Analytics

The dollar extended losses on Wednesday to notch fresh October lows after a failure to hold above the 110.00 mark. The USD index extended losses to 109.54 earlier today before turning steady in recent trading. The recent plunge for the greenback was due to upbeat market sentiment amid rising bets on less aggressive tightening by the Federal Reserve.

However, the downside potential remains limited as inflationary pressures have not displayed signs of exhaustion yet, so the odds of a more significant rate hike by the Fed stay solid. At this stage, the chances of a 75-basis-point rate hike next week exceed 92%.

In the immediate term, the dollar could be driven by the euro dynamics as the ECB decision looms. The central bank is likely to announce another 75-bps rate hike later today, suggesting more rate increases on the table. That might provide additional support to the euro and thus keep the buck pressured. EURUSD rallied above the 20-DMA and parity to climb to mid-September highs just below 1.0100 before turning slightly negative in recent trading as traders take some profit ahead of the ECB decision.

USD recovery ahead

Then, the market focus would shift towards fresh data out of the Unites States, including PCE and GDP numbers. Should the figures come in better than expected, demand for the US currency will reemerge after the recent slide, with the broader uptrend intact despite this week’s plunge.

Technically, the near-term outlook for the DXY deteriorated significantly after a break below the 110.00 support zone that capped the selling momentum earlier this month. On the other hand, the greenback could stage a solid bounce from here should risk sentiment keep worsening. Of note, Wall Street stocks finished mostly lower on Wednesday after a three-day winning streak, while Asian equities were mixed today, suggesting risk demand started to wane.

The bitcoin price bounced from weekly lows over the weekend but failed to extend recovery on Monday as the crypto market lacked the upside momentum. The BTCUSD pair advanced towards $19,700 before losing traction as buyers were deterred by the $20,000 psychological level. In the process, however, the coin managed to stay above $19,000, suggesting the downside potential is limited as well.

In a broader picture, the crypto market remains in consolidation mode, holding in a tight range for a month already. Bitcoin gained less than 1% over the past week. On the upside, the 50-DMA continues to act as resistance along with the $20,000 handle. At this stage, the digital currency is unlikely to overcome this barrier on a sustained basis as potential buyers lack the incentive to push the coin out of the consolidation range.

Market optimism remains fragile

Still, on the positive side, the overall investor sentiment in the global financial markets looks upbeat for the time being, with equities holding in green territory these days. Wall Street stocks notched the second day of gains on Monday, adding to last week’s solid gains as some Fed officials expressed concerns over interest rate hikes going too far.

As BTC remains in fairly tight correlation with traditional risky assets, the price of bitcoin is likely to stay afloat in the immediate term as investors scale back Fed rate hike expectations after some dovish hints from the central bank officials. On the other hand, market optimism remains fragile due to a number of risks, including persisting recession worries and geopolitical tensions globally. In other words, risk aversion could reemerge at any point to bring equities back under pressure along with cryptos.

The price of oil has been trending north these days, recovering from the recent sell-off that took the futures to early-October lows earlier in the week. In the process, Brent crude regained the $90 a barrel figure to settle below $94, regaining the upside momentum on Thursday.

Earlier, Brent crude fell amid recession and demand worries, especially in China. Market concerns resurfaced after the US core inflation data came in higher than expected, reinforcing views that interest rates would stay higher for longer. Those fears coupled with a stronger dollar outweighed support from a large cut to the OPEC+ supply target.

On the positive side, the overall investor sentiment has improved somehow on news that China was considering a cut in the quarantine duration for inbound visitors.

In a broader view, oil prices have seen choppy trading these weeks, with the market caught between worries about a slowdown in economic growth globally and supply curbs from OPEC+. As a reminder, the alliance agreed earlier this month to reduce their collective output by 2 million barrels a day from November.

