Forex-novosti i prognoze od 30-11-2022

• NZD/USD has reclaimed a three-month high of 0.6320 amid the improved risk appetite of investors.
• An establishment above the 200-EMA adds to the upside filters.
• The RSI (14) is oscillating in a bullish range of 60.00-80.00, which indicates more upside ahead.

The NZD/USD pair reclaimed its three-month high around 0.6320 in the early Tokyo session. The kiwi asset is enjoying significant liquidity as the Federal Reserve (Fed)’s confirmation of a slowdown in the interest rate hike pace has strengthened the risk appetite theme in the global market. The kiwi asset has resumed its upside journey after a mild correction to 0.6290 and has tested Wednesday’s high.

Meanwhile, the US Dollar Index (DXY) has displayed a steep fall after struggling around 106.00 and is expected to test Wednesday’s low at 105.80 in no time.

On a daily scale, the asset is comfortably established above the 200-period Exponential Moving Average (EMA) at around 0.6200, which indicates that the long-term trend has turned bullish. Also, a bull cross, represented by the 20-and 50-EMAs at 0.5871, indicates a continuation of the upside. Going forward, the ultimate resistance is placed from the August 12 high at 0.6470.

Apart from that, the Relative Strength Index (RSI) (14) is oscillating in a bullish range of 60.00-80.00, which indicates that the upside momentum is intact.

For further upside, a decisive move above Thursday’s high at 0.6317 will drive the kiwi asset towards August 1 high at 0.6353, followed by the round-level resistance at 0.6400.

On the contrary, the US Dollar could regain strength if the asset surrenders Monday’s low at 0.6155, which will drag the pair towards the round-level support at 0.6100. A slippage below 0.6100 will expose the kiwi asset for more downside toward July 14 low around 0.6060.

NZD/USD daily chart

• US Dollar Index stays pressured after reversing from 21-DMA.
• Four-month-old ascending support line lures bears but further downside appears limited.
• 61.8% Fibonacci retracement level acts as immediate resistance.

US Dollar Index (DXY) bears keep the reins around 105.90 during early Thursday, taking a breather after posting the biggest monthly slump since September 2010.

The Greenback’s gauge versus the six major currencies reversed from the 21-Day Moving Average (DMA) the previous day to print the latest losses. The bearish move also gained clues from sluggish Moving Average Convergence and Divergence (MACD) and downbeat Relative Strength Index (RSI) line, placed at 14, not oversold.

With these conditions met, the DXY sellers are all set to approach an upward-sloping support line from early August, around 105.40.

However, the likely oversold RSI conditions around 105.40 support might stop the US Dollar bears around then, if not then the monthly low near 105.30 and the 105.00 round figure may challenge the quote’s further downside. Also acting as a downside filter is August month’s bottom surrounding 104.65.

Alternatively, the 61.8% Fibonacci retracement level, also known as the golden ratio, of the DXY’s May-September upside, near 106.45, restricts nearby upside move.

Following that, the 21-DMA level of 106.52 and the latest swing high near 107.20 could test the DXY bulls.

It’s worth noting, however, that the US Dollar Index remains on the bear’s radar unless crossing July’s high near 109.30. That said, the 50% Fibonacci retracement level surrounding 108.00 acts as an extra filter to the north.

US Dollar Index: Daily chart

Trend: Limited downside expected

• Gold price grinds higher after posting the biggest daily jump in three weeks.
• Federal Reserve Chairman Jerome Powell’s dovish commentary, United States data favored XAU/USD buyers.
• US Dollar dropped as Powell confirmed Fed’s slower interest rate hikes from December.
• Optimism surrounding China, likely weakness in US data tease Gold buyers towards refreshing monthly high.

Gold price (XAU/USD) begins December on a firmer footing around $1,768, after posting the biggest monthly gains in 29 months during November. That said, the yellow metal’s latest run-up could be linked to the dovish comments from Federal Reserve (Fed) Chairman Jerome Powell, as well as optimism surrounding China. However, buyers seem to take a breather ahead of the Fed’s preferred inflation gauge, namely the United States Core Personal Consumption Expenditure (PCE) Price Index for October.

Federal Reserve Chairman Jerome Powell drowned US Dollar, pumped Gold price

On Wednesday, Fed Chair Jerome Powell marked his first public appearance after November’s Federal Open Market Committee (FOMC) meeting while speaking at the Brookings Institute on the economic outlook, inflation and employment. The policymaker stated that it makes sense to moderate the pace of interest rate increases while also suggesting that the time to slow the pace of rate hikes could come as soon as the next meeting in December.

Ahead of him, Federal Reserve member of the Board of Governors Lisa D. Cook also spoke and praised the inflation data to signal that the Fed would likely take smaller steps as it moves forward.

Following Powell’s speech, the market’s wagers favoring a 50 basis points (bps) rate hike from the Federal Reserve in December increased from 69.9% ahead of the speech to above 75%.

With this, the US Dollar Index (DXY) snapped a three-day uptrend while portraying the biggest daily loss in a week, not to forget mentioning the biggest monthly fall in 12 years. It’s worth noting that the Wall Street benchmarks cheered the dovish remarks from Fed Chair while the United States 10-year Treasury bond yields reversed the early gains to end November on a negative footing around 3.61%.

Given the inverse relationship between the US Dollar and Gold, the metal cheered a slump in the Greenback by crossing the key technical hurdle and luring buyers.

Data from United States also favored XAU/USD bulls

In addition to the dovish comments from the Federal Reserve (Fed) policymakers, downbeat economics from the United States (US) also underpinned the Gold price rally the previous day.

Among them, US ADP Employment Change gained major attention as it marked the lowest readings since January 2021 with a 127K figure for November versus 200K forecast and 239K previous readings. On the same line was the US JOLTS Job Openings for October that eased to 10.334M versus 10.3M expected and 10.687M prior. On the other hand, the second estimate of the US Gross Domestic Product (GDP) Annualized for the third quarter (Q3) marked 2.9% growth versus 2.6% initial forecasts.

China-linked optimism adds strength to Gold price run-up

Considering China’s status as one of the biggest consumers of the Gold, the recent easing in the nation’s daily Covid infections favored the XAU/USD bulls. That said, the Dragon nation reported just around 38,000 daily Coronavirus cases on Tuesday, conveyed on Wednesday, marking the second consecutive day of receding virus numbers after refreshing the record high.

Not only the easy cases but the gradual reliefs in the virus-led activity controls in major cities like Zhengzhou, Guangzhou and Chongqing, also seemed to have favored the Gold price.

United States Core PCE Inflation eyed

Looking forward, US Core PCE Inflation, expected 5.0% YoY in October versus 5.1% prior, will be crucial for immediate Gold price moves as a surprise increase in the inflation numbers could probe the XAU/USD bulls. Also important will be the monthly prints of the US ISM Manufacturing PMI for November, expected 49.8 versus 50.2 prior.

Also read: US October PCE inflation & ISM Manufacturing PMI Preview: Seen through Fed’s eyes

Overall, the Gold price remains on the buyer’s radar ahead of the key US data.

Gold price technical analysis

Gold price remains firmer after confirming further upside momentum by breaking a two-week-old descending trend line, as well as marking repeated bounces off the 100-bar Simple Moving Average (SMA), mostly known as the 100-SMA.

The bullion’s latest run-up also justifies the Moving Average Convergence and Divergence (MACD) indicator’s bullish signals, as well as firmer prints of the Relative Strength Index (RSI) line, placed at 14, which is not overbought.

With this, Gold price run-up towards the monthly high surrounding $1,787 appears imminent.

However, the $1,800 threshold and August month peak near $1,808 could challenge the XAU/USD bulls afterward.

On the flip side, the resistance-turned-support line, around $1,758 by the press time, restricts the immediate downside of the metal before the 100-SMA level surrounding $1,751.

It’s worth noting, however, that the Gold sellers might not risk entries unless witnessing a clear downside break of the one-month-old horizontal support, around $1,730.

Gold price: Four-hour chart

Trend: Further upside expected

• EUR/JPY is facing hurdles around 143.80 as the ECB is expected to shift to a lower rate hike structure.
• A decline in Eurozone HICP and an increment in German jobless numbers have weakened hawkish ECB bets.
• This week, the speech from Haruhiko Kuroda will be keenly watched.

The EUR/JPY pair is struggling to cross the immediate hurdle of 143.80 in the early Asian session. The cross is displaying a sideways auction profile in a 143.50-143.80 range after a perpendicular decline on Wednesday. A sheer fall in the cross was backed by a decline in the headline Eurozone Harmonized Index of Consumer Prices (HICP) and an increment in the German Unemployment Rate.

The headline Eurozone HICP landed at 10.0% lower than the expectations of 10.4% and the prior release of 10.6%. Thanks to a decline in energy prices that have resulted in a slowdown in inflationary pressures as food prices are still solid in the Eurozone economy. The core HICP numbers remained flat at 5.0% due to supply chain bottlenecks.

Meanwhile, the German Unemployment Rate escalated to 5.6% against expectations and the former release of 5.5%. Also, the Unemployment Change soared to 17K vs. the former release of 8K. Accelerating interest rates by the European Central Bank (ECB) has forced firms to use their current manpower optimally due to bleak economic projections.

A slowdown in employment generation and inflation has cemented the case of 50 basis points (bps) rate hike by the ECB in its December monetary policy meeting, as suggested by Commerzbank.

On the Tokyo front, investors are keeping an eye on a speech from Bank of Japan (BOJ) Haruhiko Kuroda. The BOJ Governor is expected to dictate cues about the likely monetary policy action and growth projections. Recently, a Reuters poll dictated that more than 90% of economists have supported the view of phasing out monetary easing in the latter half of CY2023. Any discussion related to the matter could strengthen Japanese yen bulls.

• Upbeat in risk sentiment weighed on the Japanese Yen and bolstered the Australian Dollar.
• US Federal Reserve Chair Jerome Powell gave the green light for lower-sized rate hikes.
• AUD/JPY Price Analysis: Upward biased, could print a fresh weekly high above 94.00.

The AUD/JPY advanced sharply on Wednesday amid an improved market sentiment spurred by the Federal Reserve (Fed) Chair Jerome Powell. He said that it makes sense to slow the speed of rate hikes while adding the Fed has made substantial progress towards a “sufficiently restrictive policy.” Therefore, the AUD/JPY bounced off the 200-day Exponential Moving Average (EMA) and rose almost 1%. At the time of writing, the AUD/JPY is trading at 93.64.

AUD/JPY Price Analysis: Technical outlook

On Thursday, the AUD/JPY daily chart portrays the cross as neutral-to-upward bias after bouncing at the 200-day Exponential Moving Average (EMA) at 92.79, reclaiming the 93.00 figure. As of writing, the AUD/JPY is pressuring the 50-day EMA at 93.67, which, if cleared, could drag the cross above the 94.00 mark toward the 100-day EMA at 94.29.

If that scenario is achieved, the next resistance would be November 16 weekly high at 94.65, followed by the November 8 swing high at 95.19.

Short-term, the AUD/JPY recovered some ground, particularly on Wednesday, after hitting a weekly low of 92.14, climbing more than 100 pips. Should be noted that the cross faces solid resistance at the 200-EMA at 93.68, but as the Relative Strength Index (RSI) is in bullish territory, the AUD/JPY might surpass the latter on its way toward the week’s high of 94.05.

AUD/JPY key resistance levels are at the weekly high of 94.05, followed by the R1 daily pivot at 94.19 and the R2 pivot point at 94.66. On the other hand, the AUD/JPY first support would be the 100-EMA at 93.45. A breach of the latter will expose the daily pivot at 93.37, followed by the 50-EMA at 93.14, ahead of the 93.00 figure.

AUD/JPY Key Technical Levels

• USD/CHF is displaying back-and-forth moves around 0.9450 after sheer volatility.
• A slowdown in growth rate and labor demand, and a decline in October inflation support Fed’s less-hawkish commentary.
• The US NFP is expected to display weak job numbers considering cues from US ADP Employment.

The USD/CHF pair turned sideways around 0.9450 in the early Asian session. Federal Reserve (Fed)-inspired massacre in the asset was followed by a casual recovery from around 0.9430 and the asset has turned sideways now to ease sky-rocketing volatility.

The risk appetite is extremely solid as the commentary from Fed chair Jerome Powell has confirmed that policymakers will consider a lower rate hike for December monetary policy meeting.

The less-hawkish commentary from the Fed chair sent the US Dollar Index (DXY) on a downside swing to near 105.80. The USD Index has also shown a mild recovery to near 106.00, however, the downside bias has been cemented. A stellar run in S&P500 portrays a cheerful market mood.

Meanwhile, the US Treasury yields have witnessed a bloodbath as investors poured liquidity into US Treasury bonds. The 10-year US Treasury yields have dropped to 3.60%.

The decision of slowing down the current pace of the interest rate hike by the Fed is backed by a deceleration in the employment generation process, a slowdown in growth rate, and a surprise decline in October’s inflation, which have put the Fed in a position where rate hike pace could be eased. The foremost agenda of the Fed is to bring price stability but it is not appropriate to ‘Crash the economy and clean it afterward, cited by Fed Chair.

For further guidance, investors are shifting their focus toward the United States Nonfarm Payrolls (NFP) data, which will release on Friday. The official employment report is expected to display a weaker number considering cues from US Automatic Data Processing (ADP) Employment data, which has shown fresh addition of 127K jobs in November.

On the Swiss franc front, investors are keeping an eye on Consumer Price Index (CPI) data. The monthly annual CPI figures are seen unchanged at 0.1% and 3.0% respectively. The Swiss National Bank (SNB) Chairman Thomas J. Jordan is still in favor of an expansionary policy to keep up the economic prospects.

• EUR/USD remains sidelined after posting the biggest daily gains in over a week.
• Bulls eye ascending resistance line from August on closing break of 200-DMA.
• 61.8% Fibonacci retracement level adds to the downside filters.
• MACD, RSI challenge bullish bias but bears have a long way to go before taking control.

EUR/USD bulls take a breather around 1.0400 during early Thursday, following the heavy run-up before a few hours, as traders await fresh clues to extend Fed Chair Jerome Powell-led gains. Also likely to have challenged the pair buyers are the signals from the Moving Average Convergence and Divergence (MACD) indicator and the Relative Strength Index (RSI) line, placed at 14.

Even so, the major currency pair’s sustained closing beyond the 200-DMA, around 1.0370 by the press time, keeps the buyers hopeful. On the same line could be the quote’s successful rebound from the 61.8% Fibonacci retracement level of June-September downside, close to 1.0300.

With this, the EUR/USD bulls keep their eyes on an upward-sloping resistance line from August 10, near 1.0500 at the latest, before targeting the late June swing high around 1.0615 and June’s peak surrounding 1.0775.

It should be noted that the impending bear cross on the MACD and the RSI’s nearness to the overbought territory suggests limited upside room for the quote.

However, the EUR/USD sellers may not risk entries until witnessing a clear break of the 61.8% Fibonacci retracement level, also known as the golden ratio, currently around 1.0300. That said, the 200-DMA level near 1.0370 restricts the immediate downside of the pair.

Should the quote drops below 1.0300, the previous weekly low near 1.0220 and September’s peak near 1.0200 could challenge the EUR/USD bears.

EUR/USD: Daily chart

Trend: Limited upside expected

• USD/CAD has expected to decline further to near 1.3400 as Fed sees a slowdown in the rate hike pace.
• S&P500 has displayed a juggernaut rally, portraying a stellar improvement in investors’ risk appetite.
• A significant jump in oil prices amid multiple tailwinds has strengthened the Canadian Dollar.

The USD/CAD pair plunged to near 1.3430 in the early Asian session after the Federal Reserve (Fed) chair Jerome Powell delivered a less-hawkish commentary on interest rate guidance. The loonie asset has shown a vertical decline from above 1.3550 and is expected to deliver more losses toward the round-level support of 1.3300 amid sheer weakness in the US Dollar Index (DXY).

The USD Index has printed a fresh three-day low at 105.80 as Fed Chair has confirmed a deceleration in the rate hike pace from December monetary policy meeting. Less-hawkish commentary from Fed Chair is backed by a surprise decline in October’s inflation report. Also, a slowdown in economic activities and moderation in labor growth indicate that inflation will dwindle further in the coming months.

S&P500 has displayed a juggernaut rally, portraying a stellar improvement in investors’ risk appetite. The returns on US Treasury bonds have witnessed a bloodbath. The 10-year US Treasury yields have dropped to near 3.60%.

Apart from that, the catalyst that has led to a significant fall in the US Dollar is the weak United Stated Automatic Data Processing (ADP) Employment data. According to the ADP Employment, the US economy has added 127K fresh jobs in the labor market, lower than the expectations of 200K and the prior release of 239K. Evidence of a slowdown in employment generation is going to weigh immensely on the inflation rate ahead.

Meanwhile, the Canadian Dollar has got an adrenaline rush on solid gains in oil prices. Extreme drawdown in oil inventories reported by the US Energy Information Administration (EIA), Russia’s denial of providing oil at a novel price cap, and chances of sheer production cuts by OPEC+ have participated in strengthening oil prices.

• AUD/USD grinds at the highest levels since September 13.
• Aussie pair rallied the most in three weeks as Fed Chair Powell signaled easy rate hikes starting in December.
• Downbeat Australia Inflation, China PMIs failed to inspire bears on Covid-linked optimism.
• China Caixin Manufacturing PMI, US Core PCE Inflation and ISM Manufacturing PMI will provide fresh impulse.

AUD/USD bulls take a breather around 0.6785 after Fed Chairman Jerome Powell-led rally to the highest levels since mid-September. It’s worth noting that, the policymaker’s dovish signals allowed the Aussie pair to post the biggest daily run-up in three weeks.

It should be noted, however, that downbeat prints of Australia’s AiG Performance of Mfg Index and S&P Global Manufacturing PMI for November appeared to have probed the AUD/USD bulls at the multi-day high.

Fed Chair Powell spoke at the Brookings Institute on the economic outlook, inflation and employment late Wednesday while spreading the bearish remarks in his first public appearance after November’s Federal Open Market Committee (FOMC) meeting. The policymaker stated that it makes sense to moderate the pace of interest rate increases while also suggesting that the time to slow the pace of rate hikes could come as soon as the next meeting in December.

Ahead of him, Federal Reserve member of the Board of Governors Lisa D. Cook also spoke and praised the inflation data to signal that the Fed would likely take smaller steps as it moves forward.

It’s worth noting that the softening of the US employment numbers and optimism surrounding China’s Covid conditions also allowed the AUD/USD pair to remain firmer despite downbeat prints of Australia’s Monthly Consumer Price Index (CPI) for October. That said, US ADP Employment Change marked the lowest readings since January 2021 with 127K figure for November versus 200K forecast and 239K previous readings. On the other hand, the second estimate of the US Gross Domestic Product (GDP) Annualized for the third quarter (Q3) marked 2.9% growth versus 2.6% initial forecasts.

Amid these plays, Wall Street closed in the green and the US Treasury yields were down while the US Dollar Index (DXY) snapped a three-day uptrend.

Moving on, China’s private activity data may entertain AUD/USD traders, along with the risk catalysts. However, major attention will be given to the US Core PCE Inflation data for November and ISM Manufacturing PMI for the said month.

Also read: US October PCE inflation & ISM Manufacturing PMI Preview: Seen through Fed’s eyes

Technical analysis

A daily closing beyond the downward-sloping resistance line from the mid-September, now support around 0.6765, keeps AUD/USD buyers hopeful of approaching September’s top surrounding 0.6915, followed by the 200-DMA hurdle near 0.6925.

• Dovish speech of the Federal Reserve Chair Jerome Powell weighed on the US Dollar.
• Fed’s Powell opened the door for a 50bps rate hike in the December meeting.
• The New Zealand Dollar ignored a worse-than-expected Business Confidence report, as shown by the NZD/USD rising.

The New Zealand Dollar (NZD) soars sharply against the US Dollar (USD), towards the 200-day Exponential Moving Average (EMA) at 0.6290, following a speech of the US Federal Reserve (Fed) Chair Jerome Powell on Wednesday. At the time of writing, the NZD/USD is trading at 0.6302.

