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Federal Reserve Bank of Philadelphia President Patrick Harker stated on Monday that Fed hould not add more pressure to the economy by raising the borrowing costs, per Reuters.

Key quotes

Market reaction

At the time of writing, the US Dollar Index (DXY) is trading near 106.25, holding higher while adding 0.05% on the day.

According to CNN report, the US Marine rapid response force is headed to the waters off the coast of Israel. The rapid response force of 2,000 Marines and sailors is being sent. It will join an increasing number of US warships en route to Israel in an effort to send a deterrent message to Iran and the Lebanese militant group Hezbollah, according to a defence official familiar with the planning. 

• AUD/JPY rises to a two-day high of 94.90, though it remains in a consolidation phase, with a mild bullish bias above the Ichimoku Cloud.
• Immediate resistance set at the 95.00 level; surpassing this could challenge the 96.00 mark.
• Support levels to watch include the top of the Kumo at 94.31 and the psychological 94.00 mark.

AUD/JPY bounced off last week’s lows, confluence with the bottom of the Ichimoku Cloud (Kumo) at around 94.00, and rose to a two-day high of 94.90 on Monday amidst a risk-on impulse. As Tuesday’s Asian session begins, the pair exchanges hands at 94.78, dips a minimal 0.03%.

the AUD/JPY pair remains in consolidation, unable to break below/above the 93.00/96.40 range, though as price action remains above the Kumo, the bias is mildly bullish. Therefore, the first resistance would be the 95.00 figure. A breach of the latter would expose the psychological 96.00 mark, followed by the top of the aforementioned resistance level at 96.40 and the year-to-date (YTD) high of 97.67.

On the flip side, the AUD/JPY first support would be the top of the Kumo at 94.31, followed by the 94.00 figure. Once cleared, the cross would die towards the October 3 daily low of 93.01.

AUD/JPY Price Action – Daily chart

AUD/JPY Key Technical Levels

• The GBP/USD caught a much-needed boost on Monday as market sentiment recovers.
• The Pound Sterling remains firmly off last week's highs after markets saw a fresh round of risk flows into the US Dollar.
• Tuesday sees UK wages and US Retail Sales.

The GBP/USD gained on Monday, climbing back into 1.2215 as market risk appetite recovers heading into Tuesday's UK wages and US Retail Sales reading.

UK Average Earnings Excluding Bonuses is expected to hold steady at 7.8% on Tuesday, while the figure with bonuses added in is seen declining from 8.5% to 8.3%.

US Retail Sales due later on Tuesday is forecast to decline from 0.6% to 0.3%, though a solid beat could see markets resume fears of interest rate hikes from the Federal Reserve (Fed) in the future. Inflation has continued to remain a sticking point for the US economy, and despite growth figures easing down, they continue to decline at a much slower pace than investors are hoping for.

With US growth continuing to settle slower than investors forecast, it will keep the Fed pushed off from making any rate cuts much longer than previously anticipated.

GBP/USD Technical Outlook

The Pound Sterling remains firmly bearish despite Monday's rebound, down from last week's swing low into 1.2337 and with price action firmly constrained on the low side of the 200-day Simple Moving Average (SMA) currently parked near 1.2444.

The GBP/USD is up from the last swing low into 1.2037, a seven-month low for the pair, and the pair is down over 7% from 2023's peaks near 1.3144.

GBP/USD Daily Chart

GBP/USD Technical Levels

• AUD/USD take a breather after recent gains around 0.6338 on Tuesday.
• US NY Empire State Manufacturing Index was softer in October but better than expected.
• Australian Weekly ANZ Roy Morgan Consumer Confidence fell to 76.4 vs. 80.1 prior.
• Market players await the Reserve Bank of Australia (RBA) Meeting Minutes, US Retail Sales are due later on Tuesday.

The AUD/USD pair consolidated its recent gains during the early Asian session on Tuesday. Investors await the Reserve Bank of Australia (RBA) Meeting Minutes with few changes expected. The Aussie is firmer against the US Dollar (USD) due to the risk-on mood and a dovish stance from the Federal Reserve (Fed) officials. The pair currently trades around 0.6338, losing 0.06% on the day.

On Monday, the US NY Empire State Manufacturing Index for October fell to 4.6 from a 1.9 rise in the previous reading, better than the expectation of a 7.0 decline. The data suggest a possible softening in manufacturing activity at the start of the fourth quarter.

Many Fed officials suggested that no further rate hikes are expected for the remainder of 2023. Federal Reserve Bank of Philadelphia President Patrick Harker also said on Monday that the central bank should not create new pressures in the economy by increasing the cost of borrowing. Harker further stated that in the absence of some turn in the data Fed should hold rates steady. This dovish comment weighs on the US Dollar (USD). Market players will take more cues from Tuesday’s US Retail Sales figures, which are expected to decline from 0.6% to 0.3%.

On the Aussie front, the latest data from Australian Weekly ANZ Roy Morgan Consumer Confidence survey on Tuesday revealed that the nation’s Consumer Confidence fell to 76.4 versus 80.1 prior, with the decline across all subindices. The RBA Meeting Minutes is likely to hold a wait-and-see approach to interest rates. Investors will look for signs of increased concern about the pathway of inflation back to target.

Furthermore, signs of a diplomatic resolution to geopolitical tensions in the Middle East may alleviate worries about energy sector supply disruptions and lift the risk-perceived currencies, like the Aussie Dollar (AUD).

Traders will focus on the RBA Meeting Minutes. The attention will shift to the US Retail Sales figures and the Federal Reserve (Fed) Beige Book report on Tuesday. On Thursday, the Australian employment data will be released. Traders will take cues from these figures and find the trading opportunities around the AUD/USD pair.

• USD/JPY trades around 149.52, marking a slight gain of 0.02% from Monday.
• US 10-year Treasury bond yield climbs nine basis points to 4.70%, despite Philadelphia Fed Harker dovish comments.
• Japanese economic data to feature Balance of Trade; Yen watches for intervention threats.

USD/JPY fluctuates at around 149.52 as Tuesday’s Asian session begins after printing minimal gains of 0.02% on Monday. A risk-on impulse maintained the US Dollar (USD) underpinned against the Japanese Yen (JPY). Also, the rise in US Treasury bond yields weighed on the Yen.

US Dollar Index falls, capping gains; diplomatic efforts in Middle East conflict boost risk appetite

A risk-on impulse characterized Monday’s session amid diplomatic efforts to prevent a spill-over of the conflict between Israel and Hamas, with other players watching the developments for possible involvement in a possible escalation.

The US 10-year Treasury bond yield rose nine basis points to 4.70%, a tailwind for the USD/JPY pair, though the rally was capped by overall US Dollar weakness. The US Dollar Index (DXY), a basket of six currencies that trades against the US Dollar, dropped 0.43% to 106.21.

One of the drivers behind the overall US Dollar weakness is the Philadelphia Fed President Patrick Harker, who emphasized last week’s words that the US central bank could be done hiking interest rates. On the data front, the New York Empire State Manufacturing Index for October plunged less than the foreseen -7, at -4.6, though it slid compared to September’s data due to a deterioration in new orders, while prices paid eased, following the inflation downtrend.

Ahead in the week, the Japanese economic docket would feature the Balance of Trader, though the Yen would remain gathering direction on intervention threats by Japanese authorities. On the US front, the calendar will feature Retail Sales, Industrial Production, and Fed speakers.

USD/JPY Price Analysis: Technical outlook

After Monday’s trading day, the USD/JPY remains neutral to upward bias, exchanging hands above the Ichimoku Cloud (Kumo) and the Tenkan and Kijun-Sen levels. The major remains trading sideways, though slightly tilted to the upside. The first resistance is seen at last week’s high of 149.83, followed by the psychological 150.00 figure. Once cleared, the pair might reach the year-to-date (YTD) high of 150.16. On the flip side, if the major slumps below the Tenkan-Sen at 148.99, that would expose the Senkou Span A at 148.65 before sliding to the Kijun-Sen at 148.29.

• US stock indexes caught some lift on Monday, rising on improving risk appetite.
• US earnings season is underway, and investors are looking for solid expectation beats.
• Stock traders are looking for an extended rebound in stock prices.

The Standard & Poor's (S&P) 500 major equity index rose over 1% on Monday, gaining 45 points to close at $4,373.63. Other major US indexes faired equally well, with the Dow Jones Industrial Average (DJIA) rising 0.93%, climbing almost 315 points to close at $33,984.54. The NASDAQ Composite index also gained 1.2%, lifting 160.75 points to end Monday at $13,567.98.

Wall Street is looking ahead with hopes of broad beats with over 50 companies, or 11% of the S&P index reporting summer profits this week. Investors will be looking for signs that growth in the US economy is firming up, and notable earnings reports this week include Bank of America, Tesla, Netflix, and Johnson & Johnson.

Markets have broadly shrugged off last week's risk-off flows sparked by the latest escalation of the Israel-Hammas conflict, though tensions around the Middle East remain in the undercurrent, with energies struggling to shake off concerns about geopolitical tensions threatening the safety and relative calm of the Strait of Hormuz. Nearly a fifth of all global fossil fuel trade passes through the chokepoint, and a ramping up of tensions in the region could see global trade stifled.

S&P 500 Technical Outlook

The S&P 500's Monday rebound takes the index into $4,370 to close out the day after marking in an intraday high of $4,381. Monday's recovery sees the major equity index back into the green, but still down from Thursday's peak near $4,396.

Current price action is set to see technical resistance coming from the 50-day Simple Moving Average (SMA) which is testing into the $4,400 major handle, but long-term prospects appear to remain bullish after the S&P decisive rebound from the 200-day SMA near $4,225 in early October.

S&P 500 Daily Chart

S&P 500 Technical Levels

• USD/CHF declined below 0.9000 after hitting a daily high of 0.9042.
• Indicators on the daily chart point towards a prevailing strength of the bears in the short term.
• The seller's next target stands at the 100-day SMA at 0.8905.

In Monday’s session, the USD/CHF traded with 0.30% losses and failed to consolidate above the 200-day Simple Moving Average (SMA) at 0.9018, declining to a low below the 0.9000 mark.

In line with that, the daily chart suggests that a neutral to bearish trend becomes evident for USD/CHF, with the bears gradually taking control. Exhibiting a downtrend below its midline, the Relative Strength Index (RSI) points towards a bearish sentiment, while the Moving Average Convergence (MACD) histogram presents increasing red bars. On the shorter timeframe, the four-hour chart, the RSI lies deep in negative territory at 35, near oversold territory, while the MACD histogram prints higher red bars.

Back to the daily chart, the pair is below the 20 and 200-day Simple Moving Averages (SMAs), but above the 100-day SMA, indicating that the long-term outlook is starting to tilt in favour of the bears.

Support levels: 0.8980, 0.8950, 0.8905 (100-day SMA.

Resistance levels: 0.9018 (200-day SMA), 0.9040, 0.9070.

USD/CHF Daily Chart

• NZD/USD looking for a gentle climb back into weekly P0 pivots after Friday's late-week bounce from S1.
• Technical resistance for hourly candles sitting at 200-hour SMA near 0.5970.
• Upside momentum constrained by bearish 50-hour SMA, downside potential for the week stretching into 0.5840.

The NZD/USD is catching a minor lift for Monday, testing into the 0.5930 region after the week's opening bids gapped higher into 0.5920 from Friday's closing price of 0.5889. 

With the broader market seeing risk appetite moderately recover, the US Dollar (USD) is getting pushing slightly lower, giving the Kiwi (NZD) some much-needed breathing room after a sharp decline from last week's peak at 0.6056.

The 0.6000 major handle is now benched far above intraday price action, with the R1 weekly pivot sitting above near 0.6012.

Looking to the medium-term, daily candlesticks have the Kiwi dropping back below the 50-day Simple Moving Average (SMA), which is pushing downwards into 0.5950, and the previous swing low into 0.5870 remains firmly in play. 

The NZD/USD has been trapped in a constraining pattern ever since tumbling into the 0.5900 region in August, down from July's peaks at 0.6413, and the 200-day SMA is rolling over into bearish momentum, pushing into 0.6150.

NZD/USD Hourly Chart

NZD/USD Daily Chart

NZD/USD Technical Levels

• EUR/JPY trades with a 0.47% gain, bouncing from daily lows of 156.98.
• Technical indicators suggest potential upward movement, targeting the October 12 high.
• A successful breach of the Kumo top could pave the way to the YTD high of 159.76.

The EUR/JPY pair tests the top of the Ichimoku Cloud (Kumo), at around 157.80, amid risk sentiment improvement, as a bullish-engulfing chart pattern looms. At the time of writing, the cross-pair prints gains of 0.47%, after bouncing off daily lows of 156.98.

From a technical standpoint, the EUR/JPY remains in consolidation, threatening to crack the top of the Kumo, which would expose the October 12 high of 158.61. A breach of that area would open the door to challenge the year-to-date (YTD) high of 159.76.

Conversely, if EUR/JPY sellers moved in, the first support would be the Tenkan-Sen line at 157.21. Once cleared, the next support would be the Senkou-Span B at 157.05, before challenging the 157.00 figure. If the cross-pair drops below those levels, the bottom of the Kumo would be up for grabs at 155.60/65, ahead of the October 3 swing low of 154.34.

EUR/JPY Price Action – Daily chart

EUR/JPY Technical Levels

• Silver prices are seeing a minor pullback for Monday, after Friday's peak into $22.82 failed to spark an extended rally.
• XAG/USD is seeing softening bids at the descending trendline from $25.00.
• Spot Silver prices are tracking the US Dollar closely, traders will be looking for a pattern breakdown.

XAG/USD prices are softly back on Monday in a relief pullback from Friday's peak into $22.82. While bullish momentum saw a boost for spot Silver on the back of an escalation of the Israel-Hamas conflict last week, Silver's deep bear rout from August's peaks at the $25.00 handle are constraining metal bulls.

Silver has seen a firm rebound in October, climbing over 9% from a low of $20.68 at the beginning of the month, but things still remain bearish for the XAG/USD, and October's bottom bids still represent a seven-month low for Silver.

Silver bulls are going to need a solid firming-up of broader market sentiment before the XAG/USD can lift back into 2023's median prices.

XAG/USD Technical Outlook

Silver's Friday peak saw XAG/USD bids ping off a descending trendline drawn from August's peak at the $25.00 major handle, marking in a potential swing high at $22.82 if bearish action sees a continuation.

On the top side, the 50-day Simple Moving Average (SMA) is capping off near-term action from $22.90, and has confirmed a bearish crossover of the 200-day SMA, currently parked just north of $23.25.

XAG/USD Daily Chart

XAG/USD Technical Levels

• EUR/USD trades around 1.0550s, marking a 0.44% increase.
• Germany's Wholesale Prices remain unchanged MoM; annual figures show a decline.
• ECB President Christine Lagarde emphasizes close monitoring of energy prices and Middle East developments.

EUR/USD advanced solidly late in the New York session, as the Euro (EUR) found acceptance at around 1.0550s, with the pair at the brisk of cracking last Friday’s daily high of 1.0558, which could open the door to challenge the 1.0600 figure. As of writing, the major exchanges hands at around 1.0550s, up 0.44%.

