CFD Markets News and Forecasts — 19-11-2021

• GBP/JPY pulled back sharply on Friday amid a broader downturn in risk sentiment, but found good support in the mid-152.00s.
• The pair may well struggle next week if risk appetite continues to worsen and it breaks key support.

GBP/JPY came under pressure on Friday, dropping back from Asia Pacific levels close to 154.50 to as low as 152.50 in the late European morning and in doing so dropped below its 50-day moving average at 153.47. The pair dropped back sharply as a result of a broad deterioration in risk appetite due to lockdown concerns in Europe that saw risk-sensitive currencies (like GBP) dumped in favour of safe-haven currencies (like JPY).

But the pair found decent support just above 152.50, given that this level also coincides with the prior monthly lows set last Thursday and Friday. Buying interest in the mid-152.00s was likely heightened given the proximity to the pair’s 200DMA, which resides at 152.30. Ahead of Friday FX market close and as trading conditions die down, the pair has managed to recover back to the north of the 153.00 level to trade in the 153.20s, with the 50DMA for now acting as resistance. At current levels, the pair trades with losses of about 0.6% on the day.

If the European Covid-19/lockdown news continues to worsen over the weekend, there is every chance that the broader market’s bid for havens may continue into next week. In this scenario, GBP/JPY could well be at risk of breaking below support in the mid-152.00s and its 200DMA. From a technical standpoint, this would be bearish, as there are no further key areas of resistance for the pair all the way down to the 149.00s.

While GBP is vulnerable to a downturn in sentiment, domestic UK fundamentals, for now, do not seem to provide too much reason to be bearish GBP. It seems highly likely that in December, the BoE will become the first major central bank to start hiking interest rates post-Covid-19. On Friday, BoE Chief Economist Huw Pill said that the burden of proof was on those who wanted to wait to hike rates, not on those who wanted to get the hiking cycle started. Central bank policy divergence, thus, leans in favour of a higher GBP/JPY.

Meanwhile, the Covid-19 situation in the UK is nowhere near as dire as it is in mainland Europe. Infection rates in the UK have been broadly stable over the past few months and the country’s booster vaccine rollout, which has already now more than covered the most vulnerable categories, has already been hailed a success. While lockdowns might be a story for the EU, they may not be for the UK this winter.

• NZD/USD drops below the figure, amid broad US dollar strength across the board.
• COVID-19 cases increase in Europe, spurred demand for safe-haven assets.
• Fed’s Waller and Clarida: Aims for a faster QE pace so that the US central bank could have some space to maneuver.
• Money market futures have priced in a 25 basis point increase by the RBNZ on its November 24 Monetary Policy Meeting.

The NZD/USD slumps for the third week in a row, trading at 0.6996 during the New York session at the time of writing. Dismal market sentiment in the financial markets spurred demand for safe-haven currencies, like the US dollar, the Japanese yen, and the Swiss franc. Further, major US equity indices fall, except for the tech-heavy Nasdaq 100, gaining 0.56%.

COVID-19 cases increase in Europe, dent the market sentiment

As the weekend looms, a COVID-19 fourth wave in Europe clouds the economic outlook. Higher cases in Eastern Europe threaten that an economic slowdown is around the corner. Austria reimposed coronavirus restrictions, with a lockdown of 20 days for vaccinated and unvaccinated people.  Meanwhile, in Germany, the situation is no better, as some parts of the country closed non-essential business, while the Netherlands has already ordered shops and bars to close early.

Moving back to the NZD/USD pair, the overnight session witnessed a 50-pip drop in just three hours. It broke some pivot-points support levels on its way down, but the move was capped around the 0.6990 area, in the vicinity of Thursday’s low. Further, as market liquidity evaporated as European traders head into the weekend, the pair remains subdued within the 0.6990-0.7020 range.

In the macroeconomic docket, it was light for New Zealand. In the US, Fed speakers crossed the wires.

On Friday, Fed Governor Christopher Waller suggested that the US central bank might double the pace of its QE to $30 billion per month to end by April of 2022. Further added that accelerating the rhythm would give space to the Fed for rate hikes as soon as Q2 of 2022. 

After Walles spoke, Fed’s Vice Chairman Richard Clarida said that it “may very well be appropriate” to discuss accelerating the pace of the bond tapering, in line with other Fed policymakers. Further added that he sees upside risks to inflation and added that the economy is very strong position at that it looks as though Q4 is going to be very good. 

NZD/USD traders’ focus will turn on the New Zealand Retail Sales and the Reserve Bank of New Zealand Monetary Policy Meeting in the upcoming week. Meanwhile, in the US economic docket, Durable Good Orders, GDP for Q3, the Federal Reserve favorite gauge for inflation the PCE and FOMC minutes, would entertain traders.

• EUR/USD is set to close out the week below 1.1300, a potentially bearish signal for next week.
• The pair was weighed heavily by European lockdown concerns and later hawkish Fed commentary.

Things are not looking good for EUR/USD, with the currency pulling back beneath the psychologically important 1.1300 level as FX volumes thin and the weekend approaches. Technicians may well view failure to close to the north of 1.1300 as a bearish signal heading into next week. Since EUR/USD broke below a long-term descending trend channel, its not particularly surprising to have seen the pace of the sell-off pick up in recent days. Bearish technicians will have their sights firmly set on a test of the next key area of support around the 1.1150-1.1180 area.

Recapping the day's action then: EUR/USD started the session off above 1.1370, but as the news hit on Friday morning that Austria was to implement a full lockdown and that Germany soon follows, the pair dropped like a stone. Analysts unanimously agree that widespread lockdowns in Europe over the coming months will deliver a significant blow to the Eurozone growth (meaning negative revisions to forecasts), giving the ECB more reason to be dovish in the face of high inflation. By the late European morning, the pair had printed a fresh 16-month lows at 1.12501. Some profit-taking then allowed it to recover back as high as 1.1320 as the US session began, but hawkish vibes from key Fed members which injected upside into short-end and real US bond yields gave USD a boost.

For reference, Governor Christopher Waller called for an accelerated QE taper and said that rate increases could be appropriate as soon as Q2 2022. This followed a similar message from St Louis Fed President James Bullard, who earlier in the week urged the Fed to double the pace of its QE taper to $30B per month in January. Shortly after Waller had finished orating, it was influential Vice Chairman of the FOMC Richard Clarida’s turn. He didn’t speak much on policy but did say that it may be appropriate to discuss an accelerated QE taper in December. Plenty more FOMC members will hit the wires next week market participants will be eager to assess the appetite on the Committee for an accelerated QE taper and earlier rate hikes.

Looking back on the week in its entirety, it’s been an ugly one. At present levels, the pair is set to close with weekly losses of about 1.4%, its worst performance since mid-June. Strong US Retail Sales, NY and Philly Fed survey, Weekly Jobless Claims and Building Permits data, as well as on Friday all helped the dollar push on. Meanwhile, the resolutely dovish tone of core ECB members and the escalating Covid-19 crisis in Europe hurt the single currency.

• USD/CHF advance on risk-off market sentiment amid falling US bond yields.
• Monetary policy divergence between the Fed and the SNB favors the US dollar.
• USD/CHF Technical outlook: Mild-bullish but would need to break above 0.9291 to cement the upward bias.

The USD/CHF rebounds from two days of consecutive losses, rises 0.39%, trading at 0.9289 during the New York session at the time of writing. The greenback benefits from the safe-haven status, which also has the Swiss Franc. However, central bank policy divergence, with the Fed reducing its QE program and looking forward to hiking rates, while the Swiss National Bank would maintain its loose monetary policy.

Broad US Dollar strength depreciates the Swiss franc

In the meantime, the US Dollar Index, which tracks the greenback’s performance against a basket of six rivals, advances 0.52%, reclaiming the 96 figure at 96.03, acting as a tailwind for the USD/CHF pair.

In the overnight session, the USD/CHF reached a daily low at 0.9242, attributed to risk-off market sentiment and falling US T-bond yields. When the European session began, COVID-19 news from Austria reimposing lockdowns for 20 days to vaccinated and unvaccinated people worsened the market sentiment. Additionally, Germany’s coronavirus cases increased the infection rate pace, reporting  52,970 new cases on Friday, threatening to slow down the largest economy of Europe.

That propelled investors toward US dollar-denominated assets, boosting the buck. Nevertheless, as the New York session progresses, the US T-bond yields keep falling with the 10-year benchmark note rate at 1.534%, down five basis points.

USD/CHF Price Forecast: Technical outlook

The USD/CHF has an upward bias, as depicted by the daily chart, with the daily moving averages (DMA’s) located below the spot price, acting as support. However, the uptrend seems weaker than USD bulls expected because the spot price remains short of the November 18 high at 0.9291. 

To further cement an upward bias in the USD/CHF pair, USD bulls need a daily close above the former. That outcome would expose 2021 swing high at 0.9473, but it would find some hurdles on the way north. The first resistance would be the November 17 high at 0.9330, followed by the September 30 high at 0.9368. 

• Spot gold has slipped in recent trade amid a risk in short-end yields prompted by hawkish Fed speak.
• XAU/USD broke out to fresh two-week lows under $1850.

Spot gold (XAU/USD) prices have come under pressure in recent trade having broken below key support and amid a rise in short-end US yields. Prices, which shot up last week amid demand for inflation protection in wake of a much hotter than expected US inflation report, had been consolidating within a pennant structure. However, on Friday, spot gold broke to the south of this pennant, triggering a bout of technical selling that even pushed XAU/USD prices below last week’s lows at $1850. Having carved out fresh weekly lows around $1844, prices are now consolidating just to the south of the $1850 mark. Gold bears may now target a move down to the next key area of resistance around $1833. 

Hawkish Fed

The technical break to the downside coincided with a sharp uptick in short-end US yields (as well as a pickup from lows across the US yield curve), which was itself triggered by hawkish Fed commentary. 2-year yields were down as much as 5bps at 0.45% on Friday, but are now back to flat around 0.50%. Short-end real yields are also higher on Wednesday, with the 5-year TIPS yield up 6bps to -1.85%. Higher yields increase the opportunity cost of holding non-yielding precious metals, thus weighing on the demand for gold.

In terms of the latest from the Fed; Governor Christopher Waller called for an accelerated QE taper and said that rate increases could be appropriate as soon as Q2 2022. Shortly thereafter, influential Vice Chairman of the FOMC Richard Clarida said that it could be appropriate to discuss an accelerated QE taper in December. Plenty more FOMC members will hit the wires next week market participants will be eager to assess the appetite on the Committee for an accelerated QE taper and earlier rate hikes.

• AUD/USD slumps during the New York session, down almost half percent.
• Increasing COVID-19 cases in Eastern Europe, Austria's lockdowns, and Germany's possibility of reimposing restrictions dampened investors' mood.
• AUD/USD Technical outlook: Negative below the downtrend at 0.7577 – Commerzbank.

The AUD/USD extends its three-week slump, a 300pip slump, trading at 0.7243 during the New York session at press time. In the overnight session, the Australian dollar tried to pare some of its weekly losses. However, it failed to break the robust resistance area near the R1 daily pivot point level, retracing down to 0.7228, breaking support levels on the way down.

The risk-off mood in the market dampened the prospects of risk-sensitive currencies like the AUD, the NZD, and the GBP. Contrarily, safe-haven peers like the Japanese yen and the greenback are the winners of the day. Factors like the fourth-wave COVID-19 cases spike in Eastern Europe, alongside Germany, spurred demand for the US dollar.

Meanwhile, the US Dollar Index advances at press time, closing to the 96.00 figure, on Federal Reserve Vice-Chairman Richard Clarida's comments that may be appropriate in December to discuss speeding QE taper. He added that there are upside risks to inflation, that the economy is in a very strong position at that it looks as though Q4 is going to be very good.

AUD/USD Price Forecast: Negative below the downtrend at 0.7577 – Commerzbank

According to Karen Jones, Team Head FICC Technical Analysis at Commerzbank, the aussie would decline towards the August low at 0.7106 on a break below 0.7250.

She added, "failure at 0.7250 will target the 29th September low at 0.7171 and the August low at 0.7106." Further noted that "Initial resistance is the 55-day ma at 0.7348 then 0.7430 the 9th November high and the 20-day ma at 0.7409. Above here lies the 0.7477 3rd September high, and we look for the market to fail in this vicinity." Jones further noted that long-term bearish pressure would be maintained below the  0.7534/77 area.

• XAU/EUR is back to flat in the EUR 1630 region having hit 14-month highs earlier in the session. 
• Gold has been broadly weighed in recent trade amid hawkish vibes from Fed policymakers.

Euro-denominated spot gold (XAU/EUR) printed fresh 14-month highs on Friday at EUR 1653, but has since pulled back to the EUR 1630 area. On the day, prices are now flat versus more being up more than 1.0% when at highs. However, on the month, euro-denominated gold’s price gains still stand at close to 6.0%.

The pair was boosted early during Friday’s European session amid a ramp-up in Covid-19 fears on the continent after Austria announced a lockdown to start on Monday and German officials refused to rule out that they could follow suit. The euro weakened broadly as a result and is still the underperforming G10 currency on the day.

But gold prices have broadly weakened over the last few hours amid what has turned out to be quite a sharp pick up in short-end US real and nominal yields. The yield on the US 5-year TIPS bond is up 8bps on Friday, while in recent trade the nominal 2Y yield has eroded earlier losses of as much as 5bps to trade flat on the day around 0.50%.

The move higher in yields that has weighed on gold followed a succession of hawkish Fed commentary. Governor Christopher Waller called for an accelerated QE taper and said that rate increases could be appropriate as soon as Q2 2022. Shortly thereafter, influential Vice Chairman of the FOMC Richard Clarida said that it could be appropriate to discuss an accelerated QE taper in December. Plenty more FOMC members will hit the wires next week market participants will be eager to assess the appetite on the Committee for an accelerated QE taper and earlier rate hikes.

Vice Chair of the FOMC Richard Clarida said on Friday that it "may very well be appropriate" to discuss accelerating the pace at which the Fed is winding down its bond-buying programme at the December policy meeting. Speaking at the San Francisco Fed's 2021 Asia Economic Policy Conference, he added that there are upside risks to inflation, that the economy is in a very strong position at that it looks as though Q4 is going to be very good. 

