CFD Markets News and Forecasts — 01-12-2021

• GBP/USD pauses on the way to fresh yearly low.
• 200-week SMA, 38.2% Fibonacci retracement offers strong support.
• October’s bottom guards immediate upside, half-yearly resistance line is the key.

GBP/USD holds lower grounds near 1.3280, retreating towards the yearly low during Thursday’s Asian session. Although the cable pair grinds above the 2021 bottom marked on Tuesday, descending RSI line and sustained trading below the short-term key support, now resistance, keeps bears hopeful.

That said, a convergence of the 38.2% Fibonacci retracement (Fibo.) of March 2020 to June 2021 upside and 200-week SMA surrounding 1.3155 lures the sellers should they manage to conquer the latest yearly low of 1.3194.

It should be noted, however, that the RSI line inches closer to the oversold territory and hence can stop the GBP/USD bears around the stated strong support of 1.3155, failing to which can direct the quote towards the 1.3000 psychological magnet.

Meanwhile, an upside break of the October’s low surrounding 1.3410 becomes necessary for even short-term buyers to take the risk. Following that, 23.6% Fibo. level of 1.3580 may lure the bulls.

However, GBP/USD advances past 1.3588 will be considered elusive until the quote stays below a six-month-old descending resistance line, around 1.3720 by the press time.

GBP/USD: Weekly chart

Trend: Further weakness expected

• The NZD/JPY begins the Asian session on the right foot, up 0.16%.
• The market sentiment is mixed, as Wall Street closed in the red, whereas Asian equity futures point upwards.
• NZD/JPY bears would need a daily close below 76.65 to secure the downward bias.

As the Asian Pacific session begins, the NZD/JPY moderately advances during the day, up some 0.16%, trading at 76.86 during the day at the time of writing. The market sentiment is a mixed bag. Major US stock indices finished the day with losses, while Asian equity futures point upwards as the Asian session kicks in. 

In the US, the CDC reported the first Omicron coronavirus case detected in California. That, coupled with South Africa registering double of Tuesday’s COVID-19 cases, increased investors’ worries as the New York session closed. Amid the abovementioned, the US central bank chief Jerome Powell appears at the US congress. He reinforced that the Federal Reserve will need to taper faster and will use the tools available to tackle inflation.

That said, in the overnight session, the NZD/JPY topped around 77.90, to then plummeting towards the December 1 low at 76.70, a 120-pip drop. The fall is attributed to weak market sentiment amid the Omicron coronavirus crisis unless more data could confirm that it would not cause several symptoms and if vaccines could help treat the newly discovered strain in South Africa.

NZD/JPY Price Forecast: Technical outlook

From a technical perspective, the NZD/JPY daily chart depicts a downward bias, confirmed by the daily moving averages (DMA’s) residing above the spot price with a flattish slope. Further, the cross-currency pair broke below the September 3 high at 78.64 previous resistance-turned-support, a crucial level, as the 100 and the 200-DMA were exposed and broken, once the former gave way to JPY bulls.

In the outcome of extending the downward move, the first support would be the November 30 low at 76.65. A breach of the latter would expose the September 22 low at 76.33, followed by the August 19 low at 74.55.

On the other hand, the first resistance would be the November 30 high at 77.76. A break of that level would exert upward pressure on the pair, exposing the December 1 high at 77.90. Once that level is broken, the 100 and the 200-DMA’s would be exposed around the 78.09-78.25 area.

• AUD/USD remains on the back foot, retreats towards yearly low.
• Bears keeping reins despite firmer Aussie GDP, PMIs as US data, Fed hike gains more attention.
• Omicron-linked fears escalate ahead of Aussie Trade Balance for October.
• US Jobless Claims may offer additional catalysts during a likely pre-NFP trading lull.

AUD/USD licks its wounds around 0.7100, following a two-day downtrend, during early Thursday morning in Asia. In doing so, the Aussie pair consolidates weekly losses amid a quiet start to the Asia-Pacific trading session while waiting for Aussie trade numbers for October.

That said, spreading fears of the fresh covid variant and the hawkish Fed concerns are the key factors that recently weighed down the risk barometer pair.

Having found the first Omicron case in the US, Reuters ran a story quoting anonymous sources to mention the extension of the mask mandate. “US President Joe Biden's administration will extend requirements for travelers to wear masks on airplanes, trains and buses and at airports and train stations through mid-March to address ongoing COVID-19 risks,” said the news.

Previously, the World Health Organization (WHO) tried calming the virus woes with statements defending the current vaccines and marking less severe impacts of the COVID-19 strain.

Elsewhere, Australia Q3 GDP contracted lesser than forecast and the private PMIs were also upbeat for November but noting matches the firmer US figures that pushed the Federal Reserve (Fed) policymakers to stay hawkish. US ADP Employment Change and ISM Manufacturing PMI details for November ticked above market consensus of 525K and 61.0 respectively to 534K and 61.1 in that order.

Federal Reserve Chairman Jerome Powell reiterated his inflation fears but also said he still believes inflation will come down “meaningfully” in the second half of 2022, during testimony against a Senate Commission. On the other hand, the New York Times (NYT) quotes Federal Reserve Bank of New York President John C. Williams as saying, “Omicron could prolong supply and demand mismatches, causing some inflation pressures to last.”

The risk-off mood weighed on the Wall Street benchmarks but Treasury yields couldn’t benefit either, maybe due to the Fed’s less aggressive mood of late. Even so, S&P 500 Futures print mild gains by the press time.

Moving on, Australia Trade Balance for October, expected 11000M versus 12243M prior, will be in focus before the US Weekly Jobless Claims and Challenger Job Cuts for November. Above all, coronavirus updates will be the key for near-term direction during the pre-US jobs report trading lull.

Technical analysis

A five-week-old descending trend channel keeps AUD/USD bears hopeful until the quote stays below 0.7190. Adding to the upside filter is the 50-SMA and 23.6% Fibonacci retracement (Fibo.) of late October to November downside, around 0.7175-80. Meanwhile, the lower line of the stated channel and the yearly bottom, around 0.7075 and 0.7060 respectively, can entertain short-term traders.

Early Thursday morning in Asia, Reuters quotes anonymous sources to report, “US President Joe Biden's administration will extend requirements for travelers to wear masks on airplanes, trains and buses and at airports and train stations through mid-March to address ongoing COVID-19 risks.”

“A formal announcement extending the requirements through March 18 is expected on Thursday,” adds the source per Reuters.

“The White House and Transportation Security Administration (TSA) declined to comment. TSA in August extended the transportation mask order that runs through Jan. 18,” the news said further.

FX reaction

The news adds to the Omicron-led risk aversion, weighing on the US stock futures and Antipodeans. However, Fed Chair Jerome Powell’s measured response on inflation seems to put a carpet under the EUR/USD prices.

Read: EUR/USD defends 1.1300 even as yields refresh 10-week low

• EUR/USD remains sidelined after Tuesday’s seesaw move, recently consolidating losses.
• US marks the first Omicron case, ECB push back PEPP tapering on virus woes.
• Wall Street closed in red, US 10-year Treasury yields inch closer to 1.40%.
• Eurozone Unemployment Rate, US Jobless Claims eyed but covid updates are the key.

EUR/USD remains sidelined near 1.1320 during early Thursday morning in Asia, following a mildly negative daily performance. The currency major’s latest moves disagree with the fall in the US Treasury yields and the market sentiment following the fresh updates over the South African variant of the coronavirus and central bank, namely the Federal Reserve (Fed) and the European Central Bank (ECB).

Markets initially witnessed risk-on mood following the World Health Organization (WHO) tried calming the virus woes with statements defending the current vaccines and marking less severe impacts of the COVID-19 strain. However, the optimism blew on the news of the first Omicron case in the US.

Adding to the risk-off mood were strong US data and a measured testimony from Fed Chair Jerome Powell. US ADP Employment Change and ISM Manufacturing PMI details for November ticked above market consensus of 525K and 61.0 respectively to 534K and 61.1 in that order. Given the firmer US data supporting the Fed’s hawkish view, Federal Reserve Chairman Jerome Powell reiterated his inflation fears but also said he still believes inflation will come down “meaningfully” in the second half of 2022, during testimony against a Senate Commission.

Recently, Federal Reserve Bank of New York President John C. Williams said, per New York Times, that Omicron could prolong supply and demand mismatches, causing some inflation pressures to last.

It should be noted that the ECB conveyed, per Reuters, that policymakers are increasingly concerned that the economic outlook has become too murky for a comprehensive policy decision to be reached in December.

Against this backdrop, US 10-year Treasury yields dropped 3.7 basis points (bps) to 1.40%, the lowest since late September while the Wall Street benchmarks marked another negative day, despite an upbeat start.

Moving on, Eurozone Unemployment Rate for October and US Weekly Jobless Claims can entertain EUR/USD traders. However, the pre-NFP trading lull can challenge momentum while the covid headlines will add length to the watcher’s list.

Technical analysis

20-DMA level of 1.1363 precedes a double top around 1.1385 to restrict short-term EUR/USD recovery, suggesting gradual declines toward the yearly bottom of 1.1186.

• NZD/USD fades bounce off 2021 trough, marked on Tuesday.
• NZ Q3 Terms of Trade Index dropped below market forecast and prior, China Caixin Manufacturing PMI printed three-month low.
• Yields decline, equities print losses on first case of Omicron in US, Powell’ hawkish play 2.0.
• Second-tier US data to offer intermediate moves before Friday’s key US jobs report.

NZD/USD grinds lower around short-term horizontal support near 0.6800, reversing the previous corrective pullback from the yearly bottom.

That said, the Kiwi pair struggles amid fresh covid variant woes and the hawkish Fed concerns as traders brace for Thursday in Asia.

In addition to the risk catalysts, downbeat trade data at home, in contrast to the firmer US economics also exerts downside pressure on the NZD/USD prices.

New Zealand’s Terms of Trade Index came in 0.7% for Q3 2021, versus 2.0% expectations and 3.3% prior. On the other hand, US ADP Employment Change and ISM Manufacturing PMI details for November ticked above market consensus of 525K and 61.0 respectively to 534K and 61.1 in that order.

Given the firmer US data supporting the Fed’s hawkish view, Federal Reserve Chairman Jerome Powell reiterated his inflation fears but also said he still believes inflation will come down “meaningfully” in the second half of 2022, during testimony against a Senate Commission.

It’s worth noting that the finding of the first case of the South African coronavirus variant, dubbed as Omicron in the US added to the risk-off mood, following the initial relief rally in the markets on the World Health Organization (WHO) comments. The WHO tried calming the virus woes with statements defending the current vaccines and marking less severe impacts of the COVID-19 strain.

Amid these plays, US 10-year Treasury yields dropped 3.7 basis points (bps) to 1.40% while the Wall Street benchmarks marked another negative day, despite an upbeat start.

Looking forward, a lack of major data/events and the pre-NFP trading lull may bore markets. However, Australian trade numbers and US second-tier job reports may entertain traders, not to forget Omicron headlines.

Technical analysis

Failures to cross a fortnight-long resistance line, around 0.6860, join a steady RSI line to favor the continuation of the bearish trend. Adding to the upside filters the previous support line from November 12 and 50% Fibonacci retracement of latest fall from mid-November, near 0.6930 at the latest.

On the flip side, a weekly horizontal line near 0.6800 can entertain short-term sellers ahead of the yearly low of 0.6772. In a case where NZD/USD bears conquer the yearly bottom, tops marked in July and October 2020 surrounding 0.6725-15 will gain major attention.

• The Australian dollar fails to gain traction against the safe-haven status yen, dropped %.
• The first Omicron COVID-19 cases hit the US, adding to the list of countries, reporting new strain cases.
• On Wednesday, South Africa doubled Tuesday’s cases amid positive news from SA health authorities, which reported “mild” symptoms on the new variant.

The AUD/JPY declines sharply as the New York session ends, down some %, trading at 80.13 at the time of writing. The market sentiment is downbeat at press time, as depicted by the major US stock indices finishing in the red at the Wall Street close, as the US CDC reported the first COVID-19 Omicron case.

In South Africa, COVID-19 cases doubled from Tuesday. Also, the UK, Switzerland, and Brazil, added to the list of countries reporting Omicron cases. Despite being “negative” news, the World Health Organization (WHO) chief scientist commented that vaccines would protect against severe cases of the variant. That, along with Fed Chair Jerome Powell, comments reinforcing that the US central bank would do what it needs to tackle inflation, dented the market sentiment. 

On Wednesday, in the overnight session, the AUD/JPY peaked at 81.47, falling sharply throughout the second half of the day, down to 80.00, breaking on the way down the 50-hour simple moving average (SMA), which at press time lies at 80.77. 

That said, the AUD/JPY pair would stay lying on the dynamics of market sentiment. Further, the Reserve Bank of Australia’s (RBA) dovish stance would limit any upside move in the pair.

AUD/JPY Price Forecast: Technical outlook

The 1-hour chart depicts the pair is extending its free fall, printing a fresh two-month low at 79.97. The pair has a downward bias, portrayed by the daily moving averages (DMA’s) staying above the spot price with a downslope, with the 50-hour SMA -the shortest-timeframe- at 80.77, being the closest to current price action.

In the outcome of falling further, the AUD/JPY first support level would be the S1 daily pivot at 79.58. The breach of the latter would expose the S2 daily pivot at 79.08.

On the other hand, AUD/JPY first resistance would be the daily central pivot at 80.52. The break above that level would expose the 50-DMA at 80.77, followed by the confluence of the R1 daily pivot and the 100-hour SMA at 81. 

Turkish President Tayyip Erdogan threw another wild card by replacing a top minister during early Thursday morning in Asia.

This time, Turkish President Erdogan appointed Nureddin Nebati as Turkey's minister of Treasury and Finance. In doing so, Turkey’s Boss accepted the resignation of Lutfi Elvan, the last top official seen to adhere to the orthodox policy in a government gripped by a currency meltdown, per Reuters.

USD/TRY reverses pullback

Following the news, USD/TRY stays firmer above $13.00, sidelined around $13.35 at the latest. That said, the Turkish lira (TRY) pair eased from a record top the previous day, snapping a three-day uptrend.

Read: USD/TRY recedes from new all-time tops as CBRT takes action

• AUD/USD has been correcting the daily bearish impulse on the lower time frames. 
• The focus is on an H1 38.2% Fibonacci correction near term but for further downside longer term. 
• Forex volatility is through the roof and the VIX has rallied to fresh highs. 

AUD/USD bulls are stepping in at a familiar level of demand on the hourly time frame. However, the longer-term momentum is with the bears for a deeper continuation towards weekly support. 

AUD/USD weekly chart

The momentum is to the downside and with the weekly lows near 0.70 the figure eyed as a key target. Meanwhile, the M-formation's neckline should not be ignored near 0.7170. The 38.2% Fibonacci level will have a confluence with 0.72 the figure or there about should the price indeed continue to deteriorate into the weekly lows. This could be a target should the bulls accumulate from the weekly lows in the coming weeks. 

AUD/USD daily chart

The price has already made a significant correction as per the wicks meeting the 38.2% Fibonacci retracement level . Therefore, there is a high probability of a downside continuation, especially with volatility as high as it is at the moment. The VIX has rallied through 30 and the DBCVIX USD Volatility Index is at the highest it has been since the start of the year.

AUD/USD H1 chart

Meanwhile, the bulls are correcting on the lower time frames which bring in the 38.2% Fibonacci into scope for the meantime. 

• After jumping from weekly losses, gold advances almost 1% amid the US reporting the first Omicron variant case.
• The market sentiment has dampened on the report of the first US Omicron COVID-19 case, US equities dropped.
• XAU/EUR: Has an upward bias, though it would need a daily close above €1,590 to extend its gains. 

Gold (XAU/EUR) vs. the euro advances as Wall Street enters the last hour of the New York session, up some 0.75%, trading at €1,573 at the time of writing. Investors’ worries seem to be confirmed, as the first COVID-19 Omicron case in the US has been detected. That said, a sell-off in US equities is underway, with the three major indices posting losses between 0.63% and 1.15%. 

In the overnight session XAU/EUR, pare some Tuesday’s losses, witnessing a jump from €1,561 up to €1,570, but as the Asian session began, gold spiked through the 50-hour simple moving average (SMA), peaking at €1,583, followed by a dip towards the €1,570 area.

The rise in XAU/EUR is also due to weak economic data from the Eurozone, particularly Germany. Retail Sales for October shrank 2.9% on a yearly basis, worse than the 0.3% contraction estimated. Contrarily, the monthly basis number fell 0.3%, better than the 1.9% decrease expected,
In the meantime, the German 10-year Bund yield is falling two basis points, sitting at -0.35%, boosting the yellow metal prospects against the single currency. 

XAU/EUR Price Forecast: Technical outlook

The XAU/EUR daily chart depicts that trimmed some losses as we head towards the Wall Street close. Further, it is worth noting that gold found a strong support area near the June 1 swing high at €1,567 previous resistance-turned-support, some €10 above the 50-day moving average, lying at €1,556. Furthermore, the daily moving averages (DMA’s) with an upslope reside well below the spot price, signaling that XAU bulls are in charge.

In the outcome of extending Wednesday’s gains, the first support would be the November 30 high at €1,590. Breach of the latter could pave the way for further gains. The following resistance would be the €1,600 psychological level, followed by the November 18 cycle low previous support-turned-resistance at €1,633.

On the flip side, the first support would be the 50-DMA at €1,556. The break of the previous-mentioned would expose essential support areas, like the 100-DMA at €1,538, followed by the confluence of 200-DMA and the November 3 low, between the €1,515-19 range.

• EUR/JPY reversed from highs above 128.50 to lows close to 127.50 over the course of Wednesday’s session.
• The move lower went in tandem with an elevation of safe-haven demand as broad risk appetite deteriorated.

Appetite for safe-haven assets has picked up in recent trade amid a deterioration in US (and global) equity market sentiment, EUR/JPY has been heading lower and looks on course to end the day with losses of about 0.5%. The first Omicron Covid-19 infection has been picked up in the US and, as the variant’s infection rate surges in South Africa, US stock investors have seemingly thrown in the towel. The S&P 500 is now down over 0.5% on the day having been nearly 2.0% higher in pre-market trade.

That has seen the yen catch a bid and EUR/JPY drop from earlier session highs above 128.50 back to just above weekly lows at 127.50. And the technicals aren’t looking great. When it topped out earlier in the session above 128.50, EUR/JPY seemed to find resistance at a long-term downtrend that has been capping the price action since early November. If support around 127.50 does go, the pair would slip to its lowest levels since February, which could open the door to a run lower towards 125.00, the next area of significant support.

• EUR/GBP has recovered off of earlier session lows in the 0.8500 area to trade flat on the day around 0.8520.
• Dip-buyers came in ahead of last Friday’s high and the 50DMA.
• The pair has carved out a 0.8500-0.8540ish range, though a move back towards the 200DMA may be on the cards.

EUR/GBP has eroded earlier losses and is back to trading flat on the day in the 0.8520 area as the end of the US session approaches. The pair found decent demand just under 0.8500, as traders bought at support in the form of last Friday’s highs and the 50-day moving average which currently resides just under 0.8490.

As traders assess the threat that the new Omicron variant poses to the global economy and what it means for central bank policy divergence, it is likely that EUR/GBP will continue to trade in rangebound fashion. To the upside, Tuesday’s high just above 0.8540 may cap the price action, while Wednesday’s lows around 0.8500 may form the near-term floor. Risk-off flows related to fears about the new variant have thus far favoured the euro over the pound. Should sentiment take a further knock in the coming days, a move towards the 200DMA at 0.8560 and the early November highs just under 0.8600.

In terms of fundamental catalysts, there hasn’t been much to drive the price action in EUR/GBP. BoE Governor Andrew Bailey didn’t reveal any new information to inform the BoE hike or no hike in the December debate – market participants/analysts remain split on this. Final Eurozone and UK November Manufacturing PMIs were broadly in line with the flash estimates released two weeks ago. Thursday sees the release of Eurozone Unemployment data for October, ahead of Final UK and Eurozone Service PMIs and ECB and more BoE speak on Friday.

• GBP/JPY bulls stepping in to target a significant correction. 
• Bulls eye the 61.8% Fibos across the time frames. 

GBP/JPY has left a weekly M-formation which is a bullish reversion pattern. If the price holds at this support area, then it would be expected to target the 61.8% Fibonacci where it meets the neckline lows of the formation.

GBP/JPY weekly chart

However, given the topping of the 2020 rally, should the neckline hold, then a downside continuation could be sparked for a run to 146.00.

GBP/JPY daily chart

The daily chart shows that the price will first need to get beyond the order block between 150.69 and 151.91 first. 

This puts the daily 61.8% ratio, located at 151.06 onto the radar following a break of the order block highs.

