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Key Highlights

• USD/JPY corrected lower, but it found support near 113.80.
• It broke a key bearish trend line with resistance near 113.85 on the 4-hours chart.
• EUR/USD spiked below 1.1300 before there was a decent recovery.
• GBP/USD could struggle to settle above the 1.3500 resistance zone.

USD/JPY Technical Analysis

The US Dollar started a downside correction from the 115.00 resistance zone against the Japanese Yen. USD/JPY topped near 114.96 and declined below 114.80.

Looking at the 4-hours chart, the pair corrected lower below the 114.50 support level. There was a break below the 23.6% Fib retracement level of the upward move from the 112.72 swing low to 114.96 high.

However, the bulls were active above the 113.80 level and the 100 simple moving average (red, 4-hours). The pair also remained stable above the 200 simple moving average (green, 4-hours).

It seems like there is a major support forming near 113.80 zone. It is near the 50% Fib retracement level of the upward move from the 112.72 swing low to 114.96 high. A downside break below 113.80 may perhaps open the doors for a move towards 113.50.

The next major support sits at 113.20, below which the pair could dive to 112.50. On the upside, an immediate resistance is near the 114.80 level. The next major resistance is near the 115.00 level.

A clear break above the 114.80 and 115.00 resistance levels could open the doors for more gains. The next key resistance could be 115.50.

Looking at EUR/USD, the pair extended decline below the 1.1350 and 1.1300 support levels before the pair found support near 1.1265. Besides, GBP/USD must settle above 1.3500 to start a steady increase.

Economic Releases

• UK Retail Sales for Oct 2021 (YoY) - Forecast -2.0%, versus -1.3% previous.
• UK Retail Sales for Oct 2021 (MoM) - Forecast +0.5%, versus -0.2% previous.
• Canadian Retail Sales for Sep 2021 (MoM) – Forecast -1.7%, versus +2.1% previous.
• Canadian Retail Sales ex Autos for Sep 2021 (MoM) – Forecast -1.0%, versus +2.8% previous.

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It's been a slightly negative day in the markets, with Europe looking to close a little lower after largely grinding higher so far this week.

It hasn't been the most eventful couple of weeks for the markets, with investors continuing to fret about the prospect of higher inflation and earlier rate hikes after recently being buoyed by a strong third-quarter earnings season.

We're continuing to see encouraging signs from the US, be that from Tuesday's retail sales report, retailer earnings, or today's manufacturing and jobless figures. But stock markets there are even starting to struggle as we ultimately await further clues on how central banks are going to tackle the inflation problem.

I can't imagine many are going to follow the lead of the CBRT any time soon.

Lira spirals lower again after CBRT cut

The Turkish central bank took the unusual step of cutting rates in line with market expectations today and even suggested it will assess ending rate cuts in December. I'm not sure if that counts as hawkish by its standards or if we've now just come to expect the ridiculous.

It did suggest it may ease again in December though, at which point there was no saving the lira which plunged to a new record low against the dollar, with the USDTRY pair breaching 11, only three days after hitting 10 for the first time ever.

There's clearly no indication that the CBRT is being deterred by anything that's happening in the markets. The central bank is a shambles and the website crashing and delaying the announcement could not have been more symbolic of what's happening behind the scenes.

Oil slips further after SPR talks

Oil prices have come under fresh pressure over the last 24 hours following reports of talks between the US, China and others regarding a possible coordinated SPR release. Such a move would be a massive statement and would certainly have more teeth than the previous threats from the White House, which is why it's weighing heavier on the oil market.

And coming at a time when OPEC+ is already suggesting that the market will soon go into surplus, which appears to align with the thinking of the IEA, it may be the case that the market is already primed for a correction and the SPR reports are adding fuel to it. Whether they deliver on threats is another thing. By the look of things, they won't need to.

Brent is holding above $80 at the moment, after briefly dipping below earlier in the day. A more significant break could signal a move back into the mid-70s for Brent, last seen in September.

Gold remains support for now

Gold remains well supported but it's lost a lot of momentum this week. The yellow metal took a heavy blow from the US retail sales report on Tuesday and is struggling to fully recover. The report came at a time when the rally was already running on fumes and probably exacerbated any profit-taking that was already happening.

We could see a bit of a correction after such a strong run if US data continues to impress or Fed policymakers talk up the prospect of earlier rate hikes. But as long as real yields remain at their lows, gold will remain attractive.

Bitcoin correction is not a big deal

Bitcoin is continuing to struggle and once more we're seeing it test the late October lows around $58,000. A significant break below here could see it accelerate to the downside, at which point focus may shift back towards the $50,000 region. While this would represent a large correction from the highs, it would still be relatively minor considering how far it's come in recent months.

The British pound has edged lower in the Thursday session. GBP/USD is currently trading at 1.3469, down 0.16% on the day.

Will BoE make the move?

