taking into account public health readings, labor market conditions, inflation pressures, and inflation expectations.

Market’s reaction

The GBP/USD initially dived towards 1.1458 and then skyrocketed toward 1.1559, breaking several resistance levels, like the 1.1500 figure and also 1.1550. Nevertheless, at the time of typing, the GBP/USD meanders around 1.1539 as traders brace for Fed Chairman Jerome Powell’s press conference.

GBP/USD 5-minute chart

GBP/USD Key Technical Levels

• Gold rallies hard on a dovish pivot at the FOMC.
• Markets now await clarity from Chair Powell's presser.

The gold price has shot higher on a hint of dovishness in today's interest rate decision by the Federal Open Market committee. The vote was unanimous in favour of the policy whereby the Fed hiked by 75bps, setting the target range at 3.75% - 4.00%. 

Gold is up around 1% following the release of the statement trading at $1,663, rising from the day's low of $1,645.68, printing a post-Fed high of $1,665.53 so far. 

Gold price is higher on the back of the swaps markets that are now downgrading the chances of another 75bps at its December meeting due to such changes in the statement as follows:

"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial deviations."

Changes to FOMC statement

Before the FOMC statement, the terminal top was priced at 5.03% in May, it's down to 4.95% now after the new sentence in the FOMC statement that signals more increases but hints at possibly smaller increments.

The US dollar is testing critical trendline support as shown on the hourly and daily charts below:

Markets now await Chair Jerome Powell's presser for clarity on the dovish tilt. 

Watch live Chiar Powell

Gold technical analysis

The weekly charts shows the price at the bottom of the sideways range. 

The daily charts show the prospects of a move into channel resistance:

(Before Fed, above)

The price is digging into the M-formation's resistance that guards the channel resistance.

(After Fed, below):

The hourly chart shows the price reaching into 

• Fed raises interest rate by 75 basis points as expected.
• US dollar weakens as FOMC says will take into account the cumulative tightening.
• EUR/USD gains momentum, above 0.9950 could test parity.

The EUR/USD rose following the Fed’s decision to raise interest rates by 75 basis points as expected as the US dollar tumbled across the board. The pair rose from 0.9970 to as high as 0.9945 in the minutes after the FOMC statement.

The FOMC said it “will take cumulative tightening of monetary policy, the lags with which monetary policy affects.” It also said it need to keep raising until rates are “sufficiently restrictive.” Now market participants await the post-meeting press conference (18:30 GMT).

The signals from the Fed pushed US yields to the downside and sent the greenback sliding. The US Dollar Index turned negative to test Monday lows while gold and silver jumped.

At the time of writing, the EUR/USD is moving higher trading at two-day highs above 0.9950. The next strong barrier is located around the parity area, followed by 1.0055 and then the last week's high at 1.0090 will come into attention. On the flip side, the immediate support now stands at 0.9915. A break under 0.9850 would likely trigger more losses.

Technical levels

The US Federal Reserve on Wednesday announced that it raised the policy rate, federal funds rate, by 75 bps to the range of 3.75-4% following the November monetary policy meeting. This decision came in line with the market expectation. 

Follow our live coverage of the Fed's policy announcements and the market reaction.

Market reaction

The dollar came under renewed selling pressure and the US Dollar Index declined below 111.00 with the initial reaction.

Key takeaways from policy statement

"Will take into account cumulative tightening, policy lags, and economic and financial developments in determining pace of rate hikes."

"Fed anticipates ongoing interest rate increases will be appropriate to attain a sufficiently restrictive policy stance to return inflation to 2% over time."

"Inflation remains elevated."

"Job gains have been robust, unemployment rate has remained low."

"Recent indicators point to modest growth in spending and production."

"War in Ukraine is creating additional upward pressure on inflation, weighing on global economic activity."

"Prepared to adjust policy as appropriate."

"FOMC is highly attentive to inflation risks."

"Vote in favor of policy was unanimous."

• The dollar is hovering near 146.85 session lows ahead of the FOMC.
• Investors, watching from the sidelines with all eyes on the Federal Reserve.
• USD/JPY expected to consolidate above 150.00 – Credit Suisse.

The US dollar is heading south for the second consecutive day on Wednesday, extending its reversal from last week’s highs near 152.00 to test prices below 147.00 with all eyes on the Federal Reserve.

Cautious session ahead of the FOMC

Major currency crosses are trading within previous ranges in a calm session on Wednesday, with all eyes on the outcome of the Federal Reserve’s meeting.

Investors have priced in a 0.75% rate hike, the fourth in a row, although market speculation about the bank signaling softer hikes in the future has boosted the interest on the event. In that sense, any hint that may suggest the direction of December’s move might trigger a significant increase in market volatility.

On the macroeconomic front, the bright US ADP employment report has anticipated an increment to 239,000 private-sector payrolls in October, well above the market consensus of 195,000. The impact on the dollar, however, has been muted, with the USD Index practically flat on the day.

USD/JPY seen trading sustainably above 150.00 – Credit Suisse

In the longer-term, Analysts at Credit Suisse expect the pair to consolidate above 150.00: “Japanese media suggests the main umbrella union Rengo will ask for wage hikes of 5% next year, up from the 4% level it wanted for this year (2% was actually achieved). With longer-term inflation expectations rising too, it seems Kuroda still sees this as a unique opportunity to reset Japan’s inflation mindset and is unwilling to let go. We suspect that over time this will cause USD/JPY to trade above 150.00 sustainably, and we think dips in USD/JPY to recent lows around 145.25 offer good entry points for longer-term players.”

Technical levels to watch

The US dollar came under pressure on Wednesday but has since picked up a bid again as the countdown to the FOMC moves into the final hour where another 75 bp hike is expected. The FOMC will release its policy statement at 1800 GMT. Markets will look to any hints that the Federal reserve is moderating in the response to inflation. 

At the time of writing, DXY, an index that measures the greenback vs. a basket of major currencies was back to flat on the day having recovered from a low of 111.084 and recently marking a high of 111.598.

While the focus will be on the press conference where Chair Jerome Powell will be expected to maintain the hawkish tone that he has consistently held since Jackson Hole in late August, there are risks of a variant of a 100bps hike or a lesser 50bp which will come as a surprise. Additionally, the statement will be important in any outcomes and variants surrounding a 75bps hike. In a prior commentary, Powell suggested that hikes may not continue at their present pace, but if he were to switch that up and suggest that another 75bp rate hike in December is possible as inflation remains stubbornly high, the dollar could fly as investors start to price in a higher terminal rate. For the December meeting, the futures market is split on the odds of a 75- or 50-bps increase

However, analysts at Brown Brothers Harriman argued that he will give the markets what they are looking for, which is some hint of a pivot. In such a dovish outcome, Powell could suggest that another 75bp hike in December may not be necessary due to significant front-loading that has already taken place. This would suggest to markets that the central bank is nearing a policy peak and that inflation should begin to moderate relatively soon. The dollar would be presumed to come under pressure on such dovishness while risk markets, such as stocks and high better currencies would rally.

DXY technical analysis

The weekly chart is pointing to a higher US dollar, but 111.50 needs to be cleared:

From a daily perspective, the index has dipped below the trendline, but not for the first time: 

We can paint the trendline with a broad brush, but what is significant is the horizontal resistance between 111.47 and 112.52. This Fed meeting could be make or break in this respect. If the price failed to get through here once the decision is digested over the rest of the week, then that would indicate we could be in for prolonged softness in the greenback and entirely data-dependent until the December meeting. 

Jerome Powell, Chairman of the Federal Reserve System, will be delivering his remarks on the monetary policy outlook at a press conference following the meeting of the Board of Governors. Powell's speech will start at 18:30 GMT.

Follow our live coverage of the Fed's policy announcements and the market reaction.

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

• EUR/USD is almost unchanged after hitting a daily high of 0.9915.
• The October US ADP Employment Change report gives another reason for the Fed to continue its “aggressive” approach to monetary policy.
• Eurozone’s S&P Global Manufacturing PMI Final for October confirms that the bloc might get a recession.

The EUR/USD is subdued ahead of the Federal Reserve Open Market Committee (FOMC) decision, which is utmost sure it will deliver the fourth 75 bps rate hike by the Fed, though what traders are looking for the pace of further increases if it would keep the pace, or slow it down, as sources linked to the Fed said in an article on October. At the time of writing, the EUR/USD is trading at 0.9867, almost unchanged.

The EUR/USD is range-bound ahead of the Fed’s decision

US equities continue to trade with minimal losses following the release of US jobs data, reflecting that the labor market is yet to ease. At the same time, the Fed pivot narrative would be confirmed or pushed back once Jerome Powell hit the stand.

ADP reported that the US companies hired more people than estimated in October. The ADP Employment Change report for October showed that private payrolls jumped by 239K above estimates of 185K and crushed the September upward revision of 192K.

According to Nela Richardson, ADP’s Chief Economist, the report is strong given the maturity of the economic normalization, though she noted that hiring was not broad-based. She added, “Goods producers, which are sensitive to interest rates, are pulling back, and job changers are commanding smaller pay gains.”

Given that the US economy is back in expansionary territory, the October Core Personal Consumption Expenditures (PCE), the Fed’s favorite gauge of inflation, increased, the ISM Manufacturing PMI remains in expansionary territory, and US jobs data flashing the tightness of the labor market, that could deter the Federal Reserve from slowing the pace of tightening.

Aside from this, the Eurozone calendar featured the Germany Balance of Trades which showed a surplus of €9 billion in September vs. €0.3 billion in August. Later, the S&P Global Manufacturing PMI on its final reading, plunged to 46.4, below estimates of 46.6, reinforcing the case that the Eurozone might get into a recession.

Ahead in the calendar, at 18:00 GMT, the Federal Reserve will reveal its monetary policy decision, followed by Jerome Powell’s press conference at 18:30 GMT.

EUR/USD Key Technical Levels

• The euro remains stalled below 0.8625 for the second consecutive day.
• The market is calm ahead of the FOMC.
• On Thursday, the BoE is expected to deliver a "dovish hike".

The euro has remained trading within a narrow range against the British pound for the second consecutive day. The pair has consolidated above 0.8600, yet with upside attempts lacking acceptance above 0.8625.

Consolidation ahead of the Fed and BoE decisions

Major FX crosses are trading rangebound on Wednesday, with the investors awaiting the outcome of the Federal Reserve’s monetary policy meeting, due later today.

The Fed is widely expected to hike rates by 0.75% for the fourth consecutive time, although growing speculation about the possibility of a signal towards softer rate hikes over the next months has boosted investors’ interest in November's meeting.

In this scenario, the traditional calm ahead of the FOMC, might lead to a significant deal of volatility, in case the bank discloses any hint about the direction of the next monetary policy moves.

Furthermore, the Bank of England is also expected to hike rates by 0.75% on Thursday. In this case, the bank is expected to adopt a dovish tone in the light of UK’s bleak economic prospects.

Technical levels to watch

• WTI is trading above $90.00 and has gained more than 2% weekly.
• The US government reported that oil-related products contracted, a tailwind for oil prices.
•  WTI remains neutral, but a break above $93,62, could send oil rallying to the 200-day EMA.

Western Texas Intermediate (WTI), the US crude oil benchmark, rises close to 2% as the US Dollar weakens ahead of the Fed’s decision, while stockpiles in the US declined as refineries increased activity as the winter season looms. At the time of writing, WTI is trading at $90.13 per barrel after hitting a daily low of $87.76.

According to the US Energy Information Administration (EIA), most oil-related products, like gasoline and distillates, shrank, increasing analysts’ worries that an end of releases from the US reserves would tighten the markets.

Sources cited by Reuters said that “Every week that goes by, the US is drawing hydrocarbon inventories, and that leads to the question of where does the industry turn when there are no more supplies from strategic petroleum reserve releases.“

Meanwhile, production by the Organization of the Petroleum Exporting Countries (OPEC) fell in October, while the European countries’ oil embargo on Russia, set to kick in on December 5, would likely keep oil prices edging north.

However, China’s Covid-19 zero tolerance restrictions and broad US Dollar strength keep oil prices somewhat controlled, though once the Federal Reserve pauses, if it does, the WTI uptrend could resume.

WTI Price Analysis: Technical outlook

WTI is neutral-to-upward biased, though the 100 and 200-day Exponential Moving Averages (EMAs) would be challenging resistance levels to surpass, each at around $92.50 and $98.37. The Relative Strength Index (RSI), at bullish territory with an upward slope, would open the door for a test to October’s high at $93.62, which, if it gives way, could open the door for a test of the 200-day EMA. On the flip side, if WTI slides below $87.42, a fall toward the 50-day EMA at $86.36 is on the cards.

• Gold's reversal from $1,660 high has extended to test support at $1,645. 
• Precious metals lose footing with all eyes on the FOMC.
• XAU/USD: Under bearish pressure with a double top in place – Credit Suisse.

Gold futures’ bearish reversal from session highs at $1.660, has gathered pace during Wednesday’s US morning trading, and the pair to test support area at $1645, at the moment of writing. On the daily chart, the yellow metal is practically unchanged.

Precious metals lose footing ahead of the FOMC

Precious metals in general have tread water on Wednesday, after having appreciated sharply on Tuesday. Investors are watching from the sidelines, awaiting the outcome of the Federal Reserve’s monetary policy meeting, due later today.

The market has already priced in a 75 basis point hike, the fourth consecutive such move by the US central bank, although the main event will be the release of the monetary policy statement.

Speculations about a signal to softer hikes from December have been increasing over the last weeks, and the market is split about the size of the next move. With the market extremely sensitive about the Fed forward guidance, any hint might trigger a significant deal of volatility.

XAU/USD: Under renewed bearish pressure with a double top in place – Credit Suisse

Analysts at Credit Suisse see the near-term risk skewed to the downside while below $1,687: “Gold below $1,691/76 has reinforced its existing large ‘double top.’ Hence, with a top in place, we expect XAU/USD to come under renewed pressure. We note that the next support is seen at $1,614, then $1,560 and eventually our core objective at $1,451/40.”

Technical levels to watch

Analysts at MUFG Bank, see the NZD/USD pair at 0.5600 by year-end and at 0.5700 by the end of the first quarter of next year. They point out that the shift higher in the Reserve Bank of New Zealand (RBNZ) terminal rate helps support NZD but they warn downside risks to persist over the short-term.

Key Quotes:

“The New Zealand dollar strengthened in October against both the US dollar and the Australian dollar as the RBNZ continues to lead the way in terms of the cumulative amount of monetary tightening. Despite leading the way in tightening policy, there was no hint of any slowdown of change in stance. That helped trigger a re-adjustment in the estimate of the terminal rate in New Zealand.”

“The Q3 inflation data served to reinforce the need for continued policy tightening. CPI, the tradable and non-tradable measure were all stronger than expected in Q3 and even before the release of the inflation data Governor Orr in a statement coinciding with the release of the Annual Report stated that there was “more work to do” and that hiking the policy rate was the best course of action.”

“There is clearly a growing risk of the RBNZ overdoing it based on the potential for a disruptive correction in the housing market. IMF data shows New Zealand as more vulnerable than most countries.”

“We assume NZD/USD recovery next year as the Fed pauses but if the RBNZ hikes more than expected, it could act to curtail the scale of NZD recovery.” 
 

The Bank of England (BoE) is set to announce its interest rate decision on Thursday, November 3 at 12:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of 10 major banks.

The BoE is widely expected to hike rates by 75 basis points to 3.0% on ‘Super Thursday’. Apart from the rate decision, the bank publishes the Meeting Minutes. What makes this event super is that the “Old Lady” also releases its quarterly Monetary Policy Report. 

