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Daily Pivots: (S1) 1.1432; (P) 1.1460; (R1) 1.1477; More...

Intraday bias in EUR/USD remains on the downside for the moment. Current decline should now target 100% projection 1.1908 to 1.1523 from 1.1691 at 1.1453 at 1.1306, which is close to long term fibonacci level at 1.1289. On the upside, break of 1.1607 resistance is needed to indicate short term bottoming. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, price actions from 1.2348 should at least be a correction to rise from 1.0635 (2020 low). As long as 1.1691 resistance holds, deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289. Nevertheless break of 1.1691 resistance will revive medium term bullishness and turn focus back to 1.2348 high.

Daily Pivots: (S1) 1.3339; (P) 1.3386; (R1) 1.3413; More...

GBP/USD recovers mildly but outlook stays bearish with 1.3606 resistance intact. Current down trend from 1.4248 should target 1.3164 fibonacci level. We'd monitor the downside momentum of the next move, and look for bottoming sign around 1.3164.

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.

Overall, trading in the forex market is rather subdued today. Dollar is retreating mildly but remains the strongest one for the week. Yen remains the distant second, while Sterling is third. On the other hand, Australian Dollar is the weakest one, followed closely by New Zealand Dollar. Euro and Swiss Franc are mixed. Gold also turns into consolidation but stays firm at around 1850. WTI crude oil is holding stubbornly around 80 handle.

In Europe, at the time of writing, FTSE is down -0.45%. DAX is up 0.13%. CAC is up 0.28%. Germany 10-yaer yield is down -0.0127 at -0.242. Earlier in Asia, Nikkei rose 1.13%. Hong Kong HSI rose 0.32%. China Shanghai SSE rose 0.18%. Singapore Strait Times dropped -0.30%. Japan 10-year JGB yield rose 0.0052 to 0.076.

Eurozone industrial production dropped -0.2% mom in Sep, EU down -0.5% mom

Eurozone industrial production dropped -0.2% mom in September, better than expectation of -0.5% mom. Production of capital goods fell by -0.7%, intermediate goods by -0.2%, while production of energy remained stable, durable consumer goods rose by 0.5% and non-durable consumer goods by 1.0%.

EU industrial production dropped -0.5% mom. Among Member States for which data are available, the largest monthly decreases were registered in Denmark (-5.0%), Czechia (-3.2%) and Austria (-3.0%). The highest increases were observed in Estonia (+5.3%), Lithuania (+4.3%) and Belgium (+3.7%).

From Swiss, PPI came in at 0.6% mom, 5.1% yoy in October.

New Zealand BusinessNZ manufacturing rose to 54.3, recovery from a large hard hit

New Zealand BusinessNZ Performance of Manufacturing Index rose from 51.6 to 54.3 in October. Looking at some details, production rose from 49.8 to 54.0. Employment dropped from 54.2 to 52.1. New orders dropped from 54.1 to 53.9. Finished stocks rose from 50.2 to 54.9. Deliveries rose from 47.9 to 59.9.

BNZ Senior Economist, Doug Steel stated that "even though October's reading is above average, we'd classify it more in the realm of some recovery from a large hit rather than an indication of outright strength."

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3339; (P) 1.3386; (R1) 1.3413; More...

GBP/USD recovers mildly but outlook stays bearish with 1.3606 resistance intact. Current down trend from 1.4248 should target 1.3164 fibonacci level. We'd monitor the downside momentum of the next move, and look for bottoming sign around 1.3164.

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.

Economic Indicators Update

The British pound has bounced back on Friday after three losing sessions. GBP/USD is currently trading at 1.3395, up 0.21% on the day.

It’s up, up, up for US inflation. Headline CPI in October came in at 6.2% y/y and core inflation rose 4.6%, well above expectations. Inflation is red hot, as CPI hit its highest rate since November 1990 and core inflation at its highest since August 1991.

