FOREX: EUR Pressured by Soft Inflation, AUD Extends Advance Ahead of CPI
- The USD index has drifted higher on Tuesday, as markets appear lacking in conviction ahead of the important US ISM services and NFP data releases later in the week. Elsewhere, Euro weakness has been evident through the session on the back of softer-than-expected French and German inflation data releases, while higher beta currencies continue to react favourably to the stronger equity/commodity backdrop.
- Following the initial Eurozone inflation releases earlier in the session, EURUSD has been grinding steadily lower from the 1.1743 highs, consolidating back below 1.17 ahead of the APAC crossover. For EURAUD, the cross has extended its break below support at 1.7462, continuing to trade at the lowest level since May, signalling scope for a more protracted selloff towards a key downside target at 1.7248, the May 2025 low.
- AUDUSD made fresh cycle highs at 0.6739 today, strengthening bullish conditions for the pair. Notable topside levels include 0.6795 and 0.6858 are the next chart points of note, projection levels of the Nov 21 - Dec 10 - 18 price swing. Notably, AUDNZD has risen to another cycle high during today’s session, as the cross now operates at the highest level since 2013. Australian CPI data is due on Wednesday.
- In EM, the South African Rand continues to standout, printing fresh cycle highs earlier in the session amid the ongoing constructive price action for metals. The trend condition in USDZAR remains firmly bearish, with sights on 16.2545 next, the 1.764 projection of the Sep 4 - Oct 9 - Nov 5 price swing.
- US ISM services will highlight Wednesday’s calendar, as markets also await Friday’s release of non-farm payrolls.
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USDCAD TECHS: Bull Channel Breakout
- RES 4: 1.4140 High Nov 5 and a key resistance
- RES 3: 1.4131 High Nov 21
- RES 2: 1.4051 High Nov 28
- RES 1: 1.3939/4016 Low Nov 28 / 20-day EMA
- PRICE: 1.3865 @ 16:35 GMT Dec 5
- SUP 1: 1.3853 Intraday low
- SUP 2: 1.3840 50.0% retracement of the Jun 16 - Nov 6 bull cycle
- SUP 3: 1.3812 Low Sep 23
- SUP 4: 1.3779 Low Sep 22
A bear theme in USDCAD remains intact and Friday’s strong sell-off reinforces a bear theme. The pair has breached an important support at 1.3942, the base of a bull channel drawn from the Jul 23 low. The break highlights a stronger bear cycle and signals scope for an extension towards 1.3840 next, a Fibonacci retracement point. Initial firm resistance to watch is 1.4016, 20-day EMA.
LOOK AHEAD: US Week Ahead: FOMC Decision Dominates, Post Shutdown Data Catch-Up
- Next week’s US calendar is dominated by the FOMC decision on Wednesday, with a third consecutive 25bp cut almost fully priced.
- Expect it to be a contentious meeting however, with many arguing for a pause not least whilst they’re still relatively in the dark on key official data releases following the government shutdown.
- Fed Chair Powell opted for a surprisingly hawkish tone at the late October press conference, highlighting a deeply divided committee on prospects for another cut in December.
- The “fog” had appeared to win out until NY Fed’s Williams, a senior permanent voter, gave unusually explicit guidance on still seeing room “for a further adjustment in the near term”. With no pushback from FOMC members or media briefings, it appears this message has approval from the core of the FOMC which should be enough to see a rate cut this month. The likely catalyst was the further increase in the unemployment rate to 4.44% back in September, although subsequent tracking suggests stabilization and jobless claims data don’t show any signs of deterioration.
- We’ll be looking for the number of hawkish dissents (we’d be surprised if anyone joins Miran dissenting for a 50bp cut) and expect a greater number to object to a cut in the 2025 dot plot, whilst the distribution of dots for 2026 should be in greater focus.
- As for the economic projections, we expect upward revisions to GDP growth but downward revisions to near-term core PCE inflation with tariff passthrough proving less severe than previously feared.
Aside from the Fed, we also receive two months worth of JOLTS data along with other delayed releases as the shutdown data backlog is slowly caught up.
AUDUSD TECHS: Bullish Impulsive Wave Extends
- RES 4: 0.6723 High Oct 21 ‘24
- RES 3: 0.6707 High Sep 17 and a key resistance
- RES 2: 0.6660 High Sep 18
- RES 1: 0.6649 Intraday high
- PRICE: 0.6630 @ 16:32 GMT Dec 5
- SUP 1: 0.6580/6533 High Nov 13 / 20-day EMA
- SUP 2: 0.6517 Low Nov 27
- SUP 3: 0.6466/21 Low Nov 26 / 21
- SUP 4: 0.6415 Low Aug 21 / 22 and a bear trigger
A strong impulsive bull wave in AUDUSD remains intact, having printed 10 consecutive sessions of higher highs. Recent gains have cleared a number of important short-term resistance points, strengthening a bull theme and highlighting scope for a continuation higher. Today’s rally has resulted in a breach of 0.6640, 76.4% of the Sep 17 - Nov 21 bear leg. This opens 0.6707, the Sep 17 high and key resistance. Key support to watch is at 0.6533, 20-day EMA.
