Forex-novosti i prognoze od 22-11-2022

• WTI picks up bids to extend the previous day’s rebound from 10-month low.
• G7 discusses price cap level on Russian oil, Moscow threatens gas supply cut to EU.
• Talks of OPEC+ output increase, a reduction in energy demand due to China’s Covid conditions challenge WTI bulls.
• Preliminary PMIs for November, EIA Crude Oil Stocks Change will be eyed for fresh impulse.

WTI crude oil defends the previous day’s recovery while picking up bids to $81.10 during early Wednesday. The black gold’s latest run-up could be linked to the headlines surrounding the Group of Seven (G7) nations’ discussions on the oil price cap on Russian exports, as well as the inventory draw conveyed by the industry source.

Weekly prints of the American Petroleum Institute’s (API) Crude Oil Stock data marked the draw of 4.8 million barrels versus -5.835M prior for the week ended on November 18.

Elsewhere, Reuters mentioned that the G7, including the United States, along with the EU and Australia are slated to implement the price cap on sea-borne exports of Russian oil on Dec. 5, as part of sanctions intended to punish Moscow for its invasion of Ukraine. The news also quotes a Senior US Official as saying, “The G7 should soon announce the price cap on Russian oil exports and the coalition will probably adjust the level a few times a year rather than monthly.”

Previous, the Wall Street Journal (WSJ) quoted Saudi Arabia as denying a production increase plan due to unease with public discussion of the group's decision-making before an agreement with Russia had been struck.

It’s worth noting, however, that the Covid woes in China and fears of economic slowdown in major economies challenge the energy demand. On the same line could be the rate hikes by the key central banks.

Looking forward, the official weekly oil inventory data from the Energy Information Administration (EIA) for the week ended on November 18, expected at 0.115M versus -5.4M prior, will be important for the oil traders to watch for clear directions. However, major attention will be given to the preliminary readings of November’s monthly activity data and Minutes of the Fed’s latest minutes. Additionally, headlines surrounding the OPEC+ and Russian oil price cap will also be crucial for a clear guide.

Technical analysis

WTI recovery remains elusive unless crossing a three-week-old descending resistance line, around $87.10 by the press time.

• AUD/NZD is poised both and bullish and bearish depending on the time frame. 
• The RBNZ will be the deciding factor for the day ahead. 

Ahead of teh Reserve Bank of New Zealand today, AUD/NZD Bears are lined up on the long-term charts for a downside continuation but the bulls have committed to the test of recent lows on the lower time frames so there is no bias either way, at least for the short term and within 100 pips or structure as the following will illustrate. 

AUD/NZD daily chart

While on the front side of the trend, the bias on the longer-term time frame is lower with a run to 1.0620 on the cards.

AUD/NZD H4 chart

The 4-hour time frame offers support structure on the way there with 12.0750/20 and then space to 1.0620.

More to come...

Reuters reported that the Group of Seven nations should soon announce the price cap on Russian oil exports and the coalition will probably adjust the level a few times a year rather than monthly, a senior US Treasury official said on Tuesday.

Key notes

The G7, including the United States, along with the EU and Australia are slated to implement the price cap on sea-borne exports of Russian oil on Dec. 5, as part of sanctions intended to punish Moscow for its invasion of Ukraine.

The aim is to reduce Russia's petroleum revenues funding its war machine while maintaining flows of its oil to global markets to prevent price spikes. A cap on exports of Russian oil products is slated to begin on Feb. 5.

The coalition has agreed to set a fixed price on Russian oil rather than a floating rate, discounted to an oil price index.

The coalition worried that a floating price pegged below an oil benchmark might enable Russian President Vladimir Putin to easily game the mechanism by reducing supply, from Russia.

A US official said Washington does not expect Russia to retaliate by withholding oil exports as such a move could send global oil prices higher, but risks damaging Russian oil fields.

• Gold price remains sidelined after snapping four-day downtrend.
• Firmer sentiment downbeat yields weigh on the US Dollar but pre-event anxiety challenges the XAU/USD bulls.
• More evidences for Fed’s 50 bps rate hike could favor the Gold buyers.

Gold price (XAU/USD) steadies around $1,740 after pushing back the bears the previous day. In doing so, the yellow metal portrays the typical pre-event anxiety while keeping the buyers positive amid softer US Dollar and Treasury yields.

The chatters surrounding the Federal Reserve’s (Fed) easy rate hikes and firmer prints of equities joined the alleged stockpiling of Gold by China to underpin the XAU/USD’s run-up the previous day. However, Covid woes from the dragon nation challenged the bullion buyers.

That said, Richmond Fed Manufacturing Index improved to -9 for November versus -10 prior while Kansas City Federal Reserve President Esther George recently said, “(We) could well take a higher interest rate for some time to convince households to hold on to savings.”

It’s worth noting that Nikkei Asia quotes the World Gold Council (WGC) data to spot increasing Gold buying from China. The news also mentioned the unloading of the US Treasury bonds by Beijing, which in turn favored the XAU/USD buyers.

Alternatively, seven-month high coronavirus numbers and multiple activity restrictions in the key states of the world’s second-largest economy challenged the Gold bulls.

Amid these plays, stocks in Europe and the UK, as well as Wall Street, closed positively whereas the US 10-year Treasury yields dropped six basis points (bps) to 3.76%.

Looking forward, the Gold price may witness a lackluster day ahead of the European session amid a cautious mood before the preliminary readings of November’s PMIs. Also important will be the Federal Open Market Committee (FOMC) Meeting Minutes and the US Durable Goods Orders for October.

Market players will look for clues of more confirmatory signals for the economic transition and the Fed’s 50 basis points (bps) worth of rate hike in December to continue with the risk-on mood and favor the gold buyers.

Technical analysis

Although sustained trading below the 50-SMA and observance of a one-week-old descending trend line keeps Gold sellers hopeful, an upwards-sloping trend line from November 09, around $1,737 by the press time, challenges the XAU/USD bears.

It’s worth noting that the RSI (14) and MACD conditions are showing sellers’ exhaustion and hence an upside clearance of the immediate resistance line, close to $1,746, could quickly propel the quote towards the 50-SMA hurdle of $1,761.

Following that, the monthly high surrounding $1,787 and the $1,800 threshold will be on the Gold buyer’s radar.

Alternatively, a downside break of the fortnight-old support line, near $1,737, may drop to the $1,720 level before targeting the $1,700 round figure.

However, the bullion’s downside past $1,700 needs validation from the 61.8% Fibonacci retracement level of November 03-15 upside, close to $1,681.

Overall, Gold price is likely to improve further but a clear break of the 50-SMA appears necessary to convince the bulls.

Gold: Four-hour chart

Trend: Further recovery expected

• EUR/JPY daily chart portrays the formation of a rising wedge with bearish implications.
• The EUR/JPY price action recoiled as the cross approached 146.00, suggesting a breakout is about to happen.

The EUR/JPY continues to consolidate within a rising wedge, though finished with minuscule losses of 0.04% on Tuesday, on a risk-on sentiment. As the Asian session begins, the EUR/JPY is trading at 145.48, barely gaining 0.01%.

EUR/JPY Price Analysis: Technical outlook

As above-mentioned, a rising wedge formed in the EUR/JPY daily chart, with most daily lows tracking the 50-day Exponential Moving Average (EMA) as a dynamic support. Although the cross continues to advance steadily, price action shrank during the last four trading days. That would mean the EUR/JPY is consolidating or a breakout is about to happen.

If the EUR/JPY clears 146.00, it could exacerbate a rally toward the year-to-day (YTD) highs around 148.40, but on its way north, buyers need to surpass some resistance levels. The first one would be the ascending-wedge top trendline around 146.50, followed by the November 9 daily high at 147.11. Once cleared, the psychological 148.00 is next.

Otherwise, if the EUR/JPY breaks below the rising wedge, the first support would be the 50-day EMA at 144.12. A breach of the latter will expose the 143.00 figure, followed by the November 11 swing low around 142.54.

EUR/JPY Key Technical Levels

• NZD/USD seesaws inside a one-week-old trading range ahead of the key event.
• Recently increasing odds of the RBNZ’s 75 bps rate hike, risk-on mood keeps buyers hopeful.
• OCR peak, Governor Orr’s press conference will be crucial, US PMIs, Fed Minutes will entertain the traders afterward.

NZD/USD treads water around the mid-0.6100s amid the final nail-biting hours to the key Reserve Bank of New Zealand (RBNZ) Interest Rate Decision on Wednesday. The Kiwi pair gained the previous day as firmer sentiment joined hopes of 75 basis points (bps) of a rate increase by New Zealand’s central bank.

Stocks in Europe and the UK, as well as Wall Street, closed positively whereas the US 10-year Treasury yields dropped six basis points (bps) to 3.76%. At home, NZX 50 remained dicey as traders feared higher rates, as well as take negative notes from China’s Covid conditions.

That said, Fed policymakers’ failure to defend the previous hawkish expectations and mildly positive data also appeared to have favored NZD/USD buyers the previous day. It should be noted that the Kiwi pair ignored downbeat New Zealand trade numbers for October to print the gains.

Richmond Fed Manufacturing Index improved to -9 for November versus -10 prior while Kansas City Federal Reserve President Esther George recently said, “(We) could well take a higher interest rate for some time to convince households to hold on to savings.”

On the other hand, New Zealand Trade Balance flashed -2,129M MoM figures for October versus $-1,353M market forecasts and $-1,696M prior. Further, the Exports increased to $6.14B versus $5.94B prior whereas the Imports rose to $8.27B versus $7.63B prior.

Looking forward, the market’s high hopes of witnessing a 0.75% rate increase challenge the NZD/USD buyers as the Fed hawks appear to run out of steam. Even so, the latest inflation-linked data from Auckland have been positive and hence the hopes of witnessing a strong rate lift are high and can keep the bulls hopeful.

In addition to RBNZ’s verdict on the rates, forecasts concerning the Official Cash Rate (OCR) peak will be important as well.

Following that, the preliminary readings of November’s monthly activity data and Minutes of the Fed’s latest minutes will be closely observed to confirm the chatters surrounding the economic transition and the 50 bps rate hike chatters from the Fed.

Also read: RBNZ Interest Rate Decision Preview: NZD/USD – Buy the rumor, sell the fact on a 75 bps hike

Technical analysis

A clear break of the recent trading range between 0.6060 and 0.6200 appears necessary for clear directions. That said, a convergence of the 200-EMA and ascending trend line from October 13, around 0.5940, appears an additional important support to watch during the quote’s surprise downside.

• AUD/USD is expected to deliver more gains above 0.6650 amid a cheerful market mood.
• Aussie Manufacturing and Services PMI have dropped to 52.4 and 49.1 respectively.
• Going forward, FOMC minutes and US Durable Goods Orders will be of significant importance.

The AUD/USD pair is hovering around the critical hurdle of 0.6650 in the early Asian session. The asset is expected to extend its gains above the aforementioned hurdle despite a decline in Aussie S&P PMI data.

The S&P Global Manufacturing PMI has dropped to 52.4 against the former release of 52.7 and the Services PMI has declined to 49.1 in comparison with 49.3, the prior release. A decline in PMI numbers could have a harsh impact on the Aussie dollar but may add to the slowdown filters for inflation.

The economic activities could have been impacted due to a fall in consumer spending led by rising inflation and accelerating interest rates. This may force goods and services providers to favor a decline in price growth ahead.

Meanwhile, a significant recovery in the risk-on profile as investors have shrugged off uncertainty amid rising Covid-19 infections in China has supported the antipodean. However, the US dollar index (DXY) has witnessed the termination of the three-day winning streak. The mighty DXY has dropped below 107.20 and is expected to remain on tenterhooks ahead amid uncertainty over the release of the Fed Open Market Committee minutes (FOMC), which will release on Thursday.

But before that, US Durable Goods Orders data will be of utmost importance. The economic data is seen as stable at 0.4%. An improvement in demand for durable goods could dampen the efforts of the Fed chair Jerome Powell who is working hard to slow down consumer spending.

On the Aussie front, mixed commentary from the Reserve Bank of Australia (RBA) Governor Philip Lowe on the interest rate guidance has created ambiguity in the minds of investors. While delivering a speech titled "Price Stability, the Supply Side, and Prosperity" at the Annual Committee for Economic Development, RBA Governor cited the absence of a pre-set path and stated that the central bank could return to a 50 bps rate hike or keep policy stance ‘unchanged’ for a period of time.

• GBP/JPY hit a two-week high but trimmed some gains, back below 168.00.
• The daily chart suggests the GBP/JPY is neutral-upward biased, but a head-and-shoulders pattern remains in play.
• GBP/JPY Price Analysis: Failure to crack 168.00 exacerbated a fall toward 167.50.

On Tuesday, the GBP/JPY retraces after hitting a two-week high around 168.30, amid upbeat sentiment, as shown by Wall Street, registering gains between 1.18% and 1.36%. However, the head-and-shoulders chart pattern remains in play as long as the right shoulder, around 169.08, is not surpassed. That said, the GBP/JPY is trading at 167.75, below its opening price by 0.46%.

GBP/JPY Price Analysis: Technical outlook

In the long term, the GBP/JPY remains neutral to upward biased, though a head-and-shoulders pattern emerging in the daily chart opened the door for a fall to 158.40. However, during the last week, the cross-registered gains of 2%, exchanging hands 300 pips above the neckline. If British Pound (GBP) buyers reclaim 169.00, that would invalidate the pattern and might exacerbate a rally toward the YTD highs of 172.13.

Short term, the GBP/JPY 4-hour chart illustrates the pair as neutral, slightly upward biased. GBP/JPY price action registered successive series of higher highs/lows, advancing steadily from around 163.03. On its way north, the GBP/JPY hurdled the 50, 200, and 100-Exponential Moving Averages (EMAs), suggesting buyers gathered momentum. But the Relative Strength Index (RSI), aiming downwards, could open the door for a pullback.

Therefore, the GBP/JPY first support would be the S1 daily pivot point at 167.33. Break below will expose the confluence of the 100 and the 200-EMAs around 166.81/93, followed by the 50-EMA at 166.02. Otherwise, the GBP/JPY key resistance levels lie at the R1 daily pivot at 168.29, followed b the R2 pivot level at 168.78, followed by the November 7 daily high at 169.00.

GBP/JPY Key Technical Levels

• EUR/USD fades corrective bounce from one-week low ahead of key data/events.
• Market sentiment improved despite no major positives, equities stayed firmer, yields eased.
• Eurozone Consumer Confidence, US Richmond Fed Manufacturing Index improved.
• Preliminary activity data for November will precede US Durable Goods Orders for October and Fed Minutes to entertain traders.

EUR/USD buyers take a breather ahead of an eventful day, steady around 1.0300 during Wednesday’s Asian session after snapping three-day downtrend the previous day. That said, a firmer risk profile allowed the pair buyers to battle against the sellers the previous day. However, a slew of data/events are up for publishing today and hence cautious mood probe the momentum traders of late.

European Central Bank (ECB) policymaker Robert Holzmann supported calls for a third straight 75 basis points (bps) rate increase for the December monetary policy meeting In an interview with the Financial Times (FT). However, European Central Bank board member and Bank of Portugal Governor Mario Centeno mentioned that there are many conditions for the rates increase to be less than 75 bps.

On the other hand, Kansas City Federal Reserve President Esther George recently said, “(We) could well take a higher interest rate for some time to convince households to hold on to savings.”

It’s worth noting that an improvement in the market’s sentiment despite the looming Covid woes from China and mixed concerns surrounding the US-China ties helped the EUR/USD pair to register the first daily gain in four on Tuesday. While portraying the mood, stocks in Europe and the UK, as well as Wall Street, closed positively whereas the US 10-year Treasury yields dropped six basis points (bps) to 3.76%.

With the recently upbeat market sentiment and softer US Treasury yields, the US Dollar Index (DXY) also marked broad losses ahead of crucial catalysts scheduled for publication today. The reason could well be linked to the market’s expectations of softer rate hikes from the Federal Reserve (Fed).

Moving on, global markets may witness a volatile day as multiple central bank events and data are likely to entertain the momentum traders. Among them, the preliminary readings of November’s monthly activity data and Minutes of the Fed’s latest minutes will be closely observed to confirm the chatters surrounding the economic transition and the 50 bps rate hike chatters from the Fed. Additionally, talks surrounding the gas price cap from the Group of Seven (G7) will also be important to watch for clear directions.

Also read: FOMC Meeting Minutes Preview: Three reasons to expect a US Dollar downer

Technical analysis

Despite the latest rebound the EUR/USD pair’s failure to cross the previous support line from November 04 and the 10-Day Moving Average (DMA), currently around 1.0340 and 1.0320 in the order, keeps teasing the bears.

• GBP/USD is looking to reclaim the 1.1900 hurdle amid positive market sentiment.
• Investors are awaiting the FOMC minutes release to get a detailed explanation behind the bigger rate hike.
• A decline in UK PMI numbers could be the outcome of a slowdown in consumer spending.

The GBP/USD pair is aiming to recapture the immediate hurdle of 1.1900 sooner as the market mood has turned extremely cheerful. Investors have shrugged off China’s Covid-19 worries and have started pouring funds into risk-perceived assets. Also, the rising expectation of a slowdown in the rate hike pace by the Federal Reserve (Fed) has shifted traction in the favor of risk appetite theme.

A three-day winning spell of the US dollar index (DXY) halted on Tuesday after an improvement in investors’ risk appetite. The DXY is declining towards the critical support of 107.00. S&P500 witnessed a significant buying interest as a slowdown in the rate hike pace by the Fed will trigger economic projections. Meanwhile, the 10-year US Treasury yields have dropped to near 3.76%.

Going forward, the Cable will keep an eye on the release of the Fed Open Market Committee (FOMC) minutes. The minutes will provide a detailed explanation behind the announcement of the fourth consecutive 75 basis points (bps) rate hike. Also, it will provide cues indicating the chances of a bigger rate hike continuation.

Apart from the interest rate guidance, the economic and financial conditions of the US will be of utmost importance.

On the UK front, the release of the S&P PMI numbers will be significant for the market participants. The Manufacturing PMI is seen lower at 45.8 vs. the prior release of 46.2. And, the Services PMI is expected to decline to 46.2 from the former release of 46.5. A decline in PMI numbers could be crucial for bringing price stability as lower consumer spending would support a decline in price growth by the manufacturers and service providers.

• US Dollar is on the backfoot and bears are lurking at key resistance. 
• A break of 106.00 could seal the deal for the bears. 

The US Dollar retreated across the board on Tuesday with investors looking past worries about China's COVID flare-ups ahead of Wednesday's Federal Open Market Committee Minutes.

A day after fresh COVID-19 curbs in China fuelled a risk-off tone to start the week, risk appetite reversed. Equities and high-beta currencies were favored, putting the US Dollar into a downward spiral. The DXY index, that measure the greenback vs. a basket of currencies was last seen down by over 0.5% near the lows of the day at 107.121. 