Standard Chartered

“While the decision could be a close call, with some members of the Monetary Policy Committee (MPC) voting for a continuation of the 50 bps hikes delivered at recent meetings, we think the hawks will prevail and a majority will vote for 75 bps. We now expect a pivot back to 50 bps in December, as more evidence of a material slowdown in the UK economy is likely to emerge by then. With inflation likely to have peaked in October and started to fall, this should further support the case for a return to a 50 bps hiking pace. We continue to expect another 75 bps of tightening in Q1 (50 bps in February and 25 bps in March). However, given headwinds to the UK economy, we think risks to this forecast are to the downside. In the event of a sharper slowdown in economic activity and clearer signs of labour-market softness, we could see a faster pivot back to 25 bps. In that scenario, the terminal rate would top out at 4.00% or even slightly lower. As for quantitative tightening, the BoE remains committed to starting active sales of Gilts at the beginning of November but has said that at least initially, this will not include longer-dated Gilts. Given the improvement in market sentiment – particularly for UK bond yields – we think the BoE will try to keep to this plan as much as possible, while closely monitoring whether market conditions are appropriate.”

SocGen

“We maintain our forecast of a 75 bps hike on the way to a peak of 4.5% at the March 2023 meeting. Now that the markets have settled down and pension funds seem to have weathered their collateral problems after the Bank’s successful intervention, it looks likely that active gilt sales will commence, as twice rescheduled, on 1 November. The revised plan excludes sales at the long end because of the impact of the pension fund issue on that part of the curve.”

Rabobank

“We look for a 75 bps rise in Bank rate to 3.00% from 2.25%. It would still be the largest rate hike of this cycle. We expect to see rates peaking at 4.75%. That will slow down the economy.”

ING

“It was unthinkable only a few weeks ago, but we now think a 50 bps rate hike is narrowly more likely than the 75 bps Bank of England rate hike markets and most economists appear to be expecting.”

TDS

“We look for a 75 bps hike from the BoE in Nov. While the labour market has tightened further, inflation has matched the MPC's forecasts. Moreover, the several fiscal U-turns and change of PM and Chancellor should lower the risk of a larger hike. The delay of the fiscal event shouldn't mean much for the decision as the broad characteristics of fiscal policy are already known.”

Deutsche Bank

“We expect the central bank to hike by 75 bps, taking the Bank Rate to 3%. Beyond Thursday's meeting, we see a terminal rate of 4.5% amidst growing fiscal consolidation. Our expected sequence of hikes beyond Thursday has 50 bps in December and February and 25 bps in March and May.”

NAB

“The BoE will not have the full set of UK Treasury fiscal spending plans as hoped, but we and the consensus of economists now look for a 75 bps rise to 3%. There will be interest in the BoE’s new CPI and GDP forecasts, with the latter likely to show a deeper and more protracted recession in 2023 and 2024. There will be a press conference at this event to provide some more colour.”

Danske Bank

“We expect the BoE to hike the Bank Rate by 75 bps but in our view, it is a close call between 50 bps and 75 bps. We keep the rest of our forecast intact, expecting the Bank Rate to peak at 3.75%. We expect fewer hikes than priced in markets as we emphasise the weak growth outlook. In our base case, we expect headwinds for GBP upon announcement.”

BMO

“While there is no longer an urgent need for a full 100 bps increase, the still-low value of the GBP and the high inflation rate points to, in our opinion, a 75 bps hike. However, the risk lies in a 50 bps’er given that the majority of the BoE typically votes for the more modest-sized increase.”

Wells Fargo

“We believe the BoE will deliver a 100 bps rate hike, bringing the Bank Rate to 3.25%. The UK has some of the highest inflation of developed economies, with headline CPI reaching 10.1% year-over-year in July, then slipping to 9.9% in August, then edging higher back to 10.1% again in September. This back-and-forth inflation reading shows just how stubbornly strong price pressures are, and underlines one of the reasons we expect such a large rate hike in November. However, we believe the UK economy contracted in Q3. This soft economic outlook reinforces our expectation for the BoE to underdeliver on future rate hikes compared to market expectations, and ultimately bring the policy rate to a peak of 4.00% in Q1-2023, compared to a peak of more than 4.50% expected by market participants.”

On Thursday, the Bank of England (BoE) will announce its decision on monetary policy. A 75 basis points rate hike is mostly expected by market participants. Analysts at TD Securities look for a 75 bps hike. They consider it could have a small impact on markets.  

Key Quotes: 

“Despite the period of heightened policy uncertainty, this week's MPC decision is increasingly becoming a non-event. We, along with the broad consensus, look for a 75bps hike, with a single dissent for a 50bps hike.”

“Markets are well priced for a 75bps hike. We doubt that the BoE is able to provide much certainty ahead of the budget. Thus, we expect Wed evening's Fed decision to weigh on GBP rates rather than the BoE.”

“A cautious tone is likely to weigh on GBP, reflecting the poor real rate and growth backdrop. With GBP now back to HFFV (near 1.16 - short-term fair value estimate), the short-term fiscal premium has been priced out. In turn, we like selling GBP rallies, consistent with MRSI's negative bias.”

• Silver prices have found support at $19.60 after rejection at $20.00.
• Precious metals consolidate in a cautious session with all eyes on the FOMC.
• XAG/USD faces a strong resistance area between $19.70 and $20.00.

Silver prices remain moderately bid for the second consecutive day on Wednesday, with downside attempts contained above $19.60 so far while, on the upside, resistance at the $20.00 area is holding bulls.

Rangebound trading ahead of the FOMC

Precious metals are moving within previous ranges, with investors in a cautious mood ahead of a long/awaited Fed monetary policy decision. The XAG/USD has been moving back and forth between $19.60 and $19.90, barely changing on the daily chart.

The Fed is widely expected to deliver a 75 basis point hike, the fourth consecutive such move, but the focus will be on the monetary policy statement. Increasing market voices have anticipated a signal of softer rate hikes from December onwards, and therefore, any hint in that direction might trigger significant volatility in the FX markets.

XAG/USD capped below important resistance in the $20 area

From a technical point of view, silver remains capped below an important resistance area between 50% and 61,8% Fibonacci retracement of the October 4 to 14 decline, that is, between $19.70 and $20.00. Above here, the next upside target would be $20.85 October 6 and 7 highs.

On the downside, the 100-day SMA, around $19.6o is supporting the near-term positive outlook. Below here the $18.80/90 area and the October 20 low at $18.20 would come into focus.

Technical levels to watch

Analysts at MUFG Bank remain bearish on the Indian rupee in the near term amid further interest rate hikes from the Federal Reserve. They forecast USD/INR at 84.000 by the end of the fourth quarter and at 82.50 by the end of the second quarter of next year. 

Key Quotes:

“The Indian rupee tumbled to a record low of 83.290 against the US dollar in October despite market expectations for a less hawkish Fed policy update. This is in addition to prospects of India’s oil imports remaining expensive following OPEC+’s decision to cut daily oil production. We remain bearish on the rupee in the near term in view of further Fed rate hikes, relatively large trade deficits for India, narrower scope for aggressive RBI intervention, and investors’ disappointment that inclusion into global bond indices was pushed back.”

“Latest available data show India’s foreign reserves declined by USD 4.3bn to USD 528.4bn in the first half of October from a USD 28.4bn drop in September. This represents a year-to-date decline of USD 105.2bn, which may be beyond the RBI’s threshold. Subsequent rounds of intervention are likely to be done more sporadically, which raises the risk of a pick-up in FX volatility and further rupee weakness.”

“We think the RBI is likely to hike the benchmark repo rate by 50bps at the upcoming meeting on 7th December to shore up the rupee and curb inflationary pressures. But there are risks of a less hawkish RBI as the 30th September RBI meeting minutes revealed two dissents within the six-member MPC favouring a terminal rate at 6% or less.”
 

• The GBP/USD is almost flat ahead of the Federal Reserve’s policy decision.
• The US ADP report was better than expected, and salaries edged higher, will the Fed pivot?
• The British Pound was cushioned by the Bank of England’s (BoE) monetary policy decision looming.

The GBP/USD is subdued amidst a choppy trading session as traders brace for the Federal Reserve’s decision, with most analysts estimating a 75 bps rate hike by the central bank. Still, most economists are looking forward to some clarity from the Fed regarding rates forward path. Hence, the GBP/USD is trading at 1.1479, fluctuating between gains and losses.

GBP/USD seesaws around 1.1470s ahead of the Federal Reserve’s decision

Wall Street reflects investors’ uncertainty, with indices trading in the red. US jobs data, mainly from the private sector, reported that hiring increased by 239K in October, exceeding the September upward revision to 192K and smashing estimates. According to the report, people that switched jobs experienced a 15.2% rise in salaries, which would keep inflationary pressures to the upside, as wage growth is one of the Fed’s main concerns, as consumers’ purchasing power would likely keep prices higher.

In the meantime, Tuesday’s S&P and ISM Manufacturing PMIs remain at expansionary territory, core inflation readings edging higher, and the ADP report might keep the Federal Reserve under pressure. Even though the article written in the WSJ journal on October 21 laid the ground for a slower pace of rate hikes, data dependence might be the best road to go. Nevertheless, investors should brace for the Federal Reserve Chairman Jerome Powell’s press conference, which would be scrutinized in search for a possible Fed pivot.

Aside from this, the Pound Sterling remained cushioned by Thursday’s Bank of England (BoE) monetary policy meeting. Money market futures estimates that the “Old Lady” will raise rates 75 bps to 3%. Of note, the BoE will update their forecasts at this week’s meeting amidst some fiscal uncertainty, as the new Prime Minister Rishi Sunak, alongside its  Chancellor Hunt, delayed the fiscal package until the end of November.

Therefore, the GBP/USD might keep range-bound as investors prepare for Jerome Powell’s remarks. If the Fed disregards forward guidance and sets the tone to the “meeting by meeting” path as the ECB, the US Dollar could appreciate, as some data Is yet to confirm the US economy is weakening. So the GBP/USD might test the 1.1400 figure in that scenario; otherwise, a re-test of the last week’s high at 1.1645 ahead of the 100-day Exponential Moving Average (EMA) is on the cards.

GBP/USD Key Technical Levels

• US dollar gains momentum ahead of the FOCM statement.
• Fed expected to raise interest rates by 75 bps.
• AUD/USD moving sideways, without a clear direction.

The AUD/USD is hovering around 0.6400 ahead of the FOMC statement. The pair pulled back during the American session after finding resistance at the 0.6430 area amid a stronger US dollar. Recently bottomed at 0.6396.

All up to the Fed

At 18:00 GMT the Federal Reserve will announce its decision on monetary policy. A 75 bps rate hike is expected. Analysts will look into the statement and the press conference (18:30 GMT) for clues about the future interest rate hike trajectory.

“Chair Powell is likely to leave open the possibility of another 75bp hike in December. We think the Fed will want to see service inflation moderating before reducing the pace of its tightening”, explained analysts at ANZ.

Earlier on Wednesday, ADP reported an increase in private payrolls during October by 239K, surpassing expectations. The number had a moderate impact on market. On Friday, the US official employment report is due.

What the Fed says will likely define the direction of AUD/USD. The pair is moving sideways with a neutral outlook in the short term. A slide below 0.6340, would increase the bearish pressure, exposing 0.6250/60. On the upside, above 0.6450, the aussie could gain momentum and the crucial resistance is located around 0.6530.

Technical levels

Economists at TD Securities discuss the Federal Reserve interest rate decision and its implications for EUR/USD and USD/JPY.

Hawkish (10%)

“Fed hikes rates by 75 bps and suggests that the economy remains too strong while inflation remains stubbornly elevated. Powell explicitly suggests that another 75 bps rate hike in December is possible as inflation remains stubbornly high. EUR/USD support ~0.9750. USD/JPY 150+ but risk of intervention.”

Base Case (65%)

“Fed hikes rates by 75 bps and statement shows no hint of deceleration given stubborn inflation data and strong labor market. Powell suggests that hikes may not continue at their present pace. However, he will reiterate that inflation remains too high and therefore the Fed needs to continue to raise rates for the foreseeable future. EUR/USD at 1.00, USD/JPY at 146.”

Dovish (25%)

“Statement highlights softening in economic data and improvement in consumer inflation expectations. Hints that front-loading may be finished despite the need to tighten further. Powell suggests that another 75 bps hike in December may not be necessary due to significant front-loading that has already taken place. Suggests that Fed is nearing policy peak and that inflation should begin to moderate relatively soon. EUR/USD at 1.01, USD/JPY at 145.”

See – Fed Preview: Forecasts from 13 major banks, the last big hike for now?

During October the Australian dollar depreciated further against the US dollar from 0.6443 to 0.6395. Economists at MUFG expect further downside pressure on the aussie but note that the AUD/USD could start to recover in the first quarter of 2023.

Near-term outlook for AUD remains negative

“Recession is now a given in Europe and with weak growth in China unlikely to change dramatically, the near-term outlook for AUD remains negative.”

“Assuming we have a global policy pause in Q1, AUD/USD can then begin to recover.”

Economists at Credit Suisse stick to their 5.00-5.50 Q4 target range for USD/BRL following Lula’s runoff vote victory.

Risks of asymmetric expectations around cabinet selections

“We stick to our 5.00-5.50 Q4 target range for USD/BRL.” 

“With the contested election risk premium seemingly priced out, we now see risks of asymmetric expectations around Lula cabinet selection. In absence of a broad turn in the USD outlook, this argues against a lasting USD/BRL break below 5.00 until more clarity on policy and personnel is reached.” 

• USD/JPY comes under renewed selling pressure amid broad-based USD weakness.
• The 200-period SMA on the 4-hour chart is likely to act as a pivotal point for bulls.
• A sustained move beyond 148.00 is needed to negate any near-term bearish outlook.

The USD/JPY pair meets with a fresh supply on Wednesday and continues losing ground through the early North American session. The second successive day of a negative move is sponsored by the emergence of fresh US dollar selling and drags spot prices below the 147.00 round-figure mark in the last hour.

Looking at the broader picture, the USD/JPY pair, so far, has managed to defend the 200-period SMA on the 4-hour chart. The said support is currently pegged near the 146.15-146.10 region and should act as a pivotal point. A convincing break below will set the stage for the resumption of the recent pullback from the 152.00 neighbourhood, or the highest level since August 1990 touched in October.

Spot prices might then accelerate the fall further towards last week's swing low, around the 145.00 psychological mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and make the USD/JPY pair vulnerable. The subsequent downfall could pave the way for a slide towards the 144.50 intermediate support before the pair eventually drops to the 144.00 round figure.

On the flip side, any attempted recovery might now confront resistance near the 147.60-147.65 region, above which the USD/JPY pair could aim back to reclaim the 148.00 mark. Some follow-through buying beyond the 148.25-148.30 hurdle will negate any near-term negative bias and lift spot prices towards the 148.80-148.85 supply zone. This is closely followed by the 149.00 round-figure mark.

A sustained strength beyond the latter will shift the near-term bias back in favour of bullish traders and lift the USD/JPY pair back towards the 150.00 psychological mark. The upward trajectory could get extended towards the next relevant resistance near the 150.40-150.50 region en route to the 151.00 round-figure mark.

USD/JPY 4-hour chart

Key levels to watch

Economist at UOB Group Lee Sue Ann sees the BoE rising the policy rate to 4.25% by end of 2022.

Key Takeaways

“In a dramatic policy U-turn, the BOE resumed gilt purchases end-Sep. Meanwhile, Rishi Sunak’s appointment as PM was greeted by a relief rally in UK gilts. Yet, the BOE has little choice now but to hike more aggressively.”

“We are expecting interest rates in the UK to be higher for longer, now looking for the BOE to increase rates to 4.25% by year-end.”

• EUR/USD reverses two straight sessions with losses around 0.9900.
• The resumption of the decline should not be discarded yet.

EUR/USD rebounds to the 0.9915 region, where some initial resistance has so far turned up on Wednesday.

The pair’s inability to extend the rebound should leave it vulnerable to further weakness in the short term, with the next support of relevance emerging at the weekly low at 0.9704 (October 21).

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0481.

EUR/USD daily chart

• USD/CAD remains depressed through the early North American session amid softer USD.
• An intraday pullback in oil prices undermines the loonie and helps limit any further losses.
• Investors also prefer to move to the sidelines ahead of the crucial FOMC policy decision.

