EURUSD Analysis:
EURUSD is moving in the Descending channel and the market has reached the lower high area of the channel
The ongoing conflict between Israel and Palestine is expected to exert downward pressure on the region’s economy in 2023, particularly in light of the anticipated rise in oil prices, according to analysis from Commerzbank.
The market is currently in a state of readiness. Economists at Commerzbank are closely examining how developments in the Middle East are influencing currency movements. It’s not just the positioning of the Israeli army’s ground forces that are significant; the financial markets are also poised for potential changes.
There is relatively little activity in the US Dollar, as market participants await news on whether, and if so, when the offensive in the region will commence. It is likely that the offensive will not begin while US President Joe Biden is in Israel. At this moment, monetary policy considerations for the Federal Reserve (Fed) and the European Central Bank (ECB) may take a backseat to geopolitical developments.
In the context of an escalating conflict or increased tensions, the risks associated with the EUR/USD currency pair are expected to continue pointing downwards.
Gold Analysis:
XAUUSD Gold price is moving in an Ascending channel and the market has reached the higher high area of the channel
The extended conflict between Hamas and Israel has led to a significant increase in gold prices. Both countries are selling gold due to the increased demand for cash, driven by higher weapon expenditures and increased consumption.
The gold price is on an upward trend, currently trading at around $1,940 per troy ounce during the Asian session on Wednesday. This increase in gold’s value is likely due to rising geopolitical tensions between Israel and Hamas, which are causing higher demand for gold as a traditional safe-haven asset. On Tuesday, there were conflicting reports about an Israeli air attack in Gaza, with authorities in Gaza claiming 500 casualties at a hospital, while Israel attributed the damage to a Palestinian attack, according to Reuters. Additionally, positive economic data from China is also contributing to the rise in gold prices. In the third quarter, China’s Gross Domestic Product exceeded expectations, showing a growth of 1.3% compared to the anticipated 1.0%. The annual report for the same quarter revealed a 4.9% increase, surpassing the expected 4.4%. Furthermore, China’s Retail Sales (YoY) showed a rise of 5.5%, surpassing both the previous figure of 4.6% and the expected 4.9%.
Regarding the US Dollar Index (DXY), it initially gained but then lost ground after the Chinese economic figures, struggling to maintain its position near 106.10 at the time of the press release. However, US Treasury yields improved, with the 10-year US Treasury bond yield reaching 4.83%, which could provide support for the US dollar.
In terms of US economic data, the US Bureau of Economic Analysis (BEA) reported that Retail Sales exceeded expectations, rising to 0.7% in September, compared to the expected 0.3% MoM. The Retail Sales Control Group also recorded a significant increase of 0.6%, surpassing the previous rise of 0.2%. Moreover, the Federal Reserve noted that Industrial Production improved by 0.3%, contrary to the expected stagnation at 0.0%.
Thomas Barkin, the President of the Richmond Fed, expressed that the current policy is already seen as restrictive. He emphasized uncertainty about the upcoming FOMC monetary policy meeting in November and noted that the US central bank cannot rely solely on higher long-term bond yields to implement tightening measures in monetary conditions. Minneapolis Federal Reserve Bank President Neel Kashkari also remarked that inflation has persisted for a longer period than initially expected and remains excessively high, aligning with the dovish stance maintained by several other Fed officials.
Investors are expected to focus on housing data and speeches from Fed officials on Wednesday, which could provide insights into future monetary policy decisions.
Silver Analysis:
XAGUSD Silver price is moving in the Descending channel and the market has reached the lower high area of the channel
The September retail sales figures exceeded expectations, resulting in a strengthened USD against other currencies.
The index continues to trade within the lower end of the weekly range, reflecting uncertainty in global markets. While stronger-than-expected Chinese data has boosted risk appetite, the worsening geopolitical situation in the Middle East is favoring a return to risk aversion. At the same time, the index is finding support around the 106.00 level amid growing speculation of a Federal Reserve stance that leans towards a more prolonged period of tightening, a sentiment reinforced by Tuesday’s better-than-expected US Retail Sales and Industrial Production figures.
Later in the session, we anticipate the release of Housing Starts and Building Permits data, as well as the usual MBA Mortgage Applications, the Fed’s Beige Book, and TIC Flows. Additionally, investors will be closely monitoring speeches from FOMC members C. Waller, J. Williams, M. Bowman, and P. Harker.
