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Crude oil markets may feel oversold, but trend following models hold a war chest of dry-powder to deploy in either direction, TDS’ Senior Commodity Strategist Daniel Ghali notes.

Crude oil markets seem oversold

“While our return decomposition framework suggests that markets have continued to erode supply risk premia over the last week, geopolitical tensions remain at a boil and traders are awaiting more information on Israel's targets for a strike against Iran, keeping a floor on prices.”

“With prices failing to keep up with downtrend signals, CTAs are still set to cover their shorts this session. The scope for subsequent algo flows remains elevated, suggesting event risks will carry additional momentum over the coming week.”

“Interestingly, nascent signs of reflation continue to strengthen in the cross-section of the commodities complex, suggesting that demand trends could favor more buying activity, offering a cross-current to the erosion of supply risk premia in the event that Israel refrains from targeting energy infrastructure as expected.”

• GBP/USD falls 0.15%, decisively breaking below the 1.3000 mark and testing the 100-DMA for the first time since August 2024.
• Momentum signals bearish control, with the RSI nearing recent lows, potentially pushing the pair toward the 1.2915/20 support zone.
• A break below 1.2915 could lead to a test of key support at 1.2798, while resistance lies at 1.2990 and the 50-DMA at 1.3135.

The Pound Sterling extended its losses against the US Dollar for two straight days, with sellers clearing the 1.3000 figure decisively, which could pave the way for further downside. At the time of writing, the GBP/USD trades at 1.2961, fluctuating around the 100-day moving average (DMA), down 0.15%.

GBP/USD Price Forecast: Technical outlook

The GBP/USD is testing the 100-DMA for the first time since early August 2024. Although the pair hit a daily low of 1.2944, sellers lacked the strength to push the spot price toward the bottom trendline of an ascending channel.

Momentum shows that sellers are in charge. The Relative Strength Index (RSI) is dipping towards its most recent low, which, once broken, would signal bears to exert pressure on the pair.

If GBP/USD presses toward the bottom trendline and clears the support at around 1.2915/20, the exchange rate could likely hit 1.2900. The next key support level would be the confluence of the August 15 low and the 200-DMA at 1.2798

Conversely, if buyers stepped in and push the exchange rate past 1.2990, a move toward 1.3000 is on the cards. The next major resistance is found at the 50-DMA at 1.3135.

GBP/USD Price Chart – Daily

UK data showed government borrowing a shade lower than expectations in September (GBP16.6bn) but cumulative borrowing over the fiscal half year was above forecasts which may limit the Labour government’s room for manoeuver in next week’s budget, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

GBP continues to slip

“The Pound Sterling (GBP) edged briefly lower to a new, short-term cycle low earlier but recovered somewhat. Sterling edged to a minor new low for this move down this morning to test the 100-day MA (1.2963).”

“Like other currencies, the pound looks oversold. Unlike some of the other majors, there is a clear short-term downtrend still developing in Cable which tilts risks to more softness (low/mid-1.29s) in the short run while overhead resistance (1.3055) holds.”

In an exclusive interview with Bloomberg TV's Francine Lacqua on Tuesday, European Central Bank (ECB) President Christine Lagarde noted that inflation numbers in the Eurozone are "relatively reassuring" but added that they can't jump to a conclusion that it's a done deal.

Lagarde further said that she hopes that inflation will be back at their target sooner than projected, reiterating that they are confident that they will get to their target in 2025.

Market reaction

These comments failed to trigger an immediate market reaction. At the time of press, the EUR/USD was trading marginally lower on the day, a few pips above 1.0800. 

• Silver price soars to near $34.50 due to growing uncertainty over US elections and escalating Middle East tensions.
• PBoC’s larger-than-expected interest rate cut has improved Silver’s demand as a metal.
• The US Dollar refreshes an 11-week high on expectations of moderate interest rate cuts from the Fed.

Silver price (XAG/USD) surges to near $34.50 in Tuesday’s North American session, the highest level seen in over 12 years. The white metal strengthened after Israel launched missiles at Hezbollah’s financial institutions situated in the southern Lebanese cities of Tyre and Nabatiyeh. Escalating tensions in the Middle East region has improved Silver’s appeal as a safe haven.

In the United States (US) economy, growing uncertainty over presidential elections, which are just two weeks away has also strengthened the Silver price appeal. Latest national polls have shown that competition between former US President Donald Trump and current Vice President Kamala Harris is very stiff. Market experts worry that Trump’s victory could undermine the currencies of the US’s trading partners. Trump promised to raise tariffs and lower taxes if he wins elections.

The demand outlook of the Silver as metal has improved after the People’s Bank of China’s policy announcement on Monday in which the central bank reduced one-year and five-year Loan Prime Rate (LPR) by larger-than-expected size of 25 basis points (bps). Silver as a metal has applications in various industries such as Electric Vehicles (EV), wires and cables, and mining etc. The PBoC cuts its key borrowing rates with an outsize margin to boost households’ consumption and spending on infrastructure and to revive the housing sector.

Meanwhile, the US Dollar (USD) posts a fresh 11-week high as investors expect the Federal Reserve (Fed) to reduce interest rates gradually. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, climbs above 104.00.

Silver technical analysis

Silver price strengthens after a breakout above the horizontal resistance plotted from May 21 high of $32.50 on a daily timeframe. Upward-sloping 20- and 50-day Exponential Moving Averages (EMAs) near $30.70 and $31.70, respectively, signals more upside ahead.

The 14-day Relative Strength Index (RSI) oscillates above 60.00, points to an active bullish momentum.

Silver daily chart

The oil market in China was oversupplied by 930 thousand barrels per day in September, Commerzbank’s commodity analyst Carsten Fritsch notes.

Demand is not expected to pick up sharply next year either

“If processing is compared with the crude oil production figures also reported by the NBS and the crude oil imports published by the customs authority a week ago, the oil market in China was oversupplied by 930 thousand barrels per day in September.”

“The monthon-month increase in processing, coupled with a decline in imports, reduced the implicit supply surplus by half compared to August. Nevertheless, the oil market in China is in a weak spot. This is also shown looking at China's implied oil demand, which is the difference between crude oil processing and net exports of oil products.”

“In September, it was 2 percent below the previous year's level. The IEA expects demand in China to grow only slightly this year, by 150,000 barrels per day. Despite the stimulus measures announced so far, demand is not expected to pick up sharply next year either, as IEA chief Birol emphasised yesterday at a conference in Singapore.”

EUR/USD trade has been a little choppy, within a limited range, so far on the session, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

EUR trades in tight, choppy range

“There were no data reports of note from the Eurozone this morning and there were no major comments from ECB policymakers. Spot chop may reflect a battle between bargain hunter interest around the 1.08 area and the drag on the EUR from wider short-term spreads (EZ/US 2y spread to –186bps today). Note that ECB President Largarde is speaking with Bloomberg at 10ET.”

“The EUR remains oversold but the charts continue to reflect softness, with spot holding near the base of the recent consolidation range. The EUR has completed the measured move lower I thought would result from the break under 1.10 around the turn of the month but a rebound—above 1.0875—is needed to signals scope for even short-term gains from here. Support is 1.0780/00.”

Chinese oil refineries processed 58.7 million tons of crude oil in September, Commerzbank’s commodity analyst Carsten Fritsch notes.

Crude oil processing remains below the previous year's level

“This corresponds to a daily amount of 14.3 million barrels. The previous month's level was exceeded by around 400,000 barrels per day because maintenance work ended at some refineries and a new refinery went into operation.”

“However, this did little to alter the weak overall picture. Crude oil processing remained below the previous year's level for the sixth consecutive month. According to the NBS, the decline in September was 5.4%. On the basis of the monthly figures published, the decline was as much as 7.7%.”

“The same applies to the cumulative figures for the first nine months. Here, the NBS reported crude oil processing of 531.3 million tons, or 14.15 million barrels per day, and a decline of 1.6% compared to the same period last year. Based on the monthly figures published, the corresponding decline is just over 4%.”

The Canadian Dollar (CAD) has had a minor reprieve this morning as it holds little changed on the session but some 20 ticks above yesterday’s low against the USD in the mid-1.38s, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD steadies ahead of BoC

“Weak risk appetite (today) and wider US/Canada spreads are unhelpful for the CAD but some consolidation may be in order ahead of the BoC decision Wednesday. Markets continue to reflect the expectation that the Bank will cut the policy rate 50bps but the accumulation of easing thus far, a weak CAD, uncertainty about the outcome of the US election could all yet combine to prompt policymakers to keep the pace of easing at a more moderate 1/4 point.”

“Still, for now, there seems little scope for the CAD to recover too much ground. Estimated FV sits at 1.3863 today. Spot is holding in a very tight consolidation range so far on the session. That could be a positive sign for the CAD if the situation persists through the entire session but right now, it just tells us that spot has not moved a whole lot today.”

“Oscillator signals continue to flag a well overbought USD and I had noted some USD resistance around the 1.3850 area but unless or until price signals turn more obviously USD-negative, the risk of a push on to retest 1.3940/50 remains. Support is 1.3750.”

The Brent oil price fell by 7.6% last week, its strongest weekly loss since early September, Commerzbank’s commodity analyst Carsten Fritsch notes.

OPEC and the IEA revise their demand forecasts further downward

“For WTI, the 8.4% drop was the largest weekly decline in more than a year. This also meant that most of the gains made in the preceding two weeks were wiped out. For one thing, the fears of an escalation in the conflict between Israel and Iran, which had been behind the previous price increase, diminished somewhat.”

“For another, OPEC and the IEA revised their demand forecasts further downward, particularly with regard to China, which again brought demand concerns more into focus. The Chinese data published by the National Bureau of Statistics (NBS) on Friday provided retrospective confirmation of this.”

• Crude Oil struggles to hold $70.00, with more downside expected. 
• Traders expect longer sluggish demand as markets reprice Fed rate cut prospects. 
• The US Dollar Index broke above 103.80 and tested 104.00, primed for more upside.

Crude Oil struggles to hold ground and orbits around the $70.00 level on Tuesday. The pressure on Oil’s price comes from markets repricing the US Federal Reserve (Fed) interest rate cut projections in the near future. With decreasing odds of an aggressive rate cut path by the Fed, economic growth and energy demand might be killed, which means a bleak outlook for Oil in the coming months. 

The US Dollar Index (DXY), which tracks the performance of the Greenback against six other currencies, consolidates near an 11-week high of 104.00 on Tuesday. With the surge in US yields, the rate differential sees the US overshadow other main continents, such as Europe or Asia. This supports the DXY, which may rise further in the coming weeks to 105.00. 

At the time of writing, Crude Oil (WTI) trades at $69.78 and Brent Crude at $73.76

Oil news and market movers: Rates hurting Oil demand

• Money managers have cut their net-long speculative positions in ICE Brent futures for the first time in five weeks, Bloomberg reports. 
• Additionally, the Chicago Futures Trading Commission (CFTC) reported that WTI Crude futures saw their net-long position fall for a third week in a row, Bloomberg reported. 
• Norway rose its Oil output in September, up 1.5% above its forecast, Reuters reports. 
• At 20:30 GMT, the American Petroleum Institute (API) will release the weekly Crude Stockpile Change data for the week ending October 18. There is no forecast, with a small draw of 1.58 million barrels seen the prior week. 

