CFD Markets News and Forecasts — 24-11-2021

• EUR/CAD slides for the fifth day in a row, amid high oil prices.
• Eurozone coronavirus woes and reimposing of restrictions threatens to derail the EU economic growth.
• EUR/CAD: Bears eye the 1.4100 figure as Eurozone economic and health conditions deteriorate.

The EUR/CAD slides for the fifth consecutive day, barely down some 0.01% trading at 1.4185, during the day at the time of writing. Market sentiment is a mixed bag, as Asian equity futures fluctuate between gainers and losers. In the FX market, risk-sensitive currencies fall, except for the Canadian dollar, underpinned by elevated crude oil prices.

The US crude oil benchmark, the Western Texas Intermediate (WTI), climbs 0.13%, trading at $78.16, after the US and its Asian allies tap oil from the SPR reserves, as the White House tries to stabilize rising gasoline prices throughout the country.

On Wednesday, during the overnight session, the EUR/CAD reached a daily high of around 1.4269. However, rising coronavirus cases throughout the northern hemisphere in Europe as the winter season approaches weighed on the shared currency, as the pair plummeted towards a new year-to-date new low at 1.4162. Countries like Austria -imposing a 20-day lockdown-, France, and Germany, are studying making vaccines mandatory.

Also, the Eurozone economic docket witnessed the fall of Germany’s IFO survey, which showed that the Business Climate shrank to 96.5, falling for the fifth month in a row.

EUR/CAD Price Forecast: Technical outlook

The EUR/CAD has a bearish bias in the daily chart, as depicted by the daily moving averages (DMA’s) with a downward slope, residing above the spot price. Also, the Relative Strength Index (RSI), a momentum indicator, is at 34, below the 50-central line, aiming lower, confirming the bearish bias.

In the outcome of a downtrend continuation, the first support would be the 1.4100 figure. A breach of that level would expose crucial long-term support levels, like the April 2020 swing low around 1.4052, followed by the February 2017 swing low around 1.3783.
 

• GBP/USD stays pressured around yearly low after four-day downtrend.
• Bearish MACD signals, sustained trading below September 2020 peak favor sellers.
• 100-week SMA, four-month-old support line offers a tough nut to crack for the bears.

GBP/USD grinds lower around the yearly bottom surrounding 1.3320 amid the initial Asian session on Thursday, after declining for consecutive four days.

Given the cable pair’s failures to rebound following the downside break of the September 2020 high, coupled with the bearish MACD signals, sellers are likely to keep the reins.

However, a convergence of the 100-week SMA and a descending trend line from late July, around 1.3290-75 appears a major challenge for the pair bears.

Even if the quote drops past 1.3275, the 200-week SMA and 38.2% Fibonacci retracement (Fibo.) of March 2020 to June 2021 upside, near 1.3165-60, will act as an additional puzzle for the GBP/USD sellers to solve.

Meanwhile, corrective pullback remains elusive until crossing September 2020 top of 1.3482.

Adding to the upside filters is the 23.6% Fibo. level near 1.3580 and a monthly high surrounding 1.3700.

GBP/USD: Weekly chart

Trend: Limited downside expected

• AUD/USD remains sidelined after dropping to the lowest levels since late September.
• Aussie data improved, virus fears recede at home but mostly firmer US data, covid woes from Eurozone favor bears.
• Fed Minutes, Fed’s Daly also highlights rate hike calls to weigh on the pair.
• US holiday, light calendar in Asia hint at a sluggish session but virus, inflation headlines keep driver’s seat.

AUD/USD seesaws near 0.7200 amid early Thursday morning in Asia, following a south-run to refresh an eight-week low with 0.7183 figure the previous day.

The Aussie pair portrays the market’s sour sentiment amid escalating price pressure and fresh concerns over the return of the coronavirus-led lockdowns. In doing so, the quote ignores mildly positive fundamentals at home amid the Reserve Bank of Australia’s (RBA) repeated rejection to rate hikes.

With a 30-year high of the Fed’s preferred inflation gauge, namely Core PCE Price Index, joining welcome prints of Weekly Jobless Claims, the Fed policymakers’ concerns over tapering and rate hike seems justified, as reflected by the recent FOMC Minutes. Also highlighting the inflation fears and a push for the Fed rate hike were the recent comments from Federal Reserve Bank of San Francisco President and FOMC member Mary Daly who sees, per Reuters, the case for speeding up the QE taper and expects rate hikes at end of 2022.

Other than the fears of the Fed rate hike, worsening COVID-19 conditions in the bloc also weigh on the AUD/USD prices, due to its risk barometer status. After Austria and the Netherlands, record-high cases in Germany triggered multiple warnings to recall the lockdowns from the region.

At home, Construction Work Done during the Q3 improved from -3.1% expected to -0.3%, versus upwardly revised 2.2% previous readouts. Additionally, new daily infections in Australia remain sidelined around 1,500 since last month, helping the Pacific major to announce the easing of the virus-led activity restrictions.

Amid these plays, the US 10-year Treasury yields ease 2.2 basis points (bps) to 1.64% after refreshing monthly high. Even so, the US Dollar Index (DXY) remains firm around the 16-month top while the equities trade mixed of late.

Looking forward, the Thanksgiving Day holiday in the US and an absence of major data/events at home can restrict AUD/USD moves, suggesting a corrective pullback in case of surprise positives. However, bears are likely to keep the reins considering the latest challenges to market sentiment and favors for the Fed rate hike.

Technical analysis

With a daily closing below 78.6% % Fibonacci retracement (Fibo.) of August-October upside, AUD/USD bears are ready to challenge September’s monthly bottom of 0.7169, as well as support line of a month-long falling wedge bullish formation near 0.7165. However, oversold RSI conditions could restrict the quote’s further weakness. On the contrary, the stated wedge’s resistance line around 0.7270 guards the immediate upside of the pair.

Early Thursday morning in Asia, Canadian Finance Minister (FinMin) Chrystia Freeland crossed wires via Reuters.

The policymaker said she will provide some type of fiscal update this fall. “Will have more details in the coming days,” adds Freeland.

While speaking on inflation, Canada's Freeland said, "Global forces are responsible for rising inflation, we cannot look for a made-in-Canada solution."

FX implications

As the covid fears renew, hopes of additional stimulus from Canada could help the USD/CAD prices following the news. That said, broadly strong US dollar, backed by inflation and coronavirus fears, helps the Loonie pair to pause the two-day pullback from the highest levels since September by the press time.

Read: USD/CAD retreats from daily tops around 1.2700 after FOMC minutes

• NZD/JPY bears remain on the lookout for an optimal entry to the downside to targeting 79 the figure. 
• Corrections could be the first port of call as markets over into consolidation. 

The bears were at it overnight and dishevelled the cross all the way towards a 61.85 Fibonacci retracement area on the daily chart. This was an outcome of the Reserve Bank of New Zealand meeting that disappointed the bulls that were in anticipation of a 50bs rate hike. Instead, the central bank delivered a 25bp hike and the kiwi subsequently collapsed. 

The following was the prior analysis before the event that is followed by the aftermath and the prospects for a continuation to the downside in both NZDPY and NZD/USD, but not for a correction. 

NZD/JPY daily chart, prior analysis

As illustrated, the price was on the cups of a continuation towards the horizontal support near 79 the figure. 

There is still some way to go yet, but the foundations have been laid as the price well and truly breaks down the barriers of the 50% mean reversion area near 79.60. However, we now move into a quiet spell given the US holiday-thin markets.

A period of consolidation that could well lead to a positive correction in the kiwi would likely see the cross move in on the 79.80s being the old closes of the prior candles:

However, that is not to say the price cannot continue lower before such a considerable correction. But looking to the NZD/USD chart, the kiwi does look to be oversold and too in need of a correction:

• AUD/JPY saw subdued trade amid a lack of Australia/Japan-related fundamental developments and remains close to its 50DMA at 82.94.
• The pair may be on the cusp of breaking to the north of a medium-term bearish trend channel.

AUD/JPY spent most of Wednesday’s trading session consolidating close to its 50-day moving average, which currently resides just to the south of the 83.00 level and trading well within recent ranges. In Asia Pacific trade, kneejerk weakness in NZD following a more dovish than expected RBNZ rate decision pulled the Aussie lower and dragged AUD/JPY as low as the 82.70s. The pair then gradually rebounded back to current levels around 83.00 where it looks set to end the session.

FX markets focus has been elsewhere, such as on the evolving European Covid-19 crisis, on a barrage of US data, Fed speak and the Fed minutes. That, combined with a lack of either Australia or Japan-related fundamental developments, meant it is not surprising to see AUD/JPY trade with a lack of conviction. That lack of conviction is likely to be the story of the rest of the week, with most US market participants now on holiday for Thanksgiving.

To the upside, the most immediate resistance for AUD/JPY is this week’s highs in the 83.20 area. To the downside, aside from Tuesday’s lows in the 82.60s, the next main area of support is last week’s low at 82.15 and then the early September high at almost bang on 82.00 just below it.

AUD/JPY breaking out of medium-term bear trend?

Looking at AUD/JPY over a longer time horizon, the pair may be showing some bullish signs that it is about to break out of a bearish trend channel that has been containing the price action since the start of November. A break to the north would signal a potential move towards the pair’s 21DMA and 15 November highs in the 84.00 area.

• USD/CAD hovers around 1.2668 after the unveiling of FOMC’s last meeting minutes.
• FOMC Minutes: Some participants would like to adjust the QE’s taper pace and raise rates sooner than anticipated if inflation runs hot.
• The US Dollar Index posts day-after-day new 16-month highs close to 97.00.

The USD/CAD slides from daily tops around 1.2700, down some 0.09%, trading at 1.2661 during the New York session at the time of writing. A risk-off market sentiment spurred demand for the greenback, as it keeps posting new year-to-date highs versus most G8 currencies, except for the Canadian dollar, as the FOMC’s last meeting minutes were unveiled.

On Wednesday, the Federal Reserve unveiled the last FOMC meeting minutes, which showed that some participants would like to adjust the QE’s taper pace and raise rates sooner than anticipated if inflation runs hot.

According to Reuters, “some participants suggested that reducing the pace of net asset purchases by more than $15B each month could be warranted.” Further added and It is worth noting that “some participants preferred a somewhat faster pace of reductions that would result in an earlier conclusion to net purchases.”

In the meantime, the US Dollar Index measures the greenback’s performance against a basket of six rivals, is up 0.41%, sitting at 96.80 at press time, but earlier reached a new 16-month high at 96.93.

Earlier in the New York session, the Initial Jobless Claims for the week ending on November 20 increased to 199K, better than the 260K estimated by analysts, the lowest since 1969. Further, the US GDP for Q3 grew by 2.1%. In line with market participants’ expectations.

Moving to the Federal Reserve’s favorite gauge for inflation, the Personal Consumption Expenditure (PCE) Price Index increased by 4.1% YoY in October, in line with the median economist forecasts and confirmed a 0.4% rise from last month’s upwardly revised reading of 3.7%.

USD/CAD Price Forecast: Technical outlook

The USD/CAD pair retreated from 1.2700s daily tops, at press time is trading below the November 23 low at 1.2660. In the case of accomplishing a daily close beneath the abovementioned, it could form a gravestone-doji, which indicates intense selling pressure above the open/close of Wednesday’s price action, opening the door for a further downward move.

In that outcome, the first support level would be the psychological 1.2600. A break of the latter would expose the 100-day moving average (DMA) at 1.2557, immediately followed by the 50-DMA at 1.2529, and then the 1.2500 figure.

• Gold is under pressure as the US dollar continues to move higher.
• DXY was in a few pints away from the 97 figure on Wednesday as hawks circle above the Fed. 

The price of gold on Wednesday was pressured by a surging US dollar and higher volatility on the day. The greenback is in favour as hawkish best ramp up surrounding the Federal Reserve. XAU/USD is down -0.12% at the time of writing and up from the lows of $1,778.61 as the US dollar consolidates into the Thanksgiving holidays and close on Wall Street. 

ECB/Fed divergence underpinning the US dollar

On the day, the greenback printed a fresh 16-month high against the euro and the DXY marked territory just shy of 97 the figure. Investors are pricing up the prospect of the Federal Reserve hiking rates in mid-2022 and tapering at a faster pace, potentially commencing such an adjustment as soon as the December meeting. By contrast, the European Central Bank is concerned about covid and growth more so and remains in the dovish camp.

Fed officials sounding more hawkish

Fed officials have been sound far more hawkish of late due to stubbornly high inflation and in today's trade, San Francisco Fed President Mary Daly changed her tune. "If things continue to do what they've been doing, then I would completely support an accelerated pace of tapering," Daly said during an interview with Yahoo Finance published on Wednesday.

daly now advocates for a faster pace of tapering, echoing the rhetoric of Fed Vice Chair Richard Clarida. The vice-chair said last week that the December 14-15 meeting would be an appropriate time to have such a discussion. 

The Fed minutes underscored the hawkishness at the Fed today as well. Participants judged prices may take longer to ease and some participants said faster taper could be warranted. 

Germany in a thorn in EZs side

Additionally, playing into the hands of the US dollar and weighing on the precious metal,  the single currency is under pressure due to newly released covid data in Germany. The reports show that more than 70,000 new coronavirus cases have been reached, by far the biggest one-day increase on record, with some areas yet to report.

This, coupled with economic prints on the day that show German business morale has deteriorated for the fifth month running in November is bound to weigh on the euro. In turn, this could underpin US dollar strength and see the DXY above 97 and underpinned for the foreseeable future. 

Mixed outlook for gold

Meanwhile, analysts at TD Securities explained that gold is vulnerable to a deeper consolidation. ''Precious metals prices continue to melt following the Fed Chair's renomination.''

''However, given TD Securities' forecast of slowing growth and inflation next year, market pricing for Fed hikes may ultimately prove too hawkish,'' the analysts added. 

Gold technical analysis

From a daily perspective, gold is in no man's land. The price is stalling but is yet to reach the level of support as illustrated above. However, given the current rejection from the day's lows, there are prospects of consolidation and that could lead to a move higher. Bulls would be looking for a meaningful correction and that brings in the 38.2% Fibonacci retracement near $1,1810. This aligns with old highs for the month of October. 

• NZD/USD sold off relentlessly on Wednesday, dropping from above 0.6950 to lows in the 0.6850s.
• The pair was weighed by a dovish RBNZ hike and a broad strengthening of the US dollar.

NZD/USD faced relentless selling pressure on Wednesday. The pair hit highs above 0.6950 in early Asia Pacific trade, but by midway through the US trading session, it had dropped all the way to the 0.6850s. At current levels around 0.6870, the pair is down on the day by about 1.1%, making the kiwi far and away the worst performing G10 currency on the day.

Selling pressure began during Asia Pacific hours after the RBNZ delivered a more dovish than expected 25bps rate hike. Selling continued in early European trade, though this was more to do with safe-haven demand boosting the US dollar amid further concerns about the European Covid-19 situation. Then US macro forces came into play as the US session began, with strong labour market, inflation, consumption and GDP data as well as hawkish comments from Fed member Mary Daly further boosting the buck.

More recently, the FOMC minutes of the 3 November meeting were released and emphasised the hawkish shift already taking place on the bank even prior to the release of the hotter than expected October Consumer Price Inflation report on 10 November. The US dollar was already enjoying decent gains against most of its G10 counterparts by the time the minutes were released and so FX market trade has since been more consolidative. Recent commentary from RBNZ Governor Adrian Orr, who noted that it would be better for the bank to take small steps when raising the OCR in order to observe the development of the economy, was ignored.

From the kiwi’s perspective, the Thanksgiving holiday in the US, which means that markets there are shut and then only partially open on Friday, is coming at the perfect time to stop the rot. In the absence of US market participants for (pretty much) the rest of the week, FX markets are likely to trade with less conviction, which could hand NZD an opportunity to rebound a little. NZD/USD’s Z-score to its 200-day moving average at current levels is close to -2.00, a level which, when hit, has in recent months been a good indicator of consolidation or a rebound. Moreover, NZD/USD is approaching oversold territory, with an RSI of 32. If that dips below 30, that could trigger some profit-taking.

• USD/JPY continues its three-day rally amid risk-off sentiment despite falling US bond yields.
• The US 10-year Treasury yields remain flat at 1.653%.
• Positive US economic data helped USD/JPY bulls to break the 115.00 figure, eye 116.00.

The USD/JPY extend its rally to three days in a row advancing 0.23%, trading at 115.42 during the New York session at the time of writing. The market mood is in risk-off mode, with US stock indexes falling, US bond yields in the short-term rise, while the long-end dropped, while the greenback stays firm.

The US Dollar Index, a gauge of the greenback’s value against six rivals, advance 0.39%, sitting at 96.87 at press time. Contrarily, the US T-bond 10-year benchmark note drops one basis point, stays at 1.653%.

During the Asian and European sessions, the USD/JPY dipped as low as 114.83, right at the 1-hour 50-simple moving average (SMA), bouncing off those levels up to a break of the 115.00 figure. As US economic data was released during the New York session and the greenback strengthened, the USD/JPY advanced. 

USD/JPY Price Forecast: Technical outlook

The USD/JPY has an upward bias, depicted by the daily moving averages (DMA’s) located below the spot price, with an upslope, confirming the bullish bias. On Tuesday, USD bulls failed to break above the 115.00, which they accomplished on Wednesday, thus negating the bearish wedge.

At press time, the pair is testing the March 2017 swing high at 115.51 as well as the 115.60 61.8% Fibonacci retracement of the move down from 2015. A breach of that level would expose the psychological 116.00 level. 

On the flip side, failure to overcome the March 2017 strong resistance could pave the way for a correction. The first demand zone would be 115.00, followed by the October 18 swing high-turned support at 114.48, and then the psychological 114.00.

Reserve Bank of New Zealand Governor Adrian Orr said on Wednesday that it would be better to take small steps with the official cash rate (OCR) and observe how things go. The comment justifies why the bank opted against hiking the OCR by 50bps at its most recent rate decision on Wednesday. The Governor added that the OCR is the bank's favour tool to deal with inflation, which neared 5.0% YoY in Q3 this year. 

Market Reaction

NZD has not seen much of a reaction to the latest remarks and continues to trade near session lows, with NZD/USD in the 0.6860s. 

What you need to know on Thursday, November 25:

Demand for the greenback persisted after a batch of US data hinted at stubbornly high inflationary pressures and soon-to-come Federal Reserve action to counter its effects on the economy.

On Wednesday, market participants knew that US inflation soared to its highest in 30-years in October, according to the Core Personal Consumption Expenditures Price Index report. Also, the FOMC published the Minutes of its November meeting. The document showed that policymakers believe they should be prepared to adjust the pace of the asset purchases tapering and raise the target range for the federal funds rate sooner than currently anticipated should inflation continue to run hot. Still, the market’s reaction was quite limited as there were no surprises in the statement.

The EUR/USD pair trades below the 1.1200 figure, hit by local data and ECB’s inaction. Germany published the November IFO survey, which showed that the Business Climate contracted to 96.5, falling for a fifth consecutive month, while Germany published the November IFO survey, which showed that the Business Climate contracted to 96.5, falling for a fifth consecutive month noted that the central bank   must not tighten monetary policy too early in response to an inflation spike driven by “purely temporary factors.”

Another factor hitting the EUR and the market’s mood, in general, is the resurgent spread of coronavirus in Europe. Several countries are taking fresh restrictive measures and studying making vaccines mandatory.  

GBP/USD came under renewed bearish pressure and dropped to the current 1.3320 region.  Bank of England Monetary Policy Committee member Silvana Tenreyro said on Wednesday that she would not want to say specifically if the BOE would make its first rate hike in either December or February. Instead, she prefers a “modest” tightening of the monetary policy.

The USD/JPY pair reached a fresh 2021 high of 115.51, holding nearby at the end of the day. Commodity-linked currencies shed ground unevenly, with AUD/USD now trading below 0.7200 and USD/CAD at around 1.2670.

Global stocks traded in a dull fashion, with European and American indexes mixed around their opening levels.

US Treasury yields are ending the day with modest losses. Nevertheless, the yield on the 10-year note peaked at 1.693%, retreating from the critical 1.70% threshold.

Gold is modestly lower on a daily basis, now trading around $1,785 a troy ounce. Crude oil prices eased modestly, with WTI currently at $78.25 a barrel.

Bitcoin could dodge a steep correction if BTC holds above this price level

Reserve Bank of New Zealand Governor Adrian Orr on Wednesday said that there are capacity pressures everywhere in the country. Orr added that the economy is running above its potential and that rate hikes would slow the desire to buy houses. 

Market Reaction

NZD has not seen a reaction to the latest comments from the RBNZ governor. It is widely known that the New Zealand economy is running hot right now and that the RBNZ on course to reduce monetary stimulus over the coming years.

NZD/USD was sent tumbling during Wednesday's Asia Pacific session after the RBNZ delivered a more dovish than expected 25bps rate hike. The bank's guidance on the future path of rate hikes was not as hawkish as money markets had been expecting.  

According to Reuters, officials from Turkey's central bank (the CBRT), Turkey's BDDK banking watchdog and the board of the country's banking association are set to meeting on Thursday to discuss recent developments in the economy.

The recent melt-down of the lira, which saw USD/TRY nearly his 13.50 on Tuesday (which at the time meant TRY had lost over 40% of its value versus the US dollar on the year), will be the main topic of discussion. 

Market Reaction

Expectations are building that the CBRT, which cut interest rate by a further 100bps last week to 14.00% (taking the total amount of cuts since September to 400bps, despite inflation nearing 20%), will be forced to turn hawkish to stem the lira's decline. Various banks have been calling for the CBRT to start hiking rates back towards 20.00% in the coming quarters.

These expectations have supported the lira on Wednesday and the news of this meeting will only heighten speculation. At present, USD/TRY is more than 5.0% lower on the day and is trading just to the north of the 12.00 level, having rebounded from earlier session lows close to 11.50.  

• EUR/USD bears fail to take the cross over the line despite hawkish FOMC minutes.
• US dollar remains firmly in the bullish territory and eyes 97 the figure, DXY. 

Volatility has been the name of the game midweek as traders look to the Federal Reserve for clues as to the timing of the first-rate hike in 2022. The FOMC minutes have confirmed a hawkish bias, albeit dependant on the covid contagion risks. 

