• USDCHF is expected to witness more downside below 0.9830 as the risk profile soars.
• Less room for bigger rate hikes by the Fed is weighing on US Treasury yields.
• The SNB is not bound to keep the inflation rate in a 0-2% range but will keep focusing on bringing price stability.

The USDCHF pair has sensed selling pressure after failing to overstep the critical hurdle of 0.9875 in the early Asian session. The asset is hovering around its fresh two-week low at 1.3869 and is expected to surrender the same amid a risk-on market mood.

A meaningful recovery in S&P500 in the late New York session cleared that the risk-perceived currencies are on the buying list of the market participants. Meanwhile, the US dollar index (DXY) printed a fresh seven-week low at 109.36 amid a decline in safe-haven's appeal.

The alpha generated by the US government bonds has slipped sharply as investors see no continuation of the bigger rate hike announcement by the Federal Reserve (Fed). The 10-year US Treasury yields have dropped to 2.13% as the room for bigger rate hikes is extremely low now.

The deviation between current interest rates and the proposed terminal rate is mere 80 basis points (bps) now. Therefore, Fed chair Jerome Powell is expected to adopt a gradual approach to hiking policy rates. In case of the absence of exhaustion in October’s inflation report, Fed policymakers could come forward with higher targets for interest rates and the central bank would continue hiking rates further.

As per the preliminary estimates, the headline inflation is seen lower at 8.0% vs. the prior release of 8.2%. While the core Consumer Price Index (CPI) is expected to drop marginally to 6.5% against the prior print of 6.5%.

On the Swiss franc front, Swiss National Bank (SNB) Chairman Thomas J. Jordan has clarified that the monetary policy decisions are not purely based on the inflation rate at High-Level Conference on Global Risk, Uncertainty, and Volatility, in Zurich.

The central bank is not committed to fine-tuning the inflation range at 0-2% but will take necessary action when will face the risk of soaring inflation. He further added that “We are also experimenting with machine-learning models that are trained using a large set of economic and alternative indicators.”

• WTI reverses Friday’s jump during a three-day downtrend, remains pressured of late.
• China reported the biggest daily jump in covid cases in six months, teased more lockdown.
• Fears of challenges to US spending in case of Republican victory, surprise build in API inventories also favor the Oil bears.
• China inflation, EIA stockpiles will be important for intraday directions.

WTI bears keep the reins for the third consecutive day, despite recent inaction around $88.00, amid fears of less demand and higher inventories. However, the cautious mood ahead of the key China inflation data and weekly official inventory data from the US Energy Information Administration (EIA) test the commodity traders.

A six-month high of the fresh covid numbers from China bolstered the market’s fears of multiple lockdowns and a reduction in the energy demand from the world’s biggest industrial player on Tuesday. On the other hand, the latest polls suggesting hardships for the Democrats to keep control in both Houses also seem to challenge the oil bulls amid fears of less spending and demand for the black gold.

Recently exerting downside pressure on the energy benchmark is the weekly prints of the American Petroleum Institute’s (API) Crude Oil Stock data. That said, the weekly inventories for the period ended on November 04 rose to 5.618M versus -6.53M prior.

Elsewhere, comments from Oman's Energy Minister Salim al-Aufi also weighed on the WTI as he said, per Reuters, on Tuesday he saw oil prices coming down from the range of $90 a barrel after the winter season.

It should be noted that the black gold failed to cheer the broad US dollar weakness, as well as an upbeat performance of equities and bonds while portraying the bearish move of late.

Moving on, China’s Consumer Price Index (CPI) and the Producer Price Index (PPI) for October will act as the immediate catalyst for the WTI traders ahead of the weekly prints of EIA inventories, expected 1.1M versus -3.115M prior. Given the market’s recent shift in sentiment and likely hardships for the commodity traders, the Oil bears are expected to keep the reins.

Technical analysis

A clear pullback from the 100-DMA hurdle, around $90.70 at the latest, directs WTI bears towards a six-week-old support line, close to $86.40 by the press time.

• Bears eye a move into the key Fibonacci near 0.5850 in a 50% mean reversion. 
• Bulls remain on the front side of a key underlying trendline support.

NZDUSD spiked as the US Dollar sold off on Tuesday, extending the losses that started to take shape on Friday. Tuesday was the third day of longs in the market since last week and bears could be lurking on a mid-week opportunity to counter the trend into in-the-money-longs as the following will illustrate.

NZDUSD H1 charts

The bears broke the micro trendline and met key support, as anticipated in the prior analysis: NZD/USD Price Analysis: Bears move in from key highs for the week

(Prior analysis, 07/11/2022)

Meanwhile, the price is now topping out at a fresh high for this and last week:

The pair is testing the commitments of the bulls at the next micro trendline. 0.5950 is important in this regard.

NZDUSD daily chart

As for the daily chart, the price is bounded by resistance and the doji could turn out to be pivotal for the pair and week. If the bears commit, then there will be prospects of a test of the broader trendline and a move into the key Fibonacci near 0.5850 in a 50% mean reversion. 

• Loonie bulls have been strengthened amid a risk-on market mood.
• The breakdown of an H&S chart pattern has triggered a bearish reversal.
• Potential death cross formation will trigger more downside ahead.

The USDCAD pair dropped in early Asia after facing barricades around the critical hurdle of 1.3468. A sheer recovery in S&P500 clarified that the risk-on impulse is solid and every pullback in risk-perceived assets has been considered as a buying opportunity for the market participants.

Meanwhile, the US dollar index (DXY) has turned sideways after a mild recovery from a fresh seven-week low at around 109.35.

On a four-hour scale, the asset has delivered a downside break of the Head and Shoulder chart pattern that indicates a bearish reversal after a prolonged consolidation phase. The south-side break of the neckline placed from October 5 low at 1.3505 has accelerated odds of a vertical fall ahead.

The 50-and 200-period Exponential Moving Averages (EMAs) are on the verge of delivering a ‘death cross’ at around 1.3585, which will add to the downside filters.

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

Going forward, a decisive move below Tuesday’s low at 1.3387 will drag the asset towards the round-levels support at 1.3300, followed by September 1 high around 1.3200.

Alternatively, the Loonie bulls could lose their grip if the asset manages to surpass the previous week’s high at 1.3809. This will drive the asset toward October 14 high around 1.3900 and October high of around 1.3978.

USDCAD four-hour chart

• EURUSD treads water after rising to a two-month high.
• Clear break of 100-DMA, three-month-old descending trend line keeps buyers hopeful.
• Bullish MACD signals, firmer RSI favor buyers to aim for upper line of the short-term bullish channel.

EURUSD seesaws around 1.0075-80, after refreshing a two-month high, as bulls await fresh clues during Wednesday’s Asian session. Even so, the major currency pair remains well on the buyer’s radar inside a bullish chart formation as it crossed the key resistance confluence, now support, the previous day.

A daily closing beyond the convergence of the 100-DMA and a downward-sloping trend line from early August, around 1.0050-40, allowed EURUSD buyers to refresh the multi-day high on Tuesday. The upside moves also gained support from the bullish MACD signals and the RSI (14).

As a result, the quote is likely to remain firmer unless declining back below 1.0040. Even so, the 1.0000 parity level and a joint of the 50-DMA and 21-DMA, close to 0.9880, could challenge the EURUSD bears.

It’s worth noting that the pair’s downside past 0.9880 hinges on a clear rejection of the six-week-old bullish channel, having a support line near 0.9760.

Meanwhile, the aforementioned channel’s resistance line near 1.0150 is an immediate target for the EURUSD buyers ahead of challenging September’s top surrounding 1.0200.

If the major currency pair remains firmer past 1.0200, the odds of witnessing a rally towards the August month high near 1.0370 can’t be ruled out.

EURUSD: Daily chart

Trend: Further upside expected

• AUDNZD picks up bids to extend the previous day’s recovery amid risk-on mood.
• New Zealand’s Electronic Card Retail Sales grew past forecasts in October but eased from priors.
• Strong equities, bonds allowed buyers to keep the reins despite mixed Aussie statistics.
• Bulls may have a tough task defending the gains should China’s monthly inflation data, covid news surprise.

AUDNZD holds onto the previous day’s upside momentum around 1.0925 during the initial Asian session on Wednesday. The risk-on mood and softer data from New Zealand (NZ) seemed to have favored the buyers previously. However, cautious sentiment ahead of the key China inflation numbers and covid fears challenge the pair’s upside of late.

That said, New Zealand’s Electronic Card Retail Sales eased to 1.0% MoM growth in October versus 1.3% prior and 0.2% expected. Further, the yearly figures suggest 16.6% increase in the data compared to 28.6% previous readings and 11.4% market forecasts.

On Tuesday, National Australia Bank’s (NAB) Business Conditions eased to 22 in October from 25 prior, versus 20 forecast. Further, the NAB Business Confidence slumped to 0 during the stated month compared to the market’s consensus of reprinting 5 figure. Additionally, the Westpac Consumer Confidence slumped to -6.9% in November versus -0.9% prior. Further, the weekly print of ANZ-Roy Morgan Consumer Confidence dropped to the lowest levels since April 2020, to 78.7 at the latest. The details of the report also mentioned that the inflation expectations were the highest since the data was first released in April 2010.

It should be noted that the hopes of easy spending, due to challenges for the US Democrats in the Mid-term Elections, seemed to have triggered the latest wave of optimism in the markets amid a lack of major data/events. In doing so, the traders also pay little attention to China’s covid woes as it registered the highest numbers in six months the previous day.

While portraying the mood, Wall Street printed a three-day uptrend whereas the US Treasury yields slumped, which in turn allowed the risk-barometer Australia Dollar (AUD) to rise.

Moving on, the key China Consumer Price Index (CPI) and the Producer Price Index (PPI) for October will challenge the pair buyers should the numbers suggest the need for the Reserve Bank of Australia (RBA) to remain cautious.

Technical analysis

AUDNZD bulls remain off the table unless witnessing a clear upside break of the 200-DMA and the six-week-old resistance line, respectively around 1.1010 and 1.1025.

• Gold price remains sidelined around 100-DMA after crossing short-term key resistance line.
• Risk-on mood joined downbeat yields to weigh on the US dollar.
• Optimism surrounding US Mid-Term Elections propelled equities, bonds amid light calendar.
• Inflation data from US/China could offer immediate directions, softer CPI can weaken XAUUSD amid talks of Fed’s easy rate hikes.

Gold price (XAUUSD) treads water around $1,712-13, after rising to the one-month high the previous day. That said, the bullion’s inaction during early Wednesday could be linked to the cautious mood amid US Midterm Elections and waiting for China’s inflation data. However, the market’s optimism surrounding the US elections outcome and a lack of major directives led to the metal’s rally that crossed a short-term key hurdle on Tuesday.

The US Mid-term Elections are underway and the Democrats may lose control in one of the Houses considering a small gap to retake control for the Republicans. The election results, which would take a couple of days, also become important as ex-President Donald Trump teased a “very big” announcement coming on November 15. Should the Democrats lose power in any house, President Biden’s policies concerning higher spending will be challenged and so the inflation may also ease.

The hopes of a respite from inflation enabled equities to rally and drowned the US Treasury yields the previous day, which in turn exerted downside pressure on the US Dollar Index (DXY). On the same line could be a reduction in the US NFIB Small Business Optimism Index for October, 91.3 versus 92.1 prior.

Given the light calendar and a lack of major macros, the XAUUSD bulls could cheer the technical break even if the latest cautious mood ahead of the key China Consumer Price Index (CPI) and the Producer Price Index (PPI) for October challenge the commodity buyers of late.

Although forecasts suggest easy inflation numbers from China, any surprise uptick might not go well with the gold buyers as they seem running out of steam of late.

Technical analysis

A daily closing beyond the three-week-old resistance line, now support around $1,677, allows gold buyers to keep the reins even as the 100-DMA challenges the immediate upside around $1,717.

It’s worth noting, however, the RSI (14) is approaching the overbought territory and is also forming a bearish divergence with the prices.

Hence, further upside hinges on a clear break of $1,717, which in turn could propel prices toward the tops marked in October and September, respectively near $1,730 and $1,735.

Meanwhile, XAUUSD declines remain elusive until the quote stays beyond the resistance-turned-support surrounding $1,677. That said, the $1,700 threshold late September swing high around $1,688 may act as an intermediate halt during the fall.

Overall, gold buyers are running out of steam but the bears need validation from $1,677 to retake control.

Gold price: Daily chart

Trend: Limited downside expected

• AUDUSD is aiming to shift business above 0.6500 amid a cheerful market mood.
• US core CPI data will remain in the spotlight for further guidance on US monetary policy.
• A decline in China’s CPI will accelerate the odds of a dovish policy from the PBOC.

The AUDUSD pair has turned sideways above the psychological resistance of 0.6500 in the early Asian session. In late New York, the asset rebounded after sensing a buying interest of around 0.6480. A sheer recovery in the S&P500 futures indicated that the risk profile is still solid and the decline has been bought by the market participants.

Meanwhile, the US dollar index (DXY) has rebounded marginally after registering a fresh seven-week low at 109.36. The 10-year US Treasury yields have dropped to 4.13% amid chatters over a less-hawkish monetary policy by the Federal Reserve (Fed) in December.

But before that, investors are laser-focused on the release of the US Consumer Price Index (CPI) data, which will release on Thursday. As per the estimates, the headline inflation is seen lower at 8.0% vs. the prior release of 8.2%. Weaker gasoline prices are continuously weighing on the headline inflation rate as oil is a key component.

While the core CPI that excludes oil and food prices is seen marginally lower at 6.5% against the former release of 6.6%. The absence of promising exhaustion signs in the core CPI has remained a major factor, which drove Fed’s interest rates at sheer speed.

On the Aussie front, investors are awaiting the release of China’s CPI data. The annual inflation rate is seen lower at 2.4% vs. 2.8% reported earlier. A decline in the inflationary pressures will trigger the expectations of more stimulus packages and dovish commentaries from the People’s Bank of China (PBOC). It is worth noting that Australia is a leading trading partner of China and PBOC’s policies have a significant impact on the antipodean.

• AUDJPY is subdued slightly above the 50/100-day Exponential Moving Averages (EMAs), which are almost flat.
• If The AUDJPY cracks 95.74, it could climb toward 96.00.
• AUDJPY Price Analysis: Once it clears the 50/100-day EMAs, a fall toward 93.50 is on the cards.

The AUDUSD sits above the 50-day EMA following a subdued trading session in the financial markets that witnessed US equities fluctuating, though, in the end, Wall Street finished with decent gains. Therefore, risk-perceived currencies trimmed some of their earlier losses. The AUDUJPY is trading at 94.72, down by 0.21%, beneath its opening price.

AUDJPY Price Analysis: Technical outlook

Consolidation is the name of the game for the AUDJPY. With the 50 and 100-day EMAs lying within a narrow 33-pip range (94.57-94.22), price action meandered above the former, registering a weekly high of 95.19, while the Relative Strength Index (RSI) edged towards the 50-midline, still in bullish territory, though with a bearish slope, suggesting buying pressure is fading.

However, if Australian Dollar buyers reclaim the October 21 pivot high at 95.74, a test of the 96.00 psychological level is on the cards. Otherwise, market sentiment shifting sour or another round of intervention by the Bank of Japan (BoJ) would expose the Aussie Dollar to further selling pressure.

Therefore, the AUDJPY's first support would be the confluence of the 50/100-day EMAs at around 94.57-94.22. A breach of the latter will expose an almost one-month-old upslope support trendline at around 93.50 before tumbling toward the psychological 93.00 figure on its way to the 200-day EMA at 91.85.

AUDJPY Key Technical Levels

• GBPUSD is looking to reclaim the 1.1600 hurdle amid an upbeat market mood.
• US stocks will perform strongly if Fed confirms a slowdown in the rate hike pace.
• The BOE will do whatever is needed to drag the inflation rate to 2%.

The GBPUSD pair has witnessed the entry of smart money after a corrective move from 1.1600 in the early Tokyo session. The Cable is expected to recapture a weekly high around 1.1600 amid an improvement in investors’ risk appetite. Positive market sentiment is continuously punishing the mighty US dollar index (DXY).

The DXY slipped to near 109.35 and registered a fresh seven-week low and three-consecutive bearish trading sessions for the first time in the past two months. S&P500 is having a ball and has been on a winning spree. It seems that expectations for a slowdown in the pace of the rate hike chosen by the Federal Reserve (Fed) are fetching optimism.

The 10-year US Treasury yields have dropped dramatically to 4.13% as guidance from Fed is getting less hawkish. Also, anxiety ahead of October’s Consumer Price Index (CPI) report is keeping US government bonds’ returns at the edge.

Economists at Charles Schwab are of the view that “Central banks seem to be stepping down from aggressive rate hikes, which may lead to a year-end "Santa Pause" rally for stocks”. They further added that “There can be no guarantee that central banks will continue to step down the pace of their hikes or pause them, but if they do it is possible a ‘Santa Pause’ rally could be in store for markets as the year draws to a close.”

On the UK front, Bank of England (BoE) Chief Economist Huw Pill at the UBS European Conference cited that the central bank will be blamed for the UK recession but it is driven by other factors. The BOE will do whatever is needed to drag the inflation rate to 2%. Going forward, UK’s Gross Domestic Product (GDP) data will remain in focus. The GDP data on an annual basis is seen lower at 2.1% vs. the prior release of 4.4%. And, the quarterly regime is expected to display negative growth by 0.5% against an expansion of 0.2%.

• EURUSD bulls are throwing in the towel into he close on Wall Street. 
• The US Dollar is trying to battle back into bullish territory ahead of US CPI.

EURUSD rallied in a broad risk-on setting, taking out the Monday highs for a fresh high for the week, eating into shorts from the prior. At the time of writing, the pair is ducking below 1.0096 highs into 1.0078 but remains a good 100 pips above the lows of the day.

