• NZD/USD is playing around 0.5700, eyeing a break above 0.5700 amid a risk-on mood.
• China’s Jinping impact that dragged the kiwi bulls has started fading away.
• The US economy is expected to deliver a positive growth rate for the third quarter of CY2022.

The NZD/USD pair has given an upside break of the consolidation formed in a narrow range of 0.5662-0.5696 in the early Tokyo session. The asset is playing near the round-level resistance of 0.5700 and is working on further advancement.

The positive risk profile is gaining more traction as S&P500 futures have made a positive start after a cheerful Monday. Meanwhile, the US dollar index (DXY) is oscillating around 112.00 as investors have shifted to the sidelines ahead of the US Gross Domestic Product (GDP) data. The 10-year US Treasury yields have jumped to 4.25% after dropping to 4.15%.

On Monday, the antipodean witnessed a steep fall despite a cheerful market mood. An unprecedented third term for China’s XI Jinping dented the sentiment of investors that invests in Chinese equities and other related assets. The kiwi dollar was punished for being a leading trading partner of China, as Jinping’s ideology-drive approaches are not healthy for China’s economic prospects. The zero-Covid policy is expected to continue further.

Also, China’s flat import data impacted the antipodean. China’s imports data remained flat at 0.3%, much lower than the estimates of 1%. A lower-than-projected Chinese imports data brought volatility in the kiwi counter.

Going forward, the US Gross Domestic Product (GDP) data will hog the limelight. As per the projections, the annualized GDP will improve significantly to 2.4% vs. a decline of 0.6% reported earlier. This could impact the kiwi bulls ahead.

• USD/CHF remains pressured inside a bearish chart pattern.
• Sustained trading below 50-HMA, downside break of weekly support line also favor sellers.
• Buyers need validation from 1.0075 to refresh multi-month high.

USD/CHF holds lower grounds near the parity levels, fading the week-start bounce off 0.9944 inside a rising wedge bearish formation during Tuesday’s Asian session.

In doing so, the Swiss currency pair also extends the previous day’s pullback from the 50-HMA hurdle while keeping Friday’s downside break of a one-week-old ascending support line, now resistance around 1.0085.

Additionally favoring the USD/CHF sellers is the receding bullish bias of the MACD line, as well as the recent lower-high formation.

It should, however, be noted that a clear downside break of the 0.9985 support appears necessary to confirm the rising wedge pattern.

Following that, the recent swing low of around 0.9945 and the previous weekly bottom near 0.9920 could test the USD/CHF bears during the theoretical fall towards 0.9890.

Alternatively, the 50-HMA level surrounding 1.0025 acts as an immediate hurdle to watch during the pair’s fresh recovery, a break of which should question the bearish wedge’s resistance line, close to 1.0040 at the latest.

In a case where USD/CHF rises past 1.0040, the bearish formation gets defied.

However, a broad horizontal area comprising multiple levels marked since October 13, between 1.0066 and 1.0075 will precede the support-turned-resistance line, near 1.0085, to challenge the USD/CHF bulls afterward.

USD/CHF: Hourly chart

Trend: Further weakness expected

• The AUD/JPY ended Monday’s session negatively on suspected intervention in the FX markets.
• A risk-on mood capped the AUD/JPY losses to just 0.21%.
• Short term, the AUD/JPY is range-bound, trapped within the 91.00/95.74 range.

The AUD/JPY seesaws in a volatile 100-pip trading range as speculation that the Bank of Japan (BoJ) intervened in the FX markets pile, as the USD/JPY tanked 300 pips early in the New York session. Nevertheless, the Australian Dollar (AUD) trimmed some of its earlier losses and finished Monday’s session down by 0.21%. As Tuesday’s Asian session begins, the AUD/JPY is trading at 94.06.

AUD/JPY Price Forecast: Technical outlook

Since October 17, the AUD/JPY tumbled below the 20-day Exponential Moving Average (EMA), which acts as dynamic support, holds the fort for AUD buyers, which leaned to it, to open fresh longs positions, as shown by the price action in the daily chart. Nevertheless, on the upside, the 100 and 50-day EMAs capped the previous rallies, around 94.18/94.58, respectively, while the Relative Strength Index (RSI) at bullish territory, trendless, suggests the pair remains range-bound.

Short term, the AUD/JPY is range-bound, on the downside, capped by the 91.00 figure, and on the upside, the October 21 daily high at 95.74. Despite the Relative Strength Index (RSI) being in bullish territory, is almost trendless, while the confluence of the 50 and 100-EMAs, around 94.22, and 94.17, respectively, would be difficult resistance to hurdle.

On the upside, the AUD/JPY first resistance would be the previously mentioned EMAs. A breach of the latter will expose the 95.00 figure, followed by the R1 daily pivot level at 95.30. On the flip side, the AUD/JPY first support would be the October 24 daily low at 93.58, followed by the 200-EMA at 93.54, and then the S1 daily pivot at 92.79.

AUD/JPY Key Technical Levels

• GBP/USD pulls back from one-week high amid fears surrounding the UK’s recession.
• UK PMIs, BOE’s Ramsden raised fears of British economic slowdown.
• Optimism surrounding Rishi Sunak’s leadership cools down amid long way to success.
• US Q3 GDP will be crucial ahead of next week’s FOMC.

GBP/USD dribbles around 1.1280 as fears surrounding the UK’s economic conditions probe the pair buyers after a two-week uptrend. That said, the Cable pair retreats from a one-week top during Tuesday’s Asian session.

The quote managed to extend the previous gains on Monday amid hopes of sound economic policies from ex-Chancellor Rishi Sunak as he will be the next British Prime Minister after Liz Truss’ shortest serving time. The Tory member turned down the need for general elections and saved the nation from another time-consuming method and increased optimism in the beginning.

However, the fears that Sunak’s leadership isn’t the only cure for the British economy amid downbeat numbers and fears of the Bank of England’s (BOE) restrain to act seemed to have weighed on the GBP/USD prices.

As per the first readings of the UK S&P Global PMIs for October, the Manufacturing activities’ gauge dropped to 45.8 versus 48.0 expected and 48.4 prior while its services counterpart slid to 47.5 from 50.0 previous reading and 49.0 market forecasts. With this, the Composite PMI for the said month declined to 47.2 compared to 48.1 anticipated and 49.1 prior.

On the other hand, the US S&P Global PMIs for October suggests that the Manufacturing activities’ gauge dropped to 49.9 versus 51.2 expected and 52.0 prior while its services counterpart slid to 46.6 from 49.3 previous reading and 49.2 market forecasts. With this, the Composite PMI for the said month declined to 47.3 compared to 49.1 anticipated and 49.5 prior.

It should be noted that the mixed feeling in the markets amid an absence of Fed speakers and geopolitical concerns surrounding China and Russia also weigh on the GBP/USD prices.

Amid these plays, Wall Street closed with gains while the US Treasury yields also ended the day on the positive side after a downbeat start.

Moving on, a light calendar on Tuesday may allow GBP/USD bulls to pare some of their recent gains. Also, recently increasing hawkish Fed bets also could weigh on the prices ahead of the key US Gross Domestic Product for the third quarter (Q3).

Technical analysis

GBP/USD pair’s failure to provide a daily closing beyond a six-week-old resistance line, near 1.1285 by the press time, as well as the 50-DMA hurdle surrounding 1.1400, keeps sellers hopeful of revisiting the monthly support line near 1.1085.

• Gold price has turned sideways around $1,650.00 after a corrective move as yields rebound.
• Weaker PMI data weighed pressure on the DXY.
• The release of the GDP data will be a major trigger this week.

Gold price (XAU/USD) is displaying back-and-forth moves around $1,650.00 in the early Asian session. The precious metal is following the footprints of the US dollar index (DXY) and is performing lackluster. The DXY is oscillating around 112.00 after dropping from 112.50 on Monday. The release of the downbeat US S&P PMI data terminated DXY’s attempts of shifting into a positive trajectory.

The Manufacturing PMI landed lower at 49.9 vs. the projections of 51.2. Also, the Services PMI reported a weak performance as dropped to 46.6 against the expectations of 49.2. A vulnerable PMI data restricted the upside in the DXY.

The gold prices were underperforming despite the upbeat market mood. The catalyst that weighed pressure on the gold prices was the sheer recovery in the returns from US government bonds. The 10-year US Treasury yields recovered sharply after dropping to near 4.15% and settled Monday with gains of 0.82% at 4.25%.

Going forward, the release of the US Gross Domestic Product (GDP) data will be keenly watched. The annualized GDP is expected to improve significantly to 2.4% vs. a decline of 0.6% reported earlier. A firmer increment in the US growth rate could bring volatility in gold prices.

Gold technical analysis

On an hourly scale, gold prices have dropped after facing barricades of around $1,670.00. The precious metal has declined to near the horizontal support placed from Thursday’s high at $1,645.67. The yellow metal is hovering around the 200-period Exponential Moving Average (EMA) at $1,650.46.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which indicates the unavailability of a potential trigger for a decisive move.

Gold hourly chart

• AUD/USD is oscillating above 0.6300 as investors await the Australian CPI release for a decisive movement.
• Positive market sentiment failed to support the commodity-linked currency.
• Weaker employment data and higher inflation projections are complicating things for the RBA.

The AUD/USD pair has developed a cushion around 0.6300 in early Tokyo after dropping from Monday’s high at 0.6411. Earlier, the asset displayed a breakout of a tad longer consolidation formed in a range of 0.6170-0.6355 but has come back inside the woods. The antipodean faced severe pressure despite an upbeat market sentiment.

S&P500 extended their gains on Monday after a cheerful Friday. The US dollar index (DXY) faced selling pressure while attempting to overstep the critical hurdle of 112.50. However, the 10-year US Treasury yields gained some confidence despite the positive risk profile, recovered their Monday morning losses, and settled comfortably near 4.25%. The commodity-liked currencies are diverging with positive market sentiment due to the confirmation of China’s XI Jinping's third term of leadership.

Investors share concerns over the continuation of China Jinping’s leadership citing his ideology-driven approaches to operating the economy even at the cost of economic growth. This has dampened sentiment for Chinese markets and its trading members.

On Wednesday, investors will keep an eye on Australian Consumer Price Index (CPI) data. The headline inflation may accelerate to 7.0% vs. the prior release of 6.1% on an annual basis. On a quarterly basis, the plain-vanilla CPI could decline to 1.5% against the prior print of 1.8%.

A release of a higher-than-projected CPI may force the Reserve Bank of Australia (RBA) to return to its previous pace of hiking interest rates. A less-hawkish approach to policy rate is far from over. The job of combating inflation for RBA policymakers has become more difficult as the labor market is also not supportive.

• USD/JPY soared back above 149.00, following a suspect intervention when the USD/JPY dived towards its daily low below 146.00.
• The US economy is decelerating faster than estimated, will the Fed pivot?
• Speculations of another Bank of Japan (BoJ) intervention lurk after diving more than 400 pips during the day.

The USD/JPY rises as the North American session winds down and reclaims the 149.00 figure due to high US Treasury yields, alongside broad US Dollar strength, across the board, amidst a risk-on impulse. At the time of typing, the USD/JPY is trading at 149.06. up by almost 1%.

Risk-on impulse boosted the US Dollar, despite bad economic data

Wall Street finished the day with solid gains, despite worse-than-expected US economic data. Since Federal Reserve officials entered the blackout period last Saturday, a tranche of US data in the docket would shed some light on the US economy.

On Monday, S&P Global revealed that the Composite PMI for the country shrank at a faster pace than estimated, coming at 47.3, below estimates of 49.3, trailing September’s 49.5. According to Chris Williamson, the S&P Global Chief Economist, the risks of contraction in the fourth quarter increased at the time “that inflationary pressures remain stubbornly high,” via Bloomberg.

Aside from this, speculations of Japanese authorities propelling the Japanese Yen arose as the USD/JPY tumbled toward its daily low at 145.61 at around 07:45 ET time. Nevertheless, the dip was short-lived, as the USD/JPY bounced back towards 148.00, meandering since then, at around the 148.00-149.24 area.

The Japanese economic docket will feature some tier 1 data, like Service PPI, the Consumer Price Index (CPI) for October, and employment data, ahead of the Bank of Japan’s (BoJ) monetary policy meeting.

On the US front, the calendar will reveal additional Regional Fed indices, the CB Consumer Confidence, Durable Good Orders, Jobless Claims, and the Fed’s favorite gauge for inflation, the PCE.

USD/JPY Key Technical Levels

• EUR/USD bulls eye up a key resistance structure. 
• The bears need to get back below 0.9850. 

EUR/USD's daily chart is indeed bearish while below the trendline resistance. The price is on the verge of a break of structure as per the triangle coil as it moves in on the resistance in a creeping bullish short-term trend.

EUR/USD daily chart

A move below 0.9700 opens the risk of a test of 0.9535 for the foreseeable future. A break of the resistance, however, puts 1.0000 back in focus and 1.0200 thereafter. 

EUR/USD H1 chart

The hourly chart shows that the price is stalling within the W-formation but should bulls commit at 0.9850, we could see the makings of a breakout structure to cement the bullish case going forward. 

DXY technical analysis

The US dollar is leaning on a key area of support within the bullish flag on a daily time frame. The rising support could see the greenback bust back to life and hinder the prospects of a stronger correction in the gold price. 

What you need to take care of on Tuesday, October 26:

The American Dollar started the week losing ground, extending its Friday's decline at the opening, but slowly grinding higher as the day developed. It ended with modest gains against most major rivals as investors await first-tier events scheduled for later in the week.

European and American indexes managed to close Monday with gains, despite growth-related figures were generally discouraging, as most S&P Global PMIs missed expectations. The October flash PMIs indicated a steeper contraction in the Union and the United States at the beginning of Q4. The EUR/USD pair ended the day little changed, around 0.9870.

Rishi Sunak became the new United Kingdom Prime Minister after Liz Truss's failed 44-day government. GBP/USD ended the day in the red, around 1.1280.

Chinese data published at the beginning of the day was mostly upbeat. The Q3 Gross Domestic Product beat expectations, up by 3.9% QoQ. The September Trade Balance posted a surplus of $84.74 billion, better than anticipated, while Industrial Production rose by 6.3% YoY. Finally, Retail Sales increased by 2.5% YoY, up, although below the market's forecast of 3.3%. Also, the country announced it would raise fuel prices on Tuesday, weighing on local equities.

USD/JPY remained volatile, ending the day roughly 450 pips up after bottoming at 145.37. Japan's Prime Minister Fumio Kishida anticipated an upcoming stimulus package to be announced by the end of October as planned. Meanwhile, the Bank of Japan suspected intervention last week was estimated at 5.5 trillion yen.

 Tensions between Germany and Russia continue. The German Chancellor Olaf Scholz said they want Ukraine to become an EU member state. On the other hand, Moscow has asked UN Secretariat for data on Ukrainian grain and its destinations and end consumers, and Russian Foreign Minister Lavrov hinted at "corrections" to the  Black Sea grain deal.

Gold trades at around $1,650 a troy ounce, marginally lower on a daily basis, while crude oil prices were little changed. WTI settled at $84.70 a barrel.

In the upcoming days, several central banks will announce their monetary policy decisions. The Bank of Canada, the Bank of England and the European Central Bank will make their announcements these days, while the Reserve Bank of Australia and the US Federal Reserve will unveil their decisions next week. In the middle, the US will publish the preliminary estimate of its Q3 Gross Domestic Product, foreseen reverting the negative trend of the first two quarters of the year. 

• The pound retreats below 1.1300 after failure at the 1.1400 area.
• Investors welcome Risi Sunak's victory.
• GBP/USD is aiming to 1.11/1.12 if 1.1400 resistance holds – Scotiabank.

The pound is depreciating moderately on Monday, despite the initial positive reaction to the news about the election of Rishi Sunak as the next Prime Minister.

The pair was rejected at the 1.1400 area and has been losing ground through the day to consolidate below 1.13 during the afternoon US trading session..

The market welcomes Sunak's victory

News that former PM Boris Jonson retired from the Tory race to Downing Street, leaving the doors open for the market candidate, Rishi Sunak,  triggered an immediate bullish reaction on the GBP and pushed gilts higher in early trading.

The positive reaction, however, was short-lived and the pound lost traction as soon as the market came to terms with the challenges ahead for the UK economy. The soaring inflation coupled with the gloomy growth forecasts are likely to maintain GBP longs on check for some time.

GBP/USD: aiming for 1.12 or 1.11 if 1.1400 resistance holds – Scotiabank

Failure to breach 1.14 will pull the pair to the 1.12/1.11 area, according to FX analysts at Scotiabank: “A break above the 1.1395/1.1400 area could change short-term dynamics and put the pound on course for a 1.15/1.17 test (…)If the 1.1395/1.1400 resistance holds, GBP/USD may slip back to 1.11/1.12.” 

Technical levels to watch

• US dollar's decline from 1.0145 finds support at 0.9965.
• The greenback consolidates in a calm market session.
• US macroeconomic figures are mixed on Monday.

The US dollar has been trading sideways against the Swissie on Monday. The pair has remained moving roughly between  0.6965 and 1.0030, consolidating losses after Friday’s reversal from the 1.0145  high.

The USD treads water on a cautious session

Investors seem to have entered the week in a vigilant mood, ahead of key monetary policy decisions later this week. The Bank of Canada and The European Central Bank are expected to approve hefty interest rate hikes, aiming to tame the soaring inflationary pressures.

In China, the confirmation of Xi Jinping’s unprecedented third term this weekend has contributed to dampening investor sentiment. Market concerns that Jinping's zero-COVID policy might trigger a new set of lockdowns and hurt economic growth have put a lid on risk appetite.

On the macroeconomic front, the upbeat Chinese data has failed to improve the market mood. Chinese GDP expanded beyond expectations in the third quarter and the trade surplus increased due to a significant increase in exports.

In the US, however, data have been mixed. The Chicago Fed National Activity Index increased 0.1% against expectations of a 0.4% decline, while the S&P PMI showed that both, services and manufacturing sectors’ activity contracted beyond expectations in October.

Technical levels to watch

• Gold bulls could be on the verge of a move higher to test daily resistance.
• The US dollar, however, is also at a critical level of support. 

Gold is under pressure on Monday as it pulls back from the highs reached at the start of the day around $1,670, 0.5% higher than the current spot price of $1,650. The US dollar has firmed for its safe haven qualities but is teetering with key trendline support that is illustrated below, a break of which could help to boost the yellow metal.

The US dollar index, DXY, was last seen up 0.10 points to 111.98, making gold more expensive for international buyers. The yield on the US 10-year note was last seen down 0.3 basis points to 4.234%, near the 14-year high of 4.325% reached at the end of last week which is pushing up the carrying cost of owning gold.

''We've seen this movie before,'' analysts at TD Securities said. ''The 'peak central bank hawkishness' narrative once again orchestrated an attempted squeeze on bloated money manager shorts in precious metals, but failed to gather steam.''

'''After all,'' the analyst say, ''while rates markets are increasingly pricing in a fair outlook for the Fed funds rate, precious metals have yet to discount the implications of a prolonged period of restrictive rates. In reality, the resiliency in gold prices while facing the most hawkish central bank regime since the 1980s highlights a growing battle between retail and institutional flows.''

''Massive purchases of physical precious metals from retail buyers have clashed with institutional investor outflows in past months.''

US data softer, bad news is good news?