Oil Technical Analysis: Markets strip away geopolitics

Crude Oil price is facing more and more pressure to trade at more discount. Markets are stripping away geopolitics in the Middle East, with nearly all external parties not willing to get involved in a proxy war, while Israel and Iran are escalating tensions at a very slow pace. While supply is richly flowing, the markets look flooded with Oil for the rest of 2024, according to the recent Energy Information Administration (EIA) report.

There is a challenging path to recovery for Crude Oil in the coming days. First, the pivotal level at $71.46, which was strong enough to catch the falling knife on October 14, must be regained again with a daily close above it. Once from there, the hefty technical level at $75.13, with the 100-day Simple Moving Average (SMA) and a few pivotal lines, is possibly the first big hurdle ahead. 

On the downside, traders need to look much lower, at $67.12, a level that supported the price in May-June 2023. In case that level breaks, the 2024 year-to-date low emerges at $64.75 followed by $64.38, the low of 2023.

US WTI Crude Oil: Daily Chart

The US Dollar (usd) is trading flatter against its major currency peers as DXY gains show some—tentative—signs of stalling around the 104 area (which was the upper end of the range I suggested the DXY could reach at the start of the month as the index started to show signs of gaining momentum), Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Gains may stall as global yields rise

“Rising US yields and more supportive spreads remain a strong source of support for the USD generally but the sell-off in fixed income is a global issue and global stocks are (mostly) lower, reflecting the gains in yields broadly. USD gains look stretched generally on the intraday and daily charts but overbought/sold conditions can persist for extended periods of time.

“US yields could creep a bit higher still in the short run—looser fiscal policy risks following the US election remain a potential issue for Treasurys while markets continue to ponder the pace of Fed rate cuts—but I do tend to think that the USD has perhaps done about as much as it can for now. Additional (significant) gains will require new catalysts and investors might well decide to reduce positioning somewhat as the Presidential election draws closer.”

“What we lack for in data releases today (just the Richmond Fed Manufacturing Index) we more than make for in central bank speak, with many global officials stateside for the IMF/World Bank meetings in Washington. The only Fed official speaking today is Harker who is not a voter this year.”

• AUD/USD recovers sharply from 0.6650 as the RBA is less likely to cut interest rates this year.
• RBA Hauser didn’t offer any interest rate cues and preferred to remain data-dependent.
• The US Dollar clings to gains as traders see the Fed following a moderate policy-easing cycle.

The AUD/USD pair rebounds strongly from the key support of 0.6650 in Tuesday’s European session. The Aussie pair discovers strong buying interest on expectations that the Reserve Bank of Australia (RBA) will continue with a restrictive monetary policy stance for the remainder of the year.

On Monday, RBA Deputy Governor Andrew Hauser cited the strong employment data as a surprise for him. On the monetary policy outlook, RBA Hauser didn’t provide a clear direction and said, “The central bank is ready to respond in either direction depending on incoming data.” The comment from Hauser left doors open for further interest rate hikes.

Meanwhile, a larger-than-expected interest rate cut by the People’s Bank of China (PBoC) has also improved Australia’s economic outlook, given that the nation is the largest trading partner of China. The PBoC reduced its one-year and five-year Loan Prime Rate (LPR) by 25 basis points (bps), while economists were anticipating a 20-bps rate cut.

However, the near-term appeal of the Australian Dollar (AUD) could be hurt by risk-off market sentiment due to uncertainty over the United States (US) presidential elections that are around the corner. S&P 500 futures have posted significant losses in the European session, exhibiting a sharp decline in investors’ risk appetite.

The US Dollar (USD) holds onto gains near a fresh 11-month high as investors expect the Federal Reserve (Fed) to cut interest rates gradually in November and December. The Fed can afford to avoid a sizeable interest rate cut in November, as expected earlier, after a slew of upbeat US economic data for September that diminished economic slowdown risks.

• The US Dollar consolidates Monday’s gains after a grind higher to a fresh 11-week high. 
• US equities retrace from all-time highs as the Fed might not cut that much as first anticipated. 
• The US Dollar index trades in a tight range on Tuesday after failing to break above 104.00. 

The US Dollar (USD) slightly retraces on Tuesday following a small sprint higher on Monday that drove the US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, to a fresh 11-week high after US equities retreated from their all-time highs. The US Treasury bonds are starting to sell off as well as it appears that markets are starting to reprice their interest rate cut expectations, with rising probabilities that the Federal Reserve (Fed) only set to cut once more this year before going into a wait-and-see mode. 

On the US economic front, a very light calendar is ahead for markets to digest on Tuesday. One takeaway, though, comes from the Fed speakers as there is a clear dispersion in opinions within the Federal Open Market Committee (FOMC), as Atlanta Fed President Raphael Bostic pleaded for no rate cuts anymore this year while San Francisco Fed President Mary Daly commented on Monday that the Fed needs to go ahead with its rate cutting cycle and ease further. Market participants are intrigued to see what Philadelphia Fed President Patrick Harker thinks about the matter this Tuesday around 14:00 GMT. 

Daily digest market movers: Fed is becoming dispersed

• At 14:00 GMT, Federal Reserve Bank of Philadelphia President Patrick Harker delivers opening remarks at the Eight Annual Fintech Conference Hosted by the Federal Reserve Bank of Philadelphia.
• While Harker will deliver his speech, the Richmond Fed Manufacturing Index for October will be released at 14:00 GMT. Analysts expect the number to remain in contraction at -18, a touch better than the -21 in September.
• Asian equities are sluggish again, with Japan’s main indices having closed over -1% lower. European equities are flat to marginally higher, while US equity futures are marginally in the red. 
• The CME Fedwatch Tool is still backing a small 25 basis point (bps) rate cut with an 87.0% probability against a 13.0% chance of no rate cut for the upcoming Fed meeting on November 7.  
• The US 10-year benchmark rate trades at 4.20% and rallied substantially on Monday while bonds were selling off. Note that when bond prices fall, the inverted yield increases. 

US Dollar Index Technical Analysis: Burning fingers

The US Dollar Index (DXY) trades between two firm levels on Tuesday after breaking through a bearish fortress, which came in the form of the 200-day Simple Moving Average (SMA) at 103.80 on Monday. Unfortunately, the 103.99/104.00 level was too heavy to break through at the first attempt. Should markets price in lesser interest rate cuts from the Fed, expect to see a 105.00 appear rather quickly in the US Dollar Index. 

Ver closeby on the upside, the 103.99/104.00 level triggered a rejection on Monday and continues as resistance on Tuesday. Once that level breaks, look for the 105.00 round level and even 105.53 (the April 11 high) in a quick sprint higher. More upside would see some resistances near 105.89 (the May 2 high and descending trendline) before considering 106.00.

On the downside, the 200-day SMA is very strong support due to a test at 103.80. Look out for false breaks, and consider waiting for a daily close below that level when reassessing if there will be more downside for the DXY. The next big support is a double one, with the 100-day SMA at 103.19 together with the pivotal 103.18 level (the March 12 high). If that level breaks, a big gap lower would occur to the 101.90 support zone, with the 55-day SMA at 101.89.

US Dollar Index: Daily Chart

For some time, Silver lagged behind the rise in the price of Gold, Commerzbank’s commodity analyst Carsten Fritsch notes.

Silver has risen more than Gold this year

“This was evident from the increase in the Gold/Silver ratio to almost 90 in August and September. Thereafter, the price ratio fluctuated at around 85 for more than a month. Silver thus managed to track the price movements in Gold. It seems that investors now view Silver as a cheaper alternative to Gold, which would not be surprising given that Gold prices continue to rise and reach new record levels.”

“On Friday, the Silver price rose by more than 6%. The rise continued at the beginning of the week. At just over $34 per troy ounce, Silver is as expensive as it hasn't been in almost 12 years. The Gold/Silver ratio subsequently fell to 80, the lowest level since mid-July. This means that the price ratio is also lower than at the beginning of the year, so Silver has risen more than Gold this year.”

“It is not unusual for Silver to track Gold's price movements disproportionately. A rise of more than 40% from current levels would mark the strongest annual increase since 2020, but would remain well below the 80% rise of 2010.”

The Gold price started the new trading week where it left off the previous week, with a rise to a new record high of currently $2,740 per troy ounce. The 2.4 percent rise in the last week was already the fifth in the past six weeks, Commerzbank’s commodity analyst Carsten Fritsch notes.

Gold rises more than 30 percent since January

“Since the beginning of the year, the Gold price has risen by more than 30 percent. As things currently stand, that would be the strongest annual increase in 45 years. The price increase in recent weeks is also noteworthy because the US dollar has appreciated by more than 3% on a trade-weighted basis since the end of September and expectations of interest rate cuts by the Fed have been significantly scaled back.”

“The usual price drivers, namely the US dollar and interest rate expectations, can therefore no longer be used to explain the recent strength of the Gold price. Instead, the tensions in the Middle East, and in particular the conflict between Israel and Iran, as well as the uncertainty in the run-up to the US elections in two weeks' time, can be cited as reasons. Another argument is the current positive market sentiment towards Gold.”

“On Friday, the CFTC reported an increase in speculative net long positions for the week ending 15 October, following a reduction in positions in the previous week in the wake of the price decline. Bloomberg reported inflows into Gold ETFs on all five trading days last week, totalling almost 13 tons. Yesterday, another 5 tons were added. However, we also see signs of exaggeration in the current price increase, so a correction seems overdue. The relative strength index (RSI) is now in overbought territory.”

At the moment, most movement in EUR/USD is US Dollar (USD) driven. But, let focus a little more on the euro side. Because this week could get uncomfortable for the euro, Commerzbank’s FX analyst Antje Praefcke notes.  

Risks in EUR/USD to remain tilted to the downside

“Several heavyweights from the ECB will be commenting on the situation over the course of the week, with many of them speaking out as early as today. If they sound dovish, the market is likely to feel confirmed in its euro skepticism. This is also not good news for the euro, which yesterday slowly fell back towards the 1.08 level.”

“I find it hard to imagine that the PMIs could turn out so badly or the comments from the ECB could be so dovish that these expectations are given another significant downward push, putting the euro under massive downward pressure. Yes, maybe a serious test of the 1.08 mark is possible, with a few pips below towards 1.0780. But I don't see much more than that at the moment.”

“The Euro may fall again this week, but it should not get knocked out. On the contrary, if the market comes to the realization in view of the PMIs that it may have gone a bit too far in its expectations, the euro may even stand up again on the mat. But then there is also the dollar side. Therefore, the risks in EUR/USD should remain tilted to the downside until the rosy picture of the US economy gets scratched.”

