CFD Markets News and Forecasts — 12-11-2021

• USD/CAD slump for the first time in three days after posting losses of almost 1.70%.
• USD/CAD fell amid US dollar weakness across the board.
• USD/CAD: The 1-hour chart depicts a triple top chart pattern, with a target of 1.2530.

USD/CAD struggles to gain traction above 1.2600, is falling 0.31%, trading at 1.2549 during the New York session at the time of writing. The Canadian dollar has been under selling pressure, as witnessed by the price action in the last three days, down almost 1.70%. Nevertheless, on Friday, the Loonie has recovered some ground, mainly driven by USD profit-taking.

DXY falls as the weekend approaches but holds to the 95 figure

Meanwhile, the greenback is falling against most G8 currencies. The US Dollar Index measurement of the buck against six currencies slides 0.02%, sitting at 95.12. Contrarily, US T-bond yields rise, with the 10-year benchmark note rising two basis points, currently at 1.58%. 

USD/CAD direction would lie in the hands of the Bank of Canada (BoC) and US dollar dynamics. However, on Wednesday, US inflation rose to a 30-year high above 6%, which spurred an upside move in US Treasuries and the US dollar.

On the macroeconomic front, the US economic docket featured the University of Michigan Consumer Sentiment Index for November edged lower to 66.8, lower than the 71.7 in October, marking the lowest reading since November 2011.

USD/CAD Price Forecast: Technical outlook

The  1-hour chart depicts a technical move that spurred the recovery of the Loonie. A triple-top chart pattern formed around the 1.2570-1.2600 range. The price broke below the neckline around 1.2567, which would act as resistance in case of an upward swing. Further, the USD/CAD price is under the 50-simple moving average (SMA), exerting additional selling pressure on the pair. The triple-top target is  1.2530, an area that confluences with the 50-day moving average (DMA).

A break below the triple’s top target would expose the 100-SMA around the 1.2500 figure.

• Spot silver has failed to push above its 200DMA at $25.40 despite weak US consumer data.
• The precious metal remains on course to post healthy weekly gains of about 4.5%, however, its best performance since May.

Spot silver (XAG/USD) prices have been trying to move above its 200-day moving average at $25.40 on Friday, but to no avail just yet. At present, the index trades around $25.25, which means it is flat on the day, though spot prices have managed a pretty impressive recovery from early European session losses that saw them drop all the way to the $24.80s.

Trading conditions have been thin on Friday. Thursday was a partial US holiday (Veteran’s Day) and, at the time, bond markets were closed, so many US players likely used the opportunity to take a long weekend. Hence, it is probably not too surprising to see spot prices fail to break above their 200DMA. Such a move may have to wait until next week if it is going to happen. Nonetheless, spot silver remains on course to post healthy gains on the week of over 4.5%, its best week since May.

In terms of the fundamentals, it's been a pretty slow session, with the highlight being the release of US consumer sentiment and job openings data at 1500GMT. The University of Michigan’s headline Consumer Sentiment index (the preliminary estimate for November) saw a surprise drop to 11-year lows with consumer citing heightened fears/uncertainty around inflation. Precious metal markets got a little boost at the time, in fitting with the broad theme of demand for inflation protection that has them supported all week.

To recap, Wednesday’s US Consumer Price Inflation report (for October) saw headline price pressures at their highest since 1990 on a YoY basis. The move higher in precious metals reflects fears that the Fed is “behind the curve” when it comes to curbing inflation and may lose control of the situation.

Back to the XAG/USD; with spot silver back to the north of the $25.00, a level which it had been unable to reconquer going all the way back to August, if it can clear the 200DMA, the next key level to keep an eye on it’s the early august high at almost bang on $26.00. But one risk that traders should be aware of is that the Fed may buckle under the mounting scrutiny/pressure from the press and financial markets to adopt a more hawkish stance in order to reign in inflation.

While markets are already to an extent betting on this (that’s why the DXY broke out to fresh annual highs this week and USD STIR markets have brought forward rate hike bets again), an actual endorsement of a more hawkish policy path would be another thing. If the Fed was to send real yields substantially higher in a hawkish policy shift, this would likely undo all of silver’s good work recently. Any hawkish signs next week may send silver back towards $24.00.

• The S&P 500 is up 0.5% but still on course for its first weekly loss in six.
• US equities largely ignored a disappointing US consumer confidence report, as focus thifts to next week’s US retail sales report.

The S&P 500 seems to have regained its mojo on Friday, currently trading 0.5% higher on the session having advanced from around 4650 to current levels around 4675. The index is still on course to week the day 0.4% lower, however, which will mark its first weekly decline in six.

Big Tech/Growth names are seeing the strongest performance. The S&P 500 growth index is up 0.9% amid 1.3% gains in Apple, 1.0% gains in Amazon, 1.2% gains in Microsoft, 1.8% gains in Alphabet and more than 3.0% gains in Meta Platforms (formerly called Facebook). That’s helping the tech-heavy Nasdaq 100 index (up 0.9%) outperform. But the Dow, often seen as more of a proxy for value stocks, isn’t performing poorly, and is up a respectable 0.4% and back to the north of the 36K level. The VIX has seen a fairly substantial drop of about 1.3 vols and is now back to the levels that it ended last week at under 17.00.

The sense of calm, even optimism, has come despite inflation concerns that have roiled FX and bond markets this week. Whilst it does seem likely the Fed is going to be forced to adopt a more hawkish policy stance in 2022 in order to must prioritise price stability over economic growth the labour market, stocks can rely on the backdrop of strong earnings. Indeed, the earnings season just gone saw S&P 500 companies report their third-highest profit margins on record, despite surging input costs, as companies found it easier to pass these costs onto consumers. In other words, there is no sign just yet that demand in the US economy is faltering from its highly elevated levels, despite increasing inflationary pressures.

But that story may soon change. The headline index from Friday’s University of Michigan Consumer Sentiment survey showed sentiment falling to its lowest in 11 years as consumer fret about inflation. Stocks ignored that data, but they won’t be able to ignore it if October Retail Sales data (out next Tuesday) misses expectations by a wide margin. On the other hand, a strong Retail Sales report for October would be a good sign for corporate bottom lines for Q4 and would likely support equities.

In individual stock news, the main story on Friday was an announcement by Johnson & Johnson that the company is planning on splitting into two businesses, one focused on consumer health care and the other on pharmaceuticals. Shares were up over 1.0% as a result. Meanwhile, news of further stocks sales by CEO Elon Musk weighed on Tesla’s share price, which fell another near 4.0%.

• EUR/USD consolidates around the 1.1440s region, extending its losses to three days in a row.
• EUR/USD printed a year-to-date low around 1.1430.
• UoM Consumer Sentiment Index fell to 66.3, its lowest reading since November 2011.

EUR/USD barely declines during the day, consolidating around 1.1446, down some 0.01% at the time of writing. The shared currency has failed to gain traction against the greenback, which has remained bid during the Asian and the European session, gaining follow-through as the New York session begins.

Furthermore, the single currency downfall has extended for three days, printing year-to-date new lows in each of those days. In fact, earlier in the New York session, it reached a new yearly low at 1.1432, a level not seen since July 2020. At press time, the euro is consolidating around the 1.1440s region as we get ahead into the weekend.

University of Michigan Consumer Sentiment Index drop overshadowed EU Industrial Production expansion

On the macroeconomic front, the Eurozone economic docket featured the Industrial Production for September, which increased by 5.2%, higher than the 4.1% foreseen, reported by Eurostat.

Across the pond, the University of Michigan Consumer Sentiment Index for November fell to 66.8, lower than the 71.7 number in October, marking the lowest reading since November 2011.

Richard Curtin, the chief economist of Surveys of Consumers, said that “consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation.”

According to Societe Generale analysts in a note to clients noted that “the euro will fall as a result” of difference between the US and Europan inflation threats. Further added that “the US faces a bigger and more demand-led inflation spike that cries out for tighter monetary policy, while in Europe it does not.” This cemented ECB dovishness postures, expressed by ECB top officials like President Christine Lagarde and ECB’s chief economist Philip Lane, who pushed back higher interest rates, saying that inflation is temporary and would moderate later in 2022.

EUR/USD Price Forecast: Technical outlook

The single currency continues sliding in the week, and if the trend accelerates, it could slide as low as 1.1255, the July 10, 2020 low, but it would find some hurdles on the way south. The first support would be June 10, 2020, high at 1.1423, followed by 1.1300, and the target mentioned above at 1.1255.

• USD/CHF has fallen back to the 0.9200 level in recent trade following downbeat US consumer confidence numbers.
• But the US data this week will have the Fed worried about inflation and the appropriateness of their ultra-dovish stance.
• If any hawkish shift is forthcoming, that could propel USD/CHF back towards the September highs around 0.9350.

USD/CHF is set to end Friday’s session flat slightly to the north of the 0.9200 level. The pair had at one point been nearly as high as 0.9240, but a sharp, surprise deterioration in Consumer Confidence in November according to the University of Michigan’s preliminary survey pushed the pair from highs and back towards 0.9200. For reference, the headline consumer sentiment index dropped to an 11 year low at 66.8 versus forecasts for a small rise to 72.4 from 71.7 in October.

But the deterioration in consumer sentiment will not leave the Fed feeling vindicated in its stance that it should remain patient and only normalise monetary policy slowly, as the primary factor driving sentiment lower was concerns about inflation. If anything then, the report ought to put more pressure on the Fed to feel as though it should withdraw monetary stimulus at a faster rate. It is perplexing then that broad USD weakness was seen in response, especially given that JOLTs Job Opening data released at the same time also showed the number of job openings in the US economy exceeding the number of unemployed persons by a record 2.8M (and the quit rate hit a record high at 3.0%). The strong jobs data, which signifies that wage growth should remain elevated for the foreseeable future (which is very inflationary), comes after the YoY rate of US Consumer Price Inflation in October was revealed on Wednesday to have hit its highest level since 1990 at 6.2%.

Thus, pressure is building on the Fed to adopt a more hawkish policy stance. NY Fed President and Fed Board of Governors member John Williams had an opportunity to make such a signal on Friday but opted not to say anything of interest on policy. Core Fed members would likely rather wait until they could discuss the best course of action; whether they should shift in a hawkish direction as many market participants are calling for and, if so, to then decide upon new policy guidance and a strategy to save face as much as possible.

Back to USD/CHF; if the Fed is feeling the pressure to turn more hawkish in the coming days/weeks, then this is likely to keep the upwards pressure on USD/CHF. While some further profit-taking following the dollar’s advances this week might see the pair slip under 0.9200 next week, it is likely to remain a buy on dips. A gradual move back towards the late September highs in the 0.9350 area seems likely as long as front-end (and belly) US yields can maintain recent upwards momentum.

• GBP/USD reclaims the 1.3400, as it recovers from three-days previous losses.
• A weaker US dollar boosts the British pound, despite BoE dovishness in its last monetary policy meeting.
• GBP/USD: Failure to hold 1.3400 could send the pair tumbling to the 1.3200 zone.

The British pound bounces off year-to-date lows at 1.3352, edges up 0.40%, trading at 1.3418 during the New York session at the time of writing. In the last three days, cable lost almost 2%, driven mainly by US dollar strength, influenced by higher inflation figures in the US economy, reported by the Labor Department. Also, a dovish stance perceived by investors in the last Bank of England (BoE) monetary policy meeting fueled the slide of the GBP.

US Dollar weakness boost the British pound, which reclaims the 1.3400 figure

The US Dollar Index, which measures the greenback’s performance against its peers, slides 0.03%, sitting at 95.11, acting as a headwind on the USD against the GBP. 

GBP/USD Price Forecast: Technical outlook

In the daily chart, the GBP/USD pair is trading within a descending channel, approaching the bottom-trendline around the  1.3350 area. Further, the daily moving averages (DMA’s) reside above the spot price, though supporting the downward bias. 

In the case of a daily close above the Thursday high at 1.3433, it could spur an upside move in the pair, towards the psychological 1.3500 area, that also coincides with the 61.8% Fibonacci retracement level, a price level that  GBP/USD sellers would defend to resume the downward bias.

On the flip side, failure at 1.3433 could open the door for a further downfall in the GBP/USD pair.  The first support would be the Friday low at 1.3353, followed by the bottom of the descending channel around the 1.3300 area, a level last seen in December 2020. A breach of that level would expose December 12, 2020, low at 1.3188.

• EUR/GBP has been ebbing back towards weekly lows as Brexit tensions ease, though talks continue next week.
• Longer-term, ECB/BoE policy divergence could keep pressure on the pair, with the bears targetting 0.8400.

EUR/GBP has been ebbing lower in recent trade, boosted amid positive sounds coming from UK and EU officials on the Brexit front. According to UK Brexit Minister Lord David Frost and Vice President of the European Commission Maroš Šefčovič, talks regarding the implementation of the Northern Ireland protocol will continue next week and focus on medicine and customs. Sefcovic said that the EU was pleased by a welcome change in tone from the UK in the talks.

At present, the pair trades with on the day losses of about 0.3%, having reversed lower from earlier session highs above 0.8560 to current levels in the 0.8530s. If trading conditions weren’t so quiet, with the European session already over and the weekend fast approaching, the pair would perhaps be in with a shout of testing weekly lows at 0.8520. Perhaps it still might.

Either way, an improved tone on the Brexit front and a paring of some of last week’s post-dovish BoE surprise short-term bets means that EUR/GBP is on course for modest weekly losses of about 0.3%. That still leaves it about 1.5% above last month’s pre-BoE lows just above 0.8400, but if the pair’s long-term trend of gradually grinding lower and posting lower highs and lower lows continues, then this will be a good level for the bears to target.

One argument in favour of the long-term bearish thesis for EUR/GBP is that ECB/BoE policy divergence favours depreciation. Though the BoE failed to live up to market hype for a 15bps rate hike earlier in the month, GBP STIR markets are pricing about 12bps worth of tightening in December (implying about an 80% probability of a 15bps rate hike). Economists are more split; according to a Reuters poll taken between 8-12 of November, 26 of the 47 surveyed economists said they expected a 15bps rate hike, while 21 did not.

“Particularly important for the (BoE) MPC will be the two upcoming labour market releases”, said Marchel Alexandrovich at Jefferies, as quoted by Reuters. “If both are decent, the majority of the MPC could well be minded to increase Bank Rate by 15bps in December. However, if the December report is on the soft side, then it would clearly be more prudent for the decision on rates to be delayed until February.” All but one of the 47 surveyed economists said the bank would start hiking rates by the February meeting.

• XAU/EUR prints a new year-to-date high at €1,629.29.
• Inflationary pressures around the globe spurred demand for precious metals as a hedge against it.
• XAU/EUR: With RSI in overbought levels, gold might correct before resuming the upward trend.

Gold against the EUR (XAU/EUR) is trying to extend its weekly rally for seven consecutive days, trading at €1,627 during the New York session at the time of writing.

Early in the Asian session, the yellow-metal gave back some of its weekly gains, as bears pushed the precious metal towards the 50-simple moving average (SMA) in the 1-hour chart at €1,615, but they failed to gain follow-through, bouncing off towards new year-to-date highs at €1,629.29.

Demand on the precious metals segment has increased value in gold and silver. Since Wednesday, when the US inflation figure toped above 6% for the first time in three decades, investors flew towards gold as a hedge against elevated prices.

“Gold is taking a breather after breaking out, as the post CPI sell-off in bonds continued in the overnight session, with the market back to pricing the first hike in July and 60bp of hikes in 2022. But the breakout in gold has also attracted new buyers as global markets search for inflation-hedges,” per TD analysts note for customers.

Further added, that the breakout has driven “China Smart Money group of funds to add a significant amount of new length in SHFE gold. Considering that Shanghai’s gold net length remains near multi-year lows, a change in sentiment could attract a substantial amount of buying interest from this cohort."

