• WTI rebounds from a fortnight low to snap four-week downtrend.
• 100-SMA, two-week-old support line restricts immediate downside amid sluggish oscillators.
• Buyers need validation from a convergence of previous support, weekly resistance trend lines.

WTI crude oil prices keep recovering from the $84.50 support, around $84.90 during Tuesday’s Asian session. In doing so, the black gold snaps a four-week downtrend while bouncing off the convergence of a 100-SMA and a two-week-old descending trend line.

It should, however, be noted that the sluggish RSI and MACD challenge the WTI buyers as they poke the 200-SMA hurdle, around $85.00 by the press time.

Even if the black gold crosses the $95.00 SMA resistance, a confluence of the one-week-old descending trend line and the support-turned-resistance line from September 26, around $87.00, will be a major challenge for the bulls.

Should the quote manage to stay firmer past $87.00, the monthly peak of $92.63 should gain the market’s attention.

Alternatively, a downside break of the $84.50 support could quickly drag the WTI crude oil prices toward the September 30 swing high near $82.50.

Following that, the early September low near $80.90 and the $80.00 threshold may entertain the oil bears before directing them to the previous monthly low of $76.08.

WTI: Four-hour chart

Trend: Limited recovery expected

• NZD/USD jumped 30 pips on the release of New Zealand’s inflation, surpassing expectations.
• NZ hot inflation justifies further RBNZ’s rate hikes.
• US NY Empire State Manufacturing Index for October fell more than estimated, at -9.1 vs. -1.5.

The NZD/USD advances as the Asian session begins, following the release of New Zealand’s inflation, jumping more than estimates, propelling the major towards a fresh weekly high at 0.5659, extending its gains amid an upbeat mood. At the time of writing, the NZD/USD is trading at 0.5640, above its opening price by 0.17%.

NZD/USD marches firmly, following New Zealand’s high inflation report

Statistics of New Zealand reported that inflation rose by 2.2% QoQ, above estimates of 1.5%, exceeding the previous quarter’s reading. Of note, the annually-based reading came at 7.2%, above 6.5% YoY estimates, cementing the RBNZ’s case for further tightening.

Analysts at ANZ bank expected CPI to ease to 6.6% and foresaw that the RBNZ  Overnight Cash Rate (OCR) would continue on its way to peak at around 4.75% in May 2023.

Aside from this, Asian equity futures are set to open higher, bolstered by US equities, which recorded solid gains, as traders’ mood turned positively following UK’s finance minister Jeremy Hunt, who acted quickly, scrapping his predecessor Kwarteng GBP 45 billion tax cut mini-budget sparked Gilts turmoil. On Monday, Gilts rose, while the GBP/USD rallied more than 200 pips, also a tailwind for NZD/USD.

In the meantime, the US Dollar Index dropped more than 1%, down to 112.065, as the British pound recovery lifted most G8 currencies, a headwind for the buck.

Elsewhere, Fed policymakers, in the last week, kept their hawkish posture, reiterating their commitment to tackling stubbornly high inflation, following a hot US inflation report, particularly core CPI, reaching a 40-year peak above 6.6% YoY.

Data-wise, the US economic calendar featured the US New York Fed Empire State Manufacturing Index for October, which contracted 9.1, vs. a 1.5 drop estimated.

NZD/USD Price Forecast

Therefore, the NZD/USD remains downward biased unless it clears the October 6 cycle high at 0.5813, which could open the door for further upside, exposing key resistance levels at 0.5900, followed by the 100-day EMA at 0.5958, ahead of the 0.6000 figure. On the flip side, a break under 0.5600 will open the door for a YTD low test at 0.5512.

NZD/USD Key Technical Levels

• GBP/USD remains sidelined after refreshing a two-week high.
• UK Chancellor’s dramatic U-turn on “mini-budget” renews market sentiment, propels the Pound.
• Risk-on mood, downbeat US data trigger US dollar pullback amid light calendar.

GBP/USD pares recently gains around a two-week high, easing back to 1.1350 during early Tuesday in Asia after an upbeat start to the week as bulls seek confirmation of the latest optimism surrounding the UK economy.

That said, the Cable pair renewed the multi-day top the previous day after British Finance Minister’s, also called Chancellor, reversal of earlier policy announcement boosted the market’s hope that London will overcome the impending market collapse. “Under the new policy, most of Truss's 45 billion pounds of unfunded tax cuts will go and the two-year energy subsidy scheme for households and businesses - expected to cost well over 100 billion pounds - will now be curtailed in April,” stated Reuters.

Other than the political plays, the Bank of England’s (BOE) readiness for debt buybacks, starting November 07, also adds strength to the GBP/USD.

On the other hand, the US dollar had to bear the burden of the market’s risk-on mood, as well as downbeat US data.

That said, Wall Street closed positive and the yields were mildly bid amid the broad market optimism despite a light calendar on Monday. Talking about the data, NY Empire State Manufacturing Index for October dropped -9.5 versus -4.0 expected and -1.5 prior.

Looking ahead, GBP/USD buyers will need more positives to defend the latest recovery otherwise hawkish Fed bets and recession fears could easily recall the bears.

Technical analysis

Failure to provide a daily close beyond the five-week-old resistance line, around 1.1370 by the press time, favors GBP/USD pullback towards the 21-DMA support, close to 1.1145 at the latest.

• AUD/USD is aiming to shift the auction above 0.6300 amid an absence of a risk aversion theme.
• S&P500 witnessed a V-shape recovery after nose-diving on Friday, while yields are upbeat.
• The release of the RBA minutes will remain in focus.

The AUD/USD pair has concluded its time corrective move after dropping to near 0.6280 in the early Tokyo session. The asset is aiming to sustain above the immediate hurdle of 0.6300 amid an improvement in the risk appetite of the market participants. A significant drop in safe-haven’s appeal resulted in a steep fall in the US dollar index (DXY). The mighty DXY tumbled to near 112.00 as investors parked their funds into the risk-perceived assets.

S&P500 witnessed a V-shape recovery after nose-diving on Friday. While yields are upbeat as the odds of a hawkish monetary policy by the Federal Reserve (Fed) are rock solid. The 10-year US Treasury yields are confidently sustaining above the critical figure of 4%.

On Tuesday, investors' focus will remain on the release of the Reserve Bank of Australia (RBA) minutes. The market participants will get a detailed explanation of a decline in the pace of hiking interest rates by RBA Governor Philip Lowe. It is worth noting that RBA announced a 25 basis point (bps) hike in the Official Cash Rate (OCR), unlike the spell of a 50 bps rate hike.

Adding to that, the economic fundamentals and monetary policy guidance will be of utmost importance.

Later this week, Australian employment data will be the key event, which will release on Thursday. As per the consensus, the Employment Change will drop to 25k vs. the prior release of 33.5k. While the Unemployment Rate will remain steady at 3.5%. As the economy is maintaining full employment levels, the increment in payroll data may continue at a diminishing rate.

AUD/NZD remains pressured at five-week low after the firmer NZ data.

New Zealand Q3 CPI rose 2.2% versus 1.6% expected and 1.7% prior.

Risk-on mood defend buyers even as firmer NZ inflation teases bears.

RBA Minutes will be important due to the surprise 0.25% rate hike.

AUD/NZD takes offers to renew a five-week low around 1.1135 after New Zealand Statistics released the quarterly Consumer Price Index (CPI) data early Tuesday morning in Asia. In doing so, the cross-currency pair fails to justify the market’s risk-on mood ahead of the key Reserve Bank of Australia (RBA) Meeting Minutes.

New Zealand’s third quarter (Q3) CPI rose to 2.2% compared to the 1.6% market forecast and 1.7% prior. The details also mentioned that the YoY CPI increased to 7.2% versus the 6.6% expected and 7.3% prior.

The jump in the inflation data ignored the easing in the oil prices during the Q3, which in turn allows the Reserve Bank of New Zealand (RBNZ) hawks to keep the reins and propel the New Zealand dollar (NZD).

It should be noted, however, that the week-start risk-on mood challenges the pair’s downside, together with the cautious mood ahead of the RBA Minutes.

To state the catalysts, optimism that Jeremy Hunt will safeguard the UK economy and China will be able to overcome the recession woes seemed to have favored the market’s relief the previous day. On the same line could be the softer NY Empire State Manufacturing Index for October, down to -9.5 versus -4.0 expected and -1.5 prior.

That said, the AUD/NZD should wait for the RBA Minutes for fresh clues to the policymakers’ latest decision to surprise the markets by only a 0.25% rate hike. Should the update appear dovish, the quote has more to lose.

Technical analysis

AUD/NZD bears attack the 100-DMA key support, near 1.1420 by the press time, a break of which will direct prices towards 1.1115.

• Gold price has picked bids around the $1,650.00 support as DXY sees more pressure.
• Strong yields brought sheer weakness in the gold prices after a pullback.
• Upbeat US NFP is delighting the Fed to hike interest rates unhesitatingly.

Gold price (XAU/USD) is witnessing some buying interest around $1,650.00 despite soaring bets for bigger rate hikes by the Federal Reserve (Fed). On Monday, the precious metal eased the majority of the gains despite mayhem in the US dollar index (DXY). The DXY dropped to near the round-level cushion of 112.00 as the risk-on impulse gained significant traction. S&P500 advanced vertically and recovered Friday’s losses.

Soaring yields backed by advancing certainty of policy tightening by the Fed resulted in a steep fall in gold prices. The 10-year US Treasury yields sustain above 4%. A divergence in price action from the DXY and yields kept the gold prices in the bush of bears and risk-perceived currencies in the bullish trajectory.

Higher-than-projected Consumer Price Index (CPI), released last week, and September’s better-than-expected Nonfarm Payrolls (NFP) data are compelling the Fed to sound hawkish and continue the current pace of hiking interest rates.

Meanwhile, commentary from Societe Generale carries a bearish view on gold for a tad longer period. “In the past, we have observed that gold seems to correlate well with three factors – US real rates, the dollar, and ETF flows (regression r-squared of almost 95%). However, the price of gold has remained quite elevated compared to the theoretical value yielded by our models.”

“If real rates remain elevated for the foreseeable future, one of the assets that could come under pressure is gold.”

Gold technical analysis

On an hourly scale, the gold prices have picked significant selling pressure in several attempts of surpassing the highest auction area placed in a range of $1,661.70-1,684.50. The precious metal has dropped below the 20-period Exponential Moving Average (EMA) at $1,654.43.

The Relative Strength Index (RSI) (14) is hovering around 40.00, and a drop below the same will trigger the downside momentum.

Gold hourly chart

• EUR/USD climbs above 0.9830 due to an upbeat sentiment and the break of the 20-day EMA.
• The daily chart shows that the EUR/USD bias remains downwards.
• Short term, the EUR/USD hourly chart depicts the pair as upwards; it could challenge 0.9900 once RSI exits from overbought territory.

The EUR/USD advances sharply above the 0.9800f figure for the first time since October 6, courtesy of broad US dollar weakness amidst a risk-on impulse, as shown by global equities rising. The EUR/USD is trading at 0.9839, above its opening by 1.24%, distancing from the 20-day EMA.

EUR/USD Price Forecast

The EUR/USD keeps trading downwards, even though price action broke above the 20-day EMA, opening the door to test the top trendline of a descending channel drawn from February 2022 highs and also at around the 50-day EMA at 0.9925/32, which, once broken will expose the October 4 daily high at 0.9999, around parity. The break above will expose the 100-day EMA at 1.0141.

In the near term, the EUR/USD opened the week upwards, as shown by Monday’s session, closing around 0.9837. Of note, the major is trading between the daily pivot and the R1 resistance level, with the latter sitting around 0.9886, and with the Relative Strength Index (RSI) at overbought conditions, might refrain traders from opening new longs until the RSI neutralizes.

Once RSI exits from overbought, the EUR/USD first resistance would be the R1 daily pivot. Brak above will expose the 0.9900 figure, followed by the confluence of the October 5 high and the R2 daily pivot at 0.9926/40, followed by 0.9950.

EUR/USD Key Technical Levels

Statistics New Zealand has released the third quarter Consumer Price Index inflation data as follows:

New Zealand CPI (Q/Q) Q3 2.2% (est 1.5%; prev 1.7%) - CPI (Y/Y) Q3 7.2% (est 6.5%; prev 7.3%)

NZD/USD has bolted to the upside for fresh highs on the day:

There was a lot of room for the headline CPI number to surprise on the upside or the downside which was reflected in the range of expectations for this morning’s data, from a low of 6.3% YoY to a high of 7.0% YoY (with the median estimate being 6.5%).

The data can support the prospects of rate hikes from the Reserve Bank of New Zealand and this support the bird for the foreseeable future.

The weekly template remains bullish for the day ahead but there are longs all the way from Asia and thus pullbacks onto them to be wary of. However, the data should keep them protected for the day ahead. 

About NZ Consumer Price Index

With the Reserve Bank of New Zealand's (RBNZ) inflation target being around the midpoint of 2%, Statistics New Zealand’s quarterly Consumer Price Index (CPI) publication is of high significance. The trend in consumer prices tends to influence RBNZ’s interest rates decision, which in turn, heavily impacts the NZD valuation. Acceleration in inflation could lead to faster tightening of the rates by the RBNZ and vice-versa. Actual figures beating forecasts render NZD bullish.

• AUD/JPY H1 structure is key at 93.28 as it guards the price imbalance to 93 the figure.
• A deeper move below there towards level 1 longs below 92.50. 

The AUD/JPY outlook will likely be determined by today's New Zealand Consumer Price Index, at least for the immediate future. There’s a lot of room for the headline CPI number to surprise on the upside or the downside, and the antipodeans could be shaken up one way or the other.

Analysts at ANZ Bank explained that they estimate that annual CPI inflation eased to 6.6% in Q3, down from 7.3% in Q2:

The following illustrates the market structure as per the hourly time frame for AUD/JPY.

AUD/JPY H1 chart

The price is lofty above a price imbalance and three levels of rise since yesterday's open. There are a lot of longs that have been holding onto their positions which could come under pressure if the data disappoints, setting off a chain reaction of offers. The structure is key at 93.28 as it guards the price imbalance to 93 the figure and a deeper move below there towards level 1 longs below 92.50. 

On the other hand, bulls eye 94.00 the figure and price imbalances higher up. 

We have Statistics New Zealand that will be releasing the third quarter Consumer Price Index inflation data this morning in Asia. There’s a lot of room for the headline CPI number to surprise on the upside or the downside and the NZD will be at the mercy of the data today. 

Analysts at ANZ Bank explained that they estimate that annual CPI inflation eased to 6.6% in Q3, down from 7.3% in Q2:

''Any fall in inflation will be of some relief for Kiwi households, but the trouble for the Reserve Bank of New Zealand is we anticipate that most of the decline in headline CPI inflation will come from a roughly 8% fall in petrol prices over the September quarter (as opposed to a broad-based reduction in domestic inflation pressures).''

''That means there’s unlikely to be much evidence that underlying inflation pressures have turned the corner yet.''

''Unless there’s a steep change in the outlook, we see the RBNZ on track to lift the OCR to a peak of 4.75% in May 2023.''

''Uncertainty remains elevated, and that’s reflected in the range of expectations for this morning’s data, from a low of 6.3% YoY to a high of 7.0% YoY (with the median estimate being 6.5%).''

How might it affect NZD/USD?

The trend in consumer prices tends to influence RBNZ’s interest rates decision, which in turn, heavily impacts the NZD valuation. Acceleration in inflation could lead to a faster tightening of the rates by the RBNZ and vice-versa. Actual figures beating forecasts render NZD bullish.

However, spreads could be wide around the event making it virtually impossible to trade. However, the price has been capped near 0.5650 on Monday and following three levels of rise.

There has been little in the way of dips along the journey so there is the case for a move into level 2 or even into Asian long positions if we don't just see a continuation trade for Tuesday. The data, however, will be a very important milestone as markets gauge how much more work the RBNZ still has ahead of them.

In terms of price action, we can cast our eyes over the prior data releases and movement on the charts as follows:

On the 15-minute time frames, we can see the price moved 44 pips down in April when the data arrived lower at 6.9 vs 7.1 expected and then 20 pips in July, when the data arrived higher at 7.3 vs 7.1 expected.

Given the lofty heights, the bird has flown on Monday, anything short of the expectations could seriously impact the currency with level 1, 0.5575 eyed on a break of level 3, 0.5622 as per the chart above. 

About NZ Consumer Price Index

With the Reserve Bank of New Zealand's (RBNZ) inflation target being around the midpoint of 2%, Statistics New Zealand’s quarterly Consumer Price Index (CPI) publication is of high significance. The trend in consumer prices tends to influence RBNZ’s interest rates decision, which in turn, heavily impacts the NZD valuation. Acceleration in inflation could lead to faster tightening of the rates by the RBNZ and vice-versa. Actual figures beating forecasts render NZD bullish.

• The Japanese yen hits a new 32-year low.
• Will the BoJ intervene again this week?

USD/JPY has pierced the 149.00 level as per the following 5-month chart:

The bull eye the prospects of running up to the psychological level of 150 where speculating lies for further intervention from the Japanese authorities. At the start of the week, Japan’s top currency diplomat Masato Kanda said authorities would firmly respond to any excessive currency fluctuations. 

Each country would respond appropriately to an agreement on foreign exchange market moves by the Group of Seven (G7) and G20 meetings last week, he said.''

Japan's Finance Miniter Shun'ichi Suzuki has also stepped in and said that they will take decisive action against excess forex moves based on speculation. Suzuki says they are constantly watching fx movements with a sense of urgency.

The yen has declined nearly 30% against the dollar this year already as the divergence between the US Federal Reserve's hawkish stance and the Bank of Japan's ultra-lose policy. Last month, Japanese authorities conducted their largest-ever currency intervention to support the rapidly falling yen, having spent 2.84 trillion yen for its efforts which yielded a fleeting effect.

Meanwhile, the US dollar was softer against a basket of major currencies and sterling jumped on Monday after Britain's new finance minister ditched most of the government's "mini-budget", while better-than-expected earnings from Bank of America helped to boost risk appetite.

• Copper prices drop for the second consecutive day.
• Fears about a decline on Chinese demand offset the impact of supply woes.
• Copper production in Chile declined 10% in August.

Copper prices have depreciated for the second consecutive day on Monday on the COMEX market in New York, reaching $3.39 so far.

The red metal attempted to bounce up during the European morning session, favoured by the soft tone of the US dollar. Upside attempts, however,  have been capped at $3.45, before giving away gains shortly afterwards and turning negative on daily charts during the US trade.

Fears about a drop in Chinese demand hit copper prices

Demand uncertainty on the back of a global economic slowdown and the increasing COVID-19 cases in China has offset the impact of supply woes. Chinese President Xi Jinping reiterated the Government’s commitment to the zero-Covid policy at the Party Committee last weekend.

Jinping’s comments triggered fears that another set of lockdowns might curb the demand for the industrial metal, which has weighed on prices.

Copper output in Chile, the world’s leading producer declined more than 10% in August.

These concerns have offset the positive impact on prices triggered by the tighter supplies and the increase on demand from China observed last week.

What you need to take care of on Tuesday, October 18:

The American dollar edged lower at the beginning of the week as news coming from the UK weighed on global government bonds and the greenback’s demand. GBP/USD surged to 1.1439, to later finish the day at around 1.1350

The new Chancellor of the Exchequer, Jeremy Hunt, announced the government would drop most of the tax-related measures announced on September 23, meant to stabilize the financial system. Prime Minister Liz Truss anticipated tax cuts and price caps on energy before becoming elected, but the British Pound collapsed after revealing her plan. The mini-budget meant to provide peace generated chaos amid funding black holes and ended up with Kwasi Kwarteng, the former Chancellor of the Exchequer, being sacked after just a couple of weeks in office. Market players reduced their bets on future rate hikes, now expecting it to total 175 bps by the end of the year.

 The AUD/USD pair trades around 0.6280 after failing to retain gains above 0.6300, while USD/CAD is down to 1.3720, despite discouraging Canadian data. The Bank of Canada survey on business sentiment showed that it saw its worst drop since 2022.     

USD/JPY extended its rally, now hovering around 149.00 despite Japanese Finance Minister Suzuki announcing they would respond to speculative moves while warning they are observing FX “motions.”

Gold flirted with $1,670 a troy ounce but finished the day at around $1,647, easing ahead of Wall Street’s close. Crude oil prices were under mild pressure, with WTI now trading at around $84.85 a barrel.

US government bond yields recovered ahead of the close, ending the day pretty much unchanged, despite substantial gains among US indexes.

Ripple EVM sidechain goes live for developers, XRP looking at $0.60

• GBP/JPY climbs sharply by more than 250 pips on Monday due to fundamental reasons.
• Negative divergence in the GBP/JPY one-hour chart opens the door for a mean reversion move.

The GBP/JPY rallies to fresh six-year highs at 170.10 due to investors’ relief on the UK’s newest Finance Minister, Jeremy Hunt, ditching Kwarteng’s mini-budget as he tries to ease the markets. Therefore, the British pound soared against most G8 currencies, particularly the yen, gaining 290 pips. At the time of writing, the GBP/JPY is trading at 169.18.

GBP/JPY Price Forecast

On Monday, the GBP/JPY surged, extending its gains towards the 170.00 figure, but profit-taking around the area weighed on the pair, retracing toward the 169.00 figure. Worth noting that the GBP/JPY is trading above the previous 2022 high, reached on June 9 at 168.04, so a daily close above it could open the door for consolidation around 169.00-170.00.

Short term, the GBP/JPY one-hour scale price action registered a series of higher highs/lows, emphasizing the upward bias. Of note, the Relative Strength Index (RSI) printed successive series of lower peaks, forming a negative divergence, opening the door for a mean-reversion move.

