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• UK wage growth eases
• US inflation expected to fall to 3.3%

The British pound has edged higher on Tuesday. In the European session, GBP/USD is trading at 122.91, up 0.10%.

UK job growth improves, wage growth ease

The UK labour market remains strong, despite high inflation and elevated interest rates. The unemployment rate was unchanged at 4.2% in the three months to September, just below the market consensus of 4.3%. Wage growth excluding bonuses eased to 7.7% y/y in the three months to September, after a 7.9% gain in the previous two periods. This was the first decline since January and is an encouraging sign that inflation is moving lower.

The UK will release inflation data on Wednesday, with headline inflation expected to fall to 4.8% y/y in October, down from 6.7%. Core inflation is projected to fall from 6.1% to 5.8%. If inflation falls as expected, it will be easier for the Bank of England to pause for a second straight time at the December meeting and that would put pressure on the pound.

The US releases its inflation report later today and the release could provide insights as to the Fed’s rate path. Headline inflation is expected to rise 3.3% y/y in October, compared to 3.7% in September. The core rate is expected to remain unchanged at 4.1% y/y.

If inflation falls, it will support the market’s expectation for rates cutes in mid-2024 and the US dollar could lose ground. Conversely, a hot inflation print would support the Fed’s stance of ‘higher for longer’ and would push off expectations of a rate cut to later in 2024, which would be bullish for the US dollar. The markets expect the Fed to pause at the December meeting, with just a 14% chance of a quarter-point hike, according to the CME Group’s FedWatch Tool.

GBP/USD Technical

• GBP/USD is testing resistance at 1.2281. Above, there is resistance at 1.2374
• 1.2175 and 1.2133 and are providing support

The dollar index is standing at the back foot on Tuesday morning, extending pullback from last week’s recovery high (150.87), with slower pace expected ahead of key release – US inflation report, due later today.

Daily studies weakened as the price eventually broke into rising and thick daily cloud and negative momentum is rising, marking a negative signal and keeping the downside vulnerable, while near-term action stays capped by daily cloud top (105.35) reinforced by daily Kijun-sen.

Initial support lays at 105.18 (Fibo 23.6% of 99.20/107.03 rally) guarding more significant Nov 6 low (104.66) violation of which would risk deeper pullback and expose key supports at 104.00 zone (Fibo 38.2% . 100DMA).

Larger picture, however, remains dollar favored as the greenback enjoys support from the US rates being higher than most of major central banks (except (BoE) and recent renewed hawkishness in Fed’s view of monetary policy, suggesting that the US central bank would keep high rates for some time.

US inflation report will be closely watched for fresh signals, with expectations that CPI will ease to 3.3% in Oct from 3.7% last month, but core CPI which excludes volatile food and energy components is expected to stay unchanged at 4.1% y/y, which could be seen as discouraging for those who expect rate cuts in the near future.

Res: 105.54; 105.81; 106.31; 106.67.
Sup: 105.32; 105.18; 104.66; 104.32.

• Consumer confidence slides
• Business confidence eases while business conditions improve

The Australian dollar has edged lower on Tuesday. In the European session, AUD/USD is almost unchanged, trading at 0.6376.

Australian consumer, business confidence eases

Australian consumers have been hit hard by high inflation and steep interest rates, so it’s no surprise that consumers are deeply pessimistic about the economy. The Westpac Consumer Sentiment index declined by 2.6% in November, down from 82 to 79. The RBA’s recent rate hike certainly didn’t boost confidence, as consumers expect mortgage rates to continue rising over the next 12 months.

The NAB Business Confidence index fell to -2 in October, down from a revised zero in September. This was below the market consensus of 1 and was the lowest level since May. The silver lining was an improvement in business conditions, which rose in October from 12 to 13.

The Reserve Bank of Australia raised rates earlier this month after four consecutive pauses. Is the RBA done with its tightening cycle? The central bank meets next on December 5^th and has stressed that future rate decisions will be based on the data. Australia releases retail sales and inflation reports a week prior to the meeting, and these releases could determine whether the RBA hikes again or pauses.