XAU/EUR Price Forecast: Technical outlook

Daily chart

XAU/EUR uptrend move seems to be fading, as witnessed by Friday’s price action. Furthermore, the Relative Strength Index (RSI) at 75 is slightly flattish in overbought conditions, indicating that the non-yielding metal might consolidate before resuming the trend, towards a test of November 9, 2020, high at €1,652. Further, it is approaching the top-trendline of Andrew Pitchfork’s indicator, around the €1,633 region that could stall the upward move.

In case of a correction lower, November 13, 2020, high at €1,604 would be the first support. A break of the latter would extend the downfall towards 2021 previous high at €1,589.
 

The USD/ZAR is headed toward a modest appreciation over the next quarters according to analysts at CIBC. They forecast USD/ZAR at 15.45 during the fourth quarter and at 15.75 by the first quarter of next year. 

Key Quotes: 

“After a brief flirtation below the 13.50 threshold into the end of H1, the ZAR has been the second worst performing global currency thus far in H2, as only the BRL has witnessed a greater degree of depreciation. That has developed as international investors have largely abandoned domestic bonds. The three-month moving average of foreign bond purchases has dipped to all-time lows, beyond 2020 extremes.”

“Rising domestic inflationary influences point towards real yields continuing to compress. Having peaked above 6% in Q1, they are set to dip below 4%, as CPI looks set to advance from September’s 5.0% amidst ongoing food and energy price gains.”

“Having moved beyond the mid-point of the 3-6% SARB target range in August, prices risk threatening the top of the price corridor into year-end. The recent ZAR depreciation will exacerbate the jump in the global oil price, as WTI has gained almost 30% in local currency terms across the period. While inflation expectations have yet to become materially de-anchored, signs of an uptick in wage deals, as the metalworkers union agreed to a 5-6% hike, point towards the need for central bank action to restrain inflationary pressures.”

“While a rate hike at the November meeting is likely to be a close call, the prospect of at least 75bps of tightening in the next 12 months risks materially compromising the growth trajectory, adding to near-term ZAR headwinds. Hence we expect a re-test of 2021 highs in the next six months.”
 

Data released on Friday showed an unexpected decline in the Consumer Sentiment Index measured by the University of Michigan in November to the lowest level in ten years. Sentiment has been shaken in recent months amid the more recent outbreak of COVID, dwindling stimulus and sharply higher consumer goods inflation, explained analysts at Wells Fargo. They argue inflation is also affecting confidence. 

Key Quotes: 

“Consumer sentiment tumbled 4.9 points to 66.8 in early November, its lowest reading since 2011. Sentiment has been shaken in recent months amid the more recent outbreak of COVID and dwindling stimulus, but the November fallout has inflation's name written all over it. Near-term inflation expectations inched up to 4.9%, and while longer-term (three-to-five years out) expectations stayed put at 2.9%, it appears that consumers see that the writing is on the wall as far as climbing prices in the next year or so.”

“This growing concern of elevated prices and the effect of inflation on household finances led consumers to report being downbeat about both their current economic conditions and their expectations for the future, which slid to 73.2 and 62.8 respectively.”

“With views of rising inflation and pessimistic outlooks on finances, it's of little surprise that buying conditions tumbled in early November. Buying conditions for major household items, vehicles and homes have all moved lower in recent months and now comfortably sit at their lowest levels in decades.”

“With inflation expected to remain hot and the labor market firmly on the path to recovery, we have brought forward our expectations for the FOMC to raise the federal funds rate 25bps in the third quarter of next year. The drivers of inflation leave the Fed in between a rock and a hard place in terms of setting monetary policy, but how it handles the next couple of months will be critical to preserving consumers' faith in the trajectory of the recovery.”
 

Analysts at CIBC forecast the USD/JPY pair could continue to rise during the next months at a slow pace. They see the pair at 114 during the fourth quarter and at 115 in the first quarter of next year. 

Key Quotes: 

“While the RBA recently moved away from yield curve control, it seems unlikely that the BoJ is set to follow suit anytime soon. Following a meeting between BoJ Governor Kuroda and PM Kishida, post the recent LDP election victory, the former acknowledged that not only does the bank remain committed to its 2% CPI target, it also will maintain YCC, even beyond Covid. The perpetuation of an ultra-easy BoJ policy stance is set to leave Japan alongside the eurozone and Switzerland as extending long term policy inertia, a scenario which should continue to leave the JPY on the defensive.”

“Post the re-election of the LDP, we can expect another round of fiscal stimulus. Press reports suggest a potential injection of around JPY35trn, which could even include cash handouts to youths and children. While we expect Q3 weakness to give way to a solid rebound in Q4 GDP as the economy re-opens, the extension of yield curve control will see a sizeable widening in USTJGB 10 year spreads, providing the rationale for ongoing outflows of capital looking for higher returns overseas.”

“One risk to our weaker yen scenario that bears watching is the sheer scale of existing JPY shorts. Speculative investors have continued to add to those positions over recent weeks, and leveraged shorts are threating extremes not seen since December 2018. The scale of the position skew risks a JPY corrective rally should risk sentiment prove to become materially compromised into year-end, but we would still maintain our medium term outlook for a weaker yen into 2022.”

• Spot gold is back to flat on the day around $1860, having found good demand when it dipped to $1850.
• Friday’s US consumer and JOLTs job openings data supported the precious metal.
• Attention now turns to a speech from Fed’s Williams at 1710GMT.

Spot gold (XAU/USD) prices have in recent trade recovered back to trading flat on the day, having at one point prior to the US open been trading with losses of nearly 1.0%. The precious metal appeared to find good demand at $1850 as gold bulls and those seeking inflation protection bought the dip.

Prices got a small boost at 1500GMT in wake of the release of the University of Michigan Consumer Sentiment survey for November and the JOLTs Job-Opening report. The former showed sentiment hitting decade lows as consumers despaired over persistent inflationary pressures, while the latter showed that in September, the number of job opening exceeded the number of unemployed persons by a record 2.8M and the quit rate hit a record high at 3.0% (both indicators of a very strong jobs market).

In particular, the strong JOLTs report adds to a growing mountain of evidence that inflation is going to remain persistent above the Fed’s 2.0% target for quite some time; high labour demand equals high wage growth which leads to higher inflation. Gold bugs will now be hoping that the precious metal can challenge its prior weekly highs just shy of the $1870 level. At present, XAU/USD is close to $1860.

Fed under pressure to respond to inflation

Spot prices are on course to post gains of around 2.5% this week, with the bulk of the move higher coming in wake of a much hotter than expected US Consumer Price Inflation report on Wednesday, which showed consumer prices surging at their fastest YoY rate since 1990. Pressure is mounting on the Fed to take its foot off the accelerator (i.e. remove monetary stimulus at a faster rate).

Thus, a speech from influential Fed Board of Governors member and NY Fed President John Williams at 1710GMT will be closely scrutinised. If he continues to emphasise that the Fed is willing to be patient with regard to rate hikes and that the bank continues to believe the spike in inflation to be transitory, this may exacerbate fears that the Fed is making a dovish mistake. This would likely help gold finish the week with a flurry.

• US consumer confidence drops unexpectedly to 10-year low.
• Greenback losses momentum during Friday’s American session as yields correct lower.
• EUR/USD unable to make a sustainable recovery above 1.1450.

The EUR/USD bounced from a fresh cycle low and climbed to 1.1461 but only to pull back quickly under 1.1450. The pair is about to end the week under pressure, unable to make a strong recovery.

The euro is about to post the lowest weekly close since July 2020 versus the US dollar. It remains under pressure and for another time, the rebound was seen as an opportunity for traders to sell EUR/USD.

Economic data in the US showed the US University of Michigan Consumer Sentiment index dropped unexpectedly to the lowest level in 10 years at 66.8 against expectations of an increase to 72.4. “US consumer confidence is being threatened by the rising cost of living. Thankfully the relationship between spending and sentiment has been weak for a number of years and the strong underlying economic position means spending will continue to grow. Meanwhile, people continue to quit their jobs in record numbers as pay rates rise,” explained analysts at ING.

The numbers triggered a decline in US yields and weighed on the greenback. The US Dollar Index turned negative for the day, retreating from one-year highs. The EUR/USD failed to benefit strongly from the weaker greenback, and it remains near weekly lows, showing that the bearish pressure persists.

Technical levels

Analysts at MUFG Bank continue to see the GBP/CHF headed to the downside in the short term. They see a potential benefit of the Swiss franc from inflation concerns and the pound facing increasing downside risks. 

Key Quotes:

“We believe that risks for the GBP remain to the downside in the near-term. Firstly, we expect real yields in the UK to remain under downward pressure after the BoE stuck to plans to raise rates only gradually. At the same time inflation expectations could continue to drift higher as headline inflation continues to pick up towards 5% heading into year end. The release of the latest UK CPI for October in the week ahead could add to those inflation concerns.”

“We are wary of a heightened risk of a more disruptive Brexit outcome from the ongoing EU-UK tensions over the Northern Ireland protocol. Both sides remain far apart and there is increasing speculation that the UK government will trigger Article 16 which could be met by a powerful response from the EU that even puts No Deal Brexit risk back on the table. The UK government’s decision is expected by early December. Fresh EU-UK trade tensions could reinforce concerns over supply disruptions in the UK which are already contributing to the less favourable outlook for growth and inflation.”

“We chose a long CHF leg as we have already recommended long USD exposure against the EUR. The CHF should continue to benefit as well from building concerns over higher inflation. The CHF has proven to be better store of value over the long-term. It should also benefit from a pick-up in Brexit risks. Technically, EUR/CHF is approaching pandemic lows at 1.0505. CHF strength could accelerate if key support levels are broken and the SNB does not step up intervention to dampen the move.”

• US bond yields saw some downside in wake of weak US consumer sentiment numbers.
• But Friday’s US data supported the narrative that inflation won’t be transitory.
• Traders will look for any hawkish hints when Fed’s Williams speaks later.

US bond yields saw a modest drop in wake of the latest batch of US data, which included the release of the September JOLTs Job Openings report and the preliminary November University of Michigan Consumer Sentiment survey. The latter survey showed consumer sentiment at its weakest since 2011, which likely weighed on yields, though the data also supported the narrative that inflation won’t be transitory.

The yield of the US 10-year treasury fell from above 1.57% to session lows around 1.54%, though has subsequently recovered back to just under the 1.56% mark. That means the 10-year yield is flat on the day. More broadly, price action across the US treasury curve has been relatively tame on the final trading day of the week, with the 2-year yield flat just above 0.50%, the 5-year yield flat just above 1.21% and the 30-year yield about 1bps higher just under 1.93%.

Short-end yields had been a little higher earlier in the session, with the 2-year at one point above 0.54%. Some profit-taking on bond short-positions from earlier in the week, when bond markets sold off hard in wake of a much hotter than expected US Consumer Price Inflation report, is likely driving the drop minor pullback in short-end yields.

Consumer Sentiment battered by inflation concerns

The headline University of Michigan Consumer Sentiment index fell to 66.8 in November, well below forecasts for a slight rise to 72.4 from 71.7. As noted, that marked its weakest reading since 2011. According to Richard Curtin, Surveys of Consumers chief economist, sentiment was hit by “an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation”. Curtin added that “one-in-four consumers cited inflationary reductions in their living standards in November”. With consumers not hopeful about the prospect for near-term improvement in the inflation outlook, the expectations index saw a sharp drop to 62.8 (expected 70.0, previous 67.9), while the assessment of current conditions index fell to 73.2 (expected 80, previous 77.7), multi-year lows for both as well. 1-year inflation expectations rose slightly to 4.9% from 4.8% in October, while the 5-year expectation was steady at 2.9%.

At the same time as the Consumer Sentiment survey, the latest US JOLTs Job Openings report was also released for September. A smaller than expected drop in job openings was witness on the month, with openings coming in at 10.438M versus forecasts for a drop to 10.3M. The number of openings in August was revised higher to 10.629M. That meant that there was a record 2.8M more job openings than unemployed persons in the US economy in September. The quit rate also reached a record high at 3.0%, up from 2.9% the month prior. A higher quit rate indicates that employees are more confident in their ability to find a new, likely better paid job, a good indicator that the labour market is healthy.

Pressure mounts on Fed to react to inflation

With inflation now weighing more on consumer sentiment than the emergence of the Covid-19 pandemic did back at the start of 2020, pressure is mounting on the Fed to do something about it. Meanwhile, the fact that the labour market is red hot, as indicated by the recent official jobs report for October and Friday’s JOLTs report for September, the idea that the current spike in inflation above the Fed’s 2.0% target is merely transitory seems increasingly unbelievable.

Coming up, Fed Board of Governor member and NY Fed President John Williams will have chance to react to the recent run of highly inflationary data releases. Any hint towards a hawkish shift in Fed policy would likely put upwards pressure on bond yields, particularly the short-end.

• Limited gains in equity markets and lower US yields boost Japanese yen across the board.
• US dollar retreats on American hours, DXY turns negative.
• USD/JPY erases gains, back into the previous range around 114.00.

The USD/JPY retreated further during Friday’s American session and dropped to 113.75, hitting a two day low. Earlier on the day, the pair climbed to 114.29, hitting the highest level in almost two weeks.

The combination of lower US yields, caution across equity markets and mixed economic data from the US strengthened the Japanese yen on Friday. The US dollar lost momentum near the end of the week. The DXY is falling after a strong two-day rally. It hit a fresh multi-month high and the 95.26 and then pulled back toward 95.10.

Economic data released on Friday showed the Consumer Confidence index, measured by University of Michigan, dropped from 71.7 to 66.8, against expectations of an increase to 72.4. US yields bottomed after the report with the 10-year falling to 1.54%.

The outlook for USD/JPY continues to point to a consolidation after the sharp rebound from 112.70 back above 113.40. It is back to the previous range around 114.00. A daily close above 114.40 should point to more gains, while under 113.30,  a test of the monthly lows seems likely.

Technical levels

UK Brexit Minister Lord David Frost said that the UK and EU will hold intensified talks next week on the implementation of the Northern Ireland protocol and the talks will focus on customs and medicine, according to Reuters. He noted that significant gaps remain between the UK and EU. 

• AUD/USD edges up after three-day of consecutive losses.
• Bad Australian jobs report it weighed on the AUD, which dropped almost 2% in three days. 
• A jump in US inflation not seen in 30-years boosted the US dollar, with the DXY above 95.00.

AUD/USD recovers some of its weekly losses, advances for the first time in four days, edges up 0.32%, trading at 0.7312 during the New York session at the time of writing. The Australian dollar took three days of consecutive losses, losing almost 2%, but in the European session found some demand, bouncing from daily lows around 0.7270s pushing higher, despite broad US dollar strength.

The US Dollar Index, which tracks the greenback’s performance against a basket of six peers, advances 0.06%, sitting at 95.20, underpinned by higher US T-bond yields, with the 10-year benchmark note moving higher one basis point, currently at 1.561%.

The AUD/USD seems to be moving in US dollar profit-taking. The Australian 10-year bond yield drops one basis point at 1.795%, contrary to the abovementioned US 10-year Treasury.

Australia Unemployment Rate jumped to 5.2% on a dismal jobs report

Recapping the week, the Australian economic docket witnessed the Jobs report, severely missing the market’s expectations.  The Employment Change for October dropped 46.3K when the market expected 50K new jobs added to the economy. Consequently, the Unemployment Rate for the same month jumped to 5.2%, from 4.6% in the September reading. After those figures, the Reserve Bank of Australia (RBA) cemented its dovishness stance, as witnessed by Governor Philip Lowe, who remarked that the central bank would be patient concerning rising rates in the near term.

