Fed Chairman Powell in the epicenter of attention

The USD continued to strengthen against its counterparts yesterday as Fed policymakers remained split, with some hinting that the Fed’s done with hiking rates while others kept the door open for more rate hikes to come. It’s characteristic that some Fed policymakers noted the acceleration of the GDP for Q3 as an outlier for the year, while also mentioned how the US employment market and economic activity in the industrial sector are cooling off, while others such as Chicago Fed President Goolsbee and Minneapolis Fed President Kashkari did not rule out the possibility of more rate hikes. Attention today is shifting to Fed Chairman Jerome Powell’s opening remarks before the Federal Reserve Division of Research and Statistics Centennial Conference. We see the benchmark being the tone of the Fed’s latest interest rate decision and should the Fed Chairman strike a more hawkish tone, say for example given that US yields seem to be retreating somewhat since last Wednesday, we may see the USD gaining some support, while should the tone remain dovish the USD may lose some ground.  

On a technical level, the USD gained against the EUR, forcing EUR/USD to lower grounds, yet the pair remained between the 1.0635 (S1) support line and the 1.0735 (R1) resistance level. Given that the upward trendline guiding the pair has been broken and the RSI indicator remains near the reading of 50, we tend to maintain a bias for a sideways motion currently. Should the bulls take over we may see the pair breaking the 1.0735 (R1) resistance line and aim for the 1.0835 (R2) resistance nest. For a bearish outlook, we would require the pair to break the 1.0635 (S1) support line and aim for the 1.0515 (S2) support level.    

On the commodities front, we highlight the retreat of oil prices yesterday. On a fundamental level, we note that increased expectations for negotiations in the Middle East tend to ease worries for the supply side of the commodity, while the market worries for the demand side of the international oil market especially for oil demand from China, tend to intensify, with both factors weighing on the commodity’s price. Furthermore, we highlight that the American Petroleum Institute (API) reported a wide rise of US oil inventories for the past week, of almost twelve million barrels, in a sign of a slack in the US oil market. Please note that EIA’s respective figure which was to be released today may be delayed for next week.    

WTI prices retreated yesterday breaking the 77.50 (R1) support line, now turned to resistance. Given that the price action was able to escape the wedge formation to the downside and break below the 77.50 level, we tend to maintain a bearish outlook for the commodity’s price. On the other hand, we note that the price action has been flirting with the lower Bollinger band, while the RSI indicator is below the reading of 30, with both indicators implying that the commodity’s price may be in oversold levels and may be ripe for a correction higher. Should fresh buying orders emerge for oil, we may see WTI’s price breaking the 77.50 (R1) resistance line, and take aim of the 80.75 (R2) resistance nest. Should the selling interest of the market be extended as expected, we may see WTI’s price aiming if not breaking the 73.75 (S1) support base.       

Other highlights for the day:

Today we get Germany’s final HICP rates for October and Eurozone’s retail sales for September, while ECB’s chief economist Lane, Fed Board Governor Cook and BuBa President Nagel are scheduled to speak. In the American session, we get Canada’s building permits for September. On the monetary front, besides Fed Chairman Jerome Powell’s speech, we also note that ECB’s Enria, NY Fed President Williams, Fed Vice Chair Barr and Fed Vice Chair Jefferson are scheduled to speak. During tomorrow’s Asian session, we get Japan’s current account balance for September and China’s inflation metrics for October, while also BoJ is to release the summary of opinions of the October meeting. 

EUR/USD 4 Hour Chart

Support: 1.0635 (S1), 1.0515 (S2), 1.0430 (S3)

Resistance: 1.0735 (R1), 1.0835 (R2), 1.0945 (R3)

WTI 4 Hour Chart

Support: 73.75 (S1), 70.00 (S2), 66.85 (S3)

Resistance: 77.50 (R1), 80.75 (R2), 84.50 (R3)

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