• AUD/USD finished the week with substantial losses of 2.61%.
• On Friday, the AUD/USD seesawed on a 200-pip range, notably reaching a weekly close below 0.6200.
• AUD/USD Price Forecast: To tumble to 0.6100 if sellers clear the YTD low; otherwise, a move towards 0.6300 is on the cards.

On Friday, the Australian dollar finished the week on the wrong foot, tumbling below 0.6200 amidst a dampened market mood, with investors dumping everything risk-perceived in the FX space, the Aussie dollar. Therefore, the AUD/USD accelerated its downfall, trading at 0.6199, below Friday’s opening price by 1.58%.

AUD/USD Price Forecast

The AUD/USD daily chart depicts the pair seesawed in a 220-pip range after hitting a daily high of 0.6347 before tumbling under the 0.6200 figure. Worth noting that on its way down, the AUD/USD Friday close was 0.6199, exposing crucial support levels, like the YTD low of 0.6169, which, if cleared, could open the door towards 0.6100.

Oscillators are at oversold conditions, though registering higher lows, while price action is registering lower lows. That said, a positive divergence might be forming.

In the short term, the AUD/USD is neutral biased, though oscillators in negative territory and price action could open the door for further downside action. Therefore, the AUD/USD first support would be the YTD low of 0.6169, followed by the 0.6100 figure. The break below will expose the figure at 0.6000.

Contrarily, if the AUD/JPY bounces from below 0.6200, it would expose essential resistance levels, like 0.6250, followed by the confluence of the 100, 20 and 50-EMAs, around 0.6276/77, followed by the 0.6300 mark.

AUD/USD Key Technical Levels

• GBP/JPY erases some of its gains, set to finish the week with more than 3% gains.
• GBP/JPY traders mainly ignored UK’s political turmoil.
• The cross-currency is range-bound, as depicted by the one-hour chart.

The GBP/JPY trims some of its Thursday’s losses but remains nearby weekly highs at around the 166.00 area, despite UK’s political turmoil, weighing on the GBP/USD, the GBP/JPY continues to hold to gains due to the Bank of Japan dovish stance. Therefore, the GBP/JPY is trading at 166.16, below its opening price by 0.33%.

GBP/JPY Price Forecast

The GBP/JPY daily chart was unchanged compared to Thursday, though it should be noted that the exchange rate is above the October 5 high of 165.71, which could keep the GBP/JPY trading within the 165.71-167.27 range. Oscillators remain in positive territory, keeping the neutral-to-upward bias intact, though a break above 167.27 would pave the path to 167.94, ahead of challenging the YTD high at 168.73.

The GBP/JPY one-hour scale portrays the pair consolidating between the 20 and 50-EMAs, while the Relative Strength Index (RSI) is almost flat but at bullish territory. Upwards, the first resistance would be the 20-EMA at 166.42, followed by the daily high at 167.21, ahead of the 168.00 figure.

On the other hand, the GBP/JPY first support would be the daily pivot at 165.45, immediately followed by the 50-EMA at 165.27. Once that 18-pip area cleared, the GBP/JPY could tumble to the 165.00 area, followed by the S1 pivot at 163.59.

GBP/JPY Key Technical Levels

• The dollar breaks above parity and reaches a two-year high at 1.0065.
• Hopes of Fed tightening are boosting the US dollar.
• USD/CHF: Above 1.0074/98, higher targets are likely – Credit Suisse.

The US dollar has extended its rally against the Swiss Franc on Friday, breaking finally above the parity level, to test May highs at 1.0065. The pair is on track to close its fifth consecutive positive week after rushing 5% up from mid-September lows.

The greenback surges on Fed tightening hopes

The US consumer price data released on Thursday confirmed the resilient inflationary pressures on Thursday and boosted confidence in a fourth consecutive 0.75% Fed hike in November. This has increased the attractiveness of the US dollar for investors.

Furthermore, the growing concerns about a global recession on the back of a series of downbeat figures are also favoring the US dollar, seen as a safe haven in times of uncertainty.

USD/CHF: Breach of 1.0074/98 will open the path for higher targets  – Credit Suisse

FX analysts at Credit Suisse point out a key resistance area at 1.0074/98: “Above the 1.0074/98 major barrier would be seen to clear the way for strength to the highs of 2019 at 1.0226/35.”

Technical levels to watch

• The dollar takes a breather after reaching 148.85 high.
• Monetary policy divergence crushes the yen. 
• USD/JPY: Potential top at 149.17/150.00.

The dollar accelerated its rally against the Japanese yen on Friday to hit session highs at 148.85. The pair has surged beyond 3% in an eight-day rally, reaching its highest levels since 1990.

Yen hammered by monetary policy divergence

The Japanese yen is dropping like a stone weighed by the monetary policy divergence between the Bank of Japan and the Federal Reserve, and also the rest of the world’s major central banks.

While the Fed is expected to hike interest rates by 0.75% for the fourth consecutive time in November, the Bank of Japan remains committed to its ultra-expansive policy, which makes the yen less attractive for investors.

At this point, the pair has appreciated well above the level that triggered intervention by the Bank of Japan last month. So far the bank has remained inactive, however, the  Japanese finance minister Suzuki reiterated on Thursday the government’s commitment to take action against excessive currency volatility.

USD/JPY: Potential top at 149.17/150.00 area – Credit Suisse

According to FX analysts at Credit Suisse, the pair might be near a potential top: “Our bias remains for a deeper push higher into the 147.62/153.01 zone with resistance above 147.62/68 seen next at 148.42 ahead of trend resistance from April at 149.17. With rare gap resistance from August 1990 seen at 149.31 and the psychological 150.00 barrier just above, we look for a potential top in this 149.17/150.00 zone.” 

Technical levels to watch

• New Zealand's dollar dives from 0.5680 high to 0.5550 area.
• The kiwi approaches long-term lows at 0.5475.
• The US dollar appreciates on expectations of another 0.75% FED rate hike. 

The New Zealand dollar is going through a strong reversal on Friday, weighed by the overall USD strength. The kiwi turned down from session highs near 0.5700 to 0.5550 so far, approaching the 2020 low at 0.5475.

The kiwi plunges on US dollar strength

The greenback is rallying across the board on Friday, paring losses seen earlier this week, with investors anticipating the fourth consecutive 75 basis points rate hike in November. The higher-than-expected US inflation data seen on Thursday has offered additional reasons for the bank to maintain its aggressive monetary tightening cycle.

Beyond that, investors concerns about an upcoming global recession have also favoured the US dollar on the back of its safe-haven status.

In the macroeconomic docket, New Zealand’s Business NZ PMI data showed a larger-than-expected deceleration in September. Business activity slowed down to 52 from 52.5 in August, against expectations of a 52.5 reading.

Technical levels to watch

• GBP/USD plummets below 1.1200 due to political/economic turmoil in the UK.
• US Consumer Sentiment improved while inflation expectations arose.
• UK’s PM Liz Truss makes a U-turn on corporate tax, increasing it to raise GBP 18 billion.

The British pound extends its loss amidst two weeks of turmoils, courtesy of UK’s PM Liz Truss’s mini-budget, which ended with the Chancellor of Exchequer, Kwasi Kwarten, replaced by James Hunt, as the PM Truss tries to calm the markets. Additionally, the Bank of England finished its emergency bond-buying program as scheduled, buying close to GBP 2 billion on Friday.

At the time of writing, the GBP/USD is trading at 1.1177, below its opening price, after hitting a daily high of 1.1366.

GBP/USD plunges on political turmoil in the UK; mixed US economic data

US equities are tumbling sharply, a U-turn from Thursday’s reaction to US CPI. Fed officials reiterated that inflation is high, the labor market tight and that further rate hikes are coming. San Francisco’s Fed Mary Daly said that the Federal funds rate (FFR) could peak at around 4.5-5.0% as the US central bank does its best to tame inflation.

Therefore, the GBP/USD tumbled as the greenback got bolstered by investors, on ramping expectations for further Fed tightening. Meanwhile, the US Dollar Index advances 0.75%, at 113.303, underpinned by rising US Treasury yields. Worth noting that the US 10-year yield gains five bps, up at 4.0%.

Data-wise, US Retail Sales disappointed investors, while the University of Michigan Consumer Sentiment exceeded August’s figures. However, American inflation expectations rose by 5.1% in the one-year horizon, above last month’s 4.7%.

On the UK’s side, Prime Minister Liz Truss replaced the former Chancellor Kwarteng with James Hunt while increasing the corporate tax from 18% to 25%, which will raise GBP 18 billion a year. At the same time, the Bank of England finished its bond-buying program, aimed to stabilize the markets, though Gilts, namely the 30-year, is up 26 bps, yielding 4.80%,

Given that backdrop, further volatility will hit the GBP/USD next week. Traders should be aware of over-the-weekend developments in the UK, as speculations mount that Liz Truss could step down as Prime Minister, which is perceived as bullish for the pound. Otherwise, hawkish Fed expectations, and political uncertainty in the UK, would favor the greenback.

GBP/USD Key Technical Levels

• Euro recovery from the 0.8600 area extends past 0.8700.
• The pound weakens after PM Truss sacks her finance minister.
• EUR/GBP faces resistance at 0.8750 and 0.8865.

The euro is picking up on Friday after the sharp declines seen over the previous two days. The pair returned above 0.8700 on the confirmation that Prime Minister, Liz Truss, has dismissed the finance minister Kwasi Kwarteng.

The pound pulls back after a two-day rally

The euro is capitalizing on the pound’s weakness to appreciate about 0.8% on Friday, with the cable giving away previous gains triggered by speculation about a U-turn on the UK Government’s controversial tax cuts plan.

In the absence of relevant macroeconomic data in the UK or the EU, investors have remained cautious regarding GBP longs, wary about potential volatility. Friday is the deadline set by the Bank of England to end its bond-purchasing program.

EUR/GBP should breach 0.8750 to gain traction

On the upside, above 0.8700, the pair should extend beyond 0.8750, where the 100 and 200-hour SMA meet, to aim towards the October 12 high at 0.8865.

On the downside, the support at 86.15 is holding bears so far. Below here, the next potential targets could be at 85.65 (September 6 low) and 83.90/00 (August 8, 17, and 24 lows).

Technical levels to watch

• EUR/USD erases Thursday’s gains, losing 0.53% on Friday.
• US Consumer Sentiment improved, though Retail Sales slowed down.
• EUR/USD Price Forecast: Break above the 20-day EMA, the major could challenge 0.9800; otherwise, it could test the YTD low.

The EUR/USD losses its grip around the 20-day EMA and edges lower as the North American session progresses, amidst a firm US dollar, following the release of a US hot inflation report on Thursday, while mixed US economic data, and hawkish Fed commentary, bolstered the buck. At the time of writing, the EUR/USD is trading at 0.9724.

Friday’s price action witnessed the EUR/USD opening around the highs of the day of 0.9808, above the 20-day EMA, but buyers unable to hold the fort paved the way for further losses.

EUR/USD falls despite weaker US Retail Sales; consumer sentiment improved

The US Commerce Department reported that Retail Sales stagnated in September, with figures coming at 0% MoM, below estimates of 0.2%, while on an annual based, decelerated even further, from 9,15% to 8.41%, reflecting the shock of Fed’s monetary policy.

Later, the University of Michigan Consumer Sentiment improved steadily in October, as the index jumped to 59.8 from 58.6., though inflation expectations were upward revised, with prices foreseen to rise 5.1% from 4.7%.

The data barely moved the EUR/USD, though Fed speaking, boosted the greenback. Fed’s Geroge, Daly, and Cook reiterated that inflation is too high and that monetary policy needs to be restrictive for longer to tackle inflation. Daly added that she estimates the Federal funds rate (FFR, peaking at 4.50-5.0%, while Lisa Cook expressed that the Fed should avoid a “stop and go” approach to raising interest rates.

Aside from this, the International Monetary Fund (IMF) predicted recessions in Italy and Germany in 2023. Therefore, if it looked gloomier, the Eurozone scenario now looks even worse. Eurozone data revealed in the European session saw Spain’s inflation heightening less than estimates, while France’s data followed suit.

Some ECB speakers crossed wires. ECB’s Vasle said 75 bps in October and December might be appropriate, while ECB’s Centeno added that the ECB must be “tough” on inflation while suggesting that QT discussions should be pushed to the following year.

EUR/USD Price Forecast

The EUR/USD daily chart illustrates the major stalled at the 20-day EMA, which exacerbated a fall towards the 0.9720 area. Key support lies at 0.9700, which, once cleared, could open the door for YTD low re-test at 0.9535. On the flip side, if the EUR/USD reclaims 0.9786, the major could challenge 0.9800.

• Silver prices accelerate their downtrend to approach the support area at $18.10.
• Precious metals lose ground amid US dollar strength.
• Below $17.60 XAG/USD will be exploring two-year lows.

Silver futures have accelerated their downtrend on Friday, weighed by the overall US dollar recovery. XAG USD has lost more than 4% so far today and is on track to complete a six-day sell-off.

Approaching mid-term lows at the $18.00 area

Precious metals are on the back foot on Friday, with the US dollar appreciating amid hopes that the Federal Reserve will announce the fourth consecutive 75 bp rate hike in November. US CPI figures released on Monday confirmed the resilient inflation pressures paving the path for the Fed to keep ramping up interest rates.

Furthermore, increasing fears of a global recession, on the back of a set of downbeat macroeconomic data is also pushing wary investors towards the safe-haven greenback.

Against this backdrop, silver prices have plummeted from prices beyond $21 in early October to the lower range of $18 on Friday, entering a narrow area between $18.10 and $17.60, which contains July, August, and September’s lows.

With technical indicators highlighting the strong bearish momentum, a successful breach of $17.60 might take the pair to explore June 2020 lows at the $17.00 area and Apr 14, 2020 high at S15.85.

On the upside immediate the pair should breach the 50 and 100-days SMAs, at $19.25 and $19.85 respectively to regain bullish traction and test the $230.00 psychological level.

XAG/USD daily chart

Technical levels to watch

• WTI oil prices drop 8% on the week to test $85.50 lows.
• Recession fears are weighing on crude prices.
• WTI price forecast upgraded to $94 in Q4 – TDS.

WTI futures resumed their downward trend on Friday, and are on track to an 8% weekly depreciation after having peaked at $93.58 on Monday. The US oil benchmark is retracing gains from Thursday’s rebound to test the support area at $85.50.

Oil prices drop amid increasing recession fears

Crude prices have gone through a strong reversal this week with the market increasingly concerned about the potential impact on demand of a global recession combined with aggressive monetary tightening by most of the major central banks.

The CPI report released in the US earlier this week has confirmed the resilience of inflation pressures, which offers additional reasons for the Federal Reserve to approve another aggressive rate hike in November.

As a matter of fact, Federal Funds futures priced in a 13% chance of a 100 basis point hike immediately after the release of the US inflation data. These tightening hopes increase the attractiveness of the US dollar to investors, weighing further on oil prices.

This week’s events have offset the positive impact on oil prices of the production cuts announced by OPEC+ last week. The club of the world’s largest oil suppliers agreed slashing production by 2 million barrels per day, the largest cut since the outbreak of the COVID-19 pandemic.

WTI price forecasts upgraded to $94 in Q4 – TDS

From a wider point of view, strategists at TD Securities remain confident about the chances that OPEC+ cuts will end up pushing prices higher: “We are comfortable in saying that the most recent production targets from OPEC+ have very convincingly tilted price risks to the upside. For that reason, we have upgraded our Q4-22 WTI forecast to $94/b ($99/b Brent) and the 2023 average to $97/b ($101/b).”

Technical levels to watch

• AUD/USD remains heavy, extending its weekly losses by 2.28%.
• Mixed US economic data bolstered the greenback, which trimmed Thursday’s losses.
• Australia’s non-farm average earnings jumped 5.0%, opening the door for inflation’s upside.

The AUD/USD is erasing Thursday’s gains after a hotter-than-estimated US inflation report, dropping below 0.6300 due to a risk-off impulse in the markets as traders re-position themselves for another jumbo-size Fed rate hike in November, while the greenback advanced. At the time of writing, the AUD/USD is trading at 0.6225, below its opening price, after hitting a daily high of 0.6349 in the early European session.

AUD/USD gives way below 0.6300 on deteriorated sentiment and broad US dollar strength

Sentiment remains dampened, as shown by falling stocks in the US. Further US economic data showed that consumer spending is weakening, as demonstrated by September’s Retail Sales coming at 0% MoM, below estimates, and August’s 0.3%. Annually based sales slowed by 8.41% annually, while the University of Michigan Sentiment improved edged higher to 59.8, exceeding estimates, though inflation expectations for one year heightened to 5.1%, up from August’s 4.7%.

In the meantime, Fed officials George, Daly, and Cook crossed news wires. The Fed’s rhetoric stays the course, with the three of them repeating that inflation is too high, that rates need to get into restrictive territory, and that the Federal funds rates (FFR) must be at around 4%.

In the meantime, the US Dollar Index, a measure of the buck’s value vs. six currencies, trims Thursday’s losses, up 0.72% at 113.250, a headwind for the AUD/USD.

On the Australian side, non-farm average earnings climbed 5.0% YoY in the second quarter, almost double the Wage Price Index at 2.6% YoY. Therefore, it increases the likelihood of higher inflation in Australia amid a deceleration of the RBA’s rate hikes, despite futures traders expecting rates to peak above 3%.