US inflation above 6%, for the first time in three decades

On the US front, the so-called Wholesale inflation, the Producer Price Index (PPI) excluding food and energy rose by 6.8%, in line with expectations, was ignored by the market. The highlight of the week was US inflation from the consumer perspective. The headline reading increased by 6.2%, higher than the 5.8% foreseen by analysts, reaching the highest reading since 1990. 

That would put the Federal Reserve under pressure, as their view of “transitory” inflation seems to last longer than expected. It is worth noting that the US central bank announced at its last monetary policy meeting that they would begin the bond tapering in mid-November.

Further, on Friday, the University of Michigan Consumer Sentiment Index for November edged lower to 66.8, lower than the 71.7 in October, marking the lowest reading since November 2011. 

According to the report, "consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation," said Richard Curtin, Surveys of Consumers chief economist.

• Mexican peso recovers on Friday, still among worst weekly performers.
• USD/MXN moving in the new range, upside bias.

The USD/MXN is retreating on Friday, pulling back after reaching earlier at 20.72 the highest level in a week. It is trading under 20.50, with a strong bearish intraday momentum. The daily chart nevertheless stills shows a bullish bias.

If the slide continues, USD/MXN will likely face some support around 20.45. A break lower would set the attention to the 20.30 area that should limit the decline and favor a rebound. The next critical support stands around 20.13/18 that contains the 100 and 200 moving average.

On the upside, the 20.65/70 zone capped the rally so far. A daily close above 20.65 should expose the next key area of 20.85/90, the last defense to an attack of 21.00.

The daily chart shows a modest bullish bias that will likely remain in place while above 20.20. A weekly close below 20.10 (20-WMA) should strengthen the Mexican peso.

USD/MXN daily chart

Vice President of the European Commission Maroš Šefčovič, giving public comments regarding Brexit negotiations, said we are ready to look at any issue that is within the Northern Ireland protocol. Šefčovič added that problems should be tackled one at a time, perhaps starting with medicines and customs next week. When about the EU's position that the ECJ must maintain jurisdiction in Northern Ireland, he said nothing had changed.

Consumer confidence in the US deteriorated in early November with the University of Michigan's Consumer Sentiment Index declining to 66.8 from 71.7 in October. This marked the lowest reading since November 2011.

Commenting on the data, "consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation," said Richard Curtin, Surveys of Consumers chief economist. "One-in-four consumers cited inflationary reductions in their living standards in November."

Further details of the publication revealed that the Current Conditions Index fell to 73.2 from 77.7 and the Consumer Expectations Index declined to 62.8 from 70.5.

Market reaction

With the initial market reaction, the US Dollar Index edged slightly lower and was last seen losing 0.03% on the day at 95.14.

• WTI is trading with losses of around $1.0 on Friday, though has found decent support at $80.00.
• That marks a near $5.0 reversal from earlier weekly highs close to $85.00.

Crude oil prices are set to end the week at lows following significant choppiness over the past few sessions. Front-month futures contracts for the American benchmark for sweet light crude oil, West Texas Intermediary of WTI, are down about $1.0 (over 1.0%) on the day, though have for now remained supported to the north of the $80.00 level. That marks a near $5.0 reversal from earlier weekly highs close to $85.00. On the week, WTI is set to close lower by about 0.75%. Much of the downside took place on Wednesday after the hotter than expected US Consumer Price Inflation report triggered speculation that 1) the Fed would start hiking interest rates early, thus weighing on US growth in 2022 and beyond and 2) that the Biden administration might release crude oil reserves in order to (attempt to) lower energy prices and thus ease inflationary pressures being felt across the US economy.

Some market commentators cited a downgrade by OPEC+ to their 2021 oil demand growth forecast on Thursday as another bearish factor for the oil complex. Crude oil-specific newsflow since Thursday has been relatively light and so crude oil market focus has centered around demand-side dynamics. Here there are conflicting themes; there has been a lot of chatter about how an easing of international travel restrictions sets the stage for a strong rebound in jet fuel demand, which was pretty much the final component holding total global crude oil demand back from hitting pre-pandemic levels. But there has also been a building of Covid-19 concerns in Europe; lockdowns have now been announced in Austria (just for the unvaccinated) and the Netherlands and Germany, where infections rates are at record highs, looks to be next. In the US, infection rates have plateaued since the start of October and are likely to follow Europe as the winter months approach.

Danske Bank “expect many countries will re-introduce (or tighten) some of the soft measures such as face mask requirements and COVID-19 green pass” in the coming months and while the bank does “expect a weaker relationship between new cases and hospitalisations/deaths, especially in countries with high vaccine uptakes”, they warn that “if the waves get bigger than last year (due to a combination of fewer restrictions and a more transmissible variant), hospitalisations may still increase to the same levels as last year”. Even in the absence of harsh lockdown restrictions, higher Covid-19 public fear is a downside risk to developed market growth in Q4 2021/Q1 2022.

• EUR/USD keeps the offered stance unchanged near 1.1430.
• US yields trade in a mixed note following Thursday’s holiday.
• US flash Consumer Sentiment next on tap in the docket.

EUR/USD extends the weekly bearishness for yet another session and clinches fresh 2021 lows near 1.1430 at the end of the week.

EUR/USD offered on dollar’s rally

EUR/USD navigates levels last traded back in the summer 2020 amidst the relentless march north in the greenback, which pushed the US Dollar Index (DXY) to new cycle peaks in the 95.25/30 band on Friday.

The pair, in the meantime, remains at the mercy of dollar dynamics and it has definitely accelerated the downtrend following the release of US inflation figures during October (Wednesday) and the breakdown of the key 200-week SMA (1.1561). The first event triggering a sharp move higher in the buck along with US yields and speculations of an anticipated lift-off by the Fed.

Back to the calendar, Industrial Production in the broader Euroland came above expectorations after contracting 0.2% inter-month in September, while expanding 5.2% vs. the same month in 2020.

Across the Atlantic, September JOLTs Job Openings and the preliminary Consumer Sentiment for the month of November are due.

EUR/USD levels to watch

So far, spot is down 0.09% at 1.1439 and faces the next up barrier at 1.1583 (20-day SMA) followed by 1.1609 (weekly high November 9) and finally 1.1616 (monthly high Nov.4). On the other hand, a break below 1.1432 (2021 low Nov.12) would target 1.1422 (monthly high Jun.10 2020) en route to 1.1300 (round level).

• Wall Street's main indexes trade in the positive territory on Friday.
• Technology shares push higher after the opening bell.
• Investors await the University of Michigan's Consumer Sentiment Index data.

Major equity indexes in the US started the last day of the week in the positive territory on the back of improving market sentiment. The CBOE Volatility Index, Wall Street's fear gauge, was last seen falling more than 4% on the day at 16.94.

As of writing, the S&P 500 Index was up 0.2% at 4,656, the Dow Jones Industrial Average was rising 0.27% at 36,015 and the Nasdaq Composite was gaining 0.5% at 15,704.

Among the 11 major sectors, the Communication Services and the Technology indexes are up 0.3% after the opening bell. On the other hand, the defensive Utilities Index is losing 0.4%.

Later in the session, the University of Michigan will release the preliminary Consumer Sentiment Index data for November.

S&P 500 chart (daily)

GBP/USD has seen a decent intraday rally from the mid-1.33s. Economists at Scotiabank believe the cable can extend its rebound above the 1.3410 mark.

GBP/USD to enjoy a short-term bounce

“Cable is showing tentative signs of a shorter-term bounce. A small ‘cup/handle’ pattern seems to be developing and we think gains should extend above 1.3410 intraday.”

“A daily close above 1.3415 may provide the GBP with broader relief.”

EUR/USD is steady in the low 1.14s. However, the bear trend is set to persist, economists at Scotiabank report.

Resistance seen at 1.1525/30

“We continue to target 1.14 as the near-term bear objective.”

“The 1.10/1.11 zone remains a very viable objective in the next few months.”

“Resistance is 1.1525/30.”

• USD/TRY rises to 9.9800 on Friday, new all-time high.
• Turkey Retail Sales rose 1.2% MoM in October.
• Industrial Production surprised to the downside.

The Turkish lira remains well on the defensive and lifts USD/TRY closer to the psychological 10.0000 mark on Friday.

USD/TRY now looks to CBRT

USD/TRY navigates the fourth consecutive session with gains at the end of the week and corrects lower after climbing as high as the 9.9800 level, or a new all-time peak.

The firmer stance in the greenback in past sessions, particularly in response to the multi-decade spike in inflation recorded during last month, sponsored the investors’ exodus from the EM FX space along with the rest of the risk-linked assets and put the lira under extra pressure.

Earlier on Friday, Turkey’s finmin L.Elvan ruled out speculations that the government was deliberately aiming at a weaker lira in order to support the country’s export sector, while he added that the economy could expand more than 9% this year and that the current account deficit is seen below 2% by year end.

In the domestic data space, Retail Sales expanded at a monthly 1.2% in October and 15.9% from a year earlier, while Industrial Production expanded 8.9% in the year to September. Additional data saw the End Year CPI Forecast rising to 19.31% (from 17.63%).

USD/TRY key levels

So far, the pair is gaining 0.62% at 9.9452 and a drop below 9.5911 (20-day SMA) would expose 9.4722 (monthly low Nov.2) and finally 9.4128 (weekly low Oct.26). On the other hand, the next up barrier lines up at 9.9794 (all-time high Nov.12) followed by 10.0000 (psychological level).

The commitment from the Fed to support the economy, while letting inflation print higher, prompts strategists at Société Générale to revise up their gold forecast. They expect XAU/USD to average $1,950 in the first quarter of 2022.

XAU/USD to fall towards $1,700 in 4Q22

“We are still slightly supportive in the near-term as we expect monetary and fiscal policy to remain highly accommodative. Indeed, the Fed seems to be reluctant to increase interest rates any time soon, this combined with high inflation create the perfect mix of negative real rates for gold.”

“The renewed commitment from the Fed to support the economy while letting inflation printing higher lead us to revised up our forecast. We now expect price to average $1,950 in 1Q22. Then it should gradually decline down to $1,700 in 4Q22 as the situation normalises.”

See – Gold Price Forecast: XAU/USD to form an uptrend by March 2022 – TDS

• USD/CAD recent rally seems to have stalled at 1.2600.
• FX market focus now turns to US data and Fed speak, as well as the BoC Loan Officer survey.

USD/CAD’s bull run of the past two sessions looks to have come to an end on Friday as the pair runs into solid resistance at 1.2600. The pair rocketed higher in recent session amid 1) broad US dollar strength as traders brought forward Fed rate hike bets following a hot October US Consumer Price Inflation report and 2) as crude oil prices (WTI) reversed sharply back from earlier weekly highs around $85.00 to current levels just above $80.00.

On its way higher this week, the pair cleared a number of key levels of resistance, including the 200-day moving average at 1.2480, a balance area around 1.2500 and the 50DMA at 1.2535. The next area of notable resistance, besides the 1.2600 level that is currently capping the price action, is at 1.2650 but beyond that, it's clear air all the way up to above 1.2750.

Day Ahead

FX markets now look to upcoming US data and Fed speak for further impetus. The September JOLTs Job-Opening report is out at 1500GMT, which should show that labour demand remains very strong. Also released at 1500GMT will be preliminary November University of Michigan Consumer Sentiment survey, which will give a timely insight as to the state of US consumer health heading into the winter holiday shopping season. As ever, the consumer inflation expectation data in the report will be closely scrutinised. Risks for USD are tilted to the upside with markets twitchy about anything that might add to the inflation narrative (like a tighter than expected labour market or higher than expected consumer inflation expectations).

FOMC Board of Governors member and NY Fed President John Williams is then scheduled to speak at 1710GMT. San Fransisco Fed President and FOMC member Mary Daly has been the only FOMC member to address this week’s shock consumer price inflation report so far. While she expressed concern about high inflation, she reiterated the stance laid out by Fed Chair Jerome Powell at the latest policy meeting that inflation pressures will likely subside next year and the Fed should be patient on rate hikes to allow time for the labour market to recover. Williams’ comments will carry more weight.

Outside of US economic events, traders will also be watching the release of the Bank of Canada’s quarterly Senior Loan Officer survey at 1530GMT, which will update on the business-lending practices of major Canadian financial institutions. The report usually does not have an impact on FX markets.

• Silver managed to recover a part of its intraday losses, though remained on the defensive.
• The technical set-up favours bulls and supports prospects for a further appreciating move.
• A sustained break below mid-$24.00s is needed to negate the near-term positive outlook.

Silver witnessed some selling on the last day of the week, though lacked any follow-through. The white metal has now pared its intraday losses and was last seen trading around the 50% Fibonacci level of the $28.75-$21.42 downfall, just above the key $25.00 psychological mark.

Given this week's sustained breakout through 100-day SMA/38.2% Fibo. confluence barrier, a subsequent strength beyond the mid-$24.00s favours bullish traders. This, along with the emergence of some dip-buying on Friday, supports prospects for an extension of the appreciating move.

Apart from this, the emergence of some dip-buying on Friday and bullish oscillators on the daily chart further adds credence to the constructive outlook. Hence, a follow-through move towards the $25.55-60 intermediate hurdle, en-route the $26.00 mark, remains a distinct possibility.

The latter coincides with the 61.8% Fibo. level should act as a strong resistance amid absent relevant fundamental catalyst. That said, a convincing breakthrough will be seen as a fresh trigger for bullish traders and pave the way for additional near-term gains for the XAG/USD.

On the flip side, any meaningful corrective pullback might continue to attract some dip-buying and remain limited near the $24.50 resistance breakpoint. Failure to defend the mentioned support could turn the XAG/USD vulnerable to accelerate the slide towards the $24.00 mark.

Some follow-through selling below the $23.70 area will shift the bias in favour of bearish traders and set the stage for deeper losses, towards the $23.00 mark. The next relevant support is pegged near mid-$22.00s, below which the XAG/USD could slide to YTD lows, around the $21.40 area.

Silver daily chart

Technical levels to watch

• NZD/USD is currently flat, having rebounded from an earlier test of the 0.7000 level.
• The pair is set to end the week sharply lower, however, after hot US inflation triggered broad USD strength.

FX market conditions are broadly subdued so far this Friday and NZD/USD is no exception, with the pair currently trading flat on the day around the 0.7020 mark, having recovered from a test of the 0.7000 level during the Asia session. Given the partial closure of US markets on Thursday for Veteran’s Day, liquidity conditions are thinner than usual for a Friday, likely indicative of the fact that many US market participants took a long weekend’s holiday.

Things have been pretty quiet in terms of fundamental developments this week in New Zealand. The main focus in markets there is on the gradually rising full vaccination rate in the country that should soon hit the 90% threshold set by the government as a condition for full removal of lockdown restrictions. For Auckland, where restrictions are toughest, that lockdown easing is scheduled to come at the end of the month and should see shops allowed to reopen. Focus will then be on whether the government and health authorities can stomach a surge in Covid-19 infections amongst the vaccinated (as seen in other parts of the world with a high vaccination rate such as Europe and the US in recent months).

NZD/USD looks set to end the week with fairly sharp losses of about 1.2%, most of which were accrued in the immediate aftermath of Wednesday’s much hotter than expected US Consumer Price Inflation report for October, which triggered a spike in US bond yields and prompted an aggressive hawkish repricing in USD STIR markets. That mark’s the pair’s worst week since mid-August when snap lockdowns were announced, thus delaying a previously widely expected first rate hike from the RBNZ. The RBNZ’s relative hawkishness vs the Fed may shield the pair from further USD advances and next week could see a tentative recovery back toward’s the pair’s 50DMA just above 0.7060.

