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The U.S dollar has fallen below key support against the Japanese Yen, hitting 111.66, as technical selling intensifies after the USDJPY pair broke below the lower-end of its recent trading range.

Intraday trading sentiment surrounding the USDJPY pair is currently bearish, with further declines likely whilst price-action continues to trade below the 111.98 level.

On Friday, the USDJPY declined after softer than expected U.S CPI figures, with price reaching 111.68. Price-action continues to suggest further losses, as the pair prints bearish lower daily time-frame candles.

Going forward, traders will look for multiple daily price-closes beneath the pairs 200-week moving average, at 111.79, and the pairs 200-day moving average, located at the 111.40 level.

Key technical support for USDJPY pair is located at 111.79 and 111.66. Further support is found at 111.40, and the pairs monthly pivot point, at 111.03.

To the upside, key intraday resistance is found at 111.98 and the pairs weekly pivot point, at 112.12. Further technical resistance is found at the pairs weekly pivot point, at 112.31, and the former swing high, at 112.57.

The euro has fallen against the U.S dollar during today's European session, reaching an intraday low of 1.1780, as tensions between Spanish authorities and the Catalan government intensify.

Moving into the U.S session, the trading sentiment surrounding the EURUSD pair is mixed. Despite political woes in Spain, intraday sellers failed to close the last H4 candle below the key 1.1790 support level. Euro buyers are now starting to push price-action back above the 1.1800 handle.

Moving into the U.S session, we see the release of the New York manufacturing index, which is expected to come in worse than the previous month, and may affect the U.S dollar index.

Daily price closes below the 1.1790 level will be considered bearish, whilst any daily price closes above the 1.1845 level will be taken as bullish.

Key intraday EURUSD technical resistance is currently found at 1.1790 and 1.1770. A further decline below the 1.1770 level should lead to a deeper sell-off towards 1.1740 and 1.1710.

To the upside, key resistance is found at 1.1800, and the weekly pivot point, at 1.1807. Above the 1.1807 level, further resistance is found at 1.1825, 1.1845 and 1.1879.

GBPNZD is trading in a potential complex correction as part of wave iv). We see a possible contracting triangle correction in the making, with four sub-waves already unfolded. Current intra-day move can now be final sub-wave e of iv), that can search for a base near the lower triangle line and later make a new five-wave recovery higher, into wave v)

GBPNZD, 4H

Monday October 16: Five things the markets are talking about

The EUR has slipped in early Monday trading after posting its biggest weekly gain in four-weeks as political uncertainty in the form of an approaching deadline over Catalonia's bid for independence and Austria's Sunday election outcome has convinced many to book some profits.

Later this morning, Catalan leader Carles Puigdemont is expected to clarify whether he is calling for the region's independence from Spain, with Madrid threatening a return to direct rule if his stance remains ambiguous.

In Austria, the young conservative leader Sebastian Kurz is on track to become the country's next leader after Sunday's election – He will likely seek a coalition with the resurgent far right as his party is well short of a majority.

However, the euro's losses have been somewhat limited due to a muted U.S dollar as subdued inflation data again raises market expectations that the Fed may not convey a ‘hawkish' tone at next weeks policy meeting. Friday's U.S inflation data suggested that the U.S's underlying inflation remains muted.

There are no central bank meetings this week, but the Fed will publish its Beige book Thursday (Oct 18).

In the U.K, it is a big data week with both the consumer and producer price indexes (Oct 17), retail sales and labor market data (Oct 19) due to be released.

This week is also a big one for China with the release of last nights September consumer and producer prices along with its Q3 GDP report (Oct 19) and last month's industrial production and retail sales data (Oct 18).

Note: China's 19th party congress begins on Wednesday Oct. 18 in China. Next Sunday (Oct. 22), Japan will hold an election for the lower house of the Diet.

