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• EUR/USD held off further losses, but gains remain absent.
• Fed Meeting Minutes due on Wednesday to draw investor attention.
• Traders will be looking for good news on Thursday’s US CPI inflation update.

EUR/USD held steady on Tuesday, failing to recapture the 1.1000 handle but arresting Fiber’s recent backslide from the 1.1200 region. The Euro has shed two and a third of a percent against the US Dollar since reaching a one-year peak in late September, tumbling back into the 1.0950 region as markets bid the Greenback higher across the board.

European data remains on the tepid side for most of the trading week. The European Central Bank (ECB) is set for another rate call next week, leaving the economic calendar largely clear of pan-EU data until then.

The Federal Reserve’s (Fed) latest Meeting Minutes from the September rate cut meeting will be released on Wednesday, giving Greenback traders plenty to chew on. Markets widely hoped for a follow-up double rate cut in November after the Fed blew the doors open with a jumbo 50 bps rate trim in September. However, core inflation still holding above Fed target levels and US labor figures that wildly outran expectations last week have firmly depressed rate cut hopefuls. 

According to the CME’s FedWatch Tool, rate markets see nearly 90% odds that the Fed will follow up September’s jumbo 50 bps rate cut with a more modest 25 bps on November 7. Fed officials widely telegraphed that a weakening in the US labor market would be required to push the Federal Reserve into further outsized rate trims.

In addition, another round of US inflation figures is due on Thursday, with the release of September’s US Consumer Price Index (CPI). Core US CPI is expected to ease to 0.2% MoM from the previous 0.3%, while annualized headline CPI inflation is forecast to tick down to 2.3% YoY from the previous 2.5%.

EUR/USD price forecast

Fiber looks set to enter a bit of a sideways grind as daily candlesticks set up a consolidation pattern. The pair is trading in the dead zone between the 50-day and 200-day Exponential Moving Averages (EMA), but buyers are struggling to rebound after EUR/USD’s belly flop from north of the 1.1200 handle.

As long as sellers have run out of momentum, Euro bulls won’t have anything to fear from the 200-day EMA near 1.0900, while an extended bearish slide will send Fiber clattering back into 2024 lows near 1.0600.

EUR/USD daily chart

• USD/CAD holds steady near 1.3645 in Wednesday’s early Asian session. 
• Fed officials emphasized another gradual rate cut may be appropriate.
• Lower crude oil prices might exert some selling pressure on the Loonie. 

The USD/CAD pair trades flat around 1.3645 amid the consolidation of the Greenback during the early Asian session on Wednesday. The US Federal Reserve (Fed) has emphasized that its approach to monetary policy easing will be guided by incoming economic data. Investors will take more cues from the US Consumer Price Index (CPI) data, which is due on Thursday. 

Fed officials remain cautious and suggest another gradual rate cut may be appropriate. Boston Fed president Susan Collins noted on Tuesday that the central bank will likely need to cut interest rates further and the next phase of policy should focus on preserving the US economy.

Meanwhile, Atlanta Fed President Raphael Bostic stated on Tuesday that the jobs market is not showing signs of weakness, adding that despite significant progress on inflation, overall price figures have not yet hit target levels. New York Fed president John Williams said he strongly supported a reduction of 50 basis points (bps) at the last meeting and that two additional 25 bps cuts this year would be a “pretty reasonable representation of a base case.”

Investors will monitor the September's Federal Open Market Committee (FOMC) meeting Minutes later on Wednesday, which might offer some hints about the size of rate reductions in November meetings. “Markets are all over the place. In the last 15 days, the probability of a 50 basis point cut in November has gone from over 60% to zero. November is next month,” noted El-Erian, the president of Queens’ College. The prospect of a smaller rate cut might boost the US Dollar (USD) against the Canadian Dollar (CAD). 

On the other hand, a fall in crude oil prices could weigh on the commodity-linked CAD. Traders were disappointed as China’s top economic planner ended a highly anticipated briefing on Tuesday without new stimulus measures. It’s worth noting that Canada is the largest oil exporter to the United States (US), and lower crude oil prices tend to have a negative impact on the CAD value.

• GBP/USD pumped the brakes on recent losses but remains below the 50-day EMA.
• Latest Fed Meeting Minutes due Wednesday, UK MPC policy hearings on Thursday.
• Investor hopes for an extended acceleration of Fed rate cuts have vanished.

GBP/USD pulled the plug on a five-day losing streak, closing a scant one-sixth of a percent in the green on Tuesday. Despite Cable bidders successfully snapping the near-term losing streak, the pair remains stubbornly on the low side of the 50-day Exponential Moving Average (EMA).

UK data remains thin in the front half of the trading week, leaving GBP traders to twiddle their thumbs until the Bank of England’s (BoE) Monetary Policy Report Hearings, slated for Thursday. UK Gross Domestic Product (GDP) figures will follow on Friday.

The Federal Reserve’s (Fed) latest Meeting Minutes from the September rate cut meeting will be released on Wednesday, giving Greenback traders plenty to chew on. Markets widely hoped for a follow-up double rate cut in November after the Fed blew the doors open with a jumbo 50 bps rate trim in September. However, core inflation still holding above Fed target levels and US labor figures that wildly outran expectations last week have firmly depressed rate cut hopefuls. 

According to the CME’s FedWatch Tool, rate markets see nearly 90% odds that the Fed will follow up September’s jumbo 50 bps rate cut with a more modest 25 bps on November 7. Fed officials widely telegraphed that a weakening in the US labor market would be required to push the Federal Reserve into further outsized rate trims.

GBP/USD price forecast

GBP/USD is experiencing a short-term correction after a strong uptrend. The key level to watch is the 50-day EMA, which currently acts as resistance. A break above this level could reignite bullish momentum. However, the bearish signals from the MACD and the price's failure to maintain above the 50-day EMA suggest that traders should remain cautious. If the price dips below the 1.30 support, it could signal a deeper correction toward the 200-day EMA. Conversely, a break above the 50-day EMA would indicate that the bulls are regaining control.

GBP/USD daily chart

• NZD/JPY is trading within a range, bounded by 90.10 and 91.60.
• RSI is slightly rising in positive territory, MACD declining but still positive.
• A clear direction is lacking, but a potential upside breakout could take place.

The NZD/JPY pair continues moving sideways on Wednesday, extending the consolidation of the past week. The pair is currently trading at 91.00, with 0.30% gains and a slight upward bias. The pair remains trapped within the range defined by the 90.00 support and the 91.00 resistance, with indicators showing a lack of clear direction.

The technical indicators provide a mixed picture. The Relative Strength Index (RSI) is at 55, in the positive terrain, and has a slightly rising slope, indicating that buying pressure is steady. However, the Moving Average Convergence Divergence (MACD) is green and decreasing, suggesting that buying pressure is weak.

The overall outlook is slightly bullish due to the pair's position above the 20-day Simple Moving Averages (SMA). However, caution is advised as the MACD shows signs of weakening which could lead to a bearish leg. The main support level is the 90.00 area (20-day SMA) which in case of being lost could ignite a drop to the 88.00-87.00 range. On the other hand, the main resistance to conquer is the 91.00 area which could fuel a rise towards 91.60.

NZD/JPY daily chart

• USD/JPY trades at 148.17 after hitting a low of 147.55, supported by buyers returning above the 148.00 level.
• Technical outlook suggests upside potential with resistance at 149.14, followed by 149.39 and 150.00.
• A drop below the Ichimoku Cloud at 146.60-80 could signal further downside for the pair.

The USD/JPY remains virtually unchanged after dropping to a two-day low of 147.55 amid hopes of a ceasefire between Hezbollah and Israel, as stated by Hezbollah’s prominent leader, according to CNN. At the time of writing, the pair trades at 148.17, flat.

USD/JPY Price Forecast: Technical outlook

Although the USD/JPY paused its uptrend, the pair resumed its advance.

The pair hit a weekly low of 147.34, but buyers moving in pushed the exchange rate above the 148.00 psychological figure, opening the door for further upside.

The Relative Strength Index (RSI) shows bulls in charge, even though it shows momentum paused.

For USD/JPY buyers to resume the uptrend, the first resistance will be the October 7 high at 149.14. A breach of the latter will expose the August 15 high of 149.39, followed by the 150.00 figure. Once those areas are surpassed, buyers will eye the 200-day moving average (DMA) at 151.13.

On the flip side, if USD/JPY drops below the Ichimoku Cloud (Kumo) at 146.60-80, this could pave the way for further downside.

USD/JPY Price Action – Daily Chart

• The Canadian Dollar lost another quarter percent on Tuesday.
• Canada saw a steeper-than-expected contraction in trade balance figures.
• Fed Meeting Minutes to reveal further details about Fed’s latest rate moves.

The Canadian Dollar (CAD) shed another quarter of a percent against the Greenback on Tuesday, trimming lower slipping back against the US Dollar for a fifth straight trading day. The CAD has shed almost 2% against the Greenback since peaking in late September.

Canada’s trade balance contracted more than expected in August, with Exports falling and Imports clocking in only a minor upswing. US trade balance figures moderated, and Fedspeak continues to dominate market flows as investors look for signs of more rate cuts.

Daily digest market movers

• The CAD shed weight on Tuesday, contracting another 0.25% against the Greenback.
• Canadian International Merchandise Trade in August fell $1.1 billion, much steeper than the forecast $-500 million.
• The decline in Canadian Merchandise Trade was sparked by a deeper cut to Exports, which fell from $65.66 billion to $64.31 billion compared to a softer rise in Imports, to $65.41 billion from $64.97 billion.
• Fed’s latest Meeting Minutes set to release on Wednesday as Fedspeak continues to chill rate cut hopes.
• Read more:
  Fed's Collins: US economy, labor market remain strong
  Fed's Bostic: Jobs market is not weak, economy might be too strong for policy recalibration

Canadian Dollar price forecast

The USD/CAD daily chart shows a clear upward momentum that has developed in recent trading sessions. The price has moved above both the 50-day Exponential Moving Average (EMA) at 1.35880 and the 200-day EMA at 1.36048, which often signals a potential trend shift or the continuation of a bullish trend. Breaking these key moving averages is a significant technical indicator suggesting that bullish sentiment is building in the market. The price is now hovering around 1.36515, a level that could act as a short-term resistance point.

The MACD (Moving Average Convergence Divergence) at the bottom of the chart is currently displaying a bullish crossover. The MACD line (blue) has crossed above the signal line (orange), which is a positive sign for further upward momentum. Additionally, the histogram bars have shifted into positive territory, confirming that bullish pressure is increasing. This could indicate that the market is gaining momentum and further upside is possible if these signals remain intact.

However, caution should be exercised as the price is approaching potential resistance areas just above the current levels, which could prompt some profit-taking. If the price fails to break decisively above the recent high, it may consolidate around the EMAs or retrace back to test support levels at the 1.35880 or 1.36048 areas. Overall, the technical outlook for USD/CAD is currently bullish, but traders should watch for signs of exhaustion or a breakout above current resistance for confirmation of further gains.

USD/CAD daily chart

• Gold drops to a daily low of $2,604 amid truce hopes between Israel and its neighbors.
• Safe-haven demand weakens as Hezbollah supports ceasefire efforts, while rising US Treasury yields further weigh on Bullion.
• Traders adjust Fed rate cut expectations with focus shifting to upcoming US inflation data, jobless claims and consumer sentiment.

Gold prices slumped sharply on Tuesday following a strong US jobs report and newswires revealing that Hezbollah supported calls for a truce in the conflict between them and Israel. Hence, hints of a possible de-escalation of the Middle East conflict opened the door for traders to book profits. The XAU/USD trades at $2,615, down more than 1%.

US equities remain underpinned by an improvement in market mood. Bullion remained near year-to-date (YTD) highs due to fears of further escalation of the Middle East hostilities. However, signs of a possible solution to the conflict would trigger outflows from safe-haven assets to riskier ones. According to CNN, “Hezbollah supports efforts aimed at achieving a ceasefire in Lebanon, its top official said on Tuesday.”

This sponsored a sell-off in XAU/USD, which tumbled over $35 to a daily low of $2,604 before buyers lifted prices to current spot prices. Additionally, the jump in US Treasury yields weighed on the non-yielding metal. The US 10-year benchmark note rate remains unchanged above 4%, yet it’s up over six basis points this week after last Friday’s September Nonfarm Payrolls (NFP) report.

Given the backdrop, interest rate traders adjusted their expectations about the Federal Reserve’s (Fed) next move. Most Fed speakers crossing the wires adopted a gradual tone regarding easing monetary policy. However, some, like St. Louis Fed President Alberto Musalem, projected only one additional cut toward the end of the year after backing September’s 50 bps cut.

In the meantime, the Greenback clings to minimal gains as next week the US docket will feature the release of inflation data, the Fed’s last Meeting Minutes, Initial Jobless Claims, and the University of Michigan Consumer Sentiment.

Daily digest market movers: Gold price plunges on hopes of truce in Middle East

• The US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, is at 102.52, virtually unchanged but at levels last seen in August 2024.
• Following the last US jobs report, recession fears faded. Therefore, most Wall Street banks like Citi, JP Morgan and Bank of America revised its November Fed call from a 50 to 25 bps rate cut.
• According to CME FedWatch Tool data, the odds for a 25 bps Fed rate cut are 85.3%. Meanwhile, the chances of lowering rates by 50 bps are 0%, but they increased to 14.7% for a hold.
• Meanwhile, the People’s Bank of China (PBoC) halted its Bullion purchases for the fifth month. China’s reserves were unchanged as their holdings stood at 72.8 million troy ounces at the end of last month.

XAU/USD technical analysis: Gold price slips as sellers eye support underneath $2,650

Gold prices dropped below $2,650 on Tuesday, which could open the door for a deeper pullback. After briefly testing the $2,605 area, it has recovered some ground. But so far, it has failed to gain traction to aim higher and surpass the $2,650 mark.

Momentum shows that bears are stepping up as the Relative Strength Index (RSI), despite being bullish, is aggressively aiming lower.

Once XAU/USD dropped below the September 30 low of $2,624, it sponsored a leg toward the $2,600 mark. On further weakness, the following floor will be the 50-day Simple Moving Average (SMA) at $2,534.

Conversely, if Gold prints a daily close above $2,650, the XAU/USD needs to clear $2,670 to challenge the YTD high of $2,685. Up next will be the $2,700 mark.

