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FX: USDtraded in a relatively narrow range as markets digested Fedspeak and await any comments from Powell later today. The 50-day SMA capped the upside again yesterday at 105.76. Yields moved lower with the US 10-year closing below the key psychological level of 4.50%.
EUR again dipped but clawed back its losses through the US session. Various ECB speakers were on the wires. Rate cuts were ruled out by the hawks and they said more hikes can’t be dismissed. The ECB’s one-year inflation expectations measure jumped to 4% in September from 3.5% previously. Euro losses should be small with daily trend oscillators still bullish.
GBP also pared its losses. Cable is trying to hold above the 50-day SMA at 1.2284. BoE Governor Bailey said it was too early to talk about rate cuts. That was after the bank’s Chief economist Pill suggested market pricing for rate cuts by August next year was not unreasonable. Downside pressure could be easing on the major. Resistance is at 1.2337.
USD/JPY moved higher for a third day edging closer to recent highs at 151.68/72. 10-year US Treasury yields dipped below 4.50%. BoJ governor Ueda said the bank doesn’t necessarily need to wait until real wages actually turn positive in exiting YCC and negative rates.
AUD eased again after the dovish language in the RBA statement earlier in the week. The 50-day SMA is below at 0.6391. USD/CAD has bounced strongly off its 50-day SMA at 1.3640. Crude fell again pressuring the loonie. The start of November top in the major is at 1.3898.
Stocks: US equities closed higher to extend the longest winning streak in two years for the S&P 500 and Nasdaq. The benchmark S&P 500 added 0.1% to settle at 4399. That’s its eight-straight session in the green. The tech-dominated Nasdaq finished 0.11% higher at 15,313, notching its ninth consecutive positive day. Prices closed just below the mid-October top. The Dow settled 0.12% lower at 34,112. The broad-based S&P 500 has risen over 6.5% over the course of its winning run. Much of that has been on the back of megacap tech stocks. The tech-heavy Nasdaq is up over 8% across the nine-day green period. Falling bond yields and soft data have bolstered hopes that US rate hikes are done.
Asianfutures are mostly in the green. APAC stocks were mixed on Wednesday following similar price action Stateside. Markes are braced for next week’s Biden-Xi meeting in San Francisco.
Gold turned lower again, off nearly 1% on the day and is back to mid-October levels. Initial support may come around $1950, with the 200-day SMA at $1934.
Day Ahead – Powell and China inflation
It’s been quiet on the data front this week. But there have been numerous Fed speakers. They have generally been inclined to push back slightly against the recent dovish market reaction of the recent FOMC meeting. Chair Powell speaks later today at a panel discussion at the IMF. There is now only around a 15% chance of a rate hike in January. Those bets were more than double a month ago.
We also get the release of Chinese CPI data for October. This will be in focus as headline inflation is at 0.0%. If it dips into negative territory as expected by consensus (-0.2% y/y), we may see some fresh deflation headlines. Soft demand and capacity are limiting price pressures. However, core inflation is still close to 1% so there doesn’t seem to be real broad-based deflation.
Chart of the Day – Dow Jones bumps into long-term resistance
The Dow Jones stock index has underperformed the other major US indices recently. But its bounce has still been solid with gains of nearly 6% since the end of last month. Prices slid below a major Fib level just below 33,000. Since then, they’ve taken out the 50-day and 200-day SMAs above 33,800. But sellers emerged yesterday after seven straight days of gains. There is long-term support/resistance around 34,281.
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