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USD/CAD's correction from 1.3976 extended lower last week and further decline could be send. But strong support should be seen from 1.3207 cluster support (61.8% retracement of 1.2726 to 1.3976 at 1.3204) to bring rebound. Break of 1.3494 support turned resistance will turn bias back to the upside. However, sustained break of 1.3204/7 will carry larger bearish implication and target 1.2952 support next.

In the bigger picture, as long as 1.3222 cluster support (38.2% retracement of 1.2005 to 1.3976 at 1.3223) holds, larger up trend from 1.2005 (2021 low) is still expected to resume through 1.3976 high at a later stage. . However, firm break of 1.3222/3 will indicate that the trend might have reversed. Deeper fall would be seen to next cluster support at 1.2726 (61.8% retracement at 1.2758).

In the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern only, which might have completed at 1.2005. That is, up trend from 0.9506 (2007 low) is expected to resume at a later stage. This will remain the favored case as long as 1.2061 support holds, which is close to 50% retracement of 0.9406 to 1.4689 at 1.2048.

GBP/JPY's correction from 172.11 extended lower last week, but bias would stay neutral first. Strong rebound from current level, followed by break of 166.06 minor support will turn bias back to the upside for retesting 172.11 high. However, sustained trading below 38.2% retracement of 148.93 to 172.11 at 163.25 will bring deeper decline to 61.8% retracement at 157.78 and possibly below.

In the bigger picture, there is no clear sign of medium term topping yet. Up trend from 123.94 (2020 low) could still resume through 172.11 high at a later stage. However, firm break of 159.71 support will argue that it's already in correction to the up trend from 123.94, and deeper decline would be seen back towards 148.93 support.

In the longer term picture, as long as 55 month EMA (now at 151.88) holds, rise from 122.75 could still extend higher at a later stage. Next target is 195.86 (2015 high).

EUR/JPY's correction from 148.38 extended lower last week and it's now drawing support from 55 day EMA (now at 143.54). Strong rebound from current level, followed by break of 145.02 minor resistance will turn intraday bias back to the upside for retesting 148.38 high. However, sustained break of 38.2% retracement of 133.38 to 148.38 at 142.65 will bring deeper fall to 61.8% retracement at 139.11 and possibly below.

In the bigger picture, there is no clear sign of medium term topping yet. Up trend from 114.42 (2020 low) could still resume through1 48.38 to 149.76 (2014 high). However, break of 137.32 support argue that a medium term correction has already started to correct the whole up trend from 144.42.

In the long term picture, outlook will stay bullish as long as 134.11 resistance turned support holds (2021 high). Sustained break of 149.76 (2014 high) will open up further rally, as resumption of the rise from 94.11 (2012 low), towards 169.96 (2008 high).

EUR/GBP recover to 0.8827 last week but retreated since then. Initial bias stays neutral this week first. On the upside, break of 0.8827 will resume the rise from 0.8570 to 0.8869. Sustained break there will pave the way back to retest 0.9267 high. On the downside, below 0.8689 minor support will turn bias back to the downside for 0.8570 instead.

In the bigger picture, current development suggests that fall from 0.9267 is a down leg inside long term range pattern. Deeper fall could be seen towards 0.8201/8338 support zone. But strong support should be seen there to bring reversal. Nevertheless, firm break of 0.8869 resistance will turn favor to the case that such decline is merely a correction in the up trend from 0.8201. That is, further rally would be seen at a later stage through 0.9267.

In the long term picture, long term range pattern is extending. But rise from 0.6935 (2015 low) is expected to extend at a later stage, to 0.9799 (2009 high).

EUR/AUD extended the corrective pattern from 1.5704 and outlook is unchanged. Initial bias remains neutral this week first. In case of deeper retreat, downside should be contained by 55 day EMA (now at 1.5244) to bring rebound. On the upside, break of 1.5704 will resume larger rise from 1.4281. However, sustained trading below 55 day EMA will bring deeper correction towards 1.4965 resistance turned support.

