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US Dollar Looks to Yellen Speech to Revive Upward Momentum. US Dollar looks pretty bullish in the nearest future stung by timid FOMC minutes and underwhelming CPI data. Overall fundamental backdrop still seems unmistakably supportive and Yellen speech favoring preemptive tightening may revive USD rally.

ECB Still Believes in Eventual Inflation, Wage Rise: Draghi. Wages in the 19-country euro zone are rising slower than the ECB hoped and will likely take more time to respond to improved growth. Having fought low inflation for years, the ECB is due to decide at its Oct. 26 meeting whether to prolong stimulus, reconciling rapid economic expansion with weak wage and price growth. 'We are confident that as the conditions will continue to improve, the inflation rate will gradually converge in a self-sustained manner, as we've defined many times, and in a durable way to our objective,' ECB president Mario Draghi told reporters in Washington. 'But together with our confidence we should also be patient because it's going to take time.'

Oil Prices Jump on Fear of New U.S. Sanctions Against Iran. Oil markets opened up strong into the new week as concerns over renewed U.S. sanctions against Iran drove prices up. A falling U.S. rig count also supported prices there. U.S. WTI crude futures CLc1 were trading at $51.88 per barrel, up 0.8 percent, Brent crude futures LCOc1 were at $57.79, up 1.1 percent from the previous close.

Watch Out for:

Monday, October 16, 2017

21:45 pm GMT: NZD Consumer Price Index

Tuesday, October 17, 2017

00:30 am GMT: AUD RBA Meeting Minutes

08:30 am GMT: GBP Consumer Price Index

09:00 am GMT: EUR German ZEW Economic Sentiment

10:00 am GMT: EUR Consumer Price Index

10:15 am GMT: GBP BoE Gov Carney Speaks

GOLD: The commodity closed higher the past week opening the door for mores strength. On the downside, support comes in at the 1,290.00 level where a break will turn attention to the 1,280.00 level. Further down, a cut through here will open the door for a move lower towards the 1,270.00 level. Below here if seen could trigger further downside pressure targeting the 1,260.00 level. Conversely, resistance resides at the 1,310.00 level where a break will aim at the 1,320.00 level. A turn above there will expose the 1,330.00 level. Further out, resistance stands at the 1,340.00 level. All in all, GOLD looks to recover further higher.

EURUSD - With the pair taking back its previous week losses at the end of the week, more recovery could be seen. However, beware of correction pullback. Resistance comes in at 1.1850 level with a cut through here opening the door for more upside towards the 1.1900 level. Further up, resistance lies at the 1.19500 level where a break will expose the 1.2000 level. Conversely, support lies at the 1.1800 level where a violation will aim at the 1.1750 level. A break of here will aim at the 1.1700 level. Below here will open the door for more weakness towards the 1.1650. All in all, EURUSD continues to face further bull threats.

The Federal Reserve's conundrum: stubbornly low inflation

US equity markets closed the week out on a high note while US Treasury Yields sagged after the US CPI continued to miss market expectations. And despite Core CPI missing for the seventh consecutive month and taxing the Fed's transitory inflation argument, Dr Yellen continued to tow the FOMC line during the weekend IMF meetings. Dr Yellen said 'my best guess is that these soft (inflation) readings will not persist' and that 'with the ongoing strengthening of labour markets, I expect inflation to move higher next year'.

Inflation Conundrum

The Feds inflation conundrum is alive and well. And given their ingrained stance regarding inflation, in the absence of any discernible uptick in core or wages, the dollar should continue to struggle as the muted inflation prints might be raising the risks of slower action by the Fed.

But given a very light economic calendar this week, dealers will remain single-mindedly focused on Fed chair nomination and tax reform headlines for short-term direction, which should keep the dollar bulls hopes somewhat alive.

ECB

Mario Draghi kept it very dovish into weeks end echoing his recent comments and delivering an unambiguous signal to markets that while the ECB is likely to address the QE program in October, forget about a rate hike anytime soon.

