Forex-novosti i prognoze od 24-10-2021

• USD/CHF manages to start the fresh trading week on a higher note.
• Lower US Treasury yields undermine the demand for the US dollar.
• Fading US interest rate bets, higher inflation concerns, and risk-off mood casts a spell on the greenback.

USD/CHF keeps its footing firm on Monday in the early Asian session. After hitting the high of 0.9185, the pair recorded a fall of more than 30-pips and touched the monthly lows around 0.9150 in the previous session. At the time of writing, USD/CHF is trading at 0.9163, up 0.11% for the day.

The US Dollar Index (DXY), which tracks the greenback performance against its six rivals, trades near 93.50, following lower US benchmark 10-year Treasury bond yields. The US Fed Chairman Jerome Powell hinted that the central bank is prepared to begin tapering its monthly bond purchases but warned that inflation is likely to remain elevated into 2022.

In addition to that, US Treasury Secretary Janet  Yellen said that US inflation is under control in an interview with CNN on Sunday.

On the other hand, the Swiss franc gains momentum on its safe-haven appeal. It is worth noting that, S&P 500 Futures are  trading at 4,529, down 0.16% for the day.

As for now, traders are looking for the US Chicago Fed National Activity Index to take fresh trading insight.

USD/CHF additional levels

• Gold  is back to daily support following a spike beyond $1,800 on Friday.
• US dollar longs have been dialled back which has supported rival currencies and gold.  
• XAU/USD bears and bulls fight over $1,800, focus shifts to US GDP

The price of gold ended the week back below $1,800 after spiking to fresh highs for October near $1,813. At the time of writing, XAU/USD is trading flat at $1,793 following the US dollar paring losses made on Friday after Federal Reserve Chairman Jerome Powell said the Fed should begin reducing its asset purchases soon, but should not yet raise interest rates.

Powell also said employment is still too low and high inflation will likely abate next year as pressures from the COVID-19 pandemic fade. DXY touched a one-year high last week as investors presumed that inflation will remain stubbornly high for longer. 

US dollar slides vs G10

In the month to date, all other G10 currencies with the exception of the JPY have out-performed the USD.  The ‘catch-up’ move in money market rates for other currencies has been a contributing factor as investors unwind very long positions in the greenback.

Ten-year breakeven yields are firming at their highest levels since 2012, highlighting that inflation is top of mind for global investors. Looking to the positioning data, speculators have only marginally added to their length and despite higher inflation expectations, with modest short-covering as prices edge higher. 

The dollar rally has also faded as investors build in expectations for sooner rate increases in other currencies. Meanwhile, data on Friday showed that US business activity rising solidly in October, suggesting economic growth picked up at the start of the fourth quarter as COVID-19 infections subsided.

''While gold prices have historically outperformed most major asset classes in periods of high inflation, investors are cautious about the yellow metal as they remain intensely focused on pricing the Fed's exit,'' analysts at TD Securities explained. ''Yet, we argue that market pricing for Fed hikes remains far too hawkish, as it fails to consider that a rise in inflation tied to a potential energy shock and lingering supply chain shortages would be unlikely to elicit a Fed response.''

Additionally, the analysts argued that the market is increasingly pricing in a policy mistake that is unlikely to take place, considering that central banks are likely to look past these disruptions as their reaction functions have been historically more correlated to growth than inflation.

''Reasons to own the yellow metal are growing more compelling as Fed pricing is likely to unwind. In this context, gold prices are tremendously underperforming against historical analogs, but a breakout in the yellow metal from its multi-month downtrend could signal that inflation-hedging flows are finally trumping the speculative exodus tied to Fed pricing.''

A US fiscal drag and the end of extraordinary unemployment benefits should slow the pace of economic gains, which should ultimately see Fed pricing reverse in support of gold prices.

Gold technical analysis

From a daily perspective, gold has been attempting the upside Friday's price action shows, below. Friday's wick high of the candle is a probable target for the sessions ahead. $1,835 guards territory to $1,880 as follows:

• USD/CAD struggles to defend rebound from four-month low.
• 10-DMA guards immediate upside amid downbeat RSI conditions.
• Late June’s swing low challenges bears, bulls need validation from July 30 bottom.

USD/CAD remains sidelined around 1.2370, flirting with the 61.8 Fibonacci retracement (Fibo.) of June-August upside during Monday’s Asian session.

