Market Focus

US stocks were mixed amid inflation concerns on Monday. Investors are betting on a continuation of strong earnings reports from major companies while concerned about the prospect of a tightening monetary policy to restrain inflation. The Dow Jones Industrial Average declined 0.1% while the S&P 500 climbed 0.3%. At the same time, the Nasdaq rose 0.8% at the end of the day.

The collapsing spread between 5- year and 30-year yields is raising concerns about a potential slowdown in economic growth. The shrink might be due to the consideration that the US Federal Reserve may lift rates sooner than expected. Moreover, according to Bloomberg, US inflation expectations have been continuously rising to new peaks in years.

Bitcoin held steadily above $60,000 as the first Bitcoin futures ETF is set to launch this Tuesday, a milestone for the cryptocurrency industry.

Main Pairs Movement

The Greenback shed some ground on Monday, although it ended the day mixed across the FX board and within familiar levels. A light macroeconomic calendar has kept investors depending on market sentiment for direction, the latter of which is following US government bond yields. Speaking of which, the yield on the 10-year US Treasury note peaked at 1.627% but finished the day at around 1.58%.

The Dollar edged lower against most of its major rivals. The EUR/USD pair is trading around 1.1610, while GBP/USD stands at 1.3730. The AUD/USD pair and USD/JPY finished the day unchanged while USD/CAD ticked lower despite weakening crude oil prices.

Gold ended the day with modest losses at around $1,764.60 a troy ounce. Crude oil prices hit fresh multi-year highs before retreating. WTI settled at $81.50 a barrel.

Attention has now shifted to UK inflation data as the Bank of England has hinted at a possible rate hike as its first move in the case that inflation rises above the desired levels. 

Technical Analysis

USDCAD (4-Hour Chart)

The USD/CAD pair continued consolidating throughout the first half of the European session and once stepped on the 1.2400 level, but soon fell over 30 pips after the American opening. Loonie’s weakness resulted from higher inflationary pressures and the looming tapering of major central banks. The pair was last seen at 1.2375.

However, falling crude oil prices, along with robust US bond yields, may weigh on the appreciating CAD. WTI has been losing over 0.5%, and is currently trading at $81.90. The benchmark 10-year U.S. Treasury yield is still lingering above 1.55, proving demand for the Greenback.

On the technical front, the Loonie has already lost track of its 4-month-old uptrend at the start of October and has fallen below all of its key moving averages. The downward traction is now attacking the robust 38.2% Fibonacci support. If breached, then there will be no practical support ahead of the 23.6% Fibonacci. On the flipside, to resume its previous uptrend, the pair should revisit the key 200-DMA, which should first regain the 50% and 61.8% Fibonaccis.

Resistance: 1.2425, 1.25, 1.256

Support: 1.23

EURUSD (4-hour Chart)

The Euro advanced during the New York session, up 0.07%, and is trading at 1.161 at the time of writing. During the session, market sentiment conditions improved despite a weaker-than-expected third-quarter GDP printout from China, rising inflationary pressures, and expectations of central banks tightening monetary conditions. Last Saturday, on October 16, ECB President Lagarde said that the ECB is paying very close attention to wage negotiations and other effects that could permanently drive prices higher, although she added that inflation is largely transitory.

On the technical side, the RSI solely moved around 57.97 figures, a slight change compared to yesterday, suggesting slightly bullish movement in the short term. On the moving average aspect, the 15- and 60-long indicators both have flat movement even though they displayed golden crosses earlier.

Because the current price has penetrated the 1.161 level, which we had expected to be critical resistance for upward traction before, it seems that the Euro could continue its bullish movement if it can hold above the threshold. On up side, we expect the immediate resistance will be the psychological level at 1.165, with 1.1675 following.

Resistance: 1.165, 1.1675, 1.171

Support: 1.153, 1.15, 1.161

USDJPY (4 Hour Chart)

The Japanese yen barely advanced during the U.S. session, and is up 0.02%, trading at 114.22 at the time of writing. Despite slower-than-expected economic growth in China, there are expectations of higher inflation, with the market being in a risk-on mood. The U.S. 10-year Treasury yield is flat at press time and is clinging to 1.581%, whereas the U.S Dollar Index, which tracks the Greenback’s performance against a basket of rivals, slid 0.02%, sitting at 93.943. Meanwhile, the yen is close to four-year lows versus the Greenback as higher U.S. T-bond yields, which have a strong positive correlation with the pair, have been rising lately.

From a technical perspective, the RSI indicator has reversed from overbought sentiment at 67.7, suggesting bullish momentum in the short term. On the moving average indicator, the 15- and 60-long indicators are still retaining upside traction.

Since the yen stood above the 114 level solidly for days, it seems to have lost driving momentum without further triggering fundamental news currently. Therefore, the 114 level is still an important support level for buy-side investors.

Resistance: 115

Support: 114.02, 112.57, 112