• GBP/JPY bounces off an eight-day low as it pares recent losses.
• Impending bear cross on MACD, sustained break of 200-DMA favor sellers.
• Five-month-old horizontal support lures bears, 61.8% Fibonacci retracement level adds to the upside filters.

GBP/JPY prints a corrective pullback as it regains the 160.00 threshold during a bounce off the weekly low.

Even so, the cross-currency pair remains bearish as it keeps the previous day’s downside break of the 200-DMA and the 61.8% Fibonacci retracement level, also known as the golden ratio, of the June-September downside.

Also adding strength to the bearish bias is the steady RSI (14) and the looming bear cross of the MACD line to the signal line.

That said, the quote’s current downside remains directed towards the 50% Fibonacci retracement level of 158.78 ahead of challenging the September 26 swing high near 157.20.

However, a horizontal area including level marked since May, around 155.60-40, appears a tough nut to crack for the bears.

Alternatively, recovery moves may aim for the 200-DMA and the so-called golden ratio, respectively around 160.70 and 161.15.

Following that, August month’s peak close to 164.00 and the current monthly top of 165.72 could gain the market’s attention.

GBP/JPY: Daily chart

Trend: Bearish

• AUD/JPY trimmed earlier gains on Tuesday, down by 0.34%, extending its weekly losses.
• Sentiment dampened on BoE’s Governor Bailey’s commentary about UK pension funds.
• The AUD/JPY bearish flag remains in play, targeting the 200-day EMA at 90.70.

The AUD/JPY retraced its earlier gains and tumbled on Tuesday, as the Bank of England’s (BoE) Governor Andrew Bailey spooked investors, which dumped every asset with the “risk” word attached to it, so in the FX space high beta currencies. Therefore, the AUD/JPY dived from daily highs above 92.00 to current exchange rates. As the Asian Pacific session begins, the AUD/JPY is trading at 91.54, slightly up 0.09%, at the time of writing.

AUD/JPY Price Forecast

The AUD/JPY daily chart portrays the cross-currency as neutral-to-downward biased. The bearish-flag pattern broke to the downside as expected but fell short of reaching the 200-day EMA target of 90.70. Notably, the AUD/JPY was headed upwards, reaching 92.32, Tuesday’s high, in an upbeat mood, but BoE’s Bailey words turned sentiment sour. AUD/JPY key support levels lie at 91.00, followed by the 200-day EMA at 90.70, which, once cleared, could open the door towards a test of the 90.00 figure.

On the other hand, if AUD/JPY buyers reclaim the 92.00 figure, the first resistance area would be October’s 10 high at 92.76, followed by the 93.00 figure, nearby the bearish-flag bottom trendline.

AUD/JPY Key Technical Levels

• USD/CAD extends pullback from 29-month high, sidelined of late.
• Oil prices remain lackluster as economic fears join firmer yields, upbeat DXY.
• BOE’s Bailey, IMF’s growth forecast offer a major challenge to buyer’s return.
• Fed Minutes, risk catalysts are important for fresh impulse as bulls keep control.

USD/CAD snaps a two-day uptrend as it steps back from the two-year high while declining to 1.3790 during Wednesday’s Asian session. The Loonie pair’s latest weakness could be linked to the market’s consolidation ahead of this week’s key events, as well as a pause in the previously falling prices of Canada’s main export item WTI crude oil.

That said, the US Dollar Index (DXY) tracked the Treasury yields while renewing the weekly top earlier on Tuesday before ending the day with mild gains. The reason could be linked to the market’s consolidation ahead of today’s Federal Open Market Committee (FOMC) Meeting Minutes.

Even so, comments from Bank of England (BOE) Governor Andrew Bailey amplified the risk-off mood by citing the Financial Policy Committee’s (FPC) decision to intervene in the financial market after noting market volatility surpassed the bank stress test. It should be noted that the BOE expanded their gilt buying program to include inflation-linked gilts for the remainder of their intervention (due to finish on 14 October, UK time).

WTI crude oil might have sensed Saudi Arabia’s rejection of the US request of delaying the output cuts as a positive catalyst even if the International Monetary Fund (IMF) lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July.

Against this backdrop, Wall Street benchmarks closed mixed after a volatile day while the US 10-year Treasury yields ended Tuesday with mild gains around the multi-month high marked the previous day.

It should be noted that the USD/CAD prices may witness lackluster moves ahead of today’s key Fed Minutes as the Fedspeak has recently been mixed but the market bets on November’s rate hike keep favoring the 75 bps move. Even so, the pair buyers are likely to keep the reins amid the market’s rush for risk safety and the hawkish Fed.

Technical analysis

The area comprising multiple tops surrounding 1.3835, followed by April 2020 low near 1.3850, appears challenging the USD/CAD bulls.

• USD/JPY marches steadily to re-test the 145.90 YTD high amidst Japanese authorities’ expressions about the FX markets.
• Short term, the USD/JPY is range-boun, though intervention fears keep long traders cautious.
• If the USD/JPY tumbles below 145.30, a fall toward 145.00 is on the cards.

The USD/JPY is trading at around the line on the sand imposed by the Bank of Japan (BoJ) intervention in the FX markets on September 22, when the central bank decided to propel the Japanese yen, putting a lid on the USD/JPY rise. At the time of writing, the USD/JPY is trading at 145.81, below its opening price by 0.04%.

USD/JPY Price Forecast

From a daily chart perspective, the USD/JPY advances steadily, without the strength that spurred the uptrend when the major dipped towards 130.00 before challenging the 145.00 mark. Due to last month’s FX central bank intervention, buyers remain cautious around the 145.00-146.00 area, refraining from opening fresh longs against the backdrop of the Boj’s stepping into the markets.

The USD/JPY, one-hour time frame, illustrates the pair is range-bound, within the 145.30-90 area, shy of the YTD high of 145.99, which, once touched, sparked the BoJ’s intervention. So a break above 146.00 could open the door for further gains. The first resistance would be the R2 and R3 daily pivot points, each at 146.20 and 146.50, respectively, ahead of the 147.00 mark.

Nevertheless, given the recent BoJ’s intervention around the 146.00 area, the path of least resistance is downwards. Hence, the USD/JPY first support would be the 20-EMA at 145.70, followed by the 50-EMA at 145.62, which, once cleared, could pave the way toward the weekly low of 145.23.

USD/JPY Key Technical Levels

• AUD/USD is looking to test the 0.6250 cushion as the dismal market mood has rebounded.
• The DXY has recovered its losses after knee-jerk to near 112.50 ahead of Fed minutes.
• Fed policymaker's hawkish commentary has accelerated the odds of a 75 bps rate hike.

The AUD/USD pair has turned sideways in early Asia followed by a steep decline from around 0.6350 after a short-term risk-on mood faded. The asset is oscillating in a 0.6259-0.6280 range and is expected to retest the fresh two-year low at 0.6250 ahead. It indicates that the overall market mood is extremely negative and investors have capitalized on the pullback by adding shorts.

The late-night sell-off in the S&P500 after an intraday rebound has firmed up the negative market sentiment again. Apart from that, the US dollar index (DXY) has recovered to near 113.30 after a knee-jerk action. Meanwhile, the 10-year US Treasury yields are on the cusp of reclaiming the 4% hurdle.

Going forward, investors’ entire focus will be on the Federal Reserve (Fed) minutes, which are due on Wednesday. The minutes will provide detailed reasoning behind the announcement of the third consecutive 75 basis points (bps) rate hike by the Fed. Apart from that, projections over targeted terminal rate, inflation, and economic growth will be of utmost importance.

Meanwhile, hawkish commentary from Cleveland Fed President Loretta Mester that “we haven’t seen progress on inflation, we have seen some moderation- but to my mind, it means we still have to go a little bit further”, at Economic Club of New York, has accelerated odds of a fourth consecutive 75 bps rate hike in the first week of November. As per CME Fedwatch tool, chances for a 75 bps rate hike have improved to 77.7%.

On the Aussie front, Reserve Bank of Australia (RBA) Assistant Governor Luci Ellis has termed the neutral rate as a guide for policy, not a destination, which indicates that the targeted Official Cash Rate (OCR) at 3.85% by the central bank could be adjusted further. She further added that inflation expectations over one year will remain well anchored in a 2-3% range, at the Citi Australia and New Zealand Investment Conference.

• GBP/USD licks its wounds at fortnight low, pauses five-day downtrend.
• BOE Governor Andrew Bailey propelled risk aversion by discussing FPC’s market intervention.
• UK jobs report was mostly encouraging but failed to impress buyers as the “Old Lady” widened space for Gilt operations.
• Monthly data dump, FOMC Meeting Minutes to entertain traders but bears to keep the reins.

GBP/USD portrays a corrective bounce from a two-week low surrounding 1.0953 as it licks its wounds around 1.0980 during early Wednesday morning in Asia. In doing so, the Cable pair traces downbeat comments from Bank of England (BOE) Governor Andrew Bailey and the broad risk-aversion wave.

That said, global markets were pretty sluggish ahead, mildly positive, ahead of the speech from Andrew Bailey’s late Tuesday speech that amplified risk-off mood by citing the Financial Policy Committee’s (FPC) decision to intervene in the financial market after noting market volatility surpassed the bank stress test. It should be noted that the BOE expanded their gilt buying program to include inflation-linked gilts for the remainder of their intervention (due to finish on 14 October, UK time).

On a different page, UK’s headline Claimant Count Change rose by 25.5K during September versus expectations of -11.4K and 6.3K prior. Further, the ILO Unemployment Rate dropped below the 3.6% market forecasts and prior readings to 3.5% during the three months to August.

It should be noted that the mildly positive yields and the US dollar’s rebound appeared to have exerted additional downside pressure on the GBP/USD prices.

Further, the International Monetary Fund (IMF) lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July. The IMF cited pressures from high energy and food cost, rate hikes as the key catalysts for the move. It’s worth noting that the Washington-based institute left the 2022 growth forecast unchanged at 3.2% versus 6.0% global growth in the 2021"

Amid these plays, Wall Street benchmarks closed mixed after a volatile day while the US 10-year Treasury yields ended Tuesday with mild gains around the multi-month high marked the previous day.

Moving on, GBP/USD is likely to remain bearish amid the downbeat headlines surrounding the “Old Lady”, as the BOE is mostly known. Also weighing on the quote are the geopolitical fears and recession woes discussed above. As a result, today’s UK data dump and Fed minutes will be analyzed to determine the strength of the latest rebound, as well as check the bearish bias amid more favor for the sellers.

Technical analysis

Not even short-term buyers can think of GBP/USD unless the quote rises past convergence of the 21-DMA and 10-DMA, around 1.1165-70.

Reserve Bank of Australia (RBA) Assistant Governor Luci Ellis has emphasised that the neutral rate was a moving target and hard to determine at any stage in time, which limited its usefulness for monetary policy.

He explained that Australia's neutral interest rate is at least 2.5% but is not the sole determinant of policy which should be driven by changing circumstances in the economy.

Meanwhile, AUD/USD is holding in a positive territory around 0.6275 as it slides out of trendline resistance:

• Gold prices have slipped below $1,670.00 as the risk-off profile has rebounded firmly.
• Fed minutes will provide a detailed explanation of announcing a third consecutive 75 bps rate hike.
• A divergence in headline and core CPI may create troubles for the Fed.

Gold price (XAU/USD) has witnessed a vertical fall after failing to sustain above the critical hurdle of $1,680.00 in the late New York session. Selling pressure built in the S&P500 in the last hours of trade on Tuesday after an extended weekend indicates that the risk-off impulse has rebounded firmly ahead of the release of the Federal Reserve (Fed) monetary policy minutes on Wednesday.

Meanwhile, the US dollar index (DXY) has recovered the majority of its losses and is trading at around 113.30, at the time of writing. The DXY picked bids after dropping to near 112.50. Also, the 10-year US Treasury yields have rebounded and are aiming to recapture the 4% hurdle.

On Wednesday, the release of the Fed minutes will provide an elaborative explanation behind announcing the third 75 basis points (bps) interest rate hike.  The minutes will also provide viewpoints of all Fed policymakers toward interest rate targets to achieve price stability. Apart from that, the current situation of economic prospects will be of utmost importance.

Later this week, the US Consumer Price Index (CPI) data will be of utmost importance. The headline US inflation may trim to 8.1%, as per the expectations. While the core CPI that doesn’t consider oil and food prices may increase to 6.5%.

Gold technical analysis

On an hourly scale, the gold prices have slipped again below the 50% Fibonacci retracement placed at $1,672.61 after failing to sustain above the 50-period Exponential Moving Average (EMA) at $1,677.00. The 200-period EMA at $1,685.00 has tilted towards the south, which adds to the downside filters.

However, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range from the bearish range of 20.00-40.00, which indicates a consolidation for a while.

Gold hourly chart

ECB member and Bank of France's head Francois Villeroy de Galhau said they should reach a neutral rate of close to 2% by the end year and said a discussion about 50 bps or 75 bps hike in October is premature amid volatile markets.

"It would not be consistent to keep a very large balance sheet for too long in order to compress the term premium, whilst at the same time contemplating tightening policy rates above neutral," the French central bank governor told an audience at Columbia University.

"The reimbursement of TLTROs comes first, and we should avoid any unintended incentives to delay repayments by banks," he said.

"Here we could start earlier than 2024, maintaining partial reinvestments but at a gradually reduced pace," he said.

He argued the ECB should start this unwind slowly and then accelerate, with a clearly communicated "end-point...in terms of both the terminal date and size".

Meanwhile, the safe-haven US dollar has gained in a second day while the International Monetary Fund says warns of global recession and has cut its 2023 global growth forecasts further:

The euro, as a consequence, is pressured below 0.9750:

• EUR/USD is barely up 0.08% on Tuesday, following BoE’s Baily remarks, which deteriorated traders’ mood.
• US Fed officials continued expressing that inflation is high and that further rate hikes are needed.
• The ECB Chief Economist Philip Lane commented that hiking rates’ impact is harder than unwinding the balance sheet.

The EUR/USD pares earlier gains, courtesy of a risk-off impulse spurred by the Bank of England’s Governor Andrew Bailey, which sent the GBP/USD tumbles below 1.1000, while the EUR/USD followed suit, approaching the 0.9700 figure.

At the time of writing, the EUR/USD is trading at 0.9704 after hitting a daily high nearby the 0.9770s mark, threatening to print a daily close below October’s 10 low of 0.9681.

Sentiment fluctuates, as US equities show, finishing Tuesday’s session mixed. BoE’s Governor Andrew Bailey spooked investors when he said that UK’s pension funds have just 3-days to rebalance, saying that the bond emergent program was part of the BoE’s financial stability operations, not a monetary policy tool. Earlier, the BoE stepped in, buying inflation-linked government bonds.

Therefore, the EUR/USD slid from around 0.9774 day’s high toward 0.9693 before reclaiming 0.9700.

Aside from this, in the last couple of days, Fed officials reiterated that they’re committed to bringing inflation down. Cleveland’s Fed Loretta Mester said on Tuesday that the Fed needs to continue to raise rates until they see compelling evidence that inflation is cooling, while Chicago’s Fed Evans commented that he sees the Federal Funds Rate (FFR) at 4.50% in early 2023.

Elsewhere, Fed’s Vice Chair, Lael Brainard, said, “monetary policy will be restrictive for some time to ensure that inflation moves back to target over time.” She confirmed that the pace and size of further moves would be data-dependent.

In the meantime, the US Dollar Index, a measure of the greenback’s value against its peers, is slight up at 113.273, bouncing off the day’s lows on the risk-off impulse sparked by Bailey’s comments.

During the European session, the ECB Chief Economist Philip Lane said that the ECB would impact the markets by hiking rates than selling its hefty pile of bonds on Tuesday. Given that the ECB raised rates from -0.50% to 0.75% in two months, expectations of another large size increase remained high.

What to watch

On Wednesday, the EU’s economic calendar will reveal the Industrial Production (IP) for August, with monthly and yearly figures estimated to persist in negative territory. On the US front, the calendar will feature the Producer Price Index (PPI) for September alongside Fed speaking.

EUR/USD Key Technical Levels

Cleveland Fed President Loretta Mester said Tuesday that the Federal Reserve needs to continue raising interest rates.

“At some point, you know, as inflation comes down, them my risk calculation will shift as well and we will want to either slow the rate increases, hold for some time and assess the cumulative impact on what we’ve done,” Mester told reporters after a speech to the Economic Club of New York.

“But at this point, my concerns lie more on – we haven’t seen progress on inflation , we have seen some moderation- but to my mind it means we still have to go a little bit further,” Mester said.

“Given current economic conditions and the outlook, in my view, at the point the larger risks come from tightening too little and allowing very high inflation to persist and become embedded in the economy,” Mester said.

Meanwhile, the safe-haven US dollar has gained in a second day while the International Monetary Fund says warns of global recession and has cut its 2023 global growth forecasts further.

• The euro breaks above 0.8800 to hit session highs at 0.8855.
• Bailey announces the end of the emergency support program and the pound plunges.
• BoE governor warns about unprecedented volatility in the long end of the gilt market.

The euro has broken higher against the British pound on Tuesday, breaching resistance at the 0.8800 area to hit two-week highs at 0.8855 so far. BoE Governor, Andrew Bailey’s comments regarding the latest monetary policy measures have crushed the pound

The BoE's emergency support program ends on Friday

Bailey has shown its concerns about the “unprecedented volatility in the long end of the gilt market” and urged pension fund managers to finish rebalancing their portfolios by Friday. The Bank of England will end its emergency support program for the country’s fragile bond market.

The Bank expanded the bond-buying scheme last Tuesday in order to include inflation-linked debt, two weeks after having launched it, aiming to confront the turmoil created by Prime Minister Liz Truss with her announcement of tax cuts as a part of a set of unfunded economic reforms.

EUR/GBP might gain bullish traction above 0.8800

From a technical perspective, if the euro confirms above 0.8800, bulls might gain confidence to attack the 0.9000 psychological level ahead of the September, 28 high at 0.9070.

On the downside, below 0.8800, the next support levels might be 0.8740 (October, 7 low) and then probably at 0.8690 (Sept. 22 low).

Technical levels to watch

What you need to take care of on Wednesday, October 12:

The US Dollar is strong at the end of Tuesday and after an intraday knee-jerk that kept it in the red for most of the American session.

The Bank of England (BOE) introduced additional measures to improve financial market conditions. The central bank will temporarily pause corporate bond sale operations this week while it intends to purchase index-linked gilts up to GBP5 bln.

Also, the UK published its monthly employment report, which was generally encouraging. The ILO unemployment rate slid to 3.5% in the three months to August, beating the previous 3.6%. However, the number of those claiming jobless benefits unexpectedly surged by 25.5K in September, while growth in average total pay (including bonuses) was 6.0% and growth in regular pay (excluding bonuses) was 5.4% in the three months to August.

The International Monetary Fund (IMF) chief economist Pierre Olivier Gourinchas said the worst is yet to come and that 2023 could be a very bad year in terms of global growth.

Ahead of the US close, BOE Governor Andrew Bailey hit the wires and triggered another round of risk aversion. Among other things, he said that the Financial Policy Committee (FPC) took the decision to intervene in the financial market after noting market volatility surpassed bank stress test. Bailey also said that they are facing unprecedented volatility in the long end of the gilt market, but also marked the end of its emergency intervention by saying that they will be out of the market by the end of the week. The comments spurred risk aversion, sending Wall Street into the red and the US Dollar back up.

Across the pound, US Federal Reserve Cleveland President Loretta Mester reiterated on Tuesday the well-known hawkish message. Among other things, Mester said that the biggest risk is that the Fed does not hike rates enough, adding that she does not expect the central bank to lower rates in 2023. Finally, she added that fighting inflation is painful “but must happen.”

US government bonds fell sharply at the beginning of the day, pushing yields to fresh highs. The yield on the 10-year Treasury note peaked at 4.0%, while that on the 2-year note reached an intraday high of 4.35% ahead of the opening. Yields finished the day marginally higher and off their intraday lows.

Wall Street battled to recover ground but failed miserably. The Dow Jones Industrial Average started the day with a positive tone and, at some point, was roughly 300 points up. It trimmed all of its gains ahead of the close, while the S&P500 and the Nasdaq Composite spent the day in the red.

EUR/USD trades around 0.9710, while GBP/USD plunged towards 1.1000. Commodity-linked currencies also trimmed gains, with AUD/USD now trading in the 0.6270 region and USD/CAD at around 1.3800.

The American Dollar extended its advance against its safe-haven rivals, with USD/CHF now quoting at 0.9960 and USD/JPY at 145.80.

XAUUSD flirted with $1,684 a troy ounce but shed ground ahead of the close and settled at $1,666 a troy ounce. Crude oil prices extended their weekly decline after US officials asked Saudi Arabia to delay OPEC+ production for a month, a request that was dismissed by the Saudis. WTI now changes hands at $88.40 a barrel.

 The US will publish the September Consumer Price Index is expected to have risen at an annualized pace of 8.1% in September, easing from 8.3% in the previous month. However, core inflation, excluding volatile food and energy prices, is foreseen increasing by 6.5%, higher than the previous 6.1%.

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• The pound dives below 1.1000 on the back of BoE Bailey's comments.
• Unprecedented volatility in the long end of the gilt market.
• GBP/USD: Below 1.0905, the next target might be 1.0540 – BBH.  

The British pound has extended its reversal from session highs near 1.1180 to hit lows at 1.0965 after BoE Governor Andrew Bailey spooked investors, revealing the latest monetary policy measures to stabilize the financial system.

Bailey has warned about unprecedented volatility in the long end of the gilt market and urged pension fund managers to finish rebalancing their portfolios by Friday when the bow is planning to end its emergency support program for the country’s bond market.

The Bank expanded the bond-buying program on Tuesday to include inflation-linked debt, two weeks after having launched it in an attempt to manage the turmoil in the bond markets triggered by Prime Minister Liz Truss's announcement of unfunded tax cuts.

The pound has dropped sharply on the back of Bailey's comments, with the pair turning negative on daily charts, on track to post a more than 4% reversal over the last five days, after peaking near 1.1500 last week.

