AUDUSD loses recovery momentum before testing 0.6500

• AUDUSD managed to erase its daily losses but lost its recovery momentum.
• US Dollar holds its ground amid cautious market mood.
• Investors will keep a close eye on Wall Street in the absence of high-impact data releases.

AUDUSD came under bearish pressure and dropped to a fresh daily low below 0.6450 during the Asian trading hours on Tuesday. Although the pair managed to erase its daily losses in the European session, it lost its recovery momentum before reading 0.6500. As of writing, AUDUSD was virtually unchanged on the day at 0.6478.

Eyes on US stocks

Earlier in the day, the data from Australia showed that the National Australia Bank's Business Conditions Index declined to 22 in October from 25 in September. Additionally, the Business Confidence Index fell to 0 from 5. Combined with the disappointing sentiment data, the risk-averse market environment forced AUDUSD to continue to push lower.

In the meantime, the US Dollar Index holds in positive territory near 110.50 after having registered modest losses on Monday. Nevertheless, US stock index futures are up between 0.35% and 0.6% on the day and a positive opening in Wall Street could allow risk flows to dominate the action in financial markets.

The NFIB Business Optimism Index in the US declined to 91.3 in October from 92.1 in September but this data failed to trigger a noticeable market reaction.

Later in the session, the IBD/TIPP Economic Optimism Index for November will be the only data featured in the US economic docket. The US Mid-Term Elections will also take place but the outcome is likely to be finalized toward the end of the week. 

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EURUSD: On course to test the October 13 low near 0.9635 – BBH

EURUSD extends the corrective decline and revisits the 0.9750 region. Economists at BBH expect the worl's most popular currency pair to challenge the October 13 low near 0.9635.

ECB tightening expectations have fallen back a bit

“EURUSD is on track to test the October 21 low near 0.9705 and then the October 13 low near 0.9635.”

“With a big chunk of the eurozone already tipping into recession, can the ECB hike as aggressively as anticipated? It appears that the market is starting to have it doubts.”

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GBP/USD remains stuck between two key DMAs ahead of central banks’ bonanza

• GBP/USD starts November on the right footing amid USD weakness, risk flows.
• Fed and BOE are set to hike policy rates by 75 bps each this week.
• Cable is likely to extend range play between 100 and 50DMAs.

GBP/USD is consolidating the rebound above 1.1500 so far this Tuesday, kicking off November on the right footing. Investors brace for the critical Fed and BOE rate hike decisions, with both the central banks set to announce 75 bps rate increases later this week.

Ahead of the central banks’ bonanza, investors are breathing a sigh of relief, thanks to the FX market repositioning and the rally in Chinese stocks. The risk-on market environment is boding well for the higher-yielding pound sterling at the expense of the safe-haven US dollar.

Attention turns towards the US ISM Manufacturing PMI release, although not much reaction is expected on the data release unless the figure disappoints expectations by a wide margin. Meanwhile, the UK S&P Global Final Manufacturing PMI improved to 46.2 in October vs. 45.8 expected and the first reading of 45.8.

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 EUR/USD Price Analysis: Further gains on the cards above 0.9900

• EUR/USD extends the decline to the vicinity of 0.9900.
• The multi-month support line near 0.9900 holds the downside.

EUR/USD comes under further pressure and trades closer to the 0.9900 neighbourhood on Monday.

The 0.9900 region, where the 8-month support line and the 55-day SMA converge, emerges as a quite decent contention zone for the time being. While above this region, the pair could attempt another visit to the October top near 1.0100 (October 27).

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0495.

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GBP/USD could now test the 1.1760 level – UOB

GBP/USD remains firm and could extend the upside momentum to the 1.1760 region in the next weeks, suggest Market Strategist at UOB Group Quek Ser Leang and Economist Lee Sue Ann.

Key Quotes

24-hour view: “While we expected GBP to strengthen yesterday, we were of the view ‘1.1600 is unlikely to come into view for now’. In other words, we did not expect the strong surge that sent GBP to a high of 1.1639. Upward momentum is still strong and GBP is likely to rise further, albeit likely at a slower pace. Resistance levels are at 1.1700 and 1.1760. The latter level is unlikely to be challenged today. Support is at 1.1590 but only a break of 1.1540 would indicate that GBP is not strengthening further.”

Next 1-3 weeks: “When GBP was trading at 1.1300 two days ago (25 Oct), we noted that it is mildly supported and could edge higher. After GBP soared, we highlighted yesterday (26 Oct, spot at 1.1460) that the strong boost in momentum is likely to lead to further strength. We indicated that the next resistance is at 1.1600. GBP took out 1.1600 in London trade yesterday and surged to a high of 1.1639. The price action suggests GBP is still strong and is likely to strengthen further. The next level to monitor is at 1.1760. The GBP strength is intact as long as it does not break the ‘strong support’ at 1.1440 (level was at 1.1310 yesterday).”

