U.S. equities traded lower over the course of yesterday’s trading. The Dow Jones Industrial Average lost 0.3% to close at 30333.59. The S&P500 lost 0.8% to close at 3665.78. The tech-heavy Nasdaq Composite lost 0.61% to close at 10614.84. Equities rose in the first half of the American trading session, as the initial jobless claims figure came in below analysts’ expectations at 214K. Equities retreated during the second half of the American trading session as short-term treasury yields spiked above to multiple-year highs.

The benchmark U.S. 10-year treasury yield has topped 4.2% and is currently trading at 4.229%– the benchmark’s highest level since 2008.

Looking ahead, the Conference Board’s Leading Economic Indicator (LEI) index has signalled a worrying future. The Conference Board’s index pointed 0.4% down from the month before and is off 2.8% for the six months period. In combination with the LEI and the Fed’s aggressive rate hike, the camps arguing against further rate hikes are growing by the day.

AT&T earnings came in above analyst expectations. AT&T’s EPS came in at $0.65, beating estimates by 10.78%. More importantly, the telecommunications giant still managed to improve not only its top line but also its bottom line.

IBM earnings also came in better than analyst estimates. The company reported Q3 EPS of $1.81, an 0.7% upside surprise. Revenue for Q3 also came in above market expectations at 14.11 Billion.

Main Pairs Movement

The Dollar Index lost 0.05% over the course of yesterday’s trading. The Greenback lost steam during Asia and European trading sessions, but quickly retrieved losses during the American trading session as the 10-year treasury yield broke above 4.2%.

EURUSD gained 0.09% over the course of yesterday’s trading. Germany’s September PPI surged to 45.8%, year over year, much higher than anticipated. Inflation will continue to act as a headwind for the shared currency.

GBPUSD gained 0.14% over the course of yesterday’s trading. British Prime Minister Lizz Truss’ resignation from the office roiled markets. The British Pound fell against the Dollar late in yesterday’s session as yields rose.

Gold gained 0.02% over the course of yesterday’s trading. The non-yielding metal was able to hold on to earlier gains despite strong demand for the Greenback.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD erased a major part of yesterday’s losses and was trading above the 0.9800 level as of writing. Although the overnight receded demand for the US Dollar underpinned the European currency, the market mood remains sour. Global stocks remain on the back foot, struggling to leave the red. Even though, US government bond yields maintain upward pressure. The sensitive 2-year Treasury bond yield surged to a multi-year high of 4.61% on Thursday, and 10-year note yields 4.12%, unchanged on a daily basis. Apart from this, UK political noise also attracts some buying for EURUSD. The British Pound is up amid Prime Minister Liz Truss’s announcing her decision to leave the government after the failed attempt to bring financial stability. Meanwhile, the increasing speculation of a potential recession in the region – which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals, adds to the sour sentiment around the euro.

From the technical perspective, the RSI indicator 49 as of writing, suggests that the currency has no clear direction to move and would hover in a range from 0.9710 to 0.9870. As for the Bollinger Bands, the pair now pricing at the lower area, and the gap between upper and lower bands tends to be closer. We think the pair would put into sideway and trade around the 20-period moving average, 0.9800.

Resistance: 0.9870, 0.9920, 1.0000, 1.0190

Support: 0.9765, 0.9718, 0.9665, 0.9550

GBPUSD (4-Hour Chart)

The GBP/USD pair advanced higher on Thursday, regaining upside momentum and touching a daily high above 1.1320 level following Prime Minister Liz Truss’s resignation after only 45 days. At the time of writing, the cable stays in positive territory with a 0.15% gain for the day. The US dollar witnessed some selling despite the higher US Treasury bond yields and expectations of the Fed hiking rates by a larger size at November’s meeting, as US Initial Jobless Claims for the last week dropped unexpectedly to 214K and came less than market expectations. For the British pound, the headline news that Liz Truss resigned as Prime Minister of the UK has provided support to the GBP/USD pair, as it makes an end to the political crisis that led to the recent chaos in the financial markets. Meanwhile, the new PM will emerge from a new leadership election at the Conservative Party next week. However, the growing worries about a deeper UK economic downturn could limit the upside for cable.

For the technical aspect, RSI indicator 47 as of writing, suggests that the pair is facing slightly bearish pressure as the RSI stays below the mid-line. As for the Bollinger Bands, the price remained under pressure and dropped towards the lower band, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.1186 support. The downward trajectory could further get extended towards the 1.0968 mark if the pair break below that support.

