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The final reading of Australia's Judo Bank Services Purchasing Managers Index (PMI) declined to 50.5 in September from 50.6 in the previous reading. This figure was below the market consensus of 50.6, the latest data published by Judo Bank and S&P Global showed on Thursday.

The Composite PMI dropped to 49.6 in September versus 49.8 prior.  

Market reaction

At the press time, the AUD/USD pair was up 0.01% on the day to trade at 0.6885. 

• NZD/USD trades in negative territory for the third consecutive day around 0.6260 in Thursday’s early Asian session. 
• The US private sector added more jobs than expected in September.
• The RBNZ is anticipated to cut more rates next week. 

The NZD/USD pair attracts some sellers to near 0.6260 during the early Asian session on Thursday. The stronger US Dollar (USD) and rising US yields weigh on the pair. 

The Greenback edges higher after the encouraging report on Wednesday. Private sector employment in the US climbed 143,000 in September and above the estimated 120,000 jobs, the Automatic Data Processing (ADP) reported on Wednesday. This report indicated the labor market is holding its ground despite some signs of weakness. 

Richmond Fed President Thomas Barkin said on Wednesday that the Fed's fight to return inflation to its 2% target may take longer than expected to complete and limit how far interest rates can be cut, per Reuters. Interest rate futures contracts have priced in a nearly 35.6% chance of a half-point cut in November, versus a 64.4% possibility of a quarter-point cut, according to the CME FedWatch Tool.

Market players will monitor the US September ISM Services Purchasing Managers Index (PMI) on Thursday, which is expected to improve to 51.7 in September from 51.5 in August. Additionally, the weekly Initial Jobless Claims and the final S&P Global Services PMI will be published. 

The New Zealand Dollar (NZD) remains under selling pressure amid rising bets of a more aggressive rate reduction from the Reserve Bank of New Zealand (RBNZ) at its upcoming next week, with an 87% odds of a 50-basis points (bps) rate cut being priced in. 

• EUR/USD declined for a fourth straight day on Wednesday.
• Market sentiment keeps one foot in safe havens amid geopolitical uncertainty.
• Upbeat US jobs data limits hopes for further overweighted Fed rate cuts.

EUR/USD trimmed further into the bearish side on Wednesday, dragging Fiber bids further into the low end as markets grapple with an uncertain outlook on the Middle East and evaporating hopes for a follow-up jumbo rate cut from the Federal Reserve (Fed) in November.

This week's data show is purely US, with European datapoints strictly low-tier appearances from European Central Bank (ECB) policymakers. US Nonfarm Payrolls (NFP) loom ahead on Friday, and investors are gearing up for a high-impact print in US net job additions.

The US ADP Employment Change data for September exceeded expectations, with 143,000 new jobs added, surpassing the median forecast of 120,000 and the revised August figure of 103,000. Investors are now eagerly anticipating the official non-farm payrolls (NFP) report due on Friday to confirm these preliminary numbers.

Federal Reserve Chair Jerome Powell cautioned against interpreting the 50 basis point rate cut in September as a precursor to further aggressive rate adjustments. The Fed's Summary of Economic Projections (SEP) indicates a total of 50 basis points in rate cuts over the next several meetings. Market sentiment aligns with the Fed's projection, with the CME's FedWatch Tool showing a 60% probability of a 25 basis point rate cut in November, while 40% are still anticipating a larger 50 basis point cut.

In addition to the focus on Fed rate cuts, the domestic US manufacturing outlook is uncertain due to a strike by port workers affecting the movement of goods along the East and Gulf Coasts. Escalating tensions in the Middle East, triggered by Iran's missile strike on Israel in response to Israel's actions in Lebanon, are further contributing to market volatility. Investors are closely monitoring the situation to gauge Israel's response to the escalating conflict.

EUR/USD price forecast

Intraday price action has officially been trucked into the 50-day Exponential Moving Average (EMA), and despite a half-hearted showing from Fiber bulls, the pair remains on the north side of the key moving average. EUR/USD continues to churn in the 1.1050 neighborhood, but a notable lack of a technical recovery leaves short flows in control of the pair with sellers targeting the 1.1000 round figure.

EUR/USD daily chart

• Silver rises 0.39%, trading at $31.82 as buyers push prices above the opening level, reclaiming $31.50.
• RSI hints at consolidation ahead, with a break above $32.30 needed to challenge the YTD high of $32.71.
• A fall below $31.00 could lead to a deeper pullback, with key support levels at $30.50 and the 100-DMA at $29.74.

Silver price recovered some ground on Wednesday, advanced some 0.39%, and reclaimed the $31.50 figure as buyers stepped in and pushed the grey’s metal price above its opening price. Higher US Treasury bond yields capped its advance, yet XAG/USD trades at $31.82 as Thursday’s Asian session begins.

XAG/USD Price Forecast: Technical outlook

Silver price has printed back-to-back bullish days, yet it failed to surpass the $32.00 figure, exposing the grey metal to selling pressure. The Relative Strength Index (RSI) hints that buyers remain in control, but it has turned flat, indicating that consolidation lies ahead.

If XAG/USD clears the October 2 peak of $32.30, it will resume its uptrend and challenge the year-to-date (YTD) high of $32.71. A breach of the latter will push Silver to $33.00 before testing on October 1, 2012, high at $35.40.

On the other hand, if XAG/USD dives beneath the October 2 daily low of $31.00, this would sponsor a leg-down to the psychological $30.50 figure, followed by the 100-day moving average (DMA) at $29.74, ahead of the 50-DMA at $29.32.

XAG/USD Price Action – Daily Chart

• The Greenback has found a firm bidding floor after weeks of being pinned to boards.
• With Fed rate cuts contingent on labor data, expectations for more cuts hang in the balance.
• Geopolitical risks remain a key sticking point for global markets on Wednesday.

The US Dollar (USD) Index (DXY) rose for a third consecutive day as broad-market risk appetite takes a beating. Geopolitical concerns have weighed down investor sentiment this week as conflicts in the Middle East bubble over, and better-than-expected US job data is crimping hopes for follow-up jumbo rate cuts from the Federal Reserve (Fed).

US ADP Employment Change figures printed far higher than markets expected on Wednesday, making it difficult for investors to keep hoping for outsized rate cuts after several Fed officials hit the newswires this week warning that September’s 50 bps rate cut was likely a one-off and not a signal of future policy.

Daily digest market movers

• US Dollar Index (DXY) clears 101.50 as Greenback rally extends on nervous markets.
• The Middle East escalation is threatening to boil over following Iran’s missile attack on Israel on Tuesday.
• Investors are waiting to see how Israel will retaliate against Iran, who were retaliating after Israel launched a ground invasion into Lebanon last week.
• US ADP Employment Change figures came in at 143K for September, clearing the forecast 120K and vaulting over the previous month’s revised 103K.
• Rising employment figures limit market hopes for further outsized Fed rate cuts.
• Investors still look ahead to Friday’s looming Nonfarm Payrolls (NFP) jobs print.

DXY price forecast

Despite a near-term upswing, the US Dollar Index remains fairly tepid overall, with the major currency index still hobbled below previous highs made near 102.00. Greenback traders have grappled with a rough go of things since the US Dollar peaked near 106.50 earlier in 2024. The DXY has recovered over 1.5% from last week’s swing low into the 100.00 handle, but USD flows remain down 4.5% overall from 2024’s peak bid of 106.52.

DXY daily chart

• USD/JPY surges over 2%, rallying from a low of 143.42 following comments from Japan’s Prime Minister Ishiba.
• The pair breaks significant resistance, including the 50-DMA at 145.53, now trading near 146.47.
• For a bearish reversal, USD/JPY needs to drop below the 50-DMA, with 145.00 as the subsequent key support.

The Greenback recovered against the Japanese Yen on Wednesday, rallying over 2% after Japanese Prime Minister Ishiba commented the economic environment is not ready for additional rate hikes. Hence, the USD/JPY jumped off daily lows of around 143.42 and soared sharply toward current exchange rates. At the time of writing, the pair trades at 146.47.

USD/JPY Price Forecast: Technical outlook

The USD/JPY has broken key resistance levels and is descending toward the bottom of the Ichimoku Cloud (Kumo).

Firstly, it broke a resistance trendline drawn from around August 15 highs, which passed at around 144.00/10. Once this was cleared, it opened the door for further upside.

After that, the USD/JPY climbed above the October 1 high of 144.53, followed by the 145.00 figure. Once surpassed, there was not in the bull's path as they exceeded the 50-day moving average (DMA) at 145.53, on its way toward the current exchange rates.

For a bearish resumption, the USD/JPY must clear the 50-DMA on the downside, which will expose the 145.00 mark.

USD/JPY Price Action – Daily Chart

• AUD/USD slips as geopolitical tensions weigh on risk sentiment.
• US private hiring data improves, while Richmond Fed President Barkin warns that inflation remains a concern despite recent rate cuts.
• Traders focus on upcoming Australian PMI data with the RBA focused on high inflation.

The Australian Dollar (AUD) registers minimal losses against the Greenback late during Wednesday’s North American session after hitting a daily high of 0.6915. Risk aversion boosted the prospects of safe-haven currencies, due to the likelihood of Israel retaliating after Iran’s missile attack on Tuesday. The AUD/USD trades at 0.6882, virtually unchanged.

Antipodeans remained pressured due to geopolitical tensions. Hence, the Greenback was boosted as Israel’s envoy to the United Nations warned of a possible attack. At the same time, a senior official at the US State Department revealed that the US is also weighing the answer to Iran’s attack.

US data was positive, with private hiring improving in September. Richmond Fed President Thomas Barkin reiterated that despite lowering rates “aggressively” by 50 basis points (bps) in September, they had not won the battle against inflation.

On the Australian Dollar front, traders are eyeing the release of September’s Judo Bank Services and Composite PMIs, with the former expected to cool down sharply though still in expansionary territory. The Reserve Bank of Australia (RBA) has remained wary that inflation is too high, failing to provide hints of the beginning of its easing cycle.

Earlier, the Australian Bureau of Statistics (ABS) revealed that Retail Sales on Tuesday were better than expected, justifying the RBA’s stance to hold rates higher.

Daily digest market movers: Australian Dollar is on the back foot following US jobs data

• The ADP National Employment Change for September came in at 143K, up from the upwardly revised 103K in the previous month, surpassing the forecast of 120K.
• Market participants have placed the odds of a 25 bps Fed rate cut at 64%, while the chances for a more significant 50 bps cut have diminished to 36%, according to the CME FedWatch Tool.
• Australia’s Judo Bank Services PMI is expected to decrease from 52.5 to 50.6 in September. The latest reading of the Composite PMI was 51.7.  A reading lower than expected would suggest a deterioration in business activity.
• The latest Aussie Retail Sales fared better than expected, crushed the 0.4% increase in July and rose 0.7% MoM in August.
• Retail Sales on Tuesday, the primary gauge of Australia’s consumer spending, rose 0.7% MoM in August. This exceeded the market expectations of a 0.4% increase.
• China’s business activity has deteriorated, which has led to increased stimulus from the People’s Bank of China (PBoC) and the Politburo.
• To stimulate the economy, the PBoC cut loan rates, reduced bank reserve capital requirements and even lowered property down payments. If China’s economy continues to print deflationary readings, it could miss its Gross Domestic Product (GDP) 5% goal for 2024.

Technical outlook: Australian Dollar to retrace in the short-term before challenging 0.6900

The AUD/USD is set to extend its losses after failing to hold gains above the 0.6900 figure. Although momentum suggests that buyers are in charge, the Relative Strength Index (RSI) is aiming lower in the short term. Therefore, the AUD/USD is tilted to the downside before resuming its ongoing uptrend.

The AUD/USD could test the December 28, 2023 peak turned support at 0.6871 on further weakness. Once surrendered, the next stop would be the October 1, 2024 low of 0.6856, ahead of challenging 0.6800.

However, if AUD/USD aims higher and closes above 0.6900, look for a retest of the year-to-date high of 0.6934.

• The Canadian Dollar continues to find familiar ground near 1.3500 against the Greenback.
• A lack of data from Canada leaves the CAD at the mercy of market flows.
• US jobs preview figures outpace forecasts with NFP Friday looming ahead.

The Canadian Dollar (CAD) eased slightly on Wednesday as overall risk-off flows bump the Greenback higher. Middle East geopolitical tensions and overall investor outlook on upcoming US jobs figures dominate market attention during the midweek market session.

Canada released updated Purchasing Managers Index (PMI) to very little fanfare earlier this week, but precursor US Nonfarm Payolls (NFP) figures took center stage on Wednesday as investors grapple with hopes for further Federal Reserve (Fed) rate cuts.

Daily digest market movers

• The Canadian Dollar found little momentum on Wednesday, shedding a scant tenth of a percent against the US Dollar.
• Canada’s S&P PMI in September returned to positive territory above 50.0 for the first time since May of 2023 this week, printing at 50.4 and finding its highest value since March of 2023. Despite the upturned activity outlook, the CAD has found very little bullish momentum.
• Market participants are grappling with an upshot in US labor figures on Wednesday; US ADP Employment Change figures came in much higher than expected, crimping odds of further jumbo rate cuts from the Fed.
• While rising US labor figures ahead of Friday’s NFP labor print is a good thing, investors desperate for further 50 bps rate cuts from the Fed in 2024 are set to be disappointed as central planners hinge the size of future rate cuts on labor market performance.
• CAD traders will have to wait until Friday for any more Canadian economic data. Canada’s Ivey PMI figures are likely to be entirely eclipsed by the hotly-anticipated NFP release.