1. Stocks are give the green light

In Japan, equities continue to find no reason to fall, with the Nikkei (+0.5%) printing its first ten-session win streak in over two years overnight. The prospects of an Abe election win later this month continues to attract buyers. The broader Topix gained +0.9%.

In Hong Kong, stocks rallied to a ten-year high overnight, joining a regional stock rally, which have been boosted by a surprisingly rosy growth forecast for China. The Hang Seng index rose +0.8%, while the China Enterprises Index gained +0.7%.

In contrast, Chinas share indexes fell as a surprisingly strong People's Bank of China (PBoC) economic growth projection failed to support the market. Governor Zhou indicated that China was expected to grow +7%in Q2 and defy widespread expectations for a slowdown. The blue-chip CSI300 index fell -0.2%, while the Shanghai Composite Index lost -0.4%.

In Europe, regional bourses are trading mostly higher with the exception of the Spanish IBEX, which continues to be weighed down on uncertainty over Catalonia independence.

U.S stocks are set to open unchanged.

Indices: Stoxx600 +0.20% at 392.2, FTSE +0.2% at 7546, DAX +0.20% at 13018, CAC-40 +0.3% at 5366, IBEX-35 -0.5% at 10203, FTSE MIB +0.1% at 22436, SMI -0.1% at 9305, S&P 500 Futures flat

2. Oil rises as fighting escalates in Iraq, gold higher

Oil markets are well supported this morning as Iraqi forces entered the oil city of Kirkuk, taking territory from Kurdish fighters and raising concerns over exports from OPEC's second-largest producer.

Iraq launched the operation in the region yesterday as the crisis between Baghdad and the Kurdish Regional Government (KRG) escalated. Tensions have been building since the KRG voted for independence in late September.

Brent crude futures are at +$57.75 per barrel, up +58c from Friday's close, while U.S. WTI crude is at +$51.95 per barrel, up +50c.

Note: Kirkuk accounts for +200k bpd of the some +600k bpd of oil produced in the KRG region.

Prices are also being supported by market worries over renewed U.S sanctions against Iran.

Gold is trading atop of the psychological +$1,307 an ounce, buoyed by worries geopolitical risks, including the ongoing tensions over Iran and North Korea. Friday's weaker-than-expected U.S. inflation print helped push U.S Treasury yields lower, giving a boost to gold to trade above +$1,300.

3. Yields tug of war

Fixed income traders are stuck between Fed rhetoric and global growth on one hand and the ECB's expected action and subdued inflation on the other. Growth and the Fed point to higher yields, while inflation and the ECB should at least keep yields at current levels.

The Fed is expected to raise rates in December (Fed funds are pricing in odds of +90%), while ECB members contemplate a softer-than-expected reduction in asset purchases. The latest estimate is to reduce monthly bond purchases to+€40B per month and carry that out for six-months, to maintain maximum flexibility. The possibility of a longer-than-expected extension of +12-months for the ECB's QE program caused yields to tumble Friday. German 10-year Bund yields are trading at +0.4% – their lowest level since late September.

The bond market is growing to the idea that the ECB will start withdrawing asset purchases, most likely in January and expect the ECB to announce some details next week (Oct 26).

Elsewhere, the yield on 10-year Treasuries gained +2 bps to +2.29%, while the U.K's 10-year gilt increased +1 bps to +0.41%.

4. Dollar finds a foothold

Ahead of the U.S open, the EUR (€1.1788) trades under pressure after yesterday's Austrian elections, which are likely to result in a coalition led by the People's Party, which wants tougher rules on immigration, and the far-right Freedom Party. EUR/GBP has fallen -0.3% to €0.8866. There are also concerns about Catalonia after President Puigdemont has yet to clarify whether he declared the region independent, raising the prospect of reprisals from Madrid. Market focus will also be looking ahead to next week ECB decision see if Euro policy makers will announce the bulk of its decisions on QE tapering.

