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Daily Pivots: (S1) 0.9382; (P) 0.9412; (R1) 0.9428; More....

No change in EUR/CHF's outlook as range trading continues. Intraday bias stays neutral for the moment. On the downside, break of 0.9331 will resume the fall from 0.9579 towards 0.9209 low. On the upside, break of 0.9444 will turn intraday bias to the upside for 0.9506 resistance and above.

In the bigger picture, fall from 0.9928 is seen as part of the long term down trend. Repeated rejection by 55 D EMA (now at 0.9421) keeps outlook bearish for breaking through 0.9209 low at a later stage. Nevertheless, sustained trading above 55 D EMA will confirm medium term bottoming at 0.9209 and bring stronger rebound back towards 0.9928 key resistance.

EURUSD remains poised around 1.0878 as markets brace for the outcome of the highly anticipated US presidential election. With the world watching, the direction of the major currency pair will hinge significantly on the election results, where a victory for Donald Trump is likely to bolster the USD, potentially leading to a notable increase. Conversely, a win for Kamala Harris could see the USD decline by an average of 1-2%.

The impending volatility is not solely due to the election but amplified by the upcoming Federal Reserve meeting scheduled for Wednesday. The Fed is anticipated to cut interest rates slightly by 25 basis points. Market participants are keenly awaiting any forward guidance from the Fed, particularly with expectations leaning towards another rate reduction in December.

While significant economic data releases are also expected, these pivotal events may overshadow their impact.

Technical analysis of EURUSD

The EURUSD market has completed a growth structure reaching 1.0913, considered part of a third growth wave targeting 1.0950. After this target is achieved, a retraction to 1.0860 is anticipated, potentially forming a broad consolidation range around this level. Technical indicators, such as the MACD, suggest an upward trajectory, reinforcing the possibility of reaching 1.0960 before a corrective pullback to 1.0860.

Support at 1.0872 has spurred the development of a growth impulse towards 1.0900, which is expected to be tested soon. Breaching this level could extend the growth wave towards 1.0950. The Stochastic oscillator supports this short-term forecast, indicating upward momentum with its signal line targeting the upper echelons around 80.

Today, 5 November, the U.S. presidential election is underway, and it may serve as a significant driver of volatility for global stock markets.

According to EuroNews, heightened market fluctuations are expected throughout the voting period on 5 November, potentially mirroring reactions observed during the Brexit referendum and the 2016 U.S. election. Newsweek notes that historically, U.S. stock markets tend to rise regardless of the election winner. In 2020, for example, American stocks rose immediately after election day and continued upward even as Trump contested the results.

Investor’s Business Daily highlights Tony Roth, CIO of Wilmington Trust, who argues that U.S. stock markets could climb regardless of whether Harris or Trump wins, as both candidates provide viable economic paths that could support market sentiment.

On 14 October, analysing the S&P 500 chart (US SPX 500 mini on FXOpen), we plotted three narrow upward channels (shown in blue), noting:

→ each channel has a similar slope and width;

→ connecting the maximum of Channel 1, the peak and trough of Channel 2, and the low of Channel 3 outlines a larger channel (in orange).

Today’s technical analysis of the S&P 500 (US SPX 500 mini on FXOpen) shows the current index level near the lower edge of the third blue channel, with additional support around:

→ former resistance at $5678;

→ the lower orange boundary.

Election results may trigger a volatility spike, potentially testing or reinforcing these support levels, which could shape future market momentum.

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AUDUSD rose to one week high on Tuesday morning, after the RBA kept interest rates steady at 12-year high and kept hawkish stance on persisting upside inflation risk, although remains ready to act if economy weakens more.

Near-term action is holding within a recovery leg from 0.6587 (Oct 30 low) and was boosted by Monday’s gap-higher opening.

Slight improvement of technical picture on daily chart (the price rose above 10DMA and potential formation of daily bullish engulfing) generates initial bullish signal, although daily studies are still predominantly bearish (14-d momentum is still in negative territory, the action weighed by thick daily Ichimoku cloud) and more work at the upside required to spark stronger recovery.

Recovery faces very strong barriers at 0.6627/45 (200DMA / Fibo 23.6% of 0.6942/0.6537 downtrend / base of thick daily Ichimoku cloud) violation of which to likely spark stronger recovery, while recovery may stall if fails to clear these barriers.

Markets will be looking for the situation surrounding today’s US election, as well as coming FOMC policy meeting

Res: 0.6627; 0.6645; 0.6691; 0.6723.
Sup: 0.6599; 0.6578; 0.6553; 0.6537.