Market Reaction

The Dollar has seen some modest strength in recent trade after Clarida alluded to an accelerated pace of QE taper. Clarida is seen as the Fed's most important "thought leader" given that he is actually an economist by trade, versus Fed Chair Jerome Powell being a lawyer. If he is open to the idea of an accelerated QE taper, it is much more likely to actually happen. Fed Governor Christopher Waller called for an accelerated QE taper earlier in the session and St Louis Fed President, who is a 2022 voter, called for the same earlier in the week.

Bost suggested doubling the pace of QE taper to $30B per month, meaning the taper would end in April. An earlier end to the QE taper would bring forward when the Fed would be able to lift interest rates. Hence, short-end US yields have risen in recent trade; US 2-year yields are now flat on the day at 1.50% having been as low as 0.45% earlier in the session. 

• USD/CAD advances for the fifth consecutive week, up some 0.25%.
• The US dollar advances firmly, despite falling US bond yields.
• USD/CAD Technical outlook: A break above 1.2654 would expose the 1.2800 figure.

The USD/CAD climbs during the day, looking to close on the upside for the fifth week in a row, trading at 1.2632 at the time of writing. As the weekend approaches, the USD/CAD bulls keep pushing the pair towards higher prices, despite the Bank of Canada (BoC) hawkishness in the last two months. USD bulls benefitted from the Fed’s announcement of a bond tapering in the November 3 monetary policy meeting, which spurred a US 10-year Treasury yield spike above 1.60%.

However, US bond yields are plummeting in the day, with the 10-year at 1.528%, falling almost six basis points, at press time. Further, the greenback gains 0.30% with its US Dollar Index, sitting at 95.82, well below the weekly tops, around 96.00. Then how is it possible that the USD/CAD pair is edging higher? The answer lies in falling crude oil prices.

Developments in the last three days in the oil market that involved the White House and Asian allies accorded to “intervene” in the crude oil market, as high energy prices threaten to weaken the global economic growth.  Authorities in China have already said that they plan to tap some of their oil reserves. 

Goldman Sachs commodity strategists noted that the market has priced in the supply of 100M barrels. They added that it might limit the scope for further downside due to the reserve release news. At press time, Western Texas Intermediate (WTI) is trading at $75.31, down some 3.71%.

USD/CAD Price Forecast: Technical outlook

As the weekend approaches, the USD/CAD bulls keep pushing the pair towards higher prices, though they found strong resistance at the October 3 high, at 1.2654. Worth noticing that swing high is also a weekly resistance that USD bulls fail to break. However, a breach of the latter would expose the confluence of a downslope resistance trendline and the September 29 high around the 1.2770-85 area. A sustained break above the former would expose September 20 high at 1.2895.

On the flip side, failure of a daily close above the October 3 high would add additional pressure on the pair. The first demand zone on the way south would be the 100-day moving average (DMA) at 1.2549, followed by the 50-DMA at 1.2528. A breach of the latter could send the USD/CAD tumbling towards the November 15 low at 1.2492.

How much stronger can the Swiss franc get?, asks analysts at MUFG Bank. The Swiss franc reached levels not seen since 2015 versus the euro. According to them, if EUR/CHF breaks under 1.0500, it could spark a flurry of buying and a surge stronger. 

Key Quotes:

“The Swiss franc has continued to perform well and is in focus today after EUR/CHF broke notably below the 1.0500 level for the first time since July 2015 – not even through the worst point of turmoil last year did EUR/CHF break the 1.0500 level. So this is significant and highlights underlying and persistent CHF strength. This strength in 2021 has been since March. The rise in global yields in Q1 helped fuel CHF selling but since the narrative changed to focusing on inflation concerns and supply constraint issues, CHF has trended stronger versus EUR.”

“While global inflation may ease SNB concerns and offer the prospect of a less active fight against CHF appreciation, we suspect at some point the markets may force the hand of the SNB to intervene and limit CHF strength from a move beyond parity.”

Federal Reserve Board of Governors member Christopher Waller on Friday suggested that if the bank was to double the pace of its QE taper (to $30B per month), then the taper could conclude by the start of April. That, he added, would give the Fed more policy space for rate hikes as early as Q2. St Louis Fed President James Bullard has recently also suggested doubling the pace of QE taper to $30B per month, though Bullard said this could make way for hikes as soon as Q1, earlier than what Waller said. 

Waller said that he would rather end the QE taper before raising interest rates, a preference so far espoused by all other Fed policymakers. Waller added that he was concerned that markets don't believe that the Fed can get inflation under control in the next three to five year and that it is very important that the Fed maintains its credibility on inflation.

For reference, 5-year break-even inflation expectations (the difference between the nominal five-year yields and the inflation-protected five-year yield) went above 3.0% in November for the first time ever. The 5-year inflation-protected bond only started trading in 2004, meaning this measure of inflation expectations cannot be calculated any further back. Some have argued a rise this far from the Fed's 2.0% target constitutes the de-anchoring of inflation expectations.

Market Reaction

FX markets have not seen any notable reaction to these comments. Traders await a speech from Fed Vice Chair Richard Clarida at 1715GMT. 

Despite falling sharply and reaching levels under 1.1300 (EUR/USD), analyst at MUFG Bank consider there remain factors that could encourage further declines going forward for the euro. They see the negative momentum around the euro likely to persist. 

Key Quotes:

“Our FX forecasts have shown EUR as the laggard over the forecast horizon given the scope for the ECB to remain well behind most other G10 central banks in hiking rates. In October, there was a notable shift in rate expectations higher that dragged even EUR rates higher. The 3-year forward OIS for EUR turned positive in October but economic developments in the euro-zone lately and ECB communications have driven rates back into negative territory.”

“The economic risks have certainly deteriorated and while those risks may be better priced now, things can still get worse. Austria today announced a full lockdown with covid risks elevated across numerous euro-zone countries. The shifting economic risk profile could quickly change what markets expect from the ECB at its December policy meeting. Suddenly, the ECB may have strong justification for maintaining a more dovish stance through a larger or longer APP program. Developments in the coming days will be key. Secondly, we have the minutes from the last FOMC meeting next week.”

“The September BoP data released today from the ECB highlighted negative portfolio flows at that point. Euro-zone investors bought EUR 27.7bn worth of foreign long-term debt securities and foreign investors sold EUR 30.8bn. With global yields set to rise notably further relative to the euro-zone this is a factor that could further weigh on EUR performance over the coming months.”

“While we have already seen a sharp drop in EUR/USD, there remains scope for this to continue over the short-term at least.”
 

• The S&P 500 is trading flat and is resilient to global risk off amid strength in the tech sector.
• Passage of Biden’s $1.75T BBB spending package in the House failed to lift the mood for cyclical stocks.

US equity markets have so far proven broadly resilient despite a downturn in global risk appetite triggered by fears about Europe heading back into lockdown. While major European equity bourses nurse losses of anywhere between 0.2-1.7% on the session, the S&P 500 is currently trading flat at the 4710 mark, only a few points away from record highs printed at the start of the month at 4718.50.

The resilience of the S&P 500 owes to its much heavier weighting towards the technology sector than in European indices. The Nasdaq 100 (a proxy for the Tech sector) is currently trading higher by 0.7% on the session amid notable gains in big tech names who all did very well out of the pandemic. The Nasdaq 100 index on Friday rose above the 16.5K level for the first time and is has even managed to clinch the 16.6K mark. “Stay-at-home names” like Netflix, which benefit from increased engagement when people spend more time at home during lockdowns, gained on Friday.

A sharp drop in long-term US bond yields amid a heightened demand for safe-haven assets is helping the duration-sensitive tech sector. Lower bond yields reduce the opportunity cost of owning “growth stocks” (which tech stocks normally are), which are stocks whose valuation is disproportionately based on expectations for future earnings growth rather than current earnings.

The Dow, which is less weighted towards big tech, fell 0.5% on Friday. The news that the US House of Representatives had passed US President Joe Biden’s $1.75T “Build Back Better” social spending package failed to boost cyclical stocks (stocks whose performance is more closely correlated to the economy). That’s probably because there is no guarantee the bill will pass the Senate; moderate Democrat Senator Joe Manchin is worried about inflation and reportedly wants to delay further fiscal stimulus into 2022.

The drop in earnings weighed on bank stocks, with the S&P 500 financials index dropping more than 1.0%, weighing on the Dow. Energy stocks also performed poorly amid sharp downside in crude oil prices, also weighing on the Dow. The S&P 500 energy sector was down nearly 4.0%.

Hawkish Fed?

Equity investors have also been keeping an eye on commentary from Federal Reserve policymakers. Fed Board of Governors member Christopher Waller gave a speech at the Center for Financial Stability in New York earlier and called for the Fed to accelerate the pace of the QE taper and subsequent rate hikes. These are the most hawkish remarks so far from a “core” Fed member (i.e. a member of the Fed’s Board of Governors). Market participants are now wary that Fed Vice Chair Richard Clarida could offer similarly hawkish sentiments in a speech scheduled for release at 1715GMT. For now, the hawkish vibes from Waller have not affected equity sentiment. As long as markets perceive that the Fed isn't making a “hawkish mistake” – i.e. tightening policy too quickly and hurting growth as a result – more hawkish signals from Fed policymakers can be tolerated.

• US dollar pullback late on Friday as market sentiment recovers.
• Pound is set to end the week higher versus the US dollar and above 1.3400.
• Charts continue to show weakness in GBP/USD.

The GBP/USD pair rose during the American session and recovered from 1.3406 to the 1.3470 area, trimming losses. The recovery pushed the weekly result back into positive ground.

Again cable found support at the 1.3400 area that has become a critical level. A break lower could trigger more losses, exposing the November low at 1.3351. The recovery faced resistance around 1.3500/10. The bearish bias will likely remain intact while under 1.3600.

Thanksgiving ahead

Next week economic data to be released includes the PMIs across the globe. It will be the preliminary reading of November. Also GDP data is due in Germany and the US. “The Thanksgiving holiday in the US means a short week with the data flow concentrated on Wednesday. The highlight may well be the minutes to the November 3rd FOMC meeting when the Federal Reserve announced the start of QE tapering”, explained analysts at ING.

Also market participants await news regarding the next Fed Chair. President Biden is set to announce a new term for Powell or Brainard as his replacement. In the UK, Brexit concerns are on the rise and will likely keep creating headlines next week.

Technical levels

Federal Reserve Board of Governors member Christopher Waller said on Friday that the rapid improvement seen in the labour market and high inflation makes him favour a faster pace of QE taper and sooner rate lift-off, according to Reuters. Inflationary pressures are becoming more widespread, Waller continued and will last longer into 2022 than expected.

Waller added that the labour market is rapidly approaching full employment and that supply chain disruptions were having a larger and more persistent effect on the economy. Nonetheless, Waller said he expects growth in Q4 2021 and Q1 2022 to be "robust". Finally, Waller said that he would support a reduction in the balance sheet, which he thinks might help smooth market functioning, and would support a similar process of balance sheet reduction to last time.   

Market Reaction

Waller's comments are the most hawkish yet from a core Fed member (i.e. a member of the permanent voting Board of Governors). But for now, FX markets are not seeing any reaction. Fed Vice Chari Richard Clarida is scheduled to speak later in the session. If his remarks follow a similarly hawkish tone, that would be more likely to provoke USD strength.  

• Bond yields have moved sharply lower on Friday amid a bid for haven assets as Europe heads for lockdown.
• The US 10-year Treasury yield is now back to the low 1.50s%.

US bond yields saw a sharp drop on Friday, the primary catalyst for which was a continued ramp up in concerns about lockdowns in Europe where Covid-19 infection/hospitalisation rates continue to surge. The drop in bond yields/rally in bond prices reflects a broader outperformance of safe-haven assets on Friday. The US 10-year Treasury yield dropped more than 6bps to 1.52%, now more than 13bps below earlier weekly highs at 1.65%. Declines of a similar magnitude were witnessed across the treasury curve. The 2-year yield fell 5bps to 0.45%, nearly 10bps below earlier weekly highs, the 7-year fell 7bps to 1.40% and the 30-year fell 5bps to 1.92%.

Austria on Friday become the first major western European nation to announce the reimposition of strict lockdown measures since early 2021, which will begin on Monday and last at least 20 days. Germany’s health minister refused to rule out that Germany could follow suit, saying that the pandemic situation there was becoming increasingly severe.

Some market participants voiced fears that the US could be headed down a similar path. The seven-day moving average number of Covid-19 infections reported per day in the US has been trending higher in November. Having fallen to the low 70Ks in late October/early November, the seven-day moving average is now approaching 100K.

Analysts at Reuters said recent rate volatility is “likely exaggerated by impaired liquidity that has plagued the market for the past few weeks” that, it said, is “in part because hedge funds burned by volatile moves in October and November have pulled back from the market”. Reuters warned that “liquidity is also expected to worsen next week before the market will close on Thursday for Thanksgiving”.

• Yen holds onto daily gains on the back of a deterioration in market sentiment.
• US yields decline significantly while US stocks are mixed.
• USD/JPY remains in the weekly consolidation range.

The USD/JPY is falling on Friday, extending the retreat from the multi-year high it reached on Wednesday near 115.00. Hours ago it bottomed at 113.58, the lowest level since November 10. It then bounced to the upside, but it was unable to regain 114.00.

The yen is among the top performers on Friday. It pulled back during the American session but still remains strong supported by lower US yields and falling equity prices. The US 10-year yield stands at 1.52%, down 4%. Investors’ sentiment is mixed in US markets while European stocks are all in red. The cautions tone following the announcement of a national lockdown in Austria weighed on risk appetite.

The USD/JPY dropped sharply from 114.50 and bottomed at 113.58. In the short term it holds a negative tone. The weekly chart shows the current consolidation range intact, between 113.20 and 114.40.  A close above the last one or below 113.20 should provide fresh signs.

