• GBP/JPY steadies after reversing from a six-year high, bears struggle to keep the reins.
• Treasury yields brace for the first weekly loss in 11 amid mixed signals from US data, ECB’s Lagardge.
• Sellers also cheer reduction in the UK’s political optimism as British macros lack in number.
• BOJ is likely to keep the monetary policy unchanged but inflation forecasts will be crucial for JPY moves.

GBP/JPY remains sidelined around 169.00, following a U-turn from an 80-month high, as traders await the key Bank of Japan (BOJ) Monetary Policy Meeting decision on Friday.

The cross-currency snapped a three-day uptrend while reversing from a multi-year high the previous day. The pullback move, however, stalls of late.

In addition to the pre-BOJ anxiety, the downbeat Treasury yields and a lack of major positives from the UK could also be held responsible for the GBP/JPY pair’s latest weakness.

That said, the US 10-year Treasury yields dropped to a two-week low on Thursday after the US Gross Domestic Product (GDP) and Personal Consumption Expenditure (PCE) failed to impress bond traders. On the same line were mixed comments from the European Central Bank (ECB) President Christine Lagarde. That said, Japan’s 10-year government bond yields (JGBs) dropped 4.0% on Thursday after refreshing a four-month high during the mid-week.

It’s worth noting that the chatters surrounding a likely shift in the BOJ’s inflation outlook and Japan’s meddling to defend the yen, despite any acceptance from policymakers in Tokyo, could also be linked to the GBP/JPY pair’s recent weakness.

Furthermore, an escalation in the Russia-Ukraine tension and recently easing pressure on the Bank of England (BOE), especially after Rishi Sunak became Prime Minister and the British activity numbers for October came in softer, also exert downside pressure on the quote.

Moving on, all eyes are on the BOJ’s verdict even if the Japanese central bank is likely to keep the six-year-old monetary policy intact. The reason could be attributed to the hopes of an upward revision to the inflation forecasts and Governor Haruhiko Kuroda’s exit in 2023.

Also read: Bank of Japan Preview: Time to start with subtle changes in the monetary policy?

Should the BOJ refrain from any surprises, while the economic predictions also remain dull, the GBP/JPY pair may reverse the latest pullback move.

Technical analysis

Although the RSI (14) and MACD both suggest that the buyers are running out of steam, a 12-day-old support line challenges the GBP/JPY bears around 168.60.

• Gold price is attempting to establish above $1,660.00 as yields dropped significantly.
• A decline in US PCE prices has trimmed hawkish Fed bets.
• The DXY accelerated on the better-than-projected growth rate reported in the third quarter report.

Gold price (XAU/USD) has turned sideways in the early Tokyo session after wild gyrations in New York. The precious metal is focusing on establishment above $1,660.00 despite a firmer recovery in the mighty US dollar index (DXY). The DXY has shrugged off pessimism after displaying an upbeat growth of the economy in the third quarter. From July to September, the economy reported a growth rate of 2.6% vs. the projections of 2.4%.

Meanwhile, the 10-year US Treasury yields have surrendered the critical support of 4% after a steep fall in US Personal Consumption Expenditure (PCE) Prices. The price change for consumer goods and services has dropped to 4.2% against the expectations of 7.9%, which trimmed the alpha generated by US government securities.

A decline in US PCE Prices has trimmed the odds of a bigger rate hike by the Federal Reserve (Fed). As per the CME FedWatch tool, the chances of the fourth consecutive 75 basis points (bps) rate hike announcement by the Federal Reserve (Fed) have dropped to 87.4%. Lower bets on hawkish Fed policy have supported the gold prices for stabilization.

Gold technical analysis

On an hourly scale, gold prices are displaying some corrective moves on the way toward the horizontal resistance plotted from October 11 high at $1,684.05. The correction seems healthy for gold bulls amid the absence of sheer selling pressure.

The 100-period Exponential Moving Average (EMA) at $1,657.32 has acted as major support for the counter.

While, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which indicates a consolidation ahead.

Gold hourly chart

• EUR/USD remains sidelined after reversing from a six-week high.
• Sustained break of 50-DMA, descending trend line from June keeps buyers hopeful.
• MACD, RSI both suggests further upside, September’s top acts as an extra filter to the north.
• Sellers need validation from monthly support line to retake control.

EUR/USD holds lower ground following a U-turn from the monthly high, making rounds to 0.9965-70 during early Friday morning in Asia. The major currency pair refreshed the six-week high the previous day before the 100-DMA probed bulls.

The pullback, however, failed to nullify the mid-week breakout of the previous resistance line from late June. Also keeping the buyers hopeful are the bullish MACD signals and the firmer RSI (14).

Even if the quote drop below the resistance-turned-support from June 27, around 0.9830 by the press time, the 50-DMA level of 0.9890 support will act as an additional downside filter.

It should be noted that the EUR/USD buyers remain hopeful unless the quote stays above an upward-sloping support line from late September, close to 0.9830 at the latest.

Meanwhile, fresh recovery could aim for the 100-DMA hurdle of 1.0085, a break of which will need validation from the previous monthly top surrounding 1.0920 to convince EUR/USD bulls.

In a case where EUR/USD remains firmer past 1.0920, the August 2022 peak of 1.0368 should be on the buyer’s radar.

Overall, EUR/USD is likely to remain firmer but the road to the north will be a bumpy one.

EUR/USD: Daily chart

Trend: Further upside expected

• EUR/JPY registered minimal gains of 0.06% as the Asian session began.
• The EUR/JPY is set to finish the week up by 0.19%.
• EUR/JPY Price Analysis: Rising wedge in the daily chart could send the pair sliding toward the 200-DMA at 137.26.

The EUR/JPY is almost flat as the Asian Pacific session begins, following Thursday’s session, where the cross-currency pair slid more than 1% due to a risk-off impulse in the FX space. The European Central Bank (ECB) hiked rates by 75 bps, though remained vague about subsequent increases, a headwind for the Euro. Therefore, the Japanese Yen got bolstered and capitalized it. At the time of writing, the EUR/JPY is trading at 145.82, up by 0.03%.

EUR/JPY Price Analysis: Technical outlook

The EUR/JPY daily chart shows the pair retraced some of its weekly gains and is almost flat in the week at +0.13%. However, the uptrend remains intact, even though two Bank of Japan (BoJ) interventions pull back the pair from around 148.00 toward current exchange rates. Though, a formation of a rising wedge, drawn from September/October highs and lows, opens the door for further losses.

For that scenario to play out, sellers must clear the bottom trendline around 145.00, which, once cleared, would expose the 20-day Exponential Moving Average (EMA) at 144.62. A breach of the latter will expose the 50-day EMA, followed by the confluence of October 10 and the 100-day EMA at around 140.69/89. The following support area would be the September 26 cycle low at 137.42.

If the EUR/JPY uptrend resumes, the first resistance would be the October 27 high at 147.69, followed by the YTD high at 148.40. Once cleared, the next resistance would be 150.00.

EUR/JPY Key Technical Levels

• AUD/USD has been dragged to near 0.6460 after facing barricades around 0.6500.
• A decent recovery in the DXY after robust GDP data has weighed on risk-perceived assets.
• The US Treasury yields have dropped sharply as bets for a 75 bps rate hike by the Fed have trimmed.

The AUD/USD pair has witnessed a steep fall after failing to cross the psychological hurdle of 0.6500 in the late New York session. The asset has attempted to cross the 0.6500 resistance multiple times and a spree of failures strengthened the resistance level.

A rebound in the risk-off profile also weighed pressure on the aussie bulls. A significant drop in S&P500 triggered the risk-aversion theme. The 500-stock basket witnessed losses as tech stocks drop sharply after Meta Platform Inc. (META) witnessed a bloodbath and fell to five-year lows.

Meanwhile, the US dollar index (DXY) resurfaced firmly after building a cushion around 109.53 on robust Gross Domestic Product (GDP) numbers. The DXY advanced to near 110.57 and recovered the majority of Wednesday’s losses. The US Bureau of Economic Analysis showed that the US economy has grown at a rate of 2.6% from July to September despite accelerating interest rates by the Federal Reserve (Fed). While the demand for durable goods landed lower at 0.4% than projections of 0.6% but remained higher than the former drop of 0.2%.

The 10-year US Treasury yields dropped sharply to 3.93% after a significant drop in Personal Consumption Expenditure (PCE) Prices for the third quarter. The economic data dived to 4.2% against the projections of 7.9%. As per the CME FedWatch tool, the chances of 75 basis points (bps) rate hike by the Federal Reserve (Fed) have dropped to 87.4%, which has weighed pressure on the returns from US Government bonds.

Going forward, the release of the Michigan Consumer Sentiment Index (CSI) data will remain in focus. The sentiment data is seen stable at 59.8.

On the Australian front, investors are awaiting the announcement of the interest rate decision by the Reserve Bank of Australia (RBA), which is due on Tuesday.

• NZD/USD tumbled towards 0.5820s due to broad US Dollar strength.
• US economic data was positive, except for Durable Good Orders missing estimates.
• Market participants eye the US Core PCE, Consumer Sentiment, and Pending Home Sales.

The NZD/USD retreats from weekly highs reached around the 50-day Exponential Moving Average (EMA) and dived towards the 0.5820 area due to overall US Dollar strength across the board, blamed on the US economy beating growing expectations for the third quarter. Also, as shown by Wall Street closing in the red, a risk-off impulse was a headwind for the NZD. Therefore, the USD Dollar appreciated, as shown by the NZD/USD falling 0.10%, trading at 0.5824 at the time of writing.

NZD/USD wobbles trim some of its weekly gains on US data

US equities registered losses between 0.61% and 1.63%, except for the Dow Jones Industrial, up 0.61%. The US Department of Commerce reported that Gross Domestic Product (GDP) for Q3 in the United States (US) grew by 2.6%, blowing estimates of 2.4%, a signal of resilience by the US economy amidst a period of tightening monetary conditions. However, the economy is showing that consumer spending is decelerating, reporting a 1.4% gain vs. 2% achieved in the second quarter.

At the same time, the US Department of Labor reported that unemployment claims increased by 217K but lower than 220K foreseen and above the previous week’s 214K. Even though most data was positive, Durable Goods Orders for September expanded by 0.4% MoM, below 0.6% estimates, showing that inventories are building up.

Hence, the US Dollar Index, a gauge of the buck’s value vs. a basket of rivals, edged up by 0.82%, at 110.585, despite falling US Treasury yields. The 10-year benchmark note rate dropped 7 bps, at 3.929%, as traders speculation for a Fed pivot increased.

An absent New Zealand economic data would leave traders adrift to Australia’s PPI for Q3, alongside US Dollar dynamics. Contrarily, the US docket will feature the Federal Reserve preferred inflation gauge, the Core PCE,  the University of Michigan Consumer Sentiment, and Pending Home Sales.

NZD/USD Key Technical Levels

• GBP/USD has stalled at a critical support and bulls eye a move to 1.1675.
• Bears are eager for the break of 1.1550 to make way to the PoC at 1.1470.

Cable is yet to clear out the longs below, but perhaps the bulls are not throwing in the towel just yet. The point of control, PoC, in GBP/USD is located down at 1.1470 but the sell-off has yet to break the key support structure at 1.1550. The following illustrates the technical landscape from a daily and hourly perspective.

GBP/USD daily charts 

The W-formation is troubling for the bulls as a move into the neckline of the reversion pattern as illustrated above. Such a move would put heat onto in-the-money long positions built up over the week in three days of higher highs. We have seen a partial squeeze into those longs but the price has stalled in the US session in what was a volatile start to the day, hitting shorts in the New York open.

 The Fibonacci tool has been drawn the current high:

 A move into the neckline of the W-formation has a confluence with the 50% mean reversion at 1.1452 before the 61.8% Fibo at 1.1406 on a break below 1.1450. A break of the trendline support opens risk of a break of 1.1270 and then a really significant 1.1060 area. On the upside, with risks of support holding, 1.1675 is the top of a volume cluster. 

GBP/USD H1 chart

While above 1.1547, as per the hourly time frame, a break of 1.1584 opens such risk of a move to 1.1675 in the near term

What you need to take care of on Friday, October 28:

First-tier events flooding the macroeconomic calendar had far less impact than anticipated, despite bringing some fresh, interesting developments. Generally speaking, the American dollar retains its previous weak tone, as US Treasury yields edged sharply lower following the release of the preliminary estimate of the Q3 Gross Domestic Product. The  Bureau of Economic Analysis reported that the economy grew at an annualized pace of 2.6% in the three months to September, better than anticipated.

Wall Street got an unexpected boost ahead of the opening but finished the day mixed on the back of earnings reports.

The EUR was the worst performer against the greenback as the ECB announced its monetary policy decision. As widely anticipated, the central bank hiked the three main rates by 75 bps, but the message on growth and economic developments was most discouraging. In one line, policymakers expect inflation to remain elevated and growth to slow further. Upcoming rate hikes will be data-dependant and a meeting-by-meeting decision. The only thing clear about them is that more hikes are needed to reach the ECB’s inflation goal.

Additionally, the ECB introduced changes to the Targeted Longer-Term Refinancing Operations (TLTRO) III program, also meant to tighten financial conditions further.  the interest rate on TLTRO III operations will be indexed to the average applicable key ECB interest rates over this period. The existing interest rate calculation method will be maintained for the period from the settlement date of each respective TLTRO III operation until 22 November 2022, albeit with indexing to the applicable key ECB interest rates ending on that date.

GBP/USD trades around 1.1570, marginally lower for the day. AUD/USD also shed some ground and hovers around 0.6460. The USD/CAD, on the other hand, trades little changed around 1.3550.

The greenback also appreciated against the CHF, with the pair now trading at 0.9915, while USD/JPY pivots around 146.10 ahead of the Bank of Japan monetary policy decision.

Gold shed some ground but is little changed at around $1,660 a troy ounce, while crude oil prices ticked higher. WTI settled at $88.90 a barrel.

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• Eurodollar's reversal from 1.0090 extends below parity.
• The euro accelerated its downtrend after the ECB's decision.
• EUR/USD: Recent developments make the 0.93 target less likely – MUFG.

The euro has pared recent gains on Thursday to put an end to a four-day rally. The pair retreated from six-week highs right below 1.0100, returning to levels below 1.0000 as the US dollar picked up.

The euro dives after ECB’s decision

The common currency’s reversal accelerated after the release of the European Central Bank’s monetary policy decision. As widely expected, the bank hiked rates by 75 basis points for the second consecutive time, in an attempt to tame historical inflation, raising the deposit rate to 1.50%.

Beyond that, ECB Chair, Christine Lagarde, reiterated the bank's commitment to continue hiking rates, in spite of the downside risks for the economy which could lead to higher unemployment levels.

On the other hand, the US dollar has shrugged off the previous days' weakness to post a moderate recovery. An upbeat US GDP reading, which has shown an unexpected 2.6% economic expansion in the fourth quarter, has eased concerns about a recession providing a fresh boost to the US dollar.   

EUR/USD: Recent developments make the 0.9300 target less likely – MUFG

Currency analysts at MUFG bank observe that the recent developments and the USD sell-off make the 0.9300 target less likely: “Overall, recent developments, including the plunge in the price of natural gas in Europe and broad-based USD sell-off have made it less likely that EUR/USD fall as low as our year-end target of 0.9300 even after today’s less hawkish ECB policy update.”

Technical levels to watch

• The gold price is under pressure, forced back into a neutral zone on the daily chart.
• The hourly charts show that the price is balanced at a critical juncture.
• Investors look ahead to tomorrow's PCE and next week's Fed. 

The price of gold has been pressured on Thursday in a resurgence in the US dollar that is correcting hard from a key daily supporting trendline as illustrated below by the DXY, an index that measures the greenback vs. a basket of major currencies. At the time of writing, the yellow metal is trading at $1,658 and down some 0.4% on the day. Gold has travelled between a high of $1,670.84 to a low of $1,654.89 so far., crucially failing to hold above a key resistance level on the daily chart.

The dollar index regained ground to above 110, boosted from the lowest level in over a month from both a technical basis in a move that started to show up on the charts ahead of key growth data from the US economy and the European Central Bank meeting. Gross Domestic Product data for the US has shown that the US economy is faring better than expected. It grew an annualized 2.6% on quarter in the three months to September of 2022, more than market expectations of 2.4% and rebounding from a contraction in the first half of the year. This has ended two straight quarterly decreases in output, which had raised concerns that the economy was in recession.

Meanwhile, the ECB raised all of its key policy rates by 75bp. The main refinancing rate is now at 2.0%. ''That is a level some officials at the ECB think approximates with longer-run neutrality, assuming inflation over time will return to 2.0%,'' analysts at ANZ Bank argued. ''But inflation is miles from that currently and further rate rises will be warranted. We are currently forecasting an additional 150bp of hikes. We think the ECB may dial down to 50bp hikes from December.''

Additionally, Lagarde's gloomy outlook for the economy has boosted an appetite for the US dollar as being regarded as the cleanest shirt in the laundry basket of currencies. The data and ECB falls ahead of tomorrow's PCE and next week's Federal Reserve meeting whereby the central bank is expected to raise rates at its Nov. 1-2 meeting by 75 basis points to 1.5%, a 13-year high. It is also likely to reel in a key subsidy to commercial banks.

However, there was a technical bounce in the greenback following its slide in recent days as investors started to cheer signs that the US Federal Reserve is considering slowing down its aggressive rate hikes in December:

DXY weekly chart

Gold technical analysis

The price of gold has failed to get above a key resistance area on the daily chart of $1,668 where it needs to close on a daily basis to instil confidence in the upside prospects.

$1,675 the high was achieved on Wednesday as the US dollar continued to slide, but the close of $1,665 was less than convincing and has consequently led to a drop back inside of the range. Nevertheless, the daily chart, above, still shows a number of bullish confluences. We have seen the break of the daily structure back on Oct 3, This led to the yellow metal being forced onto the back side of the daily trendline resistance.

The price moved back into Wednesday 22 Sep bullish peak formation lows in a micro daily bear trend. We have also broken on the backside of the micro (secondary) daily trendline on Fri 22 Oct and we now have two prior inside days. This is a coiled market creating higher daily lows and the bulls could be about to make their move to break and close above $1,668 resistance in a breakout of the inverse head and shoulders neckline. Thereafter, a close above the $1,670 neckline could be the trigger point to start looking for the set-up on lower time frames.

However, should the following playout on the hourly time frame, then the upside bias will be invalidated:

As shown, the price is pressed up against a key hourly trendline support. Should the bears send the price to the other side of it, on a break of $1,655, pressures could really start to build sending the price fatally below $1,650. A break of the 50% mean reversion of the current bullish trend will open the risk of a move to a 61.8% golden ratio near $1,640. If this fails to support, then there is nothing much in the way of a fast drop to the lows and beyond for a bearish continuation. 

• The dollar trims losses after bouncing up at the 1.3500 support area.
• The upbeat US data have eased negative pressure on the USD.
• USD/CAD is seen appreciating towards 1.40 – MUFG.