GBP/JPY H1 chart

We are also seeing an M-formation on the hourly time frame. The neckline at 150.66 has a correlation with the 61.8% ratio also near the order block lows. This makes for a near term target of between 150.65/70 within the day's range of between 149.67/151.44 so far. 

However, there could be some stalling between the 38.2% Fib located at 150.27 and then the 10-hour EMA first. As the price rises, so too will the EMA and drift in near to a 50% retracement near 150.50. 

• The S&P 500 has eroded most of its gains and is now just 0.4% higher on the day.
• The index is back to the 4580s, having traded as high as 4650 after the open.
• Sentiment seemingly deteriorated in tandem with a pick-up in the newsflow surrounding the global Omicron outbreak.

US equity markets have been on the back foot over the last few hours and have relinquished much of their pre-market gains. The S&P 500 index has dropped back under 4600 and is now just 0.4% higher on the day having been as much as 1.9% higher earlier in the session. The Nasdaq 100, meanwhile, has pared back on gains that had been as much as 1.8% at the start of the session to just 0.2%. The Dow is up by the same amount.

Omicron worries

Sentiment seemingly deteriorated in tandem with a pick-up in the newsflow surrounding the global Omicron outbreak. The number of Covid-19 infections reported in South Africa doubled on Wednesday vs a day earlier and there were separate reports that hospitalisations had also started picking up as infections spread more to the elderly. Moreover, the South African National Institute For Communicable Diseases (NICD) said that the Omicron variant would be able to get around prior immune protection. However, WHO scientists earlier in the day were out saying they believed that the existing vaccines would still provide substantial protection.

More recently, the first Omicron variant infection was reported in the US. The individual, who is fully vaccinated, is only experiencing mild symptoms at the moment and had traveled to South Africa. The detection of further US infections in the days ahead seems inevitable.

Data, Fedspeak & other themes

Aside from Omicron, equity investors have also had to juggle a number of other themes, including tier one US data releases and further Fed speak. Starting with the former; the November ISM manufacturing PMI survey was stronger than expected, with the employment and new orders subindices both picking up and prices paid moderating slightly amid early indications that supply chain disruptions are easing. Whilst this is good news, investors fear that any Omicron-related global travel/trade restrictions could quickly reverse any progress made supply chains.

The November ADP national employment estimate was also released and will solidify expectations that Friday’s headline official NFP number should be strong. The Fed’s Beige Book was released as well on Wednesday and also alluded to underlying US economic strength, early signs of easing supply chain pressures (which is helping costs fall back). The report pointed to the continued difficulties companies are having finding workers, which supports the idea that the labour market remained tight in the first half of November.

Speaking of the Fed; Chairman Jerome Powell appeared before Congress for a second day and reiterated the same hawkish message he offered on Tuesday (retire “transitory”, inflation risks rising, appropriate to discuss faster QE taper). NY Fed President and influential FOMC member John Williams was also on the wires earlier in the session and largely stuck to the script established by Powell, emphasising rising inflation risks/uncertainty. Meanwhile, in Washington, talks to avoid a government shutdown after Friday are ongoing, a theme that will be worth paying attention to on Thursday and Friday.

What you need to know on Thursday, December 2:

Fears cooled down on Wednesday, resulting in major pairs holding into familiar levels. The greenback ended the day mixed, firmer against commodity-linked rivals but down against other safe-haven currencies.

The cautious optimism came from the World Health Organization, as it said that current vaccines could still offer protection against the new Omicron coronavirus variant, preventing severe illness. Also, the WHO reported that so far,  the new strain seems to be causing milder symptoms and illness.  

US Federal Reserve chief Jerome Powell testified again before a different Senate Commission and repeated that inflation has spread more broadly and that the risk of persistent inflation has risen. However, he also said that, while they need to remove the world “transitory,” he still believes inflation will come down “meaningfully” in the second half of 2022. 

Asian and European indexes closed in the green, while Wall Street opened with a positive tone but trimmed most of its intraday gains ahead of the close. Meanwhile, US Treasury yields ticked modestly higher, with the 10-year note yielding 1.44% at the time being.

The EUR/USD pair trades around 1.1320, while GBP/USD stands at 1.3280, both at risk of falling further. The AUD/USD pair trades at around 0.7110, while USD/CAD is pressuring daily highs in the 1.2830 price zone.

Gold remains under pressure, currently trading at $1,780 a troy ounce. Crude oil prices edged lower, with WTI now at around $65.75 a barrel.

The focus now shifts to US employment figures ahead of the Nonfarm Payrolls report to be out next Friday. The country is expected to have added 550K new jobs in November, quite a healthy reading in terms of monetary policy.

Ethereum price builds the momentum to hit new all-time highs

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• XAG/USD slides for the fourth consecutive day, down 1.67% as Fed’s Chair Powell testifies on the Congress.
• The market sentiment is upbeat, dampening the risk appetite of safe-haven assets like silver.
• XAG/USD: A break below $22.00 would expose the YTD low at $21.33.

Silver (XAG/USD) continues falling for the fourth day In a row, down trading at $22.40 at the time of writing. in the overnight session, the white metal peaked at $23.01. However, it retreated the move as risk appetite improved, as investors dumped safe-haven assets, turning towards riskier ones, as portrayed by US equity indices rising between 0.48% and 0.50%. Contrarily safe-have currencies like the JPY and the USD are the main gainers in the FX market, with risk-sensitive currencies dropping except for the NZD, advancing 0.10%. 

That said, the XAG/USD silver bottomed around $22.30, reached a seven-week fresh low amid an uptick in US 10-year T-bond yields, rising one basis point, sitting at 1.46%. Amid those plays, the US Dollar Index, which measures the greenback’s value against a basket of its peers, is barely flat, at 95.98, as investors start to price in a Fed’s faster bond taper, that could move forward the possibility of hiking rates, sooner than expected.

In the meantime, one of the catalysts of gold, US Real Yields, as of November 30, rose by 1.66%.

Fed’s Chair Powell commented that inflation is no longer “transitory,” expects it will moderate in 2022

Summarizing some of Powell’s remarks, he said that “[Fed] don’t see wages moving up at a troubling rate that would spark inflation.”. He reiterated that it is time to move from the word transitory from inflation and expects that the abovementioned will moderate in 2022, despite not being sure of the forecast. Powell added that “It is appropriate we consider speeding taper at next meeting to wrap it up earlier.”

XAG/USD Price Forecast: Technical outlook

The XAGU/USD daily chart depicts the non-yielding metal has a downward bias. The daily moving averages (DMA’s) with a flat slope but above the spot price confirmed the abovementioned. In the outcome of continuing trending lower, the first support would be the $22.00 figure. A break of the latter would expose the September 30 low at 21.33

On the flip side, the first resistance would be December 1 high at $23.00. A break above that level could pave the way for further gains. The following resistance would be the 50-DMA at $23.52, and then the 100-DMA at $23.80, as the price would close towards $24.00. 

• Gold bulls taking on the counter-trendline resistance and eye the 38.2% Fibo near $1,810. 
• Beyond $1,810, there is then air to $1,850 resistance. All eyes are on the central banks, EUR and greenback.
• Safe havens are also in play considering the uncertainty surrounding covid variants. 

The price of gold is trading at $1,782 and higher by some 0.5% on the day after rising from a low of $1,772.30 and reaching a high of $1,794.62. The Fed's decision to retire the term 'transitory' has failed to boost the greenback which is arguable overbought in terms of positioning. This has led to a bid in the commodities and has underpinned gold as a perfect hedge for inflation risks. 

Federal Reserve Jerome Powell, who testified to the Senate on Tuesday said, "we are actually at our next meeting in a couple of weeks going to have a discussion about accelerating that taper by a few months." He also pledged to bury the term “transitory” and instead recommends Fed policymakers to consider explaining more clearly what the Fed thinks/means when it is talking about inflation.

''The decision helped to clarify that the Fed will look past the omicron threat, for the time being, reversing the shift in pricing catalyzed by the omicron variant in favour of an accelerated tapering process, which opens the door to a faster hiking cycle if necessary as markets had predicted,'' analysts at TD Securities argued.

''Nonetheless, the threshold for another whipsaw for CTAs in gold is razor-thin. In fact, gold prices could surprise the hawks by looking to the upside, as CTA trend followers are set to cover their shorts in gold above $1785/oz,'' the analysts added. 

Safe havens up, US dollar down 

Meanwhile, trades are also weighing what the new Omicron variant of the coronavirus might do to plans that Federal Reserve Chair Jerome Powell signalled on Tuesday to move more quickly to raise US interest rates. Safe havens are leading the way with the yen and CHF taking the top spot on the Currency Strength Indicator.

The euro is in third place as traders ponder as to whether the latest data will challenge the ECB’s ‘transitory’ story come to the December meeting? In doing so, the US dollar could be starting to lose its edge with regard to central bank divergence.  The dollar index DXY, which measures the greenback against major currencies was down on the day at 95.670 the low at one point, supporting gold prices.

Gold technical analysis

Meanwhile, however, the daily outlook is arguable bearish from a technical perspective. The price is retesting the counter trendline. If this holds, then the bias will be to the downside for the coming days. With that being said, a break back above the counter-trendline will leave prospects of a bullish continuation instead. 

Bulls will need to get above the 38.2% Fibonacci ratio resistance near $1,810 for a run to the neckline of the M-formation near $1,850 for the days ahead.

According to the Fed's Beige Book, which was prepared by the Chicago Fed based on information collected on or before 19 November, said that economic activity grew at a modest to moderate pace in most Federal Reserve districts during October and early November.

Additional Takeaways: 

"The outlook for overall activity remained positive in most districts, but some noted uncertainty about when supply chain and labor supply challenges would ease."

"Employment growth ranged from modest to strong across Federal Reserve districts."

"Prices rose at a moderate to robust pace, with price hikes widespread across sectors of the economy."

"There were wide-ranging input cost increases stemming from strong demand for raw materials, logistical challenges, and labor market tightness."

"Wider availability of some inputs, notably semiconductors and certain steel products, led to easing of some price pressures."

"Strong demand generally allowed firms to raise prices with little pushback, though contractual obligations held back some firms from increasing prices."

"Leisure and hospitality and manufacturing contacts reported an uptick in employment, but many were still limiting operating hours due to a lack of workers."

"Contacts in several other sectors also noted labor-related constraints on meeting demand."

"Childcare, retirements, and Covid-19 safety concerns were widely cited as sources that limited labor supply."

"Loan demand increased in almost all districts."

"Many districts noted concerns that the federal vaccination mandate could exacerbate existing hiring difficulties."

"Nearly all districts reported robust wage growth."

"Hiring struggles and elevated turnover rates led businesses to raise wages and offer other incentives, such as bonuses and more flexible working arrangements."

• GBP/USD holds near the 2021 low with risks tilted to the downside. 
• Central bank themes are driving risk and weighing on the pound. 

At the time of writing, GBP/USD is trading at 1.3311 and higher by some 0.12% on the day so far. The pair has recovered from a low of 1.3276 and has reached a high of 1.3352 so far.

The US dollar is stuck in the mud after yesterday's whipsaw when the greenback failed to capitalise on hawkish comments from the US Federal Reserve Chair Jerome Powell. DXY, an index that measures the US dollar vs a basket of currencies spiked around 40 points during his testimony to the Senate on Tuesday.

Powell said, "we are actually at our next meeting in a couple of weeks going to have a discussion about accelerating that taper by a few months." He also pledged to bury the term “transitory” and instead recommends Fed policymakers to consider explaining more clearly what the Fed thinks/means when it is talking about inflation.

His comments follow those of a number of Fed officials who in recent weeks have advocated for ending asset purchases sometime in the spring to allow for an earlier start of interest rate increases should they be needed to rein in inflation.

However, the US dollar fell back to the start again due to a relatively strong euro. Data from yesterday came in hot for both the German Unemployment Rate and EZ inflation. Additionally, the market has been very long of the US dollar and it couldn't rally as a safe haven on the covid risks nor on the back of a uber hawkish sounding Fed. 

The Eurozone preliminary estimate jumped by a hefty 0.8%-points to 4.9%, making this one of the biggest upside surprises in recent history.  This is also more than twice the central bank’s long-term target. The core estimate rose by no less than 0.6%-points. The market is now wondering if this challenge the ECB’s ‘transitory’ story as well come the December meeting? In doing so, the dollar could be starting to lose its edge with regard to central bank divergence. 

As for central banks, the British pound holds near the 2021 low versus the greenback as doubts grew on whether the Bank of England will raise interest rates at a policy meeting this month. The BoE said in November it would probably have to raise rates from an all-time low of 0.1% "over the coming months".

However, there are mixed feelings in the market because but policymakers have sounded increasingly divided on this prospect, especially after the new coronavirus variant was detected. Money markets were pricing in only 9 bps of rate hikes by the next meeting on Dec. 16 compared to 8 bps on Tuesday.

GBP/USD technical analysis

From a weekly perspective, the price is moving into a demand area between the low 1.30s and 1.3300. There is room for further declines within this bracket for the coming days as traders take on bullish commitments near the 1.32 figure and recent lows. 

• USD/CAD is picking up amid a pullback in crude oil prices from earlier lows.
• The pair is now just under 1.2800, having previously been as low as the 1.2710s.
• USD/CAD seems to be moving higher within a bullish trend channel.

USD/CAD has shifted higher over the last few hours and now trades near 1.2800, up from prior session lows in the 1.2710s, in tandem with a pullback in crude oil prices from earlier session peaks. On the day, the pair is now trading 0.1% higher, having previously been as much as 0.5% lower though, for the most part, has stuck to this week’s intraday ranges.

USD/CAD’s price action on Wednesday suggests that, for the time being, the pair is likely to continue moving higher within the confines of a short-term bullish trendline. Meanwhile, the fact that the 21-day moving average recently crossed to the north of both the 50 and 200DMAs (with the 50 above the 200) suggests the bullish trend has some decent momentum. Should this technical trend persist, a test of resistance at 1.2900 seems likely.

As global oil markets and risk appetite remains on the ropes amid ongoing fears about the impact of the new, highly transmissible Omicron variant, the above technical trend makes sense. This is especially the case if a bad Omicron outbreak delay’s the Bank of Canada’s monetary policy normalisation plans.

Canadian data, meanwhile, was ignored on Wednesday. For reference, Markit Manufacturing PMI in November remained strong at 57.2 (slightly down from 57.7 in October) and Building Permits growth in October was stronger than expected at 1.3% MoM (versus forecasts for a 1.0% MoM drop). US data in the form of a strong November ISM Manufacturing PMI survey and a solid November ADP national employment change estimate got more attention but broadly failed to support the dollar, with the DXY broadly flat.

Fed Chair Jerome Powell’s hawkish tone this week on the economy means that strong ISM services PMI numbers on Friday and a good jobs report on Friday likely won’t have too much of an impact on the dollar’s broader fortunes. Of course, the November US jobs report will still be closely scrutinised, as will the November Canadian jobs report released at the same time.

• The USD recovers some of Tuesday’s losses, as the shared currency finished in the green, amid Fed’s Powell hawkish comments.
• EUR/USD found dynamic support at the 50-hour simple moving average (SMA).
• Fed’s Powell favors a faster taper and expects inflation to moderate by 2022.

During the New York session, the EUR/USD moderately falls, down some 0.20%, trading at 1.1320 at the time of writing. The market sentiment is upbeat, as portrayed by US equity indices rising between 1.06% and 1.50%. At press time, the Federal Reserve Chairman Jerome Powell testifies on the US Congress.

Summarizing some of Powell’s remarks, he said that “[Fed] don’t see wages moving up at a troubling rate that would spark inflation.”. He reiterated that it is time to move from the word transitory from inflation and expects that the abovementioned will moderate in 2022, despite not being sure of the forecast. Powell added that “It is appropriate we consider speeding taper at next meeting to wrap it up earlier.”

EUR/USD Price Forecast: Technical outlook.

As Fed’s Chair Powell testifies at the Congress in the last hour, the EUR/USD pair has remained subdued in a 40-pip range, between 1.1318-58 without swinging violently as on Tuesday’s session. At press time, the pair is testing the 50-hour SMA at 1.1318 for the third time in the day, coinciding with the daily central pivot point, indicating that robust support might deter USD bulls from pushing the pair downwards. In the outcome of a break of the latter, the first support would be the 100-hour SMA at 1.1289, followed by the 200-hour at 1.1267.

On the flip side, if the 50-hour SMA holds, the first resistance would be Wednesday’s cycle high at 1.1359. A break of that level would expose the November 30 swing high at 1.1382, followed by the R1 daily pivot at 1.1401.

• WTI has pulled back from earlier highs above $69.00 to trade closer to $67.00, nearly back to flat.
• Prices are still about $2.50 above Tuesday’s lows, but more than $10.00 above last Thursday’s levels.

Oil prices have been pulling back from earlier highs in recent trade. WTI was above $69.00 earlier in the session but now trades in the $67.00s. But WTI is still up more than $2.50 from Tuesday’s sub-$65.00 lows, though amid the recent pullback, prices are only slightly north of neutral on the day.

The presence of the 200-day moving average at close to the $70.00 level seems to have encouraged some selling pressure. Oil prices continue to trade more than $10.00 below last Thursday’s pre-Omicron Covid-19 variant sell-off levels.

Omicron

Uncertainty regarding the new virus strain remains high, but commentary from most global public health officials and vaccine makers (excluding the Moderna CEO on Tuesday) is optimistic that existing vaccines will offer reasonable protection. WHO Chief Scientist Dr Soumya Swaminathan said on Wednesday that she thinks the existing Covid-19 vaccines will still protect against severe disease. Further data on the efficacy of vaccines versus Omicron, its transmissibility and the severity of symptoms will trickle in over the coming days and will remain the major driver of crude oil price action.

OPEC+

Elsewhere, there has been lots of newsflow pertaining to OPEC+; OPEC met on Wednesday ahead of a meeting of the full OPEC+ group on Thursday and, as expected, made no decision on output policy. That decision will come on Thursday and analysts expect the cartel to halt the recent run of output hikes which had been proceeding at a pace of 400K barrels per day per month. Reuters, citing an OPEC+ document, reported on Wednesday that the cartel sees a worsening oil surplus in Q1 2022, with supply outstripping demand by 3.8M barrels per day by March.

Note also smaller OPEC+ oil producers have struggled to keep up with recent output hikes over the last few months; a Reuters survey showed compliance to the output quotas hitting 120% in November. Even in the absence of further output hikes, then, OPEC+ output will still rise in the coming months. In other oil market related news, as signalled by the private weekly inventory data on Tuesday, Wednesday’s official EIA inventory report was bearish, with big buils seen in gasoline and distillate stocks.

US Deputy Energy Secretary David Turk said on Wednesday that the timing of the strategic crude oil stockpile release could be adjusted if prices drop, according to Reuters. He added that the US "metric of success" is affordable consumer fuel prices, not how quickly oil stockpiles can be released. China, other countries could also time their releases based on oil prices, he said, before adding that the Biden administration will continue to consider other tools to manage energy prices including a potential oil export ban. 

The ISM Manufacturing Index showed an improvement in November, in line with market expectations. According to analysts at Wells Fargo, the report is the first sign of a thaw in the supply chain crisis. They warn that it is way too early to say that things are materially improving, but it is a welcome sign that 2021 could bring with it a return toward stability.

Key Quotes: 

“We are not out of the woods by any means, but wait times for supplier deliveries and prices both fell by more than three points in November. The fact that this occurred alongside an improvement in orders and employment makes this ISM manufacturing release the best report card for the manufacturing sector that we have seen in months—a welcome indication that the choke points in the supply chain are clearing, if only incrementally.”

“Today’s ISM manufacturing index for November came in at 61.1 and lands in the center of a week defined by increased financial market volatility surrounding the Fed’s inclination to accelerate its tapering plans. Financial markets are struggling to determine whether the economy is actually overheating or if activity is already moderating somewhat, a task made more difficult by the latest variant of the virus that has set the timetable for the economy for nearly two years.”

“Some manufacturers are starting to find the help they need. The employment component rose to 53.3 in November. That is the highest reading since April and suggests that this Friday's jobs report could see a hiring boost in the manufacturing sector.”
 

• The Australian dollar retreated from a daily high at 0.7172 down to 0.7146 as Fed Chair Powell testifies on Congress.
• Positive market sentiment weighed on the greenback, as the US Dollar Index falls 0.09%.
• US ADP Employment Change rose to 534K more than the 525K foreseen by analysts, Nonfarm Payrolls eyed.