The decline of USD/JPY was limited thanks to a stronger greenback. The demand for the dollar also rose amid a run to safety. The DXY trades at 95.80, up 0.31% for the day. It tested the YTD high and pulled back.

Technical levels

• XAU/USD remains in a choppy trading range, within the $1,850-65 range.
• US T-bond yields plummet six basis points, though gold fails to react according to the drop in yields.
• The US Dollar Index clings to the 95.90 amid falling US bond yields.

Gold (XAUUSD) barely advance during the New York session, up 0.04%, trading at $1,861 at the time of writing. The non-yielding metal remained subdued in the overnight session, within the $1,850-68 range, despite US bond yields drifting lower with the 10-year benchmark note down almost six basis points, at 1.529%. Contrarily,  the US Dollar Index, which measures the buck’s performance against a basket of its peers, is advancing 0.45%, sitting at 95.98, after briefly piercing the 96.00 figure.

The market sentiment is downbeat at press time, with most US equity indices in the red, except for the heavy-tech Nasdaq Composite up 0.62%. Factors like increasing COVID-19 cases in Eastern Europe like Austria in a lockdown for 20 days, and Germany’s coronavirus cases spiking above March 2020 high, dented investors mood. Further, the health minister said he could not rule out another lockdown in Germany as infections surge aggressively in the largest Eurozone economy.

Indeed, gold seems to be trading on US inflation expectations, heavily influenced by real yields, leaving nominal on the side. As of November 18 data, real yields sit at -1.89%, one basis point higher than November 15.

XAU/USD Price Forecast: Technical outlook

The daily chart shows that gold is in consolidation, after retreating from weekly tops around $1,877, around the $1,860 area. Despite the abovementioned, XAU/USD keeps tilted to the upside, with the daily moving averages (DMA’s) located well below the spot price, with the 100-DMA above the 200 and the 50-DMA, respectively. However, the latter has a steeper upward slope, suggesting it is near a crossing over the 200-DMA.

In the abovementioned outcome, a golden cross would be formed, viewed as a strong bullish signal that could spur a rally towards $1,900. Nevertheless, it would find some hurdles on the way north. The first resistance level would be the November 16 high at 1877. A sustained breach of the latter would expose $1,900, a level that was last seen in June 11 of this year.

On the downside, the XAU/USD next support area would be, according to Dhwani Mehta, Analyst at FX Street, would be the “$1,857, the intersection of the Fibonacci 61.8% one-day and Fibonacci 23.6% one-week.”. Further, a break below the abovementioned level could send gold tumbling towards the confluence of the pivot point one-month R2 and the November 17 low around $1,849, which would be the last line of defense for gold buyers.

French President Emmanuel Macron said that the UK is playing with France's nerves over fishing licenses on Friday, according to Reuters. The French President reaffirmed that the UK is not respecting post-Brexit fishing arrangements and reiterated that his government would continue to support the fishermen until they get their licenses. 

Macron added that the situation is progressing too slowly and with not enough firmness. He said that the European Commission needs to do more to help. 

Market Reaction

GBP has not reacted to the latest remarks from Macron, but traders should remain cognizant that France may soon revert back to threatening retaliatory measures against the UK if it doesn't get what it wants. This weighed on GBP a few weeks back. 

• DXY deflates after challenging 2021 highs past 96.20.
• US yields remain depressed, risk-off mood bolsters the dollar.
• FOMC’S Clarida, Waller speaks later in the NA session.

The greenback came under some pressure after challenging 2021 highs past 96.20 when tracked by the US Dollar Index on Friday.

US Dollar Index closes its fourth straight week with gains

The index keeps the bid bias unchanged, as the risk aversion mood dominates the sentiment in the global markets at the end of the week.

The rebound in the greenback after two consecutive daily pullbacks appears exclusively driven by renewed weakness in the risk complex, while US yields extend further the recent bearish move. That said, the index is on the way to close its fourth consecutive week in the positive territory, while it gained more than 4.6% since September lows in the 92.00 neighbourhood.

Later in the session, FOMC’s permanent voters R.Clarida (dovish) and C.Waller (centrist) are due to speak.

US Dollar Index relevant levels

Now, the index is advancing 0.37% at 95.87 and a break above 96.24 (2021 high Nov.17) would open the door to 97.00 (round level) and then 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 94.96 (weekly low Nov.15) followed by 94.56 (monthly high Oct.12) and finally 93.87 (weekly low November 9).

• WTI is sharply down on Friday and on course to lose over 5.0% this week.
• Prices have been battered by lockdown fears in Europe and concerns about a global crude oil reserve release.

Oil prices are down sharply on the final trading day of the week amid fears that European lockdowns will hit demand. Front-month futures for the American benchmark for sweet light crude oil, West Texas Intermediary or WTI, dipped to fresh six-week lows under $76.00 at one point earlier in the session. WTI has since recovered back to the north of the $76.00 level, but that means it is still down by over $2.50 or more than 3.0% on the day. On the week, the losses are closer to $4.50 (over 5.0%).

Austria became the first western European nation to announce a full lockdown on Friday, amid surging Covid-19 infection and hospitalisation rates. The lockdown will apply to all citizens and last for 20 days, whereafter restrictions on the unvaccinated will continue. Other European nations have also been reimposing restrictions on everyday life and commerce (such as the Netherlands) and fears are growing that they could be next inline to enact broader lockdowns. Germany’s health minister on Friday said that the health situation in the country had become so grave that a full lockdown, including on the vaccinated, could not be ruled out. Widespread European lockdowns would deliver a significant blow to European fuel demand.

Elsewhere, crude oil prices have also this week been weighed amid concerns of an imminent crude oil reserve release from major oil-consuming nations. The US, in response to OPEC+’s refusal to increase output at a faster rate earlier in the month, has spent the last few days petitioning major Asian oil importers to release reserves. Authorities in China have already said they plan to do so. According to commodity strategists at Goldman Sachs, additional supplies of 100M barrels (i.e. from a global oil reserve release) has now been priced in by the market. This may limit the scope for further crude oil downside as a result of the reserve release story, which analysts at Goldman called a “short-term fix to a structural deficit”.

Finally, another theme that is likely to have contributed to the recent oil price downside is increasing chatter/concern that oil markets, currently in a large supply deficit, may soon be headed for a supply surplus. OPEC’s Secretary-General thinks markets will be in surplus by December, whilst the UAE’s oil minister saw this occurring in Q1 2022. US oil output is expected to continue to recover amid higher prices and smaller OPEC+ members who have struggled to keep up with rising output quotas are expected to catch up in the months ahead. Moreover, weaker European demand amid lockdowns over the winter months may also make the supply gap easier to close.

UK Brexit Minister Lord David Frost said on Friday that the UK and EU have not yet made substantive progress on the fundamental customs issues relating to goods moving from Great Britain to Northern Ireland. If no solution can be found, he continued in a reiteration of his previously held stance, the UK remains prepared to use the safeguard provisions under Article 16. Frost said that the UK's preference was to secure a solution based on consensus, but any such solution must constitute a significant change from the current situation. Significant gaps remain between the EU and UK on most fronts, he said. 

Market Reaction

GBP/USD has been turning a tad lower in recent trade, but continues to trade within the days ranges around the 1.3450 mark. 

The US House of Representatives passed US President Joe Biden's $1.75T "Build Back Better" social spending package by a margin of 220-213 on Friday, sending it to be voted on in the Senate. 

European Commission Vice President Maros Sefcovic said on Friday that it is essential that the recent change in tone from the UK now leads to tangible solutions in the framework of the Northern Ireland Protocol. Sefcovic continued that there is a genuine sense of urgency related to medical supplies and that he was urging the UK government to make a clear move towards the EU in the area of sanitary and phytosanitary controls. Sefcovic confirmed that he will be meeting with UK Brexit Minister Lord David Frost next week in London. 

Market Reaction

There has not been any notable market reaction to these latest remarks on Brexit. 

• EUR/GBP is set to end a torrid week at lows amid broad euro underperformance on Friday amid European lockdown fears.
• The pair is back under the 0.8400 level and eyeing 21-month lows.

EUR/GBP has turned sharply lower on the final trading day of the week, dropping from Asia Pacific levels above 0.8420 to back below 0.8400 as it eyes a test of 21-month lows printed earlier in the week in the mid-0.8380s. Euro underperformance is a major driver of the recent downturn in the EUR/GBP currency pair, amid concerns about a rapid deterioration in the Eurozone economy as the pandemic takes hold on the continent.

Austria announced that it will reimpose a full lockdown on all people from Monday for 20 days, with restrictions to then continue afterward on the unvaccinated. Moreover, the country said that all citizens would be required to be vaccinated by 1 February 2022, or else face hefty fines. More concerning from a financial market perspective is that it seems as though Germany will be following closely behind. Germany’s health minister on Friday said that the health situation in the country had become so grave that a full lockdown, including on the vaccinated, could not be ruled out. According to a senior portfolio manager at Swiss asset manager Vontobel, “a total lockdown for Germany would be extremely bad news for the economic recovery”.

Negative news on the pandemic front in Europe has largely overshadowed a much hotter than expected German PPI report for October, as well as hawkish comments from outgoing ECB Governing Council member and Bundesbank President Jens Weidmann. In fairness, Weidmann is a well-known hawk and has spent most of the last decade unable to influence ECB policy, which is dominated by the doves, so his comments usually do not move the needle for the euro. Weidmann is quitting at the end of the year.

The downside on Friday caps off a torrid week for EUR/GBP. The pair has dropped more than 1.5% from above 0.8500 to current levels under 0.8400, its worst weekly performance since March 2020. Aside from the escalation of the severity of the European Covid-19 situation throughout the week, the pair has also been weighed by strong UK macroeconomic data. Earlier in the week, the latest jobs report provided early indications that there was not a spike in joblessness after the end of the UK government’s furlough scheme in late September and October inflation was hotter than expected.

Most recently, the October Retail Sales report released on Friday prior to the European open beat expectations, though economists put this down to consumers bringing forward their Christmas/holiday shopping amid supply chain concerns. FX strategists also touted the ongoing story of BoE/ECB divergence as a negative. The BoE is expected by many to start hiking interest rate as soon as December, while the key ECB policymakers such as President Lagarde have been trying to guide the market against expecting rate hikes as soon as 2022. Comments from hawkish ECB member Jens Weidmann, who leaves the bank at the end of the year, and comments from the BoE’s Chief Economist were ignored by FX markets.

Elsewhere, the tone of Brexit developments has become more positive this week and most market participants seem to expect the UK and EU to eventually bridge their differences regarding the implementation of the Northern Ireland Protocol.

Movements in bond markets, which reflect the deterioration in the European economic sentiment are also likely weighing. German 10-year yields down 7bps this week to their lowest levels since mid-September just above -0.35%, while UK 10-year yields are down less than 5bps and still comfortably above last week’s 0.82% lows.

• EUR/USD dropped to new 16-month lows around 1.1250.
• The greenback briefly tested the boundaries of 2021 highs.
• ECB’s Lagarde said there is no rush to tighten monpol.

Sellers keeps the European currency under pressure and forces EUR/USD to recede to fresh 16-month lows in the 1.1250 region on Friday.

EUR/USD weaker on risk-off sentiment

EUR/USD remains depressed on the back of persevering buying pressure in the greenback and the prevailing risk-off mood among market participants.

Indeed, renewed demand for the buck prompted the US Dollar Index to reverse the recent weakness and challenge once again the area of 2021 highs near 96.20 despite the corrective downside in US yields.

Earlier in the session, Chairwoman C.Lagarde suggested that there is no rush to prematurely tighten the current monetary conditions.

EUR/USD levels to watch

So far, spot is losing 0.73% at 1.1288 and faces the next up barrier at 1.1422 (10-day SMA) followed by 1.1464 (weekly high Nov.15) and finally 1.1509 (20-day SMA). On the other hand, a break below 1.1250 (2021 low Nov.17) would target 1.1185 (monthly low Jul.1 2020) en route to 1.1168 (low Jun.19 2020).

Bank of England Chief Economist Huw Pill said on Friday that markets should not assume that the BoE's first rate hike will be a 15bps move, according to Reuters. Speaking at an economics conference in Bristol, the BoE's Chief Economist added that "there is an attraction at some point to getting back to a multiple of 0.25 ... but we are not under pressure to do that immediately."

Market Reaction

FX markets have not seen any notable reaction to Pill's latest remarks. 

According to the latest figures from Statistics Canada released on Friday, Canadian Retail Sales fell by 0.6% MoM in September, less than the 1.7% expected decline. In August, Retail Sales increased at a MoM pace of 1.8%. Excluding autos, Retail Sales fell by 0.2% MoM in September, less than the 1.0% expected drop, after rising 2.6% MoM in August.

Market Reaction

The loonie has not seen any market reaction to the latest Canadian data and continues to trade on the back foot amid sharply lower crude oil prices and a risk-off market tone. 

Bank of England Chief Economist Huw Pill said on Friday that, on the back of recent data, the burden of proof at the bank had shifted onto those not wanting to raise interest rates.

Market Reaction

FX markets do not seem to have reacted to the latest comments from Pill, who earlier also alluded to the fact that he wasn't yet sure how he would vote at the December policy meeting.

There has been an interesting development in GBP Short-Term Interest Rate (STIR) markets on Friday. December 2021 Sterling libor futures have rallied 5bps to 99.80 from previously around 99.75, implying that markets are revising lower their expected probability of the BoE hiking interest rates by 15bps in December (see the chart below). 

Source: Reuters Eikon

USD/JPY is set to gold support at 113.87/76. With a major base in place, analysts at Credit Suisse look for an eventual clear break above key resistance at 114.73/92 for strength to the long-term downtrend from April 1990 at 117.00/01.

Support at 113.87/76 to hold

“With a major base in place, we continue to look for a clear and sustained break in due course above key resistance at 114.70/92. This should then see a resumption of the core uptrend with resistance then seen next at 115.51 and then the long-term downtrend from April 1990 at 117.00/01.” 

“Whilst we would expect a fresh phase of consolidation to emerge from the 117.00 level, big picture we continue to look for an eventual move to 122.90/123.00.” 

