Sample Category Title

Daily Pivots: (S1) 0.8293; (P) 0.8320; (R1) 0.8340; More...

EUR/GBP is still staying in range above 0.8295 after repeated rejection by 55 4H EMA and intraday bias remains neutral. Outlook stays bearish with 0.8433 resistance intact. On the downside, break of 0.8294 will resume larger down trend to 0.8201 key support next. Strong support could be seen from there to bring rebound.

In the bigger picture, down trend from 0.9267 (2022 high) is in progress. Next target is 0.8201 (2022 low), but strong support should be seen there to bring rebound. However, outlook will remain bearish as long as 0.8624 resistance holds even in case of strong rebound. Decisive break of 0.8201 will indicate long term bearish reversal.

Daily Pivots: (S1) 1.6431; (P) 1.6466; (R1) 1.6525; More...

Intraday bias in EUR/AUD remains on the upside as rise from 1.6002 is extending. Current development suggest that fall from 1.7180 has completed with three waves down to 1.6002, after being supported by 1.5996. Further rally should be seen to 61.8% retracement of 1.7180 to 1.6002 at 1.6730 next. On the downside, below 1.6146 minor support will turn intraday bias neutral and bring consolidations first.

In the bigger picture, as long as 1.5996 cluster support holds (38.2% retracement of 1.4281 to 1.7062 (2023 high) at 1.6000), up trend from 1.4281 (2022 low) is still expected to resume at a later stage. However, decisive break of 1.5996 will argue that the medium term trend has reversed and turn outlook bearish.

Australian Dollar's misery continues today, firstly pressured by Q3 inflation data that showed encouraging progress on disinflation. This development has strengthened the case for RBA to keep interest rates unchanged at 4.35% in its upcoming meeting next week. More importantly, a rate cut in February now appears more probable than ever.

While there are some speculations about a possible cut as early as December, persistent inflation in the services sector suggests that RBA would prefer to wait for additional data before easing monetary policy. The Commonwealth Bank, previously the only one among Australia's big four banks forecasting a December rate cut, has today adjusted its expectation to February, aligning with Westpac, NAB, and ANZ.

Further weighing on the Aussie is ongoing weakness in Chinese and Hong Kong stock markets. Reports from Reuters yesterday indicate that China’s top legislative body may unveil a substantial CNY 10T (USD 1.4T) stimulus package next week. This announcement, timed around the US presidential election on November 5, could allow for strategic adjustments to the stimulus plan based on the election’s outcome. However, market enthusiasm has remained muted, without doubt on the details and effectiveness of the new fiscal measures.

Overall for the week so far, Aussie remains at the bottom. Yen follows as hampered by political uncertainty stemming from Japan's recent elections, which have left the formation of a coalition government unresolved. Kiwi is also under pressure due to concerns about China's economic outlook and speculation that RBNZ may implement a larger-than-expected rate cut at its next meeting. On the other hand, Euro and Pound are holding modest gains over Dollar at the top, but both currencies are only consolidating recent losses within tight ranges. Swiss Franc and Loonie occupy middle positions.

Looking ahead, as we move into a data-heavy session, the market is bracing for a series of key economic releases that could introduce significant volatility, including Eurozone GDP, US GDP and ADP private employment. Technically, near term outlook in EURUSD will stay bearish as long as 1.0871 resistance holds. Fall from 1.1213 is seen as the third leg of the corrective pattern from 1.1274. Sustained break of 61.8% retracement of 1.0447 to 1.1213 at 1.0740 will pave the way to 1.0601 support and below.

In Asia, at the time of writing, Nikkei is up 1.02%. Hong Kong HSI is down -1.90%. China Shanghai SSE is down -1.00%. Singapore Strait Times is down -0.87%. Japan 10-year JGB yield is down -0.0088 at 0.968. Overnight, DOW fell -0.36%. S&P 500 rose 0.16%. NASDAQ rose 0.78%. 10-year yield fell -0.004 to 4.274.

