October month employment statistics from the Australian Bureau of Statistics, up for publishing at 00:30 GMT on Thursday, will be the immediate catalyst for the AUDUSD pair traders.

Market consensus suggests that the headline Unemployment Rate may increase to 3.6% versus 3.5% previous rise on a seasonally adjusted basis whereas Employment Change rise by 15K versus the previous addition of 0.9K. Further, the Participation Rate is expected to remain unchanged at 66.6%.

Considering the Reserve Bank of Australia (RBA) policymakers’ recently cautious comments, coupled with the Covid trouble in China, today’s Aussie jobs report become crucial for the AUDUSD pair traders. Also increasing the importance of today’s data is the strong Wage Price Index for the third quarter (Q3), to 3.1% YoY versus 3.0% expected and 2.6% prior.

Ahead of the event, analysts at Westpac said,

How could the data affect AUDUSD?

AUDUSD struggles for clear directions after reversing from a two-month high the previous day. The Aussie pair’s latest inaction could be linked to the pre-data anxiety, as well as mixed sentiment in the market.

That said, Wednesday’s strong prints of Australia’s Q3 Wage Price Index (WPI) raised doubts about the RBA policymakers’ ability to push back the hawkish bias. However, the latest Minutes and the comments from the Monetary Policy Committee (MPC) members have been backing the latest softer rate hike and keep the AUDUSD bears hopeful.

Should the actual data arrive stronger, the Aussie pair may witness intermediate recovery moves towards refreshing the monthly top, currently around 0.6800. The pullback moves, however, need validation from the resistance-turned-support line from April, around 0.6730 by the press time. Hence, the odds favoring a short-term advance by the AUDUSD are higher even if the bearish bias for the RBA is likely to challenge the bulls.

Technically, the AUDUSD pair’s ability to stay beyond a seven-month-old descending trend line surrounding 0.6730 teases the buyers to aim for the 200-DMA level, near 0.6950 by the press time.

Key Notes

AUDUSD dribbles around mid-0.6700s ahead of Australia employment data

AUDUSD Forecast: Aussie poised to decline, but employment data in the way

About the Employment Change

The Employment Change released by the Australian Bureau of Statistics is a measure of the change in the number of employed people in Australia. Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, a high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or bearish).

About the Unemployment Rate

The Unemployment Rate released by the Australian Bureau of Statistics is the number of unemployed workers divided by the total civilian labor force. If the rate hikes, indicates a lack of expansion within the Australian labor market. As a result, a rise leads to weaken the Australian economy. A decrease of the figure is seen as positive (or bullish) for the AUD, while an increase is seen as negative (or bearish).

• GBPJPY remains sidelined around weekly top, struggles to justify monthly resistance break.
• Bearish MACD signals challenge buyers amid sluggish session.
• Resistance-turned-support, key DMAs restrict immediate downside.

GBPJPY treads water around 166.00 as traders await the UK’s Autumn Statement during early Thursday. In doing so, the cross-currency pair failed to justify the previous day’s upside break of a two-week-old descending trend line.

The quote’s failure to cheer the previous key resistance could be linked to the bearish MACD signals, as well as the cautious mood ahead of the key UK event.

Also read:

That said, the GBPJPY buyers could witness a bumpy road during the further upside as the previous weekly top near 169.10 precedes the 170.00 psychological magnet and October 2022 high near 172.15 to challenge the pair’s further advances.

Meanwhile, pullback moves will initially have to remain below the previous resistance line stretched from October 31, around 165.70 by the press time.

Following that, the 100-DMA and the 200-DMA, respectively near 164.00 and 162.30, should challenge the GBPJPY buyers.

In a case where the pair remains bearish past 162.30, the October 11-12 swing low near 159.70 will be a tough nut to crack for the GBPJPY bears.

Overall, GBPJPY remains bullish even if the road to the north is bumpy and long.

GBPJPY: Daily chart

Trend: Further upside expected

• GBPUSD is advancing to recapture the psychological resistance of 1.2000 as UK inflation surges.
• A sharp recovery in the United States Retail Sales has escalated troubles for the Federal Reserve policymakers.
• The collaboration of fiscal policy measures and the continuation of policy tightening by the Bank of England could trim roaring inflation.
• GBPUSD is expected to remain on the sidelines till the announcement of the United Kingdom Autumn Budget.

GBPUSD has resurfaced firmly after dropping to near the critical support of 1.1850 in the late New York session. The Cable has extended its recovery after overstepping the round-level resistance of 1.1900 and is gathering momentum to recapture the psychological hurdle of 1.2000 ahead. A significant jump in the United Kingdom inflation rate has triggered chances of further policy tightening by the Bank of England (BOE) in the upcoming monetary policy announcements. The headline Consumer Price Index (CPI) has pushed to 11.1%, a historic surge led by the tight energy market. While the core CPI has remained flat at 6.5% but higher than projections of 6.4%. One thing is for sure, that price growth in the United Kingdom has not displayed signs of exhaustion yet not they have reached their ultimate peaks, which will keep the job of the Bank of England policymakers filled with troubles. The US Dollar Index (DXY) is displaying signs of volatility contraction despite a surge in United States Retail Sales data. Also, clarification over the Russia-Poland noise has turned the market mood quite after a heated one. Meanwhile, the 10-year US Treasury yields have tumbled further below 3.7% as chances of a slowdown in interest rate hike pace by the Federal Reserve (Fed) have soared.

Higher US Retail Sales shift pressure on Federal Reserve policymakers

Better-than-projected recovery in the United States Retail Sales data is expected to force the Federal Reserve policymakers to put in blood and sweat to avoid further inflation shocks. While Fed chair Jerome Powell is going through sleepless nights to slow down inflationary pressures by continuously hiking interest rates and impacting employment levels, a sharp recovery in consumer spending has spoiled the effort. The economic data rose by 1.3% in October against the projections of 0.9% and flat performance in September. Despite higher payouts after adjusting for inflation impact, consumer demand has been ‘resilience’ due to higher dependency on credit card borrowing.

Analysts at Wells Fargo are of the view that robust consumer demand gives businesses no incentive to forgo price increases, thereby making the task of getting inflation in check more difficult for Federal Reserve policymakers.” Households have increasingly relied on credit to spend which has resulted in a jump in the overall debt by $351 billion in the third quarter, according to data released yesterday by the NY Federal Reserve. They further added that a drawdown in households’ savings and reliance on debt to address spending may eventually spell economic trouble. Higher reliance on borrowings to cater to spending needs kept the US Dollar displaying strength.

Absence of an ultimate peak in UK Inflation raises hopes of more interest rate hikes

Inflationary pressures in the United Kingdom have jumped above the critical figure of 11% in October. Thanks to the tight energy market and labor force, which have kept reins in the overall demand. Also, an unexpected bond-buying program by the Bank of England is highly responsible for sky-rocketing inflation. While testifying before the UK Treasury Select Committee on Wednesday, BOE Governor Andrew Bailey cleared that “Still likely we will increase interest rates further” as the labor market is extremely tight according to the latest data. He further added that supply chain shocks are fading now.

As the Federal Reserve is looking to adopt a less-aggressive approach toward the interest rates and the Bank of England is bound to keep policy tightening intact. This may lead to a decline in the Fed-BOE policy divergence, which could further support the Pound.

UK Autumn Budget- a key trigger for Cable

The First Autumn budget under the leadership of UK Prime Minister Rishi Sunak and Chancellor Jeremy Hunt will dismantle Liz Truss’s mini-budget and put forward a strategic plan to wipe out the fiscal hole. For Autumn Budget, investors will focus on the bifurcation of tax hikes and spending cuts to meet the GBP 60bln fiscal hole. Treasury sources told Sky News the financial "black hole" could be as large as £60bn - which may require up to £35bn of spending cuts and an extra £25bn raised through taxation. 

The effort for curtailing the pile-up of debt through fiscal measures will also be supportive to cool down the heated inflation as it will lead to a significant decline in consumer spending. A significant hike in tax collections by the government may leave a small purse in the hands of households to augment their entire expenditure. This may support Sterling ahead.

GBPUSD technical outlook

GBPUSD has retreated smartly after testing the breakout of the Rising Channel chart pattern on a four-hour scale. The upper portion of the chart pattern is placed from October 5 high at 1.1496 while the lower portion is plotted from September 26 low at 1.0339.

Advancing 20-and 50-period Exponential Moving Averages (EMAs) at 1.1833 and 1.1700, indicate more upside ahead.

Also, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which signals that the bullish momentum is active.

JP Morgan analysts hold onto their medium-term bullish bias for the US Dollar in the latest report.

Key quotes

Also read: USDJPY Price Analysis: Bulls tread with caution as bearish coil dominates

• EURJPY reclaims the 145.00 figure on risk aversion.
• If the EURJPY tumbles below the 100-day EMA, a fall toward 142.50s is on the cards.

The EURJPY erased last Tuesday’s losses on Wednesday and rose more than 0.60% amidst a risk-off impulse spurred by a positive Retail Sales report in the United States. Given the jump in sales in the report, speculations that the Federal Reserve (Fed) would continue aggressively tightening augmented, though Fed officials’ commentary, calmed traders. At the time of writing, the EURJPY is trading at 145.01, above its opening price by 0.02%, as the Asian session begins.

EURJPY Price Analysis: Technical outlook

The EURJPY trades shy of the weekly highs reached on Wednesday, around 145.49. Earlier, the EURJPY hit a daily low at 143.56, below the 50-day Exponential Moving Average (EMA) at 143.98, but Euro (EUR) buyers lifted the cross-currency pair, reclaiming the 144.00 and 145.00 psychological price levels. Of note, the Relative Strength Index (RSI) climbed above its 50-midline, showing buyers gathered momentum. However, late in the New York session, RSI’s slope aimed downward, a signal that buying pressure was fading.

Therefore, the EURJPY’s first resistance would be the weekly high at 145.49. Break above will expose the 146.00 psychological level, followed by the 147.00 mark.

On the other hand, the EURJPY’s first support would be the 145.00 mark. Once cleared, the next demand area would be the 50-day EMA at 143.98, followed by the last week’s low at 142.54.

EURJPY Key Technical Levels

• USDCHF licks its wounds after falling the most since January 2015 the last week.
• US Dollar’s failure to cheer risk-aversion, strong Retail Sales data challenge buyers.
• Hawkish comments from SNB’s Jordan contrast with downbeat Fedspeak to keep sellers hopeful ahead of the key data/events.

USDCHF repeats its sluggish momentum around 0.9450 as it consolidates the biggest weekly loss in seven years during early Thursday. In addition to the balancing of losses, mixed catalysts and cautious mood ahead of Swiss trade numbers for October, as well as a speech from Swiss National Bank (SNB) Governing Board Member Andréa M. Maechler, also restrict immediate moves of the Swiss Franc (CHF) pair.

In doing so, the quote failed to portray the market’s risk-off mood as the US dollar remains depressed despite the latest rebound. That said, the US Dollar Index (DXY) treads water around 106.30 after declining in the last two days.

It should be noted that the greenback’s latest inaction could be linked to the US Federal Reserve (Fed) officials’ sustained support for an easy rate hike in December. With this, the Fed policymakers resist praising the three-year high US Retail Sales, which rose 1.3% MoM in October versus 1.0% expected and 0.0% prior.

Elsewhere, market sentiment remains sour amid mixed concerns over the rocket fires in Poland and China’s coronavirus woes.

The news that Russian-made rockets were fired at Poland and killed two people triggered emergency meetings of the North Atlantic Treaty Organization (NATO) and the Group of Seven (G7. However, the updates shared by the Associated Press (AP) quoted an anonymous US official’s findings while mentioning that the missile may have been fired by Ukraine, which in turn allowed Moscow the criticize Kyiv for the same and worsen the mood.

On the other hand, China’s Coronavirus numbers reached the highest levels since April 2021 and raised fears of more lockdowns in the world’s largest industrial player, as well as Australia’s key customer.

Amid these plays, Wall Street closed in the red but the US Treasury yields struggle to stage recovery. That said, the S&P 500 Futures print mild losses by the press time, after reversing from the monthly high the previous day.

Moving on, the Swiss Trade Balance for October, expected 3,698M versus 4,003M prior, could initially entertain USDCHF traders ahead of a speech from SNB’s Maechler. Given the recently hawkish comments from SNB Chairman Thomas Jordan, upbeat statements from Maechler could recall the sellers.

Technical analysis

Although multiple supports around 0.9355-70 challenge USDCHF bears, a clear downside break of the 10-month-old ascending trend line, near 0.9500 by the press time, keeps buyers away.

• USDCAD is moving to the upside in a correction of the recent bear trend.
• The bears eye the bullish trendline for the weeks ahead. 

USDCAD staged a correction in the middle of the week as the following charts illustrate. The greenback is under pressure still and the data on the domestic chart remained steady as expected at 6.9%, but core common came in at 6.2% YoY vs. 5.9% expected and a revised 6.2% (was 6.0%) in September. This initially supported the CAD but overall price pressures appeared to have peaked.  The Bank of Canada next meets on December 7 and a 25 bp hike to 4.0% is expected. There is a long time between now and then and this gives rise to prospects of a meanwhile correction as follows:

USDCAD weekly chart

The M-Formation is a compelling bullish feature, but there could still be some downside to come. 

A break of the support opens up the way to dynamic trendline support, although the bulls are firming and the 38.2% Fibonacci is eyed for the days ahead.

• US Retails Sales smashed forecasts, flashing consumers’ resilience and pressuring the Federal Reserve.
• Industrial Production in the United States showed signs of weakness, justifying 50 bps hikes by the Federal Reserve.
• XAUUSD is neutral-upward biased and can claim $1800 once it regains $1786.

Gold Price creeps lower after testing the weekly high around $1786 on Wednesday following the release of mixed data from the United States, which spurred a risk-off impulse, bolstering the US Dollar (USD). However, XAU failed to capitalize on falling US Treasury bond yields and on Federal Reserve (Fed) speakers expressing that they would slow the pace of tightening, which sent US bond yields plummeting. Hence, XAUUSD is trading at $1772.20, below its opening price.

US Dollar bolstered by an upbeat US Retail Sales report

US equities declined following the release of upbeat economic data for the United States (US). Retail Sales for October grew by 1.3% on a monthly pace, above estimations of 1%, showing consumers resilience amidst a 4-decade inflation period. Delving into the report, Retail Sales for the control group, used on Gross Domestic Product (GDP) calculation, rose by 0.7% MoM against forecasts of 0.3%. Further data from the Federal Reserve (Fed) revealed that Industrial Production (IP) for October in the United States shrank by 0.1% MoM in October, beneath estimates of a 0.2% expansion, the second decline in three months.

Given that Federal Reserve policymakers expressed that interest-rates hikes moderation is appropriate, today’s reports gave mixed signals to the central bank. On one side, further tightening is needed, as growing demand will keep prices elevated, but weakening industrial activity would need support. That said, a slew of Federal Reserve policymakers crossed newswires.

Federal Reserve officials lay the ground for 50 bps hikes

Federal Reserve officials said inflation is too high and higher rates are needed. They added that interest-rate increases could slow down soon, though they emphasized that they need work to do, and “pausing” is not an option. It should be noted that Kansas City Fed President Esther George said it would be hard to lower inflation without triggering a recession, whilst Governor Christopher Waller stated that the higher the policy rate, the stronger the case for slowing to 50 bps hikes.

Gold Price falls albeit a soft US Dollar

Once data was revealed, XAUUSD edged toward the low $1770s, beneath Wednesday’s opening price, while the US Dollar (USD) continued its downtrend. The US Dollar Index (DXY), a gauge of the greenback’s value against a basket of six peers, dives 0.25%, down at 106.306, losing 8.40%, from its recent fall from YTD highs.

Meanwhile, US Treasury bond yields edge lower, a headwind for the USD and a tailwind for XAU. The US 10-year bond yield fell eight bps at 3.690%. Although US nominal bond yields dropped, the US 10-year Treasury Real Yields remained around 1.53%, capping XAUUSD’s rally.

Gold Price Forecast: Technical outlook

The XAUUSD daily chart portrays Gold as neutral-to-upward biased. After retracing from weekly highs around $1786, forming a bearish-harami candle pattern, it could exacerbate a fall below $1767, which, once cleared, could open the door toward $1750, ahead of the 100-day Exponential Moving Average (EMA) at $1712.89. On the other hand, if XAUUSD breaks to new weekly highs above $1786, it could challenge the $1800 figure, immediately followed by the 200-day EMA at $1802.85. A daily close above the latter could send Gold rallying towards June 17 highs around $1857.20.

• AUDJPY remains sidelined after reversing from one-week high.
• 21, 50 and 100 DMAs constitute the 94.30 key hurdle ahead of the two-month-old resistance line.
• Bearish MACD signals, pullback from important resistance levels keep sellers hopeful of retesting monthly horizontal support area.

AUDJPY treads water around the 94.00 threshold, after reversing from crucial resistances the previous day, as traders await Australia’s monthly employment data on Thursday.

That said, the cross-currency pair reversed from the two-month-old resistance line, as well as a convergence of the 21, 50 and 100 DMAs, on Wednesday.

Given the bearish MACD signals, the quote is likely to stay on the seller's radar should the Aussie job numbers disappoint. Even if the scheduled employment numbers arrive stronger, there prevails a bumpy road to the north that makes AUDJPY buyers less interested.

With this, the bears could again aim for the one-month-old horizontal support area between 93.00 and 92.90. However, the 200-DMA support of 92.30 could challenge the pair’s further downside.

On the flip side, the aforementioned DMA confluence near 94.30 is a tough nut to crack for the AUDJPY bulls ahead of the downward-sloping resistance line from September, near 94.60.

In a case where the quote rises past 94.60, the monthly high near 95.55 and the previous month’s peak surrounding 95.75 could challenge the pair’s further upside.

AUDJPY: Daily chart

Trend: Further weakness expected

• AUDUSD remains pressured after reversing from a two-month high.
• Downbeat sentiment, fears emanating from China keep sellers hopeful.
• Jobs report will be the key as upbeat Aussie Wage Price Index challenged RBA doves.

AUDUSD holds onto the previous day’s pullback from the highest levels in three months as traders await Australia’s monthly employment data on early Thursday in Asia. That said, the Aussie pair remains pressured around 0.6730 by the press time.

The market’s risk-off mood triggered the AUDUSD pair’s U-turn from the multi-day high on Wednesday. In doing so, the Aussie pair failed to cheer a three-year high print of Australia’s Wage Price Index for the third quarter (Q3), to 3.1% YoY versus 3.0% expected and 2.6% prior.

The chatters surrounding rocket fires in Poland and China Covid woes joined upbeat US Retail Sales data to weigh on the sentiment.

The news that Russian-made rockets were fired at Poland and killed two people initially soured sentiment. The same triggered emergency meetings of the North Atlantic Treaty Organization (NATO) and the Group of Seven (G7), which in turn favored the US Dollar (USD) due to its safe-haven appeal. However, the updates shared by the Associated Press (AP) quoted an anonymous US official’s findings while mentioning that the missile may have been fired by Ukraine, which in turn allowed Moscow the criticize Kyiv for the same and worsen the mood.

Elsewhere, China’s Coronavirus numbers reached the highest levels since April 2021 and raised fears of more lockdowns in the world’s largest industrial player, as well as Australia’s key customer.

Moving on, US Retail Sales growth rose by 1.3% MoM in October versus 1.0% expected and 0.0% prior. The details suggest that the Retail Sales ex Autos also grew 1.3% MoM compared to 0.4% market consensus and 0.1% previous readings. Further, US Industrial Production contracted by 0.1% in October versus 0.2% forecast and 0.1% prior (revised from 0.4%).

It’s worth noting that the US Federal Reserve (Fed) officials didn’t praise the strong Retail Sales data and kept suggesting a softer rate hike in their latest public speeches, which in turn kept Wall Street in the red but weighed on the US 10-year Treasury yields.

Alternatively, strong numbers of Australia’s Q3 Wage Price Index challenged the bearish bias surrounding the Reserve Bank of Australia (RBA). However, it all depends upon today’s Employment Change, expected 15K versus 0.9K prior, as well as the Unemployment Rate that is likely to increase to 3.6% versus 3.5% previous readings. Should the jobs report fail to shake the current market view of easy rate hikes from the RBA, the AUDUSD may witness further downside amid grim sentiment.

Technical analysis

AUDUSD needs to stay beyond a seven-month-old descending trend line, previous resistance around 0.6730, to keep buyers directed towards the 200-DMA hurdle surrounding 0.6950.

• EURUSD is expected to witness more gains after an establishment above the immediate hurdle of 1.0400.
• Market impulse has cooled down as the Russia-Polish noise has calmed.
• Fed’s Daly has considered a range of 4.75% - 5.25% as reasonable for policy rate end-point

The EURUSD pair has rebounded after retracing to near 1.0355 in the early Asian session. The asset is majorly sideways but is expected to pick up momentum after crossing the immediate of 1.0400 decisively. The major is re-gaining strength as the risk profile is turning positive led by vanishing fears of geopolitical tensions between Russia and Poland.

The market impulse was heated after the Polish government blamed Russia for striking two stray missiles in their region. While things turned next to normal when NATO ambassadors cited that missiles belonged to Ukraine. This has led to a volatility contraction in the US dollar index (DXY) and a power-pack action is expected for the overall market ahead.

S&P500 faced volatility on Wednesday as general merchandise retailer Target Corp (TGT) trimmed its sales forecast, which indicates that consumer spending will trim further. Earlier Federal Reserve (Fed) Beige Book also cleared that consumer spending has been scaled down to 1.4% in the third quarter from the prior release of 2.0%.

Meanwhile, the returns on the US government bonds are losing their traction as investors see an adaptation of a less-aggressive approach by the Fed in its December monetary policy meeting. The 10-year US Treasury yields are on a losing spree and have dropped below the crucial support of 3.70%. The yields have plummeted further despite San Francisco Fed President Mary Daly hiking its interest rate guidance.

Fed policymaker has considered a range of 4.75% - 5.25% as reasonable for the policy rate end-point. She further added that the central bank wants to see a slowdown in the economy to cool down the red-hot inflation.

On the Eurozone front, clarity over the Russia-Poland noise has vanished fears of further supply chain disruptions. Meanwhile, European Central Bank (ECB) Governing Council member Ignazio Visco said on Wednesday that the need for continued tightening is evident but noted that the case for implementing a less aggressive approach was "gaining ground," as reported by Reuters.

• NZDUSD bulls eye further weakness in the US Dollar.
• Technicals point to the downside on a break below 0.6130.

NZDUSD is potentially topping as per the charts below, but it was a quiet day mid-week in financial markets. The price is hovering around 0.6150, between the overnight high of 0.6193 and 0.6128.

Stellar US Retail Sales did little to help the beaten-down US Dollar. In the US, October sales climbed 1.3% MoM beating, expectations of a 1.0% rise and strongly up vs the 0.0% print in September. ''The data point to still strong consumer demand which is something that the Fed is trying to reduce via its rapid monetary tightening. The data justify a 50bp rate increase from the Fed in December,'' analysts at ANZ Bank explained.