Market picture

The crypto market cap remained at $2.24 trillion, a recovery after the market hit a low point at the very end of trading on Monday at $2.19 trillion. We continue to view this pullback to the lows of the past three weeks as a correction after rallying ahead of the week’s most important events: the US election and the Fed’s key rate decision. Interestingly, the cryptocurrency sentiment index remains in greed territory. It hasn’t moved outside of the 70-77 range for the past three weeks, although stock market sentiment has slipped from the threshold of extreme greed to fear over that time.

Bitcoin is about where it was 24 hours ago—just under $69K —but that description masks the drama, with a 3% decline late Monday and a sharp recovery at the start of the new day. Bitcoin was once again supported on a decline to $67K since late October. It is too early to talk about the start of an upward trend. Most likely, we are dealing with active buyers who found the last pullback attractive enough to buy in anticipation of a rally.

News background

According to CoinShares, global investments in crypto funds rose by $2.177bn last week after inflows of $901m a week earlier. The positive trend continued for the fourth consecutive week. Bitcoin investments increased by $2.156bn, Ethereum by $10m and Solana by $6m.

YTD inflows totalled a record $29.2bn, with total assets under management (AuM) surpassing $100bn for the second time in history (after June).

The options market is betting on a bitcoin ATH update before the end of November and increased volatility after the US election. Bitcoin volatility is a temporary phenomenon in the market, according to Blockstream. As technology and payment systems evolve, the volatility of the first cryptocurrency can be forgotten.

Although the supply of stablecoins is increasing, this factor alone is not enough for Bitcoin to grow significantly, CryptoQuant CEO Ki Yoon Ju said. He noted that today, only 21% of stablecoins are held on exchanges for trading purposes, while the rest are used for transfers or storage of value in countries with high inflation.

In the third quarter, investment in Solana blockchain-based applications increased 54% quarter-on-quarter to $173 million, Messari notes. The number of users paying fees online grew 109% to 1.9 million per day.

UK PMI Services as finalized at 52.0, down from September's 52.4 and marking the lowest level since November 2023. PMI Composite similarly slipped to 51.8, a decline from 52.6 the previous month, also the lowest since last November.

According to Tim Moore, Economics Director at S&P Global Market Intelligence, the delay in policy clarity ahead of the Autumn Budget created a “wait-and-see” atmosphere, dampening business confidence and spending. Added to this were broader geopolitical uncertainties and anticipation of the US election, both contributing to businesses holding back on investment decisions.

Higher wages contributed to another month of strong input cost inflation, which rose to a three-month high but remained lower than in early 2024. Nevertheless, Moore noted that output charge inflation stayed near the 43-month low observed in September, continuing the "longer-term trend of decelerating price pressures".

Full UK PMI services final release here.

• EURUSD eyes breakout above 1.0880-1.0900 for further gains
• Recent rebound is not enough to upgrade short-term outlook
• A strong rally above 1.1000 needed for bulls to seize control

EURUSD kicked off the US election day on a cautiously positive note, aiming to cross above the 1.0880–1.0900 border that has been capping bullish momentum over the past three sessions.

The 200-day moving average is acting as a lifeline for the second consecutive day at 1.0870, though some caution is still necessary as the RSI has yet to cross above its 50 neutral mark and the Stochastic oscillator is already hanging near its 80 overbought level, suggesting that buying appetite could soon fizzle out.

The 1.0900-1.0940 territory which includes the 50% Fibonacci retracement level of the April-September 2024 uptrend and it’s halfway below the 2021 top could delay increases toward the 1.1000 mark. The latter is the neckline of the recent bearish double top pattern, and a successful move higher might be needed for the pair to pick up steam towards the 23.6% Fibonacci of 1.1070.

On the downside, a drop below 1.0870 could find support near the 61.8% Fibonacci of 1.0835, but failure to hold there could squeeze the pair to 1.0780 and even toward June’s low of 1.0665.

In short, EURUSD is not out of the woods yet despite its latest upturn from a three-month low of 1.0760. To eliminate downside risks and resume its previous positive direction, the pair must sustainably run above the 1.1000 barrier.

• US 500 index rebounds off 50-day SMA
• RSI and MACD weaken their momentum

The US 500 index has paused its bearish correction near the 5,720 support level and the 50-day simple moving average (SMA).

The price is currently standing beneath the short-term uptrend line, with the technical oscillators indicating weakening momentum. The RSI is moving sideways beneath the neutral threshold of 50, while the MACD is heading south below its trigger line and near the zero level.

In case of steeper decreases, it could drive the market until the 5,673 barrier before testing the long-term ascending trend line around 5,550. If the bears gain control over the broader picture, the index could potentially reach the 200-day SMA at 5,420.

