West Texas Intermediate (WTI), the US crude oil benchmark, is trading to around $67.90 on Thursday. The WTI price recovers slightly amid the surprise on crude oil draw. However, the stronger US Dollar (USD) broadly might cap its gains.
The American Petroleum Institute (API) weekly report showed crude stocks declined last week. Crude oil stockpiles in the United States for the week ending November 8 fell by 777,000 barrels, compared to a rise of 3.132 million barrels in the previous week. The market consensus estimated that stocks would increase by 1 million barrels.
The upside for the black gold might be limited as the US Dollar Index (DXY) climbed to the highest level since November 2023 after the US Consumer Price Index (CPI) inflation data for October came in line with expectations. A firmer Greenback makes USD-denominated oil more expensive for holders of other currencies, which can reduce demand.
Furthermore, the Organization of the Petroleum Exporting Countries’s (OPEC) latest downward revision for demand growth on Tuesday contributes to the WTI’s downside. OPEC lowered its global oil demand growth forecasts for 2024 and 2025, citing weak demand in China, India, and other regions, marking the producer group's fourth consecutive downward revision.
Looking ahead, Oil traders will keep an eye on the US Energy Information Administration (EIA) Crude Oil stockpiles report, which is due later on Thursday. Also, the US Producer Price Index (PPI), Initial Jobless Claims, and Fedspeak will be closely monitored later in the day.
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
The USD/CAD pair gains momentum to near 1.4000, the highest level since 2020 during the early Asian session on Thursday, bolstered by the stronger Greenback. The attention will shift to the US October Producer Price Index (PPI), which is due later on Thursday.
The US Dollar (USD) climbed to the highest level since November 2023 due to so-called Trump trades and US inflation data for October. Donald Trump's victory in last week's US presidential election sparked expectations of potentially inflationary tariffs and other measures by his incoming administration, boosting the Greenback.
US inflation increased as expected in October. Data released by the Labor Department's Bureau of Labor Statistics on Wednesday showed that the Consumer Price Index (CPI) rose by 2.6% YoY in October, matching prior forecasts. Additionally, the core CPI, which excludes the more volatile food and energy categories, jumped by 3.3% YoY during the same period, in line with expectations. This report could result in fewer interest rate cuts from the Federal Reserve next year, which might lift the USD against the Canadian Dollar (CAD).
On the Loonie front, the expectation that the Bank of Canada (BoC) would keep on cutting rates faster than the Fed drags the CAD lower against the USD. The policymakers discussed the usual 25 basis point (bps) cut but saw a strong consensus among them for the larger step, the summary of deliberations said.
Furthermore, the decline in crude oil prices continues to undermine the Loonie as Canada is the largest oil exporter to the United States (US). The rebound in crude oil prices could support the CAD and cap the upside for the pair for the time being.
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
Reserve Bank of Australia Governor Michele Bullock said on Thursday that the interest rates are restrictive enough and will stay there until the central bank is confident about inflation.
Uncertain about US actions, won't make hasty decisions.
Global bond markets are behaving well.
Bond markets indicate rising government debt.
The central bank is not as restrictive as others, but still sufficiently so.
At the time of writing, AUD/USD is trading 0.19% higher on the day at 0.6495.
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
EUR/USD continued to drift into the basement on Wednesday, clipping into a 54-week low and settling within touch range of 1.0550. Fiber continues to shed weight on the charts as broader FX markets pivot full-bore into holding the Greenback.
US Consumer Price Index (CPI) inflation figures came in stickier than many had hoped, but still well within median market forecasts, helping to keep investor sentiment elevated. Headline CPI held steady at 0.2% MoM as expected, while annualized headline CPI inflation accelerated to 2.6% YoY from the previous 2.4%, as markets predicted. Core CPI inflation also met market expectations, holding at 0.3% MoM and 3.3% on an annualized basis.
Euro traders will be looking ahead to pan-EU Gross Domestic Product (GDP) growth figures due early Thursday; final GDP growth is unlikely to buck the previous preliminary figures, and EUR bulls will have their fingers crossed that final GDP in the third quarter will stick to 0.4% QoQ, while the annualized figure is forecast to hold steady at a thoroughly unremarkable 0.9% YoY.
Also coming up on Thursday will be a fresh print of US Producer Price Index (PPI) business level inflation, which is forecast to accelerate in October to 3.0% from 2.8% YoY.
The EUR/USD daily chart reveals a strong bearish trend, as the pair trades firmly below both the 50-day (blue line) and 200-day (black line) exponential moving averages (EMAs), currently at 1.0882 and 1.0884, respectively. This alignment, with the 50-day EMA below the 200-day EMA, signifies a bearish outlook in both the short and long term. The recent sell-off has pushed the pair closer to a significant psychological level at 1.0550, which could act as immediate support. If this level fails to hold, further declines may be on the horizon.
The MACD indicator on the chart underscores the prevailing bearish momentum. The MACD line is positioned below the signal line in negative territory, reflecting strong selling pressure. Furthermore, the expanding gap between the MACD and signal lines, along with a series of red histogram bars, indicates that bearish momentum is still intact. Without signs of a bullish divergence, the technical picture suggests limited buying interest, and any potential recovery could be met with resistance around the moving averages.
Looking ahead, a sustained break below the 1.0550 support level could open the door to a deeper retracement, possibly targeting the 1.0500 level in the coming sessions. On the flip side, for EUR/USD to reclaim a more bullish outlook, it would need to break back above the 200-day EMA, currently around 1.0884. Such a move would likely require a shift in market sentiment, potentially triggered by favorable economic data from the Eurozone or broad-based U.S. dollar weakness. Until such a recovery materializes, the technical setup remains bearish, with further downside expected if the support at 1.0550 gives way.
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
GBP/USD eased further into the low end on Wednesday, trimming further south of the 200-day Exponential Moving Average (EMA) in a one-sided bearish decline as the pair closes in the red for a fourth consecutive trading day. The Pound Sterling shed extra weight against the broadly-recovering Greenback, sparked by a US Consumer Price Index (CPI) inflation print that didn’t deliver markets the easing inflation hint they were hoping for, but still came in at forecasts.
Coming up on Thursday will be a fresh print of US Producer Price Index (PPI) business level inflation, which is forecast to accelerate in October to 3.0% from 2.8% YoY. On the UK side, Cable traders will be settling in for a wait to Thursday’s UK Gross Domestic Product (GDP) print for the third quarter, which is forecast to slump to a scant 0.2% QoQ from the previous 0.5%.
US Consumer Price Index (CPI) inflation figures came in stickier than many had hoped, but still well within median market forecasts, helping to keep investor sentiment elevated. Headline CPI held steady at 0.2% MoM as expected, while annualized headline CPI inflation accelerated to 2.6% YoY from the previous 2.4%, as markets predicted. Core CPI inflation also met market expectations, holding at 0.3% MoM and 3.3% on an annualized basis.
The GBP/USD daily chart shows a pronounced bearish momentum, with the price decisively breaking below the 200-day EMA (black line) around 1.2867, a significant support level that had held since early November. This breakdown below the 200-day EMA indicates a shift toward a medium-term bearish outlook, as the currency pair struggles to hold above this key long-term moving average. Moreover, the 50-day EMA (blue line) remains below the price level, reinforcing the downward bias and suggesting that selling pressure is likely to persist as long as the price trades beneath these critical EMAs.
The MACD indicator at the bottom of the chart reflects intensifying bearish momentum, with the MACD line diverging further below the signal line in negative territory. This bearish crossover, accompanied by declining histogram bars, underscores the weakness in GBP/USD and hints at a potential extension of the downtrend. The lack of any bullish divergence on the MACD suggests that buying interest is limited, and without a substantial catalyst, the pair may struggle to regain positive momentum. Traders might look to the MACD and any potential decrease in selling pressure as initial signs of a trend reversal, though such signals are currently lacking.
The next support level to watch lies around the psychological handle of 1.2700, which is close to the current price level. A break below this area could expose GBP/USD to further downside risks, potentially targeting the 1.2600 mark as the next support level. On the flip side, if the pair manages to recover and reclaim the 200-day EMA, it could signal a shift in sentiment; however, this would require substantial buying pressure, likely tied to positive economic data from the UK or a broad weakening in the US dollar. Until such developments occur, the technical setup favors the bears, with further downside likely if GBP/USD fails to stabilize above the immediate support.
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The shared currency stages a recovery against the Aussie Dollar on Wednesday, printing gains of over 0.18%, as traders await Australia’s job report. At the time of writing, the EUR/AUD trades at 1.6284 after hitting a daily low of 1.6238.
The Australian Bureau of Statistics (ABS) will reveal employment figures for October. The Employment Change is estimated to have created 25K jobs, below September’s outstanding 64.1K, with the Unemployment Rate expected to remain at 4.1%.
The EUR/AUD is neutral to downward biased after the cross plunged below the 200, 100, and 50-day Simple Moving Averages (SMAs), within a confluence zone at around 1.6315/86. Although the exchange rate aimed higher during the last three days, a drop below the November 13 low of 1.6238 could pave the way for 1.6200. A breach of the latter will expose intermediate support at 1.6161, the latest cycle low reached on November 7, followed by the year-to-date (YTD) low of 1.6003.
Conversely, on further EUR/AUD strength, buyers must clear the 50-day SMA at 1.6315. If surpassed, up next would be the 100-day SMA at 1.6356, followed by the 200-day SMA at 1.6386. Once surpassed, the following resistance would be the 1.6400 figure.
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
The NZD/USD pair extended its downtrend on Wednesday, declining by 0.8% to 0.5880, continuing its move towards the August 5 lows. The pair's overall momentum seems to be bearish, as indicated by both the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD).
The RSI, which measures overbought or oversold conditions, is around 33, indicating increasing selling pressure. The MACD, which measures trend strength and momentum, is red and rising, also suggesting a bearish outlook. The MACD histogram is also red and rising, further confirming the presence of the bearish forces. Although the RSI is currently oversold, which could potentially trigger a recovery, the overall technical outlook remains negative.
Resistance levels are seen at 0.5900, 0.5930, and 0.5950, and support levels at 0.5870, 0.5830, and 0.5815.
Silver price drops below $30.50 for the second consecutive session, prints losses of over 0.90% following a tempered US inflation report. The US CPI came as expected, though he hinted that disinflation has stalled. The XAG/USD trades at $30.40, set to end the session lower.
Silver price consolidated during the last two days at around the 100-day Simple Moving Average (SMA) at $30.31. However, the mid-term bias is tilted to the downside, and once bears push prices below August’s 26 high turned support at $30.18, they will test the psychological $30.00 mark. A breach of the latter will expose the 200-day SMA at $28.63, followed by the September 6 swing low of $27.69.
If Silver moves back above $31.00, this could pave the way for challenging the 50-day SMA at $31.51. Once surpassed, XAG/USD's next resistance would be $32.00.
Oscillators like the Relative Strength Index (RSI) hint that further XAG/USD’s downside is seen, as RSI remains shy of being oversold.
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
The NZD/JPY pair witnessed a slight pullback during Wednesday's session, dipping below the 91.50 level. This retracement follows a period of gains on Tuesday, but the pair remains confined within a clear trading channel between 92.00 and 91.00. Additionally A bearish crossover, recently completed between the 20 and 100-day Simple Moving Average (SMA) might push the pair lower.
Technically, the Relative Strength Index (RSI) suggests that buying pressure is declining, as it stands at 53, in positive terrain, but declining. Additionally, the Moving Average Convergence Divergence (MACD) histogram is flat and red, suggesting that selling pressure is present. Therefore, the overall outlook for the pair remains mixed, and it is worth monitoring the price action around the 91.00 and 92.00 boundaries.
Support levels are located at 91.00, 90.50, and 90.00, while resistance levels are at 92.00, 92.50, and 93.00.
The Australian Bureau of Statistics (ABS) will release the October monthly employment report at 00:30 GMT on Thursday. The country is expected to have added 25K new job positions, while the Unemployment Rate is expected to remain stable at 4.1%. The Australian Dollar (AUD) trades near multi-week lows against the US Dollar (USD) ahead of the event amid continued USD demand, with the AUD/USD pair trading just above the 0.6500 mark.
The ABSEmployment Change report separates full-time from part-time jobs. According to its definition, full-time jobs imply working 38 or more hours per week and usually include additional benefits, but they mostly represent consistent income. On the other hand, part-time employment generally offers higher hourly rates but lacks consistency and benefits. This iswhy full-time jobs have more weight than part-time ones when setting the directional path for the AUD.
The September report showed the Oceanic country created 51.6K full-time jobs and 12.5K part-time positions, resulting in a net Employment Change of 64.1K. The Unemployment Rate, in the meantime, printed at 4.1% for a second consecutive month.
Market analysts anticipate that the Unemployment Rate will remain steady at 4.1% in October. Ahead of employment figures, Australia released some good news related to the sector: Australian wage growth slowed in the third quarter of the year, according to the quarterly Wage Price Index report. The index advanced at an annual pace of 3.5% in the three months through September, easing from the 4.1% posted in Q2, also below the 3.6% expected. On a quarterly basis, wages were up 0.8%, matching the previous quarter’s figure and slightly below the 0.9% anticipated. Wage data indicate easing inflationary pressures as quarterly gains are the lowest in two-and-a-half years.
Wage-related inflation is relevant amid its impact on the Reserve Bank of Australia (RBA) monetary policy decisions. The central bank has held the Official Cash Rate at 4.35% since late 2023 amid the slow pace of disinflation and overall labor market resilience.
The central bank aims for inflation to stay between 2% and 3%. The annualised Wage Price Index at 3.5% may be encouraging, but it is still hotter than “comfortable.”
With that in mind, easing wage inflation coupled with an around 4% Unemployment Rate is enough to support the generalised idea of an initial RBA interest rate cut as early as February 2025, albeit not enough to think about an earlier trim.
Regarding job creation, the country has been solidly adding full-time positions in the last couple of months, and while it may sound positive for the economy, it also means the labor market remains tight, opposite to the RBA’s desired loosening.
Generally speaking, substantial full-time job creation is seen as tighter. At the same time, an increase in part-time positions could be more encouraging regarding upcoming interest rate cuts.
In the meantime, recent developments in the United States (US) could affect the upcoming RBA’s decision. The world’s largest economy held a presidential election and former President Donald Trump’s victory paints a new global scenario for the next four years.