Meanwhile, the preliminary October US PMI data were disappointing today, with the numbers indicating that both the manufacturing (49.9 vs 52.0) and service sectors (46.6 vs 49.3) are now in a contractionary territory (50 being par). This leaves prospects of a less hawkish Fed back o the table, so bad news is good news for the gold price. In full, the data showed that 47.3, the composite PMI registered its fourth consecutive print below 50.0. The drop in the composite measure was led by a 4.1% drop in the backlog of orders to 46.6, a 2.2% drop in new orders to 49.0 and a 2.5% drop in employment to 49.8. Output prices fell 0.8 to 58.3. This leaves a dark cloud over US exports and signals that the strength of the US dollar could be impacting negatively. 

The next big piece of the puzzle for the US economy will come in the form of Gross Domestic Product. ''We look for US output to have rebounded firmly after registering two consecutive quarterly declines in 22H1. We expect Q3 GDP growth to be supported, in particular, by a large, positive swing in net exports. Domestic demand, however, likely advanced at a below-trend pace,'' analysts at TD Securities said. 

Gold technical analysis

From the daily, above, and hourly, below, we can see that the price is bounded by last week's range and below a key dynamic resistance. However, the path of least resistance could well be to the upside as the bulls move in at hourly and daily supports. The break of the micro trendline could be a key feature for the days ahead and lead to a break towards the longer-term trendline in a move derived from the neckline of the W-formation: 

The US dollar, meanwhile, is up against a key area of support within the bullish flag on a daily time frame. The rising support could see the greenback bust back to life and hinder the prospects of a stronger correction in the gold price. 

• EUR/JPY retraces Friday's losses and returns above 148.00. 
• Above 148.40 the pair will aim to 2014 high at 149.80.
• On the downside, a breach of 144.00 support would negate the bullish bias.

The euro has taken back on Monday most of the ground lost on Friday's suspected intervention by the Japanese authorities. The pair appreciated about 1% so far today, returning above 147.00 from the 143.70 lows

The four-hour chart shows the upward trending support from late September lows intact, and the pair on a steady upward trend hitting higher tops and bottoms.

The positive price action is likely to push the pair towards Friday’s high, at 148.40. A confirmation above here would set the focus at the 2014 high at 149.80 ahead of the 150.00 psychological level.

On the downside, the 50-period SMA has been holding downside attempts over the latest sessions with another important support area at 144.00 (Trendline support and 100-period SMA). Below here, the pair would negate the near-term bullish bias, aiming probably at the 141.00 area (October 10,11 lows).

EUR/JPY 4-hour chart

Technical levels to watch

• EUR/GBP rebounded at the 50-day Exponential Moving Average (EMA), as buyers eye 0.8800.
• UK’s upbeat political news briefly underpinned the British Pound, though it retraced its gains as euphoria waned.
• Near term, the EUR/GBP might correct towards 0.8700 before resuming its uptrend.

The EUR/GBP reclaims the 50-day EMA and advances steadily toward 0.8750, though it faced resistance in the 20-day EMA at around 0.8751, as it aims towards 0.8800, amidst some UK’s political stability. News that Rishi Sunak is the new head of the Conservative Party, and consequently the new Prime Minister, calmed the markets though the Pound Sterling weakened. At the time of writing, the EUR/GBP sits at around 0.8746, above its opening price, by a decent 0.27% margin.

EUR/GBP Price Forecast: Technical outlook

From a daily chart perspective, the EUR/GBP remains neutral-biased. However, once it clears the 20-day EMA, it could send the pair towards 0.8800, ahead of the next supply zone, the October 12 high at 0.8866, followed by the 0.8900 figure. Notably is that the Relative Strength Index (RSI) slope shifted upwards, meaning buyers are gathering momentum, preparing to attack 0.8800.

In the short term, the EUR/GBP hourly chart depicts the pair gapped down on positive news from the UK, opening at around 0.8660. Later, the Euro recovered from its earlier losses and reclaimed the 0.8700 mark, as the EUR/GBP was headed toward the daily high at 0.8763 before the pair retraced to current exchange rates in sympathy with the Relative Strength Index (RSI), which aimed downwards.

Given the backdrop, the EUR/GBP first support would be the confluence of the 50 and 100-EMAs at around 0.8719/13. Break below will expose the 20-EMA at 0.8703, followed by the 200-EMA at 0.8697, ahead of the S1 daily pivot at 0.8693.

EUR/GBP Key Technical Levels

• The kiwi gives away gains on Monday and returns below 0.5700.
• Concerns about China's zero-COVID policy hurt the NZD.
• The US dollar pares losses after Friday's reversal.

The New Zealand dollar has opened the week on the back foot, retreating from two-week highs at 0.5790, reaching session lows at the 0.5655 area, with the US dollar regaining lost ground as risk appetite ebbed.

Negative reaction to Jinping’s third term

The confirmation that Xi Jinping’s secured an unprecedented third term at the Chinese presidency has hurt investors’ mood on concerns about the consequences of his zero-COVID policy. Fears that a new set of lockdowns may hurt economic growth have hammered the kiwi due to New Zealand's status as one of China’s major providers.

In the macroeconomic docket, better-than-expected Chinese Trade Balance data, which has shown a $84.74B surplus in September, beating the market consensus of $81.0B has offered a brief impulse to the Kiwi earlier today.

On the other end, the US dollar is trading moderately higher on Monday, shrugging off Friday’s weakness, in spite of the mixed US data.

The Chicago Fed National Activity Index has edged up 0.1%, against the 0.4% decline forecasted by the analysts, while the S&P PMI showed that economic activity in both, services and manufacturing sectors contracted beyond expectations in October.

Technical levels to watch

• GBP/JPY is trapped between last week's range but bulls are in favour. 
• UK politics and central bank divergences are in play. 

GBP/JPY has had a turbulent start to the week with pressures from both sides of the world. In the UK, economic data and politics are in play while from Japan, the Ministry of Finance hand was likely formed again to intervene in the forex markets causing huge volatility ahead of the Tokyo open. At the time of writing, GBP/JPY is trading at 168.00 and has travelled between 169.78 and 165.41, up by some 0.82%. 

Rishi Sunak will become Britain's youngest prime minister and will lead the Conservative Party and will be the UK's third prime minister in less than two months.

He replaces Liz Truss, who only lasted 44 days before she resigned. He told his lawmakers in parliament on Monday that they faced an "existential crisis" and must "unite or die". He told the country it faced a "profound economic challenge".

"We now need stability and unity, and I will make it my utmost priority to bring our party and our country together," he said.

The multi-millionaire former hedge fund boss will be expected to launch spending cuts to try to rebuild Britain's fiscal reputation, just as the country slides into one of the toughest downturns in decades, hit by the surging cost of energy and food.

 The UK’s poor fundamental outlook will potentially keep the pound at bay, however, despite the relief of the new PM. Retail Sales were dismal and the latest data in this morning’s UK preliminary October PMI underpins the risk that the UK may already be in recession.  Analysts at Rabobank argue that both business and consumer confidence in the UK has been weak for some time, but explained ''the spike in market interest rates on the back of the Truss agenda will have severely worsened confidence and the UK economic outlook.''

Eyes on BoE and BoJ

This brings us to the central banks. ''While the BoE is expected to announce a hefty rate hike on November 3, this may do little to support cable given expectations of further aggressive rate hikes from the Fed,'' the analysts at Rabobank said. 

With respect to the Bank of Japan, ''There has been no indication from the BoJ that it is willing to step away from its very accommodative monetary policy settings.  The BoJ essentially wants to nurture inflation until there are more widespread signs of wage inflation,'' the analysts said.

''The market is aware that interest rate differentials continue to act as an upward drag on USD/JPY.  This means that the best the MoF can be expected to do with FX intervention is to slow the move higher until the Fed is content that it is in control of inflation expectations in the US,'' the analysts argued. ''A tweak to the BoJ’s YCC policy would give FX intervention more teeth. That said, a continued display by the BoJ at this week’s policy meeting that it favours current settings suggests USD/JPY remains a buy on dips''

GBP/JPY technical analysis

The price is trapped between last week's range and the M-formation is holding up the bear's progress in an attempt to break below the horizontal support around 166.50. The trendline support will keep the bulls in favour who eye a break of 170.00.

• Despite a risk-on impulse, silver price edges lower amidst US Dollar strength.
• US S&P Global PMIs flash contraction as traders eye GDP and PCE figures ahead of the Fed’s next monetary policy meeting.
• Silver Price Forecast (XAG/USD): To extend its losses once it clears $19.20.

Silver price collides with solid resistance at the 100-day Exponential Moving Average (EMA) at $19.64, and retraces below $19.30, as the US Dollar (USD) got boosted by risk-aversion in the FX markets, while US bond yields ease from last week’s highs. Factors like weaker US economic data, alongside US Dollar strength, weighed on the white metal. At the time of writing, XAG/USD is trading at $19.20 a troy ounce, below its opening price.

Business activity in the US declined, bolstered the greenback

S&P Global reported that United States (US) business activity deteriorated sharply in October. The Manufacturing and Services Indices remained in contractionary territory, each at 49.9 and 46.6, consequently impacting the compound figure. The S&P Composite PMI dropped to 47.3, less than estimates, and trailed September’s 49.5, which at contractionary territory, was contained.

Following the report, the greenback aimed lower, as delineated by the US Dollar Index (DXY). However, the DXY recovered some ground and edged towards 112.022. In the meantime, the US 10-year Treasury bond yield is almost flat at 4.219%, a headwind for the silver price.

The blackout period for Fed officials started last Saturday. Friday’s comments by San Francisco Fed President Mary Daly and St. Louis James Bullard said that 75 bps for November are “almost” a done deal but acknowledged that the pace might slow down as rates move higher.

Aside from this, the US economic docket during the week will be busy. Tier 1 info includes Tuesday’s Conference Board (CB) Consumer Confidence. On Thursday, the US Bureau of Economics will release the Advanced GDP reading ahead of Friday’s unveiling of the Fed’s favorite gauge of inflation, the PCE.

Silver Price Forecast (XAG/USD): Technical outlook

XAG/USD remains neutral-to-downward biased, further cemented by the failure to crack the 100-day EMA, which was a difficult supply zone to hurdle; hence XAG/USD fell. However, XAG/USD buyers leaned on the 20-day EMA at around $19.30, though the price slipped at the time of typing, so further downward action is expected. Therefore, the XAG/USD first support would be the 50-day EMA at $19.10, followed by the $19.00 figure and the October 20 daily low at $18.23.

• Oil prices trim losses after bouncing up from $82.55.
• Concerns about the Chinese zero-COVID policy are hurting crude oil.
• The lower US oil reserves have avoided a further decline in prices.

WTI futures have picked up following a negative market opening on Monday. The West Texas intermediate retreated to $82.55 lows on the Asian and early European sessions to pare losses during the US session and return to the $84.70 area.

Concerns about China’s Zero-COVID policy

The confirmation of Chinese President Xi Jinping for an unprecedented third time over the weekend has hit crude prices. Investors are wary that his commitment to the Zero-COVID policy may lead to new lockdowns in the country that will, ultimately, depress demand for oil from the world’s major importer.

In this scenario, the upbeat Chinese GDP, which has shown a 3.9% yearly growth in the third quarter, beating market expectations of a 3.4% increase, has been practically unnoticed,

On the other hand, a European ban on Russian crude oil, expected to come into effect in December, as part of a new set of sanctions, for the Ukrainian war, is providing some support, as the eurozone leaders struggle to find alternative providers ahead of the winter.

Furthermore, official data revealed last week that the US Strategic Petroleum reserves have dropped to their lowest level since 1984 in the week of October 14^th, while the EIA reported a 1.725M decline in crude oil inventories in the same week. These figures have avoided a sharper decline in crude prices. 

Technical levels to watch

• The aussie's recovery attempts from 0.6275 remains capped below 0.6325.
• Concerns about China's zero-COVID policy are hurting the AUD.
• The RBA pointed out to a slower monetary tightening path.

The Australian dollar has given away on Monday most of the ground taken last Friday. The pair’s retreat from the 0.6410 high found support at 0.6275 although the ensuing recovery attempts remain limited below 0.6325 so far.

Concerns about China hit the aussie

The confirmation of Chinese President Xi Jinping’s third term in power has hit risk appetite, sending the offshore yuan and Asian markets lower on Monday, with investors concerned that his commitment to the zero-COVID policy may damage economic growth.

The upbeat Chinese data, with the third quarter GDP expanding beyond expectations, has failed to lift spirits.

Beyond that, the dovish message send by the Reserve Bank of Australia last month, suggesting that they might slow their monetary tightening path is acting as a headwind for the Aussie, which has depreciated about 1.25% so far today day.

In the US, macroeconomic data has also been mixed. The Chicago Fed National Activity Index ticked up 0.1% against the 0.4% decline forecasted by the analysts, while the S&P PMI showed that economic activity in both, services and manufacturing sectors contracted beyond expectations in October.

Technical levels to watch

• USD/CAD trims some of last Friday’s losses, up 0.46% on Monday.
• Worse-than-expected US economic data and a risk-off impulse in the FX complex bolstered the US Dollar (USD).
• Wednesday’s Bank of Canada (BoC) meeting to cap the Canadian Dollar (CAD) losses.

The USD/CAD marches firmly amid a risk-off impulse in the FX space due to S&P Global PMIs hinting that global economies might hit a recession, while the greenback recovered some losses, trading positive as delineated by the US Dollar Index (DXY), up 0.08%, at 111.961. At the time of writing, the USD/CAD is trading at 1.3705, gaining 0.44%.

US S&P Global PMIs underpinned the USD, amid a risk aversion in the FX markets

S&P Global reported that on their final readings, US October’s Flash PMIs confirmed that the economy is contracted for the fourth consecutive month. The Manufacturing and Services components of the Composite index missed estimations and trailed September’s figures. Consequently, the S&P Flash Composite Index fell to 47.3, from 49.5 in September, and less than estimates of 49.3, as the economic downturn gathered momentum, “while confidence deteriorated sharply,” as S&P Global Chief Business Economist Chris Williamson said.

Albeit the data was negative for the US Dollar (USD),  the USD/CAD dipped below 1.3700 before resuming its previous uptrend and reclaiming the figure, reaching a daily high of 1.3774.

Aside from this, the Canadian docket is pretty light, ahead of Wednesday’s Bank of Canada’s (BoC) monetary policy meeting, with most economists expecting a 50 bps lift, though last week’s Consumer Price Index (CPI) rise to 6.9% YoY, less than the previous month’s reading, above estimates, shifted previous forecasts.

TD Securities analysts commented that consensus points to a 50 bps lift to 3.75%, “but there is a heavy skew towards 75 bps from those who submitted forecasts post-CPI, and markets are pricing ~67bps of tightening.” TDS expects that the BoC would likely maintain a hawkish tone in its statement while acknowledging slower economic growth and revising lower inflation estimates for 2022.

Given that Fed officials reiterated that the US central bank would continue to tighten, though it opened the door for a rhythm of slower rate hikes, therefore, the USD/CAD might consolidate in the 1.3600-13750 range, ahead of the BoC and the Federal Reserve’s monetary policy meeting. The BoC’s decision will be featured on October 26, while the Fed on November 2.

USD/CAD Key Technical Levels

• US S&P Global October preliminary numbers below expectations.
• Japanese yen remains calms during American session following BoJ intervention.
• USD/JPY steadies around 148.80 after sharp moves.

The USD/JPY is hovering around 148.80, up more than a hundred pips for the day on another session of extreme volatility. Earlier it bottomed at 145.36, the lowest since October 10 and then rebound, being unable to regain the 149.50 area.

Japanese authorities seem to be behind the sharp moves seen in the USD/JPY earlier on Monday. More recently, the US dollar lost momentum particularly during the American session following the release of US economic data. The preliminary S&P Global Manufacturing PMI decline to 49.9 from 52 in September, the lowest level in 28 months.

Volatility is set to remain at extreme levels with the upside in USD/JPY still being supported by the divergence between the ultra-accommodative Bank of Japan and the aggressive tightening of the Federal Reserve.  The Bank of Japan Monetary Policy Committee will meet this week (decision on Friday) and the Federal Reserve will have the FOMC meeting next week (decision on Wednesday).

“Despite the lack of urgency to tighten policy from a real wages and output gap perspective, the rapid weakening of the JPY and broadening inflation pressures in Japan cannot be ignored. We don't expect the BOJ to act at the October meeting, but there is a risk of more aggressive signaling. There is a stronger case for a shift in YCC once Governor Kuroda's term ends on April 8, 2023, and after the spring wage negotiations”, explained analysts at TD Securities. They expect continued FX intervention if USD/JPY rallies. “We are neutral, as the pair is fairly valued relative to spreads.”

Technical levels

Bank of England (BoE) Deputy Governor Dave Ramsden said on Monday that the concern that inflation becoming more domestically generated has been a driver of the BoE's bigger-than-usual rate hikes, as reported by Reuters.

Additional takeaways

"We will take necessary steps to get inflation back to target."

"We are acutely aware of the impact of rate rises so far."

"Today's PMIs are consistent with the UK economy being in recession."

"We have to take account of the fall in the value of the pound."

"Sterling has been relatively stable of late."

"Temporary expanded collateral repo facility will hopefully have a role, not called on yet."

"I was reluctant to go down the bond purchase route."

Market reaction

These comments failed to help the British pound find demand and GBP/USD was last seen posting small daily losses at 1.1290.

• Gold retreats from a $1,670 high on Friday to the $1,645 area so far.
• The US dollar regains lost ground on a cautious market.
• XAU/USD is testing support at $1,640.

Gold futures have opened the week on a moderately bearish tone, giving away some of the ground taken on the sharp recovery witnessed last Friday. The yellow metal has pulled back from a 10-day high at $1,670 and is now testing the support area at $1,640.

Gold loses strength as the US dollar picks up

Investors remain cautious in the week opening, awaiting the monetary policy decisions by some of the world’s major central banks, while stock markets are mixed. In the US, the Dow Jones and the S&P Indexes appreciate 0.8% and 0.6%, while the Nasdaq Index eases 0.1%.

The market seems to have digested a news report published by the Wall Street Journal on Friday, suggesting that the Federal Reserve would be open to moderate its tightening cycle in December. The US dollar, as a result, has shrugged off Friday's weakness to appreciate moderately higher which is weighing on gold prices.

XAU/USD: Support area at $1645 is holding bears

On the downside, the support area at $1,645 Is protecting the XAU/USD from further decline, which might push the yellow metal to retest $1,615 (September 28, October 21 lows) ahead of April 2020 lows at $1,575.

On the upside, the pair should appreciate past Friday’s top at $1,670 and the 50-day SMA at $1,695 to regain bullish momentum and set its target at the $1,730/35 area (September 13, October 4 highs).

Technical levels to watch

Bill Diviney, Economist at ABN Amro points out that despite the political chaos of late, the news flow has been largely positive from a policy point of view. He affirms the outlook for the economy is still bleak but considers a crisis at least looks to have been averted. 

Key Quotes: 

“In the near-term we expect the MPC to hike rates aggressively, with a 75bp hike expected on 3 November, and Bank Rate to peak at 4% in early 2023. However, the risks to this view – previously to the upside – have become markedly more balanced.”

“The silver lining to the political chaos is that the worst of the crisis in financial markets – and therefore the risks to the economy – now looks to be behind us. The new government is likely to be as focused on fiscal discipline as the present Chancellor Jeremy Hunt, if not more so.”

