Fundamentals to lead the way

With the conflict in Israel still ongoing the market seems to have already priced in a number of scenarios, pushing oil prices higher and increasing demand for safe-haven instruments such as US bonds, causing their yield to fall. For the time being it seems that the market’s worries have eased a bit and should there be no major escalation we may see that tendency being maintained. A possible internationalization of the issue by neighbouring countries such as Egypt and Saudi Arabia, may have wider repercussions on the market.

Overall, we note that the US Dollar edged lower across the board yesterday, with analysts citing dovish comments from Fed policymakers as the reason for USD’s retreat. Dallas Fed President Logan was reported stating that “If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the Fed funds rate,“ while Fed Vice Chair Jefferson was reported stating that the Fed would need to “proceed carefully” given the recent rise in yields. Overall, the comments highlighted the obstacles in the Fed’s path toward any further rate hikes and weakened the chances for another rate hike by the bank according to Fed Fund futures and we expect Fed speakers to gain attention later today. Additional dovish comments by Fed policymakers could weigh on the USD as they may solidify the market’s expectations for the bank to cease hiking rates and vice versa.

EUR/USD edged higher yesterday, yet the overall picture of a sideways motion seems to remain undisturbed. The RSI indicator remains just above the reading of 50, implying a rather indecisive market thus our bias for the continuance of a sideways motion of the pair is maintained. Should a buying interest be expressed by the market we may see EUR/USD breaking the 1.0635 (R1) resistance line and aim for the 1.0735 (R2) resistance level. Should the sellers take over the direction of the pair we may see EUR/USD breaking the 1.0515 (S1) support line and aim for the 1.0445 (S2) support level. 

On the flip side, we note that the Aussie tended to be on the rise against the USD as the improved market sentiment tended to provide for the riskier commodity currency. We have to note though that business conditions and business confidence tended to deteriorate in September, while Australia’s consumer confidence for October is due out during tomorrow’s Asian session. On the monetary front, we highlight the markets’ expectations for RBA to remain on hold, up until the end of Q424 and note that RBA Assistant Governor Kent is scheduled to speak during tomorrow’s Asian session. Any hawkish comment from Assistant Governor Kent may provide some support for AUD.

On a technical level, we note the rise of the Aussie against the greenback, as AUD/USD was able to break the 0.6400 (S1) resistance line, now turned to support. We maintain a bullish outlook for the pair as long as AUD/USD remains above the upward trendline formed since the 6^th of the month. Should the bulls maintain control we may see AUD/USD aiming if not reaching the 0.6515 (R1) resistance line. Should the bears take over, we may see AUD/USD breaking the prementioned upward trendline in a first signal that the upward movement has been interrupted, break the 0.6400 (S1) support line and aim for the 0.6285 (S2) level. 

Other highlights for the day:

Today in the European session, we note the release of Sweden’s GDP rate for August, Norway’s CPI rates for September and the Czech Republic’s CPI rates for the same month. On the monetary front, we note that ECB President Christine Lagarde, Atlanta Fed President Bostic and Minneapolis Fed President Kashkari are scheduled to speak. In tomorrow’s Asian session, we note the speech of San Francisco Fed President Daly. Overall we tend to expect volatility to ease unless there are any surprises and given the low number of high-impact financial releases, we may see fundamentals guiding the markets.  

AUD/USD 4 Hour Chart

Support: 0.6400 (S1), 0.6285 (S2), 0.6170 (S3)

Resistance: 0.6515 (R1), 0.6620 (R2), 0.6725 (R3)

EUR/USD 4 Hour Chart

Support: 1.0515 (S1), 1.0445 (S2), 1.0315 (S3)

Resistance: 1.0635 (R1), 1.0735 (R2), 1.0835 (R3)

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