• The Reserve Bank of New Zealand is expected to cut interest rates by 50 bps to 4.75% on Wednesday.
• New Zealand’s deepening economic downturn and inflation optimism flag outsized RBNZ rate cut bets.
• The RBNZ policy announcements are set to inject intense volatility into the New Zealand Dollar.

The Reserve Bank of New Zealand (RBNZ) is set to follow the US Federal Reserve’s (Fed) footsteps when it announces its interest rate decision on Wednesday at 01:00 GMT.

New Zealand’s central bank will not publish the quarterly economic projections alongside its policy statement. There will be no press conference from Governor Adrian Orr to follow.

What to expect from the RBNZ interest rate decision?       

The RBNZ is widely expected to lower the Official Cash Rate (OCR) by 50 basis points (bps) from 5.25% to 4.75% following its October monetary policy meeting. The central bank delivered a surprise 25 bps rate cut back in August.

Since then there has been no piece of new macro news, except for New Zealand’s June quarter Gross Domestic Product (GDP) report. Data released by Statistics New Zealand on September 19 showed that GDP declined 0.2% in Q2 from the previous quarter’s revised 0.1% growth. Economists expected a 0.4% contraction in the reported period, while the RBNZ projected a 0.5% drop.

Despite a smaller-than-expected GDP contraction in Q2, the declining trend in inflation and slowing economic activity help build a case around a potential 50 bps cut by the RBNZ this week. However, New Zealand’s sticky non-tradable inflation and a strong resurgence in business confidence could lead the RBNZ to opt for a smaller rate reduction in November.

“The RBNZ’s latest projections have headline CPI at 2.3% and non-tradeable CPI at 5.1% in the third quarter,” FX Strategists at ING noted. 

“We see a non-negligible risk of inflation having dropped below the 2% target range mid-point, but non-tradable CPI should continue to be stickier. Accordingly, this 50bp cut may be a one-off move, with the RBNZ defaulting back to 25bp gradual reductions into a terminal rate close to 3%, they added. 

How will the RBNZ interest decision impact the New Zealand Dollar?

The New Zealand Dollar (NZD) is hanging close to its lowest level in a month against the US Dollar (USD), near 0.6100, as markets fully price in a 50 bps RBNZ rate cut on Wednesday. Meanwhile, the USD stands tall across the board as the strong September Nonfarm Payrolls (NFP) data prompted markets to rule out an outsized Fed rate cut in November.

Heading into the RBNZ policy announcements, the NZD/USD pair appears to be at a two-way risk, as its fate hinges on the central bank’s communication on the size and the pace of the future rate cuts.

If the central bank lowers OCR by the expected 50 bps but surprises with a cautious tone in its policy statement, pushing back against expectations of more outsized rate cuts, the NZD is likely to find fresh demand. In such a case, NZD/USD could stage a strong comeback toward the 0.6300 level. A surprise 25 bps rate cut by the RBNZ could also revive NZD buyers.

On the other hand, NZD/USD could see a renewed downtrend toward 0.6000 should the RBNZ acknowledge the progress in disinflation while voicing concerns over the economic pain, leaving the door open for more large rate cuts.

Dhwani Mehta, FXStreet’s Senior Analyst, offers a brief technical outlook for trading the New Zealand Dollar on the RBNZ policy announcements: “The NZD/USD pair is challenging the critical 200-day Simple Moving Average (SMA) at 0.6099, as the 14-day Relative Strength Index (RSI) remains deep in the bearish territory.”

“If buyers manage to defend the key 200-day SMA, a recovery could initiate toward the 21-day SMA at 0.6226. Ahead of that, the 50-day SMA at 0.6157 could come into play. Alternatively, a sustained break below the 200-day SMA could fuel a fresh downtrend toward the 0.6000 level, below which the August 16 low at 0.5978 will be tested,” Dhwani adds.  

• AUD/USD declines as Chinese stimulus concerns weigh on market sentiment.
• Risk-perceived currencies are also under pressure due to rising Oil prices and the Israel conflict.
• RBA Meeting Minutes gave some dovish insights on the RBA’s stance.

The AUD/USD declined by 0.60% to 0.6725 in Tuesday's session, influenced by China's uncertain economic outlook. A leading Chinese official failed to go into detail about the size or parameters of the government’s upcoming stimulus measures, which worried investors and sent the Chinese stock market reeling.

Despite the uncertainties surrounding the Australian economy, the Reserve Bank of Australia (RBA) signaled a dovish tone in the release of its latest minutes, which fueled bets of an initial cut in December.

Daily digest market movers: Australian Dollar slips after RBA minutes, China outlook

• Regarding the RBA minutes, during the September 24 meeting, the RBA kept the cash rate target steady at 4.35% and maintained its neutral stance.
• However, the minutes revealed a more dovish tone as the central bank removed the August meeting's statement that "a reduction in the cash rate target was unlikely in the near term."
• Notably, RBA Deputy Governor Hauser dismissed the characterization of the minutes as dovish, emphasizing that the task of reducing inflation is "not finished yet."
• Markets currently place around 50% odds on a 25 bp rate cut by December.
• On the Fed’s side, markets eased on the aggressive dovish bets and provided some relief to the Greenback.
• This week’s Consumer Price Index (CPI) reading will be important.

AUD/USD technical outlook: Aussie pair under bearish momentum, must hold 0.6700

The AUD/USD pair has been trading with a strong downward bias in the last few sessions. The Relative Strength Index (RSI) is in the negative area of the map and is declining sharply. The RSI value of 40 suggests that selling pressure is rising. The MACD is also bearish with the histogram declining and red.

The overall technical outlook is bearish, and the pair might use supports at 0.6700, 0.6650 and 0.6600. On the other hand, it has resistance at 0.6800, 0.6850 and 0.6900.

Federal Reserve (Fed) Bank of Boston President Susan Collins noted late on Tuesday that current Fed policy is helping to cool inflation, but the US economy and labor markets still appear strong, and core inflation still remains elevated.

Key highlights

• Mexican Peso drops, weighed by risk-off mood and strong US economic data.
• Banxico Deputy Governor Omar Mejia hinted at a negative output gap by late 2024, potentially influencing future inflation.
• Traders await Mexico’s September inflation data and Banxico meeting minutes, with expectations for further rate cuts by year-end.

The Mexican Peso depreciates against the US Dollar as high US Treasury yields underpin the Greenback on Tuesday. This and news that China’s stimulus program fell short of market expectations weighed on the emerging market currency. The USD/MXN trades at 19.35, up over 0.50%.

During the Asian session, newswires revealed that Zheng Shanjie, the head of China’s National Development & Reform Commission (NDRC), failed to provide details about the shape and size of the government's fiscal stimulus. This spurred a sell-off in Chinese equities and shifted sentiment sour.

That undermined the Mexican Peso amid a scarce economic docket. Traders are eyeing the release of inflation figures on Wednesday and the Bank of Mexico’s (Banxico’s) latest policy meeting minutes on Thursday.

On Monday, Banxico’s Deputy Governor Omar Mejia said estimates suggest the economy could print a negative output gap by the end of 2024. Mejia added that it could influence prices when output drops below its full potential.

A Reuters survey showed analysts estimate the Consumer Price Index (CPI) for September in Mexico will fall to 4.62%, its lowest level since March. Meanwhile, the Core CPI for the same period is foreseen dipping to 3.96%, extending its trend for the 20th straight month.

Last week, Banxico Governor Victoria Rodriguez said that future cuts could be bigger so long as the inflation rate continues to fall.

In the last meeting, Banxico lowered rates to 10.50% in September, as is expected to lower borrowing costs by 25 basis points (bps) in the two upcoming meetings, on November 14 and December 19. Markets estimate the main reference rate to finish the year at 10% and to 8% in 2025.

Across the border, last Friday’s US Nonfarm Payrolls (NFP) report sparked the Federal Reserve (Fed) to reverse its rate cuts. Once the news headline showed the economy adding over 254,000 people to the workforce, traders scrambled to price in just one 25 bps cut instead of a 50.

Meanwhile, Fed officials crossed the wires. Governor Adriana Kugler said she “will support” more cuts if inflation declines. Echoing some of her comments was the St. Louis Fed’s Alberto Musalem, who stated that he will go slow on interest rate cuts if it makes sense.

In the US, the schedule will feature many speeches by Fed officials, inflation data on the consumer and producer sides, and the University of Michigan (UoM) Consumer Sentiment for October.

Daily digest market movers: Mexican Peso pressured by strong US Dollar, ahead of inflation data

• Last Thursday, Mexico’s Supreme Court voted eight to three to "consider a constitutional challenge to the controversial judicial overhaul enacted last month," which would allow the election of judges and Supreme Court magistrates through electoral vote.
• According to Banxico’s poll, the central bank is projected to lower rates by 50 bps to 10% for the remainder of 2024. Meanwhile, the USD/MXN exchange rate will end at around 19.69.
• Mexico’s economy is projected to grow by 1.45% in 2024, lower than August’s 1.57%.
• After the outstanding US jobs report, Citi added its name to JPMorgan and Bank of America and changed its November Fed call from a 50 to 25 bps cut.
• US Treasury yields skyrocketed and underpinned the US Dollar, which continues to appreciate against the Peso.
• Data from the Chicago Board of Trade (CBOT) via the December fed funds rate futures contract shows investors estimate 49 bps of easing by the Fed toward the end of 2024.
• Market participants have disregarded a 50 bps cut. The odds of a 25 bps cut are 85.3%, while the chances for holding rates unchanged are at 14.7%, according to the CME FedWatch Tool data.

USD/MXN technical outlook: Mexican Peso drops as USD/MXN jumps above 19.30

Despite falling below the 50-day Simple Moving Average (SMA) at 19.36, the USD/MXN remains upwardly biased. Momentum supports sellers with the Relative Strength Index (RSI) standing in bearish territory. Nevertheless, the RSI is aiming upwards, and in the short term the exotic pair could extend its gains if buyers maintain the momentum.

If USD/MXN clears the psychological 19.50 level, look for buyers driving the exchange rate toward the October 1 daily high of 19.82, ahead of 20.00. Up next would be the YTD peak of 20.22.

For a bearish resumption, if USD/MXN drops below the October 4 wing low of 19.10, the 19.00 figure will be exposed. Once broken, the next support would be the 100-day SMA at 18.64.

Federal Reserve (Fed) Bank of Atlanta President Raphael Bostic noted on Tuesday that despite a recent slowdown in the US labor market, the jobs market itself is not showing signs of weakness, further highlighting that despite significant progress on inflation, overall price figures have not yet hit target levels.

Key highlights

• US Dollar Index remains neutral on Tuesday near the key 103.00 level.
• Fed officials remain cautious about easing policy too much, too soon.
• CPI figures on Thursday will be key for DXY movement.

The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, remains flat on Tuesday. Despite the initial surge, the DXY has settled around 102.50 and is awaiting further direction.

Economic indicators suggest mixed signals for the US economy. While some data points to a slowdown, other metrics indicate ongoing resilience. The Federal Reserve (Fed) has emphasized that its approach to monetary policy easing will be guided by incoming economic data, suggesting a cautious stance that will depend on the evolving economic landscape.

Daily digest market movers: US Dollar flat as Fed bets adjust, CPI looms

• Fed officials remain cautious, emphasizing the risks of premature easing and indicating further gradual rate cuts may be appropriate.
• The probability of a 50 bps cut in November or December is now zero, and a 25 bps cut next month is only 90% priced in.
• Despite strong economic data, the market still anticipates 125 bps of total easing in the next 12 months.
• Consumer Price Index (CPI) data on Thursday might shake the USD dynamics and the next bets on the Fed.

DXY technical outlook: DXY paused in upward momentum, resistance caps upside

Technical analysis of the DXY index indicates a temporary pause in upward momentum after a recent winning streak. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators remain firmly in positive territory, suggesting potential for further gains. While the short-term outlook has improved, the overall bias remains bearish for the USD.

Key support levels rest at 102.30, 102.00 and 101.80, while resistance levels stand at 103.00, 103.50 and 104.00.

• The Dow Jones held steady on Tuesday, treading water near 42,000.
• Geopolitical market tensions eased after the US discouraged an Israeli escalation against Iran.
• Investors are now grappling with lower rate cut expectations after last week’s labor print.

The Dow Jones Industrial Average (DJIA) churned on Tuesday, digging in near the 42,000 handle as markets chew on factors pulling investor expectations in multiple directions. Investor concerns about the Israel-Iran ramp-up eased early Tuesday after the US verbally intervened in the still-broiling Middle East conflict. Risk appetite recovered footing on the news, but investor sentiment remains tepid as traders grapple with a muggier outlook on Federal Reserve (Fed) rate cuts for the rest of the year.

US President Joe Biden stepped in to directly warn Israel that a direct retaliatory attack against Iran would be unwise, helping to blow off some of the building pressure and prevent the Middle East conflict from bubbling over into into further neighboring countries. Iran launched a retaliatory strike against Israel this weekend in response to Israel’s invasion of Lebanon.

Rate markets continue to overwhelmingly bet on a single quarter-point rate cut from the Fed in November. According to the CME’s FedWatch Tool, rate markets see nearly 90% odds that the Fed will follow up September’s jumbo 50 bps rate cut with a more modest 25 bps on November 7. Markets were pushed back on hopes for a second double-cut after US labor data printed well above expectations last week. Fed officials widely telegraphed that a weakening in the US labor market would be required to push the Federal Reserve into further outsized rate trims.

Dow Jones news

A little over half of the Dow Jones’ listed stocks are in the green on Tuesday, but overall gains remain thin as higher ground is spread evenly amongst several sectors. Caterpillar (CAT) fell back 2.5% to $388 per share after China failed to announce further construction-supporting subsidies, and Travelers Companies rose 1.75% to $230 per share in a thin recovery from Monday’s -2.4% plunge.

Dow Jones price forecast

Despite a bearish start to the trading week, the Dow Jones continues to trade north of the 50-day Exponential Moving Average (EMA) near 41,220. The major equity index has bounced off of the 50-day EMA several times in recent months as a bullish uptrend holds steady.

The MACD has been flashing bearish warnings as the Dow Jones trades deep into bull country, but downside momentum remains limited as indexes continue to lean into the high end.

Dow Jones daily chart

• EUR/GBP declined 0.10% on Tuesday and remains in a range, but bullish bias intact.
• RSI, flat MACD support a balanced outlook.
• EUR/GBP should hold above 0.8380 to confirm bullish bias.