Trump has pledged to establish tariffs, which may affect the performance of every other major economy interacting with the US. RBA Governor Michele Bullock noted last week that Trump’s presidency could send inflation in different directions in her appearance before a Senate committee.
At the same time, Bullock noted that, at this point, the RBA maintains its inflation forecast, indicating that price pressures won’t fall significantly within the target band until 2026.
The ABS will publish the October employment report early on Thursday. As previously stated, Australia is expected to have added 25K new job positions in the month, while the Unemployment Rate is foreseen at 4.1%. Finally, the Participation Rate is expected to hold at 67.2%.
Generally speaking, a strong report will boost the AUD, even if the larger increase comes from part-time jobs. Any weak underlying subcomponent will likely fuel hopes of rate cuts, but not enough to trigger an AUD sell-off. The opposite case is also valid, with soft figures putting pressure on the Aussie.
Ahead of the announcement, the AUD/USD pair trades a handful of pips below the 0.6500 mark and is technically bearish as the USD maintains the post-election momentum.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair is under pressure and near the 0.6500 mark. From a technical point of view, the risk skews towards the downside, given that the pair develops below all its moving averages in its daily chart, while technical indicators in the same time frame maintain modest downward slopes within negative territory. Even further, the 20 Simple Moving Average (SMA) has recently crossed below directionless 100 and 200 SMAs, reflecting prevalent selling interest.”
Bednarik adds: “AUD/USD bottomed at 0.6513 on Tuesday, and any extension below the level should favor a bearish continuation towards the 0.6470 price zone. Once below the latter, the pair could target the 0.6420/30 region, where it posted multiple daily lows back in April and May. To the upside, Wednesday’s high at 0.6545 provides near-term resistance en route to the 0.6600 threshold. Sellers will likely reappear should the pair approach to the latter.”
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
Gold's price tumbled on Wednesday following October’s inflation report, which was aligned with estimates. The yellow metal hit a daily peak of $2,618 but retreated as US Treasury yields climbed, and the Greenback extended its gains to a new year-to-date (YTD) high, according to the US Dollar Index (DXY). The XAU/USD trades at $2,581, losing more than 0.60%.
Bullion extended its losses for the fourth straight day after the US Bureau of Labor Statistics (BLS) revealed that headline and core inflation figures for October came in as Wall Street expected.
The buck printed solid gains, although market participants had almost entirely priced in 25 basis points by the Federal Reserve (Fed) at the December meeting. According to the CME FedWatch Tool data, odds rose from 58% a day ago to 82%.
The DXY, which tracks the performance of the US Dollar against a basket of peers, hit a YTD high of 106.52, surpassing the April 16 high of 106.51. As of writing, the DXY hovers around 106.49, gaining 0.50%.
US Treasury bond yields continued to rise with the 10-year benchmark note yielding 4.453%, two and a half basis points above its opening yield.
Market participants remain aware that Trump's presidency might dent the Fed from easing policy if inflation climbs due to low taxes and new tariffs.
Looking forward to this week, traders are eyeing Fed Chair Jerome Powell's speech. The US Producer Price Index (PPI) and jobs data are due on Thursday. On Friday, Retail Sales will update the status of American consumers.
The Gold price has shifted neutral to bearishly biased, once it cleared the October 10 swing low of $2,603. Once bears achieved a daily close below the latter, it opened the door to challenge the 100-day Simple Moving Average (SMA) at $2,540. On further weakness, the next support would be $2,500.
On the other hand, if Gold clings to $2,600, buyers will eye the 50-day SMA at $2,647, ahead of $2,650. Once surpassed, the next resistance would be the November 7 high at $2,710.
Momentum has shifted bearishly as the Relative Strength Index (RSI) distanced itself from its neutral line, indicating that XAU/USD might extend its losses.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
The AUD/USD declined by 0.69% to 0.6490 in Wednesday's session. AUD/USD hovers slightly below 0.6500 after the US inflation data for October. The US headline inflation and core CPI showed no surprises, while focus now shifts to Australia's October employment data is expected to show a modest increase in jobs added.
The Australian dollar has declined due to the strength of the US dollar, supported by positive economic indicators and increased confidence. Australia's central bank maintains a neutral stance, signaling a potential rate cut in mid-2025, providing support for the Aussie.
The AUD/USD pair has extended its decline below the 0.6500 level, reaching its lowest point since August. This move is supported by technical indicators, which remain deeply in negative territory. The Relative Strength Index (RSI) is near 30, indicating oversold conditions, while the Moving Average Convergence Divergence (MACD) is below zero, suggesting bearish momentum. These signals suggest that the downtrend may continue in the near term.
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
The US Dollar extended further its move higher, regaining traction after a negative first half of the session and climbing to new 2024 peaks after US CPI ticked higher in October as well as prudent remarks from Fed officials.
The US Dollar Index (DXY) rose to YTD highs north of 106.50, always on the back of the Trump-infused rally and mixed US yields. US inflation data will remain in centre stage with the release of Producer Prices for the month of October, seconded by the usual weekly Initial Jobless Claims and the EIA’s report on US crude oil inventories. In addition, the Fed’s Barkin, Powell, and Williams are due to speak.
EUR/USD lost further ground and weakened to new yearly lows near 1.0550 on the back of the intense uptrend in the US Dollar. Another estimate of the EMU’s Q3 GDP Growth Rate is due followed by the Employment Change index, Industrial Production and the ECB’s Accounts. Additionally, the ECB’s De Guindos, and Schnabel are also expected to speak.
GBP/USD broke below the 1.2700 support to reach new lows amid further gains in the Greenback. The RICS House Price Balance index will be published along the speech of the BoE’s Bailey and the Mansion House speech by Chancellor Reeves.
USD/JPY surpassed the 155.00 barrier to print new four-month highs and extend its positive performance so far this week. The weekly Foreign Bond Investment figures will be unveiled.
Extra weakness in commodity prices put AUD/USD under extra pressure and motivated it to put the 0.6500 support to the test. The release of the Australian jobs report will take centre stage along with Consumer Inflation Expectations and the speech by the RBA’s Bullock.
Prices of WTI reversed their multi-day bearish trend and managed to regain balance after bottoming out below the $67.00 mark per barrel early in the day.
Gold prices dropped further and broke below the $2,600 mark per ounce troy to hit new to two-month lows amid the unabated march north in the US Dollar. By the same token, prices of the ounce of Silver faded Tuesday’s small advance, hovering around the $30.50 zone.
The Dow Jones Industrial Average (DJIA) clawed back over 200 points at its peak on Wednesday, recovering ground after an early-week plunge from record highs. The post-election rally following presidential candidate and former President Donald Trump sent markets into dizzying new heights, but investors remain unwilling to let prices fall too far back despite the clear need for a breather.
US Consumer Price Index (CPI) inflation figures came in stickier than many had hoped, but still well within median market forecasts, helping to keep investor sentiment elevated. Headline CPI held steady at 0.2% MoM as expected, while annualized headline CPI inflation accelerated to 2.6% YoY from the previous 2.4%, as markets predicted. Core CPI inflation also met market expectations, holding at 0.3% MoM and 3.3% on an annualized basis.
Despite a notable lack of inflation easing in October’s CPI figures, investors remain confident during the midweek market session, with around two-thirds of the Dow Jones finding positive territory for the day. Boeing (BA) still found the red, declining around 2.5% and sliding below $142 per share as the battered airospace manufacturer begins issuing layoff notices as part of the company’s plans to layoff 17,000 workers, or an entire tenth of the airplane builder’s global workforce.
On the high side, Amazon surged to a fresh all-time high on Wednesday, breaching $215 dollars per share. The mega-conglomerate that covers everything from internet and cloud computing services to online retailing is surging after Amazon announced plans to begin their own production system for AI-focused computer chips in a bid to take a chunk out of Nvidia’s market share in the large data modeling space. Amazon has also announced plans to launch a discount e-commerce segment of their large-frame warehousing and online retailing segment, directly targeting the growing sector currently dominated by social media adspace scourge Temu.
Elsewhere on the Dow Jones equity board, Home Depot (HD) is marching its way back toward $410 per share in a post-glut rebound after shedding weight recently on the back of declining sales figures.
The Dow Jones launched into a fresh round of bullish pressure last week, breaching into new record highs a stone’s throw away from 44,500. This week saw a brief pullback from record highs as lopsided bullish momentum began to spark concerns of overbought conditions. Despite the Dow Jones’ one-sided chart performance, bidders continue to pile into the space, keeping the battle constrained to chart paper near the 44,000 handle.
The Dow Jones is up nearly 20% bottom-to-top for the year, and has added an eye-watering 31.5% since the last time price action touched the 200-day Exponential Moving Average (EMA) near the 34,000 handle in November of 2023. Short interest is circling the waters, looking for a low-pressure fallback to the 50-day EMA near 42,330, but downside momentum remains elusive.
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
Federal Reserve (Fed) Bank of Kansas President Jeffrey Schmid made a rare appearance on Wednesday, flagging potential pitfalls on the path toward lower interest rates.
I won't let enthusiasm over rising productivity get ahead of data or commitment to reaching the Fed's goals.
I hope productivity growth can outrun the effects of slowing population growth, and rising fiscal deficits.
Fed rate cuts to date are an acknowledgement of growing confidence inflation is on path to 2% goal.
It remains to be seen how much more the Fed will cut rates, and where they may settle.
Federal Reserve (Fed) Bank of St. Louis President Alberto Musalem hit the wires on Wednesday, noting that sticky inflation figures make it difficult for the Fed to continue to ease rates. The Fed's Musalem spun focus onto the overall healthy appearance of the US labor market to ease negative pressure from admitting that inflation continues to flaunt downward pressure from the Fed.
The US central bank may be on the last mile to price stability, inflation is expected to converge to the 2% target over the medium term.
Recent information suggests that the risk of inflation moving higher has risen, while risks to the job market remain unchanged or have fallen.
The business sector is generally healthy, though the smallest businesses and those in the consumer discretionary market is seeing slower earnings growth.
Recent high productivity could prove durably structural, but that remains uncertain.
Growth is broad-based and driven by consumption, income growth, productivity, supportive financial conditions, and wealth effects.
Strong economy on track for a solid fourth quarter.
Monetary policy is to remain appropriately restrictive while inflation remains above 2%.
Further rates easing may be appropriate if inflation continues to fall.
Monetary policy is well positioned, the Fed can judiciously and patiently judge incoming data to decide on further rate cuts.
The pressure in services industries is slowly abating.
Core consumer price index and core personal consumption expenditures price index remain elevated.
I am attuned to the risks of rising layoffs, though disorderly deterioration of labor market is unlikely given health of businesses.
The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, has surged higher on Wednesday in response to hawkish comments from Federal Reserve (Fed) officials. Dallas Fed President Robert Kaplan expressed caution regarding the possibility of a December rate cut, dampening expectations that had been building in the market. The DXY has climbed above 106.00, reaching a fresh six-month high as a result of these comments but mildly retreated after Consumer Price Index (CPI) data from October, which didn’t show major surprises.
Despite a slight pullback on Wednesday, technical indicators for the DXY Index remain bullish, suggesting a potential continuation of the uptrend. The RSI and MACD indicate continued positive momentum. While consolidation or a pullback is possible before a further advance, the overall technical outlook remains positive with resistance levels at 106.50, 107.00 and 107.30 and support levels at 105.50, 105.30 and 105.30.
That being said, the DXY's surge above 106.00, approaching its highest level since July, is supported by positive indicators. However, the indicators are approaching overbought territory, indicating a potential reversal or consolidation. Traders should monitor the index's behavior around these levels to assess the sustainability of the uptrend. A rejection at the overbought area could signal a pullback or a change in market sentiment, while a sustained break above these levels could extend the bullish momentum.
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
The Mexican Peso stayed firm against the US Dollar during the North American session on Wednesday as investors digested the latest US inflation report. Alongside that, traders braced for the Bank of Mexico (Banxico) monetary policy decision on Thursday, expecting the central bank will slash rates. At the time of writing, the USD/MXN trades at 20.57, virtually unchanged.
US inflation data in October was in line with analysts’ expectations. Therefore, investors became optimistic that the Federal Reserve (Fed) could lower interest rates by 25 basis points at the December meeting. According to CME FedWatch Tool data, odds for a rate cut increased from 58% a day ago to 82% at the time of writing.
On Thursday, Banxico is expected to cut rates from 10.50% to 10.25%, according to 19 of 20 analysts polled by Reuters. This would reduce the interest rate differential between Mexico and the US, implying that USD/MXN could rise and challenge the year-to-date (YTD) peak at 20.80.
Aside from this, the risk appetite remains fragile after US President-elect Donald Trump named two China hawks to his cabinet. Rumors that Mike Waltz was appointed as National Security Advisor and Marco Rubio as Secretary of State would toughen the US posture against China but also against Mexican drug cartels and illegal immigration.
Meanwhile, Minneapolis Fed President Neel Kashkari crossed the wires. He stated the Fed would need additional rate cuts, adding, “I think inflation is heading in the right direction and have confidence in that.”
Last, Dallas Fed President Lorie Logan added that the US central bank “most likely” needs to reduce its restrictive policy, though it must proceed cautiously. She added it's challenging to know how many cuts are needed and how soon they need to happen.
Ahead this week, Mexico’s economic docket will feature the Banxico policy decision. On the US front, Fed speakers, inflation on the producer side, and Retail Sales will help dictate the USD/MXN pair’s direction.
The USD/MXN upward bias remains, even though the pair has failed to re-test weekly highs seen at 20.69. Once surrendered, the next resistance would be the year-to-date (YTD) high of 20.80 on November 6. If surpassed, the next resistance would be the psychological 21.00 figure, followed by the March 8, 2022 peak at 21.46.
Conversely, sellers must push the exchange rate below 20.50, so they can remain hopeful of driving the spot to the 20.00 figure. A breach of the latter will expose the 50-day Simple Moving Average (SMA) at 19.73, followed by the psychological figure at 19.50 and the October 14 low of 19.23.
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
EUR/USD continued to backslide on Wednesday, falling into 1.0550 and finding only a meager bounce from 54-week lows after US Consumer Price Index (CPI) inflation for October printed closely to median market forecasts. The Euro continues to shed fans as market participants struggle to find reasons to bid Fiber, leaving EUR/USD at the mercy of broad-market US Dollar flows.