USDCHF Analysis:
USDCHF is moving in an Ascending channel and the market has reached the higher low area of the channel
US warships have been deployed to Israel, which could prove advantageous should any conflicts arise, potentially providing additional support to the nation. The Swiss Franc has seen gains due to the geopolitical tensions, in contrast to the USD and JPY.
The ongoing geopolitical tensions between Israel and Hamas could potentially strengthen the Swiss Franc, a well-known safe-haven currency. This situation may also present a challenge for the USD/CHF currency pair. In addition, the US Marine Rapid Response force is currently en route to the waters near Israel, with a contingent of 2,000 Marines and sailors being deployed. They are joining a growing fleet of US warships heading towards Israel. This strategic move is intended to send a message of deterrence to Iran and the Lebanese militant group Hezbollah, according to CNN reports.
Meanwhile, the US Dollar Index (DXY) is rebounding from recent losses and is currently trading higher at around 106.50. However, the US dollar has faced pressure due to several Federal Reserve officials expressing dovish views on the future trajectory of interest rates.
Federal Reserve Bank of Philadelphia President Patrick Harker echoed these sentiments on Monday, advising against increasing borrowing costs and emphasizing that unless there is a significant shift in the data, the Fed should maintain interest rates at their current levels.
At the same time, US Treasury yields are on the rise, with the 10-year US Treasury bond yield currently at 4.74%. Looking ahead, market participants are likely to closely monitor upcoming US Retail Sales data. Additionally, Tuesday’s focus will include the release of the Fed Beige Book report. On Thursday, the Swiss Trade Balance for September will be closely watched.
USDCAD Analysis:
USDCAD is moving in the Descending channel and the market has fallen from the lower high area of the channel
The Canadian Consumer Price Index (CPI) data for September revealed a rate of 3.8%, which is a decrease compared to the 4% rate recorded in the previous month. This decline in inflationary pressure suggests that the Bank of Canada is likely to maintain its current policy stance in the upcoming meeting.
The UN Secretary-General has called for Hamas to release the hostages held by Israel. Additionally, Israel has been urged to provide humanitarian aid to Gaza. Both parties have been called upon to observe a humanitarian ceasefire.
The Canadian Dollar (CAD) followed a V-shaped pattern in response to market dynamics. Initially, there was a significant surge in the US Dollar (USD) ahead of Tuesday’s US Retail Sales data release. However, as the actual figure surpassed expectations, overall market sentiment improved, causing the USD to weaken against other currencies. Notably, the CAD managed to withstand a miss in the Canadian Consumer Price Index (CPI) figures.Canadian CPI inflation for September came in below anticipated levels, but the CAD regained strength as investors shifted away from the Greenback, showing an appetite for riskier assets. Additionally, Crude Oil prices remained relatively low on Tuesday, which limited the support for the CAD and constrained its potential for further gains.
The robust performance of US Retail Sales on Tuesday was a key driver for market dynamics, with the headline figure for September exceeding expectations at 0.7%, well above the forecasted 0.3%, and a revision of the previous figure from 0.6% to 0.8%.
While Canadian CPI inflation fell short of expectations, printing at 3.8% for the annualized period leading into September, below the forecasted steady rate of 4%, the strong US Retail Sales data prompted risk-seeking investors to move away from the USD, leading to a decline in its value across the board. The miss in Canadian CPI inflation somewhat limited the CAD’s gains against the USD, especially in the context of lower Crude Oil prices on Tuesday, which acted as a counterbalance and restrained the CAD’s upward momentum. Looking ahead, CAD traders will keep an eye on Friday’s Canadian Retail Sales data to assess potential opportunities for the currency to recover lost ground.
During his speech at the Belt And Road Forum, United Nations (UN) Secretary-General António Guterres made the following statements:
I have called upon Hamas to unconditionally release the hostages and have also urged Israel to grant immediate access to humanitarian aid for Gaza. I am deeply concerned by the tragic incident on Sunday, where hundreds of people lost their lives in the strike on a Gaza hospital. While acknowledging the security challenges, it’s important to note that the attacks by Hamas on October 7 cannot justify the collective punishment of the people. I strongly advocate for an immediate humanitarian ceasefire.
GBPUSD Analysis:
GBPUSD is moving in the Descending channel and the market has fallen from the lower high area of the channel
The UK Consumer Price Index (CPI) data for September remained consistent at 6.7%, matching the previous reading. The surge in oil prices is contributing to the perception of elevated inflation levels.
The UK CPI data displayed a persistent decrease in both headline and core inflation figures, even though the actual numbers slightly exceeded expectations. Overall, the report largely aligns with forecasts but indicates some resilience in inflationary pressures within the UK economy.