The ebbs and flows of the market see the currency respecting technical structures and targets with the 38.2% Fibonacci retracement level acting as a relatively firm resistance near 107.50/70s. Meanwhile, there are prospects of a pivot from the Federal Reserve due to recent cooler-than-expected inflationary data within economic releases, notably the last US Consumer Price Index.

Focus on the Fed

Investors will be parsing minutes from the Fed's November meeting, due on Wednesday, for any hints about the December meeting and the outlook for interest rates thereafter with respect to the terminal rate. WIRP suggests a 50 bp hike on December 14 is still fully priced in, but the swaps are starting to gain price in around 30% odds of a terminal rate near 5.25%, according to analysts at Brown Brothers Harriman. ''Those odds will surely change after we get core PCE December 1, jobs data December 2, PPI December 9, and CPI December 13.  However, it’s worth noting that the US economy continues to grow above trend in Q4 and the market should not underestimate the Fed’s need to tighten further.''

Analysts at TD Securities see the minutes shedding light on the FOMC's deliberations regarding the expected downshift in the pace of rate increases. ''With that said, policymakers will also emphasize that the terminal rate is likely edging higher vs prior expectations as the labor market remains overly tight.''

US Dollar technical analysis

On the back side of the counter-trendline, (bearish), bears are lurking at a 50% mean reversion but the price may already have found a ceiling at the round 107.50/70s. 

The W-formation is seeing the price revert into the neckline and towards the 38.2% Fibonacci of the prior bullish impulse. A break of 106 could seal the deal for the bears. 

• The NZD/USD is pairing Monday’s losses, up by 0.84%.
• From a daily chart perspective, the NZD/USD is neutral-upward biased, though it needs to clear 0.6200.
• An ascending channel in the NZD/USD 4-hour chart will exacerbate a rally towards 0.6300.

The New Zealand Dollar (NZD) trims Monday’s losses and rises back above the 0.6100 figure due to overall US Dollar (USD) weakness, as market sentiment improved, though it remains fragile. Therefore, the NZD/USD is trading at 0.6148, above its opening price by 0.80%, after hitting a daily low of 0.6094.

NZD/USD Price Analysis: Technical outlook

From a daily chart perspective, the NZD/USD is neutral-to-upward biased, consolidated for the last six days, within the 0.6100 – 0.6200 range. Of note, the NZD/USD exited from a descending channel six days ago, a solid breakout, meaning that the major might rally toward higher prices. Nevertheless, although in bullish territory, the Relative Strength Index (RSI) aims downwards, meaning buyers are losing momentum or getting a respite ahead of challenging the 200-day Exponential Moving Average (EMA) at  0.6303.

Short term, the NZD/USD 4-hour chart suggests an ascending channel is forming, which, once broken to the upside, would expose key resistance levels. Nevertheless, the NZD/USD is struggling to clear the R1 daily pivot at 0.6150, which, once cleared, could open the door toward 0.6200, followed by the August 24 swing high at 0.6251, ahead of the 0.6300 psychological level.

NZD/USD Key Technical Levels

Kansas City Federal Reserve President Esther George said US house prices remain above the pre-pandemic trend and one can argue it is in part due to quantitative easing.

She added that the distributional effects of this are at the expense of first-time homebuyers.

Key comments

US Dollar update

The dollar retreated across the board on Tuesday, as investors looked past worries about China's COVID flare-ups and ahead of Wednesday's Federal Open Market Committee Minutes. Analysts at TD Securities see the minutes shedding light on the FOMC's deliberations regarding the expected downshift in the pace of rate increases. ''With that said, policymakers will also emphasize that the terminal rate is likely edging higher vs prior expectations as the labor market remains overly tight.''

What you need to take care of on Wednesday, November 23:

The greenback edged lower on Tuesday amid the better performance of global equities and weaker US Treasury yields. Activity, however, was limited ahead of the FOMC Meeting Minutes and US Durable Goods Orders to be out on Wednesday.

Asian and European indexes closed in the green, while Wall Street posted substantial gains, adding the most in the final hours of trading. On the other hand, US Treasury yields edged lower with the 10-year note yield down 7 bps to hover around 3.75%, and the 2-year offering 4.51% barely down for the day.

Different European Central Bank officials were on the wires, most of them paving the way for another 75 bps rate hike at the December meeting, but the EUR showed little reaction to the news. Robert Holzmann, head of the National Bank of Australia,  to back a third consecutive aggressive rate hike. The move would raise the deposit rate to 2.25%. Also, Finnish ECB policymaker Olli Rehn said the ECB would continue to raise interest rates, and the pace of its hikes will be determined by the rate of inflation and the overall economic situation.

Federal Reserve representatives also had some things to say.  Cleveland Federal Reserve President Loretta Mester noted that expectations for longer-term inflation are reasonably anchored, although wage growth lags below inflation in most sectors. Finally, she added that labor demand outpaces worker supply.

At the end of the day, the market focus was on the European energy crisis, as the G7 and the EU are once again discussing a cap on Russian oil prices.

EUR/USD recovered some ground but could not regain the 1.0300 threshold, holding nearby at the end of the US session.

Earlier in the day, market talks made the rounds about United Kingdom Finance Minister Jeremy Hunt pushing privately for Britain to have closer ties with the European Union, somehow generating tensions in the new  UK Prime Minister Rishi Sunak's government. GBP/USD settled at around 1.1880 amid the broad dollar’s weakness.

USD/CAD is down 1.3385 after a batch of mixed Canadian data. Retail Sales declined by less than anticipated, while the October New Housing Price Index declined in October. Also, Bank of Canada Senior Deputy Governor Rogers hit the wires and said that higher interest rates are starting to slow the economy and contain inflation. The AUD/USD trades around 0.6640, marginally higher on the day, while USD/JPY hovers around 141.20.

Gold trimmed early gains and finished the day little changed at around $1,738 a troy ounce. Crude oil prices ticked higher, with WTI trading at $81.10 a barrel.

During Asian trading hours, investors will be looking at the Reserve Bank of New Zealand monetary policy decision.

The focus now shifts to the FOMC Meeting Minutes. The US Federal Reserve hiked rates by 75 bps for a fifth consecutive meeting earlier in the month, and market players were hoping for a hint on pivoting. The document released alongside the meeting could be understood as a potential easing in the pace of quantitative tightening, although chief Jerome Powell’s words surprised with a hawkish tone. The FOMC Meeting Minutes may shed some light on whatever the Fed may do in December, and market players will likely rush to price it in.

Binance CEO CZ seeks money for industry recovery fund from Abu Dhabi investors after FTX collapse

• Gold Price registers minuscule gains of 0.03%, around $1738.
• Federal Reserve speaker begin to price a 50 bps increase to the Federal Funds rate.
• The US Dollar edges lower, weighed by falling US Treasury bond yields.

Gold Price is almost flat on Tuesday’s North American session, capitalizing on a soft US Dollar (USD) still off the daily highs as Federal Reserve (Fed) officials continued to express the US central bank needs to tighten monetary conditions. Also, sentiment remains fragile due to Covid-19 cases in China. At the time of writing, the XAU/USD is trading at $1737.49, unchanged.

XAU/USD capitalize on weak US Dollar amid falling US bond yields

Sentiment improved throughout the day. Federal Reserve policymakers grabbed investors’ attention as the US central bank prepared to slow down borrowing costs. Loretta Mester, Cleveland Fed President, said, “Maintaining price stability is a critical objective that will be accomplished using all available means.” On Monday, Mester commented that she Is open to moderate rate hikes, though she emphasized that a pause is off the table. She echoed some of San Francisco Fed President Mary Daly’s comments, which added that the Federal Funds rate (FFR) needs to peak at around 5%.

In the meantime, Covid-19 cases in China peaked at around 28K on Monday, the most significant increase since April 2022. Beijing increased restrictions, and arrivals had to take three PCR tests within the first three days. Some schools switched to online learning, while some districts in Beijing asked citizens to stay at home for at least five days.

Elsewhere, the US Dollar Index (DXY), which tracks the greenback value against six currencies, slashes 0.50% down to 107.200. US Treasury yields are also dropping, led by the 10-year benchmark note rate yielding 3.750%, eight bps down compared to Monday’s close, a headwind for the greenback.

All that said, Gold trader’s focus turns to further Fed speaking, with Esther George and James Bullard crossing news wires, ahead of the release of the Federal Reserve Open Market Committee (FOMC) last meeting minutes.

Gold (XAU/USD) Price Analysis: Technical outlook

The XAU/USD daily chart portrays the yellow metal as neutral-biased. Even though the Gold Price sits above the 50 and 100-day Exponential Moving Averages (EMAs), four days of consecutive losses and failure to crack the 200-day EMA at $1801 exacerbated a fall toward current prices. Therefore, XAU/USD might consolidate in the $1730-50 range.

Upwards, the XAU/USD key resistance levels are $1750, followed by the November high of $1786.53 and $1800. On the flip side, the XAU/USD first support would be the August 22 swing low of $1727, followed by the $1700 figure.

• EUR/USD resistance in the 1.0300s would be expected to be an area where distribution will start to take shape.
• A change of character below 1.0270 again could be a defining moment for the pair.

At 1.0295, EUR/USD is 0.53% higher in late trade in North American trade as the US Dollar retreated across the board on Tuesday while investors look past worries about China's COVID flare-ups, boosting demand for more risky currencies. While investors will be parsing minutes from the Fed's November meeting, due on Wednesday, for any hints about the outlook for interest rates, the technicals point to a downside continuation given the break of recent daily structure 1.0270 as the following analysis will illustrate:

EUR/USD daily chart

The price dropped below the higher lows which made for a change in character. Nevertheless, the bulls have moved in and are retesting an area of price imbalance and the neckline of the M-formation. Should the bears commit, then a downside continuation could be in order for the remainder of the week. 

EUR/USD H1 charts

The price is on the back side of the trend and the highs have potentially been locked in. Resistance could serve as the last stop for the correction into the peak formations of the prior bullish trend. 

EUR/USD M15 chart

Down on the 15-minute charts, the 1.0300s would be expected to be an area where distribution will start to take shape, and a break of the trendline supports will be eyed. A change of character below 1.0270 again could be a defining moment for the pair as it will likely lead to a downside breakout.

An exchange of letters between the governor of the Bank of England and the UK's Chancellor on the asset purchase facility has shown that there will be a cut of the maximum size of the Asset Purchasing Facility, APF.

The maximum size of the APF authorized has been cut to GBP871 bln, of which GBP16.4 bln can be corporate bonds.

Meanwhile, the BoE had confirmed its plan to continue with the gilt sales operation from Nov 1 onward, analysts at TD Securities explained. ''However, for Q422 APF sales operations will be distributed evenly only across the short and medium-maturity sectors, with the pace and frequency of sales in line with its original plans. The maturity split of gilt sales for subsequent quarters will be considered ahead of Q1 2023. The detailed auction calendar will be released on Oct 20.''

GBP/USD update

GBPUSD rose on Tuesday in a risk-on day after falling in the previous session, as the dollar retreated following three days of gains. Cable has rallied sharply in recent weeks after touching a record low of 1.0327 in September when the government unveiled plans for large unfunded tax cuts. At the time of writing, GBP/USD is trading at 1.1880 and up some 0.5%.

• USD/CAD has been range bound in North American trade as the US Dollar slides.
• Bears are in control as domestic data beats expectations and oil rebounds.

USD/CAD has been a two-way business in the US session, trading between 1.3383 and 1.3453 on the day so far. At 1.3397, the pair is down by some 0.4% as the US Dollar retreated across the board while investors look past worries about China's COVID flare-ups.

A risk on theme came onto the scene in Asia on Monday that supported high beta currencies such as the commodity complex. The Canadian dollar rose on firm preliminary domestic data as well that showed Retail Sales beat expectations -0.5 to -0.7.   

Meanwhile, speculators’ net short CAD positions increased modestly though they remain below their recent highs, analysts at Rabobank explained. ''Focus recently has been on the oil price but also on the broad-based direction of the USD.''

Oil rebounds

As for oil, prices there have also gained ground early on Tuesday. A report that OPEC+ planned to raise production sent prices to the lowest since January, only to recover after Saudi Arabia and other members firmly denied the group was planning the move, Reuters reported. A further drop in prices could lead OPEC+ to cut production further.

Elsewhere, Canadian government bond yields were lower across a more deeply inverted curve, tracking the move in US Treasuries as traders get set for the Federal Open Market Committee minutes. The 10-year eased 2.9 basis points to 3.058%, while it fell 2.3 basis points further below the 2-year rate to a gap of about 88 basis points.

FOMC minutes eyed

Analysts at TD Securities see the minutes shedding light on the FOMC's deliberations regarding the expected downshift in the pace of rate increases. ''With that said, policymakers will also emphasize that the terminal rate is likely edging higher vs prior expectations as the labor market remains overly tight.''

• The British Pound extended its gains amidst a risk-on impulse.
• Federal Reserve officials see a dual threat of over and under-tightening.
• GBP/USD Price Analysis: Range-bound around 1.1800-1.1900 amidst the lack of catalyst.

The Pound Sterling (GBP) climbed in the North American session, albeit Federal Reserve (Fed) hawkish commentary continued, though officials expressed the likelihood of moderating the pace. Another factor, China’s Covid-19 outbreak, sparked investors’ fears, though they waned as Wall Street is trading in the green. At the time of writing, the GBP/USD is trading at 1.1872, above its opening price by 0.40%.

On Monday, San Francisco Fed President Mary Daly said she’s worried about overtightening, and she foresees rates initially at 5%, and from there, rates could go higher, depending on data. The Cleveland Fed President Loretta Mester said that slowing the pace of interest rates in the next month is possible. Mester commented that pausing is not an option and agreed with Daly, expecting rates at around 5%.

The US Dollar Index (DXY), a gauge of the buck’s value against a basket of peers, drops 0.37%, down from 107.747 to 107.381, a tailwind for the Pound Sterling.

Meanwhile, the ongoing Covid-19 crisis in China shifted market sentiment sour on Monday, though it waned, as Chinese authorities had not reimposed stricter lockdowns. Some of the newest measures suggested that some schools are back to online learning, while some districts in Beijing asked citizens to stay home for at least five days.

On the United Kingdom (UK) side, the British Pound is underpinned by expectations that the Bank of England (BoE) would raise borrowing costs as they scramble to control 40-years high inflation. Regarding the Autumn Budget presented by Chancellor Jeremy Hunt was well received by investors, with some analysts saying that it is a deflationary budget.

Nevertheless, a gloomy economic outlook in the UK favors further GBP/USD downside. Even though recession fears increased in the US, the interest rate differential between the Federal Reserve and the Bank of England would bolster the US Dollar (USD), so the GBP/USD might be headed downwards.

GBP/USD Price Analysis: Technical outlook

The GBP/USD is consolidated around the 1.1800-1.1900 area after bouncing from weekly lows around 1.1750. In the European session, the GBP/USD hit a daily high above 1.1900, though it retreated on Federal Reserve’s hawkish commentary. Also, the Relative Strength Index (RSI) is almost horizontal in bullish territory, meaning buying pressure is losing momentum.

If the GBP/USD clears 1.1900, the next resistance would be the November 17 high of 1.1957, followed by the 1.2000 psychological level. On the flip side, the GBP/USD first support would be 1.1800, followed by the last week’s low on November 17 low, 1.1762.

Reuters reported that Senior Deputy Governor Carolyn Rogers said in a speech at the University of Ottawa that higher interest rates are starting to slow the Canadian economy, putting pressure on households with elevated debt.

"It will take time to get back to solid growth with low inflation but we will get there," she said.

Key notes

Rogers said the bank was monitoring how a combination of high home prices and high household debt - both longstanding economic vulnerabilities in Canada - could affect the stability of the financial system.

"The risk of a trigger that may affect financial stability has increased" as rates have gone up, she said. "But there are good reasons to believe the system as a whole will be able to weather this period of stress and remain resilient," she added, citing reforms taken since the global financial crisis to shore up the system.    

USD/CAD update

USD/CAD has been a two-way business in the US session, trading between 1.3383 and 1.3453 on the day so far. At 1.3397, the pair is down by some 0.4% as the US Dollar retreated across the board while investors look past worries about China's COVID flare-ups.

Data released on Tuesday showed retail sales in Canada dropped in September by 0.5%. Analysts at CIBC point out the biggest decline comes from gasoline and is linked to lower prices during the month, making sales fared a little better in volume terms with a 0.1% decline. They add the advance estimate for October shows a healthy bounce back of 1.5%, suggesting that consumer spending on goods is still fairly robust. 

Key Quotes: 

“The third quarter may have represented a modest giveback of prior strength in terms of retail sales volumes, but with spending on services continuing to recover the consumer is still expected to have been a positive contributor to overall GDP growth in Q3.”

“The advance estimates for October retail, wholesale and manufacturing suggest that the fourth quarter has started with a little more momentum than we previously anticipated, and placing some upside pressure on ours and the Bank of Canada's GDP forecast (+0.5% annualized) for Q4. However, it is early days, and the impact of past interest rate hikes on consumer spending will only grow in the coming months and quarters.”
 

• Mexican peso gains versus US dollar after three days.
• USD/MXN finds resistance at the 20-day SMA before 19.60.
• Interim support at 19.40, key level at 19.30.

The USD/MXN is falling on Tuesday after rising during three consecutive days, on a quiet session for financial markets. The rebound from monthly lows found resistance near the 19.60 barrier. The pair reversed its course after reaching the 20-day Simple Moving Average.

The ongoing retreat could extend toward the interim support area of 19.40. A break lower would expose the critical 19.25/30 zone that capped the downside last week. Below that area, the next target is seen at 19.00/05 (intermediate resistance at 19.15).

Technical indicators area mixed. Momentum is still moving to the upside but the RISE is starting to turn south. Price holds below key moving averages. A consolidation between 19.30 and 19.60 over the next sessions seems likely.

If the Dollar breaks and holds above 19.60 it would gain strength and could rise to the next barrier at 19.80.

USDMXN daily chart

US Dollar Index (DXY) has experienced a quick decline toward the 200-Day Moving Average at 105/104.60 which is also the low of August. A break below here would open up next potential supports at 103 and 101.90/30, analysts at Société Générale report.

110.00 is likely to remain an important hurdle

“Daily MACD is within deep negative territory denoting an overstretched move. An initial bounce is not ruled out towards 108.30, the 38.2% retracement from the high achieved in November.”

“The lower band of previous consolidation at 110.00 is likely to remain an important hurdle.”

“In case the index fails to hold 200DMA at 105/104.60, this would denote an extended down move. Next potential supports would be at 2020 peak of 103 and 101.90/101.30, the 50% retracement from 2021.”