The EUR/GBP pair remains confined within a recent range and declined by 0.10% on Tuesday to 0.8380. However, the larger time frame bias remains bullish, as suggested by the technical indicators and the pair continues to side-ways trade after last week’s rally.

The Relative Strength Index (RSI) is near 50 and declining. This suggests that selling pressure is rising. The Moving Average Convergence Divergence (MACD) is flat in positive territory, suggesting that buying pressure is flat.

A bullish continuation could be expected if the price breaks through the resistance at 0.8400 which would secure the 20-day Simple Moving Average (SMA) , potentially paving the way for gains towards 0.8450 and 0.8500. Conversely, if the price drops beneath the 0.8320 support level, it may trigger further declines. Overall it all points out that the bullish momentum gained last week seems to be taking a breather but still, the bulls have same work to do.

EUR/GBP daily chart

• EUR/USD has broken below a key trendline and might have formed a bearish pattern. 
• A Double Top reversal pattern could potentially be a bad omen for the pair. 
   

EUR/USD breaks below the trendline for the rally since June. On Tuesday it executes a throwback move to “air kiss the trendline goodbye” and now seems to be declining again.

The overall tenor of the chart suggests a bearish short-term outlook. Momentum as measured by the Moving Average Convergence Divergence (MACD) is in negative territory. If prices can close below Friday’s low at 1.0951 the break will be confirmed and a deeper decline is likely to unfold. 

EUR/USD Daily Chart 

A confirmed break of the trendline would likely lead to a deeper sell-off. Such a move might reach a target at 1.0865 initially (the 61.8% Fibonacci (Fib) extrapolation of the move prior to the trendline break). The 200-day Simple Moving Average (SMA), however, could come in with support a little before then at 1.0875, suggesting another more conservative option. 

Adding to the bearish picture is the possible Double Top price pattern which might have formed during September. This is the “M” shaped pattern formed  just under the heavy resistance line at 1.1226. Double Tops are signals that the uptrend has reached its conclusion and price is reversing. The pattern's "neckline" at 1.1001 has already been broken, confirming activation of the pattern’s downside target at 1.0858, the 61.8% Fib extrapolation of the height of the pattern lower. 

• GBP/USD trades below 1.3100 after posting an upbeat retail sales report.
• A daily close above 1.3100 could target further upside, with resistance at 1.3175 and 1.3200, followed by 1.3266.
• A drop below 1.3100 may shift momentum to sellers, targeting 1.3058 and the September 11 low of 1.3001.

The Pound Sterling recovered some ground against the Greenback on Tuesday, following a better-than-expected retail sales report, yet it has fallen below the 1.3100 figure as the North American session progresses. The GBP/USD trades at 1.3090, virtually unchanged.

GBP/USD Price Forecast: Technical outlook

Price action shows some consolidation at around the 1.3050 – 1.3120 area for the second straight day. Even though momentum shifted bearish, according to the Relative Strength Index (RSI), the GBP/USD printed a leg-up on Tuesday and pierced the 1.3100 area.

If bulls push prices higher and achieve a daily close above the previously mentioned key resistance level, it will open the door for further upside.

That outcome will expose the October 4 high at 1.3175. Next will be the 1.3200 figure, followed by the August 27 daily high of 1.3266, ahead of the 1.3300 mark.

Conversely, if GBP/USD tumbles below 1.3100 and achieves a daily close below the latter, sellers will have the upper hand and can challenge the current week low of 1.3058 before targeting the September 11 cycle low of 1.3001.

GBP/USD Price Action – Daily Chart

The Pound Sterling (GBP) is little changed on the session, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

GBP little changed on the day

“Cable is showing a marginal gain intraday but there appears to be little impetus behind price action. The British Retail Consortium reported a 1.7% rise in like-for-like retail sales in the September year.”

“Spot has slipped into a minor consolidation range just below 1.31. the intraday chart does reflect a small bull hammer pattern forming in European trade to coincide with spot breaking above steep bear trend resistance off of the late August high.”

“These are mildly positive developments at least but the pound will need to show a lot more strength—above 1.3175—if it is to recover. Trend momentum on the shorter-term studies remains deeply bearish at this point. Support is 1.3050/60.”

• EUR/JPY pulls back just before almost reaching the top of a medium-term range. 
• It may yet rally to the range ceiling or roll over as the sideways trend extends.  

EUR/JPY almost reaches the top of its nine-week-long range before stalling and unfolding a shallow pullback down to the mid 162s. 

EUR/JPY 4-hour Chart 

Given the shallowness of the pullback there remains a chance EUR/JPY could resume its up move and finally reach the top of the nine-week range in the 163.80s. 

However, the Moving Average Convergence Divergence (MACD) momentum indicator is crossing below its signal line, giving a sell signal and this could result in a reversal lower. 

The pair is in a short-term sideways trend most probably, which given the guiding principle of technical analysis that “the trend is your friend”, would suggest an extension of the sideways mode. If so, then the next move for EUR/JPY is likely to be back down towards the base of the range in the 154s. 

It is too soon to say with any confidence if this will happen, however, as there are no reversal signs from price itself, only the MACD. It is possible EUR/JPY could make a last rally higher before rolling over and beginning a new down leg in earnest. A break below 161.00 would supply additional bearish confirmation such a move was starting.

The Chinese central bank (PBoC) reported unchanged Gold reserves of 72.8 million ounces (2,264 tons) at the end of September, Commerzbank’s commodity analyst Carsten Fritsch notes.

Central bank purchases to remain a key driver of Gold demand

“This means that the PBoC has not purchased any Gold for five consecutive months. In the first four months of the year, the PBoC bought 29 tons of Gold, with only small purchases being made in April. By comparison, a total of 225 tons were purchased last year.”

“Even without major contributions from the Chinese central bank, central bank Gold purchases in the first half of the year totalled 483 tons, according to the World Gold Council, because central banks in other countries, such as India, Turkey and Poland, continued to buy large amounts of Gold.”

“In addition, a significant portion of the purchases could not be attributed to any particular central bank. Central bank purchases are therefore likely to remain a key driver of Gold demand this year, even without major purchases by the PBoC.”

• GBP/JPY edges higher after wage data fails to meet expectations, undermining the Yen. 
• Sterling maintains its steady march after the BoE’s chief economist urges caution in cutting interest rates. 

GBP/JPY climbs back into positive territory just above 194.00 on Tuesday, as the Pound Sterling (GBP) makes a mild recovery against the Japanese Yen (JPY) which depreciates after the release of lower-than-expected Japanese wage data for August. 

Japanese Labor Cash Earnings rose 3.0% in August on a year-over-year basis, which is lower than the 3.1% estimated by economists, and the 3.4% in July (revised down from 3.6%), according to data from the Ministry of Economy, Trade and Industry of Japan. 

The lower-than-estimated rise in wages is mildly disinflationary and therefore likely to curb the chances of the Bank of Japan (BoJ) deciding to raise interest rates from their comparatively low 0.25% level. Interest rates remaining lower for longer will result in less foreign capital inflows to Japan, a reduction in demand for the Yen and a weaker currency. This, in turn, leads GBP/JPY to edge higher.

The Pound, meanwhile, regains its feet after the Chief Economist at the Bank of England (BoE) Huw Pill, said any future rate cuts by the bank should be made cautiously. This, in turn, helps GBP/JPY retain the upside. Prior to that Sterling had been selling off after his colleague, the Governor of the BoE Andrew Bailey, said the bank should become more “activist” in cutting interest rates, thereby suggesting more frequent or larger cuts might be on the horizon. 

GBP/JPY is in an overall short-term uptrend, as the Yen faced additional headwinds after the new Prime Minister Shigeru Ishiba said that interest rates should probably keep at their current low level because of the state of the economy. His comments struck a note of discord with those of the Governor of the BoJ Kazuo Ueda, who had said interest rates should rise if the incoming economic data continued to match forecasts. Ishiba later backtracked, saying that this did not mean he would put pressure on the BoJ in its decision-making process, relieving some of the bearish pressure on the currency. 

Overall the Yen is seen as still too weak because it makes imported goods expensive for consumers, and this led currency diplomat Atsushi Mimura to make a “verbal intervention” on Monday cautioning traders against “speculative moves”. That said, one factor putting a floor under the Yen’s devaluation is continued demand for it as a safe-haven amid an escalation of the conflict in the Middle East.

• USD/JPY pares intraday losses and recovers above 148.00 amid firm US Dollar.
• Investors shift their focus to the US inflation data for September.
• A decline in Japan’s Overall Household Spending would diminish BoJ’s rate hike bets.

The USD/JPY recovers its intraday losses and returns to the day’s high of 148.20 in Tuesday’s North American session. The major gains as the US Dollar (USD) strives to extend its upside. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto gains near a seven-week high of 102.50.

The US Dollar’s performance has remained firm as market expectations for the Federal Reserve (Fed) to deliver another larger-than-usual interest rate cut of 50 basis points (bps) in November have waned.

According to the CME FedWatch tool, traders have repriced the Federal Fund rate for November and see a 25-bps rate cut that will push interest rates lower to 4.50%-4.75% after the release of the Nonfarm Payrolls (NFP) report for September. The employment data showed that the labor demand remained robust, the Unemployment Rate decelerated and the wage growth remained strong.

Going forward, investors will pay close attention to the US Consumer Price Index (CPI) data for September, which will be published on Thursday. Economists expect the core CPI – which excludes volatile food and energy prices – to have grown steadily by 3.2%. Annual headline inflation is expected to have decelerated further to 2.3% from 2.5% in August.

The impact of inflation is expected to be slight on Fed rate cut expectations as officials are more focused on reviving consumer spending and job growth.

On the Tokyo front, Overall household spending declined by 1.9% in August, slower than expectations of a 2.6% contraction. In July, the consumer spending measure grew by merely 0.1%. This is expected to diminish expectations of more rate hikes by the Bank of Japan (BoJ) in the last quarter of the year.

The Euro (EUR) has nudged higher to near 1.10 this morning despite signs that even relative hawks on the ECB governing council may not oppose a rate cut late this month, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

EUR to retest 1.10 breakdown point

“While ECB Governor Holzmann commented yesterday that the fight against inflation was not over, Nagel said earlier today that he is open to discussing a cut this month. Swaps are pricing in 24bps of easing risk for the 17th. A dovish-leaning ECB should help curb the EUR rebound around the 1.10 zone.”

“Spot has rebounded to retest last week’s technical breakdown point at 1.10—the low between the August and September tests of 1.12 and the effective double top trigger point. This should be firm resistance if the pattern is to deliver on its technical—measured move—promise of driving EUR/USD back to the low 1.08s in the next few weeks.”

• NZD/USD falls to a monthly low near 0.6100 as traders brace for the RBNZ’s policy decision.
• The RBNZ is expected to reduce its OCR further by 50 bps to 4.75%.
• Investors await the US inflation data for fresh guidance on the Fed’s interest rate outlook.

The NZD/USD pair hits the monthly low near the round-level support of 0.6100 in Tuesday’s North American session. The Kiwi pair weakens as the New Zealand Dollar (NZD) is under pressure ahead of the Reserve Bank of New Zealand’s (RBNZ) policy decision, which will be announced on Wednesday.

The RBNZ is expected to cut its Official Cash Rate (OCR) by a larger-than-usual size of 50 basis points (bps) to 4.75% as the central bank is focused on reviving economic growth. The board also reduced its borrowing rates unexpectedly by 25 bps in August.

Meanwhile, weakness in Chinese markets due to the unavailability of specific details for allocation of funds in the stimulus package of 200 billion yuan unveiled by Chairman of the National Development and Reform Commission (NDRC) Zheng Shanjie on Tuesday after the long National Day holiday has failed to prompt recovery in the Kiwi dollar.

On the United States (US) front, the US Dollar (USD) struggles to extend its upside, with investors focusing on the Consumer Price Index (CPI) data for September, which will be announced on Thursday. The inflation data will influence market expectations for the Federal Reserve’s (Fed) interest rate outlook for the remaining year. The core CPI – which excludes volatile food and energy prices – is estimated to have grown steadily by 3.2%.

NZD/USD extends its losing streak for the sixth trading session on Tuesday. The Kiwi pair has discovered temporary support near the 200-day Exponential Moving Average (EMA) around 0.6100.

The 14-day Relative Strength Index (RSI) has declined to near 40.00. A bearish momentum would trigger if the oscillator slips below the above-mentioned level.

More downside would appear if the pair breaks below the horizontal support plotted from September 11 low around 0.6100. The asset would decline further towards May 3 high of 0.6046 and the psychological support of 0.6000 if it breaks below September 11 low.

On the flip side, a reversal move above the 20-day EMA at 0.6230 will drive the asset towards September 3 high of 0.6302 and September 30 high near 0.6380.

NZD/USD daily chart

On Friday, the Gold price came under pressure following the publication of surprisingly robust US labour market data. The price fell back to just over $2,630 per troy ounce before recovering somewhat, Commerzbank’s commodity analyst Carsten Fritsch notes.

Uncertainty fuels demand for Gold as a safe haven

“The US labour market report showed a much stronger than expected increase in jobs created in September. In addition, the number of new jobs in the previous two months was revised upwards significantly. At the same time, the unemployment rate fell and average hourly earnings rose sharply. As a result, Fed rate cut expectations were scaled back sharply.”

“According to Fed fund futures, market participants now expect interest rates to be cut by only 25 basis points in both November and December. This is 25 basis points less than previously expected by the end of the year and corresponds to the Fed's and our economists' expectations. The fact that the Gold price has not corrected more sharply is probably due to the conflict between Israel and Iran. The uncertainty about this is fuelling demand for Gold as a safe haven.”

“This can be seen from the ETF inflows of almost nine tons since last Wednesday. Thus, Gold is currently being pulled in different directions by opposing factors. The US inflation data to be released on Thursday is likely to show a further decline in price pressure, but is unlikely to trigger renewed speculation of stronger Fed rate cuts. Therefore, higher Gold prices are likely to be primarily driven by geopolitical risks.”

Weaker stocks tugged the Canadian Dollar (CAD) a bit lower yesterday and remain a risk for the currency in the near term as China and rising yields weigh on sentiment, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD slips back to mid 1.36s

“The CAD is not getting any offset to soft stocks from firm crude prices this morning as China growth worries weigh on commodities broadly. The CAD’s underperformance is driving spot back to the mid-1.36s, the top of the recent range. Firm USD gains are driving a slightly more significant overvaluation in spot by our fair value model’s estimate.”