Sentiment shifted positively on dovish remarks by the Fed Chair Jerome Powell, who opened the door for slower rate hikes, since December. In his speech, Fed Chair Powell said that moderating interest-rate increases made sense and could happen as soon as the December meeting. The US central bank Chair added that rates would get higher than projected in September and remain restrictive for “some time.”

Following the Fed Chair Powell speech, money market futures odds for a 50 bps rate hike lie at 75%, while there is a 25% chance of 75. Meanwhile, swaps futures expect the Federal Funds rate(FFR) to peak under 5% by May 2023.

Also read: Breaking: Fed chair Powell speech sends US Dollar lower

On the New Zealand front, the economic docket featured Business Confidence for November, which dropped to -57.1 in November 2022 from -42.7 in October, as firms continued to grapple with intense inflationary pressures, declining margins, labor shortages, and tightening financial conditions. Activity measures were generally lower, led by sharp falls in ease of credit, profit expectations and own activity outlook.

NZD/USD Key Technical Levels

• USD/JPY bears are moving in following Fed Powell speech.
•  A break of 135.80 opens risk to the lower end of the 133 area. 

The US Dollar fell on Wednesday after Federal Reserve Chairman Jerome Powell said that the US central bank could scale back the pace of its interest rate hikes "as soon as December."

This has given the yen a boost and is seeing USD/JPY take on prior equal lows. A break here could make for a significant shift in the pair for the days ahead as the following illustrates: 

USD/JPY daily chart

USD/JPY is trading on the back side of the daily trend lines which exposes 135.80 on the downside.

USD/JPY H4 charts

The bears are embarking on an equal low as seen more easily on the following zoomed-in chart:

There will be liquidity in here that could lead to a move back into the horizontal resistance in the sessions to follow. So long as the 139 area holds, the emphasis will remain on the downside. A break of 135.80 opens risk to the lower end of the 133 area. 

What you need to take care of on Friday, December 1:

The market sentiment fluctuated between optimism and fear, with the US Dollar starting the day on the back foot, recovering mid-way, and finally plummeting to close it in the red against its major rivals.

The latest US Dollar slump resulted from US Federal Reserve Chair Jerome Powell’s words. Speaking at the Brookings Institute on the economic outlook, inflation and employment, Powell was mostly dovish. He said it makes sense to moderate the pace of interest rate increases, although he added that the monetary policy would need to remain “restrictive” for some time. Additionally, he said that the time to slow the pace of rate hikes could come as soon as the next meeting in December.

Powell added that economic growth has slowed below the long-run trend, which must be maintained. Finally, he said that he does not want to over-tighten and said that cutting rates is not something he intends to do anytime soon.

Federal Reserve member of the Board of Governors  Lisa D. Cook spoke ahead of Powell but aligned with him. She said that inflation data shows some early signs of improvement and that the Fed would likely take smaller steps as it moves forward.

Chances of a 50 bps rate hike in December increased from 69.9% ahead of the speech to above 75%.

Earlier in the day, optimism was backed by China’s news and easing coronavirus-related restrictions in Zhengzhou and Guangzhou, despite the government's strives to control new cases. China has continued to report record daily contagions, but massive protests have forced the decision.

Meanwhile, European inflation fell for the first time in seventeen months, as the Euro Area annual Harmonized Consumer Price Index printed at 10% in October. Also, EU nations are considering lowering Russia’s oil price cap to $60 per barrel, according to people familiar with the matter.

 Finally, the US economy grew at a 2.9% annualized rate in Q3, up from the 2.6% rate previously estimated.

EUR/USD nears the 1.0400 level, while GBP/USD trades around 1.2040. The Australian Dollar was the best performer, as AUD/USD stands at 0.6780. The USD/CAD pair is down to 1.3450, while USD/JPY changes hands at 138.10.

Spot gold trades at fresh weekly highs at around $1,765 a troy ounce, while crude oil prices were marginally higher, and WTI settled at $80.45 a barrel.

On Thursday, the US will publish core PCE inflation, the US Federal Reserve's favourite gauge, and the October ISM Manufacturing PMI.

• Gold price is bid on the back of a dovish Fed Chair Powell.
• There could be consolidation ahead the bulls can not get above $1,770.

Gold price is rising because of a dovish speech by Federal Reserve's Jerome Powell on Wednesday that sunk the US Dollar. At the time of writing, Gold price is up around 0.6% and has climbed from a low of $1,744.95 to score a high of the day at $1,764.85.  

Earlier in the day, Gold price pared gains as US bond yields climbed ahead a much-awaited speech from Federal Reserve Chair Jerome Powell. However, Powell said that policy will most likely need to remain restrictive for some time and that it makes sense to moderate the pace of interest rate increases. He said that the time to slow the pace of rate hikes could come as soon as the December meeting.

Consequently, a weaker dollar has kept Gold price on track for its best month since May 2021. The US dollar index, DXY, was last seen down 0.5% to 106.29, while the yield on the US 10-year note was down to 3.694%, not far from an over 7-week low of 3.62% on November 28th. The greenback is on track for its biggest monthly loss since September 2010 as investors look toward the Fed reaching a peak rate early next year. Markets now see a 75% chance for a smaller 50 bps interest rate hike in December, after four consecutive 75 bps increases.

US labour data cooling

Also, data suggested the labour market started to cool. ''The number of job openings in the US edged down to 10.3 million in October (10.7 million previously). The number of hires and total separations was little changed at 6.0 million and 5.7 million respectively. Job openings have eased from their peak of just under 12 million in March, but with 1.7 job openings per unemployed person in the US, the mismatch between labour demand and supply remains large,'' analysts at ANZ Bank explained. 

Meanwhile, analysts at TD Securities argue that a bull trap is being set-up in precious metals markets. ''Systematic trend followers have significantly covered their gold shorts over the past few days, while the resilient price action has likely continued to attract new long interest from discretionary money managers looking for a recession hedge amid peak central bank hawkishness.''

''However,'' the analysts said, ''narrative is chasing prices, and we see several catalysts on the docket that could spark a renewed leg lower as CTAs run out of dry-powder on the bid. Chair Powell's speech is an obvious candidate for a catalyst, alongside inflation and jobs data.''

Gold technical analysis

The daily chart's harmonic pattern is bullish but there is a lot of resistance for the bulls to get through. The price could be destined for a further consolidation if the bulls can not get above $1,770 as per the 4-hour chart:

• The Pound Sterling jumped above 1.2000 as the Federal Reserve Chair, Jerome Powell, took the stance.
• Fed’s Powell: “Makes sense to moderate pace of interest rate hikes.”
• Fed’s Powell opened the door for a 50bps rate hike in the December meeting.

The British Pound (GBP) is trading negatively in the day, failing to capitalize on dovish remarks by the Federal Reserve Chair Jerome Powell, which opened the door for a 50 bps rate hike at the December meeting, albeit reiterating that work needs to be done. At the time of writing, the GBP/USD is trading volatile, around 1.1930-1.2050, as Powell begins to answer questions.

Powell’s speech remarks

In his speech, the Federal Reserve Chair said that it made “sense” to slow the speed of rate hikes, stating that it could happen at the December meeting. Powell added that the Fed has made substantial progress towards a “sufficiently restrictive policy,” though he said there’s “more ground to cover.”

Powell added that rates would get higher than projected in September and remain restrictive for “some time.” HE echoed some of his colleague’s comments adding that inflation is “far too high” and needs more evidence that inflation is actually “declining.”

Also read: Breaking: Fed chair Powell speech sends US Dollar lower

Following the Fed Chair Powell speech, money market futures odds for a 50 bps rate hike lie at 75%, while there is a 25% chance of 75. Meanwhile, swaps futures expect the Federal Funds rate(FFR) to peak under 5% by May 2023.

Powell’s Q&A Remarks

GBP/USD 5-minute chart

The GBP/USD jumped from around 1.1925 towards 1.2011. Once he finished the speech, the GBP/USD retreated to 1.1970 before beginning its Q&A session, which rocked the boat, undermining the US Dollar and bolstering the Pound Sterling, as the GBP/USD hit the daily high of  1.2050.

• The Euro climbed as the Federal Reserve Chair, Jerome Powell, took the stance.
• Fed’s Powell: “Makes sense to moderate pace of interest rate hikes.”
• Fed’s Powell opened the door for a 50bps rate hike in the December meeting.

The EUR/USD jumped from weekly lows of 1.0290 as the Federal Reserve (Fed) Chair Jerome Powell acknowledged that moderation in the speed of interest rate increases might come as soon as the next meeting. That said, the Euro (EUR) is climbing, while the US Dollar Index (DXY) turned negative, dropping 0.42%. At the time of writing, the EUR/USD remains volatile, trading within 1.0300/1.0380, as Powell continues.

In some of his remarks, Fed Chair Jerome Powell said it “Makes sense to moderate pace of interest rate hikes,” adding that it could happen as soon as the December meeting. He said that the Federal Reserve has made substantial progress towards a “sufficiently restrictive policy,” though he added that there’s “more ground to cover.”

Powell added that rates are more likely to rise “somewhat higher” than what policymakers estimated at the September meeting. He emphasized that rates would need to be higher “for some time.” The Fed Chair reiterated that inflation remains “far too high,” and even though the October CPI report was a “welcome surprise,” he needs more evidence that inflation is actually “declining.”

Also read: Breaking: Fed chair Powell speech sends US Dollar lower

EUR/USD Market’s reaction

The EUR/USD initially dropped to 1.0307 and rallied sharply, towards 1.0376, still below the daily high of the day at around 1.0399. It should be noted that the 200-day Exponential Moving Average (EMA) sits around 1.0372, and so far, US Dollar (USD) buyers leaned on it, stalling the rally around the 1.0370 area.

EUR/USD 5-minute Chart

This is a developing story

Fed Chair Powell’s policy speech is a key event today:

Watch live: Fed Powell speech

In his first comments since the post-decision press conference on November 2, where he warned of a higher terminal rate, Fed chair Jerome Powell said today:

Key comments

As a consequence of the dovish comments, futures tied to the Fed policy rate imply about a 75% chance of a 50bp hike in Dec vs a 25% chance of 75bp.

There will be a Q&A with further comments to follow:

Meanwhile, since the November 2 presser, markets have tuned into other Fed officials who have been framing the bank’s message. There have been conflicting tones from officials with, for instance, Fed vice chair Lael Brainard who has played up the move to smaller hikes, while others such as St Luis CEO, James Bullard, have played up the need for even higher rates. 

The November 2 FOMC statement seemed to hint at a pivot, but Chair Powell pushed back against such notions of a pivot during his press conference. 

''We believe he will take the same tone today; that is, the Fed may move to smaller hikes but the terminal rate is likely to be much higher than previously expected,'' analysts at Brown Brothers Harriman said. 

Fed's Powell said today, ''it seems to me likely' rates must ultimately go 'somewhat higher' than policymakers thought in September.''

US Dollar update

Nevertheless, the dollar index, DXY, has fallen on the initial release of the speech from the 107 area to test below 106.70. It remains above the low made of 106.29 on the day but was below the 20-year high of 114.78 on Sept. 28.  The greenback is on track for its biggest monthly loss since September 2010 as investors look toward the Fed reaching a peak rate early next year.

About Fed Jerome Powell

Jerome H. Powell took office as a member of the Board of Governors of the Federal Reserve System on May 25, 2012, to fill an unexpired term. On November 2, 2017, President Donald Trump nominated Powell to serve as the next Chairman of the Federal Reserve. Powell assumed office as Chair on February 5, 2018.

• The Swiss Franc trades with decent gains of 0.20% against the US Dollar.
• The USD/CHF is range-bound around 0.9300-0.9630 due to the lack of a catalyst.
• USD/CHF Price Analysis: Double bottom emerged around 0.9350, targeting a rally to 0.9800.

The USD/CHF retraces from weekly highs reached around 0.9540s, drops toward the 0.9500 figure, due to a mixed sentiment ahead of a scheduled speech by the US Federal Reserve (Fed) Chair Jerome Powell. At the time of writing, the USD/CHF is trading at 0.9516, below its opening price by 0.23%.

USD/CHF Price Analysis: Technical outlook

The USD/CHF daily chart portrays the pair as downward biased after plummeting below the 200-day EMA. However, the USD/CHF has failed to crack below the August 22 swing low at 0.9474, exacerbating a consolidation within 0.9350-0.9600, just below the current location of the 200-day EMA at 0.9636.

Of note, the USD/CHF tested the 0.9350 price level twice, depicting a double bottom formation, which would target a rally toward 0.9800. However, to validate the pattern, the USD/CHF needs to break above 0.9650, exacerbating a rally towards 0.9700 and beyond.

Therefore, the USD/CHF first resistance would be 0.9600. Break above will expose the 200-day EMA at 0.9636, followed by the 38.2% Fibonacci retracement at 0.9659, ahead of the 0.9700 figure. Once cleared, the sellers' next line of defense would be the psychological 0.9800 figure.

USD/CHF Price Analysis: Technical outlook

• USD/CAD is pressured as the commodity complex picks up a bid on China. 
• Fed Jerome Powell's speech will be important for the days ahead.

USD/CAD is under pressure by some 0.24% ahead of the Federal Reserve's chairman Jerome Powell's speech. Meanwhile, the Canadian dollar strengthened on Wednesday, paring back nearly all of its previous day's drop. Despite data suggesting that Canada's economy expanded faster than expected in the third quarter, the loonie on Tuesday fell to its worst level in over four weeks at 1.3645.

The USD/CAD exchange rate is 1.3553 at the time of writing and has fluctuated between a low of 1.3489 and a high of 1.3593. China risks continue to drive markets and signs that the nation would soon reopen its economy have lifted the commodity complex mid-week. The oil market helped CAD on Wednesday, with West Texas Intermediate prices increasing as China started immunizing senior citizens against COVID-19. Authorities announced the lifting of lockdowns in around half of the districts throughout the southern metropolis of Guangzhou on Wednesday afternoon.

Local officials were instructed to withdraw "temporary control orders" or to reclassify some regions as low risk in official announcements. They also declared the end of widespread PCR testing. OPEC+ is also expected to convene on Sunday with the possibility of reducing quotas once further at the same time as a report revealed a significant decline in US oil stocks.

Fed Powell speech eyed

Investors will be watching closely to see whether Fed chair Jerome Powell provides any new signs that the US central bank may be nearing the end of its tightening cycle as his speech is the important event for the day. 

Given the uncertainty around upcoming jobs and inflation reports, Powell may contest the idea that a turn is imminent. However, market expectations may become muddied if different Fed officials' opinions on future monetary policy diverge.

When it meets on December 13–14, the Fed is anticipated to raise rates by an extra 50 basis points. The fed funds rate is predicted by traders to rise to 5.06% in June from its current level of 3.83% before reverting to 4.69% by December 2023.

• US Dollar remains on the back foot against the Australian Dollar.
• Mixed US economic data was ignored by investors focused on Fed’s Powell.
• Inflation in Australia eases lifting pressure on the Reserve Bank of Australia.

The Australian Dollar (AUD) advances steadily in the New York session amidst a mixed sentiment triggered by investors bracing for Jerome Powell’s speech for reasons that could give a leg-up to risk-perceived assets or rock the boat and bolster the US Dollar (USD). After hitting a daily low of 0.6670, the AUD/USD is trading at 0.6709, above its opening price by 0.24%.

Investors remained sidelined due to Powell’s speech

Wall Street’s sentiment remains fragile. Investors get ready for Powell after a slew of Federal Reserve officials paved the way for moderating interest-rate increases and emphasized that the Fed would not pause soon. Speculations for a Fed pivot sent US equities rallying, and the US Dollar weakened, as shown by the US Dollar Index (DXY) dropping from around 110.000 to 105.340.

In the FX space, the AUD/USD recovered after hitting a November low of 0.6272 and climbed toward 0.6800. Nevertheless, failure to decisively conquer the latter exacerbated a pullback to 0.6600 before consolidating around 0.6600-0.6700.

In the meantime, the US economic docket featured the ADP Employment Change report for November, showing that the impact of Fed tightening is finally taking its toll on the labor market. The reading came at 127K new jobs added to the economy, well below estimates. Later, the US Department of Commerce revealed that the US economy in the third quarter grew at a 2.9% pace, vs. 2.6% on its advance release, and smashed the second quarter’s 0.6% contraction.

Softer-than-expected Australia CPI eased pressure on the RBA

Aside from this, in the Asian session, the Australian CPI for October rose by 6.9% YoY, below the 7.6% forecasts. Additional data like Building Permits for October disappointed investors and plunged -6% MoM below estimates.

Therefore, the AUD/USD remains neutral-to-upward biased, but Jerome Powell’s speech could exert downward pressure if his remarks are hawkish. Otherwise, expect further AUD upside if he acknowledges the pace of rate hikes.

AUD/USD Key Technical Levels

Federal Reserve Governor Lisa Cook, who previously said the US central bank is focused on addressing inflation that is "much too high", said inflation remains too high.

However, she said it could soon be time for the US central bank to take its foot off the gas when it comes to its efforts to lower high levels of inflation.

Reuters reported her comments:

"Inflation remains much too high" and "as a result, the Federal Reserve must continue to focus on bringing inflation back down to our 2% target," Cook said in prepared remarks for a speech to the Detroit Economic Club.

"Given the tightening already in the pipeline, I am mindful that monetary policy works with long lags," she said.

As the Fed moves toward an "uncertain" stopping point for its rate rises, "it would be prudent to move in smaller steps," she said, adding that "how far we go, and how long we keep rates restrictive, will depend on observed progress in bringing down inflation."

In her remarks, Cook, one of the Fed's newest governors, said "we have begun to see some improvement in the inflation data," though she added that she "would be cautious about reading too much into one month of relatively favourable data" before deciding the high price pressures that have driven the Fed to act are abating.

Cook said the current pace of wage gains is above levels consistent with the Fed's 2% inflation target. She also said US productivity levels are weak but she hopes they will improve over time, and that the US manufacturing sector is healthy.

US Dollar update

The dollar index, DXY, has fallen to 106.29 on the day from a 20-year high of 114.78 on Sept. 28.  The greenback is on track for its biggest monthly loss since September 2010 as investors look toward the Fed reaching a peak rate early next year.

Ahead of Fed's chairman, Jerome Powell's speech today, the index has reclaimed the 107 level.  Some analysts expect Powell to push back against the notion that a pivot is coming soon given the uncertainty of future jobs and inflation releases.

• Silver price rallies above the 200-day EMA, despite a buoyant US Dollar.
• Federal Reserve Chair Jerome Powell is eyed by traders, remaining on the sidelines.
• Despite mixed US economic data, US Dollar got bid due to month-end flows.

Silver price climbs sharply as sentiment shifted slightly sour, and the US Dollar (USD) remains bid, sparked by month-end flows but also expectations of the posture of the Federal Reserve (Fed) Chair Jerome Powell after the latest economic data. At the time of writing, the XAG/USD is trading at $21.64 a troy ounce after clearing the 200-day Exponential Moving Average (EMA) at $21.31.

Market players on the sidelines waiting for Powell's speech

US stocks remain mixed as traders await Jerome Powell’s speech. Throughout the last couple of weeks, Fed policymakers laid the ground that the central bank would slow the velocity of tightening but reiterated that the Fed has ways to go before pausing rate increases. However, risk-perceived assets rallied, even though no official expressed that the Fed would pause or cut interest rates.

Since the last Federal Reserve meeting, the US Dollar Index (DXY), a gauge of the buck’s value against a basket of peers, tumbled from 110.000 to 105.340, just above the 200-day Exponential Moving Average (EMA). But lately, the greenback is finding its foot and meanders around 106.986, up 0.14% ahead of Powell’s speech.

Elsewhere, the US economic docket featured the ADP Employment Change November report, which showed that the economy added 127K jobs, below 200K estimates, and trailed October’s 239K. Later, the US Department of Commerce reported that Q3’s Gross Domestic Product (GDP) on its second estimate rose by 2.9% vs. 2.6% preliminary reading and crushed Q2’s -0.6% contraction.

In the meantime, US Treasury bond yields are putting a lid on the XAG/USD rally, with the 10-year benchmark note rate at 3.787%, up four basis points. Another factor keeping Silver from trading back above $22.00 is US Real Yields, which sit at 1.62% as of Tuesday.

