• GBP/USD pares the biggest daily gains in over a week.
• BOE-linked operations, sluggish US dollar allowed buyers to sneak-in despite downbeat UK data.
• US CPI, BOE’s bond-buying will be in focus as sellers brace for entry.

GBP/USD struggles to extend the previous day’s rebound from a two-week low, retreating to 1.1095 of late, as markets turn dicey ahead of Thursday’s US inflation data. Also weighing on the Cable pair could be recently hawkish comments from the Federal Reserve Governor Michelle Bowman, as well as fears surrounding the British economy and the Bank of England’s (BOE) bond-buying program.

Federal Reserve Governor Michelle Bowman said on Wednesday that if high inflation does not start to wane she will continue to support aggressive rate rises aimed at taming price pressures, reported Reuters.

On the other hand, Bank of England policymaker Catherine Mann stated that tackling inflation will hurt the UK more than others. On the same line could be the UK PM Liz Truss’ determination to keep the widely criticized mini budget despite knowing that it will post a £60 billion funding hole. "I am still inclined to believe that a significant monetary policy response will be required in November," Bank of England (BOE) Chief Economist Huw Pill said on Wednesday, as reported by Reuters.

On Wednesday, chatters that the Bank of England (BoE) will extend its gilt purchases triggered the GBP’s upside before the “Old Lady”, as the BOE is informally known, mentioned that gilt purchases are a temporary program and that they will be unwound in a smooth and orderly fashion. The news reversed Sterling’s initial gains and recollected downbeat UK statistics to challenge the GBP/USD bulls before the US dollar weakness favored the upside momentum.

That said, UK Gross Domestic Product (GDP) dropped to -0.3% MoM in August versus 0.0% expected and 0.2% prior whereas the Industrial Production (IP) and Manufacturing Production (MP) also slumped into the negative territory during the stated month.

Additionally, a survey conducted by YouGov and consultancy the Centre for Economics and Business Research stated that the UK Consumer Confidence gauge fell to 97.7 in September from 98.8. The detail also stated that British consumer confidence fell due to a steep deterioration in homeowners’ attitudes toward their house values.

It should be noted that the latest Federal Open Market Committee (FOMC) Meeting Minutes failed to impress the US dollar bulls despite showing the policymakers’ hawkish bias amid concerns over more persistently high inflation. The Fed Minutes also mentioned that the participants agreed the Committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the Committee’s legislative mandate to promote maximum employment and price stability.

Amid these plays, yields remained weak for the second consecutive day and the equities ended the day with mild losses while the US dollar snapped a five-day uptrend.

Looking forward, GBP/USD pair can witness further consolidation of the latest gains but the decline is likely to be smoother ahead of the US inflation data wherein the headline CPI is expected to ease to 8.1% YoY versus 8.3% prior but the more important CPI ex Food & Energy is likely to increase to 6.5% YoY from 6.3% prior and can trigger more downside considering the recession woes.

Technical analysis

GBP/USD’s rebound failed to cross the 21-DMA immediate hurdle, around 1.1155 by the press time, which in turn directs the cable pair towards the 1.0930-15 horizontal support area established from September 26.

• Gold price has established comfortably above the $1,670.00 hurdle despite mixed market mood.
• The odds of a fourth consecutive 75 bps rate hike by the Fed have soared vigorously.
• The mighty DXY has locked in a chartered territory ahead of the US inflation report.

Gold price (XAU/USD) has shifted its business above $1,670.00 despite the mixed responses from the risk profile. The majority of the assets are displaying a lackluster performance while the precious metal seems in a better position after a rebound from around $1,660.00.

The yellow metal has not been impacted by the accelerating chances for a fourth consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed) in the first week of November. As per CME FedWatch tool, 84.8% odds are favoring a fourth consecutive 75 bps rate hike by the Fed.

Meanwhile, the US dollar index (DXY) is balancing in a 113.06-113.60 range and is awaiting the release of the US Consumer Price Index (CPI) data for further guidance. The consensus on the inflation report indicates that the headline US CPI will land at 8.1%, lower than the prior release of 8.3% while the core CPI that excludes oil and food prices will accelerate to 6.5% vs. the former print of 6.3%. Thanks to the declining gasoline prices, which have trimmed projections for the headline inflation rate.

Gold technical analysis

Gold price is working hard to sustain itself above the 61.8% Fibonacci retracement (placed from September’s low at $1,618.68 to October 5 high at $1,726.53) at $1,658.60 on an hourly scale. The precious metal is oscillating in a $1,661.85-1,684.05 range. The 20-and 50-period Exponential Moving Averages (EMAs) are on the verge of a bullish crossover of around $1,674.00.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range from the bearish range of 20.00-40.00 and is attempting to cross the 60.00 hurdle.

Gold hourly chart

Federal Reserve Governor Michelle Bowman said on Wednesday that if high inflation does not start to wane she will continue to support aggressive rate rises aimed at taming price pressures, reported Reuters.

Key quotes

US Dollar licks its wounds

Following the news, the US dollar seems to be picking up the bids as prices of the most active pairs in the early Asian session, like AUD/USD, eased after the release. That said, the Aussie pair was last seen retreating from the intraday high to 0.6270.

Also read: AUD/USD braces for key inflation numbers below 0.6300 amid sluggish markets

• GBP/JPY recovered Tuesday’s losses, gaining in the week, so far 1.05%.
• Short term, the GBP/JPY is upward biased, though facing solid resistance at the 100-day EMA around 163.00.

The GBP/JPY slightly advances as the Asian session begins, following a positive trading session for the British pound, which recovered Tuesday’s losses, courtesy of BoE’s Governor Andrew Bailey, who spooked investors when he said that the BoE due date for the emergency buying program, would be October 14. Traders reacted negatively, dumping risk-perceived assets. At the time of writing, the GBP/JPY is trading at 162.90.

On Wednesday, the GBP/JPY opened below the 160.00 mark, rallying sharply close to 300 pips. Why? All this happened as market sentiment improved earlier in the New York session and relieved that the UK’s Chancellor of the Exchequer, Kwarteng, authorized an additional 100 billion quid for the BoE, increasing its bond purchasing power to GBP 995  billion.

GBP/JPY Price Forecast

Given the backdrop, the GBP/JPY is still neutral-to-upward biased. Even though the GBP/JPY faces solid resistance around the 100-day EMA at 163.13, the GBP/JPY registered a fresh four-day high, meaning buyers are gathering momentum. Another factor that justifies the bias is the RSI on bullish territory, which could exacerbate a rally towards October 5 cycle high at 165.71.

The GBP/JPY four-hour scale illustrates six-consecutive bullish candles as the cross-currency pair edged toward 163.00. On its way upwards, the pair cleared the 20, 50, and 200-EMA, opening the door for further gains. Key resistance lies at the R1 daily pivot found at 164.30, which is also October’s 5 cycle high. Break above will expose the 165.00 figure, followed by the confluence of the October 4 daily high and the R2 pivot point at 165.71.

GBP/JPY Key Technical Levels

• AUD/USD grinds near 31-month low amid cautious trading.
• FOMC Minutes unveiled policymakers’ concerns for doing too little, as expected.
• Fresh covid woes, firmer US data challenged risk profile despite a retreat in yields, sluggish equities.
• Aussie Consumer Inflation Expectations, US CPI could direct traders, mostly towards the south amid recession fears.

AUD/USD licks its wounds at the multi-month low, staying mostly unchanged around 0.6280 during Thursday’s Asian session. In doing so, the risk barometer pair portrays the inactive markets ahead of inflation data from Australia and the US.

AUD/USD dropped to a fresh low since March 2020 the previous day before bouncing off 0.6235 amid the US dollar’s pullback and improvement in the market sentiment. However, broad fears and a lack of major surprises, as well as anxiety ahead of today’s key data, kept the quote captive afterward.

The latest Federal Open Market Committee (FOMC) Meeting Minutes failed to impress the US dollar bulls despite showing the policymakers’ hawkish bias amid concerns over more persistently high inflation. The Fed Minutes also mentioned that the participants agreed the Committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the Committee’s legislative mandate to promote maximum employment and price stability.

Elsewhere, US Producer Price Index (PPI) declined to 8.5% YoY in September versus 8.4% expected and 8.7% prior. Further, the Core PPI eased to 7.2% versus 7.3% previous readings and market forecasts.

It should be noted that Minneapolis Fed President Neel Kashkari said on Wednesday that they will have room to assess the economy by moving rates at an "aggressive but not overwhelming" pace, as reported by Reuters. "A judgment call on whether we move in 50 or 75 bps increments on rates," added Fed’s Kashkari.

At home, Reserve Bank of Australia (RBA) Assistant Governor Luci Ellis mentioned, that the central bank’s policy is no longer in an expansionary place. However, comments like, “The neutral rate was a moving target and hard to determine at any stage in time,” seemed to have weighed on the AUD/USD prices earlier on Wednesday.

That said, fresh coronavirus fears from China and Europe, as well as anxiety ahead of today’s US Consumer Price Index (CPI) for September, not to forget Australia’s Consumer Inflation Expectations for October, restricted the AUD/USD pair’s immediate moves.

Moving on, the quote may witness a lackluster session ahead of the Aussie data, expected 5.8% for October versus 5.4% prior, while an upbeat outcome may not impress buyers much due to the RBA’s recent dovish hike. Major attention, however, will be given to the US inflation data wherein the headlines CPI is expected to ease to 8.1% YoY versus 8.3% prior but the more important CPI ex Food & Energy is likely to increase to 6.5% YoY from 6.3% prior and can trigger more downside considering the recession woes.

Technical analysis

Despite the latest rebound from the 31-month low of 0.6235, the AUD/USD pair remains inside a five-week-old bearish channel, between 0.6160 and 0.6430 by the press time. That said, oversold RSI (14) signals limited downside room.

• EUR/USD has turned sideways around 0.9700 as investors are laser-focused on US CPI data.
• Fed policymakers withstand restrictive policy measures despite slowing labor market.
• A hawkish commentary from ECB Lagarde failed to strengthen the shared currency bulls.

The EUR/USD is displaying a lackluster performance in the early Tokyo session as investors are laser-focused on the US Consumer Price Index (CPI) data. The asset is oscillating around 0.9700 after a rebound from 0.9670 amid a conflicting risk-profile structure. The pullback move in S&P500 in early trade was whitewashed near settlement amid concerns over the release of the US inflation report.

Also, the US dollar index (DXY) was auctioned in a balanced profile chartered in a range of 113.06-113.60. The mighty DXY displayed a sideways performance despite the rising odds of a 75 basis point (bps) rate hike by the Federal Reserve (Fed). As per CME FedWatch tool, 84.8% odds are favoring a fourth consecutive 75 bps rate hike by the Fed. Apart from that, the 10-year US Treasury yields are hovering around 3.9% after failing to cross the 4.0% hurdle.

The release of the Fed minutes on Wednesday has made it ‘loud and clear’ that bringing price stability is the foremost priority of the Fed. Despite the slowing labor market, officials are committed to standing with a ‘restrictive’ stance on interest rates. The majority of Fed policymakers believe that reaching the targeted terminal rate and sticking to it for an uncertain period of time is critical to contain the mounting price pressures.

Going forward, the US inflation data is the most important catalyst for a decisive move in the currency market. 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%.

On the Eurozone front, hawkish commentary from European Central Bank (ECB) President Christine Lagarde has failed to strengthen the shared currency bulls. ECB policymaker stated that the Governing Council is having discussions on Quantitative Tightening (QE) and interest rate is the most appropriate tool in current circumstances.

Some shock in the European Central Bank's downside has materialised according to the ECB policymaker Pablo Hernandez de Cos said who crossed the wires late in the North America session. He previously said earlier this week that risks to the inflation outlook in the eurozone remain on the upside and have intensified, particularly in the short term.

He also said today that the UK situation should not be contagious if properly managed. He says this as the UK 20- and 30-year yields hit 20-year high above 5%
following Andrew Bailey's comments, who is the governor of the Bank of England. The government borrowing costs surged again when Bailey told pension funds they had three days to fix liquidity problems before the bank ends emergency bond-buying that has provided support.

Meanwhile, the euro is under pressure as the US dollar remains the favourite. Earlier today, Minneapolis Fed President Neel Kashkari reaffirmed policymakers' commitment to the current rate-hike path, saying the bar for a shift away from monetary policy tightening is "very high." These comments come ahead of  Thursday's US Consumer Price Index reading which is expected to return to a four-decade high. Meanwhile, prices paid to US producers rose more than expected in September, supporting the greenback, according to data released on Wednesday.

Additionally, Reuters reports that the ECB's policymakers are close to deal to change the terms of targeted longer-term refinancing operations and that the decision could come Oct 27. The deal is governing trillions of euros worth of loans to banks in a move that will shave tens of billions of euros off in potential banking profits, sources close to the discussion said.

EUR/USD update

• USD/CAD bears are taken on by the bulls and eyes are on last week's highs.
• A break of the consolidation phase could be on the cards for Asia. 

As per the pre-FOMC Minutes analysis, USD/CAD Price Analysis: The pair is teed up ahead of the FOMC Minutes, whereby the break of trendline support was teeing up a move to the downside, the price made a move but has been picked up by the bulls at a discount and above anything particularly significant. 

USD/CAD prior analysis 

As illustrated, the pair was expected to move lower into the consolidation's key area of demand. However, the minutes had something for everyone and while there was a move towards the area, the bulls stepped in again despite a note within the minute that was regarded as leaning towards a dovish pivot: ''Several participants noted that... it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook."

USD/CAD update

Bears could be out of luck as the price forms a new structure around 1.3810 following a failed attempt to break out of the consolidation area to the downside. The focus is on last week's high near 1.3855.

• XAG/USD extended its weekly losses by almost 3%.
• FOMC’s minutes showed that officials prefer overdoing tame inflation over avoiding recession.
• Investors brace for September’s US Consumer Price Index (CPI), which could shed some light regarding Fed’s path on monetary policy.

Silver price extended its losses to four straight days, albeit US Treasury bond yields easing from weekly highs, courtesy of FOMC minutes showing Fed officials worried about declaring victory on inflation.

XAG/USD slides on overall market mood

The XAG/USD hit a daily high of $19.30 earlier in the European session, though as the session progressed, it slid to the day’s low at $18.84 before recovering some ground. At the time of writing, XAG/USD is trading at $19.05, 0.77% below its opening price.

US equities finished Wednesday’s session down with minimal losses. The mood shifted sour on the BoE’s emphasizing that the emergency bond-buying program would end by October 14, while September FOMC minutes weighed on risk-perceived assets.

FOMC’s minutes reflected that policymakers “emphasized the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.” Officials added that it would be necessary to “calibrate the pace of further rate hikes” to reduce the impact on the US economy.

About a possible Fed pivot, several Fed members expressed the need to maintain a restrictive policy for as long as necessary,” reiterating the need to increase rates higher for longer.

Aside from this, traders are bracing for September’s US inflation report on Thursday. Wednesday’s data showed that the Producer Price Index (PPI) grew by 8.5% YoY, whiles excluding volatile items like food and energy, the so-called core PPI rose by 7.2%, less than the previous reading and forecasts.

Given the backdrop, the odds of a 75 bps rate hike lie at 82%, as shown by the CME FedWatch Tool. Therefore, the white metal would likely remain under pressure, which would refrain Silver buyers from opening fresh bets as US T-bond yields rise.

XAG/USD Key Technical Levels

• WTI is under pressure leading up to the key event of the week in US CPI.
• Energy supply risks are rising in OPEC's influential Monthly Oil Market Report.

West Texas Intermediate (WTI) has been on the back foot on Wednesday, losing over 1.8% on the day into the close on Wall Street. OPEC lowered its demand expectations for this year and next following the cut to production targets made last week by two-million barrels per day. At the time of writing, WTI is trading at 87.03 having travelled between a low of $86.30 and a high of $90.05. 

Oil prices are a key theme this week with regard to Thursday's release of the US Consumer Price Index where core prices have 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,'' analysts at TD Securities explained. The data will likely be firming the Federal Reserve's determination to slow the economy through higher interest rates and heightening the recession fears that have been a bearish factor for oil.

Meanwhile, energy supply risks are rising at a fast clip and in its influential Monthly Oil Market Report, OPEC cut its 2022 demand forecast by 0.5-million barrels per day due to "the extension of China's zero-COVID-19 restrictions in some regions, economic challenges in OECD Europe. OPEC+'s cut to production targets last week comes despite opposition from the Biden Administration as the group looks to bolster high prices for oil

''The OPEC+ group's effective 1.1m bpd cut will tighten physical balances, providing a positive catalyst for both spot prices and timespreads and thereby incentivizing additional participation,'' analysts at TD Securities argued. ''This is creating a set-up for a substantial rise in prices as the US SPR releases grind to a halt, while Russian production starts to be eroded at a faster clip. While the resumption in flows from Kazakhstan provides a partial offset, oil industry strikes in Iran have reportedly spread to a major crude refinery in the southwest, further adding to supply risks. The right tail in oil prices is still fat.''

''Meanwhile, a pipeline leak is halting an estimated 200k bpd of flow from the Northern Druzhba pipeline, exacerbating the near-term tightening in balances. This leaves traders' attention placed on the demand side of the equation — a very-hard landing could still derail the recovery in energy prices, but the garden-variety recession that most economists expect is likely to see oil demand growth slow, but not decline. This could exacerbate the tightening in energy markets at a time when Chinese mobility continues to firm, as highlighted by our tracking of road traffic conditions for the top 15 cities by vehicle registrations.''

• AUD/JPY has reached a key support area at 90.20/40. 
• The activation of potential H&S formation might send the pair to 84.00 or lower.
  

The Australian dollar has been going through a steady downward trend against the Japanese yen over the last weeks, weighed by the negative market sentiment.

The Aussie dollar has now reached an important support area at 91.29/40 area, which contained bears in late May and early June and also prompted the recovery from the August 2 low.

In this case, the mentioned area corresponds with the neckline of a potential Head & Shoulders figure (as shown in the following daily chart), which might send the pair down to the 84.00 area.

On the upside, a successful breach of the 94.60 resistance area (October 4,6 highs) would ease downside pressure and probably increase bullish momentum to aim for 96.45 (September 20, 22 highs) before retesting September’s peak at 98.60.

