Oil: Race to the Bottom

Energy

Summary:

This week could hardly be better in terms of economic, political, and geopolitical news.

This week could hardly be better in terms of economic, political, and geopolitical news. The US inflation slowed more than expected, the US politicians inked a short-term deal to avert a shutdown. On top, the US retail sales fell last month, but fell less than expected, the initial jobless claims rose, and the US unemployment benefits reached the highest level in almost two years, factory production fell more than expected and homebuilder sentiment fell to the lowest level for the year.

The US 2-year yield fell again to test the 4.80% level for the third time since the beginning of this month and the 10-year yield slipped below 4.50%, again. The S&P500 consolidated gains above the 4500 psychological level, and Nasdaq 100 remained bid a few points below the summer peak. Small stocks in the Russell 2000 however fell 1.50% yesterday, and the Chinese stocks couldn't extend gains after the Biden-Xi summit. Nasdaq's Golden Dragon China index spent just one day above its 50-DMA -thanks to fresh stimulus measures announced by China earlier in the week, then returned below this level.

Alibaba called off its much-expected cloud division spin off this week because the company serves Chinese tech and AI companies and needs advanced chips – the kind of chips that Nvidia makes – to compete with Amazon Web Services, or Microsoft's Azure. And with the US chip export ban looming, it's certainly not the best timing to take on a new challenge. Investors are not ready to go back to Chinese tech names in the middle of a chip war between the US and China.

FX and commodities

The US dollar index held ground at the 100-DMA, but remains offered near the major 38.2% Fibonacci retracement, as the softening Fed expectations increase bets against the greenback. The EURUSD consolidates gains after being propelled into the medium-term bullish consolidation zone. Earlier this week, the EU revised its 2023 growth forecast for Europe down to 0.6%, but it said that it sees growth return to the old continent by next year. Even Germany, which is suffering from a severe economic slowdown, could grow. Recession or not, the European Central Bank (ECB) is not expected to cut its interest rates until, at least, July next year. The ECB's slight hawkish note could support a further rise to the 1.10 mark. Cable, on the other hand, returned below its 200-DMA after a softer-than-expected inflation report released earlier this week revived the Bank of England (BoE) doves as well.

In commodities, gold surfs on falling yields and high tensions in the Middle East. The yellow metal extended its gains to $1988 yesterday but should see resistance into the $2000 level in the absence of any major news.

American crude sank to $72pb yesterday, after having tested and failed to clear the $78/80 resistance earlier this week. The 3.6-mio-barrel increase in the US inventories last week served as a good excuse to sell the top, along with the rising worries of global slowdown. No one cares about the Middle East carnage or OPEC cuts. At the current levels, oil is oversold, and we could see another correction attempt, but gains will likely remain limited.

Could OPEC do anything about it? Yes, but not now. The market focus has heavily shifted to the weakening demand outlook from tightening supply If Saudi announces further supply cuts, and if the market doesn't react, its finances will take a bigger hit. As such, the selloff could extend below the $70 mark. Key support stands at $63.50, the May dip.

Risk Warnings and Disclaimers

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Owen Li

Commodity

Oil prices edged slightly higher on Friday following a nearly 5 per cent drop the previous day, with futures set to decline for the fourth straight week as growing crude demand concerns offset prospects of tighter supply.

Brent, the benchmark for two thirds of the world's oil, was trading 0.12 per cent higher at $77.51 a barrel at 9.04am UAE time. West Texas Intermediate, the gauge that tracks U.S. crude, was up 0.12 per cent at $72.99 a barrel.

On Thursday, Brent settled 4.63 per cent lower at a four-month low of $77.42 a barrel. WTI closed 4.90 per cent down at $72.90 a barrel.

Oil Prices Set for Fourth Straight Weekly Drop Amid Growing Demand Concerns_1

New selling emerged after "prices failed to reach safer grounds earlier in the week when global stock markets and general risk appetite surged following an unexpected slowdown in U.S. inflation", Ole Hansen, head of commodity strategy at Saxo Bank, said in a research note.

"The oil market focus has instead been turning to the short-term demand outlook, which according to the futures market is showing signs of weakening."

Futures also came under pressure from an unexpected rise in U.S. crude stocks.

U.S. crude inventories, an indicator of fuel demand, increased by 3.6 million barrels in the week that ended on November 10, according to the U.S. Energy Information Administration (EIA).

Analysts polled by Reuters expected a build of 1.8 million barrels.

Meanwhile, total petroleum inventories decreased by 1.5 million barrels last week, while distillate stocks fell by 1.4 million barrels in the same period, the EIA data showed.

The decline in prices came despite predictions of a tight crude market in the fourth quarter by Opec and the International Energy Agency this week.