Therefore, the GBP/JPY first support would be the R2 daily pivot at 168.34. The break below will expose the R1 pivot at 167.28, followed by the 50-EMA at 167.17.

GBP/JPY Key Technical Levels

• Wall Street stocks rallied out of the gate and stayed strong throughout the day. 
• UK politics, a softer US dollar and global yields helped to boost risk appetite amid strong financial's earnings.  

It's been a much better day for Wall Street on Monday with the bulls charging out of the starting blocks from the get-go with pre-market prices pointing up into the open and the cash market running on risk-on sentiment. In the UK, politics were in a better place which calmed nerves in global financial markets and corporate earnings expectations were leaning bullish. 

By midday, the Dow Jones Industrial Average advanced 1.8% to 30,311.95 from 29,997.62 ad up over 2%. The S&P 500 was up 2.77% to 3,681 and the Nasdaq Composite was 3.58% higher at 11,073.19. Consumer discretionary and real estate led the gainers, with all sectors in the green. in turn, risk currencies, such as the NZD, were firmer ahead of the Reserve Bank of New Zealand later today. The US dollar slid into support on the daily chart, as illustrated below, while the 10-year yield fell below 4% and tapped into its daily support structure too.

US dollar, DXY, daily chart

In terms of performers, financials were on the up with shares of Bank of America rallying some 5.3% intraday. The lender, which benefits fro higher interest rates,  reported better-than-expected third-quarter results. Net interest income grew 24% to $13.77 billion, driven by higher interest rates, lower premium amortization and loan growth.

Additionally, the Bank of New York Mellon's Chief Executive Robin Vince said in a statement after posting stronger-than-anticipated performance, 

"our performance benefitted from higher interest rates and continued strength in client volumes and balances across our securities services and market and wealth services segments." The giant raised its net interest revenue outlook for the full year.

As for interest rates, markets are pricing in the probability of the fourth consecutive 75-basis-points hike to more than 99% on Monday from almost 77% a week ago, according to the CME Group's FedWatchTool. 

US data of late has been a mixed bag but Federal Reserve speakers have continued to paint a hawkish outlook for the final meetings of the year. Analysts at Brown Brothers Harriman noted that ''Bostic and Kashkari speak tomorrow while Kashkari, Evans, and Bullard speak Wednesday. Harker, Jefferson, Cook, and Bowman speak Thursday.  Williams speaks Friday.  At midnight Friday, the media embargo goes into effect and there will be no Fed speakers until Chair Powell’s press conference on November 2.''

The Fed's Beige Book will be a highlight this week on the calendar. The analysts at BBH said that ''the last report was based on survey responses on or before August 29. Since then, we have gotten two sets of job and inflation data that show that the labour market remains firm and price pressures are still rising and broadening.'' 

''However,'' they said, ''recent PMI readings suggest that the supply chains continue to heal. When all is said and done, we believe the report will support a 75 bp hike at the November 1-2 FOMC meeting. Of note, a 50 bp hike at the December 13-14 FOMC meeting is fully priced in, with over 65% odds of a larger 75 bp move then. The swaps market is still pricing in a peak Fed Funds rate near 5.0% but this could move even higher.'' In turn, US stock as a whole will be at the mercy of anything more hawkish than that assessment of current pricing.

UK politics in focus

Meanwhile, however, they have enjoyed some better sentiment out of the UK's political scene. The new British finance minister Jeremy Hunt announced a plan to reverse almost all of his predecessor's unfunded tax cuts announced earlier this month in a mini-budget. This sent gilts higher, rates lower and the pound recovered into the 1.14 area, printing as high as 1.1439 at one moment. The political backdrop helped to boost market confidence which was reflected in today's rally on Wall Street. 

Bundesbank President Joachim Nagel is crossing the wires again following his remarks that were least heard on Saturday that said the European Central Bank (ECB) needs several more rate hikes to tame inflation.

Today, he said that the central bank must withdraw support quickly, but ''not stop too early'', with regard to what is expected to be a deep recession in Germany.

"Further interest rate hikes will be needed to bring the inflation rate back to 2% in the medium term – not just at the monetary policy meeting at the end of October," Nagel said in a speech in Washington on the weekend.

"The ECB Governing Council must not let up too soon."

Markets currently price in a 75 basis point move on Oct. 27, the same as September's increase, and few if any policymakers have pushed back publicly on these expectations.

"As monetary policy continues to normalise, we will also need to look into scaling back Eurosystem asset holdings, which amount to almost 5 trillion euros," Nagel added.

"GDP (in Germany) could decline significantly in the final quarter of 2022 and the first quarter of 2023," Nagel said. "This would imply a recession, that is a significant, broad-based and longer-lasting decrease in economic output."

EUR/USD update

EUR/USD remains on tenterhooks as the euro bloc struggles with gas shortages. On the day it is higher but remains in the bear's lair while tucke din below daily trendline resistance: 

• The US dollar rally stalls right below 149.00.
• Fears of a BoJ intervention and risk appetite have undermined USD strength.
• USD/JPY: Important top at 149.31/150.00 – Credit Suisse.

The dollar has remained hovering on the upper range of 148.00 on Monday, consolidating gains at a 32-year high, following an 8-day rally from the 144.00 area.

Risk appetite and intervention fears put a lid on the USD rally

Investors’ mood improved on Monday, with the market welcoming news that the UK finance minister is planning to reverse most of the aspects of his predecessor’s mini-Budget.

Furthermore, US retail sales showed a certain resilience in consumers’ behaviour and Bank of America has reported better than expected quarterly reports, which has undermined demand for the safe-haven US dollar.

On the other hand, the pair has appreciated well above the level that triggered intervention by the Bank of Japan last month. Japanese authorities have reiterated their warnings of a firm response to avoid rapid yen declines which has set investors on the guard.

USD/JPY: Significant top at 149.31/150/00 – Credit Suisse

According to FX analysts at Credit Suisse, the pair has reached a potential top: “Our ‘ideal’ roadmap would be for a test of trend channel, gap and psychological resistance at 149.31/150.00, but our base case remains to look for a potentially significant top here. “A break and sustained close above 153.00 would suggest it is too early to look for a top, exposing then resistance next at the 160.33 high of 1990.” 

Technical levels to watch

• WTI bounces off the 20-day EMA and holds to minimal losses of 0.11%.
• The PBoC decided to continue stimulating China’s economy, a tailwind for the WTI price.
• OPEC’s cut has been outweighed by recent US dollar strength due to future Fed hikes.

US crude oil benchmark, also known as Western Texas Intermediate (WTI), paring its earlier losses and prints gains of almost 0.40% on Monday as China’s continuing losing monetary policy, would likely make up for any diminished demand amidst high inflation and an economic deceleration, sparked global recession fears. Nevertheless, at the time of writing, WTI is trading at $85.33 per barrel, below its opening price by 0.32%.

WTI drops despite China’s efforts to stimulate its economy as the greenback extends its losses

The People’s Bank of China (PBoC), China’s central bank, announced that it would continue to stimulate the economy, rolling over medium-term policy loins on Monday while maintaining its key interest rate unchanged for the second straight month. That put a lid on the oil’s rally propelled by a weaker US dollar.

Worth noting that during the Chinese Communist Party Congress, Chinese President Xi Jinping emphasized that his government would extend a zero-Covid policy, which would likely impact oil demand.

In the last week, Fed officials reiterated that the US central bank would continue tightening its monetary policy. Most street analysts expect the Federal funds rate (FFR) to peak at around 4.765-5%. Therefore, further US dollar strength is foreseen, a headwind for black gold.

Elsewhere, OPEC’s decision to cut production by more than an estimated 2 million barrels has increased flows to the oil market. According to Reuters, “Hedge funds and other money managers purchased the equivalent of 47 million barrels of petroleum-related futures and options in the week to Oct. 11.”

WTI Key Technical Levels

• The euro rallies to fresh seven-year highs at 146.50.
• The yen, unable to capitalize on USD weakness, continues on free fall.
• The market is on the watch for BoJ intervention.

The euro opened the week on a strong note, accelerating its rally beyond 145.60, to hit 146.50 so far, its highest level since January 2015.

The Japanese yen continues on free-fall

The yen has been the only major currency unable to benefit from the US dollar weakness amid the improvement in risk appetite and has extended its decline, with the USD/JPY reaching fresh 32-year lows.

Investors remain on the watch for the possibility of an intervention by the Bank of Japan to strengthen the JPY. The yen has actually exceeded the level that triggered an intervention by the BoJ last month, and the Japanese Government has reiterated its commitment to a “firm response” to avoid rapid yen declines.

The yen is under pressure on the back of the monetary policy divergence between the BoJ and the rest of the major world central banks, and especially the Federal Reserve.

The Fed is widely expected to increase rates by 0.75% for the fourth consecutive time in November while the Japanese bank maintains an ultra-expansive policy that is crushing demand on the Japanese currency.

Technical levels to watch

• AUD/USD bulls eye a test of key trendline resistance.
• The bulls need to get above last month's lows.

As per the start of the week's pre-open analysis, AUD/USD Price Analysis: Pre-open points to bullish correction, eyes on the 61.8% golden, and the follow-up later in Tokyo,  AUD/USD Price Analysis: Bulls making good headway start of week, the price has gone on to the target and has even reached into test the 0.63 area as follows:

AUD/USD prior analysis, H1 chart

As per the hourly chart, it was explained that AUD/USD was ''well below last month's lows and will remain in the bear's hands so long as Friday's highs of near 0.6250 are not violated.''

A correction into the greyed areas which are price imbalances on the hourly chart was anticipated for the opening sessions on Monday which put the prior bull candle's lows in focus near a 61.8% Fibonacci retracement near 0.6275. It was stated that ''while below this area of resistance, the focus will be on a break of the fresh bear cycle lows near 0.6170 and for a downside continuation.''

Later that session ... 

AUD/USD update

The price has rallied in three sessions, Asia, London and New York, in three levels of rise, respecting the front side of the trendline and breaking a 78.6% Fibonacci retracement level. Following such a move, a correction back into profitable trades in level 2, or even as far down into Asian longs in level 1 should the bulls capitulate in level 2, would be expected. There is also a price imbalance below level 3 that could be mitigated. If the bears commit, then Level 1 longs will be vulnerable considering the break of the bullish structure around 0.6270 on the backside of the trendline. On the other hand, if the bulls stay the course on the front side of the trendline, then Friday's highs near 0.6347 will be eyed that guard September's lows and last week's highs thereafter. 

AUD/USD H4 chart

Meanwhile, the price is on the front side of the 4-hour trendline resistance which opens the risk of a break below 0.6170 for the foreseeable future. However, if the bulls manage to get on the backside of the trend, then there will be a bullish case developing above last month's lows. 

• Silver futures recovery losses steam below $19.00.
• Precious metals have pared losses on the back of a softer USD.
• XAG/USD remains close to a key support area at $17.60/18.10.

Silver futures’ recovery from Friday’s lows at $18.00 seems to have lost steam on Monday’s US trading session. XAG/USD has failed to find acceptance above $18.90, although downside attempts remain, so far, limited above $18.65.

Precious metals pare losses on the back of a softer USD

In the absence of first-tier macroeconomic releases, the news about the UK Government’s plan to reverse most of the tax cuts announced in September has been welcomed by investors. Stock markets are posting significant advances and the safe-haven US dollar has extended its pullback from recent highs.

The precious metal gained territory on Monday to put an end to a six-day sell-off, although the bullish trend has hesitated in the vicinity of  $19.00. The pair would need to breach that revel to gather momentum and aim towards the $19.70/80 resistance area.

A confirmation above the $20.00 psychological level would negate the near-term negative trend and open the path toward August and October’s peaks in the area of $21.00

On the other hand, the pair remains still dangerously close to a key support area between $18.10 and $17.60, which contains July, August, and September’s lows. A downside reversal below here might take the pair to explore June 2020 lows at the $17.00 area and Apr 14, 2020, high at S15.85.

XAG/USD daily chart

Technical levels to watch

• GBP/USD climbed sharply by more than 200 pips, gaining 2%.
• UK 30-year bond yields dropped 50 bps to 4.38% as the bond sell-off trims.
• UK’s Finance Minister Hunt calmed the markets, buying some time for UK’s PM Liz Truss, as pressures to oust her increase.

The GBP/USD pierces the 1.1400 mark, as the UK’s new Finance Minister, Jeremy Hunt, said in the House f Commons that the government changed its course while reiterating that Britain is a country that “pays its debts.” So far, UK Government’s U-Turn keeps investors’ mood upbeat, with global equities trading in the green. At the time of writing, the GBP/USD is trading at 1.1384, above its opening price but shy of the two-week high.

GBP/USD jumped as UK’s newest Finance Minister scrapped PM Liz Truss’s initial budget proposal

An absent US calendar left investors adrift to UK’s economic turmoil news. The UK Chancellor of the Exchequer, Jeremy Hunt, slashed the tax cuts from the newest government budget to calm the markets. So far, the 30-year Gilts has fallen 45 bps, from 4.85% to 4.35%, as tweaks made by the newest Finance Minister bought PM Liz Truss government time.

The British pound rallied sharply against the dollar on Monday, almost 2% up, gaining more than 200-pips, bouncing from daily lows around 1.1208 to its daily high at 1.1439.

Jeremy Hunt’s program increased the corporate tax rate while reversing tax changes on dividend income, alcohol duty, and a VAT-free shopping scheme aimed to raise GBP 5 billion. Additionally, Hunt commented that he would form an “economic advisory council” to provide independent advice to the government.

Aside from this, the US latest inflation figures reported last Thursday’, further cemented the case for another big-size rate hike by the Federal Reserve. Several officials expressed that inflation remains stubbornly high, the market labor is tight and emphasized the need for ratest to be restrictive.

On Saturday, the St Louis Fed President James Bullard said that US higher interest rates bolstered the greenback, which is weighing on other worldwide currencies, an addressed theme by some countries at the G20 meeting. Nevertheless, Bullard added that once the Fed gets rates to a level that could pressure inflation down, the greenback might fall.

What to watch

Tuesday’s light UK economic calendar will leave traders leaning toward UK’s political turbulence and US dynamics. On the US front, Industrial Production m Capacity Utilization, and NAHB Housing Market Index would update the status of the US economy.

GBP/USD Price Forecast

The GBP/USD recovered some ground, distancing from the 20-day EMA, as the Relative Strength Index (RSI) broke above the 50-midline, a bullish signal. On its way north, the 50-day EMA lies at 1.1498, which, once cleared, will expose the 1.1500 figure, followed by a test of the 100-day EMA at 1.1832.

• The NZD appreciates to 0.5650 after bouncing up from two-year lows at 0.5550.
• The kiwi pares previous losses buoyed by brighter market sentiment.
• The focus is now on the release of New Zealand's CPI data, due later today.

The New Zealand dollar has opened the week on a firm footing to reach levels right below 0.5650 on Monday, after bouncing up from two-year lows of 0.5550.

Risk appetite buoys the kiwi

The kiwi has been favoured by the brighter market sentiment on Monday, as the investors welcomed the comments of the new UK Finance Minister, confirming the U-turn on most of the aspects of the mini-Budget plan that roiled financial markets.

Investors' optimism has been reflected in the positive stock markets on Monday. The US Dow Jones Index advances 1.76%, while the S&P trades 2.5% up and the Nasdaq. Technological Index rallies 3,2% at the time of writing.

The improved sentiment has weighed on US Treasury yields, sending the US dollar lower across the board. The US Dollar Index, which measures the value of the greenback against a basket of the most traded currencies is showing a 1.1% pullback, which erases the previous two weeks' gains.

In New Zealand, the focus today will be on the release of the Q3 Consumer Prices Index figures. Inflation pressures are expected to have eased somewhat. This should not have a relevant impact on the pair, unless the final reading suggests a diversion in monetary policy expectations.

Technical levels to watch

• Despite an upbeat sentiment, USD/JPY is almost flat as rumors of Japanese intervention in the FX market loom.
• The USD/JPY daily chart shows the pair as overbought as the RSI above 70 gives a respite to USD/JPY bulls.
• Near-term, an ascending triangle in the hourly targets the USD/JPY will rise to 149.36-50.

The USD/JPY extends its gains, for the ninth consecutive trading day, bolstered by renewed Bank of Japan (BoJ) dovish commentary during the last week, despite the Minister of Finance Suzuki and Japan’s PM Kishida’s efforts to propel the Japanese yen. At the time of writing, the USD/JPY is trading at 148.75, above its opening price by 0.01%.

USD/JPY Price Forecast

The USD/JPY printed a fresh 32-year high of 148.89, as the pair closes to the 150.00 figure, but fears of another FX intervention by Japanese authorities refrain traders from opening fresh longs on the USD/JPY. It should be noted that the daily chart depicts oscillators at overbought conditions, namely the Relative Strength Index (RSI), which at 76.74, is almost flat, giving a respite for USD/JPY shorts.

The USD/JPY one-hour chart delineates the pair in consolidation, hoovering around the 20-EMA, which, sitting below the exchange rates, suggests the pair is upwards. However, price action’s printing lower highs and higher lows signal that it could be forming an ascending triangle, which would pave the way for further gains.

A break above 148.89 will expose the 149.00 figure. Once cleared, the following resistance would be the R1 daily pivot and also the ascending-triangle measure objective at 149.36, immediately followed by 149.50 and the 150.00 figure.

USD/JPY Key Technical Levels

• The dollar extends losses on Monday and returns below parity.
• The brighter market sentiment is weighing on the safe-haven USD.
• USD/CHF: Below 0.9876 downside pressure will increase – Credit Suisse.

The US dollar is giving away on Monday most of the ground gained last week. The pair has depreciated more than 1% from Friday's highs at 1.0065, to reach session lows below 1.0000 at the time of writing.

The greenback loses ground as risk appetite returns

News reports confirming that the UK Finance Minister, Jeremy Hunt, will reverse most of the mini-Budget tax cuts plan announced in September have boosted investors’ optimism on Monday.

Most of the world’s major stock indexes posted significant advances on Monday. In the US, the Dow Jones advances 1.81%, with the S&P Index 2,74% up and the Nasdaq rallying 3,5%, which has weighed on US Treasury bond yields, pulling the safe-haven USD lower across the board.

In the long run, however, the current risk rally is likely to be short-lived. The market is widely expecting the US Federal Reserve to hike rates by r 75 basis points again in November, while global economic prospects remain fragile on the back of geopolitical tensions, higher energy prices, and increasing COVID cases in China. This scenario is highly likely to strengthen the US dollar in the longer term.

USD/CHF: Breach of 0.9876 will increase downward pressure  – Credit Suisse

On the downside, FX analysts at Credit Suisse point out to a key support area at 0.9876: “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 (…) “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.” 

Technical levels to watch

The EUR/GBP continued to pull back on Monday and fell to the lowest level in four weeks near 0.8580. According to analysts from Danske Bank, the cross will head north in a three-month period and forecast at 0.89. 

Key Quotes: 

“We expect BoE to continue to hike policy rates until February next year, with risks skewed to more tightening given the inflationary nature of the fiscal support measures.”

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

“The key risk to see EUR/GBP moving above 0.90 is a sharp sell-off in risk where capital inflows fade and liquidity becomes scares. Other risks are the outlook for the UK economy deteriorating sharply compared to the Euro Area and renewed escalations in EU-UK tensions.”
 

British Finance Minister Jeremy Hunt is speaking to the House of Commons following the Leader of the House Penny Mordaunt. Earlier on Monday, Hunt announced the UK government will reverse almost all tax measures announced on the mini-budget. Speaking to MPs, UK Finance Minister said that there are still difficult decisions to be announced in the medium-term fiscal plan on October 31.

Hunt announced that an economic advisory council is being formed. “I want independent expert advice.” He mentioned that they need to do more in order to give certainty to markets.

Market reaction

The pound is among the top performers on Monday, with GBP/USD up by more than 200 pips. It peaked at 1.1438 (highest level since October 5) and remains near the high, above 1.1400. EUR/GBP dropped to the lowest level in five weeks.

• The euro hits session highs above 0.9800 after bouncing at 0.9720 lows.
• The common currency pares losses amid a broad-based USD weakness.
• EUR/USD seen retesting 0.9540 – ING.

The common currency has shrugged off the weakness observed last week to rally on Monday, amid an improved sentiment. The euro appreciates nearly 1% so far today bouncing up at 0.9720 area to hit session highs at 0.9820.

A higher appetite for risk is weighing on the USD

In the absence of any relevant macroeconomic data, dollar weakness seems the main reason behind the surprising euro recovery. The safe haven greenback is losing ground across the board with investors' sentiment boosted after the newly appointed British Finance Minister announced the U-turn on the mini-Budget Tax cuts.

The US Dollar Index has depreciated about 0.8% in its largest reversal of the last two weeks, retreating from last week's highs at 113.70 to test the support area at 112.00 at the time of writing.

From a wider perspective, however, the pair remains quite far from October’s peak at parity levels. Eurozone’s economy has relevant challenges ahead, with inflation at historic levels on the back of higher energy prices and with no solution in sight during the Ukrainian war, which are likely to hinder a sustained euro recovery.

EUR/USD seen retesting 0.9540 – ING

Currency analysts at ING are skeptical about the current EUR/USD rally, and see the pair resuming its downtrend: “The euro should remain heavily impacted by sterling’s swings in the near term, and here the correlation appears to be stronger on the downside i.e. the spillover from another sell-off in gilts would likely have an asymmetrically larger impact on the euro than the positive implications of a recovery in UK sentiment (…) “We still think that EUR/USD will test the 0.9540 September lows in the near-term, and extend a drop below that level by year-end.”