 GBP/USD: Below 1.0905, the pair might test 1.0540 – BBH

FX analysts at BBH, see the pair accelerating its downtrend below 1.0905:  “A break below 1.0905 would set up a test of the September 28 low near 1.0540 (…) Only time will tell, but we note that whatever measures the BoE takes, it can only address the symptoms (disorderly markets) and not the underlying malady (irresponsible fiscal policy). Only the government can turn this thing around.”

Technical levels to watch

• The euro reaches levels past 142.00 after boucing up at 140.95.
• A brighter market mood is easing selling pressure on the euro.
• EUR/JPY expected to trend lower over the next months – ING.

The euro found support at 140.95 low earlier on Tuesday and is picking up during the North American session, to hit intra-day highs right above 142.00, favoured by a moderately brighter market mood moderately.

The euro pares losses after a four-day decline

The common currency has regained some ground on Tuesday, with the pair 0.5% up on the day, following a four-day losing streak. The brighter market sentiment, with US stock markets shifting into positive territory, has weighed on safe-haven assets as the yen, easing negative pressure on the euro.

In absence of first-tier macroeconomic figures, the Japanese yen remains is on the back foot amid the monetary policy differential between the US Federal Reserve and the Bank of Japan.

The US Central Bank has increased up borrowing cost from nearly 0% to a range of 3.00% - 3.25% and the market is pricing in another aggressive rate hike in November. The BoJ, meanwhile, is lagging behind the other major central banks, sticking to its ultra-expansive monetary policy, which is hurting the yen.

On the other hand, the euro remains unable to capitalize yen weakness. Market concerns about the impact of the escalation in the Ukrainian war and the high energy prices on eurozone’s economic prospects are adding negative pressure on the common currency.

EUR/JPY moving lower over the next months – ING

From a longer-term perspective, currency analysts at ING see the pair capped below 145.00: “Our bias would be that EUR/JPY struggles to sustain a break above the 145 level in an environment where central banks are actively looking to slow aggregate demand (…) Typically, the Japanese have been more interventionist than the eurozone and on that basis – and given the forthcoming eurozone recession – EUR/JPY risks look skewed lower the next six months.”

Technical levels to watch

Bank of England Governor Andrew Bailey spurred some risk aversion in the American afternoon, referring to the latest monetary policy measures to stabilize the financial system.

Bailey noted unprecedented volatility in the long end of the gilt market. Early on Tuesday, the Bank of England (BOE) introduced additional measures to improve financial market conditions. The central bank will temporarily pause corporate bond sale operations this week, while it intends to purchase index-linked gilts up to GBP5 bln. 

Bailey added that they saw quite a serious crystallisation of risk, but also remarked that the will be out of the market by the end of the week.

GBP/USD plunged on the news, now trading at around 1.1045.

• Silver stumbles on Tuesday, despite a broad US dollar weakness.
• Fed officials kept to the hawkish script, opening the door for further rate hikes.
• US T-bond yields remain heavy, even though market participants expect another 75 bps rate hike by the Fed.

Silver price extends its losses to five consecutive days after reaching a fresh three-month high at $21.23 a troy ounce. Since then has lost 8.50% due to overall US dollar strength, underpinned by elevated US T-bond yields.

At the time of writing, the XAG/USD is trading at $19.45, after hitting a daily high during the Asian session at around $19.71, before printing the day’s low of $19.19.

Investors sentiment improved as US equities bounced off the lows and trade positive. Earlier, the mood was sour, on fears spurred by expectations of worldwide economic slowdown and the Fed’s aggressive tightening, but stocks are getting a respite, despite that fundamentals have not changed.

During the last couple of days, Fed officials maintained their hawkish rhetoric, with Cleveland’s Fed President Mester saying that the Fed will need to keep raising rates until they see clear signs that inflation is indeed approaching the Fed’s goal. Meanwhile, Chicago’s Fed President Charles Evans said that he expects the Federal funds rate (FFR) to peak at around 4.50% in early 2023.

Elsewhere, Fed’s Vice Chair, Lael Brainard, said, “monetary policy will be restrictive for some time to ensure that inflation moves back to target over time.” She confirmed that the pace and size of further moves would be data-dependent.

In the meantime, the US Dollar Index, a gauge of the greenback’s value vs. a basket of peers, edges down 0.39%, below 113.000 for the first time in the week. Additionally, US Treasury bond yields are easing from weekly highs, with the US 10-year bond yield at 3.890%, down seven bps. Even though, US bond yields and the greenback remain on the backfoot, the white metal has been unable to capitalize.

Early morning, the International Monetary Fund reported that the US economy would grow at 2.7% in 2023, below the 2.9% projected in July. According to the IMF chief Economist Pierre-Olivier Gourinchas, “The worst is yet to come, and for many people, 2023 will feel like a recession.”

What to watch

The US economic docket will feature Fed speaking alongside the Producer Price Index (PPI) for September on Wednesday,

Silver Key Technical Levels

• WTI futures, capped below $90 after hitting lows at $88.40. 
• Concerns of a globel recession offset the impact of output cuts.
• The increase of COVID-19 infections in China is adding negative pressure on oil.

WTI futures’ recovery attempt from intra-day lows at $88.40 has been unable to extend past $90 on concerns that a global economic recession might slash demand for oil.

Economic concerns offset the impact of output cuts

Crude prices are retreating for the second consecutive day on Tuesday. Investors are increasingly concerned about the potential impact of a global recession combined with the sharp monetary tightening cycle assumed by most of the major central banks.

Furthermore, news about a sharp increase of COVID-19 cases in China’s major cities, following the Golden Week Holiday, have increased fears about a decline on oil demand. Local authorities have reportedly,closed schools and tourist attractions, reviving lockdown memories.

The sourer investors’ mood has offset the bullish impact triggered by the production cuts announced by the OPEC+ last week. The club of the world’s largest oil suppliers agreed  to reduce oil production by 2 million barrels per day, the largest cut since the outbreak of the COVID-19 pandemic, which sent crude prices skyrocketing.

WTI contained above support level at $88.40 area

From a technical perspective, WTI has broken the near-term bullish channel from September 22 low, to find support at $88.40, with next potential downside targets at $86.50 (mid-September highs) and $85.55 (October, 5 low).

On the upside, crude prices should regain the psychological level at $90.00 to build up bullish momentum and aim towards the 50-hour SMA at $91.50 ahead of $93.00 (intra-day high).

Technical levels to watch

• EUR/GBP drops below the 20-day EMA, aiming to extend the downtrend towards 0.8700.
• If the EUR/GBP breaks below 0.8744, it will expose crucial supports at around 0.8736, 0.8700, and the S3 pivot at 0.8671.

The EUR/GBP is on the defensive, dropping for the first time in the last six days amid a risk-on impulse weighing on the shared currency. At the time of writing, the EUR/GBP is trading at 0.8756, below its opening price, after hitting a daily high of 0.8807.

EUR/GBP Price Forecast

The EUR/GBP daily chart shows the pair faced solid resistance at the 20-day EMA at 0.8783, which was briefly broken, though, the pair retreated, and it’s trading at around October 10 lows. Therefore, the EUR/GBP is range-bound, with price action contained between the high/low of yesterday, but as it printed a fresh 3-day low, the path of least resistance is downwards. A break below 0.8744 could tumble the pair towards 0.8725, ahead of the 0.8700 mark.

The one-hour time frame illustrates the EUR/GBP as range-bound, even though price action it’s below the 20, 50, 100, and 200-EMAs, with all trapped in the 0.8760-0.8777 range. Traders should be aware that even though the Relative Strength Index (RSI) is below the 50-midline unless the EUR/GBP decisively breaks below 0.8736, October 7 daily low, it would likely remain subdued.

If the above scenario plays out, the EUR/GBP next support would be 0.8700, followed by the S3 daily pivot at 0.8671.

EUR/GBP Key Technical Levels

• The US dollar loses steam and retreats below 1.3720.
• A brighter market mood is weighing on the USD.
• USD/CAD expected to peak at 1.40 and dive to 1.32 in 2023 – CIBC.

The US dollar seems to have lost momentum on Tuesday’s North American session and is depreciating against its main rivals. The USD/CAD has dropped more than 100 pips from session highs highs to hit intra-day lows at 1.3717 so far.

A brighter market mood weighs on the USD

Investors’ sentiment seems to have improved after a negative opening in the US, which is pushing the US dollar lower across the board.

The main US stock indexes have jumped into the green, with the Dow Jones 1.22% higher while the S&P 500 and the Nasdaq advance 0.60% and 0.37% respectively. Furthermore US treasury bonds, which surged at market opening times, are retreating, with the 10-year yield retreating below 3.90% after having reached 4.00% earlier today.

On the macroeconomic front, in absence of key macroeconomic data, investors are focusing on the US inflation report, due on Thursday. These figures are expected to offer additional reasons for the Fed to keep rising borrowing costs at an aggressive pace which is likely to offer a fresh impulse to the greenback.

USD/CAD might reach 1.40 before diving to 1.32 next year – CIBC

On a wider perspective, The FX Analysis Team at CIBC sees the pair aiming to 1.40 before pulling back in 2023: “A run to 1.40 is quite possible, and a rebound at year end should still see CAD in 1.38 territory (…) In 2023, we see scope for a broad softening in the USD as the Fed pauses hiking below current market expectations, which will see CAD end the year stronger, with USD/CAD at 1.32.”

Technical levels to watch

• GBP/USD get a respite after diving 4% in the last four days due to the UK’s bond turmoil.
• Fed’s Mester commented that inflation is “unacceptably high” and estimates that rates will remain higher for longer.
• UK’s unemployment rate edged lower, despite increasing the number of people without a job or looking for one.

The GBP/USD is snapping four days of consecutive losses, though it remains below 1.1186, the 20-day EMA amidst a risk-off impulse in the markets, but not in the FX space, with the greenback remaining on the backfoot. Fears of lower worldwide economic growth, and further central bank tightening, keep traders on their toes.

At the time of writing, the GBP/USD Is trading at 1.1160, above its opening price by 0.98%, after hitting a daily low of 1.0997 early during the European session. So far, US equity markets have made a U-turn, trading in the green, reflecting the sentiment improvement.

The absence of US economic data keeps traders entertained with Fed speaking, led by Cleveland’s Fed President Loretta Mester. She said that even with a large number of rate increases in 2022, the central bank has not achieved its goal and would need to press forward with tightening monetary policy. Mester commented that inflation is “unacceptably high and persistent” while reiterating that she does not expect any rate cuts by 2023.

In the meantime, last Friday’s US Nonfarm Payrolls report showed that the labor market remains tight, albeit hiring was lower than August’s figures. Of note is that the Unemployment Rate decelerated from 3.7% to 3.5%, justifying the Fed’s need for more hikes.

On the UK side, employment data was worse than estimated, as reported by the ONS, that 252K of Britons are not looking working or looking for one, while the ILO Unemployment Rate edged lower from 3.6% to 3.5%. The number of people in employment fell by 109,000 in the June-August period.

That said, sources cited by Reuters estimate that the low unemployment rate and pay rises edging higher will keep the Bank of England on its tightening cycle, as the bank scrambles to tame inflation in two-digit levels.

What to watch

The UK calendar will feature GDP figures for 3-months, annual base reading, Industrial Production, and the Trade Balance. On the US front, the docket will feature Fed speaking and the Producer Price Index (PPI).

GBP/USD Key Technical Levels

The Indian rupee reach a record low of 81.950 against the USD in September on exceptional US dollar strength due to a hawkish Federal Reserve as well as a possibly smaller degree of intervention in the forex market by the Reserve Bank of India (RBI), explained analysts at MUFG Bank. They expect USD/INR to continue moving to the upside with a forecast of 84.00 by the end of the year. 

Key Quotes:

“The 13.5%y/y jump in India’s real GDP growth in CYQ2 was the strongest growth rate in a year, driven mainly by substantial increases in private consumption and gross fixed capital formation.”

“The double-digit growth rate in CY Q2 was also the consequence of low base effects and far lower than what we have initially projected. We have since revised our real GDP growth forecast lower to 6.7% from 7.6% prior for  FY22/23, and 5.8% for FY23/24 versus 6.6% prior.”

“The confluence of a stronger USD, deteriorating trade and current account balances for India, risks of a return in net portfolio outflows in Q4, and smaller scope for FX intervention point to further INR weakness ahead which would bring it to a new record low against the USD in the coming months after hitting a record low of 82.00 on 28 September.”

“Based on the latest available data, India’s foreign reserves have fallen by USD88.0 bn to USD545.7 bn. The magnitude of the decline in foreign reserves is close to the RBI’s USD100 bn threshold. This limits the scope for an aggressive pace of intervention in the coming months.”

“Our end-2022 USD/INR forecast is now at 84.00.”

• The New Zealand dollar appreciates further nad reaches 0.5640.
• A somewhat softer USD is contributing to kiwi's recovery.
• NZD/USD likely to extend losses to 0.50 – ING.

The New Zealand dollar has picked up momentum on Tuesday’s US session after bouncing up from 0.5575, to hit day highs at 0.5640 so far. The pair appreciates beyond 1% on the daily chart to pare some of the previous three days’ losses.

The kiwi appreciates as the USD pulls back

The greenback seems to have lost steam on Tuesday after a four-day rally. The US Dollar Index is showing a moderate reversal, which is helping most of the major currencies to regain some of the recent losses.

Investors mood seewms to be improving, after a negative US market opening, and the main stock indexes showing gains at the time of writing, which is increasing demand for rislier assets in detriment of the safe-haven dollar.

On a wider perspective, however, the market is awaiting the release of a key US inflation report, due later this week. According to most accounts, price pressures are likely to have increased oin the US, which would offer additional reasons to the Federal Reserve to approve another aggressive rate hike in November,  and offer a fresh boost to the USD.

NZD/USD might revisit 2009 lows at 0.50 – ING

The FX analysis team at ING maintain their bearish outlook intact and see the pair likely to reach 0.50: The Reserve Bank of New Zealand hiked by another 50 bps in October and signalled more tightening is on the way. Another 50 bps increase is largely expected at the November meeting. The role of monetary policy remains secondary compared to global risk dynamics (…) NZD/USD is looking at the 0.50 2009 lows as the next key support."

Technical levels to watch

The USD/JPY is falling on Tuesday, trading around 144.50, after approaching the multi-year high near 146.00. According to analysts from Rabobank, only a weaker US dollar could change the bullish dynamic for the USD/JPY. They have a 3-month forecast at 147.00.

Key Quotes: 

“The late September FX intervention in support of the JPY vs. the USD had the effect of suggesting to the market that the USD/JPY 145.00 level was an unspoken line in the sand for the MoF.  This was part of a game of chicken that Japanese officials and the market have become involved in.  It is very clear to all participants that FX intervention cannot turn the direction of a currency pair unless the fundamentals are also pulling in the same direction.  In the current instance, the hawkishness of the Fed coupled with the dovishness of the BoJ means that fundamentals are still tugging USD/JPY higher.”

“Another lurch higher in USD/JPY in the coming weeks may trigger some renewed verbal intervention from the MoF, but eventually that would have to be followed by more action – a decision which wouldn’t be taken lightly.”

“In view of the fact that Japan has suffered minimal wage inflation for decades, it may be optimistic to hope that Japan could be on the cusp of a structural move away from deflationary pressures.  This, however, is the aim of policymakers.  Signs that the spring wage talks bring higher wages could end policies such as yield curve control on the BoJ’s terms. Failing this only a weaker USD is likely to change the dynamic for USD/JPY.  We expect USD strength to prevail for some time and at least into next spring.  We maintain a 3 month forecast of USD/JPY 147.00.”
 

• US dollar prints fresh lows across the board as US yields decline.
• Gold, silver and stocks in Wall Street extend recovery.
• AUD/USD to hold intraday bullish bias while above 0.6300.

The AUD/USD turned positive for the day and printed a fresh daily high at 0.6329. The pair is rebounding from the lowest level since April 2020 it reached earlier on Tuesday at 0.6246.

The move higher during the American session is driven by a broad-based US dollar slide across the board. The greenback lost momentum amid a recovery in Treasuries and also on the back of an improvement in risk sentiment.

The US 10-year yield is under 3.90% after exceeding 4.00% hours ago. The Dow Jones is gaining 0.64% and the Nasdaq is off lows, down by 0.39%. Metals recovered with XAU/USD testing $1680 and silver hovering around $19.50.

Market participants await key US economic data: on Wednesday the Producer Price Index and FOMC minutes, and on Thursday the Consumer Price Index. Inflation figures will be watched closely as they will influence Fed rate hike expectations.

Not out of the woods yet

The AUD/USD will face the 20-Simple Moving Average in 4-hour charts at 0.6350. Above, the next resistance stands at 0.6385 and then 0.6430. A recovery above the last one would alleviate the bearish pressure.

On the flip side, now 0.6300 is the immediate support followed by 0.6280. A decline below would expose the recent low at the 0.6245 area.

Technical levels

Federal Reserve Bank of Cleveland President Loretta Mester reiterated on Tuesday that they are yet to make any progress on lowering inflation, as reported by Reuters.

Additional takeaways

"Monetary policy needs to be moved to restrictive levels."

"Not expecting the Fed to lower rates in 2023."

"Size of Fed rate rises will depend on economic conditions."

"High and persistent inflation remains the economy’s biggest challenge."

"Unemployment at 4.5% by end of 2023, move higher in 2024."

"Expecting inflation to fall to 3.5% next year, to 2% by 2025."

"Possible shock could tip the US economy into recession."

"Job market still remains very strong, outstripping supply."

"Fight to lower inflation is painful, but must happen."

"Fed is committed to using all tools to lower inflation."

"Expecting weak growth over next couple of years."

Market reaction

The US Dollar Index stays under bearish pressure despite these hawkish comments and was last seen losing 0.43% on the day at 112.70.

• The euro fails to bounce up, althoiugh it remains steadu above 0.9680.
• A sour market mood underpins USD strength and weighs on the euro.
• EUR/USD to continue its downtrend towards 0.9650/00 – Scotiabank.

Euro’s reversal from intra-day high right below 0.9740 has been contained at 0.9690, and the pair remains moving without directions within a tight range around 0.9700.

US dollar appreciates on a risk-off market

In absence of first-tier macroeconomic events, the sour market mood reflected on the negative stock indexes has been weighing on the pair’s bullish attempts, with the USD underpinned by its safe-haven status. The common currency is ticking up on the daily chart, in an attempt to put an end to a four-day decline.

Investors seem to be wary about the prospects of a global economic downturn, with the Ukrainian war escalating and energy prices at high levels an scenario that, combined with the effects of the monetary tightening cycle of most of the major central banks has boosted risk aversion among traders.

Furthermore, news about rising COVID-19 infections in some of China’s main cities, which have forced some local authorities to close schools and tourist attractions, have increased concerns about global economy.

EUR/USD, aiming to 0.9600/50 area ­– Scotiabank

Currency analysts at Scotiabank expect the pair to extend its downtrend to. The lower range of 0.9600: “Sequentially lower lows and lower highs keep the 2022 downtrend in the EUR very much intact on the daily chart – even with the selloff looking overextended (…) Intraday patterns look soft; the USD is pressuring EUR support in the low 0.97s, leaving the market on the cusp of a push back to the 0.9600/50 range.”

Technical levels to watch

• US dollar loses as US yields move off highs.
• USD/CHF bearish intraday bias, still above 0.9950
• SNB’s Jordan speaking in a few minutes.

The USD/CHF pulled back during the European session and bottomed at 0.9945 and then bounced back toward parity. Ahead of the speech SNB Chairman, it is hovering around 0.9965.

Earlier on Tuesday, USD/CHF peaked at 1.0020, the highest level since June 15. Afterwards, it retreated as the US Dollar lost momentum across the board. The combination of an improvement in risk sentiment and a decline in US yields.

The US 10-year yield hit levels above 4.00% earlier and currently, it is back under 3.90%. In Wall Street, the Dow Jones is up by 0.50% after a negative opening and the S&P drops by 0.25%.

In a few minutes, at 16:00 GMT, Swiss National Bank Chairman Thomas Jordan will deliver a lecture on ‘Ethics and Economics’ in Washington at the Peterson Institute. He might avoid speaking about monetary policy.

The intraday trend in USD/CHF remains bearish, although it has found support at 0.9950. A break lower is needed to trigger more losses. On the upside, above the parity area, the next critical resistance is the 1.0050 area.

Technical levels

• Gold price trims earlier losses and reclaims $1670 on Tuesday.
• A strong US dollar underpinned by elevated US bond yields would likely keep precious metals on the defensive.
• According to the IMF, the United States will grow 1.6% in 2022.
• Gold Price Forecast: Range-bound between $1661-$1674.

Gold price is slightly up during the North American session, due to high US T-bond yields, alongside a strong US dollar, ahead of crucial US inflation figures to be released on Thursday, which could shed some light regarding the need for further Fed aggressive hikes. Hence, XAU/USD is trading at $1671, a troy ounce, registering minimal gains at the time of writing.

Sentiment remains deteriorated amidst fears that global central bank tightening would slash corporate earnings while dampening the economic outlook. The US 10-year Treasury bond yield is down by four bps but around YTD highs at 3.92%, while the greenback is pairing earlier losses.

The US Dollar Index, a gauge of the buck’s value vs. a basket of peers, losses 0.03%, at 113.147.

Last week’s US Nonfarm Payrolls report was better than estimated, confirming that the economy added more than 260K jobs. Even though the hiring pace slowed, the Unemployment rate decreased from 3.7% to 3.5%, which is not what the US Federal Reserve needs. Given that the labor market remains tight, further rate hikes by the Fed are expected.

The International Monetary Fund (IMF) adds to fears about global growth. On Tuesday, the IMF cut its forecast for the next year to 2.7% from 2.9% in July, almost 1% less than in January. According to the IMF chief Economist Pierre-Olivier Gourinchas, “The worst is yet to come, and for many people, 2023 will feel like a recession.”

The IMF said that the US would expand at 1% next year, unchanged from its previous forecast; nevertheless, for 2022, it cut its outlook from 2.3% in July to 1.6%.

The US economic docket is empty on Tuesday. On Wednesday, it will feature prices paid by producers. Alongside Mortgage Applications and Fed speakers.