Resistance: 1.1390, 1.1476, 1.1570

Support: 1.1186, 1.0968, 1.0392

XAUUSD (4-Hour Chart)

XAUUSD bounces off a new three-week low touched earlier this Thursday and sticks to its modest gains as the US dollar edges lower and trims a part of the previous day’s strong gains. Gold was priced at $1630 marks as of writing. Furthermore, growing worries about a deeper global economic downturn and the prevalent cautious market mood act as tailwinds for the safe-haven yellow metal. However, the prospects for a more aggressive policy tightening by major central banks keep a lid on any meaningful upside for the non-yielding gold. The markets have been pricing in jumbo rate hikes by the European Central Bank and the Bank of England. The Federal Reserve is also expected to stick to its aggressive rate-hiking cycle. The CME’s Fed Watch tool indicates a nearly 100% chance of the fourth successive supersized 75bps rate increase at the next FOMC policy meeting in November. This, in turn, pushes the yield on the rate-sensitive 2-year US government bond to a 15-year peak and the benchmark 10-year Treasury note to its highest level since the 2008 financial crisis. Elevated US bond yields should keep the US dollar from any meaningful drop, which weighs on the gold.

From the technical perspective, the RSI indicator 37 as of writing, suggests that XAUUSD was under heavy selling pressure. As for the Bollinger Bands, the gold was priced in the lower area and the gap between the upper and lower bands has no clear tendency. We think the path of least resistance for gold is to the downside.

Resistance: 1653, 1668, 1681

Support: 1622, 1615, 1600

Economic Data

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U.S. equities traded lower over the course of yesterday’s trading. The Dow Jones Industrial Average slid 0.33% to close at 30423.81. The S&P 500 lost 0.67% to close at 3695.16. The tech-heavy Nasdaq Composite lost 0.85% to close at 10680.51. U.S. equities snapped a two-day winning streak as treasury yields rallied; however, the three major indices are still on track for a positive week.

U.S. treasuries rallied as recession fears mounted. The 10-year treasury yield soared past 4.1% and was last seen trading at 4.144%. The U.S. 2-year treasury yield, which has historically been viewed as an early indicator of the Fed interest rate target, is currently trading at above 4.5%.

Shares of ASML, one of the world’s most important companies in the semiconductor supply chain, jumped 6% on Wednesday as the company reported better-than-expected earnings. ASML reported 5.77 billion euros in revenue, beating analyst forecasts of 5.41 billion euros. ASML showed resilience in earnings despite a downtrend in the semiconductor sector.

EV giant, Tesla, reported adjusted earnings of $1.05 per share, beating analyst estimates of 99 cents per share. Tesla shares dropped 5% in extended trading, however, as revenue came in below analyst estimates at $21.45 billion. Tesla CEO, Elon Musk, has been critical of the pace of the Fed’s interest rate hike. When asked if Tesla is concerned about the impending recession, Elon Musk replied that Tesla would be “pedal to the metal come rain or shine.”

Main Pairs Movement

The Dollar index gained 0.81% over the course of yesterday’s trading. The soaring short-term U.S. treasury yield and souring market sentiment have both acted as tailwinds for Dollar bulls.

EURUSD dropped 0.82% over the course of yesterday’s trading. EU CPI came in at 9.9%, year over year, slightly more than the expected 10%; however, the 9.9% still marks a multi-decade high. Inflation continues to weigh on the Euro and the economic outlook of Europe.

GBPUSD dropped 0.9% over the course of yesterday’s trading. U.K. CPI came in at a red hot 10.1%, year over year, beating estimates of 10%; furthermore, the core inflation climbed to 6.5%.

Gold dropped 1.4% over the course of yesterday’s trading. The non-yielding metal snapped its two-day winning streak amid demand returning for the U.S. Greenback.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined lower on Wednesday, extending its daily losses and dropping towards the 0.978 area during the US session amid mounting recession fears and a risk-off market mood. The pair is now trading at 0.9766, posting a 0.87% loss on a daily basis. EUR/USD stays in the negative territory amid a stronger US dollar across the board, as the rising bets for aggressive rate hikes by the Fed and renewed growth-related concerns both provided support to the greenback. The central bank is widely expected to increase the Federal Funds Rate by 75 basis points for the fourth consecutive time, which would translate into a further economic slowdown. For the Euro, the Eurozone inflation arrives at 9.9% YoY in September, which missed market expectations of 10.0%. However, the soaring bets for European Central Bank’s (ECB) hawkish monetary policy should limit the losses for the shared currency.

For the technical aspect, RSI indicator 45 figures as of writing, suggesting that the pair is preserving its bearish momentum as the RSI dropped towards 40. As for the Bollinger Bands, the price witnessed persistent selling and crossed below the moving average, so a downtrend continuation can be expected. In conclusion, we think the market will be bearish as long as the 0.9861 resistance line holds. A bearish extension could be expected if the pair break below the 0.9718 support.

Resistance:  0.9861, 0.9921, 0.9986

Support: 0.9718, 0.9667, 0.9551

GBPUSD (4-Hour Chart)

The GBP/USD pair suffered from losses on Wednesday, failing to preserve its upside traction and accelerating its decline below the 1.1240 mark on a hotter UK inflation release and a worsening market mood. At the time of writing, the cable stays in negative territory with a 1.01% loss for the day. The rising US Treasury bond yields continued to lift the US dollar higher as there is nearly a 100% chance of the fourth successive supersized 75 bps rate increase at the next FOMC meeting in November. For the British pound, the headline UK Consumer Price Index (CPI) refreshes a 30-year high and rises by 10.1% YoY in September, which comes higher than market expectations of 10.0%. The data lifted bets for a jumbo 100 bps rate hike by the Bank of England in November but failed to lift the GBP/USD pair higher as the looming recession risks have overshadowed the hotter UK CPI figures.