There is growing confidence that the US Dollar cycle has peaked, and the analysts at ANZ Bank said their focus is on the NZD’s gap to fair value (which they see at ~0.65), on the RBNZ. The analysts said the central bank is ''well placed to close the gap on US interest rates, and on China’s re-opening, which ought to be good for commodities. But it’s complex given late-cycle fears of the Fed’s still fairly resolute tone. Technicals still look reasonably bullish, in our view.''

NZDUSD technical analysis

The price is topping out on the time frames as per the hourly chart above and the 4-hour chart below:

On the 4-hour chart, however, there are prospects of a triple-top scenario as illustrated above. 

• USDJPY is coiled and could be about to continue to the downside. 
• US Dollar bulls eye a correction into the 108.00s, DXY.

USDJPY is relatively flat in the session after falling from a high of 140.29 to a low of 138.72, now trading back at 139.30. The greenback has been under pressure, sliding from currently elevated levels on the sentiment that the Federal Reserve will be forced to pause its rate hikes. As interest rate differentials with other countries narrow, the greenback would be expected to continue to slide. The sentiment is fueling a bid in the Yen as the following technical analysis will illustrate:

USDJPY daily chart

The price has broken prior supporting trendlines and is now meeting fresh dynamic support and is coiling into a bearish continuation triangle. 

USDJPY H4 charts

On the 4-hour chart we can see the important levels and price imbalances should there be a break to the upside.

Zoomed in, we can see this more clearly. 

DXY daily charts

The US Dollar is also coiled and bearish while below the resistance. The M-formation, on the other hand, is a bullish feature whereby the price would be expected to revert towards the neckline, at least to test the 38.2% Fibonacci. 

Federal Reserve Governor Christopher Waller who last week said “we’ve still got a ways to go” before the US central bank stops raising interest rates, despite good news last week on consumer prices, jolting risk appetite, repeats the same hawkish rhetoric on Wednesday.

Waller continues to caution that officials were not close to a pause. He said today that there is still a ways to go on rates and but he is now "more comfortable" with smaller rate increases going forward after recent data showed the pace of price increases slowing.

In remarks prepared for delivery at an Arizona economic conference, Waller said it remains unclear how high the Fed will need to raise interest rates, and that he will not make a final decision about what to do at the Fed's Dec. 13-14 policy meeting until reviewing the rest of the data between now and then.

"I will not be head-faked by one report," Waller said of consumer price data released last week that saw larger-than-expected declines in both headline inflation and a narrower but more closely watched index of "core" prices. "We've seen this movie before."

Reuters reported that he also said the most recent reports were a "positive development" that he hoped would be "the beginning of a meaningful and persistent decline in inflation" back to the Fed's 2% target.

Key notes

After raising rates in atypically large three-quarter point increments at its last four meetings, Waller said that as it stands "the data of the past few weeks have made me more comfortable considering stepping down to a 50-basis-point hike," in December and possibly to smaller quarter-point increases after that.

Waller said signs the economy and wage growth are slowing have added to his sense that Fed policy is beginning to do its job.

He cautioned it was too early to pin down just how high rates may need to go.

"One report does not make a trend. It is way too early to conclude that inflation is headed sustainably down," he said. "Getting inflation to fall meaningfully and persistently toward our 2% target will require increases in the federal funds rate into next year. We still have a ways to go."

US Dollar update

The US dollar index is coiled and could be subject to a breakout to the downside immanently. However, the M-formation is a reversion pattern that brings the risks of a move through current resistance into the Fibonacci scales with the 38.2% ratio as the first target around 108.00.

What you need to take care of on Thursday, November 17:

The American Dollar gathered some strength in the last trading session of the day, ending the day mixed across the FX board. The greenback benefited from a worsening sentiment following Tuesday’s developments in the Ukraine-Russia war, but also from some fresh macroeconomic news.

Former President Donald Trump announced he will seek another term in the office, launching his Presidential run for 2024. The news came as no surprise, but still lifted concerns amid his views on the US relationship with China and other polemic issues.

 Donald Trump is seeking another term in office, hoping to become the first US president in 130 years to stage a comeback after being rejected by voters. Also, Republicans are close to winning control of the House of Representatives, adding 8 seats to a total of 217, just one short of the total needed to create a majority.

The United Kingdom published the annualized Consumer Prices Index, which came in at 11.1% in October when compared to 10.1% in the previous month, the highest reading in over four decades.

US Treasury yields reflect renewed growth-related concerns. The yield on the 2-year note is marginally higher, at 4.37%, while the 10-year note pays 3.70%, down roughly 9 bps on the day. The US published an upbeat Retail Sales report, which rose by 1.3% MoM in October, better than anticipated. The figure sent stocks down amid speculation inflation may resume its advance, forcing the US Federal Reserve to maintain the aggressive tightening path. The same reason backed yields gain at the shorter end of the curve.

Additionally, central banks’ officials are back on the wires. European Central Bank (ECB) Vice President Luis de Guindos said that the ECB would continue with policy normalisation and continue with the restrictive monetary policy, although Governing Council member Ignazio Visco added that reasons for a less aggressive ECB approach is gaining ground.

Across the pond, US Federal Reserve (Fed) Kansas President Esther George said the Fed should slow the pace of rate increases, noting that an economic contraction may be necessary to bring the services sector inflation down.

Finally, tensions arose in China as the country keeps reporting increased coronavirus contagions. Regional lockdowns spread across the country and even triggered protests in the streets, likely worsening the situation.

Wall Street spent the day in the red, following the lead of its overseas counterparts. Losses, however, have been limited.

Australia will publish October employment figures on Thursday. The country is expected to have added 15,000 new job positions in the month, while the unemployment rate is foreseen to tick higher, to 3.6% from the current 3.5%.

The EURUSD pair trades at around 1.0370, while GBPUSD is stable around 1.1890. Commodity-linked currencies suffered the most, with AUDUSD down to the 0.6720 region and USDCAD trading at 1.3230.  There was little action around safe-haven currencies, with USDCHF and USDJPY confined to tight intraday ranges and settling at 0.9440 and 139.60, respectively.

Gold consolidated gains and held within familiar levels, now trading at around $1,773 a troy ounce, while crude oil prices edged lower, with the barrel of WTI changing hands at $85.50.

• Mixed US economic data kept the EURUSD from staying above 1.0400.
• US Retail Sales report crushing expectations requires further rate hikes by the Federal Reserve.
• According to Reuters, European Central Bank policymakers to lift rates by 50 bps at December’s meeting.
• EURUSD failure to register a daily close above 1.0400 would exacerbate a fall toward 1.0200.

The EURUSD extends its gains for the second consecutive day but struggles to hurdle the 200-day Exponential Moving Average (EMA) and retraces. The release of an upbeat Retail Sales report for the United States capped the Euro (EUR) gains, as the major slid below 1.0400. At the time of writing, the EURUSD is trading at 1.0371, above its opening price by 0.22%.

US Dollar bolstered by an upbeat US Retail Sales report

Sentiment remains negative, as shown by US equities trading with losses. A report from the US Department of Commerce (DoC) showed consumers’ resilience amidst one of the most aggressive tightening cycles by the Federal Reserve (Fed). October’s Retail Sales jumped by 1.3% MoM, vs. 1% estimations, the largest increase in eight months. Regarding the control group used for Gross Domestic Product (GDP) calculations, sales grew by 0.7% MoM against a 0.3% forecast.

Later, US Industrial Production plunged from September’s 0.1% to -0.1% MoM, missing estimates of a 0.2% increase.

After the reports, Federal Reserve officials expressed that inflation and higher rates are needed. They added that moderation to interest-rate increases could happen soon, though they emphasized that they need work to do. It should be noted that Kansas City Fed President Esther George said in an interview with the Wall Street Journal (WSJ) said it would be hard to lower inflation without triggering a recession.

In the meantime, Atlanta’s Fed GDPNow projection for Q4 is at 4.38%, above its previous reading of 4%, an optimistic forecast for the US economy,

European Central Bank members committed to taming inflation

Across the pond, European Central Bank (ECB) policymakers are crossing news wires, led by Vice-President Luis de Guindos saying that inflation is their top priority, while Ignacio Vizco added that the case for less aggressive rate hikes is growing. Meanwhile, the Eurozone Financial Stability Report published by the ECB said risks for financial stability grew sparked by worsening economic and financial conditions, blamed on the energy crisis and Russia’s invasion of Ukraine.

Elsewhere reports that ECB officials are favoring a 50 bps rate hike in December, contrarily to 75 bps, emerged, according to Reuters.

EURUSD Price Analysis: Technical outlook

The EURUSD sits comfortably above the November 14 daily high of 1.0358 after probing the 1.0400 figure. Of note, the Euro rallied toward the 200-day Exponential Moving Average (EMA) for the second time, but sellers outweighed buyers, sending the pair below the 1.0400 mark. So EURUSD traders should be aware that EURUSD’s failure to print a daily close above 1.0400 would exacerbate a fall towards the September 12 high at 1.0197, followed by the October 26 swing high-turned-support at 1.0088.

• The Gold price has glided out of the trendline supports and hovers over Tuesday's lows.
• A 100% expansion of the current consolidative range is located at the $1,750 mark for an initial target. 

At $1,774.20 currently, 09.23%. the Gold price stalled on Wednesday, gliding across a bearish structure as yesterday's lows of $1,767.13. The yellow metal has traveled between a tight consolidative range of $1,773.99 and $1,785.09 so far on the day. The precious metal sits near a three-month peak and remains buoyed by a softer dollar as investors expect that the Federal Reserve can ease its aggressive interest rate hikes following a round of data that points to slowing inflation.

The safe-haven dollar weakened further on Wednesday despite stronger-than-expected US Retail Sales that have clouded the inflation outlook. Last week, the US Consumer Price Index missed expectations as did the Producer Price Index which both have weighed on the greenback. DXY, an index that measures the US Dollar vs. a basket of major currencies has fallen around 7% in November suffering the bulk of the drop last Friday on the back of the inflation data. Gold has benefitted in a softer US yield environment as a consequence as benchmark 10-year yields were near their lowest since Oct. 5. Rising rates reduce the appeal of non-yielding bullion.

Poland tensions have cooled

Besides the Fed, geopolitics is coming to the fore once again and moving the needle in financial markets having been on the back burner for some time. Bullion moved to the highest since August 15 following reports of a missile killing two people in Poland near the border with Ukraine. An investigation is underway but tensions were high. Nevertheless,  so far, the United States has not seen anything that contradicts Poland's preliminary assessment that a missile that landed within its borders on Tuesday was most likely the result of a Ukrainian air defense missile. This comes from US National Security Council spokesperson Adrienne Watson who commented on the situation on Wednesday.

"Whatever the final conclusions may be, it is clear that the party ultimately responsible for this tragic incident is Russia, which launched a barrage of missiles on Ukraine specifically intended to target civilian infrastructure," he said.  The cooling tensions have curbed the appetite for both gold and the US Dollar.

''Positioning risks are still skewed to the upside in gold, the analysts at TD Securities said.  ''A series of key trend reversal thresholds associated with substantial short covering flow lies just north of the $1800/oz mark. In turn, the pain trade in the yellow metal has room to extend further, which suggests that the return on patience is elevated for those looking to fade the recent rally.''

Gold technical analysis

If Gold does not move higher from here, imminently, then the pressures will leave the 38.2% Fibonacci and the 50% mean reversion levels vulnerable around $1,750. However, while on the back side of the broken trendlines, the bias is weighted to the upside with the $1,800's eyed.

If there is to be a meanwhile correction, it could play out as follows on the hourly chart:

The price has glided out of the trendline supports and hovers over Tuesday's lows as the structure that the bears need to break. A 100% expansion of the current consolidative range is located at the $1,750 mark for an initial target. 

• Economic data from the United States was mixed and bolstered the US Dollar.
• US Retail Sales grew the most in eight months, while Industrial Production disappointed.
• Albeit Australia’s WPI jumped, it won’t deter the Reserve Bank of Australia from 25 bps hikes.

The AUDUSD retreats from weekly highs around 0.6800 after a sales report in the United States, showing consumers resilience despite higher interest rates. Also, a risk-off impulse spurred by geopolitical jitters capped the Australian Dollar (AUD) gains. At the time of writing, the AUDUSD is trading at 0.6741, beneath its opening price, after hitting a daily high of 0.6792.

US Retail Sales jumped, spurring a risk-off impulse

US equities remain negative, following the US Retail Sales report. The US Department of Commerce (DoC) informed that October’s Retail Sales grew by 1.3% MoM against 1% expectations by analysts. In the same report, the control group sales used to calculate the Gross Domestic Product (GDP) rose 0.7% MoM against a 0.3% increase.

Given that the last two inflation reports in the United States, the Consumer Price Index (CPI) and the Producer Price Index (PPI), were softer, consumers exerted additional pressure on the Federal Reserve (Fed). However, a slew of Federal Reserve officials crossing newswires commented that the central bank is resolute in tackling inflation but with gradual interest-rate increases.

Later, two Fed officials crossed wires. New York Fed President John Williams said that price stability is essential for the US economy to function well. Later, the San Francisco Fed President Mary Daly said the central bank wants to see the economy slow, so they can get inflation down. She added that “Pausing is not part of the discussion” and foresees the Federal Funds rate (FFR) to peak at around 4.75% - 5.25%.

Further US data revealed during the day saw Industrial Production (IP) plunging from September’s 0.1% to -0.1% MoM, below estimates of a 0.2% increase.

Australia’s WPI jumped thought won’t deter RBA’s from gradual hikes

Elsewhere, the Australian Wage Price Index (WPI)  rose by 3.1% in the Q3, higher than expected but consistent with what the Reserve Bank of Australia (RBA) thought was a necessary condition for achieving their 2-3% CPI inflation target, according to ING analysts.

Analysts at ING said: “Consequently, even with the last inflation and now wages data surprising on the upside, we don’t believe they will shift back to their previous 50bp pace of tightening and will continue at a 25bp pace at coming meetings, with the peak for cash rates likely to come in 1Q23 as the cash rate hits 3.6%.”

The AUDUSD retreated from weekly highs and trimmed its earlier gains, even though the inverted head-and-shoulders pattern remained in play. As long as the AUDUSD remains above the 0.6700 figure, a move to the inverted head-and-shoulders pattern target at 0.6870 is on the cards.

AUDUSD Price Analysis: Technical outlook

From a daily chart perspective, the AUDUSD remains neutral-to-upward biased. The inverted head-and-shoulders are still intact unless the major plunges below 0.6400. OF note, the 100-day Exponential Moving average (EMA) at around 0.6696 acted as support twice, meaning buyers stepped in at that level. The Relative Strength Index (RSI) in bullish territory reaffirms buyers are in charge, though its downward slope suggests the AUDUSD might consolidate in the 0.6700/0.6800 area.

The United States has not seen anything that contradicts Poland's preliminary assessment that a missile that landed within its borders on Tuesday was most likely the result of a Ukrainian air defense missile, US National Security Council spokesperson Adrienne Watson said on Wednesday.

"Whatever the final conclusions may be, it is clear that the party ultimately responsible for this tragic incident is Russia, which launched a barrage of missiles on Ukraine specifically intended to target civilian infrastructure." 

Key quotes

• US sees nothing that contradicts Polish president's preliminary assessment explosion was most likely the result of a Ukrainian air defense missile.
• US spokesperson says whatever final conclusions may be, it is clear Russia is ultimately responsible 
• Ukraine has every right to defend itself.

The comments follow Poland's investigation into Tuesday's news that at least two people died after Russian missiles landed in NATO state Poland on the Ukraine border. The event weighed on risk appetite on Wall Street and at the start of the day in Asia on Wednesday. 

Retail Sales rose in October by 1.3% above the 1% of market consensus. Analysts at Wells Fargo point out that despite the apparent endurance, consumers are struggling to keep up the pace. They warn that the last time credit card borrowing was growing like it is now, the US was heading into the 2008-2009 recession.

Key Quotes: 

“The fundamentals are not supportive for consumer spending, yet retail sales continues to forge ahead. While it is certainly true that this is a nominal measure, even after adjusting for inflation, consumers are spending more. It is tempting to cheer on the "resilience" of the consumer, but the staying power of spending gives businesses no incentive to forgo price increases, thereby making the task of getting inflation in check more difficult for policymakers.”

“Even with continued consumer resilience, some cracks are slowing forming in the foundation. Households have increasingly relied on credit to spend and increased overall debt $351 billion in the third quarter, putting the total debt burden for households at $16.5 trillion, according to data released yesterday by the NY Federal Reserve. That’s an increase of 8.3% from a year earlier, the biggest annual increase since a 9.1% jump in Q1-2008 at the start of the 2008-2009 recession.”

“Near-term consumer resilience will come at a further deterioration in household finances as households draw down savings and accumulate debt to spend. That may eventually spell economic trouble.”
 

Data released on Wednesday showed the Consumer Prince Index (CPI) in Canada rose 0.7% in October, in line with expectations while the Core rate increased by 0.4% below the 0.7% of market consensus. Analysts at CIBC expected inflation to continue moving lower. They look for the Bank of Canada to raise rates by 50 basis points at the next meeting.

Key Quotes: 

“Inflation remains very heated, with the CPI holding to a 6.9% 12-month pace, and prices up another 0.7% in October (or 0.6% seasonally adjusted).”

“Today's data were in line with consensus, and although the headline CPI was a few ticks lower than we expected, prices excluding food/energy were only one tick softer than we had built into our projection. We still expect much lower inflation by the latter half of 2023, but today's data were generally a reminder that we need to first see downward pressure from on demand from softer job and income gains to make that happen.”

“We look for the Bank of Canada to add another half point to overnight rates in December, and they will have to rely on indicators of slowing growth, rather than immediate progress on inflation, to justify a pause in Q1.”

• Retail Sales in the United States registered their largest gains in eight months, bolstering the US Dollar.
• UK’s inflation data and Bank of England speakers kept the GBP from falling.
• GBPUSD Price Analysis: Once it breaks 1.2029, it could test the 200-DMA; otherwise, it could drop to 1.1647.

The GBPUSD climbed following the release of mixed US economic data from the United States, while also a slew of Bank of England (BoE) Governors crossed newswires after a red-hot UK CPI report. At the time of writing, the GBPUSD is trading at 1.1888, registering gains of 0.16% after hitting a daily high of 1.1941.

US Retail Sales showed consumer spending increased

US stocks are trading in the red after a solid US Retail Sales report. The US Department of Commerce (DoC) reported that sales grew the most in eight months, with readings hitting 1.3% MoM vs. 1% estimated by analysts. Digging deep into the report, Retail Sales in the control group, used to calculate Gross Domestic Product (GDP), expanded by 0.7% MoM vs. 0.3% foreseen.

Even though inflation data in the United States showed signs that an era of elevated prices could end, consumer resilience proves otherwise. Instead, Federal Reserve officials could be forced to continue its aggressive tightening, although they expressed a desire to slow the pace of tightening conditions,

Further US data revealed during the day saw Industrial Production (IP) plunging from September’s 0.1% to -0.1% MoM, below estimates of a 0.2% increase.

Of late, two Federal Reserve (Fed) policymakers crossed wires. New York Fed President John Williams said that price stability is essential for the US economy to function well. Later, the San Francisco Fed President Mary Daly said the central bank wants to see the economy slow, so they can get inflation down. She added that “Pausing is not part of the discussion” and foresees the Federal Funds rate (FFR) to peak at around 4.75% - 5.25%.

UK inflation breaks above 11%, pressuring the BoE

On the UK front, the Consumer Price Index for October jumped 11.1% YoY, smashing estimates of 10.7%, reported the Office for National Statistics (ONS). Notably, the inflation report comes one day before Chancellor Jeremy Hunt unveils the Autumn Budget, which is expected to show a “fiscally responsible” government under the new Prime Minister (PM) Rishi Sunak.

Following the release of the UK inflation report, the Bank of England Governor Andrew Baily said that inflation is reflecting a series of supply shocks. However, he added that those shocks are beginning to fade and noted that the central bank would raise rates further. In the meantime, the BoE’s newest member Swati Dhingra said the UK could get into a much deeper recession if rates continue to rise.

After a busy economic docket, the GBPUSD continued its uptrend, though stalled at around 1.1900. the major bias is neutral-to-upwards, though if it reclaims the 200-day Exponential Moving Average (EMA) at 1.2237, that could pave the way for further gains.

GBPUSD Price Analysis: Technical outlook

From a technical perspective, the GBPUSD’s unable to recapture 1.2000 exposes the pair to selling pressure. Although the Relative Strength Index (RSI) shows buyers’ momentum stills, November’s 15 inverted hammer candlestick with a long upper shadow showed signs of some liquidations. However, a renewed push above the weekly high at 1.2029 could motivate buyers to engage on the GBPUSD’s way toward the 200-day EMA. On the flip side, GBPUSD key support levels are 1.1800, followed by the 100-day EMA at 1.1647.

• Mexican peso firm again versus US Dollar.
• USDMXN holds bearish bias, unable to recover 19.50.
• Strong support at 19.30 prevails, for now.

The USDMXN is falling modestly on Wednesday as the US Dollar remains weak across the board amid expectations of a less aggressive Federal Reserve. The pair remains near the lowest levels since March 2020. It bottomed at 19.28, and it is hovering around 19.30.

On Tuesday, the USDMXN peaked at 19.47 and then pulled back. The rebounds of the US Dollar continue to be limited, unable to reclaim the 19.50 zone. A daily close above 19.60 would alleviate the bearish pressure.

The Mexican peso is testing the 19.25/30 critical support in the short-term. A daily close below would open the doors to more losses with an in initial target at 19.15 and the next key support at 19.00/05. The RSI remains slightly above the 30, while Momentum is turning south again.

USDMXN daily chart

Gold has rebounded further but still remains below the 200-Day Moving Average at $1,803. Therefore, strategists at Credit Suisse stick to their bearish bias.

200-DMA at $1,803 to cap further upside for now

“Gold has rebounded further and is now hovering solidly above the 55DMA at $1,680, hence questioning the validity of the large ‘double top’.” 

“A break back below the 55DMA is needed to inject fresh downside momentum into the market again, with next supports seen at the recent YTD low at $1,614, before the 50% retracement of the whole 2015/2020 upmove seen at $1,560.”

“The 200DMA, currently seen at $1,803, is expected to cap further upside for now. However, above would open the door for a potential rise toward the $1,877 June high next.”

EURUSD is expected to hold its 200-Day Moving Average at 1.0430 on a closing basis for now. However, economists at Credit Suisse expect to see an eventual break for a move to the 38.2% retracement of the 2021-2022 downtrend at 1.0612/15.

Support for a pullback is seen at 1.0271

“EURUSD is currently testing the falling 200DMA, currently at 1.0430. Whilst this may cap at first on a closing basis for a pullback, our bias is for a closing break in due course and for further strength to the 38.2% retracement of the entire 2021-2022 downtrend and late June high at 1.0612/15, which we then look to prove tougher resistance.” 

“Support for a pullback is seen at 1.0271 initially, with 1.0097/95 now ideally holding further weakness.”

The US Dollar has fallen since last week’s milder-than-expected inflation data. Nonetheless, economists at UBS expect the greenback to stay on a solid foot for the time being, dragging EURUSD and GBPUSD down to 1.00 and 1.10, respectively.

Near-term risks remain tilted toward a stronger US Dollar

“We think the near-term risks remain tilted toward a stronger US Dollar. We continue to rate the greenback as most preferred in our foreign exchange strategy, alongside the Swiss Franc, another safe-haven currency.”

