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FX arena remains calm

As the new week gets underway, the outlook for the dollar is slightly negative. Having initially climbed on Friday, the dollar index later declined from the 94.62 high and has since remained negative. The euro, which has remained heavy following last week’s unsuccessful drop below the $1.1525 level, is still moving near $1.1570 with weak momentum. On Friday, the pound challenged the support near $1.3410, where it was unable to break through. A clean break below would set up a test of the December 2020 low of $1.3135, which would be a significant step forward. Although dollar/yen has stayed stuck below 114.00 and the four-year high of 114.70, it should eventually join the dollar’s longer-term surge as interest rates in the United States are expected to rise. US stock futures are holding near the new highs that were posted in the previous session.

Last week, the case for a higher dollar was resoundingly made. The US economy continues to grow, but the rest of the world isn't doing so well. There was also a big boost in fiscal stimulus on Friday, thanks in large part to the passage of the traditional infrastructure bill by Congress. The Federal Open Market Committee (FOMC) meeting is over and Fed speakers will spread the word this week. Clarida, Powell, Harker, Bowman, and Evans are among those who will speak today.

Since the FOMC decision, US rate hike expectations have decreased. Despite good US data all week, yields ended last week considerably lower. Yes, there was some Bank of England effect, but that shouldn't affect the US rates outlook too significantly.

Oil back above $82

WTI crude oil futures rose above $82 a barrel on Monday as OPEC+ refused to increase supply in response to President Biden's calls for higher output. State-owned Saudi Aramco raised its official selling price for Arab light crude to $2.7 a barrel in December, an increase of $1.4 from this month. Following the decision by the OPEC+ to maintain its agreed-upon production rise level until the end of the year, analysts forecast sustained undersupply in the oil market through the end of the year. Additionally, Vice President Biden stated on Saturday that the United States has "other instruments" to combat high oil costs.

In other markets, gold prices are declining after the jump above the $1,800/per ounce, failing to improve the positive picture.

Daily Pivots: (S1) 113.13; (P) 113.57; (R1) 113.85; More...

USD/JPY is still bounded in consolidation from 114.69 and intraday bias remains neutral. On the downside, break of 113.24 will bring deeper pull back, but downside should be contained above 112.07 resistance turned support to bring rebound. On the upside, firm break of 114.69 will resume the larger up trend to 100% projection of 102.58 to 111.65 from 109.11 at 118.18 next.

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 114.54 resistance and then 118.65 high. This will now be the preferred case as long as 109.11 support hold, even in case of deep pull back.

Daily Pivots: (S1) 0.9098; (P) 0.9137; (R1) 0.9160; More....

USD/CHF is staying in range above 0.9084 and intraday bias remains neutral. Further decline is expected as long as 0.9174 resistance holds. Break of 0.9084 will resume the fall from 0.9367 to 0.9017 support, and then 0.8925. On the upside, however, break of 0.9174 resistance will indicate short term bottoming and turn bias back to the upside for stronger rebound 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) 1.3444; (P) 1.3477; (R1) 1.3528; More...

Intraday bias in GBP/USD is turned neutral with today's recovery. On the downside, firm break of 1.3410 low will confirm resumption of larger decline from 1.4248 and target 1.3164 fibonacci level next. However, on the upside, above 1.3604 minor resistance will turn bias back to the upside of 1.3833 resistance. Decisive break there will be a sign of near term bullish reversal.

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.

At the beginning of the second week of November, euro/dollar is trading at 1.1560. The market keeps supporting the USD, and there are reasons for it.

According to statistics, the unemployment rate in October dropped to 4.6%, which is quite good. Average hourly wage over the reporting period increased by 0.4% m/m, which is a great result. The NFP in October grew above the expected – by 531 thousand.

On the whole, the employment statistics was positive, which supported the dollar. However, it felt quite confident earlier: the results of the Fed conference in November went according the expectations. The Fed cut down on stimulation as forecast.