“Equilibrium is assessed to be 1.3547 today, a big figure below spot levels and the biggest divergence with the market rate since August. Overvaluation may constrain the USD’s ability to extend gains in the short run at least. Friday’s September jobs and Q3 BoC Business Outlook survey are more relevant for markets and the policy outlook.”

“Steady and sustained gains in the USD over the past week have driven spot back to the mid-September peak at 1.3647. There is a lot of congestion in the chart between 1.36/1.38 dating back to the spring/early summer which should slow—but may not prevent—additional USD gains. The 100-day MA sits at 1.3653 to provide a bit more anchorage for spot and the short-term chart is looking pretty stretched. But a clear push through the mid-1.36s may see USD gains extend to 1.37+. Support is 1.3610/20.”

With the USD weakening on concerns about the US economy, USD/CAD has naturally trended lower again. However, this cannot hide the fact that the CAD remains under pressure against the other G10 currencies. Given the weaker real economy and the continued progress in disinflation, the Bank of Canada is likely to accelerate the easing tempo in the near future, meaning that the period of CAD weakness is likely to continue for some time, Commerzbank’s FX Analyst Michael Pfister notes.

Good reasons to trade the CAD weaker

“With the USD weakening on US economic concerns, USD/CAD is now trading well below its high for the year. And in the coming weeks there are good reasons for further USD weakness, given signs of a slowdown in the US real economy and the fact that the Fed is now likely to cut interest rates by much more than previously expected. Nevertheless, we expect USD/CAD to trade sideways in the coming months, with a similarly weak CAD.”

“The all-clear can now be given on inflation. After the last base effect fell out of the calculation in August, the annual rate is now even just below the middle of the target range of 1-3%. Canadian real economy has been weakening for some time as a result of persistently high interest rates. For example, the Canadian labour market is now weakening markedly, while at the same time growth appears to be moving further away from its pre-pandemic trend.”

“This is unlikely to change by the end of our forecast horizon. While we see potential for lower USD/CAD levels early next year, this recovery is likely to be very weak. And if the BoC stops cutting rates in the second half of the year, and at the same time economic growth in Canada picks up, then we are likely to see a similar situation in the US. In short, the outlook for the CAD remains poor for the time being.”

• GBP/CAD returns to the underside of a trendline it has broken below. 
• The pair is consolidating after falling within a rising channel. 

GBP/CAD is pulling back after unfolding a partial down-leg within a broader rising channel. It is probably in a short-term downtrend, which given the principle that “the trend is your friend” marginally favors more downside. 

The pair broke below an important trendline (“Trendline A” on chart) on October 3. It then bottomed out and has since recovered back up to the underside of the trendline. 

GBP/CAD 4-hour Chart 

GBP/CAD is at a critical turning point: it could either break back above the trendline, thereby reversing the trend, or roll over and continue lower. 

A break below the base of the consolidation (dashed line on chart) would indicate a continuation down leg. Such a move would be expected to reach an initial downside target at 1.7620 (Fibonacci 61.8% of the height of the range extrapolated lower), followed by about 1.7605 (September 4 lows). 

A decisive break back above the trendline, on the other hand, would suggest a reversal of the trend. This is possible given the medium and longer-term trends are bullish and the pair is in a rising channel. Further, the Moving Average Convergence Divergence (MACD) has crossed above its signal line and is rising steeply, indicating strong upside momentum accompanies the current move. 

In order to be decisive such a break would have to be accompanied by a long green candlestick that pierced well clear of the trendline and closed near its high, or three green candlesticks in a row that broke clearly above the trendline. 

The USD continues to drift as it consolidates last week’s advance, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

USD continues to consolidate

“Gains for the JPY and EUR on the session are pressuring the DXY somewhat but the drop in the dollar index still looks more like a pause ahead of renewed gains rather than a reversal. High beta FX is mostly underperforming amid some lumpy moves in Asian stocks and a sharp drop in crude oil (down 2%). The AUD is the main underperformer on the session as markets ponder the outlook for the Chinese economy.”

“Chinese markets returned from holidays with a bang but were unable to sustain strong opening gains. Investors are disappointed with the scale and scope of stimulus measures offered by the authorities. The mainland CSI 300 stock index gave up nearly half of its opening gains on the day while the Hang Seng fell more than 9%. European stocks are in the red while US equity futures are holding small gains.”

“It’s another pretty light session for data—just the Trade Balance update from the US this morning. There is a bit more Fedspeak today (Bostic, Collins—a non-voter—and Jefferson) and a 3Y auction, with results at 1pm. This evening, the RBNZ is expected to cut its key cash rate 50bps to 4.75%.”

The September US employment report turned in a much stronger jobs creation and a lower unemployment rate, uplifting the labor outlook, UOB Group Senior Economist Alvin Liew notes.

Jobless rate improves, wage growth accelerates

“Job creation was well above expectations at 254,000 in September and received an added lift of 72,000 upward revision to Aug/Jul numbers. Unemployment rate eased for a second month to 4.1% as unemployed numbers fell by -281,000 while participation rate stayed steady at 62.7%. Wage growth reaccelerated above forecast to 0.4% m/m, 4.0% y/y in Sep, meaning wage-push inflation is still a concern.”

“Job creation in the first 3 quarters was still at a slower pace (compared to the prior three years), but the base of job creation among the sectors turned broader in September with just manufacturing, and warehousing and transportation sectors losing jobs.”

“The September jobs data does not justify calls for a bigger rate cut, especially if we consider the improvement in unemployment rate and the pickup in wage growth. Thus, we keep to our forecast of a 25 bps Fed rate cut in Nov FOMC, but we acknowledge the balance of risk has shifted slightly towards pause. Wed’s September CPI will further shape Fed expectations.”

Recent rally in USD/SGD shows tentative signs of moderation. Pair was last at 1.3029 levels, OCBC’s FX strategist Christopher Wong notes.

Tentative signs of moderation

“Daily momentum is bullish while rise in RSI moderated near overbought conditions. Resistance at 1.3060 (50 DMA), 1.31 (38.2% fibo retracement of Jul high to Sep low) Support at 1.2980 (23.6% fibo), 1.2940 (21 DMA).”

“S$NEER was last estimated at ~1.95% above our model-implied mid. MAS policy decision will be announced on 14 Oct, alongside 3Q GDP. We expect MAS to maintain policy status quo again at the upcoming Oct MPC meeting as prevailing appreciating path of the S$NEER policy band remains appropriate.”

“But we do not rule out an outside chance that the MAS may surprise with an earlier easing, given that MAS adopts a forward-looking approach to monetary policy making and that the core CPI’s disinflation journey remains intact, apart from the slight bump-up in August.”

• Gold is edging lower within its range as markets revise down their outlook for China, the world’s largest consumer of Gold. 
• The precious metal is supported by ETF flows and haven demand amid raised geopolitical tensions.  
• Technically, XAU/USD breaks through a trendline as it extends its narrow range-bound market mode.  

Gold (XAU/USD) exchanges hands in the $2,630s on Tuesday as the yellow metal edges lower within the familiar $50 range of recent weeks. Disappointment at the limited extent of fiscal stimulus announced by China on Tuesday is pushing Gold lower, since China is the world’s largest consumer of the precious metal. 

Reduced chances that the Federal Reserve (Fed) will cut interest rates by another double-dose 50 basis points (bps) (0.50%) at its next meeting in November is further weighing on Gold. The increasing probability that the Fed will only cut by 25 bps(0.25%), or even that it may not cut at all, is a headwind for Gold because it suggests the opportunity cost of holding the non-interest-paying asset will remain higher than previously expected. 

Gold underpinned by ETF flows, haven demand

Gold may see downside limited, however, as data points to high demand for Gold-backed Exchange Traded Funds (ETF), which enable investors to buy shares in Gold rather than purchasing bullion itself. Net ETF inflows have risen significantly during the summer, and this is often taken as a strong indicator of future demand trends. 

In August, “Global physically-backed Gold ETFs added $2.1bn,” said the World Gold Council (WGC), thereby “extending their inflow streak to four months.”  

This follows July, when Gold ETFs attracted $3.7 billion, the highest inflows since April 2022. 

Gold also continues to provide an attractive safe-haven amid rising geopolitical tensions. On Tuesday, Israel stepped up its attacks on targets in Lebanon after a Hamas bombing in southern Israel. Israeli forces further claimed to have killed a leading Hezbollah member in charge of budgeting and logistics. 

In response to the relentless onslaught, which has claimed many of the group’s most senior figures, deputy leader of the group Naim Qassem said the conflict between Hezbollah and Israel “was a war about who cries first, and that Hezbollah would not cry first,” according to Reuters. He further added that Hezbollah’s capabilities were still intact. 

Markets are also on tenterhooks anticipating a retaliatory attack by Israel on Iran for its ballistic rocket raid last week. 

The overall trend lower in global interest rates – notwithstanding the recalibration of their trajectory in the US – puts a further floor under Gold price as it increases Gold’s attractiveness as a portfolio asset. 

Technical Analysis: Gold breaks below trendline

Gold breaks below an important trendline as it continues unfolding within a narrow sideways range. The range has a ceiling at around $2,673 (October 1 high) and a floor at $2,632 (October 4 low).  

XAU/USD Daily Chart

The short-term trend is sideways, and given the technical analysis principle that “the trend is your friend,” it is more likely than not to endure with price oscillating between the aforementioned poles.

A break above $2,673 would increase the odds of a resumption of the old uptrend, probably leading to a continuation up to the round-number target at $2,700. 

A break below $2.632 would lead to a move down to at least the swing low of $2,625 (September 30 low). A break below that level would likely see prices give way to support at $2,600 (August 18 high, round number). 

On a medium and long-term basis, Gold remains in an uptrend, with the odds favoring an eventual resumption higher once the current period of consolidation has ended. 

It would require a breakout either above the top of the range or below the bottom to confirm a new directional bias.

The US Dollar (USD) could strengthen further, but it remains to be seen if it can maintain the rapid pace of advance. The level to monitor is 7.1200, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

USD can strengthen further

24-HOUR VIEW: “Last Friday, USD surged to a high of 7.1036. Yesterday (Monday), we indicated that ‘the sharp and swift rally appears to be overdone, and USD is unlikely to rise much further.’ We expected USD to ‘trade in a range between 7.0700 and 7.1050.’ However, instead of trading in a range, USD sold off sharply to a low of 7.0583, closing at 7.0724 (-0.38%). This time around, the sharp drop appears to be overdone, and instead of continuing to decline, USD is expected to trade in a 7.0590/7.0800 range.”

1-3 WEEKS VIEW: “After USD surged last Friday, we indicated yesterday (07 Oct, spot at 7.0900) that ‘while further USD strength is not ruled out, it remains to be seen if it can maintain the rapid pace of advance.’ We also indicated that ‘the level to monitor is 7.1200, and in order to maintain the rapid buildup of momentum, USD must not break below 7.0500.’ USD subsequent pulled back sharply, and momentum has slowed to an extent. However, only a breach of 7.0500 would indicate that USD is not ready to head higher to 7.1200.”

The Pound Sterling (GBP) continued to trade with a heavy bias after BoE Governor Bailey unexpectedly spoke about adopting a more aggressive easing stance. Pair was last at 1.3100 levels., OCBC’s FX strategist Christopher Wong notes.

Catch-up in dovish re-pricing should continue to dampen GBP bulls

“In an interview with the Guardian last week, he said that the BoE could become a ‘bit more aggressive’ and ‘a bit more activist’ in its approach to cutting rates if the news on inflation continued to be good. This is a flip from the last MPC in Sep where policymakers emphasized the need for policy to stay restrictive for ‘sufficiently long’ and that most members saw the need for gradual approach to removing restraint.

“A catch-up in dovish re-pricing should continue to dampen GBP bulls. Our house view on rates remains unchanged – another 25bp cut in the Bank Rate before year-end, likely at the November MPC meeting. Thereafter, we expect one 25bp Bank Rate cut in every quarter in 2025. Our rate cut expectation is based on our lower inflation forecasts than BoE’s. Governor Bailey’s latest comments have to reflect a change in the assessment of inflation and/or growth outlook.”

“Daily momentum is bearish bias while decline in RSI slowed near oversold conditions. Consolidation likely for now. Support here at 1.3090 (50 DMA), 1.30 (38.2% fibo retracement of Apr low to Sep high) and 1.2935 (100 DMA). Resistance at 1.3166 (23.6% fibo), 1.3230 (21 DMA).”

• AUD/USD falls further below 0.6750 amid weakness in the Australian Dollar.
• The RBA minutes didn’t offer any significant cues about the likely interest rate action for the remaining year.
• The outlook of the US Dollar will be influenced by the US CPI data for September.

The AUD/USD pair extends its losing streak for the fourth trading day on Tuesday. The Aussie asset declines to near 0.6720 as the Australian Dollar (AUD) weakens after the release of the Reserve Bank of Australia (RBA) minutes, which didn’t offer any significant cue about the likely interest rate action in the November meeting.

The RBA minutes showed that policymakers discussed scenarios for hiking interest rates or pivoting to policy normalization. However, the board remained vigilant to upside risks to inflation. Currently, financial markets expect the RBA to leave its Official Cash Rate (OCR) unchanged at 4.35% by the year-end.

Meanwhile, an absence of details about the likely size of Beijing's recently unveiled stimulus package has also dampened the Australian Dollar’s appeal, being a proxy to China’s economic growth.

In the North American region, the US Dollar (USD) has turned sideways after revisiting a seven-week high as investors await fresh cues about the Federal Reserve’s (Fed) possible monetary policy action in the remainder of the year. According to the CME FedWatch tool, the Fed is expected to cut interest rates further by 25 basis points (bps) in each of its remaining two policy meetings this year.

AUD/USD sees a sharp downside after a breakdown below the upward-sloping trendline plotted from the August 5 low around 0.6350. The Aussie asset slides below the 20- and 50-day Exponential Moving Averages (EMAs), which trade around 0.6800 and 0.6750, respectively.

The 14-day Relative Strength Index (RSI) slides to near 40.00, suggesting a weakening of momentum.

The pair could witness more downside towards the 200-day EMA near 0.6660 and the August 12 high of 0.6605 if it breaks below the round-level support of 0.6700.

In an alternate scenario, a decisive recovery move above the 20-day EMA at 0.6800 could push the asset towards October 4 high of 0.6850, followed by October 3 high of 0.6888.

