The latest news from the Middle East is that Israel has instructed for all civilians in Gaza to evacuate the city and relocate to the south within the next 24 hours. The call is that „now is the time for war“ as the Israeli military is preparing to attack and social media is rife with talk of ‚genocide‘. Once again, fear is propagating in the echo chamber and that is leading to a similar reaction in markets that we saw on Monday.

10-year Treasury yields are down 9 bps to 4.620% while S&P 500 futures are also marked down by 0.3%, with European indices extending losses to a little over 1% mostly now. Meanwhile, gold is up 1% to $1,887 while WTI crude is up nearly 4% to $86.16 on the day currently. It’s exactly what you would expect on an escalation in the situation between Israel and Palestine.

This seems to be the case that markets are seeking shelter and it is not making it easy for traders and investors to read into the moves, especially after having seen how the bond market reacted yesterday to the US CPI data and poor Treasury auction.

In FX, the mood is more muted though as the dollar keeps little changed now after some mild weakness earlier. EUR/USD is flat at 1.0528 while USD/JPY is down just 0.1% to 149.60 on the day.

If there is nothing short ‚genocide‘ over the weekend, expect markets to turn things around again as they did earlier this week come next Monday.

This article was written by Justin Low at www.forexlive.com.

US:

• The Fed left interest rates unchanged as expected at the last meeting.
• The macroeconomic projections were revised higher,
  and the Dot Plot showed that the FOMC still expects another rate hike by the
  end of the year with less rate cuts in 2024.
• Fed Chair Powell reaffirmed their data dependency but added that
  they will proceed carefully.
• The US CPI yesterday beat expectations on the
  headline figures, but the core measures came in line with forecasts and the
  market’s pricing barely changed.
• The labour market remains fairly solid as seen last week with the NFP report
  and yesterday’s Jobless Claims.
• The ISM Manufacturing PMI beat expectations while the ISM Services PMI came in line with forecasts in another sign that
  the US economy remains resilient.
• The Fed members continue to cite elevated long-term
  yields as a reason to proceed carefully and likely pause in November as well.
• The market doesn’t expect the Fed to hike anymore.

New Zealand:

• The RBNZ kept its official cash rate
  unchanged while
  stating that demand growth continues to ease and it’s expected to decline
  further with monetary conditions remaining restrictive.
• The recent New Zealand inflation and employment data surprised to the upside but
  the PMIs continue to slide further into contraction as seen also today with the
  Manufacturing PMI.
• The wage growth has also missed
  expectations and it’s something that the central banks are watching closely.
• The recent New Zealand Retail Sales beat expectations although the data
  remains deeply negative.
• The RBNZ is expected to keep the
  cash rate steady at the next meeting as well.

NZDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that the NZDUSD pair
couldn’t break above the recent high at 0.6050 and got smacked back down.
Yesterday the pair sold off following the US CPI release, but the reaction was
a bit perplexing as the core measures came in line with expectations and the
market’s pricing hasn’t changed. If that was just an overreaction, we might see
the pair going back up and erase the post-CPI losses in the next few days.

NZDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that as soon as the
pair broke the upward trendline, the
sellers piled in to target the lows, and the bearish momentum increased
following the break of the 0.60 handle and the US CPI release. If the bias has
indeed switched to the downside, the sellers are likely to lean on the downward
trendline where there’s also the confluence with the
38.2% Fibonacci retracement level
and the red 21 moving average.

NZDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
bearish momentum seems to be waning as the price is diverging with
the MACD. The
buyers don’t have much to lean onto other than waiting for the price to break
above the trendline to invalidate the bearish setup and start looking forward
to new highs. If the price continues lower though and reaches the lows around
the 0.5860 level, the buyers should step in more aggressively with a defined
risk below the low and position for a rally into the previous high at
0.6050.

Upcoming Events

Today the only notable event on the agenda is the
University of Michigan Consumer Sentiment report although it has lost its
market moving ability lately. Only big surprises are likely to have an impact
on the market.

This article was written by FL Contributors at www.forexlive.com.

• Emphasis was also paced on upward revisions to headline inflation projections
• A pause would have given rise to speculation that tightening cycle was over
• Not hiking could also send a signal of ECB being more concerned about the economy than inflation
• Deposit facility rate around 3.75% to 4.00%, as long as it was understood as being maintained for a sufficiently long duration, should be consistent to return inflation to target
• Decision between rate hike and pausing was a close call but tactical considerations played a role as well
• Full accounts

If anything else, this just further solidifies the notion that the ECB are done. While the rate hike was meant to try and leave the door open to tighten further, the messaging after certainly did not convince anybody.