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GBP/USD remains vulnerable, though volatility will drift lower

GBP/USD is on the back foot around 1.1200 as the UK political drama deepens. The British pound remains vulnerable as market pricing for rate hikes looks excessive.

UK political soap opera continues

“The UK political soap opera continues, but Jeremy Hunt’s appointment as Chancellor has separated the politics from economic policy.”

“Ignoring the noise in Westminster, we are left with a dramatic U-turn in fiscal policy, which is now tight enough to harden the economic landing and make the 5.2% that is priced-in for UK rates in 12 months’ time look excessive, outright and relative to the 4.9% priced in for the Fed, or the 3.1% priced for the ECB. This leaves sterling vulnerable, even from here, though surely volatility will drift lower.”

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EUR/USD Price Analysis: Rising bets for a drop to 0.9630

EUR/USD fades part of the post-CPI sharp upside on Friday.

Next on the downside now comes the weekly low near 0.9630.

EUR/USD gives aways most of its recent advance to the area just above the 0.9800 mark at the end of the week.

The continuation of the pullback appears on the cards and carries the potential to challenge the recent weekly low at 0.9631 (October 13) in the short-term horizon.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0576.

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EUR/USD could tumble close to the 0.90 level before year-end – MUFG

EUR/USD has dipped under 0.97. Economists at MUFG Bank expect the pair to inch closer to the 0.90 level before the Federal Reserve pauses its hike cycle.

The risks are firmly to the downside

“Over the near-term, the risks are firmly to the downside and we expect a period of further US dollar strength as financial market conditions worsen as asset prices correct further to the downside. This will help push inflation expectations further lower.” 

“The key for any broad turn in US dollar strength must be a pause in the tightening cycle. We suspect the Fed will pause after hiking in December which should allow some EUR/USD correction from levels closer to 0.9000.”

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EUR/USD to remain glued into the lower half of September’s 0.95-1.02 range – SocGen

The US economy dictates EUR/USD prospects. Therefore, the EUR/USD is unlikely to race higher as the American economy continues to outperform the eurozone, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

It is hard to see the euro staging much of a rally

“The US has been outperforming the eurozone since mid-2021, and that outperformance has been accompanied by a rising dollar. It shows no signs of abating.”

“We’ll see what this afternoon’s US ISM data throws out (the consensus looks for a fall from 53.8 to 52.4), but if the US economy continues to outperform (in both manufacturing and services ISMs, and in the payroll report at the end of the week), then it’s hard to see the euro staging much of a rally.”

“Easier to see it mostly glued into the lower half of September’s EUR/USD 0.95-1.02 range.” 

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US: International trade deficit narrows to $87.3 billion in August

US international trade deficit narrowed by $29 billion in August.

US Dollar Index clings to small daily gains above 114.00.

The data published by the US Census Bureau showed on Wednesday that the US international trade deficit declined by $2.9 billion to $87.3 billion in August from $90.2 billion in July. 

"Exports of goods for August were $179.8 billion, $1.7 billion less than July exports," the publication read. "Imports of goods for August were $267.1 billion, $4.6 billion less than July imports."

Moreover, the report revealed that the Wholesale Inventories rose by 1.3% in August, higher than the market expectation for an increase of 0.7%.

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen posting small daily gains at 114.25.

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GBP/USD eases from daily top amid modest USD bounce from one-week low, holds above 1.1400

GBP/USD gains some positive traction on Tuesday, though the uptick lacks bullish conviction.

A goodish USD rebound from a one-week low turns out to be a key factor capping the upside.

Any meaningful downfall seems unlikely ahead of the FOMC and the BoE meetings this week.

The GBP/USD pair builds on the previous day's recovery move from the vicinity of mid-1.1300s, or its lowest level since 1985 and edges higher through the first half of trading on Tuesday. The pair stick to modest intraday gains through the early European session, though seems to struggle to capitalize on the move beyond mid-1.1400s and retreats a few pips from the daily peak.

A combination of factors assists the US dollar to attract some dip-buying following an early slide to a one-week low, which, in turn, acts as a headwind for the GBP/USD pair. Expectations that the Federal Reserve will stick to its faster rate-hiking cycle to tame inflation remain supportive of elevated US Treasury bond yields. In fact, the US central bank is widely expected to deliver another supersized 75 bps rate hike at the end of a two-day meeting on Wednesday.

Furthermore, the markets have been pricing in a small chance of a full 100 bps liftoff, which remains supportive of elevated US Treasury bond yields. The yield on the rate-sensitive two-year US government bond rose to its highest level since November 2007 and the 10-year Treasury note reached a level not seen since April 2011 on Monday. Apart from this, growing recession fears lend support to the safe-haven greenback and also contribute to capping the GBP/USD pair.