AUD/USD daily chart

• Crude Oil dives over 2% lower on Tuesday while China reopens after Golden Week. 
• Markets are starting to question Israel’s next move as time goes by. 
• The US Dollar Index eases for a second day in a row as the short squeeze in the DXY looks to end. 

Crude Oil abruptly halts its recent rally on Tuesday, with China reopening and returning to markets after the Golden Week festivity. A nosedive move in the Chinese Hang Seng equity index, by nearly 10% at its closing bell, sparked global concerns about China and its economic recovery. This also has implications for Crude Oil, with demand from the Asian Giant probably coming in lower again than previously anticipated. 

The US Dollar Index (DXY), which tracks the performance of the Greenback against six other currencies, eases for a second day in a row on Tuesday. The DXY saw a steep short squeeze last week, with US Dollar bears being washed out of their position in the process. Slowly but surely, the US Dollar (USD) bulls are starting to take profit in the rally, with the DXY in a slow grind lower in search of first support.  

At the time of writing, Crude Oil (WTI) trades at $75.18 and Brent Crude at $79.22

Oil news and market movers: Plenty of concerns

• Libya’s Oil production has climbed above 1 million barrels per day for the first time in two months after the resolution of a political standoff in the country, Bloomberg reports. 
• Chevron shut in Oil production at the Blind Faith platform in the US Gulf of Mexico ahead of Hurricane Milton, Reuters reports. 
• Chevron Corp and Canadian Natural Resources Ltd. signed a $6.5 billion deal for Chevron to sell the undeveloped oil sands in the Alberta province in Canada, Rigzone reports. 
• Hurricane Milton is making its way through the Gulf Coast toward the US peninsula of Florida and is set to hit by Wednesday morning, according to recent data from the US National Hurricane Center. 

Oil Technical Analysis: There goes $75.00

Crude Oil price was bound to see some selling after its steep rally higher due to the mixture of geopolitical tensions. With time passing and Israel not really delivering a military response, tensions are starting to ease a touch. Add in Libya news and China concerns, and the correction gets more weight. Expect to see possibly a further correction until strong support is found. 

Monday’s false break is to be ignored as the move has been fully paired back on Tuesday. It thus means that current pivotal levels on the upside are still valid: the red descending trendline in the chart below, and the 100-day Simple Moving Average (SMA) at $75.72 just hovering above it, makes that region very difficult to surpass. Once holding above there, the 200-day SMA at $77.15 should refute any further upticks as it did in early trading on Tuesday. 

On the downside, old resistances have turned into supports. First is the 55-day SMA at $72.71, which acts as a potential first line of defense in case of any retreat. A bit further down, $71.46 comes into play as second support before looking back to the $70.00 big figure and $67.11 as ultimate support for traders to buy the dip. 

US WTI Crude Oil: Daily Chart

• The US Dollar trades mixed against G10 currencies during the European session on Tuesday. 
• China markets are back again after the Golden Week closure, triggering a surge in volatility. 
• The US Dollar Index trades still above 102.00, though entering a second downbeat trading day. 

The US Dollar (USD) eases for a second day in a row with investors welcoming China back to the markets. It is not a warm welcome, with the Chinese Hang Seng 300 Index down over 9% at its closing bell. A surge in risk-off is taking place, with European stocks on the backfoot as well. 

The economic calendar is light and should not create big waves on Tuesday, with the Goods Trade Balance and the Economic Optimism Index not expected to be market movers. Comments from Federal Reserve Bank of Atlanta President Raphael Bostic and Federal Reserve Vice Chair Phillip Jefferson, however, could be. 

Daily digest market movers: Hangover mode for China

• China has reopened again after a week of festivities for the Golden Week. The festive mode has rather quickly dampened, with the Hang Seng Index correcting near 10% at its closing bell. The negative reaction spilled over into European markets and some risk-off across the board. 
• At 10:00 GMT, the National Federation of Independent Business (NFIB) released its Business Optimism Index for September, which raised to 91.5 from 91.2 in August, falling short of economist expectations of 91.7. 
• The Goods and Services Trade Balance data from August is expected to be released at 12:30 GMT. The Goods and Services Trade Balance should see a smaller deficit of $-70.4 billion compared to the wider $-78.8 billion in July. The Trade Balance excluding Services showed previously a deficit of $-94.3 billion, with no forecast available. 
• The TechnoMetrica Institute of Policy and Politics will release at 14:00 GMT the Economic Optimism Index for October. A small uptick to 47.2 is expected, coming from 46.1, though indicating ongoing consumer pessimism. 
• At 16:45 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic (2024 FOMC voting member) speaks about the US economic outlook at the Atlanta Consular Corps luncheon. At 22:30 GMT, Federal Reserve Vice Chair Phillip Jefferson (2024 FOMC voting member) delivers a speech at an event organized by the Davidson College in Davidson, North Carolina.
• As mentioned above, European equities are being infected with a negative tone coming from China. All European indices are down by 1%. US Futures are still looking for direction ahead of the US opening bell. 
• The CME Fedwatch Tool shows an 88.7% chance of a 25 basis point (bps) interest rate cut at the next Fed meeting on November 7, while 11.3% is pricing in no rate cut. Chances for a 50 bps rate cut have been fully priced out now. 
• The US 10-year benchmark rate trades at 4.00%, the highest level since mid-August. 

US Dollar Index Technical Analysis: Overheated

The US Dollar Index (DXY) is easing a touch for the second day in a row. The sharp rally from last week is seeing some profit-taking for the second day in a row. The fact that the US Dollar can not gain further even with the risk-off tone from Asia could mean that a short squeeze has been completed and might see a slow grind lower from here. 

The psychological 103.00 is the first level to tackle on the upside. Further up, the chart identifies 103.18 as the very final level for this week. Once above there, a very choppy area emerges, with the 100-day Simple Moving Average (SMA) at 103.32, the 200-day SMA at 103.76, and the pivotal 103.99-104.00 levels in play. 

On the downside, the 55-day SMA at 101.99 is the first line of defence, backed by the 102.00 round level and the pivotal 101.90 as support to catch any bearish pressure and trigger a bounce. If that level does not work out, 100.62 also acts as support. Further down, a test of the year-to-date low of 100.16 should take place before more downside. Finally, and that means giving up the big 100.00 level, the July 14, 2023, low at 99.58 comes into play.

US Dollar Index: Daily Chart

“RBNZ policy decision is due tomorrow at 9am (SGT). New Zealand Dollar (NZD) was last at 0.6118 levels, OCBC’s FX strategist Christopher Wong notes.

RBNZ to quicken the pace of rate cuts to 50bp

“Markets are largely expecting the RBNZ to quicken the pace of rate cut to 50bp each at the remaining 2 MPCs for the year and another 100bp cut cumulatively for 1H 2025. NZIER’s quarterly survey of business opinions says that only a net 3 percent of firms were able to raise prices to pass on costs, down from 23% in previous quarter.”

“The same report also indicated that significant proportions of firms are now reporting it easy to find skilled and unskilled labour. With dovish expectations already in the price and Kiwi having corrected >2% in the last week, the NZD risks being a “sell on rumor, buy on fact” into the policy decision unless RBNZ doubles down on dovish rhetoric.”

Bearish momentum on daily chart intact while decline in RSI shows signs of turning from near oversold conditions. Support comes in at 0.61 (200 DMA), 0.6070 levels. Resistance at 0.6160 (50 DMA), 0.6620 (21 DMA).

Oversold conditions suggest any decline in the New Zealand Dollar (NZD) is part of a lower trading range of 0.6105/0.6165. In the longer run, NZD still seems weak; it remains to be seen if it has enough momentum to reach the next major support at 0.6075, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

NZD still seems weak

24-HOUR VIEW: “We did not anticipate the sharp drop in NZD that sent it plummeting to 0.6113 (we were expecting range trading). The decline has not stabilised, but severely oversold suggests any decline is probably part of a lower trading range of 0.6105/0.6165. In other words, a clear break below 0.6105 or above 0.6165 is unlikely.”

1-3 WEEKS VIEW: “Yesterday (07 Oct, spot at 0.6160), we highlighted that the recent price action “continues to suggest further NZD weakness, albeit at a slower pace.” We pointed out that “the levels to watch are 0.6135 and 0.6105.” We did not expect the continuing rapid decline, as NZD fell to a low of 0.6113. While NZD still seems weak, it remains to be seen if NZD has enough momentum to reach the next major support at 0.6075. On the upside, if NZD breaks above 0.6195 (‘strong resistance’ level was at 0.6220 yesterday), it would mean that the NZD weakness from the middle of last week has stabilised.”

• USD/CAD revisits 1.3650 as the Canadian Dollar weakens amid uncertainty ahead of the employment data for September.
• The BoC is expected to extend its rate-cut cycle in November.
• Fed Kugler sees more rate cuts as appropriate.

The USD/CAD pair recaptures a seven-week high near 1.3650 in Tuesday’s European session. The Loonie asset strengthens amid weakness across the Canadian Dollar’s (CAD) performance ahead of Canada’s Employment data for September, which will be published on Friday.

The Canadian job report is expected to show that the economy added 28K workers, higher than 22.1K in August. In the same period, economists expect the Unemployment Rate to have risen further to 6.7%. Signs of further deterioration in labor market conditions would prompt speculation for more Bank of Canada (BoC) interest rate cuts. This year, the BoC has already reduced its interest rates by 75 basis points (bps) to 4.25% as inflation has returned to the bank’s target of 2% and the economic outlook is vulnerable.

Meanwhile, the US Dollar (USD) struggles to extend its upside as investors shift focus to the United States (US) Consumer Price Index (CPI) data for September, which will be published on Thursday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to gains near 102.50.

The US inflation data is expected to influence market expectations for the Federal Reserve’s (Fed) interest rate outlook. Currently, financial market participants expect the Fed to reduce its key borrowing rates again in November but with a smaller rate cut of 25 basis points (bps).

In Tuesday’s late Asian session, the comments from Fed Governor Adriana Kugler indicated that the policymaker sees more rate cuts as appropriate if price pressures continue to decline as expected.

The Reserve Bank of New Zealand (RBNZ) announces monetary policy overnight (0200 BST), and both markets and consensus are leaning in favour of a 50bp rate cut. As discussed in our meeting preview, we agree, ING’s FX analyst Francesco Pesole.

RBNZ to take rates to neutral at a faster pace

“The RBNZ has to operate with quite limited information on inflation and the jobs market, on which official data is only released quarterly. The only hard data input since the surprise August 25bp cut has been the second-quarter GDP report, which showed negative growth. That may well be enough to add pressure on the RBNZ to take rates to neutral at a faster pace, especially after the 50bp cut by the Fed in September.”

“A half-point cut before seeing third-quarter inflation figures obviously requires substantial confidence in the disinflation process. We see high risks of headline CPI having moved below 2.0% in the third quarter, which would make the real rate uncomfortably high if the RBNZ doesn’t keep cutting.”

“Markets are pricing in 45bp for this meeting, and 91bp in total by year end. We think a 50bp will add more pressure on the underperforming NZD, which may be trading closer to 0.61 than 0.62 once we get to the US election risk event.”

Weakness in Australian Dollar (AUD) has not stabilised; any further decline is likely part of a lower trading range of 0.6735/0.6785. In the longer run, AUD is expected to continue to weaken, albeit likely at a slower pace. The next level to watch is 0.6700, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

Weakness in AUD has not stabilised

24-HOUR VIEW: “Our view of sideways trading yesterday was incorrect. Instead of trading sideways, AUD fell sharply to 0.6744, before closing at 0.6759 (-0.51%). While the weakness has not stabilised, severely oversold conditions suggest any further decline is likely part of a lower trading range of 0.6735/0.6785. A sustained break below 0.6735 appears unlikely, and the major support at 0.6700 is also unlikely to come into view.”

1-3 WEEKS VIEW: “When AUD was trading at 0.6850 last Friday (04 Oct), we indicated that “there has been a slight increase in downward momentum, and the risk of AUD breaking below 0.6820 has also increased.” After AUD dropped below 0.6820, we indicated yesterday (07 Oct, spot at 0.6800) that “momentum has increased, and AUD is likely to decline further, potentially breaking below 0.6750.” AUD then broke below 0.6750 in NY trade, reaching a low of 0.6744. We continue to expect AUD to weaken, even though oversold short-term conditions could slow the pace of any further decline. The next level to watch is 0.6700. We will continue to view AUD negatively, as long as 0.6825 (‘strong resistance’ level was at 0.6855 yesterday) is not breached.”

Markets are virtually fully pricing in an ECB rate cut next week (23bp), but our economics team discusses here how the decision may well be much closer than the rates market suggests, ING’s FX analyst Francesco Pesole.

Data keeps pointing to sticky services inflation

“That’s because the ECB already incorporated weaker growth and inflation below 2% in its latest projections, and while Isabel Schnabel’s latest speech focused on growth downside risks, she also remarked how monetary policy could do little to ease those risks. Incidentally, single-country data keeps pointing to sticky services inflation, and the recent oil price rise means a potential revision higher in the inflation forecasts at the next round of staff projections.”

“Markets are hardly ignorant of these factors, but are equally hanging on to dovish comments by ECB members like Villeroy and probably also the view that they can push the ECB into a cut by pricing it in fully on meeting’s day. There is an ECB meeting chaired by Isabel Schnabel today, and we’ll be interested to see whether she wishes to clarify her stance.”

“A hawkish re-tuning on her side can send EUR/USD back above 1.10, but we are not sure markets will be giving up on an October cut very easily and the wide USD:EUR rate gap still points to some pressure on EUR/USD in the near term.”

The recent leg up in dollar index appears to show tentative signs of fatigue. DXY was last at 102.36, OCBC’s FX strategist Christopher Wong notes.

Daily momentum remains bullish

“Dovish bets on Fed cut trajectory have somewhat unwound. Markets are just eyeing about 50bp cut for the rest of the year, as opposed to 75bps cut seen just 2 weeks ago. Focus shifts to FOMC minutes, CPI (Thursday), PPI (Friday). Hotter print may bring back chatters of US exceptionalism and reinforces the view that Fed can slow pace of rate cut.

“This can be supportive of USD’s rebound momentum. Elsewhere, geopolitical tensions in middle east appears to have deteriorated. Brent has risen over 10% in the last few sessions. This further undermined FX, such as THB, KRW that are vulnerable to risk-off and surge in oil prices (net-oil importer).”