The AUD/USD cuts Tuesday’s losses during the New York session, up some 0.27%, trading at 0.7147 at the time of writing. Positive market sentiment in the financial markets favors risk-sensitive currencies like the AUD, the NZD, and the CAD. Also, US equity indices are rising, after on Tuesday, the Omicron COVID-19 variant woes and hawkish commentary of Fed’s Chairman Jerome Powell dampened the market mood.

In the overnight session, the AUD/USD pair recovered most of Tuesday’s losses, peaking at around 0.7172. However, as the European session got underway, it retested the 50-hour simple moving average around 0.7140 but bounced off that level, printing another leg-up, ahead of the testimony of Fed’s Chair Jerome Powell and Treasury Secretary Janet Yellen, before the Congress.

Summarizing some Fed’s Powell remarks, he said that wages have moved up “significantly.” He reiterated that inflation is connected to the pandemic, and elevated prices have been stubbornly persistent. Further noted that “we need to move on from the word transitory” and reinforced that the economy is very strong.

In the Asian session, the Australian economic docket featured the Real Gross Domestic Product for the Q3, quarterly and yearly figures. The quarterly reading shrank 1.9% less than the 2.7% contraction expected, whereas the annual number rose by 3.9%, higher than the 3.0% estimated. According to sources cited by the Guardian, “given the backdrop of lockdowns in NSW, Victoria and the ACT, this is an impressively strong performance.”

On the US economic front, the US ADP Employment Change for November showed that private payrolls rose by 534K, more than the 525K foreseen by analysts. Meanwhile, the US ISM Manufacturing PMI rose by increased to 61.1, a tenth higher than the 61.0 estimated. According to Timothy Fiore, Chair of the ISM survey committee, “the US manufacturing sector remains in a demand-driven, supply chain-constrained environment, with some indications of slight labor and supplier delivery improvement.”

That said, and the ongoing testify on Congress of Fed’s Chair Powell and US Treasury Secretary Yellen, amid market sentiment, would be the catalysts for AUD/USD traders. Any hawkish comments made by Powell would favor USD bulls, though it seems at press time that Tuesday’s appearance at the Senate, priced in any statements that he would make today.

• US dollar holds negative tone after economic data.
• Improvement in market sentiment supports the kiwi.
• NZD/USD holds far from the one-year low it hit on Tuesday.

The NZD/USD printed a fresh six-day high during the American session at 0.6867 and then pulled back as the US dollar attempted a bounce during Powell’s testimony. The pair dropped to 0.6840. It is modestly higher for the day, which could be seen as positive considering it bottomed on Tuesday, at 0.6772, the lowest in a year.

US data, Powell, USD

The greenback remained mostly unaffected by economic data and more recently rose marginally, during Fed Chair Powell comments. He reiterated the need to move on from the word “transitory” and warned that the risk of higher inflation has move up.

US yields are rising moderately on Wednesday offering only a small support to the dollar across the board.  The 10-year stands at 1.48%. In Wall Street, stocks are rising sharply. The Dow Jones gains 1.45% and the Nasdaq by 1.75%.

The ADP report showed private payroll rose by 534K in November, in line with expectations. The ISM Manufacturing Index showed an acceleration in November from 60.8 to 61.1, also near market consensus. Later, the Fed will release the Beige Book and on Friday will be the turn of the NFP report.

Still bearish but…

The primary trend in NZD/USD is bearish. The area around 0.6770 is a key support: horizontal levels and the convergence of the 100 and 200-week moving average. If it remains above, the kiwi could stage a rebound. A weekly close below, should point to more losses over the medium term.

In the very short-term, a firm break above 0.6860 would be a positive development for the kiwi while under 0.6830, the intraday bias would change from positive/neutral to negative.

Technical levels

Fed Chair Jerome Powell is currently testifying before the House Financial Services Committee alongside US Treasury Secretary Janet Yellen. 

Key takeaways:

"The taper need not be a disruptive event in markets; do not expect it will be."

"Highly accommodative policy we have, even after the taper, means it is appropriate we taper."

"It's appropriate that we taper and that we consider at next meeting to taper faster."

"It is appropriate we consider speeding taper at next meeting to wrap it up earlier."

Fed Chair Jerome Powell is currently testifying before the House Financial Services Committee alongside US Treasury Secretary Janet Yellen. 

Key takeaways:

"Our forecast is for inflation to come down meaningfully in the second half of next year."

"I think it is likely inflation will come down then."

"But we can't act like we are sure that will happen with inflation next year."

"We are not at all sure of inflation forecast."

"We have to use our policy tools to tackle range of possible inflation outcomes."

"We are assuming that some form of build back better plan will pass."

Fed Chair Jerome Powell is currently testifying before the House Financial Services Committee alongside US Treasury Secretary Janet Yellen. 

Key takeaways:

"We need to move on from the word transitory."

"The risks of higher inflation have moved up."

"Demand is very, very strong from fiscal policy and a quickly rebounding economy."

"The economy is very strong now."

"Price stability and job are in tension; we'll use tools to make sure high inflation does not become entrenched."

"Fed's two goals are in tension now, need to balance them."

Fed Chair Jerome Powell is currently testifying before the House Financial Services Committee alongside US Treasury Secretary Janet Yellen. 

Key takeaways:

"Wages have moved up significantly."

"We don't see them moving up at a troubling rate that would spark inflation."

"Inflation we are seeing is still clearly connected to pandemic."

"But inflation has spread more broadly."

"Risk of persistent inflation has risen."

• Mexican peso rises for the third consecutive day against the US dollar.
• While under 21.30, the Mexican peso to remain strong.
• Technical indicators keep moving south, supporting MXN.

The USD/MXN is falling again on Wednesday but the Mexican peso is offering some signs of exhaustion. Still, while under 21.30, the pair could drop further to the 20.90 area, where the next strong support is seen.

A recovery back above 21.30 should give an indication that the bearish correction could have run its course, suggesting some consolidation between 21.30 and 21.65. On the contrary, a break under 20.90 should strengthen the outlook for the MXN, exposing the next critical support located at 20.50.

The primary trend still favor the upside in USD/MXN. The sharp rally of last week looks exaggerated so the pullback taking place at the moment seems normal so far. Price is hovering around the 50% Fibonacci retracement of the latest rally.

A rally back above 22.00 needs volatility across financial markets and a much stronger dollar. Before that level, resistance is seen at 21.60, 21.75 and 21.90.

USD/MXN daily chart

Commercial crude oil inventories in the US fell by 0.910 million barrels in the week ending November 26, a weekly report published by the US Energy Information Administration (EIA) revealed on Wednesday. This was smaller than the expected draw of 1.273 million barrels.

Distillate stocks saw a larger than expected build of 2.16M barrels (forecasts were for a 0.462M barrel build). Gasoline stocks also saw a larger than expected build of 4.029M barrels (forecasts were for a 0.029M barrel build). 

Market Reaction

WTI fell slightly in wake of the bearish inventory numbers, with WTI now trading just above $68.00 versus pre-data levels above $68.50.  

• The USD/JPY slides for the fifth consecutive day, down more than 0.05%.
• An upbeat market sentiment weighed on the greenback as the DXY falls below the 96.00 handle.
• USD/JPY crucial support to be found at the November 9 low at 112.72. 

The USD/JPY slumps for the fifth consecutive day, down 0.10%, trading at 112.84 during the New York session at the time of writing.  Market sentiment is upbeat after a volatile Tuesday’s session, headed for the Omicron COVID-19 variant and Federal Reserve Chief Jerome Powell’s hawkish comments that dented investors mood.

During the overnight session, the USD/JPY peaked around 113.66, 20 pips above the 50-hour simple moving average (SMA) but, in the last couple of hours, as Wall Street opens, the USD/JPY has dropped beneath 113.00, on no apparent news, despite the upward move in the US 10-year Treasury yield, up to four basis points, sitting at 1.48%.
In the meantime, the US Dollar Index, which tracks the greenback’s value against six rivals, is down 0.19%, at 95.81, below the 96.00 figure reclaimed on Tuesday, as market sentiment dampened.

On Tuesday, hawkish commentary of Jerome Powell, which signaled that inflation is no longer “transitory” and favors a faster bond taper, spurred volatility around the markets. Short-term US bond yields heightened as the curve flattened the most since March of the last year. Also, on Wednesday at 1500 GMT, Powell will appear before the House of Representatives, finishing his appearance on the Congress. Any meaningful words that he says would be intensely scrutinized by investors.

According to ADP Research Institute, before Wall Street opened, the US ADP Employment Change for November showed that private payrolls rose by 534K, more than the 525K foreseen by analysts.  According to Nela Richardson, ADP’s chief economist, “the labor market recovery continued to power through its challenges last month.” Further, she added that “service providers, which are more vulnerable to the pandemic, have dominated job gains this year. It’s too early to tell if the omicron variant could potentially slow the jobs recovery in coming months.”

That said, USD/JPY traders’ focus turns to Fed’s Chief Jerome Powell’s appearance on the Congress, and Friday’s Nonfarm Payrolls report.

USD/JPY Price Forecast: Technical outlook

The USD/JPY daily chart depicts that the pair has a near-term downward bias, though on Tuesday, despite breaking the 50-day moving average (DMA) to the downside, it bounced off the November 9 low at 112.72 reclaimed the 113.00 figure. Additionally, on November 10, a 130 pip upward move, which formed a large bullish engulfing candle pattern, boosts confidence for USD bulls and reinforces that 112.72 would be problematic support to overcome for USD bears.

Further, the 100 and the 200-DMA’s with an upslope, residing below the spot price, support the upward bias, which coupled with current fundamentals of the USD/JPY with the Fed looking for a faster taper would cap any downward moves.

However, in the outcome of moving lower, the first support would be the November 9 low at 1112.72. Breach of the latter would expose the September 30 low high at 112.07 previous resistance-turned-support, followed by the 100-DMA at 111.56.

On the flip side, the 50-DMA at 113.30 would be the first resistance. A break of the former would expose the November 10 high at 114.00, followed by the October 20 cycle high at 114.70.

• ISM Manufacturing PMI rose to 61.1 in November from 60.8 in October. 
• There were "some indications of slight labor and supplier delivery improvement". 

According to a survey compiled by the Institute of Supply Management, US Manufacturing PMI rose to 61.1 in November from 60.8 in October. That was slightly above the expected reading of 61.0 and above October's 60.8. 

In terms of the subindices; the employment index rose to 53.3 from 52.0, the new orders index rose to 61.5 from 59.8 and the prices paid index fell more than expected to 82.4 from 85.7, versus an expected decline to 85.5.  

According to Timothy Fiore, Chair of the ISM survey committee, “the US manufacturing sector remains in a demand-driven, supply chain-constrained environment, with some indications of slight labor and supplier delivery improvement." "Manufacturing performed well for the 18th straight month", he continued, "with demand and consumption registering month-over-month growth, in spite of continuing obstacles". Finally, "meeting demand remains a challenge, due to hiring difficulties and a clear cycle of labor turnover at all tiers" he added.

Market Reaction

There wasn't much of a reaction to the latest US PMI data, which contained promising signs of an easing of supply chain gridlock. 

EUR/USD fell sharply to mid-1.1200s late Tuesday. The pair has climbed back above 1.1300 but economists at Nomura believe it is just a matter of time for a move towards 1.10.

A global slowdown typically benefits USD 

"We find more compelling macro and flow reasons for a move towards 1.10 to be on the horizon, it’s just a matter of time." 

"Rate spreads suggest EUR/USD should be much lower (sub 1.10) and FX is still playing catch up.” 

“A global slowdown typically benefits USD. German new orders are in decline and with China slowing too it’s difficult to see why European growth should outperform.” 

“In addition, there is the added uncertainty over rising covid cases, a new variant and restrictions.”

The final estimate of the IHS Markit Manufacturing PMI edged lower to 58.3 in November from the flash estimate of 59.1. That left it slightly below October's 58.4 reading. 

According to Chris Williamson, Chief Business Economist at IHS Markit, “broad swathes of US manufacturing remain hamstrung by supply chain bottlenecks and difficulties filling staff vacancies". "Although November brought some signs of supply chain problems easing slightly to the lowest recorded for six months," he added, "widespread shortages of inputs meant production growth was again severely constrained to the extent that the survey is so far consistent with manufacturing acting as a drag on the economy during the fourth quarter."

Market Reaction

The dollar has not reacted to the latest Markit PMI numbers, but may be choppy after ISM releases their Manufacturing PMI survey at 1500GMT.  

According to IHS Markit, Canadian Manufacturing PMI fell slightly to 57.2 in November from 57.7 in October. That was slightly more than the expected decline to 57.4. 

Commenting on the latest survey results, Shreeya Patel, Economist at IHS Markit, said: "The penultimate month of 2021 continued to indicate strong growth in Canada's manufacturing sector. Overall, Canada’s manufacturing sector performed well in November. Growth has certainly been hindered by transportation bottlenecks, material scarcity and intense cost pressures, but firms remain confident that such issues will subside in 2022."

Market Reaction

The loonie has not seen any reaction to the latest PMI numbers, which showed the manufacturing sector remaining in robust health. 

USD/CAD once again failed to close above 1.28 during Tuesday’s session after two separate moves above the figure. Economists at Scotiabank believe the pair could decline toward the 1.26 level.

Initial support awaits at 1.2730/20 

“While the broader technical trend suggests further USD gains, a failure to break past the 1.28 level points to a possible reversal toward the 1.26 mark, near the 100-day MA of 1.2574.”

“From a shorter-run perspective, support is relatively firm in the 1.2720/30 zone that has marked the bottom for the week, to be followed by the figure.”

“After the 1.28 area, Tuesday’s peak of 1.2837 marks resistance followed by the mid-figure zone.”

GBP/USD is marginally stronger. The pair is currently trading in the positive territory around 1.3330. However, economists at Scotiabank expect cable to retest the 1.32 level.

GBP/USD faces resistance at 1.3360/70

“Cable staged a solid recovery from yesterday’s test of 1.32 (a new low since December) but still closed just below the 1.33 figure. Setting aside yesterday’s sharp drop, the GBP’s decline has lost steam near the figure as it neared oversold but continued downward pressure points to a firm break of the level to another (more sustained) test of 1.32; 1.3150 and 1.3135 follow as support.”

“The GBP/USD faces resistance at 1.3360/70 followed by 1.3390/400.”

• Spot gold has recovered back to close to its 50 and 200DMAs after a brief dip to $1770 on Tuesday.
• Prices were weighed on Tuesday by Powell’s hawkishness and traders will be watching day 2 of his testimony on Wednesday.

Spot gold (XAU/USD) prices have recovered off of Tuesday lows on Wednesday and currently trade with gains of about 0.75% on the session and just under $1790. That means spot prices are currently trading just to the south of the 50 and 200-day moving averages, both of which reside close to $1792, and are trading close to the middle of recent $1770-$1810ish ranges.

Recent Price Action

To recap recent price action, spot gold prices on Tuesday reversed from as high $1810 to print session lows at $1770, in line with last week’s lows. Hawkish commentary from Fed Chair Jerome Powell, who essentially signaled intent to press on with monetary normalisation plans despite Omicron-related economic risks, spurred the downside at the time. Gold traders look to further comments from Fed Chair Jerome Powell at day two of his testimony before Congress, which will begin from 1500GMT after the release of the November ISM Manufacturing PMI survey. The survey is expected to point to continued underlying strength in the US manufacturing sector and economy, though also to high inflationary pressures and the impact of shortages.

Gold prices did not see any reaction to the release of a slightly stronger than expected ADP national employment estimate for Friday, which ought to solidify expectations that the official labour market survey will show strong employment growth in November. Markets suspect that this week’s heavy slate of US data should validate Powell’s bullish tone on the state of the economy and should support the argument for a quickening of the Fed’s QE taper plans.

Omicron uncertainty

High levels of uncertainty about how the Omicron Covid-19 variant will impact the global economy is keeping spot gold prices subdued close to its 50 and 200DMAs for now. But should the new variant turn out to be “super mild” as early (anecdotal doctor) reports have suggested, markets could become very risk on once more and Fed tightening expectations for 2022 could come surging back. This could be a bearish catalyst for gold and send it below recent lows in the $1770 area. In a bearish scenario, the $1760 level would be the next in sight and a break below that would open the door to a run lower to $1720, the September lows.

FOMC Chairman Jerome Powell will be testifying before the House Financial Services Committee alongside US Treasury Secretary Janet Yellen on Wednesday, December 1, at 1500 GMT.

The hearing is entitled "Oversight of the Treasury Department's and Federal Reserve's Pandemic Response."

About Jerome Powell (via Federalreserve.gov)

Jerome H. Powell took office as Chairman of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028.

Gold still has considerable upside left in the early part of 2022, in the view of strategists at TD Securities. Jerome Powell is no hawk and will keep rates low for longer to achieve full employment, with economic data driving decisions.

XAU/USD to jump into the $1,875/oz territory in the first half of 2022

If data is lackluster, which looks likely due to less liquidity and the waning positive fiscal stimulus impact, Fed Chair Powell most likely will continue signaling a dovish policy tilt for much of 2022. This is a positive for gold.” 

“Post-COVID normalization may well increase the labor participation rate over time. The hope is that the resulting higher potential growth, and the lower non-accelerating inflation rate of unemployment, may all leave the US central bank comfortable keeping the economy running hot for longer. The best case for gold is high, but decelerating inflation.”

“Political risks associated with the pending US mid-term elections, US fiscal drag, fairly steadfast central bank gold purchases, and a significantly slower pace of US and global recovery, are additional factors which may see investors rekindle their interest in gold. These factors should help lift gold into the $1,875/oz territory in the first half of 2022, as per our projections.”

• EUR/USD trades within a volatile session around 1.1340.
• Next on the upside targets the weekly high at 1.1464.

EUR/USD trims losses to the 1.1300 neighbourhood and now manages to return to the 1.1340 region on Wednesday.

In case the recovery picks up further impulse, then the pair is forecast to revisit the weekly high at 1.1464 (November 15). The surpass of this area is seen targeting the round level at 1.1500 ahead of the 55-day SMA, today at 1.1535.

The probability of further losses remains unchanged as long as EUR/USD trades below the 2-month resistance line (off September’s peak) near 1.1560. In the longer run, the offered stance in spot is expected to persist while below the 200-day SMA at 1.1823.

EUR/USD daily chart

• DXY gives away initial gains and now struggles around 95.90.
• There is still scope for another move to the mid-95.00s.

DXY’s bullish attempt seems to have met initial resistance in the 96.10/15 band midweek.

The inability of the dollar to regain upside traction on a sustainable fashion in the very near term could spark another bout of weakness and the subsequent visit to the area of recent lows around 95.50.

In the meantime, while above the 2-month support line (off September’s low) near 94.10, extra gains in DXY remain well on the table. In addition, the broader constructive stance remains underpinned by the 200-day SMA at 92.50.

DXY daily chart

EUR/JPY has again held key channel support from early June, now seen at 127.45. With daily RSI momentum holding a bullish divergence, analysts at Credit Suisse look for a base to be established for a recovery back to 129.54/61.

Key support remains at 127.49/45

“Resistance moves to 128.96 initially, above which should see resistance next at the 13-day exponential average at 129.18. A close above here is needed to add weight to a basing story with resistance seen next at the late November reaction high at 129.54/61, with the 38.2% retracement of the October/November fall just above at 129.78.” 

“Support moves to 128.36 initially, with a break below 128.19 needed to warn of a fresh move back into the 127.93/45 zone, but with a fresh floor expected here. A closing break below here though would mark a large and important top to mark a more significant change of trend lower.”

US ISM Manufacturing PMI overview

The Institute of Supply Management (ISM) will release its latest manufacturing business survey result, also known as the ISM Manufacturing PMI at 15:00 GMT this Wednesday. The index is anticipated to edge higher to 61 in November from 60.8 in the previous month. Given that the Fed looks more at the labour market and inflation than growth, investors will keep a close eye on the Employment and Prices Paid sub-component.

How could it affect EUR/USD?

Ahead of the key release, the US dollar was seen consolidating the previous day's volatile move and failed to provide any meaningful impetus to the EUR/USD pair. That said, a strong rally in the US Treasury bond yields, bolstered by rising bets for a more aggressive policy tightening by the Fed, acted as a tailwind for the greenback. A stronger headline print will reaffirm hawkish Fed expectations and help revive the USD demand. Conversely, a weaker reading might do little to derail the Fed's expected policy path. This, in turn, suggests that the path of least resistance for the greenback is to the upside and down for the EUR/USD pair.

Key Notes

  •  US Manufacturing Purchasing Managers Index November Preview: Businesses are watching the consumer

  •  EUR/USD Forecast: Euro needs to claim 1.1360 to extend recovery

  •  EUR/USD: The possibility of a break lower to 1.10 during 2022 has increased – Rabobank

About the US ISM manufacturing PMI

The Institute for Supply Management (ISM) Manufacturing Index shows business conditions in the US manufacturing sector. It is a significant indicator of the overall economic condition in the US. A result above 50 is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish).