CAD price forecast

The Canadian Dollar (CAD) continues to grind out a sideways technical pattern on daily candlesticks; USD/CAD is caught in a volatility trap just south of the 200-day Exponential Moving Average (EMA near the 1.3600 handle, but the Loonie remains unable to break into a fresh bullish rally against the Greenback.

USD/CAD daily chart

• Gold price slumps on Wednesday amid heightened tensions between Israel and Iran.
• A robust ADP National Employment Change report could be a prelude to an upbeat NFP.
• Nonfarm Payrolls data on Friday is expected to show 140K new US jobs in September.

Gold retreated on Wednesday during the North American session and dropped 0.50% daily as traders eyed Israel's reaction to Iran’s attack on Tuesday. Geopolitics remains the driver for traders, which lifted Gold prices after posting back-to-back bearish sessions since last Friday. At the time of writing, the XAU/USD trades at $2,648 after hitting a high of $2,663.

The market mood remains downbeat, as portrayed by US equities trading in the red. According to different newswires, developments in the Middle East suggest an escalation is likely. This indicates that Bullion prices could extend their gains in the short term.

Israel's envoy to the United Nations commented that Iran will face consequences for its missile attack on Tuesday. At the same time, US Deputy Secretary of State Kurt Campbell added that it is “not just Israel that is thinking about response options to Iran attack, US is too.”

In addition, private hiring in the United States (US) increased above estimates in September, according to ADP National Employment Change data. Meanwhile, Richmond Fed President Thomas Barkin said the 50-basis-point (bps) rate cut in September acknowledged that rates were “out of sync.”

Barkin added that some aspects of the economy suggest the disinflation process would continue but that "it remains difficult to say that the inflation battle has yet been won.”

The non-yielding metal added to gains after the Fed decided to lower the fed funds rate at the September meeting. Nevertheless, higher US Treasury yields and a stronger US Dollar during the day are headwinds for the precious metal.

The US 10-year Treasury note yields 3.783%, up five basis points. At the same time, the US Dollar Index (DXY), which tracks the buck’s performance against a basket of six peers, gains 0.39%, up at 101.60.

Ahead of the week, investors are tracking further US jobs data. On Friday, Nonfarm Payrolls figures are expected to show the economy added 140K people to the workforce in September, less than the 142K jobs created in August, while the unemployment rate is foreseen remaining unchanged.

Daily digest market movers: Gold price retreats amid Mideast war

• The ADP National Employment Change for September came in at 143K, up from the upwardly revised 103K the previous month and surpassing forecasts of 120K.
• August Job Openings & Labor Turnover Survey (JOLTS) improved, exceeding estimates and tempering woes of the labor market.
• Nevertheless, business activity in the manufacturing sector measured by the ISM Manufacturing PMI for September remained steady at 47.2, unchanged from the previous reading, but fell short of estimates of 47.5.
• Market participants have placed the odds of a 25 bps Fed rate cut at 63.8%, while the chances for a larger 50 bps cut have diminished to 36.2%, according to the CME FedWatch Tool.

XAU/USD technical analysis: Gold price creeps lower but stays above $2,650

Gold price is upwardly biased despite losing some steam as traders book profits, awaiting the next phase of the conflict. Momentum remains bullish as depicted by the Relative Strength Index (RSI) but is exiting from overbought conditions, sparking the retracement.

If XAU/USD drops below $2,650, this would open the door to test the September 30 daily low of $2,624, followed by the September 18 peak at $2,600. A breach of the latter will expose the 50-day Simple Moving Average (SMA) at $2,513.

On further strength, if it clears the all-time high of $2,685, it could extend its gains to $2,700.

The Greenback pushed harder and advanced to new three-week highs underpinned by rising US yields and the persistent risk-on mood in response to rising tensions in the Middle East.

Here is what you need to know on Thursday, October 3:

The US Dollar Index (DXY) climbed to fresh tops around 101.70 following the persevering risk aversion along with escalating geopolitical jitters. The ISM Services PMI takes centre stage, seconded by the Challenger Job Cuts, usual weekly Initial Jobless Claims, Factory Orders, and the final S&P Global Services PMI. In addition, the Fed’s Bostic is also due to speak.

EUR/USD slipped back to the 1.1030 region, or three-week lows, on the back of the stronger US Dollar. The final HCOB Services PMI in Germany and the euro area will be published, seconded by Producer Prices in the bloc.

GBP/USD remained on the defensive, down for the second day in a row and revisiting the area of recent lows near 1.3250. The final S&P Global Services PMI will be unveiled.

USD/JPY picked up strong upside traction and flirted with four-week tops north of the 146.00 barrier. The final Jibun Bank Services PMI will be released along weekly Foreign Bond Investment figures.

AUD/USD ended the day barely changing around the 0.6880 region supported by firm commodity prices and despite further gains in the Greenback. The Balance of Trade results are due seconded by the final Judo Bank Services PMI.

WTI prices rose to fresh tops past the $72.00 mark per barrel, although that uptick fizzled out following demand concerns and an unexpected build in US crude oil inventories.

Prices of Gold faded Tuesday’s marked advance, although they remained close to the area of all-time highs past the $2,640 zone per ounce troy. Silver prices added to Tuesday’s uptick, briefly surpassing the $32.00 mark per ounce.

• Dow Jones catches chart friction near 42,200 as investors waver.
• Precursor jobs data to Friday’s upcoming NFP surprised to the upside.
• Geopolitical concerns cap gains as investors pivot to watching the Middle East.

The Dow Jones Industrial Average (DJIA) is caught in a bit of a sideways trap in the first week of October as geopolitical concerns weigh on risk appetite. Investors are jostling for position ahead of Friday’s bumper print of US Nonfarm Payrolls (NFP) jobs data with future rate moves from the Federal Reserve (Fed) potentially riding on labor figures.

US ADP Employment Change figures for September rose higher and faster than most market participants expected, clocking in at 143K net new job additions over the month. Median markets forecasts called for a jump to 120K compared to August’s revised print of 103K. Despite the firm upshot in advance jobs numbers, investors will be waiting for the final call on official advance figures on NFP Friday.

Fed Chair Jerome Powell warned that September’s outsized 50 bps rate cut shouldn’t be a signal that further extreme rate moves are on the way. The Fed’s own SEP outlook on rate cuts sees only another 50 bps in total over the next few meetings. Rate markets have fallen in-line with the Fed’s own outlook for the most part; according to the CME’s FedWatch Tool, rate traders see 60% odds of a follow-up 25 bps rate cut in November, with the remaining 40% still hoping for a repeat jumbo cut for 50 bps.

On top of the global market’s outlook on Fed rate cuts, the outlook on domestic manufacturing has evolved into a shaky prospect with a port worker strike across most of the East and Gulf Coasts hampering the movement of physical goods. Middle East tensions are also spilling over following Iran’s missile strike against Israel in retaliation for Israel’s incursion into Lebanon recently. Investors are waiting to see how Israel will respond to the direct confrontation.

Dow Jones news

Despite a wobbly start to the US market session, the Dow Jones is testing into the green on Wednesday. The midweek trading window has the DJIA roughly equally-balanced, with around half of the index’s constituent securities rising for the day. Salesforce (CRM) is rebounding from a recent plunge, climbing 4% on Wednesday to test $282 per share.

On the low end, Nike (NKE) has extended a near-term plunge, sinking over 6% and backsliding to under $84 per share as the shoe manufacturer battles a gloomy outlook. Nike reported a wide miss of earnings expectations in the first quarter of 2024, and the company’s CEO transition has rattled investors.

Dow Jones price forecast

The Dow Jones is in a rough technical consolidation zone between 42,400 and 42,200 on daily candlesticks as buyers grapple with an index planted far too deep into bull country with little technical rebound. The Dow Jones’ last swing low into the 40,000 handle in early September and subsequent 6.6% bottom-to-top rally has left price action in overbought territory, and short pressure will be looking for a snap back to the 50-day Exponential Moving Average (EMA) rising into 41,100.

Dow Jones daily chart

• Mexican Peso gains traction on Wednesday, sponsored by Banxico Deputy Governor comments.
• Jonathan Heath wants higher rates for some time, disregarding a recession.
• President Sheinbaum has pledged to be fiscally responsible.

The Mexican Peso climbed for the second straight day on Wednesday against the US Dollar following hawkish comments of Bank of Mexico (Banxico) Deputy Governor Jonathan Heath, who voted against lowering rates by 25 basis points at the September 26 monetary policy meeting. The USD/MXN trades at 19.37, down by 1.18%.

Heath appeared on Banorte’s podcast and said that policy should remain at the current level for “more time” while acknowledging that core inflation is coming toward the target. He added that the US Federal Reserve’s (Fed) rate cut wouldn’t directly impact Banxico’s policy path and does not believe Mexico is close to a recession.

Mexico’s docket revealed that Business Confidence deteriorated in September, while July's Gross Fixed Investment figures improved in monthly and annual terms.

In addition, President Claudia Sheinbaum began her six-year term. In her inaugural speech, she reassured investors that their investments were secure and added that she would respect Banxico’s autonomy to dictate its policies.

Sheinbaum pledged fiscal responsibility and defended the judiciary reform approved in September. According to foreign analysts and investors, this reform threatens the rule of law, and that sentiment has injured the Peso in recent months.

“Disciplined management of the budget and of state-owned enterprises, progress on public security, and safeguarding the integrity of key institutions will be key to preserving market sentiment and sovereign debt ratings,” said Alberto Ramos, head of Goldman Sachs Latina America economic research team.

In the US, ADP National Employment Change data for September exceeded estimates after registering five months of soft readings.

Daily digest market movers: Mexican Peso ignores mixed data to advance

• Mexico’s Business Confidence in September rose by 51.9, lower than August’s 53.1, its lowest reading since January 2023.
• Gross Fixed Investment in July expanded by 1.8% MoM, up from -1% contraction the previous month. From 12 months to July, it recovered from a 1.3% shrinkage and climbed 6.4%.
• Mexico’s business activity in the manufacturing sector contracted, according to S&P Global. The September Manufacturing PMI dipped from 48.50 to 47.30, highlighting the ongoing economic slowdown.
• ADP National Employment Change in September came in at 143K, up from the upwardly revised 103K the previous month and exceeding forecasts of 120K.
• According to the swaps markets, Banxico is expected to lower borrowing costs by 175 bps by the end of 2025.
• Market participants have put the odds of a 25 bps cut at 63.8%. According to the CME FedWatch Tool, the chances for a larger 50 bps cut diminished to 36.2%.

Technical analysis: Mexican Peso rallies as USD/MXN drops below 19.40

The USD/MXN uptrend remains in place, but the ongoing pullback would likely test the 50-day Simple Moving Average (SMA) at 19.30. According to the Relative Strength Index (RSI), momentum has shifted negatively.

The RSI plunging below its neutral line and indicates that sellers are in charge.

If USD/MXN clears the 50-day SMA, the next support would be the September 24 swing low of 19.23 before the pair moves toward the September 18 daily low of 19.06. Once those levels are surpassed, the 19.00 figure emerges as the following line of defense.

On the other hand, if USD/MXN clears 19.50, this could sponsor a test of the current week’s peak at 19.82. On further strength, the next resistance will be the psychological 20.00 figure, followed by the YTD high peak of 20.22.

Federal Reserve (Fed) Bank of Richmond President Tom Barkin spoke on Wednesday about the Fed's recent moves on rates, and cautioned that the fight on inflation may not be over as risks remain.

Key highlights

Following the big stimulus and clear growth message from Chinese leaders, we revise up our China growth forecast in 2025 from 4.8% to 5.2%. For 2024 we keep our 4.8% forecast, Danske Bank’s analyst Allan von Mehren notes.

All clear to go for growth

“The stimulus is the strongest coordinated push to lift the economy since the global financial crisis in 2008. We expect China to follow up with fiscal stimulus measures on the other side of the National Day holiday.”

“The key to turning the Chinese slump is to put a stop to the housing crisis, which we see as the epicentre of current challenges. We now look for a gradual improvement in housing over the next year but not a fast rebound.”

“China is set to change from a disinflationary force to a more neutral force. Since we look for the recovery to be gradual we do not expect China to become an inflationary force within the next 6-12 months.”

• EUR/GBP ends its pullback and resumes its bearish tempo. 
• The RSI is converging bullishly with price, however, signifying a lack of bearish momentum accompanies the latest move.

EUR/GBP has finished pulling back and resumed its downtrend. It has broken below the 0.8317 September 24 low, confirming a lower low and extension towards the next target at 0.8287, the August 2022 low. 

It remains in a downtrend on a short and medium-term basis, and given the principle that “the trend is your friend” the odds favor an extension.

