Markets are risk-on ahead of key inflation data and the U.S midterm elections

What You Need to Know

High U.S. inflation data and the wait for the results of the U.S. midterm elections have led to a weaker dollar as market demand for risk assets remains high. In Asia, Japan’s extra budget will be financed by bond issuance by the government to fund its latest economic stimulus package to ease inflation and boost growth. Asian markets opened high except for Hong Kong, perhaps because China reaffirmed its commitment to its Zero-Covid policy.

Look Out For

Current rate hike bets on 14th December Fed interest rate decision: 

75 bps (43.2%) VS 50 bps (56.8%)

Market Overview

Economic Calendar

Market Movements

DXY

The Dollar Index, which measures against a basket of six major currencies, tumbled yesterday ahead of the midterms elections and new inflation data in the coming weeks. On the election front, the Republican party is widely expected to take control of the House of Representatives during the midterm elections. Still, the risk has been priced in by investors. However, the more considerable downside risk for the US Dollar is that the Republican party secures both the House and the Senate, implying a hamstrung administration unable to deliver fiscal support in a downturn.

On the technical front, the Dollar Index is trading lower while currently testing the support level at 109.65. MACD has illustrated increasing bearish momentum, while RSI is at 40, suggesting the downside is more favoured as the RSI stays below the midline.

Resistance level: 111.95, 113.45

Support level: 109.65, 107.75

XAU/USD

Heightened volatility across the US financial market has stoked a shift in sentiment toward another safe-haven asset. Gold continues to stand its ground. With inflation having trended at four-decade highs for a year, several market participants speculate that the forthcoming CPI report for October could show a retreat in price measures. Market participants took it negatively while reckoning that the Federal Reserve will shift toward a conservative rate hike path, where a minor interest rate increase would likely happen in December.

The gold market is trading higher while currently testing the resistance level at 1681.85. Nonetheless, MACD has illustrated diminishing bullish momentum, while RSI is at 63, indicating that the commodity is going into an overbought area.

Resistance level: 1681.85, 1727.20

Support level: 1619.05, 1584.35 

EUR/USD

The Euro surged significantly against the US Dollar, buoyed by the upbeat eurozone data yesterday. Despite soaring energy prices and global supply chain bottlenecks, industrial production in Germany increased considerably by 0.6% month-on-month, exceeding the market expectations of 0.2%. 

EUR/USD is trading higher while currently testing the resistance level at 1.0030. Nonetheless, MACD has illustrated diminishing bullish momentum, while RSI is at 65, suggesting a sign that the pair might be traded lower in the short-term as RSI retreated sharply from overbought levels. 

Resistance level: 1.0075, 1.0190

Support level: 0.9875, 0.9760

BTC/USD

The US Department of Justice has seized about $3.36 billion worth of bitcoin from James Zhong, a mysterious hacker who stole more than 50,000 bitcoins from the Silk Road dark web internet marketplace 10 years ago. The DOJ said that the seizure is the second largest in history. Despite the news, there is little affection for bitcoin as markets keep an eye on US elections. 

MACD is moving down to the zero line as it indicates a bearish momentum is continued. RSI is hovering between 30 – 50,  suggesting the pair is trading with bearish momentum.

Resistance level: 21831, 22794

Support level: 20461, 18352

DJ30

Dow Jones rose 423.78 points or 1.13% yesterday as markets are eyeing the US midterm elections and inflation data, which will be released in the next few days. The result of Tuesday’s midterm election will affect the direction of future spending. Besides that, investors are also awaiting Thursday’s consumer price index report, which will further signal how the Fed would lower inflation. 

Moreover, MACD is moving above the zero line, indicating that markets are quite optimistic towards the US midterm elections. RSI is trading around 60-70, which indicates an upbeat trading momentum as of writing.

Resistance level: 33025, 35456

Support level: 30638, 29041

GBP/USD

Cable is stronger ahead of UK GDP data and US CPI data. It is expected that the BoE will hike its interest rate by 75 bps as the UK’s inflation has breached 10% and is adding further pressure to the cost of living crisis. The rise of cable is also because of the weakening dollar after mixed economic data released last Friday. The Fed hinted at considering a smaller rate hike for the coming month and expects the dollar’s bullish momentum to be diminished for some time. 

The pair were moving on an uptrend channel despite a drop last week, but it quickly climbed above its support level at 1.1444. Meanwhile, the RSI has gone above 50 to 61.5 as of writing, and MACD has also crossed the zero line. Both depict a bullish momentum for Cable, but the momentum might need to be stronger. 

Resistance：1.165 ， 1.203

Support： 1.119, 1.1089 

USD/JPY

The yen has weakened since the country embraced the ultra-loose monetary policy and has been sustained recently due to the Japanese authorities’ intervention in its currency market. The yen has gotten a breather as the dollar has halted its rising momentum since the Fed hinted that it might be slowing down the aggressive pace of its rate hikes. 

The pair has been consolidating between 146.290 to 148.775 for the past 2 weeks. The MACD has been hovering near the zero line and now falls under the zero line. It shows a bearish bias for the pair. RSI also supports this as it has fallen below 50, suggesting that there are more sellers than buyers as of writing. 

Resistance level: 148.775, 149.946

Support level: 146.290,  144.739

CL OIL

Crude oil prices fell due to profit-taking by investors, paring its gains following rising to more than two-month highs on mixed signals. On the bullish front, crude oil prices climbed on news that Chinese leaders are considering easing their Covid-19 restrictions, according to the Wall Street Journal. Meanwhile, China’s crude oil imports rebounded to the highest level since May, increasing 14% from a low base a year earlier. According to the General Administration of Customs, the world’s largest crude importer purchased 43.14 million barrels of crude oil last month, equivalent to 10.16 million barrels per day (BPD)

Crude oil prices have formed a double-top signal while retracing from the resistance level at 92.60. MACD has illustrated diminishing bullish momentum, while RSI is at 58 after it retreated sharply from overbought territory, suggesting the commodity extended its losses toward the first support level at 89.65.

Resistance level: 92.60, 97.10

Support level: 89.65, 86.80