CFD Markets News and Forecasts — 22-10-2021

• BoE's Chief Economist Huw Pill: Inflation in the UK could top 5%.
• Brexit: The EU could terminate the post-Brexit trade deal with the UK.
• EUR/GBP: The 1-hour chart depicts the pair is tilted to the upside, confirmed by RSI at 63.50 and aiming higher.

The EUR/GBP edges higher as the New York session progresses, gains almost half percent, trading at 0.8461 during the day at the time of writing. In the Asian session, the pair reached the day's lows, around 0.8420, as the Bank of England Chief Economist Huw Pill said UK inflation could hit 5%.

In an interview with the Financial Times, Huw Pill said that he would not be surprised if the BoE saw an inflation print close to or above 5% in the following months.  Pill added that for a central bank with an inflation target of 2%, a 5% reading would be "very uncomfortable."

Huw Pill's comments are much in line with the BoE Governor Andrew Bailey, which said on Sunday that if rising inflation is stickier than expected, the bank "will have to act" to contain upside risks.

Brexit: The EU could terminate the post-Brexit trade deal with the UK

According to Bloomberg, the EU could end the post-Brexit trade deal with the UK.

Both sides are under intense negotiations after the EU offers some proposals like reducing or slashing inspections between the two territories and easing imports of goods, including meats, sausages, and medicines.

Despite that offer, what the UK wants is the removal of the oversight of the European Court of Justice from Northern Ireland.

"Should the UK stick to its position that the top EU court should have no role in Northern Ireland's trade affairs, then a deal is unlikely, one of the people said."

Once the news hit the wires, the GBP/USD plunged to 1.3736 after the report.

On the macroeconomic front, the Eurozone docket featured the IHS Markit PMI's for October. The German PMI Manufacturing PMI rose to 58.2 versus a 56.5, foreseen, contrary to the Services PMI, which increased to 52.4 lower than the 55 estimated. The Markit PMI Composite, which considers both readings, was at 52, lower than the 54 expected.

Meanwhile, the UK economic docket unveiled the Retail Sales for September, which shrank 0.6% on a monthly basis, worse than the 0.2% expansion expected by analysts. Moreover, the annual figure collapsed 2.6% versus a -1.7% estimated by investors.

EUR/GBP Price Forecast: Technical outlook

In the 1-hour chart, the EUR/GBP pair trades above the 1-hour simple moving averages (H-SMA's), closing to the October 20 high at 0.8460. Around that level lies the R3 pivot point at 0.8462. In the outcome of an upside break, the first resistance level would be the October 15 high at 0.8486. If the pair has enough legs to extend the upward move, the next resistance would be the October 13 high at 0.8497.

Momentum indicator like the Relative Strength Index (RSI) is at 63.50, aiming higher, indicating the EUR/GBP pair has enough room for another leg-up before reaching overbought levels.

• WTI futures pare losses and return near multi-year highs at $83.95.
• Oil prices consolidate after a six-week rally.

Front-month WTI futures have bounced up at $82.50, regaining previous losses to return to levels near multi-year highs at $83.95. On a broader picture, however, crude prices remain within previous ranges, consolidating after a nine-week rally.

Oil’s rally stalls on renewed COVID-19 fears

Oil prices retreated earlier today as the German Chancellor, Angela Merkel, and Federal Reserve’s Chairman, Jerome Powell, warned about demand disruptions if COVID-19 infections reemerge. The surge of coronavirus cases registered in China and Russia has raised concerns that the pandemic might not be over yet.

Furthermore, the Baker Hughes report has shown the first decline in oil rigs in the last seven weeks. The amount of US rigs drilling for oil declined to 443 this week, from 445 on the previous one, while natural gas fell by one to 542, according to the report.

On Thursday, a report released by the National Oceanic And Atmospheric Administration revealed that the next winter is expected to be warmer than the average in the US, which added negative pressure to crude futures.

WTI prices consolidate below $84.00

Crude prices have remained trading rangebound between 80.75 and 83.90 for most of the week, consolidating after having surged more than 35% over the last two months. On the upside, a clear move above $83.95 might open the path towards the 90.00 psychological area.

On the downside, immediate support lies at intra-day level $82.50 and $81.50 (October 22 low) ahead of October 20 and 21lows at $80.80.

Technical levels to watch

• Wall Street main indices drop between 0.23% and 0.98%, except for the Dow Jones up 0.18%.
• Fed Chairman Powell, concerned about high inflation.
• Communications and Construction drag the S&P 500 down.

The S&P 500 shed previous daily gains, drops 0.12%, sits at 4,544.36, as Fed’s Chairman Jerome Powell admits that the central banks monitor price pressures carefully and would act as required.

As the S&P500 cash market opened, the market sentiment was upbeat, with the three major US equity indices, the S&P 500, the Dow Jones Industrial, and the Nasdaq, were in the green. But as Fed Chairman Jerome Powell began his speech, conditions changed. At press time, the abovementioned indices record losses between 0.23% and 0.98%, except for the Dow Jones Industrial, up 0.18%.

The sectors of the $&P 500 which lose the most are the Communications followed by Construction, recording losses of 2.61% and 0.46%, respectively. Whereas the winners are Financials up some 1.27% and Real Estate gaining 0.74%, which lie on the back of higher US T-bond yields.

Fed Chairman Powell, concerned about high inflation

The Federal Reserve Chairman Jerome Powell said he is concerned about higher inflation and added that the central bank would monitor for signals that housholds and businesses are expecting sustained upward price pressures.

Powell added that the Fed is on track to begin the taper, and if the economy evolves as they (the Fed) expected, it will be completed by the first half of 2022. He reiterated that although he favors the timing of the QE reduction, he added, “I don’t think it is time to raise rates.”

S&P 500 Daily chart

• US dollar recovery attempts capped at 0.9170.
• The dollar remains bid as Fed tightening expectations fade.
• USD/CHF: Expected to drop towards 0.9081– Commerzbank.

The US dollar has attempted to bounce up from six-week lows at 0.9120, following a three-week decline from levels above 0.9300. The pair, however, has lacked follow-through, with the 0.9170 resistance area keeping upside attempts on hold.

The Swiss franc strengthens amid a risk-off mood

The greenback has failed to perform a significant recovery on Friday and is on track to close a three-week decline, with the Swiss franc favored by the risk-off market mood. Concerns about inflation and the supply chain bottlenecks have returned to the spotlight, with expectations about Fed rate hikes fading.

Federal Reserve Chairman, Jerome Powell has provided some support for the USD in a virtual appearance, confirming the bank’s commitment to start reducing bond purchases. The dollar’s reaction, however, has been limited, with nothing new coming out of the speech, as Powell downplayed the possibility of interest rate hikes in the coming months.

USD/CHF expected to depreciate further, aiming 0.9081 – Credit Suisse

From a technical perspective, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, sees the pair in a broader downside trend, heading to levels below 0.9100: USD/CHF is vulnerable near-term, it is under pressure and we would allow for further losses (…) It is possible that this is only an ABC correction but intraday Elliott wave counts remain negative and we suspect that the market will see a deeper sell-off to the 0.9142 200-day ma and potentially the 2020-2021 uptrend at 0.9081.” 

Technical levels to watch

• The pound retreats further from 158.20 highs, reaching levels sub 156.00.
• Sterling's rally loses steam as BoE tightening expectations fade.
• GBP/USD is now testing support at 156.00.

The British pound has depreciated for the second consecutive day on Friday, retreating further from multi-year highs at 158.20, to seek support at 156.00 area. The pair is set to post a 0.6% weekly reversal, after having surged about 4.5% over the previous two weeks.  

GBP loses momentum as BoE hike expectations fade

Pound’s rally has lost steam this week, as the market shifted its focus to the surging inflation and global supply restrictions, with the expectations of earlier than expected rate hikes by the Bank of England taking a backseat. Investors’ hopes that consumer inflation pressures would force the BoE to accelerate its monetary tightening plans have been pushing GBP crosses higher across the board over the last weeks.

Beyond that, news reporting that the EU is weighing to terminate the Brexit deal if the standoff with the UK about the Northern Ireland's border continues, has added negative pressure on the sterling. 

On the macroeconomic front, releases in the UK have been mixed on Friday. Services and manufacturing activity performed better than forecast in September, according to the Markit/CIPS Purchasing Managers’ Indexes, whereas retail consumption contracted beyond expectations, increasing concerns about the impact of the supply crisis on the country’s economic growth.

GBP/JPY: testing support at 156.00

Pound’s reversal has extended to test support at 156.00 (April 21 high). Below here, bearish momentum might gain traction with next potential targets at 155.35 (Intra-day level) and 154.80 (38.2% Fibonacci retracement of October’s rally.

On the upside, a bullish reaction from current levels should extend beyond 156.60/70 (Oct. 18, 21 lows) and retest intra-day highs at 157.60 before setting course towards 158.20 (Oct. 19, 21 highs).

Technical levels to watch

• EUR/USD shed previous daily gains on Fed’s Chairman Powell amid US dollar weakness.
• EUR/USD clingd to its daily wins amid lower US T-bond yields.
• The EUR/USD 1-hour chart depicts the shared currency trading below the 100-SMA, opening the door for a 1.1600 test.

The EUR/USD climbs during the New York session, gaining a minimal 0.03% trading at 1.1627 at the time of writing. During the last couple of hours, the single currency printed a new daily high at 1.1655 but retreated towards 1.1621, on Federal Reserve Chairman Jerome Powell’s remarks.

Powell’s comments dented the market sentiment

Previous to the Fed’s Chairman Powell speech, the market sentiment was upbeat. As he progressed on his speech and through the Q&A session, investors’ mood switched towards a risk-off as portrayed by falling US equity markets. In the meantime, the US Dollar Index, which tracks the buck’s performance versus six rivals, slides 0.11%, currently at 93.66, whereas the US 10-year Treasury yield retraced the upside move to sit at 1.643%, three basis points lower than the open.

Jerome Powell said that the Fed is on track to begin the taper, and if the economy evolves as they (the Fed) expected, it will be completed by the first half of 2022. He reiterated that although he favors the timing of the QE reduction, he added, “I don’t think it is time to raise rates.”

Eurozone and US PMI barely moved the EUR/USD pair

On the macroeconomic front, the Eurozone docket featured the IHS Markit PMI’s for October for France and Germany were mixed, but investors’ main focus was the German figures. The German PMI Manufacturing PMI rose to 58.2 versus a 56.5, foreseen, contrary to the Services PMI, which increased to 52.4 lower than the 55 estimated. The Markit PMI Composite, which considers both of the readings, was at 52, lower than the 54 expected.

Across the pond, the US economic docket unveiled the  IHS Markit PMI for Manufacturing and Services for October, offering mixed figures. The Market Manufacturing PMI increased to 59.2, worse than the 60.3 estimated. Regarding the Markit Services PMI, it rose to 58.2 higher than the 55.1 foreseen.

EUR/USD Price Forecast: Technical outlook

The EUR/USD 1-hour chart depicts that the shared currency remains under intense selling pressure. The high of the day around 1.1655 was severely rejected towards 1.1625, breaking a rising upward slope trendline. At press time, the pair trades beneath the abovementioned and below the 50 and the 100-hour simple moving averages (H-SMA’s), confirming the selling pressure. 

Nevertheless, the pair found support at the Thursday low around 1.1619, but a break below would open the door for a test of the 1.1600 figure.

• Silver dives from $24,85 to $24.20 after Powell's speech.
• Fed Powell confirms QE tapering and demand for metals plunge.
• XAG/USD remains bullish, with the $24,85 resistance area on focus.

Silver futures have pulled back from levels right below two-month highs, at $24.87, retreating to the $24.20 area on the back of the US dollar’s bullish reaction to Fed Powel’s comments.

Metal prices die as Powell confirms QE tapering

Precious metals have turned lower on Friday, to give away previous gains, following Federal Reserve Chairman Powell’s comments in a virtual appearance. Powell has confirmed the bank’s plan to start rolling back bonds purchases but he has played down the idea of accelerating interest rate hikes.

The market reaction has favored the dollar’s recovery, with the USD Index appreciating 0.2% after bouncing up from session lows at 93.50 to 93.75 highs, while Stock markets and precious metals have turned lower.

XAG/USD: remains positive, with $24.85 resistance on focus

Technical indicators remain fairly positive on a broader view, with silver futures likely to retest early September highs at $24.80. If that level gives way, the pair might take a break before aiming towards $25.20 (August 3, 4 lows) and April’s top, at $26.00.

On the downside, immediate support lies at 24.10 (October 21 low) and below here, trendline support from late-September lows, now around $23.40, maintain the positive trend. Below here, bears might gain momentum and pull the pair to $23.00 (October 18 low) and 22.20/35 (October 6 and 12 lows).

Technical levels to watch

• Gold drops $30 on Powell's comments to $1,780.
• Powell confirms Fed tapering plans and sents gold plunging.
• XAU/USD’s dives to test support at $1.770/80.

Gold futures have reversed course on Friday’s US trading session. The yellow metal has lost about $30 in a matter of minutes, retreating from six-week highs at $1,813 to $1,780 on the back of Fed Powell’s speech.

Powell’s confirms QE tapering and gold plunges

Bullion has lost most of the ground gained earlier today, weighed by the US dollar’s bullish reaction to Federal Reserve chairman Powell’s words. Powell has reaffirmed the bank’s plan to start reducing its bond’s purchases and has played down the possibility of an interest rate hike in the coming months. The market reaction has favoured the dollar’s recovery, weighing on stock markets and commodities.  

Gold prices had appreciated about 1% previously, favoured by increasing concerns about the persistently high inflation. Buoyed by its status as a traditional hedge against inflation pressures and a broad-based US dollar correction, the yellow metal was on track to post its best weekly performance in the last months.

XAU/USD’s reversal tests support at $1.770/80

Gold’s reversal has been contained at $1.770/80 previous resistance area. Below here bears might gain traction and send the pair towards $1,745 (October 6 low) before facing a key support area at $1,725 (September 29, 30 low).

On the upside, immediate resistance will be now at $1,807/10 (Sept. 15 high/Intra-day high) ahead of September’s peak. At $1.830 and 1,865 (Jun. 15 high).

Technical levels to watch

• AUD/USD fell in the last hour 40 pips as Fed’s Chairman Powell speaks.
• The market sentiment worsened, witnessed by US stocks falling on the back of Fed’s Powell.
• Powell speech: High inflation will likely last well into next year.

The AUD/USD retreats from daily highs around 0.7511, slides 0.07% during the New York session is trading at 0.7454 at the time of writing. The pair shed 40 pips in the last hour as Federal Reserve Chairman Jerome Powell hit the wires.

Powell speech: High inflation will likely last well into next year

On Friday, according to Reuters, Chairman Powell said that high inflation would likely last well into next year but added that they still expect it to move back down toward their 2% goal.

Furthermore, he added that “If we see persistent inflation, we would use our tools.” Concerning the labor market, he said that job growth could move back to higher levels witnessed the last summer, but it could take longer than the Fed thought.

Risk-off mood spurred by Fed’s Powell

Meanwhile, the market mood dampened as the New York session progressed. Major US equity markets lose between 0.19% and 1.14%, at press time, while the US Dollar Index edges lower 0.07%, sits at 93.71, following the US T-bond yields footsteps, with the 10-year yield dropping one a half basis point, currently at 1.662%.

AUD/USD Price Forecast: Technical outlook

The AUD/USD 1-hour chart depicts the pair briefly broke below Thursday low (0.7457), but at press time, the pair is at 0.7462, closing to the Friday’s open, but below the 100-simple moving average (SMA) at 0.7476, which could act as resistance. 

For AUD/USD sellers, they would need a sustained break below 0.7453, so they could challenge the confluence of the S1 pivot point and the 200-SMA around 0.7433.

On the flip side, buyers will need to reclaim the 100-SMA. In that outcome, a challenge towards the daily pivot point at 0.7489, followed by the  0.7500 figure, is on the cards.

The Central Bank of Russia (CBR) rose the key interest rate by 75bps on Friday, to 7.5% surprising market participants. Market consensus was for a 25bps hike. Analysts at TD Securities now forecast a 50bps rate hike in December. They consider an increase of 25bps or 75bps are equally likely.

Key Quotes: 

“The CBR signaled that more hikes are possible and, we think, likely. With one more meeting left in 2021 (17 Dec), the key decision will be whether the CBR can hike by 25bps, 50bps or more. The CBR also published today its medium-term macroeconomic forecasts that project the average key rate in the 7.5-7.7% range for the remainder of the year. The range widens to 7.3%-8.3% in 2022. A hold looks increasingly unlikely in December, so we will focus on tightening scenarios only.”

“We now forecast a further 50bps hike in December with the key rate at 8% by year-end. A hike of 25bps or 75bps are equally likely, but with lower probability than our baseline forecast. The key rate should further rise to 8.50% by March 2022, while easing can start in September to end 2022 at 7.50%.”

“The CBR has been one of the most hawkish central banks globally since March 2021. As a result, USDRUB trades over 8% lower since the start of 2021. Going forward, we continue to like RUB and Russian assets vs USD due to continued strong fundamentals. We also like RUB vs TRY due to diverging policy paths.”

• US dollar jumps across the board following Fed Chair Powell comments.
• USD/CAD rose to test the 1.2380 resistance area.

The USD/CAD climbed from 1.2350 to 1.2383, matching Thursday’s high. The pair remains near the high, with a strong bullish impulse. A break higher would clear the way for a test of 1.2400.

A stronger US dollar across the board has been the critical driver in USD/CAD. Fed Chair Powell mentioned that high inflation will likely last well into next year. He affirmed that it is the time to taper QE but not to raise rates. US stocks turned negative after Powell’s comments and commodities reversed sharply.

