Daily Technical Analysis

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USD/CHF Maintains 0.9000 Level Before US Retail Sales


The USD/CHF pair is facing a sustained downtrend, with its value hovering around 0.9020 during the Asian trading session on Monday. This decline in the USD/CHF pair can be attributed to the lingering uncertainty surrounding the Federal Reserve’s (Fed) upcoming decisions on interest rates, which is creating a complex and volatile environment for the US Dollar (USD).


Meanwhile, the Swiss Franc (CHF) is experiencing increased demand due to the ongoing military conflict in the Middle East. The CHF has traditionally been considered a safe-haven currency during times of geopolitical instability, and investors seeking a secure and stable currency are turning to the CHF amid the current geopolitical uncertainties.


Recent reports have indicated discussions between US officials and Israel regarding a potential visit by President Joe Biden to Israel. Israeli Prime Minister Benjamin Netanyahu is reported to have extended an invitation for this visit, which adds a layer of geopolitical complexity to the situation.


On the economic front, the Swiss Producer and Import Prices (YoY) for September showed a 1.0% decline, which was a slight increase from the previous month’s decline of 0.8%. However, the monthly data revealed a 0.1% decrease, contrasting with the 0.8% decline observed in August. Later in the week, the Trade Balance for September is set to be released, offering further insights into the Swiss economy.


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The Australian Dollar (AUD) continued its upward trajectory against the US Dollar on Tuesday, marking the second consecutive day of gains. This buoyancy in the currency was primarily fueled by the release of the Reserve Bank of Australia (RBA) minutes for the October 2023 meeting, which revealed a relatively hawkish tone.


During the RBA’s October meeting, the central bank’s board deliberated whether to increase interest rates by 25 basis points (bps) or maintain the existing rate. Ultimately, the board decided that the more prudent course of action was to keep rates unchanged. Their decision was informed by a careful assessment of various factors, including inflation data, employment figures, and updated forecasts, which will be available at the November meeting.


Of particular note was the acknowledgment by RBA board members that there were significant concerns about potential upside risks to inflation. This suggests a cautious approach, highlighting the board’s vigilance regarding factors that could lead to an inflationary uptick.

However, on the domestic front, there are indications of waning consumer confidence in Australia. The latest Australian Weekly ANZ Roy Morgan Consumer Confidence survey, released on Tuesday, reported a decline in consumer confidence, with the reading falling to 76.4, compared to the previous figure of 80.1. This dip is observed across all sub-indices, reflecting a more cautious or negative sentiment among consumers.


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Pound Sterling Rises Amid Persistent UK Inflation


The Pound Sterling (GBP) has strengthened following a report from the UK Office for National Statistics (ONS) that September’s inflation exceeded expectations. This higher inflation could prompt the Bank of England (BoE) to consider further policy-tightening during its November monetary policy review.


Rishi Sunak, the UK Prime Minister, might face questions on his commitment to reduce inflation to 5.5% by the end of the year due to the stubborn Consumer Price Index (CPI) figures. High inflation is likely to further impact the already struggling UK housing sector, mainly because of rising borrowing costs.


Key Data Insights
– The Pound Sterling draws interest after a higher-than-anticipated inflation report for September.


– Monthly inflation increased by 0.5%, surpassing the expected 0.4% and the previous 0.3%. Yearly CPI surged to 6.7%, outpacing the projected 6.5%.


– Core inflation, excluding food and oil prices, rose by 6.1%, just above the expected 6.0% but less than the 6.2% in August.


– Factory goods and services prices grew by 0.4%, differing from the previously released 0.9% and 0.8%.


– The BoE faces challenges as it aims to reduce inflation to the 2% mark.


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USD/JPY Struggles Below the 150.00 Mark; Anticipation Grows for Fed’s Powell Upcoming Address


In the recent trading activities, the USD/JPY currency pair displayed a noticeable wane in momentum, hovering around the 149.80 range during Thursday’s early European session. Analysts postulate that the potential downside of the currency pair could be kept in check due to a notable uptick in US Treasury bond yields. To provide perspective, the 10-year US Treasury yield has soared to an impressive 4.966%, marking its highest since 2007. Concurrently, the 2-year Treasury yield remains at a firm 5.246%.