We’re hearing the phrase ‘transient inflation’ less and less, as inflation continues to accelerate. The UK consumer price index hit 4.2% y/y in October, above the consensus of 3.9%. The data will add to the pressure on the BoE to raise interest rates at the December policy meeting. The bank held rates at the November meeting, which caused shock waves in the markets, as Governor Andrew Bailey had sent strong hints that the bank would raise rates in order to contain inflation. The BoE is projecting inflation to go as high as 5% in early 2022 before falling lower in 2023. After being burned by the BoE, investors will be mindful about projecting a December rate hike, but it’s clear to everyone that the bank will need to raise rates shortly – if not in December, than early in the New Year.

It has been a busy data calendar this week, with the UK releasing employment and inflation data. Next up is the release of October retail sales on Friday, with the markets bracing for a headline reading of -2.0% y/y, compared to -1.1% a month earlier. A second straight decline could weigh on the pound, which is trying to post its first winning week in a month.

Inflation has also been running high in the US, but that hasn’t put a damper on consumer spending, as retail sales climbed 1.7% in October, up from 0.7% beforehand. Core retail sales showed an identical gain, up from 0.8%. There is a growing concern in the markets that the Fed will have to respond to the surge in inflation, as the argument that inflation is transient is looking out of touch with the realities on the ground. If the Fed decides to accelerate its taper, we could see some volatility in the financial markets.

GBP/USD Technical Analysis

• GBP/USD has support at 1.3310. Below, there is support at 1.3206
• There is resistance at 1.3562 and 1.3710

Markets

It would be an exaggeration to already label it the start of a short term comeback, but the single currency at least isn’t losing out against other majors today. The intraday move is most visible against the Japanese yen (129.60 from 129) but lacks any technical relevance. EUR/GBP switches sides again around the 0.84 big figure. Media the past days hinted that the UK is looking for a trade truce around the Christmas period with top EU officials confirming a less hawkish tone from across the Channel. These improve the mood around negotiations on the Northern-Ireland Protocol, but fail giving sterling another push in the back. The UK wants checks removed or at least weakened on trade between Northern Ireland and the UK while also hoping to scrap some red tape on trade with EU and wishfully thinking that ECJ will no longer be the place to go to in case of disputes. EUR/USD carefully moved towards 1.1350 during the European session, but the dollar shows willingness to take back control as US investors enter the arena. US eco data provide an explanation. Weekly jobless claims as expected stabilized near post-pandemic lows (268k) and the November Philly Fed business outlook comfortably beat expectations (39 from 23.8 vs 24 expected). It’s the best reading since April and a copy-paste of the forecast-smashing NY survey earlier this week. Details show very strong new orders and shipments. The rise in unfilled orders and prices, longer delivery time, decline in employment and drop in inventories all point in the direction of lack of material and personnel. The 6-month forward looking sentiment indicator continues its rebound from the September low. US Treasuries underperformed German Bunds following the data releases. US yields add 0.8 bps to 1.8 bps with the belly of the curve underperforming the wings. German yields lose 0.5 bps to 3 bps with the belly of the curve underperforming as well.

On other markets, Brent crude rebounded higher after testing the $80/b neckline of a double top formation with targets around $74/b. The test came after the US called on countries like China, Japan and India to release some of their strategic oil reserves to help stabilize the market. Earlier US attempts to persuade OPEC+ into upping production faster than planned failed. European stock markets started on a positive note, but showed signs of fatigue afterwards, currently trading up to 0.5% lower. US stock markets opened mixed.

News Headlines

The Turkish central bank lowered policy rates from 16% to 15%. With the latest inflation coming in at almost 20% for October, real policy rates are deeply negative. This is a major drag for the Turkish currency that’s already losing (external) investor appeal by the day. Friend and foe label the CBRT’s recent string of rate cuts (from 19% to 15%) as policy mistakes that spurs prices further via a lower real rate – weaker lira – higher inflation doom loop. In practice, the central bank is just implementing Erdoganomics. The Turkish currency briefly clung on to the CBRT hinting at a rate cut pause in December but that didn’t last long. It loses 4.5% vs. the EUR and USD with new record highs at EUR/TRY 12.6 and USD/TRY at 11.1.

At its policy meeting two days ago, the Hungarian central bank raised the benchmark rate 30 bps to 2.10%. It then announced a series of technical measures to tighten policy further, one of them the reintroduction of a one-week deposit rate with a rate higher than the benchmark’s. The MNB today raised the rate on that deposit facility with 70 bps to 2.5%. The central bank used this liquidity-extracting tool in September 2020 - June 2021 to address the structurally weak forint (which helped cause inflation). EUR/HUF back then fluctuated between EUR/HUF 355-370. The pair today finds itself since October in a similar trading range. While the spread between the one-week depo and benchmark rate is almost triple the size last time around (15 bps), it does little to support the HUF. A brief strengthening completely reversed back to EUR/HUF 364.2 currently.

Initial jobless claims come out; dollar still falling

US jobless claims declined by one thousand in the week ending November 13th, a new pandemic low as the labor market continues to slowly recover from the coronavirus hit.