Technical levels to watch

• A weaker dollar and risk appetite offers support to gold on Monday.
• US yields off lows, limiting upside in XAU/USD.
• XAU/USD facing resistance at $1,670, building support around $1,660.

Gold is rising on Monday, recovering from the two-week low it hit on Friday at $1,639. After the beginning of the American session it peaked at $1,668 and then pulled back to the $1,660 area.

The recovery in gold is being driver by lower yields and a weaker US dollar. The US Dollar Index (DXY) is falling by 0.90% and it tested the weekly low at 112.15. The US 10-year yield stands at 3.95% while the 2-year at 4.44%.

In Wall Street, stocks are recovering sharply after Friday’s slump. The Dow Jones rises by 1.75% and the Nasdaq gains 3.21%. Crude oil is flat for the day while silver is up 2.25%.

Resistance ahead around $1,670

The upside in gold lost momentum before $1,670; a level that is a key resistance. A break higher would expose the next barrier which is the $1,680 area. A daily close above would be a positive technical development for gold bulls.

On the flip side, the immediate support is the $1,660 zone. Below the next level is the critical $1,640 that capped the downside last week. If XAU/USD drops below it could accelerate the move lower.

Technical levels

• USD/CAD dives below 1.3750 due to an upbeat mood and a soft US dollar.
• UK’s mini-budget U-turn sparked a rally in global equities.
• Canada’s inflation expectations rose further, justifying further BoC’s rate hikes.

The USD/CAD tumbled from around the 1.3800 figure due to a risk-on impulse, as shown by global equities recording gains, spurred by a U-turn in the UK mini-budget, which so far had stabilized the markets. At the time of writing, the USD/CAD is trading at 1.3729, below its opening price by 1%.

The Canadian dollar got bolstered by rising inflation expectations as the BoC’s Business survey showed

The absence of US economic data to be released on Monday keeps traders leaning on last week’s inflation figures, which, even though was higher-than-expected, sparked a rally in US equities. Nevertheless, investors backpedaled on Friday, with most indices closing in the red.

The St. Louis Fed President James Bullard said that faster interest rate hikes contributed to further US dollar strength against other currencies on Saturday. Bullar added that once the Federal funds rate (FFR) gets to a level “where the committee thinks we’re putting meaningful downward pressure on inflation,” so rates don’t need to continue increasing.

In the meantime, the Bank of Canaday Business sentiment survey showed that firms expect slower growth amidst the Bank of Canada’s (BoC) tightening cycle, which cools demand, with most responders foreseeing a recession likely in the next 12 months.

The BoC’s survey highlighted that businesses’ inflation expectations jumped to 7.11% from 6.82% in Q2, while for 2-years, the CPI is expected at 5.22%. That justifies further action by the Bank of Canada (BoC), as Governor Tiff Macklem said that the Bank needs “more work to do” on interest rates, signaling further hikes.

Therefore, the USD/CAD plunged as investors seeking return shifted to risk-perceived assets. Additionally, the greenback is pressured, as shown by the US Dollar Index, down almost 1% at 112.23, while crude oil prices are rising, with WTI’s paring some of last Friday’s losses, clings around $85.50 per barrel.

What to watch

The Canadian economic docket will feature House Starts Annualized, while the US calendar will reveal Industrial Production (IP), alongside Capacity Utilization and the NAHB Housing Market Index.

USD/CAD Key Technical Levels

Weaker growth prospects have weighed on the Swedish krona and the Norwegian krone. Economists at Danske Bank expect EUR/SEK to move higher over the coming months to 11.20 while EUR/NOK is set to rise over the next three months.

More weakness in store for scandies

“We stick to our negative view on the SEK, which is underpinned by the gloomy global growth outlook, associated negative outlook for global and Swedish equities alike and relative monetary policy. In addition, more frontloading of rate hikes will exacerbate the downturn in the Swedish housing market, a headwind for the krona.” 

“We look for weaker SEK in the 6-12M perspective, forecasting 11.20 in 12M.”

“We still think EUR/NOK is heading higher over the coming 3-6M driven by a slowdown in growth, a European recession, volatile asset markets and further spread tightening in the short-end of rates curves.”

“We forecast EUR/NOK at 10.70 in 3M.”

• Bank of Canada releases the Q3 Business Outlook Survey.
• Business confidence has softened but is still positive. 
• Short-term inflation expectations edged down but remain elevated.

The Bank of Canada (BoC) released on Monday the Business Outlook Survey for the third quarter of 2022. The report says that “business confidence has softened”, “many firms expect slower sales growth as interest rates rise and demand growth shifts closer to pre-pandemic levels” and regarding inflation, it states there are early signs “that pressures on prices and wages have started to ease, but firms’ inflation expectations remain high.”

Key takeaways:

• “Businesses expect their price increases to moderate due to downward pressure on prices for commodities and other input goods. They also expect their wage increases to soften from high levels. Firms’ short-term inflation expectations remain above the Bank of Canada’s inflation target.”
   
• “Firms’ expectations for long-term inflation are much closer to target and have been stable for the past few quarters. Most businesses that expect inflation to be substantially above 2% anticipate that it will return to target within three years.”
   
• “Firms’ sales outlooks have softened. Businesses with sales linked to housing activity and household consumption expect weaker sales growth due to rising interest rates. Other firms anticipate their sales growth will be healthy but slower than earlier in the economic recovery from the COVID 19 pandemic. Amid emerging signs of moderating growth in demand, firms’ plans to invest more and hire eased slightly from previously high levels.”
   
• “Most BLP respondents think the probability of a recession in Canada in the next 12 months is at least 50%. While many firms anticipate a recession, those not linked to housing activity and other household consumption do not expect it to have a large impact on demand for their products or services. When asked what would trigger a recession, business leaders indicated that large increases in interest rates and high prices reducing consumption would be the most likely factors.”

Market reaction

The USD/CAD remained near daily lows after the release hovering around 1.3740, weakened by a broad-based slide of the US dollar. 

GBP/USD has been fluctuating around the 1.13 area today. Economists at Rabobank have been bearish on the pound for many months and believe that there is still too much uncertainty in both the UK economic and political outlooks to turn constructive on the outlook for GBP.

UK fundamentals are still sour 

“Hawkish remarks from BoE Governor Bailey over the weekend confirm that the BoE is preparing to raise rates aggressively going forward. This will lend some support to the pound, though higher rates combined with the reversal of Truss’ tax pledges, underpins the recessionary outlook for the UK.” 

“Aside from awakening a few bargain-hunters, the calamitous events of the past few weeks will not have done anything to tackle the lack of investment growth that has been evident in the UK in recent years, nor will it have impacted the wide current account deficit.”

“Our three-month forecast of 1.06 appears a little further away than it did a few days ago. Even so, we have not yet seen enough good news to revise this higher.”

Gold speculators continued to cover some shorts. But in the view of strategists at TD Securities, the yellow metal needs to break past $1,750 to extend the short squeeze.

Gold has yet to price in an extended period of restrictive rates

“As quantitative tightening continues to sap liquidity from global markets, it will increasingly constrain other central banks before it binds the Fed while pressuring global assets amid tightening monetary policies and a slowing growth outlook. This should support the dollar's rally, while weighing on gold prices, despite rising recession risks, as inflation's rising persistence suggests the Fed is unlikely to stop hiking preemptively.” 

“In the near-term, however, the recovery in risk assets bolstered by signs of stabilizing Gilts is raising pressure on precious metal shorts, but gold prices need to break above $1,750 to extend the short squeeze.”

• GBP/USD catches fresh bids on Monday and is supported by a combination of factors.
• Reversal of the UK government’s controversial fiscal package boosts the British pound.
• Retreating US bond yields, the risk-on mood weighs on the USD and remains supportive.

The GBP/USD pair regains positive traction on the first day of a new week and builds on its steady intraday ascent through the early North American session. The momentum lifts spot prices to a fresh daily high, around the 1.1365-1.1370 region, and is sponsored by a combination of factors.

The British pound draws support from the latest optimism over the reversal of the new UK government's controversial fiscal package. The US dollar, on the other hand, is pressured by a combination of factors and provides an additional boost to the GBP/USD pair. Retreating US Treasury bond yields, along with the risk-on impulse, turn out to be key factors undermining the safe-haven greenback.

From a technical perspective, the GBP/USD pair now seems to have found acceptance above the 200-period SMA on the 4-hour chart. This, in turn, supports prospects for an extension of last week's bounce from the 50% Fibonacci retracement level of the recent recovery from an all-time low. The positive outlook is reinforced by bullish oscillators, which are still far from being in the overbought zone.

Some follow-through buying above Friday's swing high, around the 1.1380 region, will reaffirm the bullish bias and lift spot prices beyond the 1.1400 round-figure mark. The upward trajectory could further get extended and allow the GBP/USD pair to aim back to challenge the monthly swing high, just ahead of the 1.1500 psychological mark.

On the flip side, the 1.1300 round figure now seems to protect the immediate downside. Any subsequent decline is likely to attract fresh buyers near the 23.6% Fibo. level, around the 1.1215-1.1210 region. This is closely followed by the 1.1200 mark, which if broken decisively will suggest that the momentum has run out of steam and shift the bias in favour of bearish traders.

The GBP/USD pair might then turn vulnerable to weaken further below mid-1.1100s, Friday's swing low, and drop to the 1.1100 round-figure mark. The next relevant support is pegged near 38.2% Fibo. level, around the 1.1055-1.1050 region. The latter should act as a strong base for spot prices and a key pivotal point for short-term traders.

GBP/USD 4-hour chart

Key levels to watch

• USD/TRY remains within the multi-week range bound theme.
• The 18.6000 region still caps the pair’s upside bias.
• The CBRT is expected to cut the policy rate later in the week.

The Turkish lira depreciates modestly vs. the greenback, with USD/TRY navigating the usual consolidative range just below the 18.6000 mark on Monday.

USD/TRY focused on the CBRT

No changes to the side-lined pattern around the pair, which remains well capped by the 18.60 region for the time being.

The next key event in the Turkish calendar will be the interest rate decision by the Turkish central bank (CBRT) on October 20. Consensus, in the meantime, seems to have already priced in another rate cut (100 bps likely), particularly following latest comments from President Erdogan, who suggested that the One-Week Repo Rate should be around single digits by year end (from current 12.00%).

Earlier on Monday, the Turkish Treasury announced a TL38.63B deficit in the Budget Balance in September.

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: Budget Balance (Monday) – CBRT Interest Rate Decision (Thursday) – Consumer Confidence (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 0.28% at 18.5760 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 18.2200 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low).

There is an elevated risk that Japanese authorities will intervene in the FX market to support the yen today. Economists at ING expect the USD/JPY pair to hover around the 150 level for the time being.

More intervention increasingly likely

“We are not making the argument that there is a clear line in the sand at 150.00 for Japanese authorities (the whole idea of a ‘line in the sand’ in the current FX market appears unrealistic), but it’s likely that allowing a move above 150.00 may well trigger an acceleration of the JPY sell-off which is exactly what Japan is trying to avoid.”

“Our view is that a prolonged FX intervention campaign in Japan will keep USD/JPY around 150.00 into year-end.”

Head of Research at UOB Group Suan Teck Kin, CFA, and Senior FX Strategist Peter Chia review the latest decision by the MAS.

Key Takeaways

“The Monetary Authority of Singapore (MAS) in its scheduled monetary policy statement (MPS) release on Thu (14 Oct) announced the re-centring of the mid-point of the S$NEER policy band up to its prevailing level, but without any change to the slope and width of the band. As inflationary pressures have intensified since the economic recovery from the COVID-19 pandemic, this is the fifth time in a row that the MAS has strengthened the S$NEER policy since kicking off the cycle at the scheduled release in Oct 2021.”

“The MAS narrowed the inflation forecasts in its latest statement, with projections for 2022 headline inflation at around 6% and core inflation at around 4%, from the forecast ranges of 5.0-6.0% and 3.0-4.0%, respectively. These projections are consistent with our call of 6% (for headline or CPI-All Items) and 4.2% (core), as inflationary pressures remain elevated with Sep CPI readings hitting the highest since 2008.”

“The MAS expects that in 2023, after taking into account all factors including the GST increase, core inflation is expected at 3.5–4.5% on average over the year, and CPI-All Items inflation at 5.5–6.5%. Even after excluding the one-off effects of the GST increase early next year, core inflation would still remain above trend at 2.5–3.5% and headline inflation at 4.5–5.5%.”

“Singapore’s preliminary 3Q22 GDP announced at the same time came in at 4.4% y/y from a revised 4.5% growth in 2Q22, within our call of 4.2% but well ahead of Bloomberg poll of 3.5%. On a seasonally adjusted basis, 3Q22 GDP rebounded strongly by 1.5% q/q, from -0.2% in 2Q22. Manufacturing sector slowed as we had anticipated to 1.5% y/y from 5.7% in 2Q22 while services sector outperformed with a 6.1% y/y gain compared to 4.8% in 2Q22 and despite a strong performance of 6.8% in the same quarter last year. With the 3Q22 outcome largely within our expectations, we keep our GDP growth outlook for Singapore at 3.5% for 2022, before easing to 0.7% for 2023 to reflect the broad slowing in external outlook next year.”

“MAS Outlook – Singapore’s monetary policy is further into a restrictive setting after five rounds of tightening since Oct 2021. With the MAS pulling only one lever this time, there is still room for further tightening into 2023, especially if core inflation does not show signs of moderation. While we believe off-cycles are likely done for the remainder of 2022, it may still be a possibility especially in early 2023.”

• AUD/USD regains some positive traction on Monday amid broad-based USD weakness.
• Retreating US bond yields, along with the risk-on impulse, weighs on the safe-haven buck.
• Disappointing US macro data adds to the USD selling bias and provides an additional lift.

The AUD/USD pair builds on its steady intraday ascent and hits a fresh daily high, around the 0.6285 region during the early North American session.

The US dollar comes under renewed selling pressure on Monday, which, in turn, assists the AUD/USD pair to attract some buying near the 0.6200 mark and recover a major part of Friday's losses. Retreating US Treasury bond yields turns out to be a key factor weighing on the greenback. Apart from this, the risk-on impulse - as depicted by a strong rally in the equity markets - further undermines the safe-haven buck and benefits the risk-sensitive aussie.

The intraday USD selling picks up pace in reaction to the disappointing release of the Empire State Manufacturing Index, which plunged to -9.1 for October from -1.5 in the previous month. That said, a combination of factors might hold back traders from placing aggressive bullish bets around the AUD/USD pair. Investors remain concerned about the potential economic headwinds stemming from rapidly rising borrowing costs and geopolitical tensions.

Furthermore, China's zero-COVID policy has been fueling worries about a deeper global economic downturn and should keep a lid on any optimistic move in the markets. Apart from this, the prospects for a more aggressive policy tightening by the Fed should limit the USD losses and cap the upside for the AUD/USD pair. In fact, the markets have priced in a nearly 100% chance of another supersized 75 bps Fed rate hike move at the November policy meeting.

This, along with the Reserve Bank of Australia's (RBA) decision to slow the pace of policy tightening earlier this month, suggests that the path of least resistance for the AUD/USD pair is to the downside. Hence, the ongoing recovery move might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Market participants now look forward to the RBA monetary policy meeting minutes and top-tier Chinese macro data, due for release during the Asian session on Tuesday. This will drive the China-proxy Australian dollar and provide some meaningful impetus to the AUD/USD pair. In the meantime, the USD price dynamics will continue to play a key role in influencing spot prices and allow traders to grab short-term opportunities.

Technical levels to watch

EUR/JPY continues to move steadily higher. Economists at Credit Suisse expect the pair to test the 145.65 peak of September.

Important support seen at 143.87

“We stay bullish and look for strength back to the actual September high at 145.65. Whilst this should again be respected, our bias is to look for a break above here in due course with resistance then seen next at 146.45/48 and eventually back at the 149.78 high of 2014.” 

“Support is seen at 144.24 initially, then 143.87, below which can see a setback to 143.05, ahead of the 13-day exponential average at 142.85, which we look to try and hold.”

• EUR/USD regains composure and leaves behind the 0.9700 area.
• Immediately to the upside comes recent peaks around 0.9800.

EUR/USD manages to leave behind Friday’s retracement and advances well north of the 0.9700 hurdle on Monday.

The continuation of the recovery needs to clear last week’s top just above 0.9800 the figure to open the door to further gains in the short-term horizon.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0568.

EUR/USD daily chart

• USD/JPY oscillates in a narrow trading band below a fresh 32-year high touched this Monday.
• Retreating US bond yields prompts some USD selling and acts as a headwind for the major.
• The Fed-BoJ policy divergence, the risk-on impulse undermines the JPY and offers support.

The USD/JPY pair consolidates its recent strong gains to the highest level since 1990 and oscillates in a range below the 149.00 mark through the early North American session.

The US dollar struggles to capitalize on Friday's strong move up and meets with a fresh supply on the first day of a new week, which, in turn, is seen acting as a headwind for the USD/JPY pair. The USD downtick could be attributed to a modest pullback in the US Treasury bond yields. This results in the narrowing of the US-Japan rate differential, which extends some support to the Japanese yen and further contributes to capping the major.

The downside, however, remains cushioned amid the risk-on impulse, which is seen undermining the safe-haven JPY. The market sentiment gets a strong boost in reaction to the new UK government's U-turn on planned tax cuts. Apart from this, the prospects for a more aggressive policy tightening by the Fed should help limit the downside for the US bond yields and the USD. This, in turn, should continue to lend some support to the USD/JPY pair.

In fact, the markets have priced in a nearly 100% chance for another supersized 75 bps Fed rate hike move for the fourth consecutive meeting in November. The bets were reaffirmed by the stronger US CPI report released last week and the recent hawkish comments by several Fed officials. In contrast, the Bank of Japan remains committed to continuing with its monetary easing, marking a big divergence in comparison to a more hawkish Fed.

This, in turn, adds credence to the near-term positive outlook for the USD/JPY pair and suggests that the path of least resistance for spot prices is to the upside. That said, speculations that Japanese authorities might intervene in the markets to stem any further weakness in the domestic currency warrant caution for bullish traders.

Technical levels to watch

How likely is it for GBP/USD to break below parity? Economists at Standard Chartered expect cable to edge lower but remain above the 1.0500-1.0700 area.

GBP/USD could see a retest of 1.14 and even 1.16 in the near-term

“While upward momentum could see a retest of 1.14 and even 1.16 over the next few days, we expect cable to edge lower in the coming weeks, with 1.0700 and 1.0500 as key near-term supports.”

“Disappointment on potential rollback or budget proposals could raise the risk of a test of parity, but we believe GBP/USD may struggle to break below the 1.0500-1.0700 region where it should stabilise.”

Markets Strategist Quek Ser Leang at UOB Group’s Global Economics and Markets Research suggested further upside in USD/IDR appears likely in the short-term horizon.

Key Quotes

“USD/IDR closed higher for the fifth straight week last Friday (15,425, +1.15%). While the advance is overbought, upward momentum is strong and further advance in USD/IDR to 15,580 would not be surprising.”

“For this week, a break of the next resistance at 15,800 appears unlikely. Support is at 15,380 but only a break of 15,330 would indicate that the current upward pressure has eased.”

Gold has resisted higher real rates, strong dollar and fund outflows, but remains vulnerable, in the view of strategists at Société Générale.

Gold has outperformed treasuries and TIPS so far this year

“In the past, we have observed that gold seems to correlate well with three factors – US real rates, the dollar and ETF flows (regression r-squared of almost 95%). However, the price of gold has remained quite elevated compared to the theoretical value yielded by our models.”

“If real rates remain elevated for the foreseeable future, one of the assets that could come under pressure is gold.”

“Gold has outperformed treasuries and TIPS so far this year, but may not be able to resist the high yield for much longer if there is no pivot in the near-term from the Fed.”

Following new Chancellor Jeremy Hunt’s fiscal U-turn, UK Prime Minister Liz Truss said that ”we have taken action to chart a new course for growth that supports and delivers for people across the United Kingdom.”

She noted, “the British people rightly want stability, which is why we are addressing the serious challenges we face in worsening economic conditions.”

Market reaction

GBP/USD has entered a consolidative mode just below 1.1300, as traders await Wall Street open for fresh trading impetus. Truss’ comments failed to move a needle around cable.

USD/CAD closed on a fresh new high on Friday, but near-term momentum remains weak, which warns of a near-term consolidation. However, a close above 1.3977/87 would shift the risk back higher, analysts at Credit Suisse report.

Scope for further ranging

“The near-term momentum picture remains weak and with bearish divergence in daily RSI and signs of daily MACD potentially rolling over as well, we stay cautious in the near-term.” 

“Meaningful near-term support remains seen at the 13-day exponential average at 1.3737/28 and then at the recent price lows at 1.3702/01, which we look to hold an attempt to move lower to avoid a potentially deeper corrective move to 1.3502/01.”

“Resistance remains seen at the recent price high at 1.3977/87 initially, above which would likely re-establish near-term strength and put the market on the path to the 78.6% retracement of the 2020-21 downtrend at 1.4097.”

• DXY gives away part of Friday’s strong advance and returns below 113.00.
• The index appears to have moved into a 112.00-114.00 consolidation.

DXY comes under moderate selling pressure and slips back to the sub-113.00 region on Monday.

The index looks poised to navigate within a 112.00-114.00 range at least in the very near term, namely the next FOMC event.

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 8-month support line near 108.00.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.35.

DXY daily chart

• GBP/USD gains some positive traction on Monday, though lacks follow-through.
• A combination of factors exerts some pressure on the USD and offers support.
• Bulls seem rather unimpressed by the UK government’s U-turn on fiscal plans.