On H4, EUR/USD performed a wave of decline to 1.1514 and a correction to 1.1560. The correction might continue to 1.1626. When it is over, the next wave of decline should continue, aiming at 1.1480. The goal is local. Then we expect a link of growth to 1.1560. Technically, this scenario is supported by the MACD: its signal line is trading below zero. Today, the indicator signals a possible correction. When it is over, we expect the signal lines renew next lows.

On H1, EUR/USD bounces off 1.1615 and performed another link of a declining wave to 1.1514. Today the market has performed a correction to 1.1558 and at the moment is trading in the consolidation range. With an escape upwards, a pathway to 1.1605 (at least) will open. With an escape downwards, trend will continue to 1.1480. Technically, this scenario is confirmed by the Stochastic oscillator. Its signal line is trading above 50. We expect growth to 80. Then the indicator might drop to 20.

Daily Pivots: (S1) 1.1530; (P) 1.1551; (R1) 1.1589; More...

EUR/USD's recovery from 1.1512 continues today but outlook is unchanged. Intraday bias stays neutral first. Further decline is in favor as long as 1.1615 minor resistance holds. Break of 1.1512 will extend the pattern from 1.2348 to 61.8% projection of 1.1908 to 1.1523 from 1.1691 at 1.1453. Break will pave the way to 100% projection at 1.1306. On the upside, though, above 1.1615 minor resistance will dampen the bearish case and turn bias back to the upside for 1.1691 resistance.

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 1.1908 resistance holds, deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289. Nevertheless break of 1.1908 resistance will revive medium term bullishness and turn focus back to 1.2348 high.

Dollar, Yen and Swiss Franc turned slightly weaker in quiet markets today. Euro is supported by better than expected investor sentiment data, while Sterling also recovers. New Zealand Dollar is also trading higher but Australian and Canadian Dollar are lagging behind. Gold is back above 1800 handle but has yet to break through 1833 key resistance level. WTI oil is range bound at around 82. Bitcoin is now trying to resume up trend for new record.

Technically a focus is now on 1.0602 minor resistance in EUR/CHF and break there will indicate short term bottoming, to be followed by stronger rebound. EUR/USD and GBP/USD are also recovering notably. Break of 1.1615and 1.3604 respectively will likely bring stronger rebound in both pairs.

In Europe, at the time of writing, FTSE is down -0.05%. DAX is down -0.18%. CAC is up 0.26%. Germany 10-year yield is up 0.0243 at -0.253. Earlier in Asia, Nikkei dropped -0.35%. Hong Kong HSI dropped -0.43%. China Shanghai SSE rose 0.20%. Singapore Strait Times rose 0.66%. Japan 10-year JGB yield dropped -0.0024 to 0.061.

Eurozone Sentix investor confidence rose to 18.3, mid-cycle slowdown coming to an end

Eurozone Sentix Investor Confidence rose to 18.3 in November, up from 16.9, slightly below expectation of 18.6. That also the first rise since July. However, current situation index dropped from 26.3 to 23.5, lowest since June. Expectations, on the other hand, rose from 8.0 to 13.3.

Sentix said, the economic slowdown is "coming to an end". Economic expectations suggested that the latest declines were just a "mid-cycle slowdown". "This thesis seems to be con-firmed by the November data. The threat of an economic turnaround is thus off the table."

From Swiss, unemployment rate dropped to 2.7% in October, down from 2.8%, matched expectations.

ECB Lane: There's still a lot of momentum in the system

In an interview with El País, ECB chief economic Philip Lane said "we don't think the recovery process is over", and "growth will be pretty strong in 2022". Tourist season will be "better next year" and bottlenecks "ultimately will be resolved." Also, other factors include savings accumulated during the pandemic, the Next Generation EU fund, and the high vaccination rates.