“Daily momentum remains bullish while RSI shows signs of turning lower from near overbought conditions. Retracement risk (lower) not ruled out in the interim. Support at 101.75/90 levels (50 DMA, 23.6% fibo retracement of 2023 high to 2024 low). Resistance at 102.90 (38.2% fibo).”

Silver prices (XAG/USD) fell on Tuesday, according to FXStreet data. Silver trades at $31.24 per troy ounce, down 1.41% from the $31.69 it cost on Monday.

Silver prices have increased by 31.28% 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 84.49 on Tuesday, up from 83.40 on Monday.

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• EUR/USD recovers mildly while the US Dollar’s rally stalls as the US CPI comes under the spotlight.
• The Fed is expected to cut interest rates by 25 bps in November.
• A majority of ECB policymakers are open to more rate cuts.

EUR/USD rises to near the psychological resistance of 1.1000 in Tuesday’s European session. The major currency pair recovers mildly as the US Dollar (USD) faces a slight correction, with investors shifting focus to the United States (US) Consumer Price Index (CPI) data for September, which will be published on Thursday.

The inflation data is expected to show that the annual core CPI – which excludes volatile food and energy prices – has grown at a steady pace of 3.2% year-over-year (YoY). The headline inflation is estimated to have decelerated to 2.3% YoY from 2.5% in August.

The impact of the inflation data is expected to be lower on the Federal Reserve’s (Fed) interest rate outlook as policymakers are more focused on reviving economic growth and consumer spending. The comments from Fed Governor Adriana Kugler in Tuesday’s European session suggested that the policymaker sees more rate cuts as appropriate if price pressures continue to decline as expected.

Meanwhile, financial market participants expect the Fed to cut interest rates again in November, but the rate-cut size is expected to be 25 basis points (bps), according to the CME FedWatch tool. Lately, market speculation for a Fed 50 bps rate cut waned after the US job report for September, which showed that labor demand remained robust and wage growth was stronger than expected.

Daily digest market movers: EUR/USD rises slightly despite ECB Nagel is open for more rate cuts

• EUR/USD edges higher amid a mild correction in the US Dollar. The outlook of the Euro (EUR) remains fragile as a majority of European Central Bank (ECB) officials continue to emphasize the need to reduce interest rates further due to a sharp deceleration in Eurozone price pressures and poor economic growth.
• In an interview with Table Media, ECB policymaker and Bundesbank President Joachim Nagel said, "I am certainly open to considering whether we could possibly make another interest rate cut.” Nagel has also agreed with the revision of the Eurozone’s Gross Domestic Product (GDP) forecast for 2024 to a 0.2% contraction against a prior projection of 0.3% growth.
• However, the German Industrial Production for August has come in better than expected. On a monthly basis, Industrial Production grew at a robust pace of 2.9%, compared to estimates of 0.8% after contracting by 2.4% in July.
• Meanwhile, ECB policymaker and Austrian central bank Governor Robert Holzmann advised to proceed with caution on further interest rate cuts as inflation has yet not been defeated, in his comments while interviewing with Sueddeutsche Zeitung published on Monday. In September, the Eurozone flash Harmonized Index of Consumer Prices (HICP) decelerated to 1.8% year-on-year.

Technical Analysis: EUR/USD remains below 1.1000

EUR/USD gathers strength to gain ground near the immediate support of 1.0950. The major currency pair is broadly under pressure as it has delivered a breakdown of a Double Top chart pattern formation on a daily timeframe. The above-mentioned chart pattern was triggered after the shared currency pair broke below the September 11 low of 1.1000.

The 14-day Relative Strength Index (RSI) slides below 40.00. A bearish momentum would trigger if the RSI sustains below the same.

Looking down, the pair is expected to find support near the 200-day Exponential Moving Average (EMA) around 1.0900. On the upside, the 20-day EMA at 1.1070 and the September high around 1.1200 will be major resistance zones.

The start of the week has been quite mixed in FX, with the low-yielding JPY and CHF rising and the high-beta AUD and NZD under additional pressure, ING’s FX analyst Francesco Pesole notes.

DXY to stabilize around 102-103 with upside risks

“The Chinese markets have reopened after a long holiday with another strong session as recent expansionary measures by Beijing continue to help sentiment in the region. That can weigh moderately on USD today, even though our view for the rest of the month remains generally constructive on the dollar, as discussed yesterday.”

“We have observed some quite limited spillover into FX from US 10-year yields hitting the 4% mark, which appears as the tail of the payroll-induced move that has already triggered some sizeable positioning readjustments in dollar crosses. There is a possibility that the FX market will take a break from being driven by rates now that the new, shallower 25bp per-meeting rate path by the Fed has become the market baseline.”

“Still, we’ll be on the lookout for surprise reads in the NFIB Small Business surveys today, where the hiring plan sub-index has had a decent correlation with private payrolls. Our call remains a stabilisation in DXY around 102-103 with upside risks, even if we see a slightly lower USD today.”

The Pound Sterling (GBP) could edge lower; any decline is likely limited to a test 1.3050. In the longer run, price action suggests further GBP weakness; the next major support at 1.3000 may not come into view so soon, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

Next major support at 1.3000 may not come into view

24-HOUR VIEW: “We expected GBP to trade in a sideways range of 1.3080/1.3180 yesterday. However, it edged lower to 1.3060, closing down by 0.29% at 1.3085. The price action has resulted in a slight increase in momentum. Today, GBP could continue to edge lower, but given the mild momentum, any decline is likely limited to a test of 1.3050. The major support at 1.3000 is unlikely to come into view. Resistance is at 1.3105; a breach of 1.3135 would mean that the current mild downward pressure has faded.”

1-3 WEEKS VIEW: “We continue to hold the same view as yesterday (07 Oct, spot at 1.3130). As indicated, although the recent price action suggests further GBP weakness, conditions are oversold, and the next major support at 1.3000 may not come into so soon. The downside risk will remain intact provided that GBP does not break above 1.3185 (‘strong resistance’ level was at 1.3220 yesterday).”

European Central Bank (ECB) Governing Council member Bostjan Vasle said on Tuesday that “an interest-rate cut in October is an option.”

Further comments

Inflation risks are abating but there is still some uncertainty.

An October cut doesn't necessarily mean another in December.

Market reaction

EUR/USD was last seen trading at 1.0991, unfazed by these above comments. The pair is up 0.16% on the day.

The NDRC press conference appears to run short on details with regards to stimulus measures. USD/CNH was last at 7.0582, OCBC’s FX strategist Christopher Wong notes.

Bullish momentum on daily chart intact

“Hopes were raised but the delivery was disappointing. Post-opening rally in Chinese equities has partially fizzled out as the lack of followthrough is a setback to sentiments, and CNH-sensitive FX, including AUD, KRW, MYR.”

“Near term, USD/CNH should continue to face 2-way risks as markets digest 1/ the disappointment over the lack of details on China stimulus; 2/ monitor daily fix for a sense of how comfortable policymakers may be with RMB’s recent price action; 3/ potential return of US exceptionalism and ahead of US elections (potentially supportive of USD).”

“Bullish momentum on daily chart intact which RSI rose. Support at 7.0320 levels. Resistance at 7.11 (50 DMA).”

• Silver drifts lower for the second straight day and seems vulnerable to decline further. 
• A bearish multiple-tops pattern formation validates the near-term negative outlook.
• Bears now await a sustained break below $31.00 before positioning for further slide.

Silver (XAG/USD) extends its retracement slide from the vicinity of the $33.00 mark, or the highest level since December 2012 touched last week and remains under heavy selling pressure for the second straight day on Tuesday. The downward trajectory drags the white metal to a one-week low, around the $31.00 round figure during the first half of the European session.

From a technical perspective, the recent repeated failures to find acceptance above the $32.00 mark constitute the formation of a bearish multiple-tops pattern on the daily chart. That said, oscillators on the daily chart – though have been losing traction – are yet to confirm the negative bias. Hence, it will be prudent to wait for some follow-through selling below the $31.00 round figure before positioning for any further losses.

The XAG/USD might then accelerate the fall towards the $30.60-$30.55 horizontal support before eventually dropping to the $30.00 psychological mark en route to the $29.75-$29.55 confluence. The latter comprises the 100-day Simple Moving Average (SMA) and the 50-day SMA, which if broken should pave the way for a further decline towards the $29.00 mark and the next relevant support near the $28.60-$28.50 region.

On the flip side, the $31.55 area now seems to act as an immediate hurdle, above which the XAG/USD could climb to the $31.75-$31.80 intermediate resistance and the $32.00 mark. Some follow-through buying beyond the $32.25 supply zone might then allow bulls to make a fresh attempt to conquer the $33.00 round figure before climbing further towards the December 2012 swing high, around the $33.85 region.

Silver daily chart

• The Mexican Peso edges lower as markets turn risk-off following a disappointing stimulus announcement in China. 
• The Peso may see losses curbed, however, by increasing investor confidence in the new Sheinbaum administration. 
• USD/MXN breaks below the key 50-day SMA and tests the bottom of a major rising channel. 

The Mexican Peso (MXN) pulls back in its key pairs after an over-week-long uptrend on Tuesday as an overall risk-off mood permeates markets, which, in turn, weighs on the risk-sensitive Peso. 

During the Asian session, after a bright start, Chinese stocks fell on the news that a highly-anticipated briefing by the Chinese state planner had failed to deliver the expected levels of investment.  

Mexican Peso edges lower on risk-off tone to markets

The Mexican Peso edges lower on Tuesday on the back of increasingly negative market sentiment triggered by disappointing news out of Beijing. In common with other emerging-market currencies, the Mexican Peso tends to weaken when the global outlook turns sour. 

An opening-bell rally in China’s benchmark CSI 300 equity index was abruptly cut short after the China National Development and Reform Commission (NDRC) Chairman Zheng Shanjie announced only $28 billion in extra funds to local governments on Tuesday. 

Despite following the huge package of measures announced by the People’s Bank of China (PBoC) last week, which constitutes the largest liquidity pump since the Covid pandemic, investors deemed the additional fiscal stimulus inadequate for China to hit its growth targets for the year. 

Asian stocks pared their early gains on the news, while commodities weakened substantially as a result of a weaker global growth outlook, and European stocks are trading in the red after their opening. 

Markets warm to Sheinbaum administration

The downside for the Peso may be limited, however, by easing political risks as President Claudia Sheinbaum’s administration takes over from that of her previous incumbent, Andres Manuel Lopez Obrador (AMLO). The early signs are that markets are assessing her as more investment-friendly than her predecessor. 

On Monday, the newly appointed coordinator of the government's Business Advisory Council, businesswoman Altagracia Gómez, said she had been working together with 13 automotive companies with facilities in Mexico to jointly agree a ten-point action plan for developing the country’s key car-manufacturing industry.

These included the overall development of local suppliers, with a special focus on micro, small, and medium-sized enterprises (MSMEs), providing a greater provision of financing for companies, and enhancing skills training for the industry, with a focus on integrating young people into the workforce, said El Financiero. 

The Peso weakened by 10% after Sheinbaum’s election in June on investors’ concerns she would carry the torch of her mentor AMLO’s radical reform program, which outsiders viewed as anti-market, undemocratic, and, in the case of judicial reforms as undermining the independence of judges.

AMLO passed a controversial judicial reform bill as his last major act in parliament before handing over to Sheinbaum on October 1, which allowed for the election of judges rather than their appointment. However, the new law has already faced delays due to a Supreme Court decision to re-examine it, with a view to revising the contents if they are deemed as putting at risk the independence of judges. 

Technical Analysis: USD/MXN breaks below 50-day Moving Average

USD/MXN breaks below the 50-day Simple Moving Average (SMA) and tests the bottom of a medium-term rising channel.  

USD/MXN Daily Chart 

USD/MXN could find firm support at the base of the channel, and it may recover and start to rise again. After all, the medium and longer-term trends are bullish, and given the technical analysis principle that “the trend is your friend,” this favors a continuation higher.

On Friday, the pair formed a bullish Japanese Hammer candlestick pattern at the base of the channel (orange rectangle on the chart above). This was followed by a slightly bullish green Japanese Doji candlestick on the following day. It’s possible this configuration could mark a turning point for the short-term trend and the start of a recovery. Since then, however, the price has shown no signs of rising any higher.

In fact, the short-term trend remains bearish and the pair has now broken below the 50-day SMA, a key level.  A decisive breakout below the channel would risk reversing the medium-term uptrend in the USD/MXN. 

A decisive break would be one characterized by a longer-than-average bearish candlestick that pierced cleanly below the channel line and closed near its low. Such a break would then probably follow-through lower to an initial downside target at 19.00 (August 23 low, round number) and then 18.65, the level of the 100-day SMA. 

The Euro (EUR) is likely to trade in a sideways range of 1.0950/1.1000. In the longer run, further EUR weakness appears likely; the next two support levels to monitor are 1.0935 and 1.0900, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

Levels to monitor are 1.0935 and 1.0900

24-HOUR VIEW: “After EUR fell sharply last Friday, we indicated yesterday that ‘provided that 1.1015 is not breached, the weakness in EUR could extend to 1.0935 before stabilisation can be expected.’ Our view did not turn out, as EUR traded sideways between 1.0954 and 1.0986, closing little changed at 1.0974 (-0.02%). There is no increase in either downward or upward momentum, and EUR is likely to continue to trade sideways. Expected range for today: 1.0950/1.1000.”

1-3 WEEKS VIEW: “Our update from yesterday (07 Oct, spot at 1.0970) still stands. As highlighted, after the sharp drop last Friday, further EUR weakness appears likely. The next two support levels to monitor are 1.0935 and 1.0900. Should EUR break above 1.1045 (‘strong resistance’ level was at 1.1060 yesterday), it would mean that the EUR weakness from the middle of last week has ended.”

• The Pound Sterling remains vulnerable near 1.3060 against the US Dollar as investors expect the Fed to adopt a gradual rate-cut approach.
• Fed’s Williams expects that the central bank will not be in a rush to cut interest rates quickly.
• Investors await the US CPI and the UK GDP for fresh interest rate outlook.

The Pound Sterling (GBP) strives to gain ground near a three-week low of 1.3060 against the US Dollar (USD) on Tuesday. However, the near-term outlook of the GBP/USD pair remains fragile as the US Dollar clings to gains close to a fresh seven-week high, with the US Dollar Index (DXY) trading around 102.50. The Greenback strengthens as market participants are not pricing in another larger-than-usual 50 basis points (bps) interest rate cut from the Federal Reserve (Fed) in November.

