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AUDUSD turned red after facing a strong rejection around the 0.6500 level on Wednesday. Notably, the pullback took place at the crossroads of two constraining lines, signaling a potential downside reversal.

The technical oscillators reflect a neutral-to-bearish bias as the RSI is sliding gradually below its 50 neutral mark and the stochastics are changing direction to the south. Meanwhile, the MACD remains muted marginally below its zero line.

The 23.6% Fibonacci retracement of the 0.7136-0.6139 downleg could provide immediate protection against selling pressures along with the 20-day MA around 0.6397. Otherwise, the price could tumble towards last week’s support of 0.6280. Even lower, the bears will attempt to worsen the broad negative outlook below the 30-month low of 0.6169 and towards the 0.6070-0.6000 region taken from March 2020.

A bounce on 0.6397 will push for an extension above the 0.6460-0.6500 key zone, where the two lines are currently positioned. Yet only a sustainable close above the 38.2% Fibonacci of 0.6538 would confirm a bullish inverse head and shoulders pattern, likely fortifying buying appetite up to the 50% Fibonacci of 0.6652. Then another successful battle with the 0.6700 handle could bring the 0.6770 barrier next into view.

In short, downside risks remain intact in AUDUSD following the latest failure near 0.6500. Unless the 0.6397 number comes to the rescue, the sell-off may continue.

WTI crude plunges over a buildup in US storage. The price turned south after it met stiff selling at the October high of 93.50. A fall below the psychological level of 90.00 has forced some leveraged positions to liquidate. An invalidation of 88.00 is more worrisome as it indicates a lack of follow-up bids. 84.50 is the last support to gauge the bulls’ commitment. A bearish breakout would deepen the correction towards 81.00. 88.50 is a fresh resistance and the bulls will need to reclaim 91.50 before they could turn things around.

Bullion pulls lower as traders reposition ahead of US inflation data. The price has recouped losses from the October sell-off and is now retesting the daily resistance at 1730 . A break above this ceiling could relieve the bearish pressure in the weeks to come and send gold to 1800. Until then, a strong cap could be expected from a mix of profit-taking and fresh selling. The RSI’s overbought condition might temper the enthusiasm and 1680 is the closest support in case the precious metal starts to take a breather.

The Australian dollar steadies as inflation expectations beat estimates. After the pair found support over 0.6270, a lack of new lows suggests the sell-off has lost steam. Then a close above the major supply area 0.6520 may have reversed the situation by putting the bears on the defensive. The RSI’s double top may cause a pullback as momentum buyers take profit. 0.6400 is the first support and 0.6340 a key level to keep buyers interested. A bounce back above 0.6520 would extend the recovery towards 0.6650.

We're seeing some risk aversion in financial markets on Thursday as we await inflation data from the US later in the week.

It probably won't come as a surprise to many that we're seeing stock markets in the red considering how well they've performed in recent days and weeks. It would appear we've seen a lot of buying on the hope of a Fed pivot and some weaker inflation and labour market figures.

Well, the Fed kind of pivoted but indicated that the terminal rate may be higher. The labour market is still extremely tight and Friday delivered another hot report. Big tech seems to find itself in the minority in terms of its decision to let go of large numbers of staff, with Twitter and Meta most notably making huge redundancies in recent weeks.

With neither the Fed nor the labour market fully delivering - and one could argue they never were likely to - today's inflation report becomes ever more important. Another hot reading could be the latest in a growing list of setbacks for investors, who have been all too keen to buy at discounted levels in the hope the data rewards them. So far it hasn't.

That will turn at some point of course and this could be that moment. The million-dollar question is how fast will it fall. As this will ultimately determine the Fed's response. The best thing about a slower pace of tightening is that it allows time for the data to justify smaller rate hikes and an eventual end to the tightening process. Without it, the Fed will be in a very uncomfortable position of blindly weighing up inflation, recession and overtightening risks.

