EUR/USD found further room on the low side on Tuesday, easing back another 0.16% and testing into a key technical barrier that could see fresh 16-week lows if the price floor opens up beneath the Euro.
European Central Bank (ECB) President Christine Lagarde made a handful of appearances on Tuesday, but talking points that ranged from pedestrian to unremarkable did little to support the Fiber. ECB head Lagarde noted that the ECB “is not unhappy with what it has seen”, adding in that the ECB “can’t jump to conclusion that inflation target is a done deal”, inspiring absolutely nobody in particular and delivering little of note in the way of forward guidance to currency markets that see the Euro on pace to backslide against the Greenback for a fourth consecutive week.
Global PMI figures are due for a rolling release on Thursday. Markets have high expectations for pan-EU PMI survey results, with median market forecasts calling for a slight uptick in October’s EU Services PMI to 51.6 from September’s 51.4.
The EUR/USD pair continues to exhibit bearish momentum as it remains under pressure, trading near 1.0800. The pair has been consistently declining since mid-September, breaking below key support levels and now testing the 1.0800 mark. The 50-day exponential moving average (EMA) is positioned at 1.0983, while the 200-day EMA lies slightly higher at 1.0909. The fact that the price is trading well below both EMAs confirms that the short- to medium-term trend remains bearish. As long as the pair stays below these levels, the downside remains favored, with 1.0750 acting as the next major support area.
From a momentum perspective, the MACD indicator shows a strong bearish signal, with the MACD line extending further below the signal line. The histogram remains in negative territory, suggesting that the current downtrend may persist in the short term. A break below the 1.0800 psychological level could accelerate further declines toward the next support around 1.0750, while a recovery would need to break above the 1.0900 handle to signal a potential reversal.
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 held steady on Tuesday, testing the waters near the 1.3000 handle. Intraday price action tested a fresh nine-week low, and topside bidding failed to make a mark above 1.3000, keeping near-term momentum hobbled in a midrange just below the key handle.
Bank of England (BoE) Governor Andrew Bailey made his first of four appearances on the docket this week. BoE’s Bailey mostly stuck to the middle of recent scripts, though the BoE head did note some regret at the BoE’s complacency regarding recent financial stability risks.
With three more BoE Bailey appearances this week, Cable traders will keep track of any repetitious statements on Governor Bailey’s speech cards. BoE head Bailey has an appearance on the cards late Wednesday, then Pounsd traders will be pivoting to UK Purchasing Managers Index (PMI) figures coming up on Thursday.
Median market forecasts are expecting a slight downtick in UK activity numbers, with October’s Services PMI specifically expected to ease to 52.2 from 52.4 the previous month.
The GBP/USD pair is facing increased selling pressure as it slips below the key psychological level of 1.3000. The pair is currently trading near 1.2980, hovering just above the 200-day exponential moving average (EMA) at 1.2846, which acts as a critical support zone. The 50-day EMA at 1.3085 is sloping downward, indicating that the near-term trend remains bearish. The downward momentum from the September highs near 1.3650 highlights a weakening of bullish strength, with lower highs and lower lows forming since mid-September, suggesting that bears are currently in control.
The MACD indicator paints a bearish picture as well, with the MACD line well below the signal line and the histogram extending deeper into negative territory. This signals further downside risk for the pair, especially if it breaks below the 200-day EMA. A decisive close below 1.2850 could accelerate the selling pressure, with the next support level emerging around 1.2750. On the flip side, a recovery above the 50-day EMA near 1.3085 would be needed to shift the sentiment back in favor of the bulls, though this appears unlikely in the short term given current technical conditions.
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.
Tuesday's session brought a reprieve from the NZD/USD's recent bearish streak, as the pair managed to recoup some of its losses, rising by 0.15% to settle at 0.6045. While the technical outlook remains mixed, the latest price action and indicator readings suggest a potential shift in market sentiment.
The Relative Strength Index (RSI) has rebounded sharply from the negative area, signaling a decline in selling pressure. The indicator's current reading of 37, combined with its upward trajectory, indicates that favorable buying conditions have emerged. The Moving Average Convergence Divergence (MACD) histogram, however, remains flat and red, suggesting that selling forces have not yet relinquished control.
Technically, the NZD/USD pair remains constrained within a range bounded by key support and resistance levels. The critical 100 and 200-day Simple Moving Averages (SMAs) continue to act as formidable barriers at 0.6100 and are likely to impede any significant upward momentum. Despite these obstacles, the pair's recent recovery from lows since mid-August indicates that buyers may be regaining their footing.
Silver price rallied to twelve-year highs of $34.86 on Tuesday, due to risk aversion and even though US Treasury yields are rising. At the time of writing, the XAG/USD trades at $34.86, up over 3% with traders eyeing the $35.00 figure.
XAG/USD has ripped through key psychological levels during the last three days, clearing the $31.00-$34.00 area, an indication that buyers are gathering steam. This means the uptrend remains intact and could extend towards the October 2012 peak.
Momentum supports buyers, though the Relative Strength Index (RSI) is overbought. Nevertheless, due to the steepness of the rally, the RSI’s most extreme reading would be 80. Hence, bulls have enough room to spare to push Silver prices higher.
The XAG/USD first resistance would be $35.00. Once cleared, the next stop would be the October 2012 high at $35.40, followed by the August 2011 peak at $44.22, and ahead of the all-time high at $49.83.
Conversely, if XAG/USD retreats below $34.0, the first support would be the current week's low of $33.46. The next support would be the October 17 daily low of $31.32 on further weakness.
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 AUD/USD rose by 0.35% to 0.6685 on Tuesday, recovering sharply from 0.6650 amid hawkish signals from the Reserve Bank of Australia (RBA) and hopes for economic stimulus. Markets seem to be considering the possibility of no cuts by the RBA this year. Copper and iron ore prices rebounded as well, providing support to the Australian Dollar.
The RBA is on track to becoming the last central bank of the G10 countries to start cutting interest rates. In the meantime, the bank’s officials haven’t offered clues about when they might consider a rate cut.
The Relative Strength Index (RSI) has recovered from a low of 39 into the negative area, indicating that buying pressure is recovering for the Aussie. However, the Moving Average Convergence Divergence (MACD) histogram is red and decreasing, suggesting that selling pressure is still present while declining. The overall outlook is mixed with the RSI suggesting a recovery in buying pressure and the MACD suggesting a decline in selling pressure.
Support levels are seen around 0.6680, 0.6650 and 0.6630, while resistance levels are located near 0.6700 (100-day SMA), 0.6730 and 0.6750. Traders should watch for a break of these levels to determine the direction of the next trend.
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 prices extended their gains for the fifth day out of the last six and reached an all-time high (ATH) at $2,748, just shy of the psychological $2,750 mark. Geopolitical tensions and expectations that the Federal Reserve (Fed) would continue to lower borrowing costs are tailwinds for the yellow metal. Therefore, XAU/USD trades at $2,744, gaining almost 1%.
Risk aversion keeps the non-yielding metal underpinned, ignoring soaring US Treasury yields. Since the Fed cut rates by 50 basis points (bps) at the September 18 meeting, the US 10-year Treasury note has risen 62 bps to 4.20%, indicating that traders are pricing in a less dovish Fed.
Fears of a Donald Trump presidency have pushed the golden metal higher. The former President has stated that he would impose tariffs and restrict undocumented immigration.
US bonds were sold off on Monday, which, according to TD Securities analysts, “was partly driven by the prediction markets' pricing in higher odds of a Trump victory.”
Aside from this, Fed officials crossed the wires. San Francisco Fed President Mary Daly said she supports further easing and hasn’t seen any reason not to continue lowering rates. Later, Kansas City Fed President Jeffrey Schmid took a more cautious stance, stating his preference to avoid outsized rate cuts and noting that the labor market is experiencing normalization rather than deterioration.
Traders are now pricing in 42 basis points of cuts by year-end, indicating a less than certain chance that the Fed will make 25 basis point cuts at each of its coming two meetings.
Meanwhile, tensions in the Middle East remain high as Israel prepares to retaliate against Iran following the 200-missile raid.
Despite that, the Fed is heavily expected to lower interest rates by 25 basis points at the November meeting. Odds remained at 89.6%, according to CME FedWatch Tool data.
Gold price ignored the formation of a Gravestone Doji candlestick pattern on Monday and extended its rally to new record highs, just shy of $2,750. Momentum shows buyers remain in charge, as depicted by the Relative Strength Index (RSI). Even though the RSI has turned overbought, its most extreme reading, following a steeper advance, would be 80. Therefore, further Bullion upside is seen.
If XAU/USD clears today’s high at $2,748, the next stop would be $2,750, followed by $2,800.
Conversely, if XAU/USD retreats from record highs below $2,700, it could pave the way for a pullback. The first support would be the October 17 high at $2,696, followed by the October 4 high at $2,670.
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 EUR/USD fell below 1.0800 on Tuesday, late during the North American session, as US Treasury yields climbed. Risk aversion linked to US elections and comments from European Central Bank (ECB) Council members pushed the pair toward new two-month lows at 1.0795.
Market mood remains fragile as Wall Street trimmed some losses, yet it remains trading in the red. A scarce economic docket in both sides of the Atlantic, keeps central bankers entertaining traders, along with US elections.
ECB’s Mario Centeno was dovish, opening the door for 50 or 25 basis points (bps) of easing, depending on upcoming data. ECB’s President Christine Lagarde said that “disinflation is on the right track” and added that the target would be reached sometime in 2025. She pushed back and said that rates will remain restrictive as long as needed.
Furthermore, ECB’s Francois Villeroy stated there’s no reason to keep rates restrictive in 2025, while ECB’s Rehn said that the growth outlook has weakened, which could increase disinflationary pressures.
On the US front, the US 10-year T-note yield climbs one bps to 4.20%, a tailwind for Greenback. In the meantime, the US Dollar Index (DXY), which tracks the buck’s performance against other six peers, is up 0.10% at 104.06.
Meanwhile, a Reuters/Ipsos poll finds Harris holds a 46%-43% lead over Trump amid voter gloom.
Four days ago, the EUR/USD dropped below the 200-day moving average (DMA) at 1.0870, turning bearish. Momentum shows that the downtrend is accelerating, with the Relative Strength Index (RSI) turning oversold. Despite this, the RSI is considered “extremely” oversold beneath 20 due to the trend's strength.
The EUR/USD next support would be the August 1 low at 1.0777 before extending its losses to 1.0666, the June 26 low.
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Japanese Yen.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | 0.13% | 0.02% | 0.15% | -0.10% | -0.38% | -0.26% | -0.07% | |
EUR | -0.13% | -0.11% | 0.00% | -0.24% | -0.54% | -0.38% | -0.21% | |
GBP | -0.02% | 0.11% | 0.12% | -0.12% | -0.42% | -0.29% | -0.09% | |
JPY | -0.15% | 0.00% | -0.12% | -0.25% | -0.53% | -0.41% | -0.21% | |
CAD | 0.10% | 0.24% | 0.12% | 0.25% | -0.28% | -0.16% | 0.03% | |
AUD | 0.38% | 0.54% | 0.42% | 0.53% | 0.28% | 0.13% | 0.31% | |
NZD | 0.26% | 0.38% | 0.29% | 0.41% | 0.16% | -0.13% | 0.20% | |
CHF | 0.07% | 0.21% | 0.09% | 0.21% | -0.03% | -0.31% | -0.20% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, sees modest gains amidst profit-taking after a sustained rally. US equities are pulling back while Treasury yields and the USD continue to strengthen.
Indeed, the International Monetary Fund’s (IMF) updated growth forecasts are expected to favor the US economy, contributing to the ongoing trend of economic outperformance of the US against its peers and supporting the USD, which may trigger a more cautious stance among Federal Reserve (Fed) officials.
As for now, markets are betting on high odds of two 25 bps Fed cuts in 2024, but it will all come down to incoming data.
The DXY index surpassed the 200-day SMA, but waning buying momentum suggests it may struggle to establish above it. Consequently, the index may engage in lateral trading in the near term. The Relative Strength Index (RSI) remains flat within overbought territory, and the Moving Average Convergence Divergence (MACD) shows flat green bars.
Support levels lie at 103.50, 103.30 and 103.00, while resistance levels are at 103.80, 104.00 and 104.30.
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.
There was no change in the FX world, which saw the US Dollar gather extra steam for yet another session and clinch fresh tops as investors continued to factor in the “Trump trade”, further easing by the Fed and key upcoming US data releases.