In the bigger picture, a medium term bottom should be in place at 1.4281, on bullish convergence condition in daily MACD. Further rise would be seen back to 1.6434 key resistance next. Break of 1.4965 resistance turned support is needed to indicate reversal. Otherwise, further rally will remain in favor.

In the longer term picture, breach of 55 month EMA (now at 1.5613) raises the chance of medium term bullish reversal. Focus is back on 1.6434 cluster resistance, 38.2% retracement of 1.9799 (2020 high) to 1.4281 at 1.6389). Sustained break there will confirm and target 61.8% retracement at 1.7691.

EUR/CHF's steep decline last week indicates that whole rebound from 0.9407 has completed at 0.9953, ahead of 0.9970 support turned resistance. Initial bias is now on the downside this week. Sustained break of 38.2% retracement of 0.8407 to 0.9953 will pave the way to 61.8% retracement a 0.9616, and possibly below. On the upside, though, above 0.9818 support turned resistance will turn intraday bias neutral first.

In the bigger picture, rejection by 0.9970 support turned resistance retains medium term bearishness. That is, while 0.9407 is a medium term bottom, price actions from there would develope into a corrective pattern rather than a reversal. That is, down trend resumption through 0.9407 is favored at a later stage. This will remain the favored case now, as long 38.2% retracement of 1.1149 to 0.9407 at 1.0072 holds.

In the long term picture, capped well below 55 month EMA, EUR/CHF is seen as extending the multi-decade down trend. There is no prospect of a bullish reversal until firm break of 1.0505 support turned resistance (2020 low). In case of resumption, next target is 138.2% projection of 1.2004 to 1.0505 to 1.1149 at 0.9033.

Monday, Nov 14, 2022

Tuesday, Nov 15, 2022

Wednesday, Nov 16, 2022

Thursday, Nov 17, 2022

Friday, Nov 18, 2022

US

After a round of soft inflation data triggered a buy-everything relief rally, Wall Street will focus on Fed speak and a plethora of data points that might show the economy remains resilient.  The key economic readings include manufacturing activity, retail sales, and housing data.

There will be no shortage of appearances by the Fed this week. Brainard and Williams speak on Monday, while Tuesday includes speeches by Harker, Cook, and Barr. Wednesday brings Williams, Barr, and Waller, and on Thursday we will hear from Bullard, Bowman, Mester, Jefferson, and Kashkari.

In addition to a swathe of economic releases, traders will also closely monitor big retail earnings from Walmart, Target, Macy’s, and Kohl’s. We should learn more about the health of the consumer and if we should expect a further easing of prices as we enter the holiday season.

EU 

It’s a relatively quiet week for the EU with the two standout economic releases being flash GDP and final HICP. With the economy facing a recession, the GDP data will be an interesting insight into how quickly growth is slowing going into an uncertain winter. The inflation data will naturally be of interest but it may take a significant revision to really grab investors’ attention.

UK

The Autumn statement has been a long time coming, it feels. The markets have calmed down a lot since the ridiculous mini-budget but it will still take time for the government to regain credibility and the confidence of the markets. It starts next week and all eyes will be on Parliament as we learn how the new government plans to balance the books while not piling more misery on the economy.

The BoE monetary policy report hearing next week is another highlight but there’s also a lot of economic data due. The path for interest rates remains uncertain so it’s not just what policymakers have to say that matters, it’s whether the data allows them to slow the pace of tightening going forward as they so clearly want to do. CPI on Thursday is the obvious highlight but there’s plenty more throughout the week.

Russia

A quiet week with no economic data of note.

South Africa

Another quiet week with the only economic release being retail sales on Wednesday.

Turkey

No major economic releases next week, with investors still focused on the central bank and inflation.

Switzerland

Tier three data dominate next week. Focus remains on what the SNB will do in December, with Chair Jordan acknowledging on Friday that monetary policy isn’t restrictive enough to bring inflation back into the range of price stability over the medium term. The risk of a pre-meeting rate hike remains.

