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EUR/USD

Current level - 1.1477

The rally for the dollar continues as it gained more than a figure against the common European currency and violated the support level of 1.1535 as a result of yesterday’s higher-than-expected inflation reading in the U.S. of 6.2%. Due to this, the market started pricing the Federal Reserve’s decision to raise interest rates sooner than expected and the forecast is for the dollar to continue rising and for the EUR/USD to test the support level of 1.1410 that is coming from the higher time frames. In the positive direction, the former support level of 1.1512 is now acting as a first resistance for the currency pair.

USD/JPY

Current level - 113.97

The Ninja bounced back from the support level of 112.70 and managed to consecutively violate the resistance levels of 113.25 and 113.70, adding more than a figure to its value. The forecast is for the uptrend to continue and for the pair to test the resistance level of 114.22, which is also the upper border of the range in which the pair was trading a couple of days ago.

GBP/USD

Current level - 1.3405

The unsuccessful test of the resistance level of 1.3575 was followed by a sharp decline and a breach of the main support and a local bottom of 1.3427. The expectations are for the dollar to continue rising and for the pair to attack the support level of 1.3350 that is coming from the higher time frames. In the positive direction, the aforementioned level of 1.3427 is now acting as a first resistance for the Cable.

UK GDP grew 0.6% mom in September, slightly above expectation of 0.6% mom. GDP remained -0.6% below its pre-coronavirus level in February 2020. Looking at some details, services grew 0.7% mom. Production dropped -0.4% mom while manufacturing dropped -0.1% mom. Construction rose 1.3% mom.

For Q3 as a whole, GDP grew 1.3% qoq, below expectation of 1.5% qoq. It remains -2.1% below the pre-pandemic level in Q4 2019.

Full release here.

US stocks declined slightly on Wednesday as investors reflected on high inflation data. Numbers from the statistics agency showed that the headline consumer price index (CPI) rose by 6.2% in October as energy prices rose and supply chain challenges remained. This was the biggest increase since 1991. Core CPI, which excludes volatile food and energy products, rose to 4.6% in October. Therefore, these numbers mean that the Federal Reserve could move to tighten its interest rates policy in the next few months. It also means that Biden’s administration will not get the new social spending it has proposed. The Dow Jones and Nasdaq 100 indices fell by about 0.15%.

Gold and cryptocurrency prices surged as investors moved to the so-called safe havens. Gold jumped to the highest level in months. Bitcoin and Ethereum also surged to fresh all-time highs of $69,000 and $4,900, respectively. In total, the market capitalization of all cryptocurrencies jumped to more than $2.9 trillion. In the past few months, investors have moved some of their assets into cryptocurrencies as they anticipate higher inflation. Cryptocurrencies also rallied after Apple’s Tim Cook revealed that he owned cryptos. As such, there is a possibility that the company will invest in Bitcoin as well.

The British pound retreated slightly after the latest US inflation data. Focus now shifts to upcoming UK GDP numbers that will come out in the morning session. Analysts expect that the economy slowed down substantially in the third quarter. They expect that the economy recovered by about 2%, which was lower than the previous growth of more than 5%. Still, the UK is expected to have the fastest recovery pace in the G7. The ONS will also publish the latest manufacturing and industrial production data.

XAUUSD

The XAUUSD pair jumped sharply after strong inflation data. The pair rose to a multi-month high of 1,868. On the daily chart, the pair managed to move above the important resistance at 1,835. It also moved above the 25-day and 50-day moving averages and above the 38.2% Fibonacci retracement level. Therefore, the pair will likely keep rising since it currently has momentum.

EURUSD

The EURUSD pair declined below a key support level after the inflation data. It moved to a low of 1.1508, which was the lowest level since June 2020. On the daily chart, the pair moved below the standard pivot point. It also moved below the 25-day and 50-day moving averages while the MACD has dropped below the neutral level. Therefore, the pair will likely keep falling in the near term.