US CPI inflation for October came in broadly as-expected on Wednesday, however final figures failed to make any progress toward cooling targets, and key annual measures accelerated on a yearly basis. US CPI rose 0.2% MoM in October, in-line with the previous month’s inflation print, while ‘supercore’ CPI for the year ended in October rose 4.37% YoY compared to the previous period’s print of 4.26%.
The US Dollar eased slightly post-CPI, giving Fiber a chance to recover its stance from year-long lows, however momentum remains thin as global markets broadly focus on US labor figures to spark further rates cuts from the Federal Reserve (Fed).
With the Euro testing 54-week lows against the Greenback, the pressure is on for bidders to find a floor and push off from it before things decay to the point that EUR/USD backslides below the technical floor priced in near 1.0500. It’s been a sharp turnaround in Fiber bids this year: just seven weeks ago, the Euro had set a year-plus high against the US Dollar just shy of 1.1300.
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
US Consumer Price Index (CPI) inflation came in broadly as-expected in October, not delivering any nasty surprises to traders, but not delivering any good news, either. Headline and core CPI inflation remained unchanged through October on a monthly basis, printing at 0.2% and 0.3% MoM respectively. However, early core CPI inflation accelerated to 2.6% YoY from 2.4%.
CPI inflation is a measure of the month-on-month change in consumer-level prices for a mixed basket of consumer goods that represents a significant cross-section of the overall consumption economy. While the CPI index lacks consumer price information for rural residents, measuring only the cost changes in urban goods, the CPI index as a broader measure of consumer inflation captures roughly 93% of the US population.
Since controlling inflation via interest rates is a full half of the Fed’s mandate (with the other half being stable employment, a feature unique to the Federal Reserve not shared by other central banks), CPI inflation is used by markets as a key method of estimating when the Fed will make changes to the Fed funds rate, and by how much. With inflation continuing to run above the Fed’s target levels, upticks in key inflation metrics makes it harder for the Fed to deliver rate cuts as fast or as furiously as investors would like to see.
With CPI inflation registering within market expectations, but not delivering any meaningful reductions in price growth, investors will be turning to the rest of the economic data docket for signs of weakness that might spur the Fed back into a faster pace of rate cuts heading into the end of the year. Labor market weakness has been earmarked as a likely ignition point for further higher-than-expected rate reductions. However, too far into the red on jobs data or other inflation metrics (like the Personal Consumption Expenditure Price Index) could also spark fear of a widespread recession in the US economy, leaving investors in a challenging ‘Goldilocks’ position: markets are hoping for soft spots in the US economy to force the Fed to reduce interest rates, but a direct tip-over into recession will render rate cuts a moot point.
The EUR/JPY was seen around 164.00 in Wednesday's session, with indicators sending mix signals. The 164.00-165.00 area remains crucial for short-term direction.
The technical outlook for the EUR/JPY is mixed. The Relative Strength Index (RSI) is in positive territory at 51, but its flat slope suggests that buying pressure is flat. The Moving Average Convergence Divergence (MACD) is red and rising, suggesting that selling pressure is rising. The overall outlook is mixed, with the RSI and MACD giving conflicting signals.
The 164.00-165.00 range serves as a crucial resistance zone, while the RSI's flat buying pressure and the MACD's growing selling pressure create an uncertain momentum. Traders should closely monitor whether bulls can break through this resistance area to confirm a bullish trend, or if bears push the pair lower towards key support levels at 163.00 and 162.00.
The Pound Sterling registers losses against the US Dollar in early trading during the North American session, sponsored by Bank of England´s (BoE) Catherine Mann's hawkish rhetoric. This and the latest US inflation report came as expected, keeping the GBP/USD trading at around 1.2697, down by over 0.37%.
The GBP/USD bearish momentum extended after the pair cleared 1.2817, the 200-day Simple Moving Average (SMA), opening the door to challenge 1.2800. Momentum remains tilted to the downside, with the pair hitting a daily low of 1.2686, shy of testing intermediate support seen at the August 8 swing low of 1.2665. If cleared, the next support would be the 1.2600 figure.
Conversely, buyers must push the exchange rate toward 1.2700. If surpassed, the next stop would be the November 12 high at 1.2873.
Oscillators such as the Relative Strength Index (RSI) hints that sellers are in charge. Therefore, further GBP/USD downside is seen.
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
USD/JPY retreats after reaching a new three-month high on Wednesday after the release of Japanese factory-gate price inflation data (producer prices) supported the Japanese Yen (JPY) after they showed a higher-than-expected rise in October. The increase in producer prices could filter through into consumer prices, pushing up the main consumer inflation indexes. This, in turn, is likely to make the Bank of Japan (BoJ) raise interest rates, and higher interest rates strengthen a currency as they lead to increased net capital inflows.
The US Dollar (USD) remains supported after the release of US Consumer Price Index (CPI) data showed headline inflation ticking higher in October, although all the readings were in line with economists forecasts. The stubbornly high inflation data is likely to keep the USD supported as it could encourage the US Federal Reserve (Fed) to reconsider cutting interest rates, resulting in a lift for the US Dollar. This in turn is likely to limit losses for the USD/JPY.
Despite the pullback, USD/JPY continues to trade in a short and medium-term uptrend due to a strengthening US Dollar. This comes amid market expectations that President-elect Donald Trump’s mix of protectionism, higher tariffs and lower taxes will be inflationary for the US. This, in turn, is likely to flatten the trajectory for interest rates which had been expected to fall steeply. Although the market still sees odds of over 80% in favor of the Fed making a cut of 25 basis points (bps) (0.25%) to its main interest rate in December, according to the CME FedWatch tool, the outlook for 2025 may increasingly be more dependent on the inflationary impact (or not) of the new policies espoused by the Trump administration.
The Japanese Producer Price Index (PPI) rose by 3.4% YoY in October from an upwardly revised 3.1% in the previous month and above the 3.0% expected. On month, PPI rose by 0.2% from an upwardly-revised 0.3% previously and above expectations of 0.0%.
US headline CPI, meanwhile, rose by 2.6% YoY in October from 2.4% in the previous month and was in line with expectations. MoM headline CPI increased by 0.2% from 0.2% previously and the same expected.
US Core CPI, meanwhile, rose by 3.3% in October, from the same in the previous month and 3.3% forecast. On month it rose by 0.3%, from the same both previously and expected.
The BoJ’s October policy meeting Minutes, released on Sunday, revealed a divide among policymakers over the timing of future interest rate hikes. However, the Governor of the BoJ Katsuo Ueda has always said that if economic data meets the BoJ’s forecasts it will go ahead and hike rates. So far, the data has mostly met or exceeded estimates. In the meeting Minutes, the central bank maintained its forecast that it could raise its benchmark policy rate to 1.0% (from 0.25%) by the second half of fiscal 2025.
US consumer prices rose by 0.2% in October from September, and by 0.3% excluding energy and food. This was in line with expectations in both cases. However, it is becoming apparent that inflationary pressure is only declining very slowly. The data do not argue against further policy easing by the Federal Reserve, but they could support those who want to slow the pace of the rate cuts, Commerzbank’s economists Dr. Christoph Balz and Bernd Weidensteiner note.
“The US consumer price data for October is not disastrous, but it does not show any clear progress either. This applies in particular to the core rate, i.e. the inflation rate excluding volatile energy and food prices, which provides a better indication of the trend. Here, the month-on-month rate was 0.3%. This was the same as in August and September and too high given the Fed's inflation target.”
“In fact, consumer prices excluding energy and food rose at an annualized rate of 3.6% in the last three months, which means that momentum picked up again. However, there have been several such phases in the past. These proved to be only temporary and the year-on-year rate therefore tended to fall further. We would therefore not yet proclaim the end of the downward trend in inflation this time either.”
“However, it remains to be seen whether the situation will ease again this time. In any case, the figures support our assessment that US inflation will remain above the central bank's target over the longer term. This applies even more in light of the emerging policy of the future president, Trump, who is relying heavily on tariffs and reduced immigration which would lead to a tightening of the labor market.”
Dallas Federal Reserve President Lorie Logan urged caution on Wednesday, advising the bank to move slowly with additional rate cuts to avoid unintentionally stoking inflation.
- US central bank 'most likely' will need more interest rate cuts, but should 'proceed cautiously'.
- Models show that Fed Funds rate could be 'very close' to neutral rate.
- If Fed cuts too far, past neutral level, inflation could reaccelerate.
- Difficult to know how many Fed rate cuts may be needed, and how soon they may need to happen.
- Fed has made 'great deal of progress' bringing down inflation, restoring balance to economy.
- Fed is not quite back to price stability yet.
- U.S. economic activity is 'resilient.'
- Labor market 'cooling gradually' but not weakening materially.
- Rise in bond yields in part reflects rise in term premiums; if rise continues, Fed may need less restrictive policy.
Silver price (XAG/USD) holds recovery to near $31.00 in Wednesday’s North American session after the release of the United States (US) Consumer Price Index (CPI) data for October. The Bureau of Labor Statistics (BLS) reported that price pressures remain sticky as the annual headline inflation accelerated to 2.6% from 2.4% in September.
The core CPI – which excludes volatile food and energy prices – rose in line with estimates and the former release of 3.3%. On month, the headline and core inflation grew expectedly by 0.2% and 0.3%, respectively.
Sticky price pressures are less likely to impact market speculation for Federal Reserve (Fed) interest rate cuts in December as officials are more worried about preventing job losses, with high confidence over inflation remaining on track toward the bank’s target of 2%.
After the US inflation data release, the US Dollar Index (DXY) drops slightly but clung to gains near 106.00. 10-year US Treasury yields slide to near 4.38%.
The overall outlook of the Silver price remains weak on so-called “Trump trades” as demand for those assets that are expected to perform better in US President-elected Donald Trump’s administration is upbeat.
Therefore, the Silver price could face selling pressure as Trump’s policies, such as higher import tariffs by 10% and lower corporate taxes, would boost US economic growth and price pressures, a scenario that will be favorable for US bond yields as the Federal Reserve (Fed) would be needed to keep interest rates restrictive. Historically, higher yields on interest-bearing assets increase the opportunity cost of holding an investment in non-yielding assets, such as Silver.
Silver price remains on track toward the upward-sloping trendline around $29.00, plotted from February 28 low of $22.30. The white metal weakened after the breakdown of the horizontal support plotted from May 21 high of $32.50.
The near-term trend of the Silver price has weakened as the 20-day Exponential Moving Average (EMA) starts declining, which trades around $32.00.
The 14-day Relative Strength Index (RSI) slides to near 40.00. A bearish momentum will trigger if the RSI (14) sustains below the same.
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
EUR/GBP bounces off two-and-a-half year lows in the 0.8200s to trade back up in the 0.8330s on Wednesday after UK labor market data showed a rise in the Unemployment Rate which increased speculation the Bank of England (BoE) might cut interest rates in December.
Previously the UK central bank had been one of the few major central banks expected not to cut rates at the end of the year because of stubbornly high inflation. The expectation of interest rates remaining relatively elevated in the UK had been a supportive factor for the Pound Sterling (GBP), since they attract greater inflows of foreign capital.
The UK Unemployment Rate rose to 4.3% in the three months to September from 4.0% in the previous period, according to data from the Office of National Statistics (ONS), released on Tuesday. The reading was also well above economists’ expectations of 4.1%. It indicated a weakening labor market and could put pressure on the BoE to cut interest rates in order to stimulate borrowing, growth and job creation.
That said, other UK employment data was not as poor suggesting the Pound Sterling (GBP) could recover and EUR/GBP upside is likely to remain capped. UK Average Earnings Including Bonus’ increased 4.3% from a revised up 3.9% previously and 3.9% expected. UK Average Earnings Excluding Bonus’ rose by 4.8%, beating estimates of 4.7%, though below the 4.9% previously. The higher wages suggest inflationary pressures might increase, forcing the BoE to keep interest rates at their current elevated level, thereby strengthening Sterling, with bearish implications for EUR/GBP.
The Euro (EUR) also remains vulnerable due to growth concerns, the political crisis in Germany and fear of the US imposing tariffs on European imports, further weighing on the pair. President-elect Donald Trump warned he would make the Eurozone “pay a big price” for not buying enough American-made goods, which suggests he is working up to slapping tariffs on Euro Area imports. The imposition of tariffs has led economists to downgrade their forecasts for Eurozone Gross Domestic Product (GDP) by “a minimum of 0.3pp cumulative over 2025-26” according to Japanese lender Nomura.
The Single Currency is feeling the pressure from political uncertainty in Germany after the collapse of Chancellor Olaf Scholz's governing coalition. The country is set to hold snap elections on February 23, 2025, however, until then Germany’s political problems will probably be a continued source of risk for the Euro, and a downside risk to EUR/GBP.
According to analysts at Goldman Sachs, the Pound is more resilient to the geopolitical shocks compared to the Euro and this is bearish for the pair. GBP is also more positively aligned to risk-on and has a “positive beta to global risk”. Should US equities continue to rally as a result of the outlook due to the new administration in Washington, this should further support Sterling, suggesting downside pressure for EUR/GBP which could even revisit its over-two-year lows.
(This story was corrected on November 13 at 14:56 GMT to say that UK employment data was released on Tuesday not Wednesday).
The US Dollar (USD) tires to continue its uprising on Wednesday, signaling it still has fuel in its tank for a push higher supported by rising US yields. The Trump trade is getting more and more priced in, and, while the Fed remains data dependent, traders are gradually paring back bets of another interest-rate cut in December, a scenario that could give the Greenback another push higher.
The US economic calendar is having one of its focal points for this week with the release of the US Consumer Price Index reading for October. Expectations for the monthly headline figure are in a very tight range between 0.1% to 0.3%, making a consensus call of 0.2%. That means that any number outside that range will trigger a substantial move in markets.
The US Dollar Index (DXY) is adding more gains to its rally. That makes sense seeing where US yields are trading since this summer. The main issue could be that the trading is starting to overheat, increasing the chances of a correction soon under some profit taking.
All eyes are now on 106.52, the high of April and a double top, as it would mean a fresh 2024 high. Once the level would snap, 107.00 comes into play with 107.35 the next pivotal level to look out for.