Investors eye BoE, Fed

It will be interesting to see how the Fed reacts to the latest inflation report. Will the Fed become more hawkish? Fed Chair Jerome Powell has insisted that the current bout of inflation is transitory, but with inflation only heading higher, this message is in danger of falling on deaf ears. The markets are becoming increasingly skeptical of the Fed’s guidance on rate policy and expect the Fed to bring forward its timeline for a rate hike. If inflation continues to climb, we can expect the Fed to become more hawkish – this could mean accelerating the timeline of the Fed taper in order to set the stage for an earlier than expected rate hike.

The BoE is under strong pressure to raise rates, especially after the bank stunned the markets in a non-move at last week’s policy meeting. The BoE had strongly hinted that it would raise rates in order to contain surging inflation, but the bank stayed on the sidelines and the pound took it on the chin as a result. Governor Andrew Bailey has said that a rate hike is coming, and there is a strong possibility that the bank will make good on this pledge at the December policy meeting. Still, investors will be exercising caution, with November’s shocker still fresh in everyone’s minds.

GBP/USD Technical Analysis

• There is weak support at 1.3381. Below, there is support at 1.3267
• There is resistance at 1.3654 and 1.3813

The euro is trading quietly in the Friday session. Currently, EUR/USD is trading at 1.1442, down 0.06%.

Euro under pressure from greenback

The US dollar has received a tailwind from this week’s sizzling CPI data. Headline CPI in October came in at 6.2% y/y and core inflation rose 4.6%. This was well above the consensus of 5.9% and 4.3%, respectively. Inflation is red hot, as CPI hit its highest rate since November 1990 and core inflation at its highest since August 1991.

How will the Fed react to the latest inflation report? Fed Chair Jerome Powell has insisted that the current bout of inflation is transitory, but with inflation only heading higher, this message is in danger of falling on deaf ears. The markets are becoming increasingly skeptical of the Fed’s guidance on rate policy and expect the Fed to bring forward its timeline for a rate hike. If inflation continues to climb, we can expect the Fed to become more hawkish – this could mean accelerating the timeline of the Fed taper in order to set the stage for an earlier than expected rate hike.

The ECB, which has been in accommodative mode, may be showing signs of becoming hawkish. ECB member Robert Holzmann said on Thursday that the ECB could wind up its conventional bond-buying plan (APP), which is running at 20 billion euros/month. The ECB has signalled that it will wind up the pandemic asset purchases in March, but policymakers haven’t come to an agreement on what to do with the APP.

Like most major economies, the eurozone is facing higher inflation levels. In October, CPI punched above 4%, well above the ECB’s inflation target of 2%. Governor Christine Lagarde has been dismissive of any chance of a rate hike in the near future, but policymakers will have to give thought to tapering if growth and inflation continue to head upwards.

New Zealand dollar hits 1-month low

The New Zealand dollar remains under pressure in what has been a rough week for the currency. NZD/USD has fallen 1.45% this week and is currently trading at 0.7015, down 0.13% on the day. In the Asian session, the New Zealand dollar slipped below the 0.70 line, a psychologically significant level.

There was some positive news from the manufacturing sector, as the BusinessNZ Manufacturing Index showed stronger expansion in October. The index rose to 54.3, up from 51.6 in September. A reading above 50.0 indicates expansion. This follows a disappointing read from ANZ Business Confidence for November, which fell to -18.1, down from 13.4 points. The manufacturing sector may be showing signs of expansion, but manufacturers are struggling with high costs and supply bottlenecks, which is hampering stronger growth in the sector.

The RBNZ has been cautiously optimistic about the country’s recovery from Covid, although higher global inflation remains a concern. Closer to home, the central bank has warned that the red-hot housing market runs the risk of a correction, as recent buyers could find themselves in trouble if mortgage rates rise or house prices fall. The bank has said that the economy has rebounded to pre-pandemic levels, but noted the recent Delta outbreak could hamper economic activity.