The US dollar has been unable to break support at 1.3500 for the second consecutive day and bounced up on Thursday’s afternoon US session to erase previous losses, turning positive on the daily chart.

The greenback ticks up after upbeat US GDP data

US Gross Domestic Product figures have beaten expectations on Thursday, showing a 2.6% annual expansion, after having contracted over the previous two quarters. These figures have eased concerns about a technical recession in the US, giving a fresh boost to the USD.

Previously, the pair had retreated to test one-month lows at 1.3500 against a strong Canadian dollar. The loonie rallied over the previous sessions, buoyed by higher oil prices as the negative impact of Wednesday’s BoC monetary policy decision faded.

Oil prices have appreciated about 0.7% for the second consecutive day on Thursday, with the US benchmark WTI oil reaching levels right below $90. This has spurred demand for the Canadian dollar, as Canada is one of the world’s major oil producers.

USD/CAD is expected to move back towards 1.4000 – MUFG

Currency analysts at MUFG bank remain bullish on the pair and point out to the 1.40 target:  “Yesterday’s decision from the BoC supports our view that yield spreads between the US and Canada will continue to move in favor of USD as the Fed hikes rates for longer and lifts rates higher than the BoC during this hiking cycle (…) We are not convinced yet the US dollar and Fed rate hike expectations have peaked out yet, and still expect USD/CAD to move back towards the 1.4000 level.”

Technical levels to watch

• The euro accelerates its downtrend and approaches 0.8600.
• Bears have taken over after the ECB confirmed market expectations.
• The pair should return above 0.8690 to ease negative pressure.

The euro is accelerating its downtrend on Thursday’s US session, as the pair’s reversal from session highs at 0.8690, extends to the vicinity of 0.8600 to test support at the 100-day SMA.

The bears took hold of the common currency after the European Central Bank confirmed market expectations and hiked interest rates by 0.75% for the second consecutive time, leaving its deposit rate at 1.5%, its highest level since 2009.

The pair squeezed lower immediately after the release of the ECB’s monetary policy decision, against a British pound that remains favored by the investors’ relief after Rishi Sunak’s appointment as British prime minister.

From a technical point of view, the euro’s failure to return above the 50-day SMA has increased downside pressure, pushing the pair toward the 100-day SMA at 0.8600. Below here, the next downside targets would be the downward trendline support, from mid-November lows, now at 0.8535, and the 200-day SMA at 0.8500.

On the upside, a bullish reaction would have to extend past the mentioned 50-day SMA, at 0.8690 to aim for the October 21 high at 0.8780. A confirmation above the mentioned level would negate the bearish trend and open the path toward October 12 high at 0.8870.

EUR/GBP daily chart

Technical levels to watch

• USD/JPY seesawed in a wide range, though it remains unable to stay in the green, losing 0.15%.
• The daily chart keeps buyers in charge, though the USD/JPY might pull back before testing YTD highs.
• Short-term, the USD/JPY is neutral-downward biased, and once it clears the 200-EMA, it could fall below 144.00.

The USD/JPY stalled at the 20-day Exponential Moving Average (EMA) at around 146.90 and tumbled toward its daily low of 145.10 before recovering some ground. Nevertheless, the USD/JPY continued to trade in the red, at 146.12, down by 0.14% amidst a volatile session.

USD/JPY Price Analysis: Technical outlook

The USD/JPY remains neutral-to-upward biased, as shown by the daily chart, though the effect of the Bank of Japan (BoJ) interventions has taken its toll on the major. Also, falling US Treasury bond yields are headwinds for the USD; therefore, further USD/JPY downside is expected.

From a technical perspective, the USD/JPY faces solid resistance at 146.90 and is struggling to extend its losses below the October 26 daily close at 146.37, which, if confirmed, would open the door for further losses. USD/JPY key support levels lie at the October 27 low of 145.10, followed by the 50-day EMA at 143.64, ahead of 140.00.

Short term, the USD/JPY four-hour chart suggests the pair is neutral-to-downward biased, unable to crack the 200-EMA at 145.61 on its first attempt in the Asian session. Worth noting that the USD/JPY tumbled to a fresh three-week low, so if the USD/JPY did not clear the last higher-high around 148.41, a re-test of the 200-EMA is on the cards.

Hence, the USD/JPY first support would be the S1 daily pivot at 145.56, followed by the 200-EMA at 145.61. Once that zone is cleared, the next support would be the S2 daily pivot point at 144.80, followed by 144.00, ahead of the S3 pivot level at 143.37.

USD/JPY Key Technical Levels

• WTI has moved into key resistance as trend followers stay on the bid.
• Supply concerns have been dominating the energy complex.

At the time of writing, West Texas Intermediate crude oil (WTI), is up by over 0.9% at $89.10 having claimed from a low of $87.35 reaching a high of $89.78 so far.  Supply concerns have been dominating the market on the back of the United States reporting better-than-expected economic growth data for the third quarter. At the same time, tight supplies of diesel and other distillates are fuelling the bid.

The United States reported its gross domestic product rose by 2.6% on an annualized in the third quarter, beating the 2.3% consensus forecast but above the second quarter's 0.6% drop. The data comes ahead of PCE on Friday and the Federal Reserve meeting next week. In any case, the data today is expected to keep the Fed on track in its attempt to slow inflation by hiking rates steeply. 

Meanwhile, weak distillate supplies are offering support to prices. The Energy Information Administration mid-week reported distillate stocks rose by 0.2 million barrels last week, rising off a 17-year low and offering support to oil. The EIA also noted US oil exports rose to a record last week. The agency reported that US gasoline inventories fell by about 1.5 million barrels last week and distillate stocks remained at record lows, while US exports of crude oil were strong, the bank said. This offset a smaller-than-expected 2.6-million-barrel increase in crude inventories.

Analysts at TD Securities argued that energy prices are being supported by algorithmic trend follower purchases. ''CTAs are building a net long position in Brent crude as uptrend signals strengthen, but extreme volatility is likely to cap participation from this cohort amid weak trend signals and risk parity portfolio deleveraging.
Diesel prices are also being supported by CTA trend followers, but similarly to other energy markets, algo firepower remains capped by extreme volatility in the complex which argues for little follow-through from CTAs.''

WTI technical analysis

In a prior analysis, it was stated that ''the price could be on the verge of an upside rally on a break of structure, with bulls accumulating the recent price drop,'' with the price being on the backside of the channel:

As the following will illustrate, the price has moved into the projected resistance as follows:

At this juncture, the bulls will need to get above $90.00 for prospects of a break of the $93.60 mid-October highs.

$88.50 comes as the first key support ahead of $87.00.

• The kiwi loses steam after hitting resistance at 0.5870.
• The US dollar picks up after a two-day sell-off.
• NZD/USD should extend beyond 0.5880 to gain bullish traction – UOB.

The New Zealand dollar has managed to regain lost ground after bouncing from 0.5790 earlier on Thursday, but the pair is struggling to find acceptance above 0.5870 and remains little changed on the daily chart.

Kiwi’s rally loses steam with the USD picking up

A better-than-expected US Gross Domestic Product report contributed to easing negative pressure on the US dollar on Thursday. According to data released by the Commerce Department, the US economy expanded at an unexpected 4.6% pace in the third quarter, putting an end to two consecutive negative quarters and calming recession fears.

The moderately positive USD tone is posing headwinds to the kiwi, which had rallied about 2.5% over the past two days amid broad-based USD weakness as the investors start to price in a certain softening in the Fed’s monetary tightening cycle

The USD Index, which measures the value of the dollar against a basket of the most traded currencies, is trading about 0.6%, back above the 110.00 level following a nearly 2% reversal over the last two days.  

NZD/USD: Above 0.5880 further sustained appreciation is likely – UOB

FX analysts at UOB point out that a successful move above 0.5880 might trigger further appreciation: “Despite the rapid rise, upward momentum has not improved by much. That said, NZD could rise, but it has to close above 0.5880 before a further sustained advance is likely. Looking ahead, the next resistance is at 0.5920. Support is at 0.5770, but only a break of 0.5740 would indicate that NZD is not strengthening further.”

Technical levels to watch

• AUD/USD drops on upbeat US data amidst a risk-on mood.
• The US Dollar got bolstered by GDP and unemployment claims data, though Durable Orders missed estimates.
• Australia’s Q3 CPI justifies the Reserve Bank of Australia (RBA) next week’s rate hike.

The AUD/USD tumbled below 0.6500 from weekly highs around 0.6521 after news emerged that the US economy grew at a higher pace than estimated, snapping a “technical recession” after back-to-back quarters of negative Gross Domestic Product (GDP) readings. Therefore, the US Dollar got bolstered, as shown by the AUD/USD diving towards 0.6470, down 0.37%, at the time of writing.

The Q3 preliminary GDP reading smashed estimates

The Australian Dollar lost traction when the US Bureau of Economic Analysis (BEA) reported that the US Advance Q3 GDP rose by 2.6%, crushing estimates of 2.4%. Factors like the trade deficit narrowing in the third quarter summed 2.77% to the GDP’s increase. The same report flashed that consumer spending is slowing down, from 2% in Q2 to 1.4%.

Elsewhere, the US Department of Labor revealed Initial Jobless Claims the week ending on October 22, which jumped by 217K, lower than the 220K foreseen, though slightly up from the previous week. Durable Good Orders offset that, missing estimates, increased by just 0.4%, below 0.6% MoM, expectations

The US Dollar Index, a gauge of the greenback’s value against a basket of peers, climbs 0.53% at 110.277, while US Treasury yields tumble. The US 10-year bond yield is losing six and a half bps, down at 3.943%, weighed by speculations of a Fed pivot.

Aside from this, Australia’s inflation report on Wednesday escalated speculations for another Reserve Bank of Australia’s (RBA) rate hike. Inflation for Q3 rose 7.3% YoY, while the RBA’s favorite inflation gauge, core trimmed mean rose by 6.1% YoY. According to analysts at Westpac said, “Rates markets continued to place a high probability on the RBA raising the cash rate 25bp next week but yields rose for later dates, such as the May 2023 contract, up from 3.88% to 3.95% and above 3% in mid-2023.” Therefore, the RBA’s next meeting

AUD/USD Key Technical Levels

European Central Bank hawks are playing down the removal of 'several' from guidance on further hikes according to Reuters sources. 

''Doves say guidance tweak paves the ground for ending hikes in December 'in case of improved inflation outlook or possibly in March''.

The reports suggest that the ECB did not mean to imply slower hiking with the ‘progress’ remark and that the vote was not unanimous, while 3 officials wanted a 50bps hike.

The European Central Bank raised interest rates by 75 basis points, stressing that inflation is too high and expected to remain high for an extended period. ECB President Christine Lagarde said that while Russia's invasion of Ukraine and other global uncertainties meant the euro area economy faced a number of risks to the downside, inflation risks were skewed upward.

EUR/USD, which had hit a one-month high of 1.0094 versus the dollar earlier in the day, dropped back below parity after the ECB rate decision while US data beat expectations. EUR/USD is down 1% on the day to 0.9976 at the time of writing. 

• Silver prices tick down after failing to breach the $19.60/70 resistance area.
• The 100-day SMA and 50% Fibonacci retracement are putting a lid on XAG/USD's recovery.
• The near-term bias remains positive, with downside attempts limited at $19.30.

Silver prices have ticked lower on Thursday, as the recovery from Tuesday’s low at $18.80, failed about 100 pips higher, capped by an important resistance hurdle.

Silver bulls, capped at the 100-day SMA

The XAG/USD seems unable to break above the resistance area at $19.60/70, where the 100-day SMA and the 50% Fibonacci retracement of the October 4 to 14 decline are posing a significant resistance to the white metal's recovery.

The pair seems to have lost momentum on Thursday, weighed by a somewhat firmer US dollar,  although it maintains the near-term positive bias, with downside attempts limited above the 38.2% Fibonacci retracement, at $19.30 and the 50-day SMA, at $19.10.

On the upside, a confirmation above $19.70 would face another key resistance area in the vicinity of the $20.00 psychological level (September 9, 12, and 21 highs and the 61,8% Fib level of the aforementioned decline) before aiming at $20.85 October 6 and 7 highs.

A bearish reaction below the 50-day SMA, at $19.10 would negate the positive trend and set the pair aiming towards, $18.80 (Oct 25 low) and October 14 low at $18.10.

Technical levels to watch

• GBP/USD stumbles below 1.1600 as the US economy grows in Q3, and the US Dollar jumps.
• US Jobless Claims added to the already positive mood, though Goods Orders disappointed.
• Traders turn to the Federal Reserve’s favorite gauge of inflation, the Core PCE.

The GBP/USD dropped from around 1.1600 after hitting six-week highs at 1.1645 due to overall US Dollar strength spurred by upbeat US data showing the economy’s resilience, despite the ongoing tightening of monetary conditions by the Federal Reserve. Also, the ECB’s monetary policy decisions were a tailwind for the US Dollar and weighed on the Pound Sterling. The GBP/USD is trading at 1.1581, below its opening price by 0.36 percent.

The US Dollar got a boost from US economic data

A risk-on impulse was no excuse for the US Dollar to appreciate against the Sterling. The US Bureau of Economic Analysis (BEA) revealed the growth figures for the third quarter, showing that the economy is growing at a faster rate than estimated, at 2.6%, vs. 2.4%, foreseen by a Reuters poll. Additionally, the US Department of Labor revealed that Unemployment claims for the week ending on October 22 rose by 217K, less than estimates of 220K, though more than the previous week, flashing that the labor market is easing.

Nevertheless, the fall in Durable Good orders increasing by just 0.4% MoM, less than the 0.6% increase estimated for September, disappointed market participants. Excluding transportation, new orders shrank b 0.5%, below the previous month’s reading.

Following the release of US economic data and the European Central Bank (ECB) policy decision, the GBP/]USD resumed its slide below 1.1600. Nevertheless, the appointment of the UK’s new Primer Minister, Rishi Sunak, stalled the downfall and kept the pair’s weekly gains at around 2.50%.

What to watch

The US economic docket will feature the US Federal Reserve’s favorite inflation gauge, the Core PCE, estimated at 0.5% MoM and 6.3% YoY, alongside the Consumer Sentiment and Pending Home Sales.

GBP/USD Key Technical Levels

• US dollar's rebound meets resistance right above 0.9900.
• The greenback trims losses following a two-day sell-off.
• USD/CHF: Below 0.9876, the near-term risk turns negative – Credit Suisse. 

The US dollar is attempting to pare losses on Thursday after the sharp reversal witnessed in the previous two days. The pair bounced up from three-week lows at 0.9840, has stalled below 0.9900 after hitting session highs at 0.9925.

The US dollar picks up amid upbeat US data

Data released by the Commerce Department revealed an unexpected rebound in the US economy. US Gross Domestic Product expanded at a 2.6% annual pace in the third quarter, beating expectations of a 2.4% growth and reversing two consecutive contractions in the previous quarters.

On the negative side, however, domestic demand has shown its weakest performance in two years, confirming the negative impact of the sharpest monetary tightening cycle of the latest 40 years.

US stock markets jumped into the green following the data, although they are mixed at the time of writing, with the Dow Jones 1.2% higher the S&P Index practically flat, and the Nasdaq 0.8% down.

US Treasury yields have continued their pullback, with the benchmark 10-year bond trading at 3.9%, down from levels near 4.3% earlier this week.

USD/CHF: Breach of 0.9876 shifts the near-term risk lower – Credit Suisse

FX analysts at Credit Suisse warn about a bearish move past 0.9876, which might pull the pair to the 0.9775 area: “USD/CHF has managed to break below 0.9876. This signals that further near-term weakness is likely to follow. With near-term MACD also reinforcing this bearish signal, we look for a fall to 0.9838/30 initially and then likely for a test of the 55-DMA at 0.9775.” 

Technical levels to watch

On Thursday, the European Central Bank had its monetary policy meeting. They raised the key interest rates by 75 basis points as expected. According to analysts at Wells Fargo, through its forward guidance, the central bank was perhaps somewhat less hawkish than at previous recent meetings. 

Key Quotes: 

“The European Central Bank (ECB) delivered another large rate hike at today's monetary policy announcement, though its forward guidance was perhaps somewhat less hawkish than at previous meetings. With the possibility of an ECB pivot at the meetings ahead, and with changes to long-term refinancing operations potentially impacting the profitability of European banks, today's announcement is overall a modest negative for the euro.”

“Overall, we view the mildly less hawkish guidance and widespread signs of a contracting Eurozone economy as consistent with a smaller 50 basis point Deposit Rate hike to 2.00% in December, especially if CPI inflation recedes to any extent in the interim. That view appears to be shared by market participants, with German two-year government yield down around 18 basis points to 1.85% since the ECB's announcement, and with the euro also down today. If the Federal Reserve fails to pivot at its monetary policy announcement next week, the euro could see further downside in the weeks and months ahead.”

Analysts at MUFG Bank, point out that recent developments and a board-based USD sell-off made it less likely for EUR/USD to reach their year-end target of 0.9300, even after the “less hawkish” European Central Bank meeting. 

Key Quotes:

“The main immediate takeaway for financial markets is that the ECB has become the latest G10 central bank to disappoint expectations for a more hawkish policy update. It follows dovish surprises from the RBA and BoC when they delivered smaller rate hikes, and together will further encourage near-term speculation that the Fed will follow suite and slow the pace of hikes at the end of this year as well. Building expectations that broader dovish policy shift from G10 central banks is already underway is providing some much needed relief for risk assets.”

“In the FX market, it has contributed to the USD correcting sharply lower since the end of last week although confirmation of slowdown in tightening from Fed officials has not yet been confirmed. Next week’s FOMC meeting on 2nd November could prove even more pivotal for near-term USD direction. Overall, recent developments including the plunge in the price of natural gas in Europe and broad-based USD sell-off have made it less likely that EUR/USD fall as low as our year-end target of 0.9300 even after today’s less hawkish ECB policy update.”

Data released in the US on Thursday included the first Q3 GDP estimate and the preliminary September Durable Goods Orders. Analysts at Wells Fargo point out that considering a big picture from all the data and what it means for manufacturing is that recent apparent strength in the data may overstate the health of the factory sector.

Key Quotes: 

“After accounting for revisions, durable goods orders actually came in a bit better than expected. The September increase was 0.4% versus the 0.6% expected by consensus, but last month got revised from -0.2% to +0.2%, so the new level is higher. On top of that, in this morning's separately reported third quarter GDP report, we learned that headline growth got a half a percentage point boost from equipment spending, which shot up at a 10.8% annualized rate in the quarter.

“The Federal Reserve raises rates aggressively and manufacturing ramps up? Our take is that this is more emblematic of new demand crumbling under higher rates and recession fears but high backlog is helping sustain shipments a bit longer.”

“Nondefense capital goods shipments fell 0.6% in September, but that was on the heels of an upward revision that lifted August's gain to 3.1% from the 1.8% increase initially reported. This upward revision helped support the large gain in Q3 equipment spending growth. But in also excluding aircraft, core capital goods shipments were downwardly revised and suggests that current equipment spending is losing momentum.”
 