• USD/CAD witnessed some selling on Wednesday and dropped back closer to the weekly low.
• Rallying oil prices underpinned the loonie and exerted pressure amid a subdued USD demand.
• Rising Fed rate hike bets acted as a tailwind for the USD and helped limit losses for the major.

The USD/CAD pair remained on the defensive through the early European session, albeit has managed to recover a few pips from the daily swing low, around the 1.2725 region. The pair held steady around mid-1.2700s and had a rather muted reaction to the US ADP report.

Crude oil prices rallied nearly 4% on Wednesday and recovered a major part of the previous day's downfall to the lowest level since August 23. This, in turn, boosted demand for the commodity-linked loonie and prompted fresh selling around the USD/CAD pair amid a subdued US dollar price action.

A sharp turnaround in the global risk sentiment turned out to be a key factor that acted as a headwind for the safe-haven greenback and further contributed to the selling bias surrounding the USD/CAD pair. Investors now seem convinced that the latest COVID-19 variant would not derail the economic recovery.

Further supporting the upbeat market mood were comments by the World Health Organization (WHO) official, saying that some of the early indications are that most Omicron cases are mild. That said, increasing bets for a more aggressive policy tightening by the Fed helped limit any meaningful USD slide.

In fact, the money markets indicate the possibility of at least a 50 bps rate hike by the end of 2022. This was reinforced by a strong rally in the US Treasury bond yields, which further extended some support to the USD and assisted the USD/CAD pair to attract some buying ahead of the weekly low.

On the economic data front, the Automatic Data Processing (ADP) Research Institute reported that the US private-sector employers added 534K jobs in November. This marked a modest slowdown from the previous month's downward revised reading of 570K, though was better than the 525K anticipated.

The data failed to provide any impetus as the focus remains on Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee. Apart from this, the US ISM Manufacturing PMI could influence the greenback and the USD/CAD pair.

Technical levels to watch

Although economists at Rabobank think too long USD may curtail further gains for the greenback, they highlight the possibility of the EUR/USD pair breaking below the 1.10 through 2022. 

Long USD position may inhibit further gains for the greenback in the coming month or so

“Even though we are concerned that long USD position may inhibit further gains for the greenback in the coming month or so, we continue to favour the USD vs. the EUR and the JPY during the course of next year given scope for more hawkish action by the Fed.”

“Risk of further USD pullbacks means that we have held off from revising lower our EUR/USD 1.12 target for now. That said, the possibility of a break lower to 1.10 during the course of next year has increased.”

Employment in the US private sector rose by 534,000 in November, monthly data published by the Automatic Data Processing (ADP) Research Institute revealed on Wednesday. That was slightly above median economist forecasts for a rise in employment of 525,000 and marked a slight decline in the pace of job gains versus October when 571,000 jobs were added. 

According to Nela Richardson, chief economist at ADP, "the labor market recovery continued to power through its challenges last month. "November’s job gains bring the three-month average to 543,000 monthly jobs added" she continued, "a modest uptick from the job pace earlier this year. Job gains have eclipsed 15 million since the recovery began, though 5 million jobs short of pre-pandemic levels". Furthermore, she added, "service providers, which are more vulnerable to the pandemic, have dominated job gains this year... It’s too early to tell if the Omicron variant could potentially slow the jobs recovery in coming months". 

Market Reaction

The DXY saw a few negative ticks in response to the stronger than expected report, slipping under 96.00. The index continues to trade broadly flat on the day ahead of the release of the ISM manufacturing PMI survey at 1500GMT and the second day of Fed Chair Jerome Powell's Congressional testimony, which starts around a similar time. 

According to a document cited by Reuters, OPEC+ sees global oil supply surpluses widening to 2M barrels per day (BPD) in January, to 3.4M BPD in February and then to 3.8M BPD in March. OPEC+ reportedly sees the impact that Omicron related-travel restrictions are having on jet-fuel demand in Europe and Africa. Mobility and transportation fuel demand within Europe may also be affected by the new Covid-19 variant, the document reportedly warns.

Market Reaction

WTI has been ticking lower from earlier session highs in the mid-$69.00s in recent trade, but holds onto on the day gains of about $1.50. The commentary from OPEC+ might increase concerns about the global oil demand outlook, but also increase the chance of OPEC+ proactivity in making sure any projected supply surpluses arent too persistent/weigh on prices too much over the long run.  

OPEC meets on Wednesday at 1300GMT, while OPEC+ is slated to meet at 1300GMT on Thursday. Analysts are expecting the cartel to announce a halt to the recent string of 400K barrel per day per month output hikes.  

• AUD/USD gained some positive traction on Wednesday and recovered further from the YTD low.
• A generally positive risk tone benefitted the perceived riskier aussie amid a subdued USD demand.
• Rising Fed rate hike bets acted as a tailwind for the greenback and capped the upside for the pair.

The AUD/USD pair maintained its bid tone heading into the North American session, albeit has retreated a few pips from the weekly high touched earlier this Wednesday. The pair was last seen trading around mid-0.7100s, still up 0.40% for the day.

The global risk sentiment witnessed a positive turnaround as investors seem convinced that the latest COVID-19 variant would not derail the economic recovery. This was evident from a strong rally in the equity markets, which, in turn, benefitted the perceived riskier aussie. The upbeat market mood was further supported by the latest comments from the World Health Organization (WHO) official, saying that some of the early indications are that most Omicron cases are mild.

The official further added that there is no need to develop a new vaccine and makers should only do minor adjustments to the current vaccines. Apart from this, a subdued US dollar price action allowed the AUD/USD pair to build on the overnight recovery from the 0.7065-60 area, or the lowest level since November 2020. That said, increasing bets for a more aggressive policy tightening by the Fed acted as a tailwind for the greenback and capped any meaningful upside for the major.

In fact, the money markets started pricing in the possibility of at least a 50 bps rate hike by the end of 2022 in reaction to the overnight hawkish comments by Fed Chair Jerome Powell. Testifying before the Senate Banking Committee, Powell said that it is appropriate to consider wrapping up the tapering of asset purchases, perhaps a few months sooner. Powell also noted that it's time to retire the word transitory as the risk of persistently higher inflationary pressures has increased.

On the other hand, the Reserve Bank of Australia (RBA) has adopted a more dovish stance and made every effort to push back expectations for a rate hike as early as next year. The RBA-Fed divergent monetary policy outlooks further held back traders from placing bullish bets. This, in turn, warrants some caution before confirming that the AUD/USD pair has formed a near-term base and positioning for any meaningful appreciating move.

Next on tap will be the release of the US ADP report on private-sector employment, which will be followed by the ISM Manufacturing PMI. Apart from this, Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment for some short-term opportunities.

Technical levels to watch

• GBP/USD has been been trading steady slightly to the north of the 1.3300 level for most of the session.
• Fed Chair Powell will testify before Congress for a second day and BoE’s Bailey will be speaking.

GBP/USD has been for the most part steady close to the 1.3300 level during Wednesday’s session thus far. The pair currently trades with modest gains of about 0.2% on the day in the 1.3330 area, having recovered from a brief dip under 1.3300 earlier in the session. Sterling has so far on Wednesday been a beneficiary of a broad recovery in the market’s appetite for risk, which is helping global equity and commodity markets recover some recently lost ground. Sterling is one of the more risk-sensitive currencies in the G10.

Trading conditions on Wednesday have been comparatively modest compared to the conditions seen on Tuesday. To recap, hawkish comments from Fed Chair Jerome Powell at his testimony before Congress sent GBP/USD at one point to fresh annual lows under 1.3200 from pre-testimony levels above 1.3350.

Ahead

Powell will testify again from 1500GMT on Wednesday and market participants will be on the lookout for any fresh hawkish takes, meaning the dollar might continue to be volatile. Meanwhile, there are also a few important US data releases on Wednesday for traders to keep an eye on. US payroll processing company ADP releases their estimate of national employment change in November at 1315GMT (which is often used by market participants to help them set expectations for Friday’s official NFP release).

Then, the November ISM Services PMI report is out at 1500GMT alongside US October Construction Spending. Wednesday’s data comes ahead of the release of the US ISM Services PMI and the latest weekly jobless claims data on Thursday and the pivotal official November labour market report on Friday. Market participants will be assessing whether the data fits into the bullish narrative on growth, the labour market and inflation that Powell painted in the first day of his testimony.

UK fundamentals are also worth keeping an eye on. BoE Governor Andrew Bailey is scheduled to speak at 1400GMT amid a high degree of uncertainty over whether or not the BoE will hike rates later in the month. Elsewhere, the final version of IHS Markit’s Manufacturing PMI survey for the UK was released this morning and was in line with expectations, while House Price data earlier in the session was a tad more inflationary than expected.

European Central Bank policymakers are increasingly concerned that the economic outlook has become too murky for a comprehensive policy decision to be reached in December, according to Reuters citing sources. According to the sources, policymakers agree that the PEPP should end as scheduled in March, but any decision on recalibrating the APP may need to wait. Some ECB members have reportedly advocated delaying any decision on the APP until February, or to make only a short-term commitment in December, the sources said. 

Market Reaction

The euro has not reacted to the latest comments from ECB sources. EUR/USD continues to trade in the 1.1320s. 

US ADP jobs report overview

Wednesday's US economic docket highlights the release of the ADP report on private-sector employment, scheduled at 13:15 GMT. Consensus estimates suggest that the US private-sector employers added 525K jobs in November, down from 571K in the previous month. Despite poor correlation with the official Nonfarm Payrolls (NFP) figures, the report would help predict how things could move on Friday.

How could it affect EUR/USD?

Given Fed Chair Jerome Powell's overnight hawkish comments, a stronger reading will further validate market bets for a more aggressive policy tightening by the US central bank. This, in turn, should be enough to prompt fresh US dollar buying and turn the EUR/USD pair vulnerable.

Conversely, a softer print would add to worries about the potential economic fallout from the new Omicron variant of the coronavirus. This might continue to weigh on investors' sentiment and benefit the greenback's relative safe-haven status, suggesting that the path of least resistance for the EUR/USD pair is to the downside.

Meanwhile, Eren Sengezer, Editor at FXStreet, offered a brief technical outlook for the EUR/USD pair: “On the four-hour chart, the Relative Strength Index (RSI) indicator has returned to 60 after edging lower to 50, suggesting that sellers remain on the sidelines for the time being.”

Eren also outlined important technical levels to trade the major: “However, strong resistance seems to have formed around 1.1360, where the Fibonacci 38.2% retracement of November's downtrend meets the 100-period SMA. In case buyers manage to flip that level into support, additional gains toward 1.1400 (Fibonacci 50% retracement) and 1.1450 (Fibonacci 61.8% retracement) could be witnessed.”

“On the other hand, 1.1300/1.1290 (psychological level, Fibonacci 23.6% retracement, 20-period SMA) aligns as initial support before 1.1260 (50-period SMA) and 1.1235 (Tuesday low),” Eren added further.

Key Notes

  •  ADP Jobs Preview: Dollar rally? Why the greenback is set to rise on (almost) any figure

  •  EUR/USD Forecast: Euro needs to claim 1.1360 to extend recovery

  •  EUR/USD comes under pressure, still above 1.1300

About the US ADP jobs report

The Employment Change released by the Automatic Data Processing, Inc, Inc is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. So a high reading is traditionally seen as positive, or bullish for the USD, while a low reading is seen as negative, or bearish.

• EUR/JPY adds to Tuesday’s gains above the 128.00 mark.
• Above 129.50 the selling pressure should alleviate.

EUR/JPY manages to extend the weekly recovery further north of the 128.00 yardstick, although the bull run faltered just ahead of 128.80 on Wednesday.

In light of the current price action, the cross could move into a consolidative phase in the short-term horizon. That said, initial hurdle is located at the 10-day SMA at 128.85 ahead of the weekly top around 129.60 (November 24). If the latter is cleared, then the downside pressure is expected to alleviate somewhat.

Looking at the broader picture, the outlook for the cross is expected to remain negative while below the 200-day SMA, today at 130.54.

EUR/JPY daily chart

• The risk-on impulse undermined the safe-haven CHF and assisted USD/CHF to gain traction.
• A subdued USD demand held back bulls from placing aggressive bets and capped the upside.
• Rising Fed rate hike bets favours bullish traders and supports prospects for additional gains.

The USD/CHF pair trimmed a part of its intraday gains and was last seen hovering around the 0.9200 mark, up nearly 0.25% for the day.

The pair attracted some buying near the 0.9175-70 region on Wednesday and built on the previous day's bounce from the vicinity of mid-0.9100s, or a near three-week low. The global risk sentiment witnessed a positive turnaround as investors seem convinced that the latest COVID-19 variant would not derail the economic recovery. This was evident from a strong rally in the equity markets, which undermined the safe-haven Swiss franc and provided a modest lift to the USD/CHF pair.

Meanwhile, the US dollar, so far, has struggled to gain any meaningful traction and seesawed between tepid gains/minor losses through the mid-European session. This, in turn, held back traders from placing aggressive bullish bets around the USD/CHF pair and capped the intraday move up. That said, a strong pickup in the US Treasury bond yields, bolstered by rising bets for a more aggressive policy tightening by the Fed, acted as a tailwind for the greenback and the USD/CHF pair.

In fact, the money markets started pricing in the possibility of at least a 50 bps rate hike by the end of 2022 in reaction to the overnight hawkish comments by Fed Chair Jerome Powell. Testifying before the Senate Banking Committee, Powell said that it is appropriate to consider wrapping up the tapering of asset purchases, perhaps a few months sooner. He added that it's time to retire the word transitory and that the risk of persistently higher inflationary pressures has increased.

The fundamental backdrop favours the USD bulls and supports prospects for some meaningful near-term appreciating move for the USD/CHF pair. The positive outlook is reinforced by the fact that bulls have shown some resilience below the very important 200-day SMA, which should now act as a key pivotal point. Hence, a subsequent strength towards an intermediate hurdle near the 0.9230 level, en-route the weekly high around the 0.9270-75 supply zone, remains a distinct possibility.

Market participants now look forward to the US economic docket, featuring the ADP report on private-sector employment and ISM Manufacturing PMI. Traders will further take cues from Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee. Apart from this, developments surrounding the coronavirus saga and the broader market risk sentiment might produce some trading opportunities around the USD/CHF pair.

Technical levels to watch

The RBI is expected to keep the steady hand at its meeting next week, according to Economist at UOB Group Lee Sue Ann.

Key Quotes

“The decelerating COVID-19 infections in India, coupled with the gradual increase in vaccination rate, are key evidence of a COVID-19-resilient environment. We thus believe that the RBI will likely floor its policy-rate at 4.0% for the rest of this year.

”Owing to the better prognosis thus far, we pencil a rate hike of 25 basis points in the fourth quarter of next year.” 

• Sellers seem to have returned and drag EUR/USD ack to 1.1300.
• Higher yields, omicron concerns, Powell support the dollar.
• Germany’s Retail Sales contracted 0.3% MoM, 2.9% YoY in October.

The improved sentiment in the greenback drags EUR/USD once again to the 1.1300 neighbourhood on Wednesday.

EUR/USD focuses on Powell, US data

EUR/USD keeps the choppy performance so far this week, with gains limited around the 1.1380 region (November 30) after bouncing off last week’s new cycle lows around 1.1186 (November 24).

The better tone in the greenback comes on the back of the recovery in US yields along the curve while the hawkish message from Chief Powell at his testimony before the Senate on Tuesday also added to the dollar’s rebound.

It is worth recalling that Powell said the Fed will discuss increasing the tapering pace at the December meeting, while he now poured doubts over the transitory stance of the current elevated inflation.

In the meantime, fresh concerns over the omicron variant, the rapid increase of COVID cases around the world and the likeliness of lockdown measures in many economies continue to cloud the near-term outlook for the European currency.

In the domestic calendar, Retail Sales in Germany contracted at a monthly 0.3% in October and 2.9% from a year earlier. Still in Germany, the final Manufacturing PMI came in at 57.4, while the same gauge in the broader Euroland was 58.4.

Across the Atlantic, Mortgage Applications measured by MBA are due seconded by the ADP report, the final Markit’s Manufacturing PMI and the always relevant ISM Manufacturing. In addition, Chief Powell will testify once again and Treasury Secretary J.Yellen is due to speak.

What to look for around EUR

EUR/USD manages well to keep the trade above the 1.1300 mark amidst an erratic week so far. The corrective downside in the greenback propped up the recent move higher in spot, although this is regarded as temporary. Fresh coronavirus concerns sparked after the new variant omicron was discovered last week is likely to keep the demand for the safe haven on the raise at least in the very near term. In the meantime, the outlook for the European currency remains well into the bearish territory on the back of the ECB-Fed policy divergence, increasing COVID-19 cases in Europe as well as some loss of momentum in the economic recovery in the euro area, as per some weakness observed in key fundamentals.

Key events in the euro area this week: German Retail Sales, EMU/Germany Final Manufacturing PMIs (Wednesday) – EMU Unemployment Rate (Thursday) – EMU/Germany Final Services PMIs, ECB’s Lagarde (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Increasing likelihood that elevated inflation could last longer. Pick-up in the political effervescence around the EU Recovery Fund in light of the rising conflict between the EU, Poland and Hungary on the rule of law. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is retreating 0.08% at 1.1328 and faces the next up barrier at 1.1382 (weekly high November 30) followed by 1.1464 (weekly high Nov.15) and finally 1.1535 (55-day SMA). On the other hand, a break below 1.1186 (2021 low Nov.24) would target 1.1185 (monthly low Jul.1 2020) en route to 1.1168 (low Jun.19 2020).

US 10-year Bond Yields have again held key support at 1.68/705% and have collapsed back into their range over the past few sessions as the Omicron variant rattles financial markets, with the market now testing key resistance at the 1.415% low. Economists at Credit Suisse expect this level to hold.

Break below 1.415% would open up a deeper rally

“We look for the 1.415% level to hold into the daily close and for a reversal back into the prior range.”

“Ultimately, key moving averages are still rising and momentum is still modestly bearish, suggesting there is still a very real possibility of a much larger yield basing structure, especially if risk-sentiment stabilizes. Such a base though would only be seen confirmed as flagged above 1.705%.”

“A break below 1.415% would open up a deeper rally, with the next resistance seen at the potential uptrend from the August 2020 low at 1.33%.” 

“The repeated holds below the downtrend/potential ‘neckline’ from 2019 at 1.68/705% suggests there is a risk that the market may be moving into a medium-term ranging environment, however, this is not our base case and for now we still believe in the broader yield basing theme.”

Economist at UOB Group Ho Woei Chen, CFA, comments on the latest PMIs releases in the Chinese economy.

Key Takeaways

“China’s official manufacturing and non-manufacturing Purchasing Manager’s Indexes (PMIs) were both above expectations in November. This corroborates October macroeconomic data that showed signs of stabilisation after a weaker than expected 3Q.”

“Inflationary pressures also appeared to have eased in November. The input and selling prices for both the manufacturing and non-manufacturing have moderated.”

“We are cognizant of the downside risks that continue to plague the Chinese economy including the softening real estate market, renewed virus outbreak (especially with recently discovered “Omicron” variant), global energy shortages and supply disruption. With property accounting for as much as 70% of household assets in China, the weaker outlook for the property market will also have substantial negative wealth effect that feeds into the demand recovery.”

“We remain of the view that China’s 4Q21 GDP growth could slow further to 3.5% y/y from 4.9% in 3Q21. For the full year, we expect GDP growth at 7.9% in 2021, and then normalise to around 5.7% in 2022.”

Following a very strong year, the energy complex is set to disappoint many investors who believe that the crude oil bull market would run uninterrupted for the next twelve months. TD Securities projects that crude oil will moderate from cyclical highs as the coming year unfolds.

Supply rebound, demand normalization conspiring to force oil off highs

“Brent may still challenge $90/bbl over the next six months or so. After that, a convincing move below $80/bbl is very much in the cards in the latter part of the year.”

“The declining rate of demand growth for crude, which is expected to drop from 5.5 million bbls/d in 2021 to around 3 million bbls/d next year and just to above 1 million bbls/d in 2023, will be a key reason for the decline. But non-OPEC supply, which is projected to grow by as much as 3 million bbls/d, is another additional very important factor pulling prices lower, as is the fact that OPEC+ has some 5-6 million bbl/d of excess capacity to deploy to a looser market.”

• EUR/GBP met with a fresh supply on Wednesday and retreated further from an over two-week high.
• A positive risk tone, downward revision of Eurozone PMI undermined the funding currency, the euro.
• Absent negative Brexit headlines prompted some GBP short-covering and added to the selling bias.

