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Daily Pivots: (S1) 1.1222; (P) 1.1316; (R1) 1.1373; More...

GBP/USD rises mildly today but stays inside range of 1.0922/1494. Intraday bias remains neutral for the moment. Further rally is in favor with 1.0922 minor support intact. On the upside, break of 1.1494 will resume the rise from 1.0351 to 61.8% projection of 1.0351 to 1.1494 from 1.0922 at 1.1628. On the downside, below 1.0922 will turn bias back to the downside for 1.0351 low instead.

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.

It's an extremely slow day in the markets. Sterling appears to be a touch stronger after Rishi Sunak finally become the third UK Prime Minister in Two months, accepting King Charles's request to form a government. Meanwhile, Swiss Franc is slightly on the softer side. But overall, most major crosses and pairs are staying range bound. Germany Ifo Business Climate triggered no reaction in Euro. The stock markets are mixed too, with China markets closed slightly slower despite attempt by the "national team" to buy a rebound. Benchmark treasury yields in the US and Europe are also trading lower.

Technically, EUR/CHF's rally today is so far not accompanied by any meaning movement in Euro elsewhere. Now, GBP/CHF appears to be trying to resume near term rise from 1.0183. Firm break of 1.1393 resistance will confirm and target 61.8% projection of 1.0183 to 1.1283 from 1.0893 at 1.1573. Let's see whether the Pound would move elsewhere or not.

In Europe, at the time of writing, FTSE is down-0.83%. DAX is down -0.96%. CAC is up 0.17%. Germany 10-year yield is down -0.0989 at 2.231. Earlier in Asia, Nikkei rose 1.02%. Hong Kong HSI dropped -0.10%. China Shanghai SSE dropped -0.04%. Singapore Strait Times rose 0.48%. Japan 10-year JGB yield rose 0.0004 to 0.257.

Germany Ifo business climate fell slightly to 84.3, facing a difficult winter

Germany Ifo Business Climate ticked down from 84.4 to 84.3 in October, above expectation of 84.0. Current Assessment index dropped from 94.5 to 94.1, above expectation of 92.5. Expectations index rose from 75.3 to 75.6, above expectation of 74.9.

By sector, manufacturing fell from -14.3 to -15.9. Services rose slightly from -8.9 to -8.6. Trade rose from -32.3 to -31.9. Construction dropped from -21.9 to -24.9.

Ifo isad: "Companies were less satisfied with their current business. Their expectations improved, but they are still worried about the coming months. The German economy is facing a difficult winter."

RBNZ Conway hopeful that inflation has peaked

RBNZ Chief Economist Paul Conway said annual inflation rate of 7.2% was "obviously too high". But, he added, "we expect to see inflationary pressures easing going forward" and "are hopeful that it has peaked."

The "very rapid tightening in monetary policy" is starting to have an effect and "there are early signs that the economy is starting to cool," he said.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1222; (P) 1.1316; (R1) 1.1373; More...

GBP/USD rises mildly today but stays inside range of 1.0922/1494. Intraday bias remains neutral for the moment. Further rally is in favor with 1.0922 minor support intact. On the upside, break of 1.1494 will resume the rise from 1.0351 to 61.8% projection of 1.0351 to 1.1494 from 1.0922 at 1.1628. On the downside, below 1.0922 will turn bias back to the downside for 1.0351 low instead.

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

EURJPY quickly recovered Friday’s sharp pullback, but it could not close above the tough 147.00 ceiling, which has been restraining bullish movements for almost a week now. Strikingly, the resistance line drawn from August 2020 is also positioned in the same area.

The RSI and the stochastics have fallen from overbought levels, reflecting a weakening bias. Yet, the former is still comfortably above its 50 neutral mark, while the MACD is well elevated above its red signal line, both suggesting that buyers have not abandoned the market yet.