AUD/USD Key Technical Levels

According to the Federal Reserve Bank of Atlanta's GDPNow model, the US economy is expected to grow at an annualized rate of 2.8% in the third quarter, down slightly from 2.9% in the previous estimate.

"After recent releases from the US Bureau of Labor Statistics and the US Census Bureau, the nowcast of third-quarter real personal consumption expenditures growth decreased from 1.3% to 1.2%," the Atlanta Fed explained in its publication.

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen rising 0.65% on the day at 113.20.

Analysts at MUFG Bank see the AUD/USD pair falling back toward 0.6000 from current levels on the back of global recession fears, and a wider divergence between the Federal Reserve and the Reserve Bank of Australia (RBA). 

Key Quotes:

“We continue to expect the USD to strengthen further in the near-term as global financial conditions continue to tighten. The much stronger-than-expected US CPI report for September has reinforced our view that it is premature to expect a dovish Fed policy pivot. The Fed remains on track to continue faster rate hikes through the rest of this year.”

“The sharp tightening of financial conditions will reinforce fears over a hard landing for the global economy which is dragging raw industrial commodity prices closer to bear market territory. The RBA acknowledged that global slowdown risks are becoming more important in setting monetary policy at their last policy meeting, and slowed the pace of rate hikes. A wider policy divergence between the Fed and RBA in the near-term will reinforce downward pressure on the AUD.”

“We expect the AUD/USD to fall back towards the 0.6000-level and closer to the COVID lows from March 2020. One potential risk to our short trade idea is posed the upcoming Communist party Congress in China if it signals a shift to more growth friendly policies such as easing the strict zero-COVID strategy.”
 

Analysts at Rabobank continue to see difficult times ahead for the British pound. They point out that while expectations of a more prudent fiscal stance by the government inspired some bargain-hunters this week, the outlook for the pound remains troubled.

Key Quotes: 

“The release earlier in the week of a much worse than expected print for UK August GDP data suggests that the economy is already sliding into recession. The economy shrank by -0.3% m/m following a downwardly revised expansion of just 0.1% in July. Given the extra bank holiday in September, which will weigh on output, it now appears very likely that GDP for the whole of the quarter will show a contraction.”

“The Bank of England warned in the summer of the risk of a five quarter recession starting in Q4 this year. Even without the debacle created by the government, an earlier start to recession would be a factor worthy of downside pressure on the pound.”

“The removal of unfunded tax cuts will come as a relief, but the line-up of UK fundamentals is still worse than they were ahead of the September mini budget. Over the coming days it will become more obvious whether the PM’s U-turns and the intervention by the BoE have done enough to reassure investors.”

“We haven’t seen enough good news to alter our 3 month forecast of GBP/USD1.06, though this assumes continued broad-based USD strength.”
 

• The euro breaks above 144.00 to approach September's peak of 145.45.
• The yen remains weak, with the USD/YPY at a 34-year high.
• Investors are wary about the possibility of a BoJ intervention.

The euro maintains its firm tone against a battered Japanese yen on Friday. The pair has extended its recovery from levels sub 141.00 earlier this week, to extend beyond 144.00, with September’s peak, at 145.45 on sight

The Japanese yen drops across the board

The common currency has capitalized on the broad-based Japanese yen’s weakness, to appreciate nearly 2.5% so far this week. The yen is suffering against its main peers, with the USD/JPY reaching a 34-year high on Friday.

The greenback has actually broken past the level that triggered an intervention by the Bank of Japan last Month, which has set investors on alert. On Thursday, Japanese finance minister Suzuki reiterated the government’s commitment to take action against excessive currency volatility.

The yen is under strong negative pressure, weighed by the Fed – BoJ monetary policy divergence. With most of the major central banks immerse in a steep monetary tightening cycle, and the Federal Reserve expected to increase rates by 0.75% for the fourth consecutive time in November, the ultra-expansive policy of the Japanese Central bank is crushing demand on the yen.

Technical levels to watch

The preliminary October report of the University of Michigan's Consumer Sentiment showed an increase in sentiment and also in inflation expectations. According to analysts at Wells Fargo, critical long-term inflation expectations remain at a level the Federal Reserve will still consider well-anchored. 

Key Quotes: 

“The preliminary release of consumer sentiment from the University of Michigan for September revealed a modest increase in optimism. Overall sentiment rose to 59.8, a 1.2 point gain from 58.6 a month earlier. Sentiment was lifted by consumer views of current conditions specifically, which jumped by the most in over a year and a half to a reading of 65.3.”

“Short-term expectations remain more volatile and are still at an elevated level of 5.1%. More importantly, longer-term expectations remain well-within the past decades range. At 2.9%, the Fed will still view expectations as "well-anchored", a topic it puts great emphasis on when setting monetary policy.”

“Even with expectations remaining well-anchored, we expect the Fed will continue with another super-charged 75 bps rate hike at its November 2 meeting.”

As part of its regular survey ahead of the quarterly refunding announcements, the US Treasury Department is asking major banks whether the government should buy back government bonds to improve the market liquidity, Reuters reported on Friday. 

"The Treasury is also querying whether reduced volatility in the issuance of Treasury bills as a result of buybacks made for cash and maturity management purposes could be a meaningful benefit for Treasury or investors," Reuters further noted.

Market reaction

Safe-haven flows continue to dominate the financial markets in the last session ahead of the weekend. As of writing, the S&P 500 Index was down 1.9% on a daily basis at 3,600 points.

The EUR/USD pair is about to end the week at the same level it had a week ago. The main trend is bearish. Analysts at MUFG Bank remain bearish on the euro despite the policy support and even as the European Central Bank hikes interest rates further. 

Key Quotes:

“EUR a clear beneficiary of successful energy storage action ahead of winter.”

“Further fiscal support lowers the negative macro impact risks but risks still remain high.”

“ECB concerns over inflation intensifying.”

“We remain bearish EUR despite the policy support and further ECB hikes. Those hikes are fully priced and along with Fed action only reinforce the risks related to tighter financial conditions. Recent EUR performance suggests declines could prove more modest than say the declines versus USD for the higher beta G10 currencies.”
 

• The US dollar appreciates again on Friday and approaches 1.3800.
• A mixed US Retail Sales report has been overlooked.
• USD/CAD seen appreciating beyond 1.4000 – TDS.

The US dollar firmed up on Friday to retrace most of the previous day’s losses. The pair has reached a session high at 1.3875, after bouncing near 1.3700 earlier today, and is on track to close the week with a moderate advance.

Subdued reaction to a mixed retail sales report

The greenback has been little changed by the release of a mixed consumption report. Retail sales remained flat in September, against expectations of a 0.2% monthly increase, in a sign that higher food and energy prices might be starting to bite into the cash available for big-ticket purchases.

Consumption data, however, has also shown some positive aspects. The core retail sales (excluding automobiles) increased against expectations at a 0.1% pace.

Beyond that, the USD ends the week in a positive tone, following the strong US inflation figures seen on Thursday, which have boosted expectations for the fourth 0.75% rate hike at November’s monetary policy meeting.

USD/CAD could easily appreciate beyond 1.40 – TDS

Currency analysts at TD Securities see the CAD dropping further which might push the pair beyond 1.40: Even if the next phase of USD strength is not as linear as it has been for much of this year, there is a lot of negative idiosyncratic risk coming the CAD's way with the debt servicing problem for households only in the early days (…) While we have forecast 1.40 into year-end, it is no ceiling and it could very easily get worse for the CAD.”

Technical levels to watch

Data released on Friday showed retail sales remained unchanged in September compared to August. Stripping volatile retail segments suggests some modest upward risk to third-quarter goods spending, explain analysts at Wells Fargo. They point out that the report adds to recent evidence that consumer staying power may be waning, but it's showing few signs of breaking.

Key Quotes: 

“Consumer goods purchases are slowing, but not collapsing. Inflation-adjusted retail sales have more or less moved sideways for the past year and a half; an impressive feat when inflation is running at a 40-year high.”

“The next few months of spending are going to be influenced by a few factors. As consumers start to spend for the holidays, goods spending may see another near-term boost, and it will likely show up somewhat in the October data as households pull purchases forward. That, however, may be modestly offset by the effects from Hurricane Ian which made landfall in Florida on September 28. This disruption may be more apparent on the services side of spending.”

“Households have broadly looked past elevated inflation and continued to spend by relying on their balance sheets and accumulated savings. We expect overall spending to continue to moderate as inflation persists and tighter monetary policy begins to weigh more meaningfully on consumption.”

• Gold price extended its weekly losses by 2.8%, below $1650.
• US data reported that retail sales disappointed while consumer sentiment improved.
• XAU/USD Price Forecast: The break below $1660 opened the door for a test of the weekly low at $1642.49.

Gold price extends its losses, while the greenback recovered some ground following Thursday’s US inflation report, which will keep the Fed’s pedal to the metal as traders brace for big rate hikes in November and December FOMC’s meetings. The XAU/USD is trading at $1646 a troy ounce after hitting a daily high of $1671.

XAU/USD tumbles as the US dollar strengthens, underpinned by high US T-bond yields

US equity indices opened in the red, portraying a negative sentiment. US Retail Sales showed consumers are beginning to feel the shock of higher interest rates, with September’s sales decelerating from 0.3% to 0% MoM, below expectations, and slowed by 8.41% annually. Of late, the University of Michigan Consumer Sentiment edged higher to 59.8, exceeding estimates but inflation expectations for one year rose to 5.1%, above forecasts of 4.7%.

Meanwhile, a slew of Fed policymakers are crossing newswires, led by Fed’s George, Daly, and Cook. The Kansas City Fed, Esther Goerge, said that the only piece of clear data is that inflation is high in the US. She echoed previous commentaries of her colleagues, saying that the rates need to get into restrictive territory, though she’s not clear on where rates will peak.

Later the San Francisco Fed Mary Daly said that inflation is not cooling, while today’s retail sales flashed some signs of easing. She reiterated what Fed’s George expressed the need to get policy restrictive and foresees the Federal funds rate (FFR) to peak at around 4.5%-5%.

At the same time, one of the Fed’s new members Lisa Cook, repeated some of its last week’s speech, saying that inflation remains “stubbornly and unacceptably high” and added that she does not want a “stop and go” policy.

Given the backdrop, XAU/USD ignored most Fed officials’ comments, hovering just below $1650. US Treasury bond yields, namely the 10-year, edge up three and a half bps, at 3.987%, capping the recovery of the yellow metal.

What to watch

Next week, the US economic docket will feature the NY Empire State Manufacturing Index, the Philadelphia Fed Index, Industrial Production, and unemployment claims. Additionally, Fed speakers will continue to dominate the headlines.

XAU/USD Price Forecast

XAU/USD’s consolidated during the week around the $1660-80 range until Thursday when it dived toward the weekly low of $1642.49. nevertheless, trimmed losses and closes within the previously mentioned range. On Friday, XAU/USD has decisively broken below the range after facing solid resistance at the 20-day EMA, opening the door for a weekly low test, which, once cleared, could send XAU/USD sliding towards the September 28 low of $1614.92.

• Japanese yen continues its decline across the board.
• USD/JPY at levels not seen since 1990, approaches 150.00.
• Intervention is unlikely over the next hours but Monday is another story.

The USD/JPY rose further during the American session and printed a fresh 32-year high around the 148.50 area. US economic data showed increased inflation expectations and boosted the pair further.

The University of Michigan Consumer Confidence report showed an increase in long-term inflation expectation from 2.7% to 2.9%, triggering a new run in US yields that weighed on the Japanese yen.

No matter what, USD/JPY keeps going up

The USD/JPY is about to post the ninth weekly gain in a row. Since mid-August, it has risen by more than 1500 pips and there are no signs of stopping. Neither the intervention from the Bank of Japan/Finance Minister nor the threats of more action alleviated the bearish pressure.

The divergence between the ultra-accommodative Bank of Japan and the tightening from the Federal Reserve (and many more central banks) is being ratified daily, leading to an everyday gain in USD/JPY.

No intervention seems likely over the following hours, even as the USD/JPY approaches 150.00. On Monday, the story could be a different one.

Technical levels

A rollercoaster session post the US Consumer Price Index (CPI) data saw S&P 500 completing a large bullish “reversal day.” Analysts at Credit Suisse expect the index to enjoy a deeper recovery phase.

Holding above the key 200-week average to allow a deeper recovery

“We have probably seen a low for now and we can look for a consolidation phase and more likely a deeper recovery.”

“Above 3688 can see the immediate risk stay higher for 3707 next, then the top of the price gap from last Friday at 3745. A close above here is needed to reinforce the likelihood a more important low is indeed in place for a test of the current October high and 38.2% retracement of the August/October fall at 3807/10. Beyond here is needed to mark a near-term base.”

“Support from the 200-week average at 3600 needs to hold on a closing basis to avoid an immediate retest of 3505/3492.”

In an interview with Yahoo Finance on Friday, San Francisco Fed President Mary Daly said that this week's Consumer Price Index (CPI) data was not that surprising, noting that it's a lagging indicator, as reported by Reuters.

Additional takeaways

"Today's retail sales report is another sign of some cooling."

"We will have to be data-dependent on rate hikes."

"We are working in a global economy, lots of uncertainty and risks."

"No doubt that we need more restrictive policy."

"Fed's Summary of Economic Projections is not stale; it is a good guidepost for policy."

"I still think September projections are really reasonable."

"We are tightening into a strong economy."

"Data are coming in about what we would expect."

"Mindful about making sure inflation doesn't become embedded."

"We'll stop raising rates when appropriate, and then will hold it for a while."

"We can correct our course if needed."

"4.5%-5% is most likely top fed funds rate, then will hold it there."

"Not hearing signs of recession when talking with contacts in the district."

"People expect the slowdown to be short-lived, not deep."

"Labor market needs to cool further."

"We are committed to bringing demand back in line with supply."

Market reaction

The US Dollar Index was seen rising 0.55% on the day at 113.08 after these comments.

USD/JPY has finally achieved Credit Suisse’s long-held core objective from April at 147.62/153.01 – the 1998 high and 38.2% retracement of the 1982/2011 bear trend. The pair is set to see an important top here.

Initial support seen at 146.86 

“Our bias remains for a deeper push higher into the 147.62/153.01 zone with resistance above 147.62/68 seen next at 148.42 ahead of trend resistance from April at 149.17. With rare gap resistance from August 1990 seen at 149.31 and the psychological 150.00 barrier just above, we look for a potential top in this 149.17/150.00 zone.” 

“Support is seen at 146.86 initially with the immediate bias seen higher whilst above 146.52. A break can see a deeper setback to the 13-day exponential average at 145.70/64, but wit h fresh buyers expected here.”

Kansas City Fed President Esther George said on Friday that they have no clear narrative on the outlook for growth in today's murky economic landscape and added that the only piece of clear data is that  high inflation, as reported by Reuters.

Additional takeaways

"We are operating in a tight economy."

"I am watching if persistently high inflation seeps into expectations. If it does, trade-offs become more costly."

"Faster supply growth unlikely to take care of inflation problem."

"Financial conditions have tightened considerably this year, but clear more to be done."

"We need to move into restrictive territory."

"How restrictive remains to be seen."

"I expect rates will have to move higher for a sustained period, but moving too fast could disrupt financial markets."

"Policy actions also have a lag, impact on the real economy is still likely playing out."

Market reaction

The US Dollar Index preserves its bullish momentum following these comments and was last seen rising 0.65% on the day at 113.18.

• Consumer confidence in the US improved modestly in early October.
• UoM's long-run inflation outlook edged higher to 2.9% from 2.7%.

Consumer sentiment in the US improved slightly in early October with the University of Michigan's (UoM) Consumer Confidence Index edging higher to 59.8 (flash) from 58.6 in September. This print came in better than the market expectation of 59.

The Current Conditions Index rose to 65.3 from 59.7 and the Expectations Index declined to 56.2 from 58.

The report further revealed that the one-year inflation expectation rose to 5.1% and the five-year inflation expectation edged higher to 2.9% from 2.7%.

Market reaction

The greenback preserves its strength after this report and the US Dollar Index was last seen rising 0.55% on the day at 113.08.

EUR/USD was capped around 0.98 again. Nevertheless, the world's most popular currency pair could develop a test of parity in the coming days, in the view of economists at Scotiabank.

Key resistance for the euro aligns at 0.9810 

“The charts are really dominated by yesterday’s huge swing and a bullish – for the EUR – outside range session which may set the pair up for a test of parity in the next few days.”

“Key resistance is at 0.9810 intraday.” 

“Support is seen at 0.9710/20.”

British Prime Minister Liz Truss said on Friday that they have decided to keep the corporation tax rise and added that this will act as a downpayment on the medium-term fiscal plan, confirming the earlier reports of a U-turn on the mini-budget.

Additional takeaways

"I am not prepared to accept a lack of growth for our country."

"I want to deliver a low tax, high wage, high growth economy."

"Global economic conditions are worsening."

"It is clear that parts of our mini budget went further and faster than markets were expecting."

"We need to act now to reassure markets of our fiscal discipline."

"We will do whatever is necessary to ensure the debt is falling as a share of GDP in the medium term."

Market reaction

These comments failed to help the British pound find demand and GBP/USD was last seen losing 1.2% on the day at 1.1195.

Gold turns lower and remains vulnerable. The chance of yet another supersized 75 bps rate hike at the November FOMC meeting is set to help the US dollar, economists at TD Securities report.