EUR/GBP Daily Chart 

That said, the Relative Strength Index (RSI) is converging bullishly with price when comparing the September 24 low with the lower low of October 1 (red dashed lines on chart). Although the price has declined, the RSI has not. This signifies a lack of downside momentum accompanies the latest sell-off. This increases the risks it could stall or even pullback. 

EUR/GBP has already reached the conservative target for the bear move that began at the August 5 high, at 0.8322. This is the 61.8% extrapolation of the August sell-off. Further downside beyond the target, therefore, could be characterized as “higher hanging fruit” and the whole downward move since the August 5 high may even have completely run its course.

• USD/CHF is rising within a range-bound market. 
• It has almost reached its target close to the top of the range high. 

USD/CHF extends its gains as it unfolds an up leg within a range-bound market. 

The move is underway and likely to reach the 0.8517 resistance level formed by multiple recent highs. A really bullish move could even see the pair reach the 0.8539 ceiling of the range.

USD/CHF 4-hour Chart 

USD/CHF is in a sideways trend. Given the principle in technical analysis that “the trend is your friend” the odds favor an extension of this trend. Once the pair reaches its upside target it will probably roll over and begin a down leg towards the range lows. 

Only a decisive break above 0.8539 and the top of the range would signal a change in trend. A decisive break would be one accompanied by a long green candle breaking above the top of the range and closing near its high, or three green candles in a row that broke above the level. If successful, such a move would probably then rally to a minimum target of 0.8617 (August 14 swing low). 

A package of growth-supporting initiatives and statement form the Chinese leadership has been well received by equity markets as it raises hope of a growth rebound, Danske Bank’s analysts note.

Chinese housing and private consumption growth to improve

“In China the big news has been the announcement of large-scale stimulus across a wide range of areas. Lower interest rates, a reduction in the reserve requirement ratio for banks, lower mortgage rates on existing loans and measures to lift the equity market were among the policy initiatives.”

“China’s leadership in the Politburo also sent a strong signal that the decline in the housing market should come to a halt now and sent a clear pro-growth signal after some years of more moderate signals and stimulus. The news has sent offshore Chinese equities sharply higher with an increase of 25% in seven days, the biggest 7-day increase since 2008, as investors have scrambled to close underweight positions in Chinese equities.”

“The jury is still out if the stimulus will be big enough to turn the crisis but with the strong policy signal, we expect more stimulus to be rolled out if needed. We now expect to see a gradual improvement in Chinese housing and private consumption growth over the next year and that the two sectors will slowly put the economy on a more solid footing.”

• USD/CAD is declining again, possibly in a resumption of its prior downtrend. 
• The pair could be descending in a large Measured Move pattern with bearish targets. 

USD/CAD has started to creep lower again. The move comes after a three-day pullback from the September 25 low (blue rectangle on chart). 

USD/CAD Daily Chart 

It is possible that the correction has now run its course and, given the medium-term trend is probably bearish – and according to technical analysis theory “the trend is your friend” – the pair might be resuming its medium-term downtrend. 

A move below 1.3457 (September 26 low) would confirm a resumption of the downtrend, probably to at least the 1.3420 low of September 25. A close below that, would provide bearish confirmation of more downside to the range lows – a zone beginning at around 1.3222 and ending at 1.3106.

USD/CAD appears to have formed a large zig-zag pattern known as a Measured Move after peaking on August 5. If so, then it augurs bearish for the pair as the downside target for the last wave C of the pattern is 1.3326 at a minimum, the 61.8% Fibonacci extension of wave A.

While the market awaits Turkey’s September CPI/PPI print on Thursday, the Istanbul retail inflation print from yesterday turned out to be a disappointment, Commerzbank’s FX analyst Tatha Chose notes.

Turkish PMI might suggest a much-needed cooling off in the economy

“This cost-of-living indicator was up nearly 4% month-on-month in September (59.2% year-on-year). The national CPI is forecast (by the consensus) to have increased by 2.2% month-on-month for the same period – based on the Istanbul number, we now wonder if we might see an upward surprise on Thursday.”

“In any case, after seasonal-adjustment, the consensus expectation for core-CPI works out to a rather rapid 3%m/m, which represents a worrisome rate of fresh price increase still ongoing in Turkey. In other words, surprise or no surprise, we need more noticeable inflation moderation for the markets to remain constructive on the lira.”

“On the positive side, the Turkish PMI fell sharply in September – so, that might suggest a much-needed cooling off in the economy – a crucial pre-condition for any stabilisation in inflation. On balance though, the Istanbul data are making us nervous. The lira’s movement in recent days suggests that the FX market shares our concern.”

The general consensus in the market is that the ECB will lower its key interest rate in the week after next, and this is also the view of our ECB analysts. The issue with the ECB is that the reason for the October rate cut makes a fundamental revision of the ECB interest rate path necessary, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.

ECB has good reasons for a loose monetary policy

“Now, this reason obviously consists of the collapse of euro zone inflation expectations. From a market perspective, the ECB therefore has good reasons for a loose monetary policy. Low inflation is good for the euro (because its domestic purchasing power is eroding more slowly), low interest rates are bad.”

“The combination is therefore negative for the euro overall because the downward revision of inflation expectations makes it more likely that we will see a relapse into ‘lowflation’ in Europe, with the ECB having to set its interest rate as low as technically possible without inflation picking up.”

Big interest rate moves are always a tricky business. Two weeks ago, the US central bankers may have hoped that by lowering the key interest rate corridor by 50 basis points, they would take the pressure off the table. But there is always the risk that a big interest rate move will only fuel expectations of further rapid interest rate moves. That, in other words, the Fed won't be able to get rid of the genie it summoned with the 50-basis-point move, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.

Fed may not be able to get rid of 50bp move consequences

“The surprisingly large move in September continues to be largely interpreted as an advance of the rate cuts that were expected for the rest of the year anyway, but not as a sign of a fundamentally high pace of rate cuts. The narrative suggested by Fed Chair Jay Powell's comments at the time continues to dominate. The Fed's decision has not shaken the medium-term expectations.”

“Although the unemployment rate in August was hardly lower than in the previous month, the job openings rate was significantly higher again at 4.8% (July: 4.6%). This in turn means that part of the unemployment is structurally explainable (in the figure below: as the large distance from the origin), mainly as mismatch unemployment; the cyclical part of unemployment – the one the Fed could do something about with loose monetary policy – is almost as low as in 2019.”

“The currency market is hardly reacting to the publication of the job openings statistics. But that also means that if the Fed were to use the labor market situation as a motive for aggressive interest rate cuts, it would probably be as wrong as it was in the summer of 2021, when it did nothing. A loose Fed policy based on that and the resulting USD weakness would probably be of relatively short duration.”

The US Dollar (USD) is likely to trade in a 7.0010/7.0350 range. In the longer run, downward momentum is beginning to slow; if USD breaches 7.0350, it would suggest that it could trade in a range for a period, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

Likely to trade in a 7.0010/7.0350 range

24-HOUR VIEW: “After USD rebounded on Monday, we indicated yesterday (Tuesday) that USD could continue to rebound, but it does not appear to have enough momentum to threaten the strong resistance at 7.0350.’ In line with our expectations, USD rebounded, even though it almost broke above 7.0350 (high has been 7.0350). Despite the advance, there has been no significant increase in momentum, and instead of continuing to rise, USD is more likely to trade in a 7.0010/7.0350 range today.”

1-3 WEEKS VIEW: “After holding a negative USD stance for more than a week (as annotated in the chart below), we highlighted yesterday (01 Oct, spot at 7.0100) that “downward momentum is beginning to slow, and if USD breaches 7.0350 (‘strong resistance’ level), it would suggest that it could trade in a range for a period.” USD subsequently rose but did not break clearly above 7.0350 (high has been 7.0350). As our ‘strong resistance’ level has not been clearly breached, we will hold the same view for now, even though the likelihood of further USD weakness has diminished.”

• GBP/USD stalls after Tuesday’s drop which was caused by a surge in safe-haven demand for the US Dollar 
• Iran stoked Middle Eastern tensions with a mass missile strike on Tel Aviv. 
• Continued diverging outlook on monetary policy may put a floor under GBP/USD’s losses.

GBP/USD stalls and seesaws between tepid gains and losses in the 1.3280s on Wednesday after falling a whole cent on the previous day, when the US Dollar (USD) strengthened as a result of a rise in safe-haven flows due to an escalation of the conflict in the Middle East. 

Despite recent losses, the GBP/USD is in an overall uptrend, which has seen it gain almost 5.0% from the early August lows. 

Night skies were set alight on Tuesday evening after Iran fired around 200 missiles, many of which were ballistic at the Israeli capital Tel Aviv, in retaliation for the killing of the Hezbollah leader Hassan Nasrallah.The situation remains tense after Israeli Prime Minister Benjamin Netanyahu vowed Israel would avenge the attack, and that Iran had “made a big mistake”. 

The New York Times also reported that Israel is committing more troops to its bloody ground offensive in Lebanon, and with tensions running high, the Dollar is likely to see continued support from investors seeking safety. This, in turn, is likely to cap any gains for GBP/USD. 

The pair had been in a steady uptrend since early August because of the divergent outlook for monetary policy in the UK and the US. In the UK, the Bank of England (BoE) decided to leave interest rates unchanged at its policy meeting in September whilst in the US the Federal Reserve (Fed) slashed interest rates by a double-dose 50 bps at its meeting. Lower interest rates are generally negative for a currency – in this case the Dollar – as they reduce capital inflows.

The BoE has been advocating a cautious, “steady-as-she-goes” approach to reducing interest rates amid still-high services sector inflation and relatively robust growth. In the US, conversely  fears about a hard-landing and weak labor market briefly caused market-based bets to soar to 60% that the Fed would follow up with another 50 bps cut at their November meeting. 

Although these bets have since eased after US data reassured investors about the state of the economy, investors remain tense as they await a key piece of data regarding the labor market, in the form of US NonFarm Payrolls data for September, out on Friday. 

In view of expectations that further rate cuts are on the cards from the Fed, the ECB and various other G10 central banks during Q4, the impact of RBNZ policy easing on the NZD crosses will likely be offset, Rabobank’s FX strategist Jane Foley notes.

Escalation in the Middle East to undermine the AUD and NZD

“While an announcement of a 50-bps rate cut next week would likely still push the NZD lower, we would expect buyers to emerge on dips below the NZD/USD0.62 level, on optimism that Chinese stimulus will boost regional demand for New Zealand exports.”

“That said, given the less dovish stance of the RBA, we would look for AUD/NZD to continue its recent trend higher towards 1.11 on a 3-month view. A clear caveat to the recent better tone in both the AUD and the NZD is the outlook for the broader tone of risk appetite.”

“Further escalation in Middle Eastern tensions would support the USD and undermine the AUD and NZD. This risk underscores our preference for the AUD/NZD trade.”

The US Dollar (USD) could continue to trade choppily but is likely to stay within a 140.00/146.00 range, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

Likely to stay within a 140.00/146.00 range

24-HOUR VIEW: “On Monday, USD rebounded strongly, reaching a high of 143.91. Yesterday, when USD was at 143.80, we were of the view that it ‘could rebound further to 144.50, but a sustained rise above this level is unlikely.’ We pointed out that ‘support levels are at 143.30 and 142.80.’ Our view was not wrong, as USD rose to 114.53, dropped to 142.96, rebounding to close largely unchanged at 143.56 (-0.04%). The price movements appear to be part of a range trading phase. Today, we expect USD to trade between 142.90 and 144.30.”

1-3 WEEKS VIEW: “Our update from Monday (30 Sep, spot at 142.60) remains valid. As highlighted, the recent buildup in upward momentum has dissipated. From here, USD could continue to trade in a choppy manner, but it is expected to stay within a range of 141.00/146.00 range.”

The manufacturing PMI edged up to 49.8 in September, while average reading stayed below 50 in Q3. Net exports likely remained a key growth contributor in Q3; real activity growth may have slowed. We lower our Q3 GDP growth forecast to 4.4% y/y (4.9% prior) due to subdued domestic demand. We raise our Q4 GDP growth forecast to 4.8% y/y (4.4% prior) to reflect recent policy support steps, Standard Chartered’s analysts Hunter Chan and Shuang Ding note.

Prompt policy response following weak Q3 performance   

“China’s official manufacturing PMI edged up to 49.8 in September from 49.1 in August, exceeding market expectations, as production activity recovered on improved new orders. Meanwhile, the average manufacturing PMI fell 0.4pts to 49.4, staying below 50 for a sixth straight quarter. Industrial production (IP) may have accelerated due to seasonal factors, normalising from the weather impact.”

“Domestic demand weakened in September; the services PMI fell to 49.9 – below 50 for the first time since end-2023. The average services PMI for Q3 eased to 50, indicating a stalled performance, resulting in continued deflationary pressure. CPI inflation may have eased in September on slower growth in food prices and a decline in services and fuel prices. In addition, PPI deflation may have reached its deepest level in five months at 2.5% y/y in September.”