On Tuesday, the IEA raised its oil demand growth forecast for 2023 and 2024 on record demand in China and "resilient" U.S. crude deliveries.

Opec also raised its forecast for oil demand growth for 2023 and said it expected record demand from China and India in the fourth quarter.

Goldman Sachs on Thursday said the fall in oil prices had been driven by "one-off" factors, concentrated in the U.S., Iran and Russia, but added that demand growth would remain "solid" in 2024.

"We expect the oil market to tighten at a moderate pace, but preserve significant spare capacity to handle tightening shocks, which effectively delays the super cycle," the U.S. investment bank said.

It expects the Opec+ alliance to ensure Brent in a $80 to $100 range by "leveraging its pricing power".

While higher non-Opec supply or lower gross domestic product are "downside risks" to prices, Goldman Sachs expects Brent to remain close to $80.

Opec+ is set to hold its next ministerial meeting on November 26 in Vienna to decide oil production policy for the first half of 2024.

The Israel-Gaza war, which last month caused oil price volatility, appears to be contained, but risks of a regional conflagration remain, MUFG said.

"The key concern remains on how the U.S. can skilfully navigate pressure to tighten the enforceability of its sanctions on Iranian barrels without antagonising China's growing appetite for discounted Iranian crude," the Japanese lender said.

U.S. President Joe Biden and Chinese President Xi Jinping met in California this week amid disputes between their countries over military and economic issues.

Source: The National News

Risk Warnings and Disclaimers

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Samantha Luan

Forex

Commodity

As the trading week draws to a close, the forex markets are experiencing a period of relative calm in today's Asian session. Key developments include Euro's attempted resurgence against Dollar overnight, which, despite initial signs of a rally, lost its momentum and settled back into familiar range. This pattern of indecisiveness is mirrored by Swiss Franc, which, after a period of gains against Dollar, is now in a similar phase of consolidation, aligning with other European majors. Commodity currencies displaying a softer stance overall. However, Australian Dollar stands out for its resilience.

For the week, Dollar remains the weakest performer overall. However, it's noteworthy that Dollar is managing to stay above the previous week's low against most currencies, except for Euro and Swiss Franc. This observation suggests that Dollar is still in the process of digesting its recent losses. Canadian Dollar and Japanese Yen follow as the next weakest, whereas Australian Dollar stands out as the strongest for the week. However, Aussie's position is somewhat precarious, as it hasn't surpassed last week's high against other rivals, indicating a lack of strong buying momentum. Euro and the British Pound are trailing as the next strongest, while Swiss Franc shows mixed performance.

Technically, Gold's rally from 1931.39 is still in progress. Correction from 2009.26 should have completed after drawing support from 38.2% retracement of 1810.26 to 2009.26 at 1933.24. Further rise is expected as long as 1956.21 support holds. Retest of 2009.26 should be seen next. Firm break there will resume whole rally from 1810.26 to key resistance zone at 2062/74.

Forex Markets in a Lull, Gold Extending Rally, Oil Tumbles_1

In Asia, Nikkei closed up 0.48%. Hong Kong HSI is down -1.98%. China Shanghai SSE is down -0.03%. Singapore Strait Times is down -0.39%. Japan 10-year JGB yield is down -0.030 at 0.761. Overnight, DOW dropped -0.13%. S&P 500 rose 0.12%. NASDAQ rose 0.07%. 10-year yield dropped -0.090 to 4.445.

Fed's Cook: Soft landing is possible but not assured

Fed Governor Lisa Cook addressed the delicate balance between sustaining economic growth and managing inflation in her conference remarks overnight. Cook acknowledged the possibility of achieving a "soft landing" for the US. economy, highlighting the ongoing disinflationary trends and robust labor market conditions. However, she was quick to note that such an outcome is not guaranteed.

"A 'soft landing' is possible, with continued disinflation and a strong labor market, but it is not assured," Cook stated. She elaborated on the complexities noting, "I see risks as two-sided, requiring us to balance the risk of not tightening enough against the risk of tightening too much."

She also pointed out the current economic resilience, saying, "The economy is still growing and consumers are still spending," which could potentially maintain demand-driven pressures in the market. Such momentum, according to Cook, could keep the economy and labor market tight, consequently slowing the disinflation process.

However, Cook also expressed concern over the potential negative impacts of aggressive policy measures, adding, "But I am also attuned to the risk of an unnecessarily sharp decline in economic activity and employment."

Mester's perspective from Fed's crow's nest: Disinflation progress made, yet more evidence needed

In a CNBC interview overnight, Cleveland Fed President Loretta Mester acknowledged, "We're making progress on inflation, discernible progress. We need to see more of that."

