Forex Today: Dollar finds it feet amid mixed mood, higher yields

Here is what you need to know on Wednesday, October 19:

The US dollar finds demand across its main competitors amid a mixed market sentiment heading into early European trading this Wednesday. Investors assess strong US corporate earnings, China’s covid resurgence and aggressive ECB and Fed rate hike expectations. Therefore, Asian stocks remained a mixed bag, with Chinese indices as the main laggard. The US S&P 500 futures track the extended risk rally on Wall Street after earnings reports from Goldman Sachs, United Airlines Holdings and Netflix outpaced expectations. The US Treasury yields extend their advance, capitalizing on hawkish Fed commentary from Minneapolis Fed President Neal Kashkari and Atlanta Fed Chief Raphael Bostic. At the moment, the benchmark 10-year US rates are trading above 4.05%, nearing weekly highs.

However, a sense of caution prevails amid looming recession fears, especially with Beijing reporting the highest covid cases in four months and markets betting on steeper global rate hikes to fight rampant inflation. The UK annualized Consumer Price Index (CPI) surged 10.1% vs. 10.0% expected and 9.9% previous, exerting pressure on the BOE to act tough amidst the UK’s fiscal policy reversal. GBP/USD is trading under pressure below 1.1300, meeting fresh supply despite hotter-than-expected UK inflation data. Markets are focussed on the UK political scenario, with many Tory members rooting for PM Liz Truss’ replacement.

Attention now turns towards the final reading of the Eurozone HICP due later in the day at 0900 GMT. The data is likely to have limited impact on the euro, as it is the final revision, with EUR/USD seen maintaining its range play around 0.9850. Increased expectations of a 75 bps rate hike by the ECB next week fail to offer any encouragement to EUR buyers.

USD/JPY shows resilience to the jawboning attempts by the Japanese government authorities time and again. BOJ Governor Haruhiko Kuroda and board member Seiji Adachi, however, continue advocating easy monetary policy, exacerbating the pain in the yen against the dollar. The USD/JPY pair is advancing towards 149.50, in a bid to refresh 32-year highs.

Meanwhile, the Antipodeans lost the upside traction yet again, as risk trades turned sour and the dollar bulls jumped back into the bids. Although the losses remain capped by expectations of big rate hikes by the central banks down under. AUD/USD is pressured around 0.6300 while NZD/USD faces rejection just above 0.5700.

USD/CAD is advancing above 1.3750, benefiting from the broad US dollar rebound and falling oil prices, ahead of the Canadian inflation data. WTI is fading a minor bounce, holding a lower ground just above the $82 level. Demand concerns from China and increased US crude supplies weigh negatively on US oil.

Gold is extending its decline towards the critical $1,640 support, with the downside opening up towards 2022 lows at $1,615 amid firmer yields. 

Bitcoin price is attacking the $19,000 support, as a fresh selling wave sweeps crypto markets. Ethereum surrenders the $1,300 threshold.