Gold Price Forecast: XAU/USD Technical Outlook

From a daily chart perspective, XAU/USD remains neutral-to-downward biased, with all the DMAs, residing below the price. However, it should be noted that sellers’ failure to crack $1661 exposed essential resistance levels at around the 20-day EMA at $1673.97, followed by the $1700 figure. On the downside, the XAU/USD first support remains at a daily low of $1661. Once cleared, the September 28 cycle low at $1614.92 would be tested, followed by $1600.

The Bank of England (BoE) accepted 1.363 billion sterling of offers in the daily purchase operation of conventional long-dated gilts, Reuters reported on Tuesday.

The BoE rejected 47.6 million GBP of offers in the same operation.

Market reaction

The 2-year UK gilt yield pushed lower with the initial reaction and was last seen losing nearly 2% on the day at 4.26%. Meanwhile, the British pound started to gather strength during the American trading hours. As of writing, the GBP/USD pair was trading near 1.1100, where it was up 0.4% on a daily basis.

The Federal Reserve Bank of New York's monthly Survey of Consumer Expectations showed on Tuesday that the US consumers' one-year inflation expectation declined to a new 12-month low of 5.4%, down from 5.7% in August's survey, as reported by Reuters.

The three-year-ahead inflation expectation edged higher to 2.9% from 2.8% and the five-year-ahead inflation expectation rose to 2.2% from 2%, the publication further revealed.

On a concerning note, households' year-ahead expected spending increase declined to 6% from 7.8% in August, marking the biggest drop in the series' history.

Market reaction

The US Dollar Index edged lower with the initial reaction to this report and was last seen losing 0.15% on the day at 113.00.

Gold ended up closing the second straight week in positive territory. September inflation data from the US could trigger a significant market reaction and help the precious metal determine its next direction, FXStreet’s Eren Sengezer reports.

Focus shifts to CPI

“The Consumer Price Index (CPI) is forecast to rise to 8.5% on a yearly basis in September from 8.3% in August. Investors are likely to put more weight on the core figure and a print above 6.5% could fuel another leg higher in yields. On the other hand, an unexpected decline in core inflation should help XAU/USD gather bullish momentum. Nevertheless, the initial market reaction could fade unless it influences the market pricing of the next Feed action in a significant way.” 

“The US Census Bureau will publish the Retail Sales data for September. Ahead of the weekend, the University of Michigan’s Consumer Sentiment Survey for October will be watched closely by market participants, especially the 5-year Consumer Inflation Expectation component, which declined to 2.7% in September from 2.9% in August. Another decline in this data could cause the USD to come under selling pressure and vice versa.”

See – US CPI Preview: Forecasts from 10 major banks, price pressure easing only very slowly

Silver continues losing ground for the third straight day. The white metal could extend its slide on a break under $18.90, strategists at TD Securities report.

Failed rally has raised the likelihood of a short acquisition program 

“While trend follower shorts are not out of the woods just yet, the failed rally has raised the likelihood of a short acquisition program in silver markets.”

“Considering risk markets are vulnerable to our forecast for an upside surprise to this week's CPI data, we place our attention to the downside, estimating that a break below the $18.90 range in silver could spark additional selling flow from this cohort in the white metal.”

In its recently published Global Financial Stability Report, the International Monetary Fund warned that financial stability risks have risen since the April report and said that the balance of risks are "significantly skewed" to the downside, per Reuters.

Additional takeaways

"Financial conditions have worsened and there is a risk of disorderly tightening."

"Policymakers must balance resolute action to reduce inflation while avoiding disorderly market conditions."

"Seeing heightened risk of rapid, disorderly repricing in financial markets, amplified by existing vulnerabilities and poor liquidity."

"Global bank stress test shows up to 29% of emerging market banks would be undercapitalized in a severe economic downturn."

"Property downturn in China has deepened with a heightened risk of spillovers to banking, corporate and local government sectors."

Market reaction

Safe-haven flows continue to dominate the financial markets in the American session and the S&P 500 Index was last seen losing 1% on a daily basis.

The Bank of England (BoE) accepted 1.957 billion sterling of offers in the first purchase operation of index-linked gilts, Reuters reported on Tuesday.

The BoE rejected 466.9 million sterling of offers in the same operation.

Market reaction

Long-dated UK index-linked gilt yields mostly turned slightly positive on the day with the initial reaction to this development. The British pound, however, seems to be having a difficult time finding demand. As of writing, the GBP/USD pair was trading virtually unchanged on the day at 1.1055.

EUR is little changed against firm US dollar. Nevertheless, the broader downtrend prevails, economists at Scotiabank report.

Major resistance seen at 1.0010

“Sequentially lower lows and lower highs keep the 2022 downtrend in the EUR very much intact on the daily chart – even with the selloff looking overextended.” 

“Major trend resistance now stands at 1.0010.”

“Intraday patterns look soft; the USD is pressuring EUR support in the low 0.97s, leaving the market on the cusp of a push back to the 0.9600/50 range.”

The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) data for August on Thursday, October 13 at 12:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of 10 major banks regarding the upcoming US inflation print.

On a monthly basis, the CPI is expected to rise by 0.2%. The Core CPI, which excludes volatile food and energy prices, is expected to have risen by 0.5% last month, which is below August's 0.6% read. Headline is expected at 8.1% year-on-year vs. 8.3% in August, while core is expected at 6.5% YoY vs. 6.3% in August.

ANZ

“We expect US core CPI to rise by 0.5% MoM in September, while lower energy prices should result in headline inflation increasing by 0.3%. Elevated rent and robust wage growth are expected to keep services inflation uncomfortably high. A confluence of factors should put downward pressure on goods inflation, namely moderating supply bottlenecks, softer commodity prices, lower shipping rates, and a stronger USD. The Fed remains singularly focused on inflation. It intends to leave policy restrictive for an extended time. This will result in a lengthy period of below-trend growth and higher unemployment.”

Commerzbank

“We expect the core CPI to rise by 0.5% on the previous month. This would bring the year-on-year rate to about 6.5%; however, the 3-month rate would ease. Over the medium-term, rental data from the real estate sector point to somewhat slower growth in rents, which could gradually reduce underlying inflationary pressures. The outlook for headline inflation is better. Here, the further fall in petrol prices is easing the situation. In addition, the rise in food prices should slowly lose momentum. We expect overall consumer prices to have risen by 0.3% compared to the previous month. The 12-month inflation rate would then fall again slightly to 8.1%.”

ING

“The headline rate will be depressed by the lagged effects of the fall in gasoline prices, which is also likely to translate into lower airline fares to some extent. However, the core (ex-food and energy) component is set to continue rising at a rapid pace. We look for a 0.4% MoM increase in prices, which would nudge the annual rate of core inflation up to 6.5% from 6.3%. This unfavourable shift is primarily due to housing costs and recreation prices and should cement expectations for a fourth consecutive 75 bps interest rate increase from the Federal Reserve on 2 November.”

TDS

“Core prices likely stayed strong in September, with the series registering another large 0.5% MoM gain. Shelter inflation likely remained strong, though we look for used vehicle prices to retreat sharply. Importantly, gas prices likely brought additional relief for the headline series again, declining by about 5% m/m. Our MoM forecasts imply 8.2%/6.6% YoY for total/core prices.”

Deutsche Bank

“We highlight that with gas prices down another near 7% from August to September, energy will again drag on the headline CPI print (+0.28% forecast vs. +0.12% previously). However, core CPI (+0.44% vs. +0.57%) will draw the most focus especially given last month’s upside surprise. Assuming our forecasts are correct, year-over-year headline CPI should continue to decline, falling two-tenths to 8.1%, while core should tick up two-tenth to peak at 6.5%. Whether one number should be the basis for huge swings in markets, it seems inevitable that a notable miss on core on either side could bring about big moves in trading over the coming weeks so stand by.”

SocGen

“We forecast a 0.2% headline CPI increase for September. Our core rate forecast is for 0.5%, but this figure is rounded-up, and our actual calculation is 0.45%. The emphasis on the unrounded number is to declare that we would not be at all surprised by a 0.4% MoM increase but would be surprised if the figure were 0.6% or higher.”

NBF

“Headline prices could have increased 0.2% MoM. If we are right, the YoY rate should come down to 8.1% from 8.3%. The core index, meanwhile, may have continued to be supported by rising rent prices and advanced 0.4% on a monthly basis. This would translate into a two-tick increase of the 12-month rate to 6.5%.”

CIBC

“The relief from higher prices at the pump extended into September, but continued pressure in food prices, where a labor shortage in the transportation industry and extreme weather conditions remain issues, could have resulted in a 0.2% monthly advance in total prices, leaving annual inflation at 8.1%. That would also include pressure in components outside of food and energy, which likely rose by 0.4% m/m, as the shelter component is still picking up the impact of leases resetting at higher rates, reflecting the housing market strength seen last year. Leaning against that could be some weakness in used car prices, in line with marginal improvement in supply chains. All told, core annual inflation is set to accelerate by two ticks, to 6.5%, magnified by base effects. We are in line with the consensus and market reaction should therefore be limited.”

Wells Fargo

“For September, we forecast headline CPI rose 0.2%, bringing the YoY rate down slightly to 8.1%. Energy prices were likely a considerable part of soothing the headline rate last month, as gasoline prices declined through most of the month. But scorching core inflation, up at a 3-month annualized rate of 6.5% in August, means that declines in commodity prices alone will not cut it when it comes to muting inflation for the long-haul. We expect core inflation rose 0.5% in September, which is above consensus but below August's 0.6% upward surprise. The more moderate core gain is likely to stem from goods inflation as consumer spending shifts back toward services and retail inventories are starting to pile up. Core services should again be a primary driver of inflation this month, as lags from rent and home price measures indicate another strong monthly gain. Wage gains are particularly important to the services sector, and by remaining elevated, continue to complicate the Fed's fight against inflation.”

Citibank

“US September CPI MoM – Citi: 0.2%, prior: 0.1%; CPI YoY – Citi: 8.1%, prior: 8.3%; CPI ex Food, Energy MoM – Citi: 0.5%, prior: 0.6%; CPI ex Food, Energy YoY – Citi: 6.6%, prior: 6.3%. We expect a continuation of the trend of still solid monthly increases. Risks are tilted slightly to the downside though due to a softening in goods prices generally over the coming months. Meanwhile, the trend of services prices, both for shelter and other services, continue to be the more important underlying drivers of inflation with we are again penciling in strong increases.”

The dollar continues to rise. Climbing US yields are set to continue boosting the greenback, economists at BBH report.

Dollar remains firm as US yields rise

“The US Dollar Index (DXY) is on track to test the September 28 high near 114.778.”

“The combination of ongoing risk off impulses and eventual repricing of Fed tightening risks is likely to see the dollar continue to recover after this recent correction.”

“We believe this generalized rise in US yields will continue and lend further support to the dollar.”

• USD/CAD retreats from its highest level since May 2020 amid a modest USD pullback.
• Sliding oil prices undermine the loonie and help limit the downside, for the time being.
• Bulls now await sustained strength beyond the 1.3830-40 area before placing fresh bets.

The USD/CAD pair attracts some dip-buying near the 1.3760 region and stalls its intraday pullback from the highest level since May 2020 touched earlier this Tuesday. Spot prices climb back to the 1.3800 mark during the early North American session and look to build on the recent rally witnessed over the past week or so.

Worries that a global economic downturn and rising COVID-19 cases in China will hurt global fuel demand drag crude oil prices lower for the second straight day. This, in turn, undermines the commodity-linked loonie and acts as a tailwind for the USD/CAD pair. That said, an intraday downtick in the US dollar could cap the upside.

From a technical perspective, the USD/CAD pair, so far, has been struggling to find acceptance or build on the momentum beyond the 1.3830-1.3840 supply zone. This makes it prudent to wait for strong follow-through buying beyond the daily swing high, around the 1.3855 region, before positioning for a further appreciating move.

The USD/CAD pair might then accelerate the momentum and aim to reclaim the 1.3900 round-figure mark. The next relevant hurdle is pegged near the 1.3925-1.3930 region, above which spot prices could climb further towards the 1.4000 psychological mark.

On the flip side, the 1.3760 area, or the daily low, now seems to act as immediate support. Any further downfall could be seen as a buying opportunity and remain limited near the 1.3700 mark. The latter should act as a pivotal point for short-term traders, which if broken decisively might prompt some technical selling.

The USD/CAD pair might then turn vulnerable to extend the corrective pullback towards the 1.3600 level before eventually sliding back to the monthly swing low, around the 1.3500 psychological mark.

USD/CAD 4-hour chart

Key levels to watch

GBP/USD steadies above 1.10. Economists at Scotiabank note that the pair would improve its prospects on a move above 1.11.

GBP still has a lot of work to do in order to stabilize

“The slowing in the pace of the sell-off from the early Oct high around 1.15 suggests that some bargain hunting is developing around 1.1000/50. Short-term resistance is firm in the 1.1085/95 zone, however, and the pound still has a lot of work to do in order to stabilize.”

“Look for cable to turn better bid above 1.11 but trade better offered again below 1.10 in the short-run.”

• EUR/USD keeps the optimism unchanged above 0.9700.
• German 10-year bund yields hover around 2.35% on Tuesday.
• Italian Industrial Production surprised to the upside in August.

Buyers appear so far in control of the sentiment around the European currency and help EUR/USD to keep the trade above the key 0.9700 hurdle on Tuesday.

EUR/USD appears bid on USD-selling

The corrective downside in the greenback allows EUR/USD to finally halt the recent sharp sell-off and rebound from earlier lows in the 0.9670/65 band to the 0.9740 zone, where some initial resistance has turned up.

Nothing new around the pair other than the recent pick-up in the risk aversion in response to renewed geopolitical concerns stemming from the war in Ukraine, which was eventually behind the persistent strength in the dollar in combination with expectations of a large rate hike by the Fed at the November gathering.

In addition, the uptick in spot comes in tandem with a marginal advance in the German 10-year bund yields vs. the corrective decline in US yields across the curve.

In the domestic calendar, Italian Industrial Production expanded 2.3% MoM in August and 2.9% from a year earlier. In the US data space, the NFIB Business Optimism Index rose to 92.1 in September and the IBD/TIPP Economic Optimism gauge is due later along with speeches from FOMC’s Harker and Mester.

What to look for around EUR

EUR/USD’s leg lower seems to have met some initial contention in the 0.9670/65 band so far this week.

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

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

Key events in the euro area this week: EMU Industrial Production, ECB Lagarde (Wednesday) – Germany Final Inflation Rate (Thursday) – EMU Balance of Trade (Friday).

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

EUR/USD levels to watch

So far, the pair is gaining 0.12% at 0.9709 and the surpass of 0.9999 (weekly high October 4) would target 1.0050 (weekly high September 20) en route to 1.0197 (monthly high September 12). On the other hand, there is an immediate support at 0.9535 (2022 low September 28) ahead of 0.9411 (weekly low June 17 2002) and finally 0.9386 (weekly low June 10 2002).

The Swiss National Bank (SNB) is set to drive the EUR/CHF lower. Therefore, economists at ING expect the pair to plunge towards 0.90 in 2023.

SNB looks set to guide EUR/CHF lower

“We still think the SNB is running a kind of monetary conditions framework, using both policy rates and the trade-weighted Swiss franc to tighten conditions.”

“With inflation among trading partners running 5-6% above Switzerland, the SNB will want a weaker EUR/CHF to keep the real franc stable. If we’re right, the SNB could be guiding EUR/CHF to 0.90 next year.”

While presenting the World Economic Outlook on Tuesday, Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research of the International Monetary Fund (IMF), noted that the dollar strength is putting a lot of string on a number of countries, per Reuters.

Additional takeaways

"There has seen some dysfunction in UK financial markets."

"We welcome the announcement of the UK medium-term budget at the end of October."

"Dollar strength is the result of fundamental economic forces, not market dysfunction."

"Appropriate response is not to try to stem the dollar's advance, but to let currencies adjust."

Market reaction

These comments don't seem to be impacting the dollar's valuation in a meaningful way. As of writing, the US Dollar Index was down 0.1% on the day at 113.06.

• GBP/USD rebounds from over a one-week low touched on Tuesday amid a modest USD pullback.
• Aggressive Fed rate hike bets act as a tailwind for the buck and cap gains amid recession fears.
• The technical setup favours bearish traders and warrants caution before confirming a bottom.

The GBP/USD pair finds decent support near the 1.1000 psychological mark and stages a goodish intraday rebound from over a one-week low touched earlier this Tuesday. The positive move allows spot prices to snap a four-day losing streak, though bulls struggle to find acceptance above the 1.1100 round figure.

A modest pullback in the US Treasury bond yields, along with a slight recovery in the equity markets, prompts some profit-taking around the safe-haven US dollar and offers support to the GBP/USD pair. That said, concerns about the UK government's fiscal plans continue to act as a headwind for the British pound amid looming recession risks. This, in turn, keeps a lid on any meaningful upside for the major, at least for the time being.

From a technical perspective, the post-NFP downfall on Friday validated a bearish breakdown through the 1.1200 confluence. The said handle comprised the 23.6% Fibonacci retracement level of the corrective rally from an all-time low, the lower end of a nearly two-week-old ascending channel and the 100-period SMA on the 4-hour chart. The latter caps the intraday bounce for the GBP/USD pair and should act as a pivotal point for intraday traders.

A sustained strength beyond could trigger a short-covering rally and lift the GBP/USD pair towards the 1.1200 round figure (23.6% Fibo. level). Some follow-through buying will suggest that the recent pullback from the vicinity of the 1.1500 psychological mark has run its course and pave the way for additional gains. Spot prices might then accelerate the upward trajectory, allowing bulls to aim back to reclaim the 1.1300 round-figure mark.

On the flip side, the 38.2% Fibo. level, around the 1.1045 region, could act as immediate support ahead of the 1.1000 level. A convincing break below could drag the GBP/USD pair towards the 50% Fibo. level, around the 1.0920 area. This is followed by the 1.0900 mark, which if broken decisively will be seen as a fresh trigger for bearish traders.

GBP/USD 4-hour chart

Key levels to watch

"Energy shock, especially in Europe, is not a transitory shock," Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research of the International Monetary Fund (IMF), said while presenting the World Economic Outlook on Tuesday, as reported by Reuters.

"Geopolitical realignment of energy supplies in wake of war is both broad and permanent," Gourinchas added and noted that time may soon run out for solving emerging market debt problems through the G20 framework.

Market reaction

The US Dollar Index ignored these comments and was last seen posting modest daily gains at around 113.00.

The International Monetary Fund (IMF) announced on Tuesday that it lowered the global economic growth forecast for 2023 to 2.7% from 2.9% in July's estimates, citing pressures from high energy and food cost, rate hikes, as reported by Reuters.

Additional takeaways

"Left 2022 growth forecast at 3.2%, unchanged from July, vs 6.0% global growth in the 2021-world economic outlook."

"2023 global growth could fall to 1% under downside scenario of 30% oil price jump, Chinese property disruptions, overheated labor markets and severe financial tightening."

"Boosted eurozone 2022 growth outlook to 3.1% from 2.6% in July; cut 2023 growth forecast to 0.5% from 1.2% in July."

"Cut US 2022 growth forecast to 1.6% from 2.3% in July; 2023 growth forecast unchanged at 1.0%."

"Cut China 2022 growth forecast to 3.2% from 3.3% in July; cut 2023 growth forecast to 4.4% from 4.6%."

"Global headline inflation to peak at 9.5% in Q3 2022, and to decelerate to 4.7% in Q4 2023."

"Further dollar strength can only compound the likelihood of debt distress in many emerging markets."

"Russian economy to shrink 3.4% in 2022 vs 6.0% contraction in July; 2023 contraction forecast at 2.3% vs 3.5% in July."

Market reaction

This report doesn't seem to be impacting the risk mood in a noticeable way. Ahead of Wall Street's opening bell, US stock index futures are down between 0.1% and 0.2% on the day.

Aluminum (LME) remains in a clear downtrend. Economists at Credit Suisse expect fresh year-to-date lows during the fourth quarter.

Break above $2,820 needed for a profound stabilization

“We stay biased towards further weakness during Q4 and we identify the next significant medium-term support at the 78.6% retracement of the 2020/2022 uptrend and key psychological mark at $2,015/00. Below there we would identify next medium-term supports at $1,945 and then $1,725, before the crucial 2020 low at $1,455.”

“A clear rise above the 55-day average, currently at $2,344, would stabilize in the short-term, but above the 200-day average, currently seen at $2,820, is needed for a more profound stabilization, which is not our base case.”

The evidence suggests that the euro area is not experiencing a broad-based de-anchoring of medium-term inflation expectations, European Central Bank (ECB) Chief Economist Philip Lane said on Tuesday, as reported by Reuters.

Additional takeaways

"If we observe that transmission is weaker or slower than expected, this would require a further tightening of the monetary policy stance."

"If we observe that transmission is stronger or faster than expected, this would require a less-tight monetary policy stance."

"Outstanding funds in the ECB’s targeted lending programme (TLTROs) are still dampening the increase in bank funding costs."

"We remain attentive to the spread between different money market rates as well as collateral scarcity concerns."

"Further progress in bringing inflation towards our aim can be attained by ensuring the appropriate level of slack in the economy, provided inflation expectations remain sufficiently well-anchored."

Market reaction

The EUR/USD pair paid little to no attention to these comments and was last seen rising 0.3% on the day at 0.9730.

• USD/JPY retreats a few pips from the daily peak amid a modest USD pullback.
• Retreating US bond yields prompts some profit-taking around the greenback.
• The Fed-BoJ policy divergence might continue to act as a tailwind for the pair.

The USD/JPY pair struggles to capitalize on its modest intraday uptick on Tuesday and retreats a few pips from the vicinity of a 24-year top touched in September. The pair trades near the lower end of its daily range, just above the mid-145.00s and remains at the mercy of the US dollar price dynamics heading into the North American session.

The USD surrenders its early gains to over a one-week high amid a modest pullback in the US Treasury bond yields, which, in turn, acts as a headwind for the USD/JPY pair. That said, growing acceptance that the Fed will continue to tighten its monetary policy at a faster pace to tame inflation should limit the downside for the US bond yields and the greenback.

In fact, the markets are currently pricing in a greater chance of the fourth consecutive supersized 75 bps rate increase at the next FOMC policy meeting in November. The bets were reaffirmed by the robust US monthly jobs report on Friday and the overnight hawkish comments from Fed Vice Chair Lael Brainard, reiterating the US central bank's commitment to bring inflation down.