The USD/CAD faces a key barrier around 1.2400/10. If it breaks higher it could clear the way to more gains. Analysts at ING see the rally in CAD looking quite tired. “We expect to see more support in USD/CAD around the 1.2300 level. Most of the positives (BoC tightening, solid economic recovery, higher energy prices) appear in the price and our short-term fair value model currently shows a 1.5% undervaluation in USD/CAD.”

A key event next week will be the Bank of Canada meeting. At ING, they do expect the central bank to deliver another round of tapering “but that is a move that is likely fully priced in.” They see the balance of risks clearly tilted to the upside for USD/CAD next week. “August GDP data released two days after the BoC meeting may provide only a small help to CAD.”

Technical levels

• The dollar remains bid and reaches one-week lows near 113.50.
• Profit-taking hurts the USD as Fed tightening expectations wane.
• USD/JPY ready to extend gains beyond 115.00.

The US dollar is heading lower on Friday, extending its reversal from multi-year highs at 114.70 to session lows right above 113.55. The greenback is on track to post its first negative weekly performance since late August.

The US dollar dips as Fed tightening expectations wane

Investors’ expectations that the Federal Reserve would lead the world’s major central banks on the monetary policy normalization path, which had been boosting the US dollar over the last two months, have faded into the background, denting demand for the USD.

The market has been repricing monetary tightening expectations, as other central banks, like the BoE or the BoC, have started to anticipate the possibility of hiking rates to tackle inflation pressures.

Furthermore, profit-taking might also be responsible, at least in part, for the current dollar weakness. With the USD Index reaching one-year highs against its main rivals last week, some investors might have closed long positions.

The broader picture, however, remains fairly supportive of the greenback, with the yen hampered by an adverse monetary policy differential. The Federal Reserve is about to start rolling back its monetary stimulus program and will probably start hinting towards interest rate hikes in mid-2022. With the BoJ still immerse in an ultra-expansive policy and maintaining a yield control curve, the widening gap between the US and Japanese yields will remain clearly favorable for the USD.

USD/JPY: Seen appreciating beyond 115.00 – ING

According to the FX Analysis team at the ING Bank, the current reversal is just a corrective reaction ahead of further appreciation: “On USD/JPY, we do not want to miss out on a big upmove through 115.00. We have a conviction call that the Fed will have to turn more hawkish – USD positive against the low-yielders (…) We are very bullish on USD/JPY and see the correction finding support somewhere in the 113.20/70 area.” 

Technical levels to watch

Data released on Friday showed an increase in August retail sales in Canada of 2.1%, slightly above the 2% expected. For September preliminary data points to a contraction. According to analysts at CIBC markets won't take much joy in the August increase in retail sales, with the flash estimate of September looking weaker than anticipated and coming alongside a similarly disappointing manufacturing print for that month.

Key Quotes: 

“Retail sales roared back in August, but then took another breather in September. With a yo-yo in sales continuing into the end of the third quarter, the level of sales in September was back where it stood in June and July. That said, while goods sales continued to be plagued by the global semiconductor shortage, the employment data suggested that services sectors appeared to be gaining strength heading into the end of the quarter. As a result, we continue to expect that the economy was able to continue to soak up more slack in September.”

“Statistics Canada's flash estimate of September retail sales revealed an ugly 1.9% retreat after the rebound in August. The separately-released sneak peak of manufacturing sales for the same month showed a similarly dreadful drop of 3.2%. Both, appear to have been impacted by the supply crunch in the auto sector, with the factory report directly referencing the transportation equipment industry as the main source of weakness.”

“The ugly flash readings for retail sales and manufacturing will dent our previously heady GDP forecast for the month. However, while goods sectors were plagued by supply chain challenges, according to the Labour Force Survey data, activity across a range of services sectors was increasing. The federal election would have helped GDP during the month too. As a result, we're still comfortable forecasting that the economy expanded by roughly 0.5% during the month.”

Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, said on Friday that he thinks that it is the time to start reducing asset purchases but added it's not time to raise rates yet, as reported by Reuters.

Additional takeaways

"Risks are clearly to longer, more persistent bottlenecks, and thus to higher inflation."

Our policy is well-positioned to manage a range of outcomes."

"We need to watch carefully to see whether the economy is evolving with our expectations and adapt accordingly."

Market reaction

The US Dollar Index edged slightly higher after these comments and was last seen losing 0.07% on the day at 93.68.

• GBP/USD broke below 1.3800 on weaker than expected UK Retail Sales.
• The market sentiment is positive, but the British pound failed to capitalize on its risk-sensitive status.
• Investors’ focus turns to the Fed Chairman Jerome Powell, who is on the wires, 

The GBP/USD slides for the second day in a row, down 0.18%, trading at 1.3768 during the New York session at the time of writing. Worse than expected, UK retail sales data pushed the pair towards the Thursday low at 1.3776 but bounced off, failing to break above the 1.3800 figure.

The market sentiment is upbeat, with the US S&P 500 printing new all-time highs, while other major US equity indices rise between 0.17% and 0.33%, except for the Nasdaq Composite, which falls 0.36%.

The GBP could not extend its rally beyond 1.3800 amid risk-on market sentiment and dollar weakness

The British pound failed to capitalize on favorable market sentiment amid US dollar weakness across the board. The US Dollar Index, which tracks the greenback’s performance against a basket of its peers, drops 0.20%, sits at 93.58, underpinned by falling yields, for the first time in the week, losing one basis point, currently at 1.658% after touching a weekly high of around 1.70%. 

On the macroeconomic front, the UK docket featured the Retail Sales for September, which shrank 0.6% on a monthly basis, worse than the 0.2% expansion expected by analysts. Furthermore, the annual figure collapsed 2.6% versus a -1.7% estimated by investors. According to the Office of National Statistics, people reduce their spending in household hood stores (-9.3%), such as furniture and lighting stores, which was the driver for the fall in the figure.

Moving onto more UK economic data, the IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) unexpectedly improved to 57.7 in October versus 55.8 expected and 57.1 – September’s final reading. Traders lifted the GBP/USD pair on the news, bounced off the day’s lows, and briefly broke the 1.3800 figure.

Across the pond, the US economic docket unveiled the  IHS Markit PMI for Manufacturing and Services for October, offering mixed figures. The Market Manufacturing PMI rose to 59.2, lower than the 60.3 estimated. Regarding the Markit Services PMI, it grew to 58.2 higher than the 55.1 foreseen.

The Federal Reserve Chairman Jerome Powell is on the wires. Investors’ focus turns to the Fed Chairman’s words, expecting hints or clues about bond tapering, monetary policy, or inflation.

GBP/USD Price Forecast: Technical outlook

The 1-hour chart depicts the pair is trading briefly above the Thursday lows (1.3775) as Jerome Powell takes center stage. In case of some hawkish remarks, the Wednesday low at 1.3742, followed by the Tuesday low at 1.3720, would be support levels for US dollar buys, to account for them. To the upside, the 1.3800 figure, followed by the weekly high around 1.3838, are resistance levels for GBP/USD traders.
 

Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, said on Friday that high inflation will likely last well into next year but added that they still expect it to move back down toward their 2% goal, per Reuters.

Additional takeaways

"Supply bottlenecks are still weighing."

"Cannot rule out another COVID spike this winter."

"I think job growth will move back to high levels of last summer, but could take longer than we thought."

"Fed tools don't do much for supply constraints."

"Supply-side constraints have gotten worse in some cases recently."

"If we see persistent inflation, we would use our tools."

"We need to make sure our policy is positioned for a range of outcomes."

Next week, will be the European Central Bank (ECB) meeting. According to analysts at MUFG Bank the central bank is set to dent any upside potential for EUR/USD. They see Lagarde pushing back aggressively on market pricing, consistent with the new monetary strategy.

Key Quotes:

“One highlight of this week has been the resignation of Jens Weidmann from the ECB two years into his second eight-year term, citing personal reasons. While it is easy to dismiss this or even conclude it as being a dovish development with a hawk set to be replaced, the event could well be an indication of the scale of opposition building to the ECB’s current monetary stance. However, we do not expect possible building opposition to be on show next week and expect President Lagarde to push back strongly against the recent shift in rate expectations.”

“Lagarde is also going to have added justification given the increased evidence that supply constraints are curtailing economic activity. While the advance manufacturing PMI picked up in October, the services component was much weaker than expected, suggesting the energy price spike could be starting to impact sentiment on the consumer side.”

“The dollar remains under downward pressure with global risk appetite improving. The avoidance of default in China could see this momentum continue but we do not see much upside for EUR/USD given the ECB’s message is unlikely to be supportive.”

• Metals are rising sharply, amid risk appetite, a weaker dollar and a retreat in US yields.
• XAU/USD testing the $1810 resistance area.
• Price heads for a weekly close above the 20-week moving average.

Gold is rising sharply on Friday, extending weekly gains. The ounce gains more than $20 and recently reached at $1812, the highest level since mid-September. It remains near the top, with the bullish momentum intact.

Metals are posting important gains on Friday. The rally is being reinforced by a correction of the US dollar and a modest recovery in US bonds. The 10-year yields pulled back to 1.65% from 1.69%. Stocks in the US are mixed but off lows, also helping commodities.

Levels to watch

If XAU/USD holds firms above $1811 it could clear the way to additional gains, targeting the $1820 level. Above attention would turn to the critical resistance band at $1830/35 (July, August and September highs) that if broken, would strengthen then medium-term outlook.

On the flip side, a slide under $1800 would alleviate the bullish pressure while under 1790$ should warn about a potential reversal.

Technical levels

The Norwegian krone has benefitted from a supportive global risk sentiment throughout the week. In the week ahead, economists at ING think the NOK rally may pause.

Time for a breather in EUR/NOK

“The krone is already scoring as quite expensive against both the EUR and the USD according to our short-term fair value model.”

“While some other overvalued currencies will face a catalyst for a potential correction next week (like CAD with the BoC meeting), for NOK to give up gains we would likely need to see a deterioration in risk sentiment and/or a drop in oil prices.”

“October unemployment data out of Norway should have limited impact – we expect EUR/NOK to gravitate around 9.70 in the week ahead.”

The Bank of Canada (BoC) meeting week might prove to be a catalyst for an upside correction in USD/CAD, in the view of economists at ING. They suspect that the BoC may fall short of explicitly endorsing the current market pricing.

BoC to taper, but may fall short of aggressive tightening expectations

“The rally in CAD is looking quite tired, and we expect to see more support in USD/CAD around the 1.2300 level.”

“We do expect the BoC to deliver another round of tapering – cutting weekly purchases from CAD2 B to CAD1 B – but that is a move that is likely fully priced in. The main market focus will be on the forward-looking language, and here we suspect that the Bank may simply reiterate they expect the first hike in 2H22, hence falling short of the market’s aggressive tightening expectations.” 

“With the USD correction now past us, we see the balance of risks clearly tilted to the upside for USD/CAD next week.” 

“August GDP data released two days after the BoC meeting may provide only a small help to CAD.”

Australian policymakers are not turning any less dovish. In the week ahead, AUD will face the test of 3Q CPI data out of Australia. Softening price pressures are set to underpin the Reserve Bank of Australia’s (RBA) dovish stance, weighing on the pound, economists at ING report.

Decelerating inflation to argue in favour of RBA dovishness

“The Reserve Bank of Australia intervened for AUD1 B on Friday to defend its 0.10% yield target on the April 2024 government security.”

“The Evergrande story in China appears to have taken a less concerning path, and this is clearly benefitting the highly exposed AUD. Still, we think there were indications that the market had already turned quite relaxed on the impact of the Evergrande debt crisis, and it seems hard to see any more significant upside room for AUD on the back of this story.”

“Markets are widely expecting a deceleration from the 3.8% 2Q figure as covid restrictions generated some deflationary pressures in late summer. Anyway, decreasing price pressures should all but underpin the RBA’s dovish stance and we think the release may prompt some re-pricing of tightening expectations (40bp priced in for the next year) and weigh on AUD.”

• Markit Services PMI and Composite PMI surpassed expectations in October.
• US Dollar Index continues to push lower toward 93.50.

The business activity in the US service sector expanded at a more robust pace than expected in early October with IHS Markit's Services PMI rising to 58.2 (preliminary) from 54.9 in September. This reading surpassed analysts' estimate of 55.1.

Meanwhile, the Composite PMI improved to 57.3 from 55 and came in better than the market consensus of 54.7.

Commenting on the data, "October saw resurgent service sector activity as COVID-19 case numbers continued to fall, marking an encouragingly strong start to the fourth quarter for the economy," said Chris Williamson, Chief Business Economist at IHS Markit. "Hiring has likewise picked up as firms have been encouraged to expand capacity to meet rising demand." 

Market reaction

The US Dollar Index edges lower after this report and was last seen losing 0.2% on the day at 93.57.

• EUR/USD stays firm on the back of dollar weakness.
• EMU, German flash Manufacturing PMI surprised to the upside,
• US advanced Manufacturing PMI disappoints in October.

The persevering selling pressure in the greenback helps EUR/USD advancing to the area of daily highs near 1.1650 on Friday.

EUR/USD closes its second straight week with gains

EUR/USD keeps the recovery from last week’s YTD lows well and sound for the time being, advancing for the second week in a row albeit with gains limited around 1.1670.

The improved sentiment in the risk complex weighed on the buck in spite of the recent move higher in US yields, where the front end climbed to levels last traded in March 2020 around 0.48% (October 21) and the 10y reference briefly tested 1.70% for the first time since April.

In the docket, preliminary PMIs in the core euro area (Germany, France and the bloc as a whole) are seen rebounding in October, while the US Manufacturing PMI is expected to ease to 59.2 in the current month (from 60.7) and the Services PMI is predicted to improve to 58.2 (from 54.9).

EUR/USD levels to watch

So far, spot is gaining 0.20% at 1.1645 and faces the next up barrier at 1.1669 (monthly high Oct.19) followed by 1.1709 (55-day SMA) and finally 1.1755 (weekly high Sep.22). On the other hand, a break below 1.1602 (20-day SMA) would target 1.1571 (low Oct.18) en route to 1.1524 (2021 low Oct.12).

• US Markit Manufacturing PMI declined slightly in October's flash estimate.
• US Dollar Index stays in the negative territory after the data.

The economic activity in the US manufacturing sector continued to expand in October, albeit at a slightly slower pace than it did in September, with IHS Markit's Manufacturing PMI declining to 59.2 (preliminary) from 60.7. This reading missed the market expectation of 60.3.

Commenting on the data, "while manufacturers also continue to report strong demand, factory production remains plagued by constraints, including record supply chain bottlenecks and labor shortages," noted Chris Williamson, Chief Business Economist at IHS Markit."Prices paid by factories for raw materials rose at yet another new record pace as a result."

Market reaction

The greenback remains on the back foot after this data and the US Dollar Index was last seen losing 0.17% on the day at 93.60.

• Wall Street's main indexes trade mixed on Friday.
• Falling technology stocks weigh on Nasdaq ahead of the weekend.

Major equity indexes started the last day of the week mixed amid varying performances of major sectors. As of writing, the S&P 500 was virtually unchanged on the day at 4,549, the Dow Jones Industrial Average was up 0.15% at 35,657 and the Nasdaq Composite was down 0.3% at 15,168.

Pressured by the large losses witnessed in Twitter Inc and Facebook shares, the Communication Services Index is down more than 1% after the opening bell. On the other hand, the Financials Index is rising 0.8% as the best-performing sector in the early trade.

Later in the session, FOMC Chairman Jerome Powell will be speaking at a panel discussion on monetary challenges in the wake of COVID. The IHS Markit will release the preliminary Services and Manufacturing PMIs as well.

S&P 500 chart (daily)

The USD/JPY rally has taken a breather over the last week after some strong gains. The highlight of the week ahead will be Thursday’s Bank of Japan meeting where a fresh update on the Outlook for Activity and prices will be published. Economists at ING stay bullish and see substantial gains to the 115.00 level.

Big update from the BoJ

“Back in July, the BoJ had forecast CPI at 0.6%, 0.9% and 1.0% in FY21-23 respectively. We doubt there will be any substantial upward revisions which will prompt a re-pricing of the typically super-dovish BoJ policy cycle.”

“On USD/JPY, we do not want to miss out on a big upmove through 115.00. We have a conviction call that the Fed will have to turn more hawkish – USD positive against the low-yielders.”

“We are very bullish on USD/JPY and see the correction finding support somewhere in the 113.20/70 area.” 

The CAD has steadied and regained a little ground after closing weakly against the USD on Thursday. Analysts at Scotiabank expect the USD/CAD to test the 1.230 support with a break below here to expose key support at 1.2288.

Resistance seen at 1.2385

“There is a high degree of bearish momentum still evident in the short-term (intraday and daily) DMI oscillators and this is impeding the USD’s recovery potential at the moment.”

“Intraday selling pressure has been fairly steady and may test intraday support at 1.2320. Weakness below here should see another run towards to figure and now key support at 1.2288, yesterday’s low.”

“Resistance is 1.2385.”

• USD/TRY pushes higher and advances to the 9.6500 region.
• The lira extends the rout after the CBRT’s interest rate cut.
• The Turkish currency already loses nearly 15% since September.

The selling pressure around the Turkish lira picks up renewed pace and pushes USD/TRY to another all-time high past 9.6500 on Friday.

USD/TRY higher as investors flee the lira

USD/TRY advances for the second session in a row and trades just below the earlier fresh record high above 9.6500 as market participants intensify the exodus from the Turkish currency.

Indeed, there seems to be no respite for the downside pressure hitting the lira after the Turkish central bank (CBRT) caught everybody off guard and cut the One-Week Repo Rate by a shocking two full percentage points at its meeting on Thursday.