Nevertheless, the US dollar has surged towards the 97 figure on the day as Fed officials advocate for the case of a faster speed in tapering. The Fed meeting in December could well be the time for doing so. 

In the minutes today, participants judged prices may take longer to ease and some participants said faster taper could be warranted. This has seen the US dollar firmly underpinned in the 96.90s and the euro backed into a corner. 

At the time of writing, EUR/USD is trading at  1.1193 and down by some 0.50%. On top of the Fed risk, Germany has reported more than 70,000 new coronavirus cases, by far the biggest one-day increase on record, with some areas yet to report.

Meanwhile, ''the Deutsche Bank Currency Volatility Index, DBCVIX, which measures expectations for gyrations in FX, has in recent weeks shot from a three-month low to its highest level since March, driven by gyrations in the US dollar, euro, and Japanese yen as well as a broad range of other currencies'', Reuters reported. 

Nevertheless, with the session coming to a close and the Thanksgiving holidays tomorrow, the currency market has shut down and consolidation is now taking shape. The euro is holding up despite the bearish environment:

EUR/USD technical analysis

EUR/USD Current price: 1.1192

• The worsening coronavirus situation in Europe undermined demand for the EUR.
• US inflation continued to run hot in October, hinting at soon to come Fed’s action.
• EUR/USD is trading below 1.1200 and could keep falling despite oversold conditions.

Persistent demand for the American currency drove EUR/USD to a fresh 2021 low of 1.1185, with the pair currently trading a few pips above the level. Demand for safe-haven assets was high, as global equities traded dully.

Macroeconomic data fuel the dismal mood, as Germany published the November IFO survey, which showed that the Business Climate contracted to 96.5, falling for a fifth consecutive month. Expectations dropped to 94.2 while the assessment of the current situation contracted to 99.  On the other hand, the US published Q3 Gross Domestic Product was upwardly revised to 2.1% in Q3, slightly below the 2.2% expected, while inflation in the country hit a 30-year high, as the core PCE Price Index jumped to 4.1% YoY in October. Among other things, the US also reported that Initial Jobless Claims contracted to 199K in the week ended November 19, the lowest since the pandemic started.

Meanwhile, in Europe, concerns rotate around soaring coronavirus cases as the northern hemisphere heads into the winter. Lockdowns and vaccine mandates are on the table in multiple countries, and a clearer picture will be seen ahead of the weekend, as Germany and France are expected to announce fresh measures to deal with the latest outbreak.

As the day comes to an end, the FOMC published the Minutes of its November meeting. The document showed that policymakers believe they should be prepared to adjust the pace of the asset purchases tapering and raise the target range for the federal funds rate sooner than currently anticipated should inflation continue to run hot. Still, the market’s reaction was quite limited as there were no surprises in the statement.

Germany will publish a revision of its Q3 GDP on Thursday, while the European Central Bank will release the Monetary Policy Meeting Accounts. US markets will be closed amid the Thanksgiving holiday.

EUR/USD short-term technical outlook

The EUR/USD is extremely oversold but still bearish, as the daily chart shows that technical indicators offer modest bearish slopes within extreme levels. In the same chart, the 20 SMA keeps heading lower over 200 pips above the current level while widening the distance with the longer ones, reflecting strong selling interest.

The 4-hour chart also indicates that the pair could fall further as sellers are adding shorts on approaches to a bearish 20 SMA. Technical indicators have lost their bearish strength but hold around intraday lows, with the RSI in oversold territory. A strong support area comes around 1.1160, where the pair bottomed in June 2020. A break below the latter could see the pair test the 1.1000 figure in the next few days.

 Support levels: 1.1160 1.1120 1.1075

Resistance levels: 1.1210 1.1250 1.1290

View Live Chart for the EUR/USD

According to a No.10 Downing Street spokesperson, UK PM Boris Johnson met with Irish PM Michael Martin earlier on Wednesday and raised concerns about the substantial gap that remains between the UK and EU regarding Northern Ireland.

The two PMs agreed that an agreement on the implementation of the Northern Ireland Protocal (NIP) was the preferred outcome and the UK and EU would thus continue to work hard to achieve this.

However, the spokesperson said that the UK would be left with no choice but to use the safeguard measures under Article 16 of the NIP if talks did not deliver a rebalanced outcome soon. 

Market Reaction

GBP hasn't seen a notable reaction to the latest round of jawboning from the UK over the NIP, with EUR/GBP continuing to trade in subdued fashion around the 0.8400 area. 

• XAG/USD remained subdued in the Asian and the European session as investors await FOMC minutes.
• XAG/USD did not react to earlier US economic data.
• XAG/USD: The break of an upslope support trendline on Tuesday, could accelerate the downfall towards $23.00.

Silver (XAG/USD) edges lower during the New York session, down 0.80%, trading at $23.47 at the time of writing. The market sentiment is downbeat and has been like that since Monday when US President Joe Biden renominated Jerome Powell to the Fed for a second four-year period. That benefitted the greenback, with the US Dollar Index closing to the 97.00 figure, sitting at 96.89, up some 0.42%.

Meanwhile, US bond yields are down, except for the short-term ones. The 2-year and the 5-year are rising three and one basis point each, sitting at 0.64% and 1.34%, respectively. The 10-year US Treasury yield is down one basis point, currently at 1.65%.

Further, despite that nominal yields in the long term are lower, real yields have jumped from -1.91% up to -1.67% in the last couple of weeks, thus weighing on the non-yielding metal, as it seems investors start to price in higher interest rates in the US in 2022.

The US economic docket featured the Initial Jobless Claims for the week ending on November 20 increased up to 199K, better than the 260K estimated by analysts, the lowest since 1969. Moving to the Federal Reserve’s favorite gauge for inflation, the Personal Consumption Expenditure (PCE) Price Index increased by 4.1% YoY in October, in line with the median economist forecasts and confirmed a 0.4% rise from last month’s upwardly revised reading of 3.7%.

XAG/USD Price Forecast: Technical outlook

From the technical perspective, the white metal has been trading lower, leaving the 100 and the 200-day moving averages (DMA’s) above the spot price, whereas the 50-DMA lying at $23.53, is support for silver, though at press time, seems to be giving way to USD bulls. Further, the break of a two-month-old upslope support trendline on Tuesday opened the door for further downward pressure on the precious metal.

In the outcome of XAG/USD continuing lower, the first demand area would be the November 23 swing low at $23.27. A breach of the abovementioned would expose November 3 cycle low at $23.02, followed by the August 9 pivot low at $22.17.

On the other hand, if silver reclaims the $24.00 handle, that could pave the way for further upside. The first resistance would be the September 3 swing high at $24.87, immediately followed by $25.00.

The minutes of the 3 November FOMC meeting, released on Wednesday, said that various participants noted that the Fed should be prepared to adjust the pace of the QE taper and raise rates sooner than currently anticipated should inflation continue to run hot. 

Additional takeaways: 

“Some participants suggested that reducing the pace of net asset purchases by more than $15B each month could be warranted so that the committee would be in a better position to make adjustments to the fed funds target range.”

“Participants stressed that maintaining flexibility to implement appropriate policy adjustments on the basis of risk-management considerations should be a guiding principle in conducting policy in the current highly uncertain environment.”

“Participants generally judged that the committee's criterion of substantial further progress had clearly been more than met with respect to inflation.”

“Some participants preferred a somewhat faster pace of reductions that would result in an earlier conclusion to net purchases.”

“Participants noted that beginning to scale back the pace of net asset purchases was not intended to convey any direct signal regarding adjustments to the target range for the federal funds rate.”

“Participants cited upside risks to inflation, including those associated with strong demand for goods and a tight labor market.”

“A few participants cited a number of factors representing potential vulnerabilities to the financial system, including elevated asset valuations and the growing exposure of banks to nonbank financial firms.”

“On inflation expectations, a number of participants discussed the risk that the public's longer-term expectations of inflation might increase to a level above that consistent with the bank’s 2.0% target.”

“Participants generally saw the current elevated level of inflation as largely reflecting factors that were likely to be transitory.”

“Participants judged that inflation pressures could take longer to subside than they had previously assessed.”

Market Reaction

After an initial two-way reaction, the Dollar Index (DXY) has pushed back towards fresh session highs in the 96.90s in wake of the FOMC minutes. The minutes allude to the hawkish shift taking place at the Fed even before the release of the October Consumer Price Inflation report on  10 November, which is likely why the dollar is finding some support. "Various" participants support a potential acceleration of the QE taper and rate hikes and "a number of" committee members are growing worried about longer-term consumer inflation expectations.   

• S&P 500 is now dependant on the FOMC minutes. 
• Fed members have been leaning towards a faster pace of tapering, stocks could be pressured into the close.

At the top of the hour, we could finally see whether there has been a fundamentally hawkish shift at the Federal reserve amongst policymakers and whether they are advocating for a faster pace of tapering. These minutes are critical as we head into the blackout period that starts next Saturday before the December Federal Reserve meeting. This is the meeting where the Fed could speed up the tapering. 

The US dollar has already surged towards the 97 figure on the day following a crucial shift in tone from one of the more dovish policy makers, San Francisco Federal Reserve Bank President Mary Daly. She said that she would be open to accelerating the pace of the central bank's tapering of asset purchases if inflation remained elevated and jobs growth stayed strong.

"If things continue to do what they've been doing, then I would completely support an accelerated pace of tapering," Daly said during an interview with Yahoo Finance published on Wednesday.

Several Fed officials have said in recent weeks that the central bank should consider withdrawing its support more quickly to be better equipped to address elevated inflation.  If the minutes today confirm the basis, then this could be the nail in the coffin for US stocks, at least for the close and ahead of the Thanksgiving holidays. 

S&P 500 H4 chart

As illustrated, the price of the index has reached a 38.2% Fibonacci level and on a hawkish outcome, the stock market could react by falling. This would likely see the S&P 500 home in on the next level of support near 4,630 for a bearish close ahead of the long weekend.

If, on the other hand, the minutes are far more dependent on data, in line with the other comments fro Daly today, ''Daly said she was "open" to the idea, but would like to see more economic reports on inflation and hiring and discuss the approach with her Fed colleagues before deciding,'' then the stock market could react with a sigh of relief and close higher for the day with 4,710 on the radar. 

As for forex, the higher betas, such as the Aussie, will be dependent on the outcome of the stock market today and its reaction to the FOMC minutes outcome: AUD/USD Price Analysis: Looking vulnerable around the FOMC minutes, 0.7170s eyed

• Oil markets have been rangebound on Wednesday and for the most part stuck within $78.00-$79.00 parameters.
• A WSJ report suggested the Saudis and Russian might be willing to halt future output hikes following the SPR release.

Despite a bombardment of US macro data that ultimately contributed helped push the US dollar to fresh annual highs, an onslaught of European lockdown-related updates and official US crude inventory numbers, crude oil markets have been quite subdued on Wednesday. Front-month futures of the American benchmark for sweet lift crude oil, West Texas Intermediary or WTI, has stuck within a $78.00-$79.00 range for the bulk of the session. At current levels just under $78.50, WTI trades almost bang on flat for the day.

The main theme in crude oil markets continues to be the global coordinated crude oil reserve release and OPEC+’s response. The latest on that front was a report from the Wall Street Journal that suggested central OPEC+ members Saudi Arabia and Russia might be considering pausing output hikes in the months ahead, although separate OPEC+ sources later refuted this idea. OPEC+ oil ministers are scheduled to meet on 2 December, following a meeting of the cartel’s Joint Technical Committee (JTC) on 30 November. Further sources suggested that OPEC+ wants to wait to see the conclusions of its research department before deciding on the next monthly adjustment.

Whilst the release of the now somewhat stale FOMC minutes at 1900GMT on Wednesday will likely turn some heads in FX, bond and maybe equity markets, crude oil traders are less likely to be fussed. Indeed, the outlook for trading conditions for the rest of the week is for low volumes and a lack of conviction. That’s because US markets are closed on Thursday for Thanksgiving, which means futures trade (including for WTI) will close between the hours of 1800GMT and 2300GMT. Some US markets then shut early on Friday though not futures. Many US markets. 

• GBP/JPY has been consolidating within recent ranges on Tuesday with FX market focus mostly elsewhere.
• Price action has been squeezed in recent days within the confines of a pennant, with a breakout on the cards.

GBP/JPY has for the most part seen a day of consolidation, with the price action remaining well contained within this week’s low-153.00s to low-154.00s range. At present, the pair is trading around 153.80, slightly to the north of its 50-day moving average (at 153.58), which has been offering gentle support throughout the week. To the upside, the 21DMA is getting closer and currently resides at 154.21.

Price action over the last few days has been squeezing itself into a pennant formation. That suggests a breakout to either the upside, where a test of recent highs in the mid-154.00s is on the cards, or to the downside, where a test of recent lows around 152.500 would be likely.

Driving the day

GBP and JPY have not been at the centre of FX market focus on Wednesday. Rather focus has been on NZD, which got battered after a more dovish than expected 25bps rate hike from the RBNZ, and a strong USD, boosted by good US macro data and hawkish Fed rhetoric. The yen was supported early in the European session amid an elevated demand for havens amid concerns about the state of the European Covid-19 outbreak and tougher lockdowns. This haven bid seems to have eased in the US session, however, as US equities recovered back into positive territory.

FX markets largely ignored comments from dovish BoE member Silvana Tenreyro, who avoided saying explicitly whether she would support a rate hike in December or February, rather saying that she would instead be watching the data. She did concede that policy would require a modest tightening in the coming several quarters, however.

• USD/CHF extends its rally to four consecutive days, marching towards 0.9400.
• The US Dollar Index climbs towards 96.90, ahead of FOMC minutes.
• USD/CHF: A break of a 4-month old downslope resistance trendline opened the door for a renewed test of 2021 year-to-date high.

The USD/CHF extends its gains for four days in a row, advancing firmly towards the 0.9400 figure, up 0.26%, trading at 0.9356 during the New York session at the time of writing. A risk-off market mood maintains safe-haven currencies firmly bid, except for the Swiss franc and the Japanese yen, posting losses against the buck.

In the meantime, the US Dollar Index (DXY), which tracks the greenback’s performance against a basket of its peers, advances 0.43%, sitting at 96.90.

USD/CHF Price Forecast: Technical outlook

The USD/CHF has an upward bias in the daily chart, as shown by the daily moving averages (DMA’s) with an upslope, residing well beneath the spot price. Also, Wednesday’s break of an eight-month-old downslope resistance trendline indicates that the USD/CHF is firmly heading towards the 2021 year-to-date high at 0.9473.

The first resistance on the way north would be the psychological 0.9400 figure. A breach of the former would expose the April 1 swing high at 0.9473, followed by the June 29, 2020 cycle high at 0.9528.

On the flip side, failure to break over the abovementioned would expose the 0.9300 figure. A break below that level would reveal the confluence of the 50-DMA and the November 19 swing low around the 0.9225-50 region, which once gave way, it would leave the 0.9200 as the last line of defense for USD bulls.

• AUD/USD is on the verge of a downside continuation towards daily lows.
• DXY has headed for a test of 97 the figure again. 
• FOMC minutes are coming up and could be the final catalyst of the week.

The US data dump ahead of the long weekend and Thanksgiving Holidays in North America has seen the US dollar mark fresh 16-month cycles highs on Wednesday. The dollar index DXY has rallied to a high 96.937. 

Investors have started to price the prospect that the Federal Reserve will begin hiking rates in mid-2022, in stark contrast to the European Central Bank which is expected to remain more dovish as covid risks loom.

This is what makes today's FOMC minutes critical, albeit they come at a time as US traders will be looking to square positions ahead of the holidays, so it could go either way. Volatility or little trading activity until after the weekend and depending on the outcome.  

Fed officials have contributed to the more hawkish view on US interest rates of late as the central bank faces stubbornly high inflation. The minutes will be scrutinised for signs of a faster pace of tapering and sooner timings of lift-off. Anything that points towards this should keep the US dollar underpinned into the close. This leaves high beta currencies, such as the Aussie vulnerable. 

The following illustrates the daily lows and the prospects of a drop into here from an hourly perspective:

AUD/USD daily chart

The price is not far off from the prior daily lows in the 0.7170s, just some 15 pips at the time of writing and an hour ahead of the minutes.

AUD/USD H1 chart

The price has already corrected to a 38.2% Fibonacci retracement level where it meets dynamic resistance and has stalled in the correction. This leaves scope for a downside extension from here. 

If the US dollar can squeeze out the last remaining bears on the day and score fresh highs on the minutes into the 97's, then the above scenario in AUD/USD has a high probability of playing out. 

DXY M15 chart

• GBP/USD extends to four days its fall, down almost 1.5%.
• Risk-off market sentiment dented the prospects of risk-sensitive currencies like the British pound, favors the greenback.
• The US Dollar Index is closing to 97.00 after the renomination of Powell amid positive US jobs data.

The British pound continues its free-fall, down for the fourth consecutive day, reaching a new year-to-date low around 1.3324, down some 0.34%, trading at 1.3334 during the New York session at the time of writing. On Wednesday, the market sentiment is downbeat, as portrayed by US equity indices falling. In turn, FX risk-sensitive currencies like the GBP, the AUD, and the NZD, record losses in the day against the greenback.

Meanwhile, the US Dollar Index, which measures the buck’s performance against a basket of six rivals, advances 0.45%, sitting at 96.92, closing to the 97.00 figure, that despite that, the US 10-year Treasury yield remains unchanged at 1.669%.

On Wednesday, the UK economic docket featured Sylvana Tenreyro, Bank of England (BoE) Monetary Policy Committee (MPC) member. Tenreyro said she would not want to say specifically if the BoE would raise rates in December or February when the central bank updates its economic projections.

In the meantime, across the pond, a full US macroeconomic docket ahead of Thanksgiving unveiled the US Initial Jobless Claims, Durable Goods data, GDP, and the Fed favorite gauge of inflation, the Personal Consumption Expenditure figures. 

The Initial Jobless Claims for the week ending on November 20 increased up to 199K, better than the 260K estimated by analysts, the lowest since 1969. Moreover, Durable Good Orders for October (MoM) shrank to 0.5% more than the 0.4% contraction expected by market participants. However, orders excluding transportation rose more than estimations, up to 0.5% vs. 0.2%, for the same period. Further, the US GDP for Q3 grew by 2.1%. In line with market participants’ expectations.

Moving to the Federal Reserve’s favorite gauge for inflation, the Personal Consumption Expenditure (PCE) Price Index increased by 4.1% YoY in October, in line with the median economist forecasts and confirmed a 0.4% rise from last month’s upwardly revised reading of 3.7%.

GBP/USD Price Forecast: Technical outlook

Cable continues trading within a descending channel, with the daily moving averages (DMA’s) with a downslope above the spot price, confirming the bearish bias. Two days ago, the GBP/USD broke below the September 29 swing low 1.3411, a crucial support level exposing the bottom-trendline of the descending channel. Additionally to those two bearish signals, the Relative Strength Index (RSI), a momentum indicator, is at 34, aiming lower, with sufficient room, to extend the British pound fall vs. the US dollar.

In the outcome of a downtrend continuation, the following support would be the 1.3300 figure, followed by the bottom-trendline of the descending channel, around the 1.3250-1.3300 area. A breach of the latter would expose the 1.3200 price level.

On the flip side, the first resistance would be 1.3400. A break of that level would expose the November 18 cycle high at 1.3513, followed by the confluence of the 50-DMA and the November 9 swing high around 1.3607.

• US dollar holds onto daily gains across the board.
• US yields retreat but USD/JPY remains firm near the top.
• After many economic reports, attention turns to FOMC minutes.

The USD/JPY rose to 115.47, during the American session and after the release of US economic data. A stronger US dollar continues to offer support to the pair that is rising for the third consecutive day.

The pair pulled back after hitting a fresh multi-year high, holding above 115.25. The trend and the momentum remain positive. The dollar is on its way to the highest daily close versus the yen since January 2017.

Mixed to upbeat US data

Economic data showed Initial Jobless Claims dropped to 199K, the lowest since 1969; Q3 GDP was revised from 2.2% to 2.1%; Personal Spending gained 1.3% in October and Personal Income rebounded 0.5% in October; the Core PCE Index rose 4.1% from a year ago; New Home Sales rose 0.4% in October; and the November Consumer Sentiment Index from the University of Michigan was revised from higher to 67.4. At 19:00 GMT the Federal Reserve will release the minutes from its latest meeting.

The numbers initially boosted US yields and the dollar across the board. During the last hours, yields pulled back and limited gains in USD/JPY. The 10-year yield is at 1.64%, while the 30-year fell under 2%.

Despite the retreat in US yields, the US dollar remains firm across the board. The DXY is up by 0.40% at 96.85, about to post the highest close since July 7. On Thursday, Wall Street will remain close due to Thanksgiving.

Technical levels

European Central Bank governing council member and Bundesbank head Jens Weidmann said on Wednesday that upside risks to inflation dominate in both Germany and the rest of the Eurozone. The flexibility of the PEPP should not be transferred to any other bond-buying programme, Weidmann continued, adding that the ECB should not lock in ultra-easy policy settings for long given elevated inflation uncertainty. 

On inflation, Weidmann warned that inflation will peak near 6.0% in Germany and only fall back below 3.0% at the end of next year. Weidmann said that Germany's 2021 growth is likely to be significantly lower than the Bundesbank June forecast, with the recovery instead pushed further out. Companies' complaints about labour shortages have increased particularly in Germany, but also among its European neighbours, he added. In the future, he continued, tensions in the labour market could make it easier for employees and trade unions to push for noticeably higher wages. 

Market Reaction

Weidmann is a known hawk and his comments have, thus, unsurprisingly failed to give from session lows under 1.1200. EUR/USD has been weighed heavily on Wednesday by a combination of factors. Firstly, there was speculation during the European morning that Germany would soon announce a full lockdown and vaccine mandate and the infection/hospitalisation statistics across the continent continue to worsen. More recent reports suggest the new German government coalition, which formally announced itself on Wednesday, won't heed former Chancellor Angela Merkel's call for an immediate move to lockdown. 

The tone of Wednesday's November German IFO report also did little to inspire confidence in the euro. The Ifo Institute forecasts a stagnation in growth in Q4, chiming with the above comments made by Weidmann, while ING, reacting to the data, warned that "the risk of stagnation or even recession in the German economy at the turn of the year has clearly increased". 