“Near-term support from the 13-day exponential average and price support at 113.87/76 ideally still holds. A break would warn of a retreat back to 112.76/40, but with fresh buyers expected here.”

EUR/GBP extends its aggressive rejection from its 200-day average at 0.8575 for a move to a new low for the year. Analysts at Credit Suisse look for a test of long-term support at the 2019 and 2020 lows at 0.8281/39. 

Resistance at 0.8463/68 set to cap

“EUR/GBP keeps the immediate risk lower for a test of 0.8339/32 next and eventually pivotal long-term support from the 2019 and 2020 lows and the 50% retracement of the upmove from 2015 at 0.8281/39.”

“Whilst we would look for a fresh hold at 0.8281/39, for now, an eventual break would see a multi-year top established to open the door to what we believe would be a significant fall, with support then seen next and initially at 0.8118.” 

“Near-term resistance remains at 0.8430/38, above which can ease the immediate downside bias for a recovery back to the 13-day exponential average and price resistance at 0.8463/68, but with fresh sellers expected to show here.”

See: EUR/GBP to race higher towards 0.88 if Article 16 is triggered – Nordea

ECB Governing Council Member and Bundesbank President Jens Weidmann said in a speech on Friday that the bank should not ignore the risk of too high inflation, and must remain watchful, according to Reuters. Monetary policy should not commit to its current very expansionary stance for too long, he added, before continuing that if required to safeguard price stability, monetary policy as a whole will have to be normalised. 

Weidmann said that elevated inflation rates will probably take longer than previously projected to recede and that the pandemic could have a marked impact on inflation setting. That could mean that inflation won't fall back below the ECB's 2.0% symmetric target in the medium-term, he added. 

Market Reaction

Weidmann is a well-known ECB hawk, and thus the euro has not reacted to his comments. Weidmann is set to leave his post as Bundesbank head at the end of the year. 

Irish Prime Minister Michael Martin said on Friday that he detects genuine desire from all sides to solve issues relating to the Northern Ireland Protocol (NIP). His comments follow comments from influential UK Minister Michael Gove, who said that he was confident that we will be able to make progress in discussions relating to the NIP without triggering Article 16. 

However, earlier in the session, UK Brexit Minister Lord David Frost said that significant gaps still remain between the UK and EU and that a triggering of Article 16 remained on the table. Meanwhile, European Commission Vice President confirmed to the press that the EU was offering to the UK a permanent 50% cut in customs-related paperwork. 

Market Reaction 

GBP has not seen any notable reaction to the latest Brexit-related updates. 

BoE Chief Economist Huw Pill said on Friday that he genuinely does not yet know how he is going to vote at the December monetary policy meeting. For reference, markets are fully priced for the BoE to implement a 15bps rate hike to 0.25%. Pill added that the direction of travel for interest rates over the medium-term is pretty clear (i.e. hinting strongly that the BoE will be hiking over the next 12 months), but that the long-term outlook for rates is too uncertain to give a specific forecast three of five years ahead.  

Additional remarks 

“It does matter if markets misunderstand BoE, but maybe less than markets think.”

“The BoE should not get caught up in minute-by-minute market and media-driven dynamics, should instead focus on the medium-term”.

“The BoE wants to train people to think the right way about monetary policy.”

“The past few weeks have not been a good example of a common understanding of monetary policy between the BoE and markets.”

“No policymaker wants to create unnecessary volatility.”

“The BoE should not artificially suppress volatility caused by genuine uncertainty.”

“Two-sided risks make communication more complex than in the past.”

“Fed-style dot plots would probably add to confusion in BoE communications.”

“The direction of travel for interest rates over the medium-term is pretty clear”.

“The long-term outlook for rates is too uncertain to give a specific forecast 3 or 5 years ahead.”

Market Reaction

GBP did not react to these latest remarks from BoE's Pill. 

• USD/TRY adds to the rally above the 11.00 mark
• The lira remains under heavy fire following the CBRT rate cut.
• The resumption of the dollar buying pushes spot higher.

The lira extends its march south and now pushes USD/TRY to daily tops near 11.2000, where some resistance appears to have turned up for the time being.

USD/TRY up on lira weakness, dollar uptrend

USD/TRY advances for the ninth consecutive session on Friday, always on the back of the indefatigable lira selloff although this time the strong upside in the greenback also helps the pair extending the rally.

Indeed, the ongoing context favours the risk aversion and therefore lends extra legs to the buck despite US yields trade on the defensive so far on Friday.

The pair, in the meantime, trades a tad below Thursday’s all-time highs near 11.2800, recorded in the aftermath of another reduction of the One-Week Repo Rate by the Turkish central bank (CBRT) at its meeting. Losses in TRY has been also exacerbated after the central bank left the door (wide) open to another interest rate cut at the December event.

The lira has so far shed more than 33% vs. the US dollar and remains the worst performing EM currency by far this year. The last time the pair advanced for ten sessions in a row was back in 2019, from April 18^th until May 1^st. We’re just there… about to break another record.

USD/TRY key levels

So far, the pair is gaining 0.35% at 11.1152 and a drop below 10.2276 (10-day SMA) would expose 9.8325 (high Oct.25) and finally 9.4722 (monthly low Nov.2). On the other hand, the next up barrier lines up at 11.2792 (all-time high Nov.18) followed by 12.0000 (round level).

Bank of England Chief Economist Huw Pill said on Friday that some patience would be required before inflation comes back to 2.0%, according to Reuters. Pill said that he and the BoE's Monetary Policy Committee (MPC) are committed to achieving 2.0% inflation, but that there would be no quick fix. It is a pretty uncomfortable time to join a central bank, Pill continued. He joined the BoE as Chief Economist at the start of September. 

Market Reaction

GBP/USD has not seen a notable reaction to the latest comments from the BoE's Chief Economists. His concern about inflation supports the case for a 15bps rate hike from the BoE in December, which is now the market's base case assumption. 

• EUR/USD resumes the downside and breaks below 1.1300.
• Another visit to YTD low at 1.1263 seems to be shaping up.

EUR/USD trades well on the defensive and puts the 1.1300 mark once again to the test at the end of the week.

The continuation of the downtrend appears favoured in the short-term horizon. That said, bets remain on the rise for another test of the so far 2021 low at 1.1263 (November 17). The loss of this area could drag spot to the round level at 1.1200 before the July 2020 low at 1.1185 ahead of 1.1168 (low June 19 2020).

In the meantime, extra losses remain on the cards as long as the pair trades below the immediate resistance line (off September’s high) today near 1.1600. In the longer run, the negative outlook persists while below the 200-day SMA, today at 1.1857.

EUR/USD daily chart

• DXY reverses two straight daily pullbacks and flirts with 96.00.
• Next of note comes the YTD peak past 96.20.

DXY advances to 2-day highs above the key barrier at 96.00 the figure on Friday.

Further upside targets the so far 2021 high at 96.24 (November 17), while a breakout of this level is expected to shift the attention to the June 2020 low at 95.71 before 97.80 (high June 30 2020).

Looking at the broader picture, the constructive stance on the index is seen intact above the 200-day SMA at 92.26.

DXY daily chart

• EUR/JPY resumes the downtrend and breaches 129.00.
• Next of note on the downside comes the 128.30 region.

EUR/JPY accelerates losses and drops below the key support at 129.00 the figure on Friday.

A deeper pullback looks likely with the immediate support now emerging at October’s low at 128.33 (October 6). If cleared, then a move to the YTD low at 127.93 (September 22) should return to the radar in the short-term horizon.

Below the 200-day SMA, today at 130.51, the outlook for the cross is seen as negative.

EUR/JPY daily chart

• USD/CAD is posting strong gains ahead of the American session on Friday.
• WTI is trading at its lowest level since early October below $77.
• Broad-based dollar strength is providing an additional boost to USD/CAD.

After closing virtually unchanged near 1.2600 on Thursday, the USD/CAD pair regained its traction and reached its strongest level in six weeks at 1.2657. As of writing, the pair was up 0.4% on a daily basis at 1.2650.

WTI slumps below $77

Falling crude oil prices seem to be weighing on the commodity-sensitive loonie on Friday. Prospects of increasing global oil supply and renewed concerns over resurging coronavirus cases hurting the energy demand is dragging oil prices lower. Currently, the barrel of West Texas Intermediate is trading at its lowest level since early October at $76.20, losing more than 3% on the day.

On the other hand, the risk-averse market environment is helping the greenback outperform its rivals and allowing USD/CAD to continue to push higher. 

Following a two-day correction, the US Dollar Index (DXY) is back above 96.00 ahead of the American session. In case Wall Street's main indexes edge lower after the opening bell, the DXY could preserve its bullish momentum. 

Meanwhile, the Canadian economic docket will feature September Retail Sales data, which is expected to reveal a monthly contraction of 1.7% and October Housing Price Index.

Technical levels to watch for

EUR/USD is similarly holding at the 61.8% retracement of the 2020/2021 uptrend at 1.1290. Economists at Credit Suisse view this as a temporary pause and look for a sustained break in due course for a move to 1.1020.

Resistance at 1.1428/38 to cap for an eventual sustained move below 1.1290

“EUR/USD has found a floor for now at the 61.8% retracement of the 2020/2021 uptrend at 1.1290. With a major ‘head and shoulders’ top in place, our core outlook stays bearish and we view this pause as temporary and healthy before the core downtrend resumes.”

“Resistance is seen at 1.1375/76 initially, then 1.1387, above which can see the recovery extend to our corrective objective and what we look to be tougher resistance at the 13-day exponential average and 38.2% retracement of the October/November fall at 1.1428/38. We look for this to then cap and for the trend to turn lower again.” 

“Support moves to 1.1327 initially, then 1.1313. An eventual sustained move below 1.1290 should clear the way for a fall back to 1.1264/55 ahead of 1.1185, then the ‘measured objective’ from the top at 1.1075 and eventually our main objective of the 78.6% retracement and price support at 1.1019/02.”

• AUD/USD came under stong bearish pressure in the European session on Friday.
• US Dollar Index tests 96.00 supported by safe-haven flows.
• There won't be any high-impact data releases from the US.

Following a consolidation phase below 0.7300 during the Asian trading hours, the AUD/USD pair lost its traction and dropped to its weakest level since early October at 0.7232. As of writing, the pair was down 0.52% on the day at 0.7252.

Dollar capitalizes on safe-haven flows

The renewed USD strength seems to be causing AUD/USD to fall sharply on Friday. The US Dollar Index (DXY), which closed the previous two trading days in the negative territory, is currently rising 0.5% on a daily basis at 96.00. The souring market mood amid concerning coronavirus headlines coming from Europe seems to be helping the greenback find demand as a safe haven.

The S&P Futures are trading in the red, suggesting that Wall Street's main indexes could stay on the back foot ahead of the weekend.

Later in the session, there won't be any data releases from the US but Federal Reserve Governor Christopher Waller and Federal Reserve Vice Chair Richard Clarida will be delivering speeches. Investors will keep a close eye on comments regarding the Fed's policy outlook in the face of persistently high inflation.

Technical levels to watch for

• GBP/USD turned south after trading above 1.3500 earlier in the day.
• British pound is struggling to find demand despite the upbeat Retail Sales data.
• US Dollar Index is testing 96.00 as market mood sours.

The GBP/USD pair spent the Asian session in a relatively tight range near 1.3500 but came under strong bearish pressure during the European trading hours. As of writing, the pair was down 0.5% on a daily basis at 1.3420.

Earlier in the day, the data published by the UK's Offıce for National Statistics revealed that Retail Sales in October rose by 0.8% on a monthly basis. This reading came in higher than the market expectation for an increase of 0.5%. Although the initial market reaction helped the British pound gather strength, the negative shift witnessed in market sentiment forced the pair to reverse its direction.

DXY gains traction ahead of the American session

Reports of Austria going into a full lockdown due to the rising number of coronavirus cases revived concerns over the global economic activity slowing down in winter. US stock index futures turned south and the US Dollar Index climbed to 96.00 area, reflecting the dismal market mood.

There won't be any high-tier macroeconomic data releases featured in the US economic docket in the remainder of the day and the risk perception is likely to continue to drive the financial markets.

Meanwhile, Northern Ireland protocol negotiations are set to continue in Brussels on Friday and investors will keep a close eye on fresh Brexit headlines ahead of the weekend.

Key technical levels to watch for

• USD/JPY is back in the red amid a renewed risk-off wave.
• Rejection above 21-SMA calls for a retest of 100-SMA on the 4H chart.
• RSI has pierced through the midline, more downside likely?

USD/JPY is trading below 114.00, having witnessed a sharp 60-pips drop in the last hour after a renewed risk-aversion wave gripped markets on the covid resurgence in the Euro area.

Austria announced a nationwide lockdown from Monday while Germany stated that it is in a national emergency state, due to the resurgence of the coronavirus in the bloc, which has triggered a flight to safety in the Japanese yen.

Although the downside remains cushioned amid a broadly strong US dollar, which also attracts the safe-haven flows.

Looking ahead, the covid updates and Fedspeak will be closely eyed for fresh trading impetus on the major.

Looking at USD/JPY’s four-hour chart, the price came under massive selling pressure after it ran into strong offers once again just above the ascending 21-Simple Moving Average (SMA) at 114.38.

The latest sell-off has taken out the bullish 50-SMA support at 114.00, as bears now challenge the critical horizontal 100-SMA at 113.87.

A four-hourly candlestick closing below the latter will expose the upward-sloping 200-SMA support at 113.64.

The Relative Strength Index (RSI) has pierced through the midline, currently pointing south and allowing more room for declines.

USD/JPY: Daily chart

Any rebound will challenge the 50-SMA support-turned-resistance, above which the 21-SMA barrier will be back in play.

If the bulls succeed in recapturing the 21-SMA, then a retest of the daily highs at 114.54 could be in the offing.

USD/JPY: Additional levels to consider

• EUR/USD gives away Thursday’s advance and resumes the downside.
• German Producer Prices surprised to the upside in October.
• ECB’s Lagarde sees inflation picking up pace by year end.