• Swiss Franc outperforms during the American session.
• USD/CHF ends a positive streak with a sharp decline.
• DXY holds onto losses, on a quiet trading session.

The USD/CHF is losing more than 50 pips on Tuesday ending a positive streak for the US Dollar. The pair printed a fresh two-day low at 0.9508 during the American session on the back of a decline of the DXY and a stronger Swiss Franc.

More weakness in USD/CHF would expose the critical short-term support at 0.9495/0.9500. On the upside, immediate resistance is seen at 0.9560 followed by the 0.9600 area.

Dollar drops, Swiss Franc outperforms

The US Dollar Index is losing 0.40% on Tuesday, after rising during the previous three trading days. At the same time, equity prices in Wall Street are posting gains on a quiet session.

Regarding economic data, the US released the Richmond Fed Manufacturing Index which rose in November from -10 to -9. On Wednesday, global PMIs are due and the Federal Reserve will release the minutes of its latest meeting.

The Swiss Franc gained momentum during the American session. The EUR/CHF cross broke below 0.9800 and dropped to 0.9762, hitting the lowest since November 16. The GBP/CHF turned negative hitting levels under 1.1300 and rose to the highest level in a week above 148.60.

Technical levels

Gold price dropped to a 10-day low near $1,730 on Monday. Economists at Commerzbank do not expect the yellow metal to stage a lasting recovery until the first quarter of next year.

Gold under pressure again due to firmer USD

“Gold price has dropped sharply again since the US Dollar ended its phase of weakness. Though the latest cooling of US inflation has dampened fears of rampant inflation and thus ever more pronounced rate hikes by the US Federal Reserve, it is still clear that the central bank has not yet finished tightening its monetary policy. After all, at 7.7% inflation is still a long way off its 2% target. 

“The latest surge in the Gold price was largely attributable to short covering. This price-driving factor has now evaporated, as the most recent CFTC data for the last reporting week revealed a shift to speculative net long positions.”

“We are sticking with our assessment that the Gold price will only recover lastingly once an end to the rate hikes is in sight. This is likely to be the case in the first quarter of 2023.”

• Federal Reserve officials hawkish commentary failed to underpin the US Dollard.
• Sentiment turned positive, although China’s Covid-19 cases peaked nearby 28,000.
• Reserve Bank of Australia Governor Lowe puts back 50 bps on the table if needed.

The Australian Dollar (AUD) is recovering some ground in the North American session, after hitting a daily low beneath 0.6600, amid an improvement in sentiment. Factors like Federal Reserve (Fed) officials’ hawkish commentary and China’s Covid-19 outbreak were not an excuse for the AUD to rise against the US Dollar (USD). At the time of writing, the AUD/USD is trading at 0.6629.

Positive sentiment underpins the Australian Dollar

Wall Street is opening in the green. On Monday, a slew of US central bank policymakers. San Francisco Fed President Mary Daly said she’s worried about overtightening, and she foresees rates initially at 5%, and from there, rates could go higher, depending on data. Later, the Cleveland Fed President Loretta Mester said that slowing the pace of interest rates in the next month is possible. Mester commented that pausing is not an option and agreed with Daly, expecting rates at around 5%.

Aside from this, China’s Covid-19 outbreak is grabbing the headlines after the disease caused three deaths in the last three days. Beijing increased restrictions, and arrivals had to take three PCR tests within the first three days. Some schools switched to online learning, while some districts in Beijing asked citizens to stay at home for at least five days.

In the Asian session, the Reserve Bank of Australia (RBA) Governor Philip Lowe said that if salaries go up, that will keep inflation in Australia at around “Seven percent, plus or minus (a bit),” adding that a wage spiral in the ‘70s, ‘80s, turned out to be a disaster. Lowe sympathized with workers who can’t accept their wages falling behind, though he added that inflation would get to the RBA’s target if the country can ride through this period. He expects to raise rates further and even put 50 bps increases on the table.

What to watch

The Australian economic calendar will feature S&P Global PMIs for November. On the US front, the Fed parade will continue, with Loretta Mester, Esther George, and James Bullard, crossing the wires.

AUD/USD Key Technical Levels

Economists at Wells Fargo still forecast renewed strength in the trade-weighted US Dollar through until Q1-2023. However, they now expect a more extended period of greenback weakness beyond that.

The trade-weighted US Dollar could have already reached its cyclical high

“With inflation nearing its peak, we believe the US Dollar could quite possibly have already reached its cyclical peak as well.”  

“In the near term, the resilience of the US economy (in contrast to recession in Europe) and a still hawkish Fed should see renewed greenback gains. However, over the longer term, growth and interest rate trends should swing sharply against the Dollar, as the US falls into recession from the middle of next year, and the Fed cuts rates aggressively in 2024.” 

“We see a moderate 3.5% gain in the trade-weighted Dollar through early 2023, followed by an extended 12.5% decline thereafter.”

• The index remains unable to reverse Tuesday’s pessimism so far.
• US yields give away part of the recent advance.
• The Richmond Fed index and Fedspeak come next in the docket.

The USD Index (DXY), which gauges the greenback vs. a basket of its main competitors, keeps trading on the defensive near 107.50 on Tuesday.

USD Index looks at Fedspeak, FOMC Minutes

The recent upside momentum in the dollar appears somewhat dented in the first half of the week following Monday’s unsuccessful attempt to surpass the 108.00 hurdle.

The daily correction in the buck also comes in tandem with the small decline in US yields across the curve, all amidst a generalized improved mood in the risk-associated universe.

Later in the NA session, the only release of note will be the Richmond Fed Manufacturing Index. In addition, Cleveland Fed L.Mester (voter, hawk), Kansas City Fed E.George (voter, hawk) and St. Louis Fed J.Bullard (voter, hawk) are also due to speak.

What to look for around USD

The dollar faltered just ahead of the 108.00 barrier at the beginning of the week, sparking a corrective move soon afterwards pari passu with the recovery in the risk-linked galaxy.

While hawkish Fedspeak maintains the Fed’s pivot narrative in the freezer, upcoming results in US fundamentals would likely play a key role in determining the chances of a slower pace of the Fed’s normalization process in the short term.

Key events in the US this week: MBA Mortgages Applications, Building Permits, Durable Goods Orders, Initial Jobless Claims, Flash Manufacturing/Services PMIs, Final Michigan Consumer Sentiment, New Home Sales, FOMC Minutes (Wednesday).

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

USD Index relevant levels

Now, the index is retreating 0.24% at 107.50 and the breakdown of 105.34 (monthly low November 15) would open the door to 105.17 (200-day SMA) and finally 104.63 (monthly low August 10). On the other hand, the next up barrier comes at 107.99 (weekly high November 21) followed by 109.19 (100-day SMA) and then 110.68 (55-day SMA).

EUR/USD returns to positive territory on Tuesday. As Kit Juckes, Chief Global FX Strategist at Société Générale notes, the pace of European capital outflows continues to slow – which helps support the Euro.

Good news for Europe (at the margin)

“September saw the smallest net outflow of long-term capital from the Eurozone (EUR 80bn) since 2020. European investors have been net sellers of foreign debt for 7 months in a row, which is convenient, as the ECB pulls back and European Governments issue bonds to finance support for energy consumers. This is good for growth and, at the margin, for the currency – if European investors buy local debt instead of foreign debt, that helps the overall balance of payments. This isn’t unadulterated good news, if only because the current account is in deficit, but it’s an improvement. As is the relative shift in direction of ECB and Fed travel, and the shift in relative growth expectations.”

“The huge elephant in the room – that a prolonged European gas shortage slows growth and raises inflation far more in Europe than it does in other areas (particularly the US), is just one reason why the Euro’s revival (and the Dollar’s turn lower) won’t be in a straight line. But we’ll take the positive of an improving balance of payment as what it is – good news at the margin.”

USD/CAD staged a solid rejection of key resistance at 1.3495 yesterday. Economists at Scotiabank expect the pair to extend its fall towards 1.3290 in the near term.

Clear reversal from the upper 1.34s

“Short-term price patterns imply a clear reversal from the upper 1.34s, with the USD extending losses under minor support (rising channel on the intraday chart) at 1.3410/15 (now intraday resistance). Losses should extend towards 1.3290/00 in the short run from here.” 

“The overall pattern of trade keeps the USD on track for a retest of the 1.32 area and, eventually, a drop to the measured move target derived from the Head and Shoulders of 1.3025.”

• USD/CAD comes under renewed selling pressure and is weighed down by a combination of factors.
• An uptick in oil prices underpins the Loonie and exerts pressure amid broad-based USD weakness.
• The mixed technical indicators warrant some caution before placing aggressive directional bets.

The USD/CAD pair meets with a fresh supply on Tuesday and extends the previous day's pullback from the vicinity of the 1.3500 psychological mark, or over a one-week high. The pair remain depressed through the early North American session and is currently trading around the 1.3400 round figure, just a few pips above the daily low.

The US Dollar comes under renewed selling pressure and stalls its recovery momentum from a three-month low, which, in turn, acts as a headwind for the USD/CAD pair. Rising bets for smaller interest rate hikes by the Fed drag the US Treasury bond yields lower, which, along with a positive risk tone, weighs on the safe-haven greenback.

Apart from this, an intraday pickup in crude oil prices underpins the commodity-linked Loonie and also contributes to the offered tone surrounding the USD/CAD pair. That said, worries about the worsening COVID-19 situation in China should keep a lid on any optimism in the markets. This should limit further losses for the USD and the major.

From a technical perspective, the overnight failure near a horizontal support breakpoint now turned resistance, and the subsequent fall favours bearish traders. Moreover, oscillators on the daily chart have been struggling to gain any meaningful positive traction. That said, bullish resilience below the 1.3400 mark warrants some caution.

Hence, it will be prudent to wait for strong follow-through selling before confirming that the recent bounce from the 100-day SMA support has run out of steam. In the meantime, any further fall is likely to find support near the 1.3330-1.3325 area ahead of the 1.3300 mark, which if broken decisively will shift the bias in favour of bearish traders.

On the flip side, daily wing high, around the 1.3455 region, now seems to act as an immediate hurdle. A sustained strength beyond should allow the USD/CAD pair to make a fresh attempt to conquer the 1.3500 round-figure mark. The momentum could then lift spot prices to the 50-day SMA resistance, currently around the 1.3550-1.3555 region.

USD/CAD daily chart

Key levels to watch

• EUR/USD reverses part of the recent retracement on Tuesday.
• A more intense rebound should meet the next hurdle at 1.0400.

EUR/USD returns to the positive territory and manages to climb as highas as the boundaries of the key 1.0300 region on Tuesday.

The continuation of the rebound should initially target the key 200-day SMA, today at 1.0400. The surpass of the latter is needed to dispute the so far November peak at 1.0481 (November 15).

EUR/USD daily chart

Enrico Tanuwidjaja, Economist at UOB Group, comments on the latest GDP figures in Thailand.

Key Takeaways

“The Thai economy rebounded by 4.5% y/y in 3Q22, accelerating from an average of 2.4% in 1H22. The economy accelerated by 1.2% q/q sa.”

“Growth in the last quarter was primarily driven by higher private consumption expenditures, investment, and most notably the export of services (tourism revenue). However, export of goods slowed down, while government expenditure, including its public investment decreased.”

“We keep our forecast for the Thai economy to grow by 3.2% for 2022, double the growth rate seen in 2021. For next year, we continue to remain sanguine and expect the Thai economy to grow circa 3.7% on expectations of higher and steadier tourism income that will continue to boost domestic trade activities coupled with stronger exports performance.”

• Retail Sales in Canada fell more than expected in September.
• USD/CAD continues to trade in negative territory at around 1.3400.

Retail Sales in Canada declined by 0.5% on a monthly basis in September, the data published by Statistics Canada revealed on Tuesday. This reading followed August's increase of 0.4% and came in slightly better than the market expectation for a decrease of 0.7%.

Further details of the publication revealed that Retail Sales ex-Autos fell by 0.7% in the same period, compared to analysts' estimate for a contraction of 0.4%.

Market reaction

USD/CAD showed no immediate reaction to these figures and it was last seen trading at 1.3405, where it was down 0.3% on a daily basis.

• USD/JPY comes under fresh selling pressure on Tuesday amid broad-based USD weakness.
• Bets for smaller rate hikes by the Fed, sliding US bond yields weigh heavily on the greenback.
• The Fed-BoJ policy divergence could undermine the JPY and help limit any meaningful slide.

The USD/JPY pair struggles to capitalize on the previous day's breakout momentum beyond the 100-day SMA and meets with a fresh supply on Tuesday. The pair remains depressed through the early North American session, albeit manages to rebound a few pips from the vicinity of the 141.00 mark, or the daily low. 

The US Dollar comes under some renewed selling pressure and stalls its recent strong recovery from a three-month low, which, in turn, is exerting downward pressure on the USD/JPY pair. Investors now seem convinced that the Federal Reserve will slow the pace of its rate-hiking cycle and have been pricing in a greater chance of a relatively smaller 50 bps lift-off in December. This leads to a fresh leg down in the US Treasury bond yields and keeps the USD bulls on the defensive.

That said, the recent hawkish remarks by several Fed officials suggest that the US central bank will continue to tighten its monetary policy to curb inflation. In contrast, the Bank of Japan, so far, has shown no inclination to hike interest rates. In fact, BoJ Governor Haruhiko Kuroda reiterated on Friday that the central bank will stick to its monetary easing to support the economy and added that raising rates now would be inappropriate in light of current economic conditions.

This marks a big divergence in the monetary policy stance adopted by the two major central banks, which might continue to undermine the Japanese Yen. Apart from this, a slight recovery in the global risk sentiment, which tends to dent demand for traditional safe-haven currencies, including the JPY, might contribute to limiting losses for the USD/JPY pair. Investors might also prefer to wait for a fresh catalyst from the FOMC meeting minutes, due for release on Thursday.

Hence, it will be prudent to wait for strong follow-through selling before confirming that the recent bounce from the lowest level since August 29 has run out of steam. Next on tap is the release of the Richmond Manufacturing Index from the US. This, along with a scheduled speech by Cleveland Fed President Loretta Mester, might influence the USD price dynamics and allow traders to grab short-term opportunities around the USD/JPY pair.

Technical levels to watch

Gold price rebounded strongly from its key support of $1,620. However, strategists at ANZ Bank expect XAU/USD to fall below $1,700 again.

A short-lived price rise

“Prices settling above the $1,800 resistance will be crucial to confirm a bullish trend in Gold. With the Fed expected to hike in December by 50 bps and inflation staying well above the target range, we believe it would be difficult for XAU/USD to break this resistance before the end of this year.”

“We expect Gold to take support at $1,700, while prices could still test the downside of $1,620, which is a key support level in the near-term. A break of $1,620 could potentially open the door for prices to fall below $1,600.”

• DXY faces some downside pressure and recedes from 108.00.
• The index could accelerate gains once 108.00 is cleared.

DXY gives away part of the recent 3-day positive streak and revisits the 107.30 region on Tuesday.

Ideally, the index should leave behind recent highs near 108.00 to allow for the continuation of the rebound to, initially, the 100-day SMA, today at 109.19, prior to the resistance line around 109.70.

While above the key 200-day SMA at 105.17, the outlook for the index should remain constructive. This region is also reinforced by the November low at 105.34 (November 15).

DXY daily chart

The NZD is the top performer among the majors in the session ahead of the Reserve Bank of New Zealand (RBNZ) meeting. Hawkish guidance will lift NZD/USD to 0.6250, according to economists at Scotiabank.

The RBNZ is expected to hike rates

“Some 70% of the Bloomberg survey, and all the local banks who participate in the poll, expect the RBNZ to raise its Cash Rate 75 bps to 4.25%. OIS pricing is not fully onside, however; swaps are pricing in around 86% risk of a 3/4 point hike.” 

“Hawkish guidance (markets are pricing in a Cash Rate near 5.25% by mid-2023) will lift the NZD to test key resistance at 0.6250.”

See – RBNZ Preview: Forecasts from seven major banks, going big on the OCR

The Reserve Bank of New Zealand (RBNZ) will announce its monetary policy decision on Wednesday, November 23 at 01:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of seven major banks.

RBNZ is expected to hike the Official Cash Rate (OCR) by 75 basis points (bps) to 4.25%, which would be the first super-sized rate hike after five consecutive 50 bps moves.

ANZ

“We expect the RBNZ will raise the OCR 75 bps to 4.25%. If there were to be a surprise, a 50 bps hike is more likely than +100 bps. We are forecasting the OCR to peak at 5%, via another 75 bps hike in February on a ‘let’s just get it done’ basis. If data cools more rapidly than expected the RBNZ could well slow the pace at that point. But regardless, we see upside risk to our forecast of a peak 5% OCR, given what’s looking like a well-entrenched wage-price spiral at this point.”

Westpac

“We expect the RBNZ to raise the OCR by 75 bps to 4.25%. Recent data has pointed to mounting inflation pressures, raising concerns that the Reserve Bank has fallen behind the pace despite its relatively early start to rate hikes. We expect the OCR to peak at 5% by early next year. And the RBNZ’s preferred ‘stitch in time’ approach means that it will be looking to head off the risk of an even higher peak.” 

ING

“We expect the RBNZ to hike by 50 bps and signal a peak rate around 5.0%. The ongoing downturn in the housing market and worsening external conditions argue against a larger, 75 bps move. We are not fully convinced the RBNZ will ultimately deliver all its projected hikes, but a dovish pivot is unlikely on the cards at this stage.”

SocGen

“We are likely to see a 75 bps hike in RBNZ rates, to 4.25%.” 

TDS

“The Bank appears to be drifting further from its remit as Q3 headline CPI surprised to the upside and private sector wages growth hit a record. RBNZ would have also been unpleasantly surprised by the rebound in ST inflation expectations. We will watch closely for RBNZ's new OCR track which may indicate a new terminal rate of 5%.”

NAB

“We have opted for 75 bps, which would take the OCR to 4.25%. But this is not with any strong conviction, and we could understand if the Bank suffices with a 50 bps move on the day. As for what November’s MPS will forecast as a peak on the OCR, we would guess something in the top half of the 4s.”

Citibank

“We expect the RBNZ MPC to steepen its pace of rate hikes in November and lift the OCR by 75 bps to 4.25%, cementing the RBNZ as one of the more hawkish central banks globally. This will take monetary policy well into restrictive territory (above the average neutral estimate of around 2%). The acceleration in rate hikes from 50 bps to 75 bps would come from a combination of a tight labor market, an acceleration in wages, and higher than expected inflation in Q3. We also expect large upward revisions to inflation forecasts in the November SMP. The team also pencils another 50 bps hike in February after which the RBNZ is likely to pause for the remainder of 2023, implying a terminal policy rate of 4.75%.”

• GBP/USD regains positive traction on Tuesday amid the emergence of fresh selling around the USD.
• Bets for smaller Fed rate hikes, sliding US bond yields, a positive risk tone undermine the greenback.
• A bleak outlook for the UK economy could act as a headwind for the British Pound and cap the pair.

