Gold (XAU/USD) is already up half a percent to trade in the $2,730s on Monday during the European session after rising over 1.0% on Friday. The precious metal is gaining on a mixture of increased safe-haven demand due to the intensifying conflict in the Middle East and moves by the People’s Bank of China (PBoC) to further ease credit conditions by cutting interest rates. 

The PBoC’s move to lower its one-year and five-year prime loan borrowing rates not only has the effect of increasing Gold’s attractiveness as a non-interest-paying asset, but also suggests the potential of more demand for Gold from Chinese investors and private buyers, who already make up the largest market for the commodity in the world. 

Gold rises as Middle East tensions reach boiling point

Gold rallies as investor demand for safety increases due to the deepening conflict in the Middle East. Israel has stepped up its bombardment of Beirut by destroying several economic targets in an attempt to wipe out the bank that provides Hezbollah with its funding. The bank, which also serves a large Shiite population of muslims in Lebanon, is the main conduit for donations to Hezbollah, including $50 million a year from Iran, according to Bloomberg News.  By destroying it, Israel not only hopes to remove the organization’s principal source of funding but also ferment discord amongst Hezbollah and the Shiite Lebanese community.Further, Israel’s retaliatory attack on Iran is back on the table after an Iranian drone penetrated Israeli air-defense systems and exploded near the Israeli Prime Minister Benjamin Netanyahu’s private residence. Following the attack, Netanyahu convened several emergency meetings to discuss preparations for Israel’s delayed attack on Iran. 

Technical Analysis: Gold approaches next target as trend extends

Gold is rising in a steady uptrend on all time frames (short, medium and long) and after breaching the $2,700 mark it is now on its way to the next target at $2,750. 

XAU/USD Daily Chart

The Relative Strength Index (RSI) is overbought, however, advising long-holders not to add to their positions because of an increased risk of a pullback. Should RSI close back in neutral territory, it will be a sign for long-holders to close their positions and open shorts as a deeper correction may evolve. Support lies at $2,700 (key level) and $2,685 (September high).  

Gold’s strong overall uptrend, however, suggests that any corrections are likely to be short-lived, and afterward the broader bull trend will probably resume.  

Source: FXSTREET

The Mexican Peso (MXN) is weakening in its key pairs on Monday as the odds shift marginally in favor of former President Donald Trump winning the United States (US) presidential election in November. This comes after a period in which Trump trailed behind US Vice President and Democratic candidate Kamala Harris in the polls. Trump has said he will tear up the US’s free trade agreement with Mexico and slap up to 300% tariffs on Mexican cars arriving in the States. Such a move would hit the Mexican economy and reduce demand for its currency. 

The latest national opinion poll by TIPP Insights on October 17-19 shows Donald Trump in the lead with 49% of the vote against Harris’s 47%, according to election website FiveThirtyEight. Betting website OddsChecker, meanwhile, has about equal chances – 33/50 or 60.02% for Trump to win and 4/6 or 60.00% for a Harris victory. 

Trump supporter and CEO of Tesla Elon Musk’s pledge to offer voters in swing states the opportunity to be entered into a prize draw for a $1 million jackpot if they vote for Trump has also been seen as a major boost to the former president’s campaign, according to Bloomberg News.  

Mexican Peso capped by defensive stance  

The Mexican Peso might also be suffering as a result of the increasingly “defensive” stance of global investors towards emerging market (EM) assets, according to an article in El Financiero. This is partly because of increasing concerns the Federal Reserve (Fed) may have acted too hastily in lowering US interest rates by a double-the-usual 50 basis points (bps) (0.50%) at its meeting in September. 

Buoyant US data suggests conditions may not have warranted such a large rate cut. Although a strong US economy is positive for Mexico because the US is such an important trading neighbor, elevated US interest rates also reduce the attractiveness of EM – chiefly Brazilian and Mexican – assets, according to The Wall Street Journal (WSJ). A retrenchment to a tighter stance would hurt demand for Mexican assets from global investors.

Disappointment at the level of Chinese stimulus measures might also be a factor in increasing investor defensiveness over EM holdings, which in turn could be weighing on the Mexican Peso. That said, the People’s Bank of China (PBoC) decided to cut its one- and five-year prime rates on Monday in a further measure to ease credit conditions. 

Technical Analysis: USD/MXN starts rising again

USD/MXN restarts its rally within a rising channel after a brief pullback that ended up petering out pretty rapidly. 

On Friday, the pair formed a bullish Hammer Japanese candlestick pattern, which neutralized the bearish Shooting Star candlestick formed the day before. This suggests there probably now will not be a pullback unfolding lower. 

The pair is again on the rise at the start of the week and appears to be resuming its uptrend.

The break above 19.83 (October 1 high) confirmed a continuation up to the next target in the vicinity of the September 10 high at 20.13, which remains live.

The Moving Average Convergence Divergence (MACD) momentum indicator is rising quite strongly after bottoming out at the zero line, supporting a mildly bullish outlook overall.

Source: FXSTREET

Technical Analysis

GBPUSD Forecast: Monthly Time Frame – Log Scale

Bullish Scenario

Bearish Scenario

Silver (XAG/USD) advances to its highest level since October 2012 during the first half of the European session on Monday, with bulls now looking to extend the upward trajectory beyond the $34.00 round-figure mark. 

Looking at the broader picture, Friday's sustained breakout above the $32.50 supply zone was seen as a fresh trigger for bullish traders. That said, the Relative Strength Index (RSI) on the daily chart has moved above the 70 mark and points to slightly overbought conditions. This, in turn, makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move. 