Disinflation everywhere but the CPI data

“Disinflation everywhere but the CPI data. That is the narrative emerging from the sharp U-turn in risk sentiment following the hot inflation print, which acknowledges that the soaring shelter components of inflation hold long lags to the disinflation observed in real-time rent data. However, this fails to acknowledge that private rents have been slowing for months, with the relief observed in private rents only likely to appear in the CPI data by the second half of next year.” 

“Stripping out shelter, core services inflation printed a new post-covid high and continues to run hot. In turn, the recovery in risk assets and precious metals may instead be a symptom of market illiquidity, which cuts both ways.” 

“Gold prices still need to break above $1,730 to extend the short squeeze. Nonetheless, with markets already fully pricing in a 75 bps hike for the next FOMC meeting, gold prices will need continued dollar strength to print a new low.”

• USD/TRY extends the side-lined trading below 18.60.
• Türkiye’s End Year CPI Forecast came at 67.78%.
• The CBRT is expected to cut the policy rate next week.

USD/TRY keeps the range bound theme well in place for yet another session on Friday.

USD/TRY now shifts the focus to the CBRT

No changes to the snail-paced depreciation of the Turkish currency, as USD/TRY remains stuck within the multi-session consolidative theme just below the 18.60 region.

The current recovery of the greenback keeps the upside pressure around the pair unchanged, while the relentless exodus from the lira also continues to play its part in the ongoing price action.

In the meantime, investors are expected to shift their attention to the CBRT meeting next week, when the central bank is seen reducing further the One-Week Repo Rate (likely by another 100 bps) amidst the “Türkiye Economic Model”, aimed at boosting exports, production and investment to achieve a current account deficit, all via lower rates.

In the domestic calendar, the End Year CPI Forecast was revised marginally up to 67.78% (from 67.73%).

What to look for around TRY

USD/TRY keeps navigating the area of all-time highs 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 and shift the current account deficit into surplus following a lower-interest-rate recipe.

Key events in Türkiye this week: 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 0.32% at 18.5872 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 18.2082 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low).

USD/CHF has rejected a major resistance at 1.0074/98. Analysts at Credit Suisse look for the pair to remain capped here for a potential near-term move lower.

Break past 1.0074/98 to clear the way for further gains 

“USD/CHF’s surge was capped at the major resistance at the trendline from 2016 at 1.0075. This strong reversal lower paired with daily RSI holding a bearish divergence continues to strengthen the case for a near-term weakness, though with the recent volatility in mind, and with an absence of a more material break lower, we stay near-term neutral for now.”

“Immediate support is seen at the recent low and the 13-day exponential average at 0.9929/13, though only a close below 0.9876 would raise more serious thoughts of the near-term risk shifting lower again.” 

“Above the 1.0074/98 major barrier would be seen to clear the way for strength to the highs of 2019 at 1.0226/35.”

• USD/CAD retreats from daily peak amid the emergence of fresh selling around the USD.
• Sliding US bond yields and the risk-on impulse is seen weighing on the safe-haven buck.
• Falling crude oil prices undermine the loonie and help limit the downside for the major.

The USD/CAD pair quickly retreats around 75-80 pips during the early North American session and is currently placed in neutral territory, around mid-1.3700s.

The US dollar surrenders its strong intraday gains and slides back closer to the weekly low touched earlier this Friday, which, in turn, prompts fresh selling around the USD/CAD pair. A fresh wave of the risk-on trade, along with retreating US Treasury bond yields, turn out to be key factors exerting some downward pressure on the safe-haven greenback. That said, the prospects for a more aggressive policy tightening by the Fed should act as a tailwind for the US bond yields and the buck.

In fact, the fed fund futures indicate a greater chance of the fourth successive 75 bps supersized rate hike by the US central bank at the next policy meeting in November. The bets were reaffirmed by the stronger US consumer inflation figures released on Thursday. Apart from this, a sharp intraday fall in crude oil prices is seen undermining the commodity-linked loonie and offering support to the USD/CAD pair. This, in turn, warrants some caution for aggressive bearish traders.

The markets, meanwhile, reacted little to mixed US Retail Sales figures for September, suggesting that the path of least resistance for the USD is to the upside. Hence, any subsequent pullback could be seen as an opportunity to initiate fresh bullish positions around the USD/CAD pair. That said, a convincing break below the 1.3700 mark will negate the near-term positive bias and set the stage for an extension of the previous day's dramatic turnaround from the highest level since May 2020.

Technical levels to watch

USD/TWD is trading slightly below the 32 level. Economists at MUFG Bank the pair to reach 32.10 by the end of the year. 

Modest pick-up in China’s growth momentum might limit TWD’s depreciation

“In Q4, the TWD is likely to be weighted by a stronger dollar, weaker exports growth and a potential softer electronic industry activity.” 

“Global growth concerns and geopolitical tensions will continue to hurt market sentiment and prompt persistent capital outflows, pressuring on TWD to the downside. However, the modest pick-up in China’s growth momentum in Q4 might limit the degree of TWD’s depreciation, as it is the largest export destination of Taiwan products.”

“We see USD/TWD to reach 32.10 by the end of 2022.”

Former British foreign minister Jeremy Hunt has been appointed as the new finance minister by Prime Minister Liz Truss, Times Political Editor Steven Swinford reported via Twitter on Friday. 

PM Truss is expected to make the official announcement at a press conference.

UK's Finance Minister Kwasi Kwarteng officially resigns.

Market reaction

This development doesn't seem to be helping the British pound find demand. As of writing, GBP/USD was trading at 1.1200, where it was down 1.1% on a daily basis. Meanwhile, the UK's FTSE 100 Index is up more than 1% on the day.

• A combination of factors prompts aggressive selling around GBP/USD on Friday.
• The UK political development weighs on sterling amid resurgent USD demand.
• The mixed US Retail Sales report does little to provide any meaningful impetus.

The GBP/USD pair come under aggressive selling pressure on Friday and snaps a two-day winning streak to a one-week high touched the previous day. The intraday downfall is sponsored by a combination of factors, though spot prices show some resilience below the 1.1200 round-figure mark.

The British pound is pressured by the latest UK political developments, wherein reports confirmed that finance minister Kwasi Kwarteng has been sacked, making him the shortest-serving chancellor since 1970. This comes amid the emergence of aggressive US dollar buying, which, in turn, is seen exerting downward pressure on the GBP/USD pair.

The stronger US consumer inflation figures released on Thursday reaffirmed market expectations that the Fed will continue to tighten its monetary policy at a faster pace. In fact, the fed fund futures indicate a greater chance of another supersized 75 bps rate hike at the next FOMC meeting in November, which is seen underpinning the greenback.

The USD sticks to its strong intraday gains and seems unaffected by mixed US monthly Retail Sales data. The US Census Bureau reported that the headline sales were flat MoM in September, missing estimates, while sales excluding autos unexpectedly climbed by 0.1%. Furthermore, the previous month's readings were also revised slightly higher.

That said, retreating US Treasury bond yields, along with signs of stability in the equity markets, hold back the USD bulls from placing aggressive bets. This, in turn, offers some support to the GBP/USD pair, at least for the time being. Traders now look to the Prelim Michigan US Consumer Sentiment and Inflation Expectations Index for a fresh impetus.

Technical levels to watch

• Retail Sales in the US stayed unchanged in September.
• US Dollar Index clings to strong daily gains above 113.00.

The data published by the US Census Bureau showed on Friday that Retail Sales in the US, adjusted for seasonal variation, holiday and trading-day differences but not for price changes, stayed virtually unchanged at $684 billion in September. This reading followed August's increase of 0.4% and came in below the market expectation of +0.2%.

"Total sales for the July 2022 through September 2022 period were up 9.2% from the same period a year ago," the publication further read. "The July 2022 to August 2022 percent change was revised from up 0.3% to up 0.4%."

Market reaction

The US Dollar Index showed no immediate reaction to this data and was last seen rising 0.55% on the day at 113.08.

British Finance Minister Kwasi Kwarteng announced his resignation via Twitter on Friday, confirming earlier reports.

"It is important now as we move forward to emphasis your government's commitment to fiscal discipline," Kwarteng said in the letter addressed to Prime Minister Liz Truss. "The Medium-Term Fiscal Plan is crucial to this end, and I look forward to supporting you and my successor to achieve that from the backbenchers."

Market reaction

The GBP/USD pair showed no immediate reaction to this announcement and was last seen losing more than 1% ı the day at 1.1202.

Gold is losing its glitter. Aggressive monetary tightening and a stronger US dollar are keeping the backdrop challenging for the gold market. Strategists at ANZ Bank expect XAU/USD to tank toward $1,600 by the end of the year.

The backdrop for gold remains challenging

“Persistently high inflation is likely to keep the US Federal Reserve on an aggressive monetary tightening cycle for an extended period. This should keep real rates positive across the curve; a key drag for gold.”

“The USD’s relationship with gold has strengthened recently. This is likely to put pressure on gold, as further rate hikes should seethe USD continue to strengthen. The wildcard is central banks defending their currencies by selling US Treasury bonds. That would be an upside risk to our view.”

“Rising geopolitical and economic risks are having limited impact haven buying. Instead, investors continue to seek protection in the USD.”

“We see the gold price falling to $1,600 by end of this year.”

• EUR/USD fades part of the post-CPI sharp upside on Friday.
• Next on the downside now comes the weekly low near 0.9630.

EUR/USD gives aways most of its recent advance to the area just above the 0.9800 mark at the end of the week.

The continuation of the pullback appears on the cards and carries the potential to challenge the recent weekly low at 0.9631 (October 13) in the short-term horizon.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0576.

EUR/USD daily chart

• DXY reverses the recent weakness and regains the 113.00 mark.
• Above the 114.00 region comes the 2022 high near 114.80.

DXY advances markedly and reclaims the area beyond the 113.00 mark at the end of the week.

In case bulls regain the initiative and the index surpasses 114.00, then the next target of note should appear at the 2002 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 8-month support line near 107.90.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.27.

DXY daily chart

European Central Bank (ECB) policymaker Bostjan Vasle said on Friday that 75 basis points rate hikes at the October and December meetings may be appropriate, as reported by Reuters.

Additional takeaways

"Appropriate to discuss QT once rates reach the neutral level, discussion and decision should happen in 2023."

"Rates need to enter restrictive territory; decisions should be made meeting by meeting after December."

"Inflation may be close to peak if there are no new shocks; longer-term expectations still anchored."

Market reaction

EUR/USD stays on the backfoot despite these hawkish remarks and was last seen losing 0.45% on the day at 0.9730.

According to the BBC, British Finance Minister Kwasi Kwarteng has been sacked by Prime Minister Liz Truss.

Reporting on the matter, "The Telegraph now understands that Liz Truss is set to remove Kwasi Kwarteng as Chancellor this afternoon," The Telegraph tweeted. "It was thought that the PM's press conference would be held at 2pm, but the exact timing is now up in the air." 

Market reaction

As markets await the details on the mini budget following this development, the GBP/USD pair continues to trade deep in negative territory at around 1.1250.

The aussie rebounded sharply amid a broad USD pullback. Economists at OCBC Bank note that resistance level aligns around the 0.64 area.

Key support seen at 0.6170

“Signs of bullish divergence on MACD while RSI has moderated and turned higher from near-oversold conditions.”

“Resistance at 0.6402 (23.6% fibo retracement of Aug high to Oct low), 0.6477 (21DMA) levels.”

“Support at 0.6170. Break below puts next support at 0.6116 and 0.6030 levels.”

See – AUD/USD: A break below 0.60 this year is entirely possible – ING

Alvin Liew, Senior Economist at UOB Group, comments on the latest results from US inflation figures.

Key Takeaways

“US headline consumer price index (CPI) inflation was off from recent highs but still elevated at 8.2% y/y in Sep (from 8.3% y/y in Aug), above Bloomberg’s estimate of 8.1%. On a m/m basis, the headline CPI picked up pace, increasing 0.4% m/m  (versus 0.1% in Aug) and faster against Bloomberg’s estimate of an increase by 0.2% m/m.”

“The bigger concern was the core CPI inflation (which excludes food and energy) which continued to race higher sequentially, reflecting unabating underlying momentum for price pressures. On a m/m basis, core inflation rose by a faster pace of 0.6% in Sep (same pace as Aug, and above Bloomberg estimate of 0.4%). Compared to a year ago, it rose 6.6% y/y in Sep, up from 6.3% y/y in Aug, above Bloomberg estimate for 6.5% and highest since Aug 1982 (7.06%).”

“While the latest US headline inflation printed further below the 9.1% recorded in Jun, this reflected mainly the decline in gasoline prices but core inflation continued to climb as the cost of living is still materially high, reflected by the persistent rise of food and shelter costs, and that services inflation is rising amidst ample demand. Risks from several potential inflation shocks include rising labor tensions, a new round of global energy price increases, further disruptions in supply chains, on-going impact from the Russian-Ukraine conflict, and a larger-than-expected pass-through of wage increases into price increases. We maintain our headline CPI inflation forecast to average 8.5% and our core CPI inflation forecast at 6.5% for 2022. Subsequently, we still expect both headline and core inflation to ease in 2023, but it will likely average at 3.0%, above the Fed’s 2% objective. The balance of risk on inflation remains on the upside.”

“The latest inflation print is in line with our US inflation outlook and does not change our Nov Fed view, and we maintain our expectations for the FFTR to be hiked by another 75 bps rate hike in Nov FOMC to the range of 3.75-4.00%. We expect the Fed to end the year with a 50bps hike in Dec but admittedly the market sentiment has shifted firmly to another jumbo hike in Dec following the latest CPI developments. Including the hikes so far in 2022, this implies a cumulative 425bps of increases in 2022, bringing the FFTR higher to the range of 4.25-4.50% by end of 2022 with risks for a bigger hike in Dec versus our current projection. We maintain our forecast for one more 25bps rate hike in Feb 2023, bringing our terminal FFTR higher to 4.504.75% by end 1Q-2023, and a pause to the current rate hike cycle until 1Q 2024.”

• EUR/JPY meets initial resistance near 144.40 on Friday.
• Further gains could challenge the YTD peak near 145.60.

EUR/JPY reaches new monthly highs around 144.40, although it loses some ground afterwards.

So far, the recovery appears underpinned by the 141.00 region, which stands as quite a decent support for the time being. The continuation of the uptrend could see the 2022 top at 145.63 (September 12) revisited sooner rather than later.

In the meantime, while above the key 200-day SMA at 136.44, the constructive outlook for the cross should remain unchanged.

EUR/JPY daily chart

US Monthly Retail Sales Overview

Friday's US economic docket highlights the release of monthly Retail Sales figures for September, due later during the early North American session at 12:30 GMT. On a monthly basis, the headline sales are estimated to register a modest 0.2% rise during the reported month. Excluding autos, core retail sales probably declined by 0.1% in September as compared to the 0.3% fall in the previous month.

According to Dhwani Mehta, Senior Analyst at FXStreet: “Amidst the continued drop in gasoline prices, easing inflation expectations and improvement in American consumers’ confidence, yet another rise in US Retail Sales may not come as a surprise for the month of September. The more precise gauge, the Control Group is expected to show an increase, which could have a significant impact on the US dollar trades.”

How Could it Affect EUR/USD?

Ahead of the key release, the US dollar attracts fresh buying on Friday and stalls the previous day's sharp retracement slide from the post-US CPI swing high. The markets are currently pricing in a greater chance of another supersized 75 bps Fed rate hike move in November, which, along with a turnaround in the risk sentiment, underpins the safe-haven buck. Any disappointment from the US macro data is likely to be overshadowed by expectations for a more aggressive policy tightening by the Fed. This, in turn, suggests the path of least resistance for the greenback is to the upside, supporting prospects for the resumption of the EUR/USD pair's descending trend.

Eren Sengezer, Editor at FXStreet, offers a brief technical outlook and writes: “EUR/USD failed to make a four-hour close above 0.9800 despite having climbed above that level earlier in the day. Meanwhile, the Relative Strength Index (RSI) indicator stays near 50, suggesting that the pair is struggling to gather bullish momentum..”

Eren also outlines important technical levels to trade the EUR/USD pair: “If the pair manages to flip 0.9800 into support, it could extend its rebound toward 0.9840 (Fibonacci 50% retracement of the latest downtrend), 0.9880 (200-period SMA, Fibonacci 61.8% retracement) and 0.9900 (psychological level)..”

“On the downside, 0.9750 (Fibonacci 23.6% retracement, 100-period SMA) aligns as key support. In case buyers fail to defend that level, additional losses toward 0.9730 (20-period SMA), 0.9680 (static level) and 0.9630 (October 13 low) could be witnessed,” Eren adds further.

Key Notes

 •  US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

 •  EUR/USD Forecast: Euro needs to clear 0.9800 to extend rebound

 •  EUR/USD: Sellers return to the market and retreat to 0.9750

About US Retail Sales

The Retail Sales released by the US Census Bureau measures the total receipts of retail stores. Monthly per cent changes reflect the rate of changes in such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish).

US Consumer Price Inflation (CPI) surprised on the upside once again. The report ensures at least another 75 bps rate hike in November, in the opinion of economists at ABN Amro.