“The new government will have tough choices to make over tax and spend plans given the higher risk premium on UK government bonds – which has put a large hole in UK government finances.”

“We estimate that, after accounting for the policy U-turns of the past few weeks, the government needs to find another GBP20bn in tax rises or spending cuts. We think this will take the form of a temporary link of working age benefits to wage growth rather than inflation – meaning a real-terms cut to benefits – alongside a curtailment in public investment.”
 

US Treasury Secretary Janet Yellen acknowledged on Monday that they have observed some decline in the Treasury market liquidity but noted that this situation was not unexpected given the increased volatility. 

Yellen further noted that Treasury market traders are not having difficulty in executing trades and reiterated that the US economy is healthy with a resilient financial system.

Market reaction

There was no immediate reaction to these comments and the benchmark 10-year US Treasury bond yield was last seen rising 0.3% on the day at 4.24%.

• GBP/USD remains steady but pound pulls back versus other rivals.
• UK: Rishi Sunak will become UK Primer Minister.
• US S&P Global drops more than expected in October.

The GBP/USD is hovering around 1.1300 since the beginning of the American session, unable to benefit from a modestly weaker US dollar. Economic data from the US came in below expectations while Sunak was confirmed as the next UK PM.

Cable peaked after the weekly opening at 1.1410 and then pulled back to as low as 1.1271. During the last hours is has been moving between 1.1340 and 1.1275.

New PM in the UK, weak data in the US

Rishi Sunak will become UK Primer Minister after Penny Mordaunt dropped out of the Tory race on Monday. The transition from Liz Truss to Sunak could take place on Tuesday. The government announced that is up to Sunak to decide whether to announce a fiscal plan on October 31. Speaking to Tory MPs, Sunak said there will be no early election.

The confirmation of Sunak was no surprise for markets as it was already priced after Boris Johnson pulled out of the race on Sunday. After a spike higher at the beginning of the week, the pound has been pulling back. EUR/GBP is back above the level it closed on Friday, above 0.8735.

The US dollar lost momentum during the American session weakened by the US S&P Global PMI preliminary October report. The Manufacturing Index dropped more than expected to the lowest level in 28 months and below the 50 level. US yields remain higher for the day despite the economic report. The 10-year yield stands at 4.25% and the 2-year at 4.51%.

Technical levels

• EUR/USD advances steadily following the release of weaker US data.
• The Eurozone is headed toward a recession as the S&P Global PMIs contracted.
• EUR/USD Price Analysis: Once it clears 0.9900, a test of parity is on the cards; otherwise, it could tumble to 0.9700.

The EUR/USD makes a U-turn, pairing some of its earlier losses, amidst a critical week for the Euro, with the European Central Bank (ECB) monetary policy meeting on Thursday. The shared currency recovery is due to some US data reporting S&P Global PMIs, which showed the US economy continues to deteriorate. At the time of writing, the EUR/USD is trading at 0.9886.

US PMIs disappointed, weakening the US Dollar

The US S&P Global Flash Composite for October showed that business activity in the country shrank by the fourth-consecutive month, with the Composite PMI hitting 47.3 less than estimates. The Manufacturing and Services PMI dropped, each at 49.9, less than September’s 52.0, while Services tumbled to 46.6, against 49.3 in the previous month’s reading.

Across the pond, the Eurozone also reported PMIs for France, Germany, and the whole bloc, further cementing that the Euro area economy is headed toward a recession. The S&P Global PMI Composite fell to 47.1 from 48.1 in September, below economists’ estimates of 47.5.

EUR/USD Price Forecast: Technical outlook

The EUR/USD remains neutral-to-downward biased, capped by the top-trendline of a descending channel drawn from February, a resistance level sought by sellers. Worth noting that the 50-day Exponential Moving Average (EMA), meanders around 0.9897, confluence with the top-trendline, shy of 0.9900, which will be strong resistance to overcome by buyers.

If the EUR/USD clears the 50-day EMA, the next resistance would be 0.9900. The break above will expose 0.9994, followed by parity. On the flip side, the EUR/USD first support would be the 0.9800 figure. Once cleared, the EUR/USD is the 20-day EMA at 0.9787.

Strategists at TD Securities assess the market response to possible developments in Russia's invasion of Ukraine. Their analysis sets us unambiguously in the negative market implication camp.

Investors should err on the side of caution

“We see a 67% probability that the conflict escalates. This implies a 61% probability of a neutral-to-positive market response. However, once we scale the outcomes for their likely intensity, the strong negative reactions in the lower probability scenarios outweigh the slightly positive reactions in the more likely positive market scenarios, including full NATO disengagement.”

“There remains a non-negligible 39% chance that events will lead to negative market reactions. Within this cluster, we embed our worst-case scenarios that may lead to a panic reaction and, in extreme circumstances, to complete market disruption. Overall, there is a 5% chance of an extremely negative outcome.”

A bullish “outside day” to end last week for the S&P 500. The index is on course for a test of key near-term resistance at 3797/3810, but a break above here is needed to see a base established, analysts at Credit Suisse report.

Initial support aligns at 3736/31

“We look for a test of a cluster of key resistances at 3797/3810 – the current October high, 38.2% retracement of the August/October fall and downtrend from August.” 

“With daily and weekly RSI momentum divergences in place and with sentiment and breadth measures still pointing to an oversold condition we continue to look for a more protracted consolidation/recovery phase to emerge but with a break above 3810 needed to mark a near-term base though and a more concerted recovery for a test of the 63-day average, currently at 3931.”

“Support is seen at 3736/31 initially ahead of the 13-day exponential average at 3697 which we now look to try and hold on a closing basis. A break can see a retest of 3647/39.” 

"You could argue we are quite close to a round-trip for gilt yields after mini-budget," Bank of England (BoE) Deputy Governor Dave Ramsden said on Monday, as reported by Reuters.

Ramsden further argued that the gilt market shows that credibility is being restored and added that the fiscal plan scheduled to be unveiled on October 31 will be very important to sustain that credibility.

Market reaction

THere was no immediate market reaction to these remarks. As of writing, the GBP/USD pair was trading at 1.1297, where it was virtually unchanged on a daily basis.

GBP/USD is trading on a relatively firm basis. However, the pair is still struggling to break above resistance in the 1.1395/00 area. A break above here is needed to propel cable towards the 1.15/15 region, economists at Scotiabank report.

GBP/USD to drop back towards 1.11/12 if 1.1395/1.1400 resistance holds

“A break above the 1.1395/1.1400 area could change short-term dynamics an put the pound on course for a 1.15/1.17 test.”

“If the 1.1395/1.1400 resistance holds, GBP/USD may slip back to 1.11/1.12.” 

See – GBP/USD: Resistance at 1.1480 /1.1500 to cap the recovery – Credit Suisse

USD/JPY extended its push on Friday before posting an aggressive fall following another currency intervention. Economists at Credit Suisse  look for a potentially important top – which will be confirmed on a close below 13-Day Moving Average (DMA) at 147.82

Initial resistance aligns at 149.69

“A close below support from the 13-DMA at 147.82 is needed to mark a further easing in upside pressure, with support then seen next at Friday’s low of 146.20, then 145.50/42. Beneath this latter area should see support next at the October low and 38.2% retracement of the August/October rally at 143.72/53, with better support expected here at first.” 

“Resistance is seen at 149.69 initially, then 151.13/19, with 151.92/153.01 expected to cap.”

• USD/TRY trespasses the 18.6000 level and rose to new tops.
• The firmer dollar remains behind the upside bias in the pair.
• The lira stays under pressure after the CBRT rate cut.

The Turkish lira depreciates to fresh all-time lows vs. the dollar and lifts USD/TRY to the area beyond the 18.6000 region.

USD/TRY: Next target at 19.00

USD/TRY extends its glacial-pace upside momentum to the 18.6000 region at the beginning of the week on the back of the strong rebound in the greenback and the generalized risk-off tone in the global markets.

In addition, the lira faces persistent headwinds as investors continue to digest the larger-than-expected interest rate cut by the Turkish central bank (CBRT) on October 20, which reduced the One-Week Repo Rate to 10.50%. In its statement, the central bank also left the door open to further rate cuts in the next gatherings.

On the latter, it is worth recalling that President Erdogan advocated for further reduction of the interest rates in several occasions, emphasizing at the same time the need of single-digits rates by year end.

What to look for around TRY

USD/TRY finally leaves behind the key barrier at the 18.6000 zone on Monday.

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

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

In addition, the lira is poised to keep suffering against the backdrop of Ankara’s plans to prioritize growth via transforming the current account deficit into surplus, always following a lower-interest-rate recipe.

Key events in Türkiye this week: Capacity Utilization, Manufacturing Confidence (Tuesday) – Economic Confidence Index, Trade Balance, Tourism Revenues (Thursday).

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 0.34% at 18.6012 and faces the next hurdle at 18.6280 (all-time high October 24) followed by 19.00 (round level). On the downside, a break below 18.2810 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low).

• US S&P Manufacturing PMI dropped into contraction territory in early October.
• US Dollar Index fell below 112.00 on disappointing PMI surveys. 

Business activity in the US manufacturing sector contracted slightly in early October with the preliminary S&P Global Manufacturing PMI declining to 49.9 from 52 in September. This reading came in weaker than the market expectation of 51.2.

Further details of the publication revealed that the Services PMI slumped to 46.6 from 49.3 and the Composite PMI fell to 47.3 from 49.5. Both of these prints fell short of anaylsts' projections.

Commenting on the data, "the US economic downturn gathered significant momentum in October, while confidence in the outlook also deteriorated sharply," noted Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

"The decline was led by a downward lurch in services activity, fuelled by the rising cost of living and tightening financial conditions," Williamson added. "While output in manufacturing remains more resilient for now, October saw a steep drop in demand for goods, meaning current output is only being maintained by firms eating into backlogs of previously placed orders."

Market reaction

The greenback lost interest after the data with the US Dollar Index declining below 112.00.

For months, economists at Rabobank have labelled the pound a vulnerable currency. And the GBP/USD pair is set to remain under downward pressure for the time being.

Rishi Sunak to become the next PM

“It is possible that in a few hours, former Chancellor Sunak will become PM. If Sunak is confirmed as PM, GBP may rally a little further. That said, in our view the UK’s poor fundamental backdrop suggests that the pound is likely to continue to struggle vs. the USD in the coming months.” 

“While the BoE is expected to announce a hefty rate hike on November 3, this may do little to support cable given expectations of further aggressive rate hikes from the Fed.”

“We retain a three-month forecast for GBP/USD at 1.06.”

• USD/JPY rebounds swiftly from a nearly two-week low touched earlier this Monday.
• Resurgent USD demand and the Fed-BoJ policy divergence provide a strong boost.
• Bulls now await sustained strength beyond the 149.55-149.60 confluence hurdle.

The USD/JPY pair attracts aggressive buying near the 145.45 region on Monday and rallied over 400 pips from a nearly two-week low touched earlier this Monday. The pair maintains its bid tone through the early North American session and is currently placed around the 149.15-149.20 region.

The initial market reaction to a suspected intervention by the Bank of Japan (BoJ) fades rather quickly amid resurgent US dollar demand. Furthermore, the risk-on impulse - as depicted by a generally positive tone around the equity markets - undermines the safe-haven JPY and offers support to the USD/JPY pair. Meanwhile, retreating US Treasury bond yields keeps a lid on any further gains, though a big divergence in the policy stance adopted by the BoJ and other major central banks favours bullish traders.

From a technical perspective, the strong intraday rally stalls ahead of the 149.50-149.55 confluence hurdle. The said area comprises the 100-hour SMA and 61.8% Fibonacci retracement level of the USD/JPY pair's sharp pullback from the 152.00 neighbourhood, or the highest-level August 1990 touched last Friday. This should now act as a pivotal point, which if cleared decisively should lift spot prices to the 150.00 psychological mark en route to the next relevant hurdle near the 150.55-150.60 area.

On the flip side, weakness back below the 149.00 mark now seems to find decent support near the 50% Fibo. level, around the 148.70 region. Any subsequent downfall could attract fresh buyers near the 148.30-148.25 region, which should help limit the downside near the 38.2% Fibo. level, around the 148.00 mark. A convincing break below the latter will negate any near-term positive bias and make the USD/JPY pair vulnerable to slide back towards retesting the 147.00 mark, or the 23.6% Fibo. level.

USD/JPY 1-hour chart

Key levels to watch

EUR/USD fades from 0.99. In the view of analysts at Scotiabank, the world’s most popular currency pair could slip below the 0.98 level.

Gains to the 0.99 area could not muster additional momentum

“Intraday gains to the 0.99 area could not muster additional momentum to test key trend resistance, drawn off the Feb high, at 0.9940.”

“The 40-day MA (0.9866) is still curbing EUR gains in effect and that may prompt a renewed dip under the figure to test support in the mid-0.97s ahead of key, short-term support at 0.9700/10.”

GBP/USD has struggled to find acceptance above 1.1400 on Monday. Resistance at 1.1480/1.1500 is set to cap cable, analysts at Credit Suisse report.

Support seen at 1.1215/11, then 1.1080/61

“GBP/USD extends its consolidation for a test of its short term downtrend from the beginning of October at 1.1405/11. We would not rule out further strength to the 55-day average at 1.1480 but with the October high just above at 1.1496, we continue to look for this to prove the extent of the recovery. Above 1.1496/1.1500 though would mark the completion of a small bullish continuation pattern to clear way for a deeper recovery.”

“Support is seen at 1.1244 initially, with a break below 1.1215/11 needed to ease the immediate upside bias with short-term trend/range support and low from Friday at 1.1080/61. Below here can see a retest of 1.0933/16.”

Sir Graham Brady, chair of the 1922 Committee, announced on Monday that Rishi Sunak is elected as leader of the Conservative Party and new prime minister following Penny Mordaunt's decision to drop out of the contest.

Sunak will reportedly deliver a private speech to Tory MPs at 1430 GMT.

Market reaction

This development doesn't seem to be having a significant impact on the British pound's performance against its major rivals. As of writing, GBP/USD was trading virtually unchanged on the day at 1.1298. Meanwhile, the UK's FTSE 100 Ubdex gained traction on this headline and was last seen rising 0.7% on the day.

US PMI Overview

S&P Global will release the flash version of the US Manufacturing and Services PMIs at 13:45 GMT this Monday. The gauge for manufacturing is expected to decline to 51.2 in October from 52.0 in the previous month. The Services PMI, meanwhile, is anticipated to remain in the contraction territory for the fourth successive month and come in at 49.2 for the current month. Moreover, the composite PMI is also expected to show a contraction in the overall business activity and edge down to 49.1 from 49.5 in September.

How Could it Affect EUR/USD?

Ahead of the key release, the US dollar regains strong positive traction on the first day of a new week and exerts some downward pressure on the EUR/USD pair. A stronger US PMI print will reaffirm market bets that the Federal Reserve will stick to its policy-tightening path and provide an additional lift to the buck. Conversely, weaker US macro data will add to worries about a deeper global economic downturn and continue to benefit the greenback's relative safe-haven status.

The fundamental backdrop suggests that the path of least resistance for the EUR/USD pair is to the downside. That said, any immediate market reaction is more likely to remain limited amid expectations that the European Central Bank will deliver another supersized 75 bps rate hike at its upcoming policy meeting on Thursday. This, in turn, warrants some caution for aggressive traders and before positioning for a firm near-term direction.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for the EUR/USD pair and writes: “The Relative Strength Index (RSI) indicator on the four-hour chart holds above 50 despite the latest decline, suggesting that sellers remain hesitant for the time being. On the downside, 0.9800 (Fibonacci 38.2% retracement of the latest downtrend, 20-period SMA, 50-period SMA, 100-period SMA) aligns as key support. With a four-hour close below that level, the pair could come under technical bearish pressure and decline toward 0.9750 (Fibonacci 23.6% retracement) and 0.9700 (psychological level, static level).”

Eren also outlines important technical levels to trade the EUR/USD pair: “On the upside, the 0.9840/50 area, where the Fibonacci 50% retracement and the 200-period SMA are located, forms stiff resistance. If buyers manage to flip that level into support, 0.9900 (daily high, psychological level) and 0.9930 (static level) could be targeted.”

Key Notes

  •  EUR/USD Forecast: Euro closes in on key support area

  •  EUR/USD Price Analysis: Decent contention appears around 0.9700

  •  EUR/USD: Unlikely to push ahead, 0.9950 is significant resistance – ING

About the US Manufacturing PMI

The Manufacturing Purchasing Managers Index (PMI) released by the Markit Economics captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the United States. Readings above 50 imply the economy is expanding, making investors understood it as a bullish for the USD, whereas a result below 50 points for an economic contraction, and weighs negatively on the currency.

About the US ISM Services PMI

The Services Purchasing Managers Index (PMI) released by Markit Economics captures business conditions in the services sector. As the services sector dominates a large part of total GDP, the services PMI is an important indicator of the overall economic condition in US. A result above 50 signals is bullish for the USD, whereas a result below 50 is seen as bearish.

• Chicago Fed's National Activity Index stayed unchanged in September.
• US Dollar Index stays in positive territory above 112.00.

The Federal Reserve Bank of Chicago's National Activity Index (CFNAI) stayed unchanged at 0.1 in September. This reading came in slightly better than the market expectation of -0.04.

"The CFNAI Diffusion Index, which is also a three-month moving average, increased to +0.35 in September from +0.16 in August," the publication read.

According to the Chicago Fed, a zero value for the CFNAI is associated with the national economy expanding at its historical trend (average) rate of growth.

Market reaction

This report doesn't seem to be having a significant impact on the dollar's performance against its rivals. As of writing, the US Dollar Index was up 0.4% on the day at 112.30.

• EUR/USD triggers a knee-jerk after failing to surpass 0.9900.
• There is initial support around the 0.9700 region so far.

EUR/USD corrects lower and approaches 0.9800 after two consecutive daily advances at the beginning of the week.

In case losses accelerate, the pair should face the initial contention at last week’s lows near the 0.9700 yardstick (October 21). If cleared, then the October low at 0.9631 (October 13) could emerge on the horizon.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0529.

EUR/USD daily chart

Both the Japanese yen and the British pound have been under a lot of pressure recently. GBP/JPY remains firm around 168.50 and economists at Rabobank believe that the pair could rise above the 170 mark.

A key week for GBP and JPY

“Although UK fundamentals remain sour, it is possible that the risk of further panic selling of the pound may now be contained. That said, the week ahead will be another crucial one in terms of the outlook for GBP.”

“The outlook for the JPY is essentially a mix of two drivers. On one hand the BoJ’s accommodative monetary policy settings are undermining the JPY in an environment in which most other central banks are hiking interest rates. On the other hand, FX intervention from the MoF is designed to make speculators think twice about shorting the JPY.”

“We see risk of GBP/JPY moving above the 170.00 level in the short-term, though we expect that these levels could be difficult to sustain, and forecast that GBP/JPY is likely to be lower on a three-month view on the back of a weak pound.”

The last stage of the dollar’s rally is no fun for chess players. This is the time when the poker players thrive, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

Constant diet of rising US yields needed to drive USD/JPY higher and higher

“The dollar is supported a strong economy hawkish central bank, and favourable terms of trade. But the market is short treasuries, long dollars.”

“The yen’s bounce suggests that the market needs a constant diet of rising US yields to drive USD/JPY higher and higher. The China-sensitive currency universe though, seems vulnerable until the Chinese economic outlook changes.” 