The pair bounced off a four-month low the last week but failed to cross 10-DMA. The rebound, however, seems to the momentum strength per RSI line and hence keeps the bears hopeful.

It's worth noting that the latest bottom close to 1.2290 precedes the June 23 low of 1.2252 in restricting the short-term USD/CAD declines.

However, any further weakness won’t hesitate in challenging the 1.2200 round figure, a break of which will direct the quote towards the yearly low marked in June around the 1.2000 threshold.

Meanwhile, an upside clearance of the 10-DMA level surrounding 1.2370 will need validation from late July’s low near 1.2425 before directing USD/CAD bulls toward the 50% Fibo. level near 1.2480.

Also acting as an upside filter is the September’s low near 1.2495 and the 1.2500 psychological magnet.

USD/CAD: Daily chart

Trend: Further weakness expected

• GBP/USD edges higher on the first trading day of the week in the Asian trading hours.
• The pair faces strong resistance near 1.3850 below the bearish sloping line.
• MACD signals sideways momentum with the underlying neutral sentiment.

GBP/USD trades cautiously on Monday following the previous session's decline. The pair stayed in a narrow range band with an upside bias. At the time of writing, GBP/USD is trading at 1.3763,up 0.08% for the day.

GBP/USD daily chart

On the daily chart, the GBP/USD pair has been in the continuous downward trend since the high made on July 30 at 1.3983. The descending trendline from the mentioned level acts as a strong barrier for GBP/USD. Further, the spot trades below the 100-day Simple Moving Average (SMA) at 1.3792, which strengthen the current downside momentum. 

If the pair sustains the intraday high it could go back to test the psychological 1.3800 mark, breaking above the 100-day SMA. A successful break of the 100-day SMA could pave way for the 1.3850 horizontal resistance level.

The Moving Average Convergence Divergence (MACD) indicator holds above the midline. Any uptick in the MACD could bring more upside momentum for the spot. The bulls would approach the psychological 1.3900 level in that case. 

Alternatively, a break below the intraday’s low would result in the continuation of the prevailing trend with the first downside target at Tuesday’s low of 1.3723 followed by the 1.3700 horizontal support zone.

Next, the bears would not mind taking out the low made on October 14 at 1.3655.

GBP/USD additional levels

• USD/TRY takes the bids to renew all-time high during the four-day uptrend.
• Turkish President Erdogan seeks expulsions of ambassadors from US and other nine countries.
• CBRT announced 200 bps rate hike on Friday, Fed Chair Power backs tapering.
• Second-tier US data, headlines from Turkey will be the key directives.

USD/TRY offers a gap-up start to the week’s trading, before refreshing the record high with $9.8505, during Monday’s Asian session. The pair takes clues from the weekend headlines, also ignoring the Central Bank of the Republic of Turkey (CBRT) moves, to please the bulls.

Reuters came out with the news quoting Turkish Recep Tayyip Erdogan as ordered the expulsion of the ambassadors of the United States and nine other Western countries.

“By Sunday evening, there was no sign that the foreign ministry had yet carried out the president's instruction, which would open the deepest rift with the West in Erdogan's 19 years in power,” the news adds.

It’s worth noting that the USD/TRY prices rallied the last week even after the CBRT surprised markets with 200 basis points (bps) of a rate cut versus to 16% benchmark interest rate versus the expectations of a 50 bps cut. The market’s reaction to the rate cuts could largely be linked to Turkish President Erdogan’s ousting of the central bank governors and staff, including those who opposed rate cuts.

On the other hand, the US Federal Reserve (Fed) Chair Jerome Powell backed tapering and stayed away from terming inflation pressure as ‘transitory’ during his latest speech on Friday.

Elsewhere, positive news from China’s Evergrande battles fresh fears of the coronavirus from Beijing and Russia, as well as the Fed tapering concerns, to challenge the sentiment.

Amid these plays, Wall Street benchmarks refreshed record, before easing a bit, whereas the US 10-year Treasury yields also stepped back from a five-month high. Following that, the S&P 500 Futures print 0.12% intraday losses by the press time.

Looking forward, the US Chicago Fed National Activity Index for September and Dallas Fed Manufacturing Business Index for October may entertain USD/TRY traders but major attention will be given to the risk catalysts, mainly from Turkey.