Room for the US Dollar (USD) to edge higher to 7.1500 before levelling off. In the longer run, momentum is slowing; a breach of 7.0900 would indicate that USD is more likely to trade in a range instead of strengthening further, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

Momentum is slowing

24-HOUR VIEW: “We expected USD to trade in a range between 7.0990 and 7.1330 yesterday. USD subsequently dipped to 7.1081, then rebounded to 7.1380. USD closed at 7.1365, higher by 0.29%. The advance resulted in a slight increase in momentum. Today, we see room for USD to rise to 7.1500 before levelling off. The major resistance at 7.1600 is unlikely to come into view. On the downside, a breach of 7.1200 (minor support is at 7.1280) would indicate that the current mild upward bias has eased.”

1-3 WEEKS VIEW: “Our update from yesterday (21 Oct, spot at 7.1170) remains valid. As highlighted, the recent buildup in momentum is slowing, and a breach of 7.0900 would indicate that USD is more likely to trade in a range instead of strengthening further. Looking ahead, USD has to break and remain above 7.1500 before an advance to 7.1600 can be expected.”

This week’s featured insight is GDP Nowcast, which is best viewed as an estimate of real GDP growth based on available economic data and forecasts for the current quarter, DBS’ economists Samuel Tse and Daisy Sharma notes.

GDP growth to remain steady at 4.6% in 4Q24

“Today we focus on China’s real GDP, which slowed from 4.7% YoY in 2Q24 to 4.6% in 3Q24, while sequential growth accelerated from 0.7% QoQ in 2Q24 to 0.9% in 3Q24. Despite net exports remaining a pillar for GDP growth, the decelerated external demand in September stripped away the only bright spot in the economy.”

“Our Nowcast model expects GDP growth to remain steady at 4.6% in 4Q24. The model shows that it will mostly be led by weakness in industrial activity and loans. Retail sales will improve, thanks to positive wealth effect from equity market. Fixed assets investment will stabilize. On external front, exports will moderate slightly while non-oil imports will contract.”

“We expect 2024 GDP to average 5.0% from 5.2% in 2023.”

The US Dollar (USD) could break above the major resistance at 151.00, but it might not be able to maintain a foothold above this level. In the longer run, there has been a clear increase in momentum; if USD breaks above 151.00, the focus will shift to 152.00, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

The focus may shift to 152.00 above 151.00

24-HOUR VIEW: “We expected USD to trade in a sideways range of 149.00/150.00 yesterday. USD then dropped to 149.07 before staging a surprising sharp rally, reaching a high of 150.88 in NY trade. The sharp and swift increase in momentum is likely to lead to further USD strength. A break above the major resistance at 151.00 will not be surprising, but overbought conditions suggest USD might not be able to maintain a foothold above this level. The next resistance at 151.50 is unlikely to come under threat. Support levels are at 150.30 and 150.00.”

1-3 WEEKS VIEW: “We have maintained a positive USD stance since early this month. In our most recent narrative from last Friday (18 Oct, spot at 150.00), we highlighted that ‘while USD rose to 150.32, upward momentum has only improved slightly, and it remains to be seen if USD could rise to 151.00.’ We added, ‘a clear break below 149.00 would indicate that the USD strength has ended.’ Yesterday, USD dropped close to 149.00, reaching a low of 149.07. However, it took off from the low and soared to 150.88. This time around, there has been a clear increase in momentum, and if USD breaks above 151.00, the focus will then shift to 151.90. On the downside, the ‘strong support’ level has moved higher to 149.45 from 149.00.”

• USD/CAD consolidates as investors await BoC’s policy decision, which will be announced on Wednesday.
• The BoC is expected to cut interest rates by 50 bps to 3.75%.
• The uncertainty over US presidential elections keeps market sentiment jittery.

The USD/CAD pair consolidates in a tight range above the round-level support of 1.3800 in Tuesday’s European session. The Loonie pair trades back and forth, with investors focusing on the Bank of Canada’s (BoC) interest rate decision, which will be announced on Wednesday.

The BoC is expected to reduce its key borrowing rates by 50 basis points (bps) to 3.75%. This would be the fourth straight interest rate cut by BoC in a row. However, the rate-cut size will be larger than usual due to consistently rising jobless rate and slowing inflationary pressures. In September, the Canadian Unemployment Rate decelerated to 6.5% from 6.6% in August but is still higher than 5%, which is often considered a full employment level.

The Canadian economy needs fresh stimulus to boost overall spending and employment levels, which makes more rate cuts as appropriate. Meanwhile, a tight competition between former US President Donald Trump and current Vice President Kamala Harris for presidential elections, which are two weeks away has also kept the Canadian Dollar (CAD) on tenterhooks. The victory of Trump would result in higher import tariffs, which would undermine the currencies of the United States’s (US) trading partners, such as Canada.

Meanwhile, a firm US Dollar (USD) has also weighed on the Loonie pair. The US Dollar’s outlook is upbeat as investors expect a gradual rate-cut cycle from the Federal Reserve (Fed) in the remainder of the year. According to the CME FedWatch tool, the Fed is expected to cut interest rates by 25 basis points (bps) in November and December.

On the economic front, investors will pay close attention to the flash S&P Global PMI data for October, which will be published on Thursday.

China cut the 1Y and 5Y LPR by 25bps on Monday to 3.10% and 3.60% respectively. USD/CNH had surged to mid-7.13 levels amid broad USD strength, DBS’ FX analyst Philip Wee notes.

RMB market mood shifts amid a resurgent Trump

“China cut the 1Y and 5Y LPR by 25bps on Monday to 3.10% and 3.60% respectively. These cuts to benchmark lending rates were expected given a 20bps cut to the 7D reverse repo rate in late September, and are part of a broader policy push to stimulate growth in China.” 

“USD/CNH had surged to mid-7.13 levels amid broad USD strength, opening a gap with the onshore CNY fixing. RMB flows have become more two-way, after an earlier bout of equity inflows into China briefly led to a dip in USD/CNH below 7.”

“We had flagged US election and trade risks as reasons to be restrained on RMB optimism earlier, and it seems the RMB market mood has indeed shifted amid a resurgent Trump.”

Potential for the New Zealand Dollar (NZD) to continue to decline; given the oversold conditions, it is unlikely to break clearly below 0.6005. In the longer run, price action indicates that 0.6005 is likely within reach; the next level to watch below 0.6005 is 0.5985, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

Next level to watch below 0.6005 is 0.5985

24-HOUR VIEW: “We did not expect the sharp drop in NZD that reached a low of 0.6027 (we were expecting range trading). Although the sharp drop appears to be overdone, there is potential for NZD to continue to decline. Given the oversold conditions, NZD is unlikely to break clearly below the major support at 0.6005. On the upside, any intraday rebound is expected to face strong resistance at 0.6060 with minor resistance at 0.6045.”

1-3 WEEKS VIEW: “Yesterday (21 Oct, spot at 0.6075), we highlighted that “momentum is beginning to slow, and the likelihood of NZD decline further to 0.6005 has decreased. We did not expect the subsequent sharp drop to 0.6027. The price action indicates that 0.6005 is likely within reach. The next level to watch below 0.6005 is 0.5985. On the upside, the ‘strong resistance’ level has moved lower to 0.6085 from 0.6115. A breach of the 0.6085 would mean that the weakness in NZD that started early this month has stabilised.”

• Gold continues its uptrend as the conflict in the Middle East remains unabated. 
• The changing outlook for global interest rates, however, could put a limit on Gold’s upside. 
• XAU/USD trends higher as a multi-time-frame uptrend extends. 

Gold (XAU/USD) continues higher after the briefest of pullbacks to trade once more in the $2,730s on Tuesday. The yellow metal is rallying due to increased safe-haven demand because of the intensifying conflict in the Middle East, although it has slowed its pace as bonds sell off around the world due to a revision of the outlook for global interest rates. 

From previously expecting interest rates to fall sharply, investors now see a gentler slope because unexpectedly strong US data eliminated the chances of another double-dose 50 basis point (bps) (0.50%) mega cut by the Federal Reserve (Fed). This, in turn, reduces Gold’s attractiveness as a non-interest-paying asset. 

Gold rises on safe-haven flows 

Gold rallies as investor demand for safety increases due to the worsening conflict in the Middle East. Despite the eleventh visit to the region by US Secretary of State Anthony Blinken since the start of the conflict, a cease-fire deal seems as elusive as ever.

On Tuesday morning, Hezbollah announced that it had launched rockets at two bases near Tel Aviv and one near Haifa. This followed a series of Israeli airstrikes on southern Lebanon and Beirut. In one Israeli strike near Beirut’s Hariri Hospital, the death toll is said to have risen to 13, according to the Lebanon Ministry of Health, as per Reuters. 

On Monday, Israel stepped up its bombardment of Beirut by destroying several economic targets in an attempt to wipe out the bank that provides Hezbollah with its funding. 

An expected Israeli retaliatory attack on Iran is also back on the table after an Iranian drone penetrated Israeli air defense systems and exploded near Israeli Prime Minister Benjamin Netanyahu’s private residence over the weekend. 

Technical Analysis: Gold rallies toward next upside target

Gold continues rising in a steady uptrend on all time frames (short, medium and long) and, after breaching the $2,700 mark, it is now on its way to the next target at $2,750. 

XAU/USD Daily Chart

The Relative Strength Index (RSI) is overbought, however, advising long-holders not to add to their positions because of an increased risk of a pullback. Should RSI close back in neutral territory, it will be a sign for long-holders to close their positions and open shorts as a deeper correction may evolve. Support lies at $2,700 (key level) and $2,685 (September high).  

Gold’s overall strong uptrend, however, suggests that any corrections will likely be short-lived, and afterward, the broader bull trend will probably resume.  

US election risks are dominating markets amid a resurgent Trump. The betting odds for a Trump win has shortened markedly over October, and this is propelling US yields higher and lifting the USD, DBS’ FX analyst Philip Wee notes.

DXY approaches 104, near its August high

“Polls from FiveThirtyEight now show Trump leading Harris for the first time in Pennsylvania and almost catching up to Harris in Michigan, which are two major swing states. A broad Republican victory under Trump entail raise risks of wider US budget deficits. The Committee for a Responsible Federal Budget has calculated that Trump’s proposed fiscal policies could result in USD7.5trn more debt over ten years, while Harris’s plans could add USD3.5trn of debt.” 

“Tariffs are also likely to be hiked by Trump, which could lift the USD, particularly against Asian exporter currencies. Meanwhile, Fed officials including Schmid, Logan, and Kashkari had called for a more gradual pace of Fed rate cuts, giving uncertainty in the economy.”

“Daly underscored that policy was still tight, and that she has not seen reasons to stop cutting rates. Markets have moved from pricing another 70bps of cuts this year at the start of Oct, to just 40bps of additional cuts. The adjustment of rate cut expectations is already substantive and had lifted the DXY towards 104, near its Aug high. The USD may not benefit as much from the trimming of rate cut expectations going forward.”