“The goods trade surplus likely widened in Q3, continuing to contribute to growth and partly offsetting the drag from China’s prolonged housing market downturn. Real GDP q/q growth likely stayed below 1% in Q3. The September Politburo meeting showed a more growth-supportive policy stance and the People’s Bank of China (PBoC) hinted at more dovish monetary policy. We maintain our 2024 GDP growth forecast at 4.8%, with risk to the upside if outsized fiscal measures are announced. The government may issue additional bonds to meet its budgeted fiscal spending, and expand the use of special bonds for destocking housing inventory and mitigating debt risks.”

The New Zealand (NZD) could continue to weaken; oversold conditions suggest a sustained break below 0.6250 is unlikely. In the longer run, downward momentum has increased slightly; pullback in NZD could potentially reach 0.6225, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

NZD can fall to 0.6225 in the longer run

24-HOUR VIEW: “Our view of sideways trading yesterday was incorrect, as NZD fell sharply to 0.6265 before closing on a weak note at 0.6281 (-1.13%). Unsurprisingly, the sharp drop has resulted in an increase in momentum. Today, while NZD could continue to weaken, oversold conditions suggest a sustained break below 0.6250 is unlikely. The major support at 0.6225 is also unlikely to come into view. To keep the oversold momentum going, NZD must not break above 0.6325 with minor resistance at 0.6305.”

1-3 WEEKS VIEW: “We have expected a higher NZD since late last week (as annotated in the chart below). After NZD rose to 0.6379, we highlighted yesterday (01 Oct, spot at 0.6345) that “there has been no further increase in momentum, and it remains unclear if NZD could rise further to 0.6410.” We also highlighted that “only a breach of 0.6280 (‘strong support’ level) would mean that 0.6410 is not coming into view.” NZD then fell sharply, breaking below 0.6280 (low of 0.6265). Not only upward momentum has faded, but downward momentum has also increased, albeit not much. At this time, we view the current price movements as a pullback that could potentially reach the significant support at 0.6225. We will hold the same view provided that 0.6350 (‘strong resistance’ level) is not breached.”

The FX market has fully switched into risk-off mode and the whole emerging market space took a hit yesterday. The CEE region led the losses days before, so it was left behind yesterday, ING’s FX strategist Frantisek Taborsky notes.

CEE currencies are likely to remain under pressure

“However, the situation in the Middle East does not seem close to calming down and while we are getting more dovish news from the developed market world, CEE currencies are likely to remain under pressure for some time but fundamentals for a fading move later remain strong in our view. EUR/USD rapidly sliding lower will continue to keep CEE currencies under pressure.”

“Although we can assume that local rates will not hold current levels for long if core rates continue yesterday's trend, in Poland and the Czech Republic more than enough rate cuts have already been priced in and downward space is limited. Additionally, we might receive some hawkish news from Poland’s central bank this week and from the Czech Republic with the release of September’s inflation data next week.”

“So, across CEE, we see a growing FX and rates market divergence that will have to be closed at some point in the future, opening the door for fading the current FX weakness. The Polish zloty seems most appealing with the central bank meeting this week, while the Czech koruna may be attractive later. The Hungarian forint, on the other hand, will have the hardest path to finding stable ground within the CEE peers, in our view.”

The Australian Dollar (AUD) is expected to edge lower to 0.6850; the major support at 0.6820 is unlikely to come under threat. AUD has likely entered a range trading phase, expected to be between 0.6820 and 0.6935, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

AUD has likely entered a range trading phase

24-HOUR VIEW: “After AUD rose to 0.6944 two days ago, we indicated yesterday that ‘there has been no further increase in momentum, and instead of continuing to rise today, AUD is expected to trade in a sideways range of 0.6885/0.6935.’ Instead of trading sideways, AUD fell to a low of 0.6858, closing at 0.6883 (-0.43%). Despite the decline, downward momentum only increases slightly. Today, we expect AUD to edge lower to 0.6850. The major support at 0.6820 is not expected to come under threat. Resistance levels are at 0.6900 and 0.6920.”

1-3 WEEKS VIEW: “In our most recent narrative from Monday (30 Sep, spot at 0.6910), we indicated that ‘while the recent price action suggests that AUD is likely to edge higher, it remains to be seen if there is enough momentum for AUD to reach 0.6980.’ We added, ‘a breach of 0.6860 (‘strong support’ level) would mean that AUD is not advancing further. In NY trade, AUD fell to a low of 0.6858. Despite the slight breach of our ‘strong support’ level, upward momentum has largely dissipated. AUD has likely entered a range trading phase, and it is expected to trade between 0.6820 and 0.6935 for the time being.”

EUR/USD looked expensive in light of wider rate differentials (in favour of USD) and rising risks from the Middle East and French politics. Ultimately, it was the Israel-Lebanon-Iran tensions that triggered a move below 1.110, but the other two factors also remain negative for the pair, ING’s FX strategist Francesco Pesole notes.

EUR/USD set to re-test 1.1000 in the short term

“French Prime Minister Michel Barnier faced a rough first speech in the Parliament, drawing criticism from both left- and right-wing factions as he laid out his policy plans. Despite a central pledge for fiscal consolidation, he delayed the plan to bring back the deficit within the 3% EU limit by two years, to 2029. That kept OATs offered, and the 10-year spread with bunds close to 80bp. Our rates team is doubtful there is much respite in sight for French bonds.”

“On the rates side, short-term differentials look unlikely to retighten sharply in the near term in favour of EUR, as markets are already pricing in 70bp by year-end from the Fed and yesterday’s decline in eurozone’s inflation below the 2% target means significant pressure on the ECB to continue cutting at the October meeting. We retain our call for EUR/USD re-testing 1.1000 in the short term.”  

Despite oversold conditions, the Pound Sterling (GBP) could decline further; the likelihood of it reaching 1.3210 today is not high. In the longer run, to continue to weaken, GBP has to break the major support at 1.3210, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

GBP has to break below 1.3210 to continue falling

24-HOUR VIEW: “We did anticipate the sharp drop in GBP that sent it plummeting to a low of 1.3237. GBP then closed on a weak note at 1.3287, down by 0.67%. The sharp drop is severely oversold, but further decline is not ruled out. However, given the oversold conditions, the likelihood of GBP reaching the major support at 1.3210 today is not high (there is another support at 1.3235). On the upside, any rebound is likely to remain below 1.3330 with minor resistance at 1.3300.”

1-3 WEEKS VIEW: “Yesterday (01 Oct, spot at 1.3375), we indicated that “the current price movements are likely part of a range trading phase, probably between 1.3300 and 1.3430.” We certainly did not anticipate the sharp drop that sent GBP to a low of 1.3237. While the increase in momentum suggests GBP is likely to continue to weaken, it has to break the major support at 1.3210 before further sustained decline is likely. The chance of GBP breaking clearly below 1.3210 appears to be on the high side, provided that it remains below 1.3355.”

Escalation in the Middle East has led markets pricing in a greater risk of a fully-fledged conflict in the region, which could potentially involve the US. Iran fired missiles at Israel yesterday evening, and while most were intercepted (the US called the attack ‘ineffective’), some targets have been reportedly hit. Israel has pledged to retaliate against Iran as it continues its ground offensive in parts of Lebanon, ING’s FX strategist Francesco Pesole notes.

Geopolitical events set to remain the main driver

“Oil rallied on the news that Iran was preparing a missile attack yesterday, and stalled overnight around $74-75 bbl while awaiting the magnitude of Israel’s retaliation. The situation remains highly volatile, but if Israel’s response is not too aggressive, markets may take the view that both countries are for the second time this year preferring to de-escalate after a brief hostile exchange. The USD strengthened on the back of rising geopolitical tensions, with the Canadian dollar also rallying.”

“Domestic US developments have been overshadowed by geopolitics. The vice-presidential candidate debate for the US election didn’t attract much attention. Meanwhile, data is broadly endorsing Fed Chair Jerome Powell’s recent pushback against a 50bp cut. While the ISM manufacturing was a bit softer than expected and prices paid dropped below 50.0, the Fed is laser-focused on the jobs market.”

“Friday’s payrolls will be the usual binary event for FX, although Powell’s hawkish comments and the market's dovish pricing (still 70bp of cuts priced in by year-end) mean the bar for a USD-negative jobs report is higher. Today, we’ll see the ADP jobs figures, which can move the market but rarely have any predictive power for payrolls. Geopolitical events should remain the main driver.”

• Gold pulls back after Tuesday’s rally on increased geopolitical risk stemming from Iran’s escalation in the Middle East. 
• The macro backdrop remains positive, however, with falling interest rates globally making Gold shine.
• Technically, XAU/USD consolidates, providing a “buy-the-dip” opportunity for bulls.  

Gold (XAU/USD) edges lower on Wednesday to trade in the $2,650s per troy ounce as traders do some backing and filling after the over 1.0% rally on Tuesday. Instability in the Middle East was the main driver behind the previous day’s recovery after Iran launched about 200 missiles, some of which were ballistic, at Israel’s capital Tel Aviv.  

That, and the fact that interest rates are falling globally, continue to support the precious metal, which keeps trading just below its new all-time high of $2,685. Lower interest rates increase the attractiveness of non-interest bearing Gold as a portfolio item for investors. 

Gold faces volatility from changing outlook for US rates

Gold has seen volatility over the past week from a rapidly changing outlook for interest rates in the US which has also impacted the strength of the US Dollar (USD), another factor driving valuations. 

The precious metal pulsed higher last week as bets the Federal Reserve (Fed) would cut interest rates by another double-dose 50 basis points (0.50%) at its November meeting hit fever pitch. Expectations the bank would slash rates further also weighed on the USD, adding momentum to the yellow metal’s rise. 

However, unexpectedly strong data – especially covering the fragile US jobs market – and a cautious speech from Fed Chairman Jerome Powell on Monday have since reduced bets of a double-whammy 50 bps cut, from over 60% last week to only 37% at the time of publication on Wednesday.   

Gold to go higher say several big bank analysts

Gold has already gained over 28% in 2024 and reached new record highs but several analysts at large banks predict the uptrend is not over for the precious metal, especially in the medium and long term, according to Kitco News. 

Goldman Sachs said in a note on Monday that it is revising up its forecasts for Gold from $2,700 to $2,900 by early 2025.

“We reiterate our long gold recommendation due to the gradual boost from lower global interest rates, structurally higher central bank demand and gold’s hedging benefits against geopolitical, financial, and recessionary risks,” the bank said.

In a recent interview with Bloomberg News, Joni Teves, Precious Metals Strategist at Swiss bank UBS, was also bullish about Gold. 

“From a broader perspective I think the macro backdrop is supportive for Gold. The fact that real rates are coming down, the Fed is in easing mode. From a fundamental standpoint, we think physical demand is also quite resilient, even at higher Gold prices,” Teves said.

“The official sector (central banks) continues to add to Gold reserves, and positioning allows for more allocations to Gold to be built up over time. I think that continues to be the case, and the risk here is that because the market hasn't been providing a lot of pullbacks, that people will have to continue chasing the move higher,” he added.

The UBS strategist dismissed concerns that overweight long Gold derivatives positioning on exchanges might risk a prolonged market correction. 

“There has been a pickup in positions in the short term,” she replied. “But actually, if you look back to historical data, we're still not at all-time highs, and broader market positioning, in our view, is still not stretched.” 

When asked whether UBS saw investors continuing to buy the dips, Teves said that she expects they will because many who waited on the sidelines during the recent fast-moving rally are still looking for an entry.

Technical Analysis: Gold tracks the 50 SMA higher

Gold pulls back to the 50-period Simple Moving Average (SMA) on the 4-hour chart for the second time this week. The correction comes after Tuesday’s rebound from the $2,625 swing low. 

The short-term trend is unclear after the rather deep decline seen on Friday and Monday. A break above the $2,673 October 1 high would probably see follow-through back up to the $2,680s and the region of the record high. A break above that would  probably lead to a continuation up to the round-number target at $2,700.

XAU/USD 4-hour Chart

On a medium and long-term basis, Gold remains in an uptrend and since it is a foundational principle of technical analysis that “the trend is your friend,” the odds favor resumption higher eventually, once the current period of consolidation has ended. 

A break below the trendline at about $2,615-$2,620, however, would be a bearish sign and suggest a complete reversal of the short-term uptrend.

(This story was corrected on October 2 at 09:55 GMT to say, in the headline, that Gold price falls on Wednesday after Tuesday's rally.)

The Bank of England (BoE) Financial Policy Committee (FPC) said in a quarterly statement on Wednesday, the “risks to the UK financial stability are broadly unchanged since June.

Additional takeaways

Silver prices (XAG/USD) rose on Wednesday, according to FXStreet data. Silver trades at $31.50 per troy ounce, up 0.18% from the $31.44 it cost on Tuesday.

Silver prices have increased by 32.36% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 84.27 on Wednesday, down from 84.72 on Tuesday.

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

Bank of Japan (BoJ) Governor Kazuo Ueda told Prime Minister Shigeru Ishiba that “we will adjust degree of monetary easing if outlook is realized but will take careful steps to determine that since it takes time.”

Additional takeaways

Market reaction

USD/JPY has picked up traction again above 144.00, trading 0.50% higher at 144.27.