On the downside, a close below September’s high of 145.62 could bring the 20-day simple moving average (SMA)  under the spotlight around 144.00. Even lower, the price may seek shelter near its previous low of 140.89, a break of which could press the price straight to the March support line currently around 139.00.

In case the price advances above the 147.00 mark, the rally could stabilize near the 2014 top of 149.76 and the 150.00 psychological mark. The next obstacle could emerge around the 151.60 level last active during 2007-2008.

In brief, EURJPY is looking cautiously bullish as the price is consolidating its gains near a key resistance territory. Overall, the upward pattern is still intact and only a decisive decline below 144.00 would violate it.

AUD/USD has steadied today after two days of sharp swings. In the European session, the Australian dollar is trading at 0.6317, up 0.09%.

It was a brutal start to the week for the Australian dollar, which sank 1.1 per cent on Monday. The manufacturing and services PMIs both slowed in October, pointing to weaker economic activity. Manufacturing expanded but softened, as the Manufacturing PMI slowed to 52.8, down from 53.5. The Services PMI declined to 49.0, down from 50.6 points and its lowest level since September 2021. The decline in business activity is attributable to the continuing rise in interest rates and economic uncertainties. Australia’s labour market remains strong, but the steady diet of rate increases has slowed economic activity.

Australia’s CPI expected to climb

Australia releases CPI for Q3 on Thursday. The markets are bracing for an uptick in inflation. Headline CPI is expected to rise to 7.0%, up from 6.1% in Q2. Core inflation is projected to rise to 5.6%, up from 4.9%. The RBA says inflation will peak in Q4 2022 at 7.5% but will not fall back to the RBA’s 2% target until 2024. Tomorrow’s inflation report is the last key event before the RBA meets next week, which gives the inflation data added significance and could have a strong impact on the Australian dollar.

The RBA surprised the markets with a 0.25% hike earlier this month, which was smaller than expected. The RBA appears to have completed its front-loading, which saw the central bank deliver four straight increases of 0.50%. The markets are expecting another 0.25% hike at the meeting next week, with the RBA hopeful that inflation will start to ease shortly without the need for oversize rate hikes, which would make a recession more likely.

AUD/USD Technical

• AUD/USD continues to test support at 0.6250. The next support level is 0.6121
• There is resistance at 0.6331 and 0.6460

European markets edged cautiously higher on Tuesday as investors digested upbeat corporate earnings and news that Rishi Sunak would replace Liz Truss as U.K. prime minister.

The latest German IFO Business Climate Index supported sentiment by showing some signs of stabilisation, albeit at low levels. Most Asian shares staged a sharp rebound during early trade, tracking the recovery from Wall Street as soft economic data fueled bets around the Fed softening its hawkish stance. Interestingly, some stability returned to Chinese markets following Monday’s historic selloff as traders weighed bargain prices against China’s uncertain political landscape and economic outlook.

In the currency space, the offshore Yuan has weakened past the psychological 7.30 level following the party congress, while dollar bulls are taking a pause amid expectations around a potential Fed pivot. Sterling has appreciated against every G10 currency this morning ahead of Rishi Sunak’s meeting with King Charles and his first public address later this morning. The euro seems to be on standby and is likely to remain trapped within a range until the European Central Bank (ECB) meeting on Thursday.

Will the ECB come to the euro’s rescue?

Markets widely expect the central bank to raise interest rates by another 75 basis points on Thursday, in a move to contain inflation which is well above the 2% target. Given how this has already been priced in, this may offer little support to euro bulls that have been beaten black and blue by a stronger dollar over the past few months. Much attention will be directed towards President Christine Lagarde’s press conference which will be closely scrutinised by investors for clues on the central bank’s next policy move. If policymakers move ahead with a 75bp hike and open the door for more jumbo hikes in the future, this could provide some support to the euro. A shock 100bp rate hike would inject euro bulls with fresh inspiration to break decisively out of the current range. Should the central bank surprise markets with a smaller than expected 50bp hike, the EURUSD could tumble back to 0.9700 and lower. Whatever the outcome of the ECB meeting, it is likely to set the tone for the euro over the next few weeks.

