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The New Zealand dollar is in positive territory in the Tuesday session. NZD/USD is currently trading at 0.7186, up 0.32%. The kiwi has surged 4.17% in October as the US dollar has been struggling.

NZ Business Confidence looms

New Zealand has experienced relatively few Covid cases, but this has come at a steep price, as Auckland, the country’s largest city, has been under a strict lockdown for over two months. This has dampened economic activity and hurt business confidence. Since February, the ANZ Business Confidence index has been in positive territory only once. The October reading will be released on Wednesday and the negative trend is likely to continue.

The RBNZ raised interest rates earlier this month, in what is expected to be a series of rate hikes stretching into 2022. The central bank raised rates from 0.25% to 0.50% and would prefer to continue in increments of 25 basis points. However, with inflation running at high levels and no indications of a drop anytime soon, the bank may have to reconsider its stance and next raise by 50 basis points in order to curb inflation before it poses a threat to the recovery. The RBNZ holds its next policy meeting on November 24th, and the markets have priced in another hike, with a key question being the size of the hike.

In the US, the Fed has done its utmost to communicate clearly with the markets ahead of a taper. On Friday, Powell stated, “I do think it’s time to taper; I don’t think it’s time to raise rates”. Powell receives full marks for the Fed’s transparency with the markets, and so far there are no indications of a taper tantrum on the parts of the markets, with the Fed widely expected to taper at next week’s policy meeting.

NZD/USD Technical

• NZD/USD is testing resistance at 0.7170. Above, there is resistance at 0.7230 and 0.7309
• There are support lines at 0.7061 and 0.6971

Last week, the Japanese yen recorded a winning week, but the currency is back to its old habits and is down for a second straight day. USD/JPY is currently trading at 113.91, up 0.18% on the day.

Japan inflation on the rise

For years, inflation in Japan has hovered below zero. Governments have tried and mostly failed to generate inflation, which has refused to budge higher. Japan has been mired in a deflationary period since 2011, but this trend may be over. CPI was unchanged in August and rose 0.1% in September (Y0Y). This marked the first gain since March 2020, at the start of the Covid pandemic. BoJ Core CPI, which is the Bank of Japan’s preferred inflation gauge, rose 0.6% in September, its fastest pace since July 2019.

The main driver behind the upswing in inflation is higher energy costs, as crude oil prices are at multi-year highs. Higher inflation is a new fact of life all across the globe, and wholesale inflation in Japan jumped 6.3%, its highest level since 2008. This has not translated into higher consumer inflation, however, as businesses have been reluctant to pass on higher costs to consumers. That means that the BoJ’s inflation target of 2 percent will continue to remain a ‘pie in the sky’ dream for quite some time.

A new election poll indicates that the ruling LDP party, led by the new Prime Minister Fumio Kishida will easily hold onto its majority in the Lower House of parliament. Japan goes to the polls next week, and Kishida is expected to implement additional monetary easing and spending in order to push inflation higher. Further easing will likely push the yen lower, as other central banks are in a tightening cycle, which has raised the yield differentials between Japan and the US, as well as other G-10 nations.

USD/JPY Technical

• There is weak resistance at 114.32. Above, there is resistance at 115.14
•  There is support at 113.05, protecting the 113 line. This is followed by 112.60

Daily Pivots: (S1) 113.49; (P) 113.70; (R1) 113.94; More...

Intraday bias in USD/JPY remains neutral for the moment. 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 case of another fall as correction extends, should be contained above 112.07 resistance turned support to bring rise resumption.

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) 0.9165; (P) 0.9184; (R1) 0.9218; More....

Intraday bias in USD/CHF remains neutral and outlook is unchanged. Further decline is still in favor with 0.9251 minor resistance intact. Corrective rise from 0.8927 should be complete with three waves up to 0.9367, on bearish divergence condition in daily MACD. Below 0.9148 will target 0.9017 support first, and then 0.8925 support next. On the upside, however, break of 0.9251 minor resistance will turn bias back to the upside for retesting 0.9367 instead.

In the bigger picture, the corrective structure of the rebound from 0.8925 argues that fall from 0.9471 is not completed 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) 1.1579; (P) 1.1622; (R1) 1.1653; More...