The EUR/GBP cross remained depressed through the first half of the European session and was last seen flirting with the daily low, around the key 0.8500 psychological mark.

The cross witnessed some selling on Wednesday and eroded a part of the previous day's strong gains to over a two-week high, around the 0.8535-40 region. In the absence of any negative Brexit-related headlines, a subdued US dollar demand was seen as a key factor behind the British pound's relative outperformance against its European counterpart.

On the other hand, a generally positive risk tone weighed on funding currencies, including the euro. The market sentiment seems to have stabilized as investors preferred to wait and see if the Omicron variant would derail the economic recovery. Adding to this, a downward revision of the German/Eurozone Manufacturing PMIs further undermined the common currency.

Meanwhile, the UK Manufacturing PMI was also revised lower to 58.1 for November from 58.2 estimated originally. Apart from this, the UK-EU impasse over the Northern Ireland Protocol, along with the worsening row over the post-Brexit fishing rights between France and Britain could act as a headwind for the sterling and help limit losses for the EUR/GBP cross.

Even from a technical perspective, oscillators on the daily chart have just started moving into the positive territory and warrant caution for bearish traders. This makes it prudent to wait for a strong follow-through selling before confirming that the recent strong recovery from the 0.8380 region, or the lowest level since February 2020 has run out of steam.

Technical levels to watch

In its latest economic outlook published on Wednesday, the Organisation for Economic Co-operation and Development (OECD) said it sees the world GDP growing by 5.6% (prev. 5.7%) in 2021, 4.5% in 2022, 3.2% in 2023, per Reuters.

Additional takeaways

"OECD sees US growth of 5.6% in 2021, 3.7% in 2022, 2.4% in 2023 (vs 6.0% in 2021, 3.9% in 2022 previously)."

"OECD sees Chinese growth of 8.1% in 2021, 5.1% in 2021 and 2022 (vs 8.5% in 2021 and 5.8% in 2022 previously)."

"OECD sees euro area growth of 5.2% in 2021, 4.3% in 2022, 2.5% in 2023 (vs 5.3% in 2021, 4.6% in 2022 previously)."

"OECD sees Japanese growth of 1.8% in 2021, 3.4% in 2022, 1.1% in 2023 (vs 2.5% in 2021, 2.1% in 2022 previously)."

"Inflation to peak end 2021 at close to 5% in OECD as a whole before receding gradually to around 3% by 2023."

"Best thing central banks can do for now is wait for supply tensions to ease and signal they will act if necessary."

Market reaction

This report doesn't seem to be having a significant impact on market sentiment. As of writing, the US Dollar Index was virtually unchanged on the day at 95.90.

• USD/TRY clinches new all-time high near 13.85 on Wednesday.
• The CBRT intervened and pushed the pair back to 12.30.
• Turkey’s Manufacturing PMI improves a tad to 52.0 in November.

Another volatile session for the Turkish currency on Wednesday. Indeed, after hitting fresh record high near 13.85, USD/TRY came under pressure and receded violently to the 12.30 region supported by CBRT intervention.

USD/TRY now looks to the CPI release

USD/TRY now reverses the initial spike to the vicinity of 14.0000, as the Turkish central bank (CBRT) announced it intervened in the FX markets and sold US dollars. The CBRT kind of justified the intervention following unhealthy price formation in the exchange rate.

In addition, President Erdogan once again stressed he will never support high interest rates and suggested there is no logical explanation behind high prices.

Earlier in Turkey, the Manufacturing PMI improved a little to 52.0 in November (from 51.2), while investors already shifted their attention to the release of the key inflation figures for the month of November due on Thursday.

USD/TRY key levels

So far, the pair is losing 2.05% at 13.0955 and a drop below 12.3597 (low Dec.1) would open the door to 11.5451 (low November 24) and finally 11.0637 (20-day SMA). On the other hand, the next up barrier lines up at 13.8473 (all-time high Dec.1) followed by 14.0000 (round level).

• GBP/USD gained some positive traction on Wednesday, albeit lacked any follow-through.
• Brexit-related uncertainties acted as a headwind for the GBP amid renewed USD buying.
• The UK Manufacturing PMI was finalized at 58.1 vs. 58.2 estimates but failed to influence.

The GBP/USD pair refreshed daily low during the early part of the European session, albeit quickly recovered a few pips thereafter and was last seen trading around the 1.3315 area.

The pair gained some positive traction on Wednesday and built on the previous day's solid bounce from sub-1.3200 levels, or the lowest level since December 2020. The intraday uptick, however, lacked bullish conviction and ran out of steam near the 1.3330 area amid the emergence of fresh buying around the US dollar.

The greenback drew some support from a strong pickup in the US Treasury bond yields, bolstered by the overnight hawkish comments by Fed Chair Jerome Powell. Testifying before the Senate Banking Committee, Powell said that it is appropriate to consider wrapping up the tapering of asset purchases, perhaps a few months sooner.

Powell further added that it's time to retire the word transitory as the risk of persistently higher inflationary pressures has increased. Reacting to Powell's remarks, the money markets started pricing in the possibility of at least a 50 bps rate hike by the end of 2022. This, in turn, acted as a tailwind for the US bond yields.

In fact, the yield on the benchmark 10-year US government bond shot back above the 1.50% threshold, which helped revive the USD demand and prompted fresh selling around the GBP/USD pair. Apart from this, the persistent Brexit-related uncertainties acted as a headwind for the sterling and contributed to the pair's slide.

The downside, however, remains cushioned in the absence of any negative Brexit-related headlines and a generally positive tone around the equity markets, which capped gains for the safe-haven USD. The global risk sentiment stabilized as investors preferred to wait and see if the Omicron variant would derail the economic recovery.

On the economic data front, the UK Manufacturing PMI was finalized at 58.1 for November as against the flash estimate of 58.2. The data, however, did little to provide any meaningful impetus to the GBP/USD pair. Market participants now look forward to the US economic docket, featuring the ADP report on private-sector employment and ISM Manufacturing PMI.

Traders will further take cues from Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee. Apart from this, developments surrounding the coronavirus saga and the broader market risk sentiment will influence the USD price dynamics and produce some trading opportunities around the GBP/USD pair.

Technical levels to watch

Palladium has broken further long-term supports to reinforce its existing top. Strategists at Credit Suisse expect XPD/USD to edge lower towards $1,495.

Initial support seen at $1,700

“Palladium maintains its top from the summer and has now broken next key support from the recent low, 200-week average and potential long-term uptrend at $1,846/06.”

“The break below $1846/06 should confirm a resumption of the downtrend for the year, with support seen next at $1,700, ahead of $1,670/65 and eventually $1,495.”

The UK manufacturing sector activity expanded less than expected in November, the final report from IHS Markit confirmed on Wednesday. 

The seasonally adjusted IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) was revised lower from 58.2 to 58.1 in November, missing expectations of 58.2.

Key points          

Output growth edges higher as domestic order intakes rise.

New export business falls for the third straight month.

Rob Dobson, Director at IHS Markit, commented on the survey

“Although November saw rates of expansion in output and new orders gain some traction, growth remains lacklustre compared to the first half of the year.”

“Manufacturers are facing a challenging backdrop, with rising supply chain disruptions, staff shortages and inflationary pressures stifling growth while ongoing difficulties caused by Brexit and logistical headaches restrict opportunities to expand into overseas markets. New export sales fell for the third straight month.”

GBP/USD reaction

At the press time, GBP/USD is holding onto moderate gains, trading at 1.3315.

The comments from Federal Reserve Chair Jerome Powell were much more hawkish than expected on Tuesday and have understandably fuelled a surge in US yields and more modest gains for the US dollar that could well have further to run, economists at MUFG Bank report.

Powell sticks to a pre-Omicron script

“Powell can of course pivot back more dovish if required if the news on Omicron points to an alarming hit to demand. The comment that the word ‘transitory’ should be retired suggests a clear shift in communication strategy going forward.”

“Of course there remains a risk that the details on the variant are very unfavorable for growth and the dent to the demand outlook allows the Fed to reign back on the plans to speed up tapering. But the balance of risks has certainly shifted to the Fed taking on a more hawkish stance. It seems the Omicron variant news would have to be bad for the Fed to pivot back to a more dovish stance.”

“Whatever the outcome of news on Omicron, this speech from Powell certainly reflects increased concerns over inflation risks going forward and points to a faster QE taper that points to further US dollar strength into year-end.”

Economists at Credit Suisse look for the correction lower in the S&P 500 to be contained at the key rising medium-term 63-day average around 4525/20. Their bias remains for a floor here and for the core uptrend to eventually resume.

Weakness in S&P 500 remains a corrective setback

“We see scope for an overshoot below here to the 63-day average at 4525/20. Despite the presence of a bearish ‘reversal week’ (which we treat with a little caution given the US Thanksgiving holiday), our bias remains for 4520 to hold for a sideways phase initially, followed by an eventual resumption of the core bull trend.”

“A weekly close below 4525/20 would raise the prospect of a lengthier and more damaging correction and ‘risk-off’ phase with support seen next at 4448/38 and then more importantly at the 200-day average and October low at 4297/79, with a fresh floor expected here.”

“Above 4703 is needed to suggest the corrective setback is already over for strength back to 4744/50, then 4800.”

UOB Group’s FX Strategists now believe USD/CNH could shed further ground and retest 6.3525 in the next weeks.

Key Quotes

24-hour view: “While we expected USD to weaken yesterday, we were of the view that ‘6.3750 is likely out of reach’. However, USD dropped to a low of 6.3644. Downward momentum has improved and a break of Nov’s low near 6.3615 would not be surprising. The next support is at 6.3525. On the upside, 6.3800 is expected to be strong enough to cap any rebound (minor resistance is at 6.3740).”

Next 1-3 weeks: “Yesterday (30 Nov, spot at 6.3845), we held the view that USD is likely to trade between 6.3700 and 6.4000. However, USD cracked 6.3700 and dropped to 6.3644. The rapid improvement in downward momentum suggests that USD could weaken to 6.3525. The downside risk is deemed intact as long as USD does not move above the ‘strong resistance’ level (currently at 6.3880).”

GBP/USD has dropped to a fresh 1.3279 low. As Benjamin Wong, Strategists at DBS Bank, notes, 1.3165 is a key touchpoint as it axes a key 38.2% Fibonacci retracement support at 1.3156. Buying interest is expected to emerge at this level.

Technical indicators start to move towards signs of stabilising

“There are several potential focal points to mull a tactical long. 1.3156 locates the 200-week moving average level, and there is as well 1.3250 which sits on the fringe of the weekly Ichimoku chart. The former might offer appeal as 1.3156 axes nicely (1.3165) the 38.2% Fibonacci retracement of the post-covid spike lows of 1.1412 up to the early June highs of 1.4248.”

“A move in the direction towards the 1.3165 touchpoint is likely the penultimate leg 4 of the 1-2-3-4-5 price leg. A stretched level to break and provoke extended weakness would be 1.3115, which takes GBP down to its next Fibonacci marker at 1.2830.” 

“For now, we expect buying interest to surface into the 1.3165 touchpoint, at least on its first foray (last seen last December).”

• DXY fades part of Tuesday’s pullback and retakes the 96.00 area.
• Omicron concerns, higher yields seem to lend support to the dollar.
• Powell’s testimony, ISM Manufacturing next of relevance in the docket.

The greenback, in terms of the US Dollar Index (DXY), regains the upper hand and manages to return to the area above the 96.00 barrier on Wednesday.

US Dollar Index looks to Powell, data, yields

The index posts decent gains around the 96.00 neighbourhood and partially recover the ground lost on Tuesday’s retracement.

The better note in the buck comes amidst the recovery in US yields across the curve at the time when market participants continue to digest Chief Powell’s testimony on Tuesday.

Indeed, it is worth recalling that Powell said before the Senate that the Committee will discuss accelerating the pace of the tapering at its next meeting, while he suggested that inflation pressures might not be transitory anymore.

Later in the NA session, MBA Mortgage Applications are due seconded by the ISM Manufacturing, the ADP report, Markit’s final Manufacturing gauge, the Fed’s Beige Book as well as the second testimony by Chairman J.Powell and the speech by Treasury Secretary J.Yellen.

What to look for around USD

The dollar manages to bounce off recent lows in the mid-95.00s on the back of the recovery in yields and the hawkish twist from Powell’s testimony. In the meantime, the current backdrop of rising omicron concerns, fresh safe haven demand, the “higher-for-longer” narrative around current elevated inflation and speculations of a Fed’s lift-off earlier than anticipated remain all factors supportive of the dollar for the time being.

Key events in the US this week: ADP Report, Final Manufacturing PMI, ISM Manufacturing, Powell’s testimony, Fed’s Beige Book (Tuesday) – Initial Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Factory Orders, ISM Non-Manufacturing (Friday).

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Debt ceiling issue. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is gaining 0.21% at 96.09 and a break above 96.93 (2021 high Nov.24) would open the door to 97.00 (round level) and then 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 95.51 (weekly low Nov.30) followed by 94.96 (weekly low Nov.15) and finally 94.44 (low Nov.18).

USD/CNH is gradually drifting towards the low formed in May at 6.3500. A break below here would open up 6.3200 and 6.2940, economists at Société Générale report.

Break above 6.4000 is essential for denoting a short-term bounce

“The low formed in May at 6.3500 is an important support. The pair is currently forming a base, however, a break above the upper band of the multi-month descending channel at 6.4000 will be essential for denoting a short-term bounce.”

“In case the support at 6.3500 gets violated, the downtrend is likely to extend towards 6.3200 and next projections at 6.2940.”

• Fears over the new Omicron variant assisted gold to gain some positive traction on Wednesday.
• Rising Fed rate hike bets, rebounding US bond yields acted as a headwind for the precious metal.
• The emergence of fresh buying around the USD attracted fresh sellers ahead of the $1,800 mark.

Gold gained some positive traction on Wednesday and staged a goodish rebound from a four-week low, around the $1,770 region touched in the previous day. The uptick, however, lacked any strong follow-through buying, or a bullish conviction and faltered ahead of the $1,800 mark. The XAU/USD has now surrendered a major part of its intraday gains and slipped back below the $1,780 level during the early European session.

Concerns about the potential economic fallout from the detection of a new and possibly vaccine-resistant coronavirus variant turned out to be a key factor that benefitted the safe-haven gold. The global risk sentiment, however, stabilized a bit as investors preferred to wait and see if the Omicron variant would eventually derail the economic recovery. This was evident from a generally positive tone around the equity markets, which, in turn, acted as a headwind for the commodity and capped gains.

Apart from this, rising bets for a more aggressive policy tightening by the Fed next year further collaborated to keep a lid on any meaningful upside for gold prices. Testifying before the Senate Banking Committee, Fed Chair Jerome Powell said that it is appropriate to consider wrapping up the tapering of asset purchases, perhaps a few months sooner. Powell added that it's time to retire the word transitory as the risk of persistently higher inflationary pressures has increased.

Reacting to Powell's remarks, the money markets started pricing in the possibility of at least a 50 bps rate hike by the end of 2022. This was reinforced by the ongoing recovery in the US Treasury bond yields, which further held back bulls from placing aggressive bets around the non-yielding yellow metal. Apart from this, the latest leg of the intraday decline could also be attributed to the emergence of fresh buying around the US dollar. A stronger greenback tends to drive flows away from dollar-denominated commodities, including gold.

Meanwhile, the fundamental backdrop supports prospects for a further near-term depreciating move for the XAU/USD. The outlook is reinforced by the recent repeated failures to find acceptance above the very important 200-day SMA. Adding to this, the overnight sustained break below a one-week-old trading range support adds credence to the bearish bias. Hence, a subsequent fall towards testing the next relevant support, around the $1,760-59 region, remains a distinct possibility.

Market participants now look forward to the US economic docket, featuring the ADP report on private-sector employment and ISM Manufacturing PMI later during the early North American session. Apart from this, Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee will influence the USD price dynamics. Traders will further take cues from developments surrounding the coronavirus saga and the broader market risk sentiment for some short-term opportunities around gold.

Gold daily chart

Levels to watch

In USD/INR, economists at Credit Suisse think the Reserve bank of India (RBI) could continue defending 75.50-76.00 levels for the rest of December. Nonetheless, the pair could break above 76.00 next year.

RBI’s long-term preference will likely be one of USD accumulation

“We think the RBI could continue defending 75.50-76.00 levels for the rest of December. Lower oil prices could also provide some short-term relief. However, in 2022 continue to expect USD/INR to trade at the upper end of its 74-76 range (possibly breaking above 76).”

“We think strong domestic demand will push India’s current account more negative. Furthermore, in the long run, we still think the RBI’s FX intervention will continue to show a preference for USD accumulation.”

AUD/USD is recovering from 0.7063 low on Tuesday. However, economists at Société Générale expect the aussie to move back lower towards 0.7050, then the November 2020 low of 0.6990.

Bounce expected to stall at 0.7260/0.7300

“AUD/USD is at the neckline of a Head and Shoulders and is challenging the low of August near 0.7110. An initial rebound is likely however 0.7260/0.7300, the 50% retracement from August is likely to cap.”

“Next potential supports are at 0.7050 and November 2020 low of 0.6990.”

Economist at UOB Group Lee Sue Ann comments on the upcoming RBA monetary policy meeting.

Key Quotes

“We expect the current Quantitative Easing (QE) program to continue until February 2022. We now also flag the potential for rate hikes to come earlier than our initial projection of early 2024, although we still believe current market pricing of RBA rate hikes is too aggressive.”

“We are now looking at rate hikes beginning in 4Q23.”

Gold stays entrenched in its lengthy sideways range. Economists at Credit Suisse expect the yellow metal to retest the long-term pivotal support at $1,691/77 on the removal of $1,759.

Only above $1,917 would imply an important turn higher

“Gold remains entrenched in its sideways range with immediate support seen at $1,759, removal of which can see a retest of long-term pivotal support at $1,691/77. Beneath this latter area at any stage would in our view mark a major top.”

“Resistance at $1,877 is now expected to cap but only above $1,917 would suggest we are seeing an important turn higher.”

AUD/CNY rolled over from above 4.80 in early November to a 4.55 handle end-month, printing lows since May 2020. Economists at Westpac expect the pair to resume its decline in the first quarter of 2022.

AUD/CNY to chop around 4.57 into year-end

“Rising commodity prices may be one reason for China’s increased tolerance of a stronger yuan, which is obviously a positive for AUD. But if the FOMC speeds up tapering in December as we expect, USD should strengthen, hitting AUD harder than CNY, despite Australia’s post-lockdown economic recovery.”

“We look for AUD/CNY to chop around 4.57 into year-end, resuming its decline in Q1 2022 to 4.51.”

Spain's Economy Minister Nadia Calvino said on Wednesday, inflation situations in the US and Europe are different, adding that the price hike in the old continent is temporary.

"I wouldn't equate the situation in the U.S. and in Europe as forecasts still show it is a temporary phenomenon in Europe," she said in an interview with radio station Onda Cero.

Market reaction

With the risk-on trading cooling off a bit, EUR/USD is back into the red zone amid resurgent US dollar demand across the board.

The spot is currently trading at 1.1312, down 0.23% on the day.

FX option expiries for December 1 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.1400 1.3b

- USD/JPY: USD amounts                     

• 114.00 543m

- AUD/USD: AUD amounts

• 0.7185 782m
• 0.7200 303m
• 0.7333 838m

- NZD/USD: NZD amounts

• 0.7200 947m

- EUR/GBP: EUR amounts

• 0.8400 1.9b

USD/JPY has staged a sharp pullback after facing stiff resistance near March 2017 levels of 115.50. On Wednesday, the pair is holding on to modest daily gains around 113.50. Economists at Société Générale believes that USD/JPY needs claim the 115.50 level to see another leg higher.

Failure to defend 112.23/111.65 can result in a deeper pullback

“The 115.50 level remains a crucial hurdle that must be overcome for next leg of uptrend.”

“The pair is in vicinity to daily Ichimoku cloud at 112.23/111.65 which is also the graphical level consisting of 2020 peak. This will be a crucial support zone.”

“Failure to defend 112.23/111.65 can result in a deeper pullback.” 

“First resistance is at 114.10.”

Hawkish comments from Federal Reserve Chair Powell has throws the dollar around. Powell testifies again today and similar remarks could set 1.1380 as the top of the range for the EUR/USD pair, according to economists at ING.

1.1380 in EUR/USD is a key chart point

“Powell's remarks did sound like a deliberate policy shift on Tuesday and it would therefore seem unlikely that he rows back on them at today's hearing. Similar remarks can help cement 1.1380 as the top of the range – meaning 1.1180-1.1380 could be the range for coming weeks.”

“A break above 1.1380 would be a surprise and open up 1.1440 then 1.1500.”

