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Key insights from the week that was.

In Australia, the central data update of the week certainly did not fail to surprise the market. The September Labour Force Survey (LFS) reported another above-trend increase in employment growth, a gain of +64.1k, driving the employment-to-population ratio to a new record high of 64.4%. Measures of unemployment, underemployment and underutilisation all also managed to tick lower in the month, at a time when a record proportion of Australians are actively engaging in the labour market. This is reflecting not only employers’ clear appetite to expand headcount, but also an underlying normalisation of dynamics around average hours worked – moving from big swings through the pandemic and the RBA’s tightening cycle, to now tracking broadly in line with long-run historical trends.

Whichever way the data is cut, it is difficult to find any real causes for concern about the current health of the labour market. The upshot is that this is therefore unlikely to lead to any material change to the RBA’s views on the labour market. Policymakers will be keeping a close eye on certain dynamics – particularly around average hours worked – as this is the key channel through which the RBA anticipates most of the softening in the labour market will come. Other issues such as the industry-level breakdown will also remain an important consideration in linking the labour market to GDP growth, given the increasing contrast between productivity in non-market and market sectors.

Markets have accordingly pared back bets for RBA policy rate cuts this year, although current pricing suggests there is still a little appetite. Domestically, the economic calendar will be virtually radio silent over the next week, with the only notable data/events being the 2023-24 National Accounts – which will provide updated estimates and detail on industry and productivity – and a fireside chat from RBA Deputy Governor Hauser. All eyes will be on Q3 CPI on October 30, which should provide a more definitive guide on the near-term path for monetary policy. For more detail behind our forecast and the risks surrounding the upcoming inflation print, see our preview here on WestpacIQ.

Offshore, news this week lent to a more dovish tone in most developed markets paving the way for further monetary policy easing.

The European Central Bank cut interest rates by 25bps pointing to the recent weakness in growth and noting that the ‘disinflationary process is well on track’, while financial conditions continue to be deemed ‘restrictive’. Their forward guidance remained unchanged, with the policy statement reaffirming that ‘the Governing Council will continue to follow a data-dependent and meeting-by-meeting approach’. While there were no updated economic forecasts, in the press conference President Lagarde acknowledged that ECB’s projections likely will require downward revisions in the next policy meeting in December. We take this, alongside the evolution of price and growth indicators, to suggest another cut in December is highly likely. A more front-loaded rate cutting cycle should allow the ECB to quell fears around stalling growth momentum, particularly as countries focus more on fiscal consolidation.

In the UK wage growth eased to 3.8%3m/yr, around 2ppt below the levels seen just a few months ago. The pace of increase in private sector regular wages, closely watched by the Bank of England, also slowed to 4.8%3m/yr, down from above-6% at the beginning of the year. This followed other measures, like the Decision Maker’s Panel Survey, which suggested wages are easing. Meanwhile, the CPI data, also released this week, showed that inflation slipped from 2.2%yr to 1.7%yr, undershooting the BoE’s forecast from August by 0.4ppt. Most notably, services inflation eased to 4.9%yr, albeit to a large extent driven by a drop in the volatile airfares category. With wages also having subsided, further progress on services inflation should be imminent. While headline inflation is likely to rise in the coming months in part due to increase in the energy price cap set by regulators, signals that the underlying inflationary pressures are easing faster support our expectations that the BoE will continue cutting the Bank Rate in the remaining two policy meetings this year.

Across the pond, US retail sales data suggested that consumer spending was robust in September and Q3 as a whole. Control group sales were up 0.7% in the month and 1.6% on the three-month basis, with the latter suggesting a sizeable household consumption contribution to GDP growth. The effects of the hurricanes in the US, which seem to have supported retail sales in September, are likely to dissuade consumer spending in the month ahead. The weather-related distortions were visible in other economic data released this week, including the industrial production and claims for unemployment insurance.

Chinese authorities announced additional measures to support local governments, the housing sector and businesses. However, with no pledge to significantly ramp up fiscal spending, market reaction has been mixed. Later today we will receive Q3 GDP data and partial activity data which should reinforce a need for direct stimulus particularly to households. Chief Economic Luci Ellis scrutinizes China’s economic challenges in her essay this week.

Key Highlights

• USD/JPY remained in a positive zone above the 148.50 support zone.
• A short-term bullish trend line is forming with support at 149.25 on the 4-hour chart.
• EUR/USD declined heavily and traded below the 1.0840 support.
• Oil prices are at risk of more downsides below the $69.75 support.