AUD/JPY Daily Chart

Technical levels to watch

What you need to take care of on Thursday, October 13:

The American Dollar finished Wednesday little changed, despite some noise coming from major central banks. Investors await US inflation data, which could provide fresh clues on where the US Federal Reserve is heading next

The Bank of England (BOE) Governor Andrew Bailey was once again on the wires this Wednesday amid the latest emergency program. Rumors that the central bank could extend its latest emergency founding program beyond this week triggered risk appetite early on Wednesday, although the BOE quickly denied such a possibility, sending investors back into the US Dollar.  Bank of England Chief Economist Huw Pill later noted that he believes a “significant” monetary policy response would be required in November.

UK Prime Minister Liz Truss aims to move forward with the mini-budget, despite criticism about the £60 billion funding hole. Truss repeated that she would not cut public spending, despite tax cuts and skyrocketing inflation.

Mid-US afternoon, the US Federal Reserve released the Minutes of the latest meeting. Policymakers repeated they are determined to maintain the restrictive monetary policy to control elevated inflation. Additionally, officials said that once they reach what they consider a restrictive level, “it would be appropriate to keep it there for a period of time.”

 Restricted volatility could be blamed on the upcoming US Consumer Price Index report. Inflation is expected to have risen by 8.1% YoY, decreasing slightly from the previous 8.3%. Core inflation, on the other hand, is expected to have ticked higher toward its recent multi-decade high of 6.5%.  Also, Germany will publish the final estimate of its September CPI, foreseen steady at 10.9% in its EU harmonized version.

Despite being away from investors’ radar, coronavirus may soon become a theme across financial markets. China’s zero-covid policy is seeing fresh shutdowns in the country, with Shanghai closing schools, bars, gyms, and other venues. China is not alone, as Europe and the WHO warned about a new wave entering Europe, which could be complicated by a resurgence of flu.

The EUR/USD pair remains stable at around 0.9700, while GBP/USD has been a bit more volatile, ending the day at around 1.1100. The USD/CAD currently trades at 1.3810, while AUD/USD is up to 0.6280.

The Japanese yen plunged against the greenback, with USD/JPY reaching a fresh multi-decade high of 146.96, holding on to gain as the Bank of Japan refrained from intervening.

Gold ticked higher and trades around $1,675 a troy ounce, while crude oil prices extended their slide. WTI is now at $87.20 a barrel.

Bitcoin price: The slingshot is pulled back, BTC ready to test $16,900?

• Gold squeezes higher to reach $1,678 after Fed's minutes.
• The US dollar loses ground as the Fed hints to moderate the hiking pace.

Gold futures spiked up to session highs at $1,677, with the US dollar turning lower as the minutes of September’s Fed meeting have been considered as tilted to the dovish side.

The yellow metal, however, has given away gains shortly afterward, with the US dollar retracing lost ground. XAU/USD is practically back at pre-Minutes levels at the time of writing.

Investors see hints of moderation in the Fed’s minutes

The Federal Reserve has shown its surprise at the pace of inflation and has confirmed that the officials maintain their commitment to continue hiking interest rates until the problem shows signs of resolving.

The market, however, has analyzed one comment as a potential sign of moderation on the monetary tightening cycle: “Several participants noted that (…) it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook.”

These comments have been taken as a hint that the bank might be considering smaller rate hikes in the next months. This has had a negative impact on the USD, which sent gold futures higher.

Technical levels to watch

• Cable bulls moved in on the back of the FOMC minutes.
• GBP/USD bears are attempting to break the trendline support.

GBP/USD is perking up following the Federal Open Market Committee minutes and has printed a fresh high for the day of 1.1133. It has since dipped back to 1.1090 to test the neckline of the 15-minute chart's W-formation and near the dynamic trendline support as the following chart shows:

GBP/USD M15 chart

The price is above last week's high, which is bullish for the day ahead whereby traders in Tokyo will note and acknowledge the prior day's highs also as a potential target area.

Failing that, however, on a break of the trendline support, a move back to the prior day's low could come about in an aggressive sell-off should the US dollar be a favourite among investors again ahead of Thursday's Consumer Price Index:

• The Kiwi gains traction and reaches session highs past 0.5600.
• The US dollar loses ground after the release of the Fed's minutes. 
• NZD/USD's downtrend could extend to 0.50 – ING

The New Zealand dollar is taking advantage of a moderate US dollar pullback. The pair has rushed past 0.5600 on Wednesday's US session, to hit session highs at 0.5630 so far.

The US dollar eases after Fed’s minutes

The greenback lost ground immediately after the release of September’s Federal Reserve meeting minutes. The US Dollar Index has dropped to session lows below 113.00, triggering moderate advances on its main rivals.

The Federal Reserve's minutes reflect the committee's surprise at the pace of inflation and reiterate the bank's commitment to keeping hiking rates until the problem shows signs of resolving.

Investors, however, have analyzed one comment as a potential sign of moderation in the monetary tightening pace, which might explain USD's reversal. According to the meeting minutes, “Several participants noted that, particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook,”

NZD/USD might extend its downtrend towards 0.50 – ING

From a wider perspective, FX analysts at ING remain bearish in the long-term: 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

• AUD/USD bulls step in on a whisper of a dovish pivot at the Fed. 
• The FOMC minutes have been digested, on the knee-jerk, as less hawkish.

AUD/USD has popped on the back of a hint of a dovish tilt at the Federal Reserve following the release o the minutes that signified that officials are concerned about the detrimental effects higher rates will have on the US economy. At the time of writing, AUD/USD is trading at 0.6285, a touch below the post-FOMC minute's highs of 0.6298. The pair have travelled between a low of 0.6235 and 0.6298 so far.

On the margin, these minutes could be taken as somewhat less hawkish than the rhetoric that we have heard from Fed speakers and lean towards a pivot: "Several participants noted that... it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook."

In additional notes, however, the minutes stated that Fed officials determined that they needed to adopt and maintain a more restrictive policy stance in order to achieve their goal of lowering elevated inflation.

• Many participants raised their assessment of the federal funding path required to meet committee objectives.
• Many participants indicated that once the policy had reached a sufficiently restrictive level, it would be appropriate to keep it there for a period of time.
• Several participants predicted that as policy became more restrictive, risks would become more two-sided.
• Several participants emphasized the importance of maintaining a restrictive stance for as long as necessary.
• Despite a slowing labour market, officials are committed to raising interest rates.

Meanwhile, and as for the Reserve Bank of Australia, the Assistant Governor (Economic) Luci Ellis's speech titled "The Neutral Rate: The Pole-star Casts Faint Light" didn't shed much light on the policy path ahead, as analysts at TD Securities noted.

''Instead'', they said, the speech was ''reiterating the Bank's view that neutral interest rate is probably "at least 2.5%". The RBA models estimate that the real neutral rate is roughly in the range from "-0.5% to 2%", and an average pins it just under 1%.''

The analysts explained that ''this is close to the RBA's previous update of the real neutral rate in 2017 where the RBA estimated the real neutral cash rate to be around 1%.''

''The Asst Governor further emphasised that the neutral rate is broadly an estimate and not to think of it "as a mechanistic approach of ‘we have to get back to neutral’, or above neutral".''

The analyst's main takeaway from the speech is that the RBA is trying to make clear to the market that the hiking cycle is likely not over despite the RBA returning to its "business as usual" approach of 25bps hikes. ''We view any expectation for the RBA to near a pause as misguided and see the Bank hiking the cash rate by 25bps consecutively to 3.60% by March 2023.''

AUD/USD technical analysis

as the above 15-minute chart illustrates, the pair have attempted to break out from the consolidation as it pushes back against the trendline support following the double-bottom pout in earlier in the day. Should the bulls commit, then there will be a case for a significant move towards the prior day;s and last week's highs. 

• USD/JPY climbs above 146.00, an area where the BoJ intervened in the market, though the major extended its gains.
• BoJ’s Governor Kuroda remained dovish as the BoJ is trying to get inflation to its 2% target.
• USD/JPY remains upward biased, and worries about BoJ’s intervention keep traders cautious.

The USD/JPY extends its rally above the 146.00 mark, courtesy of BoJ’s Governor Kuroda, giving the green light to continue weakening the Japanese yen. Hence, USD/JPY traders opened fresh longs, lifting the pair toward the 147.00 level. At the time of writing, the USD/JPY is trading at 146.72, up by 0.73%.

USD/JPY Price Forecast

On Wednesday, the USD/JPY cleared the top of the 145.30-90 range, extending its gains above the 146.00 figure. Even though fears of a possible BoJ intervention waned with Governor Kuroda’s earlier comments, it kept the USD/JPY upward pressured. Traders should be aware that a break above 147.00 will expose an essential resistance at 147.67 on its way toward 150.00.

The USD/JPY, one-hour time frame, suggests the pair is upward biased. Nevertheless, it peaked at around 146.96 due to recent US fundamental news, namely the FOMC’s last meeting minutes, spurring a reaction to the downside. Broad US dollar weakness weighed on the USD/JPY, sliding toward the 146.70 region. Once cleared, the next support area would be the confluence of the 20-EMA and the R3 daily pivot at around 149.45/46, from where the pair could resume its uptrend.

If that scenario plays out, the USD/JPY first resistance would be the October 12 high at 146.96. Break above will expose 147.00, followed by August’s 1998 high of 147.67.

USD/JPY Key Technical Levels

• The pound shrugs off the previous weakness to bounce up towards 163.00.
• Rumours about the extension of the BoE's bond-buying are buoying GBP.
• Downbeat GBP data confirm fears of a recession in the UK.

The British pound is showing a strong recovery after having lost more than 3% on its reversal from the 165.70 high last week. The pair has bounced right below 160.00 on Wednesday to approach the 163.00 area, buoyed by rumours that the BoE might extend its emergency program.

Mixed signals about BoE’s bond-buying program

A Financial Times news report suggesting that the Bank of England might have signaled privately to lenders that it is open to extending its bond-buying program has cheered investors, pushing the battered GBP higher against its main rivals.

The Bank of England spooked the market on Tuesday when BoE Governor Andrew Bailey urged pension fund managers to rebalance their portfolios before Friday, the deadline for the bank’s emergency program.

Beyond that, additional media reports point out that the British Government might be ready to scrap more elements of the mini-Budget that rattled financial markets.

The GBP/JPY lost about 1.5% on the back of Bailey’s words on Tuesday, to complete a 3.4% decline over the previous five days. The pair, however, is regaining lost ground on Wednesday showing a nearly 2% recovery despite the downbeat macroeconomic data.

UK economy contracts against expectations

British economy contracted at a 0.3% pace in August, against market expectations of a 0% reading and following a 0.1% expansion in the month before. These figures confirm predictions that the UK economy could be entering recession over the next months.

Manufacturing production has dropped at a 1.6% pace, which has been one of the main reasons for the economic contraction.

Technical levels to watch

The Federal Open Market Committee minutes of September's meeting have been released:

Fed officials determined that they needed to adopt and maintain a more restrictive policy stance in order to achieve their goal of lowering elevated inflation.

Many participants raised their assessment of the federal funding path required to meet committee objectives.
Many participants indicated that once the policy had reached a sufficiently restrictive level, it would be appropriate to keep it there for a period of time.
Several participants predicted that as policy became more restrictive, risks would become more two-sided.
Several participants emphasized the importance of maintaining a restrictive stance for as long as necessary.
Despite a slowing labour market, officials are committed to raising interest rates.

On the margin, these minutes could be taken as somewhat less hawkish than the rhetoric that we have heard from Fed speakers and lean towards a pivot:

"Several participants noted that... it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook."

Market Update

US bond yields are softer with the 10-year in decline:

Meanwhile, the attention will now turn to the US inflation data on Thursday. On Wednesday morning,  US producer prices increased more than expected in September, further boosting the dollar, especially against the yen where the market's attention is focused the most. The producer price index for final demand rebounded 0.4%, above the forecast for a 0.2% rise. In the 12 months through September, the PPI increased 8.5% after advancing 8.7% in August.

Following the US PPI data, the greenback rose as high as 146.88 yen. The DXy index has reached a peak of 113.59 ahead of the FOMC minutes. USD/JPY remains near its strongest level since August 1998. It was last up 0.7% at 146.84, marking a fifth straight session of gains to a high of 146.09 so far. However, there is a hint of downside pressure coming through now that the markets are digesting the minutes as follows: 

About the FOMC Minutes

Minutes of the Federal Open Market Committee (FOMC) is usually published three weeks after the day of the policy decision. Investors look for clues regarding the policy outlook in this publication alongside the vote split. A bullish tone is likely to provide a boost to the greenback while a dovish stance is seen as USD-negative. It needs to be noted that the market reaction to FOMC Minutes could be delayed as news outlets don’t have access to the publication before the release, unlike the FOMC’s Policy Statement.

• USD/CAD setting up for a blow-off on FOMC minutes?
• The price is wedged into a consolidation ahead of the minuets and a breakout could be imminant. 

As the following technical analysis of USD/CAD will show, the pair has been consolidating in a range at the top of the 'box' below weekly, monthly and yesterday's highs. This could serve as a key resistance and depending on how the minutes come out, there could be a significant reaction with the path of least resistance tiled to the downside:

USD/CAD M15 chart

As illustrated above, the price has carved out the 'cox' which is the range between the recent highs and lows. It has recently slid out behind the dynamic trendline support which could equate to a sell-off towards key supports around the FOMC event. If, however, the minutes turn out to be hawkish, on top of today's Producer Price Index that was better than expected, and in anticipation of much of the same from tomorrow's Consumer Price index, then the weekly, and monthly highs could come under pressure to the upside:

• WTI remains heavy, extending its losses to three consecutive days, down 1.40%.
• The OPEC and the US Department of Energy cut their oil production forecasts for 2023.
• Poland reported a leak in the Druzhba pipeline, which pumps oil to Europe, disregarding possible sabotage.

Western Texas Intermediate (WTI), the US crude oil benchmark, extends its losses after hitting a weekly high of $93.62 on reports that the OPEC would cut 2 million barrels per day, letting the black gold from below $80 levels. Nevertheless, oil is sliding due to a stronger US dollar and fears that a global economic slowdown would diminish demand. At the time of writing, WTI is trading at $87.36 PB.

US equities are trading in the green, reflecting an upbeat mood. The OPEC cut its demand by 2.64 million barrels per day or 2.7% in 2022, the Organization of the Petroleum Exporting Countries (OPEC) said in a monthly report.

The organization said that “the world economy entered a period of heightened uncertainty,” blaming several factors. Developed countries’ central bank’s tightening and high inflation levels might hurt demand for crude oil.

Echoing the cartel’s comments was the US Energy Department, which cut its production and demand estimates, seeing a 0.9% increase in consumption for 2023, down from a rise of 1.7%. Crude production is expected to grow 5.2%, less than 7.2%.

In the meantime, WTI’s fall was capped by news from Poland reporting a leak in the Druzhbka pipeline, which supplies Europe with Russian oil. Poland said that it was probably caused by accident rather than sabotage.

“Security of supply in Germany is currently guaranteed,” a spokesperson told Reuters. “The refineries in Schwedt and Leuna continue to receive crude oil via the Druzhba pipeline.”

Elsewhere, Fed officials led by Minnesota Fed President Neil Kashkari reiterated that the Fed would stick to its current monetary policy stance to bring inflation down. He added, “we have not yet seen much evidence that underlying inflation...is yet softening.”

Aside from this, US economic data revealed earlier by the Labor Department justified the Fed’s need for another 75 bps rate hike when prices paid by producers remained high, with headline inflation augmented by 8.5%, while core PPI decelerated to 7.2% YoY, from 7.3% estimated and previous month’s figure.

WTI  Key Technical Levels

 Bank of England policymaker Catherine Mann has crossed the wires again this month and said the UK labour market inactivity is a drag on the economy yet tackling inflation will hurt the UK more than others.

Earlier in the month, she said her vote in September to raise Bank Rate by 0.75 percentage points reflected her concerns about a weak currency, rising inflation expectations and the boost to household incomes from an energy price cap.

GBP/USD update

Meanwhile, GBP/USD has been pressured on the back of the governors Andrew Bailey's remarks but managed to rebound despite an FT report that the BoE had suggested to private lenders that it was open to extending its bond purchases beyond Friday's deadline if market conditions demanded it, citing three sources briefed on the discussions.

However, the report was at odds with comments from BoE Governor Bailey who had initially told publicly told investors hit by the slump in bond prices that the Old Lady will end its emergency bond-buying programme as planned on Friday.

"My message to the funds involved and all the firms involved managing those funds: You've got three days left now. You've got to get this done," Bailey said at an event on Tuesday organised by the Institute of International Finance in Washington.

GBP/USD has moved between 1.0923 and 1.1099 so far on the day ahead of the Federal Open Market Committee minutes at the top of the hour.

GBP/USD M15 chart

• The euro heads lower after failing to break past 0.9700.
• ECB Lagarde's mentions of rate hikes fail to support the euro.
• EUR/USD: Stagflation might pull the euro towards 0.93 – Danske Bank.

The common currency remains on the back foot on Wednesday and is on track to complete a six-day reversal against the US dollar. The pair has turned lower from the 0.9700 area despite ECB Lagarde’s comments.

ECB’s Lagarde fails to support the euro

The President of the European Central Bank, Cristine Lagarde, has reaffirmed the importance of interest rate hikes to fight inflation in the Eurozone and announced that the Governing Council has started discussions on quantitative tightening, according to a Reuters report.

The pair, however, seems to be losing momentum, as the US dollar picks up with the market awaiting the release of the minutes of the Federal Reserve’s September meeting.

These minutes will be carefully watched to assess the reasons for the central bank to raise interest rates by 75 basis points for the third consecutive time and, more importantly, to find signals to anticipate the size of November’s move.

On the macroeconomic front, US producer prices have shown a larger-than-expected increase in September, 0.4% against the 0.2% market consensus. These figures show that inflationary pressures remain high, which offers additional reasons for the Fed to maintain its aggressive monetary tightening path.

EUR/USD: Stagflation might take the pair to 0.93 – Danske Bank

Currency analysts at Danske Bank see the pair falling further as stagflation takes hold of the eurozone’s economy: “The large negative terms-of-trade shock to Europe vs the US, a further cyclical weakening among trading partners, the coordinated tightening of global financial conditions, broadening USD strength and downside risk to the euro area makes us keep our focus on EUR/USD moving still lower (targeting 0.93) – a view not shared by the consensus.”

Technical levels to watch

• The US dollar remains steady, right below the 1.0000 psychological level.
• The greenback ticks up with all eyes on the Fed's minutes.
• US producer prices confirm the persistent inflationary pressures.