Meanwhile, the market's broad bid for safe-haven assets has helped boost the dollar, whilst strong US data (initial weekly jobless claims fell under 200K for the first time since before the pandemic and Core PCE rose to 4.1%) and hawkish Fed commentary has also helped add to the bid. 

The US 10-year yield has continued higher this week and is now very close to key support at 1.685/705%. A major base looks increasingly imminent. Economists at Credit Suisse look for a move above 2% into 2022.

A sharp rise in yields is likely

“US 10-year Bond Yields are back pressuring key long-term support at 1.685/705% after medium and long-term moving averages recently posted a bearish “death cross”, which pointed to a further deterioration in the trend following setup. Furthermore, short-term momentum is reaccelerating and weekly MACD remains outright bearish.”

“We believe a breakout above major support at 1.685/705% may be imminent, which would confirm a three-year basing structure, which would very likely take us above the year-to-date highs and retracement support between 1.775% and 1.82%.”

“Going into 2022, we maintain our long-held view that a move to 1.965/2.00% is likely in the first quarter, followed by retracement support at 2.16/18%.”

See: US 10-year Treasury yield could reach 2.05/10% on a break above 1.80% – SocGen

• EUR/USD reached a new 16-month low at 1.1185, though it found strong support, reclaiming the 1.1200 figure.
• US Dollar Index retreated once the PCE was released, down from 96.93 to 96.85.
• EUR/USD: Failure to hold above 1.1200 would expose May 2020 support around 1.1018.

The shared currency cannot recover from three weeks in a row loss, declines some 0.49%, trading at 1.1195 during the New York session at the time of writing. A packed Wednesday’s of US economic data ahead of Thanksgiving keeps EUR/USD traders in front of the screen longer than expected. Further, a risk-off market sentiment keeps the greenback firmly bid, with the US Dollar Index near the 97.00 figure, reaching a new 16-month high for the third time in the week.

US Initial Jobless Claims increase below the 200K figure, boosts the greenback

On Wednesday, earlier In the American session, a full US macroeconomic docket unveiled the US Initial Jobless Claims, Durable Goods data, and GDP figures. The Initial Jobless Claims for the week ending on November 10 rose to 199K, lower than the 260K foreseen by analysts. 

Moreover, in a month-over-month reading, the Durable Good Orders for October fell 0.5% more than the 0.4% contraction expected by analysts. Excluding transportation, orders rose more than expectations, up to 0.5% vs. 0.2%, for the same period. Further, the US GDP for Q3 grew by 2.1%. In line with market participants’ expectations.

Meanwhile, the Federal Reserve’s favorite gauge for inflation, the Personal Consumption Expenditure (PCE) Price Index, rose to 4.1% YoY in October, the US Bureau of Economic Analysis reported on Wednesday. That was in line with the median economist forecasts and confirmed a 0.4% rise from last month’s upwardly revised reading of 3.7%.

EUR/USD Price Forecast: Technical outlook

The daily chart depicts a strong downtrend on the EUR/USD pair. It is worth noting that despite the daily moving averages (DMA’s) still residing above the spot price, the downward move seems to be overextended. Though aiming higher, the Relative Strength Index (RSI) is located in oversold conditions at 26, indicating that the pair might be due to a future correction.

In the outcome of extending the downward move, the first support level would be the 1.1100 figure. A breach of the abovementioned would expose the May 1, 2020, cycle high-turned support at 1.1018, followed by the May 25, 2020, swing low at 1.0870.

On the other hand, if EUR bulls hold the 1.1200 figure, the 1.1300 figure would be the first resistance. A break of the latter would expose the November 18 swing high at 1.1374.

Rising real yields should put pressure on gold. In the view of strategists at Credit Suisse, the precious metal may be in the throes of constructing a large top.

Resistance at $1,877 is expected to cap

“Our base case remains that we are close to a peak in inflation expectations and 10-year US Real Yields are in the process of building a large and important bearish ‘wedge’ reversal. If our view is correct, it would suggest gold may in fact be forming a large and significant top.”

“The immediate risk is seen lower for support next at $1,759, removal of which can see a retest of long-term pivotal support at $1,691/77. Beneath this latter area at any stage would in our view mark a major top.”

“Resistance at $1,877 is now expected to cap but only above $1,917 would suggest we are seeing an important turn higher.”

Bank of England Monetary Policy Committee (MPC) member Silvana Tenreyro said on Wednesday that she would not want to say specifically if the BoE would make its first rate hike in either December or February.  

Commercial crude oil inventories in the US increase by 1.0 million barrels in the week ending November 19, the weekly report published by the US Energy Information Administration (EIA) revealed on Wednesday. This reading came in above market expectations for an inventory draw of 0.5 million barrels.

However, gasoline stocks saw a slightly larger than forecast draw of 0.603 million barrels versus forecasts for a 0.5 million barrel draw. That decline took gasoline inventories to their lowest level since 2017, the EIA said. Distillate stocks also saw a larger than forecast draw of 2.0M barrels versus forecasts for a 1.0M barrel draw. 

Market Reaction

US oil prices have not reacted to the latest mixed EIA inventory report. WTI prices, for now, continue to consolidate in the $78.00-$78.50 area. 

• Gold holds negative tone intact amid higher US yields.
• The dollar remains strong after economic data from the US.
• FOMC minutes to be released later on Wednesday ahead of US holiday.

Gold dropped further and printed a fresh two-week low at $1778. It is hovering around $1780 after the release of US economic data, including the Core PCE.

A reversal of a hundred dollars

Gold prices are falling again on Wednesday for the fifth consecutive day. The recovery toward $1800 proved to be short-lived and XAU/USD turned back to the downside. Recently bottomed at $1778, a hundred dollar below last week’s top.

US economic data released on Wednesday came in from mixed to upbeat. Personal Income and Spending rose more than expected in October, initial jobless claims dropped to the lowest since 1969 and consumer sentiment rebounded modestly. On the negative front, Q3 GDP data was revised from 2.2% to 2.1%; Durable Goods Orders fell 0.5%, and New Home Sales rose to 745K (annual rate) below the 800K expected.

US yields remained near weekly highs after the numbers supporting the US dollar in the market and keeping XAU/USD under pressure. At 19:00 GMT the Federal Reserve will released the minutes of its latest meeting.

Short-term outlook

The negative outlook remains intact, particularly with prices breaking and consolidating below every support it recently broke. XAU/USD is back under key moving averages (20, 55, 100 and 200 days). Under $1780, the next support stands at $1770, before the November low at $1758. On the upside, a consolation above $1795, should provide more support for a recovery in prices, that should be seen as a corrective move.

Gold looks set to decline further as no signs of consolidation are seen yet. Although after falling during five consecutive days, technical indicators are showing extreme oversold readings.

Technical levels

• USD/CAD advances firmly towards 1.2700 amid broad US dollar strength across the board.
• The US Dollar Index continues posting day-after-day new 16-month highs close to 97.00.
• US Initial Jobless Claims rose for the first time in the year under 200K.

The USD/CAD advances firmly towards the 1.2700 as the New York session begins, up 0.18%, trading at 1.2694 at the time of writing. A risk-off market sentiment spurred demand for the greenback, as it keeps posting new year-to-date highs versus most G8 currencies. The US Dollar Index, which measures the greenback's performance against a basket of six rivals, is up 0.41%, sitting at 96.80, at press time, but earlier reached a new 16-month high at 96.93.

In the overnight session, the USD/CAD pair remained steady around the Tuesday low at 1.2664, meandering in a narrow trading range, before crucial US macroeconomic data.

US Initial Jobless Claims rose for the first time in the year under 200K

The US macroeconomic docket featured US Initial Jobless Claims, Durable Goods data, and GDP figures. The Initial Jobless Claims for the week ending on November 10 rose to 199K, lower than the 260K foreseen by analysts. The USD/CAD jumped 20 pips on the release, reaching a daily high above 1.2700.

Furthermore, the Durable Good Orders for October on a monthly basis fell 0.5% more than the 0.4% contraction expected by analysts. Excluding transportation, orders rose more than expectations, up to 0.5% vs. 0.2%, for the same period. Market participants seem to have ignored the data, as the Fed's current focus is on jobs and inflation.

Also, the US GDP for Q3 grew by 2.1%. In line with market participants' expectations. That said, USD/CAD attention turns to the Fed favorite gauge of inflation, the Personal Consumption Expenditure for October, expected at 4.6%.

• New Home Sales grew 0.4% in October. 
• New Home Sales growth in September received a hefty downgrade to 7.1% from 14%.
• Thus, the number of sales over the past 12 months came in at just 745K, versus last month's estimate of 800K prior to revisions.   

Following a 7.1% (downwardly revised from 14.0%) surge in sales in September, New Home Sales in the US rose by a modest 0.4% in October, data published by the US Commerce Department showed on Wednesday. 

Given the hefty downwards revision to the September figure, instead of rising to 800K, the number of New Home Sales over the past 12 months rose to just 745K from 742K in September. Note that last month's New Home Sales over the past 12 months figure was revised lower from 800K. 

Market Reaction

Despite New Home Sales over the past 12 months running at a much slower pace than thought prior to Wednesday's data release, FX markets have not seen any reaction to the data. 

• The UoM's final estimate of Consumer Sentiment for November was revised a little higher from the flash estimate to 67.4. 
• That still marks its weakest reading since 2011. 

The University of Michigan's (UoM) final estimate of the Consumer Sentiment Index came in at 67.4 in November, slightly above the flash estimate of 66.8 released earlier in the month, but well down from October's reading of 71.7. That still marks the weakest reading since 2011. 

The Current Conditions Index rose to 73.6 from the flash estimate of 73.2, while the Consumer Expectations Index rose to 63.5 from the flash estimate of 63.0. 

Market Reaction

FX markets did not pay much attention to the modest positive revisions to the final UoM consumer sentiment survey.

In the first few weeks of November, the Turkish lira has lost close to 25% of its value, while year-to-date the currency has weakened over 40% against the US dollar. Economists at Wells Fargo expect local actions to be taken in an attempt to stabilize the TRY, although further lira depreciation and new record lows against the dollar are very likely.

Turkish authorities to take action in response to the sell-off

“We fully expect interest rates to be cut again at the next monetary policy meeting on December 16 and for the lira to continue to hit new lows against the dollar by the end of this year and throughout 2022 and 2023.”

“Our most recent forecasts for the USD/TRY exchange rate have the lira dropping to 13.00 by Q2-2022 and eventually reaching 14.50 by the beginning of Q1-2023. Our forecasts imply about another 15% depreciation of the lira by the beginning of 2023; however, risks around this forecast are without question tilted toward more lira weakness than we currently anticipate.”

“In the very near future, we expect Turkish authorities to instruct local banks to re-start selling US dollars and purchasing Turkish lira; however, Turkish banks likely do not have enough US dollars to disrupt the downward pressure on the lira.”

“We expect Turkish authorities to reach out to allies such as Qatar, China, Azerbaijan, and other Asian nations as well as Russia in an attempt to enhance, extend or even initiate US dollar FX swap lines. However, broader market forces are currently too powerful, and we doubt these FX swap lines, if secured, will do much to alter the depreciation path ahead for the lira.”

Inflation in the US, as measured by the Personal Consumption Expenditures (PCE) Price Index, rose to 4.1% YoY in October, the US Bureau of Economic Analysis reported on Wednesday. That was in line with the median economist forecasts and confirmed a 0.4% rise from last month's upwardly revised reading of 3.7%. MoM, the Core PCE Price Index rose at a pace of 0.4%, also in line with expectations, a 0.2% acceleration from the 0.2% rise seen in September. 

Market Reaction

FX markets did not react to the inline with forecast US inflation numbers. 

France will continue discussions with the UK over post-Brexit fishing access for a few days before any retaliatory measures will be taken, European Affairs Minister Clement Beaune told the French senate on Wednesday, according to Reuters. 

Market Reaction

Brexit hasnt been the main theme driving FX or GBP markets on Wednesday. Rather it has been European lockdown fears, strong US data and hawkish Fedspeak. GBP/USD continues to trade lower on the day by about 0.3% just under 1.3350 and EUR/GBP continues to trade close to 0.8400. 

• President Lopez Obrador nominates Victoria Rodríguez to head the central bank.
• Mexican peso tumbles across the board after the announcement.
• Inflation in Mexico surpasses 7% to levels not seen in 20 years.

The Mexican peso is falling sharply against its main rivals on Wednesday, affected by the news regarding the nomination for the next head of the Bank of Mexico. The USD/MXN is rising almost 2%, trading near 21.60, the highest level since March.

As of writing, USD/MXN trades at 21.53. It peaked at 21.61, and a daily close around current levels would be the highest since October of 2020. The pair is testing the 2021 top it established back in March at 21.62.

Nomination changes at Banxico and higher than expected inflation

Mexican President Andres Manuel Lopez Obrador withdrew his nomination of former finance minister Arturo Herrera for governor of the central bank to replace current head, Alejandro Díaz de León. Lopez Obrador did not want Díaz de Leon to continue at the post and nominated Herrera back in June, leaving his post at the government a few weeks later.

On Wednesday, Lopez Obrador nominated Victoria Rodríguez Ceja. She holds a job at the Finance secretary and, if confirmed by the Senate, would be the first-ever female to lead Banxico.

The announcement came after data showed inflation accelerated during the first half of November (headline and core) surpassing expectations. The annual rate reached 7.05%, the highest level since April 2001. Banxico rose interest rates at the last meeting for the fourth consecutive time to 5% in order to curb inflation. Wednesday’s inflation figures warrant that more hikes are on the way.

At the same time, the US dollar remains strong in the market, boosted by recent economic data and higher yields. The rally of the greenback adds more fuel to the USD/MXN.

Technical levels

• EUR/USD drops further and records new 2021 low near 1.1190.
• US revised Q3 GDP came at 2.1% QoQ; Claims rose by 199K WoW.
• October’s PCE, final Consumer Sentiment comes up next.

The tenacious upside in the greenback forced EUR/USD to lose further ground and record new 16-month low at 1.1192 on Wednesday.

EUR/USD remains offered ahead of FOMC

In the meantime, the selloff in EUR/USD remains everything but abated, down for the third week in a row and navigating the negative territory for the fourth straight month so far.

Indeed, the Fed-ECB policy divergence continues to lend wings to the buck and pushes the US Dollar Index to new cycle peaks in levels just shy of the round level at 97.00, while higher US yields across the curve also add to the indefatigable upside moment in the dollar.

In the docket, earlier figures from the IFO survey in Germany saw the Business Climate easing to 96.5 in November, which has also put the pair under extra pressure. In the US, MBA Mortgage Applications rose 1.8% in the week to November 19, Initial Claims rose by 199K in the week to November 20, Durable Goods Orders contracted at a monthly 0.5% in October and another revision of GDP figures now sees the economy expanding 2.1% QoQ in the July-September period.

Later in the session, inflation figures tracked by the PCE are due seconded by the final reading of the November Consumer Sentiment, all ahead of the publication of the FOMC Minutes of the November 2-3 meeting.

EUR/USD levels to watch

So far, spot is losing 0.49% at 1.1192 and faces the next up barrier at 1.1322 (10-day SMA) followed by 1.1452 (20-day SMA) and finally 1.1464 (weekly high Nov.15). On the other hand, a break below 1.1186 (2021 low Nov.24) would target 1.1185 (monthly low Jul.1 2020) en route to 1.1168 (low Jun.19 2020).

According to Reuters, the Swiss government is to hold off on imposing any new nationwide restrictions to curb the spread of Covid-19 for now, despite characterising the health situation as "critical". The government said it expects the health situation to continue worsening in the coming weeks, which could lead to a rapid rise in hospitalisations.

"In light of the relatively low occupation of COVID-19 patients in (hospitals') intensive care units and strong regional differences, the moment has not yet come in the Federal Council's opinion to tighten measures throughout Switzerland" a government statement said on Wednesday.

Market Reaction

The Swiss franc has not seen any notable reaction to the latest news out of Switzerland. 

Federal Reserve Bank of San Francisco President and FOMC member Mary Daly said on Wednesday that she sees the case to be made for speeding up the pace of the Fed's QE taper, which currently runs at $15B per month. If things continue to go as they have been going, she would completely support an acceleration of tapering, Daly added. 

Daly continued that adding support to an already robustly growing economy isn't what the Fed wants to do and that she wants to bring that support down. However, she said that it would be premature to call for an acceleration of the taper today, as more data is needed. If the jobs market continues to fire on all cylinders and inflation comes in high again, that would support the case for acceleration, she said.

The decision on asset purchase tapering is different from that on rate hikes, she said, adding that her outlook is that the Fed is going to want to raise interest rates at the end of the next year. If there were one or two rate hikes next year, that would not surprise her at all, Daly said, saying that she wants to be data-dependent and not tied to any specific number of hikes. Even if the Fed did hike a few times next year, she added, it would still be providing accommodation. 

Market Reaction

Daly's hawkish remarks, where she has indicated her openness to a faster QE taper and flexibility on rate hikes in 2022, are boosting the US dollar and US bond yields. The DXY is at fresh 16-month highs just under 96.00 and 2-year yields are now up 3bps on the session at just under 0.65%, its highest level since the start of the pandemic. 

• USD/TRY climbs above 13.0000 for the first time ever on Wednesday.
• The lira manages to regain ground and drags spot lower afterwards.
• Turkey seeks to clinch a swap agreement with UAE.

Following new all-time highs past the 13.0000 yardstick earlier in the session, USD/TRY now corrects sharply lower and revisits the 12.0000 area on Wednesday.

USD/TRY off fresh all-time peaks above 13.0000

USD/TRY now partially fades Tuesday’s nearly 12% advance following news that Ankara could be negotiating a swap agreement with the UAE on Wednesday.

It is worth recalling that the lira collapsed on Tuesday after President Erdogan candidly defended the ongoing easing cycle by the Turkish central bank (CBRT), particularly following last week’s 100bps reduction of the One-Week Repo Rate.

Since the September meeting, the CBRT reduced the policy rate by 400 bps to 15.00%, all in context where the domestic inflation came in just short of 20.00% YoY in October.

The lira is by far the worst performing EM currency so far this year, shedding near 43% vs. the US dollar. In addition, spot clinched a new record after advancing for eleven straight sessions, from November 9 to November 23.

Data wise in Turkey, the Capacity Utilization improved a tad to 78.1% in November and the Manufacturing Confidence eased marginally to 108.4 in the same period.

USD/TRY key levels

So far, the pair is losing 4.82% at 12.0694 and a drop below 10.9237 (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 13.1105 (all-time high Nov.24) followed by 14.0000 (round level).

• A combination of factors dragged GBP/USD lower for the fourth successive day.
• Brexit woes weighed on the GBP; hawkish Fed expectations underpinned the USD.
• Mixed US economic data did little to provide any meaningful impetus to the major.

The GBP/USD pair maintained its offered tone through the early North American session and had a rather muted reaction to the mixed US macro data. The pair was last seen trading around mid-1.3300s, just a few pips above YTD low set in the last hour.

The pair extended its recent downfall from levels just above the key 1.3500 psychological mark and continued losing ground for the fourth successive day on Wednesday. The impasse over the post-Brexit arrangement in Northern Ireland and fishing rights continued acting as a headwind for the British pound. This, along with the emergence of fresh buying around the US dollar, exerted some pressure on the GBP/USD pair.

In fact, the key USD Index shot to a fresh 16-month peak and remained well supported by expectations that the Fed would hike interest rates sooner rather than later amid rising inflationary pressures. Apart from this, the risk-off impulse in the equity markets further benefitted the greenback's relative safe-haven status. The combination of factors, to a larger extent, helped offset retreating US Treasury bond yields.

The USD held on to its gains and moved little after the Prelim (second estimate) US GDP print showed that the economy expanded by a 2.1% annualized pace during the third quarter of 2021. This was slightly better than the 2.0% growth reported originally, though missed market expectations for a reading of 2.1%. Separately, the US Weekly Initial Jobless Claims dropped more than expected to 199K from 270K in the previous week.

Meanwhile, the headline US Durable Goods Orders unexpected declined by 0.5% in October, while orders excluding transportation items matched estimates and increased 0.5% during the reported month. The data did little to dent the prevalent strong bullish sentiment surrounding the USD or lend any support to the GBP/USD pair. This, in turn, suggests that the recent downward trajectory might still be far from being over.

Technical levels to watch

• Weekly Initial Jobless Claims in US declined by 71,000.
• US Dollar Index continues to push higher toward 97.00.

There were 199,000 initial claims for unemployment benefits in the US during the week ending November 20, the data published by the US Department of Labor (DOL) revealed on Wednesday. This reading followed the previous print of 270,000 (revised from 268,000) and came in better than the market expectation of 260,000.

Market reaction

The greenback continues to outperform its rivals after this data and the US Dollar Index was last seen rising 0.3% on the day at 96.78.

Key takeaways

"The 4-week moving average was 252,250, a decrease of 21,000 from the previous week's revised average."

"The advance seasonally adjusted insured unemployment rate was 1.5% for the week ending November 13."

"The advance number for seasonally adjusted insured unemployment during the week ending November 13 was 2,049,000, a decrease of 60,000 from the previous week's revised level."

• Durable Goods Orders fell by 0.5% MoM in October, but orders excluding transportation rose at a pace of 0.5% MoM. 
• The DXY recently probed highs of the day. 

According to the latest release by the US Census Bureau, US Durable Goods Orders fell by 0.5% MoM in October compared to market expectations for a small 0.2% rise in sales. That marked an acceleration of the 0.4% contraction in orders recorded in September. Excluding transportation, orders rose at a pace of 0.5% MoM, however, above expectations for a 0.2% MoM pace of growth. 

Market Reaction

The strong core durable goods orders numbers, a much larger than anticipated drop in initial weekly jobless claims and an in line with expectations second estimate of Q3 GDP growth has helped propel the US dollar back to fresh highs of the day, with the DXY probing the 96.80 area in choppy trading conditions. 

• The US economy grew at an annualised QoQ pace of 2.1% in Q3 2021. 
• The DXY saw momentary weakness but has now reversed back to close to highs of the day in the 96.80s. 

