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Market picture

The cryptocurrency market lost another 7.7% to $900B over the past 24 hours, returning capitalisation to the area of September-October lows; at the peak of the decline, it was approaching the current market cycle lows set in June. Leading altcoins in the top 10 fell from 5.5% (BNB) to 22.9% (Dogecoin).

At its worst moment of market capitulation on Tuesday night, Bitcoin was down to $17.1K, renewing 2-year lows. Many potential long-term investors in cryptocurrencies are now trying to assess whether we saw a final surrender yesterday, followed by a reversal. So far, we have doubts that the most worrisome part is behind us.

BTC’s sharp decline earlier in the day came amid an abrupt collapse in one of the largest crypto exchanges FTX’s own FTT token, which now trades at $4.6, having lost over 80% from $25.6 on Saturday. And all this on high trading volumes.

Another victim of the latest crypto chaos was Solana coin, which had lost 55% since Saturday before the crypto market went wild.

News background

On Tuesday evening, it was reported that Binance had agreed to acquire cryptocurrency exchange FTX amid investor panic and a liquidity crisis at what was once the third-largest cryptocurrency exchange. The news failed to stem capital outflows, and the cryptocurrency sell-off continued, albeit calmer.

Despite some resolution, the news did not trigger a market recovery. Some experts say what has happened threatens the crypto market with significant disruption.

Other observers point out that the collapse of the crypto market occurred on the day of the US congressional elections, which could have triggered selling in an environment of uncertainty, which is always bad for risky assets such as cryptocurrencies.

The Japanese yen has steadied after posting strong gains on Tuesday. In the European session, USD/JPY is trading at 145.67, up 0.03%.

Japan recorded stronger-than-expected gains in household spending and retail sales, but it’s questionable whether this positive trend will continue. Inflation hit 3% in September for the first time in over 30 years, raising concerns, but inflation is still at levels that other major central banks can only dream of.  The government is hoping that the finance package that was announced on Tuesday will reduce inflation and boost growth.

Still, the outlook for the yen, which has been on a prolonged downturn against the dollar, remains grim. The Bank of Japan is unlikely to veer from its ultra-loose policy, despite the declining yen and rising inflation, unless inflation continues to rise. The Federal Reserve is expected to deliver additional oversize rate hikes, which will widen the US/Japan rate differential and likely push the dollar lower.

At the BoJ’s meeting in late October, it was business as usual as policy makers maintained their dovish guidance. The BoJ remains an outlier amongst the major central banks, with a growing realization that any changes in policy will have to wait until Governor Kuroda’s term ends in April 2023.

In the US, the dust from the mid-term election hasn’t yet settled. The Republicans are expected to retake the House, but with a very slim majority, while the makeup of the Senate is unlikely to be determined for several weeks. The election hasn’t had much impact on the movement of the US dollar, as investors are focussed on the US inflation report on Thursday.

USD/JPY Technical

• There is resistance at 147.07 and 148.45
• 145.28 and 144.20 are providing support

RBA Deputy Governor Michele Bullock said in a speech that "further increases in interest rates will be required" to meet the inflation target. Meanwhile, the "size and timing of future increases" will depend on the data.

She added that inflation is "increasingly broad based" and it "won't peak until the end of the year". After that, RBA expects " rising interest rates and cost-of-living pressures to drive a moderation in consumption that brings demand more in line with supply". And that should help to get inflation back to target "over the next couple of years".

Bullock also discussed four uncertainties around the central forecasts. Firstly, in the international environment, a "significant concern" is the "downside risks in China". Second is what the current high inflation and cost-of-living pressures might do to price and wage expectations in Australia. Third is the  behavior of households as interest rates and inflation rise. Fourth is  around energy and other supply shocks that could boost inflation and lower growth.

Full speech here.

A lot is going on; the crypto market is down after FTX’s liquidity issues after Binance says they are liquidating its holdings of FTX Token. So crypto weakness is not because of USD strength. In fact, USD was down earlier this week across the board after some stabilization on stocks. However, even FX can slow down now, ahead of US CPI tomorrow. U.S. House election results will also cause some shaky reactions, but eventually, the move can be temporary. From an Elliott wave perspective, we see five waves up on the eurusd pair. now trading at 1.0090 resistance so we should be aware of a pullback. Ideally market will make a three wave retracement back to the former wave four before new buyers may step in.

The Euro holds firm bullish tone and consolidating around new two-month high in early Wednesday, after bulls generated fresh bullish signals on Tuesday’s close above pivots at 1.0037/50 (100DMA / Fibo 61.8% of 1.0368/0.9535 respectively) and dented key barrier at 1.0093 (Oct 26 recovery top) hitting new marginally higher high at 1.0097.

This signals that bulls may extend further, with targets at 1.0172/97 (Fibo 76.4% / September high) coming in focus.

Weakening dollar and signals that the ECB will continue raising interest rates even as economy suffers, adds to positive sentiment.

Traders focus on tomorrow’s US inflation data, which could further lift euro if CPI eases further that would contribute to expectations of softer Fed’s stance on policy tightening.

As expected, bears faced headwinds at key barrier (1.0093), with overbought daily studies adding to signs of partial profit taking and consolidation.

Initial support lays at 1.0050 (broken Fibo 61.8%) with more significant supports at 1.0000 / 0.9952 (parity / broken daily cloud top) expected to contain dips and keep bulls intact.

Res: 1.0097; 1.0172; 1.0197; 1.0268.
Sup: 1.0050; 1.0000; 0.9952; 0.9936.