“The European data are holding up better than they might thanks to energy support, but not well, and anyway, the tail risk confuses things. Spot European natural gas prices suggest storage tanks are full, three-month ahead prices suggest that if cold weather created a bit of space, the spot price would bounce.”

“We’re closer to peak US yields and peak dollar, but if you want to know how to time the turn with confidence, you need to understand market psychology. All I know is that the last stage of the dollar market will see more big moves than direction.”

• DXY gathers traction and reverses two daily drops in a row.
• The ongoing rebound should target the 114.00 region near term.

DXY reclaims the area beyond 112.00 the figure on Monday after two straight sessions with losses.

The continuation of the recovery should refocus on recent tops near 114.00. The surpass of this level should put a visit to the 2022 top at 114.78 (September 28) back on the radar in the short-term horizon.

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 8-month support line near 108.20, an area coincident with the 100-day SMA.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.78.

DXY daily chart

The Canadian dollar is choppy ahead of key Bank of Canada’s (BoC) decision. Any messaging that the Bank can start to consider ‘fine-tuning’ rate hikes will hurt the loonie, economists at Scotiabank report.

Solid US growth data will cheer USD and stocks

“In Canada, the primary focus will fall on Wednesday’s BoC policy decision, Monetary Policy Report and Governor Macklem’s press conference afterwards. A 75 bps hike is more or less fully priced. This will take the Overnight Target rate to 4.00%. Any messaging that the Bank can start to consider ‘fine-tuning’ rate hikes will hurt the CAD. Whether the Bank’s outlook and still elevated inflation allows the Governor to make that concession at this stage remains to be seen.”

“ It’s a busy week for data release in the US. Thursday’s advance Q3 GDP report is likely to be the highlight of the week. GDP tracking suggests a fairly solid quarter for the US economy after negative prints in Q1 and Q2. The consensus estimate calls for 2.1% (SAAR). The Atlanta Fed’s GDP Now forecast is tacking 2.8/2.9%. Solid growth will be positive for the USD and rates and may weigh on stocks (hurting the CAD).”

• AUD/USD meets with aggressive supply on Monday amid a strong pickup in demand for the USD.
• Hawkish Fed expectations remain supportive of elevated US bond yields and underpin the buck.
• A positive risk tone also does little to benefit the risk-sensitive aussie or lend support to the pair.

The AUD/USD pair comes under fresh selling pressure and retreats over 100 pips from levels just above the 0.6400 mark, or a two-week high touched earlier this Monday. The downward trajectory drags spot prices below the 0.6300 round figure during the first half of the European session and is sponsored by a strong pickup in demand for the US dollar.

Despite reports that some Fed officials are signalling greater unease with oversized rate hikes, the markets seem convinced that the US central bank will stick to its faster policy tightening path. This, in turn, remains supportive of elevated US Treasury bond yields and assists the USD to regain strong positive traction on the first day of a new week.

The Australian dollar, on the other hand, is pressured by worries about the economic headwind stemming from China's zero-COVID policy, which overshadows upbeat Chinese third-quarter GDP, which showed that the world's second-largest economy expanded by 3.9% YoY. Adding to this, China's Industrial Output rose 6.3% YoY in September against 4.5% estimates.

Even a positive risk tone does little to lend any support to the risk-sensitive aussie. Meanwhile, the Reserve Bank of Australia (RBA) decided earlier this month to slow the pace of policy tightening. This suggests that the path of least resistance for the AUD/USD pair is to the downside and any attempted recovery might still be seen as a selling opportunity.

Market participants now look forward to the flash US PMI prints, due later during the early North American session. The data, along with the US bond yields and the broader risk sentiment, might influence the USD price dynamics and provide some impetus to the AUD/USD pair.

Technical levels to watch

• EUR/JPY resumes the upside and retests the area beyond 147.00.
• The recent YTD high at 148.40 (October 21) comes next.

EUR/JPY fades Friday’s strong retracement and regains the 147.00 barrier and above at the beginning of the week.

Considering the current price action in the cross, the door still looks open to extra upside. That said, the immediate target now emerges at the 2022 high at 148.40 (October 21) prior to the December 2014 top at 149.78 (December 8).

In the short term the upside momentum is expected to persist while above the October lows near 141.00.

In the longer run, while above the key 200-day SMA at 136.92, the constructive outlook for the cross should remain unchanged.

EUR/JPY daily chart

On 20 October, Liz Truss resigned as UK Prime Minister, becoming the shortest-serving British PM in history. Despite policy U-turns, the GBP still faces structural concerns. Even when structural concerns become less dominant, cyclical forces may still weigh on the pound, in the view of economists at HSBC.

GBP downward pressure to stay

“The UK’s debt-to-GDP ratios are set to rise, and net gilt supply may exceed GBP250bn, a new record high. The UK’s fiscal deficit could land at around 6% of GDP. It is also worth noting that the UK’s core balance (i.e. current account balance + net foreign direct investment) has declined from a 2% of surplus to an around 8% of GDP deficit in the last two years. All these structural challenges are likely to continue to pull GBP/USD lower.”

“The GBP could suffer from a BoE tone that suggests the economic outlook may be even weaker than previously expected, and that the market is too hawkish on rate hikes.”

“Even when market focus is shifted from structural concerns to cyclical forces, a combination of weak growth and high inflation that the UK faces will likely see the GBP struggle.”

• Gold comes under renewed selling pressure on Monday amid a strong pickup in demand for the USD.
• The prospects for more aggressive tightening by major central banks further weigh on the XAU/USD.
• Recession fears could lend some support to the metal and warrant some caution for bearish traders.

Gold meets with a fresh supply near the $1,670 region, or over a one-week high set earlier this Monday and extends its intraday descent through the first half of the European session. The XAU/USD slides back below the $1,650 level and erodes a part of Friday's goodish rebound from the vicinity of the YTD low.

The US dollar makes a solid comeback and rebounds swiftly from over a two-week low, which, in turn, is seen as a key factor exerting downward pressure on the dollar-denominated gold. Despite reports that some Fed officials are signalling greater unease with oversized rate hikes, investors seem convinced that the US central bank will stick to its aggressive policy tightening cycle. This, in turn, remains supportive of elevated US Treasury bond yields and helps the greenback to regain positive traction.

Furthermore, other major central banks - the European Central Bank and the Bank of England- are also expected to deliver a jumbo rate hike at the upcoming policy meetings. This turns out to be another factor driving flows away from the non-yielding yellow metal. Apart from this, a slight recovery in the risk sentiment - as depicted by a positive tone around the equity markets - is also seen weighing on the safe-haven gold. That said, growing recession fears could help limit losses for the metal.

Investors remain concerned about the economic headwinds stemming from rapidly rising borrowing costs and the protracted Russia-Ukraine. This, along with China's strict zero-COVID policy, has been fueling concerns about a deeper global economic downturn. The mixed fundamental backdrop warrants some caution before placing aggressive bearish bets around gold and positioning for any further slide. Traders now look to the flash US PMI prints for some impetus later during the early North American session.

Technical levels to watch

Federal Reserve’s rhetoric shift provides some balance to FX markets. More comments on calibrating the pace of further policy tightening could weigh on the greenback, economists at MUFG Bank report.

Pivot speculation re-emerging to cap USD 

“A near 2% swing in the US dollar from the intra-day high to the close on Friday was certainly significant and could be an indication of the US dollar having reached stretched levels, certainly over the near-term.”

“If we get more of the same this week from Fed officials in terms of focusing on the topic of calibration, the markets may sense an orchestrated effort to bring some order to the markets. However, only Fed Governor Waller is on the schedule to speak this week so we may not get much guidance now before the FOMC meeting on 1st/2nd November.”

“If there are any last-minute comments highlighting the calibration topic those comments could propel the US dollar further weaker over the short-term. At the very least, it would provide better two-way balance to US dollar flows in the FX markets.”

• GBP/USD attracts fresh sellers at higher levels and is pressured by a combination of factors.
• Reduced bets for a jumbo BoE rate hike in November act as a headwind for the British pound.
• The emergence of fresh USD buying also contributes to the offered tone surrounding the pair.

The GBP/USD pair struggles to find acceptance above the 1.1400 mark on Monday and faces rejection near the 50-day SMA. The intraday descent drags spot prices to a fresh daily low during the early European session, though bulls manage to defend the 1.1300 round figure, at least for the time being.

Against the backdrop of the recent political turmoil in Britain, a bleak outlook for the UK economy continues to act as a headwind for the British pound. The worries were fueled by the disappointing release of the flash UK PMI prints, showing that business activity in both manufacturing and services sectors contracted at a faster pace in early October.

In fact, the gauge for the manufacturing sector declined to 45.8 from 48.4 and the Services PMI fell to 47.5 from 50 during the reported month, both missing estimates. The data reduces the odds of a bigger 100 bps rate hike by the Bank of England (BoE) in November and supports prospects for further losses for the GBP/USD pair amid resurgent US dollar demand.

As investors look past reports that some Fed officials are signalling greater unease with oversized rate hikes, the USD makes a solid comeback amid a fresh leg down in the equity markets. Concerns about the economic headwinds stemming from rapidly rising borrowing costs, geopolitical risks and China's strict zero-COVID policy weighs on investors' sentiment.

The aforementioned fundamental backdrop adds credence to the negative outlook for the GBP/USD pair, Bearish traders, however, might wait for sustained weakness below the 1.1300 mark before placing fresh bets. Market participants now look forward to the flash US PMI prints. The data might influence the USD price dynamics and provide some impetus to the GBP/USD pair.

Technical levels to watch

FX option expiries for Oct 24 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9550 1.3b
• 0.9600 1.1b
• 0.9740-50 1.6b
• 0.9800 1.5b
• 0.9815-20 993m
• 0.9840-50 2b
• 0.9875 1.3b
• 0.9900-05 771m

- USD/JPY: USD amounts                     

• 147.35-45 745m
• 150.00 2b

- AUD/USD: AUD amounts  

• 0.6245 530m
• 0.6610 888m

The Central and Eastern Europe (CEE) region remains supported on all fronts. Therefore, economists at ING expect the likes of Hungarian forint, Polish zloty and Czech koruna to strengthen at the first half of the new week.

ECB meeting could result in a weaker CEE FX

“The CEE region continues to benefit from falling gas prices, rising interest rate differentials and friendly EUR/USD levels. The Hungarian forint should remain supported and enjoy this moment of peace created by recent central bank actions and global conditions. The rest of the region should also remain supported.”

“We see room for the Hungarian forint to move closer to 405 EUR/HUF, the Polish zloty to 4.760 EUR/PLN, and the Czech koruna to 24.450 EUR/CZK. However, the ECB meeting will come into play in the second half of the week, resulting in a lower EUR/USD and potentially weaker CEE FX.”

GBP/USD trades in positive territory and continues to edge higher toward 1.1400. Nonetheless, gains are set to prove only temporary, in the opinion of economists at MUFG Bank.

UK will be hit by a deeper recession than elsewhere

“The removal of political instability in the UK is certainly a positive and could over the short-term provide some further support for the pound. However, we suspect gains could be brief and would caution over how much further this news can lift the pound.”

“The pound is already at levels that existed prior to the lurch into political uncertainty and the tax rises/spending cuts that are coming will mean the UK will be hit by a deeper recession than elsewhere.”

“IMM positioning data showed to last Tuesday Leveraged Funds were GBP sellers as PM Truss began to lose her grip on power and political turmoil escalated. So it is certainly plausible we get a further temporary lift but we would emphasise the word ‘temporary’.” 

• EUR/GBP recovers a few pips from the daily low, though lacks follow-through.
• Looming recession risks weigh on the euro and act as a headwind for the cross.
• Aggressive ECB rate hike bets offer some support and help limit the downside.

The EUR/GBP cross opens with a modest bearish gap on the first day of a new week, though finds support ahead of mid-0.8600s and recovers a few pips from a multi-day low. The cross, however, remains on the defensive through the early European session and is currently trading with modest intraday losses, below the 0.8700 mark.

The shared currency's relative underperformance comes amid the protracted Russia-Ukraine war, which could lead to a deeper economic downturn in the Eurozone. The fears were further fueled by the rather unimpressive flash Eurozone PMI prints released this Monday. S&P Global reported that business activity in Germany's manufacturing sector continued to contract at a faster pace in early October.

Adding to this, the flash Eurozone Manufacturing PMI slumped to 46.6 in October against estimates for a reading of 47.8, revealing a further contraction in the business activity. Moreover, the Services PMI edged lower to 48.2 from 48.8 as expected and the Composite PMI declined to 47.1 from 48.1. Apart from this, a strong pickup in the US dollar demand is further weighing on the common currency.

That said, rising bets for another jumbo 75 bps rate increase by the European Central Bank act as a tailwind for the euro. Hence, the focus remains glued to this week's ECB monetary policy meeting. In the meantime, diminishing odds for a bigger 100 bps rate hike by the Bank of England (BoE) in November keeps a lid on any meaningful upside for sterling and helps limit losses for the EUR/GBP cross.

Technical levels to watch

• Private sector's business activity continued to contract in the UK.
• GBP/USD fell toward 1.1300 with the initial reaction, erasing its daily gains.

The economic activity in the UK's private sector continued to contract at an accelerating pace in early October with the S&P Global/CIPS Composite PMI dropping to 47.2 from 49.8 in September. 

The Manufacturing PMI declined to 45.8 from 48.4 and the Services PMI fell to 47.5 from 50 in the same period. Both of these prints fell short of analysts' estimates.

Commenting on the findings of the survey, "no great surprise seeing the manufacturing and services sectors backsliding again in October given the jangled nerves amongst cash-strapped businesses facing a faltering economy, political turmoil and historically high input costs," said Dr John Glen, CIPS Chief Economist.

"These challenges have spooked consumers and businesses alike into the biggest fall in demand for goods and services since January 2021, from both domestic and overseas markets," Dr Glen further elaborated.

Market reaction

GBP/USD came under renewed bearish pressure with the initial reaction and turned flat on the day near 1.1300.

USD/CAD has remained close to the highs recently. This Wednesday, the Bank of Canada is set to hike a further 75 bps next week. Any benefits to the Canadian dollar are still likely to be quite contained and short-lived, as external risks remain elevated, economists at ING report.

Still limited benefits from BoC hawkishness

“The OIS curve currently embeds 70 bps of tightening at the October meeting, meaning that a 75 bps hike should not be enough to drive CAD higher by itself. It’s possible however that a hawkish tone by Governor Tiff Macklem will trigger a repricing higher in peak rate expectations. This scenario could see CAD trade moderately stronger after the meeting, but the adverse risk environment continues to point to a higher USD/CAD from the current levels, with risks skewed to 1.40 being tested.”

“A return to 1.30 is still in our forecast for 2023 as CAD should benefit from low exposure to Russia and China, and may emerge as a market favourite to play pro-cyclical bets.”

• EUR/USD’s upside momentum falters just ahead of 0.9900.
• The dollar attempts a moderate recovery at the beginning of the week.
• Flash Manufacturing and Services PMIs take centre stage.

The single currency comes under some mild downside pressure and drags EUR/USD to the 0.9820 region on Monday.

EUR/USD looks to PMIs, risk appetite

EUR/USD now faces selling pressure and gives away some ground following two consecutive daily advances on the back of the mild recovery in the dollar despite the move lower in US yields.

Still around the debt markets, the German 10-year bund yields drop to 3-day lows and approach the 2.30% zone after climbing as high as the 2.53% at the end of last week.

Moving forward, the pair is expected to remain within a consolidative mood ahead of the ECB event on Thursday, when markets participants largely anticipate a 75 bps rate hike by the central bank.

In the domestic calendar, the flash Manufacturing PMI for the current month is expected to ease to 47.4 in France, 45.7 in Germany and 46.6 in the broader Euroland.

In the US, advanced PMIs are also due along with the Chicago Fed National Activity Index.

What to look for around EUR

EUR/USD now faces some corrective decline, although it so far manages well to keep the trade above the 0.9800 mark for the time being.

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: German, EMU Advanced Manufacturing/Services PMIs (Monday) –  Germany IFO Business Climate (Tuesday) – France Consumer Confidence (Wednesday) - Germany GfK Consumer Confidence, Italy Consumer Confidence, ECB Interest Rate Decision, ECB Lagarde (Thursday) – France/Italy/Germany Flash Inflation Rate, Germany Preliminary Q3 GDP Growth Rate, EMU Final Consumer Confidence, Economic Sentiment

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 retreating 0.25% at 0.9832 and the breakdown 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). On the flip side, the next up barrier comes at 0.9899 (weekly high October 24) followed by 0.9999 (monthly high October 4) and finally 1.0050 (weekly high September 20).

• Economic activity in the eurozone's private sector continued to contract in early October.
• EUR/USD stays under modest bearish pressure, trades below 0.9850.

S&P Global Manufacturing PMI for the eurozone slumped to 46.6 in October's flash estimate from 48.4 in September, coming in weaker than the market expectation of 47.8 and revealing ongoing contraction in the business activity.

In the same period, the Services PMI edged lower to 48.2 from 48.8 as expected and the Composite PMI declined to 47.1 from 48.1.

Commenting on the data, "the eurozone economy looks set to contract in the fourth quarter given the steepening loss of output and deteriorating demand picture seen in October, adding to speculation that a recession is looking increasingly inevitable," noted Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

Market reaction

The EUR/USD stays on the backfoot after these data releases and was last seen losing 0.3% on the day at 0.9830.

The US dollar opens a new week slightly softer. But decent US Q3 GDP growth and higher inflation readings this week should keep the dollar bid on dips, economists at ING report.

Expect continued high FX volatility

“This week's US data calendar should maintain a hawkish Fed. Third-quarter GDP should come in around 2% quarter-on-quarter annualised and the September readings (both headline and core) for the PCE price deflator should both rise and move further away from the Fed's year-end expectations.”

“Expect continued high FX volatility and DXY probably bouncing around in a 111.50-112.50 range.”

• A combination of factors assists USD/CAD to rebound swiftly from the 1.3600 neighbourhood.
• Weaker crude oil prices undermine the loonie and offer support amid resurgent USD demand.
• Retreating US bond yields might cap gains for the USD and warrants caution for bullish traders.

The USD/CAD pair finds decent support near the 1.3600 mark and stages a solid recovery from over a two-week low touched earlier this Monday. The strong intraday positive move lifts spot prices back above the 1.3700 mark during the early European session and is sponsored by a combination of factors.

Uncertainty over the economic headwinds stemming from China's zero-COVID policy and growing recession fears dampens the outlook for fuel demand. This, in turn, prompts fresh selling around WTI crude oil prices, which undermines the commodity-linked loonie. Furthermore, resurgent US dollar demand offers support to the USD/CAD pair and remains supportive of the intraday recovery move.

Spot prices reverse a part of Friday's steep decline, though a further pullback in the US Treasury bond yields could act as a headwind for the buck and cap any further gains for the USD/CAD pair. In fact, the yield on the benchmark 10-year US government bond retreats further from a 15-year high in the wake of a report that some Fed officials are signalling greater unease with oversized rate hikes.

The Wall Street Journal article indicated that the Fed might debate on whether and how to signal plans to approve a smaller increase in December. The report also highlighted that policymakers want to stop raising rates early next year to see how their moves are slowing the economy and to reduce the risk of causing an unnecessarily sharp slowdown. This, in turn, is dragging the US bond yields lower.

