APAC session

EUR/USD has rarely found itself in oversold territory on RSI (14) over the past two years, yet that’s where it finds itself heading into the ECB October monetary policy decision later Thursday. A quick look at historic trends suggests some form or bullish reversal is on the cards near-term.

Both USD/CHF and gold look like they want to trade to new cycle highs, leaving bulls pondering whether to seek the break or dips at more favourable levels.

GBP/USD is at risk of breaking out of the narrow trading range it’s been sitting in over the past fortnight with the UK consumer price inflation (CPI) report for September released later in the session. With so much uncertainty regarding the signal from labour market data given poor response rates, this is the only UK data point that can still generate meaningful volatility in the pound.

New Zealand consumer price inflation (CPI) fell to the lowest level since early 2021 in the September quarter, seeing markets retain the view the Reserve Bank of New Zealand (RBNZ) will deliver another jumbo rate cut in November. NZD/USD has moved back towards range lows ahead of another key inflation measure.

The yen suck in safe-haven flows on reports that the US government is considering limiting exports of AI chips. And given we have risk events and a US election looming, investors are likely questioning how exposed to risk they really want to be.

Conditions for euro bears have been ripe for the past three weeks with renewed bets of an ECB cut alongside scaled-back bets of ECB easing. But given the depth of the selloff on EUR/USD, it could be vulnerable to a bounce unless a dovish cut is delivered.

Everyone has been dunking on the euro and buying US dollars recently, explaining why EUR/USD has continued to sink. But with sentiment towards the common currency so dire, it won’t take much to spark a short squeeze. With major risk events approaching, the temptation to square up short trades may prove too appealing for some.

USD/JPY continues to track US Treasury yields closely, while Japanese domestic factors remain largely irrelevant in the absence of a major policy shift. Thursday’s US jobless claims and retail sales reports are the key events, carrying the potential to meaningfully alter the US interest rate outlook. Directional risks appear slightly skewed to the downside, especially if labour data weakens.

If you want clues on directional risks for the US dollar, there are worse places to look than US 2-year Treasury note futures. As one of the most liquid futures contracts globally, the price signals it provides can be very informative for broader markets, especially in the FX universe.

Even though disruptions caused by hurricane season should be factored in, with the Fed ramming the home message home that the outlook for rates is likely to be determined by the jobs market, the prospect of weak data suggests we may see a pullback in US bond yields and the dollar next week. If correct, it will have ramifications for USD/JPY and gold.

With inflation and unemployment higher, we have a mini stagflation on our hands. Of course, one set of data points cannot be taken as seriously as stagflation, but it is a trend that could significantly change expectations of the Fed’s monetary policy if this hiccups turns into a trend.

EUR/USD is hugging its cycle lows and gold sits at a technical juncture ahead of today's highly anticipated inflation report.

US interest rate expectations are heavily influencing gold and USD/CHF movements yet again, putting increased emphasis on incoming inflation and labour market data, along with gyrations in short-term debt securities, to dictate direction. Recent trends look similar to what was seen in the March quarter this year, pointing to the risk of further US dollar strengthening ahead.

The USD resumed its place at the top of the FX table ahead of a key US inflation report, which has USD/JPY bulls on the cusp of reclaiming the 150 handle. The S&P 500 reached a record high and the Dow Jones is within striking distance of following suit.

S&P 500 futures have shown little interest in the major repricing of Federal Reserve rate cut expectations caused by Friday’s blowout non-farm payrolls report for September, raising the question whether Thursday’s US consumer price inflation (CPI) report is as big a risk event as some make it out to be.

The Reserve Bank of New Zealand (RBNZ) has joined the Federal Reserve in the jumbo rate cut club, slashing its cash rate by 50 basis points to 4.75% at the conclusion of its October monetary policy decision. NZD/USD is testing the 200-day moving average in the wake of the decision, a level that one glance tells you is important from a directional risk perspective.