USD/JPY Technical Analysis

The US Dollar started a decent increase above the 148.00 level against the Japanese Yen. USD/JPY settled above 148.50 to set the tone for more upsides.

Looking at the 4-hour chart, the pair is stable above the 100 simple moving average (red, 4-hour) and the 200 simple moving average (green, 4-hour). The pair even tested the 150.00 resistance zone before the bears emerged.

On the downside, immediate support sits near the 149.20 level. There is also a short-term bullish trend line forming with support at 149.25 on the same chart.

The next key support sits near the 148.50 level. Any more losses could send the pair toward the 147.80 level. On the upside, the bears might be active near the 150.20 level. The first major resistance might be near the 150.50 level.

A close above the 150.50 level could set the tone for another increase. The next major resistance could be 151.20. A clear move above the 151.20 level might send USD/JPY toward 152.00. Any more gains might call for a test of the 153.20 zone.

Looking at EUR/USD, the bears remained active and were able to push the pair below the 1.0880 and 1.0850 support levels.

Upcoming Economic Events:

• US Housing Starts for Sep 2024 (MoM) – Forecast 1.350M, versus 1.356M previous.
• US Building Permits for Sep 2024 (MoM) – Forecast 1.460M, versus 1.470M previous.

Short Term Elliott Wave View in S&P 500 Futures (ES) suggests that cycle from 8.5.2024 low is in progress as a 5 waves impulse. Up from 8.5.2024 low, wave 1 ended at 5669.75 and dips in wave 2 ended at 5394. The Index extends higher in wave 3 towards 5830 and pullback in wave 4 ended at 5724. Internal subdivision of wave 4 unfolded as a zigzag structure. Down from wave 3, wave ((a)) ended at 5756.2 and wave ((b)) ended at 5822.50. Wave ((c)) lower ended at 5724 which completed wave 4 in higher degree.

The Index has resumed higher in wave 5. Up from wave 4, wave (i) ended at 5808 and pullback in wave (ii) ended at 5725.25. Wave (iii) higher ended at 5846.50 and pullback in wave (iv) ended at 5811.50. Final leg wave (v) ended at 5918.50 which completed wave ((i)) in higher degree. Correction in wave ((ii)) is proposed complete at 5850 with internal subdivision as a zigzag structure. The Index then resumed higher in wave ((iii)). Up from wave ((ii)), wave (i) ended at 5927.25. Near term, as far as pivot at 5724.01 low stays intact, expect pullback to find support in 3, 7, or 11 swing for further upside.

S&P 500 Futures (ES) 60 Minutes Elliott Wave Chart

ES_F Elliott Wave Video

https://www.youtube.com/watch?v=aDL8MZSnkok

• Today, the ECB cut rates for the third time this year, bringing the deposit rate to 3.25% in line with expectations. The weakness in the incoming economic data since the last GC meeting was acknowledged by Lagarde, and that data has led to further confidence the inflation path is on track, leading to the rate cut. Today’s decision was unanimous.
• Markets traded mostly sideways through the press conference as no guidance was given of how aggressive the cutting cycle will be or the potential end-point.

‘Well on track’

The ECB judged that since the last GC meeting in September ‘The incoming information on inflation shows that the disinflationary process is well on track.’ And that the ‘inflation outlook is also affected by recent downside surprises in indicators of economic activity’. This morning the final inflation release also confirmed the surprisingly low inflation momentum, driven by services, which supported the ECB’s assessment. During the press conference Lagarde said they were ‘all a little bit surprised by the acceleration’, with a reference to the inflation print of 1.7% y/y in September.

Downside risks gaining traction

Listening to Lagarde today, it was clear that the weakening of ‘all indicators’ since the last meeting has come as a surprise for the governing council. This raises the question of whether the ECB should intensify its efforts towards policy easing. However, the ECB is still seeking clarity on whether the current tight financial conditions have adequately addressed the underlying drivers of inflation. The labour market continues to demonstrate resilience, although employment has recently plateaued, and domestic inflation remains high at nearly 4% (3.9% in September), propelled by sustained wage pressures. The ECB still observes signs of profit margins absorbing rising costs, which is crucial for the continuation of the disinflationary process. However, it remains concerned that the current resumption of household purchasing power might fuel future inflation. The substantial data package (e.g. 2 x PMI, 2 inflation prints) prior to the December meeting could become instrumental for the staff projections and to what degree the risk of undershooting the inflation target has risen recently. At today’s meeting, Lagarde remained hesitant about making any clear judgements, but recall that just a month ago, ECB members seemed split on the need to cut rates at the October meeting. Today, the decision was taken unanimously.