The optimism around the single currency was short-lived. Indeed, EUR/USD resumes the prevailing downtrend on Friday, only interrupted by the positive price action witnessed on the previous session.

EUR/USD looks to Lagarde, dollar

EUR/USD hovers round the 1.1300 neighbourhood after a brief test of daily lows near 1.1280 during early trade.

The resumption of the upside pressure in the dollar despite the soft note in US yields along the curve allows the US Dollar Index (DXY) to regain traction and flirt once again with the 96.00 zone, or 2-day tops.

On the ECB’s front, Chairwoman Lagarde now sees inflation gathering further pace by year end, while factors pushing consumer prices higher are expected to fade over the medium term. She also said that inflation needs to clinch the bank’s 2% goal on a durable basis.

In the euro docket, German Producer Prices rose more than expected in October at a monthly 3.8% and 18.4% over the last twelve months. Additionally, the EMU’s Current Account surplus rose to €26.9 in September (from €17.6B).

What to look for around EUR

EUR/USD quickly faded Thursday’s bullish attempt and now remains focused on the downside, where the 2021 low near 1.1260 emerges as the next magnet for bears. As usual, the pair’s price action is predicted to mainly track the dynamics around the buck, while bouts of intermittent strength are expected to come from the improvement in the risk complex. On the more macro view, the loss of momentum in the economic recovery in the region - as per some weakness observed in key fundamentals – coupled with rising cases of COVID-19 is also seen pouring cold water over investors’ optimism. Further out, the euro should remain under scrutiny amidst the implicit debate between investors’ speculations of a probable lift-off sooner than anticipated and the ECB’s so far steady hand, all amidst the tenacious elevated inflation in the bloc and increasing conviction that it could last longer than previously anticipated.

Key events in the euro area this week: ECB Lagarde (Friday).

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

EUR/USD levels to watch

So far, spot is losing 0.62% at 1.1301 and faces the next up barrier at 1.1422 (10-day SMA) followed by 1.1464 (weekly high Nov.15) and finally 1.1509 (20-day SMA). On the other hand, a break below 1.1263 (2021 low Nov.17) would target 1.1185 (monthly low Jul.1 2020) en route to 1.1168 (low Jun.19 2020).

Brexit-risks are back in the limelight as Boris Johnson considers invoking article 16 in the Northern Irish protocol. In the view of economists at Nordea, EUR/GBP is probably headed towards higher levels, if Brexit risks are reintroduced.

Triggering of Article 16 will likely lead the BoE towards fewer hikes than priced 

“We judge that EUR/GBP is headed back towards 0.88 should the Brexit-uncertainty be re-introduced and it will likely also at least partly wreak havoc with Bank of Englands hiking plans.”

“We continue to forecast two hikes (2x 25 bps) from Bank of England during 2022, and we expect them to refrain from hiking in December should the triggering of Article 16 happen before then, which we consider to be the base case now.”

• Gold price rebounds as yields pare gains, DXY rally could limit the upside.
• Gold bulls remain motivated as long as the key $1,850 support holds.
• Gold capitalizes on inflation fears, buyers look to retain control.

Having failed several attempts to resist above the $1,870 threshold, gold price continues to hover in a familiar range above the critical $1,850 support. The latest uptick in gold price can be attributed to a sharp sell-off in the US Treasury yields, as the risk sentiment sour amid inflation and coronavirus concerns. However, strengthening US economic recovery calls for earlier Fed’s tightening, boosting the US dollar, which could limit gold’s upside.

Read: Investors expect high inflation, golden inquisition ahead?

Gold Price: Key levels to watch

The Technical Confluences Detector shows that gold price staged a solid rebound from ahead of the key $1,850 support, which is the convergence of the pivot point one-month R2 and SMA10 one-day.

If that cap is taken out on a sustained basis, then gold bears will test minor support at $1,847, the Fibonacci 38.2% one-week.

A steep drop towards the pivot point one-day S3 at $1,839 cannot be ruled out should the abovementioned support fail to hold.

The Fibonacci 61.8% one-week at $1,834 will be the line in the sand for gold bulls.

Alternatively, gold buyers need to find a strong foothold above a dense cluster of resistance levels around the $1,863-$1,865 region.

That level is the intersection of the SMA100 one-hour, Fibonacci 38.2% one-day and SMA10 four-hour.

Further up, the previous week’s high of $1,869 will get retested.

Here is how it looks on the tool

About Technical Confluences Detector

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

German Health Minister Jens Spahn expressed his concerns over the covid resurgence, citing that “we are in a national emergency.”

Additional quotes

Market reaction

EUR/USD remains pressured amid dovish comments from ECB President Lagarde, the US dollar’s strength and renewed covid concerns.

At the time of writing, the pair sheds 0.30% on a daily basis to trade at 1.1334.

GBP/USD has bounced back to return to 1.35. Economists at Société Générale notes that the cable could rise as high as 1.3910 on a breach of the 1.3600 hurdle.

Next hurdle at 1.3600

“GBP/USD bounce has persisted since last week and the pair is heading towards daily Kijun line at 1.3600.”

“If the 1.3600 level is reclaimed, the rebound is expected to extend towards 200-DMA near 1.3850/1.3910.”

S&P 500 up move has developed a brief pause after reaching the upper band of an ascending channel near 4720 (now at 4750). As the index stays above the 4630/15 support, economists at Société Générale expect the S&P 500 to head back higher towards 4780.

Signals of trend reversal are still not visible

“Signals of trend reversal are still not visible. A break below 4630/4615, the 23.6% retracement from October will be essential to denote a deeper pullback.”

“Holding above the 4630/4615 support, the uptrend is likely to persist.”

“Beyond 4720, the index is expected to head higher towards 4750 and next projections of 4780.”

USD/CAD recently reclaimed the 200-day moving average (DMA) at 1.2465 extending its rebound towards the daily Ichimoku cloud near 1.2650. A break above would clear the way for a potential rise towards the 1.2950/1.3020 area, economists at Société Générale report.

Consolidation above the 200-DMA near 1.2465 is crucial to extend the advance

“Daily MACD has entered positive territory which denotes potential upside.”

“A break above 1.2650 can take the pair towards 1.2795 and perhaps even towards the graphical levels of 1.2950/1.3020.”

“Consolidation above the 200-DMA near 1.2465 will be crucial for persistence in up move.”

• DXY regains upside traction and surpasses 95.80.
• US yields tick higher and support the upside in the index.
• FOMC’s Waller, Clarida scheduled to speak later in the session.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, manages to regain buying interest and returns to the area above 95.80 on Friday.

US Dollar Index up on US yields

After two consecutive daily pullbacks, the index finally manages to regain the smile and revisit the upper-95.00s at the end of the week. So far, the 95.50 area have emerged as quite a firm contention.

The recovery in the dollar comes amidst a better tone in the US money markets, where yields now attempt a mild recovery along the curve.

In the meantime, inflation concerns continue to dominate the FX scenario in the global markets, as well as prospects of an anticipated start of the tightening cycle by the Federal Reserve. On the latter, FOMC’s J.Williams suggested on Thursday than expectations for future increases of consumer prices remain on the rise while US inflation appears more broad-based.

No data releases in the US calendar on Friday should leave the attention to speeches by FOMC’s permanent voters R.Clarida (dovish) and C.Waller (centrist).

What to look for around USD

The index met decent support around 95.50 on Thursday after being rejected from new cycle highs further north of the 96.00 barrier on the previous session. The intense move higher in the buck remains well underpinned by the “higher-for-longer” narrative around current elevated inflation, which in turn lend wings to US yields and bolster speculations of a sooner-than-estimated move on interest rates by the Federal Reserve, probably at some point in H2 2022. Further support for the dollar comes in the form of the solid recovery in the labour market, Biden’s infrastructure bill and positive results in US fundamentals.

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Debt ceiling issue. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is advancing 0.33% at 95.83 and a break above 96.24 (2021 high Nov.17) would open the door to 97.00 (round level) and then 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 94.96 (weekly low Nov.15) followed by 94.56 (monthly high Oct.12) and finally 93.87 (weekly low November 9).

The Japanese government announced on Friday that the Cabinet approved a new fiscal stimulus package with spending worth JPY55.7 trillion.

Additional takeaways

“To compile extra budget worth 31.9 trillion yen.”

“Will set aside 5 trillion yen in reserves next fiscal year for emergency spending to combat the COVID-19 pandemic.”

“Will urge oil-producing nations to increase output, work closely with IEA given risk to the economy from rising energy costs.”

“Hope the BOJ continues to work closely with govt, take an appropriate monetary policy with a close eye on pandemic's impact on the economy and market volatility.”

“Will take temporary steps to curb wholesale fuel costs to prevent a spike in retail prices.”

“Will prepare for a resumption of domestic travel discount campaign.”

“Japan spending under stimulus package likely to boost GDP by around 5.6% or 30 trillion yen, with most of the effect appearing in fiscal 2021, 2022.”

Read: Japan PM Kishida: Will employ various means to fund stimulus including issuing new debt

Market reaction

USD/JPY is holding the higher ground on the above news, adding 0.19% on the day. The pair trades at 114.44, as of writing.

Prime Minister Kishida unveiled a record-breaking stimulus worth approximately JPY79 trillion. USD/JPY stays in a consolidation phase following the announcement. Economists at MUFG expect the Japanese to curtail its depreciation thanks to attractive real yields.

Larger than expected stimulus program has limited FX action

“The indifference as measured by the lack of reaction in the financial markets couldn’t be starker – the equity, bond and FX markets have all remained relatively muted not just today but this week as the markets received partial details that indicated the government was going big again with stimulus support.”

“Japan households have large pools of savings in part due to doubts about Japan’s overall debt burden and today’s fresh spending package will only reinforce those doubts and encourage continued caution when it comes to spending.”

“Real yields in Japan are relatively attractive. Real yields are clearly not in focus currently but at weaker JPY levels could become a factor to curtail additional JPY depreciation.”

FX option expiries for November 19 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.1375 781m
• 1.1390 823m
• 1.1450 403m
• 1.1500 1.6b

- USD/JPY: USD amounts                     

• 114.00 612m
• 114.75 574m
• 115.00 400m

- USD/CHF: USD amounts        

• 0.9110 450m
• 0.9125 880m
• 0.9370 480m

- AUD/USD: AUD amounts

• 0.7275 302m

- USD/CAD: USD amounts       

• 1.2350 1.6b
• 1.2370 567m
• 1.2475 603m
• 1.2650 556m

- EUR/GBP: EUR amounts

• 0.8515 857m
• 0.8600 937m

Further comments are flowing in from the European Central Bank (ECB) President Christine Lagarde, as she continues to push back rate hike beyond 2022.

Key quotes

Market reaction

EUR/USD flirts with daily lows near 1.1330 on dovish comments from the ECB Chief.

Commenting on inflation, the European Central Bank (ECB) President Christine Lagarde said that “inflation drivers are to fade over the medium-term.”

Additional quotes

“Inflation rates to increase further until year-end.”

“ECB must not rush to prematurely tighten policy.”

“Need to reach 2% price target on a durable basis.”

“As positive demand forces gain strength, inflation outlook will be better than before the pandemic.”

Market reaction

EUR/USD is pressuring lows near 1.1330 on the above comments. Although it seems more to be the US dollar’s strength that is weighing on the main currency pair. The spot is down 0.30% on the day.

Economists at Barclays maintain a bearish bias on the Japanese yen over next year due to three reasons.

Domestic overseas monetary policy divergence

“The Bank of Japan (BoJ) lags monetary policy normalisation amid relatively contained domestic inflation despite global stickingflation driving hiking cycles elsewhere, resulting in widening yield differentials.”

Reduced safe-haven demand

“As COVID-induced safe-haven dominance of the USD fades in favour of JPY’s safe-haven revival, the yen should face headwinds so long as a positive global risk backdrop remains.”

Negative FX supply-demand

“The yen’s negative FX supply-demand continues to weigh on the currency with the ongoing capital outflows via external portfolio and direct investment and negative terms-of-trade impact of heightened oil prices.”

China’s Premier Li Keqiang said on Friday, the economy is facing new downward pressure.

Additional quotes

“Will take measures to reduce the pressure of high commodity prices.”

“Will keep yuan exchange rate basically stable.”

“Domestic and foreign situation still complex and severe.”

Market reaction

The aussie is unfazed by the above comments, as AUD/USD keeps its range below 0.7300.

The spot is now trading at 0.7282, modestly flat on the day.

Japanese Prime Minister Fumio Kishida said that his government will employ various means to fund stimulus including issuing new debt.

Additional comments

“Not thinking of making changes to Japan's sales tax at the moment.”

“It is up to BOJ to decide on specific monetary policy measures.”

“Government will seek to sustainably raise wages by creating positive growth cycle.”

These comments come after he unveiled a record-breaking stimulus worth approximately JPY56 trillion ($490 billion).

Market reaction

USD/JPY is trading close to daily highs of 114.40, up 0.10% on the day.

Rarely is there any sector that has everything going for or against it – and that is true today of the Information Technology sector. Strategists at Charles Schwab are neutral on the sector now. 

Continued relative strength and seasonal tailwinds to tip the scales in favor of the sector

“We think that the fundamental and cyclical underpinnings of the Technology sector will prevail over the intermediate-term.”

“The strong trend in capital expenditures on productivity-enhancing technologies will continue to support robust profitability, and the maturing phase of the business cyclical is favorable to the growth-oriented sector.”

“Expectations for a rise in interest rates could be a short-term headwind for richly valued technology stocks. However, if economic growth continues and inflation pressures eventually ease – as we think they will – a further rise in interest rates could reflect investor optimism in the economy, which is typically good for the Technology sector.”

“We are currently neutral on the sector as we assess the reaction to higher interest rates, but continued relative strength and seasonal tailwinds at the start of the year could tip the scales in favor of the sector.”

EUR/CHF has reached the 1.0505 2020 low. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects the pair to see a rebound from here and challenge initial resistance at 1.0598.

Negative bias while below the 55-DMA at 1.0715

“EUR/CHF has reached the 1.0505 2020 low and we have seen a tiny erosion of this support. We would allow for some profit-taking here.”