• Limited below 1457.00, the dollar drops for the third consecutive day.
• The greenback weakens as the market assumes a Fed pivot.
• USD/JPY: A decline to 144.00 is increasingly likely – UOB.

The US dollar’s recovery attempt from multi-week lows at 145.00 area witnessed during Thursday’s European morning trade, was capped at 147.00 and the pair pulled lower afterward returning below 146.00 at the time of writing.

Fed pivot expectations keep weighing on the USD

The pair is 0.3% down on the day, on track to close a three-day reversal, its worst performance since late July, as investors start to price in a slowdown on Federal Reserve’s monetary tightening pace. A recent set of disappointing macroeconomic data has raised the alarm about the potential negative effect of an aggressive rate hiking path that has propelled the US dollar about 20% higher over the current year.

The bank is widely expected to hike rates by 75 basis points next week, however, there is growing market speculation about a slowdown to a 0.50% hike in December’s meeting.

In the macroeconomic front, the upbeat US Gross Domestic Product, which bounced up at an unexpected 2.6% annual pace, after two consecutive contractions in the previous quarters, has failed to provide any relevant support to the USD.

USD/JPY: Further decline to 144.00 seems possible – UOB

FX analysts at UOB observe further downside potential in the pair, although still limited at 144.00: “Yesterday (26 Oct), USD lost 1.05% (NY close of 146.35) and downward momentum is building, albeit tentatively. In the coming days, USD could edge lower, but at this stage, the odds of a sustained decline below 144.00 are not high. On the upside, a break of the ‘strong resistance’ level at 148.80 would indicate the build-up in momentum has fizzled out.”

Technical levels to watch

The European Central Bank raised the key interest rates by 75 basis points on Thursday, as expected. Analysts at Commerzbank, point out Christine Lagarde sounded dovish at the press conference but they still see that another big rate hike for the December meeting remains on the table. 

Key Quotes: 

“After the press conference it is less clear than before whether the ECB will raise its key interest rates by another 75 basis points at its next meeting in December. This is because the ECB president already sees downside risks to the ECB's economic projections, probably in view of the weak leading indicators. She said that the Governing Council will address rising recession risks at its next meeting.”

“All in all, we continue to expect the ECB to raise its key rates by another 75 basis points in December. If the recession gradually becomes visible in the hard data after the turn of the year, it should slow down the pace and raise its key rates by 50 in early February and 25 in March. The rate hike process would then end at a deposit rate of 3%.”

• Gold price creeps lower as the US Dollar gains traction, despite falling US Treasury yields.
• The US Gross Domestic Product (GDP) accelerated and snapped two-quarters of consecutive contraction.
• The ECB lifted rates by 75 bps for the second consecutive meeting and boosted the greenback.

Gold prices fluctuate around $1660 following positive US economic data that keeps investors’ spirits high as US equities rise. Additionally, the greenback is recovering some ground after diving to a fresh five-week low at 109.535. At the time of writing, XAU/USD is trading at $1662, down by 0.25% from its opening price.

XAU/USD stalls at a key technical level on upbeat US growth data

XAU/USD remains oscillating around the $1660 area, though capped by the release of the US Advance Q3 GDP, which exceeded estimates, with the economy growing by 2.6%, above 2.4% estimates, entering into positive territory, following Q1 and Q2 contractions, which triggered a “technical recession,” as reported by the US Commerce Department.

The GDP got bolstered by the trade deficit narrowing sharply, adding 2.77% to GDP growth. Meanwhile, consumer spending slowed to a 1.4% rate, lower than Q2’s 2.0%, which could comfort Fed officials that demand is slowing down.

At the same time, the US Department of Labor reported that Unemployment claims for the week ending on October 22 rose by 217K, less than estimates of 220K, but more than the previous week, flashing that the labor market is easing.

Earlier, the European Central Bank (ECB) added another 75 bps rate hike to the deposit rate, which stands at 1.50%. The ECB President, Christine Lagarde, commented that the central bank would be data-dependent and take policy decisions “meeting by meeting.” The Euro sold off as a consequence, bolstering the US Dollar.

What to watch

The US economic docket will feature the US Federal Reserve’s favorite inflation gauge, the Core PCE, estimated at 0.5% MoM and 6.3% YoY, alongside the Consumer Sentiment and Pending Home Sales.

XAU/USD Price Forecast: Technical outlook

XAU/USD remains neutral to downward biased and faces solid resistance at the 20-day Exponential Moving Average (EMA) at $1663. If XAU buyers surpass, the latter XAU might challenge the 50-day EMA at $1686. Worth noting that the Relative Strength Index (RSI) is still in bearish territory; therefore

, sellers remain in charge. Key support lies at October 26 daily low at $1649.84, followed by the lows of the week around $1640.

Data released on Thursday showed US GDP expanded at an annualized rate of 2.6% and the Price Index dropped from 9.1% to 4.1%. According to analysts at Wells Fargo, some of the underlying details of the report were not very encouraging.  Although the rate of consumer price inflation is receding, it is still way too hot for the Federal Reserve, analysts added. 

Key Quotes: 

“The underlying details of the report were not very encouraging. For starters, the headline rate of GDP growth was flattered by a 2.8 percentage point boost from real net exports. Real exports of goods and services grew 14.4% in Q3 while real imports fell 6.9%. These growth rates are not sustainable. Imports are certain to reverse course in the current quarter, and clear signs of economic deceleration in some of America's major trading partners and the strength of the U.S. dollar mean that exports likely will weaken going forward.”

“The core PCE deflator, which is the Fed's preferred measure of consumer prices, was up 4.9% in Q3 on a year-ago basis. The outturn implies that "core" prices rose 0.4% in September on a monthly basis. Consequently, we look for the FOMC to continue to tighten monetary policy. Specifically, we look for another 75 bps rate hike at the Committee's next meeting on November 2.”

“We believe that this combination of elevated inflation, which has been eroding household purchasing power, as well as the aggressive pace of monetary tightening will cause the economy to slip into recession starting in the second quarter of 2023.”

• Bank of Canada delivered a rate hike below expectations on Wednesday.
• Loonie resurges after yesterday’s slide.
• USD/CAD testing critical support around 1.3500.

The USD/CAD dropped more than a hundred pips from the daily high at 1.3625 and currently is testing the critical support area around 1.3500. The loonie is among the top performers on Thursday. It bottomed at  1.3489, the lowest level since October 23.

A firm break under 1.3500 would leave USD/CAD vulnerable to an extension of the downside, with not much support area until 1.3400. If the pair remains above, the dollar could recover ground but only above 1.3640/50, the outlook would improve for the greenback.

After BoC, focus on data

On Wednesday, the Bank of Canada raised the key interest rate by 50 bps, surprising market participants that expected a 75 bps. The loonie lost ground across the board after the dovish rate hike. Although, on Thursday it is recovering, supported by risk appetite and higher crude oil prices. On Friday, the August GDP report is due.

In the US, ahead of the FOMC decision on November 2, GDP data released on Thursday showed the economy expanded at an annualized rate of 2.6% during the third quarter, above 2.4% of market consensus while the GDP Price Index dropped from 9.1% to 4.1%. A different report showed Durable Goods Orders increased by 0.4% in September according to preliminary data. Initial Jobless Claims rose to 217K while Continuing Claims jumped to 1.438M, the highest in months.

The greenback lost momentum after the numbers and trimmed gains across the board. The DXY is up by 0.55%, recovering just half of Wednesday’s losses. The move higher looks vulnerable as US yields are at fresh weekly lows and equity prices rise.

Technical levels

The Bank of Japan (BoJ) will announce its monetary policy decision on Friday, October 28 at 03:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of nine major banks. 

Japanese main interest rate will likely be left at -0.1%, despite inflation standing at 3% year-on-year. The yield-curve control (YCC), which aims to keep the yield of the 10-year government bond at around 0%, is also set to remain in place.

Standard Chartered

“We expect the BoJ to keep the policy balance rate unchanged, even as the JPY weakens and other central banks hike, in a bid to anchor core CPI at 2% and to break out of the deflationary cycle; the BoJ aims to sustainably achieve its price stability target of 2%. The government will likely intervene to ease JPY volatility, but this could prove challenging unless the BoJ makes some monetary policy changes.”

ING

“We expect the BoJ to stand pat despite the recent JPY weakness. Governor Kuroda could however warn that the recent currency movements would have a negative impact on the nation’s economy but we doubt the JPY depreciation will trigger any changes in the BoJ’s policy stance.”

TDS

“BoJ is likely to increase the inflation forecast for this FY to above 2.5% but continue to see the breach of its inflation target as temporary. Rapid weakening of the JPY, tests of the YCC band, and broadening inflation pressures, cannot be ignored. Even if the BoJ does not act, there is a risk of more aggressive signalling and the market appears too sanguine about such risks.”

SocGen

“We expect the BoJ to maintain its main monetary policy, i.e. yield curve control (YCC) and ETF purchases. In addition, the BoJ will continue to conduct daily fixed-rate 10y JGB purchases at 0.25%. At the press conference after the policy board meeting, BoJ Governor Kuroda will likely repeat the bank’s explanation that the main reason for the upward revision of the price outlook is the increase in costs associated with high raw material prices and the weak yen – and price increases due to the cost push lack sustainability. On the other hand, we believe there is a growing possibility that FX intervention will be carried out again. Following on from last month's policy board meeting, there is a good chance that the government and the BoJ will once again intervene in foreign exchange after the coming press conference.”

Citibank

“The BoJ looks set to keep monetary policy unchanged. Based on PM Kishida’s recent comments, the Japanese government looks unlikely to apply political pressure on the BoJ for policy adjustments to curb yen depreciation. The Bank is likely to maintain its current monetary policy stance, citing the limited rise in services inflation and wages, as well as the government’s continued support for the bank’s accommodative policy despite the drop in the yen.”

BMO

“One would imagine that there is great debate within the Board, with core inflation soaring to an 8-year high of 3.0% (the Minutes from the September meeting showed that there were already concerns expressed) and the JPY plunging to 32-year lows. Governor Kuroda is likely finding it more difficult to push his view that this rise in inflation is temporary. It is widely expected that the Bank will continue with its program of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), but it would be helpful to tweak the language around the latter. Allowing 10-year JGB yields to stray from the 0% target may be enough to give the JPY some support while staying with its QQE. But that may be asking too much.”

OCBC

“We expect BoJ to stay status quo on policy stance though risks of policy tweaks are not ruled out. Options the BoJ can contemplate are (1) slight upward adjustment in 10y yield target or (2) a slight tweak in the upper bound of the YCC cap higher. But BoJ has earlier said that policy adjustment would require compelling evidence to show wages and prices in Japan are rising in a sustainable manner.”

Danske Bank

“We expect the BoJ to keep its yield curve control firmly in place despite gaining pressures on yields and the yen. Until wage growth increases and boosts consumers purchasing power, BoJ will not loosen its grip on the yield curve willingly.”

BofA

“We expect the BoJ to keep all key targets, as well as its forward guidance, unchanged. The board is also likely to leave, intact, the 25 bps ceiling for the 10-year yield under yield curve control (YCC) and reiterate its pledge to conduct unlimited, daily, fixed-rate bond-buying operations in its defense.”

Economists at TD Securities are still cautious near-term on the EUR/USD pair as the global growth impulse is worsening.

A push to 1.02 will likely cap upside

“We are still cautious on EUR/USD as the global growth impulse continues to downshift.”

“A move below 0.99 should be seen as a confirmation of a return to the downtrend channel, while a push to the 1.02 mark will likely cap upside.”

See: The euro needs growth expectations to shift more than it needs higher rates – SocGen

S&P 500 Index has completed a base above 3807/10. Analysts at Credit Suisse look for a deeper recovery to the 63-Day Moving Average (DMA) at 3925, potentially 3999/4000. 

Deeper setback on a dip under 3792

“S&P 500 was unable to hold on to its early gains yesterday but the subsequent pullback remains above support around 3810. We look for this latter support to try and hold for strength back to 3886, then the late September high and 50% retracement of the fall from September at 3907/08. With the 63-DMA seen not far above at 3925, we would expect this latter resistance to cap at first. A closing break higher in due course though can see a further push to the 38.2% retracement of the entire 2022 fall at 3999.” 

“Below 3792 can see a deeper setback to price and 13-DMA support at 3742/35, but with fresh buyers expected here.”

The short-term price action is increasingly challenging the view for a stronger US dollar. The USD valuation looks stretched, but the broader drivers supporting the currency are still in place, in the opinion of economists at HSBC.

Are we past the peak?

“The November FOMC meeting will be crucial in assessing whether this USD shift is the start of a more structural trend or whether the price action is more symptomatic of a positioning squeeze, as we have witnessed in March, May and August 2022 already. 

“It is also worth bearing in mind the USD’s increasingly stretched valuations, based on a long-term real effective exchange rate (REER) measure. This could inhibit significant USD gains; however, until the broader drivers of the USD – global growth, risk appetite, and relative yields – show a bigger shift, it may be premature to call for a weaker USD.”

Senior Economist at UOB Group Alvin Liew reviews the latest industrial production figures in Singapore.

Key Takeaways

“Singapore’s Sep industrial production (IP) came in below expectations as it was flat from Aug (0.0% m/m SA), which translated to a growth of 0.9% y/y in Sep.  Compounding the weaker trajectory was the downwardly revised Aug readings which is now at 1.6% m/m, 0.4% y/y. Excluding the volatile biomedical manufacturing, IP actually expanded by 2.8% m/m, 2.0% y/y in Sep.”

“The 0.9% y/y rise in Sep IP was due to the continued strong performances seen in transport engineering, general manufacturing, and precision engineering, offsetting the extended 3rd month decline in electronics, a 2nd month decline in chemicals and a fall in biomedical, of which pharmaceutical production declined by -8.5% y/y. The medical technology component of biomedical continued to rise although the pace was halved.”

“IP Outlook – Based on the Sep IP report, the manufacturing sector grew by just 0.8% y/y in 2Q compared to the 1.5% reported in the advance estimates released on 14 Oct. Assuming no major changes to the other sectors, we now expect 3Q’s GDP growth to be revised lower by 0.2ppt to 4.2% y/y, taking into account the lowered manufacturing expansion. We lower our Singapore 2022 manufacturing growth forecast to 3.5% (from 4.5% previously) and we keep our 2023 forecast unchanged as we expect the sector to contract by 3.7% next year due to the faltering outlook for electronics and weaker external demand. Despite the weaker 2022 manufacturing growth, we are retaining our 2022 GDP growth forecast unchanged at 3.5% as we see the upside surprise from services activities (due to strong pipeline of activities post- reopening of the economy) helping to compensate for the IP downgrade. But with the faltering 2023 manufacturing outlook, we expect GDP growth to ease noticeably to 0.7% next year.”

• AUD/USD comes under some selling pressure on Thursday amid resurgent USD demand.
• Sliding US bond yields, risk-on mood caps the safe-haven buck and helps limit the slide.
• Bets for more aggressive rate hikes by the RBA might continue to lend support to the pair.

The AUD/USD pair retreats nearly 100 pips from a three-week high touched earlier this Thursday, though the intraday downfall finds some support near the 0.6425 region. The pair quickly recovers a few pips through during the early North American session and is currently placed around the 0.6475-0.6480 area, still down over 0.30% for the day.

The US dollar stages a goodish intraday bounce from its lowest level since September 20 and turns out to be a key factor exerting downward pressure on the AUD/USD pair. The USD maintains its bid tone after the Advance US GDP report showed that the world's largest economy expanded by a 2.6% annualized pace during the third quarter, beating estimates for a print of 2.4%. This marks a sharp reversal from the 0.6% fall in the previous quarter and the 1.6% decline registered in the first three months of the year.

This, however, was partly offset by the fact that the GDP price index rose just 4.1%, well below the 5.3% expected and down more than half from 9.0% in the previous quarter. This could be perceived as the first sign of a moderation in inflationary pressure, which adds to speculations that the Fed will soften its hawkish stance. The expectations led to a fresh leg down in the US Treasury bond yields. This, along with the risk-on impulse, caps the safe-haven buck and offers some support to the risk-sensitive aussie.

Apart from this, rising bets for a more aggressive policy tightening by the Reserve Bank of Australia, bolstered by Wednesday's stronger consumer inflation figures, should act as a tailwind for the AUD/USD pair. Hence, any meaningful pullback might still be seen as a buying opportunity and is more likely to remain short-lived. The upside potential, however, seems limited as the focus shifts to the FOMC meeting next week.

Technical levels to watch

• The index accelerates its correction to the 110.50 region on Thursday.
• Flash US GDP figures now see the economy expanding 2.6% in Q3.
• The ECB hiked the policy rate by 75 bps, as widely expected.

The USD Index (DXY), which tracks the greenback vs. a basket of its main rivals, manages to pick up extra pace and retests the mid-110.00s region on Thursday.

USD Index bounces off lows in the 109.50 zone

After two consecutive daily pullbacks, the index met some dip buyers on Thursday and edged higher, reclaiming at the same time the 110.00 mark and beyond on the back of fresh weakness in the risk complex.

The recovery in the dollar comes in tandem with another negative session in US yields, which give away the initial optimism and return to the negative ground across the curve.

Extra strength in the dollar also comes from the inability of the ECB to surprise markets on the bullish side, which kind of undermined the recent steep rebound in the European currency.

In the US data space, another revision of the GDP Growth Rate saw the economy expand 2.6% YoY in Q3, while headline Durable Goods Orders rose 0.4% MoM in September and Initial Jobless Claims increased by 217K WoW in the week to October 22.

What to look for around USD

The dollar seems to have met some decent contention around the 109.50 region so far this week.

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

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

Key events in the US this week: Flash Q3 GDP Growth Rate, Durable Goods Orders, Initial Claims (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 0.38% at 110.13 and faces the immediate up barrier at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the flip side, the breakdown of 109.53 (monthly low October 27) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).

USD/CHF has broken below 0.9876, suggesting that further near-term decline towards the 55-Day Moving Average at 0.9775 is likely, analysts at Credit Suisse report.

Break below 0.9876 shifts the near-term risk lower

“USD/CHF has managed to break below 0.9876. This signals that further near-term weakness is likely to follow. With near-term MACD also reinforcing this bearish signal, we look for a fall to 0.9838/30 initially and then likely for a test of the 55-DMA at 0.9775.” 

“Should a solid break below the 55-DMA also follow, this would suggest yet another stronger move lower within the broader mean-reverting environment seen since April, though with tougher support next seen at the potential uptrend from August and the 200-DMA at 0.9627/9585.” 

“Resistance is seen at the 13-DMA at 0.9930/38 and next at yesterday’s high at 0.9963, which we look to ideally maintain any sudden move higher to keep the current downside intact.”

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions from the press following the Governing Council's decision to hike key rates by 75 basis points in October.

Key takeaways

"May need to go beyond normalisation."

"We might have to raise rates at several meetings."

"Will open 3 additional windows for TLTRO repayment."

"Many of our assumptions for the downside scenario in projections have not materialised."

"We must focus on our mandate, price stability, and deliver on that."