 

• The Mexican Peso takes a break after a string of days in which the currency has seen losses. 
• As an emerging market currency it remains sensitive to risk sentiment which has dipped in recent sessions.
• USD/MXN pulls back from the key 20.00 level although the short-term trend remains bullish. 

The Mexican Peso (MXN) pauses on Tuesday after a multiple-day run of weakness in its key pairs. Emerging market (EM) assets had been hit by a general unwinding of risk appetite triggered by a recalibration of global interest rate expectations. This has generally hit risk-sensitive EM currencies like the Peso at the worst. The trend started after United States (US) investors changed their expectations about the trajectory of interest rates in the US, seeing them not falling as sharply due to unexpectedly strong US economic data. 

Further pressure on the Mexican Peso comes from former US President Donald Trump’s improved performance in opinion polls. This now means the race to the White House is neck-and-neck between him and US Vice President and Democratic candidate Kamala Harris. Trump has threatened to tear up the US’s free trade agreement with Mexico and whack up to 300% tariffs on Mexican cars imported into the States. Such a move would hit the Mexican economy and reduce demand for its currency. 

The latest poll by TIPP Insights on October 18-20 shows Donald Trump in the lead with 48% of the vote to Kamala Harris’s 47%, according to election website FiveThirtyEight. Betting website OddsChecker, meanwhile, gives Trump an 8/13 or 61.9% chance of winning over Harris’s 8/5 or 38.50%. 

Mexican Peso under pressure from cautious investor sentiment

The Mexican Peso is facing challenges due to a growing cautious stance among global investors towards emerging market assets, as noted in an article from El Financiero. This sentiment stems partly from rising concerns that the Federal Reserve (Fed) may have prematurely lowered US interest rates by a substantial 50 basis points (bps) at its September meeting.

Strong US economic data indicates that such a significant rate cut may not have been justified. While a robust US economy generally benefits Mexico due to their close trading relationship, high US interest rates make EM assets — especially from Brazil and Mexico — less attractive, as highlighted by The Wall Street Journal (WSJ). A shift back to a tighter monetary policy could dampen global investor interest in Mexican assets.

Additionally, disappointment over the limited scope of recent Chinese stimulus measures may be contributing to heightened investor caution regarding EM holdings, further impacting the Peso. However, it's worth noting that the People's Bank of China (PBoC) announced cuts to its one- and five-year prime rates to ease credit conditions on Monday.

On the data front, Tuesday sees the release of Mexican Economic Activity data for October at 12:00 GMT, forecasted to increase by 0.9% year-over-year after a 3.8% rise in September. If activity beats expectations, it could help the Peso and vice versa if the opposite.

Technical Analysis: USD/MXN repulsed by 20.00 barrier

USD/MXN flirts with the key 20.00 barrier and then pulls back. It will probably resume going higher once the correction ends. The pair is in a short, medium and long-term trend, which, given the principle in technical analysis that “the trend is your friend,” is more likely than not to extend. 

USD/MXN Daily Chart 

The break above 19.83 (October 1 high) has confirmed a probable move up to the next target in the vicinity of the September 10 high at 20.13.

The blue line of the Moving Average Convergence Divergence (MACD) momentum indicator is rising quite strongly after bottoming out at the zero line and crossing above its red signal line, supporting a mildly bullish outlook overall.

• The Pound Sterling trades with caution as investors await BoE Bailey’s speech for fresh guidance on interest rates.
• Bailey may reiterate a dovish stance on the interest-rate outlook, signaling that more interest-rate cuts are on the way.
• The US Dollar outlook remains upbeat as uncertainty increases ahead of the US presidential election.

The Pound Sterling (GBP) performs mixed against its major peers on Tuesday, struggling for direction as investors await the Bank of England (BoE) Governor Andrew Bailey’s speech, who will speak at 13:25 GMT at the Bloomberg Global Regulatory Forum in New York. In his speech, Bailey is expected to provide fresh guidance on the interest-rate outlook, a key driver for the Pound Sterling’s valuation. 

In an interview with the Guardian newspaper at the start of the month, Bailey stressed the need to cut interest rates aggressively if price pressures continue to ease. He said the BoE could become "a bit more activist" and "a bit more aggressive" in its approach to lowering rates if there was further welcome news on inflation.

Meanwhile, a column written by BoE’s rate-setter Megan Greene, published in the Financial Times on Monday, indicated that the policymaker favored a gradual rate-cut approach, with doubts over whether forward consumption levels will be strong or weak.

According to market speculation, traders are confident about the BoE cutting interest rates by 25 basis points (bps) to 4.75% in November. For December, traders are also betting heavily for another 25 bps cut, Reuters reported.

Daily digest market movers: Pound Sterling holds key support against US Dollar

• The Pound Sterling continues to hold the key support of 1.2970 against the US Dollar (USD) in Tuesday’s London session. However, the outlook of the GBP/USD pair remains uncertain as the US Dollar grips gains near an 11-week high and is expected to gain further amid United States (US) election uncertainty. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to gains near 104.00.
• A sheer strength in the US Dollar suggests that traders are pricing in former US President Donald Trump’s victory in presidential elections, which are just two weeks away. Trump vowed to hike tariffs and lower taxes in his election promises if he wins. The scenario will undermine the currencies of the US’s close trading partners and keep interest rates escalated. However, the latest national polls have shown a neck-and-neck competition between Trump and US Vice President and Democratic candidate Kamala Harris.
• Regarding the interest rate outlook, traders have priced in two rate cuts of 25 bps by the US Central Bank in November and December. The Fed can afford to avoid a sizeable interest rate cut in November, as earlier expected after a slew of upbeat US economic data for September diminished risks of an economic slowdown.
• On the economic front, investors will focus on the flash S&P Global Purchasing Managers Index (PMI) for October and the Durable Goods Orders data for September, which will be published on Thursday and Friday, respectively.

Technical Analysis: Pound Sterling trades at make or a break near 1.3000

The Pound Sterling trades close to near the psychological support of 1.3000 in European trading hours. The near-term outlook of the GBP/USD remains bearish as it hovers below the 50-day Exponential Moving Average (EMA), which trades around 1.3090. 

The 14-day Relative Strength Index (RSI) hovers near 40.00. A breakdown through the same will strengthen the bearish momentum.

Looking down, the upward-sloping trendline drawn from the April 22 low of 1.2300 will be a major support zone for Pound Sterling bulls near 1.2920. On the upside, the Cable will face resistance near the 20-day EMA around 1.3110.

Silver prices (XAG/USD) rose on Tuesday, according to FXStreet data. Silver trades at $34.21 per troy ounce, up 1.22% from the $33.79 it cost on Monday.

Silver prices have increased by 43.75% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 79.94 on Tuesday, down from 80.48 on Monday.

(An automation tool was used in creating this post.)

Yesterday's data in Poland brought a downside surprise across the board. This morning markets have already seen Hungarian wages for August and later on retail sales in Poland will be released which is expected to be above the market's expectations, ING’s FX analyst Frantisek Taborsky notes.  

All eyes on the National Bank of Hungary meeting

“However, today's highlight is the National Bank of Hungary meeting. In line with expectations, we expect no change in rates at 6.50%. Of course, the recent sell-off in HUF, along with the whole EM space, has turned the central bank hawkish and the pause in the cutting cycle has been highly communicated in the previous days. Even so, the market awaits another hawkish report and hints as to what central bankers want to see before returning to the rate cut discussion.”

“On the macro side, the central bank may be satisfied. Inflation is on target while the economy surprises more on the negative side. However, global markets are not supportive and EUR/HUF above 400 is a warning sign for the NBH. The main question for today is how long the pause in the cutting cycle is. Markets have priced out much of the NBH easing and rates continue to sell off across the IRS and HGBs curve.”

“The market is pricing in the first cut in June after yesterday with the terminal rate at 5.90%, roughly 130bps above the September lows. That seems too far to us, but it makes no sense to go against the market in this environment. Despite the market already being on the hawkish side, NBH will not have an easy job today and communication will be key. However, we believe the central bank is aware of the fragile situation and therefore the HUF could see some gains today, but it is probably too early for any significant recovery and every gain could be short-lived.”

Sharp increase in momentum is likely to lead to further declines in AUD, but 0.6620 is probably out of reach today. In the longer run, rejuvenated momentum suggests AUD weakness remains intact; the level to monitor is 0.6620, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

The level to monitor is 0.6620

24-HOUR VIEW: “Our view for AUD to trade in a 0.6685/0.6730 range was incorrect, as it plummeted to a low of 0.6652 in NY trading. The sharp increase in momentum is likely to lead to further declines, even though the major support at 0.6620 is probably out of reach today. To maintain the momentum, AUD must remain below 0.6685 with minor resistance at 0.6670.”

1-3 WEEKS VIEW: “Yesterday (21 October), when AUD was at 0.6715, we indicated that ‘Downward momentum is slowing rapidly, and a breach of 0.6740 (‘strong resistance’ level) would mean that the AUD weakness has stabilised.’ However, AUD did not breach the ‘strong resistance’ level. Instead, it dropped sharply to a low of 0.6652. The rejuvenated momentum suggests that the AUD weakness from early this month remains intact. The level to monitor is 0.6620, followed by a significant support level at 0.6585. On the upside, the ‘strong resistance’ level has moved lower to 0.6705 from 0.6740.”

USD/JPY remains a closely watched pair after breaking again above 150.0, ING’s FX analyst Francesco Pesole notes.  

USD/JPY can go back to the 153-155 mark

“The yen is naturally highly exposed to bond market weakness, but markets are also adding some political risk premium into the yen after the latest polls showed the ruling LPD-Komeito coalition losing support ahead of this week’s election. Political weakening of Prime Minister Shigeru Ishiba can lead to a further delay in the Bank of Japan normalisation plans, leaving the Minister of Finance with the decision to either leave the yen to give in to further selling speculation or jump back into FX intervention.”

“We still think markets will be more sensitive than in previous instances to verbal intervention given the success of the latest round of FX intervention, but for now there is a good chance JPY speculators will keep testing which new level will trigger an MoF reaction.”

“USD/JPY easily broke through the 100-day moving average at 150.7 yesterday. We’ll see whether the 200-day MA 151.3 level offers some better resistance. Lacking some reaction from Japanese authorities, the combination of a stronger dollar and Japan's political risk premium can take USD/JPY back to the 153-155 mark before the US vote.”

• NZD/USD rebound from over a two-month low amid a modest USD downtick.
• A combination of factors should limit the USD slide and cap gains for the pair.
• The setup supports prospects for the emergence of fresh selling at higher levels. 

The NZD/USD pair stages a modest recovery from the 0.6020 area, or its lowest level since August 16 touched this Tuesday and sticks to its intraday gains through the first half of the European session. Spot prices currently trade around the 0.6060 region, up 0.45% for the day, and draw support from a weaker US Dollar (USD).