• DXY struggles to capitalize on a two-day-old recovery move from the yearly trough.
• Reduced bets for a 50 bps Fed rate cut and geopolitical risks lend support to the USD. 
• The US ADP report might provide some impetus ahead of the US NFP report on Friday.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, consolidates its gains registered over the past two days and oscillates in a range, just above the 101.00 mark, through the early European session on Wednesday. The Index, for now, seems to have stalled this week's goodish recovery move from the vicinity of its lowest level since July 2023, though the fundamental backdrop warrants some caution for bearish traders. 

The Federal Reserve (Fed) Chair Jerome Powell earlier this week adopted a more hawkish tone and said that he sees two more 25 basis points interest rate cuts this year as a baseline if the economy performs as expected. Adding to this, the Job Openings and Labor Turnover Survey (JOLTS) published by the US Bureau of Labor Statistics (BLS) showed that the number of job openings unexpectedly increased after two straight monthly declines, to 8.04 million in August. The data pointed to a still resilient US labor market and forced investors to further scale back their expectations for a more aggressive policy easing by the Fed. 

This, along with a further escalation of geopolitical tensions in the Middle East, turns out to be another factor acting as a tailwind for the safe-haven USD. Iran launched over 200 ballistic missiles at Israel on Tuesday in retaliation to the latter's campaign against its Hezbollah allies in Lebanon. Furthermore, Israeli Prime Minister Benjamin Netanyahu promised that Iran would pay for its missile attack, while Iran said any retaliation would be met with vast destruction, raising the risk of a broader conflict in the region. This, in turn, tempers investors' appetite for riskier assets and drives flows towards traditional safe-haven assets. 

Meanwhile, the markets are still pricing in over a 35% chance that the Fed will lower borrowing costs by another 50 basis points in November, which is seen acting as a headwind for the DXY and warrants caution for bullish traders. Market participants now look forward to the release of the US ADP report on private-sector employment for a fresh impetus later during the early North American session. The focus, however, will remain glued to the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday, which will play a key role in determining the next leg of a directional move for the USD.

Euro (EUR) could continue to weaken; any decline is likely limited to a test of 1.1030. In the longer run, rapid buildup in downward momentum is likely to lead to EUR weakness; levels to monitor are 1.1030 and 1.1000, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

Levels to monitor are 1.1030 and 1.1000

24-HOUR VIEW: “We detected ‘a slight increase in downward momentum’ yesterday. We expected EUR to drift lower, but we held the view that ‘any decline is likely limited to a test of 1.1105.’ In a surprising move, EUR fell sharply, easily breaking below 1.1105. It also breached the major support at 1.1060, reaching a low of 1.1044. While oversold, the decline has not stabilised. Today, EUR could continue to weaken, but this time around, any decline is likely limited to a test of 1.1030. The major support at 1.1000 is unlikely to come under threat. Resistance levels are at 1.1085 and 1.1110.”

1-3 WEEKS VIEW: “Our most recent narrative was from last Thursday (26 Sep, spot at 1.1130), wherein EUR ‘has likely entered a range trading phase, probably between 1.1060 and 1.1215.’ EUR rose above 1.1200 last Friday and again on Monday, but on both occasions, it retreated quickly. Yesterday, we indicated that ‘while the price action supports our view that EUR is trading in a range, after retreating from the upper limit of the expected 1.1060/1.1215 range, it could now test the lower end instead.’ However, instead of testing 1.1060, EUR broke below this level and reached a low of 1.1044. EUR closed at a 3-week low of 1.1067, down by 0.60%. Downward momentum is building rapidly, and this could lead to further EUR weakness. The levels to monitor are 1.1030 and 1.1000. To maintain the momentum buildup, EUR must not rise above 1.1150, the current ‘strong resistance’ level.”

• Silver price receives support from the safe-haven flows amid escalating Middle-East tensions.
• Non-yielding Silver could be negatively impacted by prolonged high rates, as the diminishing likelihood of a Fed rate cut reduces its appeal.
• A decline in China’s manufacturing activity might have restrained the positive impact of fiscal and monetary stimulus on Silver demand.

Silver price (XAG/USD) extends its gains for the second consecutive day, trading around $31.50 per troy ounce during the European hours on Wednesday. The upside of the Silver prices is attributed to the safe-haven flows amid escalating geopolitical tensions in the Middle East.

Iran launched over 200 ballistic missiles at Israel on Tuesday, shortly after the US had warned that a strike was imminent. The Israel Defense Forces reported that several of the missiles were intercepted, while reports indicated that one person was killed in the West Bank, according to Bloomberg.

Israeli Prime Minister Benjamin Netanyahu vowed to retaliate against Iran following a missile attack on Tuesday. In response, Tehran warned that any counterstrike would lead to "vast destruction," raising concerns about the potential for a broader conflict.

On Tuesday, the weaker-than-expected ISM Manufacturing PMI made room for the US Federal Reserve (Fed) to continue lowering rates. The index came at 47.2 for September, matching the reading with August's print but came in below the market expectation of 47.5. However, Fed Chair Jerome Powell said on Monday the central bank is not in a hurry and will lower its benchmark rate gradually ‘over time.’

The CME FedWatch Tool indicates that markets are assigning a 62.7% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point cut is 37.3%, down from 57.4% a week ago. Prolonged higher interest rates keep the opportunity cost higher of holding non-yielding assets like Silver, making it less appealing to investors who seek more attractive, yield-bearing alternatives.

Silver demand has been bolstered by China’s fiscal and monetary stimulus, particularly benefiting industrial applications in one of the world's largest manufacturing hubs. However, weaker-than-expected demand growth in China, compounded by data indicating a decline in manufacturing activity, might have limited the upside potential of the grey metal.

European Central Bank (ECB) Vice President Luis de Guindos said on Wednesday that the “risks to growth are still tilted to the downside.”

“The economic recovery is to strengthen over time,” the ECB official added.

Market reaction

The Euro is little affected by these above comments, as EUR/USD trades better bid near 1.1070, as of writing.

Preliminary figures showed that inflation in the Eurozone eased further to 1.8% in September, from 2.2% in August, as energy prices continued to decline. This marks the first time in three years that headline inflation has fallen below the European Central Bank's (ECB) 2%-3% target, UOB Group economist Lee Sue Ann notes.

Energy prices continue to decline

“Eurozone inflation fell to 1.8% in September, from 2.2% in August, coming in below the ECB’s 2% target, according to preliminary data. Core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, came in at 2.7%.”

“While we are cognizant that the risk of a rate cut in October certainly seems more likely than before, we maintain our view of the ECB cutting again only when policymakers convene in December for the final time this year.”

“We think that the widely watched services inflation, which eased slightly only to 4.0% in September, from 4.1% in August, is still high for the ECB. Furthermore, inflation dynamics are quite different across Eurozone countries.”

The New Zealand Institute of Economic Research (NZIER) Quarterly Survey of Business Opinion (QSBO) for Sep 2024 calls for more aggressive RBNZ action, TDS FX analysts Prashant Newnaha and Alex Loo note.

RBNZ to deliver sequential cuts in 2025

“We stick with a 50bps cut in the Overnight Cash Rate (OCR) at next week's Monetary Policy Review (MPR) meeting. However, we change our call for the Nov Monetary Policy Statement (MPS) meeting from a 25bps cut to a 50bps cut.”

“For 2025, we now expect the RBNZ to deliver sequential cuts, with the OCR hitting 3% by the August meeting. Our prior forecast assumed the RBNZ getting to 3% with cuts delivered only at MPS meetings in 2025 and 2026.”

“There have been limited changes to our bond forecasts given our prior bullish rates stance. We see limited scope for a significant rally in rates from here based on domestic factors. Our bias is to trim/close long/received positions on strength.”

• EUR/USD extends losses due to the Euro’s weakness and increasing US Dollar strength. 
• The Euro depreciates due to lower inflation data; the Dollar benefits from strong jobs data. 
• An escalation of the conflict in the Middle East has further increased safe-haven flows to USD. 

EUR/USD is under pressure, trading in the 1.1060s on Wednesday, after the pair fell from 1.1135 on Tuesday, in a sell-off that amounted to a 0.60% one-day decline. 

Lower-than-expected Eurozone inflation data was partly responsible for the sharp decline. The bloc’s Harmonized Index of Consumer Prices (HICP) grew by 1.8% YoY in September, down from 2.2% previously and below expectations of 1.9%. Core inflation, meanwhile, came out at 2.7% YoY – one tenth below August’s 2.8% reading and also below expectations. 

The data indicates headline inflation has fallen back down below the European Central Bank’s (ECB) 2.0% target, and that core is on its way. It increases the chances that the ECB will cut interest rates further, which, in turn, is likely to lead to outflows and a weaker Euro. 

EUR/USD: declines exacerbated by stronger USD

EUR/USD was also pushed lower after a recovery in the US Dollar (USD) on Tuesday. 

The Greenback gained after the release of data showing a higher-than-expected rise in the number of job openings in the US, as measured by JOLTS Job Openings, which rose to 8.04 million in August from a revised-up 7.71 million in July, and beat expectations of 7.66 million.

The data is significant because of the Federal Reserve’s (Fed) recent shift to focusing on concerns around the labor market. This broadly offset weaker US manufacturing activity data as measured by the ISM Manufacturing PMI, which flatlined in contraction territory and missed expectations in September. 

EUR/USD also sold off amid an escalation in geopolitical tensions in the Middle East, which increased safe-haven flows to the US Dollar. On Tuesday evening, Iran fired about 200 missiles, including some ballistic, at Israel’s capital Tel Aviv in a revenge attack after Israel killed Hasan Nasrallah, the head of the Iran-backed militia group Hezbollah.  

More employment-related data on the horizon   

The main releases likely to impact EUR/USD on Wednesday are the Eurozone Unemployment Rate for August; US ADP Employment Change data for September and comments from Federal Reserve (Fed) officials, including Fed Governor Michelle Bowman and Richmond Fed President Thomas Barkin.

Technical Analysis: EUR/USD possibly beginning descent within multi-year range

EUR/USD has been contained within a broad multi-year range that has a ceiling  at roughly 1.1200 and a floor at around 1.0500. The pair is currently testing the top of the range but after multiple touches appears to be pulling back down.

EUR/USD Daily Chart 

EUR/USD is probably in a sideways trend on all its key timeframes (short, medium, and long-term) and since it is a principle of technical analysis that “the trend is your friend” the odds favor a continuation of this sideways trend, which in this case means move back down towards the range lows.

Prices now appear to be beginning a down leg. They have reached a key support level in the form of the red 50-day Simple Moving Average (SMA) at 1.1041, which is likely to slow the sell-off at least temporarily. 

For confirmation of the start of a proper leg down prices should break through the 50-day SMA, the trendline for the last up leg, and the September 11 swing low at 1.1002. A close below 1.1000, therefore, would provide strong bearish confirmation. The downside target for such a move would be 1.0875, the 200-day SMA, followed by 1.0777 (August 1 low) and then 1.0600. 

Momentum as measured by the Moving Average Convergence Divergence (MACD) is relatively bearish over the last few days and the blue MACD line has crossed below the red signal line, suggesting more evidence the pair could be vulnerable to further weakness.

• AUD/JPY receives support from the hawkish sentiment surrounding the RBA’s interest rate trajectory.
• The Australian Dollar may receive downward pressure from the rising geopolitical tensions in the Middle East.
• Japan's Economy Minister Akazawa stated that PM Ishiba expects BoJ to conduct thorough economic assessments before further rate hikes.

AUD/JPY retraces its recent losses registered in the previous day, trading around 99.40 during Wednesday’s European session. The hawkish sentiment surrounding the Reserve Bank of Australia (RBA) regarding its interest rate trajectory provides support for the Australian Dollar (AUD) and underpins the AUD/JPY cross.

However, the upside of the risk-sensitive Aussie Dollar could be retrained due to rising risk aversion sentiment amid escalating geopolitical tensions in the Middle East. Iran launched over 200 ballistic missiles at Israel, prompting Prime Minister Benjamin Netanyahu to vow retaliation against Tehran for the Tuesday attack. In response, Iran warned that any counterstrike would lead to "vast destruction," heightening concerns of a broader conflict, per Bloomberg.

The Japanese Yen (JPY) received downward pressure as the BoJ’s Summary of Opinions from September’s Monetary Policy Meeting indicates no immediate plans for additional rate hikes. The central bank intends to maintain its accommodative stance but remains open to adjustments if economic conditions show significant improvement.

Additionally, Japan's Economic Revitalization Minister Ryosei Akazawa stated on Wednesday that Prime Minister Shigeru Ishiba anticipates the Bank of Japan will conduct thorough economic evaluations before raising interest rates again.

In his first news conference as the economy minister, Akazawa emphasized, "Our top priority is to ensure that Japan fully exits deflation," adding that "it will take some time to achieve a complete exit," according to Reuters.

• The ADP Employment Change report is expected to show a modest improvement in the number of private jobs created in September.
• The United States will publish the Nonfarm Payrolls report on Friday.
• The US Dollar consolidates post-Fed losses and is at risk of falling further. 

The Automatic Data Processing (ADP) Research Institute will release its monthly report on private-sector job creation for September on Wednesday. The so-called ADP Employment Change report is expected to show that the United States (US) added 120,000 new positions in September after creating 99,000 jobs in August.