Market participants also seem reluctant to place aggressive bullish bets around the British pound amid a bleak outlook for the UK economy. This, to a larger extent, overshadows the prospects for more aggressive rate hikes by the Bank of England, which, so far, has failed to impress bulls or provide any meaningful impetus to the GBP/USD pair. The downside, however, seems cushioned as traders might prefer to move to the sidelines ahead of the key central bank event risks.

The Fed is scheduled to announce its monetary policy decision at the end of a two-day meeting on Wednesday. This will be followed by the BoE meeting on Thursday, which should help determine the next leg of a directional move for the GBP/USD pair. In the meantime, traders on Tuesday might take cues from the US housing market data, which along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the major.

From a technical perspective the pair continues to rest on strong support from a the base of a multi-month falling channel at around the mid 1.13s, and it would require a daily close or open below the lower channel line for an acceleration of the bear trend. In the meantime – and prior to the main event risk of Wednesday's Fed meeting – traders are likely to content themselves with playing the bounce off this key support, scalping short runs as the market revolves.  

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GBP/USD: Charts point to a test of the all-time low at 1.0520 – BBH

Sterling is underperforming after weak retail sales data and traded near 1.1350, the lowest since 1985. Economists at BBH note that the GBP/USD pair could plummet to the all-time low at 1.0520.

Sterling pounded on anniversary of Black Wednesday

“Headline sales fell -1.6% MoM vs. -0.5% expected and a revised 0.4% (was 0.3%) in July, while sales ex-auto fuel also fell -1.6% MoM vs. 0.4% in July. As a result, the YoY rates fell to -5.4% and -5.0%, respectively. The data confirm what we all know already, and that is the economy is sliding into recession. How long and how deep this downturn will remain a great source of debate.”

“We would be remiss if we did not mention that today is the anniversary of Black Wednesday. Thirty years ago, sterling was unceremoniously ejected from the Exchange Rate Mechanism. Cable is marking the occasion by trading at its weakest level since 1985 near 1.1350. There is literally nothing in the charts until the February 1985 all-time low near 1.0520.”

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ECB's Centeno: No sign of inflation expectations de-anchoring

European Central Bank (ECB) Governing Council member Mario Centeno said on Thursday that he does not see any signs of a de-anchoring of inflation expectations, per Reuters.

"The monetary policy must act at the margin in as small steps as possible," Centeno added and further noted that he expects the effects of unprecedented supply shocks to ease.

Market reaction

These comments don't seem to be having a significant impact on the shared currency's performance against its major rivals. As of writing, EUR/USD was up 0.15% on the day at 0.9991.

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GBP/USD could extend its rebound if it manages to clear 1.1600

GBP/USD clings to daily recovery gains above 1.1550. The pair needs to clear 1.1600 to attract buyers.

The near-term technical outlook points to a bullish shift

“Near-term technical outlook points to a bullish tilt following the latest rebound.”

“1.1600 (psychological level, static level) aligns as immediate resistance. In case the pair manages to hold above that level, the 1.1640/50 area (50-period SMA, static level) could be seen as the next hurdle ahead of 1.1700 (static level, psychological level).”

“On the downside, 1.1550 (20-period SMA) forms first support before 1.1500 (psychological level, upper limit of the descending channel) and 1.1440 (September 5 low).”

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AUD/USD climbs back above 0.6800 mark amid modest USD weakness, NFP awaited

AUD/USD gains positive traction and reverses a part of the overnight slide to a multi-week low.

The USD moves away from a two-decade high and turns out to be a key factor lending support.

Aggressive Fed rate hike bets to limit the USD losses and cap the pair ahead of the NFP report.

The AUD/USD pair attracts some buying on Friday and recovers a part of the previous day's losses to the 0.6770 area, or the lowest level since July 18. The pair builds on its steady intraday ascent and moves back above the 0.6800 mark, hitting a fresh daily high during the first half of the European session.

The US dollar edges lower and retreats further from a two-decade high touched on Thursday, which, in turn, offers some support to the AUD/USD pair. A softer tone surrounding the US Treasury bond yields keeps the USD bulls on the defensive amid some repositioning trade ahead of the US monthly jobs data. Apart from this, signs of stability in the financial markets further undermine the safe-haven buck and benefit the risk-sensitive aussie.

That said, growing recession fears, economic headwinds stemming from fresh COVID-19 lockdowns in China and the war in Ukraine should cap any optimistic moves. Furthermore, expectations that the Fed will continue to tighten its monetary policy to tame inflation should act as a tailwind for the US bond yields and lend support to the greenback. This, in turn, warrants caution before placing aggressive bullish bets around the AUD/USD pair.