But she also highlighted the necessity of observing more concrete data to confirm that inflation is indeed on a timely path back to the desired level.

In her metaphorical reference to the "crow's nest", a vantage point on a ship used for spotting distant objects, Mester likened Fed's current position.

"We're at the crow's nest. What does the crow's nest let you do? It lets you look out on the horizon and see where the data is coming in, where the economy is evolving."

As for her personal stance on the direction of monetary policy, "I haven't assessed that yet. Where I think we are right now is we're basically in a very good spot for policy."

BoE's Ramsden signals extended period of restrictive monetary policy ahead

BoE's Deputy Governor Dave Ramsden emphasized the need for a prolonged phase of restrictive monetary policy to achieve the central bank's inflation target. Speaking on the future direction of the BoE's approach, Ramsden stated, "Monetary policy is likely to need to be restrictive for an extended period of time."

Ramsden further elaborated on the Monetary Policy Committee's stance, noting, "The MPC have communicated that monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term."

Additionally, Ramsden, who oversees BoE's quantitative tightening program, discussed the uncertainty surrounding the optimal size of the central bank's balance sheet. The ongoing assessment of the necessary reserves supply aims to meet both monetary policy objectives and ensure financial stability.

"We continue to work towards assessing what our future steady state reserves supply looks like, both to meet our monetary policy objectives through quantitative tightening, while ensuring our financial stability objective is also supported," he explained.

BoJ's Ueda reiterates patience in maintaining ultra-loose policy

BoJ Governor Kazuo Ueda has once again underscored the central bank's commitment to maintaining its ultra-loose monetary policy, emphasizing the need for patience in the face of uncertain inflation dynamics.

Speaking to the parliament, Ueda noted, "Trend inflation is likely to gradually accelerate toward our 2% inflation target through fiscal 2025. But this needs to be accompanied by a positive wage-inflation cycle."

"Uncertainty on whether Japan will see such a positive wage-inflation cycle is high," he added.

Addressing the behavior of 10-year JGB yields, Ueda expressed that he does not foresee a sharp rise above the 1% reference level, even under upward pressure.

Looking ahead, Ueda clarified the bank's position on potentially ending its Yield Curve Control and negative interest rate policies, stating, "We will consider ending YCC, negative rate if we can expect inflation to stably, and sustainably hit the price target."

He added that the order of adjustments to the policy would be contingent on various factors, including economic conditions, price movements, and market developments.

WTI crude oil nosedives to four-month low, more downside ahead

WTI crude oil experienced a significant tumble this week, dropping around -5% yesterday and reaching its lowest point in four months, marking a trajectory for its fourth consecutive week of decline. This marks the commodity's potential fourth consecutive week of decline.

Despite OPEC and IEA's predictions of supply tightness in Q4, a confluence of disappointing global economic data and a surge in US crude inventories, coupled with sustained record-level production, has fueled the sharp selloff.

From a technical analysis perspective, the bearish sentiment was cemented earlier this week when WTI failed to reclaim psychological level. The ongoing decline from 95.50 is now expected to continue to 161.8% projection of 95.50 to 81.77 from 91.07 at 68.85. However, we anticipate significant support emerging in 63.67/66.94 support zone, which to trigger reversal.

Overall, WTI is seen as encapsulated in a long-term range-bound pattern, oscillating between the 63/64 and 95/96 zones.

Looking ahead

UK retail sales is the main highlight in European session, while Eurozone will release CPI final. Later in the day, Canada will release IPPI and RMPI. US will release building permits and housing starts.

USD/CHF Daily Outlook

A temporary low is formed at 0.8853 and intraday bias in USD/CHF is turned neutral for consolidations. Stronger recovery cannot be ruled out. But upside should be limited by 0.8952 support turn resistance to bring another fall. Break of 0.8852 will resume the decline from 0.9243 to 100% projection of 0.9243 to 0.8886 from 0.9111 at 0.8754. Forex Markets in a Lull, Gold Extending Rally, Oil Tumbles_3

Forex Markets in a Lull, Gold Extending Rally, Oil Tumbles_3

In the bigger picture, price actions from 0.8551 are currently seen as a correction to the decline from 1.0146. Fall from 0.9243 is seen as the second leg for now. Deeper fall would be seen to 61.8% retracement of 0.8551 to 0.9243 at 0.8815. Sustained break there will bring retest of 0.8551 low. For now, this will remain the favored case as long as 0.9111 resistance holds.

Source: ActionForex

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IC Markets

Commodity

Cryptocurrency

Stocks

Forex

DXY

The DXY chart currently has a bearish overall momentum, but there is a potential for a bullish continuation towards the 1st resistance.