Still restrictive, but for how long?

The ECB’s decision also included an interesting reference to financing conditions remaining restrictive; however, with the weak economic activity and disinflationary process on track, the question becomes for how long should we expect the ECB policy stance to stay restrictive? In our baseline scenario, we see the ECB only cutting to 2%, which is broadly considered the neutral policy rate by the end of next year. However, the bigger question remains whether there is a risk of the ECB feeling the need to cut slightly below that. Markets are pricing this at around 40% Reading the Markets EUR: Yield Outlook - From restrictive to neutral. Sell 15Y Finland

Markets

The ECB’s unanimous back-to-back rate cut brought the deposit rate to 3.25% today. This third rate reduction came earlier than analysts and the ECB itself expected in the days after the September 12 policy meeting. “The incoming information on inflation shows that the disinflationary process is well on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity”, the statement noted. The emphasized part is referring to the awful September PMI’s (Sep 23) that suggested the euro area economy had started to contract (composite 49.6). They were the sole reason for the U-turn first made by Lagarde before parliament (Sep 30) with other governors following suit in the days thereafter. According to the ECB president this is exactly what “data dependency” means. As she went into more detail she noted investment, consumption and exports are all still weak. That should pick up thanks to a boost in real incomes and looser monetary policy but risks to growth remain tilted to the downside for now. Inflation dropped to just 1.7% in September but is expected to edge higher again in coming months (base effects) and as domestic inflation remains high (wages rising at an elevated pace). Services inflation remains at an elevated 3.9% and prevents the ECB from formally declaring victory over the matter. Lagarde deep into the presser did say that risks to inflation are now more on the downside and not on the upside. Nevertheless, it sticks to a data-dependent and meeting-by-meeting approach. That was again obvious when asked if the ECB was now on track for cuts at every meeting. With amongst others two more PMIs, two more CPIs, Q3 GDP and wage growth data due ahead of the December meeting, investors better brace for some serious market volatility. European yields lose some ground today with front end (-2 to -3 bps) outperforming. Follow-up rate cuts are fully priced in for the next four upcoming meetings with the fifth for 85% discounted. The terminal rate stayed unchanged at <2%. That’s remarkable for an economy that according to the ECB is not headed for a recession but a soft landing. EUR/USD (1.082, from 1.086) declined but that was mainly the result of US data coming in on the strong side of expectations. In particular retail sales (0.4-0.7% depending on the gauge) were outright good with 10 out of the 13 categories rising with a drop in international oil market prices probably responsible for one of the three categories printing declines (gasoline stations -1.6% m/m). Weekly jobless claims eased from the sharp uptick last week to 260k from 241k vs 259k expected and the Philly Fed business outlook jumped from 1.7 to 10.3 compared to a way more moderate analyst consensus (3). Details were solid (expect for number of employees) and the six month ahead outlook rose to its highest level since July to hover around three-year highs.

News & Views

The Turkish central bank (CBRT) kept its policy rate unchanged at 50% for a seventh consecutive meeting today. The policy statement didn’t alter much from previous month. Taking into account the lagged effects of monetary tightening, the Committee will make its policy decisions so as to create the monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation and to reach the 5% inflation target in the medium term. The decisiveness regarding tight monetary stance will bring down the underlying trend of monthly inflation (which slightly increased in September) through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations. The latter together with pricing behavior continue to pose upward risks. EUR/TRY continues to trade close to all-time highs around 37.20.

Hungarian central bank’s influential deputy governor Virag said that he’s ready to pause interest-rate cuts for an extended period, completing the U-turn following September guidance that a 25 bps rate cut is on the table at every remaining policy meeting this year. Earlier he already suggested a skip in October, now he implies skipping all together this year. “If the external environment and inflation outlook justify, the base rate may stay unchanged for a sustained period, raising our interest premium.” The MNB is obviously closely monitoring its currency and wants to avoid an unwarranted further weakening beyond EUR/HUF 400.