The US Dollar Index (DXY) rose further and finally broke below the key 104.00 barrier, reaching new highs despite yields eased marginally. The usual weekly Mortgage Applications tracked by MBA are due seconded by Existing Home Sales, and the EIA’s weekly report on US crude oil inventories. In addition, the Fed’s Bowman and Barkin are due to speak.
EUR/USD maintained its bearish tone unchanged and dropped to new lows around 1.0800. The advanced EMU’s Consumer Confidence will be published, seconded by speeches by the ECB’s Lagarde, Cipollone and Lane.
GBP/USD added to Monday’s losses and retreated slightly, briefly visiting the proximity of 1.2940. Next on tap across the pond will be the release of advanced S&P Global Manufacturing and Services PMIs on October 24.
USD/JPY picked up further upside momentum and surpassed the 151.00 hurdle following the extra improvement in the US Dollar. Next on the Japanese calendar will be the weekly Foreign Bond Investment figures along with the preliminary Jibun Bank Manufacturing and Services Index on October 24.
AUD/USD managed to regain balance and bounced off the 0.6650 zone to retest the area close to the key 0.6700 barrier. The flash Judo Bank Manufacturing and Services PMIs will come next on the Australian docket on October 24.
WTI prices rose markedly, adding to Monday’s uptick and reaching levels past the $72.00 mark per barrel on the back of escalating tensions in the Middle East and Chinese stimulus.
Gold prices rose to an all-time high near the $2,750 mark per ounce troy in response to steady uncertainty surrounding the US election as well as geopolitical concerns and weaker US yields. Silver prices extended their rally to the boundaries of the $35.00 mark per ounce, an area last visited in October 2012.
The Canadian Dollar (CAD) churned chart paper on Tuesday as Loonie traders shuffle in place ahead of the Bank of Canada’s (BoC) impending rate cut due during the midweek market session. Investors broadly expect the BoC to trim interest rates by a further 50 bps on Wednesday, which could further kick the legs out from beneath CAD traders.
Canada saw another decline in raw materials and industrial prices as inflation continues to drain out of the slowing Canadian economy. Despite handily defeating most aspects of inflation in 2024, the BoC is heading for a rocky patch as the Canadian economy lurches toward an economic slowdown at a faster pace than many anticipated at the beginning of the year.
The USD/CAD pair has recently shown a strong recovery after bouncing off the 200-day exponential moving average (EMA) near 1.3619, with the price currently consolidating around the 1.3820 mark. The upward momentum was driven by a series of higher lows that followed the late September bottom. The 50-day EMA at 1.3651 has also turned upward, providing additional support for the bullish trend. While the recent price action shows signs of consolidation, the underlying trend remains positive as long as the pair holds above the 50-day EMA.
Momentum indicators, particularly the MACD, confirm this bullish sentiment. The MACD line remains above the signal line, although the histogram has started to show a slight decrease, suggesting a possible slowdown in bullish momentum. A breakout above the psychological level of 1.3850 could open the door to further upside, targeting the 1.3900 region. However, if the pair breaks below the 50-day EMA, it may indicate a deeper retracement, with 1.3650 acting as the first line of defense for buyers. Traders should watch for a potential breakout or a pullback to confirm the next directional move.
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 Dow Jones Industrial Average (DJIA) struggled to find its feet near the 43,000 handle on Tuesday. The major index pulling into the midrange as bulls struggled to respond to a near-term decline that kicked off the trading week.
Earnings season is well underway, helping to bolster investor confidence enough to keep losses contained despite equity prices trading deep into overbought territory and most of the market’s favored stocks trading at eye-watering ratios. Equity giants Tesla (TSLA) and Coca-Cola (COKE) will report Q3 earnings on Wednesday, with Honeywell (HON) slated for Thursday.
On Tuesday, General Motors (GM) and Philip Morris (PM) handily beat Wall Street expectations, raising their full-year earnings guidance. Meanwhile, Verizon (VZ) flubbed its latest earnings call, with revenue missing expectations.
Despite a cautious start to the day, roughly two-thirds of the Dow Jones are trading into the green on Tuesday. Microsoft (MSFT) rose 2.3% to $428.50 per share, followed by retail giant Walmart (WMT), which gained 1.5% to touch $82 per share. On the low side, Verizon (VZ) crumpled 4.5%, declining below $42 per share after flubbing earnings expectations.
Despite a near-term pullback, the Dow Jones remains in a firmly bullish pattern, with the major equity index trading well above its 50-day and 200-day Exponential Moving Averages (EMA) at 41,788 and 39,453, respectively. DJIA prices have been grinding higher since August’s swing low into 38,400, adding nearly 13% bottom-to-top.
The Moving Average Convergence-Divergence (MCAD) is breaking the needle printing in bullish territory, however a contracting histogram is hinting at slowing bullish momentum that has been underpinning the Dow Jones for most of 2024. Despite a deep overbought print on the MACD, potential for downside price action remains limited with the Dow Jones poised for a sixth consecutive month in the green.
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.
The Mexican Peso recovered some ground against the Greenback on Tuesday after touching a two-month low, shrugging off worse-than-expected data that hinted at the economy slowing down. Federal Reserve (Fed) officials continued to grab the headlines on the US front amid a scarce economic schedule. At the time of writing, the USD/MXN trades at 19.87, down 0.44%.
The Insituto Nacional de Estadística Geografía e Informatica (INEGI) revealed that economic activity in August plummeted sharply in monthly figures, while it dipped annually. The data reassures the latest review by the International Monetary Fund (IMF), which estimated that the economy would grow at a 1.5% pace, contrary to the 3% economic expansion that the Secretaria de Hacienda y Credito Public (SHCP) foresees.
On Wednesday, Retail Sales for the same period are also expected to show the ongoing economic slowdown.
USD/MXN traders are eyeing the release of October’s mid-month Inflation figures. The headline inflation is expected to drop from 4.66% to 4.65%, while the underlying inflation is estimated to fall from 3.95% to 3.82%.
Across the border, San Francisco Fed President Mary Daly favored further adjustments to the fed funds rate, said the central bank would be data-dependent, and that she hasn’t seen anything that wouldn’t suggest continuing cutting rates.
Meanwhile, Kansas City Fed President Jeffrey Schmid adopted a more cautious stance, adding that he prefers to avoid outsized rate cuts, noting that they’re seeing a normalization of the labor market, not a deterioration.
Ahead this week, Mexico’s economic schedule will be slightly busy with the release of Retail Sales and Mid-Month Inflation for October. In the US, Fed speakers, jobs data, and S&P Global Flash PMIs should influence the direction of USD/MXN.
The USD/MXN uptrend remains in place despite dipping to a daily low of 19.76. Momentum shows buyers are losing pace as depicted by the Relative Strength Index (RSI). However, the RSI remains bullish, an indication that the exotic pair might consolidate before printing a leg-up.
If USD/MXN clears the 20.00 figure, the next resistance would be the September 5 high at 20.14 and the year-to-date (YTD) high at 20.22. On further strength, the next stop would be 20.50, ahead of 21.00.
Conversely, if the USD/MXN extends its losses below the October 18 low of 19.64, a test of the October 10 daily peak at 19.61 is on the cards. Next would be the October 4 swing low of 19.10 before testing 19.00.
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 US Dollar prints back-to-back gains against the Japanese Yen on Tuesday but struggles to clear the 151.00 figure decisively. At the time of writing, the USD/JPY trades at 150.92, as the US 10-year T-note yield keeps the pair contained at around current exchange rates.
The USD/JPY is testing key resistance at the top of the Ichimoku Cloud (Kumo) at around 150.80/95, with buyers eyeing the 200-day moving average (DMA) at 151.36.
From a momentum standpoint, buyers are in charge. The Relative Strength Index (RSI) is reaching a new higher high, signaling bulls are gathering steam.
A daily close above the 151.00 figure could sponsor a test of the 200-DMA at 151.36. On further strength, the pair could test the July 25 swing low turned resistance at 151.93 before cracking 152.00.
Conversely, if USD/JPY dives beneath 151.00, the first key support would be the Tenkan-Sen at 149.68, ahead of the October 21 low of 149.09.
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the British Pound.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | 0.02% | 0.04% | 0.09% | -0.05% | -0.37% | -0.26% | -0.14% | |
EUR | -0.02% | 0.03% | 0.08% | -0.07% | -0.41% | -0.27% | -0.16% | |
GBP | -0.04% | -0.03% | 0.04% | -0.08% | -0.43% | -0.31% | -0.19% | |
JPY | -0.09% | -0.08% | -0.04% | -0.13% | -0.47% | -0.37% | -0.23% | |
CAD | 0.05% | 0.07% | 0.08% | 0.13% | -0.32% | -0.22% | -0.10% | |
AUD | 0.37% | 0.41% | 0.43% | 0.47% | 0.32% | 0.11% | 0.24% | |
NZD | 0.26% | 0.27% | 0.31% | 0.37% | 0.22% | -0.11% | 0.13% | |
CHF | 0.14% | 0.16% | 0.19% | 0.23% | 0.10% | -0.24% | -0.13% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Crude oil markets may feel oversold, but trend following models hold a war chest of dry-powder to deploy in either direction, TDS’ Senior Commodity Strategist Daniel Ghali notes.
“While our return decomposition framework suggests that markets have continued to erode supply risk premia over the last week, geopolitical tensions remain at a boil and traders are awaiting more information on Israel's targets for a strike against Iran, keeping a floor on prices.”
“With prices failing to keep up with downtrend signals, CTAs are still set to cover their shorts this session. The scope for subsequent algo flows remains elevated, suggesting event risks will carry additional momentum over the coming week.”
“Interestingly, nascent signs of reflation continue to strengthen in the cross-section of the commodities complex, suggesting that demand trends could favor more buying activity, offering a cross-current to the erosion of supply risk premia in the event that Israel refrains from targeting energy infrastructure as expected.”
The Pound Sterling extended its losses against the US Dollar for two straight days, with sellers clearing the 1.3000 figure decisively, which could pave the way for further downside. At the time of writing, the GBP/USD trades at 1.2961, fluctuating around the 100-day moving average (DMA), down 0.15%.
The GBP/USD is testing the 100-DMA for the first time since early August 2024. Although the pair hit a daily low of 1.2944, sellers lacked the strength to push the spot price toward the bottom trendline of an ascending channel.
Momentum shows that sellers are in charge. The Relative Strength Index (RSI) is dipping towards its most recent low, which, once broken, would signal bears to exert pressure on the pair.
If GBP/USD presses toward the bottom trendline and clears the support at around 1.2915/20, the exchange rate could likely hit 1.2900. The next key support level would be the confluence of the August 15 low and the 200-DMA at 1.2798
Conversely, if buyers stepped in and push the exchange rate past 1.2990, a move toward 1.3000 is on the cards. The next major resistance is found at the 50-DMA at 1.3135.
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Japanese Yen.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | 0.08% | 0.11% | 0.09% | -0.06% | -0.37% | -0.28% | -0.08% | |
EUR | -0.08% | 0.04% | 0.03% | -0.14% | -0.47% | -0.34% | -0.14% | |
GBP | -0.11% | -0.04% | -0.02% | -0.17% | -0.50% | -0.39% | -0.19% | |
JPY | -0.09% | -0.03% | 0.02% | -0.14% | -0.46% | -0.38% | -0.17% | |
CAD | 0.06% | 0.14% | 0.17% | 0.14% | -0.31% | -0.22% | -0.03% | |
AUD | 0.37% | 0.47% | 0.50% | 0.46% | 0.31% | 0.10% | 0.29% | |
NZD | 0.28% | 0.34% | 0.39% | 0.38% | 0.22% | -0.10% | 0.20% | |
CHF | 0.08% | 0.14% | 0.19% | 0.17% | 0.03% | -0.29% | -0.20% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
UK data showed government borrowing a shade lower than expectations in September (GBP16.6bn) but cumulative borrowing over the fiscal half year was above forecasts which may limit the Labour government’s room for manoeuver in next week’s budget, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
“The Pound Sterling (GBP) edged briefly lower to a new, short-term cycle low earlier but recovered somewhat. Sterling edged to a minor new low for this move down this morning to test the 100-day MA (1.2963).”
“Like other currencies, the pound looks oversold. Unlike some of the other majors, there is a clear short-term downtrend still developing in Cable which tilts risks to more softness (low/mid-1.29s) in the short run while overhead resistance (1.3055) holds.”