EUR/USD on the verge of testing 1.0600 on dovish Fed remarks, EU’s data

Improvement in risk appetite underpins the EUR/USD despite the ongoing conflict between Israel and Hamas, which remains contained despite escalating within the Gaza Strip. The Eurozone (EU) economic docket featured Wholesale Prices in Germany, which rose 0.2% MoM in September, unchanged from previous readings, while on an annual basis, plunged -4.1% from -2.7%.

Meanwhile, Christine Lagarde, the President of the European Central Bank (ECB), informed eurozone finance ministers that the ECB is closely monitoring energy prices and the developments arising from the Israel-Hamas conflict to assess their potential impact on inflation.

In the United States, Chicago Fed President Austan Goolsbee and Philadelphia Fed President Patrick Harker maintained dovish positions during a busy week for Federal Reserve (Fed) policymakers. Harker noted that the current interest rate levels discouraged potential homebuyers, suggesting that the Fed might have completed its rate-hiking cycle.

Regarding economic data, October's New York Empire State Manufacturing Index declined compared to September's figures. However, it exceeded expectations. The decrease was attributed to a dip in new orders, and fewer companies reported higher prices received. This latter point is a sign of potential deflationary pressures in the economy.

EUR/USD Price Analysis: Technical outlook

From a daily chart perspective, the EUR/USD remains downward biased unless buyers reclaim the 1.0600 figure and break the latest cycle high of 1.0639. A breach of those levels, the pair could test the 1.0700 figure before challenging the 50-day moving average (DMA) At 1.0720. On the flip side, the major first support would be last week’s low of 1.0495, followed by the October 3 swing low of 1.0448.

• The EUR/GBP is seeing a fall back into Friday's range after the Euro's early bid ran out of steam.
• The GBP softened after a dovish showing for BoE officials, but the EUR failed to capitalize.
• It's a UK-heavy economic calendar theme for this week's data docket.

The EUR/GBP is falling back into 0.8640 after an early bid for the Euro (EUR) on the back of dovish comments from Bank of England (BoE) Chief Economist Huw Pill, which sparked a brief pullback in the Pound Sterling (GBP). The Euro flubbed the gain, and a lack of bullish momentum sent the EUR/GBP falling back into Friday's trading range, etching in a failed breakout on the intraday charts.

The BoE's Pill noted that earnings data has begun to twist around itself, with different earnings indicators pointing in different directions, and threw some cold water on interest rate hike expectations. The EUR/GBP surged up into 0.8671 on reaction, before settling back into the low end for Monday.

BoE’s Pill: We have done a lot on interest rates

Tuesday sees earnings for the UK, with Average Earnings Excluding Bonuses forecast to print flat at 7.8% for the quarter into August, while the EU side of the calendar sees the start of another round of EcoFin meetings, where Finance Ministers from across the EU will gather in Brussels.

The mid-week sees a peak in data action with UK Consumer Price Index (CPI) inflation figures due early Wednesday, and the month-on-month figure for September is forecast to tick up slightly to 0.4% from 0.3%. On the EU side, Wednesday also sees the EU's Core Harmonized Index of Consumer Prices, with the annualized figure for September seen flat at 4.5%.

EUR/GBP Technical Outlook

The Euro flubbed a bullish run early Monday, and intraday action has the EUR/GBP pair tumbling from the day's high of 0.8671 back into the 200-hour Simple Moving Average (SMA) near 0.8645. Bearish action will see the pair falling further into Friday's lows near 0.8633, and an upside recovery will have to first clear the 50-hour SMA near 0.8650.

Daily candlesticks have the EUR/GBP trading into the top-end in the medium-term, but the long-term stance remains moderately bearish, with price action trading on the south side of the 200-day SMA currently parked at the 0.8700 handle. 

EUR/GBP Hourly Chart

EUR/GBP Technical Levels

• USD/JPY continues to side-ways trade in the 149.00 - 150.00 range, as investors await fresh catalysts.
• Retail Sales from the US from September will be released on Tuesday.
• BoJ's prospects of intervening in markets to stop the Yen’s depreciation may limit the upward potential.
• The Fed’s dovish narrative is taking relevance and is limiting the USD’s upside potential.

On Monday, the USD/JPY traded with mild gains above 149.50, mainly driven by the JPY’s weakness. Likewise, the Greenback is performing poorly against its rivals as its DXY index consolidates last week’s gains after rising above 106.00.

Retail Sales figures from the US for September will provide markets with additional data on the US economy to continue placing their bets on the Federal Reserve's (Fed) future decisions. In the meantime, according to the World Interest Rates Probabilities (WIRP), tightening expectations are low, mainly driven by the Fed’s doves, which refrained from committing to another rate hike in last week's Fed meeting minutes, but the US is still not showing signs of cooling down which would push the Fed to hike one more time in this tightening cycle.

Comments from Thomas Harker were interpreted as dovish on Monday after he reiterated that the Fed is “likely” done with rate hikes. Several other officials will be on the wires on Tuesday and Wednesday, including Michelle Bowman, Christopher Waller, and John Williams, and dovish comments may add selling pressure to the green currency.

The Bank of Japan (BoJ) is attached to its dovish stance, and markets are pricing in a liftoff in 2024, so monetary policy divergences between its peers leave the JPY vulnerable. On the positive side, investors are expecting the bank to intervene to stop the depreciation of the Yen, which could limit the potential of the upward movements of the pair.

USD/JPY Levels to watch 

The USD/JPY suggests a neutral to bearish technical outlook in the short-term as bullish momentum wanes. The Relative Strength Index (RSI) has turned flat above its midline, while the Moving Average Convergence (MACD) displays stagnant red bars. The pair is still above the 20,100,200-day Simple Moving Averages (SMA), however, highlighting the continued dominance of bulls on the broader scale.

 Support levels: 149.00 (20-day SMA), 148.00, 147.30.

 Resistance levels: 150.00, 150.50, 151.00.

USD/JPY Daily Chart

• The GBP/JPY is catching a Monday bid, rebounding from last week's dip.
• It's a heavy week on the economic calendar for the Pound Sterling, with wages, inflation, and Retail Sales inbound.
• Dovish comments from BoE officials are capping upside potential for the GBP.

The GBP/JPY is seeing gains for Monday, trading into 182.50 after Friday's dip into 181.27 on broad-market risk aversion. The Pound Sterling (GBP) is catching some early-week lift against the Japanese Yen (JPY) to kick off the new trading week as Guppy traders brace for a tense showing on the economic calendar this week.

BoE’s Pill: We have done a lot on interest rates

UK earnings figures are due on Tuesday, and investors are forecasting total Average Earnings (plus bonuses) to dip slightly from 8.5% to 8.3%, with Average Earnings (excluding bonuses) seen holding steady at 7.8% for the quarter into August.

UK Consumer Price Index (CPI) inflation figures are due on Wednesday, with markets expecting the monthly figure for September ticking up slightly from 0.3% to 0.4%, and the annualized figure for September is forecast to decline slightly from 6.7% to 6.5%.

Over the horizon, Friday has UK Retail Sales on the docket, where investors are forecasting a -0.1% decline in September after the previous month's 0.4%.

GBP/JPY Technical Outlook

The GBP/JPY is still down 0.7% from last week's peak at 183.80, but the pair is seeing lift from last week's swing low after catching a rebound from the 200-hour Simple Moving Average (SMA). An extended bullish push could face difficulties in the near-term with the 50-hour SMA pulling down price action from below 182.20.

Longer-term, the Guppy sees constraining price action with the pair waffling just south of the 50-day SMA, and an upside break will need firm bidding support to lift the GBP/JPY back into the year's highs near 186.77 set back in August.

GBP/JPY Hourly Chart

GBP/JPY Technical Levels

• Potential US-Venezuela deal could ease sanctions on Venezuela's Oil industry, increasing global Oil supply.
• According to Reuters, the agreement aims for a "competitive, monitored presidential election" in Venezuela.
• Market sentiment influenced by the ongoing Middle East conflict between Israel and Hamas.

West Texas Intermediate (WTI), the US Crude Oil benchmark, retreats after testing the 20-day Exponential Moving Average (EMA) on news the US and Venezuela could reach a deal that would increase global Oil production amid times of geopolitical unrest in the Middle East conflict. Hence, WTI is trading at $86.96 per barrel after hitting a daily high of $88.29.

US Crude Oil benchmark retreats from 20-DMA on news of potential supply increase

News in the mid-North American session emerged that the US and Venezuela governments could sign a pact as soon as Tuesday that would ease sanctions on Venezuela’s Oil industry in exchange for a “competitive, monitored presidential election” in the country, according to Reuters. That would increase Oil supply and cap higher prices, following the output cut by Saudi Arabia and Russia.

In the meantime, market participants remain upbeat about the Middle East conflict between Israel and Hamas, which would remain confined to Gaza. Additionally, diplomatic efforts to arrange a ceasefire failed.

Aside from this, the US imposed sanctions on tanker owners carrying Russian Oil crude over the $60 per barrel limit imposed amid the conflict between Russia and Ukraine.

WTI Price Analysis: Technical outlook

Oil remains neutral to upward bias but capped below September’s 26 swing low of $88.24, which, once broken, could open the door for buyers to claim the current year-to-date (YTD) high of $94.9 before rallying to $100.00. Conversely, if sellers maintain prices capped below $88.00, that would open the door to test the 50-day moving average (DMA) at $85.53, followed by the October 12 low of $82.35.

• The US Dollar traded soft against its rivals on Monday after gaining more than 1% at the end of last week.
• The US will report September’s Retail Sales figures and the Fed’s Beige book.
• The rising Treasury yield and the escalation of the conflict between Israel and Palestine may limit the downside potential.

The US Dollar (USD) measured by the US Dollar DXY Index trades with nearly 0.30% losses on Monday as investors seem to be taking profits from last week’s gains, which saw the green currency gaining over 1% against its rivals. The US reported low-tier economic activity figures that failed to significantly impact the USD with the Empire State Manufacturing Survey conducted by the Federal Reserve Bank of New York declining but lower than expected. Investor’s focus is on Tuesday’s Retail Sales figures from the US and the Federal Reserve (Fed) Beige book report.

In the United States economic activity shows signs of resilience, and inflation figures revealed that the Consumer Price Index (CPI) slightly accelerated in September. This outlook favors the case of the Fed hiking at least one more time in this year, which is reflected by rising US Treasury yields. Investors seem to be gearing up for an additional 25 basis point hike by year's end.

Daily Digest Market Movers: US Dollar consolidates last week’s gains, focus on economic activity reports 

• The US Dollar DXY retreated to 106.35 after rising to 106.80 last Friday.
• The NY Empire State Manufacturing Survey from October came in at -4.6 vs the -7 expected. 
• US retail Sales are expected to come in at 0.3% MoM, decelerating from 0.6%.
• US yields continue rising, with the 2, 5 and 10-year rates rising to 5.08% and 4.70%, respectively, with more than 0.50% gains.
• Evidence of strong economic activity may reignite bullish momentum for the USD following last week’s inflation figures, which saw the Consumer and Producer Price Indexes accelerating in September.
• The US reported that the Consumer Price Index (CPI) from the US came in at 3.7% YoY, which was higher than the market consensus of 3.6% and matched the previous monthly figure of 3.7% YoY. On the other hand, the Core measure came in at 4.1% YoY, matching the expectations and decelerating from the previous 4.3% YoY.
• The September US Producer Price Index (PPI) was reported to have risen to 2.2% on Wednesday, which was higher than the expected 1.6%.

Technical analysis: US Dollar Index’s bull must defend the 20-day SMA to continue rising

The US Dollar Index DXY is showing a neutral to bullish outlook for the short term and the buyers are building strong support around the 20-day Simple Moving Average (SMA) at 106.15. As long as the index holds above this level, the positive outlook for the short term is intact.

Supports: 106.15 (20-day SMA), 105.80, 105.50.
Resistances: 106.50, 107.00, 107.30.

• The annual inflation rate in New Zealand is expected to decline from 6% in the quarter to June to 5.9% in the three months to September.
• Markets expect inflation to come in at 2% in Q3 compared with the previous quarter, accelerating from the 1.1% recorded in Q2.
• NZD/USD appears vulnerable following a reversal from two-month highs, moving towards recent lows.

Stats NZ will release on Monday, October 16, at 21:45 GMT, early Tuesday in New Zealand, the Consumer Price Index (CPI) data for the September quarter. The data could be relevant for the New Zealand Dollar (NZD) and the Reserve Bank of New Zealand (RBNZ), which will hold its next monetary policy meeting on November 28-29. 

Annual inflation in New Zealand peaked in June 2022 at 7.3%. Price growth has slowed during 2023, coming in at 6% in the quarter to June, but it remains above the target range of the RBNZ, which is set between 1% and 3%. 

In the second quarter and compared to the previous three-month period, inflation rose by 1.1%, slightly lower than the 1.2% recorded in the previous quarter but higher than the market consensus of 0.9%. Despite persistently high inflation, the RBNZ has maintained the Official Cash Rate unchanged at 5.5% during the last three meetings.

What to expect from New Zealand’s inflation rate? 

The Consumer Price Index (CPI) is expected to have increased by 2% in the third quarter compared with the previous three-month period, accelerating from the 1.1% advance recorded in the second quarter. It would be the first acceleration in the quarterly rate since Q3 of last year. The annual rate is expected to have modestly declined from 6% to 5.9% by the end of September. Such figures, or even a negative surprise with higher-than-expected numbers, will add pressure to the RBNZ, indicating that the current interest rate of 5.50% may not be sufficient to bring inflation back to the target within an acceptable time frame.

“The Committee agreed that monetary conditions are restricting spending and reducing inflationary pressure as anticipated. While supply constraints in the economy continue to ease, inflation remains too high. Spending needs to remain subdued to better match the economy’s ability to supply goods and services so that consumer price inflation returns to its target range”, the RBNZ said at its last meeting on October 4. 

The market expects the RBNZ to keep rates unchanged at the November meeting but sees another rate hike in February. A higher-than-expected inflation reading could bring forward rate hike expectations to the November meeting. Conversely, a significant slowdown in inflation would dampen expectations of an immediate rate hike.

On Saturday, New Zealand held elections, and Christopher Luxon is expected to become the next prime minister. As the results are still being determined, how the government will be composed remains unclear. Uncertainty surrounding the government formation and the election had a limited impact on markets.

When will the Consumer Price Index report be released, and how could it affect NZD/USD?

The Q3 Consumer Price Index (CPI) inflation data will be published at 21:45 GMT on Monday. The NZD/USD pair reached its highest level in two months, above 0.6050, but then experienced a sharp reversal driven by a stronger US Dollar and risk aversion, falling sharply to levels below 0.5900. This reversal has shifted the short-term outlook to neutral.

The main driver of the decline was the Greenback. The US Dollar has remained firm in the market, supported by the latest round of US economic data, which indicates a resilient economy, a tight labor market, and inflation still above the target.

If the NZ inflation numbers exceed market consensus, it could increase expectations for a rate hike at the next RBNZ meeting, leading to a stronger Kiwi. However, a more significant upside surprise in that direction could damage New Zealand's economic growth outlook and, therefore, impact the Kiwi negatively.

The short-term outlook for NZD/USD shows risks tilted to the downside, but losses seem limited as long as the pair stays above the critical support area at 0.5860. A break below would open the doors to further losses, with the next target around 0.5800.