With the week progressing, all eyes are set on the upcoming Japanese inflation data, scheduled to be released on Friday. This is particularly significant given the anticipation surrounding Japan’s National Consumer Price Index (CPI) excluding fresh food, which is projected to register a 2.7% YoY increase, a dip from the previous 3.1% figure.


Shifting focus to the US housing sector, data from Wednesday presented a mixed bag. While Building Permits for September declined to 1.475M, this outpaced the market’s consensus estimate of 1.45M. In contrast, Housing Starts only managed to reach 1.35M, falling short of the projected 1.38M, as per the data released by the US Census Bureau. In another significant update, the Federal Reserve’s Beige Book underscored a stable US economic outlook, with minimal changes observed between September and the early part of October. This stability hints that the Federal Reserve may remain steadfast in its current policy direction.


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The USD Index Stays Steady Near 106.00s, Anticipates Fedspeak


The USD Index (DXY), a significant benchmark that measures the US dollar’s performance against a collection of its major global counterparts, showed a slight inclination towards the 106.30 mark as trading closed on Friday. This movement is especially noteworthy as it gives investors insights into the current sentiment surrounding the greenback on a global scale.


Such movements in the index, especially towards the end of the week, often draw interest. Market enthusiasts have keenly analyzed comments made by Chair Powell on Thursday. His remarks, which leaned on the side of caution, hinted at the Federal Reserve’s inclination against a potential rate hike in the upcoming November session. Powell’s cautious approach is not surprising given the broader economic context, and it gives a hint about the likely short-term trajectory of the US monetary policy.


One of the major driving factors behind the greenback’s performance is the movement in US yields. After an aggressive upward trend, marking multi-year highs, the US yields are now seemingly pausing. This pause comes after an unwavering rise across various maturity levels that began in early May. Such fluctuations in yields often act as an indirect commentary on the health and anticipated trajectory of the US economy.


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EUR/GBP near 0.8700 after UK job data; Eurozone, UK PMI watched


The EUR/GBP cross is facing downward pressure as it approaches the 0.8700 mark. This comes after the release of mixed UK employment statistics on Tuesday. Both the Eurozone and the UK are expected to release pivotal economic data, which will significantly influence the market ahead of the European Central Bank (ECB) rate decision on Wednesday.


In the UK, the ILO Unemployment Rate for the quarter leading to August was 4.2%, a slight improvement from the previous 4.3%. This surpassed market predictions, which stood at 4.3%. The Office for National Statistics (ONS) revealed on Tuesday that there was a rise in people seeking unemployment benefits in September, increasing by 20.4K from last month’s 0.9K and exceeding the anticipated 2.3K. In addition, the British Employment Change for August was recorded at -82K, which is better than the -207K in July and above the forecasted -198K.


Rumors suggest that the Bank of England (BoE) might hold the interest rates at 5.25% in their upcoming November meeting. This speculation arises from the subpar data that indicates the UK Manufacturing PMI is below the standard 50.0 mark, and there’s a decline in Retail Sales, hinting at a slow-paced UK economy.


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Asian shares rise on strong corporate profits and lower oil prices


Asian markets showed resilience and optimism on Wednesday, following the lead of Wall Street, as major corporations like Verizon exceeded profit expectations for the summer season. This boost in corporate earnings has instilled hope that companies will finally show growth after a year of stagnation, a development of utmost significance for global stock markets, which have grappled with the pressures of surging bond yields.


The recent surge in the 10-year Treasury yield, which has climbed from below 3.50% in the spring, has been a cause for concern. It is steadily approaching the Federal Reserve’s main overnight interest rate, which currently stands at its highest level since 2001, above 5.25%. The rapid rise in yields has adverse effects on various investments, including stocks and cryptocurrencies, and also has the potential to hamper economic growth, introducing stress into the broader financial system.