Silver Price Analysis: Technical outlook

From a daily chart perspective, the XAG/USD is upward biased once the white metal reclaimed the 200-day EMA. Additionally, a symmetrical triangle in an uptrend emerged, suggesting that buyers are in charge, after stepping in around the November lows of around $18.84. The Relative Strength Index (RSI) remains in bullish territory, aiming upwards, with room to spare before turning overbought. Hence, the XAG/USD first resistance would be the $22.00 figure, followed by the November 15 high at $22.24 and the June 6 swing high at $22.51.

The US Bureau of Economic Analysis showed that the US economy grew at an annual rate of 2.9% during the third quarter, surpassing expectations and the previous estimate of 2.6%. Analysts at Wells Fargo, point out that the still modest growth in the core areas of the economy and weakness in real gross domestic income, more clearly demonstrates the slowdown in Q3 economic growth.

Key Quotes: 

“The headline continued to be flattered by a sizable gain in net exports due to an unsustainable gain in exports and decline in import activity.”

“There was also a modest upward revision to real personal consumption expenditures, which now look to have risen at a 1.7% annualized pace in Q3 amid upward revisions to goods consumption specifically. Real final sales to domestic purchasers were thus revised modestly higher to nearly a 1% gain in Q3, demonstrating a still-slow but better pace of growth for the core of the U.S. economy.”

“This release also included the first look at Gross Domestic Income (GDI), which in theory should be equivalent to GDP. The two have diverged recently, but the gap in the year-ago pace of the two narrowed to just 0.4% in Q2, from 1.1% in Q2. Still, the more modest 0.3% gain in the annualized rate of real GDI for Q3 and downward revisions to Q2 which flipped a 0.1% gain to a 0.8% decline provide further evidence the economy is slowing. The headline GDP growth rate continues to overstate strength in Q3, in our view.”

• Mexican peso among worst performers on Wednesday.
• USD/MXN reverses sharply to the 20-day SMA.
• Volatility to remain elevated amid market events and current price levels.

The USD/MXN is rising sharply on Wednesday, having the biggest daily gain in months after posting on Tuesday the lowest daily close since February 2020. The US Dollar is strengthening ahead of Federal Reserve Chairman Jerome Powell speech while the Mexican Peso is the worst among the most traded currencies in the world.

On Tuesday, the USD/MXN bottomed at 19.03 and then started to rise. After a correction during the Asia session, the pair resumed the upside even at a fastest pace. It peaked at 19.45 and remains near the top with the bullish tone intact.

The sharp reversal sent the US Dollar to the 20-day Simple Moving Average that stands at 19.43. A consolidation above would likely open the doors for a test of the next resistance area at 19.60. Although at 19.52 an interment resistance is seen.

The technical outlook has deteriorated significantly for the Mexican Peso. Technical indicators such as Momentum and RSI, at the moment, point north favoring further gains. A slide back under 19.25/30 could change the outlook exposing again the 19.00/05 support area.

USDMXN daily chart

Historically, USD levels have exerted a significant influence on Gold. Analysts at HSBC expect the yellow metal to remain defensive in early 2023, with upside more likely as the year unfolds.

Further tightening by the Fed could weigh on Gold at least into 1Q23

“In an environment where global growth is set to bottom out, rate volatility to peak, and risk sentiment to pick up, the USD is likely to weaken in 2023. A weaker USD should be positive for Gold.”

“Although some easing in inflation pressures in the US have called the pace of the rate increases by the Federal Reserve (Fed) into question, recent comments from Fed officials confirm further tightening. We believe that Fed tightening could remain an important negative for Gold at least into 1Q23.”

“We expect the outlook for underlying physical demand for Gold bars and coins to remain strong, spurred by ongoing inflation concerns and geopolitical and financial markets risks. Jewellery demand should also be steady. Following the sharp increase in central bank demand for Gold in 3Q22, the outlook for official sector demand for Gold may also be resilient in 2023.”

“With all factors considered, we expect Gold to remain defensive in early 2023, with upside more likely as the year unfolds.”

The US Dollar was the clear winner in the G10 universe in 2022. But economists at Commerzbank expect the US currency to weaken in 2023 as the Federal Reserve cuts interest rates.

Fed to lower its key rate again in the second half of 2023

“Our Fed watchers expect the US central bank to lower its key rate again in the second half of 2023 in view of easing inflation and in view of an (albeit mild) recession, with further rate cuts to follow early in 2024.”

“When the Fed cuts its key interest rate again next year, while hitherto less aggressive central banks like the ECB have been able to keep still, the Dollar is likely to weaken again.”

• Investors await the speech of Federal Reserve Chairman Jerome Powell.
• Mixed economic data in the United States calendar provided no support for the US Dollar.
• BoE Pill: Expects inflation to fall in 2^nd half of 2023 and rates to peak below market estimates.
• GBP/USD Price Analysis: Could pull back towards 1.1800 before re-testing the 200-DMA.

The Pound Sterling (GBP) edges lower amidst a mixed sentiment as traders brace for the Federal Reserve (Fed) Chairman Jerome Powell’s speech, eyeing to get some signs of his current posture about interest rates. Also, a busy economic calendar in the United States (US) failed to support the US Dollar (USD). At the time of writing, the GBP/USD is trading at 1.1942 after hitting a daily high of 1.2029.

Federal Reserve Chair Jerome Powell eyed around 18:30 GMT

Sentiment remains fragile, as shown by US equities wavering. Latest Federal Reserve officials commented that the US central bank is ready to moderate the pace of rate hikes but also stated that rates would end higher than September projections. Even the St. Louis Fed President James Bullard commented that the Fed is “ways to go to a restrictive policy,” added that the Fed needs to increase rates until 2023 and foresees the Federal Funds rate (FFR) to peak at around 5% to 7%. Nonetheless, the markets are underpricing Fed policymakers. So any hawkish tilt remarks by Jerome Powell could rock the boat and bolster the US Dollar.

Dismal ADP Employment report kept the US Dollar defensive

Data-wise, the ADP Employment Change report for November disappointed investors as the economy added just 127K jobs below expectations and trailed the 239K  employees hired by private companies in October. Nela Richardson, the Chief Economist at ADP, said the November report suggests that the Federal Reserve’s aggressive policy “is having an impact on job creation and pay gains.”

Economy in the United States in Q3 grew above estimates

Elsewhere, the US  Gross Domestic Producto (GDP) for the third quarter, on its second estimate, increased by 2.9% above forecasts of 2.7%, smashing Q3’s advanced reading of 2.6%. Even though the report sent recession speculations in the United States to the trash can, it failed to bolster the US Dollar, with the GBP/USD remaining trading in the green, well below the daily high of 1.2024.

BoE’s Chief Economist Huw Pill foresees rates to peak lower than the market’s projections

The UK economic docket featured the Bank of England (BoE) Chief Economist Huw Pill. He said inflation is expected to fall quickly in the second half of 2023 while supply chain issues are being solved. Regarding the Bank’s Rate peak, he said that the BoE is expected to hike rates, lower than money market futures expectations of 5.25%. Pill echoed the BoE’s Governor Andrew Bailey’s remark on foreseeing a lower peak for the bank rates at their last monetary policy meeting. Therefore, further GBP weakness is expected.

GBP/USD Price Analysis: Technical outlook

From a daily chart perspective, the GBP/USD remains neutral-to-upward biased once the major could not crack the 200-day Exponential Moving Average (EMA) around  1.2157. Of note, after printing a daily high of 1.2029, shy of the week’s high of 1.2117, the Pound Sterling has fallen sharply, registering fresh weekly lows around  1.1941. The Relative Strength Index (RSI) aims downwards, albeit in bullish territory, suggesting buying pressure is waning. So in the near term, the GBP/USD might pull back before resuming upwards. Therefore, the GBP/USD first support would be the  1.1900 figure. A breach of the latter will expose the November 23 daily low at 1.1872, ahead of the November 21 swing low of 1.1762.

• USD/JPY rises to highest level in a week, holds above 139.50.
• US yields rise following US economic data that includes Q3 GDP and ADP employment.
• Fed chair Powell to speak later on Wednesday at the Brookings Institution.

The USD/JPY is rising on Wednesday before a speech from Federal Reserve (Fed) Chairman Jerome Powell. Following the release of various economic reports from the United States, US yields moved to the upside, supporting the pair that is hovering near daily highs at 139.70, the strongest level in a week.

Overall US data came in mixed, having a not very clear impact on the Dollar. Measured by the DXY, it is falling by 0.05%. The Japanese yen is among the worst performers of the day.

US economic data: mixed numbers

The report published by Automatic Data Processing (ADP) on Wednesday showed that private sector employment in the US rose by 127K in November, below the 200K of market consensus. It was the lowest reading since January 2021.

The US Bureau of Economic Analysis revealed that the US economy grew at an annual rate of 2.9% in the third quarter, above the 2.6% previous estimation. Price indicators were revised higher with the GDP deflator from 4.2% to 4.3%.

Other US economic reports showed the Chicago PMI tumbled from 45.2 to 37.2 in November against expectations of a modest increase. Pending Home Sales fell by 4.6%, a little less than expected.

Overall the numbers were mixed, supporting the idea the labor market continues to slowdown. On Thursday, the key report will be the core Personal Consumption Expenditure Price Index. Friday will be the turn of the official employment report that includes Non-farm payroll and the unemployment rate.

Fed’s Powell ahead

Fed Chair Jerome Powell will deliver a speech at 18:30 GMT at the Brooking Institution on “Fiscal and Monetary Policy on the outlook for the economy, inflation, and the changing labor market”. After his remarks, Powell will be interviewed by David Wessel, director of the Hutchins Center and will take questions.

Market participants will look in Powell’s comments for clues into whether the Fed will slow down its rate hikes. After the latest inflation readings, expectations of a 50 basis points rate hike at the December meeting rose. Also the economic outlook presented from Fed’s chair will be relevant for price action.

Higher yields weighed on JPY

The Japanese yen is among the worst performs on Wednesday hit by higher bond yields. The US 10-year yield is at 3.79%, the highest level since November 23. The German 10-year yield is up at 1.96%. At the same time the Greenback is gaining momentum from the moves in the bond market.

The JPY is not receiving help from the deterioration in market sentiment. The Dow Jones is falling by 0.55% and the S&P drops by 0.22%. The Nasdaq gains 0.31%.

USD/JPY price outlook

The USD/JPY is breaking a key resistance level seen around 139.50. If the US Dollar manages to consolidate above it would point to further gains, with a potential target at the resistance zone near 141.00.

A decline back under 139.50 would suggest a continuation of the current consolidation. On the downside, the critical support is located at 138.50. A daily close below would deteriorate the outlook for the USD, suggesting a test of the November low at 137.52.

USD/JPY daily chart

• US JOLTS Job Openings declined modestly in October.
• US Dollar Index stays in negative territory near 106.50.

The number of job openings declined to 10.3 million on the last business day of October from 10.7 million in September, the US Bureau of Labor Statistics (BLS) reported in its Job Openings and Labor Turnover Summary (JOLTS) on Wednesday. This print came in largely in line with the market expectation.

"Over the month the number of hires and total separations changed little at 6.0 million and 5.7 million, respectively," the publication further read. "Within separations, quits (4.0 million) and  layoffs and discharges (1.4 million) changed little."

Market reaction

The US Dollar Index edged slightly higher with the initial reaction to this report and was last seen losing 0.3% on the day at 106.52.

• The index drops to daily lows near 106.30 on Wednesday.
• Another revision saw GDP expand 2.9% YoY in Q3.
• Chair Powell will speak later in the NA session.

The greenback, when tracked by the USD index (DXY) remains on the defensive above the 106.00 hurdle in the wake of the opening bell in Wall Street on Wednesday.

USD Index now looks at Powell

The index surrenders part of the 3-day advance on the back of the improvement in the risk complex and ahead of the key speech by Chair Powell due later in the NA session.

In addition, the resumption of the downside pressure in the buck comes in tandem with another positive performance of US yields across the curve, which seem to have woken up and add to Tuesday’s gains.

In the US data space, MBA Mortgage Applications contracted 0.8% in the week to November 25 and the ADP Employment Change disappointed expectations after the US private sector created 127K jobs in November vs. 200K forecast. Further data saw the trade deficit widen to $99.0B in October and another revision of the Q3 GDP Growth Rate expect the economy to expand 2.9% YoY. Finally, the Chicago PMI eased to 37.2 in November, Pending Home Sales contracted 4.6% MoM in October and JOLTs Job Openings came at 10.334M in the same month. The Fed’s Beige Book will close the daily calendar later in the session.

Before Powell’s speech, FOMC Governor L.Cook will speak on “The Outlook for Monetary Policy and Observations on the Evolving Economy”.

What to look for around USD

The dollar loses part of the recent shine and returns to the 106.30 zone amidst prevailing cautiousness ahead of results from key fundamentals and the speech by Fed’s Powell.

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: Mortgage Applications, ADP Employment Change, GDP Growth Rate, Goods Trade Balance, Pending Home Sales, Fed Powell, Fed Beige Book (Wednesday) - PCE, Initial Jobless Claims, Personal Income/Spending, Final Manufacturing PMI, ISM Manufacturing, Construction Spending (Thursday) - Nonfarm Payrolls, Unemployment Rate (Friday).

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 0.34% at 106.47 and the breakdown of 105.47 (200-day SMA) would open the door to 105.32 (weekly low November 28) and finally 104.63 (monthly low August 10). On the other hand, the immediate resistance emerges at 107.99 (weekly high November 21) followed by 109.11 (100-day SMA) and then 110.34 (55-day SMA).

The S&P 500 rally is showing tentative signs of stalling. Analysts at Credit Suisse remain of the view strength from October has been a bear market rally and look for a break below 3907/06 to establish a “double top.”

Overshoot to 4127/55 not ruled out

“Whilst we remain on alert for signs of a top, we would still not rule out an overshoot to the downtrend from the beginning of the year and 50% retracement of the 2022 fall at 4127/55, but we continue to look for a top in this 4054/4155 zone. A close above 4155 though may be the first real sign that we may have seen the worst of the sell-off, with resistance seen next at 4312/25.”

“Support stays seen at 3907 initially, below which can now set a small top to ease the immediate upside bias, with support seen next at the 63-day average at 3630. Below 3698 remains needed to suggest the recovery is over and broader downtrend is resuming.”

• EUR/USD trades in a firm note and approaches the 1.0400 zone.
• Extra gains need to clear the 9-month resistance line near 1.0420.

Wednesday’s occasional bullish attempt motivates EUR/USD to trade at shouting distance from the key 1.0400 neighbourhood.

The pair should clear the 9-month resistance line around 1.0420 on a sustainable fashion to catch fresh air and therefore challenge the November high at 1.0496 (November 28) just ahead of the round level at 1.0500.

Above the 200-day SMA (1.0372), the pair’s outlook should remain constructive.

EUR/USD daily chart

Today the focus is very much on Fed Chair Powell who will speak on the economy and labour market. Economists at MUFG Bank note that risks are tilted to the upside for the US Dollar.

Powell in focus

“We fully expect comments that are consistent with previous comments – more needs to be done, inflation risks remain to the upside and the terminal rate will be higher than implied by the dots in September.”

“Key for the US dollar and rates will be whether Powell’s comments are enough to alter notably the expectations for the terminal rate. That level is currently at about 5.00% and the risks in our view firmly lie to the potential for a shift higher that would provide a further catalyst for the reversal of the recent period of USD selling.”

• Gold price climbs to a two-week high on Wednesday amid renewed US Dollar selling.
• Upward revision of the US GDP print offsets dismal ADP report and fails to impress.
• Traders also seem reluctant ahead of Federal Reserve Chair Jerome Powell’s speech.

Gold price gains strong positive traction for the second successive day and climbs to a two-week high, during the early North American session on Wednesday. The momentum, however, stalls near the $1,765 area following the release of the US macro data, though the downside seems limited amid a weaker US Dollar, which tends to boost demand for the Dollar-denominated commodity.

Weaker US Dollar continues to lend support to Gold price

The US Dollar remains on track to post its worst monthly performance since September 2010 amid hopes that the Federal Reserve will soften its hawkish stance in the wake of looming recession risks. The current market pricing indicates a greater chance of a relatively smaller 50 bps rate hike at the next Federal Open Market Committee (FOMC) meeting on December 13-14. This is evident from a softer tone around the US Treasury bond yields, which, in turn, continues to act as a headwind for the Greenback.

Disappointing ADP report does little to impress US Dollar bulls

The intraday US Dollar selling remains unabated following the disappointing release of the ADP report, showing that the US private-sector employers added 127K jobs in November. The headline print was well below the previous month's reading of 239K and 200K anticipated. This, in turn, tempers expectations for any positive surprise from the official jobs report (NFP) on Friday. That said, an upward revision of the United States (US) Gross Domestic Product (GDP) helps offset the disappointment.

Upbeat US GDP report caps gains for Gold price ahead of Powell’s speech

The preliminary report (second estimate) released by the US Bureau of Economic Analysis showed that the economy expanded by 2.9% annualized pace during the third quarter against 2.6% reported previously. This helps limit any deeper losses for the US Dollar and caps Gold price. Traders also seem reluctant to place aggressive bets ahead of Chairamn of the Federal Reserve Jerome Powell's speech, which will be looked upon for clues about future rate hikes and provide a fresh directional impetus to the non-yielding yellow metal.

Technical Outlook

From a technical perspective, any further pullback now seems to find some support near the $1,748 zone (daily low). This is followed by the $1,740-$1,739 zone, which if broken decisively will negate any near-term positive outlook and make Gold price vulnerable. The downward trajectory might then extend to the $1,725 intermediate support, or a nearly two-week low touched last Wednesday, en route to the $1,700 round-figure mark.

On the flip side, momentum beyond the daily top, around the $1,765 area, has the potential to lift Gold price to the $1,770-$1,772 region. Some follow-through strength will be seen as a fresh trigger for bulls and prolong the upward trajectory to the $1,778 region. The next relevant hurdle is pegged near the $1,786 area, or the highest level since mid-August touched earlier this month, above which the XAU/USD could aim to reclaim the $1,800 psychological mark.

Key levels to watch

• The index comes under pressure and fades part of the recent advance.
• The underlying bullish view is underpinned by the 200-day SMA.

Sellers now put the recent upside momentum in DXY to the test and force it to return to the negative territory after three daily gains in a row on Wednesday.

In the meantime, the index manages to put some distance from the always relevant 200-day SMA, today at 105.47.

A drop below this region is expected to shift the outlook to negative and at thus allow for losses to accelerate to, initially, the August low at 104.63 (August 10).

DXY daily chart

• US Q3 GDP growth got revised higher to 2.9%% from 2.6%.
• US Dollar Index stays in red slightly below 106.50.

The United States economy grew at an annual rate of 2.9% in the third quarter, the US Bureau of Economic Analysis reported on Wednesday. This reading came in better than the initial estimate and the market expectation of 2.6%.

"The second estimate primarily reflected upward revisions to consumer spending and nonresidential fixed investment that were partly offset by a downward revision to private inventory investment," the BEA explained in its publication. "Imports, which are a subtraction in the calculation of GDP, decreased more than previously estimated."

Market reaction

The US Dollar Index recovered modestly with the initial reaction to this report and was last seen at 106.47, where it was still down 0.35% on the day.

Gold remains capped by the 200-Day Moving Average (DMA) at $1,797. Strategists at Credit Suisse expect a consolidation phase to emerge from here.

Break above 200DMA needed to open the door to a more meaningful recovery

“Gold holds a minor base but remains capped so far by the crucial 200DMA, currently seen at $1,797 and we expect a consolidation to emerge from here.”

“Below support at $1,729 is needed to ease the immediate upward bias in the range, but with a break back below the 55DMA at $1,688 needed to inject fresh downside momentum into the market again for a retest of the YTD low at $1,614.”

“Above the 200DMA at $1,797 is needed to open the door to a more meaningful recovery for a rise toward the $1,877 June high.”

• Private sector employment in the US rose less than expected in November.
• The US Dollar Index stays in negative territory below 106.50.

The data published by Automatic Data Processing (ADP) showed on Wednesday that private sector employment in the US rose by 127,000 in November. This reading came in weaker than the market expectation for an increase of 200,000. The publication further revealed that annual pay was up 7.6% on a yearly basis in November.