Investors cheered the prospects of gridlock in US politics as the US midterm election voting got underway with results expected later tonight in the US hours. Investors are hoping for a political gridlock that could prevent radical policy changes and for a slowdown in the pace of rate hikes from the Federal Reserve. The UK's Telegraph explained that ''the first wave of vote tallies are expected on the East Coast between 7 pm and 8 pm EST (12 am and 1 am GMT). An early indication of Republican success could come if the races expected to be close - like Virginia's 7th congressional district or a US Senate seat in North Carolina - turn out to be Democratic. By around 10 pm or 11 pm EST, when polls in the Midwest will be closed for an hour or more, it is possible Republicans will have enough momentum for experts at US media organisations to project control of the House.''

Eyes turn to US CPI

As for the Fed, there were no officials slated during the midterm elections although there will be plenty to go on between speakers and data before the December 13-14 meeting. However, for this week, the US Consumer Price Index will be critical. It will be scrutinized and analysts at TD Securities suggested that Core prices likely slowed modestly in October but to a still strong 0.4% MoM pace.'' All told, our MoM forecasts imply 7.9%/6.5% YoY for total/core prices.

'A below consensus print is likely to help push the pricing for the terminal funds rate modestly lower, likely bull steepening the curve in the process,'' analysts at TD Securities argued. ''The risk of a lower reading is why we took profit on our 2s10s curve steepener last week and went long 10y Treasuries, which we viewed as attractive,'' they said.  

EURUSD a fade on rallies

Analysts at Rabobank would argue that the Euro is lofty and rallies would be a fade considering the various macro implications for the eurozone economy and the length that is being built up in speculative positioning. ''The latest CFTC speculators’ positioning data have showed a sharp ramping up in the levels of net EUR longs over the past two weeks, to the highest levels since June last year. ''

''The positive sentiment surrounding the EUR in late October and into the first day of November reflects the impact of both the 75 bps rate hike from the ECB last month and the relief that came from the falling back of European gas prices in October.  Helped also by a broadly softer greenback in recent days, EUR/USD is currently testing parity and pushing up against its 100 day sma.  A break above could encourage more buyers in the near term.'

''However, in our view, fundamentals are still bias towards further downside pressure for the currency pair in the coming months, meaning we would view rallies as an opportunity to sell.  In particular we don’t see the EUR as being priced for the impact of winter 2023 and what a prolonged period of expensive energy may mean for the German business model, Europe’s trade and current account balances and the value of the EUR. We have revised lower our forecast for EUR/USD on a 12 mth view to 0.95 from 1.05.  We expect EUR/USD to trade choppily around this level in the months ahead.''

• Silver prices resume their bullish trend to hit four-month highs at $21.65.
• US dollar weakness boosts precious metals.
• The pair needs to consolidate above $21.30/50 resistance area.

Silver prices resumed their rally on Tuesday, following a moderate pullback on Monday, with the white metal stretching above the $21.30 resistance area to reach fresh four-month highs at $ 21.65

Precious metals appreciate as the US dollar dives

In the absence of relevant macroeconomic data and with the US elections in the spotlight, precious metals have rallied during the North American session. US Treasury bonds have reacted with declines to the first polls pointing out to a Republican victory, dragging down the US dollar with them.

The US Dollar Index has turned lower after having appreciated moderately during the Asian and European trading sessions, extending its reversal from last week's highs at 113.15 to six-week lows at 109.30 area.

A republican takeover is highly likely to lead to a Congress gridlock and block the stimulus measures projected for 2023. This would ease the Federal Reserve’s pressure to keep hiking rates at the current pace, which has brought the idea of the dovish pivot, back to the table.

XAGUSD is struggling at the $21.30 resistance area

Silver prices are now attempting to consolidate above the $21.30/50 resistance area where the October 4 high and the 38,2% Fibonacci retracement level of the March-August decline meet the 200-day SMA>

Above here, the next potential targets would be mid-June highs at $21.90 ahead of the 50% Fibonacci level, at $22.45.

The pair, however, has reached overbought levels in hourly and daily charts, which anticipates the possibility of a moderate pullback before further rally should be contemplated.

Immediate support lies at the intra-day level of $20.60, ahead of the $20.00 round level and the 50 and 100-day SMAs at $19.30/50.

XAGUSD daily chart

Technical levels to watch

• The GBPJPY snaps two days of gains, diving almost 90 pips amidst a risk-off impulse.
• GBPJPY Price Analysis: Neutral-to-upward biased, but failure to crack 169.00, exposed the pair to selling pressure.

The GBPJPY drops from weekly highs at around 169.08 as sentiment shifts, with most US equities trading in the red, except for the Dow Jones Industrial, clinging to gains. In the FX, safe-haven currencies begin to pare their earlier losses, so the Japanese Yen is staging a comeback against the Pound Sterling. At the time of writing, the GBPJPY is trading at 167.92, down by 0.47%.

GBPJPY Price Analysis: Technical outlook

After snapping four days of consecutive losses, the GBPJPY recovered some ground and registered this week’s previous high at around 169.09. However, as market sentiment shifted negatively, the cross-currency pair tumbled but failed to push below 167.60, which could open the door for a re-test of weekly lows at 165.92. Hence, the GBPJPY’s first support would be the 167.00 figure. The break below will expose the 166.00 psychological level, followed by the weekly low.

Otherwise, if the GBPJPY stays above 167.60, the pair could resume its uptrend but face solid resistance levels on the upside. The first supply zone would be the psychological 168.00 figure, followed by the weekly high of 169.09 and then the 170.00 mark.

GBPJPY Key Technical Levels

• Gold is on the move and on the backside of a key trendline.
• The US Dollar is under pressure to test a key daily trendline. 

The Gold price is running higher on the day as the US dollar falls away while XAUUSD head close to the $1,720s scoring a high of $1,716.97 so far. DXY, an index that measures the greenback vs. a basket of currencies has come under scrutiny as it drops below the 110 mark, a level not seen in almost two weeks. This is also taking on a critical daily trendline, as illustrated below, a break which could be significant for the price of the yellow metal in the days to come. DXY was trading at a low of 109.39 so far from 110.61 as the high. 

Risk appetite returned to the markets with attention turning to the midterm elections, with results that are due out later in the day. Investors are hoping for a political gridlock that could prevent radical policy changes and for a slowdown in the pace of rate hikes from the Fed. This in turn is weighing on the greenback, US yields and is thus beneficial for the price of gold.

Control of just one chamber of Congress by Republicans would put a block on President Joe Biden's legislative push for more business regulations. ''Congressional Republicans have threatened a debt ceiling showdown next year in an effort to cut entitlements and Medicare if they win a majority in the House.  In recent weeks, polls have been tilting in favour of the Republicans in both the House and the Senate,'' analysts at Brown Brothers Harriman explained. 

When can we expect US midterm election results?

The UK's Telegraph explained that ''the first wave of vote tallies are expected on the East Coast between 7 pm and 8 pm EST (12 am and 1 am GMT). An early indication of Republican success could come if the races expected to be close - like Virginia's 7th congressional district or a US Senate seat in North Carolina - turn out to be Democratic.

By around 10 pm or 11 pm EST, when polls in the Midwest will be closed for an hour or more, it is possible Republicans will have enough momentum for experts at US media organisations to project control of the House.''

US CPI and outlook for the Fed

Investors also await key US inflation data later this week that could influence the size of the Federal Reserve's rate hike in December. Markets are pricing in a scenario that the Fed will hike rates by 50 basis points in December after delivering four successive 75 basis point rate increases and despite the Chair Jerome Powell's pushback against a pivot following last week's Fed decision.

In his presser, Jerome Powell argued that we could see a higher terminal rate vs the prior market expectations. However, in the recent Nonfarm Payrolls report, the Unemployment Rate was a disappointment. This, combined with recent dovish rhetoric from some Fed speakers following prior disappointments on other important data, such as Manufacturing and Services, investors have begun to flip the switch on their outlook for the Fed and expect a slower pace of tightening is on the cards.

Looking ahead in this regard, we will get one more jobs report and two sets of inflation and Retail Sales data before the December 13-14 meeting. However, for this week, the US Consumer Price Index will be critical. It will be scrutinized and analysts at TD Securities suggested that Core prices likely slowed modestly in October but to a still strong 0.4% MoM pace.'' All told, our MoM forecasts imply 7.9%/6.5% YoY for total/core prices.

'A below consensus print is likely to help push the pricing for the terminal funds rate modestly lower, likely bull steepening the curve in the process,'' analysts at TD Securities argued. ''The risk of a lower reading is why we took profit on our 2s10s curve steepener last week and went long 10y Treasuries, which we viewed as attractive,'' they said.  Ultimately, this would be encouraging for gold as a softer core print will exacerbate positioning which has moved to swiftly reduce USD longs recently. Conversely, chatter that the Fed may tilt somewhat less hawkish has convinced Gold specs to build more modest long positions that could continue in such an outcome for this week's CPI.

Gold technical analysis

As per the pre-open weekly analysis on Gold, Gold, Chart of the Week: XAUUSD bulls pushing up against key resistances ahead of US CPI, it was stated that '' the charts see the price pressured in a firm downtrend and there are prospects of a bull correction to fully test the bear's commitments ahead of the US Consumer Price Index data for the forthcoming week''

That W-formation looks menacing for the week ahead with prospects of a push into the trendline and when coupled with the following Crab harmonic pattern on the daily chart:

Gold update

With a high of $1,716, there is still some way to go until the $1,730 rounded number and October highs. Indeed, there are still a number of sessions to go until the US CPI event as well and a day is also a long time in US politics.

If the US Dollar breaks clean below the trendline, then the gold has the potential to move higher:

• The euro is trading in a range between 0.8700 and 0.8740.
• The pair has eased bearish pressure after breaking downtrend resistance from late-September highs.

The euro has found support at 0.8700 after Monday’s rejection at 0.8790 and the pair has remained consolidating for most of the day, with upside attempts limited below 0.8745.

From a wider perspective, the daily chart (in the image) shows the pair hesitating above the bearish trendline resistance from late-September lows, now around 0.8540, with the 20-day SMA, at 0.8690 acting as support.

On the upside, the pair should breach the intra-day level at 0.8740 to resume the upside trend from late-December lows at 0.8575, and aim for the October 12 high at 0.8865 on its way to the 0.9000 psychological level.

So far, the mentioned 20-day SMA at 0.8690 is holding bears, with the next potential targets on the downside at the 0.8645 trendline and then probably the 100-day SMA, at 0.8600.

EURGBP daily chart

Technical levels to watch

What you need to take care of on Wednesday, November 9:

Financial markets started the day in cautious mode amid the lack of relevant news and ahead of the release of US inflation figures. The American Dollar posted a modest intraday comeback but finished the day plummeting to fresh monthly lows against most of its major rivals.

There was no clear catalyst for the US Dollar’s collapse, although the positive tone of US equities and easing government bond yields put pressure on the greenback after Wall Street’s opening. The yield on the 2-year Treasury note touched an intraday low of 4.65% after peaking at a multi-year high of 4.80% on Friday. It later recovered to settle just below the 4.70% level.

The DJIA rallied for a third consecutive day, but the S&P500 and the Nasdaq Composite posted modest gains.

The results of the US mid-term elections would take a couple of days. They could have long-lasting effects on the American dollar, mainly if Democrats are not able to retain control of both houses. Republicans do not need much to seize control of Congress. If that’s the case, they may oppose President Joe Biden’s massive expenses, which would exacerbate the risk of an economic downturn. Equities will likely collapse, and it does not seem the dollar could benefit much from it.

The EURUSD pair neared 1.0100 and holds on to gains ahead of the US close, despite some discouraging news. A new chapter of the European energy crisis was written after the European Commission said there is no way to create a gas price cap as requested by EU leaders at the end of October.

GBPUSD benefited from the broad dollar weakness also from Bank of England Chief Economist Huw Pill, who said the central bank has “more to do” on tightening the monetary policy. The pair trades around 1.1550.   

The USDJPY pair edged sharply lower, now trading around 145.50. The Japanese cabinet approved a second supplementary budget spending worth 29.1 trillion yen for this fiscal year to fund an economic stimulus package. Meanwhile, AUDUSD hovers around 0.6510 while USDCAD trades in the 1.3420 price zone.

Gold soared and reached levels last seen in September. The bright metal trades around $1,714 a troy ounce. Crude oil prices, on the other hand, were sharply down, with WTI now trading at around $89.40 a barrel.

Loads of noise in the crypto market amid the collapse of FTX and Binance’s decision to save the crypto exchange. Bitcoin plummeted to $18,355, a fresh 2022 low. 

• Oil price dips on renewed fears about Chinese demand.
• The US dollar's reversal has failed to support crude prices.
• WTI falls beyond 2% on the day to hit session lows near $90.00.

WTI prices have extended losses for the second consecutive day on Tuesday, as hopes about a relaxation of the COVID-19 restrictions in China faded, and the investors brace for the outcome of the US mid-term elections.

China confirms its Zero-COVID policy

Hopes that China was contemplating a relaxation on the coronavirus restrictions waned on Tuesday. The Chinese authorities confirmed their commitment to strict COVID-19 controls, which has reactivated fears of negative consequences in oil demand, as the infections increase as the winter flu season approaches.

Furthermore, the uncertainty about the outcome of the US mid-term elections has increased negative pressure on oil prices. Investors have adopted a wait-and-see stance, while the first polls point out to a Republican victory.

The dollar reversal witnessed during the North American trading session has failed to offer any relevant aid to oil futures. Crude prices have dropped more than 2% on the day, extending their reversal from Monday’s highs at 93.65 to session lows right above $90.00.

Technical levels to watch

• USDCHF tumbles after hitting a daily high of 0.9926 amidst US Dollar weakness.
• USDCHF Price Analysis: A daily close below the 50-DMA might exacerbate a fall toward 0.9700.

The USDCHF tumbles for the second straight day and falls beneath the 50-day Exponential Moving Average (EMA) as the American Dollar gets battered across the board amidst a risk-on impulse underpinning risk-perceived assets. Furthermore, US Treasury yields sank, undermining the greenback. At the time of writing, the USDCHF is trading at 0.9860, below its opening price by 0.15%.

USDCHF Price Analysis: Technical outlook

The USDCHF remains neutral-to-downward biased, even though the major dived since last Friday, when the USDCHF fell short of testing the YTD high at 1.0147, plunging almost 190 pips, after the release of US employment figures. However, the data was mixed, bolstered speculations that the US Federal Reserve will slow the pace of rate hikes.

Since then, the USDCHF extended its losses by more than 1.20%, and the 50-day EMA at 0.9852 is acting as support at the time of typing. So if USDCHF sellers achieve a daily close below the latter, that would expose the 100-day EMA at 0.9734, and the USDCHF will need to hurdle some key support levels.

Therefore, the USDCHF's first support would be the 50-day EMA, followed by the psychological 0.9800 figure. Once cleared, the next support would be the October 6 daily low at 0.9708, followed by the 100-day EMA.

On the upside, the USDCHF first resistance would be 0.9900. Break above will expose the parity, followed by the 1.0100 figure.

USDCHF Key Technical Levels

• The kiwi appreciates to 0.6000 amid broad-based dollar weakness.
• USD dives on speculation of a Republican victory in the mid-term elections.
• NZDUSD might appreciate to 0.6500 in 2023 – ANZ.

New Zealand's dollar bounced off the 0,5925 area earlier during Tuesday’s US session, to breach the top of the previous days' trading range, around 0.5950, and reach levels near 0.6000 for the first time since mid-September.

The US dollar dives as the Americans vote

Market speculation about a Republican victory in the mid-term elections has been welcomed by investors. US stock markets have extended gains after a lukewarm opening, with the US dollar and US Treasury bonds losing ground.

The first polls are anticipating a Republican win that may bring Congress to a gridlock. This scenario is expected to complicate the approval of the stimulus measures projected for next year, which would ease pressure on the Federal Reserve to keep ramping up interest rates.

The US dollar Index has dropped nearly 0.9% during the US session to hit six-week lows at 109.40, with the 10-year US Treasury yields retreating from 4.22% to 4.13%.

US stocks, on the other hand, are going through a solid advance, following a mixed opening. The Dow Jones Index trades 1.5% higher, while the S&P Index advances 1.2% and the Nasdaq Technological Index moves 1.5% above the opening levels.

NZD/USD expected to reach 0.65 in 2023 – ANZ

In the long run, FX Analysts at ANZ observe a bullish potential on the pair and point out to a 0.65 target: “With the RBNZ expected to hike by 75 bps at the next two meetings, and the Fed expected to slow the pace of hikes, the NZD has scope to regain some lost ground (…) “One other string in the NZD’s bow is the gap between its current level and fair value, which we see at around 0.65. Our forecasts have this gap slowly closing over coming quarters, taking the NZD to fair value by the end of 2024.”

Technical levels to watch

• US stocks rally in the hope of political gridlock and a Fed pivot. 
• US CPI this week will be key as will the results of the midterm elections.

Following a bullish session in Asia, with the Japanese index Nikkei 225 (JP225) reaching its highest level since the 15th of September at around 27,861 points, US stock indexes rose for the third straight session as voting began in the crucial midterm election. The widespread belief is that a Republican win will make it really hard, if not impossible, for Democratic President Joe Biden to carry out proposed tax rises. At the time of writing, the Dow is up 1.43%, the S&P 500 is up 1.15% and the Nasdaq is higher by 1.63%.

When combining the bullish prospects of the elections with a recent turn in sentiment surrounding the Federal Reserve, risk-on is the name of the game this week. Investors are hoping for a political gridlock that could prevent radical policy changes and for a slowdown in the pace of rate hikes from the Fed. Control of just one chamber of Congress by Republicans would put a block on President Joe Biden's legislative push for more business regulations. ''Congressional Republicans have threatened a debt ceiling showdown next year in an effort to cut entitlements and Medicare if they win a majority in the House.  In recent weeks, polls have been tilting in favour of the Republicans in both the House and the Senate,'' analysts at Brown Brothers Harriman explained. 

When can we expect results?

The Telegraph explains that ''the first wave of vote tallies are expected on the East Coast between 7 pm and 8 pm EST (12 am and 1 am GMT). An early indication of Republican success could come if the races expected to be close - like Virginia's 7th congressional district or a US Senate seat in North Carolina - turn out to be Democratic.