According to a second estimate from the US Bureau of Economic Analysis (BEA), the US economy grew at an annualised QoQ pace of 2.1% in Q3 2021, in line with expectations. That markets a 0.1% upwards revision from the first estimate of the pace of Q3 GDP growth released back in October. 

Market Reaction

The DXY saw a very minor dip at the time of the data release, though this has now reversed and the index is back in the 96.80s and close to highs of the day. A few other US data points were released at the same time as the US GDP numbers, with a surprise dip being seen in Durable Goods Orders MoM in October. This may have temporarily weighed on the dollar. The weekly jobless claims report, also released at 1330GMT, was very strong, however. 

The recovery in EUR/JPY from key price/retracement support at 127.93/88 is expected to be capped below 129.99/130.12, economists at Credit Suisse report.

Sideways range to emerge between 127.93/88 and 130.08/12

“EUR/JPY has extended its expected recovery to the back of its broken uptrend from May last year, seen at 129.63 today, with further key resistance seen not far above here at the recent reaction highs and 13-day exponential average at 129.99/130.12. Our bias remains for the recovery to stall here and for the immediate risk to turn back lower in what we look to be a broader sideways range.” 

“Near-term support moves to 128.91, then 128.56/54, below which can see a retest of pivotal support from the 127.97/88 key price lows of August, September and earlier this month and 50% retracement of the rally from last October. Failure to hold here would be seen to mark a large and important top.” 

“Above 130.12 would suggest a more important low has been established to clear the way for further strength with resistance seen next at 130.44, then 130.60.”

• NZD/USD dropped below 0.6900 in recent trade and is the market G10 underperformer on the day.
• The pair was sent lower overnight by a dovish RBNZ from the RBNZ.

NZD/USD has pushed below 0.6900 in recent trade as the wave of selling pressure on the kiwi shows no sign of abating just yet. Now that the 0.6900 level has been broken, bearish technicians will eye support in the form of the early October/last September lows in the 0.6860-0.6880 region. Some technical buying/profit-taking on recent shorts may be incentivised around this area, as NZD/USD’s Z-score to its 200DMA (i.e. the number of standard deviations away from its 200DMA) would be about -2.0. In the past, this has been a signal of near-term consolidation.

There has been a ramp-up of pandemic-related fears in global markets on Wednesday as speculation about a full-scale lockdown and even potential vaccine mandate in Germany mounts and the outlook for the Eurozone economy more broadly darkens. This has been supporting safe-haven currencies like the US dollar and yen, explaining some of NZD/USD’s recent downside.

Kiwi underperformance

The reason for the kiwi’s marked underperformance when compared to other risk-sensitive G10 currencies on Wednesday is a disappointed market reaction to the latest RBNZ policy announcement during Asia Pacific trading hours. NZD/USD dropped from above 0.6950 to 0.6920 in the immediate aftermath of the bank’s announcement that it would hike interest rates by 25bps to 0.75%, before heading lower in subsequent trade as already detailed.

Some market participants had been expecting the bank to hike rates by 50bps, so the initial market reaction reflected an unwind of these hawkish bets. Meanwhile, despite the RBNZ upping its 2023 official cash rate (OCR) forecast to 2.3% from 1.7% (an upgrade was expected), this wasn’t as hawkish as NZD short-term interest rate markets had been priced for.

The RBNZ said it would take a cautious approach to further tightening for now, which MUFG thinks reflects “concerns over the high level of indebtedness that means households will now be a lot more sensitive to rate hikes than before”. MUFG says the 14bps drop in New Zealand government 2-year bond yields on Wednesday is “understandable given what is priced into the rates market in New Zealand… (and) the adjustment could have further to go over the short-term which could mean further NZD weakness versus the US dollar from here”.

• Sustained USD buying dragged AUD/USD to the lowest level since early October.
• Hawkish Fed expectations, the risk-off impulse acted as a tailwind for the buck.
• Investors look forward to the US macro data/FOMC minutes for a fresh impetus.

The AUD/USD pair was seen hovering near the lowest level since early October, with bears awaiting a sustained break below the 0.7200 mark heading into the North American session.

Following a brief consolidation through the early part of the trading action on Wednesday, the US dollar regained traction and shot to a fresh 16-month peak amid hawkish Fed expectations. The USD bulls seemed rather unaffected by retreating US Treasury bond yields, instead took cues from the risk-off impulse in the financial markets.

This was evident from a generally weaker tone in the equity markets, which benefitted the greenback's relative safe-haven status and drove flows away from the perceived riskier aussie. Apart from this, the divergence in monetary policy stance between the Reserve Bank of Australia and the Fed further contributed to the AUD/USD pair's ongoing decline.

Meanwhile, Wednesday's downfall could further be attributed to some technical selling following the recent break below support marked by the lower boundary of an upward sloping channel. Some follow-through selling below the 0.7200 mark will reaffirm the negative bias and turn the AUD/USD pair vulnerable to slide further towards the 0.7165 support.

Market participants now look forward to the US economic docket, highlighting the release of the Prelim (second estimate) US Q3 GDP, Durable Goods Orders and Core PCE Price Index. The key focus, however, will be on the FOMC meeting minutes, which will play a key role in driving the greenback in the near term and provide a fresh directional impetus to the AUD/USD pair.

Technical levels to watch

European Central Bank governing council member and Slovenian central bank head Boštjan Vasle on Wednesday said that the bank must provide sufficient room for maneuver in the event of a further worsening of the pandemic and economic situations. However, added Vasle, the bank must also provide for maneuver in the event that inflationary pressures are more prolonged than expected. 

Market Reaction

ECB's Vasle comments do not add anything new to the policy debate and EUR/USD has not reaction. For now, the pair is consolidating just above session lows in the 1.1210s. The most notable recent comments from an ECB policymaker were from influential German economist Isabel Schnabel earlier in the week, who said that given inflationary pressures, the bank should end the PEPP in March.

US PCE Price Index Overview

Wednesday's US economic docket highlights the release of the October Personal Consumption Expenditure (PCE) Price Index, scheduled later during the early North American session at 15:00 GMT. The headline gauge is expected to edge higher to 0.4% from 0.3% in September, while the yearly rate is seen rising to 4.6% during the reported month from 4.4% previous. The core reading is forecast to come in at 0.4% in October, up from 0.2% previous, and jump to a 4.1% YoY rate from 3.6% in September.

According to Michael Hewson, Chief Market Analyst at CMC Markets: There are increasingly strident voices urging the central bank to taper faster than the current $15bn a month which is due to start this month. If this week’s core PCE similarly surges to 31-year highs in the same way that the recent headline CPI numbers did earlier this month we can expect these voices to get louder. With the latest Fed minutes also due out a few hours later the debates around the pace of tapering are likely to become a little clearer.

How Could it Affect EUR/USD?

A stronger than expected print will reaffirm market expectations for an early policy tightening by the Fed and provide an additional boost to the already stronger US dollar. Conversely, a softer reading – though seems unlikely – is likely to be overshadowed by concerns about the rising number of COVID-19 cases and the imposition of fresh lockdown measures in Europe. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside.

Meanwhile, Eren Sengezer, Editor at FXStreet, offered a brief technical outlook for the major: “On the four-hour chart, the Relative Strength Index (RSI) indicator holds near 40, suggesting that the pair is struggling to gather bullish momentum. In the meantime, EUR/USD is trading near the upper line of the descending trading channel while staying below the 20-period SMA.”

Eren also outlined important technical levels to trade the EUR/USD pair: “1.1270 (20-period SMA) aligns as initial resistance ahead of 1.1300 (psychological level) and 1.1330 (50-period SMA). Supports are located at 1.1240 (upper-line of the descending channel), 1.1200 (psychological level) and 1.1140 (static level, former resistance).”

Key Notes

  •   EUR/USD Forecast: Growth and inflation under the spotlight

  •   EUR/USD Price Analysis: Next on the downside comes 1.1185

  •   EUR/USD to extend its move lower towards 1.1019/02 – Credit Suisse

About the US PCE Price Index

The Personal Spending released by the Bureau of Economic Analysis, Department of Commerce is an indicator that measures the total expenditure by individuals. The level of spending can be used as an indicator of consumer optimism. It is also considered as a measure of economic growth: While the Personal spending stimulates inflationary pressures, it could lead to rise interest rates. A high reading is positive (or Bullish) for the USD.

• EUR/USD drops to new cycle lows in the boundaries of 1.1200.
• A breach of 1.1200 exposes a deeper pullback to 1.1185.

EUR/USD extends the selloff further and flirts with the 1.1200 barrier on Wednesday, or new 16-month lows.

If the 1.1200 region is cleared in the near term, then the pair is seen shifting the attention to July’s 2020 low at 1.1185 (July 1) ahead of 1.1168 (June 19 2020). Of note, however, is that the pair navigates the oversold territory, which carries the potential to spark a technical correction in the not-so-distant future.

The probability of further losses remains unchanged as long as EUR/USD trades below the 2-month resistance line (off September’s peak) near 1.1580. In the longer run, the offered stance in spot is expected to persist while below the 200-day SMA at 1.1847.

EUR/USD daily chart

Developing story...

• Gold failed to preserve its intraday gains and turned lower for the fifth straight day.
• A stronger USD amid hawkish Fed expectations acted as a headwind for the metal.
• Sliding US bond yields, COVID-19 jitters, a softer risk tone could lend some support.

Gold struggled to capitalize on its modest intraday gains on Wednesday and met with fresh supply in the vicinity of the $1,800 round-figure mark. The intraday pullback dragged spot prices to the $1,786-85 area during the mid-European session, with bears now eyeing to challenge a three-week low touched in the previous day. The US dollar finally broke out of its consolidative trading range and shot to a fresh 16-month peak, which, in turn, exerted some pressure on the dollar-denominated commodity.

The greenback continued drawing support from growing acceptance that the Fed would tighten its monetary policy sooner rather than later to contain stubbornly high inflation. In fact, the Fed funds futures indicated the possibility for an eventual Fed rate hike move by July 2022 and another raise in November. The bets were reaffirmed after Jerome Powell's renomination for the role of the Fed chair for the second term on Monday. This was seen as another factor weighing on the non-yielding gold.

That said, retreating US Treasury bond yields could hold back the USD bulls from placing fresh bets. This, along with a softer risk tone, might benefit the perceived safe-haven gold and help limit losses, at least for now. Concerns about the rising number of COVID-19 cases in Europe and the imposition of fresh lockdown restrictions seem to have tempered investors' appetite for perceived riskier assets, which was evident from a generally weaker trading sentiment around the equity markets.

Nevertheless, the XAU/USD has now drifted into the negative territory for the fifth successive day as market participants look forward to Wednesday's important US macro releases – the Prelim (second estimate) US Q3 GDP, Durable Goods Orders and Core PCE Price Index. Apart from this, the latest FOMC monetary policy meeting minutes will drive the USD demand and provide a fresh impetus to gold prices. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the commodity.

Technical outlook

From a technical perspective, the overnight sustained break through the $1.800 mark might have already shifted the bias in favour of bearish traders. That said, acceptance below the 200/100-day SMA confluence and some follow-through selling below the overnight swing low, around the $1,782 region, is needed to confirm the negative outlook. Gold might then accelerate the slide towards the next relevant support near the $1,770 horizontal level en-route the $1,759-58 region.

On the flip side, the $1,795-96 zone, closely followed by the $1,800 mark should act as immediate resistance for the metal. A sustained strength beyond, leading to a subsequent break through the $1,811-12 hurdle could trigger a short-covering move and lift gold prices to the $1,825-26 area en-route the $1,832-34 static resistance.

Gold daily chart

Technical levels to watch

According to Economist Enrico Tanuwidjaja at UOB Group, Indonesia is likely to clinch a current account surplus this year.

Key Takeaways

“Indonesia’s current account balance reversed into a surplus of USD 4.5bn (1.5% of GDP), after posting a deficit of USD 2.2bn (-0.7% of GDP). As such, Indonesia’s also posted a balance of payment (BOP) surplus of USD 10.7bn in 3Q21, after a deficit of USD 0.4bn in 2Q21.”

“Indonesia’s trade balance hit a record high in October and reached USD5.7bn vs. USD4.4bn in the previous month, amidst faster pace of imports, notably for raw-auxiliary goods. Imports jumped to 51.1% y/y in October vs. 40.3% y/y in September. Meanwhile, exports rose 53.4% y/y in October vs. 47.6% y/y in September.”

“The capital and financial account (which records trade in assets between Indonesians and foreign counterparts) posted a larger surplus of USD6.1bn in 3Q21 (2.0% of GDP).”

“Portfolio investments maintained net inflows of USD 1.1bn, slightly lower than USD 4.4bn in the previous quarter in line with global uncertainty due to the spread of virus Covid-19 new variant in several countries.”

“For the first time ever since the past decade, in 2021 we  expect Indonesia to record a current account  surplus  and  reversed  the  persistent  deficit  position from several  years  in  a  row  since  the commodity  bust  back  in  late  2011-early 2012. We  forecast  Indonesia CA to record a surplus of 0.2% of GDP, primarily underpinned by the growth in exports.”

In talking points delivered to senior officials, German coalition partners have noted that they agreed to increase the minimum wage to 12 euros/hour. 

Additional takeaways

"Agreed to lower minimum voting age to 16."

"Will build 400,000 new apartments a year."

"Will seek to limit rent increases."

"Want to increase R&D funding to 3.5% of GDP."

"Overcoming coronavirus pandemic will be the first, most important job of coalition."

"Ruled out increasing pension age."

Market reaction

These remarks don't seem to be having a noticeable impact on market sentiment. As of writing, Germany's DAX Index was down 0.57% on the day. Meanwhile, the EUR/USD pair continues to trade in the negative territory around 1.1220.

• DXY clinches new cycle peaks near 96.80 midweek.
• Further upside is seen testing the 97.00 yardstick.

DXY pushes higher and records new 16-month tops in the vicinity of 96.80 on Wednesday.

The continuation of the uptrend looks the most likely scenario for the time being. That said, the round level at 97.00 now emerges as the immediate target for dollar bulls ahead of 97.80 (June 30 2020).

In the meantime, while above the 2-month support line (off September’s low) just below 94.00, extra gains in DXY remain well on the table. The broader constructive stance remains underpinned by the 200-day SMA at 92.35.

DXY daily chart

Senior Economist at UOB Group Alvin Liew comments on the latest release of inflation figures in Singapore.

Key Takeaways

“Singapore’s consumer prices jumped to 3.2% y/y (0.3% m/m NSA) in Oct from 2.5% y/y (0.4% m/m) in Sep, versus Bloomberg median forecasts of 2.9% y/y (0.0% m/m), the fastest y/y increase since March 2013. Meanwhile, core inflation (which excludes private road transport and accommodation prices) also rose by a faster 1.5% y/y in Oct, above Sep’s 1.2% and the Bloomberg median estimate of 1.4%. Accounting for the latest data, Singapore’s headline inflation averaged 2% while core inflation averaged 0.7% in the first ten months of 2021.” 

“According to the joint Oct 2021 CPI report release by the Monetary Authority of Singapore (MAS) and the Ministry of Trade & Industry (MTI), headline inflation is ‘forecast to come in around 2%’ in 2021 and average 1.5% - 2.5% in 2022, while core inflation is expected at the ‘upper end of the 0-1% forecast range’ in 2021, before increasing further to 1 – 2%.”

“We keep our headline inflation outlook to 2.0% for 2021, while holding our core inflation outlook unchanged at 1.0%. More importantly, the higher Oct inflation print and the anticipation of further inflation pressures (which is no longer “transitory” as previously thought) due to global and domestic factors, vindicates the tightened monetary policy stance by the MAS in its October 2021 policy meeting.”

• EUR/JPY’s recovery faltered around the mid-129.00s so far.
• Another drop to recent lows near 128.00 cannot be ruled out.

EUR/JPY comes under some selling pressure following another failed attempt to advance further north of recent peaks in the 129.50 area.

The resumption of the downside should not be ruled out yet and therefore another visit to the monthly low at 127.97 (November 19) remains well on the cards for the time being.

Looking at the broader picture, the outlook for the cross is expected to remain negative while below the 200-day SMA, today at 130.53.

EUR/JPY daily chart

Gold suffered heavy losses and broke below the key $1,800 area on Tuesday. Collapse lower will need to hold over $1,750 for an upside bias to remain, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, reports.

Break below $1,750 to put the $1,693 August low back in focus

“Gold has sold off aggressively following a key day reversal. The sell-off is viewed as corrective and the market should remain well supported on dips back to the $1,750 region.” 

“Assuming that the $1,750 area holds the downside, we should see a recovery to last week's high at $1,877. Above here lies $1,917/22, the May 2021 peak and 61.8% retracement and the 2011 high. This will act as the break-up point to the $1,965 November 2020 peak and the 78.6% retracement at $1,989. This is the last defence for the August 2020 peak at $2,072.” 

“Below $1,750 will target the $1,721 September 2021 low and the $1,693 August low.”

US 10-year Treasury yield is at a descending trend line drawn since last year at 1.74%. Economists at Société Générale believe that there is potential for 2.05/10% if the April high of 1.80% is overcome. 

Support 1.59% – resistance 1.80%

“It is worth noting that it has formed an Inverse Head and Shoulders pattern which generally denotes an uptrend.”

“April high of 1.80% is an important hurdle. Once this is overcome, the swap rate would affirm further extension in ongoing up move towards 1.92% and perhaps even towards projections of 2.05%/2.10%.” 

“First support is near 1.59%.”

• GBP/USD remained under some selling pressure for the fourth consecutive day on Wednesday.
• Brexit woes continued weighing on the GBP and dragged the pair lower amid a fresh USD buying.
• Hawkish Fed acted as a tailwind for the USD, though retreating US bond yields capped the upside.
• Investors now look forward to the US economic data/FOMC minutes for some meaningful impetus.

The GBP/USD pair edged lower through the first half of the European session and dropped to mid-1.3300s in the last hour, back closer to a yearly low set in the previous day.

A combination of factors failed to assist the GBP/USD pair to capitalize on the overnight bounce from the 1.3340 area, or the lowest level since December 2020, instead prompted fresh selling on Wednesday. The impasse over the post-Brexit arrangement in Northern Ireland and fishing rights continued acting as a headwind for the British pound. This, along with the emergence of fresh buying around the US dollar, dragged the pair lower for the fourth successive day.

The greenback shot to a fresh 16-month peak and remained well supported by growing acceptance for an early policy tightening by the Fed, reinforced by Jerome Powell's renomination as the Fed chair. Persistent concerns about rising inflationary pressures forced investors to price in the possibility for an eventual Fed rate hike move by July 2022. That said, retreating US Treasury bond yields could turn out to be the only factor capping gains for the USD.

Nevertheless, the GBP/USD pair, so far, has struggled to gain any meaningful traction, suggesting that an imminent Bank of England interest rate hike in December is fully priced in the markets. This, in turn, favours bearish traders and supports prospects for an extension of the recent decline from levels just above the key 1.3500 psychological mark. However, bearish traders are likely to wait for acceptance below mid-1.3300s before placing fresh bets.

Market participants now look forward to the US economic docket, highlighting the releases of the Prelim (second estimate) US Q3 GDP, Durable Goods Orders and Core PCE Price Index. This, along with the FOMC meeting minutes, will drive the USD demand and provide a fresh impetus to the GBP/USD pair. Apart from this, Brexit-related headlines should influence the GBP price dynamics and allow traders to grab some short-term opportunities.

Technical levels to watch

The S&P 500 maintains its bearish “reversal day” from just shy of the 4750 level. With daily MACD momentum having already turned lower last week and with weekly RSI momentum holding a bearish divergence, analysts at Credit Suisse continue to look for a correction lower to 4568/66 – the 38.2% retracement of the October/November rally.

Uptrend to take a breather

“With a bearish ‘reversal day’ in place from just shy of our 4750 Q4 objective and with daily MACD momentum having already turned lower last week and with weekly RSI momentum not confirming the latest highs we continue to look for a correction lower/consolidation to emerge.” 

“A close below the 13-day exponential average and low of last week at 4674/73 remains needed to add weight to our view and indeed if this can be achieved on Friday this would also see a bearish ‘reversal week’ established. This should then reinforce our call for a fall to the 4634/31 recent low/23.6% retracement.” 

“Below 4634/31, which we look for, would see a near-term top established with support then seen next at 4589 with our corrective objective at 4568/66 – the 38.2% retracement of the October/November rally – which would represent a fall of 3.7% from the peak.”

“Resistance moves to 4701 initially, with 4732/50 now ideally capping.”

Emphatic failure at the $2,208 October high has increased the downside risk for palladium. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, is closely watching the $1,850 level as a break below here would open up the long-term Fibo support at $1,737.

Key near-term resistance lies at $2,208

“Palladium failed to close above the $2,208 October high and this has provoked a sharp sell-off. This has again pushed the chart to a more negative bias and attention is once again on the $1,848/50 support.” 

“Directly below $1,848/50 lies the 200-week ma at $1,807.09, which should hold the initial test. Below here will target the long-term Fibo support at $1,737.” 

“Rallies will find minor resistance at $2,043/2022. This guards the more important $2,208/15, October and November highs and while capped here a negative bias will now persist.”

USD/JPY reached fresh multi-year tops above 115.00. Above March 2017 levels of 115.50, the pair will target the 116.50 mark, then 117.10, economists at Société Générale report.

Steady up move

“USD/JPY is approaching March 2017 levels of 115.50. An initial pullback is not ruled out, however, last week's low of 113.60 should cushion.”

“Beyond 115.50, next objectives are located at projections of 116.50/117.10.”

GBP/USD stays depressed below 1.3400. Economists at Société Générale expect the cable to continue its move down to the 1.3300/1.3250 area.

Down move could extend 

“GBP/USD rebound has petered out and it looks poised to head lower towards next projections at 1.3300/1.3250.”

“Daily Kijun line at 1.3600 is near-term resistance. This must be crossed for a meaningful rebound.”

European Central Bank (ECB) policymaker Fabio Panetta said on Wednesday that continued monetary stimulus was still necessary and argued that everything they have achieved so far will be put at risk if they lose patience, per Reuters.

Additional takeaways

"Inappropriate, sharp reduction of purchases would be tantamount to a tightening of the policy stance."