ETHUSD

The ETHUSD bounced back after strong CPI data. The pair rose to an all-time high of 4,900. On the four-hour chart, it is slightly below the upper side of the ascending channel. The pair has also moved above the 25-day and 50-day moving averages. The momentum and Relative Strength Index indicators have been rising. Therefore, the pair will likely maintain bullish momentum going forward.

US inflation advanced to 6.2% in October. That's the highest level since more than three decades, and it is relatively high compared to the 0% that the Federal Reserve (Fed) is using as the benchmark interest rate.

More worryingly, it looks less and less transitory, because the rise is mostly due to the rise in cars prices, but also the rise in food prices (where you can argue it's volatile), the rise in energy prices (which could be temporary indeed, but the fact is that we have a growing energy crisis going on across the globe right now), and most worryingly, due to the rise in rents.

Higher rents and higher wages are factors that will make the rise in inflation stick around for longer, and at this point, we are really moving significantly away from the Fed's 2% average inflation target. The only thing we have is a Fed President twiddling his thumbs, insisting that inflation is transitory. And the alternative to Powell as the next Fed Chair is Madame Brainard who is seen as being even more dovish!

Still, the market reacts to overheating inflation figure. The US 2-year yield jumped 9 basis points yesterday, back above the 0.50% mark, shrugging off the dovish comments from the last FOMC meeting. But we are still very, very much low for an economy that is dealing with the highest inflation levels since 1990. Therefore, the yields have potential for a meaningful rise, and the US dollar should extend gains whatever is said, because – and I can't believe I am making the same comment that I make for the Turkish lira – the longer they wait to readjust the rates to the upside, the bigger the size of the move would be.

At this point, even if inflation is transitory, it is unacceptably high for justifying the unresponsive Fed. Higher rates wouldn't solve the problem of chip shortages or the bottlenecks, or other pandemic related factors, but it could slowdown demand and narrow the gap.

The EURUSD tanked below the 1.15 mark for the first time in a year, Cable is back to the 1.34, and the outlook is bearish for both due the prospects of stronger US dollar.

The jump in US inflation, and the yields soured the mood in the equity markets. Nasdaq of course paid the highest price among the three major US indices. The tech-heavy index lost 1.66% as it is plenty of the so-called growth companies who need the rates to stay as low as possible to grow faster. The Dow Jones eased 0.66% and the S&P500 retreated 0.82%. But overall, compared to the inflation shock, it's not a dramatic decline. And activity in US equity futures was positive in Asia, Nasdaq futures are up 0.22% at time of writing, hinting that the moodiness in the market will likely be transitory, unlike inflation…

Goldman advises to buy the USD 5-year 5-year breakevens on a bet that inflation would accelerate, and that the Fed would do nothing dramatic to tame the inflationary pressures, but people actually prefer rushing to Bitcoin, as a new-age inflation hedge. As such, Bitcoin hit a fresh record yesterday, before easing.

I am not saying that Bitcoin is not a good inflation hedge, I am saying that we don't have enough data in hand that proves that it is. This is the first time we see inflation rising since the inception of Bitcoin, and Bitcoin was rising as fast during the times of 0 inflation, as well. To me, the only thing that would make Bitcoin a good hedge against inflation is the benefit of doubt. The fact that it is rising along with inflation, and that it is a rare asset, and that there will be only 21 million are arguments that are not strong enough to give Bitcoin the statute of the King of the Inflation Hedging Tools. Bitcoin is not, in anyway, fundamentally tied to the monetary policy or the economic fundamentals that would make it a fundamentally strong hedge against rising consumer prices. What makes Bitcoin a good inflation hedge is people thinking that it is a good inflation hedge. It works well, but it is vulnerable.

Good old gold is finally giving sign of life despite the jump in yields. The price of an ounce advanced past the $1850 mark, and the positive breakout could finally lead to a sustainable rise, and the skyrocketing inflation could finally justify a rally back to the all-time high levels for the precious metal.

Technical analysis

The RSI is above level 50.

The Stochastics is near the overbought zone.