The USD/CAD pair fades an early North American session spike to the 1.3630 area and retreats to the lower end of its daily range in the last hour. The pair is currently trading around the 1.3600 mark amid a modest US dollar weakness, though the downside remains cushioned ahead of the key central bank event risk.

The Fed is scheduled to announce its monetary policy decision later this Wednesday and is anticipated to hike interest rates by 75 bps for the fourth time in a row. In the meantime, speculations that the US central bank will soften its hawkish stance, amid signs of a slowdown in the US economy, continue to weigh on the USD and act as a headwind for the USD/CAD pair.

The USD bulls remain on the defensive and fail to gain any respite from the upbeat ADP report, which showed that the US private-sector employers added 239K jobs in October against the 193K expected. That said, an intraday pullback in crude oil prices undermines the commodity-linked loonie and turns out to be a key factor offering some support to the major, at least for now.

Investors remain worried that a deeper global economic downturn will dent fuel demand. This, along with a fresh COVID-19 outbreak in China, fails to assist crude oil prices to find acceptance above the $89.00/barrel mark. In fact, China's National Health Commission (NHC) reaffirms that the country will stick to its stringent zero-COVID policy to control epidemics.

Traders also seem to prefer to wait for the outcome of a two-day FOMC monetary policy meeting. The accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference will be closely scrutinized for clues about the future rate-hike path, which will influence the USD and provide a fresh directional impetus to the USD/CAD pair.

Technical levels to watch

Gold has reinforced its “double top”. Strategists at Credit Suisse expect further weakness.

Convincing weekly close above $1,687 needed to ease the pressure

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

“Only a convincing weekly close above the 55-day average at $1,687 would ease the pressure on the precious metal, with next resistance then seen at the even more important 200-day average, currently at $1,808, which we would expect to cap at the very latest.”

• DXY loses the grip and trades close to the 111.00 region.
• The resumption of the bullish stance should target 114.00.

DXY adds to Tuesday’s drop and threatens to challenge the key 111.00 neighbourhood ahead of the FOMC event on Wednesday.

Despite the current knee-jerk, the near-term bullish prospect in the dollar remains unchanged while above the 9-month support line, today near 108.80. The proximity of the 100-day SMA also reinforces this area of contention.

That said, the immediate target emerges at the 114.00 zone ahead of the 2022 high at 114.78 (September 28).

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 104.30.

DXY daily chart

• Gold edges higher for the second straight day amid modest USD weakness.
• Hopes for a less hawkish Fed continue to exert pressure on the greenback.
• The upbeat US ADP report fails to impress the USD bulls or provide impetus.
• The market focus remains on the crucial FOMC monetary policy decision.

Gold gains some positive traction for the second successive day on Wednesday and maintains its bid tone through the early North American session. The XAU/USD is currently placed near the top end of its daily range, just above the $1,655 level, as traders keenly await the highly-anticipated FOMC monetary policy decision.

In the meantime, expectations for a less hawkish Fed prompt fresh US dollar selling, which, in turn, is seen offering some support to the dollar-denominated gold. Market participants expect that the US central bank might slow the pace of its rate-hiking cycle amid the deteriorating outlook for the US economy. Even the upbeat ADP report, showing that private-sector employers added 239K jobs in October against 193K expected, fails to boot the USD.

Despite the supporting factor, the XAU/USD lacks bullish conviction ahead of the crucial central bank event risk. The Fed will announce its policy decision later during the US session and is expected to deliver another supersized 75 bps rate hike for the fourth time in as many meetings. The market focus, however, will remain glued to the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference.

Investors will look for fresh clues about the pace of future policy tightening by the Fed, which will play a key role in influencing the USD price dynamics. This, in turn, will help determine the next leg of a directional move for the non-yielding gold. The current market pricing indicates over a 50% chance of a 50 bps Fed rate hike move in December. A more hawkish signal will set the stage for the resumption of the recent bearish trend for the XAU/USD.

Technical levels to watch

The market expects the FOMC to give some clear guidance that it is ready to ease the pace of monetary tightening. Nonetheless, economists at MUFG Bank are not so sure Chair Powell will be willing to provide explicit guidance.

Powell may not meet market expectations

“But will Fed Chair Powell be willing to provide explicit guidance? We think that will be difficult to do. While the FOMC may be willing to suggest a slowdown in the pace of tightening, there is likely to be limited guidance on a pause and the message is likely to be the Fed needs to keep going until there is clearer evidence of actual underlying inflation pressures coming down.”

“With the labour market showing limited signs of softening (job openings rebounded in September), the Fed may be compelled to disappoint those expecting a dovish tilt this evening which should help provide the dollar with renewed support.”

See – Fed Preview: Forecasts from 13 major banks, the last big hike for now?

Economist at UOB Group Enrico Tanuwidjaja comments on the recent release of inflation figures in Indonesia.

Key Takeaways

“Indonesia’s headline inflation rate decelerated to 5.7% y/y in Oct from 6% in Sep (market expectation was also at 6% for Oct).”

“Adjustment of higher fuel prices has and will continue to result in higher transportation prices and subsequently, the second-round impact on broader consumption basket such as food and other services. This will mean that inflation would stay elevated in the months ahead.”

“However, we revise our 2022 average inflation forecast slightly lower to 4.4% from 4.9% previously on account of a slower secondary impact from fuel price adjustments onto other parts of the CPI basket. We continue to expect inflation to grind slightly lower to average 4% next year. Nevertheless, on the back of still-elevated inflation and its expectations, we keep our forecast for BI to continue hiking to reach 5.75% in 1Q23.”

US Dollar Index (DXY) adds to Tuesday’s retracement and returns to the low-111.00s. Only a dip under 109.30/00 would open up room for further losses, economists at Société Générale report.

July peak at 109.30/109.00 is crucial support

“Daily RSI is still defending the lower end of its bullish territory denoting prevalence of upward momentum.”

“July peak at 109.30/109.00 is a crucial support near term; only a break below would mean a deeper downtrend.”

“A rebound is not ruled out towards 112.80 and October high of 113.50/113.90. Reclaiming this is essential to affirm next leg of uptrend.”

• Employment in US private sector rose more than expected in October.
• US Dollar Index stays in negative territory below 111.50.

The data published by Automatic Data Processing (ADP) showed on Wednesday that private sector employment in the US rose by 239,000 in October. This reading came in better than the market expectation of 193,000. September print of 208,000 got revised down to 192,000. 

Commenting on the data, "this is a really strong number given the maturity of the economic recovery but the hiring was not broadbased,” said Nela Richardson, chief economist, ADP.

"Goods producers, which are sensitive to interest rates, are pulling back, and job changers are commanding smaller pay gains," Richardson added. "While we’re seeing early signs of Fed-driven demand destruction, it’s affecting only certain sectors of the labor market."

Market reaction

The US Dollar Index showed no immediate reaction to this data and was last seen losing 0.22% on the day at 111.30.

USD/JPY is “only” around 1.5% stronger than it was at its peak just shy of 146.00 on 22 Sep when intervention started. Economists at Credit Suisse expect the pair to move above 150.

Bank of Japan steps up intervention pace in October 

“Data from Japan’s MOF released on 31 Oct showed that Japan spent around JPY 6.3 trillion ($42.4bio) on FX intervention in October, compared to JPY 2.8 trillion ($19.0bio) in September. Our view has consistently been that such a strategy cannot generate persistent JPY strength and could also prove both costly in terms of reserves drawdown and require a longer period of intervention than Japan ideally wants. But for now, our long-held USD/JPY 150.00 target still seems appropriate.”

“Japanese media suggests the main umbrella union Rengo will ask for wage hikes of 5% next year, up from the 4% level it wanted for this year (2% was actually achieved). With longer-term inflation expectations rising too, it seems Kuroda still sees this as a unique opportunity to reset Japan’s inflation mindset and is unwilling to let go. We suspect that over time this will cause USD/JPY to trade above 150.00 sustainably, and we think dips in USD/JPY to recent lows around 145.25 offer good entry points for longer-term players.”

• EUR/JPY adds to Tuesday’s pullback below he 146.00 mark.
• Further side-lined trading looks favoured in the near term.

EUR/JPY comes under further pressure and breaks below the 146.00 support on Wednesday.

Looking at the current price action, the cross could attempt some near-term consolidation ahead of a potential resumption of the uptrend. Against that, the immediate up barrier remains 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 137.53, the constructive outlook is expected to remain unchanged.

EUR/JPY daily chart

Gold price is currently trading at $1,650, not far from its yearly low. Federal Reserve’s next step in interest rates will determine the direction of the yellow metal, strategists at Commerzbank report.

Gold demand soars in Q3

“The expectations concerning the future course of US monetary policy and the associated US dollar trend will presumably dictate the direction for the gold price in the short-term.”

“The WGC has reported that gold demand in the third quarter was unexpectedly up year-on-year. The key factor in this was the record-high purchases by central banks and other institutions. Jewellery demand and demand for bars and coins were also significantly up last year, however. This more than offset the high outflows from ETFs. Nonetheless, the latter remains a considerable pressure factor on the gold market: outflows continued in October.”

The Federal Reserve should hike by 75 bps today. Economists at ING suspect that lingering data-dependency may put off pivot speculation to the next inflation report, leaving risk assets vulnerable and the dollar bid.

USD Index set to close the week above the 112.00 handle

“We are inclined to think that Chair Jay Powell will need to drop a substantial chunk of his data-dependent approach, and emphasise the risks of recession over the risks of inflation, in order to drive a substantial dollar downtrend. However, it does seem too early for this, and a risky move given the lack of evidence that inflation is coming under control.”

“With markets still left in limbo, we suspect the balance of risks for the dollar is skewed to the upside today. After all, recent price action has pointed to interest in rebuilding long-dollar positions after the late-October correction, a dynamic that remains supported by a heavily inverted yield curve, instability in the equity market and lack of alternatives to the dollar in FX given macroeconomic uncertainty (especially in Europe and China).”

“While surely a close call, we see DXY closing the week above the 112.00 handle, and moving back to the 113.00+ highs in the coming weeks.”

See – Fed Preview: Forecasts from 13 major banks, the last big hike for now?

UOB Group’s Economist Lee Sue Ann assesses the latest RBA meeting (November 1).

Key Takeaways

“The Reserve Bank of Australia (RBA) decided to increase the official cash rate (OCR) by 25bps to 2.85%. It also increased the interest rate on Exchange Settlement balances by 25bps to 2.75%.”

“The next meeting is on 6 Dec, and that will be the final meeting of 2022. We are penciling in another 25bps hike, which will take the OCR to 3.10%. Thereafter, we look for a pause in the current rate hiking cycle.”

“Nonetheless, the RBA has guided that further economic data will be closely watched. In this regard, 3Q22 wage growth data on 15 Nov will be eyed. The RBA will also be releasing its Statement of Monetary Policy (SoMP) coming Fri (4 Nov), which will offer more insights.”

US voters will go to the polls for the midterm election on 8 November. Markets tend to react positively to the checks and balances associated with a Congress that is not completely aligned with the president, economists at ANZ Bank note.

Bond market would welcome a divided Congress

“The USD and equity markets tend to finish the month higher after midterms.”

“Markets appear to like the checks and balances that are associated with a split between Congress and the president. This would be pertinent this time, given concerns of more policy-induced inflation pressures that would come from a D-controlled Congress.”

“The bond market would welcome a divided Congress owing to concerns over further policy-induced inflation pressures that would come from a Democrat-controlled Congress.”

GBP/USD continues to fluctuate at around 1.15. But a USD-positive FOMC and a dovish surprise by the Bank of England (BoE) could drag cable down to 1.13, economists at ING report.

EUR/GBP may climb back into the 0.8650-0.8700 area

“We continue to highlight the risk of a dovish surprise (50 bps hike) by the BoE tomorrow. The combination of a USD-positive FOMC and a GBP-negative BoE means cable could test 1.1300 by the end of the week.”

“EUR/GBP may climb back into the 0.8650-0.8700 area in the coming days.”

US ADP jobs report overview

Wednesday's US economic docket features the release of the ADP report on private-sector employment, due for release at 12:15 GMT. Estimates point to an addition of 193K private-sector jobs in October, down from 208K in the previous month. The data could drive expectations for the official jobs report, popularly known as NFP on Friday, and any positive number would reaffirm the robust US labour market.

How could the data affect EUR/USD?

A stronger-than-expected report could lend some support to the US dollar and prompt fresh selling around the EUR/USD pair. Conversely, any disappointment will add to worries about a deeper economic downturn and weigh on investors' sentiment, which, in turn, should act as a tailwind for the safe-haven buck. That said, the immediate market reaction is more likely to remain limited as the focus remains glued to the highly-anticipated FOMC policy decision, scheduled to be announced later during the US session.

In the meantime, Eren Sengezer, Editor at FXStreet, offers a brief technical overview of the EUR/USD pair and outlines important technical levels: “The Relative Strength Index (RSI) indicator on the four-hour chart moves sideways near 50, highlighting EUR/USD's indecisiveness. On the downside, 0.9880 (Fibonacci 61.8% retracement of the latest uptrend) aligns as initial support before 0.9850 (100-period SMA) and 0.9820 (200-period SMA).  A daily close below that last level could be seen as a significant bearish development and attract bears.”

“0.9900 (psychological level) aligns as interim resistance before 0.9920 (Fibonacci 50% retracement) and 0.9960 (Fibonacci 38.2% retracement). In case the pair manages to clear those hurdles on a dovish Fed surprise, it could, once again, target 1.0000,” Eren adds further.

Key Notes

  •  EUR/USD Forecast: Parity could come back into play on a dovish Fed surprise

  •  EUR/USD: Break below 0.98 to unlock further downside room – ING

  •  EUR/USD to dip into the low-0.90s in the coming months – UBS

About the US ADP jobs report

The Employment Change released by the Automatic Data Processing, Inc, Inc is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. So a high reading is traditionally seen as positive, or bullish for the USD, while a low reading is seen as negative, or bearish.

Economist at UOB Group Lee Sue Ann reviews the latest ECB interest rate decision (October 27).

Key Takeaways

“The European Central Bank (ECB) decided to raise its three key interest rates by 75bps, and ECB President Christine Lagarde stated that ‘with this third major policy rate increase in a row, the Governing Council has made substantial progress in withdrawing monetary policy accommodation’, adding that it ‘expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target’ but ‘will base the future policy rate path on the evolving outlook for inflation and the economy, following its meeting-by-meeting approach’.”

“Meanwhile, inflation in the Eurozone jumped to an all-time high, while the economy weakened. According to preliminary estimates, GDP rose 0.2% q/q, weaker than a reading of 0.8% q/q in 2Q22. From a year ago, GDP increased by 2.1% y/y in 3Q22, compared to a reading of 4.1% y/y in 2Q22. Meanwhile, CPI came in higher than expected at 10.7% y/y in Oct, extending its climb from 10.0% y/y in Sep. Core CPI came in at 5.0% y/y, also higher from the prior month’s reading of 4.8% y/y.”

“We now see the ECB hiking by a cumulative 75bps (50bps at its next and final meeting for this year on 15 Dec, followed by 25bps at its 2 Feb meeting) before pausing. This will bring the refinancing rate to 2.50% and the deposit rate to 2.00% by year-end; and to 2.75% and 2.25%, respectively, by end-1Q23.”

Norges Bank will announce a new rate decision on Thursday, November 3 at 09:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks regarding the upcoming central bank's Interest Rate Decision. The Governor is scheduled to speak some 30 minutes after the rate decision announcement. 

Norges Bank is expected to hike rates by 25 basis points. The next Monetary Policy Report with new forecasts and analyses will come out in December.

Nordea

“We believe the key rate will be raised to 2.5% from 2.25%, in line with the signaling from the central bank at the previous meeting in September. While we don’t expect a 50 bps rate hike in November and hold our view for 25 bps rate hike in December, we cannot totally exclude the probability of a 50 bps hike next month. If unemployment continues to stay at very low levels, core inflation continues to surprise on the upside and the NOK weakens significantly, Norges Bank might feel the need to act more forcefully.”