The 1st support at 103.56 is identified as an overlap support and also coincides with the 50% Fibonacci retracement level. This level suggests a potential area of support where buyers might step in or where a pause in the bearish movement could occur. The confluence of an overlap support and Fibonacci retracement level makes it a significant support level.

The 2nd support at 102.82 is another overlap support and coincides with the 61.80% Fibonacci retracement level. Similar to the 1st support, this level also indicates potential support and adds to the significance of this price zone.

On the resistance side, the 1st resistance at 104.81 is categorized as a pullback resistance. This level may act as a barrier to further upward movement and is an area where selling interest could potentially emerge.

The 2nd resistance at 105.94 is noted as an overlap resistance, suggesting potential selling pressure in this area.

Intermediate support at 104.02 is a multi-swing low support and could serve as an additional level to watch. Technical Outlook and Review_1

EUR/USD

The EUR/USD chart currently has a bearish overall momentum, suggesting the potential for a bearish continuation towards the 1st support.

The 1st support at 1.0764 is identified as a pullback support. This level indicates a potential area where buyers might step in or where the bearish movement could find temporary support.

The 2nd support at 1.0663 is an overlap support. Overlap supports often carry significance as they represent areas where price has previously found support or resistance, making it a relevant support level.

On the resistance side, the 1st resistance at 1.0884 is categorized as a multi-swing high resistance. This level may act as a barrier to further upward movement and could be a point where selling interest emerges.

The 2nd resistance at 1.0943 is noted as a swing high resistance, further reinforcing its potential as a level where the price might encounter selling pressure. Technical Outlook and Review_2

EUR/JPY

The EUR/JPY chart currently exhibits a bearish overall momentum, suggesting the potential for a bearish reaction off the 1st resistance level, followed by a drop towards the 1st support.

The 1st support at 160.40 is identified as an overlap support. This level may have historical significance as an area where buyers have previously shown interest, making it a relevant support level.

On the resistance side, the 1st resistance at 164.15 is categorized as a multi-swing high resistance. This suggests that it has historically acted as a barrier to further upward movements. Technical Outlook and Review_3

EUR/GBP

The EUR/GBP chart currently displays a bearish overall momentum, indicating the potential for a bearish reaction off the 1st resistance level, followed by a drop towards the 1st support.

The 1st support at 0.8729 is identified as an overlap support. This level has historical significance as an area where buyers have previously stepped in, making it a relevant support level.

The 2nd support at 0.8688 is another overlap support, reinforcing its potential as a support level. Multiple instances of price reacting at this level in the past suggest its importance.

On the resistance side, the 1st resistance at 0.8750 is categorized as a multi-swing high resistance, indicating that it has historically acted as a barrier to further upward movement.

The 2nd resistance at 0.8775 coincides with the 127.20% Fibonacci Extension level, indicating potential resistance based on Fibonacci analysis. This level adds another layer of significance to the resistance.

GBP/USD

The GBP/USD chart currently has a bullish overall momentum, suggesting the potential for a bullish continuation towards the 1st resistance.

The 1st support at 1.23979 is identified as a pullback support and coincides with the 38.20% Fibonacci Retracement level. This confluence of support factors makes it a significant level where buyers may step in or where the bullish movement could find temporary support.

The 2nd support at 1.23185 is also a pullback support and coincides with the 61.80% Fibonacci Retracement level, adding to its significance as a potential support level.

On the resistance side, the 1st resistance at 1.2499 is categorized as a swing high resistance. This level, along with the 127.20% level, suggests that there could be selling interest in this area, potentially acting as a barrier to further upward movement. Technical Outlook and Review_5

GBP/JPY

The GBP/JPY chart currently shows a bullish overall momentum, suggesting the potential for a bullish bounce off the 1st support and a move towards the 1st resistance level.

The 1st support at 186.61 is considered a pullback support and coincides with the 23.60% Fibonacci Retracement level. This level indicates a potential area of support where buyers may step in, and it aligns with a Fibonacci level, adding to its significance.

The 2nd support at 185.69 is another pullback support, and it aligns with the 38.20% Fibonacci Retracement level. This further reinforces its potential as a support level and suggests that it could act as a barrier against a significant downside move.

On the resistance side, the 1st resistance at 188.15 is categorized as a multi-swing high resistance, indicating a historical area where selling interest has been observed. Traders may anticipate some selling pressure in this area. Technical Outlook and Review_6

USD/CHF

The USD/CHF chart currently exhibits a neutral overall momentum, suggesting potential price fluctuations between the 1st resistance and 1st support levels.

