Daily Technical Analysis

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In the early hours of Wednesday’s Asian trading session, the USD/CAD currency pair found itself in a stable position, hovering just above the mid-1.3500s range. This marks a phase of consolidation for the pair, following its recent descent to a one-and-a-half-week low that was recorded just the day before.


One of the key factors influencing the exchange rate dynamics in this context is the robust performance of crude oil prices. These prices have been on an upward trajectory, currently residing close to a 10-month high. The driving force behind this surge is the mounting concerns over tightening global supplies of oil. OPEC’s decision to implement deeper supply cuts, coupled with a surge in global demand, has set the stage for further tightening of oil markets throughout the year. In light of this, the Canadian dollar, often regarded as a petrocurrency due to its close correlation with oil prices, is experiencing a boost, while the US dollar is grappling with a muted performance. This divergence between the two currencies has effectively established a level of resistance for the USD/CAD pair.


As traders navigate these market dynamics, a notable event on the horizon is the impending release of the US consumer inflation figures, scheduled for later in the North American trading session. These figures are highly anticipated as they are expected to offer crucial insights into the Federal Reserve’s prospective plans regarding interest rate hikes. The outcome of this release is poised to significantly influence the directional course of the USD/CAD pair. Moreover, the prevailing sentiment among investors is one of confidence in the Federal Reserve’s commitment to maintaining a hawkish stance and prolonging higher interest rates. This sentiment is partly rooted in the recent string of positive macroeconomic data emanating from the United States, coupled with inflation that has shown a slower-than-expected pace of increase. These factors collectively lend support to the notion of further monetary policy tightening in the near future.


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Silver witnessed a fleeting upward movement during the Asian trading session, attempting to breach the pivotal $23.00 level. However, this surge was short-lived, with silver unable to maintain the momentum required to sustain a position above this critical threshold. Delving into the intricacies of this price action, the breach below the $22.85-$22.80 support range signifies a significant shift in market sentiment that leans decidedly bearish. This sentiment is further corroborated by closely examining the oscillators on the daily chart, which appear to signal the potential for further downward movement.


The repercussions of this bearish sentiment set the stage for a testing period for silver as it gears up for a retest of the robust support zone in the $22.20-$22.10 range. In more pessimistic scenarios, the price could venture even lower, extending its downward trajectory to the $21.25 region.


In the event of a shift in momentum favoring the upside, silver would encounter various resistance levels. Initially, surpassing the psychological hurdle at $23.00 would be met with a resistance barrier of around $23.20. Further upward momentum would then contend with the presence of the 200-day Simple Moving Average, a key technical indicator, which is situated within the $23.45-$23.50 range. Beyond this, the 100-day SMA would pose another formidable obstacle at approximately $23.80, closely followed by the psychologically significant $24.00 level.


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USD Index Corrects Lower to 105.30, Awaits Data


The USD Index (DXY), measuring the greenback against its major counterparts, experiences a slight retreat, trading around the 105.30 level at the week’s end. This decline comes after three consecutive daily gains that followed Thursday’s peak in the 105.40/45 range.


The subdued risk appetite across global markets puts pressure on the US dollar. European markets open with caution, still digesting the outcomes of the recent ECB meeting. Additionally, US yields, which rose on Thursday, are poised to continue their advance.


Market sentiment surrounding the Federal Reserve’s upcoming actions is undergoing a shift. Bets on a 25 basis point rate hike in November are waning, while speculation about interest rate cuts in the second quarter of the next year gains traction.


On the economic calendar, the US is set to release data on Export/Import Prices, followed by reports on Industrial/Manufacturing Production, Capacity Utilization, and the preliminary figures for Consumer Sentiment for the current month.


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EUR/GBP has continued its upward trajectory, making gains for the second consecutive day and currently trading at around 0.8610 during the European trading session on Monday. This surge in the currency pair can be attributed in part to the recent statements made by Christine Lagarde, the President of the European Central Bank (ECB), which have bolstered market confidence.


Lagarde’s remarks on Friday were particularly noteworthy, as she indicated that ECB policymakers had not contemplated the implementation of further rate cuts. Furthermore, she emphasized the central bank’s commitment to maintaining interest rates at elevated levels for an extended period and expressed a willingness to raise rates if deemed necessary. This stance has reassured investors and traders alike, contributing to the Euro’s strength.


Commerzbank economists have also weighed in on the aftermath of the ECB’s recent rate decision. According to their analysis, the ECB’s move to signal the suspension of rate hikes aligns with market expectations. Nevertheless, it carries a degree of risk as it hints at a potentially less hawkish stance on monetary policy, which could impact the Euro’s performance in the coming days.


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WTI Crude Oil Continues Its Ascent Below $91.00 Amid Tight Supply Prospects


WTI, the U.S. benchmark for crude oil, is demonstrating resilience as it hovers around the $90.90 mark on Tuesday, driven primarily by a constrained supply outlook championed by Saudi Arabia and Russia. Nonetheless, the trajectory of WTI prices remains clouded by concerns related to a potential economic deceleration in China, which could potentially impede further price hikes.


The recent upswing in WTI prices can be unequivocally attributed to the deliberate actions of two oil giants—Saudi Arabia and Russia. These formidable players in the global oil market have unveiled their plans to sustain a tight grip on oil production cuts until the conclusion of 2023. In a committed move, Saudi Arabia has pledged to curtail its daily oil output to an approximate 1.3 million barrels, a commitment set to endure through the aforementioned timeframe. The International Energy Agency (IEA) has issued a stern warning, asserting that the oil market’s deficits will only exacerbate during the fourth quarter, courtesy of the production cuts strategically orchestrated by Saudi Arabia and Russia over the summer.