Danske Bank

“We expect Norges Bank to stick to its plan of raising the policy rate by 25 bps. While we would not completely rule out a 50 bps hike, we consider the chances of this to be down around 20%. We also expect the bank to signal a further rate increase in December, again of 25 bps. On the other hand, we are now looking at quite a sharp economic slowdown, with unemployment also now beginning to climb, and so we expect Norges Bank to go on hold after the December meeting.”

ING

“Having opted for multiple 50 bps rate hikes through the summer, Norway’s central bank hinted it could slow the pace back to 25 bps for its final few moves. The question is whether it instead decides to continue to front-load tightening, and we think it will. Higher overseas rate expectations and another massive upside surprise on inflation suggest we should expect another 50 bps hike on Thursday. However that would take the central bank close to the end of its hiking cycle, and we are pencilling in one (or perhaps two) more 25 bps moves before it pauses.”

TDS

“We think Norges Bank will follow through with its guidance from the last meeting and deliver a 25 bps hike, despite the substantial upside surprise to the last inflation print and improvements in growth. Instead, we expect the Bank to continue to signal that it will respond to the incoming data, and keep the door open to a 50 bps hike in December.”

Swedbank 

“Our expectation is for Norges Bank to end its hiking campaign at 3.00% by this year’s end, and to refrain from hiking rates next year. We expect a 50 bps hike at the meeting in November and 25 bps in December. We expect Norges Bank to start cutting rates in September 2023.”

After the 4% gain this past week, the S&P 500 is now up 9% from the 12 October low. Nonetheless, economists at UBS do not expect a sustainable rally in equities in view of the risks. 

Pressure on corporate profits will only increase in the coming quarters

“Despite some Fed officials commenting on the potential for a slower pace of rate hikes, we think it is too early to expect a Fed pivot. Inflation remains too high, we think the Fed sees its own credibility at stake, and we expect it to keep hiking aggressively until the official data show inflation is receding. Even when the Fed finally does stop raising rates, it’s worth remembering that monetary policy is likely to remain at restrictive levels for some time.”

“Year-over-year 3Q S&P 500 earnings per share (EPS) growth is tracking below our original 3-5% expectation. With 70% of the S&P 500 market cap having reported earnings, it looks likely that growth will be in the 1-3% range.”

“We believe the pressure on corporate profits will only increase in the coming quarters. As a result, we look for S&P 500 EPS to fall 4% next year to $215. In a full-blown recession, EPS could fall to around USD 200. This compares to bottom-up consensus estimates of $235.”

• AUD/USD attracts fresh buying on Wednesday amid a modest USD weakness.
• Expectations for a less hawkish continue to exert pressure on the greenback.
• The downside seems limited as traders keenly await the crucial FOMC decision.

The AUD/USD pair regains some positive traction on Wednesday and maintains its bid tone through the first half of the European session. The pair is currently placed near the top end of its daily trading range, around the 0.6425-0.6430 region, and remains at the mercy of the US dollar price dynamics.

Speculations that the Federal Reserve will soften its hawkish stance amid signs of a slowdown in the US economy keep the USD bulls on the defensive. The Australian dollar, meanwhile, is underpinned by the fact that the Reserve Bank of Australia vowed to keep raising interest rates to contain stubbornly high inflation, trending at 32-year highs. The combination of said factors acts as a tailwind for the AUD/USD pair, though the intraday uptick lacks bullish conviction.

Traders seem reluctant to place aggressive directional bets ahead of the key central bank event risk - the highly-anticipated FOMC policy decision - scheduled to be announced later this Wednesday. The US central bank is widely anticipated to raise rates by 75 bp for the fourth straight time. Investors, however, will look to the accompanying policy statement and Fed Chair Jerome Powell's remarks at the post-meeting presser for clues about the future rate hike path.

In the meantime, worries about the potential economic headwinds stemming from China's strict zero-COVID policy - amid the resurgence of new cases - might cap the upside for the AUD/USD pair. Furthermore, the US ADP report on private-sector employment might also do little to provide any impetus, warranting some caution for bullish traders. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further appreciating move.

Technical levels to watch

It’s all about the FOMC announcement today for EUR/USD. Economists at ING note that the pair could suffer further losses on a break under the 0.98 level.

Eyeing 0.9800

“We see downside risks for the pair into the weekend.” 

“The 0.9800 level may prove quite pivotal, as this was an important anchor before last week’s upside correction.”

“A break below 0.9800 before the end of the week would likely imply markets defaulting to the pre-correction levels, and signal a return to a more structural bearish tone on the pair, which could unlock further downside room.”

• EUR/USD leaves behind the recent weakness and retests 0.9900.
• The dollar appears offered ahead of the FOMC event later in the session.
• Germany Unemployment Rate held steady at 5.5% in October.

Buyers seem to have returned to the European currency and help EUR/USD to regain the 0.9900 neighbourhood on Wednesday.

EUR/USD looks to Fed, data

EUR/USD advances moderately and sets aside part of the recent drop, managing at the same time to reclaim the 0.9900 region amidst the renewed selling pressure hitting the dollar.

In fact, the pair flirts with the key 9-month line near 0.9900, above which the pair’s downside pressure is expected to alleviate and therefore allow for extra gains in the relatively short-term horizon.

The recovery in spot comes amidst the generalized lack of traction in US and German yields, all ahead of the key FOMC event later in the European evening. It is worth recalling that the Fed is expected to hike rates by 75 bps, while Powell’s press conference could unveil details regarding a potential pivot in the Fed’s policy in the next months.

In the domestic calendar, the German trade surplus widened to €3.7B in September, while the labour market report for the month of October showed the Unemployment Change increase by 8K persons and the Unemployment Rate stay unchanged at 5.5%. Additionally, final figures saw the Manufacturing PMI ease to 45.1 during last month and deflate to 46.4 when it comes to the broader Euroland.

Across the pond, weekly Mortgage Applications are due ahead of the ADP report.

What to look for around EUR

EUR/USD manages to attract some dip buyers and spark a corrective bounce to the 0.9900 zone midweek, all accompanied by the fresh selling mood around the dollar.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The resurgence of speculation around a potential Fed’s pivot seems to have removed some strength from the latter, however.

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 fragile sentiment around the euro in the longer run.

Key events in the euro area this week: Germany Balance of Trade, Unemployment Change, Unemployment Rate, Final Manufacturing PMI, EMU Final Manufacturing PMI (Wednesday) – EMU Unemployment Rate (Thursday) – EMU/Germany Final Services PMI, ECB Lagarde (Friday).

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

EUR/USD levels to watch

So far, the pair is gaining 0.25% at 0.9898 and faces the next up barrier at 1.0093 (monthly high October 27) followed by 1.0197 (monthly high September 12) and finally 1.0368 (monthly high August 10). On the downside, a breach of 0.9871 (weekly low November 1) would target 0.9704 (weekly low October 21) en route to 0.9631 (monthly low October 13).

Key to near-term GBP direction is Thursday’s Bank of England (BoE) rate decision. If it reverts to type with only a 50 bps rate hike, the pound has a long way to fall, economists at Credit Suisse report.

Cautious GBP stance into the BoE meeting

“It’s still possible that the BoE now reverts to type, arguing that it prefers to remain conservative until it has a clear sense of what the new fiscal stance will be. If this results in only a 50 bps rate hike, GBP has a long way to fall, with a move to 1.1200 possible on the day.”

“Even if the BoE does deliver a 75 bps hike, we retain a suspicion that it will offset that with a dovish tone in terms of the scale of future hikes. If so, we can imagine the terminal rate moving lower towards 4.50%, which again would leave GBP with insufficient rate premium to be attractive given the UK’s fragile balance of payments outlook.”

• USD/JPY meets with a fresh supply on Wednesday amid a modest USD weakness.
• Speculations for a less hawkish Fed continue to act as a headwind for the greenback.
• The Fed-BoJ policy divergence should limit losses ahead of the FOMC policy decision.

The USD/JPY pair comes under some renewed selling pressure on Wednesday and drops back closer to the overnight swing low, around the 147.00 mark during the first half of the European session.

Speculations that the Federal Reserve will adopt a less hawkish stance amid signs of a slowdown in the US economy keeps the US dollar bulls on the defensive. The Japanese yen, on the other hand, draws support from expectations that the government might step in again to soften any further steep fall in the domestic currency. The combination of factors exerts some downward pressure on the USD/JPY pair, though any meaningful corrective slide still seems elusive.

Traders might refrain from placing aggressive bets and prefer to move to the sidelines ahead of the highly-anticipated FOMC policy decision, scheduled to be announced later during the US session. The Fed is expected to deliver another supersized 75 bps rate hike for the fourth time in as many meetings. The focus, however, will remain glued to the accompanying policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference.

Investors will look for clues about the pace of future rate hikes, which will influence the near-term USD price dynamics and determine the near-term trajectory for the USD/JPY pair. Nevertheless, the current market pricing still indicates over a 50% chance of a 50 bps Fed rate hike move in December. In contrast, the Bank of Japan has shown no inclination to hike interest rates and reiterated that it will continue to guide the 10-year bond yield at 0%.

This marks a big divergence between the two central banks and a further widening of the US-Japan rate differential, which should limit deeper losses for the USD/JPY pair. Even from a technical perspective, spot prices, so far, have managed to defend the 200-period SMA on the 4-hour chart. This further makes it prudent to wait for strong follow-through selling before positioning for an extension of the recent pullback from the highest level since August 1990.

Heading into the key central bank even risks, traders might take cues from the release of the US ADP report on private-sector employment. The data, however,  might do little to provide any meaningful impetus to the USD/JPY pair.

Technical levels to watch

Further upside in USD/CNH is unlikely to surpass the 7.3745 level in the next weeks, noted Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “Yesterday, we held the view that ‘The rapid rise in USD has room to extend but in view of the overbought conditions, a sustained rise above 7.3500 is unlikely’. While USD subsequently rose to 7.3550, it staged a surprisingly sharp drop to 7.2600 before rebounding to close at 7.3034 (-0.46%). The choppy movement is likely part of a broad sideways range and we expect USD to trade within a range of 7.2500/7.3400 today.”

Next 1-3 weeks: “We highlighted yesterday (01 Nov, spot at 7.3335) that upward momentum has improved and USD could rise above 7.3500 but last week’s high near 7.3745 is unlikely to come into view for now. USD subsequently rose to 7.3550 before dropping back sharply. While upward momentum has not improved, as long as 7.2400 (no change in ‘strong support’ level from yesterday) is not breached, there is still chance for USD to head higher. That said, a break of 7.3745 appears unlikely.”

The recent pullback in the USD should not be seen as the beginning of a trend reversal. In the view of economists at UBS, EUR/USD is set to plummet to the low 0.90s before bouncing to 0.96 at the end of March 2023.

Dollar strength to persist 

“We think it is still too early to call for a peak in the USD. US inflation remains far too high, the Fed sees its own credibility at stake, and we think it will keep hiking aggressively until official measures of inflation take a breather.” 

“We see the greenback continuing to appreciate in the fourth quarter before reaching a top in the first quarter of next year, which is when we expect investors to start pricing in an end to the Fed rate hike cycle.”

“We see EUR/USD dipping into the lower 90s in the coming months before rebounding to 0.96 at the end of March 2023 if, as we expect, the Fed signals a pause.”

• The index loses further momentum and approaches 111.00.
• US ADP report next of relevance in the docket.
• The Fed is expected to hike rates by 75 bps later on Wednesday.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main rival currencies, adds to Tuesday’s retracement and returns to the low-111.00s midweek.

USD Index focuses on FOMC

The index remains on the defensive and threatens to retest the 111.00 neighbourhood amidst the moderate recovery in the risk-associated universe on Wednesday. In addition, the so far mixed performance in US yields across the curve also collaborates with the downbeat tone in the buck.

Later in the session, weekly MBA Mortgage Applications are due in the first turn seconded by the ADP report for the month of October, all ahead of the FOMC event due later in the NA session.

On the latter, the Fed is widely anticipated to raise the FFTR by 75 bps, although extra attention is expected to be on the subsequent press conference by Chair Powell, where a potential pivot could be in the centre of the debate.

What to look for around USD

The dollar comes under marked downside pressure and approaches the 111.00 zone ahead of the key FOMC gathering due later on Wednesday.

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

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

Key events in the US this week: MBA Mortgage Applications, ADP Employment Change, FOMC Interest Rate Decision, Chief Powell press conference (Wednesday) – Balance of Trade, Initial Jobless Claims, Final Services PMI, ISM Non-Manufacturing (Thursday) – Nonfarm Payrolls, Unemployment Rate (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 0.24% at 111.27 and the breakdown of 109.53 (monthly low October 27) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13). On the upside, the next hurdle comes at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).

• A combination of factors prompts fresh selling around USD/CAD on Wednesday.
• Rising oil prices underpin the loonie and exert pressure amid a modest USD slide.
• The downside seems cushioned as investors keenly await the key FOMC decision.

The USD/CAD pair struggles to capitalize on the previous day's solid recovery of around 140 pips from the 1.3530 area and meets with a fresh supply on Wednesday. The intraday downtick drags spot prices back below the 1.3600 mark and is sponsored by a combination of factors.

 Crude oil prices edge higher for the second successive day in the wake of the overnight data showing an unexpected drop in US crude inventories, which, in turn, underpins the commodity-linked loonie. This, along with the emergence of fresh US dollar selling, is seen exerting downward pressure on the USD/CAD pair.

Speculations that the Fed will soften its hawkish stance amid signs of a slowdown in the US economy keep the USD bulls on the defensive. The downside, however, remains cushioned, at least for the time being, as traders might refrain from placing fresh directional bets and prefer to wait for the outcome of a two-day FOMC meeting.

The Fed is scheduled to announce its policy decision later during the US session and is expected to hike interest rates by 75 bps rate hike for the fourth time in as many meetings. Investors, meanwhile, will focus on the accompanying policy statement and the post-meeting press conference for clues about the future rate hike path.

This, in turn, will play a key role in influencing the USD price dynamics and help determine the next leg of a directional move for the USD/CAD pair. In the meantime, the US ADP report on private-sector employment might do little to provide any impetus, warranting some caution before positioning for any further intraday losses.

Technical levels to watch

Further side-lined trading appears on the cards for USD/JPY in the very near term, likely within 145.50 and 149.60, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “Our view for USD to continue to rise yesterday was incorrect as it traded choppily between 146.98 and 148.82 before closing at 148.28. Further choppy price actions appear likely even though the slightly softened underlying tone suggests a lower range of 146.60/148.60.”

Next 1-3 weeks: “On Monday (31 Oct, spot at 148.00), we highlighted that USD appears to have moved into a consolidation phase and is likely to trade between 145.50 and 149.60 for the time being. There is no change in our view for now.”

This year’s weakness in the JPY vs. the USD is well documented. Economists at Rabobank still expect the USD/JPY to test the 150 level in the next weeks.

USD unlikely to give up a significant amount of strength for some months

“The combination of the BoJ’s accommodative policies and the terms of trade shock have been weighing heavily on the JPY this year and are set to continue to do so.”

“It is unlikely that the MoF has been expecting to be able to turn around the value of the USD/JPY exchange rate with its FX interventions. More likely its actions are probably aimed at scaring off speculators and slowing the pace of JPY falls.” 

“Market speculation regarding the possibility of a Fed pivot will be welcomed by Japanese policymakers insofar as it has impacted the robustness of the USD. That said, given current headwinds to world growth, we don’t expect the greenback to give up a significant amount of strength for some months.” 

“We continue see risk of further tests of the USD/JPY 150 level on a 1-to-3-month view.”

• German Unemployment Rate remained unchanged at 5.5% in October.
• EUR/USD holds gains at around 0.9900 after the mixed German data.

more to come ...

Open in natural gas futures markets extended the uptrend for yet another session on Tuesday, now by around 7.6K contracts according to preliminary readings from CME Group. Volume, in the same direction, rose for the second straight day, now by around 18.7K contracts.