GBP/USD drops back after test technical resistance in the mid-1.16s. Still, economists at Scotiabank expect the pair to retain a positive toe in the next few weeks.

Broader trends are bullish above 1.14

“Price signals are not obviously bearish and losses look consolidative as markets await the next impulse.”

“Sterling is likely to trade in line with the broader USD tone for now but we still rather feel the pound’s gains this week set it on course for some additional strength in the next few weeks.” 

“Broader trends are bullish above 1.14 – now major support – and that leaves the pound with a fair bit of room to manoeuver and still retain a positive tone.”

• EUR/USD looks offered and bounces off lows near 0.9970.
• Further ECB decision on rates will remain data dependent.
• Another revision saw US Q3 GDP Growth Rate at 2.6%.

EUR/USD now comes under further downside pressure and prints new daily lows in the vicinity of 0.9970 on Thursday, where some interim contention seems to have emerged.

EUR/USD weaker post-ECB rate hike

EUR/USD accelerates the daily decline from tops near 1.0100 and revisits the 0.9970 region as Chair C.Lagarde’s press conference is under way.

Indeed, Chairwoman Lagarde emphasized the progress made by the central bank in withdrawing accommodation. The Council see the economic activity in the region slowing significantly in Q3, with the crisis around gas prices magnifying headwinds.

Lagarde noted that the ongoing tight monetary policy results in a weaker global growth, which could lead to higher unemployment in the future.

Regarding inflation, Lagarde reiterated that high energy prices remain almost exclusively behind the ongoing elevated inflation, while the depreciation of the euro also added to the current inflationary pressures. Currently, inflation risks are tilted to the upside vs. the downside risks seen around the economic outlook.

Lagarde also reiterated that the decision on interest rates will remain data dependent and will be made on a meeting-by-meeting basis.

In addition, Lagarde said the anti-fragmentation tool, the TPI, was not discussed at today’s meeting.

Other than the ECB event, US data releases were also noteworthy: Following another revision of the GDP Growth Rate, US economy is now expected to have expanded 2.6% YoY in the July-September period, Durable Goods Orders expanded at a monthly 0.4% in September and Initial Jobless Claims went up by 217K in the week to October 22.

What to look for around EUR

EUR/USD’s upside momentum meets an initial hurdle around 1.0100 and triggered a deep knee-jerk that was later exacerbated following the ECB decision to hike the policy rate by 75 bps, as largely anticipated.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The resurgence of speculation around a potential Fed’s pivot seems to have removed some strength from the latter, however.

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 fragile sentiment around the euro in the longer run.

Key events in the euro area this week: 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 0.84% at 0.9997 and the breakdown of 0.9972 (weekly low October 21) would target 0.9704 (weekly low October 21) en route to 0.9631 (monthly low October 13). On the upside, there is an initial hurdle at 1.0093 (monthly high October 27) followed by 1.0197 (monthly high September 12) and finally 1.0368 (monthly high August 10).

Gold price is stalling a two-day upswing towards $1,700. Strategists at ANZ Bank expect the yellow metal to remain under downside pressure.

XAU/USD to remain under pressure

“The hawkish tone of the central banks is keeping US real yields and the US dollar on a strong footing. While recession fears grow due to rising rates and sticky inflation, we should see some haven flows but not enough to reverse the bearish trend anytime soon.”

“We expect gold to remain under pressure.”

See – Gold Price Forecast: XAU/USD to suffer further falls with a top in place – Credit Suisse

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions from the press following the Governing Council's decision to hike key rates by 75 basis points in October.

Key takeaways

"We have not finished normalization."

"We are turning our backs to forward guidance to avoid uncertainty."

"We'll have further rate increases."

"We'll look at inflation outlook."

"We'll be attentive to the transmission of the policy."

"Reduction of APP portfolio was discussed at retreat."

"Did not discuss substantive APP issues today."

"Would pursue APP discussion, to decide key principles in December."

• GBP/USD meets with a fresh supply on Thursday amid a goodish pickup in the USD demand.
• An intraday rally in the US bond yields turns out to be a key factor lending support to the buck.
• The mixed US macro data fails to impress the USD bulls or provide any impetus to the major.

The GBP/USD pair remains on the defensive through the early North American session and reacts little to the mixed US macro releases. The pair, however, manages to rebound a few pips from the daily low and is currently trading around the 1.1570-1.1575 region, still down nearly 0.50% for the day.

The US dollar makes a solid comeback and rebounds swiftly from over a one-month low touched earlier this Thursday, which, in turn, exerts some downward pressure on the GBP/USD pair. A goodish pickup in the US Treasury bond yields helps revive demand for the USD, which draws additional support from better-than-expected US GDP report.

The US Bureau of Economic Analysis reported that the world's largest economy grew by 2.6% annualized pace during the third quarter, beating estimates pointing to a reading of 2.4%. Adding to this, the US Weekly Jobless Claims rose from 214K to 217K during the week ended October 21, though was better than market expectations for 220K.

This, however, was offset by disappointing Durable Goods Orders, which rose 0.4% in September against the 0.6% growth anticipated. Excluding transportation, new orders declined by 0.5% as compared to a flat reading in the previous month and a modest 0.2% rise estimated. The data fails to impress the USD bulls or prompt fresh selling around the GBP/USD pair.

Apart from this, the optimism over the appointment of the new UK Prime Minister Rishi Sunak acts as a tailwind for the British pound. This, in turn, makes it prudent to wait for strong follow-through selling before confirming that the GBP/USD pair's recent rally to a multi-week high has run out of steam and positioning for any further losses.

Technical levels to watch

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions from the press following the Governing Council's decision to hike key rates by 75 basis points in October.

Key takeaways

"Supply bottlenecks are easing."

"Depreciation of the euro has added to inflation."

"Price pressures are evident in more and more sectors."

"Strong labour market to support higher wages."

"Incoming data and recent wage agreements indicate that wage dynamics may be picking up."

"Most measures of longer-term inflation expectations around 2%."

"Recent above-target revisions warrant continued monitoring."

"Risks to growth are clearly on the downside, in particular in the near term."

"Risks to the inflation outlook are primarily on the upside."

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions from the press following the Governing Council's decision to hike key rates by 75 basis points in October.

Key takeaways

"Made substantial progress in withdrawing accommodation."

"Activity is likely to have slowed significantly in Q3."

"We expect the economy to slow down substantially over the remainder of the year and next year."

"High inflation is dampening spending, production."

"Headwinds are reinforced by gas supply disruptions."

"Rebound in demand for services is slowing."

"Labour market performed well."

"Slowing economy could lead to some increase in the jobless rate."

Economist at UOB Group Lee Sue Ann assesses the latest inflation figures Down Under.

Key Takeaways

“Both headline and underlying inflation for 3Q22 came in higher than expectations. We believe inflation will likely peak in 4Q22, in the absence of further significant global shocks. Our current full-year inflation forecasts of 5.8% for 2022 and 3.9% for 2023 remain unchanged.”

“While the labour market remains resilient, the outlook for labour demand is weakening. Labour supply, on the other hand, is increasing on the back of the rebound in migration. These factors will likely push up the unemployment rate in coming months towards the 3.8%-4.0% levels.”

“The latest Federal Budget, unveiled on 25 Oct, displayed strong fiscal discipline, which is crucial and consistent with the Reserve Bank of Australia (RBA)’s efforts to curb inflation. The next RBA meeting is on 1 Nov, and we are penciling in a 25bps hike in the official cash rate (OCR) to 2.85%.”

• Initial Jobless Claims in the US rose by 3,000 in the week ending October 22.
• US Dollar Index stays in positive territory above 110.00 after the data.

There were 217,000 initial jobless claims in the week ending October 22, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 214,000 and came in slightly better than the market expectation of 220,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1% and the 4-week moving average was 219,000, an increase of 6,750 from the previous week's unrevised average.

"The advance number for seasonally adjusted insured unemployment during the week ending October 15 was 1,438,000, an increase of 55,000 from the previous week's revised level," the DOL further reported.

Market reaction 

The dollar preserves its strength in the early American session and the US Dollar Index was last seen rising 0.5% on the day at 110.23.

• EUR/USD gathers extra downside traction below parity.
• ECB raised rates by 75 bps, as widely anticipated.
• Market participants now look to Lagarde’s press conference.

The selling bias in the single currency grabbed extra impulse and forced EUR/USD to break below the key parity level on Thursday.

EUR/USD shifts the focus to Lagarde

EUR/USD remains offered after the ECB walked the talk and hiked rates by 75 bps at its event on Thursday.

Indeed, the central bank raised the interest rate on the main refinancing operations, the interest rate on the marginal lending facility and the deposit facility to 2.00%, 2.25% and 1.50%, respectively.

The ECB reiterated that it intends to keep raising rates to endure inflation returns to the bank’s 2% target. In addition, the ECB said that it will reinvest principal payments from maturing securities at least until the end of 2024.

Moving forward, market participants will now closely follow the usual press conference by Chairwoman Lagarde and the subsequent Q&A session.

What to look for around EUR

EUR/USD’s upside momentum meets an initial hurdle around 1.0100 and managed to bounce off the sub-parity area soon after the ECB interest rate decision.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The resurgence of speculation around a potential Fed’s pivot seems to have removed some strength from the latter, however.

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 fragile sentiment around the euro in the longer run.

Key events in the euro area this week: 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 0.69% at 1.0011 and the breakdown of 0.99704 (weekly low October 21) would target 0.9631 (monthly low October 13) en route to 0.9535 (2022 low September 28). On the upside, there is an initial hurdle at 1.0093 (monthly high October 27) followed by 1.0197 (monthly high September 12) and finally 1.0368 (monthly high August 10).

The US economy expanded at an annualized rate of 2.6% in the third quarter, the US Bureau of Economic Analysis' (BEA) first estimate showed on Thursday. 

This reading followed the 0.6% contraction recorded in the second quarter and came in slightly better than the market expectation for a growth of 2.4%.

"The increase in real GDP reflected increases in exports, consumer spending, nonresidential fixed investment, federal government spending, and state and local government spending, that were partly offset by decreases in residential fixed investment and private inventory investment," the BEA explained in its publication. "Imports, which are a subtraction in the calculation of GDP, decreased."

Follow our live coverage of the market reaction to the ECB'press conference and US GDP data.

Market reaction

The US Dollar Index extended its daily rally on the upbeat data and was last seen rising 0.55% on the day at 110.30.

• EUR/GBP remains confined in a narrow band after the ECB hikes interest rates by 75 bps.
• The announcement fails to influence the shared currency as the move was already priced in.
• Investors now look to the post-meeting press conference for short-term trading opportunities.

The EUR/GBP cross edges lower during the mid-European session and slides to a fresh weekly low, around the 0.8650 region after the European Central Bank announced its policy decision.

As was expected, the ECB hikes interest rates by 75 bps for the second successive time in October to tackle stubbornly high inflation. Given that the markets had already priced in another jumbo rate hike, the announcement does little to provide any impetus to the shared currency or the EUR/GBP cross. Investors also prefer to wait on the sidelines and look forward to ECB President Christine Lagarde's comments at the post-meeting conference for clues about the near-term policy outlook.

In the meantime, the latest optimism over the appointment of Rishi Sunak as the new UK Prime Minister continues to underpin the British pound and acts as a headwind for the EUR/GBP cross. Market players see Sunak as someone who can bring stability back after the recent volatility in the markets. Moreover, International Monetary Fund (IMF) Managing Director Kristalina Georgieva told Reuters that she expects new UK PM Sunak to steer Britain towards a path of medium-term fiscal sustainability.

Apart from this, growing worries that the protracted Russia-Ukraine war could drag the Eurozone's economy faster and deeper into recession might continue to cap the upside for the EUR/GBP cross. The fundamental backdrop supports prospects for some meaningful downside for spot prices. That said, the lack of any follow-through selling warrants some caution for aggressive bearish traders.

Technical levels to watch

The European Central Bank (ECB) announced on Thursday that it raised its key rates by 75 basis points (bps) following the October policy meeting as expected. 

With this decision, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 2%, 2.25% and 1.5% respectively.

Follow our live coverage of the market reaction to the ECB's policy announcements.

Market reaction

With the initial reaction, the EUR/USD pair came under modest bearish pressure and was last seen losing 0.63% on the day at 1.0015.

Key takeaways from policy statement

"With this third major policy rate increase in a row, the governing council has made substantial progress in withdrawing monetary policy accommodation."

The Governing Council decided to adjust the interest rates applicable to TLTRO III."

Inflation remains far too high and will stay above the target for an extended period."

"ECB stands ready to adjust all of its instruments within its mandate."

"The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the app for an extended period of time past the date when it started raising the key ecb interest rates."

"In any case, the Governing Council will regularly assess how targeted lending operations are contributing to its monetary policy stance."

"Governing Council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target."

"From 23 November 2022 until the maturity date or early repayment date of each respective outstanding TLTRO III."

"Governing Council will base the future policy rate path on the evolving outlook for inflation and the economy, following its meeting-by-meeting approach."

"Governing Council also decided to offer banks additional voluntary early repayment dates."

"Governing Council also decided to change the terms and conditions of the third series of targeted longer-term refinancing operations."

"Governing Council’s monetary policy is aimed at reducing support for demand and guarding against the risk of a persistent upward shift in inflation expectations."

"Governing council will continue applying flexibility in reinvesting redemptions coming due in the PEPP portfolio."

"In view of the unexpected and extraordinary rise in inflation, it needs to be recalibrated to ensure that it is consistent with the broader monetary policy normalisation process."

Attempts to price in a Fed pivot have gathered pace after a smaller-than-expected hike from the Bank of Canada (BoC). Nonetheless, economists at MUFG Bank expect the USD/CAD pair to hit 1.40 as the BoC’s dovish surprise does not have implications for the Federal Reserve.

Yield spread between Canada and US moving in favour of USD

“BoC delivered a smaller than expected 50 bps rate hike. It was the second consecutive meeting at which the BoC has stepped down the size of rate hikes after delivering a 100 bps hike in July and a 75bps hike in September.”

“We would caution over reading too much into the BoC’s policy decision as an accurate guide for future Fed policy decisions. Canada’s economy is likely to prove more sensitive to higher rates than the US economy given much higher household debt levels. There is already clearer experience of a sharper slowdown in the Canadian labour market.” 

“Yesterday’s decision from the BoC supports our view that yield spreads between the US and Canada will continue to move in favour of USD as the Fed hikes rates for longer and lifts rates higher than the BoC during this hiking cycle.”

“We are not convinced yet the US dollar and Fed rate hike expectations have peaked out yet, and still expect USD/CAD to move back towards the 1.4000 level.”

Christine Lagarde, President of the European Central Bank (ECB), is scheduled to deliver her remarks on the monetary policy outlook at a press conference at 12:45 GMT.

Follow our live coverage of ECB's policy announcements and the market reaction.

About ECB's press conference

Following the ECB´s economic policy decision, the ECB President gives a press conference regarding monetary policy. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

• EUR/USD’s rally meets initial resistance around 1.0100 on Thursday.
• The continuation of the uptrend could see 1.0200 retested.

EUR/USD meets a tough hurdle around the 1.0100 neighbourhood on Thursday, returning to the negative territory after five consecutive daily advances.

The surpass of the 1.0100 zone could spark a more serious recovery in the short-term horizon. Against that, the immediate barrier is now expected at the September top at 1.0197 (September 12) ahead of the August peak at 1.0368 (August 10).

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0510.

EUR/USD daily chart

Markets expect a 75 bps hike from the European Central Bank (ECB) today but the focus will be on communication. Nevertheless, the euro requires concerns about growth to ease in order to strengthen, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

75 bps is priced in, forward guidance is everything

“A 75 bps hike is priced in, followed by at least 50 bps more in December. Warmer weather is helping, the market doesn’t expect QT to start until rates are significantly higher, but does expect to see the TLTRO being run down.” 

“As important as anything else will be the tone of Christine Lagarde’s comments, and there, a clear focus on fighting inflation probably keeps the hawkish message intact. That suggests we won’t get anything negative for the euro from the meeting, a least. A stronger currency though probably requires pessimism about growth to wane.”

“The Bloomberg consensus for Eurozone 2023 GDP growth has fallen from 2.5% to -0.1% since the start of March, during which time the consensus for US GDP has fallen from 2.5% to 0.4%.” 

See – ECB Preview: Forecasts from 15 major banks, no obstacles to a 75 bps hike

• DXY regains some balance after bottoming out near 109.50.
• The 108.50/40 band continues to hold the downside so far.

DXY picks up pace and rebounds from earlier multi-week lows near the 109.50 zone on Thursday.

Despite the dollar remains under pressure, the likelihood of further gains remains on the table while above the 8-month support line near 108.50. The proximity of the 100-day SMA (108.40) also reinforces this area of contention. Below this zone, the downside pressure in the dollar is predicted to gather extra steam.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.99.

DXY daily chart

• EUR/JPY sheds part of the recent uptrend and drops below 147.00.
• The 2022 high at 148.40 still remains as the immediate target for bulls.

EUR/JPY comes under pressure and slips back below the 147.00 mark following three consecutive daily advances.

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 137.18, the constructive outlook is expected to remain unchanged.

EUR/JPY daily chart

The broad-based US dollar sell-off this week has helped to lift EUR/USD back above parity. Today, the European Central Bank (ECB) is expected to raise rates by 75 basis points. This should provide further support to the euro, economists at MUFG Bank report.

ECB to deliver another hawkish policy update 

“We expect the ECB to deliver another 75 bps hike and to leave the door open to further large hike at the final meeting of the year in December. We then expect the ECB to slow the pace of hikes in 2023 as it becomes more evident that the eurozone economy has slowed sharply in the 2H of this year, and inflation has peaked out. 

“The ECB is also expected to discuss in more detail plans to begin shrinking their balance sheet through quantitative tightening at today’s meeting although plans to allow assets to roll off and not be replaced are unlikely to be implemented until next year.”

“Overall, the ECB’s increasingly hawkish policy stance should continue to offer more support for the euro. Inflation should continue to dominate growth concerns when setting policy at the current juncture.”

See – ECB Preview: Forecasts from 15 major banks, no obstacles to a 75 bps hike

US Q3 GDP Overview

Thursday's economic docket highlights the release of the Advance third-quarter US GDP report, scheduled at 12:30 GMT. The world's largest economy is expected to have expanded by a 2.4% annualized pace during the third quarter. This would mark a sharp reversal from the 0.6% fall in the previous quarter and the 1.6% decline registered in the first three months of the year.

Economists at Société Générale offer a brief preview of the key macro data and write: “We calculate a 3% gain for real GDP, the key economic release of the week. We think that it could be even higher. What does that do for recession calls? Temporary reconsideration is our answer. Companies are becoming more conservative as compensation pressures build.”

How Could it Affect USD/JPY?

Ahead of the release, the emergence of some US dollar buying assists the USD/JPY to rebound swiftly from the vicinity of the 145.00 mark, or a nearly three-week low touched earlier this Thursday. A stronger GDP print will pour cold water on expectations that the Fed will soften its hawkish stance amid signs of a slowdown in the US economy. This, in turn, will lift bets for more aggressive Fed rate hikes in future and provide a fresh lift to the greenback, setting the stage for some meaningful upside for the major.