Assessing the findings of the report, "turning points can be hard to capture in the labor market, but our data suggest that Federal Reserve tightening is having an impact on job creation and pay gains,” said Nela Richardson, chief economist, ADP. "In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting and the post-pandemic recovery is stabilizing.”

Market reaction

The US Dollar Index stays on the back foot following this data and it was last seen losing 0.4% on the day at 106.42.

• USD/CAD remains heavily offered on Wednesday and is weighed by a combination of factors.
• Rising crude oil prices underpin the Loonie and exert some pressure amid fresh USD selling.
• Traders now look to the US macro data for some impetus ahead of Fed Chair Powell’s speech.

The USD/CAD pair continues losing ground through the early North American session and retreats further from over a three-week high, around the 1.3645 zone touched the previous day. The downward trajectory drags spot prices back closer to the 1.3500 psychological mark and is sponsored by a combination of factors.

Crude oil prices extend this week's recovery momentum from the YTD low and gain some follow-through traction amid signs of tighter global supply. Furthermore, optimism over a Chinese demand recovery lifts the black liquid to a one-week high, which, in turn, is seen underpinning the commodity-linked Loonie. Apart from this, the emergence of some US Dollar selling exerts some downward pressure on the USD/CAD pair.

The greenback tracks sluggish US Treasury bond yields, weighed down by growing acceptance that the Fed will slow the pace of its policy tightening. In fact, the markets have fully priced in a relatively smaller 50 bps Fed rate hike move in December. This, along with signs of stability in the financial markets, dents demand for the safe-haven buck. The downside for the USD/CAD pair, however, is likely to remain limited.

The likelihood that OPEC+ will leave output unchanged at its upcoming meeting on Sunday could cap the upside for crude oil prices. Moreover, traders might refrain from placing aggressive bearish bets around the USD and prefer to wait for Fed Chair Jerome Powell's speech later during the US session. This, in turn, warrants some caution before positioning for any further depreciating move for the USD/CAD pair.

Ahead of the key event risk, traders will take cues from the US macro releases - the ADP report on private sector employment, Prelim Q3 GDP print and JOLTS Job Openings data. This, along with the US bond yields and the broader risk sentiment, might influence the USD and produce short-term trading opportunities around the USD/CAD pair.

Technical levels to watch

• EUR/JPY rebounds from recent tops and trespasses 144.00.
• Extra upside remains on the cards above the 4-month support line.

EUR/JPY manages to leave behind two daily declines in a row and briefly breaks above the 144.00 barrier on Wednesday.

In case bulls push harder,  the door could open to a potential test of the weekly high at 146.13 (November 23) in the short-term horizon. While above the 4-month support line near 142.00, the near-term outlook for the cross is expected to remain positive.

In the longer run, the cross should keep the bullish view unaltered above the 200-day SMA, today at 138.96.

EUR/JPY daily chart

GBP/USD has regained the 1.2000 level. A break past 1.2075 is needed to open up further gains, economists at Scotiabank report.

Economic challenges for the UK remain significant

“Longer run economic challenges for the UK remain significant but the still relatively weak GBP may be able to ride a little higher on a soft/ softening USD in the near-term.” 

“The broader trend remains higher, however, and the Pound retains some decent underlying bull momentum which should mean decent support on weakness to the low/mid 1.19s.”

“Gains through 1.2075 are needed to lift the GBP tone more obviously in the near-term, however, and that may be a stretch today.”

USD/CNY fell yesterday to around 7.16. Nonetheless, economists at Commerzbank believe that the pair could move back higher towards 7.25.

China will strengthen vaccinations for the elderly

“In a press conference yesterday, Chinese health officials said it will speed up vaccination for the elderly. This was seen as a sign that the authorities will allow for a more flexible approach on the zero-Covid policy and a continued step towards reopening.”

“The health authorities also warned against excessive control measures by local authorities, striking a conciliatory tone towards Covid restrictions even though they did not respond directly to the recent protests. Following the press conference, Zhengzhou lifted lockdowns in main urban areas and instead focused on targeting a long list of buildings under the `high-risk´ category.”

“USD/CNY still has a good chance to rise closer towards 7.25 in the coming weeks or months as the Covid situation remains highly uncertain.”

US ADP jobs report overview

Wednesday's US economic docket features the release of the ADP report on private-sector employment, due at 12:15 GMT. Estimates point to an addition of 200K private-sector jobs in November, down from 239K in the previous month. The data could drive expectations for the official jobs report, popularly known as NFP scheduled for release on Friday.

How could the data affect EUR/USD?

Any positive number would reaffirm the robust US labour market and lifts bets for further policy tightening by the Fed. As Yohay Elam, Senior Analyst at FXStreet explains: “The Federal Reserve and markets want to see the labor market cool down after the reopening-driven boom, which caused substantial shortages. There are still two jobs for each vacant worker. While the pace of hiring has slowed in recent months, there is still a long way to go.” 

Hence, a stronger-than-expected report could lend some support to the US Dollar and attract fresh selling around the EUR/USD pair. Conversely, any disappointment will add to worries about a deeper economic downturn and weigh on investors' sentiment, which, in turn, should act as a tailwind for the safe-haven buck. That said, the immediate market reaction is more likely to remain limited as the focus remains glued to Fed Chair Jerome Powell's speech later during the US session.

Meanwhile, Eren Sengezer, Editor at FXStreet, offers a brief technical overview of the pair and writes: “EUR/USD is fluctuating below the 20-period Simple Moving Average (SMA) on the four-hour chart but struggling to pull away from the 50-period SMA, reflecting the pair's indecisiveness. Additionally, the Relative Strength Index is flat near 50.”

Eren also outlines important technical levels to trade the EUR/USD pair: “On the upside, 1.0390/1.0400 (20-period SMA, psychological level) aligns as first resistance area. In case the pair clears that hurdle and starts using it as support, it could target 1.0470 (static level) and 1.0500 (psychological level, multi-month high set on Monday).”

“The 100-period SMA and the Fibonacci 23.6% retracement of the latest uptrend form critical support at 1.0300. A four-hour close below that level could attract sellers and open the door for an extended slide toward 1.0200 (Fibonacci 38.2% retracement),” Eren adds further.

Key Notes

  •  ADP Jobs Preview: Markets set to find more reasons to sell the Dollar, big beat needed to boost it

  •  EUR/USD Forecast: Euro eyes highly volatile session

  •  EUR/USD climbs to daily highs near 1.0380, focus remains on data, Powell

About the US ADP jobs report

The Employment Change released by the Automatic Data Processing, Inc, Inc is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. So a high reading is traditionally seen as positive, or bullish for the USD, while a low reading is seen as negative, or bearish.

EUR/USD holds range after Eurozone data shows inflation slowing in November. Economists at Scotiabank note that the pair is likely to remain resilient after recent price action.

EUR/USD to remain better supported on moderate dips for now

“Slower headline prices might provide ECB policymakers with the grounds for a slowdown in the pace of tightening – to 50bps – in Dec markets seem to be thinking but double-digit prices and stubborn core inflation will still likely worry the hawks. We look for EUR/USD to remain better supported on moderate dips for now.” 

“The EUR is managing to hold in a relatively tight range around 1.0350 despite the negative price action seen earlier in the week (big, bearish rejection of the 200-day MA). That is no mean feat and suggests some underlying resilience in the EUR at this point.” 

“We spot intraday support at 1.0320, firmer at 1.0240/50. Resistance is 1.0380 and (strong) at 1.0500/10.”

See: ECB to raise interest rates by only 50 bps in December after a decline in Eurozone inflation – Commerzbank

Euroarea flash inflation was 10.0% year-on-year in November, down from 10.6% YoY in October. Data strengthen Commerzbank’s expectation that the ECB will only raise key rates by 50 basis points at its December meeting.

Euro area inflation rate falls surprisingly to 10.0%

“The inflation rate in the euro area declined much more than expected, from 10.6% in October to 10.0% in November. Whether this means that the inflation rate has passed its peak is uncertain in view of the extreme fluctuations in energy prices.”

“Underlying price inflation remains high. The core inflation rate excluding energy, food, alcohol and tobacco remained at 5.0% in November.”

“Today's data increase the likelihood that the ECB will raise its key interest rates by only 50 bps in December.”

Norges Bank just announced that they will reduce their NOK selling. However, Norges Bank NOK sales are only one factor that will influence the Norwegian Krone. More important are developments in global financial markets, according to economists at Nordea.

Norges Bank winds down NOK sales

“Norges Bank winds down their NOK selling to 1.9bn NOK per day until 16. December from 3.7bn NOK/day in November. This change should be good news for the NOK in the short-term but global financial market developments will be decisive for NOK’s path.”

“We remain in the camp that believes markets are too optimistic on inflation and too pessimistic on economic activity ahead – this is why we are not sure that the worst is over for the NOK yet. Our latest call is for EUR/NOK at 10.60 in 3M and we don’t see a need to make major changes to that forecast after today’s Norges Bank announcement.”

“Next year, we expect the development for the NOK to be better. We see EUR/NOK at 10.20 by mid-2023 and as low as 9.75 before end-2023.”

Canadian Q3 GDP was up more than expected. Details were more downbeat however. Economists at Commerzbank maintain a CAD bearish stance.

Mixed data on growth in Q3

“At 2.9% the seasonally adjusted QoQ rise came in well above Bloomberg consensus expectations of 1.5% (both annualised). Looking at the details revealed a fly in the ointment, i.e. gross fixed asset investment and private household consumer spending had fallen.” 

“Everything all told the data signals a not unexpected slowing of economic momentum, which was also confirmed by monthly data. As expected, the economy was able to record a small mom rise in September. The statistical agency’s preliminary estimates for October signalled that it stagnates.”

“In view of the weakening economy the market seems to be lowering its rate hike expectations for the Bank of Canada’s December meeting. The market seems to have priced in a rather smaller rate step of 25 bps.”

“We stick to our projections, which see limited potential for a recovery in CAD against USD medium term.”

• EUR/GBP edges lower in reaction to softer-than-expected Eurozone inflation figures.
• Bets for a series of rate hikes by the ECB limit losses for the Euro and offer support.
• Less hawkish remarks by BoE’s Chief Economist Huw Pill favour bullish traders.

The EUR/GBP cross continues with its struggle to capitalize on the move beyond the mid-0.8600s and attracts some sellers during the first half of the European session on Wednesday. The intraday downtick picks up pace following the release of softer Eurozone consumer inflation figures and drags spot prices to a fresh daily low, around the 0.8620 region in the last hour.

According to the preliminary report published by Eurostat, the annualized Eurozone Harmonised Index of Consumer Prices (HICP) decelerated to a 10.0% YoY rate in November from 10.6% in the previous month. On a monthly basis, the HICP declined by 0.1% in November, missing estimates for a 1.5% rise. The data might have cooled expectations for more aggressive interest rate hikes by the European Central Bank, which, in turn, undermines the shared currency and exerts some pressure on the EUR/GBP cross.

ECB President Christine Lagarde, however, said on Monday that the region’s inflation has not peaked and it risks turning out even higher than currently expected. This points to a series of interest rate hikes ahead, which should act as a tailwind for the Euro. Furthermore, less hawkish remarks by Bank of England (BoE) Chief Economist Huw Pill could help limit the downside for the EUR/GBP cross.

Speaking at an online event, Pill said inflation is expected to fall rapidly in the 2nd half of 2023 and supply chain problems seem to be improving. Pill also pushed back against market expectations and sees a lower peak in the current tightening cycle. The fundamental backdrop supports prospects for an extension of the EUR/GBP pair's recent bounce from the 0.8575-0.8570 support zone. That said, the lack of any meaningful buying warrants some caution for aggressive bullish traders.

Technical levels to watch

EUR/USD trades below the 200-Day Moving Average. Still, economists at Credit Suisse expect the pair to extend its recovery to the 38.2% retracement of the 2021-2022 fall at 1.0612.

Break below 1.0223 needed to mark a minor top

“EUR/USD is undergoing a concerted attempt to remove resistance from its key 200DMA, currently at 1.0380 but we continue to look for a sustained closing break in due course and for further strength to the 38.2% retracement of the entire 2021-2022 downtrend and late June high at 1.0612/15, which we then look to prove tougher resistance. Should strength directly extend though, we see resistance next at 1.0788.”

“Below 1.0223 is needed to mark a minor top to ease the immediate upside bias for a fall back to support at 1.0097/95.”

• EUR/USD reverses the recent weakness and targets 1.0400.
• The dollar looks offered ahead of data, Fed’s Powell.
• EMU Flash Inflation Rate is seen rising 10% YoY in November.

The single currency regains some balance and lifts EUR/USD to daily highs in the 1.0380/85 band on Wednesday.

EUR/USD looks firm ahead of Powell

After three daily pullbacks in a row, EUR/USD prints decent gains and looks to reclaim the 1.0400 neighbourhood on the back of fresh weakness hurting the greenback.

Indeed, the pair marches on a firm foot amidst a flat performance in US and German yields and rising prudence ahead of the speech by Chief Powell later in the NA session.

An interesting calendar in the euro area saw Germany’s Unemployment Change rise by 17K people and the jobless rate tick higher to 5.6%, both prints for the month of November. Additionally, flash figures now see the headline CPI in the broader euro area rise at an annualized 10.0% in November and 5.0% when it comes to the Core CPI.

Across the Atlantic, Chair Powell will speak on “Economic Outlook, Inflation and the Labor Market” and FOMC Governor L.Cook will also speak on “The Outlook for Monetary Policy and Observations on the Evolving Economy”.

More from the US data space will see MBA Mortgage Applications, the ADP Employment Change report, Goods Trade Balance, another revision of the Q3 GDP Growth Rate, Pending Home Sales and the Fed’s Beige Book.

What to look for around EUR

EUR/USD sees its upside bias renewed on Wednesday in response to the fresh downside pressure in the dollar, while expectations ahead of the speech by Fed’s Powell remain on the rise.

In the meantime, the European currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region 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 bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: Germany Unemployment Rate, Unemployment Change, EMU Flash Inflation Rate (Wednesday) - Germany Retail Sales, ECB General Council Meeting, Germany/EMU Final Manufacturing PMI, EMU Unemployment Rate (Thursday) - ECB Lagarde, Germany Balance of Trade (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 0.37% at 1.0367 and faces the next up barrier at 1.0496 (monthly high November 28) ahead of 1.0500 (round level) and finally 1.0614 (weekly high June 27). On the flip side, a breach of 1.0330 (weekly low November 28) would target 1.0222 (weekly low November 21) en route to 1.0037 (100-day SMA).

US Dollar Index closed the first two days of the week in positive territory. Fed Chair Jerome Powell will share his thoughts on the economy and labor market at the Brookings Institute today. Economists at DBS Bank expect Powell to realign markets to the Fed’s rates trajectory.

Powell will stress that rates will only pause in 2023

“Powell will stress that rates will only pause in 2023 and remind markets that the Fed has yet to start an internal debate on where and when rates will peak. Powell should reaffirm the Fed’s intention to lift the 2023 target for rates from the 4.6% pencilled in September in next month’s Summary of Economic Projections.”

“If Powell realigns the market to the Fed’s rate trajectory, the UST 10Y yield should rise above 4% again and pull the USD higher.”

Federal Reserve Chair Jerome Powell’s speech is set to overshadow Eurozone inflation data. In the view of economists at ING, the EUR/USD pair could accelerate its decline on a dip under 1.0300.

Inflation plays second fiddle to Powell

“The impact of the inflation story on the EUR/USD has been, predictably, limited. External factors and Dollar dynamics continue to drive the pair's performance, and we see downside risks today given that Fed Chair Powell is scheduled to speak later.”

“A break below 1.0300 could fuel more bearish momentum, bringing EUR/USD back to the 1.0200/1.0250 levels seen earlier this week.”

The annualized Eurozone Harmonised Index of Consumer Prices (HICP) eased sharply to 10.0% in November vs. October’s 10.6%, the latest data published by Eurostat showed on Monday. The market forecast was for a 10.4% print.

The core figures steadied at 5.0% YoY in November when compared to 5.0% expectations and 5.0% recorded in October.

On a monthly basis, the old continent’s HICP unexpectedly dropped 0.1% in November vs. 1.5% expectations and 1.5% previous. The core HICP stood at 0% this month against the 0.6% expected and 0.6% seen in October.

The Euro area figures are reported a trading day after Germany’s annual inflation for November, which rose by 11.3%, meeting estimates following an 11.6% surge seen in October.

The bloc’s HICP figures hold significance, as it helps investors assess the European Central Bank’s (ECB) monetary policy normalization course. The ECB inflation target is 2%.

Key details (via Eurostat)

“Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in November (34.9%, compared with 41.5% in October), followed by food, alcohol & tobacco (13.6%, compared with 13.1% in October), non-energy industrial goods (6.1%, stable compared with October) and services (4.2%, compared with 4.3% in October).”

EUR/USD reaction

The shared currency is unfazed by the mixed Eurozone inflation data, as EUR/USD preserves intraday gains near 1.0370. The spot is adding 0.36% so far.

• AUD/USD gains positive traction for the second straight day amid renewed USD selling.
• Bets for less aggressive Fed rate hikes and slugging US bond yields weigh on the buck.
• China’s COVID-19 jitters could act as a headwind for the pair ahead of Powell’s speech.

The AUD/USD pair attracts some buying for the second successive day on Wednesday and stick to its gains through the first half of the European session. The pair is currently placed near the top end of its daily trading range, around the 0.6720-0.6725 region, and remains well supported by the emergence of fresh selling around the US Dollar.

The prospects for a less aggressive policy tightening by the Fed and bets for a relatively smaller 50 bps rate hike in December exert some pressure on the US Treasury bond yields. This, along with signs of stability in the financial markets, weighs on the safe-haven greenback and offers support to the risk-sensitive Aussie. The intraday uptick, meanwhile, seems rather unaffected by softer Australian consumer inflation figures and Chinese PMI.

The Australian Bureau of Statistics reported that the domestic Consumer Price Index (CPI) rose 6.9% during the 12 months to October, missing consensus estimates for a reading of 7.4%. This was seen as a hint that inflation might be peaking, which could mean that interest rates will not have to rise as far as expected. Furthermore, official data from China showed that manufacturing and services activity shrank to seven-month lows in November.

The disappointing data, however, was offset by speculation that the Chinese government will scale back its strict anti-COVID policies to prevent more protests. That said, concerns about economic headwinds stemming from a new COVID-19 outbreak in China should keep a lid on any optimism in the markets. This, in turn, might hold back traders from placing bullish bets around the AUD/USD pair ahead of Fed Chair Jerome Powell's scheduled speech.

Investors will look for fresh clues about the future rate-hike path, which will influence the USD and provide some impetus to the AUD/USD pair. In the meantime, traders on Wednesday will take cues from the US economic docket, featuring the release of the ADP report on private-sector employment, the Prelim Q3 GDP report and JOLTS Job Openings data. This, along with the broader risk sentiment, might produce short-term trading opportunities.

Technical levels to watch

In the view of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, USD/CNH should keep the trade within the 7.100-7.2300 range for the time being.

Key Quotes

24-hour view: “We highlighted yesterday that USD is unlikely to advance further and expected it to ‘trade between 7.2000 and 7.2500’. The subsequent outsized selloff came as a surprise as USD plunged to a low of 7.1347 before recovering. The rapid drop appears to be overdone and USD is unlikely to weaken much further. For today, USD is more likely to trade between 7.1300 and 7.2200.”

Next 1-3 weeks: “Our view from yesterday (29 Nov, spot at 7.2350) that “there is room for USD to test major resistance at 7.2800” was invalidated quickly as USD plummeted below our ‘strong support’ level of 7.1750 (low has been 7.1347). The choppy price actions have resulted in a mixed outlook and USD could trade within a broad range of 7.1000/7.2300 for the time being.”

• The index fades part of the recent advance and revisits 106.30.
• The ADP report and another revision of Q3 GDP come next.
• Markets’ attention will also be on the speech by Chair Powell.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main competitors, comes under pressure and returns to the low-106.00s on Wednesday.

USD Index focuses on data, Powell

The index now faces some selling pressure and leaves behind three consecutive sessions with gains against the backdrop of the resumption of the appetite for the risk-associated universe.

The so far downtick in the dollar comes in line with the lack of traction in US yields across the curve, which keep unchanged the side-lined theme in place since mid-November.