Australia’s Q3 CPI slows to 2.8% yoy, goods prices fall but services edge higher

Australia’s Q3 CPI came in softer than anticipated, with consumer prices rising just 0.2% qoq, down from 1.0% qoq in Q2 and below expectations of 0.3% qoq. This marks the lowest quarterly increase since Q2 2020.

On an annual basis, CPI slowed from 3.8% yoy to 2.8% yoy, comfortably returning to RBA's target range of 2-3% and registering the lowest year-over-year inflation rate since Q1 2021.

Core inflation, measured by trimmed mean CPI, showed resilience with a 0.8% qoq rise, down from Q2's 0.9% qoq, but slightly above the expected 0.7% qoq. Annually, trimmed mean CPI slowed from 3.9% yoy to 3.5% yoy, aligning with market expectations.

The breakdown shows a notable shift in price pressures: annual goods inflation dropped sharply from 3.2% yoy to 1.4% yoy, largely due to substantial declines in electricity and fuel costs. However, services inflation edged up slightly from 4.5% yoy to 4.6% yoy, driven by higher costs in rents, insurance, and child care.

September monthly CPI echoed this trend, slowing significantly from 2.7% yoy to 2.1% yoy, undershooting expectations of 2.3% and marking the smallest annual increase since July 2021.

This softer inflation data should provide the RBA with room to consider easing its policy stance in the coming months, should inflation remain within target.

BoC’s Macklem signals more rate cuts as Canada returns to low inflation

Addressing the House of Commons Standing Committee on Finance, BoC Governor Tiff Macklem explained the rationale behind last week's 50bps rate cut, highlighting that "inflation is now back to the 2% target". He emphasized that Canada is now in a period of "low inflation," and the bank’s priority is to "maintain low, stable inflation" and successfully "stick the landing."

Macklem noted that the rate cut is also intended to "contribute to a pickup in demand" in an economy that remains “soft.” Looking forward, BoC anticipates a "gradual" strengthening of the Canadian economy in 2025 and 2026, supported by lower interest rates.

If economic conditions align with the bank’s outlook, Macklem anticipates "cutting our policy rate further" to sustain demand and stabilize inflation around target.

However, he clarified that decisions on timing and scale will be data-driven, with BoC will take monetary policy decisions "one at a time".

SNB’s Schlegel signals more rate cuts to support price stability amid muted growth outlook

SNB Chair Martin Schlegel indicated that “further interest rate reductions” might be necessary in the coming quarters to uphold “price stability” over the medium term.

At an event overnight, Schlegel highlighted that SNB’s current priority is to “normalize monetary policy” carefully, ensuring it does not become “too restrictive.”

Looking at the inflation outlook, Schlegel shared an optimistic view, noting that SNB’s forecasts show inflation remaining within “the area of price stability” in the long term. SNB projects average inflation rates of 1.2% for 2024, followed by 0.6% in 2025, and 0.7% in 2026.

However, the economic growth forecast remains modest, with Swiss GDP expected to grow about 1% this year. Schlegel cautioned that growth will likely be “muted” over the next few quarters, though he anticipates a “step-by-step improvement” in the medium term.

Looking ahead

EUrozone GDP flash is the main focus in European session. Germany CPI flash, Swiss KOF economic barometer and UBS economic expectations will also be release. Later in the day, US will publish ADP employment and Q3 GDP advance.

EUR/AUD Daily Outlook

Daily Pivots: (S1) 1.6431; (P) 1.6466; (R1) 1.6525; More...

Intraday bias in EUR/AUD remains on the upside as rise from 1.6002 is extending. Current development suggest that fall from 1.7180 has completed with three waves down to 1.6002, after being supported by 1.5996. Further rally should be seen to 61.8% retracement of 1.7180 to 1.6002 at 1.6730 next. On the downside, below 1.6146 minor support will turn intraday bias neutral and bring consolidations first.