In an exclusive interview with Bloomberg TV's Francine Lacqua on Tuesday, European Central Bank (ECB) President Christine Lagarde noted that inflation numbers in the Eurozone are "relatively reassuring" but added that they can't jump to a conclusion that it's a done deal.
Lagarde further said that she hopes that inflation will be back at their target sooner than projected, reiterating that they are confident that they will get to their target in 2025.
These comments failed to trigger an immediate market reaction. At the time of press, the EUR/USD was trading marginally lower on the day, a few pips above 1.0800.
Silver price (XAG/USD) surges to near $34.50 in Tuesday’s North American session, the highest level seen in over 12 years. The white metal strengthened after Israel launched missiles at Hezbollah’s financial institutions situated in the southern Lebanese cities of Tyre and Nabatiyeh. Escalating tensions in the Middle East region has improved Silver’s appeal as a safe haven.
In the United States (US) economy, growing uncertainty over presidential elections, which are just two weeks away has also strengthened the Silver price appeal. Latest national polls have shown that competition between former US President Donald Trump and current Vice President Kamala Harris is very stiff. Market experts worry that Trump’s victory could undermine the currencies of the US’s trading partners. Trump promised to raise tariffs and lower taxes if he wins elections.
The demand outlook of the Silver as metal has improved after the People’s Bank of China’s policy announcement on Monday in which the central bank reduced one-year and five-year Loan Prime Rate (LPR) by larger-than-expected size of 25 basis points (bps). Silver as a metal has applications in various industries such as Electric Vehicles (EV), wires and cables, and mining etc. The PBoC cuts its key borrowing rates with an outsize margin to boost households’ consumption and spending on infrastructure and to revive the housing sector.
Meanwhile, the US Dollar (USD) posts a fresh 11-week high as investors expect the Federal Reserve (Fed) to reduce interest rates gradually. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, climbs above 104.00.
Silver price strengthens after a breakout above the horizontal resistance plotted from May 21 high of $32.50 on a daily timeframe. Upward-sloping 20- and 50-day Exponential Moving Averages (EMAs) near $30.70 and $31.70, respectively, signals more upside ahead.
The 14-day Relative Strength Index (RSI) oscillates above 60.00, points to an active bullish momentum.
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 oil market in China was oversupplied by 930 thousand barrels per day in September, Commerzbank’s commodity analyst Carsten Fritsch notes.
“If processing is compared with the crude oil production figures also reported by the NBS and the crude oil imports published by the customs authority a week ago, the oil market in China was oversupplied by 930 thousand barrels per day in September.”
“The monthon-month increase in processing, coupled with a decline in imports, reduced the implicit supply surplus by half compared to August. Nevertheless, the oil market in China is in a weak spot. This is also shown looking at China's implied oil demand, which is the difference between crude oil processing and net exports of oil products.”
“In September, it was 2 percent below the previous year's level. The IEA expects demand in China to grow only slightly this year, by 150,000 barrels per day. Despite the stimulus measures announced so far, demand is not expected to pick up sharply next year either, as IEA chief Birol emphasised yesterday at a conference in Singapore.”
EUR/USD trade has been a little choppy, within a limited range, so far on the session, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
“There were no data reports of note from the Eurozone this morning and there were no major comments from ECB policymakers. Spot chop may reflect a battle between bargain hunter interest around the 1.08 area and the drag on the EUR from wider short-term spreads (EZ/US 2y spread to –186bps today). Note that ECB President Largarde is speaking with Bloomberg at 10ET.”
“The EUR remains oversold but the charts continue to reflect softness, with spot holding near the base of the recent consolidation range. The EUR has completed the measured move lower I thought would result from the break under 1.10 around the turn of the month but a rebound—above 1.0875—is needed to signals scope for even short-term gains from here. Support is 1.0780/00.”
Chinese oil refineries processed 58.7 million tons of crude oil in September, Commerzbank’s commodity analyst Carsten Fritsch notes.
“This corresponds to a daily amount of 14.3 million barrels. The previous month's level was exceeded by around 400,000 barrels per day because maintenance work ended at some refineries and a new refinery went into operation.”
“However, this did little to alter the weak overall picture. Crude oil processing remained below the previous year's level for the sixth consecutive month. According to the NBS, the decline in September was 5.4%. On the basis of the monthly figures published, the decline was as much as 7.7%.”
“The same applies to the cumulative figures for the first nine months. Here, the NBS reported crude oil processing of 531.3 million tons, or 14.15 million barrels per day, and a decline of 1.6% compared to the same period last year. Based on the monthly figures published, the corresponding decline is just over 4%.”
The Canadian Dollar (CAD) has had a minor reprieve this morning as it holds little changed on the session but some 20 ticks above yesterday’s low against the USD in the mid-1.38s, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
“Weak risk appetite (today) and wider US/Canada spreads are unhelpful for the CAD but some consolidation may be in order ahead of the BoC decision Wednesday. Markets continue to reflect the expectation that the Bank will cut the policy rate 50bps but the accumulation of easing thus far, a weak CAD, uncertainty about the outcome of the US election could all yet combine to prompt policymakers to keep the pace of easing at a more moderate 1/4 point.”
“Still, for now, there seems little scope for the CAD to recover too much ground. Estimated FV sits at 1.3863 today. Spot is holding in a very tight consolidation range so far on the session. That could be a positive sign for the CAD if the situation persists through the entire session but right now, it just tells us that spot has not moved a whole lot today.”
“Oscillator signals continue to flag a well overbought USD and I had noted some USD resistance around the 1.3850 area but unless or until price signals turn more obviously USD-negative, the risk of a push on to retest 1.3940/50 remains. Support is 1.3750.”
The Brent oil price fell by 7.6% last week, its strongest weekly loss since early September, Commerzbank’s commodity analyst Carsten Fritsch notes.
“For WTI, the 8.4% drop was the largest weekly decline in more than a year. This also meant that most of the gains made in the preceding two weeks were wiped out. For one thing, the fears of an escalation in the conflict between Israel and Iran, which had been behind the previous price increase, diminished somewhat.”
“For another, OPEC and the IEA revised their demand forecasts further downward, particularly with regard to China, which again brought demand concerns more into focus. The Chinese data published by the National Bureau of Statistics (NBS) on Friday provided retrospective confirmation of this.”
Crude Oil struggles to hold ground and orbits around the $70.00 level on Tuesday. The pressure on Oil’s price comes from markets repricing the US Federal Reserve (Fed) interest rate cut projections in the near future. With decreasing odds of an aggressive rate cut path by the Fed, economic growth and energy demand might be killed, which means a bleak outlook for Oil in the coming months.
The US Dollar Index (DXY), which tracks the performance of the Greenback against six other currencies, consolidates near an 11-week high of 104.00 on Tuesday. With the surge in US yields, the rate differential sees the US overshadow other main continents, such as Europe or Asia. This supports the DXY, which may rise further in the coming weeks to 105.00.
At the time of writing, Crude Oil (WTI) trades at $69.78 and Brent Crude at $73.76
Crude Oil price is facing more and more pressure to trade at more discount. Markets are stripping away geopolitics in the Middle East, with nearly all external parties not willing to get involved in a proxy war, while Israel and Iran are escalating tensions at a very slow pace. While supply is richly flowing, the markets look flooded with Oil for the rest of 2024, according to the recent Energy Information Administration (EIA) report.
There is a challenging path to recovery for Crude Oil in the coming days. First, the pivotal level at $71.46, which was strong enough to catch the falling knife on October 14, must be regained again with a daily close above it. Once from there, the hefty technical level at $75.13, with the 100-day Simple Moving Average (SMA) and a few pivotal lines, is possibly the first big hurdle ahead.
On the downside, traders need to look much lower, at $67.12, a level that supported the price in May-June 2023. In case that level breaks, the 2024 year-to-date low emerges at $64.75 followed by $64.38, the low of 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 US Dollar (usd) is trading flatter against its major currency peers as DXY gains show some—tentative—signs of stalling around the 104 area (which was the upper end of the range I suggested the DXY could reach at the start of the month as the index started to show signs of gaining momentum), Scotiabank’s Chief FX Strategist Shaun Osborne notes.
“Rising US yields and more supportive spreads remain a strong source of support for the USD generally but the sell-off in fixed income is a global issue and global stocks are (mostly) lower, reflecting the gains in yields broadly. USD gains look stretched generally on the intraday and daily charts but overbought/sold conditions can persist for extended periods of time.
“US yields could creep a bit higher still in the short run—looser fiscal policy risks following the US election remain a potential issue for Treasurys while markets continue to ponder the pace of Fed rate cuts—but I do tend to think that the USD has perhaps done about as much as it can for now. Additional (significant) gains will require new catalysts and investors might well decide to reduce positioning somewhat as the Presidential election draws closer.”
“What we lack for in data releases today (just the Richmond Fed Manufacturing Index) we more than make for in central bank speak, with many global officials stateside for the IMF/World Bank meetings in Washington. The only Fed official speaking today is Harker who is not a voter this year.”
The AUD/USD pair rebounds strongly from the key support of 0.6650 in Tuesday’s European session. The Aussie pair discovers strong buying interest on expectations that the Reserve Bank of Australia (RBA) will continue with a restrictive monetary policy stance for the remainder of the year.
On Monday, RBA Deputy Governor Andrew Hauser cited the strong employment data as a surprise for him. On the monetary policy outlook, RBA Hauser didn’t provide a clear direction and said, “The central bank is ready to respond in either direction depending on incoming data.” The comment from Hauser left doors open for further interest rate hikes.
Meanwhile, a larger-than-expected interest rate cut by the People’s Bank of China (PBoC) has also improved Australia’s economic outlook, given that the nation is the largest trading partner of China. The PBoC reduced its one-year and five-year Loan Prime Rate (LPR) by 25 basis points (bps), while economists were anticipating a 20-bps rate cut.
However, the near-term appeal of the Australian Dollar (AUD) could be hurt by risk-off market sentiment due to uncertainty over the United States (US) presidential elections that are around the corner. S&P 500 futures have posted significant losses in the European session, exhibiting a sharp decline in investors’ risk appetite.
The US Dollar (USD) holds onto gains near a fresh 11-month high as investors expect the Federal Reserve (Fed) to cut interest rates gradually in November and December. The Fed can afford to avoid a sizeable interest rate cut in November, as expected earlier, after a slew of upbeat US economic data for September that diminished economic slowdown risks.
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 (USD) slightly retraces on Tuesday following a small sprint higher on Monday that drove the US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, to a fresh 11-week high after US equities retreated from their all-time highs. The US Treasury bonds are starting to sell off as well as it appears that markets are starting to reprice their interest rate cut expectations, with rising probabilities that the Federal Reserve (Fed) only set to cut once more this year before going into a wait-and-see mode.
On the US economic front, a very light calendar is ahead for markets to digest on Tuesday. One takeaway, though, comes from the Fed speakers as there is a clear dispersion in opinions within the Federal Open Market Committee (FOMC), as Atlanta Fed President Raphael Bostic pleaded for no rate cuts anymore this year while San Francisco Fed President Mary Daly commented on Monday that the Fed needs to go ahead with its rate cutting cycle and ease further. Market participants are intrigued to see what Philadelphia Fed President Patrick Harker thinks about the matter this Tuesday around 14:00 GMT.
The US Dollar Index (DXY) trades between two firm levels on Tuesday after breaking through a bearish fortress, which came in the form of the 200-day Simple Moving Average (SMA) at 103.80 on Monday. Unfortunately, the 103.99/104.00 level was too heavy to break through at the first attempt. Should markets price in lesser interest rate cuts from the Fed, expect to see a 105.00 appear rather quickly in the US Dollar Index.
Ver closeby on the upside, the 103.99/104.00 level triggered a rejection on Monday and continues as resistance on Tuesday. Once that level breaks, look for the 105.00 round level and even 105.53 (the April 11 high) in a quick sprint higher. More upside would see some resistances near 105.89 (the May 2 high and descending trendline) before considering 106.00.
On the downside, the 200-day SMA is very strong support due to a test at 103.80. Look out for false breaks, and consider waiting for a daily close below that level when reassessing if there will be more downside for the DXY. The next big support is a double one, with the 100-day SMA at 103.19 together with the pivotal 103.18 level (the March 12 high). If that level breaks, a big gap lower would occur to the 101.90 support zone, with the 55-day SMA at 101.89.
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.