EUR/USD is staying in consolidation from 1.1668 and intraday bias remains neutral first. On the upside, break of 1.1668 will target 55 day EMA (now at 1.1695). Sustained break there will be a sign that larger correction from 1.2348 has completed. Stronger rally would be seen to 1.1908 resistance for confirmation. On the downside, though, break of 1.1571 minor support will turn bias back to the downside for 1.1523 support instead. Break there will resume larger fall from 1.2348.

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.

Daily Pivots: (S1) 1.3743; (P) 1.3767; (R1) 1.3793; More...

GBP/USD rebounds after drawing support from 4 hour MACD, but stays below 1.3838 temporary top. Intraday bias remains neutral first. Further rise is expected with 1.3646 support intact. On the upside, above 1.3833 will target 1.3912 key structural resistance. Firm break there will indicate that the correction from 1.4248 is complete with three waves down to 1.3410. Further rally would then be seen to retest 1.4248 high. However, break of 1.3646 will turn bias to the downside for retesting 1.3410 low.

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.

Risk-on sentiment is pressuring Yen and Dollar today, while Euro and Swiss Franc are not too far away. On the other hand Sterling is the strongest, while Aussie leads other commodity currencies. US futures are trading higher suggesting that DOW and S&P 500 are on track to extend record ones. The question is whether buying would finally pick up some momentum. In other markets, Gold and Silver continue to trade in tight range while oil is firm at around 84.

Technically, following EUR/AUD's down trend breakout, EUR/GBP also resumed near term decline today. We'd now look at when EUR/CAD would break through 1.4317 temporary low and when EUR/CHF would break 1.0656. Also, we'd see when GBP/USD will break through 1.3833 temporary top, and if selling in Dollar would follow elsewhere.

In Europe, at the time of writing, FTSE is up 0.59%. DAX is up 0.95%. CAC is up 0.70%. Germany 10-year yield is down -0.0104 at -0.123. Earlier in Asia, Nikkei rose 1.77%. Hong Kong HSI dropped -0.36%. China Shanghai SSE dropped -0.34%. Japan 10-year JGB yield rose 0.0036 to 0.104.

UK CBI retail sales performance jumped, but stock shortages bite

UK CBI said retail sales grew in the year to October at the faster pace than last month, balance up from 11% to 30%. Growth is expected to accelerate further next month to 35%. Orders growth accelerated from 20% to 48% but is expected to ease slightly back to 41% next month.

Ben Jones, CBI Principal Economist, said: "The UK's economic recovery has been pretty bumpy lately and the same seems true of the retail sector. Sales performance has jumped around in recent months, while stock shortages continue to bite. Disruption to supply chains, combined with staff shortages and uncertain public health conditions mean retailers are finding it difficult to plan for the winter ahead."

German Ifo: Supply problems now impacts manufacturing export

Germany's Ifo export expectations dropped sharply from 20.5 to 13.0 in October, hitting the lowest level since February. Ifo said, "supply problems in intermediate products are now having an impact on manufacturing export".

President of Ifo Clemens Fuest said: "In the electrical and electronics sector, export expectations have softened but remain at a high level, with companies continuing to expect good international business. However, the mood is bleaker in the chemical industry, where growth rates will be significantly slower. The situation is similar for the automotive industry. In the food and furniture industries, exports are expected to remain constant. The textile and leather industries are now preparing for declining international sales."

US Yellen frankly raised issues of concern to China

US Treasury Secretary Janet Yellen held a virtual meeting with Chinese Vice Premier Liu He yesterday. In a statement, the US side said they "discussed macroeconomic and financial developments", and "frankly raised issues of concern".

On the Chinese side, it described in a statement that the meeting as "pragmatic, candid and constructive". China expressed concerns on US tariffs, sanctions and urged fair treatment of Chinese companies.

Both sides agreed to further communications.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3743; (P) 1.3767; (R1) 1.3793; More...

GBP/USD rebounds after drawing support from 4 hour MACD, but stays below 1.3838 temporary top. Intraday bias remains neutral first. Further rise is expected with 1.3646 support intact. On the upside, above 1.3833 will target 1.3912 key structural resistance. Firm break there will indicate that the correction from 1.4248 is complete with three waves down to 1.3410. Further rally would then be seen to retest 1.4248 high. However, break of 1.3646 will turn bias to the downside for retesting 1.3410 low.