In the bigger picture, as long as 1.5996 cluster support holds (38.2% retracement of 1.4281 to 1.7062 (2023 high) at 1.6000), up trend from 1.4281 (2022 low) is still expected to resume at a later stage. However, decisive break of 1.5996 will argue that the medium term trend has reversed and turn outlook bearish.

With the September quarter CPI data confirming that the disinflation remains on track and supply-side concerns easing, rate cuts from February still seem the most likely path for the RBA.

Following today’s inflation data for the September quarter, we affirm our call for the Reserve Bank Board to leave the cash rate unchanged at its meeting next week. We continue to expect rates to remain unchanged this year, and that the rate-cutting phase will begin with a 25 basis point cut at the February 2025 meeting.

Headline inflation dropped into the RBA’s target range. As flagged by Westpac Economics colleague, Senior Economist Justin Smirk, there were downside risks to our expectations of headline, and indeed these were realised: headline inflation came in slightly below consensus and our own expectations (0.2%qoq, 2.8%yr). A number of key categories of essentials expenditure came in below our expectations, though some key services components were a little higher than we expected, too.

The all-important trimmed mean measure came in on consensus at 0.8% qoq, and 3.5%yr. Both measures are significantly down from the prior quarterly readings, and the quarterly outcome (0.78% to two decimal places) was just a few basis points above our nowcast. Trend inflation is still above target, but the disinflation remains on track. Although the RBA does not publish a forecast for the September quarter, we think that today’s outcome would have been in line with their expectations

We also note that revisions to output, hours worked and productivity data in the annual national accounts further reduce potential concerns about ongoing inflation in the domestic cost base.

All of this suggests that risks of a further rate hike have faded, but neither do recent data imply that rate cuts need to be brought forward from our current expectations. Given the uncertainties surrounding the US election and its aftermath, we think it likely that the RBA will stand pat this time and see how global events play out. Thus the view that rate cuts will commence in February remains appropriate.

Things to watch for in the SMP and media conference

The November RBA meeting announcement will be accompanied by a new issue of the Statement on Monetary Policy and revised forecasts, as well as the media conference. Within that body of communication, there are several things to watch out for.

• Will the RBA hold onto the ‘not ruling anything in or out’ language? The further down the disinflation path we travel, and the longer the disinflation remains on track, the harder this language is to justify, even with broader financial conditions supposedly easing. At some point, the RBA will need to acknowledge that we are getting closer to the point that rates will start falling. Perhaps revised forecasts at this meeting will be the trigger, or the decline in wages growth that will be released ahead of the next meeting.
• How will the RBA revise its assessment of the level of supply, and so spare capacity, in light of recent data revisions? As Westpac Economics colleague, Senior Economist Pat Bustamante revealed earlier today, revisions to data in the annual national accounts substantially ameliorate concerns about supply capacity and productivity. The RBA walked back in September some of the concerns it expressed in August. It is worth watching how the RBA’s language around this issue evolves from here.
• How will the RBA integrate views about energy prices into its forecasts for inflation in 2025 and beyond? Currently the RBA is ‘looking through’ the substantial effects of rebates on the headline CPI data and focusing on underlying measures such as trimmed mean. But when the tables turn in late 2025 and headline is printing above 3% while trimmed mean declines below 3%, will the RBA continue to focus on trimmed mean, or start calling out the deviation from target on a headline basis?
• How will the RBA’s assessment of upside risks from household spending and the housing market shift? With a few more months of data, the spending response to the Stage 3 tax cut is still looking quite modest. (See Westpac Economics’ Jameson Coombs’ reporting on the Westpac-DataX Consumer Panel last week.) Meanwhile housing prices in Sydney are starting to turn, joining Melbourne as a market that is no longer increasing significantly. Future rate cuts could turn this around, but it no longer seems that wealth effects pose a material upside risk to spending.