“We think there is a high chance that risk aversion will return and recommend investors prepare for another drop below parity for the Euro and Cable to fall toward 1.10.”

“We also recommend selling upside risk in EURUSD and the downside risk in the US Dollar versus the Yen as a short-term yield-enhancement strategy, given the pick-up in foreign exchange volatility.”

In an interview with CNBC on Wednesday, San Francisco Fed President Mary Daly said the latest Consumer Price Index and Producer Price Index data were positive news, as reported by Reuters.

Additional takeaways

"Consumers are preparing for slower economy, that's a good start."

"We want to see economy slow."

"We want to get inflation down"

"Slower inflation, labor market are encouraging; need more of that."

"Pausing is not part of the discussion, now the focus is on level of rates."

"IN September, I wrote down 5% as an ending place for rates."

"I still think 5% is reasonable."

"When we hold rates, monetary policy becomes tighter as inflation comes down."

"Discussion now is how high we have to go, then will be, how long do we need to hold it."

"Global conditions are a headwind on US growth."

"A range of 4.75% - 5.25% is reasonable for policy rate end-point."

"Unemployment rate at 4.5%-5% would be reasonable."

"I'm 100% determined to slow the economy effectively, gently."

Market reaction

The US Dollar Index extends its daily recovery after these comments and was last seen losing 0.15% on the day at 106.41.

Bank Indonesia (BI) will hold its monthly governor board meeting on Thursday, November 17. Here you can find the expectations as forecast by the economists and researchers of six major banks regarding the upcoming central bank's rate decision.  

Bank Indonesia is expected to hike rates by 50 basis points to 5.25%. At the last policy meeting on October 20, the bank hiked rates 50 bps to 4.75%

Standard Chartered

“We expect BI to hike the 7-day reverse repo rate by 25 bps to 5.0% to maintain IDR stability and contain imported inflation. With the inflation impact of the subsidised fuel price adjustment appearing softer than expected and economic growth momentum staying upbeat in Q3, BI will likely focus on maintaining IDR stability. We think BI will need to continue hiking the policy rate to calibrate IDR pricing with Fed hikes, while at the same time reducing excess liquidity to accelerate monetary policy transmission. Accelerated government spending towards year-end and the burden-sharing programme should boost liquidity, dampening the effectiveness of a higher policy rate on IDR pricing, as reflected in sticky low IDR deposit rates.”

ING

“BI will likely hike rates by 50 bps to help steady the Indonesian rupiah, which has been under some pressure of late. The third-quarter GDP growth report was better than expected, giving the central bank some room to be aggressive with its tightening now that core inflation is moving higher.”

ANZ

“We have pencilled in a 50 bps rate hike at BI’s upcoming meeting. Admittedly, recent inflation data per se does not call for aggressive rate hikes. The headline number eased, and while core inflation continued to rise, the pass-through from earlier fuel price adjustments has been weaker than previously anticipated. That said, stabilising the IDR has become an increasingly important consideration; a hawkish US Fed gives BI impetus to maintain an assertive response to cap downward pressure on the currency, which has underperformed regional peers over the past month. Recent Q3 GDP data which showed robust economic activity and October’s consumer survey that pointed to robust sentiment could give BI confidence to deliver another outsized hike.”

TDS

“BI is likely to step down to 25 bps hiking steps given the downside surprise in headline inflation. The rebound in IDR strength also lessens the need for BI to continue with outsized hikes to support IDR.”

SocGen

“We see a possibility of BI extending the debt monetisation scheme to 2023. Also, in an effort to improve the relative attractiveness of real yields, BI has brought forward its target of bringing core inflation back to the 3.0% level from 3Q23 to 1Q23. This will require it to continue to be aggressive on rate hikes (given the assumed lag in the effect of monetary policy actions on the real economy) and hence we expect it to announce another 50 bps rate hike, taking the policy rate to 5.25%. The near-term risks remain skewed to the upside in USDIDR as the focus remains on inflation and a tighter Fed policy for longer.” 

MUFG

“We forecast a 25 bps to bring the 7-day reverse repo rate to 5.00%. This comes amid easing but still elevated price pressures. Inflation eased to 5.71% YoY in October from 5.95% a month ago. This showed easing food price pressures. Still, core inflation rose to 3.31%YoY in October compared to 3.21% prior.”

• US Retail Sales rise more than expected in October.
• Quiet session across financial markets on Wednesday.
• USDJPY is marginally higher, moving between 139.00 and 140.00.

The USJPY is hovering around 139.40, marginally higher for the day, following the release of US economic data, on a relatively quiet session. The pair continues to stabilize after sharply moves last week.

Dollar mixed after data

US data come in mixed to positive. Retail Sales in October rose 1.3%, the best reading in eight months. Industrial production dropped 0.1%, against expectations of an increase of 0.2; September numbers were revised lower from 0.4% to 0.1%.

The numbers boosted the US Dollar but only modestly. The DXY remains in negative territory but above 106.00. While the US 2-year bond yield remains steady at 4.36%, the 10-year is at 3.73%, the lowest since October 22. The USDJPY spiked to 140.00 after retail sales but then dropped to as low as 139.03.

In Japan, Machinery Orders tumbled in September unexpectedly 4.6%. “This comes after weaker-than-expected Q3 GDP readings and of course bodes ill for growth going forward.  As such, it’s no surprise that Japan policymakers remain cautious about removing stimulus too soon”, said analysts at Brown Brother Harriman.

Bearish but consolidating

The USDJPY is moving sideways after being able to recover the 138.50 zone. A consolidation below would increase the bearish pressure. On the upside the immediate resistance is seen around 140.00 and then the 140.60 zone. A consolidation above would open the doors for a test of 141.00 and probably more gain.

The ongoing consolidation follows a sharp decline last week that changed the short-term bias from bullish to bearish.

Technical levels

Australia is set to report its October employment figures on Thursday, November 17 at 00:30 GMT and as we get closer to the release time, here are forecasts from economists and researchers at five major banks regarding the upcoming employment data.

Australia is expected to have added 15K positions in the month vs. 0.9K in September, with the unemployment rate seen rising a tick to 3.6%.

ANZ

“A weak report expected, with employment to fall 20K and unemployment to edge up to 3.6%.”

Westpac

“The 900 in employment in September was an increase of just 0.01%. Contrast that with a gain in the working age population of 0.08% and a 9.8K, or 0.07%, lift in the labour force. This left the participation rate flat at 66.6% and the unemployment rate flat at 3.5%. However, at two decimal points, it lifted from 3.48% to 3.54% so very close to rounding up to 3.6% while the employment-to-population ratio eased back to 64.22% from 64.27%. Given the rounding only just kept the unemployment rate at 3.5%, we would argue that September was a softer-than-expected update on the labour market. Holding participation flat in October, our forecast 15K gain in employment is not enough to prevent the unemployment rate from rounding up to 3.6%. We see there is a risk of a softer gain in employment in October while participation can remain robust, hence we see upside risk to our unemployment rate.”

TDS

“We expect employment to fall by 10K. We expect the participation rate stayed elevated at 66.6% and for the unemployment rate to rise to 3.7% from 3.5% previously. Thus, the RBA Q4 forecast for unemployment at 3.4% looks increasingly unlikely to be realised as the job market softens towards year-end. We still look for the Board to continue with 25 bps hikes though the Bank is sounding more dovish, with Deputy Governor Bullock hinting that the Bank is getting closer to a pause in this hiking cycle.”

SocGen

“We expect that MoM changes in employment will return to a sizeable gain in October (30K). It is true that the slowdown in consumption that was already confirmed by the sluggish real retail sales in Q3 also weighs on employment growth. However, it is natural to expect a gain in employment after a pause between June and September (a dip in July, a rebound in August and zero growth in September). The unemployment rate is likely to fall again to a historically low level of 3.4%, and the participation rate is expected to stay at a historically high level of 66.6%. Weekly hours worked should also return to healthy growth after the weakness in the previous months. The unemployment rate is likely to stay around the current level for a considerable period, as we expect only a relatively mild slowdown of economic activity.”

Citibank

“Australia October Labour Force Survey Citi employment forecast; 10K, Previous, 0.9k; Citi unemployment rate forecast; 3.5%, Previous; 3.5%; Citi participation rate forecast; 66.6%, Previous; 66.6% The labour market remains tight, however, there are early signs that it has started to loosen from its extremely tight levels earlier in the year. Sentiment indicators from businesses suggest labour hiring will continue over the coming months, but at a slower pace than what businesses had previously expected. Indeed, Citi Research’s view is that the unemployment rate will likely start rising in 20 23, up from 3.5% to 4.3%. However, there are risks that it could begin to do so little earlier.”

• A tranche of economic data from the United States bolstered the US Dollar and capped the USDCAD fall.
• Canada’s Consumer Price Index for October was unchanged, undermining the Loonie.
• USDCAD Price Analysis: The head-and-shoulders remain in place, but sellers need to crack the 100-day EMA.

The USDCAD is still subdued after United States economic data showed consumers resilience, while Canada’s inflation appeared to pause following a report. Also, a risk-off impulse, spurred by an upbeat US sales report, capped the USDCAD fall. At the time of writing, the USDCAD is trading at 1.3304, above its opening price by 0.21%.

US Retail Sales showed consumer spending increased

US equity futures point to a lower open. The US Department of Commerce (DoC) reported that October Retail Sales in the US rose the most in eight months, with readings hitting 1.3% MoM vs. 1% expected by analysts. Delving into the report, Retail Sales in the control group, used to calculate Gross Domestic Product (GDP), expanded by 0.7% MoM vs. 0.3% consensus.

Even though Federal Reserve officials have expressed their desire to moderate interest rate hikes, US consumers resilience, would complicate their work. Nevertheless it should be remembered the Fed’s latest monetary policy statement where they said that “the Committee will take into account the cumulative tightening of monetary policy.” So traders better be aware of Fed policymakers reaction to the Retail Sales report.

Further US data revealed during the day saw Industrial Production (IP) plunging from September’s 0.1% to -0.1% MoM, below estimates of a 0.2% increase. According to the report, “Capacity utilization decreased 0.2 percentage points in October to 79.9%, a rate that is 0.3 percentage points above its long-run (1972–2021) average.”

Canada’s Consumer Price Index was unchanged, weighing on the Loonie

On the Canadian side, the Canadian Consumer Price Index (CPI) held at 6.9% YoY in October, blamed mainly on high gasoline prices and the Bank of Canada (BoC) interest rate hikes. In the same report, the core CPI number, which excludes volatile items like food and energy, rose by 5.3% YoY. Analyst at CIBC commented that  Canada’s inflation rate got fueled up in October, but there was just a hint of better news in the underlying detail, as prices outside food and energy saw a tamer seasonally adjusted gain.

Given the amount of data revealed, the USDCAD remained almost unchanged, at around its opening price. However, it should be noted that the USDCAD bias is neutral-to-downwards but faces solid support at the 100-day Exponential Moving Average (EMA) at 1.3238.

USDCAD Price Analysis: Technical outlook

The head-and-shoulders chart pattern remains in place as long as the USDCAD exchange rates continue to trade below the neckline, which is around 1.3500. The Relative Strength Index (RSI) shows that buyers are beginning to gather momentum as it stalled its fall and its slope turned upwards. Nevertheless, until it crosses the 50-midline, sellers remain in charge. USDCAD key support levels lie a the 100-day EMA, followed by the 1.3200 psychological level. Once cleared, it would exacerbate a fall toward the head-and-shoulders target at around 1.3030. Otherwise, if USDCAD buyers regain control, a re-teste of 1.3400 is on the cards.

New York Federal Reserve President John Williams said on Wednesday that the monetary policy is not the best tool to address financial stability risks, as reported by Reuters.

Key takeaways

"Price stability is essential for the US economy to function well."

"Central banks around the world taking strong action to restore price stability."

"It is important to bolster the resilience of the treasury market."

Market reaction

US Dollar Index continues to erase its daily losses following these comments and was last seen losing 0.17% on the day at 106.38.

Bank of England Governor Andrew Bailey comments on the monetary policy as he testifies before the UK Treasury Select Committee on Wednesday.

Key takeaways

"UK labour market remains very tight as the latest data show."

"Still likely we will increase interest rates further."

"Most of the UK-specific risk premium in markets has gone, but not zero."

Market reaction

The Pound Sterling is losing some interest following these comments. As of writing, the GBPUSD pair was trading at 1.1865, where it was up only 0.05% on a daily basis. 

The economic data releases from the UK this week have provided further evidence that the BoE continues to face an uncomfortable mix of elevated inflation and weak growth. Therefore, economists at MUFG Bank expect the British Pound to remain under pressure.

BoE will disappoint rate hike expectations

“The release of the latest UK labour market report revealed that wage growth remains uncomfortably strong amidst tight labour market conditions.”

“The release of the latest UK CPI report for October revealed that inflation surprised to the upside again reaching a new cycle high of 11.1%.”

“Overall, the latest data releases keep pressure on the BoE to keep tightening policy although we still believe that the amount of rate hikes will fall short of what is priced by market participants. The UK rate market is currently pricing in a terminal rate of just over 4.50% for next year.”

“The unfavourable combination of elevated inflation and recession risk in the UK, and likelihood the BoE will disappoint rate hike expectations supports our view that the pound will continue to underperform more broadly.” 

Bank of England Governor Andrew Bailey comments on the monetary policy as he testifies before the UK Treasury Select Committee on Wednesday.

Key takeaways

"UK inflation reflects series of supply shocks."

"We are now seeing signs that supply chain shock is starting to fade."

"Central banks worldwide have faced a sequence of supply shocks that couldn't have been predicted."

"Quantitative easing has not made a very big contribution to the UK inflation overshoot."

Market reaction

GBPUSD showed no immediate reaction to these comments and it was last seen trading modestly higher on the day at 1.1885.

USDIDR has experienced a steady uptrend. The pair could reach 16,300 on a break past the 15,810/15,880 resistance zone, economists at Société Générale report.

Important support aligns at 15,070

“USDIDR is inching towards the objective of 15,810/15,880 representing a bearish gap formed in 2020. Achievement of this hurdle is likely to result in a pause, however, signals of a deeper downtrend are not yet visible.”

“July high of 15,070 is expected to be an important support.” 

“If the pair establishes itself beyond 15,810/15,880, the up move could extend towards projections of 16,000 and 16,300.”

• The index manages to bounce off lows near 105.80.
• Retail Sales expanded more than expected in October.
• Industrial Production disappointed consensus last month.

Following an earlier drop to the 105.80 region, the USD Index (DXY) picked up some traction and is back above the 106.00 mark on Wednesday.

USD Index rebounds on positive data

Despite the bounce off lows, the index remains entrenched in the negative territory amidst persistent investors’ repricing of the next steps of the Federal Reserve when it comes to future interest rate hikes.

So far, market participants keep leaning towards a 50 bps rate raise at the December 14 event, according to the FedWatch Tool gauged by CME Group.

In the US data space, MBA Mortgage Applications increased 2.7% in the week to November 11, while Retail Sales expanded 1.3% in October vs. the previous month and Industrial Production unexpectedly contracted 0.1% MoM also in October.

Later in the session, the NAHB Index, Business Inventories and TIC Flows will all close the daily calendar.

In addition, NY Fed J.Williams (permanent voter, centrist) and FOMC’s C.Waller (permanent voter, dove) are also due to speak along with another testimony by FOMC’s S.Barr.

What to look for around USD

Price action around the dollar remains depressed and relegates the index to navigate in the area of multi-month lows around the 106.00 zone.

In the meantime, the greenback is expected to remain under the microscope amidst persistent investors’ repricing of a probable slower pace of the Fed’s rate path in the upcoming months.

Key events in the US this week: MBA Mortgage Applications, Retail Sales, Industrial Production, Business Inventories, NAHB Index, TIC Flows (Wednesday) - Building Permits, Initial Jobless Claims, Housing Starts, Philly Fed Index (Thursday) - CB Leading Index, Existing Home Sales (Friday).

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

USD Index relevant levels

Now, the index is retreating 0.41% at 106.13 and the breakdown of 105.34 (monthly low November 15) would open the door to 104.94 (200-day SMA) and finally 104.63 (monthly low August 10). On the other hand, the next up barrier aligns at 109.11 (100-day SMA) seconded by 110.87 (55-day SMA) and then 113.14 (monthly high November 3).

• Industrial Production in the US contracted modestly in October.
• US Dollar Index stays in negative territory above 106.00.

Industrial Production in the United States (US) contracted by 0.1% on a monthly basis in October, the US Federal Reserve announced on Wednesday. This reading followed September's increase of 0.1% and came in worse than the market expectation for an expansion of 0.2%.

"Capacity utilization decreased 0.2 percentage point in October to 79.9%, a rate that is 0.3 percentage point above its long-run (1972–2021) average," the publication further read.

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen losing 0.32% on the day at 106.23.

• Gold holds steady near its highest level since mid-August amid a softer US Dollar.
• Bets for less aggressive rate hikes by the Federal Reserve weigh on the greenback.
• Sliding US bond yields further undermines the USD and benefits the commodity.
• A recovery in the risk sentiment seems to cap any further gains for the XAUSD.

Gold attracts some dip-buying near the $1,770 area on Wednesday and steadily climbs back closer to its highest level since mid-August touched the previous day. The XAUUSD holds steady above the $1,780 level through the early North American session, though a slight recovery in the risk sentiment keeps a lid on any further gains.

Fresh US Dollar selling offers support to gold

The US Dollar (USD) fails to capitalize on the overnight bounce from a three-month low and meets with a fresh supply, which, in turn, offers some support to the dollar-denominated gold. The markets now seem convinced that the Federal Reserve (Fed) will hike interest rates at a slower pace in the coming months amid signs of easing inflationary pressures. The speculations were fueled by a surprise drop in US consumer inflation during October. Furthermore, Tuesday's softer Producer Price Index (PPI) reinforces the peak inflation narrative and continues to weigh on the buck.

Softer US bond yields further benefit the XAUUSD

The repricing of the pace of the Fed's rate-hiking cycle, meanwhile, keeps the US Treasury bond yields depressed. In fact, the yield on the benchmark 10-year US government bond languishes near its lowest level for the yield since October 5. This is seen as another factor undermining the USD and leading additional support to the non-yielding yellow metal. The intraday uptick, however, lacks bullish conviction. This, in turn, makes it prudent to wait for some follow-through buying before traders start positioning for any extension of a two-week-old strong uptrend.

A positive risk tone, and upbeat US Retail Sales cap gains for the metal

United States President Joe Biden’s remarks earlier this Wednesday eased worries about an explosion in Poland. Moreover, early information indicated that the missile that hit Poland may have been fired by Ukraine at an incoming Russian missile. The incoming headlines infuse some stability in the financial markets, which, in turn, acts as a headwind for the safe-haven gold. Adding to this, the better-than-expected US Retail Sales figures provide a much-needed respite to the USD and further contribute to capping the XAUUSD. Nevertheless, the fundamental backdrop suggests that a corrective pullback might still be seen as a buying opportunity.

Gold technical outlook

From a technical perspective, the $1,785-$1,786 region now seems to have emerged as an immediate resistance. A sustained strength beyond should allow gold to reclaim the $1,800 psychological mark. The said handle coincides with the very important 200-day SMA and should act as a pivotal point to determine the next leg of a directional move for the XAUUSD.

On the flip side, dips towards the $1,770-$1,765 region might continue to attract some buyers. This should help limit the downside for gold near the $1,755 level. Failure to defend the said support levels might prompt some technical selling and accelerate the corrective slide towards the $1,734-$1,732 strong horizontal resistance breakpoint, now turned support.

• Annual inflation in Canada held steady at 6.9% in October as expected.
• USDCAD continues to trade at around the mid-1.3200s.

Inflation in Canada, as measured by the Consumer Price Index (CPI), stayed unchanged at 6.9% on a yearly basis in October, Statistics Canada announced on Wednesday. This reading came in line with the market expectation.

Meanwhile, the Bank of Canada's annual Core CPI, which excludes volatile food and energy prices, declined to 5.8% from 6% in September, compared to analysts' estimate of 6.3%.

Market reaction

USDCAD pair showed no immediate reaction to this data and USDCAD was last seen losing 0.2% on a daily basis at 1.3250.

In the opinion of Lee Sue Ann, Economist at UOB Group, the Bank Indonesia could raise the key rate by half percentage point at Thursday’s meeting.

Key Quotes

“BI said that the decision to deliver back-to-back 50bps rate hike was a front-loaded, pre-emptive, and forward-looking step to anticipate and mitigate the risk of rising inflation and anchor inflation expectations to remain within the 2-4% range in 1H23.”

“As such, we had brought forward our BI rate forecast to 5.25% (previously 5.00%) by the end of 2022 and revised higher the terminal rate to 5.75% (previously 5.50%) that is likely to occur in 1Q23.”

• Retail Sales rose at a stronger pace than expected in October.
• The US Dollar Index edged higher with the initial reaction.

Retail Sales in the United States (US) rose by 1.3% in October to $694.5 billion, the US Census Bureau reported on Wednesday. This reading came in better than the market expectation for an increase of 1%.

"Total sales for the August 2022 through October 2022 period were up 8.9% from the same period a year ago," the publication read.

Retail Sales ex Autos expanded by 1.3% in the same period, compared to analysts' estimate of 0.4%.

Market reaction

With the initial reaction, the US Dollar Index extended its recovery and was last seen losing 0.27% on the day at 106.28.

Economists at Credit Suisse now target USDJPY at 138.00 by the end of the fourth quarter. But a move to the 133.10 mark is on the cards. 

Levels around 143.00 will act as resistance for now

“Although the market has done a lot of work already in terms of pricing in only a 50 bps Fed hike in December, players will worry that the terminal rate can come still lower from current levels around 4.85%, towards 4.50%, if a second successive downside US core CPI surprise is seen next month. This leaves still more positioning vulnerability potentially exposed in coming weeks and brings us to set our end-Q4 USDJPY target at 138.00.”

“We assume this leaves open the door for a move towards 133.10, the 38.2% retracement of the 2021-22 USDJPY rally which also lies close to its 200-Day Moving Average.”

“We suspect levels around 143.00 will act as resistance for now.”

European Central Bank’s (ECB) policymaker Pablo Hernandez de Cos said on Wednesday that the inflation spike is proving highly persistent and has also broadened, as reported by Reuters.

Key takeaways

"We still have some way to go with rate hikes, specific level that interest rates may have to reach to be consistent with this objective is uncertain."

"Interest rate increases precede the reduction in our balance sheet."

"After first allowing markets to absorb significant TLTRO III repayments, normalisation of the ECB’s balance sheet could be followed by ending full reinvestment of app portfolio."

"Yields already reflect, at least to certain extent, current expectations on the implementation of balance sheet reductions."

"Need for the balance sheet reduction in the euro area to be very gradual and predictable."

"Future decisions should account for higher probability of a recession that we are currently observing."

Market reaction

EURUSD edged slightly lower from session highs following these comments and was last seen gaining 0.62% on the day at 1.0412.

• EURUSD adds to Tuesday’s uptick and advances past 1.0400.
• A close above the 200-day SMA should spark further upside.