Premature tightening of monetary policy could turn the supply shock into a prolonged recession."

"Should look through current inflation spike until evidence that upside risks to medium-term inflation are materialising."

"Flexibility has served us well in past months, should become an integral element of our asset purchases."

"Should not be alarmed if we see signs of a one-off catch-up in wages next year."

"Forward guidance condition on rise in underlying inflation is not close to being met."

Current inflation spike a results of a mixture of purely temporary factors; should not ignore medium-term risks."

"Downside risks to economic activity may be growing."

Market reaction

The EUR/USD pair remains under bearish pressure following these comments and was last seen losing 0.3% on a daily basis at 1.1212.

EUR/USD maintains its break below the 61.8% retracement of the 2020/2021 uptrend at 1.1290. Economists at Credit Suisse stay directly bearish for 1.1185/68 next, then 1.1019/02. 

Resistance at 1.1375 caps

“With a major ‘head and shoulders’ top in place, our outlook stays directly bearish with support seen next at the late June lows at 1.1185/68.” 

“Whilst a temporary hold at 1.1185/68 should be allowed for we look for a break in due course with the ‘measured top objective’ at 1.1075 and with our main objective at the 78.6% retracement and ‘neckline’ to the March/May 2020 base at 1.1019/02. With support from the key long-term uptrend from the 2000 low seen just below here around 1.0970, our bias remains for this latter area to then prove a much more significant floor for the market.”

“Resistance is seen at 1.1276 initially, then 1.1291/93, above which can see a recovery back to 1.1323, but with the recent high and 13-day exponential average at 1.1362/75 ideally continuing to cap.”

Economist at UOB Group Enrico Tanuwidjaja and Yari Mayaseti review the latest monetary policy meeting by the Bank Indonesia (BI).

Key Takeaways

“Bank Indonesia (BI) left its benchmark rate unchanged at record low of 3.50% at its 17 November -18 November 2021 monetary policy meeting (MPC) as the economy continued to recover from the country’s worst COVID-19 wave. The benchmark rate has been at that level since February, and BI has signaled the bank could remain on hold at least until year-end. Consequently, BI maintained the Deposit Facility rate at 2.75%, as well as the Lending Facility rate at 4.25%. BI stated that the decision is consistent with the need to maintain the exchange rate and financial system amid low inflation, projected low inflation and efforts to revive economic growth. Bank Indonesia will hold another monetary policy meeting on 16 December 2021.”

“With the daily Covid-19 cases now more under control, the recovery pace is getting back on track. Besides, the inflation is still below the 2% - 4% of the Central Bank’s target range; BI will have the policy space to remain accommodative to support the economic recovery. We keep our BI rate forecast to stay at current level of 3.50% for the rest of the year, while we also forecast that BI will start to hike its benchmark interest rates in the latter half of 2022.”

• WTI briefly regain $79 but seems to lack follow-through upside.
• 50-DMA resistance is challenging the two-day recovery rally.
• RSI has turned flat below the midline, keeping bulls on the edge.

WTI (NYMEX futures) is consolidating near four-day highs of $79.02, as traders assess the implications of a likely release of oil supplies from the US, China and Japan’s strategic reserves.

Meanwhile, the bulls turn cautious ahead of a flurry of critical US economic releases, including the Durable Goods and GDP. Oil traders will also watch out for the weekly US crude inventories data from the Energy Information Administration (EIA).

From a short-term technical perspective, WTI is battling the 50-Daily Moving Average (DMA) resistance at $78.65, as the buyers look to find a strong foothold above the latter on a daily closing basis.

With the 14-day Relative Strength Index (RSI), however, trading listlessly below the midline, the bulls are likely to lack the follow-through upside.

If sellers return at higher levels, then WTI could drop back towards the $78 threshold, below which Monday’s high of $77.01 could be probed.

Deeper declines in the US oil will likely call for a test of November 18 lows of $76.36.

 WTI: Daily chart

Alternatively, a sustained move above the 50-DMA hurdle will expose the mildly bearish 21-DMA resistance at $79.96.

Should the upside momentum sustain then WTI bulls could lookout for the next resistance at $80.50.

WTI: Additional levels to watch

• USD/CAD struggled to capitalize on its intraday positive move and failed near the 1.2700 mark.
• Positive oil prices underpinned the loonie and capped the upside amid a subdued USD demand.
• Hawkish Fed expectations continued acting as a tailwind for the USD and should help limit losses.

The USD/CAD pair surrendered modest intraday gains and has now retreated to the lower end of its daily trading range, around the 1.2665 region.

The pair gained some positive traction during the early part of the trading action on Wednesday, albeit struggled to capitalize on the move and the uptick faltered ahead of the 1.2700 mark. Crude oil prices added to the previous day's strong gains and climbed to a fresh weekly high. This, in turn, underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair amid a subdued US dollar price action.

The USD extended its consolidative price move near a 16-month peak for the second successive day amid retreating US Treasury bond yields. That said, the prospects for an early policy tightening by the Fed, reinforced by Jerome Powell's renomination as the Fed chair, continued underpinning the buck. This should help limit any deeper losses for the USD/CAD pair, warranting some caution before placing fresh bearish bets.

Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. In fact, the markets have been pricing in the possibility for a rate hike move by July 2022. Moreover, the Fed fund futures indicate a high likelihood for another raise in November. This makes it prudent to wait for some follow-through selling before confirming a near-term top for the USD/CAD pair.

Market participants now look forward to the US economic docket, highlighting the releases of the Prelim (second estimate) US Q3 GDP, Durable Goods Orders and Core PCE Price Index. This, along with the FOMC meeting minutes, will influence the USD and provide a fresh impetus to the USD/CAD pair. Apart from this, traders will take cues from oil price dynamics to grab some short-term opportunities around the major.

Technical levels to watch

The European Central Bank (ECB) will decide on tapering in December, policymaker Robert Holzmann said on Wednesday.

Key quotes

“Recently inflation expectations have increased, by how much I do not know.”

“Effect of lockdowns on economies is increasingly small.”

“Austria's lockdown will have moderate effects on the economy.”

“PEPP purchases will probably end in March but PEPP will not end but probably be put in a waiting room.”

Market reaction

EUR/USD is unimpressed by these comments, testing fresh 2021 lows at 1.1220, as of writing. The spot is losing 0.22% on the day.

“China will introduce new measures to stabilize trade in due course,” the country’s Vice Commerce Minister said in a statement on Wednesday.

Additional comments

“There are still many concerns surrounding foreign trade conditions.”

“Cannot be blindly optimistic on the matter.”

“There is much pressure on small and medium enterprises.”

Related reads

• USD/CNH faces firm hurdle at 6.4070 – UOB
• China’s Foreign Ministry: Will release oil reserves according to its needs

• EUR/GBP failed to preserve its intraday gains and witnessed selling near the 0.8415 region.
• The euro witnessed some selling on news of a deal on Germany’s next governing coalition.
• Brexit-related uncertainties acted as a headwind for the sterling and might help limit losses.

The EUR/GBP cross quickly retreated over 20 pips from the early European session high and slipped back below the 0.8400 round-figure mark in the last hour.

The cross struggled to capitalize on its modest intraday uptick, instead met with a fresh supply near the 0.8415 area and extended the previous day's pullback from a multi-day high level of 0.8431. The latest leg of a sudden fall lacked any obvious catalyst but followed news that Germany’s Finance Minister Olaf Scholz has signed a coalition agreement to become the next chancellor.

On the economic data front, the headline German IFO Business Climate Index fell from 97.7 to 96.5 in November, missing consensus estimates for a reading of 96.6. Adding to this, the Expectations Index – indicating firms’ projections for the next six months – dropped to 94.2 during the reported month. The data did little to impress the euro bulls or lend any support to the EUR/GBP cross.

Meanwhile, the impasse over the post-Brexit arrangement in Northern Ireland and fishing rights continued acting as a headwind for the British pound. This, in turn, held back bearish traders from placing fresh bets and limited deeper losses for the EUR/GBP cross. That said, the pair's inability to gain any traction suggests that the near-term bearish trend is still far from over.

Technical levels to watch

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest monetary policy decision by the BSP.

Key Takeaways

“Bangko Sentral ng Pilipinas (BSP) unsurprisingly left the overnight reverse repurchase (RRP) rate unchanged at 2.00% today (18 Nov) for an eighth consecutive meeting. Both the overnight deposit and lending rates were also kept steady at 1.50% and 2.50% respectively. The central bank cited that a manageable inflation environment and nascent economic recovery provided scope to hold monetary policy settings steady.”

“Also, for the first time, BSP officially emphasised its patience on rates in today’s monetary policy statement (MPS)... Although there are signs of improving growth momentum in the country following the gradual relaxation of mobility curbs and increasing vaccination rates, downside risks still linger, predominantly coming from the emergence of more virulent COVID-19 variants which could delay the lifting of domestic containment measures, and prolonged impact of global supply chain bottlenecks.”

“In sum, the overall tone of both the MPS and press briefing…remain centered on a sustainable growth path and elevated inflationary pressures.”

“Hence, we continue to expect a steady RRP rate of 2.00% until mid-2022. Thereafter, we anticipate a 25bps rate hike in 3Q22 that will bring the RRP rate to 2.25% by end-2022.”

The US Dollar Index (DXY) has broken higher through key resistance at 94.47/80. Analysts at Commerzbank expect the DXY to reach the 99.50 mark and see a chance to surge above the 100 level.

DXY has cleared major resistance at 94.47/80, targets 99.50

“The DXY has cleared major resistance at 94.47/80. It is underpinned by the 93.96 2021 uptrend, and while above here we will look for further US Dollar gains to the 97.73 Fibo resistance.”

“We are also above the 55-month ma and have pretty much based. The base measures to approx. 99.50.”

“There is scope longer term for the 100+ and even the 103.00/103.80 highs.”

Following the release of the German IFO Business Survey, the institute’s Economist Klaus Wohlrabe said that the “latest fall in IFO index gives us some cause for concern.”

Additional quotes

EUR/USD nears 1.1200

EUR/USD is keeping close to the new 2021 low, currently trading at 1.1223, down 0.20% on the day.

Gold is being used as an inflation hedge. Analysts at Commerzbank believe that the high at $2,072 will prove to be a catalystic break point on the topside.

Bullish bias while above the 2021 low at $1,677

“Gold is in a long term bull move, and will remain so while above $1,677 the 2021 low.” 

“The long term target is the $2,052/72 2020 high.”

“Risks are for an upside break, which if seen (favoured) will target $2,300/01 and ultimately inter-year $2,676/$2,686.”

• EUR/USD loses the grip and clinches new lows at 1.1220.
• German Business Climate surprised to the downside in November.
• US PCE, FOMC Minutes take centre stage later in the NA session.

The single currency remains under pressure and depreciates further, motivating EUR/USD to clock new cycle lows around 1.1220 on Wednesday.

EUR/USD looks to domestic, US data and the FOMC Minutes

EUR/USD stays depressed and regains the downside following Tuesday’s moderate advance to levels past 1.1270 on Wednesday. It is worth recalling that above-expectations flash PMIs in the euro area underpinned the daily corrective upside in spot earlier in the week.

The better note in the greenback keeps the pair under scrutiny and close to the area of fresh 16-month lows near 1.1220 recorded on the previous session. Higher US yields, particularly boosted after J.Powell was re-appointed to the Fed, continued to bolster the upside momentum in the dollar, while the persistent Fed-ECB policy divergence adds to the downtrend in spot.

Later in the session, the German Business Climate tracked by the IFO survey is due while the focus of attention is later expected to shift to the US docket, where inflation figures measured by the PCE, usual weekly Claims and the release of the FOMC Minutes are all scheduled.

What to look for around EUR

EUR/USD seems to have found some decent contention near the 1.1200 yardstick so far this week. The pair continues to suffer the ECB-Fed policy divergence, while the sharp increase in COVID-19 cases in Europe also adds to the deteriorated outlook for the single currency in the last part of the year. Also weighing on the pair, the loss of momentum in the economic recovery in the euro area - as per some weakness observed in key fundamentals – is also seen pouring cold water over investors’ optimism on the economic recovery.

Key events in the euro area this week: German IFO (Wednesday) – German GfK Consumer Confidence, German Final Q3 GDP, ECB Accounts, ECB’s Lagarde (Thursday) – ECB’s Lagarde (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Increasing likelihood that elevated inflation could last longer. 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 0.22% at 1.1223 and faces the next up barrier at 1.1374 (low Nov.18) followed by 1.1464 (weekly high Nov.15) and finally 1.1609 (weekly high Nov.9). On the other hand, a break below 1.1220 (2021 low Nov.24) would target 1.1185 (monthly low Jul.1 2020) en route to 1.1168 (low Jun.19 2020).

• German IFO Business Climate Index came in at 96.5 in November.
• IFO Current Economic Assessment fell to 99.0 this month.
• November German IFO Expectations Index arrived at 94.2, a miss.

The headline German IFO Business Climate Index worsened to 96.5 in November versus last month's 97.7 and the consensus estimates of 96.6.

Meanwhile, the Current Economic Assessment arrived at 99.0 points in the reported month as compared to last month's 100.1 and 99.0 anticipated.

The IFO Expectations Index – indicating firms’ projections for the next six months, fell to 94.2 in November from the previous month’s 95.4 reading and worse than the market expectations of 95.0.

Market reaction

EUR/USD holds the lower ground on the downbeat German IFO survey. The spot hit fresh 2021 lows of 1.1220 on the data release.

At the time of writing, the pair is down 0.19% on the day, trading at 1.1225.

About German IFO

The headline IFO business climate index was rebased and recalibrated in April after the IFO research Institute changed series from the base year of 2000 to the base year of 2005 as of May 2011 and then changed series to include services as of April 2018. The survey now includes 9,000 monthly survey responses from firms in the manufacturing, service sector, trade and construction.

In Chile, economists at Credit Suisse expect CLP stabilization in the near-term, but see scope for USD/CLP to rebound in the 810-840 range as the second round vote in presidential elections comes closer.

Volatility to pick up

“The good performance of the far-right candidate, Jose Antonio Kast, in Sunday’s first round of the presidential elections was taken positively by markets. Uncertainty about the outcome of the second run remains high. The second round will likely be highly competitive, with Kast and Boric having a similar chances of winning.”

“We expect stabilization of the CLP against the dollar in the near term. But we think that as the 19 December run-off approaches, USD/CLP will become more volatile as political noise picks up. It could, in that context, move back to the upper end of our 810-840 target range.”

NZD/USD drops 0.50% in response to the decision of the Reserve Bank of New Zealand (RBNZ) to raise the key policy rate by 25bps to 0.75%. As NZ-US rate spread is set to correct further lower, economists at MUFG Bank expect the kiwi to remain under downside pressure.

RBNZ’s cautious hike 

“The new RBNZ guidance now has the key policy rate at 2.10% by December 2022, a year sooner than the last estimate. However, this is notably below what is currently priced into the financial markets.”

“The RBNZ is implying policy rate hikes of between 125-150bps by the end of next year and given New Zealand’s zero-COVID policy and the government today announcing the re-opening of borders from January there are high risks of further disruptions ahead.”

“The 15bps drop in the 2-year government bond yield today is understandable given what is priced into the rates market in New Zealand. The adjustment could have further to go over the short-term which could mean further NZD weakness versus the US dollar from here.”

Bank of Canada's hawkish pivot put some wind under the Canadian dollar's wings in October, though it has since weakened on a modest pullback in energy prices. Still, economists at the  Bank of Montreal see the USD/CAD diving to 1.20 by late 2022. 

Possible need to raise rates as early as next spring

“With the pandemic clamping down on supply and potential growth, the Bank sees the output gap closing sooner, in either Q2 or Q3 of 2022 when rate hikes would be expected to begin. As a result, we advanced the timing of the expected initial rate hike by several months to July 2022. A series of quarterly rate hikes should return the current 0.25% policy rate to a more neutral 1.75% by late 2023.”

“We see the loonie cruising moderately higher to 1.20 by late 2022 as the Bank hikes rates ahead of the Fed.”

See: Loonie to appreciate against most currencies as BoC moves to raise interest rates – Morgan Stanley

• USD/CHF climbed to the highest level since late September during the early European session.
• The uptick seemed unaffected by a softer risk tone, which tends to benefit the safe-haven CHF.
• Retreating US bond yields kept the USD on the defensive, though did little to stall the move up.

The USD/CHF pair traded with a positive bias through the early European session and was last seen trading near the highest level since late September, just below mid-0.9300s.

Having defended the 0.9300 mark on Tuesday, the USD/CHF pair attracted fresh buying on Wednesday and now seems all set to build on a three-week-old upward trajectory. The uptick seemed unaffected by the prevalent cautious mood, amid concerns over the rising number of COVID-19 cases in Europe, which tends to underpin the safe-haven Swiss franc.

Bulls even shrugged off a subdued US dollar price action, led by retreating US Treasury bond yields. That said, acceptance that the Fed would be forced to hike interest rate sooner than later to contain stubbornly high inflation acted as a tailwind for the greenback. The bets were lifted further after Jerome Powell's renomination for the role of the Fed chair.

Meanwhile, the possibility for an eventual Fed rate hike move by July 2022 already seems to be priced in the markets. This might hold back the USD bulls from placing aggressive bets. However, the Fed funds futures indicate a high likelihood of another raise by November and support prospects for a further near-term appreciating move for the USD/CHF pair.

Market participants now look forward to the US economic docket, highlighting the releases of the Prelim (second estimate) US Q3 GDP, Durable Goods Orders and Core PCE Price Index later during the early North American session. This, along with the FOMC meeting minutes, will influence the USD price dynamics and provide a fresh impetus to the USD/CHF pair.

Technical levels to watch

Reuters is out with the latest headlines, citing that Germany’s Finance Minister Olaf Scholz has signed a coalition agreement to become the next chancellor.

The German parties are in talks to form a government plan, which will be announced at 3 pm local, I,e, 1400 GMT.

In response, Spanish Economy Minister Nadia Calvino said that Olaf Scholz becoming chancellor in Germany would be good news for Spain as he is a friend of the country.

Market reaction

At the press time, EUR/USD is trading almost unchanged on the day around 1.1250, awaiting the German IFO Survey for fresh impetus.

Japan’s government to issue additional new bonds worth 22.1 trillion yen for this fiscal year to fund the economic stimulus, the Nikkei Asian Review reports, citing a draft of the stimulus document.

Additional takeaways

This comes after Prime Minister said last Friday that his government will employ various means to fund stimulus including issuing new debt.

Market reaction

USD/JPY is testing daily lows near 114.85, down 0.23% on the day, as of writing. The yen could be recovering some ground on the above headlines, after it slipped to four-year lows against the greenback at 115.24.

• USD/JPY Price Analysis: Hovers around 115.00 ahead of key US events

China Foreign Ministry said on Wednesday, the country will release oil reserves according to its needs.

China is in close communication with oil-producing and consuming countries, the Ministry noted.

Last Thursday, China National Food and Strategic Reserves Administration announced, "we are carrying out the work of releasing crude oil reserves. And for any details related to the release, we will put out a statement on our website.”

Read: Japan to sell a few hundred thousand kilolitres of oil from its stockpile

Market reaction

WTI was last seen trading near fresh multi-day highs of $78.90, up 0.20% on the day.

Morgan Stanley Research have just completed their outlook for 2022. Here you find an overview of their expectations for the year ahead across inflation, policy, asset classes and more.

Twists and turns In 2022

“We think growth is strong in the US, the euro area and China next year, with all three of those regions exceeding consensus expectations.” 

“We forecast developed market inflation to peak in the coming months and then actually decline throughout next year as supply chains normalize and commodity price gains slow.”

“We think moderating inflation and some improvement in labor force participation means that the Fed thinks it can wait a little bit longer to raise interest rates and doesn't ultimately raise rates until the start of 2023.”

“We think the case for stocks is stronger in Europe and Japan than in emerging markets or the US, as these former markets enjoy more reasonable valuations, more limited central bank tightening and less risk from legislation or higher taxes. Those same issues drive a below consensus forecast for the S&P 500. We think that benchmark index will be at 4400 by the end of next year, lower than current levels.”

“We remain positive on the US dollar and think that US interest rates will rise into the start of the year. We forecast the US 10-year Treasury yield to be at 2.1% by the end of 2022 and think the Canadian dollar will appreciate against most currencies as the Bank of Canada moves to raise interest rates.”

Economists at Credit Suisse raise their USD/ZAR target to 16.50 (from a target range of 14.70-15.30). Short-term constructive views on the USD and lack of obvious rand-positive domestic catalysts suggest that the risk to USD/ZAR remains skewed on the upside, in their view.

New USD/ZAR target of 16.50

“We now raise our USDZAR target to 16.50 as we drop the range view (of 14.70-15.30) which we have held for many weeks.”

“We see a case for changes in rate differentials to continue to favour the USD relative to other major G10 currencies such as the EUR and the JPY. A downward trend in EUR/USD has historically been associated with a rally in the USD against most EM high-yielders, including ZAR.” 

“Local developments in South Africa are unlikely to prevent further USD/ZAR gains in case the USD pushes higher. FX markets have until now largely ignored the most notable local events recently.” 

“Last week’s break in USD/ZAR to levels above the previous year-to-date high (from January) leaves markets with no obvious resistance level (on the upside) other than the high in late October 2020 of close to 16.50. Meanwhile, USD/ZAR currently sits well-above important technical levels such as its 200-day moving average.”

The spectacular rise of USD/TRY continues unabated. In order to reverse the weak TRY trend, economists at Credit Suisse think the Central Bank of the Republic of Turkey (CBRT) will need to deliver a sizable rate hike. Until then, they see scope for further USD/TRY strength to the 14.00 area.

Truly large policy rate hike to lower USD/TRY to the 11.00 area

“In order to stop the negative feedback loop, the central bank will need to hike the policy rate aggressively. At a minimum, USD/TRY stabilization will probably require a policy rate hike which is large enough to bring the policy rate roughly in line with the latest print for year-on-year inflation – i.e. a hike of at least 500bps. But in order to reverse the trend in USD/TRY, the central bank will most likely need to hike the policy rate much more aggressively (e.g. 1,000bps or more).”

“In the absence of a policy rate hike, a rally in USD/TRY to levels such as 14.00 still look within reach. By contrast, a truly large policy rate hike (e.g. 1,000bps) could lead to a drop in USD/TRY to the 11.00 area.”