What would it take for the RBA to cut in December?

Inflation is declining largely as hoped for, and peer economies are not only cutting rates but front-loading the adjustment. The question therefore arises: why wouldn’t the RBA just get on with it and start cutting sooner?

Another way to frame this question, though, is: what would it take for the Governor to go back on her earlier statement that rate cuts this year did not align with the Board’s thinking?

We think that the bar is still too high for the RBA to go back on its earlier view. The labour market remains resilient – though we are mindful that employment growth has to run hard just to keep pace with strong population growth and the trend rise in participation. And while the spending response to the tax cuts looks to be less than expected, it is not zero. So, absent a major shock, we do not see the economy hitting a wall in the next few months, enough to shift the RBA’s thinking on the timing of rate cuts. If things turn out weaker over the next couple of quarters, a faster trajectory for the rate-cutting phase could occur. But a start date earlier than February seems like a low-probability outcome.

Key Highlights

• GBP/USD started a consolidation phase near the 1.2950 zone.
• A key bearish trend line is forming with resistance at 1.2990 on the 4-hour chart.
• Bitcoin climbed further above the $71,500 resistance.
• Gold traded to a new all-time high above $2,765.

GBP/USD Technical Analysis

The British Pound remained in a bearish zone below 1.3120 against the US Dollar. GBP/USD even traded below 1.2950 before the bulls appeared.

Looking at the 4-hour chart, the pair settled below the 1.3050 level, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). It traded as low as 1.2907 and recently started a consolidation phase.

On the downside, immediate support sits near the 1.2920 level. The next key support sits near the 1.2900 level. Any more losses could send the pair toward the 1.2840 level.

On the upside, the pair could face resistance near the 1.2990 level. There is also a key bearish trend line forming with resistance at 1.2990 on the same chart. The first key resistance is near the 1.3035 level and the 50% Fib retracement level of the downward move from the 1.3070 swing high to the 1.2907 low.

A close above the 1.3035 level could set the tone for another increase. The next major resistance could be 1.3080, above which the price could accelerate higher toward the 1.3120 resistance.

Looking at Gold, the price started a fresh increase and the bulls were able to push prices to a new all-time high above $2,765.

Upcoming Economic Events:

• US ADP Employment Change for Oct 2024 - Forecast 115K, versus 143K previous.
• US Gross Domestic Product for Q3 2024 (Preliminary) – Forecast 3% versus previous 3%.

Australia’s Q3 CPI came in softer than anticipated, with consumer prices rising just 0.2% qoq, down from 1.0% qoq in Q2 and below expectations of 0.3% qoq. This marks the lowest quarterly increase since Q2 2020.

On an annual basis, CPI slowed from 3.8% yoy to 2.8% yoy, comfortably returning to RBA's target range of 2-3% and registering the lowest year-over-year inflation rate since Q1 2021.

Core inflation, measured by trimmed mean CPI, showed resilience with a 0.8% qoq rise, down from Q2's 0.9% qoq, but slightly above the expected 0.7% qoq. Annually, trimmed mean CPI slowed from 3.9% yoy to 3.5% yoy, aligning with market expectations.

The breakdown shows a notable shift in price pressures: annual goods inflation dropped sharply from 3.2% yoy to 1.4% yoy, largely due to substantial declines in electricity and fuel costs. However, services inflation edged up slightly from 4.5% yoy to 4.6% yoy, driven by higher costs in rents, insurance, and child care.

September monthly CPI echoed this trend, slowing significantly from 2.7% yoy to 2.1% yoy, undershooting expectations of 2.3% and marking the smallest annual increase since July 2021.

This softer inflation data should provide the RBA with room to consider easing its policy stance in the coming months, should inflation remain within target.

Full Australia CPI release here.

SNB Chair Martin Schlegel indicated that “further interest rate reductions” might be necessary in the coming quarters to uphold “price stability” over the medium term.