By around 10 pm or 11 pm EST, when polls in the Midwest will be closed for an hour or more, it is possible Republicans will have enough momentum for experts at US media organisations to project control of the House.''

US CPI and Fed outlook

Sentiment slipped on the back of last week's nonfarm Payrolls data and a pivot is eyed by markets sooner than later, despite the Chair Jerome Powell's pushback following last week's Fed decision. In his presser, he advocated a higher terminal rate vs market expectations. However, the Unemployment Rate was a disappointment on Friday and investors are of the mind that a slower pace of tightening is on the cards. We will get one more jobs report and two sets of inflation and Retail Sales data before the December 13-14 meeting. Meanwhile, WIRP suggests a 50 bp hike then is fully priced in, with 30% odds of a larger 75 bp move. The swaps market continues to price at a terminal rate near 5.25%. This brings us to this week's key event in the US Consumer Price Index.

''A below consensus print is likely to help push the pricing for the terminal funds rate modestly lower, likely bull steepening the curve in the process,'' analysts at TD Securities argued. ''The risk of a lower reading is why we took profit on our 2s10s curve steepener last week and went long 10y Treasuries, which we viewed as attractive.''  Ultimately, this would be encouraging for stocks as a softer core print will exacerbate positioning which has moved to swiftly reduce USD longs recently and support risk appetite. 

• Silver price soars more than 3%, back above $21.40s, eyeing a break of the 200-DMA.
• Falling US Treasury yields undermine the greenback, which is also down by more than 0.60%.
• Silver Price Analysis: A daily close above the 200-DMA will exacerbate a rally toward $23.00.

Silver price rallies sharply and is testing the 200-day Exponential Moving Average (EMA) as US Treasury bond yields drop, undermining the American Dollar, on Tuesday amidst a light economic calendar, as US midterm elections get the center spotlight. At the time of typing, the XAGUSD is trading at $21.47 after hitting a fresh 5-month high at $21.62.

Silver price skyrockets as US Treasury yields dip

Wall Street trades in the green, registering gains between 1.16% and 1.48%. The midterm elections in the United States are the main driver of the session, underpinning risk-perceived assets linked to equities rallying after the polls. However, the lack of US economic data until Thursday’s Consumer Price Index (CPI) for October is expected to ease, with headline estimated at 8% and core CPI at 6.5% on annual base readings.

Meanwhile, US Treasury yields, particularly the 10-year benchmark note rate, have decreased from weekly highs of 4.24% to 4.141%. Expectations for the Federal Reserve’s December meeting remain tilted towards hiking 50 bps, as shown by the CME FedWatch Tool at 56.8%. The odds for a 75 bps increase are 43.2%, unchanged from a day ago.

The US Dollar Index, which tracks the buck’s value against a basket of peers, plunges 0.66% and exchanges hands at 109.503, though it should be noted that it has fallen from daily highs at around 110.610.

A light US economic docket revealed the US Redbook Index, which came at 7.6% below its previous reading, while the US IBD/IPP Economic Optimism for November dived from 41.6 to 40.4.

Silver (XAGUSD) Price Analysis: Technical outlook

Silver price is advancing sharply and pierced the 200-day EMA toward hitting the 5-month high at $21.62. Nevertheless, it trimmed some gains, hoovering around the 200-day EMA at $21.48. if XAGUSD buyers achieve a daily close above the latter, the white metal bias will shift upwards, opening the door for further gains. Hence, the XAGUSD’s first resistance would be $22.00, followed b the June 6 swing high at $22.51, followed by the psychological $23.00.

• The pound shrugs off previous weakness and jumps to session highs near 1.1600.
• US dollar dives, stock markets advance as the Americans go to the polls.
• Investors welcome the first surveys hinting at a Republican victory.

The pound rushed higher during Tuesday’s US session, bouncing off the 1.1470 area to erase daily losses and session highs right below 1.1600 as the Americans head to the polls.

US stocks advance and the dollar dives with all eyes on the elections

The greenback has dropped across the board in the US trading session, with US Treasury bond yields losing ground and Wall Street posting gains, with all eyes on the outcome of the US mid-term elections.

A hitherto rangebound market has led to a significative US dollar pullback as the first surveys started hinting at a Republican victory. This scenario might create a gridlock in the US Congress that would be welcomed by the market as it will hinder the approval of new regulations.

US stock indexes have extended gains after a mixed market opening. The Dow Jones advances 1.6%, while the S&P500 and the Nasdaq Indexes are 1.5% and 1.2% up respectively at the time of writing.

The US Dollar Index, which measures the value of the USD against a basket of the most traded currencies has turned negative on the daily chart, dropping from the 110.30/40 area to six-week lows at the lower range of the 109s.

Technical levels to watch

• USDCAD plunges close to 0.80% on Tuesday amid broad US Dollar weakness.
• Midterm elections in the United States and Thursday’s US Consumer Price Index (CPI) keeps investors leaning on market sentiment moves.
• USDCAD Price Analysis: A head-and-shoulders chart pattern to send the pair towards 1.3030, shy of the 200-day EMA.

The USDCAD tumbled below the 50-day Exponential Moving Average (EMA) as the US Dollar suddenly weakened across the board as US midterm elections got underway, which has usually been positive for US stocks,risk-perceived assets, to the detriment of the safe-haven status of the greenback. Therefore, the USDCAD is trading at 1.3390, below its opening price by 0.72% after hitting a daily high of 1.3526

The US Dollar sells off, while risk assets extend their gains

Wall Street is extending its gains after opening mixed. The American Dollar is getting battered, as shown by the US Dollar Index, down 0.55%, at 109.60, about to hit a fresh 8-week low. US Treasury yields are also heading south, as the US 10-year extends its losses by almost seven bps, at 4.149%. The United States midterm election grabbed all the headlines, while traders brace for October’s Consumer Price Index (CPI) in search of cues of what the Federal Reserve might do at the next meeting.

In the last week, US employment figures exceeded estimates, but the report was mixed. Even though more jobs were added to the economy, the unemployment rate edged higher, from September’s 3.5% to 3.7%, while wages slid. That said, investors perceived the report as the first sign that the labor market is finally easing.

Concerning the Canadian economy, the latest jobs report smashed the 10K expectations rose by 108K, while Average Hourly Wages increased by 5.5% YoY, above 5.2% of the previous month, adding upward pressures on inflation, which would open the door for further Bank of Canada tightening.

What to watch

On Wednesday, the Canadian economic calendar is empty. On the US front, Fed speakers led by John Williams and Thomas Barking would cross newswires. Data-wise, Wholesale inventories and MBA mortgage applications would be released.

USDCAD Price Analysis: Technical outlook

The USDCAD is neutral biased, though a head-and-shoulders formation in the daily chart surfaced, opening the door for further losses. Also, traders need to be aware that the USDCAD slid below the head-and-shoulders neckline, validating the chart pattern, which, as measured by the distance between the YTD high and the neckline, would fall towards 1.3033. Therefore, the USDCAD first support would be the 1.3300 figure, followed by the 100-day Exponential Moving Average (EMA) at 1.3212, followed by the psychological 1.3100.

• The aussie breaks higher to reach one-month highs above 0.6300.
• The US dollar dives with all eyes on the mid-term elections.
• AUDUSD: A breach of 0.6550 might puss the pair to 0.6680/6750 – SocGen.

The Australian dollar broke higher with the US dollar dropping across the board on Tuesday’s US session. The pair has broken past 0.6480 resistance area to reach levels past 0.6500 for the first time since early October.

The dollar dives with the market's focus on the US elections

A hitherto steady US dollar has lost momentum on the US morning trade, heading lower across the board with the market focusing on the US mid-term elections. Although the final results may still take days, the first polls are anticipating a Republican victory, that might bring the US congress to a gridlock.

That scenario would complicate Biden’s plan to pass the fiscal stimulus measures projected for the next year, which would provide further reasons for the Fed to ease its sharp monetary tightening cycle.

In a rather thin macroeconomic docket, Australian Business conditions deteriorated less than expected in October, although business confidence stalled, reaching its lowest level since January, according to data from the National Australian Bank.

In the US, the NFIB Business Optimism index retreated to 91.3 in October from 92.1 in the previous months. The highlights of the week in the US =calendar, however, will be October’s CPI data, which might offer further insight into December’s monetary policy decision.

AUDUSD: Above 0.6550, the pair might reach 0.6680/6750 – SocGen

From a technical perspective, FX analysts at Société Générale see the pair appreciating further if the 0.6550 resistance is broken: “The pair is evolving within an Inverted Head and Shoulders denoting potential rebound (…)Neckline at 0.6550 is the first layer of resistance. If this is overcome, a short-term up move could materialize towards the July low of 0.6680/0.6750.”

Technical levels to watch

• USDMXN is bearish despite extreme oversold readings.
• The next target is seen at the 19.20/25 support area.
• Recovery above 19.50 to alleviate bearish pressure.

The USDMXN is trading at 19.46, after matching the lowest intraday level since March 2020. Earlier on Tuesday, it rose to 19.50 but then turned to the downside amid a sharp decline of the US Dollar across the board, on US Election Day and ahead of US and Mexico inflation data. On Thursday, Banxico will decide on monetary policy.

The USDMXN is looking comfortable below 19.50, holding a solid negative bias and with the doors open to more losses even as technical indicators in the daily chart show oversold conditions. Below 19.42, the next barrier is seen around 19.20/25 which if reached could trigger a rebound.

The greenback needs to recover firm above 19.50 to alleviate the bearish pressure and point to some consolidation ahead, most likely between 19.50 and 19.70. If the move extends to levels above 19.80, it would suggest a return to the 19.80-20.00 range. 

USDMXN daily chart

• The euro bounces up and hits session highs at 1.0050.
• The US dollar pulls back with all eyes on the US elections.
• EURUSD is aiming for 1.0100 – SocGen.

The euro has squeezed higher on Tuesday’s US trading to hit session highs at 1.0550 with the US dollar dropping suddenly across the board. From a wider perspective, however, the pair has been moving without a clear direction, both sides of the parity level, with the investors adopting a more cautious stance.

The dollar dives with all eyes on the US mid-term elections

Appetite for risk waned on Tuesday as the markets await the outcome of the US mid-term elections. The definitive results of the elections are likely to draw out for some days but initial polls are suggesting a Republican victory that would trigger a Congress gridlock.

The foreseen Republican victory is likely to complicate the approval of the fiscal stimulus measures expected to be launched next year, which would ease pressure on the Fed to ramp up interest rate hikes.

The US dollar has rallied across the board this year, appreciating beyond 10% against the euro, fuelled by the Federal Reserve’s aggressive monetary tightening cycle. With market developments feeding speculation about the end of that cycle, the US dollar might start to give away gains.

EURUSD: aiming to 1.0100 – SocGen

Currency analysts at Société Générale see the pair aiming for October’s peak, at 1.0100: “Daily MACD has been posting positive divergence since July and has now entered positive territory denoting downward momentum is gradually receding. However, the pair has to establish itself beyond 1.0100 to affirm an extended bounce towards 1.0190 and graphical levels of 1.0290/1.0360.” 

Technical levels to watch

This year’s move by EURUSD to, and then below, parity marked the first time in about 20 years that the currency pair has traded at these levels. Economists at Rabobank expect EURUSD to move around 0.95 in the coming months.

Fundamentals still biased toward further downside pressure for the Euro

“Fundamentals are still biased towards further downside pressure for the currency pair in the coming months, meaning we would view rallies as an opportunity to sell.”

“In particular we don’t see the EUR as being priced for the impact of winter 2023 and what a prolonged period of expensive energy may mean for the German business model, Europe’s trade and current account balances and the value of the EUR.”

“We have revised lower our forecast for EURUSD on a 12-month view to 0.95 from 1.05. We expect EURUSD to trade choppily around this level in the months ahead.” 

A volatile week ended with EURNOK closing below 10.20. Economists at Société Générale expect the pair to sustain further losses on a dip under the 200-Day Moving Average (DMA) at 10.05.

Short-term resistance seen at 10.54/10.56

“A short-term pullback is taking shape; a revisit of the 200-DMA near 10.05 is not ruled out. In case the pair fails to defend this MA, a deeper downtrend is likely towards 9.91 and the lower band of the channel at 9.72/9.70.”

“Short-term resistance is at 10.54/10.56, the 76.4% retracement of recent pullback.”

• Greenback turns sharply on a surprise moved, US yields also sink.
• US votes a new Congress and governorships.
• USDJPY could post lowest daily close in a month.

The USDJPY accelerated the decline on Tuesday amid a broad-based USD decline and also amid a rally in Treasuries. The pair bottomed at 145.47, hitting the lowest intraday level since October 27. It is hovering near the lows, under pressure, and starting to look at the 145.00 critical support.

And suddenly… a free fall

It was a quiet session, with markets looking how US votes, when the greenback turned sharply lower with no particular trigger. The DXY turned negative and broke under 110.00. It is down for the third consecutive day, now looking at October lows. The US 10-year fell from above 4.20% to 4.15% while the US 2-year dropped from 4.71% top 4.67%, the lowest level since Friday.

US mid-term elections are taking place with Republicans poised for a victory according to the latest polls that could give them full control of Congress. People are voting to elect one third of the Senate, all seats of the House of Representatives, and more than 30 governors. Biden’s administration agenda is at risk.

Regarding US economic data released on Tuesday, the NFIB Business Optimism Index declined in October to 91.3 from 92.1. On Asian hours, Chinese inflation numbers are due and on Thursday US CPI, a report that will weight on expectations about Federal Reserve’s monetary policy.

Looking at 145.00

The slide in USDJPY has taken the 145.00 area back into the radar. A firm break below could trigger more losses, with no much support until 143.80. The mentioned area could also prompt a rebound of the USD. It is a critical level. On the upside, the bearish pressure will fade if the pair rises above 147.00.

USD holds range ahead of mid-term elections but charts suggest bearish pressures, economists at Scotiabank report.

Washington gridlock to be supportive for stocks

“While the results – especially those from the more contentious races or where the tallying of votes may take some time – risk being disruptive, markets appear to be betting on Washington gridlock (assuming the Republicans do take control of Congress) being supportive for stocks.”

“We note that seasonal trends typically run USD-negative through Q4. Some year-end USD offshore funding pressures are evident (via cross-currency basis) but tensions have eased somewhat over the past couple of weeks, suggesting that USD liquidity, while a little tighter amid rising US interest rates, is not especially problematic at this point. If risk appetite does pick up further momentum into year-end, the USD is liable to ease.” 

“Technically, we note incremental pressure on broader measure of the USD’s performance (DXY, Bloomberg Dollar Index) which supports the nearer-term outlook for more consolidation or outright softness.”

A muddled message by the Bank of England did not do Sterling any favours last week. Economists at Société Générale expect the GBP to remain under pressure for the time being.

UK Q3 GDP forecast to contract 0.5%

“The explicit lowering of market rate expectations by BoE Governor Bailey is at odds with the US where Fed Chair Powell talked up expectations for the terminal rate. This divergence and growth differentials should hold back a bullish readjustment of the GBPUSD in the short-term.”

“Unless US CPI surprises to the downside this week, investors may decide against cutting Sterling shorts with UK Q3 GDP forecast to contract 0.5%. This will signal the start of the two-year recession.”

• Gold price creeps higher amidst the lack of US economic data as investors brace for US elections and October’s CPI.
• US Treasury bond yields are lower on the day, while expectations for a 50 bps rate hike by the Fed stood above 50%.
• Gold Price Analysis: Neutral-to-upward biased and might test $1700 in the short term.

Gold price is subdued as the North American session begins, extending its gains due to a bid US Dollar as midterm elections in the United States increased risk appetite while rising US Treasury yields are a headwind for the precious metals segment. Hence, the XAUUSD is trading at $1694.60, slightly above the 50-day Exponential Moving Average (EMA), down by 0.04%.

Gold price recovers its bright, though fluctuating, as traders brace for US midterm elections

Sentiment is mixed, as US equities fluctuate at the New York open. The lack of meaningful economic data, aside from the US midterm elections, with the US House and the Senate at stake, is grabbing the headlines. Also, October inflation figures of the United States, to be released on Thursday, would be the barometer for investors of what the Federal Reserve would decide in the December meeting.

Aside from this, US Treasury yields, mainly the 10-year T-bond yield is, retreating from weekly highs of 4.24% down to 4.161%. Meanwhile, expectations for the Federal Reserve’s December meeting remain tilted towards hiking 50 bps, as shown by the CME FedWatch Tool at 52%. The odds for a 75 bps increase are 48%, unchanged from a day ago.

The US Dollar Index, which tracks the buck’s value against G8 currencies, dives 0.44%, at 109.74, though it should be noted that it has fallen from daily highs at around 110.610.

A light US economic docket revealed the US Redbook Index, which came at 7.6% below its previous reading, while the US IBD/IPP Economic Optimism for November dived from 41.6 to 40.4.

Gold (XAUUSD) Price Analysis: Technical outlook

XAUUASD suddenly jumped unexpectedly in the last 5 minutes, recording a daily high of $1698, shy of breaking the $1700 figure, which could open the door to pose a challenge to the 100-day Exponential Moving Average (EMA) at $1716.96. If the XAUUSD clears the latter, that will open the door toward the 200-day EMA at $1805.

On the other hand, key support levels lie at the 50-day EMA at $1672, ahead of the November 8 daily low at $1664.80 and the $1650 figure.

Central banks seem to be stepping down from aggressive rate hikes, which may lead to a year-end "Santa Pause" rally for stocks, economists at Charles Schwab report.

"Santa Pause" rally could be in store for markets as the year draws to a close

“Markets seem to have been taking their direction from central banks for most of 2022. While a pivot to rate cuts does not seem likely in the near term, if central banks signal a step down in the size of the rate hikes or a pause, stocks may breathe a sigh of relief.” 

“Stepping down from aggressive rate hikes could help boost stock markets. Since signs of stepping down began to emerge at the start of October, the MSCI EAFE Index of international stocks climbed nearly 10%. Stock markets outside the US that are outperforming the S&P 500 Index this year include many countries where the central banks are stepping down.”

“There can be no guarantee that central banks will continue to step down the pace of their hikes or pause them, but if they do it is possible a ‘Santa Pause’ rally could be in store for markets as the year draws to a close.”

