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US dollar under pressure ahead of CPI tomorrow

$100 dollar bills

With most of the market attention on the US mid-terms yesterday’s market action can only be characterised as bitty. There was no real catalyst for any of the moves we saw yesterday, with some of the moves technical in nature.

It was another positive day for markets in Europe yesterday, with the DAX closing above its 200-day SMA for the first time since 20th January this year, in a sign that perhaps the lows of the year may well be in.

The FTSE100 had a disappointing day underperforming due to a sharp slide in the oil price which weighed on the oil majors BP and Shell. The slide in the oil price appears to have been because of rising Covid infection rates in China which appears to be pricking the optimism around the reopening narrative that drove Brent crude prices up to $100 a barrel at the beginning of the week.

US markets also had another good day, finishing higher for the 3rd day in a row, although well off the highs of the day with the gains being relatively modest, despite a fall in treasury yields with the markets trading relatively cautiously ahead of tomorrow’s CPI report. This pullback suggests we will see a lower European open this morning.

The US dollar had a disappointing day on the back of the slide in yields, prompting some speculation that perhaps we might have seen a short-term top, given that on the US dollar index we’ve struggled to match the highs we saw back in September.

The weakness has been particularly notable against the Japanese yen, with the greenback retesting the recent lows and 50-day SMA between 145.10 and 145.30.

The pound also underwent a brief move higher on reports that the UK and EU were near a breakthrough about trade rules around the Northern Ireland border.

Gold prices surged above the $1,700 and to one-month highs, after breaking strongly above the 50-day SMA which has managed by and large been able to contain the move lower from the March peaks. If we break above the $1,730 level, we could see further strong gains for the yellow metal in what could transpire into a technical move towards $1,800 an ounce.

Crypto currencies also had a tough day after crypto currency exchange Binance reached agreement to buy fellow crypto exchange FTX, after the latter experienced liquidity problems, when users rushed to withdraw funds. It was only a few months ago that Robinhood announced that FTX had taken a 7.6% stake in the business.

Bitcoin fell to its lowest levels in two years, before pulling back from those lows, while we also saw double digit percentage losses across the crypto piste, from Dogecoin to Solana.

EUR/USD – looking to retest the 1.0090 area and October peaks. Above 1.0100 we have the September highs of 1.0200. Support comes in at the 50-day SMA.   

GBP/USD – broken up towards 1.1600, with the prospect of further gains towards the October peaks at 1.1640, with further resistance at the September peaks at 1.1710. Support comes in at the 50-day SMA at 1.1340.  

EUR/GBP – continues to struggle below the 0.8780/90 area, with support at the 0.8670 area. A break either side targets the next move higher or lower. A break of 0.8800 retargets the October peaks at 0.8860 area.

USD/JPY – slipping back towards the 50-day SMA and 145.10 support. The inability of the US dollar to get close to a retest of the 150 area has seen some weakness in the short term, which could see a retest of the recent lows at 145.10, and a break targeting the 140.00 area. 

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