For some time, Silver lagged behind the rise in the price of Gold, Commerzbank’s commodity analyst Carsten Fritsch notes.
“This was evident from the increase in the Gold/Silver ratio to almost 90 in August and September. Thereafter, the price ratio fluctuated at around 85 for more than a month. Silver thus managed to track the price movements in Gold. It seems that investors now view Silver as a cheaper alternative to Gold, which would not be surprising given that Gold prices continue to rise and reach new record levels.”
“On Friday, the Silver price rose by more than 6%. The rise continued at the beginning of the week. At just over $34 per troy ounce, Silver is as expensive as it hasn't been in almost 12 years. The Gold/Silver ratio subsequently fell to 80, the lowest level since mid-July. This means that the price ratio is also lower than at the beginning of the year, so Silver has risen more than Gold this year.”
“It is not unusual for Silver to track Gold's price movements disproportionately. A rise of more than 40% from current levels would mark the strongest annual increase since 2020, but would remain well below the 80% rise of 2010.”
The Gold price started the new trading week where it left off the previous week, with a rise to a new record high of currently $2,740 per troy ounce. The 2.4 percent rise in the last week was already the fifth in the past six weeks, Commerzbank’s commodity analyst Carsten Fritsch notes.
“Since the beginning of the year, the Gold price has risen by more than 30 percent. As things currently stand, that would be the strongest annual increase in 45 years. The price increase in recent weeks is also noteworthy because the US dollar has appreciated by more than 3% on a trade-weighted basis since the end of September and expectations of interest rate cuts by the Fed have been significantly scaled back.”
“The usual price drivers, namely the US dollar and interest rate expectations, can therefore no longer be used to explain the recent strength of the Gold price. Instead, the tensions in the Middle East, and in particular the conflict between Israel and Iran, as well as the uncertainty in the run-up to the US elections in two weeks' time, can be cited as reasons. Another argument is the current positive market sentiment towards Gold.”
“On Friday, the CFTC reported an increase in speculative net long positions for the week ending 15 October, following a reduction in positions in the previous week in the wake of the price decline. Bloomberg reported inflows into Gold ETFs on all five trading days last week, totalling almost 13 tons. Yesterday, another 5 tons were added. However, we also see signs of exaggeration in the current price increase, so a correction seems overdue. The relative strength index (RSI) is now in overbought territory.”
At the moment, most movement in EUR/USD is US Dollar (USD) driven. But, let focus a little more on the euro side. Because this week could get uncomfortable for the euro, Commerzbank’s FX analyst Antje Praefcke notes.
“Several heavyweights from the ECB will be commenting on the situation over the course of the week, with many of them speaking out as early as today. If they sound dovish, the market is likely to feel confirmed in its euro skepticism. This is also not good news for the euro, which yesterday slowly fell back towards the 1.08 level.”
“I find it hard to imagine that the PMIs could turn out so badly or the comments from the ECB could be so dovish that these expectations are given another significant downward push, putting the euro under massive downward pressure. Yes, maybe a serious test of the 1.08 mark is possible, with a few pips below towards 1.0780. But I don't see much more than that at the moment.”
“The Euro may fall again this week, but it should not get knocked out. On the contrary, if the market comes to the realization in view of the PMIs that it may have gone a bit too far in its expectations, the euro may even stand up again on the mat. But then there is also the dollar side. Therefore, the risks in EUR/USD should remain tilted to the downside until the rosy picture of the US economy gets scratched.”
Room for the US Dollar (USD) to edge higher to 7.1500 before levelling off. In the longer run, momentum is slowing; a breach of 7.0900 would indicate that USD is more likely to trade in a range instead of strengthening further, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.
24-HOUR VIEW: “We expected USD to trade in a range between 7.0990 and 7.1330 yesterday. USD subsequently dipped to 7.1081, then rebounded to 7.1380. USD closed at 7.1365, higher by 0.29%. The advance resulted in a slight increase in momentum. Today, we see room for USD to rise to 7.1500 before levelling off. The major resistance at 7.1600 is unlikely to come into view. On the downside, a breach of 7.1200 (minor support is at 7.1280) would indicate that the current mild upward bias has eased.”
1-3 WEEKS VIEW: “Our update from yesterday (21 Oct, spot at 7.1170) remains valid. As highlighted, the recent buildup in momentum is slowing, and a breach of 7.0900 would indicate that USD is more likely to trade in a range instead of strengthening further. Looking ahead, USD has to break and remain above 7.1500 before an advance to 7.1600 can be expected.”
This week’s featured insight is GDP Nowcast, which is best viewed as an estimate of real GDP growth based on available economic data and forecasts for the current quarter, DBS’ economists Samuel Tse and Daisy Sharma notes.
“Today we focus on China’s real GDP, which slowed from 4.7% YoY in 2Q24 to 4.6% in 3Q24, while sequential growth accelerated from 0.7% QoQ in 2Q24 to 0.9% in 3Q24. Despite net exports remaining a pillar for GDP growth, the decelerated external demand in September stripped away the only bright spot in the economy.”
“Our Nowcast model expects GDP growth to remain steady at 4.6% in 4Q24. The model shows that it will mostly be led by weakness in industrial activity and loans. Retail sales will improve, thanks to positive wealth effect from equity market. Fixed assets investment will stabilize. On external front, exports will moderate slightly while non-oil imports will contract.”
“We expect 2024 GDP to average 5.0% from 5.2% in 2023.”
The US Dollar (USD) could break above the major resistance at 151.00, but it might not be able to maintain a foothold above this level. In the longer run, there has been a clear increase in momentum; if USD breaks above 151.00, the focus will shift to 152.00, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.
24-HOUR VIEW: “We expected USD to trade in a sideways range of 149.00/150.00 yesterday. USD then dropped to 149.07 before staging a surprising sharp rally, reaching a high of 150.88 in NY trade. The sharp and swift increase in momentum is likely to lead to further USD strength. A break above the major resistance at 151.00 will not be surprising, but overbought conditions suggest USD might not be able to maintain a foothold above this level. The next resistance at 151.50 is unlikely to come under threat. Support levels are at 150.30 and 150.00.”
1-3 WEEKS VIEW: “We have maintained a positive USD stance since early this month. In our most recent narrative from last Friday (18 Oct, spot at 150.00), we highlighted that ‘while USD rose to 150.32, upward momentum has only improved slightly, and it remains to be seen if USD could rise to 151.00.’ We added, ‘a clear break below 149.00 would indicate that the USD strength has ended.’ Yesterday, USD dropped close to 149.00, reaching a low of 149.07. However, it took off from the low and soared to 150.88. This time around, there has been a clear increase in momentum, and if USD breaks above 151.00, the focus will then shift to 151.90. On the downside, the ‘strong support’ level has moved higher to 149.45 from 149.00.”
The USD/CAD pair consolidates in a tight range above the round-level support of 1.3800 in Tuesday’s European session. The Loonie pair trades back and forth, with investors focusing on the Bank of Canada’s (BoC) interest rate decision, which will be announced on Wednesday.
The BoC is expected to reduce its key borrowing rates by 50 basis points (bps) to 3.75%. This would be the fourth straight interest rate cut by BoC in a row. However, the rate-cut size will be larger than usual due to consistently rising jobless rate and slowing inflationary pressures. In September, the Canadian Unemployment Rate decelerated to 6.5% from 6.6% in August but is still higher than 5%, which is often considered a full employment level.
The Canadian economy needs fresh stimulus to boost overall spending and employment levels, which makes more rate cuts as appropriate. Meanwhile, a tight competition between former US President Donald Trump and current Vice President Kamala Harris for presidential elections, which are two weeks away has also kept the Canadian Dollar (CAD) on tenterhooks. The victory of Trump would result in higher import tariffs, which would undermine the currencies of the United States’s (US) trading partners, such as Canada.
Meanwhile, a firm US Dollar (USD) has also weighed on the Loonie pair. The US Dollar’s outlook is upbeat as investors expect a gradual rate-cut cycle from the Federal Reserve (Fed) in the remainder of the year. According to the CME FedWatch tool, the Fed is expected to cut interest rates by 25 basis points (bps) in November and December.
On the economic front, investors will pay close attention to the flash S&P Global PMI data for October, which will be published on Thursday.
The Bank of Canada (BoC) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoC believes inflation will be above target (hawkish), it will raise interest rates in order to bring it down. This is bullish for the CAD since higher interest rates attract greater inflows of foreign capital. Likewise, if the BoC sees inflation falling below target (dovish) it will lower interest rates in order to give the Canadian economy a boost in the hope inflation will rise back up. This is bearish for CAD since it detracts from foreign capital flowing into the country.
Read more.Next release: Wed Oct 23, 2024 13:45
Frequency: Irregular
Consensus: 3.75%
Previous: 4.25%
Source: Bank of Canada
China cut the 1Y and 5Y LPR by 25bps on Monday to 3.10% and 3.60% respectively. USD/CNH had surged to mid-7.13 levels amid broad USD strength, DBS’ FX analyst Philip Wee notes.
“China cut the 1Y and 5Y LPR by 25bps on Monday to 3.10% and 3.60% respectively. These cuts to benchmark lending rates were expected given a 20bps cut to the 7D reverse repo rate in late September, and are part of a broader policy push to stimulate growth in China.”
“USD/CNH had surged to mid-7.13 levels amid broad USD strength, opening a gap with the onshore CNY fixing. RMB flows have become more two-way, after an earlier bout of equity inflows into China briefly led to a dip in USD/CNH below 7.”
“We had flagged US election and trade risks as reasons to be restrained on RMB optimism earlier, and it seems the RMB market mood has indeed shifted amid a resurgent Trump.”
Potential for the New Zealand Dollar (NZD) to continue to decline; given the oversold conditions, it is unlikely to break clearly below 0.6005. In the longer run, price action indicates that 0.6005 is likely within reach; the next level to watch below 0.6005 is 0.5985, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.
24-HOUR VIEW: “We did not expect the sharp drop in NZD that reached a low of 0.6027 (we were expecting range trading). Although the sharp drop appears to be overdone, there is potential for NZD to continue to decline. Given the oversold conditions, NZD is unlikely to break clearly below the major support at 0.6005. On the upside, any intraday rebound is expected to face strong resistance at 0.6060 with minor resistance at 0.6045.”
1-3 WEEKS VIEW: “Yesterday (21 Oct, spot at 0.6075), we highlighted that “momentum is beginning to slow, and the likelihood of NZD decline further to 0.6005 has decreased. We did not expect the subsequent sharp drop to 0.6027. The price action indicates that 0.6005 is likely within reach. The next level to watch below 0.6005 is 0.5985. On the upside, the ‘strong resistance’ level has moved lower to 0.6085 from 0.6115. A breach of the 0.6085 would mean that the weakness in NZD that started early this month has stabilised.”
Gold (XAU/USD) continues higher after the briefest of pullbacks to trade once more in the $2,730s on Tuesday. The yellow metal is rallying due to increased safe-haven demand because of the intensifying conflict in the Middle East, although it has slowed its pace as bonds sell off around the world due to a revision of the outlook for global interest rates.
From previously expecting interest rates to fall sharply, investors now see a gentler slope because unexpectedly strong US data eliminated the chances of another double-dose 50 basis point (bps) (0.50%) mega cut by the Federal Reserve (Fed). This, in turn, reduces Gold’s attractiveness as a non-interest-paying asset.
Gold rallies as investor demand for safety increases due to the worsening conflict in the Middle East. Despite the eleventh visit to the region by US Secretary of State Anthony Blinken since the start of the conflict, a cease-fire deal seems as elusive as ever.
On Tuesday morning, Hezbollah announced that it had launched rockets at two bases near Tel Aviv and one near Haifa. This followed a series of Israeli airstrikes on southern Lebanon and Beirut. In one Israeli strike near Beirut’s Hariri Hospital, the death toll is said to have risen to 13, according to the Lebanon Ministry of Health, as per Reuters.
On Monday, Israel stepped up its bombardment of Beirut by destroying several economic targets in an attempt to wipe out the bank that provides Hezbollah with its funding.
An expected Israeli retaliatory attack on Iran is also back on the table after an Iranian drone penetrated Israeli air defense systems and exploded near Israeli Prime Minister Benjamin Netanyahu’s private residence over the weekend.
Gold continues rising in a steady uptrend on all time frames (short, medium and long) and, after breaching the $2,700 mark, it is now on its way to the next target at $2,750.