The mixed fundamental backdrop warrants caution before placing fresh bullish bets around the USD/CAD pair and positioning for any further intraday appreciating move. Traders now look to the flash US PMI prints, which, along with the US bond yields, will drive the USD demand. Apart from this, oil price dynamics might contribute to producing short-term opportunities around the USD/CAD pair.

Technical levels to watch

Economist at UOB Group Lee Sue Ann sees the ECB raising the policy rates further at its meeting later in the week.

Key Quotes

“The recent hawkish tone by the ECB, despite the absence of formal forward guidance, has led us to pencil in further rate hikes ahead. There are two more meetings left for the year.”

“For now, we see the ECB hiking by another cumulative 50bps for this year to bring the refinancing rate to 1.75% and the deposit rate to 1.25% by year-end. This will bring rates to the “neutral” territory of between 1% to 2%.”

• German private sector's economic activity continued to contract in early October.
• EUR/USD trades in negative territory below 0.9850 after the data.

Business activity in Germany's manufacturing sector continued to contract at a strengthening pace in early October with the S&P Global's flash Manufacturing PMI dropping to 45.7 from 47.8 in September. This reading came in worse than the market expectation of 47. 

The flash Services PMI edged lower to 44.9 from 45, compared to analysts' estimate of 44.7.

Commenting on the findings of the survey, "the flash PMI data show the downturn in German business activity gathering pace at the start of the fourth quarter, adding to the growing signs of an impending recession in the eurozone’s largest economy," said Phil Smith, Economics Associate Director at S&P Global Market Intelligence.

"We’re seeing weakness across the board in the survey data, with both the manufacturing and service sectors reporting accelerating rates of contraction, led by rapidly declining inflows of new work," Smith added.

Market reaction

EUR/USD came under modest bearish pressure and was last seen losing 0.18% on the day at 0.9842.

Sterling is trading on a mildly firmer footing. However, the GBP/USD pair is unlikely to trade above the 1.15 level, analysts at ING report.

Large swings cannot be ruled out

“Sterling price action seems to assume the advent of a Sunak/Hunt ticket as PM/Chancellor and a focus on trying to restore some of the UK's lost fiscal credibility.”

“After the failed experiment with Trussonomics, the challenge facing the new team will be harder than the one that existed earlier this summer and probably a reason why international investors will not want to chase GBP/USD above the 1.15 level. FX volatility does remain exceptionally elevated, however, and large swings cannot be ruled out.”

• The index looks to reclaim some ground lost around 112.00.
• US yields start the week on the defensive across the curve.
• Flash PMIs, Chicago Fed index next on tap in the US docket.

The greenback kickstarts the week in an auspicious note and pushes the USD Index (DXY) back above the 112.00 barrier on Monday.

USD Index focuses on data, risk trends

The index gathers upside traction and prints decent gains in the European morning, reclaiming the 112.00 neighbourhood amidst some loss of momentum in the risk complex and following two daily drops in a row.

The bullish attempt in the dollar comes on the back of a corrective downtick in US yields across the curve, which give away part of last week’s climb to fresh cycle highs and remain propped up by prospects for the continuation of the tightening bias from the Federal Reserve in the next months.

Data wise in the US docket, the Chicago Fed National Activity Index is due seconded by flash Manufacturing and Services PMIs for the current month.

What to look for around USD

The dollar pokes once again with the 112.00 region and manages to reverse part of the weakness seen in the last part of last 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: Chicago fed National Activity Index, Advanced Manufacturing/Services PMIs (Monday) – FHFA House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, New Home Sales, Building Permits, Advanced Goods Trade Balance (Wednesday) – Flash Q3 GDP Growth Rate, Durable Goods Orders (Thursday) – PCE/Core PCE Price Index, Personal Income/Spending, Pending Home Sales, Final Michigan Consumer Sentiment (Friday).

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

USD Index relevant levels

Now, the index is gaining 0.19% at 112.08 and faces the next up barrier at 113.88 (monthly high October 13) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the other hand, the breakdown of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).

• USD/JPY witnessed a dramatic intraday turnaround from a nearly two-week low.
• A positive risk tone, a goodish pickup in the USD demand offer support to the pair.
• Retreating US bond yields caps any meaningful upside for the buck and the major.

The USD/JPY pair attracts aggressive buying near the 145.45 region and rallies over 425 pips from a nearly two-week low touched this Monday. Spot prices, however, retreat a few pips from the daily high, though manage to hold steady above the 149.00 mark through the early European session.

The Nikkei newspaper reported over the weekend that the Japanese government and the Bank of Japan had intervened in the foreign exchange market on Friday. This was cited as a key factor behind the USD/JPY pair's follow-through decline during the Asian session on Monday, dragging spot prices away from the highest level since August 1990 set on Friday.

Japanese authorities, however, have declined to comment on the matter, which, along with the emergence of fresh US dollar buying, assists the USD/JPY pair to reverse an intraday slide. Moreover, signs of stability in the financial markets undermine the safe-haven JPY and offer additional support to the pair, though the momentum stalls near the 149.70 area.

A further pullback in the US Treasury bond yields acts as a headwind for the greenback and turns out to be a key factor capping the upside for the USD/JPY pair. In fact, the yield on the benchmark 10-year US government bond retreats further from a 15-year high in the wake of a report that some Fed officials are signalling greater unease with oversized rate hikes.

The Fed, however, is still expected to continue to tighten its monetary policy to tame inflation. The BoJ, on the other hand, remains committed to its ultra-lose policy settings, marking a big divergence in comparison to a hawkish stance adopted by other major central banks. This might continue to weigh on the JPY and help limit the downside for the USD/JPY pair.

Market participants now look forward to the US economic docket, featuring the flash PMI prints for the month of October. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities.

Technical levels to watch

Silver speculators continued to add to their shorts on net last week. Diwali holidays in India are set to add further pressure on the white metal, economists at TD Securities report.

Silver prices succumb to the weight of rising real rates

“Before it binds the Fed, quantitative tightening is increasingly constraining other central banks, supporting the broad dollar while weighing on precious metals, leading silver prices to succumb to the weight of rising real rates.” 

“Inflation's rising persistence suggests the Fed is unlikely to stop hiking preemptively, which points to a prolonged period of restrictive rates that should continue to sap interest from institutional investors. However, massive purchases of physical precious metals from retail buyers are clashing with institutional investor outflows in past months, keeping a floor on prices.” 

“With Diwali celebrations kicking off in a few days, silver could lose a dominant pillar of support.”

EUR/USD has struggled to make the most of the softer dollar environment. Economists at ING expect the pair to struggle to knock down the 0.9950 barrier.

Bear market consolidation

“The EUR/USD recovery has been pretty lacklustre and can be best described as a bear market consolidation. For reference, 0.9950 is now probably significant intra-day resistance, marking the top of this year's bear channel.”

“Look out today for another soft set of PMI releases across Europe and the eurozone. And we doubt that Thursday's 75 bps hike from the ECB will be a game-changer for EUR/USD.”

• EUR/USD grinds lower after reversing from fortnight-old resistance line.
• Bears need validation from 0.9800 to retake control.
• Sluggish oscillators suggest further grinding of prices around the key technical levels.

EUR/USD stays defensive around 0.9840-50, following a reversal from the two-week high, as bears struggle near the 200-SMA and a six-week-old resistance line during early Monday morning in Europe.

The major currency pair took a U-turn from a fortnight-long resistance line earlier in Asia. However, a convergence of the aforementioned key SMA and the trend line restricts the quote’s further downside.

Given the sluggish MACD and RSI (14), coupled with the stated technical confluence around 0.9845-50, the EUR/USD pair is likely to remain sidelined.

That said, a one-week-old horizontal support line near 0.9800 adds to the downside filters while the upward-sloping trend line from October 07, close to 0.9905 by the press time, challenges the short-term buyers.

Should the quote crosses the 0.9905 hurdle, a run-up toward the monthly high near the parity level can’t be ruled out.

Alternatively, pullback moves may aim for the monthly horizontal support area surrounding 0.9680-70 before challenging the yearly low of 0.9535.

Overall, EUR/USD remains sidelined between 0.9905 and 0.9800 as the pair traders await the European Central Bank (ECB) monetary policy meeting and the US Gross Domestic Product for the third quarter (Q3).

Also read: EUR/USD drops towards 0.9800 as market’s anxiety propels DXY, focus on ECB, US GDP

EUR/USD: Four-hour chart

Trend: Limited downside expected

Gold price remains mildly offered. The $1,643-$1,642 area seems to protect the immediate downside, FXStreet’s Haresh Menghani reports.

Break past $1,680-$1,682 to quickly direct XAU/USD towards $1,700 

“Any subsequent strength beyond the Asian session swing high, around the $1,670 area, is likely to confront stiff resistance near the $1,680-$1,682 supply zone. Some follow-through buying should allow gold to aim back to reclaim the $1,700 round-figure mark. The positive momentum could further get extended and lift gold towards retesting monthly peak, around the $1,730 region.”

“The $1,643-$1,642 area seems to protect the immediate downside ahead of the $1,637 zone. This is followed by the $1,620 level and the YTD low, around the $1,617-$1,614 region, which if broken decisively will be seen as a fresh trigger for bearish traders. Gold might then accelerate the fall towards challenging the $1,600 round figure before extending the downward trajectory towards the $1,580-$1.575 support.”

China published the Q3 GDP after a rare delay last Tuesday and the 20th Party Congress ended over the weekend. The USD/CNY remains firm after the data. Economists at Commerzbank expect the yuan to continue weakening in the coming months.

China's Q3 GDP better than expected but outlook remains sluggish

“China’s economy expanded 3.9% YoY in Q3, up from a meager 0.4% in Q2. In seasonally-adjusted QoQ terms, GDP also grew by 3.9%. But the apparently strong QoQ growth is not something to cheer for, as it was in large part due to the low base in Q2 when the economy contracted 2.7% q/q as a result of Shanghai’s lockdown.”

“Growth will likely be slow in Q4 and H1 2023, as headwinds stemming from the zero-covid policy and real estate downturn persist. Exports also look set to lose steam given the more challenging global backdrop.”

“China’s sluggish economic prospect and the divergence of monetary policy vis-à-vis the rest of the world mean that CNY weakness will likely persist well into next year.”

Japan's MoF aggressively intervened to support the yen. More interventions are in the offing ahead of Friday's Bank of Japan (BoJ) meeting, according to economists at TD Securities who believe that MoF would prefer USD/JPY below 150.

Intervention is unsustainable

“The timing of this intervention looks intended to maximize pain for 'speculators'. Indeed, it occurred in poor liquidity conditions and just as Fed officials appeared en masse with a well-timed article drop about downshifting the path of hikes. Together, that setup offers the most bang for the buck on the intervention front and may suggest more success at trying to contain USD/JPY topside, in the very short-term at least.”

“We would not be surprised to see more intervention ahead of the BoJ meeting to drive home the point. If not there, then at the meeting itself.”

“While intervention is unsustainable, we think the MoF would prefer USD/JPY below 150, even if they have not explicitly said so.”

Sterling was able to benefit from the fact that Boris Johnson pulled out of the leadership race. While economists at Commerzbank consider this initial market reaction to be correct, too much strength is not justified either.

Johnson’s his return to office would have been GBP negative

“As British politics under Johnson’s leadership would have threatened minimal consensus with Europe, his return to office would have been GBP negative. However, until it becomes clear who is going to be the next British Prime Minister and what the view of the next government towards Europe is going to be, too much GBP strength is not justified either.”

“The less attractive Great Britain seems as a location for investment the smaller the world’s appetite to send capital to the island is likely to get. Investors do not benefit from British consumption. For that to happen, British demand for imports has to shrink. And that happens mainly via GBP weakness.”

Financial markets are concerned about the risk of a public debt crisis in Italy. But the risk of a public debt crisis in Italy may not be so high, in the view of analysts at Natixis.

Is there a real risk of a public debt crisis in Italy?

“The risk of an Italian public debt crisis may seem high, given the high level of debt, the new government’s expansionary fiscal policy, high interest rates and the lack of potential growth.”

“But the risk of a debt crisis in Italy must be put into perspective, as: Italy has no external deficit, unlike at the time of the euro-zone crisis, which rules out a balance of payments crisis; Yields on Italian bonds makes them attractive for investors; The ECB controls the yield spreads between eurozone countries.”

Here is what you need to know on Monday, October 24:

As investors prepare for the highly-anticipated central bank decisions later this week, major currencies stay relatively quiet at the start of the new week except for the Japanese yen. The US Dollar Index moves sideways at around 112.00 and US stock index futures trade flat on the day. S&P Global will release the preliminary October Manufacturing and Services PMI data for Germany, the euro area, the UK and the US. Federal Reserve Bank of Chicago's National Activity Index will also be looked upon for fresh impetus later in the day.

During the Asian trading hours, the data from China revealed that the Gross Domestic Product grew at an annualized rate of 3.9% in the third quarter. This reading came in better than the market expectation for an expansion of 3.4%. Retail Sales in China, however, rose by 2.5% on a yearly basis, falling short of analysts' estimate of 3.3%. The Shanghai Composite fell sharply following mixed data and was last seen losing more than 2% on a daily basis.

The USD/JPY pair climbed toward 150.00 in the first hours of trading early Monday but lost over 400 pips in a matter of 10 minutes. Japan’s top currency diplomat Masato Kanda refrained from clarifying whether they intervened in the market but reiterated that they will continue to take appropriate action against excessive, disorderly market moves. Following the sharp decline witnessed in the Asian session, the pair recovered to the 149.00 area, where it's up around 1% on the day.

EUR/USD trades in a relatively tight range near mid-0.9800s following Friday's rebound. Business activity in the euro area's and Germany's manufacturing sectors are expected to continue to contract in early October. 

GBP/USD trades in positive territory and continues to edge higher toward 1.1400 in the early European morning on Monday. Former British Prime Minister Boris Johnson announced that he ended his big to replace Liz Truss. Meanwhile, former chancellor Rishi Sunak has reportedly 165 supporters ahead of Monday's nomination deadline and remains the clear favourite to become the next PM.

Following Friday's impressive upsurge, gold climbed to a fresh 10-day high near $1,670 early Monday but struggled to preserve its bullish momentum. At the time of press, XAU/USD was little changed on the day at $1,657. Meanwhile, the 10-year US Treasury bond yield is down nearly 2% on the day, helping gold hold its ground for the time being.

Bitcoin climbed toward $20,000 on Sunday but lost its traction before reaching that level. As of writing, BTC/USD was down 1% on the day at $19,350. Ethereum ended up gaining more than 4% last week and seems to have gone into a consolidation phase above $1,300 early Monday.

USD/JPY treads water around 149 following a volatile start to the week. Bank of Japan’s (BoJ) meeting this Friday could pose a substantial risk to the yen, economists at Commerzbank report.

MOF could rap the FX market on the knuckles again

“Perhaps next Friday will provide an opportunity for the market to attack the yen again. That would be when the BoJ is likely to stick to its ultra-expansionary monetary policy.”

“Even if Japanese monetary and currency politicians principally want more inflation, excessive depreciation speed might be seen as problematical if they have to assume that this speed exceeds the adaptability of the Japanese economy. For that reason, the strategy of leaning against the wind fits in very well with continued expansionary monetary policy. If the market’s understanding of that phenomenon is as limited as that of the commentators whose comments I read this morning, they will be rapped on the knuckles again.”

Inflation in Switzerland is much lower (around 3%) than in the eurozone. How is this achieved? Analysts at Natixis sort out possible explanations for this low level of inflation in Switzerland.

Why is Swiss inflation so low? 

“The rise in inflation, after the COVID-19 crisis, after the rise in energy prices due to the war in Ukraine and the halt in Russian natural gas exports, has been much smaller in Switzerland than in the eurozone. This is due to: The strength of the Swiss franc; The limited reaction of wages to inflation in Switzerland; Switzerland's low energy dependence; The independence for agricultural products.”

“Can the eurozone learn from the Swiss example in terms of economic policy? Probably yes regarding low wage indexation, energy independence and independence for agricultural products.”

• Gold price pares the biggest daily jump in three weeks, retreats from one-week high.
• US dollar regains upside momentum after the first weekly loss in three.
• Sour sentiment, hawkish Fed bets underpin DXY rebound ahead of the key US PMI, Q3 GDP.
• XAU/USD stays on the bear’s radar but $1,644 may offer an intermediate halt.

Gold price (XAU/USD) remains mildly offered while paring the previous day’s run-up from a monthly low. In doing so, the yellow metal tests the bearish commitments amid a fortnight-long absence of the Fed speakers ahead of November Federal Open Market Committee (FOMC). That said, geopolitical fears surrounding the US-China and the Russia-Ukraine subjects joined chatters surrounding Japanese policymakers’ market intervention to recall the US dollar buyers. On the same line could be the fresh jump in the hawkish Fed bets, as well as China’s covid woes, not to forget the political jitters in the UK and between North and South Korea. It should, however, be noted that the cautious mood ahead of the preliminary activity numbers for October and the key central bank meetings, as well as the US Gross Domestic Product for the third quarter (Q3), seems to challenge the gold bears of late.

Also read: Gold Price Forecast: XAU/USD treads water as hopes of Fed slowdown offset stronger USD

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price remains above the $1,644 key support despite the latest pullback from a one-week high. The stated level comprises the Fibonacci 38.2% on one-day, 5-DMA and Fibonacci 23.6% on one month.

Also acting as minor support is the convergence of the 50-HMA and lower band of the Bollinger on the four-hour play, as well as the Fibonacci 61.8% on weekly, around $1,636.

In a case where the XAU/USD prices remain weak past $1,636, the odds of witnessing a slump towards the latest swing low near $1,617 and the yearly low of $1,614 can’t be ruled out.

Alternatively, recovery moves may initially dribble around the $1,662 level encompassing Fibonacci 38.2% monthly.

Following that, pivot point one-day R1, SMA 100 on the 4H and upper band of the hourly Bollinger, near $1,672, will be important to watch for fresh impulse as the break of which could quickly direct the XAU/USD bulls towards the $1,700 threshold.

Here is how it looks on the tool

About Technical Confluences Detector

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

Considering advanced prints from CME Group for natural gas futures markets, open interest went up for the third session in a row on Friday, this time by around 3.5K contracts. In the same line, volume remained choppy and increased by more than 15K contracts.

Natural Gas: A drop below $4.00 seems likely

Prices of natural gas extended the sell-off for yet another session on Friday. The continuation of the downtrend was amidst rising open interest and volume and leaves the door open to extra decline in the short-term horizon. That said, the next contention of note is now seen at the February low around $3.87 mark per MMBtu.

• NZD/USD has displayed a rebound move to near 0.5700 as DXY turns quiet after a roller-coaster move.
• Investors’ risk appetite has trimmed as S&P500 futures have surrendered their morning gains.
• The US S&P PMI data is expected to display a weaker performance ahead.

The NZD/USD pair has defended the downside around 0.5720 as investors are shrugging off fears of China Xi Jinping’s third-term leadership announcement. The asset has started displaying reflex actions after a drop and is expected to recover ahead.

Overall risk profile in the market is displaying a decline in investors’ risk appetite as S&P500 futures have surrendered major of their morning gains. The US dollar index (DXY) is eyeing stability after a roller-coaster ride and is continuously auctioning above the critical hurdle of 112.00. Returns on US government bonds have declined sharply. The 10-year US Treasury yields have tumbled to 4.16%, at the press time.