Natural Gas could revisit the October low at $5.20

Tuesday’s marked decline in prices of the natural gas was against the backdrop of increasing open interest and volume, hinting at the idea that further losses could lie ahead in the very near term. In such a scenario, the next support of note is seen at the October low near the $5.20 level per MMBtu (October 24).

Today, the Federal Reserve is widely expected to raise its policy rate by 75 basis points (bps). Anything shy of that outcome would be a massive USD negative, economists at Credit Suisse report.

The more reasons the Fed states as possible reasons to slow rate hikes, the worse that is for USD

“The market is already fully expecting a 75 bps rate, so anything shy of that outcome would be a massive USD negative.” 

“Even if it delivers 75 bps, the more variables the Fed puts on the table as worthy of concern (e.g., international conditions) and the more reasons the Fed states as possible reasons to slow rate hikes, the worse that is for the greenback. In the extreme case, we can see this leading to a fresh test of October EUR/USD highs near 1.0100, though we would anticipate the move to peter out given the imminent data risk linked to Friday’s Oct employment data. ”

“A USD-positive FOMC surprise would require the Fed to send a message that it is entirely focused on taming current high inflation and sees no benefit in slowing its hiking pace yet. Under this scenario, we can imagine EUR/USD targeting 0.9750 at a stretch, with downside beyond that held in check by the proximity of the Oct employment data on Friday.”

See – Fed Preview: Forecasts from 13 major banks, the last big hike for now?

According to the DIHK business survey published on Wednesday, German companies are bracing for another economic slump in the next 12 months.

Additional takeaways

Market reaction

The Euro is unfazed by the dour German economic outlook, as EUR/USD continues to benefit from the extended decline in the US dollar ahead of the Fed rate hike decision. The pair was last seen trading at 0.9900, up 0.28% on a daily basis.  

• GBP/USD edges higher on Wednesday amid softer USD, though lacks follow-through.
• The recent pullback constitutes the formation of a descending channel on hourly charts.
• Traders seem reluctant to place aggressive bets ahead of the central bank event risks.

The GBP/USD pair attracts some dip-buying on Wednesday and moves away from a multi-day low touched the previous day, though lacks follow-through. The pair maintains its bid tone through the early European session and is currently placed just above the 1.1500 psychological mark.

Speculations that the Fed will soften its hawkish stance amid signs of a slowdown in the US economy keep the US dollar bulls on the defensive and offer some support to the GBP/USD pair. Traders, however, seem reluctant to place aggressive bets and prefer to move to the sidelines ahead of the key central bank event risks. The Fed is scheduled to announce its policy decision later this Wednesday, which will be followed by the Bank of England meeting on Thursday. Investors will be looking for fresh clues about the pace of the rate-hiking cycle, which, in turn, should help determine the next leg of a directional move for the GBP/USD pair.

Looking at the broader picture, the recent corrective pullback from the vicinity of mid-1.1600s, or a six-week high, constitutes the formation of a descending trend channel on hourly charts. The top end of the said channel, currently around the 1.1545-1.1550 area, coincides with the 100-hour SMA and should act as a pivotal point. A sustained strength beyond will be seen as a fresh trigger for bullish traders and allow the GBP/USD pair to reclaim the 1.1600 round-figure mark. The momentum could get extended towards the 1.1645 area. Some follow-through buying would set the stage for an extension of the recent strong recovery from an all-time low.

On the flip side, the 200-hour SMA, around the 1.1460 area, could protect the immediate downside ahead of the descending channel support, near the 1.1410-1.1400 region. A convincing break below will negate any near-term positive bias and make the GBP/USD pair vulnerable to accelerate the slide towards the 1.1355-1.1350 zone. The next relevant support is pegged near the 1.1300 round-figure mark before spot prices eventually drop to the 1.1225-1.1220 region en route to the 1.1200 level.

GBP/USD 1-hour chart

Key levels to watch

Economists at the Bank of America Global Research expect the FOMC policy decision to support the US dollar. Therefore, they forecast EUR/USD at 0.95 by the end of the year.

Fed's announcement to continue to be supportive for the USD

“We expect the Fed to raise its target range for the federal funds rate by 75 bps in November to 3.75-4.0%. In our view, the November FOC meeting is not about the November policy rate decision. Instead, the meeting is about future policy rate guidance and what to expect in December and beyond.”

“We expect Chair Powell to open the door to a downshift in December by mentioning the debate that took place in his press conference. However, he will likely maintain optionality by emphasizing that the Fed will remain data dependent and that no decision was made.” 

"We look for the Federal Reserve's announcement to continue to be supportive for the USD in the near-term.” 

“With the USD at around 40-year highs, we expect EUR/USD to end the year at 0.95 and linger around such levels into the start of next year.”

See – Fed Preview: Forecasts from 13 major banks, the last big hike for now?

Markets stay relatively quiet ahead of the Federal Reserve interest rate decision. But the more important question for markets is whether the Fed might signal a downshift in the pace of hikes at subsequent meetings. Smaller rate steps will hurt the US dollar, economists at Commerzbank report.

Market has to be more interested in the scope than the timing of the USD carry

“If tomorrow’s media headlines say: ‘Fed signals smaller rate steps’ that will be USD-negative. If on the other hand, headlines say ‘Fed signals key rates will rise to 6%’ that would be USD-positive. Because in the end, the FX market has to be more interested in the scope than the timing of the USD carry.”

“As it is difficult to get the communication right, I have a feeling that the USD-negative scenario is more likely. But I am aware that probability statements are not terribly helpful for you.”

See – Fed Preview: Forecasts from 13 major banks, the last big hike for now?

Considering advanced prints from CME Group for crude oil futures markets, traders extended the uptrend in open interest and added around 5.5K contracts on Tuesday, reaching the 7^th consecutive daily build. In the same line, volume rose for the second session in a row, this time by around 34.3K contracts.

WTI could accelerate gains above $90.00

Tuesday’s advance in prices of the WTI was accompanied by increasing open interest and volume and suggests that the continuation of the rebound looks in place for the time being. That said, crude oil prices could see the upside reinvigorated on a close above the key $90.00 mark per barrel.

GBP/USD is now seen navigating within the 1.1330-1.1635 range in the short-term horizon, suggest Economist Lee Sue Ann at UOB Group and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “Our expectation for GBP to decline further yesterday was incorrect as it rose to 1.1566, plummeted to 1.1437 before rebounding to close at 1.1485 (+0.16%). The sharp but short-lived swings have resulted in a mixed outlook. GBP could continue to trade in a choppy manner, likely between 1.1430 and 1.1550.”

Next 1-3 weeks: “We continue to hold the same view as yesterday (01 Nov, spot at 1.1470) where GBP appears to have moved into a consolidation phase and is likely to trade between 1.1330 and 1.1635 for the time being.”

• Silver finds some support near 100-day SMA, though struggles to attract any buyers.
• The setup still favours bullish traders and supports prospects for additional gains.
• A sustained break below the $19.00 mark is needed to negate the positive outlook.

Silver struggles to gain any meaningful traction on Wednesday and remains confined in a narrow trading band above the mid-$19.00s through the early European session.

From a technical perspective, the overnight retracement slide from the $20.00 psychological mark stalls near the 100-day SMA. The said support coincides with the 50% Fibonacci retracement level of the recent fall from the October monthly swing high and should act as a pivotal point for the XAG/USD.

Given the overnight breakout through the aforementioned confluence barrier, the technical set-up seems tilted firmly in favour of bullish traders. Moreover, oscillators on the daily chart have just started moving into positive territory and support prospects for a further appreciating move. Hence, a fresh attempt towards conquering the $20.00 round figure, also marking the 61.8% Fibo. level, looks like a distinct possibility. Some follow-through buying has the potential to lift the XAG/USD further towards an intermediate resistance near the $20.50 region en route to the $21.00 mark.

On the flip side, weakness below the mid-$19.00s (100 DMA) might continue to attract some buyers near the $19.00-$18.90 support zone, representing the 23.6% Fibo. level. A convincing break below the latter will shift the near-term bias in favour of bearish traders and make the XAG/USD vulnerable. The subsequent downward trajectory could then drag the XAG/USD towards the next relevant support near the $18.30-$18.25 region. This is closely followed by the $18.00 round-figure mark, below which spot prices could aim to challenge the YTD low, around the $17.55 area touched in September.

Silver daily chart

Key levels to watch

CME Group’s flash data for gold futures markets noted open interest increased by more than 3K contracts on Tuesday, resuming the uptrend after Monday’s pullback. Volume followed suit and went up by around 85.8K contracts, extending the erratic performance seen as of late.

Gold: Next stop comes at $1,675

Tuesday’s moderate uptick in gold prices was in tandem with rising open interest and volume, which is supportive of further recovery in the very near term. Against that, the immediate target for the precious metal remains at the weekly high at $1,675 per ounce troy (October 26).

Weekly momentum for EUR/USD is starting to turn higher. Thus, analysts at Credit Suisse expect the pair to test the 1.0198/1.0201 resistance zone, potentially 1.0350/90.

Move below 0.9704 needed to reassert the core downtrend

“We see scope for a deeper recovery to 1.0198/1.0201, potentially 1.0350/90, but with this latter area expected to prove a major cap.”

“Below 0.9704 is needed to reassert the core downtrend for a fall back to support at 0.9592/37, with support then seen next at 0.9331/03.”

“Weekly MACD momentum has crossed higher to add weight to our view of lengthier consolidation and probably a deeper recovery.”

Gold price is clinging onto the recent recovery gains near $1,650 on the US Federal Reserve (Fed) day. XAUUSD bulls could target $1,675 on Fed’s dovish signal, FXStreet’s Dhwani Mehta reports.

Gold could resume its broader downtrend on a hawkish surprise

“XAUUSD price is eyeing a sustained break above the previous day’s high of $1,657 in order to challenge the bearish 21-Daily Moving Average (DMA) at $1,660. If the Fed delivers a dovish rate hike, then gold bulls could flex their muscles towards the end-October high at $1,675.

“The renewed downside will open up if Fed Chair Jerome Powell maintains that there is a need for more aggressive rate increases to contain inflation. However, that seems to be a remote possibility (in my view).” 

“On a hawkish surprise, gold price could resume its broader downtrend, with the initial support seen at the recent range lows around $1,638. The next downside cap is aligned at the $1,620 round number, below which the October low at $1,617 could be threatened.”

See –  Fed Preview: Forecasts from 13 major banks, the last big hike for now?

Here is what you need to know on Wednesday, November 2:

As the US Federal Reserve gets ready to announce its interest rate decision at 1800 GMT, markets stay relatively quiet with investors moving to the sidelines. FOMC Chairman Jerome Powell's press conference will be watched closely by market participants amid expectations about a possible signal for a smaller rate increase in December. Ahead of the all-important Fed event, the ADP's private sector employment will be featured in the US economic docket. During European trading hours, Germany's Destatis will publish the Unemployment Rate data for October.

Federal Reserve Preview: Dollar buying opportunity? Why Powell is unlikely to cement a pivot.

The Fed is widely expected to raise its policy rate by 75 basis points (bps) following the two-day policy meeting. On Tuesday, the data from the US showed an unexpected increase in JOLTS Job Openings in September and the ISM reported that manufacturing activity continued to expand in October with the Manufacturing PMI arriving at 50.2. The upbeat US data helped the dollar find demand and the US Dollar Index (DXY), which dropped to a daily low of 110.70, ended up closing the day flat above 111.00. Meanwhile, the benchmark 10-year US Treasury bond yield recovered above 4% late Tuesday before going into a consolidation phase on Wednesday. Meanwhile, US stock index futures trade flat in the early European morning, reflecting the cautious market mood. 

Fed November Preview: Is it time for a dovish signal?

EUR/USD dropped below 0.9900 during American trading hours on Tuesday but managed to limit its losses. Bundesbank President Joachim Nagel told a German newspaper that the European Central Bank (ECB) had a long way to go with rate hikes and said that they could start shrinking the bond portfolio at the beginning of 2023. Early Wednesday, the pair trades in a relatively tight channel slightly below 0.9900.

GBP/USD closed flat near 1.1500 on Tuesday and continues to fluctuate at around this level early Wednesday. There won't be any high-impact macroeconomic data releases from the UK and the dollar's market valuation is likely to drive the pair's action.

USD/JPY trades in negative territory near 147.50 on Wednesday despite Bank of Japan Governor Haruhiko Kuroda's latest comments. Kuroda said that there was no need to change the currency policy easing or to tweak the yield curve control.

Gold took advantage of falling US Treasury bond yields on Tuesday and registered strong daily gains before going into a consolidation phase above $1,650 on Wednesday.

Bitcoin is struggling to make a decisive move in either direction and moving sideways above $20,000 for the third straight day on Wednesday. Ethereum extends its sideways grind at around $1,500 as crypto investors refrain from committing to large bets ahead of the Fed's policy announcements.

In the opinion of Economist Lee Sue Ann at UOB Group and Markets Strategist Quek Ser Leang, EUR/USD risks further decline in the next few weeks.

Key Quotes

24-hour view: “We expected EUR to ‘dip below 0.9840’ yesterday. However, it rose to 0.9953, dropped sharply and quickly to 0.9851 before ending the day little changed at 0.9874 (-0.09%). The underlying tone still appears to be on the soft side and we continue to see room for EUR to dip below 0.9840. In view of the lackluster downward momentum, the major support at 0.9800 is unlikely to come into view. The downside bias is intact as long as EUR does not move above 0.9925 (minor resistance is at 0.9900).”

Next 1-3 weeks: “Our update from yesterday (01 Nov, spot at 0.9885) still stands. As highlighted, downward momentum is showing tentative signs of building and the pullback from last week’s high of 1.0093 could extend. At this stage, it is premature to expect a sustained decline below 0.9800. On the upside, a break of 1.0000 (no change in ‘strong resistance’ level from yesterday) would indicate that the build-up of downward momentum has fizzled out.”

• USD/TRY grinds higher around all-time peak amid mixed concerns.
• Turkish inflation problem versus CBRT’s resistance for rate hike propels the prices.
• Sluggish yields and indecision over Fed’s move from December challenge buyers.
• Wednesday’s FOMC, Thursday’s Turkish CPI will be crucial for near-term directions.

USD/TRY bulls keep the reins around the all-time high of 18.65, near 18.60 by the press time of early Wednesday morning in Europe. In doing so, the Turkish lira (TRY) pair fails to cheer the broad US dollar weakness amid fears of more pain for the TRY.

The fundamental challenge for the TRY could be linked to the Central Bank of the Republic of Türkiye’s (CBRT) hesitance to increase the benchmark interest rates even as the Turkish Consumer Price Index (CPI) refreshed an all-time high of 83.45 in September. It’s worth noting that the inflation number is expected to new the record top with the 85.6% figure for October, expected to be released on Thursday.

It should be noted that the successive eighth monthly fall in the Turkish factory activity in October adds strength to the USD/TRY upside. On the same line were the US JOLTS Job Openings which increased to 10.717M in September versus the 10.0M forecast and upwardly revised 10.28M previous readings. Further, US ISM Manufacturing PMI increased to 50.2 in October versus 50.0 market forecasts and 50.9 prior. On the same line, final readings of the US S&P Global Manufacturing PMI for October rose past 49.9 initial forecasts to 50.4 but stayed below 52.0 readings for the previous month.

Alternatively, headlines from China appeared to have recently favored the market’s sentiment amid sluggish US Treasury yields, which in turn probes the USD/TRY bulls. The Governor of the People’s Bank of China (PBOC), Yi Gang, recently crossed wires and stated that China's economy remains broadly on track. “We hope the housing market can achieve a soft landing,” added the policymaker. Additionally, an official from the China Banking and Insurance Regulatory Commission (CBIRC) also helped improve the mood while saying that the property sector is now "stable".

The US 10-year Treasury yields remain sidelined near 4.05% at the latest as traders remain divided over the US central bank’s next move given the 75 bps rate hike and hopes favoring easy rate lifts from December. While portraying the mood, S&P 500 Futures snap a two-day downtrend to print a 0.20% intraday upside by the press time.