In the US, this week’s surge in inflation (both PPI and CPI are red-hot) means that the Fed’s message that inflation is transitory is in danger of falling on deaf ears. The markets are becoming more skeptical of the Fed’s guidance on rate policy, and the view that the Fed will have to hike ahead of when they have indicated continues to gather steam. If inflation continues to climb, we can expect the Fed to become more hawkish – this could mean accelerating the timeline of the Fed taper in order to set the stage for an earlier than expected rate hike.

NZD/USD Technical

• There is resistance at 0.7188 and 0.7255
• NZD/USD is testing support at 0.7005. Below, there is support at 0.6938

The Euro started a fresh decline from well above 1.1600 against the US Dollar. The EUR/USD pair traded below the 1.1550 support level to enter a bearish zone.

The pair even settled below the 1.1500 level and the 50 hourly simple moving average. There was a break below the 1.1450 level and the pair traded as low as 1.1436 on FXOpen. It is now consolidating losses above the 1.1420 level.

An immediate resistance near the 1.1465 level. The main resistance is now forming near the 1.1500 level and the 50 hourly simple moving average. There is also a key bearish trend line with resistance near 1.1510 on the hourly chart.

On the downside, an initial support is near the 1.1435 level. The key support is near 1.1420, below which there is a risk of a fresh decline. The next major support is near the 1.1380 level.

Notes/Observations

• Inflation remains the key focus.

Asia

• Japan Econ Min Yamagiwa stated that would prepare flexible measures on soaring energy prices in their stimulus package as crude oil prices cannot be predicted (Note: Japan government stimulus draft did not mention the size of spending).
• China State Planner (NDRC): To increase the exploration of oil, Natural gas, and rare earth minerals during 2021-2025.
• Former PBOC Adviser Yu Yongding: Evergrande problem is controllable; China Capital Market has limited impact on the global markets; China has very strong macro adjustment capabilities.

Europe

• UK Brexit Min Frost stated that would signal to EU that the Govt was ready to renew efforts on Northern Ireland Protocol agreement and to reassure the EU that PM Johnson did not want to trigger Article 16.
• SNB's Maechler reiterated stance that CHF currency (Franc) remains highly valued.
• Italy President Mattarella said to rule out a 2nd term.
• US said to privately warned Europe that Russian troops could plan an invasion of Ukraine.

Americas

• President Biden signed new laws preventing Chinese firms that were considered security threats to the US such as Huawei/ZTE from getting new equipment licenses.
• Some Fed watchers said to argue that Brainard was more aligned with President Biden’s economic agenda as the Fed grapples with high inflation and other economic headwinds.
• Mexico Central Bank (Banxico) raised thes Overnight Rate by 25bps to 5.00% (as expected).

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 0.00% at 485.30, FTSE -0.53% at 7,344.80, DAX +0.10% at 16,098.70, CAC-40 +0.17% at 7,071.36, IBEX-35 -0.16% at 9,077.50, FTSE MIB -0.06% at 27,618.00, SMI +0.29% at 12,457.79, S&P 500 Futures +0.09%].
• Market Focal Points/Key Themes: European indices open higher across the board (IBEX notable exception starting the day in the red) but later slipped to trade generally lower; sectors among those leading to the upside are consumer discretionary and telecom; while laggard sectors include financials and materials; John Wood initiates Strategic review of its built-environment business; Richemont in talks to extend partnership with Farfetch; CVC in talks to take over Intertrust; Millicom takes full control of Tigo Guatemala; focus on wealth of data from Japan and China over the weekend; earnings expected during the upcoming US session include Spectrum Brands, Circor and Target Hospitality.

Equities

• Consumer discretionary: Richemont [CFR.CH] +8% (earnings; talks with Farfetch), Intertrust [INTER.NL] +39% (acquisition talks with CVC).
• Healthcare: Astrazeneca [AZN.UK] -3.5% (earnings).
• Industrials: Deutsche Telekom [DTE.DE] +2% (earnings; raises outlook).
• Technology: Storytel [STORYB.SE] +5% (earnings).