Oil slides amid Chinese COVID-19 restrictions

Oil prices fell again on Wednesday, taking losses over the last couple of days to more than 5%. Brent and WTI are basically flat on the day at the time of writing, settling towards the lower end of their recent trading ranges.

While the narrative in recent weeks has focused on the potential for Chinese Covid restrictions to be relaxed, which has driven Chinese equities higher and lifted oil prices, the reality has seen case numbers soaring, restrictions reimposed and mass testing undertaken. This doesn't exactly add substance to the rumours and we may be seeing some unwinding of those positions.

Gold steadies ahead of CPI data

Gold has steadied over the last 24 hours or so after surging late last week and early this in the hope that inflation data delivers what the Fed, and investors, crave so much. It's a very hopeful-looking move and one that could end badly if the CPI data continues this year's trend of disappointing to the upside. I just wonder at this point what investors need to see because the recovery of the last week has been strong - more than 5% - which suggests expectations are quite high. Time will tell if hopeful traders will be burned once more.

Is FTX a one-off?

Bitcoin is trading up more than 5% today but that comes following two terrible days for cryptos. Bitcoin fell more than 25% from the start of trade on Monday before finding some support around $15,500 and recovering slightly. The situation at FTX has unravelled at a remarkable pace, culminating on Wednesday evening with Binance bailing on its rescue offer following some due diligence and new allegations.

The ripple effects throughout the industry have been severe so far, with the fear not just being which other tokens could be exposed but whether similar vulnerabilities exist elsewhere. As Warren Buffett says, it's only when the tide goes out that you learn who has been swimming naked. Well, it may well be on its way out and traders are fearing what it will uncover.

Markets

Yesterday, a rather inconclusive outcome of the US midterm elections initially left markets looking for a clear driver. Sentiment gradually turned outspoken risk-off in US dealings with persistent uncertainty on the reopening of the Chinese economy due to COVID restrictions and noise spilling over from crypto markets as potential drivers. US equities ceded between 1.95% (Dow) and 2.48% (Nasdaq). The risk-off also caused Treasuries to reverse modestly initial losses. At the end of the session, US yields eased between 7.1 bps (2-y) and -0.75 bp (30-y). Even so, the sale of the $ 35 bln of 10-y US bonds went far less easy compared to Tuesday’s 3-year sale. It caused a temporary pause in the yield decline but didn’t change the trend. Fed speakers gave some mixed signals. Outgoing Chicago Fed president Evans favours a slowdown in the pace of rate hikes. Fed’s Barkin and Kashkari continue to advocate decisive action to arrest inflation and preventing inflation expectations to settle at a too high level. Bunds already outperformed Treasuries earlier in the session and maintained their bid with German yields easing between 11.3 bps (2-y) and 9.5 bps (30-y). The risk-off also helped the dollar to rebound from nearby support levels. DXY at 110.55 closed clearly above the 109.53 area (previous low/neckline). EUR/USD gave up its attempt to conquer the 1.0094/1.00 resistance area. A brief intraday spike on headlines that Russian troops will exit Kherson didn’t prevent to pair to close at 1.0011 (open 1.0074). The risk-off and markets pondering whether a more restrictive fiscal policy could lead to more benign BoE inflation response pushed EUR/GBP back to the 0.88 area.

Yesterday’s WS risk-off this morning also spills over to Asian markets (Nikkei -1.0%, Hang Seng-1.9%). The dollar is taking a breather of yesterday’s rebound (EUR/USD 1.003, USD/JPY 146.18). Evidently, the long-awaited for US CPI release will take center stage today. The headline inflation is expected to slow from 8.2% to 7.9%. Core inflation might ease from 6.6% to 6.5%. However, even this ‘topping out process’ still assumes monthly rises of 0.6% and 0.5% respectively. Such a pace for sure doesn’t meet the Fed’s aim to bring inflation on a sustained downward trajectory. Admittedly, we are a bit indecisive on the market reaction function. Up until now, it didn’t yield much to preposition for a softer inflation figure. At the same time, despite last week’s hawkish Fed guidance, markets reacted rather soft e.g. to a still solid labour market report, implicitly doubting the Fed’s resolve to bring the policy rate substantially above the 5.0% barrier next year. For the 10-y US yield, the 3.90% area remains very solid support. For the dollar we continue to monitor the 109.53 DXY level. For EUR/USD 1.0095/1.00 remains strong resistance. A break would open the way to 1.0198 September top.