Sterling (£1.3297) is a tad higher on reports that PM May is planning to meet with E.U officials in Brussels in the hope of ending the Brexit stalemate. EUR/GBP is at €0.8867.

5. Euro-area exports jump

Data this morning showed that Eurozone exports rose +2.5% in August from July, leading to a widening of the seasonally adjusted trade surplus to+€21.6B vs. +€17.9B.

This strong print is go some ways to reassure ECB policy makers that the EUR's appreciation this year has not been capable to pressure the region's economic recovery, which should provide further ammunition to decide to scale back their bond purchases at next week's ECB meeting (Oct. 26).

The euro has started the week with slight losses. In the Monday session, EUR/USD is trading at 1.1791, down 0.22% on the day. On the release front, eurozone data was positive. German Wholesale Price Index gained 0.6%, above the forecast of 0.4%. The eurozone trade surplus jumped to EUR 21.6 billion, above the estimate of EUR 20.3 billion. The US will release the Empire State Manufacturing Index, which is expected to slow to 20.3 points. On Tuesday, Germany releases ZEW Economic Sentiment and the eurozone will publish Final CPI.

The game of brinkmanship between the leaders of Spain and Catalonia continues this week, with no resolution in sight. The Spanish government set a Monday deadline for Catalan President Carles Puigdemont to expressly state whether he had declared independence, and if so, Puigemont was given three more days to retract his proclamation. However, the Catalan President shirked away from a clear answer and let the first deadline pass, calling for more dialogue with Madrid. Prime Minister Mariano Rajoy has threatened to suspend the Catalan parliament and impose direct rule from Madrid, which could trigger a violent response. The crisis has led 500 companies to start leaving Catalonia, and the Standard and Poor’s rating agency has said that the region could face a recession if the crisis continues.

ECB President Mario Draghi said on Thursday that he plans to maintain ultra-low rates “well past” the end of its bond-buying program in December. The ECB has been under pressure to tighten monetary policy, primarily from Germany, where the central bank has called for tighter policy, given the stronger eurozone economy. The ECB is expected to taper its monthly bond purchases of 60 billion euros at its policy meeting on October 26, but Draghi has sent out a clear message that rate hikes will have to wait until 2018. With inflation levels will below the ECB target of around 2 percent, Draghi has been reluctant to raise interest rates until inflation shows clear signs of moving upwards.

A strong US economy hasn’t led to higher inflation, and there was some disappointment in the markets as CPI and Core CPI narrowly missed their estimates. On the release front, CPI gained 0.5%, short of the estimate of 0.6%. Core CPI posted a small gain of 0.1%, shy of the forecast of 0.2%. With inflation an important consideration in future rate decisions by the Federal Reserve, investors will be anxiously monitoring how Fed policymakers respond to September’s soft inflation numbers. Retail sales data was a mix, as Core Retail Sales gained 1.0%, above the estimate of 0.9%. However, retail sales were up 1.6%, short of the forecast of 1.7%.

Notes/Observations

Catalonia's leader failed to say whether he declared the region independent from Spain; raising the possibility of a reprisal in the coming days by the central government

Austrian parliamentary election has conservative People's Party keeping populism alive; led by 31-year-Kurz; wants tougher rules on immigration; Austria's new government stands against Macron/Merkel EMU reforms

Overnight

Asia:

China Sept CPI M/M: 0.5% v 0.3%e; Y/Y: 1.6% v 1.6%e; PPI Y/Y: 6.9% v 6.4%e

China Sept New Yuan Loans (CNY): 1.27T v 1.23Te

PBOC Gov Zhou saw H2 GDP growth reaching 7% driven by rapid growth in household consumption (**Note: China's economy grew by 6.9% y/y in each of the first two quarters of 2017. Q3 data is expected on Thursday, Oct 19th)

BoJ Gov Kuroda: Reiterates that BoJ will continue to pursue aggressive monetary policy easing. Current monetary policy can and should continue to achieve inflation target