The GBP/USD pair catches fresh bids on the first day of a new trading week, though struggles to find acceptance or capitalize on the move beyond the 1.1300 mark. Spot prices, hold steady above mid-1.1200s through the first half of the European session amid a modest US dollar weakness.

A strong recovery in the global risk sentiment, along with a softer tone surrounding the US Treasury bond yields, turn out to be a key factor exerting downward pressure on the safe-haven buck. That said, a combination of factors helps limit deeper losses for the greenback and keeps a lid on the GBP/USD pair, at least for the time being.

Investors remain concerned about the potential economic headwinds stemming from rapidly rising borrowing costs and geopolitical risk. Moreover, China's zero-COVID policy has been fueling recession fears. This, along with hawkish Fed expectations, should continue to act as a tailwind for the US bond yields and offer some support to the USD.

The GBP/USD pair, meanwhile, reacted little to the fact that the new UK Finance Minister Jeremy Hunt reversed the controversial economic package announced in the mini-budget on September 23. This, in turn, suggests that the path of least resistance for spot prices is to the downside and warrants some caution for aggressive bullish traders.

There isn't any major market-moving macro data due for release from the UK, while the US economic docket features the Empire State Manufacturing Index later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, might influence the USD and provide some impetus to the GBP/USD pair.

Technical levels to watch

Statistics New Zealand will release Q3 Consumer Price Index (CPI) inflation data on Monday, October 17 at 21:45 GMT and as we get closer to the release time, here are forecasts from economists and researchers of four major banks regarding the upcoming growth data.

Economists expect the CPI to have slowed from 7.3% year-on-year to 6.6%. Meanwhile, the quarter-on-quarter pace may have moderated to 1.6% from 1.7%. 

ANZ

“We expect annual CPI inflation eased to 6.6% in Q3, down from 7.3% in Q2 and a touch stronger than the RBNZ’s August MPS forecast of 6.4%. The bulk of the decline in headline inflation is expected to come from a sharp drop in petrol prices. While that’s absolutely welcome, the fact that there’s unlikely to be any sign of a broad-based easing in underlying inflation pressures means monetary policymakers can take only limited comfort from the headline fall. We’re forecasting that annual non-tradables (ie domestic) inflation stayed high at 6.3%, and that measures of core inflation remained too strong (even if they could ease a touch from recent highs). The inflation report is unlikely to contain the evidence needed to convince the RBNZ that underlying inflation has turned the corner. Unless there’s a step change in the outlook, we see the RBNZ on track to lift the OCR to a peak of 4.75% in May 2023.”

Westpac

“We expect the upcoming CPI will show that New Zealand consumer prices rose by 1.8% in the September quarter. That would see annual inflation slipping to 6.9%, down from 7.3% last quarter. Nevertheless, that would still leave us with a picture of consumer prices that are continuing to charge higher, with annual inflation running close to multi-decade highs. The September quarter saw particularly large increases in food prices and housing-related costs. Those increases were only partially offset by the easing in fuel prices. Measures of core inflation are expected to remain elevated, consistent with the ongoing pressure on wages and other operating costs, as well as the resilience in demand. Our forecast is higher than RBNZ’s last published forecast. A result in line with our forecast would reinforce the recent rise in market pricing for the OCR.”

TDS

“Food prices are up a whopping 4.1% QoQ in Q3 and will be a key inflation driver. Further, we think the buildup in wage cost will filter through to CPI and expect a more hawkish CPI print (1.7%) compared to consensus and the RBNZ (+1.4% QoQ). Inflation is still far too high and another red-hot CPI print reinforces our call for another 50 bps in Nov and a higher terminal rate of 4.5%.”

Citibank

“NZ Q3 CPI Citi QoQ forecast; 2.0%, Previous; 1.7%; Citi YoY forecast; 7.0%, Previous; 7.3%. NZ inflation is expected to accelerate further on a quarterly basis in Q3 on the back of rising food prices. Elsewhere, housing costs are likely to moderately decline from its recent highs of around 4.5% to 2.8% in Q3 though price increases still remain higher than average and continue to add to inflationary pressures in the near-term.”

The upside momentum in USDS/MYR remains well and sound and the pair faces strong resistance at the 4.7500 region, according to Markets Strategist Quek Ser Leang at UOB Group’s Global Economics and Markets Research.

Key Quotes

“USD/MYR continues to soar, closing higher for seven straight weeks (4.7000, +1.12%). While deeply overbought, the strong rally is not showing any signs of weakness just yet. In other words, USD/MYR could continue to rise this week.”

“However, the next resistance at 4.7500 is unlikely to come into view for now (there is another resistance at 4.7350). Support is at 4.6850 but only a breach of 4.6480 would indicate that the rally in USD/MYR is ready to take a breather.”

• EUR/JPY surpasses the 145.00 yardstick to new tops on Monday.
• Next on the upside appears the 2022 top at 145.65 (September 12).

EUR/JPY clinches new multi-week highs past the 145.00 level at the beginning of the week.

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 in the near term.

In the meantime, while above the key 200-day SMA at 136.52, the constructive outlook for the cross should remain unchanged.

EUR/JPY daily chart

In a statement on Monday, China’s Premier Li said that the economy continues its upward trend.

“China will keep economic operations within a reasonable range," Li added.

Market reaction

At the time of writing, AUD/USD is off the 0.6264 highs, trading at 0.6245, still up 0.82% so far.

USD/JPY is consolidating at the highest level in 32 years near 149. Economists at Credit Suisse look for a top at the 149.31/150.00 resistance zone.

Sustained close above 153.00 to expose the 160.33 high of 1990

“Our ‘ideal’ roadmap would be for a test of trend channel, gap and psychological resistance at 149.31/150.00, but our base case remains to look for a potentially significant top here. Below support at 143.53 is needed to add weight to our view, with a break below the late September low and 55-day average at 140.40/35 needed to suggest we have indeed seen a more important top.” 

“A break and sustained close above 153.00 would suggest it is too early to look for a top, exposing then resistance next at the 160.33 high of 1990.” 

• Gold regains positive traction on Monday and is supported by the emergence of fresh USD selling.
• Retreating US bond yields weigh on the buck, though Fed rate hike bets should limit the downside.
• The risk-on impulse should further contribute to capping any meaningful gains for the commodity.

Gold attracts some buying on the first day of a new week and reverses a major part of Friday's downfall to over a two-week low. The XAU/USD sticks to its intraday gains through the first half of the European session and is currently placed near the daily high, around the $1,657-$1,658 region.

The US dollar struggles to capitalize on Friday's strong intraday positive move and meets with a fresh supply on Monday amid a modest pullback in the US Treasury bond yields. A weaker greenback offers some support to the dollar-denominated gold, though a combination of factors could act as a headwind and warrants caution for bullish traders.

Reports that the UK government is preparing for a major U-turn on planned tax cuts boost investors' confidence, which is evident from the risk-on impulse in the equity markets. This, along with growing acceptance that the Fed will stick to its aggressive policy tightening path to curb inflation, should keep a lid on the safe-haven gold.

In fact, the markets have priced in a nearly 100% chance for another supersized 75 bps Fed rate hike move for the fourth consecutive meeting in November. The bets were reaffirmed by the stronger US CPI report released last week and the recent hawkish comments by several Fed officials, adding credence to the negative outlook for the XAU/USD.

The aforementioned fundamental backdrop suggests that the path of least resistance for gold is to the downside. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. A sustained strength beyond the $1,680-$1,682 supply zone is needed to negate the near-term bearish bias.

Market participants now look forward to the US economic docket, featuring the release of the Empire State Manufacturing Index later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader risk sentiment might provide some impetus to gold.

Technical levels to watch

UK PM Liz Truss's spokesman said in a statement on Monday, “the government is committed to a growth agenda.”

Additional takeaways

Related reads

• UK’s Hunt: We will reverse almost all tax measures announced on 23 Sept
• BOE: Now stand ready to conduct debt buybacks from November 7th week

UK’s new Chancellor of the Exchequer Jeremy Hunt is making an emergency statement this Monday on the mini-budget, aimed to stabilize financial markets.

Key quotes

Market reaction

GBP/USD is looking to stabilize around 1.1300, having hit daily highs at 1.1331 pre-Hunt’s statement. The spot is up 1.12% on the day.

USD/CNH has staged a rebound from interim low of 7.01 formed earlier this month. The pair could extend its rally on a break past the September high near 7.26, economists at Société Générale report.

A short-term pause is expected

“The pair is now in vicinity to the peak of September near 7.26. A short-term pause is expected however signals of a deeper pullback are not yet visible. 7.01 should be an important support.”

“If the pair establishes itself beyond 7.26, the uptrend is likely to extend towards next projections of 7.33/7.37 and 7.49.”

Markets Strategist Quek Ser Leang at UOB Group’s Global Economics and Markets Research suggests further upside could prompt USD/THB to test the 38.46 level in the near term.

Key Quotes

“While USD/THB gained 2.05% last week, upward momentum has not improved by much. That said, there is room for USD/THB to test Sep’s high of 38.46 before the risk of a pullback increases.”

“Minor resistance is at 38.38. To put it another way, a sustained raise above 38.46 is unlikely. On the downside, a breach of 37.60 (minor support is at 37.90) would suggest USD/THB Is unlikely to advance further”

The Bank of England (BOE) said in a statement on Monday, “we intend to resume sales of corporate bonds in the week of October 24th.”

“The BOE will now stand ready to conduct debt buybacks from November 7th week,” the central banks said.

Market reaction

At the time of writing, GBP/USD is 1% higher on the day at 1.1278, awaiting UK Chancellor Jeremy Hunt’s new fiscal plan. The UK Times reports that Jeremy Hunt is poised to announce that the energy price guarantee will only remain universal “until April”. It will then become targeted and capped.

• USD/CAD comes under some selling pressure on Monday amid a modest USD downtick.
• Retreating US bond yields and the risk-on impulse weighs on the safe-haven greenback.
• A fresh leg down in oil prices undermines the loonie and should limit any further losses.

The USD/CAD pair struggles to capitalize on Friday's strong intraday rally of nearly 200 pips from the 1.3700 mark and meets with a fresh supply on the first day of a new week. The pair remains depressed through the first half of the European session and is currently placed near the daily low, just above the 1.3700 round figure.

A combination of factors prompts fresh selling around the US dollar, which, in turn, is seen exerting some downward pressure on the USD/CAD pair. Reports that the UK government is preparing for a major U-turn on planned tax cuts boost investors' confidence. This, along with a modest pullback in the US Treasury bond yields, undermines the safe-haven greenback. That said, hawkish Fed expectations should act as a tailwind for the US bond yields and help limit the downside for the buck.

In fact, the markets seem convinced that the US central bank will stick to its aggressive rate hiking cycle to combat stubbornly high inflation, which remains elevated near a multi-decade high in September. The current market pricing indicates a nearly 100% chance of another supersized 75 bps rate increase at the next FOMC policy meeting in November. Apart from this, a fresh leg down in crude oil prices could undermine the commodity-linked loonie and should limit losses for the USD/CAD pair.

Investors remain worried that a deeper global economic downturn and the imposition of fresh COVID-related lockdowns in China will hurt fuel demand. This forced OPEC to lower its global oil demand growth estimates for both 2022 and 2023 last week, which continues to weigh on the black liquid. This, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair and warrants some caution for aggressive bearish traders, or positioning for a further downfall.

Market participants now look forward to the US economic docket, featuring the release of the Empire State Manufacturing Index. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Apart from this, traders will further take cues from oil price dynamics to grab short-term opportunities. Nevertheless, the fundamental backdrop still seems tilted firmly in favour of bullish traders.

Technical levels to watch

GBP/USD has arleady fully reversed mini-budget sell-off. Nevertheless, economists at MUFG Bank believe that the path of least resistance for the pound tilts to the downside. 

Another volatile week for the pound 

“The ongoing reversal of the government’s tax cut plans is encouraging the UK rate market to scale back expectations for the size of BoE rate hikes. Market participants are now weighing up whether the BoE will deliver a 75 bps or 100 bps hike in November and the expected terminal rate has fallen from just over 6.00% to just below 5.50%.”

“Overall, it promises to be another volatile week for the pound. We continue to believe that risks are more skewed to the downside for the pound especially against the US dollar heading into year-end.”

“The pound has already fully reversed all of the losses following the mini-budget which should limit further upside on the back of further government measures to regain market confidence in the gilt market.”

• USD/CAD comes under some selling pressure on Monday amid a modest USD downtick.
• Retreating US bond yields and the risk-on impulse weighs on the safe-haven greenback.
• A fresh leg down in oil prices undermines the loonie and should limit any further losses.

The USD/CAD pair struggles to capitalize on Friday's strong intraday rally of nearly 200 pips from the 1.3700 mark and meets with a fresh supply on the first day of a new week. The pair remains depressed through the first half of the European session and is currently placed near the daily low, just above the 1.3700 round figure.

A combination of factors prompts fresh selling around the US dollar, which, in turn, is seen exerting some downward pressure on the USD/CAD pair. Reports that the UK government is preparing for a major U-turn on planned tax cuts boost investors' confidence. This, along with a modest pullback in the US Treasury bond yields, undermines the safe-haven greenback. That said, hawkish Fed expectations should act as a tailwind for the US bond yields and help limit the downside for the buck.

In fact, the markets seem convinced that the US central bank will stick to its aggressive rate hiking cycle to combat stubbornly high inflation, which remains elevated near a multi-decade high in September. The current market pricing indicates a nearly 100% chance of another supersized 75 bps rate increase at the next FOMC policy meeting in November. Apart from this, a fresh leg down in crude oil prices could undermine the commodity-linked loonie and should limit losses for the USD/CAD pair.

Investors remain worried that a deeper global economic downturn and the imposition of fresh COVID-related lockdowns in China will hurt fuel demand. This forced OPEC to lower its global oil demand growth estimates for both 2022 and 2023 last week, which continues to weigh on the black liquid. This, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair and warrants some caution for aggressive bearish traders, or positioning for a further downfall.

Market participants now look forward to the US economic docket, featuring the release of the Empire State Manufacturing Index. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Apart from this, traders will further take cues from oil price dynamics to grab short-term opportunities. Nevertheless, the fundamental backdrop still seems tilted firmly in favour of bullish traders.

Technical levels to watch

Germany’s Economy Minister Robert Habeck said on Monday that “with fiscal policy in place, they can avoid deep recession in Europe without fuelling inflation.”

Additional quotes

• EUR/USD Analysis: Bulls seem hesitant, remain at the mercy of USD price dynamics

Economists at MUFG Bank maintain their view of renewed US dollar strength after another inflation shock means another blow for risk.

Hot inflation reinforces the case for a stronger USD

“The latest NFP and US CPI reports have pushed back expectations for a dovish Fed policy pivot.”

“We are more confident now that the Fed will continue to deliver faster hikes through the rest of this year.”

“The hawkish repricing of Fed rate hike expectations and intensifying fears over a hard landing for the global economy supports our outlook for an even stronger USD.”

“Based on our current year-end forecasts, we see scope for the dollar to advance by about 5% on a DXY basis as risk aversion intensifies further.”

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest inflation figures release in the Chinese economy.

Key Takeaways

“Inflation has remained moderate in China with lower non-food inflation offsetting higher food inflation in Sep. CPI inflation is expected to continue to print below 3% y/y in the next few months.”

“Headline CPI had averaged 2.0% y/y in 1Q-3Q and the full-year 2022 inflation remains on track for 2.2% (2021: 0.9%). We also maintain our forecast for inflation to head higher to 2.8% in 2023 given some expected recovery in domestic demand next year.”

“China’s PPI registered another large drop to 0.9% y/y in Sep as the fall in international crude oil prices and bulk commodities prices drove down the prices of domestic related industries. Weaker PPI is seen weighing on industrial profits in China which had already fallen into year-to-date decline by Jul and this could worsen as global demand weakens.”

“PPI inflation averaged 5.9% y/y in 1Q-3Q. Looking ahead, we expect PPI to fall into negative territory in Oct while full-year PPI is expected within 4.0-4.5% for 2022 (2021: +8.1%).”

“Inflation is relatively muted in China compared to other major economies, giving rise to some room for China’s monetary policy to further diverge from that of the US and Europe. With the increasing growth headwinds in China, the People’s Bank of China (PBoC) will need to maintain an accommodative monetary policy and a proactive fiscal policy to support the recovery.”

The 20th Party Congress in China opened on Sunday. As the Congress gets underway, USD/CNY trades around the 7.20 mark. Economists at ING expect the pair to race higher towards 7.40.  

China to maintain the current stance on covid

“The speech by Chinese President Xi Jinping at the ongoing 20th Party Congress, which heavily focused on technology to drive growth and potentially opens the door for less restrictive policies in the longer run. But markets found no hints in Xi’s speech that the zero covid policy will change or that the Chinese market will become more attractive in the near future.” 

“USD/CNY will continue to rally into the 7.40 level over the coming months.”

European Central Bank (ECB) Vice President Luis de Guindos said on Monday he saw the US dollar stabilizing in the coming months.

Further comments

“The ECB doesn't target forex rate, but considers it.”

“I expect the forex rate to stabilize in the coming months.”

“We cannot rule out euro-area technical recession, any recession will not be excessively intense.”

“Eurozone inflation to start easing in 2023.”

Market reaction

EUR/USD is keeping its range around 0.9750 on the above comments, adding 0.32% on the day.

The Bank of England (BOE) published a market notice on Monday, setting out how energy firms and their commercial lenders can apply to participate in the energy markets financing scheme (EMFS).

Additional takeaways

Market reaction

At the time of writing, GBP/USD is heading back towards 1.1300, awaiting UK Chancellor Jeremy Hunt’s statement on fiscal policy U-turn.

New Chancellor Jeremy Hunt will give a statement on fiscal policy today. The aim is to deliver a clear message that stabilises the gilt market and hopefully restores confidence. In the view of Kit Juckes, Chief Global FX Strategist at Société Générale, gilt yields should fall and sterling volatility should melt away.

Sterling volatility should now fall back from crisis levels

“The Conservative Party is still in disarray, but if Mr Hunt gets his party’s backing for policies to tackle the crisis, market confidence will recover. That’s good for gilts, but I can’t see how it send sterling much higher than this.”

“EUR/GBP is back where it was at the end of August and the economic outlook is too bleak to suggest it will fall further.”

“GBP/USD remains a function of EUR/USD as much as anything happening in the UK, and while the euro is rangebound, neither the economic nor the geopolitical backdrop suggest it can bounce back above parity any time soon. 

“All in all, expect both EUR/GBP and USD/GBP volatility to trend lower, but neither euro or sterling to stage a rebound against the dollar.”

• EUR/USD starts the week with a smile and beyond 0.9700.
• The risk-on sentiment underpins the upside bias in the pair.
• ECB-speak, US Empire State Index come next in the docket.

The single currency leaves behind Friday’s negative price action and motivates EUR/USD to regain the initiative and reclaim the area above 0.9700 the figure on Monday.

EUR/USD up on risk-on mood, weak dollar

EUR/USD advances with decent gains on Monday on the back of the resumption of the selling pressure around the greenback and the broad-based upbeat mood in the risk-associated universe.

Some extra support for the euro also comes after rumours said that ECB Board member P.Lane will advocate for a 75 bps rate hike at the next event at the end of the month.

Still around the ECB, Vice-President De Guindos did not rule out a technical recession in the euro area, although he later soothed his comments by saying that any recession will not be excessively intense.

In the domestic calendar, final inflation figures in Italy saw consumer prices rise 0.3% MoM in September and 8.9% from a year earlier. In addition, ECB’s P.Lane is due to speak later, while the Monthly Budget Statement and the MY Empire State Manufacturing Index will take centre stage across the ocean.

What to look for around EUR

EUR/USD recovers part of the ground lost at the end of last week and seems refocused on the area of recent peaks in the 0.9800 neighbourhood.

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, Germany ZEW Economic Sentiment (Tuesday) – EMU Final Inflation Rate, European Council Meeting (Thursday) - European Council Meeting, EMU Flash Consumer Confidence (Friday).

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

EUR/USD levels to watch

So far, the pair is gaining 0.13% at 0.9730 and expects the next resistance at 0.9808 (weekly high October 13) followed by 0.9999 (monthly high October 4) and finally 1.0050 (weekly high September 20). On the other hand, a breach of 0.9631 (monthly low October 13) would target 0.9535 (2022 low September 28) en route to 0.9411 (weekly low June 17 2002).

US Dollar Index snaps two-week uptrend. Nevertheless, economists at ING expect DXY to move back higher to tackle the 114.70 September peak.

Fed determined to take real rates higher

“Our base case for this week is that the dollar will remain supported as the Fed’s determination to take real rates higher, paired with geopolitical and energy-related concerns, may keep risk sentiment on the back foot.”

“We suspect that a break above the 114.70 September highs in DXY is now only a matter of time, and surely possible by the end of the week.”

• The index kickstart the new trading week in an offered tone.
• US yields fade part of the recent rebound on Monday.
• The NY Empire State Manufacturing Index, short-term auctions are due later.

The greenback, in terms of the USD Index (DXY), gives away part of the optimism seen at the end of last week and slips back below the 113.00 neighbourhood on Monday.

USD Index looks to yields, risk trends

The index comes under some moderate downside pressure and probes the sub-113.00 zone at the beginning of the week in a context favourable to the risk complex, while declining yields also accompany the downtick in the buck.

Indeed, investors’ bias towards the riskier assets puts the dollar to the test and triggers the corrective move in the index against an unchanged macro scenario, where expectations of a 75 bps rate hike from the Fed at the November 2 meeting remain well anchored.

