KVB Market Analysis | 28 Oct: Yen Weakness Continues as Market Eyes Tokyo Inflation and BoJ Moves

Product: XAU/USD

Prediction: Increase

Fundamental Analysis:

Gold prices have edged lower to around $2,730, breaking a two-day losing streak during the early Asian session on Monday. However, the downside may be limited due to ongoing geopolitical tensions and uncertainties related to the U.S. presidential election.

On Friday, gold faced selling pressure and lost some of the previous day's gains as the U.S. Dollar saw buying interest, supported by expectations for less aggressive easing from the Federal Reserve. Additionally, a generally positive tone in equity markets has reduced demand for gold as a safe haven.

Despite this, uncertainties from the upcoming November 5 election, ongoing Middle East conflicts, and falling U.S. Treasury yields provide support for gold, suggesting caution before confirming any significant decline.

Technical Analysis:

From a technical standpoint, recent price movements have formed a bearish head and shoulders pattern on short-term charts. The neckline support for this pattern is around $2,705, which should serve as strong immediate support. If selling continues and the price falls below $2,700, it could lead to further losses, pushing gold down toward the $2,675 support level and potentially to the target near $2,660.

On the upside, the $2,640-$2,645 area has now become a strong resistance level. If gold prices sustain above this range, it would invalidate the head and shoulders pattern, allowing for a challenge of the all-time high near $2,658-$2,659 set earlier this week. A further rise could push XAU/USD toward $2,770, aligning with a four-month trend-line resistance, ultimately aiming for the $2,800 mark.

Product: GBP/USD

Prediction: Decrease

Fundamental Analysis:

GBP/USD is trending lower early this week due to USD strength, supported by expectations of a less dovish Fed and potential Bank of England rate cuts. After Wednesday's drop, GBP/USD rebounded 0.4% Thursday, remaining below 1.3000 on Friday.

The U.S. Dollar lost some strength on Thursday, with the Dollar Index dropping 0.4% as positive risk sentiment reduced demand for the currency, alongside falling U.S. Treasury yields.

On the U.S. economic calendar for Friday, Durable Goods Orders and the University of Michigan Consumer Sentiment Index will be released. The UoM data is unlikely to cause much reaction since its a revision. However, a surprising rise in Durable Goods Orders could support the Dollar, while a worse-than-expected reading might allow GBP/USD to rise.

Meanwhile, U.S. stock index futures are up between 0.1% and 0.2%. A strong opening on Wall Street could attract risk-seeking flows, potentially weakening the Dollar further later in the day.

Technical Analysis:

GBP/USD is trading in the upper half of a descending regression channel and remains above the 100-day Simple Moving Average at 1.2970. The Relative Strength Index on the 4-hour chart is slightly above 50, indicating that sellers are hesitant.

If GBP/USD continues to hold 1.2970 as support, buyers may stay interested. In this case, immediate resistance is at 1.3000-1.3010 followed by 1.3050 and 1.3100.

On the downside, support levels are at 1.2900 and 1.2800.

Product: USD/JPY

Prediction: Increase

Fundamental Analysis:

The Japanese Yen is struggling to maintain its overnight recovery from a multi-month low due to uncertainty surrounding the Bank of Japan. Mixed consumer inflation figures from Tokyo and a positive risk sentiment are also weighing on the safe-haven Yen. Demand for the U.S. Dollar is supported by expectations for less aggressive easing from the Federal Reserve.

The Yen has stalled its modest rise against the Dollar, remaining around 153.20, the lowest level since July. Recent data showed contractions in Japan's manufacturing and services sectors, while a drop in Tokyo's core inflation below the BoJ's 2% target dampens expectations for rate hikes in 2024.

Political uncertainty ahead of Japan's general election and a generally positive risk tone further undermine the Yen. Additionally, some dip-buying of the Dollar has pushed the USD/JPY pair closer to the 152.00 mark as the European session approaches. However, recent comments from Japanese officials are preventing further bearish moves for the Yen.

Technical Analysis:

From a technical standpoint, if USD/JPY falls below the 151.60-151.55 range, it could drop to 151.00. Further declines may find support near 150.65, a key level that includes the 200-day Simple Moving Average and the 50% Fibonacci retracement of the July-September decline. This level is crucial; a decisive break below it would indicate that the recent rally has lost momentum, favoring bearish traders.

Conversely, if the pair moves above 152.00, it could reach the 152.60-152.65 range. Continued buying may help USD/JPY reclaim the 153.00 level, which is followed by the 61.8% Fibonacci level around 153.20. Clearing this could lead to further gains toward 154.00 and the 154.30 area.