Sticky services inflation hits 40-year high

“Core CPI inflation surprised again to the upside in September. The core CPI rose 0.6% MoM, taking annual core inflation to 6.6% YoY. Worryingly, services price growth hit a new 40-year high of 0.8% MoM, driven by a pickup in shelter inflation (0.8%), but helped along by continued strength in medical services and transportation. This is around three times the monthly pace of price growth prior to the pandemic.”

“The inflation surprise seals a 75 bps hike taking place at the November FOMC meeting, and it raises the risk that the Fed may go even further than our current base case of the fed funds rate topping out at 4.5% in the upper bound.”

“We think the Fed will be confident it has done enough to tighten monetary policy by the end of the year. But it will very much depend on the data.”

Political Editor for The Times, Steven Swinford, tweeted on Friday that British Prime Minister Liz Truss was planning to announce plans to raise corporation tax. In a follow-up tweet, Swinford also said that PM Truss was looking to sack Finance Minister Kwasi Kwartend but added it wasn't clear who would be replacing him. 

"The chancellor is due to meet the prime minister shortly to confirm the U-turn, with discussions under way in No 10 and No 11 before a public statement by the prime minister," Swinford wrote in an article.

A spokesperson for Truss refrained from commenting on these developments.

Market reaction

The GBP/USD pair recovered from daily lows and was last seen trading at 1.1270, where it was still down 0.5% on the day.

• USD/JPY gains strong follow-through traction and hits a fresh 32-year high on Friday.
• The Fed-BoJ policy divergence continues to weigh on the JPY and remains supportive.
• Speculations that Japanese authorities could intervene warrant some caution for bulls.

The USD/JPY pair continues scaling higher on the last day of the week and hits a fresh 32-year high, around the 147.75-147.80 region during the first half of the European session.

The bearish pressure surrounding the Japanese yen remains unabated on the last day of the week, which, in turn, pushes the USD/JPY pair high. The policy divergence between the Federal Reserve's aggressive interest rate hikes and the Bank of Japan's resolve to keep monetary policy ultra-loose is seen as a key factor weighing on the JPY.

In fact, the current market pricing suggests the fourth consecutive 75bps rate hike at the next FOMC policy meeting in November. The bets were lifted by Thursday's hotter US CPI report, which showed that core inflation (excluding food and energy prices) registered the biggest gain since August 1982 and shot to a new cycle peak in September.

In contrast, the BoJ, so far, has shown no inclination to raise interest rates and remains committed to continuing with its monetary easing. The dovish bias was reaffirmed by Governor Haruhiko Kuroda's remarks on Thursday, saying that increasing interest rates now was inappropriate in light of the country's economic and price conditions.

This, along with the emergence of fresh US dollar buying, remains supportive of the ongoing strong move up, though slightly overbought conditions warrant caution for bulls. Adding to this, speculations for more currency market intervention by Japanese authorities could offer support to the safe-haven JPY and cap any further gains for the USD/JPY pair.

Nevertheless, spot prices remain on track to register gains for the ninth successive week. Traders now look to the US economic docket, highlighting monthly Retail Sales figures, along with the Prelim Michigan Consumer Sentiment and Inflation Expectations Index. This might influence the USD and provide some impetus to the USD/JPY pair.

Technical levels to watch

There was a 1% rally after the US Consumer Price Index (CPI) release but USD Index (DXY) gains were more than reversed. Downside surprises to US data may see more room for the USD to fall, according to economists at OCBC Bank. 

Bias to lean against strength

“Today we have US Retail Sales, Uni of Michigan Sentiment, of which we pay close attention to 1-y and 5-10y inflation expectations component. A softer print may see DXY trade lower.”

“Daily momentum is showing very tentative signs of turning mild bearish but decline in RSI moderated. Bias to lean against strength.”

“Resistance at 113.70, 114.77 (previous high).”

“Support here at 112.40 (50% fibo retracement of Sep high top Oct low), 112 (21DMA) and 111.20 levels (23.6% fibo).”

Senior Economist at UOB Group Alvin Liew reviews the latest publication of the FOMC Minutes of the September meeting.

Key Takeaways

“The key takeaway from the US Federal Reserve’s (Fed) 20/21 Sep 2022 FOMC minutes was that Fed policymakers were committed to continue its rate hikes to a restrictive policy stance and to maintain it there until inflation was on course to return to the 2% objective, while 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’.

“Importantly, many participants ‘emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action. Several participants underlined the need to maintain a restrictive stance for as long as necessary, with a couple of these participants stressing that historical experience demonstrated the danger of prematurely ending periods of tight monetary policy designed to bring down inflation’. But while the minutes indicated ongoing rate hikes at upcoming meetings, it did not offer any new details on the magnitude of the rate hikes at the next Nov FOMC meeting or the future meetings.

“FOMC Outlook – No change to our call for 75bps hike in Nov: The latest minutes does not change our Fed view, and we maintain our expectations for the FFTR to be hiked by another 75 bps rate hike in Nov FOMC to the range of 3.75-4.00%. We expect the Fed to end the year with a 50bps hike in Dec. Including the hikes so far in 2022, this implies a cumulative 425bps of increases in 2022, bringing the FFTR higher to the range of 4.25-4.50% by end of 2022. We maintain our forecast for one more 25bps rate hike in Feb 2023, bringing our terminal FFTR higher to 4.50-4.75% by end 1Q2023, and a pause to the current rate hike cycle until 1Q 2024”.

US stocks stage a remarkable turnaround. The S&P 500 Index could enjoy further gains on a move above the 3810/40 region, analysts at Société Générale report.

Downward momentum has failed to regain

“S&P 500 has staged a sharp rebound after achieving 3490 completing the 50% retracement of the 2020-2022 uptrend. It is worth noting that downward momentum has failed to regain after multiple breaks below June lows.

“A short-term bounce can’t be ruled out; it would be interesting to see if the index can form a base and reclaim recent high near 3810/3840. This must be overcome for affirming a meaningful up move.”

"Inflation in the euro area is far too high and it is likely to stay above the European Central Bank’s (ECB) target for an extended period of time,"  European Central Bank President Christine Lagarde said on Friday.

Additional takeaways

"The ECB’s Governing Council expects to raise interest rates further over the next several meetings."

"The risks to the inflation outlook are primarily on the upside."

"Despite recent adjustments, financial markets still appear to be pricing in outcomes that could turn out to be too optimistic."

Market reaction

The EUR/USD pair showed no immediate reaction to these comments and it was last seen losing 0.4% on the day at 0.9732.

• Gold turns lower for the second straight day amid the emergence of fresh USD buying.
• Bets for more aggressive Fed rate hikes help the USD to stall the post-US CPI decline.
• The anti-risk flow could lend support to the XAU/USD ahead of the US economic data.

Gold struggles to capitalize on the previous day's late recovery move and attracts fresh selling near the $1,671-$1,672 region on Friday. The intraday selling picks up pace during the first half of the European session and drags the XAU/USD back towards the $1,650 area.

Following the previous day's dramatic turnaround from the post-US CPI swing high, the US dollar makes a solid comeback from a fresh weekly low and exerts downward pressure on the dollar-denominated gold. The strong US consumer inflation figures reaffirmed expectations that the Fed will stick to its aggressive policy tightening path.

In fact, the current market pricing indicates a greater chance of yet another supersized 75 bps rate hike at the November FOMC meeting. This is seen as another factor weighing on the non-yielding yellow metal for the second straight day. That said, a turnaround in the risk sentiment could limit losses for the safe-haven gold.

The early optimism in the financial markets fades rather quickly amid concerns about economic headwinds stemming from rapidly rising borrowing costs and geopolitical risks. Adding to this, fresh COVID-19 lockdowns in China add to growing worries about the looming recession and trigger a fresh leg down in the equity markets.

From a technical perspective, a sustained break and acceptance below the $1,660 horizontal support could be seen as a fresh trigger for bearish traders. Hence, a slide back to the overnight swing low, around the $1,643-$1,642 area, remains a distinct possibility. Bears might eventually aim to challenge the YTD low near the $1,615 region.

Traders now look to the US monthly Retail Sales figures for a fresh impetus. The US economic docket also features the release of the Prelim Michigan Consumer Sentiment and Inflation Expectations Index. This, along with speeches by Fed officials, will influence the USD and produce short-term trading opportunities around gold.

Technical levels to watch

The Monetary Authority of Singapore (MAS) only recentred the midpoint of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band to its prevailing level, leaving the slope and width of the band unchanged. USD/SGD fell close to 1.42 on MAS action, though economists at TD Securities do not see a sustained turnaround in USD/SGD.

Buying USD on dips remains the best proposition

“MAS only re-centred the midpoint of the S$NEER band to its prevailing level, much to our surprise. There was no change to the slope and width of the S$NEER band. We also expected the slope to be raised by 50 bps but the MAS appears to be taking a more cautious approach to avoid over-tightening policy.”

“Post the MAS's decision, USD/SGD fell and was close to the 1.42 handle. We find USDSGD attractive at these levels as it is tough to expect a turnaround in USD/SGD for now.” 

“Buying USD on dips remains the best proposition as the September CPI report suggest the Fed is unlikely to pivot but keep up with its aggressive effort to restrict its inflation-adjusted policy stance. As such, we expect USD resilience in Q4 and see USD/SGD at 1.46 by year-end.”

• AUD/USD struggles to preserve its modest intraday gains amid a pickup in the USD demand.
• A turnaround in the risk sentiment, aggressive Fed rate hike bets boost the safe-haven buck.
• Traders now look forward to US macroeconomic releases for some meaningful opportunities.

The AUD/USD pair attracts fresh sellers in the vicinity of mid-0.6300s on Friday and surrenders its modest intraday gains to a four-day high. The pair slips below the 0.6300 mark during the first half of the European session and is now flirting with the daily low amid the emergence of some US dollar dip-buying.

The latest optimistic move in the equity markets witnessed since the US session on Thursday fizzles out rather quickly amid worries about a deeper global economic downturn. The anti-risk flow helps revive demand for the safe-haven greenback and exerts some downward pressure on the AUD/USD pair. Apart from this, the prospects for a more aggressive policy tightening by the Fed favour the USD bulls.

The US Bureau of Labor Statistics reported that the core inflation (excluding food and energy prices) registered the biggest gain since August 1982. The hotter CPI report reinforces bets for the fourth consecutive 75bps Fed rate hike in November. This, along with the potential economic fallout from fresh COVID-related lockdowns in China, validates the near-term negative outlook for the AUD/USD pair.

That said, technical indicators on short-term charts are hovering around the oversold territory and warrant some caution for bearish traders. Nevertheless, the AUD/USD pair remains on track to register losses for the fifth successive week. Market participants now look forward to the release of the US monthly Retail Sales figures, due later during the early North American session, for a fresh impetus.

Friday's US economic docket also highlights the Prelim Michigan Consumer Sentiment and Inflation Expectations Index. This, along with the US bond yields and speeches by influential FOMC members, will drive the USD demand and provide a fresh impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities on the last day of the week.

Technical levels to watch

Economists at HSBC analyze the outlook for UK stocks, gilt yield and the British pound. The UK economy remains in a challenging environment.

A challenging outlook for the UK assets

“We now see the risk to UK equities more firmly to the downside. We, therefore, move our tactical weighting to an underweight. We have a preference for more defensive sectors and energy within the globally focused FTSE 100 index.”

“For gilts, in the long-run, we expect that slowing UK growth next year will eventually lead to falling yields. But in the near-term, the market is too volatile to take a strong directional position so we stay on the sidelines for now.”

“The risks to GBP remain to the downside as it will take time for confidence to return, and some of the current weakness is also a consequence of the continued strength of the USD. Against a broader basket of currencies, GBP hasn’t yet reached previous lows, which it could test as the economic climate becomes more strained.”

Germany’s Economy Ministry said in a statement on Friday that the “government expects recession spanning three quarters in a row, starting in Q3 2022.”

“Economic indicators suggest the German economy is facing a difficult winter,” the Ministry added.

Market reaction

EUR/USD is extending losses below 0.9750, in the face of the renewed US dollar strengh and jittery market environment. The spot is down 0.23% on the day. The US Retail Sales and Consumer Sentiment data are awaited for fresh trading opportunities in the main currency pair.

FX option expiries for Oct 14 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9630-35 1.02b
• 0.9700-10 806m
• 0.9750 502m
• 0.9770-80 490m
• 0.9790-00 1.7b
•  0.9825 298m

- GBP/USD: GBP amounts        

• 1.1250 201m
• 1.1280 302m

- USD/JPY: USD amounts                     

• 145.50 385m
• 147.00 1.07b
• 147.40-50 680m
• 148.50 270m

- USD/CHF: USD amounts        

• 0.9900 455m

- AUD/USD: AUD amounts  

• 0.6425 349m

- USD/CAD: USD amounts       

• 1.3550-60 775m
• 1.3675 270m
• 1.3800 309m

The US Dollar Index (DXY) performance yesterday was the worst on the day of the Consumer Price Index (CPI) release so far this year. But in the view of economists at MUFG Bank, the USD sell-off is likely a temporary correction.

USD-bullish bias to be intact over the coming months

“Our sense at this stage is to view the US dollar sell-off as an unusual anomaly rather than a sign of any turning point.”

“The scale of US dollar strength is becoming stretched but with equity markets more likely to reverse yesterday bounce we maintain our USD-bullish bias which we expect to be intact over the coming months.”

“News from China of extended lockdowns reinforces the prospect of continued challenging global growth prospects that is consistent with renewed US dollar strength.”

• EUR/USD loses the grip and slips back to the mid-0.9700s.
• The greenback regains some poise following the post-CPI drop.
• US Retail Sales, preliminary Consumer Sentiment next of note.

The European currency gives away part of the recent gains vs. the dollar and motivates EUR/USD to recede to the 0.9750 region at the end of the week.

EUR/USD offered on USD-buying

The risk-off sentiment returns to the markets and lend support to the greenback, forcing at the same time the EUR/USD to surrender part of the recent strong advance to the area just above 0.9800 the figure.

The corrective decline in the pair comes along another downtick in the German 10-year bund yields, this time retreating to multi-session lows and shedding ground for the fourth consecutive day.

No changes to the macro scenario so far, as the persistent elevated inflation in the US economy did nothing but reinforce the case for the tighter-for-longer stance from the Fed as well as a most-likely 75 bps rate hike at the November meeting.

In the domestic calendar, final Inflation Rate in France showed the CPI contract 0.6% MoM in September and rise 5.6% from a year earlier. Next on tap in the region will be the EMU Balance of Trade for the month of August.

Across the pond, all the attention is expected to be on the release of Retail Sales and the preliminary reading of the Michigan Consumer Sentiment for October.

What to look for around EUR

EUR/USD meets some initial resistance in the area just past the 0.9800 mark so far this week, as investors continue to digest the recently published US inflation figures for the month of September.

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 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 down 0.21% at 0.9757 and a drop below 0.9631 (monthly low October 13) would target 0.9535 (2022 low September 28) en route to 0.9411 (weekly low June 17 2002). On the flip side, the next up barrier emerges at 0.9808 (weekly high October 13) seconded by 0.9999 (monthly high October 4) and finally 1.0050 (weekly high September 20).

• GBP/USD comes under some selling pressure on Friday and snaps a two-day winning streak.
• Aggressive Fed rate hike bets, recession fears revive the USD demand and act as a headwind.
• Bulls also turn cautious ahead of the last day of the BoE’s emergency gilt purchase program.

The GBP/USD pair faces rejection near a descending trend-line resistance extending from late August and edges lower on the last day of the week. The pair drops to the 1.1255-1.1250 area during the early part of the European session and for now, seems to have snapped a two-day losing streak.

The US dollar attracts some dip-buying on Friday stalls the previous day's sharp retracement slide from the post-US CPI swing high, which, in turn, exerts downward pressure on the GBP/USD pair. The early optimistic move in the equity markets fizzles out rather quickly amid concerns about a deeper global economic downturn. This, along with the prospects for a faster policy tightening by the Fed, helps revive demand for the safe-haven greenback.

Furthermore, traders opt to lighten their bullish bets around the British pound amid nervousness over any sudden moves on the last day of the Bank of England's temporary gilt purchases program. That said, talks about the reversal of the new UK government's vast tax cuts announced in September act as a tailwind for sterling and help limit deer losses for the GBP/USD pair. This, in turn, warrants some caution before placing aggressive bearish bets.

There isn't any relevant macro data due for release from the UK on Friday. The US economic docket, meanwhile, features the release of monthly Retail Sales figures, the Prelim Michigan Consumer Sentiment and Inflation Expectations Index. This, along with the US bond yields, speeches by influential FOMC members and the broader market risk sentiment, will drive the USD demand and produce short-term trading opportunities around the GBP/USD pair.

Technical levels to watch

Gold prices are likely to fall back to the previous low of $1,620 as bearish momentum is set to continue, economists at ANZ Bank report.

Bearish trend to continue

“Strong US job reports, and higher inflation led gold to resume its downtrend, and it is likely to fall below $1,600.”

“Immediate support lies at $1,620, the previous low. A break of this support should see prices touching the lower bound of the downward channel, which will be below $1,600.

“Immediate resistance is at $1,715, and an upward break of this level would see the next resistance point at $1,800, which will also mark a reversal of downtrend.”

Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia at UOB Group expect USD/CNH to advance on a sustainable fashion once 7.2380 is cleared.

Key Quotes

24-hour view: “We did not expect the sharp surge in USD to 7.2379 and the equally sharp drop from the high. The large but short-lived swings have resulted in a mixed outlook and USD could trade between 7.1600 and 7.2200 for the time being.”