Currency spotlight – Time for king dollar to rest?

The dollar has weakened against most G10 currencies since the start of the fourth quarter thanks to the improving market mood and expectations around the Fed dialing back on its hawkish stance. As economic data in the United States continues to illustrate a gloomy picture, this could fuel speculation around the jumbo-sized rate hikes coming to an end. Throughout 2022, dollar bulls have derived strength from safe-haven flows, optimism over the US economy, and Fed rate hike expectations. As some positivity returns to global markets amid robust earnings, and shaky US data prompts the Fed to drop its aggressive approach towards rates, this could hit dollar bulls hard.

Looking at the technical picture, DXY bulls look exhausted on the daily charts with prices back within a range. A breakdown below the 111.50 support level could trigger a decline toward 110.00 and 109.00, respectively. If prices can break out above 113.50, the DXY could retest its 20-year high at 114.78.

Oil prices wait for fresh catalyst

Oil prices are likely to swing between losses and gains as fears over a global economic slowdown collide with caution over tightening supply. Brent remains under pressure this morning, trading around $90.25 as of writing. As investors juggle with slowdown concerns, sharp changes in risk sentiment, dollar volatility, and other themes impacting the supply/demand dynamics, this could result in more choppy price action into year end.

Looking at the technical picture, Brent remains under pressure on the daily charts. Prices are trading below the 50-, 100- and 200-day Simple Moving Average. A breakdown below $90.00 could open a path toward $87.00 and $82.50. Should prices push back above $92.00, the next key level of interest can be found at $95.00.

Commodity spotlight - Gold

After staging a stunning rebound last Friday, gold has found itself under pressure thanks to the improving market mood and rising Treasury yields. Appetite towards the precious metal is likely to remain shaky as investors evaluate whether the Fed will indicate next week if it will remain hawkish after raising interest rates by another 75 basis points in November. In the meantime, gold could trend lower until a fresh directional catalyst is brought into the picture. Talking technicals, sustained weakness below $1655 could open the doors towards $1615 and $1600 respectively. A breakout above $1655 may trigger an incline towards $1670 and $1680.

The Japanese yen is almost unchanged today, after being whipsawed over the past two sessions. In the European session, USD/JPY is trading at 1.48.93, down 0.06%.

It’s been a roller-coaster ride for the yen, as USD/JPY rose 1.7% on Friday and declined by 0.9% on Monday. It’s clear that the driver behind this volatility has been intervention by Japan’s Ministry of Finance (MOF), although officials in Tokyo are keeping mum.

The MOF intervened in late September, at a cost of around 2.8 trillion yen ($19.8 billion). Friday’s intervention was about double the size, and Monday was likely about the same. This means that the MOF is delivering a more powerful punch to deter speculators from betting against the yen. The interventions may have slowed the yen’s descent but it’s doubtful the moves will reverse the downward trend. Japan’s current policy mix is contradictory and likely unsustainable – the MOF is intervening in the currency markets while the Bank of Japan has intervened in the fixed-income markets and capped yields on Japanese government bonds.

Markets eye BoJ meeting

With the Federal Reserve widely expected to deliver another 0.75% rate next week, the US/Japan rate differential continues to widen, which will weigh on the yen. The MOF’s intervention and the subsequent volatility have heightened the interest in the BoJ’s meeting on Wednesday and Thursday, which some are calling a ‘do or die’ moment for the Japanese yen. If the BoJ continues its dovish policy and doesn’t provide the yen a lifeline, the yen is likely to fall even further.

Japan’s core inflation rose to 3.0% in September, its highest level in eight years. This follows the 2.8% gain in August and matched the consensus, and the yen’s reaction has been muted today.