EURUSD’s upside momentum remains well in place and breaks above the 1.0400 hurdle once again on Wednesday .

The continuation of the recovery looks the most likely scenario in the very near term. If the pair leaves behind the 200-day SMA at 1.0422 on a sustainable fashion, it could then challenge the November high at 1.0481 (November 15).

Further up comes the round level at 1.0500 ahead of the weekly top at 1.0614 (June 27).

EURUSD daily chart

The correction in the Dollar over the past week is spectacular, if not exaggerated. In the view of economists at Société Générale, the US Dollar Index is set to rebound.

DXY is technically oversold and could be due a rebound

“The DXY is technically oversold and could be due a rebound if US Retail Sales today exceed forecasts, Fed speakers lean against lower repricing of the terminal rate, or in the worst case, the situation escalates between NATO and Russia.”

“Technically, the Dollar Index looks set for a bounce if it manages to avoid sliding below the 200-DMA at 104.90 and 104.60, the August low.”

See – US Retail Sales Preview: Forecasts from seven major banks, big boost in October

Canada CPI Overview

Statistics Canada will release the consumer inflation figures for October later during the early North American session on Wednesday, at 13:30 GMT. The headline CPI is expected to rise 0.7% during the reported month as compared to a modest 0.1% uptick in September. The yearly rate, however, is expected to hold steady at 6.9% in October. More importantly, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, is estimated to rise by 0.7% MoM in October and come in at 6.3% on a yearly basis, up from 6% in September.

Analysts at TD Securities offer a brief preview of the key macro data and write: “We look for headline CPI to edge higher to 7.0% in October as energy prices help drive a 0.8% MoM increase. Gasoline will provide the main catalyst for the increase, while mortgage interest and rents provide another source of strength as seasonal factors will weigh on groceries. Core inflation should also tick higher in October, with CPI trim/median rising by 0.1pp.”

How Could it Affect USDCAD?

Ahead of the release, the USDCAD drops back to a two-month low and challenges the 100-day SMA support near the 1.3225 region amid the emergence of fresh US Dollar selling. That said, subdued action around crude oil prices fails to provide any meaningful impetus to the commodity-linked Loonie and helps limit the downside for the major.

Furthermore, a softer-than-expected Canadian CPI print will be enough to prompt some near-term short-covering and allow spot prices to reclaim the 1.3300 mark. Conversely, stronger domestic data could provide a fresh boost to the Canadian Dollar and pave the way for a further near-term depreciating move for the USDCAD pair.

Apart from this, the simultaneous release of the US monthly Retail Sales data should infuse additional volatility and produce some meaningful trading opportunities.

Key Notes

  •   Canadian CPI Preview: Forecasts from four major banks, a detour from the path towards slower inflation

  •   USDCAD Forecast: 100 DMA holds the key for bulls ahead of US Retail Sales, Canadian CPI

  •   USDCAD to drop temporarily if Canadian inflation surprise on the upside – Commerzbank

About Canadian CPI

The Consumer Price Index (CPI) released by Statistics Canada is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of CAD is dragged down by inflation. The Bank of Canada aims at an inflation range (1%-3%). Generally speaking, a high reading is seen as anticipatory of a rate hike and is positive (or bullish) for the CAD.

Economist at UOB Group Lee Sue Ann expects the BSP to hike the policy rate at its event on Thursday.

Key Quotes

“Given that BSP’s primary goal is to achieve a target-consistent inflation path amid an even faster pace of Fed tightening, we stick to the view that BSP will roll up its sleeves to hike again at the two remaining monetary policy meetings this year.”

“We project the overnight reverse repurchase (RRP) rate to be raised by another 50bps in Nov and 25bps in Dec, bringing the RRP rate to 5.00% by year-end. Thereafter, we expect the BSP to press the rate pause button.”

Kit Juckes, Chief Global FX Strategist at Société Générale, discusses the latest news and the outlook for the main currency pairs. Of note, EURUSD should remain under 1.05, in their view.

EURGBP has further to rise

“This morning’s news confirms that Australia has some, but not too much wage growth; that will keep the RBA hiking and eventually, will help the AUD, but they have a long way to catch up with Fed or indeed with RBNZ.”

“UK inflation just confirmed fears about the UK’s growth/inflation trade-off and does nothing to help sterling at all. EURGBP has further to rise even if GBPUSD is protected by the Euro.” 

“EURUSD really ought to pause below 1.05, and any spike through would be overshoot for now.”

“USDJPY has history when it comes to dramatic reversals but needs lower, not choppy, US yields to avoid a period of consolidation. US Retail Sales data may tell us more on that front, but another impression I get is that a lot of people are expecting an imminent, significant deterioration in all the US data. The risk is that the American consumer isn’t out of spending power yet.”

See – US Retail Sales Preview: Forecasts from seven major banks, big boost in October

• DXY adds to Tuesday’s decline and breaches 106.00 once again.
• The next support of note now comes at the 200-day SMA near 105.00.

DXY remains under pressure and maintains the trade in the area of multi-month lows around 106.00 midweek.

If the selling bias gathers extra pace, then the index could dispute the critical 200-day SMA, today at 104.94. The loss of this important support region could put a potential drop to the August low at 104.63 (August 10) back on the radar.

Below the 200-day SMA, the dollar’s outlook should shift to negative.

DXY daily chart

Economist at UOB Group Ho Woei Chen assesses the recent set of data releases in the Chinese economy.

Key Takeaways

“China’s macroeconomic data printed largely below expectation in Oct as the economy turned lower. The surge in domestic COVID infections and further decline in the real estate market, along with weakening external demand continued to take their toll on China’s economy.”

“China’s lock-step moves to recalibrate their COVID measures and announce a 16-point rescue package for the real estate market so as to address the two key weaknesses of the economy.”

“While the measures indicate the government is giving more attention to economic growth, any near-term lift to China’s recovery will still be limited due to current record surge in COVID infections in cities such as Guangzhou, Zhengzhou and Beijing as well as its adherence to a zero-COVID policy and remaining stringent COVID measures. The weaker economic data in Oct, in particular the surprise contraction in retail sales, should keep the outlook for 4Q22 cautious. Thus, we are maintaining our GDP forecast for 4Q22 at 4.5% y/y and full-year 2022 at around 3.3%.”

“People’s Bank of China (PBoC) kept its 1Y medium-term lending facility (MLF) rate at 2.75% in Nov and rolled over CNY850 bn of CNY1 tn that expired this month. Further monetary policy easing remains a possibility going forward but current weak credit demand condition likely reduces the effectiveness of further rate cuts. PBoC’s rate hold today suggests that the loan prime rates (LPRs) will also be unchanged at 3.65% and 4.30% for the 1Y and 5Y rates respectively next Mon (21 Nov).”

US October Industrial Production will be reported on Wednesday, November 16 at 14:15 GMT and is expected at 0.2% month-on-month vs. 0.4% in September. Here you can find the expectations as forecast by the economists and researchers of six major banks regarding the upcoming data. 

Overall, the manufacturing sector is slowing but has held up relatively well in the face of Fed tightening.

RBC Economics

“We expect US Industrial Production to edge up 0.1% in October, with higher manufacturing output (+0.4%) offsetting a pullback in utilities output (-1%).”

NBF

“Output growth could have decelerated in the manufacturing segment, but that may have been offset by a strong showing for utilities. All in all, headline Industrial Production may have risen 0.3% MoM.”

CIBC

“Hours worked continued to rise in manufacturing in October, while employers added to headcounts, suggesting that the ongoing alleviation of supply chain issues is supporting factory activity in some sub-sectors. Although oil rig counts also increased, weaker demand for goods outside of autos could have limited growth in total Industrial Production to 0.2% in October.”

Wells Fargo

“We expect Industrial Production to increase 0.2% in October, and we look for capacity utilization to inch up to a fresh cycle high of 80.4%.”

Citibank

“Industrial Production should rise a modest 0.1% MoM in October, but with a stronger 0.4% MoM increase in manufacturing production. Weaker utilities production in total IP would be a result of relatively more mild temperatures during the month of October. For the largest subset of manufacturing, however, this would be another solid increase similar to September, in line with strength in manufacturing employment in October and a pick up in hours worked. The manufacturing sector does face downside risks from weaker goods demand globally and a strong USD weighing on export demand. However, real production as measured in the industrial production report has remained solid with no substantial weakening just yet, possibly as softer demand allows production to pick up after many months of constrained supply.”

TDS

“We expect Industrial Production to contract 0.3% MoM in October following the strong 0.4% gain registered in September. We expect strength in manufacturing activities (+0.5% MoM) to be more than offset by a sharp decline in output for the utilities sector.”

US Monthly Retail Sales Overview

Wednesday's US economic docket highlights the release of monthly Retail Sales figures for October, due later during the early North American session at 13:30 GMT. Following a flat reading in September, the headline sales are estimated to have grown by 1% during the reported month. Excluding autos, core retail sales probably climbed by 0.4% in October as compared to a modest 0.% rise in the previous month.

Analysts at Commerzbank sound more optimistic about the key macro data and explain: “We expect Retail Sales to rise by 1.2% from September, which would also signal a significant gain in real terms. This should make it clear that the US economy is still not in recession. We do not expect this to happen until the beginning of 2023 anyway, with consumer spending, which accounts for a good two-thirds of GDP, holding up better than we expected until recently.”

How Could it Affect EUR/USD?

Ahead of the release, a goodish recovery in the global risk sentiment prompts some selling around the safe-haven US Dollar amid expectations that the Fed will soften its hawkish stance. Any disappointment from the US Retail Sales figures will point to a slowdown in consumer demand and reaffirm bets for smaller interest rate hikes by the US central bank, which, in turn, should exert additional downward pressure on the greenback. Conversely, better-than-expected data should be enough to trigger a near-term short-covering around the buck. The immediate market reaction, however, is likely to be limited as traders assess the pace of the Fed's rate-hiking cycle.

Meanwhile, Eren Sengezer, Editor at FXStreet, offers a brief technical outlook and writes: “EURUSD returned within the ascending regression channel after having dropped below it late Tuesday. Additionally, the near-term bullish bias is confirmed by the Relative Strength Index (RSI) indicator on the four-hour chart edging higher toward 70 and the 20-period Simple Moving Average (SMA) staying intact.”

Eren also outlines important technical levels to trade the EUR/USD pair: “1.0400 (psychological level, static level) aligns as initial resistance. If EURUSD rises above that level and starts using it as support, it could target 1.0460 (static level)  and 1.0500 (psychological level, static level) next.”

“On the downside, 1.0350 (static level, 20-period SMA) forms first support before 1.0300 (static level, psychological level) and 1.0250 (static level),” Eren adds further.

Key Notes

 •  US October Retail Sales Preview: US Dollar unlikely to find reprieve

 •  US Retail Sales Preview: Forecasts from seven major banks, big boost in October

 •  EURUSD Forecast: Euro to stretch higher once it stabilizes above 1.0400

About US Retail Sales

The Retail Sales released by the US Census Bureau measures the total receipts of retail stores. Monthly per cent changes reflect the rate of changes in such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish).

Economists at Credit Suisse raise their Q4 AUDUSD target from 0.6200 to 0.6400 and their target range from 0.6100-0.6750 to 0.6300-0.6950.

Expectations around RBA policy are still too constructive

“While we acknowledge that the risk of a sharp correction lower in AUDUSD from current levels has decreased, we remain skeptical of the idea that AUD has significant upside potential from current levels.”

“Our bias remains bearish: the risk of disappointment around relations with China is high, and expectations around RBA policy are still too constructive.”

“We raise our Q4 target range from 0.6200 to 0.6400, and we move the top end of our target range from 0.6750 to just below the 200-Day Moving Average at 0.6950. We also raise the low end of our target range from 0.6100 to 0.6300.”

• EURJPY climbs to so far weekly highs near 145.50 on Wednesday.
• Extra upside could target the November peaks around 147.00.

EURJPY quickly fades Tuesday’s pullback and regains the 145.00 barrier and above, reaching fresh multi-session highs on Wednesday.

If the corrective bounce gathers extra steam, then the cross should face initial resistance at the so far November high at 147.11 (November 9). The surpass of this level could open the door to a more meaningful move to the 2022 peak at 148.40 (October 21).

In the longer run, while above the key 200-day SMA at 138.27, the constructive outlook is expected to remain unchanged.

EURJPY daily chart

USDJPY continues to deliver 20% annualised readings in volatility. In the view of economists at ING, the next big figures are likely to come to the upside. 

US 10-year Treasury yields will probably return to the 4.25/4.35% area before year-end

“We suspect the next five big figures in USDJPY come to the upside. We see this because the US 10-year Treasury yield typically only trades 50-75 bps below the Fed funds rate towards the end of the tightening cycle. And given that our team is looking for the policy rate to still be taken 100 bps higher, we think US 10-year Treasury yields will probably return to the 4.25/4.35% area before the end of the year.”

“Equally and once position adjustment has run its course, the Yen rather than the Dollar should become the preferred funding currency should market conditions begin to settle. Although that does seem an unlikely prospect right now.”

The US Dollar Index (DXY) has corrected nearly 40% of the 2021-2022 rally in a few weeks. In the view of Kit Juckes, Chief Global FX Strategist at Société Générale, DXY looks set for a jagged peak before falling under 100.

DXY looks set to head into a 90-100 range

“The foundations of the turnround are a growing belief that soft landing are more likely for most economies, than hard ones, that geopoliticaltail risks are getting smaller, and inflation is, in most cases, in the process of peaking.”

“I continue to think the danger of a US hard landing is growing, but it’s also being pushed further in the future than forecasts suggest. The European hard landing has looked less likely ever since energy support packages were announced. But the medium-term dollar effect is the same – DXY looks set to head into a 90-100 range, where it was in 2018/19. But can it do so without multiple corrections? A series of peaks like those in 2000-2002, seem more likely than an imitation of the Matterhorn.”

UOB Group’s Senior Economist Alvin Liew comments on the latest GDP figures in Japan.

Key Takeaways

“Japan’s 3Q 2022 GDP unexpectedly contracted by -0.3% q/q, -1.2% q/q SAAR (versus Bloomberg est: 0.3% q/q, 1.2% q/q SAAR, and UOB’s est 2.1% q/q SAAR) while the growth in 2Q was revised higher to 1.1% q/q, 4.6% q/q SAAR.”

“We were surprised by the q/q contraction in 3Q as we underestimated the impact of stronger inflation, the wave of COVID-19 infections in summer and a significant weakening of the yen that amplified the country’s already ballooning import bill. Both private consumption and business spending expanded in 3Q but at a slower pace from 2Q, while the main drags were net external demand and to a lesser extent, private inventories and residential investments.”

“Japan GDP Outlook – We expect GDP to rebound on a sequential basis in 4Q (by 0.7% q/q, 2.8% q/q SAAR) as the economy could find support from a surge in inbound tourism and from the latest economic stimulus package from the Kishida administration. With a 0.7% q/q rebound projected for 4Q, we keep our full-year 2022 GDP growth forecast unchanged at 1.5% (easing from 1.6% in 2021), and remain soft at 1.0% for 2023, due to the waning external demand and uncertainties which include 1) the on-going Russia-Ukraine conflict, 2) aggressive monetary policy tightening stance in the advanced economies, 3) geopolitical risks, and 4) COVID-19 risk of potential new variants.”

Having only been targeting 0.98 initially, economists at Credit Suisse had already admitted implicitly that their original Q4 target of 0.92 would not come close to be hit in 2022: they now set their end-Q4 EURUSD target at 1.0350.

1.0610 seems an appropriate near-term magnet

“We now target EURUSD 1.0350 by end-Q4.” 

“The EURUSD 1.0130 post-CPI low will be a tough level to crack again on for the remainder of Q4: we make this our new support level expectation.”

“On the topside, 1.0610 seems an appropriate near-term magnet.”

European Central Bank (ECB) Governing Council member Ignazio Visco said on Wednesday that the need for continued tightening is evident but noted that the case for implementing a less aggressive approach was "gaining round," as reported by Reuters.

"Monetary policy decisions in coming months must be based on data and facts, without prior decisions on the path to take," Visco further added and reiterated that long-term inflation expectations in the Eurozone are anchored.

Market reaction

These comments were largely ignored by market participants and EURUSD was last seen rising 0.8% on the day at 1.0430.

In an interview with the Wall Street Journal, Kansas City Fed President Esther George argued that bringing inflation down without causing a recession might not be feasible, as reported by Reuters.

George further noted that it would make sense for the Federal Reserve to slow the pace of rate increases next year.

Market reaction

These comments don't seem to be having a significant impact on the US Dollar's (USD) performance against its major rivals. As of writing, the US Dollar Index was down 0.6% on the day at 105.94.

• USDCAD drops back closer to a nearly two-month low amid renewed USD selling bias.
• A positive risk tone and bets for less aggressive Fed rate hikes weigh on the greenback.
• An intraday uptick in oil prices underpins the Loonie and also exerts pressure on the pair
• Traders now look to the Canadian CPI report and US Retail Sales data for a fresh impetus.

The USDCAD pair struggles to capitalize on its modest intraday uptick to levels just above the 1.3300 mark and turns lower for the second successive day on Wednesday. The pair remains depressed through the first half of the European session and is currently flirting with the 100-day SMA support, around the 1.3230 area, or a nearly two-month low touched on Tuesday.

A goodish recovery in the global risk sentiment prompts fresh selling around the safe-haven US Dollar, which, in turn, is seen as a key factor exerting downward pressure on the USDCAD pair. Investors' turned optimistic after the initial findings suggested that the missile that hit Poland on Tuesday may have been fired by Ukraine at an incoming Russian missile. This, along with firming expectations that the Federal Reserve will soften its hawkish stance, continues to weigh on the greenback.

Apart from this, an intraday bounce in crude oil prices underpins the commodity-linked Loonie and also contributes to the offered tone surrounding the USDCAD pair. That said, concerns about lower fuel consumption in China - amid rising COVID-19 cases - could act as a headwind for the black liquid. This could help limit losses for the USDCAD pair ahead of the latest consumer inflation figures from Canada and the US monthly Retail Sales data, due later during the early North American session.

Even from a technical perspective, the USDCAD pair, so far, has been showing some resilience near the 100-day SMA. This makes it prudent to wait for some follow-through selling below the overnight swing low, around the 1.3225 region, before positioning for further losses. Meanwhile, any attempted recovery might confront hurdle around the 1.3300 mark and remain capped near the 1.3335 supply zone. The latter should act as a pivotal point, which if cleared might trigger a short-covering rally.

Technical levels to watch

The Kiwi is another notch higher. Economists at ANZ Bank expect NZDUSD to extend its rally.

USD Index still seen as about 15% overvalued

“Since the end of Q2 markets have been gravitating to the view that the USD’s days of exceptionalism and dominance were coming to an end, but softer US price data has been the proverbial nail in the coffin for the USD bulls, as it has opened the door to a Fed pivot.” 

“There could be some bumps in the road, but in terms of potential, we see the USD DXY as still about 15% overvalued, so things could run a long way.” 

“Encouragingly, NZD/USD also remains in a neatly defined uptrend channel (that began around 4 weeks ago).”

“Support 0.5875/0.6000 Resistance 0.6235/0.6470/0.6575”

The dictation of the first Autumn Statement under the leadership of Prime Minister Rishi Sunak and Chancellor Jeremy Hunt is unlikely to have major impact on the British Pound. Economists at Credit Suisse highlight the key technical levels to watch on Cable.

The show must not go on

“Tomorrow sees UK Chancellor Hunt release his Autumn Statement. A mixture of spending cuts and tax rises is expected to be announced. But in typical politician fashion, Hunt is likely to backload much of the projected fiscal tightening to 2025 and beyond, i.e., after the next general election due by Jan 2025. Given the gloomy projections for UK growth and likely sticky inflation already priced into UK markets, barring a major surprise we see little likelihood this Autumn Statement will have significant GBP impact.”

“We have assumed the roughly 0.8600-0.8800 EURGBP range in play over the last month is reasonable in this context. Taken together with our near-term EURUSD view, this suggests our former resistance levels for GBPUSD at around 1.1650 should now prove supportive while the 200-day MA at around 1.2240 should be near-term resistance and an attractive long-term sell level.”

• GBPUSD is seen oscillating in a narrow trading band around the 1.1900 mark on Wednesday.
• The emergence of fresh USD selling and stronger UK CPI report continue to act as a tailwind.
• Traders now look forward to US Retail Sales and the BoE’s Monetary Policy Report Hearings.

The GBPUSD pair struggles to gain any meaningful traction on Wednesday and remains confined in a narrow trading band through the first half of the European session. The pair is currently trading around the 1.1900 mark and remains well below a nearly three-month high touched the previous day.

The downside, however, remains cushioned amid the emergence of fresh US Dollar selling, prompted by a slight improvement in the risk sentiment. According to the initial findings, the missile that hit Poland on Tuesday may have been fired by Ukraine at an incoming Russian missile. The headlines infuse some stability in the financial markets, which, in turn, undermines the safe-haven buck.

Apart from this, firming expectations for a less aggressive policy tightening by the Federal Reserve is seen as another factor weighing on the greenback. In fact, the markets are now pricing in over a 90% chance of a 50 bps rate hike at the December FOMC policy meeting. The bets were reaffirmed by Tuesday's release of the softer US Producer Price Index, which pointed to easing inflationary pressures.

The Sterling, on the other hand, draws support from hotter-than-expected UK consumer inflation figures. In fact, the headline UK CPI accelerated to the highest level since 1981 and came in at an 11.1% YoY rate in October, up from 10.1% recorded in the previous month. Adding to this, the core inflation (excluding volatile food and energy items) rose 6.5% YoY during the reported month.

The readings were higher than market estimates and adds to pressure on the Bank of England to continue raising borrowing costs. That said, growing worries about a deeper economic downturn hold back traders from placing aggressive bullish bets around the GBPUSD pair. Investors also seem reluctant and prefer to wait for the BoE's Monetary Policy Report Hearings later this Wednesday.

The lack of strong follow-through buying, meanwhile, warrants some caution before positioning for any further appreciating move. Market participants now look to the US monthly Retail Sales data, due for release during the early North American session. Apart from this, fresh geopolitical developments will influence the USD price dynamics and provide some impetus to the GBPUSD pair.

Technical levels to watch

"It's very difficult to have financial stability without price stability," European Central Bank (ECB) Vice President Luis de Guindos said on Wednesday, as reported by Reuters.

"I think that the main risk now for financial stability, for growth, is to have inflation at very high levels," de Guindos added and noted that they will start with a passive quantitative tightening.

Market reaction

The Euro (EUR) preserves its strength following these comments and EURUSD was last seen gaining 0.6% on the day at 1.0412.

USDJPY has put in good work to form a top. Economists at TD Securities expect the pair to trade below the 140 level.

FX intervention above 150 is likely

“USDJPY is in the process of forming a top.”

“FX intervention above 150 is likely.”

“We still think the BOJ wants to maintain a stable but weak currency to encourage inflation pass through, but a tweak to YCC will introduce downside pressure in USDJPY.”

“Rate spreads still keep elevated pressure on USDJPY, but a tweak to YCC will help to ease some of that in what has otherwise been a crowded trade. We would not rule out FX intervention should the yen strengthen too much post YCC shift.” 

“Position for a trading range sub-140.”