The US dollar failed in its attempt to break above parity against the Swiss franc during Tuesday’s early US session. The pair, however, remains slightly positive on the daily chart, so far supported above 0.9970 so far.

The greenback edges up ahead of the Fed’s minutes

With investors' sentiment brightening up as US stock markets shift into positive territory after a moderately negative opening, the US dollar keeps moving within a tight range near the 1.0000 psychological level, with all eyes on the release of the Fed minutes.

Later today, the minutes of September’s monetary policy meeting will be explaining the reasons for the third consecutive 0.75% interest rate hike. Most importantly, they will be also carefully observed to assess any hint about the details of the next monetary policy decision.

Regarding macroeconomic events, the US Producer Prices Index accelerated by 0.4% in September, beating expectations of a 0.2% increment. These figures confirm that inflation pressures persist, despite the Fed’s monetary policy and increase the odds for another aggressive rate hike in November.

USD/CHF keeps pushing against 1.0000

From a technical perspective, immediate resistance remains at the 1.0000 psychological level, which is capping upside attempts. Above here, 1.0020 (October 11 high) and 1.0065 (May 12 high) are the next potential targets.

On the downside, immediate support lies at 0.9970 (50-hour SMA) and below here, probably the 100-hour SMA, at 0.9950 before October 11 low at 0.9915.

Technical levels to watch

• NZD/USD bounced off the YTD lows and reclaimed 0.5600 in a volatile trading session.
• US Producer Price Index for September remained elevated as traders brace for tomorrow’s US CPI.
• NZD/USD Price Forecast: Subject to a mean reversion move, as prices overextended sharply, so a test of 0.5700 is on the cards.

The NZD/USD recovers some ground, extending its gains to two consecutive days, amidst a fragile sentiment, with US equities swinging between gains and losses. US economic data shows that inflation remains elevated, pressuring the Fed, while worldwide central banks’ expressions of further tightening weighed in riskier assets. At the time of writing, the NZD/USD is trading at 0.5601, above its opening price by 0.30%.

NZD/USD recovers some ground despite a mixed sentiment

On Wednesday, the US Department of Labor reported that prices paid by producers in September rose, beating estimates, therefore justifying the need for higher interest rates. The headline PPI figure delineated prices increasing at an 8.5% annual pace, while the core PPI, which strips volatile items, jumped 7.2% YoY but below forecasts and Agusts’s 7.3% figure.

US central bank policymakers reiterated that the Fed needs to keep hiking rates. Further reinforcing the case, Minnesota’s Fed President Neil Kashkari crossed wires on Wednesday. He said there’s “tremendous uncertainty about fundamentals of the US economy” while commenting that hiking rates aggressively would allow room to assess the economy. Kashkari added that the foresees rates to peak at around 4.50%.

On the New Zealand side, the Reserve Bank of New Zealand needs to keep the rhythm of its tightening cycle as inflationary pressures remain. Analysts at Westpac noted that they foresee the RBNZ would hike the Oficial Cash Rate (OCR) to 4.5%, with increments of 50 bps in the November and February meetings.

NZD/USD Price Forecast

From a daily chart perspective, the NZD/USD remains neutral-to-downward biased. However, the downtrend overextending for a long period and the Relative Strength Index (RSI) exiting from oversold conditions could pave the way for a mean reversion move. Therefore, a move toward the 20-day EMA at 0.5737 is on the cards. On the flip side,  a fall below the YTD low at 0.5534 would open the door to 0.5500.

Analysts at Danske Bank forecast the EUR/GBP cross at 0.86 in twelve months, but they expect fragile risk appetite including, specific concerns regarding the United Kingdom to weigh on GBP in the near term.

Key Quotes: 

“Given the sizeable expected increase in the twin-deficit, we see a level shift having taken place in EUR/GBP, with the cross to trade in a higher range. In the near-term, we expect high volatility in the cross amid crucial BoE meetings and budget presentation.”

“We forecast EUR/GBP at 0.89 in 3M as we expect to see fragile risk appetite, where liquidity concerns weigh on GBP. Further out, we remain cautiously optimistic that the cross will head lower as a global growth slowdown and the relative appeal of UK assets to investors are a positive for GBP relative to EUR.”

“The key risk to see EUR/GBP moving above 0.90 is a sharp selloff in risk where capital inflows fade and liquidity becomes scarce. This risk has only increased with the outlook of further unfunded fiscal easing. Other risks are the outlook for the UK economy deteriorating sharply compared to the Euro Area and renewed escalations in EU-UK tensions.”
 

Analysts at Danske Bank lowered their forecast profile for EUR/USD and they expect the pair at 0.93 in 12 months on the back of a substantial negative terms-of-trade shock to Europe compared to the US, tightening of global financial conditions, broadening USD strength and downside risk to Eurozone growth.

Key Quotes: 

“The key risk to shift EUR/USD towards 1.15 is seeing global inflation pressures fade and industrial production increase. However, ‘transitory’ has substantially lost credibility and European industrial production continues to be weak. This will continue as manufacturing PMIs heads below 50. The upside risk also include a renewed focus on easing Chinese credit policy and a global capex uptick but neither appear to be materialising, at present.”

“The large negative terms-of-trade shock to Europe vs US, a further cyclical weakening among trading partners, the coordinated tightening of global financial conditions, broadening USD strength and downside risk to the euro area makes us keep our focus on EUR/USD moving still lower (targeting 0.93) – a view not shared by the consensus.”

• USD/MXN moves sideways around a flat 20-day SMA. 
• Price offers no clear signs, likely to remain between major range of 19.80/20.20. 
• Break above 20.25 to open the doors to more gains. 

The USD/MXN is falling modestly on Wednesday and is approaching the 20.00 level. On Tuesday the pair peaked at 20.11 before pulling back toward 20.00. In the short term it is moving between 19.95 and 20.15. 

Technical indicators offer no clear signs, affected by price action over the last two weeks. Momentum and RSI are flat around midlines. Also key Simple Moving Averages are flat. 

An interim support emerges at 19.95. A break lower would target 19.90 and below the 19.80 critical support area. A break lower would point to an extension to the downside. 

On the upside, at 20.17 a resistance level is seen but only a clear break of 20.20 should strengthen the outlook for the US dollar. A daily close above 20.30 would confirm the break, exposing the next resistance located at 20.45.

USD/MXN daily chart 

• The pound resumes its recovery and approaches the 1.1100 area.
• Mixed signals about the end of BoE's bonds-purchasing program.
• GBP/USD will improve its prospects above 1.1100 – Scotiabank.

The pound is trying to resume the upside trend shown during Wednesday’s Asian and early European sessions. The pair has found buyers at the 1.1020 area on its reversal from 1.1100, to return towards 1.1080 so far.

Mixed signals about BoE’s bond purchases

A Financial Times report suggested earlier on Wednesday that the Bank of England would have signaled private lenders that it would be prepared to extend bond purchases. This has eased concerns triggered by Governor Bailey, who pointed out next Friday as the deadline for the emergency program and urged.

This news and additional rumors suggesting that the British Government could be contemplating a U-turn on the mini-Budget that rattled financial markets have eased negative pressure on the sterling. The GBP/USD has bounced about 1.3% higher on the day, to regain some of the ground lost on Tuesday.

In the macroeconomic domain, the UK economy shrunk by 0.3% in the three months prior to September, according to the NIESR GDP Estimate. This is a larger contraction than the 0.1% forecasted by the analysts and confirms the Bank of England’s recession forecasts.

 GBP/USD should break above 1.11 to gain traction – Scotiabank

FX analysts at Scotiabank point out 1.11 as a key level to improve GBP’s prospects:  “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.”

Technical levels to watch

Data released on Wednesday showed a larger-than-expected monthly increase in the US Producer Price Index of 0.4% versus 0.2%; the annual rate slowed down from 8.7% to 8.5%. According to analysts at Wells Fargo, the reading offers the latest evidence that inflation pressures are subsiding but they warn there remains significant ground to cover in returning inflation to normal levels. 

Key Quotes: 

“The September Producer Price Index (PPI) offers the latest evidence that inflation pressures are subsiding, but that there remains significant ground to cover in returning inflation to a more palatable level, and that the path will bear some curves. The PPI for final demand rose 0.4% in September to break back-to-back declines in July and August. Our preferred measure of core PPI, which excludes food, energy and trade services, also rose 0.4%, which was the largest monthly gain since May.”

“September's unexpected strength can be traced to a 0.6% increase in core services. However, the prospect for disinflation in the goods sector remains intact. Transportation and warehousing costs fell for a third consecutive month, trade services margins were little changed and intermediate costs continue to trend lower.”

• Gold holds around 1670$ even after US PPI data.
• Yellow metal stays firm despite dollar’s strength and silver slide.
• Market participants turn attention to FOMC minutes ahead of Thursday US CPI numbers.

Gold continues to trade around $1,670 as it has been the case since the beginning of the European session. It is moving sideways after US PPI numbers and ahead of the FOMC minutes.

Earlier XAU/USD tested the critical support around $1,660. It held above and rose to $1,675 hitting a daily high before stabilizing around $1,670. It is modestly higher for the day, rising after a five-day losing streak.

Following the release of the US Producer Price Index gold approached daily lows but it quickly bounced back to the upside. The PPI rose 0.4% in September, above the 0.2% of market consensus. The annual rate fell from 8.7% to 8.5%. The greenback gained momentum across the board after the numbers, but just for a few minutes. It continues to move sideways, with mixed results.  

Market participants await the FOMC minutes for new clues about the trajectory of US monetary policy. The document will be released at 18:00 GMT. It could trigger volatility if it contains surprises. A hawkish Fed continues to be a critical support for the dollar as it keeps boosting US yields.  The next FOMC meeting is in November and another 75 basis points rate hike seems likely according to current market pricing.

Despite higher inflation numbers and the decline in silver and crude oil, gold is still up for the day. A break under $1,660 should open the doors to more losses. On the upside, a consolidation above $1,680 would be a positive technical development for bulls. Silver trades under $19.00, at the lowest levels since late September.

Technical levels

• AUD/USD tumbled to fresh two and half-year lows at 0.6235 but is almost flat around current exchange rates.
• Fed’s Kashkari: “tremendous uncertainty about fundamentals of the US economy;” and expects rates to peak around 4.50%.
• AUD/USD Price Forecast: Once it clears 0.6300, it could aim towards 0.6350; otherwise, a re-test of the YTD is on the cards.

The AUD/USD slides for the seventh consecutive day, amid a slightly downbeat mood, with US equities fluctuating while European bourses tumble. US prices paid by producers rose, as shown by data from the US Labor Department, while traders brace for Thursday’s consumer inflation figures.

At the time of writing, the AUD/USD is trading at 0.6258, below the opening price, after hitting a daily high of 0.6288.

The US Producer Price Index revealed that prices rose in the last month, exceeding estimates. The headline number for September rose by 8.5% above estimates but lower than the August reading. At the same time, core PPI, which excludes volatile items, decelerated to 7.2%, below estimates and the previous report.

Fed officials have remained vocal during the week. At the time of typing, the Minnesota Fed’s President Neil Kashkari is crossing news wires, saying that Fed’s measures could cause a housing downturn but not a crash, as reported by Reuters. He added that there is “tremendous uncertainty about fundamentals of the US economy” while adding that hiking rates aggressively allow some room for assessment of the economy. Later added that he expects the Federal funds rate (FFR) to reach 4.50%, and then remain there for some time.

Earlier in the week, Fed officials remained vocal about high levels of inflation and emphasized the need to hold rates higher for longer into restrictive territory. Echoing their comments was the OECD, which expressed that the US faces “larger-than-usual” risks in the inflation battle.

Consequently, US bond yields remained higher, with the 10-year note rate yielding 3.94% underpinning the greenback, a headwind for the AUD/USD.

On the Aussie side, weak Chinese economic data weighed on the risk-perceived currency. Also, in a speech of the Reserve Bank of Australia (RBA), Assistant Governor Luci Ellis, commented that inflation expectations over a year stay anchored in the 2-3% range while adding, “the neutral rate is an important guide rail for thinking about the effect policy might be having.”

AUD/USD Price Forecast

The AUD/USD remains neutral to downward biased, though it fell to fresh two and half-year lows below 0.6300, though it’s bouncing off those lows, meandering around current exchange rates. In oversold conditions, oscillators, particularly the Relative Strength Index (RSI), suggest that the pair might be subject to a mean-reversion move. Therefore, the AUD/USD could re-test crucial resistance at 0.6300, followed by the October 11 daily high at 0.6346. On the downside, a break below 0.6235 would pave the way to 0.6200.

The Bank of England (BoE) accepted 2.3754 billion sterling of offers in the daily purchase operation of conventional long-dated gilts, Reuters reported on Wednesday.

The BoE rejected zero offers in the same operation, compared to 47.6 million GBP on Tuesday.

Market reaction

The 2-year UK gilt yield is down more than 2% on a daily basis. Meanwhile, the British pound preserves its strength against its rivals in the second half of the day. As of writing, GBP/USD was trading at 1.1075, where it was up 1% on a daily basis.

Minneapolis Fed President Neel Kashkari said on Wednesday that they will have room to assess the economy by moving rates at an "aggressive but not overwhelming" pace, as reported by Reuters.

Key takeaways

"There may be a housing downturn, but not necessarily a hard crash."

"Tremendous uncertainty about fundamentals of US economy."

"A judgment call on whether we move in 50 or 75 bps increments on rates."

"We have to deliver what we said we would do on rates."

"That's the only way to validate medium and longer-term inflation expectations."

Market reaction

These comments don't seem to be having a significant impact on the dollar's performance against its major rivals. As of writing, the US Dollar Index was up 0.1% on the day at 113.40.

European Central Bank (ECB) policymaker Klaas Knot said on Wednesday that they need a few more significant rate hikes before reaching neutral territory and noted that the terminal rate in the eurozone is lower than in the US, per Reuters.

"I have no indication that with steps up to 75 basis points we will not be able to achieve our price stability mandates 2% inflation over the medium term," Knot added and reiterated that there were no convincing signs of a wage-price spiral.

Market reaction

EUR/USD continues to trade within its daily range after these comments and was last seen posting small losses at 0.9695.

The Bank of England (BoE) accepted 1.9798 billion sterling of offers in the second daily purchase operation of index-linked gilts, Reuters reported on Wednesday.

The BoE rejected 38.9 million sterling of offers in the same operation.

Market reaction

The 2-year UK gilt yield edged lower and was last seen losing 0.45% on the day slightly below 4.2%. The British pound, however, showed no immediate reaction to this result. As of writing, the GBP/USD pair was trading at 1.1055, where it was up 0.85% on a daily basis. 

• USD/TRY remains within a consolidative theme below 18.60.
• Industrial Production in Türkiye surprised to the downside in August.
• Türkiye’s Retail Sales expanded nearly 4% MoM in August.

USD/TRY keeps the consolidative mood well in place for yet another session on Wednesday, always in levels just shy of the 18.60 mark.

USD/TRY remains bid ahead of the CBRT event

USD/TRY still appears capped by the 18.60 region amidst the lack of direction in the greenback as well as alternating risk appetite trends on Wednesday.

The lira keeps the downtrend well in place nonetheless, from time to time limited by intervention and closely following the next steps by the Turkish central banks (CBRT) as well as the government plans to fight inflation (if any at all).

The CBRT meets next week and is expected to cut the One-Week Repo Rate once again, according to latest comments from President Erdogan.

In the domestic calendar, Industrial Production expanded at an annualized 1.0% in August, advancing for the 26^th consecutive month, although at a slower pace. Additional data saw Retail Sales expand 3.7% MoM also in August and 9.0% from a year earlier.

What to look for around TRY

USD/TRY keeps navigating the area of all-time tops near 18.60 amidst the combination of omnipresent lira weakness and bouts of strength in the dollar.

So far, price action around the Turkish lira is expected to keep gyrating around the performance of energy and commodity prices - which are directly correlated to developments from the war in Ukraine - the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating (despite rising less than forecast in the last three months), real interest rates remain entrenched well in negative territory and the omnipresent political pressure to keep the CBRT biased towards a low-interest-rates policy.

In addition, the lira is poised to keep suffering against the backdrop of Ankara’s plans to prioritize growth (via higher exports and tourism revenue) and the improvement in the current account.

Key events in Türkiye this week: Industrial Production, Retail Sales (Wednesday) – End Year CPI Forecast (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress of the government’s scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.12% at 18.5867 and faces the next hurdle at 18.5980 (all-time high October 11) followed by 19.00 (round level). On the downside, a break below 18.1852 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low).

European Central Bank President Christine Lagarde said on Wednesday that the Governing Council has started discussions on quantitative tightening (QT), as reported by Reuters.

Lagarde further noted that they will continue to discuss QT but said that the interest rate is the most appropriate tool in current circumstances.

"Monetary and fiscal policy must cooperate, with fiscal policy focusing on the most vulnerable," she added.

Market reaction

These comments don't seem to be helping the shared currency gather strength during the American trading hours on Wednesday. As of writing, EUR/USD was trading at 0.9695, where it was down 0.8% on a daily basis.

According to analysts at Danske Bank, the Fed is still far away from reaching its inflation target and it will take time until the economy has reached a new equilibrium.

Key Quotes:

“The September Jobs Report illustrated how the US labour market still remains in a relatively strong shape despite the rising global recession fears. Aside from the Jobs Report, alternative labour market indicators have also remained at relatively strong levels in September. The Q3 rebound in real purchasing power appears to have sparked at least a temporary uptick in both consumers' and businesses' optimism.”

“That being said, some clear signs of cooling labour demand and wage inflation are starting to emerge. Most notably, the August JOLTs Job Openings saw a steepest decline since the initial Covid-shock, all the way to the lowest level since June 2021. Turnaround in job openings has historically also predicted easing in wage inflation.”

“While clear signs of a cooling labour market and easing wage growth are a key requirement for Fed to eventually wrap up the ongoing hiking cycle, they are not sufficient on their own as long as the underlying consumer price pressures remain high.”

• USD/JPY gains strong traction on Wednesday and rallies to its highest level since August 1998.
• The Fed-BoJ policy divergence weighs heavily on the JPY and remains supportive of the move.
• Overbought oscillators on the daily chart could cap gains ahead of the FOMC meeting minutes.

The USD/JPY pair scales higher through the early North American session on Wednesday and hits a new 24-year peak, around the 146.85 region in the last hour.

