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Cable fell sharply on Tuesday and establishing below 1.3200 handle after UK inflation data release did not produce enough thrust for stronger upside action, despite CPI hitting the highest level in more than five years. Focus turned on UK interest rates, as rate hike in November was widely expected scenario, but some dissonant tones these days eroded strong optimism. BoE's chief Carney said on Tuesday that balance between inflation and supporting economic activity is needed. In addition, MPC new member Ramsden commented that inflation is well anchored, while another member Tenreyro said is not ready to vote for rate hike. All these turned the story about rate hike from extremely hawkish approach to the situation when 30% of the policymakers has neutral stance ahead of Nov 2 MPC policy meeting. Sudden change in policy view just two weeks ahead of BoE's policy meeting turns traders' bets towards dovish hike and even betting MPC will stay on hold. Pound's reaction was negative, with stronger bearish acceleration on Tuesday, erasing over 50% of last week's strong rally and shifting focus lower. Also, fresh weakness confirms reversal signal from Monday's bearish engulfing pattern, signaling further easing after bears broke below pivotal support at 1.3182 (daily Tenkan-sen). Fresh bears pressure next strong support at 1.3141 (55SMA/Fibo 61.8% of 1.3026/1.3337) which contained last week's repeated downside attempts and marks trigger for further downside on break. Close below broken Tenkan-sen will generate bearish signal and support scenario.

Res: 1.3182; 1.3218; 1.3264; 1.3287
Sup: 1.3141; 1.3121; 1.3100; 1.3026

EUR/GBP - 0.8922

Original strategy  :

Sell at 0.8930, Target: 0.8800, Stop: 0.8970

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.8965, Target: 0.8825, Stop: 0.9005

Position : -

Target :  -

Stop : -

 
As the single currency has rebounded after finding support at 0.8856, suggesting further consolidation above this level would be seen and another bounce to 0.8950 cannot be ruled out, however, if our view that top has been formed at 0.9033 last week is correct, reckon upside would be limited to 0.8965-70 and bring another decline later, below said support at 0.8850-56 would add credence to this view and signal the rebound from 0.8746 low has ended, bring further fall to 0.8800-10 later. 

In view of this, would be prudent to sell euro on recovery as 0.8965-70 should limit upside. Above 0.8985-90 would defer and risk a stronger rebound to 0.9000 but price should falter well below said resistance at 0.9033, bring another selloff.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.2561

Trend:  Down

 
Original strategy       :

Buy at 1.2395, Target: 1.2595, Stop: 1.2335

Position: -

Target:  -

Stop: -

 
New strategy             :

Buy at 1.2515, Target: 1.2675, Stop: 1.2465

Position: -

Target:  -

Stop:-

As the greenback has continued edging higher, suggesting the pullback from 1.2599 has ended at 1.2433 last week and consolidation with upside bias remains for a retest of said resistance but break there is needed to confirm recent upmove from 1.2061 low (wave iii trough) has resumed for further gain towards previous resistance at 1.2663, however, upside should be limited to 1.2700 and price should falter well below another previous resistance at 1.2778. 

In view of this, would not chase this rise here and would be prudent to buy again on pullback as 1.2510-15 should limit downside. Below 1.2465 would signal the rebound from 1.2433 has ended, bring test of this support, break there would signal another leg of decline from 1.2599 is underway for retracement of recent rise to 1.2350-55 but reckon indicated support at 1.2313 would hold. Only a drop below 1.2313 would abort and signal the aforesaid rise from 1.2061 has ended, bring further fall to 1.2254 support, however, reckon downside would be limited to another previous support at 1.2197, bring rebound later. We are keeping our count that wave v as well as wave (C) ended at 1.3794 and impulsive wave (i ii, i ii) is now unfolding with minor wave iii ended at 1.2414, followed by wave iv correction ended at 1.2778, wave v has reached our indicated downside target at 1.2100 and may extend to 1.2000.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