On the downside, the round level of 104.00 and the 200-day Simple Moving Average (SMA) at 103.88 should refrain from sending the DXY any lower. Before that level, there is not much in the way with maybe some slim support at 104.63 (high of October 30).
US Dollar Index: Daily Chart
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Gold (XAU/USD) trades just above $2,600 on Wednesday after the precious metal’s November sell-off to seven-week lows found technical support at a major trendline. Gold takes a breather as markets wait for the release of key inflation data from the US, which could impact the future trajectory of interest rates, a major driver of the non-interest-paying yellow metal. When interest rates fall, it is favorable for Gold as it makes it more attractive to investors compared to other assets.
Whilst the US Federal Reserve (Fed) had been on course to slash interest rates because of declining inflation and concerns about a weakening labor market – and this drove Gold price to record highs – that all changed with the election of Donald Trump to the White House. Trump’s radical protectionism and “free market” economic policies are likely to drive inflation back up, according to experts, keeping interest rates high – a negative for Gold.
The release of the US Consumer Price Index (CPI) data for October on Wednesday will provide the latest snapshot of the inflation situation and could impact market expectations of whether the Fed will cut interest rates at its December monetary policy meeting. The market-based probabilities are currently 62.1% in favor of a 25 basis point (bps) (0.25%) cut and 37.9% for the Fed to leave interest rates unchanged at 4.50%-4.75%, according to the CME FedWatch. This could shift if CPI surprises from economist’s expectations. Market-watchers are paying particularly close attention to elevated service inflation, which remains much higher than goods inflation and is the main contributor to the still-above-target CPI.
Gold price’s decline in November was partly driven by large outflows from US Exchange Traded Funds (ETF). These allow traders to purchase stocks in Gold without investors having to own bullion themselves. Gold ETFs shed around $809 million (12 tonnes) net in early November, driven by North American outflows and partially offset by Asian inflows, according to the World Gold Council (WGC) data.
Demand for Gold is also expected to decline in China, the world’s largest consumer of the yellow metal, amid an economic slowdown that is expected to accelerate as the US imposes higher tariffs on Chinese imports.
Gold is also falling due to competition from alternative assets such as Bitcoin (BTC), which is trading in the high $80,000s, close to all-time highs, because of expectations the Trump administration will relax crypto regulation.
US stocks are also rising as investors anticipate lower corporation tax and looser regulations, boosting company profits, and this might also be diverting funds away from the precious metal.
Gold generally rises as a result of investors seeking safety amid a rise in geopolitical risks. One such risk factor has been the Russia-Ukraine war, which Trump boasted he could bring an end to “in one day – 24 hours.” Still, this has not been the case in reality. Trump is said to have warned Russian President Vladimir Putin “not to escalate in Ukraine” in a telephone call. However, Putin does not appear to have heeded his advice, given reports of Russian casualties continuing to rise.
Another geopolitical hotspot is the Middle East, where the possibility of peace now looks less likely given Trump’s appointment of Former Arkansas Governor Mike Huckabee as Ambassador to Israel. Huckabee is a known Zionist and supporter of Israeli Prime Minister Benjamin Netanyahu. He has said he does not support a two-state solution to the Israeli-Palestinian problem and sees the West Bank as belonging to Israel. His appointment will probably embolden Israel and bring further bloodshed to the region. If tensions rise, it could drive safe-haven flows to Gold.
According to technical analysis, the precious metal is now in a short-term downtrend, and, given it is a principle of technical analysis that “the trend is your friend,” the odds favor a continuation lower. However, Gold bounces off support from a major trendline for its long-term uptrend at around the $2,600 mark.
A decisive break below the major trendline would confirm an extension of the short-term downtrend, probably to the next target at $2,540, the 100-day SMA and August highs.
A decisive break would be one accompanied by a longer-than-average red candle that pierced well below the trendline and closed near its low, or three red candles that broke clearly below the trendline.
However, the precious metal remains in an uptrend on a medium and long-term basis, giving the material risk of a reversal higher in line with these broader up cycles.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
USD/THB traded sharply higher, in part due to stronger US Dollar (USD), softer gold prices and in part, due to concerns over central bank autonomy. USD/THB was last at 34.714, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
“There were reports of former Finance Minister being appointed as BoT Chairman. According to various media outlets, he had previously pressured BoT to lower rates and raise inflation target. The appointment is still pending approval (likely after 19 Nov).”
“BoT board can issue regulations on reserves management, but it doesn’t have the authority to directly manage the reserves. Market interpretation is that his appointment may lead to a dovish BoT.”
“Bullish momentum intact though RSI is rising into overbought conditions. Inverted head & shoulders pattern is typically associated with bullish reversal setup. Next resistance at 35.10, 35.40 (200 DMA). Support at 34.50 (100 DMA).”
USD/SGD inched higher, tracking moves in broad US Dollar (USD). Pair was last at 1.3380 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
“Daily momentum is mild bullish while RSI rose. Consolidation likely with slight risk to the upside. Resistance here at 1.3410 levels (76.4% fibo). Support at 1.3340 (200 DMA), 1.3290 (61.8% fibo retracement of Jun high to Oct low).”
“S$NEER was last at 1.38% above model-implied mid.”
Crude Oil trades broadly flat on Wednesday after an attempt on Tuesday to bounce off a supportive floor level near $68.00. The support came in the form of the monthly OPEC report, in which the Petroleum Exporting conglomerate penciled in a fourth downside revision to its global oil demand outlook for 2025. Markets took it as calling out the obvious, and Crude Oil is facing selling pressure again this Wednesday.
The US Dollar Index (DXY), which tracks the performance of the Greenback against six other currencies, is steady after having ticked higher earlier on Wednesday. The main focus is on the Consumer Price Index (CPI) release for October. An uptick in inflation would diminish the possibility of an interest-rate cut in December, just a day after Minneapolis Fed President Neel Kashakari warned markets that the December rate cut is not a given at all.
At the time of writing, Crude Oil (WTI) trades at $68.50 and Brent Crude at $72.25.
Crude Oil prices are unable to catch a break and remain facing substantial selling pressure. The fact that OPEC has revised its demand outlook for a fourth time is really not moving the needle at all for Oil prices as long as nothing fundamentally changes in terms of supply and demand. Treat brief geopolitical elements as blips on the radar as the overall trend sees Crude Oil prices sliding lower in the longer term.
On the upside, The 55-day Simple Moving Average (SMA) at $70.40 is the first to be considered before the hefty technical level at $73.72, with the 100-day Simple Moving Average (SMA) and a few pivotal lines. The 200-day SMA at $76.71 is still quite far off, although it could get tested in case tensions in the Middle East arise.
Traders need to look much lower, towards $67.12 – a level that held the price in May and June 2023 – to find the first support. In case that level breaks, the 2024 year-to-date low emerges at $64.75, followed by $64.38, the low from 2023.
US WTI Crude Oil: Daily Chart
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
The EUR/CAD pair discovers temporary support near the round-level support of 1.4800 in European trading hours on Wednesday. The asset finds an interim cushion. However, the downside bias remains intact as US President-elected Donald Trump’s tariff policies are expected to result in a trade war between the Eurozone and the United States administration.
In the election campaign, Trump vowed to raise tariffs by 10% universally and mentioned that the Euro (EUR) bloc would "pay a big price" for not buying enough American exports. The impact is seen denting German’s output by 1%, which is Eurozone’s largest nation, according to European Central Bank (ECB) policymaker and President of the Bundesbank Joachin Nagel.
On Tuesday, Governing Council Member and Bank of Finland Governor Olli Rehn suggested that Europe should position itself better for Trump’s administration at a conference in London. On the interest rate outlook, Rehn said the central bank is heading towards the neutral rate and is seen reaching by the first half of the next year but the pace will be dependent on the overall assessment of dynamic factors at each meeting.
"Current market data and simple maths seem to imply that we would leave restrictive territory sometime in the spring/winter next year 2025," Rehn said, Reuters reported.
Meanwhile, the Canadian Dollar (CAD) has been underpinned by market participants against the Euro for the past few weeks but its own outlook against other major currencies is downbeat as the Bank of Canada (BoC) is expected to cut interest rates again by 50 basis points (bps) to 3.25% in the December meeting.
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Growth & inflation tariff impact to drive Fed-ECB divergence. Growth and inflation forecasts in light of the US election result last week are being updated, ABN AMRO’s macro analysts note.
“While the election count has not fully concluded, the Republican party looks on course to win a House majority, to accompany the presidency and the Senate majority. By controlling all three branches of government, president Trump therefore has significant power to enact his policy platform.”
“It remains highly uncertain how far Trump will go with his tariff plans, and so there is naturally high uncertainty around our new forecasts. But broadly speaking, the main outcomes of the plans are likely to be: 1) much lower eurozone growth and inflation than in our prior baseline. 2) significantly higher US inflation, and (ultimately) lower growth.”
“This combination is likely to mean fewer interest rate cuts by the Fed, but more rate cuts by the ECB; this will in turn continue to weigh on the euro, which has already weakened significantly in recent weeks as markets moved to price in a Trump victory.”
USD/CNH traded higher but eased post CNY fix. Pair was last at 7.2236, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
“CNY fix came in much stronger than expected this morning – ‘conveys’ a message that recent spot USD/CNH move may be coming close to testing policymakers' threshold of tolerance for CNH weakness. On one hand, it may serve as a deterrence against further weakening in RMB but on the other, trump trade momentum may mean that USD/CNH remains better bid on dips.”
“Given a strong USD trend, policymakers can only slow pace of RMB depreciation at best. For USD/CNH to reverse trend, the USD needs to ease.”
“Bullish momentum on daily chart intact while RSI is near overbought conditions. Resistance at 7.25, 7.2750 levels. Support at 7.22, 7.20 (200 DMA).”
The Euro (EUR) continued to trade lower amid political uncertainties in Germany. Minority government faces economic and diplomatic challenges. EUR was last seen at 1.0612 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
“PM Scholz is seeking confidence vote earlier on 16 Dec instead of 15 Jan – but is expected to lose. Snap elections likely planned for 23 Feb. Elsewhere, EUR is likely to bear the brunt of the US election outcome. Trump presidency will result in shifts in US foreign, trade policies.”
“The potential 20% tariff (if implemented) can hurt Europe where growth is already slowing, and that US is EU’s top export destination. EU-UST yield differentials have already widened and may widen further as markets speculate on a dovish ECB, with chatters of 50bp cut at Dec meeting.”
“Daily momentum is bearish while RSI fell. Support at 1.06 levels (2024 low). Breach below this support will open way for further downside towards 1.0450/1.05 levels. Resistance at 1.0740 (76.4% fibo), 1.0810/30 levels (21 DMA, 61.8% fibo retracement of 2024 low to high).”
The US Dollar (USD) continued its march higher. As Trump nomination started to make its way to newswires, markets are also starting to adjust their expectations, believing that Trump may hit the ground running in Jan 2025, unlike in 2016 when he was less prepared. DXY was last at 105.95 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
This is helping to lend a boost to Trump trade (i.e. long USD, short CNH). Elsewhere, USD’s move higher was also likely in anticipation of Fedspeaks (Powell speaks on Fri morning), US data (CPI tonight and PPI tomorrow). Consensus expects core CPI to hold steady at 3.3% while headline CPI may come in higher at 2.6%. The uptick may raise doubts if Fed will still cut rates in Dec, adding to USD upward pressure.
“Tariff risk and Trump policy uncertainty may continue to keep USD supported on dips. Daily momentum is bullish while RSI rose. Near term risks skewed to the upside. Resistance here at 106.20, 106.50 levels (2024 high). Support at 104.60 (61.8% fibo), 103.70/80 levels (200 DMAs, 50% fibo retracement of 2023 high to 2024 low).”
The USD’s post-election strength has been driven by widening US bond yield differentials against its counterparts because of US inflation worries over Trump’s plans for blanket tariffs, mass deportation of illegal immigrants, and tax cuts, DBS’ Senior FX Strategist Philip Wee notes.
“The US Treasury 10Y yield rose by 12.3 bps to 4.43%, fully retracing its third quarter’s decline despite the two Fed cuts in September and November. The S&P 500 Index retreated for the first time in six sessions from profit-taking.”
“The index fell by 0.3% to 5984 overnight after hitting the psychological 6000 level on Monday, driven by rising US Treasury yields after the bond markets returned from the Veteran’s Day holiday.”
“With the futures market pulling back more than 100 bps of next year’s Fed cuts since mid-September, let’s see if investors start to worry about economic growth hopes baked into equities from Trump’s policies. Be alert to profit-taking risks in Bitcoin after this month’s surge to 90k.”
The AUD/USD pair trades in a tight range near a three month-low, slightly above 0.6500 in the European trading session on Wednesday. The Aussie pair turns sideways as investors await the United States (US) Consumer Price Index (CPI) data for October, which will be published at 13:30 GMT.
According to the estimates, the headline inflation accelerated to 2.6% from 2.4% in September on year-on-year. In the same period, the core CPI – which strips off volatile food and energy prices – is estimated to have grown steadily by 3.3%. On month, headline and core inflation are expected to have risen at a steady pace of 0.2% and 0.3%, respectively. Investors will pay close attention to the inflation to get cues on the Federal Reserve’s (Fed) likely interest rate action in the December meeting.
The inflation data has regained its mojo lately as investors worry that the United States (US) inflation could rebound again, with a high probability that President-elected Donald Trump could raise import tariffs by 10% and lower corporate taxes in this administration.
On Tuesday, the comments from former Fed official Loretta Mester at the UBS European Conference in London indicated that she agreed with market expectations of fewer rate cuts in 2025 due to a potential tariff hike by Donald Trump. "The market is right," she remarked, "they're probably not going to have as many cuts next year as was assumed or expected in September," CNBC said, Reuters reported.
Meanwhile, the Australian Dollar (AUD) struggles to gain ground despite firm expectations that the Reserve Bank of Australia (RBA) will not start reducing interest rates this year. The RBA still sees upside risks to price pressures with labor market remaining steady. To get cues about the current labor market status, investors will focus on the Employment data for October, which will be published on Thursday. The Unemployment Rate is estimated to have remained steady at 4.1%. The Australian economy is expected to have added 25K new workers, lower than 64.1K in September.
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Next release: Wed Nov 13, 2024 13:30
Frequency: Monthly
Consensus: 3.3%
Previous: 3.3%
Source: US Bureau of Labor Statistics
The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.