Next 1-3 weeks: “We held the view yesterday that the risk is on the upside but USD has to break clearly above 7.2200 before further advance is likely. While USD broke clearly above 7.2200 in NY trade, it dropped back sharply from a high of 7.2379. Further USD strength is not ruled out but 7.2380 is acting as a solid resistance now and USD has to break this level before a sustained rise is likely. Overall, only a breach of 7.1400 (‘strong support’ was at 7.1250 yesterday) would indicate that the upside risk has subsided.”

• The index attempts a recovery following Thursday’s pullback.
• US yields correct lower after the post-CPI jump.
• Retail Sales, flash Consumer Sentiment next on tap in the docket.

The greenback, in terms of the USD Index (DXY), reverses two consecutive daily pullbacks and looks to reclaim the 113.00 neighbourhood at the end of the week.

USD Index focuses on data

The index manages to attract some buyers after the sharp decline following higher-than-expected inflation figures during September (+8.2% YoY).

The daily bounce in the dollar comes in tandem with a corrective move in US yields across the curve after hitting fresh multi-year highs in the previous session. The underlying robust momentum in yields appears bolstered by the already firm conviction of a 75 bps rate hike by the Fed at the November 2 gathering, which remains propped up by the persistent elevated inflation.

In the US data space, Retail Sales and the flash Michigan Consumer Sentiment will take centre stage later in the NA session along with Business Inventories  and Export/Import Prices.

What to look for around USD

The dollar gives some signs of life following the steep drop in the wake of the release of US inflation figures during September.

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: 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 gaining 0.19% at 112.66 and faces the next up barrier at 113.88 (monthly high October 13) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the other hand, the breakdown 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).

• USD/CAD stages a modest intraday recovery from the 1.3700 support zone.
• Aggressive Fed rate hike bets revive the USD demand and act as a tailwind.
• Subdued oil prices fail to influence loonie or provide any impetus to the pair.

The USD/CAD pair finds some support near the 1.3700 mark on Friday and stalls the overnight retracement slide from the 1.3975-1.3980 region, or the highest level since May 2020. The pair climbs back closer to the daily peak and trades around mid-1.3700s during the early European session.

The US dollar attracts some dip-buying on the last day of the week, which turns out to be a key factor offering support to the USD/CAD pair. The stronger US consumer inflation figures released on Thursday reaffirmed market bets for the fourth consecutive 75 bps rate hike by the Federal Reserve in November. This remains supportive of elevated US Treasury bond yields and acts as a tailwind for the greenback.

That said, a dramatic turnaround in the global risk sentiment might keep a lid on any meaningful gains for the safe-haven buck and the USD/CAD pair, at least for the time being. Meanwhile, the downside seems cushioned amid subdued action around crude oil prices, which could undermine the commodity-linked loonie. Nevertheless, the fundamental backdrop still seems tilted firmly in favour of bullish traders.

Investors remain concerned about the potential economic fallout from rapidly rising borrowing costs, geopolitical risks and a resurgence of COVID-19 cases in China. This should continue to benefit the greenback's safe-haven status. Furthermore, worries that a deeper global economic downturn and fresh COVID-related lockdowns in China will dent fuel demand, which, in turn, could weigh on crude oil prices.

The aforementioned factors suggest that the path of least resistance for the USD/CAD pair is to the upside. That said, a convincing break below the 1.3700 round figure might negate the positive outlook and prompt aggressive technical selling. The subsequent downfall will indicate that the recent rally from the 1.3500 psychological mark has run out of steam already and pave the way for some meaningful downside.

Market participants now look forward to the US economic docket, featuring the release of monthly Retail Sales figures, the Prelim Michigan Consumer Sentiment and Inflation Expectations Index. This, along with the US bond yields and speeches by influential FOMC members, will drive the USD demand. Apart from this, oil price dynamics could produce short-term trading opportunities around the USD/CAD pair.

Technical levels to watch

Talk of a fiscal policy u-turn in the United Kingdom has helped the mood. However, the GBP/USD pair is unlikely to stage a sustained rally for the time being, economists at Société Générale report.

Long gilts to benefit on a rethink on fiscal policy

“A rethink on fiscal policy would be embarrassing to the new Government, but long gilts and sterling ought to benefit.”

“Talk of a break of GBP/USD parity should fade away, particularly if the MPC matches the Fed’s rate move in early November (we expect 75 bps from each of them and wouldn’t be surprised if the UK MPC were to deliver 1%). However, this week’s UK output data suggest the economy may have slipped into recession in Q3, and the possibility of escalation in the war in Ukraine, or of a cold winter triggering power cuts, will continue to hang over sterling.”

“While a fiscal rethink should be enough to ensure that we have seen the low for GBP/USD in this cycle, it wouldn’t be a signal for a lasting move higher, just yet.”

The European Central Bank (ECB) policymaker and Slovak central bank chief Peter Kazimir said on Friday, “75 bps rate hike in October is appropriate.”

“ECB deposit rate must rise above neutral but the start of balance sheet reduction can wait until next year,” Kazinir noted.

Market reaction

Hawkish comments from Kazimir fail to impress EUR bulls, as EUR/USD has wiped out gains to trade neutral on the day at 0.9772.

GBP/USD has bounced towards the 1.15 level. However, the pair is unlikely to break this barrier, in the opinion of economists at ING.

EUR/GBP unlikely to sustain a move under 0.8550/8600

“We suspect that GBP/USD may struggle to break the 1.15 area. Will it trade back to 1.20, where it was before fears of a Liz Truss government started to hit the Gilt market? Probably not.”

“EUR/GBP was trading at 0.84 in early August and we would say the political risk premium and a difficult external investment environment will make it hard for EUR/GBP to sustain a move under 0.8550/8600.”

The ongoing uptrend in USD/JPY could extend to the 148.00 level ahead of 148.50, comment Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that USD ‘could rise above 147.00 but is unlikely to challenge the major resistance at 147.65’. The anticipated USD strength exceeded our expectations as USD rose to a high of 147.67. While overbought, the advance could test 148.00 first before the risk of a pullback would increase. For today, 148.50 is unlikely to come under challenge. On the downside, a breach of 146.70 (minor support is at 147.00) would indicate that USD is unlikely to advance further.”

Next 1-3 weeks: “Yesterday (13 Oct, spot at 146.80), we indicated that the strong rise in USD has room to extend. We added, ‘the level to focus on is at the 1998 high near 147.65’. We did not quite expect USD to reach 147.65 so quickly as it soared to a high of 147.67 in NY trade. Further USD strength is not ruled out but in view of the overbought conditions, any advance is likely to be at a slower pace. The next level to watch is at 148.00, followed by 148.50.”

Considering advanced prints from CME Group for natural gas futures markets, traders increased their open interest positions for the fourth session in a row on Thursday, this time by around 3.2K contracts. In the same direction, volume rose for the second straight day, now by around 41.5K contracts.

Natural Gas: Ready to break above the consolidation?

Prices of natural gas charted a decent rebound on Thursday. The move was against the backdrop of rising open interest and volume and opens the door to further upside in the very near term. That said, there is an immediate target at the so far October peak at $7.188 per MMBtu (October 6).

In the opinion of Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia at UOB Group, a deeper pullback in AUD/USD seems to have lost some traction as of late.

Key Quotes

24-hour view: “AUD bungeed yesterday as it plunged to 0.6170 before snapping back up to close at 0.6298 (+0.32%). The large bounce has room to extend but in view of the overbought conditions, a sustained rise above 0.6350 is unlikely (next resistance is at 0.6380). Support is at 0.6260, followed by 0.6220.”

Next 1-3 weeks: “We highlighted yesterday (13 Oct, spot at 0.6290) that while the risk is still on the downside, AUD has to break below 0.6200 before further sustained weakness is likely. AUD subsequently plunged briefly to 0.6170 before rebounding to a high of 0.6316. The price actions have diminished the odds of further AUD weakness. However, only a break of 0.6380 (no change in ‘strong resistance’ level) would indicate that AUD is unlikely to weaken further.”

Open interest in crude oil futures markets shrank for the second session in a row on Thursday, now by around 9.2K contracts according to preliminary readings from CME Group. In the same line, volume reversed two consecutive daily builds and went down by nearly 158K contracts.

WTI poised to resume the downside

Thursday’s decent bounce in prices of the WTI was on the back of shrinking open interest and volume, which is supportive that extra strength looks not favoured in the current context. Against that, the continuation of the downside bias seen in the first half of the week seems probable in the very near term.

Following Thursday's sharp sell-off, the US Dollar Index (DXY) stabilizes near the mid-112.00s. Economists at ING expect the US September Retail Sales report to support the greenback.

Fed to push real rates and the dollar higher

“The core narrative remains that the Fed will want higher real rates for longer to fight the biggest inflation threat since the early 1980s, and the dollar should continue to find good support on dips.”

“111.50/112.00 may be enough of a correction for DXY and some decent US data later today may be enough to give the dollar a lift.”

“We have September US Retail Sales and Consumer Confidence. Retail Sales could come in on the strong side given good car sales data and lower gasoline prices.”

In light of the recent price action, GBP/USD could now attempt a move to 1.1440 in the near term, according to Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia at UOB Group.

Key Quotes

24-hour view: “Yesterday, we held the view that the ‘rapid rise in GBP could test 1.1175 first before the risk of a pullback increases’. However, GBP blew past 1.1175 as it surged to a high of 1.1380 before easing off to close sharply higher at 1.1332 (+2.10%). The sharp rally appears to be overdone and GBP is unlikely to advance much further. For today, GBP is more likely to trade within a relatively broad range of 1.1220/1.1390.”

Next 1-3 weeks: “We highlighted yesterday that further decline in GBP is not ruled out but the support at 1.0840 is unlikely to be broken. We did not expect the sharp rally that sent GBP to a high of 1.1380. While overbought, the rapid rally has gained momentum and GBP could rise to 1.1440. Overall, only a break of 1.1120 (‘strong support’ level) would indicate that the rally in GBP is not extending further.”

• USD/CHF extends the overnight pullback from a multi-year high amid a modest USD weakness.
• A further pullback in the US bond yields seems to weigh on the buck and exerts some pressure.
• A combination of factors could offer support to the pair and warrants caution for bearish traders.

The USD/CHF pair edges on the last day of the week and retreats further from its highest level since May 2019, around the 1.0075 region touched on Thursday. The pair remains depressed through the early European session and is currently placed near the daily low, around the 0.9965 area.

The US dollar extends the overnight pullback from the post-US CPI swing high and continues losing ground for the second straight day amid some follow-through slide in the US Treasury bond yields. This, in turn, exerts some downward pressure on the USD/CHF pair. That said, a combination of factors might hold back traders from placing aggressive bearish bets.

The US Bureau of Labor Statistics reported that the core inflation (excluding food and energy prices) registered the biggest gain since August 1982 and accelerated to the 6.6% YoY rate in September. This comes on the back of more hawkish cues from the FOMC minutes on Wednesday and reinforced bets for the fourth consecutive 75bps Fed rate hike in November.

Growing acceptance that the Fed will tighten its monetary policy at a faster pace should act as a tailwind for the US bond yields and the buck, warranting caution for bearish traders. Apart from this, the risk-on impulse - as depicted by a positive tone around the equity markets - could undermine the safe-haven Swiss franc and lend support to the USD/CHF pair.

Hence, it will be prudent to wait for strong follow-through selling before confirming that the recent positive move witnessed over the past week or so has run out of steam. Market participants now look forward to the US economic docket, featuring the release of monthly Retail Sales figures, the Prelim Michigan Consumer Sentiment and Inflation Expectations Index.

Apart from this, the US bond yields and speeches by influential FOMC members will play a key role in driving the USD demand later during the early North American session. Traders will take cues from the broader market risk sentiment to grab short-term opportunities around the USD/CHF pair on the last day of the week.

Technical levels to watch

• EUR/USD remains on the front foot around weekly top.
• Sluggish RSI, MACDI challenge buyers, sellers need validation from three-week-old horizontal support.
• Bulls need daily closing beyond the multi-day-old resistance line to retake control.

EUR/USD flirts with the 21-DMA hurdle surrounding the 0.9800 threshold as buyers struggle to defend upside momentum amid sluggish oscillators. Also challenging the major currency pair’s latest upside move are the sluggish conditions of the RSI (14) and MACD.

Hence, the pair’s upside break of the 21-DMA hurdle near 0.9800 isn’t a strong signal for the bulls. However, a run-up towards a downward-sloping resistance line from late June, around 1.0020, can’t be ruled out.

During the advances, the monthly high around the parity level and September’s peak of 1.0198 might act as buffers.

Alternatively, a three-week-long horizontal support area near 0.9670-65 restricts short-term EUR/USD declines ahead of the latest swing low near 0.9630.

In a case where the quote remains bearish past 0.9630, the yearly low of 0.9535 could act as the last defense of buyers, a break of which could direct the bears towards the September 2001 high near 0.6335.

Overall, EUR/USD remains in the recovery mode but the trend reversal is far from here.

EUR/USD: Daily chart

Trend: Limited recovery expected

Yesterday was the third time this year that the USD/CHF reversed sharply from levels just above 1.00. The Swiss National Bank (SNB) could be behind the move as it wants to avoid a soft franc, economists at ING report.

What to make of USD/CHF at parity?

“Could the Swiss National Bank (SNB) be at work here? Recall that the dollar is the second-largest weight in the Swiss franc trade-weighted basket and a higher USD/CHF will naturally weaken the nominal trade-weighted Swiss franc – something the SNB wants to avoid as it battles inflation. In fact, SNB president Thomas Jordan is turning into one of the most ardent hawks in the central bank community.”

“We have quite a forthright view on EUR/CHF at the moment that the SNB wants to guide it lower by 5% plus per year. The higher USD/CHF is making the trade-weighted Swiss franc even softer and if we are right, the SNB should be even more inclined to drive EUR/CHF down to 0.95 and away from the near 0.98 levels at which spot EUR/CHF trades today.”

Here is what you need to know on Friday, October 14:

Following Thursday's sharp decline, the US Dollar Index stays in a consolidation phase near mid-112.00s early Friday. Despite the stronger-than-expected September Consumer Price Index (CPI) data, Wall Street's main indexes registered impressive gains and US stock index futures trade in positive territory on the last day of the week. The European economic docket will feature Trade Balance data for August. Later in the day, the US Census Bureau's September Retail Sales report and the University of Michigan's preliminary Consumer Sentiment Survey for October will be looked upon for fresh impetus. Finally, the Fed will publish its Index of Consumer Inflation Expectations for the third quarter.

The annual Core CPI in the US climbed to 6.6% in September from 6.3% in August, the US Bureau of Labor Statistics reported on Thursday. With this print coming in above the market expectation of 6.5%, the dollar gathered strength against its rivals with the initial reaction. However, investors refrained from betting on a 100 basis points Fed rate hike in November despite hot inflation data and US stocks surged higher after having opened deep in negative territory. Meanwhile, the benchmark 10-year US Treasury bond yield, which surged to its strongest level since June 2008 near 4.1% after the data, turned south in the late American session and closed the day below 4%. 

EUR/USD made a sharp U-turn and registered strong daily gains on Thursday after having dropped to a fresh two-week low of 0.9632 in the early American session. The pair preserves its bullish momentum early Friday and continues to stretch higher toward 0.9800.

GBP/USD gained more than 200 pips on Thursday and erased all the losses it suffered earlier in the week. Renewed expectations for the UK government to adjust the mini-budget helped the British pound outperform its rivals. Additionally, the Bank of England (BoE) accepted nearly 4 billion sterling of offers in its daily gilt-purchase operations. Friday will be the last day of the BoE's emergency buyback programme and investors will keep a close eye on political developments. Cable was last seen consolidating Thursday's gains in a narrow range above 1.1300.

USD/JPY climbed to its highest level in over two decades above 147.50 with the immediate reaction to the US data but plunged nearly 100 minutes in a matter of minutes. Although there is no official word, markets speculate that the Japanese government may have intervened in the FX market. Nevertheless, the pair failed to make a steady decline and returned back above 147.00 early Friday.

Gold staged a decisive rebound after dropping to a two-week low near $1,640 on Thursday but ended up closing the day in negative territory. With the US yields edging lower in the early European morning, XAU/USD started to extend its rebound and was last seen posting small daily gains near $1,670.

Bitcoin capitalized on the improving market mood on Thursday and preserved its bullish momentum early Friday. At the time of press, BTC/USD was up more than 2% on the day at $19,800. Ethereum rebounded from multi-month lows it touched at $1,190 on Thursday and was last seen rising more than 3% on the day at $1,325.

European Central Bank (ECB) Vice President Luis de Guindos said on Friday, “our response will depend on how the data evolves in the coming months.”

Key quotes

“We are dependent on the data we receive.”

“There is a very high level of uncertainty.”

“Monetary policy has to adjust to these new structural features that may push inflation upwards.”

“As a general recommendation, fiscal policy has to be compatible with the process of monetary policy normalization.”

“We will do whatever is necessary to bring inflation back to our 2% target over the medium term.”

“It is very difficult to determine the level of the terminal rate.”

Market reaction

The shared currency is unfazed by the above comment, with EUR/USD trading 0.14% higher on the day at 0.9787.

The People’s Bank of China (PBoC) will continue to effectively manage market expectations of the CNY exchange rates. In the view of economists at Commerzbank, authorities would like a USD/CNY return to the 7 level.

