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Daily Pivots: (S1) 0.9660; (P) 0.9718; (R1) 0.9762; More...

Despite some loss of downside momentum, intraday bias in EUR/USD stays mildly on the downside for retesting 0.9534 low. Firm break there will resume larger down trend for 100% projection of 1.0368 to 0.9534 from 0.9998 at 0.9163. For now, risk will stay on the downside as long as 0.9998 resistance holds, in case of recovery.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, break of 0.9998 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish even with strong rebound.

Daily Pivots: (S1) 1.0889; (P) 1.1035; (R1) 1.1116; More...

GBP/USD's fall from 1.1494 resumed after brief recovery. Intraday bias is back on the downside for retesting 1.0351 low. On the upside, above 1.1178 minor resistance will turn intraday bias neutral again. But near term risk will stay on the downside as long as 1.1494 resistance holds, in case of recovery.

In the bigger picture, fall from 1.4248 (2018 high) is resuming long term down trend from 2.1161 (2007 high). Next target is 100% projection of 2.1161 to 1.3503 from 1.7190 at 0.9532. There is no scope of a medium term rebound as long as 1.1759 support turned resistance holds.

Dollar is trying to extend recent rally again but buying is mostly seen against Yen and Sterling. The Yen finally broke out and fell to new 24-year low against the greenback, and it's on track to take on the level seen back in 1998. Sterling, on the other hand, is pressured after BoE ruled out extending the emergency intervention in bond markets beyond this weekend. Selloff in the Pound is giving some support to Euro and Swiss Franc. Aussie is also weak with risk-off sentiment in Asia.

Technically, EUR/GBP's break of 0.8848 minor resistance is a sign that Sterling bears are back in control, and further rise could be seen back to retest 0.9267 high. At the same time, GBP/USD is also resuming its fall towards 1.0351 low. Break of 1.0811 minor support tin GBP/CHF will also align the outlook. That is, rebound from 1.0183 has completed at 1.1283, and retest of 1.0183 low could be seen next.

In Asia, at the time of writing, Nikkei is down -0.14%. Hong Kong HSI is down -1.86%. China Shanghai SSE is down -1.10%. Singapore Strait Times is down -0.67%. Japan 10-year JGB yield is up 0.0010 at 0.256. Overnight, DOW rose 0.12%. S&P 500 dropped -0.65%. NASDAQ dropped -1.10%. 10-year yield rose 0.051 to 3.939.

USD/JPY breaks to new 24-yr high as Japan just closely watching

USD/JPY finally breaks through 145.89 resistance to resume up trend to new 24-year high. It's on track towards 1998 high at 147.68. But there is not clear sign of imminent intervention by Japan yet.

Finance Minister Shunichi Suzuki just repeated that what was important was the speed of forex moves. Japan will closely watch forex moves with a sense of urgency.

Chief Cabinet Secretary Matsuno Hirokazu said echoed that the government is "closely watching FX moves with a high sense of urgency" and will " take appropriate steps on excess FX  moves".

The message has been consistent that Japan is mindful of fast, one-sided depreciation of yen, rather than the actual rate.

ECB Villeroy: Interest rate should be at neutral by year end

ECB Governing Council member Francois Villeroy de Galhau said it's still too early to decide whether the central bank should hike by 50bps or 75bps at October 27 meeting. But he noted interest rate should be at neutral level, or "a bit less than 2%" by year end.

Then, ECB could start shrinking its balance sheet. "It would not be consistent to keep a very large balance sheet for too long in order to compress the term premium, whilst at the same time contemplating tightening policy rates above neutral," he added.

"The reimbursement of TLTROs comes first, and we should avoid any unintended incentives to delay repayments by banks," he said. "Here we could start earlier than 2024, maintaining partial reinvestments but at a gradually reduced pace."

RBA Ellis: Neutral is not a destination we necessarily reach

RBA Assistant Governor Luci Ellis said in a speech that "don't think of this as a mechanistic approach of 'we have to get back to neutral', or above neutral" interest rate.

"The neutral rate is an important guide rail for thinking about the effect policy might be having. It is not necessarily a prescription for what policy should do," he said.

"'Neutral', then, is not a destination we necessarily reach, but more a pole-star to guide us. And even then, its location is sufficiently uncertain that we are perhaps better served by paying more attention to the ground as it shifts beneath our feet than to that faraway pole-star," he added.

Looking ahead

UK GDP, production and goods trade balance will be released in European session, with Eurozone industrial production too. Later in the day, US will publish PPI, but main focus will be on tomorrow's CPI report.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.0889; (P) 1.1035; (R1) 1.1116; More...

GBP/USD's fall from 1.1494 resumed after brief recovery. Intraday bias is back on the downside for retesting 1.0351 low. On the upside, above 1.1178 minor resistance will turn intraday bias neutral again. But near term risk will stay on the downside as long as 1.1494 resistance holds, in case of recovery.

