• The sterling trims gains after hitting a one-month high at 1.3775.
  • Pound rally accelerates with risk appetite hurting the USD.
  • GBP/USD, above 1.3750 resistance, heading towards 1.3820/25 – Scotiabank.

The British pound has rallied on Friday to break above 1.3750, reaching 1.3775 for the first time since mid-September. The pair has appreciated about 0.65% in the best daily performance over the last few weeks and is set to close the week with a substantial advance after having appreciated nearly 2.5% so far in October.

The pound appreciates with the US dollar losing momentum

The sterling has extended its recovery for the second consecutive week, buoyed by a higher appetite for risk, which is hurting the safe-haven dollar. The major stock indexes are closing the week on a strong note, buoyed by better than expected quarterly earnings in the financial sector, which have eased fears about surging inflation and supply chain disruptions.

The Dow Jones Index appreciates 0.8%, with the S&P 500 0.5% higher and the Nasdaq technical index 0.27% up at the time of writing. Goldman & Sachs has reported a 66% increase in the third quarter’s profit, beating expectations and extending optimism following upbeat earnings by JP Morgan, Citigroup, Wells Fargo and Bank of America released earlier this week.

Beyond that, higher expectations the Bank of England might be the first of the world’s major central banks to hike interest rates are also increasing demand for the GBP. With inflation accelerating at levels almost twice the Bank’s target for price stability, BoE officials have started to openly suggest the possibility of accelerating the monetary policy normalization plan.

On the macroeconomic domain, US retail sales increased 0.7% in September, twice the 0.4% increase expected by the markets. These figures, however, have been boosted partially by higher prices in auto dealers as the shortage of chips is boosting auto prices.

GBP/USD aiming towards 1.3820/25 after eroding the 1.3750 resistance – Scotiabank

From a broader perspective, the FX analysis team at Scotiabank sees the pair heading towards the 1.3820/25 area:  “We spot minor resistance at 1.3750, with gains through here targeting 1.3820/25.”

Technical levels to watch

 

 

  • The euro extends decline below 0.8450 to explore YTD lows nearing 0.8400.
  • Risk appetite and BoE tightening expectations are underpinning the pound’s rally.
  • EUR/GBP: Below 0.8450 the pair could dive to 08281/39 – Credit Suisse.

The euro has extended its decline against a firmer British pound on Friday, breaking below the 0.8450 level for the first time since February 2020, to hit fresh lows at 0.8425 so far. The common currency has accelerated its decline this week and is set to post its third consecutive weekly decline.

Risk appetite, BoE hawkishness boosting the GBP

The sterling has been trading on a strong note over the last few days, with the market anticipating the Bank of England to lead the world’s major central banks and hike rates early next year.  The escalating energy prices have boosted consumer prices to levels way past the Bank of England’s target for price stability and some Bank officials, including Governor Andrew Bailey, have openly suggested the need for some action to tackle inflationary pressures. 

Furthermore, a risk rally, caused by upbeat quarterly earnings in the financial sector, has triggered substantial advances on the world’s major stock indexes easing concerns about inflation and supply chain bottlenecks. This has boosted the pound against the US dollar, which has increased bearish pressure on the euro.

EUR/GBP: Confirmation below 0.8437 might send the pair towards 0.8239 – Credit Suisse

The Credit Suisse FX Analysis team warn about a bearish confirmation below 0.8449/37: “Whilst we would again look for a fresh hold at 0.8449/37 and swing higher in the channel, a sustained move below 0.8437 would mark an acceleration in the downtrend, then exposing the key lows of 2019 and 2020 at 0.8281/39.”

Technical levels to watch

 

 

  • AUD/USD extends its rally against the greenback for the seventh consecutive day.
  • An upbeat market sentiment weighs on the US dollar safe-haven status.
  • The PBoC said that Evergrande’s risks to the financial system are “controllable.”
  • US Retail Sales rose by 0.7%, better than the 0.2% contraction foreseen.

The Australian dollar advances during the New York session, up some 0.12%, trading at 0.7425 at the time of writing. The market sentiment is upbeat, depicted by European and American stocks rising, whereas commodity-linked currencies like the AUD, the CAD, and the NZD trim earlier losses against the greenback.

DXY stalls at the 94.00 threshold on better than expected US data

The US Dollar Index that measures the buck’s performance versus its peers slides 0.11%, is at 93.87, despite a rebound after three days of consecutive losses, in the US 10-year note yield, which rises four and a half basis points, sitting at 1.561%.

Meanwhile, COVID-19 measures in Australia begin to ease. According to authorities, quarantine required for vaccinated travelers that arrive in New South Wales would not be necessary since November 1. The decision comes as the New South Wales state is set to reach an 80% first-vaccination dose rate on Saturday.

Nearby, in China, the PBoC central bank finally spoke about the Evergrande debt crisis, saying that risks to the financial system derived from the developer’s struggles are “controllable” and unlikely to spread. Furthermore, the central bank has asked lenders to keep the credit to the real estate sector “stable and orderly,” according to Zou Lan, PBoC head of the financial market department.

Data-wise, the Australian economic docket is absent. Concerning the US, Retail Sales for September surprisingly rose by 0.7%, higher than the 0.2% contraction estimated by analysts. Excluding autos and gas, sales increased by 0.7% more than the 0.5% in August.

