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The $FTSE 100 index appears to be showing an impulsive bounce from the 9/15/17 lows. This is part of a larger leading diagonal up from the 2/11/16 lows. In an impulse that is bullish, market prices will go up in an impulsive manner on all time frames of trend. Impulses are always subdivided into smaller degree impulse waves and will alternate between the impulsive motive and corrective character so that the waves 1, 3, and 5 are impulses and the waves 2 and wave 4 are smaller pullback retraces of the waves 1 and 3.

In the near term, ideally while the index is above the 7493 wave 4 lows it can see the 5th wave target area in the 7535 to 7624 region in the intermediate blue wave (A) degree before it ends a cycle up from the 9/15 lows. The minimum target mentioned at 7535 comes from the inverse extension measurement of the depth of wave 4. The higher target area up at 7624 is where wave 5 equals wave 1. In between the upper and lower target areas the .618 extension of the wave 1 and wave 3 combined give a target area at 7574. Feel free to have a look at this blog title "How to get an Elliott Wave fifth wave target" that mentions how and the three ways to get a wave 5 target here. Afterward of completing the cycle up from the 9/15/17 lows the index should develop a three, seven or eleven wave corrective pullback in intermediate degree wave (B) that should offer the next best buying opportunity in the equity index. Here is another blog that references corrective structures of what to look for in that pullback.

Oil prices edged higher during Tuesday's trading session, as investors pondered over what "extraordinary measures" OPEC may implement to rebalance oil markets in the medium to long-term.

Although the commodity got off to a rough start last week, after traders questioned the sustainability of the rally, recent comments from OPEC stating that there are clear signs that markets were rebalancing, have supported WTI Crude. With OPEC's Secretary General Mohammed Barkindo almost pleading for US Shale oil producers to help reduce the global supply glut, could the tough tug of war between US Shale and OPEC be coming to an end?

It has certainly been a tricky year for OPEC, especially when considering how US Shale production soared nearly 10%, despite the cartel's valiant efforts in cutting supplies to prop up prices. Although Saudi Aramco plans to make "the deepest customer allocation cuts in its history" by cutting 560,000 bpd next month, its impact could be diluted if the US Shale producers see this as a Christmas gift.

As we head deeper into the final trading quarter of 2017, investors will continue to scrutinise markets for any fresh details on the "extraordinary measures" and signs of OPEC extending its production cuts beyond March 2018.

From a technical standpoint, WTI Crude has staged an impressive rebound from the $49.08 level. A decisive breakout above $51.00 should encourage a further incline towards $52.40. In an alternative scenario, sustained weakness below $49.00, which is also under the 50 Daily Simple Moving Average, may open a path towards $47.80.

Catalonia independence in focus

A sense of caution was felt across the European markets on Tuesday, as investors waited to see whether Catalonia would push for independence from Spain later in the day.

Catalonian President Carles Puigdemont will be in the spotlight as he addresses the region's parliament in Barcelona on the independence referendum this evening. Markets will be paying very close attention to his tone and choice of words during his speech. The Euro is likely to find itself under immediate selling pressure if Puigdemont makes a unilateral declaration of independence; it appears that many are predicting this move.

Technical traders will be observing how the EURUSD reacts above the 1.1680 support level and 1.1850 resistance level. Sustained weakness back below 1.1680, should open a path towards 1.1600 and 1.1500.

Currency spotlight - GBPUSD

Sterling extended gains against the Dollar on Tuesday, following data showing stronger than expected factory performance in July and August.

Manufacturing production rose 2.8% in August, year-on-year beating the 1.9% market consensus, while July was also revised higher to 2.7%. The positive data is likely to boost hopes of the Bank of England raising UK interest rates in November and this could support Sterling in the short term.

Taking a look at the technical picture, Sterling/Dollar is in the process of a technical bounce on the daily charts. The upside momentum may push prices higher towards 1.3230 and 1.3270, respectively. The possible creation of a new lower high around the 1.3270 38.2% Fibonacci retracement level may encourage sellers to jump back in, to attack the 1.3150 level once again.

EUR/USD: With the pair rallying to extend its price correction on Tuesday, more strength is expected in the days ahead. Resistance comes in at 1.1850 level with a cut through here opening the door for more upside towards the 1.1900 level. Further up, resistance lies at the 1.1950 level where a break will expose the 1.2000 level. Its daily RSI is bullish and pointing higher suggesting further strength. Conversely, support lies at the 1.1750 level where a violation will aim at the 1.1700 level. A break of here will aim at the 1.1650 level. Below here will open the door for more weakness towards the 1.1600. All in all, EURUSD continues to face further bull threats but with caution.

Daily Pivots: (S1) 1.1721; (P) 1.1738 (R1) 1.1758; More...