The GBP/USD pair attracts fresh buying in the vicinity of the 1.1800 round-figure mark on Tuesday and reverses a major part of the overnight losses. The pair maintains its bid tone through the early North American session and is currently placed around the 1.1870 region, just a few pips below the daily top.

The US Dollar comes under some renewed selling pressure and stalled its recent strong bounce from the lowest level since August 12, which, in turn, offers support to the GBP/USD pair. Rising bets for relatively smaller interest rate hikes by the Federal Reserve seem to weigh on the US Treasury bond yields and keep the USD bulls on the defensive. Apart from this, a modest recovery in the global risk sentiment is further seen undermining the safe-haven greenback.

The British Pound, on the other hand, draws support from expectations that the Bank of England will continue raising borrowing costs to combat stubbornly high inflation. Apart from this, reports that the UK government privately discussed the possibility of a Swiss-style relationship with the European Union further underpins the Sterling. This, in turn, provides an additional boost to the GBP/USD pair, though a bleak outlook for the UK economy could cap any further gains.

In fact, the UK Office for Budget Responsibility (OBR) last week projected the UK GDP to slump by 1.4% next year as compared to a growth of 1.8% forecast in March. Apart from this, worries about economic headwinds stemming from a new COVID-19 outbreak in China and the imposition of fresh lockdowns should keep a lid on any optimism in the markets. This, along with the recent hawkish signals from several Fed officials, could limit the USD losses and cap the GBP/USD pair.

Hence, the market focus will remain glued to the release of the November FOMC monetary policy meeting minutes, due on Thursday. Investors will look for clues about the Fed's policy outlook and future rate hike path. This will influence the USD price dynamics and determine the near-term trajectory for the GBP/USD pair. In the meantime, traders on Tuesday will look to the release of the Richmond Manufacturing Index and Cleveland Fed President Loretta Mester's speech for some impetus.

Technical levels to watch

EUR/CHF has staged a steady rebound after forming a significant low near 0.9410 in September. The pair could extend its bounce while holding above the 0.9640/10 region, economists at Société Générale report.

Compression in 10y BTP/Bund underpins EUR/CHF

“Tightening of 10-year BTP/ Bund spread to 189 bps, lowest since July, supports higher EUR/CHF.”

“Daily MACD is anchored within a positive territory which denotes prevalence of upward momentum.”

“Defending daily Ichimoku cloud at 0.9640/0.9610 is essential for persistence in bounce.”

“Short-term hurdles are at 200-DMA near 0.9970/1.0010.” 

• EUR/JPY comes under pressure and breaks below 145.00.
• The next hurdle of note still emerges around 147.00 near term.

EUR/JPY fades the optimism seen at the beginning of the week and puts 145.00 to the test on turnaround Tuesday.

So far, the corrective rebound looks well in place and the cross should face initial resistance at the so far November high at 147.11 (November 9). Above the latter, the door could open to a more meaningful move to the 2022 peak at 148.40 (October 21).

In the longer run, while above the key 200-day SMA at 138.54, the positive outlook is expected to remain unchanged.

EUR/JPY daily chart

Economist at UOB Group Enrico Tanuwidjaja reviews the latest current account figures in Indonesia.

Key Takeaways

“Indonesia’s 3Q22 CA position recorded a surplus of USD4.4bn (or an equivalent of 1.3% of GDP), higher than 2Q22's USD4bn (1.2% of GDP). However, the capital and financial account recorded a deficit of USD6.1bn (1.8% of GDP), increasing by more than five-fold from a deficit of USD1.2bn (0.3% of GDP) in 2Q22. Overall, Indonesia's balance of payments (BOP) position in 3Q22 remained generally resilient with a slight deficit of USD1.3bn.”

“Strong demand for exports from Indonesia’s key trading partners and high global commodity prices have resulted into a much-improved goods trade performance which has in turn underpinned an even stronger surplus in CA position in the last quarter. The performance of the capital and financial account in 3Q22 was supported by direct investment despite increasing uncertainty on global financial markets.”

“We expect Indonesia to record a CA surplus amounting to 0.8% of GDP in 2022 before waning commodity prices, higher imports, higher services deficit, and higher primary deficit turn the CA position into a deficit of circa 0.5% of GDP in 2023.”

The Pound outperformed G10/USD last week. Economists at Société Générale note that the GBP/USD pair could extend its race higher towards 1.2070.

EUR/GBP may have room to run towards next support around 0.8620

“GBP/USD has affirmed a short-term bounce after cross crossed above the trend line since February. The ongoing move could persist towards projections near 1.2070.”

“The 200-Day Moving Average at 1.2250/1.2300 is a crucial resistance zone.” 

“Lower daily lows suggest EUR/GBP may have room to run towards next support around 0.8620 (GBP/EUR 1.16).”  

• Gold price catches fresh bids and snaps a four-day losing streak amid renewed US Dollar selling bias.
• Bets for smaller rate hikes by the Federal Reserve weigh on the US Treasury bond yields and the USD.
• A positive risk tone might turn out to be the only factor that could cap further upside for Gold price.
• Traders now await the November FOMC meeting minutes on Wednesday for a fresh directional impetus.

Gold price regains some positive traction on Tuesday and snaps a four-day losing streak to a one-and-half-week low touched the previous day. The XAU/USD sticks to gains just below the $1,750 level through the mid-European session and for now, seems to have stalled its recent corrective pullback from a three-month high.

Fresh US Dollar selling benefits Gold price

The US Dollar comes under some selling pressure and halts the recent bounce from its lowest level since August 12, which, in turn, is seen boosting the Dollar-denominated gold. Investors seem convinced that the Federal Reserve (Fed) will slow the pace of its rate-hiking cycle and have been pricing in a greater chance of a relatively smaller 50 bps lift-off at the December meeting. This is evident from a modest downtick in the US Treasury bond yields and weighs on the USD.

Hawkish signals by Federal Reserve officials seem to cap gains

That said, the recent hawkish signals from several Fed officials suggest that the US central bank will continue to tighten its monetary policy to combat stubbornly high inflation. This, in turn, should act as a tailwind for the US bond yields and help limit losses for the US Dollar, capping any further gains for the non-yielding Gold price. Hence, the focus will remain on the minutes of the Fed’s November meeting, due on Thursday, which will be looked upon for cues about future rate hikes.

A positive risk tone further warrants caution for XAU/USD bulls

In the meantime, worries about economic headwinds stemming from a new COVID-19 outbreak in China and the imposition of fresh lockdowns could benefit the greenback's status as the global reserve currency. Apart from this, signs of stability in the financial markets might also contribute to capping the upside for the safe-haven XAU/USD. This makes it prudent to wait for strong follow-through buying before traders start positioning for a further appreciating move for Gold price.

Next on tap is the release of the Richmond Manufacturing Index from the US. This, along with a scheduled speech by Cleveland Federal Reserve President Loretta Mester and the US bond yields, will influence the US Dollar price dynamics. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities around the Gold price.

Gold price technical outlook

From a technical perspective, any subsequent move up is likely to confront some resistance near the $1,755 region. A sustained strength beyond might trigger a short-covering rally towards the $1,765 area. The next relevant hurdle is pegged near the $1,770 level, above which Gold price could climb back to retest the multi-month high, around the $1,785 zone touched last week.

On the flip side, the weekly low, around the $1,733-$1,732 region, marks a previous strong resistance breakpoint and should continue to protect the immediate downside. That said, a convincing breakthrough might prompt aggressive technical selling and make the Gold price vulnerable to accelerate the fall to challenge the $1,700 round figure.

Key levels to watch

Gold price rose 3.9% in the week ending 15 November 2022 after the US Consumer Price Index report came softer than expected. This alleviated downside pressure on the yellow metal, strategists at Société Générale report. 

Money managers turned net long

“One which showed spectacular activity was Gold, with a $7.4bn bullish flow. This was mainly driven by a $6.1bn short covering on the bullion’s future contracts, the largest seen for Gold since data started being aggregated in 2006.”

“Flows reacted to the 10 November release of US YoY core CPI figures for the month of October, which were lower than the market had previously anticipated. Although lower inflation would traditionally be bearish for Gold, market sentiment seems to have focused on the prospect of slower US Fed interest rate hikes or an earlier pivot towards dovish policies which, if tamed faster than inflation decreases, would lower real rates. 

“The 10y US real rates dropped 19.5 bps to 1.44% in the week to 15 November. The latter would be bullish for the non-interest rate generating precious metal as it increases its appeal compared to treasury notes.”

The US Dollar has staged a comeback. In the view of economists at TD Securities, the resilience of the greenback could extend into next week.

Gap up risk in USD/JPY over the next couple of weeks

“What makes the recent shift interesting is that it comes ahead of US holidays, where more often than not you have seen positive trends in non-USD FX reverse into it. Moreover, Powell is slated to speak on Nov. 30th and we think it is prudent to assume that he will likely be dismayed over the shift in financial conditions since he last spoke. That we think, could extend USD resilience into next week.”

“USD/JPY is particularly interesting for a couple of reasons: 1) broad USD variation is showing pretty uniform positive correlation across fed funds curve (and not just the easing portion); and 2) USD/JPY FV currently sits at 145/146. So, the risk here is that we may still see a gap up risk in USD/JPY over the next couple of weeks unless US long rates can rally and provide an offset.”

“USD/CAD looks fair above 1.35. From a technical point of view, extension risks lie towards 1.36 (roughly where downtrend resistance from the Oct 13th highs come in) unless OPEC+ does not provide production increases.”

“If the USD is truly peaking or at the very least in broad consolidation mode around the holidays, there is scope for value to dominate in the weeks ahead.”

EUR/HUF has stabilised around 410 after pulling back from 434 to sub 400. A break past 416 is needed to avoid range-bound action, economists at Société Générale report.

Signals of a large downtrend are not yet visible

“Signals of a large downtrend are not yet visible; 200-DMA near 394/391 should be an important support zone.”

“Short-term price action could remain range-bound with upper band near graphical levels of 416 representing July high. If this is overcome, the pair is expected to witness a bounce towards 426, the 76.4% retracement of recent down move and perhaps even towards 434.”

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group see USD/CNH extending the consolidation within the 7.0600-7.2100 range in the next few weeks.

Key Quotes

24-hour view: “We expected USD to strengthen yesterday but we were of the view that ‘any advance is expected to face strong resistance at 7.1620’. However, USD easily took out 7.1620 and soared to a high of 7.1865 before pulling back. The pullback amid overbought conditions suggests USD is unlikely to advance further. For today, USD is more likely to trade sideways within an expected range of 7.1400/7.1800.”

Next 1-3 weeks: “We continue to hold the same view as last Friday (18 Nov, spot at 7.1460) where USD has likely moved into a consolidation phase. We expect USD to trade sideways for now, likely to be between 7.0600 and 7.2100.”

China's economy continues to face COVID-19 and real estate related challenges, and economists at Wells Fargo have lowered their 2022 and 2023 GDP growth forecasts. That said, they only forecast modest weakness for the Renminbi from current levels.

China's growth prospects are likely to remain sluggish for the foreseeable future

“We revised our 2022 annual GDP forecast lower and now project China's economy to expand just 3% this year. With this downward revision, our 2022 forecast is now further below-consensus.”

“Our longer-term view for persistent Zero-COVID policies also underpins our view that China will grow at subdued levels for the next few years. In 2023, we believe China's economy will grow below 5% as virus flare-ups result in broad mobility restrictions over the entire course of 2023.”

“We have a view that the People's Bank of China (PBoC) will ease monetary policy further in an attempt to offset a portion of the economic slowdown. This view on PBoC monetary policy contributes to our view for a weaker Renminbi into early 2023.” 

“We believe the Renminbi can trend weaker over the coming quarters, and the USD/CNY and USD/CNH exchange rates can reach 7.20 by early 2023, only recovering ground against the Dollar during the second half of 2023.”

• EUR/USD leaves behind part of the recent downside.
• The dollar looks offered amidst firmer risk-on mood.
• Flash EMU Consumer Confidence is only due later in the session.

The single currency manages to regain some composure and motivates EUR/USD to set aside three sessions in a row with losses on Tuesday.

EUR/USD now focuses on 1.0300

EUR/USD picks up pace after hitting fresh multi-day lows near 1.0220 at the beginning of the week, always on the back of some corrective move in the greenback and a better mood surrounding the risk complex.

The bounce in the pair comes so far in tandem with side-lined German 10-year bund yields, always above the 2.0% mark.

Later in the session, the European Commission will release its advanced gauge of the Consumer Confidence for the current month, whereas across the Atlantic the sole publication will come from the Richmond Fed index and speeches by FOMC’s Mester (Cleveland), George (Kansas City) and Bullard (St. Louis).

What to look for around EUR

EUR/USD partially reverses three daily drops in a row and regains some balance on the back of the offered bias in the greenback on Tuesday.

In the meantime, the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. In addition, markets repricing of a potential pivot in the Fed’s policy remains the exclusive driver of the pair’s price action for the time being.

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

Key events in the euro area this week: Flash EMU Consumer Confidence (Tuesday) EMU, Germany Advanced PMIs (Wednesday) – Germany IFO Business Climate, ECB Accounts (Thursday) – Germany Final Q3 GDP Growth Rate, GfK Consumer Confidence (Friday).

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

EUR/USD levels to watch

So far, the pair is gaining 0.43% at 1.0282 and faces the next up barrier at 1.0400 (200-day SMA) ahead of 1.0481 (monthly high November 15) and finally 1.0500 (round level). On the flip side, a breach of 1.0222 (weekly low November 21) would target 1.0021 (100-day SMA) en route to 0.9935 (low November 10).

US Dollar steadies following Monday's upsurge. Economists at ING expect a broader USD recovery into year-end.

Recovery mode

“We continue to see the Dollar at risk of new brief bearish waves this week, but we note that the environment has now turned more benign for the greenback, and this may be laying the groundwork for a re-appreciation into year-end, which is our baseline scenario.”

“We could see some consolidation around 107.50/108.00 in DXY today.”

“Remember that liquidity will run significantly thinner in the second half of the week as the US enters the Thanksgiving holiday period.”

In its latest report, the Organisation for Economic Cooperation and Development (OECD) said on Tuesday, “our central scenario is not a global recession but a significant growth slowdown for the world economy in 2023.”

Additional takeaways

Market reaction

The dire global economic outlook projected by the OECD fails to affect the improved market mood, with US S&P 500 futures adding 0.23% on the day. The US Dollar Index is down 0.36% so far, trading at 107.45, at the press time.

United States Pentagon’s spokesperson, Brigadier General Pat Ryder, said on Tuesday that Defense Secretary Lloyd Austin discussed with his Chinese counterpart Wei Fenghe the need to improve crisis communication between the two major powers, per Reuters.

“Austin raised concerns about increasingly dangerous behavior by Chinese aircraft that increases the risk of an accident,” Brigadier General Ryder added.

Both the Defense chiefs met for the second time this year on the sidelines of the ASEAN defense ministers’ gathering in Cambodia.

Market reaction

At the time of writing, AUD/USD is consolidating the latest uptick near 0.6640, still adding 0.55% on the day.

Among the strongest losers of yesterday's USD rally was the Japanese Yen. In order to depress the USD/JPY pair, we need a sustainably weaker Dollar unless the Bank of Japan abandons its dovish stance, economists at Commerzbank report.

Japanese FX interventions cannot permanently depress USD/JPY

“Japanese FX interventions cannot permanently depress USD/JPY. That can probably only be done by a sustainably weaker Dollar or a turnaround in Japanese monetary policy.”

“So for now, Japan's Ministry of Finance must continue to hope for a weaker dollar to limit the upside in USD/JPY. However, since we also see a good chance that the Dollar has reached its high for the time being, the MoF might get around further intervention for the time being.”

Further upside appears in store for USD/JPY above 142.50 in the short term, note Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “The sudden lift-off that sent USD soaring to a high of 142.25 came as a surprise (we were expecting sideways trading). While the sharp and rapid advance is overbought, there is scope for USD to test 142.50 before the risk of a pullback increases. The next resistance at 143.00 is not expected to come under threat. Support is at 141.50, a break of 141.10 would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “Last Friday (18 Nov, spot at 140.30), we highlighted that USD appears to have moved into a consolidation phase and is likely to trade within a range of 138.50/142.50. Yesterday (21 Nov), USD soared to a high of 142.25. USD is gaining momentum, but it must break and hold above 142.50 before further gains are likely. The chance of USD breaking above 142.50 would remain intact as long as it does not move below 140.30 within the next few days.”

• USD/CAD meets with a fresh supply on Tuesday amid the emergence of some USD selling.
• China’s COVID-19 woes, hawkish Fed expectations should limit the downside for the buck.
• Subdued crude oil prices might cap gains for the Loonie and lend some support to the pair.

The USD/CAD pair comes under some selling pressure on Tuesday and extends the overnight pullback from the vicinity of the 1.3500 psychological mark. The pair remains on the defensive through the first half of the European session and is currently flirting with the daily low, just below the 1.3400 round-figure mark.

The US Dollar stalls its recent strong recovery move from the lowest level since August 12 and retreats from over a one-week high touched on Monday, which, in turn, acts as a headwind for the USD/CAD pair. A modest downtick in the US Treasury bond yields is weighing on the greenback. That said, the prevalent cautious mood should help limit any deeper losses for the safe-haven buck and offer some support to the major.

Investors remain worried about the potential economic fallout from a new COVID-19 outbreak in China and the imposition of fresh lockdowns in several cities. Moreover, fears of a further escalation in the Russia-Ukraine conflict take its toll on the risk sentiment. Adding to this, hawkish signals by Fed officials, suggesting that the US central bank is far from pausing its rate-hiking cycle, favour the USD bulls.

Meanwhile, concerns over slowing demand in China - the world's largest crude importer - should keep a lid on the black liquid. This, in turn, might undermine the commodity-linked Loonie and further help limit the downside for the USD/CAD pair. Traders now look forward to the economic docket, featuring Canadian monthly Retail Sales figures and the Richmond Manufacturing Index from the US, for a fresh trading impetus.

Apart from this, a scheduled speech by Cleveland Fed President Loretta Mester will drive the USD demand. This, along with oil price dynamics, will further contribute to producing some meaningful trading opportunities around the USD/CAD pair. Nevertheless, the fundamental backdrop supports prospects for the emergence of some buying at lower levels, warranting caution before positioning for any further decline.

Technical levels to watch

• The index fades Monday’s strength to the 108.00 region.
• The appetite for the risk complex weighs on the dollar on Tuesday.
• Richmond Fed manufacturing gauge, Fedspeak next on tap in the docket.

Thew greenback loses some shine following Monday’s bull run to the proximity of the 108.00 neighbourhood when tracked by the USD Index (DXY).