On the upside, the 20-day and 55-day Simple Moving Averages (SMA) are around the 0.5955 zone, making it a significant area of interest. The next resistance level is positioned at 0.5980. However, the critical level to watch is at 0.6050, as it represents recent highs and the 20-week SMA, which acted as a resistance level the previous week. A consolidation above this area would suggest the potential for further gains, with a target set at 0.6150.

• The AUD/USD is seeing some lift on Monday, picking the pair up off the floor.
• It's been mostly down for the battered Aussie, which set a recent yearly low.
• Aussie traders will be on the lookout for the RBA's latest meeting minutes, due on Tuesday.

The AUD/USD could use all the help it can get, catching a minor bid into 0.6340 after testing 2023's lowest prices for the year last Friday. 

Broader markets are stepping up the risk-appetite bids, moving away from the US Dollar (USD) and giving the Aussie (AUD) a chance to catch its breath.

The Reserve Bank of Australia (RBA) is broadly expected to hold steady on interest rates with the Aussie central bank firmly entrenched in wait-and-see territory. Inflation in the Australian domestic economy, while still high, has been easing steadily, and a wobbling economic outlook has the RBA firmly pushed off the rate lever.

The big barrier for Aussie bulls right now is US Retail Sales, also due on Tuesday. US Retail Sales are forecast to decline from 0.6% to 0.3% for September, and enough of a jiggle in either direction could send USD flows whipping.

Later this week Australia gets another crack at the economic calendar, with labor market data due at the tail end of the trading week, just before the Federal Reserve's Chairman Jerome Powell gives a speech.

AUD/USD Technical Outlook

The Aussie kicked off the trading week near 0.6295, and the AUD/USD has done nothing but lift since, sifting towards 0.6350 and aimed for a test into the 200-hour Simple Moving Average (SMA) near 0.6365, while a further breakdown below Friday's floor of 0.6286 will see the pair set to make a new low for the year.

Daily candles have the Aussie buried deep into bear country, with the AUD/USD off the 0.640 handle and stuck near 2023's fresh lows of 0.6285 set in the first week of October. The last swing high into 0.6445 couldn't break free of the 50-day SMA and is marked in as the last level to beat before a bullish correction can even get off the ground.

AUD/USD Daily Chart

AUD/USD Technical Levels

• GBP/USD registers a 0.42% gain on Wall Street, showcasing a risk-on mood with gains between 0.90% and 1.02%.
• The UK's annual CPI is projected to dip slightly, but monthly figures are expected to rise, fueling speculations of another BoE rate hike.
• BoE interest rate probabilities hover around a 50% chance for a 25 bps hike this cycle.

The British Pound (GBP) advances versus the US Dollar (USD) during the North American session, registering gains of 0.42%, on a risk-on impulse while expectations of a sightly high UK inflation report underpin the GBP/USD. At the time of writing, the pair exchanges hands at 1.2200 after bouncing from a daily loss of 1.2128.

GBP/USD rises amid risk-on mood awaiting UK CPI data

As seen by Wall Street registering gains between 0.90% and 1.02%, risk appetite improved. The UK Consumer Price Index (CPI) is expected to dip annually from 6.7% to 6.6%, while core CPI is foreseen at 6%, down from September’s 6.2%. Nevertheless, monthly CPI figures are expected to jump from 0.3% to 0.5%, which would increase speculations for another rate hike by the Bank of England (BoE). Interest Rate probabilities on the BoE remain at around a 50% chance of a 25 bps hike this cycle after the last meeting witnessed a pause on a split vote 5-4.

On the US front, the Chicago Fed President Austan Goolsbee and Philadelphia Fed Patrick Harker remained dovish amid a busy week for Fed policymakers. Harker commented that the current level of rates kept house buyers on the sideline, highlighting that the Fed is likely done hiking rates.

On the data front, the New York Empire State Manufacturing Index for October plunged compared to September’s data, but it came above expectations as new orders dipped, while fewer companies indicated higher prices received, a sign of deflation in the economy.

Given the fundamental backdrop, UK inflation data exceeding estimates would underpin the GBP/USD above the 1.2200 figure. On the flip side, sentiment deterioration and lower inflation could spur flows toward the safe-haven status of the Greenback.

GBP/USD Price Analysis: Technical outlook

The daily chart portrays the GBP/USD as bearish-biased, with the 50-day moving average (DMA) about to cross below the 200-DMA and form a death-cross that could pave the way for further downside. However, if the significant breaks above the latest cycle high seen on October 11 at 1.2337, that would expose 1.2400; otherwise, the GBP/USD could drop below 1.2100 and test the October 4 low of 1.2037 before plunging to 1.2000.

• Canadian Dollar edging higher as risk appetite takes a chance once more.
• Canada CPI inflation data due Tuesday for eager CAD traders.
• Crude Oil easing back for Monday, limiting CAD support.

The Canadian Dollar (CAD) is catching some relief after Friday’s risk-off bids sent the Loonie sharply lower against the US Dollar (USD), and recovery is the name of the game ahead of Tuesday’s Canadian Consumer Price Index (CPI) inflation reading due on Tuesday.

Canadian data isn’t the only action on the economic calendar tomorrow, with US Retail Sales figures due during the American trading session. Markets are anticipating that Canadian CPI will hold flat, and a beat for the datapoint could see inflation expectations increase even further than consumers are already expecting, based on the Bank of Canada’s (BoC) latest Business Outlook Survey. Such a result would also be supportive of CAD.

Daily Digest Market Movers: Canadian Dollar sees Monday gains as new week kicks off

• Canadian CPI to square up against US Retail Sales Tuesday, investors on the lookout.
• US Retail Sales seen declining to 0.3% from 0.6%.
• Canadian CPI inflation forecast to hold steady at 4% for the year into September.
• BoC’s Outlook Survey sees the majority of Canadian consumers expecting further rate hikes in the next twelve months.
• Majority of Canadian businesses report negative impacts from monetary policy, and most expect further pain down the road.
• 55% of Canadians consumers and businesses anticipate a recession sometime next year.
• Crude Oil is seeing a minor stepback on the charts for Monday, limiting Loonie upside.
• Canada Retail Sales to close out the trading week, slated for Friday.
• BoC Survey: Consumers think interest rates will go up over next 12 months

Technical Analysis: Canadian Dollar looking to climb further, sends USD/CAD into 1.3615

The Canadian Dollar (CAD) is seeing a lift as the broad market recovers some risk appetite on Monday, taking the USD/CAD back towards the 1.3600 handle.

The USD/CAD pair opened Monday with bids near 1.3660, easing back towards 1.3600 with the pair currently testing the waters just below 1.3620.

The pair remains down around 1.2% from October’s peak of 1.3785, and the last major swing low on the daily candlesticks is tangled up in the 200-day Simple Moving Average near 1.3450.

While speaking at the Mortgage Bankers Association's annual convention on Monday, Philadelphia Federal Reserve President Patrick Harker repeated that the US central bank was "very likely done" with interest rate hikes, per Reuters.

Harker added that the current interest rate environment was draining the housing market of new buyers.

Market reaction

The US Dollar Index, which tracks the USD's valuation against a basket of six major currencies, stays under bearish pressure in the American session on Monday and was last seen losing 0.32% on the day at 106.33.

• XAU/USD consolidated Friday’s gains and found strong resistance at the 200-day SMA around $1,930.
• US Treasury yields continue to rise and weigh on the precious metal.
• Geopolitical tensions in the Middle East may limit the downside potential.

At the beginning of the week, the XAU/USD retreated towards $1,920 and consolidated Friday’s rally, which saw the spot price rising by more than 3%. 

Markets will remain quiet on Monday, and investors await Tuesday’s Retail Sales figures from the US from September to continue placing their bets on the Federal Reserve's (Fed) next decisions. As for now, US Treasury yields are rising and may suggest that markets are gearing up for one more hike by the Fed in 2023, and as long as hawkish bets remain elevated, the yellow metal may have difficulty finding demand. The 2, 5 and 10-year yields rose to 5.08% and 4.70%, with all three seeing more than 0.50% increases.

On the positive side, tensions escalate in the conflict between Israel and Hamas, and the precious metal may benefit from market participants seeking refuge in safe-haven assets. 

XAU/USD Levels to watch 

Considering the daily chart, XAU/USD presents a neutral to bullish outlook, with the bulls gaining significant ground last week. Despite pointing south, the Relative Strength Index (RSI) jumped to positive territory on Friday, while the Moving Average Convergence (MACD) histogram prints larger green bars. In the larger context, the price got rejected by the 200-day Simple Moving Average (SMA) at $1,930 but managed to close above the 20 and 100-day Averages, indicating that the overall trend is favouring the buyers.

 Support levels: $1,910, $1,900, $1,880.

 Resistance levels: $1,930 (200-day SMA), $1,950, $1,970.

XAU/USD Daily Chart

• Mexican Peso contains the USD/MXN below 18.00, helped by a lack of escalation in the Middle-East conflict.
• Peso is more likely to be influenced by US economic data as Mexico’s calendar is light.
• Dovish stances from Fed officials, including Austan Goolsbee and Patrick Harker, weigh on the US Dollar.

Mexican Peso (MXN) registers solid gains against the US Dollar (USD) on Monday due to the Greenback softening on an improvement in risk appetite. Federal Reserve (Fed) officials in the United States (US) remain dovish while manufacturing activity reported by the New York Fed showed a deceleration in the region, further weighing on the Dollar. The USD/MXN is exchanging hands at around 17.97, down 0.64%.

Mexico’s economic docket is light and will feature Retail Sales for August on October 20. Over the weekend, developments calmed tensions in the Middle East conflict between Israel and Hamas tempering investors' mood. US Secretary of State Anthony Blinken’s visit helped prevent an escalation in rising tensions. One of these included a possible involvement of Iran in the conflict, which had triggered a slight jump in Oil prices, underpinning the emerging market currency, but rumors the US could ease sanctions on Venezuela’s Oil spurred a downtick in Western Texas Intermediate (WTI) Crude Oil. Consequently, the USD/MXN ticked slightly higher, bouncing from daily lows of 17.90.

Aside from this, the Chicago Fed President Austan Goolsbee and Philadelphia Fed Patrick Harker remained dovish amid a busy week for Fed policymakers. In other data, the New York Empire State Manufacturing Index for October plunged compared to September’s data, but it came above expectations as new orders dipped, while fewer companies indicated higher prices received, a sign of deflation in the economy.

Daily Digest Market Movers: Mexican Peso appreciates amid speculation of no further Fed rate hikes

• New York Fed Empire State Manufacturing Index for October plunged to -4.6, higher than forecasts of -7, but worse than September’s 1.9 expansion.
• Philadelphia Fed President Patrick Harker commented the current level of rates kept house buyers on the sideline, highlighting that the Fed is likely done hiking rates.
• Chicago Fed President Austan Goolsbee said the fall in US inflation is not a bleep, according to the Financial Times.
• In October, the University of Michigan's Consumer Sentiment came at 63, below estimates of 67.2 and beneath the previous month's 68.1.
• Inflation expectations for one year rose from 3.2% to 3.8%, while for five years jumped to 3% from 2.8%.
• Mexico's Industrial Production (IP) for August improved by 5.2% YoY, exceeding forecasts of 4.6% and July’s 4.8% increase.
• Monthly, IP in Mexico rose 0.3% as expected but trailed the previous 0.5% reading.
• The US Consumer Price Index increased 3.7% YoY in September, unchanged from August but above forecasts of 3.6%.
• US core CPI dipped as expected to 4.1% from 4.3% in August.
• Initial Jobless Claims in the US for the week ending October 7 came at 209K, below forecasts of 210K.
• Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, slightly below the 4.47% estimated.
• The core CPI inflation in Mexico stood at a stickier 5.76% YoY, as widely estimated, but has broken below the 6% threshold.
• The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.5% to 3.87% for 2024, above the central bank’s 3% target (plus or minus 1%).

Technical Analysis: Mexican Peso hovers around 18.00, USD/MXN sellers eye the 200-day SMA

The Mexican Peso is staging a comeback but remains at risk of depreciating further if USD/MXN sellers reclaim the 200-day Simple Moving Average (SMA) at 17.75. If broken this major SMA could extend the pair’s losses towards 17.50. On the other hand, if the exotic pair exchange rate remains above the psychological 18.00 figure, that could pave the way for further upside, with buyers targeting last Friday’s high of 18.10 before prices climb towards the October 10 high of 18.30.

Between mid-July and early October, the US Dollar gained more than 7% against the average of the G10 currencies. Commerzbank’s forecast table contains less USD weakness than previously.

Is the US recession coming?

Source: Commerzbank Research

Dollar resumes rally on Middle East crisis. Economists at Société Générale analyze USD outlook.

Dollar set to remain supported this week

The Bank of Canada noted in its Business Outlook Survey for the third quarter on Monday that consumers thought that interest rates will go up over the next 12 months, per Reuters.

Key takeaways

 "One-third of firms expect Canada to be in recession over the next year, the same as in Q2."

"Recent indicators of future sales continue to moderate; balance of opinion in Q3 was flat compared to +8 in Q2."

"27% of firms think it will take longer than three years to return to the BoC's 2% inflation target, down from 32% in Q2."

"53% of firms expect inflation to remain above 3% for the next two years, down from 64% in Q2."

"More than 70% of firms across broad range of sectors say higher interest rates are negatively affecting them."

"Around 80% of firms believe effects of past monetary policy tightening on their businesses are far from over."

"Firms' intentions to hire are below their historical average; firms report widespread easing in intensity of labor shortages compared to Q3 2022."

"Overall Q3 Business Outlook Survey Indicator -3.51%, lowest since Q2 2020; Q2 2023 was -2.31% (rev from -2.15%)."

"Firm anticipate gradual easing in wage growth over next 12 months."

"55% of Canadians expect a recession the next year, up from 50% in Q2."

"Consumer expectations for 5-year ahead inflation have edged down to 2.75% from 2.89% in Q2."

Market reaction

USD/CAD stays under modest bearish pressure in the American session and the pair was last seen losing 0.23% on the day at 1.3625.

The path of least resistance is for a weaker MXN going forward, in the view of economists at CIBC Capital Markets.

Shifting labour dynamics in the US to remain the largest downside risk for the Peso

Statistics Canada will release September Consumer Price Index (CPI) data on Tuesday, October 17 at 12:30 and as we get closer to the release time, here are the forecasts by the economists and researchers of five major banks regarding the upcoming Canadian inflation data.

Headline CPI is seen steady at 4%. Meanwhile, core median and core trim are both expected to fall a tick to 4% YoY and 3.8% YoY, respectively. 

NBF

RBC

Citi

CIBC

TDS

• EUR/USD reverses two daily drops in a row and revisits 1.0550.
• The surpass of 1.0600 should open the door to extra gains.

EUR/USD sets aside two consecutive daily pullbacks and retests the mid-1.0500s at the beginning of the week.

In case bulls maintain control, the pair should retarget the 1.0600 barrier ahead of the weekly high of 1.0639 (October 12).

Meanwhile, further losses remain on the table as long as the pair navigates the area below the key 200-day SMA, today at 1.0822.

EUR/USD daily chart

EUR/USD dropped back below 1.05 on Friday. Economists at Société Générale analyze the pair’s outlook for the week ahead.

Euro long positions held by asset managers stabilise after run of eight straight weeks of decline

Economists at the National Bank of Canada analyze the geopolitical and market risks of a prolonged Israeli-Hamas conflict.

Brewing tensions could further strain an already tight Oil market

USD/MXN has traded above the 18.00 level. Economists at ING analyze the pair’s outlook.