Most likely scenario – BUY

Target prices: 1,859.34 1,868.81

Alternative scenario – SELL

Target prices: 1,842.05 1,832.34

Key levels

Support 1,842.05 1,832.34

Resistance 1,859.34 1,868.81

Market movers today

• Light day in terms of economic data. Preliminary Q3 GDP in UK will be released.
• The EU Commission will release its new macroeconomic forecasts, which should also include the latest country budget draft projections. These will be interesting in light of Commission's plans to reform its budget rules by 2023, when they are supposed to apply again.
• From the central banks, ECB's Lane will give a speech in the afternoon.
• China finishes their four-day plenum of the Central Committee of the Communist Party. A rare new resolution on the Communist Party's history and path forward is expected to be released, which is likely to set the stage for President Xi Jinping getting a third term next year.

The 60 second overview

US Inflation: CPI data out of the US saw yet another strong upside surprise highlighting the risk that inflation will be more persistent than expected by the Federal Reserve, thus raising the probability of a faster tightening of monetary policy. The market now prices three 25bp hikes in 2022. Core inflation increased 0.6% m/m (consensus 0.4% m/m) taking the yearly rate to a new cycle high of 4.6%. The market response was clear with a jump in bond yields, equities selling off and the USD strengthening.

Global Inflation Watch: This morning we published Global Inflation Watch - Highest US wage growth in more than 10 years, where we go through inflation drivers globally with focus on the US and the euro area. Inflation pressures are growing in general but with key differences across the US and the euro area, not least on wages.

Joint US-China statement on climate: The US and China yesterday surprised and released a joint declaration on enhancing climate action in the 2020's in which they recognized the need to do more on climate and working jointly and with other countries to strengthen and accelerate climate action. It was a rare moment of cooperation and positive to see the two sides being able to put other issues aside when it comes to climate action.

Evergrande: Supposedly the ailing Chinese developer Evergrande dodged another default yesterday by meeting a deadline of interest payments worth USD148.5m. In addition, a series of articles in state media indicate that measures are now being stepped up to ease the liquidity crunch and fend off a deeper crisis. Mortgage lending is loosened to support home sales, rules on developer's debt issuance are eased and state banks take on more of the developer's debt. Chinese developer shares have increased in response and high yield rates are falling.

Equities: Equities fell yesterday, once again with US setting the directions. Europe and Asia finished higher but Europe will have some catching up to do today as the drop in US stocks happened after the close of cash trading in Europe. One obvious candidate to blame, the +6% CPI print from US. With that in mind it is no surprise to see defensive, value, large cap and min vol stocks outperforming. It was more or less a textbook reaction taking place in the US even if it took a little time to unfold. In US, Dow -0.7%, S&P 500 -0.8%, Nasdaq -1.7% and Russell 2000 -1.6%. Maybe worth to note, albeit not surprising, the VIX moving higher for the fifth consecutive day. Asian stocks doing fairly well this morning in light of the US data and market moves yesterday. US futures are mixed while European futures are lower.

FI: The US CPI figure drove global yields significantly higher yesterday with steeper curves and wider spreads. 10y Bunds rose 5bp, while the BTPs-Bund spread widened 4bp on the day. Ahead of the US CPI figure, the EGBs were already trading heavy, influenced by a headline on Merkel's advisors calling for an ECB normalization strategy, but the sell-off accelerated after the US release. On the day as a whole, the front end repriced 5bp (Dec22 Euribor). The 10y Bund ASW spread widened 2bp to 44bp yesterday. €STR pricing point to an ECB hike priced for September next year.

FX: USD rose on a broad basis yesterday after US CPI inflation rose much more than expected. EUR/USD dropped below 1.15, USD/JPY rebounded back towards 114 and GBP/USD fell close to 1.34. Scandies also weakened following the rise in USD.

Credit: Credit was somewhat mixed yesterday. iTraxx Xover widened 2.8bp and Main 0.4bp. HY bonds, on the other hand, were marked 2bp tighter and IG 1bp tighter.