Technical analysis

USD/TRY bulls are likely heading towards the $10.0000 psychological magnet unless declining back below the resistance-turned-support from November 2020, near $8.9470.

Rishi Sunak is drawing up plans to push the minimum wage to £10 an hour by the next General Election, the UK's Mirror reports. 

Key notes

''The Chancellor will announce an increase in the present £8.91 rate in Wednesday’s Budget.''

''And some experts predict he could go as far as £9.50 to make up for the £20 cut in Universal Credit for 3.2 million working families.''

''Borrowing is £135billion lower than predicted so Mr Sunak has more money for the three-year spending review to be unveiled alongside his Budget.''

''That could put him on course for £10.50 minimum pay by 2024 with the qualifying age lowered from 25 - 21 to overtake Labour’s pledge of £10 an hour.''

Sunak also pledged earlier Sunday to continue to plow more money into public services even though the overall package is likely to restrained compared to the largess the Treasury offered to protect the economy from the pandemic.

Here are the measures announced before this week’s Budget and Spending Review include:

• 6.9 billion pounds of funding for local transport
• 5 billion pounds of spending over three years to increase health-related research and development
• 3 billion pounds of investment to improve skills in those age 16 and over
• The extension of the Recovery Loan Scheme for a six months until June 30, and 312 million pounds of funding for the British Business Bank’s Start-Up Loans program
• 1.4 billion pounds for the Global Britain Investment Fund, which will provide grants to encourage international companies to invest in the U.K. That includes 354 million pounds for life sciences and more than 800 million pounds for electric vehicle production and supply chains
• 850 million pounds for local museums, galleries and cultural hotspots
• 703 million pounds of funding to improve border security, including on coastal patrol ships
• 700 million pounds for local sports clubs
• 560 million pounds to improve adult maths education
• 500 million pounds to support families, including 80 million pounds to fund a network of “family hubs” to support young families
• 435 million pounds of funding to tackle crime, including improving street lighting and CCTV
• 5 million pounds of support for veterans 

Meanwhile, rising interest rates and inflation are likely to impact borrowing heavily, so the question is to what degree the Chancellor cuts elsewhere vs accepts a more sustained deficit. The pound has been regarded as a risk currency due to the UK's twin

• EUR/USD keeps latest rebound from 10-day EMA, off intraday low.
• Bullish MACD, sustained trading beyond short-term moving averages favor buyers.
• August month’s low adds to the upside filters.

EUR/USD picks up bids to 1.1642, keeping the two-day advances intact during the early Asian session on Monday.

In doing so, the currency major pair stays firmer above 10-day and 21-day EMAs amid bullish MACD signals, suggesting further advances towards the downward sloping resistance line from September 22, near 1.1655.

It should be noted, however, that August month’s low around 1.1665 will validation the quote’s additional upside towards the late September’s peak near 1.1755.

Meanwhile, the stated EMAs, close to 1.1630-25, challenge the short-term EUR/USD declines ahead of the 1.1600 threshold and the 1.1570 support levels.

In a case where the pair bears dominate past 1.1570, the yearly low near 1.1525 and the 1.1500 round figure will be in focus.

Overall, EUR/USD gains upside momentum but bulls need validation.

EUR/USD: Daily chart

Trend: Further upside expected

• USD/JPY starts the fresh trading session on a lower tone.
• The pair posts a loss for a straight fourth day on a softer US dollar.
• Investors discount interest rate hike expectations amid Powell's comment.

USD/JPY moves lower for the fourth straight day on Monday following the consistent downward pressure on the US dollar. The pair retreated from the highs of 2018 high near 114.69 on Wednesday. At the time of writing, USD/JPY is trading at 113.47, down 0.05% so far.

A combination of factors downplayed the greenback. Fed’s President Jerome Powell warned of persistent higher inflation but sounded soft on the pace of rate hikes. Fed’s tapering expectations remained intact, which provided ground for the lower level of the US dollar.

In addition to that, traders enjoyed the optimism surrounding reaching a deal on social spending legislation, following talks between Democratic Senators Chuck Schumer and Joe Manchin with US President Joe Biden. Furthermore, House Speaker Nancy Pelosi also hinted at the finalization of an agreement on a social spending bill ahead of an infrastructure bill in the coming week.