The Fed started its policy-easing cycle with a 50 bps interest rate cut in September, majorly focusing on reviving labor market strength after gaining confidence that inflation will sustainably return to the bank’s target of 2%.

Market participants anticipated that the Fed would aggressively extend the rate-cut cycle. However, that speculation was wiped out by upbeat United States (US) Nonfarm Payrolls (NFP) data for September, which showed a robust increase in labor hiring, a lower Unemployment Rate, and an increase in wage growth.

Despite market speculation for Fed large rate cuts has waned, the central bank is expected to remain on course to ease monetary policy further. Meanwhile, the comments from New York Fed Bank President John Williams, in an interview with Financial Times on Tuesday, have indicated that he favors a 25 bps rate cut ahead and is in no hurry to reduce interest rates quickly as the latest employment data has increased his confidence in consumer spending and economic growth.

Going forward, investors will focus on the US Consumer Price Index (CPI) data for September, which will be published on Thursday. 

Daily digest market movers: Pound Sterling trades with caution on geopolitical tensions

• The Pound Sterling trades cautiously against its major peers on Tuesday, with investors focusing on Middle East tensions driving market sentiment. In Tuesday’s Asian session, Iran's Foreign Minister Abbas Araqchi issued a warning to Israel that the nation will face a strong retaliation if it attempts to attack their infrastructure.
• The British currency is also under pressure as traders adjust market expectations for the Bank of England (BoE) interest rate outlook. Market participants expect the BoE to cut interest rates again in November. BoE’s rate cut prospects increased sharply after last week’s comments from Governor Andrew Bailey indicated that the central bank could cut interest rates aggressively if price pressures decline further.
• The United Kingdom (UK) inflation has remained sticky due to stubborn price pressures in the services sector amid stronger wage growth. UK annual service inflation accelerated to 5.6% in August from 5.2% in July.
• This week, investors will pay close attention to the monthly Gross Domestic Product (GDP) and the factory data for August, which will be published on Friday. The data will provide fresh cues about the current economic health.

Technical Analysis: Pound Sterling trades below 50-day EMA

The Pound Sterling trades inside Monday’s trading range, with investors focusing on the US CPI data for September. The GBP/USD pair is expected to remain on the backfoot as it fails to hold the 50-day Exponential Moving Average (EMA), which trades around 1.3100. The Cable has weakened after falling below the upward-sloping trendline from the 28 December 2023 high of 1.2827.

The 14-day Relative Strength Index (RSI) declines to near 40.00. More downside would appear if the momentum oscillator falls below the above-mentioned level.

Looking up, the round-level resistance of 1.3100 and the 20-day EMA near 1.3202 will be a major barricade for Pound Sterling bulls. On the downside, the pair would find support near the psychological figure of 1.3000.

The European Central Bank (ECB) policymaker Martins Kazaks said on Tuesday, “data points to October interest rate cut.”

Additional quotes

Rates will fall and that will support the economy.

Inflation is not fully defeated, especially services inflation.

Market reaction

EUR/USD is trading close to intraday highs near 1.0985 on these above comments, up 0.10% so far.

Here is what you need to know on Tuesday, October 8:

Markets hold a cautious tone early Tuesday as investors await the next batch of macroeconomic data releases. The US economic docket will feature NFIB Business Optimism Index for September and RealClearMarkets/TIPP Economic Optimism Index data for October. The US Bureau of Economic Analysis will also publish Goods Trade Balance figures for August. Later in the American session, several Federal Reserve (Fed) policymakers are scheduled to deliver speeches.

The National Development and Reform Commission (NDRC), China’s state planner, said on Tuesday that the downward pressure on China's economy is increasing. "China's economy is facing more complex internal, external environments," the NDRC noted. After Wall Street's main indexes closed the first day of the week deep in negative territory on Monday, US stock index futures trade marginally lower early Tuesday, reflecting the souring mood. Meanwhile, the US Dollar (USD) Index continues to move sideways near 102.50 after failing to make a directional move in either direction on Monday.

The data from Germany showed that Industrial Production increased by 2.9% on a monthly basis in August. This reading followed the 2.4% contraction recorded in July and came in better than the market expectation of 0.8%. EUR/USD struggles to benefit from the upbeat data and trades marginally higher on the day below 1.1000.

In the minutes of the September policy meeting, the Reserve Bank of Australia (RBA) said board members discussed options of lowering raising interest rates and added: "Scenarios for lowering, holding, and raising rates are all conceivable given the considerable uncertainty about the economic outlook." While speaking at the Walkley Foundation, RBA Deputy Governor Andrew Hauser noted that they will act on policy when inflation stops being high and sticky. After posting large losses on Monday, AUD/USD continued to push lower in the Asian session on Tuesday. At the time of press, the pair was trading at its lowest level since mid-September below 0.6730.

Japan economy minister Ryosei Akazawa said on Tuesday that a decline in real wages for the first time in three months is not good news. Akazawa further stated that the Japanese government will create an environment where real wages continue to rise. USD/JPY showed no reaction to these remarks and was last seen fluctuating in a narrow channel at around 148.00.

GBP/USD edged lower amid risk-aversion in the second half of the day on Monday and closed the day below 1.3100. The pair struggles to stage a rebound early Tuesday.

Gold registered modest losses for the fourth consecutive day on Monday. XAU/USD stays on the back foot and trades below $2,640 in the European morning on Tuesday. 

Federal Reserve Governor Adriana Kugler said on Tuesday that he “will support additional rate cuts if progress on inflation continues as expected.”

Additional quotes

Market reaction

At the time of writing, the US Dollar Index is down 0.12% on the day.

• USD/CHF trades weaker to around 0.8535 in Tuesday’s early European session, down 0.16% on the day. 
• The intensifying Middle East tensions underpin the Swiss Franc, a safe-haven currency. 
• Fading hopes of a big US rate cut might cap the pair’s downside. 

The USD/CHF pair edges lower to near 0.8535 during the early European session on Tuesday. The ongoing geopolitical tensions in the Middle East provide some support to safe-haven assets like the Swiss Franc (CHF). 

Early Tuesday, Iran warned Israel against any attacks on the Islamic Republic a week after Tehran fired a barrage of missiles on it, raising fears of wider war in the Middle East. Investors will closely monitor the development surrounding geopolitical risks in the region. Any signs of escalating tensions could boost the safe-haven flows, benefiting the CHF. 

On the other hand, Friday's upbeat US jobs report prompted traders to further scale back bets for an oversized interest rate cut by the Federal Reserve (Fed) in November. This might lift the Greenback and cap the downside for USD/CHF. 

Bob Parker, senior advisor at the International Capital Markets Association, noted the case for aggressive Fed rate cuts is unlikely. “Yes there is a case for modest rate cuts, there is a case for 25 to 50 basis point cuts by January next year, but a case for 50 basis point cuts at the next meeting just does not exist,” said Parker. 

There is now nearly 86.0% possibility that the Fed’s target range for the federal funds rate will be cut by a quarter percentage point to 4.5% to 4.75% in November, according to the CME Group’s FedWatch tool. Meanwhile, the chance of the rate remaining at 4.75% to 5% stands at 14.0%. Investors will take more cues from the US Consumer Price Index  (CPI) inflation data, which is due on Thursday. This report could offer some hints about the US inflation trajectory and influence the Fed about the future US interest rate outlook. 

Germany’s industrial sector quickened its pace of expansion in August, the latest data published by Destatis showed on Tuesday.

Industrial output in the Eurozone’s economic powerhouse rose 2.9% MoM, the federal statistics authority Destatis said in figures adjusted for seasonal and calendar effects, compared to the expected increase of 0.8%  and a -2.4% drop reported in July.

German Industrial Production declined by 2.7% in the year through August versus July’s -5.3%.

EUR/USD reaction to the German Industrial Production data

The improvement in the German industrial sector fails to offer a fresh boost to Euro buyers, as EUR/USD continues to hold higher ground near 1.0985. The pair is up 0.10% on the day, at the press time.

Frank Elderson, Vice-Chair of the Supervisory Board at the European Central Bank (ECB), warned of economic growth risks materializing, in an interview with the Slovenian daily, Delo, on Tuesday.

Additional comments

Market reaction

EUR/USD clings to latest gains near 1.0985, at the time of writing.

• EUR/USD trades firmer near 1.0985 in Tuesday’s early European session. 
• ECB policymakers continue to set the stage for an easier policy stance.
• Traders push back bets on aggressive Fed rate cuts in the November meeting. 

The EUR/USD pair extends its recovery to around 1.0985 on Tuesday during the early European trading hours. The major pair edges higher amid the modest weakening in the US Dollar (USD). However, the upside for EUR/USD might be limited as traders expect a smaller interest rate cut from the US Federal Reserve (Fed) in November. 

French Central Bank Chief Francois Villeroy de Galhau said on Tuesday that the European Central Bank (ECB) would cut interest rates next week as economic growth is weak and this raises the risk that inflation will undershoot its 2% target. The comments support market pricing for another 150 bp of ECB rate cuts over the next twelve months.

ECB Isabel Schnabel is set to speak later on Tuesday, and Industrial Production in Germany will be released. The dovish remarks from ECB policymakers or any sign of weakness in Europe's largest economy could drag the Euro (EUR) lower against the Greenback. 

On the USD’s front, the encouraging US jobs data on Friday raised the expectation that the Fed will cut 25 basis points (bps) at the central bank's November meeting. This, in turn, might lift the US Dollar (USD) broadly and might cap the upside for EUR/USD. The odds of a Fed rate cut of 25 bps stand at an 85% chance, up from 31.1% last week, according to the CME FedWatch Tool.

In an interview with the Financial Times (FT) on Tuesday, New York Federal Reserve (Fed) President John Williams said "I personally expect that it will be appropriate again to bring interest rates down over time.”

Williams said that he doesn't see the September move "as the rule of how we act in the future."

"Right now, I think monetary policy is well positioned for the outlook, and if you look at the SEP [Summary of Economic Predictions] projections that capture the totality of the views, it's a very good base case with an economy that’s continuing to grow and inflation coming back to 2 percent,” Williams told the FT.

Gold prices remained broadly unchanged in India on Tuesday, according to data compiled by FXStreet.

The price for Gold stood at 7,132.78 Indian Rupees (INR) per gram, broadly stable compared with the INR 7,132.62 it cost on Monday.

The price for Gold was broadly steady at INR 83,195.30 per tola from INR 83,193.42 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.)

• GBP/USD gains some positive traction and snaps a five-day losing streak to a multi-week low. 
• A modest USD downtick lends support to the pair, though a combination of factors caps gains.
• Diminishing odds for an aggressive Fed policy easing limit the USD losses and act as a headwind.

The GBP/USD pair attracts some buyers during the Asian session on Tuesday and for now, seems to have snapped a five-day losing streak to a nearly four-week low, around the 1.3560 area touched the previous day. Spot prices, however, struggle to build on the uptick beyond the 1.3100 mark, warranting some caution for bullish traders.

The US Dollar (USD) remains depressed below a seven-week high touched on Friday and turns out to be a key factor lending some support to the GBP/USD pair. That said, reduced bets for another oversized interest rate cut by the Federal Reserve (Fed), amid signs of a still resilient US labor market, might hold back the USD bears from placing aggressive bets. Apart from this, a softer risk tone should act as a tailwind for the safe-haven buck and cap the upside for the currency pair.

Investors remain concerned that Middle East tensions could turn into a wider conflict. Furthermore, not-so-optimistic comments by the National Development and Reform Commission (NDRC) – overshadow the recent optimism led by China's stimulus bonanza and tempers investors' appetite for riskier assets. This is evident from a generally weaker tone around the equity markets, which, in turn, could drive some haven flows towards the USD and keep a lid on the GBP/USD pair. 

Meanwhile, the Bank of England (BoE) Governor Andrew Bailey said last week that there was a chance that the central bank could become a bit more aggressive in cutting rates if there's further good news on inflation. This might further contribute to capping gains for the British Pound (GBP) and suggests that the path of least resistance for the GBP/USD pair is to the downside. Hence, any further move up might still be seen as a selling opportunity and runs the risk of fizzling out quickly. 

Moving ahead, there isn't any relevant market-moving economic data due for release on Tuesday, either from the UK or the US, leaving the USD and the GBP/USD pair at the mercy of Fedspeak. The focus, meanwhile, remains glued to the release of the FOMC meeting minutes on Wednesday. This will be followed by the US Consumer Price Index (CPI) and the Producer Price Index (PPI), which will play a key role in driving the USD demand and provide a fresh impetus to the currency pair.

• Gold price struggles to gain any meaningful traction and remains confined in a familiar range.
• Reduced bets for a 50 bps Fed rate cut in November act as a headwind for the precious metal.
• Geopolitical risks and a modest USD downtick should limit any further losses for the XAU/USD. 

Gold price (XAU/USD) remains depressed during the Asian session on Tuesday and is currently placed just above the lower boundary of a short-term range. Investors have been scaling back expectations of another oversized interest rate cut by the Federal Reserve (Fed) in November amid signs of still resilient US labor markets. This, in turn, is seen as a key factor acting as a headwind for the non-yielding yellow metal.

Meanwhile, the US Dollar (USD) pulled back from a seven-week high touched on Friday as traders opt to move to the sidelines ahead of the release of the FOMC meeting minutes on Wednesday. Apart from this, the US Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday, respectively, will influence expectations about the Fed's rate-cut path. This will provide a fresh impetus to the USD and the Gold price. 

In the meantime, geopolitical risks stemming from the ongoing conflicts in the Middle East should act as a tailwind for the safe haven Gold price and help limit any meaningful downfall. This, in turn, makes it prudent to wait for a sustained breakdown below a one-week-old trading range support before positioning for an extension of the XAU/USD's recent pullback from the all-time peak touched on September 26. 