The Relative Strength Index (RSI) is overbought, however, advising long-holders not to add to their positions because of an increased risk of a pullback. Should RSI close back in neutral territory, it will be a sign for long-holders to close their positions and open shorts as a deeper correction may evolve. Support lies at $2,700 (key level) and $2,685 (September high).
Gold’s overall strong uptrend, however, suggests that any corrections will likely be short-lived, and afterward, the broader bull trend will probably resume.
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.
US election risks are dominating markets amid a resurgent Trump. The betting odds for a Trump win has shortened markedly over October, and this is propelling US yields higher and lifting the USD, DBS’ FX analyst Philip Wee notes.
“Polls from FiveThirtyEight now show Trump leading Harris for the first time in Pennsylvania and almost catching up to Harris in Michigan, which are two major swing states. A broad Republican victory under Trump entail raise risks of wider US budget deficits. The Committee for a Responsible Federal Budget has calculated that Trump’s proposed fiscal policies could result in USD7.5trn more debt over ten years, while Harris’s plans could add USD3.5trn of debt.”
“Tariffs are also likely to be hiked by Trump, which could lift the USD, particularly against Asian exporter currencies. Meanwhile, Fed officials including Schmid, Logan, and Kashkari had called for a more gradual pace of Fed rate cuts, giving uncertainty in the economy.”
“Daly underscored that policy was still tight, and that she has not seen reasons to stop cutting rates. Markets have moved from pricing another 70bps of cuts this year at the start of Oct, to just 40bps of additional cuts. The adjustment of rate cut expectations is already substantive and had lifted the DXY towards 104, near its Aug high. The USD may not benefit as much from the trimming of rate cut expectations going forward.”
The Mexican Peso (MXN) pauses on Tuesday after a multiple-day run of weakness in its key pairs. Emerging market (EM) assets had been hit by a general unwinding of risk appetite triggered by a recalibration of global interest rate expectations. This has generally hit risk-sensitive EM currencies like the Peso at the worst. The trend started after United States (US) investors changed their expectations about the trajectory of interest rates in the US, seeing them not falling as sharply due to unexpectedly strong US economic data.
Further pressure on the Mexican Peso comes from former US President Donald Trump’s improved performance in opinion polls. This now means the race to the White House is neck-and-neck between him and US Vice President and Democratic candidate Kamala Harris. Trump has threatened to tear up the US’s free trade agreement with Mexico and whack up to 300% tariffs on Mexican cars imported into the States. Such a move would hit the Mexican economy and reduce demand for its currency.
The latest poll by TIPP Insights on October 18-20 shows Donald Trump in the lead with 48% of the vote to Kamala Harris’s 47%, according to election website FiveThirtyEight. Betting website OddsChecker, meanwhile, gives Trump an 8/13 or 61.9% chance of winning over Harris’s 8/5 or 38.50%.
The Mexican Peso is facing challenges due to a growing cautious stance among global investors towards emerging market assets, as noted in an article from El Financiero. This sentiment stems partly from rising concerns that the Federal Reserve (Fed) may have prematurely lowered US interest rates by a substantial 50 basis points (bps) at its September meeting.
Strong US economic data indicates that such a significant rate cut may not have been justified. While a robust US economy generally benefits Mexico due to their close trading relationship, high US interest rates make EM assets — especially from Brazil and Mexico — less attractive, as highlighted by The Wall Street Journal (WSJ). A shift back to a tighter monetary policy could dampen global investor interest in Mexican assets.
Additionally, disappointment over the limited scope of recent Chinese stimulus measures may be contributing to heightened investor caution regarding EM holdings, further impacting the Peso. However, it's worth noting that the People's Bank of China (PBoC) announced cuts to its one- and five-year prime rates to ease credit conditions on Monday.
On the data front, Tuesday sees the release of Mexican Economic Activity data for October at 12:00 GMT, forecasted to increase by 0.9% year-over-year after a 3.8% rise in September. If activity beats expectations, it could help the Peso and vice versa if the opposite.
USD/MXN flirts with the key 20.00 barrier and then pulls back. It will probably resume going higher once the correction ends. The pair is in a short, medium and long-term trend, which, given the principle in technical analysis that “the trend is your friend,” is more likely than not to extend.
The break above 19.83 (October 1 high) has confirmed a probable move up to the next target in the vicinity of the September 10 high at 20.13.
The blue line of the Moving Average Convergence Divergence (MACD) momentum indicator is rising quite strongly after bottoming out at the zero line and crossing above its red signal line, supporting a mildly bullish outlook overall.
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 Pound Sterling (GBP) performs mixed against its major peers on Tuesday, struggling for direction as investors await the Bank of England (BoE) Governor Andrew Bailey’s speech, who will speak at 13:25 GMT at the Bloomberg Global Regulatory Forum in New York. In his speech, Bailey is expected to provide fresh guidance on the interest-rate outlook, a key driver for the Pound Sterling’s valuation.
In an interview with the Guardian newspaper at the start of the month, Bailey stressed the need to cut interest rates aggressively if price pressures continue to ease. He said the BoE could become "a bit more activist" and "a bit more aggressive" in its approach to lowering rates if there was further welcome news on inflation.
Meanwhile, a column written by BoE’s rate-setter Megan Greene, published in the Financial Times on Monday, indicated that the policymaker favored a gradual rate-cut approach, with doubts over whether forward consumption levels will be strong or weak.
According to market speculation, traders are confident about the BoE cutting interest rates by 25 basis points (bps) to 4.75% in November. For December, traders are also betting heavily for another 25 bps cut, Reuters reported.
The Pound Sterling trades close to near the psychological support of 1.3000 in European trading hours. The near-term outlook of the GBP/USD remains bearish as it hovers below the 50-day Exponential Moving Average (EMA), which trades around 1.3090.
The 14-day Relative Strength Index (RSI) hovers near 40.00. A breakdown through the same will strengthen the bearish momentum.
Looking down, the upward-sloping trendline drawn from the April 22 low of 1.2300 will be a major support zone for Pound Sterling bulls near 1.2920. On the upside, the Cable will face resistance near the 20-day EMA around 1.3110.
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.
Silver prices (XAG/USD) rose on Tuesday, according to FXStreet data. Silver trades at $34.21 per troy ounce, up 1.22% from the $33.79 it cost on Monday.
Silver prices have increased by 43.75% since the beginning of the year.
Unit measure | Silver Price Today in USD |
---|---|
Troy Ounce | 34.21 |
1 Gram | 1.10 |
The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 79.94 on Tuesday, down from 80.48 on Monday.
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.
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Yesterday's data in Poland brought a downside surprise across the board. This morning markets have already seen Hungarian wages for August and later on retail sales in Poland will be released which is expected to be above the market's expectations, ING’s FX analyst Frantisek Taborsky notes.
“However, today's highlight is the National Bank of Hungary meeting. In line with expectations, we expect no change in rates at 6.50%. Of course, the recent sell-off in HUF, along with the whole EM space, has turned the central bank hawkish and the pause in the cutting cycle has been highly communicated in the previous days. Even so, the market awaits another hawkish report and hints as to what central bankers want to see before returning to the rate cut discussion.”
“On the macro side, the central bank may be satisfied. Inflation is on target while the economy surprises more on the negative side. However, global markets are not supportive and EUR/HUF above 400 is a warning sign for the NBH. The main question for today is how long the pause in the cutting cycle is. Markets have priced out much of the NBH easing and rates continue to sell off across the IRS and HGBs curve.”
“The market is pricing in the first cut in June after yesterday with the terminal rate at 5.90%, roughly 130bps above the September lows. That seems too far to us, but it makes no sense to go against the market in this environment. Despite the market already being on the hawkish side, NBH will not have an easy job today and communication will be key. However, we believe the central bank is aware of the fragile situation and therefore the HUF could see some gains today, but it is probably too early for any significant recovery and every gain could be short-lived.”
Sharp increase in momentum is likely to lead to further declines in AUD, but 0.6620 is probably out of reach today. In the longer run, rejuvenated momentum suggests AUD weakness remains intact; the level to monitor is 0.6620, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.
24-HOUR VIEW: “Our view for AUD to trade in a 0.6685/0.6730 range was incorrect, as it plummeted to a low of 0.6652 in NY trading. The sharp increase in momentum is likely to lead to further declines, even though the major support at 0.6620 is probably out of reach today. To maintain the momentum, AUD must remain below 0.6685 with minor resistance at 0.6670.”
1-3 WEEKS VIEW: “Yesterday (21 October), when AUD was at 0.6715, we indicated that ‘Downward momentum is slowing rapidly, and a breach of 0.6740 (‘strong resistance’ level) would mean that the AUD weakness has stabilised.’ However, AUD did not breach the ‘strong resistance’ level. Instead, it dropped sharply to a low of 0.6652. The rejuvenated momentum suggests that the AUD weakness from early this month remains intact. The level to monitor is 0.6620, followed by a significant support level at 0.6585. On the upside, the ‘strong resistance’ level has moved lower to 0.6705 from 0.6740.”
USD/JPY remains a closely watched pair after breaking again above 150.0, ING’s FX analyst Francesco Pesole notes.
“The yen is naturally highly exposed to bond market weakness, but markets are also adding some political risk premium into the yen after the latest polls showed the ruling LPD-Komeito coalition losing support ahead of this week’s election. Political weakening of Prime Minister Shigeru Ishiba can lead to a further delay in the Bank of Japan normalisation plans, leaving the Minister of Finance with the decision to either leave the yen to give in to further selling speculation or jump back into FX intervention.”
“We still think markets will be more sensitive than in previous instances to verbal intervention given the success of the latest round of FX intervention, but for now there is a good chance JPY speculators will keep testing which new level will trigger an MoF reaction.”
“USD/JPY easily broke through the 100-day moving average at 150.7 yesterday. We’ll see whether the 200-day MA 151.3 level offers some better resistance. Lacking some reaction from Japanese authorities, the combination of a stronger dollar and Japan's political risk premium can take USD/JPY back to the 153-155 mark before the US vote.”
The NZD/USD pair stages a modest recovery from the 0.6020 area, or its lowest level since August 16 touched this Tuesday and sticks to its intraday gains through the first half of the European session. Spot prices currently trade around the 0.6060 region, up 0.45% for the day, and draw support from a weaker US Dollar (USD).
The USD Index (DXY), which tracks the Greenback against a basket of currencies, eases from its highest level since early August as bulls take a breather following the recent strong rally since the beginning of this month. However, growing acceptance that the Federal Reserve (Fed) will proceed with modest rate cuts should limit any meaningful USD corrective slide. This, along with expectations that the Reserve Bank of New Zealand (RBNZ) will cut rates aggressively and a softer risk tone, should cap gains for the risk-sensitive NZD/USD pair.
From a technical perspective, the recent breakdown below the very important 200-day Simple Moving Average (SMA) was seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold territory. This, in turn, suggests that the path of least resistance for the NZD/USD pair is to the downside. Hence, any subsequent move up might still be seen as a selling opportunity near the 0.6100 round-figure mark, which should now act as a key pivotal point.
The said barrier is followed by the 0.6120-0.6125 supply zone, which if cleared decisively will suggest that spot prices have formed a near-term bottom and pave the way for additional gains. The NZD/USD pair might then aim to clear the 0.6175-0.6180 intermediate barrier and reclaim the 0.6200 round-figure mark before climbing further towards the next relevant hurdle near the 0.6230-0.6235 region.
On the flip side, the 0.6025-0.6020 region, or the daily trough, might continue to protect the immediate downside ahead of the 0.6000 psychological mark. A convincing break below the latter will reaffirm the negative outlook and drag the NZD/USD pair to the 0.5950 horizontal support. The downward trajectory could extend further towards the 0.5930 intermediate support en route to sub-0.5900 levels and the August monthly swing low, around mid-0.5800s.
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.13% | -0.09% | 0.11% | 0.00% | -0.33% | -0.37% | -0.07% | |
EUR | 0.13% | 0.04% | 0.23% | 0.12% | -0.23% | -0.23% | 0.05% | |
GBP | 0.09% | -0.04% | 0.20% | 0.09% | -0.26% | -0.28% | 0.02% | |
JPY | -0.11% | -0.23% | -0.20% | -0.10% | -0.44% | -0.48% | -0.17% | |
CAD | 0.00% | -0.12% | -0.09% | 0.10% | -0.33% | -0.37% | -0.06% | |
AUD | 0.33% | 0.23% | 0.26% | 0.44% | 0.33% | -0.04% | 0.26% | |
NZD | 0.37% | 0.23% | 0.28% | 0.48% | 0.37% | 0.04% | 0.30% | |
CHF | 0.07% | -0.05% | -0.02% | 0.17% | 0.06% | -0.26% | -0.30% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
AUD/JPY continues to gain ground for the second successive session, hovering around 100.90 during the European trading hours on Tuesday. The Australian Dollar (AUD) receives support from hawkish sentiment surrounding the Reserve Bank of Australia (RBA) regarding its policy outlook, bolstered by positive employment data released last week.