At an event overnight, Schlegel highlighted that SNB’s current priority is to “normalize monetary policy” carefully, ensuring it does not become “too restrictive.”

Looking at the inflation outlook, Schlegel shared an optimistic view, noting that SNB’s forecasts show inflation remaining within “the area of price stability” in the long term. SNB projects average inflation rates of 1.2% for 2024, followed by 0.6% in 2025, and 0.7% in 2026.

However, the economic growth forecast remains modest, with Swiss GDP expected to grow about 1% this year. Schlegel cautioned that growth will likely be “muted” over the next few quarters, though he anticipates a “step-by-step improvement” in the medium term.

Addressing the House of Commons Standing Committee on Finance, BoC Governor Tiff Macklem explained the rationale behind last week's 50bps rate cut, highlighting that "inflation is now back to the 2% target". He emphasized that Canada is now in a period of "low inflation," and the bank’s priority is to "maintain low, stable inflation" and successfully "stick the landing."

Macklem noted that the rate cut is also intended to "contribute to a pickup in demand" in an economy that remains “soft.” Looking forward, BoC anticipates a "gradual" strengthening of the Canadian economy in 2025 and 2026, supported by lower interest rates.

If economic conditions align with the bank’s outlook, Macklem anticipates "cutting our policy rate further" to sustain demand and stabilize inflation around target.

However, he clarified that decisions on timing and scale will be data-driven, with BoC will take monetary policy decisions "one at a time".

Full remarks of BoC's Macklem here.

• UK Autumn Budget anticipation mounts as markets remain calm, unlike during the ‘Trussonomics’ era.
• GBP/USD faces a critical juncture at the 1.3000 level, with potential for both upside and downside breaks.
• GBP/JPY nears the 200.00 handle, a daily close above could trigger a run towards July highs.

The GBP has steadily gained ground against the majority of G7 counterparts with the exception of the US Dollar and Euro. The British Pound has held steady against the Euro and the USD as markets await more clarity on the rate cycles of the three central banks.

Over the last few weeks there appears to be a growing divergence in the expectations for the Federal Reserve and its counterparts at the Bank of England and the European Central Bank. Markets are starting to price in the possibility of more aggressive rate cuts from the latter two with the Fed seeing a reduction in rate cut expectations.

The change for the US Dollar has come from ongoing data releases which paint a positive picture for the US economy. The British Pound on the other hand has seen a significant drop in its latest services inflation print which came in well below the 5.5% the BoE projected for the end of 2024. This has ramped up rate cut expectations for the BoE and has weighed slightly on the Pound. Now all attention turns to the UK budget due tomorrow.

UK Autumn Budget

Attention now turns to the highly anticipated Autumn Budget in the UK which is also the first under the recently elected Labor Government. There are a host of questions regarding the UK budget with memory still fresh for many regarding the disaster of the ‘Trussonomics mini budget’ in 2022.

However, there are some important differences this time around and it seems markets are calm ahead of the event. There does not appear to be any political risk premium this time around with ING research pointing to a short-term EUR/GBP fair value at 0.834. Remember that in previous instances of political/gilt-related turmoil in the UK, the EUR/GBP risk premium was around 3-5%.

Secondly, CFTC figures from October 22 point to speculators holding a long bias on the British Pound. Traders held the largest net-long positions in GBP among G10 currencies, making up 32% of open interest, and these positions have resisted the shift back to the dollar seen in other major currencies.

The key issues to pay attention to in the budget tomorrow include tax changes, fiscal rule changes and growth objectives and targets. The Labour manifesto emphasized in particular the importance of striking a “balance between prioritizing investment and the urgent need to rebuild our public finances”. This strikes a particular chord after Rachel Reeves stated last week that the Labor Government would look to redefine public debt in the budget. This has sparked some interest and it will be interesting to see how the Chancellor aims to do this.