The Bank of Japan, on the other hand, has been lagging behind other major central banks in the process of policy normalisation. Furthermore, Japan's Prime Minister Fumio Kishida said on Tuesday that the BoJ needs to stick to its ultra-lose policy setting until wages rise. The resultant Fed-BoJ policy divergence could further offer some support to the USD/JPY pair.

Moving ahead, there isn't any relevant market-moving economic data due for release from the US on Tuesday. Hence, traders will take cues from speeches by influential FOMC members. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader risk sentiment could produce short-term trading opportunities around the USD/JPY pair.

Technical levels to watch

Gold price is on the retreat again. Strategists at Commerzbank expect the yellow metal to stay offered as rising yields lift the dollar.

US interest rate at its highest level since August 2009

“The renewed price weakness was triggered by a noticeably stronger US dollar again and rising bond yields as further pronounced rate hikes by the Fed are anticipated. This puts the real US interest rate using market-based inflation expectations at 1.7%, its highest level since August 2009. This makes gold less attractive as a non-interest-bearing investment.”

“For as long as the headwind generated by the US dollar and climbing (real) yields persist, gold is likely to remain on the defensive.”

GBP/USD traded below 1.10 briefly before bouncing modestly. The pair could test the September 28 low near 1.0540 on failure to hold 1.0905, economists at BBH report.

Bank of England announced more measures to support the gilt market

“A break below 1.0905 would set up a test of the September 28 low near 1.0540.”

“The BoE will now buy inflation-linked debt in order to maintain orderly markets. It said it would buy up to GBP10 bln of gilts daily until its emergency program ends, double the GBP5 bln in place. Can the new measures prevent another gilt crash? Only time will tell but we note that whatever measures the BoE takes, it can only address the symptoms (disorderly markets) and not the underlying malady (irresponsible fiscal policy). Only the government can turn this thing around.”

The German government still expects the economy to tip into recession next year despite the gas price brake that was presented on Monday, Reuters reported on Tuesday, citing government sources.

The economy is now expected to contract by 0.4% in 2023 and inflation is seen at 8% and 7% in 2022 and 2023, respectively.

Market reaction

This headline doesn't seem to be having a noticeable impact on risk mood. As of writing, Germany's DAX 30 Index was down 0.83% on a daily basis at 12,171.81 points.

• EUR/USD attempts a mild recovery just above the 0.9700 barrier.
• If bears push harder, the pair could see the 2022 low retested.

EUR/USD finally sees some respite to the persistent decline and rebounds from lows near 0.9670 on Tuesday.

Despite the bounce, further losses remain well in the pipeline for the time being. That said, further weakness could drag the pair to revisit the 2022 low at 0.9535 (September 28) in the near term ahead of the round level at 0.9500.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0600.

EUR/USD daily chart

When asked about the possibility of Joint EU debt for loans, a spokesperson for the German government noted that only one-fifth of the approved available funds had been paid out from the EU's Next Generation fund, as reported by Reuters.

"The remainder of money could be used to tackle crises, for green transition in energy," the spokesperson added.

Market reaction

These comments don't seem to be having a noticeable impact on the shared currency's performance against its major rivals. As of writing, the EUR/USD pair was up 0.2% on the day at 0.9719.

In the US, we heard some slightly less hawkish comments by Fed officials on Monday. However, economists at ING still expect the greenback to outperform its rivals. 

Dismissing slightly less hawkish tone by Brainard

“Two of the most ‘dovish’ members of the FOMC – Lael Brainard and Charles Evans – seemed to suggest a higher caution over excessive tightening, while still reiterating the commitment to fight inflation. There is still little doubt among market participants that the overall consensus within the FOMC is firmly hawkish, and that a 75 bps hike in November should not be particularly challenged by doves.”

“We continue to see the general market narrative as predominantly dollar-positive for now, and expect the 114.76 DXY late-September highs to be tested in the coming days.”

• AUD/USD drops to its lowest level since April 2020 amid sustained USD buying.
• Aggressive Fed rate hike bets, surging US bond yields underpins the greenback.
• The prevalent risk-off environment further weighs on the risk-sensitive aussie.

The AUD/USD pair consolidates its recent losses to the lowest level since April 2020 and oscillates in a range around the 0.6265 region through the mid-European session.

The US dollar buying remains unabated for the fifth successive day, which, in turn, forces the AUD/USD pair to extend last week's rejection slide from the 0.6540-0.6550 supply zone. Against the backdrop of the robust US jobs data, the overnight hawkish comments by Fed Vice Chair Lael Brainard reaffirmed bets for a more aggressive policy tightening by the US central bank.

Brainard reiterates the Fed’s commitment to bring inflation down and triggers a fresh leg up in the US Treasury bond yields. In fact, the benchmark 10-year US Treasury note climbs back closer to the 4% threshold. This, along with the prevalent risk-off mood, continues to act as a tailwind for the safe-haven greenback and weighs on the risk-sensitive aussie.

Investors remain concerned in the wake of growing worries about a deeper global economic downturn amid rapidly rising borrowing costs. Apart from this, a further escalation in the Russia-Ukraine conflict and fresh US-China trade jitters take a toll on the risk sentiment. This is evident from a weaker tone around the equity markets and driving haven flows.

That said, technical indicators on the daily chart are now flashing slightly oversold conditions. This seems to be the only factor that is holding back traders from placing fresh bearish bets around the AUD/USD pair and helping limit the downside. Nevertheless, the fundamental backdrop supports prospects for an extension of the near-term depreciating move.

There isn't any relevant market-moving economic data due for release from the US, leaving the USD at the mercy of the US bond yields and the broader risk sentiment. Apart from this, scheduled speeches by influential FOMC members should influence the USD price dynamics and produce short-term trading opportunities around the AUD/USD pair.

Technical levels to watch

• DXY’s upside momentum meets some resistance around 113.50.
• The dollar could attempt some consolidative mood in the near term.

The strong rebound in DXY seems to have met quite a firm hurdle around the 113.50 region on Tuesday.

Some range bound trading should not be ruled out in the very near term ahead of the potential continuation of the uptrend. Against that, the next target of note should emerge at the 2002 peak near 114.80 (September 28) seconded by the round level at 115.00.

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 7-month support line near 107.70.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.01.

DXY daily chart

• EUR/JPY looks consolidative above the 141.00 mark.
• Extra side-lined trading looks likely in the short term.

EUR/JPY trades without a clear direction and appears somewhat stabilized following the recent multi-session retracement.

Further range bound seems on the cards for the time being, always above the current contention area around 141.00. The breach of this region could open the door to a deeper pullback to the 139.84/55 band, where the 100- and 55-day SMAs coincide.

In the meantime, while above the key 200-day SMA at 136.25, the constructive outlook for the cross should remain unchanged.

EUR/JPY daily chart

Gold price gained 6.0% in the week ending 4 October as macro drivers excite large short covering, strategists at Société Générale report. 

Third largest money manager weekly short covering since 2006

“Gold experienced strong short covering of $4.7bn, the third largest figure since the data started being collected in 2006. This reversed a seven-week trend, initiated on 10 August, that saw gold’s total bearish flow reach $14.4bn.” 

“The DXY index fell 3.5%, while the US 10y real yield lost 22 bps, albeit the decrease in the latter was not linear. This made the precious metal cheaper to foreign investors and more appealing than income-generating assets such as Treasuries, hence increasing demand and prices.”

“Geopolitical concerns surrounding the conflict in Ukraine and the destructive impact on economies of the high interest rate environment may have provided additional support for gold.”

• Gold continues losing ground for the fifth straight day and drops to over a one-week low.
• Aggressive Fed rate hike bets, rising US bond yields, a stronger USD weighs on the metal.
• The risk-off environment does little to impress bullish traders or ease the bearish pressure.

Gold remains under some selling pressure for the fifth successive day on Tuesday and drops to over a one-week low, around the $1,660 area during the first half of the European session. A fresh leg up in the US Treasury bond yields, along with a stronger US dollar, turns out to be key factors driving flows away from the non-yielding yellow metal.

In fact, the yield on the benchmark 10-year US government bond inches back closer to the 4% threshold amid expectations that the Fed will tighten its monetary policy at a faster pace to tame inflation. The bets were lifted by the overnight hawkish remarks from Fed Vice Chair Lael Brainard, reiterating the US central bank's commitment to bring inflation down.

Elevated US Treasury bond yields push the USD higher for the fifth straight day, which, in turn, is seen exerting additional downward pressure on the dollar-denominated gold. Even, the prevalent risk-off mood - amid growing recession fears, geopolitical risks and fresh US-China trade jitters - does little to lend any support to the safe-haven precious metal.

The market sentiment remains fragile amid worries about economic headwinds stemming from rapidly rising borrowing costs. Apart from this, a further escalation in the Russia-Ukraine conflict and the worsening trade ties between the world's two largest economies temper tempers investors' appetite for riskier assets. This, however, fails to provide any respite to the XAU/USD.

There isn't any relevant market-moving economic data due for release from the US. Hence, traders on Tuesday will take cues from speeches by influential FOMC members. This, along with the US bond yields, should influence the USD price dynamics. Apart from this, the broader market risk sentiment might contribute to producing short-term opportunities around gold.

The focus, however, will remain on the FOMC meeting minutes, due on Wednesday, and will be followed by the latest US consumer inflation figures on Thursday. The US CPI is expected to remain stubbornly high and reinforce the Fed's hawkish rhetoric. This, in turn, suggests that the path of least resistance for gold is to the downside.

Technical levels to watch

More turmoil in the UK bond market has seen the Bank of England (BoE) step in with another emergency measure, this time to support battered inflation-linked bonds. However, economists at ING expect the GBP/USD pair to slip under the 1.10 mark. 

GBP/USD looks too strong at 1.10 considering the fragility of the bond market

“The BoE delivered another pre-market attempt to calm investors, by announcing it will widen the scope of daily gilt purchase operations, including inflation-linked bonds.”

“We continue to see downside risks for the pound, as levels around 1.10 do not mirror the fragility of the UK bond market.”

“We expect a decisive break below the 1.10 level today or in the coming days, and currently target the 1.00-1.05 area for the pair into year-end.”

EUR/USD is moving sideways at around 0.9700. In the view of economists at Société Générale, there is no relief for the shared currency, with the pair at risk of retesting the September low.

Bearish seasonality in October cannot be overlooked

“The bias for EUR/USD is defensive ahead of US CPI on Thursday and Retail Sales on Friday.”

“A return towards the September low is not ruled out based on growth and policy rate differentials between the US and the euro area and the escalation of the conflict in Ukraine.”

“The bearish seasonality in October cannot be overlooked.”

“0.9500 is near-term support.”

• NZD/USD recovers early lost ground to over two-year low amid modest USD pullback.
• Aggressive Fed rate hike bets, surging US bond yields limit the downside for the buck.
• The prevalent risk-off mood also contributes to capping gains for the risk-sensitive kiwi.

The NZD/USD pair stages a modest recovery from its lowest level since March 2020 and climbs to the top end of its daily range, around the 0.5575 region during the first half of the European session.

The US dollar surrenders its intraday gains to a one-and-half-week high and turns out to be a key factor offering some support to the NZD/USD pair. In the absence of a fresh fundamental catalyst, the USD pullback could be solely attributed to some profit-taking and is likely to remain limited amid hawkish Fed expectations.

Market participants seem convinced that the US central bank will stick to its aggressive rate hiking path to tame inflation and have been pricing in another supersized 75 bps increase in November. The bets were reaffirmed by the robust US jobs data on Friday and the overnight hawkish comments by Fed Vice Chair Lael Brainard.

Brainard reiterated the Fed’s commitment to bring inflation down and said that the central bank will keep raising rates in the near term. This, in turn, triggers a fresh leg up in the US Treasury bond yields and lifts the benchmark 10-year US government bond back closer to the 4.0% threshold, which should act as a tailwind for the buck.

Apart from this, the prevalent risk-off environment could limit the downside for the safe-haven buck and keep a lid on any attempted recovery for the risk-sensitive kiwi. This, in turn, suggests that the path of least resistance for the NZD/USD pair is to the downside and any subsequent move up might still be seen as a selling opportunity.

In the absence of any relevant market-moving economic releases from the US, traders on Tuesday will take cues from speeches by influential FOMC members. This, along with the US bond yields and the broader market risk sentiment, might drive the USD demand and provide some impetus to the NZD/USD pair ahead of the FOMC minutes on Wednesday.

Technical levels to watch

According to a German business newspaper, Handelsblatt, the country’s federal government expects a significant drop in inflation in 2023.

The government expects inflation at 7% next year, the paper said.

Meanwhile, the daily reported that the German government sees the 2022 inflation rate at 8%.

 Market reaction

EUR/USD is defending gains just above 0.9700 amid a quiet session so far this Tuesday.

On 4 October, the Reserve Bank of Australia (RBA) surprised the market with a smaller-than-expected rate hike of 25 bps. A day later, the Reserve Bank of New Zealand (RBNZ) delivered its fifth consecutive 50 bps hike. In the view of economists at HSBC, the recent dip in AUD/NZD is unlikely to be sustainable.

Australia’s fundamentals look relatively stronger than New Zealand’s

“With the dovish surprise from the RBA and the hawkish surprise from the RBNZ, the AUD weakened against the NZD, with AUD/NZD declining. However, we think AUD/NZD is likely to move higher, as Australia’s fundamentals look stronger than New Zealand’s on a relative basis, with fewer hard-landing risks and a stronger current account position.”

“When compared to the ‘safe haven’ USD, both commodity currencies are likely to face further downside risk, amid vulnerable risk sentiment, higher US yields, and slowing global growth.”

The European Union (EU) Trade Commissioner Valdis Dombrovskis said on Tuesday, “the commission is currently working on a new temporary state aid framework, which will allow EU countries to support companies suffocating under high energy bills.”

Further comments

“Decoupling from China is not an option for our companies.”

“We have deep concerns, particularly concerning the UIS inflation reduction act.”

Related reads

• EUR/USD Forecast: Next bearish target aligns at 0.9650
• Chancellor Scholz: Will make it through the winter if Germany continues to adapt

Germany’s Chancellor Olaf Scholz said on Tuesday, the country “will make it through the winter if citizens, companies and policymakers continue to adapt to the country's changed energy situation.”

Additional quotes

Market reaction

Amid risk aversion and firmer Treasury yields, EUR/USD is keeping its range trade intact just above 0.9700, up 0.16% on the day.

Economists at Société Générale expect GBP/USD to resume the downtrend. A break under 1.0550/1.0520 would clear the way towards 1.0350 and perhaps even parity.

Range since 2016 at 1.1760/1.1840 to be an important resistance zone

“The lower end of the range since 2016 at 1.1760/1.1840 is expected to be an important resistance zone near term. Holding below this hurdle, the downtrend could persist.” 

“Failure to hold recent higher trough at 1.0550/1.0520 can lead to next leg of downtrend towards 1.0350 and perhaps even towards projections at 1.0140/1.0000.”

• GBP/USD bounces off the 1.1000 mark, over a one-week low touched earlier this Tuesday.
• The USD trims a part of its intraday gains and turns out to be a key factor lending support.
• The fundamental backdrop still favours bears and supports prospects for additional losses.

The GBP/USD pair recovers a few pips from over a one-week low touched during the early European session on Tuesday, though lacks any follow-through buying. The pair remains on the defensive for the fifth successive day and is currently trading just below the 1.1050 area.

The US dollar trims a part of its intraday gains and turns out to be a key factor lending some support to the GBP/USD pair. That said, any meaningful recovery remains elusive amid growing worries about the UK government's fiscal plans and looming recession risks. Furthermore, a combination of factors should act as a tailwind for the greenback and further contribute to capping the upside for the major.

The markets seem convinced that the Federal Reserve will stick to its aggressive policy tightening path to tame inflation and have been pricing in another supersized 75 bps increase in November. The bets were further lifted by the overnight hawkish remarks by Fed Vice Chair Lael Brainard, which remains supportive of elevated US Treasury bond yields and continues to offer support to the greenback.

Apart from this, the prevalent risk-off environment should also benefit the safe-haven buck. The British pound, on the other hand, fails to draw any support from mostly upbeat UK monthly employment details. Even the Bank of England's fresh emergency move to buy more government bonds and calm markets failed to impress bullish traders or provide any impetus to the GBP/USD pair.

This, in turn, supports prospects for an extension of the recent pullback from the vicinity of the 1.1500 psychological mark. There isn't any major market-moving economic data due for release from the US on Tuesday. That said, speeches by influential FOMC members might influence the USD price dynamics and allow traders to grab short-term opportunities around the GBP/USD pair.

Technical levels to watch

Germany backs joint EU debt to tackle energy crisis. The euro could benefit in the long-term but for now, the EUR/USD pair is set to fall towards 0.92 by year-end, economists at ING report.

EUR/USD to decline into the 0.9540 September lows over coming days

“German Chancellor Olaf Scholz has ultimately given support to a joint issuance of EU debt to fund measures against the energy crisis, with the condition that funds are distributed as loans and not grants. For the euro, the net impact may well be neutral in the near term, potentially positive in the longer run.”

“We still see EUR/USD declining into the 0.9540 September lows over the coming days, and target 0.9200 as a year-end level.”

The US Dollar Index is trading at its highest level in more than ten days above 113.20. Economists at Société Générale believe that DXY could reach the 2001 high of 121 on a break past 114.80.

Break below 110.00/109.30 would clear the way for an extended pullback

“A rebound towards 113.60 and the peak near 114.80 is expected.”

“Only if the support zone at 110.00/109.30 gets violated would there be a risk of an extended pullback.”

“Beyond 114.80, next potential hurdles are located at 117 and 2001 high of 121.”

• A combination of factors lifts USD/CAD to its highest level since May 2020 on Tuesday.
• Retreating oil prices undermines the loonie and offers support amid a stronger USD.
• Aggressive Fed rate hike bets, recession fears continue to benefit the safe-haven buck.

The USD/CAD pair gains traction for the second successive day and climbs to its highest level since May 2020 on Tuesday. The pair sticks to its gains just below mid-1.38000s through the early European session and seems poised to prolong the recent strong rally witnessed over the past week or so.

Crude oil prices extend the overnight pullback from the highest level since late August amid worries that a global economic downturn and rising COVID-19 cases in China will hurt global fuel demand. This, in turn, is seen undermining the commodity-linked loonie and acting as a tailwind for the USD/CAD pair. Apart from this, the underlying bullish sentiment surrounding the US dollar supports prospects for a further near-term appreciating move.

The prospects for a more aggressive policy tightening by the US central bank, along with recession fears and geopolitical risk, continue to benefit the greenback. The markets seem convinced that the Fed will continue to hike interest rates at a faster pace to tame inflation and have been pricing in another supersized 75 bps increase in November. The bets were further lifted by the overnight hawkish comments from Fed Vice Chair Lael Brainard.

This, in turn, remains supportive of elevated US Treasury bond yields. Furthermore, the prevalent risk-off environment is seen as another factor driving haven flows towards the buck. The market sentiment remains fragile amid concerns about economic headwinds stemming from rapidly rising borrowing costs. Adding to this, a further escalation in the Russia-Ukraine conflict and US-China trade jitters tempers investors' appetite for riskier assets.

The aforementioned fundamental factors suggest that the path of least resistance for the USD/CAD pair is to the upside. That said, the lack of any follow-through buying warrants caution for aggressive bullish traders in the absence of relevant market-moving economic releases, either from the US or Canada. That said, speeches by influential FOMC members might influence the USD price dynamics and allow traders to grab short-term opportunities on Tuesday.

Technical levels to watch

The British pound is having a difficult time finding demand. Economists at MUFG Bank note that 1.10 and 0.88 are the key levels to watch in GBP/USD and EUR/GBP, respectively.

UK government remains under pressure to tighten fiscal policy

“If the government fails to fully restore investor confidence quickly, the likelihood of another sharp sell-off for the pound will increase.”

“The pound has held up relatively well at the start of this week while UK bond yields have jumped higher, but that is unlikely to last for long.” 

“The next two important levels to watch are cable at 1.1000 and EUR/GBP at 0.8800.”

• EUR/USD alternates gains with losses around the 0.9700 zone.
• The dollar looks slightly bid above the 113.00 hurdle on Tuesday.
• ECB-speak, Italian Industrial Production next on tap in the docket.

EUR/USD seems to have met some contention in the 0.9670 zone and now attempts to regain the 0.9700 barrier and above.

EUR/USD looks to USD, risk trends

EUR/USD gives some signs of life after four consecutive daily declines and clings to the 0.9700 region on turnaround Tuesday.

The bullish attempt in the pair comes amidst marginal gains in the greenback and a knee-jerk in the German 10-year benchmark, al after hitting fresh 11-year highs past 2.35% at the beginning of the week.

In the domestic calendar, Italian Industrial Production will be the sole release seconded by speeches by ECB’s A.Enria and P.Lane. Across the pond, FOMC’s Harker and Mester are also due to speak in an otherwise empty docket.

What to look for around EUR

EUR/USD’s leg lower seems to have met some initial contention in the 0.9670/65 band so far this week.

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

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

Key events in the euro area this week: EMU Industrial Production, ECB Lagarde (Wednesday) – Germany Final Inflation Rate (Thursday) – EMU Balance of Trade (Friday).

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

EUR/USD levels to watch

So far, the pair is gaining 0.15% at 0.9712 and the surpass of 0.9999 (weekly high October 4) would target 1.0050 (weekly high September 20) en route to 1.0197 (monthly high September 12). On the other hand, there is an immediate support at 0.9535 (2022 low September 28) ahead of 0.9411 (weekly low June 17 2002) and finally 0.9386 (weekly low June 10 2002).

AUD/USD made a fresh cycle low. In the view of economists at ING, the downturn should continue.

Aussie to rebound in the second half of 2023

“We remain bearish on AUD/USD into year-end, as risk sentiment fragility, China’s economic (and currency) woes and a strong USD all point to continued weakness in the pair.”

“We currently forecast a bottom of about 0.60-0.61 around year-end before a rebound that should accelerate in the second half of 2023. A break below 0.60 this year is entirely possible though.”

