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• European equities gain around 0.5% today with Spain underperforming as tomorrow's Puigdemont deadline looms. US stock markets opened with modest gains.
• British pay growth has lagged behind inflation again, official data showed on Wednesday, adding to questions about how quickly the Bank of England will raise interest rates after an initial hike expected on Nov. 2. Britain's jobless rate between June and August held at a 42-year low of 4.3%.
• A larger-than-forecast decline in US new home construction (-4.7% M/M) reflected the weakest pace of building in the South since October 2015, showing the fallout from hurricanes Harvey and Irma, according to government figures Wednesday. Building permits disappointed as well, declining by 4.5% M/M in September.
• Easy monetary policy gives euro zone governments a window of opportunity to enact the reforms needed to boost growth once interest rates have to rise, ECB President Draghi said.
• France's central bank governor Villeroy called for a reduction in the ECB's bond purchases towards "their possible end" in light of stronger inflation, while saying monetary policy should stay easy. ECB board member Lautenschlaeger called for a complete QE rollback in 2018.
• Steven Mnuchin said that there is "no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done". He added that the spectre of regulatory relief has also been priced into stocks.
• Germany's top court threw out a cease-and-desist request that could have halted the ECB's giant bond-buying program, offering some comfort to ECB policy makers as they prepare to extend the purchases into 2018.
• Spanish Deputy Prime Minister Soraya Saenz de Santamaria says the Spanish government will take control of Catalonia unless the regional leader withdraws his claim to independence by 10 am tomorrow.

Rates

Risk-on correction lower in core bond markets

Global core bonds lost ground today in a risk-on environment. USD/JPY eked out nice gains and European equity markets added 0.5%. The move mainly occurred in the European session with once again an outperformance of German Bunds vs US Treasuries (dovish ECB expectations & European political risk). The eco calendar only contained weaker-than-expected US housing data, but markets ignored them because of the big influence from hurricanes Harvey and Irma. ECB Lautenschlaeger and Villeroy both suggested ending QE next year. This is perfectly possible in the currently rumoured extension (to September 2018) and recalibration (from €60 bn/month to €30 bn/month). NY Fed President Dudley sounded confident in the US economy and holds on to a 3-rate hikes scenario this year.

At the time of writing, the US yield curve bear steepens with yields 1.7 bps (2-yr) to 4.2 bps (30-yr) higher. Changes on the German yield curve range between +0.6 bps (2-yr) and +2.5 bps (10-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany are nearly unchanged with Spain (+3 bps) underperforming ahead of tomorrow's supply and with Catalan President Puigdement's deadline looming. Spain's deputy PM repeated Madrid's warning today they would implement article 155, stripping Catalonia from its autonomy, if he declares independence.

The German Finanzagentur continued this week's scheduled EMU bond supply with a rather weak 30-yr Bund auction (€1B 1.25% Aug2048). Total bids amounted only €1.34B, way below the €1.98B average at the previous 4 30-yr Bund auctions. The Bundesbank retained €0.19B for secondary market operations, resulting in an official bid cover of 1.7 (real bid cover 1.3).

Currencies

USD/JPY takes the lead in USD rebound

In technical trading, the dollar remained rather well bid, but the relative performance of individual USD cross rates was a bit different from earlier this week. The dollar gained hardly any ground against the euro, despite the Catalan uncertainty. Some 'hawkish' ECB comments probably blocked the euro decline. The pair trades in the 1.1765 area. USD/JPY outperformed, supported by a rise in core US & EMU yields and by a strong risk sentiment. USD/JPY trades in the high 112 area.

Overnight, the focus in Asia was on the opening speech of Chinese President Xi Jinping at the Communist Party congress, but there was little direct impact on global markets. Asian equity indices traded mixed. China outperformed. USD/JPY held a very tight range in the 112.20/25 area. EUR/USD hovered around 1.1765.