The USD Index (DXY), which tracks the Greenback against a basket of currencies, eases from its highest level since early August as bulls take a breather following the recent strong rally since the beginning of this month. However, growing acceptance that the Federal Reserve (Fed) will proceed with modest rate cuts should limit any meaningful USD corrective slide. This, along with expectations that the Reserve Bank of New Zealand (RBNZ) will cut rates aggressively and a softer risk tone, should cap gains for the risk-sensitive NZD/USD pair. 

From a technical perspective, the recent breakdown below the very important 200-day Simple Moving Average (SMA) was seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold territory. This, in turn, suggests that the path of least resistance for the NZD/USD pair is to the downside. Hence, any subsequent move up might still be seen as a selling opportunity near the 0.6100 round-figure mark, which should now act as a key pivotal point.

The said barrier is followed by the 0.6120-0.6125 supply zone, which if cleared decisively will suggest that spot prices have formed a near-term bottom and pave the way for additional gains. The NZD/USD pair might then aim to clear the 0.6175-0.6180 intermediate barrier and reclaim the 0.6200 round-figure mark before climbing further towards the next relevant hurdle near the 0.6230-0.6235 region.

On the flip side, the 0.6025-0.6020 region, or the daily trough, might continue to protect the immediate downside ahead of the 0.6000 psychological mark. A convincing break below the latter will reaffirm the negative outlook and drag the NZD/USD pair to the 0.5950 horizontal support. The downward trajectory could extend further towards the 0.5930 intermediate support en route to sub-0.5900 levels and the August monthly swing low, around mid-0.5800s.

NZD/USD daily chart

• AUD/JPY extends its gains as traders expect the RBA to maintain current interest rates in 2024.
• The Australian Dollar gains support as China's recent rate cuts may boost demand for Australian exports.
• The subdued Japanese Yen could heighten market concerns, possibly leading to another intervention by Japanese authorities.

AUD/JPY continues to gain ground for the second successive session, hovering around 100.90 during the European trading hours on Tuesday. The Australian Dollar (AUD) receives support from hawkish sentiment surrounding the Reserve Bank of Australia (RBA) regarding its policy outlook, bolstered by positive employment data released last week.

The Employment Change surged by 64.1K in September, bringing the total employment to a record 14.52 million. This far surpassed market expectations of a 25.0K increase, following a revised rise of 42.6K in the previous month.

Additionally, the AUD found support from China's recent rate cuts, given that China remains Australia’s largest trading partner. The People's Bank of China (PBoC) reduced the 1-year Loan Prime Rate (LPR) to 3.10% from 3.35% and the 5-year LPR to 3.60% from 3.85%, in line with expectations. Lower borrowing costs are anticipated to stimulate China's domestic economic activity, potentially increasing demand for Australian exports.

The weakening Japanese Yen (JPY) may fuel market fears, potentially triggering another intervention by Japanese authorities. However, Japan's Deputy Chief Cabinet Secretary, Kazuhiko Aoki, declined to comment on currency movements on Tuesday. Meanwhile, Chief Cabinet Secretary Yoshimasa Hayashi acknowledged both the positive and negative aspects of the Yen’s fluctuations.

Bank of Japan (BoJ) Executive Director Takashi Kato stated that the BoJ is not targeting specific FX levels but is closely monitoring upside risks from rising import costs. Kato also emphasized the need to carefully assess the US economy, upcoming elections, and Federal Reserve policy.

The Pound Sterling (GBP) is likely to continue to weaken; the 1.2940 level is expected to provide strong support. GBP must break and remain below 1.2940 before a resumption of weakness can be expected, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

Weakness to resume after a break below 1.2940

24-HOUR VIEW: “After GBP rose last Friday, we highlighted yesterday (Monday) that ‘Despite the advance, there is no significant increase in momentum, and instead of continuing to rise, GBP is more likely to trade sideways between 1.3010 and 1.3070.’ The subsequent sharp drop that reached a low of 1.2978 was surprising. Today, GBP is likely to continue to weaken, even though the 1.2940 level is expected to provide strong support. Resistance is at 1.3000; a breach of 1.3020 would indicate that the current downward pressure has faded.”

1-3 WEEKS VIEW: “After holding a negative GBP stance since the start of the month, we turned neutral yesterday (21 Oct, spot at 1.3050), indicating that ‘the weakness in GBP has ended, and for the time being, it is likely to trade in a range between 1.2980 and 1.3130.’ We did not anticipate the subsequent sharp decline that reached a low of 1.2984. Downward momentum has increased, but not enough to suggest the resumption of GBP weakness. GBP must break and remain below 1.2940 before further declines can be expected. The likelihood of GBP breaking clearly below 1.2940 will remain intact, provided that the ‘strong resistance’ level at 1.3060 is not breached in the next couple of days.”

The recent shift towards growth concern in the ECB narrative automatically places a greater focus on activity surveys like this week’s PMIs and Ifo, which have previously been overlooked by the Governing Council. But before then, there will be a long list of ECB speakers. Today, along with a TV interview from President Christine Lagarde herself, doves Panetta and Centeno, neutral members Villeroy and Rehn, and hawks Knot and Holzmann will speak, ING’s FX analyst Francesco Pesole notes.  

A list of ECB speakers on their way

“It is quite common for ECB members to fine-tune the policy message in the period after a rate decision. The key question is: are the hawks fine with Lagarde’s sanguine disinflation view, a gradual shift in focus to growth and such a dovish market pricing? Given some lingering pockets of sticky services inflation in the eurozone, the answer is probably no. But unless PMIs show some sign of life on the activity side, convincing markets to price out some easing will be no easy task.”

“Naturally, should we see signs of faltering resistance towards easing by arch-hawks like Knot and Holzmann today, expect the euro to feel some additional pressure. Yesterday, hawkish member Kazimir said the December decision is "wide open", quite a dovish shift from his pre-October meeting comments.”

“In the rest of Europe, we’ll be keeping a close eye on the first of four speeches Bank of England Governor Andrew Bailey is set to deliver this week. EUR/GBP has room to rebound from 0.8300 as markets may prove rather sensitive to any dovish hint by Bailey, and also considering some pre-UK budget positioning can see some buildup of GBP shorts. Looking at GBP/USD, our near-term bias remains 1.28.”

Chinese banks lowered the loan prime rates (LPR) by 25 bps at October’s fixing, bringing the 1Y and 5Y LPR to 3.10% and 3.60% respectively. The size of the rate cuts was the largest on record and came above consensus and our forecasts for 20 bps as banks heed PBOC’s call to lower borrowing costs amid the economic slowdown and persistent deflation risks, UOB Group’s Economist Ho Woei Chen notes.

Banks cut LPRs by 25 bps in October

“Chinese banks lowered the loan prime rates (LPR) by a larger than expected 25 bps at October’s fixing, bringing the 1Y and 5Y LPR to 3.10% and 3.60% respectively.”

“This is a follow through from PBOC’s cut to the key 7-day reverse repo rate (-20 bps), the 1Y medium-term lending facility rate (-30 bps) and banks’ reserve requirement ratio (-50 bps) in late-September. Cumulatively, the 1Y LPR and 5Y LPR have been cut by a record 35 bps and 60 bps respectively this year.”

“Keeping in mind the impact on the limits of progressively lower interest rates, we think the PBOC is likely done with its interest rate cuts for the year but there is still room for another 25-50 bps reduction to the banks’ reserve requirement ratio (RRR) by end-2024 as guided by the central bank. This will release more liquidity to replace the large amount of maturing 1Y medium-term lending facility (MLF) in the next few months.”

Potential for the Euro (EUR) to decline further; it remains to be seen whether 1.0770 is within reach today. In the longer run, downward momentum has not improved much, but there is a chance for EUR to drop to 1.0770 before stabilisation can be expected, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

EUR can stabilize after dropping towards 1.0770

24-HOUR VIEW: “Yesterday, when EUR was at 1.0865, we indicated that it ‘could edge higher, but it does not seem to have enough momentum to break above 1.0900.’ However, instead of edging higher, EUR plummeted, closing lower by 0.47% (1.0815). While downward momentum has not increased by much, there is potential for EUR to decline further. However, it remains to be seen whether 1.0770 is within reach today. Note that there is another support level at 1.0800. On the upside, resistance levels are at 1.0830 and 1.0850.”

1-3 WEEKS VIEW: “After EUR rebounded last Friday, we indicated yesterday (21 Oct, spot at 1.0865) that ‘although our ‘strong resistance’ level at 1.0900 has not been breached yet, the slowing momentum suggests 1.0770 is likely out of reach this time around.’ EUR subsequently reversed and dropped to 1.0810. Despite the relatively sharp decline, downward momentum has not improved much. That said, as long as 1.0880 (‘strong resistance’ level previously at 1.0900) is not breached, there is a chance for EUR to drop to 1.0775 before stabilisation can be expected.”

The US Treasury selloff is adding fuel to the US Dollar (USD) rally, ING’s FX analyst Francesco Pesole notes.  

Stronger USD is a result of potential Trump hedges

“Our perception is that the size of the bond and FX moves are now being exacerbated by some deleveraging ahead of the US election. Yesterday, three Fed speakers (Logan, Kashkari and Schmid) sounded quite cautious about future easing, effectively endorsing the recent hawkish repricing in the USD OIS curve.”

“Mary Daly was more dovish, but that did not prevent markets from trimming another 5bp from year-end rate expectations. The Fed Funds futures curve currently embeds 40bp of cuts and the OIS curve 36bp. While that has continued to widen to policy divergence in favour of the dollar, we are not sure markets will be willing to price out much more easing without having first received some further information on the jobs market.”

“In that sense, we may need to wait another week (JOLTS job opening figures on 29 October) for the next key input to the macro story. Until then, our bias for a stronger dollar is more a result of potential Trump hedges rather than further near-term swap rate widening.”

• USD/CHF may regain its ground as US Treasury yields continue to surge.
• CME FedWatch Tool suggests an 86.9% chance of the Fed’s 25-basis-point rate cut in November, with expecting no bumper cut.
• The Swiss Franc faces challenges as lower inflation reinforces the likelihood of another rate cut by the SNB in December.

USD/CHF offers its gains from the previous session, trading around 0.8650 during the early European hours on Tuesday. This downside of the pair could be limited as the US Dollar (USD) gained support following a surge in US Treasury yields, which climbed over 2% on Monday. At the time of writing, the 2-year and 10-year US Treasury bond yields stand at 4.04% and 4.20%, respectively.

Recent economic data dispelled the likelihood of a bumper rate cut by the Federal Reserve (Fed) in November. According to the CME FedWatch Tool, the likelihood of a 25-basis-point rate cut in November is 89.1%, with no expectation of a larger 50-basis-point cut.

On Monday, Federal Reserve Bank of Minneapolis President Neel Kashkari highlighted that the Fed is closely monitoring the US labor market for signs of rapid destabilization. Kashkari cautioned investors to anticipate a gradual pace of rate cuts over the coming quarters, suggesting that any monetary easing will likely be moderate rather than aggressive.

