Yen Capitulate Amid Political Uncertainty

• Japans political uncertainty caused the Yen to decline against its peers.

• Oil prices dropped drastically as Israel kept its promise not to attack Irans oil facilities.

• Eyes on this week, Nasdaq, as mega caps' earnings reports are due this week.

Market Summary

Japans political landscape took centre stage this week after the Prime Minister called a snap election, following the ruling party's loss of its parliamentary majority. This political uncertainty has led markets to believe the Bank of Japan may delay its next rate hike, causing the Yen to soften to a three-month low. Meanwhile, the Nikkei surged by over 1% during the Tokyo session, buoyed by the shift in market sentiment.

In the U.S. equity markets, investors are focused on the tech sector as major companies, including Microsoft, Meta Platforms, and Apple, are set to release their earnings this week, which could inject volatility into market prices.

In commodities, gold held firm above the $2,730 mark, though facing pressure from a strong dollar. Oil prices, however, saw a sharp decline after Iran reported its oil facilities were operating normally despite recent Israeli military strikes on targets across the country. This update eased supply concerns, prompting a retreat in prices.

In the forex market, The Australian dollar continues to weaken, reaching its lowest level against the U.S. dollar since August. The Aussie faces ongoing downward pressure as traders anticipate the upcoming Australian CPI reading, due this Wednesday. Market expectations point toward a further easing in inflation, which could weigh on the Australian dollar‘s strength if confirmed. Traders are advised to closely monitor this data release, as softer inflation figures may intensify the Aussie’s recent slide.

Current rate hike bets on 7th November Fed interest rate decision:

Source: CME Fedwatch Tool

-50 bps (7%) VS -25 bps (97%)

Market Movements

DOLLAR_INDX, H4

The Dollar Index held steady last week, continuing a positive trajectory as investors evaluated strong US economic data while awaiting key data releases this week. The dollar's bullish trend has been primarily supported by a 40-basis-point rise in the 10-year Treasury yield for October, with the dollar climbing 3.60%—marking its sharpest monthly increase since April 2022. However, as the US presidential election and the Federal Reserve's November policy meeting draw closer, market volatility may persist. Investors are advised to monitor these developments and upcoming reports on US Nonfarm Payrolls and unemployment, as these figures could significantly impact the dollars movement.

The Dollar Index is trading higher following the prior rebound from the support level. MACD has illustrated diminishing bearish momentum, while RSI is at 65, suggesting the index might extend its gains since the RSI stays above the midline.

Resistance level: 104.95, 105.55

Support level: 103.95, 103.45

XAU/USD, H4

Gold prices continue a bullish path amid geopolitical tensions and looming global uncertainties. Investor sentiment has been bolstered by the approaching US election, alongside upcoming economic data releases, including US Nonfarm Payrolls, Core PCE Price Index, and GDP figures. Meanwhile, uncertainty surrounding Japans economic direction post-election is also pushing demand for safe-haven assets. Investors should remain vigilant about these events, as they are likely to drive heightened volatility and sustained interest in gold as a haven.

Gold prices are trading flat while currently testing the support level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 50, suggesting the commodity might extend its losses since the RSI retreated sharply from overbought territory.

Resistance level: 2750.00, 2770.00

Support level: 2735.00, 2707.30

USD/JPY, H4

Japan's recent election outcome, which saw Prime Minister Shigeru Ishiba's coalition lose ground, introduces new challenges to the Bank of Japan's potential shift toward a hawkish stance. With diminished political backing, Ishiba may struggle to implement more aggressive monetary policies, casting uncertainty over Japans economic strategy and likely reducing the BoJ's capacity to move away from its dovish approach. This scenario is expected to exert downward pressure on the yen, reinforcing a bearish outlook as investors seek currencies backed by stronger rate hike prospects, such as the US dollar.

USD/JPY is trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum. However, RSI is at 82, suggesting the pair might enter overbought territory.

Resistance level: 153.25, 154.70

Support level: 151.65, 150.15