AUD/USD tested below 2021 YTD lows at 0.7063 on Tuesday, before rebounding back above 0.71. Economists at Credit Suisse turn bearish on the aussie and now target 0.7000 in AUD/USD.

The path of least resistance in AUD/USD remains further to the downside

“With Fed policy expectations in the driver’s seat, a fairly empty data calendar and uncertainty on the covid outlook likely to persist in the near-term, we think the path of least resistance in AUD/USD will likely remain further to the downside.”

“We now see the November 2020 lows just below 0.7000 as the next target for the pair: given the highly uncertain nature of the covid question that markets are currently facing, we would be inclined to view a break below 0.70 as a reason to extend our target even lower as opposed to a reason to go long.”

• NZD/USD gained some positive traction on Wednesday and moved away from a YTD low.
• A modest recovery in the equity markets extended support to the perceived riskier kiwi.
• Rising Fed rate hike bets could revive the USD demand and cap the upside for the major.

The NZD/USD pair held on to its intraday recovery gains through the early European session and was last seen trading around mid-0.6800s, up nearly 0.50% for the day.

The pair build on the previous day's bounce from the 0.6775-70 area, or the lowest level since November 2020 and gained some positive traction during the early part of the trading action on Wednesday. The global risk sentiment stabilized a bit as investors preferred to wait and see if the new Omicron coronavirus variant would eventually derail the economic recovery. This was evident from a goodish recovery in the equity markets, which, in turn, benefitted the perceived riskier kiwi.

On the other hand, the US dollar, so far, has struggled to attract any buyers despite rising bets for a more aggressive policy tightening by the Fed. Testifying before the Senate Banking Committee, Fed Chair Jerome Powell said that it is appropriate to consider wrapping up the tapering of asset purchases, perhaps a few months sooner. Powell added that it's time to retire the word transitory as the risk of persistently higher inflationary pressures has increased.

Reacting to Powell's remarks, the money markets started pricing in the possibility of at least a 50 bps rate hike by the end of 2022. This was reinforced by the ongoing recovery in the US Treasury bond yields, though did little to impress the USD bulls. Nevertheless, the fundamental backdrop supports prospects for the emergence of some dip-buying around the greenback, warranting some caution before confirming that the NZD/USD pair has formed a near-term bottom.

Market participants now look forward to the US economic docket, featuring the ADP report on private-sector employment and ISM Manufacturing PMI later during the early North American session. Apart from this, Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee will influence the greenback. Traders will further take cues from the broader market risk sentiment for some short-term opportunities around the NZD/USD pair.

Technical levels to watch

EUR/USD has climbed back above 1.1300 after falling sharply to mid-1.1200s late Tuesday. The pair needs to claim 1.1360 to extend recovery, according to FXStreet’s Eren Sengezer.

Key resistance seems to have formed around 1.1360

“Powell will testify before the House Financial Services Committee later in the day and he is unlikely to change his tone regarding the policy outlook. Although the dollar could show resilience against its rivals on hawkish policy outlook, the fact that the US Dollar Index retreated sharply following the initial upsurge suggests that EUR/USD's losses are likely to remain limited.”

“Strong resistance seems to have formed around 1.1360, where the Fibonacci 38.2% retracement of November's downtrend meets the 100-period SMA. In case buyers manage to flip that level into support, additional gains toward 1.1400 (Fibonacci 50% retracement) and 1.1450 (Fibonacci 61.8% retracement) could be witnessed.”

“1.1300/1.1290 (psychological level, Fibonacci 23.6% retracement, 20-period SMA) aligns as initial support before 1.1260 (50-period SMA) and 1.1235 (Tuesday low).”

Economists at Danske Bank are changing their Fed call based on FOMC Chairman Jerome  Powell’s comments this week, which were definitely strong hawkish signals. They expect QE bond buying to end in April with an increase in the tapering pace to USD25 B per month.

Fed to hike three times in 2022

“We now believe the Fed will increase the tapering pace to USD25 B per month starting from January, implying an end to QE bond buying in April.”

“We now expect the Fed to hike three times 2022 (June, September and December). If we are right about the increase in the tapering pace, the door is open for a rate hike at the May meeting. We still expect four rate hikes in 2023.”

“If the Fed increases the tapering pace to USD30 B per month, the Fed may raise the Fed funds target range already in March.”

Analysts at ANZ Bank continue to assume that NZD/USD appreciates towards 0.72 before levelling off over 2022. However, the risks to that not being achieved are increasing as markets weigh up fresh COVID-19 risks, the prospect of an accelerated Fed tapering profile and generalised late-cycle risks to the global growth outlook.

NZD/USD forecast of 0.72 does look somewhat challenging

“Our FX forecasts continue to assume that NZD/USD appreciates towards 0.72 before levelling off over 2022. That forecast is based on New Zealand’s clear (and growing) interest rate advantage and still elevated terms of trade.” 

“We acknowledge that the RBNZ’s more considered tone, prospects for an accelerated Fed taper, and risks around global asset prices do pose downside risks to our forecasts, but we are also mindful of the seasonal tendency for the kiwi to appreciate in December, the high cost of shorting the NZD, and the still positive tone of the data flow in New Zealand (even if future surprises are harder to come by).”

Economists at Credit Suisse turn neutral on the Canadian dollar, as oil price weakness and the pending BoC strategy review bias near-term USD/CAD risks higher to 2021 highs around 1.2949, with dips in the pair to 1.2530 likely to find support.

Bank of Canada strategy review uncertainty adds to covid risk

“We suspect that barring a clear scientific consensus pointing to a limited impact from the Omicron variant, this uncertainty will likely curtail investor willingness to ‘buy the dip’ in CAD ahead of the BoC rate decision, especially with front-end implied CAD vols still within recent ranges, far from signalling high levels of investor concern.”

“There is currently no indication that the upcoming BoC meeting will feature any news on the mandate review, but overall it remains a risk that BoC observers are keenly aware of, and we suspect will add to reasons for investors to be cautious around CAD in the very near-term.”

“We see USD/CAD re-testing 2021 highs at 1.2949 if Omicron related fears prove persistent, and think that dips in the opposite direction are likely to find support around 1.2530 (near the 50-DMA on daily and weekly charts alike) at least until more clarity around the BoC’s mandate review is available.”

A stronger dollar and rising concerns regarding the Omicron variant have driven the USD/INR back above 75. Economists at Société Générale expect the pair to trade in a sideways range (75-77) through 2022.

FX volatility should remain well contained

“In the medium-term, we expect the trend weakness vs the dollar to persist, as market expectations for a Fed rate hike increasingly gain momentum. However, we expect the FX volatility to remain low, as RBI’s own policy normalisation should mitigate some FX risks.”

“Equity flows, IPO-related flows and a prospective bond index inclusion should all remain supportive of the currency.”

“We expect price action in INR to be range-bound next year (75-77).”

Brent Crude Oil needs in the view of strategists at Credit Suisse to be watched closely having already fallen sharply below its key long-term 200-day moving average (DMA) at $72.84. The black gold could fall as low as $64.60.

Below $64.60 to trigger a top with next key supports seen at $61.25/60.27

“Brent Crude Oil has dropped sharply below the 200-DMA, currently at $72.84, as well as below the previous $71.38 breakout point. Next support is seen at $64.60, which is the recent August low, which we would expect to provide a floor at the very latest.”

“The market has lost quite some upside momentum due to the recent setback and expect more of a volatile sideways range during the next 1-3 months.”

“Below $64.60 would trigger a top with next key supports then seen at $61.25/60.27, which is the 50% retracement of the whole November 2020/October 2021 upmove.”

• USD/CAD witnessed some selling on Wednesday and retreated further from an over three-month high.
• Rebounding oil prices underpinned the loonie and exerted pressure amid a subdued USD demand.
• Investors now eye the OPEC meeting, US macro releases and Powell’s testimony for a fresh impetus.

The USD/CAD pair edged lower through the early European session and dropped to the lower end of its weekly trading range, around the 1.2725 region in the last hour.

The pair extended the previous day's late pullback from the 1.2835 area, or the highest level since September 21 and witnessed some selling during the first half of the trading action on Wednesday. The intraday decline was sponsored by a combination of factors – a goodish pickup in crude oil prices and a subdued US dollar demand.

In fact, WTI crude oil rallied nearly 3% and recovered further from over three-month low touched on Tuesday. Rising bets that major oil producers would pause plans to add crude supply in January in the wake of fresh COVID-19 jitters extended some support to the black gold. This, in turn, undermined the commodity-linked loonie.

On the other hand, the US dollar, so far, has struggled to attract buyers despite rebounding US Treasury bond yields, bolstered by Fed Chair Jerome Powell's hawkish comments. Testifying before the Senate Banking Committee, Powell said that it is appropriate to consider wrapping up the tapering of asset purchases, perhaps a few months sooner.

Powell further added that it's time to retire the word transitory as the risk of persistently higher inflation has increased and expected high inflation through next year. Reacting to Powell's remarks, the money markets started pricing in the possibility of at least a 50 bps rate hike by the end of 2022, which acted as a tailwind for the US bond yields.

The fundamental backdrop favours the USD bulls and warrants some caution for aggressive bearish traders. Market participants now look forward to headlines coming out of the OPEC meeting, which will influence oil price dynamics and provide some impetus to the USD/CAD pair. Traders will further take cues from the US macro releases.

The US economic docket features the release of the ADP report on private-sector employment and ISM Manufacturing PMI later during the early North American session. Apart from this, Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee will drive the USD demand.

Technical levels to watch

Further decline in USD/JPY is seen meeting firm contention in the mid-112.00s in the next weeks, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our expectations for USD to ‘trade between 113.30 and 114.20’ yesterday was incorrect as it plunged to 112.52 before rebounding strongly. The rebound has room to extend but any advance is likely limited to a test of 113.90 (minor resistance is at 113.70). Support is at 113.05 followed by 112.80).”

Next 1-3 weeks: “We have held the same view since Monday (29 Nov, spot at 113.70) where USD ‘could weaken further but odds for a sustained drop below 112.70 are not high’. USD plunged to 112.52 yesterday before rebounding strongly. Despite the sharp drop, downward momentum has not improved by much. That said, USD could weaken further but 112.50 is expected to offer solid support.  On the upside, a breach of the ‘strong resistance’ level at 114.30 (level previously at 114.65) would indicate that USD is not ready to move below 112.50.”

Gold is edging higher toward $1,790. However, in the view of FXStreet’s Dhwani Mehta, XAU/USD is not out of the woods yet.

Daily technical setup favors gold bears ahead of US data flow 

“Investors remain in a wait-and-see mode, awaiting fresh updates on the Omicron variant and day 2 of Powell’s testimony for fresh trading impetus. The US ADP jobs and ISM Manufacturing PMI will provide fresh hints on the economic performance ahead of Friday’s all-important Nonfarm Payrolls data.”

“A sustained break below Tuesday’s low of $1,770 will put the November 3 low of $1,759 at risk. Further south, the $1,750 psychological level will be challenged.”

“XAU/USD need to find acceptance above the $1,792 crucial support now turned resistance for an extended recovery. The next stop for bulls is placed at the $1,800 threshold. If the recovery momentum gathers steam, then gold bulls will reach out to test mildly bearish 21-DMA at $1,820.”

• German Retail Sales arrived at -2.9% YoY in October vs. -2.0% expected.
• Retail Sales in Germany stood at -0.3% MoM in October vs. 1.0% expected.

Germany's Retail Sales fell by 0.3% MoM in October versus 1.0% expected and -2.5% last, the official figures released by Destatis showed on Wednesday.

On an annualized basis, the bloc’s Retail Sales came in at -2.9% in October versus -0.9% booked in September and -2.0% estimated.

FX implications

The euro shows little reaction to the downbeat German Retail Sales data.

At the press time, the major trades at 1.1332, little changed on the day.

About German Retail Sales

The Retail Sales released by the Statistisches Bundesamt Deutschland is a measure of changes in sales of the German retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. The positive economic growth usually anticipates "Bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

• GBP/JPY snaps five-day downtrend, bounces off two-month low.
• Bullish candlestick, MACD signals favor buyers to cross short-term hurdle.
• 100-SMA, fortnight-long resistance line challenge further upside, sellers will return below 151.00.

GBP/JPY extends rebound from October lows, tested the previous day, while picking up the bids to 151.35 during early European morning on Wednesday.

The cross-currency pair cheers a bullish candlestick formation at the multi-day low to consolidate the heaviest monthly fall since September 2020. Adding to the bullish bias is the quote’s latest upside break of a weekly falling trend line and upbeat MACD conditions.

That said, GBP/JPY buyers currently aim for multiple hurdles around 151.80 before challenging the 152.00 threshold.

However, the pair’s further advances will be challenged by 100-SMA and a descending trend line from November 17, respectively around 153.00 and 153.65.

Alternatively, the resistance-turned-support line around 151.10 precedes the 151.00 round figure to restrict short-term GBP/JPY declines.

Adding to the downside filters is the 150.45 level and the 150.00 psychological magnet before the quote challenges October’s trough near 149.25.

GBP/JPY: Four-hour chart

Trend: Further recovery expected

• A combination of supporting factors allowed USD/JPY to recover further from a two-month low.
• A modest recovery in the risk sentiment undermined the safe-haven JPY and remained supportive.
• Bulls further took cues from an uptick in the US bond yields, though a softer USD could cap gains.

The USD/JPY pair maintained its bid tone heading into the European session and was last seen trading near daily highs, around the 113.60 region.

Following the overnight volatile price swings, the USD/JPY pair gained some positive traction on Wednesday and was supported by a combination of factors. The global risk sentiment stabilized a bit as investors preferred to wait and see if the new Omicron coronavirus variant would eventually derail the economic recovery. This was evident from a goodish recovery in the equity markets, which undermined the safe-haven Japanese yen and acted as a tailwind for the major.

Bulls further took cues from some follow-through recovery in the US Treasury bond yields, bolstered by Fed Chair Jerome Powell's hawkish comments. Testifying before the Senate Banking Committee, Powell said it's time to retire the word transitory and it is appropriate to consider wrapping up the taper of our asset purchases, perhaps a few months sooner. He further added that the risk of persistently higher inflation has increased and expects high inflation through next year.

Reacting to Powell's remarks, the money markets started pricing in the possibility of at least a 50 bps rate hike by the end of 2022. This, in turn, was seen as a key factor that continued underpinning the US bond yields. Despite rising bets for a more aggressive policy tightening by the Fed, the US dollar, so far, has struggled to attract any meaningful buying. This could hold back traders from placing aggressive bullish bets and cap the USD/JPY pair’s ongoing recovery from a near two-month low.

Market participants now look forward to the US economic docket, featuring the release of the ADP report and ISM Manufacturing PMI. Apart from this, Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee will influence the USD price dynamics. Traders will further take cues from developments surrounding the coronavirus saga and the broader market risk sentiment to grab some opportunities around the USD/JPY pair.

Technical levels to watch

• AUD/USD jumps in sync with risk appetite, S&P 500 futures climb 1%.
• Upbeat mood weighs on USD’s haven demand while Omicron risks loom.
• Australian Q3 GDP beat helps the aussie recover lost ground ahead of US data.

AUD/USD is flirting with three-day highs near 0.7170, as the buying pressure around the Australian dollar remains unabated amid a rebound in risk appetite.

Market optimism set in this Wednesday after the Asian regional manufacturing data came in stronger and investors cheered Fed Chair Jerome Powell’s hints aimed at curbing inflation.

Powell said that tapering of the asset purchases could be quickened and the same could be discussed in the upcoming meeting.

Further, no bad news about the Omicron covid variant also helped calm the risk sentiment. The high beta currencies such as the aussie dollar benefit from the improved risk tone while the safe-haven US dollar struggles despite the recent strength in the Treasury yields.

The aussie also takes advantage of the upbeat Australian Q3 GDP report to extend its recovery from yearly lows of 0.7063 reached on Tuesday. The Australian economy contracted 1.9% QOQ in Q3 vs. -2.7% expected and 0.7% previous.

Traders ignored the contraction in the Chinese Caixin Manufacturing PMI data, as the risk recovery overshadowed and underpinned the sentiment around the major.

Looking ahead, the aussie bulls will await the US ADP jobs and ISM Manufacturing PMI to build on the recent upside. Powell’s testimony before the House Financial Services will also hog some limelight.

AUD/USD: Technical levels

“From a technical perspective, any subsequent move up is likely to confront stiff resistance and attract fresh selling near the 0.7200 round figure. This should cap the upside near the 0.7220 region. On the flip side, weakness back below the 0.7140 area now seems to find some support near the 0.7125-15 region,” FXStreet’s Analyst Haresh Menghani notes.

AUD/USD: Additional levels to consider

In light of advanced prints from CME Group for natural gas futures markets, open interest went down for the second straight session on Tuesday, now by around 11.8K contracts. On the other hand, volume rose for the second session in a row, this time by nearly 13K contracts.

Natural Gas looks supported near $4.50

Tuesday’s negative price action in natural gas was against the backdrop of declining open interest, which indicates that a deeper retracement appears contained for the time being, leaving room for a rebound in the short-term horizon. In the meantime, the $4.50 mark per MMBtu has emerged as quite a decent support for the time being.

• WTI keeps bounce off late August lows, consolidating the biggest monthly fall since March 2020.
• OPEC holds delayed meeting on Wednesday, OPEC+ eyed for Thursday amid talks over demand-supply matrix.
• Market sentiment improves as fears over South African covid variant eases, China sounds cautiously optimistic.
• OPEC+ supply increase in January will be crucial, US ISM Manufacturing PMI, ADP Employment Change eyed too.

WTI bulls battle $68.00, up 2.70% intraday following the drop to a three-month low. With this, the black gold licks its wounds after posting the biggest monthly fall in 21 months.

While mildly upbeat market sentiment seems to underpin the commodity’s gains, bulls await the two-day Organization of the Petroleum Exporting Countries (OPEC) meeting, starting from 13:00 GMT on Wednesday, for fresh impulse. It’s worth noting that OPEC+, which groups OPEC with allies including Russia, will meet on Thursday for a final verdict on the oil supply by the global producers.

Hawkish comments from China’s Vice Premier Liu He and expectations from the US and Japan to offer more stimulus seem to favor the market sentiment of late. Adding to the bullish bias are the recently easing virus cases in South Africa and an absence of data to claim the earlier fears of Omicron.

On the other hand, Fed Chair Jerome Powell trigged a bounce in the US Treasury yields from a two-month low by suggesting extended inflation fears and discussion over faster taper in the December meeting. Although the US 10-year Treasury yields remain firmer around 1.47%, the US Dollar Index (DXY) remains indecisive around 95.90 as stock futures and Asia-Pacific shares improve of late.

Looking forward, OPEC chatters will be the key as global oil producers are pushed for more supply increase than the earlier plans of adding 400,000 barrels per day of output starting from January. However, the latest virus-led activity restrictions and the resulted weakness in oil prices have questioned the demand outlook, allowing the cartel to ignore the US-led demands.

Elsewhere, the final readings of the Markit PMIs for November will precede the US ISM Manufacturing PMI and US ADP Employment Change for clear direction. Additionally important is the second day of testimony from Fed Chair Jerome Powell.

Technical analysis

Although an ascending support line from March 2021 restricts the immediate downside of WTI near $64.50, the commodity’s gains are likely challenged by the yearly support-turned-resistance trend line near $71.20.

Here is what you need to know on Wednesday, December 1:

Following a sharp upsurge witnessed during the American trading hours on Tuesday, the US Dollar Index staged a correction and seems to have steadied around 96.00 early Wednesday. Investors await November ADP Employment Change and ISM Manufacturing PMI data from the US. FOMC Chairman Jerome Powell will testify before the US House Committee on Financial Services starting at 1500 GMT. IHS Markit will release the final readings of the November Manufacturing PMIs for the euro area, Germany, the UK and the US as well. 

ADP Jobs Preview: Dollar rally? Why the greenback is set to rise on (almost) any figure.

While testifying before the US Senate Banking Committee on Tuesday, Powell said that it would be appropriate to accelerate the pace of reductions in asset purchases and added that they would be discussing this matter in the upcoming policy meeting. Powell also noted that it was time to stop using the term "transitory" when describing inflation in the US. Following these remarks, investors are expecting the Fed to remain on the policy-tightening track despite renewed coronavirus fears.

US Manufacturing Purchasing Managers Index November Preview: Businesses are watching the consumer.

Wall Street's main indexes suffered heavy losses on Tuesday but US stocks futures are trading in the positive territory in the European morning. Meanwhile, the 10-year US Treasury bond yield is rising more than 1% on the day while staying below 1.5%.

