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Daily Pivots: (S1) 0.8639; (P) 0.8654; (R1) 0.8663; More…

Intraday bias in USD/CHF remains neutral for the moment, and some more consolidations could be seen below 0.8668 temporary top. Further rally is expected as long as 0.8548 resistance turned support holds. Above 0.8668 will target 38.2% retracement of 0.9223 to 0.8374 at 0.8698. Sustained break there will argue that fall from 0.9223 has completed at 0.8374, after defending 0.8332 low. Further rally should then be seen to 61.8% retracement at 0.8899 next.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with fall from 0.9223 as the second leg. Strong support could be seen from 0.8332 to bring rebound. Yet, overall outlook will continue to stay bearish as long as 0.9243 resistance holds. Firm break of 0.8332, however, will resume larger down trend from 1.0146 (2022 high).

Daily Pivots: (S1) 149.19; (P) 149.74; (R1) 150.10; More...

USD/JPY recovered mildly ahead of 4H MACD, but stays below 150.31 temporary top. Intraday bias remains neutral first. Further rally is expected as long as 146.47 resistance turned support holds. Above 150.31 will resume the rebound from 139.57 to 61.8% retracement of 161.94 to 139.57 at 153.39. However, break of 146.48 resistance turned support will indicate that rebound from 139.57 has already completed.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should now be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

In the largely uneventful Asian and European sessions today, major currencies remained within familiar ranges, as the absence of key economic data releases kept markets subdued. Central bank commentary continued to dominate the narrative, particularly from ECB officials, who maintained their dovish stance. However, this comes as little surprise, with expectations largely baked in that ECB is likely to reduce rates again in December unless a sharp improvement in economic activity or inflation data emerges.

On the currency front, Swiss Franc and Dollar are the stronger performers, followed by Euro. Yen, however, turned under pressure as the weakest currency today, with Aussie and Sterling also facing losses. Canadian Dollar and New Zealand Dollar are positioned in the middle. But overall, major pairs and crosses remain range-bound, with today's moves offering little insight into underlying trends.

Technically, NZD/USD continues to press 61.8% retracement of 0.5849 to 0.6378 at 0.6051, and it should be about time for a breakout from the tight range. Decisive break of 0.6051 would resume the fall from 06378 towards 0.5849 support Nevertheless, strong bounce from current level, followed by break of 0.6118 resistance will argue that the fall has completed an bring stronger rebound towards 0.6378 instead.

In Europe, at the time of writing, FTSE is down -0.29%. DAX is down -0.78%. CAC is down -0.75%. UK 10-year yield is up 0.064 at 4.118. Germany 10-year yield is up 0.081 at 2.272 Earlier in Asia, Nikkei fell -0.07%. Hong Kong HSI fell -1.57%. China Shanghai SSE rose 0.20%. Singapore Strait Times fell -0.70%. Japan 10-year JGB yield fell -0.0086 to 0.962.

ECB’s Kazimir: Disinflation progress encouraging, but further proof needed

ECB Governing Council member Peter Kazimir expressed growing confidence in the disinflation trend, stating in a blog post today that the path to lower inflation appears to be on "solid footing".

Kazimir added that if upcoming data continues to confirm accelerated disinflation, the ECB would be in a "strong and comfortable position to continue the easing cycle."

However, he noted that wage growth and services inflation, two critical elements, have yet to show the expected decline. He added, "If new information points toward higher inflation, we can still slow down the pace at which we remove restrictions in the coming meetings."

ECB's Simkus: Rates to move toward neutral as disinflation stays on track

ECB Governing Council member Gediminas Simkus commented today that the disinflationary trend is progressing steadily, though he acknowledged that services inflation remains elevated.

Simkus expects monetary policy to gradually become less restrictive, with the central bank lowering interest rates toward a "natural" level, estimated to be between 2-3%.

However, he emphasized that if the disinflation process becomes deeply "entrenched", rates could potentially fall below the natural level.

RBA's Hauser signals no early rate cuts as inflation remains too high

RBA Deputy Governor Andrew Hauser emphasized today that inflation remains "too high" for the central bank to consider immediate rate cuts.

Recent strong employment data led markets to push back the expected timing for the first rate cut from February to April. Hauser refrained from commenting on the market’s pricing, but noted, "the response of rates to the data does seem to be quite encouraging.”

While acknowledging the importance of data, Hauser stressed that RBA is “data-dependent but not data-obsessed,” noting that broader economic conditions also factor into policy decisions.

“Activity has been weak, very weak, and we haven’t seen the inflation number for the third quarter yet,” he added.

The RBA’s cautious approach contrasts with other central banks that have already begun easing, highlighting Australia’s persistent inflationary pressures. The market will be closely watching the third-quarter inflation data to gauge the timing and magnitude of future policy changes.