The Swiss Franc (CHF) faces pressure as a continued slowdown in Swiss inflation strengthens expectations of another rate cut by the Swiss National Bank (SNB) at its upcoming December meeting. In September, the SNB reduced its key rate for the third time in a row by 0.25%, bringing it to 1%. Inflation also fell for the third consecutive month, reaching 0.8% in September—its lowest level in over three years—down from 1.1% in August.

However, the CHF could find support from safe-haven demand amid uncertainty surrounding the US election and rising geopolitical tensions in the Middle East. Israel's strikes on Hezbollah-linked financial sites in Beirut have heightened fears of an escalating conflict.

In the US presidential race, Democratic candidate Kamala Harris and Republican Donald Trump delivered contrasting messages as they worked to sway undecided voters in the final two weeks leading up to Election Day.

• EUR/USD remains inside the woods as the ECB is expected to cut interest rates again in December.
• ECB’s Lagarde will provide fresh cues on the interest rate outlook on Tuesday.
• Fed policymakers see smaller interest rate cuts as appropriate.

EUR/USD trades close to a fresh 11-week low near the round-level support of 1.0800 in Tuesday’s European session. The major currency pair is under pressure due to multiple headwinds, such as escalating European Central Bank (ECB) dovish bets and a firm US Dollar (USD).

Traders have priced in the ECB to cut interest rates again in the December meeting as growing risks to Eurozone’s economic growth are expected to keep inflationary pressures within striking distance of the central bank’s target of 2%. This would mean the fourth interest rate cut by the ECB this year.

Data released on Monday showed that the German Producer Price Index (PPI) deflated by 1.4% year-over-year (YoY) in September, faster than 0.8% in August, and pointed to the inability of producers to raise prices of goods and services at factory gates due to weak household spending.

On Monday, Slovak central bank chief and ECB policymaker Peter Kazimir said he is increasingly confident that the disinflation trend is intact. However, he wants to see more evidence before declaring a victory over inflation. 

Meanwhile, the commentary from Lithuanian central bank governor and ECB Governing Council member Gediminas Šimkus appeared to be more dovish. Šimkus said, "If the disinflation processes get entrenched, it's possible that rates will be lower than the natural level." The ‘natural level’ of interest rates is between 2% and 3%.

In Tuesday’s session, investors will pay close attention to ECB President Christine Lagarde’s interview with Bloomberg and her participation in a panel discussion during the International Monetary Fund (IMF) meeting in Washington. Lagarde is expected to provide fresh guidance on interest rates.

Daily digest market movers: EUR/USD stays on backfoot on US election jitters

• EUR/USD remains fragile near the immediate support of 1.0800 as the US Dollar (USD) clings to gains near a fresh 11-week high. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, holds onto gains near 104.00. The Greenback gains on United States (US) presidential election jitters and growing expectations that the Federal Reserve (Fed) will follow a moderate policy-easing cycle.
• Latest polls have shown a neck-to-neck competition between former US President Donald Trump and Vice President Kamala Harrish ahead of elections, which are just two weeks away. Trump's victory is expected to result in higher import tariffs and lower taxes, which could prompt the Fed to raise interest rates further. 
• Meanwhile, the Fed is expected to cut interest rates by 25 basis points (bps) in November and December, according to the CME FedWatch tool. The reasoning behind firm speculation for a slower rate-cut cycle is investors’ growing confidence in US economic resilience after upbeat Nonfarm Payrolls (NFP), ISM Services PMI, and the Retail Sales data for September. Also, Fed officials see a gradual rate-cut path as appropriate.
• This week, investors will keep an eye on the preliminary S&P Global Purchasing Managers Index (PMI) data for October, which will be published on Thursday.

Technical Analysis: EUR/USD remains below 1.0850

EUR/USD struggles to hold the immediate support of 1.0800 in European trading hours. The outlook of the major currency pair remains uncertain as it trades below the 200-day Exponential Moving Average (EMA), which trades around 1.0900.

The downside move in the shared currency pair started after a breakdown of a Double Top formation on a daily timeframe near the September 11 low at around 1.1000, which resulted in a bearish reversal.

The 14-day Relative Strength Index (RSI) dives below 30.00, indicating a strong bearish momentum. However, a recovery move remains on the cards as conditions turn oversold.

On the downside, the major could find support near the upward-sloping trendline at 1.0750, which is plotted from the October 3 low around 1.0450. Meanwhile, the 200-day EMA and the psychological figure of 1.1000 will be the key resistances for the pair.

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

Following a quiet start to the week, the US Dollar (USD) gathered strength in the American trading hours on Monday, with the USD Index reaching its highest level since early August above 104.00. Early Tuesday, the index stays in a consolidation phase below this level. Richmond Fed Manufacturing Index for October will be the only data featured in the US economic calendar. Throughout the day, several key central bankers, including European Central Bank (ECB) President Christine Lagarde and Bank of England (BoE) Governor Andrew Bailey, will be delivering speeches.

The USD benefited from the risk-averse market environment and started to outperform its major rivals as Wall Street's main indexes opened on a bearish note. In the European morning on Tuesday, US stock index futures are down between 0.2% and 0.3%. 

Gold gathered bullish momentum on Monday and climbed to a new record-high of $2,740. Although XAU/USD erased its gains to close the day flat near $2,730, it managed to regain its traction early Tuesday. At the time of press, Gold was up more than 0.5% on the day above $2,730.

Bank of Japan (BoJ) Executive Director Takashi Kato said on Tuesday that they are not targeting FX levels but added that they are carefully looking at upside risks from rising import prices. USD/JPY rose nearly 1% on Monday and continued to push higher in the Asian session on Tuesday. After touching its highest level in over two months above 151.00, the pair retreated to toward 150.70.

EUR/USD dropped toward 1.0800 and lost 0.5% on Monday to register its lowest daily close since early August. The pair finds it difficult to stage a rebound and trades at around 1.0820 in the European morning on Tuesday. ECB President Lagarde will participate in a conversation with Bloomberg journalist Francine Lacqua at 14:30 GMT. Later in the day, she will be appearing a panel discussion about the future of cross-border payments during the 2024 Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) in Washington DC.

GBP/USD failed to build on the recovery gains it recorded in the second half of the previous week and dropped below 1.3000 on Monday. The pair managed to erase a portion of its recent losses and was last seen trading slightly above 1.3000. BoE Governor Bailey will deliver a keynote address at the Bloomberg Global Regulatory Forum in New York at 13:25 GMT.

• GBP/USD may struggle as daily chart analysis suggests a bearish bias.
• The pair could find support around the lower boundary of the descending channel at 1.2810 level.
• The immediate barrier appears around the upper boundary of the descending channel at the nine-day EMA of 1.3040 level.

GBP/USD retraces its recent losses, trading around 1.3000 during the Asian hours on Tuesday. The daily chart analysis shows the pair is consolidating within the descending channel pattern, which suggests a bearish bias for the pair.

The Moving Average Convergence Divergence (MACD) indicator suggests bearish momentum, as the MACD line is positioned below the centreline and the signal line. Additionally, the 14-day Relative Strength Index (RSI) is below 50 level, reinforcing the ongoing bearish sentiment.

On the downside, the GBP/USD pair may navigate the area around the lower boundary of the descending channel at 1.2810, followed by the psychological level of 1.2800. A break below this level could put downward pressure on the pair to test the three-month low of 1.2665, which was recorded on August 8.

For resistance, the GBP/USD pair could test the upper boundary of the descending channel around the nine-day Exponential Moving Average (EMA) at the 1.3040 level. A break above this level could support the pair to approach the psychological level of 1.3100.

GBP/USD: Daily Chart

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

EUR/USD: EUR amounts

• 1.0750 737m
• 1.0850 1.2b
• 1.0885 853m
• 1.0940 884m
• 1.1000 1.2b
• 1.1025 729m

USD/JPY: USD amounts                     

• 147.00 799m
• 148.50 1.2b

USD/CHF: USD amounts     

• 0.8750 431m

AUD/USD: AUD amounts

• 0.6575 1.9b
• 0.6675 1.6b
• 0.6800 900m
• 0.6815 1.9b

USD/CAD: USD amounts       

• 1.3725 468m

NZD/USD: NZD amounts

• 0.5930 640m
• 0.6120 512m

EUR/GBP: EUR amounts        

• 0.8325 480m

• EUR/USD is seen consolidating the overnight fall to its lowest level since early August.
• Bets for more interest rate cuts by the ECB undermine the Euro amid a bullish USD.
• Expectations for smaller Fed rate cuts and elevated US bond yields benefit the buck.

The EUR/USD pair enters a bearish consolidation phase during the Asian session on Tuesday and oscillates in a range around the 1.0820 region, just above its lowest level since early August touched the previous day. The near-term bias, meanwhile, seems tilted firmly in favor of bearish traders and suggests that the path of least resistance for spot prices remains to the downside.

Data released on Monday showed that producer prices in Germany – the Eurozone's largest economy – fell for the first time in seven months in September and the annual rate of deflation picked up pace. This, in turn, lifted bets for further monetary easing by the European Central Bank (ECB). Furthermore, ECB policymaker Gediminas Simkus said that the ECB may need to reduce its key interest rate even further below the "natural" level if a fall in inflation becomes entrenched. This might continue to undermine the shared currency, which, along with a bullish US Dollar (USD), validates the negative outlook for the EUR/USD pair. 

The USD Index (DXY), which tracks the Greenback against a basket of currencies, stands tall near its highest level since early August amid growing acceptance that the Federal Reserve (Fed) will proceed with modest interest rate cuts. Apart from this, concerns about the potential for rising deficit spending after the November 5 US presidential election pushed the US Treasury bond yields to their highest levels in almost three months. This, along with persistent geopolitical risks, is seen underpinning the safe-haven buck, which, in turn, supports prospects for a further near-term depreciating move for the EUR/USD pair. 

There isn't any relevant market-moving macro data due for release from the Eurozone on Tuesday, while the US economic docket features the Richmond Manufacturing Index. This, along with Philadelphia Fed President Patrick Harker's scheduled speech, might influence the USD price dynamics and provide some impetus to the EUR/USD pair. Nevertheless, the aforementioned fundamental backdrop suggests that any attempted recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Bank of Japan (BoJ) Executive Director Takashi Kato said on Tuesday that “we are not targeting FX levels but are carefully looking at upside risks from rising import prices.”

Kato added that he wants to extremely thoroughly gauge the US economy, US elections and the Fed policy.

• Gold price regains positive traction following the overnight pullback from the all-time peak. 
• The US political uncertainty and Middle East tensions underpin the safe-haven XAU/USD.
• The easing monetary policy environment offsets rising US bond yields and remains supportive.

Gold price (XAU/USD) attracts some dip-buying during the Asian session on Tuesday and remains within the striking distance of a fresh record peak, around the $2,740-2,741 area touched the previous day. The uncertainty surrounding the US Presidential election on November 5, along with the risk of a broader Middle East conflict and the expected interest rate cuts by major central banks, continue to offer some support to the safe-haven precious metal.