The lira sheds already nearly 14% since September and around 25% since President Erdogan removed former CBRT Governor N.Agbal in mid-March, soon after he hiked rates to 19.00%. In the bond market, yields of the Turkish reference 10y bond climb to levels last seen in May 2019 past 19.50% so far.

USD/TRY key levels

So far, the pair is up 0.98% at 9.5953 and a drop below 9.2475 (10-day SMA) would aim for 9.0599 (20-day SMA) and finally 8.8317 (monthly low Oct.4). On the other hand, the next up barrier lines up at 9.6583 (all-time high Oct.22) followed by 10.0000 and then… the moon?

• EUR/USD resumes the upside around 1.1640 on Friday.
• Extra gains are likely if 1.1670 is cleared (in the near term).

Bulls retake the upper hand and encourage EUR/USD to regain the upside traction and the 1.1640 zone at the end of the week.

If this area if cleared – ideally in the very near term - then the pair could attempt to take out the round level at 1.1700 ahead of the interim hurdle at the 55-day SMA, today at 1.1709. Further north comes the short-term resistance line near 1.1730. A breakout of the latter should see the selling pressure mitigated and therefore allow for extra gains to the next relevant resistance in the mid-1.1700s.

In the meantime, the near-term outlook for EUR/USD is seen on the negative side below the key 200-day SMA, today at 1.1916.

EUR/USD daily chart

The S&P 500 has moved to a new record high above 4546. Analysts at Credit Suisse expect the index to extend its advance towards the 4600/06 region.

Initial support moves to 4542/21

“With momentum strong and with the short and medium-term moving averages having now also posted a bull cross, we maintain our core bullish outlook and look for a sustained break to new highs.” 

“We see resistance next at 4565 ahead of 4574 ahead of the beginning of what we continue to see as its ‘typical’ extreme (10% above the 200-day average) and psychological barrier at 4600/06. We would expect an initial but temporary pause here.”

“Support moves to 4542/41 initially, with the recent price gap at 4524/20 ideally still holding to keep the immediate risk higher. Below can see a setback to 4496, then 4486/76, with fresh buyers expected here.”

EUR/USD is marginally stronger despite mixed PMIs. But economists at Scotiabank see limited momentum toward a firm breach past the mid-1.16s area.

ECB rate hikes are too far to provide support for the euro in the short run

“France’s services PMI beat estimates but the manufacturing index missed expectations. German services missed and manufacturing beat (though mainly due to supply bottlenecks pushing up prices). The eurozone services data followed Germany’s with the index decelerating to 54.7 from 56.4 in September and 55.4 expected while manufacturing ticked marginally lower to 58.5 (57.1 expected from 58.6).”

“We think that, in any case, ECB rate hikes are too far in the future to provide support for the EUR in the short run even if the ECB signals that it may go sooner than expected by economists.”

“The Tuesday and Thursday highs of ~1.1665/70 are key resistance before 1.17 where the 50-day MA at 1.1707 also awaits.”

“The EUR has found intermediate support at ~1.1620 ahead of firmer in the 1.1590/600 zone.”

• A combination of factors prompted fresh selling around USD/CAD on the last day of the week.
• A generally positive risk tone weighed on the safe-haven USD and exerted downward support.
• An uptick in crude oil, stronger Canadian data underpinned the loonie and added to the selling.

The USD/CAD pair refreshed daily lows in reaction to better-than-expected Canadian macro data, albeit quickly recovered a few pips thereafter. The pair was last seen trading around the 1.2335 region, still down nearly 0.25% for the day.

The pair met with fresh supply on Friday and eroded a major part of the previous day's recovery gains from sub-1.2300 levels or four-month lows. The downfall was sponsored by renewed US dollar selling bias and a pickup in crude oil prices, which tend to underpin the commodity-linked loonie.

Easing worries about a credit crunch in China's real estate sector boosted investors confidence on the last day of the week. This was evident from a generally positive tone around the equity markets, which, in turn, was seen as a key factor that dented the greenback's relative safe-haven status.

On the other hand, the Canadian dollar benefitted from a fresh leg up in crude oil prices and slightly better-than-expected domestic data. Statistics Canada reported that Retail Sales rose 2.1% MoM in August as against the 0.6% decline reported in the previous month and 2% growth anticipated.

That said, elevated US Treasury bond yields – amid hawkish Fed expectations – should help limit any deeper USD losses and act as a tailwind for the USD/CAD pair. Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation.

Hence, the market focus would be on Fed Chair Jerome Powell's remarks during a virtual panel discussion later this Friday. This, along with the release of flash US Manufacturing/Services PMI and the US bond yields, will influence the USD and provide some impetus to the USD/CAD pair.

Technical levels to watch

• Gold has broken above $1,800, this time in a more significant manner.
• The upbeat mood in markets and the breather in the rise of US yields is helping. 
• Gold Price Forecast: XAU/USD eyes a firm break above $1795 amid growing inflation fears

Bitcoin has reached all-time highs, stocks have followed – is it time for gold to break higher? XAU/USD is, at least, moving above $1,800. Last week's upside move proved indecisive, but this latest surge is more substantial. The precious metal is already valued at $1,805. 

How is XAU/USD positioned on the technical chart? 

Gold Price: Key levels to watch

The Technical Confluences Detector is showing that the precious metal faces resistance at $1,820, which is where the Pivot Point one-month Resistance 1 hits the price. 

It is followed by $1,823, which is where another pivot point awaits, the one-week Resistance 2. 

Looking down, some support is at $1,801, where the previous week's top converges with the PP one-day Resistance 3. 

Another cushion awaits at $1,795, which is the confluence of the Simple Moving Average 10-15m, the previous 4h-high and the PP one-week R1. 

Much lower, a barrier against bearish attacks is at $1,783, which is where the Fibonacci 38.2% one-week and the BB 4h-Middle meet up.

XAU/USD Confluence levels

About Technical Confluences Detector

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

USD/MXN has staged a pullback after probing 20.90 last week. Nonetheless, economists at Société Générale expect the pair to retake its march forward to the March peak of 21.60.

Downside limited

“A large down move is not envisaged; 20.00 and recent low at 19.85 are near-term supports.”

“The up move could persist towards 20.90 and March peak of 21.60.”

• Gold gained traction for the fourth successive day amid renewed USD selling bias.
• Elevated US bond yields, the dominant risk-on mood might cap any additional gains.
• Hawkish signals from major central banks could also act as a headwind for the metal.
• Gold Price Forecast: XAU/USD eyes a firm break above $1795 amid growing inflation fears

Gold gained traction for the fourth successive day and shot to the $1,800 neighbourhood, back closer to one-month tops heading into the North American session on Friday. The momentum was exclusively sponsored by the emergence of fresh selling around the US dollar, which tends to underpin demand for the dollar-denominated commodity. The USD downtick lacked any obvious fundamental catalyst and remained limited amid elevated US Treasury bond yields. This, along with a generally positive tone around the equity markets, might keep a lid on any further gains for the safe-haven XAU/USD.

The yield on the benchmark 10-year US government bond held steady near the 1.70% threshold, or the highest level since May amid expectations for an early policy tightening by the Fed. The FOMC meeting minutes released last week reaffirmed that the US central bank remains on track to begin rolling back its massive pandemic-era stimulus by the end of this year. The markets have also been pricing in the possibility of an interest rate hike in 2022 amid worries about a faster-than-expected rise in inflation. This further contributed to the recent spike in bond yields.

Meanwhile, reports indicated that the Bank of Japan is discussing phasing out the COVID-19 loan program if infections in the country continue to dwindle. Apart from this, the Bank of England officials have signalled about an imminent interest rate hike later this year. This, in turn, should act as a headwind for the non-yielding gold, warranting some caution before placing aggressive bullish bets amid the dominant risk-on mood in the markets. The global risk sentiment got a boost amid easing concerns about a credit crunch in China's real estate sector

China Evergrande Group made funds available on Thursday for a bond coupon originally due on September 23 and averted a default. The heavily indebted developer, however, announced on Friday it has not made substantial progress in disposing of the real-estate giant's assets. The group further noted that it cannot guarantee it will be able to continue to meet the financial obligations under contracts. This seemed to be a key factor that provided an additional lift to gold prices over the past hour or so.

Friday's key focus would be on Fed Chair Jerome Powell's remarks during a virtual panel discussion later this Friday. This, along with the US bond yields and flash US Manufacturing/Services PMI prints for October, should influence the USD price dynamics. Apart from this, the broader market risk sentiment might further contribute to producing some meaningful trading opportunities around gold.

Technical outlook

From a technical perspective, a sustained strength beyond the $1,800 mark will confirm a near-term bullish breakout through the 100/200-day SMAs confluence hurdle. This will set the stage for a further near-term appreciating move for gold and push spot prices to the next relevant resistance near the $1,816-18 region. The momentum could further get extended towards challenging a key barrier near the $1,832-34 heavy supply zone.

On the flip side, the $1,789-88 region now seems to protect the immediate downside ahead of the daily swing lows, around the $1,783-82 zone. This is followed by support near the $1,775 level and the $1763-60 region, which if broken will negate any near-term positive bias. The XAU/USD might then turn vulnerable to break below the $1,750 support and accelerate the fall towards September monthly swing lows, around the $1723-21 region.

Levels to watch

• Retail Sales in Canada rose more than expected in August.
• USD/CAD stays in the negative territory below 1.2350 after the data.

Retail Sales in Canada rose by 2.1% on a monthly basis in August, the data published by Statistics Canada showed on Friday. This reading followed July's contraction of 0.6% and came in slightly better than the market expectation for an increase of 2%.

Excluding automobiles, Retail Sales in Canada increased by 2.8% in the same period as expected.

Market reaction

The USD/CAD pair showed no immediate reaction to this report and was last seen trading at 1.2330, where it was down 0.28% on a daily basis.

EUR/CHF has unexpectedly broken below major support at 1.0704/1.0696. We Economists at Credit Suisse look for a move to support at 1.0605/00.

Bearish bias while below 1.0767

“EUR/CHF has unexpectedly turned back lower and broken below major support at 1.0704/1.0696, which turns our bias to the downside. Support is seen next at the 1.0660 low from November 2020, then retracement support at 1.0642, before another prominent price low at 1.0605/00, where we would expect to see a fresh pause.”

“Ultimately, the magnitude of this potential breakdown suggests we could even move beyond here over the medium term and move all the way to the long-term support level at the 2020 low at 1.0503/00, which is likely to be a much tougher support level if reached.”

“First resistance moves to 1.0726, then the recent high at 1.0764/67, before the cluster of resistances at 1.079 1/081 0, which includes the 55-day average, with a break above here needed to instead suggest a false breakdown.”

• GBP/USD lacked any firm directional bias and remained confined in a range on Friday.
• Upbeat UK PMIs offset dismal Retail Sales figures and underpinned the British poud.
• Renewed USD selling bias further extended support, though bulls lacked conviction.

The GBP/USD pair lacked any firm directional bias and seesawed between tepid gains/minor losses, around the 1.3800 mark through the mid-European session.

The pair witnessed some intraday selling and dropped to two-day lows near the 1.3770 area in reaction to dismal UK Retail Sales figures, which unexpectedly dropped by 0.2% in September. Excluding the auto motor fuel sales, the core retail sales decline by -0.6% MoM and added to signs of weakness in the economic recovery.

This comes on the back of softer UK consumer inflation figures released earlier this week and dashed hopes for an imminent rate hike by the Bank of England in November. This turned out to be a key factor that weighed on the British pound and exerted some downward pressure on the GBP/USD pair, though the downside seemed cushioned.

Investors, however, seem convinced that the BoE will eventually hike interest rates from record lows before the end of this year. This, along with stronger-than-expected UK PMI prints for October and renewed US dollar selling bias, helped limit the downside, rather assisted the GBP/USD pair to find some buyers at lower levels.

Meanwhile, reports that China Evergrande made funds available for a bond coupon to a trustee account helped ease concerns about a credit crunch in China's real estate sector. The was seen as a key factor that failed to assist the safe-haven USD to capitalize on the previous day's goodish rebound from three-week lows.

That said, elevated US Treasury bond yields held investors from placing aggressive bearish bets around the USD and capped the upside for the GBP/USD pair, at least for now. In fact, the yield on the benchmark 10-year US government bond held steady just below the 1.70% threshold, or the highest level since May touched on Thursday.

Growing markets acceptance that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation continued acting as a tailwind for the US bond yields. Hence, the focus will remain on Fed Chair Jerome Powell's comments during a virtual panel discussion later this Friday.

This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and provide some impetus to the GBP/USD pair. Apart from this, traders will further take cues from the flash version of the US Manufacturing and Services PMI, due for release during the early North American session.

Technical levels to watch

• Silver caught some fresh bids on Friday and moved back closer to multi-week tops.
• The set-up remains tilted in favour of bulls and supports prospects for further gains.
• Any meaningful slide below the $24.00 mark could be seen as a buying opportunity.

Silver regained positive traction on the last day of the week and inched back closer to six-week tops during the mid-European session. The white metal was last seen trading just below the mid-$24.00s, up around 0.70% for the day.

From a technical perspective, the XAG/USD has been consolidating in a range around the 38.2% Fibonacci level of the $28.75-$21.42 downfall. Given the recent breakout through a downward sloping trend-line extending from July swing highs and an inverted head and shoulders neckline, the bias remains tilted in favour of bullish traders.

The constructive setup is reinforced by the fact that technical indicators on the daily chart have been gaining positive traction and are still far from being in the overstretched zone. Moreover, RSI (14) on the 4-hour chart has eased from the overbought territory and supports prospects for a further near-term appreciating move.

Hence, a subsequent move towards testing September monthly swing highs, around the $24.80-85 region, remains a distinct possibility. Bulls might eventually aim to reclaim the key $25.00 psychological mark, which coincides with the 50% Fibo. level.

On the flip side, the overnight swing lows, around the $24.00 mark now seems to protect the immediate downside. Any subsequent decline could be seen as a buying opportunity near the $23.75-70 region. This, in turn, should help limit the corrective pullback near the mentioned trend-line support breakpoint, around the $23.50-45 region.

Silver daily chart

Technical levels to watch

• DXY could not sustain Thursday’s bullish attempt to 93.80.
• Solid contention remains around the mid-93.00s so far.

DXY resumes the downside after the recent failed attempt to re-visit the 94.00 neighbourhood (Thursday).

Further consolidation is now likely amidst the current price action. However, if sellers manage to drag the index further south of 93.50 then DXY could be poised for a deeper pullback to the 55-day SMA at 93.25 followed by late September lows around 93.00 (September 23/24).

Looking at the broader picture, the constructive stance on the index is seen unchanged above the 200-day SMA at 91.87.

DXY daily chart

According to Reuters, a key market gauge of the long-term inflation gauge in the eurozone hit 2% for the first time since 2014. 

"The five-year, five-year breakeven inflation forward has risen from just under 1.30% at the start of the year, driven by recovery from the COVID-19 pandemic and elevated current inflation readings spurred on by supply bottlenecks and high energy prices," Reuters explained.

source: Reuters

Market reaction

This development doesn't seem to be having a significant impact on the shared currency's performance against its rivals. As of writing, the EUR/USD pair was up 0.15% on a daily basis at 1.1637.

• EUR/JPY manages to reverse Thursday’s strong pullback.
• The resumption of the upside could well see the YTD high retested.

EUR/JPY’s needle-like upside seems to have met some decent hurdle in the vicinity of 133.50 on Thursday, sparking quite a moderate corrective downside afterwards.

The cross corrected lower following recent overbought levels. However, the current positive outlook should allow for the continuation of the uptrend in the not-so-distant future, with minor hurdles at 133.68 (June 15) and 133.76 (June 10) ahead of the more relevant YTD high at 134.12 recorded on June 1.

In the broader scenario, while above the 200-day SMA at 130.04, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

• AUD/USD regained positive traction on Friday and reversed the previous day’s retracement slide.
• An improvement in the risk sentiment undermined the safe-haven USD and remained supportive.
• Elevated US bond yields did little to impress the USD bulls or hinder the strong intraday move up.

The AUD/USD pair built on its intraday ascent and climbed back above the key 0.7500 psychological mark during the first half of the European session.

Following the previous day's turnaround from the highest level since July, the AUD/USD pair caught some fresh bids on the last day of the week amid the emergence of fresh selling around the US dollar. Reports that China Evergrande made funds available for a dollar bond coupon eased concerns about a credit crunch in China's real estate sector and boosted investors' sentiment. This, in turn, undermined the safe-haven greenback and acted as a tailwind for the perceived riskier aussie.

The intraday USD downtick comes despite elevated US Treasury bond yields, bolstered by expectations for an early policy tightening by the Fed. Investors have been pricing in the possibility of an interest rate hike in 2022 amid worries about a faster than expected rise in inflation. The speculations were reinforced by Fed Governor Christopher Waller’s comments on Thursday, saying that the US central bank may have to act faster if inflation continues to climb and remains too high.

Hence, Friday's focus will be on a scheduled speech by Fed Chair Jerome Powell, which will play a key role in influencing the USD price dynamics. Heading into the key event risk, the US economic docket, highlighting the release of flash PMI prints for October, and the US bond yields will be looked upon for some impetus around the AUD/USD pair. Apart from this, traders might further take cues from the broader market risk sentiment to grab some short-term opportunities heading into the weekend.

Technical levels to watch

USD/KRW has retracted towards first support of daily Ichimoku cloud near 1165. However, economists at Société Générale expect the pair to rebound towards the 1200/10 region.

Bounce expected

“Only a break below 1165 will mean a deeper down move.”

“A rebound is likely towards recent peak at 1200/1210, the 61.8% retracement from 2020.”

• USD/CAD witnessed fresh selling on Friday and reversed a major part of the overnight gains.
• Renewed USD weakness turned out to be a key factor that acted as a headwind for the pair.
• An uptick in oil prices underpinned the loonie and further contributed to the intraday selling.