General trend

• Japan and AU report hotter inflation data after US CPI surprise.
• USD index slightly extended rise during Asia; USD/JPY rose above ¥114.
• Nikkei 225 has reversed the opening decline, the index has outperformed amid the drop in the Yen.
• Japanese cos. due to report earnings include Rakuten, McDonald’s Japan, Suzuki, Bridgestone, Coca-Cola Bottlers Japan, ENEOS, Trend Micro.
• US equity FUTs have moved slightly higher after the losses on Wed, futures later pared gain; Musk sold shares in Tesla.
• Hang Seng has pared the opening decline; Property index rises amid reported debt payments by Evergrande, China regulators said to consider support for property developers; Kaisa Group’s debt payment deadlines in focus.
• Shanghai Composite ended morning trading higher after the lower open; Property index rises > 5.5%.
• China’s Singles Day in focus.
• China Ministry of Finance (MOF) has again sold EUR-denominated bonds at negative yields (US financial press).
• China’s Commerce Ministry (MOFCOM) sometimes holds weekly news conferences on Thurs.
• China to hold briefing on the 6th Plenary meeting at 10AM local time on Nov 12th (Fri).
• S&P ASX 200 has lagged, REITs weighed down by higher bond yields; Energy index also drops; Resources index rises.
• Companies due to report during the NY morning include Brookfield Asset Management, Sally Beauty, Tapestry, Weibo.
• US cash Treasury market is closed on Thurs due to the Veterans Day holiday.
• Japan PM Kishida said to have ordered coronavirus measures be compiled by Friday (Nov 12th).

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened -0.2%.
• (AU) AUSTRALIA NOV CONSUMER INFLATION EXPECTATION: 4.6% V 4.6% PRIOR.
• (AU) AUSTRALIA OCT EMPLOYMENT CHANGE: -46.3K V +50.0KE; UNEMPLOYMENT RATE: 5.2% V 4.8%E; Participation Rate: 64.7% v 64.8%e (first rise since Jun).

Japan

• Nikkei 225 opened -0.2%.
• (JP) Japan Oct PPI (CGPI) M/M: 1.2% v 0.4%e; Y/Y: 8.0% v 7.0%e.
• (JP) Japan likely not to resume "Go Travel" until January at the earliest - Japan press.
• (JP) Japan Foreign Min Hayashi: Not yet at stage to set a date for China President Xi to visit.

Korea

• Kospi opened -0.6%.
• (KR) Bank of Korea (BOK) Gov Lee: Higher than expected CPI to continue for while, economic trend id in line with expectation.
• (KR) South Korea Nov 1-10th Imports Y/Y: +59% v 63.5%% prior; Exports Y/Y: 29.3% v 58.6% prior; Chip Exports y/y: 45.3% v +22.0% prior.
• (KR) South Korea think tank, KDI, sees 2022 GDP at 3.0%, boosted by strong private spending - Yonhap.

China/Hong Kong

• Hang Seng opened -0.6%; Shanghai Composite opened -0.2%.
• 3333.HK Reportedly China Evergrande met payment deadlines today for 2 of its bonds, relates to bonds due in 2022 and 2023; cites a co. bondholder - NYT.
• (CN) Reportedly China regulators are considering easing property rules to allow troubled developers to sell off assets and avoid defaults that could hurt the broader economy – press (US session).
• (CN) China President Xi expected to secure a resolution at plemum that will allow for a 3rd term, 1 year from now (1st in history) and may also secure mandate that would allow him to rule for life - financial press.
• (US) Reportedly virtual meeting between Biden and Xi has been tentatively scheduled for Monday – press.
• (CN) China PBOC sets Yuan reference rate: 6.4145 v 6.3948 prior.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY100B in 7-day reverse repos v CNY100B prior; Net inject CNY50B v Net inject CNY50B prior.
• 3333.HK China plans to manage a controlled dismantling, but could take years - press.
• 700.HK Reports Q3 (CNY) Net 39.5B v 38.5B y/y, Rev 142.4B v 125.5B y/y.
• (CN) CHINA OCT NEW YUAN LOANS (CNY): 826.2B V 800BE.
• (CN) CHINA OCT M2 MONEY SUPPLY Y/Y: 8.7% V 8.3%E.
• (CN) CHINA OCT AGGREGATE FINANCING (CNY): 1.590T V 1.700TE.