This article was written by Justin Low at www.forexlive.com.

• 2024 world oil demand growth forecast unchanged at 2.25 mil bpd
• 2023 world oil demand growth forecast unchanged at 2.44 mil bpd
• Trims Q4 2023 world oil demand forecast by 50k bpd
• Trims Q1 2024 world oil demand forecast by 150k bpd
• Ongoing uncertainty in Europe and other economies are expected to impact oil demand for the rest of the year and next year

In case you missed it, the IEA also shared their latest view on the oil market earlier here.

This article was written by Justin Low at www.forexlive.com.

• Best solution would be to have a common fiscal policy tool

Europe and the paucity of fiscal policy assistance. What else is new. This is something that has been repeated time and time again since the days of Draghi.

This article was written by Justin Low at www.forexlive.com.

The market continues to march higher as the war in
Israel hasn’t spread to other Arab countries. In fact, yesterday the US intelligence has even reported that
Iran was surprised by the Hamas attack. This has weighed on Crude Oil prices
and eliminated the risk of a much bigger spike. Moreover, the US PPI report
yesterday beat expectations, but it was mainly energy driven and the market
brushed it aside as we got a big drop in Oil prices in October and even Fed’s Waller sounded
like a rate hike in November is not coming unless we get a very ugly CPI
report.

Dow Jones Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Dow Jones
has now erased almost half of the losses seen in the prior month as the market
continues to charge higher targeting the key resistance zone
around the 34000 level. That’s where we are likely to see the sellers coming
into the market with more conviction as they will have a better risk to reward
setup to position for another drop into the lows.

Dow Jones Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that the break
above the minor downward trendline saw even
more buyers coming into the market as a key barrier got taken out. There’s now
a minor resistance defined by the previous swing high around the 33893 level,
but at this point we should see the price getting into the 34000 resistance
zone before seeing more bearish pressure coming into the market.

Dow Jones Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that the divergence with
the MACD
signalled a loss of bearish momentum and led to a reversal after the break of
the minor trendline. The buyers yesterday leant on the red 21 moving average to
position for another bullish impulse into the 34000 resistance. A break of the
most recent high might see more buyers piling into the market but we are now
near the sellers’ area, so we are likely to see the bullish momentum weakening
and the MACD could be helpful to time the reversal. An ugly CPI report today
might already be enough for the sellers to reverse this entire rally.

Upcoming Events

Today we will get the most important report of the
week, that is the US CPI report. The market is likely to focus on the core
measures and react positively to lower than 0.4% monthly rate readings. At the
same time, we will also see the latest US Jobless Claims data which is an
important labour market report. Tomorrow, we conclude the week with the
University of Michigan Consumer Sentiment report.

This article was written by FL Contributors at www.forexlive.com.

S&P 500 futures are up 0.4% while major European indices are posting gains of around 0.6% to 1.0% currently. This continues from the push higher yesterday as equities are looking to recover more ground after the drop in the last two weeks.

In terms of overall sentiment, tech stocks remain the beacon of hope in a sense and the Nasdaq chart exemplifies that:

It tested key trendline support over the last one week or so before pushing back to above its 100-day moving average (red line) yesterday. And buyers will be hoping for more follow through after the US CPI data today.

This article was written by Justin Low at www.forexlive.com.

Headlines:

• Dollar relatively steady so far on the session
• Treasury yields dip further as Middle East tensions linger
• Fed’s Bowman: Interest rates may need to rise further
• ECB’s Knot: Policy is in a good place now
• ECB’s de Cos: Core inflation has turned a corner
• Eurozone consumers still see inflation higher for longer
• US MBA mortgage applications w.e. 6 October +0.6% vs -6.0% prior
• Germany September final CPI +4.5% vs +4.5% y/y prelim

Markets:

• CHF leads, NZD lags on the day
• European equities mostly higher; S&P 500 futures up 0.3%
• US 10-year yields down 9.5 bps to 4.560%
• Gold up 0.5% to $1,870.73
• WTI crude down 0.8% to $85.27
• Bitcoin down 0.7% to $27,200

It was a slow session for the most part as traders are largely waiting on key US data to come during the week. Today will feature the PPI report before we get to the main event tomorrow i.e. CPI report.