The USD/CAD pair remained depressed through the first half of the European session and was last seen hovering near the lower boundary of its daily trading range, below mid-1.2300s.

The pair struggled to capitalize on the previous day's solid bounce of nearly 100 pips from sub-1.2300 levels, or four-month lows, instead met with some fresh supply on the last day of the week. The emergence of fresh selling around the US dollar was seen as a key factor that acted as a headwind for the USD/CAD pair. Apart from this, a modest uptick in crude oil prices underpinned the commodity-linked loonie and contributed to the intraday selling bias.

Reports that China Evergrande made funds available for a bond coupon to a trustee account helped ease concerns about a credit crunch in China's real estate sector. This, along with signs of stability in the equity markets, dented the greenback's relative safe-haven status. That said, elevated US Treasury bond yields should help limit any deeper losses for the USD and lend some support to the USD/CAD pair, warranting caution before placing fresh bearish bets.

In fact, the yield on the benchmark 10-year US government bond held steady near the highest level since May amid prospects for an early policy tightening by the Fed. Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. The speculations were reinforced by comments from Fed Governor Christopher Waller, saying that the US central bank may have to act faster if inflation remains too high.

Hence, Friday's key focus will be on a scheduled speech by Fed Chair Jerome Powell, due later during the North American session. Heading into the key event risk, traders might take cues from the release of the flash US PMI prints for October and monthly Canadian Retail Sales data. Apart from this, oil price dynamics and the US bond yields, might provide some impetus to the USD/CAD pair and allow traders to grab some short-term opportunities.

Technical levels to watch

The main unit of China Evergrande Group, Hengda Real Estate Group Co, announced on Friday that it has not made substantial progress in disposing of the real-estate giant's assets, as reported by Reuters.

The group further noted that it cannot guarantee it will be able to continue to meet the financial obligations under contracts.

Market reaction

This development doesn't seem to be having a significant impact on market sentiment. As of writing, the Dow Futures were flat on the day and the S&P Futures were down 0.08%.

• GBP/JPY attracted some dip-buying on Friday and reversed an early dip to the 156.80 area.
• Upbeat UK PMIs overshadowed dismal Retail Sales and acted as a tailwind for the sterling.
• Stability in the equity markets undermined the safe-haven JPY and further extended support.

The GBP/JPY cross quickly recovered around 50 pips from the early European session lows, albeit lacked any follow-through and was last seen trading with modest gains, around the 157.25-30 region.

Following an early uptick to the 157.65 region, the GBP/JPY cross witnessed some selling in reaction to dismal UK Retail Sales figures that added to signs of weakness in the economic recovery. Against the backdrop of this week's softer UK consumer inflation figures, the data further dashed hopes for an imminent rate hike by the Bank of England in November. This, in turn, was seen as a key factor that acted as a headwind for the British pound.

Investors, however, seem convinced that the BoE will eventually hike interest rates from record lows before the end of this year. This, along with stronger-than-expected UK PMI prints for October, assisted the GBP/JPY cross to attract some buying near the 156.85-80 region, just ahead of weekly lows. The Services PMI rose to a four-month high, while the gauge for the manufacturing sector unexpectedly edged higher during the reported month.

Meanwhile, reports that China Evergrande made funds available for a bond coupon to a trustee account helped ease concerns about a credit crunch in China's real estate sector. This was evident from stability in the equity markets, which undermined demand for the safe-haven Japanese yen and provided an additional lift to the GBP/JPY cross. That said, the uptick lacked any strong follow-through and warrants some caution for aggressive bullish traders.

Technical levels to watch

EUR/NOK is now trading around 9.70 after reaching a record low at 9.65 for the first time since 2019. While economists at Nordea cannot exclude the possibility of a stronger krone if oil prices keep climbing, they still believe that the risk is to the upside in EUR/NOK.

Upside risks in EUR/NOK

“We believe that the central bank will reduce the NOK purchases to around 300-400m/day in November, as a result of the 2022 budget proposal. The reduction of NOK purchases from Norges Bank means less tailwinds for NOK from November onward. But until then, NOK could continue to go stronger with the buying flow from petroleum companies and Norges Bank.”

“The uncanny low RSI suggests that EUR/NOK will either consolidate or move higher in the upcoming period. But with the moves we have seen lately, it's hard to be sure when this strong downward trend in EUR/NOK will be put off course.”

“In the short-term, oil prices could rise above $90/barrel according to the global EIA’s oil storage outlook. If oil prices continue to rise, we could see EUR/NOK approaching 9.50-9.60.”

• EUR/USD fades Thursday’s downtick and regains the 1.1640 zone.
• The greenback resumes the downside on the back of lower yields.
• EMU, Germany flash Manufacturing PMIs surprised to the upside.

The single currency quickly leaves behind Thursday’s downtick and motivates EUR/USD to retake the 1.1640 region at the end of the week.

EUR/USD propped up by data

EUR/USD regains upside traction and returns to the 1.1650 zone on Friday on the back of the resumption of the selling pressure in the greenback and the upbeat tone in the broad risk-linked universe.

In fact, lower US yields weigh once again on the buck and forces the US Dollar Index (DXY) to fade the bullish intentions recorded during the previous session.

Also supporting the firm note in the pair emerges the better-than-expected preliminary readings for the Manufacturing PMI in both Germany and the broader Euroland for the current month.

Data wise across the pond, Markit will publish the flash PMIs also for the month of October.

What to look for around EUR

EUR/USD advanced further and clinched fresh October peaks near 1.1670 earlier in the week. While the improvement in the sentiment surrounding the risk complex lent extra wings to the par, price action is expected to keep looking to dollar dynamics for the time being, where tapering chatter remains well in centre stage. In the meantime, the idea that elevated inflation could last longer coupled with the loss of momentum in the economic recovery in the region, as per some weakness observed in key fundamentals, are seen pouring cold water over investors’ optimism as well as bullish attempts in the European currency.

Key events in the euro area this week: Preliminary PMIs in the euro zone (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Sustainability of the pick-up in inflation figures. Probable political effervescence around the EU Recovery Fund in light of the rising conflict between the EU, Poland and Hungary. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is gaining 0.13% at 1.1638 and faces the next up barrier at 1.1669 (monthly high Oct.19) followed by 1.1709 (55-day SMA) and finally 1.1755 (weekly high Sep.22). On the other hand, a break below 1.1602 (20-day SMA) would target 1.1571 (low Oct.18) en route to 1.1524 (2021 low Oct.12).

USD/JPY has experienced an accelerated uptrend after breaking above the 2020 peak of 112.23. Economists at Société Générale expect the pair to correct lower but with the 113.30 level holding.

Support 113.30, resistance 114.70

“An initial pullback can’t be ruled out however 113.30, the 23.6% retracement from August could provide support.”

“A large decline is not envisaged so long as 2020 highs of 112. 23/111.65 holds.”

“Beyond 114.70, the pair could persist with its up move towards next objectives could be at projections of 115.50/115.85 and 116.50.”

USD/RUB has reached potential support at 70.60/70.40. Economists at Société Générale expect the pair to bounce towards the June low of 71.50 and beyond on a break above here.

Failure to hold 70.60/70.40 to open up 69.60

“USD/RUB has formed a daily Bullish Engulfing denoting possibility of a bounce. First layer of hurdle is located at June low of 71.50. This must be overcome for an extended rebound.”

“Failure to hold 70.60/70.40 would denote continuation in decline towards projections at 69.60.”

• DWAC surges to over $70 in Friday premarket.
• Digital World Acqusitions Corp. plans to take Trump's Truth Social platform public. 
• DWAC soared 357% on Thursday.

...And he’s back! After getting banished from both Twitter (TWTR) and Facebook (FB) in the deluge that followed the failed coup attempt on the US Capitol by his supporters on January 6, Donald Trump is once again remaking his business persona, this time as the principle figure behind a new social media company that is yet to be launched but already has a billion dollar blank check company lined up to take it public.

Digital World Acquisition Corp. (DWAC), a Special Purpose Acquisition Company or SPAC, announced its agreement on Thursday to take Trump Media & Technology Group public. Shares of the SPAC rose 357% on the news as retail traders piled in, causing DWAC’s market capitalization to reach $1.5 billion. At the time of writing, DWAC is up another 65% in Friday’s premarket.

DWAC News: the case for a conservative social media giant

The real estate scion, turned casino empresario, turned public company CEO, cum reality television star and controversial one-term US President is now aiming his sights on Silicon Valley. 

Trump Media & Technology Group (TMTG) thus far only has a pitch deck for Truth Social – his attempt to upend the power of the two aforementioned social media behemoths (interestingly, Alphabet’s (GOOGL) YouTube does not receive the same vehemence in the pitch deck. I wonder why?). Truth Social’s raison d'être is surely Trump’s lifelong passion for striking back against his detractors, but the business model offers a reasonable proposal. 

The elevator pitch is that the social media business is “ripe for further segmentation.” This is another way of saying that Trump voters and American conservatives at large would desire a social media channel outside of the mainstream where they could have a safe space from censorship, a la Fox News.

“TMTG aspires to create a media powerhouse to rival the liberal media consortium and fight back against the ‘Big Tech’ companies of Silicon Valley, which have used their unilateral power to silence opposing voices in America,” screams the pitch deck.

Truth Social would harness Trump’s heavy following – 146.5 million followers between Twitter, Facebook and Instagram before his excommunication – to steal eye balls away from entrenched social media platforms. The company points to a survey showing that 30% of those surveyed by the Hill newspaper back in March would join a Trump-back social media platform. Another 16% answered “maybe”.

DWAC Technical Analysis: only the retail trade will tell

After closing at $9.96 on Wednesday as one of many unknown SPACs, DWAC opened Thursday on the news at $12.73 before veering up to a high of $52, just above the 261.8% Fibonacci level at $51.78. The $50 level appears to have acted as resistance on Thursday, but as the Friday premarket has traded DWAC up to $76.30, it would be expected that $50 would now act as support. The 161.8% Fibonacci at $35.76 is the only other support level in the region.

At the premarket DWAC price of over $70, it is all atmosphere at this altitude. This means Fibonaccis are the only game in town. The premarket price has been hovering around the 361.8% Fibo at $67.80, meaning at least some big-timers are already taking profits. If DWAC price conquers this level, the next target will be $77.80 alongside the 423.6% Fibo retracement.

DWAC 1-hour chart

Amidst an unexpected dip in the UK inflation and retail volumes for September, markets are scaling back their expectations on a November Bank of England (BOE) rate hike.

The UK consumer spending, represented Retail Sales, fell for a fifth straight month. However, the Kingdom’s Markit business PMIs surprised to the upside in September.

Discouraging UK’s economic performance spurs a dovish shift in BOE rate expectations.

According to the CME BOEWATCH tool, the probability of a BOE rate hike at the November 4 meeting stands at 63% on Friday vs. 80% seen a day before.

Markets were pricing in a 31% chance of a BOE rate before Governor Andrew Bailey came out hawkish last Sunday.

Reuters Refinitiv estimate based on I/R futures cites a 90% chance of 15 bps hike next month.

more to come ...

• EUR/GBP attracted some buying on Friday, albeit lacked any strong follow-through.
• Upbeat UK PMIs acted as a tailwind for the sterling and capped gains for the cross.
• Mixed set-up warrants caution for aggressive traders and before placing fresh bets.

The EUR/GBP cross retreated a few pips from daily tops touched in the last hour, albeit managed to hold with modest intraday gains around the 0.8435-30 region post-Eurozone/UK PMIs.

Having found a decent support near the 0.8420-15 region, the EUR/GBP cross gained some positive traction on Friday and inched back closer to the top boundary of its weekly trading range. The shared currency drew some support from a subdued US dollar price action and seemed rather unaffected by the mixed release of the flash Eurozone PMI prints for October.

The preliminary report from IHS/Markit research showed that the gauge measuring manufacturing sector activity in Germany and Eurozone came in slightly better than market expectations for October. The details reveal that supply bottlenecks continue to weigh on manufacturing output. Conversely, the Services PMI dropped to six-month lows during the reported month.

On the other hand, both the UK Manufacturing and Services PMIs recorded better-than-expected growth during the current month. This, to a larger, extent overshadowed dismal UK Retail Sales figures released earlier this Friday and acted as a tailwind for the British pound. This, in turn, was seen as a key factor that capped any meaningful upside for the EUR/GBP cross.

From a technical perspective, the intraday positive move faltered near a one-week-old trading range resistance. That said, acceptance above 200-hour SMA favours bullish traders. However, it will still be prudent to wait for a strong follow-through buying before confirming that the EUR/GBP cross has bottomed out and positioning for any further gains.

Technical levels to watch

According to FX Strategists at UOB Group, USD/CNH could still drop to the 6.3525 level in the next weeks.

Key Quotes

24-hour view: “Our expectations for USD to ‘edge lower’ did  not materialize as it traded sideways in a quiet manner between 6.3835 and 6.4000 before closing little changed at 6.3946 (+0.01%). Momentum indicators are mostly neutral and further sideway trading would not be surprising. Expected range for today, 6.3830/6.4030.”

Next 1-3 weeks: “Our view from Wednesday (20 Oct, spot at 6.3780) still stands. As highlighted, while the outsized sell-off on Tuesday is overdone, there is scope for USD to drop to May’s low near 6.3525. Looking ahead, USD has to close below this support before further weakness can be expected. The downside risk is intact as long as USD does not move above the ‘strong resistance’ level at 6.4200.”

• Gold price hits fresh five-day tops at $1795 amid risk-on mood, USD pullback.
• Listless US Treasury yields support gold price, as inflation risks loom.
• Gold: Sellers defend $1,800, all eyes on US T-bond yields.

Gold price is approaching the $1800 mark, holding near the highest levels in five days, as the US dollar fades its recovery rally amid improving market mood. although the bulls appear to lack follow-through upside amid a rebound in the US dollar across the board. Gold price remains undeterred by the record run on the Wall Street indices, as growing inflation fears amid supply bottlenecks and rising energy prices, continue to benefit the traditional inflation hedge. However, it remains to be seen if gold price can hold the fort, in the face of persistent Fed’s tapering expectations.

Read: Gold Price Forecast: XAU/USD eyes a firm break above $1795 amid growing inflation fears

Gold Price: Key levels to watch

The Technical Confluences Detector shows that gold is cheering a fresh bid-wave, as it approaches a critical hurdle at $1795-$1796, which is the convergence of the pivot point one-day R2 and Bollinger Band one-day Upper.

The next stop for gold bulls is seen at the confluence of the previous week’s high and the pivot point one-day R3 at $1801.

A sustained break above the latter will open doors for a fresh rally towards the mid-September highs of $1809.

On the flip side, a dense cluster of support levels around $1789 caps the immediate downside. At that level, the previous day’s high coincides with the pivot point one-day R1 and Fibonacci 23.6% one-week.

The next downside target is envisioned at $1786, which is the Fibonacci 23.6% one-day

Sellers will then look to test critical support at $1783, the intersection of the SMA10 four-hour, Fibonacci 38.2% one-day and SMA50 one-hour.

The last line of defense for gold bulls is seen at $1781, the Fibonacci 61.8% one-day’s and Fibonacci 38.2% one-week’ meeting point.

Here is how it looks on the tool

About Technical Confluences Detector

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

• UK Manufacturing PMI beats estimates with 57.7 in October.
• Services PMI in the UK surprises positively with 58.0 in Sept.
• GBP/USD jumps towards 1.3800 on upbeat UK PMIs.

The seasonally adjusted IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) unexpectedly improved to 57.7 in October versus 55.8 expected and 57.1 – September’s final reading.

Meanwhile, the Preliminary UK Services Business Activity Index for October surprised positively, arrived at 58.0 versus September’s final readout of 55.4 and 54.5 expected.

Chris Williamson, Chief Business Economist at IHS Markit, commented on the survey

“The UK economy picked up speed again in October, but the expansion is looking increasingly dependent on the service sector, which in turn looks prone to a slowdown amid the recent rise in COVID-19 cases. Growth is also being accompanied by an unprecedented rise in inflationary pressures, which will inevitably feed through into higher consumer prices in coming months.”

"The news comes at a time when the Bank of England is already leaning towards hiking interest rates to safeguard against inflationary expectations becoming entrenched. The record readings of the PMI survey’s price gauges will inevitably pour further fuel on these inflation worries and add to the case for higher interest rates.”

FX implications

Upside surprise in the UK Preliminary Manufacturing and Services PMIs offered a fresh life to the GBP bulls, as the GBP/USD pair bounced back to 1.3800, where it now wavers.

The spot reversed losses to now trading higher by 0.05% on the day.

• NZD/USD caught some fresh bids on Friday and reversed a major part of the overnight slide.
• Stability in the markets benefitted the perceived riskier kiwi amid a subdued USD demand.
• Elevated US bond yields helped limit the USD losses and might cap the upside for the major.

The NZD/USD pair edged higher through the early part of the European session and refreshed daily tops, around the 0.7180-85 region in the last hour.

The pair managed to regain positive traction on the last day of the week and has now reversed a major part of the overnight retracement slide from the highest level since June. Reports that China Evergrande made funds available for a bond coupon to a trustee account helped ease concerns about a credit crunch in China's real estate sector. This, in turn, undermined the safe-haven US dollar and acted as a tailwind for the perceived riskier kiwi.

Meanwhile, the downside for the USD remains cushioned, at least for the time being, amid elevated US Treasury bond yields.  It is worth recalling that the yield on the benchmark 10-year US government bond rose to the highest level since May 13, around 1.683% on Thursday amid expectations for an early policy tightening by the Fed. Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation.

