USD Bearish Trend Stalls on Hawkish Fed Statements

Economic Data Releases

The Australian Unemployment number (Oct) released earlier of 3.4% has come in lower than expected at 3.6 % and the previous of 3.5%. Similarly, the final European inflation rate (Oct) of 10.6% has come in lower than expected at 10.7%.
 
Looking Ahead
 
Markets will follow the first fiscal statement of Mr Sunak’s government which is expected to come up with solutions for the high deficit via hiking taxes and reducing government spending. However, the government should balance between closing the budget deficit and helping an economy that faces a possible multi-quarter recession. It should be noted that this budget will directly influence the Bank of England’s upcoming decisions as more spending cuts will be massively helpful in reducing inflation levels and as a result, would decrease the need for big interest rate hikes.  
 
Investors will keep an eye on the US Building Permits (Oct) at 5:30 pm, as this figure will be an important indicator of the effect of the high-interest rate on the US real estate market. Traders will tune in to the Fed member’s speeches Mr. Bowman and Jefferson at 6:15 and 7: 40 p.m., respectively.
 
Indices and Bonds Yields
 
US stock indices rally paused amid concerns that the Fed may not stop hiking rate soon. The Fed member Mrs. Daly stated that a pause in rate hikes was “off the table”. Another Fed member Mr. Waller said that he would be more comfortable with a reduced 50-bp hike in December however, the Fed “still have a way to go”.

These statements have weighed on the market’s risk appetite which rose last week after the US inflation levels of October came in lower than expected, opening the door for a looser Fed monetary policy.
The US two years yields steadied at 4.30% and remained higher than the 10 years yields at 3.70%. A negative spread in favor the shorter bonds yield reflects a yield curve inversion, and this signals that the US economy is heading into a recession.

Major FX Currencies
 
The US dollar index price rebounded on Fed members statements and could be on the way to correct higher. Hence, it is highly likely that recent the bearish trend of the US dollar index was caused by exiting buyers more than sellers’ entry to the market.
Technically, the US Dollar Index rebounded twice and closed above 105.42 and this may encourage traders to push towards 108.11 and 109.42, respectively. On the other hand, a daily close below 105.42 could send the price even lower toward 103.83.
 
The euro retreated today on the back of a firmer US Dollar and due to a lower-than-expected inflation numbers released today. Considering this data and the ECB members statements, it is highly likely the central bank to hike by 50bp instead of 75 bp in its December’s meeting.  
 
Commodities

The gold price tanked as the US dollar regained some territory due to the negative correlation between gold and the greenback.
 
Technically, the price of the precious metal trades in the area between 1765-1807.  A daily close below the low end of 1765 could send the price towards 1747 and 1720 respectively while, a daily close above the high end of the area may send the price even higher towards 1831 and 1848 respectively.
 
The oil price traded lower on a stronger US dollar and on prospects of lower demand as concerns of a geopolitical tensions eased, with a high probability of a “mild” US recession next year.
 
Technically, the WTI oil price closed below the 50-day moving average eyeing a test of 85.15. Therefore, a daily close below this level could encourage traders to press towards 79.82 while a daily close above 85.15 may prompt buyers to rally the price towards 90.50.
 
Chart of the Day: EUR/USD Daily Price Chart



Chart Source: ThinkTrader

On October 14th the EUR/USD corrected higher then started a bullish trend creating higher highs with higher lows. On Nov 9th the average Directional Index (ADX) climbed above 20 levels, while the RSI inched closer to the overbought area.
 
Currently, the price moves in the area between 1.0000 - 1.0415 as it failed twice to close above the high end of it.  A daily close above the high end (1.0415) may encourage traders to rally the price further toward 1.0559. However, the resistance level residing at 1.0503 should be considered. On the other hand, the pair could revisit the parity level if the price remains trading below the high end (1.0415). Nonetheless, the support levels located at 1.0334 and 1.0146 should be kept in focus.