For the technical aspect, RSI indicator 42 figures as of writing, suggesting that the downside is more favoured as the RSI stays below the mid-line. As for the Bollinger Bands, the price remained under pressure and dropped towards the lower band, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.1162 support. Sustained weakness below that level could pave the way for a further near-term downward move.

Resistance: 1.1390, 1.1476, 1.1566

Support: 1.1162, 1.0968, 1.0797

XAUUSD (4-Hour Chart)

XAUUSD continues losing ground through the early North American session and hits a fresh three-week low, pricing at $1631 as of writing. The downtick was sponsored by a strong pickup in demand for the US dollar, which tends to weigh on the dollar-denominated yellow metal. At the writing time, the DXY index has regained a significant part of its weekly losses amid rising bets for an aggressive rate hike by the Fed. The US central bank remains committed to bringing inflation under control and is expected to deliver another supersized 75bps rate increase at the next policy meeting in November. Hawkish Fed expectations triggered a fresh leg up in the US Treasury bond yields and continue to act as a tailwind for the buck. The yields on the rate-sensitive 2-year US government bond rallied to a new 15-year peak and the benchmark 10-year Treasury note hit its highest level since 2008. This is another factor driving flows away from the non-yield gold.

For the technical aspect, RSI indicator 33 figured as of writing, suggesting that the gold amid heavy selling pressure, edging lower in the near-term could be expected. As for the Bollinger Bands, gold priced below the lower band and the gap between the upper and lower band became larger, indicating the price would be slide back towards the YTD low, around the $1,615 area, which remains a distinct possibility.

Resistance: 1666, 1680, 1712, 1726

Support: 1620, 1600

Economic Data

Candlestick charts existed in Japan for a century before the West even created what we now know as the bar and point-and-figure charts. Steve Nison eventually introduced the candlestick pattern to the West through his book, “Japanese Candlestick Charting Techniques,” and it is still being used widely by traders around the world as one of the most effective technical trading tools that help to predict price direction.

Here’s everything you need to know about the famous candlestick pattern.

What is a candlestick?

The candlesticks in a candlestick chart are rightly called so because of how they look. A daily candlestick represents a market’s opening, high, low, and closing prices for that trading day. It also has a “real body,” which is essentially the price range between the opening and closing of a trade. If it is empty, it means the closing price is higher than the opening price. If it is filled in, on the other hand, it means that the closing price was lower than the opening price. 

In some instances, however, traders shade a down candle with red and an up candle green, which is why you’ll see a colourful candlestick chart.

What are the basic candlestick patterns?

Since candlesticks are created based on the upward and downward movement of prices, they may look random at first glance. But these candlesticks form patterns that traders look into in analysing market movements and making the right trading decisions. 

Bullish Candlestick Patterns

Let’s take a look at the bullish candlestick patterns. We are all familiar with the long black line that encompasses a real body and represents an extremely strong movement. This is one of the most attractive patterns that traders want to see on charts.

Here are 5 powerful bullish candlestick patterns:

1. Bullish engulfing pattern

In a bull market, the bullish engulfing pattern represents when buyers are more in control than the sellers. Here, you’ll see a long green real body engulfing a small real body, which indicates that buyers have more leverage, and prices could go up.

Source: dailyfx.com

2. The Morning Star

A morning star is a pattern that indicates the start of an upward climb following a downward trend. A bullish signal is generated when three candles appear in a row, with one session showing a long body and the other two forming small bodies. Most traders watch for this signal because it can help predict future market moves up or down.

3. Three White Soldiers

Three White Soldiers is a bullish candlestick pattern that consists of three consecutive long white candlesticks. This indicates that the bears are losing grip on their control, and the bulls are taking over. The longer the successive candles, the more significant it is. It has one of the highest reliability rates among all reversal candlesticks, with a minimum requirement for at least 3 consecutive white candles to form this pattern.

4. Hammer 

The Hammer Candlestick Pattern is a bullish reversal pattern that signals a potential reversal of the current downtrend. It has a long black body followed by a small white body, with the lower shadow of the black body extending well below its high point. The Hammer is a popular phenomenon for candlestick pattern traders to watch as it can signal an upcoming price change in either direction of an asset’s price action.

5. The Piercing Pattern

The Piercing Pattern is a bullish reversal pattern, which occurs after a downtrend and signals that the market is reversing to the upside. The first candlestick of this formation is called a white body and has a long upper shadow, while the second one has no shadow at all. 

You can use these bullish candlestick patterns to find good entry points. The three white soldiers, for example, is a reversal pattern that indicates the market bottom and the beginning of a new up-trend. A bullish engulfing pattern can be used as an entry point when the price breaks above the resistance level. The morning star pattern has a high probability of success because it forms after a downtrend and signals an upward price movement.