FED Speak

The market is always agog about in 'Fed speak' more so after a miserable inflation print. So we should expect Chair Yellen deliveries this week to come into focus. While her comments are unlikely to affect the December Rate hike scenario, the markets will key on her emphasis regarding inflaton do determine if any more uncertainty is entering the picture. But based on her weekend IMF comments, she seems emphatical that inflation will flare up soon.

Asia EM FX

Markets have apparently found a happy medium after all the tax reform and US economic data had markets pricing in a quicker pace of Fed normalisation, underpinning the broader USD. But with the Feds inflation conundrum alive and well the market will likely pivot to the Global Growth storyline and its positive implication for regional risk. Uncertainties around US inflation should keep the dollar grounded, and traders should prefer to sell the greenback on rallies with both CNH and MYR most likely to outperform on the dovish Fed narrative.

EURO

Draghi's dovish overtones are weighing on sentiment despite the downside miss on US CPI. Euro bulls are tentatively re-engaging in early APAC but looking over their shoulder for Tax Reform and New Fed Chair headlines.

Japanese Yen

US CPI fallout is weighing on sentiment, but the market is still searching for an election buzz. But with the risk rewards fading for the long dollar positions I suspect the short term players are prepared to sell USD on rallies.

Australian Dollar

With commodity prices basing and Fed policy beyond 2017 wobbling the Aussie could extend gains early in the week.

EUR/USD rebounded to 1.1879 last week but retest this then. Initial bias is neutral this week first. At this point, we're slightly favoring the case that pull back from 1.2091 has completed at 1.1669, ahead of 1.1661 support. Above 1.1879 will turn bias back to the upside for retesting 1.2091 high. However, break of 1.1787 will dampen this view. Intraday bias will be turned back to the downside through 1.1669 low. Correction from 1.2091 would then extend to 38.2% retracement of 1.0569 to 1.2091 at 1.1510 and completes there.

In the bigger picture, rise from medium term bottom at 1.0339 is not finished yet. It's expected to continue after pull back from 1.2091 completes. And, next target will be 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. However, it should be noted that there is no confirmation of trend reversal yet. That is, such rebound from 1.0399 could be a correction. And the long term fall from 1.6039 (2008 high) could resume. Hence, we'd be cautious on strong resistance from 1.2516 to limit upside.

In the long term picture, 1.0339 is now seen as an important bottom as the down trend from 1.6039 (2008 high) could have completed. It's still early to decide whether price action form 1.0339 is developing into a corrective or impulsive move. But in either case, further rally would be seen to 38.2% retracement of 1.6039 to 1.0339 at 1.2516

USD/JPY's decline last week indicates short term topping at 113.43. That was on bearish divergence condition in 4 hour MACD, after failing to sustain above medium term falling trend line. The development argues that rebound from 107.31 could have completed already. And fall from 113.43 might be another leg of medium term correction from 118.65. Initial bias stays on the downside this week for 55 day EMA (now at 111.37) first. Sustained break will target 107.31 low and below. In that case, we'd expect strong support from 61.8% retracement of 98.97 to 118.65 at 106.48 to contain downside and bring rebound. On the upside, above 112.57 minor resistance will turn intraday bias neutral first. But risk will stays on the downside as long as 113.43 resistance holds.

In the bigger picture, rise from 98.97 (2016 low) is seen as the second leg of the corrective pattern from 125.85 (2015 high). It's unclear whether this second leg has completed at 118.65 or not. But medium term outlook will be mildly bearish as long as 114.49 resistance holds. And, there is prospect of breaking 98.97 ahead. Meanwhile, break of 114.49 will bring retest of 125.85 high. But even in that case, we don't expect a break there on first attempt.

In the long term picture, the rise from 75.56 (2011 low) long term bottom to 125.85 top is viewed as an impulsive move, no change in this view. Price actions from 125.85 are seen as a corrective move which could still extend. In case of deeper fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77. Up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

GBP/USD's strong rebound last week suggests that pull back from 1.3651 should have finished at 1.3026. Further rise is in favor this week for 1.3651 resistance first. Break there will resume medium term rise from 1.1946 and target 1.3835 key resistance next. On the downside, below 1.3120 minor support will resume the fall from 1.3651 through 1.3026 instead.