Europe:

Some ECB members said to identify €2.5T limit for QE based on current rules. some officials believe there are enough bonds in the market to cut monthly purchases to €30B starting in Jan 2018 and lasting until Sept. General Council said to be deeply divided on whether to name an end date for program

ECB President Draghi reiterated have to be patient and persistent with our monetary policy; confident that wages and inflation will gradually rise in self-sustaining manner

Bank of England (BOE) Gov Carney reiterated view that might be appropriate to raise rates in the coming months

UK PM May's Office confirmed she will meet with EU officials Barnier and Juncker on Brexit on Monday

Austria national election results: People's Party (OVP) headed by Sebastain Kurz received 31.4% of the votes; results show that populism is not dead

Americas:

Fed Chair Yellen: New normal will be lower interest rates than we've seen historically; biggest surprise in the US economy this year has been inflation. Ongoing strength of the economy will warrant gradual increases in short-term interest rates (didn't specify when the next rate increase would come)

Fed's Rosengren (moderate, non-voter): 3-4 rate hikes next year will probably be appropriate; may need to overshoot on rates if unemployment is below 4% while inflation reaches target

White House econ advisor Cohn: strong, consistent economic growth is best insulator against financial crisis

Energy:

OPEC Sec Gen Barkindo: Have seen progressive improvement in compliance levels

Kuwaiti Oil Min: Too early to talk about extending supply cut agreement but we are at the right direction

Economic Data

(DE) Germany Sept Wholesale Price Index M/M: 0.6%e v 0.3% prior; Y/Y: 3.4% v 3.2% prior

(NO) Norway Sept Trade Balance (NOK): 9.2B v 12.4B prior

(IN) India Sept Wholesale Prices (WPI) Y/Y: 2.6% v 3.3%e

(EU) Euro Zone Aug Trade Balance (Seasonally Adj): €21.6B v €20.2Be; Trade Balance NSA (unadj): €16.1B v €23.3Be

Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.20% at 392.2, FTSE +0.2% at 7546, DAX +0.20% at 13018, CAC-40 +0.3% at 5366, IBEX-35 -0.5% at 10203, FTSE MIB +0.1% at 22436, SMI -0.1% at 9305, S&P 500 Futures flat]

Market Focal Points/Key Themes:

European Indices trade mostly higher this morning with the exception of the the Spanish IBEX continued to be weighed down on uncertainty over Catalonia independence.
Leading advancers include TopDanmark after raising outlook and Shire which outperforms in the UK on reports activist fund urging sale or spin off. To the downside, Siemens Gamesa falls sharply after cutting its outlook while Convatec trades over 20% lower after cutting outlook and Q3 update.
Today in the US notable earnings include Netflix after the close as earnings are due to pick up during the week.

Equities

Consumer discretionary [ Teleperformance [RCF.FR] -1.3% (Q3 results, strategy update)]

Industrials: [Kuehne & Nagal -4% (9M Results), Husqvarna [HUSQB.SE] -5% (Cuts outlook) ]

Financials: [TopDanmark [TOP.DK] +2.7% (Raised outlook)]

Technology: [SLM Solution [AM3D.DE] +4.1% (Awarded major order)]

Healthcare: [ Shire PLC [SHP.UK] +2% (Said that activist fund Sachem Head Capital Management is urging Shire to explore a sale or spin-off some of its assets), ConvaTec Grp [CTEC.UK] -21% (Trading update, cuts outlook)]

Energy: [ Siemens Gamesa [SGRE.UK] -7.7% (Cuts outlook)]

Speakers

Catalan President Puigdemont response via letter to PM Rajoy said to suspend independence mandate and seek dialogue. Defended claim to independence; called for Spain to end its repression dialogue. Would not respond with a yes or no on independence request as required by Spanish PM Rajoy