It is worth mentioning that the markets are pricing in a supersized 75 bps rate hike at the September FOMC meeting and the bets were reaffirmed by the recent hawkish remarks by several Fed officials. Traders now look to the US NFP report, which will provide a fresh insight into the economy's health and influence the USD price dynamics. This, in turn, will drive the AUD/USD pair ahead of the Reserve Bank of Australia (RBA) meeting next week.

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Breaking: Private sector employment rises by 132,000 in August vs 288,000 expected

The data published by Automatic Data Processing (ADP) showed on Wednesday that private sector employment in the US rose by 132,000 in August. This reading came in weaker than the market expectation for an increase of 288,000.

Commenting on the report, “our data suggests a shift toward a more conservative pace of hiring, possibly as companies try to decipher the economy's conflicting signals,” said Nela Richardson, chief economist, ADP. “We could be at an inflection point, from super-charged job gains to something more normal.”

Market reaction

With the initial market reaction, the US Dollar Index edged lower and was last seen trading flat on the day at 108.85.

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EUR/USD Price Analysis: Interim top in place?

EUR/USD regains composure after the earlier drop near 0.9900.

Bullish attempts should meet initial hurdle near 1.0100.

EUR/USD reverses the initial pessimism, including a test of the vicinity of the 0.9900 zone on Monday.

The recent failure to advance beyond 1.0100 leaves this region as a potential near-term top, while the 0.9900 neighbourhood seems to offer quite a decent contention for the time being. The breach of the 2022 low at 0.9899 (August 23) could sponsor a deeper pullback to the December 2002 low at 0.9859.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0819.

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US: Weekly Initial Jobless Claims decline to 243K vs. 253K expected

Initial Jobless Claims fell by 2,000 in the week ending August 20.

US Dollar Index trades flat on the day above 108.50.

There were 243,000 initial jobless claims in the week ending August 20, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 245,000 (revised from 252,000) and came in better than the market expectation of 253,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1% and the 4-week moving average was 247,000, an increase of 1,500 from the previous week's unrevised average.

"The advance number for seasonally adjusted insured unemployment during the week ending August 13 was 1,415,000, a decrease of 19,000 from the previous week's revised level," the DOL further announced.

Market reaction

The US Dollar Index edged higher after this data and was last seen trading virtually unchanged on the day at 108.56.

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US: Chicago Fed National Activity Index improves to 0.27 in July from -0.25

Chicago Fed National Activity Index moved into positive territory in July.

US Dollar Index clings to daily gains above 108.00 after the data.

The Federal Reserve Bank of Chicago's National Activity Index (CFNAI) improved to 0.27 in July from -0.25 (revised from -0.19) in June.

"The CFNAI Diffusion Index, which is also a three-month moving average, edged up to –0.05 in July from –0.08 in June," the publication further read. "Fifty-five of the 85 individual indicators made positive contributions to the CFNAI in July, while 30 made negative contributions. Fifty-five indicators improved from June to July, while 30 indicators deteriorated. Of the indicators that improved, 17 made negative contributions."

Market reaction

This report failed to trigger a noticeable market reaction and the US Dollar Index was last seen rising 0.26% on a daily basis at 108.40.

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GBP/USD surges past 1.2200 mark amid softer US inflation data-inspired USD slump

GBP/USD adds to its intraday gains and rallies to a one-and-half-week high amid a brutal USD selloff.

A weaker US CPI report pushed back expectations for a larger Fed rate hike and weighed on the USD.

A strong rally in the US equity futures exerts additional downward pressure on the safe-haven buck.

The GBP/USD pair catches aggressive bids and surges past the 1.2200 mark, hitting a one-and-half-week high during the early North American session.

The intraday US dollar selling picks up pace following the release of weaker US consumer inflation figures, which, in turn, provides a goodish lift to the GBP/USD pair. The Bureau of Labour Statistics reported that the headline US CPI remained flat in July against the 0.2% rise anticipated. Adding to this, the yearly rate decelerated to 8.5% during the reported month, again missing estimates pointing to a fall to 8.7% from the 9.1% in June.

Furthermore, core inflation, which excludes food and energy prices, came in at 0.3% MoM and held steady at a 5.9% YoY rate vs 0.5% and 6.1% anticipated, respectively. The softer data now seems to have pushed back market expectations for a larger Fed rate hike move at the September policy meeting and prompts aggressive selling around the USD. Apart from this, a strong rally in the US equity markets exerts additional pressure on the safe-haven buck.

The strong intraday move up allowed the GBP/USD pair to break through the 1.2130-1.2140 resistance zone, triggering an aggressive short-covering move. Hence, it remains to be seen if the momentum is backed by genuine buying or turns out to be a stop run amid the Bank of England's gloomy economic outlook.

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