Sample Category Title

USD/CHF - 0.9754

Original strategy :

Bought at 0.9790, stopped at 0.9755

Position : - Long at 0.9790

Target :  -

Stop : - 0.9755

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite rising to 0.9837, the greenback failed to penetrate this resistance and has retreated sharply, dampening our bullishness and signaling recent upmove is not ready to resume yet, hence near term downside risk remains for weakness to 0.9730 support, however, as broad outlook remains consolidative, reckon downside would be limited and support at 0.9705 should hold from here, bring rebound later.

On the upside, expect recovery to be limited to the Kijun-Sen (now at 0.9787) and reckon 0.9810 would hold and bring another decline later. Above 0.9810 would bring a retest of said strong resistance at 0.9837 but break there is needed to confirm recent rise from 0.9421 low has resumed for headway to 0.9870 and possibly towards 0.9900. As near term outlook is mixed, would be prudent to stand aside for now.

Daily Pivots: (S1) 1.1742; (P) 1.1773 (R1) 1.1818; More...

EUR/USD's break of 1.1818 minor resistance suggests that pull back from 1.1879 is completed at 1.1729. And, rebound from 1.1669 is resuming. More importantly, it revives that case that corrective fall from 1.2091 has completed at 1.1669, ahead of 1.1661 support. Intraday bias is now back on the upside for 1.1879 first. Break will pave the way to retest 1.2091 high. On the downside, below 1.1729 will bring retest of 1.1669 instead.

In the bigger picture, rise from medium term bottom at 1.0339 is not finished yet. It's expected to continue after pull back from 1.2091 completes. And, next target will be 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. However, it should be noted that there is no confirmation of trend reversal yet. That is, such rebound from 1.0399 could be a correction. And the long term fall from 1.6039 (2008 high) could resume. Hence, we'd be cautious on strong resistance from 1.2516 to limit upside.

Japanese Yen and Swiss Franc strike a strong come back today as markets are haunted by political developments. Spanish Prime Minister Mariano Rajoy announces to invoke the so called Article 155 of Constitution to suspend autonomy of Catalonia. That came after Catalan leader Carles Puigdemont refuses to withdraw the declaration of independence. Euro initially dipped against all major currencies after the news. But then, the common currency recovered strongly against all but Yen and Swiss Franc only. German DAX is trading down down more than -0.9% at the time of writing. US futures also point to a lower open.

But so far for the day, New Zealand dollar is the weakest one on political uncertainty after announcement of the new coalition government. Sterling is trading as the second weakest after terrible retail sales data. Yen and Swiss Franc are the stars today. Dollar is trading mixed.

US data positive, but no support to greenback

US initial jobless claims dropped -22K to 222K in the week ended October 14. That's much better than expectation of 240k. Also it's the lowest level since March 1973. Four week moving average of initial claims dropped -9.5K to 248.25K. Continuing claims dropped -16K to 1.89M, hitting a 44 year low. Philly Fed manufacturing index rose sharply to 27.9 in October, up from 23.8 and beat expectation of 22.0. That's also the highest level in five months. But the data provides little inspiration to Dollar.

Released from UK, retail sales dropped sharply by -0.8% mom in September, versus expectation of -0.1% mom. Also from Europe, Swiss trade surplus widened to CHF 2.92B in September.

New Zealand Dollar dives on coalition news

With no single party being able to secure over half of the seats in the parliament in last month's election, the right-wing, populist NZ First party has become a kingmaker. Its leader Winston Peters has just announced that his party would form a government with the Labour Party. Kiwi's sell off after the announcement as the outcome has not been quite priced in. NZ First had cooperated with both National and Labour previously (National/ NZ First from 1996 to 1998, and Labour/ NZ First from 2005 to 2008). It did not show preference over a certain party. Uncertainty has not abated after the decision. Rather, it has increased as it would be the first time in 9 years for the Labour Party, as well as the Labour/NZ First coalition, to be the government. More in Kiwi Tumbles as Labour/NZ First Government Means Status Quo No More

Improving labor market could allow RBA to pare back stimulus

Australia NAB business condition index rose 2 pts to 15. But business confidence dropped 1 pt to 7 in Q3. NAB chief economists Alan Oster noted that overall results point to improvements in the economy. And, "a positive byproduct of that has been solid outcomes for hiring intentions and capex plans for the year ahead." Also, "there now seems to be sufficient evidence to suggest that the labour market will continue to improve enough to allow the RBA to pare back some of its emergency stimulus."