The US releases the October inflation report later today. The release could provide clues as to how long the Fed plans to keep rates at elevated levels. Headline inflation is expected to rise 3.3% y/y, compared to 3.7% in September. The core rate is expected to remain unchanged at 4.1% y/y.

The markets have priced in a rate cut in mid-2024 and an unexpected inflation reading would likely lead to the repricing of a rate cut. The Fed has pushed back against talk of a rate cut, as inflation remains well above the 2% target. The markets haven’t been listening to the Fed, but they’ll be keeping a close eye on the inflation report.

AUD/USD Technical

• AUD/USD continues to put pressure on support at 0.6351. Below, there is support at 0.6292
• 0.6408 and 0.6476 are the next resistance lines

Germany's ZEW Economic Sentiment soared to 9.8 in November, far surpassing the anticipated 4.9, signaling increasing optimism among financial market experts. However, Current Situation Index barely moved, nudging from -79.9 to -79.8, and falling short of expected -75.5.

Eurozone's ZEW Economic Sentiment experienced a similar upswing, rising from 2.3 to 13.8, well ahead of the forecast of 6.1. Despite this, Current Situation Index in Eurozone showed a decline, dropping by -9.4 points to -61.8.

Achim Wambach, ZEW President, noted that while current economic conditions are still challenging, there's growing optimism. He added, "These observations support the impression that the economic development in Germany has bottomed out."

The increase in economic expectations is supported by a more positive view of the German industrial sector and both domestic and foreign stock markets. Additionally, "inflation and short- and long-term interest rates also appear to have reached turning points in expectations," he added.

Full German ZEW release here.

• GBPUSD breaks out of triangle but 200-day SMA curbs advance
• Despite a mild pullback, the bulls conquer the 50-day SMA
• Oscillators suggest that positive momentum is picking up

GBPUSD had been forming a profound structure of lower highs and lower lows since its 16-month peak of 1.3141. Although the pair’s latest attempt to recoup some losses got rejected by the 200-day simple moving average (SMA), buyers managed to halt the retreat and reclaim the 50-day SMA.

Should buying interest intensify further, the October peak of 1.2336 could act as the first barrier for the price to clear. Surpassing that zone, the pair could advance towards the December-January resistance zone of 1.2445, which lies close to the 200-day SMA and rejected the latest advance. A break above that level could open the door for the 1.2547 hurdle.

Alternatively, if the price moves lower, initial declines could cease around the recent support of 1.2186. Failing to halt there, the pair may challenge the 1.2090 support territory ahead of the eight-month low of 1.2036. Even lower, the March bottom of 1.1800 could provide downside protection.

In brief, GBPUSD seems to be regaining some traction as the momentum indicators have turned positive in the last couple of sessions. However, the bearish long-term pattern remains intact.

• EURJPY hits new highs, but still close to caution zone
• Next resistance could emerge near 163.00

EURJPY surged to 162.35 on Monday–the highest level since August 2008–surpassing the caution trendline zone, though marginally.

The ongoing upleg seems secure, but the overbought signals from the RSI and stochastic oscillator raise the risk of a negative reversal.

The 163.00 round level, which capped bullish actions back in August 2008, will be closely watched in the coming sessions. If the bulls breach that wall, the pair might power up to the 165.00-165.50 constraining zone last seen in June 2007-August 2008, while higher, the spotlight might turn to the 167.00 bar.

If the price slides back below the 162.00 mark, last week’s base of 161.35 could cancel any drops towards the previous high of 159.75 and the 20-day simple moving average (SMA). A step lower and beneath the tentative support trendline October seen at 159.45 would neutralize the bullish short-term picture, likely motivating another bearish correction towards the 50-day SMA and the 158.00-158.50 restricted territory. If the latter proves fragile too, the pair could experience an aggressive downfall.

All in all, EURJPY must sustain strength above 162.00 and perhaps cross above 163.00 to raise fresh buying traction in the short-term, as downside risks have not entirely faded.

• AUDUSD tests the 200-day SMA in narrow range
• Trades sideways after failing to extend its upside move
• RSI and MACD look optimistic

AUDUSD is moving slightly lower today, finding strong resistance near the 200-day simple moving average (SMA), which is acting as a resistance line for the bulls. The pair jumped above the steep descending trend line, which had been holding since the November 6 top of 0.6522, but it is holding within a narrow range of space 0.6338-0.6390.