• The daily rebound in the dollar falters around 110.60.
• NIFB Business Optimism Index eases to 91.3 in October.
• Investors’ attention remains on the midterm elections on Tuesday.

The dollar’s recovery appears to be losing some momentum after reaching daily highs around 110.60 when tracked by the USD Index (DXY) on turnaround Tuesday.

USD Index looks at midterm elections

The index clings to its daily gains north of the 110.00 region on Tuesday, looking to finally set aside two consecutive daily retracements and embark on a more serious rebound.

The dollar trims part of its advance along with a tepid retracement in US yields across the curve, while market participants remain cautious as the US midterm elections are under way.

In the US data space, the NIFB Business Optimism Index receded a tad to 91.3 in October (from 92.1), while the IBD/TIPP Economic Optimism index is due later ahead of the weekly report by the API on US crude oil inventories in the week to November 4.

What to look for around USD

The index manages to stage a mild recovery after hitting 2-week lows in the proximity of the 110.00 region on Tuesday.

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

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: Consumer Credit Change (Monday) – Midterm Elections (Tuesday) – MBA Mortgage Applications, Wholesale Inventories (Wednesday) – Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Preliminary Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: US midterm elections. 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. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is gaining 0.07% at 110.29 and faces the initial resistance at 113.14 (monthly high November 3) followed by 113.88 (monthly high October 13) and then 114.76 (2022 high September 28). On the downside, 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).

• GBPUSD with a bearish intraday bias, Pound to strengthen above 1.1550.
• DXY up for the first time after two negative days on US Election Day.
• Americans vote for a new Congress and governorships.

The GBPUSD hit a fresh daily low at 1.4128 on Tuesday and then rose back above 1.1450. It remains in negative territory for the day, pulling back after being unable to hold above 1.1500.

The key driver in cable's retreat is a stronger US dollar, even as US yields decline. US mid-term elections are taking place. Republicans are poised for a victory according to the latest polls. Americans are voting to elect one-third of the Senate, all seats of the House of Representatives, and more than 30 governors. The election results will likely have significant implications for Biden's administration agenda.

With a cautious tone amid US elections, price action across financial markets remains limited. US yields are modestly lower while the DXY gains 0.12%, rising after two days of sharp declines.

Regarding US economic data released Tuesday, the NFIB Business Optimism Index declined to 91.3 in October from 92.1. This week's key number will be the Consumer Price Index on Thursday, which could critically impact markets and expectations about Federal Reserve's monetary policy.

Earlier today, Bank of England Chief Economist Huw Pill said the central bank needs to raise rates further to tighten monetary policy. "At some point, we need to think about broader economic outlook".

Bearish intraday, above 1.1400

The GBPUSD is moving with a bearish intraday bias, but so far it has remained above an important support area between 1.1400 and 1.1420. A break lower could trigger more losses, toward the 20-Simple Moving Average in 4-hour charts at 1.1350.

On the upside, a firm break above 1.1550 would strengthen the outlook for the Pound, targeting 1.1600 and probably a test of the monthly high at the 1.1650 zone.

Technical levels

GBPUSD consolidates below major resistance in the mid-1.15s. Economists at Scotiabank expect Sterling to struggle to see further gains.

Short-term support looks firm at 1.1425/35

“Higher rates plus some – likely significant –fiscal retrenchment to be unveiled by the Chancellor next week suggest even stiffer growth headwinds (beyond the cost-of-living crisis) for the UK economy in the months ahead.”

“Sterling may struggle to extend gains against a soft USD and seems liable to remain weak on the crosses at least until the extent of Chancellor Hunt’s plans is revealed.” 

“Short-term support looks firm at 1.1425/35 intraday.”

“Major resistance lies above the market at 1.1550/60 – recent peaks and major trend resistance off the early 2022 high. This may contain GBP gains in the short-run – unless the USD weakens more significantly.”

The AUDUSD pair turned south after having failed to clear the 0.6500 hurdle. The Aussie needs to surpass the 0.6550 mark to see a bounce towards 0.6680/0.6750, analysts at Société Générale report.

A short-term bounce is not ruled out 

“The pair is evolving within an Inverted Head and Shoulders denoting potential rebound.”

“Neckline at 0.6550 is the first layer of resistance. If this is overcome, a short-term up move could materialize towards the July low of 0.6680/0.6750.”

“Right shoulder level at 0.6270 is important support.”

• EURUSD sees its recent strong upside temporarily trimmed on Tuesday.
• Gains could accelerate beyond the 100-day SMA at 1.0040.

EURUSD meets robust resistance in the 1.0030/40 band for the time being, an area coincident with the 100-day SMA.

If the pair manages to surpass that region in a sustainable note, it could then challenge the October high at 1.0093 (October 27) prior to the September top at 1.0197 (September 12).

While above the 9-month resistance line, today near 0.9850, extra gains look likely.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0455.

EURUSD daily chart

Gold price climbed to $1,680 following the publication of US labour market data on Friday. As strategists at Commerzbank note, a weaker US Dollar pushes up the yellow metal but ETF outflows continue to weigh on price. 

Latest surge likely attributable to covering of speculative short positions

“Gold was up by 2.2% at the end of the week’s trading. The upswing was boosted by the depreciation of the USD. This is remarkable given the renewed sharp rise in US employment in October, plus a marked upward revision of the previous month’s figure. It seems that market participants were focusing more on the steeper-than-expected rise in the US unemployment rate.” 

“The latest surge in the Gold is likely to have been attributable to covering of speculative short positions. They amounted to a good 40,000 contracts just a few days earlier, according to the CFTC, putting them only marginally below their late-September high. By contrast, gold ETFs registered sizeable outflows at the end of last week, which picked up pace in the wake of the Fed meeting. The upswing in the gold price is thus lacking one important fundament support.”

EURUSD trades narrowly around parity. Economists at Scotiabank expect the pair to see modest gains toward 1.0050 on a move past 1.0005/10.

ECB policymakers stress inflation control 

“Comments from top ECB policymakers (Villeroy, Lagarde, Nagel) in the past day or so have stressed the importance of bringing inflation back under control as soon as possible – suggesting a broad consensus among hawks and the more centrist policy makers at least on the need for additional tightening being implemented quickly. This should help keep the EUR underpinned.”

“Modest EUR gains at least are likely to resume above 1.0005/10 towards 1.0050.” 

“Key short-term resistance is 1.0090 (late Oct high) and 1.0195 (early Sep high). Support is 0.9955/60.”

Americans head to the polls on Tuesday, November 8 but it could be days before we know the midterm election results. Investors should be prepared, as unexpected outcomes can create market volatility, economists at Morgan Stanley report.

A surprise showing for Democrats may mean volatility

“Republicans are expected to win a majority in at least one chamber of Congress. Therefore, an outcome in which Democrats expand their majorities in Congress would buck expectations. Hence, a better-than-expected election night for Democrats means markets could assign a higher probability to further fiscal expansion – with Congress and the Fed effectively pulling in opposite directions on inflation. In the short term, that could mean higher Treasury yields and a stronger Dollar, reflecting the potential for a higher peak federal funds rate.”

A Republican win could introduce new risks

“Republican leadership could bring new risks in the form of US public policy choices. If the economic outlook sours in 2023 in unexpected ways, the specter of the Budget Control Act could weigh on risk markets such as growth stocks and higher-yield corporate bonds. At the same time, Treasury bills could be under pressure this time around at the same time as quantitative tightening is being executed, further pressuring market liquidity.”

Investors should beware early results

“Early reported results should look favorable to Republicans, but as in 2020, leads can vanish over time. Consider the Pennsylvania Senate race. Assuming mail-in ballots are cast in the same proportions and with the same party skew as they were in 2020, we estimate that the Republican candidate could win the in-person vote by 29% and still lose after all ballots are counted. Hence, we will need to reserve judgement – perhaps for days – on which party seems poised to control Congress.”

USDKRW has dipped below 1400. Analysts at Société Générale expect the pair to extend its slide towards the 1372 support.

Elongated consolidation likely to develop while below 1413

“USDKRW has violated the lower band of recent brief consolidation and the 50-Day Moving Average with a weekly bearish gap denoting short-term downtrend.”

“Ongoing pullback is expected to persist towards potential support of 1372 representing the trend line connecting May and August and 1366/1358, the 23.6% retracement from 2021.”

“In case the pair remains unable to reclaim recent gap near 1413, an elongated consolidation is likely to develop.”

• AUDUSD managed to erase its daily losses but lost its recovery momentum.
• US Dollar holds its ground amid cautious market mood.
• Investors will keep a close eye on Wall Street in the absence of high-impact data releases.

AUDUSD came under bearish pressure and dropped to a fresh daily low below 0.6450 during the Asian trading hours on Tuesday. Although the pair managed to erase its daily losses in the European session, it lost its recovery momentum before reading 0.6500. As of writing, AUDUSD was virtually unchanged on the day at 0.6478.

Eyes on US stocks

Earlier in the day, the data from Australia showed that the National Australia Bank's Business Conditions Index declined to 22 in October from 25 in September. Additionally, the Business Confidence Index fell to 0 from 5. Combined with the disappointing sentiment data, the risk-averse market environment forced AUDUSD to continue to push lower.

In the meantime, the US Dollar Index holds in positive territory near 110.50 after having registered modest losses on Monday. Nevertheless, US stock index futures are up between 0.35% and 0.6% on the day and a positive opening in Wall Street could allow risk flows to dominate the action in financial markets.

The NFIB Business Optimism Index in the US declined to 91.3 in October from 92.1 in September but this data failed to trigger a noticeable market reaction.

Later in the session, the IBD/TIPP Economic Optimism Index for November will be the only data featured in the US economic docket. The US Mid-Term Elections will also take place but the outcome is likely to be finalized toward the end of the week. 

AUDUSD technical levels to watch for

The precious metals sector fell 1.7% over the month, with Gold and Silver going in opposite directions. Strategists at Société Générale note that higher yields deplete the appeal of the yellow metal.

Gold lost ground and Silver posted moderate gains

“Gold (-1.9%) retreated further in the month. Downward pressures soon emerged in the form of a stubbornly tight US labour market and higher-than-expected US inflation. This sent Gold prices lower as higher inflation suggests a growing need for further US Fed target rate hikes this year, and potentially into next. Additionally, a solid US job market could help the Fed raise rates without hurting the economy in the short term, hence making the policy more politically acceptable.” 

“Higher yields would deplete the appeal of non-interest-generating precious metals.”

“The only relief potentially preventing further Gold price retreats came from lower US consumer confidence and slightly decreasing 10y US real rates, down 14 bps in the month.”

“Silver (+0.4%) posted moderate gains, despite an energetic beginning to the month. The rest of the month was marked by regular orderly retreats.”

• DXY manages to bounce off lows near the 110.00 mark.
• Further south appears the October low near 109.50.

DXY regains some balance following an earlier drop to new lows in the 110.00 zone on Tuesday.

Further weakness in the dollar should not be ruled out despite the current rebound. That said, the index is expected to face initial contention at the October low at 109.53 (October 27) prior to the 9-month support line just below 109.00.

The latter appears reinforced by the proximity of the 100-day SMA. Above this region, the dollar’s short-term stance should remain positive.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 104.59.

DXY daily chart

• EURJPY’s recovery meets a tough hurdle around 147.00 so far.
• Next on the upside for EURJPY comes the 2022 high at 148.40.

EURJPY’s upside momentum seems to have met a solid resistance at the 147.00 neighbourhood so far this week.

Despite the ongoing knee-jerk, the continuation of the recovery looks favoured in the very near term and the cross could then target the 2022 top at 148.40 (October 21) ahead of the round level at 150.00.

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 137.87, the constructive outlook is expected to remain unchanged.

EURJPY daily chart

The US Dollar Index fell towards the bottom of its recent trading range at the start of this week between 110.00 and 115.00. Today, the US midterm elections will garner market attention but the immediate impact is set to be muted, economists at MUFG Bank report. Instead, US Consumer Price Index (CPI) report on Thursday is likely to impact the USD.

US mid-term elections and US CPI report in focus this week

“Market participants’ focus will shift over the coming days to the outcome from the US mid-term elections although we do not expect the results to have an immediate impact on US Dollar performance.”

“The more immediate concern for setting Fed policy and driving US Dollar performance will be the release of the latest US CPI report on Thursday. The USD’s inability to regain upward momentum following the Fed’s recent hawkish policy update suggests it will be more sensitive to a softer inflation print this month that could trigger a break below the bottom of the recent range between 110.00-115.00.”

EURUSD is now close to October peak at 1.0100. The worls's most popular currency pair needs to surpass this level to extend its bounce, economists at Société Générale report.

Critical support aligns at 0.9730

“Daily MACD has been posting positive divergence since July and has now entered positive territory denoting downward momentum is gradually receding. However, the pair has to establish itself beyond 1.0100 to affirm an extended bounce towards 1.0190 and graphical levels of 1.0290/1.0360.” 

“Recent pivot low at 0.9730 is crucial support.”

Monetary policy is now far more restrictive in the United States than in the eurozone, Japan or China. This has led to a sharp appreciation of the dollar against all other currencies. Analysts at Natixis seek to determine whether the appreciation of the dollar is hurting the US economy.

Is the United States suffering from the appreciation of the Dollar?

“In the recent period, US exports have grown faster than global trade. Econometric analysis shows an elasticity of -0.18 of US exports in volume terms to the Dollar’s real trade-weighted exchange rate.”

“In the recent period, imports have grown more than domestic demand. Econometric analysis shows a zero elasticity of US imports in volume terms to US domestic demand.”

“Econometric analysis shows an elasticity of US import prices of -0.21 to the Dollar’s nominal trade-weighted exchange rate.”

“The appreciation of the Dollar worsens foreign trade in volume terms by the same amount as it reduces import prices. It is, therefore, neutral overall for US growth.”

The Brazilian Real gained significantly after the presidential elections, which were won by the leftist Lula da Silva. Although USDBRL could retrace further, economists at Commerzbank remain cautious and expect the pair to hold above the 5.00 level.

Hope dies last

“It cannot be ruled out that the BRL could gain again if news, for example, about the appointment of cabinet members who are adequate from the market's point of view, give the FX market renewed hope that the new government will not put so much strain on public finances. Hope dies last, after all.”

“We remain cautious and believe that USDBRL should remain above the 5.00 mark for the time being.”

Today, the focus is on the US midterm elections. Economists at Danske Bank do not expect the election result to be a major market mover in the near-term.

US midterm elections today

“Republicans are favoured to win control of both House and Senate, although the Senate race remains a close call.”

“If republicans win the Senate by a slim margin or if Democrats are able to retain the Senate, market reaction should be quite muted, as major changes in fiscal policy would be difficult to pass.”

“The (modest) risk-scenario for markets would be a clear victory for Republicans also in the Senate, as this could increase the risk of more expansionary (and inflationary) fiscal policies amid the looming recession.” 

• Eurozone Retail Sales came in at 0.4% MoM in September vs. 0.4% expected.
• Retail Sales in the bloc arrived at -0.6% YoY in September vs. -1.3% expected.

Eurozone’s Retail Sales rose by 0.4% MoM in September versus 0.4% expected and 0% last, the official figures released by Eurostat showed on Tuesday.

On an annualized basis, the bloc’s Retail Sales came in at -0.6% in September versus -1.4% recorded in August and -1.3% consensus forecast.

FX implications

The euro cheers the upbeat Eurozone data alongside a renewed weakness in the US Dollar across the board. At the time of writing, the major is trading at 0.9999, down 0.18% on the day.

About Eurozone Retail Sales

The Retail Sales released by Eurostat are a measure of changes in sales of the Eurozone retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. Usually, positive economic growth anticipates "Bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

• EURUSD faces some selling pressure and slips back below parity.
• ECB-speak, EMU Retail Sales next of note in the domestic calendar.
• US midterm elections will grab all the attention later on Tuesday.

In light of the recent sharp upside, EURUSD now faces some profit taking and retreats to the area below the parity zone on turnaround Tuesday.

EURUSD: Upside looks capped by 1.0030/40 so far

EURUSD comes under pressure and trades on the defensive reversing at the same time two consecutive daily advances amidst some profit taking sentiment among investors and renewed bid bias in the greenback.

Indeed, the dollar’s recent strong decline appears to have met a foothold around the 110.00 region when gauged by the USD Index (DXY), triggering a corrective bounce soon afterwards.

The pair’s knee-jerk is so far accompanied by an inconclusive session in the German 10-year bund yields, which recede from earlier multi-day peaks near 2.38%.

In the data space, France’s trade deficit widened to €17.49B in September and Retail Sales in Italy expanded 0.5% MoM in the same month. Later in the session, EMU’s Retail Sales are also due. Across the pond, the US midterm elections are expected to take centre stage.

What to look for around EUR

EURUSD faces some selling pressure just past the parity zone, while some recovery in the greenback also puts the recent upside momentum in the pair to the test.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The recent decision by the Fed to hike rates and the likelihood of a tighter-for-longer stance now emerges as the main headwind for a sustainable recovery in the pair (if it was any at all).

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: EMU Retail Sales (Tuesday) – Italy Industrial Production (Thursday) – Germany Final Inflation Rate (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.

EURUSD levels to watch

So far, the pair is retreating 0.23% at 0.9995 and a breach of 0.9730 (monthly low November 3) would target 0.9704 (weekly low October 21) en route to 0.9631 (monthly low October 13). On the other hand, initial resistance comes at 1.0040 (100-day SMA) seconded by 1.0093 (monthly high October 27) and finally 1.0197 (monthly high September 12).

• Gold price is pausing its corrective downside as subdued US Treasury yields lend support.   
• The US Dollar rebounds firmly amid a cautious market mood on Mid-term Elections Day.
•  XAU/USD bulls remain hopeful amid powerful support aligned at $1,660.