Separately released, employment grew 19.8K in September, above expectation of 15.0K. That's also the 12 straight month of growth. Full time jobs grew 6.1K while part-time jobs grew 13.7K. Participation rate was unchanged at 65.2%. Unemployment rate dropped to 5.5%, below expectation of 5.6%. That's also the lowest reading since May, which then was the lowest since early 2013.

Japan Abe likely to have solid victory in snap election

In Japan, according to a Kydo News survey released earlier this week. Prime Minister Shinzo Abe's Liberal Democratic Party-Komeito coalition will pick up 310 seats, out of 465, in the upcoming election on Sunday. That should be enough to give the coalition a two-thirds absolute majority. It's reported that Abe is already planning a special Diet session on November 1. And new Cabinet will be promptly formed afterwards. Then, Abe will be meeting with US President Donal Trump on November 5.

Japan trade surplus narrowed, with temporary slow down in exports

Japan trade surplus narrowed to JPY 0.24T in September. Export grew 14.1% yoy, lower than expectation of 14.9% yoy, and the first slowdown in three months. Nonetheless, the 18.1% yoy growth of export back in August was the fastest in nearly four years. It's generally seen that the slowdown is temporary and recovery in global economy is still in place. Imports rose 12.0% yoy, also below expectation of 15.0% yoy. Also from Japan, all industry index rose 0.1% mom in August.

Updates on the twice-in-a-decade National Congress of the Chinese Communist Party

Predominantly the most important political event in China, the twice-in-a-decade National Congress of the Chinese Communist Party began on October 18. As a kick start, President Xi delivered a Party Work Report which reviewed the achievements in his first five years and outlined the challenges and goals for the next five years and beyond. Xi outlined his thoughts on the 'new era of socialism with Chinese characteristics'.

On the economic reform, he suggested further developments in the "advanced manufacturing industry", which includes medium and high end consumption, green and low carbon industry, sharing economy, modern logistics and human capital services.

He has also pledged to deepen interest rate and exchange rate reforms, develop a comprehensive financial regulation system and reduce systematic financial risk. These are nothing new as the key aspects of the monetary and fiscal policies have already been lain down at the National Financial Work Conference in July.

More in The 19th CCP Congress – A Summit For Xi To Crown Himself

Also on China: China: Xi Jinping Lays Out Path of Further Reform and Opening

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1742; (P) 1.1773 (R1) 1.1818; More...

EUR/USD's break of 1.1818 minor resistance suggests that pull back from 1.1879 is completed at 1.1729. And, rebound from 1.1669 is resuming. More importantly, it revives that case that corrective fall from 1.2091 has completed at 1.1669, ahead of 1.1661 support. Intraday bias is now back on the upside for 1.1879 first. Break will pave the way to retest 1.2091 high. On the downside, below 1.1729 will bring retest of 1.1669 instead.

In the bigger picture, rise from medium term bottom at 1.0339 is not finished yet. It's expected to continue after pull back from 1.2091 completes. And, next target will be 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. However, it should be noted that there is no confirmation of trend reversal yet. That is, such rebound from 1.0399 could be a correction. And the long term fall from 1.6039 (2008 high) could resume. Hence, we'd be cautious on strong resistance from 1.2516 to limit upside.

Economic Indicators Update

GBP/USD - 1.3174

Original strategy :

Sell at 1.3265, Target: 1.3145, Stop: 1.3300

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.3265, Target: 1.3145, Stop: 1.3300

Position : -

Target :  -

Stop : -

Although cable fell briefly to 1.3133 in London morning, lack of follow through selling and current rebound suggest consolidation would be seen and recovery to 1.3220-25 cannot be ruled out, however, reckon upside would be limited to 1.3255-65 and bring another decline later, below said support at 1.3133 would extend the fall from 1.3338 to support at 1.3121, however, break there is needed to retain bearishness and bring further subsequent decline to 1.3090-00.