On the latter, CME Group’s FedWatch Tool sees the probability of a ¾ point raise at almost 97%.

In the US data space, the NY Empire State Manufacturing gauge and the Monthly Budget Statement will be in the limelight later in the NA session seconded by short-term bill auctions.

What to look for around USD

The dollar surrenders part of Friday’s advance amidst the resurgence of the appetite for the risk-linked galaxy at the beginning of a new trading week.

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

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

Key events in the US this week: NY Empire State Index, Monthly Budget Statement (Monday) – Industrial Production, NAHB Housing Market Index, TIC Flows (Tuesday) – MBA Mortgage Applications, Building Permits, Housing Starts, Fed Beige Book (Wednesday) – Initial Jobless Claims, Philly Fed Index, Existing Home Sales, CB Leading Index (Thursday).

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

USD Index relevant levels

Now, the index is retreating 0.29% at 112.97 and 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). On the upside, the immediate hurdle comes at 113.88 (monthly high October 13) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).

USD/CNH could see its gains accelerated on a break above the 7.2380 in the next weeks, note UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia.

Key Quotes

24-hour view: “Last Friday, we expected USD to ‘trade between 7.1600 and 7.2200’. USD dropped to a low of 7.1600, rebounded strongly to a high of 7.2284 in London trade before trading sideways for the rest of the sessions. The underlying tone has firmed somewhat and the bias for today is on the upside. However, any advance is unlikely to break the major resistance at 7.2380. Support is at 7.1930, followed by 7.1720.”

Next 1-3 weeks: “There is not much to add to our update from last Friday (14 Oct, spot at 7.1880). As highlighted, 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 7.1500 (‘strong support’ was at 7.1400 last Friday) would indicate that the upside risk has subsided.”

EUR/USD is trading around the 0.9750 area. Economists at ING expect the world’s most popular currency pair to challenge the the 0.9540 September lows in the short-term.

Gas price corridor on the way?

“The euro should remain heavily impacted by sterling’s swings in the near term, and here the correlation appears to be stronger on the downside: i.e. the spillover from another sell-off in gilts would likely have an asymmetrically larger impact on the euro than the positive implications of a recovery in UK sentiment.”

“The proposal of a price corridor for wholesale gas transactions was set to be explored: this may be a bridge between the requests for capping gas prices and the concerns that a fully-fledged cap would lead to increased consumption. The content of the coordinated measures could have a more long-lasting impact on the euro than the ECB’s policy direction, at this stage.”

“We still think that EUR/USD will test the 0.9540 September lows in the near-term, and extend a drop below that level by year-end.”

European Central Bank (ECB) Governing Council member Olli Rehn said on Monday, “the risk of stagflation has increased.”

“Global financial stability risks are rising,” he went on to add.

Market reaction

The shared currency shows little to no reaction to the above comments, currently trading at 0.9747, up 0.31% on the day.

In the UK, the new Chancellor will deliver a key announcement today to fix the recent fiscal disaster. Economists at ING expect a good deal of volatility around the announcement.

Hunt's speech is a make-or-brake event for sterling

“We continue to see elevated volatility in the pound and mostly downside risks beyond any potential relief rally after today’s announcement by the new Chancellor. We suspect anyway that the government will need to sound very convincing in their fiscal U-turn to bring cable sustainably back to 1.15-1.20.”

“Sub-1.10 levels, also considering our call for a stronger dollar, remains our base case scenario in the coming months.”

FX option expiries for Oct 17 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9700 392m
• 0.9740-50 738m
• 0.9765 391m
• 0.9790-00 479m
• 0.9825-35 766m
• 0.9850 212m

- GBP/USD: GBP amounts        

• 1.1100 214m
• 1.1410 409m

- USD/JPY: USD amounts                     

• 146.50 400m

- USD/CHF: USD amounts        

• 0.9750 887m
• 0.9920 550m

- AUD/USD: AUD amounts  

• 0.6270 423m

- USD/CAD: USD amounts       

• 1.3900 885m

The Canadian dollar remains the second-best performing G10 currency year-to-date although it has traded on a weaker footing over the past month. Economists at MUFG Bank expect the USD/CAD to hover around the 1.40 level.

Fed remains on course to overtake Bank of Canada in rate hike cycle

“The BoC is expected to bring an earlier end to their rate hike cycle than the Fed reflecting in part expectations that Canada’s economy will prove more sensitive to rate hikes than the US economy given household debt is much more elevated in Canada.”

“We expect USD/CAD to keep moving up closer to 1.4000.”

“While the OPEC+’s recent decision to deliver larger production cuts helps to dampen downside risks for the price of oil, it will not fully ease concerns over a sharper slowdown/recession in Canada that’s been weighing more on CAD.”

The Federal Rserve has raised its benchmark lending rate by three percentage points so far this year. Higher interest rates lead to a stronger US dollar, which is likely to add to global economic pressure and weigh on corporate profits, economists at Charles Schwab report.

Companies could be looking at a difficult start to next year

“An excessively strong dollar can cause an earnings recession – especially when the macroeconomic backdrop is overshadowed by the Fed's aggressive tightening policy, pessimism among consumers and businesses, and a significant slowdown in leading economic indicators.”

“The strong dollar will probably hit earnings eventually. Foreign exchange difficulties often take a while to fully translate into weaker profits. That means companies could be looking at a difficult start to next year.”

In light of the current price action, USD/JPY could extend further the upside momentum and reach the 150.00 level in the short-term horizon, comment UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia.

Key Quotes

24-hour view: “We highlighted last Friday that USD ‘could test 148.00 first before the risk of a pullback would increase’. We did not expect the easy manner by which USD took out 148.00 and soared to 148.86. Not surprisingly, conditions are overbought but with no sign of weakness just yet, the advance in USD could extend above 149.00. For today, the major resistance at 150.00 is unlikely to come into view. On the downside, a break of 147.50 (minor support is at 148.00) would indicate that the strong upward pressure has eased.”

Next 1-3 weeks: “Last Friday (14 Oct, spot at 147.35), we indicated that further USD strength is not ruled out but in view of the overbought conditions, any advance is likely to be at a slower pace. However, USD continues to surge as it rose to 148.86 before closing on a strong note at 148.74 (+1.03%). Conditions are deeply overbought but as long as 146.60 (‘strong support’ level was at 146.20 last Friday) is not breached, further USD strength to 150.00 is still not ruled out.”

The Bank of England (BOE) has issued a statement on end of gilt market operations.

Key takeaways

“As intended, these operations have enabled a significant increase in the resilience of the sector.”

“The temporary expanded collateral repo facility (TECRF), announced on 10 October, will remain available until its planned closing date of 10 November 2022.”

“Banks also have access to liquidity from the existing indexed long-term repo facility, the discount window facility and a weekly us dollar repo supported by international swap lines.”

“In addition, the bank makes available reserves via its short-term repo facility each week, designed to ensure short-term market rates remain close to bank rate.”

Considering advanced prints from CME Group for natural gas futures markets, open interest dropped by around 3.6K contracts after four consecutive daily builds on Friday. In the same line, volume reversed two daily builds in a row and went down by around 97.4K contracts.

Natural Gas faces a tough barrier at the 200-day SMA

Friday’s downtick in prices of natural gas was amidst declining open interest and volume, hinting at the idea that a short-term rebound lies ahead. That said, the commodity faces immediate up barrier at the 200-day SMA, today at $6.664 per MMBtu.

Here is what you need to know on Monday, October 15:

The US dollar sees a negative start to the week, mainly undermined by the extended recovery rally in the GBP/USD pair on UK political uncertainty. The safe-haven greenback ignores investors’ worries over China doubling down on its zero-Covid policy, aggressive Fed rate hike expectations and looming recession risks. In lieu of these concerns, the Eurostoxx futures are down -0.10% in early European trading, as traders question the 0.85% gain in the US S&P 500 futures. The Asian stock markets slid and the US Treasury yields remained depressed after Friday’s move higher.

Essentially, traders remained on tenterhooks with the UK chancellor to make a statement on a medium-term fiscal plan on Monday afternoon while Tory backbenchers plot to topple the UK PM Liz Truss’ government over the weekend. A group of senior Tory supporters of Rishi Sunak is planning to meet on Monday night for a dinner hosted by ex-Treasury minister Mel Stride, amid speculation that as many as 100 no-confidence letters have been submitted to Sir Graham Brady, chairman of the backbench 1922 Committee, per The Guardian.

Meanwhile, Labour Party leader Keir Starmer called on PM Truss to make an urgent Commons statement on Monday. The new chancellor, Jeremy Hunt, appointed after the sacking of Kwasi Kwarteng on Friday, spent the weekend trying to offer reassurance that the government had control of the economy. Further, Bank of England (BOE) Governor Andrew Bailey’s meeting with Hunt and the resultant encouraging remarks by the central bank chief helped GBP open the week with a big bullish gap.

Looking ahead the focus will remain on the UK gilt market after Friday’s sell-off, in the wake of the BOE’s end to the emergency bond-buying programme. Also, traders remain wary over the ongoing rally in the USD/JPY pair, which calls for an imminent intervention by Japanese officials. Many top Japanese officials, including the Prime Minister, crossed the wires earlier during the Asian session, reiterating their stance that they are ready to take necessary steps to avoid undesirable and rapid FX moves.

Within the G10 currency basket, EUR/USD is benefiting from broad US dollar weakness alongside sluggish yields while USD/JPY is consolidating at the highest level in 32 years near 148.80. Hotter US inflation-induced increased steeper rate hike expectations from the Fed continue to highlight the monetary policy divergence between the Fed and the ECB as well as that with the BOJ.

GBP/USD is preserving a major part of the intraday rally so far, holding above 1.1250 after a brief attempt above 1.1300. The pair opened 50 pips higher, digesting the weekend’s UK political developments.

Gold is struggling to extend its recovery from two-week lows at $1,640, despite a broadly weaker US dollar, as bulls remain cautious while below the critical $1,670 hurdle.

Bitcoin price is stuck in a tight range at around $19,300, lacking a clear directional bias amid a cautious market environment and a subdued dollar. Ethereum is challenging the upside above the $1,300 mark.

• Gold price remains firmer around intraday high, bounces off 13-day low.
• IMF’s Gopinath highlights the need for ECB, Fed actions.
• Japan PM signals intervention, search for candidates to replace BOJ’s Kuroda.
• Risk profile remains sluggish amid light calendar, mixed catalysts.

Gold price (XAU/USD) holds onto the week-start recovery from short-term key support as buyers flirt with the $1,650 heading into Monday’s European session. In doing so, the yellow metal prints the first daily gain in three while recovering from the three-week low.

The metal’s rebound takes clues from the US Dollar Index (DXY) weakness, as well as easing economic fears from the UK. However, hawkish central bank expectations and fears of a recession in the Eurozone keep the XAU/USD bears hopeful during a sluggish start to the week.

That said, the DXY seesaws around 113.00 while paring the previous day’s heavy gains amid a light calendar and an absence of the market’s wagers favoring the Fed’s 1.0% rate hike. Also exerting downside pressure on the greenback’s gauge versus the six major currencies are the recent expectations from UK Chancellor Jeremy Hunt as he prepares to defend the British economy from collapsing.

Even so, International Monetary Fund (IMF) Chief Economist Gita Gopinath anticipates hawkish moves by the US Federal Reserve (Fed) and the European Central Bank (ECB), which in turn challenge XAU/USD bulls. IMF’s Gopinath recently stated that the Fed should stay the course in view of the economic data. The policymaker also mentioned that it is right for the European Central Bank (ECB) to normalize its monetary policy by end of the year and then tighten it next year.

On the same line is the CME’s FedWatch tool that highlights a 96% chance of the Fed’s 75 bps rate hike in November after Friday’s upbeat US Retail Sales and Michigan Consumer Sentiment Index, as well as hawkish comments from St. Louis Federal Reserve Bank President James Bullard.

Furthermore, Bloomberg’s expectations that Germany will drag Eurozone into recession the next year also weigh on gold prices.

It should be observed that the hints of a change in the Bank of Japan’s (BOJ) easy money policies, due to a likely change in the Governor, also test the gold buyers. Earlier in the day, Japanese Prime Minister Fumio Kishida mentioned, “(He) will consider a successor to BOJ Governor Kuroda, taking into account monetary policy foreseeability, coordination with the government.”

Amid these plays, the US Treasury yields remain sluggish around the multi-year high while the stock futures print mild gains.

Moving on, a light calendar and the market’s indecision can keep grinding the XAU/USD prices.

Technical analysis

Gold price bounces off three-week-old horizontal support but remains doubtful for the buyers amid impending bearish MACD signals, as well as downbeat RSI (14).

Even if the XAU/USD recovery extends, the 21-DMA and the 50-DMA hurdles, respectively near $1,670 and $1,710, appear tough nuts to crack for the bulls. It’s worth noting that the monthly peak near $1,730 acts as the last defense for the bears, a break of which will give control to the bulls.

Alternatively, a clear downside break of $1,639 appears necessary to recall the gold bears. Following that, a downward-sloping support line from July 21, close to $1,596 at the latest should gain the market’s attention.

Overall, gold remains on the bear’s radar despite the latest corrective bounce.

Gold: Daily chart

Trend: Further weakness expected

Does "international policy coordination" make sense? Coordination is not always a good thing, according to economists at Commerzbank.

The more aggressive the Fed is, the weaker the euro will become

“If Lagarde wants higher EUR/USD levels she either has to tighten her own monetary policy further (which entails real economic pain) or she has to convince Fed governor Jerome Powell to ease his own fight against inflation.”

“If Lagarde supports the idea of coordinating monetary policies she demands nothing else but the Fed abandoning its inflation target so that she herself faces an easier task.”

“International monetary policy coordination is too obviously not a good deal for the Fed. The fact that in the mid-80s the Bank of Japan accepted such a deal was the original sin which in the end caused all the issues Japan had to face over the past 40 years. And last but not least: a move away from the Fed’s restrictive monetary policy does not sit easily with the political landscape in the US these days. Lagarde’s appeal has little prospect of succeeding.”

USD/CNY has settled around 7.20. Economists at TD Securities expect the pair to reach the 7.30 mark by the end of the year.

CNY CFETS to see a gradual weakening

“We don't think China's authorities are attempting to turn the currency around however, given that much of the weakness in CNY is largely due to USD strength).” 

“China's weaker basic balance position (sum of current account, portfolio flows and direct investment will likely result in further pressure on CNY on the months ahead and we continue to expect a gradual weakening of the CNY CFETS trade weighted index, which would suggest relative CNY underperformance vs. its peers.”

“In the near-term, a break of USD/CNY 7.20 is likely imminent and we maintain our forecast for a move to 7.30 by year-end.”

A breakdown of the 0.6170 region could force AUD/USD to lose further ground in the short-term horizon, suggest UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia.

Key Quotes

24-hour view: “We indicated last Friday that ‘the large bounce in AUD has room to extend but in view of the overbought conditions, a sustained rise above 0.6350 is unlikely’. While AUD rose as expected, it did not break 0.6350 but instead, sold-off sharply from 0.6347 (AUD plummeted to a low of 0.6195 in late NY trade). The sharp and rapid drop appears to be overdone and AUD is unlikely to weaken much further. For today, we expect AUD to trade between 0.6190 and 0.6270.”

Next 1-3 weeks: “Last Thursday (13 Oct, spot at 0.6290), we held the view that the risk for AUD is on the downside but it has to break below 0.6200 before further sustained weakness is likely. After AUD dropped to 0.6170 and rebounded strongly, we indicated on Friday (14 Oct, spot at 0.6300) that ‘The price actions have diminished the odds of further AUD weakness’. However, we added, ‘only a break of 0.6380 would indicate that AUD is unlikely to weaken further’. AUD subsequently rose to 0.6347 before selling off sharply to a low of 0.6195. While the risk for AUD remains on the downside, it has to break and stay below 0.6170 within the next few days or the chance of further decline will diminish. On the upside, a breach of 0.6320 (‘strong resistance’ level was at 0.6380 last Friday) would indicate that AUD is unlikely to weaken further.”

CME Group’s flash data for crude oil futures markets noted open interest dropped for the third session in a row at the end of last week, this time by nearly 5K contracts. Volume followed suit and went down by around 84.1K contracts.

WTI: Next on the upside comes $93.62

Friday’s strong pullback in prices of the WTI was against the backdrop of shrinking open interest and volume, suggesting that a near-term rebound is in the offing. Against that, bulls now face the next up barrier at the October top at $93.62 per barrel (October 10).

USD/ZAR is aiming for the 19 mark which was last breached in 2020 when the pandemic started. Economists at Commerzbank expect the pair to extend its rally towards 20.

Grey times for the rand? 

“In the current market environment with USD strength there is a risk of further losses in particular as there are risk factors on the domestic front too.”

“Economic data provide little support for the rand. Following better-than-expected August data on production in the manufacturing sector, there was rather disappointing data from the mining sector. Due to the threat of a global recession the growth outlook remains weak.”

“The hawkish South African central bank (SARB) only seems to be able to slow the rand’s nose-dive. Central bank governor Lesetja Kganyago's efforts to convince potential ZAR investors of the attractiveness of South Africa as an investment location are threatened to be counteracted by the government’s lack of reform progress in important areas.”

“We expect USD/ZAR to continue trending towards 20 for now.”

In the opinion of UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia, GBP/USD could extend the upside to the 1.1440 region in the near term.

Key Quotes

24-hour view: “We expected GBP to ‘trade within a relatively broad range of 1.1220/1.1390’ last Friday. GBP subsequently traded within a broader range than expected (1.1153/1.1359). The choppy price actions have resulted in a mixed outlook and GBP could continue to trade within a broad range for the time being, expected to be within a range of 1.1150/1.1350.”

Next 1-3 weeks: “Our update from last Friday (14 Oct, spot at 1.1310) still stands. As highlighted, the rapid rally from last Thursday has gained momentum and GBP could rise to 1.1440. Overall, only a break of 1.1120 (no change in ‘strong support’ level from last Friday) would indicate that the rally in GBP is not extending further.”

Will the European Central Bank (ECB) choose the worst solution? It is not to implement a real anti-inflation policy nor is it to give up the fight against inflation. It is to choose an intermediate solution, analysts at Natixis report.

The ECB is likely to choose an intermediate solution

“The ECB: Cannot raise interest rates to the level needed to bring inflation back to 2% in a decent timeframe since this level of interest rates would be very high (more than 5%), and would jeopardise public debt sustainability, particularly in low-growth countries with high-interest rates (Italy, Greece); Cannot refrain from fighting inflation because of its 2% inflation target.”

“The ECB will probably choose an intermediate monetary policy. But this compromise solution is the worst of all: the interest rate would not be high enough to significantly reduce inflation, but would be high enough to give rise to a solvency problem for countries with zero potential growth, Italy in particular.”

• USD/CHF edges lower on Monday and is pressured by a modest USD weakness.
• Retreating US bond yields turns out to be a key factor weighing on the greenback.
• Aggressive Fed rate hike bets should help limit losses for the buck and lend support.

The USD/CHF pair kicks off the new week on a softer note and reverses a major part of Friday's positive move back closer to its highest level since May 2019. The pair remains on the defensive through the early European session and is currently trading around the 1.0020-1.0025 region.

A modest pullback in the US Treasury bond yields prompts some selling around the US dollar on Monday, which, in turn, is seen exerting downward pressure on the USD/CHF pair. That said, expectations for a more aggressive policy tightening by the Fed should act as a tailwind for the US bond yields and the greenback.

Investors seem convinced that the US central bank will continue to hike interest rates at a faster pace to curb inflation and anticipate another supersized 75 bps increase in November. Apart from this, a positive risk tone undermines the safe-haven Swiss franc and should help limit the downside for the USD/CHF pair.

The global risk sentiment got a boost amid reports that the UK government is preparing for a major U-turn on planned tax cuts. That said, concerns about the potential economic fallout from China's zero-COVID policy, along with geopolitical risks, have been fueling recession fears and capping any optimism in the markets.

The mixed fundamental backdrop warrants caution before positioning for a firm intraday direction. Traders now look forward to the US economic docket, featuring the release of the Empire State Manufacturing Index. This, along with the US bond yields, might influence the USD and provide some impetus to the USD/CHF pair.

Technical levels to watch

Gold price sees fresh demand. Nonetheless, XAU/USD appears a ‘sell the bounce’ trade near $1,670, FXStreet’s Dhwani Mehta reports.

Sellers remain in complete control

“Unless bulls manage to find a strong foothold above the mildly bearish 21-Daily Moving Average (DMA) at $1,670, any recovery attempts in the bright metal from two-week lows of $1,640 appear a dead cat bounce.”

“The immediate upside barrier is seen at the $1,650 level above which the previous intermittent lows around $1,660 could enact strong resistance.”

“Daily candlestick closing below the $1,640 demand area is needed for a fresh downswing towards the $1,600 mark. Ahead of that, the September low of $1,615 will challenge the bearish commitments.”

Prime Minister Premier Liz Truss’ press conference on Friday was quite bizarre. Economists at Commerzbank believe that the newly appointed Prime Minister (PM) will not be able to calm markets.

New Chancellor adds strength to sterling, but it is not enough

“The British chancellor has been dismissed; his successor does not have a reputation for being similarly radical. That sounds like good news for sterling. But that is not enough.”

“Truss’ plan will not work out anyway if the market does not believe that it will work out. Hardly anyone believes in this type of ‘supply-side economics’ (another anachronism).”

“It makes little difference that a large share of the tax cuts she announced will be taken back. What Truss said on Friday sounded more like the plans being postponed rather than abandoned. And as a result, it is not suited to regain market trust in the long-term sustainability of British fiscal policy.”

