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The Euro struggled to clear the 0.9950 and 0.9960 resistance levels against the US Dollar. The EUR/USD pair reacted to the downside and declined below the 0.9850 support.

There was close below the 0.9800 level and the 50 hourly simple moving average. The pair is now consolidating losses near the 0.9770 zone. An immediate resistance on the upside is near 0.9790 and the 50 hourly simple moving average. The first major resistance is near the 0.9820 level.

A break above the 0.9820 resistance level could start a decent upward move. In the stated case, it could even surpass 0.9850.

Conversely, the pair might start another decline below 0.9750. The next key support is near 0.9720, below the pair could decline towards the 0.9680 level. Any more losses might send the pair towards the 0.9640 level.

WTI oil price rose strongly on Friday, advancing 3.3% in the mid-European session, lifted by stronger dollar and persisting supply risks, though China’s Covid restrictions and recession fears continue to weigh and may limit gains.

Friday’s strong bullish acceleration broke through some important barriers, the top of thick daily cloud ($89.06) and psychological $90 level, as well as pivotal Fibo resistances at $88.90 and $90.69 (Fibo 61.8% and 76.4% of $93.60/$81.29 respectively), with close above these levels to confirm strong bullish signal and open way for further gains, exposing targets at $91.77 (falling 100DMA) and key near-term barrier at $93.60 (Oct 10 lower top).

Daily studies are in full bullish setup and support the action, which sees a weekly close above broken $90 barrier as a minimum requirement to keep fresh bulls in play.

Res: 91.77; 92.87; 93.60; 94.36.
Sup: 90.00; 89.60; 88.90; 87.77.

ECB President Christine Lagarde said in a speech that after increasing interest rates by 200bps, "we expect to raise rates further". He added that, "withdrawing accommodation may not be enough to bring inflation back to our target". But how much further to go, and how fast, will be determined by a few factors.

The first and most important factor is "inflation outlook". The second factor is "corresponding policy stance and its transmission lags into demand and inflation".With the lag in transmission and prevailing uncertainty, "the rate path ahead will look different depending on the contingencies we face."

Full speech here.

BoE Chief Economist Huw Pill told CNBC, "Our current assessment is that we don't think interest rates would need to rise as high as markets are pricing precisely because it would produce a slowdown in the economy that is bigger than we need to get these prices under control."

"That is why the message has been, yes, maybe the market was pricing in too aggressively over this period of turmoil where bank rate is headed. What we are seeking, are always seeking is to find that balance that gets us back to the 2% inflation target without generating unnecessary and costly problems in the real economy," he said.

He added that the challenge is to "ensure that inflation, particularly this domestically generated inflation, is evolving consistent with our target in a sustainable way". At the same time, "also to avoid that we overshoot in the opposite direction and generate a slowdown that is not required."

The question for us is, even as headline inflation begins to fall, have we done enough with monetary policy to contain those underlying or persistent dynamics on inflation to ensure that they end up consistent with our target over time? And I think the answer to that is, we still think there's more to do to control that domestically driven wage-price cost dynamic."

Eurozone PPI rose 1.6% mom, 41.9% yoy in September, below expectation of 1.7% mom, 42.0% yoy. For the month, industrial producer prices in Eurozone increased by 3.3% in the energy sector, by 0.9% for non-durable consumer goods, by 0.4% for capital goods and for durable consumer goods and by 0.1% for intermediate goods. Prices in total industry excluding energy increased by 0.4%.

EU PPI rose 1.5% mom, 41.4% yoy. The highest monthly increases in industrial producer prices were recorded in Bulgaria (+9.2%), Slovakia (+8.9%) and Italy (+3.5%), while the largest decreases were observed in Ireland (-18.9%), Estonia (-3.9%) and Greece (-2.4%).

Full release here.

Eurozone PMI Services was finalized at 48.5 in October, down from September's 48.8, a 20-month low. PMI Composite was finalized at 47.3, down from prior month's 48.1, a 23-month low. Looking at some member states, Germany PMI Composite dropped to 45.1 (29-month low), Italy to 45.8 (22-month low), Spain to 48.0 (9-month low), France to 50.2 (19-month low), and Ireland to 52.1, (2-month low).

Joe Hayes, Senior Economist at S&P Global Market Intelligence said:

"After a weak third quarter of PMI and official GDP data, the latest survey results for the start of the fourth quarter suggest the eurozone economy is now headed for a winter recession. High inflation is dampening demand and hurting business confidence. Fears that the energy crisis could intensify over the winter period are also feeding uncertainty and weighing on decision-making.

"Nonetheless, the ECB will want to continue with monetary tightening to contain inflation. October PMI data suggest inflationary pressures remained extremely elevated across the eurozone. We did, however, see some dovish tones in the rhetoric surrounding the ECB's October policy decision, clearly showing that the Governing Council are concerned by the rapidly deteriorating economic outlook. A substantial worsening of economic conditions in the coming months may give policymakers a difficult decision to make with regards to the path of monetary tightening, for fear of being too aggressive and prolonging the downturn."

Full release here.

WTI oil futures (December delivery) are set to close with mild gains for the third consecutive week after struggling to successfully enter the 90 territory.

