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RBA is looking for higher rates in an upcoming meeting, but its unclear if there will be 25 or 50bp increase which will be determined by incoming data and the outlook for inflation and employment. We see AUDUSD trading at the highs of the week after the minutes were released and it appears there is room for further gains as we see price in wave three, headed towards 161.8% Fib. We also see stocks still in bullish mode, including HSI, and copper while USDCNH is coming down, so these are all positive signs for the Aussie. As such, I may look for long entries after a pullback.

https://www.youtube.com/watch?v=iEDz-z8HGQE

EURJPY halted its latest steep decline near the 50-day simple moving average (SMA), returning to the green zone on Monday.

The bulls are currently hunting the 145.00 psychological mark, though the short-term technical picture is barely backing the positive action in the price. Particularly, the bullish trend is showing signs of exhaustion in the short-term timeframe after the peak at an eight-year high of 148.38, with the price making lower lows and lower highs.

In momentum indicators, the RSI and the MACD have been in a negative move too, with the former struggling to rise back above its 50 neutral mark and the latter remaining negatively charged below its red signal line.

GBPUSD is looking bullish in the short term after surging above its daily moving averages (MAs) and the long-term descending trend line. Prices hit a two-and-half-month high of 1.1853 on Friday, and the technical indicators are all pointing to further positive momentum in the near term.

The MACD oscillator is heading upwards, strengthening its positive momentum above its trigger and zero lines, suggesting plenty of scope for additional upside moves. The RSI is moving slightly sideways into bullish territory but has yet to approach the 70 overbought level.

Immediate resistance to further gains would likely come from the 1.1890, which capped prices in the preceding sessions. This is also near the August 16 inside swing low of 1.2000 so this could prove to be a potentially difficult hurdle for the pair to overcome. If there is a successful break above this area, further resistance could be met around the 200-day SMA at 1.2230.

If, however, the strong upside momentum was to lose steam and the pair moves lower, support would initially come from the 1.1640 barrier and the 20-day SMA at 1.1500. A slip below this level could take prices towards the 50-day SMA and the short-term uptrend line near 1.1340. Failure to hold above this line would switch the focus back to the downside and attention would increasingly turn to the 1.1150 hurdle.

In the more medium-term picture, the broader bearish outlook recently shifted to a positive one in the short term and if the market surpasses the 200-day SMA, that may endorse this view. 

Equity markets are looking slightly positive in early trade on Tuesday, adding to modest gains at the start of the week.

While the rally is perhaps slowing a little after the strong gains of recent weeks, there doesn't appear to be much appetite at this stage to bail on it. Perhaps the experience of the last year and the huge declines in equity markets have left investors seeing substantial value and they've become excited at even the prospect of a bull run. Perhaps there's some FOMO at play after a long time of such opportunities being few and far between.

Not a great UK labour market report

I'm not entirely sure who will look at the UK labour market and be able to take many positives from it. The unemployment rate ticking up when job vacancies have fallen for the fourth month may suggest to the BoE that slack is appearing. But at the same time, the rate remains very low and wages excluding bonuses rose by 0.2% to 5.7%, exceeding expectations, which will be a concern when inflation is already above 10% and rising.

Inactivity is another negative takeaway as this makes the job of increasing slack in the labour market all the more difficult. Whichever way you look at it, this isn't a great report and it will likely keep the pressure on the BoE to keep hiking aggressively, creating further headwinds for the economy.

Sensible RBA minutes move away from the era of forward guidance

The key takeaway from the RBA minutes overnight was that forward guidance will no longer be a tool the central bank leans on unless there is value in doing so. The RBA wants to maintain a flexible approach based on the incoming data rather than be tied to its guidance, which makes a lot of sense in these highly uncertain times. It highlighted the benefits of explicit and specific guidance in certain situations but the current one simply doesn't tick any of those boxes. As such, while a 25 basis point hike was appropriate at the last meeting - and I assume will be at the next - the central bank could move back to 50bps should the data warrant it. That all sounds very sensible.

Oil treading water

Oil prices are basically flat on Tuesday, sitting a little below the middle of their recent trading ranges as traders continue to weigh up the global economic outlook, OPEC+ production risks, and China's Covid approach.

Prices remain choppy and that's likely to remain the case given the ongoing uncertainty around these key areas. Everyone became much more optimistic around the US after last week's inflation report but that appears to have quickly faded. Enormous downside risks remain around the global economy next year even if the Fed does pause its tightening a little sooner and perhaps that reality is kicking in again.

Gold rally stalls at key resistance level The great gold recovery has stalled, with the yellow metal only slightly higher on the day after dipping a little earlier in the session. That follows a similar pattern to Monday and could be viewed as a positive sign given the reluctance to allow the recent rally to retrace in any considerable way.

It has been a very impressive recovery though, up around 10% from the lows earlier this month, so a corrective move wouldn't come as a surprise. It's seeing resistance around $1,780 at the moment, a level that was a major area of support earlier in the year and again in May before finally crumbling in early July. A move above here would be a significant technical breakout.

Traders may be tempted to sidestep cryptos for a while

Bitcoin is fighting back this morning but it remains very much on the ropes. Gains of more than 2% barely offset the losses since Friday, let alone what came earlier that week. Cryptos remain very vulnerable, not just to the fallout from FTX - the full extent of which remains a cloud of uncertainty over the industry - but also to what else may be uncovered as the environment becomes ever more challenging.