Open interest in gold futures markets rose for the third session in a row on Friday, this time by around 1.4K contracts according to preliminary readings from CME Group. Volume, instead, kept the erratic performance well in place and shrank by more than 56K contracts.

Gold could revisit the 2022 low near $1,615

Prices of the ounce troy of gold retreated for the second session in a row on Friday amidst rising open interest. That said, further declines are not ruled out in the very near term and the precious metal could revisit the YTD low near $1,615 per ounce troy (September 28).

• GBP/JPY has refreshed its four-month high at around 168.00 amid BOJ’s dovish guidance.
• Monday’s depreciation in yen has accelerated the odds of BOJ’s intervention in currency market.
• Fears of Liz Truss’s topple have turned the pound bulls highly volatile.

The GBP/JPY pair has refreshed its four-month high near 168.00 as the risk-off impulse has surrendered globally. The cross has built its intraday gains on the base of dovish guidance by the Bank of Japan (BOJ). The ongoing upside momentum is expected to continue and the pair will re-test a six-year high at 168.53.

On Friday, BOJ’s Governor Haruhiko Kuroda that “It is appropriate to continue monetary easing,” reported Reuters. The central bank sees inflationary pressures declining to 2%, therefore, a continuation of dovish monetary policy is highly required.

Meanwhile, the overall weakening of the Japanese yen has triggered the odds of BOJ’s intervention in the currency markets. Last week, Japanese Chief Cabinet Secretary Hirokazu Matsuno cited that “We are closely watching FX moves with a high sense of emergency and will take appropriate steps on excess FX moves.

On the UK front, fears of UK novel Prime Minister Liz Truss’s topple have turned the pound bulls extremely volatile. The Old Lady has failed to gain the confidence of international investors amid the absence of confidence in her drafted policies. Back-and-forth rollbacks of monetary easing have trimmed her credibility.

Apart from that, mounting price pressures in the UK economy are a major concern for the Bank of England (BOE) policymakers. In response to taming inflationary pressures, BOE Governor Andrew Bailey stated that “We will not hesitate to raise interest rates to meet the inflation target," The central bank believes that price pressures demand stronger policy tightening measures than announced in August.

NZD/USD ended last week lower. The focus now shifts to NZ Consumer Price Index (CPI) data due out at 21:45 GMT, economists at ANZ Bank report.

NZD has a few legs of support

“The NZD has a few legs of support – RBNZ leadership, high-interest rates, and a surprisingly resilient economy. The only trouble is, the USD has most of that too. That leaves us much more neutral on the Kiwi outlook in a broad sense. But NZ CPI data tomorrow could shift the dial, especially if it heralds a change in monetary policy expectations.”

“Support 0.5470/0.5510 Resistance 0.5820/0.6000/0.6160”

• USD/JPY retreats from intraday high, prints the first daily loss in nine around 32-year high.
• Japan PM Kishida assures taking steps to limit speculative FX moves, begin search for replacing BOJ Governor Kuroda.
• Pullback in yields, light calendar tease sellers around multi-year high.

USD/JPY bulls take a breather at the highest levels since 1990, printing mild losses near 148.50 during the early hours of Monday’s European session. In doing so, the yen pair prints the first daily loss in nine amid fears of Japan government’s intervention, as well as amid the Treasury bond yields’ retreat.

Recently, Japanese Prime Minister Fumio Kishida mentioned that they “will take steps against speculative FX moves as needed.” Japan PM Kishida also added that rapid forex moves are undesirable.

Earlier in the day, the Japanese leader mentioned “Will consider a successor to BOJ Governor Kuroda, taking into account monetary policy foreseeability, coordination with the government.”

With this, Japan’s Kishida indirectly strikes the Bank of Japan’s (BOJ) easy money policies and suggests a dislike for the USD/JPY run-up.

Also exerting downside pressure on the USD/JPY prices could be the sluggish US Treasury bond yields and the broad US dollar pullback amid a sluggish start to the week.

Elsewhere, cautious optimism about the UK’s economy, due to the latest shuffle in the PM’s team, as well as the absence of the market’s wagers on the Fed’s 1.0% rate hike also keep the USD/JPY sellers hopeful at the multi-year high.

It should be noted that the Japanese intervention appears imminent and can trigger the much-needed pullback from the highest levels since 1990. However, the pace of the fall depends upon the size and timing of meddling. Even so, the divergence between the monetary policies of the Fed and BOJ can keep the USD/JPY bulls hopeful.

Technical analysis

A clear pullback from the three-month-old ascending resistance line, at 149.10 by the press time directs USD/JPY sellers towards a three-week-old ascending support line, at 146.30 as we write.

Gold price is making a minor recovery attempt from near the $1,640 region. In the view of FXStreet’s Eren Sengezer, sellers are set to retain control unless XAU/USD reclaims $1,670.

Initial support seen at $1,640

“On the downside, $1,640 (two-week low) aligns as initial support ahead of $1,620 (end-point of the latest downtrend) and $1,600 (psychological level).”

“In case XAU/USD rises above $1,665 (Fibonacci 23.6% retracement), it is likely to face immediate resistance at $1,670, where the 20-day SMA is located. A daily close above that level could attract buyers and open the door for an extended recovery toward $1,690 (Fibonacci 38.2% retracement).”

• Silver attracts some buying on Monday and snaps a six-day losing streak to a two-week low.
• Bearish oscillators on short-term charts warrant caution before positioning for further gains.
• Sustained strength beyond the $20.00 mark is needed to negate the near-term negative bias.

Silver gains some positive traction on the first day of a new week and moves away from over a two-week low, around the $18.00 mark touched on Friday. The white metal maintains its bid tone heading into the European session and is currently flirting with the daily peak, near the $18.50-$18.45 region.

The XAG/USD, for now, seems to have snapped six straight days of a losing streak and stalled its recent sharp rejection slide from the 200-day EMA, or its highest level since late June. Any subsequent move up, however, is likely to confront stiff resistance near the $18.90-$19.00 area, which should act as a pivotal point for intraday traders.

Sustained strength beyond might trigger a short-covering rally and lift the XAG/USD back towards the $19.70-$19.80 supply zone. Meanwhile, oscillators on the daily chart have just started drifting into negative territory. Moreover, bearish technical indicators on the 4-hour chart warrants caution before positioning for further gains.

That said, some follow-through buying beyond the $20.00 psychological mark will negate any near-term negative outlook and pace the way for a further near-term appreciating move. The XAG/USD might then climb to the $20.50 intermediate resistance en route to the $21.00 round figure and the 200-day EMA, currently around the $21.15 region.

On the flip side, the $18.00 mark now seems to have emerged as immediate strong support, which if broken decisively will be seen as a fresh trigger for bearish traders. The next relevant support is pegged near the YTD low, around the $17.55 area touched in September, below which the XAG/USD could slide to test the $17.00 round figure.

Silver daily chart

Key levels to watch

UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia expect EUR/USD to trade within the 0.9630-0.9900 range in the next few weeks.

Key Quotes

24-hour view: “Our expectations for ‘the rebound in EUR to extend to 0.9835’ did not materialize as it traded in a choppy manner between 0.9706 and 0.9808 before closing at 0.9719 (-0.55%). The price movements are likely part of a broad consolidation range and we expect EUR to trade within a range of 0.9700/0.9800.”

Next 1-3 weeks: “We continue to hold the same view as last Friday (14 Oct, spot at 0.9775). As highlighted, we view the current price actions as part of a broad consolidation range and we expect EUR to trade between 0.9630 and 0.9900 for the time being.”

• EUR/USD reverses Friday’s pullback from one-week high.
• Talks over ECB’s QT, light calendar and optimism at the UK favor pair buyers amid sluggish session.
• The absence of major data/events can disappoint momentum traders.
• Buyers have a tough road ahead considering the optimism over Fed’s next move.

EUR/USD picks up bids to 0.9750 as bulls try to regain control, after a two-week downtrend, during early Monday morning in Europe. In doing so, the major currency pair cheers the broad US dollar weakness amid a sluggish start to the week.

That said, the US Dollar Index (DXY) pares Friday’s heavy gains around 113.00 amid an absence of major data/events. Also exerting downside pressure on the greenback’s gauge versus the six major currencies the easing fears of the UK market’s collapse, especially after the recent appointment of Jeremy Hunt as the new British Chancellor, as well as keeping the tax rate unchanged.

In doing so, the DXY ignores the hawkish Fed bets and the recently upbeat comments from International Monetary Fund (IMF) Chief Economist Gita Gopinath. That said, IMF’s Gopinath recently stated that the Fed should stay the course in view of the economic data. The policymaker also mentioned that it is right for the European Central Bank (ECB) to normalize its monetary policy by end of year and then tighten next year.

Elsewhere, CME’s FedWatch tool highlights 96% chance of the Fed’s 75 bps rate hike in November after Friday’s upbeat US Retail Sales and Michigan Consumer Sentiment Index, as well as hawkish comments from St. Louis Federal Reserve Bank President James Bullard.

On the other hand, ECB policymakers have also been optimistic but the bloc’s tussle with Russia, over Ukraine, seems to raise doubts about the central bank’s next move.

Amid these plays, the bond yields retreat from the recently flashed tops while the stock futures print mild gains and weigh on the US dollar.

Moving on, a light calendar may restrict immediate EUR/USD moves but the risk catalyst will be important as traders struggle to justify the easing economic fears.

Technical analysis

A convergence of the 100-EMA on the four-hour chart and the 38.2% Fibonacci retracement level of the pair’s September 12-27 downside, around 0.9790, appears a tough nut to crack for EUR/USD bulls.

Japanese Prime Minister Fumio Kishida had to make an appearance on Monday, as the USD/JPY rally appears unstoppable.

He said that they “will take steps against speculative FX moves as needed.”

“Rapid forex moves undesirable,” he added.

• USD/CNH is facing barricades around 7.22 as the DXY has weakened amid the risk-on profile.
• Considering the zero Covid-19 policy and underperformance of real estate, the PBOC could sound dovish.
• China’s major state-owned banks have been spotted selling US dollars in the spot market.

The USD/CNH pair is hassling in overstepping the critical hurdle of 7.2200 in the early European session. The asset is oscillating in a tight range despite the risk-on impulse in the market. The US dollar index (DXY) is oscillating near the round-level cushion of 113.00 and is expected to surrender the same amid a decline in safe-haven's appeal.

The DXY is performing vulnerable despite the soaring odds of a bigger rate hike by the Federal Reserve (Fed). Mounting price pressures in the US economy are impacting the US economy and have left no other option for the Fed than to tighten policy measures further.

Investors have shifted their focus toward the major event of an interest rate decision by the People’s Bank of China (PBOC). The monetary policy is due on Thursday and a dovish stance is expected. The Chinese economy is facing major headwinds of zero Covid-19 policy to contain the epidemic and vulnerable real-estate sector due to bleak demand.  

Meanwhile, statements from six banking sources claim that China's major state-owned banks were spotted swapping yuan for U.S. dollars in the forwards market and selling those dollars in the spot market on Monday morning.

Apart from that, the economy will also release the Gross Domestic Product (GDP) data on Tuesday. As per the preliminary estimates, the annual GDP data will improve significantly to 3.4% vs. the prior release of 0.4%. On a quarterly basis, the economy will report an expansion in growth rate by 3.5% vs. a contraction of 2.6% reported earlier. The crucial economic events will keep the asset on the tenterhooks.

The UK Treasury announced that the newly appointed Chancellor Jeremy Hunt will announce tax and spending measures on Monday, two weeks earlier than previously scheduled, per Reuters.

Key quotes

"The Chancellor will make a statement later today, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability.”

UK's Chancellor will delivera  full medium-term fiscal plan to be published with a forecast from independent office for budget responsibility on 31 Oct.”

UK's Chancellor met with the governor of BOE and head of Debt Management Office Sunday night to brief them on these plans.”

"He will also make a statement in the House of Commons this afternoon."

International Monetary Fund (IMF) Chief Economist Gita Gopinath made some comments on the European Central Bank’s (ECB) and Fed’s policy outlooks, in an interview with Handelsblatt on Monday.

Key quotes

"It is right for ECB to normalize its monetary policy by end of year and then tighten next year."

On Fed, she says "they should stay the course in view of the economic data.”

On the US, tells Handelsblatt, "inflation continues to be very stubborn."

“If the Fed were to signal in such an environment that they are no longer tightening, would lose credibility.”

Related reads

• Asian Stock Market: China keeps bears hopeful amid sluggish session

• WTI crude oil prices attract some buyers near the $84.50-$84.25 confluence on Monday.
• A convincing break below the said support will pave the way for further near-term losses.
• Sustained strength beyond the $86.35 region is needed to support prospects for further gains.

WTI crude oil prices regain some positive traction on the first day of a new week and hold steady above the $85.00 mark heading into the European session.

From a technical perspective, the commodity manages to defend the $84.50-$84.25 confluence comprising the 100-period SMA on the 4-hour chart and the 50% Fibonacci retracement level of the $76.08-$92.63 rally. The said area should now act as a key pivotal point, which if broken decisively will set the stage for an extension of the recent sharp pullback from the highest level since August touched last week.

In the meantime, any subsequent move up is likely to confront some resistance near the $85.70-$85.75 region. This is closely followed by the $86.00 mark and the 38.2% Fibo. level, around the $86.30 area, above which spot prices could climb to the $87.00 round figure. The momentum could get extended towards the $87.45 hurdle en route to the $88.00 mark and the 23.6% Fibo. level, around the $88.55-$88.60 supply zone.

On the flip side, weakness back below the $85.00 round figure might continue to find decent support near the $84.50-$84.25 confluence. A convincing break below will be seen as a fresh trigger for bearish traders and pave the way for additional losses. WTI crude oil prices could then weaken below the $84.00 mark and test the next relevant support near the $83.40-$83.35 region before eventually dropping to the $83.00 level.

WTI 4-hour chart

Key levels to watch

• Asian equities track Wall Street losses, ignores mildly firmer S&P 500 Futures, sluggish yields.
• China defends the zero covid policy while banks in Beijing intervene secretly.
• Light calendar, mixed concerns trouble traders but risk-off mood is likely to prevail.

Equities in the Asia-Pacific region hold lower ground during the sluggish start to the week even as the market fears emanating from China, Indonesia and the US remain intact heading into Monday’s European session.

While portraying the mood, the MSCI’s Index of Asia-Pacific shares outside Japan drops 1.42% whereas Japan’s Nikkei drops 1.31% by the press time.

Among the many catalysts that drove the risk-off mood in Asia, headlines from China gained major attention as Chinese Prime Minister Xi Jinping defends his zero-covid policy and determination to add more artillery. On the same line could be the headlines suggesting the Chinese bank’s intervention. “China's major state-owned banks were spotted swapping yuan for U.S. dollars in the forwards market and selling those dollars in the spot market on Monday morning, six banking sources said,” per Reuters. With this, markets in China are mostly red, which in turn drags shares from Hong Kong, New Zealand and Australia.

Elsewhere, Indonesia’s trade numbers came in mixed, mostly downbeat for September, but failed to impress the equity traders from Jakarta. Indonesia’s Exports for September came in at 20.28% compared to 27.91% market forecasts and 30.15% prior readings. Further details suggest that the Imports also dropped below 31.48% forecast and 32.81% previous readings to 22.02%. Even so, the Trade Balance improves to $4.99B compared to $4.84B market forecasts and $5.76B prior.

On a broader front, S&P 500 Futures part ways from Wall Street losses while the Treasury bond yields seesaw around the multi-month high amid a light calendar and an absence of major data/events. It should be noted that oil prices also pare recent losses and weigh on the Asia-Pacific equities amid the White House pressure on the OPEC+ members to halt/delay the latest supply cut actions.

Moving on, the US economic calendar is likely to remain empty throughout the week and may limit the market’s moves. However, pessimism surrounding China may exert downside pressure on the Asia-Pacific markets.

• USD/CAD has resumed the downside journey after the termination of the short-lived pullback.
• The emergence of the risk-on impulse has weakened the safe haven’s appeal.
• A bleak economic outlook is weighing pressure on oil prices.

The USD/CAD pair has displayed a less-confident pullback after printing an intraday low of 1.3812 in the Asian session. The asset is expected to resume its downside momentum after the termination of the pullback as the risk impulse rebounded after turmoil on Friday. S&P500 is withholding its gains recorded on early Monday despite rising bets for a hawkish Federal Reserve (Fed).

The US dollar index (DXY) is displaying a subdued performance as the appeal for safe-haven has been trimmed. Due to a light US economic calendar, the focus will remain on commentaries from Fed policymakers and geopolitical tensions. The 10-year US Treasury yields are also oscillating below the critical hurdle of 4%.

This week, Canada’s inflation data will be of utmost importance. The headline Canada Consumer Price Index (CPI) figure is expected to decline to 6.8% from the prior release of 7.0%. Also, the core CPI data may trim by 20 basis points (bps) to 5.6%. The Bank of Canada (BOC) is accelerating its interest rates vigorously and has reached 3.25% as price pressures are deteriorating the economic fundamentals for the longer term. The central bank is entirely focusing on bringing price stability and ignoring current economic prospects.

On the oil front, oil prices have rebounded after printing a fresh two-week low at $84.72. Investors are discounting the bleak growth outlook amid escalating policy tightening measures by the central banks. Apart from that, the continuation of the no-tolerance approach towards Covid-19 by China has kept a lid on the oil demand. It is worth noting that Canada is a leading exporter of oil to the US and weak oil prices are weakening the Canadian dollar.

• GBP/USD extends weekly gains amid receding fears about UK markets’ collapse.
• Jeremy Hunt’s appointment as fresh Chancellor may not relieve Truss as Tory backbenchers brace to oust her.
• BOE’s Bailey sounded hawkish and keeps the intraday buyers hopeful amid a light calendar.

GBP/USD adds half a percent to 1.1225 as buyers extend the previous week’s gains amid recent positives from the UK. Also keeping the Cable pair firmer during early Monday is the absence of major data/events and the sluggish US dollar.

Kwasi Kwarteng was forced to goodbye, indirectly, after a short and tragic term as the British Chancellor. His resignation and U-turn on the tax proposal, as well as a rethink on several aspects of the “mini-budget”, seems to have underpinned the GBP/USD rebound after Friday’s downbeat performance. Also, Jeremy Hunt’s appointment as the new Finance Minister, also known as the Chancellor, adds strength to the cable pair’s recovery moves due to his political reputation.

While the aforementioned catalysts tame the previous fears of the British economic collapse, some of the Tory backbenchers are preparing to topple newly appointed Prime Minister (PM) Liz Truss and trigger another drama in London. The news from the Daily Mail and The Times both confirms the Conservatives’ efforts to call-in 1922 Chairman Sir Graham Brady in the political plot.

Elsewhere, US Dollar Index (DXY) helps gold buyers to consolidate recent losses amid a light calendar day, as well as an absence of the 1.0% Fed rate hike call. That said, recently firmer US data and the market’s bets surrounding the 75 bps move keep the GBP/USD sellers hopeful.

US Retail Sales remained unchanged with 0.0% growth for September versus 0.2% expected 0.4% upwardly revised prior. Further, the preliminary readings of the Michigan Consumer Sentiment Index for October were 59.8, better than the forecasted figure of 59 and 58.6 previous readings. More importantly, the University of Michigan’s 1-year and 5-year inflation expectations increased for October, respectively to 2.9% and 5.1% compared to 2.7% and 4.7% priors in that order.

During the weekend, St. Louis Federal Reserve Bank President James Bullard said, “The US has a serious inflation problem,” the policymaker also adds, “Front loading fed policy is the right strategy.”

Moving on, a light calendar in the US may restrict the intraday moves of the GBP/USD prices but the political play will be interesting to watch. Also, hawkish comments from the Bank of England (BOE) Governor Andrew Bailey, published during the week, highlight this week’s UK inflation and Retail Sales data for September as the key catalyst for the Cable pair traders to watch for fresh impulse.

Technical analysis

A five-week-old resistance line near 1.1340 appears the key hurdle for the GBP/USD pair buyers to tackle while bears need to conquer 1.1085 to return to the throne.

• AUD/USD attracts some dip-buying near the 0.6200 mark, though lacks follow-through.
• A positive risk tone undermines the safe-haven USD and offers support to the aussie.
• Aggressive Fed rate hike bets, recession fears help limit the USD losses and cap the pair.

The AUD/USD pair kicks off the new week on a positive note and attracts some buying near the 0.6200 mark, reversing a part of Friday's losses. The pair maintains its bid tone through the Asian session and is currently placed around the 0.6225-0.6230 region, though the uptick lacks bullish conviction.

Signs of stability in the financial markets prompt some selling around the safe-haven US dollar and turn out to be a key factor offering support to the risk-sensitive aussie. That said, concerns about the economic fallout from China's zero-COVID policy, along with growing recession fears, should keep a lid on any optimistic move. Further, the prospects for a more aggressive policy tightening by the Fed might continue to act as a tailwind for the buck and cap any meaningful upside for the AUD/USD pair, at least for the time being.

The market seems convinced that the Fed will continue to hike interest rates at a faster pace to curb inflation and pricing in a nearly 100% chance of another supersized 75 bps increase in November. The bets were reaffirmed by the stronger US consumer inflation figures released last week, which remain supportive of elevated US Treasury bond yields. This, in turn, supports prospects for the emergence of fresh USD buying and suggests that the path of least resistance for the AUD/USD pair is to the downside, warranting caution for bulls.