EUR/USD continues to drip lower. Economists at TD Securities expect the world’s most popular currency pair to dive towards 1.13 on a break below 1.1420.

EUR/USD is on a course correction lower

“We note that the momentum indicators continue to suggest a drip lower for EUR/USD.”

“1.1420 marks the next support marker but this does not look formidable. Below this, there isn't much in the way of support until 1.13.”

• GBP/USD is back to 1.3400 from Asia session lows just above 1.3350.
• The pair is outperforming its G10 counterparts amid hopes that the UK diffuses Brexit tensions.

GBP/USD has seen a modest rebound from Friday’s Asia Pacific session lows just above 1.3350 and is currently trading close to the 1.3400 level. Pound sterling is the best performing G10 currency on what has otherwise so far been a relatively quiet Friday. Nonetheless, GBP/USD appears to be struggling to extend its gains beyond 1.3400 and even if it does manage that, it faces resistance in the form of the prior annual lows in the 1.3410-20 area.

On the week, cable still stands to lose about 0.75%, with the main bearish driver being a broad strengthening of the US dollar (the DXY surged to fresh annual highs above 95.00) in wake of hotter than expected US inflation reports. The only notable UK data was the preliminary estimate of UK GDP growth in Q3, which showed a sharp slowdown in the QoQ pace of growth from above 5.0% in Q2 to 1.3% in Q3, broadly in line with expectations. The next important UK data will be the labour market report on Tuesday. The BoE is paying more attention than usual to labour market developments and wants to see that the unemployment rate didn’t spike sharply in wake of the end of the government’s furlough scheme at the end of September before opting to hike interest rates.

Sterling outperformance as Brexit concerns ease

As to why GBP is the strongest G10 performer on Friday, market commentators are citing a report by The Times that the UK wants to de-escalate Brexit-related tensions with the EU and does not want to trigger Article 16 – this would allow the UK to unilaterally suspend parts of the Northern Ireland protocol that governs the movement of goods in and out of Northern Ireland. According to sources cited in the article, UK Brexit Minister Lord David Frost is keen to emphasise to the Vice President of the European Commission that while the UK is still not fully on board with the bloc’s most recent proposals to reduce checks on goods crossing between Britain and Northern Ireland, they could form the basis of an agreement.

Tensions have been bubbling in recent weeks between the UK and EU over the former’s threats to trigger Article 16 and amid growing speculation that the EU could suspend parts of (or all of) the post-Brexit trade deal in retaliation. France and the UK have also been bickering over access to UK fishing waters for French boats. UK PM Boris Johnson is in Paris on Friday and in talks with French President Macron, where the above-noted issues will undoubtedly by the main topic of discussion. ING thinks “we think the risks for the pound (which is currently showing no political risk premium) are not as high as in 2018/19 when the risk of no-deal Brexit triggered extended periods of GBP weakness”.

• USD/JPY witnessed a modest pullback from near two-week tops touched earlier this Friday.
• A combination of factors should help limit the corrective slide and attract some dip-buying.

The USD/JPY pair edged lower through the early North American session and dropped to fresh daily lows, below the 114.00 mark in the last hour.

The pair struggled to capitalize on its intraday uptick, instead witnessed a modest pullback from the 114.30 area, or near two-week tops touched earlier this Friday. The downtick could be attributed to some profit-taking amid a subdued US dollar demand and following this week's rally of over 150 pips, triggered by hotter-than-expected US CPI.

Meanwhile, the downside remains cushioned on the back of a positive tone around the equity markets, which tends to undermine the safe-haven Japanese yen, and elevated US Treasury bond yields. The hotter-than-expected US CPI print released on Wednesday reaffirmed hawkish Fed expectations and continued acting as a tailwind for the US bond yields.

Investors now seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflationary pressures. In fact, the Fed funds futures indicate that the first rate hike could come as soon as July 2022. This should assist the greenback to attract some dip-buying and lend some support to the USD/JPY pair.

That said, the pair's inability to gain follow-through traction warrants caution for bullish traders. Next on tap will be the release of the Prelim Michigan Consumer Sentiment Index from the US. This, along with the US bond yields, will influence the USD. Traders will further take cues from the market risk sentiment for some impetus around the USD/JPY pair.

Technical levels to watch

• EUR/JPY meets support around the 200-day SMA near 130.40.
• The dollar’s upside loses momentum after hitting 2021 highs.
• The US flash Consumer Sentiment for November comes next.

EUR/JPY remains under pressure and navigates the fourth consecutive session with losses on Friday, this time around the 130.40 region, where the key 200-day SMA is also located.

EUR/JPY looks to USD, data

EUR/JPY remains on track to close the fourth consecutive week with losses, extending the rejection from October’s high near 133.50.

The solid momentum in the greenback has been weighing on the performance of the risk-associated assets in past weeks, all amidst the corrective downside in US yields along the curve, while the latest US inflation figures only added to the dollar’s attractiveness.

Earlier in the calendar, Industrial Production in the broader Euroland surprised to the upside after contracting 0.2% MoM in September and 5.2% over the last twelve months.

In the NA session, the preliminary November Consumer Sentiment gauge comes up next.

EUR/JPY relevant levels

So far, the cross is losing 0.06% at 130.51 and a surpass of 131.51 (38.2% Fibo of the October upside) would expose 131.85 (20-day SMA) and then 132.56 (monthly high Nov.4). On the downside, the next support comes at 130.41 (monthly low Nov.12) followed by 130.23 (100-day SMA) and finally 129.43 (78.6% Fibo of the October upside).

• Gold edged lower on Friday and snapped six days of the winning streak to multi-month tops.
• Hawkish Fed expectations seemed to be the only factor that prompted some profit-taking.
• Inflation fears should help limit the corrective pullback and attract dip-buying at lower levels.
• Gold Price Forecast: XAU/USD awaits acceptance above $1,870, focus on US consumer data

Gold witnessed some selling on Friday and for now, seems to have snapped six consecutive days of the winning streak. In the absence of fresh catalyst, bulls preferred to take some profits off the table following the recent strong run-up to the highest level since June 14 and hawkish Fed expectations.

This week's hotter-than-expected US CPI print fueled speculations that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. In fact, the Fed funds futures indicate that the first-rate hike could come as soon as July 2022. The prospects for an early policy tightening by the Fed was reinforced by elevated US Treasury bond yields, which, in turn, drove flows away from the non-yielding yellow metal.

This, along with the prevalent bullish sentiment surrounding the US dollar, acted as a headwind for dollar-denominated commodities, including gold. Apart from this, stability in the financial markets also did little to lend any support to the safe-haven precious metal, or stall the intraday decline to the $1,845 region during the mid-European session. That said, worries about a faster-than-expected rise in inflationary pressures helped limit the downside for the XAU/USD, which is a proven long-term hedge against rising prices.

Hence, any subsequent pullback might continue to attract some dip-buying near the $1,834-32 strong horizontal resistance breakpoint. Nevertheless, gold remains on track to post its biggest weekly gains in six months and seems poised to appreciate further. A sustained move beyond the $1,865 region, or multi-month tops touched on Wednesday, will reaffirm the bullish bias and set the stage for an extension of the upward trajectory.

Technical outlook

Looking at the technical picture, gold this week confirmed a bullish breakout through the $1,834-32 supply zone and ascending trend-channel resistance. This further adds credence to the near-term constructive outlook, though slightly overbought RSI on short-term charts kept a lid on any further gains.  Bulls might also wait for a sustained move beyond the $1,865 region before placing fresh bets around gold. The commodity might then accelerate the momentum towards testing an intermediate hurdle near the $1,886-87 region and aim to reclaim the $1,900 mark.

On the flip side, the ascending channel resistance breakpoint, coinciding with the $1,834-32 supply zone, should now act as a strong base for spot prices. Some follow-through selling might trigger long-unwinding trade and drag gold towards the next relevant support near the $1,815 horizontal zone en-route the $1,800 mark.

Gold daily chart

• EUR/USD drops further and reaches new YTD low at 1.1436.
• Further selling could see the 1.1422 level revisited near term.

EUR/USD remains under heavy pressure on Friday, although the vicinity of 1.1430 appears to be holding well the downside for the time being.

The continuation of the downtrend appears favoured in the short-term horizon. Against this, and if the pair clears the YTD low at 1.1436, the focus of attention is expected to quickly gyrate to the June 2020 high at 1.1422 (June 10).

In the meantime, extra losses remain look likely as long as the pair trades below the immediate resistance line (off September’s high) today near 1.1630.

EUR/USD daily chart

26 out of 47 economists surveyed by Reuters see the Bank of England (BoE) hiking its policy rate to 0.25% on December 16. The October poll showed that the majority of economists was expecting the BoE to raise its rate in the first quarter of 2022.

Economists forecast the UK inflation to average 4.1% in the last quarter of 2021, 4.2% in the first quarter of 2022 and 4.2% in the second quarter. Finally, the UK economy is expected to expand by 5.0% in 2022 and 2.1% in 2023.

Market reaction

The British pound showed no immediate reaction to this headline and the GBP/USD pair was last seen rising 0.15% on a daily basis at 1.3390.

• DXY records a new 2021 high at 95.26 on Friday.
• Next on the upside is seen the 97.80 level (June 30 2020 high).

DXY extends the rally for yet another session and clinches fresh YTD tops in the 95.25/30 band  at the end of the week.

Both the macro and the technical outlooks favour extra gains in the dollar for the time being. That said, while above former tops in the mid-94.00s (October 12) the index is expected to edge higher to, initially, the round levels at 96.00 and 97.00, while a more significant level is located at the June 30 2020 at 97.80.

Looking at the broader picture, the constructive stance on the index is seen intact above the 200-day SMA at 92.13.

DXY daily chart

Copper prices more than doubled from 1Q20 to May 2021, but this impressive rally then stopped and prices have trended downward over the past six months. Strategists at Société Générale are slightly bearish in 2022 on abundant supply, however, things are set to get very bullish in later years.

Copper prices to drop throughout 2022

“We are still bearish on copper in the short-to-medium term and see prices averaging a low $7,500/t in 2Q22.” 

“We think this subdued price reaction shows that the investor frenzy related to copper’s usage in the green transition is fading. The copper market is reconnecting with its fundamentals and we expect it to be bearish in the short-term.”

“In the longer-term, both supply and demand outlook for copper are extremely bullish. We could see prices averaging $12,500/t by 2025. This is far beyond our one year-out forecast, but we expect the market to be forward-looking and prices to start rebounding to $8,500 by the end of next year.”

• EUR/JPY extends the leg lower to the 130.40 area.
• The 200-day SMA holds the downside so far.

EUR/JPY adds to the ongoing decline and keeps navigating the area of 4-week lows in the 130.40 region on Friday.

EUR/JPY gyrates around the 55-day SMA in the mid-130.00s at the end of the week, while a drop below this area should expose another visit to the critical 200-day SMA around 130.40. This area of support remains propped up by the proximity of a Fibo retracement (of the October’s rally) near 130.30.

Below the 200-day SMA, the outlook for the cross is predicted to shift to bearish.

EUR/JPY daily chart

EUR/SEK has staged an initial bounce after forming a low near 9.86 last month. However, economists at Société Générale expect the pair to move back lower towards the 9.80 level.

Upside limited

“Signals of an extended up-move are still not visible.”

“200-DMA near 10.14/10.21 is short-term resistance.”

“Holding below the 200-DMA near 10.14/10.21, the pair is likely to drift lower towards 9.80, the 50% retracement from 2012.”

See – EUR/SEK: Riksbank tightening expectations to support krona momentum – CIBC

For 2022 at least, OPEC+ can manage supply and, as such, strategists at Société Générale forecast Brent prices to average $77.5/bbl in 2022.

The market balance to remain in surplus throughout 2022

“We revise up our oil price forecasts for 2022 by $10/bbl, as the oil market environment becomes more bullish.”

“We now forecast Brent prices at $80/bbl in 1Q22 and to average $77.5/bbl over 2022.”

“OPEC still maintains a healthy supply cushion, Iranian barrels have yet to be released into the market and US shale could respond at these price levels despite companies maintaining strong discipline. Beyond 2022, however, things could get very bullish, as demand recovers but longer-term supply is vulnerable, with lower global upstream spending fuelling speculation about adequate oil supply.”

• USD/CHF gained strong follow-through traction for the third successive day on Friday.
• Hawkish Fed expectations continued underpinning the USD and remained supportive.
• The cautious market mood could benefit the safe-haven CHF and cap any further gains.

The USD/CHF pair continued scaling higher through the mid-European session and shot to over three-week tops, around the 0.9230 region in the last hour.

The pair built on this week's hotter-than-expected US CPI-inspired strong positive move from the 0.9100 mark and gained some follow-through traction for the third successive day on Friday. The momentum was sponsored by the prevalent bullish sentiment surrounding the US dollar, which remained well supported by prospects for an early policy tightening by the Fed.

The US consumer prices in October rose at the fastest pace since 1990 and fueled speculations that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. In fact, the Fed funds futures indicate that the first-rate hike could come as soon as July 2022. This, in turn, was seen as a key factor that acted as a tailwind for the USD.

The greenback was further underpinned by elevated US Treasury bond yields, though the cautious market mood could benefit the safe-haven Swiss franc and cap gains for the USD/CHF pair. Nevertheless, the ongoing positive move suggests that the recent sharp corrective slide from September monthly swing lows has run its course and supports prospects for additional near-term gains.

Investors now look forward to the US economic docket, highlighting the release of the Prelim Michigan Consumer Sentiment Index later during the early North Amerian session. This, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the USD/CHF pair.

Technical levels to watch

EUR/USD has visited 2021 lows around 1.1430. The policy divergence between the Federal Reserve and the European Central Bank (ECB) continues to drive the pair's action. Economists at MUFG Bank expect not to get any let-up on policy stimulus from the ECB, subsequently, EUR/USD should see another leg lower.

The market remains excessively priced for rate hikes in the eurozone

“The market remains excessively priced for rate hikes in the eurozone. While other markets may also be overpriced now (but have corrected somewhat) it is only the ECB that remains so adamant in its dovish guidance, guidance which is likely to be repeated strongly at the next meeting.”

“Over the coming months, the scope for further declines in EUR/USD could come from changes in tightening over a longer period. Currently, there is only a 10bp spread between 2yr and 3yr US OIS (135bps vs 145bps) but if the US labour market starts to recover strongly in the coming months, the markets view of rate hikes further out could change more relative to the eurozone – that could be the catalyst for another move lower in EUR/USD.”

Gold has broken out from a small base by breaking above July/August/September peaks of $1,835. The yellow metal could extend its upmove on a break above the $1,875 mark, strategists at Société Générale report.

$1,835 and $1,810 are short-term support levels

“Gold is marching towards a multi month descending trend line near $1,875. A break above $1,875 would denote an extended rebound towards projections of $1,930 and graphical levels of $1,965/$1,980.”

“Daily MACD has entered positive territory which denotes upside momentum is regaining.”

“Upper band of the base near $1,835 and $1,810 are short-term support levels.”

The US dollar continues to gather strength. Economists at MUFG Bank expect the greenback to march forward in the coming months. 

UST bond volatility picking up helping lift USD

“The near-term outlook for the USD remains positive and the sharp moves higher in UST bond yields on higher inflation looks likely to remain in place for now. The 10-year UST-Bund yield spread is testing the 180-level again and seems more likely to break higher this time – the first time that would have happened since early March. Higher UST bond volatility has tended to lift the USD this year.”

“The 2-year UST bond yield is now trading at a post-pandemic cyclical high of 0.53% and we are now beginning to see the relative rates adjustment in favour of the US that we expected.”

“Stronger jobs growth and continued elevated inflation over the coming months will likely lead to speculation of a potentially faster pace of QE tapering that prompts higher rate expectations – a scenario that would continue to help strengthen the dollar over the coming months.”