Economist at UOB Group Enrico Tanuwidjaja reviews the trade balance results in Indonesia.

Key Takeaways

“Oct’s trade surplus came in higher than expected at USD5.7bn and with that, Indonesia’s cumulative trade surplus this year up to Oct 22 widened to USD45.5bn. This is a historical high trade surplus for Indonesia.”

“The wider trade surplus took place despite exports growth coming in slightly below expectations at 12.3% y/y (consensus was at 13.5%). As such, the widening of last month’s trade surplus can be well attributed to a much slower imports growth of 17.4% y/y viz. expectation of 24.0%. Exports stood at USD24.8bn in Oct (same level per Sep, +0.1% m/m) and imports at USD19.1bn (-3.4% m/m).”

“Oil & gas exports drove overall exports last month while both oil & gas and non-oil & gas imports declined, yielding a wider trade surplus. Overall, Oct’s higher trade surplus was still mainly driven by strong non-oil & gas surplus of USD7.7bn but was offset by an oil & gas trade deficit of USD2bn.”

• USDJPY struggles to capitalize on its modest intraday gains amid renewed USD selling bias.
• Failures ahead of the 140.80-141.00 confluence support breakpoint favour bearish traders.
• Acceptance below the 61.8% Fibo. level should pave the way for further near-term losses.

The USDJPY pair gains some positive traction on Wednesday and moves further away from its lowest level since August 29, around the 137.65 area touched the previous day. The intraday uptick, however, falters near the 140.30 region, dragging spot prices back closer to the mid-139.00s during the first half of the European session.

The overnight US Dollar recovery move from a three-month low fades rather quickly amid easing fears of any further escalation in tensions between Russia and the West. The initial findings suggest that the missile that hit Poland on Tuesday may have been fired by Ukraine at an incoming Russian missile. This, along with rising bets for smaller rate hikes by the Federal Reserve, continues to act as a headwind for the greenback.

That said, a modest uptick in the US Treasury bond yields could help limit any further downfall for the buck. Furthermore, signs of stability in the financial markets seem to undermine the safe-haven Japanese Yen and lend some support to the USDJPY pair, at least for the time being. That said, the lack of any follow-through buying warrants some caution for bullish traders and before positioning for any meaningful recovery.

Even from a technical perspective, the post-US CPI breakdown below the 141.00-140.85 confluence favours bearish traders. The said area comprises the 100-day SMA and the 50% Fibonacci retracement level of the August-October rally, which should now cap the upside for the USDJPY pair. Some follow-through buying beyond the 141.00 mark, however, might trigger a short-covering rally and lift spot prices back towards the 142.00 round figure.

On the flip side, any subsequent slide below the 139.00 mark might continue to find decent support near the 61.8% Fibo. level, around the 138.70 region. A convincing break below the 138.50-138.45 area will make the USDJPY pair vulnerable and expose the 138.00 mark. Spot prices might eventually aim to restest the overnight swing low, around the 137.65 zone.

USDJPY daily chart

Key levels to watch

EURUSD turned from a high of 1.0480 yesterday. Economists at ING expect the pair to move within a 1.0270-1-0500 trading range over coming sessions.

1.05/1.06 may be the best EURUSD levels between now and year-end

“We noted yesterday that EURUSD seemed to turn naturally from 1.0480, suggesting the corrective rally might have run its course - at least for the very short term. But the bottom of the short-term range has now been defined at 1.0270 – pointing to a 1.0270-1.0500 range over coming sessions. This assumes no major escalation in geopolitics.” 

“Bigger picture, we are in the camp that something like 1.05/1.06 may be the best EURUSD levels between now and year-end.”

• EURUSD keeps the bid tone unchanged and surpasses 1.0400.
• ECB’s C.Lagarde is due to speak later in the European evening.
• US Retail Sales, Industrial Production will take centre stage on Wednesday.

The European currency keeps smiling and now lifts EURUSD back above the key 1.0400 barrier on Wednesday.

EURUSD bid ahead of ECB, US key results

EURUSD maintains the optimism well and sound on Wednesday and reclaims the area beyond 1.0400 the figure and flirts at the same time with the critical 200-day SMA once again.

The second uptick in a row in the pair comes in tandem with the unabated weakness surrounding the dollar and further consolidation in the German 10-year bund yields, always above the key 2.0% hurdle.

Absent significant results in the euro calendar, the focus of attention in the region will be on the speech by ECB’s Chairwoman C.Lagarde.

Across the Atlantic, busy day in the US docket will see usual MBA Mortgage Applications in the first turn seconded by Retail Sales, Industrial Production, the NAHB Index, TIC Flows and Business Inventories, all along with speeches by FOMC’s Williams, Waller and Barr.

What to look for around EUR

EURUSD keeps the uptrend intact and manages to return to the area north of the 1.0400 barrier on sustained selling pressure around the dollar.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. In addition, markets repricing of a potential pivot in the Fed’s policy has become the exclusive source of the sharp advance in the pair in recent sessions.

Back to the euro area, the increasing speculation of a potential recession in the region - which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals – emerges as the main headwinds facing the euro in the short-term horizon.

Key events in the euro area this week: ECB Financial Stability Review, ECB C.Lagarde (Wednesday) - Final EMU Inflation Rate (Thursday) - ECB C.Lagarde (Friday).

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

EURUSD levels to watch

So far, the pair is gaining 0.58% at 1.0407 and faces the next up barrier at 1.0481 (monthly high November 15) seconded by 1.0500 (round level) and finally 1.0614 (weekly high June 27). On the other hand, a breach of 1.0025 (100-day SMA) would target 0.9918 (low November 10) en route to 0.9730 (monthly low November 3).

In the view of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, USDCNH could still slip back to the 7.0130 region in the next few weeks.

Key Quotes

24-hour view: “We expected USD to ‘trade within a range of 7.0260/7.0800’ yesterday. However, USD traded within a narrower range than expected (7.0225/7.0609). The underlying tone has firmed somewhat and USD is likely to trade with an upward bias. That said, any advance is not expected to break 7.0850. On the downside, a breach of 7.0400 would indicate that the mild upward bias has eased.”

Next 1-3 weeks: “Our update from yesterday (15 Nov, spot at 7.0465) still stands. As highlighted, there is room for USD to drop further to 7.0130 but oversold short-term conditions could lead to consolidation first. Overall, only a break of 7.1200 (no change in ‘strong resistance’ level from yesterday) would indicate that USD is not weakening further.”

• The index adds to Tuesday’s drop near the 106.00 region.
• Geopolitics-led risk aversion loses steam on Wednesday.
• Markets’ attention is expected to be on the release of US Retail Sales.

The greenback, when gauged by the USD Index (DXY) remains on the defensive and trades close to the 106.00 neighbourhood midweek.

USD Index looks at data, geopolitics

The index adds to Tuesday’s retracement, although it so far manages to keep the trade above the key 106.00 barrier after Tuesday’s bounce off fresh multi-week lows near 105.30.

Indeed, the dollar resumes the downside after the bout of risk aversion that lifted the index continues to dwindle on Wednesday.

In the US money markets, yields show some signs of life and print humble gains across the curve, always against the backdrop of further repricing of a Fed’s pivot in its monetary policy.

In the US docket, Retail Sales will be in the centre of the debate along with MBA Mortgage Applications, Industrial Production, Business Inventories, the NAHB index and TIF Flows.

In addition, NY Fed J.Williams (permanent voter, centrist) and FOMC’s C.Waller (permanent voter, dove) are also due to speak along with another testimony by FOMC’s S.Barr.

What to look for around USD

Price action around the dollar remains depressed and relegates the index to navigate in the area of multi-month lows near the 106.00 zone.

In the meantime, the greenback is expected to remain under the microscope amidst persistent investors’ repricing of a probable slower pace of the Fed’s rate path in the upcoming months.

Key events in the US this week: MBA Mortgage Applications, Retail Sales, Industrial Production, Business Inventories, NAHB Index, TIC Flows (Wednesday) - Building Permits, Initial Jobless Claims, Housing Starts, Philly Fed Index (Thursday) - CB Leading Index, Existing Home Sales (Friday).

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

USD Index relevant levels

Now, the index is retreating 0.7234 at 106.21 and the breakdown of 105.34 (monthly low November 15) would open the door to 104.94 (200-day SMA) and finally 104.63 (monthly low August 10). On the other hand, the next up barrier aligns at 109.11 (100-day SMA) seconded by 110.87 (55-day SMA) and then 113.14 (monthly high November 3).

Today, October Retail Sales will be featured in the US economic docket. In the view of economists at Commerzbank, even a strong figure could not be enough to lift the US Dollar.

Strong consumer data no support for the Dollar?

“Today might provide some support for the US currency on the economic front though. We expect a decent rise (month on month) in Retail Sales in October, which would illustrate that the Fed rate hikes are not yet affecting the mood of US households to spend. That in turn provides the central bank with scope to tighten its monetary policy further. However, the data would probably have to be really quite strong to provide sustainable support for the Dollar.”

“We too only expect economic growth to turn negative next year. That in turn means that a currently only marginally stronger economic development does not necessarily mean that the rate hikes are evaporating without effect, thus requiring a more aggressive approach.” 

See – US Retail Sales Preview: Forecasts from seven major banks, big boost in October

• EURGBP finds decent support ahead of the 0.8700 mark and regains positive traction on Wednesday.
• The recent range-bound price action constitutes the formation of a rectangle pattern on the daily chart.
• The technical setup favours bullish traders and supports prospects for an eventual break to the upside.

The EURGBP cross attracts fresh buying on Wednesday and reverses a part of the previous day's downfall to the 0.8710-0.8700 strong horizontal support. The cross sticks to its modest intraday gains through the early part of the European session and is currently trading near the daily peak, around the 0.8765 region.

The shared currency's relative underperformance comes on the back of reports that the missile that hit Poland may have been fired by Ukraine forces at an incoming Russian missile. This, along with fresh US Dollar selling, boosts the Euro and assists the EURGBP cross to regain positive traction. The British Pound, on the other hand, draws support from hotter-than-expected UK consumer inflation figures, which adds to pressure on the Bank of England to continue raising borrowing costs.

That said, worries about a deeper economic downturn act as a headwind for the Sterling and support prospects for a further intraday appreciating move for the EURGBP cross. Investors, however, might refrain from placing aggressive bets and prefer to move to the sidelines ahead of the BoE's Monetary Policy Report Hearings later this Wednesday. This, in turn, warrants some caution for bullish traders and positioning for an extension of the recent rally from the 200-day EMA.

Even from a technical perspective, the EURGBP cross has been oscillating in a familiar trading range over the past two weeks or so. This points to indecision over the next leg of a directional move and constitutes the formation of a rectangle. Meanwhile, bullish oscillators on the daily chart support prospects for an eventual breakout to the upside. That said, it will still be prudent to wait for a sustained strength beyond the trading range hurdle before placing fresh bullish bets.

The said barrier is pegged near the 0.8820-0.8825 region, above which the EURGBP cross is likely to accelerate the momentum towards the 0.8850-0.8860 resistance zone. Some follow-through buying should allow bulls to reclaim the 0.8900 mark. The subsequent positive move has the potential to lift spot prices further towards an intermediate resistance around the 0.8945-0.8950 en route to the next major barrier near the 0.9000 psychological mark.

EURGBP daily chart

Key levels to watch

Economists at TD Securities believe that the Australian Dollar has already priced bad news and expect Aussie to gain ground against Dollar bloc peers next year.

Re-emergence to value next year is supportive for AUD

“Slowing global growth weighed down by reduced commodity demand leaves AUD still in a slog. But, we think bad news is almost fully in the price, especially as Australia holds a relatively favourable trade balance position that may become important as commodity supply chains shift.”

While China re-opening is not our base case, AUD would be the foremost beneficiary given macro and equity linkages.”

“A re-emergence to value next year is also supportive for AUD. We see scope for outperformance against Dollar bloc peers, especially vs. CAD.”

On Tuesday, escalating geopolitical tensions helped the US Dollar Index to erase the majority of its daily losses. Economists at ING expect the DXY to move between a 106.00-107.20 range for the day ahead.

On the calendar today are US Retail Sales and Industrial Production

“Beyond geopolitics today, the focus will be on US Retail Sales and industrial production data. Both should be reasonably strong, but less market-moving than price data.” 

“For the DXY today, we did note that the Dollar seemed to find a little natural buying interest after the PPI data, but before the Polish news broke. That might tend to favour a 106.00-107.20 DXY trading range today.”

“In terms of the bigger picture, the question is whether 105 is a large enough correction for DXY.”

See – US Retail Sales Preview: Forecasts from seven major banks, big boost in October

Today, investors will pay close attention to October Consumer Price Index (CPI) figures from Canada. Economists at Commerzbank discuss how the Loonie could react to the inflation report.

Surprisingly weaker Canadian inflation data would put pressure on the CAD

“Last week surprisingly lower US inflation data had supported the pricing out of USD strength which also benefitted the loonie. Surprisingly weaker Canadian inflation data like in the US is likely to provide a dampener for BoC rate hike expectations on the market, which would put pressure on the Loonie.”

“We see the risk of a surprise on the upside. If the inflation data were to come in above expectations this would support rate hike expectations on the market, causing USDCAD to drop temporarily.”

See – Canadian CPI Preview: Forecasts from four major banks, a detour from the path towards slower inflation

Statistics Canada will release October Consumer Price Index (CPI) data on Wednesday, November 16 at 13:30 and as we get closer to the release time, here are the forecasts by the economists and researchers of four major banks regarding the upcoming Canadian inflation data.

Headline is expected at 6.9%, the same as in September, while Core, which excludes volatile food and energy prices, is expected at 6.3% year-on-year vs. 6.0% in September.

RBC Economics

“We expect the annual rate to have risen to 7%, up from 6.9% in September but still down from the 8.1% recent peak in June. Inflation growth excluding more volatile food and energy products were likely little changed from a 5.4% annual increase in September as weakness tied to home-owning related expenses are offset by strength seen elsewhere.”

TDS

“We look for headline CPI to edge higher to 7.0% in October as energy prices help drive a 0.8% MoM increase. Gasoline will provide the main catalyst for the increase, while mortgage interest and rents provide another source of strength as seasonal factors will weigh on groceries. Core inflation should also tick higher in October, with CPI trim/median rising by 0.1pp.”

NBF

“Rising gasoline prices and resilient strength in the services segment should have contributed to boosting the headline figure. Core inflation goods, on the other hand, could have continued to decelerate, but not enough to prevent the headline index from advancing 0.7% on a monthly basis (before adjustments for seasonality). If we are right, the 12-month rate should drop one tick to 6.8%. While we expect a moderation in core measures on a MoM basis, a positive base effect should limit the downside in the 12-month rate, with CPI-trim remaining unchanged at 5.2% and CPI-median increasing one tick to 4.8%.”

CIBC

“Just when we thought inflation was decelerating, a pop back up in gasoline prices likely drove a re-acceleration in October. The increase in pump prices this October contrasts with a decline during the same month of last year, and this is the main reason why our 7.2% YoY forecast for headline CPI this month reflects an acceleration from the 6.9% seen in September. Monthly increases in food and ex food/energy prices also likely remained above the pace that would be consistent with a 2% inflation target, but the annual rates for those categories would be little changed relative to September. Unless gasoline prices start to turn back down again, headline inflation could well accelerate further in November as well. However, after that inflation should start to decelerate again, with that move becoming more obvious in mid-2023 when some of the largest monthly price increases this year start to fall out of the annual calculation.”

• Silver regains some traction and stalls the overnight pullback from a multi-month high.
• The emergence of fresh buying near the very important 200 DMA favours bullish traders.
• The lack of follow-through buying warrants caution before positioning for further gains.

Silver attracts some buying near the $21.40 region on Wednesday and for now, seems to have stalled the previous day's sharp retracement slide from over a five-month high. The white metal climbs back above the mid-$21.00s during the early European session, though lacks follow-through.

From a technical perspective, the emergence of dip-buying near the very important 200-day SMA favours bullish traders. The positive outlook is reinforced by the fact that oscillators on the daily chart are holding comfortably in bullish territory. That said, the metal's inability to capitalize on the modest intraday uptick warrants some caution before positioning for any further appreciating move.

In the meantime, any subsequent move up beyond the $21.70 horizontal barrier could face resistance near the $22.00 round-figure mark. This is closely followed by the multi-month peak, around the $22.25 region, which if cleared will set the stage for additional gains. The XAGUSD might then accelerate the momentum towards the $22.50-$22.60 supply zone and eventually aim to reclaim the $23.00 mark.

On the flip side, the $21.40-$21.30 area might continue to protect the immediate downside ahead of a strong horizontal resistance breakpoint now turned support near the $21.00 mark. A convincing break below will make the XAGUSD vulnerable to test the next relevant support near the $20.40-$20.35 region. The corrective slide could get extended and drag spot prices towards the $20.00 psychological mark.

Silver daily chart

Key levels to watch

EURUSD fell sharply yesterday evening amid escalating geopolitical tensions. The Euro is set to be more vulnerable than the Dollar to an escalation of the conflict, economists at Commerzbank report. 

Escalation of Ukraine conflict?

“Fears of an escalation of the Ukraine war after the report of suspected Russian missile strikes in Poland near the Ukrainian border weighed on the Euro. However, I would attribute the market reaction less to the ‘safe haven’ function of the Dollar, as can be read everywhere, but rather to the fact that the eurozone, and thus the Euro, would suffer more from an escalation than the US.”

“Purely because of geographical proximity, Russia's trade with Europe is more intensive than with the US, which means that trade embargoes also have a greater impact on Europe's economy. To some extent, European companies may have already voluntarily started to switch to new suppliers. However, the market is likely to see the risk of renewed supply chain problems if imports from Russia stop altogether.”

Gold price is extending its pullback from a new three-month high of $1,787. But XAUUSD downside appears capped ahead of United States Retail Sales, FXStreet’s Dhwani Mehta reports.

Gold teases rising wedge breakdown on the 4H chart

“US Dollar’s fate will hinge on the Retail Sales data, which is expected to tick higher to 1.0% in October on a monthly basis while excluding Autos, the gauge is seen rising by 0.4% in the reported month. An unexpected decline in the US Retail volume could reinforce expectations of a smaller Federal Reserve rate increase, which could trigger a fresh USD selling wave while reviving the Gold price upsurge once again.”

“Gold has breached the rising trendline support at $1,775 on a four-hour time frame. Bears need a four-hourly candlestick close below the latter to confirm a rising wedge breakdown. Even if the bearish pattern is validated, Gold buyers may find immediate support in the rising 21-Simple Moving Average (SMA) at $1,768.”

“On the upside, buyers need to rescale the wedge support-turned-resistance at $1,775 to resume the uptrend toward $1,780. The next relevant upside barrier is seen at the multi-week high of $1.787, as bulls prepare to take out the $1,800 threshold.”

See – US Retail Sales Preview: Forecasts from seven major banks, big boost in October

• GBPJPY trims a part of its intraday gains despite stronger UK consumer inflation data.
• A modest recovery in the risk sentiment undermines the JPY and offers some support.
• Investors now look to the BoE’s Monetary Policy Report Hearings for a fresh impetus.

The GBPJPY cross gains some positive traction for the third successive day on Wednesday and maintains its bid tone through the early European session. The cross, however, retreats a few pips from a multi-day high and slides back below the 166.00 mark following the release of UK inflation figures.

The UK Office for National Statistics reported that the headline Consumer Price Index (CPI) accelerated to 11.1% YoY in October from 10.1% recorded in the previous month. Additional details revealed that the core inflation, which excludes volatile food and energy items, rose 6.5% YoY during the reported month. The readings were higher than market estimates and adds to pressure on the Bank of England to continue raising borrowing costs.

The data, however, fails to provide any meaningful impetus to the British Pound amid worries about a deeper economic downturn. Traders also seem reluctant ahead of the BoE's Monetary Policy Report Hearings later this Wednesday. This, in turn, prompts bullish traders to lighten their bets around the GBPJPY cross. In the meantime, a recovery in the risk sentiment undermines the safe-haven Japanese Yen and could offer some support to spot prices.

The initial findings, as reported by Associated Press (AP) citing unidentified US officials, suggest that the missile that hit Poland on Tuesday may have been fired by Ukraine at an incoming Russian missile. The headlines infuse some stability in the financial markets, which, in turn, dents demand for traditional safe-haven assets, including the JPY. This, in turn, warrants some caution before placing aggressive bearish bets around the GBPJPY cross.

Technical levels to watch

Extra decline in USDJPY cannot be ruled out for the time being, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “USD traded in a volatile manner as it swung wildly between 137.37 and 140.62 before settling at 139.29 (-0.42%). The choppy price actions have resulted in a mixed outlook and USD could continue to trade in a volatile manner, expected to be between 138.35 and 140.35.”

Next 1-3 weeks: “Our latest narrative was from Monday (14 Nov, spot at 139.05) where we expected further USD weakness albeit at a slower pace. We indicated that the 138.00 level is expected to offer solid support. However, USD dropped briefly below 138.00 yesterday (low of 137.67) before rebounding strongly. Further weakness is not ruled out, but the solid support at 137.60 may not come into view so soon, if at all. On the upside a break of 140.80 (‘strong resistance’ level was at 141.00 yesterday) would indicate that USD is unlikely to weaken further.”

Here is what you need to know on Wednesday, November 16:

Escalating geopolitical tensions helped the safe-haven US Dollar (USD) find demand late Tuesday and allowed the US Dollar Index to erase the majority of its daily losses. As market participants assess the latest headlines, US stock index futures and major currency pairs stay relatively quiet. The European Central Bank (ECB) will release its Financial Stability Review later in the session and Bank of England (BOE) Governor Andrew Bailey will testify before the UK Treasury Select Committee. In the second half of the day, October Retail Sales and Industrial Production data will be featured in the US economic docket. Finally, investors will pay close attention to October Consumer Price Index (CPI) figures from Canada.

US October Retail Sales Preview: US Dollar unlikely to find reprieve.

Reports of two Russian-made missiles hitting Poland, near the Ukraine border, and killing two people triggered a flight to safety. The latest developments, however, suggest that missiles that hit Poland may have been fired by Ukrainian forces to counter other incoming Russian missiles. Russian officials called the Polish incident an attempt to provoke a direct military clash between NATO and Russia. 

Meanwhile, China’s National Health Commission (NHC) said on Tuesday that they have confirmed 17,772 new Covid cases across the country, its highest total since April 2021. The NHC added that Guangzhou, a city of 19 million, accounted for more than a quarter of the cases.

EURUSD climbed to its highest level since late June at 1.1480 on Tuesday but gave back almost all of its gains to close at 1.0350. The pair edges higher early Wednesday but continues to trade below 1.0400. On Tuesday, the data published by Eurostat revealed that the Euro area economy grew at an annualized rate of 2.1% in the third quarter as expected.

The UK's Office for National Statistics (ONS) reported on Wednesday that the annual Consumer Price Index (CPI) jumped to 11.1% in October from 10.1 in September. This reading surpassed the market expectation of 10.7%. Additionally, the Core CPI, which strips volatile food and energy prices, stayed unchanged at 6.5%, compared to analysts' estimate of 6.4%. Despite the hot inflation figures, the Pound Sterling struggled to find demand and GBPUSD was last seen trading in its tight daily range below 1.1900.