The US benchmark 10-year T bond yields trades lower at 1.63% which undermines the demand for the greenback. The yields took a tour to the south following US Treasury Secretary Janet Yellen remarks on inflation where she expected US inflation to return to normal by the second half of 2022.

On the other hand, the Japanese yen gained momentum on upbeat PMI data,  and the Bank of Japan’s (BOJ) view on growth amid reducing COVID-19 loan program if the coronavirus infections continue to decline.

As for now, traders are waiting for Japan’s Coincident Index Final, and US Chicago Fed National Activity Index SEP to gauge the market sentiment.

USD/JPY additional levels

“The United Kingdom said on Saturday that talks with the European Union over post-Brexit trade rules for Northern Ireland had been constructive, but substantial differences remained,” per Reuters.

The news quotes statements released on Saturday from UK Prime Minister Boris Johnson's office saying, “The talks this week were constructive and we've heard some things from the EU that we can work with - but the reality is that we are still far apart on the big issues, especially governance.”

“Whether we're able to establish that momentum soon will help us determine if we can bridge the gap or if we need to use Article 16,” adds the statement, per Reuters.

It was also mentioned that Britain said talks with EU negotiators would move to London from Brussels next week, and that its Brexit minister David Frost would meet European Commission Vice President Maros Sefcovic at the end of the week.

FX reaction

GBP/USD remains pressured at the week’s start, around 1.3750 by the press time of Monday’s Asian session, following the news.

Also read: UK Chancellor Sunak prioritizes NHS, skills and leveling up in Budget windfall – FT

“Rishi Sunak will use this week’s Budget to shore up the UK’s fragile public finances, while focusing remaining resources on the NHS, the ‘levelling up’ agenda, skills and helping hard-pressed families,” said Financial Times (FT) in the latest news.

Key quotes

FX implications

GBP/USD fails to react to the positive news, staying pressured around 1.3750 amid the early Asian session on Monday.

"US inflation levels are not expected to decrease to acceptable levels until the latter part of 2022," US Treasury Secretary Janet Yellen told CNN's Jake Tapper on Sunday.

“It would be the middle to second half of 2022,” adds the US policymaker.

Key quotes (from CNN)

FX implications

The news failed to get major attention as the Antipodeans begin the week’s trading without surprise moves. However, the comments confirm Fed Chair Jerome Powell’s strong support for tapering and hence may help the US Dollar Index (DXY) to consolidate recent losses.

• NZD/USD stays near Friday’s closing, avoids surprises on Labour Day holiday.
• Mixed PMIs, Fed’s Powell joined Treasury yields’ pullback to keep buyers hopeful.
• Evergrande, US stimulus news battle fresh covid woes in China, Fed tapering concerns to entertain traders.
• Second-tier US data, risk catalysts to watch for fresh impulse.

NZD/USD begins the week’s trading with fewer moves around 0.7150 as New Zealand (NZ) celebrates Labour Day holiday. The kiwi pair’s last two consecutive weekly advances put it near the highest levels since June amid the US dollar weakness. The up-moves, however, have been questioned of late, after hitting the multi-day top, amid mixed clues.

On Friday, the US Dollar Index (DXY) dropped for the seventh day in the last eight as market sentiment improved on headlines concerning the US stimulus, as well as from China. Also weighing on the greenback were mixed prints of the US preliminary PMI readings for October.

While the US policymakers, including President Joe Biden, signaled nearness to the much-awaited infrastructure spending deal, China’s Evergrande managed to pay $83.5 million in interest on a U.S. dollar bond and relieved the market’s stress. On the same line, Evergrande’s latest communication to have restarted 10 projects in six cities including Shenzhen tame fears emanating from the struggled real-estate player. Furthermore, the US and China sound hopeful over the phase one trade deal despite the latter’s inability to match the trade commitments, which in turn favor the market sentiment and help the Antipodeans like NZD/USD.

Alternatively, the Fed policymakers’ latest comments before the blackout period kept showing the tapering as the favored outcome while flashing fewer signals over rate hikes. On Friday, US Fed Chairman Jerome Powell said, “I do think it's time to taper; not time to raise rates,” per Reuters.

It’s worth observing that the recent covid conditions in China and Russia have been grim and challenge the risk-on mood, as well as the commodities. As per the latest comments from Mi Feng, a spokesman at the National Health Commission, shared by Reuters, ''There is increasing risk that the outbreak might spread further, helped by ‘seasonal factors’”.