The dollar extended its gradual uptrend from earlier this week, but the 'structure' was slightly different. Until now, the dollar gained slightly more against the euro than against the yen. Today, it was the other way around. EUR/USD hovered in the mid 1.17 area, but USD/JPY made a nice intraday up-leg. We didn't see a specific reason for this change. The ongoing equity rally maybe supports USD/JPY, but this argument was also in play earlier this week. There was market talk of Asian USD/JPY shorts being squeezed out of their positions. Whatever the reason, USD/JPY left its recent sluggish performance and jumped to the high 112 area.

Early in the afternoon, some perceived hawkish comments from ECB's Villeroy hit the screens. The euro rebounded further off the intraday lows. US housing data (starts and permits) were again weaker than expected. However, they were disrupted by the impact of the hurricanes and didn't hurt the dollar. In the end, EUR/USD trades little changed from the start of in Europe (1.1765 area). USD/JPY still shows a good gain, trading in the 112.85 area. This evening, the Fed will publish the Beige book preparing the November 01 meeting.

Sterling struggles as data suggest limited tightening

BoE gouvernor Carney kept a balanced approach yesterday on the trade-off between containing inflation and supporting growth. Markets assume that any BoE tightening will be limited as long as Brexit uncertainty continues to cloud the UK economic outlook. This assessment weighed on sterling yesterday and markets maintained their assessment after today's labour market report. The report was mixed. Job growth was less than expected, but the unemployment rate remained at the historically low level of 4.3%. Wage growth was marginally stronger than expected at 2.2% Y/Y, but real wages remain negative (-0.4%). The small beat in wage growth didn't change market expectations that any BoE tightening will be very limited (probably only one hike). EUR/GBP temporary dropped a few ticks, but the move was soon reversed. EUR/GBP trades currently in the 0.8940 area, further supported by the comeback of the euro this afternoon. Cable was mainly driven by the overall swings in the dollar. The pair trades in the 1.3165 area.

Homebuilding took a nosedive in September on account of hurricane-induced disruptions. Housing starts fell (-56k) to 1127k, disappointing markets that had expected a decline to 1175k. Building permits also surprised to the downside, falling (-57k) to 1215k.

Single-family starts accounted for the bulk of the decline, falling by 40k from an upwardly revised (+18k) August reading to register 829k on the month. Multi-family building also suffered a loss, retrenching (-16k) to 298k from a downwardly revised (-15k) August reading.

Building permits weakened on account of business closures related to the hurricanes. However, single-family permits rose 19k to 819k, while the volatile multi-family segment saw permits tumble by 76k to 396k, from a downwardly revised (-28k) August reading.

As expected, activity in the South weighed (-54k), extending the previous month's losses related to Hurricane Harvey. The Midwest also saw activity subside (-39k), with the Northeast subtracting another 10k units from the headline number, leaving the West as the sole region to see homebuilding gain momentum (+47k).

Key Implications

Today's headline largely reflects delayed homebuilding in Texas and Florida as a result of Hurricanes Harvey and Irma. Despite the drop in single-family starts, permits advanced strongly, indicating that the weakness in building is likely transitory. Rebuilding in the coming months will continue to be supported by a tightening labor market that has bolstered household incomes and the pace of household formation. Additionally, lending conditions remain supportive, with mortgage rates having slid year-to-date.

Builders regained confidence in October as hurricane-related uncertainty faded, as evidenced by a rebound in the NAHB's index. However, builders will likely face more substantial labor shortages in the months ahead, with construction activity from the hurricanes requiring even more workers amid a dwindling pool of labor. Additionally, increased demand for building materials will further magnify robust price growth, which may prove to be an obstruction to construction.

Despite these impediments, this report confirms that fundamentals remain strong. As a result, we expect the single-family segment of the market to account for the bulk of the gains going forward, with an anticipated acceleration over the remainder of the year as the estimated minimum 20k houses that were destroyed by the tropical storms are replaced. This will solidify residential investment as a substantial positive contributor to growth into 2018.