• Reviving demand for the safe-haven JPY prompted fresh selling around GBP/JPY on Wednesday.
• Brexit-related uncertainties acted as a headwind for the GBP and contributed to the selling bias.
• The fundamental backdrop favours bearish traders and supports prospects for additional losses.

The GBP/JPY cross remained on the defensive through the early European session and dropped to a fresh intraday low, closer to mid-153.00s in the last hour.

The cross struggled to capitalize on the overnight goodish rebound of around 100 pips from the 153.25-20 area and met with a fresh supply on Wednesday. Concerns over the rising number of COVID-19 cases in Europe and the reimposition of lockdown measures continued weighing on investors' sentiment. This was evident from a softer tone around the equity markets, which drove some haven flows towards the Japanese yen and turned out to be a key factor that prompted fresh selling around the GBP/JPY cross.

On the other hand, the impasse over the post-Brexit arrangement in Northern Ireland and fishing rights continued acting as a headwind for the British pound. A top German diplomat urged the UK to honour the Northern Ireland Protocol and warned that the dispute over the issue is not a game. Separately, French fishermen were reportedly planning to block British vessels' access to French ports in protest against Britain's refusal to grant them more licences to operate in UK territorial waters.

Meanwhile, the pair's inability to gain any meaningful traction suggests that an imminent interest rate hike by the Bank of England in December is fully priced in the markets. This, in turn, favours bearish traders and supports prospects for a further near-term depreciating move for the GBP/JPY cross. In the absence of any major market-moving economic releases, the broader market risk sentiment and Brexit-related headlines will be looked upon for some short-term trading opportunities.

Technical levels to watch

EUR/USD was somewhat supported at its depressed levels after some rather hawkish comments from the European Central Bank (ECB). But economists at OCBC Bank do not change their negative EUR view for now.

Bounces in EUR/USD should be limited

“Comments from ECB’s de Guindos and Schnabel labelled inflation as ‘structural’ and ‘risks to the upside’. Nevertheless, this should not be confused with the ECB moving anywhere near the Fed’s current level of hawkish bias.”

“Expect the macro picture to be weighed down going forward, especially in the face of renewed lockdowns.”

“Bounces in the pair should be limited in scope, and no shift in our negative bias for the pair so long as it remains below 1.1300.”

“1.1200 should still attract.”

The USD/JPY breached the 115.00 resistance on Tuesday as yield differential arguments offset risk-off tones. The risk is for the pair to extend higher after the breach of this key technical level, economists at OCBC Bank report.

Range break?

“It may be too early to call for further extensions higher beyond 115.00, especially with shaky risk sentiments still persisting. Prefer to wait and see for now.” 

“Should sentiment improve in the coming session, there might be scope to ride the USD/JPY higher towards 115.80/00.”

Further upside in USD/CNH is expected to meet a tough barrier at 6.4070 in the next weeks, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “We noted yesterday that ‘momentum indicators are mostly flat’ and we expected USD to ‘trade sideways within a range of 6.3770/6.3970’. Our view for sideway-trading was not wrong even though USD traded within a narrower range than expected (6.3835/6.3948). The quiet price actions offer no fresh clues and USD could continue to trade sideways. Expected range for today, 6.3800/6.3970.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (23 Nov, spot at 6.3865). As highlighted, while shorter-term momentum appears to be building, USD to move and stay above 6.3970 soon or the build-up in momentum would fizzle out quickly. On the downside, a breach of 6.3750 (no change in ‘strong support’ level) would indicate that the build-up in momentum has fizzled out.”

Economists at ING expect Sweden's Riksbank to hike rates from late 2023, though policymakers are likely to remain reluctant to endorse much tightening when the Bank meets this Thursday. Despite the recent rally, EUR/SEK is not overvalued in the short-term, and a cautious Riksbank announcement may generate more SEK weakness this week, in their view.

Cautious Riksbank may add pressure to krona

“Despite the recent rally in EUR/SEK, the pair is not showing signs of overvaluation, according to our short-term fair value model.”

“We expect the Riksbank to push back against market speculation that the tightening cycle will start as early as 2022. Despite our view that policymakers won't be able to delay tightening beyond 2023, the Riksbank is likely aware that adding a 2023 rate hike to their current forecasts will be a de-facto confirmation that hawkish bets are warranted and would likely cause a hawkish re-pricing in the SEK money market.”

“We think the Riksbank will disappoint hawkish expectations this week, and we expect some dovish re-pricing of rate expectations. In FX, this should translate into more SEK weakness in our view, although losses should be more marked against the USD than against the EUR. Still, EUR/SEK may approach the 10.20 level this week.” 

“Looking beyond the short-term, a quite strong negative seasonality for EUR/SEK in December suggests the pair could gradually converge to the 10.00 level again by year-end. That is, however, conditional on the ability of EU countries to face the new Covid wave without strict containment measures.”

• DXY hovers around the 96.50 region on Wednesday.
• PCE, weekly Claims, Consumer Sentiment all due later.
• The FOMC will release its Minutes of the November meeting.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, alternates gains with losses in the mid-96.00s midweek.

US Dollar Index looks to data, FOMC

The index trades within an inconclusive fashion so far on Wednesday, although it keeps navigating the upper end of the recent range near fresh cycle tops around 96.60 recorded on Tuesday.

The dollar’s small pullback from recent 2021 peaks comes in response to the so far knee-jerk in US yields across the curve, giving away part of the recent advance at the same time. It is worth recalling that yields in the US cash markets regained extra traction in response to the re-appointment of Chief Powell to the helm of the Federal Reserve.

Other than higher yields, the greenback keeps deriving strength from prospects of a sooner-than-anticipated lift-off by the Federal Reserve in the current context of persistently elevated inflation. In the same direction, Atlanta Fed’s R.Bostic advocated on Tuesday for a faster pace of QE tapering, which should pave the way for earlier interest rate hikes.

The cautious note among investors echoes on the dollar in light of key releases later in the NA session: Initial Claims, Core PCE, flash Q3 GDP, final Consumer Sentiment, Durable Goods Orders, New Home Sales and Personal Income/Spending, all ahead of the publication of the FOMC Minutes of the 2-3 November meeting.

What to look for around USD

The index clinched new cycle tops around 96.60 earlier in the week, drifting a tad lower afterwards. 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 bolsters speculations of a sooner-than-estimated move on interest rates by the Federal Reserve. Indeed, investors see the Fed hiking rates on June, September and December 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.

Key events in the US this week: Durable Goods Orders, Flash Q3 GDP, Initial Claims, New Home Sales, Trade Balance, Core PCE, Final Consumer Sentiment, Personal Income/Spending, FOMC Minutes (Wednesday).

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 0.01% at 96.49 and a break above 96.60 (2021 high Nov.23) 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 95.51 (low Nov.18) followed by 94.96 (weekly low Nov.15) followed by 94.56 (monthly high Oct.12).

AUD/USD is edging lower. According to Benjamin Wong, Strategist at DBS Bank, there are two key points to observe. If the pair takes out 0.7053, the ramifications are clear for a prolonged topping out process. Otherwise, a little sparkle within a lower range hem is expected. 

AUD’s downside momentum is losing steam

“There are mixed signals on the weekly chart. If you take the guidance of AUD seeing a bearish divergence, the aussie is donning a garden variety correction after posting a 45.3% rally from the covid 0.5510 lows. However, the MACD signal is (marginally) not in sync. However, the multi-month trend support that supported recent prior lows at 0.7106 and 0.7170 is being given a test or two.”

“The trend line warrants attention, and as a guide, a sustained decline under 0.7106 is something to watch out for the next price pivot at 0.7053.”

“The navigation map shows AUD/USD is edging towards near-term oversold pasture as downside momentum contracts. But there are bridges to cross if the aussie wishes to move higher. This starts with the 55-DMA positioned at 0.7357, followed by kijun resistance pegged at 0.7388.”

GBP/USD seems to have gone into a consolidation phase below 1.3400 following a three-day decline. Economists at OCBC Bank expect the cable to find little support on its way to the 1.3150 level.

1.3350 is the immediate target

“Retain heavy tone for now, with 1.3350 as the immediate target.”

 “Short-term implied valuations imply significant downside room.”

“From a technical basis, there may also not be firm supports until the 1.3150 zone.”

• NZD/USD dropped to the lowest level since October after RBNZ announced its policy decision.
• A 25 bps rate hike might have disappointed investors anticipating a faster rate tightening cycle.
• A subdued USD demand helped limit any further losses amid slightly overstretched conditions.

The NZD/USD pair trimmed a part of the post-RBNZ losses to the lowest level since October 6 and was last seen trading around the 0.6915-20 region, still down over 0.50% for the day.

The pair witnessed heavy selling for the fourth successive day and dropped to sub-0.6900 levels on Wednesday after the Reserve Bank of New Zealand (RBNZ) announced its policy decision. The RBNZ opted to increase its official cash rate (OCR) for the second time in two months, by 25 basis points to 0.75%. The outcome, however, disappointed some market participants anticipating a 50 bps hike and prompted aggressive selling around the NZD/USD pair.

Meanwhile, the RBNZ increased its projection for the eventual peak in the cash rate to 2.6% by the fourth quarter of 2023 as against its previous forecast for 2.1% by early 2024. This, along with a subdued US dollar demand, assisted the NZD/USD pair to find some support at lower levels. The USD extended its consolidative price move for the second straight day amid retreating US Treasury bond yields, though a combination of factors acted as a tailwind.

Investors have been pricing in the possibility for an eventual Fed rate hike move by July 2022 amid worries about stubbornly high inflationary pressure. Moreover, the Fed funds futures indicate a high likelihood of another raise by November. The market bets were boosted further after Jerome Powell renomination for the role of the Fed chair. Apart from this, a softer risk tone underpinned the safe-haven USD and weighed on the perceived riskier kiwi.

The fundamental backdrop seems tilted firmly in favour of bearish trades, though slightly oversold conditions on short-term charts warrant some caution before positioning for any further losses. Market participants now look forward to the US economic docket, highlighting the releases of the Prelim (second estimate) US Q3 GDP, Durable Goods Orders and Core PCE Price Index later during the early North American session.

This, along with the FOMC meeting minutes, will influence the USD price dynamics and provide a fresh impetus to the NZD/USD pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the major.

Technical levels to watch

EUR/USD has returned to the 1.1250 area. However, RSI divergence points to a corrective phase higher with initial resistance seen at the 1.1456/1522 region, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, reports.

New low not confirmed by the daily RSI

“EUR/USD has slid to the October and December 2019 highs at 1.1240/1.1180 which are expected to offer short-term support.”

The new low has not been confirmed by the daily RSI and we also note two 13 counts, both are warning signs.

“Any bounces will find tough resistance at the 1.1614 five-month downtrend and while capped here, the overall bias is negative.” 

“Initial resistance is the 1.1456/1522 October low, the 5th November low and the 20-day ma.”

“Below 1.1180 would target 1.1000, the 78.6% retracement of the move seen in 2020.”

• USD/TRY wobbles around record top after rising 12% the previous day.
• Turkish President Erdogan defends rate cuts, oppositions calls darkest ‘catastrophe’.
• Turkey’s Manufacturing Confidence, Capacity Utilization flashed mixed numbers in November.
• DXY eases from 16-month top tracking US Treasury yields ahead of key data/events.

USD/TRY bulls pause around all-time high, easing to $12.95 during early European morning on Wednesday. That said, mixed data from Turkey fails to renew the upside momentum amid cautious optimism in the market weighing on the US dollar bulls.

Turkey’s Manufacturing Confidence eased below 109.6 to 108.4 whereas Capacity Utilization ticked up from 78.0% prior readings to 78.1% during November

The Turkish lira (TRY) pair jumped to the record top the previous day, with the longest daily jump ever, following the dovish comments from Turkey’s President Recep Tayyip Erdoğan. On the same line were hopes the Fed rate hike and firmer US Treasury yields. However, cautious sentiment ahead of the key US Federal Reserve (Fed) monetary policy meeting minutes and Core PCE Inflation data, the Fed’s preferred inflation gauge, probe the pair buyers of late.

Having pushed for 300 basis points (bps) rate cuts in nearly a month, Turkish President Erdogan doesn’t step back from defending the actions, favoring the USD/TRY bulls. “Turkey's lira nosedived more than 15% on Tuesday after President Tayyip Erdogan defended recent rate cuts and vowed to win his "economic war of independence", despite widespread criticism and pleas to reverse course,”

It should be noted that a rebound in the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, joins firmer Treasury yields to favor the pair buyers. On the same line is US President Joe Biden’s nominations for the Fed Chair and Vice-Chair’s positions, not to forget the covid woes in Europe that underpin the US dollar’s safe-haven demand.

Even so, recently mixed US PMI numbers probe bulls before the key releases. Among them, October month’s Durable Goods Orders, the second estimate of the Q3 US Gross Domestic Product (GDP), the latest FOMC Meeting Minutes and October’s core PCE inflation are important to watch for inflation and growth prospects, as well as to gauge covid woes.

Technical analysis

A downside break of the immediate support line near $12.76 can extend intraday pullback towards the $12.00 threshold. However, USD/TRY bears remain unconvinced until the quote stays beyond October’s top near $9.85.

Gold bears are taking a breather on Wednesday, contemplating the next move ahead of a bunch of critical US data and Fed minutes. As FXStreet’s Dhwani Mehta notes, XAU/USD is charting a bear cross on the four-hour chart, therefore, the downside appears more compelling for gold price.

Fed minutes are likely to hint at the rate hike and taper timeline

“The FOMC minutes could shed fresh insights on the central bank’s rate hike outlook, in the wake of the rising inflationary pressures and robust economic recovery. 

“Ahead of the FOMC minutes, the US PCE Inflation, GDP and Durable Good data will influence the dollar and gold valuations as well.”

“Gold is carving out a bear flag formation on the four-hour chart. Therefore, a four-hourly candlestick closing below the rising trendline support at $1,790 is needed to confirm a downside breakout from the bearish continuation pattern. Bears will then keep their eyes on the pattern target measured at $1,707. However, the November 4 lows of $1,769 could challenge the bullish commitments before. The $1,750 psychological level could be next on their radars.”

“The rising trendline resistance at $1,798 will cap the recovery attempts. Acceptance above the latter will invalidate the bearish formation, opening doors for a retest of the horizontal 200-Simple Moving Average (SMA) at $1,806.”

• A subdued USD price action assisted AUD/USD to reverse an early dip to sub-0.7200 levels.
• Hawkish Fed expectations should limit any USD decline and cap the upside for the major.
• Investors now await the release of US macro data and FOMC minutes for a fresh impetus.

The AUD/USD pair reversed an Asian session dip to the lowest level since early October and was last seen hovering near the top end of its daily trading range, around the 0.7220 area.

Following the previous day's two-way/directionless moves, the AUD/USD pair witnessed some selling and dropped to sub-0.7200 levels during the early part of the trading action on Wednesday. The US dollar extended its consolidative price action for the second successive day amid retreating US Treasury bond yields. This, in turn, was seen as a key factor that assisted the pair to find some support at lower levels.

That said, any meaningful recovery still seems elusive amid growing market acceptance above an early policy tightening by the Fed. Investors seem convinced that the US central bank would be forced to adopt a more aggressive policy response to contain stubbornly high inflationary pressures. The market bets were boosted further after Jerome Powell renomination to the role of Federal Reserve chair on Monday.

Conversely, the Reserve Bank of Australia (RBA) has made every effort to sound dovish in an attempt to push back expectations for a rate hike as early as next year. The divergence in monetary policy stance between the RBA and the Fed should further collaborate to cap the upside for the AUD/USD pair. Hence, it will be prudent to wait for a strong follow-through buying before positioning for any further gains.

Market participants now look forward to the US economic docket, highlighting the release of the Prelim (second estimate) US Q3 GDP, Durable Goods Orders and Core PCE Price Index. This, along with the FOMC meeting minutes, will influence the USD and allow traders to grab some short-term opportunities around the AUD/USD pair.

Technical levels to watch

Here is what you need to know on Wednesday, November 24:

The greenback stays resilient against its major rivals mid-week as the benchmark 10-year US Treasury bond yield holds above 1.6%. Investors await IFO surveys from Germany ahead of the pre-Thanksgiving data releases from the US, which will include Durable Goods Orders, PCE inflation, Q3 GDP (second estimate) and weekly Initial Jobless Claims. Later in the American session, the FOMC will release the minutes of its November meeting.

The US Dollar Index is moving sideways around 96.50 on Wednesday. On Tuesday, the 10-year US T-bond yield came within a touching distance of the critical 1.7% level before retreating during the Asian trading hours. Market participants will keep a close eye on the PCE inflation report, which could have an impact on the June 2022 Fed rate hike bets and yields. The FOMC Minutes is unlikely to offer any surprises regarding the inflation or the policy outlook since the meeting had taken place before the October Consumer Price Index (CPI) report. Wall Street's main indexes closed modestly higher and US stock futures trade flat early Wednesday. 

EUR/USD edged higher toward 1.1300 on the back of upbeat PMI data from the euro area and Germany on Tuesday but returned to the 1.1250 area early Wednesday. The pair stays dangerously close to 2021-lows that it set earlier in the week.

GBP/USD seems to have gone into a consolidation phase below 1.3400 following a three-day decline. European Commission Vice President Maros Sefcovic says that post-Brexit talks could drag into next year.

NZD/USD came under strong bearish pressure during the Asian trading hours on Wednesday and fell to its weakest level in more than a month near 0.6900. The Reserve Bank of New Zealand (RBNZ) hiked its policy rate by 25 basis points to 0.75% as expected. Commenting on the policy outlook, RBNZ Governor Adrian Orr said that they will take cautious steps and added that they can take their time following the decision to hike the cash rate.

USD/TRY gained more than 12% on Tuesday and skyrocketed to a new all-time high near 13.5. The Central Bank of the Republic of Turkey (CBRT) stays on the sidelines during the currency's meltdown.

USD/JPY reached fresh multi-year tops above 115.00 on rising US T-bond yields and fluctuates in a tight range in the early European session.

Gold suffered heavy losses and broke below the key $1,800 area on Tuesday. XAU/USD is currently posting small recovery gains above $1,790 but the near-term technical outlook seems to have turned bearish.

Cryptocurrencies: Bitcoin continues to fluctuate below $60,000 as investors await the next catalyst. India's cabinet will reportedly discuss cryptocurrency regulation later in the day. Ethereum is moving up and down in a narrow band above $4,000.

• Asian-Pacific equities cheer cautious optimism, market’s disappointment from RBNZ.
• Softer oil prices, upbeat Japan PMI add to the bullish bias.
• European markets brace for a good start but covid woes challenge the bulls.
• Fed Minutes, US Core PCE Inflation will be crucial to watch.

Asian stocks stay mildly bid as European traders prepare for Wednesday’s bell. Softer US Treasury yields trigger cautious optimism in the market ahead of a busy economic calendar day.

Firmer prints of Japan’s Jibun Bank Manufacturing PMI join softer oil prices, backed by US-led push for releasing the Strategic Petroleum Reserve (SPR), to print 0.12% intraday gains of the MSCI’s index of Asia-Pacific shares outside Japan. However, fears of geopolitical tension with China and doubts over domestic stimulus weigh on Nikkei 225, down 1.60% intraday at the latest.

On a broader front, the US 10-year Treasury yields drop 2.2 basis points (bps) to 1.638% whereas the Euro Stoxx Futures rise 0.10% on a day by the press time. Further, the US Dollar Index (DXY) dribbles around a 16-month high and the gold prices consolidate recent losses amid the market’s cautious mood ahead of the key US data/events.

New Zealand’s NZX 50 cheers the market’s disappointment from the Reserve Bank of New Zealand’s (RBNZ) 0.25% rate hike while Australia’s ASX 200 tracks mixed performance of China and Hong Kong equities. Further, shares in South Korea remain pressured whereas Indonesia’s IDX Composite prints mild gains even as Bank Indonesia (BI) cuts 2021 growth forecasts to 3.2-4% from 3.5-4.3% previously. Furthermore, India’s BSE Sensex tracks West stock futures and softer bond coupons to print mild gains.

Looking forward, global markets are likely to witness a pre-data trading lull ahead of the US session. Should the US inflation and Fed-linked catalysts keep rate hike odds on the table, equities are likely to witness fresh downside.

Read: The market is a harsh mistress

• USD/JPY breaks out of the rising wedge formation, more upside likely?
• The pair retreats in sync with the Treasury yields amid risk-aversion.
• The pullback points to a fresh upswing in the making, as RSI stays bullish.

USD/JPY is trading under pressure around 115.00, reversing from four-year highs of 115.24 reached in early Asia.

The pullback in the pair can be linked to retreating Treasury yields across the curve amid pre-FOMC minutes anxiety. The downtick in the yields is capping the dollar’s advance, as the USD/JPY bulls catch a breather.

All eyes remain on the US data flow and Fed minutes for the next direction in the spot.

USD/JPY’s daily chart shows that the price has yielded an upside breakout from the month-long rising wedge formation, having closed Tuesday above the mildly bullish trendline resistance at 114.99.

With the 14-day Relative Strength Index (RSI), however, turning south above 50.00, the bulls seem to have lost the upside traction.

The further downside could open if Tuesday’s low of 114.48 gets cleared on a sustained basis.

USD/JPY: Daily chart

Meanwhile, buying resurgence could see a retest of the multi-year peaks at 115.24, above which the 115.50 psychological magnate will be eyed.

All in all, the path of least resistance remains on the upside and every pullback could be seen as a good dip-buying opportunity.

USD/JPY: Additional levels to consider

In opinion of FX Strategists at UOB Group, USD/JPY needs to clear 115.25 to attempt a move to 115.55 in the next weeks.

Key Quotes

24-hour view: “We highlighted yesterday that ‘there is room for USD to test 115.05 first before a pullback can be expected’. We added, ‘the major resistance at 115.25 is not expected to come under threat’. Our view was not wrong as USD rose to 115.15 before pulling back sharply to a low of 114.48. That said, we did not anticipate the subsequent bounce to 115.18. While the rapid advance appears to be running ahead of itself, USD could edge above the major resistance at 115.25. For today, a sustained rise above this level is unlikely (next resistance is at 115.55). Support is at 114.90 followed by 114.70.”