Meanwhile, the US Dollar (USD) stands firm near its highest level since early August amid the recent surge in the US Treasury bond yields, bolstered by bets for a smaller interest rate cut by the Federal Reserve (Fed) in November. This, along with slightly overbought conditions on the daily chart, might hold back traders from placing fresh bullish bets around the Gold price and cap gains in the absence of any relevant market-moving US economic data.

Daily Digest Market Movers: Gold price continues to draw support from a combination of factors, despite bullish USD

• A projectile crossing from Lebanon fell in an open area in central Israel, while the latter warned of more attacks on Hezbollah after targeting the Iran-backed group's financial operations. 
• The European Central Bank last week lowered interest rates for the third time this year – marking the first back-to-back rate cut in 13 years – and eyes more cuts amid an economic downturn.
• Weak inflation data from the UK solidified bets for more aggressive rate cuts by the Bank of England and the Federal Reserve is also anticipated to lower borrowing costs further.
• Opinion polls indicate that Vice President Kamala Harris and former President Donald Trump remain locked in a close contest as the November 5 US Presidential election approaches. 
• Meanwhile, increasing concerns that Donald Trump's win could see the launch of further potentially inflation-generating tariffs triggered the overnight selloff in US government debt.
• Moreover, the markets have fully priced out the possibility of another jumbo interest rate cut by the Fed in November, lifting the US Treasury bond yields to nearly three-month highs.
• The US Dollar preserves its recent strong gains to the highest level since early August, albeit does little to dent the underlying strong bullish sentiment surrounding the Gold price.
• Traders now look to the release of the Richmond Manufacturing Index, which, along with Philadelphia Fed President Patrick Harker's speech, might provide some impetus to the XAU/USD. 

Technical Outlook: Gold price could pause near a short-term ascending trend-channel resistance near the $2,750 area

From a technical perspective, the recent move-up witnessed over the past two weeks or so has been along an ascending channel. This points to a well-established short-term uptrend and supports prospects for a move towards challenging the trend-channel resistance, currently pegged near the $2,750 region. That said, the Relative Strength Index (RSI) on daily/4-hour charts is flashing slightly overbought conditions and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before traders start positioning for the next leg up.

Meanwhile, any corrective slide now seems to find some support near the $2,720 region. This is closely followed by the lower end of the aforementioned channel, currently pegged near the $2,710 area, which if broken decisively should pave the way for deeper losses. The subsequent fall could drag the Gold price below the $2,700 mark, towards the $2,685 support. The latter should act as a key pivotal point, below which the XAU/USD could accelerate the decline towards the $2,662-2,661 resistance breakpoint, now turned support.

• Silver price receives support from the safe-haven flows amid rising geopolitical tensions.
• Israel has targeted sites linked to Hezbollah's financial operations in Beirut, heightening concerns about an escalating conflict.
• With the US election just two weeks away, demand for safe-haven silver is on the rise.

Silver price (XAG/USD) continues its winning streak for the sixth consecutive day, trading around $34.10 per troy ounce during the Asian session on Tuesday. The demand for safe-haven Silver is increasing amid rising tensions, as Israel has targeted sites associated with Hezbollah's financial operations in Beirut, raising fears of escalating conflict.

Israel's potential retaliatory actions against Iran are also back in focus following an Iranian drone breach that detonated near Prime Minister Benjamin Netanyahu's residence. Additionally, Israeli military forces intensified their operations on Monday, surrounding hospitals and shelters for displaced individuals in the northern Gaza Strip, which has hindered the delivery of essential aid to civilians, according to Reuters.

US Secretary of State Antony Blinken arrives in Israel on Tuesday as the first stop on a broader Middle East tour aimed at revitalizing ceasefire talks in Gaza and discussing the region's future following the death of Hamas leader Yahya Sinwar.

As the tight US election approaches in just two weeks, demand for safe-haven Silver continues to rise. On Monday, Democratic presidential candidate Kamala Harris and her Republican rival, Donald Trump, presented starkly different messages on the campaign trail as they sought to win over undecided voters ahead of Election Day.

Moreover, easing monetary policies from major central banks are supporting non-yielding Silver prices. The Bank of Canada (BoC) is widely expected to announce a significant interest rate cut of 50 basis points at its upcoming monetary policy meeting on Wednesday.

Recent inflation data indicates that both the Bank of England (BoE) and the Reserve Bank of New Zealand (RBNZ) may contemplate potential rate cuts next month. Additionally, the US Federal Reserve (Fed) is projected to reduce interest rates by 50 basis points by the end of 2024.

Japan’s Deputy Chief Cabinet Secretary Kazuhiko Aoki declined to comment on FX moves in his statement on Tuesday.

Meanwhile, the country’s Chief Cabinet Secretary Yoshimasa Hayashi said that “Yen moves have positive and negative aspects.”

Market reaction

USD/JPY caught a fresh bid wave and briefly regained 151.00 following these comments. The pair is currently trading at 150.95, up 0.07% so far. 

Gold prices rose in India on Tuesday, according to data compiled by FXStreet.

The price for Gold stood at 7,392.68 Indian Rupees (INR) per gram, up compared with the INR 7,351.75 it cost on Monday.

The price for Gold increased to INR 86,226.76 per tola from INR 85,749.41 per tola a day earlier.

FXStreet calculates Gold prices in India by adapting international prices (USD/INR) to the local currency and measurement units. Prices are updated daily based on the market rates taken at the time of publication. Prices are just for reference and local rates could diverge slightly.

(An automation tool was used in creating this post.)

• The Indian Rupee struggles near all-time lows due to foreign selling in Indian equities.
• PM Modi is expected to meet with Chinese President Xi Jinping during the BRICS Summit.
• The Indian Rupee may hold its downside if the RBI intervenes in the market by selling US Dollars.

The Indian Rupee (INR) holds steady against the US Dollar (USD) on Tuesday, bolstered by the potential for market interventions from the Reserve Bank of India (RBI) that have helped the INR weather equity outflows and the dollar's strength.

However, ongoing foreign selling continues to exert pressure on the INR, while concerns over the Middle East conflict have impacted risk-sensitive currencies. Foreign outflows from Indian equities are likely to persist as investors shift funds from India to China, attracted by the recent stimulus measures and relatively lower valuations.

Prime Minister Narendra Modi has left for Russia to participate in the 16th BRICS Summit in Kazan. During the visit, Modi is scheduled to engage in bilateral talks with Russian President Vladimir Putin. He is also expected to meet with Chinese President Xi Jinping and hold discussions with leaders from the other BRICS member countries.

Daily Digest Market Movers: Indian Rupee receives downward pressure from foreign outflows

• The US Dollar (USD) gained support following a surge in US Treasury yields, which climbed over 2% on Monday. This rise was fueled by signs of economic resilience and growing concerns about a potential resurgence of inflation in the United States, reinforcing expectations of tighter monetary policy.
• According to the CME FedWatch Tool, the likelihood of a 25-basis-point rate cut in November is 89.1%, with no expectation of a larger 50-basis-point cut.
• Federal Reserve Bank of Minneapolis President Neel Kashkari highlighted on Monday that the Fed is closely monitoring the US labor market for signs of rapid destabilization. Kashkari cautioned investors to anticipate a gradual pace of rate cuts over the coming quarters, suggesting that any monetary easing will likely be moderate rather than aggressive.
• Foreign institutional investors have sold approximately $10 billion worth of Indian stocks in October so far, surpassing the previous record monthly outflow of $8.35 billion set in March 2020, according to a Reuters report.
• The Reserve Bank of India stated in its October bulletin that aggregate demand in India is expected to rebound from the temporary slowdown observed in the second quarter, driven by a surge in festive demand and an increase in consumer confidence.

Technical Analysis: USD/INR remains above 84.00, close to all-time highs

The USD/INR pair trades around 84.10 on Tuesday. An analysis of the daily chart indicates that the pair is consolidating within an ascending channel pattern, suggesting a bullish bias. The 14-day Relative Strength Index (RSI) remains above the 50 level, further confirming the prevailing bullish momentum.

In terms of resistance, the USD/INR pair may face a hurdle at its all-time high of 84.14, reached on August 5, followed by the upper boundary of the ascending channel at the 84.20 level.

On the downside, immediate support appears at the nine-day Exponential Moving Average (EMA) around 84.01 level, which aligns with the lower boundary of the ascending channel near the psychological level of 84.00.

USD/INR: Daily Chart

• WTI lacks any firm intraday direction on Tuesday amid mixed fundamental cues.
• Concerns about slowing demand continue to act as a headwind for Oil prices.
• Middle East tensions warrant some caution before positioning for further losses.

West Texas Intermediate (WTI) US Crude Oil prices struggle to capitalize on the previous day's modest gains and oscillate in a narrow band, around the $69.70-$69.75 area during the Asian session on Tuesday. The commodity, meanwhile, remains within the striking distance of a nearly three-week low touched last Friday and seems vulnerable to prolonging the recent fall witnessed over the past two weeks or so.

The initial market reaction to an interest rate cut by the People's Bank of China (PBOC) on Monday turned out to be short-lived amid concerns over slowing demand, which continues to act as a headwind for Crude Oil prices. The Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) trimmed their global demand forecast last month amid an economic downturn in China – the world's biggest oil importer. The fears were further fueled by the overnight warning by IEA head Fatih Birol, saying that weakness in China will continue to weigh on global oil demand in the coming years. 

Apart from this, the recent US Dollar (USD) upswing to its highest level since early August, triggered by expectations for a less aggressive policy easing by the Federal Reserve (Fed), contributes to capping the upside for Crude Oil prices. That said, the risk of a further escalation in the Middle East conflict, which could impact supply in the key oil-producing region, offers some support to the black liquid. This, in turn, warrants some caution for bearish traders and positioning for an extension of the recent sharp retracement slide from the vicinity of the $78.00 mark, or a nearly two-month high touched on October 8.

• USD/CAD bulls take a breather after the recent runup to the highest level since August 6.
• The recent upswing in the USD acts as a tailwind for the pair amid a downtick in Oil prices.
• Bets for a larger BoC rate cut support prospects for a further near-term appreciating move.

The USD/CAD pair oscillates in a narrow band around the 1.3830 region during the Asian session on Tuesday and remains well within the striking distance of its highest level since August 6 touched the previous day. Meanwhile, the fundamental backdrop seems tilted in favor of bullish traders and suggests that the path of least resistance for spot prices remains to the upside. 

Crude Oil prices struggle to capitalize on the previous day's modest gains amid concerns over slowing demand and a prolonged economic downturn in China – the world's top importer. Apart from this, bets for a larger, 50 bps rate cut by the Bank of Canada, bolstered by softer domestic consumer inflation figures, might continue to undermine the commodity-linked Loonie. This, along with the underlying strong bullish sentiment surrounding the US Dollar (USD), validates the near-term positive outlook for the USD/CAD pair. 