PBoC will allow the CNY to depreciate against the USD in a controllable manner 

“We expect the PBoC will continue to use the daily fixing as the main tool to manage the CNY. It could supplement this with other instruments to manage foreign currency liquidity in China.”

“We suspect the PBoC will allow the CNY to depreciate against the USD in a controllable manner, provided currencies of China’s major trading partners are also depreciating against the USD. This will keep the CNY relatively stable on a trade-weighted basis.” 

“From a medium-term perspective, it’s likely that the PBoC would prefer USD/CNY to return to the 7 mark.”

Following a drift lower from the post-OPEC+ production cut high, crude oil prices are once again ready to follow an upward trajectory. Strategists at TD Securities have upgraded their oil forecast.

Oil unlikely to be in triple figure territory 

“We are comfortable in saying that the most recent production targets from OPEC+ have very convincingly tilted price risks to the upside. For that reason, we have upgraded our Q4-22 WTI forecast to $94/b ($99/b Brent) and the 2023 average to $97/b ($101/b).”

“Despite an expected tightening of supply-demand dynamics, a surge into triple digits in the coming months is not yet expected, as it looks increasingly likely that the decline in global demand growth will likely offset much of the OPEC+ cuts.” 

“Given tight S-D and historically low inventories, a convincing move into $100+ territory is more probable when market is ready to call when the economy will stabilize and the Fed pivots.”

• Gold price picks up bids refresh intraday high as softer yields, DXY favor commodity buyers.
• Stimulus hopes, mixed data and doubts over 100 bps Fed rate hikes favor XAU/USD buyers of late.
• US Retail Sales, Michigan CSI should be strong to recall US dollar bulls, reverse the metal’s recovery.

Gold price (XAU/USD) picks up bids to refresh intraday high near $1,670, extending the previous day’s rebound from a fortnight low, as global markets turn cautiously optimistic ahead of Friday’s key US consumer-centric data. Also likely to favor the metal prices could be the recently softer US Treasury yields, as well as a lack of negatives in Asia.

While portraying the mood, US 10-year Treasury yields keep the late Thursday’s pullback from the highest levels since October 2008 while the two-year and 30-year bond coupons also retreat from the multi-year tops by the press time. Additionally, the S&P 500 Futures and equities in the Asia-Pacific shares track Wall Street’s gains at the latest.

Behind the moves could be the Asian policymakers’ rejections of higher rates, especially from Japan and China, as well as the hopes of further stimulus from Beijing and London. Also likely to have favored the market sentiment, and the XAU/USD, could be the US dollar’s failure to defend the bulls amid softer Treasury yields. That said, the US Dollar Index (DXY) drops for the second consecutive day to 112.40 by the press time.

It’s worth mentioning that the markets fully price in the Fed’s 75 bps move and the same could be read as no major welcome for the 100 bps rate hike in the next meeting, which in turn might have drowned the DXY amid the, “buy the news, sell the fact,” pattern.

Looking forward, risk catalysts will be crucial for the XAU/USD traders to watch for fresh impulse ahead of the US Retail Sales for September, the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October.

Given the market’s surprise reaction to the upbeat US inflation data, the scheduled US consumer-centric numbers will be cautiously traded.

Technical analysis

Gold price pokes the 100-HMA after successfully bouncing off the 61.8% Fibonacci retracement of the metal’s late September to early October moves. The recovery also takes clues from the firmer RSI (14), not overbought, to keep buyers hopeful.

However, a four-day-old horizontal resistance area surrounding $1,682-84 precedes the 200-HMA level of $1,690 to challenge the XAU/USD’s short-term upside.

Alternatively, a downside break of the $1,658 immediate support, comprising the stated golden of the Fibonacci tool, could recall sellers targeting a downside break of the two-week-old horizontal support zone, close to $1,640.

Overall, gold may print a short-term recovery but the bulls must cross 200-HMA to regain the market’s confidence.

Gold: Hourly chart

Trend: Limited upside expected

CME Group’s flash data for gold futures markets noted open interest rose by just 856 contracts on Thursday, reaching the second consecutive daily build. Volume followed suit and went up markedly, now by nearly 109K contracts.

Gold faces the next support near $1,640

Thursday’s volatile price action ended up with modest losses in gold. The daily downtick, in the meantime, was amidst increasing open interest and volume, hinting at the likelihood that extra decline remains on the cards in the very near term. That said, the next support of note emerges at the October low near $1,640 (October 13).

Economists at Commerzbank wonder how much GBP recovery is justified. EUR/GBP has returned to 0.86, GBP/USD is moving back towards 1.15 – that all seems a bit much, in ther view.

How much advance credit does GBP deserve?

“The fact that chancellor Kwasi Kwarteng left the IMF meeting in Washington in a rush to return to London is likely to fuel speculation that there will at least be a significant reversal of the suicidal budget plans, that Kwarteng might even resign and that possibly even the Prime Minister might be on the way out. All that would be positive for sterling. And as such scenarios seem more likely, the British currency is appreciating. Logically and correctly.”

“Even in the extreme case of Prime Minister Liz Truss resigning, I wonder what the next Tory government would be like. What Minister Jacob Rees-Mogg had to say over the past few days does not suggest that Kwarteng and Truss are Tory’s only issue as far as GBP is concerned.”

“With its interventions on the gilt market the Bank of England has crossed the Rubicon of fiscal dominance. Its monetary policy will not be as credible as it once was in perpetuity.”

“Sterling will trade at weaker levels on a sustainable basis and the FX market should not consider the GBP crisis to be over.”

The Monetary Authority of Singapore (MAS) tightened policy for the fifth time since October 2021. USD/SGD fell sharply by nearly 100 pips to the low 1.42 level after the MAS announcement. However, economists at Commerzbank believe that such a move is not sustainable.

Another shift higher in the mid-point

“MAS tightened policy once again by re-centering the SGD NEER (nominal effective exchange rate) mid-point to the prevailing level. We estimate this is akin to a one-off appreciation of +1.5%. The slope of the SGD NEER or pace of appreciation was left unchanged, which we estimate to be around +2% p.a. along with the bandwidth. This was the fifth policy tightening since October 2021 due to the persistent inflation threat.”

“We are skeptical whether the move lower in USD/SGD can persist. This is because it is likely to be dominated by the USD leg given the persistent hot US inflation reports which reinforced expectations for further Fed tightening.”

“What could change the USD/SGD picture is if we start to see reasons for the Fed to change course. It could eventually come in H2 2023 where we could see a peak in USD/SGD. This is also barring a deep global recession or shock where the USD could yet benefit on safe-haven flows.”

“For the SGD NEER, we estimate it is holding around 1% above the new mid-point for USD/SGD at 1.4210, USD/MYR at 4.70, and USD/CNY at 6.1740. The +/-2% range for the SGD NEER corresponds to USD/SGD between 1.4100-1.4670, and the mid-point at 1.4600, ceteris paribus.”

UK Trade Minister Greg Hands said on Friday that PM and Chancellor are determined to deliver on the growth plan when asked about the mini-budget U-turns.

Key quotes

Market reaction

GBP/USD is seeing a fresh selling wave on the above comments, dropping 0.25% on the day to trade at 1.1300.

Gold prices fell marginally amid a weakening US dollar despite a stronger-than-expected US inflation print. XAU/USD could retest year-to-date low near $1,615, FXStreet’s Haresh Menghani reports.

The path of least resistance for XAU/USD is to the downside

“The overnight failure near the $1,682-$1,684 supply zone suggests that the path of least resistance for the XAU/USD is to the downside. The outlook is reinforced by the fact that oscillators on daily/4-hour charts are holding in the negative territory.”

“A slide back towards the overnight swing low, around the $1,642 region, remains a distinct possibility. Some follow-through selling will expose the YTD low, around the $1,615 region touched in September. This is followed by the $1,600 round figure, which if broken decisively will be seen as a fresh trigger for bearish traders.”

“The $1,682-$1,684 region might continue to act as an immediate strong resistance ahead of the $1,700 mark. A sustained strength beyond the latter is needed to negate the near-term negative bias and set the stage for additional gains. Gold might then accelerate the momentum back towards retesting the monthly peak, around the $1,728-$1,730 zone.”

Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia at UOB Group suggest EUR/USD is now seen trading within the 0.9630-0.9900 range in the next few weeks.

Key Quotes

24-hour view: “EUR plunged to a low of 0.9631 before staging a remarkable rebound to a high of 0.9805 in NY trade (closed at 0.9773, +0.71%). The outsized rebound could extend to 0.9835 before a pullback is likely. The major resistance at 0.9900 is not expected to come into view. Support is at 0.9740, followed by 0.9700.”

Next 1-3 weeks: “Yesterday (13 Oct, spot at 0.9715), we indicated EUR is under mild pressure. We highlighted that EUR has to break below 0.9630 before a sustained decline can be expected. EUR dropped to 0.9631 in early NY trade before rebounding strongly to a high of 0.9805. While our ‘strong resistance’ level at 0.9820 is not breached, the mild downward pressure has dissipated. We view the current price movement as part of a broad consolidation range and expect EUR to trade between 0.9630 and 0.9900 for the time being.”

• Asian equities remain firmer while tracking their global counterparts.
• Comments from BOJ, PBOC policymakers’ add strength to the optimism despite firmer US/China CPI.
• IMF urges Asian central banks to tighten monetary policy.
• Covid woes, political hustle and fears of higher rates keep buyers cautious ahead of the key US data.

Shares in the Asia-Pacific region remain firmer on early Friday as policymakers push back calls for higher rates, as well as suggest more stimulus. Adding to the market’s recovery could be the upbeat performance of Wall Street despite a stronger US inflation print.

While portraying the mood, the MSCI’s index of the Asia-Pacific shares outside Japan rebounds from the 31-month low whereas Japan’s Nikkei 225 rises 3.42% by the press time.

Earlier in the day, Japanese Finance Minister (FinMin) Shunichi Suzuki and Bank of Japan Governor (BOJ) Haruhiko Kuroda resisted while signaling any market invention to come from Japanese policymakers due to the latest slump in the yen. “Want to take appropriate action versus excess fx volatility,” said FinMin Suzuki when asked whether Japan could intervene to prop up the yen. BOJ’s Kuroda, on the same line, mentioned that the pace of Japan's economic recovery still slow so BOJ must continue supporting the economy.

Additionally, People’s Bank of China (PBOC) Governor Yi Gang mentioned, “The PBOC has room to adjust policy given the inflation rate in China is well within target.” The policymaker also signaled multiple moves, mostly suggesting more stimulus for infrastructure and housing, to provide stronger support for the real economy.

It’s worth noting that China’s headline Consumer Price Index (CPI) matched upbeat market forecasts by rising 2.8% in September while the Producer Price Index (PPI) fell short of meeting expectations during the stated month, down to 0.9% versus 1.0% forecasts and 2.3% prior.

Amid these plays, Chinese stocks appear the second in the winning league, after Japan’s Nikkei, which in turn favors equities in Australia and New Zealand.

In addition to the stimulus hopes at home and mixed data, the UK government’s U-turn tax cut, as well as ongoing covid woes in China and Europe, are also some of the key catalysts that directed Asian markets.

On a broader front, US 10-year Treasury yields keep the late Thursday’s pullback from the highest levels since October 2008 while the two-year and 30-year bond coupons also retreat from the multi-year tops by the press time. That said, the S&P 500 Futures also extend the bounce off monthly low with 0.60% intraday gains at the latest.

Moving on, US Retail Sales for September, the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October are important to watch for clear directions.

• AUD/USD extends bounce off 2.5-year low, grinds higher around daily top of late.
• Rebound from the key support joins price-positive oscillators to keep buyers hopeful.
• Sellers remain hopes unless the quote stays inside five-week-old bearish channel.

AUD/USD dribbles around the intraday high of 0.6343 while extending the previous day’s rebound from a 30-month low. In doing so, the Aussie pair remains firmer for the second consecutive day while staying inside a bearish chart pattern, namely the descending trend channel established from September 07.

The quote’s rebound from 0.6170 appears a corrective bounce from the aforementioned channel’s support, suggesting further recovery. Also favoring the pair’s upside momentum is the RSI’s gradual uplift from the nearly oversold region and the impending bull cross on the MACD.

With this, the Aussie pair is all-set to challenge the 10-DMA hurdle, around 0.6375. However, the bearish channel’s upper line, close to 0.6410 at the latest, could challenge the AUD/USD buyers afterward.

In a case where the prices successfully cross the 0.6410 hurdle, the odds of witnessing a run-up toward the monthly high of 0.6547 can’t be ruled out.

Alternatively, pullback moves could aim for the 0.6300 threshold before highlighting the March 2020 high near 0.6215.

Following that, the lower line of the channel, around 0.6150 by the press time, will be crucial for the AUD/USD bears to watch.

AUD/USD: Daily chart

Trend: Limited upside expected

• USD/JPY grinds higher around intraday top as bulls await fresh catalysts.
• US Treasury yields seesaw around multi-day top, Asia-Pacific equities track Wall Street gains.
• Hopes of stimulus from the UK, China joins Japanese policymakers’ silence on market meddling favor buyers.
• US Retail Sales, Michigan CSI will decorate calendar but risk catalysts appear as the key for clear directions.

USD/JPY seesaws around mid-147.00s as bulls take a breather around the 32-year high heading into Friday’s European session. With this, the yen pair prints an eight-day uptrend even as the sluggish Treasury yields challenge the pair buyers by the press time.

US 10-year Treasury yields keep the late Thursday’s pullback from the highest levels since October 2008 while the two-year and 30-year bond coupons also retreat from the multi-year tops by the press time. That said, the equities in the Asia-Pacific region print gains by the press time.

It’s worth noting, however, that market’s expectations of stimulus from China and the UK, as well as the latest US dollar pullback, seem to challenge the USD/JPY buyers amid inactive trading hours of the day. Further, the market’s cautious mood ahead of the US Retail Sales for September, well as well as the preliminary readings of the Michigan Consumer Sentiment Index (CSI) the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October, also weigh on the yen prices.

That said, fears that Japanese policymakers are secretly defending the yen and the Bank of Japan’s (BOJ) rejection of higher rates, as suggested by the International Monetary Fund (IMF), also restrict the USD/JPY pair’s immediate moves.

Looking forward, updates relating to the market intervention from Japan, China and the UK may entertain the USD/JPY traders ahead of the aforementioned US data.

Given the latest US inflation’s failure to underpin the US dollar’s strength, the incoming data should be taken with a pinch of salt.

Also read: US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

Technical analysis

A daily closing beyond the tops marked yesterday, as well as during 1998, around 147.70 act as the key upside hurdle for the pair buyers to cross, failing to do so can trigger a pullback towards an ascending resistance line from late April, around 148.95 by the press time.

The dollar is likely to keep rallying until the current slowdown in the global economy is over and growth starts to accelerate again, according to Citigroup Global Markets Inc, per Bloomberg.

“Until then, the US currency is the ‘safest place to hide,’ particularly as it offers a yield premium over its global peers,” Bloomberg quotes a note prepared by Citi strategists, including Jamie Fahy in London.

Additional quotes

Also read: US Dollar Index pares recent losses around mid-112.00s ahead of US consumer-centric data

• Silver price snaps five-day losing streak while bouncing off fortnight low.
• MACD, RSI suggest further recovery but the key SMAs challenge upside momentum.
• Six-week-old support line lures the bears unless the quote rises past $19.50.

Silver price (XAG/USD) prints the first daily gain in six while keeping the previous day’s rebound near $19.00 during early Friday morning in Europe. In doing so, the bright metal seesaws around the 61.8% Fibonacci retracement level of September-October upside, recently retreating from the intraday high.

It’s worth noting that the impending bull cross on the MACD and the RSI’s latest recovery from the oversold territory keeps the buyers hopeful. However, the 200-SMA and the 100-SMA challenge the metal’s short-term upside near $19.15 and $19.50 respectively.

Even if the XAG/USD rises past $19.50, the bulls will have a tough task crossing a one-month-old resistance area between $19.95 and $20.00.

Meanwhile, pullback moves may initially aim for the latest swing low surrounding $18.45 ahead of challenging an upward-sloping support line from September 01, close to $18.20.

Following that, $17.95 and the previous monthly low of $17.56 should lure the silver bear.

To sum up, XAG/USD remains on the bear’s table even if the prices witness a corrective bounce of late.

Silver: Four-hour chart

Trend: Further weakness expected

• USD/INR is looking to extend the previous rebound amid hawkish Fed bets.
• Investors await India’s inflation after hotter CPI data from the US.
• The pair eyes daily close to confirming a rising wedge breakdown.

USD/INR is looking to build on Thursday’s late-rebound on the final trading day of the week, as the US dollar attempts a tepid bounce despite weaker Treasury yields and an extended risk-on rally in the Asian stocks.

Meanwhile, rising oil prices combined with hotter US inflation-led expectations of Fed rate hikes could limit the further upside in the spot. Attention now turns towards the Indian Whole Sale Price Index (WPI) release ahead of the US Retail Sales and UoM Consumer Sentiment data for fresh trading impetus on the spot.

USD/INR: Technical outlook

At the time of writing, USD/INR is posting minor gains near 82.30, having breached the rising trendline support at 82.32. Bears, however, need a daily closing below the latter to confirm a rising wedge breakdown on daily sticks.

