The fall late last week from near crucial resistance indicates that the EUR/USD’s rise may have peaked. The pair momentarily rallied over immediate resistance at the early-October high near parity, coinciding with the top boundary of an April falling channel and providing the appearance that the rebound may continue.
It would, however, be premature to infer that a meaningful resistance break has happened.
The euro has been unable to break through severe opposition on the 89-day moving average, which has restricted advances since the beginning of 2022. It may be smart to wait for a break above this level (now at 1.0110) before concluding that the EUR/USD has reached a short-term bottom.
Even if the EUR/USD overcomes this immediate barrier, there is plenty of future opposition that might limit the gains. This includes the 1.0200 high in mid-September and the 1.0365 high in August, which aligns with the 200-day moving average.
On the flipside, a break just below mid-October high of 0.9875 would indicate that brief bullish momentum has dissipated, perhaps leading to a dip below the October 13 low of 0.9631.
Essentially, the EUR/USD is falling in the medium term. The Euro’s collapse below a moderately upward-sloping trend – line from 2015 indicates that the currency will lose ground versus the US dollar in the next weeks and months.
Following the breakthrough of the seven-year range, the estimated price goal is about 0.8900.
Yen Falls, Yuan Confronts Sentiment
To begin the week, the Japanese Yen continued to fall as a mixed bag of fundamental data revealed high retail sales but poor industrial production statistics. Likewise, the Chinese PMI came in lower than expected.
Japanese industrial production was -1.6% in September, compared to -0.8% projected, and 9.8% year on year through the end of September, falling short of estimates of 10.5%.
Month-on-month retail sales in Japan increased by 1.1% in September, higher than the 0.8% expected, revealing a 4.5% growth rather than the 4.1% estimated.
The substantial rise in tourist arrivals to Japan in September might be a key contributor to the jump in retail sales.
According to initial Japanese government estimates, there were 206,500 visitors in that month, up from 17,766 in January. The monthly increases have been relatively linear.
Tourist activity has increased in tandem with the relaxation of Covid-19-related restrictions. This relaxation of limitations for travel to and within Japan contrasts sharply with China’s approach.
Official Chinese PMI, a poll of buying managers at significant Chinese enterprises, revealed a sense of pessimism in October, with a reading of 49.2 for manufacturing managers vs 49.8 expected.
The non-manufacturing index came in at 48.7 for the same month, much below the 50.1 expectation.
As a diffusion indicator, 50 is regarded as neutral on the economic future, whereas anything over 50 is considered positive and anything below 50 is considered bad.
The pessimistic outlook may reflect the continued consequences of a zero-tolerance Covid-19 policy. The Chinese earnings season is winding down. So far, around a quarter of the firms that have reported have outperformed projections, half have underperformed, and the remainder have been in line with expectations.
China is Japan’s most important commercial partner, accounting for around 22% of all imports and exports between the world’s second and third biggest economies.
As a whole, the Chinese Yuan has been strengthening versus the Yen, which will help Japan’s economic prospects.
Earlier this month, the Yen hit a 32-year low versus the US Dollar at 151.95 until the Bank of Japan intervened, selling USD/JPY. At the same time, the Chinese Yuan has been falling against the US Dollar, which benefits China because it has a large trade surplus with the US.
If the USD/JPY rises, Chinese policymakers may allow the USD/CNY to rise as well.
USD-JPY/ USD-CNY, USD-CNH, CNY-JPY, CNH-JPY
AUD/USD, CHINA PMI, RETAIL SALES, and IRON ORE Forecast
Following unsuccessful intraday efforts on Monday and Tuesday, the Australian Dollar broke through the 23.6% Fibonacci retracement on Wednesday. On Friday, that Fib level was reintroduced as resistance.
If prices remain above the level, attention will shift to the declining 50-day Simple Moving Average (SMA) and the 38.2% Fib. The MACD is approaching its midpoint, but the AUD/USD remains vulnerable to more losses due to the larger downturn.
Markets Ahead: Dow Jones, Nasdaq 100, US Dollar, AUD/USD, GBP/USD, Fed, RBA, BoE
Wall Street’s risk appetite has significantly improved in the last week. Dow Jones futures are leading the assault, climbing 5.89% to their highest level since late August. Meanwhile, futures for the S&P 500 and Nasdaq 100 increased 2.62% and 3.32%, respectively.
The FTSE 100 and DAX 40 rose 1.12% and 4.03%, respectively, in Europe. The ASX 200 in Australia increased by 1.63%.
Overall, a strong earnings season helped boost optimism this week. Certain large technology businesses, such as Microsoft and Alphabet, charged more. Following disappointing reports, Meta’s shares dropped by as much as 25%. Caterpillar Inc.,
on the other hand, saw its earnings surprise higher due to robust component demand.
Beside that, Fed relaxation bets gained traction, lowering the value of the US dollar. In the next week, all eyes will be on the US Federal Reserve, which is expected to deliver another big 75-basis-point rate rise on Wednesday.
This would raise the benchmark lending rate to 4%. As the rate of tightening is expected to reduce, more emphasis will be placed on their recommendations in the future.
Aside from the Fed, the AUD/USD will be looking for a far more moderate rate rise from the Reserve Bank of Australia on Tuesday. The British Pound is anticipating a 75-basis-point rate rise from the Bank of England on Thursday.
The spotlight will next move to Friday’s non-farm payrolls statistics in the United States. Will a sluggish labor market provide any relief to the markets?
Other noteworthy economic data is New Zealand’s jobs report for the NZD/USD. The Chinese manufacturing PMI will show how the world’s second-largest economy is doing in the face of declining global growth.
Earnings Season Continues
Earnings season is continuing in full swing, with firms including Moderna, Uber, and Toyota reporting. As a result, another hectic week is ahead.
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