Conversely, a weaker reading would add to growing market worries about a deeper economic downturn and prompt fresh selling around the buck. That said, a big divergence in the monetary policy stance adopted by the Fed and the Bank of Japan might continue to act as a tailwind for the USD/JPY pair. Investors might also refrain from placing aggressive bets ahead of the BoJ meeting on Thursday, suggesting that the immediate market reaction is more likely to be limited.

Key Notes

  •  US Q3 GDP Preview: Dollar bears to retain control on weak GDP print

  •  US GDP Preview: Forecasts from eight major banks, strong rebound to break two quarters of negative growth

  •  USD/JPY bounces off multi-week low, finds decent support ahead of 145.00 mark

About US GDP

The Gross Domestic Product Annualized released by the US Bureau of Economic Analysis shows the monetary value of all the goods, services and structures produced within a country in a given period of time. GDP Annualized is a gross measure of market activity because it indicates the pace at which a country's economy is growing or decreasing. Generally speaking, a high reading or a better-than-expected number is seen as positive for the USD, while a low reading is negative.

Further decline in USD/CNH could see the 7.1500 area revisited ahead of 7.1300 in the next weeks, comment Market Strategist at UOB Group Quek Ser Leang and Economist Lee Sue Ann.

Key Quotes

24-hour view: “While we held the view yesterday that USD ‘is unlikely to advance further’, we expected it to ‘trade between 7.2950 and 7.3550’. The subsequent sharp sell-off to a low of 7.1826 came as a surprise. The sharp and swift selloff is deeply oversold but with no sign of stabilization just yet, USD could weaken further. However, a clear break of 7.1500 is unlikely. Resistance is at 7.2050 but only a break of 7.2350 would indicate that the weakness has stabilized.”

Next 1-3 weeks: “Yesterday (26 Oct, 7.3300), we indicated that while upward momentum has waned somewhat, there is still chance for USD to rise to the major resistance at 7.4000. We clearly did not expect the outsized selloff as USD nose-dived by 1.74% (NY close of 7.1880), its largest 1day drop on record. The break of our ‘strong support’ at 7.2600 indicates that the rally in USD that started two weeks ago (see annotations in the chart below) has ended. The current large pullback has room to extend to 7.1500, possibly 7.1300. On the upside, a break of the ‘strong resistance’ at 7.3000 would indicate that the rapid build-up in downward momentum has eased.”

What is next for USD/JPY? Economists at Bank of America believe that the pair could reach the 160 level.

FX intervention unlikely to stop the upward pressure on USD/JPY

“USD/JPY is likely to retest 150 by the year-end and possibly rise to 155, with 160 in sight.” 

“The MoF would likely intervene as USD/JPY attempts new highs. However, considering it would need to maintain a certain level of liquid, foreign reserve balances at a certain level, markets are likely to see the MoF's firepower as limited and FX intervention is unlikely to be sufficient to stop the upward pressure on USD/JPY.”

ECB monetary policy decision – Overview

The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 12:15 GMT, which will be followed by the post-meeting press conference at 12:45 GMT. The ECB is all but certain to lift interest rates for the third time in as many meetings to bring down inflation. In fact, the Eurozone Harmonised Index of Consumer Prices (HICP) tapped a 40-year high and surged to 9.9% YoY in September. That said, worries about a deeper economic downturn, fueled by the protracted Russia-Ukraine war, might force the ECB to slow the pace of future rate hikes.

Analysts at Deutsche Bank offer a brief preview of the event and write: “We expect another 75 bps hike, followed by 75 bps in December, 50 bps in February and 25 bps in March, reaching a terminal rate of 3%. The press conference as ever will be a focal point and there’ll be lots of attention on technical things surrounding TLTROs and excess reserves.”

How could it affect EUR/USD?

Given that a 75 bps rate hike move is already priced in the markets, the announcement might do little to provide any meaningful impetus to the shared currency. Hence, the accompanying monetary policy statement and ECB President Christine Lagarde's comments will be scrutinized for the near-term policy outlook. This will play a key role in influencing the shared currency and provide some meaningful impetus to the EUR/USD pair.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for the EUR/USD pair: “The Relative Strength Index (RSI) indicator on the four-hour chart stays slightly above 70, suggesting that there is more room on the downside for the pair to correct its overbought conditions.”

Eren also outlined important technical levels to trade the EURUSD pair: “On the downside, 1.0050 (static level, former resistance) aligns as initial support before the all-important 1.0000 level. In case a dovish ECB message triggers a euro selloff, a drop below parity could bring in additional sellers and cause the pair to slide toward 0.9950 (static level, 20-period SMA).”

“Key resistance seems to have formed at 1.0100 (static level, psychological level). If the pair rises above that level and confirms it as support, it could target 1.0175 (static level) and 1.0200 (September high),” Eren adds further.

Key Notes

   •  European Central Bank Preview: Small chance President Christine Lagarde delivers a hawkish message

   •  ECB Meeting Preview: Lagarde set to hit euro with dovish hike, four reasons to expect EUR/USD to tumble

   •  EUR/USD Forecast: Euro could clear 1.0100 on a hawkish ECB surprise

About the ECB interest rate decision

ECB Interest Rate Decision is announced by the European Central Bank. Usually, if the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

EUR/USD continues to trade higher in anticipation of the European Central Bank (ECB) meeting. A 75 bps hike is well expected. Any disappointment may weigh on the euro, economists at OCBC Bank report.

Focus is on ECB rhetoric

“Focus is on ECB rhetoric – if the ECB plans to slow policy normalisation as growth outlook dims. Markets are also keeping a look out on whether officials have started to debate/ discuss QT and changing rules on TLTRO to reduce excessive volatility.”

“The risk is if ECB sounds slightly less hawkish, then even with a 75 bps hike, the EUR could still trade lower.”

See – ECB Preview: Forecasts from 15 major banks, no obstacles to a 75 bps hike 

According to Market Strategist at UOB Group Quek Ser Leang and Economist Lee Sue Ann, USD/JPY risks further decline in the near term, although a sustained pullback below 144.00 appears not favoured.

Key Quotes

24-hour view: “Yesterday, we highlighted that USD ‘is likely to edge lower but any decline is likely limited to a test of 147.00’. We did not expect the downward acceleration as USD plummeted to a low of 146.21 before extending its decline in early Asian trade. While oversold, the USD weakness could extend. However, a sustained drop below 145.00 is unlikely (minor support is at 145.40). Resistance is at 146.55 but only a break of 147.00 would indicate that the weakness in USD has stabilized.”

Next 1-3 weeks: “In our latest narrative from two days ago (25 Oct, spot at 148.80), we highlighted the outlook for USD is mixed and USD could trade within a wide range of 144.00/152.00 for the time being. Yesterday (26 Oct), USD lost 1.05% (NY close of 146.35) and downward momentum is building, albeit tentatively. In the coming days, USD could edge lower but at this stage, the odds of a sustained decline below 144.00 are not high. On the upside, a break of the ‘strong resistance’ level at 148.80 would indicate the build-up in momentum has fizzled out.”

• A combination of factors prompts some selling around gold on Thursday.
• Rising US bond yields revive the USD demand and exert some pressure.
• Bets for a less hawkish Fed offer support ahead of the US Q3 GDP report.

Gold struggles to gain any meaningful traction on Thursday and seesaws between tepid gains/minor losses through the first half of the European session. The XAU/USD remains below a nearly two-week high set the previous day and is currently trading around the $1,663-$1,662 area, nearly unchanged for the day.

The US dollar regains some positive traction and stages a goodish rebound from its lowest level since September 20, which, in turn, acts as a headwind for the dollar-denominated gold. Apart from this, a positive tone around the US equity futures further contributes to capping the upside for the safe-haven precious metal.

That said, expectations that the Fed may slow the pace of its policy tightening helps limit the downside for the non-yielding gold. The incoming US macro data pointed to signs of a slowdown in the world's largest economy and forced investors to trim their bets for more aggressive rate hikes by the US central bank.

Traders also prefer to move to the sidelines ahead of Thursday's key event/data risks. The European Central Bank is scheduled to announce its policy decision and is widely expected to hike interest rates by 75 bps. Apart from this, the Advance US Q3 GDP report should infuse some volatility and provide a fresh impetus to gold.

From a technical perspective, the recent recovery from the vicinity of the YTD low stalls near the $1,675 intermediate hurdle. This is followed by the $1,682 supply zone, which if cleared decisively will set the stage for an extension of the recent positive move witnessed over the past week or so, from the vicinity of the YTD low.

Key levels to watch

The British pound continues to enjoy a renaissance, but analysts at ING would argue that further gains will be harder to come by. 

EUR/GBP may well find support in the 0.8600/8650 area

“The softer dollar environment means that the GBP/USD correction could extend to the 1.1750 area – but we doubt these gains last.”

“The EUR/GBP pair may well find support in the 0.8600/8650 area, with risks tilted towards 0.8800 into next week.”

See: GBP/USD could now test the 1.1760 level – UOB

The Central Bank of the Republic of Turkiye (CBRT) Governor Sahap Kavcioglu said on Thursday, the central bank raised its year-end annual inflation forecast to 65.2% from 60.4% three months ago.

Key quotes

“Forex stability needs to be in line with the disinflation process and that a fall in inflation would be ensured through supporting production.”

“Does not think central bank is very successful in lowering inflation.”

“Recent decisions will help us succeed in lowering inflation.”

“Current developments show inflation will fall.”

Turkish annualized inflation surged to over two-decade highs of 83.45% in September after the central bank surprised markets by cutting rates twice in two months.

Market reaction

USD/TRY is keeping its range around 18.60 on the above comments, trading neutral on the day.

• EUR/USD meets decent resistance near 1.0100.
• The ECB is expected to hike rates by 75 bps.
• Germany GfK Consumer Confidence came at -41.9 in November.

The single currency gives away part of the recent robust advance and forces EUR/USD to retreat to the 1.0050 region on Thursday.

EUR/USD looks offered on ECB-day

EUR/USD loses some upside momentum after failing to test/surpass the key 1.0100 barrier earlier in the session on Thursday.

The ongoing knee-jerk in the pair comes on the back of the tepid recovery in the greenback, which manages to regain some poise following the recent sharp sell-off, as the probability that the Fed could slow the pace of its tightening plans emerges as the immediate threat for extra gains in the buck.

It will be a very interesting day ahead for the euro, as the ECB is forecast to raise its policy rate by 75 bps at its meeting later in the session. Extra attention, in the meantime, is expected around the subsequent press conference by Chair Lagarde.

Still in the euro area, earlier results saw Germany’s Consumer Confidence tracked by GfK come at -41.9 for the month of November (from -42.8).

Across the pond, another estimate of the Q3 GDP Growth Rate comes first followed by Durable Goods Orders and weekly Initial Jobless Claims.

What to look for around EUR

EUR/USD’s upside momentum meets an initial hurdle around 1.0100 ahead of the key ECB gathering due later on Thursday.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The resurgence of speculation around a potential Fed’s pivot seems to have removed some strength from the latter, however.

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 fragile sentiment around the euro in the longer run.

Key events in the euro area this week: 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 0.31% at 1.0049 and the breakdown of 0.99704 (weekly low October 21) would target 0.9631 (monthly low October 13) en route to 0.9535 (2022 low September 28). On the upside, there is an initial hurdle at 1.0093 (monthly high October 27) followed by 1.0197 (monthly high September 12) and finally 1.0368 (monthly high August 10).

EUR/USD returned above parity for first time since 20 September. Nonetheless, economists at Société Générale expect the pair to struggle to see further gains.

Not the end of the dollar rally, but the endgame has started

“The return of EUR/USD over parity yesterday for the first time since 20 September logically challenges the downtrend from 1.15 back in February.”

“But whilst another round of dollar profit taking cannot be ruled out after the ECB and before month-end on Monday, we think it is early days and there could still be merit in fading gains until we hear from the Fed next week.”

“A close above the 1.02 Fibo resistance level would have to be taken more seriously.”

“We still think Q4 is more likely to see choppy, directionless trading for EUR/USD and DXY than a clear turn in the trend, but we retain our view that the dollar’s rally is in its last stage.”

Fitch Ratings, in its latest report, offers a growth outlook for many APAC sovereigns, suggesting that they are facing external headwinds.

Key takeaways

“Slowing global demand for Asian exports has weakened the growth outlook for many APAC sovereigns.“

“Believes this could pressure fiscal accounts and delay fiscal consolidation. In Australia and New Zealand, falling housing prices add to growth challenges from monetary policy rate hikes.”

“The strengthening of the US dollar has several unintended consequences in Asia, including higher yields and a sharp fall in FX reserves, from revaluation and intervention by some central banks.” 

“External financing risks have, in particular, increased in ‘frontier markets’ facing currency pressures and loss of external-market access in combination with elevated public debt.”

Speaking at a regular news conference, China’s Commerce Ministry spokesperson Shu Jueting said that the economy is facing growing risks of slowing external demand in the fourth quarter.

Key quotes

"Looking into the fourth quarter, the risk of slowing external demand is expected to increase.”

"The consumption market continues a recovery and growth trend, but due to unexpected factors including the COVID outbreaks, market entities in sectors of brick and mortar retail, catering and accommodation still face huge pressure.”

“Expect consumption to rebound as policy support takes effect.”

Market reaction

AUD/USD is under heavy selling pressure after meeting stiff resistance above 0.6500. China’s economic worries add to the downside in the pair, which is trading at 0.6466, down 0.43% on the day, as of writing.

The dollar is having one of its deepest corrections of the year. Softer-than-expected US Q3 Gross Domestic Product (GDP) numbers later could see the dollar correct a little further, economists at ING report.

Focus on US GDP numbers

“Today we will receive third-quarter US GDP data. There are downside risks to the consensus figure of 2.4% QoQ annualised given softer residential investment and consumption. Such an outcome could feed the corrective forces currently at work for the dollar. That could possibly see the DXY correction extend all the way to the 100-day moving average at 108.42.”

“Some high US inflation data tomorrow and what should be a hawkish Fed next week should contain the depth and length of this dollar correction. And for those corporates with dollar needs over the next 3-6 months, this correction should be a good opportunity to secure dollars.”

See – US GDP Preview: Forecasts from eight major banks, strong rebound to break two quarters of negative growth

• USD/JPY continues losing ground for the third straight day and drops to a multi-week low.
• The recent suspected intervention by the BoJ underpins the JPY and exerts some pressure.
• An uptick in the US bond yields revives the USD demand and helps limit any further losses.
• Traders now eye US macro releases for a fresh impetus ahead of the BoJ meeting on Friday.

The USD/JPY pair remains under some selling pressure for the third successive day and drops to a nearly three-week low on Thursday. Spot prices, however, bounce back to the 146.00 neighbourhood during the first half of the European session, though the attempted recovery lacked follow-through.

The Japanese yen continues to draw support from the suspected intervention by the Bank of Japan (BoJ) last Friday and earlier this week. Apart from this, speculations of a policy tweak by the BoJ exert some downward pressure on the USD/JPY pair. That said, a combination of factors limits the downside and assists the major to attract some buyers near the 145.00 psychological mark.

A positive risk tone undermines the safe-haven JPY. Apart from this, a modest US dollar recovery from over a one-month low, buoyed by an uptick in the US Treasury bond yields, offers some support to the USD/JPY pair. Meanwhile, expectations that a slowdown in the US economy will force the Fed to soften its hawkish stance might hold back the USD bulls from placing aggressive bets.

Investors also seem reluctant and prefer to move to the sidelines ahead of the release of the Advance US Q3 GDP report, due later during the early North American session. Thursday's US economic docket also features Durable Goods Orders and the usual Weekly Initial Jobless Claims. The data might provide some impetus to the USD/JPY pair, though the focus remains on the BoJ meeting on Friday.

The Japanese central bank is widely expected to keep its loose policy settings unchanged. This marks a big divergence in comparison to a more hawkish stance adopted by major central banks, which should cap the JPY. This, in turn, supports prospects for the emergence of some dip-buying around the USD/JPY pair. That said, weakness below the 145.00 mark should pave the way for further losses.

Technical levels to watch

Economists at Citibank expect the EUR/CHF to move lower over the next three months. The target is set at 0.95.

Fade strength

“CHF weakened considerably following a marginally dovish hike by the SNB in September. We like fading this move and forecast a stronger franc in the short-term. Our 0-3m forecast is 0.95.” 

“In the SNB’s last meeting in September, they hiked policy rates by 75 bps to 0.5%, exiting negative interest rates. Despite the move, markets were underwhelmed by the decision, as SNB President Jordan hinted at a possibility of full-point hikes after the ECB hiked by 75 bps.”

Further advance in NZD/USD needs to clear the 0.5880 barrier in the near term, noted Market Strategist at UOB Group Quek Ser Leang and Economist Lee Sue Ann.

Key Quotes

24-hour view: “Our expectation for NZD to ‘trade between 0.5715 and 0.5785’ yesterday was incorrect as it lifted off and surged to a high of 0.5844. While overbought, the rapid rise has room to extend but a sustained rise above 0.5880 is unlikely. Support is at 0.5800, followed by 0.5770.”

Next 1-3 weeks: “On Tuesday (25 Oct, spot at 0.5710), we held the view that NZD is likely to ‘consolidate and trade between 0.5590 and 0.5810 for the time being’. Yesterday (26 Oct), NZD rose above 0.5810 and soared to a high of 0.5844. Despite the rapid rise, upward momentum has not improved by much. That said, NZD could rise but it has to close above 0.5880 before further sustained advance is likely. Looking ahead, the next resistance is at 0.5920. Support is at 0.5770, but only a break of 0.5740 would indicate that NZD is not strengthening further.”

• The index attempts a mild recovery below 110.00 on Thursday.
• US yields regain some poise and trade with modest gains.
• Durable Goods Orders, Flash Q3 GDP, Initial Claims next on tap.

The greenback, when tracked by the USD Index (DXY), manages to gather some traction and rebounds from earlier lows near 109.50 on Thursday.

USD Index focuses on data, risk trends

Following two consecutive sessions with important losses, the index now reclaims part of the ground lost and approaches the key 110.00 barrier on Thursday.

The move higher in the dollar comes in response to a hiccup in the intense upside momentum in the risk-associated assets, which saw their upside magnified on the back of increasing speculation surrounding a potential Fed’s pivot.

In the US calendar, another revision of the Q3 GDP Growth Rate is due seconded by Durable Goods Orders and usual weekly Initial Claims.

In addition, the dollar is also expected to closely follow the ECB monetary policy meeting, where market consensus anticipates a 75 bps rate hike.

What to look for around USD

The dollar seems to have met some decent contention around the 109.50 region so far this week.

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

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

Key events in the US this week: Flash Q3 GDP Growth Rate, Durable Goods Orders, Initial Claims (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 0.09% at 109.79 and faces the immediate up barrier at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the flip side, the breakdown of 109.53 (monthly low October 27) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).