To sum up, USD/TRY remains on the bull’s radar ahead of the top-tier data/events.

Technical analysis

Although the 19.00 threshold restricts short-term USD/TRY upside, sellers remain absent unless witnessing a clear downside break of the fortnight-long support line near 18.50.

The US Federal Reserve will announce its monetary policy decision on Wednesday, November 2 at 18:00 GMT and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of 13 major banks. 

The Fed is set to raise rates by 75 bps for the fourth consecutive time. That would put the Federal Funds rate at a range of 3.75-4%, up from 3-3.25%.

ANZ

“The Fed is on track to hike by 75 bps, taking the top end of the policy target range to 4.0%, up from 0.25% in March. This is the most aggressive tightening cycle in four decades. We maintain our terminal rate call of 5% but have pulled this forward to Q1 2023 from Q2. Our current forecast profile is for a 50 bps rate hike in December followed by 25 bps rises in February and March next year. This profile is data-dependent. The risk to our view is that core services inflation doesn’t begin to moderate in Q4, leaving upside risks to our path.”

Commerzbank

“The Fed is expected to announce another large rate hike of 75 bps. In the following weeks, however, the Fed will probably increasingly prepare market participants for smaller rate steps. After all, the rate peak is gradually coming into view, which the Fed will approach at a slower pace so as not to have too abrupt a transition from the rate hiking phase to the stay-high phase.”

Danske Bank

“We expect Fed to hike by 75 bps. The recent soft macro data and the WSJ article suggesting that moderation in hiking pace could be near have sparked a ‘pivot’ rally in the markets – we think it is still too early. High spot core inflation, only modest tightening in real financial conditions and rising inflation expectations leave Fed little room to manoeuvre.”

TDS

“We expect another 75 bps rate hike, taking the Fed Funds target range to 3.75%-4%. The likely rate decision will bring the Fed Funds rate to a level at which we think the FOMC will be more comfortable in shifting to a steadier hiking pace to further grind down inflation when we move into 2023. The exact timing of this downshift in hiking pace, however, will highly depend on the CPI prints between the November and December FOMC meetings, but some hints of it might appear in the post-meeting statement or press conference. Holding USD longs into this meeting is tactically difficult, but we also think the market has already made positioning adjustments and moved to price in a Fed shift. If Powell does not validate a shift, a sizable pain trade is in the offing.”

ING

“Wednesday’s Federal Reserve FOMC meeting is set to result in the fourth consecutive 75 bps rate hike given that annual rates of core inflation are heading higher rather than lower, the economy has returned to growth with a decent third-quarter GDP report, and the labour market remains robust with job vacancies exceeding the number of unemployed Americans by four million.”

SocGen

“The FOMC is widely expected to deliver another 75 bps rate hike. Our focus on the press conference will be guidance for future increases. Fed officials are not going to commit. They seek to maintain flexibility. After four jumbo-sized hikes, however, Fed officials should want to gauge economic responses.” 

NBF

“The FOMC is set to increase the fed funds target by 0.75% for the fourth consecutive meeting, a move fully discounted by markets. With inflation still hot and the labour market remaining tight, the Fed is likely to flag that further rate increases will be necessary. It should however signal an upcoming slowdown in the pace of rate hikes in the context of slowing global growth. While there will be no new dot plot presented, we’ll be keenly watching Chair Powell’s press conference to see if the FOMC’s expectation to bring their policy rate all the way up to 4.75% (upper bound) by the end of next year has wavered. Our own expectations for the terminal rate are slightly lower at 4.50% as we expect the Fed to be forced to stop its monetary tightening cycle following the December meeting to prevent an economic slowdown turning into something worse. We expect inflation will have slowed down by then, not enough to ease the central bank’s worries, but enough to allow it to adopt an approach balancing price control with support of the economy/labour market.” 

NAB

“We expect Fed Chair Powell to stay on message at his post-FOMC press conference on Wednesday that the Fed will continue to tighten until the job on inflation is done amid a lot of questions around when the Fed might pivot, including under what conditions. We look for another 75 bps rise in the target range to 3.75-4.0%.”

RBC Economics

“The Fed is likely to deliver another 75 bps hike. Our own forecast anticipates the Fed Funds rate entering the 4.5%-4.75% range by early 2023.”

CIBC

“We see the Fed moving by 75 bps, and while that only leaves a further 50 bps to reach our projected ceiling, we wouldn’t expect the central bankers to drop any dovish hints on a day they are moving that aggressively.”

Citibank

“A 75 bps hike this week looks like a done deal but could be followed by a slowdown to 50 bps in December with data dependency as the key phrase. Moreover, Chair Powell will likely emphasize a slowdown does not mean an imminent pause and that rates will continue to tighten until sufficiently restrictive to bring down inflation.”

Rabobank

“Recent data confirmed our view that inflation is persistent. With the Fed clearly prioritizing price stability over full employment, this is going to push the FOMC higher than they currently anticipate. We expect the FOMC to raise the target range for the federal funds rate by 75 bps to 3.75-4.00% at the November meeting. Next year, we expect the top of the target range to peak at 5.00% and we do not expect the Fed to pivot before 2024.”

Wells Fargo

“We expect the Fed to announce a 75 bps increase in the target range for the federal funds rate. We expect Chair Powell to reiterate that quelling inflation remains the FOMC's utmost priority and that the FOMC will ‘keep at it until the job is done.’ However, we also expect to see signs of the FOMC approaching a crossroads in its campaign to battle inflation. Monetary policy famously works with a lag. To that end, increased emphasis on the significant policy tightening done in short order this year could begin to position the FOMC for a slower pace of tightening as soon as its December 14 meeting, even as inflation is still expected to be well-above target. However, a downshift in the pace of tightening from 75 bps per meeting to 50 bps per meeting should not be conflated with a full pivot on policy. Rather, it would be the first step in an effort to tame inflation with a bit more precision. The FOMC will therefore need to carefully message that it remains firmly committed to reducing inflation while highlighting the progress made at getting policy to a position that is better able to achieve that outcome.”

• NZD/USD attracts fresh buyers on Wednesday after mostly upbeat domestic employment details.
• Hopes for a less hawkish Fed keep the USD bulls on the defensive and also contribute to the uptick.
• Investors now look to the highly-anticipated FOMC decision before placing fresh directional bets.

The NZD/USD pair gains some positive traction for the third successive day on Wednesday and maintains its bid tone through the early European session. The pair is currently placed around the 0.5870-0.5875 region, though remains below its highest level since September 21 touched the previous day.

The New Zealand dollar draws some support from the mostly upbeat domestic employment report, which showed that the jobless rate held steady near the record low level of 3.3% during the third quarter. Adding to this, the number of employed people rose more than expected, by 1.3% during the reported period against expectations of a 0.5% increase. This, along with the emergence of fresh selling around the US dollar, is seen acting as a tailwind for the NZD/USD pair.

Speculations that the Federal Reserve will adopt a less hawkish stance, amid signs of a slowdown in the US economy, turn out to be a key factor that continues to weigh on the greenback. The expectations were reaffirmed by the US ISM manufacturing business survey result, which showed that the Prices Paid Index contracted for the first time since May 2020. This points to easing inflationary pressures and might force the Fed to slow the pace of its rate-hiking cycle.

Hence, the focus will remain glued to the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced later during the US session. The US central bank is widely expected to deliver another supersized 75 bps rate hike for the fourth successive time in as many meetings. Investors, meanwhile, will closely scrutinise the accompanying policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference for clues about future rate hikes.

The outlook will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the NZD/USD pair. Heading into the key central bank event risk, traders might refrain from placing aggressive bets, suggesting that the ADP report on the US private-sector employment might do little to provide any impetus. This, in turn, warrants some caution before positioning for any further appreciating move for the major.

Technical levels to watch

FX option expiries for Nov 2 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9700 1.1b
• 0.9725 702m
• 0.9790-00 1.12b
• 0.9820-25 1.0b
• 0.9850-60 755m
• 0.9870 290m
• 0.9900 862m
• 1.0000 2.05b
• 1.0050 438m
• 1.0075 647m

- GBP/USD: GBP amounts        

• 1.1470 303m
• 1.1500 210m

- USD/JPY: USD amounts                     

• 146.00 290m
• 147.00 380m
• 148.00 230m
• 150.00 1.0b

- USD/CHF: USD amounts        

• 0.9760 800m
• 0.9880 200m
• 1.0000 330m

- AUD/USD: AUD amounts  

• 0.6350 241m
• 0.6485 721m

- USD/CAD: USD amounts       

• 1.3700 515m

- EUR/JPY: EUR amounts

• 141.10 738m

- AUD/NZD: AUD amounts

• 1.0900 400m

• EUR/JPY breaks five-week-old support line during three-day downtrend.
• MACD prints the biggest bearish signal in a month.
• A daily closing below September’s peak becomes necessary for the buyers to leave the table.

EUR/JPY drops half a percent as the bears keep reins around 145.80, down for the third consecutive day to early Wednesday morning in Europe.

The cross-currency pair’s latest weakness could be linked to the seller’s ability to conquer an upward-sloping support line from September 26, now resistance around 146.15. Also adding strength to the downside bias is the strongest bearish MACD signal since October 03.

That said, the EUR/JPY pair’s further downside needs to provide a daily closing below September’s peak of 145.63 to keep the sellers hopeful. Also acting as a downside filter is the 21-DMA level surrounding 145.15.

In a case where the quote remains bearish below 145.15, the odds of its south-run towards 144.10-00 area comprising tops marked since October 20 can’t be ruled out.

Alternatively, recovery moves need a daily close beyond the support-turned-resistance line around 146.15.

Even so, a descending trend line from October 21, close to 147.50 by the press time, will act as the last defense of the bears.

Should the EUR/JPY prices remain firmer past 147.50, the previous monthly high of 148.40 and the upper line of a 3.5-month-old bullish channel, around 149.10, will be in focus.

EUR/JPY: Daily chart

Trend: Further downside expected

• Gold Price consolidates the recovery as the US dollar turns south with Treasury yields.
• A typical pre-Fed anxiety looms, as investors await Fed Chair Powell’s presser.
• The tide could turn in favor of XAU/USD buyers on a likely dovish Fed pivot.

Gold price is capitalizing on the renewed US dollar weakness, as Treasury yields feel the heat from a typical market anxiety pre-US Federal Reserve (Fed) event.

The Asian equities were a mixed bag, as the Chinese tech stocks-led rally fizzled and growth concerns resurfaced amid the extension of the covid lockdowns across many cities in the country. Meanwhile, the benchmark US 10-year rates are heading back towards the 4.0% key level, allowing gold price to stay afloat.

All eyes now remain on the expected 75 bps Fed rate hike decision, with Chair Jerome Powell’s press conference to grab the limelight, as investors eagerly await any hints of a smaller rate increase from December. Ahead of the Fed event, the US ADP Employment Change data will be also followed, as it may offer temporary trading opportunities. Meanwhile, traders may take cues from ADP jobs, waiting it out for Friday’s Nonfarm Payrolls release.

Also read: Gold Price Forecast: XAUUSD bulls could target $1,675 on Federal Reserve’s dovish signal

From a near-term technical perspective, despite the 14-day Relative Strength Index (RSI) lurking below the midline, a dovish Fed rate hike could turn the table against bears, allowing XAU/USD bulls to recapture the bearish 21-Daily Moving Average (DMA) at $1,660 convincingly.  Gold bulls could flex their muscles towards the end-October high at $1,675 while gathering strength to challenge the $1,700 mark.

However, on a hawkish surprise, gold price could resume its broader downtrend, with the initial support seen at the recent range lows around $1,638. The next downside cap is aligned at the $1,620 round number, below which the October low at $1,617 could be threatened.

Gold Price: Daily chart

Gold Price: Additional technical levels to consider

• Asia-Pacific shares waver as risk-positive headlines from China jostle with pre-Fed anxiety.
• NZX 50 bucks the trend amid increasing hawkish bets on RBNZ.
• Yields struggle as strong US data favor Fed hawkish but 75 bps rate hike is priced-in.
• Clues for Fed’s December rate hike will be crucial to watch during today’s FOMC.

Asian equity traders remain cautiously optimistic even as the pre-Fed anxiety challenges the bulls during early Wednesday. The underlying reasons could be linked to the latest headlines from China and the chatters that the US Federal Reserve (Fed) will ease on rate hikes from December.

The Governor of the People’s Bank of China (PBOC), Yi Gang, recently crossed wires and stated that China's economy remains broadly on track. “We hope the housing market can achieve a soft landing,” added the policymaker. Additionally, an official from the China Banking and Insurance Regulatory Commission (CBIRC) also helped improve the mood while saying that the property sector is now "stable".

On the same line could be the Bank of Japan (BOJ) Governor Haruhiko Kuroda’s defense of the easy money policies.

Amid these plays, MSCI’s index of Asia-Pacific shares ex-Japan rises 2.0% whereas Nikkei 225 remains indecisive at around 27,660. Moving on, Chinese equity benchmarks also print gains of around 1.0% and more, which in turn helps Australia’s ASX 200 print mild gains despite downside Aussie data. Elsewhere, New Zealand’s NZX 50 dropped 0.80% intraday after the nation’s third quarter (Q3) employment numbers came in stronger enough to keep the Reserve Bank of New Zealand (RBNZ) hawks on the table.

On a broader front, The US 10-year Treasury yields remain sidelined near 4.05% at the latest as traders remain divided over the US central bank’s next move given the 75 bps rate hike and hopes favoring easy rate lifts from December. While portraying the mood, S&P 500 Futures snap a two-day downtrend to print a 0.20% intraday upside by the press time.

It should be noted that the firmer US data and recent fears over Taiwan join the Fed policymakers’ readiness for a 75 bps rate lift to challenge the market sentiment, even if the US Dollar Index (DXY) remains pressured. Amid these plays, the prices of gold and crude oil remain firmer.

Moving on, traders will pay attention to how well the Fed can defend the hawks even as the 75 bps rate hike is already priced in. Also, the clues for December’s rate lift will be closely observed for clear directions.

Also read: Fed November Preview: Is it time for a dovish signal?

Bank of Japan (BOJ) Haruhiko Kuroda is speaking on Wednesday, now commenting on the monetary policy outlook.

Key quotes

Market reaction

At the time of writing, USD/JPY is licking its wounds at around 147.35, shedding 0.62% on the day. The pair awaits the Fed decision amid weaker US dollar and yields.

• AUD/USD grinds higher while bracing for the biggest daily gains in a week.
• One-month-old symmetrical triangle restricts immediate moves amid price-positive oscillators.
• 100-EMA, weekly resistance line act as additional trading filters.

AUD/USD stays firmer around the intraday high of 0.6427 ahead of Wednesday’s European session. in doing so, the Aussie pair stretches the latest rebound from the 100-EMA towards the one-week-old resistance line.

Given the near-50 RSI (14) and an impending bull cross on the MACD, the AUD/USD recovery is likely to remain present. However, the monthly symmetrical triangle between 0.6345 and 0.6500 restricts the pair’s moves.

That said, a convergence of the weekly resistance line and 38.2% Fibonacci retracement of the pair’s September-October downside, near 0.6455, guards the quote’s immediate recovery.

It’s worth noting that the AUD/USD pair’s run-up beyond 0.6500 needs validation from the 50% Fibonacci retracement level surrounding 0.6545 to convince the bulls.

Following that, a run-up towards the latest September swing high near 0.6750 can be expected.

On the flip side, a clear break of the 100-EMA support, close to 0.6390 by the press time, could quickly direct the AUD/USD pair sellers towards the stated triangle’s support near 0.6345.

Should the bears dominate past 0.6345, the odds of witnessing a fresh yearly low, around 0.6170 at the latest, can’t be ruled out.

AUD/USD: Four-hour chart

Trend: Limited upside expected

• USD/INR struggles for a clear directions despite pushing back bears.
• RBI’s likely inaction jostles with Fed’s 75 bps dovish hike to challenge traders, Reuters’ poll signals more pain for INR.
• Cautious optimism, sluggish yields test upside momentum ahead of FOMC.

