Sample Category Title

• USDCHF broke resistance zone
• Likely to rise to resistance level 0.8730

USDCHF currency pair recently broke the resistance zone between the resistance level 0.8600 (which stopped the previous impulse wave 3) and the 61.8% Fibonacci correction of the downward impulse from August.

The breakout of this resistance zone accelerated the minor impulse wave 5 of the higher order impulse wave (3) from September.

Given the continuation of the bullish US dollar sentiment, coupled with significant Swiss franc outflows, USDCHF currency pair can be expected to rise further to the next resistance level 0.8730 (former monthly high from August).

Markets

EUR/GBP spiked from 0.8325 to 0.8375 following September UK inflation numbers, but the euro isn’t strong enough these days to profit from GBP-weakness. Even as UK yields drop 8 bps (30-yr) to 11 bps (2-yr) across the curve. Headline inflation was flat in M/M-terms, resulting in the first sub-2% inflation print since April 2021. As is for Europe and the ECB, inflation is expected to move back above the BoE’s 2% inflation target toward year-end as energy base effects switch signs. Transport-related prices (petrol prices,…) and services costs (-0.3% M/M; mainly airfares) were the main monthly negative contributors. Core CPI slowed to 0.1% M/M and 3.2% Y/Y (from 3.6% Y/Y; lowest since September 2021). Services inflation recorded a first below-5% Y/Y figure since May 2022 (4.9% from 5.6%), again mainly because of the volatile airfare component. Core services inflation likely slowed less, from 5.5% Y/Y to 5.3% Y/Y, warning against overinterpretation of today’s numbers. In combination with yesterday’s waning wage pressure, they nevertheless suffice for the Bank of England to pursuit governor Bailey’s more activist approach. The parallel with the ECB remains. The BoE started off with a 25 bps rate cut in August (albeit a close 5-4 call), next skipped a meeting in September, to make monetary policy again less restrictive in November (25 bps rate cut discounted). Backed by a new Monetary Policy Report, the market expects the BoE to prepare the road for more regular rate cuts from there on. The UK government’s 2025 budget (presented at the end of the month) is a wildcard, but we don’t expect it to derail the BoE’s plans.

Trading on main European and US markets is uneventful, counting down to tomorrow’s ECB policy meetings and US weekly jobless claims and retail sales. Core bonds regain some additional ground with German Bunds outperforming US Treasuries in the process. Brent crude prices hold near the recent sell-off lows around $74/b while EUR/USD treads water just below 1.09. European stock markets (-0.5%) fail to recover from yesterday’s ASML-triggered setback. Key US indices start the session fairly mixed.

News & Views

The Economic Experts survey, a quarterly study conducted by the Ifo Institute and the Swiss Economic Policy Institute, shows that experts from around the world expect inflation rates to remain above central banks’ targets. Ifo researcher Niklas Potrafke concludes that “due to these stagnating inflation expectations, central banks could hold back on further interest rate cuts.” Worldwide, inflation could reach 4% in 2024, 3.9 % next year and 3.6 % in 2027. Inflation expectations for 2024 in Western Europe (2.5%) and North America (2.7%) are well below the global average. For 2027, experts still expect 2.1% in Western Europe and 2.4% in North America. In other parts of Europe, inflation expectations for 2027 are higher: 2.7% for Northern Europe, 3% for Southern Europe, and 5.9% for Eastern Europe. Among the regions with particularly high inflation expectations of more than 20% are South America and large parts of Africa.

Czech National Bank (CNB) board member Holub explained why he dissented at the September 25 monetary policy meeting. At that meeting, the CNB decided to cut the policy rate by 25 bps to 4.25%. Holub voted for a 50 bps reduction. Holub’s risk assessment is slightly more anti-inflationary while the Board in general sees risks to meeting the inflation target as mainly balanced. Current inflation and the near target outlook combined with moderate downside risks, according to Holub allow a forward looking approach to monetary policy with the focus on the medium term. Finetuning on the basis of incoming data is less appropriate given lags in the transmission of policy. At the same time, the economy is developing below potential and is recovering slowly. Fiscal policy has been restrictive throughout the year, hampering the economic recovery, in particular household consumption. Fed and ECB cuts are reducing the risk of a significant weakening of the korona even as domestic demand is weak. In this context, Holub sees risks that the negative effects of an excessively tight monetary policy would result in lower growth and inflation easing below target. Holub still votes at the November 7 meeting, but leaves the board in December. KBC expects the CNB to cut rates at the 3 upcoming meetings to 3.5% in February when a longer pause might kick in or what even might be the’ low’ of the cycle.

Daily Pivots: (S1) 148.74; (P) 149.33; (R1) 149.80; More...