GBP/USD remains firm and could extend the upside momentum to the 1.1760 region in the next weeks, suggest Market Strategist at UOB Group Quek Ser Leang and Economist Lee Sue Ann.

Key Quotes

24-hour view: “While we expected GBP to strengthen yesterday, we were of the view ‘1.1600 is unlikely to come into view for now’. In other words, we did not expect the strong surge that sent GBP to a high of 1.1639. Upward momentum is still strong and GBP is likely to rise further, albeit likely at a slower pace. Resistance levels are at 1.1700 and 1.1760. The latter level is unlikely to be challenged today. Support is at 1.1590 but only a break of 1.1540 would indicate that GBP is not strengthening further.”

Next 1-3 weeks: “When GBP was trading at 1.1300 two days ago (25 Oct), we noted that it is mildly supported and could edge higher. After GBP soared, we highlighted yesterday (26 Oct, spot at 1.1460) that the strong boost in momentum is likely to lead to further strength. We indicated that the next resistance is at 1.1600. GBP took out 1.1600 in London trade yesterday and surged to a high of 1.1639. The price action suggests GBP is still strong and is likely to strengthen further. The next level to monitor is at 1.1760. The GBP strength is intact as long as it does not break the ‘strong support’ at 1.1440 (level was at 1.1310 yesterday).”

Here is what you need to know on Thursday, October 27:

After having declined 1% for the second straight day on Wednesday, the US Dollar Index stays relatively quiet below 110.00 early Thursday as investors await the US Bureau of Economic Analysis' first estimate of the third-quarter Gross Domestic Product growth. More importantly, the European Central Bank (ECB) will announce its interest rate decision and President Christine Lagarde will deliver her remarks on the policy outlook at a press conference. The US economic docket will also feature September Durable Goods Orders and the weekly Initial Jobless Claims figures.

US Q3 GDP Preview: Dollar bears to retain control on weak GDP print.

On Wednesday, the Bank of Canada (BoC) hiked its policy rate by 50 basis points (bps), compared to market expectation for a 75 bps increase. While commenting on the decision, BoC Governor Tiff Macklem noted that they were getting closer to the end of the tightening phase but added that they were not there yet. In turn, global bond yields edged lower and the dollar faced renewed selling pressure with the benchmark 10-year yield falling below 4%. Despite the BoC's dovish tone, USD/CAD dropped to a fresh two-week low of 1.3507 but managed to recover toward 1.3600 early Thursday.

European Central Bank Preview: Small chance President Christine Lagarde delivers a hawkish message.

The ECB is widely projected to raise its key rates by 75 bps and communicate that further rate hikes will be needed as inflation in the euro area continues to run uncomfortably hot. EUR/USD advanced to its highest level since mid-September at 1.0093 earlier in the day before going into a consolidation phase.

ECB Preview: Lagarde set to hit euro with dovish hike, four reasons to expect EUR/USD to tumble.

GBP/USD capitalized on the broad dollar weakness and gained nearly 150 pips on Wednesday. At the time of press, the pair was trading modestly lower on the day at around 1.1600. According to The Telegraph, British Prime Minister Rishi Sunak is reconsidering tax rises and major public spending cuts in his fiscal plan.

USD/JPY declined for the second straight day on Wednesday and extended its slide toward 145.00 during the Asian trading hours on Thursday. Japan’s Finance Minister Shunichi Suzuki announced earlier in the day that they will decide on a fiscal stimulus package on Friday.

Fueled by falling global bond yields, gold gained traction and reached its highest level since October 13 at $1,675. The cautious market mood is not allowing XAU/USD to preserve its bullish momentum on Thursday and the pair was last seen trading in negative territory near $1,660.

Bitcoin rose nearly 4% on Wednesday and broke above the key $20,000 level. As of writing, BTC/USD was consolidating its gains at $20,700. Ethereum gathered bullish momentum and jumped above $1,500, gaining nearly 8% on Wednesday.

The European Central Bank (ECB) is due to announce its interest rate decision today. In the view of economists at ING, the EUR/USD could edge higher towards 1.02 on the day.

A hawkish ECB has not helped the euro so far this year

“The ECB has surprised hawkishly all year – but EUR/USD has generally ended ECB policy days weaker. It feels like investors use the liquidity provided around ECB event risk to offload euros.” 

“We have a slightly softer environment today and EUR/USSD has firmly broken out of this year's bear channel. That could point to EUR/USD risk on the day to 1.0200.”

“If EUR/USD does find something bearish in the release, ideally it would now need to break back below the 0.9920/0.9950 area to return us to the bear trend.”

See – ECB Preview: Forecasts from 15 major banks, no obstacles to a 75 bps hike

• GBP/USD eases from a fresh multi-week high amid a modest USD recovery on Thursday.
• Reduced bets for more aggressive Fed rate hikes could act as a headwind for the buck.
• The fundamental backdrop supports prospects for the emergence of some dip-buying.

The GBP/USD pair fails to capitalize on the overnight breakout momentum beyond the 1.1500 psychological mark and retreats from its highest level since September 13 touched earlier this Thursday. The pair remains on the defensive through the early European session and is seen flirting with the 1.1600 round figure.

An intraday uptick in the US Treasury bond yields assists the US dollar to recover from over a one-month low, which, in turn, acts as a headwind for the GBP/USD pair. That said, speculations that the Federal Reserve might soften its hawkish stance - amid signs of a slowdown in the US economy - might hold back the USD bulls from placing aggressive bets. Adding to this, a generally positive tone around the equity markets could cap the safe-haven buck and continue lending some support to the major.

The British pound, on the other hand, is underpinned by the appointment of the new UK Prime Minister Rishi Sunak. Market players see Sunak as someone who can bring stability to the recent volatile markets and keep the British economy stable. Sunak also pledged to fix mistakes by the Truss administration and lead the country out of the current economic crisis, boosting investors' confidence. This, in turn, supports prospects for a further near-term appreciating move for the GBP/USD pair.

Even from a technical perspective, the overnight sustained break through the 1.1475-1.1480 supply zone and the 1.1500 mark adds credence to the positive outlook. Hence, any meaningful corrective slide might now be seen as a buying opportunity and remain limited, at least for the time being. Traders now look forward to the Advance US Q3 GDP report for a fresh impetus. Thursday's US economic docket also features the release of Durable Goods Orders and Weekly Initial Jobless Claims.

Technical levels to watch

Investors brace for critical events this Thursday. But the gold price seems to be in a lose-lose situation heading into the big day ahead, FXStreet’s Dhwani Mehta reports. 

US Q3 GDP could offer fresh hints on talks of a potential Fed pivot

“All eyes now turn towards the US advance Q3 GDP print, with a rebound of 2.4% expected on a quarterly basis vs. -0.6% reported previously. A more robust reading than expected could douse dovish Fed expectations, rescuing dollar bulls from the recent downfall. Gold price, therefore, could stall its recovery mode and turn south towards the monthly lows.” 

“The ECB rate hike decision will also be crucial to determining the dollar’s and the yellow metal’s next price direction. A hawkish 75 bps rate hike from the ECB could trigger recession fears, which could also bode well for the safe-haven greenback.”

See:

• US GDP Preview: Forecasts from eight major banks, strong rebound to break two quarters of negative growth

• ECB Preview: Forecasts from 15 major banks, no obstacles to a 75 bps hike

• Silver fails to find acceptance above the 100-day SMA and edges lower on Thursday.
• Break below the 38.2% Fibo. level should pave the way for a further intraday decline.
• A sustained move beyond the $19.55-60 confluence will be seen as a trigger for bulls.

Silver struggles to capitalize on its one-week-old positive trend beyond the 100-day SMA and meets with a fresh supply on Thursday. The white metal remains on the defensive through the early European session and is currently placed near the daily low, just below the mid-$19.00s.

The said area represents the 38.2% Fibonacci retracement level of the recent sharp downfall from the monthly peak and should act as a pivotal point for intraday traders. Sustained weakness below might prompt some technical selling, making the XAG/USD vulnerable to weaken further below the $19.00 mark and testing the weekly low, around the $18.80 region.

The latter coincides with the 23.6% Fibo. level, which if broken decisively will negate any near-term positive bias and shift the bias in favour of bearish traders. The XAG/USD might then accelerate the descending trend towards the $18.30-$18.25 intermediate support before eventually dropping to the next relevant support near the $18.00 round-figure mark.

On the flip side, the 100-day SMA, currently around the $19.55-$19.60 region, coincides with the 50% Fibo. level. Some follow-through buying beyond the said confluence barrier should allow the XAG/USD to reclaim the $20.00 psychological mark. The upward trajectory could get extended towards an intermediate hurdle near the $20.50 area en route to the $21.00 mark.

A convincing breakout through the aforementioned barriers will be seen as a fresh trigger for bullish traders and also suggest that the XAG/USD has formed a strong base ahead of the $18.00 mark. The subsequent move should lift spot prices beyond the monthly peak, around the $21.25 region, towards the very important 200-day SMA, currently around the $21.60 area.

Silver daily chart

Key levels to watch

The US Bureau of Economic Analysis will release its first estimate of the third-quarter Gross Domestic Product (GDP) on Thursday, October 27 at 12:30 GMT as we get closer to the release time, here are forecasts from economists and researchers of eight major banks regarding the upcoming growth data. 

The US economy is forecast to grow at an annual rate of 2.4% in the third quarter following the 0.6% contraction recorded in the second quarter.

RBC Economics

“We expect US GDP increased 1.8% in Q3 – boosted by a surge in net trade and modest growth in consumer spending offset partially by weaker residential investment and a pull-back in inventories.”

SocGen

“We calculate a 3% gain for real GDP, the key economic release of the week. We think that it could be even higher. What does that do for recession calls? Temporary reconsideration is our answer. Companies are becoming more conservative as compensation pressures build.”

Deutsche Bank

“We expect real growth to rebound to 3.0% from Q2's -0.6%.”

NBF

“Growth likely turned positive again in the quarter but might still have suffered from a depletion in inventories and a sharp drop in residential investment. The expansion of household spending, meanwhile, might have continued to slow. We expect a strong contribution from international trade, as real exports soared and real imports shrank. Our call is for a 2.5% annualized expansion.”

CIBC

“Our forecast for a 2.0% annualized advance in GDP in Q3 is partly representative of that series playing catchup with the GDI data that showed growth in the first half of the year. However, the slowing trend in the labor market suggests a moderation in growth ahead, as interest rates continue on a sharply higher trajectory. Still, the restocking of inventories as supply chain issues fade will help prevent a contraction in growth in the final quarter of the year. We’re broadly in line with the consensus forecast and market reaction should therefore be limited.”

Citibank

“After two-quarters of negative GDP growth through the first half of this year, we expect a bounce back with 2.8% real GDP growth in Q3. However, after private final domestic demand was somewhat surprisingly flat in Q2, Q3 is likely to see only a modest rise.”

Wells Fargo

“After two consecutive quarters of negative growth, we forecast the US economy expanded at an annualized rate of 2.8% in the third quarter.”

TDS

“We expect the first estimate of GDP in Q3 to show a strong rebound in growth at 3% annualized QoQ from a 0.6% annualized QoQ decline in Q2. This would mainly be owing to a strong recovery in net exports.”

More and more are switching to the inflation pessimist camp. Another big rate hike of 75 basis points at today's European Central bank (ECB) council meeting will not be enough to lower inflation expectations, economists at Commerzbank report.

Erosion of confidence

“According to surveys, more and more people are switching to the inflation pessimist camp – as in the run-up to the great inflation of the 1970s.”

“Another big rate hike of 75 basis points at today's ECB meeting is unlikely to be enough to strengthen confidence and to bring down inflation.”

See – ECB Preview: Forecasts from 15 major banks, no obstacles to a 75 bps hike

• USD/CAD edges higher on Thursday, though the uptick lacks any follow-through buying.
• The less hawkish BoC decision, softer oil prices undermine the loonie and offer support.
• The USD languishes near the monthly low and acts as a headwind ahead of the US GDP.

The USD/CAD pair attracts some buying on Thursday and sticks to its modest intraday gains through the early European session. The pair is currently placed just above the mid-1.3500s, though the uptick lacks bullish conviction.

The US dollar languishes near its lowest level since September 20 touched the previous day and acts as a headwind for the USD/CAD pair. Signs of a slowdown in the US economy cooled market expectations for a more aggressive policy tightening by the Federal Reserve. This has been a key 
factor behind the recent sharp pullback in the US Treasury bond yields, which continues to weigh on the greenback.

Moreover, a positive tone around the equity markets further contributes to capping the upside for the safe-haven buck. That said, the Bank of Canada's less hawkish move on Wednesday, to raise rates by 50 bps as against 75 bps anticipated, limits the downside for the USD/CAD pair. Furthermore, a modest downtick in crude oil prices undermines the commodity-linked loonie and offers support to the major.

The mixed fundamental backdrop warrants some caution for aggressive traders and positioning for a firm intraday direction. Market participants now look forward to the release of the Advance US Q3 GDP report, due later during the early North American session. Thursday's US economic docket also features Durable Goods Orders and the usual Weekly Initial Jobless Claims, which might influence the USD.

Traders will also take cues from the broader market risk sentiment and oil price dynamics to grab short-term opportunities around the USD/CAD pair. The focus, however, remains glued to next week's FOMC policy meeting. This, along with the closely-watched US monthly jobs report (NFP), will play a key role in determining the next leg of a directional move for the greenback and the major.

Technical levels to watch

The Bank of Canada (BoC) announced a 50 bps increase in the policy rate to 3.75%. USD/CAD dropped back below 1.36 after a spike to 1.3650. Nonetheless, economists at Rabobank expect the pair to grind higher towards 1.40.

USD strength to re-emerge in the coming weeks

“The BoC surprised the market with a 50 bps hike to 3.75%, in contrast to market-implied pricing, which pointed to a 75 bps increase.”

“Growth forecasts were revised down by 1ppt to 1.0% in 2023, and -0.5ppt to 2% in 2024. Inflation forecasts were slightly lower, down -0.5ppt to 4% in 2023 and -0.1ppt to 2.2%.”

“While we have reduced our terminal rate forecast by 25 bps in light of today’s smaller than expected 50 bps hike, we still expect another 50 bps hike in December, 25 bps in January, and a holding pattern after that into 2024.”

“In terms of USD/CAD, the unwind of the initial spike higher to 1.3650 was somewhat surprising, but the recent decline in the pair is a product of a USD positioning clearout rather than a change in trend, and we still see the pair touching the 1.40 handle before year-end as USD strength re-emerges in the coming weeks.”

The Bank of Canada (BoC) delivered a dovish surprise with a 50 bps rate hike in October. The CAD weakened following the dovish surprise. Economists at TD Securities believe that the loonie’s outlook has significantly downshifted.

BoC dials back tightening pace

“The BoC hiked by 50 bps in October, delivering a dovish surprise to the market consensus for a 75 bps move. The policy statement maintained the Bank's previous guidance that rates will need to move higher still but also alluded to the softer growth outlook as higher rates feed through to interest-sensitive parts of the economy.” 

“We look for 25 bps hikes in December and January, with a terminal rate of 4.25%. We previously expected the BoC to hit its 4.25% terminal rate in December.”

“We have held a bearish view of CAD since June and we remain resolute in that view especially now that the BOC has signaled the worst is yet to come.”

“We think the outlook for the CAD has decisively shifted lower in the weeks and months ahead.”

FX option expiries for Oct 27 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9750 903m
• 0.9800 1.6b
• 0.9850 2.1b
• 1.0000 1.4b
• 1.0040 563m

- GBP/USD: GBP amounts        

• 1.1500 592m

- USD/JPY: USD amounts                     

• 145.00 714m
• 147.50 520m
• 149.50 300m

- AUD/USD: AUD amounts  

• 0.6200 405m
• 0.6250 471m
• 0.6300 462m
• 0.6400 435m
• 0.6430 647m

- USD/CAD: USD amounts       

• 1.3470 515m
• 1.3685 380m
• 1.4035 356m

The euro was able to appreciate against a weaker dollar over the past few days. Will the European Central bank (ECB) be able to provide further support to the euro? In the view of economists at Commerzbank, that is possible.

ECB provides additional support for the euro

“Even though the ECB will likely have to adjust its growth projections to the downside in December, the current situation in connection with gas supplies suggests that the ECB might continue to sound hawkish despite a weakening of the economy and pessimistic sentiment indicators and that it might underline its plans to stick to its planned restrictive rate cycle. That might provide additional support to the euro.”

“I urge caution. First of all, the big unknown of ‘how tough is the winter going to be’ (and how deep might a recession be as a result of gas rationing) is still the elephant in the room. Secondly, Russian government's comments about the use of dirty weapons make me worry about their possible use. If that were going to be the case, risk aversion on the market would rise significantly, with the euro coming under significant pressure once again.”

See – ECB Preview: Forecasts from 15 major banks, no obstacles to a 75 bps hike

Analysts at Societe Generale believe that the European Central Bank (ECB) is likely to announce another 75 bps rate hike this Thursday, suggesting more rate increases on the table.

Key quotes

“Expect another 75 bps hike by the ECB in October and more rate hikes through next spring, barring a deeper recession, for a terminal rate of 3% by mid-2023.”

“Faster rate hikes also move quantitative tightening (QT) up the agenda, and we now expect a gradual start by mid-2023. However, with the balance sheet playing an important role for financial stability (see the UK) and avoiding fragmentation, QT options and communication will need to be assessed carefully.”

“Focusing initially on private sector assets, allowing greater capital key flexibility and/or a faster TLTRO reduction could help smooth any market volatility or increased fragmentation.”

The Bank of Canada (BoC) surprised markets by delivering only a 50 bps rate hike. USD/CAD hovers around 1.3550. The next direction of the loonie hinges on the Fed’s future moves and global risk sentiment, economists at Commerzbank report.

BoC switches down another gear

“The BoC hiked its key rate by only 50 bps to 3.75%, which came as a surprise to many. That means it has switched down another gear in its fight against stubbornly high inflation rates – following an impressive 100 bps in July and a further 75 in September.

“CAD came under depreciation pressure for a brief moment, but the losses against USD were limited. That is likely to have been due to the hawkish statement but also the slightly more favourable market sentiment and the resulting reduced USD strength.”

“Whether CAD will be able to stand up against USD going forward will mainly depend on the US central bank’s future moves and on global risk factors. If the rate hike expectations for BoC and Fed threaten to diverge further this is likely to put pressure on the loonie. The same goes for increasing USD strength as a result of more pronounced risk-averse market sentiment.”

Considering advanced prints from CME Group for natural gas futures markets, open interest went up for the second session in a row on Wednesday, now by around 1.5K contracts. Volume, instead, partially reversed the previous build and shrank by around 9.2K contracts.

Natural Gas: A visit to the 200-day SMA is not ruled out

Prices of natural gas charted modest losses after rebounding from daily lows near $5.30 on Wednesday. The bounce was on the back of rising open interest, leaving the door open to the continuation of this move in the very near term and with the immediate target at the 200-day SMA, today around $6.72 mark per MMBtu.