USD Index looks to Fed speaker, risk trends

The index comes under pressure after three daily advances in a row sustained by hawkish remarks from Fed speakers, which somewhat alleviate the speculation around a potential pivot in the Fed’s policy.

The ongoing knee-jerk in the dollar comes amidst a small correction in US yields following the recent marked rebound, while renewed appetite for the riskier assets also puts the buck under scrutiny.

In the US data space, the only scheduled release will be the Richmond Fed Manufacturing Index seconded by speeches by Cleveland Fed L.Mester (voter, hawk), Kansas City Fed E.George (voter, hawk) and St. Louis Fed J.Bullard (voter, hawk).

What to look for around USD

The dollar faltered just ahead of the 108.00 barrier at the beginning of the week, sparking a corrective move soon afterwards pari passu with the recovery in the risk-linked galaxy.

While hawkish Fedspeak maintains the Fed’s pivot narrative in the freezer, upcoming results in US fundamentals would likely play a key role in determining the chances of a slower pace of the Fed’s normalization process in the short term.

Key events in the US this week: MBA Mortgages Applications, Building Permits, Durable Goods Orders, Initial Jobless Claims, Flash Manufacturing/Services PMIs, Final Michigan Consumer Sentiment, New Home Sales, FOMC Minutes (Wednesday).

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

USD Index relevant levels

Now, the index is retreating 0.39% at 107.35 and the breakdown of 105.34 (monthly low November 15) would open the door to 105.17 (200-day SMA) and finally 104.63 (monthly low August 10). On the other hand, the next up barrier comes at 107.99 (weekly high November 21) followed by 109.19 (100-day SMA) and then 110.68 (55-day SMA).

Citing multiple government sources, Bloomberg reported on Tuesday, UK Finance Minister Jeremy Hunt is said to have privately pushed for Britain to have closer ties with the European Union (EU), raising the first sign of the UK PM Rishi Sunak camp’s dissatisfaction with Hunt.

A senior government source criticized Hunt for speaking too loosely about his views on Brexit, per Bloomberg.

Rumors are doing the rounds that Britain is starting to have second thoughts about Brexit even after more than six years of division with the EU.

This comes after PM Sunak ruled out on Monday any Swiss-style deal to remove trade barriers with the EU.

EUR/USD plunged back to the 1.0250 area yesterday. Economists at ING continue to target levels under parity into the new year.

Preparing for a longer downtrend

“Expect some support at 1.0200 in EUR/USD: a decisive break below that level could underpin the return to a bullish Dollar narrative and unlock more downside risks.”

“We see further room for a contraction in EUR/USD this winter and continue to target sub-parity levels into the new year.”

See – EUR/USD: Rebound may have already peaked just shy of 1.05 – Crédit Agricole

Considering advanced prints from CME Group for natural gas futures markets, open interest rose by just 311 contracts at the beginning of the week. In the same line, volume set aside two daily pullbacks and increased by around 69.5K contracts.

Natural Gas keeps targeting the 200-day SMA

Monday’s strong climb in natural gas prices was accompanied by rising open interest and volume and this opens the door to the continuation of the uptrend in the very near term. That said, the immediate up barrier remains at the key 200-day SMA, today at $6.886 per MMBtu.

Analysts at Goldman Sachs are out with their outlook on the Chinese economy, expecting weak growth in Q4 2022 and Q1 2023 as the Zero Covid Policy (ZCP) likely stays in place during the winter.

Additional takeaways

“Although the leadership has clearly signaled that it aims to exit ZCP, we do not expect actual reopening to start until April. The basic reason for this is that medical and communication preparations will take time.”

“We look for a meaningful reopening growth boost in H2, which will likely extend into 2024. Our Q3 and Q4 forecasts of 10% and 6% annualized.”

“We expect a continued drag from Covid caution as well as other headwinds, some cyclical and some more structural.”

“On the cyclical side, fiscal policy is set to tighten if the domestic economy rebounds, and China’s pandemic-related export boom should fade as global demand for tech, housing, and Covid-related products slows further.“

“On the structural side, we see the contraction of the property sector and US chip export restrictions as multi-year drags. We estimate that the ongoing slide of the property sector will subtract around -1½pp from growth next year as it continues to delever and face demographic headwinds.”

According to Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, NZD/USD is expected to extend the consolidation between 0.6035 and 0.6200 in the near term.

Key Quotes

24-hour view: “NZD dropped sharply to 0.6092 before closing at 0.6100 (-0.85%). The decline appears to be running ahead of itself and NZD is unlikely to weaken much further. For today, NZD is more likely to trade sideways between 0.6090 and 0.6145.”

Next 1-3 weeks: “We continue to hold the same view as from last Friday (18 Nov, spot at 0.6135). As highlighted, NZD is likely to trade within a range of 0.6035/0.6200 for now.”

• AUD/USD attracts some buyers on Tuesday amid subdued USD price action.
• China’s COVID-19 woes, hawkish Fed expectations could limit the USD losses.
• RBA Governor Lowe's comments fail to impress bulls or provide any impetus.

The AUD/USD pair regains some positive traction on Tuesday and recovers a part of the previous day's slide to over a one-week low. The pair maintains its bid tone through the first half of the European session and is currently placed near the daily peak, around the 0.6630-0.6635 region.

The US Dollar stalls its recent strong recovery move from the lowest level since August 12 and edges lower on Tuesday, which, in turn, is seen offering some support to the AUD/USD pair. The fundamental backdrop, however, still seems tilted in favour of the USD bulls. Hence, any subsequent move up might still be seen as an opportunity to initiate fresh bearish positioning around the major and runs the risk of fizzling out rather quickly.

The market sentiment remains fragile amid worries about economic headwinds stemming from a new COVID-19 outbreak in China and the imposition of fresh lockdowns in several cities. Apart from this, fears of a further escalation in the Russia-Ukraine conflict take its toll on the global risk sentiment. This is evident from a softer tone around the equity markets, which should act as a tailwind for the safe-haven buck and cap the risk-sensitive Aussie.

Furthermore, hawkish signals by Fed officials suggest that the US central bank is far from pausing its rate-hiking cycle, which should further lend support to the USD. Meanwhile, Reserve Bank of Australia (RBA) Governor Philip Lowe said on Tuesday that the central bank could return to 50 bp moves or keep rates unchanged for a time. This, along with the worsening COVID-19 situation in China, validates the bearish outlook for the AUD/USD pair.

Market participants now look forward to the release of the Richmond Manufacturing Index from the US. Apart from this, traders will take cues from a scheduled speech by Cleveland Fed President Loretta Mester. This, along with the broader market risk sentiment, will influence the USD price dynamics and allow traders to grab short-term opportunities around the AUD/USD pair.

Technical levels to watch

Economists at Wells Fargo the British Pound to struggle in the months ahead amid a bleak UK economic outlook and a more dovish Bank of England.

British Pound to be an underperformer

“We forecast a protracted recession in the United Kingdom, reinforced by the government's fiscal consolidation in its Autumn Statement. As a result, we expect Bank of England rate to lag behind the Fed and market participants' expectation, while we also see the UK central bank easing monetary policy by late next year.” 

“Against this backdrop, we expect the Pound to be an underperformer within the G10 currencies, showing renewed weakness through early 2023 and only a modest rebound thereafter.”

Spanish Economy Minister Nadia Calvino said on Tuesday, she expects the country’s annualized “inflation rate to remain at around 7% until the end of this year and will likely start falling from 2023.”

"The inflation slowdown would be "the best news not only because it improves the sustainability of the economy and eases the situation of Spanish households and companies, but because it will help the European Central Bank which could then stop raising interest rates," Calvino added.

Market reaction

The Euro shows little to no reaction to the above comments, with EURUSD trading 0.30% higher on the day at 1.0270, as of writing.

Reserve Bank of Australia (RBA) is delivering a speech titled "Price Stability, the Supply Side, and Prosperity" at the Annual Committee for Economic Development of Australia Dinner this Tuesday.

Key quotes

Market reaction

AUD/USD is moving a few pips away from the intraday highs of 0.6636 on the above comments from RBA Chief Lowe. The pair is currently trading at 0.6623, up 0.29% on the day.

The Reserve Bank of New Zealand will announce monetary policy at 01:00 GMT tomorrow, and it is a close call between a 50 bps and a 75 bps hike. In any case, the impact on the Kiwi is set to be short-lived, economists at ING report.

Any post-meeting NZD moves to be short-lived

“We see 50 bps as more likely, as signs of an accelerating housing market contraction warn against an overly aggressive approach. Markets (66 bps in the price) and the majority of economists are, however, leaning in favour of a 75 bps move.”

“A half-point hike would likely be seen as a dovish surprise by markets at this point, but a significant revision higher in rate projections could mitigate any negative impact on the New Zealand Dollar. Either way, expect any post-meeting NZD moves to be short-lived, as global risk dynamics and China news will soon be back in the driver’s seat for the currency.”

“NZD/USD is at risk of falling back below 0.60 before the end of this year, while we target a gradual recovery to 0.64 throughout the whole of 2023.”

• GBP/USD edges higher on Tuesday amid subdued USD demand, though lacks bullish conviction.
• China’s COVID-19 woes, geopolitical risks should limit any meaningful downside for the greenback.
• A bleak outlook for the UK economy undermines the Sterling and contributes to capping the pair.

The GBP/USD pair struggles to capitalize on its modest intraday gains and retreats a few pips from the daily high, though lacks follow-through. The pair is currently placed just below the mid-1.1800s, up around 0.20% for the day, and remains at the mercy of the US Dollar price dynamics.

The USD Index, which measures the greenback's performance against a basket of currencies, eases from over a one-week high touched on Monday and acts as a tailwind for the GBP/USD pair. Apart from this, expectations that the Bank of England will continue raising rates to combat stubbornly high inflation offer additional support to the Sterling. That said, any meaningful upside seems elusive, warranting some caution before placing aggressive bullish bets around the major.

A bleak outlook for the UK economy might continue to undermine the British Pound and cap gains for the GBP/USD pair. It is worth mentioning that the UK Office for Budget Responsibility (OBR) now projects the UK GDP to slump by 1.4% next year as compared to a growth of 1.8% forecast in March. Furthermore, the worsening COVID-19 situation in China, along with geopolitical risks, should lend support to the buck and contribute to keeping a lid on the major, at least for now.

There isn't any major market-moving economic data due for release from the UK on Tuesday, leaving the GBP/USD pair at the mercy of the USD price dynamics. Later during the early North American session, traders will take cues from the release of the Richmond Manufacturing Index from the US. This, along with a scheduled speech by Cleveland Fed President Loretta Mester, will drive the USD demand and allow traders to grab short-term opportunities around the major.

Technical levels to watch

Economists at Wells Fargo see the Japanese currency strengthening over the medium term, targeting a USD/JPY exchange rate of 135.00 by Q1-2024.

Fed to stop raising rates by early 2023

“Although we anticipate US Dollar strength to continue into early 2023, we see the Japanese currency strengthening over the medium term, and believe the USD/JPY exchange rate could reach 135.00 by Q1-2024.” 

“Changes in economic fundamentals should be a more influential currency driver than recent foreign exchange interventions, and we believe the Yen will be especially sensitive to changes in monetary policy rates. Given we expect the Federal Reserve to stop raising rates by early 2023, we see solid prospects for a stronger Yen past that point.”

Open interest in crude oil futures markets shrank for the second straight session on Monday, this time by around 21.5K contracts according to preliminary readings from CME Group. Volume followed suit and went up by around 79.5K contracts after two daily builds in a row.

WTI could revisit the 2022 low near $74.00

Prices of the barrel of the WTI started the week with marginal gains amidst a volatile session. Monday’s price action was on the back of diminishing open interest and volume and does not rule out further losses in the very near term. That said, the next support of note emerges at the YTD low at $74.30 recorded on January 3.

Economists at Crédit Agricole CIB Research believe that the EUR/USD pair may have already peaked just shy of the 1.05 level last week.

A recession will be hard to avoid

“The EUR failed to benefit much from the broad risk-on tone that saw equity gains coupled with a sharp correction in energy prices on Friday. On the data front, this week’s flurry of Eurozone leading indicators for November could increasingly provide evidence that a recession will be hard to avoid, which could in turn limit the EUR’s appeal, especially as it will imply a difficult reality check by the ECB.” 

"The EUR/USD rebound may have already peaked when it spiked just shy of 1.05 last week, as real rate spreads hint at some consolidation lower going into year-end.”

The US Dollar appreciated further yesterday. Economists at Commerzbank discuss the conditions to see a shift in sentiment towards the greenback.

The foundation for a weaker Dollar in the medium term has already been laid

“How much longer USD strength at current levels remains justified will initially depend mainly on how much further the Fed will hike its key rate. The market is likely to hope for further information on how divided opinions amongst members are in tomorrow’s Fed meeting minutes. What matters mainly for the Dollar right now is that there are no fundamental doubts as to the fight against inflation being fought with maximum force.”

“Sentiment towards the Dollar is only likely to shift on a sustainable basis if we see clearer signs of a recession of the US economy. At that point, Fed rate cuts will be back on the agenda very quickly.” 

“If the Fed manages to control inflation, which the latest inflation data seems to suggest, there is more scope to cut rates if the US economy cools. Even at the risk of cutting rates again too soon thus keeping inflation higher for longer. The foundation for a weaker Dollar in the medium term has thus already been laid.”

• NZD/USD regains some positive traction on Tuesday amid subdued USD price action.
• China’s COVID-19 woes, hawkish Fed signals should act as a tailwind for the greenback.
• Traders also seem reluctant ahead of the RBNZ and the FOMC minutes on Wednesday.

The NZD/USD pair attracts some dip-buying on Tuesday and reverses a part of the previous day's losses to sub-0.6100 levels. The pair sticks to its modest gains through the early European session and is currently trading near the top end of the daily range, around the 0.6120 region.

The US Dollar struggles to gain any meaningful traction and is seen consolidating the overnight strong move up to a one-week high, which, in turn, offers some support to the NZD/USD pair. That said, the prevalent cautious mood around the equity markets acts as a tailwind for the safe-haven greenback and keeps a lid on any further gains for the risk-sensitive Kiwi, at least for now.

Investors remain concerned about the potential economic headwinds stemming from a new COVID-19 outbreak in China and the imposition of fresh lockdowns in some cities. Furthermore, China's National Health Commission (NHC) stresses adhering to the zero-COVID policy. This, along with the risk of a further escalation in the Russia-Ukraine conflict, continues to weigh on the risk sentiment.

Meanwhile, doubts about the peak inflation narrative and hawkish signals by several Fed officials suggest that the US central bank might still be far from pausing its policy-tightening cycle. This, in turn, favours the USD bulls and should also contribute to capping the NZD/USD pair. Traders might also prefer to move to the sidelines and wait for a fresh catalyst from this week's key event risks.

The Reserve Bank of New Zealand (RBNZ) is scheduled to announce its policy decision on Wednesday, which will be followed by the release of the FOMC meeting minutes. This, in turn, will determine the next leg of a directional move for the NZD/USD pair. In the meantime, traders on Tuesday will take cues from a scheduled speech by Cleveland Fed President Loretta Mester for some impetus.

Technical levels to watch

GBP/USD is now seen within the 1.1680-1.1940 range in the next few weeks, suggest Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “Our view for GBP to consolidate between 1.1820 and 1.1940 yesterday was incorrect as it slumped to a low of 1.1780. Despite the decline, downward momentum has not improved much. However, as long as 1.1880 is not breached (minor resistance is at 1.1855), GBP could retest the 1.1780 level before a more substantial rebound is likely. The next support at 1.1740 is unlikely to come into view.”

Next 1-3 weeks: “After GBP soared to a high of 1.2027, we highlighted last Wednesday (16 Nov, spot at 1.1880) that GBP could consolidate first before making another push higher and we were of the view that the chance of a break of 1.2100 does not appear to be high. Yesterday (21 Nov), GBP dropped below our ‘strong support’ level at 1.1790 (low of 1.1780). Upward pressure has dissipated and GBP appears to have moved into a consolidation phase and is likely to trade between 1.1680 and 1.1940 for the time being.”

CME Group’s flash data for gold futures markets showed open interest extended the downtrend for yet another session on Monday, this time by around 8.4K contracts. Volume, instead, rose by around 65.3K contracts after three consecutive daily builds.

Gold could revisit the $1,770 region

Monday’s drop to multi-session lows near $1,730 was amidst shrinking open interest and this is supportive of a short-term rebound in gold to, initially, the $1,770 zone (November 18).

Over the past week, USD/THB has been relatively stable slightly above the 35.50 mark. For the week ahead, economists at MUFG Bank see the pair within a range of 35.17 to 36.68.

Further THB gains may need more improvements in fundamentals

“In the week ahead, markets will watch Q3 GDP numbers and October trade numbers. We expect a relatively buoyant GDP print of 4.6% YoY in Q3, from 2.5% in Q2. However, the trade deficit may continue, due to high import bills. Further THB gains may need more improvements in fundamentals.” 

“For the week ahead, we see USD/THB within a range of 35.17 to 36.68 and slightly biased on the upside, along the 200 and 100 moving averages.”

“We see downside risks to our end-2022 forecast of 39.25, given previous moves and are reviewing our forecasts.” 

Here is what you need to know on Tuesday, November 22:

The US Dollar seems to have lost its strength early Tuesday after having registered impressive gains against its major rivals on Monday. The US Dollar Index stays quiet slightly above 107.50 and the benchmark 10-year US Treasury bond yield continues to move sideways at around 3.8%. Meanwhile, US stock index futures trade virtually unchanged on the day, pointing to a neutral market mood. Later in the day, the European Commission will release the November Consumer Confidence data for the Eurozone and the US economic docket will feature Richmond Fed Manufacturing Index. Investors will continue to pay close attention to comments from central bankers.

The US dollar benefited from the risk-averse market environment on Monday as markets reacted to concerning coronavirus news from China. Investors grow increasingly worried about a global economic downturn with China refraining from further easing Covid restrictions. On Monday, China reported more than 28,000 new local cases and the city of Beijing announced that it will be shutting down parks and museums from Tuesday. Although the latest developments show that the situation is getting worse, safe-haven flows are yet to dominate the action.

Meanwhile, crude oil prices came under heavy bearish pressure during the American trading hours on Monday after a Wall Street Journal report claimed that Saudi Arabia was planning to raise OPEC+ production. The barrel of West Texas Intermediate (WTI) dropped to a fresh 2022-low of $75.25 on this headline. Saudi Energy Minister Abdulaziz bin Salman Al-Saud, however, denied this claim and noted that they were not discussing a potential increase in output. In turn, crude oil prices recovered sharply and the WTI was last seen trading flat on the day slightly above $80. 