Investors reacted positively to the data, as US equity indexes are rising between 0.50% and 0.65%, while the US T-bond yields trim this week’s losses.

Additionally, the University of Michigan Consumer Sentiment Index came at 71.4, lower than the 72.8 expected by investors, the second-lowest reading since 2011, as consumers grew more worried about current conditions and the economic outlook.

AUD/USD Price Forecast: Technical outlook.

The AUD/USD daily chart depicts the pair is tilted to the upside, has the 100-day moving average (DMA) under the spot price, and the Relative Strenght Index (RSI) at 65, which is aiming higher, supports the upward trend. However, to accelerate the upward move, a daily close above the September 3 high at 0.7477 could open the way towards the 200-DMA at 0.75670

AUD/USD KEY LEVELS TO WATCH

 

  • XAU/USD has been on the back foot as US yields rise. 
  • The Confluence Detector is showing is that gold faces two hurdles ahead of $1,800
  • Gold is not a dream risk-off hedge, nor is Bitcoin [Video]

Gold and Bitcoin – many tend to compare them, and this week, they have both made false breaks at round levels. The granddaddy of cryptos at $60,000, and the precious metal at $1,800. In gold’s case, the drop can be attributed to the rise of US Treasury yields. The sell-off in bonds has put pressure on XAU/USD, especially after US Retail Sales shattered expectations. 

How is gold technically positioned? Bears seem to have the upper hand. 

The Technical Confluences Detector is showing that XAU/USD faces initial resistance at around $1,777, which is the convergence of the Bollinger Band 15min-Middle, 50-day Simple Moving Average and the Pivot Point one-week Resistance 1. 

The bigger hurdle awaits gold at $1,791, which is where the Fibonacci 61.8% one-month, the SMA 50-1h and the BB one-day Upper all meet. 

Some support awaits at $1,770, which is where the 5-day SMA and the BB 1h-Lower hit the price.

The next cushion is at $1,765, which is the confluence of the Fibonacci 38.2% one-month and the BB 15min-Lower. 

XAU/USD resistance and support levels

Confluence Detector

The Confluence Detector finds exciting opportunities using Technical Confluences. The TC is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. Knowing where these congestion points are located is very useful for the trader, and can be used as a basis for different strategies.

Learn more about Technical Confluence

  • UoM Consumer Sentiment Index edged lower in early October.
  • US Dollar Index continues to fluctuate around 94.00.

Consumer confidence in the US weakened modestly in October with the University of Michigan’s Consumer Sentiment Index declining to 71.4 in October’s flash reading from 72.8 in September. This print came in lower than the market expectation of 73.1.

Further details of the publication revealed that the Current Conditions Index edged lower to 77.9 from 80.1 and the Consumer Expectations Index fell to 67.2 from 68.1.

Commenting on the data, “the Delta variant, supply chain shortages, and reduced labor force participation rates will continue to dim the pace of consumer spending into 2022,” said Richard Curtin, Surveys of Consumers chief economist. 

Market reaction

This report doesn’t seem to be having a noticeable impact on the dollar’s performance against its rivals. As of writing, the US Dollar Index was virtually unchanged on the day at 94.00.

The GBP has taken advantage of the modestly softer USD tone to revisit the mid 1.37s. Above here, the cable would target the 1.3820/25 region, economists at Scotiabank report.

Trend signals are mixed

“We spot minor resistance at 1.3750, with gains through here targeting 1.3820/25.”

“Trend signals are mixed and not supportive of a stronger move up in the GBP at this point, however.”

 

The EUR/USD pair has steadied around the 1.16 level through late week trade. Though the world’s most popular currency pair is set to snap a five-week losing streak, economists at Scotiabank see EUR/USD diving as low as 1.11.

Limited euro upside potential

“Economic data have reflected softness in the industrial sector, the energy crunch persists and key ECB policy makers have suggested that policy accommodation will remain in place for some time. We continue to favour fading modest EUR gains.”

“Gains have alleviated short-term bearish pressure on spot but longer-term (daily, weekly) trend studies remain firmly negative for the EUR; we expect limited EUR upside potential as a result.” 

“Minor, short-term gains are a selling opportunity; we continue to target the low 1.14s in the short run for EUR/USD and feel the 1.11 is reachable in the next few months.”

 

Zinc (LME) surged to more than $3,700/t on Friday while aluminium remains comfortably above $3,100/t. As for copper, LME prices have returned to over $10,000/t. An intensifying energy crisis and heightened inflation fears are reigniting investor enthusiasm for base metals.

Energy crisis and inflation fears to fuel metals  

“The energy crisis has added fuel to the inflation debate in Europe, and rising energy costs will certainly push headline inflation higher for some time. Meanwhile, our US economist has pointed out that there are cracks in the Federal Reserve’s ‘transitory’ narrative in terms of inflation.”  

“Fears of inflation could increase demand for metals as there is a perception that they are a hedge against inflation, which is especially true for copper. In the meantime, a retreat in US real rates, along with the broad trade-weighted dollar index over the last couple of days, is also driving momentum.”

“The recent stronger renminbi has accentuated the broader demand expectations for commodities from China and has led to the open of import arbitrage in some metals. The broad trade-weighted renminbi is up nearly 6%.”