A combination of factors continues to weigh on the Japanese yen and act as a tailwind for spot prices amid the underlying bullish sentiment surrounding the US dollar. The Bank of Japan (BoJ), so far, has shown no inclination to hike interest rates, marking a big divergence in comparison to a more hawkish stance adopted by other major central banks. Apart from this, Wednesday's domestic data, showing that machinery orders fell more than expected in August, is seen undermining the JPY.

The US dollar, on the other hand, remains well supported by the prospects for a more aggressive policy tightening by the Fed and provides an additional lift to the USD/JPY pair. In fact, the markets have been pricing in another supersized 75 bps Fed rate hike move in November. The bets were reaffirmed by the release of the US Producer Price Index, which came in stronger-than-estimated and might have lifted expectations from the US consumer inflation figures, due on Thursday.

The latest leg up could further be attributed to some technical buying above the Asian session swing high, around the 146.35-146.40 region. That said, speculations for more currency market intervention by Japanese authorities might hold back bullish traders from placing fresh bets amid overbought oscillators on the daily chart. BoJ Governor Haruhiko Kuroda said that the government intervention last month to stop one-sided depreciating moves in JPY was quite appropriate.

Furthermore, investors might also prefer to move to the sidelines and wait for a fresh catalyst from the FOMC meeting minutes, due later during the US session. The focus will then shift to the latest US CPI report on Thursday, which is anticipated to remain stubbornly high and reinforce the Fed's hawkish rhetoric. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside and corrective pullbacks could still be seen as a buying opportunity.

Technical levels to watch

"We will continue our monetary easing to achieve the 2% inflation target in a stable and sustainable manner," Bank of Japan Governor Haruhiko Kuroda said on Wednesday, as reported by Reuters.

Additional takeaways

"Once the impact of energy, and fuel price rises start waning, Japan's inflation rate will slow down to less than 2% in next fiscal year."

"Central banks in the US and Europe have completely shifted to fighting inflation, which is quite appropriate in view of the high level of inflation."

"Big difference between Japanese monetary policy and US, European policies. The difference reflects difference in economic and price situations."

"Wages are certainly rising now but insufficient to guarantee 2% inflation in a sustainable and stable manner, so we have to make the economy grow in coming months and years."

"Cannot simply jump to conclusion Japan will be able to achieve 2% inflation in two years, or one year's time, so that we can change monetary policy now."

"If currency movement is so fast and uni-direction, probably caused by speculation, that would be bad for the economy."

"Yen depreciation may have a good impact on macro-economy as a whole, but there are some sectors which are suffering from weak yen."

"We have to carefully watch, and analyse the impact of currency movements on the economy."

"Japan's government intervened in the currency market to shore up the yen or stop its one-sided moves, which was quite appropriate."

"At this week's IMF meetings, many emerging economies will probably complain about the almost universal rise in the dollar that made them raise rates more than appropriate from a domestic economy point of view."

"The third arrow of Abenomics, such as deregulation, had made some contribution but not so much with japan's potential growth still around 1%."

Market reaction

USD/JPY continues to rise following these comments and was last seen trading at fresh multi-decade highs near 146.80, gaining 0.6% on a daily basis. 

• EUR/USD comes under some pressure around the 0.9700 mark.
• Extra range bound appears on the cards in the very near term.

EUR/USD exchanges gains with losses in the 0.9700 region amidst an equally vacillating trend in the risk complex.

The ongoing price action suggests a continuation of the current side-lined trading around current levels, at least until the release of the FOMC Minutes and US inflation figures later in the week. The breach of this theme could put a potential visit to the 2022 low at 0.9535 (September 28) back on the traders’ radar.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0592.

EUR/USD daily chart

• mixed signals about BoE's bond-buying program prompt some short-covering around GBP/USD.
• Subdued USD price action provides an additional lift, though the uptick lacks bullish conviction.
• Investors now look to FOMC minutes for a fresh impetus ahead of the US CPI report on Thursday.

The GBP/USD pair stages a goodish bounce from the 1.0925 area, or a nearly two-week high set earlier this Wednesday and snaps a five-day losing streak. Spot prices, however, struggle to capitalize on the move and retreat around 40-50 pips from the vicinity of the 1.1100 round-figure mark.

The British pound attracts some buyers amid reports that the Bank might be willing to extend its purchases beyond Friday and prompts short-covering around the GBP/USD pair. This, along with subdued US dollar price action, offers additional support to the major. That said, BoE Governor Andrew Bailey said on Tuesday that the central bank will stop buying UK government bonds on October 14. Apart from this, the dismal UK macro data contributes to capping the upside for the major.

The UK Office for National Statistics reported that the economy unexpectedly shrank by 0.3% in August, reinforcing the BoE's prediction for a recession this year. Furthermore, expectations that the Fed will continue to tighten its monetary policy at a faster pace to tame inflation acts as a tailwind for the greenback. This further holds back traders from placing bullish bets around the GBP/USD pair ahead of the crucial FOMC meeting minutes, due later during the US session.

The focus will then shift to the latest US consumer inflation figures on Thursday, which should play a key role in influencing the Fed's future rate-hike path. This, in turn, will drive the USD demand in the near term and provide a fresh directional impetus to the GBP/USD pair. In the meantime, elevated US Treasury bond yields might underpin the greenback and continue to keep a lid on any meaningful gains for the major amid concerns about the UK government's fiscal plans.

Technical levels to watch

• Annual PPI in the US declined modestly in September.
• US Dollar Index stays in positive territory above 113.00 after the data.

The Producer Price Index (PPI) for final demand in the US declined to 8.5% on a yearly basis in September from 8.7% in August, the data published by the US Bureau of Labor Statistics revealed on Wednesday. This print came in slightly higher than the market expectation of 8.4%.

The annual Core PPI edged lower to 7.2% from 7.3%, compared to analysts' estimate of 7.3%. On a monthly basis, the Core PPI was up 0.3%, matching August's print. 

Market reaction

The US Dollar Index stretched higher with the initial reaction and was last seen rising 0.13% on the day at 113.43.

• DXY meets some decent hurdle around the 113.60 area.
• Further north emerges the YTD high near 114.80.

DXY’s multi-session strong advance has faltered around the 113.60 region on Wednesday.

If bulls push harder and the index surpasses 114.00, then the next target of note should turn up at the 2022 high at 114.78 (September 28) prior to 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 107.80.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.10.

DXY daily chart

• EUR/JPY adds to Tuesday’s advance and surpasses 142.00.
• The 141.00 region has so far emerged as a decent contention area.

EUR/JPY picks up extra pace and extends Tuesday’s bounce further north of the 142.00 level midweek.

So far, the recovery appears underpinned by the 141.00 region, which stands as quite a decent support for the time being. Further upside could then see the 144.00 neighbourhood revisited in the short-term horizon.

In the meantime, while above the key 200-day SMA at 136.31, the constructive outlook for the cross should remain unchanged.

EUR/JPY daily chart

"I am still inclined to believe that a significant monetary policy response will be required in November,"  Bank of England Chief Economist Huw Pill said on Wednesday, as reported by Reuters.

Additional takeaways

"I will see when we get to November how events have evolved in the meantime."

"Employment has stagnated and is now showing tentative signs of falling."

"This will help to cool the labour market and contain some of the domestically-driven inflationary pressures."

"The sustained and reassuring downward trend in market inflation expectations that emerged from early April appears to have come to an end."

"Impact of government relief for the corporate sector on consumer prices is more difficult to assess."

"Fiscal announcements will, on balance, provide a further stimulus to demand relative to supply over the medium-term, monetary policy-relevant horizon."

"This will add to the inflationary pressure coming from the energy price guarantee."

"Volatile market dynamics that followed the announcement of the growth plan underline the need to bolster the credibility of the wider institutional framework."

Market reaction

The GBP/USD pair showed no immediate reaction to these remarks and was last seen rising 1% on the day at 1.1075.

German Economy Minister Robert Habeck said on Wednesday that they see the German economy sliding into recession and contracting by 0.4% in 2023, confirming earlier reports.

"We will have negative growth figures in the third quarter, fourth quarter this year and in the first quarter next year," Habeck added. 

Regarding gas reserves, Habeck noted that they have a good chance of making it through this winter. 

Market reaction

The EUR/USD pair edged slightly lower after these comments and it was last seen posting small daily gains at 0.9709.

Strategists at TD Securities (TDS) offer a brief preview of the September FOMC monetary policy meeting minutes, due for release later during the US session this Wednesday.

Key Quotes:

“At the meeting, the dot plot median 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 September meeting. The tone of these deliberations likely was more hawkish given core CPI inflation trends, upsetting the current market narrative of dovish Fed pivot.”

The combination of ongoing risk-off impulses and eventual repricing of Fed tightening risks is likely to see the US dollar continue to recover after the recent correction, economists at BBH report.

Key Quotes:

“Yellen made it clear that U.S. policymakers are not concerned with the strong dollar right now. Specifically, she said that “A market-determined value of the dollar is in America’s interest.  The currency movements are a logical outcome of different policy stances.”  Since Treasury runs  U.S. FX policy, her statement suggests little concern about the surging greenback at this point.  As we all know, a stronger currency is part of the adjustment process when a central bank tightens and the dollar is no different.”  

“However, because it is the world’s reserve currency, this strength can have huge knock-on effects around the globe.  There have been stresses in several Frontier countries as well as some of the weaker Emerging Market countries, but this is simply beyond the purview of U.S. policymakers.  Bottom line:  we are nowhere near any type of Plaza-style Accord to arrest the dollar’s ascent.”

• A combination of factors prompts some selling around USD/CAD on Wednesday.
• Rebounding oil prices underpin the loonie and exert pressure amid a softer USD.
• The downside seems limited as traders look to FOMC minutes for fresh impetus.

The USD/CAD pair attracts some selling near the 1.3830 area on Wednesday and retreats further from its highest level since May 2020 touched the previous day. The pair remains depressed through the first half of the European session and is currently flirting with the daily low, around the 1.3770 region.

Crude oil prices regain positive traction and recover a part of the losses recorded over the past two trading sessions, which, in turn, underpins the commodity-linked loonie. Apart from this, a generally positive risk tone is acting as a headwind for the safe-haven US dollar and exerting downward pressure on the USD/CAD pair. That said, a combination of factors should help limit the downside and warrants caution for aggressive bearish traders.

Investors remain worried that a deeper global economic downturn and rising COVID-19 cases in China will hurt global fuel demand. This, to a larger extent, overshadows the OPEC+ decision to slash production by about 2 million bpd - the largest reduction since the 2020 COVID pandemic - and cap gains for the black liquid. Apart from this, rising bets for more aggressive Fed rate hikes favour the USD bulls and should lend support to the USD/CAD pair.

Investors seem convinced that the US central bank will tighten its monetary policy at a faster pace to tame inflation and have been pricing in another supersized 75 bps rate increase in November. Hence, the focus remains on the FOMC minutes due later this Wednesday, which will be followed by the US consumer inflation data on Thursday. This will be looked upon for clues about the Fed's rate hike path, which will influence the near-term USD price dynamics.

Nevertheless, the bias still seems tilted in favour of bullish traders and supports prospects for the emergence of some dip-buying around the USD/CAD pair. From a technical perspective, repeated failures ahead of mid-1.3800s make it prudent to wait for strong follow-through buying before positioning for any further near-term appreciating move.

Technical levels to watch

The Bank of England (BoE) said on Wednesday that it was closely monitoring the liability-driven investment (LDI) funds ahead of the end of the emergency bond-purchasing programme on Friday, as reported by Reuters. The BoE further reiterated that gilt purchases are a temporary programme and that they will be unwound in a smooth and orderly fashion.

Additional takeaways

"Not reasonable to expect funds to insure against all outcomes, but working on tougher regulation."

"Global financial markets affected by spillover from dysfunction in UK long-dated gilt market."

"Will be challenging for some households to manage the rising cost of essentials and higher interest rates."

"If interest rates rise as markets expect, the share of households with high mortgage debt servicing levels to reach pre-financial crisis peak in late 2023."

"UK is vulnerable to loss of foreign investor appetite for UK assets, risks may be heightened currently."

"UK banks have the capacity to weather severe economic outcomes."

Market reaction

GBP/USD continues to fluctuate in a wide range as investors assess the impact of the BoE's announcements on financial markets. As of writing, the pair was up 0.8% on the day at 1.1060.

• Gold catches fresh bids near the $1,660 support zone amid subdued USD price action.
• Bets for more aggressive Fed rate hikes should limit the USD losses and cap the metal.
• Traders look to FOMC minutes for a fresh impetus ahead of the US CPI on Thursday.

Gold attracts fresh buying near the $1,660 support area on Wednesday and snaps a five-day losing streak to over a one-week low. The XAU/USD holds on to its modest intraday gains, around the $1,670 region through the first half of the European session, though the uptick lacks bullish conviction.

The US dollar consolidates its recent gains recorded over the past five trading sessions as investors look to the FOMC meeting minutes for a fresh impetus. The subdued USD price action offers some support to the dollar-denominated gold. That said, hawkish Fed expectations continue to act as a tailwind for the greenback and keep a lid on any meaningful upside for the non-yielding yellow metal.

The markets seem convinced that the US central bank will stick to its aggressive policy tightening path to tame inflation and have been pricing in another supersized 75 bps rate hike in November. This remains supportive of elevated US Treasury bond yields and favours the USD bulls. Apart from this, a generally positive risk tone contributes to keeping a lid on the safe-haven XAU/USD.

Market participants also seem reluctant and prefer to move to the sidelines ahead of the FOMC minutes, which will be looked upon for clues about future rate hikes. The focus will then turn to the US consumer inflation on Thursday, which is expected to remain stubbornly high. This will reinforce the Fed's hawkish rhetoric and suggest that the path of least resistance for gold is down.

Hence, any subsequent move up could be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Bearish traders, however, might wait for sustained weakness below the $1,660 area before placing fresh bets. In the absence of any major market-moving economic releases from the US, the USD price dynamics and the broader market risk sentiment will be looked upon for some impetus.

Technical levels to watch

The Bank of England (BOE) confirmed in a statement on Wednesday that the temporary Gilt purchases will end on October 14.

Key takeaways

“The bank has made clear from the outset, its temporary and targeted purchases of Gilts will end on 14 October.”

“The governor confirmed this position yesterday, and it has been made absolutely clear in contact with the banks at senior levels.“

“Beyond 14 October, a number of facilities, including the new TECRF, are in place to ease liquidity pressures on LDIs.”

Market reaction

The BOE confirmation has little to no impact on the British pound, as GBP/USD keeps its range around 1.1030, adding 0.63% on a daily basis.

According to the latest survey conducted by YouGov and consultancy the Centre for Economics and Business Research, British consumer confidence fell in September due to a steep deterioration in homeowners’ attitudes towards their house values.

Key takeaways

“The overall consumer confidence index for the month decreased by 1.1 points, from 98.8 to 97.7.”

"For the third month in a row, homeowners’ views of their property’s value fell and we may see this fall further still, following speculation around rising interest rates in the months to come.”

Market reaction

GBP/USD shrugs off the above survey findings, keeping gains intact beyond 1.1000. The pair was last seen adding 0.63% on the day at 1.1030.

• EUR/USD looks indecisive around the 0.9700 zone on Wednesday.
• EMU Industrial Production surprised to the upside in August.
• US Producer Prices, FOMC Minutes will take centre stage in the NA session.

The buying interest dwindles somewhat around the European currency and motivates EUR/USD to give away initial gains and put the 0.9700 area to the test on Wednesday.

EUR/USD focuses on ECB, FOMC

EUR/USD meets some obstacles following Tuesday’s humble advance in spite of the renewed weakness in the greenback and the firmer note in the risk-associated universe.

The pair’s inconclusive price action comes in tandem with a marginal uptick in the German 10-year bund yields, which flirt with the 2.34% region vs. the broad-based loss of momentum in their American peers.

Later in the session, Chair Lagarde will participate in the G20 Finance Ministers and Central Bank Governors meeting and in the 2022 IIF Annual Membership Meeting.

In the domestic calendar, Industrial Production in the euro area expanded 2.5% YoY for the month of August.

Across the pond, MBA Mortgage Applications and Producer Prices will be in the limelight ahead of the publication of the FOMC Minutes of the September gathering.

What to look for around EUR

EUR/USD looks to consolidate the recent breakout of the 0.9700 hurdle midweek.

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 losing 0.02% at 0.9704 and a breach of the monthly low at 0.9669 (October 11) would target 0.9535 (2022 low September 28) en route to 0.9411 (weekly low June 17 2002). On the upside, the initial hurdle comes at 0.9999 (weekly high October 4) followed by 1.0050 (weekly high September 20) and finally 1.0197 (monthly high September 12).

Eurozone’s Industrial Production increased more than expected in August, the official data published by Eurostat showed on Wednesday, suggesting that the bloc’s manufacturing sector activity is regaining traction.

The industrial output in the old continent jumped by 1.5% MoM vs. a 0.6% increase expected and -2.3% last.

On an annualized basis, the industrial output rose by 2.5% in August versus a 1.2% rise expected and July -2.5%.

FX implications          

The shared currency came under renewed selling pressure despite the upbeat Eurozone industrial figures. At the time of writing, EUR/USD is trading at 0.9906, modestly flat on the day.

About Eurozone Industrial Production

Industrial Production is released by Eurostat. It shows the volume of production of Industries such as factories and manufacturing. Uptrend is regarded as inflationary which may anticipate interest rates to rise. Usually, if high industrial production growth comes out, this may generate a positive sentiment (or bullish) for the EUR, while low industrial production is seen as a negative sentiment (or bearish).

In his appearance on Wednesday, the Bank of England (BOE) policymaker Jonathan Haskel said “I won't speak about monetary policy today.”

He said, “slower UK productivity is a big medium-term issue.”

Meanwhile, there are reports floating around, citing UK PM Liz Truss could scrap more aspects of the mini-budget.

Market reaction

GBP/USD is consoldiating the renewed upside above 1.1000 amid UK policy uncertainty, adding 0.70% on the day.

• USD/JPY gains some follow-through traction on Wednesday and hits a fresh 24-year high.
• The Fed-BoJ policy divergence, dismal domestic data weigh on the JPY and extend support.
• Bulls turn cautious amid fears of intervention and ahead of the key FOMC meeting minutes.

The USD/JPY pair builds on its steady uptrend witnessed over the past week or so and climbs to a fresh 24-year high on Wednesday. The pair maintains its bid tone through the first half of the European session and holds comfortably above the 146.00 round-figure mark.