The continuation of China’s XI Jinping leadership for the third time has created havoc for Chinese equities as the risk of a slowdown in economic prospects has escalated. It is worth noting that New Zealand is a leading trading partner of China and weaker Chinese prospects could lead to lower exports for the antipodean.

Also, Monday morning’s China Trade Balance data impacted the kiwi bulls. The overall Trade Balance has accelerated to $84.74B vs. the expectations of $81.0B and the prior release of $79.39B. China’s export data has remained upbeat while their imports have remained flat at 0.3%, much lower than the estimates of 1%. A lower-than-projected Chinese imports data brought volatility in the kiwi counter.

Going forward, the US S&P PMI data will be a key trigger for the asset. The Manufacturing PMI is expected to decline to 51.2 vs. the prior release of 52.0 while the Services PMI may drop to 49.2 from 49.3 reported earlier.

Gold fell for a second consecutive week and neared a two-year low of $1614.81 on Friday. The yellow metal could test the $1,500 level, FXStreet’s Valeria Bednarik reports.

The risk remains skewed to the downside

“Large stops are suspected just below $1,610, the immediate support area. Below the latter, gold can extend its slide to $1,565.02, March 2020 high. The next support is the $1,500 threshold.”

“A steady advance beyond the critical Fibonacci resistance level at $1,658.50, the 61.8% retracement of the $1,614.81/$1,729.54 rally, could result in a bullish corrective advance toward $1,671.90, the 50% retracement of the mentioned rally.”

• The third-term leadership of China’s XI Jinping has messed up Chinese and Hang Seng indices.
• S&P500 futures have extended their gains after an upbeat Friday.
• Oil prices have dropped amid escalating recession fears.

Markets in the Asian domain are not tracking positive cues from S&P500 futures and are displaying terrible price movements. The risk-on sentiment has extremely firmed as 10-US Treasury yields have trimmed further to near 4.15%. Meanwhile, the US dollar index (DXY) is attempting to establish above 112.00 after a roller-coaster move.

At the press time, Japan’s Nikkei225 gained 0.57%, ChinaA50 nosedived 2.93%, and Hang Seng witnessed a bloodbath. The index has erased 5.53%. Indian markets are closed on account of Diwali-Balipratipada.

Chinese markets have witnessed an intense sell-off after the announcement of China’s XI Jinping's third leadership term.  Investors have dumped equities significantly amid soaring fears of economic slowdown as the Chinese leader could prefer ideology-driven policies even at the cost of economic growth. Apart from that, upbeat Gross Domestic Product (GDP) and Trade Balance data have failed to fetch optimism for investors.

Blood has spilled over the roads as indices in Hang Seng have witnessed a bloodbath. The continuation of China’s XI Jinping leadership has strengthened fears of an economic downturn.

In Japan, gains in Nikkei225 are weak against the run-up recorded in S&P500. Potential intervention chatters from the Bank of Japan (BOJ) in the currency markets against disorderly yen moves have restricted the upside in Japanese equities.

On the oil front, oil prices have dropped below the crucial support of $85.00 amid mounting global recession fears. In addition to the BOC, the BOJ and the European Central Bank (ECB) will announce their monetary policies. The BOJ may continue its ultra-loose stance while the ECB could tighten its monetary policy. An expectation of a fresh rate hike spell is weighing pressure on oil prices.

• USD/INR picks up bids while snapping two-day downtrend.
• DXY rebounds amid mixed sentiment, hawkish Fed bets, ignores softer yields.
• Downbeat oil prices, pre-Fed anxiety challenge pair buyers amid holiday in India.
• Monthly PMIs, US Q3 GDP will be important for fresh impulse, risk catalysts are the key.

USD/INR grinds higher around 82.70 as it prints the first daily gain in three despite Monday’s Diwali holidays in India. The Indian rupee (INR) pair’s latest gains could be linked to the US dollar’s broad recovery amid the market’s cautious mood.

That said, the US Dollar Index (DXY) rises 0.20% intraday to 112.11 by the press time amid chatters surrounding Japan’s meddling in the market to defend the yen, as well as challenges to the risk appetite.

Among the major risk-negative catalysts, fears emanating from Korea, China and Russia are crucial to the DXY’s latest rebound. On the same line could be the latest recovery in the hawkish Fed bets.

The news that both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have favored the US dollar buyers of late. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row. Further, news that China announced covid lockdown in the factory hub Guangzhou and the latest jump in the market’s bets over the Fed’s 75 bps move in November, from 88% to 95%, also seemed to have fuelled the USD/INR prices. Additionally, ABC News quoted Ukrainian General Oleksandr Syrskiy citing fears of Nuclear war.

Amid these plays, S&P 500 Futures struggle for clear directions even as Wall Street posted the biggest weekly gains in four monthly by the end of Friday.

It should be observed that the USD/INR run-up also ignores a fall in the US Treasury yields as the benchmark 10-year coupons extend Friday’s pullback from the 32-year high to 4.15%, down six basis points at the latest.

On the same line, a fall in the WTI crude oil prices and the hopes of the Reserve Bank of India’s (RBI) intervention to defend the INR also could have defended the USD/INR bears but did not.

To sum up, USD/INR remains on the front foot due to the US dollar’s fundamental strength versus the INR. However, the RBI intervention and further declines in oil prices may test the buyers. Also important to watch are the preliminary activity numbers for October and the US Gross Domestic Product for the third quarter (Q3).

Technical analysis

A daily closing below a one-month-old support line, around 82.30 by the press time, becomes necessary for the USD/INR bear to retake control.

Open interest in crude oil futures markets shrank by around 5.8K contracts on Friday, reversing the previous daily build according to preliminary readings from CME Group. Volume followed suit and dropped for the second consecutive session, now by nearly 178K contracts.

WTI: Next on the downside comes $80.00

Prices of the WTI charted and inconclusive session at the end of last week around the $85.00 mark and amidst shrinking open interest and volume. That said, the lack of direction is expected to prevail in the very near term, while the $80.00 mark emerges as the next target of note on the downside.

“Consumer Price Index (CPI) growth beyond the next Financial Year (FY) is likely to fall below 2% target,” said Bank of Japan (BOJ) Governor Haruhiko Kuroda early Monday.

Additional comments

USD/JPY traders take a breather

USD/JPY maintains the 30 basis points (bps) trading range around 149.00 following a volatile start to the week which initially refreshed a fortnight low before recalling the buyers.

Also read: USD/JPY steadies around 149.00 after rollercoaster moves on alleged Japan intervention

• Aussie bulls are witnessing fresh demand after testing Wyckoff consolidation’s breakout.
• The positive market sentiment has trimmed returns on US Treasury yields.
• The 20-EMA has acted as major support for the counter.

The AUD/USD pair has attempted a rebound after dropping to near 0.6324 in the late Tokyo session as the risk-on impulse has strengthened further led by gains recorded in S&P500 futures after a solid Friday. The US dollar index (DXY) is working on establishment above 112.00, however, a cheerful risk profile could bring volatility to the counter.

Meanwhile, the 10-year US Treasury yields have dropped further to near 4.15% amid improved risk appetite. Going forward, the Australian inflation data will be of utmost importance.

On an hourly scale, the asset is testing the textbook-carbon Wyckoff’s consolidation breakout. The major rebounded firmly after Richard Wyckoff’s Spring formation which indicates the climax of the selling pressure and investors make a fresh demand, considering the asset a value buy. The Spring formed at the two-year low of 0.6170.

The responsive action from aussie bulls has turned into a breakout of the longer consolidation phase and now the upside break is testing the breakout’s edge.

The 20-period Exponential Moving Average (EMA) at 0.6340 is acting as major support for the counter.

Meanwhile, the Relative Strength Index (RSI) (14) has retraced from the bullish range of 60.00-80.00. The aussie bulls will strengthen further if the RSI (14) returns to bullish territory.

Going forward, a decisive break above Thursday’s high at 0.6356 will strengthen the aussie bulls. This will drive the asset towards October 7 high at 0.6432, followed by October 4 high at 0.6548.

On the flip side, a downside break of Thursday’s low at 0.6229 will drag the asset toward the fresh two-year low at 0.6170 and April 2020 low at 0.5991.

AUD/USD hourly chart

CME Group’s flash data for gold futures markets noted traders trimmed their open interest positions by around 2.7K contracts after three consecutive daily builds on Friday. Volume, instead, resumed the uptrend and rose by around 111.7K contracts.

Gold now looks to $1,700 and beyond

Friday’s strong advance in gold prices was on the back of shrinking open interest, hinting at the likelihood that a sustainable bounce seems out of favour in the very near term. The $1,700 mark per ounce troy, an area coincident with the 55-day SMA, continues to cap the upside for the time being.

• EUR/GBP is playing around the immediate hurdle of 0.8700 after a firmer rebound.
• The chances of a 75 bps rate hike announcement by the ECB look solid.
• Former UK PM Boris Johnson has asked Rishi Sunak to step back from the UK PM race.

The EUR/GBP pair is hovering near the round-level resistance of 0.8700 in the late Tokyo session. The asset has accelerated after a gap-down opening near 0.8660 and is aiming to overstep the immediate hurdle of 0.8700. The shared currency bulls have picked demand as investors are betting over a bigger rate hike announcement by the European Central Bank (ECB).

Price pressures in the trading bloc are mounting and have not displayed any sign of exhaustion yet. Therefore, ECB President Christine Lagarde is required to tighten its policy further. According to analysts from Rabobank, a 75 basis point (bps) interest rate hike is a done deal. They see the deposit rate reaching 3% by March next year. Currently, the ECB rates stand at 1.25% as the central bank announced a 75 bps rate hike in September.

Apart from that, soaring energy bills are hurting the sentiment of households in Germany. On Friday, Reuters reported that German Parliament is preparing to vote for the approval of a €200 billion emergency rescue package to tackle the energy crisis.

On the UK front, escalating political tensions have turned the pound bulls extremely volatile. The Shortest UK Prime Ministerial term by Liz Truss has dampened the confidence of stakeholders. Meanwhile, the debt crisis in the UK economy has reached the sky and the novel UK prime Minister will face the highest-ever debt burden.

It would be worth watching the efforts from would-be UK Prime Minister and newly appointed Finance Minister Jeremy Hunt in fixing the pile debt mess.

British Conservative Party needs a suitable candidate to maintain decorum and avoid their defeat in General Elections, scheduled for 2024. However, Boris Johnson has asked Rishi Sunak to step down from the UK PM race, which will be decided latest by Friday.

• USD/JPY remains sidelined after reversing early Asian session loss.
• Chatters over Tokyo’s meddling triggered initial slump before sour sentiment, hawkish Fed bets recalled buyers.
• US 10-year Treasury yields extend Friday’s pullback from 14-year high, stock futures, Asia-Pacific stocks trade mixed.
• PMIs, US GDP could entertain buyers but major attention will be given to Fed bets, policymakers’ intervention.

USD/JPY treads water around 148.85 following a volatile start to the week which initially refreshed a fortnight low before recalling the buyers ahead of Monday’s European session. That said, the pair’s earlier slump could be linked to the alleged Japan intervention while challenges to sentiment could have favored the pair buyers afterward.

The yen pair slumped nearly 220 pips during the initial Asian session and there’s no clue in the market, which in turn suggests the Japanese intervention to defend the currency after it rallied to the highest levels since 1990. However, most of the policymakers from Tokyo, including top currency diplomat Masato Kanda, Finance Minister Sunichi Suzuki and Chief Cabinet Secretary Hirokazu Matsuno, resisted confirming the same. Hence, the pair took clues from risk catalysts and quickly bounced towards regaining 149.00, up 0.75% intraday by the press time.

Other than the Japanese policymakers’ resistance to accepting the market meddling, fears emanating from Korea, China and Russia also propel the US dollar’s safe-haven demand and the USD/JPY prices. That said, the news that both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have favored the US dollar buyers of late. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row. Additionally, ABC News quoted Ukrainian General Oleksandr Syrskiy citing fears of Nuclear war.

Furthermore, news that China announced covid lockdown in the factory hub Guangzhou and the latest jump in the market’s bets over the Fed’s 75 bps move in November, from 88% to 95%, also seemed to have fuelled the USD/JPY prices.

While tracing the risk catalysts, the USD/JPY pair paid a little heed to the US Treasury yields as the benchmark 10-year coupons extend Friday’s pullback from the 32-year high to 4.15%, down six basis points at the latest.

It should be noted that the US equities posted the largest weekly gains in four months by the end of Friday but S&P 500 Futures struggle for clear directions of late.

The reason could be linked to the market’s expectations of easy Fed rate hikes after December. In his latest speech, St. Louis Fed President James Bullard said, “I want rates that put significant downward pressure on inflation.” On the same line, Chicago Fed President Charles Evans stated that they will need to raise rates further and hold them for a while. However, Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal (WSJ) wrote that the Federal Reserve officials are barreling toward another interest-rate rise of 75 bps at their meeting in November and are likely to debate then whether and how to signal plans to approve a smaller increase in December.

Moving, preliminary readings for the US PMIs for October, scheduled for today, as well as the US Gross Domestic Product for the third quarter (Q3), up for publishing on Thursday, will be important to watch for short-term directions. However, the divergence between the Bank of Japan (BOJ) and the Fed will be crucial for the USD/JPY pair traders to follow for a clear understanding.

Technical analysis

Unless providing a daily closing below a four-month-old support line, around 146.20 by the press time, USD/JPY buyers remain hopeful of refreshing the multi-year high above 150.00.

• GBP/USD reverses from one-week high as sellers approach 21-DMA, monthly support line.
• Bullish MACD signals, firmer RSI (14) keeps buyers hopeful.
• One-month-old horizontal support adds to the downside filters.

GBP/USD stays defensive around a one-month-long support line, after reversing from the highest levels in a week, to 1.1300 during early Monday morning in Europe.

In doing so, the Cable pair reverses from the 50-DMA while declining back towards an upward-sloping support line from September 28.

Given the bullish MACD signals and the steady RSI, the GBP/USD prices are likely to remain firmer unless breaking the aforementioned immediate support line surrounding 1.1230.

Even if the quote drops below 1.1260 support, the 21-DMA level near 1.1155 and the one-month-old horizontal support near 1.0935 could challenge the GBP/USD bears.

It should be noted that a clear downside break of 1.0935 won’t hesitate to challenge the record low of 1.0339. However, the 1.0650 and 1.0540 levels may offer intermediate halts during the fall.

Alternatively, a clear upside break of the 50-DMA hurdle surrounding 1.1415 could push the GBP/USD buyers toward the monthly high near 1.1490.

Following that, the 61.8% Fibonacci retracement level of the pair’s August-September declines and September’s peak, close to 1.1545 and 1.1740 in that order, will act as extra barriers to the north for the GBP/USD pair buyers to watch.

GBP/USD: Daily chart

Trend: Recovery expected

• AUD/JPY has declined after failing to recapture an intraday high at 95.43 amid flat Chinese imports data.
• The RBA may return to a 50 bps rate hike pace amid higher consensus for Aussie CPI.
• A continuation of an ultra-dovish monetary policy by the BOJ looks likely.

The AUD/JPY pair dropped again after an attempt to recapture an intraday high at 95.43. The risk barometer has sensed selling pressure despite the release of downbeat China’s economic data. Meanwhile, overall risk impulse is solid as S&P500 futures are holding their morning gains, followed by an upbeat Friday.

China’s Gross Domestic Product (GDP) data for annual and quarterly segments have soared to 3.9%, higher than their projections. The overall Trade Balance has accelerated to $84.74B vs. the expectations of $81.0B and the prior release of $79.39B. China’s export data has remained upbeat while their imports have remained flat at 0.3%, much lower than the estimates of 1%.

As Australia is a leading trading partner of China, lower-than-projected Chinese import data has impacted the aussie bulls.

This week, aussie investors will focus on Wednesday’s Consumer Price Index (CPI) data. On an annual basis, the headline CPI figure will accelerate to 6.9% vs. the former release of 6.1%. While a decline to near 1.5% is expected from the prior settlement of the inflation rate at 1.8% on a quarterly basis. This may force the Reserve Bank of Australia (RBA) to return to the 50 basis points (bps) rate hike structure.

Meanwhile, yen investors are awaiting more development on the Bank of Japan (BOJ) intervention in the currency markets to safeguard the Japanese yen against one-sided speculative moves. Japanese officials have denied commenting on whether they have intervened in currency markets or not. However, analysts at National Australia Bank (NAB) in Sydney have cited that “It’s blindingly obvious that the BOJ is intervening,”

Going forward, the Bank of Japan (BOJ)’s monetary policy will remain the key. Considering the risk of external demand shocks cited by BOJ Governor Haruhiko Kuroda last week, the central will stick to its ultra-loose monetary policy.

• Gold price prints mild losses while reversing from one-week high.
• DXY pares the first weekly loss in three amid geopolitical, market meddling concerns.
• Fed speakers’ absence, likely hawkish outcome from ECB could test XAU/USD bears.
• Preliminary readings of US PMI for October, Q3 GDP are also important for near-term directions.

Gold price (XAU/USD) remains pressured around the intraday low of $1,652, keeping the week-start pullback from a fortnight top, during early Monday morning in Europe. In doing so, the yellow metal justifies the firmer US dollar, as well as the market’s cautious mood.

US Dollar Index (DXY) rises 0.30% intraday to 112.25 by the press time amid chatters surrounding Japan’s meddling in the market to defend the yen, as well as challenges to the risk appetite.

That said, the news that both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have favored the US dollar buyers of late. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row. Additionally, ABC News quoted Ukrainian General Oleksandr Syrskiy citing fears of Nuclear war, which in turn might have recalled the US dollar buyers.

Recently, news that China announced covid lockdown in the factory hub Guangzhou weigh on the market sentiment and the XAU/USD prices. The latest jump in the market’s bets over the Fed’s 75 bps move in November, from 88% to 95%, also seemed to have drowned the gold prices.

Amid these plays, S&P 500 Futures print 0.50% intraday gains while the US 10-year Treasury yields remain offered around 4.17%, extending Friday’s losses from the 14-year high. That said, the US equities posted the largest weekly gains in four months in the latest amid previously receding fears of the Fed’s aggressive rate hike.

On Friday, the gold price rose heavily while portraying the first weekly gain in three as the hawkish Fed bets retreat after a mixed Fedspeak. That said, St. Louis Fed President James Bullard said, “I want rates that put significant downward pressure on inflation.” On the same line, Chicago Fed President Charles Evans stated that they will need to raise rates further and hold them for a while. However, Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal (WSJ) wrote that the Federal Reserve officials are barreling toward another interest-rate rise of 75 bps at their meeting in November and are likely to debate then whether and how to signal plans to approve a smaller increase in December.

Looking ahead, gold traders should expect further weakness amid dicey markets and challenges to sentiment. However, the absence of the Fed speakers and a likely hawkish outcome from the European Central Bank (ECB) could challenge the XAU/USD downside.

Technical analysis

Gold price retreats from the 21-DMA hurdle amid bearish MACD signals and sluggish RSI, which in turn suggests the metal’s further declines towards the resistance-turned-support line from October 06, around $1,630 by the press time.

However, monthly horizontal support near $1,620, quickly followed by the yearly bottom of $1,614, could challenge the gold bears afterward. In a case where the metal prices drop below $1,614, the $1,600 threshold and the 61.8% Fibonacci Expansion (FE) of June-October moves, near $1,565, lure the XAU/USD bears.