Mexican Peso should be supported on dips

• DXY comes under some downside pressure following Friday’s tops.
• So far, the mid-105.00s emerges as a decent support zone.

DXY sees its recent rebound to the 106.80 region lose momentum and recedes to the 106.40 zone at the beginning of the week.

In case sellers regain the upper hand, then the index could slip back to the so far monthly low of 105.53 (October 12) ahead of the weekly low of 104.42 (September 11), which still appears reinforced by the proximity of the interim 55-day SMA at 104.58.

In the meantime, while above the key 200-day SMA, today at 103.22, the outlook for the index is expected to remain constructive.

DXY daily chart

Manufacturing Sales (MoM) in Canada advanced 0.7% in August, missing the 1% rise expected by markets. In July, Canada Manufacturing Sales (MoM) had advanced 1.6%.

What is the Canada Manufacturing Sales (MoM)?

The Manufacturing Sales released by the Statistics Canada examines overall Sales of Canada. It can be seen expected market demand. Generally speaking, a growing number of goods including unsold inventories indicates a fall in the market demand,which anticipates bearish for the CAD. Also, a decreasing sales number is seen as negative (or bearish). On the other hand, an increasing sales number is seen as positive (or bullish).

When is the next Canada Manufacturing Sales (MoM) report released?

The next Canada Manufacturing Sales (MoM) data will be published on November 14 at 13:30 GMT. For more information, check the Canada Manufacturing Sales (MoM) entry in FXStreet Calendar.

The headline general business conditions index of the Federal Reserve Bank of New York's Empire State Manufacturing Survey declined to -4.6 in October from 1.9 in September. This reading came in slightly better than the market expectation of -7.

Key takeaways

"The new orders index dropped nine points to -4.2, pointing to a small decline in orders, and the shipments index fell eleven points to 1.4, a sign that shipments were little changed."

"The index for number of employees rose six points to 3.1, and the average workweek index edged up to 2.2, indicating a slight increase in employment levels and hours worked."

"The index for future business conditions moved down three points to 23.1, suggesting that firms remained relatively optimistic about future conditions." 

Market reaction

The US Dollar stays under modest selling pressure after this report. At the time of press, the US Dollar Index was down 0.3% on the day at 106.35.

The USD has given back a little of Friday’s safe-haven driven move. Economists at Rabobank analyze Greenback’s outlook for the week ahead.

Uncertainties in the Middle East to subdue risk appetite even further

The CAD is extending its late-week rebound against the USD. Economists at Scotiabank analyze USD/CAD outlook.

USD/CAD support extends to 1.3560/70

• The Greenback was able to print a weekly gain on Friday. 
• A lighter week begins with only Retail Sales and Powell’s speech as focal points. 
• The US Dollar Index was unable to print a new weekly high and might still reverse. 

The US Dollar (USD) showcasing its resilience last week might leave traders and investors wrongfooted to start the coming week. Headline inflation might have ticked up a touch, pressing the market’s nerves with rates soaring back to 52-week highs as a result. Although the US Dollar Index (DXY) eked out a weekly gain on Thursday and Friday, it was yet again a very close call as the Greenback rally  stutters here on Monday. 

No big data points are scheduled on Monday, so expect fewer sharp moves in the market. One element to keep an eye on is Central Europe, where in Poland saw a big power shift happen on Sunday during elections. One of the opposition parties is set to gain a majority over the ruling party, and the Polish Zloty appreciated by over 1.5% against the Greenback. All Central European currencies, in fact, are up against the Greenback. 

Daily digest: US Dollar knee jerks everyone

• At 12:30 GMT, the New York Empire State Manufacturing Index for October is due to come out: Previously, the print was 1.9, and a contraction is expected to -7.
• The US Treasury is set to issue a few auctions with a 3-month and a 6-month bill auction at 15:30 GMT.
• To round up the calm Monday, expect to see comments from Patrick Harker from the Federal Reserve of Philadelphia at 20:30 GMT.
• Equities are sliding lower with the Japanese Nikkei down over 2%. The Chinese Shanghai Shenzhen Composite slides over 1%. Meanwhile, European equities are rallying higher on that pro-European opposition in Poland set to claim victory in the Polish elections. US futures are mildly in the green. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 90.2% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. 
• The benchmark 10-year US Treasury yield soared to 4.68% and is ticking up a touch this Monday.  

US Dollar Index technical analysis: Is the Greenback star fading?

The US Dollar might be popping back into its normal regime from the past few months by overtaking the summer rally trendline. Do not pop the champagne just yet though as no weekly high got printed. Meanwhile, the US Dollar Index (DXY) this Monday is opening below the closing price from Friday, which could point to some selling and might see the DXY fade lower in search of support. 

A bounce above the daily trendline from July 18 might still materialise. On the topside, 107.19 is important to reach if the DXY can get a daily close above that level. If this is the case, 109.30 is the next level to watch. 

On the downside, the recent resistance at 105.88 did not do a good job supporting any downturn. Instead, look for 105.12 to keep the DXY above 105.00. If that does not do the trick, 104.33 will be the best level to look for some resurgence in US Dollar strength with the 55-day Simple Moving Average (SMA) as a support level. 

GBP remains soft. Economists at Scotiabank analyze Sterling’s outlook.

Losses may remain contained above the 1.20 level

See: GBP/USD remains biased back to the recent lows near 1.2050 – ING

• EUR/JPY reverses two daily pullbacks in a row on Monday.
• Further upside should meet the next target around 158.60.

EUR/JPY regains some composure and manages to leave behind a two-day negative streak at the beginning of the week.

The acceleration of the rebound is expected to put the September high of 158.65 (September 13) to the test ahead of the 2023 top at 159.76 (August 30), which precedes the key round level at 160.00.

So far, the longer term positive outlook for the cross appears favoured while above the 200-day SMA, today at 150.33.

EUR/JPY daily chart

EUR/USD is nudging a little higher from the 1.05 area in quiet trade. Economists at Scotiabank analyze the pair’s outlook.

Oversold but near-term trends are bearish

Federal Reserve Bank of Chicago President Austan Goolsbee told the Financial Times on Monday that the fall in the US inflation was not "just a blip," per Reuters.

Goolsbee acknowledged that housing costs were a negative surprise but added that the trend was still down for prices. He also denied that progress was stalling on bringing inflation back to the Fed's 2% target.

Market reaction

The US Dollar Index stays under modest bearish pressure following these comments and was last seen losing 0.15% on the day at 106.50.

The USD has suffered a setback in recent weeks after the Dollar Index place peaked at 107.35 on 3rd October. Economists at MUFG Bank analyze Greenback’s outlook.

US data flow remains supportive for higher yields and USD

See: USD Index can probably grind its way back to the 107.35 high – ING

USD/CNY close to recent highs but macro backdrop should reduce upside risks, economists at MUFG Bank report.

Stabilising growth will help reduce USD/CNY upside risks

• Oil (WTI) trades near $86 and looks likely to break back above $88.
• The US Dollar closed out last week with another weekly gain, though the highs point to a retreat from the bulls. 
• Oil could recover though the threat of recent supply cuts being lifted is a threat to further upside. 

Oil prices soared last week after the US imposed further sanctions on tankers carrying Oil from Russia. Meanwhile, several banks and analysts were quick to warn that any further spikes and overheating of the price could easily cool down by simply easing or lifting the recent supply cuts from Saudi Arabia and Russia. WIth production capacity surplus unused, expect that element now to work as a bearish signal for Oil prices, whereas only a few weeks ago it was acting as a catalyst for higher prices.    

Meanwhile, the US Dollar (USD) recovering last week might leave traders and investors badly positioned to start this week. Headline inflation might have ticked up a touch, pressuring the market with rates soaring back to 52-week highs as a result. Although the US Dollar Index (DXY) eked out a weekly gain on Thursday and Friday, it was yet again a close call as the Greenback trade seems uncertain to continue on Monday.

Crude Oil (WTI) trades at $86.02 per barrel, and Brent Oil trades at $89.42 per barrel at the time of writing. 

Oil news and market movers

• The risk in the oil market over the Gaza crisis remains extremely fragile. With US President Joe Biden’s possible visit to Israel, tensions could reemerge, and a spillover proxy war is still a possibility that could unfold. 
• The recent build in the US Crude Stockpile is far from enough to avoid a multiyear low and might risk the supply chain across the US. 
• The amount of Crude oil around the world being loaded in tankers that are stationary for at least seven days has fallen to 74.71 million barrels as of October 13. This is the lowest number since December. 
• Several analyst reports have said there is currently a supply surplus going unused. If it were to come on line, this could squash any uptick in Crude prices quite quickly and keep it below $100 for an ample amount of time. 

Oil Technical Analysis: Gaza remains the key

Oil prices shot higher last week as the risk premium over the Israel-Gaza escalation expanded as Israel positioned itself to start its ground invasion in the region. Meanwhile, markets are struggling to send oil prices higher as Saudi Arabia could easily cap Oil prices with a surge in supply. The Oil market rests for now on a thin equilibrium that could witness knee- jerk reactions based on headlines to come

On the upside, the support level near $88 is the first level on the bulls’ radar. From there, the next level will be this year’s high at $94. Should a substantial squeeze unfold with higher prices, look for $97.11, the high of August 2022.

On the downside, traders are bracing for the entry of that region near $78. The area should see ample support for buying. Any further drops below this level might see a firm nosedive move, which would cause Oil prices to sink below $70.

US Crude (Daily Chart)

Economists at Commerzbank analyze how fiscal fears could affect exchange rates.

The ECB has become the fighter against every sovereign debt crisis

The biggest mover in the FX market at the start of this week has been the Polish Zloty. Economists at MUFG Bank analyze PLN outlook after the favourable election outcome over the weekend in Poland.

Poland’s relations with the EU set to improve providing boost for Zloty

Economists at Commerzbank analyze Swedish Krona’s outlook.

Riksbank does not exactly suggest that it is taking decisive action against inflation

Japan's top currency diplomat Masato Kanda said on Monday that it “will take appropriate action when needed in the forex market.“

Key quotes

Market reaction

USD/JPY is keeping its range play intact at around 149.50 on the above comments. The pair is modestly flat on the day.

US Treasury Secretary Janet Yellen said on Monday, it is “too early to speculate whether there will be significant economic consequences from the Israel-Hamas conflict.”

Additional comments

Related reads

• USD Index can probably grind its way back to the 107.35 high – ING
• US and allies strive to douse Israel-Hamas flare up, Iran issues warning

The Dollar remains well bid as markets nervously monitor developments in the Middle East. Economists at ING analyze Greenback’s outlook.

Dollar in demand

Speaking on inflation and the policy on Monday, Bank of England (BoE) Chief Economist, Huw Pill, said that “we have done a lot on interest rates.”

Additional comments

Market reaction

GBP/USD is paring back gains in response to the dovish comments, trading at 1.2158, at the time of writing.

• Crude oil prices retrace the recent surge; seeking more cues on the Israel-Hamas war.
• Iran warned Israel that the situation could escalate if alleged war crimes are not halted in Gaza,
• Softer outlook for the Chinese economy could help in dampening the Crude oil demand.

Western Texas Intermediate (WTI) oil price pulls back from the recent gains, trading lower around $86.00 per barrel during the European session on Monday. The current consolidation in crude oil prices suggests a wait-and-see approach among traders, anticipating more cues and developments related to the Middle East conflict.

The expiration of the evacuation deadline for residents of northern Gaza issued by the Israeli military suggests the potential for a large-scale ground assault. Iran has issued a warning, stating that if Israel's alleged war crimes and genocide are not halted, the situation could escalate with far-reaching consequences.

This heightened geopolitical tension raises the risk of a broader conflict in the Middle East, which could impact oil supplies from the world's top oil-producing region. Such developments are seen as a potential tailwind for Crude Oil prices, as concerns over supply disruptions contribute to market uncertainties.

An undisclosed source, as reported by Reuters, has indicated that discussions have occurred between US officials and Israel regarding the potential visit of President Joe Biden to Israel. The invitation for this visit is said to have originated from Israeli Prime Minister Benjamin Netanyahu.

The recent development involves the United States (US) taking a more stringent stance against Russia by imposing sanctions on two shipping companies. Russia is a major player in global crude oil exports, and increased scrutiny from the US on its shipments has the potential to impact the global oil supply.

The latest poll by Reuters indicates an expectation of a slowdown in China's economy during the third quarter. The forecast suggests a year-on-year GDP growth rate of 4.4%, down from 6.3% in the second quarter. Additionally, the quarter-on-quarter GDP forecast for Q3 is 1.0%. The poll anticipates China's economy to grow by 5.0% in 2023.

These data point to a progressively softer outlook for the Chinese economy, attributed to weakening domestic demand conditions. The potential impact is not limited to the domestic economy, as China is the largest oil importer globally.

The indecision regarding the Federal Reserve's (Fed) interest rates trajectory is contributing support in underpinning the Crude oil prices. During the previous week, Fed officials indicated a potential halt in a policy rate-hike cycle in November’s meeting as US bond yields surged to the highest since 2007, causing tightened financial conditions, is contributing to downward pressure for the USD.

The upcoming release of US Retail Sales (MoM) on Tuesday is anticipated to show a 0.2% rise in September compared to the previous reading of 0.6%, which could provide cues on the Fed’s interest rate trajectory.

Even though his term as president of the Federal Reserve Bank of St. Louis has come to an end, James Bullard has not lost his ability to impress with his comments. Economists at Commerzbank analyze the scenario for the US Dollar.

Nothing seems out of the question

• GBP/USD attracts some buying on Monday and draws support from a modest USD downtick.
• The uncertainty over the Fed’s rate-hike path and a positive risk tone underpin the greenback.
• Elevated US bond yields limit the USD losses; Bets that the BoE is done raising rates cap the pair.

The GBP/USD pair catches fresh bids on the first day of a new week and sticks to its intraday gains through the early part of the European session. Spot prices currently trade around the 1.2175-1.2180 region, up 0.30% for the day, and for now, seem to have snapped a two-day losing streak to a one-week low touched on Friday.

The US Dollar (USD) kicks off the new week on a softer note in the wake of the uncertainty over the Federal Reserve's (Fed) future rate-hike path and turns out to be a key factor acting as a tailwind for the GBP/USD pair. The recent dovish remarks by several Fed officials suggested that the US central bank will leave interest rates unchanged for the second successive time in November. This, along with a generally positive tone around the equity markets, is seen undermining the safe-haven Greenback.

The latest US consumer inflation figures released last week, however, revived market bets for one more Fed rate hike move by the end of this year. This remains supportive of elevated US Treasury bond yields. Apart from this, the risk that the Israel-Hamas clashes could lead to a wide Middle East conflict helps limit the downside for the USD. Furthermore, expectations that the Bank of England (BoE) will maintain the status quo in November hold back bulls from placing fresh bets around the GBP/USD pair.

The BoE surprisingly paused its rate-hiking cycle in September and provided little hints of its intention to raise rates. This makes it prudent to wait for strong follow-through buying before confirming that the pair's recent corrective pullback from the vicinity of mid-1.2300s, or the monthly peak touched last Wednesday, has run its course. There isn't any relevant UK macro data due on Monday, while the US economic docket features the only release of the Empire State Manufacturing Index.