PBoC slashes loan prime rates

People's Bank of China lowered its one-year loan prime rate to 3.1% and trimmed the five-year LPR to 3.6%, as anticipated by market watchers. This move, at the upper end of the 20-25 basis point range suggested by Governor Pan Gongsheng during a Beijing forum last Friday, impacts a broad spectrum of loans in China. The one-year LPR directly influences corporate and household loans, while the five-year LPR serves as a benchmark for mortgage rates.

While this rate cut signifies some level of monetary stimulus, analysts continue to stress that China's core issue is not the supply of credit, but rather a lack of demand. Many argue that without substantial fiscal stimulus, the impact of these rate adjustments will remain muted.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 149.19; (P) 149.74; (R1) 150.10; More...

USD/JPY recovered mildly ahead of 4H MACD, but stays below 150.31 temporary top. Intraday bias remains neutral first. Further rally is expected as long as 146.47 resistance turned support holds. Above 150.31 will resume the rebound from 139.57 to 61.8% retracement of 161.94 to 139.57 at 153.39. However, break of 146.48 resistance turned support will indicate that rebound from 139.57 has already completed.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should now be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

ECB Governing Council member Peter Kazimir expressed growing confidence in the disinflation trend, stating in a blog post today that the path to lower inflation appears to be on "solid footing".

Kazimir added that if upcoming data continues to confirm accelerated disinflation, the ECB would be in a "strong and comfortable position to continue the easing cycle."

However, he noted that wage growth and services inflation, two critical elements, have yet to show the expected decline. He added, "If new information points toward higher inflation, we can still slow down the pace at which we remove restrictions in the coming meetings."

• BoC is expected to cut rates by 50 bps, the fourth one in a row
• Policymakers may give some hints about the December meeting
• Loonie looks strongly bearish
• Decision comes out on Wednesday at 13:45 GMT

Fall in inflation confirms the rate cut

It is widely expected that the Bank of Canada (BoC) will announce a substantial interest rate cut on Wednesday, particularly in light of the inflation data that was released the previous week. The policy rate is expected to have a reduction of 50 basis points, resulting in a decrease to 3.75%. This would be the first substantial reduction in over 15 years and the fourth consecutive rate decline, excluding the pandemic era. The decision is motivated by the necessity to prevent inflation from falling too far below the target range and to stimulate economic development.

Numerous obstacles have confronted the Canadian economy. The jobless rate has risen from a post-pandemic low of 4.8% to approximately 6.5%, resulting in a sluggish growth rate since late 2022. In spite of these obstacles, there have been some encouraging developments. For example, the unemployment rate fell to 6.5% in September from the 34-month high of 6.6%.

Nevertheless, the economy's overall performance has been subpar, as the real GDP has contracted on a per-capita basis for five consecutive quarters.

The inflation rate in Canada has decreased considerably in September, registering a low of 1.6% - the lowest level in three and a half years. The primary factors contributing to this decline were a significant decrease in gasoline prices and a general decrease in consumer demand as a result of high interest rates. The BoC's preferred measures of core inflation, CPI median and CPI trim, remained relatively stable at 2.3% and 2.4%, respectively. The central bank's target is to maintain inflation within the range of 1% to 3%. The most recent data indicates that inflation is currently within this range.

Monetary Policy Report follows BoC policy decision announcement

The BoC's upcoming rate decision will coincide with the release of the quarterly Monetary Policy Report, expected to provide further insights into the central bank's economic forecasts and policy outlook. Governor Tiff Macklem has stated that the central bank is prepared to reduce rates more aggressively if necessary in order to maintain inflation within the target range and support economic growth.

Experts anticipate additional rate reductions of up to 0.5% for the December meeting as the Bank seeks to bolster the economy in light of deteriorating conditions. This aligns with the bank's previous dovish position and its emphasis on mitigating inflationary pressures.

Dollar/Loonie still flies near 2-month high

Any hawkish surprises could potentially provide support to the Canadian dollar. If the predictions come true, the loonie might encounter volatility.

However, investors will also be looking for any indications of potential future reductions. The loonie would be at risk of a more severe adverse trend if Macklem maintains the possibility of additional 50 bps reductions.

Dollar/Loonie is recouping the losses that were posted in the preceding week, after the spike to the two-month high of 1.3837. The rebound from the 1.3420 support level is still holding with the next target at 1.3890.

• USD/JPY has rallied by 7.7% from the 16 September 2024 low with three key risk events/data for this week (Japan’s flash PMI, Tokyo CPI & general election).
• The recent 4-week rally in the USD/JPY has displayed exhaustion conditions.
• Watch the 148.95 key intermediate support.