EUR/USD lost nearly 100 pips on Monday before going into a consolidation phase at around 1.0250 early Tuesday. Comments from European Central Bank (ECB) officials highlight a difference of opinion regarding the next rate move. ECB policymaker Mario Centeno said late Monday that there were many conditions for the next rate hike to be less than 75 basis points (bps). On the other hand, ECB Governing Council member Robert Holzmann noted that he would support a 75 bps rate increase at the next meeting in case the situation remains the same. 

GBP/USD dipped below 1.1800 on Monday but staged a rebound later in the day to close above that level. The pair trades in a tight channel below 1.1850 in the European morning. 

USD/JPY gathered bullish momentum and advanced to the 142.00 area on Monday on the back of broad-based US Dollar (USD) strength. The pair stays in a consolidation phase near that level early Tuesday.

Gold price dropped to a 10-day low near $1,730 on Monday but it managed to limit its losses with the US T-bond yields failing to gain traction. XAU/USD trades modestly higher on the day above $1,740 in the European trading hours.

Bitcoin lost over 3% on Monday and touched its lowest level in two years below $15,500. BTC/USD was last seen trading in a tight channel near $15,700. Ethereum is already down nearly 5% since the beginning of the week and trades within a touching distance of the multi-month low it set at $1,070 earlier in the month.

In the opinion of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, EUR/USD could slip back to the 1.0150 zone in the next few weeks.

Key Quotes

24-hour view: “We expected EUR to weaken yesterday but we were of the view that ‘any decline is unlikely to break the support at 1.0280’. We indicated, ‘the next support is at 1.0240’. The decline exceeded our expectations as EUR cracked both 1.0280 and 1.0240 as it plummeted to a low of 1.0221. While approaching oversold, there is scope for EUR to weaken further to 1.0205. The major support at 1.0150 is unlikely to come under threat today. On the upside, a break of 1.0285 (minor resistance is at 1.0260) would indicate that the weakness in EUR has stabilized.”

Next 1-3 weeks: “In our latest narrative from last Friday (18 Nov, spot at 1.0360), we indicated that EUR has to break and remain above 1.0415 soon or the chance of it rising to 1.0480 will decrease quickly. Yesterday (21 Nov), EUR plummeted to a low of 1.0221. The break of our ‘strong support’ at 1.0280 indicates that EUR is not strengthening further. We view the current price movement as a pullback that could extend to 1.0150. Only a breach of the ‘strong resistance’ level at 1.0325 would indicate that downside bias has eased.”

Citing multiple diplomats familiar with the situation, the South China Morning Post (SCMP) reported on Tuesday, the European Union (EU) is set to renew sanctions on Chinese officials accused of human rights violations in Xinjiang.

Additional takeaways

“Sanctions target four officials Brussels identified as architects of ‘large-scale surveillance’ of Muslim ethnic minorities in the Western region.”

“European Parliament to debate EU-China relations while pushing for a listing of more Chinese officials.”

Market reaction

The above headlines have little to no impact on the Euro, with EUR/USD keeping its range around 1.0250, up 0.08% on a daily basis.

Gold price turns positive on Tuesday, the first time in five trading days. As FXStreet’s Dhwani Mehta notes, XAU/USD looks to recapture $1,750 amid a potential bull flag.

XAU/USD awaits a bull flag breakout

“Gold price eyes a daily close above the falling trendline resistance, now at $1,750, to trigger a bull flag confirmation. Acceptance above the $1,750 level will seek a test of the $1,760 round number, with eyes on the multi-month highs at $1,787.”

“On the flip side, strong support is seen at the falling trendline support at $1,725. A daily closing below the latter will invalidate the bullish thesis, opening floors toward the mildly bearish 100-Daily Moving Average (DMA) at $1,712.”

• USD/CAD picks up bids to pare intraday losses, the first in three days.
• Fading risk-on mood, recently downbeat prices of Oil keep the pair buyers hopeful.
• Hawkish hopes from Fed, the market’s cautious sentiment can add strength to the recovery moves.
• Canada Retail Sales, US PMIs and FOMC are this week’s key catalysts.

USD/CAD bears struggle to keep the reins around 1.3430-40 during early Tuesday morning in Europe. In doing so, the Loonie pair prints the first daily loss in three amid the broad US Dollar sellers. However, fresh challenges for Canada’s key export item, namely the WTI Crude Oil, join recently easing optimism to underpin the bullish bias as the pair traders await Canadian Retail Sales for September.

WTI Crude Oil retreats to $79.90 while reversing the early Asian session rebound from the yearly low. The black gold prices recently dropped amid chatters that the key global oil producers, namely the OPEC+ group, are likely to keep the latest oil production accord until 2023, which in turn suggests more output. On the other hand, the latest Covid woes from China weigh on the demand concerns and drown the energy benchmark.

Elsewhere, the US Dollar Index (DXY) rebounds from its intraday low but still prints mild losses around 107.70 on a day amid recently downbeat comments from the US Federal Reserve (Fed) officials. Also likely to have weighed on the USD/CAD could be the softer second-tier activity data from the US.

Federal Reserve Bank of Cleveland President Loretta Mester said in a CNBC interview, “I think we can slow down from 75 at the December meeting.” Previously, Atlanta Federal Reserve President Raphael Bostic also turned down the 75 bps move and challenged the US Dollar bulls. Additionally, downbeat prints of the Chicago Fed National Activity Index for October, to -0.05 compared to 0.17 prior, also allow the US Dollar buyers to take a breather.

Even so, escalating COVID-19 fears from China, as the nation reports the seven-month high virus numbers and rush to lock down the major hubs, underpin the bullish bias over the USD/CAD pair. Further, the hopes of aggressive Fed rate hikes especially after the previous week’s strong US Retail Sales and Producer Price Index (PPI) keep the Loonie pair buyers hopeful.

Looking forward, USD/CAD traders will pay attention to Canadian Retail Sales for September, expected -0.7% MoM versus 0.7% prior, for clear directions. However, preliminary readings of the monthly activity data and the Federal Open Market Committee (FOMC) Meeting Minutes are the key catalysts for the pair.

Technical analysis

The previous support line stretched from August 11, as well as the 21-Day Moving Average (DMA), respectively near 1.3460 and 1.3480, challenges the USD/CAD buyers.

• GBP/JPY struggles to gain any meaningful traction and consolidates near a two-week high.
• Bets for additional rate hikes by the BoE underpin the British Pound and acts as a tailwind.
• A modest pickup in demand for the JPY keeps a lid on any meaningful upside for the cross.
• The BoJ’s dovish stance might continue to weigh on the JPY and favours the GBP/JPY bulls.

The GBP/JPY cross oscillates in a narrow band around the 168.00 mark through the early European session on Tuesday and consolidates its recent gains to a two-week high.

Expectations that the Bank of England will continue hiking interest rates to curb inflation, along with subdued US Dollar demand, benefit the British Pound and offers support to the GBP/JPY cross. That said, a bleak outlook for the UK economy acts as a headwind for the Sterling. It is worth mentioning that the UK Office for Budget Responsibility (OBR) now projects the UK GDP to slump by 1.4% next year as compared to a growth of 1.8% forecast in March.

Apart from this, a modest pickup in demand for the Japanese Yen keeps a lid on any meaningful upside for the GBP/JPY cross, at least for the time being. The downside potential, however, seems limited amid a dovish stance adopted by the Bank of Japan. In fact, BoJ Governor Haruhiko Kuroda reiterated on Friday that the central bank will stick to its monetary easing to support the economy and achieve the 2% inflation target in a sustained, stable fashion.

This marks a big divergence in comparison to other major central banks, which should continue to weigh on the JPY. In the absence of any major market-moving economic releases, the fundamental backdrop suggests that the path of least resistance for the GBP/JPY cross is to the upside. That said, the lack of strong follow-through buying warrants some caution before positioning for an extension of the recent bounce from the 100-day SMA support tested last week.

Technical levels to watch

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

- EUR/USD: EUR amounts         

• 1.0100 345m
• 1.0200 350m
• 1.0250 398m
• 1.0300-10 320m
• 1.0370-75 308m

- USD/JPY: USD amounts                      

• 139.85 394m
• 140.00 375m
• 141.00 410m
• 141.85 280m
• 142.50 530m
• 144.00 260m

- USD/CHF: USD amounts         

• 0.9670 400m

- USD/CAD: USD amounts         

• 1.3470-75 425m

EUR/CHF: EUR amounts

• 0.9740 220m

• Silver price fades bounce off 100-SMA, retreats from three-day-old resistance line.
• Bearish RSI divergence keeps sellers hopeful to aim for 200-SMA.
• Monthly support line adds to the downside filters, buyers need validation from $21.30.

Silver price (XAG/USD) retreats from intraday high as sellers approach $21.00 during early Tuesday morning in Europe.

In doing so, the bright metal eases from a downward sloping trend line from Thursday while consolidating the first daily gains in six.

It’s worth noting that the lower high formation in the last three days join higher-high on the Relative Strength Index (RSI) placed at 14, which in turn portrays a hidden bearish divergence and suggests further downside of the metal.

That said, the 100-SMA level surrounding $20.80 acts as an immediate support ahead of directing the XAG/USD bears towards the $20.00 psychological magnet.

In a case where silver sellers keep the reins past $20.00, the 200-SMA and one-month-old ascending trend line, respectively near $19.95 and $19.80, could challenge the bearish bias for the metal.

Alternatively, sustained trading beyond the aforementioned resistance line, close to $21.15 at the latest, could tease the XAG/USD buyers.

Even so, October’s peak and 23.6% Fibonacci retracement level of the metal’s upside between October and November, near $21.30, could challenge the silver bulls before directing them to the monthly high of $22.25.

Silver: Four-hour chart

Trend: Further weakness expected

Japan Prime Minister Fumio Kishida said in a statement on Tuesday, “weak yen has both merits and demerits.”

Additional quotes

Market reaction

USD/JPY is unfazed by the above comments, trading -0.20% on the day at 141.85, as of writing.

• Oil prices are hovering around $80.00, with hopes for further recovery on OPEC+intervention.
• The oil cartel will continue to cut oil production by two million bpd till the end of 2023.
• Sky-rocketing Covid-19 cases in China could force the administration to return to lockdown curbs.

West Texas Intermediate (WTI), futures on NYMEX, have witnessed a perpendicular recovery to near the psychological resistance of $80.00 after refreshing an 11-months low at $75.27. The black gold is hovering around the $80.00 hurdle as commentary from Saudi Energy Minister Abdulaziz bin Salman Al-Saud has renewed supply worries.

Chatters over intervention by the OPEC+ in the oil market to support oil prices from its imbalanced movements got confirmed after Saudi Energy Minister said that the current OPEC+ deal will continue till the end of 2023. Earlier, the oil exporting countries agreed to cut production of oil by two million barrels each day to boost oil prices. The move is likely to disturb the current demand-supply mechanism, therefore, the oil prices are shaping themselves to turn efficient.

On the demand front, an acceleration in Covid-19 infections in China has raised concerns over the oil demand ahead. The current movement in rising Covid-19 cases could force the Chinese administration to return to Covid-19 restrictions as it is the only measure to curtail the spread. Due to the rising infections in China, investment banking firm Goldman Sachs has slashed its forecast for Brent crude oil prices in the fourth quarter to US$100 per barrel from its prior US$110 estimate.

Meanwhile, demand for US Durable Goods will also disclose the oil demand in the US economy ahead. As per the projections, the US Durable Goods Orders will land at 0.4%, similar to their prior release. Further improvement in demand for durable goods would eventually signal oil demand projections.  

• EUR/USD retreats from intraday high, pares the first daily gains in four.
• Markets fade early Asian session optimism amid mixed concerns over ECB, Fed.
• Covid woes exert additional downside pressure on EUR/USD price.
• Preliminary readings of Eurozone Consumer Confidence for November could direct Immediate moves.

EUR/USD trims intraday gains around 1.0250 as European traders brace for Tuesday’s task. The major currency pair’s latest losses could be linked to mixed signals from the central bankers, as well as the coronavirus woes from China. Additionally, the cautious mood ahead of the preliminary readings of the Eurozone Consumer Confidence for November also seemed to have challenged the pair buyers of late.

Recently, European Central Bank (ECB) policymaker Robert Holzmann backed a third consecutive 75 basis points (bps) rate increase for the December monetary policy meeting, per the Financial Times (FT).

Earlier in the day, ECB Board member and Bank of Portugal Governor Mario Centeno raised doubts on the 75 bps rate hike whereas ECB’s Chief Economist Philip Lane said that the central bank will consider reducing its pace of rate increases at its December 15 meeting.

On the other hand, the United States Federal Reserve (Fed) policymakers. Federal Reserve Bank of Cleveland President Loretta Mester said in a CNBC interview, “I think we can slow down from 75 at the December meeting.” Previously, Atlanta Federal Reserve President Raphael Bostic also turned down the 75 bps move and challenged the US Dollar bulls. Additionally, downbeat prints of the Chicago Fed National Activity Index for October, to -0.05 compared to 0.17 prior, also weighed on the US Treasury yields.

However, the previous week’s strong US Retail Sales and Producer Price Index (PPI) keep traders on the edge amid hawkish bets on the Fed’s next move, as well as looming covid concerns surrounding China.

Against this backdrop, S&P 500 Futures reverse the day-start gains to recall 3,957 level while the US 10-year Treasury yields drop 1.3 basis points (bps) to 3.814% by the press time.

Moving on, EUR/USD bears are likely to rush towards retaking control amid central bank woes and the fears of the coronavirus. However, today’s Eurozone Consumer Confidence for November, expected -26.0 versus -27.6 prior, could direct immediate moves.

Technical analysis

Unless crossing a convergence of the two-week-old ascending trend line and the 10-Day Moving Average (DMA), currently around 1.0285, the EUR/USD bears can aim for September’s peak surrounding 1.0200.

• Gold price has extended its recovery after resurfacing from $1,730.00 as the risk-off profile has eased.
• Federal Reserve policymakers have turned cautiously hawkish on interest rates as risks of upside inflation have trimmed.
• The US Dollar is awaiting the release of the United States Durable Goods Orders for further guidance.
• Gold price is marching towards $1,750.00 as prior resistance at around $1,735 has turned into a potential cushion.

Gold price (XAU/USD) has confidently advanced to near the critical resistance of $1,745.00 in the Tokyo session after retreating from around the cushion of $1,730.00. The precious metal has hogged the limelight as the US Dollar Index (DXY) is displaying a subdued performance. A three-day winning streak in the US Dollar could get halted as the risk profile is indicating a shift in momentum.

A recovery in risk-perceived assets due to improved risk appetite is setting the stage for reversal for the US Dollar. Meanwhile, Gold price is gaining traction as investors are turning anxious ahead of the release of the United States Durable Goods Orders data. Demand for durable goods carries a significant impact on gold prices as a sheer deviation from projections could force the Federal Reserve (Fed) to review its policy-making.

A positive risk profile is also supporting S&P500 futures for a recovery. The 500-stock basket futures are trading with mild gains in the Asian session after displaying weakness on Monday. Going forward, the S&P500 futures could turn extremely volatile due to shortened week led by Thanksgiving Day. Meanwhile, the returns on United States government bonds are under the scanner of short builders as chances for a slowdown in the rate hike pace by the Federal Reserve are escalating.

US Treasury yields are losing traction as Federal Reserve policymakers turn cautiously hawkish

As United States interest rates have reached nearby elevated levels and the inflation rate has displayed signs of extreme exhaustion, Federal Reserve policymakers have softened their ‘extreme hawkish’ stance on interest rates.

Cleveland Fed Bank President Loretta Mester supported the view that it makes sense to slow down the pace of interest rate hikes a bit while asked about interest rate guidance in an interview with CNBC. He further added that “We have had some good news on the inflation front, but need more and sustained good news”. However, he doesn’t see any pause in the rate hike cycle yet.

Adding to that, San Francisco Fed President Mary Daly said on Monday that she is not prepared to say what hike the Federal Reserve should do at December Federal Open Market Committee (FOMC) meeting but favored that “it will be right for the Federal Reserve to slow its rate hike pace.

China truckload gold to cut dependence on US Dollar

Mounting sanctions on Russia by the West post its invasion of Ukraine has made it a self-requisite for some countries to reduce their dependency on might US Dollar. A few countries are truck loading gold to get self-dependent in case of any turmoil. According to the November report by industry group the World Gold Council, Central banks bought a net 399.3 tonnes of gold in the July-September period, more than quadrupling on the year. Buyers such as the central banks of Turkey, Uzbekistan, and India reported purchases of 31.2 tonnes, 26.1 tonnes, and 17.5 tonnes, respectively.

Meanwhile, Chinese imports of gold from Russia surged dramatically in July, soaring more than eight-fold on the month and roughly 50 times the year-earlier level, according to China's customs authorities. The headline release is also supporting gold prices.

Investors seek United States Durable Goods Orders for further guidance

A light economic calendar in a holiday-truncated week has made the demand for Durable Goods, a critical event ahead. According to the expectations, the economic data is seen stable at 0.4%. Sustainability in the Durable Goods Orders data in times when interest rates are accelerating could create more troubles for Federal Reserve chair Jerome Powell. The Federal Reserve has been working on keeping the overall demand on a low profile to cool down inflation. This also indicates that households are resorting to higher interest obligations to address their need for durable goods. A significant rise in households’ borrowing could result in higher delinquency costs for commercial banks.

Gold price technical outlook

Gold price has recovered sharply after testing the horizontal support plotted from September 12 high at $1,735.17 on a four-hour scale. The precious metal has witnessed a change in polarity as earlier resistance has turned into support now. The asset is attempting to regain upside above the 23.6% Fibonacci retracement (placed from November 3 low at $1,616.39 to November 15 high at $1,786.55) at $1,746.67.

A battle between gold price and the 50-period Exponential Moving Average (EMA) at around $1,746.00 would be crucial as surpass of the same would put the former in the driving seat.

Meanwhile, the Relative Strength Index (RSI) (14) is recovering after dropping into the bearish range of 20.00-40.00.

In an interview with the Financial Times (FT) on Tuesday, European Central Bank (ECB) policymaker Robert Holzmann supported calls for a third straight 75 basis points (bps) rate increase for the December monetary policy meeting.

Additional quotes

“Do not "see signs of core inflation reducing" in the Eurozone.”

“Expect a mild recession.”

• USD/JPY retreats from 11-week-old previous support, snaps four-day downtrend.
• Convergence of 100-DMA, 50% Fibonacci retracement level challenge bears.
• Golden ratio appears the key for bearish confirmation, monthly resistance line adds to the upside filters.

USD/JPY takes offers to refresh intraday low near 141.70 heading into Tuesday’s European session.

In doing so, the Yen pair reverses from the previous support line stretched from early September, around 142.25 by the press time, amid bearish MACD signals.

The pullback moves, however, appear shallow as a confluence of the 100-Day Moving Average (DMA) and the 50% Fibonacci retracement level of the pair’s August-October upside, near the 141.00 round figure, challenge the USD/JPY bears.