In view of this, wee are looking to sell cable on subsequent recovery as 1.3255-65 should limit upside, bring another decline later. Above said resistance at 1.3287 would abort and signal low is formed instead, bring rebound to 1.3300 and possibly test of resistance at 1.3312. 

EUR/USD - 1.1830

Original strategy  :

Sell at 1.1850, Target: 1.1750, Stop: 1.1885

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1850, Target: 1.1750, Stop: 1.1885

Position : -

Target :  -

Stop : -

Although the single currency has risen again and near term upside risk remains for the rise from this week’s low at 1.1730 to extend gain to 1.1845-50, if our view that top has been formed at 1.1880 is correct, upside would be limited and bring retreat later, below the Kijun-Sen (now at 1.1777) would suggest an intra-day top is formed, bring weakness to 1.1755-60 but said support at 1.1730 should remain intact.

In view of this, we are inclined to turn short on further rise but one should exit on subsequent decline. Above said resistance at 1.1880 would shift risk back to upside and extend early rise from 1.1669 to 1.1900-10 first.

USD/JPY - 112.35

Original strategy  :

Bought at 112.70, stopped at 112.35

Position :  - Long at 112.70

Target :  -

Stop : - 112.35

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Despite intra-day brief rise to 113.15, the subsequent much deeper than expected retreat has dampened our bullishness and signals a temporary top has been formed there, hence consolidation with mild downside bias is seen for test of indicated strong support area at 112.03-13 but break there is needed to add credence to this view and signal the rebound from 111.65 has ended, bring another fall towards this level later.

On the upside, whilst recovery to the Kijun-Sen (now at 112.73) cannot be ruled out, price should falter well below said resistance at 113.15 and bring another retreat later. Only break of said resistance at 113.15 would revive bullishness for retest of recent high at 113.44 which is likely to hold on first testing.

With no single party being able to secure over half of the seats in the parliament in last month's election, the right-wing, populist NZ First party has become a kingmaker. Its leader Winston Peters has just announced that his party would form a government with the Labour Party. Kiwi's sell off after the announcement as the outcome has not been quite priced in. NZ First had cooperated with both National and Labour previously (National/ NZ First from 1996 to 1998, and Labour/ NZ First from 2005 to 2008). It did not show preference over a certain party. Uncertainty has not abated after the decision. Rather, it has increased as it would be the first time in 9 years for the Labour Party, as well as the Labour/NZ First coalition, to be the government. The Green Party has also ratified the "confidence and supply" deal which includes promises of three ministerial positions outside Cabinet, and one undersecretary role, for the party. By not joining the cabinet but sitting in on discussions on areas relevant to the party's portfolios, the Green would be able to "retain distinctiveness". That means, the party might still dissent on certain bills. Meanwhile, with 44.4% of votes and 56 seats, National has become the single largest party in the parliament and the most powerful opposition ever. This might increase the difficult for controversial legislations to get passed.

At the press conference, Labour's leader and the next PM Jacinda Ardern indicated that Labour and NZ First "had more in common than issues that divided them". We analyze below that the policy agendas on immigration, RBNZ and the housing market of both parties would lead to a prolonged easy monetary policy and a weak New Zealand dollar.

Net Immigration

The Labour Party proposes to cut net immigration to around 30K per year, from the current 72K, while the Green Party upholds the idea of "sustainable net migration flow to limit effects on our environment, society and culture". The latter does not object the idea to cut net immigration though it has not suggested a number. NZ First proposes the most restrictive immigration policy amongst all parties. It proposes to attract highly-skilled migrants by sharply cutting numbers to around 10K per annum, from the current 72K. It also proposes to adopt strict control over immigration under "family reunion" and "make sure that Kiwi workers are at the front of the job queue". Reduction in net immigration should weigh on economic growth over coming years.

NZD and Monetary Policy

All of Labour, Green and NZ First demand material change to the RBNZ's monetary policy framework. As we mentioned at the election preview last month, with the back of the Green Party, the Labour party proposes a move to committee-based decision making and a dual mandate that includes employment (price stability already exists) in RBNZ's monetary policy setting. The change to dual mandate is prone to shake confidence in the New Zealand dollar as this would mark one of the biggest changes for the RBNZ since its establishment. Depending how the mandate is formulated, a full employment mandate, together with the current 1-3% inflation target, would theoretically lead to looser monetary policy, or a slower pace of rate hike. NZ First proposes to reform the Reserve Bank Act, aiming at achieving a "more exporter-friendly" RBNZ and "sensible exchange rate regime". This implies lower exchange rate and a more accommodative monetary policy.

