USD Remains Strong After Hawkish Expectations

Nov 01 21, 09:01 GMT

The USD gained on Friday against a number of its counterparts as the high inflation on a year-on-year level for September, intensified expectations for a more hawkish approach by the Fed at its next meeting on Wednesday. We also note the release of the US employment report for October with its NFP figure on Friday, while attention is now turned to the release of the US ISM manufacturing PMI figure for October later today.

Aussie traders on the other hand are to keep a close eye on RBA’s interest rate decision early tomorrow and while the bank is expected to remain on hold at 0.10%, investors are interested to see whether the bank will signal earlier interest rate hikes. On second note Japan’s ruling party LDP scored an unexpected comfortable election victory, which dismissed worries for the possibility of political instability and tended to weaken the JPY against the USD. The common currency tended weaken against the greenback as the area’s preliminary GDP rate for Q3 slowed down more than expected and in conjunction with the high US inflation, tended to create diverting tendencies for the two currencies. As for precious metals gold tended to weaken as the USD gained and we expect their negative correlation to remain on display for the coming days. US stockmarkets tended to remain in the greens with Dow Jones and S&P 500 reaching new record highs while Nasdaq stabilised on Friday. WTI prices dropped somewhat as China released some of its gasoline and diesel reserves in an effort to ease the tight supply of the commodity, yet we note that expectations for rising demand and lower supply levels could push the commodity’s price higher once again.

USD/JPY rose breaking the 113.70 (S1) resistance line, now turned to support. Yet the pair’s upward movement tended to reaffirm our current bias for a sideways motion. Should the bulls regain control we may see the pair breaking the 114.55 (R1) resistance line and aim for the 115.20 (R2) resistance level. Should the bears be in charge, we may see the pair breaking the 113.70 (S1) line and aim for the 112.90 (S2) level.

AUD/USD retreated from the highs of the 0.7540 (R1) resistance line. We tend to maintain a bias for a sideways motion for the pair as long as it remains between the 0.7540 (R1) and the 0.7475 (S1) level. Should buyers take the initiative, we may see the pair breaking the 0.7540 (R1) resistance line and aim for the 0.7600 (R2) level. Should the pair come under the selling interest of the market, we may see the pair breaking the 0.7475 (S1) support line and aim for the 0.7420 (S2) level.

Today’s events and expectations

Besides the releases mentioned today we also note Germany’s retail sales growth rate for September as well as the final UK Markit/CIPS manufacturing PMI figure for October.

As for the rest of the week

On Tuesday, we note the release of the RBA’s interest rate decision, Switzerland’s inflation rates for October, Germany’s final manufacturing PMI reading for October and New Zealand’s employment data for Q3. On Wednesday we get Australia’s building approvals for September, China’s Caixin Services PMI for October, UKs’ Nationwide house prices for October, UK’s final Services PMI figure for October, the US ADP National Employment figure for October, the US Factory orders for September, the ISM non-manufacturing PMI figure for October and we highlight the release of FOMC interest rate decision. On Thursday, we note Australia’s trade data for September, Germany’s industrial orders for September, from Norway Norgesbank’s interest rate decision, from the UK BoE’s interest rate decision, the US initial jobless claims figure, Canada’s trade data for September and from the Czech Republic CNB’s interest rate decision. On Friday we note the release of Germany’s industrial output for September, UK’s Halifax House prices for October, Canada’s employment data for October and most importantly the US employment report for October.

USD/JPY H4 Chart