Fed uncertain if enough has been done

USD bulls seemed to hesitate yesterday as the greenback edged lower, yet the bullish tendencies were renewed during today’s Asian session. On the monetary front we note that Fed Chairman Powell along with other Fed policymakers expressed some uncertainty on whether the Fed’s tightening is enough to combat inflationary pressures in the US economy. The statements come one week after the bank decided to pause its rate hiking path and were perceived as leaning on the hawkish side by the market. Nevertheless, we note that the market’s expectations that the bank has reached its terminal rate and may proceed with a rate cut in early summer next year seem to remain present, yet any further hawkish comments may contradict them and provide support for the USD. For today we note the release of the preliminary University of Michigan indicators for November. We expect the issue to have a wider effect in the FX market against the JPY, given also that interest rate differentials with BoJ are wider, yet USD/JPY is allready at very high levels, which may cause Japan to intervene in the markets and come to JPY’s rescue.

USD/JPY continued to be on the rise aiming for the 151.70 (R1) resistance line. We tend to maintain a bullish outlook for the pair given that the upward trendline guiding it remains intact and the RSI indicator is running along the reading of 70, implying a rather bullish sentiment on behalf of the market. On the other hand, the pair may be nearing overbought levels and thus may be ripe for a correction lower. Should the bulls maintain control over the pair, we may see USD/JPY breaking the 151.70 (R1) resistance line and we set as the next possible target for the bulls the 153.35 (R2) level. Should the bears take over, we may see the pair reversing course, breaking the prementioned upward trendline as a first signal that the upward movement was interrupted and continue lower to break the 150.00 (S1) support level in search of lower grounds.

Given Powell’s comments, market worries tended to intensify among equity market participants about the Fed’s intentions and drove US stock market indexes lower in a uniform manner for the day. Powell’s comments had a bearish effect on gold’s price as well and tended to clip any gains later on bringing some uncertainty among gold bulls. Furthermore, the statements seemed to support US yields which in turn may be weighing on gold’s price also. Lastly the strengthening of the USD during todays’ Asian session makes the precious metal more expensive for foreign investors leading to lower demand, with the negative corelation of the USD with gold becoming once again more obvious. Should the USD continue to strengthen today, we may see gold’s price retreating further and vice versa.

XAU/USD gained some ground yesterday breaking the 1955 (S1) resistance line, now turned to support. Given that the downward trendline guiding the precious metal’s price has been broken, we switch our bearish outlook in favour of a bias for a sideways motion until the gold’s price decides the direction of its next leg. The RSI indicator though tends to remain between the reading of 50 and 30, implying that there is still a residue of a bearish sentiment in the market. Should the bears take over, we may see gold’s price breaking the 1955 (S1) support line and aiming for the 1933 (S2) support level. Should the bulls be in charge we may see gold’s price aiming if not breaching the 1987 (R1) resistance line

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In today’s European session, we note the release of UK GDP rates for September and Q3, Norway’s and the Czech Republic’s October CPI rates. On the monetary front, we note that Dallas Fed President Logan, ECB President Christine Lagarde, Atlanta Fed President Bostic and BuBa President Nagel are scheduled to speak. During Monday’s Asian session, we note the release of Japan’s corporate goods prices for October, while in Australia, RBA Assistant Governor Kohler is scheduled to speak.