Investors will also look upon speeches by influential FOMC members for cues about the US central bank's next policy move. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the GBP/USD pair later during the North American session. The focus will then shift to the monthly UK employment details, due on Tuesday, which might infuse some volatility around the GBP cross and provide some impetus to the major.

Technical levels to watch

Dollar could hold gains for a few more months, economists at ING report.

November through December is seasonally a weak period for the dollar

Here is what you need to know on Monday, October 16:

Markets started the week on a cautious note as geopolitical tensions in the Middle East continued to escalate over the weekend. Eurostat will release Trade Balance data for August and the US economic docket will feature the Federal Reserve Bank of New York's Empire State Manufacturing Survey for October on Monday. Meanwhile, investors will keep a close eye on headlines surrounding the Israel-Hamas conflict.

White House National Security Advisor Jake Sullivan noted on Sunday the US couldn’t rule out Iran intervening, either directly or via Hezbollah - the Lebanon-based militia group that it sponsors. “Iran will not remain an observer in this situation and has informed Israel via its allies if its crimes in Gaza continue tomorrow will be too late,” Iran’s Foreign Minister Hossein Amir Abdollahian said. Meanwhile, the United Nation's humanitarian office warned fuel reserves of hospitals in Gaza were about to run out. 

In the European morning, US stock index futures trade modestly higher, while the US Dollar (USD) Index was fluctuating at around 106.50. Following Friday's sharp decline, the benchmark 10-year US Treasury bond yield opened with a bullish gap and was last seen rising more than 1% on the day at 4.68%.

Center-right National Party led by Christopher Luxon won the general election in New Zealand over the weekend, ousting the Labour Party. Luxon still needs to reach a deal with coalition partners and he told reports that negotiations about forming a government with Act and potentially NZ First would be “worked out over the next days and weeks." NZD/USD gathered bullish momentum following this developments and the pair was last seen rising 0.7% on the day at 0.5925. 

After posting losses in the previous week, EUR/USD staged a modest correction early Monday and went into a consolidation phase slightly below 1.0550.

Gold rose sharply and gained more than 3% on Friday as the precious metal capitalized on safe haven demand. XAU/USD reversed its direction early Monday and was last seen losing more than 1% on the day at $1,910.

Pressured by hawkish comments from Bank of Canada (BoC) Governor Tiff Macklem and surging crude oil prices, USD/CAD closed in negative territory on Friday. Later in the day, the BoC will release the Business Outlook Survey for the third quarter. The barrel of West Texas Intermediate holds steady slightly above $87 early Monday and USD/CAD fluctuates in a tight channel near 1.3650.

Following a quiet Asian session, GBP/USD gained traction and climbed toward 1.2200 in the European morning. The UK's Office for National Statistics will release wage inflation data on Tuesday.

After coming within a touching distance of the critical 150.00 level in the second half of last week, USD/JPY lost its traction and retreated to the 149.50 area. The data from Japan showed earlier in the day that Industrial Production contracted by 0.7% on a monthly basis in August.

The market notices the war in the Middle East with a delay, economists at Commerzbank report.

Risk-off with some delay

• Silver meets with some supply and erases a part of Friday’s strong gains to a two-week high.
• The technical setup supports prospects for the emergence of some dip-buying at lower levels.
• Sustained weakness back below the $22.30 area could pave the way for further intraday losses.

Silver (XAG/USD) kicks off the new week on a weaker note and erodes a part of Friday's strong move up to the $22.80 region, or a two-week high. The white metal maintains its offered tone through the early part of the European session and is currently placed just above mid-$22.00s, down over 0.70% for the day.

From a technical perspective, Friday's sustained breakout through a multi-day-old trading range and a subsequent move beyond the 38.2% Fibonacci retracement level of the August-October downfall favours bullish traders. Moreover, oscillators on the daily chart have just started gaining positive traction and support prospects for the emergence of some dip-buying near the $22.30 area and remain limited.

Some follow-through selling, however, could turn the XAG/USD vulnerable to weaken further below the $22.00 mark, towards the 23.6% Fibo. level, around the $21.75 area. Failure to defend the said support levels has the potential to drag the white metal further towards the $21.3-$21.30 intermediate support en route to the $21.00 mark and the $20.70-$20.65 zone, or a seven-month low touched earlier this month.

On the flip side, bulls might now wait for a move beyond the $22.80 region, or the 50% Fibo. level, before placing fresh bets. The XAG/USD might then surpass the $23.00 round-figure mark and climb further towards testing the $23.35 confluence, comprising the very important 200-day Simple Moving Average (SMA) and the 61.8% Fibo. level. A sustained move beyond will set the stage for a further appreciating move.

The subsequent move up has the potential to lift the XAG/USD towards the next relevant hurdle near the $23.75-$23.80 region (September 22 high) en route to the $24.00 round figure and the $24.30-$24.35 resistance zone.

Silver daily chart

Technical levels to watch

• NZD/USD moves upward on market hesitation over the Fed’s interest rate trajectory.
• US Dollar could receive flows due to the risk aversion over the Palestine-Israel conflict.
• Fed could halt interest rate-hike cycle due to higher US Treasury yields.

NZD/USD trades higher around 0.5920 during the early European session on Monday, recovering from the recent gains registered in the previous two trading sessions. The uncertainty regarding the Federal Reserve's (Fed) future decisions on interest rates is contributing support in underpinning the NZD/USD pair.

Furthermore, the Kiwi pair could lose ground due to the risk aversion over military conflict in the Middle East. Investors seeking refuge in a stable and secure currency may be contributing to the strength of the US Dollar (USD) in the current geopolitical landscape.

On the Kiwi’s front, on Monday, Business NZ PSI increased to the reading of 50.7 in September from the previous 47.7 figures. On Friday, New Zealand's Business NZ Purchasing Manager's Index (PMI) saw a decline to 45.3 compared to the previous reading of 46.1.

The Reserve Bank of New Zealand (RBNZ) committee reached a consensus that interest rates might need to be maintained at a restrictive level for an extended period. New Zealand’s Consumer Price Index (CPI) for the third quarter will be eyed on Tuesday, which could provide insights into the potential trajectory of the RBNZ's interest rate policy.

An undisclosed source, as reported by Reuters, has indicated that discussions have occurred between US officials and Israel regarding the potential visit of President Joe Biden to Israel. The invitation for this visit is said to have originated from Israeli Prime Minister Benjamin Netanyahu.

On Friday, the National Bureau of Statistics of China reported the Consumer Price Index (CPI) data for September, which registered at 0% (YoY), a decline from the previous reading of 0.1%. This figure fell short of the market consensus, which anticipated a 0.2% increase. Additionally, the Producer Price Index dropped to 2.5% from a 3% decline in August, missing the expectation of a 2.4% downturn.

During the previous week, Fed officials signaled a potential halt in a policy rate-hike cycle in November’s meeting as US bond yields surged highest since 2007, causing tightened financial conditions, is contributing to downward pressure for the USD.

The US Dollar (USD) faces challenges following the release of the preliminary US Michigan Consumer Sentiment Index for October on Friday, which fades the chances of another interest rate hike by the Fed. The report showed a decline to 63.0 from the previous reading of 68.1, falling short of the expected 67.4.

The US Dollar Index (DXY) trades slightly lower around 106.50. The recovery in US Treasury yields from recent losses may contribute to supporting the Greenback. The 10-year US Treasury bond yield stands at 4.68%, up by 1.58%, by the press time.

The upcoming release of US Retail Sales (MoM) on Tuesday is anticipated to show a 0.2% rise in September compared to the previous reading of 0.6%, and this data could influence market dynamics and the NZD/USD pair.

• The Euro trades with decent gains against the US Dollar.
• Stocks in Europe kick off the week mostly on the defensive.
• EUR/USD meets decent contention around 1.0500.
• The USD Index (DXY) looks supported around the mid-105.00s.
• German Wholesale Prices rose 0.2% MoM in September.
• US NY Empire State Manufacturing Index takes centre stage in the American session.

The Euro (EUR) starts the new trading week on a positive foot against the US Dollar (USD), encouraging EUR/USD to extend the rebound from the 1.0500 neighbourhood and regain the 1.0540 zone on Monday.

The Greenback sheds some ground following last week’s tops near 106.80 when measured by the USD Index (DXY) against the backdrop of an improved market sentiment for risk assets. Meanwhile, the background of the Federal Reserve’s (Fed) tighter-for-longer stance appears unchanged.

Continuing to focus on monetary policy, investors are anticipating that the Fed will maintain its stance of not making any adjustments to interest rates throughout the remainder of the year. At the same time, those in the financial markets are pondering the possibility of the European Central Bank (ECB) putting a halt to policy modifications, even though inflation levels exceed the bank's target and concerns are growing regarding the potential for a future economic downturn or stagflation in the region.

On another front, the speculative community kept trimming their net long positions during the week ended on October 10, this time reaching levels last seen in late October 2022. Market participants continued to factor in the likelihood that the ECB’s hiking cycle might have reached a peak against the persistent view that the Fed could maintain its restrictive stance for a longer period than initially anticipated.

On the domestic calendar, Wholesale Prices in Germany rose 0.2% MoM in September and contracted 4.1% over the last twelve months. Later in the session, Balance of Trade results for August are due for the broader euro bloc.

In the US, the regional manufacturing gauge tracked by the NY Empire State Index is due, along with September’s Monthly Budget Statement.

Daily digest market movers: Euro recovers above 1.0500

• The EUR picks up fresh upside traction against the USD.
• US and German yields start the week with humble gains.
• Markets anticipate that the Fed will keep rates unchanged.
• Investors expect the ECB will extend the pause in its rate rise campaign.
• Geopolitical tensions in the Middle East remain high.
• The PBoC keeps its One-Year LPR unchanged at 2.50%.

Technical Analysis: Euro meets decent contention around 1.0500

EUR/USD leaves behind part of the recent two-day lows and manages to gather fresh steam beyond 1.0500 on Monday.

If the upward momentum continues, there is a possibility that EUR/USD could revisit the September 20 high of 1.0736 and potentially reach the significant 200-day Simple Moving Average (SMA) at 1.0822. Breaking above this level may lead to testing the August 30 peak at 1.0945, approaching the psychological threshold of 1.1000. Further breakthroughs beyond the August 10 high of 1.1064 could potentially push the pair towards the July 27 top at 1.1149 and even reach the 2023 peak of 1.1275 seen on July 18.

On the downside, if selling pressure resumes, there is a possibility of retesting the 2023 low at 1.0448 from October 3 and potentially challenging the significant psychological level of 1.0400. If this level is breached, it could pave the way for a retest of the weekly lows at 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).

As long as the EUR/USD remains below the 200-day SMA, there is a potential for sustained downward pressure.

Economists at ING analyze GBP outlook.

EUR/GBP could retest 0.8700/8710 

Gold breached the resistance level of $1,910. Economists at ANZ Bank analyze the yellow metal’s technical outlook.

Buying could emerge at $1,900, limiting the downside

Poland held elections. In the view of economists at Commerzbank, the election results are all-around PLN-positive.

No reason for the FX market to price out PLN euphoria again

• The index faces some selling pressure near 106.50.
• US Monthly Budget Statement, Empire State index next on tap.
• Fed’s P. Harker is due to speak later in the NA session.

The greenback, in terms of the USD Index (DXY), comes under some modest downside pressure following Friday’s weekly highs near the 106.80 level on Monday.

USD Index looks at risk trends, Fedspeak

The index gives away part of the recent two-day recovery to the vicinity of 106.80 on the back of a so far decent rebound in the risk-linked galaxy at the beginning of the week.

Despite the index reclaimed part of the ground lost since the beginning of the month during the latter part of last week, the dollar has been losing momentum in tandem with the renewed dovish tone from Fed speakers. In addition, despite the assumption that the Federal Reserve's tighter-for-longer policy remains in place for the time being, the possibility of another rate rise before the end of the year appears to have reduced recently.

Furthermore, escalating geopolitical concerns stemming from the Middle East and its associated pick-up in the risk aversion continue to be a source of potential strength for the dollar.

Later in the NA session, the NY Empire State Index is due seconded by Monthly Budget Statement and the speech by Philly Fed Patrick Harker (voter, hawk).

What to look for around USD

The price action around the index remains depressed and in the area of monthly lows around 105.70 ahead of the release of key data in the US calendar on Wednesday.

In the meantime, support for the dollar keeps coming from the good health of the US economy, which at the same time appears underpinned by the renewed tighter-for-longer stance narrative from the Federal Reserve.

Key events in the US this week: NY Empire State Manufacturing Index (Monday) - Retail Sales, Industrial Production, NAHB Index, Business Inventories (Tuesday) – MBA Mortgage Applications, Building Permits, Housing Starts, Fed Beige Book, TIC Flows (Wednesday) - Initial Jobless Claims, Philly Fed Manufacturing Index, CB Leading Index, Existing Home Sales, Fed Powell (Thursday).

Eminent issues on the back boiler: Persevering debate over a soft or hard landing for the US economy. Incipient speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China and the Middle East.

USD Index relevant levels

Now, the index is losing 0.20% at 106.46 and faces the next support at 105.53 (monthly low October 12) ahead of 104.42 (weekly low September 11) and then 103.22 (200-day SMA). On the other hand, a breakout of 106.78 (weekly peak October 13) could expose 107.34 (2023 high October 3) and finally 107.99 (weekly high November 21 2022).

• EUR/JPY currently trades around 157.48, up 0.18% on the day.
• The key resistance level is located at 157.55; 157.00 will emerge as a key support level.
• The cross holds below the 50- and 100-hour EMAs; RSI indicator shows the non-directional movement.

The EUR/JPY cross gains momentum around 157.48 during the early European session on Monday. The cross bounces off Friday’s low of 157.05 amid the improvement in risk sentiment. However, the safe-haven flow could cap the upside of the cross. That said, the rising geopolitical tensions between Israel and Palestine might boost the traditional safe-haven Japanese Yen and act as a headwind for the EUR/JPY cross.

From a technical perspective, EUR/JPY holds below the 50- and 100-hour Exponential Moving Averages (EMAs) on the one-hour chart, which supports the sellers for the time being. It’s worth noting that the Relative Strength Index (RSI) is located in the 40-60 zone, indicating a non-directional movement in the pair.

The key resistance level for the cross is located at 157.55, representing the confluence of the upper boundary of the Bollinger Band and the 50-hour EMA. A break above the latter will see the next barrier near a psychological round mark and a high of October 13 at 158.00. Further north, the additional upside filter is seen around a high of October 2 of 158.45, followed by a high of September 13 of 158.60.

On the downside, the lower limit of the Bollinger Band, a low of October 13, and a round figure at 157.00 will emerge as a key support level. The next contention level will emerge at 156.51 (a low of October 9). Any follow-through selling below the latter will see a drop to 156.22 (a low of October 5), and finally at 156.10 (a low of October 5).

EUR/JPY one-hour chart

• USD/CHF continues to lose ground on the Fed’s interest rate uncertainty.
• Safe-haven Swiss Franc receives flows due to the risk aversion over Middle-East conflict.
• The recovery in US bond yields could limit losses of the US Dollar.

USD/CHF extends the losing streak on the second consecutive session, trading lower around 0.9020 during the Asian session on Monday. The uncertainty regarding the Federal Reserve's (Fed) future decisions on interest rates is contributing to a complex and fluctuating environment for the US Dollar (USD).