The speculations were reinforced by comments from Fed Governor Christopher Waller, saying that the US central bank may have to act faster if inflation remains too high. Adding to this, Atlanta Fed President Raphael Bostic said that he has pencilled in a rate increase in the late third, maybe early fourth quarter of 2022. That said, rising bets for an additional interest rate hike by RBNZ remained supportive of the bid tone surrounding the NZD/USD pair.

Market participants now look forward to the US economic docket, highlighting the release of the flash Manufacturing and Services PMI prints later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the NZD/USD pair. Traders will further take cues from the broader market risk sentiment for some short-term opportunities around the major.

Technical levels to watch

The Chinese real-estate giant Evergrande made a payment of $83.5 million on bond interest. Evergrande has a number of payments still to make going forward and without full clarity on this payment and plans ahead, uncertainty is likely to continue, which should limit selling of USD, economists at MUFG Bank brief.

Hang Seng Property Index rebounds sharply easing USD demand

“The Hang Seng Properties Index has now rebounded close to 20% from the lows in September and we believe the general turn in sentiment is one factor behind the turn weaker for the US dollar in October.”

“But uncertainty remains high. There is some evidence that the real estate market in China has seen contagion. In addition, the impact on the real economy through a sharp slowdown in real estate activity could be a reality going forward unless the authorities can act to restore confidence.” 

“On 29th October another payment of $45 M is due with the 30-day grace period ending. So for now these upcoming dates will probably contain the rebound in risk related to the relief of default being avoided. So selling of the USD should remain modest until there is further clarity on Evergrande’s position and the position of other property companies in China.”

• Eurozone Manufacturing PMI arrives at 58.5 in October vs. 57.0 expected.
• Bloc’s Services PMI drops to 54.7 in October vs. 55.5 expected.

The Eurozone manufacturing sector activity improved in the reported month, the latest manufacturing activity survey from IHS/Markit research showed on Friday.

The Eurozone Manufacturing purchasing managers index (PMI) arrived at 58.5 in October vs. 57.0 expectations and 58.6 last. The index hit eight-month lows.

The bloc’s Services PMI dropped to six-month lows of 54.7 in October vs. 55.5 expected and 56.4 previous.

The IHS Markit Eurozone PMI Composite fell to 54.3 in October vs. 55.2 estimated and 56.2 previous. The gauge also clinched six-month lows.

Comments from Chris Williamson, Chief Business Economist at IHS Markit

“A sharp slowdown in October means the eurozone starts the fourth quarter with the weakest growth momentum since April. A manufacturing sector beset with supply chain delays saw production growth falter to the lowest since the first lockdowns of last year.”

“The services sector has meanwhile seen some of the summer rebound fade just as resurgent virus case numbers bring renewed concerns, notably in Germany. These worries have once again hit the consumer-facing travel, tourism and recreation sectors in particular.”

FX implications

EUR/USD is holding the higher ground, unfazed by the mixed German and Eurozone Business PMIs, as it continues to benefit from the US dollar weakness.

The spot currently trades at 1.1642, up 0.18% on the day, although slightly off from the daily highs of 1.1647.

• DXY fades Thursday’s advance and returns to 93.60.
• US yields fade part of the recent upside on Friday.
• Flash PMIs next of relevance in the US docket.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main rival currencies, resumes the downside and re-visits the 93.65/60 band at the end of the week.

US Dollar Index looks to data, yields

The index quicky fades Thursday’s uptick and resumes the downtrend at the end of the week, retesting at the same time the vicinity of the 93.60 region on Friday.

The resumption of the offered stance in the buck comes in response to the pullback in US yields from recent tops: the front end of the curve recedes to the 0.45% yardstick, while the belly and the long end retreat to the 1.68% area and to the 2.12% zone, respectively.

In the meantime, inflation concerns return to the fore following the abrupt increase in the 5y breakeven to the boundaries of the key 3.0% mark, while the 10y breakeven approach the 2.65% level.

Later in the US calendar, Markit will publish its preliminary PMIs for the month of October, in what will be the sole data releases on Friday.

What to look for around USD

The index remains under pressure and returns to the area of recent lows, always reflecting the performance of the US cash market. The corrective move in the dollar came in response to the repricing of several central banks particularly in light of elevated inflation and the subsequent improvement in the risk complex. Supportive Fedspeak, an anticipated start of the tapering process, higher yields and the rising probability that high inflation could linger for longer remain as the exclusive factors behind the constructive outlook for the buck in the near-to-medium term.

Key events in the US this week: Flash Manufacturing PMI (Friday).

Eminent issues on the back boiler: Persistent uncertainty around Biden’s multi-billion Build Back Better plan. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is losing 0.13% at 93.64 and a break above 94.17 (weekly high Oct.18) would open the door to 94.56 (2021 high Oct.12) and then 94.74 (monthly high Sep.25 2020). On the flip side, the next down barrier emerges at 93.49 (monthly low October 21) followed by 93.25 (55-day SMA) and finally 92.98 (weekly low Sep.23).

• GBP/USD edged lower on Friday following the disappointing release of UK Retail Sales figures.
• A subdued USD price action, BoE rate hike expectations helped limit any meaningful downfall.
• The lack of any follow-through selling warrants some caution before placing fresh bearish bets.

The GBP/USD pair refreshed daily lows in reaction to dismal UK macro data, albeit lacked any follow-through selling and was last seen trading just below the 1.3800 mark.

The pair struggled to capitalize on its modest Asian session uptick to the 1.3810 area and edged lower following the release of weaker UK monthly Retail Sales figures. The UK Office for National Statistics reported on Friday that the headline sales unexpected dropped by 0.2% in September. Excluding the auto motor fuel sales, the core retail sales declined by -0.6% MoM as against consensus estimates pointing to a modest rise of 0.2% from the 0.7% decline recorded in August.

The data added to signs of weakness in the economic recovery and comes on the back of this week's softer UK consumer inflation figures. The incoming data might have dampened prospects for an imminent rate hike move by the Bank of England in November and acted as a headwind for the British pound. However, expectations that the BoE will eventually hike rates before the end of this year, along with a subdued US dollar demand helped limit any meaningful slide for the GBP/USD pair.

The USD, so far, has struggled to capitalize on the previous day's goodish rebound from three-week lows, though elevated US Treasury bond yields continued lending some support. It is worth recalling that the yield on the benchmark 10-year US government bond rose to the highest level since May 13, around 1.683% on Thursday amid expectations for an early policy tightening by the Fed. The market speculations were reinforced by the overnight comments from influential FOMC members.

Fed Governor Christopher Waller noted that the US central bank may have to act faster if inflation remains too high. Adding to this, Atlanta Fed President Raphael Bostic said that he has pencilled in a rate increase in the late third, or maybe an early fourth quarter of 2022. The fundamental backdrop favours USD bulls and supports prospects for an extension of the GBP/USD pair's overnight slide from five-week tops. That said, the lack of follow-through selling warrants caution for bearish traders.

Market participants now look forward to the US economic docket, highlighting the release of flash Manufacturing and Services PMI prints later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment for some short-term opportunities around the GBP/USD pair.

Technical levels to watch

USD/JPY holds steady around the 114.00 mark. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects the pair to tick down towards the 113.41 uptrend.

USD/JPY to target 114.55, then 115.60 in the long-run

“USD/JPY failed to close above the 114.55 October 2018 high, and near-term is easing lower.”

“We would allow for a retracement towards 113.41 the short-term uptrend ahead of further strength. This guards 111.66 July high and 110.80 the mid-August high.”

“Above 114.55/70 we have 115.60, the 61.8% retracement of the move down from 2015 and then the 117.06 the 1998-2021 resistance line.”

GBP/USD seems to have lost its footing following the disappointing Retail Sales data early Friday. Economists at MUFG Bank have brought forward their call for a hike to November. However, they believe the market is too aggressive pricing further rate hikes by the Bank of England, which should weigh on the pound.

Retail sales disappoint complicating BoE position

“Sales excluding fuel plunged 0.6% MoM, weaker than the expected 0.3% gain. This is a big miss but the 0.5ppt upward revision to August’s MoM decline (-0.7% from -1.2%) needs to be accounted for. Still, even with that revision this is a notable miss and follows the GfK Consumer Confidence Index drop earlier today from -13 to -17, again weaker than expected.”

“We’ll stick with November for now but the important point to make here is that the pricing in the market on BoE rate hike action going forward is still excessive and we believe incoming data will adjust lower those expectations even if the BoE does go by 15bps on 4th November. That, in our view, leaves the pound vulnerable to a correction lower.”

• German Manufacturing PMI arrives at 58.2 in October vs. 56.5 expected.
• Services PMI in Germany drops to 52.4 in October vs. 55.0 expected.
• EUR/USD flirts with highs near 1.1640 on mixed German PMIs.

The German manufacturing sector quickens its pace of expansion in October, the preliminary manufacturing activity report from IHS/Markit research showed this Friday.

The Manufacturing PMI in Eurozone’s no.1 economy came in at 58.2 this month vs. 56.5 expected and 58.4 prior. The index reached its lowest in nine months.

Meanwhile, Services PMI dropped to six-month lows of 52.4 in October as against 55.0 estimated and 56.2 previous.

The IHS Markit Flash Germany Composite Output Index arrived at 52.0 in October vs. 54.0 expected and September’s 55.5. The gauge hit an eight-month low.

Key comments from Phil Smith, Principal Economist at IHS Markit

“October’s flash PMI data point to economic activity in Germany beginning to plateau at the start of the fourth quarter.”

“Growth has slowed to a modest pace, with supply bottlenecks holding back manufacturing production and the rebound in services activity continuing to lose momentum, in part due to supply issues spilling over to the sector.”

FX implications

EUR/USD is flirting with daily highs near 1.1640 on mixed German Preliminary PMIs, now trading at 1.1644, up 0.20% on the day.

USD/JPY could have now moved into a consolidative phase, likely between the 113.20-114.70 range in the next weeks, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘upward pressure has eased’ and we expected USD to ‘trade sideways between 114.00 and 114.55’. Our view was incorrect as USD dropped to 113.63 before rebounding quickly. Despite the decline, downward momentum has barely improved and USD is unlikely to weaken further. For today, USD is more likely to trade between 113.65 and 114.40.” 

Next 1-3 weeks: “We first detected USD strength more than 2 weeks. As USD surged, in our latest narrative from Wednesday (20 Oct, spot at 114.50), we highlighted that ‘the focus now is at 115.00 even though deeply overbought conditions suggest that the odds for a sustained advance above 115.00 are not high’. We did not anticipate the sharp drop yesterday (21 Oct) that took out our ‘strong support’ at 113.75 (low of 113.63). The break of the ‘strong support’ indicates that USD strength has come to an end. The current movement is viewed as the early stages of a consolidation phase and USD could trade between 113.20 and 114.70 for now.”

The EUR/USD pair stays relatively quiet as investors await October PMI figures. If the data fails to meet market expectations, the common currency could suffer renewed downside pressure, economists at MUFG Bank report.

Key data release ahead of ECB next week

“Given the auto sector continues to suffer, the risks are to the downside for manufacturing in Germany and the eurozone.” 

“Worse than expected PMI data today would certainly reinforce Lagarde’s position in arguing at the ECB press conference next week that inflation will prove transitory and that the energy price spike is contractionary.” 

“It could help prompt some retracement in the rates market that looks excessively priced for a rate hike next year. That will place renewed downward pressure on the euro.”

In light of advanced figures from CME Group for natural gas futures markets noted open interest shrank for the fifth consecutive daily pullback on Thursday, this time by around 8.5K contracts. Volume followed suit and went down for the fourth straight session, now by around 45.5K contracts.

Natural Gas: Recovery targets the $6.00 mark

Thursday’s inconclusive price action in natural gas was in tandem with diminishing open interest and volume, leaving room for further consolidation in the very near term. In the meantime, further recovery in the commodity now targets the $6.00 mark per MMBtu.

EUR/JPY’s near-term risks are on the downside. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects the pair to extend its move downward to the 127.94/50 region.

EUR/JPY target the 137.51 2018 high in the long-run

“EUR/JPY is faltering ahead of the 134.12 June peak and very near term we have some warning signals and have now initiated some near-term short positions.”

“Dips should find initial support at 130.74/46, the September highs and 128.74, the 6th October low and the 127.94/50, August and September lows and the February 2019 high.” 

“Longer-term, a break above the June peak is favoured, and will introduce scope to 137.51.”

• USD/JPY struggled to preserve/capitalize on its modest intraday gains on Friday.
• A subdued USD price action turned out to be a key factor that capped the upside.
• Signs of stability in the equity markets, elevated US bond yields extended support.

The USD/JPY pair held on to its modest intraday gains heading into the European session, albeit lacked follow-through and was last seen trading around the 114.00 mark.

The pair built on the overnight bounce from one-week lows and gained some traction during the early part of the trading action on Friday. Reports that China Evergrande made funds available for a bond coupon to a trustee account helped ease concerns about a credit crunch in China's real estate sector. This, in turn, undermined the safe-haven Japanese yen and acted as a tailwind for the USD/JPY pair.

On the other hand, the US dollar, so far, has struggled to capitalize on the previous day's goodish rebound from three-week lows. This was seen as a key factor that failed to provide any additional boost to the USD/JPY pair and capped the early uptick near the 114.20 area. The downside, however, remains cushioned amid a further widening of the US-Japanese government bond yield differential.

In fact, the yield on the benchmark 10-year US government bond rose to 1.683%, or the highest level since May 13 on Thursday amid expectations for an early policy tightening by the Fed. The speculations were reinforced by comments from Fed Governor Christopher Waller, saying that the US central bank may have to act faster if inflation continues to run high through the remainder of this year.

Conversely, the yield on the 10-year Japanese government bond remained near zero due to the Bank of Japan's yield curve control policy. This warrants some caution for aggressive bearish traders and before positioning for any extension of the recent pullback from near four-year tops touched earlier this week.

Market participants now look forward to the release of flash US PMIs for a fresh impetus later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment for some short-term opportunities around the USD/JPY pair.

Technical levels to watch

USD/CHF is weighing on the downside. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, would allow for a slide back to the 2020- 2021 uptrend at 0.9081.

First resistance is seen at the 0.9216 55-DMA 

“USD/CHF is vulnerable near-term, it is under pressure and we would allow for further losses.”

“It is possible that this is only an abc correction but intraday Elliott wave counts remain negative and we suspect that the market will see a deeper sell-off to the 0.9142 200-day ma and potentially the 2020-2021 uptrend at 0.9081.” 

“Initial resistance is the 55-day ma at 0.9216. Rallies are expected to remain capped by the 0.9313 mid-October high. This guards 0.9357/69 (recent high).”

AUD/NZD is consolidating around the mid-1.04s. Economists at Westpac do not rule out a fall to the 1.03 level in the next few weeks. Nonetheless, the pair is set to soar towards 1.06 by the end of the year.

Global commodity boom and AUD/NZD’s large undervaluation are supportive

“AU-NZ yield spreads have lurched in the NZD’s favour following strong NZ inflation data, such that 1.0300 could be tested over the next few weeks.”

“However, the global commodity boom and AUD/NZD’s large undervaluation are supportive, and could re-assert by year-end to take the cross above 1.0600 by year-end.”

AUD/USD has faltered just ahead of the 200-day moving average (DMA) at 0.7565. Very near-term, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, would allow for a small retracement.

Above the 200-DMA awaits the seven-month resistance line lies at 0.7622

“AUD/USD’s rally has now reached the 55-week ma at 0.7516, just above here lies the 200-DMA at 0.7565. We are seeing some profit taking in this vicinity and would allow for some further near term slippage.”

“Dips should find interim support at 0.7427 the 4th August high and 0.7346 (20-DMA) and this guards the 29th September low at 0.7171.”

“Above the 200-DMA lies the seven-month resistance line lies at 0.7622.”

NZD/USD is a little higher this morning after having experienced the biggest correction since the current rally started just over a week ago. Still, economists at ANZ Bank expect the kiwi to continue its march forward underpinned by several factors.

Kiwi sees a rebalancing rather than the start of a fresh downtrend

“This correction has really been an AUD and NZD one as markets fade the spectacular rallies seen on crosses like NZD/EUR and NZD/JPY. At this stage it looks more like a rebalancing rather than the start of a fresh downtrend.”

“We still think the NZD will benefit from higher interest rates, affirming both carry and confidence in the RBNZ’s inflation credentials.”

“Amid rising global inflation, it’s logical that the NZD should strengthen, softening the blow.”

Here is what you need to know on Friday, October 22:

The greenback managed to outperform its rivals on Thursday as the benchmark 10-year US Treasury bond yield hit its highest level since early April at 1.706%. The cautiously optimistic market mood, however, seems to be limiting the dollar's gains against its rivals on Friday with the US Dollar Index staying flat around 93.70 after snapping a six-day losing streak. IHS Markit will release the preliminary Manufacturing and Services PMI reports for Germany, the euro area, the UK and the US. San Francisco Fed President Mary Daly and FOMC Chairman Jerome Powell will be delivering speeches at 1400 GMT and 1500 GMT, respectively. 

Macro data: The data from the US showed on Thursday that the weekly Initial Jobless Claims declined to 290,000, the lowest reading since March 2020. On a negative note, the Philly Fed Manufacturing Index fell to 23.8 in October, missing the market expectation of 25. In the euro area, the Consumer Confidence Indicator dropped to -4.8 in October's advanced reading from -4. On Friday, the UK's Office for National Statistics reported that Retail Sales and Retail Sales ex-Fuel decreased by 0.2% and 2.6%, respectively, in September. 

Wall Street: Heightened hopes for US lawmakers reaching a deal on US President Biden's spending bill provided a boost to US stocks on Thursday and the S&P 500 notched a new record high of 4,551. US stock index futures are trading mixed in early European session despite reports revealing that the Chinese real-estate giant Evergrange made a payment of $83.5 million on bond interest.