In the meantime, the momentum indicators are somewhat supportive. The MACD oscillator has managed to jump above its trigger line but is still in a bearish territory, while the RSI is pointing upwards below the 50 level.

Should the bulls push higher, they would try to overcome the 200-day SMA and the 20-day SMA around 0.6370. If successful, they could then touch the 0.6390 barrier before hitting the 40-day SMA at 0.6420.

Alternatively, a drop back beneath the downtrend line would open the way towards the preceding bottom of 0.6338. If the bears clear this area, they could then have the chance to test the 0.6315 support level, registered on October 31.

To sum up, AUDUSD bulls are trying to cancel out the rectangle pattern to endorse the positive scenario in the short-term timeframe.

GBPUSD cracked 1.2300 barrier in early European trading on Monday, boosted by better than expected US labor data (Sep wages rose above expectations and employment was significantly up in three months to Sep) which added to hawkish stance on BoE rate outlook.

Cable rises for the third straight day after a bear trap on Friday, with penetration and close within thick daily cloud, contributing to fresh bullish signals, though bulls face headwinds at pivotal 1.2300 resistance zone (round-figure / Fibo 38.2% of 1.2737/1.2037 bear-leg / Nov 11 high).

Clear break here is needed to further strengthen near-term structure and keep in focus key barriers at 1.2428/36 (Nov 6 recovery top / 200DMA).

Strong bullish momentum on daily chart supports the action which needs to hold above broken daily cloud base, reinforced by daily Kijun-sen (1.2249) to keep bullish bias.

Caution on break below daily cloud which would weaken near-term structure and risk test of lower pivot at 1.2186 (last Friday’s spike low).

Markets await release of US Oct inflation report for fresh signals.

Res: 1.2308; 1.2337; 1.2387; 1.2428.
Sup: 1.2249; 1.2202; 1.2186; 1.2095.

GBPUSD

The British pound (GBP) slightly increased on Monday following a cabinet reshuffle by British Prime Minister Rishi Sunak. He appointed ex-Prime Minister David Cameron as a Foreign Secretary and fired U.K. Interior Minister Suella Braverman.

Possible effects for traders

The Bank of England officials Huw Pill and Katherine Mann raised concerns about the long-term impact of rising interest rates. They indicated being supportive of earlier rate cuts due to growing recession fears. The outlook for GBPUSD improved after the preliminary U.K. Gross Domestic Product data exceeded market expectations, suggesting the country might avoid a recession in 2023. Still, economic growth prospects appear grim, with expectations of reduced corporate investments for capacity expansion in Q4 due to weak demand domestically and internationally.

GBPUSD was rising during the early European trading sessions after the U.K. Employment change report showed the number of working people rose by 54,000 in the three months to August 2023, outperforming market expectations of a 198,000 decline. However, the country still faces some economic challenges, which put downward pressure on the GBP exchange rate. Today's key event for GBPUSD traders is the U.S. Consumer Price Index (CPI) report at 1:30 p.m. UTC. Higher-than-expected figures will almost certainly deepen the bearish trend in GBPUSD. However, if CPI numbers are lower than expected, the pair may rise above 1.23000.

XAUUSD

The gold price rose slightly towards 1,945 on Monday, bolstered by safe-haven demand as both the U.S. dollar and Treasury yields declined ahead of today's release of the U.S. inflation data for October.

Possible effects for traders

According to a Reuters survey, economists expect the headline U.S. Consumer Price Index (CPI) to slow down from a 0.4% rise in September to a 0.1% increase in October. The core inflation rate is expected to remain steady at 0.3%. While gold is considered a protection against inflation, rising interest rates increase the opportunity cost of owning the metal.

XAUUSD was declining during Asian and early European trading sessions. Today, traders should focus on the U.S. CPI report at 1:30 p.m. UTC. If inflation exceeds expectations, the chances for another rate hike by year's end rise, potentially boosting the U.S. dollar, so the short-term bearish trend in gold might continue. Meanwhile, lower-than-expected figures may push XAUUSD towards 1,950.