Alternatively, the 21-DMA and the 50-DMA, around $1,665 and $1,694 in that order, guard the short-term recovery of gold price.

Following that, the $1,700 round figure and the monthly high near $1,730 might be interesting to watch for further upside.

Gold: Daily chart

Trend: Limited downside expected

• USD/CAD has accelerated to near 1.3680 amid a stellar recovery in the DXY.
• The 10-year US Treasury yields have extended their losses to near 4.17% amid soaring market mood.
• The BOC may trim the extent of the rate hike to 50 bps this week.

The USD/CAD pair sensed buying interest after dropping to near the round-level support of 1.3600 in early Tokyo. The loonie bulls have retreated after the US dollar index (DXY) defended the intervention rumors of the Bank of Japan (BOJ) recovered its entire intraday losses. The asset has extended its gains to near 1.3680.

The DXY has recaptured its intraday high at 112.26 and is expected to behave critically ahead as the returns on US government bonds have dropped sharply. The 10-year US Treasury yields have extended their losses by 4.17% after displaying jaw-dropping gains to near 4.34% on Friday. Market sentiment is extremely cheerful and S&P500 futures are holding their gains.

On Monday, the US S&P PMI data will be keenly watched. The Manufacturing PMI is expected to decline to 51.2 vs. the prior release of 52.0 while the Services PMI may drop to 49.2 from 49.3 reported earlier.

This week, the interest rate decision from the Bank of Canada (BOC) will determine the further direction of the asset. A Reuters poll on projections for BOC’s interest rate claims that BOC Governor Tiff Macklem will announce a rate hike of 50 basis points (bps). The extent of the rate hike seems lower than their current pace of hiking interest rates. It is worth noting that the headline inflation rate in Canada was recorded at 6.9% for September.

On the oil front, oil prices have dropped below the crucial support of $85.00 amid mounting global recession fears. In addition to the BOC, the BOJ and the European Central Bank (ECB) will announce their monetary policies. The BOJ may continue its ultra-loose stance while the ECB could tighten its monetary policy. An expectation of a fresh rate hike spell is weighing pressure on oil prices.

• USD/CNH snaps two-day losing streak even as China’s Q3 GDP improved.
• Short-term rectangle signals limited upside moves but sustained trading beyond 200-HMA favor buyers.
• Fortnight-old ascending trend line, bullish MACD signals also strengthen upside bias.

USD/CNH remains firmer around 7.2700 as bulls retake control during early Monday, after a two-day absence. In doing so, the offshore Chinese yuan (CNH) ignores recently firmer China data while staying inside a three-day-old rectangle formation.

That said, China’s Q3 GDP rose to 3.9% YoY versus 3.4% expected while September’s Industrial Output also increased by 6.3% in a year compared to 4.5% market forecasts. However, China Retail Sales eased to 2.5% YoY from 3.3% market expectations during September.

Also read: China GDP (YoY) Q3: 3.9% (exp 3.3% vs. prev 0.4%), Aussie remains volatile

Although the stated triangle’s upper line, around 7.2800 at the latest, challenges the USD/CNH bulls, the pair’s sustained trading beyond the two-week-old ascending trend line and the 200-SMA, respectively near 7.2180 and 7.2250, keep buyers hopeful. Also favoring the upside hopes are the bullish MACD signals.

However, the monthly high near 7.2840 and the 7.3000 psychological magnet may challenge the USD/CNH buyers going forward.

On the flip side, a clear break of the 200-SMA level surrounding 7.2180 could quickly direct the quote to the 50% and 61.8% Fibonacci retracement level of October 05-21 upside, near 7.1480 and 7.1160 in that order.

USD/CNH: Hourly chart

Trend: Further upside expected

Japanese Chief Cabinet Secretary Hirokazu Matsuno crossed wires, via Reuters, during early Monday while showing readiness to take appropriate action against excessive forex moves.

Alike other Japanese policymakers, Matsuno also turned down the request to confirm Tokyo’s early-Monday intervention while stating, “No comment on fx intervention.”

Japan’s Matsuno also mentioned that they’re closely watching fx moves with high sense of urgency.

USD/JPY grinds higher

USD/JPY steadies around 149.00, after a roller-coaster start to the week, which initially dragged the quote to a two-week low before fueling it to 149.70. It should be noted that the alleged Japanese intervention is the key for the pair bears.

Also read: USD/JPY recovers majority of losses as risk appetite improves further, BOJ policy buzz

• EUR/USD stays depressed while extending the pullback from two-week top.
• Japan’s alleged intervention, Russian nuclear threat and fears emanating from China challenge the previous risk-on mood.
• Yields remain under pressure amid chatters over easy Fed rate hike in December.
• ECB is up for 75 bps move but talks over QT will be more important to please buyers.

EUR/USD holds lower grounds near 0.9840 while keeping the week-start pullback from a fortnight top during early Monday. In doing so, the major currency pair prints the first daily loss in three while paring the previous weekly gains amid mixed sentiment and volatile markets.

The chatters surrounding Japan’s meddling in the market to defend the yen appeared to have triggered the US dollar’s latest rebound. Elsewhere, the news that both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have favored the US dollar buyers of late. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row. Additionally, ABC News quoted Ukrainian General Oleksandr Syrskiy citing fears of Nuclear war, which in turn should please the EUR/USD sellers.

It should be noted that the latest jump in the market’s bets over the Fed’s 75 bps move in November, from 88% to 95%, also seemed to have drowned the EUR/USD prices.

The greenback dropped heavily on Friday while amplifying the first weekly negative in three as the hawkish Fed bets retreat after mixed Fedspeak. That said, St. Louis Fed President James Bullard said, “I want rates that put significant downward pressure on inflation.” On the same line, Chicago Fed President Charles Evans stated that they will need to raise rates further and hold them for a while. However, Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal (WSJ) wrote that the Federal Reserve officials are barreling toward another interest-rate rise of 75 bps at their meeting in November and are likely to debate then whether and how to signal plans to approve a smaller increase in December.

Even so, S&P 500 Futures print 0.50% intraday gains while the US 10-year Treasury yields remain offered around 4.17%, extending Friday’s losses from the 14-year high. That said, the US equities posted the largest weekly gains in four months in the latest amid previously receding fears of the Fed’s aggressive rate hike.

Looking forward, preliminary readings of German, Eurozone and US PMIs for October will join the aforementioned risk catalysts to entertain EUR/USD bears. However, all eyes will be on Thursday’s monetary policy meeting of the European Central Bank (ECB) as the decision-makers have been hawkish of late, which in turn could help the pair buyers to regain control in case of the Quantitative Tightening (QT) announcement.

Technical analysis

EUR/USD reverses from the 50-DMA hurdle, around 0.9900 by the press time, but needs to conquer the previous resistance line from September 12, around 0.9830, to convince sellers.

• GBP/JPY picks up bids to reverse early Asian session’s slump.
• Hopes from Rishi Sunak, Japan policymakers’ resistance keep buyers hopeful.
• Softer yields, indecision over Tokyo’s market intervention keep traders worried.
• UK PMIs, politics will be important for fresh impulse.

GBP/JPY remains firmer around 168.50 while reversing the week-start pullback, amid the market’s cautious optimism during early Monday. However, indecision over Japan’s intervention and geopolitical fears challenge the pair’s upside near the key resistance line.

That said, the optimism in the UK amid the higher odds of Rishi Sunak’s likely victory in the race for British Prime Minister. “Rishi Sunak looked set to become Britain's next prime minister after Boris Johnson withdrew from the contest on Sunday, saying that although he had enough support to make the final ballot he realized the country and the Conservative Party needed unity,” said Reuters. The news also quotes Boris Johnson as saying that he had secured the backing of 102 lawmakers and could have been "back in Downing Street", but that he had failed to persuade either Sunak, or the other contender Penny Mordaunt, to come together "in the national interest".

On the other hand, the global rating agency Moody’s negative outlook on the UK, from stable, challenges the pair buyers. Furthermore, Japan’s alleged meddling to defend the falling yen also test the GBP/JPY bulls.

Additionally, the news that both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have challenged the market’s optimism and weighed on the GBP/JPY. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row.

Amid these plays, S&P 500 Futures print 0.50% intraday gains while the US 10-year Treasury yields remain offered around 4.19%, extending Friday’s losses from the 14-year high.

Moving on, UK politics will be in focus but major attention will be given to the preliminary readings for the UK/US PMIs for October.

To sum up, GBP/JPY remains firmer and can extend the run-up on political optimism but Japan’s meddling and challenge to the sentiment could restrict the pair’s upside.

Technical analysis

GBP/JPY again struggles to overcome the six-month-old upward-sloping resistance line, near 169.85 at the latest. That said, the bullish MACD signals and the steady RSI requires the bears to remain cautious unless they break the aforementioned support line, around 166.20 by the press time, as well as conquer the 166.00 thresholds.

• NZD/USD retreats from two-week high even as China Q3 GDP grew better than forecast.
• MACD signals, rebound from one-week-old rising trend line favor buyers.
• One-month-old horizontal resistance acts as extra filters to the north.

NZD/USD fails to justify upbeat China data as it drops to 0.5745 while extending the week-start pullback from the 12-day high during Monday’s Asian session.

Also read: China GDP (YoY) Q3: 3.9% (exp 3.3% vs. prev 0.4%), Aussie remains volatile

In doing so, the Kiwi pair retreats from the 200-SMA and ignores the bullish MACD signals.

With this, the quote’s further downside becomes questionable unless it breaks the one-week-old support line, around 0.5675 by the press time.

Following that, a downward trajectory towards refreshing the yearly low near 0.5510 can’t be ruled out.

It should be noted that the NZD/USD pair’s weakness past 0.5510 needs validation from the 0.5500 threshold and the year 2020 bottom surrounding 0.5470 to keep the bears on the table.

Alternatively, recovery moves will initially need to cross the 200-SMA hurdle near 0.5780 to convince intraday buyers before challenging a one-month-old horizontal resistance area surrounding 0.5805-10.

Should the Kiwi pair buyers manage to keep the reins past 0.5810, the quote can aim for the 0.6000 psychological magnet and the previous monthly peak surrounding 0.6165.

Overall, NZD/USD remains on the short-term seller's radar but the downside appears limited.

NZD/USD: Four-hour chart

Trend: Limited downside expected

• AUD/USD bounces off intraday low after upbeat China Q3 GDP.
• Challenges to sentiment, volatile markets also test buyers.
• Aussie PMIs, RBA’s Kent join fears of downbeat economic growth favor bears.
• US activity data for October will decorate intraday calendar.

AUD/USD picks up bids to pare intraday losses around 0.6365 after China reported upbeat Gross Domestic Product (GDP) data for the third quarter (Q3) during early Monday. However, sour sentiment, volatile markets and pessimism surrounding Australia seems to challenge the Aussie pair buyers.

China’s Q3 GDP rose to 3.9% YoY versus 3.4% expected while September’s Industrial Output also increased by 6.3% on a year compared to 4.5% market forecasts. However, China Retail Sales eased to 2.5% YoY from 3.3% market expectations during September.

Also read: China GDP (YoY) Q3: 3.9% (exp 3.3% vs. prev 0.4%), Aussie remains volatile

It should, however, be noted that Australian government will downgrade growth forecasts in the upcoming budget update joined the hawkish Fed bets and geopolitical fears surrounding China to weigh on the AUD/USD prices of late.

Reuters reported that Australia's economic growth is expected to slow sharply next financial year as rising inflation curbs household consumption, according to new forecasts to be unveiled by Treasurer Jim Chalmers in Tuesday's budget. Elsewhere, the ABC News quoted Ukrainian General Oleksandr Syrskiy citing fears of Nuclear war. Furthermore, looming fears for Chinese chip companies, due to the US-led restrictions, join the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan to weigh on AUD/USD prices.

Even so, S&P 500 Futures print 0.50% intraday gains while the US 10-year Treasury yields remain offered around 4.19%, extending Friday’s losses from the 14-year high.

Earlier in the day, Australia’s S&P Global Manufacturing PMI eased to 52.8 in October versus 53.5 previous readings and 52.5 market forecast while the Services counterpart dropped to 49 from 50.6 prior and 50.5 forecast. With this, S&P Global Composite PMI slipped into the contraction territory with 49.6 figure versus 50.9 previous readouts.

Further, Reserve Bank of Australia (RBA) Assistant Governor (Economic) Christopher Kent repeats that the RBA board expects to increase interest rates further in the period ahead. The policymaker, however, also stated that the size and timing of rate increases will depend on incoming data, per Reuters.

Looking forward, AUD/USD traders will pay a close attention to the risk catalysts, as well as the preliminary readings for the US PMIs for October. That said, AUD/USD bears are likely to keep the reins amid the recently increasing hawkish Fed bets and geopolitical fears.

Technical analysis

Despite the latest rebound, the AUD/USD pair retreats from a 21-DMA hurdle while paring the first weekly gain in three.

• USD/JPY has rebounded firmly to near 149.00 amid sheer volatility in the DXY.
• Firmer market sentiment has brought a recovery in the asset.
• The BOJ is expected to continue its ultra-dovish monetary policy ahead.

The USD/JPY pair has recovered almost its entire morning losses and has scaled back to near 149.00 in the Tokyo session. Earlier, the asset plunged to near 145.48 as the US dollar index (DXY) turned extremely volatile. The DXY witnessed a wild swing in the 111.46-112.26 range.

Market sentiment is extremely positive as S&P500 futures have gained further after a bullish Friday. The 10-Year US Treasury yields have dropped marginally to 4.21%. Last week, the returns on 10-year US Treasury yields top around 4.34% in the past 14 years.

Meanwhile, Reuters has cited that the second straight knee-jerk reaction in the USD/JPY pair is a suspected early intervention by the Bank of Japan (BOJ) in the FX market.

Analysts at National Australia Bank (NAB) in Sydney have cited that “It’s blindingly obvious that the BOJ is intervening,”

In early Asia, Japan’s top currency diplomat Masato stated that the administration is ready to take necessary action 24*7 to support the Japanese yen against one-sided speculative moves in the currency market. Japanese officials denied commenting on their intervention in FX markets but promises to take necessary action against disorderly market moves.

Going forward, the interest rate decision by the Bank of Japan (BOJ) will be of utmost importance, which is due on Wednesday. Weak economic fundamentals due to external demand shocks will force the BOJ to continue its dovish stance on interest rates. Last week, BOJ’s Governor Haruhiko Kuroda crossed wires, citing that Japan's economy is vulnerable to external demand shock, which could tip it back to deflation. This clears the fact that the concept of policy tightening is far from thought.

China's delayed release of Gross Domestic Product has been released showing that the nation grew year over year for the third quarter by 3.9% vs. the expected 3.3% and the previous 0.4%.

AUD/USD is volatile on the day related to suspected Japanese forex market intervention. The pair is losing some 0.27% at the time of writing and has fallen to a low of 0.6348 from 0.6411 the high.

There have been a number of data releases that have followed GDP as follows:

Chinese Trade Balance (USD) Sep: (exp 80.30B; prev 79.39B),
Exports (YoY) Sep: 5.7% (exp 4.0%; prev 7.1%),
Imports (YoY) Sep: 0.3% (exp 0.0%; prev 0.3%),

Chinese New Home Prices (M/M) Sep: -0.28% (prev -0.29)%),

Chinese Retail Sales (YoY) Sep: 2.5% (exp 3.0%; prev 5.4%) ,
Retail Sales YTD (YoY) Sep: 0.7% (exp 0.9%; prev 0.5%,)

Chinese Industrial Production (YoY) Sep:  6.3% (exp 4.8%; prev 4.2%),
Industrial Production YTD (YoY) Sep: 3.9% (exp 3.7%; prev 3.6%),

Meanwhile, China's Xi Jinping secured a precedent-breaking third leadership term on Sunday and introduced a top governing body stacked with loyalists, cementing his place as the country's most powerful ruler since Mao Zedong.

Reuters reported that Australia's economic growth is expected to slow sharply next financial year as rising inflation curbs household consumption, according to new forecasts to be unveiled by Treasurer Jim Chalmers in Tuesday's budget. 

Meanwhile, from the data calendar, Aussie inflation is slated for this week as the main event. ''We expect a more dovish headline Consumer Price Index print due to the significant offset from the rebates and lower pump prices,'' analysts at TD Securities explained. ''However, trimmed-mean CPI may stay elevated at 1.6% QoQ as broader price pressures are still brewing, especially in the housing and food categories. Unless trimmed-mean inflation is strongly higher, we expect the Bank to stick with 25bps hikes until March 2023.''

As for AUD/USD, there has been high volatility at the start of the week related to suspected Japanese forex market intervention. The pair is losing some 0.4% at the time of writing to a low of 0.6348 from 0.6411 the high.

• WTI picks up bids to renew intraday high, justifies bullish candlestick.
• Sustained bounce off previous resistance line, 21-DMA faovr buyers to aim for 50-DMA.
• Sellers need validation from $81.30 before challenging yearly low.

WTI crude oil prices print 0.70% intraday gains as buyers cheer the previous day’s bullish candlestick formation around $85.50 during Monday’s Asian session.

In doing so, the black gold also keeps Friday’s rebound from the resistance-turned-support line stretched from October 10.

Given the steady RSI (14) and the bullish signals from the latest candlestick, as well as the rebound from the previous resistance line, WTI buyers are likely approaching the 50-DMA hurdle surrounding $86.35.

Also acting as an upside filter is the 50% Fibonacci retracement level of August-September moves, near $86.65 and the 61.8% Fibonacci retracement level of $89.15.

Should the quote rises past $89.15, the monthly high near $92.65 will be on the buyer’s radar.

Meanwhile, the 21-DMA and the previous resistance line, respectively around $84.55 and $81.90, restrict the short-term downside of the black gold.

In a case where WTI bears keep the reins past $81.90, the odds of witnessing a slump toward September’s low of $76.15 can’t be ruled out.

WTI: Daily chart

Trend: Further recovery expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1230 vs. the previous fix of 7.1186 and the prior close of 7.2244.

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.

• Gold price has declined sharply after testing the $1,670.00 hurdle amid wild DXY.
• Market sentiment is extremely positive as S&P500 futures have extended their gains.
• The odds for a hawkish Fed policy have resurfaced firmly above 94%.

Gold price (XAU/USD) has picked offers while attempting to cross the critical hurdle of $1,670.00 in the Tokyo session. The precious metal has sensed decent selling pressure as the US dollar index (DXY) has turned extremely volatile amid gossip over the Bank of Japan (BOJ)’s intervention in the FX markets to support the Japanese yen.

The US dollar index (DXY) has gyrated in a 111.47-112.27 range and is likely to remain volatile until clarity over BOJ’s intervention as Japan’s top currency diplomat Masato Kanda has denied commenting on revealing any intervention plans.

Meanwhile, S&P500 futures have extended their upside journey, following Friday’s positive sentiment in early Asia. Simultaneously, the returns on US government bonds have dented further despite a recovery in bets on hawkish Federal Reserve (Fed) policy. The 10-year US Treasury yields have dropped further to 4.21%. While, the probability for a 75 basis point (bps) rate hike by the Fed carries more than 94% on the CME FedWatch tool, at the press time.

Going forward, the US S&P PMI data will be of utmost importance. As per the market consensus, the Manufacturing PMI will decline to 51.2 vs. the prior release of 52.0 while the Services PMI will slash to 49.2 from 49.3 reported earlier.