The surge in crude oil prices had the most significant upward impact on annual rates, driven by motor fuel prices, while dampening pressures came from categories like food and non-alcoholic beverages, as well as furniture and household goods.
GBPCHF Analysis:
GBPCHF is moving in the Descending channel and the market has rebounded from the lower low area of the channel
Notably, the decline in the Producer Price Index (PPI) is promising, and as a leading indicator for CPI, it could potentially lead to lower CPI figures in the future. The Bank of England (BoE) will closely monitor this development in preparation for the November meeting. Following the announcement, the British pound received a modest boost against the US dollar, although money market pricing expectations remained largely unchanged.
The BoE’s rate projections continue to lean toward maintaining the status quo in the November meeting, a sentiment that aligns with global central banks, considering the escalating geopolitical tensions in the Middle East. The focus will now be on incoming data, with jobs data scheduled for release on October 24, which will be closely scrutinized to determine the BoE’s next course of action.
GBPJPY Analysis:
GBPJPY is moving in the Descending channel and the market has reached the lower high area of the channel
Masato Kanda, Japan’s senior diplomat, emphasized the importance of the JPY currency during times of conflict, likening it to the Swiss Franc and USD as valuable in wartime scenarios. To date, there has been no intervention in this regard.
Japanese Finance Minister Shunichi Suzuki declined to comment on currency intervention in response to remarks made by an International Monetary Fund official on Tuesday. Suzuki expressed the view that there was no need to delve into the specifics of factors influencing the currency. Investors are eagerly awaiting Japanese inflation data scheduled for release on Friday, which could provide fresh momentum. The National Consumer Price Index, excluding Fresh Food, is expected to show a year-on-year increase of 2.7% for September, down from the previous reading of 3.1%.
Additionally, Japan’s leading financial diplomat, Masato Kanda, affirmed on Monday that the Japanese Yen (JPY) continues to be considered a safe-haven asset, akin to the Swiss Franc and US Dollar. It has been benefiting from safe-haven flows due to ongoing geopolitical uncertainties. Kanda also emphasized that if there were excessive movements in the currency market, authorities would not hesitate to take measures such as adjusting interest rates or intervening in the market. On Tuesday, there were media reports suggesting that the Bank of Japan was considering revising its core Consumer Price Index (CPI) forecast for the fiscal years 2023 and 2024 while maintaining its inflation projection for 2025.
AUDUSD Analysis:
AUDUSD is moving in the Descending channel and the market has rebounded from the lower low area of the channel
The inflation data for the third quarter is set to be released next Wednesday. According to Commerzbank’s perspective, if the inflation figure surpasses expectations, the Reserve Bank of Australia (RBA) may consider another interest rate hike as an option.
There is a divergence of opinions regarding whether the Reserve Bank of Australia (RBA) will opt for another interest rate hike. Economists at Commerzbank are closely examining the conditions necessary for an appreciation of the Australian Dollar (AUD).
If the September labor market data demonstrates reasonable resilience and if inflation moderates less than anticipated, especially when the Q3 data is released next Wednesday, it is likely that the RBA will proceed with another key rate hike in early November. This expectation is further bolstered by recent indications of economic stabilization in China.
The potential for an additional interest rate hike and the signs of stability in the Chinese economy should lend support to the AUD. However, it must also contend with the prevailing strength of the US Dollar.
NZDUSD Analysis:
NZDUSD is moving in the Box pattern and the market has rebounded from the support area of the pattern
China’s third-quarter GDP data exceeded expectations today, with both industrial and retail sales figures also surpassing forecasts. This positive economic performance in China has contributed to a boost in the New Zealand Dollar (NZD).
The New Zealand dollar initially experienced losses against the US dollar on Wednesday but later recovered ground following stronger-than-expected growth in the Chinese economy. Chinese industrial output and retail sales also outperformed expectations, which fostered optimism that the world’s second-largest economy may be stabilizing in its growth trajectory.
The NZD is striving to regain some of the substantial losses it incurred on Tuesday. These losses were prompted by a larger-than-anticipated moderation in New Zealand’s inflation during the third quarter, which reduced the immediate need for further tightening of monetary policy. Despite this, inflation in New Zealand remains significantly above the Reserve Bank of New Zealand’s target range of 1% to 3%, implying that interest rates might need to stay elevated for an extended period to steer inflation back into the desired range.
Additionally, heightened tensions in the Middle East have tempered risk appetite, putting downward pressure on the NZD, given its sensitivity to risk-related factors.
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