“The Reserve Bank of Australia surprised on the dovish side in October as it delivered a ‘small’ 25 bps hike. Our base case is that 25 bps increases will become the norm. The FX implications, for now, should remain quite secondary.”

• The index runs into some resistance around the 113.50 region.
• US yields look offered as the money market resumes the activity.
• Fed’s Harker, Mester are due to speak later in the NA session.

The greenback, in terms of the USD Index (DXY), loses some upside traction and puts the 113.00 neighbourhood to the test on turnaround Tuesday.

USD Index remains focused on US CPI

The index surrenders some ground after four consecutive daily advances and following the emergence of decent resistance in the mid-113.00s so far on Tuesday.

Indeed, the tepid improvement in the risk complex seems to have put the buck under some pressure soon after the opening bell in the old continent on Tuesday.

In addition, the knee-jerk in the dollar comes in tandem with some mild downside pressure in US yields across the curve, as the debt markets resume the activity following Monday’s Columbus Day holiday.

No data releases scheduled in the US docket on Monday should leave the attention to speeches by Philly Fed P.Harker (2023 voter, hawk) and Cleveland Fed L.Mester (voter, hawk).

What to look for around USD

The rally in the dollar appears to have met some decent hurdle in the 113.50 region so far 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 index.

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

Key events in the US this week: MBA Mortgage Applications, Producer Prices, FOMC Minutes (Wednesday) – Inflation Rate, Initial Jobless Claims (Thursday) – Retail Sales, Flash Michigan Consumer Sentiment, Business Inventories (Friday).

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

USD Index relevant levels

Now, the index is up 0.02% at 113.19 and faces the next resistance at 113.50 (monthly high October 11) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the other hand, a breach of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).

EUR/JPY has been holding up quite well. However, economists at ING expect the pair to move downward over the coming months.

Downside bias remains

“Our bias would be that EUR/JPY struggles to sustain a break above the 145 level in an environment where central banks are actively looking to slow aggregate demand.”

“Typically, the Japanese have been more interventionist than the eurozone and on that basis – and given the forthcoming eurozone recession – EUR/JPY risks look skewed lower the next six months.”

Here is what you need to know on Tuesday, October 11:

Following a three-day weekend, US bond markets reopened and the yield on the 10-year reference climbed higher toward 4%, providing a boost to the dollar early Tuesday. Moreover, the risk-averse market atmosphere allows the greenback to continue to outperform its rivals with the US Dollar Index trading at its highest level in more than ten days above 113.20. The NFIB Business Optimism Index and the IBD/TIPP Economic Optimism Index will be featured in the US economic docket but the market mood is likely to continue to influence major currency pairs' action. Investors will also keep a close eye on speeches by central bankers.

Although trading conditions remained thin on Monday, Wall Street's main indexes ended up closing in negative territory ahead of key third-quarter earnings figures from big financial institutions, including JPMorgan, Citi and Wells Fargo. US stock index futures were last seen losing between 0.3% and 0.4%, reflecting investors' cautious stance.

During the Asian trading hours, the data from Australia revealed that business confidence deteriorated in September while business conditions improved modestly. After having suffered heavy losses on Monday, AUD/USD continued to push lower and was last seen trading at its lowest level since April 2020 at 0.6260, losing over 0.6% on a daily basis.

Reports suggesting that Germany was open to the idea of joint EU debt to tackle the energy crisis in the euro area helped the shared currency show some resilience against the dollar in the second half of the day on Monday. With German officials rejecting these reports, EUR/USD turned south and registered daily losses. At the time of press, the pair is moving sideways at around 0.9700.

The Bank of England (BOE) continues to introduce additional measures to improve market conditions but the British pound is having a difficult time finding demand. Meanwhile, the data published by the UK's Office for National Statistics revealed earlier in the day that the ILO Unemployment Rate declined to 3.5% in three months to August from 3.6%. The Claimant Count Rate remained unchanged at 3.9% as expected and the Average Earnings Including Bonus rose by 5%, up from 5.5% in July. GBP/USD was last seen losing 0.5% on the day at 1.1000.

BOE announces temporary pause to corporate bond sale operations this week.

USD/JPY continues to trade above 145.50 and stays near the level that triggered an intervention by the Bank of Japan (BoJ) back in late September. Japanese Prime Minister Fumio Kishida said earlier in the day that the BoJ needs to maintain its loose policy until wages rise and called on companies to raise pay alongside prices.

The bearish momentum surrounding gold continued to strengthen after the precious metal broke below $1,700 at the beginning of the week. XAU/USD lost 1.5% on Monday and was last seen moving sideways in a narrow channel slightly below $1,670.

Bitcoin lost nearly 2% on Monday and came within a touching distance of $19,000 early Tuesday. Ethereum broke below $1,300 and was last seen losing 0.6% on the day at $1,280.

NZD/USD renews a 31-month low around 0.5535. The next key support level is located at the 2009 lows of 0.50, economists at ING report.

Eyeing 0.50?

“The Reserve Bank of New Zealand hiked by another 50 bps in October and signalled more tightening is on the way. Another 50 bps increase is largely expected at the November meeting. The role of monetary policy remains secondary compared to global risk dynamics.”

“NZD/USD is looking at the 0.50 2009 lows as the next key support: that would be a 12% drop from the current levels and seems too stretched in our view. However, a move to the 0.52-0.53 area cannot be excluded should risk assets fall further.”

• Silver continues losing ground for the third straight day and drops to over a one-week low.
• Acceptance below the $19.60-$19.55 confluence supports prospects for additional losses.
• Weakness below the 61.8% Fibo., around the $19.30 region will reaffirm the negative bias.

Silver extends its recent pullback from the highest level since late June touched last week and remains under some selling pressure for the third straight day on Tuesday. This also marks the fourth day of a negative move in the previous five and drags the white metal to over a one-week low, around the $19.35 region during the early European session.

From a technical perspective, weakness below the $19.60-$19.55 confluence could be seen as a trigger for bearish traders. The said support breakpoint comprises the 50% Fibonacci retracement level of the recent recovery from the YTD low and the 100-period SMA on the 4-hour chart. The breakdown, in turn, supports prospects for further losses.

Hence, a subsequent fall towards 61.8% Fibo. level, around the $19.30 region, en route to the next relevant support near the $19.00 mark, remains a distinct possibility. Some follow-through selling will pave the way for a slide towards the $18.60 area before the XAG/USD eventually drops to the $18.35 area and then to the $18.00 round figure.

On the flip side, recovery back above the $19.60-$19.55 confluence has the potential to lift spot prices back towards the $20.00 psychological mark, which coincides with the 38.2% Fibo. level. Any further move up could attract some sellers near the 23.6% Fibo. level, around the $20.40 region, which should cap the upside for the XAG/USD, at least for now.

Sustained strength beyond will negate any near-term negative bias and allow the XAG/USD to climb to the $20.80-$20.85 area en route to the $21.00 mark and the monthly high, around the $21.25 region.

Silver 4-hour chart

Key levels to watch

On Monday, EUR/USD depreciated 0.4% to 0.97. The shared currency is fragile if it breaks below the key support level of 0.96, economists at DBS Bank report. 

Eurozone Sentix Investor Confidence worsens

“Eurozone Sentix Investor Confidence fell to -38.3 in October, its worst reading since May 2020. More importantly, the current situation index plunged to -35.5 from -26.5.”

“Bloomberg consensus sees three-quarters of negative growth for the German economy from 3Q22 into 1Q23, amidst double-digit inflation in 4Q22.” 

“EUR has an important support level of just below 0.96. Failure to hold this could send it into the 0.8270-0.95 range seen in 2000-2002.”

GBP/USD is approaching the 1.10 level. In the view of economists at ING, heightened scrutiny on policy choices can see GBP/USD nearing parity later this year.

Cable does not seem out of the woods yet

“It looks like the Fed will be pushing real interest rates deeper into more restrictive territory over coming months. That will tighten liquidity conditions still further and see that any policy mistakes get punished. The new UK government admitted such a policy mistake when reversing plans to scrap the top rate income tax bracket. The UK Gilt market was just not ready for huge supply.”

“Key dates for the diary are 14 and 31 October. The BoE intervened to buy Gilts but said it would stop on 14 October. Does the Gilt market allow that to happen? And 31 October sees the medium-term fiscal plan released. Do the numbers add up?”

“GBP/USD: 1M 1.07 (1.1085) 3M 1.02 (1.1098) 6M 1.02 (1.1089) 12M 1.11 (1.1038).”

• USD/CHF bulls take a breather after refreshing multi-day top.
• Firmer yields and risk-aversion joins hawkish Fed bets to propel DXY.
• SNB Chairman Jordan’s failure to convince markets of further rate hikes can propel the quote beyond 1.0050-65 key hurdle.

USD/CHF bulls flirt with the parity during the five-day uptrend early Tuesday in Europe, after rising to the highest levels since June. The Swiss currency (CHF) pair’s latest gains could be linked to the market’s rush towards the risk safety, as well as anxiety ahead of today’s speech from Swiss National Bank (SNB) Chairman Thomas Jordan.

The market’s sour sentiment take clues from the intensifying Russia-Ukraine tussles as Moscow shells Kyiv after witnessing an explosion at the Crimean bridge. On the same line are the fears surrounding China’s take on Taiwan and the US's friendship with the Asian nation. While portraying the mood, the S&P 500 Futures that drop 0.50% as bears lean towards the monthly low.

Additionally, hawkish Fedbets and firmer Treasury bond yields also portray the market’s risk-off mood and underpin the US Dollar’s strength. That said, the US Dollar Index (DXY) rises 0.18% intraday gains as it prints a five-day uptrend near 113.40. In doing so, the greenback’s gauge versus the six major currencies traces the US Treasury yields as the US 30-year Treasury yields rise to a fresh high since January 2014 whereas the 10-year counterpart pokes the 4.0% threshold. Also favoring the DXY is the CME’s FedWatch Tool which signals a 78% chance of the Fed’s 75 bps rate hike in November.

The mixed Fedspeak and the US holiday on Monday couldn’t disappoint the DXY bulls. Chicago Fed President Charles Evans said on Monday that the US can lower inflation relatively quickly without recession or a large increase in unemployment. The policymaker also added that the Fed needs to "carefully and judiciously" navigate to a "reasonably restrictive" policy rate. It should be noted that Federal Reserve Vice Chair Lael Brainard made the case for cautious rate hikes for the future, per the Wall Street Journal (WSJ).

Looking forward, USD/CHF traders will pay attention to the speech from SNB’s Jordan to confirm further rate hikes from the Swiss central bank. Should Jordan manage to convince hawks, the quote may witness a pullback. However, major attention will be given to Wednesday’s Federal Open Market Committee (FOMC) Meeting Minutes and Thursday’s US Consumer Price Index (CPI) data for September.

Technical analysis

Although the USD/CHF buyers cheer the pair’s sustained trading above the monthly support line, around 0.9875 by the press time, a five-month-long horizontal resistance area near 1.0050-65 appears a tough nut to crack for the bulls amid the nearly overbought RSI.

• GBP/JPY drops to over a one-week low on Tuesday, though lacks follow-through selling.
• Mostly upbeat UK employment details do little to impress bulls or lend any support.
• The BoJ’s dovish stance continues to weigh on the JPY and helps limit any further slide.

The GBP/JPY cross attracts fresh selling following an early uptick to the 161.65 region and drops to over a one-week low during the early European session on Tuesday. Spot prices, however, manage to recover a few pips and now seem to have stabilized around the mid-160.00s.

The British pound continues with its struggle to gain any meaningful traction amid worries about the UK government's fiscal plans and fails to gain any respite from mostly upbeat UK employment details. The Office for National Statistics (ONS) reported this Tuesday that the unemployment rate in the UK dropped to 3.5% during the three months to August from 3.6% previous. Adding to this, average weekly earnings came in better than estimates and largely offsets a rise in the number of people claiming jobless benefits, though does little to impress bulls.

The Japanese yen, on the other hand, draws some support after Japan's Finance Minister Shunichi Suzuki reiterated that the government stands ready to intervene and respond appropriately to excess FX moves. Apart from this, the prevalent risk-off environment benefits the JPY's relative safe-haven status against its British counterpart and exerts some pressure on the GBP/JPY cross. That said, a more dovish stance adopted by the Bank of Japan keeps a lid on any further gains for the domestic currency and acts as a tailwind for the GBP/JPY cross, for the time being.

In fact, Japan's Prime Minister Fumio Kishida said that the BoJ needs to stick to its ultra-lose policy until wages rise. This marks a big divergence in comparison to other major central banks, which might continue to weigh on the JPY and supports prospects for the emergence of some dip-buying around the GBP/JPY cross. Hence, it will be prudent to wait for strong follow-through selling before traders start positioning for an extension of the pair's recent pullback from a multi-week high, around the 165.70 region touched last Wednesday.

Technical levels to watch

EUR/USD has established below 0.9700. Economists at ING expect the pair to build a new 0.90-0.95 trading range.

Volatility returns to levels last seen in April 2020

“EUR/USD realised volatility is now back to levels last seen in the early days of the pandemic. Tighter liquidity conditions as central banks raise rates and sell bonds typically do see volatility levels increase. This should be the story for this autumn.”

“The eurozone is just entering three consecutive quarters of negative growth. As a pro-cyclical currency, this is not the time for the euro to shine.”

“We see a 0.90-0.95 trading range developing.”

• AUD/USD remains pressured around 2.5-year low, down for the sixth consecutive day.
• Oversold RSI, March 2020’s peak could tests bears during further downside.
• Buyers need validation from 0.6535 to retake control.

AUD/USD remains on the back foot around the 31-month low, down 0.60% intraday near 0.6265 heading into Tuesday’s European session.

In doing so, the Aussie pair drops for the sixth consecutive day while extending the previous week’s U-turn from a downward sloping support-turned-resistance line from May 12, around 0.6535 by the press time.

It should, however, be noted that the quote’s sustained trading below the 61.8% Fibonacci Expansion (FE) of September 20 to October 04 moves and the 10-DMA also restrict the AUD/USD pair’s immediate upside around 0.6300 and 0.6430 in that order.

That said, the pair’s successful trading below the stated hurdles keeps the bears hopeful. However, there prevails a limited downside room as the March 2020 peak surrounding 0.6215 could join the nearly oversold RSI (14) and challenge the quote’s further declines.

Following that, the 0.6000 threshold and April 2020 bottom near 0.5980 could lure the AUD/USD sellers.

Alternatively, an upside clearance of the 0.6535 resistance line, previous support, needs validation from the monthly high near 0.6550 to recall the buyers.

AUD/USD: Daily chart

Trend: Limited downside expected

Inflation in Norway surprised to the upside in September. The krone benefited from the data but the EUR/NOK is set to stay above the 10 level for now, economists at Commerzbank report.

Inflation points towards Norges Bank tightening course

“The overall rate rose by 6.9% YoY, the core rate by 5.3%. Both rates are already above Norges Bank’s expectations according to its monetary policy report of September. First of all, that illustrates that Norges Bank will stick to its signalled rate hike cycle.” 

“The September data also increased the likelihood that Norges Bank will tighten its rate path again and might adjust the peak of its key rate.”

“The NOK was able to benefit from the publication of the data yesterday, but negative market sentiment is preventing more substantial gains – regardless of the higher oil price. For that reason, it might still take a while before EUR/NOK eases below 10 again.”

FX option expiries for Oct 11 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9625-35 364m
• 0.9770 414m
• 0.9800-05 290m
• 0.9845-55 759m

- GBP/USD: GBP amounts        

• 1.0925 1.33b
• 1.1050 223m
• 1.1325 1.25b

- USD/JPY: USD amounts                     

• 144.40-50 495m
• 145.00 351m
• 145.89-00 960m

- USD/CHF: USD amounts        

• 0.9865-75 250m
• 0.9925 300m

- EUR/GBP: EUR amounts        

• 0.8680 451m  

- EUR/JPY: EUR amounts

• 143.65 320m

USD/JPY is once again trading just below the 146.00 level. If the market attempts another attack on the 146.00 it will become clear what strategy the Japanese ministry of finance (MOF) pursues. It has three options, in the opinion of economists at Commerzbank.

The 146 level will show what the MOF’s strategy looks like

“Either MOF intervenes again before the 146.00 mark has been breached. Or it only intervenes when higher USD/JPY levels are reached. Or it does not intervene at all any longer. Of course, the last option would be quite silly. This realisation would constitute a further significant negative factor for the yen. However, the first two alternatives are not without risk either.”

“If the MOF were to intervene at increasingly higher USD/JPY levels it would provide profits to traders betting on yen weakness. That might cause this camp to gain support and therefore weaken the yen rather than strengthen it in the end. However, even courageously defending the 146 mark is risky. The MOF has already burnt through FX reserves at rapid speed. The fact that these are finite would then be the next attraction that could cause market participants to speculate against the MOF.”

NZD/USD has made a fresh cycle low. Economists at ANZ Bank expect the pair to remain under pressure amid risk-aversion.

Risk markets remain nervous

“Risk markets remain nervous in the wake of better US jobs data last week, and have been peppered by an ongoing chorus of hawkish Fed speakers.”

“News of missile attacks on Ukrainian cities yesterday only add to the USD’s safe-haven appeal.”

“In our view, the RBNZ said ‘all the right things’ last week, and are clearly determined to get on top of rampant inflation, but markets continue to fret about recession risks, and at the same time, US interest rates continue to rise, undermining higher kiwi rates.” 

“It’s all a bit messy, and market participants pushing back against the trend softening in risk appetite continue to get hit hard.”

The Bank of England (BoE) announced a temporary pause to corporate bond sale operations this week. However, the British pound is set to remain under downside pressure, economists at Commerzbank report.

Stress on the gilt market

“The stress on the gilt markets continues. The yields for British gilts have risen notably again. As of next week, a new programme (temporary repo facility) is supposed to ensure that the stress on the bond markets eases. However, the market seemed disappointed that the BoE will end the bond purchases on Friday as originally planned. The announcement of the new programme did not really calm the markets.”

“In the end, the BoE’s measures do not change the fact that the British government’s tax cut plans shocked the markets. Nervousness is likely to remain high for now and as a result also the downside risks for sterling.”

The Bank of England (BOE) announced in a statement on Tuesday, it will temporarily pause corporate bond sale operations this week.

Additional takeaways

Market reaction

GBP/USD is fading its bounce, battling 1.1000 on the BOE headlines. The cable jumped to near 1.1040 after the mixed UK jobs report. The spot is down 0.43% on the day.

Gold price is consolidating the downside near weekly lows of $1,660. XAU/USD could threaten $1,650, in the view of FXStreet’s Dhwani Mehta.

Gold price remains vulnerable

“Bears are likely to retain control below the 21-Daily Moving Average (DMA) support, now at $1,675, as the 14-day Relative Strength Index (RSI) continues to inch lower below the midline.”

“A sustained break below the intermittent support of $1,660 could put the $1,650 psychological level under threat. Sellers could then probe the September 29 low of $1,642.”

“Buyers need to find a strong foothold above the 21-DMA on a daily closing basis to initiate any meaningful recovery. The $1,700 threshold is seen as the next upside target, above which the $1,710 round figure will be challenged.”

• GBP/USD pares losses during five-day downtrend following the UK jobs report.
• UK Claimant Count Change rose to 25.5K, Unemployment Rate dropped to 3.5%during the latest release.
• British bonds join global counterparts to slump amid recession woes.
• Hawkish Fed bets, upbeat US Treasury yields may keep bears hopeful but BOE’s Bailey can trigger corrective bounce.

GBP/USD extends bounce off the intraday low following the strong UK jobs report during early Tuesday in Europe. Even so, the Cable pair bears remain hopeful amid broad risk aversion and the US dollar’s strength.

UK’s headline Claimant Count Change rose by 25.5K during September versus expectations of -11.4K and 6.3K prior. Further, the ILO Unemployment Rate dropped below the 3.6% market forecasts and prior readings to 3.5% during the three months to August.

Also read: UK ILO Unemployment Rate drops to 3.5% in August vs. 3.6% expected

Also likely to have probed the GBP/USD bears is the Bank of England’s (BOE) latest move to widen the Gilt purchase operations as it stands ready to purchase up to £10 billion of the UK bonds.

While the British jobs report impresses the GBP/USD buyers at present, the market’s rush towards risk safety and hawkish Fed bets seem to propel the US dollar and exert downside pressure on the Cable pair. That said, the US Dollar Index (DXY) rises 0.18% intraday gains as it prints a five-day uptrend near 113.40. In doing so, the greenback’s gauge versus the six major currencies traces the US Treasury yields as the US 30-year Treasury yields rise to a fresh high since January 2014 whereas the 10-year counterpart pokes the 4.0% threshold. Also favoring the DXY is the CME’s FedWatch Tool which signals a 78.4% chance of the Fed’s 75 bps rate hike in November.

It’s worth noting that the British government bonds witness a selloff and offer additional negative to the GBP/USD pair.

In addition to the aforementioned UK statistics and the broad risk-off mood, fears of the mounting UK public debt also weigh on the GBP/USD prices. “British finance minister Kwasi Kwarteng needs to make 62 billion pounds ($69 billion) of spending cuts or tax rises to stop public debt growing ever-larger as a share of the economy,” said the Institute for Fiscal Studies (IFS) on Tuesday, per Reuters.

Amid these plays, the stock futures remain depressed and add strength to the US dollar while the commodities and the Antipodeans are on the back foot by the press time, which in turn keeps the GBP/USD bears hopeful.

Moving on, Bank of England’s (BOE) Governor Andrew Bailey’s speech at the Institute of International Finance Annual Membership Meeting in Washington will be crucial for the GBP/USD traders to watch for fresh impulse.

Technical analysis

GBP/USD braces for a fortnight-old horizontal support near 1.0930-15 after breaking an upward sloping support line from September 26, now resistance around 1.1420.

• The current USD/JPY price has poked the BOJ’s intervention area around 145.90 to support Japanese yen.
• Market sentiment has turned extremely negative as Russia-Ukraine tensions have aired nuclear attacks.
• A divergence in the headline and core US CPI banks upon weaker gasoline prices.

The USD/JPY pair is hovering at a make or break figure of around 145.90 as the impact of the intervention by the Bank of Japan (BOJ) in the currency markets to safeguard yen against sheer volatility has eased dramatically.