The $95 level n focus

Elsewhere, the US Energy Information Administration reported crude oil inventories fell 1.7 million barrels in the week to October 14 compared with a build of 9.9 million barrels for the previous week. The EIA reported a draw of 100,000 barrels in gasoline stocks while distillate stockpiles increased by 100,000 barrels.

Earlier in the week, President Biden announced the release of another 15 million barrels of crude from the strategic petroleum reserve. The decision capped the bullish momentum for the oil market. However, should demand worries abate in the near term, Brent crude could retarget the $100 a barrel later this year.

In the immediate term, oil futures need to regain the $95 figure in order to challenge the recent local highs around $98.75 that capped the upside momentum last week. On the downside, the nearest significant support now arrives around $90.80, followed by the $90 psychological level.

The price of gold fell to fresh October lows around $1,640 last week after another failed attempt to regain the 20-DMA. The bullion has bounced marginally since then, but still stays on the defensive despite a weaker dollar. The USD index retreated across the market as risk sentiment improved in volatile trading environment amid the UK's dramatic U-turn over the tax-slashing mini-budget. In particular, the new UK Chancellor Jeremy Hunt ditched almost all of the budget announced by PM Liz Truss last month. The pound rebounded amid expectations that more of the tax cuts will be reversed.

In a risk-on rally, Wall Street stocks advanced on Monday, thus pressuring the safe-haven greenback. The DXY plunged back below 113.00 to notch one-week lows around 111.70 while stocks extended the ascent on Tuesday. However, the yellow metal failed to capitalize on USD weakness, holding below the mentioned moving average, today at $1,670. Should the bullion continue to struggle below this immediate barrier in the near term, the downside pressure may reemerge to push the prices back below $1,650.

Rates keep weighing

In a wider picture, rapid Fed rate hikes continue to weigh on bullion’s appeal. The yellow metal is unlikely to find any significant support in the environment where central banks focused on the size of any rate hikes. The Federal Reserve is expected to increase its benchmark overnight interest rate by at least 75 basis points at the next policy meeting. As such, rising interest rates will likely further dim appeal of the non-yielding asset.

From the technical perspective, the XAUUSD pair could stay below the $1,700 figure in the near term, with the 20-DMA representing the immediate upside target for potential buyers. On the downside, the nearest significant support now arrives at $1,640, followed by the key $1,614 zone that capped the plunge last month.

The US dollar looks steadier these days, with upside momentum waning gradually after last week’s bounce. Still, the USDJPY pair extended the ascent to refresh multi-year highs, clinging to the upper end of the extended trading range on Thursday. The pair advanced in the previous session to settle just below the 147.00 mark last seen in 1998. Should the dollar exceed this level, 32-year highs will come into the market focus.

The Japanese yen remains pressured despite oversold conditions as monetary policy divergence keeps playing into dollar’s hands. While the Bank of Japan maintains extremely loose monetary policy, the Federal Reserve keeps tightening in an aggressive manner. FOMC meeting minutes released on Wednesday affirmed the hawkish perspective of the central bank.

On the data front, the Japanese PPI came in higher than anticipated at 9.7% year-on-year to the end of September instead of the 8.9% forecast. Still, the yen shrugged off the report, continuing to trade around fresh long-term lows. The pair is expected to continue the rangebound performance in the near term amid the absence of volatility in the market. However, the US CPI report could bring some strong moves in currency markets through the dollar’s reaction to the release.

Will intervention help?

Of note, should USDJPY exceed the 147.00 mark, the Japanese authorities could directly intervene currency markets to stop excessive yen weakening. Earlier this week, Japan's policymakers warned investors against selling the yen. However, market participants doubt the efficacy of intervention as the dollar's strength has been driven by interest rate differentials.

In other words, the Bank of Japan needs to start tightening its policy in order to stop the yen’s rapid devaluation. On the downside, the nearest support could be expected around the 146.00 figure, followed by the 145.60 zone. The key near-term support is represented by the ascending 20-DMA, today at 144.60.