In the bigger picture, fall from 1.4248 (2018 high) is resuming long term down trend from 2.1161 (2007 high). Next target is 100% projection of 2.1161 to 1.3503 from 1.7190 at 0.9532. There is no scope of a medium term rebound as long as 1.1759 support turned resistance holds.

Economic Indicators Update

Key Highlights

• Crude oil price started a fresh increase above the $85.50 and $88.00 resistance levels.
• A major bullish trend line is forming with support near $88.40 on the 4-hours chart.
• Gold price failed to clear the $1,730 resistance and trimmed gains.
• EUR/USD and GBP/USD seem to be consolidating losses.

Crude Oil Price Technical Analysis

Crude oil price started a fresh increase from the $76.80 zone against the US Dollar. The price gained pace for a move above the $80.00 resistance level.

Looking at the 4-hours chart of XTI/USD, there was a break above the $85.00 resistance zone. The price even settled above the $86.50 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

There was a clear move above the $88.00 and $90.00 levels. It traded as high as $93.70 and recently there was a minor downside correction.

The price dipped below the $90.00 level. There was a move below the 23.6% Fib retracement level of the upward move from the $76.77 swing low to $93.70 high. However, there are many supports on downside, starting with $88.40 and a connecting bullish trend line.

The next major support is near $85.00 zone. It is near the 50% Fib retracement level of the upward move from the $76.77 swing low to $93.70 high.

Any more losses might call for a test of the $82.50 zone. On the upside, the price might face sellers near the $91.50 zone. The next major resistance is near $93.80, above which the price could accelerate higher towards the $95.00 zone.

Looking at gold price, there was a fresh bearish wave after the price failed to clear the $1,730 resistance. It is now consolidating near the $1,675 zone.

Economic Releases to Watch Today

• UK Industrial Production for August 2022 (MoM) - Forecast -0.2%, versus -0.3% previous.
• UK Manufacturing Production for August 2022 (MoM) - Forecast 0%, versus +0.1% previous.
• US Producer Price Index for Sep 2022 (MoM) – Forecast 0.2%%, versus -0.1% previous.
• US Producer Price Index for Sep 2022 (YoY) – Forecast +8.4%, versus +8.7% previous.

USD/JPY finally breaks through 145.89 resistance to resume up trend to new 24-year high. It's on track towards 1998 high at 147.68. But there is not clear sign of imminent intervention by Japan yet.

Finance Minister Shunichi Suzuki just repeated that what was important was the speed of forex moves. Japan will closely watch forex moves with a sense of urgency.

Chief Cabinet Secretary Matsuno Hirokazu said echoed that the government is "closely watching FX moves with a high sense of urgency" and will " take appropriate steps on excess FX moves".

The message has been consistent that Japan is mindful of fast, one-sided depreciation of yen, rather than the actual rate.

RBA Assistant Governor Luci Ellis said in a speech that "don't think of this as a mechanistic approach of 'we have to get back to neutral', or above neutral" interest rate.

"The neutral rate is an important guide rail for thinking about the effect policy might be having. It is not necessarily a prescription for what policy should do," he said.

"'Neutral', then, is not a destination we necessarily reach, but more a pole-star to guide us. And even then, its location is sufficiently uncertain that we are perhaps better served by paying more attention to the ground as it shifts beneath our feet than to that faraway pole-star," he added.

Full speech here.

ECB Governing Council member Francois Villeroy de Galhau said it's still too early to decide whether the central bank should hike by 50bps or 75bps at October 27 meeting. But he noted interest rate should be at neutral level, or "a bit less than 2%" by year end.

Then, ECB could start shrinking its balance sheet. "It would not be consistent to keep a very large balance sheet for too long in order to compress the term premium, whilst at the same time contemplating tightening policy rates above neutral," he added.

"The reimbursement of TLTROs comes first, and we should avoid any unintended incentives to delay repayments by banks," he said. "Here we could start earlier than 2024, maintaining partial reinvestments but at a gradually reduced pace."

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Cleveland Fed President Loretta Mester said, "Unacceptably high and persistent inflation remains the key challenge facing the U.S. economy. Despite some moderation on the demand side of the economy and nascent signs of improvement in supply side conditions, there has been no progress on inflation."

"Monetary policy is moving into restrictive territory and will need to be there for some time in order to put inflation on a sustained downward path to our 2 percent goal," she said, adding "I do not anticipate any cuts in the fed funds target range next year."

"With growth well below trend over the next couple of years, it is possible that a shock could push the U.S. economy into recession for a time," Mester said, adding "none of this is painless," but it is necessary, as high inflation exerts heavy costs on the economy.