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

Oil consolidates at the highs

Oil markets probed the upside overnight, helped along by another large spike in natural gas prices. However, oil lacked the momentum to maintain those intra-day highs as the US dollar started strengthening. With a lack of new headline drivers to sustain the moves. Brent crude finished 0.28% higher at USD 85.95 and WTI finished 0.50% lower at USD 83.75 a barrel, having traded as high at USD 85.35 intra-day. Asia has adopted a wait-and-see approach this morning, possibly on China nerves, leaving both contracts almost unchanged.

The US API Crude Inventories will be oil’s next volatility point, with a low print likely to lead to more price gains. However, the price action overnight does suggest that short-term upward momentum is waning as the trade gets ultra-crowded and the RSI indicators on both contracts remain overbought. Another 3 million barrel jump in inventories could spur some short-term long covering and see oil’s long-predicted sharp move lower finally occur to wash out some of the weak speculative longs. Once again though, I will reiterate that the overall environment for oil remains very constructive and any sharp sell-off is likely to see an equally sharp recovery. Of the two, WTI looks more vulnerable as it is more heavily traded by specs and Brent crude is more aligned to the international physical market.

The overnight highs at USD 86.70 and USD 85.40 a barrel for Brent and WTI form initial resistance. Trendline support at USD 83.40 and USD 79.70 a barrel should be the limit for any downside correction. Only a daily close below those levels suggests a deeper correction is possible.

Gold’s price action remains constructive

Gold staged another impressive rally overnight and there is no doubt that its price action is becoming more constructive towards further gains. Gold rose 0.85% to USD 1807.80 an ounce before some long-covering saw it fall 0.25% to USD 1803.20 an ounce in Asia. The rally is made more impressive by the fact that the US dollar has continued strengthening against the major currencies overnight. In contrast, US bond yields eased across the curve, and it looks like gold is taking its cues from them for now.

Gold has now recorded a daily close above USD 1800.00, and more importantly, the 100 and 200-day moving averages at USD 1793.50 and USD 1790.25 an ounce. One must respect the price action in these circumstances, especially when it appears not to be driven by fast-money gnomes. Therefore, gold has formed a nice layer of support between USD 1790.00 and USD 1800.00 now followed by USD 1780.00 an ounce. Initial resistance is at USD 1814.00 followed by the formidable zone of daily highs between USD 1832.00 and USD 1835.00 an ounce.

Gold continues to slowly but surely, form what appears to be the second shoulder of a longer-term inverse head and shoulders pattern. In the bigger picture, a rise through USD 1835.00 an ounce, would trigger the multi-month inverse head-and-shoulders technical pattern and swing gold’s outlook back to positive, targeting a move back above USD 2000.00 an ounce.

EUR/AUD technical analysis

• The market is still bearish.
• The break of 1.5440 will mark the continuation.
• Selling the rallies is possible.

1. Order block zone.
2. Breakout.
3. Order block 2.
4. Downside target.
5. Descending Trendline.

The price is still in downtrend. There are signs of possible continuation after some retracement up. The price has already broken below the point 1 on the chart which is a sign of a downtrend continuation. However, the problem is a possible false breakout. At this point, the downtrend is still very visible so, selling into rallies is still the valid scenario. Target for the move down is 1.5393. If the price moves back to 1.5440, breakout lower is expected again. Only the break of the descending trend line could start a deeper retracement on intraweek scale.

UK CBI said retail sales grew in the year to October at the faster pace than last month, balance up from 11% to 30%. Growth is expected to accelerate further next month to 35%. Orders growth accelerated from 20% to 48% but is expected to ease slightly back to 41% next month.

Ben Jones, CBI Principal Economist, said: "The UK's economic recovery has been pretty bumpy lately and the same seems true of the retail sector. Sales performance has jumped around in recent months, while stock shortages continue to bite. Disruption to supply chains, combined with staff shortages and uncertain public health conditions mean retailers are finding it difficult to plan for the winter ahead."

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