The greenback, in the meantime, is predicted to remain under scrutiny on Wednesday in light of key data releases due later in the NA session, as well as the speech by Chief Powell on “Economic Outlook, Inflation and the Labor Market”.

Indeed, the US calendar includes the usual MBA Mortgage Applications, the ADP Employment Change report, Goods Trade Balance, another estimate of the Q3 GDP Growth Rate, Pending Home Sales and the Fed’s Beige Book.

In addition, FOMC Governor L.Cook will speak on “The Outlook for Monetary Policy and Observations on the Evolving Economy”.

What to look for around USD

The dollar loses part of the recent shine and returns to the 106.30 zone amidst prevailing cautiousness ahead of results from key fundamentals and the speech by Fed’s Powell.

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: Mortgage Applications, ADP Employment Change, GDP Growth Rate, Goods Trade Balance, Pending Home Sales, Fed Powell, Fed Beige Book (Wednesday) - PCE, Initial Jobless Claims, Personal Income/Spending, Final Manufacturing PMI, ISM Manufacturing, Construction Spending (Thursday) - Nonfarm Payrolls, Unemployment Rate (Friday).

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 0.34% at 106.47 and the breakdown of 105.47 (200-day SMA) would open the door to 105.32 (weekly low November 28) and finally 104.63 (monthly low August 10). On the other hand, the immediate resistance emerges at 107.99 (weekly high November 21) followed by 109.11 (100-day SMA) and then 110.34 (55-day SMA).

Within the span of four days the Yuan weakened from 7.14 to 7.26, and then rebounded to 7.18. Economists at Credit Suisse revise their USD/CNH forecast range higher to 7.05-7.35 (from 6.90-7.20).

Growth outlook remains challenging

“China risk sentiment continues in ‘roller coaster’ fashion, affirming our prior view that China's reopening is not a straight line.”

“We think trend declines in oil and CNH since mid-November reflect the more sobering reality of a possible global recession. Amidst this backdrop, we revise our USD/CNH forecast range higher to 7.05-7.35 (from 6.90-7.20).”

EUR/USD moves sideways at around 1.0350. The pair could test the 200-Day Moving Average around 1.0380 if Federal Reserve Chairman Jerome Powell tones down his hawkish comments, economists at Société Générale report.

Tactics in FX have shifted to selling US Dollar rallies since the middle of October

“Euro bulls may have another go to reclaim the 200 DMA if Powell tones down his hawkish comments of the FOMC press conference four weeks ago.”

“Tactics in FX have shifted to selling Dollar rallies since the middle of October and we suspect pockets of buying on a hawkish reprise of the FOMC press conference four weeks ago could be short-lived and insufficient to steer the Dollar back towards the highs.”

“Eurozone flash inflation for November may surprise to the downside for headline after friendlier numbers for Spain and Germany yesterday and will confirm that the peak is probably behind us. However, the sting could be in the tail with core potentially again disappointing. Be prepared for yesterday’s decline in German 10y real rates to reverse if core CPI bucks the forecast of our economists for a fall to 4.8% YoY.”

See – Eurozone HICP Preview: Forecasts from six major banks, inflation may have not peaked yet

Considering the ongoing price action, USD/JPY could face extra weakness in the next few weeks, suggest UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “We expected USD to “trade sideways within a range of 138.20/139.30” yesterday. However, USD traded within a wider range than expected (137.86/139.35) before settling at 138.68 (-0.19%). Momentum indicators are “flattish” and we continue to expect USD to trade sideways, expected to be within a range of 138.00/139.40.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (29 Nov, spot at 138.75). As indicated, while further USD weakness is not ruled out, downward momentum has waned and this combined with oversold conditions suggests the chance of USD dropping to the next support at 137.00 is not high. Overall, only a break of 139.60 (no change in ‘strong resistance’ level) would indicate that USD is not weakening further.”

• GBP/USD regains some positive traction on Wednesday amid renewed USD selling bias.
• Bets for less aggressive Fed rate hikes and slugging US bond yields weigh on the buck.
• Bulls seem rather unaffected by dovish remarks from the BoE Chief Economist Huw Pill.
• Traders now look to US macro data for some impetus ahead of Fed Chair Powell’s speech.

The GBP/USD pair attracts some buying on Tuesday and maintains its bid tone through the first half of the European session. The pair is currently placed near the daily peak, with bulls now looking to build on the momentum beyond the 1.2000 psychological mark.

The US Dollar edges lower amid a softer tone surrounding the US Treasury bond yields and turns out to be a key factor offering some support to the GBP/USD pair. Growing acceptance that the Fed will slow the pace of its policy tightening and deliver a relatively smaller 50 bps rate hike in December act as a headwind for the US bond yields. Apart from this, signs of stability in the financial markets further seem to undermine the safe-haven greenback.

That said, uncertainty over the Chinese government's intention to scale back its strict zero-COVID policies, despite increasing public protests, continues to weigh on investors' sentiments. This, in turn, should lend some support to the buck ahead of Fed Chair Jerome Powell's speech later during the US session. Investors will look for fresh clues about the future rate hike path, which will play a key role in influencing the USD price dynamics.

In the meantime, the less hawkish remarks by Bank of England (BoE) Chief Economist Huw Pill could keep a lid on any further gains for the GBP/USD pair. Speaking at an online event, Pill said inflation is expected to fall rapidly in the 2nd half of 2023 and supply chain problems seem to be improving. Pill also pushed back against market expectations and sees a lower peak in the current tightening cycle. This, in turn, warrants caution for bullish traders.

Traders now look forward to the US economic docket, featuring the ADP report, Prelim Q3 GDP report and JOLTS Job Openings data. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the GBP/USD pair.

Technical levels to watch

• German Unemployment Rate rose slightly to 5.6% in November.
• EUR/USD holds higher ground at around 1.0370 after the downbeat German data.

Germany’s Unemployment Rate came in slightly higher at 5.6% in November, the latest data published by Destatis showed on Wednesday. The market consensus was for a 5.5% reading.

The Unemployment Change arrived at 17K in the reported period, up from 8K in August and against expectations of 13K.

Market reaction

The EUR/USD pair remains elavated near-daily highs after the data, last seen trading at 1.0370, adding 0.41% on a daily basis.

Open interest in natural gas futures markets rose by more than 2K contracts after two daily drops in a row on Tuesday, according to preliminary readings from CME Group. In the same line, volume went up for the second consecutive day, now by around 9.1K contracts.

Natural Gas: Next on the upside comes $7.60

Tuesday’s continuation of the weekly upside in natural gas prices was amidst rising open interest and volume, which is indicative that further gains remain in the pipeline in the very near term. Against that, the commodity still faces the next up barrier at the November high at $7.60 per MMBtu (November 23).

Bank of England (BoE) Chief Economist Huw Pill is now making some comments on the central bank’s interest rate outlook.

Key quotes

UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang noted AUD/USD could extend the 0.6600-0.6760 range in the next weeks.

Key Quotes

24-hour view: “We expected ‘further AUD weakness’ yesterday. However, it soared to 0.6749 before dropping back down quickly. The price actions appear to be part of a consolidation phase. In other words, AUD is likely to trade sideways today, expected to be between 0.6635 and 0.6730.”

Next 1-3 weeks: “Yesterday (29 Nov, spot at 0.6655), we highlighted that downward momentum is building and held the view that AUD is likely to trade with a downward bias towards 0.6585. Our view was invalidated quickly as AUD popped above ‘strong resistance’ level of 0.6740 (high of 0.6749) before dropping sharply. The build-up in downward momentum has faded and AUD is likely to consolidate and trade between 0.6600 and 0.6760 for now.”

Bank of England (BoE) Chief Economist Huw Pill said on Wednesday that “inflation is expected to fall rapidly in the second half of 2023.”

Further comments

“Demand is easing as household incomes are squeezed.”

“UK labor market remains very tight.”

“Wage growth is not consistent with 2% inflation goal.”

“Supply chain problems seem to be improving.”

“Much of the fiscal tightening starts beyond the BoE horizon.”

Market reaction

GBP/USD is unperturbed by these comments, consolidating gains at around 1.1970, up 0.14% on the day.

The next clear catalyst on the agenda is a speech by Fed Chair Powell. Economists at ING believe that Powell will remind the market of the central bank's hawkish determination, supporting the Dollar.

Macro environment continues to favour the USD

“We would say that Chair Powell has recently shown to be at the more hawkish end of the spectrum and that tonight’s event risk is a positive one for the Dollar.”

“Dollar price action after Chair Powell’s speech should also tell us something about FX positioning. If the Dollar fails to rally on a hawkish speech it may continue to tell us that the market is caught long Dollars at higher levels and that some further consolidation may be due into December.”

“For the time being, we think the macro environment continues to favour the USD and see Powell’s speech, the October PCE price data (Thursday) and November jobs data (Friday) as upside risks to the Dollar.”

In its latest yearly outlook report, economists at Citi Group said that they expect global growth to slow to below 2% in 2023.

Additional takeaways

“Gas shock likely to push Euro area, UK into recession before the end of 2022.”

“For 2023, Citi sees US GDP growth of 0.7% and China GDP growth of 5.6%.”

“For 2023 Citi sees GDP contracting 0.4% in the Euro area and 1.5% in the UK.”

“Citi sees 2023 US headline inflation at 4.8%; sees the Fed terminal rate between 5.25-5.5%”

• USD/CAD edges lower on Wednesday amid the emergence of some selling around the USD.
• Bets for less aggressive Fed rate hikes, a positive risk tone weighs on the safe-haven buck.
• A softer tone around Crude Oil prices undermines the Loonie and helps limit the downside.
• Traders now look to the US macro data for some impetus ahead of Fed Chair Powell’s speech.

The USD/CAD pair comes under some selling pressure on Wednesday and retreats further from over a three-week high, around the 1.3645 region touched the previous day. The intraday downtick drags spot prices below the mid-1.3500s during the early part of the European session and is sponsored by a modest US Dollar downtick.

A combination of factors keeps the USD bulls on the defensive, which, in turn, is seen exerting some downward pressure on the USD/CAD pair. Investors seem convinced that the Fed will slow the pace of its policy tightening and have been pricing in a relatively smaller 50 bps lift-off in December. This is evident from a softer tone around the US Treasury bond yields, which, along with stability in the equity markets, weigh on the safe-haven buck.

The downside for the USD/CAD pair, however, seems cushioned amid a modest intraday downtick in Crude Oil prices, which tends to undermine the commodity-linked Loonie. Worries that fresh COVID-19 curbs in China will dent fuel demand overshadow speculations that OPEC will announce more supply cuts at its meeting on Sunday. This, in turn, fails to assist the black liquid to capitalize on this week's solid recovery move from the YTD low.

Furthermore, traders are likely to refrain from placing aggressive bets and prefer to wait for Fed Chair Jerome Powell's speech later during the US session. In the meantime, the US economic data - the ADP report on private-sector employment, Prelim Q3 GDP report and JOLTS Job Openings - might provide some impetus to the USD/CAD pair. Traders will further take cues from Oil price dynamics to grab short-term opportunities.

Technical levels to watch

This morning, market focus will be on the Euro and inflation data for November. What might be the FX market’s take on the data? Downside surprise could drag EUR/USD down to 1.03, economists at Commerzbank report.

Prices are decisive

“If the data were to surprise to the downside the rate hike expectations for December might ease, which would provide a dampener for the Euro. A slide towards 1.03 would be possible.”

“If the data comes in above market expectations this is likely to support the hawks on the ECB board who have already been quite vociferous over the past few days and have caused the market to trend more towards a 75bp step again, which would support the Euro.”

“Surprisingly high inflation data from the eurozone combined with a US labour market report (ADP index published today, labour market report on Friday) that might show first signs of a slowing might catapult EUR/USD significantly above 1.04 again.”

See – Eurozone HICP Preview: Forecasts from six major banks, inflation may have not peaked yet

GBP/USD closed below 1.2000 on Tuesday. The pair could challenge the 1.1800 level as Fed Chair Jerome Powell’s speech may support the greenback, economists at ING report.

Lack of domestic drivers

“Yesterday’s testimony by Bank of England Governor Andrew Bailey did not yield any market-moving headlines. Today we’ll hear from Chief Economist Huw Pill, who recently pushed back against a 75 bps hike and may therefore keep BoE rate expectations in check.”

“Cable to test 1.1800 as Powell’s speech may support the Dollar today.”

• Silver seems to struggle to capitalize on its modest intraday uptick on Wednesday.
• Acceptance above the 200-hour SMA supports prospects for some meaningful gains.
• A sustained break below the $21.00 mark is needed to negate the positive outlook.

Silver edges higher on Wednesday, albeit lacks bullish conviction and remains below the overnight swing high through the early European session. The white metal is currently placed around the $21.30-$21.35 area and so far, has managed to hold above the 200-hour SMA.

From a technical perspective, the overnight goodish intraday rally from static support just below the $21.00 mark favours bullish traders. Furthermore, positive oscillators on hourly/daily charts support prospects for some meaningful intraday upside for the XAG/USD.

That said, any subsequent move up might continue to confront stiff resistance near the $21.60-$21.70 supply zone. Some follow-through buying should allow the XAG/USD to reclaim the $22.00 round-figure mark and retest a five-month high, around the $22.25 zone.

On the flip side, the 200-hour SMA, currently around the $21.15 area, is likely to protect the immediate downside ahead of the $21.00-$20.90 strong support. A convincing break below the latter could negate the positive outlook and shift the bias in favour of bearish traders.

The XAG/USD might then accelerate the downfall to the $20.60-$20.55 area before eventually dropping to challenge the $20.00 psychological mark. The downward trajectory could further get extended towards a strong horizontal resistance breakpoint, around the $19.60 region.

Silver 1-hour chart

Key levels to watch

CME Group’s flash data for Crude Oil futures markets noted traders added around 5.4K contracts to their open interest positions on Tuesday, reversing the previous day’s pullback. Volume, instead, reversed the prior build and shrank by around 121.4K contracts.

WTI: Downside still targets the $70.00 mark

Prices of the WTI Crude Oil rebounded markedly on Tuesday amidst rising open interest, which opens the door to potential gains in the very near term. Despite the bounce, Oil remains well under pressure and extra losses could now revisit the key $70,00 mark per barrel sooner rather than later.

GBP/USD now faces some near-term consolidation within 1.1850-1.2080, according to UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday that the ‘oversold weakness in GBP could extend to 1.1915 before stabilization is likely’. Our expectation did not materialize as GBP rose to 1.2062 before dropping back down to end the day little changed at 1.1953 (-0.04%). Downward momentum appears to be building, albeit tentatively. As long as GBP does not move above 1.2020 (minor resistance is at 1.1990), GBP is likely to trade with a downward bias today. However, any weakness is unlikely to challenge the major support at 1.1850 (there is another support at 1.1915).”

Next 1-3 weeks: “Our update from yesterday (29 Nov, spot at 1.1965) is still valid. As highlighted, the recent buildup in upward momentum has faded. GBP appears to have moved into a consolidation phase and is likely to trade within a range of 1.1850/1.2080. Looking ahead, a clear break of 1.1850 could signal a deeper drop in GBP.”

The US Dollar Index has now dropped around 7.5% from a multi-decade peak in late September. But the US Dollar should benefit from renewed bouts of risk aversion, along with shifting market views on Fed policy, accoding to economists at UBS.

EUR/USD to drop back to 0.96 by March-2023

“During 2023, the US rate hike cycle is likely to end, and the US Dollar should weaken when the cycle draws to a close. However, while the Dollar did not benefit from the risk-off mood at the start of this week, a further burst of strength is likely in the coming months.”

“The decline in US inflation may be less smooth than investors appear to be assuming, and setbacks on inflation could revive concerns over the extent of monetary tightening.”

“Downside risks for the global economy could also cause renewed safe-haven flows into the Dollar.”

“We expect the Euro to fall back to 0.96 versus the US Dollar by March, down from 1.04 at present.”

Considering advanced prints from CME Group for gold futures markets, open interest prolonged the decline and shrank by around 3.5K contracts on Tuesday. Volume followed suit and decreased by nearly 117K contracts.

Gold points to extra range bound

Tuesday’s uptick in gold prices came on the back of shrinking open interest and volume, removing some strength from the continuation of the uptrend in the very near term. That said, there is still scope for further consolidation, while the weekly high at the $1,763 (November 28) emerges as the immediate hurdle.

• USD/JPY lacks any firm direction and seesaws between tepid gains/minor losses on Wednesday.
• Sluggish US bond yields keep the USD bulls on the defensive and act as a headwind for the pair.
• The Fed-BoJ policy divergence continues to lend support ahead of US data and Powell’s speech.

The USD/JPY pair struggles to capitalize on its modest intraday uptick on Wednesday and faces rejection near the 139.00 mark. Spot prices drop to a fresh daily low during the early European session, though manage to bounce back above mid-138.00s in the last hour.

The US Dollar remains on the defensive amid a modest downtick in the US Treasury bond yields and turns out to be a key factor acting as a headwind for the USD/JPY pair. Despite the recent hawkish remarks by Federal Reserve policymakers, investors seem convinced that the US central bank will slow the pace of its policy tightening. In fact, the markets have fully priced in a relatively smaller 50 bps Fed rate hike in December, which, in turn, is seen exerting pressure on the US bond yields and the greenback.

Apart from this, worries about the worsening COVID-19 situation drive some haven flows towards the Japanese Yen and contributes to capping the USD/JPY pair. The downside, however, remains cushioned amid a more dovish stance adopted by the Bank of Japan (BoJ), which continues to undermine the JPY. In fact, BoJ Governor Haruhiko Kuroda said earlier this month that the central bank will stick to its monetary easing to support the economy and achieve the 2% inflation target in a stable fashion. In contrast, the Fed is widely expected to continue to raise borrowing costs to combat stubbornly high inflation.

Hence, the market focus will remain glued to Fed Chair Jerome Powell's scheduled speech, which will be scrutinized for clues about future rate hikes. This will play a key role in influencing the USD price dynamics and provide some meaningful impetus to the USD/JPY pair ahead of the key US jobs data (NFP) on Friday. In the meantime, traders on Wednesday will take cues from the release of the US ADP report, Prelim US Q3 GDP report and JOLTS Job Openings data. This, along with the US bond yields and the broader risk sentiment, should allow traders to grab short-term opportunities around the major.

Technical levels to watch

• EUR/GBP teases confirmation of a bullish chart pattern, reverses the previous day’s losses.
• 200-SMA adds to the upside filters, 0.8570 restricts short-term downside.
• RSI, MACD suggests further upside momentum toward the monthly high.

EUR/GBP picks up bids to reverse the previous day’s losses around 0.8650 during the initial European session on Wednesday.

In doing so, the cross-currency pair extends Friday’s rebound from the lowest levels since September while poking the neckline of a short-term inverse head-and-shoulders (H&S) bullish chart formation.

It’s worth observing that the upward-sloping RSI (14), not overbought, joins the bullish MACD signals to suggest a clear break of the 0.8660 hurdle.

Following that, the 200-SMA level of 0.8685 could probe the advances toward the theoretical target surrounding the monthly high near 0.8830.

On the contrary, pullback moves remain elusive unless staying beyond the latest swing low of 0.8607.

Even so, the lows marked during late October and in the last week, around 0.8570, appear a tough nut to crack for the EUR/GBP bears.

In a case where the pair remains weak past 0.8570, September’s bottom near 0.8565 may act as a buffer as sellers aim for the August 19 peak of 0.8511.

Overall, EUR/GBP is likely to remain firmer and can extend the latest recovery as the inverse H&S formation joins upbeat oscillators, namely the RSI and MACD.

EUR/GBP: Four-hour chart

Trend: Further upside expected

In the opinion of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, EUR/USD is now expected to trade between 1.0260 and 1.0430 in the next weeks.

Key Quotes

24-hour view: “Yesterday, we held the view that EUR ‘could drop to 1.0300’. However, EUR traded between 1.0318 and 1.0394 before closing slightly lower at 1.0327 (-0.10%). We continue to see downside risk for EUR even though the lackluster downward momentum suggests EUR is unlikely to challenge the major support at 1.0260. Resistance is at 1.0360, followed by 1.0390.”