USD/JPY Technical

• USD/JPY faces resistance at 147.50 and 148.59
• There is support at 145.23 and 143.14

The Ifo Business Climate Index from Germany was above expectations in October – slightly down from 84.4 a month earlier to 84.3. The index components’ current situation and business expectations also marginally changed. But the overall level shows that the climate remains gloomy.

The expectations index rose from 75.3 to 75.6 for the month, while the assessment of current conditions fell 0.4 points to 94.1.

Economists are watching the business expectations component most closely as its sharp rise from the lows of the previous crises (2009 and 2020) signalled the start of a recovery in the German economy.

For traders on the foreign exchange and stock markets, the substantial rise of this index signalled the start of a rally in EURUSD and euro-region equities. Thus, supported by a strongly rising index in May 2020, EURUSD began its 10% rally in the following two months, pushing sentiment sideways. The index had previously reached its low point in December 2008, but only a powerful jump in March 2009 coincided with a general reversal of the markets and a subsequent 8-month rise in the pair of around 20%.

Today’s publication did not provide a meaningful signal of improvement in the German economy, so it is unlikely that the release is slightly better than expected. Traders will take the stoppage of the decline as a signal that the German economy has passed its low point.

Germany Ifo Business Climate ticked down from 84.4 to 84.3 in October, above expectation of 84.0. Current Assessment index dropped from 94.5 to 94.1, above expectation of 92.5. Expectations index rose from 75.3 to 75.6, above expectation of 74.9.

By sector, manufacturing fell from -14.3 to -15.9. Services rose slightly from -8.9 to -8.6. Trade rose from -32.3 to -31.9. Construction dropped from -21.9 to -24.9.

Ifo said: "Companies were less satisfied with their current business. Their expectations improved, but they are still worried about the coming months. The German economy is facing a difficult winter."

Full release here.

GBPUSD is hovering within the 20- and 50-day simple moving averages (SMAs) after the bearish movement from the 1.1400 mark on Monday. In the short-term, the price is failing to endorse a bullish correction and is shifting the bias to neutral.

Technically, the MACD oscillator is still strengthening its positive momentum, while the RSI is moving sideways near the neutral threshold of 50.

Should prices reverse lower, immediate support could come from the 20-day SMA at 1.1205. Below that, the 1.0910 barrier is another major support ahead of the 1.0535 level. Further losses would open the way towards the record low of 1.0325.

In the event of an upside reversal, the 50-day SMA at 1.1400 could act as a barrier before being able to re-challenge the 1.1490 resistance level. A break above this line would test the long-term downtrend line around 1.1550. Further gains would lead the way to a more bullish outlook in the near-term meeting the next resistance levels such as 1.1750 and 1.1890.

In the bigger picture, the pair is bearish as long as it holds below the 200-day SMA and the falling trend line. In case it violates these lines, bulls could take the upper hand. 

In the long term, USOIL seems to be forming a primary wave ⑤, which takes the form of an intermediate ending diagonal. On the 1H timeframe, we see its second half.

An intermediate correction (4) in the form of a minor double zigzag may have been completed recently.

Thus, at the moment the price may move within the intermediate wave (5). It is assumed that the intermediate wave (5) will take the form of a standard 3-wave zigzag A-B-C

The end of this construction is possible near 115.11. At that level, wave (5) will be at the 61.8% Fibonacci extension of impulse (3).

Alternatively, the construction of the intermediate correction (4) can be continued. Perhaps it will have the form of a triple zigzag W-X-Y-X-Z, where the minor sub-waves W-X-Y-X can be completed.

Thus, in the near future, the downward movement is expected to continue in the final actionary sub-wave Z, which can be completed in the form of a minute triple zigzag ⓦ-ⓧ-ⓨ-ⓧ-ⓩ.

The oil price may fall to 69.50, at which the minute waves ⓨ and ⓩ will be equal.

After reaching this level, the market is expected to grow above the maximum – 123.72.