Dow Jones hit new record high above 23000 on Wednesday. The index continues to trend higher in uncharted territory, supported by strong US economic data, upbeat earnings reports from top companies and hopes President Trump will be able to pass his tax program.

Dow moved from 22000 to 23000 milestones in exactly one month, taking half the time for advance from 21000 to 22000.

Strong uptrend from mid-Aug correction low at 21580 shows no signs of running out of steam, despite overextended daily / weekly studies.

The price is running on the third wave of five-wave sequence from 21713, which broke above its 123.6% Fibonacci extension at 23002, eyes next target at 23121 (FE 138.2%) and could travel to 23283 (FE 161.8%).

Rising 10 SMA which tracks the recent bull-leg since early Sep offers solid support at 22825.

Res: 23050; 23121; 23283; 23383
Sup: 22961; 22886; 22825; 22778

Hello fellow traders. In this technical blog we're going to take a quick look at the past Elliott Wave charts of Copper published in members area. In further text we're going to count the swings, explain the short term Elliott Wave view.

As our members know, Copper has had incomplete bullish sequences in larger time frames targeting 3.363 area. Consequently, we advised members to avoid selling and keep buying the dips in 3,7,11 swings. On 9th October Copper has made new short term high that made sequences bullish in the short term cycle as well. With new high we assumed that 9th swing is in progress. That means short term cycle from the 09/22 low is also having incomplete sequences . As of right now, 11th swings up are required to complete proposed cycle. We're labeling proposed cycle as a Triple Three structure. Second ((x)) connector is counted completed at 3.011 low and we're about to complete short term x red pull back. As far as the mentioned level holds, we expect further rally.

Shortly after Copper found buyers , and make further separation from the 3.011 low, eventually breaking above 09/04 peak..

The Fed and NAFTA negotiations have stolen headlines for the past two days. We listen to what the market is saying. The US dollar was the top performer while the pound lagged. The China Party Congress starts Wednesday. UK earnings rose 2.2% but well below inflation, while employment increased by less than expected. The pound extended its losses as prospects of a Brexit resolution between the UK and EU over the divorce bill remain dim.

Speculating on the next Federal Reserve Chairman is a fun exercise but a dangerous trade. US dollar bulls got a boost on Monday about John Taylor but much of that faded later because the President gushing about a candidate is no reason to bet on rate hikes.

Four years ago, markets were playing the same schizophrenic game between Yellen and Larry Summers. At the time, it was assumed Yellen was the dove and he was the hawk. In hindsight, they might have been the opposite.

The lesson is that all the candidates are smart people and the Fed is a massive operation with thousands of employees who contribute to policy. It's doubtful the White House or any of the candidates have a genuine desire to partake in experiments when stability is the surefire way to economic progress.

The only surefire trade is to buy stocks if Yellen is reappointed.

Then there is NAFTA, which was billed as an involuntary Brexit for Canada and Mexico. Talks were extended past the year-end deadline Tuesday. That was taken as a positive sign that no one is yet-ready to walk away from the table, a sign that progress is possible.

The Mexican peso rebounded after weeks of declines but the scope of the move was still modest. The Canadian dollar hardly reacted.

If talks break down, then the trade will probably be to fade the kneejerk. The first reason for that is because there is uncertainty on whether the White House can unilaterally end NAFTA without Congressional approval - something that's unlikely. Second is that falling back on WTO rules wouldn't be a disaster for Mexico and Canada would fall back on the old FTA. In that case, the trade may be to sell all three against a broader basket.

Looking ahead, the China Party Congress has the potential to steal the agenda away from Fedtalk, Brexit-talk, Carney-talk and anything else. Expect a headline-heavy finish to the week.