Next 1-3 weeks: “There is no change in our view from yesterday (29 Nov, spot at 1.0345). As highlighted, the recent upward momentum has more or less dissipated. For the time being, EUR is likely to trade between 1.0260 and 1.0430. Looking ahead, if EUR breaks clearly below 1.0260, it could lead to a deeper drop.”

Gold price is looking to build on Tuesday’s recovery gains above $1,750. Federal Reserve Chair Jerome Powell’s speech is set to hog the limelight. XAU/USD could yield a triangle breakout if Powell backs a dovish pivot, FXStreet’s Dhwani Mehta reports.

XAU/USD eyes triangle breakout on Federal Reserve Chair Powell

“Gold is on the verge of yielding a symmetrical triangle breakout on the four-hour chart. XAU/USD needs a  four-hour candle stick close above the falling trendline resistance at $1,759 to confirm the upside break. If Federal Reserve Chair Jerome Powell backs the dovish pivot, Gold bulls could see the much-needed boost.”

“A fresh upswing toward the $1,770 round figure cannot be ruled out. The next upside target is envisioned at the multi-month highs at $1,787.”

“On the flip side, there is strong support around the $1,750 level, where the 21, 50 and 100-Simple Moving Averages (SMA) converge. A breach of the latter will expose the rising trendline support at $1,745. A sustained move below that support could validate a downside break from the symmetrical triangle, opening floors for deeper declines toward the $1,730 round figure.”

FX option expiries for Nov 30 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0250 493m
• 1.0300 1.2b
• 1.0350 504m
• 1.0380 1.1b
• 1.0415 1.0b
• 1.0500 855m

- GBP/USD: GBP amounts        

• 1.2050 941m

- USD/JPY: USD amounts                     

• 137.25 805m
• 138.50 465m
• 140.25 810m
• 141.00 536m

- USD/CHF: USD amounts        

• 0.9440 355m
• 0.9485 320m

- AUD/USD: AUD amounts  

• 0.6600 577m
• 0.6735 708m
• 0.6775 331m
• 0.6850 509m

- USD/CAD: USD amounts       

• 1.3510 385m
• 1.3550 380m

Here is what you need to know on Wednesday, November 30:

Markets stay relatively quiet on the last trading day of November as investors move to the sidelines while awaiting key data releases. After having closed the first two days of the week in positive territory, US Dollar Index fluctuates in a tight range near 106.50 and the US stock index futures trade virtually unchanged on the day. Eurostat will release the Harmonised Index of Consumer Prices (HICP) data for November and the ADP will publish the private sector employment report for the US. Third-quarter US Gross Domestic Product (GDP) growth (second estimate) and the Federal Reserve's Beige Book will also be looked upon for fresh impetus. Most importantly, FOMC Chairman Jerome Powell will speak for the last time before the Fed goes into a two-week blackout period on Saturday. 

Earlier in the day, the data from China showed that the NBS Manufacturing PMI declined to 48 in November from 49.2 in October and the Non-Manufacturing PMI dropped to 46.7 from 48.7. These prints revealed that the business activity continued to contract at an accelerating pace. On Tuesday, China's National Health Commission announced that they will strengthen vaccinations for the elderly and officials said that Guangdong province will allow close contacts of Covid cases to quarantine at home. Investors are having a difficult time figuring out whether China will move away from its zero-Covid policy. Reflecting the indecisiveness, the Shanghai Composite Index was last seen losing 0.15% on the day and Hong Kong's Hang Seng Index was up 0.3%.

The Wall Street Journal and Reuters both reported on Tuesday that OPEC+ was likely to maintain its current output strategy when the group meets on December 4. The barrel of West Texas Intermediate (WTI) gained more than 3% on Tuesday before going into a consolidation phase near $79 early Wednesday. Rising crude oil prices, however, failed to help the Canadian Dollar find demand.

USD/CAD reached its highest level in nearly four weeks above 1.3600 on Tuesday after Statistics Canada reported that the real GDP expanded at an annual rate of 2.9% in the third quarter, missing the market expectation of 3.5% by a wide margin. The pair was last seen moving sideways slightly below 1.3600.

USD/JPY is having a difficult time making a decisive move in either direction and continuing to fluctuate below 139.00 mid-week. The data from Japan revealed that Industrial Production decreased by 2.6% on a monthly basis in October following September's 1.7% decline.

EUR/USD closed modestly lower after having met resistance near 1.0400 on Tuesday. The pair moves sideways at around 1.0350 in the early European morning.

Eurozone Inflation Preview: EUR/USD fate hinges on confirmation of peak inflation.

GBP/USD turned south during the American trading hours on Tuesday and closed the day below 1.2000. While testifying before the Lords Economic Affairs Committee, Bank of Governor Andrew Bailey acknowledged that the UK labour market has turned out to be much more constrained than they thought.

Gold price gathered bullish momentum and climbed toward $1,760 on Tuesday on renewed optimism about China further easing restrictions. Rising US Treasury bond yields, however, caused XAU/USD to erase a portion of its daily gains. The pair holds its ground early Wednesday and posts small daily gains slightly above $1,750.

Bitcoin gathered bullish momentum during the Asian trading hours and climbed above $1,700 before retreating below that level into the European session. Ethereum gained more than 4% and managed to extend its rally toward $1,300 early Wednesday. ETH/USD was last seen rising 4.5% on the day at $1,270.

• NZD/USD remains firmer for the second consecutive day.
• Kiwi bulls ignore downbeat NZ Building Permits, China PMIs amid cautious optimism.
• US Dollar snaps three-day uptrend as traders await Fed Chair Powell’s first speech since November meeting.

NZD/USD follows the other Antipodeans to cheer the US Dollar weakness while refreshing intraday high near 0.6235 during the initial hours of Wednesday’s European trading. In doing so, the Kiwi pair pays little heed to the downbeat statistics at home and in China while benefitting from the market’s cautious optimism surrounding Covid conditions.

New Zealand’s Building Permits slumped seasonally adjusted 10.7% MoM in October versus a 2.4% expected increase and 3.6% prior growth. Also, China’s officials NBS Manufacturing PMI dropped to 48.0 in November versus 49.2 market forecasts and 49.0 prior whereas the Non-Manufacturing PMI declined to 46.7 from 48.7 prior and 51.7 anticipated.

On the positive side, a second consecutive daily fall in China’s covid numbers from an all-time high backed the nation’s optimism over tackling the pandemic woes, which in turn favored NZD/USD bulls due to New Zealand’s trading ties with China.

Elsewhere, US Dollar Index (DXY) snap a four-day uptrend as it drops to 106.55, down 0.25% intraday at the latest. The Greenback’s gauge versus the six major currencies traces downbeat US 10-Year Treasury bond yields, down two basis points to 3.72%, to print the latest losses. The DXY’s latest losses could also be linked to the softer US data as the Conference Board (CB) Consumer Confidence Index dropped to 100.2 in November versus 102.2 prior (revised down from 102.5).

Against this backdrop, S&P 500 Futures print mild gains even as Wall Street closed mixed while the Asia-Pacific stocks grind higher.

Moving on, NZD/USD traders should pay attention to the US Federal Reserve (Fed) Chairman Jerome Powell’s first speech since the November meeting as the policymaker is likely to defend the central bank’s rate hike trajectory even if the easy lift stays on the table. Also important to watch will be an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the US Gross Domestic Product (GDP) for the third quarter (Q3).

It’s worth mentioning that the Reserve Bank of New Zealand’s (RBNZ) hawkish bias defends the NZD/USD bulls as the policymakers turn down the need of easing rate hikes by citing inflation fears.

Technical analysis

Unless rising back beyond the previous support line from November 10, around 0.6280 by the press time, NZD/USD sellers remain hopeful of revisiting the 21-DMA support near 0.6080.

• Oil prices are displaying sideways auctions ahead of Fed Powell’s speech.
• The US API has reported a drawdown in oil inventories consecutively for the third time.
• Russia is not interested in supplying oil at a new price cap in any case.
• OPEC+ is expected to accelerate supply cuts to offset recent weakness in oil prices.

West Texas Intermediate (WTI), futures on NYMEX, is displaying back and forth below the critical resistance of $80.00 in the early European session. The oil prices have been sidelined by the market participants as investors are awaiting the speech from Federal Reserve (Fed) chair Jerome Powell for fresh impetus.

The black gold has turned sideways after a stellar responsive buying action near $74.00 witnessed on Monday. The recent rally and bullish projections for oil prices bank upon significant pressure on the US Dollar ahead of Fed Powell’s speech. Investors are keen to know whether the Fed is firmly considering the option of a deceleration in the interest rate hike pace after a slowdown in October’s inflation.

Meanwhile, a significant plunge in oil stockpiles figured by the United States American Petroleum Institute (API) for the week ending November 25 has also strengthened oil prices. The oil inventories have dropped by 7.85 million barrels. This is the third consecutive drawdown in oil inventories reported by the API, which has infused fresh blood in the oil bulls. However, investors would wait for the official oil inventory report by the Energy Information Administration (EIA) for meaningful cues.

Meanwhile, headlines from Russia that the nation won’t provide oil under price cap in any case, cited by the country’s Deputy Prime Minister Alexander Novak, have bolstered the case of supply worries.

Also, expectations for deepening supply cuts by the OPEC+ in its meeting in December are keeping reins in oil bulls.  The oil cartel announced that the promise of a two million barrels per day production cut will extend to the end of CY2023. Considering the recent weakness in oil prices, the oil mafia could accelerate production cuts further.

• EUR/USD prints the first daily gains in four, stays inside short-term trading range.
• Bearish MACD signals, steady RSI keep sellers hopeful.
• 100-SMA, 200-SMA defend buyers before the monthly low.
• Bulls can aim for late June swing high on crossing 1.0480 resistance confluence.

EUR/USD returns to the buyer’s radar while picking up bids near 1.0350 during early Wednesday morning in Europe. That said, the major currency pair dropped during the last three consecutive days before bouncing off 1.0319 late Tuesday.

The pair’s latest recovery, however, remains inside a three-week-old trading range between 1.0225 and 1.0480. Even so, the 1.0400 round figure appears to lure intraday buyers of late.

It’s worth noting that the bearish MACD signals and convergence of the previous support line from November 03, as well as the stated range’s upper end, near 1.0480, challenges EUR/USD pair’s latest upside.

In a case where the EUR/USD bulls manage to keep the reins past 1.0480, tops marked in late June surrounding 1.0615 should gain the market’s attention.

Alternatively, the 100-SMA level of 1.0300 restricts the immediate downside of the pair ahead of the 1.0225 range support.

Following that, the 200-SMA and the mid-November swing low, respectively near 1.0090 and 0.9935 could probe the EUR/USD bears before directing them to the monthly low of 0.9730.

EUR/USD: Four-hour chart

Trend: Limited upside expected

• GBP/USD has sensed responsive buying action around 1.1940 as risk aversion loses luster.
• The speech from Jerome Powell is expected to be less hawkish on interest rate guidance.
• The Bank of England is expected to advance its interest rates to 4.25% in Q1CY2023.
• GBP/USD has gained strength after testing the 200-EMA around 1.1960.

GBP/USD has sensed a decent buying interest after testing Tuesday’s low of around 1.1940 in the Asian session. The Cable is looking to extend its recovery towards the psychological resistance of 1.2000 as the risk appetite theme has waned now. China’s COVID protest-inspired volatility is fading away as Chinese marshals have restricted the general public at their shelters.

The US Dollar Index (DXY) has refreshed its day’s low at 105.70 as an improvement in investors’ risk appetite has trimmed safe-haven’s appeal. The US Dollar has lost its traction ahead of the speech from Federal Reserve (Fed) chair Jerome Powell. S&P500 futures have turned green after a weak start in early Tokyo as investors are returning to the risk-sensitive assets.

The 10-year US Treasury yields have dropped below 3.73% after hitting a high of 3.75% as investors are expecting a ‘less-hawkish’ stance on interest rate guidance by Fed chair Jerome Powell.

Fed Powell may sound ‘less-hawkish’ on interest rate guidance

The street is expecting that a good October inflation report could compel Fed chair Jerome Powell to sound ‘less-hawkish’ on interest rate guidance for December monetary policy meeting. The headline United States Consumer Price Index (CPI) has slipped to 7.7% from a recent high of 9.1%. Therefore, the Federal Reserve (Fed) could look for an option of decelerating the current pace of the interest rate hike as it might support assessing the performance of efforts yet made by policymakers and reducing financial risks.

As the inflation rate is extremely far from the targeted rate of 2%, consideration of a halt in the rate hike regime is not in the picture.

Other United States economic catalysts that will bring volatility to Cable

Investors are expecting fireworks in Cable in Wednesday’s New York session as the United States economy will report multiple triggers. Right from the US Automatic Data Processing (ADP) Employment, Gross Domestic Product (GDP), and core Personal Consumption Expenditure (PCE) to Fed’s Beige Book, investors might keep juggling in bullish and bearish positions.

According to the estimates, the annualized GDP and core PCE for the third quarter are expected to remain stable at 2.6% and 4.5% respectively. A slowdown in both catalysts would cement a downside shift in the rate hike extent for December’s interest rate decision.

On the labor market front, the consensus says an addition of 200k jobs in November vs. the prior release of 239k.

Meanwhile, Fed’s Beige Book will provide the regional status of consumer spending, employment, and the extent of economic activities.

Bank of England to raise interest rates to 4.25% by Q1CY2023

The inflation rate in the United Kingdom has not displayed signs of a meaningful slowdown yet, therefore, the Bank of England (BOE) cannot halt its policy-tightening process. Analysts at JP Morgan believe that the Bank of England will raise the bank rate to 4.25% by the first quarter of next year. They further added that the UK economy will contract by 0.6% in CY2023 due to tighter monetary and fiscal policy and economic damage from the pandemic and Brexit.

On Tuesday, Bank of England Governor Andrew Bailey testified at the Lords Economic Affairs Committee, citing that "There has been no discussion with the government on the pace and timing of BoE asset sales." He believes that the “UK labor market has turned out to be much more constrained than we thought, different to other countries."

GBP/USD technical outlook

GBP/USD has witnessed a responsive buying action after testing the horizontal support plotted from November 17 high of around 1.1940. The 200-period Exponential Moving Average (EMA) at 1.1960 has acted as major support for the Cable. The Pound bulls have also pushed the Cable above the 20-EMA at 1.1980, which indicates that the short-term trend is bullish now.

Meanwhile, the Relative Strength Index (RSI) (14) has pushed itself into the 40.00-60.00 range, which indicates a consolidation ahead.

• Gold price remains firmer for the second consecutive day, bounces off 10-DMA, short-term key support.
• US Dollar traces pullback in Treasury bond yields, cautious optimism surrounding China also propels XAU/USD.
• Fed Chair Powell’s first speech after November, hawkish hopes tease Gold sellers.

Gold price (XAU/USD) picks up bids to refresh intraday top near $1,755 heading into Wednesday’s European session. In doing so, the precious metal prices cheer the broad US Dollar weakness, as well as cautious optimism in the market. However, anxiety ahead of the all-important speech from Fed Chair Jerome Powell seems to test the bulls.

US Dollar Index (DXY) snap a four-day uptrend as it drops to 106.55, down 0.25% intraday at the latest. The Greenback’s gauge versus the six major currencies traces downbeat US 10-Year Treasury bond yields, down two basis points to 3.72%, to print the latest losses.

The DXY’s latest losses could also be linked to the softer US data as the Conference Board (CB) Consumer Confidence Index dropped to 100.2 in November versus 102.2 prior (revised down from 102.5).

Furthermore, China’s multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high seemed to favor the mild risk-on mood. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.

While portraying the mood, S&P 500 Futures print mild gains even as Wall Street closed mixed while the Asia-Pacific stocks grind higher.

Looking forward, hawkish hopes from Fed’s Powell challenge Gold buyers but a surprise dovish statement might not hesitate to propel the commodity prices beyond the short-term key hurdles. Other than Powell, an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the US Gross Domestic Product (GDP) for the third quarter (Q3), will also be crucial to watch for clear directions.

Technical analysis

Gold price extends bounce off a convergence of the 10-DMA and a three-week-old ascending support line, around $1,747-49 by the press time, to keep buyers hopeful.

However, a downward-sloping trend line from mid-November and bearish MACD signals tease XAU/USD sellers unless the quote crosses the $1,760 hurdle.

Even so, a five-month-old descending resistance line, close to $1,780 by the press time, challenges the Gold buyers.

Alternatively, the XAU/USD’s pullback remains elusive beyond $1,747, a break of which could drag the metal towards the highs marked in September and October, respectively near $1,735 and $1,729.

Overall, the Gold price remains on the bear’s radar unless staying beyond $1,780.

Gold price: Daily chart

Trend: Limited upside expected

• AUD/USD picks up bids to poke intraday high, extend the previous day’s rebound.
• Hawkish bets on RBA slumped after disappointing Aussie inflation data.
• China PMIs fail to stop buyers amid Covid-linked optimism.
• Markets seem to prepare for the hawkish comments from Fed Chair Jerome Powell.

AUD/USD fails to justify downbeat Australia inflation data, as well as disappointing activity numbers from China, as traders brace for the Federal Reserve (Fed) Chairman Jerome Powell’s speech early Wednesday. That said, the Aussie pair pokes intraday high near 0.9705 during the two-day uptrend.

It’s worth noting that the cautious optimism, mainly linked to China’s Covid conditions and easing of the virus-led activity restrictions, also seemed to have underpinned the AUD/USD pair’s upside momentum of late.

That said, Australia’s Monthly Consumer Price Index (CPI) dropped below 7.4% market forecasts and 7.3% prior to 6.9% while justifying the Reserve Bank of Australia’s (RBA) latest dovish. Following the data, Reuters mentioned that the markets are still wagering the RBA will raise its cash rate by another 25 basis points to 3.1% at its December policy meeting next week. “Yet they also trimmed the expected peak for interest rates to around 3.6%, from 3.7% before the CPI release and as much as 4.20% last month,” added the news.

On the other hand, a second consecutive daily fall in China’s covid numbers from an all-time high backed the nation’s optimism over tackling the pandemic woes. Even so, Beijing reported disappointing activity data for November, which in turn suggests more easing from the People’s Bank of China (PBOC) and indirectly signaled more demand for Australia, due to the Aussie-Sino ties.

Looking forward, AUD/USD bulls are likely to witness hardships amid hawkish hopes from Fed Chair Jerome Powell, even if chatters surrounding easy hikes may persist. Also important to watch will be an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the US Gross Domestic Product (GDP) for the third quarter (Q3).

Technical analysis

AUD/USD remains bearish unless crossing the previous support line from November 10 and a fortnight-long resistance line, close to 0.6770 by the press time.

Perry Warjiyo, Bank Indonesia (BI) Governor, said on Wednesday that the Rupiah is expected to strengthen in 2023 supported by good economic fundamentals.

Key quotes

Market reaction

Despite upbeat comments from the central bank Governor, USD/IDR is trading listlessly at around 15,740, almost unchanged on the day.

• USD/CHF retreats from weekly high to snap four-day uptrend.
• Previous resistance line of an immediate triangle, bullish MACD signals favor buyers.
• Convergence of 50-day and 100-day EMA challenges the upside moves.

USD/CHF takes offers to refresh the intraday low near 0.9520 during early Wednesday in Europe. In doing so, the Swiss Franc (CHF) pair prints the first daily loss in five while reversing from the highest levels in one week.

Even so, the resistance-turned-support line from November 11, close to 0.9520, restricts the USD/CHF pair’s immediate downside.

Also keeping the pair buyers hopeful are the stronger bullish signals from the Moving Average Convergence and Divergence (MACD) indicator.

It should be noted that the 0.9500 threshold and a fortnight-old ascending support line, near 0.9405, will precede the monthly low of .9356 to challenge the USD/CHF bears afterward.

Meanwhile, recovery moves could aim for the 0.9600 round figure but a convergence of the 50-day and 100-day Exponential Moving Average (EMA) around 0.9700-05 appears a tough nut to crack for the USD/CHF bulls.

In a case where the pair successfully crosses the 0.9705 hurdle, the late October lows near 0.9840 will be in focus.

Overall, USD/CHF is expected to stay in recovery mode unless refreshing the monthly low. However, the upside momentum appears limited.