The Japanese yen takes a fresh hit following the release of the downbeat domestic data, showing that machinery orders fell more than expected in August. This, along with a big divergence in the monetary policy stance adopted by the Bank of Japan (dovish) and other major central banks (hawkish), continues to push the USD/JPY pair higher for the sixth successive day.

In fact, the BoJ, so far, has shown no intent to hike interest rates and lags in the process of policy normalisation. Adding to this, Japan's Prime Minister Fumio Kishida said on Tuesday that the BoJ needs to stick to its ultra-lose policy setting until wages rise. In contrast, the Fed is expected to stick to its faster rate hiking cycle to combat stubbornly high inflation.

The recent hawkish comments by several Fed officials, along with Friday's robust US jobs report, lifted bets for another supersized 75 bps rate increase by the US central bank in November. This remains supportive of elevated US Treasury bond yields, widening the US-Japan rate differential and supporting prospects for an extension of the well-established bullish trend.

That said, speculations for more currency market intervention by Japanese authorities hold back traders from placing fresh bullish bets around the USD/JPY pair. Japan's Finance Minister Shunichi Suzuki reiterated earlier this week that the government stands ready to intervene and respond appropriately to excess FX moves. This, in turn, is capping the upside for spot prices.

Traders also seem reluctant and prefer to move to the sidelines the FOMC meeting minutes, due for release later during the US session on Wednesday. The minutes will be closely scrutinized for clues about the Fed's rate hike path, which will play a key role in influencing the USD price dynamics and provide some impetus to the USD/JPY pair ahead of the US CPI report on Thursday.

Technical levels to watch

Analysts at Danske Bank provide a snippet of the key economic events due on the cards this Wednesday, which could have a significant market impact.

Kwy quotes

“This morning we get euro area industrial production for August. After a big drop in July of 2.3% m/m it is expected to recover somewhat in the August reading.”

“US PPI for September may grab some attention ahead of the important US CPI release tomorrow. Import prices have declined for the past four months, which puts downward pressure on PPI. High wage growth works in the other direction, though. Consensus is for a rise in core PPI of 0.3% m/m down from 0.4% m/m in August.”

“FOMC minutes tonight will give some insights to the thinking behind the Fed raising the dot plot to a peak of around 4.6% (in line with current market pricing).

• The index alternates gains with losses in the low-113.00s.
• The Fed will release its Minutes of the September meeting.
• Next on tap in the docket come Producer Prices, Mortgage Applications.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main competitors trades without a clear direction in the 113.20/30 band on Wednesday.

USD Index looks to FOMC, data

The index seems to be under some mild pressure after five consecutive sessions with gains and with investors’ preference slightly tilted towards the risk complex in the European morning.

The lack of upside traction in the dollar is also accompanied by another downtick in US yields across the curve, as market participants wait for the publication of the FOMC Minutes for extra details on the Fed’s latest decision on interest rates.

Other than the FOMC Minutes, usual weekly MBA Mortgage Applications are due along with Producer Prices for the month of September.

What to look for around USD

The rally in the dollar appears to have met some decent hurdle in the 113.60 region so far this week.

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 down 0.02% at 113.26 and 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). On the flip side, the next resistance lines up at 113.59 (monthly high October 12) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).

• EUR/GBP attracts some dip-buying and reverses an intraday slide to sub-0.8800 levels.
• The GBP loses ground on headlines that the BoE bond-buying scheme will end on Friday.
• The lack of any follow-through buying warrants caution before placing fresh bullish bets.

The EUR/GBP cross shows some resilience below the 0.8800 round-figure mark and recovers a major part of its modest intraday losses. The cross climbs to mid-0.8800s during the early European session and is currently placed just a few pips below a nearly two-week high touched this Wednesday.

The British pound fades an intraday bounce after the Bank of England downplayed speculations that it could extend the emergence bond-buying Friday’s deadline. This comes on the back of the dismal UK GDP print and turns out to be a key factor that assists the EUR/GBP cross to attract some dip-buying. The UK Office for National Statistics reported that the economy unexpectedly contracted by 0.3% in August, reinforcing the BoE's prediction for a recession this year.

The intraday uptick, however, lacks bullish conviction and warrants some caution before positioning for an extension of the EUR/GBP pair's recent bounce from the monthly low. Investors remain concerned about the economic headwinds stemming from a further escalation in the Russia-Ukraine conflict. This, along with the underlying strong bullish sentiment surrounding the US dollar, is acting as a headwind for the shared currency and capping the upside for the EUR/GBP cross.

Moving ahead, market participants now look forward to a scheduled speech by the European Central Bank President Christine Lagarde, which might influence the common currency. Apart from this, the action in the UK gilts market will be looked upon to grab short-term trading opportunities around the EUR/GBP cross.

Technical levels to watch

CME Group’s flash data for natural gas futures markets noted open interest increased for the second session in a row on Tuesday, now by around 5.6K contracts. On the other hand, volume shrank for the second consecutive day, this time by nearly 20K contracts.

Natural Gas remains side-lined around $6.50

Tuesday’s decent gains in prices of natural gas were on the back of rising open interest and a noticeable pullback in volume, which could leave the current consolidative theme well in place for the time being, always around the $6.50 region per MMBtu.

• Silver attracts some buying near the $19.00 mark, or over a one-week low touched this Wednesday.
• The bearish technical setup suggests that the attempted bounce runs the risk of fizzling out quickly.
• Traders might wait for a sustained break below the $19.00 mark before placing fresh bearish bets.

Silver finds some support near the $19.00 mark and stages a modest recovery from over a one-week low touched earlier this Wednesday. The uptick allows the white metal to snap a three-day losing streak and stall its recent sharp pullback from the $21.25 area, or the highest level since late June.

From a technical perspective, any subsequent move up is likely to confront stiff resistance near the $19.55-$19.60 confluence support breakpoint. The said region comprises the 50% Fibonacci retracement level of the recent recovery from the YTD low and the 100-period SMA on the 4-hour chart. This, in turn, should act as a pivotal point and help determine the near-term trajectory for the XAG/USD.

A convincing break through the aforementioned barrier will suggest that the recent downfall has run its course and lift spot prices back towards the $20.00 psychological mark. The latter coincides with 38.2% Fibo. level, above which the XAG/USD could climb the 23.6% Fibo. level, around the $20.40 area. The momentum could further get extended towards reclaiming the $21.00 round-figure mark.

Meanwhile, oscillators on the daily chart have just started drifting into the negative territory and maintain their bearish bias on the 4-hour chart. The set-up supports prospects for further losses, through sustained weakness below the $19.00 mark is needed to reaffirm the outlook. The XAG/USD might then slide to the $18.60 zone before dropping to the $18.35 area and the $18.00 round figure.

Silver 4-hour chart

Key levels to watch

• Copper price stays mildly bid for third consecutive day on COMEX.
• Pause in the bond rout, expectations of heavy bond-buying in Japan and the UK favor metal buyers.
• China’s zero covid policy, record credit default swap fail to depress buyers amid softer DXY.

Copper price remain on the buyer’s radar as the red metal rises for the third consecutive day on the COMEX, up 0.70% intraday near $3.45 during early Wednesday morning in Europe.

The industrial metal has recently been cheering the hopes of further stimulus from China, the UK and Japan as these nations try to defend their respective national currencies after the latest blood bath against the US dollar. Also favoring the expectations of additional liquidity are the fears of economic slowdown, recently backed by the International Monetary Fund (IMF).

On Tuesday, the IMF lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July while citing 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 2021." The IMF also cut China's 2022 growth forecast to 3.2% from 3.3% in July; cut its 2023 growth forecast to 4.4% from 4.6%.

Elsewhere, an increase in China’s copper cathode output, by 6.12% MoM and 12.12% YoY in September, joins the all-time high of Beijing’s Credit Default Swaps (CDS) to challenge the copper buyers.

It should be noted that the retreat in the US Treasury yields and a pause in the US Dollar Index (DXY) run-up offer major support to the industrial metal. That said, the DXY retreats from a two-week high while snapping a five-day uptrend, down 0.12% intraday at the latest. Also, the US 30-year Treasury yields remain sidelined near 3.91% after rising to the highest level since 2014 the previous day whereas the US 2-year bond coupons ease to 4.28%, down for the second consecutive day.

Moving on, chatters surrounding the British, Chinese and Japanese governments’ bond-buying, as well as China’s zero-covid policy, may direct short-term copper moves. Also important will be today’s Federal Open Market Committee (FOMC) Meeting Minutes amid hawkish Fed bets.

Here is what you need to know on Wednesday, October 12:

The British pound's volatility continues to rise on Wednesday amid conflicting signals regarding the Bank of England's (BoE) emergency bond-buying programme. The dollar consolidates its gains with the US Dollar Index staying in negative territory following a five-day winning streak. The US economic docket will feature the Producer Price Index (PPI) data for September. In the late American session, the Federal Reserve will release the minutes of its September meeting. Europen Central Bank President Christine Lagarde is scheduled to deliver a speech and market participants will keep a close eye on developments surrounding the BoE.

While speaking at an event in Washington, BoE Governor Andrew Bailey reminded pension fund managers that they have three days, until the end of the week, to finish rebalancing their positions when the emergency bond-buying programme concludes. During the Asian trading hours, however, the Financial Times reported that the BoE signalled bankers that it could extend the bond-buying programme. The 2-year UK gilt yield fell nearly 4% on Tuesday but it's already up 2% on Wednesday.

The UK's Office for National Statistics reported that the Gross Domestic Product contracted by 0.3% on a monthly basis in August following July's 0.1% expansion. In the same period, Industrial Production and Manufacturing Production declined by 1.8% and 1.6%, respectively. After having dropped toward 1.0900 earlier in the day, GBP/USD spiked above 1.1050 on BoE headlines but retreated to the 1.1000 area in the European morning.

Meanwhile, US stock index futures are up between 0.7% and 1.1% in the early European session, pointing to an improving market mood. The Federal Reserve Bank of New York's latest Survey of Consumer of Expectations showed on Tuesday that consumers' one-year inflation expectation declined to a new 12-month low of 5.4% from 5.7% in August's survey.

EUR/USD clings to modest daily gains above 0.9700 early Wednesday. Eurostat will release the August Industrial Production data later in the session.

USD/JPY climbed to a fresh multi-decade high at 146.38 in the Asian session and surpassed the level that triggered the Bank of Japan's intervention in late September. Japanese Chief Cabinet Hirokazu Secretary said that they were closely watching FX moves and added that they will take appropriate steps but these comments failed to trigger a deep correction. As of writing, the pair was trading in positive territory above 146.00.

Gold climbed above $1,680 amid retreating US Treasury bond yields on Tuesday but failed to end the day in positive territory. XAU/USD benefits from the modest selling pressure surrounding the greenback mid-week and trades above $1,670.

Bitcoin extended its slide and dipped below $19,000 before erasing a small portion of its losses. At the time of press, BTC/USD was trading slightly higher on the day at $19,150. Ethereum dropped to a weekly low of $1,267 on Tuesday but recovered toward $1,300 early Wednesday.

Considering advanced prints from CME Group for crude oil futures markets, traders added around 4.5K contracts to their open interest positions on Tuesday, reversing at the same time two daily pullbacks in a row. Volume followed suit and went up by around 141.5K contracts, partially trimming the previous day’s drop.

WTI: Upside remains limited by recent tops beyond $93.00

Tuesday’s retracement in prices of the WTI was on the back of rising open interest and volume, leaving the prospect for a deeper pullback well on the cards in the very near term. In the meantime, the October tops past the $93.00 mark per barrel continue to cap occasional bullish attempts for the time being.

FX option expiries for Oct 12 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9600 1.2b
• 0.9650 404m
• 0.9700-05 1.92b
• 0.9740-50 719m
• 0.9770-80 364m
• 0.9800 437m
• 0.9865-70 703m

- GBP/USD: GBP amounts        

• 1.0930 476m

- USD/JPY: USD amounts                     

• 146.00 427m

- EUR/CHF: EUR amounts

• 0.9535 528m
• 0.9750 805m

• USD/CHF fades bounce off one-week low inside a bearish chart pattern.
• Downbeat oscillators add strength to the bearish bias but 0.9850 appears the key support.
• Buyers need validation from 1.0030 to retake control.

USD/CHF remains pressured after the intraday low, extending the previous day’s pullback from a four-month high to 0.9950 heading into Wednesday’s European session. In doing so, the Swiss currency (CHF) pair stays inside a five-week-old rising wedge bearish chart pattern.

In addition to the quote’s latest weakness and the bearish formation around the multi-day top, the bearish MACD signals and the downbeat RSI (14), not oversold, also favor USD/CHF bears of late.

That said, one-week-old horizontal support near 0.9915 lures the intraday sellers ahead of highlighting the stated wedge’s support line, close to 0.9850 by the press time.

Should the quote remains bearish past 0.9850, a slump to the monthly low of around 0.9780 appears imminent during the theoretical south-run targeting the 0.9310 level.

On the flip side, the upper line of the stated wedge, around 1.0030, restricts short-term USD/CHF upside before directing buyers towards the tops marked in June and May, near 1.0050 and 1.0065 in that order.

If USD/CHF bulls keep the reins past 1.0065, the odds favoring a gradual run-up towards the year 2019 peak surrounding 1.0240 can’t be ruled out.

USD/CHF: Four-hour chart

Trend: Limited downside expected

Open interest in gold futures markets shrank by around 3.1K contracts on Tuesday, reversing three consecutive daily builds according to preliminary readings from CME Group. Volume, instead, extended the choppy activity and rose by around 15.3K contracts.

Gold could attempt a bounce to $1,700

Tuesday’s brief test of the $1,660 region was amidst shrinking open interest, which removes strength from further decline and remains supportive of a near-term rebound. Against that, gold prices could attempt a move to the key hurdle at $1,700 per ounce troy.

UK Business Minister Jacob Rees-Mogg said on Wednesday, “there doesn't seem to be a systemic problem in pension funds.”

Additional comments

Market reaction

The British pound is digesting the latest dismal UK data, paying little heed to the above comments. The pair was last seen trading at 1.1000, up 0.38% so far.

• AUD/USD has extended its recovery to near 0.6250 as the risk-off mood has started fading.
• The DXY is expected to find a cushion around 113.00 as selling pressure accelerates.
• A deadly duo of price pressures and upbeat job data will force the Fed to dictate a bigger rate hike.

The AUD/USD pair has defended the downside bias firmly after sensing a decent buying interest at around 0.6240. The asset has extended its gains to near 0.6280 as the risk-on impulse has emerged. Investors are shrugging off the hawkish Federal Reserve (Fed) pessimism and are underpinning the risk-perceived currencies.

The US dollar index (DXY) is aiming to re-test Tokyo’s knee-jerk reaction to near 113.00 as investors are dumping the safe haven after failing to sustain around fresh weekly highs at 113.60.

This week, the show-stopper event will be the US consumer Price Index (CPI) data, which will release on Thursday. Considering the market expectations, 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%.

It is worth noting that September’s employment data was upbeat. The US Nonfarm Payrolls (NFP) was released at 263k, higher than the expectations of 250k. Also, the Unemployment Rate was trimmed to 3.5%. Should the inflation rate accelerate further, odds for a bigger rate hike by the Fed will soar vigorously? The deadly duo of firmer payroll data and mounting price pressures will leave with no other option for the Fed than to continue the current pace of hiking interest rates.

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 struggles to keep the first daily gains in six around two-week low on softer UK statistics.
• UK GDP contracted 0.3% in August, IP/MP also dropped during the stated month.
• Chatters that BOE will extend bond-buying program also propel the Cable pair.
• FOMC Minutes, UK policymakers’ action will be crucial as hawkish Fed bets favor pair bears.

GBP/USD pays little heed to the UK’s downbeat economics for August as it seesaws around the 1.1000 threshold, snapping a five-day downtrend, as markets in London open for Wednesday’s trading. The reason could be linked to the softer yields and the hopes for extended stimulus from British authorities.

UK Gross Domestic Product dropped to -0.3% MoM in August versus 0.0% expected and 0.2% prior whereas the Industrial Production (IP) and Manufacturing Production (MP) also slumped into the negative territory during the stated month.

Also read:

Earlier in the day, the Financial Times (FT) raised expectations of the Bank of England’s (BOE) prolonged bond-buying and fuelled the GBP/USD prices. “The Bank of England has signaled privately to bankers that it could extend its emergency bond-buying program past this Friday’s deadline, according to people briefed on the discussions, even as Governor Andrew Bailey warned pension funds that they “have three days left” before the support ends,” mentioned FT.

It should be noted that the 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. 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 the other hand, Cleveland Fed President Loretta Mester joined the chorus of hawkish Fed policymakers and propelled the market’s wager on the US central bank’s next move, which defends the US dollar buyers even as the yields retreat. That said, the latest readings of the CME’s FedWatch Tool show that market players are pricing in nearly 81% chance of the Fed’s 75 basis points (bps) rate hike in November.

Amid these plays, the US 30-year Treasury yields remain sidelined near 3.91% after rising to the highest level since 2014 the previous day whereas the US 2-year bond coupons ease to 4.28%, down for the second consecutive day. With the softer yields and hopes of further liquidity, not just from the UK but also from Japan, the S&P 500 Futures rebound from the weekly/monthly low, up 0.65% intraday at the latest.

Moving on, GBP/USD traders will keep searching for the BOE’s confirmation on the FT story for a further upside move, failing to get that may highlight the DXY strength and recall the bears. Also likely to exert downside pressure on the Cable pair is the existence of the Federal Open Market Committee (FOMC) Meeting Minutes and hopes of the Fed’s aggression.

Technical analysis

A daily closing beyond the convergence of the 10-DMA and 21-DMA, around 1.1170 appears a tough nut to crack for the GBP/USD buyers. That said, a three-week-old horizontal support restricts immediate downside near 1.0830.

The industrial sector recovery lost momentum in August, the latest UK industrial and manufacturing production data published by Office for National Statistics (ONS) showed on Wednesday.

Manufacturing output arrived at -1.6% MoM in August versus 0% expectations and 0.1% booked in July while total industrial output came in at -1.8% vs. -0.2% expected and -0.3% last.

On an annualized basis, the UK manufacturing production figures came in at -6.7% in August, missing expectations of 0.8%. Total industrial output plunged by 5.2% in the eighth month of the year against a 0.6% reading expected and the previous 1.1% print. 

Separately, the UK goods trade balance numbers were published, which arrived at GBP-19.257 billion in August versus GBP-20.45 billion expectations and GBP-17.594 billion last. The total trade balance (non-EU) came in at GBP-11.079 billion in August versus GBP-9.10 billion previous.