Market sentiment is extremely negative amid escalating Russia-Ukraine tensions as it has triggered the risk of extension in supply chain bottlenecks in Eurozone. Also, the support of advanced air systems pledged by US President Joe Biden to Ukraine has triggered the risk of nuclear attacks.

Apart from the negative market sentiment, a prolonged ultra-loose monetary policy by the Bank of Japan (BOJ) is also responsible for the poor performance of the Japanese yen. On September 22, the BOJ intervened in the currency markets to support yen citing that current levels don’t justify Japan’s economic fundamentals.

In the Tokyo session, Japan’s top currency diplomat Masato Kanda said that “we are always ready to take necessary steps against excess FX volatility.” He further added that the decision on fx intervention can be taken anywhere, even from an airplane.

Meanwhile, the US dollar index (DXY) is playing around the weekly highs of 113.50 and is preparing for an upside break ahead of the US Consumer Price Index (CPI) data.  According to the preliminary estimates, a divergence is expected in the headline CPI and core CPI figures. The headline CPI will decline to 8.1% while the core CPI that excludes oil and food prices will improve to 6.5%. The divergence in expectations for dual inflation catalysts banks upon weaker gasoline prices.

• The Unemployment Rate in the UK arrived at 3.5% in August.
• UK Claimant Count Change came in at +25.5K in September.
• The UK wages excluding bonuses rose by 5.4% YoY in August vs. 5.3% expected.

The UK’s official jobless rate dropped to 3.5% in August vs. the 3.6% expected while the claimant count change showed an unexpected jump in the reported month, the data from the Office for National Statistics (ONS) showed on Tuesday.

The number of people claiming jobless benefits climbed by 25.5K in September when compared to 6.3K booked previously and -11.4K expectations.

The UK’s average weekly earnings, excluding bonuses, arrived at +5.4% 3Mo/YoY in August versus +5.3% last and +5.2% expected while the gauge including bonuses came in at +6.0% 3Mo/YoY in August versus +5.5% previous and +5.9% expected.

Key points (via ONS)

Payrolled employment increased by 69,000 employees (0.2%) in September 2022 when compared with august 2022, though this should be treated as a provisional estimate and is likely to be revised when more data are received next month.

GBP/USD reaction

GBP/USD picks up a fresh bid on the mixed UK employment data, still down 0.16% on the day to trade near 1.1036, as of writing.

About UK jobs

The UK Average Earnings released by the Office for National Statistics (ONS) is a key short-term indicator of how levels of pay are changing within the UK economy. Generally speaking, the positive earnings growth anticipates positive (or bullish) for the GBP, whereas a low reading is seen as negative (or bearish).

The Bank of Korea (BoK) will hold its Monetary Policy Committee (MPC) meeting on Wednesday, October 12 at 01:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of six major banks. 

At the last meeting on August 25, the bank hiked rates by 25 basis points (bps) to 2.50%. Now, the BoK could increase rates by 50 bps to 3% though some banks call for another 25 bps hike.

ANZ

“We expect the BoK to hike its policy rate by 50 bps against a backdrop of persistent price pressures and rising concerns about stability. The BoK has made it clear that inflation will remain its top priority if it stays between 5-6%. The latest September datashowed the headline print at 5.6% YoY, which is likely to pick up in October amid hikes to electricity and city gas prices, before moderating gradually thereafter. A 50 bps rate hike by the BoK would help contain the negative policy rate differential with the US and complement recently announced market stabilisation measures.”

SocGen

“We expect a unanimous decision to hike rates by 25 bps from 2.50% to 2.75%. Persistent inflation concerns and the short-term ‘forward guidance’ until the end of this year support continued rate hike action in October. We maintain our base-case scenario for a terminal BoK policy rate at 3.0% after two 25 bps hikes in October and November, which is in line with the BoK’s implicit, near-term forward guidance that was hinted at quite a few times by Governor Rhee. Of course, we will closely monitor Governor Rhee’s press conference for any long-term forward guidance on monetary policy.” 

UOB

“While we see a 25 bps hike in the 7-day repo rate to 2.75% as the base case, the prospect of a more aggressive 50 bps hike to 3.00% has increased. Thus, the odds are certainly tilted towards a higher terminal interest rate than our current forecast of 3.00% as BoK is likely to hike further in Nov (last meeting of 2022) and even into 1Q23 if inflation does not cool as fast as it hoped. We will get a better sense of that from BoK’s post-decision press conference.”

Standard Chartered

“We expect the BoK to hike the policy rate by 50 bps to align with the Fed and contain inflation. If the BoK hikes by only 25 bps in October and the Fed by 75 bps in November, the rate differential would go beyond 1%. BoK’s governor signalled that the central bank will aim to maintain a rate differential of less than 1%; we therefore expect a 50 bps rather than a 25 bps hike. We also do not see BoK hiking aggressively by 75 bps, given already high household debt and declining housing prices. Also, moderating CPI should ease pressure on the BoK for more hawkish hikes. We expect the BoK to hike by 25 bps each in November 2022, January 2023 and February 2023 to control inflation (which remains above 5%).”

ING

“We expect the BoK to raise interest rates by 50 bps, given the faster-than-expected rate hike by the Fed coupled with persistently high domestic inflation.”

TDS

“Recent hawkish BoK comments, elevated and sticky inflation, and weaker KRW, all point to another 50 bps move at this meeting. While BoK is unlikely to follow the Fed toe to toe, further hikes are likely.”

See: USD/KRW set to advance nicely towards 1,597/1,600 – Credit Suisse

Advanced prints from CME Group for natural gas futures markets noted open interest rose by just 734 contracts after two straight daily drops on Monday. On the other hand, volume went down by around 1.5K contracts after two daily builds in a row.

Natural Gas faces extra range bound around $6.50

Monday’s downtick in prices of natural gas was on the back of a small increase in open interest and an equally modest drop in volume, all supportive of the continuation of the current side-lined trading around the $6.50 region per MMBtu.

• Gold price remains pressured near one-week low, pokes $1,960 key support.
• Firmer DXY, yields keep XAU/USD bears hopeful ahead of the Fed Minutes, US CPI.
• Downside appears more compelling as gold fade corrective bound off the yearly low.

Gold price (XAU/USD) remains on the back foot for the fourth consecutive day as bears brace for the fresh yearly bottom, around a one-weekly low. That said, the yellow metal’s latest weakness could be linked to the US dollar’s strength, backed by the multi-year high Treasury yields and hawkish Fed bets. It’s worth noting that the fears of economic slowdown and recently mixed Fedspeak failed to turn down the greenback bulls as markets price in 75 basis points (bps) of the Fed’s rate hike during November. Elsewhere, grim comments from the World Bank (WB) and the International Monetary Fund (IMF) join the recently fierce Russia-Ukraine tussle to amplify the risk-off mood and direct traders towards the US dollar, which in turn weigh on the XAU/USD prices.

While the risk aversion joins hawkish Fed bets to weigh on the bullion, the bears may keep the reins ahead of the Federal Open Market Committee (FOMC) Meeting Minutes and the US Consumer Price Index (CPI) data for September, up for publishing on Wednesday and Thursday respectively.

Also read: Gold Price Forecast: XAU/USD could threaten $1,650 if risk-aversion heightens

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price floats above the $1,661 key support comprising Fibonacci 38.2% on monthly and the pivot point one-week S1. Also increasing strength of the $1,661 support is the lower band of the hourly Bollinger and the previous low of the 4H.

It should be noted that there prevails a wide gap to the south past $1,661 unless it hits a small bump near the $1,644 level that includes Fibonacci 23.6% on monthly and the pivot point one-day S2.

Meanwhile, the middle band of the hourly Bollinger, near $1,670, guards the XAU/USD quote’s immediate upside.

Following that, the previous yearly low near $1,678appears the last defense for the gold bears.

Should the bullion crosses the $1,678 hurdle, the odds of its run-up toward the $1,700 threshold can’t 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 escalated risk-off profile has weakened the shared currency bulls.
• A death cross, represented by the 50-and 200-EMAs, adds to the downside filters.
• The RSI (14) has slipped into the bearish range after failing to sustain at no man’s land.

The EUR/USD pair has established below the critical cushion of 0.9700 in the early European session as the dismal market mood has firmed up further. The 10-year US Treasury yields are hovering around the psychological resistance of 4% and are aiming to cross the same with sheer momentum. Apart from that, the US dollar index (DXY) has refreshed its weekly high at 113.40.

On an hourly scale, the asset has delivered a downside break of the rangebound structure formed in a 0.9678-0.9745 range. Earlier, the asset sensed severe selling pressure from the parity after failing to cross the balanced profile placed in a 0.9974-1.0050 range.

The death cross of the 50-and 200-period Exponential Moving Averages (EMAs) at 0.9830 favors a downside bias.

In addition to that, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00 after failing to sustain in the 40.00-60.00 range.

Going forward, a slippage below Monday’s low at 0.9670 will drag the asset toward the two-decade low at 0.9537. A slippage below the latter will drag the pair toward the round-level support at 0.9500.

On the contrary, an upside break of the 50-EMA around 0.9750 will drive the asset towards Friday’s high at 0.9817, followed by Thursday’s high at 0.9962.

EUR/USD hourly chart

According to preliminary readings from CME Group for crude oil futures markets, traders trimmed their open interest positions by around 14.1K contracts at the beginning of the week, reaching the second consecutive daily drop. Volume followed suit and shrank by around 385.5K contracts, partially reversing the previous daily build.

WTI keeps targeting the 200-day SMA

Prices of the WTI started the week on the defensive and gave away some gains after surpassing the $93.00 mark per barrel on Monday. The move was on the back of shrinking open interest and volume and leaves the possibility of further downside curtailed in the very near term. On the upside, the next hurdle emerges at the 200-day SMA just above the $98.00 mark per barrel.

• NZD/USD prints four-day downtrend to refresh 2.5-year low.
• RBNZ’s Orr, mixed Fedspeak failed to trigger corrective bounce as yields renew multi-year high.
• US inflation, Fed Minutes will be crucial for the week but bears are likely to keep the reins.

NZD/USD bears hold onto the control as the quote renews a 31-month low around 0.5535, close to 0.5545 heading into Tuesday’s European session. The kiwi pair’s latest fall takes clues from the broad US dollar strength as traders rush towards the risk safety amid the first day of full markets.

In doing so, the quote ignores the early Asian session comments from the Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr. That said, RBNZ’s Orr reiterated that there is more work to do to reduce inflation.

Also could have challenged, but ignored, were the mixed comments from the Fed policymakers. Chicago Fed President Charles Evans said on Monday that the US can lower inflation relatively quickly without recession or a large increase in unemployment. The policymaker also added that the Fed needs to "carefully and judiciously" navigate to a "reasonably restrictive" policy rate. It should be noted that Federal Reserve Vice Chair Lael Brainard made the case for cautious rate hikes for the future, per the Wall Street Journal (WSJ).

It’s worth noting that the US Dollar Index (DXY) prints 0.21% intraday gains as it prints a five-day uptrend near 113.40. In doing so, the greenback’s gauge versus the six major currencies traces the US Treasury yields as the US 30-year Treasury yields rise to a fresh high since January 2014 whereas the 10-year counterpart pokes the 4.0% threshold. Also favoring the DXY is the CME’s FedWatch Tool which signals a 78.4% chance of the Fed’s 75 bps rate hike in November.

Furthermore, the recently fierce Russia-Ukraine tussles and the Sino-American tensions add strength to the risk-aversion wave that drowns the NZD/USD prices. While portraying the mood, the S&P 500 Futures that drop 0.50% as bears lean towards the monthly low.

Moving on, multiple Fed policymakers are up for speeches during the day and can entertain NZD/USD traders, mostly the sellers. However, major attention will be given to the Federal Open Market Committee (FOMC) Meeting Minutes and the US Consumer Price Index (CPI) data for September, up for publishing on Wednesday and Thursday respectively.

Technical analysis

A clear downside beak of the previous monthly low directs NZD/USD towards the year 2020’s bottom surrounding 0.5470.

CME Group’s flash data for gold futures markets noted open interest rose for the third session in a row on Monday, this time by around 1.8K contracts. Volume, instead, resumed the downtrend and dropped by round 1.6K contracts following the previous day build.

Gold could revisit the 2022 low near $1,615

Gold prices retreated once again at the beginning of the week amidst rising open interest, which could be supportive for a deeper retracement in the very near term. Against that, there is still the chance for bullion to revisit the 2022 low near the $1,615 level per ounce troy (September 28).

• GBP/JPY is hovering around 160.80 as investors await UK employment data.
• Escalating Russia-Ukraine tensions have intensified the risk-off impulse.
• A dismal UK earnings data could dampen the sentiment of UK households.

The GBP/JPY pair has turned sideways around 160.80 as investors are awaiting the release of the UK employment data. In the early Tokyo session, the cross declined firmly while attempting to sustain above the critical hurdle of 161.50. The dismal market mood kept the cross on the tenterhooks and investors picked the pullback opportunity to create fresh shorts.

Risk-perceived currencies are witnessing an intense sell-off as geopolitical tensions between Russia and Ukraine have fired up again after Ukrainian military troops damaged the Crimea bridge that serves as a supply line for military troops in southern Ukraine. In response to that, Russia intensified missile attacks at Kyiv.

Reports from Reuters cited that Russia has launched its most widespread air strikes since the start of the Ukraine war, raining cruise missiles on busy cities during rush hour and knocking out power and heat.

In today’s session, investors’ focus will be on the UK employment data. The Claimant Count Change is expected to decline by 11.4k vs. an increment of 6.3k. While the ILO Unemployment Rate is seen steady at 3.6%.

As price pressures are at elevated levels in the UK economy, therefore, the Average Earnings data will also remain in focus. The economic data excluding bonuses is seen higher by 10 basis points (bps) to 5.3%. The dismal improvement in the earnings data would be unable to offset the impact of higher payouts by the households. This could dent the sentiment of households further.

Apart from that investors are awaiting the speech from Bank of England (BOE) Governor Andrew Bailey, which is due on Tuesday. BOE policymaker is expected to provide cues for the likely monetary policy action ahead.

• AUD/JPY takes offers to refresh two-month low during four-day downtrend.
• 200-DMA, multiple levels marked since late March challenge further downside.
• Buyers remain absence below monthly resistance line, bearish MACD signals favor sellers.

AUD/JPY bears renew the two-month low as they poke 91.15 level heading into Tuesday’s European session. In doing so, the cross-currency pair drops for the fourth consecutive day.

The pair’s latest weakness justifies the bearish MACD signals but the 200-DMA level near 90.70 and multiple supports around 90.50-40 could challenge the quote’s further downside.

In a case where the AUD/JPY sellers dominate past 90.40, then the yearly support line near 87.45 and May’s low of 87.30 will gain the market’s attention.

Following that, the October 2021 peak near 86.25 could challenge the pair’s further declines.

Alternatively, recovery moves can aim for September’s low near 92.15 but the bears can keep the reins unless the AUD/JPY pair remains below a one-month-old resistance line, close to 93.85 at the latest.

If the quote rises past 93.85, the monthly high near 94.70 could probe the upside momentum before welcoming the bulls.

Overall, AUD/JPY remains on the bear’s radar but the downside room appears limited.

AUD/JPY: Daily chart

Trend: Limited downside expected

• Oil prices have declined below $90.00 as the impact of OPEC’s production cuts has started easing.
• US officials are preparing to advance Russia’s oil price cap.
• An improvement in the US inflation rate would invite more policy-tightening announcements from the Fed.

West Texas Intermediate (WTI), futures on NYMEX, have slipped below the critical support of $90.00 as the impact of the production cuts announced by OPEC last week has started fading away. The oil cartel announced a supply cut of two million barrels per day (bpd), the highest cut since the emergence of the Covid-19 pandemic.

The OPEC members announced production cuts to support the oil prices as it has fallen around 40% from March’s high of around $120.00. It is worth noting that the majority of OPEC members have been failing in meeting their desired quotas of oil supply due to the unavailability of required production capacity. Therefore, the impact of the production cuts announcement remained short-lived.

Meanwhile, US Treasury Secretary Janet Yellen has cited that she will step up efforts to advance Russia's oil price cap, as reported by Reuters. The move has come after intensifying missile attacks by Russia in Ukraine. Also, the recent attack has been considered the biggest attack since the first day of the Russia-Ukraine war.

On the demand front, oil demand could dampen as Covid-19 cases in China have surged significantly after the Golden Week Holiday. The economy has reported 1,989 cases for Monday, the highest since August 19. The country has executed the zero-Covid policy as an under-control epidemic is crucial for blissful harmony in China.

Going forward, the US inflation data will be a key trigger for further guidance. Price pressures have not displayed a decent response in relation to the current pace of hiking interest rates by the Federal Reserve (Fed). An improvement in the inflation rate would invite more policy-tightening announcements from the Fed.

One-month risk reversal (RR) on USD/CAD, a measure of the spread between call and put prices, remained positive for the fourth consecutive day by the end of Monday’s North American trading session as per the data source Reuters. 

A call option gives the holder the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date. A put option represents a right to sell. That said, the daily RR prints the four-day winning streak with the latest 0.022 figure trying to consolidate the biggest weekly slump in the RR since late June, marked last week.

The options market signals back the latest USD/CAD price performance as the Loonie pair pokes the two-year high marked in September around 1.3840 heading into Tuesday’s European session.

It should be noted that the firmer US Dollar Index (DXY) and the softer prices of Canada’s main export item, WTI crude oil, also add strength to the USD/CAD upside.

Also read: USD/CAD renews weekly top around 1.3800 as hawkish Fed bets battle with oil’s rebound

• GBP/USD dribbles around one-week low as bears keep the reins.
• BOE’s latest bond actions, challenges for Bailey highlight today’s UK jobs report as the key catalyst.
• Risk aversion, firmer yields and downbeat expectations from British statistics keep sellers hopeful.

GBP/USD holds lower ground near 1.1035 during a five-day downtrend as bears await the UK’s monthly job figures during early Tuesday. In addition to the pre-data anxiety, a hawkish bias for the US Federal Reserve (Fed) and the upbeat Treasury yields also weigh on the Cable pair, via a firmer US dollar Index (DXY).

That said, the CME’s FedWatch Tool signals a 78.4% chance of the Fed’s 75 bps rate hike in November. In doing so, the market players pay little attention to the mixed comments from Federal Reserve Vice Chair Lael Brainard and Chicago Fed President Charles Evans.

“US can lower inflation relatively quickly without recession or large increase in unemployment,” said Chicago Fed President Charles Evans on Monday. The policymaker also added that the Fed needs to "carefully and judiciously" navigate to a "reasonably restrictive" policy rate. It should be noted that Federal Reserve Vice Chair Lael Brainard made the case for cautious rate hikes for the future, per the Wall Street Journal (WSJ).

The US 30-year Treasury yields rise to a fresh high since January 2014 whereas the 10-year counterpart poke the 4.0% threshold amid the market’s rush for risk safety and the hawkish Fed bets.

The risk aversion could also be linked to the recently fierce Russia-Ukraine tussles and the Sino-American tensions. While portraying the mood, the S&P 500 Futures that drop 0.50% as bears lean towards the monthly low.

At home, “British finance minister Kwasi Kwarteng, who last month sparked a bond market rout with unfunded tax cuts, sought to reassure investors on Monday by bringing forward a budget announcement and naming a Treasury insider to run the department,” said Reuters. The news also mentioned, “Under pressure to rebuild investor confidence, Kwarteng said he would reveal longer-term tax and spending plans and independent economic forecasts on Oct. 31, more than three weeks earlier than previously scheduled.” Additionally, the BOE doubled the size of maximum debt buybacks from 5 billion pounds to 10 billion pounds to placate investors but failed to improve the market’s bias for the British economy and political conditions.

Moving on, today’s UK employment data becomes more important considering the Bank of England’s (BOE) latest efforts to keep the British economy in its liquid stage, coupled with the existence of BOE Governor Andrew Bailey’s speech at the Institute of International Finance Annual Membership Meeting in Washington. Also highlighting today’s employment numbers is the cable’s weakness towards the record low marked in the last month.

The UK labor market report is expected to show that the average weekly earnings, including bonuses, in the three months to August, improved to 5.9% while ex-bonuses, the wages are seen rising to 5.3%, from 5.5% and 5.2% respective priors. Further, the ILO Unemployment Rate is likely to remain intact at 3.6% for the three months ending in August. It’s worth noting that the Claimant Count Change figures are expected to deteriorate to -11.4K versus 6.3K previous readouts.

Given the downbeat expectations from the scheduled British data, coupled with the risk aversion and hawkish Fed bets, the GBP/USD pair is likely to remain weaker going forward.

Technical analysis

A clear downside break of the two-week-old ascending support line, now resistance near 1.1420, directs GBP/USD bears towards the tops marked during late September around 1.0930-15.

• Asian indices have been cornered by a dismal market mood on escalating Russia-Ukraine tensions.
• Japanese equities have been hit by the weakening yen as firms may display weak EBITDA margins.
• Oil prices have surrendered the $90.00 support amid soaring hawkish Fed bets.

Markets in the Asian domain are displaying mixed performance as Nikkie225 has plunged while Chinese stocks are trading flat. Risk-perceived assets have turned extremely volatile as 10-year US Treasury yields have recaptured the psychological hurdle of 4% and are gearing up to recapture the ultimate hurdle of 4.02%.

At the press time, Japan’s Nikkei225 plunged 2.50%, ChinaA50 traded almost flat, and Hang Seng tumbled 1.37%.

The US dollar index (DXY) has refreshed its weekly high at 113.40 as the risk-off market prospect has forced the market participants to hide behind the safe-haven appeal. Escalating Russia-Ukraine tensions after the Ukrainian military damaged the Crimea Bridge in Russia has renewed issues of supply chain bottlenecks in Europe. This may infuse fresh blood into the Eurozone inflation structure.

Meanwhile, Japanese equities are witnessing an intense sell-off as yen has cracked to near the prior Bank of Japan (BOJ) intervention area. Earlier, the BOJ intervene in the currency market to provide a cushion against a one-sided fall. It looks like the impact has faded now and currency is gearing for a further decline.

The Japanese firms are set to deliver their third quarter result season of CY2022. More weakness in yen will force the institutions to downgrade the operating margins of firms depending on imported inputs.