The greenback has been trending north for the sixth session in a row, holding above the 113.00 mark this week. The USD index bounced off the 110.00 figure earlier this month and has been regaining recent losses since then.

The ascent accelerated after US employment report as the upbeat figures raised the odds of another aggressive rate hike by the Federal Reserve next month. In this context, the upcoming inflation report will be in focus this week. A bigger-than-projected CPI rate will escalate chances for a hawkish central bank. Headline consumer price index is forecast to have risen 0.2% and 8.1% on a monthly and yearly basis, respectively. The core CPI is is projected to accelerate to 6.5% from 6.3% year-over-year where the cycle’s high registered in March arrives.

The greenback also derives solid support from its safe-haven status. Russia-Ukraine tensions escalated after the Ukrainian military damaged the Crimea Bridge in Russia. Against this backdrop, concerns over supply chain bottlenecks in Europe reemerged.

DXY retargets multi-year tops

The renewed worries are likely to keep the buck supported, with risky assets staying on the defensive across the financial markets. At some point, there could be a bit of a relief rally in high-yielding assets, suggesting the dollar may see a downside correction, but the overall bullish trend should remain intact, with the two-decade high of 114.80 in the market focus.

Technically, the DXY is targeting the mentioned tops and could even challenge the 114.80 zone on the way towards 115.00. On the downside, a failure to hold above 113.00 would imply a local correction. In this scenario, the potential profit-taking could push the greenback towards the 112.60 zone, followed by the 112.20 intermediate support on the way towards 111.00.

The price of bitcoin surged earlier in the week along with global stocks and riskier assets in general as investor sentiment improved after the recent sell-off. BTCUSD exceeded the $20,000 figure but is yet to confirm the latest breakout on a daily and weekly closing basis as the tone in the cryptocurrency space remains unstable.

The coin extended gains towards the $20,400 zone before steadying slightly above $20,000, struggling for direction as risk demand has ebbed somehow. Potential buyers both in the stock and cryptocurrency markets remain skeptical about the outlook for the Federal Reserve’s monetary policy. In particular, the central bank’s officials keep insisting on further tightening in an aggressive manner, thus capping gains in high-yielding assets.

Last month, the BTCUSD pair managed to hold above $18,000 and has been trending higher since then. However, the largest digital currency by market capitalization still lacks the momentum to stage a more solid and sustained rebound, albeit trading around mid-September highs at this stage.

Volatility to persist

Bitcoin may be poised for further volatility amid the persisting global uncertainty due to geopolitics, the energy crisis in Europe, aggressive tightening by global central banks and recession risks. A failure to hold above $20,000 inn the coming days may push the prices back below the $19,000 figure that could trigger solid losses through the crypto space.

On the upside, a decisive break above the $20,500-$20,600 zone would pave the way towards the $20,800 region, followed by the $21,000 mark. However, as the macro environment remains weak, the path of least resistance remains to the downside both for bitcoin and stock markets globally. In the near term, strong economic data out of the US coupled with hawkish messages from Fed officials could put riskier assets back under pressure.

The shared currency has been advancing north since reaching fresh two-decade lows around 0.9535 last week. In the process, EURUSD regained the 0.9800 mark to derail a slightly descending 20-DMA for the first time in two weeks. The shared currency has settled just below the 0.9900 handle, a decisive break above which would pave the way towards parity last seen on September 20th.

Now that the pair witnessed a solid bounce from the mentioned lows, the question is whether the prices could preserve the upside bias and regain the 1.000 key mark in the near term. The latest spike in euro demand was due to a retreat in the US dollar across the market. The USD index came off peaks seen just below 115.00, threatening the 111.00 level on Tuesday. Should this immediate support give up any time soon, EURUSD may extend the ascent at this stage.

However, the broader downtrend remains intact, with bearish risks surrounding the common currency persisting as the EU faces the deepening energy crisis. Of note, there are reports that top European Commission officials call for joint borrowing by the EU to deal with energy price crisis that could push the region’s economy into recession.