Related reads

• UK GDP contracts 0.3% MoM in August vs. 0% expected
• GBP/USD dribbles around 1.1000 despite downbeat UK GDP, BOE’s bond-buying, Fed Minutes in focus

• UK GDP arrived at -0.3% MoM in August vs. 0% expected.
• GBP/USD keeps its range around 1.1000 on UK GDP big miss.

The UK Gross Domestic Product (GDP) monthly release showed on Wednesday that the economy returned to a contraction in August, arriving at -0.3% vs. 0% expectations and 0.2% previous.

Meanwhile, the Index of services (August) came in at -0.1% 3M/3M vs. 0.2% estimate and -0.2% prior.

Key takeaways via ONS

Market reaction

The Cable remains little changed at around 1.1000 on the below-forecast UK growth numbers. The spot is adding 0.32% on the day.

About UK GDP

The Gross Domestic Product released by the National Statistics is a measure of the total value of all goods and services produced by the UK. The GDP is considered as a broad measure of the UK economic activity. Generally speaking, a rising trend has a positive effect on the GBP, while a falling trend is seen as negative (or bearish).

• USD/CAD has reclaimed the immediate hurdle of 1.3800 after a knee-jerk reaction.
• Market mood is getting mixed which advocates volatility ahead.
• Oil prices drop after the IMF cuts 2023 GDP projections.

The USD/CAD pair has recovered sharply after a knee-jerk reaction to near 1.3783 in the early European session. The asset is aiming to knock the day’s high at around 1.3830 as the overall risk profile is extremely negative ahead of the US inflation data. The 10-year US Treasury yields have recovered some of their losses after dropping to near 3.9%.

The mighty US dollar index (DXY) has also picked bids after dropping to near 113.00, however, confidence in the rebound move is absent. It would be worth watching whether the asset will recapture its fresh weekly highs at 113.60.

This week, the mega event will be the US Consumer Price Index (CPI) data, which will release on Thursday. As per the preliminary estimates, headline inflation will drop to 8.1% due to weak gasoline prices. While, the core CPI that doesn’t inculcate oil and food prices for calculation will release at 6.5%, higher than the prior print of 6.3%.

But before that, the release of the Federal Reserve (Fed) minutes will be keenly watched. The minutes will also provide viewpoints of all Fed policymakers toward interest rate targets for bringing price stability.

On the oil front, oil prices have dropped sharply to near $87.00 after the International Monetary Fund (IMF) cuts global growth projections. The institution has trimmed its 2023 global Gross Domestic Product (GDP) forecast to 2.7%, 20 basis points (bps) lower than expectations made in July, keeping the 2022 projections unchanged at 3.2%.

It is worth noting that Canada is the largest exporter of oil to the US and weak oil prices will weaken Canada’s fiscal balance sheet.

• NZD/USD fades bounces off 31-month low, retreats from intraday high of late.
• Support-turned-resistance limits immediate upside ahead of 100-HMA, weekly falling trend line.
• Bears should wait for a clear break of 0.5560 for conviction.

NZD/USD struggles to defend the previous day’s corrective bounce from the 2.5-year low, easing to 0.5580 ahead of Wednesday’s European session.

In doing so, the Kiwi pair takes a U-turn from the two-week-old previous support line, near 0.5595 at the latest.

The pullback moves also gain support from the quote’s failure to cross the 100-HMA on Tuesday, despite refreshing the weekly top.

However, an upward-sloping trend line connecting the recent lows, around 0.5560, limits the quote’s immediate declines ahead of directing them to the recent trough surrounding 0.5535.

In a case where the NZD/USD pair remains bearish past 0.5535, which is more likely considering the absence of the oversold RSI, the south-run could aim for the 0.5500 threshold and the year 2020 low near 0.5470.

Meanwhile, an upside break of the immediate support-turned-resistance line, at 0.5595 now, needs validation from the 0.5600 to convince intraday buyers of the NZD/USD.

Even so, the 100-HMA and the weekly resistance line, respectively around 0.5625 and 0.5655, could challenge the bulls before giving them control.

NZD/USD: Hourly chart

Trend: Further downside expected

• GBP/JPY has recorded an intraday high of around 161.50 after BOE considered a prolonged bond-buying program.
• Japanese officials could make a surprise intervention in the currency markets.
• In today’s session, the release of the UK heavy economic activities data will remain in focus.

The GBP/JPY pair displayed a perpendicular move to near 161.50 after reports came that the Bank of England (BOE) is considering a prolonged bond-buying program to fight against sheer volatility in the market. The vertical upside move has corrected to near 160.70, however, the upside seems favored.

As reported by Financial Times, the BOE has signaled privately to bankers that it may extend bond buying to stabilize the financial system. Earlier, BOE Governor Andrew Bailey announced that the central bank will terminate its support to the market. And, institutions and pension funds have three days left to purchase index-linked gilts up to GBP5 bln. Following the positive cues from the cable, the GBP/JPY is expected to advance further.

In the European session, the UK data on Industrial and Manufacturing production will be of utmost importance. The economic catalysts are expected to display a vulnerable performance amid bleak economic fundamentals and poor demand due to soaring inflation and interest rates.

On the Tokyo front, Japanese Chief Cabinet Secretary Hirokazu Matsuno denied on commenting over day to day movement in the FX domain but cited that “We are closely watching to FX moves with a high sense of emergency and will take appropriate steps on excess FX moves. The commentary came after the USD/JPY pair refreshed its multi-year high at around 146.40.

• Gold price retreat from intraday high, probes five-day downtrend at weekly low.
• Chatters over BOE, Japan recently underpinned XAU/USD’s corrective bounce.
• Economic fears, market’s pricing of Fed’s next move challenge metal buyers.
• Minutes should unveil policymakers’ determination for further rate hikes to please gold sellers.

Gold price (XAU/USD) struggles to defend the first daily gains in six around $1,668 heading into Wednesday’s European session as sluggish markets keep the metal bears hopeful ahead of the key Federal Open Market Committee (FOMC) Meeting Minutes.

The fresh chatters about money market intervention by Japanese policymakers and the Bank of England’s (BOE) hint to extend a surprise bond-buying program, as signaled by the Financial Times (FT), recently triggered the yellow metal’s corrective bounce. Also likely to favor the XAU/USD prices could be the hopes of further stimulus from Europe and China as both nations try hard to shrug off recession woes.

Sluggish US Treasury yields around the multi-month high also teased the gold buyers at the one-week low. That said, the US 30-year Treasury yields remain sidelined near 3.91% after rising to the highest level since 2014 the previous day. On the same line is the US 2-year bond coupons that seesaw around 4.28%, down for the second consecutive day.

It should be noted, however, that the economic fears spread by the International Monetary Fund (IMF) and the hawkish Fed bets appear to keep the metal sellers hopeful ahead of the all-important Fed Minutes. Herein, the XAU/USD bears will cheer witnessing the policymakers’ readiness for further rate hikes, like those recently signaled by Cleveland Fed President Loretta Mester.

As per the latest readings of the CME’s FedWatch Tool, market players are pricing in nearly 81% chance of the Fed’s 75 basis points (bps) of rate hike in November.

In a case where the FOMC Minutes surprise the markets by showing resistance by the committee members in raising the rates amid recession fears, the XAU/USD may extend the latest rebound with more strength.

Technical analysis

The gold price marks another battle with the 50-HMA, after witnessing a defeat the previous day, as buyers cheer firmer RSI (14), as well as the rebound ahead of the 61.8% Fibonacci retracement level of September 28 to October 04 up-moves. Other than the 50-HMA, the 50% Fibonacci retracement level also highlight the $1,672 immediate hurdle.

It should be noted that the 100-HMA pierces off the 200-HMA from above and hints at the quote’s further downside even if the quote crosses the $1,672 resistance. In that case, the weekly resistance line near $1,677 and the HMA convergence around $1,690-91 will be crucial to watch.

Alternatively, the 61.8% Fibonacci retracement level, also known as the golden ratio, restricts immediate XAU/USD downside near $1,658, a break of which could quickly drag the quote towards the late September swing low near $1,641.

Overall, gold price recovery remains elusive unless breaking $1,691.

Gold: Hourly chart

Trend: Further weakness expected

• EUR/GBP consolidates biggest daily gains in two weeks inside bullish chart formation.
• Reports that BOE could extend bond-buying triggered GBP’s immediate strength.
• 200-SMA adds strength to 0.8735 support confluence, oscillators also favor buyers.

EUR/GBP portrays the British Pound’s (GBP) immediate run-up on the Financial Times (FT) report that the Bank of England (BOE) is likely to extend the bond-buying program. In doing so, the cross-currency pair reverses from the upper line of a weekly bullish channel while flashing 0.8796 as the daily low, around 0.8825 by the press time of early Wednesday morning in Europe.

“The Bank of England has signaled privately to bankers that it could extend its emergency bond-buying program past this Friday’s deadline, according to people briefed on the discussions, even as Governor Andrew Bailey warned pension funds that they “have three days left” before the support ends,” mentioned FT.

Although the recent news suggests further downside of the EUR/GBP pair, a convergence of the 200-SMA and the stated bullish channel’s bottom, around 0.8735, appears a tough nut to crack for the bears.

Following that, a slump towards refreshing the monthly low, currently around 0.8650, can’t be ruled out.

It should be noted that the MACD and the RSI (14) are both in favor of the quote’s further upside. That said, the aforementioned channel’s top, close to 0.8870, guards the EUR/GBP pair’s immediate rebound.

Also acting as an upside filter is the 50% Fibonacci retracement level of September month upside, near 0.8910, a break of which will direct the EUR/GBP bears towards the 0.9000 psychological magnet.

EUR/GBP: Four-hour chart

Trend: Limited downside expected

• EUR/USD has refreshed its day’s high at 0.9734 amid an intraday knee-jerk reaction in the DXY.
• US President Joe Biden sees only a slight recession situation ahead.
• Risk sentiment is shifting towards a positive trajectory as yields drop to near 3.9%.

The EUR/USD pair has climbed above the immediate hurdle of 0.9700 sharply and has refreshed its day’s high at 0.9734 in the Tokyo session. The risk profile is still averse as S&P500 futures are still consolidating. Meanwhile, the US dollar index (DXY) has witnessed a deep cut after failing to sustain fresh weekly highs around 113.60 and has slipped to near 113.00.

For an improvement in overall risk appetite, more filters are required to confirm fading of negative market sentiment. Also, the 10-year US Treasury yields have dropped to near 3.91% after failing to overstep the critical hurdle of 4%.

On Wednesday, the release of the Federal Reserve (Fed) minutes will be in focus. 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 for bringing price stability. Apart from that, the current situation of economic prospects will be of utmost importance.

After commentary from chairman and CEO of JPMorgan Chase, Jamie Dimon, in which he warned that the US economy could slip into recession in the coming six to nine months. Comments from US President Joe Biden that ''If recession will be there, it’ll be a very slight has provided a sigh of relief.

On the Eurozone front, investors are awaiting the speech from European Central Bank (ECB) President Christine Lagarde. The speech will provide clues about the likely monetary policy action by the ECB. Apart from that, some light on the status of the Russia-Ukraine war will be the cherry on the cake.

• Asian equities remain bearish despite recent inaction ahead of Fed Minutes.
• Looming intervention from Japan, economic fears cited by BOE’s Bailey, IMF keep bears hopeful.
• Yields grind higher as London/Tokyo struggle to defend respective currencies.
• Chinese shares lead bears, KOSPI fails to justify BOK’s rate hike.

Asian stocks hold lower grounds, led by China, as economic slowdown fears join pre-Fed Minutes anxiety during early Wednesday. Even so, sluggish yields and an absence of major data/events restrict immediate moves.

That said, MSCI’s index of Asia-Pacific shares outside Japan renews the 30-month low, down 0.75% intraday by the press time, whereas Japan’s Nikkei 225 remains mostly steady around a one-week low.

Earlier in the day, USDJPY crossed the 145.90 level and pushed the Japanese policymakers to defend the domestic currency. Following the same, Japan’s Chief Cabinet Secretary Hirokazu and Finance Minister Shunichi Suzuki crossed wires while showing readiness to tame the price move, if needed.

Elsewhere, China’s firmer determination to defend the zero-covid policy joins the recently gradual fall in the domestic currency to renew fears of the People’s Bank of China (PBOC), which in turn led the markets in Beijing towards witnessing more than 1.0% daily loss. While following the same, New Zealand’s NZX 50 drops 1.0% but Australia’s ASX 200 prints mild gains as Reserve Bank of Australia (RBA) Assistant Governor Luci Ellis mentioned, that the central bank’s policy is no longer in an expansionary place. However, comments like, “The neutral rate was a moving target and hard to determine at any stage in time,” seemed to have weighed on the Aussie stocks.

South Korea’s KOSPI prints 0.25% intraday gains even after the Bank of Korea announced a rate hike while Indonesia’s IDX Composite traces Chinese equities to drop 0.65% at the latest.

On a broader front, S&P 500 Futures remain sidelined around monthly low but the Treasury bond yields are mostly firmer, despite the latest inaction, which in turn portrays the market’s rush towards risk safety.

Moving on, Federal Open Market Committee (FOMC) Meeting Minutes will be eyed for clear directions amid hawkish Fed bets. Also important will be the moves by the British and the Japanese policymakers to defend the GBP and the JPY respectively.

GBP/USD has changed its course and jumped beyond 1.1000, in a knee-jerk reaction to a Financial Times (FT) report, citing that the Bank of England (BOE) signalled privately to bankers it may extend bond-buying.

Citing people briefed on the discussions, the FT reported that the BOE has communicated privately to bankers that it could extend its emergency bond-buying programme past this Friday’s deadline.

This comes after BOE Governor Andrew Bailey warned late Tuesday, “My message to the (pension) funds involved and all the firms is you’ve got three days left now. You’ve got to get this done.”

Bailey's comments knocked the GBP/USD pair below 1.1000, as he hinted that the central bank will halt its market support.

However, the latest report renewed speculation of the UK central bank intervention to support the local currency, which put a fresh bid under the major, propelling it one big figure from 1.0945 levels to 1.1049. Cable was last seen trading at 1.1008, quickly retreating but still adding 0.40% on the day.                                                        

developing story ....

• USD/INR has sensed fresh demand at around 82.00 amid soaring bets for a 75 bps rate hike by the Fed.
• The Indian retail inflation could accelerate to a five-month of 7.30%.
• The US economy could face a recession situation in the coming six to nine months.

The USD/INR pair has advanced to near 82.30 after picking bids from around 82.00. The asset has firmed up as chances for a 75 basis point (bps) rate hike by the Federal Reserve (Fed) have advanced dramatically. As per CME FedWatch tool, the chances of a fourth consecutive 75 bps rate hike announcement stand at 82.8%.

Soaring bets for the continuation of the current pace of policy tightening by the Fed have fired the US dollar index (DXY). The DXY has refreshed its two-week high at 113.60. Also, the market mood is getting more depressed on declining global growth projections.

Going forward, India’s retail inflation data will remain in focus. Reuters poll on India’s inflation cited that the price pressures will accelerate to a five-month high of 7.30%. It seems that the projections are well above the tolerance of the Reserve Bank of India (RBI). The Indian inflation data will be followed by US Consumer Price Index (CPI), which is due on Thursday.

As per the estimates, the headline US inflation will decline to 8.1% from the prior release of 8.3%. While the core CPI that excludes oil and food prices in scrutiny is expected to improve to 6.5% vs. the former figure of 6.3%. The deviation in the inflation duo holds weak gasoline prices responsible.

On Tuesday, Chairman and CEO of JPMorgan Chase, Jamie Dimon, warned that the US economy could slip into recession in the coming six to nine months. He further added that the Eurozone is already in recession and it may put the mighty US into recession too. He has cited soaring inflation and interest rates, and the war situation are responsible for the recession situation ahead, as reported by NewsBytes.

Meanwhile, the International Monetary Fund (IMF) on Tuesday cut India’s economic growth forecast to 6.8% in 2022. The impact of the recession in Europe and break growth in the US economy will display its multiplier effects.

The UK Economic Data Overview

The British economic calendar is all set to entertain the cable traders during the early hours of Wednesday, at 06:00 GMT with the monthly release of August 2022 Gross Domestic Product (GDP) figures. Also increasing the importance of that time are Trade Balance and Industrial Production details for the stated period. It’s worth noting that the Bank of England’s (BOE) intervention amplifies the importance of today’s UK data dump for the GBP/USD pair traders.

Having witnessed an expansion of 0.2% in economic activities during July 2022, market players will be interested in August month’s GDP figures to confirm the fears of an economic slowdown.

Forecasts suggest that the UK GDP will mark stagnation of the British economy with 0.0% MoM figures for August. GBP/USD traders also await the Index of Services (3M/3M) for the same period, likely to improve to 0.2% versus -0.2% prior, for further insight.

Meanwhile, Manufacturing Production, which makes up around 80% of total industrial production, is expected to ease to 0.0% MoM in August. Also, the total Industrial Production is expected to improve to -0.2% versus -0.3% previous figures.

Considering the yearly figures, the Industrial Production for August is expected to have eased to 0.6% versus 1.1% previous while the Manufacturing Production is anticipated to have dropped by 0.8% in the reported month versus 1.1% the last.

Separately, the UK Goods Trade Balance will be reported at the same time, prior £-7.793B.

How could affect GBP/USD?

GBP/USD languishes around a two-week low, down for the sixth consecutive day, while keeping the Bank of England (BOE) Governor Andrew Bailey-led losses ahead of the key UK data dump. The pair’s latest downside also takes clues from the firmer US Dollar Index (DXY) and the yields, not to forget fears of economic slowdown.

Given the increasing push to the BOE towards following the hawkish Fed, mainly due to the newly elected PM Liz Truss’ failure to impress British locals with their new strategies, the GBP/USD may witness further downside in the case of downbeat data. It’s worth noting, however, that major attention will be given to the Federal Open Market Committee (FOMC) Meeting Minutes.

That said, a positive surprise from the scheduled British statistics may, however, could offer only a kneejerk bounce amid broad pessimism.

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

Key notes

GBP/USD Price Analysis: Bears stay the course despite break of trendline resistance 

GBP/USD steadies below 1.1000 after BOE’s Bailey favored bears, UK data, Fed Minutes eyed

About the UK Economic Data

The Gross Domestic Product released by the Office for National Statistics (ONS) is a measure of the total value of all goods and services produced by the UK. The GDP is considered a broad measure of the UK's economic activity. Generally speaking, a rising trend has a positive effect on the GBP, while a falling trend is seen as negative (or bearish).