EUR/USD has retreated below 1.15 for the first time since July 2020. Economists at Société Générale expect the pair to extend its downtrend towards the next support at 1.1380.

Downtrend persists

“Next potential supports are 1.1380 and projections of 1.1290/1.1220.”

“Short-term upside could remain capped at 1.1610.”

• GBP/JPY staged a goodish rebound from multi-week lows touched earlier this Friday.
• The British pound witnessed some short-covering ahead of the key UK-EU Brexit talks.
• The cautious market mood benefitted the safe-haven JPY and capped any further gains.

The GBP/JPY cross held on to its modest intraday gains through the first half of the European session, albeit lacked any follow-through buying and remained below the 153.00 mark.

The cross attracted some buying near the 152.35-30 area, or five-week lows touched earlier this Friday and for now, seems to have snapped three successive days of the losing streak. The uptick lacked any obvious fundamental catalyst and could be attributed to some short-covering move ahead of crunch Brexit talks.

The United Kingdom and the European Union are due to enter new negotiations on Friday amid worries that Britain could trigger the so-called Article 16 of the Northern Ireland Protocol. The EU, however, is reportedly prepared to offer more concessions to the UK in a bid to avoid suspension of the post-Brexit trade agreement.

This, along with modest US dollar pullback from 16-month tops acted as a tailwind for the British pound and extended some support to the GBP/JPY cross. That said, the prevalent cautious mood around the equity markets – amid inflation fears – underpinned the safe-haven Japanese yen and kept a lid on any further gains.

Looking at the technical picture, the GBP/JPY cross on Thursday broke through a near one-week-old trading range support that coincided with 100-day SMA. Hence, it remains to be seen if bulls are able to capitalize on the move or meet with fresh supply at higher levels amid absent relevant market moving economic releases.

Meanwhile, the GBP/JPY pair's inability to capitalize on the attempted recovery indicates that the recent bearish pressure might still be far from being over. This, in turn, suggests that any subsequent positive move could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch

The Turkish lira has plummeted to a record low of 9.9859 against the US dollar. Economists at Société Générale expect the pair to challenge the 10.00 psychological level as the Central Bank of the Republic of Turkey (CBRT) may deliver a 100bp rate cut next week.

CBRT to go on with a 100bp rate cut

“A test of 10.00/USD looms as markets position for the possibility of a 100bp rate cut by the CBRT next week.” 

“USD/TRY experienced a brief pause recently as it tested the upper limit of a multi-month ascending channel. It has now overcome this band which points towards extension in uptrend.” 

“It is worth noting that the pair has consistently defended the short-term 10-DMA since September. Holding above the MA at 9.73/9.66, the pair looks poised to head higher towards next projections at 10.16 and 10.31/10.36.”

Eurozone’s Industrial Production in Germany showed a smaller-than-expected decrease in September, the official data published by Eurostat showed on Friday, suggesting that the recovery in the manufacturing sector could be gaining traction.

The industrial output in the bloc arrived at -0.2% MoM vs. a 0.5% drop expected and -1.6% last.

On an annualized basis, the industrial output rose by 5.2% in September versus a 4.1% increase expected and August’s 5.1%.

FX implications

The shared currency fails to benefit from upbeat industrial figures.

At the time of writing, EUR/USD loses 0.07% on the day to trade at 1.1443, with the bearish momentum intact amid US inflation woes-backed broad US dollar strength.

About Eurozone Industrial Production

Industrial Production is released by Eurostat. It shows the volume of production of Industries such as factories and manufacturing. Uptrend is regarded as inflationary which may anticipate interest rates to rise. Usually, if high industrial production growth comes out, this may generate a positive sentiment (or bullish) for the EUR, while low industrial production is seen as a negative sentiment (or bearish).

• USD/CAD gained traction for the third successive day and refreshed multi-week tops.
• Weaker crude oil prices undermined the loonie and acted as a tailwind for the major.
• The strong USD bullish sentiment supports prospects for a further appreciating move.

The USD/CAD pair maintained its bid tone near multi-week tops through the early European session, with bulls looking to build on the momentum beyond the 1.2600 mark.

The pair built on the previous day's bullish breakout momentum through a three-week-old ascending channel and gained some follow-through traction for the third successive day on Friday. A weaker tone around crude oil prices undermined the commodity-linked loonie and acted as a tailwind for the USD/CAD pair amid the prevalent strong bullish sentiment surrounding the US dollar.

In fact, the USD Index shot to 16-month tops earlier today amid expectations that the Fed would adopt a more aggressive policy response to contain stubbornly high inflationary pressures. The bets for an early policy tightening by the Fed increased further after data released on Wednesday showed that the US consumer prices in October rose at the fastest annual pace since 1990.

Meanwhile, the Fed funds futures indicate that the first-rate hike could come as soon as July 2022, which, in turn, remained supportive of elevated US Treasury bond yields. This, along with the cautious mood around the equity markets, continued underpinning the safe-haven greenback and pushed the USD/CAD pair to the highest level since October 6, validating the bullish breakout.

This comes on the back of acceptance above the very important 200-day SMA and supports prospects for an extension of this week's hotter-than-expected US CPI-inspired strong rally from sub-1.2400 levels. That said, overbought RSI (14) on hourly charts warrants some caution for aggressive bullish traders. Nevertheless, the USD/CAD pair remains on track to end the week on a positive note.

Investors now look forward to the US economic docket, highlighting the release of the Prelim Michigan Consumer Sentiment Index. Apart from this, the US bond yields and the broader market risk sentiment will influence the USD. Traders will further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.

Technical levels to watch

FX option expiries for November 12 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.1460 1.2b
• 1.1500 790m
• 1.1550 1.7b
• 1.1605 655m

- GBP/USD: GBP amounts        

• 1.3320 793m
• 1.3690 371m

- USD/JPY: USD amounts                     

• 113.00 662m
• 114.00 1.9b

AUD/USD: AUD amounts

• 0.7370 722m
• 0.7385 882m

- USD/CAD: USD amounts       

• 1.2390 776m
• 1.2450 634m
• 1.2465-75 1.1b
• 1.2490 1.4b
• 1.2510 1.2b

- NZD/USD: NZD amounts

• 0.6600 723m
• 0.6780 723m

- EUR/GBP: EUR amounts

• 0.8400 400m
• 0.8520 440m
• 0.8625 450m

• WTI extends a three-day downtrend, remains offered below $80.
• The US oil is eyeing a symmetrical triangle breakdown on the 1D chart.
• Bearish RSI backs the downside bias, targets 50-DMA at $77.28.

WTI (NYMEX futures) is licking its wounds near $79.50, having hit weekly lows at $79.14 on Thursday.

In doing so, the US oil extends the losing streak into the third straight session, continuing with its corrective decline from seven-year peaks of $84.98 reached on October 25.

From a short-term technical perspective, WTI’s latest leg down is seen threatening the rising trendline support on the daily chart at $79.11.

A daily closing below the latter could confirm a downside breakout from a two-month-long symmetrical triangle formation, opening floors a bearish run towards the ascending 200-Daily Moving Average (DMA) at $68.82.

Ahead of that target, the 50-DMA at $77.28 will offer an immediate cushion to WTI buyers.

If that fails to hold up, then sellers will take over complete control, attacking the next support at $73.62, which is the mildly bullish 100-DMA.

The downside appears more favored, as the 14-day Relative Strength Index (RSI) inches lower below the midline.

 WTI: Daily chart

Alternatively, any recovery attempts could meet the initial supply at the $80 round figure, above which the horizontal 21-DMA at $81.77 would be tested.

The falling trendline resistance at $83.39 could be the last line of defense for WTI bears. A firm break above the latter could yield a triangle breakout, which could call for a revival of the recent uptrend.

WTI: Additional levels to watch

China and the US are maintaining close communication on the arrangement for the virtual meeting between President Xi Jinping and US President Biden, Global Times reports, citing comments from the country’s Foreign Minister.

The minister said, “China hopes the US will work with China to promote a successful meeting and push bilateral relations back on the right track.”

Earlier this week, Reuters reported that both the leaders will hold their first virtual meeting as soon as next week.

Market reaction

The US-Sino headlines fail to have any positive impact on the market sentiment, as the S&P 500 futures pare back gains to trade modestly flat around 4,650.

Meanwhile, AUD/USD holds steady just below 0.7300, as of writing.

• AUD/USD struggles to capitalize on attempted recovery beyond 0.7300 mark

• AUD/USD staged a modest recovery from over one-month lows touched earlier this Friday.
• The USD witnessed some profit-taking after hitting 16-month tops and extended support.
• A combination of factors should limit the USD pullback and cap the upside for the major.

The AUD/USD pair built on its steady intraday recovery from multi-week lows and climbed further beyond the 0.7300 mark during the early European session, albeit lacked follow-through.

Following an early dip to the lowest level since October 7, the AUD/USD pair attracted some buying near the 0.7375 region on Friday and for now, seems to have snapped three days of the losing streak. The US dollar witnessed some profit-taking after hitting 16-month tops earlier today, which, in turn, was seen as a key factor that extended some support to the major.

Meanwhile, the USD pullback lacked any obvious fundamental catalyst and is likely to remain limited amid expectations for an early policy tightening by the Fed. Wednesday's hotter-than-expected US CPI print further fueled speculations that the Fed would be forced to adopt a more aggressive policy response to contain the continuous rise in inflationary pressures.

This, along with elevated US Treasury bond yields and the cautious market mood, should act as a tailwind for the safe-haven greenback and cap gains for the perceived riskier aussie. This makes it prudent to wait for a strong follow-through buying before confirming that the recent rejection slide from 200-day SMA has run its course or placing aggressive bullish bets.

Market participants now look forward to the US economic docket, highlighting the release of the Prelim Michigan Consumer Sentiment Index later during the early North American session. Apart from this, the US bond yields and the broader market risk sentiment, will influence the USD and produce some trading opportunities around the AUD/USD pair on the last day of the week.

Technical levels to watch

• EUR/USD loses further ground and visits YTD lows around 1.1430.
• German 10y Bund yields look to extend the recent rebound.
• EMU Industrial Production, US U-Mich Index next in the docket.

There is no respite to the selling pressure around the single currency so far this week.

EUR/USD weaker, dollar rally remains unabated

EUR/USD loses ground for the third session in a row on Friday, as the rally in the greenback shows no signs of exhaustion for the time being.

Indeed, spot extends the breakdown of the 1.1500 mark and reaches new YTD lows in levels last seen in July 2020 around 1.1430, always on the back of the intense move higher in the buck.

It is worth recalling that the sentiment around the greenback improved markedly after the release of US inflation figures for the month of October (Wednesday), pushing yields higher and bringing forward a potential interest rate hike by the Fed.

Data wise in Euroland, Industrial Production in the euro bloc comes next along with the speech by ECB Board member P.Lane. Across the pond, the flash Consumer Sentiment will take centre stage.

What to look for around EUR

EUR/USD recorded new lows near 1.1430 and remains mired in the negative territory amidst an increasingly deteriorating outlook. As usual, the pair’s price action is predicted to mainly track the dynamics around the dollar, while bouts of occasional strength are seen coming from the broad risk appetite trends. On the more macro view, the loss of momentum in the economic recovery in the region - as per some weakness observed in key fundamentals – coupled with rising cases of COVID-19 is also seen pouring cold water over investors’ optimism and tempering bullish attempts in the shared currency. Further out, the euro should remain under scrutiny amidst the implicit debate between investors’ expectations of a probable lift-off sooner than anticipated and the ECB’s so far steady hand, all amidst the persevering elevated inflation in the bloc and rising conviction that it could extend further than previously estimated.

Key events in the euro area this week: EMU Industrial Production (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Sustainability of the pick-up in inflation figures. 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 down 0.01% at 1.1448 and faces the next up barrier at 1.1583 (20-day SMA) followed by 1.1609 (weekly high November 9) and finally 1.1616 (monthly high Nov.4). On the other hand, a break below 1.1436 (2021 low Nov.12) would target 1.1422 (monthly high Jun.10 2020) en route to 1.1300 (round level).

• GBP/USD staged a goodish rebound from fresh YTD lows touched earlier this Friday.
• A modest USD profit-taking was seen as a key factor that extended some support.
• Brexit jitters, last week’s dovish BoE decision kept a lid on any meaningful upside.

The GBP/USD pair refreshed daily tops during the early European session, albeit lacked follow-through and remained below the 1.3400 round-figure mark.

The pair found some support near mid-1.3300s and staged a modest rebound from the lowest level since December 2020 touched earlier this Friday, snapping three days of the losing streak. The US dollar witnessed some profit-taking after hitting 16-month tops, which, in turn, was seen as a key factor that extended some support to the GBP/USD pair. That said, any meaningful recovery still seems elusive and the attempted recovery move runs the risk of fizzling out rather quickly.

The hotter-than-expected US consumer inflation figures released on Wednesday reaffirmed market expectations that the Fed would be forced to hike interest rates sooner rather than later. In fact, the Fed funds futures indicate that the first-rate hike could come as soon as July 2022. This, along with elevated US Treasury bond yields should help limit any meaningful USD corrective slide and hold back bulls from placing aggressive bets around the GBP/USD pair amid Brexit woes.

Britain has threatened that suspending the part of the Brexit deal that pertains to Northern Ireland is very much on the table. On the other hand, the European Union is preparing a package of retaliatory measures if the UK triggers Article 16. Both sides are due to enter new negotiations on Friday in an attempt to avoid a looming trade war. Apart from this, the Bank of England's dovish decision last week could further collaborate to cap any meaningful gains for the sterling.

Hence, it will be prudent to wait for a strong follow-through buying before confirming that the recent rejection slide from the very important 200-day SMA has run its course. Market participants now look forward to a scheduled speech by the BOE MPC member Jonathan Haskel for some impetus. Later during the early North American session, the Prelim Michigan Consumer Sentiment Index might influence the USD price dynamics and produce some trading opportunities around the GBP/USD pair.

Technical levels to watch

“Inflation will be a temporary phenomenon,” the Swedish central bank, Riksbank, Governor Stefan Ingves said in a statement on Friday.

Governor Ingves added, “inflation in a while is likely to fall back.”

Market reaction

EUR/SEK is advancing 0.37% on the day, currently at 9.9931, as the Swedish krona (SEK) ran into fresh offers on these comments.

The European Central Bank’s (ECB) Governing Council member Gediminas Simkus said on Friday, inflation will fall below target in 2023, adding that it is not in line with the forward guidance conditions.

Earlier on, ECB policymaker Olli Rehn said that the relief on supply bottleneck may not arrive until toward the end of 2022

Meanwhile, Eurozone money markets now price in two full, 10 bps ECB rate hikes by December 2022, per ECBWatch.  

Market reaction

EUR/USD was last seen trading at 1.1444, modestly flat on the day. The spot looks vulnerable while trading near yearly lows.

Coming out of last week’s FOMC meeting, the Fed's wants are becoming clearer but the implications into 2022 for asset prices, interest rates and exchange rates remain to be seen. Matthew Hornbach, Global Head of Macro Strategy for Morgan Stanley, takes a moment to consider what the Fed really wants, and how markets may provide it.

What the Fed wants, the Fed gets

“We know the Fed wants financial conditions to loosen further. Does that mean US real yields will struggle to rise, the US dollar will struggle to rally, and risky asset prices will rise? The first two are certainly possible outcomes. But even if financial conditions loosen in aggregate for a time, and then remain loose for a time thereafter, not every market is guaranteed to move in a direction associated with looser financial conditions.”

“Ultimately, we believe the easy monetary policies in place today will keep expectations for real economic growth improving. This should support investor willingness to own riskier assets while placing upward pressure on real rates.”