Furthermore, the Swiss Franc (CHF) seems to be receiving buying support amid the military conflict in the Middle East, as the currency is considered a safe haven during times of geopolitical uncertainty. Investors seeking refuge in a stable and secure currency may be contributing to the strength of the CHF in the current geopolitical landscape.

According to an undisclosed source cited by Reuters, discussions have taken place between US officials and Israel regarding the potential visit of President Joe Biden to Israel. The reported invitation for this visit comes from Israeli Prime Minister Benjamin Netanyahu.

On Friday, the Swiss Producer and Import Prices (YoY) recorded a 1.0% decline in September, an increase from the previous decline of 0.8%. Meanwhile, the monthly data indicated a decrease of 0.1%, contrasting with the 0.8% decline observed in August. Trade Balance for September will be released later in the week.

Multiple Fed officials signaled a potential delay in a rate hike for November due to the surge in bond yields, causing tightened financial conditions, is acting as a headwind for the USD/CHF pair.

The US Dollar (USD) faces challenges following the release of the preliminary US Michigan Consumer Sentiment Index for October on Friday, showing a decline to 63.0 from the previous reading of 68.1, falling short of the expected 67.4.

The US Dollar Index (DXY) trades slightly lower around 106.50. The recovery in US Treasury yields from recent losses may contribute to supporting the Greenback. The 10-year US Treasury bond yield stands at 4.67%, up by 1.37%, by the press time.

The upcoming release of US Retail Sales (MoM) on Tuesday is anticipated to show a 0.2% rise in September compared to the previous reading of 0.6%, and this data could influence market dynamics and the USD/CHF pair

NZD/USD ended the week a lot lower. Economists at ANZ Bank analyze Kiwi’s outlook.

Q3 CPI key for the RBNZ, and by extension, short-end rates and NZD

FX option expiries for Oct 16 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts

• 1.0470 340m
• 1.0500 1.1b
• 1.0540 790m
• 1.0550 522m
• 1.0600 589m
• 1.0630 611m

- GBP/USD: GBP amounts     

• 1.2150 395m

- USD/JPY: USD amounts                     

• 148.00 778m
• 150.00 371m
• 150.50 421m

- AUD/USD: AUD amounts

• 0.6350 353m
• 0.6400 1b

- USD/CAD: USD amounts       

• 1.3350 1b
• 1.3670 330m
• 1.3700 798m

- EUR/GBP: EUR amounts        

• 0.8475 450m
• 0.8800 818m
• 0.8950 904m

Considering advanced prints from CME Group for natural gas futures markets, open interest increased for the third consecutive session on Friday, this time by around 4.7K contracts. Volume, instead, dropped for the second session in a row, this time by nearly 70K contracts.

Natural Gas now looks to another test of $3.00

Prices of natural gas continued to correct lower on Friday following recent multi-month tops near $3.50 (October 9). The downtick was on the back of increasing open interest and suggests that extra decline could be in store for the commodity in the very near term. Against that, another visit to the key $3.00 mark per       MMBtu should not be ruled out for the time being.

Oil prices jumped by over four Dollars on Friday. Economists at TD Securities analyze Oil’s outlook. 

WTI will trade above the $90 mark in the final quarter of the year

• USD/CAD trades in negative territory for the second consecutive day on Monday amid the softer USD.
• The impact of geopolitical tensions in the Middle East boost the commodity-linked Loonie.
• Investors anticipate a potential rate rise by the Federal Reserve (Fed) due to the upbeat inflation data last week.
• US Retail Sales, Canadian inflation data will be closely watched events on Tuesday.

The USD/CAD pair struggles to gain during the Asian session on Monday. The downtick of the pair is supported by the US Dollar (USD) weakness and the rally in oil prices. The Canadian inflation data and US Retail Sales on Tuesday could trigger the volatility in the pair. As of writing, USD/CAD is trading near 1.3645, edging lower while losing 0.10% for the day.

On the Loonie front, Bank of Canada (BoC) Governor Tiff Macklem said on Friday that the recent rise in long-term bond rates is not a substitute for monetary policy and the economy is not headed for an imminent recession. Macklem went on to say that the central bank would consider the tighter financial conditions due to rising long-term bond rates before its forthcoming policy meeting on October 25.

Meanwhile, the rebound in oil prices boosts the commodity-linked Loonie as the country is the leading oil exporter to the US. That said, crude oil markets recover from the impact of geopolitical tensions in the Middle East. This, in turn, could lift the Canadian Dollar (CAD) and cap the upside of the USD/CAD pair.

On the other hand, markets have priced in a potential rate rise by the Federal Reserve (Fed) by the end of the year due to the higher inflation expectation and the upbeat inflation data last week. The University of Michigan (UoM) one-year Inflation expectations surged from 3.2% to 3.8%, and five-year inflation estimates jumped from 2.8% to 3%.

The US Michigan Consumer Sentiment Index fell to 63.0 from 68.1 in the previous reading, falling short of the forecast of 67.4. While the US Consumer Price Index (CPI) came in above the market consensus. However, the dovish comments from Fed officials this week might warrant bull traders on the aggressive bullish bets.

Later this week, traders will focus on the US Retail Sales data on Tuesday, which is expected to rise 0.2%. The Canadian Consumer Price Index (CPI) for September will also be released on Tuesday. Traders will take cues from these figures and find trading opportunities around the USD/CAD pair.

• USD/JPY continues the losses on the Fed’s uncertainty regarding interest rate trajectory.
• US Dollar could gain momentum due to the risk aversion over the Middle East conflict.
• BoJ is expected to intervene in the FX market to prevent the depreciation of Japanese Yen.

USD/JPY extends its losses on the second successive session, trading lower around 149.40 during the Asian session on Monday. The uncertainty regarding the Federal Reserve's (Fed) future decisions on interest rates is contributing to a complex and fluctuating environment for the US Dollar (USD).

Multiple Fed officials have indicated that the central bank could refrain from implementing a rate hike in November due to the surge in bond yields, which has led to tightened financial conditions. This development seems to act as a headwind for the USD/JPY pair.

The US Dollar Index (DXY) trades slightly lower around 106.50. The US Dollar (USD) faced a challenge since the preliminary US Michigan Consumer Sentiment Index for October was released on Friday. The report indicated a decline to 63.0 from the previous reading of 68.1, falling short of the expected figure of 67.4.

Furthermore, the US Dollar could draw support from safe-haven demand amid escalating geopolitical tensions between Israel and Palestine. According to an undisclosed source cited by Reuters, discussions have taken place between US officials and Israel regarding the potential visit of President Joe Biden to Israel. The reported invitation for this visit comes from Israeli Prime Minister Benjamin Netanyahu.

Furthermore, the recovery in US Treasury yields from recent losses could contribute to underpinning the US Dollar (USD). As of Monday, the 10-year US Treasury bond yield stands at 4.65%, up by 1.0%.

Bank of Japan (BoJ) is expected to intervene in the spot market to prevent the losses of the Japanese Yen (JPY). The central bank has adopted a more dovish stance, undermining the safe-haven appeal of the JPY and providing support to the USD/JPY pair.

The BoJ maintains its perspective that inflation is transitory and has communicated no intentions of scaling back its substantial monetary stimulus measures.

As per S&P Global's analysis of the Japanese economy and monetary policy, the rating agency expects that policy interest rates in Japan might undergo an upward trajectory, commencing in 2024.

US Retail Sales (MoM) is due to release on Tuesday, with expectations for a 0.2% rise in September compared to the previous reading of 0.6%. Investors will likely pay attention to Japan’s Merchandise Trade Balance Total for September.

CME Group’s flash data for crude oil futures markets noted traders scaled back their open interest positions for the second session in a row on Monday, this time by around 27.6K contracts. In the same line, volume added to the previous daily pullback and dropped by nearly 7K contracts.

WTI meets initial resistance near $88.00

WTI prices rose sharply in the second half of last week. Friday’s uptick, however, was on the back of shrinking open interest and volume, allowing for a corrective move in the very near term. In the meantime, the $88.00 mark per barrel emerges as a decent initial up-barrier for the time being.

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest trade balance data from the Chinese economy.

Key Takeaways

Open interest in gold futures markets resumed the uptrend and went up by more than 6K contracts on Friday according to preliminary readings from CME Group. Volume followed suit and increased by nearly 170K contracts, the largest single-day build since mid-March.

Gold: Next target comes at $1953

Friday’s pronounced gains in gold prices surpassed the key $1900 mark as well as the critical 200-day SMA ($1929). The sharp move was on the back of rising open interest and volume and leaves the door open to extra gains in the very near term. That said, the next hurdle of note emerges at the September high at $1953 per troy ounce (September 1).

• GBP/USD holds positive ground near 1.2160 amid the USD weakness.
• Bank of England (BoE) Governor Andrew Bailey said rates will likely remain around the current 5.25% to return inflation to 2%.
• Investors have priced in a potential rate rise by the Federal Reserve (Fed) by the end of the year.
• Market players will monitor the UK employment data, US Retail Sales due on Tuesday.

The GBP/USD pair gains traction above the mid-1.2100s during the Asian session on Monday. The softer US Dollar (USD) lends some support to the pair. The risk sentiment dominate the market ahead of the key UK employment data and US Retail Sales on Tuesday. The major pair currently trades around 1.2160, up 0.15% for the day.

The latest data on Monday showed that the UK’s Rightmove House Price Index rose by 0.5% MoM in October versus 0.4% prior. On an annual basis, the figure dropped by 0.8% from the 0.4% decline in the previous reading.

During his remarks at the International Monetary Fund meetings in Morocco on the weekend, Bank of England (BoE) Governor Andrew Bailey stated that rising borrowing costs were affecting the housing market and employment. He indicated that interest rates will likely remain around the current 5.25%, given that restrictive policy is required to return inflation to 2%.

Across the pond, investors anticipate a possible rate rise by the Federal Reserve (Fed) by the end of the year due to the higher inflation expectation and the upbeat inflation data last week. The University of Michigan (UoM) one-year Inflation expectations climbed from 3.2% to 3.8%, and five-year inflation estimates jumped from 2.8% to 3%. Meanwhile, the US Michigan Consumer Sentiment Index data on Friday dropped to 63.0 versus 68.1 prior, missing the expectation of 67.4.

The US Consumer Price Index (CPI) annually and monthly for September came in at 3.7% and 0.4%, respectively. However, the dovish comments from Fed officials might warrant bull traders on the aggressive bullish bets.

Market players will keep an eye on the UK employment data on Tuesday. The Employment Change is expected to decline by 195K in August and ILO Unemployment Rate (3M) is expected to remain at 4.3%. Also, the US Retail Sales will be released, which is expected to rise 0.2%. These figures could give a clear direction to the GBP/USD pair.

• Natural Gas price drifts lower for the third straight day and moves away from a multi-month top.
• The technical setup favours bulls and supports prospects for the emergence of some dip-buying.
• A break below the $3.0650 resistance-turned-support is needed to negate the positive outlook.

Natural Gas price extends last week's retracement slide from a nine-month peak, around the $3.6350-$3.6400 area, and remains under some selling pressure for the third successive day on Monday. The XNG/USD trades around the $3.4400 level, down over 1% during the Asian session, though the technical setup warrants some caution before positioning for any further depreciating move.

Oscillators on the daily chart are holding comfortably in the positive territory and the Relative Strength (RSI) has also eased from an extremely overbought zone. This, along with the recent breakout through the $3.0650 strong horizontal barrier, suggests that the path of least resistance for the XNG/USD is to the upside and supports prospects for the emergence of some dip-buying at lower levels.

In the meantime, the $3.3600 level is likely to protect the immediate downside ahead of the $3.2100-$3.1960 support zone. This is followed by the $3.0650 resistance-turned-support, which now coincides with the 200-period Simple Moving Average (SMA) on the 4-hour chart. A convincing break below the latter could negate the positive outlook and prompt technical selling around the XNG/USD.

On the flip side, the $3.5000 area now seems to act as an immediate hurdle, above which the commodity could climb back to the multi-month top, around the $3.6350-$3.6400 region touched last week. Some follow-through buying will be seen as a fresh trigger for bulls and lift the XNG/USD to the $3.8770 en route to the $4.000 mark and the YTD high, around the $4.0380 touched in January.

XNG/USD daily chart

• Asian equities trade in negative territory amid the cautious mood.
• Chinese central bank maintained the one-year Medium-term Lending Facility (MLF) rate unchanged at 2.50%.
• Japan’s Nikkei index is the worst performer ahead of the inflation data.
• The Chinese growth number (Q3), Industrial Production, and Retail Sales on Wednesday will be closely watched events.

Most Asian stocks trade lower on Monday as investors turn cautious amid the escalating geopolitical tensions between Israel and Hamas. Japan’s Nikkei index leads losses ahead of the key inflation data on Friday.

The conflict in the Middle East exerts some selling pressure on the regional stock markets. Israeli Prime Minister Benjamin Netanyahu stated on Sunday that he vowed to "demolish Hamas" as his military got ready ground operations in Gaza to root out the militant group. US President Joe Biden has called for civilian protection, and the US has been working to alleviate food, water, and petroleum shortages. Apart from this, the upbeat inflation US data last week raised concerns about the potential rate hikes by the Federal Reserve (Fed).

At press time, China’s Shanghai drops 0.40% to 3,075, the Shenzhen Component Index falls 0.99% to 9,969, Hong Kong’s Hang Sang is down 0.37% to 17,745, South Korea’s Kospi dips 1.24% and Japan’s Nikkei falls 1.80%.

In China, the People’s Bank of China (PBOC) maintained the one-year Medium-term Lending Facility (MLF) rate unchanged at 2.50% on Monday. While the central bank kept the seven-day reverse repo rate unadjusted at 1.80%.

Additionally, PBoC Governor Pan Gongsheng stated at the International Monetary Fund meeting in Morocco that authorities vowed to provide more substantial support to the real economy

The National Bureau of Statistics of China showed on Friday that the Chinese Consumer Price Index (CPI) for September came in at 0% YoY versus 0.1% prior, below the market consensus of 0.2%. Meanwhile, the Producer Price Index (PPI) dropped to 2.5% from a 3% fall in August, missing the expectation of a 2.4% decline. Investors await the key Chinese economic data later this week for fresh impetus. China’s Gross Domestic Product (GDP) for the third quarter, Industrial Production, and Retail Sales will be released on Wednesday.

In Japan, the fear of additional interest rates raised by the Fed exerts pressure on the Japanese Yen (JPY). Market players also turn to a cautious mood ahead of the release of Japan’s National Consumer Price Index for September due on Friday. Any indications of persistent inflation might convince the Bank of Japan (BoJ) to further tighten monetary policy.

Looking ahead, market participants will monitor the US Retail Sales due on Tuesday. The attention will shift to the Chinese growth number for the third quarter (Q3), Industrial Production, and Retail Sales on Wednesday. On Friday, the Japanese inflation data will be released.

• Gold price kicks off the new week on a weaker note and reverses a part of Friday’s rise to a multi-week high.
• Failure to find acceptance above the 200-day SMA prompts some profit-taking amid elevated US bond yields.
• Israel-Hamas conflict and dovish Fed expectations should help limit any meaningful downfall for the XAU/USD.

Gold price (XAU/USD) rallied to over a three-week high, around the $1,932-1,933 area on Friday in the wake of the intensifying Israel-Hamas conflict, which forced investors to take refuge in traditional safe-haven assets. Apart from this, expectations that the Federal Reserve (Fed) is nearing the end of its rate-hiking cycle provided an additional boost to the non-yielding yellow metal.