The data is usually released two days ahead of the official Nonfarm Payrolls (NFP) report for the same month and is usually seen as an advanced indicator of the  Bureau of Labor Statistics (BLS) jobs report, despite a doubtful correlation between both indicators. 

ADP Jobs Report: Employment and the Federal Reserve

US employment data has been in the eye of the storm for over a year amid its impact on the latest Federal Reserve (Fed) monetary policy decisions. The Fed’s dual mandate of maximum employment and price stability has been under siege in the pandemic aftermath, and the central bank opted to tighten monetary policy to put things back in balance. 

The main issue was inflation, as price pressures skyrocketed throughout 2022. The Fed pushed rates to record highs and maintained them there amid the risks of a tight labor market further fuelling price pressures. Nevertheless, indicators have come into a better balance in the last few months, and the Fed finally decided to trim interest rates. US policymakers cut the benchmark rate by 50 basis points (bps) when they met in September while anticipating additional cuts on the way. 

That said, market participants are now wondering whether the central bank will deliver a mode discretionary 25 bps cut when it meets in November or proceed again with a 50 bps trim. Ahead of data releases, the odds for a 25 bps stand at 66%, according to the CME FedWatch Tool.

In the meantime, Fed officials have shifted their focus from inflation to employment. With price pressures receding, maintaining a “healthy” labor market is now their main goal.

With that in mind, a stronger-than-anticipated ADP report will likely weigh down the odds for another aggressive interest rate cut in November, giving near-term support to the US Dollar. On the contrary, a disappointing reading may force speculative interest to increase bets for another 50 bps interest rate cut, resulting in a weaker USD. Finally, it is worth remembering the report could have a short-lived impact, as market players will most likely wait until the NFP release scheduled for Friday. 

When will the ADP Report be released, and how could it affect the USD Index?

ADP will release the US Employment Change report on Wednesday and it is expected to show that the private sector added 120,000 new positions in September.

Ahead of the release, the US Dollar Index (DXY) consolidates below the 101.00 mark after posting a fresh 2024 low of 100.16 by the end of September. 

From a technical perspective, Valeria Bednarik, Chief Analyst at FXStreet, says: “The DXY has remained under pressure since the Fed’s monetary policy announcement mid-September, and technical readings in the daily chart suggest its bullish potential remains well-limited. A bearish 20 Simple Moving Average (SMA) provides near-term resistance around the aforementioned threshold, while a bearish 100 SMA gains downward momentum well above the shorter one, and after crossing below a flat 200 SMA.”

Bednarik adds: “Technical indicators, in the meantime, remain within negative levels, lacking directional momentum. Overall, the risk skews to the downside. Resistance beyond the 101.00 threshold comes at 101.47, followed by the daily low at 102.17 posted on August 5. Supports, on the other hand, can be found at 100.41 and the year-to-date low of 100.16. A break below the latter could anticipate a steeper decline towards the 99.00 figure.”

• NZD/USD may lose ground due to risk-off mood amid rising Middle-East tensions.
• The US Dollar gains ground due to the waning likelihood of a bumper Fed rate cut in November.
• The New Zealand Dollar may struggle as the RBNZ is expected to deliver a 50 basis point cut next week.

NZD/USD pares daily gains but holds some gains, trading around 0.6290 during the early European hours on Wednesday. The upside of the risk-sensitive Kiwi pair could be restrained due to rising risk aversion sentiment amid escalating geopolitical tensions in the Middle East.

Iran launched over 200 ballistic missiles at Israel, prompting Prime Minister Benjamin Netanyahu to vow retaliation against Tehran for the Tuesday attack. In response, Iran warned that any counterstrike would lead to "vast destruction," heightening concerns of a broader conflict, per Bloomberg.

Earlier this week, Federal Reserve (Fed) Chairman Jerome Powell. Powell said that the central bank will lower its interest rate gradually over time. The US Dollar receives support from the waning likelihood of an aggressive rate cut by the Fed in November.

The CME FedWatch Tool indicates that markets are assigning a 62.7% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point cut is 37.3%, down from 57.4% a week ago.

The Reserve Bank of New Zealand's (RBNZ) monetary policy meeting is set for next week, and markets have already priced in a strong likelihood of a 50 basis point interest rate cut. HSBC analysts now expect the RBNZ to lower its cash rate by 50 basis points in both October and November, revising their earlier forecast of 25 basis point cuts for each month.

The Bank of New Zealand (BNZ) is also predicting a 50 basis point cut from the RBNZ next week. "In our view, the disinflationary data we've received will be a key factor, prompting the RBNZ to accelerate its easing process," they stated.

• US Dollar Index gains traction to around 101.25 in Wednesday’s early European session. 
• The DXY keeps the bearish outlook below the key 100-day EMA, but the RSI shows neutral momentum. 
• The initial support level is seen at 100.68; the first upside barrier is located at 101.30. 

The US Dollar Index (DXY) extends the rally to near 101.25 during the early European session on Wednesday. The cautious mood in the market amid the escalating tension in the Middle East and reduced bets for 50 basis points (bps) by the Federal Reserve (Fed) rate cut in November might underpin the DXY in the near term.  

According to the daily chart, the negative outlook of the DXY remains intact as the index remains below the key 100-day Exponential Moving Average (EMA). However, further consolidation looks favorable as the Relative Strength Index (RSI) hovers around the midline, indicating the neutral momentum for the DXY. 

The first downside target for the US Dollar emerges at 100.68, the low of October 1. Further south, the next contention level is located at 100.23, the lower limit of the Bollinger Band. The crucial support level to watch is the 100.00 psychological level. 

On the upside, the upper boundary of the Bollinger Band at 101.30 acts as an immediate resistance level for DXY. A decisive break above this level will expose 101.84, the high of September 12. Extended gains will see a rally to 102.73, the 100-day EMA. 

“Impact of FX volatility on Japan's inflation has increased than in the past,” Bank of Japan (BoJ) Governor Kazuo Ueda said on Wednesday.

Additional quotes

Market reaction

At the time of writing, USD/JPY is adding 0.25% on the day to trade at 143.90.

Here is what you need to know on Wednesday, October 2:

The US Dollar (USD) continued to gather strength against its rivals following Monday's bullish action, with the USD Index climbing to its highest level in nearly two weeks above 101.00 on Tuesday. The European Commission will release the Unemployment Rate data for August during the European trading hours. Later in the day, the ADP Employment Change data for September will be featured in the US economic docket. Investors will also scrutinize comments from Federal Reserve (Fed) officials, including Fed Governor Michelle Bowman and Richmond Fed President Thomas Barkin.

The data published by the US Bureau of Labor Statistics showed on Tuesday that JOLTS Job Openings climbed to 8.04 million in August from 7.71 million in July. On a negative note, the ISM Manufacturing PMI held steady at 47.2 in September, missing the market expectation of 47.5 and pointing to an ongoing contraction in the manufacturing sector's business activity. Following these data releases, Wall Street's main indexes turned south and the risk-averse atmosphere helped the USD outperform its rivals.

Meanwhile, escalating geopolitical tensions seem to be causing investors to adopt a cautious stance midweek. Iran has reportedly fired about 200 ballistic missiles on Israel and Israel has vowed to retaliate against the attack. Israel's Prime Minister Benjamin Netanyahu said that Iran had made a “big mistake” and “will pay,” reviving fears over a deepening conflict in the Middle East. Reflecting the negative shift in market mood, US stock index futures were down between 0.3% and 0.4% at the time of press.

EUR/USD lost more than 0.5% on Tuesday and closed the third consecutive day in negative territory. At the time of press, the pair was trading in a tight range slightly above 1.1050.

GBP/USD declined sharply on Tuesday and touched its lowest level since September 19 below 1.3250. The pair holds steady in the European morning on Wednesday but trades below 1.3300. The Bank of England will release the minutes of the Financial Policy Committee (FPC) meeting and publish the FPC Statement later in the day.

After closing the day virtually unchanged on Tuesday, USD/JPY edges higher toward 144.00 in the European morning on Wednesday. The data from Japan showed earlier in the day that the Consumer Confidence Index improved slightly to 36.9 in September from 36.7 in August.

Gold benefited from escalating geopolitical tensions and gained more than 1% on Tuesday, despite the broad-based USD strength. XAU/USD struggles to build on Tuesday's gains and trades in negative territory near $2,650 on Wednesday.

• EUR/JPY weakens to near 158.80 in Wednesday’s early European session, down 0.06% on the day. 
• The negative outlook of the cross prevails, with the bearish RSI indicator. 
• The immediate resistance level emerges at 161.80; the first support level is seen at 158.10.

The EUR/JPY cross extends its downside to around 158.80 during the early European session on Wednesday. The risk-aversion across global markets provides some support to the safe-haven asset like the Japanese Yen (JPY). 

Technically, EUR/JPY keeps the bearish vibe unchanged on the daily chart as the cross holds below the key 100-day Exponential Moving Averages (EMA). Furthermore, the downward momentum is supported by the Relative Strength Index (RSI), which stands below the midline near 45.80, suggesting that there could still be room for further downward movement in the near term. 

The low of September 30 at 158.10 acts as an initial support level for the cross. A breach of this level will see a drop to 155.60, the lower limit of the Bollinger Band. Extended losses could pave the way to 154.41, the low of August 5. 

On the other hand, the first upside barrier emerges at 161.80, the upper boundary of the Bollinger Band. Any follow-through buying above the mentioned level could see a rally to 163.15, the 100-day EMA. The additional upside filter to watch is the 164.00 psychological mark.  

EUR/JPY daily chart

FX option expiries for Oct 2 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

EUR/USD: EUR amounts

• 1.1025 2.1b
• 1.1100 1.2b
• 1.1125 1.48b

USD/JPY: USD amounts                     

• 139.00560m
• 144.00 832m

AUD/USD: AUD amounts

• 0.6800 480m
• 0.6950 495m

USD/CAD: USD amounts       

• 1.3500 488m

NZD/USD: NZD amounts

• 0.6230 582m
• 0.6300 638m

• EUR/GBP received support following the speech made by the BoE policymaker Megan Greene.
• BoE’s Greene suggested that additional interest rate cuts are possible as prices are "moving in the right direction."
• The Euro may face challenges as the ECB has indicated that another cut could be on the horizon.

EUR/GBP extends its gains for the second successive session, trading around 0.8340 during Wednesday’s Asian hours. Traders are evaluating the impact of rising geopolitical tensions in the Middle East, which may have adversely affected the trade volumes of risk-sensitive currencies.

The Pound Sterling (GBP) may be facing downward pressure as Bank of England (BoE) policymaker Megan Greene indicated that further interest rate cuts are likely since prices are "moving in the right direction." However, Greene also cautioned that a consumption-driven recovery in the United Kingdom could spark a new wave of inflation, according to Bloomberg.

BoE policymaker Greene also stated that she believed the neutral interest rate had increased since the inflation shock. While most estimates suggest that the neutral rate for the Bank of England is around 3.5%, Greene did not provide a specific figure. The neutral rate refers to the level at which a central bank's policy neither stimulates nor constrains economic growth.

On the Euro's side, inflation in the Eurozone eased in September, falling below the European Central Bank's (ECB) target. The Harmonized Index of Consumer Prices (HICP) increased by 1.8% year-on-year in September, down from 2.2% in August. This marks the lowest rate since April 2021.

Despite the promising inflation rates for September, the Eurozone economy may still face challenges. The ECB reduced interest rates to 3.50% in September and has indicated that another cut could be on the horizon.

Traders await the upcoming Unemployment Rate for the European Union, as well as speeches from members of the ECB scheduled for Wednesday. On the UK’s dock, the Bank of England’s Monetary Policy Report Hearings will be closely monitored on Thursday.

• USD/CHF trades on a softer note near 0.8460 in Wednesday’s Asian session. 
• Lower expectations of a deeper Fed rate cut might cap the pair’s downside.
• The rising geopolitical risks could lift the Swiss Franc. 

The USD/CHF pair trades with mild losses around 0.8460 during the early European session on Wednesday. The escalating geopolitical tensions in the Middle East boost the safe-haven currency like the Swiss Franc (CHF). Traders will take more cues from the US ADP Employment Change data for September later on Wednesday. 

Reduced bets for a 50 basis points (bps) Federal Reserve (Fed) rate cut in November could support the USD against the CHF. Fed Chair Jerome Powell noted on Monday that the US central bank intends to do what it takes to keep the economy "in solid shape," but it is not in a hurry and will lower its benchmark rate ‘over time.’ 

The US employment report on Friday will be in the spotlight. If the jobs report showed a worse-than-expected outcome, this could prompt the central bank to consider cutting rates deeper, which might exert some selling pressure on the USD.

Iran has launched hundreds of missiles toward Israel, and Prime Minister Benjamin Netanyahu vows to retaliate against Iran for a missile attack on Tuesday. US President Joe Biden reaffirmed US support for Israel after the missile attack, describing it as "defeated and ineffective." Increasing geopolitical tensions send investors into safe-haven assets like the CHF and create a headwind for USD/CHF.