Hello traders, welcome to a new Forex blog post. In this one, we will discuss AUDUSD short-term Elliott wave analysis. We believe the forex pair is still within a bearish corrective cycle from late September 2024. Thus, the current minor bounce should fail at some point, leading to a further intraday sell-off.

From the perspective of Elliott wave theory, price action evolves in a series of 5-waves and 3-waves that depict trend and correction, respectively. The theory also postulates that a trend develops in 5-waves. When a 5-wave sequence is completed, a 3-wave correction should occur against the direction of the trend. These 5-waves and 3-waves combine to form market cycles across all time frames.

A bullish sequence evolved in AUDUSD from the low of August 2024. This sequence completed a 5-wave impulse structure on September 30th. The expectation was that a 3-wave correction to the downside would follow. Meanwhile, corrections can take different forms. However, the most recognizable and tradable are what we call zigzags. Zigzags can either complete a 3, 7, or 11 swing structure, i.e., A-B-C, W-X-Y, or W-X-Y-XX-Z sequences, respectively. When the first sub-structure within the corrective phase is a 5-wave, we often anticipate an A-B-C structure. A-B-C structures are 5-3-5 wave sequences, which we refer to as zigzag patterns.

AUDUSD Elliott Wave Analysis – 10.17.2024 Update

We shared the chart above on 10/17/2024 with Elliottwave-Forecast members, showing the path in the shorter cycles. The chart displays a bearish correction of the bullish sequence from the low of August. The first reaction was a 5-wave down, completing wave (A). With this structure, we can anticipate an A-B-C zigzag pattern involving a 5-3-5 wave sequence. Thus, the price is currently in wave (B) if it extends higher to at least the 23.6% retracement zone at 0.6725. However, if the current bounce ends below 0.6725, then it’s not sufficient for (B). In that case, we could consider it as a new wave 4 of (A) or wave ((ii)) of 5, leading to a further sell-off for wave (A).

On the other hand, if the bounce develops above 0.6725 to qualify for wave (B), we will expect a 3, 7, or 11 swing structure and anticipate where wave (B) should end. At the extreme of (B), we expect new attempts by sellers to push lower below (A) along the path of (C). However, to join the sellers, we would like to confirm the end of wave (B) by waiting for the price to breach the low of wave (A). Afterward, we would sell on bounces in 3, 7, or 11 swing structures, targeting 100% of wave (A) from (B). When it’s time to sell, our members will be alerted in the trading room and by the blue box on our charts. The blue box provides entry and exit prices. Additionally, in the trading room, our analysts share trade management tips for every setup.

Daily Pivots: (S1) 149.08; (P) 149.44; (R1) 150.02; More...

Intraday bias in USD/JPY remains neutral and more consolidations could still be seen. Further rally is expected with 146.48 resistance turned support intact. Above 149.97 will resume the rise from 139.57 to 61.8% retracement of 161.94 to 139.57 at 153.39 next. However, firm break of 146.48 will argue that such rebound has completed, and turn bias back to the downside for retesting 139.57 low.

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.

Daily Pivots: (S1) 0.8625; (P) 0.8641; (R1) 0.8672; More…

USD/CHF's rally from 0.8374 is in progress and intraday bias stays on the upside. Sustained break of 38.2% retracement of 0.9223 to 0.8374 at 0.8698 will argue that fall from 0.9223 has completed after defending 0.8332 low. Further rally should then be seen to 61.8% retracement at 0.8899 next. On the downside, below 0.8605 minor support will turn intraday bias neutral again first.

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) 1.2950; (P) 1.3018; (R1) 1.3060; More...

Intraday bias in GBP/USD remains on the downside and outlook is unchanged. Sustained trading below 1.3000 cluster support (38.2% retracement of 1.2298 to 1.3433 at 1.2999) will argue that whole rise from 1.2298 has completed and bring deeper fall to 61.8% retracement at 1.2732. Nevertheless, strong bounce from current level, followed by break of 1.3102 minor resistance, will turn bias back to the upside for stronger rebound towards 1.3433.

In the bigger picture, as long as 1.3000 support holds, the up trend from 1.0351 (2022 low) is still in progress. Next target is 61.8% projection of 1.0351 to 1.3141 from 1.2298 at 1.4022. However, considering mild bearish divergence condition in D MACD, decisive break of 1.3000 will argue that a medium term top is already in place, and bring deeper fall back to 1.2664 support next.