Gold price has paused its corrective decline from a three-week peak of $1,683, as a subdued performance in the US Treasury yields has come to the rescue of buyers. The previous metal has once again found some support near the $1,665 region, as investors stay on the sidelines on the US Mid-term Election Day. Uncertainty over the US Federal Reserve’s (Fed) next rate hike move, ahead of Thursday’s critical Consumer Price Index (CPI) from the United States, keep the US Dollar strength limited, aiding Gold’s rebound. Markets are currently pricing a 55% probability of a 50 bps December Fed rate hike. Meanwhile, rising covid-related concerns in China and their impact on economic growth sap investors’ confidence. The outcome of the US Mid-term Elections could also have a temporary impact on the market sentiment, eventually affecting the US Dollar and Gold price.

Also read: Gold Price Forecast: XAUUSD clings to 50DMA before the next push higher toward $1,700

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is looking to recapture strong resistance at around $1,675 on its renewed upswing.

That level is the convergence of the SMA50 one-day and SMA10 four-hour. The previous year’s low at $1,677 will be next on buyers’ radars.

Further up, the previous week’s high at $1,683 will come into play.

Alternatively, a sustained break below the previous day’s low of $1,667 will reinforce a fresh downside momentum. At that point, the pivot point one-day S1 and the Fibonacci 23.6% one-week also meet.

Should the selling pressure intensify, then a fresh drop towards the confluence of the Fibonacci 38.2% one-month and pivot point one-day S2 at $1,660 cannot be ruled out.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

The Loonie continues to struggle as we enter the home stretch of the year. Economists at the National Bank of Canada expect USDCAD to end the year at 1.39 and turn back lower next year toward 1.30 by the end of Q2 2023.

Canadian potential GDP growth to exceed that in the US

“With inflation cooling faster in Canada than in the US and the BoC unlikely to overtake the Fed in the coming months we do not see opportunities for a significant strengthening of the CAD against the USD until an FOMC pivot, which we expect in H1 2023.”

“We see the possibility of a significant appreciation of the CAD against the greenback to reflect Canada's improved economic growth profile driven by upgraded immigration targets.”

“If material progress on inflation is secured in the coming months and US monetary policy can be made less restrictive before too much damage to the global economy is done, the outlook for CAD may prove far less problematic than some now fear.” 

“We still see USDCAD at 1.39 at the end of Q4 2022 and at 1.30 at the end of Q2 2023.”

Bank of England (BoE) Chief Economist Huw Pill continues to speak at a panel discussion at the UBS European Conference titled "Global monetary policy challenges," in London.

Key quotes

Market reaction

GBPUSD was last seen trading at 1.1472, extending recovery but still losing 0.32% on the day.

Bank of England (BoE) Chief Economist Huw Pill is speaking at a panel discussion at the UBS European Conference titled "Global monetary policy challenges," in London.

Key quotes

Market reaction

GBPUSD is reversing from daily lows of 1.1444 on Pill’s remarks, currently trading at 1.1458, still down 0.47% on the day.

The US Congressional elections are coming up. Will the outcome be relevant for USD exchange rates? Strategists at Commerzbank do not think so.

Midterms not a major event for the FX market

“Four arguments suggest that currency traders are unlikely to make a significant reassessment of the USD if the Democrats lose the majority in one of the two chambers). 1. Losing the majority in the House will not change Biden’s political room for maneuver too much. 2. The fiscal room for maneuver is currently so limited that no new fiscal ‘bazookas’ could be expected anyway. 3. The recession expected by many in the US would be induced more by the Fed's monetary policy than by the budgetary policy of Congress. 4. On other FX-relevant issues (such as trade policy), the differences between Democrats and Republicans are currently rather small.”

“One can certainly draw conclusions from the election outcome that could be relevant for USD rates in the long run, such as what they say about the likely outcome of the presidential election in 2024. But honestly, we will get a lot more relevant information about that in the next two years. There is no reason for the forex market to bet on it already.”

Andrea Enria, Chair of the Supervisory Board of the European Central Bank (ECB), said on Tuesday, “Euro area banking sector would remain broadly resilient to a textbook 200 basis point interest rate shock.”

“There is a worrying dissonance between positive expectations for banks and the unique combination of risks we face,” she added.

Related reads

• ECB’s Nagel: Large rate hikes are necessary
• EURUSD: Euro to reflect the weak outlook over the next two quarters – NBF

EURUSD climbed back above parity yesterday. However, economists at ING do not expect the pair to establish above 1.00.

Staying above parity is no easy task

“In the eurozone, we continued to hear calls for more tightening, with European Central Bank president Christine Lagarde and Governing Council member Francois Villeroy de Galhau both maintaining a hawkish tone. We doubt, however, this is offering idiosyncratic support to the Euro at this stage.”

“While the US inflation report and the mid-term elections are two key risk events for the dollar, macro factors continue to point at a weaker EURUSD, and we doubt that with the economic uncertainty in the eurozone ahead of the winter and a still hawkish Fed the procyclical EURUSD will easily remain above parity in the coming weeks.”

• The index attempts a bullish move after bottoming out near 110.00.
• The recovery in the dollar comes in tandem with higher yields so far.
• Investors’ attention is expected to remain on the US midterm elections.

The greenback, in terms of the USD Index (DXY), looks to leave behind part of the recent steep decline and rebounds from the 110.00 neighbourhood.

USD Index focuses on midterm elections

The index regains some poise and sets aside two daily sessions with losses after dropping to the vicinity of the key 110.00 zone earlier on turnaround Tuesday.

The impasse in the recent risk rally allows some recovery in the greenback, which also finds extra support in the move higher in US yields across the curve.

Later on Tuesday, market participants are expected to closely follow the US midterm elections, where the control of the Senate will be in the centre of the debate.

What to look for around USD

The index manages to stage a mild recovery after hitting 2-week lows in the proximity of the 110.00 region on Tuesday.

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

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: Consumer Credit Change (Monday) – Midterm Elections (Tuesday) – MBA Mortgage Applications, Wholesale Inventories (Wednesday) – Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Preliminary Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: US midterm elections. 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. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is gaining 0.29% at 110.54 and faces the initial resistance at 113.14 (monthly high November 3) followed by 113.88 (monthly high October 13) and then 114.76 (2022 high September 28). On the downside, 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).

2022 has been a frustrating year for FX forecasters, and the New Zealand Dollar in general. USD strength continues to dominate, but economists at ANZ do think the NZD will do better in 2023.

USD domination will slowly subside

“Looking ahead, while it is impossible to forecast when we might see geopolitical risks lessen, we do expect USD domination will slowly subside as the US economic cycle itself matures.”

“With the RBNZ expected to hike by 75 bps at the next two meetings, and the Fed expected to slow the pace of hikes, the NZD has scope to regain some lost ground.”

“New Zealand’s external imbalances are large. This is generally viewed by markets as more of a risk factor rather than as a reason to aggressively sell the NZD, but the fact that the deficit is set to narrow over 2023 as international tourism recovers (off a near-zero base) does reduce a negative in the equation for the NZD.”

“One other string in the NZD’s bow is the gap between its current level and fair value, which we see at around 0.65. Our forecasts have this gap slowly closing over coming quarters, taking the NZD to fair value by the end of 2024.”

Japan’s Ministry of Finance (MOF) announced on Tuesday, the country’s cabinet approved a second supplementary budget for this fiscal year to fund an economic stimulus package, backed by extra new debt, per Reuters.

The additional budget is worth 29.1 trillion Japanese Yen (JPY), the MOF reports.

Japanese Finance Minister Shunichi Suzuki said that they “will quickly prepare to present an extra budget with parliament for approval.”

Additional quotes

“It's true stimulus budget spending to make japan's fiscal position even more severe.”

“Should not prolong massive spending, must be aware of the risk of wealth outflows through the trade deficit.”

“Must seek exit from massive fiscal stimulus.”

Market reaction

USDJPY is trading neutral at 146.62, having erased all of its early gains. Investors assess the latest stimulus news from Japan.

European Central Bank (ECB) policymaker and Germany’s central bank head Joachim Nagel is speaking at the Bundesbank Symposium "Dialogue with Banking Supervision," in Frankfurt.

Key quotes

more to come ....

Swiss National Bank (SNB) Chairman Thomas Jordan is delivering opening remarks at the High-Level Conference on Global Risk, Uncertainty, and Volatility, in Zurich.

Key quotes

“Our monetary policy decisions are not based exclusively on our inflation forecast.”

“Policy decisions must be based on a firm commitment to the objective of price stability.“

“We are also experimenting with machine-learning models that are trained using a large set of economic and alternative indicators.”

“Uncertainty must not mean indecision.”

“We do not aim to fine-tune inflation within this range of 0 -2%.”

“When faced with large shocks that increase the risk of persistent movements of inflation away fromthe range, determined action is necessary.”

Market reaction

USD/CHF is defending 0.9900 on the above comments, with the major trading at 0.9911, up 0.31% on the day.

The US midterm elections have finally arrived. Economists at Deutsche Bank highlight that the S%P 500 Index has always been higher one year after the vote.

There will be plenty of extrapolation onto the 2024 presidential election from the results

“It’s no exaggeration to say that midterm elections are one of the best historic buy signals for equities we have. In fact, in the 19 midterm elections since WWII, the S&P 500 has always been higher one year after the vote. Whether any of those cycles had to contend with the macro tsunami that's coming in the next 12 months is a moot point but it shows the underlying technicals.”

“If the Republicans do end up retaking control of either chamber in Congress (or both), the result will likely be legislative gridlock for the next two years, and we do not see any major legislation on economic policy ahead of the 2024 election in this circumstance. If there is divided government, however, one area we might see more action again is the debt ceiling, since there’s a chance that a Republican-controlled Congress use the need to raise the ceiling as leverage to get some of their policy priorities through.”

“Whatever ends up happening today, there’ll be plenty of extrapolation onto the 2024 presidential election from the results. However, it’s important to remember that 2 years is also a very long time in politics and a number of presidents have come back from very bad midterm results to win re-election.” 

The US Dollar declined further yesterday. Is the USD now weakening sustainably? Economists at Commerzbank think it is still too early for that.

Waiting for US inflation data

“The Fed has once again made it clear that it will actively fight high inflation. However, it is certainly also hard to imagine that the Fed will become even more hawkish and thus provide further new positive impetus for the USD. In this respect, probably no wonder that the USD has corrected a bit in recent days.”

“The currency market should be eagerly awaiting the inflation data from the US. Should these surprise to the upside, the USD could again receive a new tailwind because then it is likely to be speculated that the Fed could perhaps increase again by 75 bps in December. However, the figures will be published only on Thursday.” 

“After the correction of the last few days, I could imagine that the currency market in the run-up to the inflation data will rather stay put.”

European Central Bank (ECB) Vice President Luis de Guindos reiterated on Tuesday that they will continue raising rates to a level that ensures inflation will come back into line with the ECB's definition of price stability, as reported by Reuters.

Key takeaways

"That level will depend on the data that we receive, the evolution of inflation, economic conditions, demand, and energy prices."

"At our next meeting, we will base our decision on the new projections that will be released in December and Eurostat's flash inflation estimate for November, among other indicators."

"My opinion is that inflation will hover around its present level of 10.7% over the next few months. It will start to decline in the first half of next year, but, on average, headline and core inflation will remain very high."

"I think the trend will be downwards in the first half of next year, even if still high on average."

"In my view, there is a high probability that quarterly growth in the fourth quarter of this year will be negative. Negative quarter-on-quarter growth is likely to continue in the first quarter of 2023."

"We will start with quantitative tightening it sooner or later, for sure in 2023."

"We will proceed with a lot of prudence and caution."

"Financial stability has deteriorated quite a lot over the last six months."

"However, the situation of the banks is much more positive now than it was ten years ago."

Market reaction

EURUSD showed no immediate reaction to these comments and was last seen losing 0.25% on the day at 0.9995.

The Euro ended the month of October a penny higher than a month ago. Economists at the National Bank of Canada expect the common currency to remain vulnerable in the next two quarters.

The outlook for Eurozone economy is negative

“We continue to expect the shared currency to reflect the weak outlook over the next two quarters but do not discount the possibility of a Fed pivot before the second half of next year that could set the stage for a modest rise in EURUSD.”

“Assuming some improvements on inflation and geopolitical front, that could leave some room for Euro appreciation later in our forecast horizon.”

Here is what you need to know on Tuesday, November 8:

The US Dollar struggled to find demand on Monday as risk flows dominated the financial markets. Wall Street's main indexes registered strong daily gains and the US Dollar Index registered its lowest daily close since October 27 before going into a consolidation phase at around 110.50 early Tuesday. Later in the session, Eurostat will release the September Retail Sales data. The US economic docket will feature the NFIB Business Optimism Index for October and the IBD/TIPP Economic Optimism Index for November. Meanwhile, investors will keep a close eye on the US midterm elections.

Republicans need five seats to gain the majority in the House and one seat to control the Senate. The outcome is unlikely to be finalized by the end of the day and some experts think that it could take a few days before we get the final result. In the meantime, US stock index futures are trading flat on the day, reflecting a cautious market mood. The benchmark 10-year US Treasury bond yield holds steady slightly above 4%.

All eyes are on US midterm elections.

EURUSD climbed to a 10-day high of 1.0035 on Monday but retreated below 1.0000 early Tuesday. On Monday, European Central Bank policymaker Martins Kazaks noted that inflation in the euro area was still a problem and reiterated that they will keep raising rates. “Nobody at the moment can know with any precision where exactly the terminal rate will be,” Kazaks added. 

GBPUSD took advantage of the broad selling pressure surrounding the US Dollar and advanced toward 1.1550 late Monday. The pair reversed its direction and fell below 1.1470 in the early trading hours of the European session on Tuesday.

During the Asian session, the Reserve Bank of New Zealand announced that Inflation Expectations for the fourth quarter climbed to 3.62% from 3.07% in the previous quarter. This data failed to help the NZ Dollar preserve its strength and NZDUSD was last seen losing 0.5% on the day at around 0.5900.

AUDUSD turned south after having failed to clear 0.6500 hurdle. The National Australia Bank's Business Confidence and Business Conditions indexes for October declined to 0 from 4 and 22 from 25, respectively, making it difficult for the Australian Dollar to find demand.

Following Friday's sharp decline that was triggered by the upbeat Canadian jobs report, USDCAD registered small losses on Monday. The pair stays relatively quiet near 1.3500 early Tuesday. Meanwhile, the barrel of West Texas Intermediate trades in negative territory near $91.50, not allowing USDCAD to gather bearish momentum.

Gold failed to hold above $1,680 on Monday as the 10-year US T-bond yield gained more than 1%. XAUUSD trades modestly lower on the day at around $1,670.

Bitcoin extended its slide as sellers took action when it dropped below the key $20,000 mark. Although BTCUSD managed to retrace a small portion of its daily slide, it still trades below $20,000, losing nearly 4% on the day. Ethereum dropped below the lower limit of its two-week-old range at $1,500 and was last seen losing 5% on the day at $1,480.

USDCAD slipped below the 1.35 mark last Friday. However, economists at Commerzbank are sceptical as to whether the Loonie will be able to make further ground against the US Dollar. 

Bank of Canada interest rates expected to peak at 4.6%

“Whereas the market expects BoC interest rates to peak at 4.6%, it seems to expect Fed rates to peak at just under 5.3%. The drift regarding rate hike expectations might shrink again if the BoC managed to sound hawkish, but that seems less likely to us at present.”

“And if the market really were to price in higher rate hikes on the part of the BoC, concerns about more pronounced effects on the housing market and the increased likelihood of a (deeper) recession should also have an effect. The latter would hardly be CAD-positive.”

“Moreover, USD remains the market’s preferred currency in case of rising risk aversion in its role as a safe haven.”

Considering advanced prints from CME Group for natural gas futures markets, open interest rose for the second straight session on Monday, this time by around 6.2K contracts. Volume followed sit and went up for the second day in a row, now by around 144.3K contracts.

Natural Gas looks capped around $7.20

Prices of natural gas gapped higher and revisited the area beyond the $7.00 mark at the beginning of the week, just to fade most of that advance and end the session with marginal gains afterwards. The move was amidst rising open interest and volume and points to some consolidation in the very near term with the topside still around the $7.20 region per MMBtu.

• USDCHF picks up bids to refresh intraday high, snaps two-day downtrend.
• Risk aversion, sluggish markets underpin USDCHF rebound ahead of the key data/events.
• US CPI, mid-term election outcomes and comments from SNB’s Jordan are the key catalysts to watch for clear directions.

USDCHF prints mild gains around 0.9915 while snapping a two-day downtrend around the lowest level in a week. In doing so, the Swiss Franc (CHF) pair portrays the market’s risk-off mood, as well as the cautious sentiment ahead of a speech from Swiss National Bank (SNB) Governor Thomas Jordan.

A jump in China’s daily coronavirus number, the biggest one since May 01, joins the market’s anxiety amid the US mid-term elections buzz and could be considered the main catalyst behind the recent swing in the mood.

In this regard, Reuters states, “COVID-19 cases sharply escalated in Guangzhou and other major Chinese cities, official data showed on Tuesday, with the global manufacturing hub fighting its worst flare-up ever and testing its ability to avoid a Shanghai-style citywide lockdown.” The news also mentioned that the new locally transmitted infections climbed to 7,475 nationwide on November 7, according to China's health authority, up from 5,496 the day before and the highest since May 1.

That said, an otherwise uninteresting US mid-term election gain the market’s attention as ex-President Donald Trump teased a “very big” announcement coming on November 15. “If Republicans secure a House majority, they plan to use the federal debt ceiling as leverage to demand deep spending cuts. They would also seek to make Trump's 2017 individual tax cuts permanent and protect corporate tax cuts that Democrats have unsuccessfully tried to reverse over the past two years,” said Reuters.

Against this backdrop, the US stock futures print mild losses whereas the US Treasury yields grind higher and the US Dollar Index (DXY) recover from the eight-day low.

Looking forward, a mention of the recently firmer Swiss inflation numbers and the SNB’s readiness for more rate increases could probe USDCHF buyers. However, the risk-off mood may help the pair remain firmer ahead of the US Consumer Price Index (CPI) for October, up for publishing on Thursday.

Technical analysis

USDCHF buyers remain hopeful unless the quote provides a daily closing below the 0.9880-70 support confluence, including the 50-day EMA and an upward-sloping support line from September 30.