Since our last publication, the price movements of USD/JPY have extended its rally by another 3% from its 4 October low to print an intraday high of 150.32 last Thursday, 17 October, and cleared above 149.30 medium-term resistance as highlighted.

All in all, the Japanese yen has weakened by 7.7% against the US dollar in the past four weeks from 16 September to 17 October (low to high) with three key related risk events looming this week; Japan’s flash services and manufacturing PMIs for October out on Thursday, 24 October,  Tokyo’s CPI on Friday, 25 October, and the outcome of Japan’s snap general election held on Sunday, 27 October.

Right now, several technical analysis-related elements are suggesting potential signs of bullish exhaustion in the 4-week rally.

Bullish positioning has been reduced in the JPY currency futures market

Fig 1: Commitments of Trader large speculators’ net positioning in JPY futures for the week of 14 Oct 2024 (Source: Macro Micro, click to enlarge chart)

Based on the latest Commitments of Traders data for the week of 14 October 2024 (compiled by Macro Micro), the aggregate net bullish open positions of large speculators in the JPY futures market (after offsetting the aggregate positions of large commercial hedgers) are at +70,749 contracts (net long), a decline of 50% in the past three weeks after it hit a 5-year high of +143,519 contracts for the week of 23 September (see Fig 1).

Net open large speculative positioning flows (primarily from hedge funds) are contrarian in nature which suggests that a relatively high level of net positioning may see an opposite reaction in price actions if related data or news flows disappoint.

Given that large speculative market participants have trimmed their net bullish open positions in the JPY currency futures market, the risk of further profit-taking activities (sell JPY, buy US dollar) has been reduced if the materialized related data or news flow does not support a bullish JPY narrative.

In contrast, if such data and news flow support a positive JPY narrative, large speculators may rebuild their net long position in the JPY futures market (buy JPY, sell US dollar) which in turn may lead to a bearish reversal in the USD/JPY.

Hovering below the 200-day moving average with exhaustion elements

Fig 2: USD/JPY medium-term trend as of 21 Oct 2024 (Source: TradingView, click to enlarge chart)

The 4-week up move seen in the USD/JPY from its 16 September low of 139.58 has almost reached the key 200-day moving average that coincides closely with the 151.95 long-term pivotal resistance.

Since 8 October, the price actions of USD/JPY have taken on the form of an impending bearish “Ascending Wedge” configuration coupled with a weekly bearish “Shooting Star” candlestick pattern for the week of 14 October (see Fig 2).

Watch the 148.95 key intermediate support (close to the lower boundary of the “Ascending Wedge), and a break below it may trigger a potential bearish reversal scenario on the USD/JPY to expose the medium-term supports of 146.90 and 144.80.

On the flip side, a clearance with a daily close above 151.95 invalidates the bearish scenario for the next resistance to come in at 154.70 in the first step.

The Australian dollar is calm on Monday. In the European session, AUD/USD is trading at 0.6689, down 0.18%. The Aussie posted its third straight losing week and has declined 3.2% in October. On the data calendar, there are no US or Australian economic releases.

RBA’s Hauser: policy could move in either direction

The markets are trying to get a feel for when the Reserve Bank of Australia might make a rate move. The RBA has held rates at 4.35% for close to a year and has been hawkish in its stance, as board members have considered the possibility of rate hikes at recent meetings.

Traders are betting that the RBA’s first move will be a rate cut, but not until early next year. The September employment report was stronger than expected, which has eased the pressure on the RBA to lower rates. RBA Deputy Governor Andrew Hauser said on Monday that he was surprised that job growth has been so strong. Hauser noted that inflation remained too high and that the RBA could make a rate move in either direction. A rate hike would make the RBA an outlier among the major central banks, most of which are in a rate-cutting cycle in response to falling inflation.

The two key factors with regard to rate policy are inflation and employment and neither one supports the case for a rate cut. Inflation rose to 3.8% in the second quarter, up from 3.6% and close to double the central bank’s target of 2%, while the labor market remains strong. The RBA won’t be in a position to consider a cut until it sees lower inflation and a weaker employment data. The next rate meeting is on November 5 and the RBA is widely expected to stay on the sidelines.

AUD/USD Technical

• AUD/USD pushed below support at 0.6745 and 0.6720 earlier. Next, there is support at 0.6692
• There is resistance at 0.6773 and 0.6798

Market Picture

The crypto market has maintained its upward trajectory, with total capitalisation up more than 7% in seven days to $2.39 trillion, the highest since late July. The Cryptocurrency Fear and Greed Index is in the 71-73 (greed) range for the sixth day, also replicating the late July performance.