Speakers

• ECB’s Rehn (Finland) stated that supply chain bottleneck relief might not come until towards end-2022. The region’s inflation was still mostly transitory even if some components were more persistent. Bottlenecks were dampening euro zone growth and pushing up inflation but saw no evidence of 2nd round effects of inflation on wages yet. Still had plenty of slack in the Euro Zone.
• ECB's Simkus (Lithuania) stated that inflation would be below ECB's 2% target in 2023.
• Sweden Central Bank (Riksbank) Gov Ingves: Reiterates view that rise in inflation seen as a temporary phenomenon and could peak fairly soon.
• Czech Central Bank (CNB) Nov Minutes warned against the rise in inflationary expectations. Rate hikes were reaction to local inflation risks.
• Poland Central Bank's Lon stated that high inflation would not sway to embrace the need for intensive interest rate hikes.
• Turkey Fin Min Elvan refuted speculation that Govt seeks a weaker TRY (Lira) currency. Govt implemented a floating exchange rate policy. Domestic inflation required cautions stance.
• Russia govt spokesperson Peskov stated that talk of possible Russia invasion of Ukraine unfounded; To supply gas to Europe regardless of Belarus.
• Japan govt economic stimulus package to be over ¥40T.
• China govt official stated that hoped the upcoming Xi-Biden virtual summit would put ties between the two countries back on a correct path.
• China govt said to hold military exercises in South China Seas Nov 13-14th.

Currencies/Fixed Income

• USD continued to hold onto its recent gains against the major pairs. Dealers noted that the recent US CPI print of 6.2% would strongly suggests that Fed officials will bring forward their expected timetable for raising the policy rate. The US 10-year yield was higher by 2.5 bps in electronic trade to test near 1.58%.
• EUR/USD trading at 1.1440 as price action favoring the greenback largely reflecting the higher US Treasury yields.
• GBP/USD holding below the 1.34 area as participants await the EU press conference regarding the latest talks with the UK over the Northern Ireland Protocol.
• USD/JPY holding above the 1.14 level on divergence views between the Fed and BOJ.

Economic data

• (FI) Finland Sept Current Account Balance: €1.2B v €0.4B prior.
• (DE) Germany Oct Wholesale Price Index M/M: 1.6% v 0.8% prior; Y/Y: 15.2% v 13.2% prior.
• (TR) Turkey Central Bank Nov TCMB Expected Inflation Survey: Next 12-Month Outlook: 15.6% v 13.9% prior.
• (TR) Turkey Sept Industrial Production M/M: -1.5% v -0.7%e; Y/Y: 8.9% v 10.2%e.
• (CH) Swiss Oct Producer & Import Prices M/M: 0.6% v 0.2% prior; Y/Y: 5.1% v 4.5% prior.
• (CN) Weekly Shanghai copper inventories (SHFE): 38.0K v 37.5K tons prior.
• (ES) Spain Oct Final CPI M/M: 1.8% v 2.0% prelim; Y/Y: 5.4% v 5.5% prelim.
• (ES) Spain Oct Final CPI EU Harmonized M/M: 1.6% v 1.7% prelim; Y/Y: 5.4% v 5.5% prelim.
• (ES) Spain Oct CPI Core M/M: 1.0% v 0.3% prior; Y/Y: 1.4% v 1.2%e.
• (RU) Russia Narrow Money Supply w/e Nov 5th (RUB): 14.31T v 14.29T prior.
• (HK) Hong Kong Q3 Final GDP Q/Q: 0.1% v 0.1% prelim; Y/Y: 5.4% v 5.4% prelim.
• (IS) Iceland Oct International Reserves (ISK): 925B v 939B prior.
• (PL) Poland Q3 Preliminary GDP Q/Q: % v 1.8%e v 2.1% prior (revised from 2.1%); Y/Y: % v 4.8%e v 11.1% prior (revised from 11.1%).
• (RU) Russia Oct YTD Budget Balance (RUB) 2.140T v 1.444T prior.
• (EU) Euro Zone Sept Industrial Production M/M: -0.2% v -0.5%e; Y/Y: 5.2% v 4.1%e.

