Market Overview

Investors Continue To Increase Their Risk Exposure

EU and US indices continued to gain somewhat yesterday, while the US dollar stayed on the back foot. It seems that investors continued to cheer upbeat earnings, despite maintaining bets over tighter monetary policy by major central banks.

The Fed could push the hike button in the last quarter of next year, but others who did it already are expected to do it later this year.

EU and US Indices Gain Slightly, Asian Ones Slide

The US dollar traded lower against all but one of the other major currencies on Wednesday and during the Asian session Thursday. It lost ground versus CHF and JPY, while it did not lose ground against the euro, which was unchanged this morning.

USD performance vs major currencies.

The US dollar continued to weaken broadly, suggesting that the financial world resumed trading in a risk-on fashion. However, the strengthening of the safe-havens yen and franc says otherwise. Therefore, to clear things up regarding the broader market sentiment, we prefer to turn our gaze to the equity world.

Major EU and US indices were higher or unchanged, but the picture changed during the Asian trading today. Japan’s Nikkei 225 lost nearly 1.9%, and although China’s Shanghai Composite gained, Hong Kong’s Hang Seng and South Korea’s KOSPI slid.

Major global stock indices performance.

It seems that better-than-expected earnings continue to be the main driver for the markets. Yes, they may not point to a skyrocketing global economy, but let’s not forget that the bar was set low in the season. Thus, anything better than that is music to investors’ ears.

The slide in Asian indices could be due to Evergrande’s (OTC:EGRNY) failure to seal a deal on selling a USD 2.6bn stake in its property services unit. Yet, China’s Shanghai Composite was the only index in positive territory. This may be due to the property giant securing an extension of more than three months on a defaulted bond or due to Chinese officials reassuring investors that overall risks in the property market are controllable.

With long-dated yields around the globe also rising, it seems that investors have not scaled back their tightening bets, despite increasing their risk exposure lately. According to the Fed funds futures, they anticipate an interest rate hike by the Fed in the last quarter of 2022.

A while ago, such a move was expected for the first three months of 2023. That said, other central banks have already hit that button, like the Reserve Bank of New Zealand (RBNZ), and others expected to do it later this year, like the Bank of England (BoE). Therefore, we would expect the US dollar to continue underperforming against the Kiwi and pound, especially if sentiment remains supported for a while more.Fed funds futures market expectations on US interest rates.

GBP/USD – Technical Outlook

GBP/USD traded higher yesterday after it hit support at 1.3742. However, the advance stopped near the peak of Oct. 19, at 1.3835, before retreating. Overall, the pair continues to trade above the upside support line drawn from the low of Sept. 30. We would consider the near-term outlook to be positive.

A clear and decisive break above 1.3835 would confirm a forthcoming higher high, but we would like to see a clear move above 1.3854, the peak of Sept. 15, before seeing significant advances. Such a move could pave the way towards the high of the day before, at 1.3913. That said, we see the latest pullback to test the 1.3742 zones before the next up move.

The move that would make us start examining a bearish reversal is a dip below 1.3675. This may confirm the break below the upside support line taken from the low of Sept. 30 and could allow declines towards the 1.3575 zone, which was a support on Oct. 12 and 13. We may see the bears pushing the action towards the low of Oct. 4, at 1.3532.

GBP/USD 4-hour chart technical analysis.

NZD/JPY – Technical Outlook

NZD/JPY has been in a short uptrend since Oct. 6, marked by an upside line taken from the low of that day. The rate hit resistance at 82.50 during the Asian trading today and pulled back. In any case, the rate remains well above the Oct.6 upside line, and as long as this is the case, we will stay positive.

The bulls decide to come alive from 81.22, marked by the inside swing high of Oct. 17. A rebound may result in another test at 82.50, where a break could take the rate into territories last seen in 2017. The next resistance may be at 82.80, marked by the high of Sept. 20 of that year, the break of which could carry larger bullish implications, perhaps towards the 83.90 zones, defined as resistance by the peak of July 27, 2017.

On the downside, we would like to see a dip below 80.17 before we start examining whether the bears have gained complete control. The rate would already be below the pre-mentioned upside line, and we may see declines towards the 79.16 or 78.60 levels. If neither barrier can halt the slide, the rate could slide towards 77.93, defined as a support by the inside swing high of Oct. 6.

NZD/JPY 4-hour chart technical analysis.

As for Today’s Events

The only releases worth mentioning are the US existing home sales for September, with expectations pointing to a slight increase, and the initial jobless claims for last week, which are forecast to increase fractionally. We also have two speakers on today’s agenda: Fed Board Governor Christopher Waller and RBA Governor Philip Lowe.


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