The Manufacturing Production released by the Office for National Statistics (ONS) measures the manufacturing output. Manufacturing Production is significant as a short-term indicator of the strength of UK manufacturing activity that dominates a large part of total GDP. A high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or bearish).

The trade balance released by the Office for National Statistics (ONS) is a balance between exports and imports of goods. A positive value shows a trade surplus, while a negative value shows a trade deficit. It is an event that generates some volatility for the GBP.

 US Treasury Secretary Janet Yellen said late Tuesday that “I believe the dollar's current level reflects appropriate policies.”

Additional quotes

“We haven't seen any indications of financial instability in our markets.”

“The decrease in job openings takes some of the sting out of the job market.”

“The dollar's strength is a logical result of various policies.”

“I've been keeping a close eye on developments in the UK and have met with the officials.”

“Do not wish to comment on the UK policy.”

Market reaction

Yellen’s comments saved the day for dollar bulls, as it revived the uptrend in the US dollar index. The spot is trading at 113.48, up 0.22% on the day, reversing a dip to near 112.40.

 The International Monetary Fund's (IMF) Chief Economist Pierre-Olivier Gourinchas made expressed his take on the US inflation and Fed rate hike outlook, in an interview with Reuters late Tuesday.

Key quotes

“The fight against inflation by central banks will last until 2024.”

“Inflation will not return to target in 2023, but it will be closer in 2024.”

“The IMF forecasts the unemployment rate in the United States will rise by two percentage points between 2023 and 2024.”

“A 5.5% unemployment rate in the United States would be a fairly benign outcome in exchange for returning inflation to the 2% target.”

“The magnitude of future Fed rate increases is less important than achieving the goal of returning to a neutral or contractionary stance.”

Related reads

• US CPI Preview: Forecast a 0.2% headline increase for September – Societe Generale
• US Dollar Index grinds higher past 113.00 as hawkish Fed bets highlight FOMC Minutes

• Negative market sentiment has trimmed the risk appetite of investors.
• Declining 20-and 50EMAs add to the downside filters.
• The RSI (14) is fulfilling the oversold conditions therefore, a pullback should be used for initiating shorts.

The AUD/USD pair has continued its seven-day losing streak by drifting below Tuesday’s low at 0.6247 in the Tokyo session. The asset has refreshed its two-year low at 0.6240 as the risk-off profile has soared amid firmer yields. The 10-year benchmark Treasury yields are playing around 3.95%. Also, the US dollar index (DXY) has refreshed its two-week high at around 113.60.

On the daily scale, the asset has delivered a vertical downside move after a south-side break of the consolidation formed in a 0.6369-0.6545 range. The breakdown of the consolidation results in volatility expansion, which brings heavy volume and wider ticks in the asset.

Declining 20-and 50-period Exponential Moving Averages (EMAs) at 0.6487 and 0.6661 add to the downside filters.

Adding to that, the Relative Strength Index (RSI) has shifted into the bearish range of 20.00-40.00, which indicates more weakness ahead. It is worth noting that the asset has been oscillating in the bearish range for the past month. Therefore, the odds of a pullback move are also heavy due to supporting oversold conditions.

It would be fruitful to use the pullback move toward September’s low at 0.6363 to initiate fresh shorts, which will drag the asset toward Wednesday’s low at 0.6240 followed by the round-level support at 0.6200.

On the flip side, a decisive break above October 4 high at 0.6548 will drive the asset toward the round-level resistance at 0.6600. A breach of the latter will expose the asset to smash the 50-EMA at 0.6661.

AUD/USD daily chart

Analysts at Societe Generale provide a sneak peek at what they expected from Thursday’s US Consumer Price Index (CPI) release.

Key quotes

“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.”

• USD/JPY renews 24-year high during six-day uptrend, picks up bids of late.
• Overbought RSI, monthly resistance line can challenge further upside.
• Three-week-old support line, 10-DMA restricts immediate downside.
• Bulls are likely to keep the reins amid fears of short-term pullback.

USD/JPY bulls are on the roll as they refresh the multi-year high near 146.40 early Wednesday, posting the six-day winning streak.

In doing so, the yen pair ignores the nearly overbought RSI conditions while taking clues from the impending bull cross on the MACD and the quote’s sustained break of the previous top surrounding 145.90.

It should be noted that the quote’s latest upside aims for a monthly resistance line of around 147.00. However, the pair’s further upside appears difficult due to the convergence of the ascending resistance line from late April and 100% Fibonacci Expansion (FE) of April-August moves, near 148.60. Also acting as an upside filter is the August 1998 high near 147.70.

Meanwhile, three-week-old support and the 10-DMA restrict short-term USD/JPY downside to around 145.30 and 145.0 respectively.

Following that, September’s low near 140.35 and July’s peak of 139.40 will be important for the bears.

However, the bearish bias remains elusive until the quote stays beyond the August month’s low near 140.30.

USD/JPY: Daily chart

Trend: Bullish

• Gold price is challenging critical support at $1,660, with more downside in the offing.
• US dollar cheers risk aversion, Treasury yields rebound while weighing on the metal.
•  XAU/USD gears up for a test of $1,650 on a sustained move below key $1,660 support.

Gold price remains at the mercy of the dynamics of the US dollar and Treasury yields, as investors brace for the key US event risks, in the form of Wednesday’s FOMC minutes and Thursday’s inflation data. The greenback continues to capitalize on persistent risk aversion, fuelled by China’s renewed covid surge, Russia-Ukraine tensions and recession fears. Meanwhile, markets see Fed committed to steeper rate hikes to tame inflation, which is also collaborating with the downside in the non-interest-bearing gold while boosting safe-haven demand for the dollar. Meanwhile, the benchmark 10-year US yields hover around the 4% level, keeping XAU sellers alive. Investors are pricing roughly 83% probability of a 75 bps November Fed rate hike, which is likely to be confirmed by the US inflation release on Thursday. In the meantime, risk trends and the FOMC minutes could influence the dollar, as well as, gold valuations in the near term, as markets watch out for the bond market action.

Also read: Gold Weekly Forecast: XAU/USD remains sensitive to US yields as focus shifts to CPI

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is yearning for a sustained break below the critical support area at around $1,660, which is the convergence of the previous week’s low, the previous day’s low and Fibonacci 38.2% one-month.

The immediate cushion is aligned at the pivot point one-day S1 at $1,657, below which a fresh downswing will kick in towards the $1,650 psychological mark.

The pivot point one-day S2 at $1,648 will then challenge bullish commitments.

On the flip side, buyers need to find a strong foothold above the confluence of the Fibonacci 23.6% one-day and the previous high four-hour at $1,667.

The next significant upside barrier is seen at the Fibonacci 38.2% one-day at $1,671, above which the Fibonacci 61.8% one-day at $1,675 will be put to test.

The previous year’s low of $1,677 will be a tough nut to crack for XAU optimists.

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.

Japanese Chied Cabinet Hirokazu Secretary is out with his jawboning, as USD/JPY surges past the 145.90 key level.

Key quotes

Market reaction

USD/JPY is trading at the highest level in 24 years at 146.38, up 0.34% on the day, as investors remain alert for a Japanese FX market intervention any time soon.

• WTI remains pressured near weekly low as firmer DXY joins hopes of easing supply crunch.
• US President Joe Biden vows consequences for Saudi Arabia after OPEC+ decision to cut oil supplies.
• Firmer yields, fears of recession and hawkish Fed bets add strength to the DXY.
• Risk catalysts, API Weekly Crude Oil Stock eyed for clear directions amid bearish bias.

WTI holds lower ground near the $87.00 support confluence as US President Biden conveys his disappointment with the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+, decision. Even so, the bears remain cautious at the weekly low during Wednesday’s Asian session.

Reuters mentioned that US President Joe Biden pledged on Tuesday that "there will be consequences" for US relations with Saudi Arabia after OPEC+ announced last week that it would cut oil production over US objections. The news also mentioned that Biden’s announcement came a day after powerful Democratic Senator Bob Menendez, chairman of the Senate Foreign Relations Committee, said the United States must immediately freeze all cooperation with Saudi Arabia, including arms sales. It’s worth noting that OPEC+ surprised markets by announcing a two million barrel-a-day output cut during the last week.

Other than the hopes of a delay in the supply cuts, already agreed by OPEC+, the risk-aversion wave and the firmer US Dollar Index (DXY) also weigh on the commodity prices.

That said, the DXY renews a fortnight top near 113.50 as firmer US Treasury yields join the hawkish Fed bets to keep greenback buyers hopeful ahead of today’s Federal Open Market Committee (FOMC) Meeting Minutes.

Also exerting downside pressure on black gold prices could be the International Monetary Fund’s (IMF) latest economic projections. On Tuesday, the IMF lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July while citing 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 2021."

To sum up, the risk-off mood joins hopes of easing the supply crunch to weigh on the black gold prices ahead of the private weekly inventory data from the American Petroleum Institute (API), prior -1.77M.

Technical analysis

50-DMA and a two-week-old ascending support line highlight $87.00 as the short-term key support.

• EUR/USD takes offers to renew intraday low, fades bounce off two-week bottom.
• Short-term horizontal support sluggish RSI challenge the bears aiming for a fresh yearly low.
• Sustained trading below 50-DMA, four-month-old resistance line favor bears amid downbeat MACD signals.

EUR/USD sellers are all set to mark another battle with the short-term key support around 0.9630 while refreshing intraday low near 0.9685 during Wednesday’s Asian session.

Despite the previous day’s corrective bounce off the fortnight low, the MACD indicator teases bears and suggests further downside for the quote.

Also favoring the EUR/USD sellers is the pair’s failure to cross the 10-DMA hurdle, around 0.9800, during Tuesday’s rebound. Furthermore, sustained trading below the 50-DMA and a downward-sloping trend line from June also portray a bearish trend of the major currency pair.

That said, three-week-old horizontal support around 0.9630 restricts the EUR/USD pair’s immediate downside ahead of directing the bears towards the recent yearly low near 0.9535.

Alternatively, an upside clearance of the 10-DMA hurdle surrounding 0.9800 needs to cross the early June’s swing low near 0.9865 to direct EUR/USD buyers towards the 50-DMA resistance of 0.9966.

Even so, a daily closing beyond the aforementioned resistance line from late June, close to 1.0030, appears necessary for the EUR/USD bulls to retake control.

EUR/USD: Daily chart

Trend: Bearish

• Silver price pares intraday losses at the lowest level in one week.
• Weekly resistance line, bearish MACD signals challenge recovery moves.
• Oversold RSI, 61.8% Fibonacci retracement challenges immediate downside.

Silver price (XAG/USD) pauses the bearish momentum around a weekly low, following a three-day downtrend, as the 200-SMA joins nearly oversold RSI (14) to challenge bears. Even so, the quote struggles to defend the $19.00 threshold during Wednesday’s Asian session.

In doing so, the bright metal takes clues from the bearish MACD signals while also portraying the failure to cross a weekly descending trend line.

In addition to the 200-SMA level surrounding $19.00, the 61.8% Fibonacci retracement level of September-October upside, near $18.95, also challenges the XAG/USD bears.

If the commodity prices decline below $18.95, the odds of witnessing a slump toward a six-week-old support line near $18.20 can’t be ruled out.

Alternatively, recovery needs to cross the weekly resistance line, close to $19.50 at the latest, to convince the short-term silver buyers.

Even so, a one-month-old horizontal resistance area around $20.00 could challenge the XAG/USD upside.

Overall, the silver price may witness a corrective bounce but the bearish trend is likely to prevail.

Silver: Four-hour chart

Trend: Bearish

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at  7.1103 vs. the last close of 7.1680.

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.

• Ascending 20-and 50EMAs add to the upside filters.
• Negative market sentiment supports the greenback’s appeal.
• The RSI (14) is aiming to enter into the bullish range of 60.00-80.00.

The USD/CAD pair is oscillating around 1.3800 following the sideways performance in the US dollar index (DXY) after a firmer rebound from 112.50. The risk sentiment is dismal amid weaker S&P500 futures and is expected to support the safe-haven appeal further. Also, the 10-year US Treasury yields are aiming to recapture 4%.

On a four-hour scale, the major is auctioning in an inventory adjustment process, which indicates a tad longer consolidation period. It is critical to state that the adjustment process is a mark-up accumulation or distribution by institutional investors. Prior momentum has remained extremely bullish, therefore, odds are favoring a mark-up accumulation.

The 20-and 50-period Exponential Moving Averages (EMAs) at 1.3758 and 1.3705 respectively are aiming higher, which adds to the upside filters.

Also, the Relative Strength Index (RSI) (14) is aiming to shift into the bullish range of 60.00-80.00, which will trigger an upside momentum.

Should the asset break above Tuesday’s high at 1.3855, the greenback bulls will expose the asset to hit a fresh two-year high at 1.4000. A breach of the latter will drive the major towards May 2020 high at 1.4173.

On the contrary, a decisive break below the round-level support placed at 1.3600 will drag the asset towards the psychological support at 1.3500, followed by September 19 high at 1.3344.

USD/CAD four-hour chart

US President Joe Biden has crossed the wires by saying that he does not think that there will be a recession.

''If it is, it’ll be a very slight recession. that is, we’ll move down slightly.''

Biden told CNN that he 'doesn't think the US President, Vladamir Putin, will use a tactical nuclear weapon.

• GBP/JPY tracks upbeat yields to reverse from the lowest levels since September 30.
• Upbeat expectations from UK data, bond rout amid recession woes adds strength to recovery.
• Monthly prints of UK statistics, Japan’s intervention will be crucial for short-term directions.
• Disappointment from BOE, UK’s new government keeps bears hopeful.

GBP/JPY picks up bids to refresh intraday high around 160.40 as the yen drops versus major currencies during early Wednesday. In doing so, the cross-currency pair rebounds from a two-week low amid fears of Japan’s intervention.

At home, Japan’s Machinery Orders for August posted their biggest single-month fall in six months while flashing -5.8% MoM print. That said, the yearly figures were also disappointing and lagged behind 12.6% market forecasts, as well as 12.8% prior.

It should be noted that the downbeat Japanese figures joined a survey data suggesting pessimism for the Asian major to propel the GBP/JPY. Reuters mentioned that a monthly poll that tracks the Bank of Japan's (BOJ) closely-watched Tankan quarterly survey, found manufacturers' mood expected to deteriorate again over the coming three months while the service-sector mood was seen rebounding further.

That said, the US 2-year Treasury yields reversed the previous day’s pullback from a two-week top earlier in the day, easing back to 4.30% at the latest. Mildly bid US stock futures and Nikkei 225 could also be linked to the quote’s latest strength.

However, looming market intervention by the Japanese policymakers, as recently signaled by Finance Minister Shunichi Suzuki, per Jiji Press news agency, appear to challenge the GBP/JPY buyers. Also likely to poke the pair could be the latest disappointments from the Bank of England’s (BOE) and cautious mood ahead of the UK’s monthly data dump.

A speech from BOE Governor Andrew Bailey, published late Tuesday, 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. On the same line was the BOE’s expansion of the gilt operation to include inflation-linked gilts for the remainder of their intervention (due to finish on 14 October, UK time).

Moving on, the monthly prints of the UK’s Gross Domestic Product (GDP) for August, expected to ease to 0.0% versus 0.2% prior, will join the Industrial Production and Manufacturing Production for the said month to direct immediate GBP/JPY moves. Also important will be the Japanese policymakers’ efforts to tame JPY's weakness.

Overall, the GBP/JPY pair is likely to grind southwards amid comparatively more pessimism in Britain than in Japan.

Technical analysis

GBP/JPY 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 south-run, respectively around 160.70 and 161.15 by the press time.

Finance Minister Shunichi Suzuki is repeating the government's verbal warnings as the yen breaks 146.00 on the charts vs. the US dollar for fresh 24-year lows.

Key comments

No change to our stance, closely watching FX moves with a sense of urgency.
No change to our stance to take necessary steps on FX if needed.
What is important is the speed of FX move.

USD/JPY update

The price is homing in on the 147s at this rate.

The Bank of Korea has raised its key interest rate to 3.00% from 2.50%. 

More to come

GBP/USD is shedding some ground in Asia and is on the back foot in the Tokyo open. The pair has fallen from a high of 1.0992 and has printed a low of 1.0950 so far. Cable has attempted a recovery, scoring a high near 1.1180 on the move out of the prior trendline resistance that now acts as counter-trendline support as illustrated on the hourly charts below:

GBP/USD H1 chart

The M-formation is a reversion pattern which is a reversion pattern that might be expected to see the price correct higher in the coming hours, potentially into the neckline that meets a 38.2% Fibonacci retracement level:

GBP/USD H4 chart

Meanwhile, as for the structure on the four-hour chart, the neckline of the M0formation aligns with prior support dating back to September 30 that reinforces the prospects for there being potential resistance here.

GBP/USD weekly chart

The price remains bearish below 1.1500 following the test of the weekly 78.6% Fibo'.

• A drop below 50% Fibo retracement and the 200-EMA has titled the bias towards the kiwi bulls.
• The RSI (14) has shifted into the bearish range of 20.00-40.00, which indicates more weakness ahead.
• The cross will be exposed to hit 1.1083 if it slips below Tuesday’s low at around 1.1200.

The AUD/NZD pair has turned sideways in the Asian session after a less-confident pullback from 1.1200. Broadly, the asset is declining for the past two weeks after picking significant offers from 1.1470. The upside seems capped around 1.1240 due to a decline in Australian Westpac Consumer Confidence data.

On a four-hour scale, the cross has slipped below the 50% Fibonacci retracement (placed from August 17 low at 1.0990 to September’s high at 1.1491) at 1.1240. It is worth noting that the 200-period Exponential Moving Average (EMA) at 1.1275 has acted as a major cushion for the aussie bulls. The cross has surrendered the support of 200-EMA and has turned extremely bearish.

Adding to that, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which signals more downside in the asset going further.

A further decline below Tuesday’s low at 1.1197 will drag the asset towards September 8 low at 1.1115 followed by August 16 high at 1.1083.

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

• USD/JPY rises for the sixth consecutive day to refresh multi-year high.
• Rebound in Treasury yields, risk-off mood and the hawkish Fed bets favor bulls.
• Japan data, Tankan survey adds strength to the upside momentum.
• Bulls will look for hawkish Fed Mintues but Japan’s bond move could probe the upside moves.