On the oil front, oil prices have surrendered the round-level support of $90.00 as upbeat US Nonfarm Payrolls (NFP) data has accelerated the odds of a bigger rate hike by the Federal Reserve (Fed). Investors are awaiting the release of the US inflation data, which will provide more clarity over the likely monetary policy action by the Fed. A bigger-than-projected inflation rate will escalate chances for an extreme hawkish Fed and eventually will trim economic projections.

Japanese Prime Minister Fumio Kishida made comments on wage-price increases and monetary policy in an interview with the Financial Times (FT) on Tuesday.

Key quotes

“Central bank needed to maintain its policy until wages rose.”

“Urges companies that do increase prices to raise pay as well.”

On BOJ governor Kuroda’s 10-year tenure, PM said “at the moment, I am not thinking of shortening his term.”

“Government will prepare measures to help companies raise salaries even as they pass on increasing input costs.”

Market reaction

USD/JPY is little changed on the above comments, keeping its range around 145.70, in anticipation of a potential FX market internvetion by Japan.

Citing sources with knowledge of the matter, Reuters reports on Tuesday that US Treasury Secretary Janet Yellen will step up efforts to advance Russia's oil price cap.

On Tuesday, Yellen will attend the Internation Monetary Fund (IMF) and World Bank meetings, the sources said.

Market reaction

Risk sentiment remains in a weaker spot for the second day in a row this Thursday, keeping the US dollar index well supported above 113.00. Meanwhile, the US S&P 500 futures shed 0.40% on the day.

• Gold prices have slipped to near $1,660.00 after the termination of a less-confident pullback.
• The risk-off impulse has rebounded firmly as 10-year yields have climbed to 4%.
• The absence of exhaustion in the core CPI figures is sufficient for the Fed to tighten policy at current pace.

Gold price (XAU/USD) has picked significant offers after a short-lived pullback to near $1,673.77 in the Tokyo session. The precious metal has slipped to near $1,660.00 as the US dollar index (DXY) has refreshed its weekly high at 113.40. The DXY has defended the downside break of 113.00 as the risk-off impulse has rebounded firmly.

The S&P500 futures have turned red again after attempting to shift into bullish territory. It seems that investors have capitalized on the pullback move to build fresh shorts. Meanwhile, 10-year US Treasury yields have jumped to near 4.0% and are expected to recapture the critical high of 4.02% ahead of the US Consumer Price Index (CPI) data.

As per the projections, the headline US CPI will trim to 8.1% vs. the prior release of 8.3% while the core CPI that excludes the impact of oil and food prices will improve to 6.5% from the former figure of 6.3%. The absence of exhaustion in the core CPI figures is sufficient for the Federal Reserve (Fed) to tighten its policy further at the current pace.

Gold technical analysis

Gold prices have sensed selling pressure from the 50% Fibonacci retracement placed at $1,672.61 and are declining towards the 61.8% Fibo retracement at $1,658.90 plotted on an hourly scale. A death cross, represented by the 50-and 200-period Exponential Moving Averages (EMAs) at around $1,690.00, adds to the downside filters.

Adding to that, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which indicates more weakness ahead.

Gold hourly chart

• EUR/USD drops for the fifth consecutive day as bears poke two-week-old horizontal support area.
• US 30-year Treasury yields jump to the highest level since January 2014 amid full markets.
• DXY prints five-day uptrend as CME’s FedWatch Tool prints 78% chance of 75 bps rate hike in November.
• Comments from Fed, ECB policymakers can entertain traders amid a likely active session.

EUR/USD portrays the markets’ rush towards risk-safety as it battles with the 0.9680-70 support area during early Tuesday morning in Europe. In doing so, the major currency pair drops for the fifth consecutive day as the US Dollar Index (DXY) traces firmer yields and the hawkish Fed bets.

That said, the US Dollar Index (DXY) prints 0.16% intraday gains as it prints a five-day uptrend near 113.40. That said, the US 30-year Treasury yields rise to a fresh high since January 2014 whereas the 10-year counterpart poke the 4.0% threshold. It should be noted that the CME’s FedWatch Tool signals a 78.4% chance of the Fed’s 75 bps rate hike in November.

Also portraying the risk aversion, as well as fueling the US dollar’s safe-haven demand, is the S&P 500 Futures that drop 0.50% as bears lean towards the monthly low.

It’s worth observing that the hawkish Fed bets pay major attention to Friday’s strong report than the latest Fedspeak as Federal Reserve Vice Chair Lael Brainard and Chicago Fed President Charles Evans spread mixed messages on Monday. The reason could be linked to the market’s fears that the economic slowdown may push the major central banks, ex-Fed, to review their rate hike bias.

Moving on, too many speakers from the European Central Bank (ECB) and the US Federal Reserve (Fed) are up for offering an active day to the EUR/USD traders. Though, the bears are likely to keep the reins amid the fierce Russia-Ukraine tussles which raise doubts about the economic health of the old continent.

Technical analysis

EUR/USD sellers attack a 12-day-old support region around 0.9680-70 amid a nearly oversold RSI (14), which in turn challenges the major currency pair’s further downside. However, the quote’s sustained trading below the one-week-old descending resistance line and bearish MACD signals suggest a further south-run towards refreshing the yearly low, currently near 0.9540.

In doing so, the sellers may aim for the 61.8% Fibonacci Expansion (FE) of the pair’s August-October moves, near 0.9485. It’s worth noting, though, that the EUR/USD weakness past 0.9485 will make it vulnerable to plunge towards the September 2001 low near 0.9335.

Alternatively, an upside break of the weekly resistance line, around 0.9745 by the press time, could gradually extend the recovery move towards the monthly high near the 1.0000 psychological magnet.

Even so, the 61.8% Fibonacci retracement of the quote’s August-September fall, near 1.0050, will precede the previous monthly high near 1.0200 to challenge the bulls before giving them control.

EUR/USD: Four-hour chart

Trend: Bearish

China’s Communist Party newspaper, People’s Daily, supported the country’s Covid Zero policy for the second day in a row, as coronavirus cases surge after the Golden Week holiday and ahead of the Congress.

Key quotes

“Covid Zero is “sustainable” and the country must stick to the policy because it’s key to stabilizing the economy and protecting lives.”

“Only when the epidemic is under control can the economy be stable, people’s lives be peaceful, and economic and social development be stable and healthy.”

“Once a large-scale Covid rebound is formed, the spread of the epidemic will inevitably have a serious impact on economic and social development, and the final cost will be higher and the loss will be greater.”

This comes after the country reported 1,989 cases for Monday, the highest since August 19.

Related reads

• USD/CNH Price Analysis: Pokes weekly hurdle above 7.1700 during five-day uptrend
• AUD/USD renews 2.5-year low near 0.6250 as DXY traces firmer yields amid hawkish Fed bets

• AUD/USD takes offers to refresh the multi-month low, down for the sixth consecutive day.
• Mixed Aussie data, Australian Treasurer fail to trigger corrective bounce as yields underpin DXY.
• Hawkish Fed bets, geopolitical fears join pessimism surrounding China to weigh on prices.
• Fed Minutes, US inflation will be eyed closely as traders are more concerned with the RBA vs. Fed divergence.

AUD/USD remains on slippery grounds for the sixth consecutive day as it approaches the lowest levels since March 2020 during early Tuesday morning in Europe. The Aussie pair’s latest weakness could be linked to the recent pick-up in the US Dollar Index (DXY) while tracking the Treasury yields amid the risk-off mood.

US Dollar Index (DXY) prints 0.16% intraday gains as it prints a five-day uptrend near 113.40. That said, the US 30-year Treasury yields rise to a fresh high since January 2014 whereas the 10-year counterpart poke the 4.0% threshold. Also portraying the risk aversion is the S&P 500 Futures that drop 0.50% as bears lean towards the monthly low.

Recently, Australia’s Treasurer Jim Chalmers dismissed the odds of a recession while saying, “Not our expectation that the Australian economy will go backward,” per Reuters.

Talking about the Aussie statistics, the National Australia Bank’s (NAB) Business Conditions improved to 25 during September from 18 expected and 20 prior but the Business Confidence gauge matched the downbeat market forecasts of 5 versus 10 previous. Earlier in the day, Westpac Consumer Confidence dropped to -0.9% for October versus 3.9% prior.

It should be noted that the CME’s FedWatch Tool signals a 78.4% chance of the Fed’s 75 bps rate hike in November.

In addition to the aforementioned catalysts, the geopolitical, as well as economic, fears amid the ongoing Russia-Ukraine and the Sino-American tussles also weigh on the AUD/USD prices due to its risk barometer status.

Technical analysis

Unless crossing a three-month-old support-turned-resistance around 0.6310, the AUD/USD pair is vulnerable to testing March 2020 high near 0.6215.

• USD/JPY grinds higher around the levels that pushed BOJ towards market intervention.
• Bearish chart pattern, nearly overbought RSI could test further moves.
• 10-DMA adds strength to the 144.80 support confluence, May 1990’s low lures bulls.

USD/JPY remains sidelined as traders turn cautious around the 145.90 level that previously push the Bank of Japan (BOJ) towards market intervention. That said, the yen pair retreats to 145.65 by the press time of Tuesday’s Asian session.

In addition to the market’s anxiety, nearly overbought RSI conditions and the bearish MACD signals could also be linked to the quote’s latest pullback.

As a result, a one-month-old rising wedge bearish chart pattern gains the market’s attention.

However, the 10-DMA strengthens the 144.80 support and challenges the bears. On the same side is an upward-sloping support line from early August, around 140.00.

Hence, the USD/JPY buyers remain hopeful unless the quote stays past the 140.00 threshold, even if a short-term pullback can be witnessed on the break of 144.80.

On the contrary, the latest high surrounding 145.90 and the upper line of the stated wedge, close to 146.90 at the latest, could challenge the USD/JPY bulls before directing them to the May 1990’s low near 148.90.

USD/JPY: Daily chart

Trend: Limited upside expected

As USD/JPY gyrates near the pre-intervention levels of 145.90 this Tuesday, Japan’s top currency diplomat Masato Kanda came out with a bit of a jawboning.

Kanda said that “we are always ready to take necessary steps against excess FX volatility.”

“i can make a decision on fx intervention anywhere, even from an airplaine,” he added.

Market reaction

USD/JPY is trading modestly flat on the day at around 145.70, with 20 pips away from the critical level.

• USD/JPY Price Analysis: Approaches Japan's trigger for intervention inside monthly rising wedge

Japan Finance Minister Shunichi Suzuki said on Tuesday that the government will respond appropriately to excess FX moves.

Additional comments

“Closely watching current FX moves with a strong sense of urgency.”

“Will explain Japan's stance on fx at the G20 meeting.”

“Have gained certain understandings on Japan's intervention from the US.”

Market reaction

USD/JPY is moving back and forth below the previous Japanese intervention level at 145.90, as investors remain cautious amid the latest jawboning by Japanese officiails. The pair was last seen trading at 145.70, almost unchanged on the day.

• USD/CNH takes the bids to refresh one-week high.
• Nearly overbought RSI, immediate resistance line test buyers cheering golden cross.
• Sellers need confirmation from 200-HMA to retake control.

USD/CNH remains firmer for the fifth consecutive day, up 0.32% around 7.1760 during Tuesday’s Asian session. In doing so, the offshore China yuan (CNH) pair stays firmer past the 61.8% Fibonacci retracement of September 28 to October 05 moves amid firmer RSI.

However, the resistance line of a weekly rising wedge bearish chart pattern challenges the USD/CNH bulls around 7.1775. On the same line could be the RSI line’s proximity to the overbought territory.

Even so, the golden cross of the 50-HMA over the 200-HMA joins the sustained break of the key Fibonacci retracement to keep the buyers hopeful of crossing the 7.1775 hurdle.

Following that, the September 29 swing high near 7.2160 and the record high flashed during the last month around 7.2675 will be in focus.

Alternatively, pullback moves need to conquer the stated wedge’s support line, close to 7.1545, to tease the sellers.

In that case, the 50-HMA and the 200-HMA, respectively near 7.1315 and 7.1070 in that order, will become decisive in probing the bears before giving them control.

USD/CNH: Hourly chart

Trend: Pullback expected

Japan’s Industry Minister Yasutoshi Nishimura said on Tuesday that they will assess the impact of the country’s oil supply by Russia's decree on Sakhalin-1.

Additional quotes

Meanwhile, Japanese Chief Cabinet Secretary Hirokazu Matsuno was reported, as saying that “Tuesday’s border control easing for foreign tourists utilizes weak yen’s merit and benefits Japan’s economy.

He added that Japan takes very seriously Russia's attack on Ukrainian cities and citizens and that it will strongly condemn unacceptable acts.”

• USD/JPY bounces between an expanding volatile Tokyo range, bulls eye Monday's highs

• NZD/USD bears are moving in on a key area of support.
• The bulls need to commit above 0.5550 or face significant headwinds for the day ahead. 

NZD/USD has been pressured in the second hour of the Tokyo equities session. It was a volatile start to the day and the US dollar has been whipsawed as traders try to second guess what the central bank of Japan and key officials will do with respect to ''excess FX moves''. 

Meanwhile, the Reserve Bank of New Zealand is committed to getting ahead of the inflation risk which has been something that has been regarded as supportive to the bird. However, the currency has taken a knock in recent trade and is now homing in on a critical support area, as illustrated below. 

NZD/USD prior analysis M15 chart

In the prior analysis, it was stated that ''a break of the dynamics trendline resistance could be an opportunity for traders to look for a discount and target a significant correction towards the midpoint of the day's range near 0.5585 on a break of 0.5575. Bearish below 0.5550.''

NZD/USD update, M15 chart

NZD/USD has since moved into those forecasted highs but has failed to breach them with any conviction leading to a strong downside move. If the bears manage to stay the course, the double-bottom lows will come under pressure and this could lead to further pain for the committed bulls below a critical 0.5550 level. 

Australia’s Treasurer Jim Chalmers dismissed the odds of a recession during his speech on Tuesday.

Key quotes

• USD/CAD retreats from one-week high, renews intraday low of late.
• DXY stays firmer during full markets, yields seesaw around recent tops.
• Hedge funds keep hawkish bias about WTI despite China’s zero covid policy, upbeat Fed bets.
• Risk of downside appears limited considering the US dollar’s safe-haven allure and the fears of global recession.

USD/CAD takes the bids to renew one-week high around 1.3800 during Tuesday’s Asian session. In doing so, the Loonie pair pays little heed to the recently firmer prices of Canada’s main export WTI crude oil as the US Dollar Index (DXY) traces firmer yields.

That said, WTI crude oil prices rise half a percent to poke the $90.30 level at the latest, reversing the previous day’s pullback moves, as hedge fund and money market players keep their hawkish bias for the black gold despite a firmer US dollar. “The number of short positions across all six contracts fell by 26 million barrels, one of the largest reductions this year, while long positions increased by 36 million,” mentioned Reuters. The news also stated that the bullish positions outnumbered bearish shorts by 4.63:1 (58th percentile) up from 3.63:1 (40th percentile) on Sept. 27.

Elsewhere, the US 30-year Treasury yields rise to a fresh high since January 2014 and propel the DXY to print a five-day uptrend around 113.30.

In doing so, the yields take clues from the hawkish Fed bets and geopolitical, as well as economic, fears amid the ongoing Russia-Ukraine and the Sino-American tussles. That said, the CME’s FedWatch Tool signals a 78.4% chance of the Fed’s 75 bps rate hike in November.

Amid these plays, S&P 500 Futures remain pressured around a one-week low.

Looking forward, the USD/CAD traders may pay attention to the Fedspeak amid a light calendar ahead of Wednesday’s Fed Minutes and Thursday’s US Consumer Price Index (CPI) for September.

Given the battle between the market’s rush towards risk safety and the oil price rebound, the USD/CAD pair may grind higher ahead of this week’s key data/events mentioned above.

Technical analysis

An ascending resistance line from Thursday, near 1.3785 by the press time, restricts immediate USD/CAD upside.

• GBP/USD has sensed a decent buying interest at around 1.1020 as the risk-off mood has started fading away.
• Fed policymaker sees no improvement in real GDP growth later this year.
• The US core CPI seems a major concern for the Fed.

The GBP/USD pair has displayed a sheer pullback move after dropping to near 1.1019 in the Tokyo session. The cable has recovered to near 1.1100 and is expected to extend its recovery amid an improvement in the risk appetite of the market participants. S&P500 futures have turned into the green after picking a decent demand.

Meanwhile, the US dollar index (DXY) is oscillating near the round-level cushion of 113.00 and may deliver a downside break as the risk-off impulse has started fading away. The commentary from Federal Reserve (Fed) Vice Chair Lael Brainard at Monday's National Association for Business Economics conference, citing economic prospects has impacted the DXY’s rally.

Fed policymaker stated that the policy tightening measures have started displaying their multiplier effects. She further cited that "Output has decelerated so far this year by more than anticipated, suggesting that policy tightening is having some effect" in sectors like real estate, which are directly tied to borrowing costs for home mortgages. Fed policymaker sees no growth in real Gross Domestic Product (GDP) growth later this year.

This week, the US Consumer Price Index (CPI) data will keep investors on their toes. The headline inflation figure is expected to decline to 8.1% while the core CPI is seen higher at 6.5%. The core CPI data has not shown any serious response to the accelerating interest rates by the Federal Reserve (Fed). Therefore, a higher-than-expected inflation rate could force the Fed to go full-armed against mounting price pressures.

On the UK front, investors are awaiting the speech from Bank of England (BOE) Governor Andrew Bailey, which is due on Tuesday. BOE policymaker is expected to provide cues for the likely monetary policy action ahead.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1075 vs. last close 7.1541.

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.

RBNZ Governor Orr has reiterated that there is more work to do to reduce inflation.

Meanwhile, there has been a double bottom in ND/USD that could be significant, at least for the Asian day ahead on Wednesday. 

A break of the dynamics trendline resistance could be an opportunity for traders to look for a discount and target a significant correction towards the midpoint of the day's range near 0.5585 on a break of 0.5575. Bearish below 0.5550. 

• GBP/JPY takes the bids to refresh intraday high amid mixed sentiment.
• BOE’s double bond-buying, hopes of fiscal optimism extend corrective bounce off one-week low.
• Yields fade upside momentum even as Fedspeak, market bets favor bond sellers.
• UK jobs report, BOE’s Bailey may fail to impress buyers amid broad pessimism surrounding the UK.

GBP/JPY prints the biggest daily gains in five as traders brace for the week’s key data/events during early Tuesday. Also fueling the quote could be the sluggish yields and mixed data from Japan.

It should be noted that the Bank of England’s (BOE) doubling of the bond purchases also put a floor on the GBP/JPY prices.

The US 10-year Treasury yields remain firmer around 3.96% while its two-year counterpart snaps a four-day uptrend near 4.31% at the latest. That said, the UK’s latest employment data will be crucial for the GBP/JPY pair traders to watch for fresh impulse amid the increasing odds of the BOE’s aggressive rate hikes.

Forecasts suggest the headline Claimant Count Change to drop by 11.4K in September versus the previous addition of 6.3K. However, the ILO Unemployment Rate is likely to remain unchanged at 3.6% for the three months to September.  Also, BOE Governor Andrew Bailey’s speech shouldn’t be missed as Mr. Bailey may try to defend the latest surprise moves and may help the GBP to extend the latest rebound.

Elsewhere, Japan reported downbeat current account and trade numbers for August, which in turn weigh on the yen and propel the GBP/JPY prices.

Given the grim expectations from the UK’s data and BOE’s Bailey, the GBP/JPY pair may struggle to extend the latest recovery moves.

Technical analysis

GBP/JPY justifies the bullish Doji candlestick while bouncing off the 200-DMA, around 160.70 at the latest. The pair’s further upside, however, needs validation from a monthly resistance line near 165.35.

• USD/JPY is whipsawed in the open if tokyo. 
• Volatility is high as traders try to second-guess the central banks. 

USD/JPY was under pressure to start the Tokyo session, whipsawed between highs and lows as the day began. The pair has emerged as a candidate for intervention from the Bank of Japan which could be a factor in the volatility at the start of the day as Japan returns from a day's holiday. At the time of writing, USD/JPY is trading at 145.71, near the Tokyo open high of 145.74 and has printed a session low of 145.54 so far.

It has been a volatile start to the week as indicated by the stock markets with the MSCI global index losing ground while the US dollar gained slightly with US yields skyrocketing. Investors are nervous about both US data and the start of corporate earnings season. Interest rates and further signs of economic weakness in the weekend's release of Chinese Services have sent markets into flux this week so far ahead of the start of the third-quarter earnings season on Friday. US Consumer Price Index and the Fed's minutes will be key along with US Retail Sales, all of which will likely impact Us yields and the value of USD/JPY considering the yield differentials. 

On Monday, the yield on the 10-year US Treasury bond has made a high of 3.992%, surging in the last hour in what might be the last-ditch effort to breach the psychological 4.00% level having already cleared the prior week's highs. The next target beyond there is last month's high of 4.019%. In turn, the DXY index, a measure of the greenback vs a basket of currencies touch a high of 113.333 after climbing from a low of 112.621. however, it is tinkering on the edge in Tokay,  as it hovers over both Friday's and last week's highs.

Meanwhile, It is worth noting that, speculators’ net long USD index positions recovered ground for the second consecutive week following a string of hawkish Fed speak. However, net longs remained below recent averages which leaves room for further upside in the greenback.

As for Fed speakers on Monday, Fed Vice Chair Lael Brainard said tighter US monetary policy had begun to be felt in an economy that may be slowing faster than expected, but that the full interest rate increases would not be apparent for months. fed's Charles Evans said that the Fed needs to  "carefully and judiciously" navigate to a "reasonably restrictive" policy rate, as reported by Reuters.

Fed fund futures are now pricing in a 92% chance of a 75-basis-point hike at the next Fed meeting. Higher interest rates increase the opportunity cost of holding zero-yield bullion. 

the key event for the week will be with the inflation report and the analysts at TD Securities explained that '' the September dot plot revealed a higher-than-expected Fed Funds terminal rate of 4.625%, with a fairly even dot distribution around this level. The question is how much of this was reflected in the deliberations at the Sep meeting. The tone of these deliberations likely was more hawkish given core CPI inflation trends, upsetting the current dovish pivot markets narrative.'' 