Although the 14-day Relative Strength Index (RSI) is inching towards the overbought zone above the midline, contracting the looming rising wedge formation.

If bulls manage to recapture and sustain above the aforesaid critical support-turned-resistance at 82.32, the next upside target is seen at the 82.50 psychological level.

In case of a downside break, Thursday’s low at 82.02 will offer immediate support. A breach of the last will kick off a fresh downswing towards the bullish 21-Daily Moving Average (DMA) at 81.45.

USD/INR: Daily chart

• GBP/USD struggles to extend gains, seesaws around weekly top.
• Chatters over UK PM Truss’ tax cut plans, Kwartang’s return to London keep traders on dicey floor.
• Softer yields weigh on DXY but  GBP bulls await US consumer-centric data for fresh impulse.
• Fears of disappointment from the UK policymakers, US data suggest further challenges for buyers.

GBP/USD treads water around 1.1330, snapping a two-day rebound from the weekly as buyers await the key catalysts during early Friday in Europe.

The Cable pair rose the most in two weeks the previous day amid broad US dollar weakness, as well as headlines concerning the UK’s mini-budget and tax cut plans. However, fears that UK politics will remain jittery and can negatively affect the Bank of England’s (BOE) decision-making seemed to have weighed on the GBP/USD prices of late.

“UK chancellor Kwasi Kwarteng has left Washington early to address the country’s economic crisis as Prime Minister Liz Truss prepares to rip up the government’s ‘mini’ Budget in a desperate attempt to rebuild market confidence and save her embryonic premiership,” said the Financial Times (FT). “Expectations are mounting in London and in financial markets that he (Kwarteng) will imminently announce a U-turn on the £43bn package of unfunded tax cuts in his “mini” Budget unveiled late last month,” adds FT.

Additionally, a report from the Bank of England (BOE) and comments from the International Monetary Fund Managing Director Kristalina Georgieva also challenge the GBP/USD prices. “A BoE report said the central counterparties (CCPs) in Britain's financial system were "resilient", but said there were major differences after its first public stress test of ICE Clear Europe, LCH and LME Clear,” reported Reuters. Elsewhere, IMF’s Georgieva rebuked the British government over its planned tax cuts, telling its finance minister and central bank chief that their policies should not be contradictory, per Reuters.

Elsewhere, the US Dollar Index (DXY) remains pressured around 112.40, despite the latest rebound from the intraday low, as traders fear another US Consumer Price Index (CPI)-induced false alarm. On Thursday, the US CPI eased for the third consecutive day while the Core CPI rose to a fresh 40-year high on YoY.

Against this backdrop, the global markets remain dicey, mildly bid, but the US Treasury yields retreat from the latest highs and challenge the traders. Hence, GBP/USD traders will wait for the US data and any updates from the UK for fresh directions. That said, the key US Retail Sales for September are expected to ease to 0.2% MoM versus 0.3% prior and may add to the US dollar’s weakness. Also important will be the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October.

Also read: US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

Technical analysis

Although 1.0930-15 offer strong support to the GBP/USD prices, buyers need to cross the seven-week-old resistance line, around 1.1400 to convince bulls. That said, RSI and MACD conditions favor buyers amid a clear break of 21-DMA, around 1.1160 at the latest.

• USD/CAD extends the previous day’s pullback from 29-month high, pokes 50-SMA of late.
• Bearish MACD signals, sustained break of an ascending trend line from September 13 keeps sellers hopeful.
• Buyers need to provide a daily close beyond 1.3865 to retake control.

USD/CAD takes offers to refresh intraday low around 1.3710 during early Friday morning in Europe. In doing so, the Loonie pair stretches Thursday’s losses while poking the 50-SMA support.

It’s worth noting, however, that the bearish MACD signals and the pair’s sustained downside break of the one-month-old ascending trend line favor sellers of late.

With this, the USD/CAD bears are on the way to an upward-sloping support line from September 14, near 0.9670, a break of which will make the quote vulnerable to refresh the monthly low, currently around 1.3500.

Alternatively, recovery moves need to cross the previous support line from mid-September, close to 1.3745 at the latest.

Even so, a 12-day-old ascending resistance line of around 1.3865 could challenge the USD/CAD buyers.

Following that, a run-up towards the latest swing high near 1.3980 and then to the 1.4000 psychological magnet can’t be ruled out.

Overall, USD/CAD is likely to witness further downside but the bullish trend is far from reversing.

USD/CAD: Four-hour chart

Trend: Further weakness expected

• Gold price is attempting a tepid recovery but sellers keep lurking at the $1,673 hurdle.
• US dollar is licking its overnight wounds amid weaker yields amid an extended risk rally.
•  XAU/USD remains a ‘sell the bounce trade’ after hot US inflation suggests steeper Fed rate hikes.

Gold price is taking a breather below $1,700 after witnessing a volatile session on Thursday after the US inflation figures surprised the upside and rocked the financial markets. The US Consumer Price Index (CPI) and Core prints beat expectations across the time horizons, bolstering the case for steeper rate hikes by the Fed in the coming months. The yellow metal slumped to monthly lows at $1,644 in a knee-jerk reaction to the red-hot inflation data, as the US dollar spiked with the Treasury yields. However, the metal changed course to recapture $1,650 after Wall Street indices rebounded firmly and snapped the US dollar upsurge. Heading towards the next week, investors reassess the impact of the US inflation data on the Fed rate hike outlook, especially in the face of the upcoming consumer-centric data. Investors will also take note of the UK bond market volatility and looming geopolitical tensions.

Also read: US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is gyrating below the immediate resistance placed at $1,669, which is the intersection of the SMA10 four-hour and Bollinger Band four-hour Middle.

The next critical hurdle is seen at the convergence of the SMA5 one-day and Bollinger Band one-day Middle at $1,673. The previous year’s low at $1,677 will be a tough nut to crack on the road to recovery. Further up, the previous day’s high of $1,683 will come into play.

On the flip side, the $1,664 demand area will come to the rescue of buyers on the renewed selling.

Sellers need a sustained move below the previous week’s low at $1,660. The next cushion is seen at the Fibonacci 38.2% one-day at $1,658.

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.

• EUR/USD pokes 10-DMA hurdle around weekly high, up for the second consecutive day.
• Softer yields exert additional downside pressure on DXY.
• ECB policymakers discuss balance sheet normalization during early 2023.
• Firmer US data may not guarantee bear’s return, especially after the US CPI-induced play.

EUR/USD eyes weekly gain around 0.9800, especially after Thursday’s tragic rebound from the fortnight low, as traders await the key US consumer-centric data on Friday.

The major currency pair posted the biggest daily gains in over a week the previous day despite firmer US inflation data. The same amplifies the market’s anxiety ahead of today’s US Retail Sales for September and the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October. Even so, the EUR/USD buyers cheer the ongoing talks of the European Central Bank’s (ECB) quantitative tightening (QT), as well as softer US Treasury yields.

European Central Bank policymakers discussed earlier this month a detailed timeline for running down a 3.3 trillion euro bond portfolio and envisioned the start of quantitative tightening sometime in the second quarter of 2023, sources told Reuters. It should be noted that the hawkish ECBspeak and the tiring attitude of the US dollar bulls, despite firmer US data, are also likely to favor the pair buyers.

On the same line could be the comments from European Union (EU) Economics Affairs Commissioner Paolo Gentiloni. “EU inflation connected to energy prices,” stated the policymaker earlier in the day while also adding that the monetary policy tightening is unavoidable.

On Thursday, a third consecutively softer US Consumer Price Index (CPI) jostled with the 40-year high Core CPI and drowned the US Dollar Index (DXY) despite hawkish Fed bets. Talking about the data, the US CPI rose to 8.2% versus 8.1% market forecasts but eased as compared to the 8.3% prior. The CPI ex Food & Energy, mostly known as the Core CPI, jumped to 6.6% while crossing the 6.5% expectations and 6.3% previous readings.

It’s worth mentioning that the money market wagers are currently pricing in the 75 bps Fed rate hike in full whereas the US benchmark Treasury yields retreat from their recent tops.

Moving on, chatters surrounding the ECB and risk catalysts like covid updates, Russia-Ukraine news and the stimulus announcements, may entertain the intraday EUR/USD traders ahead of the aforementioned consumer-centric US data. It should be noted that the firmer US numbers aren’t guaranteed invitation to the EUR/USD bears as markets are in the “sell the fact” mode.

Technical analysis

Although three-week-old horizontal support puts a floor under the EUR/USD prices near 0.9670-65, the pair buyers need a daily closing beyond the 21-DMA hurdle of 0.9800 to retake control.

Japanese Chief Cabinet Secretary Hirokazu Matsuno said that “North Korea launched one ballistic missile early Friday.”

Additional comments

“I believe North Korea would engage in further provocative behavior, possibly a nuclear test.”

“Japan will continue to work closely with the US and South Korea to accomplish North Korea's total denuclearization.”

Market reaction

USD/JPY is trading better bid around 147.25 so far, shrugging off the geopolitical risks surrounding North Korea.

New Zealand (NZ) Deputy Prime Minister and Finance Minister Grant Robertson made some comments on the economic outlook and trade relations with China.

Key quotes

“NZ has good economic fundamentals.”

“NZ needs to diversify trade away from China.”

Related reads

• NZD/USD Price Analysis: Bulls approach 0.5700 hurdle despite mixed China inflation
• China CPI mixed: A rise in food prices keeps inflation elevated despite lockdowns

• USD/CNH remains depressed while extending previous day’s pullback from fortnight high.
• China’s CPI offered positive surprise, PPI eased in September.
• PBOC’s Yi signals more room to adjust policy, hints at stimulus to support real economy.
• US consumer-centric data will be important as DXY remains downbeat.

USD/CNH drops back below 7.1700 as it snaps a seven-day uptrend during Friday’s Asian session. In doing so, the offshore Chinese yuan (CNH) pair stretches the previous day’s pullback from a two-week high even as the inflation numbers came in mixed. The reason could be linked to the comments from People’s Bank of China (PBOC) Governor Yi Gang, as well as the broad US dollar weakness.

That said, China’s headline Consumer Price Index (CPI) matched upbeat market forecasts by rising 2.8% in September while the Producer Price Index (PPI) fell short of meeting expectations during the stated month, down to 0.9% versus 1.0% forecasts and 2.3% prior.

Earlier in the day, People’s Bank of China (PBOC) Governor Yi Gang mentioned, “The PBOC has room to adjust policy given the inflation rate in China is well within target.” The policymaker also signaled multiple moves, mostly suggesting more stimulus for infrastructure and housing, to provide stronger support for the real economy.

Although the USD/CNH bears are in full steam, the latest coronavirus wave in Hong Kong, Shanghai and Beijing join the broad push for higher rates to challenge the optimism in China.

On Thursday, a third consecutively softer US Consumer Price Index (CPI) jostled with the 40-year high Core CPI and drowned the US Dollar Index (DXY) despite hawkish Fed bets. Talking about the data, the US CPI rose to 8.2% versus 8.1% market forecasts but eased as compared to the 8.3% prior. The CPI ex Food & Energy, mostly known as the Core CPI, jumped to 6.6% while crossing the 6.5% expectations and 6.3% previous readings.

Amid these plays, the US Treasury yields dropped three basis points (bps) to 3.92% whereas the S&P 500 Futures and stocks in the Asia-Pacific region print gains at the latest.

Moving on, headlines surrounding the PBOC’s next move and covid will be important for the USD/CNH pair traders to watch for fresh impulse ahead of the key US Retail Sales for September, expected 0.2% MoM versus 0.3% prior. Also important will be the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October.

Also read: US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

Technical analysis

Thursday’s Gravestone Doji on the daily chart joins nearly overbought RSI (14) to keep bears hopeful.

• NZD/USD takes the bids to extend the previous day’s rebound from 31-month low.
• China’s CPI rose to 2.8% YoY but PPI eased to 0.9% during September.
• Sustained break of 50-SMA, firmer oscillators favor buyers to cross the monthly resistance line.
• Sellers may not risk entries beyond four-day-old support line.

NZD/USD renews an intraday high around 0.5680 as bulls cheer a jump in China’s Consumer Price Index (CPI) during early Friday. Even so, the 100-SMA challenges the previous day’s recovery from a 2.5-year low.

That said, China’s headline Consumer Price Index (CPI) matched upbeat market forecasts by rising 2.8% in September while the Producer Price Index (PPI) fell short of meeting expectations during the stated month, down to 0.9% versus 1.0% forecasts and 2.3% prior.

It’s worth noting that the Kiwi pair’s successful break of the 50-SMA joins bullish MACD signals and firmer RSI (14), not overbought, to keep buyers hopeful.

However, a clear upside break of the one-month-old descending resistance line, around 0.5690 by the press time, appears necessary for the NZD/USD bull’s conviction. Following that, the monthly high of 0.5815 will be in focus.

Alternatively, pullback moves may initially aim for the 50-SMA support near 0.5645, a break of which could direct the quote toward an upward-sloping support line from Tuesday, close to 0.5610 at the latest.

In a case where the NZD/USD prices break 0.5610 support, the odds of witnessing a slump towards the fresh yearly low, around 0.5510 of late, can’t be ruled out.

NZD/USD: Four-hour chart

Trend: Further upside expected

• AUD/USD retreats from intraday top but keeps recovery from 30-month low.
• China CPI came in firmer to 2.8% but PPI eased in September.
• Comments from PBOC’s Yi strengthen rebound but covid woes, Fitch’s outlook for Australia weigh on prices.
• US data, risk catalysts could offer a volatile day ahead.

AUD/USD adds strength to the previous day’s bounce off a 2.5-year low even as China’s inflation data for September eased, published during Friday’s Asian session. Even so, the Aussie pair remains bearish for the fifth consecutive week amid the latest divergence between the monetary policy signals from the Reserve Bank of Australia (RBA) and the US Federal Reserve. Also challenging the Aussie pair buyers are the fresh covid fears from China.

That said, China’s headline Consumer Price Index (CPI) matched upbeat market forecasts by rising 2.8% in September while the Producer Price Index (PPI) fell short of meeting expectations during the stated month, down to 0.9% versus 1.0% forecasts and 2.3% prior.

Earlier in the day, People’s Bank of China (PBOC) Governor Yi Gang mentioned that the inflation rate in China is well within target.

It should, however, be noted that the latest coronavirus wave in Hong Kong, Shanghai and Beijing joins the broad push for higher rates to challenge the optimism in China, which in turn weighs on the AUD/USD prices due to Australia’s trade ties with the dragon nation.

Additionally, global rating giant Fitch also raised concerns over the Aussie economy and challenged the AUD/USD bulls. “Rising labor costs, ongoing workforce shortages, high inflation and rising interest rates are dampening corporate issuer expectations around the strength of Australia’s post Covid-19 pandemic recovery,” stated Fitch in its latest update.

Elsewhere, the US dollar remains dicey as yields retreat and the market sentiment improves amid hopes of more stimulus from China and the UK. While portraying the mood, the US 10-year Treasury yields drop back to 3.91% while the S&P 500 Futures print mild gains at the latest.

Looking forward, risk catalysts will be more important to watch for fresh clues ahead of the key US Retail Sales for September, expected 0.2% MoM versus 0.3% prior. Also important will be the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October.

Also read: US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

Technical analysis

AUD/USD recovery remains elusive unless crossing the resistance line of a six-week-old bearish channel, around 0.6410 by the press time.

China'sinflation data released by the National Bureau of Statistics of China has been released as follows:

• China sept CPI +2.8% YoY (Reuters poll +2.8% ).
• China sept PPI +0.9% YoY (Reuters poll +1.0%).
• China sept CPI +0.3% MoM (Reuters poll +0.4%).
• China sept PPI -0.1% MoM.
• China sept food CPI +8.8%.

China's consumer prices in September rose at the fastest pace since April 2020, mainly driven by food prices, limiting the scope for more central bank easing to prop up a faltering economy hit by COVID-19 restrictions and a property sector slump, Reuters reported. 

''The consumer price index (CPI) rose 2.8% from a year earlier, quickening from a 2.5% increase in August, National Bureau of Statistics (NBS) data showed on Friday, in line with forecast in a Reuters poll of analysts.

The producer price index (PPI) rose 0.9% year-on-year from 2.3% growth a month earlier, and compared with a forecast of 1.0%.

The world's second-largest economy barely grew in the June quarter and has struggled to regain traction amid protracted pandemic restrictions, a severe slump in the property market and softening exports.''

AUD/USD is perky on the release, moving from  0.6310 to score session highs of 0.6327 so far. 

About Chinese CPI

The Consumer Price Index is released by the National Bureau of Statistics of China. It is a measure of retail price variations within a representative basket of goods and services. The result is a comprehensive summary of the results extracted from the urban consumer price index and rural consumer price index. The purchasing power of the CNY is dragged down by inflation.

The CPI is a key indicator to measure inflation and changes in purchasing trends. A substantial consumer price index increase would indicate that inflation has become a destabilizing factor in the economy, potentially prompting The People’s Bank of China to tighten monetary policy and fiscal policy risk. Generally speaking, a high reading is seen as positive (or bullish) for the CNY, while a low reading is seen as negative (or Bearish) for the CNY.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1088 vs. the estimate of 7.1071 and the prior close of 7.170.

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.