Market participants now look forward to the US Empire State Manufacturing Index for some impetus later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and produce short-term trading opportunities around the AUD/USD pair. The focus will then turn to the RBA monetary policy meeting minutes and top-tier Chinese macro data, due for release during the Asian session on Tuesday, which will play a key role in driving the China-proxy Australian dollar.

Technical levels to watch

• Gold price is looking for an establishment above $1,650.00 as the risk-off profile fades.
• Escalating odds for a fourth consecutive 75 bps rate hike by the Fed are supporting the DXY.
• The Fed is bound to hike rates to a bigger extent as inflation hasn’t responded well yet.

Gold price (XAU/USD) has witnessed an intermittent hurdle while surpassing the 1,652.00 hurdle in the Tokyo session. Earlier, the gold prices witnessed a vertical rally from around $1,640.00 as the risk-on profile emerged. S&P500 has turned sideways but is keeping its morning gains, which indicates that the risk appetite has not faded yet. Also, the 10-year US Treasury yields are oscillating below the psychological figure of 4%.

The US dollar index (DXY) has picked bids after a downside move below 113.00 as investors are shifting their funds back into the safe-haven amid soaring bets for a 75 basis point (bps) rate hike by the Federal Reserve (Fed). As per the CME FedWatch tool, chances of an increment in the interest rates by 75 bps consecutive for the fourth time stand at 97.4%. As price pressures are not responding well in line with expectations, the Fed will continue to accelerate interest rates.

Last week, the headline US Consumer Price Index (CPI) and core CPI that excludes the impact of food and oil prices landed higher at 8.2% and 6.6% than their expectations. Continuous efforts from the Federal Reserve (Fed) to contain the mounting price pressures are failing. Therefore, a continuation of bigger rate hikes seems necessary to achieve price stability.

Gold technical analysis

Gold prices have witnessed a rebound after witnessing exhaustion in the downtrend. It is worth noting that the asset was continuously making lower lows while the momentum oscillator, Relative Strength Index (RSI) (14) made a higher low. This indicates signs of a loss in the downside momentum.

The precious metal has also poked the 20-period Exponential Moving Average (EMA) at $1,651.13, which indicates signs of reversal but still needs more filters.

Gold hourly chart

• USD/IDR takes the bids to renew multi-month high, up for third consecutive day.
• Indonesia Exports eased to 20.28% in September versus 27.91% expected, 30.15% prior.
• US dollar pullback challenges buyers but softer equities in Asia-Pacific favor bulls.

USD/IDR stays on the front foot as bulls poke the $15,500 threshold, refreshing 2.5-year high by the press time of mid-Asian session on Monday. In doing so, the Indonesia rupiah (IDR) pair pays little heed to the US dollar’s pullback amid downbeat trade numbers at home.

As per the latest release, Indonesia’s Exports for September came in as 20.28% compared to 27.91% market forecasts and 30.15% prior readings. Further details suggest that the Imports also dropped below 31.48% forecast and 32.81% previous readings to 22.02%. Even so, the Trade Balance improves to $4.99B compared to $4.84B market forecasts and $5.76B prior.

Other than the data, sour sentiment in the Asia-Pacific zone, mainly due to China’s determination to keep the zero-covid policy and strengthen military power, also fuel the USD/IDR prices.

On the contrary, US Dollar Index (DXY) helps gold buyers to consolidate recent losses amid a light calendar day. That said, the DXY drops by 0.26% to around 113.00 by the press time. The greenback’s latest losses could be linked to the easing fears of the UK market’s collapse, especially after the recent appointment of Jeremy Hunt as the new British Chancellor, as well as keeping the tax rate unchanged. Also weighing on the DXY could be the lack of major data/events, as well as the absence of the 1.0% Fed rate hike concerns.

Even so, Friday’s upbeat US data and the recently hawkish Fed speak keeps the USD/IDR buyers hopeful amid around 99% chance of the Fed’s 75 bps move in November.

That said, US Retail Sales remained unchanged with 0.0% growth for September versus 0.2% expected 0.4% upwardly revised prior. Further, the preliminary readings of the Michigan Consumer Sentiment Index for October were 59.8, better than the forecasted figure of 59 and 58.6 previous readings. More importantly, the University of Michigan’s 1-year and 5-year inflation expectations increased for October, respectively to 2.9% and 5.1% compared to 2.7% and 4.7% priors in that order.

During the weekend, St. Louis Federal Reserve Bank President James Bullard said, “The US has a serious inflation problem,” the policymaker also adds, “Front loading fed policy is the right strategy.”

Technical analysis

An ascending resistance line from August 05, around $15,500, appears the key hurdle for the USD/IDR bulls. The pullback, however, remains elusive unless breaking a seven-day-old support line, near $15,290 by the press time.

• USD/INR remains mildly offered amid broad US dollar pullback.
• Fears of RBI intervention, firmer oil prices challenge the pair traders amid sluggish Asian session.
• Firmer US data, hawkish Fedspeak keeps buyers hopeful even as intermediate pullbacks remain on the table.

USD/INR bulls take a breather around 82.35, mostly sluggish after a two-day uptrend, during the initial hours of Monday’s Indian session. In doing so, the Indian rupee (INR) pair portrays the market’s indecision amid the hopes of the Reserve Bank of India’s (RBI) intervention, as well as firmer oil prices and the US dollar’s retreat, inactive start to the week.

Although the RBI’s latest Monetary Policy Meeting Minutes raised doubts about the Indian central bank’s next move, it's market meddling around 82.40 teases the pair traders of late. “The Reserve Bank of India's monetary policy committee (MPC) may become more data-dependant in deciding on the key interest rate with inflation expected to start easing, minutes of the latest meeting suggested on Friday,” reported Reuters.

Elsewhere, the US dollar’s pullback appears to favor the USD/INR sellers amid a lack of major data/events. That said, the US Dollar Index (DXY) helps gold buyers to consolidate recent losses amid a light calendar day. That said, the DXY drops by 0.26% to around 113.00 by the press time. The greenback’s latest losses could be linked to the cautious optimism in the UK, after the latest political upheaval and comments from the Bank of England (BOE) Governor Andrew Bailey.

Alternatively, an improvement in the crude oil prices, the main challenge India due to its reliance on energy imports, joins the hawkish Fed bets to challenge USD/INR bears. WTI crude oil consolidates the biggest weekly loss since early August as a softer US dollar joins fears of a supply crunch. That said, the black gold price rises 0.70% intraday to regain $85.00 by the press time. US President Joe Biden’s failure to convince the global oil suppliers to put a halt on their output cut decision renews bullish bias for the energy benchmark despite economic fears and firmer fundamentals for the US dollar.

Against this backdrop, US 10-year Treasury yields struggle to extend the latest upside near the 4.0% threshold whereas S&P 500 Future ignores Wall Street’s downside close and rises half a percent. It’s worth noting that stocks in India, as well as in the Asia-Pacific region prints mild losses amid China’s pledge for zero-covid policy and fears of the Fed’s 0.75% rate hike in November, backed by the recent US data and Fedspeak.

Looking forward, USD/INR traders should pay attention to the US Treasury yields, as they fade upside momentum at the multi-year high, amid an absence of major data catalysts.

Technical analysis

Not even short-term USD/INR weakness is expected unless the quote breaks the 10-DMA support of 82.20.

• EUR/GBP has faced barricades around 0.8680 as ECB prepares for a bigger rate hike.
• Investors seek moiré clarity on UK’s political mess for making an informed decision.
• The headline UK CPI rate could return to double-digit.

The EUR/GBP pair is facing pressure around the immediate resistance of 0.8680 in the Tokyo session. The asset has opened inside the previous two day's trading range and is auctioning internally as investors seek more clarity over UK’s political mess.

The removal of UK Chancellor Kwasi Kwarteng after she proposed for suspension of an increase in corporate taxes from April 2023 to 25% has triggered political stability in the UK. The proposal of stability in corporate taxes resulted in a vertical north-sided movement in the UK government bonds and pension-fund managers were called to channelizing more margin money to safe insurance products.

Meanwhile, bets for a bigger rate hike by the Bank of England (BOE) in the November monetary policy meeting have soared significantly after the hawkish guidance by Bank of England (BOE) Governor Andrew Bailey. BOE’s Bailey stated that We will not hesitate to raise interest rates to meet the inflation target," The central bank believes that price pressures demand stronger policy tightening measures than announced in August.

Going forward, the UK Consumer Price Index (CPI) data will remain in focus. As per the consensus, the headline and core inflation will escalate by 10 basis points each to 10% and 6.4% respectively.

On the Eurozone front, October’s monetary policy is gaining more traction. On Friday, European Central Bank (ECB) policymaker Bostjan Vasle stated that 75 basis points (bps) rate hikes at the October and December meetings may be appropriate, as reported by Reuters. He further added that "Inflation may be close to peak if there are no new shocks; longer-term expectations still anchored."

Further, Goldman Sachs sees a terminal rate for the ECB at 2.75%, which it will hit by March.

• Kiwi bulls have firmed up on a better risk profile after picking bids around the 0.5540-0.5584 demand range.
• Declining 20-and 50-EMAs still favor the downside bias.
• The RSI (14) has defended the downside after picking demand at 40.00.

The NZD/USD pair has bounced back sharply after sensing fresh demand from around 0.5560 in the Tokyo session. An emergence of risk-on impulse in the markets after a volatile Friday has strengthened the risk-perceived currencies.

On a four-hour scale, the kiwi bulls have picked bids after sensing buying interest in the demand zone placed in a 0.5540-0.5584 range. This could be termed as a bullish reversal as the concept requires more filters for confirmation.

The 20-and 50-period Exponential Moving Averages (EMAs) at 0.5603 and 0.5630 respectively are declining, which signals more downside ahead.

While, the Relative Strength Index (RSI) (14) has sensed support at 40.00, which indicates that the kiwi bulls are not bearish now.

Should the asset oversteps the horizontal resistance plotted from October 6 high at 0.5814, which will drive the asset towards September 29 high at 0.5911, followed by the psychological resistance at 0.6000.

Alternatively, the greenback bulls will regain strength if the asset surrenders the two-year low at 0.5536, which will drag the asset toward March 2020 low at 0.5469. A slippage below the latter will expose the asset to the round-level cushion at 0.5400.

NZD/USD four-hour chart

Japanese Finance Minister Shunichi is back on wires, via Reuters, stating that the government has no change in its stance in dealing with FX moves.

His comment comes after he earlier said they are constantly watching FX movements with a sense of urgency.

USD/JPY is at a tipping point, as it closes in on the 150.00 level, currently trading at 148.61, down 0.08% on the day. The pair is sitting at the highest level in 32 years.

• USD/JPY traces sluggish yields near 32-year high below 149.00 as BOJ policies appear in danger

• EUR/USD picks up bids to reverse previous pullback form 100-EMA.
• 38.2% Fibonacci retracement level adds strength to the upside filter.
• Three-week-old horizontal support zone restricts immediate downside.

EUR/USD remains mildly bid around 0.9750 as it consolidates losses made during the last two weeks during early Monday. In doing so, the major currency pair jumps back towards a convergence of the 100-EMA and 38.2% Fibonacci retracement level of the September 12-27 downside.

Given the recently firmer RSI and sluggish MACD, the quote is likely to keep the latest rebound toward the 0.9790 hurdle.

However, the quote’s further upside appears difficult as the 50% Fibonacci retracement level and the monthly resistance line, respectively around 0.9865 and 0.9900, could challenge the EUR/USD bulls.

Also acting as the key resistance is the 61.8% Fibonacci retracement, also known as the golden ratio, around 0.9945, as well as the 1.0000 parity level.

Meanwhile, EUR/USD sellers will have to conquer the aforementioned horizontal support around 0.9680-70 to retake control.

Following that, the latest multi-year low of 0.9535 will regain the market’s attention before directing the bears towards the September 2001 peak near 0.9330.

To sum up, EUR/USD is likely to witness further upside but the bullish trend is still out of the sight.

EUR/USD: Four-hour chart

Trend: Limited upside expected

Vice Head of the National Development and Reform Commission (NDRC), the country’s state planner, said on Monday that “China will unswervingly promote the market opening.”

He added that “China will give greater space for economic development in Hong Kong and Macau.”

Additional comments

“China's economy shows significant recovery in Q3.”

“China's economy faces many difficulties and challenges.”

“Recovery trend in China's economy will further consolidate as policies gain traction.”

“China's consumer inflation is moderate.”

Separately, a Chinese Emergy Official crossed the wires, noting that they “will greatly increase domestic energy supply capacity.”

Meanwhile, the country’s State Reserves chief said that they “will further increase reserve capacities for key commodities.”

Market reaction

Amid a better market mood at the start of the week, AUD/USD is shrugging off the PBOC’s operations and Chinese commentary. The spot is trading near-daily highs of 0.6236, up 0.60% on the day.

• USD/JPY bulls take a breather around 32-year high, probing eight-day uptrend.
• Light calendar, cautious optimism offers sluggish session, weigh on yields.
• Fedspeak remain hawkish but search for replacement of BOJ’s Kuroda challenges Japan’s easy money policies.
• Risk catalyst will be the key for near-term directions, bears may retake control on Tokyo’s intervention.

USD/JPY portrays a sluggish start to the week as it seesaws around mid-148.00s while tracking the mixed performance of the markets during Monday. In doing so, the yen pair retreats from the highest levels since 1990, marked the previous day, while printing the first daily loss in nine.

Earlier in the day, Bank of Japan Governor (BOJ) Haruhiko Kuroda said, “It is appropriate to continue monetary easing,” while also adding that he expects Consumer Price Index (CPI) to fall short of 2% in fiscal 2023.

However, comments from Japan Prime Minister (PM) Fumio Kishida seemed to have weighed on the JPY as he said, “Will consider a successor to BOJ Governor Kuroda, taking into account monetary policy foreseeability, coordination with the government.”

With this, the BOJ’s ultra loose policies will be in question amid the global push for higher rates.

That said, US 10-year Treasury yields struggle to extend the latest upside near the 4.0% threshold amid easing fears of the UK market’s collapse, especially after the recent appointment of Jeremy Hunt as the new British Chancellor, as well as keeping the tax rate unchanged.

Elsewhere, mixed comments from the Fed policymakers and the absence of chatters surrounding the Fed’s 1.0% rate hike also probe the pessimists. During the weekend, St. Louis Federal Reserve Bank President James Bullard said, “The US has a serious inflation problem,” the policymaker also adds, “Front loading fed policy is the right strategy.”

It should be noted, however, that firmer US data and geopolitical fears emanating from China and Russia, as well as from North Korea, keeps the USD/JPY bulls hopeful. Alternatively, the Japanese government’s intervention is looming as the yen drops to the multi-year. In that case, the yen pair may extend the latest weakness.

Technical analysis

A three-month-old ascending resistance line, at 149.10 by the press time, restricts immediate upside ahead of the 150.00 threshold. Even so, sellers may not take the risk of entries unless breaking a three-week-old ascending support line, at 146.30 as we write.

• USD/CHF snaps three-day uptrend, grinds lower of late.
• Lower-high formation, sluggish MACD keep sellers hopeful, 1.0050 is the key hurdle.
• Sellers could aim for 0.9980 before revisiting September’s top.

USD/CHF remains pressured around 1.0030 while printing the first daily loss in four days during Monday’s Asian session.

In doing so, the Swiss currency (CHF) pair retreats from the 1.0050 resistance confluence including an upward-sloping support line and an immediate descending resistance line from Friday, as well as the 50-SMA.

Given the bearish MACD signals, the USD/CHF prices are likely to extend the latest weakness towards the 1.0000 psychological magnet.

However, an immediate horizontal support area around 0.9980 could challenge the pair’s further downside.

In a case where the USD/CHF pair remains weak past 0.9980, September’s peak surrounding 0.9910 could challenge the bears.

Alternatively, recovery moves need a clear break of the 1.0050 hurdle to recall the buyers.

Following that, the monthly high around 1.0075 and the 1.0100 round figure could entertain the bulls before highlighting the year 2019 top surrounding 1.0240.

Overall, USD/CHF is likely to witness further downside but the bullish trend may not be reversed too soon.

USD/CHF: 15-minute chart

Trend: Further weakness expected

• AUD/USD bulls are on track for a significant correction on Monday.
• Bulls eye a move into a price imbalance on the hourly charts.

As per the prior analysis at the start of the Asian session, AUD/USD Price Analysis: Pre-open points to bullish correction, eyes on the 61.8% golden ratio, the market is following the projected trajectory higher and is well on its way towards the 38.2% Fibonacci retracement level near 0.6240. We have seen a high of the day at 0.6234 so far from a low of 0.6202. 

AUD/USD prior analysis, H1 chart

As per the hourly chart, it was explained that AUD/USD ''is well below last month's lows and will remain in the bear's hands so long as Friday's highs of near 0.6250 are not violated.''

A correction into the greyed areas which are price imbalances on the hourly chart was anticipated for the opening sessions on Monday which put the prior bull candle's lows in focus near a 61.8% Fibonacci retracement near 0.6275. It was stated that ''while below this area of resistance, the focus will be on a break of the fresh bear cycle lows near 0.6170 and for a downside continuation.''

AUD/USD update

• GBP/JPY has sensed selling pressure while attempting to cross the 167.00 hurdle.
• The guidance from BOJ Kuroda on interest rates is a continuation of policy easing.
• BOE’s Bailey to announce a bigger rate hike to contain price pressures.

The GBP/JPY pair has dropped marginally to near 166.70 after facing hurdles around the immediate resistance of 167.00 in the Tokyo session. An ease in the risk-on impulse has weighed pressure on the pound bulls as S&P500 has dropped some gains after a firmer rebound.

The cross has remained in the grip of bulls for the past week amid rumors of the Bank of Japan (BOJ)’s intervention in the currency markets to safeguard yen against volatility. Meanwhile, Japan’s officials have started looking for the successor of BOJ’s Haruhiko Kuroda for next year, as reported by Reuters. On monetary policy guidance, BOJ Kuroda stated that “It is appropriate to continue monetary easing,” This has weakened the yen bulls further.

On the UK front, a political drama may bring sheer volatility for the pound bulls. The sudden removal of Chancellor Kwasi Kwarteng after the one proposed to cancel the plan of increasing corporate taxes to 25% has triggered political uncertainty. The move by then-UK Finance Minister Kwarteng accelerated returns on government bonds and sell-off in the equity market.

Meanwhile, Bank of England (BOE) Governor Andrew Bailey’s guidance on monetary policy has escalated the odds of further expansion in BOE-BOJ policy divergence. As reported by Reuters, BOE Bailey’s stated "We will not hesitate to raise interest rates to meet the inflation target," The central bank believes that price pressures demand stronger policy tightening measures than announced in August.

This week, the UK Consumer Price Index (CPI) data will be of utmost importance. The headline and core inflation may incline by 10 basis points each to 10% and 6.4% respectively. A return to double-digit inflation figure could trigger more headwinds for the UK economy.

• Gold price pares the biggest weekly loss in two months while recovering from short-term key support.
• Risk-on mood, market’s rejection of 1.0% Fed rate hike appears to weigh on the XAU/USD amid a sluggish session.
• Optimism surrounding the UK, mixed headlines from China add strength to the metal’s recovery moves.
• Light calendar keeps gold traders confused but bears can keep the reins amid recession fears, central bank aggression.

Gold price (XAU/USD) picks up bids to refresh intraday high near $1,650, consolidating the biggest weekly loss in eight amid Monday’s sluggish Asian session. In doing so, the yellow metal cheers the softer US dollar and the market’s cautious optimism amid a lack of major data/events.

A softer start of the US Dollar Index (DXY) helps gold buyers to consolidate recent losses amid a light calendar day. That said, the DXY drops by 0.26% to around 113.00 by the press time. The greenback’s latest losses could be linked to the cautious optimism in the UK, after the latest political upheaval and comments from the Bank of England (BOE) Governor Andrew Bailey.

Also exerting downside pressure on the greenback’s gauge versus the six major currencies, which in turn favor the XAU/USD buyers, is the market’s latest rejection of the Fed’s 1.0% rate hike in November.

That said, CME’s Fedwatch Tool suggests a nearly 95% chance of the 0.75% Fed rate hike in November.

During the weekend, St. Louis Federal Reserve Bank President James Bullard said, “The US has a serious inflation problem,” the policymaker also adds, “Front loading fed policy is the right strategy.”

It should be noted that the DXY managed to reverse Thursday’s notable losses after upbeat US data and hawkish Fedspeak on Friday. US Retail Sales remained unchanged with 0.0% growth for September versus 0.2% expected 0.4% upwardly revised prior. Further, the preliminary readings of the Michigan Consumer Sentiment Index for October were 59.8, better than the forecasted figure of 59 and 58.6 previous readings. More importantly, the University of Michigan’s 1-year and 5-year inflation expectations increased for October, respectively to 2.9% and 5.1% compared to 2.7% and 4.7% priors in that order.

Amid these plays, S&P 500 Future ignores Wall Street’s downside close and rises half a percent while the US 10-year Treasury yields struggle to extend the latest upside near the 4.0% threshold.

Looking forward, updates from China’s annual Congress meeting and the UK may entertain XAU/USD traders, which in turn suggests more chances for the metal’s further recovery amid a lack of major data/events during the week.

Technical analysis

Gold price rebounds from a three-week-old horizontal support zone, backed by a firmer RSI (14). In doing so, the precious metal prices approach the 61.8% Fibonacci retracement level of September 28 to October 04, around $1,658.

It’s worth noting, however, that the 100-HMA and the 200-SMA, respectively around $1,665 and $1,685, could challenge the XAU/USD upside before convincing the gold buyers.

Alternatively, the $1,642-40 support zone holds the key to gold price declines toward September’s low near $1,615, a break of which could quickly recall the $1,600 to the chart.