The Australian dollar is in negative territory today after an impressive rally. AUD/USD is trading at 0.6487, down 0.27%.

US dollar steadies after selloff

The US dollar has been in retreat since Friday, after a mixed nonfarm payroll report raised the likelihood of the Fed easing up in December and raising rates by just 0.50%, rather than 0.75%. The Australian dollar took full advantage of the US dollar selloff, rising over 200 points in a 3-day rally. AUD/USD rose to a 6-week high on Tuesday, but it’s hard to see the US dollar continuing to weaken much further. The Federal Reserve is sticking to its hawkish script and said at last week’s meeting that the terminal rate would be higher than previously anticipated. As well, with a gloomy global outlook, risk appetite will be under pressure, making the US dollar more attractive to investors.

The Australian dollar faces other headwinds as well. China, Australia’s largest trading partner, is experiencing a slowdown as the country is yet to exit its strict zero-Covid policy. The RBA has eased up on rates, with two straight hikes of just 0.25%, even though inflation hasn’t shown signs of peaking. With the Fed expected to deliver hikes of 0.50% or 0.75%, the US/Australia rate differential is widening, which will weigh on the Australian dollar.

The US midterms remain inconclusive, with tight races in both the House and the Senate. The Republicans were expected to easily take the House, but the race is tighter than expected. The Senate may not be decided for weeks if a runoff is required in Georgia. Any fluctuations in the currency markets are likely to be short-lived, with investors looking ahead to Thursday’s CPI report.

AUD/USD Technical

• There is resistance at 0.6549 and 0.6631
• AUD/USD has support at 0.6411 and 0.6329

Equity markets are a little lower on Wednesday as investors continue to watch events unfold in the US for a sense of what impact they'll have on sentiment.

The impact of the midterms will probably be short-lived, if impactful at all, as far as markets are concerned. Of course, the political implications may be significant if Democrats can manage to retain control of the House and Senate but at this stage, only one of those looks plausible which means deadlock in Washington.

The bigger takeaway from the election may well be what support there is for Trump-backed candidates and what that does for his own re-election hopes in two years. But that's unlikely to sway the markets now, not with so much else to focus on.

Investors are more focused on the inflation data on Thursday and whether that will pave the way for a slower pace of tightening in December and early next year. There's unease about the central bank's views on the terminal rate but those could abate if we see a favourable inflation number tomorrow.

Oil eases amid a surge in inventories

Oil prices are a little lower again on Wednesday after falling around 3% a day earlier. This came following a strong move in recent weeks in which crude prices rallied around 20% on the back of the OPEC+ output cut and the prospect of less restrictive Covid measures in China, which have not been confirmed.

The API inventory data came late in the day on Tuesday after the bulk of the losses had already occurred. If the large inventory build is confirmed by EIA today, it will be interesting to see if it generates a bigger reaction in the markets, with Brent now trading back in the middle of the $90-100 range.

Gold surges ahead of CPI

A surge in gold on Tuesday saw the yellow metal smash through $1,680 and then $1,700 resistance and settle above here, as risk appetite improved and the dollar retreated. While it's hard to attribute the rally to any particular event, the technical loss of both of those resistance levels won't have done it any harm.

The question now is whether it can hold onto those gains once the latest inflation report drops. It may well be that gold's revival, and the dollar's retreat, are driven by an expectation that the CPI data will be favourable but we've seen what the dangers of that are before. Especially when it comes to inflation data. The next test to the upside for gold falls around $1,730, while prior resistance of $1,700 and $1,680 could now become support.

Turmoil at FTX sees cryptos plunge

For a long time, bitcoin has aligned itself with broader risk appetite in the markets but it goes without saying that Tuesday was not one of those days. Cryptocurrencies have been pummeled at the start of the week with bitcoin down almost 20% in two days at one stage amid concerns over FTX and the implications for the FTT token.

Alameda's balance sheet is a major factor in those fears which has seen that pain spread to Solana, with contagion fears dragging on the crypto space as a whole. Bitcoin fell to a near-two-year low at one stage and is down almost 3% again today. Nervy days ahead for cryptos as Binance looks to come to the rescue.

Daily Pivots: (S1) 167.32; (P) 168.20; (R1) 169.09; More...

Intraday bias in GBP/JPY remains neutral and consolidation pattern from 172.11 could extend. Overall, further rally is mildly in favor with 164.95 support intact. On the upside, break of 172.11 will resume larger up trend. However, break of 164.95 will bring deeper pull back to 159.71 support and below.

In the bigger picture, up trend from 123.94 (2020 low), as part of the trend from 122.75 (2016 low) is still in progress. Further rise would be seen to 161.8% projection of 122.75 to 156.59 (2018 high) from 123.94 at 178.69. This will now remain the favored case as long as 148.93 support holds.

Daily Pivots: (S1) 146.16; (P) 146.58; (R1) 147.17; More....

Intraday bias in EUR/JPY stays neutral and consolidation from 148.38 could extend further. In case of another fall, downside should be contained by 55 day EMA (now at 143.52) 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.

Daily Pivots: (S1) 0.8697; (P) 0.8720; (R1) 0.0.8749; More...

Intraday bias in EUR/GBP remains neutral for the moment. On the upside, firm break of 0.8779 will argue that corrective fall from 0.9267 has completed at 0.8570. Intraday bias will be back on the upside for 0.8869 first. Break there will bring retest of 0.9267 high. On the downside, break of 0.8570 will resume the fall from 0.9267 and target 0.8201/8388 support zone.

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.