The Dollar Index (DXY) powered higher for a third session to 106, fully retracing its third-quarter decline, DBS’ Senior FX Strategist Philip Wee notes.
“Several exchange rates in the DXY basket are near critical levels. EUR/USD bounced off April’s low of 1.06 overnight. GBP/USD fell below 1.28 to 1.2748, near August’s low of 1.2665.”
“The weaker European currencies pushed USD/CHF above 0.88 this week for the first time since late July. USD/JPY is near the psychological 155 level. USD/CAD’s rise stalled at a new year’s high of around 1.3970 this month.”
“Per the 14-day RSI, DXY appears overbought, and many currencies oversold from the Trump Trade.”
EUR/USD extends its losing spell for the fourth trading day and touches a fresh year-to-date (YTD) low of 1.0592 during the European session on Wednesday amid caution ahead of the United States (US) Consumer Price Index (CPI) data for October, which will be published at 13:30 GMT.
The CPI report is expected to show that the annual headline inflation accelerated to 2.6% from 2.4% in September. The core CPI – which excludes volatile food and energy prices – rose steadily by 3.3%.
The inflation data will influence market expectations for the Federal Reserve’s (Fed) likely monetary policy action in December. The Fed is expected to cut interest rates again by 25 basis points (bps) to 4.25%-4.50% next month, according to the CME FedWatch tool. However, the likelihood has eased to 62% from 70% a week ago. Market expectations for a Fed interest rate cut in December have lately slightly faded as investors expect that the United States (US) economic outlook will improve and price pressures will escalate under President-elect Donald Trump’s administration.
Trump vowed to raise import tariffs by 10% and lower corporate taxes in his election campaign. This move will increase demand for domestic goods and boost labor demand and business investment, eventually prompting inflationary pressures and forcing the Fed to follow a more gradual rate-cut cycle.
On Tuesday, Minneapolis Federal Reserve Bank President Neel Kashkari cautioned at a Yahoo! Finance event, "If inflation surprises to the upside before December, that might give us pause.” Kashkari added that the monetary policy is "modestly restrictive right now," and expects economic growth to persist.
In Wednesday’s session, investors will also focus on speeches from a slew of Fed officials for fresh guidance on interest rates.
EUR/USD hovers near the fresh year-to-date low around 1.0600 in European trading hours on Wednesday. The major currency pair is expected to face more downside, with the 20-day Exponential Moving Average (EMA) turning vertically south near 1.0800.
The return of the 14-day Relative Strength Index (RSI) in the range of 20.00-40.00 indicates bearish momentum gaining traction and adds to evidence of more downside.
Looking down, the pair could decline to near the psychological support of 1.0500 after breaking below 1.0600. On the flip side, the round-level resistance of 1.0700 will be the key barrier for the Euro bulls.
(The story was corrected at 10:30 GMT to say in the first bullet of daily digest market movers that "The Euro is downbeat due to multiple headwinds not tailwinds")
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The US Dollar (USD) is likely to trade in a range between 7.2200 and 7.2500. In the longer run, the level to monitor now is 7.2800; the next resistance above 7.2800 is at 7.3115, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.
24-HOUR VIEW: “The following are the excerpts from our update yesterday, when USD was at 7.2240: ‘There has been a tentative slowdown in momentum. However, provided that USD remains above 7.2000 (minor support is at 7.2090), it could edge higher, and possibly test the major resistance at 7.2400 before a more sizeable and sustained pullback is likely.’ While our view of a stronger USD was correct, we underestimated its strength, as it soared to 7.2559 before easing off to 7.2440 (+0.23%). The rapid rise is deep in overbought territory, but there is no sign of a pullback just yet. Overall, it appears that USD is likely to trade in a range today, probably between 7.2200 and 7.2500.”
1-3 WEEKS VIEW: “We turned positive in USD last Thursday (07 Nov, spot at 7.2020), indicating that ‘The level to watch on the upside is 7.2400.’ Yesterday (12 Nov, spot at 7.2240), we indicated the following: ‘To continue to rise in a sustained manner, USD must break clearly above 7.2400. The likelihood of USD breaking clearly above 7.2400 will increase in the next few days, provided that 7.1720 (‘strong support’ previously at 7.1400) is not breached. Looking ahead, the next level to monitor above 7.2400 is 7.2800.’ USD subsequently soared to 7.2559. As indicated, the level to monitor now is 7.2800. Looking ahead, the next resistance above 7.2800 is 7.3115. The ‘strong support’ level has moved higher to 7.2000 from 7.1720.”
Of course, the US election and the increased likelihood of high US tariffs do not only affect the G10 currencies. Emerging markets are also likely to suffer from the US trade policy, especially Mexico. Nevertheless, the initial reaction of Latin American currencies to the result was somewhat surprising. Although the peso depreciated on election night, the weakness did not last long. In fact, the peso ended Wednesday higher, Commerzbank’s FX analyst Michael Pfister notes.
“At the time, I thought this was a very surprising reaction and the reasons given by some analysts, such as profit-taking, did not seem very convincing. Since then, the picture has changed significantly, with the peso again depreciating sharply and USD/MXN targeting levels towards 21, which is above our latest forecasts. Despite this development, we still believe that the risks for USD/MXN are to the upside.”
“In addition to Mexico-specific reasons, the risks associated with the new Trump administration clearly support this view. We see the peso as one of the main losers from this election. This is because Mexico exports almost all of its goods to the US. If Trump follows through with his trade policies, Mexico is likely to be one of the biggest losers, even more than the euro area and other European countries. This is because these are much more diversified in terms of their trade flows. In short, the coming months are unlikely to bring many positive developments for the peso.”
“The situation in Brazil is somewhat different. The Brazilian economy is one of the few that can keep pace with the very strong US growth. Given this robust economy, the central bank is even raising interest rates again, further improving the carry versus the peso. In addition, the spillover from tariffs is likely to be smaller than in Mexico. After all, Brazil exports a much smaller share of its exports to the US. Fiscal risks remain the main factor holding back the BRL, although there are anecdotal signs that progress is being made here as well. We therefore continue to believe that the Brazilian real should be better positioned than the peso in the coming weeks.”
The US Dollar (USD) is likely to continue to rise, potentially reaching 155.45. The major resistance at 156.00 is unlikely to come into view. In the longer run, increase in momentum suggests further USD strength towards 156.00, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.
24-HOUR VIEW: “The strong surge that sent USD soaring to 154.92 was surprising (we were expecting range trading). Not surprisingly, upward momentum is robust. Today, USD is likely to continue to rise, potentially reaching 155.45. The major resistance at 156.00 is unlikely to come into view for now. On the downside, any pullback is likely to stay above 154.00, with minor support at 154.35.”
1-3 WEEKS VIEW: “We indicated two days ago (11 Nov, spot at 152.80), that the recent “upward momentum has eased.” We expected USD to trade in a 151.30/154.70 range. We did not expect the momentum to rebuild so quickly, as USD soared and broke above 154.70 (high has been 154.92). The increase in momentum suggests further USD strength towards 156.00. To keep the momentum going, USD must remain above the ‘strong support’ level, currently at 153.35.”
The Turkish lira exchange rate has mildly depreciated against the US dollar in recent days, but not noticeably so. This is all the more impressive because the dollar itself has been rallying, which has put most emerging market currencies in the region – eastern European currencies in particular – on the backfoot. The steadiness of the lira is pertinent because policymakers have taken pains to highlight Turkey’s improving current-account fundamentals in recent months, and there is an implication that this must help the exchange rate, Commerzbank’s FX analyst Tatha Ghose notes.
“At the same time, we must not forget that just a quarter ago, we were hearing a lot in the media about large capital inflows into Turkey, driven by optimism about the new policy setup – this was supposedly helping the lira at that time, but we are not hearing much about that these days. The figure below recapitulates the actual data on these issues. The current-account balance, in seasonally-adjusted terms, has indeed been averaging better in recent months.”
“But it is worth remembering that the current-account balance also recorded surpluses historically when the economy had to slow down. At present, presumably it is higher interest rates which are beginning to have their desired contractionary effect. The ongoing improvement is encouraging alright, but not yet massive by comparison. Historically, the problem always proved to be sustainability – the current-account improvement was driven by an economic downturn, and policymakers were inevitably reluctant to accept the downturn for very long.”
“If the economy incurs a narrower current account deficit, it needs to import less foreign capital. In this sense, the drop-off in inflow is consistent with the current-account surplus, and should not be a source of concern. But there is one difference. On certain rare occasions, both current and capital accounts can move positively together – which constitutes a disequilibrium by definition – the country’s FX reserves would rise at this time and the currency is likely to appreciate.”
The market has almost ignored the inflation numbers over the last two days within the Central and Eastern Europe (CEE) region and the global story seems to be in the spotlight still, ING’s FX analyst Frantisek Taborsky notes.
“Today will not be much different. The calendar offers current account numbers for September in Poland, the Czech Republic and Romania. Those produced a positive surprise last month in the Czech Republic and a negative one in Poland, which the market could watch this time around to see if it was a one-off or a trend reversal.”
“However, the main story remains the declining EUR/USD which should keep pressure on the CEE currencies. We remain bearish here. If anything we see PLN outperforming the region but perhaps later rather than sooner, however yesterday EUR/PLN bounced off 4.360 which seems like a key level.”
“While HUF seems like a separate story now PLN/CZK may get the market's attention given the bounce back from 5.800 which seems like a limit to PLN's weakness here and could get some support.”
The New Zealand Dollar (NZD) is likely to trade with a downward bias towards 0.5900; a sustained break below this level is unlikely. In the longer run, risk for NZD appears to have shifted to the downside; it is too early to tell if the major support at 0.5850 is within reach, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.
24-HOUR VIEW: “Our view for NZD to trade in a range between 0.5945 and 0.5985 yesterday was incorrect, as it dropped to 0.5911. NZD closed lower by 0.63% at 0.5927. There has been a slight increase in momentum, and NZD is likely to trade with a downward bias towards 0.5900 today. As conditions are approaching oversold levels, a sustained break below 0.5900 is unlikely. Resistance levels are at 0.5940 and 0.5955.”
1-3 WEEKS VIEW: “We highlighted on Monday (11 Nov, spot at 0.5965) that ‘The outlook is unclear after the sharp but short-lived swings.’ We were of the view that NZD ‘could trade in a broad range of 0.5915/0.6045 for now.’ Yesterday, NZD dipped slightly below 0.5915, reaching a low of 0.5911. Despite the slight increase in momentum, the risk for NZD appears to have shifted to the downside. However, it is too early to tell if the major support at 0.5850 is within reach. Note that there is another support at 0.5880. To maintain the buildup in momentum, NZD must remain below the ‘strong resistance’ level, currently at 0.5975.”
The main event in sterling markets today is a speech by Bank of England’s Catherine Mann, the most hawkish member of the MPC, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.
“Markets will be attentive to any comments about the implications of the recent budget for monetary policy and any colour on the latest jobs/wage figures. Given her arch-hawkish stance, we suspect she could stress – if anything – the inflationary aspect of the government’s spending boost and perhaps focus more on the sticky wage figure rather than the rise in the unemployment rate in September.”
“Ultimately, the GBP curve does not need many more hawkish hints to move at this stage. Markets are pricing little to no chance of a cut in December, and only 50bp in total by September 2025. In our view, the risks remain skewed towards a dovish repricing and consequent negative impact on sterling, although a repricing lower in rates may take some time to materialise as markets will tread carefully when assessing the inflationary implications of the budget.”
“The soft momentum for the EUR means EUR/GBP could remain close to the 0.8300 gravity line.”
Silver prices (XAG/USD) extends gains for the second consecutive day, trading around $30.90 per troy ounce during the European session on Wednesday. Silver prices gain momentum as traders seem to adjust their positions ahead of a crucial US inflation report, which could shape expectations for potential Federal Reserve interest rate cuts.
Softer-than-expected US CPI data could strengthen expectations for steady rate reductions by the Fed, likely increasing demand for non-interest-bearing precious metals like silver. However, the headline Consumer Price Index (CPI) is projected to show a 2.6% year-over-year increase for October, compared to the previous 2.4% reading. Meanwhile, core CPI is expected to rise by 3.3%.
However, the price of the dollar-denominated Silver remains under pressure from a strengthening US Dollar (USD), fueled by expectations of fiscal expansion and inflationary policies under the potential Trump administration. A stronger USD makes Silver more expensive for buyers holding foreign currencies, which negatively impacts the commodity's demand.
The implementation of Trump’s proposed policies could lead to increased investment, spending, and labor demand, heightening inflation risks. This scenario may prompt the Federal Reserve (Fed) to adopt a more restrictive monetary policy stance.
Weak economic data from China, combined with the absence of direct economic stimulus, has heightened concerns about demand in the world’s largest manufacturing hub. Silver is also under pressure due to its significant use in electrification, especially in solar panels.
Meanwhile, Chinese-owned solar panel manufacturers are reducing production, partly due to fears that a potential victory by Trump in the upcoming US election could result in higher tariffs on the industry. Morgan Stanley has forecast that the Trump administration might impose immediate tariffs of up to 60% on Chinese imports.
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
The Australian Dollar (AUD) is under mild downward pressure; it could drift lower, but a sustained break below 0.6500 appears unlikely. In the longer run, there has been a tentative buildup in momentum; to decline in a sustained manner, AUD must break and remain below 0.6500, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.
24-HOUR VIEW: “We expected AUD to trade in a 0.6555/0.6595 range yesterday. Our view was incorrect, as instead of trading in a range, AUD dropped to 0.6515, closing on a soft note at 0.6532 (-0.64%). Despite the decline, downward momentum has not increased much. However, provided that 0.6560 (minor resistance is at 0.6545) is not breached, AUD could drift lower to 0.6500. Due to the mild momentum, a sustained break below 0.6500 appears unlikely.”
1-3 WEEKS VIEW: “Our most recent narrative was from Monday (11 Nov, spot at 0.6585), wherein the recent pronounced but short-lived price movements have resulted in a mixed outlook. We indicated that AUD ‘could continue to trade in a choppy manner, likely between 0.6515 and 0.6690.’ Yesterday, AUD tested the lower end of our expected range, touching a low of 0.6515. There has been a tentative buildup in momentum, but it is too early to determine whether it is sufficient for a sustained decline. To decline in a decisive manner, AUD must break and remain below 0.6500. The likelihood of AUD breaking clearly below 0.6500 will increase in the coming few days, provided that 0.6600 is not breached. Looking ahead, the next support below 0.6500 is at 0.6460.”
