Risk sentiment improves as China rebounds

Volatility could be the name of the game over the next few days due to the protests in China, speeches from Fed officials including Jerome Powell, and top-tier economic data. 

Investors received a taster early this morning with Asian stocks rallying as Chinese shares rebounded from the heavy selloff triggered by unrest over Covid restrictions. Shares in the region were also supported by a rally in the property sector after China removed restrictions on developers selling stock to raise funds. European futures are pointing to a positive open amid the improving market mood in Asia. This renewed appetite for risk could find its way back to Wall Street as market jitters over the developments in China ease. In the currency space, the dollar fell along with Treasury yields while the euro hovered around the 200-day SMA at 1.0380. Gold prices rebounded during early trading helped by a weaker dollar, while oil prices jumped as speculation around more supply cuts by OPEC+ intensifies.

In Europe, the pending economic sentiment and consumer confidence figures for November could provide insight into the health of the European economy. The euro may find itself under renewed pressure if these reports fail to meet expectations. However, the key focus falls on the German inflation figures scheduled to be released today and then for the wider region on Wednesday. Inflation in Europe is expected to remain at elevated levels, with the CPI projected to ease slightly from a record high of 10.6% in October.

All eyes on Fed Chair Powell

Dollar bulls were injected with renewed inspiration on Monday thanks to hawkish comments from Federal Reserve officials. Perennial hawk Bullard said he believed “markets are underpricing a little bit the risk that the FOMC will have to be more aggressive rather than less”. New York Fed President Williams struck a softer tone but also said he saw the rate path higher.

Regardless of recent gains, the greenback could find itself under fresh selling pressure not only due to the improving market mood, but if Powell reinforces expectations over the central bank slowing its pace of interest rate increases in a speech scheduled for Wednesday. Much attention will also be directed toward the PCE Core Deflator on Thursday which is the Fed’s preferred measure of inflation. Any signs of cooling inflation will most likely fortify expectations around the Fed adopting a less aggressive approach toward rates.

Friday could be the main market shaker as all eyes turn to the monthly US non-farm payrolls report. The US economy is expected to have created 200,000 jobs in October with the unemployment rate unchanged at 3.7%. A report that meets or prints below expectations may justify a change in the pace of the Fed’s policy tightening, ultimately weakening the dollar further. 

Talking technicals, the DXY remains under pressure on the daily charts. A move back below 106.00 could encourage a decline toward the 200-day SMA around 105.30. Below this point, the next level of interest can be found at 104.50.

Currency spotlight – EUR/USD

This is bound to be a volatile trading week for the EURUSD thanks to the numerous key risk events in Europe and the United States.

With the Eurozone inflation figures and Powell’s speech on Wednesday, the US PCE deflator and US ISM on Thursday, topped off with the US jobs report on Friday, this could be a rollercoaster week for the EURUSD. Looking at the technical picture, the currency pair is bullish on the daily charts but remains capped around the 200-day SMA. A solid daily close above 1.0450, followed by a move towards 1.0500 could signal that bulls remain in control. Alternatively, a selloff towards 1.0300 could result in a move to 1.0190 and 1.0100.

Commodity spotlight - Gold 

Gold is waiting for a fresh fundamental spark to get its gears moving and this could come in the form of speeches from Fed officials, geopolitical risks, or key US economic data such as the NFP.

The precious metal remains in a wide range on the daily charts with support at $1735 and resistance at $1785. However, with the fundamentals slowly tilting in favour of gold bulls, a solid breakout could be around the corner. In the meantime, prices are trading above the 50-day and 100-day SMA but below the 200-day SMA. A solid breakout above $1785 could open the doors toward $1800 and $1840. Should prices slip back below $1735, this may result in a selloff towards $1700.