The 1st support level at 0.8861 is identified as a pullback support, and it also coincides with the 127.20% Fibonacci Extension level. This confluence of support factors indicates that there could be a significant level of support in this area, potentially attracting buyers or acting as a barrier to further downward movement.

The 2nd support level at 0.8766 is considered a multi-swing low support, which reinforces its potential as a support level. Multi-swing lows often signify areas where buyers have intervened in the past, making it a relevant support level.

On the resistance side, the 1st resistance at 0.8904 is categorized as a pullback resistance. This level could potentially act as a barrier to upward price movement, where sellers may step in or where the price could find resistance.

The 2nd resistance at 0.8961 is also a pullback resistance, further indicating a potential level of selling pressure in the USD/CHF chart.

USD/JPY

The USD/JPY chart currently displays a bullish overall momentum, indicating the potential for a bullish continuation towards the 1st resistance level.

The 1st support at 150.26 is identified as an overlap support, and it also coincides with the 61.80% Fibonacci Retracement level. This confluence of support factors suggests that there could be a significant level of support in this area, potentially attracting buyers or serving as a level where the bearish momentum may pause.

The 2nd support at 149.28 is considered a swing low support, further reinforcing its potential as a support level. Swing lows often represent areas where buyers have previously entered the market, making it a relevant support level.

On the resistance side, the 1st resistance at 151.71 is categorized as a multi-swing high resistance. This level may act as a barrier to upward price movement, where sellers may step in or where the price could encounter resistance.

The 2nd resistance at 152.66 is noted as a -27% Fibonacci Expansion level, which indicates a potential price projection beyond the previous high points. It could serve as an extended target if the bullish momentum continues.

USD/CAD

The USD/CAD chart currently exhibits a bearish overall momentum, indicating the potential for a bearish reaction off the 1st resistance level with a subsequent drop towards the 1st support level.

The 1st support at 1.3627 is identified as a swing low support. This level signifies a point where the price has previously found buying interest or reversed its bearish movement. Traders may expect this level to act as a potential area of support.

The 2nd support at 1.3522 is considered a pullback support. Pullback supports often indicate areas where buyers are likely to step in, further reinforcing the potential significance of this level as a support zone.

On the resistance side, the 1st resistance at 1.3766 is categorized as an overlap resistance. This level coincides with the 61.80% Fibonacci Retracement level, suggesting potential selling interest in this area and acting as a barrier to further upward movement.

The 2nd resistance at 1.3849 is noted as a swing high resistance. This level marks a point where the price has previously encountered selling pressure and reversed its direction.

AUD/USD

The AUD/USD chart currently shows a bearish overall momentum, suggesting the potential for a bearish continuation towards the 1st support level.

The 1st support at 0.6445 is identified as a pullback support, and it also coincides with the 50% Fibonacci Retracement level. This level indicates that there could be a significant level of support, and traders may expect the price to find buying interest or a pause in the bearish movement around this area.

The 2nd support at 0.6393 is considered a pullback support as well, further reinforcing its potential as a support level. Pullback supports often indicate areas where buyers have stepped in previously, making it a relevant support level.

On the resistance side, the 1st resistance at 0.6517 is categorized as a multi-swing high resistance. This level suggests that there could be selling interest in this area, potentially acting as a barrier to further upward movement.

The 2nd resistance at 0.6585 coincides with the 127.20% Fibonacci Retracement level and is also noted as a swing high resistance. This level further strengthens its significance as a resistance zone.

NZD/USD

The NZD/USD chart currently exhibits a bearish overall momentum, indicating the potential for a bearish continuation towards the 1st support level.

The 1st support at 0.5939 is identified as a pullback support. This level suggests that there could be a significant level of support, potentially causing the price to find buying interest or experience a pause in its bearish movement around this area.

The 2nd support at 0.5859 is considered an overlap support, further reinforcing its potential as a support level. Overlap supports often indicate areas where buyers have intervened previously, making it a relevant support level.

On the resistance side, the 1st resistance at 0.6010 is categorized as an overlap resistance. This level could act as a barrier to further upward movement due to potential selling interest.

The 2nd resistance at 0.6049 coincides with a swing high resistance, making it another significant resistance zone.

DJ30

The DJ30 (Dow Jones 30) chart currently exhibits a neutral overall momentum, suggesting the potential for price to fluctuate between the 1st resistance and 1st support levels.

The 1st support at 34,755.26 is identified as a pullback support level, indicating that this area may have historical significance as a support zone.

The 2nd support at 34,408.91 coincides with the 23.60% Fibonacci Retracement level, making it another potential support level. Fibonacci retracement levels often act as relevant price areas.

On the resistance side, the 1st resistance at 35,073.60 is categorized as an overlap resistance, suggesting that there may be selling interest in this area, potentially acting as a barrier to further upward movement.