Gold reversed course last week retracing its steps back to the $1660 level, after the dollar reinstated its position as the preferred safe haven asset of the market. Weighing the precious further was the resurgence of bond yields climbing near their highs after their recent hiccup and Fed’s policy makers’ hawkish remarks. In this report we aim to shed light on the catalysts driving the precious metal’s price, assess its future outlook and conclude with a technical analysis.

Upside surprise of US employment data lifts the dollar

The greenback managed to string five consecutive days in the greens earlier today, riding the momentum wave after the better-than-expected employment report results for September, that hit the market last Friday. The Non-Farm payrolls figure saw a positive surprise to the upside, with the US economy adding 263k jobs in September, exceeding expectations of 250k which was estimated prior to the release. The figure implies that the US labour market retains its ability to create new jobs amidst widespread fears of economic slowdown and gives confidence to Fed to press on aggressively, focusing solely on taming the persistent problem of inflation. Furthermore, the employment report pinpointed to the fall of the unemployment rate back down to the 3.5% level, showcasing the tightness of the US employment market. On another note, US treasury yields also extended their winning streaks after the data release, pressuring gold prices, contributing further to the pullback of the yellow metal. More specifically the benchmark US 10-Treasury yield is trailing upwards towards the 4% level, currently trading at 3.93%, a level once seen before during 2008. Even though, gold is considered a hedge against inflation and economic uncertainties, rising rates reduce the non-yielding bullion’s appeal, as it dampens its shine as a store of value.

Fed policy makers’ hawkish remarks restated

During a speech yesterday, Fed’s Vice Chair Brainard once again clearly stated the need for restrictive monetary policy, for a prolonged period of time, to ensure that inflationary pressures are indeed brought down to an acceptable level, acknowledging the fact that it may bring also the economy to a grinding halt and push the US economy into a recession. Also, data dependency was another point of reference made by the Vice Chair and since the favorable results of the recent employment report showcase tightness in the US labour market, it could provide extra confidence to the Fed. Given, the statements from the Vice Chair and several other FOMC members during the past week the market appears to have digested the Fed’s intentions for hiking by another 75 basis points in the November meeting and currently the FFF imply an 89% probability for such a scenario to materialize. Furthermore, market participants await in anticipation the high impact inflation print to be released on Thursday and an update on consumer spending tendencies to be showcased by the latest Retail Sales report for September which is expected on Friday. We would also like to point out the scheduled speeches from Philadelphia Fed President Harker, Cleveland Fed President Mester, Minneapolis Fed President Kashkari, Fed Board Governor Bowman and Kansas City Fed President George throughout the week, all of which will be monitored for any deviation from the main rhetoric. Also we highlight the release of the Fed’s last meeting minutes and should the tone of the contents continue to be tilted on the hawkish side, we may see the release providing additional support for the greenback. Should the speeches continue to deliver the as expected hawkish undertone, we would expect seeing support for the dollar and gold to remain prone for downside due to their inherent negative correlation.

CPI print due out on Thursday

The US inflation report is due out this Thursday and market participants will be looking for a status update on the ravaging inflationary pressures that spread discontent and fear across the US economy. According to estimates, the month-on-month CPI rate for September is expected to rise to 0.2% compared to the 0.1% reported last month and should the actual figure meet expectations, the uptick of inflationary pressures on a monthly basis could give confidence to the Fed to continue aggressively with its monetary policy tightening agenda, opting for another 75-basis points hike, in their November meeting. On the other side of the spectrum however, the year-on-year CPI rate for September, is expected to ease to 8.1% compared to the 8.3%, of the previous reading of August. Should the actual rate meet the expectations, with the yearly inflationary metric pointing to an easing of inflationary pressures, could lead the Fed to opt for a smaller rate hike. All things considered however, the yearly CPI rate of 8.1% is still well above the 2% inflation target set as a benchmark from the central bank and the multitude of recent speeches from Fed policy makers reiterating the need for squashing inflation by keep hiking rates, we hold the view that the Fed will stay on course and move aggressively with its tightening plans. Therefore, in our assessment, gold continues to be disproportionately predisposed towards the downside on a fundamental level, as the dollar continues to receive safe haven inflows amidst a grim global economic outlook.

Technical Analysis

XAUUSD H4 Chart

Looking at XAUUSD 4H chart we observe the breakdown from the ascending trendline which was initiated on the 28th of September and the price action moving lower after the better-than-expected employment report results last Friday. We hold a bearish outlook bias for the precious given the break of the ascending trendline and supporting our case is the RSI indicator below our 4-hour chart which currently registers a value of 31, highlighting the negative sentiment surrounding the bullion. We must note however that RSI move below the 30 oversold threshold may be due a correction. Should the bears maintain control, we may see the break below the 1660 (S1) support level and gold moving near the 1642 (S2) support base. Should the bulls take over, we may see the break above the 1680 (R1) resistance level and the price action moving closer to the 1700 (R2) resistance barrier.