Bearish Candlestick Patterns

Bearish candlestick patterns are used to predict market reversals. A reversal pattern can be thought of as a warning sign that something has changed and it is time to take action. Here are 5 of the most popular bearish candlestick patterns.

1. Bearish Engulfing Pattern

Like the bear trend, this pattern develops during an uptrend when there are more sellers than buyers. Here, you’ll see a long red real body engulfing a small green real body, which indicates that the sellers have more leverage and prices could go down. 

Alt Text: Bearish Engulfing Candlestick Pattern

Source: dailyfx.com

2. Hanging Man

The Hanging Man is a single candlestick with a long lower shadow. This pattern is considered a bearish reversal pattern and can be used for trend reversals and the continuation of a falling market.

The long lower shadow indicates that the price opened higher than it closed but fell during the session. The upper shadow is shorter than the body or wicks, which shows that prices closed near their low for the day. The opening price must be well above the closing price to qualify as a hanging man pattern; otherwise, it would be classified as an evening star instead.

3. Bearish Evening Star

An evening star is indicative of a topping pattern, which is represented by the last candle on the pattern opening right below the small real body from the previous trading day that can either be red or green. A bearish evening star means buyers are stalling, and there’s more active selling on the market.

4. Dark Cloud Cover

The Dark Cloud Cover is a bearish pattern that occurs when a small bearish candle follows a large bullish candle, which is completely engulfed by the large bullish candle. The pattern indicates that the bulls are losing momentum and that their price rally may end soon. It’s also considered to be a continuation pattern because it forms after an uptrend has been in place for some time.

5. Bearish Harami

Indicating that there’s indecision on the part of buyers, a bearish harami is something that you should watch because it can lead to a further uptrend or if a down candle follows the pattern, it could mean that prices will be sliding.

Continuation Candlestick Patterns

​​Traders use these patterns to confirm market direction and help you make informed buying and selling decisions. 

Here are 5 of the most popular patterns.

1. Doji

The Doji is one of the most widely used and popular candlestick patterns. A Doji is a candlestick with a small body (less than half the length of the previous day’s body) and no upper or lower wick. It is a sign of indecision, which can be interpreted as evidence that buyers and sellers are evenly matched, so there isn’t any clear direction for a price to go in next.

2. Spinning Top

A spinning top candle is a candlestick with a small body and a long wick. It’s called “spinning top” because it looks like it’s about to fall over but never does.

This pattern is considered either bearish or bullish, depending on the previous market trend and other factors like volume, price action, and open interest in the option you’re trading.

3. ​​Rising Three Methods

The Rising Three Methods pattern is a bullish reversal pattern that consists of three candles. The first candle on the chart represents the uptrend, while the second and third candles represent a price decline. The third candle closes above the second candle’s midpoint, creating a new high.

4. The Falling Three Methods

The Falling Three Methods pattern is a reversal pattern consisting of three candles, three long-bodied red (or black) candles followed by two long-bodied green (or white) candles.

The first candle in this pattern is usually a Doji candle or an Engulfing candle. The third and fifth candles can be either Bearish Engulfing Candles or Dark Cloud Cover Candles.

5. Mat-Hold Candlestick Pattern

Mat-hold candlestick pattern is a bullish reversal pattern that indicates that the bulls are in control. It is made up of a long black candle with a smaller white body and then a Doji candlestick that appears above the high of the first black candle. This means that the bears have been exhausted, and bulls are ready to take over again. To trade this pattern, wait for confirmation signals such as price breaking above resistance levels or falling through support levels after they form within successful patterns like Hanging Man Candlesticks.

Takeaway

Centuries ago, the Japanese discovered that emotions play a huge part in how investors make decisions when trading, and it also influences how assets move. Today, candlestick patterns continue to guide traders on the choices they need to make, depending on how the market is going and the attitude of other traders.

So, if you’re new to trading, make sure that you learn all about candlestick patterns and the other basic strategies that will help you make the right choices. You are making a huge investment, after all, and it only makes sense that you master the craft to succeed.

What are Japanese Candlesticks?

Candlestick charts are a popular tool used in technical analysis. They are often used to determine possible price movements based on past patterns, during both bull and bear markets.

The concept originated in 1700 when a Japanese man named Honma Munehisa discovered that while supply and demand mainly determined the cost of rice, the market was also influenced by emotion.

(Honma Munehisa)

How to read Japanese Candlesticks?

Japanese candlesticks display the following four types of price levels during a single trading session:

• High price
• Low price
• Opening price
• Closing price

A green candlestick suggests that the opening price on that day was lower than the closing price, which meant that demand exceeded supply.

Meanwhile, a red candle stick reflects that the closing price on that day was lower than the opening price, which reflects that supply was more than demand.

Japanese candlesticks also contain a real body, and two tails.

The real body of a candlestick represents the range between the open and the close price within a single trading session. It is a reflection of the price sentiment during that specific period.

Meanwhile, the tails (upper shadow and lower shadow) represent the highest or lowest price reached during the trading session. 