EUR/USD climbed back above 1.1300 after falling sharply to mid-1.1200s late Tuesday. European Central Bank Governing Council member Pablo Hernandez de Cos said on Tuesday that the new coronavirus variant and the inflation spike in the euro area were pointing to a significant negative revision to the 2021 growth forecast.

GBP/USD tested 1.3200 in the American session on Tuesday but managed to stage a decisive rebound during the Asian trading hours. The pair is currently trading in the positive territory around 1.3330.

USD/JPY is holding on to modest daily gains around 113.50 supported by rising US Treasury bond yields. Bank of Japan (BOJ) board member Seiji Adachi reiterated that the BOJ is ready to ease the policy further if needed to support businesses.

Gold fluctuated wildly in the second half of the day on Tuesday. After advancing to $1,808, XAU/USD dropped all the way down to $1,770 in less than two hours. Following a consolidation phase during the Asian session, the pair is edging higher toward $1,790 in the European morning.

Cryptocurrencies: Bitcoin continues to move sideways below $60,000. Ethereum is rising for the fifth straight day on Wednesday and closes in on the all-time high it set $4,867 on November 10.

Further retracements in AUD/USD still looks likely, although the 0.7050 region is expected to hold the downside for the time being, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Yesterday, we highlighted that AUD ‘is likely to drift higher but is unlikely to break 0.7175’. AUD subsequently rose to 0.7171, plummeted to 0.7063 before snapping back up. The volatile price actions have resulted in a mixed outlook. For today, AUD could continue to trade in a choppy manner but is unlikely to move out yesterday’s broad range of 0.7063/0.7171.”

Next 1-3 weeks: “We have expected AUD to weaken since early last week. As AUD declined, we highlighted on Monday (29 Nov, spot at 0.7135) that AUD could break 0.7105 but deeply oversold conditions suggest it may not be able to maintain a foothold below this level. We did not anticipate the ease by which AUD cracked 0.7105 yesterday and plummeted to 0.7063. The decline was however short-lived as AUD rebounded quickly to end the day slightly lower at 0.7132 (-0.16%). The downside risk is still intact but any further weakness is likely limited to a test of 0.7050. A breach of 0.7205 (no change in ‘strong resistance’ level from yesterday) would indicate that AUD weakness has run its course.”

Considering flash data from CME Group for crude oil futures markets, traders added around 14.8K contracts to their open interest positions on Tuesday, resuming the uptrend after Monday’s daily drop. In the same direction, volume increased by around 174.2K contracts and partially reversed the previous day’s pullback.

WTI stays focused on $70.00

Prices of the WTI bottomed out near $64.50 and rebounded afterwards to close near the $67.00 mark on Tuesday. This price action was accompanied by rising open interest and volume, which opens the door to further recovery in the very near term. That said, the next target of note remains at the key $70.00 mark per barrel, which also coincides with the 200-day SMA.

• USD/ZAR breaks three-week-old support line, extends pullback from yearly peak.
• Bears eye six-week-long ascending trend line joins monthly horizontal area.
• 200-SMA, oversold RSI conditions to challenge further downside.

USD/ZAR take offers around $15.80, down 0.62% intraday during early European morning on Wednesday.

The South African currency (ZAR) pair has been on the back foot after refreshing the yearly top on Friday. That said, the quote recently broke an ascending support line from November 09, suggesting further weakness.

However, a convergence of a bit broader rising trend line and the horizontal area comprising multiple levels marked from early November limit the pair’s declines around $15.45-50 amid oversold RSI conditions. Also acting as a downside filter is the 200-SMA level of $15.30.

Meanwhile, corrective pullback remains elusive below the stated support-turned-resistance line near $15.85, a break of which will aim to regain the $16.00 threshold.

During the quote’s upside past $16.00, USD/ZAR buyers aim for $16.25 before challenging the 2021 peak of $16.36.

USD/ZAR: Four-hour chart

Trend: Further weakness expected

Cable still risks further losses in the short-term horizon, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “The sharp but short-lived plunge in GBP to 1.3195 and the subsequent strong rebound came as a surprise (we were expecting sideway-trading). The volatile price actions have resulted in a mixed outlook. From here, GBP could continue to trade in a choppy manner, albeit likely within a narrower range of 1.3240/1.3355.”

Next 1-3 weeks: “We have expected GBP to weaken since early last week. In our latest narrative from Monday (29 Nov, spot at 1.3330), we indicated that ‘there is room for GBP to drop to 1.3260’. We added, ‘a sustained decline below this level is unlikely’.  We did not anticipate the sharp plunge in GBP to 1.3195 yesterday and the subsequent sharp rebound. While further weakness is not ruled out, 1.3195 is a solid support and may not be easy to crack. On the upside, a break of 1.3390 (no change in ‘strong resistance’ level from yesterday) would indicate that the weakness in GBP has run its course.”

Bank of Japan (BOJ) board member Seiji Adachi is back on the wires, via Reuters, commenting on the monetary policy outlook.

Key quotes

USD/JPY unfazed

USD/JPY keeps its range around 113.50 on the above comments, +0.30% on the day.

CME Group’s preliminary readings for gold futures markets noted open interest shrank for the second session in a row on Tuesday, this time by around 11.2K contracts. In the same line, volume added to the choppy activity and went up by around 69.1K contracts.

Gold keeps targeting $1,800

Prices of gold started the week on a negative footing. Tuesday’s downtick, however, was on the back of shrinking open interest, which is indicative that a deeper pullback is not favoured for the time being. That said, occasional rebounds still look to retest the key $1,800 mark per ounce troy.

One of Hong Kong's leading microbiologists and professors at the University of Hong Kong (HKU) warns that the Omicron covid variant poses risks to the global community, as the vaccines are unlikely to be as effective against the new strain.

Key quotes

"This particular strain has all the characteristics of previous mutations - and more.” 

“So I believe (existing vaccines) will not be as effective, but how much it will reduce efficacy is still hard to predict.”

“Whether vaccines could be entirely ineffective, or reduce efficacy by 20 percent or 40 percent, is still too hard to say."

developing story ....

• GBP/USD holds onto recovery moves from yearly low.
• France step-back on Brexit battle but it’s not fishing, traders push-back BOE rate hike calls to 2022 on more Omicron cases in UK.
• UK/US PMIs, ADP Employment Change will decorate calendar.
• Fed’s Powell, BOE’s Bailey and virus updates are important too.

GBP/USD picks up bids to refresh intraday top around 1.3325 heading into Wednesday’s London open. The cable pair refreshed yearly low on Tuesday before closing November with static daily performance and the heaviest monthly fall since last September.

The cable pair traders initially feared the South African variant of the coronavirus, dubbed as Omicron, as the UK’s count of the feared virus strain jumped to 22. The same pushed the CME’s BOEWatch Tool to portray market forecasts of no rate hike actions from the Bank of England (BOE).

Even so, a Brexit-positive headline from France, shared by Bloomberg, seems to have joined the month-end consolidation to favor GBP/USD buyers afterward. “France is preparing to offer Boris Johnson proposals for an agreement with the European Union on migration, less than a week after Emmanuel Macron slammed the UK Premier for not taking the issue seriously enough,” said Bloomberg.

On the other hand, Fed Chair Jerome Powell trigged a bounce in the US Treasury yields from a two-month low by suggesting extended inflation fears and discussion over faster taper in the December meeting. It’s worth noting that the mixed US data and mixed chatters over the prevailing vaccines’ capacity to tame the newly found COVID-19 variant join cautious optimism in China and receding virus cases from South Africa to favor GBP/USD buyers of late.

Moving on, the final readings of the Markit PMIs for November may offer intermediate clues but attention will be given to the US ISM Manufacturing PMI for clear direction. Further, US ADP Employment Change and Fed Chair Jerome Powell’s testimony 2.0, as well as BOE Governor Andrew Bailey’s speech, will be crucial too.

Technical analysis

The GBP/USD pair’s corrective pullback seems to take clues from Tuesday’s bullish Doji candlestick at the multi-day low. However, bearish MACD signals and convergence of the 10-DMA and one-month-old descending trend line, around 1.3360, challenge the bulls.

In opinion of FX Strategists at UOB Group, EUR/USD could now be headed towards the 1.1410 area in the near term.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the bias for EUR is on the upside but a clear break of 1.1325 is unlikely’. However, EUR soared to 1.1382, plunged quickly to 1.1234 before rebounding back up again. The volatile price actions have resulted in a mixed outlook. For today, further choppy price actions would not be surprising, likely between 1.1260 and 1.1380.”

Next 1-3 weeks: “Two days ago (29 Nov, spot at 1.1290), we highlighted that EUR has moved into a consolidation phase and we expected EUR to trade between 1.1220 and 1.1360. We did not anticipate the increase in volatility as EUR traded in a choppy manner yesterday (30 Nov) and within a broad range of 1.1234/1.1382 before closing on a firm note at 1.1336 (+0.40%). Upward momentum has improved and we see room for EUR to trade with an upward bias towards 1.1410. At this stage, a sustained rise above this level is unlikely. On the downside, a breach of the ‘strong support’ (currently at 1.1220) would indicate that EUR is not ready to head towards 1.1410.”

• Gold price corrects from four-week lows but downside bias remains intact.
• Hawkish Powell, Omicron covid fears take bond and gold markets on a spin.
• Gold looks to extend rebound amid renewed coronavirus fears.

Gold price stays volatile so far this week, with the risks skewed to the downside, as the bright metal remains at the mercy of the Omicron covid variant fears and Fed sentiment. Fed Chair Jerome Powell’s hawkish surprise and the new variant updates triggered massive bond market volatility, impacting the dollar valuations alongside gold price.

All eyes now remain on the US ADP and ISM Manufacturing PMI for fresh trading impulse, as day 2 of Powell’s testimony may unlikely have any market-moving impact.

Read: Gold Price Forecast: XAU/USD not out of the woods yet, November lows still in sight

Gold Price: Key levels to watch

The Technical Confluences Detector shows that the gold price is battling strong resistance at $1,780, which is the convergence of the previous week’s low and Fibonacci 23.6% one-day.

Gold price will then extend its recovery towards the next relevant resistance aligned at $1,785, the confluence of the Fibonacci 38.2% one-day, SMA5 one-day and SMA10 four-hour.

The Fibonacci 23.6% one-month at $1,788 will test the recovery momentum, as the bulls will then battle a dense cluster around $1,793.

The SMA50, 100 and 200 one-day coincide with the Fibonacci 61.8% one-day at that level, forming it a crucial upside barrier for gold buyers.

 Offers around $1,799-$1,800 will then be probed, where Monday’s high and Fibonacci 23.6% one-month meet.

On the flip side, gold bulls will receive some temporary reprieve at the previous low four-hour of $1772, below which the previous day’s low at $1,770 will get retested.

A sustained break below the latter will fuel a sharp drop towards the pivot point one-week S1 at $1,760, near where the November lows lie.

Here is how it looks on the tool

About Technical Confluences Detector

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

• EUR/USD consolidates recent gains around two-week top, sidelined of late.
• USD tracks firmer yields as Powell pushes for faster tapering, Omicron anxiety looms.
• Eurozone inflation refreshes record top, ECB policymakers cite growth concerns to defend easy money policies.
• US ADP Employment Change, ISM PMI and Powell testimony 2.0 will be important, German Retail Sales may gain attention too.

EUR/USD defends 1.1300, taking rounds to 1.1325-30 amid sluggish markets ahead of Wednesday’s European session.

The major currency pair seeks clear direction as Fed Chair Powell recalled bond bears but the looming concerns over South African covid variant and vaccine news test declines ahead of the key US data/events.

In his testimony before the Senate Banking Committee, Fed’s Powell said, “It is time to retire the term ‘transitory’ for inflation." The Fed boss also suggested the risk of more persistent inflation and signaled favor for discussing faster taper in the December meeting. His comments triggered the US Treasury yields’ bounce off two-month low, currently up by four basis points (bps) around 1.48%.

It should, however, be noted that the mixed concerns over the Omicron vaccines’ capacity to tame the expectedly lethal virus variant, raised by representatives of drug giants like Moderna, Pfizer and Oxford, test the risk-off mood. On the same line was the news suggesting the US Food and Drug Administration’s (FDA) emergency use authorization of an antiviral pill from Merck and Ridgeback Biotherapeutics.

Additionally, cautious optimism in China and Australia add to the market’s warmer welcome of December, which in turn challenges the US Dollar Index (DXY) bulls and restricts EUR/USD declines.

Elsewhere, the European Central Bank (ECB) officials did cite the challenges the coronavirus resurgence offer to the bloc’s economy, which in turn requires extended easy money policies even if supply constraints may favor reflation woes for a while. That being said, Eurozone Consumer Price Index (CPI) tracked its German counterpart to refresh all-time high with a 4.6% figure.

Amid indecisive markets, EUR/USD traders may follow German Retail Sales for October, expected -2.0% versus -0.9% prior, for fresh impulse. However, major attention will be given to the second round of Fed Chair Powell’s testimony, US ISM Manufacturing PMI and ADP Employment Change. Above all, developments surrounding Omicron are the key of late.

Technical analysis

Failures to cross 20-DMA, around 1.1375, join the pair’s sustained trading below monthly resistance line, near 1.1430, to keep EUR/USD sellers hopeful of refreshing yearly low beneath 1.1200

• USD/INR extends pullback from a two-month-old horizontal resistance.
• Bearish RSI divergence adds strength to the pullback moves.
• Two-week-old support line, 200-SMA challenge sellers, 75.40 adds to the upside filters.

USD/INR stays on the back foot around 74.94, down 0.10% intraday while extending the previous day’s losses from November’s top.

That said, bearish RSI divergence and the pair’s inability to cross a horizontal area established from early October favor Indian rupee buyers (INR) heading into the European session.

It’s worth noting that the latest weakness eyes an ascending support line from November 18, close to 74.75, but any further declines will be challenged by lows marked during October and 200-SMA, respectively around 74.70 and 74.60. Adding to the downside filters is the early November’s peak near 74.55.

Alternatively, a clear upside break of the stated resistance zone near 75.15-20 won’t be enough for the bulls to return as the October 18 peak of 75.37 will join bearish MACD signals to test the recovery moves.

Following that, the yearly peak near 75.65, marked in October, will be in focus.

USD/INR: Four-hour chart

Trend: Pullback expected

According to analysts at Goldman Sachs, core inflation in Asia is expected to keep accelerating next year but the pace of increase will be lesser than that to be seen in Latin America and Europe.

Key quotes

“We do not expect inflationary pressures to accelerate so sharply that they drive large rate hikes.”

“Expect consumer price indexes to rise above consensus estimates in 2022, with higher food prices also driving this jump.”

“Asian policymakers will face less pressure to act, with the region being spared the eye-watering spikes seen in other emerging and developed economies, mainly due to more stable exchange rates and less supply-side damage.”

Indonesia’s annual inflation rate extended its acceleration in November, according to the latest data published by Statistics Indonesia showed Wednesday.

Indonesian November’s inflation rate rose to 1.75% on the year when compared with October’s 1.66%, although remained way below the Bank Indonesia’s (BI) 2.5-4.5% target range.

The annualized core figure arrived at 1.44% vs. 1.33% previous and 1.43% expected.

Meanwhile, the monthly inflation reading for November came in at 0.37% vs. 0.31% expected and 0.12% last.

USD/IDR reaction 

At the press time, the spot adds 0.17% on the day to trade at 14,345. The pair failed to react to the inflation data, consolidating gains below daily highs of 14,362.

About Indonesia’s CPI

The Inflation index released by Statistics Indonesia is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of the Indonesian Rupiah is dragged down by inflation. The CPI is used as a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as positive (or bullish) for the Rupiah, while a low reading is seen as negative (or Bearish).

• Asian equities follow US stock futures, yields amid sluggish day.
• Cautious optimism favor traders to lick their wounds.
• Fed’s Powell pushes for faster tapering, Omicron concerns loom.
• German Retail Sales, US PMI, ADP Employment Change will be important.

Asian traders manage to kick-start December on a positive note, after testing the yearly bottom the previous day, as markets await more signals over the Fed’s next step and the South African variant of the coronavirus.

That said, the MSCI’s index of Asia-Pacific shares outside Japan posts over 1.0% gains after dropping to the lowest level since November 2020 on Tuesday whereas Japan’s Nikkei 225 rises 0.85% heading into Wednesday’s European session.

It’s worth noting that the US Treasury yields gained fresh life after Fed Chair Jerome Powell suggested the risk of more persistent inflation and teased faster taper in the December meeting. While firmer yields weighed on the Wall Street benchmarks, US stock futures rise as optimism surrounding China helped Asia-Pacific traders.

It should be noted, however, that the traders remain cautious amid mixed concerns over the South African strain of the COVID-19, dubbed as Omicron, as well as ahead of the key US data and Fed Chair Powell’s second round of testimony.  Moderna’s Chief Stéphane Bancel raised concerns over the prevailing vaccines’ incapacity to tame Omicron but representatives of Pfizer and Oxford marked the absence of facts to tame the bears.

Amid these plays, Chinese equities cheer comments from Vice Premier Liu He expecting a strong 2021 even as Caixin Manufacturing PMI dropped to three-month low. Further, Australia’s ASX 200 eases despite Q3 GDP came in better-than-forecast while New Zealand’s NZX 50 track stocks from Beijing to print mild gains but Indonesia’s IDX Composite drop 0.10% amid firmer inflation data.

South Korea’s KOSPI rises over 2.0% amid firmer factory activity whereas India’s BSE Sensex remains firm after fiscal Q2 GDP matches 8.4% forecast.

Looking forward, covid updates and the Fedspeak will be more important while German Retail Sales, US ISM PMI and ADP Employment Change can provide additional details for clear direction.

Read: Yields rebound on Fed, Omicron fears, US ISM PMI, ADP data eyed

• USD/CHF struggles to keep the first daily gains in four around three-week low.
• Short-term falling channel, 100-SMA challenge bulls amid sluggish Momentum.
• Fresh declines eye 0.9140-45 support confluence, further weakness will have a bumpy road.

USD/CHF fades bounce off three-week low to revisit 0.9200 amid early Wednesday. The Swiss currency (CHF) pair drops during the last three days before bouncing off 0.9157 support on Tuesday.

In doing so, the quote portrays a weekly descending channel to tease the sellers. Adding to the bearish bias is the sluggish Momentum line that doesn’t support the latest rebound, as well as sustained trading below the 100-SMA.

That said, the quote presently aims for a convergence of the stated channel and an ascending trend line from early November, close to 0.9145-40.

However, the pair’s further weakness will have multiple hurdles around 0.9100, a break of which will direct USD/CHF sellers to attack the last month’s low near 0.9088.

Meanwhile, buyers may aim for the 100-SMA and channel’s resistance line, near 0.9255-60, during additional upside.

In a case where the USD/CHF prices cross the 0.9260 hurdle, a fortnight-old horizontal line near 0.9325 will challenge the bulls before directing them to November’s peak of 0.9373.

USD/CHF: Four-hour chart

Trend: Pullback expected

Highlighting five reasons for a potential decline in EUR/USD, analysts at Nomura said, “we find more compelling macro and flow reasons for a move towards 1.10 to be on the horizon, it's just a matter of time.”

Additional quotes

“Rate spreads suggest EUR/USD should be much lower (sub-1.10) and FX is still playing catch up. A global slowdown typically benefits USD.” 

“German new orders are in decline and with China slowing too it's difficult to see why European growth should outperform.” 

“The euro area's long-running trade surplus is in a steep decline, unlike last year when it was rising.”

“In addition, there is the added uncertainty over rising COVID-19 cases, a new Covid-19 variant and restrictions.”

Early Wednesday morning, Goldman Sachs (GS) came out with their upbeat analysis of oil prices with key comments like, “The market has far overshot the likely impact of the latest variant on oil demand.”

“Given the large uncertainties at this time, we await further news on the variant's development and additional restrictions imposed before refreshing our supply and demand balances and oil price forecasts,” adds GS.

The US-based bank also expects the structural repricing higher due to the dramatic change in the oil supply reaction function lying ahead.

Additional important quotes

WTI refreshes intraday high

Following the release, WTI crude oil prices extend the latest bounce off late August levels, refreshing intraday high around $67.40-45.

Read: WTI consolidates the day's worst drop in 3-months

• AUD/USD extends bounce off yearly low, refreshes intraday top.
• Previous support from November 2020 guards immediate upside.
• 78.6% Fibonacci retracement, channel’s resistance appear as a tough nut to crack for bulls.
• Bearish MACD, monthly descending channel keeps sellers hopeful.

AUD/USD picks up bids to refresh daily high around 0.7145, up 0.20% intraday during early Wednesday. In doing so, the Aussie pair stretches the previous day’s rebound from an 11-month low amid an oversold RSI line.