• GBP/JPY regains positive traction on Wednesday, though it lacks follow-through buying.
• The BoJ rate hike uncertainty undermines the JPY and lends some support to the cross.
• Geopolitical risk helps limit deeper JPY losses and keep a lid on further gains for the pair.

The GBP/JPY cross attracts some dip-buying during the Asian session on Wednesday and reverses a part of the previous day's losses. Spot prices, however, remain below the technically significant 200-day Simple Moving Average (SMA) and currently trade around the 191.00 mark, up less than 0.15% for the day. 

The Japanese Yen (JPY) continues to be undermined by the uncertainty over further interest rate hikes by the Bank of Japan (BoJ), which, in turn, is seen as a key factor lending some support to the GBP/JPY cross. In fact, Japan's new Prime Minister Shigeru Ishiba said earlier this week that the BoJ's monetary policy must remain accommodative to underpin a fragile economic recovery.  Moreover, Ishiba seeks to secure a national mandate with an October 27 snap election, fueling political uncertainty and exerting additional pressure on the JPY.

That said, fears of a full-out war in the Middle East escalated further after Iran launched over 200 ballistic missiles at Israel on Tuesday. This, in turn, tempers investors' appetite for riskier assets, which is evident from a generally weaker tone across the global equity markets and should help limit deeper losses for the safe-haven JPY. Furthermore, markets are pricing in another BoJ rate hike by the end of this year. This marks a big divergence in comparison to bets for more rate cuts by the Bank of England (BoE) and should cap the GBP/JPY cross. 

In the absence of any relevant market-moving economic releases on Wednesday, the aforementioned fundamental backdrop warrants caution before placing fresh bullish bets around the currency pair. Even from a technical perspective, the 50-day SMA crossed below the 200-day SMA last month, forming a  'Death Cross' on the daily chart. Furthermore, the GBP/JPY cross has repeatedly failed to find acceptance above the 200-day SMA. Hence, strong follow-through buying is needed to support prospects for a further appreciating move.

Gold prices fell in India on Wednesday, according to data compiled by FXStreet.

The price for Gold stood at 7,161.77 Indian Rupees (INR) per gram, down compared with the INR 7,186.60 it cost on Tuesday.

The price for Gold decreased to INR 83,533.51 per tola from INR 83,823.04 per tola a day earlier.

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

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

• USD/CAD attracts sellers for the second straight day, though the downside seems limited.
• Oil prices rise amid Middle East tensions and underpin the Loonie, weighing on the major. 
• Reduced bets for a 50 bps Fed rate cut in November lend support to the USD and the pair.

The USD/CAD pair extends the previous day's retracement slide from the 1.3535-1.3540 region, or a one-week high and remains under some selling pressure for the second straight day on Wednesday. The downfall drags spot prices to the 1.3475 area during the Asian session and is sponsored by a modest uptick in Crude Oil prices.

Fears of a full-out war in the Middle East escalated after Iran fired ballistic missiles at Israel on Tuesday in retaliation to the latter's campaign against its Hezbollah allies in Lebanon. Meanwhile, Israeli Prime Minister Benjamin Netanyahu promised that Iran would pay for its missile attack. An Israeli attack on Iran's oil facilities could disrupt oil supply from the key producing region and act as a tailwind for the black liquid, which underpins the commodity-linked Loonie and exerts downward pressure on the USD/CAD pair. 

The US Dollar (USD), on the other hand, continues to draw support from diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) and Tuesday's US macro data, indicating a resilient labor market. The Fed Chair Jerome Powell said on Monday that he sees two more 25 bps rate cuts this year as a baseline if the economy performs as expected. Adding to this, the Job Openings and Labor Turnover Survey (JOLTS) showed that the number of job openings unexpectedly increased in August and stood at 8.04 million. 

This, in turn, assists the USD to preserve its strong recovery gains registered over the past two days and might hold back traders from placing aggressive bearish bets around the USD/CAD pair. Apart from this, expectations for a bigger interest rate cut by the Bank of Canada (BoC) should cap gains for the Canadian Dollar (CAD) and contribute to limiting losses for the currency pair. This makes it prudent to wait for strong follow-through selling before confirming that the recent bounce from a multi-month low has run out of steam.

Investors now look forward to the release of the US ADP report on private-sector employment, which, along with geopolitical developments, will drive the USD demand. Apart from this, Oil price dynamics might provide some impetus to the USD/CAD pair and allow traders to grab short-term opportunities. The focus, however, will remain glued to the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday.

• EUR/USD trades firmer near 1.1070 in Wednesday’s Asian session. 
• The US ISM Manufacturing PMI came in weaker than expected in September. 
• The Eurozone inflation dropped below the ECB target in September. 

The EUR/USD pair trades with mild gains around 1.1070 during the Asian trading hours on Wednesday. Meanwhile, any signs of rising geopolitical tensions in the Middle East could weigh on riskier assets like the Euro (EUR). Investors will keep an eye on the US ADP Employment Change data for September, which is due later on Wednesday. 

Traders are still assessing the chance of a jumbo rate cut by the US Federal Reserve (Fed) in November after Fed Chair Jerome Powell said the US central bank is not in a hurry and will lower its benchmark rate ‘over time.’ Financial markets are now pricing in nearly 37.4% odds of a 50 basis points (bps) cut in November, while the possibility of a 25 bps reduction stands at 62.6%, according to the CME FedWatch Tool. 

The downbeat US economic data on Tuesday undermines the Greenback. The US ISM Manufacturing PMI was flat at 47.2 in September, weaker than the expectation of 47.5. The report indicated a continued contraction in the US manufacturing sector. 

Across the pond, the Eurozone inflation eased in September, falling below the European Central Bank’s (ECB) target. The Harmonized Index of Consumer Prices (HICP) rose 1.8% YoY in September, compared to 2.2% in August, Eurostat showed Tuesday. This figure marked the lowest figure since April 2021. The eurozone economy may not be out of the woods yet, even though September's inflation rates are promising. The ECB cut the interest rates to 3.50% in September and has also hinted that another cut could be coming in the near future. 

The fears of a wider war in the Middle East could exert some selling pressure on the shared currency and boost safe-haven assets like the USD. Iran launched over 200 ballistic missiles at Israel and Prime Minister Benjamin Netanyahu vows to retaliate against Iran for the missile attack on Tuesday.

• GBP/USD faces challenges due to rising risk-aversion sentiment amid escalating Middle-East conflict.
• Iran launched over 200 ballistic missiles at Israel and warned that any counterstrike would lead to "vast destruction."
• BoE’s Greene indicated that additional interest rate cuts are likely since prices are "moving in the right direction."

GBP/USD remains tepid following the losses registered in the previous session, trading around 1.3280 during the Asian hours on Wednesday. This downside could be attributed to the risk aversion due to the rising geopolitical tensions in the Middle East, which undermines the risk-sensitive Pound Sterling (GBP) and GBP/USD pair.

Iran launched over 200 ballistic missiles at Israel on Tuesday, shortly after the US had warned that a strike was imminent. The Israel Defense Forces reported that several of the missiles were intercepted, while reports indicated that one person was killed in the West Bank, according to Bloomberg.

Israeli Prime Minister Benjamin Netanyahu vowed to retaliate against Iran following a missile attack on Tuesday. In response, Tehran warned that any counterstrike would lead to "vast destruction," raising concerns about the potential for a broader conflict.

The US Dollar (USD) receives support from the latest speech by the Federal Reserve (Fed) Chairman Jerome Powell. Powell said that the central bank will lower its interest rate gradually over time. Fed Chair Powell added that the recent half-point interest rate cut should not be seen as an indication of similarly aggressive future actions, noting that upcoming rate changes are likely to be more modest.

On Tuesday, Bank of England (BoE) policymaker Megan Greene warned that a consumption-driven recovery in the United Kingdom (UK) could trigger a new wave of inflation. However, Greene noted that further interest rate cuts are likely as prices are "moving in the right direction," according to Bloomberg.

BoE policymaker Greene also stated that she believed the neutral interest rate had increased since the inflation shock. While most estimates suggest that the neutral rate for the Bank of England is around 3.5%, Greene did not provide a specific figure. The neutral rate refers to the level at which a central bank's policy neither stimulates nor constrains economic growth.

Traders are expected to pay close attention to the upcoming US ADP Employment Change report and comments from Federal Reserve officials on Wednesday for additional guidance on Wednesday. On the UK’s dock, the Bank of England’s Monetary Policy Report Hearings will be closely monitored on Thursday.

Japan's newly appointed Economy Minister Ryosei Akazawa said on Wednesday that “the Bank of Japan (BoJ) should be careful about raising rates given it takes time to completely exit deflation.”

Additional quotes

Market reaction

USD/JPY extends the recovery beyond 144.00 following these comments, up 0.39% on the day.

• Silver lacks a firm intraday direction and consolidates below the mid-$31.00s on Wednesday.
• The technical setup remains tilted in favor of bulls and supports prospects for further gains.
• A break below the $30.90-$30.85 area, or the weekly low, to pave the way for deeper losses.

Silver (XAG/USD) struggles to capitalize on the previous day's positive move and oscillates in a narrow trading band, below mid-$31.00s during the Asian session on Wednesday. The white metal, meanwhile, remains close to the weekly low touched on Monday, though the setup favors bullish traders and supports prospects for the resumption of the uptrend from the September swing low. 

The XAG/USD is holding comfortably above technically significant 100-day and 200-day Simple Moving Averages (SMA). This, along with the recent breakout through a short-term descending trend-line resistance and positive oscillators on the daily chart, validates the positive outlook and suggests that the path of least resistance for the XAG/USD is to the upside. Hence, some follow-through strength towards the $31.80 horizontal zone, en route to the $32.00 mark, looks like a distinct possibility. 

A sustained strength beyond the latter could push the XAG/USD beyond the $32.25 intermediate hurdle, towards challenging the multi-year peak, around the $32.70 region touched last week. The subsequent move up will be seen as a fresh trigger for bullish traders and pave the way for a further near-term appreciating move. 

On the flip side, the $31.00 round figure now seems to act as immediate support ahead of the $30.90-$30.85 region, or the weekly low. The subsequent downfall has the potential to drag the XAG/USD further towards the $30.25 support zone. This is followed by the $30.00 psychological mark and the 100-day SMA support near the $29.80-$29.65 region. A convincing break below the latter might shift the bias in favor of bearish traders and pave the way for a further depreciating move.

Silver daily chart

• The Australian Dollar gains ground as the RBA is widely expected to hold a hawkish stance regarding its policy outlook.
• The AiG Industry Index eased in September, rising 4.9 points to -18.6 from -23.5 prior reading.
• The US Dollar receives support from the market caution amid rising Middle-East tensions.

The Australian Dollar (AUD) retraces its recent losses from the previous session against the US Dollar (USD) on Wednesday. The AUD receives support from the hawkish Reserve Bank of Australia (RBA) regarding its interest rate trajectory and Australia's largest trading partner China’s stimulus measures.

The AiG Industry Index slightly improved in September, rising 4.9 points to -18.6 from the previous reading of -23.5, though it still signals contraction for the 29th consecutive month. Meanwhile, the AiG Manufacturing PMI continued its decline, falling 2.8 points to -33.6 from -30.8 prior, marking the lowest level in trend terms since the series began.

The upside of the AUD/USD pair could be restrained as the US Dollar receives support from the market caution amid rising geopolitical tensions in the Middle East. Iran launched over 200 ballistic missiles at Israel, prompting Prime Minister Benjamin Netanyahu to vow retaliation against Tehran for the Tuesday attack.

Daily Digest Market Movers: Australian Dollar advances as traders expect RBA to hold policy restrictive

• The CME FedWatch Tool indicates that markets are assigning a 63.1% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point cut is 36.9%, down from 58.2% a week ago.
• The US Dollar received downward pressure from the weaker-than-expected ISM Manufacturing PMI released on Tuesday. The index came at 47.2 for September, matching the reading with August's print but came in below the market expectation of 47.5.
• The Australian Bureau of Statistics (ABS) reported the Retail Sales on Tuesday, the primary gauge of Australia’s consumer spending, which rose 0.7% month-over-month in August, exceeding the market expectations of a 0.4% increase.
• Federal Reserve (Fed) Chairman Jerome Powell said on Monday that the central bank is not in a hurry and will lower its benchmark rate ‘over time.’ Powell added that the recent half-point interest rate cut should not be seen as an indication of similarly aggressive future actions, noting that upcoming rate changes are likely to be more modest.
• China's Caixin Manufacturing Purchasing Managers' Index (PMI) fell to 49.3 in September, indicating contraction, down from 50.4 in August. Meanwhile, China’s NBS Manufacturing PMI improved to 49.8 in September, up from 49.1 in the previous month and surpassing the market consensus of 49.5.
• St. Louis Federal Reserve President Alberto Musalem stated on Friday, according to the Financial Times, that the Fed should begin cutting interest rates "gradually" following a larger-than-usual half-point reduction at the September meeting. Musalem acknowledged the possibility of the economy weakening more than anticipated, saying, "If that were the case, then a faster pace of rate reductions might be appropriate."
• On Friday, the US Core Personal Consumption Expenditures (PCE) Price Index for August, increased by 0.1% MoM, falling short of the expected 0.2% rise, aligning with the Federal Reserve's outlook that inflation is easing in the US economy. This has reinforced the possibility of an aggressive rate-cutting cycle by the Fed.