Examples of Japanese Candlestick patterns

There are many different kinds of candlestick patterns such as bullish patterns, bearish patterns, and continuation patterns.

Bullish patterns indicate that price is likely to rise, while bearish patterns suggest that the price is likely to fall.

Bullish Pattern

Bearish Pattern

However, it is important to remember that candlestick patterns should only be used as a reference. Traders will still have to do their own due diligence whenever they trade the markets.

Learn more about the 15 most popular candlesticks patterns that every trader should know about.

U.S. equities extended their gains into the second trading day of the week. The Dow Jones Industrial Average rose 1.12% to close at 30523.8. The S&P 500 gained 1.14% to close at 3719.98. The tech-heavy Nasdaq Composite edged 0.9% higher to close at 10772.4. Equities continued to be buoyed by better-than-expected earnings releases. Netflix reported earnings after the bell last night. The company reported an earnings beat of $3.1 EPS, beating market consensus by 43%. United Airlines also reported better-than-expected earnings of $2.28 EPS, beating market consensus by 23.1%.

The benchmark U.S. 10-year treasury yield continues to trade above 4% and was last seen at 4.009%.

Of the 9.15% of S&P 500 companies that have reported earnings so far this season, 70% of them have posted positive surprises, according to data from FactSet. Earnings expectations have been lowered considerably and the market is braced for a good amount of negative news in earnings season, thus an average performance from corporate America may well be the breakaway from recent bear market price movements market participants are waiting for.

Main Pairs Movement

The Dollar index lost 0.06% throughout yesterday’s trading. The Dollar has continued to lose steam for the second straight day as risk sentiment continues to improve due to better corporate earnings results and the recent UK policy reversal.

EURUSD gained 0.17% throughout yesterday’s trading. The broad-based weakness of the Dollar has put EURUSD on a solid upward trajectory; furthermore, the upside surprise of economic sentiment in Germany has provided a boost of confidence for the Euro.

GBPUSD retreated 0.28% throughout yesterday’s trading. The British Pound fared worse against a weakening Dollar. The newly appointed minister of finance, Jeremy Hunt, is scheduled to deliver tax and spending measures on next Monday.

Gold edged 0.08% higher throughout yesterday’s trading. The non-yielding metal continues to find appreciating headroom as the Dollar weakens.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD looks to extend an auspicious start of the week against the backdrop of the inconclusive price action around the greenback, all within a context of persevering appetite for the riskier assets. The pair was wandering in a range from 0.9820 to 0.9880 as of writing. Meanwhile, the prevailing risk-on mood continues to support the pair’s upside bias despite German yields now giving away initial gains and returning to negative territory. In addition, extra support for the European currency also came after the Economic Sentiment measured by the ZEW institute in Germany and the Euroland unexpectedly came in above estimates in October reversing at the same time the previous downtrend. Furthermore, the price action around EURUSD is expected to closely follow dollar dynamics, geopolitical concerns, and the Fed-ECB divergence. Following the latest results from key economic indicators, the latter is expected to extend further amidst the ongoing resilience of the US economy.

From the technical perspective, the RSI indicator is 62 as of writing, suggesting EURUSD stands firmly and remains well bid in the upper-0.9800 level in the near term until the RSI hit above 70, an overbought area. As for Bollinger Bands, the pair was priced in the upper area stably, and the size between the upper and lower bands remained. We think the EURUSD will retain mild upside momentum in the near term unless the price fell below the 20-period moving average.

Resistance:  0.9921, 0.9986, 1.0040

Support: 0.9666, 0.9543

GBPUSD (4-Hour Chart)

The GBP/USD pair although rebounded a few pips from the daily low and climbs back above the 1.1310 level during the North American session, erasing almost half the gains on Monday. The modest recovery is sponsored by the emergence of some US dollar selling, though lacks bullish conviction and the UK political uncertainty. Rebels within the ruling Tory Party are coming together to replace the newly-elected UK Prime Minister Liz Truss in the wake of the recent tax cut fiasco. Apart from this, reports that the Bank of England is set to further delay quantitative tightening to help stabilise bond markets act as a headwind for sterling and cap the pounds. However, according to a Bloomberg report on Tuesday, the long-term bearish bias on the pound has eased at the fastest pace since June 2016 amidst the UK government’s fiscal policy U-turn, as depicted by the options market. Meanwhile, one-year risk reversals in cable, a measure of the spread between call and put prices rallied on Monday in favour of calls by the most since June 2016.

For the technical aspect, the RSI indicator is 55 as of writing, suggesting that the price remains modest bullish momentum. As for the Bollinger Bands, the pair was pricing around the 20-period moving average, and the gap between upper and lower bands became smaller, indicating that the pair now has no clear traction, and favoured hovering around the 1.1300 level.