Fixed income Issuance

• (IN) India sold total INR240B vs. INR240B indicated in 2023, 2026, 2035 and 2051bonds.
• (ZA) South Africa sold total ZAR vs. ZAR1.2B indicated in I/L 2033, 2038 and 2050 Bonds.

Looking Ahead

• 05:25 (EU) Daily ECB Liquidity Stats.
• 06:00 (PT) Portugal Q3 labour Costs Y/Y: No est v -2.4% prior.
• 06:00 (UK) DMO to sell £2.0B in 1-month, 3-month and 6-month bills (£0.5B, £0.5B and £1.0B respectively).
• 06:30 (IN) India Weekly Forex Reserve w/e Nov 5th: No est v $642.0B prior.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (IN) India announces upcoming bill issuance (held on Wed).
• 07:00 (BR) Brazil Sept IBGE Services Sector Volume Y/Y: 13.5%e v 16.7% prior.
• 07:00 (IN) India Sept Industrial Production Y/Y: 4.8%e v 11.9% prior.
• 07:00 (IN) India Oct CPI Y/Y: 4.4%e v 4.4% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond issuance.
• 10:00 (US) Sept JOLTS Job Openings: 10.300Me v 10.439M prior.
• 10:00 (US) Nov Preliminary University of Michigan Confidence: 72.5e v 71.7 prior.
• 11:00 (EU) Potential sovereign ratings after European close (Fitch Port S&P Netherlands).
• 13:00 (MX) Mexico Oct Total Formal Job Creation: No est v +174.1K prior.
• 13:00 (US) Weekly Baker Hughes Rig Count.

Eurozone industrial production dropped -0.2% mom in September, better than expectation of -0.5% mom. Production of capital goods fell by -0.7%, intermediate goods by -0.2%, while production of energy remained stable, durable consumer goods rose by 0.5% and non-durable consumer goods by 1.0%.

EU industrial production dropped -0.5% mom. Among Member States for which data are available, the largest monthly decreases were registered in Denmark (-5.0%), Czechia (-3.2%) and Austria (-3.0%). The highest increases were observed in Estonia (+5.3%), Lithuania (+4.3%) and Belgium (+3.7%).

Full release here.

USDCAD is exhibiting a more optimistic outlook however, this is being tested by the 1.2600 handle, which has managed to curb additional gains from unfolding. Overall, the simple moving averages (SMAs) have converged and are relatively flat, suggesting the pair may adhere to a neutral trend.

The Ichimoku lines are not demonstrating strong directional momentum even though the red Tenkan-sen line has overstepped the blue Kijun-sen line, while the short-term oscillators are leaning more to the upside. The MACD, which is strengthening above its red trigger line, has nudged above the zero mark, while the RSI is climbing in the bullish region. The strong positive charge in the stochastic oscillator is further promoting the bullish trajectory in the pair.

In the positive scenario, immediate upside constraints could stem from the 1.2600 hurdle ahead of the nearby Ichimoku cloud and the 1.2647 high. Overcoming the cloud, buyers may then encounter the next deterrence around the 1.2774 barrier. Successfully surpassing this too, the resistance border of 1.2880-1.2955, which has held since mid-November 2020 could come under fire.

If the 1.2600 mark curbs advances, initial support may develop in the vicinity of the merged 50- and 100-day SMAs at 1.2539. Dipping below these averages, the red Tenkan-sen line at 1.2484 and the adjacent 200-day SMA at 1.2469 could step into the spotlight. If selling interest intensifies, the nearby boundary of 1.2386-1.2431 may delay the drop in the pair from challenging the 1.2251-1.2308 support base.

Summarizing, USDCAD is sustaining a neutral-to-bullish tone above the SMAs and the 1.2386 low. For the positive bias to strengthen in the short-term timeframe, the price would need to overshoot the 1.2600 level, the cloud and the 1.2774 high. A break above the 1.2880-1.2955 border could feed optimism in the medium-term picture.