Policy divergence persists

Also, the euro is likely to continue to track the bearish slope in a wider picture as the Federal Reserve remains committed to a restrictive policy, while the ECB acknowledges downside risks to growth, suggesting the central bank will normalize monetary policy as a slower pace. Should the Eurozone inflation exceed expectations, however, Lagarde may have to deliver an aggressive rate hike next month.

Technically, the EURUSD pair could lack the upside momentum to challenge parity in the days to come. Moreover, the shared currency is yet to confirm a break above the mentioned moving average on a daily closing basis. Meanwhile, the greenback could resume the ascent after a local bearish correction as the overall safe-haven demand is likely to reemerge due to a number of global risks from geopolitics to inflation and recession.

Gold prices rallied from fresh 2.5-year lows seen around $1,614 on Wednesday. The XAUUSD pair extended the bounce to the $1,660 zone that capped the ascent and triggered a retreat. The precious metal has settled around $1,760 since then, shedding nearly 1% after yesterday’s 2% gain.

The reason behind the latest demand for the yellow metal was the Bank of England’s decision to buy bonds to stabilize its financial markets. After the announcement, Treasuries rebounded as the 10-year yield pulled back after surging past 4% for the first time since 2008. Also, the intervention triggered a rally on Wall Street, pressuring the greenback. In turn, the bullion derived support from a weaker dollar as safe-haven interest waned.

However, the upbeat market reaction to the event was short-lived, with US stock index futures trading lower in early pre-market deals while European equities opened in negative territory. As such, the XAUUSD pair came off the mentioned weekly highs as dollar demand reemerged.

Dollar to further outperform further

The fact that the precious metal failed to preserve the latest gains and extend the rebound from long-term lows suggests that investors are not ready to buy gold for the time being. The metal lost its safe-haven appeal, staying on the defensive for the sixth month in a row.

It looks like the bearish trend will persist as long as global financial markets stay under pressure. A worsening global outlook implies that stocks would remain on the defensive in the coming months, especially as geopolitical tensions keep rising, with energy crisis in Europe adding to a downbeat tone among investors.

In other words, the dollar is likely to outperform further its rivals, pressuring gold. Should the selling pressure intensify any time soon, XAUUSD may threaten the $1,600 figure for the first time since April 2020. On the upside, a critical barrier is represented by the descending 20-DMA, today at $1,680, followed by the $1,700 psychological level.

The cable plunged to all-time lows around 1.0350 at the start of the week as the dollar surged across the board, pressuring its counterparts. GBPUSD has recovered partially since then, challenging the 1.0800 mark on Tuesday due to a weaker demand for the safe-haven greenback coupled with oversold conditions.

Still, the pair remains within a deep bearish trend and could threaten parity in the medium term as the cable’s appeal is likely to wane further in the months to come. The selling pressure surrounding the pound intensified late last week as Chancellor of the Exchequer Kwasi Kwarteng announced the UK government’s plans for tax cuts and deregulation. The authorities said the plans will be debt funded. By the way, the UK is already one of the more deregulated countries in the world.

The recent bounce in the pound was in part triggered by remarks from the Bank of England. The monetary authorities said that the Bank is “monitoring developments in financial markets very closely” in light of the significant repricing of financial assets. Some traders expect the bank to physically intervene in the FX market following the warning.

USD bulls still in charge

GBPUSD could resume the decline after a short-lived bounce, especially as the greenback refrains from a deeper retreat despite overbought conditions. The USD index has settled below 114.00 after the latest correction from long-term peaks, but the overall bullish tone surrounding the US currency persists. After some hesitation, the DXY could get back to the 114.50 zone, followed by the next major target of 115.00.

The cable needs to regain the 1.0900 zone in the near term in order to retarget the descending 20-DMA, today at 1.1380. The immediate downside potential persists while below this moving average last seen two weeks ago.