EUR/USD's rebound form 1.1669 is still in progress and focus is now on 1.1832 resistance. Decisive break there will suggest that the correction from 1.2091 is completed at 1.1669, ahead of 1.1661 support. In that case, intraday bias will be turned back to the upside for retesting 1.2091 high. On the downside, break of 1.1669 will extend the correction to 1.2091 to 38.2% retracement of 1.0569 to 1.2091 at 1.1510. We'd expect strong support from 1.1510 to bring rebound.

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.

Euro's rebound continues today as supported by solid German data. There is some uncertainty ahead as Catalan leader Carles Puigdemont is set to address the regional parliament at 1600GMT. For the moment, Catalonia is seen as the major near term risk limiting Euro's strength. On the background, recent comments from ECB officials are affirming the case of the announcement of stimulus recalibration later in the month. Meanwhile, Dollar is clearly losing upside momentum at the point. There is much upside potential for Euro in near term after getting past Catalan risk, one way or the other.

The situation in Catalonia could be tense there as it's uncertain whether Puigdemont would declare independence there. If he does, the parliament, which is dominated by pro-independence politicians, would have 48 hours to vote. Barcelona mayor Ada Colau is trying to mediate and urged Puigdemont not to declare independence. She also called for Spanish Prime Minister Mariano Rajoy to open a "dialogue so independence is not declared".

German recorded strong exports and imports growth

Staying in Eurozone, German trade surplus widened to EUR 21.6B in August, much larger than expectation of EUR 20.1B. Exports jumped 3.1% mom while imports grew 1.2%, both solid. Export growth reading was also the strongest in 12 months. The set of data argues that despite some global political uncertainties and Euro's appreciation, trade performed well. Also from Europe, Swiss unemployment rate dropped to 3.1% in September.

ECB officials agreed to start cutting asset purchases

ECB Executive Board Member Sabine Lautenschlaeger, a known hawk, urged that "we should begin reducing our bond purchases next year". But she also noted that "it is clear which sequence the exit will follow". That is, "bond purchases will come to an end, while interest rates will remain low, well past the horizon of net asset purchases". Governing Council member Klaas Knot also said the time has come to phase out monetary stimulus. And, "economic growth has been above potential for months and the threat of deflation is gone."

Sterling supported by data, by upside limited by politics

British pound remains firm along side Euro, as supported by strong dataflow. UK's industrial production grew 0.2% mom in August, in line with expectations but mildly weaker than the upwardly revised 0.3% mom growth a month ago. From a year ago, IP growth accelerated to 1.6% yoy from the upwardly revised 1.1% yoy in July. The market had anticipated a weaker expansion of 0.9% yoy. Manufacturing production rose 0.4% mom in August, unchanged from July's data which was revised slightly lower. On year-over-year basis, the reading improved to 2.8% yoy in August, beating expectations of 1.9% yoy and July's 2.7% yoy. Construction output jumped 0.6% mom in August, after contracting -1% in the prior month. The country's visible trade deficit widened to -14.2B pound in August, from -12.8B pound in the prior month. The market has anticipated it to narrow to 11.2B pound.

Another reason is bargain-hunting as the currency slumped to lowest level in a month against the greenback last week. We remained bearish over the pound's outlook. The incumbent Conservative Party is losing support due to the poor leadership of PM Theresa May. It was reported that about 30 Tories MPs have agreed to sign a letter demanding her to quit. We do not see this would materialize, though, amidst the lack to a charismatic successor within the Conservative Party and the high risk of bringing about a Labor government in case of a snap election. However, political turmoil should continue to cause volatility in the pound. Moreover, the uncertainty of Brexit and weak economic developments should be limiting the pound's strength.

BoJ governor Kuroda repeated economy expanding moderately

BoJ Governor Haruhiko Kuroda reiterated that "Japan's economy is expected to continue expanding moderately in the future." And, after three years of massive quantitative easing, inflation is still struggling to come up. Kuroda noted that the central bank will maintain the stimulus program and he's optimistic that inflation will gradually pick up towards the 2% target, thanks to closure of output gap and improvements in inflation expectations.

Japanese Prime Minister Shinzo Abe begins his election campaign by attacking the opposition for creating new parties. He said that "what creates our future is not a boom or slogan. It is policy that creates our future." Based on recent polls, Abe's Liberal Democratic Party-led coalition is predicted to repeat the past landslide victories in this snap election on October 22.

Released from Japan, current account surplus widened to JPY 2.27T in August. Eco Watchers sentiment rose to 51.3 in September.

Business sector in Australia is doing very well

Australia NAB business confidence rose to 7 in September, up from 5. Business conditions remained at 14, close to triple of the historical average. NAB Chief Economist Alan Oster noted that "business conditions at these levels tell us that the business sector in Australia is doing very well." However, he pointed out that "the sustained weakness in retail conditions should justifiably be raising doubts around expectations for any imminent, and sustained rebound in consumer spending, although tough competition and other margin pressures are likely behind the result as well." Also, "elevated underemployment, an elevated Australian dollar, household debt and peaks in LNG exports and housing construction are all potential hurdles that will ensure that the Reserve Bank of Australia proceeds with caution."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1721; (P) 1.1738 (R1) 1.1758; More...