Secondly, for CPI, the analysts said, ''core prices likely stayed strong in September, with the series registering another large 0.5% MoM gain. Shelter inflation likely remained strong, though we look for used vehicle prices to retreat sharply. Importantly, gas prices likely brought additional relief for the headline series again, declining by about 5% MoM. Our MoM forecasts imply 8.2%/6.6% YoY for total/core prices.''

USD/JPY technical analysis

USD/JPY is now embarking on the prior day's highs in the 145.80s. If the Bears hold the first, then there are significant risks of the capitulation of the bulls and the 145.30s  will be eyed for the day ahead.

• Easing risk-off impulse has supported the shared currency bulls.
• The death cross, represented by 50-and 200-EMAs, still favors the downside.
• A range shift by the RSI (14) into the 40.00-60.00 area indicates that the asset is picking up demand.

The EUR/USD pair is displaying topsy-turvy moves around the critical support of 0.9700 in the Tokyo session. The asset has witnessed value interest as the US dollar index (DXY) has slipped below the immediate cushion of 113.00 posts the risk-off impulse started fading away. Broadly, the major is still in the grip of bears and the rebound move needs a lot of filters for now.

On an hourly scale, the asset is displaying a rangebound structure in a 0.9678-0.9745 range. Earlier, the asset sensed severe selling pressure from the parity after failing to cross the highest auction area placed in a 0.9974-1.0050 range.

The death cross of the 50-and 200-period Exponential Moving Averages (EMAs) at 0.9830 favors a downside bias.

Contrary to that, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range from the bearish range of 20.00-40.00.

An upside break of the 50-EMA around 0.9750 will drive the asset towards Friday’s high at 0.9817, followed by Thursday’s high at 0.9962.

On the flip side, s slippage below Monday’s low at 0.9682 will drag the asset toward the demand zone in a 0.9537-0.9554 range. A slippage below the latter will drag the pair toward the round-level support at 0.9500.

EUR/USD hourly chart

• Gold price snaps four-day downtrend with mild gains around one-week low.
• Risk off mood, hawkish Fed bets keep XAU/USD bears hopeful ahead of the key US CPI, FOMC Minutes.
• Updates on Russia-Ukraine, Sino-American tussles also become important to watch for fresh impulse.

Gold price (XAU/USD) portrays a corrective bounce near $1,670 during Tuesday’s Asian session. In doing so, the yellow metal prints the first positive day in five as the US Dollar Index (DXY) fails to cheer the return of the full markets and the hawkish Fed bets.

That said, the DXY retreats from a one-week high to 113.00, down 0.15% intraday as traders brace for this week’s key events/data, namely Wednesday’s Fed Minutes and Thursday’s US Consumer Price Index (CPI) for September. The US dollar index pullback could also be linked to the recently mixed Fedspeak.

“US can lower inflation relatively quickly without recession or large increase in unemployment,” said Chicago Fed President Charles Evans on Monday. The policymaker also added that the Fed needs to "carefully and judiciously" navigate to a "reasonably restrictive" policy rate. It should be noted that Federal Reserve Vice Chair Lael Brainard made the case for cautious rate hikes for the future, per the Wall Street Journal (WSJ).

Even so, the CME’s FedWatch Tool signals a 78.4% chance of the Fed’s 75 bps rate hike in November, which in turn weigh on the mood.

On a different page, Russia’s intense shelling on Kyiv, in reaction to the Crimean bridge explosion, joins the fears that the US and China could again be at loggerheads amid looming concerns surrounding Taiwan and South Korea to weigh on the XAU/USD prices.

Amid these plays, the US 10-year Treasury yields remain sidelined at around 3.96% whereas the S&P 500 Futures struggle to extend the bounce off a one-week low after witnessing a downside in the last four consecutive days.

Looking forward, the qualitative catalysts like headlines surrounding Russia, China and Fedspeak may entertain the gold traders ahead of the Federal Open Market Committee (FOMC) Meeting Minutes and the US CPI. However, the bears are likely to keep reins as fears of economic slowdown keep the US dollar index on the bull’s radar.

Technical analysis

Gold price rebounds from a two-month-old previous resistance line, now support around $1,664. In doing so, the XAU/USD teases a golden cross moving average pattern that lures the buyers. It’s worth noting that the 50-SMA’s upside piercing to the 200-SMA could be considered a bull cross or golden cross.

The corrective bounce also gains support from the oversold RSI (14), which in turn suggests further recovery towards the aforementioned SMA confluence near $1,691-92.

However, the gold buyers remain cautious until the quote renews the monthly high near $1,730.

Alternatively, a downside break of the $1,664 resistance-turned-support could direct short-term sellers toward $1,655 and $1,640 levels to the south before highlighting the yearly low surrounding $1,615.

Gold: Four-hour chart

Trend: Corrective bounce expected

• A lucid trend reversal shown by AUD/NZD has underpinned the kiwi bulls.
• The 200-EMA is acting as a major cushion for the counter.
• The RSI (14) will trigger a downside momentum if drops into the bearish range of 20.00-40.00.

The AUD/NZD pair has dropped below 1.1300 in Tokyo as strength in the downside bias has picked up. The cross is declining from the late New York session after facing severe hurdles around 1.1320. Widened divergence in the Reserve Bank of Australia (RBA)-Reserve Bank of New Zealand (RBNZ) policy is continuously impacting the aussie bulls.

On a four-hour scale, the formation of lower highs and lower lows has confirmed the trend reversal, which will compel the market participants to ‘sell rise’. The aussie bulls have sensed temporary demand from the mighty 200-period Exponential Moving Average (EMA) a few times. The cushion of 200-EMA is critical for the cross and price movement near the same will determine further direction.

A bearish crossover, represented by the 20-and 50-period EMAs at 1.1363 add to the downside filters.

Apart from that, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range from the bullish range of 60.00-80.00, which indicates that kiwi bulls are not bearish anymore by the time. A breakdown of the momentum oscillator into the bearish range of 20.00-40.00 will trigger the downside momentum.

The kiwi bulls will strengthen if the cross surrenders the 50% Fibo retracement placed at 1.1240, which will drag the asset towards the round-level support at 1.1200, followed by 61.8% Fibo retracement at 1.1180.

Alternatively, a break above 23.6% Fibo retracement around 1.1375 will drive the asset towards September 30 high at 1.1440. A breach of the latter will send the asset toward September 26 high at 1.1462.

AUD/NZD four-hour chart

• Market sentiment turns sour as traders from Japan, the US and Cana return from holidays.
• S&P 500 Futures prints five-day downtrend, US Treasury yields stay firmer.
• Geopolitical fears, hawkish Fed bets weigh on risk appetite ahead of the top-tier data/events.
• Risk aversion is likely to prevail considering the gloomy global economic outlook.

The return of full markets magnifies the risk-off mood during Tuesday’s Asian session. The reason could be linked to the stronger hawkish bias of the Fed amid the broad recession woes. Also weighing on the sentiment could be the geopolitical fears surrounding Russia and China.

While portraying the mood, the S&P 500 Futures reverses the early Asian session gains and renews the intraday low near 3,620 during the five-day downtrend. Further, the US 10-year Treasury yields remain firmer around 3.96% while its two-year counterpart snaps a four-day uptrend near 4.31% at the latest.

That said, Russia’s intense shelling on Kyiv, in reaction to the Crimean bridge explosion, appeared to have drowned the sentiment of late. On the same line could be the fears that the US and China could again be at loggerheads amid looming concerns surrounding Taiwan and South Korea.

Elsewhere, the CME’s FedWatch Tool signals 78.4% chance of the Fed’s 75 bps rate hike in November, which in turn weigh on the mood. The reason could be linked to Friday’s upbeat US jobs report and the recently hawkish comments from the Fed policymakers.

“US can lower inflation relatively quickly without recession or large increase in unemployment,” said Chicago Fed President Charles Evans on Monday. The policymaker also added that the Fed needs to "carefully and judiciously" navigate to a "reasonably restrictive" policy rate. It should be noted that Federal Reserve Vice Chair Lael Brainard made the case for cautious rate hikes for the future, per the Wall Street Journal (WSJ).

It should be noted that the UK’s political concerns and downbeat economics from the Eurozone also amplify the markets’ pessimism, which in turn joins the firmer yields to underpin the US Dollar Index (DXY)  and exert downside pressure on commodities, as well as the Antipodeans.

Moving on, Fed Minutes and the US Consumer Price Index (CPI), up for publishing on Wednesday and Thursday, appear as the week’s key events and shouldn’t be missed. Also important are the headlines surrounding Russia and China.

Also read: Forex Today: Dollar keeps rallying on fear

• AUD/USD fades bounce off 2.5-year low marked the previous day.
• Australia’s Westpac Consumer Confidence dropped to -0.9% for October.
• Traders turned anxious on return of full markets, ahead of key data/events.
• Geopolitical/recession fears join RBA vs. Fed divergence to keep bears hopeful.

AUD/USD remains depressed around the lowest levels since April 2020 as the recent downbeat Aussie data adds strength to the bearish bias during Tuesday’s sluggish Asian session. Also exerting downside pressure on the quote could be the divergence between the recent monetary policy bias of the Reserve Bank of Australia (RBA) and the US Federal Reserve (Fed).

Australia’s Westpac Consumer Confidence dropped to -0.9% for October versus 3.9% prior. In doing so, the private sentiment gauge reversed the first positive in nine months.

The reason for pessimism in the Pacific’s biggest economy could be linked to the slowdown fears surrounding its biggest customer China. Recently, the People’s Bank of China (PBOC) had to intervene in the markets to defend the easy money policy and safeguard the troublesome reality sector to avoid recession. Even so, the dragon nation’s zero covid policy weighs takes a toll on the economic activities of China, as signaled by the latest PMIs from the nation.

Elsewhere, escalating Russian shelling on Kyiv exerts additional downside pressure on the quote due to its risk barometer status. Further, the hawkish Fedspeak adds strength to the bearish bias. “US can lower inflation relatively quickly without recession or large increase in unemployment,” said Chicago Fed President Charles Evans on Monday. The policymaker also added that the Fed needs to "carefully and judiciously" navigate to a "reasonably restrictive" policy rate. It should be noted that Federal Reserve Vice Chair Lael Brainard made the case for cautious rate hikes for the future, per the Wall Street Journal (WSJ).

Above all, the RBA’s dovish rate hike and the increasing hawkish Fed bets appear the key bearish catalyst for the AUD/USD prices.

That said, the recent jump in the US Treasury yields and the fears of global recession highlights the upcoming Fed Minutes and the US Consumer Price Index (CPI), up for publishing on Wednesday and Thursday, for fresh impulse.

Technical analysis

A sustained downside break of the three-month-old support line, now resistance around 0.6310, directs AUD/USD bears towards March 2020 high near 0.6215.

• EUR/JPY is oscillating around 141.50 ahead of further developments in Russia-Ukraine tensions.
•  Eurozone Sentix Investor Confidence index dropped to its lowest level since March 2020.
• Current Account activities in Japan have declined sharply which may alert the yen bulls.

The EUR/JPY pair is displaying back-and-forth moves around 141.50 in the Tokyo session after sensing fresh demand near 141.00. Broadly, the cross is declining from the past week after failing to cross 144.00 amid escalating geopolitical tensions between Russia and Ukraine. And, the ongoing energy crisis that is impacting business operations and households' paychecks.

Risk-profile has been extremely soured after reports from Reuters cited that the recent missile attacks by Russia at Kyiv are the biggest strike since the start of the war. Meanwhile, US President Joe Biden has pledged to provide advanced air systems to Ukrainian President Volodymyr Zelenskyy to retaliate against the crucified attempts by Moscow.

Apart from that, the rebound move in the cross from the round-level cushion of 141.00 was witnessed after the German administration denied backing the joint EU debt plan to tackle the energy crisis.

On the economic data front, The Eurozone Sentix Investor Confidence index deteriorated to -38.3 in October from -31.8 in September vs. -34.7 expected. The figure of -38.3 has been marked as the lowest since March 2000. Investors’ confidence in the trading bloc is weighed down by the energy crisis after attacks on Nord Stream 1 pipeline and weaker economic fundamentals due to soaring price pressures.

Meanwhile, yen bulls are awaiting the release of the Current Account data. The economic data has landed at yen 58.9 billion, extremely lower than the projections of yen 121.8 billion and the prior release of yen 229 billion. This indicates that the trade activities in Japan have trimmed dramatically, which could bring volatility for the yen bulls.

• US Dollar Index retreats from one-week high, probes four-day uptrend.
• Impending bull cross on the MACD, firmer RSI keeps DXY firmer past 10-DMA.
• Two-month-old support line adds to the downside filters.

US Dollar Index (DXY) buyers take a breather around 113.00, extending a pullback from a one-week high during early Tuesday’s sluggish Asian session. Even so, the sustained trading beyond the short-term moving average and the price-positive signals from the oscillators keep the buyers hopeful.

That said, Friday’s upside break of the 10-DMA, around 112.10 by the press time, joins the firmer RSI (14) and the looming bull cross on the MACD to suggest the quote’s additional north run.

It should be noted that the 23.6% Fibonacci retracement level of the DXY’s August-September up-move, around 112.40, acts as immediate support for the greenback’s gauge versus the six major currencies.

Even if the US Dollar Index breaks the 112.40 and 112.10 supports, an upward-sloping support line from early August, around 110.75 at the latest, could challenge the bears.

Alternatively, the 114.00 threshold will precede the recent multi-month high near 114.80 while luring the DXY bulls.

Following that, the May 2002 high near 115.35 and the 61.8% Fibonacci Expansion (FE) of August-October moves, near 116.40, will be in focus.

DXY: Daily chart

Trend: Further upside expected

NZD/USD licks its wounds near the lowest levels since March 2020, printing mild gains around 0.5570 while snapping a three-day downtrend during Tuesday’s session.

In doing so, the Kiwi pair ignores the bearish signals flashed by the options market traders, via the Risk Reversal (RR).

That said, the one-month RR of the NZD/USD pair, the key options market gauge, dropped for the fourth consecutive day on Monday, to -0.085 at the latest. It’s worth noting that the RR is the difference between the call options and the put options and hence indicates the market’s bias.

It should be observed that the daily RR of -0.085 also reverses the positive weekly RR flashed in the last and keeps the bears hopeful.

However, the return of the full markets and the traders’ preparations for this week’s key events seem to have triggered the corrective bounce of the Kiwi pair.

Also read: NZD/USD Price Analysis: Bulls eye 0.5580s

• WTI remains pressured after snapping five-day uptrend at monthly high.
• Downside break of weekly support line joins bearish MACD signals, RSI retreat to favor sellers.
• 200-SMA acts as the last defense of buyers before highlighting September’s low.

WTI crude oil prices remain depressed around $90.00 as bears take a breather following the first daily negative in six. However, the black gold’s downside break of a short-term key support favored bears during Tuesday’s Asian session.

That said, the energy benchmark’s latest downside aims for the 61.8% Fibonacci retracement of the late August-September downside, around 89.15.

Following that, the 50% Fibonacci retracement level and the 200-SMA, respectively near 86.65 and 85.75, could try to challenge the bears before giving them control.

It’s worth noting that the bearish MACD signals and the RSI’s retreat from the overbought territory keep the WTI bears hopeful.

On the flip side, recovery moves need to cross the support-turned-resistance line from September 30, around 90.70, to convince intraday buyers.

Even so, the monthly high near 92.65 and the 93.00 threshold may probe the WTI buyers before directing them towards the August month high near 97.30.

Overall, WTI crude oil is likely to witness a short-term pullback but the bearish move is far from here.

WTI: Four-hour chart

Trend: Further downside expected

• AUD/JPY extends its losses to four straight days.
• Pure market sentiment plays had been the main driver of the AUD/JPY.
• AUD/JPY’s break below 91.00 would exacerbate a dive toward the 200-DMA.

The AUD/JPY falls as the Asian Pacific session begins, breaking below the bottom-trendline of a bearish flag, opening the door for a drop to the 200-day EMA at 90.67, which would be a fresh two-month low. At the time of writing, the AUD/JPY is trading at 91.73, below its opening price, by 0.02%.

AUD/JPY Price Forecast

The AUD/JPY it’s usually a cross-currency pair subject to market sentiment. As reflected by the daily chart, price action illustrates three straight days of losses, meaning that risk aversion had been the main driver, weighing on the cross. As above-mentioned, the AUD/JPY broke downwards, as suggested by the bearish flag, which targets the 200-day EMA. On its way south, the AUD/JPY first support would be the 91.00 figure, followed by the 200-day EMA at 90.67. If AUD/JPY sellers gather momentum, a fall toward 90.00 is on the cards.

The AUD/JPY one-hour time frame is downward biased due to the cross staying below the 20-EMA. It should be noted that the Relative Strength Index (RSI remained steady below the 50-midline in bearish territory and got into oversold territory around yesterday’s trading session. Nevertheless, unless buyers step in and clear key resistance around 91.79 (20-day EMA), that would pave the way toward the daily pivot at 92.00. If that scenario plays out, the AUD/JPY next potential supply zone would be the 50-EMA at 92.38, followed by the R1 daily pivot at 92.54.

On the flip side, the AUD/JPY’s first support would be October’s 10 daily low at 91.48, followed by the S1 daily pivot at 91.24, followed by the 91.00 figure.

AUD/JPY Key Technical Levels

• GBP/USD bulls are attempting to correct and move out of a bearish channel. 
• Bears await the bulls with pleasure for a discount. 

GBP/USD is a sinking ship and the bears are eyeing a move back towards all-time lows for the foreseeable future. With that being said, a bullish correction could be in order and the following illustrates the potential for a move back towards higher volumes that line up against a declining trendline resistance prior to the next series move to the downside. 

GBP/USD daily chart

The bears have been in control for the first half of the week and have taken the price to the edge of a critical support structure that protects again a fast drop to 1.09 the figure, as illustrated below.:

The price is stalling at 1.1020 support and up against the channel's resistance. The bulls could slide out to the backside of the channel at this juncture which would open the prospect of either a significant bullish correction or some meanwhile price discovery prior to the next meaningful downside continuation. 

• USD/CHF is aiming to sustain above 1.0000 amid dismal risk tone.
• US Biden has pledged to provide advanced air systems to Ukraine to retaliate against Russian attacks.
• SNB’s Jordan will provide guidance about the likely monetary policy action.

The USD/CHF pair is playing around the magical figure of 1.0000 in the early Tokyo session amid a dismal market mood due to intensifying Russian attacks on Kyiv. Investors are channelizing their funds into the US dollar index (DXY) from the risk-sensitive currencies to play the risk-off market theme. US indices will open on Tuesday after an extended weekend and will prepare for the mega event of the US Consumer Price Index (CPI) ahead.

The mighty DXY has turned sideways around 113.20 after establishing above the 113.00 hurdle and will display movements on further developments in Russia-Ukraine tensions. In retaliation for the damage to the Crimea bridge by the Ukrainian army, Russia has intensified missile attacks at Kyiv. Reports from Reuters cited that Russia has launched its most widespread air strikes since the start of the Ukraine war, raining cruise missiles on busy cities during rush hour and knocking out power and heat.

Meanwhile, US President Joe Biden has pledged to Ukrainian President Volodymyr Zelenskyy that its economy will provide advanced air systems in response to Russia’s intensified missile attacks, as reported by Reuters.

On the Swiss franc front, investors are awaiting the speech from Swiss National bank (SNB) Chairman Thomas J. Jordan, which is due on Tuesday. SNB policymaker is expected to provide cues for the likely monetary policy action ahead. It is worth noting that the central bank announced a 75 basis point (bps) interest rate hike in September, which pushed the interest rates into positive territory to 0.5%. The SNB holds one more monetary policy for the remaining 2022, which is scheduled for December month.

• EUR/GBP defends the previous day’s losses, the first in five, ahead of the key data/events.
• Fears surrounding the bloc join latest efforts from the UK government, BOE to weigh on prices.
• ECB policymakers’ speeches, risk catalysts could also entertain intraday traders.
• Fears of a rebound are high considering the market’s disappointment from new UK government.

EUR/GBP holds lower ground near 0.8772, keeping the previous day’s pullback ahead of the key data/events scheduled for publishing on Tuesday. Other than the cautious mood before the key catalysts, recent measures from the UK government and the Bank of England (BOE), as well as fears surrounding the bloc, also exert downside pressure on the cross-currency pair.

“British finance minister Kwasi Kwarteng, who last month sparked a bond market rout with unfunded tax cuts, sought to reassure investors on Monday by bringing forward a budget announcement and naming a Treasury insider to run the department,” said Reuters. The news also mentioned, “Under pressure to rebuild investor confidence, Kwarteng said he would reveal longer-term tax and spending plans and independent economic forecasts on Oct. 31, more than three weeks earlier than previously scheduled.”

Additionally, the BOE double the size of maximum debt buybacks from 5 billion pounds to 10 billion pounds to placate investors.

On the other hand, Germany’s rejection of the previous market chatters that Berlin backs the European Union (EU) joint debt issuance to battle the energy crisis, favored by Bloomberg, seemed to have flared the risk-off mood and weighed on the EUR/GBP prices. Further, the downbeat EU Sentix Investor Confidence index, the lowest since March 2020, also weighed on the pair. It should be noted that the escalating Russian shelling on Kyiv exerts additional downside pressure on the quote.

Looking forward, the UK’s latest employment data will be crucial for the EUR/GBP pair traders to watch for fresh impulse amid the increasing odds of the BOE’s aggressive rate hikes. Forecasts suggest the headline Claimant Count Change to drop by 11.4K in September versus the previous addition of 6.3K. However, the ILO Unemployment Rate is likely to remain unchanged at 3.6% for the three months to September.  Also, BOE Governor Andrew Bailey’s speech shouldn’t be missed as Mr. Bailey may try to defend the latest surprise moves and may help the GBP to extend the latest rebound.

Additionally, comments from the European Central Bank (ECB) policymakers and the second-tier EU data might offer additional catalysts to watch during the first full market day.

Technical analysis

A clear U-turn from the 10-DMA and downside break of a one-week-old ascending trend line, respectively around 0.8775 and 0.8790, keeps EUR/GBP bears hopeful.