China

Weeks of speculation around China’s commitment to its zero-Covid policy have spurred a recovery in local stocks and we may be about to get more information on what that will entail. A relaxation of quarantine measures has been announced in recent days and a press briefing is now reportedly scheduled for Saturday. At the same time, China is seeing a steady rise in Covid cases resulting in more restrictions and mass testing.

China’s October retail sales, industrial production, and investment data will be released next week.  The PBOC is also expected to keep its one-year medium-term lending facility rate at 2.75% in November.

India

A key inflation report could show pricing pressures are easing which might allow the RBI to be less aggressive with its tightening path.  Headline inflation is expected to ease from 7.4% to 6.7%.

Australia & New Zealand

The focus for both Australia and New Zealand might stay on China and their weakening outlook due to their struggles with COVID.

Australian employment data is expected to show job growth continues, while unemployment remains at 3.5%. Wage pressures in the third quarter are expected to rise, but some of that is attributed to the increase in the minimum wage.

In New Zealand house sales data and producer prices will be released.

Japan

Japan’s third-quarter GDP reading is expected to show significant weakness as import costs skyrocketed.  Japan’s core inflation is also expected to surge from 3.0% to 3.5%, which should clearly weigh on consumer spending.  Given the weakness in the US dollar, the BOJ might save its ammunition and hold off intervening anymore in the foreign exchange market.

Singapore

It is expected to be a quiet week with the exception of non-oil domestic export data.

Economic Calendar

Sunday, Nov. 13

Economic Data/Events

• China medium-term lending
• The ASEAN summit concludes in Cambodia.

Monday, Nov. 14

Economic Data/Events

• Eurozone industrial production
• India trade, CPI, wholesale prices
• New Zealand performance services index
• Fed’s Williams moderates a panel at the Economic Club of New York
• ECB’s Fabio Panetta speaks in Florence
• ECB’s de Guindos speaks in Frankfurt.
• BOJ announces the outright purchase amount of Japanese government securities

Tuesday, Nov. 15

Economic Data/Events

• US empire manufacturing, PPI
• France CPI
• Poland CPI
• Eurozone GDP
• Hungary GDP
• Canada existing home sales
• China retail sales, industrial production, surveyed jobless
• France unemployment
• Germany ZEW survey expectations
• Japan industrial production, GDP
• Mexico international reserves
• New Zealand home sales, net migration
• South Korea export/import price index, money supply
• UK jobless claims, unemployment
• G-20 summit in Bali
• IEA monthly oil market report
• ECB’s Elderson speaks
• Fed’s Harker speaks at GIC Annual Monetary & Trade Conference
• Former US President Trump is due to make an announcement in Florida
• RBA releases minutes of its November interest rate meeting

Wednesday, Nov. 16

Economic Data/Events

• US business inventories, cross-border investment, retail sales, industrial production
• Australia leading index
• Canada CPI, housing starts
• China property prices
• Israel GDP
• Italy CPI
• Japan machinery orders, tertiary index, department store sales
• Philippines Bloomberg economic survey
• Russia GDP
• South Africa retail sales
• UK CPI
• EIA crude oil inventory report
• G-20 summit in Bali
• BOE Gov Bailey appears before the Treasury committee
• Fed’s Williams and Brainard, SEC’s Gensler speak at the 2022 Treasury Market conference
• ECB Financial Stability Review
• ECB President Lagarde speaks
• ECB’s Fabio Panetta speaks

Thursday, Nov. 17

Economic Data/Events

• US housing starts, initial jobless claims
• Italy trade
• Singapore trade
• Australia unemployment
• China Swift payments
• Eurozone CPI, new car registrations
• Hong Kong jobless rate
• Japan exports, trade balance
• New Zealand PPI
• Singapore non-oil exports
• UK fiscal statement, economic forecasts
• Fed’s Kashkari and Jefferson speak at the Federal Reserve Bank of Minneapolis Fall Institute Research Conference
• Fed’s Mester speaks at the Federal Reserve Bank of Cleveland and the Office of Financial Research Annual Financial Stability Conference
• Fed’s Evans speaks ahead of his retirement
• BOE’s Silvana Tenreyro speaks
• SNB’s Maechler speaks at Money Market Event in Geneva
• BOE’s Huw Pill speaks at the Bristol Festival of Economics on ‘What Next for Central Banks’