The Employment Change surged by 64.1K in September, bringing the total employment to a record 14.52 million. This far surpassed market expectations of a 25.0K increase, following a revised rise of 42.6K in the previous month.
Additionally, the AUD found support from China's recent rate cuts, given that China remains Australia’s largest trading partner. The People's Bank of China (PBoC) reduced the 1-year Loan Prime Rate (LPR) to 3.10% from 3.35% and the 5-year LPR to 3.60% from 3.85%, in line with expectations. Lower borrowing costs are anticipated to stimulate China's domestic economic activity, potentially increasing demand for Australian exports.
The weakening Japanese Yen (JPY) may fuel market fears, potentially triggering another intervention by Japanese authorities. However, Japan's Deputy Chief Cabinet Secretary, Kazuhiko Aoki, declined to comment on currency movements on Tuesday. Meanwhile, Chief Cabinet Secretary Yoshimasa Hayashi acknowledged both the positive and negative aspects of the Yen’s fluctuations.
Bank of Japan (BoJ) Executive Director Takashi Kato stated that the BoJ is not targeting specific FX levels but is closely monitoring upside risks from rising import costs. Kato also emphasized the need to carefully assess the US economy, upcoming elections, and Federal Reserve policy.
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 Pound Sterling (GBP) is likely to continue to weaken; the 1.2940 level is expected to provide strong support. GBP must break and remain below 1.2940 before a resumption of weakness can be expected, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.
24-HOUR VIEW: “After GBP rose last Friday, we highlighted yesterday (Monday) that ‘Despite the advance, there is no significant increase in momentum, and instead of continuing to rise, GBP is more likely to trade sideways between 1.3010 and 1.3070.’ The subsequent sharp drop that reached a low of 1.2978 was surprising. Today, GBP is likely to continue to weaken, even though the 1.2940 level is expected to provide strong support. Resistance is at 1.3000; a breach of 1.3020 would indicate that the current downward pressure has faded.”
1-3 WEEKS VIEW: “After holding a negative GBP stance since the start of the month, we turned neutral yesterday (21 Oct, spot at 1.3050), indicating that ‘the weakness in GBP has ended, and for the time being, it is likely to trade in a range between 1.2980 and 1.3130.’ We did not anticipate the subsequent sharp decline that reached a low of 1.2984. Downward momentum has increased, but not enough to suggest the resumption of GBP weakness. GBP must break and remain below 1.2940 before further declines can be expected. The likelihood of GBP breaking clearly below 1.2940 will remain intact, provided that the ‘strong resistance’ level at 1.3060 is not breached in the next couple of days.”
The recent shift towards growth concern in the ECB narrative automatically places a greater focus on activity surveys like this week’s PMIs and Ifo, which have previously been overlooked by the Governing Council. But before then, there will be a long list of ECB speakers. Today, along with a TV interview from President Christine Lagarde herself, doves Panetta and Centeno, neutral members Villeroy and Rehn, and hawks Knot and Holzmann will speak, ING’s FX analyst Francesco Pesole notes.
“It is quite common for ECB members to fine-tune the policy message in the period after a rate decision. The key question is: are the hawks fine with Lagarde’s sanguine disinflation view, a gradual shift in focus to growth and such a dovish market pricing? Given some lingering pockets of sticky services inflation in the eurozone, the answer is probably no. But unless PMIs show some sign of life on the activity side, convincing markets to price out some easing will be no easy task.”
“Naturally, should we see signs of faltering resistance towards easing by arch-hawks like Knot and Holzmann today, expect the euro to feel some additional pressure. Yesterday, hawkish member Kazimir said the December decision is "wide open", quite a dovish shift from his pre-October meeting comments.”
“In the rest of Europe, we’ll be keeping a close eye on the first of four speeches Bank of England Governor Andrew Bailey is set to deliver this week. EUR/GBP has room to rebound from 0.8300 as markets may prove rather sensitive to any dovish hint by Bailey, and also considering some pre-UK budget positioning can see some buildup of GBP shorts. Looking at GBP/USD, our near-term bias remains 1.28.”
Chinese banks lowered the loan prime rates (LPR) by 25 bps at October’s fixing, bringing the 1Y and 5Y LPR to 3.10% and 3.60% respectively. The size of the rate cuts was the largest on record and came above consensus and our forecasts for 20 bps as banks heed PBOC’s call to lower borrowing costs amid the economic slowdown and persistent deflation risks, UOB Group’s Economist Ho Woei Chen notes.
“Chinese banks lowered the loan prime rates (LPR) by a larger than expected 25 bps at October’s fixing, bringing the 1Y and 5Y LPR to 3.10% and 3.60% respectively.”
“This is a follow through from PBOC’s cut to the key 7-day reverse repo rate (-20 bps), the 1Y medium-term lending facility rate (-30 bps) and banks’ reserve requirement ratio (-50 bps) in late-September. Cumulatively, the 1Y LPR and 5Y LPR have been cut by a record 35 bps and 60 bps respectively this year.”
“Keeping in mind the impact on the limits of progressively lower interest rates, we think the PBOC is likely done with its interest rate cuts for the year but there is still room for another 25-50 bps reduction to the banks’ reserve requirement ratio (RRR) by end-2024 as guided by the central bank. This will release more liquidity to replace the large amount of maturing 1Y medium-term lending facility (MLF) in the next few months.”
Potential for the Euro (EUR) to decline further; it remains to be seen whether 1.0770 is within reach today. In the longer run, downward momentum has not improved much, but there is a chance for EUR to drop to 1.0770 before stabilisation can be expected, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.
24-HOUR VIEW: “Yesterday, when EUR was at 1.0865, we indicated that it ‘could edge higher, but it does not seem to have enough momentum to break above 1.0900.’ However, instead of edging higher, EUR plummeted, closing lower by 0.47% (1.0815). While downward momentum has not increased by much, there is potential for EUR to decline further. However, it remains to be seen whether 1.0770 is within reach today. Note that there is another support level at 1.0800. On the upside, resistance levels are at 1.0830 and 1.0850.”
1-3 WEEKS VIEW: “After EUR rebounded last Friday, we indicated yesterday (21 Oct, spot at 1.0865) that ‘although our ‘strong resistance’ level at 1.0900 has not been breached yet, the slowing momentum suggests 1.0770 is likely out of reach this time around.’ EUR subsequently reversed and dropped to 1.0810. Despite the relatively sharp decline, downward momentum has not improved much. That said, as long as 1.0880 (‘strong resistance’ level previously at 1.0900) is not breached, there is a chance for EUR to drop to 1.0775 before stabilisation can be expected.”
The US Treasury selloff is adding fuel to the US Dollar (USD) rally, ING’s FX analyst Francesco Pesole notes.
“Our perception is that the size of the bond and FX moves are now being exacerbated by some deleveraging ahead of the US election. Yesterday, three Fed speakers (Logan, Kashkari and Schmid) sounded quite cautious about future easing, effectively endorsing the recent hawkish repricing in the USD OIS curve.”
“Mary Daly was more dovish, but that did not prevent markets from trimming another 5bp from year-end rate expectations. The Fed Funds futures curve currently embeds 40bp of cuts and the OIS curve 36bp. While that has continued to widen to policy divergence in favour of the dollar, we are not sure markets will be willing to price out much more easing without having first received some further information on the jobs market.”
“In that sense, we may need to wait another week (JOLTS job opening figures on 29 October) for the next key input to the macro story. Until then, our bias for a stronger dollar is more a result of potential Trump hedges rather than further near-term swap rate widening.”
USD/CHF offers its gains from the previous session, trading around 0.8650 during the early European hours on Tuesday. This downside of the pair could be limited as the US Dollar (USD) gained support following a surge in US Treasury yields, which climbed over 2% on Monday. At the time of writing, the 2-year and 10-year US Treasury bond yields stand at 4.04% and 4.20%, respectively.
Recent economic data dispelled the likelihood of a bumper rate cut by the Federal Reserve (Fed) in November. According to the CME FedWatch Tool, the likelihood of a 25-basis-point rate cut in November is 89.1%, with no expectation of a larger 50-basis-point cut.
On Monday, Federal Reserve Bank of Minneapolis President Neel Kashkari highlighted that the Fed is closely monitoring the US labor market for signs of rapid destabilization. Kashkari cautioned investors to anticipate a gradual pace of rate cuts over the coming quarters, suggesting that any monetary easing will likely be moderate rather than aggressive.
The Swiss Franc (CHF) faces pressure as a continued slowdown in Swiss inflation strengthens expectations of another rate cut by the Swiss National Bank (SNB) at its upcoming December meeting. In September, the SNB reduced its key rate for the third time in a row by 0.25%, bringing it to 1%. Inflation also fell for the third consecutive month, reaching 0.8% in September—its lowest level in over three years—down from 1.1% in August.
However, the CHF could find support from safe-haven demand amid uncertainty surrounding the US election and rising geopolitical tensions in the Middle East. Israel's strikes on Hezbollah-linked financial sites in Beirut have heightened fears of an escalating conflict.
In the US presidential race, Democratic candidate Kamala Harris and Republican Donald Trump delivered contrasting messages as they worked to sway undecided voters in the final two weeks leading up to Election Day.
Switzerland is the ninth-largest economy measured by nominal Gross Domestic Product (GDP) in the European continent. Measured by GDP per capita – a broad measure of average living standards –, the country ranks among the highest in the world, meaning that it is one the richest countries globally. Switzerland tends to be in the top spots in global rankings about living standards, development indexes, competitiveness or innovation.
Switzerland is an open, free-market economy mainly based on the services sector. The Swiss economy has a strong export sector, and the neighboring European Union (EU) is its main trading partner. Switzerland is a leading exporter of watches and clocks, and hosts leading firms in the food, chemicals and pharmaceutical industries. The country is considered to be an international tax haven, with significantly low corporate and income tax rates compared with its European neighbors.
As a high-income country, the growth rate of the Swiss economy has diminished over the last decades. Still, its political and economic stability, its high education levels, top-tier firms in several industries and its tax-haven status have made it a preferred destination for foreign investment. This has generally benefited the Swiss Franc (CHF), which has historically kept relatively strong against its main currency peers. Generally, a good performance of the Swiss economy – based on high growth, low unemployment and stable prices – tends to appreciate CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
Switzerland isn’t a commodity exporter, so in general commodity prices aren’t a key driver of the Swiss Franc (CHF). However, there is a slight correlation with both Gold and Oil prices. With Gold, CHF’s status as a safe-haven and the fact that the currency used to be backed by the precious metal means that both assets tend to move in the same direction. With Oil, a paper released by the Swiss National Bank (SNB) suggests that the rise in Oil prices could negatively influence CHF valuation, as Switzerland is a net importer of fuel.
EUR/USD trades close to a fresh 11-week low near the round-level support of 1.0800 in Tuesday’s European session. The major currency pair is under pressure due to multiple headwinds, such as escalating European Central Bank (ECB) dovish bets and a firm US Dollar (USD).
Traders have priced in the ECB to cut interest rates again in the December meeting as growing risks to Eurozone’s economic growth are expected to keep inflationary pressures within striking distance of the central bank’s target of 2%. This would mean the fourth interest rate cut by the ECB this year.
Data released on Monday showed that the German Producer Price Index (PPI) deflated by 1.4% year-over-year (YoY) in September, faster than 0.8% in August, and pointed to the inability of producers to raise prices of goods and services at factory gates due to weak household spending.
On Monday, Slovak central bank chief and ECB policymaker Peter Kazimir said he is increasingly confident that the disinflation trend is intact. However, he wants to see more evidence before declaring a victory over inflation.
Meanwhile, the commentary from Lithuanian central bank governor and ECB Governing Council member Gediminas Šimkus appeared to be more dovish. Šimkus said, "If the disinflation processes get entrenched, it's possible that rates will be lower than the natural level." The ‘natural level’ of interest rates is between 2% and 3%.