Resistance: 1.1476, 1.1566, 1.1714

Support: 1.1162, 1.0797, 1.0968, 1.0392

XAUUSD (4-Hour Chart)

As the US dollar witnessed some dip-buying amid the elevated US Treasury bond yields on Tuesday, the pair XAU/USD failed to preserve its upside traction and dropped to the $1,646 level during the US trading session. XAU/USD is trading at $1651 at the time of writing, rising 0.09% daily. The hotter US consumer inflation figures released last week have reaffirmed the prospects for a more aggressive policy tightening by the Fed, which continued to provide support to the greenback and exerted bearish pressure on the precious metal. Moreover, the better tone of global equities and the risk-on market mood is acting as a headwind for the safe-haven gold. The market focus now shifts to the Building Permits and Housing Starts for September, as a significant decline in these data could cause the US dollar to lose strength and lift the XAU/USD pair higher.

From the technical aspect, RSI is 44 as of writing, suggesting that the downside is more favoured as the RSI stays below the mid-line. For the Bollinger Bands, the price failed to preserve its upside strength and retreated from the moving average, therefore the downside momentum should persist. In conclusion, we think the market will be bearish as the pair is heading to test the $1643 support line. Sustained weakness below that level might increase the risk of a downward extension and open the door for additional near-term losses.

Resistance: 1666, 1674, 1681

Support: 1643, 1627, 1622

Economic Data

U.S. equities rallied on the first trading day of the week. The Dow Jones Industrial Average gained 1.86% to close at 30185.82. The S&P 500 jumped 2.65% to close at 3677.95. The tech-heavy Nasdaq Composite soared 3.43% to close at 10675.8. Equities rallied as Q3 earnings from the financial sector have boosted investing sentiment. Bank of America reported better-than-expected results, sending the stock up 6%. As previously mentioned, Q3 earnings are not expected to reflect the full effect of the two consecutive 75 basis point hikes by the Fed; instead, earnings will begin to slow as Q4 heads around the corner.

Netflix, Tesla, and IBM are scheduled to release earnings later this week.

Monday’s equity rally was also aided by political developments in Britain. Prime Minister Truss has replaced Finance Minister Kwasi Kwarteng with Jeremy Hunt, who has announced that almost all planned tax cuts would be scrapped. The reversal in fiscal spending has also backed the British Pound as Gilts rallied.

Main Pairs Movement

The Dollar Index dropped 1.09% over the previous trading day. The U.S. Greenback lost bidding as market participants rotated into a red-hot equities market. The benchmark U.S. 10-year treasury yield continues to hover around 4% and was last seen trading at 3.998%.

EURUSD rose 1.22% over the previous trading day. The Euro took full advantage of the weaker Dollar and reached its highest level in over a week. On the economic docket, Germany’s economic sentiment is set to release during today’s European trading session.

GBPUSD gained 1.53% throughout yesterday’s trading. The British Pound found support as the reversal of the “mini-budget” fiscal plan has eased some concerns; however, the economic outlook for Britain remains bleak as the nation combats soaring inflation and soaring energy costs.

Gold rebounded 0.38% throughout yesterday’s trading. The non-yielding metal found some breathing room amid a weaker Dollar.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair surged higher on Monday, reversing Friday’s pullback from a one-week high and refreshing its daily high above 0.9820 level amid an improved market sentiment. The pair is now trading at 0.9844, posting a 1.29% gain daily. EUR/USD stays in the positive territory amid a weaker US dollar across the board, as the haven greenback is losing ground and retreated to the 112.0 area amid an absence of major data/events. Moreover, the newly appointed British Finance Minister also announced the U-turn on the mini-Budget Tax cuts, which provided a strong boost to investors’ mood. For the Euro, the European Central Bank (ECB) Vice President Luis de Guindos said on Monday that he expects the US dollar to stabilize in the coming months and Eurozone inflation to start easing in 2023. But the tussle with Russia, over Ukraine, might limit the recovery of the shared currency.

For the technical aspect, RSI indicator 64 as of writing, suggests that the pair is preserving its bullish momentum as the RSI climbs towards 70. As for the Bollinger Bands, the price gains upward strength and moves out of the upper band, so a strong trend continuation can be expected. In conclusion, we think the market will be bullish as the pair is testing the 0.9836 resistance. The rising RSI also reflects bull signals.

Resistance:  0.9836, 0.9921, 0.9986

Support: 0.9666, 0.9551

GBPUSD (4-Hour Chart)

The GBP/USD pair advanced sharply on Monday, gaining positive traction and recovered strongly towards the 1.1420 mark as investors assess UK Chancellor Hunt’s fiscal statement. At the time of writing, the cable stays in positive territory with a 1.97% gain for the day. The modest pullback in the US Treasury bond yields and the risk-on mood both exerted some downward pressure on the safe-haven greenback, meanwhile lifting the GBP/USD pair higher. For the British pound, the new Chancellor of the Exchequer Jeremy Hunt is making an emergency statement this Monday on the mini-budget, which aimed to stabilize financial markets and restore investors’ confidence. He said that almost all tax measures announced in Sept 23 growth plan will be reversed, which eased fears of the UK market’s collapse. However, the bleak outlook for the UK economy should keep weighing on the cable amid the BoE’s prediction of a recession this year.