Central Spanish Govt said not to see the Catalan response as appropriate

Spain Deputy PM Saenz: Catalonia President Puigdemont did not reply to request; 2nd deadline has been activated (as speculated). Region has until Thursday, Oct 19th

Italy could hold parliamentary elections on March 4th 2018 (**Insight: Elections in Italy are due by May 2018)

France Fin Min Le Maire reiterated French gov't would stick to EU's 3% budget deficit limits

Sweden Central Bank (Riksbank) Dep Gov Ohlsson reiterates view that inflation target was important. Expansionary policy was a prerequisite for inflation to be close to target

Iraq Military Commander: Kurds agree to hand over control of all north oil company facilities to Iraqi forces

Iraqi forces claim to have recaptured refinery in Kirkuk (Kurds deny claim)

Currencies

EUR/USD was softer as the Catalan situation has yet to be resolved. Also the recent vote out of Austria showed that populism was not dead. Pair holding below the 1.18 level for the early part of today's session. Focus looking ahead to next week ECB decision see the central bank seen announcing the bulk of its decisions on QE tapering

GBP/USD was higher on reports that UK PM May planned to meet with European Union officials in Brussels in the hope of ending the Brexit stalemate. GBP/USD higher by 0.1% at 1.3296 area with e EUR/GBP cross at 0.8867

Fixed Income

Bund futures trade at 162.08 up 1 tick as some analysts lower their range for the yield on the 10-year German government bond to range from 0.40-0.45%, down from 0.45-0.50%. Continued downside targets 161.53 while upside resistance stands initially at 162.50, followed by 163.27.

Gilt futures trade at 123.75 down 17 as as PM May heads to Brussels to personally intervene in deadlocked Brexit negotiations and BOE Gov Carney reiterates intentions to raise rates. Continued downside eyeing 123.26. Upside targets 124.90 then 125.24.

Monday's liquidity report showed Friday's excess liquidity rose to €1.820T from €1.807T and use of the marginal lending facility fell to €118M from €89M.

Corporate issuance saw EM sovereign issuance climb to a record and soared above $200 Billion

Looking Ahead

UK PM May to meet EU's Barnier and Juncker in Brussels

05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0B in 6-month bills

06:00 (IE) Ireland Aug Trade Balance: No est v €4.2B prior

06:00 (IT) Italy Cabinet meets on 2018 Budget law

06:25 (BR) Brazil Central Bank Weekly Economists Survey

06:45 (US) Daily Libor Fixing

07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

07:30 (TR) Turkey TCMB Survey of Expectations

08:00 (PL) Poland Aug Current Account: -€0.7Be v -€0.9B prior; Trade Balance: -€0.5Be v -€0.6B prior

08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming actions in week

08:05 (UK) Baltic Dry Bulk Index

08:30 (US) Oct Empire Manufacturing: 20.5e v 24.4 prior

08:30 (CA) Canada Aug Int'l Securities Transactions(CAD): No est v 24.0B prior

08:50 (FR) France Debt Agency (AFT) to sell combined €4.3-5.5B in 3-month, 6-month and 12-month Bills

09:00 (BE) Belgium Aug Trade Balance: No est v -€0.3B prior

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

10:30 (CA) Bank of Canada (BOC) Q3 Loan Officer Survey: No est v 2.1 prior

11:30 (US) Treasuries to sell 3-Month and 6-Month Bills

14:00 ECB's Lautenschlaeger (Germany)

16:00 (US) Weekly Crop Progress Report

The pair remains directionless on Monday with price action holding in tight Doji. Rumors of big name suggesting longs just under 1.3300 for fresh upside extension towards 1.3500 zone, keeps the pair afloat and preventing stronger pullback, signaled by overbought slow stochastic on daily chart.

Consolidative phase may extend while falling 20SMA caps, with extended dips allowed towards 10 SMA (1.3207).

The pair is looking for tomorrow's release of UK CPI data which could generate fresh direction signal.