Gold price has entered into a phase of upside consolidation but has just lost the bearish 50-Daily Moving Average (DMA) at $1,673. Thus, a push higher towards $1,700 is less likely now, FXStreet’s Dhwani Mehta reports.

RSI is holding flat above the midline

“So long as the 50DMA at $1,673 is held, the bullish potential remains intact for the bullion, with a retest of Friday’s high at $1,683 likely to pave the way toward the $1,700 threshold.”

“The 14-day Relative Strength Index (RSI) is holding flat above the midline, supporting the recent rally in Gold price.”

“On a firm break below the 50DMA, sellers will target the triangle resistance-turned-support at $1,658. Further south, the horizontal 21DMA at $1,653 could come to the rescue of bulls.”

CME Group’s flash data for gold futures markets noted traders added around 5.1K contracts to their open interest positions on Monday. Volume, instead, went down by nearly 78K contracts following four consecutive daily builds

Gold remains capped by $1,680

Gold corrected lower on Monday following the strong uptick recorded at the end of last week. The daily decline was on the back of rising open interest, which opens the door to the continuation of the corrective move in the very near term. In the meantime, recent tops around $1,680 per ounce troy are expected to cap occasional bullish attempts.

• GBPUSD holds lower ground near intraday low, snaps two-day uptrend.
• RSI conditions favor the pullback from weekly resistance line.
• One-week-old ascending trend line, 100-SMA restrict short-term downside.
• Bulls have a bumpy track road, September’s peak is the key hurdle.

GBPUSD prints the first daily loss in three around 1.1485 during early Tuesday morning in London. In doing so, the Cable pair treats from a downward-sloping resistance line from October 27.

Given the RSI retreat supporting the quote’s latest weakness, the bears are likely to keep the reins for a while.

As a result, a convergence of the 100-SMA and a one-week-long support line, near 1.1410, gains the market’s attention. Also acting as the downside filter is the 1.1400 round figure.

In a case where the GBPUSD price declines below 1.1400, the 50% and 61.8% Fibonacci retracements of the pair’s October 12-26 upside, respectively near 1.1285 and 1.1200, could challenge the bears.

It’s worth noting that an upward-sloping trend line from October 13, close to 1.1190 at the latest, appears the last defense of the GBPUSD bulls.

Alternatively, an upside clearance of the stated resistance line, close to 1.1535 by the press time, has multiple hurdles near 1.1570, 1.1630 and 1.1650 that could challenge the GBPUSD buyers.

Above all, the quote remains on the bear’s radar unless crossing September’s peak of 1.1738.

GBPUSD: Four-hour chart

Trend: Limited downside expected

FX option expiries for Nov 8 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9950 603m
• 0.9975 601m
• 0.9985 489m
• 1.0000 922m
• 1.0025 474m
• 1.0050 468m

- GBP/USD: GBP amounts        

• 1.1500 603m

- AUD/USD: AUD amounts  

• 0.6275 714m
• 0.6485 1.7b

- USD/CAD: USD amounts       

• 1.3750 325m

• Gold price takes offers to extend Monday’s losses from a three-week high.
• Bearish candlestick formation, risk-off mood keeps XAUUSD sellers hopeful.
• US mid-term elections appear interesting as Donald Trump teases a ‘very big’ announcement for November 15.
• US CPI, China’s covid conditions are extra catalysts to watch for immediate directions.

Gold price (XAUUSD) takes offers to refresh intraday low near $1,668 during early Tuesday morning in Europe. The yellow metal’s latest losses could be linked to the market’s deteriorating sentiment, as well as the recent rebound in the US dollar. The same joins bearish technicals to justify the XAUUSD’s second daily loss.

The biggest jump in China’s daily coronavirus numbers since May 01 joins the market’s anxiety amid the US mid-term elections buzz could be considered the main catalyst behind the recent swing in the mood.

“COVID-19 cases sharply escalated in Guangzhou and other major Chinese cities, official data showed on Tuesday, with the global manufacturing hub fighting its worst flare-up ever and testing its ability to avoid a Shanghai-style citywide lockdown,” said Reuters. The news also mentioned that the new locally transmitted infections climbed to 7,475 nationwide on November 7, according to China's health authority, up from 5,496 the day before and the highest since May 1.

Elsewhere, an otherwise uninteresting US mid-term elections gain the market’s attention as ex-President Donald Trump teased a “very big” announcement coming on November 15. “If Republicans secure a House majority, they plan to use the federal debt ceiling as leverage to demand deep spending cuts. They would also seek to make Trump's 2017 individual tax cuts permanent and protect corporate tax cuts that Democrats have unsuccessfully tried to reverse over the past two years,” said Reuters.

Amid these plays, the US stock futures print mild losses whereas the US Treasury yields grind higher and the US Dollar Index (DXY) recover from the eight-day low.

Moving on, headlines surrounding the US elections and China’s covid conditions will join the central bankers’ speeches to entertain XAUUSD traders ahead of the inflation numbers from the US and China, up for publishing on Thursday.

Technical analysis

Gold price justifies the previous day’s “hanging man” bearish candlestick as it extends the pullback from a one-week high below the 50-DMA.

Given the recently steady RSI (14), coupled with Monday’s bearish candle and a clear break of the 50-DMA, XAUUSD is likely to decline further toward the 21-DMA support near $1,653.

Even if the bullion breaks the $1,653 support, lows marked the last Thursday and in October, could challenge the further downside near $1,616. Also acting as the downside filter is the yearly low surrounding $1,614-15.

Meanwhile, a daily closing beyond the recent high of $1,683 defies the bearish candlestick formation, which in turn can quickly propel the metal price toward the $1,700 threshold.

In a case where the gold price remains firmer past $1,700, the previous monthly top near $1,730 will gain the market’s attention.

Gold price: Daily chart

Trend: Limited downside expected

Open interest in crude oil futures markets shrank by around 12.4K contracts at the beginning of the week, reversing the previous daily build, according to preliminary readings from CME Group. In the same line, volume remained choppy and dropped markedly by around 105.7K contracts.

WTI: Next on the upside comes the 200-day SMA

Prices of the barrel of the WTI started the week on the back foot amidst shrinking open interest and volume, which suggests the possibility that further decline is not favoured in the very near term. Further bullish attempts, in the meantime, are expected to target the 200-day SMA, today at $98.44 per barrel.

• USDCAD has refreshed its day’s high at 1.3523 as the positive risk profile is losing its traction.
• Investors are cautious as the odds support a majority win of Republicans, which may trigger political instability.
• Oil prices have slipped as oil demand optimism is returning on expectations of a slowdown in Fed’s rate hike pcae.

The USDCAD pair has comfortably established above the psychological resistance of 1.3500 in the early European session. The Greenback bulls have been supported by a decline in the risk appetite of the market participants and a steep fall in oil prices.

The risk-off is attempting to regain its traction as investors are getting anxious ahead of the US mid-term elections’ outcome. Investors are cautious as the odds support a majority win of Republicans, which may trigger political instability. The content of 435 seats of the House of Representatives and 35 seats of the Senate is expected to bring volatility in the economy.

A note from ANZ Bank states that “We regard a Republican-controlled Congress as the most likely scenario (55%). Not far behind, at 41%, is a split Congress, with a Republican-led House and a Democrat Senate.”

This week, the critical trigger for the market will be the release of the US inflation data. Projections claim that the headline inflation rate will trim to 8.0% and the core Consumer Price Index (CPI) that excludes oil and food prices from the calculation is seen marginally lower at 6.5%.

On the Loonie, the speech from Bank of Canada (BOC) Governor Tiff Macklem will remain in focus. The BOC Governor is expected to dictate the likely monetary policy action ahead. Last week’s robust payroll data is expected to support the central bank in making a hawkish decision on interest rates. Canada’s Net Change in Employment was recorded at 108.3k vs. the prior release of 21.1k.

Meanwhile, oil prices have slipped sharply as investors believe that expectations of a slowdown in the Fed’s rate hike pace are fetching optimism for oil demand ahead.  

• USDJPY climbs above 146.80 as the traction is returning in the risk-off profile.
• US yields are advancing after hawkish commentary from Fed policymaker Barkin.
• Japanese administration is set to approve more stimulus and hike taxes for ultra-wealthy individuals.

The USDJPY pair has given an upside break of the sideways profile in the Tokyo session. Earlier, the asset resurfaced from 146.40 in the early Tokyo session. The risk profile is turning sour as investors are turning cautious ahead of the outcome of the US mid-term elections.

The mighty US dollar index (DXY) has refreshed its day’s high at 110.40 as the risk aversion theme is gaining traction. Mild gains recorded in the S&P500 futures have been eased as the risk appetite is shrinking. The 10-year US Treasury yields have reached 4.23% after hawkish guidance from Richmond Federal Reserve (Fed) President Thomas Barkin.

Fed policymaker has contrary views to the chatters over a slowdown in the pace of rate hikes. Current interest rates are near the proposed one at 4.80% and smaller rate hikes will be witnessed ahead. Fed Barkin believes that the ongoing pace of rate hiking will continue as inflationary pressures have not displayed signs of exhaustion yet.

The outcome of the US mid-term elections seems to favor the Republicans. A note from ANZ Bank states that “We regard a Republican-controlled Congress as the most likely scenario (55%). Not far behind, at 41%, is a split Congress, with a Republican-led House and a Democrat Senate.” An occurrence of the same could bring political instability to the economy.

On the Japanese yen front, Tokyo bulls are facing pressure as Japanese Prime Minister Fumio Kishida is set to approve USD198 billion in the additional budget for the economic stimulus plan, as reported by Bloomberg. The government also “may opt to hike taxes on ultra-wealthy individuals with annual incomes of more than JPY1 billion ($6.8 million).”

• EURUSD takes offers to renew intraday low, pares recent gains near one-week high.
• Overbought RSI, bearish MACD triggered the latest pullback.
• Immediate support line, golden cross keeps buyers hopeful.

EURUSD refreshes intraday low around the 1.0000 parity level heading into Tuesday’s European session. In doing so, the major currency pair retreats from the highest levels in eight days while printing the first daily loss in three.

The quote’s latest weakness could be linked to the overbought RSI (14) conditions and the bearish MACD signals, which in turn suggests the pair’s further downside.

However, an upward-sloping support line from late Friday, close to 0.9985 by the press time, restricts immediate declines of the EURUSD pair.

Following that, the 61.8% Fibonacci retracement of the pair’s October 26 to November 03 downside, near 0.9955, will challenge the bears.

It’s worth noting, however, that the 50-HMA pierced the 200-HMA from below and has already portrayed the “golden cross” suggesting the pair’s further upside momentum.

Hence, the EURUSD buyers remain hopeful unless the quote drops below the 200-HMA level surrounding 0.9915.

Alternatively, recovery moves should cross the weekly high near 1.0030 to recall the bulls.

Even so, the highs marked in October and September, respectively near 1.0095 and 1.0200, could challenge the EURUSD pair’s upside moves.

EURUSD: Hourly chart

Trend: Limited downside expected

• The US 10-year Treasury bond yield extends its gains ahead of the US Consumer Price Index (CPI) for October.
• The US 10s-2s yield curve inverted the most since the Paul Volcker era, and the spread widened the most, more than 60 bps.
• Money market futures have priced in a 50 bps rate hike, as shown by the CME FedWatch Tool.

As the Asian Pacific session gets to an end, the US Treasury bond yields continued to advance, courtesy of the last week’s rate hike by the US Federal Reserve, lifting 75 bps to the Federal Funds rate (FFR) to 4%, while Fed officials laid the ground for additional increases though seen as a dovish rate hike. However, Federal Reserve Chair Jerome Powell commented that even though the pace of increases would be “less aggressive,” the peak would be higher. Therefore, the US 10-year benchmark note rate sits at a 4.229% gain of one bps.

The US 10-year Treasury bond yield retreated on US jobs data

US and European equity futures edge higher. Last week’s US employment data, which reflected that ha labor market is still tight, showed signs that it could be easing as the Unemployment Rate increased from 3.5% to 3.7%. Nevertheless, the Average Hourly Earnings, although lower than the previous month’s reading, they’re adding to inflationary pressures. The United States bond market reacted negatively to date, with the 10-year benchmark rate sliding from 4.209% to 4.163%. 

Fed officials reiterated Jerome Powell’s message for higher rates, while the US 10s-2s yield curve further inverted

Regarding inflationary pressures, the Boston and Richmond Fed Presidents Susan Collins and Thomas Barkin said that the United States economy needs more interest rate increases, but not at an aggressive pace. Collins said that the Federal Reserve might slow down the pace to balance growth and inflation risks as the Fed struggles to achieve a “soft landing.” Echoing her comments was Thomas Barkin, who added that the peak of rates would surpass the September projections.

That said, the US 2-year Treasury bond yield, the most sensitive to the Federal Funds rate (FFR) adjustments, tumbled to 4.663%, following the jobs report after hitting a YTD high at 5.134%. It should be noted that the 2-year yield exceeded the 10-year benchmark note rate by 60 bps during the last week, as the 10s-2s yield curve inverted the deepest since the 1980s, which is usually seen as a leading indicator that precedes recessions by 12 to 18 months.

Meanwhile, some sources cited by Bloomberg said that “Now it’s about the ultimate destination” of the policy rate, according to analysts at Bank of America Corp., whose forecast for the terminal level ranges from 5%-5.25%.

Traders focus on October’s CPI, and expectations for a Federal Reserve 50 bps increase are at 52%

In the meantime, investors are bracing for the October Consumer Price Index (CPI) report. Asides from this, money market futures expect that the US Federal Reserve would hike 50 bps, as shown by the CME FedWatch Tool, with odds of lifting 50 bps at 52%, while for 75 bps, chances lie at 48%.

Bloomberg reported on Tuesday, Japanese Prime Minister Fumio Kishida is set to approve USD198 billion in the additional budget for the economic stimulus plan.

Meanwhile, Reuters reported, having seen a draft of the spending plan, Japan is set to spend 1.4 trillion Japanese Yen (JPY) ($9.55 billion) in additional fiscal loans in a second extra budget set to be compiled this month.

Separately, the  tax panel chief of PM Kishida’s junior coalition partner party Komeito said on Tuesday, the government “may opt to hike taxes on ultra-wealthy individuals with annual incomes of more than JPY1 billion ($6.8 million).”

Market reaction

USDJPY is extending its rebound towards 147.00 on the stimulus news. The pair is trading at 146.78, adding 0.11% on the day, at the time of writing.

• AUDUSD renews intraday low as market sentiment sours during a sluggish session.
• China reports highest fresh covid numbers since April, fresh statistics from Australia arrived mixed.
• Light calendar could restrict the pair’s moves ahead of US/China inflation, RBA’s Lowe could entertain intraday traders.

AUDUSD renews its intraday low around 0.6465 while printing mild losses during the early Tuesday morning in Europe. The Aussie pair’s latest losses snap a two-day uptrend while probing the bulls at a one-week high. In doing so, the quote justifies its risk-barometer status while also tracing mixed signals from Aussie data.

National Australia Bank’s (NAB) Business Conditions eased to 22 in October from 25 prior, versus 20 forecast. Further, the NAB Business Confidence slumped to 0 during the stated month compared to the market’s consensus of reprinting 5 figure.

Earlier in the day, Australia’s Westpac Consumer Confidence slumped to -6.9% in November versus -0.9% prior. Further, the weekly print of ANZ-Roy Morgan Consumer Confidence dropped to the lowest levels since April 2020, to 78.7 at the latest. The details of the report also mentioned that the inflation expectations were the highest since the data was first released in April 2010.

Elsewhere, China reported the biggest jump in the fresh daily coronavirus numbers since April, which in turn justifies the dragon nation’s previous defense of the zero-covid policy.

Furthermore, indecision over the US Federal Reserve’s (Fed) next move and the cautious mood ahead of the US Consumer Price Index (CPI) for October, as well as the US mid-term election, also underpin the US dollar’s corrective bounce.

While portraying the mood, the US stock futures print mild losses whereas the US Treasury yields grind higher and the US Dollar Index (DXY) recover from the eight-day low.

Looking forward, comments from Reserve Bank of Australia (RBA) Governor Philip Lowe will be crucial for the AUDUSD pair traders amid the recently downbeat statements from the Aussie central bankers that weighed on the quote previously. Also important will be the risk catalysts and the inflation numbers from the US and China, up for publishing on Thursday.

Technical analysis

AUDUSD retreats from the 0.6410-15 resistance confluence including the 50-DMA and a one-month-old descending trend line, which in turn directs sellers toward the 10-DMA support near 0.6420.

• The oil prices have slipped to near $90.00 as DXY bulls have attempted recovery in Asia.
• Advancing 50-and 100-EMAs add to the upside filters.
• Corrective moves are considered an entry area of smart money in a Rising Channel formation.

West Texas Intermediate (WTI), futures on NYMEX, have extended losses in the Tokyo session after surrendering the immediate support of $90.90. The black gold has witnessed selling interest as the US dollar index (DXY) has displayed signs of recovery amid anxiety ahead of US mid-term elections.

On an hourly scale, the black gold is auctioning in a Rising Channel chart pattern that indicates an upside structure. The upper portion of the chart pattern is placed from October 20 high at $86.94 while the lower portion is plotted from October 31 low at $84.78.

The asset has corrected to near the 50-period Exponential Moving Average (EMA) at $90.70, while the 100-EMA at $89.80 is still untouched and is aiming higher, which indicates more upside ahead.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range and is likely to find support around 40.00.

Going forward, a drop near the horizontal resistance placed at Wednesday’s high of $89.66 will act as a buying opportunity for the market participants. Bulls may drive the oil prices toward Tuesday’s high at $91.40, followed by Monday’s high at $92.92.

On the flip side, the oil prices could face a sheer downside to near Wednesday’s low at $87.00 if they drop below the round-levels support of $89.00. A slippage below Wednesday’s low may drag the asset further toward October 31 low at $84.78.

WTI hourly chart

• NZDUSD pares recent gains as bulls step back from 1.5-month high, snaps two-day uptrend.
• RBNZ Inflation Expectations improved to 3.62% for two-year, 5.08% for one year.
• Sour sentiment, China’s covid woes exert downside pressure on prices.
• Lackluster moves expected ahead of US CPI, risk-aversion may help please bears.