Bitcoin has hit new highs in almost three months, peaking at $69.5K on Monday morning on the back of a surge in inflows into the BTC ETF. The price is now assessing the late July highs, and the May-June double top just below $72K looks to be the bulls’ next target.

Ethereum rises 8.2% in seven days to $2,740, reaching highs not seen since late August. The second-largest cryptocurrency can easily reach the $2,900 area, where the 50-week moving average and the April-July price support area from earlier this year could be selling points, in addition to the important round level.

News Background

Inflows into US spot bitcoin ETFs last week were $2.13 billion (+11.3% over the week), bringing the total since January to $20.94 billion. Ethereum ETFs saw an inflow of $78.9 million after two weeks of outflows, decreasing total outflow since the ETF product launch by 14.1% to $480M for the week.

The US SEC has approved the trading of options on spot bitcoin ETFs on the NYSE and CBOE. In September, the regulator approved the trading of options on spot bitcoin ETFs on the Nasdaq. Bloomberg described the SEC’s decision as not surprising but as good news.

The SEC has taken steps to appeal previous court rulings regarding Ripple’s XRP token. The agency has filed a preliminary civil complaint (Form C). Ripple CEO Brad Garlinghouse said that despite the legal battle with the regulator, XRP is set to become one of the leaders in the crypto industry due to the coin’s use in the payments sector.

According to Messari, Tron’s quarterly profits increased by 30% following the launch of its SunPump meme coin creation platform. The largest token issued on SunPump was the SUNDOG, which had a capitalisation of over $220 million.

Gold prices surged to a new record high of 2,729 USD per troy ounce on Monday, driven by escalating conflicts in the Middle East and the heightened uncertainty surrounding the upcoming US presidential election. These persistent geopolitical factors, particularly the closely contested race between Donald Trump and Kamala Harris, have bolstered investor demand for safe-haven assets like gold.

The intensification of hostilities in the Middle East, particularly with Israel's ongoing discussions about further actions against Iran, has significantly influenced market sentiment. Despite calls from US President Joe Biden for a ceasefire, Israel's reluctance to make concessions has only added to the geopolitical tensions affecting global markets.

As the US election day on 5 November approaches, investors are increasingly repositioning their portfolios, favouring the stability and security that gold provides during political uncertainty. Preliminary polls indicate that the election could be one of the closest in recent history, further enhancing gold's appeal as a protective investment.

Market analysts are now revising their expectations for gold upwards, with some speculating that prices could reach 3,000 USD per troy ounce by Q4 2025. This optimistic outlook is further supported by the surge in interest in silver, which has reached its highest price since 2012 due to similar bullish sentiments in the precious metals market.

Technical analysis of gold (XAU/USD)

The gold market has successfully breached the 2,685 level, paving the way for upward movement. After achieving a local high of 2,732, the market is currently targeting the 2,757 level. A corrective pullback to at least 2,700 is anticipated before potentially resuming the upward trajectory towards 2,757. This bullish outlook is supported by the MACD indicator, whose signal line is significantly above zero and climbing, indicating strong upward momentum.

On the hourly chart, gold has established a growth wave, peaking at 2,732, with a consolidation pattern forming just below this level. A downward correction towards 2,700 is expected shortly. Upon completing this correction, the market may initiate another upward phase, targeting a retest of 2,733, potentially extending towards 2,757. The Stochastic oscillator corroborates this scenario, currently positioned above 80 but pointing downwards, suggesting a brief consolidation or correction may occur before further gains.

USDJPY regained traction in early trading on Monday but remains with the recent range and looks for firmer direction signal.

Near term bias is expected to remain bullish while the price action stays above rising daily Tenkan-sen (149.16) which contained today’s dip, but the upside attempts were so far limited.

Probes through psychological 150 barrier failed to register weekly close above this level, lacking fresh bullish signal for extension towards more significant barriers at 150.69/76 (daily cloud top / 100DMA / 50% retracement of 161.95/139.57 downtrend) violation of which to signal continuation of an uptrend from139.57 (2024 low, posted on Sep 16).

Daily studies are mixed as positive signals from strong bullish momentum and diverging daily Tenkan / Kijun-sen after creating bull-cross) were partially offset by formation of 100/200DMA death cross).

The dollar remains supported by wide gap between Fed/BoJ monetary policies and growing market expectations of election victory of Donald Trump, whose pro-business policy is expected to boost the economy and further support dollar.

On the other hand, more signals that Fed may remain dovish on monetary policy would increase pressure on the US currency.

Initial negative signals to be expected on potential loss of 149.16/00 pivots, which would risk deeper pullback, and expose supports at 148.12 and 147.28 (broken Fibo 38.2% / rising 20DMA).

Res: 150.00; 150.76; 151.00; 151.40.
Sup: 149.16; 149.00; 148.86; 148.12.