Housing

Both Labour and NZ First favor increasing supply of affordable housing. The Labour proposes a KiwiBuild program which aims at building a hundred thousand of "high quality, affordable homes over 10 years, with 50% of them in Auckland". It would also create an Affordable Housing Authority to fast-track development. For NZ First, it has initiated "the New Zealand Housing Plan to revamp the New Zealand housing market covering housing availability and affordability as well as rental homes supply and affordability". If the ultimate goal of lower housing price is achieved, the RBNZ would find it more comfortable to maintain its accommodative monetary policy.

The British pound has crashed lower against the U.S dollar, hitting 1.3132, as data showed that United Kingdom Retail Sales dropped 0.9 percent during the month of September. The GBPUSD pair currently trades around the 1.3155 region, with intraday sellers now firmly in control. Traders will now look to upcoming release of U.S economic data, and any news coming out of Brexit negotiations in Brussels.

The GBPUSD pair is likely to come under further selling pressure if price-action moves back below the 1.3146 level. Sellers will then likely target the former price low's at 1.3132 and 1.3121 level, and the key 1.3080 support level.

Failure to move the GBPUSD pair below the 1.3146 level should lead to buyers then pushing price-action back upwards to test the daily pivot point at 1.3186. Further extended intraday resistance is also found at 1.3200 and 1.3233.

The USDJPY pair has fallen sharply during the European trading session, hitting 112.46, as Japanese futures decline and fears over the Catalan crisis move investors into the perceived safety of the Japanese Yen. The pair now trades around the 112.55 level, ahead of the U.S market open, after earlier hitting a nine-day trading high, at 113.14.

USDJPY intraday sellers remain in control while the pair trades below the key 112.58 technical level. Further declines remain likely towards the 112.30 and 111.98 levels. Extended intraday support is found at the 111.79 and 111.64 levels.

If USDJPY sellers fail to defend the 112.58 level during the U.S trading session, intraday buyers will likely push price-action back towards the 112.74 and 112.89 technical resistance levels.

The CAC index has lost ground in the Thursday session. Currently, the CAC is trading at 5,351.00, down 0.60% on the day. On the release front, there are no French or eurozone events on the schedule. On Friday, the eurozone releases current account, which is expected to rise to EUR 26.2 billion.

All eyes are on Spain, as investors are nervously monitoring the constitutional crisis in Catalonia. The Spanish stock market is down 1.0% on Thursday, and this has dragged down other European stock markets, including the CAC. The Catalan government ignored a deadline to withdraw its independence bid, prompting Madrid to threaten it would impose direct control on the region on Saturday. Analysts continue to digest European corporate earnings for the third quarter, and the results will likely have a strong impact on European stock markets next week.

European Union leaders are meeting in Brussels on Thursday and Friday. French President Emmanuel Macron has pushed trade issues onto the agenda. Macron wants the EU to proceed with caution on trade talks that deal with agriculture, as increased imports of beef and other farm products into the EU could severely impact the French farm sector. The EU is currently holding talks with the Mercosur bloc, which includes Argentina and other South American nations, and is planning to hold free trade talks with Australia and New Zealand.

What’s next for Catalonia? The cat-and-mouse game between the Spanish and Catalan governments continues, as a Thursday deadline looms. The Spanish has given Catalan President, Carles Puigdemont until Thursday to recant his declaration of independence. If Puigdemont refuses, Madrid has threatened to trigger Article 155 of the Spanish constitution, which would allow the central government to disband the Catalan parliament and impose direct rule. However, this clause has never been used, and could set off a violent reaction in Catalonia, with emotions already at a fever pitch. The deepening constitutional crisis has led hundreds of companies to start leaving Catalonia, and the Standard and Poor’s rating agency has said that the region could face a recession if the situation is not resolve. Investment projects are at a standstill in the region, and if the situation worsens, investors could get nervous and the European stock markets could respond with losses.