• European equities recovered from initial weakness and trade currently around 0.3% higher with the Spanish IBEX 35 outperforming after yesterday's losses. US stock markets opened near yesterday's closing levels.
• German investor confidence remained near record high levels (87 from 87.9 in October) as stocks rallied and data signalled that Europe's largest economy is on track for a solid expansion in the second half of the year. The forward looking expectations component rose from 17 to 17.6, but remained below consensus (20.0).
• US import prices rose at their fastest pace in over a year and more than expected (0.7% M/M & 2.7% Y/Y), suggesting inflation could pick up in the near term following months of sluggish readings. US industrial production rose by 0.3% M/M in September, in line with consensus, but manufacturing production disappointed (0.1% M/M).
• Consumer prices in the UK rose in September (3% Y/Y) at the fastest annual rate for more than five years, a pickup that will reinforce expectations the BoE could nudge up interest rates as soon as November.
• Dave Ramsden, the new BoE deputy governor for markets and banking has put himself on the dovish side of the BoE's Monetary Policy Committee, saying underlying inflationary pressures are under control and Brexit entails significant risks to the economy.
• A second MPC member, Silvana Tenreyro, whose views were not known yet, suggested a more hawkish outlook than Sir Dave Ramsden, but she did not place herself in the camp on the MPC who thought a rate rise was likely to be warranted in the very short term.
• Goldman Sachs beat Wall Street estimates on a smaller-than-expected revenue decline at its struggling bond trading unit, gains in its private equity investments and higher fees from dealmaking. Morgan Stanley posted a much higher-than-expected quarterly profit as record revenue from its wealth management business helped offset the blow from a slump in trading activity.
• Germany's next finance minister should be politically independent from Chancellor Angela Merkel, the leader of the Free Democrats (FDP) said on Tuesday, rebuffing calls to keep the ministry in conservative hands.

Rates

US Treasuries sensitive to higher import prices

Today's European session resembled the one of yesterday: German Bunds gained ground, outperforming flat US Treasuries. Developments on the European political scene and dovish rumours about next week's ECB meeting continue to play in the back of investors' minds. A slightly disappointing ZEW-indicator (still at decent levels though) went unnoticed. Higher-than-expected US import prices broke the deadlock in the Treasury market, inflicting some losses. German Bunds followed the move lower, erasing some of the earlier gains. US industrial production data were too close to consensus to influence dealings.

At the time of writing, changes on the German yield curve are limited between +0.7 bps (2-yr) and -0.6 bps (30-yr). US yields shift 0.3 bps (30-yr) to 2.2 bps (5-yr) higher. On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrow up to 2 bps.

The German Finanzagentur started this week's scheduled EMU bond supply with a rather weak 2-yr Schatz auction (€4B 0% 2019). Total bids amounted only €4.22B, way below the €5.95B average at the previous 4 Schatz auctions. The Bundesbank retained €0.78B for secondary market operations, resulting in an official bid cover of 1.3.

Currencies

Dollar maintains a cautious bid

The dollar profited yesterday evening from headlines that chances had risen of John Taylor becoming the next Fed Chairman. Today, the dollar initially maintained yesterday's gains, holding tight ranges against the euro and the yen. Finally, higher than expected US import and export prices triggered some marginal further USD gains. USD/JPY trades in the 112.40 area. EUR/USD hovers near the 1.1750 level.

Overnight, Asian equities continued their established uptrend as major WS indices closed again at record levels yesterday evening. Headlines on all kinds of political event risk were omnipresent, but they didn't derail the global equity rally. USD/JPY failed to extend yesterday's gains and traded in the low 112 area. EUR/USD traded marginally lower in the 1.1770 area

The dollar maintained its overnight gains against the euro, but there was no follow-through price action. EUR/USD settled in tight range roughly between 1.1755/75. EMU September inflation was confirmed at 1.5% Y/Y. German ZEW economic sentiment was slightly softer than expected, but remained at healthy levels. There was no noticeable impact on euro trading. Interest rates/interest rate differentials and/or equities showed no clear directional trend and were unable to guide FX trading. Headlines on Catalonia temporary moved a bit to the background as a factor for trading.

US import and export prices were slightly above consensus. The PPI and CPI data are much more important as driver for the dollar. Even so, the dollar gained a few tics upon the publication of the import prices, illustrating that (FX) markets are quite sensitive to US price data. US industrial production (0.3% M/M) was exactly in line with expectations. EUR/USD trades in the 1.1745/50 area, near the intraday lows. USD/JPY is changing hands in the 112.40 area. Prices in both cross rates are not that far from where they were this morning. Even so, the dollar still gets the benefit of the doubt.

UK inflation north of 3% doesn't help sterling

Yesterday's 'urgency meeting' between UK PM May and EU's Juncker didn't bring any concrete sign of progress in the Brexit process. Still markets apparently hoped on some positive fall-out in the days to come. Sterling traded with a cautiously positive bid this morning, going into the publication of the UK inflation data and the hearing of BoE governor Carney before Parliament. UK September inflation printed at 3.0% Y/Y, exactly in line with expectations. Sterling reached an intraday high just after the publication of the inflation data. After the CPI-report, BoE's Carney and MPC members Tenreyro and Ramsden explained BoE policy before Parliament. Ramsden indicated he was no part of the majority within BoE that sees a case to raise rates in the coming months. Carney is part of that majority. However, he stressed that the BoE is still facing the difficult balance between supporting growth and activity and having inflation above target. His comments can be considered as an indication that any policy tightening will limited. Sterling more than reversed the initial gains Cable tumbled about one big figure and trades below 1.32. EUR/GBP rebounded well north of 0.89. (currently 0.8915).