USD/INR remains sidelined around 82.70, mostly unchanged on the day, even as bulls try to defend the weekly gains ahead of the Federal Open Market Committee (FOMC) meeting. That said, the mixed sentiment and hopes of more pain for the Indian rupee (INR) appear to keep the buyers hopeful but the pre-Fed anxiety restricts the upside momentum amid a lack of major directions and an already priced-in 75 bps rate hike.

Headlines from China appeared to have recently favored the market’s sentiment amid sluggish US Treasury yields. The Governor of the People’s Bank of China (PBOC), Yi Gang, recently crossed wires and stated that China's economy remains broadly on track. “We hope the housing market can achieve a soft landing,” added the policymaker. Additionally, an official from the China Banking and Insurance Regulatory Commission (CBIRC) also helped improve the mood while saying that the property sector is now "stable".

The US 10-year Treasury yields remain sidelined near 4.05% at the latest as traders remain divided over the US central bank’s next move given the 75 bps rate hike and hopes favoring easy rate lifts from December. While portraying the mood, S&P 500 Futures snap a two-day downtrend to print a 0.20% intraday upside by the press time.

On the other hand, the Reserve Bank of India (RBI) isn’t expected to announce any major change to its monetary policy during Thursday’s special meeting. India's rupee will recoup only some of its recent losses against the dollar over the coming year as the interest rate gap is set to widen further alongside a worsening current account deficit, according to a Reuters poll of FX strategists.

It’s worth noting that the firmer US data and the recent rebound in oil prices also exert downside pressure on the INR, due to India’s reliance on energy imports and higher current account deficit. That said, WTI crude oil braces for the second weekly run-up as bulls approach $90.00. Further, the US JOLTS Job Openings increased to 10.717M in September versus the 10.0M forecast and upwardly revised 10.28M previous readings. Further, US ISM Manufacturing PMI increased to 50.2 in October versus 50.0 market forecasts and 50.9 prior. On the same line, final readings of the US S&P Global Manufacturing PMI for October rose past 49.9 initial forecasts to 50.4 but stayed below 52.0 readings for the previous month.

Looking forward, the USD/INR traders need to pay close attention to how the Fed can defend the hawks despite announcing a 0.75% rate increase. The point to emphasize will be the rate lift mechanism from December.

Technical analysis

A two-week-old descending resistance line near 83.05 probes USD/INR bulls but the bears have a long road to travel before retaking control.

• USD/CAD bounces off intraday low to pare the first daily loss in five.
• Bullish chart formation keeps buyers hopeful but 200-SMA adds strength to the 1.3655-60 hurdle.
• Bears have a bumpy road to the south unless breaking 1.3495 level.

USD/CAD remains mildly offered around 1.3605 ahead of Wednesday’s European session, posting the first daily loss in five at the latest.

The Loonie pair’s weakness could be linked to its retreat from the 1.3655-60 resistance confluence comprising the 200-SMA and a downward-sloping trend line from October 13.

The pullback moves, however, lack acceptance amid steady RSI, which in turn challenges the pair sellers.

Even so, the one-week-old ascending support line, near 1.3540 by the press time, precedes the aforementioned triangle’s bottom, near 1.3495, to welcome the USD/CAD bears.

Should the quote remains weak past 1.3495, the bullish chart formation gets defied, which in turn directs the USD/CAD pair towards the 61.8% Fibonacci retracement level of September-October upside, near 1.3340.

Alternatively, recovery remains elusive unless the quote stays below the 1.3655-60 resistance confluence.

Following that, multiple levels around 1.3700 and 1.3850 could challenge the USD/CAD buyers before directing them to the previous monthly high near 1.3980.

It should be noted that the RSI is approaching the overbought territory and can poke bulls around 1.3980, if not then the 1.4000 threshold could act as an extra filter to the north.

USD/CAD: Four-hour chart

Trend: Limited downside expected

People’s Bank of China (PBOC) Governor Yi Gang said on Wednesday, the central bank “will be able to maintain a normal monetary policy and positive interest rates for as long as possible.”

“China's potential economic growth is expected to be kept within a reasonable range,” Yi added.

He said, “will step up targeted support for key and weak sectors - party congress supplementary reading.”

Yi added that they “Will improve market-oriented floating foreign exchange system, effectively manage and guide market expectations- party congress supplementary reading.”

Market reaction

The USD/CNY pair was last seen trading at 7.2730, modestly flat on the day.

• GBP/USD eases from intraday high amid mixed concerns, cautious optimism in the market.
• Firmer US data, Brexit woes and the BOE’s Gilt operations test buyers.
• Mostly priced-in 75 bps rate hike from Fed, fresh Brexit woes keep sellers hopeful.
• FOMC announcements eyed for a clear view on rate hikes from December, BOE needs hawkish play to defend bulls.

GBP/USD pares intraday gains as it slides to 1.1506 heading into Wednesday’s London open. The Cable pair’s latest weakness could be linked to the increased anxiety ahead of the Federal Open Market Committee (FOMC) meeting. Also exerting downside pressure on the quote could be the chatters surrounding the Bank of England’s (BOE) next move and Brexit.

Also read: Fed November Preview: Is it time for a dovish signal?

The British government is breaching the withdrawal agreement with the European Union by requiring EU citizens to reapply for the right to live and work in the United Kingdom, an independent body set up to oversee citizens’ rights told a London court on Tuesday, reported Reuters.

On the same line, the BOE has already started its selling of gilt holdings and hence further directives for the Quantitative Tightening (QT) will be difficult for the “Old Lady”, as the BOE is called informally. Furthermore, former BoE deputy governor Charlie Bean said on Tuesday that the UK should consider interest cuts on banks' BoE reserves.

It should be noted that the firmer US data and the latest headlines surrounding US Federal Communications Commission (FCC) Commissioner Brendan Carr Taiwan visit seem to challenge the GBP/USD bulls. That said, the US JOLTS Job Openings increased to 10.717M in September versus the 10.0M forecast and upwardly revised 10.28M previous readings. Further, US ISM Manufacturing PMI increased to 50.2 in October versus 50.0 market forecasts and 50.9 prior. On the same line, final readings of the US S&P Global Manufacturing PMI for October rose past 49.9 initial forecasts to 50.4 but stayed below 52.0 readings for the previous month.

Meanwhile, headlines from China appeared to have recently favored the market’s sentiment amid softer US Treasury yields. The Governor of the People’s Bank of China (PBOC), Yi Gang, recently crossed wires and stated that China's economy remains broadly on track. “We hope the housing market can achieve a soft landing,” added the policymaker. Additionally, an official from the China Banking and Insurance Regulatory Commission (CBIRC) also helped improve the mood while saying that the property sector is now "stable".

The US 10-year Treasury yields drop one basis point (bp) to 4.04% at the latest as traders remain divided over the US central bank’s next move given the 75 bps rate hike and hopes favoring easy rate lifts from December. While portraying the mood, S&P 500 Futures snap a two-day downtrend to print a 0.20% intraday upside by the press time.

Looking forward, GBP/USD traders will pay attention to how well the Fed can defend the hawks even as the 75 bps rate hike is already priced in. Also, the clues for December’s rate lift will be closely observed for clear directions. Above all, Thursday’s BOE move will be the key as the British central bank needs to realign its priority under the new government.

Also read: BoE Interest Rate Decision Preview: A close call between 50 bps and 75 bps, GBP/USD set to suffer

Technical analysis

A one-week-old bearish channel restricts the short-term GBP/USD moves between 1.1575 and 1.1430.

Japanese Finance Minister Shunichi Suzuki said on Wednesday, they are “Ready to deal immediately in the FX market, if we think there is speculative action.”

Additional comments

Won't say when we will step in as that will be revealing our tactics to markets.

Weak yen has both positive and negative aspects.

Need to pay heed to the fact that weak yen boosts import costs.

Market reaction

At the press time, USD/JPY is recovering from daily lows at 147.18, trading at 147.54, still down 0.50% on the day.

• EUR/USD stays mildly bid, extending the November-start rebound from one-week low.
• ECB policymakers back further rate hikes despite citing recession fears.
• DXY fades US data-led rebound as yields remain pressured amid fears of slower rate hikes from December.
• US ADP Employment Change, second-tier EU/German data will offer intermediate directions.

EUR/USD grinds near intraday high surrounding 0.9900 as buyers struggle to keep the reins during early Wednesday morning in Europe. In doing so, the major currency pair defends the previous day’s rebound from the lowest level in a week but also stays appears dicey ahead of the key Federal Open Market Committee (FOMC) meeting.

That said, the major currency pair’s latest run-up could be linked to the market’s cautious optimism, as well as the hawkish comments from the European Central Bank (ECB) officials. However, firmer US data and anxiety about Fed’s verdict on its rate hikes from December seem to challenge the EUR/USD bulls.

ECB policymaker and Bundesbank President Joachim Nagel told a German newspaper that the central bank has a long way to go before it is done with interest rate hikes and it should also start reducing its oversized holding of government debt at the start of next year. On the same line, another ECB policymaker Pablo Hernandez de Cos mentioned that nobody knows how far we have to raise interest rates. Previously, ECB President Christine Lagarde said on Tuesday that the possibility of a recession has increased. The policymaker also added that they “haven't reached the destination on rates yet.”

Elsewhere, headlines from China appeared to have recently favored the market’s sentiment amid softer US Treasury yields. the Governor of the People’s Bank of China (PBOC), Yi Gang, recently crossed wires and stated that China's economy remains broadly on track. “We hope the housing market can achieve a soft landing,” added the policymaker. Additionally, an official from the China Banking and Insurance Regulatory Commission (CBIRC) also helped improve the mood while saying that the property sector is now "stable".

It’s worth noting that the US 10-year Treasury yields drop two basis points (bps) to 4.03% at the latest as traders remain divided over the US central bank’s next move given the 75 bps rate hike and hopes favoring easy rate lifts from December. While portraying the mood, S&P 500 Futures snap a two-day downtrend to print a 0.25% intraday upside by the press time.

Alternatively, firmer US data and hawkish bets on the Fed’s next move, per the CME’s FedWatch Tool, challenge the EUR/USD pair buyers. On Tuesday, the US JOLTS Job Openings increased to 10.717M in September versus 10.0M forecast and upwardly revised 10.28M previous readings. Further, US ISM Manufacturing PMI increased to 50.2 in October versus 50.0 market forecasts and 50.9 prior. On the same line, final readings of the US S&P Global Manufacturing PMI for October rose past 49.9 initial forecasts to 50.4 but stayed below 52.0 readings for the previous month.

Looking forward, the EUR/USD pair traders may take intermediate clues from the German trade and Eurozone PMIs ahead of the US ADP Employment Change for October, expected 193K versus 208K prior. However, major attention will be given to the Fed’s statements and Chairman Jerome Powell’s press conference as a 75 bps rate hike won’t be enough to recall the DXY bulls.

Also read: Fed November Preview: Is it time for a dovish signal?

Technical analysis

A one-week-old descending trend line restricts the EUR/USD pair’s immediate upside, close to 0.9930, while major attention is given to the five-week-old rising wedge bearish formation, currently between 1.0130 and 0.9840.

Brendan Carr, a commissioner at the US Federal Communications Commission (FCC), is scheduled to visit Taiwan from November 2 to November 4.

This comes after Carr called on the Committee on Foreign Investment in the United States (CFIUS) on Tuesday to ban TikTok, citing the company's alleged inability to secure the data of American-based users.

Recall that a visit by US House Speaker Nancy Pelosi and other delegates to Taiwan earlier this year did not go down well with China.

Market reaction

AUD/USD has paused its advance on the above headlines, consolidating around 0.6420, at the time of writing. The pair is up 0.40% on the day.

Bank of Japan (BOJ) Haruhiko Kuroda is back on the wires now, via Reuters, making some comments on the exchange rate value.

Key quotes

Related reads

• BoJ's Kuroda:  Appropriate to continue monetary easing to support economy for now
• USD/JPY Price Analysis: Bears flirt with weekly support above 147.00

• AUD/USD picks up bids to renew intraday high, prints mild gains though.
• Headlines from China, mixed Aussie data join downbeat DXY to favor the pair buyers.
• Pre-Fed anxiety restricts the quote’s immediate upside amid indecision over the FOMC’s plan for December.

AUD/USD remains mildly bid around 0.6400, refreshing intraday high to 0.6407 by the press time, as the US dollar eases ahead of the Fed’s verdict on Wednesday. The recently released risk-positive updates from China also add strength to the Aussie pair’s rebound from the 10-DMA support. However, mixed housing data from Australia and hawkish Fed bets challenge the bulls.

That said, Australia’s Building Permits for September dropped by 5.8% MoM versus the previous growth of 28.1% and -7.0% expected while the yearly figure printed a 13.0% contraction compared to -9.5% prior. Elsewhere, the Aussie Home Loans also dropped during the stated month to -9.3% versus -2.5% market consensus and -2.7% prior. Furthermore, Investment Lending for Homes slumped to -6.0% from -4.8% prior.

Elsewhere, the Governor of the People’s Bank of China (PBOC), Yi Gang, recently crossed wires and stated that China's economy remains broadly on track. “We hope the housing market can achieve a soft landing,” added the policymaker. Additionally, an official from the China Banking and Insurance Regulatory Commission (CBIRC) also helped improve the mood while saying that the property sector is now "stable".

It should be noted that the softer US Treasury yields also weigh on the US dollar and favor the AUD/USD buyers. US 10-year Treasury yields drop two basis points (bps) to 4.03% at the latest as traders remain divided over the US central bank’s next move given the 75 bps rate hike and hopes favoring easy rate lifts from December.

Amid these plays, S&P 500 Futures snap a two-day downtrend to print a 0.25% intraday upside by the press time.

Looking forward, risk catalysts may entertain the AUD/USD pair traders ahead of the key Federal Open Market Committee (FOMC) announcements. Should the Fed refrain from slowing down the rate hikes, the AUD/USD may witness a setback.

Technical analysis

Despite the latest rebound from a 10-DMA support near 0.6390, a downward-sloping resistance line from early August, close to 0.6480 by the press time, challenges the AUD/USD pair’s upside momentum.

• USD/JPY remains bearish for the second consecutive day despite recent inaction around intraday low.
• Downbeat MACD, pullback from immediate horizontal resistance keep sellers hopeful.
• Bulls have a bumpy road to the north.

USD/JPY struggles around a one-week-old ascending support line even as bears keep the reins near 147.30 during Wednesday’s Asian session. In doing so, the yen pair drops for the second consecutive day while failing to justify the latest hesitance in breaking an immediate rest point.

Although the aforementioned trend line restricts immediate USD/JPY downside, the pair’s upside remains elusive unless it successfully crosses the horizontal area comprising multiple levels marked since Monday, around 148.35-45.

Following that, the 61.8% Fibonacci Expansion (FE) of the pair’s October 27 to November 01 moves, near 149.30, could test the USD/JPY bulls before directing them to the 150.00 round figure and the latest multi-year high marked in October around 151.95.

Alternatively, a downside break of the 147.25 level, comprising the previously mentioned support line, will need validation from the 50% Fibonacci retracement of October 27-31 upside, near 147.00, to convince USD/JPY bears.

In that case, the late October swing low near 145.10 and then to the 145.00 round figure becomes more likely.

Overall, USD/JPY remains on the bear’s radar ahead of the key Federal Open Market Committee (FOMC) meeting.

USD/JPY: Hourly chart

Trend: Further downside expected

• Gold price remains mildly bid as US dollar stays pressured ahead of Fed announcements.
• Risk-positive headlines from China, downbeat US Treasury yields also propel XAU/USD.
• Fed’s dovish hike could please the bullion buyers.

Gold price (XAU/USD) prints mild gains around the mid-$1,600s as the US dollar stays weak ahead of the Federal Open Market Committee (FOMC) meeting on Wednesday. In addition to the pre-Fed anxiety, softer yields and cautious optimism in the market also favor the gold buyers of late.