Gold technical analysis

On an hourly scale, the Gold price has witnessed a stellar buying interest after testing the demand zone placed in a $1,614.85-1,621.60 range. The precious metal has crossed the 50-and 200-Exponential Moving Averages (EMAs) at $1,637.50 and $1,660.00 respectively in no time.

It is worth noting that the 50-and 200-EMAs have not delivered a bull cross yet, which shows the strength of the gold bulls. Also, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which indicates more upside ahead.

Gold hourly chart

• GBP/USD prints three-day uptrend amid cautious optimism in the UK, volatile markets elsewhere.
• Boris Johnson’s retreat helps Rishi Sunak to aim for the PM candidature due to economic knowledge, public trust.
• UK/US S&P Global PMIs for October will offer intermediate moves but UK politics, US GDP is crucial for clear directions.

GBP/USD prints mild gains around a one-week high while posting a three-day uptrend during Monday’s Asian session. That said, the Cable pair recently eases to 1.1330, following the early-day jump to 1.1410.

The quote’s previous run-up could be linked to the optimism in the UK amid the higher odds of Rishi Sunak’s likely victory in the race for British Prime Minister. “Rishi Sunak looked set to become Britain's next prime minister after Boris Johnson withdrew from the contest on Sunday, saying that although he had enough support to make the final ballot he realised the country and the Conservative Party needed unity,” said Reuters.

The news also quotes Boris Johnson as saying that he had secured the backing of 102 lawmakers and could have been "back in Downing Street", but that he had failed to persuade either Sunak, or the other contender Penny Mordaunt, to come together "in the national interest".

With this, GBPUSD portrays the higher hopes from Rishi Sunak due to his sound economic knowledge and the latest fiscal fiasco, which Sunak aptly anticipated.

It should be noted, however, that the global rating agency Moody’s negative outlook on the UK, from stable, challenge the pair buyers amid the broad US dollar rebound.

Chatters surrounding Japan’s meddling in the market to defend the yen appeared to have triggered the DXY’s latest rebound. Elsewhere, the news that Both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have favored the US dollar buyers of late. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row.

On Friday, St. Louis Fed President James Bullard said, “I want rates that put significant downward pressure on inflation.” On the same line, Chicago Fed President Charles Evans stated that they will need to raise rates further and hold them for a while. However, Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal (WSJ) wrote that the Federal Reserve officials are barreling toward another interest-rate rise of 75 bps at their meeting in November and are likely to debate then whether and how to signal plans to approve a smaller increase in December.

Against this backdrop, the US equities posted the largest weekly gains in four months while the US 10-year Treasury yield marked a 5% weekly gain while refreshing a 14-year high, despite posting mild losses on Friday. Also, the CME’s FedWatch Tool suggested a nearly 88% chance of the Fed’s 75 bps rate hike in November, after posting nearly 95% odds for the outcome earlier in the week. It should be noted that the S&P 500 Futures print 0.60% intraday gains by the press time.

Looking forward, the UK politics will be in focus but major attention will be given to the preliminary readings for the UK/US PMIs for October. Also important will be the US Gross Domestic Product for the third quarter (Q3), up for publishing on Thursday.

To sum up, receding political uncertainty in the UK seems to help the GBP/USD pair of late but the bulls need conviction.

Technical analysis

GBP/USD buyers need validation from the 50-DMA hurdle, around 1.1420 by the press time, to extend Friday’s breakout of a six-week-old resistance line, now support around 1.1295.

• EUR/JPY has displayed wild moves in a 143.75-147.27 range amid potential BOJ’s intervention chatters.
• The BOJ is expected to continue its ultra-dovish monetary policy to support economic fundamentals.
• To combat mounting price pressures, the ECB may hike interest rates by 75 bps.

The EUR/JPY pair has gyrated in a 143.75-147.27 range in the Tokyo session. The cross is displaying sheer volatility amid developments on the Bank of Japan (BOJ)’s intervention in the FX markets to support the Japanese yen against speculative moves. The asset is displaying wild moves after commentary from Japan’s top currency diplomat Masato Kanda.

Japan’s Kanda, on Monday, cited that the administration is ready to take necessary action 24*7 to support the Japanese yen against one-sided speculative moves in the currency market. Japanese officials denied commenting on their intervention in FX markets but promises to take necessary action against disorderly market moves.

It is worth noting that the asset displayed a knee-jerk reaction on Friday after overstepping the critical hurdle of 148.00.

This week, the BOJ’s monetary policy announcement will hog the limelight. Economic prospects are deteriorating in the Japanese economy amid external demand shocks, which may trigger a continuation of an ultra-dovish monetary policy. Last week, Japan’s inflation figures landed lower than their projections. The headline Consumer Price Index (CPI) dropped to 3.0% vs. the expectation of 3.1% and core CPI landed at 1.8% against 2.0% as projected.

On the Eurozone front, the shared currency bulls will dance to the tunes of an interest rate decision by the European Central Bank (ECB), which is due on Thursday. According to analysts from Rabobank, a 75 basis point (bps) interest rate hike is a done deal. They see the deposit rate reaching 3% by March next year.

Inflationary pressures in the trading bloc are not anchored yet, therefore, ECB President Christine Lagarde doesn’t possess other alternatives than to tighten its policy further.

On Friday, Reuters reported that German Parliament is preparing to vote for the approval of a €200 billion emergency rescue package to tackle the energy crisis.

• AUD/USD holds lower ground near intraday low after reversing from the highest level in fortnight.
• Successful break of six-week-old previous resistance, up RSI, MACD favor buyers.
• Weekly support line adds to the downside filters before directing bears toward the yearly low.

AUD/USD stays pressured towards the intraday low surrounding 0.6350 as it extends the latest pullback from a fortnight top during Monday’s Asian session. In doing so, the Aussie pair retreats from a 21-DMA hurdle while paring the first weekly gain in three.

Even so, the Aussie pair buyers remain hopeful as the pair keeps the previous day’s upside break of a descending resistance line from September 13, now support around 0.6290. Also keeping the bulls hopeful are the firmer MACD signals and the RSI (14).

It should be noted that a seven-day-long support line, close to 0.6260 by the press time, will act as the last defense of the AUD/USD buyers, a break of which won’t hesitate to challenge the yearly low marked earlier in the month around 0.6170.

Alternatively, a daily closing beyond the 21-DMA level near 0.6375 won’t be enough to convince the AUD/USD bulls as the 23.6% Fibonacci retracement level of the pair’s August-October fall, near 0.6405, will act as an extra filter to the north.

Also challenging the AUD/USD pair’s upside is the 38.2% Fibonacci retracement level and the 50-DMA, respectively around 0.6545 and 0.6625.

AUD/USD: Daily chart

Trend: Further upside expected

Turmoil in global sovereign bond markets is set to persist for another six months to a year as central banks carry on raising interest rates to bring down inflation, according to a Reuters poll of market strategists.

The poll shows that over 65% majority of bond strategists, 14 of 21, who answered an additional question in a Reuters Oct. 19-21 poll said the current turmoil in sovereign debt markets will persist for at least another six to 12 months. This is including one who said it would last one to two years. The remaining seven said less than six months the poll showed.

“We’re probably in for at least another year of significant volatility in bond markets...(and) it could definitely be more,” said Elwin de Groot, head of macro strategy at Rabobank.

“Volatility is not going to go away anytime soon. Even when central banks are starting to move closer to that pivot point, so to speak, we may have other sources of uncertainty keeping volatility in markets high. And high volatility means higher risk premiums.”

The benchmark US 10-year Treasury yield was expected to drop from its 14-year high of 4.27% hit on Friday to 3.89% by year-end, the article said. It was then forecast to fall further to 3.85% and 3.58% in the next six and 12 months respectively.

• US Dollar Index recovers from two-week low, pares the first weekly loss in three.
• Challenges to sentiment, alleged intervention from Japan triggered the recent run-up.
• Receding hawkish Fed bets, cautious mood ahead of the key data challenge buyers.
• S&P Global PMIs for October will decorate today’s calendar but the first readings of US GDP will be crucial.

US Dollar Index (DXY) begins the week on firmer footing, after witnessing the first weekly loss in three, as buyers approach 112.00 during Monday’s Asian session. In doing so, the greenback’s gauge versus the six major currencies bounce off the lowest levels in two weeks, marked earlier in the day.

Chatters surrounding Japan’s meddling in the market to defend the yen appeared to have triggered the DXY’s latest rebound. Even so, Japan’s top currency diplomat Masato Kanda and Finance Minister Shunichi Suzuki resist confirming the intervention, as they did in the past, during their latest communications.

Elsewhere, the news that Both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have favored the US dollar buyers of late. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row.

That said, the DXY dropped heavily on Friday while amplifying the first weekly negative in three as the hawkish Fed bets retreat after mixed Fedspeak. That said, St. Louis Fed President James Bullard said, “I want rates that put significant downward pressure on inflation.” On the same line, Chicago Fed President Charles Evans stated that they will need to raise rates further and hold them for a while. However, Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal (WSJ) wrote that the Federal Reserve officials are barreling toward another interest-rate rise of 75 bps at their meeting in November and are likely to debate then whether and how to signal plans to approve a smaller increase in December.

Amid these plays, the US equities posted the largest weekly gains in four months while the US 10-year Treasury yield marked a 5% weekly gain while refreshing a 14-year high, despite posting mild losses on Friday. Also, the CME’s FedWatch Tool suggested a nearly 88% chance of the Fed’s 75 bps rate hike in November, after posting nearly 95% odds for the outcome earlier in the week.

Moving on, the Fed policymakers’ two-week silence ahead of November’s Federal Open Market Committee (FOMC) meeting may restrict the DXY’s immedaite moves. However, the preliminary readings for the US PMIs for October and the first readings of the US Gross Domestic Product for the third quarter (Q3), up for publishing on Monday and Thursday respectively, could entertain the pair traders.

Technical analysis

Despite bouncing off an upward sloping support line from August 11, around 111.60 by the press time, the US Dollar Index (DXY) needs to provide a daily closing beyond the six-week-old previous support, close to 112.05, to convince buyers.

• EUR/USD has resurfaced sharply to near 0.9900 as the DXY has surrendered its morning gains.
• Fed Daly’s pessimism on interest rates has continued weighing pressure on the DXY.
• The ECB is set to announce a 75 bps rate hike this week.

The EUR/USD pair has recovered sharply to near the critical hurdle of 0.9900 in the early Asian session. The asset has displayed a responsive buying action as the risk appetite of investors is extremely solid.

S&P500 futures have extended their gains on Monday after a cheerful Friday. The index recovered its two-days losses after Federal Reserve (Fed) policymaker picked a less-hawkish stance on policy guidance. The US dollar index (DXY) has surrendered its morning gains in early Asia and has slipped below 112.00 again.

San Francisco Fed President Mary Daly warned of the risk of a slowdown in the economy due to escalating interest rates. Monetary policy has extremely tightened in a short span of time and now the Fed is needed to trim the current pace of rate hikes to avoid the economy dragging into an ‘unforced downturn’.

The commentary from Fed’s Daly called for a drop in the returns on US government bonds. The 10-year US Treasury yields dropped sharply to 2.20% after recording a fresh 14-year high at 4.34%.

On Monday, the US S&P PMI data will remain in the spotlight. The Manufacturing PMI is expected to decline to 51.2 vs. the prior release of 52.0 while the Services PMI may drop to 49.2 from 49.3 reported earlier.

Meanwhile, euro investors have shifted their focus toward the announcement of the interest rate decision by the European Central Bank (ECB). As mounting price growth is hurting the economic prospects of the Eurozone, ECB President Christine Lagarde will opt for a bigger rate hike this time. According to analysts from Rabobank, a 75 basis point (bps) interest rate hike is a done deal. They see the deposit rate reaching 3% by March next year.

China's Xi Jinping secured a precedent-breaking third leadership term on Sunday and introduced a top governing body stacked with loyalists, cementing his place as the country's most powerful ruler since Mao Zedong, Reuters reported:

''Xi faces stiff challenges as the world's second-largest economy slows and frustration over his zero-COVID policy grows. China is also increasingly estranged from the West, exacerbated by Xi's support for Russia's Vladimir Putin and mounting tensions over Taiwan.''

"This is a leadership that will be focused on achieving Xi’s political goals, rather than pursuing their own agendas for what they think is best for the country," said Drew Thompson, a visiting senior research fellow at the National University of Singapore’s Lee Kuan Yew School of Public Policy. "There is only one correct way to govern, and that is Xi’s way."

• GBP/JPY reverses the week-start rebound while taking a U-turn from a six-month-old resistance line.
• Oscillators, sustained trading beyond monthly support keeps buyers hopeful.
• 50-DMA adds to the downside filters, 175.00 could lure bulls during a strong run-up.

GBP/JPY takes offers to renew intraday low around 166.60, reversing the week-start run-up, as it drops towards one-month-old support during Monday’s Asian session. In doing so, the yen cross again reverses from the six-month-old upward-sloping resistance line.

However, bullish MACD signals and the steady RSI requires the GBP/JPY bears to remain cautious unless they break the aforementioned support line, around 166.20 by the press time, as well as conquer the 166.00 thresholds.

Following that, a downward trajectory towards the 50-DMA support of 163.10 becomes imminent.

Though, the 160.00 psychological magnet and the monthly low near 159.70 could challenge the GBP/JPY sellers afterward.

On the flip side, a daily closing beyond the ascending resistance line from April, around 169.85, as well as a successful break of the 170.00 round figure, becomes necessary for the GBP/JPY buyers.

In that case, a run-up toward the February 2016 high near 175.00 will be much more likely on the bull’s radar.

Overall, GBP/JPY remains on the buyer’s radar despite the latest pullback from the key resistance line. However, the odds of the short-term downside can't be ruled out.

GBP/JPY: Daily chart

Trend: Further upside expected

USD/JPY is highly volatile ahead of the Tokyo fix, climbing 149.71 and plummeting to 145.80.

Japan's finance minister Suzuki said earlier that they are confronting speculators

More to come ...

The commander of Ukraine’s ground forces General Oleksandr Syrskiy, in an exclusive interview with ABC News' Chief Foreign Correspondent Ian Pannell, said the world should be worried about Russian President Vladimir Putin's threat to use nuclear weapons.

This follows Putin's threat that Russia would resort to using nuclear weapons in its war against Ukraine following a series of setbacks for Moscow on the battlefield.

"We are and should be worried," Syrskiy told ABC News.

• USD/CHF picks up bids to reverse Friday’s pullback from three-year top.
• Challenges to sentiment, consolidation of previous sharp moves recall buyers.
• The first readings of US PMIs for October, Q3 GDP will be important for clear directions.
• Fed’s silence might challenge the buyers, especially after the recently mixed comments.

USD/CHF pares Friday’s losses around 1.0010 as the US dollar sellers step back during early Monday in Asia.

While the market’s rebalancing of the previous expectations appears to play a major role in the USD/CHF pair’s latest rebound, fresh challenges to the risk appetite, mainly from China and North/South Korea also propel the quote of late.

News that Both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, seemed to have triggered the US dollar’s latest recovery. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row.

On Friday, the US Dollar Index (DXY) marked heavy losses while amplifying the first weekly negative in three as the hawkish Fed bets retreat after mixed Fedspeak. That said, St. Louis Fed President James Bullard said, “I want rates that put significant downward pressure on inflation.” On the same line, Chicago Fed President Charles Evans stated that they will need to raise rates further and hold them for a while. However, Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal (WSJ) wrote that the Federal Reserve officials are barreling toward another interest-rate rise of 75 bps at their meeting in November and are likely to debate then whether and how to signal plans to approve a smaller increase in December.

It should be noted that the US equities posted the largest weekly gains in four months while the US 10-year Treasury yield marked a 5% weekly gain while refreshing a 14-year high, despite posting mild losses on Friday. Also, the CME’s FedWatch Tool suggested a nearly 88% chance of the Fed’s 75 bps rate hike in November, after posting nearly 95% odds for the outcome earlier in the week.

Moving on, the Fed policymakers’ two-week silence ahead of November’s Federal Open Market Committee (FOMC) meeting may restrict USD/CHF moves. However, the preliminary readings for the US PMIs for October and the first readings of the US Gross Domestic Product for the third quarter (Q3), up for publishing on Monday and Thursday respectively, could entertain the pair traders. That said, the bulls may witness easy days ahead considering the likely mixed statistics and the recent risk-negatives.

Technical analysis

Despite the latest rebound, a daily closing beyond the previous support line from September 13, around 1.0010 by the press time, appears necessary to recall the USD/CHF buyers.

• AUD/JPY is hovering around 95.00 after the release of mixed Aussie PMI data.
• The RBA will determine the size and timing of interest rate hikes on the basis of economic data.
•  Japan officials have preferred to restrict themselves from making commentary on intervention in FX.

The AUD/JPY pair has dropped to near the immediate support of 95.00 after facing hurdles around 95.00 in early Tokyo. The asset has picked offers while attempting to test Friday's high at 95.74, where a knee-jerk reaction was recorded.

The IHS Markit has reported mixed Aussie S&P PMI data, which has brought some pressure after an elevation in the risk barometer. The Manufacturing PMI has escalated to 52.8 vs. the projections of 52.5 but lower than the prior release of 53.0. While the Service PMI has dropped sharply to 49.0 against the consensus of 50.5 and the former release of 50.6.

Meanwhile, commentary from Christopher Kent, Assistant Governor (Economic) at the Reserve Bank of Australia (RBA) in Monday Tokyo has weighed responsibility on economic fundamentals. RBA policymaker believes that economic prospects size and timing of rate increase will bank upon incoming data.  He further added that the costly US dollar will restrict demand for US goods and commodities.

This week, the Aussie Consumer Price Index (CPI) data will be of utmost importance. On an annual basis, the headline CPI figure will accelerate to 6.9% vs. the former release of 6.1%. While a decline to near 1.5% is expected from the prior settlement of the inflation rate at 1.8% on a quarterly basis. This may force the RBA to return to the 50 basis points (bps) rate hike structure.

On the Tokyo front, commentaries on the Bank of Japan (BOJ)’s intervention in the currency markets have kept the Japanese yen unnerved. Japan’s top currency diplomat Masato Kanda said on Monday that they “Will continue to take appropriate action against excessive, disorderly market moves.” He reiterated that the administration won’t comment on whether BOJ has intervened in the FX market or not. It is worth noting that a knee-jerk move was recorded in the AUD/JPY pair on Friday.

Both North and South Korea have exchanged warning shots near their disputed western sea boundary on Monday, their militaries said. This comes at a time of heightened tensions over North Korea's recent barrage of weapons tests in response to what the nation calls provocative military drills between South Korea and the United States

North Korea's military said it fired 10 rounds of artillery shells as a warning to South Korea. It accused a South Korean navy ship of intruding into North Korean waters on the pretext of cracking down on an unidentified ship. South Korea's Joint Chiefs of Staff said in a statement that its navy fired warning shots to repel a North Korean merchant ship that it says violated the sea boundary early Monday.

Japan’s top currency diplomat Masato Kanda said on Monday that they “Will continue to take appropriate action against excessive, disorderly market moves.”

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USD/JPY renews upside momentum

The news failed to tame USD/JPY prices as the yen pair takes the bids to reverse Friday’s pullback from the 32-year high, grinding higher around 149.20 by the press time.