In Tuesday’s session, investors will pay close attention to ECB President Christine Lagarde’s interview with Bloomberg and her participation in a panel discussion during the International Monetary Fund (IMF) meeting in Washington. Lagarde is expected to provide fresh guidance on interest rates.
EUR/USD struggles to hold the immediate support of 1.0800 in European trading hours. The outlook of the major currency pair remains uncertain as it trades below the 200-day Exponential Moving Average (EMA), which trades around 1.0900.
The downside move in the shared currency pair started after a breakdown of a Double Top formation on a daily timeframe near the September 11 low at around 1.1000, which resulted in a bearish reversal.
The 14-day Relative Strength Index (RSI) dives below 30.00, indicating a strong bearish momentum. However, a recovery move remains on the cards as conditions turn oversold.
On the downside, the major could find support near the upward-sloping trendline at 1.0750, which is plotted from the October 3 low around 1.0450. Meanwhile, the 200-day EMA and the psychological figure of 1.1000 will be the key resistances for the pair.
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.
Here is what you need to know on Tuesday, October 22:
Following a quiet start to the week, the US Dollar (USD) gathered strength in the American trading hours on Monday, with the USD Index reaching its highest level since early August above 104.00. Early Tuesday, the index stays in a consolidation phase below this level. Richmond Fed Manufacturing Index for October will be the only data featured in the US economic calendar. Throughout the day, several key central bankers, including European Central Bank (ECB) President Christine Lagarde and Bank of England (BoE) Governor Andrew Bailey, will be delivering speeches.
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | 0.37% | 0.33% | 0.78% | 0.09% | 0.30% | 0.20% | 0.04% | |
EUR | -0.37% | -0.11% | 0.34% | -0.22% | -0.09% | -0.27% | -0.40% | |
GBP | -0.33% | 0.11% | 0.45% | -0.24% | -0.01% | -0.12% | -0.34% | |
JPY | -0.78% | -0.34% | -0.45% | -0.70% | -0.48% | -0.53% | -0.80% | |
CAD | -0.09% | 0.22% | 0.24% | 0.70% | 0.12% | 0.17% | -0.17% | |
AUD | -0.30% | 0.09% | 0.00% | 0.48% | -0.12% | -0.03% | -0.34% | |
NZD | -0.20% | 0.27% | 0.12% | 0.53% | -0.17% | 0.03% | -0.21% | |
CHF | -0.04% | 0.40% | 0.34% | 0.80% | 0.17% | 0.34% | 0.21% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The USD benefited from the risk-averse market environment and started to outperform its major rivals as Wall Street's main indexes opened on a bearish note. In the European morning on Tuesday, US stock index futures are down between 0.2% and 0.3%.
Gold gathered bullish momentum on Monday and climbed to a new record-high of $2,740. Although XAU/USD erased its gains to close the day flat near $2,730, it managed to regain its traction early Tuesday. At the time of press, Gold was up more than 0.5% on the day above $2,730.
Bank of Japan (BoJ) Executive Director Takashi Kato said on Tuesday that they are not targeting FX levels but added that they are carefully looking at upside risks from rising import prices. USD/JPY rose nearly 1% on Monday and continued to push higher in the Asian session on Tuesday. After touching its highest level in over two months above 151.00, the pair retreated to toward 150.70.
EUR/USD dropped toward 1.0800 and lost 0.5% on Monday to register its lowest daily close since early August. The pair finds it difficult to stage a rebound and trades at around 1.0820 in the European morning on Tuesday. ECB President Lagarde will participate in a conversation with Bloomberg journalist Francine Lacqua at 14:30 GMT. Later in the day, she will be appearing a panel discussion about the future of cross-border payments during the 2024 Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) in Washington DC.
GBP/USD failed to build on the recovery gains it recorded in the second half of the previous week and dropped below 1.3000 on Monday. The pair managed to erase a portion of its recent losses and was last seen trading slightly above 1.3000. BoE Governor Bailey will deliver a keynote address at the Bloomberg Global Regulatory Forum in New York at 13:25 GMT.
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.
GBP/USD retraces its recent losses, trading around 1.3000 during the Asian hours on Tuesday. The daily chart analysis shows the pair is consolidating within the descending channel pattern, which suggests a bearish bias for the pair.
The Moving Average Convergence Divergence (MACD) indicator suggests bearish momentum, as the MACD line is positioned below the centreline and the signal line. Additionally, the 14-day Relative Strength Index (RSI) is below 50 level, reinforcing the ongoing bearish sentiment.
On the downside, the GBP/USD pair may navigate the area around the lower boundary of the descending channel at 1.2810, followed by the psychological level of 1.2800. A break below this level could put downward pressure on the pair to test the three-month low of 1.2665, which was recorded on August 8.
For resistance, the GBP/USD pair could test the upper boundary of the descending channel around the nine-day Exponential Moving Average (EMA) at the 1.3040 level. A break above this level could support the pair to approach the psychological level of 1.3100.
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the US Dollar.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.04% | -0.10% | -0.02% | -0.01% | -0.34% | -0.34% | -0.09% | |
EUR | 0.04% | -0.06% | 0.03% | 0.02% | -0.32% | -0.30% | -0.05% | |
GBP | 0.10% | 0.06% | 0.10% | 0.10% | -0.25% | -0.25% | 0.02% | |
JPY | 0.02% | -0.03% | -0.10% | -0.00% | -0.34% | -0.36% | -0.08% | |
CAD | 0.00% | -0.02% | -0.10% | 0.00% | -0.32% | -0.34% | -0.08% | |
AUD | 0.34% | 0.32% | 0.25% | 0.34% | 0.32% | -0.00% | 0.25% | |
NZD | 0.34% | 0.30% | 0.25% | 0.36% | 0.34% | 0.00% | 0.27% | |
CHF | 0.09% | 0.05% | -0.02% | 0.08% | 0.08% | -0.25% | -0.27% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
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EUR/USD: EUR amounts
USD/JPY: USD amounts
USD/CHF: USD amounts
AUD/USD: AUD amounts
USD/CAD: USD amounts
NZD/USD: NZD amounts
EUR/GBP: EUR amounts
The EUR/USD pair enters a bearish consolidation phase during the Asian session on Tuesday and oscillates in a range around the 1.0820 region, just above its lowest level since early August touched the previous day. The near-term bias, meanwhile, seems tilted firmly in favor of bearish traders and suggests that the path of least resistance for spot prices remains to the downside.
Data released on Monday showed that producer prices in Germany – the Eurozone's largest economy – fell for the first time in seven months in September and the annual rate of deflation picked up pace. This, in turn, lifted bets for further monetary easing by the European Central Bank (ECB). Furthermore, ECB policymaker Gediminas Simkus said that the ECB may need to reduce its key interest rate even further below the "natural" level if a fall in inflation becomes entrenched. This might continue to undermine the shared currency, which, along with a bullish US Dollar (USD), validates the negative outlook for the EUR/USD pair.
The USD Index (DXY), which tracks the Greenback against a basket of currencies, stands tall near its highest level since early August amid growing acceptance that the Federal Reserve (Fed) will proceed with modest interest rate cuts. Apart from this, concerns about the potential for rising deficit spending after the November 5 US presidential election pushed the US Treasury bond yields to their highest levels in almost three months. This, along with persistent geopolitical risks, is seen underpinning the safe-haven buck, which, in turn, supports prospects for a further near-term depreciating move for the EUR/USD pair.
There isn't any relevant market-moving macro data due for release from the Eurozone on Tuesday, while the US economic docket features the Richmond Manufacturing Index. This, along with Philadelphia Fed President Patrick Harker's scheduled speech, might influence the USD price dynamics and provide some impetus to the EUR/USD pair. Nevertheless, the aforementioned fundamental backdrop suggests that any attempted recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.
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.
Bank of Japan (BoJ) Executive Director Takashi Kato said on Tuesday that “we are not targeting FX levels but are carefully looking at upside risks from rising import prices.”
Kato added that he wants to extremely thoroughly gauge the US economy, US elections and the Fed policy.
Gold price (XAU/USD) attracts some dip-buying during the Asian session on Tuesday and remains within the striking distance of a fresh record peak, around the $2,740-2,741 area touched the previous day. The uncertainty surrounding the US Presidential election on November 5, along with the risk of a broader Middle East conflict and the expected interest rate cuts by major central banks, continue to offer some support to the safe-haven precious metal.
Meanwhile, the US Dollar (USD) stands firm near its highest level since early August amid the recent surge in the US Treasury bond yields, bolstered by bets for a smaller interest rate cut by the Federal Reserve (Fed) in November. This, along with slightly overbought conditions on the daily chart, might hold back traders from placing fresh bullish bets around the Gold price and cap gains in the absence of any relevant market-moving US economic data.
From a technical perspective, the recent move-up witnessed over the past two weeks or so has been along an ascending channel. This points to a well-established short-term uptrend and supports prospects for a move towards challenging the trend-channel resistance, currently pegged near the $2,750 region. That said, the Relative Strength Index (RSI) on daily/4-hour charts is flashing slightly overbought conditions and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before traders start positioning for the next leg up.
Meanwhile, any corrective slide now seems to find some support near the $2,720 region. This is closely followed by the lower end of the aforementioned channel, currently pegged near the $2,710 area, which if broken decisively should pave the way for deeper losses. The subsequent fall could drag the Gold price below the $2,700 mark, towards the $2,685 support. The latter should act as a key pivotal point, below which the XAU/USD could accelerate the decline towards the $2,662-2,661 resistance breakpoint, now turned support.
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.
Silver price (XAG/USD) continues its winning streak for the sixth consecutive day, trading around $34.10 per troy ounce during the Asian session on Tuesday. The demand for safe-haven Silver is increasing amid rising tensions, as Israel has targeted sites associated with Hezbollah's financial operations in Beirut, raising fears of escalating conflict.
Israel's potential retaliatory actions against Iran are also back in focus following an Iranian drone breach that detonated near Prime Minister Benjamin Netanyahu's residence. Additionally, Israeli military forces intensified their operations on Monday, surrounding hospitals and shelters for displaced individuals in the northern Gaza Strip, which has hindered the delivery of essential aid to civilians, according to Reuters.
US Secretary of State Antony Blinken arrives in Israel on Tuesday as the first stop on a broader Middle East tour aimed at revitalizing ceasefire talks in Gaza and discussing the region's future following the death of Hamas leader Yahya Sinwar.
As the tight US election approaches in just two weeks, demand for safe-haven Silver continues to rise. On Monday, Democratic presidential candidate Kamala Harris and her Republican rival, Donald Trump, presented starkly different messages on the campaign trail as they sought to win over undecided voters ahead of Election Day.
Moreover, easing monetary policies from major central banks are supporting non-yielding Silver prices. The Bank of Canada (BoC) is widely expected to announce a significant interest rate cut of 50 basis points at its upcoming monetary policy meeting on Wednesday.
Recent inflation data indicates that both the Bank of England (BoE) and the Reserve Bank of New Zealand (RBNZ) may contemplate potential rate cuts next month. Additionally, the US Federal Reserve (Fed) is projected to reduce interest rates by 50 basis points by the end of 2024.
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.
Japan’s Deputy Chief Cabinet Secretary Kazuhiko Aoki declined to comment on FX moves in his statement on Tuesday.
Meanwhile, the country’s Chief Cabinet Secretary Yoshimasa Hayashi said that “Yen moves have positive and negative aspects.”
USD/JPY caught a fresh bid wave and briefly regained 151.00 following these comments. The pair is currently trading at 150.95, up 0.07% so far.
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the New Zealand Dollar.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.03% | -0.11% | 0.05% | -0.01% | -0.38% | -0.39% | -0.11% | |
EUR | 0.03% | -0.07% | 0.08% | 0.00% | -0.38% | -0.35% | -0.07% | |
GBP | 0.11% | 0.07% | 0.14% | 0.09% | -0.30% | -0.29% | -0.00% | |
JPY | -0.05% | -0.08% | -0.14% | -0.06% | -0.44% | -0.46% | -0.15% | |
CAD | 0.01% | -0.01% | -0.09% | 0.06% | -0.37% | -0.38% | -0.09% | |
AUD | 0.38% | 0.38% | 0.30% | 0.44% | 0.37% | 0.00% | 0.28% | |
NZD | 0.39% | 0.35% | 0.29% | 0.46% | 0.38% | 0.00% | 0.29% | |
CHF | 0.11% | 0.07% | 0.00% | 0.15% | 0.09% | -0.28% | -0.29% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Gold prices rose in India on Tuesday, according to data compiled by FXStreet.