For the technical aspect, RSI indicator 67 as of writing, suggests that the upside is more favoured as the RSI rises towards the overbought zone. As for the Bollinger Bands, the price witnessed consistent buying and climbed towards the upper band, therefore a continuation of the bullish trend can be expected. In conclusion, we think the market will be bullish as the pair is heading to test the 1.1476 resistance. Sustained strength beyond that level could pave the way for a further near-term appreciating move.

Resistance: 1.1476, 1.1566, 1.1714

Support: 1.1162, 1.0797, 1.0968, 1.0392

XAUUSD (4-Hour Chart)

XAUUSD attracts some buying on the first day of a new week and reverses a major part of Friday’s downfall to over a two-week-low. The gold has stuck to its intraday gains since the first half of the European session and was currently priced at $1,663 as of writing. The US dollar struggles to capitalize on Friday’s strong intraday positive move and meets with a fresh supply on Monday amid a modest pullback in the US Treasury bond yields. A weaker greenback offers some support to the dollar-denominated gold, though a combination of factors could act as a headwind and warrants caution for bullish traders. The markets have priced in a nearly 100% chance for another supersized 75 bps Fed rate hike move for the fourth consecutive meeting in November. The aforementioned fundamental backdrop suggests that the path of least resistance for gold is to the downside.

From the technical perspective, in the four-hour scale, the RSI 50 as of writing, supplying that the price turned out to be relatively stable. As for Bollinger Bands, the gap between upper and lower bands remains unchanged, and the yellow metal price was hovering around the 20-period moving average, indicating a mild move in the near term could be expected.

Resistance: 1680, 1712, 1725

Support: 1640, 1620, 1600

Economic Data

Key economic reports are due for release this week starting with the US Empire State and Philly Fed Manufacturing Index.

Several countries will also release their Consumer Price Index, including the UK, Canada, and New Zealand. Australia will release its employment figures and meeting minutes earlier in the week.

US Empire State Manufacturing Index (17 October)

In August 2022, the New York Empire State Manufacturing Index rose by 30 points to -1.5.

According to a recent survey of businesses, firms were not optimistic that business conditions would improve over the next few months. Analysts expect this month’s unemployment figure to come in at around -1.

New Zealand Consumer Price Index (18 October)

In the first quarter of 2022, the Consumer Price Index in New Zealand rose 1.8%. Analysts expect that CPI in New Zealand will rise another 1.7% for the second quarter of 2022.

Analysts predict that CPI in New Zealand will rise 1.6% for the third quarter of 2022.

Australian Monetary Policy Meeting Minutes (18 October)

The Reserve Bank of Australia (RBA) raised its benchmark interest rate by 25bps to 2.6%, surprising market analysts who had expected the central bank to increase the cash rate by 50 basis points.

Policymakers plan to raise interest rates further, with size and timing to be determined. The committee remains committed to its long-run goal of price stability and will continue to do so until that time comes.

UK Consumer Price Index (19 October)

In August of 2022, the Consumer Price Index in the UK rose 0.5% month-on-month, the smallest gain in seven months.

Analysts expect the figure to rise by 0.30% in September.

Canada Consumer Price Index (19 October) 

The consumer price index in Canada fell 0.3% in August, the steepest monthly drop since April 2020. Analysts expect prices to remain unchanged in September.

Australia Employment Change (20 October)

The Australian labour market continued its upward trend in August this year, as employment increased by 33,500 to a new high of 13.59 million. The unemployment rate was at 3.5% in August.

Analysts expect that the Employment report for September will show an increase in jobs of 40,000, accompanied by a return to the unemployment rate of 3.4%.

US Philly Fed Manufacturing Index (20 October)

The US Philadelphia Fed Manufacturing Index fell from 6.2 in August to -9.9 in September.

Analysts predict that the index will fall again this month to -5.

U.S. stocks edged lower on the last trading day of the week. The Dow Jones Industrial Average lost 1.34% to close at 29634.83. The S&P 500 dropped 2.37% to close at 3593.07. The tech-heavy Nasdaq Composite slumped 3.08% to close at 10321.39. Equities reversed gains from Thursday’s turbulent trading as U.S. short-term yields soared. The benchmark U.S. 10-year treasury yield, once again, soared past 4% and was last seen trading at 4.022%.

Market turmoil resumed amid the major reversal in fiscal policy from the U.K. Prime Minister Truss has, for the second time, go back on her “mini-budget” policy, which originally slashed corporate tax increases planned by the previous administration, and has now decided to increase tax rates in only a few industries but those increases will not come until April 2023.

On Friday, JPMorgan Chase & Co. and Wells Fargo & Co. reported Q3 earnings results. While JPMorgan Chase saw revenue climb by 8.4% and net interest margin came in above market estimates, the bank saw a drop in investment banking fees, home lending, and corporate securities investment. Wells Fargo & Co., on the other hand, reported a revenue drop to $18.77 Billion, sliding 3.5% quarter over quarter; however, net interest income spiked 36% as interest rates increased over the course of Q3 and mortgage-backed securities were amortized at a lower rate.