The dollar received fresh boost from better than expected US import/export data on Tuesday and extended recovery from Monday's low at 111.65. Bullish releases today add to expectations about December rate hike, following yesterday's bullish signal on President Trump's comments favoring hawk John Taylor to replace Janet Yellen as Fed chairperson. Fresh bullish acceleration further diminished downside threats seen on firm break below 200SMA, which so far failed twice. First pivot at 112.45 (converged 10/20SMA's) was cracked, with firm break here and above daily Tenkan-sen (112.54) needed to confirm reversal and shift near-term focus towards targets at 112.75 (Fibo 61.8% of 113.43/111.65 downleg) and psychological 113.00 barrier (Fibo 76.4%) which guard recent peaks at 113.25 and 113.43.

Res: 112.54; 112.75; 113.00; 113.25
Sup: 112.03; 111.76; 111.65; 111.33

Daily Pivots: (S1) 1.1777; (P) 1.1799 (R1) 1.1817; More...

As noted before, recovery form 1.1669 should have completed at 1.1879. And, correction from 1.2091 is resuming. Intraday bias remains on the downside for 1.1669 first. Break there will target 38.2% retracement of 1.0569 to 1.2091 at 1.1510. Strong support is expected there to complete the correction. On the upside, above 1.1879 will turn bias back to the upside for retesting 1.2091 high.

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.

USD/CHF - 0.9794

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

The greenback found renewed buying interest at 0.9730 and has staged another rebound, current break of resistance at 0.9772 suggests low has possibly been formed at 0.9705 last week and consolidation with mild upside bias is seen for gain to 0.9808 resistance but break there is needed to signal the fall from 0.9837 has ended instead, bring retest of this level which is likely to hold from here.

In view of this, would not chase this rise here and would be prudent to stand aside in the meantime. Below 0.9750 would bring test of said support at 0.9730 but break there is needed to signal the rebound from 0.9705 has ended, bring retest of this level. Once this support is penetrated, this would revive bearishness and extend the fall from 0.9837 to 0.9669-70 (61.8% Fibonacci retracement of 0.9565-0.9837 and previous support) but previous support at 0.9642 should remain intact.

Daily Pivots: (S1) 0.9732; (P) 0.9751; (R1) 0.9772; More....

USD/CHF is still staying in range of 0.9704/9835 and intraday bias remains neutral first. As noted before, considering bearish divergence condition in 4 hour MACD, break of 0.9704 will argue that rebound from 0.9420 has completed. This will also mixed up the near term outlook and turn bias back to the downside for 0.9587 support. On the upside, break of 0.9835 will extend the rebound to 61.8% retracement of 1.0342 to 0.9420 at 0.9990.

In the bigger picture, current development suggests that USD/CHF has defended 0.9443 (2016 low) key support level again. Rise from 0.9420 could develop into a medium term move and target a test on 1.0342 high. This represents the upper end of a long term range that started back in 2015. On the downside, break of 0.9587 support is now needed to indicate completion of the rise from 0.9420. Otherwise, further rally will remain in favor in medium term.

GBP/USD - 1.3182

New strategy  :

Sell at 1.3225, Target: 1.3125, Stop: 1.3260

Position : -

Target :  -

Stop : -

The British pound met renewed selling interest at 1.3287 and has dropped again today, signaling top has been formed at 1.3338 late last week and consolidation with downside bias is seen for this move to extend further weakness to 1.3150, 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 the lower Kumo (now at 1.3230) should limit upside and bring another decline later. Above 1.3250-60 would risk another test of said intra-day resistance at 1.3287 but only break there would signal an intra-day low is formed instead, bring rebound to 1.3300 and possibly test of resistance at 1.3312. 

Daily Pivots: (S1) 111.79; (P) 112.04; (R1) 112.42; More...

Intraday bias in USD/JPY remains neutral for the moment. Another decline is expected as long as 112.57 minor resistance holds. Below 111.64 will target 55 day EMA (now at 111.40) first. Sustained break there will target 107.31 and possibly below. Nonetheless, above 112.57 will bring retest of 113.43. Break there will resume whole rise from 107.31 for 114.49 key resistance.

In the bigger picture, rise from 98.97 (2016 low) is seen as the second leg of the corrective pattern from 125.85 (2015 high). It's unclear whether this second leg has completed at 118.65 or not. But medium term outlook will be mildly bearish as long as 114.49 resistance holds. And, there is prospect of breaking 98.97 ahead. Meanwhile, break of 114.49 will bring retest of 125.85 high. But even in that case, we don't expect a break there on first attempt.