“Expectations for inflation should remain buoyed by expectations for strong growth, but inflation risk premiums will be influenced by factors in the supply side of the economy, like supply chains and labor force participation. We see downside risks to inflation risk premiums next year, which would place further upward pressure on real interest rates.”

“Finally, in terms of the relative growth outlook, progress in the US on COVID-19, as well as fiscal developments such as infrastructure spending, favor the US over the rest of the world. This should place upward pressure on the US dollar through the first half of next year.”

European Central Bank (ECB) Governing Council Member Olli Rehn said on Friday that the relief on supply bottleneck may not arrive until toward the end of 2022, as reported by Reuters.

Earlier in the day, Reuters reported that a recently conducted survey saw an increase in the 2022 annual inflation forecast to 2.2% from 1.8% in October's poll. 

Market reaction

The EUR/USD pair edged slightly higher following these comments but doesn't seem to be gathering bullish momentum. As of writing, the pair was virtually unchanged on the day at 1.1451.

USD/JPY has climbed above 114.00 and eyes the multi-year highs it set at 114.69 in late October, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, reports.

USD/JPY is trying to reassert the up move

“Rallies are likely to find tough resistance at 114.55/69, the November 2017 high and recent high. Above 114.55/69 we have 115.60, the 61.8% retracement of the move down from 2015 and then the 117.06 the 1998-2021 resistance line.”

“Nearby support lies 112.73/112.56 then 111.90, the 38.2% and 50% retracements. The 111.66 July high is also found in this vicinity and should hold the downside.”

NZD/USD refreshed its monthly low around 0.6995 during early Friday. Economists at ANZ Bank expect the kiwi to extend its downmove as the rest of the world is set to normalise policy next year.  

Has the shine finally come off the kiwi?

“Looking ahead, the domestic data calendar is pretty light ahead of the RBNZ MPS. We noted that the NZD had potential to benefit from the actual delivery of hikes, but as we near the decision, markets do not seem to be shy of fading NZD strength even knowing that hikes (and thus carry) are coming.” 

“The kiwi did well after the 2020 lockdown, and has been mixed through 2021 (and has struggled >0.72 of late), but headwinds could be coming in 2022 as the rest of the world normalises policy. Let’s see.”

“Support 0.6860/0.6900/0.7000 – Resistance 0.7215/0.7310”

USD/CHF has executed a 50% retracement as the pair has reached the 0.9229 mark. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects USD/CHF to continue its advance towards the mid-October high at 0.9313.

Bid above the uptrend at 0.9097

“USD/CHF has reached the 50% retracement at 0.9229, there is scope for 0.9300/13 (the 78.6% retracement and the mid-October high), where we suspect the move will struggle.”

“The pair stays bid while above the 2020-2021 uptrend at 0.9097.”

“Above the 0.9313 mid-October high lies 0.9357/69 (the recent high).” 

“Initial support is the 0.9150, 25th October low ahead of the 0.9097 uptrend.”

The Swedish krona has proven to be a material outperformer over the last month. Economists at CIBC Capital Markets expect the SEK to enjoy further gains ahead as the Riksbank is set to start tightening.

Ongoing real estate concerns also justifies Riskbank’s action

“From pricing rates remaining on hold as recently as three months ago, the market has now moved to price in almost 40bps of tightening in the course of the next 12 months.”

“The Swedish CPI is now expected to remain above 2% in 2022, up from previous median assumptions of prices at 1.6%. That will help validate the need for the Riksbank to act soon, supporting additional SEK gains.”

“With home price growth remaining in excess of 10%, the central bank will remain mindful of rising financial sector imbalances, underlining the need for a modest tightening bias, and supporting further SEK gains.”

EUR/USD failed to stage a convincing rebound on Thursday and stays on the back foot ahead of the weekend. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, notes that the pair is approaching a four-month support line at 1.1424 and could slide to the 1.1366 mark.

Negative bias below the five-month downtrend at 1.1655

“EUR/USD remains under pressure following its break into new lows for the year and will stay directly offered below the 1.1655 five-month downtrend.”

“We have a support line, which connects a number of lows since July, and this comes in at 1.1424 today. There is scope for the previous downtrend (from 2008) which is now located at 1.1366 and should act as strong support, we look for this to hold.”

“Below 1.1366 would target 1.1290 then 1.10, the 61.8% and 78.6% retracement of the move seen in 2020.”

See: EUR/USD to sink towards 1.10 in 2022 as laggard ECB dampens euro sentiment – CIBC

• DXY adds to the recent rebound above the 95.00 mark.
• The US bonds market resumes the activity following Thursday’s holiday.
• Flash Consumer Sentiment for November, Fedspeak next on tap.

The greenback, when tracked by the US Dollar Index (DXY), extends the recovery further north of the 95.00 mark and records new YTD highs in the 95.25/30 band.

US Dollar Index looks to yields, data

The index is up for the third session in a row at the end of the week and looks to extend the recent breakout of the key barrier at 95.00 the figure on Friday.

The solid performance of the greenback remains well propped up by the “higher for longer” narrative around inflation, particularly after US consumer prices rose to the highest level since 1990 in October (as per Wednesday’s release).

The elevated inflation morphed into further upside pressure in US yields and feed into speculations that the Federal Reserve could act on rates sooner than initially anticipated.

In the US data space, the preliminary Consumer Sentiment gauge for the month of November will be the salient release later in the NA session along with JOLTs Job Openings and the speech by NY Fed J.Williams (permanent voter, centrist).

What to look for around USD

The index clocked new cycle highs past the 95.00 yardstick, area last visited in the summer of the coronavirus pandemic. The sudden change of heart in the dollar remains underpinned by rising yields and the firmer perception that the elevated inflation will be among us longer than anticipated, all this morphing into already rising speculations of probable interest rate hikes by the Fed as soon as in 2022.

Key events in the US this week: Flash November Consumer Sentiment (Friday).

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is gaining 0.03% at 95.18 and a break above 95.26 (2021 high Nov.12) would open the door to 95.71 (monthly low Jun.10 2020) and then 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 93.87 (weekly low November 9) seconded by 93.58 (55-day SMA) and finally 93.27 (monthly low October 28).

Over the last month, AUD has gained against the funding currencies of JPY and EUR, and is also firmer against the USD, although it has lost ground to the NZD. Looking ahead, economists at CIBC Capital Markets expect AUD to rise against the greenback but underperform against the NZD.

Mixing AUD performance 

“In the coming month, we expect flat to positive AUD performance against the USD as the economy recovers from lockdowns, and for underperformance against the NZD to extend.”

“For AUD overall, that the RBA will be one of the later major central banks to tighten, need not be a dramatic weight on the currency, so long as the economy is recovering with low-inflation activity.”

“Previous concerns over tensions between China and Australia have not gone away, but trade numbers out of both economies show that Chinese demand for industrial commodities continues and that Australia remains its major source.”

Gold closed the sixth trading day in the positive territory on Thursday but seems to have gone into a consolidation phase above $1,850 on Friday. As FXStreet’s Dhwani Mehta notes, XAU/USD awaits acceptance above $1,870 while the focus is on US consumer data.

US Consumer Sentiment data could provide fresh dollar trades

“The narrative of mounting inflationary risks and their negative impact on the global economic growth will continue to bode well for the bullion. Covid resurgence in China and in parts of the Euro area boosts gold’s safe-haven appeal, as well.” 

“The US Consumer Sentiment data will be closely eyed for any impact on the dollar trades, which may eventually influence gold price.”

“XAU/USD remains on track for further upside on a sustained break above the June 16 highs of $1,869. The next significant resistance is environed at the June 14 tops of $1,878, followed by the $1800 psychological level.”

“On the downside, the $1,850 demand area will get tested initially, below which Thursday’s low of $1,843 will be on the sellers’ radars. The previous critical resistance now support at $1,834 will hold the key for gold bulls.”

See – Gold Price Forecast: XAU/USD to form an uptrend by March 2022 – TDS

The kiwi has consolidated a strong performance as the Reserve Bank of New Zealand (RBNZ) began the process of policy normalisation, hiking the cash rate 25bps in October. Economists at CIBC Capital Markets believe that the New Zealand dollar is underpinned as the central bank is set to continue its monetary policy normalisation.

Expectation of RBNZ hikes provides support

“With the RBNZ to hike again this month and continue that process next year, and the cash rate expected to reach 1.50% from the current 0.50%, we expect rate differential support for the NZD to show via appreciation on a number of crosses.”

“We recommend being buyers of weakness in NZD vs AUD, EUR and JPY. Key driver for moves will be the divergence in monetary policy, both actual and outlooks.”

“We exclude trades vs the USD at this point as the Fed is closer than the others mentioned to normalisation. Still, we also highlight moderate support for NZD/USD down to 0.7000, which was the area of previous highs. More major support will be found ahead of 0.6800-0.6850.”

“The transmission mechanism from higher rates to the currency is not always straightforward. All else equal, if activity was not also picking up, higher cash rates would be a headwind to asset prices and the currency. In the case of New Zealand, activity has been strong and is expected to remain so.”

• USD/JPY rises for the third straight day on Friday, eyes 114.50.
• The US dollar index hovers near 16-month highs amid Fed’s rate hike calls.
• Hot US CPI sends the dollar higher. Will Consumer Sentiment do that same?

USD/JPY is holding higher ground near nine-day tops of 114.31, as the bulls take a breather heading into the European open. At the time of writing, the pair trades at 114.24, up 0.165 on the day, headed for a weekly gain.

The renewed upside in the spot could be associated with the relentless appetite of the US dollar bulls, in the face of a hotter Consumer Price Index (CPI), which revived the odds of a Fed rate hike by mid-next year.

Rising inflation also fuels reflation trades, which boosts the sentiment around US Treasury yields, collaborating with the ongoing advance in USD/JPY. The benchmark 10-year US yields are currently trading at 1.57%, up 0.70% on the day.

On the yen-side of the equation, investors are digesting the latest draft of the Japanese economic stimulus package, with the JPY bulls little impressed by the lack of details on the size of spending.

The major now awaits the US Michigan Preliminary Consumer Sentiment data for fresh trading opportunities, with the gauge seen arriving at 72.4 in November vs. 71.7 previous.

USD/JPY technical levels to consider

Open interest in natural gas futures markets increased for the third consecutive session on Thursday, now by around 6.3K contracts in light of advanced prints from CME Group. On the other hand, volume shrank for the second straight session, this time by more than 36K contracts.

Natural Gas now targets monthly peaks past $5.80

Thursday’s uptick in prices of natural gas was accompanied by increasing open interest, which is indicative that further upside could be in the pipeline in the very near term. The commodity regained the $5.00 mark per MMBtu and above and could extend the recovery to the monthly highs past $5.80 (November 4).

According to preliminary figures from CME Group for crude oil futures markets, traders added more than 10K contracts to their open interest positions on Thursday, reversing at the same time four consecutive daily pullbacks. On the other hand, volume dropped for the second day in a row, this time by around 179K contracts.

WTI could retest the monthly low near $78.00

Prices of the WTI charted an inconclusive session with small losses on Thursday amidst rising open interest. Against that, the commodity could attempt some consolidation in the very near term, while another drop to the monthly lows near the $78.00 mark should not be ruled out either.

• EUR/CAD consolidates weekly gains inside a bearish chart pattern.
• 20-DMA restricts immediate downside, August month’s low becomes the key hurdle.

EUR/CAD takes offers to refresh intraday low near 1.4400, down 0.08% on a day as European traders brace for Friday’s bell.

The cross-currency pair steps back from the monthly rising channel around the lowest levels since February 2020, forming part of a broader bearish flag formation between 1.4450 and 1.4300 levels.

However, 20-DMA around 1.4380 restricts the quote’s immediate declines ahead of directing it to the formation support of 1.4300.

Should the EUR/CAD prices stay weaker past 1.4300, the bearish chart pattern gets confirmed, which in turn hints at around 600 pips of a downside. Though, lows marked during 2020 and 2017, respectively near 1.4250 and 1.3780, act as additional downside filters to watch.

On the flip side, a daily closing beyond 1.4450 will defy the bearish flag and can trigger a gradual run-up towards August month’s bottom surrounding 1.4665. During the rise, May’s trough of 1.4580 can offer an intermediate halt.

In a case where the EUR/CAD bulls dominate past 1.4665, the trend reversal can aim for the 1.5000 psychological magnet.

EUR/CAD: Daily chart

Trend: Further weakness expected

CME Group’s flash data for gold futures markets noted open interest extended the uptrend for the sixth session in a row on Thursday, this time by around 14.2K contracts. Volume, instead, reversed two consecutive daily builds and shrank by nearly 180K contracts.

Gold continues to target the YTD peak past $1,900

Gold advanced for the sixth straight session on Thursday, extending the rally well past the key $1,800 mark per ounce troy. The strong advance was supported by rising open interest, which leaves the door open for the continuation of the uptrend in the very near term. That said, the next target of note comes at the 2021 high around $1,916 (June 1).

Here is what you need to know on Friday, November 12:

Following a subdued market action on Thursday, the dollar continued to gather strength against its rivals as the 10-year US Treasury bond yield opened with a bullish gap and tested 1.6% in the Asian session. The US Dollar Index is holding near the 16-month highs it set at 95.26 earlier in the day and investors await the University of Michigan's Consumer Sentiment Index and September JOLTS Job Openings report. The European economic docket will feature the Industrial Production data. Investors will also keep a close eye on commentary regarding inflation.

US Michigan Consumer Sentiment Index Preview: Inflation’s dangerous impact.

Market mood: Wall Street's main indexes closed mixed on Thursday amid varying performance of major sectors. The Shanghai Composite Index looks to close with small gains on Friday and the Nikkei 225 is up 1%. Meanwhile, US stock index futures are rising between 0.15% and 0.25% in the early European session.

Gold closed the sixth trading day in the positive territory on Thursday but seems to have gone into a consolidation phase above $1,850 on Friday. The technical breakout and the precious metal's status as an inflation hedge helped XAU/USD post impressive gains this week.

EUR/USD failed to stage a convincing rebound on Thursday and stays on the back foot ahead of the weekend. The policy divergence between the Fed and the European Central Bank (ECB) continues to drive the pair's action. According to the CME Group, markets are now pricing a 70% chance of a Fed rate hike by June 2022, compared to 60% last week.

GBP/USD slumped to its weakest level in nearly a year early Friday as the uninspiring data releases from the UK made it difficult for the British pound to find demand despite some positive comments on Brexit. The pair is trading in a tight range below 1.3400 on Friday.

USD/JPY climbed above 114.00 on the back of rising US T-bond yields and eyes the multi-year highs it set around 114.70 in late October.

Cryptocurrencies: Bitcoin continues to move sideways around $65,000 after struggling to find direction on Thursday. Ethereum seems to have regained its traction after staging a deep correction mid-week and trades above $4,700. 

• The loonie looks for risk catalyst, US Michigan Consumer Sentiment eyed.
• The bulls remain well-fed amid softer oil prices, Fed rate hike expectations.
• USD/CAD heads toward 1.2600 level, faces resistance ahead of 50.0% Fibo. level.

USD/CAD is trading close to 1.2600 on Friday's Asian session. The loonie seems to have weathered the US inflation jitters and have comforted itself from the advancing US dollar.

The Fed hike expectations could be the reason for the strength in the greenback. Meanwhile, a pullback in WTI prices also lends support to USD/CAD. 

On the US side, the restricted market amid the Treasury market's opening after one day off will put the investors in caution, as they wait for the US Michigan Consumer Sentiment for November to provide impetus.

USD/CAD attempts to push higher but runs into resistance just shy of the 1.2600 mark. The spot has surpassed 1.2580, 50.0% Fibonacci Retracement (Fibo.) level on the daily chart when drawn from September 21, which is refreshing news for the loonie buyers.