Technical Analysis: Australian Dollar grapples to remain above 0.6900 within the ascending channel

The AUD/USD pair trades near 0.6910 on Wednesday. A daily chart technical analysis shows that the pair is attempting to reintegrate into the ascending channel. This shows the bullish bias is in play. The 14-day Relative Strength Index (RSI) also remains above the 50 level, supporting the ongoing bullish sentiment.

In terms of resistance, a successful return to the ascending channel would reinforce the bullish bias and support the AUD/USD pair to aim for the area near the upper boundary of the channel, around the psychological level of 0.7000.

On the downside, the immediate support appears at the nine-day Exponential Moving Average (EMA) at the 0.6869 level. A break below this level could weaken the bullish bias and lead the AUD/USD pair to navigate the region around its seven-week low of 0.6622.

AUD/USD: Daily Chart

• Gold price attracted some haven flows on Tuesday amid rising tensions in the Middle East. 
• Reduced bets for aggressive Fed rate cuts and stronger USD capped gains for the XAU/USD. 
• Traders now look to the US ADP report for a fresh impetus ahead of the US NFP on Friday.

Gold price (XAU/USD) rallied over 1% on Tuesday and reversed its losses registered over the past two days amid escalating geopolitical tensions in the Middle East. Iran fired ballistic missiles at Israel, raising the risk of a full-blown war in the region and boosting demand for the traditional safe-haven precious metal. That said, diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) hold back bulls from placing aggressive bets around the non-yielding commodity.

Adding to this, some follow-through US Dollar (USD) buying, bolstered by data showing a resilient US labor market, further contributed to capping gains for the Gold price. Nevertheless, the XAU/USD remains within striking distance of the all-time peak touched last week and the fundamental backdrop favors bulls. Investors now look to the release of the US ADP report on private-sector employment for some impetus, though the focus remains on the Nonfarm Payrolls report on Friday. 

Daily Digest Market Movers: Gold price might attract haven flows amid persistent geopolitical risks

• Iran fired a barrage of ballistic missiles at Israel on Tuesday in retaliation to the latter’s aggression in Lebanon against the Iran-backed armed movement, Hezbollah, and helped revive demand for the safe-haven Gold price. 
• Israeli Prime Minister Benjamin Netanyahu promised that Iran would pay for its missile attack, while Iran said any retaliation would be met with vast destruction, raising the risk of a broader conflict in the Middle East.
• The Job Openings and Labor Turnover Survey (JOLTS) published by the US Bureau of Labor Statistics (BLS) showed that the number of job openings unexpectedly increased in August and stood at 8.04 million. 
• Separately, the Institute for Supply Management (ISM) reported that its Manufacturing PMI remained unchanged at 47.2 in September, pointing to a contraction in the business activity for the sixth straight month.
• Investors are still assessing the likelihood of another 50 basis points interest rate cut by the US central bank in November after the Federal Reserve Chair Jerome Powell's relatively hawkish comments on Monday. 
• Powell said that he sees two more 25 bps rate cuts this year as a baseline if the economy performs as expected, though the CME Group's FedWatch Tool indicates over a 35% chance of a supersized rate cut next month. 
• Atlanta Fed President Raphael Bostic noted on Tuesday that the US central bank should be willing to explore more outsized rate cuts if the jobs market deteriorates and the PCE data show disinflation still on track.
• Market participants now look forward to the US ADP report, which is expected to show that private-sector employers added 120K jobs in September as compared to the 99K previous, for short-term opportunities.
• The focus, however, will remain glued to the closely-watched official monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report, which should provide a fresh directional impetus. 

Technical Outlook: Gold price bulls retain control while above $2,625-2,624 resistance-turned-support

From a technical perspective, the overnight strong move-up reinforced a short-term ascending channel resistance breakpoint, turning support near the $2,625-2,624 region. The said area should now act as a key pivotal point, which if broken decisively might prompt some technical selling. The subsequent downfall could drag the Gold price below the $2,600 mark, towards the next relevant support near the $2,560 zone en route to the $2,535-2,530 region.

On the flip side, the $2,672-$2,673 area might continue to offer immediate resistance ahead of the $2,685-2,686 zone, or the all-time peak touched last week. This is closely followed by the $2,700 mark, which if conquered will be seen as a fresh trigger for bullish traders and set the stage for an extension of a well-established multi-month-old uptrend.

• WTI price spikes to near $70.65 in Wednesday’s Asian session. 
• Middle East geopolitical risks underpin the WTI.
• Crude Oil Inventory dropped, falling short of expectations.

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $70.65 on Wednesday. WTI price edges higher after Iran launched missiles at Israel in a direct attack, raising fear of supply disruptions in a region.

Iran launched over 200 ballistic missiles at Israel, and Prime Minister Benjamin Netanyahu vows to retaliate against Iran for a missile attack on Tuesday, but Tehran warned that any response would result in "vast destruction, fuelling fears of a wider war. Additionally, Israel warned it could attack Iranian oil facilities, which could lead to a regional war with Iran, increasing the risk of crude supply disruptions.

US crude oil inventories dropped less than expected last week. According to the American Petroleum Institute (API), crude oil stockpiles in the United States for the week ending September 27 declined by 1.5 million barrels, compared to a fall of 4.339 million barrels in the previous week. The market consensus estimated that stocks would decline by 2.1 million barrels.

On the other hand, less dovish remarks from the Federal Reserve (Fed) Chair Jerome Powell that pushed back against calls for another big rate cut in November could weigh on the WTI price. 
Fed Chair Jerome Powell stated that more rate cuts are likely as the economy remains on solid ground, yet he cautioned against rapid changes. 

Traders will monitor the US Federal Reserve (Fed) Thomas Barkin, Raphael Bostic, Beth Hammack, Alberto Musalem, and Michelle Bowman's speeches for fresh impetus. Any hawkish comments from Fed officials could drag the WTI price lower. It’s worth noting that lower interest rates will reduce the cost of borrowing, which generally lifts the oil demand.

• The Japanese Yen loses ground as the BoJ’s Summary of Opinions signals its intention to maintain an accommodative monetary stance.
• The JPY struggled as Japan's upcoming PM Ishiba stated the need to maintain low rates to help economic recovery.
• The US Dollar receives support as traders adopt caution amid rising geopolitical tension in the Middle East.

The Japanese Yen (JPY) edges lower against the US Dollar (USD) on Wednesday as rising doubts over further interest rate hikes by the Bank of Japan (BoJ). On Tuesday, BoJ’s Summary of Opinions from September’s Monetary Policy Meeting indicates no immediate plans for additional rate hikes. The central bank intends to maintain its accommodative stance but remains open to adjustments if economic conditions show significant improvement.

Japan's upcoming Prime Minister Shigeru Ishiba stated on Sunday that the country's monetary policy should continue to be accommodative, indicating the necessity of maintaining low borrowing costs to support a fragile economic recovery. This has put pressure on the Japanese Yen and underpinned the USD/JPY pair.

The US Dollar receives support from the cautious mood in the market amid the escalating tension in the Middle East. However, the weaker-than-expected ISM Manufacturing PMI for September might have put downward pressure on the Greenback. Traders will now focus on the upcoming US ADP Employment Change and Fedspeak for further direction.

Daily Digest Market Movers: Japanese Yen depreciates due to waning odds of BoJ’s rate hikes

• The CME FedWatch Tool indicates that markets are assigning a 63.1% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point is 36.9%, down from 58.2% a week ago.
• Iran launched over 200 ballistic missiles at Israel, prompting Prime Minister Benjamin Netanyahu to vow retaliation against Tehran for the Tuesday attack. In response, Iran warned that any counterstrike would lead to "vast destruction," heightening concerns of a broader conflict.
• US ISM Manufacturing PMI came at 47.2 for September, matching the reading with August's print but came in below the market expectation of 47.5.
• Japan’s Tankan Large Manufacturing Index showed that overall business conditions for large manufacturing companies remained steady at 13 points in the third quarter, in line with expectations. Additionally, Japan's Unemployment Rate fell to 2.5% in August, down from 2.7% in July, which was better than market forecasts of 2.6%, data showed on Tuesday.
• Federal Reserve (Fed) Chairman Jerome Powell said on Monday the central bank is not in a hurry and will lower its benchmark rate ‘over time.’ Fed Chair Powell added that the recent 50 basis point interest rate cut should not be seen as an indication of similarly aggressive future actions, noting that upcoming rate changes are likely to be more modest.
• St. Louis Federal Reserve President Alberto Musalem stated on Friday, according to the Financial Times, that the Fed should begin cutting interest rates "gradually" following a larger-than-usual half-point reduction at the September meeting. Musalem acknowledged the possibility of the economy weakening more than anticipated, saying, "If that were the case, then a faster pace of rate reductions might be appropriate."
• Last week, the BoJ Monetary Policy Meeting Minutes expressed the members’ consensus on the importance of remaining vigilant regarding the risks of inflation exceeding targets. Several members indicated that raising rates to 0.25% would be suitable as a way to adjust the level of monetary support. A few others suggested that a moderate adjustment to monetary support would also be appropriate.

Technical Analysis: USD/JPY remains above 143.50, nine-day EMA

USD/JPY trades around 143.80 on Wednesday. Analysis of the daily chart indicates that the pair consolidates within an ascending channel pattern, suggesting a bullish bias. The 14-day Relative Strength Index (RSI) also hovers slightly below the 50 level. A breakout above this threshold could further confirm the bullish trend's continuation.

The USD/JPY pair may encounter resistance near the upper boundary of the ascending channel at 146.80, followed by the five-week high of 147.21, last reached on September 3.

On the downside, immediate support appears at the nine-day Exponential Moving Average (EMA) around 143.50, followed by the lower boundary of the ascending channel at 143.00. A break below this level could push the USD/JPY pair toward the 139.58 level, marking the lowest since June 2023.

USD/JPY: Daily Chart

• NZD/USD edges higher to around 0.6285 in Wednesday’s early Asian session. 
• The US ISM Manufacturing PMI came in worse than expected in September. 
• The RBNZ is expected to cut its cash rate by 50 basis points.

The NZD/USD pair gathers strength near 0.6285 despite the firmer US Dollar (USD). Nonetheless, the cautious mood in the market amid the escalating tension in the Middle East could lift the Greenback. Investors will keep an eye on the US ADP Employment Change and Fedspeak. 

The weaker-than-expected US economic data caps the Greenback’s upside. The ISM Manufacturing PMI for September remained steady at 47.2 in September, unchanged from the previous reading, but missing estimates of 47.5. This figure was below the 50% threshold for the sixth consecutive month.

Iran launched over 200 ballistic missiles at Israel and Prime Minister Benjamin Netanyahu vows to retaliate against Iran for the missile attack on Tuesday, but Tehran warned that any response would result in "vast destruction, fuelling fears of a wider war. The rising geopolitical risks could support the US dollar (USD), a safe-haven currency. 

On the Kiwi front, HSBC analysts expect more aggressive interest rate cuts from the Reserve Bank of New Zealand (RBNZ),in the upcoming months due to signs of a slowing economy. The bank anticipate the RBNZ to lower its cash rate by 50 basis points (bps) in both October and November, a change from its previous prediction of 25bp cuts in each of the two months. This, in turn, might cap the upside for the Kiwi in the near term. 

• AUD/USD trades flat around 0.6880 in Wednesday’s early Asian session. 
• Fed’s Powell seems to favor a gradual easing path. 
• China’s stimulus plans and hawkish RBA might support the Aussie in the near term. 

The AUD/USD pair flatlines near 0.6880 during the early Asian session on Wednesday. Howver, the fear of wider war in the Middle East might boost the safe-haven flows and support the Greenback for the time being. Later on Wednesday, the US ADP Employment Change data is due, along with the speech from US Federal Reserve (Fed) Thomas Barkin, Raphael Bostic, Beth Hammack, Alberto Musalem, and Michelle Bowman. 

Earlier this month, the Fed decided to cut the federal funds rate by half a percentage point instead of the usual quarter point. However, Fed Chair Jerome Powell indicated on Monday that the Fed was not on any preset course in respect of monetary policy. According to the CME Group's FedWatch Tool, interest rate futures contracts have priced in a nearly 37.4% chance of a half-point cut in November, versus a 62.6% possibility of a quarter-point cut.

Meanwhile, the geopolitical risks might cap the downside for the US Dollar (USD). Bloomberg reported that Iran launched over 200 ballistic missiles at Israel on Tuesday after the US had warned just hours before that a strike was imminent. Israeli Prime Minister Benjamin Netanyahu vows to retaliate against Iran for a missile attack on Tuesday, but Tehran warned that any response would result in "vast destruction," fuelling fears of a wider war.

On the Aussie front, China’s fresh stimulus measures might continue to underpin the China-proxy Australian Dollar (AUD) as China is the largest trading partner of Australia. Additionally, the hawkish stance from the Reserve Bank of Australia (RBA) could contribute to the AUD’s upside.