The GBP/JPY formed the LVZ pattern - Low Volatility Zone exactly at the POC 147.85-148.05 and it is proceeding higher towards D H4 148.75. Strong h1 candle or 4h candle close above 148.75 suggest further bullish pressure towards 149.20-30. Looking at a daily chart in chart we can see a possibility of further strength towards 149.85 as the daily strong hammer is suggesting. Retest of 148.20-35 could also be possible and if the pair bounces again from D H3-EMA89 (148.20-35) that should be a sign of another bullish pressure towards above mentioned levels. Only below 147.80 we might see a drop towards 147.32 and bulls should lose the steam.

• H3 - Weekly Camarilla Pivot (Weekly Interim Resistance)
• W H4 - Weekly Camarilla Pivot (Strong Weekly Resistance)
• D H4 - Daily Camarilla Pivot (Very Strong Daily Resistance)
• D L3 - Daily Camarilla Pivot (Daily Support)
• D L4 - Daily H4 Camarilla (Very Strong Daily Support)
• PPR - Progressive Polynomial Channel
• POC - Point Of Confluence (The zone where we expect price to react aka entry zone)

USD/CHF - 0.9821

Original strategy :

Buy at 0.9770, Target: 0.9870, Stop: 0.9735

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9790, Target: 0.9890, Stop: 0.9755

Position : -

Target :  -

Stop : -

Dollar’s rally after finding renewed buying interest at 0.9730 signals low has been formed at 0.9705 late last week and mild upside bias remains for test of strong resistance at 0.9837, however, break there is needed to retain bullishness and confirm recent rise from 0.9421 low has resumed for headway to 0.9870 and possibly towards 0.9900.

In view of this, would not chase this rise here and would be prudent to buy dollar on pullback as 0.9785-90 should limit downside. Only a break below support at 0.9730 would abort and signal the rebound from 0.9705 has ended, bring retest of this level.

USDJPY: The pair looks to correct further higher as it followed through higher on the back of its Tuesday gains on Wednesday. On the downside, support comes in at the 112.50 level where a break if seen will aim at the 112.00 level. A cut through here will turn focus to the 111.50 level and possibly lower towards the 111.00 level. On the upside, resistance resides at the 113.00 level. Further out, we envisage a possible move towards the 113.50 level. Further out, resistance resides at the 114.00 level with a turn above here aiming at the 114.50 level. Its daily RSI is bullish and pointing higher suggesting further strength. On the whole, USDJPY faces further bullish offensive.

GBP/USD - 1.3169

Original strategy :

Sell at 1.3225, Target: 1.3125, Stop: 1.3260

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.3255, Target: 1.3135, Stop: 1.3290

Position : -

Target :  -

Stop : -

Yesterday’s selloff after meeting renewed selling interest at 1.3287 adds credence to our view that top has been formed at 1.3338 late last week and consolidation with downside bias remains for this move to extend further weakness to 1.3140, then towards support at 1.3121, however, break of latter level 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 recovery as previous support at 1.3225 should turn into resistance and limit upside, bring another decline later. Above 1.3250-60 would risk another test of said resistance at 1.3287 but only break there would signal low is formed instead, bring rebound to 1.3300 and possibly test of resistance at 1.3312. 

EUR/USD - 1.1765

Original strategy  :

Sell at 1.1800, Target: 1.1700, Stop: 1.1835

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1745, Target: 1.1820, Stop: 1.1725

Position : -

Target :  -

Stop : -

Although the single currency fell briefly to 1.1730, lack of follow through selling and current rebound suggest an intra-day low is possibly formed and consolidation with mild upside bias is seen for gain to 1.1790-00, however, reckon upside would be limited to 1.1820-25 and as top has been made at 1.1880, price should falter below 1.1850-55 and bring another decline later this week.

In view of this, we are looking to turn long on dips and one should exit on such rebound. Below said support at 1.1730 would signal the fall from 1.1880 top is still in progress and may extend weakness to support at 1.1719, however, break there is needed to retain bearishness and signal the rebound from 1.1669 has ended, then further decline to 1.1700 would follow.