However, the bearish MACD signals and monthly descending channel keeps sellers hopeful until the quote crosses the 0.7210 hurdle, including the stated channel’s upper line and 78.6% Fibonacci retracement (Fibo.) of November 2020 to February 2021 upside.

Ahead of that, the support-turned-resistance line from November 2020, near 0.7145, followed by September’s low near 0.7170, will act as immediate hurdles for the AUD/USD buyers to tackle.

It’s worth noting that a clear break above 0.7210 enables AUD/USD bulls to aim for July’s bottom surrounding 0.7270, as well as 61.8% Fibo. level surrounding 0.7380.

Alternatively, the 0.7100 round figure may offer immediate support before directing bears to the stated channel’s lower line, around 0.7070 at the latest.

In a case where the AUD/USD bears conquer the 0.7070 threshold, the 0.7000 psychological magnet and November 2020 bottom surrounding 0.6990 will be in focus.

AUD/USD: Daily chart

Trend: Bearish

• US 10-year Treasury yields recover from nine-week low, stock futures print mild gains.
• Fears of incapacity to tame South African covid variant, inflation fears and Fed rate hike underpin US Treasury yields.
• Equities lick their wounds amid China’s cautious optimism ahead of key US data.

Having witnessed a show of risk aversion the previous day, market players remain divided during early Wednesday amid a lack of major catalysts.

Mixed concerns over the current vaccines’ ability to tackle the Omicron crisis and Fed Chair Jerome Powell’s hawkish comments were the latest help to the US Treasury yields. However, the stock futures consolidate recent losses as China stays hopeful of a better 2021 and Aussie GDP also offered a positive surprise, not to forget stimulus hopes from the US and Japan.

That said, US 10-year Treasury yields rise five basis points (bps) to 1.492% whereas the S&P 500 Futures print 0.56% intraday gains at the latest.

Moderna’s Chief Stéphane Bancel  said, per the Financial Times (FT), “that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19 and warned it would take months before pharmaceutical companies can manufacture new variant-specific jabs at scale.” The comments from the pharmaceutical leader were contrasted by the representatives of Pfizer and Oxford marking an absence of evidence supporting the fears.

In his testimony on the CARES act before the Senate Banking Committee, Fed’s Powell said, “It is time to retire the term ‘transitory’ for inflation." The Fed boss also suggested the risk of more persistent inflation and signaled favor for discussing faster taper in the December meeting.

Elsewhere, the US CB Consumer Confidence dropped to a nine-month low and housing numbers also came in softer while Australia Q3 GDP came in better-than-forecast. Additionally, China’s Vice Premier Liu He expects strong 2021 GDP for the dragon nation whereas tensions between Russia and Ukraine escalate.

Having witnessed hawkish comments from Fed’s Powell, versus the looming covid crisis, market players will pay close attention to the incoming US data, especially relating to activity and employment, for fresh impulse. Hence, November’s ADP Employment Change and ISM Manufacturing PMI will be crucial for fresh impulse, as well as the second round of Fed Chair Powell’s testimony.

Should Powell keep his bullish bias, irrespective of the virus woes, the yields have further north to go while the stocks may witness losses.

Read: ADP Jobs Preview: Dollar rally? Why the greenback is set to rise on (almost) any figure

• EUR/USD under pressure as the US dollar picks- up in Asia.
• The bears are taking control as forex volatility start to pick up again. 

EUR/USD is back under pressure in Asia following a strong daily's performance with respect to its come back following Federal Reserve's chair, Jerome Powell, hawkish testimony to the US Senate. At the time of writing, EUR/USD is trading at 1.1321 and has dropped from a high of 1.1342 to a low of 1.1318 so far. 

The US dollar was mixed on the day, with defensive currencies outperforming and risk-sensitive currencies underperforming. EUR/USD initially rose from below 1.1300 to 1.1383 before falling sharply to 1.1236 on Powell’s comments, then grinding back to 1.1330. 

This morning Powell conceded inflation can no longer be considered “transitory”, as the risks of persistently higher inflation have grown. Despite the market uncertainty caused by Omicron, Powell indicated it may be time to further curb the rate of bond purchases.

''While this form of monetary policy tightening has been announced before,'' analysts at Westpac said, ''Powell now says the bond purchase program may need to end sooner than previously signalled.''

''He stated that the economy is very strong and inflationary pressures are strong, so it is appropriate to consider wrapping up the taper of asset purchases a few months early, and that this will be discussed at the next Fed meeting. This indicates the bond purchase program may be wrapped up by March 2022 with the final purchases occurring in February.''

Eurozone data was solid

However, data was good to the euro on the day. Inflation in Europe hit a record in November with the headline inflation up 4.9% YoY and core inflation up 2.6% YoY. ''At this point, the ECB continue to insist the current high rate of inflation will not persist,'' analysts at ANZ Bank explained. 

Meanwhile, Unemployment fell in Germany by 0.1% to 5.3% in November as claims decreased by 34k. ''This data was slightly better than expected but Germany’s labour market still has some way to go to fully recover,'' the analysts at ANZ Bank explained. 

Bank of Japan (BOJ) board member Seiji Adachi talks up the weakness in the yen, as he sees its benefit on the economy.

Key quotes

China's November Caixin manufacturing PMI came in at 49.9 vs. 50.5 expected and October’s 50.6, showing that the country’s manufacturing sector is back into contraction.

China's official manufacturing PMI on Tuesday expanded to 50.1 in November from 49.2 seen in October and against 49.6 expected, the National Bureau of Statistics (NBS) reported.

Comments from Dr. Wang Zhe, Senior Economist at Caixin Insight Group

“The index plunged into contractionary territory for the second time since April 2020.”

“Supply in the manufacturing sector recovered, while demand weakened. Relaxing constraints on the supply side, especially the easing of the power crunch, quickened the pace of production recovery. “

“In November, the measure for output returned to positive territory after remaining in negative territory for three consecutive months. But demand was relatively weak, suppressed by the Covid-19 epidemic and rising product prices. The pandemic hurt external demand, with the gauge for new export orders staying in negative territory for the fourth straight month in November.”

Market reaction

AUD/USD stalls its Aussie Q3 GDP-led upside intact below 0.7150 on the downbeat Chinese Caixin PMI data, trading close to 7140, as of writing. The spot is on a steady recovery mode after reaching fresh yearly lows of 0.7063 on hawkish Fed Chair Jerome Powell.

• DXY extends rebound from eight-day low to refresh intraday top.
• Sustained trading below 10-DMA, bear cross on MACD favor sellers.
• Weekly resistance line, 96.65 level add to the upside filters.

US Dollar Index (DXY) prints mild gains at 96.00 as greenback bears take a breather during early Wednesday. That said, the DXY dropped during the last four days to refresh a one-week low before bouncing off 95.55.

The recovery moves, however, remain below the short-term resistances and the MACD signals also keep buyers away.

Hence, DXY sellers can aim for a fresh weekly low around 95.55 before an ascending support line from October 29, near 95.12, challenges the quote’s further weakness.

Should the greenback gauge drop below 95.12, the 95.00 threshold and October’s high of 94.56 will entertain the DXY bears before directing them to a three-month-old support line, close to 94.10 at the latest.

Meanwhile, 10-DMA and one-week-long resistance line, respectively around 96.22 and 96.56, restrict short-term rebound of the US Dollar Index ahead of a short-term horizontal line near 96.65.

During the quote’s run-up beyond the 96.65 hurdle, the latest multi-month high near 96.95 and the 97.00 round figure will lure the DXY bull.

DXY: Daily chart

Trend: Further weakness expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3693 vs the estimated 6.3706 and the prior 6.3794.

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 closing level and quotations taken from the inter-bank dealer.

• USD/JPY refreshes intraday top while extending the bounce off seven-week low.
• Yields recover as Fed’s Powell pushes for faster tapering, cites risk of more persistent inflation.
• Mixed concerns over South African strain of covid also underpin the safe-havens.
• US ISM Manufacturing PMI, Powell’s testimony 2.0 will offer fresh impulse, virus updates are important as well.

USD/JPY consolidates the previous day’s losses, on the bids around an intraday high of 113.45 during the initial hours of Tokyo open on Wednesday.

The yen pair dropped to the multi-day low the previous day amid the market’s rush for risk safety and a less responsive US dollar before the Fed Chairman Powell’s testimony. However, Powell’s hawkish comments join the market’s anxiety over Omicron and offer the latest strength to the quote.

Risk appetite weakened Tuesday on comments from Moderna’s Chief Stéphane Bancel who said, per the Financial Times (FT), “that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19 and warned it would take months before pharmaceutical companies can manufacture new variant-specific jabs at scale.” Though, representatives of Pfizer and Oxford tried placating market fears while citing no such evidence supporting the fact that the current jab will not be able to contain the virus strain.

Other than the indecision over the South African strain of the coronavirus and the capacity of the current vaccines, a nine-month low of the US CB Consumer Confidence and softer housing data also helped USD/JPY bears. However, Fed’s Powell pulled the US Dollar Index (DXY) back from the weekly low while saying, “It is time to retire the term ‘transitory’ for inflation." The corrective pullback also gained momentum as Powell cited the risk of more persistent inflation and signals for discussing faster taper in the December meeting.

At home, Japan’s Jibun Bank Manufacturing PMI rose past 54.2 initial forecast to 54.5 for November while the first case of Omicron in Kagoshima Prefecture escalate COVID-19 fears at home.

Against this backdrop, US 10-year Treasury yields add over four basis points (bps) to extend bounce off three-month low to 1.485% whereas the US stock futures and Japan’s Nikkei 225 print mild gains at the latest.

Given the market’s indecision, today’s second testimony by Fed Chair Powell and US ADP Employment Change for November, coupled with the US ISM Manufacturing PMI for the said month, will be crucial for USD/JPY traders. Above all, covid updates and moves of the US treasury yields are the key for the pair.

Technical analysis

Although the previous resistance line from March restricts short-term USD/JPY declines around 112.80-75, recovery remains elusive until the quote stays below the 20-DMA level of 114.00.

• AUD/JPY bulls take charge and move into a low volume area on the chart.
• The 15-min time frame appears to be void of offers until 81.20.

AUD/JPY has rallied in the Asian session so far on Wednesday. The price got a boost from the Aussie Gross Domestic product outcome, beating expectations albeit still in negative territory for the year and third quarter.

Nevertheless, the markets are starting to shrug off the new coronavirus variant risk on the day and instead are moving out of the yen. USD/JPY is trading higher by 0.245 at the time of writing which is giving the AUD/JPY cross a boost. The following illustrates the upside potential in the cross from a 15-min perspective which opens room to 81.20:

The price has rallied into what is regarded as an area of low volumes. That is to say, not a lot of transactions have gone on in this space in recent business, so there are unlikely to be many offers standing in the way until the next level of resistance in 81.20. 

• GBP/USD struggles to extend corrective pullback from yearly low.
• 10-DMA, monthly resistance line challenge bullish candlestick formation.
• Bearish MACD signals keep sellers hopeful around four-month-old support line.

GBP/USD remains sidelined around 1.3300 during Wednesday’s Asian session, after refreshing the 2021 bottom the previous day.

The corrective pullback seems to take clues from Tuesday’s bullish Doji candlestick at the multi-day low. However, bearish MACD signals and convergence of the 10-DMA and one-month-old descending trend line, around 1.3360, challenge the bulls.

Should the quote rises past 1.3360, September’s low around 1.3410 and November 18 swing high close to 1.3515 will be in focus.

Alternatively, a downward sloping trend line from July, near 1.3265, will pause the GBP/USD bears before directing them to the yearly bottom of 1.3194.

During the quote’s weakness past 1.3194, October 2020 top around 1.3175 will precede the latest 2020 trough close to 1.3130 to challenge the pair sellers.

To sum up, GBP/USD remains inside the broad bearish trend despite the latest bullish candlestick formation.

GBP/USD: Daily chart

Trend: Further weakness expected

• AUD/USD holds onto the choppy trading range following Aussie GDP data.
• Australia Q3 GDP came in better than expected on both QoQ and YoY.
• Market sentiment dwindles amid Omicron concerns, fears of faster Fed tapering.
• US ISM PMI, ADP Employment Change and Powell’s testimony 2.0 will decorate calendar, virus updates are crucial

AUD/USD eases to 0.7120, after an initial uptick to 0.7132 on better-than-forecast Australia Q3 GDP details during Wednesday’s Asian session. That said, the quote remains inside a small range after bouncing off the yearly low before a few hours.

Australia’s third-quarter (Q3) GDP rose past 3.0% YoY expectations to 3.9% while the QoQ figures contracted than the -2.7% market consensus to -1.9%. Earlier in the day, Australia’s Commonwealth Bank Manufacturing PMI jumped past 58.2 figure to 59.2 for November.

Read: Aussie GDP arrives and pushes AUD/USD up a notch

Ahead of the data, Goldman Sachs’ Andrew Boak said, “Australia is well positioned for recovery into the year-end and 2022.” Also positive for the quote were comments from China’s Vice Premier Liu He who expects strong 2021 GDP for the dragon nation.

Even so, the quote remains at the mercy of the risk catalysts amid mixed concerns over the South African strain for the coronavirus, dubbed as Omicron. Also challenging the risk barometer pair are the reflation fears and Fed rate hike woes emanating from comments from Federal Reserve (Fed) Chairman Jerome Powell could be termed as the key catalysts.

In his testimony on the CARES act before the Senate Banking Committee, Fed’s Powell suggested the risk of more persistent inflation and signaled favor for discussing faster taper in the December meeting.

On the other hand, Moderna’s Chief Stéphane Bancel weighed on the risk appetite earlier in Tuesday by citing, per the Financial Times (FT), the risk of less effectiveness of the existing vaccines to tackle Omicron and months before pharmaceutical companies can manufacture new variant-specific jabs at scale. However, representatives of Pfizer and Oxford tried placating market fears citing no such evidence supporting the fact that the current jab will not be able to contain the virus strain.

Talking about data, the US CB Consumer Confidence dropped to a nine-month low and housing numbers also came in softer, which in turn joins recently positive data from Australia to offer an intermediate relief to the AUD/USD.

Other than the data, the bounce in the US Treasury yields from a two-month low and mildly positive stock futures also underpin the pair’s recovery moves.

Moving on, covid updates and the Fedspeak will be more important for AUD/USD traders while US ISM PMI and ADP Employment Change, as well as China Caixin Manufacturing PMI, will also offer additional details to watch for clear direction.

Technical analysis

AUD/USD holds onto corrective pullback from yearly low inside one-month-old bearish trend channel, staying below an ascending trend line established since November 2020.

Although oversold RSI conditions triggered the much-awaited bounce, bearish MACD signals and downward sloping channel keeps sellers hopeful to revisit the yearly low near 0.7062. That said, the 0.7210 hurdle, including the stated channel’s upper line and 78.6% Fibonacci retracement (Fibo.) of November 2020 to February 2021 upside, acts as the near-term key hurdle. It’s worth noting that the 11-month-old support-turned-resistance line around 0.7145 guards the quote’s immediate upside.

The Gross Domestic Product released by the Australian Bureau of Statistics has arrived, beating expectations in both the third quarter and the year. This is helping the Aussie to continue to recover across the board. 

GDP arrived as follows:

Australia GDP for Q3 -1.9% QoQ (expected -2.7%).

Australia GDP (YoY) Q3 3.9% (est 3.0%; prev 9.6%).

''Gross Domestic Product (GDP) fell 1.9% this quarter reflecting reduced activity due to extended lockdowns across NSW, Victoria and the ACT. This fall followed four consecutive rises since the 6.8% fall recorded in June quarter 2020 when the entire country was in lockdown. GDP in the September quarter 2021 was 0.2% below December 2019 pre-pandemic levels,'' the official report read which can be read in full here.

AUD/USD continues its correction to the upside although it is struggling to keep the momentum:

The focus remains on the downside from a risk-off sentiment perspective and there are expectations of a downside continuation in due course. 

About Aussie GDP

The Gross Domestic Product released by the Australian Bureau of Statistics is a measure of the total value of all goods and services produced by Australia. The GDP is considered as a broad measure of the economic activity and health. A rising trend has a positive effect on the AUD, while a falling trend is seen as negative (or bearish) for the AUD.

 The Western military alliance NATO have met to discuss Moscow’s intentions for massing troops on the border with the former Soviet republic, Ukraine.

The United States and Britain warned Russia on Tuesday over any new military aggression. Vladimir Putin has responded by warning Nato countries that deploying weapons or soldiers to Ukraine would cross a “red line” for Russia. Putin has promised a strong response, including a potential deployment of Russian missiles targeting Europe.

Tensions have escalated following an amassing of around 100,000 Russian troops, as well as tanks, artillery, and even short-range ballistic missiles, within striking distance of Ukraine. The markets are therefore keeping a watchful eye over this situation while the US and Ukraine warn that the threat of a Russian offensive this winter remains very real.

The failing ceasefire agreement and a worsening political climate is raising tensions while in Riga, the capital of Latvia, the US secretary of state, Antony Blinken, explained that the west was on alert over Russia’s “increasingly bellicose rhetoric” and “unusual” troop movements.

“Any escalatory actions by Russia would be a great concern to the United States … and any renewed aggression would trigger serious consequences,” he told reporters ahead of Tuesday’s talks.

Moscow has since dismissed as inflammatory Ukraine’s suggestions that it is preparing for an attack, said it does not threaten anyone and defended its right to deploy troops on its own territory as it wishes.

Russian officials has said that they had been forced to send troops to the borders with Ukraine and Belarus because of Nato’s aggressive posture.

• Gold prices stay pressured after breaking two-month-old support line.
• Fed’s Powell, Omicron woes favor bears ahead of the key US data.
• US ADP Employment Change, ISM PMIs will join Fed’s Powell to propel market moves.
• Gold Price Forecast: At the risk of piercing the monthly low at 1,758.81

Gold (XAU/USD) remains on the back foot around the monthly low, taking rounds to $1,771-73 during Wednesday’s initial Asian session.

The yellow metal dropped the most in a week to conquer two-month-old support the previous day while poking the lowest levels since November 04 amid sour sentiment. While tracing the clues, the varied opinion of the current vaccines’ ability to tame the South African strain for the coronavirus, dubbed as Omicron, joined comments from Federal Reserve (Fed) Chairman Jerome Powell could be termed as the key catalysts.

In his testimony on the CARES act before the Senate Banking Committee, Fed’s Powell said, “It is time to retire the term ‘transitory’ for inflation." The Fed boss also suggested the risk of more persistent inflation and signaled favor for discussing faster taper in the December meeting.

Elsewhere, Moderna’s Chief Stéphane Bancel weighed on the risk appetite earlier in Tuesday by saying, per the Financial Times (FT), “that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19 and warned it would take months before pharmaceutical companies can manufacture new variant-specific jabs at scale.” It should be noted, however, that representatives of Pfizer and Oxford tried placating market fears citing no such evidence supporting the fact that the current jab will not be able to contain the virus strain.

Talking about data, the US CB Consumer Confidence dropped to a nine-month low and housing numbers also came in softer, offering an intermediate relief to the gold prices. On the same line were comments from China’s Vice Premier Liu He who expects strong 2021 GDP for the dragon nation.

Against this backdrop, Wall Street benchmarks posted losses but the S&P 500 Futures print 0.40% intraday gains by the press time. Further, the US 10-year Treasury yields refreshed a two-month low before recently adding four basis points (bps) to 1.48%. Additionally, the DXY printed a four-day downtrend from the monthly high ahead of consolidating losses around 95.90.

With the early signals of Friday’s US Nonfarm Payrolls in the card, namely the US ADP Employment Change for November, market players may remain cautious ahead of the data given the latest hawkish comments from Fed’s Powell. Also important are the ISM PMI details for November and the second round of Powell’s testimony.

Overall, gold prices are likely to remain pressured as bears have already conquered the key support line and the risk appetite is weak of late.

Technical analysis

Gold sellers finally conquered two-month-old support following multiple days of breaking the key trend line, now resistance around $1,790.

The trend line breakdown joins bearish MACD signals and descending RSI line, not oversold, to hint at the metal’s further weakness towards a horizontal area comprising lows marked since October 18, around $1,760-59.

However, $1,747-46 may challenge the gold bears past $1,759, a break of which will make the quote vulnerable to test September’s swing low near $1,721.

Meanwhile, the confluence of 100-day and 200-day EMA, as well as 50% Fibonacci retracement (Fibo.) of September-November upside, around $1,800, becomes the key hurdle for the gold buyers to confront even if they manage to cross the previous support line figure of $1,790.

Should the gold prices rally beyond $1,800, buyers can target a five-week-long horizontal region around $1,815-17 and the mid-November lows near $1,850 before eyeing the last month’s peak of $1,877.

Gold: Daily chart

Trend: Further upside expected