The incoming upbeat US macro data suggested that the economy remains on a strong footing, which should allow the Federal Reserve (Fed) to be patient in cutting interest rates. Moreover, the recent comments by a slew of influential FOMC members reaffirmed market expectations for a less aggressive policy easing by the US central bank. This, in turn, pushes the US Treasury bond yields and the USD Index (DXY), which tracks the Greenback against a basket of currencies, to their highest level in almost three months.

Furthermore, a turnaround in the global risk sentiment – as depicted by a softer tone around the equity markets – should continue to benefit the safe-haven buck and support prospects for a further appreciating move for the USD/CAD pair. Traders now look forward to the release of the Richmond Manufacturing Index from the US, which, along with a speech by Philadelphia Fed President Patrick Harker, will drive the USD demand. Apart from this, Oil price dynamics should provide some impetus to the USD/CAD pair.

• The Japanese Yen recovers a part of the overnight slide to a nearly three-month low against the USD.
• Intervention fears and a softer risk tone underpin the JPY, though the BoJ uncertainty caps gains.
• Bets for smaller Fed rate cuts, rising US bond yields boost the USD and offer support to USD/JPY.

The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Tuesday and reverses a part of the previous day's slide to the lowest level since late July. The recent verbal intervention from Japanese authorities, along with a slight deterioration in the global risk sentiment, turn out to be key factors offering some support to the safe-haven JPY. The upside for the JPY, however, seems limited on the back of the uncertainty over the timing and pace of further rate hikes by the Bank of Japan (BoJ).

Meanwhile, concerns about the potential for rising deficit spending after the November 5 US Presidential election and bets for a less aggressive policy easing by the Federal Reserve (Fed) pushed the US Treasury bond yields to their highest levels in almost three months. This might further contribute to capping any meaningful appreciating move for the lower-yielding JPY. Apart from this, the underlying bullish tone around the US Dollar (USD) supports prospects for the emergence of some dip-buying around the USD/JPY pair. 

Daily Digest Market Movers: Japanese Yen draws support from intervention fears, bulls seem non-committed amid BoJ uncertainty

• The Japanese Yen has attracted some buyers on Tuesday amid speculations about possible government intervention, especially after the recent fall below the 150.00 psychological mark against its American counterpart. 
• Japan's vice finance minister for international affairs, Atsushi Mimura, said last Friday that excess volatility in the FX market is undesirable and that authorities are closely watching FX moves with a high sense of urgency.
• The Bank of Japan Governor Kazuo Ueda signaled last week that the central bank is not in a rush to raise interest rates further and emphasized the need to focus on the economic impact of unstable markets and overseas risks.
• Furthermore, dovish comments from Japanese Prime Minister Shigeru Ishiba add a layer of uncertainty over the new political leadership's preference for the monetary policy, which is likely to act as a headwind for the JPY. 
• Meanwhile, the US Dollar jumped to its highest level since early August amid growing conviction that the Federal Reserve will proceed with modest rate cuts over the next year as the US economy remains relatively healthy. 
• Dallas Fed President Lorie Logan said on Monday that she expects gradual rate cuts if the economy meets forecasts and that the US central bank will need to be nimble with monetary policy choices amid risks to inflation target. 
• Separately, Minneapolis Fed President Neel Kashkari noted that investors should expect a modest pace of rate cuts over the next few quarters, though evidence of quick labor market weakening could lead to faster rate cuts.
• Adding to this, Kansas Fed President Jeffrey Schmid said that the US central bank must prevent significant fluctuations in interest rates and urged careful, steady, and purposeful methods for reducing interest rates.
• Meanwhile, expectations that Donald Trump's win in the November 5 US Presidential election could see the launch of further potentially inflation-generating tariffs triggered the overnight selloff in US government debt.
• The yield on the rate-sensitive 2-year US government bond closed at its highest since August 19 on Monday, while the benchmark 10-year US Treasury yield touched the highest since July 26, underpinning the US Dollar.

Technical Outlook: USD/JPY could accelerate the positive move and build on a one-month-old uptrend once the 151.00 hurdle is cleared 

From a technical perspective, any subsequent slide now seems to find immediate support near the 150.30-150.25 region ahead of the 150.00 psychological mark. A convincing break below the latter could make the USD/JPY pair vulnerable to an accelerated drop further towards the 149.65-149.60 intermediate support en route to the 149.10-149.00 area. Some follow-through selling will suggest that the positive move witnessed over the past month or so has run its course and shift the near-term bias in favor of bearish traders. 

On the flip side, bulls might now wait for a sustained strength above the 151.00 mark before placing fresh bets. Given that oscillators on the daily chart are holding comfortably in positive territory, the USD/JPY pair might then climb to the 151.60 area before aiming to reclaim the 152.00 round figure. The momentum could extend further towards the 152.65-152.70 region en route to the 153.00 mark.

• NZD/USD may face challenges due to dovish sentiment surrounding the RBNZ’s policy outlook.
• New Zealand's monthly Trade Balance reported a deficit of $2.1 billion in September, against the previous deficit of 2.3 billion.
• The US Dollar gains support from increased risk aversion as concerns grow over a potential resurgence of inflation in the US.

NZD/USD recovers some of its recent losses, trading around 0.6040 during Tuesday's Asian session. However, the New Zealand Dollar (NZD) faces pressure as the likelihood of further rate cuts in November by the Reserve Bank of New Zealand (RBNZ) grows, with inflation easing and economic output remaining sluggish.

In September, New Zealand's monthly Trade Balance showed a deficit of $2.1 billion, with Exports increasing by $246 million (5.2%) to $5.0 billion, while Imports declined by $67 million (0.9%) to $7.1 billion.

The NZD may have found some support following China’s rate cuts on Monday. As New Zealand's largest trading partner, China’s decision to lower its 1-year Loan Prime Rate (LPR) to 3.10% from 3.35% and its 5-year LPR to 3.60% from 3.85% could stimulate domestic economic activity, potentially boosting demand for New Zealand exports.

The US Dollar (USD) gained support following a surge in US Treasury yields, which climbed over 2% on Monday. At the time of writing, the 2-year and 10-year US Treasury bond yields stand at 4.02% and 4.18%, respectively. This rise was fueled by signs of economic resilience and growing concerns about a potential resurgence of inflation in the United States, reinforcing expectations of tighter monetary policy.

Recent economic data dispelled the likelihood of a bumper rate cut by the Federal Reserve (Fed) in November. According to the CME FedWatch Tool, the likelihood of a 25-basis-point rate cut in November is 89.1%, with no expectation of a larger 50-basis-point cut.

Federal Reserve Bank of Minneapolis President Neel Kashkari highlighted on Monday that the Fed is closely monitoring the US labor market for signs of rapid destabilization. Kashkari cautioned investors to anticipate a gradual pace of rate cuts over the coming quarters, suggesting that any monetary easing will likely be moderate rather than aggressive.

• The Australian Dollar declines as the US Dollar gains ground due to rising risk aversion.
• The hawkish sentiment surrounding the RBA could limit the downside for the AUD.
• 2-year and 10-year US yields stand at 4.02% and 4.19%, respectively.

The Australian Dollar (AUD) stayed weak against the US Dollar (USD) on Tuesday, as the AUD/USD pair struggled following a surge in US Treasury yields, which rose over 2% on Monday. This increase was driven by signs of economic strength and concerns about a potential resurgence of inflation in the United States (US).

The downside risk of the Aussie Dollar could be restrained due to rising hawkish sentiment surrounding the Reserve Bank of Australia (RBA) regarding its policy outlook, bolstered by positive employment data from Australia. Additionally, the AUD found support from China's recent rate cuts, given that China remains Australia’s largest trading partner.

The US Dollar gained strength as recent economic data dispelled the likelihood of a bumper rate cut by the Federal Reserve (Fed) in November. According to the CME FedWatch Tool, the likelihood of a 25-basis-point rate cut in November is 89.1%, with no expectation of a larger 50-basis-point cut.

Traders await the Purchasing Managers Index (PMI) reports from both the US and Australia, set to be released on Thursday. These reports could provide insight into the health of each economy and influence future monetary policy decisions.

Daily Digest Market Movers: Australian Dollar declines due to rising risk aversion

• 2-year and 10-year yields on US Treasury bonds stand at 4.02% and 4.19%, respectively, at the time of writing.
• On Monday, Federal Reserve Bank of Minneapolis President Neel Kashkari highlighted that the Fed is closely monitoring the US labor market for signs of rapid destabilization. Kashkari cautioned investors to anticipate a gradual pace of rate cuts over the coming quarters, suggesting that any monetary easing will likely be moderate rather than aggressive.
• Federal Reserve Bank of San Francisco President Mary Daly stated that while she expects the Fed to lower interest rates over the coming quarters gradually, the central bank remains committed to a data-driven approach.
• RBA Deputy Governor Andrew Hauser addressed the CBA 2024 Global Markets Conference in Sydney on Monday, expressing slight surprise at the strength of employment growth. Hauser noted that the labor participation rate is remarkably high and emphasized that while the RBA is data-dependent, it is not data-obsessed.
• The People's Bank of China (PBoC) reduced the 1-year Loan Prime Rate (LPR) to 3.10% from 3.35% and the 5-year LPR to 3.60% from 3.85%, in line with expectations. Lower borrowing costs are anticipated to stimulate China's domestic economic activity, potentially increasing demand for Australian exports.
• National Australia Bank revised its projection for the Reserve Bank of Australia (RBA) in a note last week. "We have brought forward our expectations for the timing of rate cuts, now anticipating the first cut in February 2025, instead of May," the bank stated. They continue to foresee gradual cuts, with rates expected to decrease to 3.10% by early 2026.
• US Retail Sales rose by 0.4% month-over-month in September, surpassing the 0.1% gain recorded in August and market expectations of a 0.3% increase. Additionally, US Initial Jobless Claims fell by 19,000 during the week ending October 11, the largest decline in three months. The total number of claims dropped to 241,000, significantly below the anticipated 260,000.
• The seasonally adjusted Employment Change in Australia surged by 64.1K in September, bringing the total employment to a record 14.52 million. This far surpassed market expectations of a 25.0K increase, following a revised rise of 42.6K in the previous month. Meanwhile, the Unemployment Rate remained steady at 4.1% in September, matching the revised figure for August and coming in lower than the anticipated 4.2%.

Technical Analysis: Australian Dollar drops to near 0.6650, eight-week lows

The AUD/USD pair trades around 0.6660 on Tuesday. Technical analysis of the daily chart shows the pair below the nine-day Exponential Moving Average (EMA), indicating a short-term bearish outlook. Furthermore, the 14-day Relative Strength Index (RSI) remains below 50, reinforcing the bearish sentiment.

On the downside, the pair could test its eight-week low of 0.6622, last reached on September 11, followed by the psychological level of 0.6600.

Resistance may come from the nine-day EMA at 0.6700, followed by the 50-day EMA at 0.6734. A break above this level could open the door for a move toward the psychological resistance of 0.6800.

AUD/USD: Daily Chart

The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Tuesday at 7.1223, as compared to the previous day's fix of 7.0982 and 7.1229 Reuters estimates.