Major currencies are looking rather tentative and pushing and pulling within a narrow range. The dollar is keeping steadier overall despite a further plunge in Treasury yields on the day. 10-year yields are down nearly 10 bps now to 4.56% and after being roughed up early in European morning trade.

EUR/USD is flattish at 1.0600 while USD/JPY is little changed at 148.80 currently. The aussie and kiwi are lagging slightly but the softness can’t really be attributed to the risk mood.

Overall risk sentiment is holding up, with US futures ticking a little higher amid the drop in bond yields. The only drag comes from Europe and that features French and luxury stocks after LVMH reported slower sales growth in Q3.

Besides that, there is little to work with but perhaps we’ll get more affirmative action after the PPI report as Wall Street digests the continued fall in Treasury yields this week.

This article was written by Justin Low at www.forexlive.com.

In asset trading, foreign exchange, or Forex,
occupies a unique niche. Foreign exchange is one of the most significant global
economic events. Simply put, it is a virtual international market where
currencies are bought and sold.

Multiple factors drive this dynamic marketplace, but one of the most essential
elements in understanding its fluctuations is the concept of imbalance. This
article will explain what is Forex
trading and what an
imbalance in Forex means.

Basics of Supply and Demand in Forex

At its core, Forex trading is purely reliant on
the basic economic principles of supply and demand. Currencies, like any other
asset, are subject to fluctuations in supply and demand. A currency in high
demand will be in limited supply; hence, its value will appreciate. Obviously,
the opposite is true of any currency that is not in demand.

The driver for a currency to be in high demand is its popularity as a primary
trading currency. Strong currencies such as the dollar, pound, and euro are
always in high demand because they are the staples of international trade.

The Concept of Imbalance

A fine line exists between the forces of supply
and demand in trading currencies.

Definition of Imbalance in Forex

An imbalance in Forex occurs when there is a
significant disparity between those forces for a particular currency. This
imbalance can manifest in two ways. One is a sudden surge in buying pressure,
known as a bullish imbalance. On the other hand, an imbalance driven by currency
sellers is a bearish imbalance.

Causes of Imbalance in Forex

Several factors can lead to an imbalance in the
supply of a currency in the Forex market. Economic releases, like employment
data or interest rate decisions, can trigger rapid shifts in currency demand.
Political events, such as elections or policy changes, can also create
imbalances.

Unexpected global events like natural disasters or geopolitical conflicts can
disrupt the balance between buyers and sellers in the market. These events
cause buyers or sellers to change their strategies abruptly, either trying to
dump or hoard their assets. When this situation manifests, the market becomes
quite volatile and even more unpredictable than usual.

Implications of Forex Imbalance

Imbalances can have far-reaching consequences.
For traders, they present both an opportunity and a risk. Trading is always
risky, but imbalanced situations add an extra element of uncertainty that can
be severely costly or might pay huge dividends.

Sudden imbalances can lead to sharp price spikes, and on a larger scale,
imbalances can impact a country’s trade balance. The trending phenomenon can
affect a currency’s exchange rate and international competitiveness. Imbalances
can affect the global economy, as Forex imbalances are interconnected with
international trade and investment.

Strategies to Navigate and Maximize Forex
Imbalances

Recognizing the signs of imbalance is a must for
traders. Monitoring economic calendars, news releases, and market sentiment can
help identify potential imbalances. Once identified, traders can employ various
strategies to capitalize on imbalances. However, predictive analytics is not an
exact science, so answers are not 100% accurate.

Utilizing Resources to Stay Ahead

Understanding imbalances in Forex is essential
for anyone participating in the trading market. Imbalances signify shifts in
supply and demand that can lead to significant price movements. These movements
are an opportunity as much as they are a risk. Traders must stay informed about
economic events and continuously adapt their strategies to navigate imbalances
effectively.

This article was written by FL Contributors at www.forexlive.com.

• More confident that inflation trajectory might lead us to 2% target
• If rates are maintained for a sufficiently long period, we could get there
• Market has understood very well our communication
• Growth risks skewed to the downside
• It is premature to discuss rate cuts

They are trying to sell the story they are right in pausing on rate hikes but I guess time will tell. We’ll see how confident they can still try to be if the economy takes a worse turn in the months ahead.

This article was written by Justin Low at www.forexlive.com.