The price for Gold stood at 7,392.68 Indian Rupees (INR) per gram, up compared with the INR 7,351.75 it cost on Monday.
The price for Gold increased to INR 86,226.76 per tola from INR 85,749.41 per tola a day earlier.
Unit measure | Gold Price in INR |
---|---|
1 Gram | 7,392.68 |
10 Grams | 73,926.80 |
Tola | 86,226.76 |
Troy Ounce | 229,938.20 |
FXStreet calculates Gold prices in India by adapting international prices (USD/INR) to the local currency and measurement units. Prices are updated daily based on the market rates taken at the time of publication. Prices are just for reference and local rates could diverge slightly.
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.
(An automation tool was used in creating this post.)
The Indian Rupee (INR) holds steady against the US Dollar (USD) on Tuesday, bolstered by the potential for market interventions from the Reserve Bank of India (RBI) that have helped the INR weather equity outflows and the dollar's strength.
However, ongoing foreign selling continues to exert pressure on the INR, while concerns over the Middle East conflict have impacted risk-sensitive currencies. Foreign outflows from Indian equities are likely to persist as investors shift funds from India to China, attracted by the recent stimulus measures and relatively lower valuations.
Prime Minister Narendra Modi has left for Russia to participate in the 16th BRICS Summit in Kazan. During the visit, Modi is scheduled to engage in bilateral talks with Russian President Vladimir Putin. He is also expected to meet with Chinese President Xi Jinping and hold discussions with leaders from the other BRICS member countries.
The USD/INR pair trades around 84.10 on Tuesday. An analysis of the daily chart indicates that the pair is consolidating within an ascending channel pattern, suggesting a bullish bias. The 14-day Relative Strength Index (RSI) remains above the 50 level, further confirming the prevailing bullish momentum.
In terms of resistance, the USD/INR pair may face a hurdle at its all-time high of 84.14, reached on August 5, followed by the upper boundary of the ascending channel at the 84.20 level.
On the downside, immediate support appears at the nine-day Exponential Moving Average (EMA) around 84.01 level, which aligns with the lower boundary of the ascending channel near the psychological level of 84.00.
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.
West Texas Intermediate (WTI) US Crude Oil prices struggle to capitalize on the previous day's modest gains and oscillate in a narrow band, around the $69.70-$69.75 area during the Asian session on Tuesday. The commodity, meanwhile, remains within the striking distance of a nearly three-week low touched last Friday and seems vulnerable to prolonging the recent fall witnessed over the past two weeks or so.
The initial market reaction to an interest rate cut by the People's Bank of China (PBOC) on Monday turned out to be short-lived amid concerns over slowing demand, which continues to act as a headwind for Crude Oil prices. The Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) trimmed their global demand forecast last month amid an economic downturn in China – the world's biggest oil importer. The fears were further fueled by the overnight warning by IEA head Fatih Birol, saying that weakness in China will continue to weigh on global oil demand in the coming years.
Apart from this, the recent US Dollar (USD) upswing to its highest level since early August, triggered by expectations for a less aggressive policy easing by the Federal Reserve (Fed), contributes to capping the upside for Crude Oil prices. That said, the risk of a further escalation in the Middle East conflict, which could impact supply in the key oil-producing region, offers some support to the black liquid. This, in turn, warrants some caution for bearish traders and positioning for an extension of the recent sharp retracement slide from the vicinity of the $78.00 mark, or a nearly two-month high touched on October 8.
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 oscillates in a narrow band around the 1.3830 region during the Asian session on Tuesday and remains well within the striking distance of its highest level since August 6 touched the previous day. Meanwhile, the fundamental backdrop seems tilted in favor of bullish traders and suggests that the path of least resistance for spot prices remains to the upside.
Crude Oil prices struggle to capitalize on the previous day's modest gains amid concerns over slowing demand and a prolonged economic downturn in China – the world's top importer. Apart from this, bets for a larger, 50 bps rate cut by the Bank of Canada, bolstered by softer domestic consumer inflation figures, might continue to undermine the commodity-linked Loonie. This, along with the underlying strong bullish sentiment surrounding the US Dollar (USD), validates the near-term positive outlook for the USD/CAD pair.
The incoming upbeat US macro data suggested that the economy remains on a strong footing, which should allow the Federal Reserve (Fed) to be patient in cutting interest rates. Moreover, the recent comments by a slew of influential FOMC members reaffirmed market expectations for a less aggressive policy easing by the US central bank. This, in turn, pushes the US Treasury bond yields and the USD Index (DXY), which tracks the Greenback against a basket of currencies, to their highest level in almost three months.
Furthermore, a turnaround in the global risk sentiment – as depicted by a softer tone around the equity markets – should continue to benefit the safe-haven buck and support prospects for a further appreciating move for the USD/CAD pair. Traders now look forward to the release of the Richmond Manufacturing Index from the US, which, along with a speech by Philadelphia Fed President Patrick Harker, will drive the USD demand. Apart from this, Oil price dynamics should provide some impetus to the USD/CAD pair.
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 Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Tuesday and reverses a part of the previous day's slide to the lowest level since late July. The recent verbal intervention from Japanese authorities, along with a slight deterioration in the global risk sentiment, turn out to be key factors offering some support to the safe-haven JPY. The upside for the JPY, however, seems limited on the back of the uncertainty over the timing and pace of further rate hikes by the Bank of Japan (BoJ).
Meanwhile, concerns about the potential for rising deficit spending after the November 5 US Presidential election and bets for a less aggressive policy easing by the Federal Reserve (Fed) pushed the US Treasury bond yields to their highest levels in almost three months. This might further contribute to capping any meaningful appreciating move for the lower-yielding JPY. Apart from this, the underlying bullish tone around the US Dollar (USD) supports prospects for the emergence of some dip-buying around the USD/JPY pair.
From a technical perspective, any subsequent slide now seems to find immediate support near the 150.30-150.25 region ahead of the 150.00 psychological mark. A convincing break below the latter could make the USD/JPY pair vulnerable to an accelerated drop further towards the 149.65-149.60 intermediate support en route to the 149.10-149.00 area. Some follow-through selling will suggest that the positive move witnessed over the past month or so has run its course and shift the near-term bias in favor of bearish traders.
On the flip side, bulls might now wait for a sustained strength above the 151.00 mark before placing fresh bets. Given that oscillators on the daily chart are holding comfortably in positive territory, the USD/JPY pair might then climb to the 151.60 area before aiming to reclaim the 152.00 round figure. The momentum could extend further towards the 152.65-152.70 region en route to the 153.00 mark.
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.
Raw materials | Closed | Change, % |
---|---|---|
Silver | 33.786 | -0.27 |
Gold | 271.94 | -0.13 |
Palladium | 1054.8 | -3.02 |
NZD/USD recovers some of its recent losses, trading around 0.6040 during Tuesday's Asian session. However, the New Zealand Dollar (NZD) faces pressure as the likelihood of further rate cuts in November by the Reserve Bank of New Zealand (RBNZ) grows, with inflation easing and economic output remaining sluggish.
In September, New Zealand's monthly Trade Balance showed a deficit of $2.1 billion, with Exports increasing by $246 million (5.2%) to $5.0 billion, while Imports declined by $67 million (0.9%) to $7.1 billion.
The NZD may have found some support following China’s rate cuts on Monday. As New Zealand's largest trading partner, China’s decision to lower its 1-year Loan Prime Rate (LPR) to 3.10% from 3.35% and its 5-year LPR to 3.60% from 3.85% could stimulate domestic economic activity, potentially boosting demand for New Zealand exports.
The US Dollar (USD) gained support following a surge in US Treasury yields, which climbed over 2% on Monday. At the time of writing, the 2-year and 10-year US Treasury bond yields stand at 4.02% and 4.18%, respectively. This rise was fueled by signs of economic resilience and growing concerns about a potential resurgence of inflation in the United States, reinforcing expectations of tighter monetary policy.
Recent economic data dispelled the likelihood of a bumper rate cut by the Federal Reserve (Fed) in November. According to the CME FedWatch Tool, the likelihood of a 25-basis-point rate cut in November is 89.1%, with no expectation of a larger 50-basis-point cut.
Federal Reserve Bank of Minneapolis President Neel Kashkari highlighted on Monday that the Fed is closely monitoring the US labor market for signs of rapid destabilization. Kashkari cautioned investors to anticipate a gradual pace of rate cuts over the coming quarters, suggesting that any monetary easing will likely be moderate rather than aggressive.
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.
The Australian Dollar (AUD) stayed weak against the US Dollar (USD) on Tuesday, as the AUD/USD pair struggled following a surge in US Treasury yields, which rose over 2% on Monday. This increase was driven by signs of economic strength and concerns about a potential resurgence of inflation in the United States (US).
The downside risk of the Aussie Dollar could be restrained due to rising hawkish sentiment surrounding the Reserve Bank of Australia (RBA) regarding its policy outlook, bolstered by positive employment data from Australia. Additionally, the AUD found support from China's recent rate cuts, given that China remains Australia’s largest trading partner.
The US Dollar gained strength as recent economic data dispelled the likelihood of a bumper rate cut by the Federal Reserve (Fed) in November. According to the CME FedWatch Tool, the likelihood of a 25-basis-point rate cut in November is 89.1%, with no expectation of a larger 50-basis-point cut.
Traders await the Purchasing Managers Index (PMI) reports from both the US and Australia, set to be released on Thursday. These reports could provide insight into the health of each economy and influence future monetary policy decisions.
The AUD/USD pair trades around 0.6660 on Tuesday. Technical analysis of the daily chart shows the pair below the nine-day Exponential Moving Average (EMA), indicating a short-term bearish outlook. Furthermore, the 14-day Relative Strength Index (RSI) remains below 50, reinforcing the bearish sentiment.
On the downside, the pair could test its eight-week low of 0.6622, last reached on September 11, followed by the psychological level of 0.6600.
Resistance may come from the nine-day EMA at 0.6700, followed by the 50-day EMA at 0.6734. A break above this level could open the door for a move toward the psychological resistance of 0.6800.
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the Japanese Yen.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.03% | -0.01% | -0.17% | 0.01% | -0.00% | -0.02% | -0.16% | |
EUR | 0.03% | 0.02% | -0.13% | 0.03% | -0.00% | 0.02% | -0.13% | |
GBP | 0.01% | -0.02% | -0.16% | 0.03% | 0.00% | -0.00% | -0.14% | |
JPY | 0.17% | 0.13% | 0.16% | 0.19% | 0.16% | 0.14% | 0.00% | |
CAD | -0.01% | -0.03% | -0.03% | -0.19% | -0.02% | -0.03% | -0.18% | |
AUD | 0.00% | 0.00% | 0.00% | -0.16% | 0.02% | -0.01% | -0.16% | |
NZD | 0.02% | -0.02% | 0.00% | -0.14% | 0.03% | 0.00% | -0.14% | |
CHF | 0.16% | 0.13% | 0.14% | 0.00% | 0.18% | 0.16% | 0.14% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
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 Tuesday at 7.1223, as compared to the previous day's fix of 7.0982 and 7.1229 Reuters estimates.
Index | Change, points | Closed | Change, % |
---|---|---|---|
NIKKEI 225 | -27.15 | 38954.6 | -0.07 |
Hang Seng | -325.65 | 20478.46 | -1.57 |
KOSPI | 11.1 | 2604.92 | 0.43 |
ASX 200 | 61.2 | 8344.4 | 0.74 |
DAX | -196.18 | 19461.19 | -1 |
CAC 40 | -76.82 | 7536.23 | -1.01 |
Dow Jones | -344.31 | 42931.6 | -0.8 |
S&P 500 | -10.69 | 5853.98 | -0.18 |
NASDAQ Composite | 50.46 | 18540.01 | 0.27 |
Pare | Closed | Change, % |
---|---|---|
AUDUSD | 0.66572 | -0.8 |
EURJPY | 163.008 | 0.28 |
EURUSD | 1.08147 | -0.5 |
GBPJPY | 195.672 | 0.23 |
GBPUSD | 1.29804 | -0.57 |
NZDUSD | 0.60302 | -0.72 |
USDCAD | 1.38313 | 0.22 |
USDCHF | 0.86577 | 0.12 |
USDJPY | 150.729 | 0.8 |
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