NZDUSD bulls take a breather at the multi-day high during a sluggish Tuesday morning in Europe. With this, the Kiwi pair remains mildly offered near 0.5930 after rising to the highest levels since September 20, snapping a two-day uptrend.

In doing so, the quote fails to justify the strong points of the Reserve Bank of New Zealand’s (RBNZ) Inflation Expectations for the fourth quarter (Q4). That said, the RBNZ one-year inflation expectations rose from 4.86% to 5.08% QoQ whereas the more closely watched two-year counterpart increased to 3.62% compared to 36.07% marked in the third quarter (Q3).

A lack of major data/events and recently firmer covid numbers from China dim the market’s previous optimism, which in turn allowed the US dollar to lick its wounds during an inactive session.

China reported the biggest jump in the fresh daily coronavirus numbers since April, which in turn justifies the dragon nation’s previous defense of the zero-covid policy.

Elsewhere, indecision over the US Federal Reserve’s (Fed) next move and the cautious mood ahead of the US Consumer Price Index (CPI) for October, as well as the US mid-term election, also underpin the US dollar’s corrective bounce.

Amid these plays, the US Treasury yields are firmer and stock futures remain indecisive but the US Dollar Index (DXY) rebounds from a one-week low.

Moving on, NZDUSD may witness further pullback but the bullish chart pattern and expectations of easy inflation might defend the pair buyers.

Technical analysis

A one-month-old ascending trend channel keeps NZDUSD buyers hopeful between 0.6000 and 0.6220.

• USDIDR remains mildly bid, extends week-start rebound amid sluggish session.
• Indonesia Consumer Confidence rise to 120.30 in October.
• US dollar licks its wound amid firmer yields, covid fears from China.
• Light calendar restricts immediate moves, US inflation in focus.

USDIDR picks up bids to print mild gains around $15,685 during Tuesday’s inactive Asian session. In doing so, the Indonesia Rupiah (IDR) pair fails to cheer the recently firmer Consumer Confidence data amid easing market optimism.

Indonesia’s Consumer Confidence gauge rose to 120.30 versus 117.2 printed in September. It’s worth noting that the covid fears emanating from China also challenge the optimism in the Asia-Pacific region.

Recently, China reported the biggest jump in the fresh daily coronavirus numbers since April, which in turn justifies the dragon nation’s previous defense of the zero-covid policy.

Elsewhere, geopolitical fears surrounding the next week’s Group of 20 (G20) nations’ meeting in Bali also propel the USDIDR prices of late.

Recently firmer US Treasury yields and cautious mood ahead of Thursday’s US Consumer Price Index (CPI) for October also underpin the USDIDR trader’s bullish bias.

Against this backdrop, the US Treasury yields are firmer and stock futures remain indecisive but the US Dollar Index (DXY) rebounds from a one-week low.

Moving on, markets in the Asia-Pacific region may witness a lack of momentum amid mixed clues and an off in India. However, Thursday’s inflation data from China and the US could entertain the traders.

Technical analysis

The USDIDR pair’s sustained bounce off the 10-DMA, around $15,535 by the press time, enables buyers to aim for the yearly top marked earlier in November, around $15,820.

• GBPUSD has sensed an intermediate cushion around 1.1500 ahead of US mid-elections.
• US recession fears have inched higher led by higher inflationary pressures and aggressive policy tightening.
• Discussions between UK PM and EC President have brought a sense of optimism to the post-Brexit arrangement.

The GBPUSD pair has sensed a halt in the downside trend around the psychological support of 1.1500 in the Tokyo session. The Cable could rebound firmly ahead as recession fears in the US economy are accelerating dramatically. The positive risk profile is strengthening further as S&P500 futures are extending their gains in Asia after a bullish Monday.

Meanwhile, the US dollar index (DXY) is facing hurdles around 110.33 after a rebound move as investors have turned cautious citing recession fears.

Analysts at Goldman Sachs noted that the chances of the US economy entering into a recession in the next year stand at 35%. The reasoning behind escalating recession fears is the extreme deviation in desired inflation target and current inflation rate, aggressive Fed policy tightening, and exceptionally uncertain conditions in terms of domestic US politics and geopolitics.

The returns generated on US government bonds have climbed to 4.22% despite a decline in odds of the fifth consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed). As per the CME FedWatch tool, the chances of a 75 bps rate hike in December monetary policy have been trimmed to 43.2%.

Going forward, investors will keep an eye on the outcome of the US mid-term elections. A majority win for Republicans could trigger political instability in the US economy and may impact gold prices.

Talking over the UK front, the release of the Gross Domestic Product (GDP) data will hog the limelight. On an annual basis, the GDP data is seen lower at 2.1% vs. the prior release of 4.4%. And, the quarterly regime is expected to display negative growth by 0.5% against an expansion of 0.2%.

Meanwhile, a discussion held at the CP27 climate summit between UK Prime Minister Rishi Sunak and European Commission President Ursula von der Leyen has brought optimism to the Brexit arrangement. The officials agreed to "work together" to end the ongoing row over the Northern Ireland protocol (NIP) in their first meeting, as reported by SkyNews.

• GBPJPY fades two-day uptrend, remains sidelined of late.
• BOE witnessed a dim response of the first gilt sale, optimism surrounding UK’s fiscal policy fades.
• UK businesses fear gloomy Christmas amid inflation woes.
• Yields remain firmer as recession looms, China’s covid numbers escalate during a sluggish session.

GBPJPY treads water around 168.80, pausing the two-day uptrend, heading into Tuesday’s London open. In doing so, the cross-currency pair portrays the market’s indecision amid mixed clues and a lack of major data/events.

It should, however, be noted that a dim response to the Bank of England’s (BOE) first medium-term gilt selling operation seem to have teased the pair bears of late.

On the same line was the recent survey for Barclays that suggest British businesses fear a gloomy Christmas ahead, as almost half of households plan to cut festive spending due to the soaring cost of living and sales are already falling sharply in inflation-adjusted terms.

Furthermore, GBPJPY’s inaction could be linked to news suggesting that the UK Chancellor Jeremy Hunt is set to announce a new tax raid on inheritance, per the UK Telegraph. The news also mentioned that Chancellor Hunt and Prime Minister (PM) Rishi Sunak are understood to have agreed to freeze the threshold above which people must pay tax for another two years.

Alternatively, chatters over likely positive outcomes from the next fiscal plan and UK Prime Minister (PM) Rishi Sunak’s efforts to justify his election keep the pair buyers hopeful. UK PM Sunak is poised to announce a major gas deal with America after the Cop27 climate change summit, The Telegraph can disclose. “Talks about the “energy security partnership” are in their final stages, with the US planning to sell billions of cubic meters of Liquefied Natural Gas (LNG) to Britain over the coming year,” the news adds.

It’s worth mentioning that the Bank of Japan’s (BOJ) bond-buying operations and fears surrounding China’s higher covid counts since April, as well as a light calendar, restrict the GBPJPY pair’s moves.

Moving on, a lack of major data/events could keep the quote sidelined but optimism surrounding the UK’s fiscal policies may allow the cross-currency pair to remain firmer ahead of the UK’s Gross Domestic Product (GDP) for the third quarter (Q3), up for publishing on Friday.

Technical analysis

GBPJPY bulls attack the 10-DMA hurdle surrounding 169.00 but the bearish MACD signals and steady RSI keeps sellers hopeful.

• USDCAD picks up bids to extend the previous day’s rebound from six-week low.
• Bearish MACD signals, steady RSI keep sellers hopeful.
• Buyers can return unless breaking 1.3340, inverted hammer challenges bearish bias.

USDCAD extends the week-start rebound to 1.3510 during early Tuesday morning in Europe.

In doing so, the Loonie pair justifies the previous day’s “inverted hammer” bullish candlestick while poking the 50-DMA hurdle.

It should be noted, however, that the Loonie pair’s sustained break of a one-month-old horizontal area surrounding 1.3500 during the last week joins the bearish MACD signals to suggest the quote’s underlying weakness in momentum.

Hence, the latest rebound appears elusive unless the quote provides a daily closing beyond the 50-DMA hurdle surrounding 1.3515.

Following that, a gradual run-up toward s1.3610 and 1.3720 can’t be ruled out. However, multiple hurdles around 1.3840-50 could challenge the USDCAD bulls afterward.

Meanwhile, fresh sellers could wait for the quote’s downside break of the latest swing low, around 1.3465.

Following that, a convergence of the 50% Fibonacci retracement level of the pair’s August-October upside and a three-month-old ascending support line, surrounding 1.3350-40, will be crucial to watch for the USDCAD bears.

Should the quote provides a daily closing below 1.3340, the odds of witnessing a slump toward the early September highs near 1.3210 can’t be ruled out. Adding strength to the said support is the 61.8% Fibonacci retracement level, also known as the golden ratio.

USDCAD: Daily chart

Trend: Limited upside expected

• Gold price is displaying a time-correction move as investors await fresh cues from US mid-term elections.
• The alpha generated by US government bonds is accelerating ahead of US CPI data.
• A Bullish Flag formation is indicating a continuation of a rally after an upside break of consolidation.

Gold price (XAUUSD) has witnessed a time correction in the Tokyo session after struggling around the immediate hurdle of $1,680.00. The upside in the precious metal is capped by anxiety among investors ahead of the mid-term election buzz while the downside is being supported by overall optimism in the global market.

The US dollar index (DXY) has attempted a rebound after testing Monday’s low at around 110.00. Meanwhile, the 10-year US Treasury yields have climbed near 4.23% and are expected to continue their upside move ahead of US Consumer Price Index (CPI) data.

As per the preliminary estimates, the headline CPI is seen lower at 8.0% vs. the prior release of 8.2% while the core CPI that excludes oil and food prices is seen marginally lower at 6.5% against 6.6% in the prior release. The core inflation data has not displayed promising signs of exhaustion yet, therefore the extent of deviation in the catalyst will be keenly watched.

But before that, elections for 435 seats of the House of Representatives and 34 seats of the Senate will remain in focus. A majority win for Republicans could trigger political instability in the US economy and may impact gold prices.

Gold technical analysis

On an hourly scale, the asset is forming a Bullish Flag pattern that signals an impulsive bullish wave after the breakout of the consolidation. Usually, the consolidation phase indicates a most auctioned region where those investors place bets who prefers to enter an auction after the establishment of an upside bias. Also, investors add more longs as they see a continuation of the uptrend after a time-corrective pause.

The asset is hovering around the 20-period Exponential Moving Average (EMA) at $1,674.75. Meanwhile, the Relative Strength Index (RSI) (14) has slipped into the 40.00-60.00 range but that doesn’t warrant a reversal in the trend.

Gold hourly chart

• USDINR licks its wound at the lowest levels in a month, snaps three-day downtrend.
• Firmer yields, covid woes from China test bears even as Fed concerns weigh on prices.
• Softer oil price adds strength to the bearish bias amid an off in Indian markets.

USDINR picks up bids to regain 82.00 while paring recent losses at the monthly low during Tuesday’s Asian session. In doing so, the Indian Rupee (INR) pair prints the first daily gains in four by printing 81.92 the figure at the latest.

The biggest jump in China’s covid cases since April and the market’s anxiety ahead of the US midterm elections seem to underpin the USDINR pair’s recent rebound. Also keeping the quote firmer could be the holiday in India due to Guru Nanak Jayanti.

It should be noted that the recently downbeat prices of WTI crude oil, down 0.35% to $91.55 by the press time, also weigh on the USDINR prices due to India’s reliance on energy imports and record current account deficit.

However, the looming concerns over the US Federal Reserve’s (Fed) pivot, as well as the recently mixed comments from the Fed officials, keep the US dollar bears hopeful. It’s worth noting that the Fedspeak has recently shifted towards the concerns of pivot than the further rate hikes, which in turn suggests easy interest rate lifts and weigh on the greenback.

Elsewhere, a light calendar and the market’s wait for Thursday’s US Consumer Price Index (CPI) for October, as well as recently firmer US inflation expectations, challenge the USDINR bears. That said, the US inflation precursors, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, print one-week highs of 2.53% and 2.61% according to the latest readings.

Amid these plays, the US Treasury yields are firmer and stock futures remain indecisive but the US Dollar Index (DXY) rebounds from a one-week low.

Looking forward, a light calendar and off in India could test USDINR traders and may keep the latest corrective bounce on the table.

Technical analysis

The USDINR pair’s first daily closing below the 21-day EMA, close to 82.25, in nearly two months keeps bears hopeful of testing the 50-day EMA support level surrounding 81.55.

• EURUSD is displaying a subdued performance above parity as investors turn cautious ahead of US mid-term elections.
• Fed Barkin sees no slowdown in the rate hike pace until a slowdown in the price growth.
• This week, US Inflation data will be of utmost importance.

The EURUSD pair has witnessed a mild correction after testing Monday’s high at 1.0031 in the Tokyo session. Exhaustion in the upside momentum has resulted in a minor selling interest in the asset, however, the asset still holds the parity as the overall risk impulse is still positive.

Meanwhile, the US dollar index has bounced back sharply from 110.05 as investors are turning cautious ahead of the US mid-term elections. S&P500 futures are displaying a flat-to-positive move in Tokyo after a bullish Monday amid optimism in the entire market.

On a contrary, the 10-year US Treasury yields have climbed to 4.22% after hawkish commentary from Richmond Federal Reserve (Fed) President Thomas Barkin. Fed policymaker believes that the ongoing pace of policy tightening by the US central bank will continue until promising signs of a slowdown in the inflationary pressures. He further added that “It would have made sense for the Fed to start tightening earlier.”

The outcome of the US mid-term elections will have a significant impact on the mighty DXY and will display the extent of political stability in the economy. Therefore, the contest among 435 seats of the House of Representatives and 34 seats of the Senate will be keenly watched.

Later this week, the release of the US inflation will remain in focus. Due to accelerating interest rates and a fall in gasoline prices, the inflationary pressures are expected to display slippages.

On the Eurozone front, investors are awaiting the Retail Sales data. The economic data may remain in a negative trajectory at -1.3% but will improve against the prior figure of -2.0%. Despite, soaring price pressures, lower retail sales indicate an extreme weakness in retail demand.

Analysts at Goldman Sachs noted, “we still see a 35% probability that the US economy will enter a recession in the next 12 months.”

 Additional quotes

“This is more than double the unconditional probability in any given 12-month period because:

1. inflation is far above target,
2. the Fed is tightening aggressively
3. and we live in an exceptionally uncertain world in terms of both domestic US politics and geopolitics.”

“However, our 35% recession probability is well below the 60-70% consensus in the latest Wall Street Journal forecaster survey because we still see a very plausible four-step path from the high-inflation economy of the present to a low-inflation economy of the future without a recession.”

“The steps include:

a) bringing growth down to below-trend but positive rates,

b) rebalancing the labor market with only a limited increase in unemployment,

c) reducing wage growth to more sustainable levels,

and d) putting PCE inflation on a path back down to 2%.”

• USDJPY snaps two-day losing streak as it picks up bids inside fortnight-old symmetrical triangle.
• Bearish MACD, sustained trading below 21-day EMA keeps sellers hopeful.
• Buyers remain off the table unless crossing the 149.00 hurdle.

USDJPY prints the first daily gains in three around 146.65 during Tuesday’s Asian session. In doing so, the Yen pair extends the previous day’s rebound from a support line of the two-week-old symmetrical triangle.

The recovery moves need to cross the 21-day EMA, around 147.10 by the press time, to lure the USDJPY buyers. Even so, the bearish MACD signals challenge the upside moves.

That said, the stated triangle’s upper line, close to 148.10, holds the key for the USDJPY bull’s welcome while multiple hurdles near 149.00 could act as the last defense for bears.

In a case where USDJPY rises past 149.00, the 150.00 psychological magnet and the latest multi-year top near 151.95 will be in focus.

Meanwhile, the aforementioned triangle’s support line, close to 146.20 at the latest, precedes the 50% Fibonacci retracement level of the pair’s upside from late September to October, around 146.15, to restrict short-term USDJPY downside.

It’s worth noting, however, that a convergence of the 50-day EMA and the 61.8% Fibonacci retracement level near 144.75-85 appears a tough nut to crack for the pair bears.

Overall, USDJPY stays on the bear’s radar unless staying below 149.00.

USDJPY: Daily chart

Trend: Limited recovery expected

New Zealand's (NZ) inflation expectations rise across the time curve in the fourth quarter of 2022, the latest monetary conditions survey conducted by the Reserve Bank of New Zealand (RBNZ) showed on Tuesday.

Two-year inflation expectations, seen as the time frame when RBNZ policy action will filter through to prices, came in a tad lower at 3.62% from 3.07% previous.

NZ Q4 average one-year inflation expectations jumped to 5.08% vs. 4.86% seen in the third quarter of this year. 

Kiwi unimpressed by inflation data

The acceleration in NZ inflation expectations failed to move the need around the New Zealand Dollar (NZD), leaving NZDUSD almost unchanged at around 0.5935.

The rising inflation expectations data revives hopes of a hawkish RBNZ rate hike next month.

• AUDUSD retreats from one-week-old horizontal resistance but keeps bullish Head-And-Shoulders formation intact.
• 50-SMA defends buyers before the latest swing low, bullish MACD signals favor upside momentum.
• Sustained break of 0.6515 appears necessary to confirm a rally.

AUDUSD snaps a two-day uptrend as it refreshes intraday low near 0.6470 during early Tuesday in Asia.

That said, the Aussie pair’s latest weakness could be linked to the quote’s failure to cross a one-week-old horizontal resistance near 0.6495-90.

However, the inverse Head-And-Shoulders bullish chart pattern joins the upbeat MACD signals to keep the AUDUSD buyers hopeful.

Even so, a successful break of the stated bullish chart pattern’s neckline, near 0.6515, appears necessary for the bulls to aim for September’s high near 0.6920. It should be noted that multiple hurdles surrounding 0.6550 could test the AUDUSD bulls between 0.6920 and 0.6515.