The journey north appears brisk as the spot eyes 1.2636 61.8% Fibo. level. If it surpasses the cheerful zone, the pair will test 1.2739, its monthly high (October). Further up, it can test 1.2800 September high. 

On the flip side, the support levels for the loonie pair are seen at 50 and 100-day Simple Moving Averages (SMAs), putting cushions around 1.2540 levels. However, if that fails to sustain, 200-day SMA at 1.2474 is the next support beam. Further south, its monthly low is there to alleviate at 1.2288.

The pair's Relative Strength Index (RSI) level has stead fasted towards the overbought zone, suggesting that the upside momentum remains intact. The Moving Average Convergence Divergence (MACD) is bullish and gives out healthy vibes.

Daily Chart

USD/CAD Additional Levels 

Draft: Japan's stimulus package to include aid to firms hit by rising oil cost – Reuters

developing story ...

• EUR/USD grinds lower around July 2020 levels, prints three-day downtrend.
• US Treasury yields struggle to remain, test DXY bulls.
• ECB rejects rate hike chatters via downbeat economic forecasts, Fed hawks remain hopeful.
• US data, inflation expectations and China headlines will be important for fresh impulse.

EUR/USD treads water around 1.1440, after refreshing multi-day low to 1.1436 ahead of Friday’s European session. The major currency pair recently tracks a mild pullback in the US Treasury yields amid sluggish trading day ahead of the US data.

That said, the US 10-year Treasury yields struggle to remain firmer around 1.56%, following the biggest daily jump in seven weeks portrayed on Wednesday and Friday’s off in the US bond markets. The same weigh on the US Dollar Index (DXY) as the greenback gauge refreshes intraday low following the jump to renew the highest levels since July 2020.

Behind the latest market moves are the chatters over China’s Evergrande and trade ties with the US, both of which flash grim signals and favor the market’s rush to the risk-safety of late. On the same line were Fed rate hike talks after the US inflation jumped to a 31-year peak.

Furthermore, the EU Commission’s (EC) downward revision to the economic growth forecast for the next year and expectations that the inflation will ease help the bloc’s central bank to defend the easy money policy and avoid rate lift talks.

Alternatively, hopes that the Asia-Pacific markets will rebound, per the global rating agency Moody’s, join the Chinese policymakers’ hopes of overcoming the Evergrande and energy crisis to weigh on the US Treasury yields and the greenback. It’s worth noting that a lack of updates on the US inflation and Fedspeak could also be linked to the latest consolidation in the market sentiment.

Even so, the EUR/USD bears remain hopeful as the US inflation expectations remain steady near a 15-year high. The same line highlights today’s US Michigan Consumer Sentiment for November, expected 72.4 versus 71.7 prior, for fresh impulse.

Read: US Michigan Consumer Sentiment Index Preview: Inflation’s dangerous impact

Technical analysis

A convergence of a five-month-long descending trend line and high marked in June 2020 becomes a tough nut a crack for the EUR/USD sellers around 1.1420-10 zone. On the other hand, corrective pullback remains less lucrative until the quote stay below one-month-old horizontal resistance, previous support around 1.1530.

China’s highly-influential media outlet, Global Times, is out with the key highlights from the country’s Plenary Session, chaired by President Xi Jinping.

President Jinping, apparently, laid out China’s secret recipe for its economic miracle.

Key takeaways

1. Development is the absolute principle.
2. Deepen reform.
3. Stick to opening-up.
4. Innovation is the primary driving force behind development.
5. Unswervingly consolidate & develop the public economy; Unwaveringly encourage, support and guide the development of the non-public sector.
6. Promote the better integration of an efficient market and a capable government.
7. Adhere to the general principle of pursuing progress while ensuring stability
   Uphold Party's leadership.

Market reaction

USD/CNY is trading 0.09% up on the day, currently at 6.3942.

• Gold snaps six-day uptrend but stays on the way to post the biggest weekly gains since May.
• Market sentiment dwindles, DXY tracks US Treasury yields to grind higher around multi-day top.
• US Michigan Consumer Sentiment figures, China headlines will be in focus.

Gold (XAU/USD) bulls take a breather during the longest weekly run-up in six months, down 0.32% intraday around $1,856 heading into Friday’s European session.

The yellow metal drops for the first time in the last seven days as the US Dollar Index (DXY) tracks firmer Treasury yields, mostly steady, to refresh the 16-month high. Also favoring the greenback, and negatively affecting the gold prices, is the market’s rush to risk-safety amid mixed concerns over China’s economic transition and Evergrande news, not to forger the Sino-American tussles.

That said, the US Dollar Index (DXY) seesaws around 95.25, the highest level since July 2020 while the US 10-year Treasury yields struggle to remain firmer around 1.56%. That said, the stock futures print mild gains and the Asia-Pacific stocks trade mixed as China’s Communist Party members signed an accord, per Bloomberg, to choose President Xi Jinping as a leader for eternity. The same could join chatters surrounding the Sino-American ties ahead of the next week’s virtual summit between US President Joe Biden and his Chinese counterpart Xi Jinping to weigh on the sentiment and gold.

On a different page, the gold buyers remain hopeful as the Fed's tapering concerns remain elevated even as the US banking holiday faded the speculations of late. Additionally, talks over strong demand from Asia-Pacific countries, comprising the largest customers, add to the gold’s bullish catalysts.

It’s worth noting that the gold traders await the US Michigan Consumer Sentiment for November, expected 72.4 versus 71.7 prior, to reconfirm the Fed rate hike concerns.

Read: US Michigan Consumer Sentiment Index Preview: Inflation’s dangerous impact

Technical analysis

Gold consolidates weekly gains inside a three-day-old bullish pennant formation amid steady RSI. Also challenging the metal sellers, despite the latest pullback, is the weekly support line that puts a carpet under the short-term declines near the $1,848 level.

Even if the gold bears manage to conquer the $1,848 support level, convergence of the 200-HMA, 50% Fibonacci retracement (Fibo.) of the weekly upside and multiple lows marked during November 07-08, around $1,812-14, will be a tough nut to crack for them.

Alternatively, an upside clearance of the $1,865 hurdle will confirm the bullish chart pattern and trigger the run-up towards refreshing the multi-day top, beyond the latest one of $1,868.61.

In doing so, January’s high near $1,875 will be in focus ahead of the $1,900 threshold.

Gold: Hourly chart

Trend: Further upside expected

• Asia-Pacific shares trade mixed with China and New Zealand equities flashing red signs.
• Concerns over Evergrande, Sino-American ties and economic conditions test Beijing-based companies despite government efforts.
• Moody’s sound optimistic over the bloc’s economic growth, APEC leaders agreed over challenges of the pandemic, climate change.
• US Treasury yields, DXY grind higher amid light calendar, Michigan Consumer Sentiment eyed.

Stock traders in the Asia-Pacific bloc struggle to cheer the mildly bid sentiment as China and New Zealand stop the bulls while the US Treasury yields remain mostly steady during early Friday.

That being said, MSCI’s index of Asia-Pacific shares outside Japan rises 0.40% whereas Japan’s Nikkei 225 posts 1.05% daily gains by the press time. On the other hand, China A50 and New Zealand’s NZX 50 print losses around 0.60% at the latest.

Although Goldman predicts a boost for Chinese stocks due to the softer regulation, per Bloomberg, an absence of encouragement over the Evergrande issues, despite the firm’s third rejection to default, challenges the Beijing-based equities. On the same line were chatters surrounding the Sino-American ties ahead of the next week’s virtual summit between US President Joe Biden and his Chinese counterpart Xi Jinping. The reason could be linked to Communist Party officials’ signing off on the first historical resolution in 40 years to keep Xi in the driver’s seat.

Elsewhere, firmer prints of NZ Business PMI for October, 54.3 versus 51.4 seem to have renewed RBNZ rate-hike chatters and weigh on the Kiwi stocks.

Additionally, Reuters reported that Asia-Pacific Economic Cooperation (APEC) leaders agreed in the forum the challenges of the pandemic and climate change were similar since they were both exponential processes, the severity of which was hard to recognize at the start of a growth curve.

Alternatively, global rating giant Moody’s latest assessment of the Asia-Pacific economies mentioned, “Most will rebound, helping to support debt stabilization at higher levels than pre-pandemic.” 

It’s worth noting that the US Treasury markets reopen after a holiday and helped the US Dollar Index (DXY) to refresh the 16-month peak before trading sideways while waiting for the US Michigan Consumer Sentiment for November, expected 72.4 versus 71.7 prior.

Read: US Treasury yields fade biggest jump in seven weeks, S&P 500 Futures stay mildly bid

• USD/INR braces for the first weekly gain in five.
• Steady RSI, key Fibonacci retracement levels challenge sellers.
• Bulls need validation from 74.70 before eyeing the monthly resistance line.

USD/INR consolidates recent losses near the weekly top of 74.57, around 74.34 heading into Friday’s European session.

In doing so, the quote remains mildly bid above 100-DMA, as well as 50% Fibonacci retracement (Fibo.) of September-October upside, amid steady RSI.

Considering the quote’s sustained trading beyond the stated DMA, also the 200-DMA and 61.8% Fibo., amid normal RSI conditions, the USD/INR prices can extend the weekly rebound towards October 21 low, near 74.70.

However, any further advances will be challenged by a one-month-old descending resistance line around 74.90 and a short-term horizontal area near 75.10.

Meanwhile, a downside break of the 100-DMA and the 50% Fibonacci retracement, close to 74.25, will direct the USD/INR towards the 74.00 threshold.

Following that, the 61.8% Fibo. and 200-DMA, respectively near 73.95 and 73.84, will challenge the pair sellers.

USD/INR: Daily chart

Trend: Further upside expected

• GBP/USD remains vulnerable amid notable US dollar demand.
• Fresh optimism on the Brexit front fails to deter the GBP bears.
• Eyes on Brexit talks and US Consumer Sentiment data amid inflation fears.

GBP/USD is flirting with eleven-month lows near mid-1.3300s, undermined by the persistent strength in the US dollar across its main rivals. Markets refrain from placing any bets on the cable ahead of fresh Brexit talks.

Brexit talks in focus

The currency pair is challenging the bullish commitments while sitting at the lowest levels since December 2020 at 1.3354. The hot US inflation-led strength in the greenback remains unabated, with the US dollar index hitting fresh 16-month tops at 94.26, as of writing.

A solid jump in the US Consumer Price Index (CPI) ramped up the Fed’s rate hike expectations, sending the dollar higher alongside the yields.

Meanwhile, downbeat UK Q3 GDP data appears to have poured cold water on a December Bank of England (BOE) rate hike, which likely weighs negatively on the pound. At the same time, looming Brexit risks keep the GBP bulls on the edge.

Despite the latest UK Times report that PM Boris Johnson does not want to trigger Article 16, all eyes remain on the meeting between the British Brexit Minister David Frost with the European Union (EU) for further clarity on the Northern Ireland Protocol.

Frost is seen hinting at renewing efforts to get a deal on the controversial Northern Ireland protocol and enter intensive talks over the next few weeks, in an effort to de-escalate tensions with Brussels.

Looking ahead, the US Michigan Consumer Sentiment data will be closely eyed apart from the critical Brexit talks.

GBP/USD: Additional levels to consider

• AUD/USD prints four-day south-run to test the lowest levels since October 07.
• DXY grinds higher around 16-month top amid steady yields.
• Mildly bid stock futures, hopes of Asia-Pacific rebound and doubts over Evergrande restrict latest moves.
• US Michigan Consumer Sentiment figures to decorate calendar.

AUD/USD bears keep reins past 0.7300, down 0.10% on a day to refresh the five-week low during early Friday.

The risk barometer pair portrays indecisive markets and the firmer US dollar, amid rising bets over the Fed rate hike, during the four-day downtrend. Also weighing on the quote are the downbeat updates from China, be it concerning Evergrande or power cuts.

However, mildly bid stock futures and mixed performance of the Asia-Pacific shares join hopes of an economic recovery in the region to test the sellers.

That being said, chatters over China’s efforts to ease lending restrictions for the property sector and comments from a former advisor to the People's Bank of China, Yu Yong, suggesting that problems such as Evergrande are controllable fail to renew market optimism. The reason could be linked to the updates from the Evergrande lender Kaisa group. ''Kaisa has the most offshore debt of any Chinese developer after Evergrande and pleaded for help from creditors this week. It has coupon payments totaling over $59 million due on Thursday and Friday, with 30-day grace periods for both,'' Reuters reported.

Elsewhere, energy problems stay elevated in China and probe the year 2021 GDP, exerting additional downside pressure on the AUD/USD prices. On the same line are the Sino-American tussles over the phase 1 deal, Vietnam and Hong Kong.

Alternatively, global rating giant Moody’s latest assessment of the Asia-Pacific economies mentioned, “Most will rebound, helping to support debt stabilization at higher levels than pre-pandemic.” 

Amid these plays, the US stock futures print mild gains while the Treasury yields help the US Dollar Index (DXY) to refresh the multi-day peak.

The risk catalysts may keep entertaining the AUD/USD traders, mainly the bond traders’ return after a Veterans Day holiday. Also, the US Michigan Consumer Sentiment for November, expected 72.4 versus 71.7 prior, will be additionally important.

Technical analysis

61.8% Fibonacci retracement (Fibo.) of August-October upside, around 0.7275 and a three-month-old ascending support line near 0.7240 lure AUD/USD bears until the quote stays below the 100-DMA and 50-DMA, close to 0.7366-72.

Yu Yong, a former advisor to the People's Bank of China offered conciliatory remarks on the indebted Chinese real-estate giant, Evergrande Group.

Key quotes

“China has very strong macro adjustment capabilities.”

“The problems such as Evergrande are controllable.”

Earlier on, Oxford Economics warned of “a more severe downturn in China's housing market”, which would slow China's growth markedly and have a major impact on global growth.

Related reads

• Evergrande: Not out of the woods yet, contagion risks a plenty
• Evergrande News: Chinese troubled property giant avoids another default

In the view of the analysts at Goldman Sachs, EUR/USD is set to remain in a familiar range between 1.1600-1.1800 over the coming year.

Key quotes

“We now forecast that EUR/USD will remain roughly range-bound over the coming year, reaching 1.16 in 3m and 1.18 in 12m (vs. 1.25 previously). “

“If US inflation falls below 2% next year-e.g., because goods prices decline more than expected-the Fed could remain on hold for a longer period, reopening the possibility of EUR strength vs USD. “

“Despite a stronger dollar in general, we do expect appreciation vs. USD for certain commodity exporters and select EM and G10 crosses.”

“Moreover, we continue to see structural weakness for the broad dollar, due its high valuation, reduced US asset market outperformance, and new threats to the greenback's international role from the opening of the Chinese bond market and other factors.”

• GBP/CAD gravitates downward, UK GDP data did not underpin. 
• The pair needs substantial gains to continue its northward journey.
• GBP/CAD faces tough resistance, could likely extend the downtrend.

GBP/CAD has been at its lowest since the beginning of the year; at the time of writing, trading at 1.6820 during the Asian session on Friday. The cross-currency pair was last seen trading at similar levels near June 2020 troughs.

Weaker than expected UK macroeconomic data for the July-September period, which the investors slightly ignored, has weighed slightly on GBP/CAD. Along with this, uncertainty hovering around Brexit negotiations, including the growing talks of the European Union (EU) suspending its trade deal, may continue to dampen the sterling. However, the impact may not be as strong as it has been so far.

On the other hand, USD/CAD is trading positively on the back of the strong US dollar as inflation data revives bets of tighter monetary policy, cushioning the downside in the cross. 

The data on US consumer prices, released on Wednesday, has exceeded economists’ expectations and the treasury yields have rebounded, trading at 1.57%, at the time of writing.