Amid these plays, Wall Street refreshed record tops and the US 10-year Treasury yields eased from a five-month high, keeping the DXY near the lowest levels since last September.

Given the off in New Zealand and a light calendar in Asia, NZD/USD may remain sidelined during the early hours of Monday’s trading session. However, risk catalysts, mainly from China, may entertain the momentum traders ahead of the US Chicago Fed National Activity Index for September and Dallas Fed Manufacturing Business Index for October.

Technical analysis

NZD/USD keeps pullback from a four-month-long ascending resistance line, previously targeting the 200-DMA level surrounding 0.7100. However, bullish MACD and firmer RSI line, not overbought, dim prospects of the pair’s further weakness, which if ignored will need validation from August month’s peak of 0.7089 before convincing the sellers. On the flip side, the 0.7200 threshold and the stated trend line resistance line near 0.7220 guards the quote’s short-term recoveries.

Reuters reported that China's latest COVID-19 outbreak is increasingly likely to spread further.

This warning comes from a health official who spoke on Sunday while authorities urged all regions to step up monitoring and called for a reduction in travel across provinces.

Key notes

''China has largely contained the virus but it is determined to stamp out any sporadic local outbreaks, particularly in the run-up to the 2022 Winter Olympics in February.''

''More than 100 locally transmitted cases have been confirmed over the last week across 11 provincial areas, with most linked to 13 different tour groups.''

''There is increasing risk that the outbreak might spread further, helped by "seasonal factors", Mi Feng, spokesman at the National Health Commission, told reporters on Sunday.''

''The Delta variant causing the outbreak is also highly transmissible, said commission deputy director Wu Liangyou, adding that sequencing showed it to be different from the source of an earlier outbreak, and suggesting that the new cases came from a new source from abroad.''

Reuters reported this weekend that China Evergrande Group has said on Sunday that it had resumed work on more than 10 projects in six cities including Shenzhen.

The property company made a statement that comes after it appeared to avert default with a last-minute bond coupon payment last week. 

''Evergrande, deep in crisis with more than $300 billion in liabilities, has not disclosed how many of its 1,300 real estate projects across China it has had to halt work on.''

''The company said on Aug. 31 that some projects were suspended because of delays in payment to suppliers and contractors and it was negotiating to resume building.''

''On Sunday, it said in a post on its Wechat account that some of the projects it had resumed work on had entered the interior decoration stage while other buildings had recently finished construction.''

Market implications

AUD/USD has benefitted of late as the Evergrande risk abates. Evergrande added that its efforts to guarantee construction would shore up market confidence. Moreover, last week's move to pay $83.5 million in interest on a US dollar bond has bought Evergrande another week to wrestle with a debt crisis looming over the world's second-biggest economy. 

• AUD/USD bulls look to engage at daily support stricture following 50% mean reversion.
• The marks t are weighing the RBA vs the Federal Reserve and inter rate lift-off timings. 

AUD/USD ended a strong performing week mixed on Friday as investors continued to unload long US dollar positions that benefited from an increase in bets that the Federal Reserve will raise rates sooner than previously expected. AUD/USD ended flat on the day near 0.7465 after trading between 0.7453 and 0.7512.

Federal Reserve Chairman Jerome Powell spoke on Friday and explained that the Fed should begin reducing its asset purchases soon, but should not yet raise interest rates. The chairman noted argued that employment is still too low. Additionally, he explained that high inflation will likely abate next year.

RBA in focus

Meanwhile, the Reserve Bank of Australia intervened for AUD 1bn on Friday to defend its 0.10% yield target on the April 2024 government security. RBA intervention is likely to continue until it formally announces that it is dropping its YCC.

On the fundamental side of things, the Evergrande story in China has cooled which has been underpinning AUD demand as traders get set for the nation's third-quarter Consumer Price Index. Consensus is reported at 3.1% for the headline rate. However, observers note New Zealand’s very strong (4.9%) read for the same quarter.

With that being said, decreasing price pressures could all but underpin the RBA’s dovish stance and thus lead to re-pricing of tightening expectations (40bp priced in for the next year) and weigh on AUD.

AUD/USD technical analysis

The price is ripening for an upside extension from daily support towards the 0.77 figure. This follows a correction to the 50% mean reversion of the latest daily bullish impulse.