USD/CHF: Daily chart

Trend: Bullish

• USD/CAD snaps three-day uptrend, renews intraday low of late.
• Oil price cheers hopes of more demand from China, OPEC+ output cut.
• US Dollar seems bracing for hawkish comments from Fed’s Powell.
• US ADP Employment Change, Q3 GDP and Beige Book eyed as well.

USD/CAD grinds lower as it prints mild losses while refreshing intraday bottom near 1.3565 during early Wednesday morning in Europe. In doing so, the Loonie pair traces firmer prices of Canada’s main export item WTI crude oil while cheering a pullback in the US Dollar ahead of the key data/events.

WTI crude oil prints a three-day uptrend as buyers keep the reins around $79.00 amid hopes of more demand from China, after recently easing Covid woes. Also likely to have favored the black gold could be the chatters surrounding a supply cut from the OPEC and its allies including Russia, known collectively as OPEC+, when they meet on December 05. “OPEC+ is likely to keep oil output policy unchanged at a meeting on Sunday, five OPEC+ sources said, although two sources said an additional production cut was also likely to be considered, to support prices,” said Reuters.

Elsewhere, global markets turn cautiously optimistic as China announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.

Also likely to have favored the USD/CAD bears is the downbeat prints of the US Conference Board (CB) Consumer Confidence Index dropped to 100.2 in November versus 102.2 prior (revised down from 102.5).

Additionally, upbeat prints of Canada’s quarterly Gross Domestic Product (GDP) for the third quarter (Q3), to 0.7% versus 0.4% expected and 0.8% prior, also favor the USD/CAD bears.

It should, however, be noted that the hawkish hopes from Federal Reserve (Fed) Chairman Jerome Powell, during his first public appearance since November Federal Open Market Committee (FOMC) meeting, seem to challenge the USD/CAD bears. Also likely to have probed the pair’s moves is the existence of an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the US Q3 GDP.

Technical analysis

The USD/CAD pair’s sustained trading beyond the previous key resistances and the 100-DMA level surrounding 1.3285 joins the bullish MACD signals to keep the buyers hopeful.

Also read: USD/CAD Price Analysis: Buyers poke key hurdle to the north around 1.3600

• EUR/JPY has extended its recovery to near 143.50 as risk appetite is gaining traction.
• Analysts are having mixed views on guidance over Eurozone inflation.
• The odds of the ECB’s bigger rate hike will remain solid despite a marginal decline in Eurozone HICP.

The EUR/JPY pair has extended its recovery above the immediate hurdle of 143.50 in the Asian session. Earlier, the cross resurfaced firmly after building a cushion marginally above 143.00. The pair could turn sideways ahead as investors are awaiting the release of the Eurozone Harmonized Index of Consumer Prices (HICP).

Meanwhile, an improvement in investors’ risk appetite has also supported the shared currency bulls. The cross is following the sentiment displayed by the EUR/USD pair. Going forward, the asset could test the round-level hurdle of 144.00.

According to the estimates, the headline HICP will decline to 10.4% vs. the prior release of 10.6%. While the core HICP data that excludes oil and food prices is seen unchanged at 5%. This might bring a sigh of relief to the European Central Bank (ECB). Analysts are having mixed views on inflation guidance citing volatile energy prices.

Analysts at Nomura believe that headline HICP inflation will accelerate by 0.2 pips to 10.8% YoY, whereas core HICP inflation to accelerate by 0.1 pips to 5.1% YoY. While other analysts see a decline in inflationary pressures but still believe that the risk of the inflation rate ending up higher in December is intact as food prices are continuously advancing and expectations of a marginal decline in headline HICP banks upon the recent drop in energy prices.

This won’t ease the odds of a higher rate hike announcement by the European Central Bank (ECB) ahead.

Meanwhile, the Japanese yen bulls have surrendered their optimism as risk aversion loses traction. In Tokyo chatters over the unwinding of the Bank of Japan (BOJ)’s monetary easing are not picking up further.  Earlier, a Reuters poll claimed that 90% of economists are expecting a wind-up of BOJ’s easing policy from the second half of CY2023.

• Equities in the Asia-Pacific region grind higher even as China’s PMIs, pre-Powell anxiety tests buyers.
• US Treasury yields remain sluggish despite hawkish hopes from Fed Chair Powell.
• Commodities cheer pullback in the US Dollar with mild gains.
• Downbeat data from Australia, New Zealand and Japan adds filters to bullish moves.

Asian markets struggle for clear directions during early Wednesday as traders await crucial catalysts scheduled for publishing. Also likely to have challenged the region’s share traders are mixed signals from China, as well as downbeat data from Australia, New Zealand and Japan.

While portraying the mood, the MSCI’s index of Asia-Pacific shares outside Japan rises 2.6% but Japan’s Nikkei 225 drops half a percent to snap the optimism by the press time. The reason for the downbeat mood in Tokyo could be linked to Japan’s disappointment with October’s Industrial Production.

On the other hand, stocks in China grind higher as Beijing announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.

However, downbeat China activity data for November challenged the positive mood in the dragon nation. That said, China’s officials NBS Manufacturing PMI dropped to 48.0 versus 49.2 expected and 49.0 prior. Further details mention that the Non-Manufacturing PMI also slumped to 46.7 from 48.7 prior and 51.7 expected.

Elsewhere, Australia’s ASX 200 rises 0.20% as disappointing inflation numbers raised expectations of easy rate hikes from the Reserve Bank of Australia (RBA). Australia's Monthly Consumer Price Index (CPI) dropped to 6.9% YoY versus 7.4% expected and 7.3% prior.

On the same line, New Zealand’s NZX 50 rallies near 1.0% after downbeat New Zealand Building Permits for October, -10.7% MoM versus 2.4% expected and 3.6% prior.

On a broader front, inactive S&P 500 Futures and sticky US Treasury bond yields challenge the market sentiment. It’s worth noting that Wall Street closed mixed as softer US data jostled with hawkish Fedspeak.

Looking forward, equities are likely to remain sluggish amid a cautious mood ahead of the first speech from Federal Reserve (Fed) Chairman Jerome Powell since the November meeting. Should the policymaker meet hawkish expectations, the market sentiment may sour.

Also read: Forex Today: All eyes on Federal Reserve's Powell, Aussie CPI and China PMIs

• USD/INR remains inside a tight range, renews intraday low of late.
• Expectations of slower Indian growth, hawkish comments from Fed Chair Powell keep buyers hopeful.
• China-linked market optimism battles with downbeat activity data from the dragon nation.
• US ADP Employment Change, second readings of US Q3 GDP will also be important for clear directions.

USD/INR aptly portrays the pre-data anxiety around 81.60 during early Wednesday as traders await the key catalysts from India and the US. Also likely to have challenged the USD/INR moves could be the recently mixed signals from China.

Downbeat China activity numbers jostled with the hopes of easing Covid woes to challenge traders in Asia. That said, China’s officials NBS Manufacturing PMI dropped to 48.0 versus 49.2 expected and 49.0 prior. Further details mention that the Non-Manufacturing PMI also slumped to 46.7 from 48.7 prior and 51.7 expected.

Elsewhere, Beijing announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.

On a different page, firmer oil prices and robust foreign inflows also seem to restrict the USD/INR moves.

WTI crude oil defends the latest rebound from the yearly low while printing mild gains around $79.00 by the press time. India’s reliance on energy imports and a record Current Account Deficit (CAD) makes the Indian Rupee (INR) susceptible to Oil price moves.

Alternatively, Reuters cited an optimistic growth outlook to mark the heavy foreign fund inflow and favor the USD/INR bears. “India's robust growth outlook has prompted a revival in foreigners returning to domestic equities. So far this month, overseas investors have bought more than $4 billion of Indian shares,” stated the news.

Also, the market’s sluggish moves, as signaled by the inactive S&P 500 Futures and mixed moves in Asia, not to forget sticky US Treasury bond yields, challenge USD/INR momentum traders.

Moving on, India’s Gross Domestic Product (GDP) for the July-September quarter is likely to be the key for the USD/INR pair traders ahead of Fed Chair Jerome Powell’s speech. Reuters poll suggests that the economy likely returned to a more normal 6.2% annual growth rate in July-September after double-digit expansion in the previous quarter.

On the other hand, hawkish expectations from Fed Chair Powell appear as a hurdle for the quote. Additionally important is an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the United States Gross Domestic Product (GDP) for the third quarter (Q3). Forecasts suggest that the US ADP Employment Change for November is expected to arrive at 200K versus 239K prior while the US Q3 GDP could confirm the flash forecasts of 2.6% Annualized growth.

Technical analysis

Gradual unwinding long positions from the 50-DMA hurdle, currently around 81.90, favor USD/INR bears.

• EUR/USD has picked demand near 1.0320 as the risk aversion theme is losing its steam.
• An expansion in US GDP could create more troubles for the Fed.
• The headline Eurozone inflation is expected to decline to 10.4%.

The EUR/USD pair has witnessed recovery after dropping to near 1.0320 in the Asian session. The major currency pair has managed to safeguard the round-level cushion of 1.0300 for now and is expected to remain sideways ahead of the Eurozone Harmonized Index of Consumer Prices (HICP) figures.

The risk aversion theme has lost its grip and the US Dollar Index (DXY) has turned volatile. The upside in the USD Index seems capped as the Federal Reserve (Fed) chair Jerome Powell, in his speech on Wednesday, is expected to sound ‘less-hawkish’ on interest rate guidance. S&P500 futures are displaying a lackluster performance as investors are expected to decide on pouring funds back into equities post-Fed Powell’s speech.

Meanwhile, 10-year US Treasury yields have witnessed mild selling pressure after hitting a high of 3.75%.

In addition to the Fed chair’s speech, investors will also focus on US Gross Domestic Product (GDP) data. As per the projections, the United States economy has grown at a rate of 2.6%, similar to its prior release. Expansion or stability in the GDP rates could accelerate troubles for the Fed. The US central bank has worked on slowing down the inflation rate in the entire year. Stable GDP rates express that retail demand is solid and inflation is not expected to decline.

On the Eurozone front, investors are focusing on the release of the inflation figures. As per the consensus, the headline HICP will decline to 10.4% vs. the prior release of 10.6%. While the core HICP data that excludes oil and food prices is seen unchanged at 5%.

• Gold price is looking for an establishment above $1,750.00 amid the volatile US Dollar.
• Wednesday’s New York session will also release crucial economic catalysts apart from Fed Powell’s speech.
• The United States labor market is facing the consequences of the Fed’s tight monetary policy.

Gold price (XAU/USD) is aiming to shift its business above $1,750.00 after a meaningful recovery near $1,748.00 in the Tokyo session. The precious metal has sensed buying interest as the US Dollar index (DXY) has turned volatile ahead of the speech from Federal Reserve (Fed) chair Jerome Powell. This time, the speech from Fed Chair carries a significant impact as investors will get cues about a deceleration in the interest rate hike pace.

The USD Index has picked some bids around 106.60 after a downside move and is expected to remain on tenterhooks as Wednesday’s New York session will release crucial economic catalysts apart from Fed Powell’s speech. S&P500 futures have recovered some losses recorded in early Asia. The 10-year US Treasury yields are still rock solid above 3.74%.

The major catalyst that will have a significant impact on Gold price is the US Automatic Data Processing (ADP) Employment data. According to the preliminary estimates, the US economy has added 200k jobs in November vs. 239k added in October. The labor data is facing the consequences of rising interest rates, which has forced firms to halt the recruitment process due to rising expectations of a slowdown ahead.

Gold technical analysis

Gold price is displaying a sideways performance in a range of $1,740-1,760 on an hourly scale ahead of the release of key economic catalysts and Fed Powell’s speech. The 20-period Exponential Moving Average (EMA) at $1,751.00 is overlapping with the asset, which indicates a consolidation ahead.

Meanwhile, the Relative Strength Index (RSI) (14) is continuously oscillating in a 40.00-60.00 range, which states that investors have been sidelined ahead of key events.

Gold hourly chart

Analysts at JP Morgan believe that the Bank of England (BoE) will raise the bank rate to 4.25% by the first quarter of next year.

Key quotes

“Fiscal policy is set to tighten with a lag, and monetary tightening "will take longer to bite than in the past.”

“Expect a contraction in the UK's economy in 2023, forecasts UK GDP -0.6% next year (compared with +4.3% in 2022) due to tighter monetary and fiscal policy and economic damage from the pandemic and Brexit.“

• USD/JPY bounces off intraday low but remains in the red for the third consecutive day.
• Three-week-old descending trend line restricts immediate upside, downward-sloping support line from late September lures bears.
• Convergence of 100-DMA, 50% Fibonacci retracement level appears as the key.

USD/JPY prints mild losses around 138.70 during the three-day losing streak amid early Wednesday. Even so, the quote bounces off intraday low of late to test the bears.

The yen pair’s latest losses could be linked to the failure to cross the key resistance line stretched from early November, around 139.20 by the press time. Also likely to favor the USD/JPY sellers are the bearish MACD signals and the downbeat RSI.

It’s worth noting that the quote’s further declines appear limited as the RSI (14) line is near the oversold territory. As a result, a descending support line from late September, near 136.90, appears crucial for USD/JPY bears to watch

In a case where the Yen pair remains bearish past 136.90, the odds of witnessing a south-run towards the early August top surrounding 135.60 and then to August month’s low near 130.40, can’t be ruled out.

Alternatively, a clear upside break of the aforementioned resistance line isn’t an open welcome for the USD/JPY buyers as a convergence of the 100-DMA and the 50% Fibonacci retracement level of the pair’s August-October upside will challenge the further advances near 141.25.

To sum up, USD/JPY is likely to decline further but the room towards the south is limited.

USD/JPY: Daily chart

Trend: Further downside expected

Citing a former senior State Administration of Foreign Exchange official Guan Tao, Shanghai Securities News reports, “China needs to ensure a strong domestic economy, improve financial supervision, and reform institutional opening-up to promote the long-term international use of the yuan.”

Additional quotes

“The yuan is increasing its standing as a major international currency due to its market-oriented exchange rate and recent resilient performance.”

“The use of the yuan in global foreign exchange reserves is set to surpass sterling and the yen due to relaxed restrictions on outbound investment in the yuan bond market.”

Related reads

• USD/CNH pares biggest daily loss in two weeks near 7.1600 on China’s downbeat PMIs
• China Nov PMIs miss but are having little impact on AUD

• GBP/USD picks up bids to refresh intraday high during the first positive day in four.
• Record high UK fresh food prices, hawkish statements from BOE’s Bailey favor buyers.
• China-linked optimism adds strength to the corrective bounce.
• The cautious mood ahead of Fed Chair Powell’s first speech since November FOMC tests buyers.

GBP/USD cheers upbeat inflation signals, as well as the market’s cautious optimism while snapping a three-day downtrend near 1.2000 during early Wednesday morning. Even so, the Cable pair traders remain cautious ahead of the key data/events.

As per the latest data from the British Retail Consortium (BRC), the cost of fresh food sold in British shops increased in November at the fastest annual rate since records began in 2005, to 14.3% per Reuters.

Other details from the news mentioned, “Other food item prices surged at the fastest pace on record to 12.4% in November, up from 11.6% the month before. Overall shop price inflation rose to 7.4%, a record for the index which started 17 years ago, and up from 6.6% in October.”

On Tuesday, Bank of England Governor Andrew Bailey said that the UK labor market has turned out to be much more constrained than we thought. Before him, BOE Policymaker Catherine Mann said, “Medium-term inflation expectations are very important for my assessment of where bank rate should go.”

Other than the likely aggressive BOE, easing Covid fears from China also seemed to have underpinned the GBP/USD pair’s latest rebound. That said, the dragon nation registered the second consecutive fall in daily infections, to 37,828 at the latest. Previously, China announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.

On the same line could be the softer US Conference Board (CB) Consumer Confidence Index for November which dropped to 100.2 versus 102.2 prior (revised down from 102.5).

It should, however, be noted that the hawkish hopes from Fed Chairman Jerome Powell, mainly due to the latest hawkish rhetoric among the policymakers seem to test the GBP/USD pair buyers. Additionally challenging the pair buyers could be the fears of a nationwide strike of the UK government employees and fears of recession due to the latest changes in the fiscal policies.

Other than the Fed’s Powell, an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the United States Gross Domestic Product (GDP) for the third quarter (Q3) will also be important for the GBP/USD pair traders to watch.

Technical analysis

Despite the latest rebound, the support-turned-resistance line from November 09 and the 200-DMA, respectively near 1.2130 and 1.2160, challenge the GBP/USD bulls.

• NZD/USDs move in on the Fibonacci scale .
• 0.6250 is eyed on a break of the resistance near 0.6225. 

NZD/USD month end could realise month-end rebalancing that implies NZD buying ahead of the Federal Reserve's Chairman, Jerome Powell, speaking later today. The following illustrates the technical outlook in a top-down analysis:

NZD/USD H4 chart 

The 4-hour chart is showing signs of deceleration on the bid, with the price now on the back side of the micro trendlines. However, the lower time frames are bullish in Asia as follows:

If the support in the Fibonacci scale holds, then there will be prospects of a bullish continuation to find liquidity on the other side of the range as illustrated above. 0.6250 is eyed on a break of the resistance near 0.6225. 

Citing delegates from OPEC and its allies (OPEC+), the Wall Street Journal (WSJ) reported late Tuesday that the alliance is likely to decide to keep oil output levels flat at their meeting Sunday, December 4.

The OPEC+ remains worried about the fresh COVID-19 lockdown measures in China and Russian oil sanctions.

Additional takeaways

“OPEC+ is leaning toward approving the same production levels agreed to in October, when they greenlighted a 2 million barrels a day output cut.”

“Sunday’s meeting was planned to take place in person at OPEC’s headquarters in Vienna, but it will now be held remotely to avoid negative media scrutiny.”

Market reaction

At the time of writing, WTI is 0.24% higher on the day, trading at $78.76. Broad-based US Dollar weakness is providing some support to the USD-sensitive black gold.

• AUD/USD bounces off intraday low to print mild gains.
• Australia’s Monthly CPI for October, China’s official PMIs for November printed downbeat figures.
• Convergence of the previous support line, two-week-old descending trend line appears the key for bulls.
• Sellers have a bumpy road ahead before taking control.

AUD/USD picks up bids to refresh intraday top near the 0.6700 threshold during early Wednesday, extending the previous day’s recovery. In doing so, the Aussie pair ignores downbeat prints of Australia’s monthly inflation numbers and disappointing activity data from Canberra’s biggest customer, Beijing.

Australia's Monthly Consumer Price Index (CPI) dropped to 6.9% YoY versus 7.4% expected and 7.3% prior. The inflation numbers defend the Reserve Bank of Australia’s (RBA) dovish bias and should have weighed the prices. On the same line, China’s officials NBS Manufacturing PMI dropped to 48.0 versus 49.2 expected and 49.0 prior. Further details mention that the Non-Manufacturing PMI also slumped to 46.7 from 48.7 prior and 51.7 expected.

It should be noted, however, that the 100-SMA defends AUD/USD bulls around 0.6660 amid sluggish oscillators.

Following that, a three-week-old horizontal support zone near 0.6590-85 and the 200-SMA support close to 0.6515 will be crucial for the pair sellers to watch.

On the contrary, recovery remains elusive below the 0.6770 resistance confluence including the previous support line from November 10 and a fortnight-long resistance line.

Even so, the monthly high of around 0.6800 acts as an extra filter to the north for the AUD/USD bulls to watch.

Overall, AUD/USD stays on the bear’s radar despite the latest rebound.

AUD/USD: Four-hour chart

Trend: Limited recovery expected

• USD/CNH remains mildly bid while consolidating the biggest daily loss since November 10.
• China’s official NBS Manufacturing PMI and Non-Manufacturing PMI both disappoint in November.
• Cautious mood ahead of key data/events restricts immediate moves even as optimism surrounding China teases bears.

USD/CNH licks its wounds near 7.1590, picking up bids of late, as it pares the biggest daily loss in a fortnight during early Wednesday. The pair’s latest moves justify downbeat prints of China’s official activity data for November amid a cautious mood ahead of the crucial catalysts scheduled to release from the United States.

That said, China’s officials NBS Manufacturing PMI dropped to 48.0 versus 49.2 expected and 49.0 prior. Further details mention that the Non-Manufacturing PMI also slumped to 46.7 from 48.7 prior and 51.7 expected.

