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*USD treaded water after weakening over the past three days
*Gold backed off $1834 resistance, real yields remain depressed
*Oil extended gains for a fourth session, hitting two-week highs
*China’s factory inflation hits a 26-year high as power crunch bites
US equities broke their long trend of consecutive gains. Energy and defensive stocks outperformed with inflation grabbing the headlines. Mega cap Tesla losing 12% doesn’t help risk sentiment! Asian markets are lower this morning with Evergrande fears appearing again as investors await payment. European and US futures are lower.
USD stayed above 94 and the 21-day SMA. JPY was the big mover, trading near a one-month low versus USD. The fall in long-term yields and commodities saw AUD and NZD decline, notably versus JPY and CHF. EUR struggled above 1.16 and has moved lower overnight. GBP printed a long legged “doji” after moving above 1.36. Prices are back below the July low at 1.3571.
Market Thoughts – US CPI data in focus
US inflation data for October is set to be released later today. Consensus sees the m/m reading at 0.5% and y/y rate at 5.8% in October, with the core at 0.4% and 4.3%. The annual headline rate would be the highest since December 1990. Economists say surging housing, labour and energy costs may see core CPI push above 5% next month.
These prints are persistent with six straight months above 5%. They are also well above the Fed’s average annual 2% inflation target. The figures are instrumental to how patient the Fed can be in raising rates. In the near-term, the fragile risk environment may be more supportive for the greenback.
Chart of the Day – AUD/USD hit by commodity weakness
While oil is rebounding strongly, most commodities are making fresh lows. This is hurting AUD. Global copper inventory is close to lows going back to 2008. Iron ore prices slumped to a new one-year low overnight. Aluminium is down 20% from highs three weeks ago.
On the flip side, positive risk sentiment had recently lifted the aussie to near four-month highs at 0.7555. But the 200-day SMA acted as resistance and prices have moved lower. The 50-day and 100-day SMAs are now acting as support around 0.7372. Initial resistance is the 38.2% Fib level of the May to August move at 0.7404. But bearish momentum is solid with sellers targeting 0.73.
Jamie DuttaAnalyst / Trader
"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."
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