Next 1-3 weeks: “Yesterday (23 Nov, spot at 114.75), we noted that upward momentum is beginning to improve and we were of the view that USD ‘could advance to 115.25’. We highlighted that ‘the prospect for a sustained rise above 115.25 is not high’. USD subsequently roe to 115.18 before closing on a firm note at 115.12. While upward momentum has improved, conditions are overbought and USD has to close above 115.25 before an advance to 115.55 can be expected. On the downside, a break of 114.30 (‘strong support’ level was at 114.05 yesterday) would indicate that the current upward pressure has eased.”

Open interest in natural gas futures markets dropped for the third straight session on Tuesday, this time by around 6.5K contracts as per advanced figures from CME Group. In the same direction, volume shrank by around 41.7K contracts after two daily builds in a row.

Natural gas points to extra range bound

Tuesday’s uptick in prices of natural gas was in tandem with declining open interest and volume, opening the door to a corrective move in the very near term. That said, further consolidation appears probable while the $4.70 mark per MMBtu emerging as quite a firm support for the time being.

AUD/USD remains weak and could head towards the 0.7170 area in the near term. suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the underlying tone still appears to be a tad soft and there is chance for AUD to test 0.7200’. We added, ‘a clear break of this level is unlikely’. However, AUD did not test 0.7200 as it edged lower to 0.7208. Momentum indicators are turning neutral and AUD is likely to consolidate for today, expected to be within a 0.7205/0.7255 range.”

Next 1-3 weeks: “There is no change in our view from Monday (22 Nov, spot at 0.7235). As highlighted, the weakness in AUD over the past couple of weeks appears to be heading towards the Sep’s low near 0.7170. However, downward momentum is not very strong for now and it may take a while before 0.7170 comes into the picture. On the upside, a breach of 0.7285 (‘strong resistance’ level was at 0.7315 yesterday) would indicate that the current weakness has stabilized.”

Considering preliminary readings from CME Group for crude oil futures markets, traders added around 14.3K contracts to their open interest positions, reaching the third daily increase in a row. Volume followed suit and rose by around 285.5K contracts.

WTI now targets $80.00

Prices of the barrel of WTI edged higher on Tuesday amidst rising open interest and volume. Against that, the continuation of the uptrend appears likely in the very near term and with the immediate target at the key $80.00 mark per barrel.

Cable is poised to extend the downside in the short-term horizon, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “We expected GBP to weaken yesterday but we were of the view that ‘the major support at 1.3354 is unlikely to come into the picture’. The subsequent weakness exceeded our expectations as GBP dropped to 1.3344 before rebounding. Downward momentum is beginning to wane and GBP is unlikely to weaken further. For today, GBP is likely to trade sideways between 1.3350 and 1.3410.”

Next 1-3 weeks: “On Monday (22 Nov, spot at 1.3435), we highlighted that ‘while GBP could dip below 1.3354, downward momentum is not strong and the chance for a sustained decline below this level is not high’. We added, ‘the next support is at 1.3300’. GBP dropped to 1.3344 yesterday (23 Nov) before rebounding. Despite the breach of 1.3354, downward momentum has barely improved. That said, as long as 1.3445 (‘strong resistance’ level was at 1.3480 yesterday) is not breached, there is chance, albeit a slim one, for GBP to edge lower towards 1.3300.”

Reuters is reporting the latest headlines from the Japanese government this Wednesday, citing that they will sell a few hundred thousand kilolitres of oil from its stockpile.

The government said that there is no decision on the timing of the sale of oil reserves.

Earlier in the Asian session, Japanese PM Fumio Kishida said that his country plans to release oil from its reserves in a way that won’t conflict with its oil stockpiling law.

Market reaction

USD/JPY is dropping in tandem with the US Treasury yields, which is in turn weighing on the US dollar.

The spot was last seen trading at 114.86, down 0.20% on the day, having hit four-year highs at 115.24 in early Asia.

CME Group’s flash data for gold futures markets noted open interest shrank for the fourth consecutive session on Tuesday, this time by nearly 16K contracts. In the same line, volume reversed three daily builds in a row and went down by almost 35K contracts.

Gold meets support near $1,780

The intense selloff in prices of gold appears to have met some decent contention in the $1,780 area on Tuesday. The daily retracement was on the back of shrinking open interest and volume, suggesting the likeliness of a rebound in the short-term horizon. While $1,780 offers initial support, the upside looks to retake the key barrier at the $1,800 mark per ounce troy.

• Silver holds onto corrective pullback around monthly low.
• Descending Momentum line, sustained break of two-month-old support favor sellers.
• 100, 200-DMA add to the upside filters, nears eye 23.6% Fibonacci retracement level.

Silver (XAG/USD) pares intraday losses around $23.60 during early European morning on Wednesday.

The bright metal bounces off 50-DMA but the rebound fails to battle the bears amid a downward sloping Momentum line and a sustained break of an ascending support line from late September, now resistance around $24.00.

In addition to the stated support-turned-resistance, the 100-DMA also increases the importance of the $24.00 threshold for silver buyers.

In a case where the bullion rises past $24.00, 50% Fibonacci retracement (Fibo.) of May-September declines and 200-DMA, respectively around $25.10 and $25.30, will gain the market’s attention.

Meanwhile, a daily closing below the 50-DMA level of $23.53 becomes necessary for the commodity bears to challenge the 23.6% Fibo. support near $23.15 and multiple rest-points close to the $22.90-80.

During the quote’s weakness past $22.80, the $22.15 and the $22.00 levels may entertain the XAG/USD bears before directing them to the yearly bottom of $21.42.

Silver: Daily chart

Trend: Further weakness expected

According to FX Strategists at UOB Group, EUR/USD risks extra pullbacks in the next weeks.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the risk for EUR is still on the downside even though the major support at 1.1200 is still unlikely to come into the picture’. We added, ‘there is a minor support at 1.1220.’ EUR subsequently dipped to 1.1224 before recovering to trade sideways. Downward pressure is beginning to ease and EUR has likely moved into a consolidation phase. In other words, EUR is likely to trade sideways for today, expected to be within a 1.1225/1.1275 range.”

Next 1-3 weeks: “Our view from two days ago (22 Nov, spot at 1.1285) still stands. As highlighted, further EUR weakness is likely but oversold conditions suggest that 1.1200 may not come into the picture so soon. All in, EUR is expected to stay under pressure as long as it does not move above 1.1325 (no change in ‘strong resistance’ level). Looking ahead, a break of 1.1200 would shift the focus to 1.1160.”

• USD/INR retreats from early-November high during four-day uptrend.
• India’s active covid cases drop to the lowest in 537 days, talks over RBI rate hike escalate.
• DXY tracks softer Treasury yields as markets brace for key US data/events.

USD/INR steps back to 74.45, following a run-up to the fresh fortnight high marked during early Wednesday. The Indian rupee (INR) buyers cheer the Asian nation’s strong vaccinations and hopes of a rate hike by the Reserve Bank of India (RBI), not to forget the broad pullback in US Treasury yields, while portraying the latest pullback of the pair.

With over 100 billion covid jabbings, India’s latest active infections drop to the lowest in 537 days, per official data. Even so, the virus-led death toll rises past 236 reported yesterday to 437 at the latest.

Given the vaccination-led economic recovery and recently positive fundamentals, INR traders expect the RBI to announce a rate hike during the next week. “With the GDP data coming out next week, growth-inflation dynamics will be key in determining RBI's decision on the timing of the first reverse repo rate hike," said Upasna Bhardwaj, an economist at Kotak Mahindra Bank per Reuters.

Elsewhere, the US 10-year Treasury yields drop 2.2 basis points (bps) to 1.638% whereas the S&P 500 Futures drop 0.25% by the press time. Further, the US Dollar Index (DXY) dribbles around a 16-month high and the gold prices consolidate recent losses amid the market’s cautious mood ahead of the key US data/events.

It’s worth noting that the DXY refreshed the 16-month high the previous day amid higher odds of the Fed rate hike, backed by US President Joe Biden’s Fed nominations and a recent jump in the US inflation expectations.

Among the key US catalysts, October month’s Durable Goods Orders, the second estimate of the Q3 US Gross Domestic Product (GDP), the latest FOMC Meeting Minutes and October’s core PCE inflation are crucial for the market players to watch. USD/INR bears will be more interested in witnessing the coronavirus-led challenges to the scheduled data/events.

Technical analysis

A daily closing beyond a downward sloping trend line from October 12, around 74.62, becomes necessary for the USD/INR bulls to keep reins. Alternatively, pullback moves may aim for the 200-DMA re-test, near 73.90 by the press time.

• NZD/USD pares intraday losses around seven-week low after RBNZ’s rate hike.
• 78.6% Fibonacci retracement, oversold RSI conditions challenge bears.
• Two-week-old resistance line, 50-DMA restrict short-term rebound.

NZD/USD stays on the back foot despite a recent bounce off the multi-day bottom to 0.6906 ahead of Wednesday’s European session. The kiwi slumped to the lowest since early October after the Reserve Bank of New Zealand (RBNZ) didn’t surprise markets by 25 basis points (bps) of a rate hike.

Read: NZD/USD slumps towards 0.6900 on RBNZ’s 0.25% rate hike, Governor Orr’s speech eyed

NZD/USD bears drill 13-week-old support line, at 0.6930 by the press time, amid heavy bearish bias portrayed by the MACD. However, RSI nears the oversold territory and hints at a rebound should the quote manage to cross the 61.8% Fibonacci retracement (Fibo.) of August-October upside, around 0.6960.

In a case where the quote rises past the immediate Fibo. hurdle, a descending resistance line from November 09 and 50-DMA, respectively around 0.7020 and 0.7050, will challenge the buyers.

Alternatively, a daily closing below the stated support line figure of 0.6930 will have another chance to recall the NZD/USD buyers, around 78.6% Fibonacci retracement level of 0.6890.

To sum up, the pair bears seem to have tired of late but the bulls have a way to go before retaking the controls.

NZD/USD: Daily chart

Trend: Further weakness expected

• GBP/USD prints four-day downtrend, fades bounce off yearly low.
• EU's Šefčovič signals Brexit deadlock will prevail in 2021.
• UK PMIs keep BOE rate hike odds on the table but Fed hawks have an upper hand.
• DXY tracks US Treasury yields as market sentiment dwindles ahead of key US calendar events.

GBP/USD remains pressured around 1.3370, fading the early Asian rebound from yearly bottom heading into Wednesday’s London open.

The cable pair seems to struggle over Brexit headlines and mixed concerns amid a light calendar in the UK. However, the bears remain unconvinced before a slew of US data/events scheduled for release during the latter part of the day.

European Commission's Brexit negotiator Maroš Šefčovič marks his disappointment from the UK’s push for the detailed talks to signal no solution before 2022. “Šefčovič stressed that he was hoping the UK and the EU could still make ‘decisive progress this week’ on the issue of medicines trade between Great Britain and Northern Ireland, which would ‘generate positive momentum’ for the rest of the talks,” mentioned Politico.

Elsewhere, a rebound in the US inflation expectations joined US President Joe Biden’s Fed nominations to propel the Fed rate hike woes and weighed on the quote previously. That said, the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, snapped a two-day downtrend to rebound from a fortnight low by the end of Tuesday’s North American session.

In doing so, the GBP/USD pair traders ignore firmer prints of the UK PMI data that fuels expectations of the Bank of England (BOE) rate hike. As per the preliminary PMI data for November, the UK Manufacturing PMI and Services PMI both rose past expectations and prior releases. On the contrary, US Markit PMIs flashed mixed numbers for November as the Manufacturing activity gauge rose past expectations and prior but not the Services index, which in turn weighed on the Composite figures. That said, US Richmond Fed Manufacturing Index crossed the expected figure of 5 but stayed below 12 previous readouts to 11 for November.

Amid these plays, Treasury yields dwindle and the US Dollar Index (DXY) struggle around 16-month while the stock futures print mild losses by the press time.

Given the bears holding the reins despite DXY pullback, the GBP/USD pair needs a strong blow, either from the economic calendar or Brexit headlines to recall the buyers.

Read: FOMC November Minutes Preview: Give us the economic proof

Technical analysis

A descending support line from late September triggered the cable pair’s recovery moves on Tuesday. Given the nearly oversold RSI conditions favoring the latest rebound, the pair’s advances towards a one-month-old resistance line near 1.3460 can’t be ruled out. However, the GBP/USD pair’s bearish trend can’t be ruled out until the quote stays below the 200-DMA level surrounding 1.3830. On the other hand, the pair’s sustained weakness needs a daily closing below the stated support line, around 1.3330 by the press time, to extend the south-run.

• EUR/USD stalls correction, back in the red towards 1.1200.
• The US dollar index holds firmer while Treasury yields tumble.
• Key event risks loom, with the Fed minutes eagerly awaited.

EUR/USD is under renewed selling pressure, eyeing 1.1200 once again ahead of a busy session. The US dollar remains firmer amid hopes of an earlier Fed rate hike, which could get confirmed by the FOMC minutes.

The pair, however, could limit the downside amid weaker Treasury yields. The risk-averse market conditions boost the safe-haven flows into the US Treasuries, knocking down the yields. The benchmark 10-year yields drop 1.66% on the day to trade at 1.637%, as of writing.

The sentiment remains damp as markets assess the economic implications of a sooner-than-expected Fed’s monetary policy normalization. Investors also remain wary over the renewed curbs to contain rising COVID-19 cases in Europe, as the Fed-ECB monetary policy divergence continues to play out.

Ahead of the Fed minutes, the German IFO Survey and the US data flow will offer fresh trading opportunities for the EUR/USD traders.

Looking at the four-hour chart, the pair is resuming the downtrend on Wednesday, looking to test the falling trendline support at 1.1211 after facing rejection at 1.1275.

If the critical support line gives way, then a steep sell-off towards the 1.1150 psychological level cannot be ruled out.

The Relative Strength Index (RSI) is trading flat just above the oversold territory, backing the case for a potential move lower.

EUR/USD: Four-hour chart

On the flip side, any meaningful recovery will gain traction on recapturing the bearish 21-Simple Moving Average (SMA) at 1.1269, above which Tuesday’s high will get retested.

Further up, the bearish 50-SMA at 1.1329 will be on the buyers’ radars if the 1.1300 level is scaled on a sustained basis.

EUR/USD: Additional levels to consider

• US 10-year Treasury yields snap two-day uptrend, stock futures fade bounce off weekly low.
• Mixed US PMIs battle rebound in US inflation expectations to probe Fed hawks.
• US Core PCE Inflation, FOMC Minutes gain major attention.

Market sentiment sours during the early trading hours of the key calendar day, i.e. Wednesday. Other than the pre-data caution, mixed figures from the US also challenge the market’s mood of late.

While portraying the sentiment, the US 10-year Treasury yields drop 2.2 basis points (bps) to 1.638% whereas the S&P 500 Futures drop 0.25% by the press time. Further, the US Dollar Index (DXY) dribbles around a 16-month high and the gold prices consolidate recent losses as well.

Having witnessed hawkish response to US President Joe Biden’s Fed nominations, preliminary activity numbers from the US came in mixed for November. Markit Manufacturing PMI rose past expectations and prior but not the Services index, which in turn weighed on the Composite gauge. That said, US Richmond Fed Manufacturing Index crossed the expected figure of 5 but stayed below 12 previous readouts to 11 for November.

It’s worth noting, however, that the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, snapped a two-day downtrend to rebound from a fortnight low afterward.

In addition to the US economics, fears that today’s heavy economic calendar may not favor the Fed hawks amid the covid resurgence in the Eurozone also challenge the risk appetite. Additionally, fears over the US-China tussles and challenges to the global central bankers to call back the easy money policies amid rising inflation and covid fears also roils the mood in the market.

Looking forward, October month’s Durable Goods Orders, the second estimate of the Q3 US Gross Domestic Product (GDP), the latest FOMC Meeting Minutes and October’s core PCE inflation are crucial for the market players to watch. Market bulls will be less interested in witnessing the coronavirus-led challenges to the scheduled data/events.

• USD/CHF grinds higher around two-month top, pokes resistance line from April.
• Bullish MACD signals, higher-high formation favor buyers.
• Two-week-old support line restricts immediate downside, multiple hurdles from March challenge further upside.

USD/CHF seesaws around 0.9340, after an uptick to refresh multi-day top during early Wednesday. In doing so, the Swiss currency (CHF) pair buyers flirt with a descending trend line from April amid bullish MACD signals.

Given the recent higher highs favoring the upside momentum, USD/CHF is up for further advances targeting a nearly nine-month-old horizontal area surrounding 0.9368-75. However, a daily closing past 0.9340 is necessary for the same.

Although the pair buyers are likely to take a rest around 0.9375, failing to do so will direct the quote towards the 0.9400 threshold and the yearly peak of 0.9472.

Alternatively, an ascending support line from November 10, near the 0.9300 round figure, restricts short-term pullback of the USD/CHF.

Even if the pair drops below 0.9300, July’s high close to 0.9275 and last week’s swing low around 0.9250 will challenge the bears.

USD/CHF: Daily chart

Trend: Further upside expected

• Gold price rebounds but not out of the woods yet, Fed minutes eyed.
• Gold bears testing bullish commitments at a critical demand area.
• Gold could stage a deep correction if $1,850 becomes resistance. 

Gold wilted and how? Tuesday’s tumble marked gold’s fourth straight losing streak, as bets of earlier Fed rate hikes ramped up after Fed Chair Jerome Powell’s renomination and amid pre-FOMC minutes anxiety. Heading into the US data dump and the Fed minutes later this Wednesday, gold price is licking its wounds at the critical demand area below the $1800 mark.

Read: Gold could extend slide toward $1,780 on Fed's rate outlook

Gold Price: Key levels to watch

The Technical Confluences Detector shows that the gold price sees an immediate downside cushion at $1,788, where the Fibonacci 38.2% one-month coincides with the Fibonacci 23.6% one-day and SMA50 one-day.

The next stop for gold bears is seen at the previous day’s low of $1,782. Should the selling pressure intensify the bright metal would fall further towards $1,777, the pivot point one-day S1.

Alternatively, gold bulls need acceptance above the powerful $1,794 hurdle, which is the confluence of the SMA100 one-day, Fibonacci 38.2% one-day and SMA200 one-day.

Buyers will then aim for the Fibonacci 23.6% one-month at $1,798, above which the pivot point one-week S3 at $1,800 could be in play.

On buying resurgence, the intersection of the SMA10 and SMA200 on four-hour at $1,806 will challenge the upside.

A firm break above the latter will fuel a fresh rally towards the previous month’s high of $1,814.

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.

• WTI fades upside momentum after two-day rebound from monthly low.
• Japan tracks US, China to release oil reserves but markets seem unconvinced.
• API inventories rose, EIA stockpile data, US calendar eyed for fresh impulse.

WTI crude oil prices retreat to $78.40 after refreshing the weekly top during early Wednesday.

Announcements by the US, China and Japanese government leaders to use their Strategic Petroleum Reserve (SPR) join downbeat inventory data from industry reports and softer US dollar to challenge the oil traders of late.

US President Joe Biden touted the largest-ever release from the US SPR on Tuesday. Japan tracks the moves and announced plans to auction 4.2 million barrels of oil while China has previously marked the move to tame the inflation pressure, due to the energy prices.

“The United States said on Tuesday it would release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain, to try to cool prices after OPEC+ producers repeatedly ignored calls for more crude,” said Reuters.

The weekly oil stockpile data from the American Petroleum Institute (API), 2.037M versus 0.655M prior, also exert downside pressure on the WTI crude oil prices.

It's worth noting that softer yields and the sluggish US Dollar Index (DXY) challenge the bearish bias over the oil prices.

Moving on, multiple US data and the weekly official oil inventories from the US Energy Information Administration (EIA), prior 26B, will be important to watch for immediate direction. Among the other catalysts, October Durable Goods Orders, the second estimate of the Q3 Gross Domestic Product, the latest FOMC Meeting Minutes and October core PCE inflation are the key to follow.

Technical analysis

In addition to a clear rebound from the 100-day EMA level of $74.85, sustained trading beyond 50-day EMA, around $78 by the press time, keeps WTI oil buyers hopeful to aim for the $80.00 psychological magnet.

• DXY struggles around 16-month top after posting bearish candlestick the previous day.
• Overbought RSI also hints at a pullback inside 13-day-old rising channel formation.
• Bears remain indecisive beyond 50-DMA, June 2020 top lures buyers.

US Dollar Index (DXY) seesaws around the highest levels since July 2020, poked the previous day, during early Wednesday.

In doing so, the greenback gauge justifies Tuesday’s Doji candlestick formation while teasing the short-term sellers amid the overbought RSI line. Even so, an upward sloping trend channel from November 05 challenges the bears.

That said, the quote’s pullback moves may aim to defy the bullish chart pattern, the stated channel, while targeting the break of the 96.10 support.

Following that, the 96.00 threshold and early November’s high near 94.60 may entertain DXY sellers before the 50-DMA level of 94.25, a break of which will make the quote vulnerable to reverse the run-up from late October.

On the flip side, sustained trading beyond 96.60 will defy the bearish candlestick formation and propel the greenback gauge towards the resistance line of the channel, around 97.30 by the press time.

While the 97.00 threshold may offer an intermediate halt during the expected rise, US Dollar Index may challenge the June 2020 peak of 97.80 should it manage to rally past 97.30.

DXY: Daily chart

Trend: Pullback expected

• USD/CAD is rising back towards 1.2700 after Tuesday’s steep correction.
• Risk-off mood-led USD strength buoys the spot, as WTI bulls take a breather.
• Focus remains on the US data dump and FOMC minutes for fresh direction.

Having found strong bids near 1.2660, USD/CAD is heading back towards 1.2700, tracking the gains in the US dollar across the board.

The greenback holds onto the recent advances, as the risk sentiment remains sour amid increased anxiety over the Fed’s rate hike outlook, which will be hinted at Wednesday’s FOMC minutes.

Also, a raft of crucial US data, including the Durable Goods, PCE inflation and GDP, will provide fresh signs on the economic recovery, which could ad to the Fed rate hike speculations.