Breaking: UK annualized inflation jumps to 11.1% in October vs.10.7% expected.

USDCAD fluctuates in a tight range below 1.3300 early Wednesday. At its latest policy meeting, the Bank of Canada (BOC) raised its policy rate by 50 basis points (bps), surprising markets that had been pricing in a 75 bps hike. The annual CPI in Canada is forecast to remain unchanged at 6.9% in October.

USDJPY fell to its lowest level since late August below 138.00 on Tuesday but regained its traction on Wednesday. The pair was last seen trading in positive territory slightly below 140.00.

Gold climbed to its strongest level in three months at $1,786 on Tuesday but closed the day below $1,780. With the benchmark 10-year US Treasury bond yield rising more than 1% in the European morning, XAUUSD edges lower while managing to hold above $1,770 for the time being.

Bitcoin registered modest daily gains on Tuesday but seems to have lost its bullish momentum early Wednesday. As of writing, BTCUSD was trading flat on the day slightly below $16,900. Ethereum continues to trade in a narrow range at around $1,250 for the second straight day on Wednesday.

First Mover Asia: FTX debacle might change Hong Kong’s approach to retail crypto regulation.

• GBPUSD ticks high on strong UK inflation prints for October.
• UK’s CPI jumps to 11.1% YoY, Core CPI reprints 6.5% figures.
• Recovery in market sentiment adds strength to the upside momentum ahead of US Retail Sales.

GBPUSD picks up bids to 1.1880 as the pair buyers cheer upbeat prints of the UK inflation numbers during early Wednesday. Also keeping the Cable pair buyers is the latest shift in the market’s mood and the US Dollar’s weakness ahead of the key US Retail Sales data.

The UK’s headline inflation number, namely the Consumer Price Index (CPI) rose to 11.1% YoY versus 10.7% expected and 10.1% prior whereas the Core CPI reprinted the 6.5% mark versus the forecasts of 6.4%.

Also read: Breaking: UK annualized inflation jumps to 11.1% in October vs.10.7% expected

Other than the British inflation numbers, a shift in the market’s mood also favored the GBPUSD buyers. Late on Tuesday, the news that Russian-made rockets were fired at Poland and killed two people triggered the risk-off mood. The same triggered emergency meetings of the North Atlantic Treaty Organization (NATO) and the Group of Seven (G7), which in turn favored the US Dollar (USD) due to its safe-haven appeal. However, the latest news shared by the Associated Press (AP) quoted an anonymous US official’s findings while mentioning that the missile may have been fired by Ukraine. As a result, the risk aversion ebbed and the greenback reversed the early-day gains at the latest.

Against this backdrop, the US stock futures are again mildly positive, reversing the initial losses, whereas the US 10-year Treasury yields snap a two-day downtrend near 3.82% as we write.

Having witnessed the initial reaction to the UK inflation numbers, the GBPUSD pair traders should pay attention to the US Retail Sales for October, expected to post 1.0% growth versus 0.0% prior. Should the key consumer-centric data match the upbeat forecasts, the US Dollar may portray recovery moves amid the latest rebound in the Treasury yields.

Also read: US October Retail Sales Preview: US Dollar unlikely to find reprieve

Technical analysis

Although overbought RSI conditions and a downward-sloping resistance line from June, around 1.2030 by the press time, challenge the GBPUSD buyers, successful trading beyond the 100-DMA level surrounding 1.1650 keeps the bulls hopeful.

• UK CPI accelerates by 11.1% YoY in October vs. 10.7% expected.
• Monthly UK CPI arrives at 2.0% in October vs. 1.7% expected.
• GBP/USD jumps to test 1.1900 on a big beat to the UK CPIs.

The UK annualized Consumer Prices Index (CPI) came in at 11.1% in October when compared to 10.1% recorded in September while beating estimates of a 10.7% figure, the UK Office for National Statistics (ONS) reported on Wednesday. The index rose to its highest level since October 1981.

Meanwhile, the core inflation gauge (excluding volatile food and energy items) rose 6.5% YoY last month versus 6.5% seen in September, beating the forecasts of 6.4%.

The monthly figures showed that the UK consumer prices accelerated by 2.0% in October vs. 1.7% expectations and 0.5% previous.

The UK Retail Price Index for October arrived at 2.5% MoM and 14.2% YoY, outpacing estimates across the time horizon.

Additional takeaways (via ONS)

FX implications

In an initial reaction to the UK CPI numbers, the GBP/USD pair jumped nearly 20 pips to test the 1.1900 barrier.

The pair was last seen trading at 1.1882, up 0.18% on the day. The US dollar holds steady in the early European morning.

Why UK inflation matters to traders?

The Bank of England (BOE) is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

The US Census Bureau will release the October Retail Sales report on Wednesday, November 16 at 13:30 GMT and as we get closer to the release time, here are the forecasts of economists and researchers of seven major banks regarding the upcoming data. 

Retail Sales in the US are expected to rise by 1% following a stagnant September. Meanwhile, while sales ex-autos are expected at 0.5% vs. 0.1% in September. The so-called control group used for GDP calculations is expected at 0.3% MoM vs. 0.4% in September.  

RBC Economics

“A jump in US unit auto sales in October is flagging a solid 1% increase in US Retail Sales.” 

NBF

“Headline sales could have sprung 1.1% in the month. Spending on items other than vehicles may have been weaker, advancing 0.5%.”

Commerzbank

“We expect Retail Sales to rise by 1.2% from September, which would also signal a significant gain in real terms. This should make it clear that the US economy is still not in recession. We do not expect this to happen until the beginning of 2023 anyway, with consumer spending, which accounts for a good two-thirds of GDP, holding up better than we expected until recently.”

TDS

“We look for Retail Sales to accelerate in October by 1.2%, following a largely sideways move in September. Spending was likely boosted by a significant increase in auto sales and the first gain in gasoline station sales in four months. Importantly, control group sales likely rose firmly at 0.5% MoM, while those for bars/restaurants probably retreated following two months of expansions.”

CIBC

“A surge in car sales as supply chain issues continued to fade, along with higher gasoline prices, will be behind a likely solid 1.3% rise in total Retail Sales in the US in October. That would also include higher demand for dining out, as restaurant reservations rose, which could have masked weakness in sales of building materials, tied to the deterioration in the housing market. Higher spending on services, combined with the rise in gasoline prices, could have squeezed consumption in discretionary goods categories, resulting in a tepid 0.1% increase in the control group of sales (ex. autos, gasoline, restaurants, and building materials). We are above the consensus on the headline, and below on the control group, which could cancel out and result in little market reaction.”

Wells Fargo

“We forecast that Retail Sales increased 1.0% in October, which translates to about a 0.5% real gain.”

Citibank

“We expect a strong increase in topline retail sales of 1.4% MoM in October. The strength is highly concentrated in the motor vehicles category as unit sales for new autos jumped by over 11% MoM in October. There could be some more upside from autos in the near term as supply chain issues have been easing. Gasoline sales are also contributing a significant boost this month as gasoline prices increased on average in October. We expect a solid 0.5% MoM increase in restaurant sales. With strength concentrated in autos and gas, we expect a modest 0.1% MoM increase in control group sales for October as categories such as apparel, electronics and general merchandise are likely to be a drag this month.”

US Treasury Secretary Janet Yellen said on Wednesday, that she wants to acknowledge the wave of Russian missile attacks in the last day.

Additional quotes

“International community must continue to support Ukraine. “

“Russia's war in Ukraine has affected millions of people.”

Related reads

• G20 leaders' declaration: G20 central banks are strongly committed to achieving price stability

• Missile that hit Poland may have fired by Ukraine – AP

• NZDUSD regains positive traction amid the emergence of fresh selling around the USD.
• A recovery in the equity markets weighs on the buck and benefits the risk-sensitive Kiwi.
• Geopolitical risks and China’s COVID-19 woes might cap any further gains for the major.

The NZDUSD pair attracts fresh buying near the 0.6115 area on Wednesday and steadily climbs to a fresh daily high during the early European session. The pair is currently trading just above the mid-0.6100s, though remains well below its highest level since August 26 touched the previous day.

The US Dollar struggles to capitalize on the overnight late rebound from a three-month low and comes under renewed selling pressure, which, in turn, offers some support to the NZDUSD pair. The initial findings, as reported by Associated Press (AP) citing unidentified US officials, suggest that the missile that hit Poland on Tuesday may have been fired by Ukraine at an incoming Russian missile. The headlines infuse some stability in the financial markets, which, in turn, undermines the safe-haven buck and benefits the risk-sensitive Kiwi.

Apart from this, firming expectations for a less aggressive policy tightening by the Federal Reserve is seen as another factor weighing on the buck. In fact, the markets are now pricing in over a 90% chance of a 50 bps rate hike at the next FOMC policy meeting in December. The bets were reaffirmed by the softer-than-expected US Producer Price Index on Tuesday, which, along with a surprise drop in the US consumer inflation figures last week, point to easing price pressures. That said, a modest uptick in the US Treasury bond yields could limit the USD losses.

Furthermore, recession fears - amid worries about headwinds stemming from the protracted Russia-Ukraine war and economically-disruptive COVID-19 lockdowns in China, might cap the optimism. This, in turn, warrants some caution before placing aggressive bullish bets around the NZDUSD pair and positioning for any further gains. Traders now look forward to the US monthly Retail Sales data for a fresh impetus later during the early North American session. Adding to this, geopolitical developments might produce short-term trading opportunities around the NZDUSD pair.

Technical levels to watch

Open interest in natural gas futures markets dropped for the third session in a row on Tuesday, now by around 3.2K contracts according to preliminary results from CME Group. Volume followed suit and went down for the second straight session, this time by around 76.6K contracts.

Natural Gas faces further consolidation near term

Prices of the natural gas added to the positive start of the week and advanced modestly on Tuesday amidst diminishing open interest and volume. Against that, the commodity is expected to keep the consolidative mood unchanged at least in the very near term. In the meantime, the 200-day SMA at $6.85 per MMBtu continues to cap the upside so far.

Japan's Foreign Ministry said in a statement on Wednesday that the country’s Prime Minister Fumio Kishida attended an emergency G7/NATO meeting.

Additional takeaways

“Japan PM Kishida told G7/NATO emergency meeting he was 'very concerned,' watching developments closely, on information that missile has dropped in Poland.”

“Japan PM Kishida told meeting developments in Ukraine are closely linked to security in Indo-Pacific region.”

Market reaction

USDJPY is consolidating the renewed uptick near 139.80, up 0.40% on the day, as investors cheer a bit of optimism on the Poland missile strike news. The pair tracks the US Treasury yields higher, as the US Dollar struggles to extend the recovery.

In the opinion of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, AUDUSD could extend the uptrend to the 0.6820 region in the short term.

Key Quotes

24-hour view: “We expected AUD to consolidate yesterday. However, it traded in a choppy manner between 0.6686 and 0.6798. Despite the choppy price actions, the underlying tone appears to have softened somewhat and AUD is likely to edge lower. However, any decline is not expected to break the support at 0.6680. Resistance is at 0.6775 but only a clear break of 0.6800 would indicate that AUD is ready to head higher instead of edging lower.”

Next 1-3 weeks: “Two days ago (14 Nov, spot at 0.6695), we highlighted that AUD is likely to advance further, albeit at a slower pace. We indicated that the level to monitor is at 0.6775. Yesterday (15 Nov), AUD took out 0.6775 and rose to 0.6798 before pulling back. While AUD rose above 0.6775, upward momentum has not improved much. However, as long as the ‘strong support’ at 0.6670 is not breached, there is room for AUD to advance further to 0.6820.”

• AUDUSD struggles for clear direction at the highest levels in two months.
• Mixed concerns over the rockets fired toward Poland, cautious mood ahead of the key data/events challenge momentum traders.
• US Retail Sales, Australia employment data will be closely observed for immediate directions.

AUDUSD grinds higher around the intraday top but stays mostly unchanged on a day as the quote seesaws around 0.6760 heading into Wednesday’s European session.

It’s worth noting that strong prints of Australia’s Wage Price Index failed to impress the Australian Dollar (AUD), as well as the International Monetary Fund’s (IMF) advice to the Reserve Bank of Australia (RBA) to increase the benchmark rates faster. The reason could be linked to the mixed concerns surrounding Russia.

Late on Tuesday, the news that two Russian-made rockets were fired at Poland and killed two people triggered the risk-off mood. The same triggered emergency meetings of the North Atlantic Treaty Organization (NATO) and the Group of Seven (G7), which in turn favored the US Dollar (USD) due to its safe-haven appeal.

However, the latest news shared by the Associated Press (AP) quoted an anonymous US official’s findings while mentioning that the missile may have been fired by Ukraine. As a result, the risk aversion ebbed and the greenback reversed the early-day gains.

Elsewhere, the US Treasury yields snap a two-day downtrend near 3.82% whereas the S&P 500 Futures print mild gains around the 4,0000 round figure, the highest levels in a month, which in turn should have favored the AUDUSD bulls.

Hence, the market’s inaction and mixed updates seem to challenge the AUDUSD traders ahead of the key Australian employment data and the US Retail Sales for October. That said, fears of strong US data and the odds of the Reserve Bank of Australia’s (RBA) softer rate hikes are on the table, which in turn keeps the AUDUSD bears hopeful.

Also read: US October Retail Sales Preview: US Dollar unlikely to find reprieve

Technical analysis

The 100-DMA challenges AUDUSD bears around 0.6700 whereas the September 2022 high near 0.6920 is the key hurdle to the north.

In light of advanced prints from CME Group for crude oil futures markets, traders scaled back their open interest positions by around 14.2K contracts following four consecutive daily builds on Tuesday. Volume, on the other hand, rose for the second straight session, this time by nearly 114K contracts.

WTI: Next support comes at $82.10

Tuesday’s uptick in prices of the WTI was on the back of declining open interest, which removes strength from the continuation of the rebound in the very near term. WTI prices could then challenge the weekly low at $82.10 (October 18).

The G20 leaders' declaration published on Wednesday, stated that “G20 central banks are strongly committed to achieving price stability, in line with their respective mandates.”

Additional takeaways  

Market reaction

The US Dollar Index was last seen trading modestly flat at around 106.50.

The likelihood of an advance beyond 1.2100 in GBPUSD seems to be losing momentum, suggest Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “Our view for GBP to “trade between 1.1680 and 1.1825” yesterday was incorrect as GBP surged to 1.2027, plummeted to 1.1792 before rebounding to close at 1.1868 (+0.92%). The sharp pullback amid overbought conditions suggests GBP is unlikely to strengthen further. For today, GBP is more likely to trade sideways between 1.1800 and 1.1950.”

Next 1-3 weeks: “On Monday (14 Nov, spot at 1.1795), we highlighted the solid upward momentum and held the view that there is room for the rally in GBP to extend to 1.1910, possibly 1.2000. Our view for the rally to extend turned out to be correct as GBP surged to a high of 1.2027 in NY trade before pulling back sharply. The pullback amid overbought conditions suggests GBP could consolidate for a couple of days first before making another push higher. However, the chance for a clear break of the next major resistance at 1.2100 does not appear to be high now. It is worth noting that 1.2027 is already a rather solid resistance level. On the downside, a break of 1.1750 would indicate that the rally in GBP is ready to take a breather.”

• USDCHF struggles to defend buyers despite bouncing off seven-month low the previous day.
• Bearish chart pattern, pullback from 21-SMA favor sellers targeting fresh multi-month low.
• Two-week-old resistance line, 200-SMA acts as additional upside filters.

USDCHF takes offers to reverse the early-day gains around 0.9440 as European traders brace for a busy Wednesday.

In doing so, the Swiss Franc (CHF) extends pullback from the 21-SMA while portraying a bearish flag chart pattern suggesting the quote’s further downside.

Other than the pullback from 21-SMA and the bearish formation, the recent improvements in RSI and sustained trading below the fortnight-old resistance line keep USDCHF sellers hopeful.

That said, a clear downside break of the 0.9370 support appears necessary for the bears to confirm the flag. Following that, the quote becomes vulnerable to testing the 0.8840 theoretical target.

However, early January’s high near 0.9340, February’s top surrounding 0.9150 and the 0.9000 psychological magnet could offer intermediate halts during the anticipated fall.

Meanwhile, recovery moves need to cross the convergence of the 21-SMA and upper line of the stated flag, near 0.9470.

Following that, a run-up towards a two-week-old resistance line, close to 0.9695 by the press time, can’t be ruled out.

In a case where USDCHF remains firmer past 0.9695 and crosses the 0.9700 round figure, the 200-SMA hurdle around 0.9900 will be in focus.

USDCHF: Four-hour chart

Trend: Further downside expected

The UK CPIs Overview

The cost of living in the UK, as represented by the Consumer Price Index (CPI) for October, is due early on Wednesday at 07:00 GMT.

Given the recently released unimpressive jobless benefits claims and sky-rocketing uncertainty ahead of the Autumn Statement first under the leadership of UK Prime Minister Rishi Sunak, today’s data will be watched closely by the GBPUSD traders.

The headline CPI inflation is expected to refresh a 30-year high with a 10.7% YoY figure versus 10.1% released for September while the Core CPI, which excludes volatile food and energy items, is likely to drop marginally to 6.4% YoY during October, from 6.5% previous readouts. Regarding the monthly figures, the CPI is expected to escalate vigorously to 1.7% against 0.5% reported earlier.

It’s worth noting that a gradual rise in wage prices and a downbeat jobs report also highlight the Producer Price Index (PPI) as an important catalyst for the immediate GBP/USD direction.

That being said, the PPI Core Output YoY is seen as stable at 14% on a non-seasonally adjusted basis whereas the monthly prints could shift higher to 1.3% versus 0.7% the prior release. Furthermore, the Retail Price Index (RPI) is also on the table for release, which is expected to rise to 13.5% YoY from 12.6% prior while the MoM prints could jump to 1.8% from 0.7% in previous readings.

Deviation impact on GBP/USD

Readers can find FXStreet's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined around 20-pips in deviations up to + or -2, although in some cases, if notable enough, a deviation can fuel movements over 30-40 pips.

How could it affect GBP/USD?

Recent glory to the risk-on profile has been keeping the Cable in the grip of bulls but Russia-Poland noise after the expected launch of two stray missiles from Russia has trimmed risk appetite. Domestically, Pound bulls could be punished for revealing a 3.6k jump in jobless benefits numbers against an expectation of a negative figure.

What’s been good in the payroll data was an improvement in Average Earnings. The Average Earnings landed higher at 5.7% than the consensus of 5.6%. Households in the UK region are already facing turbulence of decline in real income due to escalating inflationary pressures. An improvement in earnings data may support them to offset inflation-adjusted payouts.

Apart from the UK CPI, an event that has kept investors on the edge is the Autumn Statement prepared by UK PM Rishi Sunak and Chancellor Jeremy Hunt, which will dismantle Liz Truss’s mini-budget and put forward a strategic plan to wipe out the fiscal hole.

For Autumn Budget, investors will focus on the bifurcation of tax hikes and spending cuts to meet the GBP 60bln fiscal hole. Treasury sources told Sky News the financial "black hole" could be as large as £60bn - which may require up to £35bn of spending cuts and an extra £25bn to be raised through taxation. Apart from that, the upper cap for energy bills will be of significant importance.

Technically, the cable is displaying a balanced auction profile in a range of 1.1832-1.1888 as a position build-up post the release of the UK inflation figures and the Autumn Budget will be more informed. The 200-period Exponential Moving Average (EMA) at 1.1815 is advancing, which indicates that the secular trend is bullish. Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which indicates a rangebound structure amid an absence of a potential trigger.

Keynotes

GBPUSD struggles to regain 1.1900 ahead of UK inflation, US Retail Sales

GBPUSD aims to recapture 1.2000 amid upbeat market mood, UK Inflation eyed

About the UK CPIs

The Consumer Price Index released by the Office for National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).

CME Group’s flash data for gold futures markets noted open interest shrank for the second session in a row on Tuesday, this time by around 14.8K contracts. Volume, instead, increased by around 150.5K contracts after two consecutive daily drops.

Gold: Next on the upside comes the 200-day SMA

Prices of the ounce troy of gold surpassed the $1,780 level on Tuesday on the back of shrinking open interest. That said, the prospect for further upside looks somewhat curtailed in the very near term, while the 200-day SMA, today at $1,802, continues to cap the uptrend for the time being.

• USDCAD fades bounce off 100-DMA, mildly offered of late.
• Improvement in market sentiment pushes back US Dollar buyers.
• Fears of softer demand weigh on oil prices ahead of EIA inventories.
• Risk catalysts should also be watched closely amid the recent swings in risk appetite.

USDCAD struggles to defend buyers around 1.3270-80 heading into Wednesday’s European session, despite bouncing off the previous day.

In doing so, the Loonie pair portrays the trader’s anxiety ahead of the key data from the US and Canada. Also likely to have challenged the USDCAD moves are the latest moves in the sentiment.

Late on Tuesday, the news that two Russian-made rockets were fired at Poland and killed two people triggered the risk-off mood. The same triggered emergency meetings of the North Atlantic Treaty Organization (NATO) and the Group of Seven (G7), which in turn favored the US Dollar (USD) due to its safe-haven appeal.

However, the latest news shared by the Associated Press (AP) quoted an anonymous US official’s findings while mentioning that the missile may have been fired by Ukraine. As a result, the risk aversion ebbed and the greenback reversed the early-day gains.

Elsewhere, market forecasts of upbeat US data and the Bank of Canada’s (BOC) bearish bias seem to keep the USDCAD buyers hopeful. On Tuesday, US Producer Price Index (PPI) for October eased to 8.0% YoY versus market forecasts of 8.3% and the downwardly revised prior of 8.4%. It’s worth noting that the monthly figure reprinted the 0.2% prior (revised from 0.4%) while easing below 0.5% expectations. Moreover, the Federal Reserve Bank of New York's Empire State Manufacturing Index jumped to 4.5 in November from -9.1 in October and the market expectation of -5. It should be noted that the US Retail Sales for October is expected to post 1.0% growth versus 0.0% prior.

On a different page, Bank of Canada (BOC) Governor Tiff Macklem raised concerns over the effect of the rapid increases in interest rates on Monday, which in turn suggests easy rate hikes moving forward. In late October, the BOC surprised markets by announcing 0.50% rate hike versus 0.75% expected.

Talking about the oil prices, the WTI crude oil drops 0.60% intraday to $85.65 by the press time amid fears of lower demand, raised by the OPEC earlier in the week. In doing so, the black gold fails to justify the latest weakness in the US Dollar, as well as the decline in the API Weekly Crude Oil Stock to 5.835M for the week ended on November 11 versus 5.618M prior.

Moving on, Canada’s Consumer Price Index (CPI) and the US Retail Sales will be crucial to watch for the USDCAD traders and can provide a corrective bounce from the key DMA support in case of matching market forecasts. Also important to watch is the weekly print of the EIA Crude Oil Stocks Change.

Technical analysis

USDCAD leans bearish between a one-week-old resistance line and the 100-DMA, respectively around 1.3370 and 1.3240.

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group suggest further upside in EURUSD is expected to meet a tough resistance at his 1.0480 region in the next few weeks.