The 2nd resistance at 35,366.48 is considered a multi-swing high resistance, indicating another potential level where the price may encounter selling pressure.

GER40

The GER40 chart currently has a bearish overall momentum, suggesting the potential for a bearish reaction off the 1st resistance level followed by a drop towards the 1st support.

The 1st support at 15,559.5 is considered a pullback support level, indicating that this area may have historical significance as a support zone.

The 2nd support at 15,330.5 is an overlap support level, reinforcing its potential as a relevant support level where buyers have previously stepped in.

On the resistance side, the 1st resistance at 15,846.8 is categorized as a swing high resistance, and it also coincides with the 127.20% Fibonacci Extension level. This suggests that there could be significant selling interest in this area, making it a key barrier to further upward movement.

The 2nd resistance at 15,985.1 is another swing high resistance, indicating another potential level where the price may encounter selling pressure.

US500

The US500 chart currently exhibits a bearish overall momentum, indicating the potential for a bearish reaction off the 1st resistance level with a subsequent drop towards the 1st support.

The 1st support at 4,393.2 is identified as an overlap support, suggesting that this level may have historical significance as a support zone.

The 2nd support at 4,329.9 is also an overlap support, further reinforcing its potential as a relevant support level.

On the resistance side, the 1st resistance at 4,515.3 is categorized as a multi-swing high resistance, indicating that this level has historically acted as a significant barrier to further upward movement.

The 2nd resistance at 4,595.8 is a swing high resistance, making it another key level where traders may anticipate selling pressure.

BTC/USD

The BTC/USD chart currently shows a bullish overall momentum, indicating the potential for a bullish continuation towards the 1st resistance.

The 1st support at 35,629 is identified as an overlap support, suggesting that this level may provide significant support for the price. Traders may expect buying interest or a pause in the bullish movement around this area.

The 2nd support at 33,174 is considered a pullback support and coincides with the 161.80% Fibonacci Extension level. This level adds to its significance as a potential support level.

On the resistance side, the 1st resistance at 37,853 is categorized as a multi-swing high resistance. This level suggests that there may be selling interest in this area, potentially acting as a barrier to further upward movement.

The 2nd resistance at 39,434 is noted as a significant resistance level, coinciding with the 161.80% Fibonacci Extension. This adds another layer of resistance to the chart. Technical Outlook and Review_15

ETH/USD

The ETH/USD chart currently displays a bearish overall momentum, suggesting the potential for a bearish continuation towards the 1st support.

The 1st support at 1,865.40 is identified as an overlap support and also coincides with the 127.20% Fibonacci Extension level. This confluence of technical factors indicates that this level could provide significant support, and traders may anticipate a potential bounce or a pause in the bearish movement around this area.

The 2nd support at 1,737.54 is considered an overlap support and is further reinforced by the 61.80% Fibonacci Retracement level. This makes it a relevant support level with the potential to halt or slow down the bearish momentum.

On the resistance side, the 1st resistance at 2,121.26 is categorized as a multi-swing high resistance, suggesting that this level may act as a barrier to upward movement.

Intermediate resistance at 2,068.80 is also a significant level, coinciding with a swing high resistance. Traders should pay attention to this level as it may pose resistance during the bearish continuation. Technical Outlook and Review_16

WTI/USD

The WTI chart currently exhibits a bullish overall momentum, suggesting the potential for a bullish bounce off the 1st support level with a potential move towards the 1st resistance.

The 1st support at 72.28 is identified as a swing low support and coincides with the 161.80% Fibonacci Extension level. This level indicates strong potential support and may attract buying interest or a reversal of the price's bullish movement.

The 2nd support at 69.92 is considered an overlap support, further reinforcing its potential as a support level. Overlap supports often indicate areas where buyers have previously intervened, making it a relevant support level.

On the resistance side, the 1st resistance at 75.15 is categorized as a pullback resistance. This level suggests the possibility of selling interest in this area, potentially acting as a barrier to further upward movement.

The 2nd resistance at 79.93 is noted as an overlap resistance, indicating another significant resistance zone. Technical Outlook and Review_17

XAU/USD (GOLD)

The XAU/USD chart currently exhibits a bearish overall momentum, suggesting the potential for a bearish continuation towards the 1st support level.

The 1st support at 1975.12 is identified as a pullback support level, indicating a point where the price may find buying interest or a pause in its bearish movement. This level is significant as it represents a potential area where buyers could step in.

The 2nd support at 1953.25 is considered an overlap support, further reinforcing its potential as a support level. Overlap supports often indicate areas where price reversals or consolidations have occurred in the past, making it a relevant support level to watch.