What we've seen recently will be discouraging to some who may have become tempted in recent years but with rates no longer at zero and more traditional assets arguably becoming attractive once more, traders may be tempted to sidestep cryptos and wait for the storm to pass.

Markets

Yesterday was the first day of what we fear will be a November lull. The sharp repositioning after last Thursday’s US CPI release, the arrival of technical support/resistance levels, the absence of key eco data and central bank gatherings and reduced trading volumes in next week’s shortened Thanksgiving week set the stage for short term consolidation/corrections to continue. US yields added 2.1 bps (30-yr) to 5.8 bps (2-yr) yesterday compared to Thursday’s close (bond exchanges closed for Veteran’s Day). German yields lost 1 to 2 bps across the curve. EUR/USD closed almost unchanged at 1.0325 after failing to take out the key resistance zone of 1.0341/50/68. European stock markets gained up to 1% with main US gauges given gains away in the final trading hour to close up to 1% weaker following an incredible two-day rebound. The eco calendar was empty apart from outdated EMU production numbers for September (0.9% M/M vs 0.5% expected). We retain comments from Fed vice chair Brainard who said it would be appropriate to slow down the pace of rate hikes soon. In line with recent Fed chorus, she stresses that the US central bank’s inflation fight isn’t done yet and that the Fed needs to remain vigilant. Focus should shift from the pace of hikes to the peak of the cycle, which several governors suggested could be well above 5%, and to the horizon on which restrictive monetary policy will be applied. 

Asian risk sentiment is vibrant this morning with China (+1.5%) and Hong Kong (+4%) outperforming. The Biden-Xi Summit in the sidelines of the G20 meeting in Bali is welcomed as a new starting point to stop the tumbling of bilateral ties and stabilize the relationship. Recent actions to weaken the zero-Covid policy guidelines and support the real estate sector are still at play as well. Slightly weaker-than-expected monthly Chinese eco data are this morning interpreted according to the “bad news is good news” paradigm, raising the stakes of more fiscal stimulus. Retail sales fell 0.5% Y/Y to be up only 0.6% YTD YoY. Industrial production weakened to 5% Y/Y to be up 4% YTD YoY. Investments stabilize at 5.8% YTD YoY. Property investment contracted 8.8% in the period.

Today’s eco calendar contains November German ZEW investor sentiment, 2^nd reading of EMU Q3 GDP data, October US PPI figures, November Empire Manufacturing Survey and speeches by several ECB and Fed members. We don’t expect them to change current market dynamics. The latest UK labour market report is just out and broadly in line with forecasts. Wages continued to grow at a 6% Y/Y pace with the unemployment rate ticking up marginally to 3.6% in Q3. Employment fell by 52k in Q3 compared to Q2, but monthly data for October showed a stronger then expected 74k increase. Sterling gained a few pips with EUR/GBP trading at 0.8760.

News Headlines

According to reporting of the Belgian Financial newspaper ‘De Tijd’, the final documents submitted to the Belgian Parliament show a bigger Belgian budget deficit compared to the drafts that were proposed to the European Commission a month ago. The structural deficit of the federal government is now estimated at 3.4% of GDP, compared to 2.9%. The global Belgian deficit has been raised to 6.1% of GDP (€35bn) compared to 5.8% of the GDP presented earlier. The review is said to be due to uncertainty on the timing of the reform of some excise duties which have to be put in place to counterbalance for a lowering the VAT on energy products. Due the higher budget deficit, the Belgian debt to GDP ratio now is estimated at 109.4% of GDP compared to 108% expected earlier.

The weakening of the yen for now apparently isn’t a support for the Japanese economy. Japanese GDP growth in the third quarter unexpectedly contracted by 0.3% Q/Q. This compared to expectations for a 0.3% quarterly growth and a rise of 1.1% Q/Q in the second quarter. Private consumption slowed to 0.3% Q/Q from 1.2% Q/Q as did fixed capital investment (1.2% Q/Q from 4.8%). Net exports subtracted 0.7% from growth as exports rose only 1.9% while imports gained 5.2%. Via different channels, the weak yen is weighing on domestic purchasing power and hampering growth. The yen weakened again slightly this morning to trade near USD/JPY 140.40. However, this move is at least partially supported by a (modest) USD comeback overall.

Daily Pivots: (S1) 163.52; (P) 164.62; (R1) 165.54; More...

Intraday bias in GBP/JPY stays neutrla for the moment. 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.

Daily Pivots: (S1) 143.59; (P) 144.41; (R1) 145.35; More....

Breach of 145.02 minor resistance argues that EUR/JPY's correction from 148.38 might be completed at 142.54. Intraday bias is back on the upside for retesting 148.38 high first. However, on the downside, 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.

Daily Pivots: (S1) 0.8737; (P) 0.8780; (R1) 0.8832; More...

Intraday bias in EUR/GBP stays neutral and outlook is unchanged. 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.

Daily Pivots: (S1) 1.5373; (P) 1.5424; (R1) 1.5467; More...

Intraday bias in EUR/AUD remains neutral as consolidation from 1.5704 is extending. 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.

Daily Pivots: (S1) 0.9711; (P) 0.9745; (R1) 0.9774; More....

EUR/CHF recovered after brief breach of 38.2% retracement of 0.8407 to 0.9953. Intraday bias is turned neutral first. On the downside, break of 0.9720 will extend the fall from 0.9953 to 61.8% retracement at 0.9616, and possibly below. On the upside, however, break of 0.9818 resistance will turn bias back to the upside for retesting 0.9953 instead.

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.