• USD/CHF has dropped to near 0.9850 as DXY has refreshed day’s low at 109.54.
• The risk-on impulse has rebounded as S&P500 futures have recovered majority of Wednesday’s losses.
• US economic calendar is full of critical events and will provide guidance for further action.

The USD/CHF pair has dropped after failing to surpass the immediate hurdle of 0.9870 in the early European session. An explosion of pre-event consolidation in the US dollar index (DXY) has weighed pressure on the major.

The DXY has refreshed its day’s low at 109.54 and is expected to remain on the tenterhooks as the risk appetite of the market participants has improved vigorously. S&P500 futures have recovered a majority of Wednesday’s losses as the corrective move has terminated and investors are pumping money into risk-sensitive assets.

Meanwhile, the 10-year US Treasury yields have turned subdued as investors await the release of critical economic data from the US economy. Starting the US Gross Domestic Product (GDP) data, which is expected to accelerate by a growth rate of 2.4% would provide a decisive movement in the DXY.

The US economic calendar is also offering the Durable Goods Orders data, which is expected to improve by 0.6% against a drop of 0.2%. Now, it seems clear why the core Consumer Price Index (CPI) is not displaying evidence of exhaustion.

Apart from the GDP and Durable Goods Orders data, investors will also focus on the core Personal Consumption Expenditure (PCE) data. The inflation tool is seen lower at 4.5% vs. the former figure of 4.7%.

On the Swiss franc front, chatters over the collaboration of the European Union, the UK, and Switzerland to combat soaring energy bills will remain in focus. The EU is planning a price cap on energy prices to delight households against soaring energy bills. The strategy is to be executed without boosting demand or delivery of electricity to foreign consumers at subsidized prices.

In response to that, the Trading bloc’s executive arm is advising EU members that such a price limit would have to be extended to power-importing countries like the UK or Switzerland for it to be effective, reported Bloomberg.

Gold price has faced stiff resistance at 21-Daily Moving Average (DMA), now at $1,669. Technical setup points to XAU/USD weakness, FXStreet’s Dhwani Mehta reports.

Gold price extends its struggles with the 21DMA

“Failure to find acceptance above the 21DMA at $1,669 will call for a test of the previous day’s low at $1,650. The next cushion is seen at Tuesday’s low of $1,638. Selling pressure will likely intensify below the latter, opening floors for a fresh drop towards the monthly low of $1,617.”

“Alternatively, bulls must find a firm foothold above the 21DMA to extend the renewed uptrend. Further up, Monday’s high at $1,671 will come into play. The next upside target is placed at the October 13 high of  $1,683 en-route the $1,700 threshold.”

• A combination of factors lifts AUD/USD to a fresh three-week high on Thursday.
• Reviving bets for more aggressive rate hikes by the RBA underpins the aussie.
• Expectations for a less hawkish Fed weigh on the USD and remain supportive.

The AUD/USD pair attracts some dip-buying near the 0.6470 area on Thursday and hits a fresh three-week high heading into the European session. The pair is currently placed above the 0.6500 psychological mark and remains well supported by a combination of factors.

The Australian dollar is underpinned by reviving bets for a more aggressive policy tightening by the Reserve Bank of Australia, bolstered by Wednesday's stronger consumer inflation figures. In fact, the Australian Bureau of Statistics (ABS) reported that the headline CPI rose 1.8% in the September quarter and the annual rate accelerated to 7.3% - the highest since 1990. The US dollar, on the other hand, languishes near its lowest level since September 20 and offers additional support to the AUD/USD pair.

Market participants now expect that the deteriorating outlook for the US economy will force the Federal Reserve to slow the pace of its rate-hiking cycle. This is reinforced by the recent sharp pullback in the US Treasury bond yields and continues to weigh on the greenback. Apart from this, the risk-on impulse further dents demand for the safe-haven buck and benefit the risk-sensitive aussie. This, in turn, provides an additional lift to the AUD/USD pair, though the uptick lacks bullish conviction.

Traders now seem reluctant and might prefer to move to the sidelines ahead of the Advance US Q3 GDP report, due for release later during the early North American session. Thursday's US economic docket also features the release of Durable Goods Orders and the usual Weekly Initial Jobless Claims. This, along with the US bond yields, will influence the USD and provide some impetus to the AUD/USD pair. Apart from this, the broader risk sentiment might contribute to producing trading opportunities.

Technical levels to watch

EUR/USD has come above parity. However, economists at Nordea expect the greenback weakness to prove only temporary and forecast the world’s most popular currency pair at 0.93 by the end of the year.

Markets will again get a cold shower from the Fed at their November meeting

“The Fed will need to see clear signs of weaker wage growth before they are satisfied and we struggle to see that will be the case with this week’s data when the US labour market is still very thigh. Hence, the USD weakness that we currently see could very well end up being short-lived if the Employment Cost IndexI shows high(er) wage growth, which in turn should push rates up and stocks down again.”

“We expect a 75 bps rate hike from the Fed next week, and 50 bps hikes in December 2022 and February 2023.”

“The latest weather prognosis show mild weather for some time ahead. While this will offer much needed relief to euroarea, the energy crisis is far from resolved. The weather will eventually turn colder, forcing companies to drawn on gas storages. Political/fragmentation risks are still present, and we believe the ECB will have a tough time hiking rates as much as markets expect. Moreover, the expected ECB rate hikes have generated criticism from the new Prime minister of Italy. All of this makes us still hesitant on the euro in the time to come.”

“We see EUR/USD at 0.93 around year-end.”

• Monday’s knee-jerk reaction due to BOJ’s stealth intervention has been challenged.
• The DXY has sensed volatility as the risk-on profile has recovered.
• A death cross, represented by the 50-and 200-EMAs, indicates more weakness ahead.

The USD/JPY pair has slipped to near the low of the knee-jerk reaction recorded on Monday around 145.48. Investors considered Monday’s knee-jerk reaction a stealth intervention from the Bank of Japan (BOJ) to support the weakening yen. Analysts at National Australia Bank (NAB) in Sydney on Monday cited that “It’s blindingly obvious that the BOJ is intervening,”

The risk-on market mood has resurfaced sharply as S&P500 futures have recovered significantly. Meanwhile, the US dollar index (DXY) has slipped to 109.65 as a less-confident pullback has concluded.

On an hourly scale, the asset has surrendered the critical support of 145.48, recorded on Monday. The 50-and 200-period Exponential Moving Averages (EMAs) have delivered a death cross near 148.5, which indicates the strength of the yen bulls.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which adds to the downside filters.

Going forward, a drop below October 7 low at 144.60 will drag the asset further towards October 4 low at 143.77, followed by September 13 low at 141.60.

On the flip side, the greenback bulls could regain glory if the asset oversteps Monday’s high at 149.71, which will send the asset towards October 20 high at 150.29. A breach of the latter will send the asset towards Friday’s high at 151.94.

USD/JPY hourly chart

Open interest in crude oil futures markets rose by around 8.1K contracts on Wednesday, reaching the third consecutive daily build according to preliminary readings from CME Group. In the same line, volume added around 8.1K contracts to the previous daily.

WTI targets the October high near $93.60

Wednesday’s strong advance in prices of the WTI was accompanied by increasing open interest and volume, indicative that further gains appear likely in the very near term. That said, the immediate up barrier comes at the October peak at $93.62 (October 10).

• EUR/USD is breathing a sigh of relief on the ECB Thursday.
• ECB is set to hike rates by 75 bps, Lagarde’s presser holds the key.
• Euro bulls run into the bearish 100DMA at 1.0090, where next?

EUR/USD is trading almost unchanged on the day at around 1.0075 ahead of the European open. Investors take a pause and refrain from placing any directional bets on the pair, awaiting the critical ECB rate hike decision and the US advance Q3 GDP release.

Expectations of a super-sized rate hike from the ECB have underpinned the recent EUR/USD upsurge while the US dollar index was sold off into talks of a potential Fed pivot towards a dovish stance, in the face of weak economic data from the world’s largest economy.

Looking ahead, “the focus will be on the accompanying monetary policy statement and the post-meeting press conference amid worries about economic headwinds stemming from the protracted Russia-Ukraine war. Earlier this month, ECB President Christine Lagarde referred to rate increases as the best tool to fight runaway inflation,” FXStreet’s Editor, Haresh Menghani, explains.

The US growth numbers will be also watched for fresh hints on the Fed tightening outlook.

EUR/USD: Technical outlook

The bearish 100-Daily Moving Average (DMA) at 1.0090 is the critical daily resistance heading into the ECB verdict.

A hawkish rate hike by the ECB could enable bulls to yield a firm break above the latter, triggering a fresh uptrend towards 1.0200.

The 14-day Relative Strength Index (RSI) has turned lower but remains well above the 50.00 level, keeping bulls hopeful.

EUR/USD: Daily chart

If ECB surprises negatively, it could initiate a fresh retreat in the pair, with bears guarding the 100DMA.

Wednesday’s low at 0.9943 could limit the decline towards the 0.9900 barrier.

CME Group’s flash data for gold futures markets noted open interest increased for the third session in a row on Wednesday, this time by around 2.3K contracts. Volume followed suit and went up for the second straight session, now by more than 2K contracts.

Gold focuses on $1,700 and beyond

Wednesday’s uptick in gold prices was on the back of rising open interest and volume and hints at the probability that further upside could be in the pipeline in the short-term horizon. That said, the next target of note emerges at the $1,700 barrier ahead of the October peak around $1,730 (October 4).

• NZD/USD has climbed above 0.5860 after a consolidation breakout as the risk-on profile recovers.
• The DXY has remained subdued in the entire Tokyo session ahead of key US economic data.
• Higher projections for durable goods demand in times of escalating core CPI could delight the Fed.

The NZD/USD pair has given a north-side break of the consolidation formed in a narrow range of 0.5818-0.5850 in the Tokyo session. The asset is advancing firmly and has refreshed its day’s high at 0.5860 as the market sentiment has rebounded firmly.

S&P500 futures have picked bids after a corrective Wednesday, which indicates that long liquidation could entirely terminate and the upside journey will resume. The 500-stock basket witnessed losses after a three-day rally on Wednesday as tepid guidance by tech-giant Microsoft (MSFT) weighed pressure on technology stocks.

As the risk appetite theme is regaining strength, the safe-haven appeal could trim further and the US dollar index (DXY) may witness extreme volatility. The DXY has remained sideways in the entire Tokyo session and a subdued performance could further. The 10-year US Treasury yields have rebounded after dropping below 4%. At the press time, the yields were being offered at 4.03%, 0.32% above Wednesday’s close.

Going forward, US economic data will be a key trigger for decisive action. Starting from the US Gross Domestic Product (GDP) data, expectations claim a growth rate of 2.4% for the third quarter against a drop of 0.6%. Also, the demand for durable goods is seen higher at 0.6%. An increment in durable goods orders despite the soaring core Consumer Price Index (CPI) could delight the Federal Reserve (Fed).

The show-stopper US core Personal Consumption Expenditure (PCE) data is seen lower at 4.7% vs. the prior release of 4.7%.

In the opinion of Market Strategist at UOB Group Quek Ser Leang and Economist Lee Sue Ann, further upside in EUR/USD could extend to the 1.0200 region in the next few weeks.

Key Quotes

24-hour view: “We highlighted yesterday that ‘The strong boost in momentum suggests EUR is likely to strengthen further’. We added, ‘In view of the overbought conditions, EUR might not be able to maintain a foothold above 1.0000’. We underestimated the upward momentum as EUR rocketed to a high of 1.0088 before closing on a strong note at 1.0077 (+1.13%). While still overbought, the rally in EUR will likely continue. The level to monitor is at 1.0150. For today, the major resistance at 1.0200 is likely out of reach. On the downside, a break of 1.0020 (minor support is at 1.0050) would indicate that current strong upward pressure has eased.”

Next 1-3 weeks: “We turned positive on EUR two days ago (25 Oct, spot at 0.9885). After EUR rose, we highlighted yesterday (26 Oct, spot at 0.9960) that ‘there is a high chance of EUR breaking 1.0000’. We indicated, ‘The next resistance is at 1.0050’. While our view of a higher EUR is correct, we were not expecting the rapid pace of advance as EUR blew past both 1.0000 and 1.0050 yesterday. Needless to say, upward momentum is still strong and we continue to expect EUR to rise. The next level to monitor is at 1.0200. Only a breach of the ‘strong support’ at 0.9950 (level was at 0.9850 yesterday) would indicate that EUR is unlikely to advance further.”

• USD/INR has displayed a vertical rebound from around 82.00 as oil prices soar.
• Market mood has turned extremely quiet ahead of US economic data.
• Fed’s preferred inflation tool, US core PCE could drop to 4.5%.

The USD/INR pair has resurfaced firmly from the round-level support of 82.00 in the Asian session. An inventory adjustment phase displayed on Wednesday has resulted in a north-side break amid a steep rise in oil prices.

The US dollar index (DXY) is displaying topsy-turvy moves in a 109.55-109.76 range ahead of US Gross Domestic Product (GDP) data. Pre-event consolidation is buzzing in the market, therefore, the market mood is extremely quiet. Returns from the 10-year US government bonds have bounced back after dropping below the crucial support of 4%.

Indian markets are operating in a holiday-truncated week, therefore, the asset is more reliant on events belonging to the greenback for activity.

On Thursday, the US economic calendar is full of critical events. From growth rate and demand for durable goods to Federal Reserve (Fed)’s most preferred inflation tool, the USD/INR pair is likely to remain highly active after Asia.

Projections claim that the US GDP has witnessed a growth rate of 2.4% in the third quarter vs. a de-growth of 0.6%. Also, the US Durable Goods Orders are seen higher at 0.6% against a drop of 0.2%.

The core Personal Consumption Expenditure (PCE) data for the third quarter is seen lower at 4.5% vs. the prior release of 4.7%. This could trim the odds of a bigger rate hike by the Federal Reserve (Fed).

On the oil front, oil prices have soared sharply to near $88.00 as sanctions on Russia will weigh on the global oil supply. India is a leading importer of oil and always have sheer demand of US dollars to address oil purchase, which may hurt the Indian rupee more against the mighty greenback.

• Gold price is displaying topsy-turvy moves as investors await the release of the US economic data.
• The US GDP is expected to deliver positive growth despite an extreme hawkish environment.
• Advancing core CPI has failed to deliver a decline in demand for durable goods.

Gold price (XAU/USD) is broadly auctioning in a bounded territory as the market participants are awaiting fresh impetus for a one-sided move. The precious metal witnessed mild selling pressure at around $1,670.00 but has rebounded from $1,660.00 and has got back inside the woods. The balanced auction profile is plotted in a range of $1,660.00-1,671.20.

Meanwhile, the US dollar index (DXY) has sensed a mild buying interest of around 109.60 but is still in a rangebound structure. The 10-year US Treasury yields have rebounded marginally after testing waters below the psychological support of 4%. The market mood is extremely quiet as investors have shifted to the sidelines ahead of the US Gross Domestic Product (GDP) and US Durable Goods Orders data.

Despite accelerating interest rates by the Federal Reserve (Fed), the US GDP is expected to report a growth rate of 2.4% in the third quarter of CY2022 vs. a de-growth of 0.6% reported earlier.

Also, the US Durable Goods Orders are expected to outperform by delivering an increment of 0.6% against a drop of 0.2%. It is worth noting that core inflation data is escalating for the past few months and still a progressive demand for durable goods indicate solid demand from households.

Gold technical analysis

Gold prices are oscillating in a Symmetrical triangle that signals a sheer contraction in volatility. An explosion of the volatility contraction pattern will result in wider ticks and heavy volume. Horizontal resistance is placed from October 11 high at $1,684.05.

The 20-period Exponential Moving Average (EMA) at $1,633.16 is acting as major support for the counter.

The Relative Strength Index (RSI) (14) has dropped from the bullish range of 60.00-80.00, however, the upside bias is still solid.

Gold hourly chart

“China is willing to collaborate with the US to find a way to get along and benefit each other,” the country’s President Xi Jinping.

Xi added that "the Chinese and American peoples have many things in common, and can become good friends and partners for mutually beneficial cooperation.”

Market reaction

On the above headlines, AUD/USD is keeping its range near 0.6500, sustaining its bounce from 0.6475.

The Reserve Bank of Australia (RBA), in a tweet on Thursday, expressed concerns over high inflation while maintaining its pledge to continue with interest rate increases until inflation is tamed significantly.  

Market reaction

The aussie is catching a fresh bid on the RBA tweet, with AUD/USD testing offers around 0.6500, at the time of writing. The pair is trading modestly flat on the day.

• GBP/USD pauses two-day bullish momentum, as the US dollar attempts a comeback.
• Markets turn cautious amid mixed headlines on the upcoming UK fiscal plan.
• Cable looks to recapture 100DMA amid a symmetrical triangle breakout.

GBP/USD is treading water above 1.1600, pausing a two-day uptrend amid a cautious market mood. The US dollar is finding its feet, as investors seek refuge in the safe haven ahead of the critical ECB rate hike decision and the US advance Q3 GDP release.

Meanwhile, GBP bulls take a breather amid mixed expectations from the upcoming UK medium-term fiscal plan, which Chancellor Jermey Hunt pushed back to November 17. The UK media outlets reported that the new Prime Minister Rishi Sunak is reconsidering tax rises and major public spending cuts after a dramatic improvement in the state of the nation’s finances.

Looking ahead, the dollar price action and risk trends will continue to influence the risk-sensitive British pound while the ECB decision could also have a EUR/GBP cross-driven rub-off effect on the major.

From a short-term technical perspective, GBP/USD is gathering strength to yield a sustained break above the bearish 100-Daily Moving Average (DMA) at 1.1740.

In doing so, the pair has pulled back slightly in recent trades but holds above the 1.1600 barrier. The extension of the upside remains on the cards, especially after the spot confirmed a symmetrical triangle breakout on the daily chart on Tuesday.

The 14-day Relative Strength Index (RSI) has turned lower but remains comfortably above the midline, favoring bullish traders.

Buyers need acceptance above the 1.1650 psychological level to resume the upbeat momentum.

GBP/USD: Daily chart

On the flip side, bears will face an uphill task so long as bulls defend the 50DMA, now at 1.1385. Ahead of that the 1.1500 support zone and the previous day’s low of 1.1430 will continue guarding the downside.

All in all, the upside appears more compelling amid a near-term bullish technical setup for the GBP/USD pair.

GBP/USD: Additional technical levels

• GBP/JPY is facing hurdles in reclaiming 170.00 ahead of BOJ policy.
• The BOJ may continue its ultra-dovish tone along with some stimulus measures.
• UK Chancellor Jeremy Hunt has postponed the medium-term fiscal plan to November 17.

The GBP/JPY has slipped below the psychological support of 170.00 and is struggling to reclaim the same in the Tokyo session. Broadly, the cross is displaying a lackluster performance as investors are awaiting the release of the monetary policy by the Bank of Japan (BOJ) for making informed decisions.

On Wednesday, the asset failed to deliver an impulsive rally despite smashing the critical resistance of 170.00. Evidence of exhaustion is visible in the cross in spite of an upbeat market mood.