Bulls, however, struggled to capitalize on the momentum beyond a technically significant 200-day Simple Moving Average (SMA). This, along with elevated US Treasury bond yields, prompts some profit-taking around the Gold price and leads to a fresh leg down during the Asian session on Monday. The downside, however, seems limited amid a subdued US Dollar (USD) price action.

Traders might also prefer to wait for fresh cues about the Fed's future rate-hike path and important macro releases from China – the world's second-largest economy – before placing fresh directional bets around the Gold price.

Daily Digest Market Movers: Gold price might continue to attract haven flows amid Israel-Hamas conflict

• Gold price rallied nearly 3.5% on Friday and recorded strong gains of over 5.2% for the week – the most since March.
• An escalation in conflict between Hamas and Israeli troops provided a strong boost to the safe-haven XAU/USD.
• The evacuation deadline issued by the Israeli military to the residents of northern Gaza has already been exhausted.
• The Israeli military has positioned armoured vehicles and could launch a large-scale ground assault in the Gaza Strip.
• The Israel Defence Force (IDF) had announced that they are prepared for a coordinated attack involving air, ground, and naval forces.
• Meanwhile, Iran warned of far-reaching consequences if Israel's bombardment was not stopped.
• Israel also faces the possibility of a separate conflict on its northern border with Lebanon after artillery exchanges with the Iran-backed Hezbollah group.
• The markets seem convinced that the Fed will leave rates unchanged for the second consecutive month in November.
• The US consumer sentiment deteriorated in October, though labour market strength could support consumer spending.
• The US bond yields remain elevated as investors are still pricing in one more Fed rate hike move by the year-end.
• Failure to find acceptance above the 200-day SMA prompts some profit-taking around the Gold price on Monday.

Technical Analysis: Gold price could attract fresh buyers near the 100-day SMA, $1,900 mark

From a technical perspective, any subsequent decline is more likely to find decent support near the $1,900 round-figure mark. The said handle coincides with the 100-day SMA and should now act as a key pivotal point. A convincing break below could make the Gold price vulnerable to test the next relevant support near the $1,868 horizontal zone before dropping to the $1,860-1,855 region.

On the flip side, bulls might now wait for some follow-through buying beyond Friday’s swing high, around the $1,932-1,933 zone, before placing fresh bets. The Gold price might then accelerate the momentum towards the $1,945-1,947 heavy supply zone. A sustained strength beyond the latter will be seen as a fresh trigger for bulls and pave the way for a further appreciating move.

• USD/INR could face challenges due to the rising Crude oil prices.
• RBI is expected to intervene to prevent further depreciation of the Indian Rupee.
• US Dollar experienced upward support on risk aversion over the Middle-East conflict.

USD/INR trades above 83.20 during the Asian session on Monday. The Indian Rupee (INR) may encounter challenges due to the rise in crude oil prices amid the conflict between Palestine and Israel.

However, traders anticipate intervention by the Reserve Bank of India (RBI) to prevent further depreciation of the domestic currency. The RBI has been actively intervening in both the spot over-the-counter market and in non-deliverable forwards (NDFs) to prevent the INR from depreciating below the record low of 83.29.

Moreover, on Friday, India’s Trade Deficit Government reduced to a five-month low of $19.37B in September, compared to the market consensus of $23.25B. The previous reading was $24.2B in August. While FX Reserves for the week ending on October 6, declined to $584.74B from $586.91B.

The US Dollar Index (DXY) trades slightly lower around 106.50. The US Dollar (USD) gained momentum following the release of robust data in the previous week, with inflation surpassing expectations and initial jobless claims coming in lower than anticipated.

However, the preliminary US Michigan Consumer Sentiment Index for October showed an easing trend. On Friday, the report indicated a decline to 63.0 from the previous reading of 68.1, falling short of the expected figure of 67.4.

Furthermore, the US Dollar continues to draw support from safe-haven demand amid escalating geopolitical tensions between Israel and Palestine. According to an undisclosed source cited by Reuters, discussions have taken place between US officials and Israel regarding the potential visit of President Joe Biden to Israel. The reported invitation for this visit comes from Israeli Prime Minister Benjamin Netanyahu.

Investors appear to be considering the possibility of another rate hike by the Federal Reserve (Fed). The market sentiment has shifted after the release of strong economic data from the United States (US), potentially providing upward support for the USD/INR pair.

Furthermore, the recovery in US Treasury yields from recent losses could contribute to underpinning the US Dollar (USD). As of Monday, the 10-year US Treasury bond yield stands at 4.66%, up by 1.13%.

Market participants will closely watch the US Retail Sales (MoM) on Tuesday, with expectations for a 0.2% rise in September compared to the previous reading of 0.6%.

• EUR/USD attracts some buyers above 1.0520 amid the softer USD.
• The pair holds below the 50- and 100-hour EMAs; RSI is located in the bearish territory under 50.
• The immediate resistance level is seen at 1.0558; 1.0477 acts as an initial support level.

The EUR/USD pair posts modest gains during the Asian session on Monday. The rebound of the pair is supported by the softer US Dollar (USD) broadly. EUR/USD currently trades near 1.0522, up 0.22% on the day.

According to the four-hour chart, the EUR/USD pair holds below the 50- and 100-hour Exponential Moving Averages (EMAs) with a downward slope, which means the path of least resistance for the pair is to the downside. Adding to this, the Relative Strength Index (RSI) is located in the bearish territory under 50, indicating further downside cannot be ruled out.

That being said, the immediate resistance level for EUR/USD is seen near the 50-hour EMA at 1.0558. The additional upside filter will emerge near the 100-hour EMA at 1.0578. Any follow-through buying above the latter will see a rally to the key barrier at 1.0600, portraying a psychological round figure and a high of October 6. Further north, the major pair will challenge the next hurdle at 1.0640 (a high of October 12), followed by 1.0655 (the upper boundary of Bollinger Band).

On the flip side, the lower limit of the Bollinger Band at 1.0477 acts as an initial support level for EUR/USD. The next contention to watch is near a low of October 4 at 1.0450. The next downside stop is located at the 1.0400-1.0405 zone, representing a psychological mark and a high of October 17. A decisive break below the latter will see a drop to 1.0330 (a low of November 16, 2022).

EUR/USD four-hour chart

• USD/MXN retreats from a two-day winning streak ahead of US economic figures.
• US Dollar faces a challenge after the weaker preliminary US Michigan Consumer Sentiment Index.
• Banxico is expected to keep interest rates higher; contributing support for the Mexican Peso.

USD/MXN pulls back from the recent gains, trading lower around 18.0160 during the Asian session on Monday. The pair is facing challenges after the release weaker-than-expected preliminary Michigan Consumer Sentiment Index from the United States (US).

On Friday, the report for October showed a decline to 63.0 from the previous reading of 68.1, falling short of the expected figure of 67.4.

However, the USD/MXN pair gained in previous sessions possibly due to the shift in discussions about the trajectory of the US Federal Reserve's (Fed) monetary policy following the slew of robust US data during the last week, with US inflation surpassing expectations and initial jobless claims coming in lower than anticipated.

The US Dollar Index (DXY) trades slightly lower around 106.50 at the time of writing. However, investors seem to factor in the possibility of another Federal Reserve (Fed) rate hike to curb inflation.

Moreover, the recovery in US Treasury yields from the recent losses could provide support in underpinning the US Dollar (USD). The yields on US Treasury bonds recovers on Monday, with the 10-year US Treasury bond yield standing at 4.65%, up by 1.0%.

Additionally, the Greenback remains to benefit from the safe-haven flow amid the rising geopolitical tension between Israel and Palestine. An undisclosed source informed Reuters that there have been discussions between US officials and Israel regarding the potential visit of President Joe Biden to Israel. The invitation for this visit is reported to have come from Israeli Prime Minister Benjamin Netanyahu.

Market participants will likely watch the US Retail Sales (MoM) on Tuesday, with the figure expected to rise 0.2% in September, compared to the previous reading of 0.6%.

On the Mexican side, the recent release of Banxico's monetary policy minutes presents a hawkish outlook, with members indicating a reluctance to entertain the idea of a rate cut in the near term. The prevailing consensus among members reflects a belief that interest rates should be maintained at higher levels for an extended duration.

The main reason given for this position is the elevated prices noted in the services segment, identified as a significant factor influencing inflation data. This hawkish sentiment highlights a careful approach to monetary policy, with a priority on addressing inflationary pressures.

In September, the Bank of Mexico (Banxico) opted to keep interest rates steady at 11.25%. Additionally, the central bank revised its inflation projections for 2024 from 3.50% to 3.87%, exceeding the target range of 3% (plus or minus 1%). This adjustment in inflation forecasts suggests heightened concerns about the potential upward trajectory of prices, prompting a cautious stance from the central bank.

• WTI touches a one-and-half-week high on Monday, albeit lacks follow-through buying.
• Traders now prefer to wait for fresh developments surrounding the Israel-Gaza conflict.
• Worries about tightening global supply should act as a tailwind and limit the downside.

West Texas Intermediary (WTI) Crude Oil prices reverse a modest Asian session dip to the $85.80 area and move back closer to a one-and-half-week high touched earlier this Monday. The commodity currently trades around the $86.40 region, down less than 0.20% for the day as traders seem reluctant to place aggressive bets and prefer to wait for more developments surrounding the Israel-Hamas clashes.

The evacuation deadline issued by the Israeli military to the residents of northern Gaza has been exhausted. This means that Israeli troops could launch a large-scale ground assault at any moment. Iran, meanwhile, warned on Saturday that if Israel's war crimes and genocide are not stopped then the situation could spiral out of control with far-reaching consequences. This raises the risk of a wide Middle East conflict and could affect supplies from countries in the world's top oil-producing region, which, in turn, is seen acting as a tailwind for Crude Oil prices.

This comes after the US last week toughened its stance against Russia and imposed sanctions on two shipping companies for carrying Russian Oil bought at a price greater than the $60/barrel price cap imposed by G7 countries last year. Russia is one of the world's top crude exporters and the tighter US scrutiny of its shipments could curtail global supply. Worries about tightening global supply, along with a forecast that global inventories will decline through the fourth quarter, might continue to lend some support to Crude Oil prices and favour bulls.

The upside, however, seems capped in the wake of growing worries that rapidly rising borrowing costs will dampen global economic activity and dent fuel demand. This might turn out to be the only factor that could keep a lid on any meaningful upside for Crude Oil prices. Nevertheless, the aforementioned supportive fundamental backdrop might continue to lend support to black gold and help limit any meaningful downside.

Technical levels to watch

As risks of the Hamas-Israel war engulfing the entire region mount, the United States (US) and its allies step up their efforts to douse the flare-up, as they remain concerned about a potential Iranian intervention in the conflict.

 White House National Security Advisor Jake Sullivan said Sunday the US couldn’t rule out Iran intervening either directly or via Hezbollah, the Lebanon-based militia group that it sponsors.

Citing a person familiar with the negotiations, the US has asked Qatar to tell Hezbollah not to open up a second front to the war.

US Secretary of State Antony Blinken urged China’s Foreign Minister Wang Yi to deploy Beijing’s influence in the region toward the same goal.

Meanwhile, regional governments are uniting to try to stop the spreading of the conflict, a person familiar with Gulf efforts said. 

In response to this, Iran’s Foreign Minister Hossein Amir Abdollahian warned, “Iran will not remain an observer in this situation and has informed Israel via its allies if its crimes in Gaza continue 'tomorrow will be too late'.”

The Iranian Foreign Minister also met Hezbollah leader Hassan Nasrallah in Beirut on Friday to discuss a response to Israel’s actions, according to the state-run Iranian IRNA news service.

So far, more than 2,300 Palestinians have died in Israel’s retaliatory bombing of Gaza, raising concerns that the attack will spark a humanitarian catastrophe, per Bloomberg.

Market implications

Risk sentiment remains fragile, despite an uptick in the US S&P 500 futures, limiting the renewed weakness in the US Dollar across the board. Meanwhile, Gold price consolidates Friday’s massive surge, trading at around $1,921, as of writing.

• GBP/USD recovers from the recent losses ahead of economic figures from both countries.
• A slew of solid US data contributed support in underpinning the US Dollar.
• Investors seem to price in the probability of another rate hike by the Fed.

GBP/USD retraces the recent losses, trading higher around 1.2150 during the Asian session on Monday. The pair faced challenges possibly due to the shift in discussions about the trajectory of the US Federal Reserve's (Fed) monetary policy.

Investors are expected to focus on the labor data coming from the United Kingdom (UK). Employment Change expects a decline of 195K in August and ILO Unemployment Rate (3M) is expected to remain consistent at 4.3%.

On Monday, the Rightmove House Price Index (MoM) increased to 0.5% in October from the previous 0.4%. The yearly data showed that residential property prices declined by 0.8% compared to the 0.4% decline in the previous report.

The US Dollar Index (DXY) trades slightly lower around 106.50 at the time of writing. The US Dollar (USD) gained upward momentum after a release of robust US data during the previous week, with US inflation surpassing expectations and initial jobless claims coming in lower than anticipated.

However, the preliminary US Michigan Consumer Sentiment Index was eased in October. On Friday, the report for October showed a decline to 63.0 from the previous reading of 68.1, falling short of the expected figure of 67.4.

Investors seem to factor in the possibility of another Federal Reserve (Fed) rate hike. The market sentiment has shifted following the slew of robust economic data from the United States (USD). This could result in providing downward pressure on the GBP/USD pair.

Moreover, the recovery in US Treasury yields from the recent losses could provide support in underpinning the US Dollar (USD). The yields on US Treasury bonds recovers on Monday, with the 10-year US Treasury bond yield standing at 4.65%, up by 1.0%.

Additionally, the Greenback remains to benefit from the safe-haven flow amid the rising geopolitical tension between Israel and Palestine. An undisclosed source informed Reuters that there have been discussions between US officials and Israel regarding the potential visit of President Joe Biden to Israel. The invitation for this visit is reported to have come from Israeli Prime Minister Benjamin Netanyahu.

Market participants will likely watch the US Retail Sales (MoM) on Tuesday, with the figure expected to rise 0.2% in September, compared to the previous reading of 0.6%.

• USD/CHF struggles to gain around 0.9018 on Monday.
• US Michigan Consumer Sentiment Index fell to 63.0 versus 68.1 prior, below the market estimations of 67.4.
• The escalating geopolitical tensions between Israel and Palestine might boost the traditional safe-haven Swiss Franc.
• Market players will monitor the US Retail Sales, and Swiss Trade Balance later this week.

The USD/CHF pair remains under selling pressure above the 0.9000 area during the early Asian session on Monday. The downtick of the pair is bolstered by the softer US Dollar (USD) and a decline in US Treasury yield amid the rising geopolitical tensions in the Middle East. The pair currently trades near 0.9018, unchanged for the day.

On Friday, the University of Michigan (UoM) one-year Inflation expectations climbed from 3.2% to 3.8%, and five-year inflation estimates jumped from 2.8% to 3%. Additionally, the preliminary US Michigan Consumer Sentiment Index data on Friday fell to 63.0 versus 68.1 prior, below the market estimations of 67.4.