On the resistance side, the 1st resistance at 1992.48 is categorized as a pullback resistance. This level may act as a barrier to upward price movement, where sellers may become more active or where the price could encounter resistance.

The 2nd resistance at 2006.69 is noted as a swing high resistance, signifying a point where the price previously encountered selling pressure and reversed its direction. Technical Outlook and Review_18

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Thomas

Economic

Malaysia's economy grew faster than expected in the third quarter, with the central bank expecting buoyant domestic demand to continue offsetting a slowdown in exports.

Gross domestic product (GDP) expanded 3.3 per cent from a year earlier in the July-September period, data from Bank Negara Malaysia (BNM) and the Statistics Department showed, beating analysts' estimates for a 3 per cent expansion and recovering from a near two-year low of 2.9 per cent in the second quarter.

The reading was in line with advance estimates released on Oct. 20.

Malaysia's economic growth is expected to meet the government's target of 4 per cent this year, driven by strong domestic spending, improving labour market conditions, and rising tourism, BNM Governor Abdul Rasheed Ghaffour told reporters.

"Malaysia's economic fundamentals remain strong and supportive of growth moving forward," he said, adding that GDP had exceeded pre-pandemic levels.

The government estimates the economy will expand by between 4 per cent to 5 per cent in 2024.

The Southeast Asian economy has faced sharply slower growth this year after a 22-year high of 8.7 per cent in 2022, amid weaker international demand.

Malaysia, a major global supplier of palm oil and semiconductors, saw exports decline 12 per cent in the third quarter, though the central bank expects a recovery amid a pickup in the tech cycle next year.

The central bank held its key interest rate unchanged at 3.00 per cent earlier this month amid moderating inflation, and warned of risks due to weaker-than-expected external demand and declines in commodity production.

Headline inflation came in at 2 per cent in the third quarter, and is expected to remain modest going into next year, Abdul Rasheed said.

He downplayed concerns about the ringgit currency, which has fallen around 6 per cent against the U.S. dollar this year, one of the weakest performers in the region, saying it did not reflect strength in the economy.

"In the longer run, we believe that the ringgit will reflect the underlying fundamentals that have been quite strong," Abdul Rasheed said.

Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia, said the economy "still had room to grow".

"Tourist arrivals have yet to reach the pre-pandemic levels and the technology sector has been negative this year but expected to improve in 2024," he said.

"All in all, I think next year's growth projection of 4 per cent to 5 per cent is an attainable target."

Source: Reuters

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Economic

Australia appears to be further behind in the inflation and interest rate cycles than many of its peers. The RBA is also choosing a somewhat different strategy in order to preserve the gains made on unemployment since the pandemic. In doing so it is leveraging the fact that the tax system is helping dampen household demand. It is also avoiding the risk involved in a more aggressive tightening, that reversing course too late leads to an unnecessarily sharp downturn and undershoot of the inflation target.

Labour markets in both Australia and the United States have clearly turned. As Westpac colleague Economist Ryan Wells reported yesterday, the unemployment rate ticked back up to 3.7% in October and total hours worked seems to be leveling out. In the United States, the unemployment rate has risen ½ppt since the beginning of the year. While some of this reflects the belated return of US labour supply, jobs growth has also slowed.

These developments have led market participants to focus on the question of when central banks will reverse course and start cutting policy rates. Yet for Australia, the question remains whether the RBA still has further to go with rate increases. We are often asked why Australia seems likely to be later to reach the rate-cutting phase of the cycle than some other advanced countries. Relatedly, we are also often asked why – even if the RBA were to raise rates further – the peak level seems likely to be materially lower than in the United States, New Zealand and several other peer countries.

Part of the reason for the later peak is simply that Australia has been later to the inflation surge and reversal than many other advanced economies. We were later to open up after the pandemic, thanks to the hard lockdowns during the 2021 Delta wave. We were therefore later to see a mismatch emerge between rebounding demand and a supply side that needed to be reconfigured to recover. Given the extraordinary circumstances, it could not be assumed that Australia would follow the path of countries like the United States. Not every economy followed that path as it opened up. Much depended on whether the policy support during the pandemic phase was enough to fill the income hole created by lockdowns and other health-related restrictions on activity. This couldn't be assessed in advance. Japan and many other Asian economies are clear counterexamples to the US case, with domestic inflation not taking hold in the same way. (See Westpac colleague Economist Illiana Jain's note on 8 November.) So it would not have been reasonable to tighten policy in anticipation of an inflation surge that had not yet occurred and was not certain to do so.

