Sentiment Turned Sour, Dollar Awaits US CPI

The selloff in cryptocurrencies spread to global stocks. Commodity currencies tumbled broadly following risk-off sentiment. Swiss Franc and Euro are currently the biggest winner from market sentiment, while Sterling softened notably against European peers. Dollar and Yen are mixed for now. Focuses will turn to US inflation today, which has the potential to trigger further selloff in risk markets, and help the greenback.

Technically, the decline in USD/CAD didn’t really take off and it recovered after dipping to 1.3386. Sustained break of 4 hour 55 EMA (now at 1.3559) will argue that it’s a failed head and shoulder top pattern. More importantly, that would suggest that correction from 1.3976 has completed, and stronger rally would be seen back to 1.3807 and above. We’ll know how it goes very soon.

In Asia, Nikkei dropped -0.98%. Hong Kong HSI is down -2.17%. China Shanghai SSE is down -0.54%. Singapore Strait Times is up 0.35%. Japan 10-year JGB yield is down -0.0037 at 0.255. Overnight, DOW dropped -1.95%. S&P 500 dropped -2.08%. NASDAQ dropped -2.48%. 10-year yield rose 0.025 to 4.151.

Fed Kashkari: Any talk of a pivot is entirely premature

Minneapolis Federal Reserve Bank President Neel Kashkari said, “at the next meeting, which is mid-December, I don’t know what we are going to do.”

“There’s a lot of talk in the public about might we raise rates by 50 basis points, might we raise rates by 75 basis points – those are certainly going to be on the table, but could it be something beyond that? It’s possible too,” he added.

Fed’s dual mandate, price stability and maximum employment could come into tension at a certain point. However, Kashkari said, “we are a long, long, long way away from that right now, so that’s why any talk of a pivot is entirely premature.”

Fed Evans: There’s benefits to adjusting tightening pace soon

Chicago Fed President Charles Evans said yesterday, “there’s benefits to adjusting the pace (of tightening) as soon as we can.”

“I’m hopeful that we’re getting to a point where the dynamics for inflation turning over and returning towards our 2% objective will be put in place, if not very soon, soon, and we’ll actually see it in inflation,” he said.

“If you don’t begin to think about adjusting the pace, taking account of lags, and you just keep increasing rates by a large amount every time you get a disappointing report,” then “next thing you know, you’re at a very high federal funds rate.”

“I’m going to continue to be nervous that, as we go higher than that, it could be that the economy is going to face more challenges, and that that could present risks on the ‘real’ side, the full employment mandate,” he said. “It’s a risk.”

BoJ Kuroda: Premature to lay out details of exit strategy

BoJ Governor Haruhiko Kuroda told the parliament, “it’s premature to lay out details of an exit strategy. But one major factor of debate will be the pace of increase in the BoJ’s short-term policy rate, now set at -0.1%.”

“Another factor would be how to adjust its balance sheet,” he said, noting that other major central banks adopted the sequence of interest rate hike first, then shrinking balance sheet.

“It’s extremely important for the BOJ to underpin the economy with ultra-loose monetary policy and ensure the necessary environment is falling into place for companies to hike wages,” Kuroda emphasized.

Looking ahead

ECB will publish monthly economic bulletin. But main focus will be on US CPI, while jobless claims will also be released.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6390; (P) 0.6456; (R1) 0.6497; More…

AUD/USD is retreating further away from 0.6550 and intraday bias stays neutral first. Above 0.6550 will resume the corrective rise from 0.6169 towards 0.6680 support turned resistance. On the downside, though, break of 0.6271 support will indicate that the corrective rise has completed, after rejection by 55 day EMA. Intraday bias will be back on the downside through 0.6169 low to resume larger down trend.

In the bigger picture, down trend from 0.8006 (2021 high) is expected to continue as long as 0.6680 support turned resistance holds. Medium term momentum remains strong and retest of 0.5506 (2020 low) cannot be ruled out. But firm break of 0.6680 will be the first sign of reversal, and bring stronger rebound back to 0.7135 resistance.

Economic Indicators Update