Daily Digest Market Movers: Gold price extends the range play amid mixed fundamental cues

• The upbeat US jobs report for September released on Friday prompts traders to pare bets for a more aggressive policy easing by the Federal Reserve and undermines the Gold price. 
• According to CME's FedWatch tool, market participants are currently pricing in an 85% chance of a 25 basis points rate cut at the next FOMC monetary policy meeting in November. 
• The yield on the benchmark 10-year US government bond moved past the 4% threshold for the first time in two months, while the US Dollar moved away from a seven-week high.
• Minneapolis Fed President Neel Kashkari noted on Monday that the overall balance of risks has now shifted away from higher inflation, towards maybe higher unemployment.
• Separately, St. Louis Fed President Alberto Musalem said that he supports additional interest rate cuts and that the economic performance will determine the path of monetary policy.
• Hezbollah fired rockets at Israel's port city of Haifa and a military base near the central city of Tel Aviv, while Israel bombed a couple of buildings in the southern suburbs of Beirut.
• Investors remain concerned that Middle East tensions could turn into a wider conflict, which might act as a tailwind for the safe-haven XAU/USD and help limit deeper losses. 
• China’s state planner – the National Development and Reform Commission (NDRC) – said this Tuesday that the downward pressure on China's economy is increasing. 
• Traders now look to the release of the FOMC meeting minutes on Wednesday, which will be followed by the latest US inflation figures on Thursday and Friday, respectively. 

Technical Outlook: Gold price bulls have the upper hand while above 2,632-2,630 pivotal support

From a technical perspective, the $2,632-2,630 area, or the lower boundary of a short-term trading range, might continue to protect the immediate downside. A convincing break below might prompt some technical selling and drag the XAU/USD below the $2,600 mark, towards the next relevant support near the $2,560 zone. The corrective decline could extend further towards the next relevant support near the $2,535-2,530 region en route to the $2,500 psychological mark.

Meanwhile, oscillators on the daily chart are holding in positive territory and favor bullish traders. That said, the $2,670-$2,672 area might continue to act as an immediate barrier. This is followed by the $2,685-2,686 zone or the all-time high touched in September, and the $2,700 mark, which if cleared will be seen as a fresh trigger for bulls and set the stage for an extension of a well-established multi-month-old uptrend.

• The Indian Rupee edges lower in Tuesday’s Asian trading hours. 
• Outflows from Indian equities, higher oil prices and a stronger US Dollar undermine the INR. 
• Traders await Fedspeak ahead of the RBI rate decision. 

The Indian Rupee (INR) weakens on Tuesday amid the selling pressure from foreign funds and weak tone in the domestic markets. Additionally, the rise in crude oil prices and escalating geopolitical tensions between Israel and Iran contribute to the INR’s downside. 

Traders will keep an eye on the speeches from the US Federal Reserve’s (Fed) Raphael Bostic, Phillip Jefferson and Susan Collins on Tuesday. Any dovish comments from the Fed officials could weigh on the Greenback and cap the downside for the local currency. On Wednesday, the Reserve Bank of India (RBI) interest rate decision will take center stage. 

Daily Digest Market Movers: Indian Rupee looks fragile amid global challenges

• "We expect the rupee to trade with a negative bias on selling pressure from foreign funds and a weak tone in the domestic markets. Escalating tensions between Israel and Iran may further pressurize the rupee," said Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas.
• India's foreign exchange reserves rose $12.588 billion to a new all-time high of $704.885 billion for the week ended September 27, the Reserve Bank of India said on Friday. 
• India's Trade Minister Piyush Goyal said on Monday it is time for the INR to appreciate on the back of inflows in debt and equity markets.
• Federal Reserve Bank of St. Louis President Alberto Musalem stated on Monday that he supports more interest rate cuts as the economy moves forward on a healthy path. However, he emphasized that it is appropriate for the Fed to be cautious and not overdo easing monetary policy, per Reuters.
• Minneapolis Fed President Neel Kashkari said on Monday that the Fed welcomed the strong September jobs report, which indicates the firm economy. Kashkari added that the balance of risks shifted from "high inflation towards maybe higher unemployment.

Technical Analysis: USD/INR’s constructive outlook prevails 

The Indian Rupee trades weaker on the day. The positive picture of the USD/INR pair remains intact, with the pair holding above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The further upside looks favorable as the 14-day Relative Strength Index (RSI) is located above the midline near 60.70.  

The upper boundary of the rectangle and psychological mark near 84.00 act as a key resistance level for USD/INR. Any follow-through buying above this level could attract some buyers to the all-time high of 84.15, followed by 84.50. 

On the downside, the first downside target to watch is 83.80, the low of October 1. Sustained bearish momentum could pave the way to the 100-day EMA at 83.66. The next contention level is seen at 83.00, representing the round mark and the low of May 24. 

Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser is speaking at the Walkley Foundation, in Sydney.

Key quotes

Market reaction

AUD/USD is off the lows following the hawkish RBA commentary. The pair was last seen trading at 0.6735, still down 0.33% so far.

• NZD/USD turns lower for the sixth straight day in reaction to not so not-so-optimistic Chinese economic outlook. 
• A modest USD downtick could lend support to the pair, though bets for a 50 bps RBNZ rate favor bears.
• Diminishing odds for an aggressive Fed easing limits the USD slide and validates negative bias for the pair.

The NZD/USD pair attracts some sellers following an Asian session uptick to the 0.6145 region and drifts into negative territory for the sixth successive day on Tuesday. Spot prices drop to a one-month low in the last hour, with bears awaiting a sustained break below the technically significant 200-day Simple Moving Average (SMA), around the 0.6100 mark, before placing fresh bets. 

The National Development and Reform Commission (NDRC), China’s state planner, said this Tuesday that the downward pressure on China's economy is increasing. This offsets the recent optimism led by China's stimulus bonanza and turns out to be a key factor behind the latest leg of a sudden fall witnessed in the last hour. Apart from this, expectations for a jumbo interest rate cut by the Reserve Bank of New Zealand (RBNZ) contribute to the offered tone surrounding the NZD/USD pair. 

The US Dollar (USD), on the other hand, remains on the defensive below a seven-week top touched on Friday, though it lacks any meaningful selling amid diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed). Furthermore, escalating geopolitical tensions in the Middle East might continue to offer support to the safe-haven buck and drive flows away from the risk-sensitive Kiwi, suggesting that the path of least resistance for the NZD/USD pair remains to the downside. 

• The Japanese Yen attracts buyers for the second successive day amid renewed intervention fears. 
• Geopolitical tensions further benefit the safe-haven JPY and exert pressure on the USD/JPY pair. 
• The BoJ rate hike uncertainty might cap gains for the JPY ahead of Japan’s snap general election.

The Japanese Yen (JPY) remains on the front foot against its American counterpart for the second successive day on Tuesday and drags the USD/JPY pair away from its highest level since August 16 touched the previous day. The overnight comments by Japanese officials revived intervention fears and turned out to be a key factor underpinning the JPY. This, along with the risk of a further escalation of geopolitical tensions in the Middle East, drives some haven flows towards the JPY. 

That said, diminishing odds for another interest rate hike by the Bank of Japan (BoJ) in 2024 might hold back the JPY bulls from placing aggressive bets. Meanwhile, Friday's upbeat US jobs report forced investors to scale back bets for another oversized interest rate cut by the Federal Reserve (Fed) in November, which allows the US Dollar (USD) to stand tall near a seven-week top. This, in turn, might continue to offer some support to the USD/JPY pair and limit any further slide. 

Daily Digest Market Movers: Japanese Yen bulls might refrain from placing aggressive bets amid BoJ rate-hike uncertainty

• Japan's Vice Finance Minister for International Affairs Atsushi Mimura warned against speculative moves in the FX market, fueling speculations that the government may intervene to support the Japanese Yen. 
• Adding to this, Japan's newly appointed Finance Minister Katsunobu Kato said the government would monitor how rapid currency moves could potentially impact the economy and would take action if necessary.
• Furthermore, fears that Middle East tensions could turn into a wider conflict, which drives haven flows towards the JPY and drags the USD/JPY pair away from its highest level since August 16 touched on Monday. 
• In the latest developments, Lebanon’s Hezbollah fired rockets at Israel's port city of Haifa and a military base near the central city of Tel Aviv, while Israel bombed a couple of buildings in the southern suburbs of Beirut.
• The recent comments by Japan's Prime Minister Shigeru Ishiba, saying that the country is not in an environment for more rate increases, raised doubts over the Bank of Japan's ability to tighten further in the coming months. 
• This, along with the uncertainty over the Japanese general elections on October 27, might act as a headwind for the JPY and offer support to the USD/JPY pair amid a short-term bullish tone around the US Dollar. 
• Against the backdrop of Federal Reserve Chair Jerome Powell's hawkish remarks, the upbeat US jobs report dashed hopes for a more aggressive policy easing and kept the USD bulls elevated near a multi-week top. 
• Traders now look forward to the release of the FOMC minutes on Wednesday and the key US inflation data – the consumer inflation figures and the Producer Price Index (PPI) on Thursday and Friday, respectively. 

Technical Outlook: USD/JPY setup favors bulls and supports prospects for the emergence of dip-buying at lower levels

From a technical perspective, last week's break above the 50-day Simple Moving Average (SMA), for the first time since mid-July, and the subsequent move beyond the 38.2% Fibonacci retracement level of the July-September downfall were seen as fresh triggers for bulls. Moreover, oscillators on the daily chart have been gaining positive traction and suggest that the path of least resistance for the USD/JPY pair is to the upside. Hence, any further slide might still be seen as a buying opportunity and is more likely to remain cushioned near the 147.00 mark, which should now act as a key pivotal point.

On the flip side, a sustained move back above the 148.00 mark might prompt some technical buying and lift the USD/JPY pair to the 148.70 resistance zone en route to the 149.00 round figure. Some follow-through buying beyond the weekly top, around the 149.10-149.15 region, will reaffirm the positive outlook and allow bulls to reclaim the 150.00 psychological mark.

The National Development and Reform Commission (NDRC), China’s state planner, said on Tuesday that “the downward pressure on China's economy is increasing.”

Additional takeaways

Market reaction

Even though Chinese markets reopened with a bang, the AUD/USD pair has come under intense selling pressure amid broad risk aversion. China’s economic concerns continue to remain a drag on the Chinese-proxy Australian Dollar. At the time of writing, AUD/USD is down 0.25% on the day, trading near 0.6735.

• The Australian Dollar recovers some lost ground in Tuesday’s Asian session. 
• The hawkish remarks of the RBA lift the Aussie, but the fear of geopolitical risks might cap its upside. 
• Investors will keep an eye on the Fedspeak later on Tuesday.  

The Australian Dollar (AUD) trades on a stronger note on Tuesday, snapping the three-day losing streak. The hawkish tone of the Reserve Bank of Australia (RBA) after the September Meeting Minutes provides some support to the Aussie. However, the risk-off sentiment amid the escalating geopolitical tensions in the Middle East might exert some selling pressure on riskier assets like the AUD for the time being. 

Looking ahead, investors await the Fedspeak later on Tuesday for fresh impetus ahead of the Federal Open Market Committee (FOMC) Minutes. The attention will shift to the US Consumer Price Index (CPI) for September, which will be released on Thursday. 

Daily Digest Market Movers: Australian Dollar gains ground after the RBA Minutes 

• According to the RBA September Meeting Minutes released on Tuesday, the board members discussed scenarios for lowering and raising interest rates in the future. 
• "Policy will need to remain restrictive until Board members are confident inflation is moving sustainably towards the target range,” noted the RBA Minutes. 
• St. Louis Fed President Alberto Musalem noted on Monday that he supports additional interest rate cuts as the economy moves forward. Musalem further stated that the performance will determine the path of monetary policy, per Reuters.
• Minneapolis Fed President Neel Kashkari said on Monday that he supported the Fed's decision to cut rates by 50 bps, adding that the balance of risks shifted from "high inflation towards maybe higher unemployment.
• According to the CME FedWatch Tool, the markets have priced in nearly an 85% chance of 25 bps Fed rate cuts in November, up from 31.1% last week.  

Technical Analysis: Australian Dollar keeps the bullish vibe in the longer term

The Australian Dollar pair rebounds on the day. According to the daily chart, the AUD/USD pair remains stuck within the lower limit of the ascending trend channel. The pair maintains the bullish bias as it is well-supported above the key 100-day Exponential Moving Average (EMA). Nonetheless, further consolidation or downside cannot be ruled out as the 14-day Relative Strength Index (RSI) is located below the midline near 47.0. 

The lower limit of the trend channel near 0.6735 acts as an initial support level for AUD/USD. A breach of the mentioned level could create a bearish momentum that drags the pair down to the 0.6700 psychological level. The additional downside filter to watch is 0.6622, the low of September 11. 

On the upside, the first upside barrier emerges at 0.6823, the high of August 29. Extended gains could pave the way to 0.6942, the high of September 30. A decisive break above this level could draw in enough buyers to push AUD/USD to the upper boundary of the trend channel at 0.6980.  

On Tuesday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.0709, as compared to last Monday's fix of 7.0074 and 7.0794 Reuters estimates.

Japan economy minister Ryosei Akazawa said on Tuesday that a decline in real wages for the first time in three months is not good news. Akazawa further stated that the Japanese government will create an environment where real wages continue to rise.  

Market reaction 

At the time of writing, the USD/JPY pair is trading near 147.88, holding higher while adding 0.13% on the day.

The Reserve Bank of Australia (RBA) published the Minutes of its September monetary policy meeting on Tuesday, highlighting that the board members discussed scenarios for lowering and raising interest rates in the future. 

Key takeaways

Market reaction to the RBA minutes

At the time of writing, the AUD/USD pair is trading near 0.6765, holding higher while adding 0.11% on the day.

• WTI price extends upside near $76.85 in Tuesday’s early Asian session. 
• Fears of wider Middle East conflict boost the WTI price. 
• Investors await additional stimulus measures from Chinese officials. 

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $76.85 on Thursday. The WTI price extends the rally as escalating geopolitical tensions in the Middle East raised speculation that Israel may attack Iran’s oil infrastructure.

Oil prices soared on fears that Israel might be targeting Iran's oil industry in retaliation for Tehran's ballistic missile attack. Iran-backed Hezbollah launched rockets toward Israel's third-largest city, Haifa, early Monday. On the first anniversary of the Gaza war, Israel planned to ramp up ground incursions into southern Lebanon, causing the fear of wider war in the region, per Reuters. 

"There is growing concerned that (the) conflict may continue to escalate - not only putting Iran's 3.4 mmbopd (million barrels of oil per day) of production at risk - but creating further disruptions to regional supply," noted analysts at Tudor, Pickering, Holt & Co. 
 
Sluggish Chinese demand and dismal global economic data have dampened the outlook for oil markets this year. However, investors will closely watch additional policy measures from China’s top economic planning body on Tuesday after mainland China markets return from a week-long holiday. The lack of fresh measures or a smaller-than-expected package could also disappoint the market and weigh on the WTI price.