USD/JPY bulls keep the reins as they pierce the 145.90 resistance to print the highest levels since 1998 during Wednesday’s Asian session, retreating from 146.23 to 146.00 by the press time. In doing so, the yen pair tracks firmer yields and the hawkish Fed bets to push the Japanese policymakers towards one more market intervention to defend the yen. Also fueling the prices could be the downbeat catalysts from Japan.

Japan’s Machinery Orders for August posted their biggest single-month fall in six months while flashing -5.8% MoM print. That said, the yearly figures were also disappointing and lagged behind 12.6% market forecasts, as well as 12.8% prior.

Elsewhere, Reuters mentioned that a monthly poll that tracks the Bank of Japan's (BOJ) closely-watched Tankan quarterly survey, found manufacturers' mood expected to deteriorate again over the coming three months while the service-sector mood was seen rebounding further.

On the other hand, the US 2-year Treasury yields reversed the previous day’s pullback from a two-week top earlier in the day, easing back to 4.30% at the latest.

Talking about the Fed bets, CME’s FedWatch Tool signals a nearly 78% chance of the Fed’s 75 basis points (bps) of a rate hike in November. Furthermore, US inflation expectations, as per the 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, rose to the highest levels since September 28 while flashing 2.31% level at the latest, which in turn favor the USD/JPY bulls.

Additionally, the global growth fears, raised by the International Monetary Fund’s (IMF) latest projections also favor the pair buyers. On Tuesday, the IMF lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July while citing 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 2021."

Looking forward, USD/JPY traders should pay attention to any moves from Japanese policymakers to defend the yen, via market intervention. Also important will be the yields and the Federal Open Market Committee (FOMC) Meeting Minutes.

Technical analysis

USD/JPY needs to stay beyond the previous multi-year peak of 145.90 to direct the bulls toward the one-month-old resistance line, around 146.90 at the latest.

• AUD/USD drops back towards 30-month low as US dollar regains upside momentum.
• RBA versus Fed divergence, risk aversion favor bulls amid firmer yields.
• RBA’s Ellis failed to impress buyers with mixed comments, growth concerns exert downside pressure.
• Bears await FOMC Minutes to confirm hawkish Fed bets.

AUD/USD prints a seven-day downtrend around the 2.5-year bottom, holding lower grounds near 0.6260 during Wednesday’s Asian session. In doing so, the Aussie pair portrays the market’s sour sentiment and the US dollar’s strength ahead of the all-important Fed Minutes. That said, the Aussie pair’s corrective bounce off the multi-day low, marked the previous day, could be termed as the pre-event consolidation as the buyers couldn’t keep the reins amid fears of economic slowdown and the hawkish Fed bets.

Earlier in the day, Reserve Bank of Australia (RBA) Assistant Governor Luci Ellis mentioned, that the central bank’s policy is no longer in expansionary place. However, comments like, “The neutral rate was a moving target and hard to determine at any stage in time,” seemed to have weighed on the AUD/USD prices.

On the other hand, Cleveland Fed President Loretta Mester recently mentioned that the Federal Reserve needs to hike rates further because inflation has not slowed during her speech.

It should be noted that the CME’s FedWatch Tool signals a nearly 78% chance of the Fed’s 75 basis points (bps) of a rate hike in November. Furthermore, US inflation expectations, as per the 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, rose to the highest levels since September 28 while flashing 2.31% level at the latest.

Other than what’s already mentioned above, the global growth fears, raised by the International Monetary Fund’s (IMF) latest projections also weigh on the AUD/USD prices, due to its risk barometer status. On Tuesday, the IMF lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July while citing 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, the US 2-year Treasury yields reverse the previous day’s pullback from a two-week top while picking up bids near 4.31% by the press time.

Moving on, AUD/USD traders should pay attention to the risk catalysts and can keep the bearish outlook ahead of the Federal Open Market Committee (FOMC) Meeting Minutes. While the bears are likely to keep control, any surprises from the Fed Minutes won’t be taken lightly and hence should be traded with caution.

Technical analysis

One-month-old bearish trend channel, currently between 0.6145 and 0.6450, keeps AUD/USD sellers hopeful of refreshing the multi-day low.

• EUR/GBP is aiming towards 0.8900 as BOE’s liquidity infusion plan has violated the price stability agenda.
• The BOE has temporarily paused corporate bonds sale and is purchasing index-linked gilts.
• On Wednesday, ECB Lagarde’s speech and UK data will be in focus.

The EUR/GBP pair is juggling around 0.8850 in the Tokyo session after a sheer upside move. Earlier, the asset delivered a north-side break of the week-long consolidation formed in a range of 0.8726-0.8818. The upside break was logged after the Bank of England (BOE) announced a surprise purchase of index-linked gilts up to GBP5 bln. Simultaneously, the BOE announced a temporary pause in corporate bonds sale this week.

The announcement of liquidity infusion by purchasing index-linked gilts triggered the violation of the agenda of bringing price stability. BOE policymakers are putting blood and sweat to curtail the mounting price pressures and the infusion of fresh liquidity has unnerved the market participants.

The pound bulls are also punished due to vulnerable jobless claims data. As per the UK Office of National Statistics, the number of people applying for jobless claims has increased by 25.5k vs. the consensus of a decline of 11.4k. While the Unemployment Rate has slipped to 3.5% against the projections and the prior release of 3.6%. A better-than-projected improvement in Average Earnings data has delighted the households as they will be better position to offset the impact of higher payouts.

Going forward, investors will keep an eye on the UK Industrial and Manufacturing Production data, which are expected to decline from their prior releases.

Meanwhile, the hawkish commentary from European Central Bank (ECB) Chief Economist Philip Lane has also strengthened the shared currency bulls.  ECB policymaker stated that “the evidence suggests that the euro area is not experiencing a broad-based de-anchoring of medium-term inflation expectations”. This may compel the ECB to keep tightening policy further.

On Wednesday, the speech from ECB President Christine Lagarde will remain in focus. ECB’s Lagarde is expected to provide guidance about the likely monetary policy action by the central bank ahead. Apart from that, the consequences of escalated Russia-Ukraine war situation will be keenly watched.

• Gold price fades the previous day’s bounce off one-week low.
• Firmer DXY, cautious mood exert downside pressure on XAU/USD.
• Bears will seek confirmation of hawkish Fed bets from today’s FOMC Minutes to keep the reins.

Gold price (XAU/USD) renew downside momentum around $1,660, following a brief rebound from the weekly bottom, as the US dollar bulls return to the table during Wednesday’s Asian session. Also weighing on the metal prices could be the firmer yields and cautious mood ahead of today’s Federal Open Market Committee (FOMC) Meeting Minutes.

It should be noted that the latest comments from Cleveland Fed President Loretta Mester offered an immediate catalyst to the gold sellers as the policymaker mentioned that the Federal Reserve needs to hike rates further because inflation has not slowed during her speech.

Hawkish Fed bets and firmer US inflation expectations are also favoring the US dollar’s safe-haven demand, which in turn weighs on the XAU/USD price. That said, the CME’s FedWatch Tool signals a nearly 78% chance of the Fed’s 75 basis points (bps) of a rate hike in November. Furthermore, US inflation expectations, as per the 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, rose to the highest levels since September 28 while flashing a 2.31% level at the latest.

Elsewhere, the International Monetary Fund’s (IMF) latest projections also help the DXY to remain firmer due to its traditional haven status, which in turn weighs on the gold price. On Tuesday, the IMF lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July while citing 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"

That said, the US 2-year Treasury yields reverse the previous day’s pullback from a two-week top while picking up bids near 4.31% by the press time.

Looking forward, the market’s anxiety could keep the XAU/USD bears in command but the FOMC Minutes need to confirm the hawkish bias else there will be higher repercussions.

Technical analysis

Failure to provide a daily closing beyond the 21-DMA hurdle, surrounding $1,674, during the previous day’s corrective bounce off the fortnight low appears to keep the XAU/USD bears hopeful. However, the one-month-old horizontal support area near $1,651-54 challenges the gold sellers.

It should be noted that the clear downside break of the $1,650 support could quickly drag the metal toward the yearly low near $1,615 and then to the $1,600 threshold.

Alternatively, a daily close beyond the 21-DMA hurdle near $1,674 needs validation from the 50-DMA and a four-month-old resistance line, respectively near $1, 716 and $1,732, could challenge the XAU/USD bulls before giving them control.

Overall, sustained trading below the key moving averages and resistance lines joins the downbeat oscillators to favor gold sellers.

Gold: Daily chart

Trend: Further weakness expected

• US Dollar Index steadies after reversing the pullback from two-week high.
• US inflation expectations, upbeat comments from Fed policymakers keep buyers hopeful ahead of Fed Minutes.
• Yields reverse the previous day’s pullback from multi-day top, fears of global economic slowdown add strength to the DXY’s demand.

US Dollar Index (DXY) picks up bids to reverse the previous day’s pullback from a fortnight top, around 113.30 during Wednesday’s Asian session. In doing so, the greenback gauge traces the rebound in the US Treasury yields and the upbeat comments from a Fed policymaker ahead of the all-important Federal Open Market Committee (FOMC) Meeting Minutes.

Cleveland Fed President Loretta Mester recently mentioned that the Federal Reserve needs to hike rates further because inflation has not slowed during her speech.

On the same line, the CME’s FedWatch Tool signals a nearly 78% chance of the Fed’s 75 basis points (bps) of a rate hike in November. Furthermore, US inflation expectations, as per the 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, rose to the highest levels since September 28 while flashing 2.31% level at the latest.

It should be noted that the US 2-year Treasury yields reverse the previous day’s pullback from a two-week top while picking up bids near 4.31% by the press time.

Other than the aforementioned catalysts, the International Monetary Fund’s (IMF) latest projections also help the DXY to remain firmer due to its traditional haven status. On Tuesday, the IMF lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July while citing 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"

Even so, cautious sentiment ahead of the key Fed Minutes and mildly positive stock futures challenge the DXY bulls. That said, the US Producer Price Index (PPI) for September will also direct the US Dollar Index moves but major attention will be given to the minutes as bulls keep the reins.

Technical analysis

Failure to provide a daily closing below the immediate support of 10-DMA, around 112.20 by the press time, joins the impending bull cross on the MACD to direct DXY towards the 114.00 threshold before highlighting the 20-year high marked in September around 114.80.

• EUR/JPY is oscillating around the 38.2% Fibo retracement at 141.50.
• The 20-and 50EMAs are on the verge of delivering a bullish crossover.
• The RSI (14) is attempting to shift inside the bullish range of 60.00-80.00.

The EUR/JPY pair is oscillating in a narrow range of 141.40-141.65 in the early Tokyo session. On Tuesday, the asset rebounded firmly after testing the round-level cushion of 141.00 with lower selling pressures. The cross has been declining for the past week after failing to cross the critical hurdle of 144.00 amid the vulnerable risk appetite of market participants.

On an hourly scale, the cross is aiming to sustain above the 38.2% Fibonacci retracement (placed from September 26 low at 137.38 to the previous week’s high at 144.09) at 141.50. A formation of a Double Bottom chart pattern at around 141.00 has shifted the bias towards the upside.

Meanwhile, the 20-and 50-period Exponential Moving Averages (EMAs) are on the verge of delivering a bullish crossover, which will trigger the upside momentum.

Also, the Relative Strength Index (RSI) (14) is attempting to cross the bullish range of 60.00-80.00 for a sheer upside rally.

A decisive break above Tuesday’s high at 142.19 will drive the cross towards Thursday’s high at 143.45, followed by the ultimate resistance of 144.09, recorded last week.

Alternatively, a drop below the round-level cushion of 141.00 will drag the cross toward 61.8% Fibo retracement around 140.00. A slippage below the latter will expose the asset to drag further toward September 29 low at 139.42.

EUR/JPY hourly chart  

• EUR/USD fades the bounce off a 13-day-old horizontal support.
• Hawkish ECB commentary, pullback in yields triggered previous corrective bounce.
• Higher US inflation expectations, risk-off mood keep bears hopeful.
• Bears eye FOMC Meeting Minutes to confirm high wagers on Fed’s November move, ECB’s Lagarde may struggle to lure buyers.

EUR/USD struggles to defend the latest rebound as it drops back to 0.9710 during Wednesday’s Asian session, following a brief bounce from 0.9670 the previous day. In doing so, the major currency pair helps to term Tuesday’s corrective move as consolidation ahead of today’s key events, namely the Federal Open Market Committee (FOMC) Meeting Minutes and European Central Bank (ECB) President Christine Lagarde’s speech.

The quote’s latest weakness could be attributed to the hawkish comments from US Federal Reserve Cleveland President Loretta Mester as she mentioned that the Federal Reserve needs to hike rates further because inflation has not slowed during her speech.

On the same line could be the International Monetary Fund’s (IMF) latest projections. That said, the IMF lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July while citing 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"

It should be noted that the hawkish comments from the ECB policymakers and a pullback in the US Treasury yields, after refreshing the multi-day high, appeared to have helped the EUR/USD buyers the previous day.

European Central Bank (ECB) Chief Economist Philip Lane said on Tuesday that the evidence suggests that the euro area is not experiencing a broad-based de-anchoring of medium-term inflation expectations. On the same line was the ECB member and Bank of France's head Francois Villeroy de Galhau who said they should reach a neutral rate of close to 2% by the end year. It should be noted that Germany’s optimism of passing through the winter even with the current energy crisis and hopes of further stimulus from the European Union, as confirmed by European Union (EU) Trade Commissioner Valdis Dombrovskis on Tuesday, also favored the quote to snap a four-day downtrend the previous day.

While portraying the mood, the 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. At the latest, the S&P 500 Futures print mild gains around a one-week low whereas the US Treasury yields remain mostly unchanged.

Moving on, EUR/USD traders will pay more attention to the Fed Minutes than the speech from ECB’s Lagarde as the bloc is almost doomed while the US central bank has many ways to entertain the pair bears.

Technical analysis

Despite the corrective bounce off fortnight-old horizontal support near 0.9670-65, EUR/USD remains well below the 50-DMA hurdle surrounding 0.9970 amid bearish MACD signals and downbeat RSI (14), which in turn suggests further downside of the pair.

• NZD/USD holds below 0.5650 recent resistance ahead of key US events, 
• The US calendar is packed for the days ahead with US CPI and FOMC minutes in focus. 

NZD/USD is a touch higher in Asia, printing 0.5590  in a 0.15% move from the session lows of 0.5575 as traders move in on the US dollar as US bond yields tail off from the cycle highs that were made yesterday. The sentiment is the driver as investors look ahead to this week's Federal Open Market Committee minutes and the US Consumer Price index for clarity surrounding the outlook for the Fed.

''Volatility remains elevated and jittery moves this week reflect nervousness and uncertainty more than anything else,'' analysts at ANZ Bank explained, ''Nonetheless, it’s easy to understand why the USD and bond yields are heading higher given the noises the Fed is making, the inflation backdrop, and the geopolitical situation.''

As noted yesterday, the RBNZ is doing the right thing, and New Zealand still has a shot at a soft landing (consumers look pretty resilient, commodity prices remain elevated, exporters are benefiting from a lower NZD, and tourism is rebounding). However, FX markets remain attuned to global themes.,' the analysts added as we head towards this week's key events.

We have the FOMC minutes later today in the US session but the key focus will be on the inflation data later in the week. ''Core prices likely stayed strong in September, with the series registering another large 0.5% m/m 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.''

Meanwhile, as for the Reserve Bank of New Zealand, the central bank still needs to do more to dampen inflation pressures and the sentiment is a supportive factor for the bird.''Consistent with that, we recently revised up our forecast for the Official Cash Rate and now expect it to peak at 4.5%, with 50bp hikes in both November and February,'' analysts at Westpac explained.

• USD/CHF is oscillating around 0.9970 as investors have shifted their focus toward the Fed minutes release.
• JP Morgan Chase has warned of a recession situation in the US economy in the coming six to nine months.
• SNB Jordan’s speech-infused strength in Swiss franc bulls has faded.

The USD/CHF pair is displaying back-and-forth moves in a narrow range of 0.9960-0.9979 in the early Asian session as investors are awaiting the release of the Federal Reserve (Fed) minutes ahead. The pair has turned sideways after witnessing a responsive buying action to near 0.9920 as the risk-off profile found its mojo back.

Late night sell-off in the S&P500 after picking bids cleared that bulls are not ready to take off yet. This supported the US dollar index (DXY) to recover the majority of its losses. At the time of writing, the DXY has rebounded firmly to near 113.30. Also, the 10-year US Treasury yields recovered sharply and are playing around the 4% figure.

The greenback bulls are performing strongly despite the accelerating odds of a recession ahead. Chairman and CEO of JPMorgan Chase, Jamie Dimon, has warned that the US economy could slip into recession in the coming six to nine months. He further added that the Eurozone is already in recession and it may put the mighty US into recession too. He has cited soaring inflation and interest rates, and the war situation as responsible for the recession situation ahead, as reported by NewsBytes.

Meanwhile, investors are shifting their focus towards the release of the Fed minutes, which will elaborate the entire gamut of catalysts responsible for choosing a third consecutive 75 basis points (bps) rate hike. Adding to that, further guidance over policy tightening will be of utmost importance.

On the Swiss franc front, bulls got strengthened after the hawkish commentary from Swiss National Bank (SNB) Chairman Thomas J. Jordan at the IMF meeting in Washington. SNB policymaker cited that the central bank has a clear focus on bringing price stability back to the target by tightening the financial conditions, reported Bloomberg. Although, the strength in the Swiss franc bulls has faded now.

US inflation expectations rose for the second consecutive day on Tuesday as traders await Wednesday’s Federal Open Market Committee (FOMC) Meeting Minutes.

That said, the inflation precursors, as per the 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, rose to the highest levels since September 28 while flashing 2.31% level at the latest.

While noting the details, the longer-term inflation expectations are well above the Fed’s 2.0% target and keep the US Dollar Index (DXY) buyers hopeful even as the previous day’s retreat in the key US Treasury bond yields probed the DXY’s upside momentum.

Not only the inflation expectations and the yields but the hawkish Fed bets also favor the DXY and weigh on the commodities, as well as the Antipodeans.

It should be noted that the CME’s FedWatch Tool signals a nearly 78% chance of the Fed’s 75 basis points (bps) of a rate hike in November. Hence, the market players will look for signals confirming their beliefs to keep the US dollar firmer.

Also read: Forex Today: Dollar resumes advance on risk-averse headlines