Key Quotes

24-hour view: “We did not expect the surge in volatility as EUR traded choppily between 1.0278 and 1.0480 yesterday (we were expecting range trading). The volatile price actions have resulted in a mixed outlook and EUR could continue to trade in a choppy manner, likely between 1.0270 and 1.0420.”

Next 1-3 weeks: “We highlighted on Monday (14 Nov, spot at 1.0325) that EUR is likely advance further and the next level to watch is at 1.0400. While our view for EUR to advance further turned out to be correct, we did not expect the volatile price actions as EUR surged to a high of 1.0480 in NY trade before pulling back sharply. Short-term upward momentum has waned somewhat, but as long as 1.0230 (‘strong support’ level was at 1.0200 yesterday) is not taken out, EUR could continue to advance. However, 1.0480 is acting as a solid resistance level now and EUR may find this level difficult to break.”

EURUSD struggles for clear directions around 1.0360 heading into Wednesday’s European session. In doing so the major currency pair portrays the market’s mood considering the bearish outlook at the options market and the hopes of the Euro’s (EUR) further run-up amid easing risk-off mood and hopes of the US Federal Reserve’s (Fed) pivot.

That said, One-month Risk Reversal (RR) for the EURUSD, a gauge of calls to puts, printed the biggest daily negative figures since October 28 by the end of Tuesday’s North American session. In doing so, the daily RR flashed -0.117 figure during the three-day losing streak.

With this, the weekly RR turned negative to -0.173 and snapped a six-week uptrend.

It should be noted that the options market might have traced the market’s hopes of firmer US Retail Sales and the allegations that Russia fired rockets toward Poland. However, the latest headlines from the Associated Press (AP) quote an anonymous US official’s findings that the missile may have been fired by Ukraine.

Also read: EURUSD approaches 200-DMA hurdle amid Poland-inspired jitters ahead of US Retail Sales, ECB’s Lagarde

Associated Press (AP) tweets, citing unidentified US officials' initial findings, Ukraine may have fired missile at incoming Russian missile.

Earlier on, United States President Joe Biden convened an “emergency” meeting of the Group of Seven and NATO leaders in Indonesia for consultations on the attack that killed two people in the eastern part of Poland near the Ukraine border.

Biden said:  There is preliminary information that contests that. It is unlikely in the lines of the trajectory that it was fired from Russia, but we’ll see.”

• Gold price has corrected to near $1,770.00 as Russia-Poland noise supported the US Dollar Index.
• An absence of quantitative interest rate guidance from Federal Reserve policymakers could push traction toward gold prices.
• The United States Retail Sales are seen higher at 0.9% despite a decline in October inflation figures.
• Gold price to remain topsy-turvy as investors await NATO ambassadors meeting outcome.

Gold price (XAUUSD) has dropped to near the immediate support of $1,770.00 after facing barricades around $1,780.00 in the Tokyo session. The precious metal is continuously sensing selling pressure in attempts of overstepping the critical resistance. Broadly, the gold prices have turned sideways in a $1,768-1,784 range and an expansion would be witnessed after further developments on Russia-Poland noise and the release of the United States Retail Sales data. The precious metal has observed significant offers at elevated levels that could terminate the four-day winning streak. Meanwhile, the US Dollar Index (DXY) has refreshed its day’s high at 106.78, and a change of risk profile stewardship to pessimism could offer a chance to test Tuesday’s high around 107.00.

Gold price seeks clarity on Russia-Poland noise

Gold price (XAUUSD) is looking for more clarity on Russian military attacks on Poland as statements from US President Joe Biden and Polish President Andrzej Duda has created obscurity. In early Asia, US President Joe Biden cited that, "based on the trajectory, it is unlikely that the missile is fired from Russia." Also, Polish President Andrzej Duda confirmed that what happened was a one-off incident, adding that there were no indications that there will be a repeat of today's incident.

The outcome of the NATO ambassadors meeting is expected to display the further direction in the gold prices and the US Dollar. This year, Russia’s invasion of Ukraine has already brought significant volatility in the global markets. And, an extension of Russian military attacks on members of NATO would accelerate it further. This might also impact gold prices significantly.

Yields rebound as Federal Reserve policymakers favor further policy tightening

Post a significant decline in inflation figures in the United States, the returns on the United States government bonds have been a major victim. The 10-year United States Treasury yields have dropped sharply from a high of 4.34% to a low near 3.76%. The alpha on long-term United States bonds has rebounded to 3.80% after Federal Reserve (Fed) policymakers sounded solid for further policy tightening by the United States central bank.

Atlanta Fed President Raphael Bostic said on Tuesday that he isn’t expecting to see the full impact of monetary policy on inflation for months, reported Reuters. He further added that indicators showing ease in inflationary pressures have not been witnessed yet so anticipating more interest rate hikes ahead. Also, Fed Governor Lisa Cook reiterated on Tuesday that inflation in the United States is still "much too high" and added that the focus for the Federal Reserve is on addressing inflation. As per the CME FedWatch tool, the odds of a fifth consecutive 75 basis points (bps) interest rate hike stood below 20%. It is worth mentioning that Federal Reserve policymakers have favored the continuation of policy tightening but have refrained from providing quantitative guidance. This might keep reins in the gold prices ahead.

Key trigger ahead is United States Retail Sales data

This week, the United States economic calendar has nothing much to offer except Wednesday’s Retail Sales data. As per the projections, the Retail Sales data for October will improve meaningfully to 0.9% vs. the prior release of 0%. It is worth noting that the Consumer Price Index (CPI) was trimmed in October. In spite of that, the Retail Sales data is seen as higher, which indicates robust demand by households.

A better-than-projected United States Retail Sales data may provide a cushion to the US Dollar and impact the XAUUSD price.

Gold technical outlook

XAUUSD is declining gradually towards the upward-sloping trendline placed from November 3 low at $1,616.67 on a four-hour scale. The gold prices have kissed the 50-period Exponential Moving Average (EMA) at $1.770.50 after a corrective move. While, the 100-period EMA at $1,756.00 is firmly advancing, which adds to the upside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range from the bullish range of 60.00-40.00 amidst correction. This doesn’t reflect a change in secular trend but a loss in upside momentum cannot be ruled out.

Investors would like to play the correction by creating longs near the upward-sloping trendline. This could terminate short-term optimism in the US Dollar bulls.

• WTI remains pressured towards a one-month-old ascending support line.
• Bearish MACD signals, failures to cross 21-DMA favor sellers.
• 100-DMA, double tops also challenge the upside moves.

WTI crude oil returns to the bear’s table, after bouncing off the monthly low the previous day. In doing so, the black gold drops to $85.60 during early Wednesday morning in Europe.

The energy benchmark’s latest weakness could be linked to its U-turn from the 21-DMA hurdle, currently around $86.90, as well as the bearish MACD signals.

However, an upward-sloping support line from mid-October, near $84.70 by the press time, challenges the quote’s further downside.

In a case where the commodity prices decline below $84.70, the October 18 swing low of around $81.30 becomes crucial as a downside break of the same will confirm the double-top bearish chart formation and can direct sellers towards the theoretical target of $70.00.

Meanwhile, an upside break of the 21-DMA isn’t an open welcome to the WTI bulls as a one-week-old resistance line near $87.50 could act as an extra upside filter. Following that, the 100-DMA can probe the oil buyers at around $89.60.

If the WTI run-up remains intact beyond $89.60, the $90.00 threshold could test the bulls before directing them to the crucial $92.60-90 resistance zone comprising the monthly high and October’s top.

WTI: Daily chart

Trend: Further downside expected

• USDINR picks up bids to renew intraday high, up for the third consecutive day.
• Risk aversion, firmer yields underpin US Dollar rebound ahead of the key data.
• Wider trader deficit in India, chatters over RBI’s softer rate hikes weigh on Indian Rupee.

USDINR refreshes an intraday high around 81.55 during a three-day winning streak early Wednesday morning in Europe.

In doing so, the Indian Rupee (INR) pair cheers the market’s risk-off mood, as well as the latest rebound in the US Treasury yields, which favored the US Dollar ahead of the US Retail Sales for October, expected 1.0% versus 0.0% prior.

That said, the US Dollar Index (DXY) prints mild gains around 106.70 as members of the North Atlantic Treaty Organization (NATO) and the Group of Seven (G7) showed readiness to be in close contact to decide any possible reaction to the Russian-made rockets fell in Poland. Also weighing on the risk appetite is a jump in China’s Covid numbers to the highest levels since April 2021.

Elsewhere, a widening trade deficit in India and the previously downgraded economic forecast weigh on the INR. “India's merchandise trade deficit in October widened to $26.91 billion from $25.71 billion in the previous month,” a Reuters calculation based on export and import data released by the government on Tuesday showed.

Previously, Moody’s cut India’s Gross Domestic Product (GDP) forecast for the current and the next Financial Year (FY) to 7.0% and 7.7% in that order. It should be noted that the Reserve Bank of India (RBI) expects India to grow by 7.0% in 2022. Additionally, recent softness in the Indian Retail Inflation numbers also allowed USDINR buyers to keep the reins. “India's annual retail inflation eased to 6.77% last month, helped by a slower rise in food prices, data showed on Monday,” mentioned Reuters.

It should be noted, however, that softer US data and talks of the US Federal Reserve’s (Fed) pivot challenge the USDINR bulls amid sluggish markets.

While portraying the sentiment, Wall Street closed with smaller gains than the early-day moves while the US 10-year Treasury yields struggle at a six-week low. That said, the S&P 500 Futures retreated from the monthly high.

Looking forward, headlines for the Coronavirus and Poland are likely to gain major attention but the US Retail Sales for October, expected 1.0% versus 0.0% prior, will be more important for clear directions.

Technical analysis

A clear upside break of the two-week-old resistance line, now support around 80.90, keeps the USDINR buyers hopeful. However, the 50-DMA challenge the pair’s immediate advances.

“The North Atlantic Treaty Organization (NATO)  and G7 countries said on Wednesday they would remain in close contact to decide any possible reaction to a blast caused by a rocket which fell in Poland close to the Ukraine border and killed two people,” reported Reuters.

The news also mentioned that the joint statement followed an emergency meeting they held on the sidelines of a G20 summit in Indonesia, to discuss the explosions in NATO-member Poland, which were possibly caused by a Russian-made rocket.

Additional details

Market implications

The news weighs on the market sentiment and allows the US Dollar to pare recent losses. As a result, the EURUSD remains sidelined near 1.0350, down 0.05% intraday by the press time.

Also read: EURUSD approaches 200-DMA hurdle amid Poland-inspired jitters ahead of US Retail Sales, ECB’s Lagarde

World Trade Organization (WTO) Director-General Ngozi Okonjo-Iweala said in a statement on Wednesday, “risks to the 2023 global trade forecast are on the downside due to the uncertainties surrounding the Ukraine crisis, rising food and energy costs, and inflation.”

Additional quotes

“There is a real risk of recession in some major economies, with significant consequences for emerging and poor economies.”

“It's always excellent when the world's two largest economies talk to each other. - referring to the Biden-Xi meeting.”

“US is informally discussing with WTO members on dispute settlement system reform, with a hopeful breakthrough next year.”

Related reads

• EU: To offer our full support, assistance with Poland ongoing investigation
• IMF: Australian economy set to slow amid downside risks

• A double-bottom formation has led to a bullish reversal in the asset.
• The asset has climbed above the 20-and 50-EMAs that add to the upside filters.
• The RSI (14) is attempting to shift into the bullish range of 60.00-80.00.

The USDJPY pair has extended its recovery after overstepping the critical hurdle of 139.50 in the Asian session. The asset has refreshed its day’s high at 140.20 despite a rangebound performance by the US dollar index (DXY). Further development on Russia-Poland noise has sidelined the market mood.

Meanwhile, S&P500 futures have recovered the majority of their losses reported in early Asia. The 500-stock basket of the US is expected to regain the track toward the upside. The 10-year US Treasury yields have also shown a marginal recovery to near 3.80%.

On an hourly scale, the asset has witnessed a responsive buying action after testing the previous week’s low around 138.50. This has led to a formation of a Double Bottom chart pattern that indicates a reversal amid an absence of significant selling pressure while testing the previous cushion.

A sheer reversal has pushed the asset above the 20-and 50-period Exponential Moving Averages (EMAs) at 139.55 and 1.39.90 respectively, which adds to reversal filters.

Meanwhile, the Relative Strength Index (RSI) (14) is attempting to shift into the bullish range of 60.00-80.00. An occurrence of the same will strengthen the Greenback bulls further.

Going forward, a break above Monday’s high at 140.80 will trigger the double bottom breakout and activate the Greenback to hit Friday’s high at 142.49, followed by the horizontal resistance plotted around November 8 high at 146.94.

Alternatively, the chart pattern gets negated if the asset drops below Tuesday’s low at 137.66. This will drag the asset toward August 23 low at 135.81 and June 23 low at 134.27.

USDJPY hourly chart

The European Union (EU) is out with a statement following the emergency NATO and G7 meetings, called by US President Joe Biden following the missile strike in Poland on Tuesday.

Key takeaways

Market reaction

EURUSD is moving back and forth in a familiar range above 1.0350 on the latest geopolitical developments. The spot is better bid on the day.

• GBPUSD stays defensive around three-month high, sidelined of late.
• Anxiety ahead of UK’s key data, Autumn budget joins Poland-inspired sour sentiment to challenge traders.
• Downbeat US data, hawkish expectations from BOE keep buyers hopeful.

GBPUSD seesaws around 1.1870 as it tries to defend the bulls despite reversing from a three-month high during early Wednesday morning in Europe. The Cable pair’s latest inaction could be linked to the mixed feelings surrounding Russia and the cautious mood ahead of the key data from the UK and the US.

Indecision over Russian missiles struck at the Polish border with Ukraine recently challenged the market’s sentiment and the GBPUSD traders. Following the missile fire, which killed two people, policymakers from the North Atlantic Treaty Organization (NATO) and the Group of Seven Nations (G7) called an emergency meeting. However, US President Joe Biden recently mentioned that based on the trajectory, it is unlikely that missiles were fired from Russia.

It should be noted that the downbeat employment data from the UK failed to tame the GBPUSD bulls amid the softer US Producer Price Index (PPI). That said, UK’s Claimant Count Change increased to 3.3K versus -12.6K forecasts and 25.5K prior whereas the Unemployment Rate rose to 3.6% while surpassing the market consensus and prior readings of 3.5%. On the other hand, US PPI for October eased to 8.0% YoY versus market forecasts of 8.3% and the downwardly revised prior of 8.4%. It’s worth noting that the monthly figure reprinted the 0.2% prior (revised from 0.4%) while easing below 0.5% expectations. Moreover, the Federal Reserve Bank of New York's Empire State Manufacturing Index jumped to 4.5 in November from -9.1 in October and the market expectation of -5.

On a different page, fears of more burden on the households due to the UK’s upcoming Autumn Statement, up for publishing on Thursday, joins the likely uptick in the US Retail Sales for October, expected 1.0% versus 0.0% prior, keeps the GBPUSD bears hopeful. However, UK Prime Minister (PM) Rishi Sunak’s recent diplomatic moves have been suggesting a positive surprise and can fuel the Cable price should today’s British Consumer Price Index (CPI) match the upbeat 10.7% YoY forecasts for October, versus 10.1% prior.

While portraying the mood, Wall Street closed with smaller gains than the early-day moves while the US 10-year Treasury yields struggle at a six-week low. That said, the S&P 500 Futures retreated from the monthly high.

To sum up, GBPUSD buyers are likely to witness further upside momentum should the scheduled data/events match the market consensus.

Technical analysis

GBPUSD retreats from a downward-sloping resistance line from June 15 amid a nearly overbought RSI. However, the bullish MACD signals and the sustained trading beyond the 100-DMA suggest the pair’s further advances.

• AUDUSD has resurfaced after printing day’s low at 0.6732 after IMF’s policy tightening advice.
• An ambiguity in the risk profile has shifted the DXY into a rangebound trajectory.
• ANZ has hiked China’s GDP projections to 5.4% for CY2023 amid easing Covid-19 protocols.

 The AUDUSD pair has retreated after recording the day’s low at 0.6732 in the Tokyo session. The asset is majorly displaying a sideways performance amid obscurity in the risk profile.

Market sentiment turned negative after Poland officials reported Russian military attacks, however, US President Joe Biden said on Wednesday, "based on the trajectory, it is unlikely that the missile is fired from Russia." Also, Polish President Andrzej Duda confirmed that what happened was a one-off incident, adding that there were no indications that there will be a repeat of today's incident.

Meanwhile, the US dollar index (DXY) has displayed a marginal sell-off after facing barricades of around 106.75. The DXY is expected to remain on the tenterhooks ahead of the US Retail Sales data. The retail demand indicator is expected to improve by 0.9% vs. the prior release of 0%.

The Aussie dollar has gained some traction in Tokyo as the International Monetary Fund (IMF) has supported the view of further policy tightening by the Reserve Bank of Australia (RBA). A slowdown in the inflationary pressures is highly required despite the cost of downside risks to the economy, including falling house prices. The IMF forecasts economic growth in Australia to slow to just 1.7% in 2023-2024, citing higher interest rates, persistent inflation, weakening export demand, and declining housing prices.

Apart from that easing of Covid-19 protocols and supporting measures to curb the vulnerable real estate situation in China has also supported the antipodean. According to a note from ANZ Banking Group Ltd., China’s Gross Domestic Product (GDP) could expand by 5.4% next year as the administration eases restrictions, reported Bloomberg.

Following his meeting at the G20 Summit, the People’s Bank of China (PBOC) Governor Yi Gang said that “talks with US Treasury Secretary Yellen are direct and constructive.”

Earlier on, US Treasury officials said Yellen was keen to discuss China’s plans to ease its Covid restrictions and how it will deal with problems in its property sector when they get together.

Nothing is heard from Yellen so far.

Market reaction

The above comments have little to no impact on the AUDUSD pair, as it keeps its range at around 0.6750, almost unchanged on the day.

• EURUSD picks up bids to reverse recent pullback from four-month high.
• Mixed concerns over Russia’s involvement in missiles attack on Poland entertained markets of late.
• Fears of Monetary policy divergence between US Federal Reserve and European Central Bank seem to favor EURUSD bulls.
• Softer US Retail Sales, hawkish comments from ECB’s Lagarde appear necessary for further upside.

EURUSD regains upside momentum after a dismal start to the key Wednesday, picking up bids to refresh intraday high near 1.0390 by the press time. In doing so, the major currency pair reverses the late Tuesday’s pullback from a four-month high.

Indecision over Russian-made missiles challenges EURUSD bulls

Russian-made missiles killed two people in the European nation bordering Ukraine and amplified geopolitical fears due to its status as a member of the North Atlantic Treaty Organization (NATO). Even if Moscow’s military denies any such attempt, the NATO Ambassadors and the members of the Group of Seven Nations (G7) are up for emergency meetings and raised fears. Recently, United States (US) President Joe Biden mentioned that based on the trajectory, it is unlikely that missiles fired from Russia.

Softer US data highlights ECB versus Fed divergence

On Tuesday, Germany’s ZEW Economic Sentiment Index improved to -36.7 in November versus -59.2 prior and the market expectation of -50. Further, the nation’s ZEW Current Situation Index also rose to -64.5 from -72.2 previous readings and the analysts' estimate of -68.4.  Additionally, the second estimate of the Euro Area Gross Domestic Product (GDP) for the third quarter (Q3) matched the initial forecasts of 2.1% YoY and 0.2% QoQ. On the other hand, US Producer Price Index (PPI) for October eased to 8.0% YoY versus market forecasts of 8.3% and the downwardly revised prior of 8.4%. It’s worth noting that the monthly figure reprinted the 0.2% prior (revised from 0.4%) while easing below 0.5% expectations. Moreover, the Federal Reserve Bank of New York's Empire State Manufacturing Index jumped to 4.5 in November from -9.1 in October and the market expectation of -5.

Given the softer data from the United States, the recently mixed concerns over the Fed’s pivot join receding hawkish bets on the US central bank’s next move to weigh on the EURUSD price.

US Retail Sales, ECB’s Lagarde will be important

After witnessing recently downbeat US Consumer-centric data, the EURUSD pair traders will wait for the details of the US Retail Sales for October, expected 1.0% versus 0.0% prior and to be posted Tuesday at 13.30 GMT. Should the number surprise markets with firmer prints, the EURUSD pair may print another pullback from the key moving average.

Alternatively, ECB President Christine Lagarde might welcome the latest positive economics to defend the hawkish plans of the region’s central bank. However, fears of recession loom over the bloc. As a result, any mention of the same could weigh on the EURUSD prices.

Also read: US October Retail Sales Preview: US Dollar unlikely to find reprieve

EURUSD technical analysis

EURUSD price pierces a six-month-old horizontal resistance area surrounding 1.0350 as bulls approach the 200 Daily Moving Average (DMA), close to 1.0425 by the press time.

In doing so, the pair buyers remain cautious amid the overbought conditions of the Relative Strength Index (RSI), located at 14, as well as the recent sluggishness in the bullish signals from the Moving Average Convergence and Divergence (MACD) indicator.

Hence, the EURUSD pair’s upside past 1.0425 appears tough.

Not only the 200-DMA but the recent high of 1.0481 and tops marked during late June and May, respectively around 1.0615 and 1.0785, also challenge the EURUSD bulls.

Alternatively, a horizontal line comprising multiple levels marked since July, around 1.0280, restricts the EURUSD pair’s immediate downside.

Following that, September’s peak and a one-week-old support line, close to 1.0200 and 1.0100 in that order, will be crucial to watch for the bears.

It’s worth noting that the 100-DMA level surrounding 1.0025 appears the last defense of the EURUSD buyers, a break of which won’t hesitate to recall the yearly low on the chart.

EURUSD: Daily chart

Trend: Limited upside expected

The International Monetary Fund (IMF), in its annual review, said “Australia should continue to tighten monetary and fiscal policy to contain inflation even as its economy is set to slow sharply next year amid a host of downside risks, including falling house prices.”

The IMF forecasts economic growth in Australia to slow to just 1.7% in 2023-2024, citing higher interest rates, persistent inflation, weakening export demand and declining housing prices.

Market reaction

AUDUSD is holding steady, trying to find its feet above 0.6750 amid a retreat in the US Dollar across the board. Investors stay on a cautious footing amid looming geopolitical risks.

UK Prime Minister Rishi Sunak said early Wednesday, via Reuters, he “will meet Chinese President Xi to underline the need for "a frank and constructive UK-China relationship."

Further comments

Market reaction

GBPUSD was last seen trading at 1.1878, up 0.14% so far. The US Dollar is losing its recovery momentum following comments from US President Joe Biden that the missile strike in Poland is unlikely from Russia.  

China's state planner, the National Development and Reform Commission (NDRC), announced on Wednesday that it approved 97 fixed-asset investment projects worth a total of 1.4 trillion yuan from January to October.

Additional takeaways

Related reads

• USDCNH marches towards 7.0700 amid Covid, geopolitical fears ahead of US Retail Sales
• US Presi. Biden: Based on the trajectory, it is unlikely that missile fired from Russia

• Silver price struggles after posting the biggest daily loss in two weeks at the highest levels since June.
• October’s high, 50-SMA restricts immediate downside amid recently steady RSI.
• 21-SMA, weekly bullish channel’s bottom challenge recovery moves.