Even if the Yen pair sellers dominate past 141.00, the 140.00 threshold and the 61.8% Fibonacci retracement level surrounding 138.60, also known as the Golden Ratio, could restrict the quote’s further downside.

Following that, the early August high near 135.50 could regain the market’s attention.

On the contrary, an upside break of the support-turned-resistance line near 142.25 won’t be an open invitation to the USD/JPY bears as a downwards-sloping resistance line from late October, close to 143.45, could challenge the upside momentum.

In a case where USD/JPY remains firmer past 143.45, multiple hurdles around 145.10 appear the last defense of the pair sellers.

To sum up, USD/JPY retreats from short-term key hurdle but the overall view remains bullish.

USD/JPY: Daily chart

Trend: Limited downside expected

• AUD/USD picks up bids towards intraday high during the first positive day in five.
• Easing of market’s fears despite China’s covid woes underpin the corrective bounce.
• RBA’s Lowe could recall sellers amid hopes of hearing dovish words.
• Fedspeak, risk catalysts are also important for near-term directions.

AUD/USD seems bracing for Reserve Bank of Australia (RBA) Governor Philip Lowe’s dovish words as it snaps four-day downtrend around 0.6625 heading into Tuesday’s European session.

In doing so, the Aussie pair also takes clues from the softer US Dollar while struggling to justify the Covid woes in Australia’s largest customer, namely China. Firmer prints of the weekly ANZ-Roy Morgan Consumer Confidence and hopes of better trade ties with China also seemed to have underpinned the AUD/USD pair’s latest rebound.

It’s worth ANZ-Roy Morgan consumer confidence rose 1% in the latest week, its second consecutive weekly rise, and is now slightly above the 4-week average, stated Reuters. On the other hand, the Financial Times (FT) mentioned, “The first bilateral meeting between the leaders of China and Australia since 2016 raised hopes that acrimonious tensions between the countries might be easing, leading to the eventual lifting of trade sanctions imposed by Beijing.”

On the same line were recently softer US data and comments from the United States Federal Reserve (Fed) policymakers. Federal Reserve Bank of Cleveland President Loretta Mester said in a CNBC interview, “I think we can slow down from 75 at the December meeting.” Previously, Atlanta Federal Reserve President Raphael Bostic also turned down the 75 bps move and challenged the DXY bulls. Additionally, downbeat prints of the Chicago Fed National Activity Index for October, to -0.05 compared to 0.17 prior, also weighed on the US Treasury yields. However, the previous week’s strong US Retail Sales and Producer Price Index (PPI) keeps traders on the edge.

Even so, lingering fears of strong covid lockdowns in China and the resulting strain on the global supply chain seem to challenge the AUD/USD pair buyers.

Additionally, hopes of hearing bearish comments from RBA Governor Lowe and expectations of higher Fed rates also question the Aussie pair’s latest upside.

Against this backdrop, the US Treasury yields retreat while the US stock future print mild gains but stocks in the Asia-Pacific region trade mixed.

Hence, AUD/USD buyers should wait for RBA’s Lowe to confirm the latest recovery. Until then, bears seem to hide behind the doors.

Technical analysis

AUD/USD sellers keep the reins unless crossing the upper line of a one-week-old bearish trend channel, around 0.6690 by the press time.

• NZD/USD remains mildly bid inside one-week-old ascending trend channel.
• Convergence of 50-EMA, channel’s support questions immediate downside.
• Lower high formation, bearish MACD signals keep sellers hopeful.

NZD/USD retreats from intraday high to 0.6115 heading into Tuesday’s European session. In doing so, the Kiwi pair reverses from the 21-bar Exponential Moving Average (EMA).

It’s worth noting that the lower high formation since Friday and bearish MACD signals join the quote’s U-turn from the short-term key EMA to tease bears.

However, a convergence of the 50-EMA and support line of a one-week-old ascending trend channel, around 0.6090, appears a tough nut to crack for the NZD/USD bears.

In a case where NZD/USD bears manage to conquer the 0.6090 support confluence, the 100-EMA and an upward-sloping trend line from November 03, close to 0.6010, as well as the 0.6000 psychological magnet will challenge the pair’s further downside.

Alternatively, a clear upside break of the 21-EMA surrounding 0.6125 could escalate the recovery moves towards the 0.6175 hurdle before challenging the upper line of the mentioned channel, close to 0.6210 by the press time.

Should NZD/USD buyers manage to keep the reins past 0.6210, the late August swing high surrounding 0.6255 could act as the last defense of the bears.

Overall, NZD/USD bulls appear running out of steam but the road to the downside is a long one.

NZD/USD: Four-hour chart

Trend: Further downside expected

• USD/INR is facing barricades in an attempt of overstepping the immediate hurdle of 82.00.
• A significant jump in demand for US Durable Goods could lift interest rate guidance.
• A decline in India’s retail inflation might force the RBI to a lower rate hike.

The USD/INR pair is displaying topsy-turvy moves in the Asian session after a juggernaut rally in the past few trading sessions. The asset is oscillating in a narrow range of 81.60-81.90 as anxiety among investors is escalating ahead of the release of the US Durable Goods Orders data.

Market mood is delivering mixed responses amid the unavailability of any potential trigger that could guide investors for a decisive move. Meanwhile, the US dollar index (DXY) is struggling to move above the immediate hurdle of 107.60. Also, the US Treasury yields have lost their reins led by weak odds for a bigger rate hike announcement by the Federal Reserve (Fed) in its December monetary policy meeting.

The 10-year US Treasury yields are hovering around 3.82% as chances for 75 basis points (bps) rate hike by the Fed have dropped below 20%, as per the CME FedWatch tool.

As per the preliminary estimates, the US Durable Goods Orders are likely to improve by 0.4%, similar to their prior release. An improvement in demand for durable goods could add to distress for Fed chair Jerome Powell. The US central bank is continuously giving its blood and sweat to slow down consumer spending as it will force companies to trim their prices for ultimate products. An increment in durable goods demand could force the fed to continue its policy-tightening measures.

On the Indian rupee front, a decline in inflation for October month is easing interest rate projections for the December monetary policy by the Reserve Bank of India (RBI).  The inflation rate has eased to 6.77% after printing a high of 7.41% led by a slowdown in a price rise for food items. As per the estimates, the RBI will hike its repo rate by 35 bps to 6.25%.

• Asian equities grind lower as coronavirus fears escalate in China.
• Mixed concerns over the Fed’s next moves challenge US Treasury bond yields amid sluggish session.
• Markets in Australia, Japan buck the bearish trend amid hopes that easy monetary policies will continue.
• Preliminary PMIs for November, FOMC Minutes and RBNZ Interest Rate Decision are the key events for the week.

Asian markets remain risk-averse during early Tuesday as fresh fears of Covid join indecision over the US Federal Reserve’s (Fed) next moves. Also likely to challenge the Asia-Pacific equities traders could be a light calendar at home and a cautious mood ahead of Wednesday’s top-tier data/events.

While portraying the mood, the MSCI’s Index of Asia-Pacific shares ex-Japan drop 1.60% intraday while refreshing a seven-day low. However, Japan’s Nikkei 225 cheers hopes of sustained easy-money policies even if the government jostles over defense spending. In doing so, the Nikkei 225 rises 0.70% intraday to around 28,140 by the press time.

Not only Japan’s Nikkei 225 but Australia’s ASX 200 also prints gains, up 0.70% around 7,191 at the latest, amid expectations that Reserve Bank of Australia (RBA) Governor Philip Lowe will reiterate the dovish words in today’s speech. It should be noted that downbeat prints of New Zealand’s trade numbers for October fail to please the equity buyers in Auckland amid hawkish hopes from the RBNZ.

However, fears of stringent COVID-19 lockdown in China and the likely strain on the global supply chain, as well as commodities, seem to challenge the sentiment in the region. That said, China reports the highest Covid cases in seven months on Tuesday. With this, stocks in China and Hong Kong print losses.

It’s worth noting that the indecision over the Fed’s next moves seems to challenge the bears amid recently softer US Treasury yields. The US 10-year Treasury yields print the first daily loss in four, down one basis point near 3.81% by the press time, as the latest comments from the Federal Reserve (Fed) officials fail to bolster the previously hawkish bias.

Federal Reserve Bank of Cleveland President Loretta Mester said in a CNBC interview, “I think we can slow down from 75 at the December meeting.” Previously, Atlanta Federal Reserve President Raphael Bostic also turned down the 75 bps move and challenged the DXY bulls. Additionally, downbeat prints of the Chicago Fed National Activity Index for October, to -0.05 compared to 0.17 prior, also weighed on the US Treasury yields. However, the previous week’s strong US Retail Sales and Producer Price Index (PPI) keeps traders on the edge.

Amid these plays, S&P 500 Futures print mild gains around 3,965 whereas prices of gold print mild gains amid the first negative performance by the US Dollar Index (DXY).

Moving on, Wednesday’s the Reserve Bank of New Zealand (RBNZ) monetary policy decision will precede preliminary readings of the monthly activity data and the Federal Open Market Committee (FOMC) Meeting Minutes to direct short-term market moves.

• An improvement in risk appetite is shifting momentum towards risk-sensitive currencies.
• The Cable is heading towards the downward-sloping trendline of the symmetrical triangle.
• Overlapping 20-EMA with asset indicates a consolidation head.

The GBP/USD pair has witnessed a steep rise to near 1.1856 in the Tokyo session after sensing buying interest below 1.1800. The Cable is marching towards the round-level resistance of 1.1900 as the risk appetite of the market participants has improved.

Meanwhile, the mighty US dollar index (DXY) has dropped below 107.58 amid a decline in safe-haven's appeal. The US Treasury yields are facing immense pressure led by vanishing confidence for the continuation of bigger rate hike announcements by the Federal Reserve (Fed).

On an hourly scale, the asset is forming a symmetrical triangle chart pattern, which indicates a sheer slippage in volatility. The asset is advancing towards the downward-sloping trendline, plotted from November 15 high at 1.2029 while the upward-sloping trendline of the chart pattern is placed from November 14 low at 1.1710.

The 20-period Exponential Moving Average (EMA) at 1.1844 is overlapping with Cable prices, which indicates a consolidation ahead.

On the contrary, the Relative Strength Index (RSI) (14) is attempting to shift into the bullish range of 60.00-80.00, for upside momentum.

Going forward, a break above Friday’s high at 1.1950 will drive Cable towards November 15 high at 1.2029, followed by the round-level resistance at 1.2100.

On the flip side, a drop below Monday’s low at 1.1780 will drag the asset toward November 14 low at 1.1710. A slippage below November 14 low will expose the asset to the horizontal support plotted from October 27 high at 1.1646.

GBP/USD hourly chart

• EUR/USD has turned sideways after retreating from 1.0225 as traction is returning to risk-sensitive assets.
• Less-hawkish commentary from Fed policymakers has started weighing on US Treasury yields.
• The ECB is expected to slow down its pace of hiking interest rates.

The EUR/USD pair is displaying back-and-forth moves around 1.0260 after resurfacing from the critical support of 1.0225 in the Tokyo session. The asset is expected to extend its recovery after overstepping the immediate hurdle of 1.0270 decisively as the risk-off profile is losing its traction.

The US dollar index (DXY) is establishing below its crucial support of 107.60 as investors are getting anxious ahead of the release of the US Durable Goods Orders data. S&P500 futures are displaying signs of volatility contraction amid a quiet market mood broadly. Meanwhile, the returns on US government bonds are facing pressure again.

The 10-year US yields have slipped below 3.82% after a recovery move as Federal Reserve (Fed) policymakers have supported the view of slowing down the pace of interest rate hikes. Cleveland Fed Bank President Loretta Mester supported the view that it makes sense to slow down the pace of the rate hike a bit in an interview with CNBC but doesn’t see a pause in the rate hike cycle yet. Also, San Francisco Fed President Mary Daly said on Monday that “it will be right for the Fed to slow its rate hike pace” when asked about interest rate guidance for December Federal Open Market Committee (FOMC).

On the Eurozone front, investors are shifting their focus towards chatters over interest rate hikes by the European Central Bank (ECB) in its December monetary policy meeting. ECB Chief Economist Philip Lane said that the central bank will consider reducing its pace of rate increases at its December 15 meeting, in an MNI interview on Monday. He further added that the big move, hiking interest rates by 75 basis points (bps), has already been done, and now the bank would look for the inflation outlook for further moves.

• Gold price picks up bids to snap four-day downtrend inside bearish chart pattern.
• US Dollar traces downbeat Treasury yields after mixed Fedspeak, softer US data.
• China’s daily Covid cases jump to seven-month high, chatters over Beijing’s XAU/USD buying also underpin recovery.

Gold price (XAU/USD) prints the first daily gains in four around $1,745 during early Tuesday morning. In doing so, the bright metal cheers the broad US Dollar retreat amid a likely sluggish day ahead of the key data/events scheduled for publishing on Wednesday.

That said, the US Dollar Index (DXY) drops to 107.55, down 0.25% intraday while snapping a three-day uptrend. The greenback’s gauge traces the US Treasury yields amid recent challenges to the hawkish concerns surrounding the US Federal Reserve (Fed).

The US 10-year Treasury yields print the first daily loss in four, down one basis point near 3.81% by the press time, as the latest comments from the Federal Reserve (Fed) officials fail to bolster the previously hawkish bias.

It should be noted that Federal Reserve Bank of Cleveland President Loretta Mester said in a CNBC interview, “I think we can slow down from 75 at the December meeting.” Previously, Atlanta Federal Reserve President Raphael Bostic also turned down the 75 bps move and challenged the DXY bulls. Additionally, downbeat prints of the Chicago Fed National Activity Index for October, to -0.05 compared to 0.17 prior, also challenged the US Dollar bulls.

On the other hand, seven-month high daily coronavirus cases from China renewed supply-crunch fears and keeps the US Dollar buyers hopeful ahead of tomorrow’s preliminary readings of the monthly activity data and the Federal Open Market Committee (FOMC) Meeting Minutes.

Additionally keeping the Gold buyers hopeful are the latest headlines from Nikkei Asia suggesting that China is likely stockpiling the metal while unloading the US Treasury bonds.

Also read: China thought to be stockpiling Gold to cut greenback dependence – Nikkei

Amid these plays, the S&P 500 Futures print mild gains whereas the stocks in the Asia-Pacific region trade mixed by the press time.

Looking forward, risk catalysts will be important to determine the intraday XAU/USD moves amid a light calendar for the day. That said, headlines surrounding China’s Covid conditions and expectations of the Fed’s next moves, as well as the US Treasury bond yields, will be crucial for clear directions.

Technical analysis

Gold price portrays a one-week-old bearish channel below the 50-SMA to keep the XAU/USD sellers hopeful. Also supporting the downside bias are the bearish MACD signals.

However, the RSI (14) rebound from the oversold territory underpins the recovery moves that challenge the bearish chart pattern, by approaching the stated channel’s resistance line surrounding $1,752.

That said, the XAU/USD run-up beyond $1,752 will need validation from the 50-SMA hurdle of $1,760 to convince the Gold buyers in challenging the monthly top surrounding $1,786.

On the flip side, a convergence of the previous resistance line from early October and the lower line of the aforementioned bearish channel highlights the $1,730 as the key support for sellers to conquer before retaking control.

Also acting as a downside filter is the 100-SMA support near $1,710 and the $1,700 threshold.

Gold price: Daily chart

Trend: Limited recovery expected

People's Bank of China (PBOC) Governor Yi Gang said late Monday, China's monetary policy has provided significant support to the real economy and has proved to be well-calibrated.

Additional takeaways

“As the Chinese economy is faced with challenges and downward pressure this year, authorities have adjusted the monetary policy in a timely fashion to provide greater support to the real economy.”

“The PBOC has tailored policy solutions to local specificities, including cutting mortgage rates and down payment ratios to support real housing needs.”

Related reads

• China COVID cases rise, markets on edge
• AUD/USD Price Analysis: Recovery remains elusive below 0.6690

• USD/CAD retreats from one-week high, renews intraday low while snapping two-day uptrend.
• Previous support line from early August, 21-DMA guards immediate upside.
• 100-DMA, impending bull cross on the MACD tease buyers.

USD/CAD holds lower ground near the intraday bottom surrounding 1.3430 during early Tuesday, snapping a two-day uptrend at the latest.

In doing so, the Loonie pair reverses from the previous support line stretched from August 11, as well as the 21-Day Moving Average (DMA).

However, the looming bull cross on the Moving Average Convergence and Divergence (MACD) indicator joins the quote’s successful trading above the 100-DMA to keep buyers hopeful.

Hence, the latest pullback could aim for the 50% Fibonacci retracement level of the USD/CAD pair’s August-October upside, near 1.3350 by the press time, but its further downside needs to conquer the 100-DMA level of 1.3260 to convince the bears.

Even so, the 61.8% Fibonacci retracement near the 1.3200 threshold could challenge the Loonie pair’s further downside.

Meanwhile, the aforementioned support-turned-resistance and the 21-DMA restrict the USD/CAD pair’s short-term recovery moves near 1.3460 and 1.3480 in that order.

Following that, lows marked during October around 1.3500 and a downward-sloping resistance line from October 13, close to 1.3665 by the press time, will be in the last defenses of the pair sellers.

USD/CAD: Daily chart

Trend: Limited downside expected

• USD/JPY prints the first daily loss in five, holds lower ground near intraday bottom of late.
• US Treasury yields struggle to justify hawkish bias from the Fed.
• China Covid woes underpin the US Dollar’s haven demand.

USD/JPY renews its intraday low around 141.80 as it defies the four-day uptrend bullish trend during early Tuesday. In doing so, the Yen pair traces sluggish US Treasury yields amid a lack of major data/events, as well as the market’s cautious mood ahead of this week’s key catalysts scheduled for publishing on Wednesday.

That said, the US 10-year Treasury yields print the first daily loss in four, down one basis point near 3.81% by the press time, as the latest comments from the Federal Reserve (Fed) officials fail to bolster the previously hawkish bias.

With this, the US Dollar Index (DXY) drops to 107.55, down 0.25% intraday while snapping a three-day uptrend.

It’s worth noting that Federal Reserve Bank of Cleveland President Loretta Mester said in a CNBC interview, “I think we can slow down from 75 at the December meeting.” Previously, Atlanta Federal Reserve President Raphael Bostic also turned down the 75 bps move and challenged the DXY bulls.

Elsewhere, seven-month high daily coronavirus cases from China renewed supply-crunch fears and keeps the US Dollar buyers hopeful ahead of tomorrow’s preliminary readings of the monthly activity data and the Federal Open Market Committee (FOMC) Meeting Minutes.

Amid these plays, S&P 500 Futures print mild gains despite the downbeat closing of Wall Street. Further, Japan’s Nikkei 225 prints 0.80% intraday upside near 28,160 by the press time.