Inflation in the UK is expected to rise to 3% in September after 2.9% in August. Release above 3% would be supportive for sterling and spark fresh upside, in extension of past five-day's rally.

Downbeat CPI data (below 2.9%) would put pound under pressure and risk deeper pullback.

Res: 1.3311, 1.3326, 1.3341, 1.3415
Sup: 1.3253, 1.3222, 1.3207, 1.3182

EURCHF has stalled its uptrend recorded between October 2-12, stretching below the 1.15 key level and the 50-period exponential moving average. The short-term bias has turned bearish in the 4-hour chart according to technical indicators.

Both the RSI and the MACD give bearish signals as the former has dropped below its neutral zone, while the latter has slowed down, approaching zero and deviating below its signal line. Moreover, the Kijun-sen and the Tenkan-sen posted a bearish cross today, hinting that the pair might follow a downward path in the near-term.

Should the pair head down, support is likely to emerge at the 50% Fibonacci of 1.1475 of the uptrend from 1.1387 to 1.1561 (October 2-12). A drop below that level would see a re-test of the 61.8% Fibonacci of 1.1455 before the 78.6% of 1.1425 come into view.

On the flip side, the 23.6% Fibonacci at 1.1522 could also act as a barrier to upside movements. From here, the focus would shift towards the previous top at 1.1561. Any close above this point would confirm the continuation of the longer-term uptrend and therefore would restore the bullish status.

The cross remains in red for the third consecutive day and fell further on Monday, extending weakness after last week’s strong upside rejection at daily cloud base (0.9024).

Bears met target at 0.8855 on Monday (Fibo 61.8% of 0.8745/0.9032 upleg) which marks pivotal support (reinforced by 20SMA), break of which would generate fresh bearish signal.

Bearish setup of daily studies supports further weakness, as bearish weekly candle with long upper shadow, left last week, also weighing on market.

Oversold slow stochastic suggests bears could enter consolidation above 20SMA.

Converged 10/100 SMA’s (0.8917/21) offers solid resistance, reinforced by falling hourly cloud (spanned between 0.8928 and 0.8954) which should limit upside attempts.

Res: 0.8895, 0.8920, 0.8954, 0.9000
Sup: 0.8855, 0.8813, 0.8800, 0.8745

• Earnings could support equity market rally;
• UK data eyed as BOE ponders rate hike;
• IBEX underperforms as Puigdemont side-steps independence request.

US equity markets are poised to start on a positive note once again, looking to build on the numerous record highs recorded in recent weeks on the prospect of a brighter global economic outlook.

With corporate earnings season now underway and the number of companies reporting on the third quarter picking up quickly – 56 S&P 500 companies to release numbers this week – investors will be looking to the figures to add further support to the rally. This is particularly the case given the quieter week we have on economic data side, with predominantly tier two figures scheduled for release.

On the data side, it’s the UK that will be in focus this week, as we get numbers on the labour market, inflation and consumer spending. This comes as the Bank of England continues to weigh up raising interest rates before the year is out, a controversial move considering the gloomy economic outlook at mostly temporary nature of above target inflation. Should inflation ease off tomorrow as it did a few months ago, it will be interesting to see whether traders adjust rate hike expectations accordingly or stick with the line coming from the central bank.

Spanish shares are once again underperforming their European counterparts after Catalan leader Carles Puigdemont opted not to clarify whether or not independence had been declared, having been given a deadline of 10am local time to do so. Instead Puigdemont once again called for dialogue with Madrid over the next two months, which once again suggests independence is possibly not the aim of the government, at least not against the will of the Spanish authorities.

We’ll have to wait and see whether Prime Minister Mariano Rajoy is open to talks or if the current stand-off will be maintained. Rajoy may see the latest response as a sign of weakness and instead look to test Puigdemont’s resolve, creating further market uncertainty. The preferred outcome would be to find a diplomatic solution which would probably include more autonomy being granted to the region, something Rajoy is against.