• US Dollar Index picks up bids to consolidate the biggest daily loss in eight day.
• Firmer yields, hawkish Fed bets and Asian diplomats’ rejection to tighten policies underpin the US dollar’s demand.
• Upbeat prints of US Retail Sales, preliminary CSI and 5-year inflation expectations needed to defend the DXY bulls.

US Dollar Index (DXY) reverses the previous day’s pullback from a two-week high despite staying sluggish around 112.50 during Friday’s Asian session.

That said, the greenback’s gauge versus the six major currencies dropped the most in eight days on Thursday even as the US Consumer Price Index (CPI) figures came in firmer and the Fed bets also priced in 75 bps move, not to forget firmer US Treasury yields.

The DXY’s latest inaction could be linked to the mixed mood in Asia as the Japanese and Chinese policymakers ignore the International Monetary Fund’s (IMF) push for higher rates. On the same line could be the People’s Bank of China (PBOC) Governor Yi Gang’s readiness for strong stimulus.

Alternatively, US 10-year Treasury yields remain firmer around 3.96% after snapping a two-day downtrend to poke the October 2008 levels. The firmer bond coupons portray the market’s recession fears and rush towards the risk-safety but failed to propel the US dollar on Thursday. Additionally favoring the DXY could be the political pessimism in the UK amid uncertainty over the mini-budget.

A third consecutively softer US Consumer Price Index (CPI) jostled with the 40-year high Core CPI and drowned the US Dollar Index despite hawkish Fed bets. Talking about the data, the US CPI rose to 8.2% versus 8.1% market forecasts but eased as compared to the 8.3% prior. The CPI ex Food & Energy, mostly known as the Core CPI, jumped to 6.6% while crossing the 6.5% expectations and 6.3% previous readings.

While portraying the mood, Wall Street closed with notable gains but S&P 500 Futures remain directionless and hence challenge the DXY traders ahead of the key US Retail Sales for September, expected 0.2% MoM versus 0.3% prior. Also important will be the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October.

Also read: US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

Technical analysis

Multiple failures to provide a daily closing beyond 113.30 keeps the US Dollar Index bears hopeful even if the 21-DMA level of 112.20 restricts immediate downside.

The People's Bank of China's governor, Yi, said the central bank will provide stronger support for the real economy.

''Will put emphasis on supporting infrastructure construction.''

More to come...

• GBP/USD bears are in the running for a significant correction from daily resistance.
• The bulls will need to defend the NY session lows.

GBP/USD is currently trading at around 1.1309 and flat on the day, although there are prospects of a move lower if Thursday's high is not breached in the forthcoming hours and the remainder of Friday's sessions. The following illustrates the price structure eon a daily and 15-min time frame. 

GBP/USD daily chart

GBP/USD is moving in on a key daily resistance at this juncture with eyes on a bullish extension beyond 1.1380 and then 1.15 the figure. The bulls will need to stay committed on the lower time frame structures as follows:

GBP/USD M15 chart

The 15-minute chart has the price stalling at the highs and pressured below horizontal resistance as it creeps beyond the trendline and horizontal supports. It is currently retesting towards the neckline of the M-formation which could result in a downside move towards the greyed areas of price imbalance left behind following Thursday's volatility. The Bulls will need to stay committed to the Fibonacci scale or at least above the New York session lows. 

• Gold price holds lower ground after 100-EMA rejected recovery moves.
• Firmer yields, rebound in DXY keeps buyers hopeful ahead of the key US consumer-centric data.
• Risk catalysts may exert downside pressure on the XAU/USD prices.
• Softer US data may recall gold buyers amid jittery markets.

Gold price (XAU/USD) remains pressured around $1,662 during Friday’s Asian session, reversing the previous day’s bounce off a fortnight low, as the US dollar traces firmer Treasury yields to rebound ahead of the key consumer-centric data from the US.

US 10-year Treasury yields remain firmer around 3.96% after snapping a two-day downtrend to poke the October 2008 levels. The firmer bond coupons portray the market’s recession fears and rush towards the risk-safety but failed to propel the US dollar the previous day.

It should be noted that the Japanese and Chinese policymakers’ ignorance of the International Monetary Fund’s (IMF) push for higher rates also should have weighed on the XAU/USD prices. In doing so, the yellow metal ignores the People’s Bank of China (PBOC) Governor Yi Gang’s readiness for strong stimulus.

The bullion prices marked a notable recovery from the lowest levels in a fortnight the previous day after a third consecutively softer US Consumer Price Index (CPI) jostled with the 40-year high Core CPI and drowned the US Dollar Index (DXY) despite hawkish Fed bets. Talking about the data, the DXY dropped 0.70% to 112.45 by the end of Thursday’s North American session. It’s worth noting that the US CPI rose to 8.2% versus 8.1% market forecasts but eased as compared to the 8.3% prior. The CPI ex Food & Energy, mostly known as the Core CPI, jumped to 6.6% while crossing the 6.5% expectations and 6.3% previous readings.

Amid these plays, Wall Street closed firmer but the S&P 500 Futures print mild losses by the press time.

Moving on, the US Retail Sales for September, the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October will be crucial for clear directions. Also important will be the covid updates from China and chatters of market intervention by the Chinese and Japanese policymakers, not to forget political pessimism in the UK.

To sum up, XAU/USD has more reasons to ward off the previous day’s bounce than the stimulus news from China that challenge the bears.

Technical analysis

Gold prices are likely to remain downbeat while considering the multiple failures to cross the 100-EMA, as well as the sluggish and RSI retreat.

That said, the 23.6% Fibonacci retracement level of the August-September downside, near $1,651, offers immediate support to the bright metal. However, a three-week-old horizontal support area surrounding $1,640-42, could stop the XAU/USD bears before directing them to the yearly low of $1,614.

Meanwhile, recovery moves need not only to cross the 100-EMA hurdle of $1,680 but the 200-EMA resistance of $1,692 to convince the buyers. Following that, the $1,700 and the monthly high near $1,730 will be in focus.

Gold: Four-hour chart

Trend: Further weakness expected

• USD/JPY picks up bids to reverse late Thursday’s pullback from 24-year high.
• Japan policymakers keep mum on intervention, BOJ’s Kuroda defends currently monetary policy.
• Yields remain firmer to keep buyers hopeful ahead of the key US consumer-centric data.
• Japan’s keenly awaited market meddling could offer a notable pullback.

USD/JPY prints mild gains around 147.30 while printing the eight-day uptrend near the highest levels since 1998 as Tokyo opens on Friday. In doing so, the yen pair stays on the bull's radar, despite retreating from a multi-year high before a few hours.

The quote’s latest inaction could be linked to the firmer US Treasury yields and the Japanese policymakers’ rejections to confirm the market meddling. Also, anxiety ahead of the US Retail Sales for September and the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October, appear to act as an additional trading filter.

That said, the US 10-year Treasury yields remain firmer around 3.96% after snapping a two-day downtrend to poke the October 2008 levels. The firmer bond coupons portray the market’s recession fears and rush towards the risk-safety but failed to propel the US dollar the previous day.

Earlier in the day, Japanese Finance Minister (FinMin) Shunichi Suzuki and Bank of Japan Governor (BOJ) Haruhiko Kuroda resisted while signaling any market invention to come from Japanese policymakers due to the latest slump in the yen. “Want to take appropriate action versus excess fx volatility,” said FinMin Suzuki when asked whether Japan could intervene to prop up yen. BOJ’s Kuroda, on the same line, mentioned that the pace of Japan's economic recovery still slow so BOJ must continue supporting economy.

Alternatively, the International Monetary Fund (IMF) urged the Asian central banks to tighten the monetary policies further, per Reuters, which in turn should have probed the USD/JPY buyers.

On Thursday, a third consecutively softer US Consumer Price Index (CPI) jostled with the 40-year high Core CPI to challenge the market’s outlook and drowned the US Dollar Index (DXY) despite hawkish Fed bets. Talking about the data, the DXY dropped 0.70% to 112.45 by the end of Thursday’s North American session. It’s worth noting that the US CPI rose to 8.2% versus 8.1% market forecasts but eased as compared to the 8.3% prior. The CPI ex Food & Energy, mostly known as the Core CPI, jumped to 6.6% while crossing the 6.5% expectations and 6.3% previous readings.

Moving on, Japan’s meddling is awaited with a keen eye and could quickly drag the USD/JPY. Also important are the consumer-centric data from the US and risk catalysts like Fed bets, recession chatters and covid updates.

Technical analysis

USD/JPY’s retreat from the year 1998 top surrounding 147.70 joins the overbought RSI to challenge the bulls. Also acting as an upside filter is an ascending resistance line from late Apri, around 148.95 by the press time.

• EUR/USD is under pressure towards 0.9725 from 0.98064 highs.
• A break of 0.96332 could be key for a downside continuation to test last month's lows near 0.9540.

EUR/USD is headed into Tokyo's Friday open around the highs of the week which leaves the downside vulnerable for the day ahead with last week's low score around Nonfarm Payrolls vulnerable neat 0.9720. At the time of writing, the euro is trading around 0.9773 and is consolidating Thursday's volatility.

US CPI comes in hot

US inflation eased less than expected in September to 8.2%, and underlying prices excluding energy while food prices accelerated to a new four-decade high.

• US CPI (MoM) Sep: 0.4% (est 0.2%; prev 0.1%).
• US CPI (Y0Y) Sep: 8.2% (est 8.1%; prev 8.3%).
• US CPI Core (M0M) Sep: 0.6% (est 0.2%; prev 0.6%).
• US CPI Core (Y0Y) Sep: 6.6% (est 6.5%; prev 6.3%).

As a consequence of the data beats, the 10-year Treasury yield rallied to 4.080% while the 2-year yield was up to 4.535%. As measured by the DXY index, the US dollar fell by 1% to almost 112.14 as risk sentiment returned to markets. At the time of writing, the DXY index is flat having fallen from a high of 113.92 to a low of 112.147 on Thursday.

Investors are now pricing in 91% odds of a fourth straight 75-basis-point hike by the Fed at its meeting next month, with some also pricing in a 9% chance of a 100 bps rise. Moreover, there are the prospects of a 100 basis points increase in November that has also reared its head, though it's currently seen as unlikely, with only a 9% probability.  The bottom line, there are no chances of a near-term dovish pivot from the Fed.

The euro benefitted from a risk on rally on Wall Street but, the big question is; ''is the risk rally logical, or is it just a short squeeze or a dead cat bounce?'' The S&P 500 closed the session up 2.6% after declining 5.7% in the previous six sessions. Earlier Thursday it fell 2.3% to its lowest level since Nov. 2020. 

Domestically, European Central Bank policymakers have discussed earlier this month a detailed timeline for running down a 3.3 billion euro bond portfolio and envisioned the start of quantitative tightening sometime in the second quarter of 2023, sources told Reuters.

EUR/USD technical analysis

The price is homing in on a price imbalance to the downside towards 0.9725 from 0.98064 highs. This will be a key support area being the midpoint of the day's range and the highs and lows of the week so far. A break of 0.96332 could be key for a downside continuation to test last month's lows near 0.9540 while the highs guard risk to last week's highs near parity. 

• WTI pares the biggest daily gains in a week, fades recovery from eight-day low.
• Resistance-turned-support from late September guards immediate upside even as oscillators favor buyers.
• 200-SMA puts a floor under the oil prices, buyers need validation from $92.65.

WTI crude oil price eases to $87.90 after bouncing off a one-week low to print notable gains the previous day.

In doing so, the black gold takes a U-turn from a 12-day-old previous support line. However, sustained recovery from the 200-SMA and firmer RSI (14), as well as the impending bull cross on the MACD, seems to keep the commodity buyers hopeful.

That said, a clear upside break of the immediate trend line hurdle near $88.65 appears necessary for the oil bulls to keep the reins.

Following that, the 61.8% Fibonacci retracement level of late August-September moves, near $89.20, will be challenging the upside moves.

It should be noted, however, that a six-week-old horizontal resistance area near $92.25-65 will be a tough nut to crack for the WTI buyers.

Alternatively, pullback moves remain elusive unless breaking the 200-SMA level of $85.15.

If the oil bears conquer the stated SMA support, a downward trajectory to the late September swing high of $82.50 and the 23.6% Fibonacci retracement level of $81.10 can’t be ruled out.

WTI: Four-hour chart

Trend: Further upside expected

• AUD/USD awaits more clues to extend the bounce off yearly low, steady of late.
• Doubts over the latest rebound, pre-data anxiety challenges the upside moves.
• China inflation, trade numbers will direct immediate moves amid hopes of a pullback.
• US Retail Sales, Michigan CSI will also be important for fresh impulse.

AUD/USD steadies near 0.6300, after a tragic rebound from the 2.5-year low, as traders await data from the key customer China during early Friday in Asia. In addition to the pre-data anxiety, the lack of confirmation of the latest run-up in the pair also seemed to have challenged the buyers of late.

That said, a third consecutively softer US Consumer Price Index (CPI) jostled with the 40-year high Core CPI to challenge the market’s outlook on the US inflation conditions even if the broad view favors the hawkish Fed bets and the US dollar. Talking about the data, the DXY dropped 0.70% to 112.45 by the end of Thursday’s North American session. It’s worth noting that the US CPI rose to 8.2% versus 8.1% market forecasts but eased as compared to the 8.3% prior. The CPI ex Food & Energy, mostly known as the Core CPI, jumped to 6.6% while crossing the 6.5% expectations and 6.3% previous readings.

It should be observed that the money markets now fully price-in the 75 bps Fed rate hike and the same could have also fuelled the Aussie pair as some on the floor have also placed bets on the 1.0% rate hike.

Even so, firmer US Treasury yields and the recent coronavirus updates from Beijing and Shanghai renew the market’s fears, which in turn challenge the AUD/USD buyers.

Earlier in the day, global rating agency Fitch also stated that rising labor costs, ongoing workforce shortages, high inflation and rising interest rates are dampening corporate issuer expectations around the strength of Australia’s post Covid-19 pandemic recovery.

Amid these plays, Wall Street closed with notable gains and so did the US Treasury yields. However, the US Dollar Index (DXY) failed to cheer the firmer yields and posted the biggest daily loss in over a week.

Looking forward, China’s headlines CPI for September, expected 2.8% YoY versus 2.5% prior, will be important for the AUD/USD traders amid fears of more hardships for the dragon nation. Also on the Asian calendar are the September month trade numbers from the dragon nation. Following that, the US Retail Sales for September, the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October will be crucial for clear directions.

Also read: US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

Technical analysis

AUD/USD remains captive inside a five-week-old bearish channel, currently between 0.6410 and 0.6140.

• NZD/USD grinds higher after a volatile day, prints four-day uptrend.
• US dollar’s weakness post-CPI favors bulls against all odds.
• China’s covid updates add to the risk-negative headlines, Business NZ PMI also eased in September.
• China’s inflation, trade numbers can probe buyers on matching downbeat forecasts, US Retail Sales eyed as well.

NZD/USD seesaws around 0.5640-50 after a volatile day that initially refreshed the yearly low before closing on a positive side. While there are multiple theories surrounding the quote’s previous run-up despite the firmer US inflation data, the kiwi pair’s latest inaction could be linked to a cautious mood ahead of the key economics from China and the US.

Additionally, the recently released New Zealand Business NZ PMI also challenges the NZD/USD buyers while easing to 52.0 in September versus 52.5 expected and 54.9 prior.

US Dollar Index (DXY) failed to cheer the 40-year high US Core CPI the previous day, which in turn gained the major attention of the NZD/USD buyers. The reason could be linked to the headline Consumer Price Index (CPI) third consecutive softer print. That said, the DXY dropped 0.70% to 112.45 by the end of Thursday’s North American session. It’s worth noting that the US CPI rose to 8.2% versus 8.1% market forecasts but eased as compared to the 8.3% prior. The CPI ex Food & Energy, mostly known as the Core CPI, jumped to 6.6% while crossing the 6.5% expectations and 6.3% previous readings.

On the same line, the money markets now fully price-in the 75 bps Fed rate hike and the same could have also fuelled the Kiwi pair as some on the floor have also placed bets on the 1.0% rate hike.

Alternatively, the recent jump in covid cases in China and Europe, as well as fresh lockdowns in Shanghai and increased hardships in Hong Kong, as well as Beijing, should have weighed on the pair but did not. Amid these plays, Wall Street closed positive and the yields were up too.

Moving on, China’s headlines CPI for September, expected 2.8% YoY versus 2.5% prior, will be important for the NZD/USD traders amid fears of more hardships for the dragon nation. Also on the Asian calendar are the September month trade numbers from the dragon nation. Following that, the US Retail Sales for September, the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October will be crucial for clear directions.

Technical analysis

NZD/USD needs a daily closing beyond the monthly resistance line, around 0.5690 by the press time, to keep the reins.

“Raising rates now is inappropriate in light of Japan's economic, price conditions,” Bank of Japan Governor (BOJ) Haruhiko Kuroda said on Friday, as reported by Reuters.

“Pace of Japan's economic recovery still slow so boj must continue supporting economy,” adds BOJ’s Kuroda.

Also read: Japan’s Suzuki: G20 summary likely to reaffirm FX commitment

FX reaction

Although BOJ’s Kuroda speaks more or less the same of what he already stated on Wednesday, the comments appear important as USD/JPY rallied to the highest since 1998 the previous day. That said, the yen pair grinds higher past 147.00 by the press time.

Also read: USD/JPY Price Analysis: Retraces from 24-year highs around 147.60s on soft US dollar