With the higher inflation expectation and the upbeat inflation data, investors anticipate a possible rate rise by the Federal Reserve (Fed) by the end of the year. The US Consumer Price Index (CPI) annually and monthly for September came in at 3.7% and 0.4%, respectively. However, the dovish comments from Fed officials might warrant bull traders on the aggressive bullish bets.

The economic data from the Swiss Federal Statistical Office on Friday reported that the nation’s Producer and Import Prices dropped 1.0% YoY in September from a 0.8% drop in the previous month. On a monthly basis, the figures declined 0.1% versus a 0.8% drop prior.

On Sunday, Israeli Prime Minister Benjamin Netanyahu vowed to "demolish Hamas" as his military got ready ground operations in Gaza to root out the militant group. Israel has been signaling that it is making preparations for ground operations in Gaza despite the escalating humanitarian crisis within the coastal Palestinian enclave. Biden has called for civilian protection, and the US has been working to alleviate food, water, and petroleum shortages. That said, the rising geopolitical tensions between Israel and Palestine might boost the traditional safe-haven Swiss Franc and act as a headwind for the USD/CHF pair.

Market players will keep an eye on the geopolitical tensions in the Middle East. The US Retail Sales for September will be released on Tuesday, with the figure expected to rise 0.2%. On Thursday, the Swiss Trade Balance for September will be due. Traders will take cues from these figures and find trading opportunities around the USD/CHF pair.

• USD/JPY edges higher during the Asian session, albeit lacks follow-through buying.
• Intervention fears cap the upside for the pair on the back of subdued USD demand.
• The divergent BoJ-Fed policy outlook continues to act as a tailwind and lend support.

The USD/JPY pair attracts some dip-buying near the 149.35-149.30 area during the Asian session on Monday, albeit lacks follow-through and remains below a one-and-half-week high touched on Friday.

The US Dollar (USD) struggles to capitalize on its post-US CPI gains registered over the past two trading days and kicks off the new week on a subdued note, which, in turn, is seen acting as a headwind for the USD/JPY pair. Several Federal Reserve (Fed) officials signalled that the US central bank could forgo a rate hike in November as a run-up in bond yields that has tightened financial conditions. This, in turn, is holding back the USD bulls from placing aggressive bets and acting as a headwind for the USD/JPY pair.

Apart from this, speculations that Japan will intervene in the FX market to combat a sustained depreciation in the Japanese Yen (JPY) further contribute to keeping a lid on the major. That said, a more dovish stance adopted by the Bank of Japan (BoJ), along with a positive tone around the US equity futures, is seen undermining the safe-haven JPY and lending some support to the USD/JPY pair.  In fact, the Japanese central bank retains its view that inflation is transient and has no plans to phase out its massive monetary stimulus.

In contrast, the markets are still pricing in the possibility of one more Fed rate hike by the end of this year. The bets were lifted following the release of the US CPI report last week, which showed that inflation remains well above the Fed's 2% target and supported prospects for further policy tightening. This remains supportive of elevated US Treasury bond yields and favours the USD bulls, suggesting that the path of least resistance for the USD/JPY pair is to the upside. Hence, any downtick might still be seen as a buying opportunity.

Market participants now look to the US economic docket, featuring the Empire State Manufacturing Index. This, along with the Fedspeaks and the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair later during the early North American session. Traders will further take cues from the broader risk sentiment to grab short-term opportunities around the major.

Technical levels to watch

China's central bank, the People’s Bank of China (PBOC) on Monday kept the one-year Medium-term Lending Facility (MLF) rate steady at 2.50%.

The PBOC left the seven-day reverse repo rate unadjusted at 1.80% while injecting CNY106 billion via seven-day reverse repos on Monday.

Market reaction

USD/CNY is trading 0.06% higher on the day at 7.3096 on the above announcement.

• Australian Dollar retraces recent losses post-release of the RBA Meeting Minutes on Tuesday.
• RBA is exploring the possibility of introducing a central bank digital currency to save costs of billions of dollars.
• Investors seem to price in the possibility of another Fed rate hike following a slew of robust US data.

The Australian Dollar (AUD) kicks off the week by recovering from the three-day losing streak, trading higher against the US Dollar on Monday. The pair faced challenges possibly due to the shift in discussions about the trajectory of the US Federal Reserve's (Fed) monetary policy. Investors are expected to focus on the Reserve Bank of Australia’s (RBA) Meeting Minutes on Tuesday and employment data later in the week.

Australia’s central bank is exploring possibly introducing a central bank digital currency (CBDC). Brad Jones, Assistant Governor (Financial System) at the RBA, discussed the tokenization of assets and money in the digital era at The Australian Financial Review Cryptocurrency Summit. Governor Jones highlighted the potential for tokenized money to bring about significant cost savings, potentially amounting to billions of dollars, in the domestic financial markets.

The National Bureau of Statistics of China reported on Friday that Chinese inflation experienced a decrease in September. This development could exert pressure on the Australian Dollar (AUD). The Chinese data indicates ongoing economic challenges despite the recent government stimulus plan aimed at supporting the nation in achieving its 5% growth target.

The US Dollar Index (DXY) gained upward momentum after a release of robust US data during the previous week, with US inflation surpassing expectations and initial jobless claims coming in lower than anticipated. However, the preliminary US Michigan Consumer Sentiment Index was eased in October.

Investors seem to factor in the possibility of another Federal Reserve’s (Fed) rate hike. Moreover, the recovery in US Treasury yields from the recent losses could provide support in underpinning the US Dollar (USD). Additionally, the Greenback remains to benefit from the safe-haven flow amid the rising geopolitical tension between Israel and Palestine.

Daily Digest Market Movers: Australian Dollar attempts to retrace a three-day losing streak

• Reserve Bank of Australia is exploring possibly introducing a central bank digital currency (CBDC).
• On Thursday, Australian Consumer Inflation Expectations for October were reported at 4.8%, reflecting a slight increase from the September figure of 4.6%. The rebound in inflation observed in August, primarily influenced by elevated oil prices, raises the likelihood of another interest rate hike by the RBA.
• According to the National Bureau of Statistics of China, the Chinese Consumer Price Index (CPI) for September registered at 0% (YoY), a decline from the previous reading of 0.1%. This figure fell short of the market consensus, which anticipated a 0.2% increase. Additionally, the Producer Price Index dropped to 2.5% from a 3% decline in August, missing the expectation of a 2.4% downturn.
• The ongoing conflict in the Middle East introduces an additional layer of complexity to the situation. This geopolitical factor could potentially prompt the RBA to implement a 25 basis points (bps) interest rate hike, reaching 4.35% by the end of the year.
• According to an undisclosed source to Reuters, US officials and Israel have engaged in discussions about the possibility of a visit by US President Joe Biden to Israel. The invitation for the visit reportedly came from Israeli Prime Minister Benjamin Netanyahu.
• The US Bureau of Labor Statistics (BLS) disclosed that the Consumer Price Index in the US surpassed forecasts in September. The annual basis figures expanded at a consistent rate of 3.7%, slightly exceeding estimates of 3.6%.
• US Initial Jobless Claims for the week ending on October 6 showed a slight easing, despite an increase of 209K, which was slightly below the forecast of 210K.
• On Friday, the preliminary US Michigan Consumer Sentiment Index for October showed a decline to 63.0 from the previous reading of 68.1, falling short of the expected figure of 67.4.
• The yields on US Treasury bonds recovers on Monday, with the 10-year US Treasury bond yield standing at 4.66%, up by 1.04%.
• Market participants will likely monitor the US Retail Sales on Tuesday, with the figure expected to rise 0.2%. On the Australian docket, attention will be on the Reserve Bank of Australia (RBA) meeting minutes and employment data scheduled for release in the coming week.

Technical Analysis: Australian Dollar consolidates above the psychological support at the 0.6300 level

The Australian Dollar trades around 0.6310, in proximity to a significant support level at 0.6300, which aligns with the monthly low at 0.6285. On the upside, a key resistance is observed at the 44-day Exponential Moving Average (EMA) around the 0.6427 level, coinciding with the 23.6% Fibonacci retracement level at 0.6429. A decisive breakthrough of this resistance could open the path for upward momentum, with a potential target set at the psychological milestone of 0.6500. These technical levels guide traders to assess potential price movements in the Aussie Dollar.

AUD/USD: Daily Chart

• USD/CAD lacks any firm direction and oscillates in a range through the Asian session on Monday.
• The uncertain Fed rate-hike path and a positive risk tone keep the USD bulls on the defensive.
• A modest downtick in Crude Oil prices undermines the Loonie and acts as a tailwind for the major.

The USD/CAD pair struggles to gain any meaningful traction on Monday and oscillates in a narrow trading band, around the 1.3650 area through the first half of the European session.

The US Dollar (USD) kicks off the new week on a subdued note and for now, seems to have stalled the post-US CPI positive move witnessed over the past two trading days. The recent dovish remarks by several Federal Reserve (Fed) officials suggested that the US central bank is poised to leave interest rates unchanged for the second consecutive month in November and nearing the end of its policy-tightening cycle. This, along with a positive tone around the US equity futures, is seen weighing on the safe-haven Greenback and acting as a tailwind for the USD/CAD pair.

The downside for the USD, however, seems limited on the back of expectations that the Fed will keep rates higher for longer. The bets were reaffirmed by the latest US consumer inflation figures released last Thursday, which remained above the Fed's target and kept the door open for one more Fed rate hike in 2023. The outlook, meanwhile, remains supportive of elevated US Treasury bond yields and should act as a tailwind for the buck. Apart from this, a modest downtick in Crude Oil prices could undermine the commodity-linked Loonie and lend some support to the USD/CAD pair.

This makes it prudent to wait for strong follow-through selling before confirming that last week's bounce from the 1.3570-1.3565 region has run its course and positioning for the resumption of the recent pullback from a multi-month high touched earlier this month. Market participants now look to the US economic docket, featuring the Empire State Manufacturing Index. This, along with the Fedspeaks, the US bond yields and the broader risk sentiment, will drive the USD later during the North American session. Apart from this, Oil price dynamics should provide some impetus to the USD/CAD pair.

Technical levels to watch

On Monday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1798 as compared to the previous day's fix of 7.1775 and 7.3121 Reuters estimate.

• NZD/USD kicks off the new week on a positive note above the 0.5900 mark on Monday.
• New Zealand’s Business NZ PSI came in at 50.7 in September vs. 47.1 prior.
• The escalated geopolitical tensions between Israel and Palestine might boost the safe-haven flow in the US Dollar.
• Market players await the New Zealand inflation data, US Retail Sales.

The NZD/USD pair attracts some buyers during the early Asian trading hours on Monday. Investors await the New Zealand Consumer Price Index (CPI) data due later on Monday. The inflation figures for the third quarter (Q3) quarterly and annually are expected to rise by 2.0% and 5.9%, respectively. The pair currently trades around 0.5909, gaining 0.35% on the day.

The latest data on Monday revealed that New Zealand’s Business NZ Performance of Services Index (PSI) came in at 50.7 in September from 47.1 in the previous month. Last week, the nation’s Business NZ Purchasing Manager's Index (PMI) eased to 45.3 against the previous reading of 46.1.

The Reserve Bank of New Zealand (RBNZ) committee agreed that interest rates may need to remain at a restrictive level for a more sustained period of time. However, the New Zealand inflation on Monday at 21.45 GMT could offer hints for the RBNZ’s further interest rate policy.

On the other hand, the preliminary US Michigan Consumer Sentiment Index data on Friday fell to 63.0 from 68.1 the previous month, below the market consensus of 67.4. Meanwhile, one-year Inflation expectations climbed from 3.2% to 3.8%, and five-year inflation estimates jumped from 2.8% to 3%. With the higher inflation expectation and the upbeat inflation data, investors anticipate a possible rate rise by the Federal Reserve (Fed) by the end of the year. The US Consumer Price Index (CPI) annually and monthly for September came in at 3.7% and 0.4%, respectively. This, in turn, might boost the US Dollar (USD) and exert pressure on the New Zealand Dollar (NZD).

Meanwhile, the escalated geopolitical tensions between Israel and Palestine might boost the safe-haven flow in the US Dollar and act as a headwind for the pair. On Sunday, Israeli Prime Minister Benjamin Netanyahu vowed to "demolish Hamas" as his military got ready ground operations in Gaza to root out the militant group.

Market participants will monitor the New Zealand Consumer Price Index (CPI) due later on Monday. Later this week, the US Retail Sales and the New Zealand trade data will be due. These figures could provide a clear direction to the NZD/USD pair.

• EUR/USD gains some positive traction on Monday and is supported by subdued USD price action.
• Bets for at least one more Fed rate hike in 2023 act as a tailwind for the USD and should cap the pair.
• Expectations that the ECB is done hiking rates might also hold back bulls from placing aggressive bets.

The EUR/USD pair kicks off the new week on a positive note and reverses a part of Friday's losses to a one-week low – levels just below the 1.0500 psychological mark. Spot prices, for now, seem to have snapped a two-day losing streak, though the lack of follow-through warrants some caution before positioning for any further appreciating move.

The US Dollar (USD) struggles to capitalize on its post-US CPI gains registered over the past two trading days and oscillates in a range during the Asian session on Monday, which, in turn, is seen lending some support to the EUR/USD pair. The downside for the USD, however, seems cushioned in the wake of expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. The bets were reaffirmed by the latest US consumer inflation figures released last Thursday, which remained above the Fed's target and kept the door open for at least one more Fed rate hike in 2023.

The outlook, meanwhile, remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the buck. That said, the recent dovish remarks by several Fed officials suggested that the US central bank is poised to leave interest rates unchanged for the second consecutive month in November and nearing the end of its policy-tightening cycle. This, along with a positive tone around the US equity futures, further undermines the safe-haven Greenback. However, speculations that further rate hikes by the European Central Bank (ECB) may be off the table for now cap gains for the EUR/USD pair.

In fact, the ECB signalled in September that the hike, its 10th in a 14-month-long fight against inflation, was likely to be its last. Adding to this, ECB policymakers expressed cautious optimism last week that inflation was on its way back to 2% even without more rate hikes. Furthermore, ECB President Christine Lagarde, speaking at the International Monetary Fund’s annual meeting, said over the weekend that growth could be slower if the effects of monetary policy turn out to be more forceful than expected, or if the world economy weakens further and geopolitical risks intensify, warranting caution for the EUR/USD bulls.

Moving ahead, there isn't any relevant market-moving macro data due from the Eurozone on Monday, while the US economic docket features the only release of the Empire State Manufacturing Index. Traders will further take cues from Fedspeaks, which, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and provide some impetus to the EUR/USD pair. Nevertheless, the aforementioned fundamental backdrop suggests that any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch

According to official news agency WAFA, Palestinian Authority President Mahmoud Abbas said the actions and policies of Islamist group Hamas do not represent Palestinian people.

"The president affirmed his rejection of the killing of civilians on both sides and called for the release of civilians, prisoners and detainees on both sides," said the news agency.

On Sunday, Israeli Prime Minister Benjamin Netanyahu vowed to "demolish Hamas" as his military got ready ground operations in Gaza to root out the militant group, whose violent march across Israeli border communities horrified the country, According to Reuters.

The People’s Bank of China (PBoC) Governor and head of the State Administration of Foreign Exchange, Pan Gongsheng spoke over the weekend at the International Monetary Fund meeting in Morocco.

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Market reaction

At the time of writing, AUD/USD is trading at 0.6311, up 0.24% on the day.