Friday, Nov. 18

Economic Data/Events

• US Conference Board leading index, existing home sales
• Norway GDP
• Japan CPI
• Thailand foreign reserves, forward contracts, car sales
• ECB President Lagarde, Nagel, and Knot speak alongside BOE’s Mann Fed’s Collins speaks at the Federal Reserve Bank of Boston Economic Conference
• BOE’s Jonathan Haskel speaks

Sovereign Rating Updates

• Italy (Fitch)
• Sweden (Fitch)
• Turkey (Fitch)
• Ireland (S&P)
• South Africa (S&P)
• Portugal (Moody’s)
• South Africa (Moody’s)
• Denmark (DBRS)

• While markets have reacted very positively to the October CPI print, we continue to see further risks of more persistent inflation and think it is too early to trade a clear Fed pivot.
• Still elevated underlying price growth, tight labour markets, inflationary market reaction and China reopening risks all favour remaining cautious on inflation.
• The figures challenge our hawkish call for a 75bp hike in December, but Fed's focus remains on terminal rate level and maintaining financial conditions restrictive. Slower hiking pace could extend the cycle further into 2023.

The details of the CPI release were mixed. Admittedly, the recent uptick in oil prices and lagged rise in shelter inflation contributed positively to the CPI, which means that the headline figures partly understate the slowdown in inflation in October. That said, over half of the negative contribution from core goods CPI was explained by a 2.4% drop in used car prices, which have not been a key inflationary driver since late 2021. Similarly, majority of the decline in services CPI ex. shelter was explained by an unexpected drop in health care prices. Dallas Fed estimates that lagged impact from past wage rises should continue to lift health care prices well into 2023, suggesting that the drop might have been a one-off.

Excluding shelter and healthcare, core services prices rose 0.49% m/m, or around 6% annualized. In line, Atlanta Fed's sticky price inflation remained at 5.5% annualized m/m. Together with the September uptick in job openings and October rise in wage inflation, broad-based price pressures remain way too high for the Fed to feel comfortable yet.

Another challenge for the Fed is the inflationary nature of the market reaction. Lower real yields, weaker USD and higher commodity prices reflect easing financial conditions. If Fed, over the coming days, clearly communicates more dovish rates outlook, they risk fuelling the market rally and prolonging inflation. This is exactly what Powell sought to avoid just last week (see our Fed Review for details, 2 November), and also, why we think the Fed is unlikely to give strong signals for lower terminal rate following just one low CPI print. Back in August, the market reaction only lasted 3 days after a downside CPI surprise.

In addition, the early signs of easing Covid-strategy in China are increasing the inflationary risks for the Western economies. While we remain sceptical that a near-term reversal in the policy stance is imminent, it could gradually progress towards 2023, and the recovering demand from China could provide another boost to global commodity markets. Copper prices have already risen from recent lows and especially the already tight energy markets remain vulnerable to further price upticks.

Even though inflation has likely rolled over its peak, risk of prolonging elevated inflation still persists. Cost of overtightening the economy into a recession is still lower than allowing inflation to become entrenched, and as before, Fed's focus remains on the terminal rate and maintaining financial conditions restrictive towards next year. Our hawkish call for a 75bp hike in December is under clear pressure, but we think that if Fed prefers to moderate the pace of hikes to 50, the hiking cycle could extend well into 2023.

BoE MPC member Silvana Tenreyro said, "I would expect that Bank Rate held at 3% over 2023 would reduce output further below potential, given the effects of lower real incomes and the lagged impact of the tightening to date."

"Policy would then have to loosen, perhaps in 2024, to try to prevent inflation falling below target," she added.

"Monetary policy has tightened significantly this year, but most of its effects on demand have yet to occur," she said. "Too high a path for Bank Rate therefore risks over-steering inflation below target in the medium term."

Tenreyro is a known dove, who voted for just a 25bps hike at last meeting, while the majority voted for a 75bps hike.