It should be noted that the news surrounding the gradual easing of the strict Covid-led lockdowns in China failed to favor the offshore Chinese Yuan (CNH). China announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.

Against this backdrop, the S&P 500 Futures remains indecisive after a mixed closing of Wall Street whereas the US 10-year Treasury bond yields ended Tuesday on a firmer footing, up six basis points (bps) to 3.748%, down one bps to 3.73% at the latest.

The market’s cautious mood could be linked to the anxiety ahead of Fed Chairman Jerome Powell’s first public appearance since November Federal Open Market Committee (FOMC) meeting amid hawkish hopes. Also important is the US ADP Employment Change for November, expected at 200K versus 239K prior, as well as the second reading of the US Gross Domestic Product (GDP) for the third quarter (Q3), expected to confirm 2.6% Annualized growth.

Technical analysis

A daily closing below a two-week-old ascending trend line keeps the USD/CNH bears hopeful of revisiting the monthly low surrounding 7.0200.

The monthly manufacturing and Non-manufacturing PMIs released by the China Federation of Logistics and Purchasing (CFLP) on the last day of every month have been released as follows:

• China November official composite PMI is at 47.1.
• China November official services PMI falls to 46.7 vs 48.7 in October.
• China November official manufacturing PMI at 48.0 (Reuters poll 49.0) vs 49.2 in October.

AUD/USD update

The Aussie remains around 0.6685, but  there is a bearish biuas below 0.6700.

However, the price is on the backside of the trend so there could be a phase of distribution to play out over the coming days between a wide 0.6800/ 0.6600 range for the parameters hold. While there is liquidity on either side of the range, the downside bias is in play while below 0.6700 resistance:

About the China PMIs

The official PMI is released before the Caixin PMI, which makes it even more of a leading indicator, highlighting the health of the manufacturing sector, considered as the backbone of the Chinese economy. The data is of high relevance for the financial markets throughout several asset classes, given China’s influence on the global economy.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1769 vs. the last close of 7.1575.

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.

• AUD/JPY struggles to extend the previous day’s recovery, sidelined of late.
• Australia’s Monthly CPI dropped to 6.9% YoY in October.
• Clear downside below seven-week-old ascending trend line, 50-DMA keeps sellers hopeful.
• Buyers need to cross monthly resistance line to retake control.

AUD/JPY seesaws near 92.75, printing mild losses during early Wednesday after downbeat Australia inflation data. Even so, the cross-currency pair remains sidelined as traders remain cautious ahead of the key data/events.

Australia's Monthly Consumer Price Index (CPI) dropped to 6.9% YoY versus 7.4% expected and 7.3% prior. The inflation numbers defend the Reserve Bank of Australia’s (RBA) dovish bias and should have weighed on the AUD/JPY prices.

However, anxiety ahead of Federal Reserve (Fed) Chairman Jerome Powell’s first public appearance since the November Federal Open Market Committee (FOMC) meeting seems to challenge the traders, as well as a slew of data from China, Europe and the US.

Amid these plays, the S&P 500 Futures print mild losses after a mixed closing of Wall Street whereas the US 10-year Treasury bond yields ended Tuesday on a firmer footing, up six basis points (bps) to 3.748%, remain sidelined near the same at the latest.

Moving on, China’s official activity data for November could offer immediate directions but the major attention will be given to Powell amid hawkish concerns, which in turn could weigh on the market’s risk appetite and the AUD/JPY prices.

Technical analysis

AUD/JPY remains indecisive while making rounds to the 200-DMA during early Wednesday, struggling to justify the downbeat signals from Australia amid cautious market sentiment.

Even so, the cross-currency pair’s sustained trading below the previous support line from October 13 and the 50-DMA, around 93.70 by the press time, keeps the AUD/JPY bears hopeful. Also favoring the sellers are the bearish MACD signals and downbeat RSI, not oversold.

That said, the latest low surrounding 92.15 and the 92.00 round figure could restrict the AUD/JPY pair’s immediate downside ahead of the previous monthly bottom of 90.84.

Alternatively, a convergence of the previous support line and the 50-DMA near 93.70 holds the key for the pair buyer’s entry. Additionally challenging the AUD/JPY bulls is the descending resistance line from October 21, close to 94.10 at the latest.

Overall, AUD/JPY remains on the bear’s radar despite the latest data from Australia and China.

AUD/JPY: Daily chart

Trend: Further downside expected

• AUD/NZD has shown a wild swing as Australian inflation has delivered a meaningful decline.
• The Australian inflation has dropped to 6.9% while the street was expecting an increment to 7.3%.
• This week, Caixin Manufacturing PMI is of utmost importance, which is seen lower at 48.9.

The AUD/NZD pair has displayed a wild swing in a 1.0764-1.0787 range in the Asian session as the Australian Bureau of Statistics has reported lower-than-projected Australian inflation data. October’s Consumer Price Index (CPI) report has shown a decline in the inflation rate to 6.9% while market participants were expecting an increment in the inflation rate to 7.4%.

A decline in inflation is expected to provide a sigh of relief to Reserve Bank of Australia (RBA) policymakers. The Australian central bank was extremely worried as inflationary pressures were not showing any sign of exhaustion earlier. The street was expecting that RBA Governor Philip Lowe would be forced to return to 50 basis points (bps) rate hike structure to curtain galloping inflation.

As the inflation rate has slowed down below 7.0%, the RBA might continue its current rate hike pace of 25 bps to keep economic prospects alive alongwith the mission of bringing price stability.

Meanwhile, investors are keeping an eye on development over public protests in China. Anti-Covid lockdown protest by the general public in a state of anger and frustration has resulted in weaker economic projections. This has kept the antipodeans in the grip of bears this week.

Apart from that, Thursday’s Caixin Manufacturing PMI data will remain crucial. The economic data is seen lower at 48.9 than the prior release of 49.2.

On the New Zealand front, the number of Building Permits has shown a negative growth of 10.7% vs. expansion of 2.4% as expected and the prior release of 3.6%. Accelerating interest rates by the Reserve Bank of New Zealand (RBNZ) might be responsible for a decline in the economic catalyst.

EUR/USD picks up bids to refresh intraday high near 1.0340 while snapping a three-day downtrend during early Wednesday. In doing so, the major currency pair prints mild gains, up 0.15% intraday by the press time, amid the upbeat signals from the options market and cautious mood ahead of crucial data events.

Among them, Federal Reserve (Fed) Chairman Jerome Powell’s first public appearance since the November Federal Open Market Committee (FOMC) meeting and Eurozone inflation for November, per the Harmonized Index of Consumer Prices (HICP) indicator, will be important to watch for clear directions.

Also read: EUR/USD closing in most bullish month in 12 years ahead of Eurozone inflation, Federal Reserve talk

That said, the one-month risk reversal (RR) for the EUR/USD pair, the ratio between call and put premiums, braces for the biggest weekly print in three by flashing 0.0025 at the latest. In doing so, the weekly RR rises for the second consecutive week. The daily RR, however, probes the pair buyers as it prints a -0.040 figure.

It should be observed that the recently softer inflation data from Germany join the hawkish hopes from Fed Chair Powell and looming recession concerns over the Eurozone to keep the EUR/USD bears hopeful.

• AUD/USD has sensed buying interest around 0.6670 as Australian CPI has remained lower than projections.
• The Aussie inflation has been trimmed to 6.9% vs. expectations of 7.4% and the prior release of 7.3%.
• The USD Index has shifted its auction profile above the critical hurdle of 106.80 amid a risk-off mood.

The AUD/USD pair has picked bids around 0 .6670 as the Australian Bureau of Statistics has reported a decline in the monthly Consumer Price Index (CPI). The Australian CPI has landed at 6.9% lower than the expectations of 7.4% and the prior release of 7.3%.

A decline in Australian inflation is expected not to force the Reserve Bank of Australia (RBA) to ditch its current 25 basis points (bps) rate hike culture. Earlier, the street was expecting that RBA Governor Philip Lowe would return to a 50 bps rate hike structure on expectations of an increment in the price rise index.

Apart from that, China’s unrest against Covid curbs announced by authorities to curtail the epidemic has kept the Australian Dollar volatile this week. People are in a state of anger and frustration due to prolonged restrictions on the movement of men, materials, and machines under the zero-Covid policy.

As per the latest developments, the Chinese city of Zhengzhou, home to Apple Inc.’s largest manufacturing site in China, said that it was lifting a lockdown of its main urban areas put in place five days ago as Covid cases climbed. The headline could infuse optimism in the Australian Dollar, being a leading trading partner of China.

Meanwhile, the US Dollar Index (DXY) has shifted its auction profile above the critical hurdle of 106.80 in the Asian session. The risk aversion theme is intact and may remain solid as investors have turned nervous ahead of the speech from Federal Reserve (Fed) chair Jerome Powell. This will provide meaningful cues about the likely monetary policy action in December.

Apart from that, the release of other key catalysts such as US Automatic Data Processing (ADP) Employment, Gross Domestic Product (GDP), core Personal Consumption Expenditure (PCE), and the Fed’s Beige Book will be keenly watched.

The new monthly Consumer Price Index report for Australia has been released.

Its coverage is only partial, so there is less weight given to the data in markets that await the quarterly report as the benchmark for the Reserve Bank of Australia

The data arrived as follows: 

Aussie CPI (YoY) Oct: 6.9% vs. estimated 7.6% and previous 7.3%.

Westpac looks for quarterly inflation to peak at 8.1% in Q4.

AUD/USD update

The Aussie has stuck to being flat for the day around 0.6685.

However, the price is on the backside of the trend so there could be a phase of distribution to play out over the coming days between a wide 0.6800/ 0.6600 range for the parameters hold. While there is liquidity on either side of the range, the downside bias is in play while below 0.6700 resistance:

Meanwhile, the National Australia Bank updated on their latest outlook for the Reserve Bank of Australia:

• Silver price remains sidelined inside a two-week-old symmetrical triangle.
• 200-HMA offers intermediate halt amid downbeat MACD, RSI signals.
• Bulls need validation from $21.70 to aim for a monthly high.

Silver price (XAG/USD) fades the previous day’s recovery moves from a one-week low, taking rounds to $21.25-30 during Wednesday’s Asian session.

In doing so, the bright metal stays inside a fortnight-long symmetrical triangle while defending the previous day’s upside break of the 200-HMA.

It’s worth noting, however, that the bearish Moving Average Convergence and Divergence (MACD) signals and the downward-sloping Relative Strength Index (RSI) placed at 14, not oversold, seem to tease the bears.

A clear break of the 200-HMA support near $21.15 becomes necessary to tease the XAG/USD bears. Even so, the $21.00 round figures and lower line of the aforementioned triangle, around $20.95 by the press time, could challenge the bullion’s further downside.

In a case where the Silver price drops below $20.95, the November 07 low near $20.40 appears crucial for sellers as a break which could quickly direct the quote towards the monthly low of $18.83.

Meanwhile, recovery moves not only need to cross the stated triangle’s upper line, close to $21.50 at the latest, but also need validation from the $21.70 to convince the buyers.

Following that, a run-up towards the monthly top surrounding $22.25 can’t be ruled out.

Silver: Hourly chart

Trend: Further downside expected

• USD/JPY picks up bids after two-day downtrend, remains sluggish of late.
• Cautious mood ahead of key data/events restrict the Yen pair’s immediate moves.
• Optimism surrounding China contrasts with hawkish hopes from Fed’s Powell to challenge traders.
• US ADP Employment Change, second readings of US Q3 GDP will also be important for immediate directions.

USD/JPY remains sidelined around 138.80, despite picking up bids to snap two-day uptrend during early Wednesday morning in Tokyo. In doing so, the Yen pair portrays the market’s cautious mood ahead of the key catalysts while tracking sluggish US Treasury bond yields.

While portraying the mood, S&P 500 Futures print mild losses after a mixed closing of Wall Street whereas the US 10-year Treasury bond yields ended Tuesday on a firmer footing, up six basis points (bps) to 3.748%, remain sidelined near the same at the latest. That said, the two-year US Treasury bond yields stop the previous day’s run-up near 4.48%.

Talking about the market’s positives, China announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.

On the same line could be the softer US data as Conference Board (CB) Consumer Confidence Index dropped to 100.2 in November versus 102.2 prior (revised down from 102.5).

However, hawkish comments supporting the US Federal Reserve’s steadily high-interest rates, even if a mild cut in the aggression is expected, seemed to have kept the US Dollar Index (DXY) on a firmer footing. New York Federal Reserve Bank President John Williams and St. Louis Fed President James "Jim" Bullard were the latest supporters of higher rates.

It should be noted that the looming concerns over the Bank of Japan’s (BOJ) monetary policy tightening in 2023 appeared to have favored the USD/JPY bears of late.

Looking forward, risk catalysts like headlines from China and Fedspeak, as well as chatters surrounding the BOJ, may direct immediate USD/JPY moves. However major attention will be given to Fed Chairman Jerome Powell’s first public appearance since November Federal Open Market Committee (FOMC) meeting amid hawkish hopes. Furthermore, the US ADP Employment Change for November, expected 200K versus 239K prior, will precede the second reading of the US Gross Domestic Product (GDP) for the third quarter (Q3), expected to confirm 2.6% Annualized growth, to populate the economic calendar too.

Technical analysis

A three-week-old triangle restricts immediate USD/JPY moves between 139.10 and 137.50 by the press time.

• The USD Index is aiming to reclaim the round-level hurdle of 107.00 amid a risk-off mood.
• Fed Powell’s speech will provide cues about interest rate guidance for the December meeting.
• Wednesday’s New York session is expected to display fireworks ahead of various economic catalysts.

The US Dollar Index (DXY) has shifted its business above the critical hurdle of 106.80 in the Asian session. The USD Index is expected to hit the round-level resistance of 107.00 as the risk-aversion theme is in the spotlight. The risk impulse is extremely cautious ahead of the speech from Federal Reserve (Fed) chair Jerome Powell as he is expected to provide cues about a deceleration in the aggressive interest rate hike pace.

S&P500 remained subdued on Tuesday as investors are expected to make informed decision post the Fed Powell’s speech. Contrary, the 10-year US Treasury yields remained extremely firmer on the belief that the slowdown concept in the rate hike pace is still under observation and yet to be confirmed.

Fed Powell’s speech to chalk out interest rate guidance

Nervousness in the global markets is highly expected as the speech from Fed chair Jerome Powell will determine the further road to terminal rates. Most likely, the Fed chair is expected to deliver a ‘less-hawkish’ stance on interest rate guidance for December monetary policy meeting as the United States Consumer Price Index (CPI) has already shown meaningful signs of exhaustion. The headline CPI has already slipped to 7.7% from the peak of 9.1%, therefore, Fed policymakers discussed a slowdown in the rate hike pace to assess efforts yet made to contain price growth and to reduce financial risks.

Key economic catalysts

Wednesday’s New York session is expected to display fireworks in almost entire majors and related instruments as the United States economy will report US Automatic Data Processing (ADP) Employment, Gross Domestic Product (GDP), core Personal Consumption Expenditure (PCE), and Fed’s Beige Book.

As per the consensus, the annualized GDP and core PCE for the third quarter are expected to remain stable at 2.6% and 4.5% respectively. A slowdown in both catalysts would cement a downside shift in the rate hike extent for December’s interest rate decision.

On the labor market front, the consensus says an addition of 200k jobs in November vs. the prior release of 239k.

Apart from the economic catalysts, Fed’s Beige Book will provide the regional status of consumer spending, employment, and the extent of economic activities.

• Gold traders are in anticipation of the Federal Reserve's Chairman Jerome Powell.
• The United States economy will be scrutinised in Friday's Nonfarm Payrolls report. 
• China and the Coronavirus spread are keeping markets at bay. 
• Gold is poised for a critical technical breakout for the past month of 2022.

Gold prices climbed on Tuesday even as the US Dollar and bond yields rose but were capped as traders get set for the Federal Reserve's chair, Jerome Powell, who will speak on Wednesday. Meanwhile, there is mixed sentiment surrounding the apparent easing of unrest in China over coronavirus curbs. Traders are also apprehensive while awaiting further important data from the US economy on Friday in the form of the Nonfarm Payrolls report.

The Gold price started Wednesday near $1,750, sitting in the middle of Tuesday's range which ended as an inside bar in comparison to Monday's business. Gold is pressured below what could turn out to be a key resistance area of around $1,762. There is a focus on the downside for the day ahead while capped there with eyes on $1,720 as illustrated in the technical analysis at the end of this article. Meanwhile, there are plenty of fundamentals to be aware of for the day ahead and the rest of the week. The clock is now ticking down towards the final weeks of the year and the critical Federal Reserve December interest rate decision.

Federal Reserve's Jerome Powell coming up

Federal Reserve chairman, Jerome Powell, is scheduled to speak on Wednesday. The chair is expected to ''reaffirm the Fed’s unwavering commitment to tackling inflation, the need for more measured rate rises taking account of increased two-way economic risks as policy becomes restrictive, and a degree of optimism that the Fed will be able to pull off a soft landing,'' analysts at ANZ Bank explained. 

The tight labour market and elevated services inflation will be hot topics which would be expected to elevate the jobs report on Friday to a more urgent degree on Gold trader's radars. While markets welcome the prospect of smaller hikes, a need to reach an appropriately higher terminal rate due to a tight labour market could be a spanner in the works for Gold bugs ahead of the Federal Reserve meeting held on 13 & 14 of December. 

Friday Nonfarm Payrolls outlook

''US Nonfarm Payrolls payrolls likely continued to slow gradually but still advanced firmly in November, falling only modestly below its three-month avg of 290k,'' analysts at TD Securities said. ''The Unemployment Rate likely stayed unchanged at 3.7%, while we look for wage growth to have slowed to 0.3%  month over month after accelerating to 0.4% in October,'' the analysts added. 

Ahead of that, ADP reports a private sector job estimate on Wednesday and is expected at 200k vs. 239k in October.  October JOLTS job openings will also be reported Wednesday and is expected at 10.35 mln vs. 10.717 million in September.  

China's Coronavirus hamstrings risk sentiment

China coronavirus protests erupted which has put China's president  Xi Jinping and the Chinese Communist Party (CCP) in a bind. Thousands took to the streets in major cities across the nation in recent days, protesting against Covid restrictions. 

An exhausted population has been asking how much longer must they endure Xi Jinping's zero-Covid policy. In one of President Xi's biggest political tests yet, the CCP is attempting to negotiate both mounting fury and a deep-rooted fear of Covid, all of which have upended the global economic outlook and added a new element of uncertainty on top of the Ukraine war, an energy crisis and inflation.

US Dollar's vs. Gold's safe-haven appeal 

With a number of factors that have fundamentally stripped the US Dollar of its recent safe-haven appeal analysts at TD Securities warned that several catalysts could spark a leg lower in Gold as CTAs run out of dry powder on the bid.

''Systematic trend followers are still covering their shorts in gold markets as downside momentum signals subside. This continues to set the stage for a bull trap in precious metals as the resilient price action, buoyed by CTA short covering, attracts new long interest from discretionary money managers. However, the narrative is chasing prices,'' the analysts warned with respect to Gold's recent bullish correction. 

Besides any uber-hawkish commentary from Federal Reserve speakers this week or ahead of the December meeting that could trap Gold bulls, the situation in China remains fluid and a probable catalyst for a flight for safety.  

''We continue to downplay any hopes of quicker reopening despite conciliatory comments from mainland health officials,'' analysts at Brown Brothers Harriman argued. 

A combination of a hawkish twist in Fed sentiment and continued risks of a prolonged reopening in China would be expected to play into the hands of the US Dollar bulls and strip Gold of its safe-haven appeal 

Gold technical analysis

The daily chart shows that the Gold price is attempting to make a clean break to the upside having broken the long-term trendline resistance in a harmonic reversion pattern as illustrated above. 

However, on closer inspection, the price is struggling on the bid at this juncture, bounded by both resistance and support. There are in-the-money longs below the spot price and that means liquidity for sellers to target in the meantime.

$1,720 will be an important support in this regard because a break of there opens risk all the way down into liquidity patches below $1,700.  On the flip side, a break of $1,762 and then $1,790 opens the way for a deeper bullish correction and potentially a longer-term bull trend.