Sterling is overwhelmingly the strongest one on optimism that UK will finally reach a deal with EU for an orderly Brexit. EU Chief Brexit negotiator Michel Barnier is said to be given greenlight for tunnel discussions, paving the way for next week’s crucial EU summit. Canadian Dollar is currently the second strongest, as boosted by much stronger than expected employment data. On the other hand, Yen and Swiss Franc are sold off sharply on strong risk appetite. Now, focus will turn to second day of US-China trade negotiations.

Technically, overall strength in the Pound is rather impressive. GBP/USD breaks 1.2582 resistance and should target 1.2819 projection level. GBP/JPY breaks 135.74 resistance and should now target 140.33 fibonacci level. EUR/GBP breaks 0.8786 support to resume fall from 0.9324, for 0.8472 key support. USD/CAD is heading to 1.3206 support. break will extend the consolidation from 1.3382 with the third leg to 1.3133 support next.

In Europe, currently, FTSE is up 0.83%. DAX is up 2.03%. CAC is up 1.16%. German 10-year yield is up 0.017 at -0.448. Earlier in Asia, Nikkei rose 1.15%. Hong Kong HSI rose 2.4%. China Shanghai SSE rose 0.88%. Singapore Strait Times rose 0.79%. Japan 10-year JGB yield rose 0.0315 to -0.180.

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Canada employment grew 53.7k, unemployment rate dropped to 5.5%

Canada employment grew 53.7k in September, above expectation of 40.2k. For whole of Q3, employment rose 111k, or 0.6%, similar to 0.7% in Q2. Unemployment rate dropped to 5.5%, down from 5.7% and beat expectation of 5.7%.

From US, import prices rose 0.2% omm in September, above expectatoin of -0.1% mom. From Eurozone, German CPI was finalized at 1.2% yoy in September.

Sterling surges as EU Barnier got greenlight for tunnel Brexit neogtiations

The Guardians reported that EU Chief negotiator Michel Barnier has secured the greenlight from EU27 to open intensive “tunnel” negotiations with UK on Prime Minister Boris Johnson’s latest Brexit proposals. Barnier met UK Brexit Minister Stephen Barclay today and he said afterwards that “Be patient. Brexit is like climbing a mountain. We need vigilance, determination and patience.”

European Commission spokesperson said “Michel Barnier had a constructive meeting this morning with Steve Barclay. It was a constructive meeting, and on that basis you can assume they have exchanged ideas and they discussed many different angles.”

European Council President Donald Tusk also said earlier that “, yesterday, when the Irish taoiseach and the UK prime minister met they both saw for the first time a pathway to a deal. I have received promising signals from the taoiseach that a deal is still possible.”

China pushing for partial trade deal ahead of 2nd day of meeting

China is pushing for a partial trade deal with the US with its state media. The China Daily newspaper said in an editorial that “A partial deal is a more feasible objective. Not only would it be of tangible benefit by breaking the impasse, but it would also create badly needed breathing space for both sides to reflect on the bigger picture.” Though, it also warned that

It’s believed that China is offering to increase annual purchases of US agricultural products, in exchange for further delay in the next tranche of tariffs. Also, there could be some form of currency agreement but it’s unsure if there will be anything new other than the usual pledges.

Trade talks will continue for a second day in Washington today. Trump is scheduled to meet Chinese Premier Liu He at 1845 GMT after the meeting.

New Zealand BusinessNZ PMI unchanged at 48.4, stuck in a tight band of contraction

New Zealand BusinessNZ Performance of Manufacturing Index was unchanged at 48.4 in September, signaling same rate of contraction in the sector. The sub-index of new orders (50.1) recovered from its decline in August to just keep its head above water for September. Also, employment (50.0) showed no change following four consecutive monthly declines. However, the weak new order results in recent months meant production (46.2) fell to its lowest result since April 2012. In addition, deliveries of raw materials (46.4) fell to its lowest since March 2011.

BusinessNZ’s executive director for manufacturing Catherine Beard said that “Overall, while it is good to see the sector not declining further, it remains stuck in a tight band of contraction. The key to lifting it back into expansion will be a sustained boost to both new orders and production in the months ahead.” BNZ Senior Economist, Craig Ebert said that “if it’s a manufacturing recession then it’s an extremely mild one compared to what the industry went through in 2008/09”.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2274; (P) 1.2372; (R1) 1.2538; More….

GBP/USD surges to as high as 1.2684 and strong break of 1.2582 resistance confirms resumption of rebound from 1.1958 low. Intraday bias stays on the upside for 100% projection of 1.1958 to 1.2582 from 1.2195 at 1.2819. Break will target 161.8% projection at 1.3205. On the downside, below 1.2469 minor will turn intraday bias neutral first.

In the bigger picture, we’d remain cautious on medium term bottoming around 1.1946 (2016 low). Sustained trading above 55 week EMA (now at 1.2727) will extend the consolidation pattern from 1.1946 with another rise to 1.4376 resistance. Nevertheless, decisive break of 1.1946 will resume down trend from 2.1161 (2007 high) to 61.8% projection of 1.7190 to 1.1946 from 1.4376 at 1.1135.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:30 NZD Business NZ PMI Sep 48.4 49 48.4
06:00 EUR Germany CPI M/M Sep F 0% 0% 0%
06:00 EUR Germany CPI Y/Y Sep F 1.20% 1.20% 1.20%
12:30 USD Import Price Index M/M Sep 0.20% -0.10% -0.50% -0.20%
12:30 CAD Unemployment Rate Sep 5.50% 5.70% 5.70%
12:30 CAD Net Change in Employment Sep 53.7K 40.2K 81.1K
14:00 USD Michigan Consumer Sentiment Index Oct P 92 93.2


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