Silver price (XAGUSD) holds lower ground near $21.50 during Wednesday’s sluggish Asian session, after reversing from the five-month high the previous day.

Even so, the bullion sellers remain hopeful amid the bearish MACD signals and the metal’s sustained downside break of the $21.70 support confluence, now resistance comprising the 21-SMA and lower line of a one-week-old ascending trend channel.

That said, the 50-SMA and October’s high restrict the XAGUSD’s immediate downside near $21.30-25 amid a steady RSI (14).

Hence, the bright metal is likely to remain sidelined between $21.70 and $21.25 for now.

Should the quote manages to regain the buyer’s confidence by crossing the $21.70, the odds of witnessing a run-up toward the monthly high near $22.25 can’t be ruled out.

However, the aforementioned bullish channel’s upper line, close to $22.60, could challenge the silver buyers afterward.

Meanwhile, a downside break of $21.25 will highlight the $20.00 psychological magnet for the XAGUSD bears.

In a case where the silver price remains weak past $20.00, an upward-sloping support line from October 21, near $19.50, should challenge the downside momentum.

Silver price: Daily chart

Trend: Limited downside expected

US President Joe Biden said on Wednesday, "based on the trajectory, it is unlikely that the missile is fired from Russia."

Additional comments

“I briefed NATO and G7 members on talks with Poland.”

“Leaders agreed to support an investigation into what happened.”

“Intelligence contests that the Poland incident was caused by a missile fired from Russia.”

Seperately, Reuters reported that Donald Trump has formally entered the race for the presidency of the US in 2024.

Market reaction

The US Dollar Index is off the session highs at 106.75 on the above comments, trading at 106.57 at the time of writing. The Dollar gauge is still adding 0.16% on the day. Markets remain in a risk-off mode amid looming geopolitical uncertainty.

• USDCNH picks up bids to extend the previous day’s rebound from six-week low.
• A jump in China’s Covid count, decline in new home prices drown Chinese currency.
• Alleged Russia missile strike on Poland underpins US Dollar’s safe-haven demand.
• US Retail Sales, risk catalysts are the key to near-term directions.

USDCNH takes the bids to refresh the intraday high near 7.0670 during Wednesday’s mid-Asian session. In doing so, the offshore Chinese Yuan (CNH) currency pair cheers the broad US Dollar recovery amid the risk-off mood.

Among the key catalysts that drive the risk-aversion, the risk-negative headlines surrounding China’s Covid conditions and fears of geopolitical concerns between the West and Poland seemed to acquire the front seat.

China’s National Health Commission (NHC) reported around 17,772 new Covid cases on Tuesday, the highest total since April 2021. It should be observed that the manufacturing hub Guangzhou, unfortunately, accounts for more than a quarter of the national tally.

On the same line, Russian-made missiles killed two people in the European nation bordering Ukraine and amplified geopolitical fears due to its status as a member of the North Atlantic Treaty Organization (NATO). Even if Moscow’s military denies any such attempt, the NATO Ambassadors and the members of the Group of Seven Nations (G7) are up for emergency meetings and raised fears.

On the flip side, softer US data and the Federal Reserve (Fed) policymakers’ assent to the market’s 50bps rate hike concerns seem to challenge the pessimists. On Tuesday, the US Producer Price Index (PPI) for October dropped to 8.0% YoY versus market forecasts of 8.3% and the downwardly revised prior of 8.4%.

Against this backdrop, the S&P 500 Futures drop 0.40% while the US 10-year Treasury yields remain sluggish near 3.76% at the latest.

Looking forward, headlines for the Coronavirus and Poland are likely to gain major attention but the US Retail Sales for October, expected 1.0% versus 0.0% prior, will be more important for clear directions. It should be noted that the divergence between the Fed and the People’s Bank of China (PBOC) keeps the USDCNH bears hopeful.

Technical analysis

Tuesday’s Doji candlestick teases USDCNH buyers targeting the 50-DMA hurdle surrounding 7.1475. Alternatively, a seven-month-old support line, near 7.0010, could challenge the pair sellers.

• Gold is hanging on a thread as the US Dollar catches a corrective bid. 
• Gold is meeting resistance and the backside of a key trendline. 

The Gold price has stalled on the bid in Tokyo, falling by 0.10% at the time of writing. XAUUSD has fallen from a high of $1,781.48 to a low of $1,775.97, capped within a potential ceiling of the recent bullish correction. The yellow metal did perk up on the back of rising geopolitical risks and a weaker USD from the start of the session.

Reports of Russian missiles crossing into Poland weighed on risk sentiment during the New York mid-day session. US stocks were turning into a sea of red with the benchmarks heading south as per the SP 500 index:

Poland news creates volatility  

However, the sentiment was mixed due to the possibility that this was not a direct attack by Russia and a false alarm. 

A Polish reporter was quoted on the blasts:

''My sources in the services say that what hit Przewowo is most likely the remains of a [Russian] rocket shot down by the Armed Forces of Ukraine.'' The doubts over the intentions of Russia to bomb Poland put a bid back into markets:

Polish President Andrzej Duda said that what happened was a one-off incident, adding that there were no indications that there will be a repeat of today's incident.

Meanwhile, investor demand was also supported by a weaker USD which was sparked by the lower-than-expected producer price inflation. The DXY fell to its lowest since mid-August around 105.35 and was on track to test the August 10 low near 104.636.

US Dollar corrects PPI lead drop

US yields reacted accordingly to the PPI whereby the headline came in at 8.0% vs. 8.3% expected and a revised 8.4% (was 8.5%) in September. The core came in at 6.7% YoY vs. 7.2% expected and actual in September.  The data has buffered the idea that the Fed is closer to a pivot than ever before.  However, the bulls have moved in and are treading water again as the US Dollar catches a sage haven bid:

As for the yellow metal, ''isn't out of the woods just yet,'' according to analysts at TD Securities. ''We find a rally towards the $1850/oz mark would still be supported by CTA short covering, which points to continued squeeze risks in gold should the US dollar continue to weaken. In contrast, the bar for CTAs to add to their shorts once more is more elevated.''

Gold technical analysis

The 4-hour chart shows the price dangling over the edge of the rally in resistance and on the back side of the prior micro trendline. This would be expected to lead to a phase of distribution on the lower time frames where bears can be looking for an optimal entry according to the mid-week set ups that may, or may not, present themselves. 

• NZDUSD retreats from 11-week high, seesaws around a downward sloping resistance line from April.
• Overbought RSI keeps sellers hopeful of retesting 100-day EMA.
• Buyers need validation from May’s low to renew multi-day top.

NZDUSD holds onto the bearish bias around the intraday low of 0.6131 during the mid-Asian session on Wednesday, after reversing from the highest levels since late August.

Tuesday’s pullback of the Kiwi pair from a multi-day top could be linked to its inability to cross the 200-day EMA, as well as the overbought conditions of the RSI (14) line.

Even so, the NZDUSD remains mostly sidelined near the key resistance line from April, now support around 0.6140.

Should the quote stays bearish below 0.6140, the odds of witnessing a slump toward the 100-day EMA level surrounding the 0.6000 psychological magnet can’t be ruled out.

However, a one-month-old ascending support line near 0.5870 could challenge the NZDUSD sellers afterward.

Also acting as a downside filter is the early October swing high near 0.5815, a break of which could quickly drag the quote toward the yearly low near 0.5510.

On the flip side, a daily closing beyond the 200-day EMA level surrounding 0.6210 needs validation from the May month’s low near 0.6220 to keep NZDUSD buyers on the board.

Following that, the bulls could aim for the August 2022 peak near 0.6470.

NZDUSD: Daily chart

Trend: Limited downside expected

• USDCAD is displaying a balanced auction below 1.3300 as the focus has shifted to Canada inflation data.
• The DXY is eyeing higher levels amid Russia-Poland tensions.
• Canada’s headline and core CPI are seen at 6.9% and 6.3% respectively.
• Oil prices have rebounded as fresh geopolitical tensions could disrupt the supply chain mechanism further.

The USDCAD pair has turned sideways below the critical support of 1.3300 in the Tokyo session. The upside in the asset is capped by a significant recovery in oil prices while the downside is cushioned by geopolitical tensions between Russia and Poland after Russian military attacks. On a broader note, the asset is oscillating in a 1.3248-1.3336 range ahead of the release of Canada’s Consumer Price Index (CPI) data.

S&P500 futures have displayed weakness in Asia despite Polish President Andrzej Duda confirming that what happened was a one-off incident, adding that there were no indications that there will be a repeat of today's incident. The negative market sentiment is still active as the outcome of the NATO ambassadors meeting will provide meaningful cues to the market participants.

Meanwhile, the US dollar index (DXY) is advancing gradually to test Tuesday’s high around 107.00. The returns on US government bonds have failed to capitalize on weaker market sentiment. The 10-year US Treasury yields are trading around 3.77% as expectations for the continuation of the current rate hike pace by the Federal Reserve (Fed) have plummeted.

On the Loonie front, investors will keep an eye on the inflation data. The headline Consumer Price Index (CPI) is seen stable at 6.9% while core CPI that excludes oil and food prices is expected to escalate to 6.3% from the prior release of 6.0%. The Bank of Canada (BOC) has been elevating interest rates at a significant pace and no meaningful decline in price pressures could accelerate recession fears.

Oil prices have rebounded firmly as a resurgence in Russian military attacks and this time to Poland could result in more sanctions on Russia from European Union (EU) and other agencies. Also, the chances of further disruption in the supply chain could dampen oil transmission activity. Apart from that, US oil inventories have declined significantly by 5.835 million barrels last week, as reported by American Petroleum Institute (API).

• Market sentiment sours amid fresh geopolitical fears surrounding Poland.
• A jump in China’s Covid numbers also challenges the risk appetite.
• Softer US data, mixed comments from Federal Reserve officials keep yields depressed.
• US Retail Sales, headlines from NATO, G7 meetings will be important for fresh impulse.

After witnessing a risk-on mood the previous day, traders experience a downbeat mood on the floor during early Wednesday. That said, the market’s latest fears could be linked to the headlines over the alleged Russian missile attack on Poland, as well as the higher prints of China’s Coronavirus numbers.

While portraying the mood, the S&P 500 Futures part ways from Wall Street’s upbeat performance despite losing some weight by the day’s end. In doing so, the key gauge of the US equity futures drop half a percent to 3,983 as it reverses from the highest levels marked since early September, poked on Tuesday.

On the other hand, the US 10-year Treasury yields keep the previous day’s losses around a one-month low whereas the two-year Bond coupons also print a three-day downtrend. That said, both the Treasury yields are depressed around 3.77% and 4.33% by the press time.

Talking about Poland, Russian-made missiles killed two people in the European nation bordering Ukraine and amplified geopolitical fears due to its status as a member of the North Atlantic Treaty Organization (NATO). Even if Moscow’s military denies any such attempt, the NATO Ambassadors and the members of the Group of Seven Nations (G7) are up for emergency meetings and raised fears.

Elsewhere, China is going through a rough patch when it comes to the Coronavirus as the latest count appears worrisome. That said, China’s National Health Commission (NHC) reported around 17,772 new Covid cases on Tuesday, the highest total since April 2021. It should be observed that the manufacturing hub Guangzhou, unfortunately, accounts for more than a quarter of the national tally.

Alternatively, softer US data and the Federal Reserve (Fed) policymakers’ assent to the market’s 50bps rate hike concerns seem to challenge the pessimists. On Tuesday, the US Producer Price Index (PPI) for October dropped to 8.0% YoY versus market forecasts of 8.3% and the downwardly revised prior of 8.4%.

Moving on, the geopolitical and Covid woes can challenge the riskier assets ahead of the US Retail Sales for October, expected 1.0% versus 0.0% prior.

Also read: Conflicting Poland reports put a bid back into Wall Street, S&P 500 pops

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.0363 vs. the previous fix at 7.0421 and the prior close at 7.0445.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.

Guangzhou has reported 6,296 new local Covid-19 cases as of 0:00 November 16. 

Meanwhile, residents under Covid lockdown in China’s southern manufacturing hub have torn down barriers meant to confine them to their homes.

The protests in defiance of strictly enforced local orders took place late Monday evening on district streets as yet another sign of the mounting public anger and desperation over the government’s stringent zero-Covid policies.

The scenes in Guangzhou come as Beijing’s unrelenting drive to stamp out the spread of the virus faces questions of sustainability, amid fast-spreading new variants.

However, China is experiencing a surge in infections nationwide. On Tuesday, China’s National Health Commission reported more than 17,772 new Covid cases across the country, its highest total since April 2021, with Guangzhou, a city of 19 million, accounting for more than a quarter of those.

Nevertheless, markets were bid on the news last week of a reduction in quarantine time for travelers and close contacts to five days from seven. A penalty on airlines for bringing Covid cases into China was also removed. The measures came even as Covid infections surged.

President Biden has called an “emergency” meeting of G7 and NATO leaders in Indonesia for consultations following the missile strike in Poland. Biden promised “full U.S. support for and assistance with Poland’s investigation."

More to come

• AUDUSD takes offers to renew intraday low even after strong Aussie data, amid risk-off mood.
• Australia’s Q3 Wage Price Index beat market consensus and prior readings.
• NATO, G7 members call emergency meeting after an alleged Russian missile attack on Poland.
• Concerns surrounding the US Federal Reserve’s pivot, China’s Covid conditions will also be important to watch.

AUDUSD extends pullback from a two-month high, down 0.30% intraday near 0.6740, even as wage data from Australia came in firmer on Wednesday. That said, the Aussie pair’s latest weakness could be linked to the market’s fresh fears, emanating from Poland.

Australia’s Wage Price Index rose 1.0% QoQ versus 0.9% market forecasts and 0.7% prior readings. The yearly figures also came upbeat while crossing the expectations and previous readings with the 3.1% YoY numbers.

Earlier in the day, Australia’s Westpac Leading Index for October dropped to -0.1% versus -0.05% prior.

It’s worth noting that the Group of Seven Nations (G7) and North Atlantic Treaty Organization (NATO) Ambassadors are up for an emergency meetings after an alleged Russian attack on the Polish border with Ukraine. Even so, Polish President Andrzej Duda told reporters, per Reuters, “Poland has no concrete evidence showing who fired the missile that caused an explosion in a village near the Ukrainian border.” The policymaker also added that it is very likely that they will activate NATO’s Article 4 on Wednesday.

Additionally weighing the AUDUSD prices could be the headlines from the Financial Times (FT) saying, “China’s coronavirus test providers have reported a surge in unpaid fees as cash-strapped local governments struggle to fund a mass testing program that is central to President Xi Jinping’s zero-Covid policy.” The otherwise unimportant news gains major attention amid a surge in the coronavirus numbers from the dragon nation, also the main customer of Australia.

Against this backdrop, the S&P 500 Futures drop 0.40% while the US 10-year Treasury yields remain sluggish near 3.76% at the latest.

Having witnessed no major reaction to the Aussie data, mainly due to the risk-off mood, the AUDUSD pair traders may wait for the US Retail Sales for October, expected 1.0% versus 0.0% prior, for clear directions.

Also read: US October Retail Sales Preview: US Dollar unlikely to find reprieve

Technical analysis

The 100-DMA challenges AUDUSD bears around 0.6700 and hence the pair’s further downside appears limited. Alternatively, September’s high near 0.6920 is the key hurdle to the north.

• USDJPY has picked bids around 139.00 as Russia-Poland tensions have underpinned risk-off mood.
• S&P500 futures have displayed a significant drop in Tokyo after a volatile Tuesday.
• Polish President sees Russian military activity as a one-time incident and no indications of a repeat ahead.

The USDJPY pair has sensed buying interest after a marginal drop to near 139.00 in the Tokyo session. On Tuesday, the asset witnessed a power-pack responsive buying action after testing the previous week’s low around 138.30. Negative market sentiment was triggered as Russian military attacks expanded to NATO-member Poland after invading Kyiv.

This led to a solid recovery in the US dollar index (DXY) as investors hid behind safe-appeal to safeguard themselves from sheer volatility. The mighty DXY picked bids after registering a fresh three-month low of around 105.35.

Further development on Russia-Poland tensions will provide fresh impetus to the market participants. Meanwhile, Polish President Andrzej Duda has cited that what happened was a one-off incident, adding that there were no indications that there will be a repeat of today's incident. The risk-off tone has not eased yet as the Poland administration has also scheduled a meeting with NATO ambassadors.

S&P500 futures are displaying losses in Tokyo after a wild gyration on Tuesday. It seems that geopolitical tensions are weighing on the 500-stock basket. Also, the release of the US Retail Sales will keep the index futures on the tenterhooks. According to the preliminary estimates, the economic data will improve to 0.9% vs. the former release of 0%. Robust demand in times of accelerating interest rates and a decline in the inflation rate in October could delight the DXY.

On the Tokyo front, the hangover of a contraction in Gross Domestic Product (GDP) is expected to keep the Japanese yen dozy.  The GDP contracted by 0.3% in the third quarter vs. the expectation of an expansion of 0.3%.

• GBPUSD remains sidelined after reversing from a three-month high.
• A multi-day-old resistance line challenge buyer amid nearly overbought RSI.
• Sellers need validation from 61.8% Fibonacci retracement level, 100-DMA.
• 200-DMA, highs marked in August act as extra upside filters.

GBPUSD bulls run out of steam as traders await the key UK inflation numbers during early Wednesday. While portraying the sentiment among the Cable pair traders, the quote retreats from a downward-sloping resistance line from June 15 amid a nearly overbought RSI.

It’s worth noting, however, that the MACD conditions are still bullish as the quote trades successfully beyond the 100-DMA.

Hence, the anticipated pullback could aim for the 61.8% Fibonacci retracement level of the pair’s May-September downturn, around 1.1785, but may struggle to conquer the 100-DMA level surrounding 1.1650.

Should the GBPUSD bears manage to smash the key moving average support near 1.1650, also comprising the previous monthly high, the prices may drop towards a seven-week-old support line, close to 1.1390 by the press time.

Alternatively, an upside clearance of the aforementioned resistance line from June, close to 1.2030, restricts the GBPUSD pair’s short-term advances.

Following that, the 200-DMA hurdle near 1.2240 and the August month high near 1.2280 can challenge the buyers before directing them to the May 27 high of 1.2666.

To sum up, GBPUSD teases sellers ahead of the key data but the road to the south is long and bumpy.

GBPUSD: Daily chart

Trend: Pullback expected

• Bulls look for a break of 1.0350 on a closing basis on the daily chart
• A break below 1.0200 will be needed to bring back sellers.

Further to a prior analysis conducted at the start of the month, EUR/USD Price Analysis: Bull and bears go head to head at critical trendline support, the euro has continued higher as forecasted:

Prior analysis

It was stated that the M-pattern's last leg was relatively short compared to the front side of the formation so it was expected to see the price extend lower to test 0.9700 as strong support prior to the move higher.

EURUSD, update

The price completed the downside and made a reversion through the M-formation and beyond the 1.0200 resistance:

On the weekly chart, the price is meeting a key level as per the prior weekly lows that meet the dynamic resistance of the bearish trend. While on the front side of the trendline resistance, the bias is to the downside still. However, a break of 1.0350 on a closing basis on the daily chart could result in a bullish continuation beyond 1.0600. A break below 1.0200 will be needed to bring back sellers.

• EURGBP is expected to test the 0.8700 cushion amid escalating Russia-Poland tensions.
• The speech from ECB Lagarde will dictate the likely monetary policy action ahead.
• Bifurcation of tax hikes and spending cuts to cover a debt of GBP 60bln in the Autumn Statement will be keenly watched.

The EURGBP pair has turned back-and-forth in a 0.8720-0.8740 range in early Tokyo after a perpendicular decline from the round-level resistance of 0.8800. The cross is expected to resume its downside journey and may find an intermediate cushion around 0.8700 amid escalating geopolitical tensions.

The sentiment of Eurozone investors has been dented as Russia expanded its military activity to NATO-member Poland after crippling Ukraine. Investors need fresh impetus for further action and the outcome of the NATO ambassadors meeting called by Poland will provide the same. Further escalation in geopolitical tensions may accelerate supply chain disruptions in the trading bloc.

Apart from that, the speech from European Central Bank (ECB) President Christine Lagarde will remain in focus. ECB President is expected to provide cues about the likely monetary policy action ahead. Also, guidance on inflationary pressures will be of utmost importance.

On the UK front, the release of the inflation data and dictation of the first Autumn Statement under the leadership of Prime Minister Rishi Sunak and Chancellor Jeremy Hunt will be of utmost importance.

The headline Consumer Price Index (CPI) is seen extremely higher at 10.7% vs. the prior release of 10.1%. While the core CPI that excludes oil and food prices may decline marginally to 6.4% against the former release of 6.5%.

For Autumn Budget, investors will focus on the bifurcation of tax hikes and spending cuts to meet the GBP 60bln fiscal hole. Treasury sources told Sky News the financial "black hole" could be as large as £60bn - which may require up to £35bn of spending cuts and an extra £25bn raised through taxation. Also, cap figure for energy bills will be of significant importance.

• US Dollar Index picks up bids to defend the latest recovery from the lowest levels since August.
• Russian missile struck a NATO member Poland and escalated war fears.
• Softer US data, risk-on mood previous favored DXY bears.
• Downbeat prints of US Retail Sales for October could weigh on prices amid talks of Fed’s pivot.

US Dollar Index (DXY) holds onto the late Tuesday’s rebound near 106.50, picking up bids from the intraday low, amid a risk-off mood during Wednesday’s Asian session. That said, headlines surrounding Russia and the market’s cautious sentiment ahead of the US Retail Sales for October appear to push back the bears around a three-month low.

Russia’s missiles struck Poland, a North Atlantic Treaty Organization (NATO) nation, and triggered fresh fears of war between Moscow and the West. Following that hit, global leaders criticized Moscow’s attempt and the NATO ambassadors called for an emergency meeting even if Russia's Defense Ministry denied claims of striking Poland.

Recently, Polish President Andrzej Duda told reporters, per Reuters, “Poland has no concrete evidence showing who fired the missile that caused an explosion in a village near the Ukrainian border.” The policymaker also added that it is very likely that they will activate NATO’s Article 4 on Wednesday

Previously, the downbeat print of the US Producer Price Index (PPI) for October, to 8.0% YoY versus market forecasts of 8.3% and the downwardly revised prior of 8.4%, favored DXY bears despite firmer prints of the Federal Reserve Bank of New York's Empire State Manufacturing Index for the said month. The reason could be linked to the comments from the Federal Reserve officials suggesting easy rate hikes going forward.

Additionally, an absence of major negatives from the Group of 20 Nations (G20) meeting in Indonesia and China’s readiness for more stimulus also exerted downside pressure on the US Dollar Index in recent days.

Amid these plays, Wall Street pared initial gains and the US Treasury yields rebounded from the intraday low. That said, the S&P 500 Futures print mild losses by the press time.

Looking forward, headlines from the NATO meeting will be important for the DXY. US Retail Sales for October, expected 1.0% versus 0.0% prior, will be more important considering the growing chatters of the Federal Reserve’s (Fed) pivot.

Technical analysis

Although the 200-DMA defends DXY bulls around 105.80, the recovery moves need validation from the previous support line from January, around 107.00 by the press time.