EUR/USD failed to break above 1.1670 in the first half of the week and closed in the negative territory below 1.1650 on Thursday. The pair stays relatively quiet as investors await October PMI figures. European Central Bank (ECB) Governing Council member Ignazio Visco said that supply bottlenecks could last longer than expected.

Gold is struggling to gather bullish momentum but continues to trade in the upper half of its weekly range above $1,780. XAU/USD could have a difficult time clearing $1,800 unless fueled by falling US T-bond yields. 

GBP/USD seems to have lost its footing following the disappointing Retail Sales data early Friday and the pair is posting small daily losses below 1.3800.

Cryptocurrencies: Following the record-setting rally, Bitcoin staged a correction and lost more than 5% on Thursday. Nevertheless, BTC continues to hold above $60,000 ahead of the weekend. Ethereum reversed its direction after coming within a touching distance of its all-time high of $4,385 but looks to regather bullish momentum with buyers defending $4,000. 

EUR/CHF trades at new lows for the year. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects the pair to tank towards the 1.0505 2020 low on a break below the 1.0643/23 region.

Near-term rallies to find initial resistance at the 1.0792 55-DMA

“EUR/CHF is at new lows for the year and we look for losses to the 1.0623/43 November 2020 low, the 2016 low and 78.6% retracement at 1.0643. This is a major band of support and we would expect the market to hold in this vicinity.” 

“Failure at 1.0623/43 would target the 1.0505 2020 low.” 

“Near-term rallies will find initial resistance at the 55-day ma at 1.0792 and will stay offered while capped there. Above the 55-day ma lies the 1.0865 24th September high.”

FX option expiries for October 22 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.1600-10 1.4b
• 1.1650 719m
• 1.1850 1.1b

- GBP/USD: GBP amounts        

• 1.3700 768m

- USD/JPY: USD amounts                     

• 113.00 472m
• 113.50 685m
• 114.25 560m
• 114.45 530m
• 115.00 640m

- AUD/USD: AUD amounts

• 0.7400 300m

- USD/CAD: USD amounts       

• 1.2350 666m
• 1.2525 597m

- EUR/GBP: EUR amounts

• 0.8435 440m

On the final trading day of the week, gold bulls have regained poise. In the view of FXStreet’s Dhwani Mehta, XAU/USD eyes a firm break above $1795 amid growing inflation fears.

Rising channel hurdle remains a tough nut to crack for gold bulls

“Gold traders now look forward to the Markit Preliminary PMI reports from across the Euro area and the US for fresh signals on the economic recovery, which will likely have a significant impact on the risk tone and the dollar valuation. Fed Chair Jerome Powell’s speech will be also closely eyed as a relatively data-light week draws to an end.”

“The rising trendline resistance at $1795 will continue to offer stiff resistance for gold buyers. A sustained break above the latter will yield an upside breakout from the channel, opening doors towards the previous week’s high of $1801.

“Rejection once again at the channel resistance could see gold price falling back towards the upward-sloping 21-SMA at $1779, below which the 50-DMA at $1777 could come into play. At that level, the rising trendline support emerges.”

See – Gold Price Forecast: XAU/USD to reach $1834 July high on a break above $1794 – Commerzbank

• The UK Retail Sales came in at -0.2% MoM in September, a big miss.
• Core Retail Sales for the UK dropped by 0.6% MoM in September.
• The cable flirts with daily lows below 1.3800 on dismal UK Retail Sales.

The UK retail sales came in at -0.2% over the month in September vs. 0.5% expected and -0.6% previous. The core retail sales, stripping the auto motor fuel sales, stood at -0.6% MoM vs 0.2% expected and -0.7% previous.          

On an annualized basis, the UK retail sales decreased by 1.3% in September versus -0.4% expected and -0.2% prior while the core retail sales dropped by -2.6% in the reported month versus -1.7% expectations and -0.9% previous.

Main points (via ONS)

“Non-food stores reported a fall of 1.4% in sales volumes in September 2021, because of falls in household goods stores (negative 9.3%), such as furniture and lighting stores, and other non-food stores (negative 1.7%) such as sports equipment stores.”

“Automotive fuel sales volumes rose by 2.9% in September 2021 as demand towards the end of September increased sales; volumes were 1.8% above their pre-pandemic February 2020 levels.”

“Food store sales volumes rose by 0.6% in September 2021 and were 3.9% above pre-coronavirus pandemic levels in February 2020.”

FX implications

GBP/USD held the lower ground on the downbeat UK Retail Sales, flirting with daily lows of 1.3784, as of writing.

One-month risk reversal (RR) of USD/CHF, a gauge of calls to puts, drops the most since the week ended on September 03, per the latest data from Reuters.

The same matches the USD/CHF price moves as the pair prints a three-day downtrend, pressured around the five-week low of 0.9170 amid the early European session on Friday.

Risk reversal flashes a -0.425 figure for the week ending October 22, suggesting a strong bearish bias among the USD/CHF traders. It’s worth noting that the daily RR drops for the second consecutive day to -0.050 at the latest.

The Swiss Franc’s safe-haven appeal backs the USD/CHF sellers during the risk-off mood. However, the chatters over the Fed’s tapering may help the US dollar to regain its bullish stand. For that, Fed Chair Jerome Powell should follow the latest fashion of highlighting inflation fears, as well as today’s preliminary PMI’s for October also need to print hawkish numbers.

Read: USD/CHF stays below 0.9200 amid risk-off mood, US PMI eyed

• Copper struggles to extend the rebound from weekly low.
• 50-SMA, ascending trend line confluence challenge bulls, 38.2% Fibonacci retracement restrict immediate downside.

Copper retreats to $4.5835 while fading recovery moves from the weekly low as Friday’s European session begins.

In doing so, the red-metal steps back from 50-SMA level around $4.6000, also consolidating gains from 38.2% Fibonacci retracement (Fibo.) level of the monthly run-up.

Other than the $4.6000, a convergence of 23.6% Fibo. and ascending trend lines from October 14 and 06, around $4.6425-30, also challenge copper buyers.

Given the bull’s ability to cross the $4.6430 hurdle, the latest swing high near $4.7575 may probe the upside before highlighting the monthly peak of $4.8230.

Meanwhile, pullback moves may aim for a 38.2% Fibonacci retracement level of $4.5300 before October 12 tops near $4.3955 can return to the market’s attention.

Should copper sellers dominate past $4.3955, an ascending support line from the month’s start near $4.3170, will be in focus.

Overall, copper prices remain bullish but short-term pullback can’t be ruled out.

Price of copper: Four-hour chart

Trend: Further upside expected

• AUD/USD trades higher on Friday in the early European session.
• The pair contiunes to move higher from the lows of 0.7191 in the October series.
• A break below 0.7450 could expose more downside risk for AUD/USD.

AUD/USD manages to contain the previous day’s decline on Friday. The pair fell from the high of 0.7547 composed of more than 80-pips movement in the overnight session. At the time of writing, AUD/USD is trading at 0.7477, up 0.11% for the day.

AUD/USD daily chart

On the daily chart, the AUD/USD pair has been facing a strong resistance barrier near 0.7550 where the current rally faces downside pressure. The spot has posted strong gains since the beginning of the October series from the lows of 0.7191.

If the price breaks below the intraday low then the first downside target appears at the 0.7410 horizontal support level, followed by the low made on October, 13 at 0.7322.

The Moving Average Convergence Divergence (MACD) trades into the overbought zone. Any downtick in the MACD would open the gates for the 0.7300 horizontal support level.

Alternatively, if the price breaks above the intraday high, it could move back to the previous day’s high of 0.7547. Further, a daily close above the 100-day Simple Moving Average (SMA) at 0.7588 would make the possibility of the psychological 0.7600 level. Next, on the bulls' radars will be the 0.7650 horizontal resistance level. 

AUD/USD additional levels

FX Strategists at UOB Group noted that a drop below 0.7440 would indicate that the positive phase in AUD/USD has finished.

Key Quotes

24-hour view: “We highlighted yesterday that ‘while the advance in AUD is deeply overbought, robust upward momentum could carry AUD higher to 0.7550’. We added, ‘a sustained rise above 0.7550 is unlikely’. AUD subsequently rose to 0.7547 before staging a sharp sell-off that sent it plummeting to 0.7459 during NY session. The rapid drop from the high appears to be overdone and AUD is unlikely to weaken much further. For today, AUD is more likely to between 0.7440 and 0.7510.”

Next 1-3 weeks: “We have held a positive view in AUD for about 2 weeks now. In our latest narrative from yesterday (21 Oct, spot at 0.7520), we indicated that AUD ‘could strengthen further to 0.7550, even as high as 0.7580’. AUD subsequently rose to within a few pips of 0.7550 (high of 0.7547) before dropping sharply. The rapid drop from the high has resulted in a quick loss in momentum and a break of our ‘strong support’ at 0.7440 would indicate that the positive phase has come to an end. Unless AUD moves and stays above 0.7490 within these 1 to 2 days, a break of 0.7440 would not be surprising.”

CME Group’s flash data for crude oil futures markets noted traders scaled back their open interest positions by around 29.8K contracts on Thursday. Volume, instead, rose by around 117.2K contracts after two consecutive daily drops.

WTI remains capped by $84.00… for now

Prices of the WTI rebounded from lows in the sub-$81.00 area and closed in the red territory on Thursday. The bounce was amidst shrinking open interest, which is indicative that further strength remains elusive for the time being. On the upside, however, the $84.00 mark per barrel still emerges as a solid resistance.

• AUD/JPY jumps back to gains after snapping 10-day uptrend the previous day.
• Risk appetite dwindles as inflation-linked fears battle US stimulus hopes, China news.
• Japan’s National CPI ex-Fresh Food marks first increase in 18 months, Aussie PMIs came in mixed.
• Risk catalysts are the key for fresh direction, Treasury yields should be observed closely.

AUD/JPY justifies its risk barometer status while flashing 0.16% intraday gains near Friday’s European session. The cross-currency pair prints 85.22 by the press time as sentiment-positive headlines challenge the previous risk-off mood.

Among the key positives are the headlines concerning China’s troubled real-estate firm Evergrande. The Hong Kong-listed firm’s ability to pay a bond coupon and hopes of getting its assets sold, despite prior rejection from Hopson, challenge the risk aversion wave of late.

On the same line was US President Joe Biden’s optimism over striking a deal to pass major infrastructure and social spending measures, as well as chatters surrounding the Sino-American phase one trade deal.

Also favoring the bulls is Melbourne’s unlock after 262 days of the coronavirus-led activity controls.

On the contrary, inflation chatters and US President Biden’s readiness to defend Taiwan from China probe the optimists.

Amid these plays, US 10-year Treasury yields ease to 1.685%, up one basis point (bp), following the previous day’s jump to a five-month high of 1.70%. Also portraying the cautious in the market is the mildly offered S&P 500 Futures and pressured US Dollar Index (DXY) prices.

Talking about data, Japan’s National CPI ex-Fresh Food prints 0.1% figure to register the first positive figure in 18 months while the Jibun Bank Manufacturing PMI for October also rose past 51.5 prior and 51.4 expected to 53.0. On the other hand, Australia’s Commonwealth Bank PMIs came in mixed for October due to weaker than expected Manufacturing PMI but Reserve Bank of Australia (RBA) Governor Philip Lowe kept citing inflation fears in his latest speech.

 Moving on, AUD/JPY traders should stick to risk catalysts for fresh impulse amid a light calendar at home. However, US Treasury yields may probe the bulls on breaking 1.70% key resistance.

Technical analysis

Rebound from 5-day EMA, around 85.10 by the press time, needs validation from March’s top of 85.45 before challenging the yearly peak, also highest since February 2018, near 86.25.

Cable remains poised to challenge and surpass the 1.3850 level in the next weeks, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our expectations for GBP to ‘move above 1.3850’ did not materialize as it traded in a relatively quiet manner between 1.3776 and 1.3834. Flattish momentum indicators suggest that GBP is likely to trade sideways for today, expected to be within a range of 1.3760/1.3830.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (21 Oct, spot at 1.3825). As highlighted, while GBP is likely to break 1.3850, upward momentum is not that strong and 1.3915 may not come into the picture so soon. Overall, the GBP strength that started last Thursday (14 Oct, spot at 1.3665) is deemed intact as long as GBP does not move below 1.3720 (no change in ‘strong support’ level from yesterday).”

Open interest in gold futures markets reversed two consecutive daily builds and increased by just 128 contracts on Thursday, considering preliminary readings from CME Group. Volume followed suit and shrank by around 42.5K contracts after two daily advances in a row.

Gold now looks to $1,800

Gold prices approached the $1,790 mark on Thursday although retreated soon afterwards to close the session with modest gains. The move was on the back of shrinking open interest and volume, allowing for further upside in the very near term at least. Moving forward, the precious metal continues to target the key $1,800 mark per ounce troy.

• Asian stocks set to close the week on a higher note amid improved risk appetite.
• China media reported China’s debt-ridden property giant Evergrande Group’s debt crisis is individual, risk is contained for now.
• The Reserve Bank of Australia (RBA) intervened in the bond market operation for the first time since end-February.

Asian stocks edge higher as risk appetite returns after China’s debt-ridden Evergrande makes a payment of $83.5 million bond interest payment.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged down 0.1% so far.

The Shanghai Composite Index is trading higher 0.05% after China pledges to keep property curbs and downplayed concerns over the unfolding crisis around Evergrande Group.  

The Nikkei 225 index rose 0.5%, following the upbeat Japan’s Manufacturing PMI, which grew sharply in October due to a rise in export orders.

The ASX 200 traded marginally lower about 0.2% amid mixed global cues and domestic economic reopening efforts. The Reserve Bank of Australia (RBA) intervened in the Bond market operation to shield its yield target as it offered to buy $750 million of its targeted government bond maturity in April 2024.

Hang Seng Index rose 0.44%, South Korea’s advanced 0.35%, with shares of Samsung SDI soaring around 2% amid announcement of a joint venture with automaker Stellantis to produce battery cells and modules for North America.

Oil prices traded lower, with WTI slipping below $82.20 and 0.41% losses.

• Palladium consolidates weekly losses inside the key moving average envelope.
• Bullish Momentum suggests further consolidation of September’s losses.
• Multiple descending trend lines challenge the buyers beyond 50-DMA.

Palladium (XPD/USD) holds onto gains above $2,000, up 0.53% intraday around $2,013 as European traders brace for Friday’s bell.

In doing so, the precious metal marks the second bounce off 21-DMA while staying below 50-DMA. However, the firmer Momentum line hints at a slow grind to the north after the last month’s fall.

Though, downward sloping trend lines from September 01 and July 12, respectively around $2,125 and $2,220, add to the upside filters, beyond the 50-DMA level of $2,093, to challenge the XPD/USD bulls.

Meanwhile, a downside break of the 21-DMA level, close to $1,998 by the press time, may take a halt around early October’s swing high near $1,917 before challenging the monthly low near $1,850.

It’s worth noting that multiple stops around September’s bottom close to $1,848-49 may question the palladium bears afterward, a break of which will direct the quote towards May 2020 lows near $1,770.

Overall, palladium prices stay on course to recovery but with a bumpy road ahead.

XPD/USD: Daily chart

Trend: Further recovery expected

In opinion of FX Strategists at UOB Group, the upside momentum in EUR/USD has subsided and now looks to 1.1590.

Key Quotes

24-hour view: “We highlighted yesterday that the ‘the bias for EUR is on the upside but any advance is unlikely to challenge the major resistance at 1.1680’. EUR subsequently rose to 1.1667 before staging a surprisingly sharp pullback (low of 1.1618 in NY). The pullback from the high appears to have room to extend but a break of the strong support at 1.1590 is unlikely (there is another support at 1.1605). On the upside, a breach of 1.1650 would indicate that the downward pressure has eased (minor resistance is at 1.1635).”

Next 1-3 weeks: “Two days ago (20 Oct, spot at 1.1630), we highlighted that EUR could consolidate for a couple of days first but it is likely to head to the next major resistance at 1.1680 later on. Yesterday (21 Oct), EUR rose to 1.1667 before pulling back quickly. Upward momentum has eased and a break of 1.1590 (no change in ‘strong support’ level) would indicate that 1.1680 is out of reach this time round. In order to rejuvenate the flagging momentum, EUR has to move and stay above 1.1650 within these 1 to 2 days or a break of 1.1590 would not be surprising.”

• USD/INR fades bounce off two-week low, drops for the second consecutive week.
• India lauds one billion vaccinations, China’s Evergrande adds to the positives.
• Inflation fears, pre-PMI caution challenge market bulls amid Fed tapering chatters.

USD/INR reverses the previous day’s corrective pullback from a fortnight low ahead of Friday’s European session. That said, the Indian rupee (INR) pair sellers attack the intraday low near 74.80, down 0.09% by the press time.

In doing so, the INR bulls cheer the one billion covid vaccinations at home, as well as the growing optimism of Finance Minister Nirmala Sitharaman, as portrayed during her early week speech. Recently, Indian Prime Minister Narendra Modi lauded the promise of jabbing the majority of the nation’s population and taming the virus risk.

Also favoring the Asian currency could be risk-positive headlines from China. In addition to the hopes of the Sino-American phase one trade deal, Evergrande’s ability to pay bond coupons and chatters that Hopson is still interested in the troubled firm’s assets, despite the latest failure to seal the deal, brighten the mood in Asia.

Elsewhere, New York Federal Reserve (Fed) President John Williams is the latest one to reiterate the inflation fears following Fed Governor Christopher Waller and Randal Quarles, as well as Cleveland Fed President Loretta Mester.

Although the inflation fears and Fed tapering woes underpin the US Treasury yields, the US Dollar Index (DXY) fails to keep the previous day’s recovery moves, down 0.03% intraday around 93.73 at the latest.