Framed in this way, Australia can be viewed as being six or so months behind some other countries in its disinflation journey. Like the United States earlier in the year, Australia is still in the phase of being surprised how slow services inflation declines at first. A further wrinkle here is that the shock to energy prices following Russia's invasion of Ukraine last year only flowed through to domestic retail electricity costs in July this year. In this sense, the dynamics of the inflation cycle can also be a little slower.

The other main driver of the later expected turning point for rates is that the RBA has, for a variety of reasons, seemingly chosen a ‘not quite as high for longer' strategy. Foremost among these reasons is the RBA's stated desire to preserve, as much as possible, the recent gains on unemployment. This had been clearly stated by the previous Governor, and Governor Bullock has continued using similar language.

At 3.7% in October, Australia's unemployment rate is around 1½ppts below pre-pandemic levels. The RBA does not want to undo these gains. Other countries' central banks presumably do not feel the same sense of urgency on this, even if they have full employment mandates. The United States, euro area and Canada all achieved multidecade lows for their unemployment rates in the years leading up to the pandemic. So perhaps they are less worried about not being able to do so again.

There is of course a risk involved in the RBA's strategy, in that a longer return to the inflation target raises the chance that inflation expectations will increase, making it harder to get inflation down. That gamble appears to have paid off so far. Measures of medium-term inflation expectations have largely remained in line with target. In addition, wages growth has not taken off in the same way as it did in the United States, Canada and some other countries. The September quarter read for the Wage Price Index was very high because of the flow-through of award wage increases. But as Westpac colleague Senior Economist Justin Smirk reported on Wednesday, outcomes outside the award system suggest that growth has peaked.

This relatively modest response of wages to the tight labour market contrasts with the experience in other countries. It also connects with some of the other reasons the RBA has been able to adopt this more drawn-out strategy.

The first and best-known of these is that, unlike the United States and Canada, most mortgages in Australia are variablerate. Monetary tightening therefore passes through to lending rates faster here and affects the incomes of more households earlier. Even if the endpoint for inflation is the same as elsewhere, the costs are different. It is therefore understandable that the RBA might seek to balance the trade-off differently while still meeting its target.

A less well-known difference is that fiscal policy is working in the same direction as monetary policy here, to a greater extent than elsewhere, especially as it pertains to the household sector. As has been noted in the media recently, Australia is one of the countries that does not routinely index tax brackets for inflation. In the United States and Canada, at least, federal tax brackets are indexed. (State/provincial tax rates are a different story.) A consequence of the arrangements in Australia is that higher tax payments are currently dragging more on household incomes than net interest payments are. The RBA routinely publishes graphs in the Statement on Monetary Policy that show this, so they are surely aware of the issue.

The upshot of both differences is that real household disposable income is contracting at present and is likely to do so for a while, despite strong population growth. The household sector is being squeezed in a way we are not seeing elsewhere. It is therefore understandable that policymakers here would make different choices.

Finally, the Board will be aware that there is not much benefit to a more aggressive path for rates. Documents released under FOI in May showed that RBA staff regularly model the likely outcome of different paths for the cash rate. A note written in January, included in that release, modelled the effects of paths for the cash rate based on the actions of the RBNZ and Bank of Canada. It turns out that in the current situation, where much of the inflation surge reflects supply shocks, a more aggressive path does not buy much in terms of an earlier return of inflation to target. It does, however, involve noticeably higher unemployment.

What that note also showed was that market pricing at the time implied that both the RBNZ and Bank of Canada would be cutting rates by now. Obviously things have changed since then. But it does highlight that the success of an aggressive tightening depends on the policymaker being able to reverse course at the right moment. Otherwise, you would end up keeping policy tight for too long and undershooting the inflation target for no real benefit. If you are sufficiently humble about your ability to forecast, you would not bank on getting the timing right on that turning point. That context lends further weight to a strategy more like the one the RBA has chosen. While the February and subsequent meetings are still live, depending on inflation outcomes, it should be understood that the RBA is not following the template set out by other countries.

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Palestinian-Israeli conflict

Latest news on the Israeli-Palestinian conflict

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More than 200 people in San Francisco, USA, protested on the Bay Bridge, demanding that Biden call for an immediate ceasefire in the "Israeli-Palestinian conflict". The Bay Bridge was forced to close.

More than 200 people in the United States protested on the westbound line of the Bay Bridge yesterday morning, demanding that US President Biden call for an immediate ceasefire in the "Israeli-Palestinian conflict" and end US military assistance to Israel.

The West Line is the main traffic artery from the East Bay to San Francisco. Traffic was severely blocked due to related demonstrations. Residents of different ethnic groups at the scene held hands and unfurled banners that read "Biden Harris: Ceasefire Now" on all lanes. Some people dressed up as corpses and covered their bodies with white sheets and placards that read " 11,000 dead.”