That said, the US Dollar Index (DXY) takes offers to refresh its intraday low near 111.35, stretching the previous day’s pullback from a one-week high, amid indecision over the Fed’s next move. Also exerting downside pressure on the greenback’s gauge versus the six major currencies, as well as fueling XAU/USD prices, could be the recent weakness in the US Treasury yields and the upbeat headlines from China, a major consumer of gold.

US 10-year Treasury yields drop two basis points (bps) to 4.03% at the latest as traders remain divided over the US central bank’s next move given the 75 bps rate hike and hopes favoring easy rate lifts from December.

It should be noted that the Governor of the People’s Bank of China (PBOC), Yi Gang, recently crossed wires and stated that China's economy remains broadly on track. “We hope the housing market can achieve a soft landing,” added the policymaker. Additionally, an official from the China Banking and Insurance Regulatory Commission (CBIRC) also helped improve the mood while saying that the property sector is now "stable".

Even so, the previous day’s firmer US data and the hawkish Fed bets, as per the CME’s FedWatch Tool, challenge the XAU/USD buyers. That said, the S&P 500 Futures print mild gains even as Wall Street closed negative.

Moving on, the market’s cautious optimism could help the gold price to remain firmer but the smaller moves are likely to be seen ahead of the FOMC. In that, the Fed’s dovish hike could escalate the XAU/USD run-up.

Technical analysis

Gold price extends the previous day’s bounce off a five-week-old ascending trend line, around $1,634 by the press time, amid sluggish MACD and RSI (14). As a result, the XAU/USD bulls appear unsure and need validation to extend the latest rebound.

That said, a one-month-old descending resistance line and the 21-DMA, respectively near $1,658 and $1,660, hold the keys to the metal’s further upside.

Following that, the 50-DMA could act as the last defense of the gold bears around $1,680 before directing them to the previous monthly top near $1,730.

On the flip side, pullback moves need to conquer the aforementioned support line near $1,634 to aim for the fresh yearly low, currently near $1,614.

Gold: Daily chart

Trend: Limited upside expected

• NZD/USD bears need a break of support to target 0.5800.
• The bulls remain on the front side of key trendline support. 

NZD/USD has found a bid on the day so far with the US dollar ebbing ahead of the Federal Reserve and following a mixed New Zealand jobs report. As the following will show, the price is climbing a daily trendline, but the W-formation on the weekly chart is troublesome.

NZD/USD weekly chart

The formation is a reversion pattern that would be expected to see the price correction back into the neckline, but this may be a premature assumption.Meanwhile, the price is climbing a daily support line as follows:

The hourly picture shows the price balanced on a key hourly support structure:

A break here opens risk to the trendline with 0.5800 the figure on the cards. On the upside,  0.5900 is the price to get over.

China's central bank governor, Yi Gang, says inflation remains subdued and expects China's potential growth rate to remain in a reasonable range.

Key notes

Says monetary policy accommodative to support economy.
    
Says the yuan's exchange rate will remain stable.
    
Says reform and open-door policy will continue.

Says will continue to improve business environment
    
Says support to capital expenditure and infrastructure show in q4 data
    
''We hope the housing market can achieve a soft landing.''

USD/CNH update

Meanwhile, the US dollar has sagged in the Asian session and USD/CNH is down some 0.24%, losing the highs of 7.3124 and reaching a low of 7.2851 so far on the day.

• EUR/USD stays defensive around one-week low inside a bearish chart pattern.
• Downbeat oscillators strengthen bearish bias but 200-SMA acts as an extra filter to the south.
• Weekly resistance line guards immediate recovery ahead of October’s peak.

EUR/USD aptly portrays the pre-Fed anxiety around 0.9885 during Wednesday’s Asian session. In doing so, the major currency pair extends the previous day’s sluggish performance near the weekly low. However, a five-week-old rising wedge bearish formation intensifies the market’s interest in the quote ahead of the key Federal Open Market Committee (FOMC) meeting.

Given the recent bearish MACD signals and the downbeat RSI, the EUR/USD prices are likely to remain softer.

That said, a one-week-old descending trend line restricts the pair’s nearby upside, close to 0.9930.

Also acting as an upside filter is the 61.8% Fibonacci retracement level of the EUR/USD’s September 12-28 downside, near 0.9945.

In a case where the quote rises successfully past 0.9945, the 1.0000 psychological magnet and October’s peak of 1.0093 will precede the 1.0100 round figure to test the pair’s advances.

Additionally, the upper line of the stated wedge, near the 1.0120 level by the press time, also acts as an upside filter for the EUR/USD bulls to watch before targeting September’s top of 1.0198.

Meanwhile, pullback moves remain elusive unless breaking the aforementioned bearish formation’s support line, close to 0.9845 at the latest. Even so, the 200-SMA level around 0.9825 could act as an additional test for the EUR/USD bears before taking control.

In that case, the bears could quickly aim for the yearly low of 0.9535, with 0.9670 likely acting as an intermediate halt during the anticipated slump.

EUR/USD: Four-hour chart

Trend: Fresh downside expected

The Bank of Japan's governor Haruhiko Kuroda has crossed the wires with key notes as follows:

Key notes

Cost-push inflation driven by rising import costs likely to start dissipating next year.
    
Upward revision in Bank of Japan's Oct quarterly report reflects our view that prices are likely to gradually rise accompanied by wage hikes.

 Appropriate to continue monetary easing to support economy for now.
    
 Most appropriate policy now is to put downward pressure on entire yield curve with YCC.
    
Making YCC more flexible is a future policy option but not something to do now.

Recent yen weakening excessive, one-sided and undesirable.

USD/JPY update

The yen has firmed in Asia:

The price broke structure with eyes on 147 the figure in the near term.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.2197 vs. the last close of 7.2810.

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.

GBP/USD picks up bids to refresh intraday high around 1.1500, extending the previous day’s rebound from a one-week low during Wednesday’s Asian session.

The cable pair’s latest strength appears to take clues from the broad US dollar weakness ahead of the all-important Federal Open Market Committee (FOMC) meeting.

Also favoring the quote buyers are the recent upbeat signals from the options market, as portrayed by the one-month risk reversal (RR).

That said, the gauge of calls to puts printed the first positive daily closing in four while printing a 0.025 figure by the end of Tuesday’s North American session, per Reuters data on the options market. It’s worth noting that the one-month RR for the GBP/USD printed four consecutive weekly positive numbers in the last, despite flashing the -0.145 figures at the latest.

Given the recently firmer options market bias joining the broad US dollar weakness ahead of the key Fed decision, the GBP/USD prices may witness further upside but the bulls need to remain cautious.

Also read: GBP/USD Price Analysis: Retreats towards 1.1450 inside weekly bearish channel

• USD/CHF takes offers to extend the previous day’s pullback from a one-week-old resistance line.
• Impending bear cross on MACD, sluggish RSI suggests further downside.
• 200-SMA appears a tough nut to crack for bears, upside moves need validation from 1.0035.

USD/CHF drops for the second consecutive day after reversing from an eight-day-old resistance line, refreshing intraday low near 0.9990 during Wednesday’s Asian session.

The Swiss currency (CHF) pair’s latest pullback, however, appears to have a limited downside room as it approaches the 100-SMA support near 0.9980.

Even so, the looming bearish cross on the MACD and the recent retreat of the RSI (14) seem to favor the USD/CHF sellers.

That said, an upwards-sloping support line from October 27, close to 0.9930 by the press time, could lure the bears to breaking the 0.9980 support.

It’s worth noting that the pair’s weakness past 0.9930 will make it vulnerable to challenge October’s low of 0.9780. However, the 200-SMA and the previous weekly bottom, respectively near 0.9900 and 0.9840, could test the USD/CHF bears.

Alternatively, the pair’s recovery beyond the 1.0005 immediate resistance needs validation from a one-week-old horizontal hurdle surrounding 1.0035.

Following that, a run-up toward the previous monthly peak of 1.0147 appears imminent. It should be observed that there are multiple levels near 1.0070 to challenge the USD/CHF bulls.

USD/CHF: Four-hour chart

Trend: Further downside expected

• US Dollar Index justifies Tuesday’s “hanging man” candlestick to print mild losses ahead of the key FOMC.
• Market’s fears surrounding Fed’s ‘dot plot’ contrasts with hopes of firmer DXY.
• Recent US data raised expectations of hawkish Fed verdict even as 75 bps rate hike is priced-in.
• US ADP Employment Change, risk catalysts are also important for near-term directions.

US Dollar Index (DXY) renews its intraday low around 111.40, mildly offered while extending the previous day’s losses, as traders brace for the all-important Federal Open Market Committee (FOMC) meeting on early Wednesday. In doing so, the greenback’s gauge versus the six major currencies also traces the recently softer US Treasury yields ahead of the key Fed announcements.

That said, the US 10-year Treasury yields remain depressed at around 4.03%, following an upbeat start to November.

The reason for the benchmark bond’s latest strength could be linked to the market’s fears of easy rate hike signals as the 75 basis points (bps) of a lift to the interest rate is already priced in. Even so, the firmer US data keeps the DXY bulls hopeful.

On Tuesday, the US JOLTS Job Openings increased to 10.717M in September versus the 10.0M forecast and upwardly revised 10.28M previous readings. Further, US ISM Manufacturing PMI increased to 50.2 in October versus 50.0 market forecasts and 50.9 prior. On the same line, final readings of the US S&P Global Manufacturing PMI for October rose past 49.9 initial forecasts to 50.4 but stayed below 52.0 readings for the previous month.

It should be noted that the latest Reuters poll for the DXY sounds bullish and challenge the US dollar bears, suggesting a mixed play and the market’s indecision of late. The dollar's retreat in foreign exchange markets is temporary, according to a Reuters poll of currency strategists, who said the greenback still had enough strength left to reclaim or surpass its recent highs and resume its relentless rise.

Against this backdrop, the S&P 500 Futures remains indecisive even as Wall Street closed in the red.

Looking forward, the DXY bulls shouldn’t be too excited amid the history of the Fed to disappoint the greenback buyers. Also likely to weigh on the greenback could be the hopes that the Fed policymakers will signal a slower rate increase from December. Even so, the Fed’s “dot plot” and Chairman Jerome Powell’s press conference will be crucial to watch for clear direction.

Also read: Fed November Preview: Is it time for a dovish signal?

Technical analysis

US Dollar Index buyers need to cross the previous day’s top surrounding 111.80 to overcome the bearish bias backed by the “hanging man” candlestick.

• USD/CAD remains in bullish territory leasing into the Fes this week.
• Analysts expected a smaller 25bp hike from the BoC in December.

The Canadian dollar was little changed following the Bank of Canada (BoC) Governor Tiff Macklem's comments whereby he said he expects the policy rate will need to rise further. At the time of writing, USD/CAD is trading at 1.3628 after moving within a range of 1.3622 and 1.3635.

Governor Macklem said we have yet to see a generalized decline in price pressures and that there are no easy outs to restoring price stability. Meanwhile, the Bank of Canada has already downshifted the pace of its tightening at an interest rate decision last week.

In recent data industry-level Gross Domestic Product surprised to the upside with a 0.1% MoM increase for August, slightly above the market consensus but as analysts at TD Securities explained, ''hardly scorching and Q3 GDP is still tracking in line with Bank of Canada projections (after revisions). While this report was constructive, it will not be enough to shake the Bank's conviction that the outlook has weakened, and we continue to look for a smaller 25bp hike in December.''

US dollar back and forth on Fed expectations

As for the US dollar, it fell against major currencies on Tuesday as the Federal Reserve is expected to signal a slower pace of tightening at its upcoming meeting. It is widely expected that the Fed will raise its benchmark overnight interest rate by 75 basis points (bps) to a range of 3.75% to 4.00%, the fourth such increase in a row. However, for December, the fed funds futures market has priced in a 57% probability of a 50-bps increase amid suggestions from Fed officials of a potential slowdown in the tightening pace. This is lower than roughly a 70% chance from last Friday. The US dollar index has surged more than 15% this year but it has started to print lower daily highs of late on the back of some of the speeches and interviews by Fed officials that have suggested the central bank could do smaller hikes after Wednesday's meeting.

• USD/JPY takes offers to extend the previous day’s pullback from a one-week high.
• BOJ Minutes defend easy money policy despite raising concerns on weak yen.
• Yields struggle as firmer US data, hawkish Fed bets jostle with hopes of Fed’s slower rate hikes from December.
• Second-tier US data can entertain the pair traders but FOMC is the key to clear directions.

USD/JPY stands on slippery grounds near 147.80 even as the Bank of Japan’s (BOJ) monetary policy meeting minutes defend the easy money policies during early Wednesday. In doing so, the yen pair renews its intraday low while declining for the second consecutive day as traders prepare for the all-important Federal Open Market Committee (FOMC) meeting.

The latest BOJ Minutes praised Tokyo’s economic transition while also stating, “A few member said there is still distance from Japan achieving BOJ price target in stable, sustained manner.” The Minute statement additionally mentioned that several members said weak yen could hurt households, small firms and non-manufacturers.

Also read: BoJ Minutes: Members agreed Japan's economy is picking up

While refreshing the intraday low, the USD/JPY pair fails to justify the recently sluggish US Treasury yields, as well as the BOJ’s defense to the easy money policies. That said, the US 10-year Treasury yields remain inactive at around 4.05%, following an upbeat start to November.

It’s worth noting that the yen pair cheered the broad US dollar weakness, as well as the chatters surrounding Japan’s market intervention the previous day to snap a two-day uptrend. That said, the policymakers conveyed the heavy amount spent during September to defend the yen but refrained from details.

On the other hand, the US dollar struggled to cheer the firmer data amid the indecision on how and when the US Federal Reserve (Fed) will pedal the brake of the aggressive rate hike trajectory. It should be observed that the US JOLTS Job Openings increased to 10.717M in September versus 10.0M forecast and upwardly revised 10.28M previous readings. Further, US ISM Manufacturing PMI increased to 50.2 in October versus 50.0 market forecasts and 50.9 prior. On the same line, final readings of the US S&P Global Manufacturing PMI for October rose past 49.9 initial forecasts to 50.4 but stayed below 52.0 readings for the previous month.

Amid these plays, the S&P 500 Futures print mild gains even as Wall Street closed in the red.

To sum up, the USD/JPY struggles to portray the market’s indecision amid the Japanese policymakers’ cautious optimism. However, the pair’s further downside appears limited as the traders await the Fed’s verdict and the US ADP Employment Change for October, expected 193K versus 208K prior.

Also read: Fed November Preview: Is it time for a dovish signal?

Technical analysis

Despite the latest weakness, USD/JPY buyers remain hopeful unless the quote drops below an upward-sloping support line from late August, around 146.20 by the press time.

The Bank of Japan's minutes for the September meeting minutes are starting to hit the wires as follows:

BoJ minutes

 A few members said need to be vigilant to impact monetary tightening by some central banks could have on global markets.
    
Members agreed Japan's economy is picking up.
    
Several members said weak yen could hurt households, small firms and non-manufacturers.
    
One member said weak yen has effect of pushing up domestic economic activity in long-term.
    
Some members said must expand inbound tourism, capex, hike wages to maximise merits of weak yen.
    
One member said various indicators on trend inflation rising.
    
A few members said corporate price-setting behaviour may be changing.
    
One member said expects prices to continue for wide range of goods.
    
One member said must humbly watch without any preset idea risk of inflation overshooting expectations sharply, including from impact of FX.
    
A few members said there is still distance from japan achieving BoJ's price target in stable, sustained manner.
    
One member said while BoJ needs to keep eye out on side-effects of monetary easing, no need to change policy immediately.
    
One member said recent rapid, speculative fx moves undesirable for japan's economy.
    
Several members said BoJ must communicate to public its monetary policy does not directly target fx moves.
    
One member said BoJ must communicate exit strategy from easy policy when appropriate time comes
    
One member said monetary easing effect of BoJs policy could heighten if japan's natural interest rate increases

USD/JPY H1 chart

The price is embedded below the trendlines and horizontal resistance following a recent break of structure.