The US dollar index is continuing the selling interest that started on Thursday, flirting with 95.60. Dollar/yen is hovering above 114.00 after posting a new high yesterday. Euro/dollar is jumping above the 16-month low of 1.1263, recouping some losses, while pound/dollar is approaching 1.3500. US stock futures are heading for a marginal positive open today.

Contrary to the expectations, the Fed forecast has remained constant. The swaps market expects a 50 bp tightening over the next year and hasn't strayed substantially from this forecast. The Fed is in a good position to start tapering this week, as it can delay rate hikes until after the mid-term elections. With a pandemic and damaged supply lines, other central banks may be overreacting or rushing to judgment.

Stock earnings still on cards

Macy's posted earnings and sales that beat analysts' estimates on Thursday, boosting its full year forecast ahead of the holidays. Macy's stock rose almost 8% in premarket trading, while the Chinese e-commerce behemoth JD.com announced a 25% increase in third-quarter revenue, citing "increasing consumer mindshare" as a contributing factor.

Euro awaits next policy meeting

Markets are now responding to the European Central Bank's dovish stance. The swaps market is now pricing in only 7 basis points of tightening over the next twelve months, far less than the 20-25 basis points that were factored in following the ECB's October 28 decision. Lagarde and most of her colleagues have been emphasizing the improbability of a rate rise in 2022, and we concur. The ECB's December 16 meeting should see an extension of QE, given that the dangers of eliminating accommodation have increased dramatically.

Turkish lira is the worst performing currency of the day

The Turkish Central Bank dropped its one-week repo auction rate by 100bps to 15% in November, following 200bps cuts in October and September. The move came after Turkish President Erdogan pledged to push for lower rates, despite the country's inflation hovering over 20%, considerably beyond the bank's mid-point objective of 5%, and the lira falling nearly 11% in November. The biggest loser in the last days is the Turkish lira, which is still plunging to record lows of 11.2130 versus the dollar.

Kiwi rises after RBNZ’s business survey

The New Zealand currency rose roughly 0.6% today as the RBNZ's quarterly business survey showed firms' inflation expectations have risen considerably. The aussie is finding strong support at the short-term ascending trend line around $0.7250 and loonie is flattening near $1.2600.

In other markets, oil is moving up after printing a new six-week low today, while gold prices are failing to surpass beyond $1,870/per ounce.

Daily Pivots: (S1) 113.70; (P) 114.34; (R1) 114.73; More...

Intraday bias in USD/JPY remains neutral for consolidations first. Further rise is expected as long as 113.74 minor support holds. Break of 114.96 will resume larger up trend to 100% projection of 102.58 to 111.65 from 109.11 at 118.18. However, break of 113.74 will dampen this bullish case and turn bias back to the downside for 112.71 near term structural support.

In the bigger picture, corrective decline from 118.65 (2016 high) should have completed at 101.18 already. Rise from the 102.58 is seen as the third leg of the up trend from 101.18. Next target is 118.65 high. This will now be the preferred case as long as 111.65 resistance turned support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.9261; (P) 0.9296; (R1) 0.9315; More....

USD/CHF is staying in consolidation from 0.9328 temporary top and intraday bias remains neutral. On the upside, above 0.9328 will resume the rally from 0.9084 for 0.9367 resistance. On the downside, below 0.9236 minor support will turn intraday bias back to the downside for 0.9084 instead.

In the bigger picture, the corrective structure of the rebound from 0.8925 argues that fall from 0.9471 is not complete yet. It could either be the second leg of pattern from 0.8756 (2021 low), or resuming larger down trend from 1.0237 (2018 high). We'd pay attention to the downside momentum and assess the odds later. But for now, medium term outlook will be neutral at best as long as 0.9471 resistance holds.

Daily Pivots: (S1) 1.3429; (P) 1.3462; (R1) 1.3528; More...

Intraday bias in GBP/USD stays neutral as consolidation from 1.3351 is still in progress. Upside of recovery should be limited below 1.3606 resistance to bring down trend resumption. On the downside, break of 1.3351 will extend the decline from 1.4248 to 1.3164 fibonacci level next.

In the bigger picture, the structure of the fall from 1.4248 suggests that it's a correction to the up trend from 1.1409 (2020 low) only. While deeper fall cannot be ruled out yet, downside should be contained by 38.2% retracement of 1.1409 to 1.4248 at 1.3164, at least on first attempt, to bring rebound. On the upside, firm break of 1.4376 key resistance (2018 high) will add to the case of long term bullish reversal. However, sustained trading below 1.3164 will revive some medium term bearishness and target 61.8% retracement at 1.2493.

Daily Pivots: (S1) 1.1281; (P) 1.1306; (R1) 1.1349; More...

Intraday bias in EUR/USD remains neutral for the moment, with focus staying on 1.1289 long term fibonacci level. Sustained break there will carry larger bearish implication, and extend the fall from 1.2348 to 161.8% projection of 1.1908 to 1.1523 from 1.1691 at 1.1068. On the upside, above 1.1384 indicate short term bottoming and turn bias back to the upside for stronger rebound.

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.