In the positive scenario, a climb beyond the 5,800 resistance could lead the market towards the 20-day SMA at 5,845 ahead of the all-time peak of 5,926, printed on October 17. Further upside movement could see the 6,000 psychological mark before challenging the 161.8% Fibonacci extension level of the down leg from 5,720 to 5,115 at 6,100.

Overall, the US 500 index maintains a strong bullish tendency in the long-term view, with the market maintaining a strong position above both the long-term rising trend line and the 200-day SMA. To confirm an upside recovery in the near term, a climb above the 5,800 resistance is necessary.

The RBA Board left the cash rate unchanged at 4.35%, as expected. Disinflation on track but Board still vigilant to upside inflation risks and is not ruling anything in or out.

As expected, the RBA kept the cash rate on hold at 4.35% following its November meeting. The Board acknowledged that headline inflation has fallen substantially but emphasised that measures of underlying inflation were still too high. In addition, quarterly outcomes on trimmed mean inflation are declining only slowly. So while the disinflation remains on track and policy is restrictive, the Board does not yet have enough confidence in this to start contemplating a rate cut. The media release retained the language on remaining vigilant to upside inflation risks and not ruling anything in or out. Risks were characterised as balanced but, because underlying inflation is above the target, the RBA Board is more attentive to the upside risks.

Underlying inflation was characterised as being consistent with forecasts, even though trimmed forecasts edged down a little from the August round. The end-2026 forecast is now firmly at 2.5%, the midpoint of the band, rather than 2.6% as previously expected. Forecasts of Wage Price Index growth were also scaled back, and by a bit more than the reduction in the forecast profile for trimmed mean inflation. On the other hand, the RBA’s view of the labour market has shifted to be a little more bullish, partly because of their pessimism about productivity.

The headline inflation forecasts have been revised to reflect the impact of electricity rebates and cost of living measures. This adds some volatility to the profile, which is why the RBA is highlighting trimmed mean inflation as a guide to underlying momentum. The RBA’s inflation forecasts assume that the cost-of-living assistance expires as currently planned. Given ongoing cost of living pressures, though, a further extension of these measures or introduction of similar measures cannot be ruled out.

While there were some elements of the RBA’s analysis that seems a little hawkish compared with our own view of the data, we do not see anything in today’s decision or discussion that would change our view that the cash rate will start declining slowly from February, but no earlier than that. In the press conference, the Governor declined to give any guidance on the outlook for the cash rate for the first half of 2025. This contrasts with the language in August, where a near-term cut was ruled out. We suspect that the RBA believes that it will not start cutting until later in 2025, but this view could evolve if inflation continues to come in consistent with or below current forecasts.

Mixed picture on the domestic economy

Consumer spending has been weaker than the RBA expected and the pick-up in response to the Stage 3 tax cuts has also been smaller than expected. The RBA now expects real consumption to be flat in the September quarter.

In contrast, the RBA’s view of labour market developments has shifted in a more hawkish direction. The media release and SMP characterised the labour market as still being tighter than full employment. This is despite growth rates of wages and labour costs already easing, which ordinarily would imply that there is some labour market slack. A few indicators, including average hours worked and the NAB survey measure of labour availability, have stopped easing, and the RBA has taken some signal from this.

In the August SMP, the RBA revised its estimate of full employment down (in other words, revised up its estimate of the sustainable rate of unemployment). Although inflation has broadly tracked its forecasts from a year ago, the RBA reassessed its view of full employment following higher inflation outcomes than expected ‘more broadly over the past two years’. While this seems rather backward-looking, in its annual review of its forecasts, published each November in the SMP, the RBA highlighted that weaker GDP outcomes recently alongside inflation and unemployment outcomes that were broadly as expected implied that supply capacity was lower. The RBA now estimates the unemployment rate consistent with full employment (the NAIRU) as being centred on 4½%, a little higher than it thought a few years ago. While higher labour force participation implies that labour supply is higher than otherwise, the SMP attributed some of this to cyclical factors relating the cost-of-living pressures and the ready availability of jobs.

The forecast review also acknowledged a point highlighted in some of our past notes, that the softness in measured productivity partly reflects a reallocation of activity towards the (lower productivity) non-market sectors. However, the RBA also pointed to a range of industries seeing weaker than average growth in productivity over the past year, including some in the market sector. These issues have prompted internal RBA discussions about underlying trends in productivity globally. So far, though, the discussion has been mostly statistically focused rather than identifying underlying causes, though this work is planned for the future. Some of the messages from the RBA’s liaison, of firms focusing on productivity and cost containment, are relevant here.