As of early Wednesday, the 10-year Treasury yield remained stable at 4.84%, indicating a temporary respite from its upward trajectory. In the Tokyo stock market, the Nikkei 225 index surged by 1.3%, reaching 31,466.92 points. Hong Kong’s Hang Seng index also saw robust gains, rising by 1.8% to 17,290.91, while the Shanghai Composite index registered a 0.5% increase, reaching 2,977.84 points. Conversely, South Korea’s Kospi experienced a 0.4% decline, settling at 2,373.88 points, and the S&P/ASX 200 in Sydney remained relatively unchanged at 6,856.60 points. India’s Sensex faced a 1.3% dip, while the SET index in Bangkok soared by 1.2%.


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EUR/GBP Eyes the 0.8700 Threshold as Market Anticipates ECB Rate Decision


In recent market activities, the EUR/GBP trading pair has shown a promising upward trend, maintaining positive traction for two successive days. During the early trading hours on Thursday, this cross has been observed around 0.8726, marking a modest but notable 0.02% increase from the previous day’s rate.


Central to the market’s attention is the much-anticipated European Central Bank (ECB) interest rate decision set to be announced later on Thursday. Widely, expectations are that the ECB will choose to keep the rate stable without any changes. This perspective is rooted in the fact that markets have priced ECB policy rates to remain consistent throughout the year, implying the end of its hiking cycle.


However, the scenario becomes more intricate when we consider the statements and potential strategies of ECB President Christine Lagarde. In comparison to the Bank of England (BoE), Lagarde seems to lean towards a tightening bias, a move which, if actualized, could fortify the Euro (EUR) against the Pound Sterling (GBP).


In a recent declaration, President Lagarde emphasized the ECB’s intention to maintain a vigilant eye on the escalating crisis in the Middle East. She highlighted the critical importance of understanding the potential repercussions this crisis might have on the economic stability of the eurozone, demonstrating the bank’s proactive stance on global events and their domino effects.


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USD Index Faces Pressure Near 106.5 Ahead of Crucial Economic Data Release


The USD Index (DXY), a significant barometer that measures the U.S. dollar against a group of its primary competitors, has seen a diminishing upward drive, pulling back to mid-106.00 levels as the week draws to a close. This retreat in the index marks a change in trajectory after three consecutive days of gains, and this recent dip has caught the eyes of many market watchers.


Previously, the index had declined, tapping a three-week low near 106.90. This slide comes even as U.S. yields seem to be stabilizing around their recent multi-year highs across varied maturity ranges. The prevailing sentiment among investors suggests a pause by the Federal Reserve in its upcoming event, leaving the possibility of a rate increase in December very much on the table.


This speculation was further strengthened when U.S. GDP figures for Q3, along with Durable Goods Orders, outperformed expectations on Thursday.


In the realm of U.S. economic data, a significant amount of anticipation surrounds the forthcoming release of inflation numbers, represented by the PCE (Personal Consumption Expenditures) and Core PCE. These key indicators will be closely followed by other important metrics such as Personal Income, Personal Spending, and the final numbers for the Michigan Consumer Sentiment.


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The currency pair USD/JPY is exhibiting a steady performance, registering around 149.65, having made a minor pullback from its monthly zenith of 150.77 earlier during the Asian trading window on Monday. The trading community appears to be adopting a cautious stance, opting to remain on the periphery in anticipation of impending monetary policy decisions from both Japan and the United States. Such key financial events are known to induce significant market fluctuations.


A notable aspect shaping the dynamics of the currency pair is the differing monetary stances of the US and Japan. This difference is exerting pressure on the Japanese Yen when juxtaposed against the US dollar. Market whispers are rife with speculations regarding the Bank of Japan’s (BoJ) potential recalibration of its Yield Curve Control (YCC) strategy. A recent poll conducted by Reuters indicates a growing consensus among market analysts. They project that the BoJ might bid adieu to its prevailing negative interest rate approach by the next year. This shift aligns with the prevalent sentiment that the central bank is inching closer to wrapping up its ultra-supportive monetary stance.


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