On the flip side, a sustained break of the 50-SMA support, around 0.6405 by the press time, becomes necessary for the AUDUSD bear’s conviction.

Following that, a one-month-old ascending support line, near 0.6285, will precede the monthly low near 0.6270 and the yearly bottom surrounding 0.6170 could gain the market’s attention.

Overall, AUDUSD remains on the bull’s radar but a clear break of 0.6515 appears necessary for the pair buyers to cheer the recent advances.

AUDUSD: Four-hour chart

Trend: Further upside expected

• NZDUSD bears move back in following a test of key highs.
• US Dollar is pressured as US yields stall in a risk-on setting. 

NZDUSD is plotting highs for the week in Asia, extending on the start of the week's rally in a risk-on environment. The high beta currencies have been finding demand due to signs of some easing of market conditions following last week's mixed Nonfarm Payrolls report that shows that the Unemployment Rate rose to 3.7%.

A Federal Reserve pivot could be on the cards that would give relief to global stock markets and currencies, such as the Kiwi, that tend to track the performance of equities. Consequently, US yields are weak at the start of the week as the following technical analysis will show and NZDUSD is gathering pace on the bid into last weeks and the overnight highs:

NZD/USD H1 chart

However, if the bears are able to commit at this juncture, then there would be a case for a move below the key trendline and prospects for a test of key structures, as illustrated in the chart above. 

US 2-year yield

Meanwhile, US yields are at a crossroads and should they give out below the micro trendline, there is a risk that a significant move lower below the key daily structures would derail the US dollar, lending huge support to stocks and currencies such s the Kiwi.  

The Bank of Japan (BoJ) offers to buy Japanese Government Bonds (JGB) across various maturities on Tuesday.

Key details

Market reaction

At the time of writing, USDJPY is keeping its renewed upside intact around 146.70, up 0.05% on the day.

• Asia-Pacific shares remain positive for the second consecutive day tracking the global cues.
• Receding fears of Fed’s aggression, chatters over China’s zero-covid policy and private investment plans favor bulls.
• Downbeat Aussie data, higher covid count challenge bulls ahead of the key US inflation data.

Asia-Pacific traders witness another positive day despite posting mild gains on Tuesday morning. In doing so, the region tracks Wall Street’s upbeat performance, as well as the recently firmer S&P 500 Futures.

 That said, the receding fears of the US Federal Reserve’s (Fed) aggressive rate hikes could be cited as the main catalysts for the market’s recent optimism. On the same line are headlines suggesting China’s push for higher private investment.

On the contrary, an uptick in China’s new locally transmitted coronavirus cases, from 535 to 843, joins the rejection of taking down the zero-covid policy to challenge the optimists.

Amid these plays, MSCI’s index of the Asia-Pacific shares outside Japan rise half a percent while Japan’s Nikkei 225 rises to the highest levels in seven weeks, up 1.41% intraday near 27,900 at the latest.

It should be noted that the news suggesting an absence of stealth intervention by Japan in the third quarter (Q3) seemed to have favored the bulls in Tokyo. Elsewhere, Australia’s downbeat prints of Westpac Consumer Confidence for November and mixed prints of National Australia Bank’s (NAB) sentiment gauges for October seemed to have probed the share buyers in Canberra.

Further, stocks in China print mild losses while those from New Zealand also remain in the red amid covid fears, as well as the hopes that the Reserve Bank of New Zealand (RBNZ) will keep the hawkish bias intact.

On a broader front, the recently mixed comments from the US Federal Reserve (Fed) policymakers, suggesting a halt in the strong rate hike trajectory, especially after Friday’s mixed US jobs report, helps the US equity buyers to remain hopeful even as the yields are firmer.

Moving on, a light calendar could keep challenging the traders ahead of Thursday’s US Consumer Price Index (CPI) for October, expected to ease to 8.0% YoY from 8.2%.

• EURGBP has sensed selling pressure while attempting a break above 0.8700.
• The ECB is expected to paddle up its policy tightening measures to bring the inflation rate to 2%.
• Eurozone Retail Sales data is seen at 1.3% vs. the prior release of -2.0%.

The EURGBP pair is hovering around its intraday low after struggling to cross the immediate hurdle of 0.8700 in the Tokyo session. The cross witnessed a vertical fall on Monday after failing to hold itself above the ultimate resistance of 0.8780 as investors turned cautious ahead of Eurozone Retail Sales data.

Meanwhile, European Central Bank (ECB) President Christine Lagarde is continuously reiterating its view that the rate hike cycle must ensure that inflation should return to a projected 2% over the medium term. The inflation rate in the trading bloc has reached to double-digit figure and containment of the same won’t be a cakewalk. Also, Russia-Ukraine tensions and eventually rising energy prices have a headache for the ECB President.

In addition to that, ECB member Martins Kazaks has supported Lagarde’s viewpoint on inflation and has said ''there is no pivot, we still say that inflation is a problem, and we will keep raising rates.''

On the economic data front, the Eurozone Retail Sales data will be of utmost importance. The economic data may remain in a negative trajectory at -1.3% but will improve against prior figure of -2.0%. Despite, soaring price pressures, lower retail sales indicate an extreme weakness in retail demand.

Meanwhile, Pound investors are preparing for the Gross Domestic Product (GDP) data, which will release later this week. The GDP data on an annual basis is seen lower at 2.1% vs. the prior release of 4.4%. And, the quarterly regime is expected to display negative growth by 0.5% against an expansion of 0.2%.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.2150 vs. the estimated 7.2173 and the previous 7.2292.

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.

• GBPUSD remains mildly bid during three-day uptrend, seesaws around weekly top.
• Bullish MACD signals, sustained break of 50-DMA favor buyers.
• The road to the north is bumpy and long unless crossing 1.1680.

GBPUSD grinds near intraday high while printing mild gains surrounding 1.1530 during early Tuesday. In doing so, the Cable pair remains firmer for the third consecutive day as buyers rush towards a downward-sloping resistance line from early August, around 1.1550 by the press time.

Underpinning the bullish bias is the pair’s successful trading beyond the 50-DMA, as well as the upbeat MACD signals.

However, the quote’s upside past 1.1550 appears troublesome as the descending trend line from September 13 and the 100-DMA could challenge the bulls around 1.1615 and 1.1680 respectively.

In a case where the GBPUSD bulls manage to cross the 1.1680 hurdle, September’s monthly peak of 1.1740 could act as the last defense for the bears.

Meanwhile, pullback moves remain elusive unless the pair stays beyond the 50-DMA level of 1.1332.

Also acting as the downside filters are the five-week-old ascending trend line and the recent swing low, close to 1.1275 and 1.1150 in that order.

Hence, the GBPUSD buyers are likely to keep the reins but the pair’s upside move is expected to be a slower one.

GBPUSD: Daily chart

Trend: Limited upside expected

• USDJPY bulls move back in following a test of the week's lows.
• Risk-on is supporting the beta currency bloc.

USDJPY has dropped as the Tokyo session gets going and risk currencies catch a bid. The Nikkei is sharply higher and high betas are tagging along. At the time of writing, USDJPY is trading at 146.40, down some 0.12% and has dropped from a high of 146.72 reaching a low of 146.33 so far.

Japan's benchmark Nikkei average opened up 0.69% at 27,718.84 on Tuesday, while the broader Topix gained 0.56% at 1,945.00. Equity markets rose and the US Dollar slid on Monday as traders embraced the idea that China may ease COVID restrictions. Additionally, the US economy could be slowing enough to allow the Federal Reserve to ease its aggressive hiking of interest rates. Traders have latched on to a risk-on sentiment that emerged from last Friday's activity in the US session. There are signs of some easing of market conditions following last week's mixed Nonfarm Payrolls report that shows that the Unemployment Rate rose to 3.7%.

US midterms and CPI in focus

Meanwhile, the attention will soon turn to the US midterms and US inflation data. ''America goes to the polls next week on November 8th for the midterms, where control of both chambers of Congress and dozens of governorships are on the line,'' analysts at TD Securities explained. ''Polls suggest a Republican majority in the House and Senate, which is in line with historical relationships as well as the low approval ratings of President Biden due to the economy, inflation, and crime.''

As for US Consumer Price Index, the analysts explained that core prices likely slowed modestly in Oct, but to a still strong 0.4% MoM pace. ''Shelter inflation likely remained the key wildcard, though we look for used vehicle prices to retreat sharply. Importantly, gas prices likely shifted from offering relief to the CPI in recent months to contributing to it in Oct. All told, our m/m forecasts imply 7.9%/6.5% YoY for total/core prices.''

• AUDNZD has picked significant bids from 1.0884 amid rising hawkish bets for the RBA.
• More frequent RBA board meetings provide an opportunity for rate synchronization with global leaders.
• Going forward, Business NZ PMI data will be keenly watched.

The AUDNZD pair has witnessed fresh demand after dropping below 1.0884 in the early Asian session, The asset has reclaimed the round-level hurdle of 1.0900 as bets for the continuation of the rate hike by the Reserve Bank of Australia (RBA) have soared. The cross is mostly trading sideways amid the absence of a critical trigger that could lead to a decisive movement ahead.

Meanwhile, economists at Goldman Sachs have come forward with a hawkish view on interest rates by the RBA ahead. "Against the backdrop of such a large and protracted inflation overshoot, we were surprised by the RBA's October decision to slow the pace of rate hikes - particularly before the policy rate had reached the lower bound of their 3.00-4.50% nominal 'neutral rate' estimate."

On forward guidance, the investment banking firm believes that RBA’s more frequent board meetings provide a potential opportunity for RBA Governor Philip Lowe to synchronize with the global policy tightening pace.

Last week, the RBA monetary policy statement disclosed their bleak projections on Gross Domestic Product (GDP) outlook. Also, short-term inflation expectations remained higher at around 8%, as inflationary pressures in the Australian region have not displayed signs of exhaustion yet.

On the Kiwi front, investors are awaiting the release of the Business NZ PMI data, which is due on Thursday. The economic data is seen higher at 52.7 vs. the prior release of 52.0. But before that, inflation expectations for two years from now will be keenly watched. Globally, price pressures are likely to remain elevated in CY2023 led by rising prices for services and raw materials. An increment in long-term inflation expectations could bring volatility to the counter.

• Gold price picks up bids to pare the week-start losses.
• Hidden bearish divergence challenge upside momentum amid sluggish session.
• Market’s cautious optimism, talks of Fed’s pivot favor buyers ahead of the key US CPI for October.

Gold price (XAUUSD) recovers from an intraday low to $1,675 during Tuesday’s sluggish Asian session. In doing so, the yellow metal reverses the previous day’s pullback from the monthly high amid a broadly softer US dollar.

That said, the US Dollar Index (DXY) takes offers to refresh the intraday low near 110.00, down for the third consecutive day. The DXY’s latest weakness could be linked to the recently mixed comments from the US Federal Reserve (Fed) policymakers, suggesting a halt in the strong rate hike trajectory, especially after Friday’s mixed US jobs report.

Additionally, hawkish comments from the European Central Bank (ECB) policymakers, firmer data from Eurozone and the market’s wait for this week’s key US Consumer Price Index (CPI) could also be held responsible for the XAUUSD’s recent pick-up.

However, fears surrounding China’s covid conditions and the recently firmer US inflation expectations challenge gold buyers. That said, China turned down the hopes of easing the zero-covid policy during the weekend after witnessing a multi-day high print of the daily virus counts. Additionally, the US inflation precursors, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, print one-week highs of 2.53% and 2.61% according to the latest readings.

Amid these plays, the US Treasury yields are firmer and stock futures also print mild gains while tracking Wall Street’s firmer closing.

Moving on, gold traders need fresh clues and may seek headlines from China and the Fed ahead of the US inflation data for clear directions. In doing so, the metal prices may remain lackluster.

Technical analysis

Gold price defends the previous week’s upside break of a descending resistance line from October 11, now support around $1,665, as RSI (14) hints at the bearish move.

That said, the XAUUSD portrays the lower high formation since early October but the RSI is on the north run each time, suggesting the bulls are out of moves and struggling to keep the reins.

As a result, the odds of the metal’s pullback towards the aforementioned resistance-turned-support near $1,665 appear brighter. Following that, the 200-SMA level near $1,660 could act as the last defense of the gold buyers.

Alternatively, an upside clearance of the recent tops near $1,683 turns down the bearish signals suggested by the RSI and price match.

In that case, the gold price could quickly rally to the $1,700 threshold before challenging the previous monthly peak surrounding $1,730.

Gold price: Four-hour chart

Trend: Pullback expected

• EURUSD seesaws around a one-week high as bulls brace for another battle with the 100-DMA hurdle.
• Oscillators favor further upside momentum, sustained break of 50-DMA also favor buyers.
• Rejection of the bullish channel becomes necessary for bears to retake control.

EURUSD buyers take a warm-up break as they approach the key hurdle above 1.0000 after the two-day uptrend, sidelined near 1.0020 during Tuesday’s Asian session.

Even so, the major currency pair’s successful run-up beyond the 50-DMA joins bullish MACD signals and firmer RSI (14), not overbought, to keep the pair buyers hopeful.

That said, the quote’s further upside hinges on a clear break of the 100-DMA hurdle surrounding 1.0045. Also acting as an upside filter is the previous monthly peak near 1.0100.

It’s worth noting that the upper line of a six-week-old ascending trend channel, near 1.0140 at the latest, could also challenge the EURUSD bulls.

Meanwhile, the quote’s downside remains limited as the 50-DMA appears strong support for the bears to crack near 0.9880.

Following that, the stated channel’s lower line, close to 0.9755, could gain the market’s attention as a downside break of the same won’t hesitate to refresh the yearly low, currently around 0.9535.

To sum up, EURUSD is likely to remain firmer but the road to the north is long and bumpy.

EURUSD: Daily chart

Trend: Further upside expected

• The DXY is displaying a lackluster performance as the focus has shifted to the US mid-term elections.
• Reuters poll favors a win of Republicans at mid-term elections that may bring political instability.
• Fed Barkin hopes continuation of policy tightening at the current pace on absence of slowdown in inflation.

The US dollar index (DXY) is juggling in a narrow range above the psychological support of 110.00 in the Tokyo session. US mid-term elections for the House of Representatives and the Senate are responsible for a lackluster performance in the DXY.

Meanwhile, the risk impulse is extremely positive as investors’ risk appetite has improved amid chatter over a slowdown in the pace of rate hiking by the Federal Reserve (Fed). S&P500 gained sharply on Monday as the topping of the terminal rate is supporting the earnings guidance. The 10-year US Treasury yields have climbed to 4.22% on contrary commentary from Richmond Fed President Thomas Barkin.

US Mid-term elections

The contest among 435 seats of the House of Representatives and 34 seats of the Senate will determine the extent of the power of the Democratic party. A win in mid-term elections for the Republican party would cripple the power of US President Joe Biden as the passing of bills will also demand approval from Republicans. This could also bring a sense of political instability.

Reuters reports on an Ipsos poll that has US President Joe Biden's public approval rating slipping to 39% due to weaker economic prospects, mounting inflation, and crime.

Contrary view of Fed Barkin on interest rates

Chatters are ongoing in the overall market that the Fed interest rates are near to the proposed one at 4.80% and smaller rate hikes will be witnessed. The continuation of policy tightening at the current pace could dampen the economic prospects further, therefore a ‘baby steps’ approach would be followed to keep the current extent of economic activities alive.

While Fed Barkin is of the view that the ongoing pace of policy tightening will continue until the central bank record promising signs of a slowdown in inflationary pressures. He further added that “It would have made sense for the Fed to start tightening earlier.”

US CPI- a key trigger this week

This week, the show-stopper event will be the US Consumer Price Index (CPI) data, which will release on Thursday. As per the preliminary estimates, the headline CPI is seen lower at 8.0% vs. the prior release of 8.2%. While the core CPI that excludes oil and food prices is seen lower at 6.5% against 6.6% recorded earlier.

Reuters reported that the Bank of Japan must continue examining how a future exit from ultra-low interest rates could affect financial markets, one of its board members was quoted as saying in a summary of opinions at the October policy meeting.

''While there is no need to immediately tweak monetary policy, the central bank must pay attention to the side-effects of prolonged easing, according to another opinion quoted in the summary released on Tuesday.''

Key notes

Japan's inflation likely to remain fairly high as there are signs service prices starting to rise.
    
Consumer inflation likely to slow back below 2% next fiscal year due to impact of slowing global growth.
    
Companies maybe shifting away from their business practices that were based on the assumption prices won't rise much.
    
Cannot rule out chance prices will sharply overshoot forecasts.
    
Sustained, steady wage gains crucial for japan to achieve BoJ's price target.
    
Inflation may overshoot expectations but not fully convinced such price rises would be sustainable.
    
There are signs effect of BoJ's monetary easing heightening as long-term inflation expectations heighten moderately, push down real interest rates.
    
Rise in nominal wages crucial to stably achieve BoJ's 2% price target.
    
Must be vigilant to impact of tightening of global financial conditions.
    
Forex levels are determined by fundamentals.
    
No need to tweak monetary policy immediately but must be mindful of side-effects of current policy.
    
Must continue checking how future exit from BoJ's easy policy coud affect markets, whether market players have sufficient buffers.

US inflation expectations improve in the last two days while stretching the rebound from the lowest levels in three weeks ahead of the key Consumer Price Index (CPI) data for October, up for publishing on Thursday.

That said, the inflation precursors, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, print one-week highs of 2.53% and 2.61% according to the latest readings.

It should be noted, however, that the recently mixed US jobs report and cautious comments from the US Federal Reserve (Fed) officials highlight the chatters surrounding pivot policy, which in turn weighs on the US dollar ahead of the key inflation data.

Also exerting downside pressure on the greenback’s gauge versus the six major currencies could be the market’s preparations for Thursday’s US CPI, as well as mixed headlines from China surrounding the coronavirus and stimulus hopes.

Against this backdrop, Wall Street closed with gains and the US Treasury yields were firmer too. However, the US Dollar Index (DXY) remained pressured. That said, S&P 500 Futures remain directionless at the latest.

Also read: AUDUSD retreats towards 0.6450 as market’s optimism stalls, Aussie data softens