While the positive trajectory in the momentum indicators promotes a bullish continuation, the 90.57-92.32, which includes the 20- and 50-period simple moving averages (SMAs) on the weekly chart, could ruin further progress. A decisive close above that region would mark a new higher high in the chart, boosting hopes for a positive trend reversal. If that were the case, the spotlight would turn to the flattening 200-day SMA at 97.40, a break of which could lift the price up to the 100.50-101.50 resistance area.

If sellers return, the price could pull into the 85.80-85.00 support region, where the short-term descending trendline drawn from the nine-month low of 76.25 is placed. Another move lower could test the 81.25-80.00 constraining zone before meeting the broken descending trendline near the 76.25 low.

In brief, WTI oil futures are indicating persistent buying appetite, though some caution is required as the price seems to be testing a key resistance area. 

The Canadian dollar is usually quiet before North American markets open, but it is sharply higher today. USD/CAD is trading at 1.3644 in Europe, down 0.73%.

US nonfarm payrolls expected to slow

The week wraps up with the October employment reports from the US and Canada. The highlight will be the US nonfarm payrolls report, which, although still a key event, has been somewhat overshadowed by Fed rate meetings and inflation releases. Still, the release will be carefully watched by Fed policymakers and it will be a factor in the December rate decision. The October consensus stands at 200,000, lower than the September reading of 263,000. With the markets split 50/50 on whether the Fed will raise rates by 0.50% or 0.75%, the NFP release could provide some volatility in the currency markets in the North American session. A stronger-than-expected reading would raise the likelihood of a 0.75% hike and would likely boost the dollar. Conversely, a soft reading would reinforce expectations of the Fed easing to 0.50%, which would be bearish for the dollar.

Canada is expected to post lukewarm job data for October. The unemployment rate is forecast to tick up to 5.3% from 5.2%, with a consensus of 10,000 new jobs, down from 21,100 new jobs in September. Any misses in the forecasts for the Canadian and US job reports could trigger volatility from USD/CAD in the North American session.

The Fed raised rates by 0.75% at this week’s meeting, as expected, but there was a double message for the markets. The rate statement was dovish, stating that the Fed might take a pause in order to see how the rate hikes were working. However, Fed Chair Powell was hawkish in his post-meeting comments, saying that there was no sign that inflation had peaked and that it was “very premature to talk about pausing rate hikes”. The unexpected hawkish tone sent equities lower and boosted the US dollar.

USD/CAD Technical

• USD/CAD is putting strong pressure on support at 1.3656. Below, there is support at 1.3478
• 1.3757 and 1.3901 are the next lines of resistance

Cable edges higher in early Friday as traders collect profits after bearish acceleration below 1.15 handle in past two days found footstep at solid Fibo support at 1.1150 (38.2% of 1.0348/1.1645).

The pound is weighed by BoE’s gloomy outlook for the economy, while the most recent hawkish tones from Fed suggest that the US central bank will remain in aggressive mode in policy tightening.

A brief optimism that the Fed may slow the pace in hiking rates was dampened by the remarks from Chair Powell, who said that it was still premature to discuss the possible pause in rate increases.

Markets focus on the US October job report, which is expected to show the lowest hiring in nearly two years and a moderate increase in wages, suggesting some loosening in labor market that may add to hopes of Fed’s smaller rate hike in December and cause increased volatility.

Weakened daily studies (MA’s in bearish setup and rising negative momentum), add to bearish near-term bias, though bears still look for confirmation on clear break of 1.1150 pivot that would risk drop towards key supports at 1.10 zone (daily cloud base / psychological) and 1.0922 (Oct 12 trough) in extension.

Upticks should stay capped under 20DMA / daily cloud top (1.1314/21) to keep near-term bears in play.

Res: 1.1242; 1.1321; 1.1376; 1.1412.
Sup: 1.1150; 1.1060; 1.1000; 1.0922.

USDCAD has been in a steep uptrend since mid-September, storming to a fresh 29-month high of 1.3976 before experiencing a moderate pullback. Although the pair managed to recoup some losses after finding its feet at the 1.3500 region, the recent recovery appears to be running out of juice.

The momentum indicators currently suggest that bullish forces are waning. Specifically, the MACD histogram remains beneath its red signal line but in the positive territory, while the stochastic oscillator is pointing downwards after posting a bearish cross.

Should the negative momentum strengthen, the pair could encounter initial support at the double-bottom region of 1.3500, which overlaps with the 50-day simple moving average (SMA). Sliding beneath that floor, the bears might aim for the crucial July peak of 1.3222 before the attention shifts to 1.3074. Even lower, the September low of 1.2960 could appear on the radar.

Alternatively, if buyers re-emerge and push the price higher, the 1.3850 hurdle may act as the first line of defence. Crossing above the latter, the 29-month high of 1.3976 could provide further upside protection. Should that barricade fail, the price could ascend to form fresh multi-year peaks, where the May 2020 resistance of 1.4140 may curb any advances.

Overall, even though bullish pressures appear to be subsiding, USDCAD’s uptrend remains intact. Nevertheless, a dive beneath the 1.3500 floor is needed to trigger a moderate downside correction.