The RBA has also developed a new focus on the fact that Australia’s labour market appears tighter than some peers. This seems less surprising when one considers that Australia was a bit later to see inflation pick up and peak, having been later to open up after the pandemic than a number of these peers. Recall also that holding onto more of the labour market gains was the RBA’s deliberate strategy and the reason why it chose the ‘not quite as high for a bit longer’ strategy in the first place – an objective that the Governor again highlighted in the media conference after the announcement.

That said, the risks highlighted in the Outlook section of the November SMP no longer include the risk highlighted in August that supply capacity could be even weaker than assumed, suggesting the staff are comfortable with their current estimates of supply capacity. Instead, a new risk around future weak labour productivity growth was added. The consumption risk remained two-sided but was broadened to be about private sector demand more broadly. Global risks were likewise assessed to be two-sided; one of these, the US elections, will become a known outcome this week, although the broader implications of the result will depend on how much of their agenda the successful candidate can get through Congress.

Markets

US market moves suggested investors reduced the ‘established Trump-trade’ to position to a more neutral one with a survey showing Harris potentially taking the lead in Iowa driving the move. After rising substantially on Friday, US yields faced a material setback in Asia and most of this this was maintained later in the session. US yields declined between 4.5 bps (2-y) and 10.3 bps (30-y). However, with the broader picture still pointing to a close neck-and-neck race, it’s useless to draw any conclusions. It probably was nothing more than the erratic swings one can expect in thinned market conditions ahead of major event risk. A $58 bln US Treasury auction was awarded at 4.152%, slightly above the WI bid (4.143%), slightly reinforcing the underperformance of bonds at the short end of the US yield curve. German yields changed between +1.7 bps (2-y) and -4.9 bps (30-y). EMU interest rate markets after last week’s higher than expected EMU Q3 growth and CPI data are coming to understand that it won’t be evident for the ECB to accelerate the pace of rate hikes to a 50 bps step at the December meeting. The dollar copied the election-related setback in US yields. After closing at 104.28 on Friday, the DYX index tested the 103.6 area to finish the day off the intraday lows at 103.88. EUR/USD filled offers north of 1.09, but later also returned part of the intraday gains to close at 1.0878. Similar story for USD/JPY (close 152.13 from 153.01 on Friday). US equities lost modest ground (S&P 500 -0.28%). Brent oil tries to regain the $75 bp handle. After outperforming the euro on Friday, sterling yesterday hovered around the EUR/GBP 0.84 pivot as markets look forward to the BOE’s assessment on fiscal policy at Thursday’s policy meeting/monetary policy report.

Asian equities trade mixed to positive this morning with China outperforming. The China Caixin Services PMI improved more than expected from 50.3 to 52.0. The outcome supports confidence that recent stimulus measures might help a rebound in domestic demand. However, the US election also remains a big source of uncertainty for the overall performance of the Chinese economy going forward. On ‘global markets’ US yields are trading marginally higher (<1 bp) as investors are counting down to the outcome of the US elections. The dollar is holding little changed (DXY 103.9). In a ‘normal context’ one would today mention the US services ISM as interesting last input for this week’s Fed meeting, but investors won’t feel inclined to adapt positions on the basis of whatever important eco data series at ahead of the election event risk. Later this session, the US Treasury will sell $42 bln of 10-y notes.

News & Views

The Reserve Bank of Australia remains one of the hawkish outliers amongst central banks. The central bank kept its policy rate unchanged at 4.35% this morning as underlying inflation (3.5% Y/Y in Q3 2024) remains too high and isn’t expected to sustainably return to the midpoint of the 2-3% inflation target range until 2026. This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. The forecast is backed by a judgement that aggregate demand remains above the economy’s supply capacity, the mere persistence of core price pressures, surveys of business conditions and ongoing strength in the labour market. Weak output growth is expected to recover from H2 2024 onwards, but that outlook remains highly uncertain. Australian money markets put the probability of a first rate cut in February, when new forecasts are available, at roughly 40%. A full 25 bps rate cut is only discounted by the May 2025 meeting. AUD/USD is marginally stronger this morning at AUD/USD 0.66.

Data from the British Retail Consortium (BRC) show that total UK sales increased by 0.6% Y/Y in October, down from 1.7% in September and below 1.4% consensus. Food sales were 2.9% higher Y/Y with non-food sales 0.1% Y/Y lower. The disappointing result can be partly explained by a later October half-term in England, mild weather (deterring spending on winter clothes) and by uncertainty before the budget and rising energy bills. The promotional weeks around Black Friday will be the first real test of post-budget consumer sentiment.