“Rallies will find nearby resistance at the 1.0598 downtrend. Additional resistance lies at 1.0629, the November 2020 low and the 2016 low and the 1.0696 19th August low.”

“The 55-day ma lies at 1.0715 and the market will stay offered while capped there.”

“Below 1.0494, yesterday’s low will target the 1.0255/35 April 2015 low and 50% retracement of the move 2015-2018.”

AUD/USD continues to sit on the base of its channel at 0.7260, which is so far holding on a closing basis. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, notes that the aussie would decline towards the August low at 0.7106 on a break below 0.7250.

Negative below the downtrend at 0.7577

“Failure at 0.7250 will target the 29th September low at 0.7171 and the August low at 0.7106.”

“Initial resistance is the 55-day ma at 0.7348 then 0.7430 the 9th November high and the 20-day ma at 0.7409. Above here lies the 0.7477 3rd September high and we look for the market to fail in this vicinity.” 

“Overall, longer-term bearish pressure will be maintained below 0.7534/77 (200-day ma, October high and the 7-month downtrend).”

The kiwi has recovered into the mid-0.70s, but analysts at ANZ Bank can not help but ask; is the market setting itself up for some disappointment? It could well be.

A softer USD has played a bit part in the kiwi’s success

“Rates markets remain skittish and the data pushed the bellwether 2yr swap to a new high for the year, and that in turn, put the bid in behind the kiwi.”

“A softer USD has played a bit part in the NZD/USD’s success, and with an announcement on the Fed chair due any day now, market sentiment towards the US could change any time. Brainard is seen as dovish, and Powell obviously a ‘no change’.”

“Returning to local markets, with 36bps priced in for next week and 198bps priced in over the next 8 meetings, local markets could be setting themselves up for some real disappointment if we ‘only’ get a 25bps hike, as we expect.”

“Support 0.6860/0.6900/0.7000 – Resistance 0.7215/0.7310.”

EUR/USD is correcting higher. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects the pair to face resistance at the 1.1513/22 area.

RSI has diverged+ 13 count

“We note the 13 count on the daily chart and the divergence of the daily RSI and would allow for a near-term rebound.” 

“Any bounces will find tough resistance at the 1.1630 five-month downtrend and while capped here, the overall bias is negative.”

“Initial resistance is the 1.1513/22 October low, the 5th November low and the 20-day ma.” 

“Below 1.1248 (TD support) would target 1.10, the 78.6% retracement of the move seen in 2020.”

• The UK Retail Sales came in at 0.8% MoM in October, a big beat.
• Core Retail Sales for the UK rose by 1.6% MoM in October.
• The cable flirts with daily highs near 1.3500 on solid UK Retail Sales.

The UK retail sales came in at 0.8% over the month in October vs. 0.5% expected and 0% previous. The core retail sales, stripping the auto motor fuel sales, stood at 1.6% MoM vs 0.6% expected and -0.4% previous.          

On an annualized basis, the UK retail sales decreased by 1.3% in October versus -2.0% expected and -0.6% prior while the core retail sales dropped by 1.9% in the reported month versus -3.1% expectations and -1.9% previous.

Main points (via ONS)

“Non-food stores was the only main retail sector that saw a rise in sales volumes, increasing by 4.2% in October 2021.”

“Clothing stores sales volumes in October 2021 were only 0.5% below pre-pandemic levels in February 2020, with some retailers suggesting that early Christmas trading had boosted sales.”

“Automotive fuel sales volumes fell by 6.4% in October 2021 as they returned to more typical recent levels following strong growth in September; volumes were 5.0% below their February 2020 levels.”

“Food store sales volumes fell by 0.3% in October 2021; despite the fall in October, volumes were 3.4% above pre-coronavirus pandemic levels in February 2020.”

FX implications

GBP/USD holds the higher ground on a big beat on the UK Retail Sales, currently trading at 1.3500, up 0.09% on the day.

• The aussie remains pressured under 0.7300, RBA rate hike chatter grows louder.
• The US dollar snaps a two-day downtrend amid firmer Treasury yields, cautious mood.
• AUD/USD looks to Fedspeak, US inflation, Chinese property sector concern will be eyed.  

AUD/USD is moving back and forth as the bears and bulls struggle to dominate amid a relatively quiet session this Friday.

At the time of writing, the pair is trading at 0.7282, up 0.05%.

The AUD mainly traded sideways overnight as the US dollar index finally paused for a breath. The market remains in 'sell-on rallies' mode, which will likely keep the AUD on the back foot over the coming days.

Along with this, market participants are again optimistic over the Reserve Bank of Australia (RBA) reports on the rate hike. However, The RBA policymakers have constantly been cautioning investors that the much-anticipated rate hike is not going to be announced anytime soon.

On November 16, RBA Governor Philip Lowe said, "the economy and inflation would have to turn out very differently from our central scenario for the Board to consider an increase in interest rates next year." He further went on to say, "It is likely to take time to meet the condition we have set for an increase in the cash rate and the Board is prepared to be patient."

Investors also take note of Chinese property concern that looms over the aussie. On Thursday, S&P Rating agency statement said that "despite recent bond coupon payments a default is still "highly likely" for China Evergrande Group," Meanwhile, another Rating agency Moody' also iterated its concern over Chinese property developers, it added, "liquidity stress will continue amid tight credit conditions and lowered sales."

Also, the positive news for the aussie that surfaced Thursday was that Victoria was about to ease of COVID-19 lockdown, providing a much-needed boost to the economy in the upcoming Q4. 

Looking ahead, besides the Fedspeak, there is no major data and events that will provide incentives to AUD/USD traders. However, the RBA rate hike and US inflation expectations will keep the investors focussed. 

AUD/USD technical levels

• USD/CAD resumes its decline as WTI’s recovery counters USD rebound.
• A cautious mood amid inflation concerns buoys the greenback.
• Focus shifts to the Canadian Retail Sales, Fedspeak for fresh trades.       

USD/CAD is breaking its overnight consolidative mode to the downside into the European session this Friday, extending below the 1.2600 mark.

The major looks to extend its corrective pullback from six-week highs of 1.2648 heading into the Canadian Retail Sales data. Stronger data is likely to intensify inflation concerns, which will, in turn, bolster the Bank of Canada’s (BOC) rate hike expectations.

The currency pair is stuck in a narrow range, as the bulls continue to find support from the rebound in the US dollar across the board. Meanwhile, the recovery rally in WTI prices keeps the downside pressure intact on the spot, leading to a bull-bear tug-of-war for now.

WTI stages a comeback after the recent sell-off to multi-week lows on reports that the US is likely to release oil supplies from its Strategic Petroleum Reserve (SPR) to ease the supply crunch and take advantage of the price rise.

However, the US dollar bulls are back in the game after a two-day decline, which may spoil the WTI recovery-led advance in the Canadian dollar.

Looking ahead, looming inflation risks and Fed speculation will continue to play a key role in driving the market sentiment, eventually impacting the dollar trades and the USDCAD pair.

USD/CAD: Technical levels to watch out

In light of preliminary readings from CME Group for natural gas futures markets, open interest rose by just 717 contracts on Thursday, partially reversing the previous drop. On the flip side, volume reversed two daily builds in a row and dropped by around 80.5K contracts.

Natural Gas remains supported around $4.70

Natural gas prices charted an inconclusive session on Thursday amidst the continuation of the erratic performance in open interest. Against this, extra range bound seems likely in the very near term at least and always with firm contention around the $4.70 mark per MMBtu.

Here is what you need to know on Friday, November 19:

The dollar struggled to find demand on Thursday and the US Dollar Index (DXY) closed the second straight day in the negative territory. With US Treasury bond yields sharking off the bearish pressure, however, the DXY seems to have steadied above 95.50 on Friday. Investors await October Retail Sales data from the UK, German PPI report, speeches by European Central Bank President (ECB) Christine Lagarde, Fed Governor Waller and Fed Vice Chair Clarida.

Wall Street's main indexes closed mixed on Thursday amid varying performances of major sectors but US stock futures are trading in the green in the early European session.  The benchmark 10-year US Treasury bond yield, which fell to a daily low of 1.57% on Thursday, is currently moving sideways near 1.6%.

The data from the US showed that the weekly Initial Jobless Claims edged lower to 268,000 and the Philadelphia Fed Manufacturing Index improved sharply to 39 in November. Market participants showed little to no reaction to these figures. Chicago Fed President Charles Evans said that the Fed could start hiking the policy rate in 2022.

Meanwhile, the Central Bank of the Republic of Turkey (CBRT) lowered its policy rate by 100 basis points and USD/TRY surged to a new all-time high of 11.2925. As of writing, the pair was trading around 11.1000 and rising more than 10% on a weekly basis.

EUR/USD extended its rebound toward 1.1400 on Thursday but lost its bullish momentum ahead of the weekend. Currently, the pair is moving sideways around mid-1.1300s. 

GBP/USD is having a difficult time making a decisive move in either direction and treading water around 1.3500. EU and UK Brexit negotiators are expected to meet in Brussels later in the day. Retail Sales in the UK are forecast to rise by 0.5% in October after contracting by 0.2% in September.

USD/JPY stays in a consolidation phase above 114.00 following Wednesday's sharp fall. The data from Japan revealed that the National Consumer Price Index was up 0.1% on a yearly basis in October, below the market expectation of 0.5%.

Gold continues to fluctuate below the multi-month high it set at $1,877 earlier in the week. Near-term support seems to have formed around $1,860.

USD/CAD reversed its direction after climbing to its strongest level in more than a month near 1.2650. The recovery witnessed in crude oil prices seems to be helping the commodity-loonie stay resilient against its American counterpart.

Cryptocurrencies:  Buyers failed to reclaim $60,000 and Bitcoin fell to its weakest level since mid-October at $56,500. On a weekly basis, BTC/USD is down nearly 14%. Ethereum lost nearly 7% on Thursday but seems to have encountered support at $4,000.

Open interest in crude oil futures markets extended the downtrend for yet another session on Thursday, this time by around 29.5K contracts considering flash data from CME Group. In the same line, volume reversed two daily builds in a row and shrank markedly by around 254.8K contracts.

WTI looks to retest $75.00

Thursday’s uptick in prices of the WTI was sustained by short covering, as noted by declining open interest and volume. That said, the barrel of the West Texas Intermediate could now attempt to revisit the weekly low around the $75.00 mark (October 7) in the short-term horizon.

• EUR/GBP grinds lower, consolidates recent gains around 21-month low.
• MACD teases bears, weekly falling trend line adds to the upside filters.

EUR/GBP remains depressed around 0.8420, down 0.07% heading into Friday’s London open. The cross-currency pair recovered from the lowest levels since February 2020 the previous day but witness a pullback move ahead of the key UK Retail Sales data for October.

While portraying the recent range, the 100-HMA and the 50-HMA restrict the short-term moves around 0.8440 and 0.8408 in that order.

Also acting as the resistance is a descending trend line from November 12, near 0.8450, a break of which will highlight the 0.8465-70 as the key hurlde.

In a case where the pair rises past 0.8470, its run-up to 0.8500 can’t be ruled out.

Meanwhile, a downside break of 0.8408 needs validation from the 0.8400 threshold before directing the EUR/GBP sellers towards the recently multi-month low near 0.8380.

During the quote’s weakness below 0.8380, February 2020 bottom close to 0.8280 will lure the bears.

EUR/GBP: Hourly chart

Trend: Further downside expected

CME Group’s advanced figures for gold futures markets noted open interest rose by just 775 contracts on Thursday after two consecutive daily builds. Volume, instead, went up by around 31.7K contracts, reversing at the same time two daily drops in a row.

Gold still targets $1,877

Gold prices extended the erratic performance and closed with losses amidst shrinking open interest on Thursday. Against that, the continuation of the decline appears not favoured in the very near term, while the immediate target on the upside emerges at the so far monthly top at $1,877 per ounce troy (November 16).

• EUR/USD snaps two-day rebound from yearly bottom, pressured around intraday low at the latest.
• Markets believe in ECB doves more than Fed hawks.
• US inflation expectations, stimulus hopes propel Treasury yields, DXY.
• ECB’s Lagarde, Fedspeak gains major attention amid light calendar.

EUR/USD stays pressured around an intraday low of 1.1352, down for the first time in three days ahead of Friday’s European session. In doing so, the major currency pair reacts to the US dollar recovery amid the lackluster early hours of trading.

US Dollar Index (DXY) rises 0.12% intraday to 95.64 while following the US 10-year Treasury yields, up one basis point (bp) to snap a two-day fall around 1.596% at the latest.

Firmer US data and hawkish comments from Fed policymakers helped the US inflation expectations to recover following the two-day pullback from an 11-year high. The inflation gauge, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, underpins the US Treasury yields and the DXY to pick up bids.

That said, NY Fed President and FOMC Vice-Chair John Williams highlighted inflation fears and pushed for rate action but mixed comments from Chicago Fed President Charles Evans poured cold water on the face of policy hawks. Further, firmer prints of the Philadelphia Fed Manufacturing Survey for November, 39 versus 24 expected, as well as softer-than-previous US Initial Jobless Claims of 268, add to the market’s reflation fears.

Additionally, chatters surrounding the US stimulus add to the inflation-linked woes and favor the US dollar’s safe-haven demand, weighing on the EUR/USD prices. The White House expects that the Build Back Better (BBB) plan would reduce the deficit by $112 billion over the next decade in its new analysis and the same increases the odds of the climate and social spending bill’s passage as it's getting voted.

Unlike Fed policymakers, European Central Bank (ECB) Chief Economist Philip Lane said on Thursday that bottlenecks are not expected to get worse and, from here, will ease, according to Reuters.

Looking forward, comments from German Central Bank President Jens Weidmann and ECB President Christine Lagarde will join Fed policymakers’ comments to direct short-term EUR/USD moves.

Technical analysis

A two-day-old support line and 23.6% Fibonacci retracement (Fibo.) of November 09-17 downtrend challenge EUR/USD sellers around 1.1950 before directing them to the previous resistance line from November 09, around 1.1315, as well as the yearly low of 1.1263. Alternatively, buyers will wait for a clear break of the previous day’s high near 1.1375 for re-entry. Following that, a joint of the 200-HMA and 50.0% Fibo. near 1.1440 will be crucial for the pair’s further upside.