This change, according to Reeves, aims to allow for increased borrowing to fund infrastructure and investment projects, potentially unlocking up to £50 billion. Reeves emphasized that this borrowing would be for long-term investments rather than day-to-day spending, aiming to boost economic growth and job creation.

Public Sector Balance Sheet (% of GDP)

Source: IFG

Tax on the wealthy is another sticking point of tomorrow’s budget. Looking back historically however, this would not be the first time the incoming Government has delivered tax hikes. In every fiscal event following an election since 1992, the chancellor has increased taxes.

All in all it promises to be an interesting one, although many would hope not as interesting as the now infamous Trussonomics budget of 2022.

Technical Analysis

GBP/USD

From a technical standpoint, GBP/USD is at a very important level with the 1.3000 psychological level in play. A daily candle close below this level could open up further downside for the pair.

A daily candle close above the 1.3000 level has proved elusive for the better part of a week. This leaves cable vulnerable to further downside with a potential run toward the 1.2800 area growing ever more appealing. Following my previous piece on GBP pairs where I had hoped for further gains above 1.3000, the technicals are beginning to point to the possibility of a break to the downside. .

There are two scenarios that could develop in the day/days ahead. The first one being a break and daily candle close above the 1.3000 handle which could open up further upside.

The second scenario, is a push lower and a break of the ascending trendline, this would open up a run toward support at 1.28060 (200-day MA).

Support

• 1.2950 (100-day MA)
• 1.2900
• 1.2806 (200-day MA)

Resistance

• 1.3040
• 1.3100
• 1.3143

GBP/USD Daily Chart, October 29, 2024

Source: TradingView.com (click to enlarge)

GBP/JPY

GBP/JPY has been inching its way higher since bottoming out on August 5. There was another push down to the mid 180s on September 16 before the move higher began once more.

GBP/JPY broke above the 200-day MA as mentioned in my October 16 article before making a run toward the 200.00 handle. A high today of 199.690 leaves GBP/JPY at a critical junction heading into tomorrow’s budget.

On a daily chart, a daily candle close above the 200.00 handle tomorrow could open up GBP/JPY for a run toward its July highs at 207.57. There may be some resistance around the 203.00 handle which could lead to a pullback as the RSI is currently just shy of overbought territory.

Weakness in the British Pound tomorrow could bring the GBP/JPY toward the 200-day MA resting at the 195.00 handle. There is also another area of support resting at 193.84 before the 190.00 handle comes into focus.

GBP/JPY Daily Chart, October 29, 2024

Source: TradingView.com (click to enlarge)

Support

• 195.16 (200-day MA)
• 193.84
• 190.00

Resistance

• 200.00
• 203.00
• 207.57

EUR/GBP

EUR/GBP remains near the YTD low around the 0.8300 handle. The pair is struggling to gain acceptance above the confluence level of 0.8345 which is a confluence area.

Immediate resistance rests at 0.8342 with the 50 day MA resting at 0.8385 likely to provide some resistance as well. The region between 0.8400-0.8487 plays host to the 100 and 200-day MAs as well as the most recent swing high.

Conversely, should the GBP strengthen in light of the UK budget tomorrow then the YTD lows around 0.8295 will likely be broken before the 2022 lows around 0.8200 comes into focus.

EUR/GBP Daily Chart, October 29, 2024

Source: TradingView.com (click to enlarge)

Support

• 0.8300
• 0.8250
• 0.8200

Resistance

• 0.8345
• 0.8400
• 0.8447

• Gold broke resistance level 2750.00
• Likely to rise to resistance level 2800.00

Gold recently broke above the minor resistance level 2750.00 (which stopped the previous minor impulse wave 1 earlier this month).

The breakout of the resistance level 2750.00 should accelerate the active intermediate impulse sequence (5) from the start of October.

Given the strong daily uptrend, Gold be expected to rise further toward the next resistance level 2800.00 (target price for the completion of the active impulse wave (5)), coinciding with the resistance trendline of the daily up channel from September.