In the bigger picture, while the medium term rebound from 1.1946 was strong, GBP/USD hit strong resistance from the long term falling trend line. Outlook is turned a bit mixed and we'll turn neutral first. On the downside, decisive break of 1.2773 key support will argue that rebound from 1.1946 has completed. The corrective structure of rise from 1.1946 to 1.3651 will in turn suggest that long term down trend is now completed. Break of 1.1946 low should then be seen. On the upside, break of 1.3835 support turned resistance will revive the case of trend reversal and target 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466 .

In the longer term picture, long the outlook is turned a bit mixed as GBP/USD failed to break through falling tend line resistance. We'll turn neutral first and assess the outlook again and price actions unfold.

USD/CHF stayed in range of 0.9704/9825 last week as dollar lost momentum. Initial bias is neutral this week first, with focus on 0.9704 resistance turned support. Considering bearish divergence condition in 4 hour MACD, break of 0.9704 will argue that rebound from 0.9420 has completed. This will also mixed up the near term outlook and turn bias back to the downside for 0.9587 support. On the upside, break of 0.9835 will extend the rebound to 61.8% retracement of 1.0342 to 0.9420 at 0.9990.

In the bigger picture, current development suggests that USD/CHF has defended 0.9443 (2016 low) key support level again. Rise from 0.9420 could develop into a medium term move and target a test on 1.0342 high. This represents the upper end of a long term range that started back in 2015. On the downside, break of 0.9587 support is now needed to indicate completion of the rise from 0.9420. Otherwise, further rally will remain in favor in medium term.

AUD/USD edged lower to 0.7797 last week but rebounded since the. The development indicates short term bottoming on bullish convergence condition is 4 hour MACD. Initial bias is mildly on the upside this week for retesting 0.8124 high. But we'd be cautious on strong resistance from there to limit upside and bring another fall to extend the corrective pattern. On the downside, break of 0.7732 will target medium term fibonacci level at 0.7628 first.

In the bigger picture, rise from 0.6826 medium term bottom is seen as corrective pattern. Current development suggests that it might be completed with three waves up to 0.8124 already. Break of 38.2% retracement of 0.6826 to 0.8124 at 0.7628 will firm this bearish case. And, decisive break of 0.7328 key cluster support (61.8% retracement at 0.7322) will confirm and bring retest of 0.6826 low. In case rise from 0.6826 resumes and extends, strong resistance should be seen at 38.2% retracement of 1.1079 to 0.6826 at 0.8451 to limit upside.

In the longer term picture, 0.6826 is seen as a long term bottom. Rise from there could either reverse the down trend from 1.1079, or just develop into a corrective pattern. At this point, we're favoring the latter. And, as long as 38.2% retracement of 1.1079 to 0.6826 at 0.8451 holds, we'd anticipate another decline through 0.6826 at a later stage.

USD/CAD's pull back from 1.2598 extended lower last week. As long as 1.2529 minor resistance holds, deeper fall is in favor this week to 38.2% retracement of 1.2061 to 1.2598 at 1.2393, or even further to 61.8% retracement at 1.2266. But we'll look for bottoming sign below 1.2266. Break of 1.2061 low is not anticipated for now. On the upside, break of 1.2529 minor resistance will resume the rise from 1.2061 for 1.2777 resistance.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4869 (2016 high) at 1.2048. And with 1.2048 intact, we'd favor the case that fall from 1.4689 is a correction. Break of 1.2777 will further affirm this bullish case. That is, larger up trend from 0.9406 is not completed. And in that case, USD/CAD should target 1.3793 resistance next. However, on the other hand, firm break of 1.2048 will indicate that fall from 1.4689 is at least a medium term down trend and should target 61.8% retracement at 1.1424 and below.

In the longer term picture, the long term outlook is turned a bit mixed. As noted above, 50% retracement of 0.9406 to 1.4869 at 1.2048 is a key level to determine whether up trend from 0.9056 (2007) has already completed.