• The cable looks for early BOE's tightening amid rising inflationary pressure.
• GBP/USD remains below 1.3500, UK labour shortage remains a concern. 
• All eyes remain on the UK Retail Sales for fresh trading directives. 

GBP/USD is trading modestly flat on Friday, making the pair's journey towards the 1.3500 level hard ahead of key UK Retail Sales data.

The cable is trading at 1.3487, down by 0.02%, at the time of press.

As the inflation soars to a 10-year high of 4.2% in the UK, the Bank of England (BoE) is burdened with the pressure to increase interest rates in their next month's meet. As a result, investors are keenly waiting, in fact, they are quite hopeful that the BoE's decision on rate hike will be in their favor.

It is worth mentioning that the ongoing labour shortage in the region is likely to pressure the BoE further to increase rates before any of its peers.

Other than this, Brexit talks continue to loom over GBP/USD. A prolonged delay in talks is already affecting the UK's local businesses, resulting in the decline of the regional currency, the pound.

On the other hand, the COVID-19 crisis remains a challenge to the GBP/USD bulls. The pair, however, remain somewhat hopeful with the UK employment report and inflation figure. The US dollar's two-day pullback tracked by the soft US T-bond yields amid prospects for an early policy tightening by the Fed cushioned the GBP/USD pair.  

Previously, the US Philly Fed Manufacturing Index jumped to 39 in November against consensus estimates, pointing to an uptick to 24 from 23.8 in the previous month. This, to a larger extent, was offset by higher Weekly Jobless Claims, coming in at 268K during the week ended November 12. It lent a little help to buoy the pair.

Investors now look forward to Fed Vice Chairman Richard Clarida's and Christopher Waller's speeches for fresh trading impetus. However, 1.3500 remains a critical mark, and sustained strength could extend the incentive to the cable pair.

GBP/USD technical levels

In its latest assessment of the Chinese property sector, Moody’s Investors Service noted that liquidity stress among the country’s property developers will remain given tight credit conditions and lower sales.

Key takeaways

“More developers will meet the three red lines requirement as debt growth declines.”

“Limited funding access, slowing contracted sales, weakened controls over project-level cash dampening cash flow.”

“Refinancing risk for developers, particularly financially weak ones with material near-term debt maturities, will remain high in China.” 

Market reaction

USD/CNY was last seen trading at 6.3852, almost unchanged on the day.

• USD/TRY grinds higher after refreshing all-time top the previous day.
• CBRT rate cut failed to impress lira sellers amid inflation woes.
• Bearish RSI divergence hints at a pullback towards multi-month-old support line.

USD/TRY bulls keep reins around the record high, remain sidelined near $11.12 heading into Friday’s European session. The Turkish lira (TRY) pair is up for the third consecutive weekly advance wherein the latest run-up follows a 100 basis points (bps) of a rate cut by the Central Bank of the Republic of Turkey (CBRT), marked the previous day.

Even so, the RSI line teases sellers with the bearish divergence compared to the USD/TRY prices moves.

The bearish divergence could be known when the quote makes a higher-high but the RSI line makes a lower-low, signaling that the bulls are tiring and hence hinting at pullback.

In this case, the USD/TRY pair may retrace to October’s top of $9.85 while the $10.00 psychological magnet offers immediate support.

It should be noted, however, that the previous resistance line from August 2018, near $9.28, will become a tough nut to crack for the bears.

On the flip side, the latest peak of $11.31 will be the key for the USD/TRY buyers before they head towards the $12.00 threshold and rise further.

USD/TRY: Weekly chart

Trend: Pullback expected

• Asian equities fail to track mildly bid US stock futures.
• Fitch warns over rating downgrades for India, Japan but not for Australia.
• China’s Alibaba slumps 11% on earnings, reignites regulatory concerns.
• Japan braces for record aid package, US BBB is in the House while China eyes tax relief.

Asia-Pacific investors remain at loggerheads despite a brighter start of Friday in the overseas markets. The reason could be linked to China-led fears and firmer Treasury yields during sluggish hours heading into the European session.

Leland Miller, Chief Executive Officer of China Beige Book said, per Bloomberg, “China’s economy is slowing more than people think and the outlook is for weaker growth going forward as the government is unlikely to step in with significant stimulus.”

On the other hand, China’s Securities Daily mentions, “China to roll out more comprehensive measures to cut taxes and fees by 500 billion yuan ($78.34 billion) or even higher in proper time.”

Above all, over 11% slump of Alibaba due to downbeat earnings and Beijing’s regulatory crackdown renews market fears even as Evergrande-linked woes are likely receding. That said, stocks in Hong Kong are down nearly 2.0% while Chinese equities trade mixed.

Further, MSCI’s index of Asia-Pacific shares outside Japan drops 0.70% whereas Japan’s Nikkei 225 prints 0.45% intraday gains by the press time.

It’s worth noting that markets in India are off and those from New Zealand track their Chinese counterparts, also weighed down by the escalating hopes of the Reserve Bank of New Zealand (RBNZ) rate hikes. Alternatively, Australia’s ASX 200 gains 0.20% at the latest as the global rating giant Fitch revised the outlook to stable from negative. Fitch also said, “Rating downgrades could occur for countries such as India, Japan and the Philippines, which are on Negative Outlook, if we assess that the likelihood of authorities stabilizing or reducing the public debt/GDP ratio in the next few years is waning,” per Reuters. It should be observed that markets in India are off due to Guru Nanak Birthday.

On the positive side, talks of stimulus and mixed comments from Fed policymakers challenge the bears. The White House expects that the Build Back Better (BBB) plan would reduce the deficit by $112 billion over the next decade in its new analysis and the same increases the odds of the climate and social spending bill’s passage as it's getting voted. Further, Japanese Prime Minister Fumio Kishida announced a fresh spending plan of around 56 trillion yen ($490 billion) during early Friday. On the same line, China’s Securities Daily mentions, “China to roll out more comprehensive measures to cut taxes and fees by 500 billion yuan ($78.34 billion) or even higher in proper time.”

Against this backdrop, US 10-year Treasury yields snap two-day downtrend while the S&P 500 Futures refresh record top following its Wall Street benchmark. Further, the US Dollar Index (DXY) also recovered as the inflation expectations rise.

Also read: Wall Street Close: S&P 500, Nasdaq mark record closing, Dow eases

• GBP/CAD extends pullback from 50-day EMA towards previous resistance line.
• Bullish MACD signals test further weakness, 200-day EMA and late-September levels challenge buyers.
• UK Retail Sales are likely to reverse previous contraction on MoM, which could fuel BOE rate hike concerns.
• GBP/USD awaits Brexit talks, UK Retail Sales as bulls battle 1.3500 hurdle

GBP/CAD remains on the back foot, mildly offered around 1.6990 during early Friday.

The cross-currency pair refreshed monthly high the previous day before stepping back from the 50-day EMA. In doing so, a bearish spinning top candlestick could be observed on the daily timeframe, suggesting further weakness of the quote.

However, a seven-week-old previous resistance line near 1.6970 restricts immediate declines of the pair.

Also acting as a downside filter is October’s low close to 1.6890, a break of which will direct the quote towards the yearly bottom surrounding 1.6720.

Alternatively, a daily closing past 50-day EMA, around 1.7040, will need validation from 1.7090 level to aim for the 1.7190-7200 resistance area including 200-day EMA and multiple tops marked during late September and October-start.

Should the GBP/CAD bulls remain dominant beyond 1.7200, late August month’s lows near 1.7275 will be in focus.

GBP/CAD: Daily chart

Trend: Pullback expected

In its latest client note, Goldman Sachs analysts, “a release of oil from the US Strategic Petroleum Reserve (SPR) is now fully priced-in.”

Additional takeaways

“It would not help the slow global supply response that only higher oil prices can overcome.” 

“Prices would be likely to move higher still if such a release is confirmed and manages to keep oil prices depressed .. it would create clear upside risks to our forecast.”

Related reads

• China: Working on release of crude oil reserves
• WTI Price Analysis: Recovery remains elusive below $80.00

• NZD/USD awaits Fedspeak to draw impetus, RBNZ will be key.
• The kiwi investors keep Thursday's gain amid a softer US dollar.
• Cautious market mood likely limits the upside in the spot. 

NZD/USD breaks its two-week-long downtrend on Friday’s Asian session, as it hovers around 0.7040. At the time of writing, the kiwi is trading at 0.7044, up 0.12%. 

The pair is trading on the front foot, led by the rising expectations of a rate hike in the upcoming monetary policy meeting from the Reserve Bank of New Zealand (RBNZ). On Thursday, the RBNZ announced that the country’s inflation expectations had jumped 3.7%, the highest since 2021.

Experts believe that the coming week is likely to bring some good news for the investors in the form of another rate hike, targeting to limit the country’s inflation between 1-3%, with a central target of 2%.

On the other side, the mighty US dollar took a breather with a two-day loss, staying around 95.60 on Friday. The talk over US stimulus and fresh inflation outlook buoyed the DXY buyers.

Meanwhile, the Fed members continued to pivot to a more hawkish view of inflation. As per Australia and New Zealand Banking Group (ANZ), “NY Fed President and FOMC Vice-Chair John Williams that underlying inflation is broadening and picking up add weight to our assessment that the Fed is pivoting towards a more hawkish assessment of inflation.”

China Evergrande news remains a concern for the kiwi, which has impacted the Chinese market. Also, the upbeat US weekly job numbers and monthly regional manufacturing data contributed to the pair's price action.

After ignoring New Zealand Credit Card Spending for October, YoY, NZD/USD looks forward to the US docket in the absence of major economic activity. The kiwi will look for a catalyst from China and Fed Vice Chairman Richard Clarida's and Christopher Waller's speeches, with a distinct focus on RBNZ.

NZD/USD technical levels

• USD/CHF picks up bids to refresh intraday high, snaps two-day downtrend.
• MACD backs confirmation of bullish chart pattern, three-day-old horizontal hurdle in focus.
• 200-HMA joins 50% Fibonacci retracement level to challenge bears.

USD/CHF holds onto the first daily gains in three near the intraday top surrounding 0.9270 during early Friday.

The Swiss currency (CHF) pair’s latest run-up could be linked to its ability to cross the two-day-old descending trend line, which in turn confirms a short-term bullish chart formation called a falling wedge.

With the bullish MACD signals joining falling wedge confirmation, USD/CHF traders are up for further advances towards a horizontal area comprising multiple levels marked since Tuesday, near 0.9300.

Following that, the monthly high near 0.9330 and September’s peak close to 0.9370 will be in focus.

Alternatively, pullback moves will aim for the resistance-turned-support line close to 0.9265 before directing the USD/CHF sellers towards 38.2% Fibonacci retracement of November 10-17 upside, surrounding 0.9245.

If at all the pair drops below 0.9245, a convergence of 200-HMA and 50% Fibo. near 0.9215, will become a tough nut to crack for the bears.

USD/CHF: Hourly chart

Trend: Further upside expected

• US Treasury yields rebound, helping S&P 500 Futures to pick up bids.
• US BBB plan, Japan stimulus and China push to cut taxes/fees brighten the mood.
• US inflation expectations also regain amid mixed Fedspeak, US data.

Market sentiment brightens during early Friday as global policymakers push for easy money. Be it Japan’s mega spending plan or the US “Build Back Better”, not to forget China’s defense from Evergrande woes, everything hints at more money in the system going forward. The same propels equity bulls, fears of inflation also get a fresh life due to these catalysts and recall US bond bears, favoring Treasury yields.

While portraying the mood, S&P 500 Futures rises 0.25% to refresh the record top with 4,713 level whereas the benchmark US 10-year Treasury yields rise 1.1 basis points (bps) 1.598% at the latest.

It’s worth noting that the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, also underpin the Treasury yields of late. That said, the inflation gauge rose for the first time last three days by the end of Thursday's North American session, per the data source Reuters.

Hawkish rhetoric from NY Fed President and FOMC Vice-Chair John Williams could be cited as the key catalysts to renew the inflation fears on Thursday. Also on the positive side were firmer prints of the Philadelphia Fed Manufacturing Survey for November, 39 versus 24 expected, as well as softer-than-previous US Initial Jobless Claims of 268.

Talking about stimulus headlines, the White House expects that the Build Back Better (BBB) plan would reduce the deficit by $112 billion over the next decade in its new analysis and the same increases the odds of the climate and social spending bill’s passage as its getting voted. Further, Japanese Prime Minister Fumio Kishida announced a fresh spending plan of around 56 trillion yen ($490 billion) during early Friday. On the same line, China’s Securities Daily mentions, “China to roll out more comprehensive measures to cut taxes and fees by 500 billion yuan ($78.34 billion) or even higher in proper time.”

It should be noted, however, that looming concerns over Evergrande, as cited by the global rating agency S&P, may join the fears of the Fed rate hike to challenge the risk appetite should today’s Fedspeak fails to tame the policy hawks.

Also read: Wall Street Close: S&P 500, Nasdaq mark record closing, Dow eases

• Gold bulls are showing up in Asia as the trade starts to pick up. 
• US dollar is also making tracks across the forex board as traders await keynote speeches from central bankers. 

The price of gold on Friday in Asia has been drifting sideways but the needle has now moved to the upside. The price is breaking out of the prior range of between $1,858.10 and $1,860.42 and has just printed a high of $1.861.77.

The US dollar is also pushing higher after it took a breather overnight and drifted back form the 16-month highs scored earlier in the week. The dollar index DXY which measures the currency against a basket of six rivals reached its highest since mid-July 2020 on Wednesday at 96.226, but was last trading back at 95.600. 

Markets are now in a state of apprehension over risks of stagflation which makes gold the perfect hedge but also underpins the prospects of a stronger dollar. The move in the greenback has been so far fueled by diverging central bank tightening expectations amid surging inflation around the globe.