News Headlines

The National Bank of Poland defied analyst and market expectations for a hike and kept the policy rate steady at 6.75% instead. Inflation increased to 17.9% y/y in October and new projections show upward revisions across the horizon: 14.4-14.5% in 2022, 11.1-15.3% in 2023 and 4.1-7.6% in 2024. First estimates for 2025 range between 2.1-4.9%. Growth forecasts were lowered though, especially for next year, as the NBP’s earlier tightening as well as weakening external economic conditions weigh. The central bank believes that such circumstances will support a decline in inflation towards target, albeit gradually. It would go quicker if the zloty appreciated towards levels seen consistent with economic fundamentals, the NBP added. While it hasn’t done so in recent months, the NBP to that end remains committed to FX interventions. The currency was disappointed following the decision. EUR/PLN rebounded from sub 4.7 to 4.71, surpassing resistance (zloty-support) from the 200MdA. Polish swap yields fell between 10-13.5 bps across the curve in a move that mostly followed earlier core bond yield trends.

The Hungarian government in draft legislation proposes to change the rules that force it to recapitalize the central bank’s (MNB) losses in a matter of days. Due to the MNB’s aggressive tightening cycle, it has accumulated huge losses (into several hundreds of billions forint) on, amongst others, its QE portfolio. Under current rules, the government is required to compensate the MNB in cash over a period of eight days. This comes at a time when the country is struggling to rein in a gaping budget deficit and several billions of euro funds are blocked over the rule-of-law spat with the EU. The government seeks to extend that to 5 years. This makes it easier to plan the budgetary effect, the Finance Ministry said.

Daily Pivots: (S1) 0.9826; (P) 0.9882; (R1) 0.9909; More....

EUR/CHF is still extending the consolidation pattern from 0.9953 and intraday bias stays neutral. Deeper retreat cannot be ruled, but downside should be contained by 0.9798 resistance turned support to bring rebound. On the upside, break of 0.9953 will resume the rise from 0.9407 to 1.0072 fibonacci level.

In the bigger picture, a medium term bottom should be in place at 0.9407. Further rally is expected as long as 0.9641 support holds, even as a corrective rebound. Next target 38.2% retracement of 1.1149 to 0.9407 at 1.0072. Reaction from there, as well as 55 week EMA (now at 1.0121) will reveal whether the trend is reversing.

Daily Pivots: (S1) 1.5489; (P) 1.5538; (R1) 1.5618; More...

Focus is back on 1.5704 in EUR/AUD with current strong rebound. Firm break there will resume larger up trend from 1.4281. Next target will be 61.8% projection of 1.4716 to 1.5704 from 1.5267 at 1.5878, and then 100% projection at 1.6255. In case of another fall as correction from 1.5704 extends, downside should contained by 55 day EMA (now at 1.5245) to bring rebound.

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) 0.8746; (P) 0.8787; (R1) 0.8858; More...

EUR/GBP's break of 0.8779 resistance suggests that pull back form 0.9267 has completed at 0.8570. Intraday bias is back on the upside for 0.8869 resistance first. Firm break there will target retest of 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) 146.24; (P) 146.68; (R1) 147.03; More....

EUR/JPY is staying in consolidation from 148.38 and intraday bias remains neutral for the moment. In case of another fall, downside should be contained by 55 day EMA (now at 143.62) to bring rise resumption. On the upside, break of 148.38 will resume larger up trend to 149.76 long term resistance next.

In the bigger picture, the up trend from 114.42 (2020 low) is still in progress for 149.76 (2014 high). Decisive break there will pave the way to 161.8% projection of 114.42 to 134.11 from 124.37 at 156.22. This will now remain the favored case as long as 137.32 support holds.