Going forward, the interest rate decision by the Bank of Japan (BOJ) will remain in focus. As price growth has remained subdued and external demand shocks are escalating, BOJ Governor Haruhiko Kuroda may continue a soft tone on monetary policy.

Meanwhile, Japanese officials are planning to release more stimulus to the economy to spurt the overall demand. Japan’s Finance Minister Shunichi Suzuki said that “tomorrow, a stimulus package will be decided.” Japan’s national broadcaster, NHK, reported that a stimulus package of more than JPY29 trillion is in consideration.

On the UK front, the appointment of the 5^th UK Prime Minister Rishi Sunak in the last six years has surprisingly infused optimism in the pound spirits.

On Wednesday, International Monetary Fund (IMF) Managing Director Kristalina Georgieva told Reuters, she expects new UK PM Sunak to steer Britain towards a path of medium-term fiscal sustainability.

Apart from that, UK Chancellor Jeremy Hunt announced a delay in the release of the medium-term fiscal plan, which will go air on November 17 now. He believes that the fiscal plan will display that debt is falling over the medium term. And, cited economic stability and restoring confidence as their foremost priority.

The sharp rise in the yuan against the US dollar retraced some of the currency's excessive depreciation this week, helped by a fall in the US Dollar Index, the 21st Century Business Herald reported, citing analysts.

Key quotes

“Many asset management institutions view the yuan as undervalued against the dollar, which had rallied on expectations the Federal Reserve would continue to hike rates but have now been questioned by weak US economic data.”

“The yuan will continue to fluctuate in a wide range amid changing expectations.”

FX implications

On Wednesday, both the onshore and offshore yuan strengthened over 1,000 points, rescued by the People’s Bank of China (PBOC) after Reuters reported, citing sources, major Chinese state-owned banks sold US dollars in both onshore and offshore markets in late trade on Tuesday.

At the time of writing, USD/CNY is rebounding to near 7.2200, up 0.63% on the day. Downbeat Chinese Industrial Profits data weighed on the domestic currency. The latest data published by the National Bureau of Statistics (NBS) showed that the Industrial Profits fell 2.3% in the first nine months of 2022 from a year earlier after a 2.1% drop in the January-August period.

• AUD/USD bears are lurking at a critical juncture. 
• The timings of the week leave the bulls vulnerable to a squeeze. 

AUD/USD is reaching toward a trendline resistance and horizontal resistance on the daily chart and could be on the verge of capitulation given the timing of the week as we head into the last two days of sessions with key events coming up on the calendar. The following illustrates the potential for the downside into the London and US sessions after a fresh high that has been put in in Asia, so far.

AUD/USD daily chart

The price is wedged into a coil and could be petering out currently. A move down into the longs that were built up over the past two days makes them vulnerable.

The 4HR & 1HR charts 

This chart shows prospects of a continuation higher, but the bias remains to the downside, especially on a break of 0.6450 as the following hourly chart shows:

The trendline support, if broken, will expose the structure if 0.6450 and a break of which could lead to a cascade of market orders being triggered to the short side for the day ahead. 

Japan’s Finance Minister Shunichi Suzuki said that “tomorrow, a stimulus package will be decided.”

“Today, we are still deciding on stimulus measures,” he added.

"Japan is considering spending more than JPY29 trillion on stimulus measures, the country’s national broadcaster, NHK, reported.

Market reaction

At the time of writing, USD/JPY is losing 0.18% on the day to trade at 146.08. All eyes remain on Thursday’s US advance Q3 GDP data and the Bank of Japan (BOJ) monetary polciy decision due on Friday.

• EUR/USD is displaying a lackluster performance below 1.0100 as investors await ECB policy.
• The risk impulse is extremely positive and is favoring the shared currency bulls.
• ECB’s Lagarde may announce a rate hike of 75 bps.

The EUR/USD pair has extended its lackluster performance in the Tokyo session as investors are awaiting the announcement of the interest rate decision by the European Central Bank (ECB). In addition to the ECB policy, the US Gross Domestic Product (GDP) data also carries the utmost importance.

The asset is oscillating in a 1.0075-1.0094 range after a bullish Wednesday. The shared currency bulls remained in the upward trajectory led by optimism in risk impulse. The major displayed a sheer rally after overstepping the psychological hurdle of 1.0000.

Meanwhile, the US dollar index (DXY) has shifted its business below 110.00 as safe-haven's appeal has faded completely. The 10-year US Treasury yields have tested waters below 4% cushion.

Due to the headwinds of soaring inflationary pressures and energy prices, ECB President Christine Lagarde may choose a hawkish stance on interest rates. A note from ING states that a 75 bps hike looks like a done deal but the ECB has a lot on its plate at its October meeting. Quantitative tightening talks are premature but it will seek to mop up bank liquidity.

Apart from the ECB’s monetary policy, expectations of a price cap on energy prices are trending in the Eurozone. Germany’s Economy Minister Robert Habeck said on Tuesday that they “expect the gas price mechanism decision at the next EU Council.” He further added that “Joint EU purchases are the best way to keep the gas price low,”

On the DXY front, the US GDP data is seen higher by 2.4% vs. a decline of 0.6% reported earlier. It would be worth watching the placement of the GDP figures in comparison with the projections as Monday’s PMI numbers reported by S&P were lower than expectations.

Analysts at Nomura offered their expectations on Thursday’s European Central Bank (ECB) interest rate decision due to be announced at 1215 GMT.

Key quotes

We expect the ECB to raise rates by 75 bps.”

“And signal that more hikes will be in store, point to incoming data and the new forecasts available in December determining the size of the next move but to generally sound hawkish.”

“Debate when and how to start reducing the ECB’s huge bond portfolio but leave the decision until the December meeting.and announce technical changes to encourage banks to early repayments of the TLTROs and possibly also measures to ease the tensions in the government bond markets.”

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1570 vs. the previous fix of 7.1638 and the prior close of 7.1710.

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 is on the verge of a breakout of the inverse H&S
• Bulls need to close above a key resistance area on the daily chart of $1,668.

The price of gold is trying to get above a key resistance area on the daily chart of $1,668 where it needs to close on a daily basis to instil confidence in the bulls that there is fuel in the tank for a potentially significant continuation of this current correction. $1,675 the high was achieved on Wednesday as the US dollar continued to slide, but the close of $1,665 was less than convincing. 

With that being said, the daily chart, above, shows a number of bullish confluences following the break of the daily structure back on Oct 3 to take the gold price on the back side of the daily trendline resistance.

The price moved back into Wednesday 22 Sep bullish peak formation lows in a micro daily bear trend. We have broken on the backside of the micro (secondary) daily trendline on Fri 22 Oct and we now have two prior inside days that are being broken mid-week, Wednesday, potentially setting the yellow metal up for a close above the aforementioned key resistance of $1,668.

In doing so, this will likely be the foundation of a breakout of the inverse head and shoulders neckline for a 150% measured move of this week's range so far to target last month's highs of near $1,735. A close above the $1,670 neckline could be the trigger point to start looking for the set-up on lower time frames.

• USD/CAD is juggling above 1.3550 as the focus has shifted to the US growth rate and Durable Goods data.
• The BOC surprised the market with a lower-than-projected rate hike by 50 bps.
• Oil prices have accelerates despite a build-up of oil inventories by the EIA.

The USD/CAD pair has turned sideways after a wild gyration in a 1.3533-1.3650 range in the late Tokyo session. The asset is displaying a rangebound structure in a 1.3545-1.3582 area in Asia. The major is expected to remain lackluster ahead of the release of the US critical data.

Meanwhile, market sentiment is extremely positive and risk-perceived currencies are having a ball. The US dollar index (DXY) has witnessed a dead cat bounce after refreshing its monthly low at 109.56. While the 10-year US Treasury yields are still vulnerable and hovering around the cushion of 4%.

A roller-coaster move in a 1.3545-1.3582 area on Wednesday was recorded after the announcement of the interest rate decision by the Bank of Canada (BOC). BOC Governor Tiff Macklem announced a rate hike by 50 basis points (bps), pushing the borrowing rates to 3.75%. A lower-than-projected rate hike has surprised the market participants.

Talking about the peak of inflationary pressures, BOC’s Macklem cited that the central bank is still far from the goal of ensuring inflation is low, stable, and predictable. On policy guidance, Canada’s central bank stated that they are getting closer to the end of the tightening phase but added that they are not there yet.

"Analysts at CIBC still expected the rate to peak at 4.25%, despite the “slight dabbing of the brakes” compared to previous hikes.

On the US dollar front, projections claim that the US GDP has witnessed a growth rate of 2.4% in the third quarter vs. a de-growth of 0.6%. Also, the US Durable Goods Orders are seen higher at 0.6% against a drop of 0.2%.

Meanwhile, oil prices have witnessed a firmer rally amid tailwinds of a weaker DXY and sanctions on Russia. The oil prices have climbed to near $88.00 despite an announcement of an oil inventory build-up by the Energy Information Administration (EIA). The oil stockpiles have accelerates by 2.588M barrels against the projections of 1.029M barrels of build-up, for the last week ending October 21.

• USD/JPY has slipped to near 146.00 amid a vulnerable performance by the DXY.
• Rising demand for US bonds due to an upbeat market mood has resulted in a vertical drop in yields.
• Key triggers will be US GDP and Durable goods Orders for the DXY.
• The BOJ may continue its dovish stance due to external demand shocks.

The USD/JPY pair has dropped sharply to 146.00 in the Asian session, following the bearish cues from the US dollar index (DXY). The asset has continued its two-day losing streak after surrendering Wednesday’s low at 146.22. The major is declining towards the low of knee-jerk reaction recorded on Monday to near 145.77.

The greenback bulls are facing an intense sell-off led by an upbeat market mood. The strengthening of a risk appetite theme has underpinned the risk-sensitive currencies. Meanwhile, the US dollar index (DXY) has refreshed its monthly low at 109.56 and is likely to remain on the tenterhooks ahead of the crucial US economic data.

Rising demand for US government bonds led by sheer optimism in global markets has resulted in a vertical drop in yields. The 10-year US Treasury yields have dropped to 4%.

On the economic data front, the US GDP has witnessed a growth rate of 2.4% in the third quarter, as per the estimates. Expectations are pointing at a growth rate despite the Federal Reserve (Fed)’s ultra-hawkish monetary policy against the de-growth of 0.6% reported earlier.

Also, the US Durable Goods Orders data will remain in the spotlight. The economic data is seen higher at 0.6% against a drop of 0.2%. It is worth noting that core inflation that excludes oil and food prices is on an escalation spree. In spite of this fact, the anticipation of an increment in demand for durable goods indicates robust demand from US households.

On the Tokyo front, investors are focusing on the interest rate decision by the Bank of Japan (BOJ), which is due on Friday. Considering the external demand shocks, BOJ Governor Haruhiko Kuroda would continue with an ultra-loose monetary policy to spurt the growth prospects. Also, Japanese officials are worried that the inflation rate could return below 2% again, therefore, keeping policy extremely loose is an optimal option.

• NZD/USD bears could be about to pounce noting the trendline structures. 
• If bulls commit, there will be prospects of a breakout to the 61.8% Fibo.

NZD/USD could be coming up for its last breath on Thursday for the high of the week. The following illustrates the structure of the market from a 1-hour perspective and a 15-minute scenario for the day ahead should the bears step in and the bulls capitulate towards the end of the week across the next few sessions. 

NZD/USD H1 chart

The price has carved out a climb-the-stairs trajectory over the past couple of days having pout in a potential low of the week on Monday while being in the process of putting a high of the week on Thursday. The micro trendline was broken in at the start of Asia day in the roll-over hour and we have seen a move into those shorts into Tokyo. This could eventuate in a peak formation for a top of the three-day series of higher highs and consequently lead to a slide as follows:

NZD/USD 15-min chart

The 15-min levels are shown as 0.5820, 0.5787, 0.5775, 0.5765, 0.5750, 0.5740 and 0.5728 on the way down in what could be a cascade of market orders protecting long in-the-money positions. If there is to be a slide, if it isn't parabolic, then it could look something like as follows:

NZD/USD bullish scenario

On the other hand, if the bulls commit, then the weekly 61.8% Fibo could be targetted near 0.5940 structure:

• The DXY has printed a fresh monthly high below 109.56 amid a positive risk impulse.
• An absence of a risk aversion theme has pushed 10-year US Treasury yields lower to 4%.
• The release of the US GDP and Durable Goods Orders data will keep the DXY on the tenterhooks.

The US dollar index (DXY) has recorded a fresh monthly high at 109.56 in Tokyo session as the risk appetite of the market participants is improving significantly. The DXY has shifted into a negative trajectory after surrendering the critical support of 110.00 and is expected to deliver more weakness ahead.

The risk profile remained upbeat on Wednesday despite a vertical fall in S&P500 after the downfall in tech stocks failed to align with the minor drop in other sectors.

10-year yields drop to 4%

A sheer optimism in market sentiment has trimmed the alpha generated by US government bonds. The returns on US Treasuries have dropped sharply despite sustained bets for a hawkish stance by the Federal Reserve (Fed). The 10-year US Treasury yields have slipped to 4% after printing a 14-year high of 4.38% last week. Inflationary pressures have not displayed signs of exhaustion yet, therefore, the odds of a bigger rate hike announcement by the Fed are rock solid.

As per the CME FedWatch tool, the chances of a 75 basis point (bps) rate hike announcement by the Fed stands at 92.5%.

US GDP data hogs limelight

A key trigger for decisive movement in the global markets will be the US Gross Domestic Product (GDP) data. According to the projections, the US economy has expanded at a growth rate of 2.4% in the third quarter of CY2022 against the de-growth of 0.6% recorded earlier. A lower print against the projections could accelerate volatility in the DXY.

Apart from that, investors will also focus on the US Durable Goods Orders data. The economic data is seen higher at 0.6% against a drop of 0.2%. In times, when the US core Consumer Price Index (CPI) is continuously accelerating, a rise in demand for durable goods could be supportive for the DXY.

• GBP/USD is aiming to reach the 1.1700 hurdle amid a positive market mood.
• Novel UK leadership has infused optimism in the pound’s spirit.
• The US GDP is seen higher by 2.4% despite the continuation of policy tightening by the Fed.

The GBP/USD pair is marching toward the round-level resistance of 1.1700 in the Tokyo session. The cable has recorded a fresh six-week high at 1.1639 and is eyeing more upside led by upbeat market sentiment and optimism infused by novel US leadership.

A cheerful market mood has strengthened the risk-sensitive currencies. On Wednesday, the overall optimism in the market infused fresh blood into the risk-perceived assets, however, S&P500 witnessed losses led by underperformance in tech stocks. Subdued projections presented by tech-giant Microsoft (MSFT) triggered a sell-off in NASDAQ, which also impacted the 500-US stock basket.

Pound bulls are enjoying significant bids from the market participants as novel UK leadership after the appointment of Rishi Sunak as UK Prime Minister has brought a sense of optimism in the sterling’s spirit.

On Wednesday, International Monetary Fund (IMF) Managing Director Kristalina Georgieva told Reuters, she expects new UK PM Sunak to steer Britain towards a path of medium-term fiscal sustainability.

Apart from that, UK Chancellor Jeremy Hunt announced a delay in the presentation of the medium-term fiscal plan, which is scheduled now for November 17. He believes that the fiscal plan will display that debt is falling over the medium term. And, cited economic stability and restoring confidence as their foremost priority.

Going forward, the US Gross Domestic Product (GDP) data will be the major trigger. According to the projections, the US economy has expanded at a growth rate of 2.4% in the third quarter of CY2022 against the de-growth of 0.6% recorded earlier.

The UK's Telegraph reported in an article that Rishi Sunak is reconsidering tax rises and major public spending cuts after a dramatic improvement in the state of the nation’s finances.

''The new Prime Minister on Wednesday delayed the medium-term fiscal statement from next Monday to November 17 to allow Jeremy Hunt to rework the plans.

An analysis to be published on Thursday shows that the fortnight delay is expected to shrink the size of the black hole in the public finances by up to £15 billion,'' the article reads.

''With the interest rate paid on government gilts falling rapidly - and the international gas price reducing - there is growing confidence in Downing Street that more minor changes to the public finances may be necessary.

Mr Hunt had previously warned that “some taxes will go up” while others “will not be cut as quickly as people want”, with high earners to be reportedly targeted with up to £20 billion of tax rises. Whitehall departments have already been told to find savings of from 10 to 15pc each.

But the improving economic picture means Mr Sunak is now examining whether some of the sweeping measures drawn up for the Hallowe'en statement can now be watered down or cancelled altogether.

The delay means that the Bank of England will now set interest rates on November 3 without knowing the new taxation and spending policy.''

This news comes in the tailwind of a political overhaul in the UK following weeks of turmoil at No 10 Downing Street and UK financial markets where the contagion rocked the fixed income and forex space. 

GBP/USD has been whipsawed but the recent appointment of the Sanuk stabilised the currency that has fully capitalised on the US dollar weakness this week:

However, it is now up against critical resistance and the W-formation is a reversion pattern. We could expect to see a retracement into the neckline that meets a 38.2% Fibo near 1.1350 if the bears commit below the daily trendline resistance.

• AUD/USD is oscillating below 0.6500 as the focus has shifted to the US GDP data.
• The US GDP may report a growth of 2.4% vs. a de-growth of 0.6%.
• The RBA may prefer to hike OCR frequently rather than returning to the 50 bps rate hike framework.

The AUD/USD pair is displaying topsy-turvy moves in a narrow range of 0.6484-0.6500in the early Asian session as investors are awaiting the release of the US Gross Domestic Product (GDP) data for fresh stimulus. The asset is facing a time correction after refreshing its three-week high at 0.6511 amid an improvement in the risk appetite of investors.

The risk profile remained upbeat on Wednesday despite a halt in a three-day buying spree in the S&P500. Weaker guidance on sales growth by tech-giant Microsoft (MSFT) resulted in a correction in the 500-stock basket, however, the upside bias is still solid amid higher targets. In the opinion of economists at Morgan Stanley, the rally in S&P500 could be extended well into the 4000/4150 area.

The US dollar index (DXY) is hovering around 109.70 after a sheer fall as investors ditched the risk-aversion theme ahead of the US Gross Domestic Product (GDP). As per the preliminary estimates, the US economy has expanded at a growth rate of 2.4% in the third quarter of CY2022 against the de-growth of 0.6% recorded earlier.

On the Australian front, soaring inflationary pressures have supported the aussie bulls as the Reserve Bank of Australia (RBA) may return to a higher extent of the rate hiker spell. In October monetary policy, RBA Governor Philip Lowe scaled down the extent of the Official Cash Rate (OCR) hike to 25 basis points (bps) against the spell of 50 bps. The inflation rate surged to 7.3% for the third quarter against the projections of 7.0% and the prior release of 6.1%.

Economists at ANZ Bank cited that “A 50 bps rise in November is possible, but we think the RBA will prefer to hike more frequently than shift back to 50 bps, given the reasoning behind the decision to go 25 bps in October.”