In a recent statement, Saudi Arabia’s Energy Minister underscored the collaborative efforts of the OPEC+ alliance in stabilizing oil markets and bolstering global energy security. Notably, no explicit target price for crude oil was disclosed. However, it was acknowledged that the market’s current volatile landscape is being significantly influenced by the prevailing ambiguity surrounding China’s oil demand, thereby casting a significant shadow on global crude prices.

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As the eagerly awaited Federal Reserve (Fed) interest rate decision inches closer, the USD/JPY currency pair finds itself in a holding pattern, oscillating within the narrow range of 147.70 to 147.85 during the early European trading session on Wednesday. Presently, the pair is hovering at 147.83, registering a minimal 0.01% decline for the day.


Market participants widely anticipate the Fed to maintain its current interest rates in the September meeting, as indicated by the CME Fedwatch Tool, which assigns a 99% probability to this scenario. However, the outlook for rate hikes in November and December has been adjusted downward, a factor that might exert downward pressure on the US Dollar.


In an effort to align US economic growth with its potential rate and address concerns about inflation, US Treasury Secretary Janet Yellen has expressed the need for a slowdown. Meanwhile, the latest economic data reveals that US Building Permits for August surpassed expectations, but Housing Starts saw a slight decline.


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Asia-Pacific shares followed the downward trend set by Wall Street on Thursday, as investors interpreted the latest policy statements from the US Federal Reserve as a signal of higher and longer interest rates.


The broadest index of Asia-Pacific shares outside Japan, MSCI’s (.MIAPJ0000PUS), was down 0.4% in early afternoon Hong Kong time. Japan’s Nikkei (.N225) slid 0.6%, China’s blue-chip (.CSI300) dipped 0.6%, and Hong Kong’s benchmark shed 1.3%.


The yield on two-year US Treasury notes rose to a 17-year high of 5.1970% on Thursday morning and hovered around 5.18% by early afternoon.


Similarly, Japan’s 10-year government bond yield reached its highest level in a decade, in line with the US 10-year Treasury yields, which hit a 16-year peak at 4.4310%.


“We anticipate further increases in bond yields in the near future due to the Federal Reserve’s hawkish position,” said Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management. He added that while high interest rates can cool the economy, they remain positive on long-term government bonds, investment grade corporate debt, as well as growth and tech stocks.


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USD/JPY Targets 148.50 as Bank of Japan Holds Interest Rates Steady


USD/JPY rebounds from Thursday’s losses following the Bank of Japan’s decision to keep interest rates unchanged. As expected, the BoJ maintained its current rates at -0.1%. During early European trading on Friday, the spot price is hovering around 148.30.


In a press conference after the September policy meeting, BOJ Governor Kazuo Ueda hinted at the possibility of ending yield curve control and adjusting negative interest rates when 2% inflation is within reach. He emphasized that the BOJ’s policy decision-making process remains unchanged, with careful analysis of new data at every monetary policy meeting.


Ueda also mentioned that inflation has not yet reached a stable 2% level and that the next monetary policy decision in October will consider data including the government’s extension of gasoline subsidies. The Bank of Japan is prepared to implement further easing measures if necessary due to uncertainty in economic conditions, price trends, and currency and financial markets.


Japan’s National Consumer Price Index for August showed a reading of 3.2%, slightly lower than the previous rate of 3.3%. The National CPI ex-Fresh Food remained consistent at 3.1% against expectations of 3.0%.


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The AUD/USD pair is currently undergoing a retracement, with its value hovering around the 0.6420 mark during the Asian trading session on Monday. This pullback comes after the pair experienced some upward momentum last week, buoyed by a combination of positive Australian PMI data and a weaker US Dollar.


Australia’s PMI data provided a mixed picture, with the Services PMI showing a modest improvement, rising to 50.5 in September from 47.8 in August. On the other hand, the Manufacturing PMI declined slightly from 49.6 to 48.2. The Composite Index, which combines both sectors, managed to move into expansion territory, climbing from 48.0 to 50.2.


The recent minutes from the Reserve Bank of Australia’s (RBA) September meeting hinted at a dovish stance. While the RBA acknowledged the possibility of additional tightening measures if inflation persists, they also emphasized the case for maintaining the current monetary policy. This delicate balance in the RBA’s approach underscores the importance of upcoming economic data, particularly Australia’s Consumer Price Index (CPI) and Retail Sales figures, which could significantly impact the AUD/USD pair’s trajectory.


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US Yields Surge, Asia Stocks Fall Amid Fed’s Hawkish Stance


US Treasury yields hit a fresh 16-year high, reaching 4.552%, marking levels not seen since October 2007. This surge was driven by the Federal Reserve and other major central banks signaling that interest rates would remain elevated for an extended period. Consequently, the US dollar held near a 10-month high, with the US dollar index reaching 106.10, its highest since November 30, before settling at 106.00.


In response to the soaring yields and a strong dollar, Asia-Pacific stock markets faced declines. MSCI’s broadest index of Asia-Pacific shares outside Japan dropped by 0.33%. Tokyo’s Nikkei fell by 0.7%, South Korea’s Kospi slid 1%, and Hong Kong’s Hang Seng slipped 0.3%. Mainland Chinese blue chips opened flat.


US stock futures pointed to a 0.3% decline, following a 0.4% rise in the S&P 500 overnight. Traders now consider the likelihood of another quarter-point Federal Reserve rate hike by January to be a toss-up, and they have postponed expectations for rate cuts until the summer.


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