Hence, USD/INR traders seek clarity and may wait for the US PMIs, as well as a speech from Fed Chairman Jerome Powell, up for publishing later in the day, for fresh impulse.

Technical analysis

The pullback from a double-top surrounding 75.65 directs USD/INR traders towards a seven-week-old support line near 74.55.

• USD/CNH reverses early Asian losses following a bearish candlestick formation.
• MACD conditions, short-term falling trend line also favor sellers.
• Bulls need validation from 61.8% Fibonacci retracement, September’s low.

USD/CNH picks up bids to $6.3955, recovering early-day losses ahead of the European session on Friday.

The offshore Chinese currency (CNH) pair printed a bearish Doji candlestick the previous day,  challenging a continuation of the rebound from a four-month low flashed earlier in the week.

Also favoring the sellers is the quote’s sustained trading below a downward sloping trend line from October 12 and 61.8% Fibonacci retracement (Fibo.) level of May-July upside amid bearish MACD signals.

That being said, the USD/CNH prices may initially test the $6.3800 area during fresh downside ahead of challenging the monthly low of $6.3685.

Following that, the yearly low marked in May, around $6.3525, will be in focus.

Alternatively, the stated resistance line and the key Fibo. level, respectively near $6.4135 and $6.4200, will challenge the quote’s recovery moves.

It should be noted, however, that the USD/CNH bulls should remain cautious until the quote stays below September’s low of $6.4245.

USD/CNH: Daily chart

Trend: Further weakness expected

• GBP/USD pares initial gains on Friday in the Asian trading hours.
• Higher US Treasury yields shield the underperformance of the US dollar.
• Mixed play of US debt deal, Brexit headlines, and critical UK/US data set the tone for the day.

GBP/USD remains muted on the last trading day of the week. The pair remained pressured near 1.3830 as it failed to cross the level for the past few sessions. At the time of writing, GBP/USD is trading at 1.3794, up 0.02% for the day.

The market seems to be  fully discounted the  Bank of England’s (BOE) rate hikes expectations in November. Nick Bennenbroek, International Economist at Wells Fargo said after the initial November hike, there is expectation for another 25bps increase in May, 2022 and a further 25 bps in November 2022, which means ending the BOE’s policy rate cycle ending next year at 0.75%.

The Brexit-led optimism failed to uplift the sentiment surrounding the sterling, following the positive comments from the UK Prime Minister Boris Johnson on the NI protocol.

The greenback managed to hold near 93.70 with minimum losses, tracing the higher US T-bonds yields at 1.68%. The US President Joe Biden remained positive on the passage of the major infrastructure and social spending measures. 

Mixed US data weighs negatively on the US dollar. The Existing Home Sales jumped 6.29 million units in September with a growth of 7% on monthly basis. The Philadelphia Fed Manufacturing Index fell 23.8 in October as compared to 30.7 in September. The US Initial Jobless Claims came lower at 290K below the market expectations of 300K.

As for now, traders keep their focus on the UK Retail Sales, and US Markit Manufacturing Purchasing Managers Index (PMI) data to gauge market sentiment.

GBP/USD additional levels

• EUR/USD reverses pullback from weekly top, sidelined of late.
• Market sentiment dwindles even as ECB, Fed policymakers cite inflation fears.
• US stimulus, China’s Evergrande and Sino-American trade deal news probe risk-off mood.
• Preliminary readings of October’s Markit PMIs will be the key amid escalating reflation woes.

EUR/USD struggles to extend early Asian recovery moves around 1.1630 heading into Friday’s European session.

The major currency pair snapped a six-day uptrend the previous day on concerns that escalating price pressures in the US and Eurozone may push the respective central banks towards faster monetary policy normalization. However, sentiment-positive headlines challenged the sellers afterward.

While Fed Governor Christopher Waller followed Federal Reserve Governor Randal Quarles and Cleveland Fed President Loretta Mester to highlight the inflation fears, New York Federal Reserve (Fed) President John Williams is the latest one to reiterate the phenomena. The same could be observed in the US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, as the gauge jumps to a nine-year high.

On the other hand, European Central Bank (ECB) Governing Council member Ignazio Visco said on Thursday that supply bottlenecks are starting to weigh on the Italian economy and added that they could last for longer than expected, per Reuters.

It should be noted that the inflation chatters help the US Treasury yields to poke the key 1.70% level, a break of which triggered the US dollar rally in the past.

Following that, news concerning US President Joe Biden’s optimism over striking a deal to pass major infrastructure and social spending measures and chatters surrounding the Sino-American phase one trade deal tamed the pessimists. Additionally, Evergrande’s ability to pay a bond coupon and hopes of getting assets sold, despite prior rejection from Hopson, challenge the risk aversion wave.

While portraying the mood, stock futures recover and the US Dollar Index (DXY) fades the previous day’s rebound from a three-week top. Though, the US 10-year Treasury yields remain firmer around 1.69% and keep EUR/USD buyers hopeful ahead of the key PMI data for October.

October’s preliminary activity data for Germany and Eurozone will be the key after Italy flagged risk of heating inflation. Following that, the US Markit PMIs will be crucial to follow for fresh impulse. Given the firmer US Treasury yields, strong US data may recall the EUR/USD bears. Also important will be speeches from Fed Chairman Jerome Powell and San Francisco Fed President Mary C. Daly.

Technical analysis

EUR/USD formed a double top bearish chart pattern around 1.1665-70, also comprising 61.8% Fibonacci retracement (Fibo.) of September 22 to October 12 downturn. Descending RSI line and sustained trading below 200-SMA (on the four-hour chart) also favor the pair sellers. However, the support line of a two-week-old ascending trend channel joins 38.2% Fibonacci retracement of the stated short-term moves, also 23.6% Fibo. level of a decline from early September, restrict the quote’s immediate downside around 1.1620-15.

In an unscheduled move on Friday, the Reserve Bank of Australia (RBA) intervened in the bond market operation to defend its yield target for the first time since end-February.

Key details

“The RBA offered to buy A$1 billion ($750 million) of its targeted government bond maturing in April 2024.”

“The yield on the April 2024 bond fell 5.6 basis points (bps) to 0.14%, according to Refinitiv data, leaving it still four bps higher than the central bank's 0.1% target.”

Earlier on, the central bank Governor Phillip Lowe said that “the Reserve Bank of Australia (RBA) is closely watching a spike in inflation.”

Market reaction

Amidst the RBA’s intervention and China Evergrande news, AUD/USD staged a swift rebound to daily highs of 0.7490, before reversing slightly to 0.7477, where it now wavers. The spot is still up 0.15% on the day.

• USD/TRY consolidates gains on Friday after Previous session’s madness.
• Bulls hit an all-time high of 9.55  a day earlier in a 30-pips movement.
• Overbought MACD throws caution on aggressive bids.

USD/TRY remains muted in the Asian session on Friday. The cross-currency pair peaked at all time around 9.5540 in the US session, following two days’ sell-off. The pair confides in a very narrow trade band with no meaningful traction. At the time of writing, USD/TRY is trading at 9.5245, up 0.07% for the day.

USD/TRY daily chart

On the daily chart, the USD/TRY cross-currency pair has been in the upside momentum since October, 5. USD/TRY remains in continuous uptrend after putting the paddle on the accelerator. A strong bullish candle on Thursday suggests that the USD/TRY bulls are not ready to give up any time sooner.

If the price sustains the session’s high it could test the all time high above 9.5532 once again.

Alternatively, if the price reverses direction, it could first test the 9.3680 horizontal support level followed by the double bottom near 9.2050. The Moving Average Convergence Divergence (MACD) indicator holds onto the overbought zone with a stretched buying conditions. Any downtick in the MACD could bring the 9.1000 horizontal support level back into action.

Further comments are flowing in from the State Administration of Foreign Exchange (SAFE), China’s fx regulator, as it now talks about the recent appreciative move in the yuan.

Key quotes

According to the latest Reuters poll of 40 economists, the European Central Bank (ECB) could embark upon its interest rate tightening cycle earlier than the previously expected forecast of a hike in 2024.

Key findings

“The October 18-21 Businesshala poll consensus pointed to no rate hike until the end of 2023, but nearly 90% of economists answering an additional question, 35 out of 40, said the risk came earlier than expected.”

“Poll moderators showed the ECB deposit rate at -0.50% and the refinancing rate unchanged at zero until the end of 2023. A small sample observed for more than two years showed the deposit rate at -0.30% and the REFI rate at zero by the end of 2024.”

“Three-quarters of economists who held the view that in the future, exactly 18 out of 24, expect at least one rate hike in 2024.”

“When asked about the quantum of its regular asset purchase program (APP) beyond that date, the middle of 29 responses currently bought 40 billion euros worth of bonds, compared to 20 billion euros each month. The highest forecast was 65 billion euros.”

“When asked about greater concern for the euro area economy in the coming year, nearly two-thirds of the respondents, or 27 in 42, said it was a larger than expected slowdown in economic growth. The rest said persistently high inflation.”

• EUR/USD coming up for a breath of air in support

“The Chinese yuan remains basically stable and cross-border capital flows basically stable amid higher expectations of monetary policy tightening at major economies,” the State Administration of Foreign Exchange (SAFE), China’s fx regulator, said on Friday.

Additional takeaways

“Market expectations are relatively stable, conducive to maintaining a stable yuan.”

“Commercial banks purchased net $20.9 bln of forex in September vs net purchase of $13.6 bln in August.”

“Commercial banks purchase net $180 bln of forex in January – September.” 

Related reads

• China pledges to keep property curbs, Evergrande risk seen limited
• AUD/USD pokes 0.75 as Melbourne unlock, Evergrande news combat inflation fears

• AUD/USD regains upside momentum after stepping back from three-month high.
• World’s most locked-down city reopens, Aussie infections remain elevated but vaccinations jump.
• US-China trade optimism joins US stimulus hopes and Evergrande headlines to lift the sentiment.
• US PMIs eyed amid inflation fears, firmer Treasury yields.

AUD/USD picks up bids to refresh intraday top around 0.7490, up 0.26% on a day while consolidating the heaviest daily fall in October during early Friday. Although the inflation-linked headlines weighed on the Aussie pair the previous day, risk-on mood favors the quote of late.

Among the key positives was Melbourne’s unlock after 262 days of the coronavirus-led activity controls as the nation rushes over jabbing and can ignore the recent uptick in the infections. The ABC news cites 2,547 daily cases versus a one-week high of 2,643 flashed on Thursday.

Further, US President Joe Biden’s CNN town hall speech spread optimism over the infrastructure deal as the national leader said that he was close to striking a deal to pass major infrastructure and social spending measures, after weeks of intraparty bickering among his fellow Democrats, per Reuters.

It should be noted that the chatters over a virtual meeting between US President Biden and his Chinese counterpart Xi Jinping also favored the risk appetite. “White House officials are gearing up for a virtual meeting between President Joe Biden and Chinese leader Xi Jinping they hope will show the world Washington can responsibly manage relations between the rival superpowers, people familiar with the matter say,” said Reuters.

China’s Evergrande also flashed some positives after multiple days of denting the market sentiment. The troubled real-estate firm not only paid an $83.5 million bond coupon but also turns hopeful on asset sale to Hopson. “China Evergrande rival Hopson Development Holdings Limited, which had sought to buy half of the embattled developer’s property management unit, still considers the purchase agreement ‘legally binding’ despite Evergrande rescinding the sale on October 12,” said the South China Morning Post (SCMP).

Elsewhere, Fed policymakers continue to highlight inflation fears and pump the US Treasury yields around the key 1.70% level, a break of which triggered the US dollar rally in the past. Recently, New York Federal Reserve (Fed) President John Williams followed Fed Governor Christopher Waller to highlight the reflation woes.

Amid these plays, stock futures recover and the US Dollar Index (DXY) fades the previous day’s rebound from the three-week top. However, the preliminary readings of the US PMIs for October will be the key to watch. At home, Australia’s Commonwealth Bank PMIs came in mixed for October due to weaker than expected Manufacturing PMI.

Technical analysis

A nearly seven-month-old horizontal resistance area surrounding 0.7530-35 becomes the key hurdle to cross for the AUD/USD bulls amid overbought RSI conditions.

While speaking to CNN News on Friday, US President Joe Biden said. "I do think I'll get a deal" on key spending proposals.

Additional quotes

"It's all about compromise. You know, compromise has become a dirty word, but ... bipartisanship and compromise still have to be possible."

On whether he will be able to push such ambitious legislation across the finish line, Biden said, "everybody's been saying, well, 'that's crazy, you can't do it. If we can't eventually in this country, we're in deep trouble."

“The corporate tax rate won't rise.”

On the supply chain bottlenecks, he said, “may call in the national guard to drive trucks.”

“The US had made a commitment to defend Taiwan in the event of a Chinese attack.” 

US dollar remains on the defensive

The US dollar index posts small losses so far this Friday, under pressure by the resurgent risk-on flows, courtesy of the surprise China Evergrande payment.

The spot was last seen trading at 93.73, down 0.04% on the day.

Liu Zhongrui, an official at the China Banking and Insurance Regulatory Commission (CBIRC), downplayed concerns over the unfolding crisis around China Evergrande Group while adding that they will maintain the curbs on the country’s property market.

Key quotes (via Bloomberg)

“The property controls have achieved good results and the government will refrain from using the real estate sector as a short-term economic stimulus measure.”

“Evergrande is an “individual” case and won’t hurt the overall credibility of Chinese firms, which is backed by the country’s economic stability.”

Related reads

• China Evergrande makes $83.5 million bond interest payment

• AUD/USD pokes 0.75 as Melbourne unlock, Evergrande news combat inflation fears

• NZD/USD consolidates Thursday’s losses, refreshes intraday high of late.
• Inflation-linked market fears fade amid sentiment-positive headlines from US, China.
• NZ PM unveils “traffic light” pattern on easing virus-led activity controls, aims 90% covid jabbing.
• US PMIs are the key amid reflation woes, risk catalysts are important too.

NZD/USD recovers the heaviest daily fall in 12 days around 0.7170 during early Friday. The kiwi pair refreshes a four-month high the previous day before reversing from 0.7218, ultimately printing the negative daily closing.

While inflation woes could be held responsible for the quote’s pullback on Thursday, the recent recovery seems to track headlines concerning the US stimulus and China’s Evergrande, not to forget easing COVID-19 restrictions at home.

Although New York Federal Reserve (Fed) President John Williams follows Fed Governor Christopher Waller to highlight the inflation fears, recently mixed data from the US, mainly relating to the jobs and housing, probe the US bond bears. Before that, Federal Reserve Governor Randal Quarles and Cleveland Fed President Loretta Mester highlighted inflation fears and propelled the US 10-year Treasury yields to the highest in five months, up 1.9 basis points (bps) near 1.694% at the latest.

Evergrande also shares the good news of paying $83. Million bond coupon, per China’s Securities Times. On the same line was the South China Morning Post (SCMP) that tried to soothe the Evergrande-led jitters while citing the company filing with the Hong Kong stock exchange. “China Evergrande rival Hopson Development Holdings Limited, which had sought to buy half of the embattled developer’s property management unit, still considers the purchase agreement ‘legally binding’ despite Evergrande rescinding the sale on October 12,” said SCMP.

At home, New Zealand (NZ) PM Jacinda Ardern announced the “traffic light” system to ease the virus-led activity restrictions. The national leader also revealed the 90% vaccination target, as well as around $1.0 billion support measures during early Friday.

Read: NZ PM Ardern reveals traffic light system with 90% vaccination target

While the S&:P 500 Futures portray a shift in the market sentiment, dragging the US Dollar Index (DXY) down, the US 10-year Treasury yields remain firmer around the key hurdle of 1.70%, a break of which triggered US dollar rally in the past.

Looking forward, the risk catalysts will be important ahead of the US preliminary PMI for October.

Technical analysis

NZD/USD teases bull cross on the daily chart but overbought RSI challenges further upside around 61.8% Fibonacci retracement (Fibo.) of February-August downturn at 0.7210, suggesting a pullback before the next move up.

While a daily closing below September’s high surrounding 0.7170 directs the quote towards 50% Fibo. level near 0.7135, any further weakness will be challenged by an eight-month-old previous resistance line, close to 0.7080 by the press time.

• USD/INR bulls move in for the kill to the M-formation's neckline. 
• Resistance could see the price rejected back towards the daily support. 

USD/INR is now recovering from the daily lows as the bulls step in on a stronger US dollar at the end of this week. The following illustrates the various components in play from the technical perspective. As per the prior session's analysis, it was stated that US yields and a rising US dollar could see the spice of USD/INR firm.

US yields and DXY charts

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After...

DXY before...

After...

USD/INR analysis

Before...

It was stated that a restest the neckline of the M-formation could lead to a lower low to the next level of support near 74.60. ''If bulls can hold the fort there, then there would be prospects of an upside continuation building from that point. Below there, however, the bulls could well suffer a significant correction from the bears.''

We are seeing this start to play out as the price heads into the neckline of the M-formation:

As illustrated, the price is moving in on the resistance and if this holds, then we can expect to see supply emerge to the aforementioned support area. On the other hand, should US yield and the greenback continue higher, then the correction will likely be over and there will be probabilities of an upside extension. 

New York Federal Reserve (Fed) President John Williams said on Friday, longer-run inflation expectations are in line with the central bank’s 2% goal.

Additional takeaways

Market reaction

The US dollar index is seeing a spurt of fresh selling, as the risk sentiment gets a lift on the positive China Evergrande’s news.

At the time of writing, the dollar index is down 0.04% on the day, trading at 93.73, having stalled its recovery at 93.80.

The risk appetite is returning to Asia this Friday after China Evergrande makes a payment of $83.5 million in lieu of the bond interest, Reuters reports, citing China’s Securities Times.