EUR/USD has remained under intense pressure from a broad USD rally and may well make a move below 1.06 today if the US core CPI comes in at 0.3% MoM, ING’s FX analyst Francesco Pesole notes.
“Despite the size of the recent EUR/USD drop, we must note that 1.060 is the short-term fair value level implied by short-term rate differentials. The USD:EUR two-year swap rate gap has continued to widen rapidly, and is currently around 185bp.”
“In other words, there is not much additional risk premium being added to EUR/USD compared to what rates are suggesting, as markets are doubling down on expectations that the ECB will slash rates more than the Fed ahead of the tariff impact on growth. We are, by all means, in the dovish camp with our ECB call, and actually think markets are still underpricing (30bp) the chances of a 50bp cut in December.”
“The eurozone calendar is quite quiet today and US news will drive EUR/USD. A stretched positioning argues for some short-term upward correction in the pair, but as per the USD section above, we don’t expect this to happen today given a still-hot US CPI. Regardless of short-term adjustments, the direction of travel is bearish for EUR/USD, in our view, and we target 1.04 for year-end.”
The EUR/JPY cross builds on the overnight bounce from the vicinity of the 163.25-163.20 horizontal support, or the weekly low and gains some follow-through traction on Wednesday. This marks the third day of a positive move and lifts spot prices to the top end of the weekly range, around the 164.60-164.65 region during the first half of the European session.
The uncertainty over the Bank of Japan's (BoJ) rate-hike plans is seen undermining the Japanese Yen (JPY) and turning out to be a key factor acting as a tailwind for the EUR/JPY cross. That said, speculations that Japanese authorities will intervene in the FX market to prop up the domestic currency, along with a weaker risk tone, should limit losses for the safe-haven JPY. Furthermore, a political crisis in Germany – the Eurozone's largest economy – continues to weigh on the shared currency and should cap gains for the currency pair.
Moreover, neutral oscillators on the daily chart warrant some caution for bulls and suggest that any subsequent move up is more likely to face stiff resistance near the 165.00 psychological mark, or the 200-day Simple Moving Average (SMA). A sustained move beyond should lift the EUR/JPY cross towards the 165.45 hurdle en route to the 165.90-166.00 supply zone. This is followed by a multi-year peak, around the 166.65-166.70 area touched in October, which if cleared should pave the way for the resumption of a two-month-old uptrend.
On the flip side, the 164.00 round figure now seems to protect the immediate downside ahead of the 163.25-163.20 horizontal support. A convincing break below the latter might prompt some technical selling and drag the EUR/JPY cross below the 163.00 mark, towards testing the next relevant support near the 162.50-162.45 region. The corrective decline could extend further towards the 50-day SMA, currently pegged near the 162.00-161.95 zone.
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
The Pound Sterling (GBP) is expected to continue to decline, but it remains to be seen if the major support at 1.2665 is within reach today. Un the longer run, downward momentum has surged; the next technical target is at 1.2665, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.
24-HOUR VIEW: “GBP fell to a low of 1.2858 on Monday. When GBP was trading at 1.2870 yesterday, we pointed out that ‘there is scope for GBP to drop to 1.2835.’ We also pointed out that ‘the major support at 1.2800 is unlikely to come under threat.’ The sudden surge in downward momentum was surprising, as GBP broke below 1.2800 and plunged to 1.2719. GBP closed sharply lower by 0.96% at 1.2747. The impulsive downward momentum is likely to outweigh the deeply oversold conditions. In other words, GBP is expected to continue to decline, but it remains to be seen if the major support at 1.2665 (low in early August) is within reach today. On the upside, any rebound is likely to remain below 1.2810 with minor resistance at 1.2760.”
1-3 WEEKS VIEW: “Yesterday (12 Nov, spot at 1.2870), we highlighted that the ‘Slight buildup in momentum indicates GBP is likely to edge lower.’ We also highlighted that ‘the 1.2800 level is expected to provide significant support.’ The anticipated support at 1.2800 did not materialise as GBP plunged through this level and reached 1.2719. Downward momentum has surged as well. The next technical target is at 1.2665, the low in early August. We will continue to expect GBP to weaken as long as 1.2845 (‘strong resistance’ level was at 1.2975 yesterday) is not breached.”
The Mexican Peso (MXN) stabilizes on Wednesday after a three-day run of weakness spurred by a mixture of investor fears about the impact of President-elect Donald Trump’s trade and immigration agenda on Mexico, a generally risk-off tone to markets outside of the United States (US) (which tends to impact the risk-sensitive Peso disproportionately), and expectations that the Bank of Mexico (Banxico) will cut its main interest rate by 25 basis points (bps) (0.25%) at its up-and-coming meeting on Thursday. Lower interest rates are generally negative for a currency as they reduce foreign capital inflows.
The Mexican Peso has depreciated as markets price in the impact of Donald Trump’s proposed policy agenda on the Mexican economy. Trump is expected to implement high tariffs on Mexican goods entering the US, especially Chinese electric vehicles that are manufactured across the border in Mexico. The appointment of Mike Waltz as National Security Advisor and Marco Rubio as Secretary of State in the US are particularly bad signs from this perspective because of their known tough stance on China. Tariffs are expected to reduce demand for foreign imports, which in turn is likely to lower demand for the Mexican Peso too.
The new Mexican government’s reforms to the judiciary also contravene the conditions of the existing free trade agreement between the US, Mexico and Canada, the USMCA. This could give Trump the opportunity to demand a renegotiation before the agreement officially expires in 2026, making the threat of tariffs more immediate.
Trump’s plan to deport millions of illegal immigrants, many of whom are probably Mexican, is another potentially negative factor for the Peso since demand from workers in the US sending remittances home to Mexico is a key driver of the currency.
The policy has also already drawn criticism from Mexico’s President Claudia Sheinbaum, who said the US needed immigrants for its economy and that “We will always defend Mexicans on the other side of the border.”
The increasing likelihood that the Republican party will win a majority in the US Congress, allowing them free reign to implement Trump’s radical policies after winning the Senate, might also impact MXN. The final seats are still being called, but as things stand, the Republican party has won 216 to the Democratic party’s 207 seats, with only 12 outstanding, according to the Associated Press. The threshold for a majority is 218.
According to forecasts by El Financiero, a Republican majority in Congress with Trump as President could lead the Peso to weaken even further against the USD. In such a scenario, they estimate a band of between 21.14 and 22.26 for USD/MXN.
USD/MXN rallies for three consecutive days after finding a floor at the base of a rising channel. It appears to have renewed its short-term uptrend, and given the technical analysis saying that “the trend is your friend,” the odds favor a continuation higher.
Further, USD/MXN is also in an uptrend on a medium and long-term basis, adding weight to the move higher. A break above 20.80 (November 6 high) would confirm a higher high and an extension of the bullish trend. The next upside target lies at 21.00 (round number, psychological support), where buyers could start to meet resistance.
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
The second round of post-election Trump trades has now taken the Dollar Index (DXY) to the 2022 highs as markets sink their teeth into the dual narrative of a wider rate and growth gap between the US and other developed countries. The latest news on the government appointment side is that Elon Musk and Vivek Ramaswamy will lead a ‘department of government efficiency’, which aims to slash bureaucracy and spending. It is too early to tell what this will effectively mean for public finances, but this confirms that Musk will play a key advisory role in the Trump administration, which likely fuels expectations for de-regulation and looser taxation, ING’s FX analyst Francesco Pesole notes.
“The strong USD is currently pricing in a good deal of Trump’s policy mix, and data releases/dovish Fed comments might offer good opportunities to take profit in bullish dollar positions. However, our house view for today’s US inflation report is that core CPI kept rising at a consensus 0.3% MoM in October, and headline CPI at 0.2%. This is above the 0.17%MoM rate that needs to be averaged over time to hit the 2% inflation target, and should keep markets on the dovish side of the pricing for the Fed.”
“Still, pricing is already quite cautious on further Fed easing, with only 15bp priced in for December and 23bp by January. This means there is probably an asymmetric downside risk for the dollar today in case of a slightly lower-than-expected core CPI print. There are also a few Fed speakers to monitor today: Kashkari, Williams, Musalem and Schmid.”
“If we are right with our CPI call, then the dollar rally could find a bit more steam and DXY consolidate above 106. Nevertheless, the recent bullish move is starting to look a bit stretched, and the risk of a positioning-led short-term USD correction similar to the 7 November one is quite high.”
Barring a break above 1.0660, EUR could decline further to 1.0585 before stabilisation can be expected. In the longer run, downward momentum remains strong; the focus is on 1.0555. The next technical objective below 1.0555 is at 1.0500, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.
24-HOUR VIEW: “Yesterday, when EUR was at 1.0655, we highlighted that it ‘could decline further, but the major support at 1.0600 could be just out of reach.’ Our view of a lower EUR was correct, even though it fell more than expected to 1.0594, recovering to close at 1.0623 (-0.29%). Not surprisingly, after dropping sharply over the past few days, conditions are deeply oversold. However, the weakness has not stabilised. Today, barring a break above 1.0660 (minor resistance is at 1.0640), EUR could decline further to 1.0585 before stabilisation can be expected. This time around, the next major support at 1.0555 is likely out of reach.”
1-3 WEEKS VIEW: “Last Thursday (07 Nov, spot at 1.0730), we indicated that the steep selloff last Wednesday ‘suggests further EUR weakness’ and ‘the levels to watch are 1.0665 (low in Jun) and the year-to-date low of 1.0600 in April.’ Following a break below 1.0665 on Monday, we indicated yesterday (12 Nov, spot at 1.0655) that ‘We will continue to hold a negative EUR view as long as 1.0760 (‘strong resistance’ level) is not breached.’ We added, ‘if EUR breaks below 1.0600, the focus will shift to 1.0555.’ In NY trade, EUR broke below 1.0600 and reached 1.0594. While conditions are oversold, downward momentum remains strong. As indicated, the focus is now on 1.0555. On the upside, the ‘strong resistance’ level has moved lower to 1.0705 from 1.0760. Looking ahead, if EUR were to break below 1.0555, the next technical objective lies at 1.0500.”
AUD/JPY extends its gains for the third successive day, trading around 101.20 during European hours on Wednesday. The rise in the AUD/JPY pair is largely due to the weakened Japanese Yen (JPY), fueled by growing doubts over future rate hikes by the Bank of Japan (BoJ). Japan’s fragile minority government is expected to complicate any plans for tightening monetary policy.
On the data front, the BoJ’s preliminary report on Wednesday showed that Japan’s Producer Price Index (PPI) increased by 3.4% year-over-year in October, exceeding expected 3.0% and previous 3.1% readings. Meanwhile, the PPI rose by 0.2% month-over-month, surpassing the expected flat growth for the month.
Meanwhile, the BoJ’s Summary of Opinions from its October meeting highlighted division among policymakers regarding additional rate hikes. Nevertheless, the central bank maintained its outlook, suggesting it could raise its benchmark rate to 1% by the second half of fiscal 2025, amounting to a total policy tightening of 75 basis points from the current rate.
The Australian Dollar (AUD) gained support after a radio interview with Australia's Prime Minister (PM), Anthony Albanese. Albanese said that he discussed trade relations with US President-elect Donald Trump during a phone call last week. He informed Trump that the US has a trade surplus with Australia and stressed that it’s in Washington’s best interest to maintain "fair trade" with its ally.
On Wednesday, Australia’s Wage Price Index showed a 3.5% year-over-year rise in the third quarter, down from the 4.1% growth seen in the previous quarter and slightly below the anticipated 3.6% increase. This represents the slowest wage growth since Q4 2022. Meanwhile, the quarterly index remained steady at 0.8% in Q3, just under the expected 0.9%.
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
The Pound Sterling (GBP) consolidates in a tight range near a fresh three-month low around 1.2750 against the US Dollar (USD) in Wednesday’s London session. The GBP/USD pair trades quietly as investors await the United States (US) Consumer Price Index (CPI) data for October, which will be published at 13:30 GMT. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, clings to gains at around 106.00, the highest level seen in more than six months.
Economists expect the headline inflation to accelerate to 2.6% from 2.4% in September, with the core CPI – which excludes volatile food and energy prices – rising steadily by 3.3% year-on-year. The monthly headline and core CPI are estimated to have risen steadily by 0.2% and 0.3%, respectively.
The inflation data isn’t expected to significantly impact market expectations for the Federal Reserve’s (Fed) likely monetary policy action in the December meeting unless there is a sharp divergence from consensus. Recent commentary from a majority of Fed officials indicated that they are confident about the disinflation trend remaining on track to the bank’s target of 2%.
Still, Minneapolis Federal Reserve Bank President Neel Kashkari struck a cautious note on Tuesday at a Yahoo! Finance event. "If inflation surprises to the upside before December, that might give us pause,” he said. Kashkari added that the monetary policy is "modestly restrictive right now," and he expects economic growth to persist. When asked about the impact of President-elect Donald Trump’s policies on the inflation outlook, Kashkari said: “The tariff is a one-time increase in prices, that's not inflationary in itself.”
President-elect Donald Trump has vowed to raise import tariffs by 10% and lower corporate taxes in his election campaign.
According to the CME FedWatch tool, the probability for the Fed to reduce interest rates by 25 basis points (bps) to 4.25%-4.50% in December is 62%, down from 70% a week ago.
The Pound Sterling wobbles above the three-month low near 1.2700 against the US Dollar. The GBP/USD weakened sharply on Tuesday, breaking below the 200-day Exponential Moving Average (EMA), which trades around 1.2860. The overall trend of the Cable turned broadly negative after price action fell below the lower boundary of the rising channel, which set a bearish reversal.
A bearish momentum has kicked in with the 14-day Relative Strength Index (RSI) falling below 40.00.
Looking down, the August low at 1.2665 will be a major cushion for Pound Sterling bulls. On the upside, the Cable will face resistance near the psychological figure of 1.3000.
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The NZD/USD pair holds ground after registering losses in the previous session, trading around 0.5920 during European hours on Wednesday. The daily chart analysis shows a strong bearish trend, with the NZD/USD pair moving downwards within a descending channel.