Moving on, a lack of major data/events could allow the USD/JPY buyers to take a breather ahead of Wednesday’s important catalysts. However, the monetary policy divergence between the US Federal Reserve (Fed) and the Bank of Japan (BOJ) joins the coronavirus woes to favor the bullish bias.

Technical analysis

Unless staying beyond the 100-DMA level surrounding 141.00, the USD/JPY bulls remain hopeful.

European Central Bank board member and Bank of Portugal Governor Mario Centeno, while speaking at a conference in Lisbon on Monday, said that “I don't like to talk about increases before (meetings)...(but) I think there are many conditions for the rates increase to be less than that number (75 bps)."

Additional quotes

"Rates in Europe continue to be roughly half those in the United States.”

“It is a good indicator of the difference between the two regions' economic fundamentals.”

“Call for restraint in wage increases and company margins as this "could help the ECB a lot in combating inflation.”

Market reaction

EUR/USD pair was last seen trading at 1.0260, adding 0.21% on a daily basis.

• AUD/USD snaps four-day downtrend inside one-week-old bearish channel.
• 200-HMA guards immediate recovery even if RSI, MACD suggest further grinding towards the north.
• 61.8% Fibonacci retracement adds to the downside filters, buyers need validation from monthly high.

AUD/USD prints the first daily gain in five around 0.6615 during early Tuesday. In doing so, the Aussie pair rebounds from the support line of a short-term bearish channel while teasing buyers to aim for the 200-HMA.

In addition to the lower line of a one-week-old descending trend channel, the bullish MACD signals and recent improvement in the RSI (14) also favor the AUD/USD buyers.

However, the 200-HMA and the upper line of the stated channel, respectively near 0.6660 and 0.6690, appear immediate challenges for the AUD/USD bulls to tackle before retaking control.

Even if the quote rises past 0.6690, the 0.6700 threshold and the monthly high surrounding 0.6800 could question the upside momentum before humbly letting the buyers in.

On the flip side, a downside break of the aforementioned channel’s support, near 0.6575 at the latest, could quickly drag the quote towards the 61.8% Fibonacci retracement level of the pair’s November 10-15 upside, near 0.6545.

Following that, the 0.6500 and the 0.6400 round figures could lure the AUD/USD pair sellers before highlighting the November 10 swing low surrounding 0.6385.

Overall, AUD/USD is likely to remain bearish unless defying the descending trend channel formation.

AUD/USD: Hourly chart

Trend: Limited upside expected

Reuters reports that New Zealand's central bank is expected to deliver its biggest-ever rate point hike this week as it continues efforts to temper inflation ahead of a three-month break.

Key notes

"It all comes down to the language around the OCR (official cash rate) track and its shape," said Kiwibank in a note. "Market traders have the peak in the OCR in May next year. We agree. From there, thoughts of rate cuts grow."

NZD/USD cracks trendline resistance

Markets are risk-on which is supporting a recovery in the high beta currencies such as NZD/USD.

• NZD/USD picks up bids to consolidate the biggest daily loss in two weeks.
• New Zealand trade deficit widened in October, Export and Imports increased.
• Mixed concerns surrounding China, Federal Reserve challenge the pair bears of late.
• Hawkish hopes from the RBNZ keep buyers hopeful amid a lack of major data/events.

NZD/USD refreshes intraday high around 0.6125 as it pares the biggest daily loss in a fortnight during early Wednesday. In doing so, the Kiwi pair ignores downbeat numbers of New Zealand Trade Balance while taking clues from the US Dollar’s retreat. Also likely to have favored the pair buyers could be the hawkish hopes from the Reserve Bank of New Zealand (RBNZ) versus the recently mixed comments from the US Federal Reserve (Fed) officials.

That said, New Zealand Trade Balance flashed -2,129M MoM figures for October versus $-1,353M market forecasts and $-1,696M prior. Further, the Exports increased to $6.14B versus $5.94B prior whereas the Imports rose to $8.27B versus $7.63B prior.

It’s worth noting that the latest survey from Reuters suggests 15 of 23 economists believe the RBNZ will opt for the larger hike, to take the OCR up to 4.25%, with the remaining eight calling for a 50 bps lift. On the same line could be the RBNZWatch Tool suggesting market pricing in a 70% chance of a 75 bps hike, per Reuters.

On the contrary, Federal Reserve Bank of Cleveland President Loretta Mester said in a CNBC interview, “I think we can slow down from 75 at the December meeting.” Previously, Atlanta Federal Reserve President Raphael Bostic also turned down the 75 bps move and challenged the DXY bulls.

Alternatively, seven-month high daily coronavirus cases from China renewed supply-crunch fears and underpin the US Dollar’s haven demand. Also, the recently firmer prints of the US Retail Sales and Producer Price Index (PPI) for October propelled the hawkish bets on the Fed’s next move and favored greenback buyers previously.

Against this backdrop, Wall Street closed in the red and the US Treasury yields recovered before marking mild losses. That said, S&P 500 Futures rise 0.15% intraday near 3,965 whereas the US 10-year Treasury yields dropped one basis point (bp) to 3.81% at the latest.

Moving on, NZD/USD traders should pay attention to the risk catalysts ahead of Wednesday’s RBNZ verdict.

Technical analysis

NZD/USD rebound remains elusive unless crossing the 200-day EMA hurdle, around 0.6205 by the press time.

• GBP/JPY is aiming to smash a two-week high around 169.00 as the risk-off profile is losing traction.
• UK’s novel leadership is being criticized for ignoring economic prospects.
• Japan’s Kishida is thinking of reshuffling the Cabinet by year-end.

The GBP/JPY pair has extended its recovery and is looking to shift its business above the 168.00 hurdle in the Tokyo session. The cross is marching towards a two-week high around 169.00 as the market mood is turning cheerful. The Pound Sterling is expected to continue its upside momentum despite expectations of a slowdown in the rate hike pace by the Bank of England (BOE).

Meanwhile, the street is still discussing over Autumn Statement whether it has managed to restore confidence and ability in UK’s economic prospects or has dwindled the situation for projections.

Renewables and energy solutions provider Shell is reconsidering its plans of expansion in Britain’s energy system after the announcement of windfall taxes from the novel UK leadership. UK PM Rishi Sunak and Chancellor Jeremy Hunt have escalated the tax rate to 35% from 25% in their long-awaited “memorial service for Trussonomics”,

David Bunch, Shell’s UK chairman told the Telegraph that the expanded levy announced in the Chancellor’s Autumn Statement is forcing the company to re-examine a slew of projects in the pipeline, from North Sea investments to renewable energy schemes.

On UK’s interest rate projections, Economists at UOB have maintained their view of a 50 basis point (bps) move at its December monetary policy meeting. They believe that the BOE still has a little way to go, given that Hunt has decided to delay much of the pain from the fiscal consolidation, which means that fiscal policy will do little to fight inflation.”

Meanwhile, investors in Tokyo are getting anxious as Japan’s administration is planning to reshuffle its Cabinet by the year-end, Japan PM Fumio Kishida told to Mainichi. This may bring some volatility in the Japanese yen for a while. On the economic front, investors are awaiting the release of the PMI numbers, which will release on Thursday. The Jibun Bank Manufacturing PMI is seen as stable at 50.7. While Services PMI is expected to decline marginally to 53.1.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1667 vs. the last close of 7.1670.

About the fix

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

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

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

• USD/CHF takes offers to refresh intraday low, snaps six-day uptrend.
• Rising wedge bearish chart pattern suggests 250-pips of downtrend on breaking 0.9550.
• Fortnight-old previous resistance line adds to the downside filters.
• Key SMAs challenge buyers before the double tops surrounding 1.0150.

USD/CHF renews intraday low near 0.9570 as bears sneak in after a six-day absence during early Tuesday.

With the Swiss Franc (CHF) pair’s latest retreat, the quote portrays a bearish chart pattern, namely a rising wedge, on the four-hour play and teases the sellers to aim for the 250-pip downtrend in case the quote drops below 0.9550 support.

However, the resistance-turned-support line from November 3, around 0.9475 by the press time, acts as an extra downside filter. Also likely to challenge the USD/CHF bears is the monthly low near 0.9355.

It’s worth noting that, the RSI retreat favors the pair’s latest pullback but the bullish MACD signals challenge the USDCHF bears.

Meanwhile, an upside clearance of the stated one-week-old rising wedge’s resistance line, near 0.9615 at the latest, defies the bearish formation and can propel the pair toward the 100-SMA hurdle of 0.9745.

Even so, the USD/CHF recovery remains elusive unless the quote stays below the 200-SMA level of 0.9860.

Even if the quote crosses the key SMA hurdle, the double tops around 1.0150 will be a crucial challenge for the USD/CHF bulls.

USD/CHF: Four-hour chart

Trend: Limited downside expected

• Oil bulls seek a break of $80.40/50 for the day ahead.
• If bears take control, however, then $76.00 could be vulnerable if $78.50 gives as the 38.2% ratio support. 

West Texas Intermediate, WTI, crude oil fell for a fourth-straight session on Monday as China wrestles with rising Covid-19 infections amid fears Beijing and other cities may soon be locked down. However, technically, another story is unfolding. There was a strong recovery that has taken out a micro trendline on the hourly chart as follows: 

WTI H1 chart

The impulse was strong but a correction could be on the cards as per the following 15-minute chart:

WTI M15 chart

The price imbalances are in focus below and above key structures.

WTI M5 chart

The 5-minute chart is showing the price range bound for the time being but a break of $80.40/50 could be key for the day ahead. If bears take control, however, then 76.00 could be vulnerable if $78.50 gives as the 38.2% ratio support. 

• GBP/USD picks up bids to pare the biggest daily loss in a week.
• UK PM Sunak rules out Swiss-style trade ties with Eurozone.
• US Dollar struggles to cheer escalating Covid woes amid lack of major data/events.

GBP/USD refreshes intraday high around mid-1.1800s, reversing the previous day’s losses, as the US Dollar tracks softer Treasury yields during early Tuesday. In doing so, the Cable pair fails to justify recently escalating fears of a hard Brexit.

“Britain will not pursue any trading relationship with the European Union that relies on the country aligning with the bloc's laws, Prime Minister Rishi Sunak said on Monday after a newspaper reported his government was pursuing closer ties,” mentioned Reuters.

It’s worth noting that the US Dollar Index (DXY) pauses a two-day downtrend near 107.70 as the latest comments from the Federal Reserve (Fed) officials failed to impress policy hawks.

Federal Reserve Bank of Cleveland President Loretta Mester said in a CNBC interview, “I think we can slow down from 75 at the December meeting.” Previously, Atlanta Federal Reserve President Raphael Bostic also turned down the 75 bps move and challenged the DXY bulls.

However, seven-month high daily coronavirus cases from China renewed supply-crunch fears and underpin the US Dollar’s haven demand. Also, the recently firmer prints of the US Retail Sales and Producer Price Index (PPI) for October propelled the hawkish bets on the Fed’s next move and favored greenback buyers previously.

Amid these plays, Wall Street closed in the red and the US Treasury yields recovered before marking mild losses. That said, S&P 500 Futures rise 0.15% intraday near 3,965 whereas the US 10-year Treasury yields dropped one basis point (bp) to 3.81% at the latest.

Moving ahead, a lack of major data/events could allow GBP/USD to defend the latest rebound. However, Wednesday’s preliminary readings of the monthly activity data and the Federal Open Market Committee (FOMC) Meeting Minutes will be crucial for clear directions.

Technical analysis

A one-week-old descending trend line, around 1.1890 by the press time, restricts immediate GBP/USD recovery ahead of the key resistance line from mid-June, close to the 1.2000 threshold at the latest. Alternatively, September’s peak surrounding 1.1590 challenges the bears.

• Gold price has attempted to resurface after dropping to near $1,732.60 as the risk-off impulse has started fading.
• The US Durable Goods Orders are expected to continue their pace of improvement at 0.4%.
• Higher demand for US Durable Goods could dent Fed’s strategic plans to scale down soaring inflation.

Gold price (XAU/USD) sensed a decent buying interest after dropping to near $1,732.60 in the late New York session.  The precious metal has extended its recovery and is aiming to cross the immediate hurdle of $1,740.00 decisively. Traction is returning in the gold price as the risk-off impulse is losing its strength.

S&P500 futures have displayed a marginal recovery after easing on Monday. Meanwhile, the US dollar index (DXY) is oscillating around 107.70 after a correction from 108.00. The 10-year US Treasury yields are still holding their recovery to near 3.83% despite less confidence in the continuation of the current rate hike pace by the Federal Reserve (Fed).

For a decisive movement, investors are awaiting the release of the US Durable Goods Orders. As per the consensus, the economic catalyst will continue its pace of improvement at 0.4% as reported earlier. This could dent the strategic plans of fighting against inflation drawn by the Federal Reserve (Fed) as a stable demand for durable goods in times of accelerating interest rates is not a sign of declining consumer spending. It could compel the Fed to continue hiking interest rates by 75 basis points (bps).

Gold technical analysis

On a four-hour scale, the gold price is expected to attempt a mean reversion to the 23.6% Fibonacci retracement (placed from November 3 low at $1,616.39 to November 15 high at $1,786.55) at $1,746.67. The asset has dropped below the 20-and 50-period Exponential Moving Averages (EMAs) at $1,751.40 and $1,746.67 respectively, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which indicates more weakness ahead.

Gold four-hour chart

Markets are in a state of flux and stocks on Wall Street closed lower, as investors grappled with China's shutdown due to Covid flare-ups that could pressure supply chain issues once again. China's capital warned on Monday that it was facing its most severe test of the COVID-19 pandemic. Markets have their doubts about whether the global economy can withstand the central bank's hiking cycles and soaring inflation without sparking a recession. Financial markets are seeking to find the balance between the room for further rate hikes versus the extent to which the US and global economy will slow.

Meanwhile, China is fighting numerous COVID-19 fresh waves, from Zhengzhou in central Henan province to Chongqing in the southwest. It also recorded two deaths in Beijing, which was China's first since late May. The southern Chinese metropolis of Guangzhou locked down its largest district on Monday testing China's attempt to bring a more targeted approach to its zero-COVID policies which calls for cities to be more targeted in their clampdown measures.

Oil pressured 

Oil prices also slipped on Monday amid investor concern over the economic fallout from the intensifying COVID situation in China, with the risk aversion benefiting bonds and the US Dollar. ''Beijing city officials warned it faces the most severe and complication situation of the pandemic,'' analysts at ANZ Bank explained. ''The People’s Daily reported that while two-thirds of Chinese aged 80 and above are fully vaccinated, only 40% are boosted. The current outbreak is threatening to undo the optimism following China’s move to a lighter-touch COVID-zero policy. A looming EU ban on Russian oil imports and a G7 price cap plan are clouding the outlook.''

• EUR/USD bears take a breather around one-week low, probes three-day downtrend.
• Clear downside break of 50-SMA, one-week-old ascending trend line favors bears.
• RSI conditions, previous resistance line from early October challenge further downside.

EUR/USD struggles to extend the three-day downtrend while making rounds to the lowest levels in a week, around 1.0250, during early Tuesday.

Even so, the major currency pair remains on the bear’s radar as it defends the previous day’s downside break of the 50-bar Simple Moving Average (SMA) and an upward-sloping trend line from November 04.

In addition to the previous support line from early November and the 50-SMA, respectively around 1.0290 and 1.0310 in that order, a one-week-old descending trend line near 1.0345 also challenges the EUR/USD pair buyers.

Should the quote manage to remain firmer past 1.0345, the monthly high near 1.0480 and the late-June peak surrounding 1.0615 will gain the market’s attention.

Alternatively, the resistance-turned-support from October 04, close to 1.0195 by the press time, could restrict the EUR/USD pair’s immediate downside amid nearly oversold conditions of the Relative Strength Index (RSI) placed at 14.

If the EUR/USD bears keep the reins past 1.0195 support level, tops marked during late October around 1.0095 and the 200-SMA level surrounding 0.9970 will be in the spotlight.

To sum up, EUR/USD is likely to witness further downside but there prevails a lesser room to the south.

EUR/USD: Four-hour chart

Trend: Further downside expected

• The DXY is displaying a sideways structure around 107.80 amid a quiet market mood.
• US Treasury yields have sensed interest despite high confidence in a slowdown in Fed’s rate hike pace.
• Going forward, the US Durable Goods Orders data will be of utmost importance.

The US dollar index (DXY) has corrected marginally to near 107.80 after struggling to cross the critical hurdle of 108.00. The DXY is displaying signs of exhaustion after a bumper rally amid mixed responses from the risk impulse. S&P500 kicked off the already shortened week on a weak note due to the absence of critical triggers. Meanwhile, the returns on US government bonds have rebounded despite dismal confidence in the continuation of the current rate hike pace by the Federal Reserve (Fed).

Yields rebound despite less-hawkish commentary from Fed policymakers

The alpha generated by the US government bonds has been a major victim this month as investors see no continuation of the 75 basis points (bps) rate hike regime by the Federal Reserve (Fed) in its December monetary policy meeting. As per the CME FedWatch tool, the chances of increasing interest rates by 75 bps stand below 20%.

Cleveland Fed Bank President Loretta Mester supported the view that it makes sense to slow down the pace of rate hikes a bit in an interview with CNBC. He further added that “We have had some good news on the inflation front, but need more and sustained good news”. However, he doesn’t see any pause in the rate hike cycle yet.

Also, San Francisco Fed President Mary Daly said on Monday that she is not prepared to say what hike the Fed should do at December Federal Open Market Committee (FOMC) but favored that “it will be right for the Fed to slow its rate hike pace.

Durable Goods Orders- a key event ahead

This week, the US Durable Goods Orders data will remain in the spotlight. As per the projections, the economic data will remain stable at 0.4%. A continuation of improvement in demand for durable goods could add to troubles for Fed chair Jerome Powell as it would continue price growth from manufacturers. A slowdown in durable goods demand will augment a decline in the Consumer Price Index (CPI) numbers.

• USD/JPY has run into the 142.00 area in a 50% mean reversion of the prior bearish impulse.
• USD/JPY downside could be the first port of call and that leaves 140.50 exposed. 

As per the prior analysis, USDJPY Price Analysis: Bull move in and eye 143.00 area, the pair has followed the forecasted trajectory from the trendline support and bulls continue to eye the 143 area.

USD/JPY daily chart, prior analysis

It was stated that so long as the price stays on the front side of the daily trendline, there would be prospects for a significant bullish correction in the days ahead.

The 61.8% ratio was in sight within a price imbalance area. 

USDJPY update

The price has since run into the 142.00 area in a 50% mean reversion of the prior bearish impulse but has left a W-formation on the charts as follows: 

The price imbalances greyed areas, are compelling areas for mitigation, and given the resistance, the downside could be the first port of call and that leaves 140.50 exposed.