This week's US Retail Sales beat expectations on the heels of last week's inflation surprise which led to the surge. Additionally, in Europe, meanwhile, COVID-19 is surging again, car sales slipped for a fourth consecutive month and central bankers are vowing to hold rates low. 

Focus on central banks

Meanwhile, the focus will be on central bank speakers, with European Central Bank President Christine Lagarde at 0830 GMT, Bank of England economist Huw Pill at 1200 GMT and Federal Reserve officials Christopher Waller and Richard Clarida at 1545 GMT and 1715 GMT the highlights. 

Next week we will see just how hawkish the Reserve Bank of New Zealand is when they decide on their OCR. However, local markets could be setting themselves up for some real disappointment if we “only” get a 25bps hike. This could lead to yet another surge in the greenback and ultimately weigh on gold prices. 

Gold to consolidate?

An ongoing CTA buying program in gold could soon be running out of steam, leaving the yellow metal vulnerable to a deeper consolidation,'' analysts at TD Securities argued.

''After all, while the yellow metal remains an ideal hedge against rising stagflationary winds, the tug-of-war between high inflation prints and market pricing for central bank hikes hasn't definitively concluded.''

• DXY snaps two-day downtrend, refreshes intraday top of late.
• US Treasury yields track inflation expectations to recover.
• “Build Back Better” is likely reducing US budget deficit, may gain easy passage.
• Fedspeak will be important for clear direction amid light calendar.

US Dollar Index (DXY) consolidate the last two-day losses, picking up bids around 95.60 during early Friday. The greenback gauge tracked US Treasury yields and the inflation expectations to print the previous pullback before the chatters concerning US stimulus and fresh in the inflation gauge recalled the greenback buyers.

Following the mixed US data and indecisive comments from the Fed policymakers, the US inflation expectations dropped from the 11-year high during the last two days. However, the recently hawkish rhetoric from NY Fed President and FOMC Vice-Chair John Williams underpins the quote’s recovery moves, favoring the uptick in the US 10-year Treasury yields and DXY.

Further, the White House expects that the Build Back Better (BBB) plan would reduce the deficit by $112 billion over the next decade in its new analysis. The same increases the odds of the climate and social spending bill’s passage.

Not only at home but the stimulus chatters from China and Japan also propel the hopes of further inflation and favor the US Treasury yields, as well as the US Dollar Index. That said, Japan is up for 56 trillion yen ($490 billion) of spending plan while China’s Securities Daily mentions, “China to roll out more comprehensive measures to cut taxes and fees by 500 billion yuan ($78.34 billion) or even higher in proper time.”

It should be noted, however, that a lack of major data/events and recently mixed comments from Chicago Fed President Charles Evans probes the DXY bulls.

Even so, the greenback remains on the way to post fourth weekly run-up to poke the highest levels in 16 months.

Technical analysis

Unless declining back from previous resistance line from latte July, around 95.40 by the press time, US Dollar Index bulls remain hopeful.

• USD/JPY upbeat, Japan’s 56 trillion yen ($490 billion) stimulus is around the corner.
• USD/JPY hovers around the 114.00 level during Asian trading hours.
• The currency pair is riding on the back of improved 10-year US T-bond yields.

USD/JPY continues to hover around the 114.00 level on Friday. At the time of press, the currency pair is trading at 114.34, up 0.07%. The currency pair has performed marginally well on the back of improved 10-year US Treasury Yields, which is currently trading up by 1.59%. Experts believe a rebound reason could be the dip-buying in a 2021 trend being followed by the USD/JPY investors.

Previously, on Wednesday, the USD/JPY suffered a blow after the US Treasury yields took a dip. However, the pair gained some strength the next day, and since then, it has been flirting with 114.00 levels.          

In addition to this, news coming out from Tokyo about the COVID-19 stimulus package also creates ripples in the FX. A Reuters report had stated that Japan is all set to compile a record 56 trillion yen fiscal stimulus package, due for later in the day. The stimulus is aimed to cushion Japan’s pandemic-hit economy, resisting globally followed tapering measures.

USD/JPY is trading at its multi-yearly high on Wednesday at around 114.81, the strongest since October 20 and then pulled back modestly. The pair is heading towards a major resistance barrier of 115.00. At the time of reporting, it peaked at 114.93 with a low of 114.78. The combination of higher US T-bond yields, rising equity prices and a rally of the US dollar across the board take up more ground.

The US dollar charm has run out of steam and has lost the zeal compared to the local currency Yen. The dollar Index’s pullback from the 16-month highs with the index dropping back to the 95.50s in the Asia Pacific trading session.

Also, USD/JPY seems to feed on the upbeat data from the US besides the latest stimulus package and continue recovering Wednesday’s lost ground. US economic data released on Thursday was positive, with weekly initial jobless claims falling to a fresh post-pandemic low at 269K and the Philadelphia Fed manufacturing survey showing an improvement in business conditions.

The economic calendar for Japan on Friday is empty ahead. But, USD/JPY will surely gather incentives from Fed Vice Chairman Richard Clarida and Christopher Waller speeches.

USD/JPY technical levels

• EUR/USD consolidates previous day’s gains, refreshes intraday low of late.
• 23.6% Fibonacci retracement, two-day-old support line limit immediate downside.
• Confluence of 200-HMA, 50.0% Fibonacci retracement level offer tough nut to crack for the bulls.

EUR/USD pares heaviest daily gains of November, marked the previous day, during early Friday. In doing so, the major currency pair refreshes intraday low to 1.1359 while declining below 100-HMA.

Given the RSI retreat and a likely bearish cross of the MACD line, the latest weakness is expected to stretch towards 1.1350-48 support convergence, comprising a two-day-old support line and 23.6% Fibonacci retracement (Fibo.) of November 09-17 downtrend.

Even if the quote stretches the latest weakness past 1.1348, the previous resistance line from November 09, around 1.1315, adds to the downside filters before directing the quote to the yearly low of 1.1263.

Alternatively, buyers will wait for a clear break of the previous day’s high near 1.1375 for re-entry. Following that, a joint of the 200-HMA and 50.0% Fibo. near 1.1440 will be crucial for the EUR/USD pair’s further upside.

Also acting as an additional challenge to the bulls is the 61.8% Fibonacci retracement level near 1.1480.

EUR/USD: Hourly chart

Trend: Further weakness expected

• AUD/USD struggles around monthly low after snapping two-day downtrend.
• Cautious optimism prevails amid light calendar, lack of major events.
• Stock futures print mild gains but Treasury yields dwindle as US inflation expectations jump back.
• Fespeak, inflation talks and Evergrande updates will be the key to watch for fresh impulse.

AUD/USD treads water around 0.7275 amid a lack of major catalysts during Friday’s Asian session. That said, the quote bounced off a 1.5-month-old support line the previous day but struggles for fresh clues of late.

A two-day fall in the US inflation expectations joined slightly hawkish rhetoric from the Fed policymakers to underpin the fall of the US Treasury yields and the US Dollar Index (DXY). However, the latest rebound in the US inflation gauge, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, seems to have challenged the AUD/USD buyers amid a light calendar.

It should be noted that Thursday’s grim concerns over China’s Evergrande, on the troubled real-estate player’s sell of entire stake in HengTen Networks Group Ltd at a hefty loss, probed the AUD/USD bulls. Though, the latest comments from CEO of the CBB International, which is a New-York-based research group putting a private survey called the China Beige Book highlight that Evergrande risks will be contained.

Also on the positive side were chatters surrounding the US stimulus as Axios said, “The Congressional Budget Office found that the social spending bill Democrats are racing to pass would increase the federal deficit slightly, but likely not enough to sink its chances in the House.”

Elsewhere, NY Fed President and FOMC Vice-Chair John Williams highlighted inflation fears and pushed for rate action but mixed comments from Chicago Fed President Charles Evans poured cold water on the face of policy hawks. Further, firmer prints of the Philadelphia Fed Manufacturing Survey for November, 39 versus 24 expected, as well as softer-than-previous US Initial Jobless Claims of 268, add to the market’s confusion.

Amid these plays, S&P 500 Futures print mild gains whereas the US Dollar Index (DXY) and US 10-year Treasury yields remain mostly unchanged, around 95.55 and 1.589% respectively by the press time.

Moving on, a lack of major data and events will challenge the AUD/USD momentum traders but the latest uptick in the US inflation expectations may probe the bulls. On the contrary, RBA rate hike expectations have firmed up again, which in turn may keep buyers hopeful.

Technical analysis

AUD/USD struggles to carry the previous day’s gains following its bounce off a six-week-old support line, near 0.7250 at the latest.

In doing so, the quote struggles below important upside hurdles, namely a descending trend line from November 04 around 0.7345 and a convergence of the 100-DMA and 50-DMA close to 0.7355-60.

Given the quote’s failures to hold the rebound, as well as downbeat MACD and RSI signals, the AUD/USD prices are likely to challenge the stated support line near 0.7250, a break of which will highlight. 0.7220 level, comprising multiple lows marked since August 27. Should the quote remain bearish past 0.7220, September’s low of 0.7169 will be in focus.

• The RBA remain cautious, rate hike is likely to be delayed.
• AUD/JPY trades at 83.00 amid mixed market views.
• AUD/JPY looks for impetus from broad market sentiments.

AUD/JPY is maintaining its position at around 83.00 during the Asian session on Friday. At the time of reporting, the cross-currency pair is trading at 83.16, up 0.07%.

Due to the COVID-19 lockdowns paired with slow economic recovery, the Australian economy is going through a challenging phase. In addition to this, the data released earlier this month have failed to make investors happy.

Furthermore, the Reserve Bank of Australia (RBA) has issued a warning on rate hikes. The RBA policymakers have constantly been cautioning investors that the much-anticipated rate hike will not be announced anytime soon. As a result, the Australian dollar has suffered throughout this period.

On November 16, RBA Governor Philip Lowe said, “the economy and inflation would have to turn out very differently from our central scenario for the Board to consider an increase in interest rates next year. It is likely to take time to meet the condition we have set for an increase in the cash rate and the Board is prepared to be patient.”

However, the latest news coming out from Australia about the lift of Covid-19 lockdowns in Victoria will surely provide a much-needed boost to the economy in the upcoming Q4. This is similar to Japan’s population that has overcome previous vaccine hesitancy and has achieved the highest inoculation rate in the Group of Seven (G7) without any mandates. It need not be said this will have a positive impact on the risk-sensitive pair. 

On the other hand, shareholders of the Japanese Yen remain cheerful about the COVID-19 fiscal stimulus package. The aid is worth 40 trillion yen ($350 billion) and is expected to revive the pandemic and oil price-hit economy.

It is worth stating the instability in the bond market has, but the market is under caution. Previously, a pullback in the US treasury yields has pushed the USD/JPY southwards, resulting in an improvement in the local currency Yen. On Friday, the 10-year US Treasury yield stands at 1.58%, rebounding while the 30-year around 1.97%.

Investors will recollect, the USD/JPY is under pressure caused by declining US inflation pressures and rising rate hike expectations. 

Amid no economic docket on Friday, the pair will AUD/JPY traders would be leaning on broader market risk sentiment dynamics to find impetus. 

AUD/JPY technical levels

• AUD/CHF has been under pressure but the bulls are pushing back.
• A downside extension will occur in AUD/CHF if USD/CHF bears step on the gas. 

As per the prior analysis, AUD/CHF Price Analysis: Bears stepping in for a breakout towards 0.6750, the pair has been sliding through the 0.67 handle and there could be more to go. 

The bearish fundamentals still stick up. CHF is a stagflation hedge and the Swiss National Bank will likely allow the currency to strengthen rather than raise interest rates. The Aussie is under pressure due to a dovish outlook. Meanwhile, we are seeing a bearish pennant on the hourly chart as follows:

AUD/CHF H1 chart

With that being said, the bulls are moving in on the Aussie in Asia and the USD is firming against the swiss franc. If the above scenario is to play out, then USD/CHF needs to be contained by the following resistance near 0.9260. 

• USD/CAD holds onto pullback from six-week high, grinds lower of late.
• RSI nears overbought area, hints at limited upside scope.
• 50-DMA, support line of short-term ascending channel tests bulls.

USD/CAD remains depressed around 1.2600, after reversing from early October highs the previous day. With this, the quote stays below 50% Fibonacci retracement (Fibo.) level of August-October fall by the press time of Friday’s Asian session.

Given the limited upside room for the RSI line backing the quote’s latest drop below 50% Fibo. level, the latest downside is likely to extend, at least for the short term.

However, a convergence of the 50-DMA and lower line of the ascending trend channel from October 27 offers a tough nut to crack for the bears around 1.2530.

Should the quote drops below 1.2530, September’s low near 1.2490 and 23.6% Fibonacci retracement level around 1.2445 should return to the charts.

Alternatively, an upside break of the 50% Fibo., at 1.2618, will direct USD/CAD buyers towards the stated channel’s resistance line around 1.2680.

If at all the pair bulls cross the 1.2680 hurdle, the 61.8% Fibonacci retracement close to 1.2700 and 1.2765-70 area comprising multiple levels marked in September will be in the spotlight.

USD/CAD: Daily chart

Trend: Further declines expected

US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, rise for the first time last three days by the end of Thursday North American session, per the data source Reuters.

In doing so, the inflation gauge jumps back towards the highest levels since 2005 tested earlier in the week, around 2.73% at the latest.

The underlying reasons could be the firmer prints of the Philadelphia Fed Manufacturing Survey for November, 39 versus 24 expected, as well as softer-than-previous US Initial Jobless Claims of 268K.

It should be noted that mixed comments from the Fed policymakers are also responsible for the latest wobbling of the inflation expectations. Recently, NY Fed President and FOMC Vice-Chair John Williams highlighted inflation fears and pushed for rate action but mixed comments from Chicago Fed President Charles Evans poured cold water on the face of policy hawks.

While the previous two-day downtrend in the inflation expectations could well be witnessed on the US Dollar Index (DXY) and US 10-year Treasury yields, both remain mostly unchanged around 95.55 and 1.589% by the press time. That said, today’s Fedspeak will be important to watch amid a light calendar and hence may trigger a corrective bounce in the DXY and the yields.