The nine-day Exponential Moving Average (EMA) remains below the 14-day EMA, indicating continued weakness in short-term price momentum. Additionally, the 14-day Relative Strength Index (RSI), a key momentum indicator, is below the 50 mark, reflecting sustained bearish momentum. A further decline toward the 30 level would amplify this downward trend for the NZD/USD pair.
On the downside, the NZD/USD pair may find support around the psychological level of 0.5900. A break below this level could increase selling pressure, pushing the pair toward the lower boundary of the descending channel at 0.5860, with further throwback support at the psychological level of 0.5850.
In terms of resistance, the pair faces an immediate hurdle at the upper boundary of the descending channel near the nine-day EMA at 0.5961, followed by the 14-day EMA at 0.5977. A break above the 14-day EMA would strengthen price momentum, potentially enabling the NZD/USD pair to approach the psychological level of 0.6100.
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
European Central Bank (ECB) Governing Council member and Bank of France President François Villeroy de Galhau shed light on the central bank’s policy move on Wednesday.
Expect inflation to remain moderate in France.
Expect the French unemployment rate to go up to around 8% before then going back down to 7%.
Regarding france's public finances, that 'we really need to treat the illness'.
EUR/USD is trading 0.15% lower on the day at 1.0606, as of writing.
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
USD/CAD moves upwards for the fourth successive session, trading around 1.3960 during the early European hours on Wednesday. The primary factor contributing to the recent weakness in EUR/USD is the strength of the US Dollar (USD) amid optimism surrounding the Trump trades.
The implementation of US President-elect Donald Trump’s proposed fiscal policies could stimulate investment, increase government spending, and bolster labor demand. However, this surge in economic activity could also fuel inflation risks.
On Tuesday, Minneapolis Fed President Neel Kashkari affirmed that the central bank remains confident in its ongoing battle against transitory inflation but cautioned that it is still too early to declare full victory. Kashkari also noted that the Fed would refrain from modeling the economic impact of Trump’s policies until there is greater clarity on the specifics of those policies.
The decline in crude Oil prices continues to weaken the commodity-linked Canadian Dollar (CAD). Notably, Canada remains the largest Oil exporter to the United States (US). As of this writing, West Texas Intermediate (WTI) Oil trades near $68.00. Crude Oil prices fell after the Organization of the Petroleum Exporting Countries (OPEC) reduced its forecast for global Oil demand growth in 2024.
With a quiet economic calendar in Canada this week, the Loonie Dollar is taking a backseat to the Greenback. Traders are now turning their attention to the upcoming US inflation data release on Wednesday, which could provide more insight into future US policy.
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
The USD/CHF pair trades in positive territory for the fourth consecutive day around 0.8830 during the early European session on Wednesday. The rally in the US Dollar (USD) due to the Trump trades provides some support to the pair.
The Trump trades have underpinned the Greenback and US Treasury bond yields as markets expect the Federal Reserve (Fed) to slow the pace of future rate reduction. The markets have priced in nearly 62.4% of the 25 basis points (bps) rate cut by the Fed at the December meeting, down from 75% last week, according to the CME FedWatch Tool.
Market players will keep an eye on the key US Consumer Price Index (CPI) inflation data for October, which is due later on Wednesday. The headline CPI is estimated to rise 2.6% YoY in October, faster than the previous reading of a 2.4% increase. The core CPI is expected to remain at 3.3% YoY in October. Meanwhile, the monthly CPI and the core CPI are expected to show an increase of 0.2% and 0.3%, respectively.
A downside surprise in the US annual CPI inflation might diminish the expectations of a December Fed rate cut and could exert some selling pressure on the USD. On the other hand, the markets could push back against expectations for a rate cut in December on hotter-than-expected CPI readings, lifting the Greenback.
On the other hand, the safe-haven flows could boost the Swiss Franc (CHF) and might cap the upside for the pair. Traders will monitor the development surrounding increased uncertainty about the impact of likely tariffs in the upcoming Trump administration and the ongoing geopolitical tensions in the Middle East.
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
Here is what you need to know on Wednesday, November 13:
The Trump trades-inspired broader market rally takes a breather early Wednesday as the focus shifts back toward the economic data, anticipating the all-important US Consumer Price Index (CPI) report slated for release in American trading.
The US Dollar (USD) pauses its ongoing upsurge alongside the US Treasury bond yields as traders book profits on their long USD positions in the lead-up to the US inflation showdown. The data is critical to gauging the Federal Reserve’s (Fed) easing trajectory.
Markets are pricing in about a 62% chance of another 25 basis points (bps) interest rate cut in for December, down from around 83% a month ago, according to the CME Group's FedWatch Tool.
US President-elect Trump’s hardline policies on trade and lower taxes are seen as inflationary, calling for higher interest rates while supporting the Greenback across its major rivals.
Additionally, lingering China’s economic concerns and pre-US CPI nervousness keep traders on the edge, leaving major currencies gyrating in a narrow range.
USD/JPY is sitting at its highest level since July 30, near 155.00. The absence of Japanese verbal intervention and uncertainty over the Bank of Japan (BoJ) rate hikes amid the fragile minority government in Japan remains a drag on the domestic currency.
AUD/USD has entered a downside consolidation phase below 0.6550, with risk-off flows checking its recovery. NZD/USD struggles above 0.5900 as investors move away from risk assets. USD/CAD retakes 1.3950 amid subdued WTI oil prices.
EUR/USD falls back to test the 1.0600 support after hitting a yearly low at 1.0594 on Tuesday. German political uncertainty and policy divergence between the Fed and the European Central Bank (ECB) undermine the pair.
GBP/USD remains vulnerable near 1.2740, having stretched lower after the mixed UK labor data. BoE policymaker Catherine Mann’s speech is next in focus.
Gold holds a tepid bounce just above $2,600, within a touching distance of two-month lows. US CPI data and a bunch of Fed speakers are eagerly awaited for the next big move in the bright metal.
The EUR/AUD cross struggles to gain ground around 1.6250 on Wednesday during the early European session. The US proposed tariff increases on Chinese goods by US President-Elect Donald Trump undermine the China-proxy Australian Dollar (AUD) as Australia is one of China’s largest exporters.
According to the 4-hour chart, the bearish outlook of EUR/AUD remains intact as the cross holds below the key 100-period Exponential Moving Average (EMA). Furthermore, the downward momentum is supported by the Relative Strength Index (RSI), which stands below the midline near 46.50, suggesting that there could still be room for further downside in the near term.
The initial support level for the cross emerges near the lower limit of the Bollinger Band at 1.6183. Extended losses could see a drop to 1.6135, the low of October 18. The additional downside filter to watch is the 1.6100 psychological level.
On the upside, the upper boundary of the Bollinger Band near 1.6293 acts as an immediate resistance level for the price. The next hurdle is seen at 1.6322, the 100-day EMA. Any follow-through buying see a rally to 1.6500, round number.
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
FX option expiries for Nov 13 NY cut at 10:00 Eastern Time via DTCC can be found below.
EUR/USD: EUR amounts
USD/JPY: USD amounts
USD/CHF: USD amounts
EUR/GBP: EUR amounts
Gold price (XAU/USD) attracts some buyers during the Asian session on Wednesday and for now, seems to have snapped a three-day losing streak to its lowest level since September 20, around the $2,590-$2,589 region touched the previous day. The uptick lacks any obvious fundamental catalyst and could be attributed to some repositioning trade ahead of the US consumer inflation figures. The crucial data might influence expectations about the Federal Reserve's (Fed) rate-cut path and provide a fresh directional impetus to the non-yielding yellow metal.
Ahead of the key data risk, the US Dollar (USD) enters a bullish consolidation phase following the recent upsurge in its highest level since early May. This, along with fears that US President-elect Donald Trump’s protectionist tariffs will impact the global economy and a generally weaker tone around the equity markets, offers some support to the safe-haven Gold price. The upside for the XAU/USD, however, seems limited amid expectations that Trump's expansionary policies could boost inflation and restrict the Fed from easing its monetary policy aggressively.
From a technical perspective, the overnight resilience below the 38.2% Fibonacci retracement level of the June-October rally and the subsequent move-up warrants caution for bearish traders. That said, oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone. This, in turn, suggests that the path of least resistance for the Gold price is to the downside.
Hence, any subsequent move up could be seen as a selling opportunity and remain capped near the $2,630-2,632 resistance. That said, some follow-through buying could lift the Gold price to the next relevant hurdle near the $2,650-2,655 region, en route to the $2,670 level. This is followed by the $2,700 mark, which if cleared decisively will suggest that the recent corrective fall from the all-time peak has run its course.
On the flip side, bearish traders need to wait for acceptance below the $2,600 mark and the 38.2% Fibo. level before placing fresh bets. The subsequent fall might then drag the Gold price to the $2,540 confluence – comprising the 100-day Simple Moving Average (SMA) and the 50% Fibo. level. This could act as a strong near-term base for the XAU/USD, which if broken will be seen as a fresh trigger for bearish traders.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
The GBP/JPY cross attracts some dip-buying in the vicinity of the weekly low, around the 196.85-196.80 region, and reverses a part of the previous day's losses. Spot prices, however, remain confined in a familiar range and currently trade around the 197.30-197.35 area, up less than 0.15% for the day.
The Japanese Yen (JPY) continues with its relative underperformance amid the uncertainty about the Bank of Japan's (BoJ) rate-hike plans and turns out to be a key factor acting as a tailwind for the GBP/JPY cross. Investors now seem convinced that Japan's political landscape could make it difficult for the BoJ to tighten its monetary policy further. This, to a larger extent, overshadows a rise in Japan's Producer Price Index (PPI) by the highest annual rate since July 2023, reflecting sustained inflationary pressure.
However, speculations that Japanese authorities might intervene in the FX market to prop up the domestic currency and a softer risk tone help limit losses for the safe-haven JPY. The British Pound (GBP), on the other hand, struggles to gain any meaningful traction on the back of mixed UK employment details on Tuesday. This, in turn, might hold back traders from placing aggressive directional bets around the GBP/JPY cross, warranting some caution before positioning for any further appreciating move.
Market players now look forward to a scheduled speech from the Bank of England’s (BoE) Monetary Policy Committee external member Catherine Mann for some impetus. Apart from this, the broader risk sentiment might influence demand for the safe-haven JPY and contribute to producing short-term trading opportunities. Nevertheless, the mixed fundamental backdrop makes it prudent to wait for a sustained move in either direction to confirm the near-term trajectory for the GBP/JPY cross.
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
The EUR/USD pair remains under pressure on Wednesday, holding steady just above the 1.0600 level during Asian trading hours. This would mark the fourth consecutive day of losses for the Euro, as the pair continues to face downward momentum.
The primary factor contributing to the recent weakness in EUR/USD is the strength of the US Dollar (USD). The implementation of US President-elect Donald Trump’s proposed fiscal policies could stimulate investment, increase government spending, and bolster labor demand. However, this surge in economic activity could also fuel inflation risks.
On Tuesday, Minneapolis Fed President Neel Kashkari affirmed that the central bank remains confident in its ongoing battle against transitory inflation but cautioned that it is still too early to declare full victory. Kashkari also noted that the Fed would refrain from modeling the economic impact of Trump’s policies until there is greater clarity on the specifics of those policies.
Traders are now focused on the upcoming US inflation data release on Wednesday for further guidance on future US policy. The headline Consumer Price Index (CPI) is expected to show a 2.6% year-over-year increase for October, with the core CPI anticipated to rise by 3.3%.
The focus will shift toward Thursday’s pan-EU Gross Domestic Product (GDP) update, where the third-quarter GDP figure is expected to confirm the preliminary growth estimate of 0.4% QoQ. Meanwhile, the GDP is forecast to show a modest 0.9% growth year-over-year for Q3, signaling a lackluster economic performance in the region.
According to a recent paper from the London School of Economics and Political Science, implementing a 10% tariff on all imported goods, as advocated by Trump, could have a negative impact of 0.1% on the European Union's (EU) Gross Domestic Product (GDP). This potential economic slowdown in Europe could further dampen the Euro's performance against the US Dollar.
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The NZD/USD pair trades flat near 0.5930 during the Asian trading hours on Wednesday. However, the upside of the pair might be limited amid a strengthening of the US Dollar (USD). Traders brace for the US October Consumer Price Index (CPI) and Fedspeak later on Wednesday.
The expectation that inflationary import tariffs from Republican President-elect Donald Trump would push up prices and leave the Federal Reserve's (Fed) less scope to cut interest rates boosts the USD broadly. However, the attention will shift to the CPI inflation report. The core gauge is expected to rise 0.3% MoM in October. Any signs of hotter inflation could further reduce the chance of a December easing, lifting the Greenback. On the other hand, the softer outcome could prompt traders to raise their bets on Fed rate reductions in December.
"Focus is likely to shift back to inflation and Fed policy in the latter part of the week, but whether that brings an unwinding of Trump trades remains to be seen," noted Charu Chanana, chief investment strategist at Saxo.
The New Zealand Dollar (NZD) remains vulnerable as US President Donald Trump's trade policies, especially the specter of higher tariffs on China could weigh on the China-proxy NZD against the USD as China is a major trading partner for New Zealand.
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
GBP/USD extends its losing streak for the fourth successive session, trading around 1.2740 during the Asian hours on Wednesday. This downside of the pair is attributed to a stronger US Dollar (USD) amid optimism around the Trump trades.
The US Dollar strengthens as analysts pointed out that if Trump’s fiscal policies are implemented, they could boost investment, spending, and labor demand, potentially increasing inflation risks. This scenario could prompt the Federal Reserve (Fed) to adopt a more restrictive monetary policy stance.
Traders are now focused on the upcoming US inflation data release on Wednesday for further guidance on future US policy. The headline Consumer Price Index (CPI) is expected to show a 2.6% year-over-year increase for October, with the core CPI anticipated to rise by 3.3%.
The Pound Sterling (GBP) weakened following mixed UK labor market data. On Tuesday, employment figures indicated a softening labor market for the three months ending in September. The ILO Unemployment Rate increased to 4.3% from 4.0% in the previous period, surpassing the expected 4.1%. During the same period, Employment Change showed that UK employers added 219K new jobs, significantly lower than the previous release of 373K.