EUR/USD's rebound form 1.1669 is still in progress and focus is now on 1.1832 resistance. Decisive break there will suggest that the correction from 1.2091 is completed at 1.1669, ahead of 1.1661 support. In that case, intraday bias will be turned back to the upside for retesting 1.2091 high. On the downside, break of 1.1669 will extend the correction to 1.2091 to 38.2% retracement of 1.0569 to 1.2091 at 1.1510. We'd expect strong support from 1.1510 to bring rebound.

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

USD/CHF - 0.9768

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite last week’s late rise to 0.9837, the subsequent retreat to 0.9771 suggests top has possibly been formed there and consolidation with mild downside bias is seen for weakness to 0.9750-55 (50% Fibonacci retracement of 0.9670-0.9837), however, break of 0.9730-35 (61.8% Fibonacci retracement) is needed to add credence to this view, bring further fall towards support at 0.9710 which is likely to hold on first testing.

On the upside, whilst recovery to 0.9805-10 cannot be ruled out, reckon said resistance at 0.9837 would hold and bring another retreat later. Above said resistance at 0.9837 would shift risk back to upside and signal the rise from 0.9421 low is still in progress, then gain to 0.9875-80 would follow but reckon 0.9900 would hold from here. As near term outlook is still mixed, would be prudent to stand aside for now.

GBP/USD - 1.3185

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Cable has edged higher again and near term upside risk remains for the corrective rise from 1.3027 (last week’s low) to bring retracement of recent decline, hence gain to 1.3210-15 cannot be ruled out, however, reckon upside would be limited to 1.3240-50 (50% Fibonacci retracement of 1.3455-1.3027 and previous resistance), however, further sharp move beyond there should not be repeated and price should falter well below 1.3291-92 (61.8% Fibonacci retracement and previous resistance).

In view of this, would not chase this rise here and would be prudent to stand aside for now. Below 1.3150 would bring test of support at 1.3126, break there would signal an intra-day top is formed but break of 1.3100 is needed to signal the rebound from 1.3027 has ended, then fall to 1.3070-75 would follow.

EUR/USD - 1.1792

Original strategy  :

Buy at 1.1720, Target: 1.1820, Stop: 1.1685

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1720, Target: 1.1820, Stop: 1.1685

Position : -

Target :  -

Stop : -

As the single currency surged again after brief pullback to 1.1719, adding credence to our view that a temporary low has possibly been formed at 1.1669 last week and consolidation with upside bias remains for the rebound from there to bring retracement of recent decline to 1.1810 and later towards resistance at 1.1832 which is likely to hold from here due to near term overbought condition.

In view of this, we are still looking to buy euro on dips as 1.1719 support should limit downside and bring another rebound. Only break of strong support at 1.1662-69 would signal recent decline is still in progress and may extend weakness towards 1.1625-30 but reckon 1.1600 would hold.

USD/JPY - 112.37

Original strategy  :

Sell at 113.10, Target: 112.10, Stop: 113.45

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 113.10, Target: 112.10, Stop: 113.45

Position :  -

Target :  -

Stop : -

As the greenback has remained under pressure after dropping from last week’s high of 113.44, bearishness remains for this move to extend weakness to support at 112.21, break there would bring retracement of early upmove to 112.00, then towards 111.75-80 but near term oversold condition would limit downside and reckon previous support at 111.47 would remain intact.

In view of this, we are looking to sell dollar on recovery as resistance area at 113.20-26 should cap upside and bring another decline to aforesaid downside targets. Only break of said resistance at 113.44 would abort and signal recent upmove is still in progress for further gain to 113.75-80 and possibly towards 114.00-10 which is likely to hold from here, bring correction later. 

The USD/CHF drops like a rock and erases the latest gains. Technically, has shown some exhaustion signs in the last two weeks, but the USD dragged the price higher as the USDX has managed to reach new highs. The dollar loses ground versus its rivals as the USDX failed to stabilize above the 93.81 horizontal resistance.

Price is located above the 0.9760 level and stays above a dynamic support (resistance turned into support), it could come much deeper to retest a major support before will try to climb much higher.

The Swiss Franc rallied also because the Switzerland Unemployment Rate dropped unexpectedly, it was reported at 3.1%, below the 3.2% estimate and below the 3.2% in the former reading period. The economic indicator reached the February 2015 low.

Price dropped sharply and erased the yesterday's gains and could invalidate the breakout above the outside sliding line (SL) and above the 0.9787 static resistance. We'll see what will happen in the upcoming days because a USDX increase will force the rate to increase again. I've said in the yesterday's report that only a consolidation above the 0.9787 will confirm a further increase. USD/CHF could come along the upper median line (uml) of the descending pitchfork till will reach the WL2.