Meanwhile, any meaningful corrective decline could be seen as a buying opportunity and remain limited near the $33.00 round figure. A convincing break below, however, might prompt some technical selling and drag the XAG/USD back towards the $32.50 resistance breakpoint, now turned support, en route to the $32.00 mark. The latter should act as a key pivotal point, which if broken might shift the bias in favor of bearish traders. 

On the flip side, the immediate hurdle is pegged near the $33.45 horizontal zone, above which the XAG/USD could aim to reclaim the $35.00 psychological mark. The momentum could get extended further towards the October 2012 swing high, around the $35.35-$35.40 region, though the technical setup warrants some caution for bullish traders.

Source: FXSTREET

India's envoy to Canada, who is being expelled over what Ottawa says are links to the murder of a Sikh leader, insisted in an interview he was innocent and said Prime Minister Justin Trudeau had wrecked bilateral political ties, but trade may remain unscathed.

Both countries on Monday ordered out six diplomats in tit-for-tat moves over Ottawa's allegations that New Delhi was targeting Indian dissidents on Canadian soil.

Trudeau specifically tied the six to the murder of Sikh separatist Hardeep Singh Nijjar last year in British Columbia. Sanjay Kumar Verma, India's envoy to Canada, told CTV that Trudeau had been relying on intelligence rather than evidence.

"On the basis of intelligence, if you want to destroy a relationship, be my guest. And that's what he did," Verma said in an interview broadcast on Sunday.

Asked whether he had had anything to with Nijjar's murder, Verma said: "Nothing at all. No evidence was presented. (This is) politically motivated."

Canada is home to the highest population of Sikhs outside their home state of Punjab and demonstrations in favor of a separate homeland carved out of India have irked New Delhi.

However, Verma said the episode had nothing to do with trade and cultural relations with Canada, which had two-way trade of US$8.4 billion (RM36.1 billion) with India at the end of last fiscal year. Indians have also made up Canada's largest group of international students in recent years.

"There will be emotions on both sides... which may impact a few of those deals, but the larger picture is that I don't see much impact on non-political bilateral relations," Verma said.

Source: Theedgemarkets

Europe's biggest banks are healthier than at any point since the 2008-09 financial crisis, but investors want reassurance that they can trust their longer term earnings power as interest rates fall.

Bank share prices have broadly delivered a double-digit rise this year, driven by stock buyback programmes made possible by years of capital accumulation, restructuring, cost cuts and supportive central bank policy, which boosted their profits.

Deutsche Bank, Lloyds and Barclays will kick off third-quarter earnings reporting this week, while UBS and HSBC will be among those reporting next week.

The numbers are expected to show continued profitability, with robust investment banking activity offsetting squeezes on margins and weak demand for loans among consumers and businesses.

But investors want more. Besides looking for evidence of asset quality resilience, they are seeking sharper strategy, lower costs and the potential to outperform in a low growth global economy.

Deal-making has captured the imagination of bank boards in the last three months. BNP Paribas bought AXA Investment Managers and UniCredit raised its stake in Germany's Commerzbank stirring chatter on cross-border consolidation.

"Estimates suggest that up to 600 billion euros ($652 billion) in net interest income could be at risk in the first half of 2025 if the European Central Bank cuts rates as expected," Filippo Maria Alloatti, Head of Financials for Credit at Federated Hermes, told Reuters.

"Management teams are proactively taking measures ... exploring bolt-on acquisitions in asset management, wealth management and even niche fintech opportunities," he said.

Britain's NatWest swooped on Metro Bank's residential mortgage book while media reports suggest HSBC's new CEO Georges Elhedery may make a much bigger mark on the lender's structure than previously thought.

Sales by governments of their crisis-era stakes in banks remove one hurdle to deal-making, credit rating firm Scope Ratings believes, although others remain.

"ESCAPE VELOCITY"

Analysts at McKinsey said executives needed to attain "escape velocity" to distinguish themselves from peers and increase appeal to investors.

To maintain the current return on tangible equity margins, banks will need to cut costs 2.5 times as fast as revenues decline, McKinsey said in its Global Banking Annual Review 2024.

Just 14% of global banks have a price-to-book ratio above 1 and a price-to-earnings ratio of more than 13 - more than four times lower than companies in all other industries, McKinsey said.

Philippe Bodereau, head of credit research at PIMCO, said Europe's banks were separating into two camps; those with potential to mirror U.S. peers with consistent, double-digit returns on equity, and those stuck at depressed single-digit levels.

"I think those institutions should be doing a fair bit of strategic soul searching," he said.

INVESTMENT BANKING BOOST

UBS and Barclays are expected to report a third quarter bounce in investment banking revenues, particularly in equities and advisory fees, where U.S. rivals JP Morgan, Morgan Stanley and Goldman Sachs outshone expectations.

Like U.S. peers, European banks are not expected to show a marked deterioration in asset quality, and fears have waned that commercial real estate (CRE) could dent capital, ratings agency Moody's said.

A stress test of the 21 European lenders with the highest CRE exposure relative to Common Equity Tier 1 (CET1) capital showed all would remain above minimum CET1 capital thresholds, even under a scenario of severe loan quality shock.

Analysts at HSBC remain on guard for negative surprises in net interest income, a measure of profitability that reflects the difference between what a bank earns on loans and how much it pays depositors.

HSBC prefers asset gathering stocks like Credit Agricole and KBC over BNP Paribas and ING , where net interest income (NII) momentum was seen weakest.

UK domestic lenders Lloyds and NatWest should report continued third quarter growth in NII, Barclays analysts said, boosted by an improving outlook for loan growth, particularly mortgages.

Concerns about a possible rise in bank taxation in the UK Budget on Oct. 30 is weighing on sentiment.

But shares in domestically-focused lenders could bounce by more than 5% if the government opts to leave current arrangements intact, UBS said.

Source: The edge markets