The indebted Chinese property development giant made the payment on Thursday, October 21.

Further, Reuters reports, citing a source, that Evergrande wired funds to a trustee account for a bond interest payment, which was due on September 23.

The payment of the bond interest rescued the property giant from a formal default, helping save the face of the Chinese authorities ahead of the country’s biggest annual political event.

Another $45m payment is due on October 29, which was also due late September with a 30-day grace period. 

Market reaction

Investors cheered this encouraging news, as the Asian stocks extended the gains while boosting the riskier currencies across the fx board.

AUD/USD jumped to test daily highs at 0.7490, adding 0.25% on the day. The S&P 500 futures post small losses so far this Friday.

• Gold picks up bids to print four-day uptrend.
• US President Joe Biden’s stimulus hints, China’s Evergrande recently favored sentiment.
• Inflation fears keep US Treasury yields firmer but DXY fails to extend the latest rebound.
• Gold Price Forecast: Bulls maintain the pressure as inflation concerns are back

Gold (XAU/USD) refreshes intraday high to $1,787 during the four-day run-up amid early Friday. The yellow metal witnessed pullback the previous day amid firmer US dollar, on relation fears, but the latest sentiment-positive headlines seem to have favored the gold buyers.

Among the positive headlines were US President Joe Biden’s optimism for the infrastructure deal during the CNN town hall event and Evergrande news. Also favoring the risk appetite could be the vaccine news.

“President Joe Biden said on Thursday he was close to striking a deal to pass major infrastructure and social spending measures, after weeks of intraparty bickering among his fellow Democrats,” per Reuters.

On the other hand, the South China Morning Post (SCMP) tried to soothe the Evergrande-led jitters while citing the company filing with the Hong Kong stock exchange. “China Evergrande rival Hopson Development Holdings Limited, which had sought to buy half of the embattled developer’s property management unit, still considers the purchase agreement ‘legally binding’ despite Evergrande rescinding the sale on October 12,” said SCMP.

Additionally, China’s Securities Times came out with the news suggesting Evergrande paid an $83.5 million bond interest payment.

It should be noted that Federal Reserve Governor Christopher Waller said that the next few months will be critical to see whether inflation is transitory, as reported by Reuters. Before that, Federal Reserve Governor Randal Quarles and Cleveland Fed President Loretta Mester highlighted inflation fears. Even so, mixed US data questioned pessimists but also didn’t allow the equity bulls to dominate further.

Against this backdrop, the S&P 500 Futures pare early Asian losses, down 0.07% at the latest, whereas the US 10-year Treasury yields remain firmer around 1.70%, recently up 1.9 basis points (bps) near 1.694%. Further, the US Dollar Index (DXY) keeps the previous day’s rebound near 93.75 by the press time.

Moving on, risk catalysts may entertain the gold traders ahead of the preliminary reading of October Markit Manufacturing PMI, expected 60.3 versus 60.7 prior. Given the fears of inflation, any further strength in the key data and/or details can propel the US dollar and weigh on the gold prices near the short-term key hurdle.

Technical analysis

Gold buyers battle inside a monthly rising wedge bearish chart pattern amid mixed signals from the MACD histogram and RSI line. Though, the 200-SMA and support line of the stated chart formation offers a tough nut to crack for the sellers around $1,769.

On the contrary, recovery moves need to post a clear run-up through the monthly horizontal resistance surrounding $1,790 to call back the gold buyers.

Following that, the monthly peak of $1,800 and the upper line of the wedge, close to $1,806, will precede the mid-September high of $1,808 to entertain the gold bulls. However, any further upside will need validation from the key $1,834 hurdle that stopped advances in July and September.

It’s worth noting that a downside break of $1,769 will theoretically trigger the south-run targeting the sub-$1,700 area. During the fall, multiple supports around $1,747 and $1,732 can test the gold sellers.

Overall, gold prices fade upside momentum but the bears need clear signals for entry.

Gold: Four-hour chart

Trend: Pullback expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.4032 vs the estimate 6.4030 and the previous 6.3890.

About the fix

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

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

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

• EUR/GBP trades marginally higher on Friday in the Asian trading hours.    
• UK Retail Sales, Eurozone/ German PMIs remain the talk of the session.
• UK Prime Minister Johnson cools down to compromise Brexit-led NI protocol terms.

EUR/GBP extends the previous session’s gains on Friday. The cross-currency pair managed to bounce higher, after testing the yearly low at 0.8422 in the US session. At the time of writing, EUR/GBP is trading at 0.8431, up 0.07% for the day.

The shared currency gained some momentum against the British pound for the past two-sessions on the expectations that the European Central Bank (ECB) will turn less dovish in the near future. The ECB Policymaker Pierre Wunsch favored a gradual exit from the ECB’s expansionary monetary policy as per Reuters. The Market anticipates that ECB could push forward interest rate hikes in 2022 against its early estimates of 2024. On the economic side, the Eurozone Consumer Confidence fell -4.8 in October from -4.00 in the previous month.

On the other hand, the sterling seems to enjoy the hawkish Bank of England (BOE) and the Brexit-lead optimism. BOE Chief economist Huw Pill said that UK inflation is likely to hit 5% in early 2022.

In addition to that, the UK Prime Minister Boris Johnson expressed his readiness to compromise terms relating to the Northern Ireland (NI) protocol to overcome the deadlock in Brexit talks. The gains were limited, following the dismal UK’s GfK Consumer Confidence data, which came at -17 in October as compared to -13 in the previous month.

It is worth mentioning that, S&P 500 Futures is  trading at 4,537, down 0.09% for the day.

As for now, traders are waiting for the UK’s Retail Sales, German/ EU PMIs data to gauge market sentiment data.

EUR/GBP additional levels

• ECB and Fed are in focus with critical data to end the week.
• EUR/USD holding up at critical support in the hourly chart.

EUR/USD is trading around 1.1624 and between the 1.1620 and 1.1628 tight range in Tokyo trade in what has been a very quiet session so far for Asia. However, the end of the week for European and US markets will bring plenty of key data for which could still some volatility for traders to enjoy. 

As with the Uk and US and many other parts of the world, supply chain problems and surging energy prices are hitting growth and rising inflation in the eurozone. This is a complicated mix for policymakers at the European Central Bank and the forthcoming October Markit manufacturing PMIs for Europe and Germany will be important. 

Looking over the past data, the eurozone economy has performed well in the second and third quarters, however, growth has likely peaked at this juncture which makes for new challenges for the ECB. ''The October services PMIs should remain robust with delta less of an issue for the region,'' analysts at Westpac argued. In the US, the October Manufacturing and services PMIs are expected to print at healthy levels despite global uncertainties and delta being a higher risk to activity in the US, the analysts said. 

ECB in focus

Meanwhile, the markets night be overpricing the odds of a hawkish central bank. Earlier this week, Chief Economist Lane pushed back against market pricing for ECB tightening. The swaps market is pricing in 10 bp of tightening over the next year, according to Bloomberg. 

Lane explained that “if you look at the market pricing of the forward interest rate curve, I think it’s challenging to reconcile some of the market views with our pretty clear rate forward guidance.”  He also argues that the medium-term outlook for inflation remains below the ECB’s target. 

Traders will look ahead to the next policy meeting that is October 28 and will be expecting clues around QE which will likely be determined at the December meeting. In balance, the Federal Reserve is due to meet in November and markets expect a taper announcement. Data leading into the event will be key with respect to ideas for how the economy is shaping up against the threat of stagflation risks. 

EUR/USD technical analysis

Bulls are taking back control from support and the price is heading into the Fibonacci retracements frm where bears could emerge at hourly resistance. 

• S&P 500 Futures lick its wounds near seven-week high, mildly offered of late.
• US President Biden says he is close to striking infrastructure deal.
• China’s Evergrande has hopes to sell its property despite canceled deal with Hopson.
• Fedspeak highlights reflation fears, US Treasury yields poke key resistance ahead of PMIs.

S&P 500 Futures trim early Asian session losses while recently flashing 4,535 level during Friday. In doing so, the risk barometer struggles to portray the previous day’s inflation-led market fears amid mixed headlines concerning the US stimulus and from China.

US President Joe Biden hints at the infrastructure deal during the CNN town hall event in Baltimore. “President Joe Biden said on Thursday he was close to striking a deal to pass major infrastructure and social spending measures, after weeks of intraparty bickering among his fellow Democrats,” per Reuters.

The South China Morning Post (SCMP), on the other hand, tried to soothe the Evergrande-led jitters while citing the company filing with the Hong Kong stock exchange. “China Evergrande rival Hopson Development Holdings Limited, which had sought to buy half of the embattled developer’s property management unit, still considers the purchase agreement ‘legally binding’ despite Evergrande rescinding the sale on October 12,” said SCMP. It’s worth noting that Evergrande paid an $83.5 million bond interest payment, per China's Securities Times, which in turn adds to sentiment-positive headlines.

Elsewhere, Federal Reserve Governor Christopher Waller said that the next few months will be critical to see whether inflation is transitory, as reported by Reuters. Before that, Federal Reserve Governor Randal Quarles and Cleveland Fed President Loretta Mester highlighted inflation fears.

It should be observed that the US 10-year Treasury yields remain firmer around 1.70%, recently up 1.9 basis points (bps) near 1.694%, whereas the US Dollar Index (DXY) keeps the previous day’s rebound near 93.75 by the press time.

Looking forward, the preliminary readings of the October PMIs will be important to watch for market players after the inflation woes poked equity investors of late. Should the activity data arrives as strong, also highlight price pressure, the US dollar’s recovery moves may have further upside to go, which in turn can weigh on the commodities and Antipodeans.

Read: US Stocks Forecast: S&P 500 moves in on all time highs despite rising yields

• Silver keeps late Thursday’s rebound, picks up bids of late.
• Spinning top candlestick below 200-day EMA challenge upside moves.
• Previous resistance line, firmer RSI keep buyers hopeful.

Silver (XAG/USD) picks up bids to $24.20, up 0.10% intraday amid Friday’s Asian session.

The bright metal jumped to the highest levels since September 07 the previous day before snapping a two-day uptrend, which in turn portrayed a bearish spinning top candlestick on the daily chart. Also keeping the sellers hopeful is the commodity’s pullback below the 200-day EMA.

However, the resistance-turned-support from July 06, around $23.95 by the press time, joins the firmer RSI line to challenge the quote’s further weakness.

Also acting as a downside filter is another trend line support from early July, near $23.30. It’s worth observing that a monthly ascending trend line at $23.15 adds to the supports and challenge the XAG/USD bears.

On the contrary, an upside break of a 200-day EMA level of $24.54 needs validation from September’s high of $24.86 before targeting the August month’s peak of $26.00.

Overall, silver prices grind higher but need a strong push to the north.

Silver: Daily chart

Trend: Further upside expected

• AUD/USD falls as US yields rise and the US dollar recovers ground. 
• AUD/USD bears look to 0.7440 and then 0.7420 on the break of 0.7550s. 

AUD/USD bears are stepping in on the back of a firmer US dollar, some slight risk-off and rising US yields. This is exposing a critical level of support in the 0.7550s that is vulnerable, exposing the 0.7430s as the next downside target on an hourly basis.

As per the prior session's analysis, it was stated that US yields and a rising US dollar would be a major headwind for the commodity currencies for the ed the week's sessions.

US yields and DXY charts

Before...

After...

Before...

After...

AUD/USD technical analysis

As a consequence of the moves in the US dollar and yields, the price of AUD has been pressured also:

The following is what might be expected of a move below the current support structure in the 0.7450s. A break to the 0.7430s would put bulls under pressure defending support territory at 0.7420. 

• A downbeat market sentiment put a lid on the NZD/JPY ten-day rally.
• NZD/JPY: The daily chart indicates the pair is tilted to the upside, but the RSI confirms a correction is underway.
• NZD/JPY: The 4-hour chart depicts the pair has an upward bias, but a correction towards the 78.6 Fibonacci retracement is on the cards.

The NZD/JPY is flat early in the Asian session, trading at 81.51 during the day at the time of writing. The market sentiment is mixed, as Asian equity futures seesaw between gainers and losers. However, on Thursday, a negative market sentiment capped the 10-day rally of the New Zealand dollar against the Japanese yen.

Nevertheless, the long-term trend is tilted to the upside as the bond yield differential widens. Furthermore, the Reserve Bank of New Zealand is in a hike-rate stance, adding further upward pressure on the cross-currency pair.

NZD/JPY Price Forecast: Technical outlook

Daily chart

The NZD/JPY upward trend is overextended, as it was a steep move, from 77.00 towards 82.57, a 500 plus upside move. The cross-currency is tilted to the upside, depicted by the daily moving averages (DMA’s) with an upslope located below the spot price. The Relative Strength Index (RSI) is at 71 in overbought levels, confirming that the pair could correct lower before resuming the prevailing trend.

If the NZD/JPY breaks below the Thursday low of 81.25, traders could expect a correction towards two crucial support levels. The first would be the October 18 low at 80.90 or the May 27 high at 80.17. Either way, in both cases, the NZD/JPY pair could resume the upward trend towards a renewed challenge of the 82.57 level.

4-hour chart

The 4-hour chart confirms the upward bias of the NZD/JPY pair, though it is approaching an upward slope trendline that acts as support. However, a move towards the confluence of the 78.6% Fibonacci retracement and the upslope trendline is on the cards. The intersection lies around 81.00. 

In case of a break lower of the latter, it would expose the 50-simple moving average (SMA) at 80.47. A breach of the abovementioned could send the pair tumbling towards the psychological 80.00

On the flip side, an upward rejection at 81.00 could open the way for a renewed test of the 2021 highs, but there would be some hurdles in the way. The first resistance would be the 50% Fibonacci retracement at 81.50, followed by 82.00. A breach above that level would expose the 82.50.

• USD/CHF edges lower on Friday in the initial Asian session.
• Higher US Treasury yields fail to uplift the demand for the US dollar.
• The pair posts losses for the third-straight session.

USD/CHF remains poised for weekly losses on Friday in the early Asian session. The pair started the October series on a lower note, after testing the high of 0.9368 on September 30. At the time of writing, USD/CHF is trading at 0.9181, down 0.01% for the day.

The US Dollar Index (DXY), which tracks the greenback performance against its six major rivals trades below 94.00, following mixed US data. The US Initial Jobless Claims came at 290K in the week ended October,16 below the market expectations of 300K. The Philadelphia Fed Manufacturing Index dropped 23.8 in October from 30.7 in September.

On the other hand, the Swiss franc gains momentum on its safe-haven appeal. The risk sentiment worsened after China’s debt ridden Evergrande failed to commit its $2.6 billion deal on Wednesday. Investors remain concerned about its more than $300 billion debt. It is worth noting that, S&P 500 Futures is trading at 4,531, down 0.22% for the day.

As for now, traders are looking for the US Markit Manufacturing Purchasing Managers Index (PMI), Markit Services PMI to take fresh trading insight.

USD/CHF additional levels

• GBP/USD struggles to extend pullback from monthly high.
• UK PM Johnson ready to compromise Brexit, NI protocol terms, British covid infections jump.
• Inflation expectations jump to multi-year high in the UK, US.
• UK Retail Sales, PMI can offer immediate direction ahead of the US activity data.

GBP/USD retreats to 1.3790 following its first negative daily close in three. In doing so, the cable pair fades the late Thursday’s bounce off 1.3776 during Friday’s Asian session.

The reason could be linked to the mixed headlines concerning Brexit, the UK’s coronavirus conditions and the broad US dollar strength due to the reflation fears in the US and Britain.

Starting with Brexit, UK PM Boris Johnson finally shows readiness to compromise terms relating to the Northern Ireland (NI) protocol and Brexit to overcome the deadlock in the key talks. The Times said, “Boris Johnson would be prepared to accept a limited role for the European Court of Justice in a bid to unlock a deal with Brussels over the Northern Ireland protocol, government figures say.”

Further, the UK reports the first above 50,000 infections, 52,009 per The Guardian, since July according to the latest government release. On the same line were fears of a more infectious variant of the coronavirus than Delta, namely AY.4.2 per the Researches Kamil Khafizov, said The Guardian.

Elsewhere, the UK’s GfK Consumer Confidence dropped to the lowest since February with -17, versus -13 prior. Details also suggest that the consumer inflation expectations have jumped to the record since the survey began in 1985.

On the other hand, the US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, also rally to the highest since 2012 and underpin the US dollar’s safe-haven demand. It’s worth noting that Federal Reserve Governor Christopher Waller said on Thursday that the next few months will be critical to see whether inflation is transitory, as reported by Reuters. Before that, Fed Governor Randal Quarles and Cleveland Fed President Loretta Mester highlighted inflation fears and favored the US Treasury yields to refresh five-month high around 1.70%, up 1.2 basis points (bps) near 1.69% by the press time.

The risk-off mood battles the Brexit optimism and the recent headlines suggesting likely relief for China’s Evergrande and US President Joe Biden’s hints for nearness to the stimulus.

Against this backdrop, the S&P 500 Futures drop 0.24% intraday while the US Dollar Index (DXY) remains firmer around 93.75 at the latest.

Looking forward, GBP/USD traders will pay close attention to the UK Retail Sales for September, expected -0.4% YoY versus 0.0% prior, ahead of the preliminary readings of the British PMIs for October. Given the Bank of England’s (BOE) hawkish signals, versus recently flashed softer UK inflation data, firmer Retail Sales and PMIs may help the GBP/USD to remain strong. Though, the US PMIs will be more important as the US 10-year Treasury yields flirt with the crucial 1.70% level, a break above which has propelled the DXY in the past.

Technical analysis

GBP/USD bears can remain hopeful unless the quote crosses the 1.3850 resistance confluence, comprising 200-DMA and a descending trend line from July 30.