Main Pairs Movement

The Dollar index rose 0.79% over the course of last Friday’s trading. The U.S. Greenback wiped away last Thursday’s losses as yields closed above 4% on Friday. Demand for the Dollar resumed amid a turbulent Gilt market and a broad market sentiment reversal.

EURUSD dropped 0.59% over the course of last Friday’s trading. The Euro fared worse against the Dollar as market participants come to grips with the soaring CPI data from the U.S. Short-term outlook on the Euro remains bearish.

GBPUSD lost 1.22% over the course of last Friday’s trading. The British Pound weakened as the Truss administration, once again, reversed course on their “mini-budget” policy. Gilt yields were slightly down, weakening the Pound.

Gold lost 1.3% over the course of last Friday’s trading. The non-yielding metal could not compete against the Dollar even though market sentiment took a sharp dive on last Friday. The soaring U.S. short-term interest rate expectations will continue to weigh on the yellow metal.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined lower on Friday, failing to extend its intra-day rebound and dropping towards the 0.9710 area after the mixed data from the US showed that Retail Sales remained virtually unchanged in September. The pair is now trading at 0.9736, posting a 0.41% loss on a daily basis. EUR/USD stays in the negative territory amid a stronger US dollar across the board, as the greenback rebounded back slightly towards the 113.00 area despite the retreating US Treasury bond yields. The stronger US consumer inflation figures released on Thursday reaffirmed market expectations that the Fed will continue to tighten its monetary policy at a faster pace, which should act as a tailwind for the greenback. For the Euro, the European Central Bank President Christine Lagarde said that the ECB’s Governing Council expects to raise interest rates further over the next several meetings as inflation in the euro area is far too high.

For the technical aspect, the RSI indicator is 50 figures as of writing, suggesting that the pair is struggling to gather bullish momentum as the RSI stays near 50. As for the Bollinger Bands, the price lost its upside traction and dropped towards the moving average, therefore some downside momentum can be expected. In conclusion, we think the market will be bearish as the pair is heading to test the 0.9735 support. Sellers could show interest if the pair falls below that support and confirms that level as resistance.

Resistance:  0.9836, 0.9921, 0.9986

Support: 0.9735, 0.9667, 0.9551

GBPUSD (4-Hour Chart)

The GBP/USD pair tumbled with 0.98% losses for the day and priced at 1.1205 as of writing since a combination of factors promoted aggressive selling on Friday. The British pound is pressured by the latest UK political developments, wherein reports confirmed that financial minister Kwasi Kwarteng has been sacked, making him the shortest-serving chancellor since 1970. This comes amid the emergence of aggressive US dollar buying, exerting more downward pressure on the cables. On Friday, British Prime Minister Liz Truss said that they have decided to keep the corporation tax rise and added that this would act as a downpayment on the medium-term fiscal plan. However, this move failed to help the pound find demand, as investors may lose their faith in the UK government. Furthermore, the strong US consumer inflation data released on Thursday almost confirmed the speculation that another supersized 75 bps rate hike at the next FOMC meeting in November, which is underpinning the greenback.

From the technical perspective, the RSI indicator figured 52, suggesting that the cables remained mild bullish momentum until RSI fell down below 50, we think the pounds would turned weak and confront some selling pressure. As for Bollinger Bands, the pair fell from above the upper band to around the 20-period moving average area, and the gap between the upper and lower bands became larger, which is a signal that the upside traction was weaker and when the price fell below the average support, the pair would witness some downside tractions.

Resistance: 1.1327, 1.1476, 1.1714

Support: 1.0956, 1.0797, 1.0632, 1.0387

XAUUSD (4-Hour Chart)

The XAUUSD extends its losses, while the greenback recovered some ground following Thursday’s US inflation report, which will keep the Fed’s pedal to the metal as traders brace for big rate hikes in November and December FOMC’s meetings. The gold was priced at $1641 as of writing. US equity indices opened in the red, portraying a negative sentiment, and high US T-bond yields support the US dollar, which weighs on XAUUSD. Meantime, a slew of Fed policymakers is crossing the newswires. They all clearly expressed that inflation is not cooling and unacceptable. The San Francisco Fed Mary Daly reiterated the need to get policy restrictive and foresees the Federal funds rate (FFR) to peak at around 4.5% – 5%, which now sits at 3.25%. Investors need to keep eye on next week’s US economic docket featuring the Philadelphia Fed Index, Industrial Production, and unemployment claims. Additionally, Fed speakers will continue to dominate the headlines.

From the technical perspective, the RSI indicator figured 35 as of writing, indicating that the gold was amid heavy selling pressure until the RSI fell below 30, an oversold area, then may attract some bargain hunters. As for Bollinger Bands, the pair fell below lower bands and the gap between upper and lower bands became larger, implying the downside trend would persist. If the price fell below the $1640 psychology level, then the bearish momentum would test the two-year low $1616 mark.

Resistance: 1680, 1712, 1725

Support: 1640, 1616, 1600

Economic Data

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