Meanwhile, a pause in the WTI price rally also offers comfort to USD/CAD bulls. The US oil consolidates its two-day recovery rally to $78.79 levels, as traders were disappointed by a smaller-than-expected oil release from the US Strategic Petroleum Reserve (SPR).

Looking forward, the sentiment around oil prices and the US dollar will drive the USD/CAD price action ahead of the key US economic releases.

USD/CAD: Technical levels to watch out

In a part of joint efforts with the US and other countries, the Japanese Prime Minister Fumio Kishida said on Wednesday, his country plans to release oil from its reserves to stem the surge in prices.

Key quotes

“The country will release from its reserves in a way that won’t conflict with its oil stockpiling law.”

“Trade Minister Koichi Hagiuda will announce specifics later. “

“Stable oil prices are necessary for the economy to recover from the pandemic.”

“The government will work to advocate to oil-producing countries, and will consider industry-specific measures.” 

Earlier on, the Nikkei Asian Review reported the country will release about 4.2 million barrels.

This comes after the US announced a plan to release 50 million barrels of oil from the Strategic Petroleum Reserve (SPR).

Market reaction

WTI is trading modestly flat around $78.50, as of writing, consolidating its recovery rally to multi-day highs of $78.79.

Oil prices rallied hard on a smaller-than-expected release from the US SPR.

• AUD/USD fades bounce off two-month low, grinds lower.
• Bearish MACD signals, sustained break of key support line favor sellers.
• RSI conditions, key technical support challenge further downside.
• Bulls remain away below monthly resistance line, 61.8% Fibonacci retracement adds to the upside filters.

AUD/USD stays depressed around the September lows, sidelined near 0.7220 during early Wednesday.

In doing so, the Aussie pair aims for the 78.6% Fibonacci retracement (Fibo.) of November 2020 to February 2021 upside, around 0.7200 amid bearish MACD signals and a clear downside break of the three-month-old ascending trend line.

It should be noted, however, that nearly oversold RSI conditions may challenge the AUD/USD sellers past 0.7200, a break of which highlights October’s low and a yearly support line, respectively near 0.7170 and 0.7140, for the pair nears.

In a case where the quote remains bearish past 0.7140, the 2021 bottom of 0.7105 will be in focus.

Alternatively, a corrective pullback should not only offer a daily closing beyond the previous support line from August, close to 0.7260, but also successfully cross a downward sloping resistance line from November 02, around 0.7295, to convince the AUD/USD bull’s return.

Following that, the 61.8% Fibo. level near 0.7360 should gain the market’s attention.

AUD/USD: Daily chart

Trend: Further weakness expected

• NZD/JPY bears are looking for a move into the 61.8% Fibonacci. 
• The RBNZ has disappointed the bulls and leaves the kiwi vulnerable. 

The Kiwi is under pressure and the yen is making headway across the board, moving into second place on the Currency Strength Index CSI board. The following illustrates the downside protection in NZD/JPY for the day ahead from a daily chart perspective. 

NZD/JPY daily chart

Much from here will depend on the performance of the bird vs the US dollar, however. meanwhile, despite the lack of firm hawkishness at the RBNZ, the kiwi is holding up relatively well. 

The price fell instead of reaching a proposed target near the 50% retracement of 0.6980, instead, the price moved in on the prior lows as follows:

A break there, 0.6920, opens risk on the cross to the downside, as illustrated above. 79.65 is holding up the bear currently.

 New Zealand’s” border opening does not change policy outlook,” the Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr said while addressing the post-monetary policy decision press conference on Wednesday.

Additional quotes

“Put the best foot forward with 25 bps, gives more optionality.”

“Can take our time at this point.”

“Not worrying about rising wages, have been well behaved.”

“Taking cautious steps with cash rate.”

“Uncertain how people with debt will respond to higher rates.”

“See steady steps of 25 bps as balanced approach at this time.”

“Plan to gradually manage down LSAP holdings.”

NZD reaction

NZD/USD keeps its renewed upside intact on the latest comments from Governor Orr, currently trading at 0.6927, down 0.28% on the day.

The pair tested six-week lows of 0.6916 on RBNZ’s dovish rate hike decision.  

• USD/JPY seesaws around highest levels since March 2017 after two-day uptrend.
• Treasury yields ease from monthly top, Asia-Pacific stocks trade mixed.
• Japan PMI tracks US counterparts with softer-than-expected figures for November, Tokyo announces measures to help chipmakers.
• US data/events will be the key, stimulus headlines and covid news important too.

USD/JPY bulls take a breather around 115.10, following an uptick to refresh the multi-month top during early Wednesday. In doing so, the yen pair struggles to extend the two-day advances amid a pullback in the US Treasury yields.

US 10-year Treasury yields step back from the highest levels since October 22, down 0.8 basis points (bps) around 1.65% at the latest, amid a lack of major data/events. The yields jumped to the monthly peak the previous day before the mixed US data paused bond bears.

US Markit PMIs flashed mixed numbers for November as the Manufacturing activity gauge rose past expectations and prior but not the Services index, which in turn weighed on the Composite figures. Additionally, US Richmond Fed Manufacturing Index crossed the expected figure of 5 but stayed below 12 previous readouts to 11 for November.

At home, Japan’s Preliminary Jibun Bank Manufacturing PMI for November crossed 53.2 previous reading but stayed below 54.5 market forecasts to print 54.2 figures.

It’s worth noting that the geopolitical fears and latest covid woes seem to probe the USD/JPY buyers of late. Japan’s geopolitical tensions with China escalate on matters relating to Vietnam as the Asian major opposes Beijing’s power-play in the troubled waters. “The defense ministers of Japan and Vietnam agreed Tuesday to "strongly oppose" unilateral attempts to change the status quo in regional waters, in a veiled reference to China's maritime expansion,” said Kyodo News.

Netherlands witnesses a COVID-19 crisis and has recently announced local lockdowns but the conditions aren’t improving, which in turn favor the JPY’s safe-haven demand, especially amid a pullback in the yields. “The Netherlands started transporting COVID-19 patients across the border to Germany on Tuesday to ease pressure on Dutch hospitals, which are scaling back regular care to deal with a surge in coronavirus cases,” said Reuters.

Also positive for the JPY could be the improvement in coronavirus conditions at home and the government’s readiness to help the nation overcome the pandemic-led economic hardships. Recently, Nikkei reported that  Japan will allocate about 600 billion yen ($5.2 billion) from its fiscal 2021 supplementary budget to support advanced semiconductor manufacturers including the world's No. 1 contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC), per Reuters.

Against this backdrop, US stock futures struggle to keep the bounce off a two-week low while shares in Asia-Pacific trade mixed with Japan’s Nikkei 225 down 0.80% by the press time.

Given the consolidation in the yields, coupled with the cautious mood ahead of the key US data/events, USD/JPY may witness further pullback. Among the US catalysts, the latest FOMC Meeting Minutes and October core PCE inflation are crucial considering the increased expectations of the Fed rate hike.

Technical analysis

With the nearly overbought RSI conditions, USD/JPY buyers may struggle on their way to the March 2017 peak of 115.50. However, an ascending trend line from October 20 near 114.85 restricts the immediate downside.

When asked about the yen and domestic stock market moves, the Japanese Economy Minister Daishiro Yamagiwa said that they are watching the yen price action carefully.

Additional comments

“Currencies move on various factors.”

“Watching all aspects carefully.”

These comments come as the yen sits near the lowest levels since March 2017 against the US dollar.

At the time of writing, USD/JPY is trading at 115.12, modestly flat on the day.

New Zealand is set to roll back its border restrictions from January, with tourists able to return from the end of April, the country’s COVID-19 Response Minister Chris Hipkins told a briefing Wednesday in Wellington, per Bloomberg.

Key quotes

“Fully vaccinated New Zealanders and other eligible travelers will be able to enter New Zealand from Australia without staying in managed isolation from January 17, and they will be able to travel from all other countries starting February 14.”

“All fully vaccinated individuals will be able to travel to New Zealand from April 30 onwards, with the re-opening staged over time.”

“Closing our border was one of the first steps we took to keep our country safe from Covid-19 and it’ll be the last thing we open up.”

“We have a clear, simple and safe plan, including a mandatory period of self-isolation.”

Market reaction

NZD/USD is off the multi-week lows, currently trading at 0.6930, down 0.24% on the day. Investors digest the dovish rate hike from the RBNZ, with eyes on Governor Adrian Orr’s press conference.

• AUD/NZD seesaws on RBNZ rate hike but the bulls hold controls.
• RBNZ matches market forecast of 0.25% rate hike, Australia’s Construction Work Done for Q3 improves.
• Market sentiment dwindles, Treasury yields grinds higher, stock futures struggle to keep rebound.

AUD/NZD remains on the front foot for the fourth consecutive day following the Reserve Bank of New Zealand (RBNZ) interest rate decision on early Wednesday. The cross-currency pair takes the bids to refresh one-week high near 1.0440 by the press time.

The AUD/NZD run-up could be linked to the RBNZ’s failures to surprise markets while announcing a widely anticipated 25 basis points (bps) of a rate hike to 0.50%, the second rate lift in the line. RBNZ also said, “Conditional on the economy evolving as expected, the OCR would likely need to be raised above its neutral rate.”

Read: NZD/USD slumps towards 0.6900 on RBNZ’s 0.25% rate hike, Governor Orr’s speech eyed

It’s worth noting that the AUD/NZD pair was initially probing a descending trend channel breakout before the RBNZ’s verdict, matching the technical target afterward.

Read: AUD/NZD Price Analysis: The big day has arrived for this cross

In doing so, the pair sellers were cheering hawkish hopes from the RBNZ and optimism over witnessing no travel barriers in the next year. The expectations were favored by comments from a government official. “Beginning April 30th, fully vaccinated overseas visitors will be able to travel to New Zealand in stages,” the country’s COVID-19 Response Minister Chris Hipkins said in a news conference in Wellington on Wednesday. 

It’s worth noting, however, that mixed sentiment and cautious mood ahead of the key US data/events challenge the AUD/NZD bulls. That said, the US 10-year Treasury yields struggle to extend the two-day rise but the US Dollar Index (DXY) remains on the front foot around a 16-month high. Further, the S&P 500 Futures remain indecisive after bouncing off an eight-day low the previous day.

Moving on, comments from RBNZ Governor Adrian Orr, scheduled for release around 02:00 AM GMT, will be important to watch for the AUD/NZD traders. Additionally, key US data like October Durable Goods Orders, the second estimate of the Q3 Gross Domestic Product, the latest FOMC Meeting Minutes and October core PCE inflation are also crucial to follow the market’s mood and the pair’s performance in turn.

Technical analysis

A sustained break of a six-week-old resistance line, now support around 1.0400, needs validation from the 50-DMA level of 1.0435 on a daily closing basis to keep AUD/NZD buyers hopeful.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3903 vs the previous fix of 6.3929 and the prior close of 6.3923.

About the fix

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

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

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

• NZD/USD fails to justify Tuesday’s bullish Doji, RBNZ rate hike.
• RBNZ matches market forecast of 0.25% increase in benchmark rate.
• New Zealand’s Hipkins announces travel guide for overseas visitors.
• Treasury Yields eye yearly top but DXY struggles around 16-month high ahead of US top-tier data/events.

NZD/USD remains pressured around 0.6930, following a quick drop to 0.6916 on the Reserve Bank of New Zealand (RBNZ) interest rate decision during early Wednesday.

The kiwi pair’s initial fall could be linked to the New Zealand’s central bank’s failures to surprise markets while announcing a widely anticipated 25 basis points (bps) of a rate hike, second in the line. RBNZ also said, “Conditional on the economy evolving as expected, the OCR would likely need to be raised above its neutral rate.”

Read: Breaking: RBNZ hikes as expected by 25bps, NZD/USD undecided

Earlier in Asia, the US Dollar Index (DXY) pullback from the 16-month top and the rate hike hopes kept NZD/USD buyers hopeful. The DXY bulls took a breather on mixed US activity data, following a strong push to the yields and US Dollar Index (DXY) after US President Joe Biden nominated Jerome Powell for Federal Reserve (Fed) Chairman and Richard Clarida for Vice-Chair’s post.

In addition to the sluggish moves of the DXY, optimism over New Zealand’s covid battle also helped the NZD/USD buyers before the RBNZ decision. “Beginning April 30th, fully vaccinated overseas visitors will be able to travel to New Zealand in stages,” the country’s COVID-19 Response Minister Chris Hipkins said in a news conference in Wellington on Wednesday. 

Having witnessed an initial market reaction to the RBNZ action, NZD/USD traders will pay close attention to the speech from RBNZ Governor Adrian Orr, scheduled for release around 02:00 AM GMT, for fresh impulse. Should the policymaker hold a hawkish view of the economy and signal the readiness to accept more rate hikes, the Kiwi pair may have further upside to go.

In addition to RBNZ’s Orr, multiple top-tier US data will also be important for the near-term direction of the Kiwi pair. Key among them are, October Durable Goods Orders, the second estimate of the Q3 Gross Domestic Product, the latest FOMC Meeting Minutes and October core PCE inflation are crucial.

Technical analysis

NZD/USD pair’s bounce off 13-week-old support line, at 0.6930 by the press time, portrayed a bullish Doji candlestick on the daily chart, suggesting further run-up to cross the key resistance, namely 61.8% Fibonacci retracement (Fibo.) of August-October upside, around 0.6960. However, a daily closing below the stated support line figure of 0.6930 will have another chance to recall the pair buyers, around 78.6% Fibonacci retracement level of 0.6890.

The RBNZ has hiked the OCR by 25bps and sees headline inflation above 5% in the near term with the projections showing the cash rate rising to 2% by end of 2022. 

Key takeaways from the statement

The statement also said that it would be appropriate to continue reducing stimulus.

Further removal of monetary stimulus is expected and that committee reached a consensus on the policy decision.

The committee also assessed risks to their price stability and maximum sustainable employment objectives as being broadly balanced over the medium term.

RBNZ projections for the path ahead

• Official cash rate at 0.94% in March 2022 (previously 0.86%).
• This moves to 2.14% in December 2022 (vs the prior 1.62%)
• Then 2.3% in March 2023 (prior 1.77%)
• Then 2.61% in December 2024. 

These are not the kind of projections the bulls were hoping for and hence the kiwi is lower. Bulls were looking for rate hikes in the region of clips of between 50 and 25bps towards a 3% target. 

However, the RBNZ does see that annual Consumer Price Index at 3.3% by December 2022 (against a prior outlook of 2.2%.

Before the RBNZ statement

However, in the technical preview, it was stated that the downside risks were as follows:

RBNZ dovish outcome

''The risk to the downside comes on a uber hawkish set of Fed minutes coupled with a dovish hike from the RBNZ.  A dovish hike could consist of concern over covid contagion, geopolitical risks, the guidance of incremental 25bps hikes, contingent on various factors. All of the above would catch an already heavily long positioning in the kiwi market offside. 0.6950 is a line in the sand in this regard and a break will open risk to a restest of the 0.6880s and then 0.68 the figure.''

After the RBNZ statement 

The bird is a touch lower on the 15 min chart, losing 0.15% on the day so far. 

Markets now await the press conference for further clues. 

US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, snapped a two-day downtrend by the end of Tuesday’s North American session, per the data source Reuters.

In doing so, the inflation gauge bounces off a fortnight low marked on Monday to 2.62% at the latest.

The jump in the inflation expectations could be linked to US President Joe Biden’s decision to nominate Jerome Powell for Federal Reserve (Fed) Chairman and Richard Clarida for Vice-Chair’s post.

The firmer inflation expectations underpin strong US Treasury yields and the US Dollar Index (DXY) of late.

However, the recent mixed PMI data from the US seems to challenge the greenback buyers ahead of a long line of the economic figures and events scheduled for Wednesday. Among them, October Durable Goods Orders, the second estimate of the Q3 Gross Domestic Product, the latest FOMC Meeting Minutes and October core PCE inflation are crucial.

Read: Forex Today: Dollar strong ahead of US first-tier events

• GBP/USD holds onto corrective pullback from yearly low.
• RSI conditions favor rebound towards one-month-old resistance line, 200-DMA adds to upside hurdles.
• Descending trend line from July becomes additional support before December 2020 bottom.

GBP/USD bounces off intraday low to extend the previous day’s U-turn from the 2021 bottom, around 1.3380 during Wednesday’s Asian session.

A descending support line from late September triggered the cable pair’s recovery moves on Tuesday.

Given the nearly oversold RSI conditions favoring the latest rebound, the pair’s advances towards a one-month-old resistance line near 1.3460 can’t be ruled out.

However, the GBP/USD pair’s bearish trend can’t be ruled out until the quote stays below the 200-DMA level surrounding 1.3830.

On the other hand, the pair’s sustained weakness needs a daily closing below the stated support line, around 1.3330 by the press time, to extend the south-run.

In doing so, a downward sloping trend line from July 20, near 1.3285, will be the key to watch.

GBP/USD: Daily chart

Trend: Further recovery expected

Early Wednesday at 01:00 GMT market sees the key monetary policy decision by the Reserve Bank of New Zealand (RBNZ).

Having overcome the covid fears and witnessing firmer economics at home, RBNZ policymakers brace for a rate hike on the crucial day, which in turn highlights the event for the NZD/USD pair traders. Also important are the economic projections and Governor Adrian Orr’s speech to watch.

After 25 basis points (bps) of a rate hike in October, market consensus suggests another 0.25% hike in the benchmark interest rate, currently at 0.50%, but no major adjustments to the Large Scale Asset Purchases (LSAP) during today’s monetary policy meeting. The forward guidance, however, will be the key even as some on the floor expect aggressive tightening measures.

Ahead of the event, Australia and New Zealand Banking Group (ANZ) said,

Also joining the bull’s league is Westpac that said,

How could it affect NZD/USD?

NZD/USD holds onto the previous day’s corrective pullback from a six-week low, picking up bids around 0.6955, during the early Asian session on Wednesday. That said, a lack of major catalysts and preparations for the RBNZ rate hike, coupled with the US Dollar Index (DXY) consolidation around a 16-month high, helps the Kiwi pair rebound of late.

Given the 25 bps rate hike is a well-known and priced action from the RBNZ policymakers, the NZD/USD prices may fail to extend the latest corrective pullback on either a negative surprise or matching the market forecasts. However, a 0.50% rate lift can help the pair buyers to consolidate heavy losses marked in November.

Other than the rate decision, RBNZ Governor Orr’s comments will also be important for near-term NZD/USD direction as hints for faster monetary policy tightening can favor the pair buyers even if the rate hike fails to impress time, if any.

Technically, NZD/USD pair’s bounce off 13-week-old support line, at 0.6930 by the press time, portrayed a Doji candlestick and hints at a further run-up to cross the key resistance, namely 61.8% Fibonacci retracement (Fibo.) of August-October upside, around 0.6960. Alternatively, a daily closing below the stated support line figure of 0.6930 will have another chance to recall the pair buyers, around 78.6% Fibonacci retracement level of 0.6890.

Keynotes

Reserve Bank of New Zealand Preview: A rate hike fully priced in, lose-lose for the Kiwi?

AUD/NZD Price Analysis: The big day has arrived for this cross

NZD/JPY bounces at 50DMA, reclaims 80.00 level ahead of RBNZ policy announcement

NZD/USD continues to range close to 0.6950 as RBNZ meeting looms

NZD/USD Price Analysis: Technical observations before the RBNZ

About the RBNZ interest rate decision and rate statement

The RBNZ interest rate decision is announced by the Reserve Bank of New Zealand. If the RBNZ is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the NZD. The RBNZ rate statement contains the explanations of their decision on interest rates and commentary about the economic conditions that influenced their decision.

• RBNZ in focus with risks balanced either way. 
• NZD/USD 0.6950 opens 0.6900 and then 0.6880 on the downside. 
• NZD/USD 0.6980 and 0.7020 guard 0.7050 and 0.7080s on the upside. 

If we take the US dollar into consideration, there are prospects of a sustained break to the upside in NZD/USD, especially if the Reserve Bank and New Zealand surprise with a 50bp rate hike today. 

The following illustrates the bearish bias in the greenback and the prospects of a significant correction in the kiwi which is meeting daily support as per the horizontal and dynamic trendline. 

DXY spinning top

The US dollar is highly bullish for the foreseeable future, although it is taking a breather ahead of the RBNZ. This gives way to the prospect of a correction to test the prior resistance as marked out in the above chart between the 61.8% Fibonacci and the 38.2%. This leaves 96.20 and 96 the figure vulnerable to a test in the coming days. This gives way to a bullish flight map for the bird as follows:

NZD/USD daily chart

The kiwi has been pressured despite the well-telegraphed intention of the central bank in New Zealand to hike the OCR rate by at least 25bps today. The market is looking for continued hikes into a 3% target over the course of several meetings in increments of between 25bps and 50bps. 

Markets are already pricing in an expectation that the OCR reaches around 2.5% in a year’s time. The bird has been unable to take flight, however, partly due to growing expectations that policy will be normalised elsewhere. The Federal Reserve minutes are coming up later today as well and there is a risk in there also. Therefore, traders may be reluctant to back the bird much further than an initial knee jerk reaction to the upside in either 25bps or 50bps. Traders will need to balance the risks to the economy should the RBNZ intend to hike by 50bps straight of the bat. 

NZD/USD upside levels

From a daily perspective, the 200 EMA is located in an area of structure between 0.6980 and 0.7020 which may be a tough area of resistance to crack on just a 25bp hike for which the market is widely positioned. 0.7000 the figure is a big volume area.

Over the course of the sessions ahead, the 0.7080s will not be out of the question on a 50bps hike if the 0.7050 volume area is breached. If on the other hand, if the Fed comes in less hawkish than anticipated, or if there is no further insight into the pace of tapering, then the bird will likely enjoy autopilot mode. NZD/USD can glide into the 0.7100 areas with a focus on 0.7150 for the end of the year.  

RBNZ dovish outcome

The risk to the downside comes on a uber hawkish set of Fed minutes coupled with a dovish hike from the RBNZ.  A dovish hike could consist of concern over covid contagion, geopolitical risks, the guidance of incremental 25bps hikes, contingent on various factors. All of the above would catch an already heavily long positioning in the kiwi market offside.  0.6950 is a line in the sand in this regard and a break will open risk to a restest of the 0.6880s and then 0.68 the figure.