The headaches about bottlenecks and higher energy prices are "not going to wipe out the underlying momentum of the recovery". He added, "it is not only about getting back to where we were before the pandemic – it's also about catching up to the growth that we should have had in 2020 and 2021. So there is still a lot of momentum in the system."

"Inflation is unexpectedly high at the moment, but we do think it is going to fall next year," he said. "we did talk about 'inflation, inflation, inflation', but this period of inflation is very unusual and temporary, and not a sign of a chronic situation. The situation we are in now is very different from the 1970s and 1980s."

BoJ opinions: Important to persistently continue with extremely accommodative monetary policy

In the Summary of Opinions of BoJ's October 27-28 meeting, it's noted that because of low inflation, it's important to persistently continue with extremely accommodative monetary policy even when pent-up demand increases." Also, BoJ should "persistently continue with the current monetary easing" so that "a rise in corporate profits leads to wage increases and the virtuous cycle from income to spending intensifies."

To "alleviate the effects of deterioration in the terms of trade", it's necessary to improve economic activity and raise inflation expectations so that "firms can smoothly pass on the rise in raw material prices to domestic selling prices." It's important to "improve the output gap" so that "the pass-through of price rises will be promoted..

Yen's depreciation reflected "differences in inflation rates and monetary policy stances among economies." It's important to consider the impact of rise in international commodity prices and Yen's depreciation. But, it is necessary to keep in mind that their effects on each economic entity are uneven depending on industry and size.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1530; (P) 1.1551; (R1) 1.1589; More...

EUR/USD's recovery from 1.1512 continues today but outlook is unchanged. Intraday bias stays neutral first. Further decline is in favor as long as 1.1615 minor resistance holds. Break of 1.1512 will extend the pattern from 1.2348 to 61.8% projection of 1.1908 to 1.1523 from 1.1691 at 1.1453. Break will pave the way to 100% projection at 1.1306. On the upside, though, above 1.1615 minor resistance will dampen the bearish case and turn bias back to the upside for 1.1691 resistance.

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 1.1908 resistance holds, deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289. Nevertheless break of 1.1908 resistance will revive medium term bullishness and turn focus back to 1.2348 high.

Economic Indicators Update

EURUSD came to a new low on Friday, but then it quickly stabilized so we have to be aware of a higher degree shape; an ending diagonal that can come to an end soon. Further impulsive rise from here would suggest that pair is bottoming and that much higher prices are coming.

EURUSD came below 1.1524 last week after a corrective B) wave rises to the channel resistance line. We expected that drop into C) which can be now the final stages of wave 5 that belongs to a higher degree ending diagonal. As such, we are aware of a reversal, but any change in trend can be confirmed only if the upper line of a wedge is broken, plus an impulse back to 1.1690.

EUR/USD 4h Elliott Wave analysis

Since the middle of Friday's trading hours, the GBP/JPY currency exchange rate has been fluctuating around the 153.00 mark. Meanwhile, the rate was being approached by the resistance of the 50-hour SMA from above.

In the case that the 50-hour simple moving average pushes the rate down, it could look for support first at the zone above the 152.50 mark. Further below, the zone above 152.00 might act as support.

Meanwhile, a surge of the GBP/JPY pair would have to pass the 50-hour SMA near 153.40 before testing the November 4 and 5 high level zone at 153.70/153.78.

On Monday, the AUD/USD currency exchange rate trade sideways between the support of the 0.7380/0.7384 zone and the resistance of 0.7412/0.7420. Meanwhile, while trading sideways, the rate passed the resistance of a channel down pattern and the 50-hour simple moving average.

If the rate surges and passes the resistance zone of 0.7412/0.7420, it could find resistance in the weekly simple pivot point at 0.7431. Above the pivot point, the 200-hour SMA near 0.7470 might provide resistance.

On the other hand, a potential decline below the 0.7380/0.7384 levels could look for support in the 0.7360 level, which reversed the Friday's drop. Below the 0.7360 level, the weekly S1 simple pivot point at 0.7326 might stop a potential move downwards.