The Bank of England’s (BoE) latest Monetary Policy Report is set to be released on Wednesday, with investors keen to assess potential insights into how the BoE plans to navigate the UK's imbalanced economy amid ongoing inflation concerns.
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The EUR/CAD cross struggles to rebound from three consecutive days of losses, trading around the 1.4810 mark during the Asian hours on Wednesday. A technical analysis of a daily chart indicates a strong bearish momentum, with indicators suggesting that sellers are still firmly in control of the market. However, oversold conditions may be approaching, hinting at the possibility of a short-term correction.
On the daily chart, EUR/CAD is trading below the nine-day Exponential Moving Average (EMA), which has been serving as a dynamic resistance line over recent sessions. The nine-day EMA has also diverged below the 14-day EMA, creating a "bearish crossover" that reflects weakening short-term momentum and solidifying the pair’s downward trajectory.
The 14-day RSI, a popular tool for identifying overbought or oversold conditions, currently sits slightly above the 30 level. This placement signals sustained bearish momentum without fully confirming an oversold condition. Should the RSI drop below the critical 30 mark, traders may look for signs of an upward correction. A bounce from oversold conditions could bring the pair back toward the 1.4850-1.4900 range, where sellers may once again test the resilience of any recovery attempt.
On the downside, the 1.4800 mark is acting as a psychological level and could be the first line of defense if selling pressure continues. This level is often pivotal, as psychological levels can attract buying interest from traders hoping for a potential rebound.
If the EUR/CAD cross breaks below 1.4800, the next critical support lies at 1.4700. This level holds significant importance for technical traders, as it could either slow the decline or reinforce the bearish trend if broken decisively. A drop below this level could set the stage for EUR/CAD to approach its seven-month low at 1.4587.
On the upside, the EUR/CAD pair encounters its first hurdle around 1.4870, a level that previously served as support but has now turned into “pullback resistance.” A move above this “throwback” level could indicate that bullish sentiment is emerging, albeit cautiously, among market participants.
Should the EUR/CAD break above 1.4870, attention will shift to the nine-day EMA at 1.4918 and the 14-day EMA at 1.4949. Both levels represent dynamic resistance points and would need to be overcome for any meaningful bullish momentum to develop.
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The Consumer Price Index (CPI) inflation data from the United States (US) for October, published by the Bureau of Labor Statistics (BLS), is highly anticipated and slated for release on Wednesday at 13:30 GMT.
The US Dollar (USD) is set to rock on intense volatility likely to be spurred by the US inflation report, which could significantly impact the market’s pricing of the Federal Reserve (Fed) interest rate outlook for the coming months.
As measured by the CPI, inflation in the US is expected to increase at an annual rate of 2.6% in October, a tad higher than the 2.4% growth reported in September. The core annual CPI inflation, excluding volatile food and energy prices, will likely remain at 3.3% in the same period.
Meanwhile, the monthly CPI and the core CPI are forecast to rise 0.2% and 0.3%, respectively.
Previewing the October inflation report, TD Securities analysts said: “Inflation readings should remain somewhat firmer than the Fed would prefer in the near-term, reversing some recent improvement in the pace of price changes.”
“We look for headline CPI to rise 0.29% MoM while core inflation rises at a firmer 0.32% MoM pace. This will leave the annual pace of CPI edging up to 2.6% YoY for the headline and remaining steady at 3.3% YoY for core,” they added.
Following the November policy meeting, Fed Chairman Powell maintained that the central bank remains committed to its gradual easing path, adding that the outcome of the US presidential election won’t affect policy decisions in the near term. The Bank seemed determined to defend its independence from newly elected US President Donald Trump, as Powell clearly stated that he would not resign if asked to do so.
Trump’s policies on immigration, tax cuts and tariffs could put upward pressure on inflation, calling for higher interest rates and supporting the US Dollar. However, the impact of these policies on the economy and inflation are likely to be felt only in the medium to long term.
Thus, amidst softening labor market conditions and the progress in disinflation, the October inflation report will play a pivotal role in offering fresh hints on the Fed’s next policy move. Markets are pricing in a 67% probability that the Fed will lower rates by 25 bps in December, according to the CME Group’s FedWatch Tool, down from about 80% seen at the start of this month.
The labor data published by the BLS on November 1 showed that Nonfarm Payrolls (NFP) increased by 12,000 last month, following a downward revision to the prior two months. The Unemployment Rate held steady at 4.1% in October. Meanwhile, wage inflation, as measured by the change in the Average Hourly Earnings, rose to 4% over the year in October from 3.9% in September.
A big downside surprise in the US annual headline and core inflation prints could cement expectations of a December Fed rate cut. If the monthly core CPI comes in at 0% or enters negative territory, markets will likely double down bets for an aggressive Fed easing cycle and trigger a USD sell-off. On the other hand, Fed hawks would return and push back against expectations for a rate cut in December on hotter-than-expected CPI readings.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD and explains: “EUR/USD’s near-term technical picture points to a likely buyer exhaustion as the Relative Strength Index (RSI) indicator on the daily chart prods the oversold territory at 30.”
“EUR/USD could meet the initial demand area at the 1.0550 psychological level, below which the November 1, 2023, low of 1.0517 will be challenged. Additional declines will target the 1.0500 round figure. Conversely, interim resistance aligns at the November 11, 2024, high of 1.0728. If buyers recapture the latter sustainably, the next resistance at the 21-day Simple Moving Average (SMA) at 1.0810 will be tested.”
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Silver (XAG/USD) builds on the previous day's bounce from the $30.20-$30.15 area, or its lowest level since October 8 and gains some follow-through positive traction during the Asian session on Wednesday. The momentum lifts the white metal back closer to the $31.00 mark in the last hour, though the technical setup warrants some caution before positioning for any further gains.
Given that the XAG/USD showed resilience below the 100-day Simple Moving Average (SMA) on Tuesday, the recovery could be attributed to short-covering amid some repositioning ahead of the US inflation figures. That said, oscillators on the daily chart have been gaining negative traction and are still away from being in the oversold zone. This, in turn, suggests that any further move up could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.
The momentum, however, could extend further towards the next relevant hurdle near the $31.60-$31.65 region, though is more likely to remain capped near the $32.00 round figure. The latter should act as a key pivotal point, which if cleared decisively will indicate that the recent corrective slide from the vicinity of the $35.00 psychological mark, or a 12-year high touched in October has run its course. This would shift the bias in favor of bulls and pave the way for additional gains.
On the flip side, the $30.60 area, or the 50% Fibonacci retracement level of the August-October rally, now seems to protect the immediate downside. This is followed by over a one-month low, around the $30.20-$30.15 region touched on Tuesday and the $30.00 psychological mark. Acceptance below the latter will confirm a near-term breakdown below the 100-day SMA and make the XAG/USD vulnerable to accelerate the fall further towards the 61.8% Fibo. level, near the $29.65-$29.60 region.
The downward trajectory could extend further towards the $29.00 mark before the XAG/USD eventually drops to the next relevant support near the $28.75 region en route to the mid-$28.00s.
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
Raw materials | Closed | Change, % |
---|---|---|
Silver | 30.711 | 0.16 |
Gold | 259.817 | -0.88 |
Palladium | 945.37 | -3.83 |
The Japanese Yen (JPY) has hit a fresh low since July 30 against its American counterpart during the Asian session on Wednesday, albeit it managed to defend the 155.00 psychological mark. Despite a rise in Japanese producer prices in October, investors seem convinced that a fragile minority government in Japan could make it difficult for the Bank of Japan (BoJ) to hike interest rates again. Adding to this, worries that US President-elect Donald Trump's promised tariffs could significantly impact Japanese exports turn out to be a key factor undermining the JPY.
Furthermore, expectations that Trump's inflationary import tariffs could limit the scope for the Federal Reserve (Fed) to cut interest rates remain supportive of elevated US bond yields. This further seems to weigh on the lower-yielding JPY, which, along with a bullish US Dollar (USD) act as a tailwind for the USD/JPY pair. Meanwhile, the recent JPY fall raises the possibility of an intervention by Japanese authorities. This might hold back the JPY bears from placing fresh bets ahead of the release of the US consumer inflation figures later this Wednesday.
From a technical perspective, the USD/JPY pair continues with its struggle to make it through the 155.00 round figure. The said handle should now act as a key pivotal point, which if cleared decisively should pave the way for additional gains. Given that oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, spot prices might then surpass the July swing high, around the 155.20 area, and aim to reclaim the 156.00 mark. The momentum could extend further towards the 156.60 intermediate hurdle en route to the 156.90-157.00 region.
On the flip side, any meaningful corrective pullback now seems to find decent support near the 154.00 round figure ahead of the overnight swing low, around the 153.40 area. Any further decline could be seen as a buying opportunity near the 153.00 mark, which, in turn, should help limit losses for the USD/JPY pair near the 152.65-152.60 horizontal support. A convincing break below the latter could drag spot prices below the 152.00 mark and expose the very important 200-day Simple Moving Average (SMA) resistance breakpoint, around the 151.60-151.55 region. The latter should act as a strong near-term base, which if broken decisively might shift the bias in favor of bearish traders.
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
The Indian Rupee (INR) trades in negative territory on Wednesday after reaching a fresh all-time low in the previous session. The local currency is under pressure due to substantial foreign institutional outflows and heightened US Dollar (USD) demand.
Despite a strengthening Greenback and outflows from local stocks, the downside for the INR might be limited amid routine interventions from the Reserve Bank of India (RBI) to sell the USD to stabilize the currency. Later on Wednesday, traders will closely monitor the US October Consumer Price Index (CPI), along with the speeches from John Williams, Lorie Logan, Jeffrey Schmid and Alberto Musalem.
The Indian Rupee softens on the day. The constructive view of the USD/INR pair remains unchanged on the daily chart, with the price holding above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) exceeds 70, indicating an overbought condition. This suggests that further consolidation cannot be ruled out before positioning for any near-term USD/INR appreciation.
The immediate resistance level for USD/INR emerges at 84.50. A break above this level could draw in enough bullish pressure to the 85.00 psychological level.
In the bearish event, sustained trading below the resistance-turned-support level at 84.30 could expose the 84.05-84.10 region, representing the lower limit of the trend channel and the high of October 11. The next downside filter to watch is 83.85, the 100-day EMA.
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
The Australian Dollar (AUD) extends its losses against the US Dollar (USD) for the fourth successive day on Wednesday. The AUD/USD pair remains subdued after the release of the weaker-than-expected Australia’s Wage Price Index data. Additionally, the downward movement of the pair is bolstered by the optimism around the Trump trades.
The Reserve Bank of Australia (RBA) Governor Michele Bullock reaffirmed a hawkish stance after the interest rate hold last week, emphasizing the need for restrictive monetary policy amid ongoing inflation risks and a strong labor market. The hawkish sentiment surrounding the RBA might have restrained the downside of the Australian Dollar.
The US Dollar strengthened as analysts noted that if Trump’s fiscal policies are enacted, they could increase investment, spending, and labor demand, potentially heightening inflation risks. This scenario might lead the Federal Reserve (Fed) to consider a more restrictive monetary policy stance.
Traders are now focused on the upcoming US inflation data release on Wednesday for further guidance on future US policy. The headline Consumer Price Index (CPI) is expected to show a 2.6% year-over-year increase for October, with the core CPI anticipated to rise by 3.3%.
AUD/USD trades near 0.6530 on Wednesday. The daily chart analysis indicates short-term downward pressure, as the pair stays below the nine-day Exponential Moving Average (EMA). Additionally, the 14-day Relative Strength Index (RSI) remains under the 50 level, further supporting a bearish outlook.
In terms of support, the AUD/USD pair is testing its three-month low of 0.6512, reached on November 6, with further psychological support at 0.6500.
On the upside, resistance appears at the nine-day EMA at 0.6576, followed by the 14-day EMA at 0.6593. A break above these EMAs could propel the AUD/USD pair toward its three-week high of 0.6687, with the next psychological target at 0.6700.
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Wednesday at 7.1991, as compared to the previous day's fix of 7.1927 and 7.2305 Reuters estimates.
The EUR/JPY cross edges higher to around 164.35 on Wednesday during the early Asian trading hours. The Japanese Yen (JPY) weakens against the Euro (EUR) amid the Bank of Japan (BoJ) rate hike uncertainty. The flash Eurozone Gross Domestic Product (GDP) data for the third quarter (Q3) will be the highlight on Thursday.
The BoJ summary of opinions suggested a lack of clear direction regarding the timing of a rate hike as policymakers were split on whether to raise interest rates. Additionally, the political uncertainty in Japan has raised doubts over the Japanese central bank’s ability to tighten its monetary policy further. This, in turn, weighs on the JPY and acts as a tailwind for EUR/JPY.
On the Euro front, European Central Bank (ECB) Governing Council member Martins Kazaks said on Tuesday that the central bank should go on cutting interest rates gradually. Meanwhile, ECB policymaker Olli Rehn stated that further easing next month looks likely as disinflation in the euro area is “well on track” and the growth outlook “seems to be weakening. However, officials should remain cautious and move step by step.
The markets have fully priced another 25 basis points (bps) rate cut from the ECB in its last meeting of the year in December. The ECB’s deposit facility is currently at 3.25%.
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Index | Change, points | Closed | Change, % |
---|---|---|---|
NIKKEI 225 | -157.23 | 39376.09 | -0.4 |
Hang Seng | -580.05 | 19846.88 | -2.84 |
KOSPI | -49.09 | 2482.57 | -1.94 |
ASX 200 | -10.6 | 8255.6 | -0.13 |
DAX | -414.96 | 19033.64 | -2.13 |
CAC 40 | -199.9 | 7226.98 | -2.69 |
Dow Jones | -382.15 | 43910.98 | -0.86 |
S&P 500 | -17.36 | 5983.99 | -0.29 |
NASDAQ Composite | -17.36 | 19281.4 | -0.09 |
Pare | Closed | Change, % |
---|---|---|
AUDUSD | 0.65339 | -0.59 |
EURJPY | 164.302 | 0.4 |
EURUSD | 1.06237 | -0.26 |
GBPJPY | 197.125 | -0.31 |
GBPUSD | 1.27474 | -0.93 |
NZDUSD | 0.59264 | -0.58 |
USDCAD | 1.39415 | 0.15 |
USDCHF | 0.88179 | 0.15 |
USDJPY | 154.637 | 0.62 |
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