Ahead of a light economic calendar, with traders still reeling from US inflation and UK GDP figures, Bank of England’s (BoE) Jonathan Haskel speech will be awaited for some trading incentives. 

GBP/CAD Technical Levels

After paring little gains on Thursday, the pair remains stuck with bearish vibes, eyeing weekly-low 1.6732 as support. Further south, it will find a monthly low of 1.6891.

The journey north remains a challenge with Simple Moving Averages (SMAs) like 21, 50, 100, putting thorns at 1.6942, 1.7138 and 1.7233, respectively. 

Japan’s Economy Minister Daishiro Yamagiwa said on Friday, new COVID-19 measures will aim to both prevent the virus spread and keep economic and social activities going.

more to come ...

Moody’s Investors Service is out with its latest assessment of the Asia-Pacific economies, offering a stable outlook on the region.

“Most will rebound, helping to support debt stabilisation at higher levels than pre-pandemic,” Moody’s said in its report.

Market reaction

The Asian stocks are a big bag in the final trading day of the week, thus far. The S&P 500 futures are 0.16% higher on the day, despite the looming inflation fears.

• NZD/USD takes offers to refresh monthly low, down for the fourth consecutive day.
• 11-week-old horizontal support, 61.8% Fibonacci retracement level on the bear’s radar.

NZD/USD stays offered for the fourth day in a row, refreshing monthly low around 0.6995 during early Friday.

In doing so, the kiwi pair extends the downside break of the 200-DMA and 50% Fibonacci retracement (Fibo.) of August-October upside amid bearish MACD signals.

That being said, the NZD/USD prices are en route to the 61.8% Fibo. near 0.6965. However, a horizontal line comprising multiple levels since August 25, around 0.6985 may challenge the immediate declines.

Should the quote drop below 0.6965, a three-month-old ascending trend line near .6915 will be crucial.

Alternatively, a clear upside break of the 100-DMA level of 0.7025 will aim for the November 05 low of 0.7072 and the 0.7100 threshold.

However, September’s peak surrounding 0.7170 and the 0.7200 round figure will test the NZD/USD bulls afterward.

NZD/USD: Daily chart

Trend: Further weakness expected

In addition to the news from the US sessions, ''Ireland's foreign minister said on Thursday that comments from Britain's Brexit minister suggest there is still some time to find a solution to trading difficulties before Britain seeks to trigger article 16,'' there is a rehash of this circulating in Asia. 

The UK Times has reported on the positive sound bites in various comments from Brexit officials over the last 24-hour:

''Lord Frost, the Brexit minister, will signal to Maros Sefcovic, the EU's chief negotiator, that the government will renew efforts to get a deal on the controversial Northern Ireland protocol and enter intensive talks over the next few weeks.''

''Sources said that Frost was keen to emphasise to Sefcovic that while the UK had reservations about the commission's proposals to reduce checks on goods crossing between Britain and Northern Ireland, they could, with changes, form the basis of an agreement.''

Market implications

The Brexit headlines, while welcome, have not been enough to drive in demand for the pound and uncertainties persist. GBP/USD is still reeling from overnight trade after it fell to its lowest level of 2021 against the dollar on Thursday as the British economy appeared to lose momentum.

Data released by the Office for National Statistics showed Britain's economy grew by 0.6% in September but estimates for previous months were revised lower, leaving the economy still smaller than it was in February 2020.

The latest Reuters poll of economists showed that Eurozone inflation will continue to march higher, consistently overshooting European Central Bank’s (ECB) 2% price target next year.

Key findings

Read: EUR/USD: Options market turns most bearish in six weeks

One-month risk reversal (RR) of EUR/USD, a gauge of calls to puts, drops for the second consecutive day by the end of Thursday’s North American trading. In doing so, the options market gauge flashes -0.175 figure, the lowest since September 29.

The bearish bias could be linked to the escalating odds of the US Federal Reserve (Fed) rate hikes. On the contrary, the European Central Bank’s (ECB) downward revision to the economic forecasts enables the ECB policymakers to reject the rate lift concerns.

A 31-year high US inflation data and firmer Treasury yields could be linked to the US dollar’s recent strength. However, today’s US Michigan Consumer Sentiment for November, expected 72.4 versus 71.7 prior, will be eyed for fresh impulse.

That being said, the EUR/USD pair grinds lower around the July 2020 levels, down 0.07% intraday near 1.1440 during early Friday.

Read: EUR/USD Price Analysis: Inches closer to 1.1420-10 support zone

The troubled Chinese property developer, Evergrande, has threatened to cripple the Chinese property sector and despite the news that Evergrande has managed to meet a debt obligation, concerns linger in the markets. 

Evergrande, the world's most indebted developer, has been stumbling from deadline to deadline in recent weeks with more than $300 billion in liabilities, $19 billion of which are dollar bonds.

However, the latest payments were made at the end of a 30-day grace period that ended Wednesday, and this has given risk a bit of relief. This was, however, the third time in the past month the company has paid up perilously close to a deadline. The bonds had a total of more than $148 million due.

Evergrande has come under pressure from its other creditors at home and a stifling funding squeeze has cast a shadow over hundreds of its residential projects. This is raising concern and putting a focus to other cash-strapped developers such as Kaisa Group.

''Kaisa has the most offshore debt of any Chinese developer after Evergrande and pleaded for help from creditors this week. It has coupon payments totalling over $59 million due on Thursday and Friday, with 30-day grace periods for both,'' Reuters reported. 

Overall, the firm has tentacles that reach into the farthest corners of the Chinese financial system, wrapping around banks and shadow lenders. Markets are not out of the woods yet, but regulators and government think tanks have also held meetings with developers in the past few weeks. Therefore, the market is expecting some easing in credit and housing policies to prevent a hard landing of the sector.

• USD/JPY advances towards monthly peak on crossing three-week-old resistance line.
• Bullish MACD signals direct up-moves to October highs.
• Key SMA levels add to the downside filters, 61.8% Fibonacci Expansion (FE) on bull’s radar.

USD/JPY takes the bids to 114.30, up 0.17% intraday while rising to the fresh high since November 01 during early Friday.

The yen pair recently crossed a downward sloping trend line from October 20 and gains support from the bullish MACD signals to direct buyers towards the monthly high of 114.45.

During the quote’s sustained trading beyond 114.45, October top near 114.70 and the 115.00 round-figure may entertain the USD/JPY bulls ahead of directing them to the 61.8% FE level of October-November moves near 115.15.

Alternatively, the resistance-turned-support around 114.10 and the 100-SMA level of 113.75 restrict short-term pullbacks of the pair.

Should USD/JPY sellers dominate past 113.75, the 200-SMA level near 113.15 and the monthly trough close to 112.70 gains the market’s attention.

Overall, USD/JPY is up for refreshing the multi-day peak above 115.00.

USD/JPY: Four-hour chart

Trend: Further upside expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.4065 vs the previous fix of 6.4145 and the prior close of 6.3900.

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/CHF trades beyond 0.9200, Fed hike remains anticipatory.
• There is optimism for the swissie, but US CPI pain persists.
• USD/CHF on Friday climbs multi-week top, US dollar remains firmly bid. 

USD/CHF wants more, trading under renewed vigour around 0.9220, mainly on the back of the mighty US dollar that rebounded to the highest level since July 2020. The Federal Reserve's early policy tightening prospects also bellows traders' zeal.  

After the latest CPI shocker, traders digest the inflation data, rekindling the greenback and pushing the USD/CHF pair higher. Consumer prices climbed at the quickest annual rate since 1990 in October, according to the US Consumer Price Index (CPI) report released on Wednesday. As a result, bets are in place that the Fed would be obliged to use more aggressive policies to combat persistently high inflation. 

It is to be noted, the Swiss National Bank's (SNB) tolerance for currency strength keeps investors relying on the franc's stability as a hedge against market uncertainty.  Analysts believe that Swiss policymakers shall retain their hands-off approach regarding the currency's appreciation, as expectations of interest rate rises from other central banks may limit upward pressure on the franc. On the monetary policy front, the SNB stressed the need to maintain an expansionary monetary policy stance, ensuring price stability and providing ongoing support to the Swiss economy, despite moves by other central banks to start normalizing policy.

Now looking ahead, with sparsely populated economic activity, investors will feed on leftovers of US inflation figures. This has been the major catalyst for the USD/CHF traders this week. Investors look for quicker rolling back of the Fed's easy money, which will help the swiss franc pare any loss.

USD/CHF Technical Levels

After the Thursday uptick, USD/CHF bulls may try to reclaim a one-month high of 0.9338. The daily chart shows near term gains; the upward trajectory could test 0.9400 psychological level. The price can converse negatively, wherein that the support level of 100-day Simple Moving Average (SMA) at 0.9169 remains first, followed by 0.9088, weekly low.

• US 10-year Treasury yields struggle around weekly top after US banking holiday.
• S&P 500 Futures extend the previous day’s rebound, commodities, Antipodeans trade mixed.
• Fed rate hike concerns remain on the table amid a light calendar.
• Evergrande, China headlines eyed ahead of US Michigan Consumer Sentiment figures.

Global traders pare the post-US inflation moves as American bond markets open after a Veterans Day holiday during early Friday.

The benchmark US 10-year Treasury yields jumped the most in seven weeks on Wednesday after the US Consumer Price Index (CPI) rallied to a 31-year high, per details for October. The bond coupon seesaw around 1.57% of late, up 1.2 basis points (bps). With this, the key Treasury yields stay pressured near the weekly high.

Read: S&P 500 stabilises above 4650, set to post modest gains amid subdued trading conditions

Sluggish bond yields help the US stock futures to keep the previous day’s mild gains. That being said, the S&P 500 Futures rise 0.30% intraday to 4,655 at the latest. It should be noted, however, that the commodities and Asian stocks trade mixed amid a light calendar and a lack of major catalysts of late. Even so, the return of the US bond traders seems to offer a good start to the US dollar and weighs on the Antipodeans.

US Federal Reserve (Fed) stays on the way to rate hike even if the latest Fedspeak tried to defend the easy money. The reasons could be linked to higher US inflation, firmer jobs market and hopes of extra stimulus that could fuel the world’s largest economy.

While the US Fed is likely to announce a rate hike next year, the European Central Bank (ECB) policymakers recently pulled back their economic forecasts and tried to justify the view that the inflation pressure in the bloc is temporary, requiring no change to the current rate. This joins the latest data line from Australia and the UK to enable some of the major central banks to defend easy money policies.

Hence, the rush towards the US bond selling, which in turn propels the Treasury yields, is likely to prevail for a bit longer time. The same could join the growing concerns over China’s economic growth, mainly due to credit crisis for real-estate companies and power-cut problems, to favor the Treasuries and the US dollar’s safe-haven demand. Recently, chatters were loud that Beijing is up for easing the lending restrictions on the property sector. Adding to the challenges for market sentiment are the Sino-American tussles over the phase 1 deal, Vietnam and Hong Kong.

Looking forward, market talks over the Fed rate hike will get fresh hints from the US Michigan Consumer Sentiment for November, expected 72.4 versus 71.7 prior, which in turn should be watched carefully for clearer direction.

Read: US Michigan Consumer Sentiment Index Preview: Inflation’s dangerous impact

• WTI struggles to extend bounce from weekly low, seesaws around 200-SMA.
• Bearish MACD tests buyers, six-week-old support line adds to the downside filters.

WTI snaps a two-day downtrend, consolidating the weekly losses around $80.35 during early Friday. In doing so, the black gold seesaws near the 200-SMA following the bounce off an ascending support line from October 01.

However, the quote’s failure to move much beyond the key moving average and bearish MACD signals hint at the further grind between the stated support line and a three-week-old descending trend line resistance.

Inside the area between $79.25 and $83.50 key technical levels, as mentioned above, multiple levels near $82.00 and the $80.00 round figure may test the WTI bulls.

Meanwhile, a downside break of the $79.25 support line will direct the oil benchmark towards the 61.8% Fibonacci retracement (Fibo.) of September 30 to October 25 upside, near $77.60.

Following that, late September’s peak near $76.50 and the six-week low of $73.00 will gain the WTI bears’ attention.

WTI: Four-hour chart

Trend: Sideways

• AUD/NZD is being held up by a layer of 4-hour support. 
• Bears are seeking a break of structure for a downside continuation towards 1.0280.

AUD/NZD bears are in charge from both a fundamental and technical standpoint and the following shows the prospects of a downside continuaiton for the coming days ahead.

AUD/NZD daily chart

The price is meeting a daily resistance that would be expected to lead to a downside continuation into the September lows and prior demand area. This is located between 1.0300 and 1.0280. 

AUD/NZD 4-hour cart

From a 4-hour perspective, however, the bears would be prudent to wait for a break of the support structure as follows and before committing to a less probable set-up:

As illustrated, the price is being held up by both the horizontal and dynamic trend-line support. However, a break of this area and a subsequent retest of the level would likely lead to a downside continuation to the daily target area mentioned above. 

• DXY stays sidelined after refreshing multi-month top during two-day uptrend.
• Fed rate hike bets propel US Treasury yields, greenback.
• US bond markets to resume trading after Veterans Day holiday.
• Evergrande, China headlines can join US Michigan Consumer Sentiment to entertain traders.

US Dollar Index (DXY) bulls defend the 95.00 threshold while staying around the highest level since July 2020, recently easing to 95.12 amid Friday’s Asian session.

The greenback gauge jumped for the second consecutive day on Thursday as the US inflation-led boost continued pleasing the bulls even as an off in the bond markets probed the upside momentum. Headlines concerning China and Evergrande can also be considered as the reasons for the DXY run-up.

The benchmark US 10-year Treasury yields jumped the most in seven weeks on Wednesday, around 1.582% at the latest, after the US Consumer Price Index (CPI) rallied to a 31-year high, per details for October. The escalating price pressure joins the recently dumped ‘transitory’ phrase from the Fedspeak to help the Fed hawks expect a rate hike.

On the contrary, the European Central Bank (ECB) policymakers recently pulled back their economic forecasts and tried to justify the view that the inflation pressure in the bloc is temporary, requiring no change to the current rate. This joins the latest data line from Australia and the UK to enable some of the major central banks to defend easy money policies. Hence, the Fed’s first-mover advantage underpins the US dollar’s latest upside.

Elsewhere, the greenback’s safe-haven allure that gains importance amid growing concerns over China’s economic growth, mainly due to credit crisis for real-estate companies and power-cut problems. The same joins the Sino-American tussles over the phase 1 deal, Vietnam and Hong Kong to weigh on the market sentiment and favor the DXY bulls.

Amid these plays, S&P 500 Futures print 0.17% intraday gains by the press time whereas the Asia-Pacific stocks traded mixed at the latest.

Given the higher importance of the US Treasury moves, a sustained run-up in the yields can favor the US Dollar Index but the US Michigan Consumer Sentiment for November should be eyed too.

Read: US Michigan Consumer Sentiment Index Preview: Inflation’s dangerous impact

Technical analysis

US Dollar Index is up for challenging June 2020 lows near 95.70 until it stays beyond the 94.75 support confluence, including an ascending trend line from March 31 and September 2020 peak.

• AUD/USD is stalling in an area of demand and a correction could be imminent. 
• The bulls will note a confluence area on the daily chart as an appropriate upside target. 

AUD/USD has been a poor performer this week and is headed for a bearish weekly close. The following illustrates the prospects, however, of a correction on the daily time frame from a key area of prior resistance. 

AUD/USD daily chart

The price could be headed for a liquidity run into the prior support as illustrated above. The 50% mean reversion level of the daily bearing impulse has a confluence with the prior Nov lows near to the 0.7360s. The 10-day EMA is also in close proximity to that area which may act as resistance also.