North America

• TSLA Musk files Form 4 for transactions on Nov 8th, 934,091 shares sold to meet tax obligations on 2.15M options.
• (US) OCT CPI M/M: 0.9% V 0.6%E; Y/Y: 6.2% V 5.9%E (highest annual pace since Nov 1990).
• (US) Said that the US will not open up a trade probe into Solar manufacturers from Asia – press.
• (US) Citi: Beleives US could release up to 60Mbbls of oil from strategic reserves.
• DIS Reports Q4 $0.37 v $0.52e, Rev $18.5B v $18.8Be.

Europe

• (UK) Oct RICS House Price Balance: 70% v 65%e (higher due to lack of supply).
• (NZ) EU Delays trade deals until after Apr 2022 with both New Zealand and Chile, postponement will wait until after French Presidential elections in Apr - FT.

Levels as of 00:15ET

• Hang Seng -0.3%; Shanghai Composite +0.7%; Kospi -0.5%; Nikkei225 +0.5%; ASX 200 -0.6%.
• Equity Futures: S&P500 +0.0%; Nasdaq100 +0.1%, Dax +0.0%; FTSE100 +0.0%.
• EUR 1.1488-1.1465; JPY 114.14-113.86 ;AUD 0.7341-0.7295; NZD 0.7071-0.7036.
• Commodity Futures: Gold +0.3% at $1,853/oz; Crude Oil +0.3% at $81.62/brl; Copper +0.9% at $4.34/lb.

Daily Pivots: (S1) 152.25; (P) 153.00; (R1) 153.41; More...

No change in GBP/JPY's outlook. With 154.63 minor resistance intact, fall from 158.19 is in progress and would target 148.93 structural support level. On the upside, break of 154.63 minor resistance will revive near term bullishness and turn bias back to the upside for 158.19 high.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). The stay above 55 week EMA affirms medium term bullishness. Current rise should now target 61.8% retracement 195.86 (2015 high) to 122.75 at 167.93 next. In any case, outlook will remain bullish as long as 148.93 structural support hold, even in case of deep pull back.

Daily Pivots: (S1) 130.45; (P) 130.93; (R1) 131.22; More....

Intraday bias in EUR/JPY is turned neutral with 4 hour MACD crossed above signal line. We'd still expect strong support from 130.45 to complete the pull back from 133.44. Break of 132.55 resistance will bring retest of 133.44 first. Firm break there will resume larger up trend from 114.42. However, firm break of 130.45 will dampen our bullish view and bring deeper fall back to 127.91 key support.

In the bigger picture, rise from 114.42 (2020 low) is still in progress and the strong support support from 55 week EMA affirms medium term bullishness. Further rise would be seen to retest 137.49 (2018 high). Decisive break there will resume the whole long term rise from 109.03 (2016 low). Next target will be 100% projection of 109.03 to 137.49 from 114.42 at 142.88. This will now remain the favored case as long as 127.91 support holds.

Daily Pivots: (S1) 0.8542; (P) 0.8553; (R1) 0.8575; More...

Intraday bias in EUR/GBP remains neutral and outlook is unchanged. On the upside, above 0.8593 will target 0.8656 resistance. Firm break there will argue that whole down trend from 0.9499 has completed. Stronger rise would be seen to 38.2% retracement of 0.9499 to 0.8401 at 0.8820. On the downside, break of 0.8459 minor support will bring retest of 0.8401 low instead.

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8656 resistance holds, towards long term support at 0.8276. However, firm break of 0.8656 resistance would argue that a medium term bottom was already formed. Stronger rise would be seen to 0.8861 support turned resistance to confirm completion of the corrective pattern.