Gold: Hourly chart

Trend: Limited recovery expected

The People’s Bank of China (PBOC) set the USD/CNY reference rate at 7.1095 on Monday when compared to the previous fix and the previous close at 7.1088 and 7.1900 respectively. It should be noted that the PBOC fix rose past the market forecasts of  7.1331.

Also read: PBOC seen partially rolling over policy loans at steady rate – Reuters poll

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.

China's central bank may drain cash next Monday via a partial rollover of maturing medium-term loans, while keeping policy rates steady, a Reuters survey showed, as ample market liquidity and a sliding yuan reduce the need for imminent policy easing.

The poll also mentioned, “But some still expect the People's Bank of China (PBOC) to ease banks' reserve requirements next month, to aid an economy hit by the COVID-19 pandemic and property market woes.”

Key findings

Also read: USD/CNH snaps seven-day winning streak as China inflation, PBOC’s Yi favor sellers

• GBP/USD has sensed selling pressure amid attempting to cross the immediate hurdle of 1.1250.
• Soaring bets for a 75 bps rate hike by the Fed have trimmed risk appetite.
• Investors await more clarity over UK’s political drama to make informed decisions.

The GBP/USD pair has picked offers in the Tokyo session firmly as the risk-on mood has started fading. The kick-start of the US quarterly earnings season delivered a rebound move in S&P500 on Monday after a bearish Friday but has eased some gains now.

The US dollar index (DXY) has attempted a rebound after dropping below the critical support of 113.00. While the 10-year US Treasury yields are displaying a subdued performance. Robust bets for a 75 basis point (bps) interest rate hike by the Federal Reserve (Fed) have defended the downside bias for yields till now. According to the CME FedWatch tool, the chances for a 75 bps rate hike have climbed to 99.4%.

Meanwhile, political dram in the UK Prime Minister Liz Truss sacked Chancellor Kwasi Kwarteng last week has triggered political instability in the sterling region. Planning for cancellation of the proposed increase in corporate taxes to 25% from 2023 seems responsible for the removal of the UK Finance minister Kwarteng from her post.

Earlier, the move to freeze the corporate taxes at 19% resulted in a sell-off in the UK bond market. UK equity markets picked significant offers and returns on government bonds soared. This forced the Bank of England (BOE) to intervene and announce a bond-buying program to support gilt-exposed pension funds.  

The pound bulls could face volatility as Goldman Sachs is expected a bleak economic outlook for the UK. The bank stated that “Folding in weaker growth momentum, significantly tighter financial conditions, and the higher corporation tax from next April, we downgrade our UK growth outlook further and now expect a more significant recession." Also, the bank sees a contraction in the UK’s Gross Domestic Product (GDP) for 2023 by 1%, lower than the prior forecast of a contraction of 0.4%.

“It is appropriate to continue monetary easing,” said Bank of Japan Governor (BOJ) Haruhiko Kuroda said on Friday, as reported by Reuters.

More to come

• EUR/USD picks up bids to pare two-week losses amid sluggish session.
• Discussions on ECB’s QT divert hawkish bets but keep policymakers hopeful.
• Market’s “almost certain” case for 75 bps Fed rate hike allows US dollar bulls to take a breather.
• Absence of major data/events joins cautious optimism to keep short-term buyers hopeful.

EUR/USD stays firmer around 0.9750 while consolidating the two-week losses during Monday’s Asian session. Even so, the major currency pair remains inside the short-term key technical area amid a lack of major data/events.

Latest comments from the policymakers of the European Central Bank (ECB) and the US Federal Reserve (Fed) suggest hawkish play at both the key global central banks but the ECB’s Quantitative Tightening (QT) is considered a step ahead than the Fed.

ECB Chief Economist Philip Lane recently mentioned that they need rate hikes at several meetings. On the other hand, the ECB Policymaker and Dutch Central Bank chief Klaas Knot said, “ECB should consider starting to shrink its oversized stock of assets once interest rates rise to a level that neither stimulates nor slows economic growth.” The policymaker also added that he does not expect policy rate hikes to come to an abrupt end," while also saying that the farther we hike and the closer we get to restoring a credible prospect of inflation moving back to target, the smaller rate steps will likely become.

On the other hand, St. Louis Federal Reserve Bank President James Bullard said, “The US has a serious inflation problem,” the policymaker also adds, “Front loading fed policy is the right strategy.”

Elsewhere, the firing of Britain’s Chancellor Kwasi Kwarteng and hints of more rate hikes from the Bank of England (BOE) Governor Andrew Bailey are the recent catalysts that triggered the market’s risk-on mood. The measures appear promising and likely avoid the risk of the UK market’s collapse, at least for now.

While portraying the sentiment, S&P 500 Future ignores Wall Street’s downside close and rises half a percent while the US 10-year Treasury yields struggle to extend the latest upside near the 4.0% threshold. It’s worth noting that CME’s Fedwatch Tool suggests a nearly 95% chance of the 0.75% Fed rate hike in November.

Moving on, a light calendar and an absence of major events during the week may allow the EUR/USD pair to consolidate the previous losses. Also likely to favor the quote are the headlines surrounding the ECB’s QT and the market’s rejection of the 1.0% rate hike from the Fed.

Technical analysis

EUR/USD remains sidelined between the 21-DMA hurdle of 0.9785 and a three-week-old horizontal support near 0.9670-65.

Goldman Sachs (GS) appears cautiously optimistic over the European Central Bank’s (ECB) next move while turning more pessimistic over the UK’s economic transition, as per the latest analytics from the US bank.

GS maintains its ECB rate forecasts while suggesting that the terminal rate of 2.75% will be hit by March. “ECB commentary suggests council would like to slow pace,” adds Goldman.

On the other hand, the bank stated, "Folding in weaker growth momentum, significantly tighter financial conditions, and the higher corporation tax from next April, we downgrade our UK growth outlook further and now expect a more significant recession."

The GS now expects a 1% contraction in the UK’s Gross Domestic Product (GDP) for 2023 versus the previous forecast of -0.4%.

Also read: EUR/GBP Price Analysis: Bears have an upper-hand below 0.8700

• A breakout of an inverted H&S formation has underpinned the greenback bulls.
• Advancing 20-and 50-EMAs add to the upside filters.
• The RSI (14) is oscillating in the bullish range of 60.00-80.00 which indicates more upside ahead.

The EUR/JPY pair is aiming sharply higher and has reached near the immediate hurdle of 144.80 in the Tokyo session. The asset has picked bids as the risk aversion theme has faded away after the S&P500 rebounded firmly. An increased appetite for risk-sensitive currencies has underpinned the shared currency bulls.

On a four-hour scale, the asset has given a breakout of the Inverted Head and Shoulder by violating the horizontal resistance (now support) plotted from September 20 high at 144.04. The asset is expected to meet offers around a seven-year high at 145.64, however, the ongoing upside momentum may push the cross into unchartered territory.

The 20-and 50-period Exponential Moving Averages (EMAs) at 144.65 and 142.72 are advancing, which favors the Eurozone bulls.

Also, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which indicates that the bullish momentum has already been triggered.

A break above the seven-year high at 145.65 will drive the asset toward the 29 December 2014 high at 147.22, followed by December high at 149.52.

Alternatively, the yen bulls will take the charge if the asset drops below the previous week’s low at 140.90, which will drag the cross toward the psychological support of 140.00. A slippage below the latter will drag the asset toward September 28 low at 138.80.

EUR/JPY four-hour chart

• US Dollar Index takes offers to renew intraday low, snaps two-week uptrend.
• Headlines from the UK, light calendar allows DXY bulls to take a breather.
• Fed’s 75 bps rate hike appears certain as policymakers, data favor the hawkish move.
• Risk catalysts may entertain traders, suggesting a pullback amid a sluggish start to the week.

US Dollar Index (DXY) retreats to 113.00, pausing a two-week uptrend amid Monday’s sluggish Asian session, as market sentiment improves and the Treasury yields retreat. Even so, hawkish Fed bets probe the DXY sellers as traders begin a light calendar week.

The recent improvement in the market’s mood could be linked to the headlines from China and the UK. Also, a light calendar in Asia allows the DXY buyers to take a breather.

That said, the firing of Britain’s Chancellor Kwasi Kwarteng and hints of more rate hikes from the Bank of England (BOE) Governor Andrew Bailey are the recent catalysts that triggered the market’s risk-on mood during the initial hours of Monday. The measures appear promising and likely avoiding the risk of the UK market’s collapse, at least for now.

Elsewhere, China's 20th Communist Party Congress began on Sunday, with Xi Jinping poised to clinch his third five-year stint in charge - a mandate that would secure him as the country's most powerful ruler since founding leader Mao Zedong stated Reuters. The hopes of stability in the world’s second largest economy seem to also favor the risk-on mood event as the dragon nation’s zero-covid policy and recent geopolitical tussles with the US raise challenge to the market sentiment.

Amid these plays, S&P 500 Future ignore Wall Street’s downside close and rise half a percent while the US 10-year Treasury yields struggle to extend the latest upside near the 4.0% threshold. It’s worth noting that CME’s Fedwatch Tool suggests nearly 95% chance of the 0.75% Fed rate hike in November.

The DXY managed to reverse Thursday’s notable losses after upbeat US data and hawkish Fedspeak on Friday. US Retail Sales remained unchanged with 0.0% growth for September versus 0.2% expected 0.4% upwardly revised prior. Further, the preliminary readings of the Michigan Consumer Sentiment Index for October was 59.8, better than the forecasted figure of 59 and 58.6 previous readings. More importantly, the University of Michigan’s 1-year and 5-year inflation expectations increased for October, respectively to 2.9% and 5.1% compared to 2.7% and 4.7% priors in that order.

During the weekend, St. Louis Federal Reserve Bank President James Bullard said, “US has a serious inflation problem,” the policymaker also adds, “Front loading fed policy is the right strategy.”

Looking ahead, the US economic calendar has very few data/events scheduled for publication during the week, which in turn allows the buyers to take a breather and tease the DXY sellers should the latest optimism extends. As a result, risk catalysts will be more important for clear directions.

Technical analysis

Multiple failures to cross the 113.30 hurdle on a daily closing basis suggests further pullback of the DXY towards the 21-DMA support near 112.55.

• WTI crude oil pares the biggest weekly loss since early August, renews intraday high of late.
• Most OPEC+ members defend output cut decision after the White House criticized the move.
• DXY pullback adds strength to oil’s recovery amid a sluggish week-start.
• China trade numbers, updates from CCP can entertain intraday buyers.

WTI crude oil picks up bids to renew intraday high around $85.30 as bulls cheer the latest US attack, verbally, on the OPEC+ decision and the response from the oil producers. In doing so, the black gold consolidates the biggest weekly loss in 2.5 months.

Ever since the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+, countries ignored the US push for a smaller output cut, the White House is at loggerheads with Saudi Arabia. The criticism gained a response from the major OPEC+ members including United Arab Emirates, Kuwait, Bahrain, Oman and Algeria in recent days.

“OPEC+ member states lined up on Sunday to endorse the steep production cut agreed this month after the White House, stepping up a war of words with Saudi Arabia, accused Riyadh of coercing some other nations into supporting the move,” mentioned Reuters. The news also adds that the United States noted on Thursday that the cut would boost Russia's foreign earnings and suggested it had been engineered for political reasons by Saudi Arabia, which on Sunday denied it was supporting Moscow in its invasion of Ukraine.

In response, Saudi King Salman bin Abdulaziz said, per Reuters, that the kingdom was working hard to support stability and balance in oil markets, including by establishing and maintaining the agreement of the OPEC+ alliance. “His comments were backed by ministers of several OPEC+ member states including the United Arab Emirates,” adds Reuters.

Elsewhere, a softer start of the US Dollar Index (DXY) also helped the black gold to pare recent losses. That said, the DXY prints mild losses at around 113.00 by the press time. The greenback’s latest losses could be linked to the cautious optimism in the UK, after the latest political upheaval and comments from the Bank of England (BOE) Governor Andrew Bailey.

Moving on, a light calendar may restrict WTI moves but the geopolitical tensions emanating from Russia, China and recently from Saudi Arabia due to the OPEC+ moves, could keep the short-term buyers hopeful. That said, China’s monthly trade numbers and updates from the yearly Congress could also offer more directions. However, oil buyers should remain cautious amid the broad recession fears and hawkish central banks.

Technical analysis

Recovery remains elusive unless crossing the previous support line from September 27, close to $88.00 by the press time.

The Japanese authorities are off the marks early doors in Asia today with verbal intervention aimed to tame the rally in USD/JPY and in order to put psychological pressure on speculative long plays. 

Reuters reported that ''Japan would firmly respond to any excessive currency fluctuations, its top currency diplomat Masato Kanda said, following the yen's sharp fall to a 32-year low to the dollar.

Each country would respond appropriately to an agreement on foreign exchange market moves by the Group of Seven (G7) and G20 meetings last week, he said.''

Japan's Finance Miniter Shun'ichi Suzuki has also stepped in and said that they will take decisive action against excess forex moves based on speculation.
    
Suzuki says they are constantly watching fx movements with a sense of urgency.

USD/JPY is subsequently under pressure ahead of the open and fix in Tokyo. At the time of writing, the pair is trading at 148.50 and has printed a low of 148.41 from 148.71 the high of the day. The bull cycle high was set last Friday at 148.85. Below 148.40/50, there will be prospects of a retracement to 147.80. However, so far, the acts of verbal intervention, or physical, have fallen on deaf ears in the markets and have only a momentary impact, therefore, a break of the highs opens risk into he the 150s:

(USD/JPY H1 chart)

(USD/JPY M5 chart)

• AUD/NZD has jumped to near 1.1170 as the focus has shifted to RBA minutes.
• The downbeat consensus for Australian job additions data would keep aussie on tenterhooks.
• NZ inflation data is seen lower at 6.6% against the former release of 7.3%.

The AUD/NZD pair has driven to near 1.1170 in the early Tokyo session after picking fresh demand from around 1.1134. On a broader note, the cross has been declining consecutively for the past five trading sessions. Last week, the asset witnessed an intense sell-off after dropping below the critical cushion of 1.1240.

The pair has sensed a buying interest ahead of the Reserve Bank of Australia (RBA)’s minutes, which will release on Tuesday. The RBA minutes will provide a detailed explanation behind announcing a rate hike by 25 basis points (bps). In October monetary policy meeting, RBA Governor Philip Lowe went against the projections and trimmed the pace of hiking the Official Cash Rate (OCR) to 25 bps. Earlier, the central bank was hiking its OCR by 50 bps.

Apart from the explanation of slowing down the pace of hiking crucial rates, the minutes will disclose the economic fundamentals and guidance over interest rates.

Going forward, Thursday’s employment data also holds significant importance. The Employment Change data is expected to decline to 25k against the prior print of 33.5k. While the jobless is seen as stable at 3.5%.

On the kiwi front, Tuesday’s Consumer Price Index (CPI) data will be of utmost importance. The expectations for annual inflation data for the third quarter are significantly lower at 6.6% vs. the prior print of 7.3%. The occurrence of the same could trim the extent of the hawkish tone by Reserve Bank of New Zealand (RBNZ) policymakers.

• AUD/JPY probes five-week downtrend around 11-week low, grinds higher of late.
• MACD, RSI favor bearish move inside the falling wedge chart pattern.
• Clear break of 93.30 could convince buyers to renew monthly high.

AUD/JPY pares recent losses around the 2.5-month low, seesaws around the intraday high near 92.35 during Monday’s Asian session. In doing so, the cross-currency pair bounces off a one-week-old support line to begin the week on a firmer note after five consecutive weeks of downside.

Although the immediate support line restricts the AUD/JPY pair’s downside near 92.10, backed by steady RSI, the recovery moves remain elusive as the quote stays inside a three-week-long falling wedge bullish chart pattern.

That said, the 100-SMA adds to the upside filters near 93.00, in addition to the stated wedge’s upper line near 93.30.

It’s worth noting, however, that a clear upside break of the 93.30 hurdle will allow the AUD/JPY buyers to aim for the fresh high, currently near 94.70, on the way to the theoretical target of 99.10.

Meanwhile, pullback moves need to break the aforementioned support line, close to 91.10 of late, to favor sellers.

Following that, the lower line of the wedge around 90.65 could act as a buffer during the fall targeting the 90.00 psychological magnet.

AUD/JPY: Four-hour chart

Trend: Further weakness expected

The Party Congress has kicked off this weekend with President Xi Jinping in the running to defy the Party’s retirement norms by securing a landmark 3rd term in power, as analysts at TD Securities explained. '

''Markets will watch out for headlines on easing China's zero COVID strategy and focus will also be on the reshuffle of top economic roles as current incumbents are due to step down given retirement age and term-limit norms.''

So far, as per Xi's opening speech to Congress, there is no change to the one-party state's approach to covid nor the property sector. 

''Chinese President Xi Jinping signalled no change in direction for two main risk factors dragging down China’s economy -- strict Covid rules and housing market policies -- providing little lift to a worsening growth outlook.

Xi praised Covid Zero, his no-tolerance approach to containing infections, during a speech opening the 20th Communist Party congress in Beijing on Sunday, although he didn’t reference the virus again in sections laying out plans for the future. His slogans on China’s property market, meanwhile, repeated prior language even as the sector experiences its longest-ever slump due to policies aimed at curbing debt and financial risks,'' Bloomberg wrote in an article. 

• AUD/USD has witnessed fresh demand after dropping to near 0.6200.
• The risk appetite has emerged as S&P500 has rebounded after a sell-off on Friday.
• RBA’s minutes will provide a detailed view of announcing a 25 bps rate hike.

The AUD/USD pair has bounced marginally after building a base around the critical support of 0.6200 in the early Tokyo session. The asset has picked bids after a north-side break of a compact rangebound structure in a 0.6195-0.6210 range as the risk appetite theme has fetched the spotlight.

A rebound in S&P500 in the early trade after a bearish Friday has raised a sense of hope in the risk-perceived currencies. Meanwhile, the US dollar index (DXY) is attempting to rebound after dropping to near 113.10. However, the index will keep facing pressure amid the emergence of the risk-on profile.

The DXY is not getting traction despite the soaring bets for a 75 basis point (bps) rate hike by the Federal Reserve (Fed). As per the CME FedWatch tool, the chances of an increment in the interest rates by 75 bps stand at 99.4%.

On the Aussie front, investors are awaiting the release of the Reserve Bank of Australia (RBA) minutes for October’s monetary policy. This will provide a detailed view of the reasoning behind the slowdown of the pace of the interest rate hike by the central bank. It is worth noting that RBA Governor Philip Lowe announced a 25 bps rate hike, and suspended the 50 bps rate hike movement, to carry the motive of maintaining economic prospects along with the agenda of bringing price stability.

Apart from that, Thursday’s Aussie employment data will remain in focus. As per the projections, the Employment Change is seen lower at 25k against the prior print of 33.5k. While the Employment Rate is seen as stable at 3.5%. A decline in additions in payrolls could trigger volatility for the aussie bulls.

• USD/CAD seesaws around intraday low after a downbeat week-start trade.
• Geopolitical fears, OPEC+ determination to shrug off US push to halt supply cuts underpin WTI crude oil rebound.
• Hawkish Fedspeak, US data favored buyers before lack of major catalysts, optimism over UK triggered DXY pullback.
• Light calendar in the US may allow USD/CAD bulls to take a breather.

USD/CAD eases around a 29-month high, retreating to 1.3870 of late, as crude oil prices rebound and the US dollar bulls seek fresh catalysts to keep the reins during Monday’s Asian session. That said, the quote’s latest pullback could also be linked to the cautious mood ahead of this week’s key data from Canada.

WTI crude oil consolidates the biggest weekly loss since early August as a softer US dollar joins fears of a supply crunch. That said, the black gold price rises 0.70% intraday to regain $85.00 by the press time. US President Joe Biden’s failure to convince the global oil suppliers to put a halt on their output cut decision renews bullish bias for the energy benchmark despite economic fears and firmer fundamentals for the US dollar.

Elsewhere, the US Dollar Index (DXY) struggles to extend a two-week uptrend around the highest levels in 20 years amid a light calendar and a lack of market focus on the US-linked catalysts. Also exerting downside pressure on the DXY could be the week-start optimism in the UK after the firing of Chancellor Kwasi Kwarteng and hints of more rate hikes from the Bank of England (BOE) Governor Andrew Bailey.

Previously, the DXY managed to reverse Thursday’s notable losses after upbeat US data and hawkish Fed bets.

On Friday, US Retail Sales remained unchanged with 0.0% growth for September versus 0.2% expected 0.4% upwardly revised prior. Further, the preliminary readings of the Michigan Consumer Sentiment Index for October was 59.8, better than the forecasted figure of 59 and 58.6 previous readings. More importantly, the University of Michigan’s 1-year and 5-year inflation expectations increased for October, respectively to 2.9% and 5.1% compared to 2.7% and 4.7% priors in that order.

Also notable is the nearly certain case of the 0.75% Fed rate hike, as per the latest readings of the CME’s Fedwatch Tool for the next Federal Open Market Committee (FOMC).

Looking forward, the market’s upbeat start and a light calendar may help the USD/CAD bulls to take a breather ahead of the Bank of Canada (BOC) Consumer Price Index (CPI) and Retail Sales for September. Although the BOC appears mostly neutral when it comes to announcing any new deviations from the rate hike path, softer Canada data may push the CAD bulls to take a pause and propel the pair further toward the north.

Technical analysis

Unless breaking a six-week-old ascending support line, around 1.3810 by the press time, USD/CAD sellers are likely to remain cautious.