USD/JPY is staying in consolidation below 149.97 temporary top and intraday bias stays neutral. 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) 0.8606; (P) 0.8623; (R1) 0.8638; More…

USD/CHF's rise from 0.8374 is in progress and intraday bias stays on the upside for 38.2% retracement of 0.9223 to 0.8374 at 0.8698. Sustained break there will argue that fall from 0.9223 has completed after defending 0.8332 low. Further rally should be seen to 61.8% retracement at 0.8899 next. On the downside, below 0.8557 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) 1.0876; (P) 1.0897; (R1) 1.0911; More....

EUR/USD's fall from 1.1213 is in progress and intraday bias remains on the downside. This decline is seen as the third leg of the corrective pattern from 1.1274. Deeper fall would be seen to 61.8% retracement of 1.0447 to 1.1213 at 1.0740 next. On the upside, above 1.0953 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another decline.

In the bigger picture, rejection by 1.1274 resistance suggests that corrective pattern from 1.1274 (2023 high) is not completed yet. Instead, decline from 1.1213 might be another falling leg. Sustained break of 55 W EMA (now at 1.0877) will validate this case, and bring deeper fall towards 1.0447 support again. But downside should be contained by 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404.

Daily Pivots: (S1) 1.3039; (P) 1.3071; (R1) 1.3106; More...

GBP/USD is still defending 1.3000 cluster support (38.2% retracement of 1.2298 to 1.3433 at 1.2999) for now. On the downside, decisive break of 1.2999/3000 will argue that whole rise from 1.2298 has complete,d 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.

Sterling is currently the weakest performer in today’s trading, though selling pressure remains somewhat contained for now. Weaker-than-expected inflation data from the UK further strengthened the case for BoE to cut interest rates in November. More critically, markets are now pricing in a higher probability of another back-to-back rate cut in December. Interest rate futures reflect a 90% chance of two 25bps cuts by the end of the year, aligning with BoE Governor Andrew Bailey's remarks about taking a "more activist" approach to monetary easing.

In the broader forex market, Australian Dollar and New Zealand Dollar are following Sterling's weakness. Both currencies are anticipating impacts from tomorrow’s joint press conference featuring China’s Housing Ministry, Finance Minister, People's Bank of China, and National Financial Regulatory Administration. Speculation is building that the Chinese government would announce new support measures to aid the struggling housing market.

On the other side, Euro has risen to the strongest position today, largely due to buying against the Pound. While ECB is widely expected to announce another interest rate cut tomorrow, much of this has already been priced in by the market. Investors will focus on whether ECB signals another follow up rate cuts in December. Dollar and Swiss Franc are also performing well, while Canadian Dollar and Japanese Yen are trading in middle positions.

Technically, GBP/CHF will be monitored to see if Sterling's decline is taking off. So far, it's holding well above 1.1119 cluster support (38.2% retracement of 1.0741 to 1.1368 at 1.1220). Rise from 1.0741 is still in favor to resume through 1.1368 at a later stage. However, decisive break of 1.1119 will indicate near term reversal and target 61.8% retracement at 1.0981 and below.

In Europe, at the time of writing, FTSE is up 0.87%. DAX is down -0.19%. CAC is down -0.55%. UK 10-year yield is down -0.087 at 4.082. Germany 10-year yield is down -0.034 at 2.194. Earlier in Asian, Nikkei fell -1..83%. Hong Kong HSI fell -0.16%. China Shanghai SSE rose 0.05%. Singapore Strait Times fell -0.13%. Japan 10-year JGB yield fell -0.0211 to 0.955.

Canada's manufacturing sales falls -1.3% mom to lowest level since Jan 2022

Canada's manufacturing sales fell -1.3% mom to CAD 69.4B in August, better than expectation of -1.5% mom decline, but marked the lowest level since January 2022.

The decline was mainly driven by lower sales in the primary metal (-6.4%) and petroleum and coal product (-3.7%) subsectors. Meanwhile, production of aerospace products and parts (+7.3%) and sales of wood products (+3.8%) increased the most.

With the decrease in August, monthly sales were down -4.4% on a year-over-year basis.

UK CPI falls to 1.7% in Sep, core CPI down to 3.2%

UK CPI slowed more than expected from 2.2% yoy to 1.7% yoy in September, below expectation of 1.9% yoy. Core CPI (excluding energy, food, alcohol and tobacco) slowed from 3.6% yoy to 3.2% yoy, below expectation of 3.4% yoy. CPI goods fell from -0.9% yoy to -1.4% yoy. CPI services also slowed from 5.6% yoy to 4.9% yoy.

ONS Chief Economist Grant Fitzner said: “Inflation eased in September to its lowest annual rate in over three years. Lower airfares and petrol prices were the biggest driver for this month’s fall. These were partially offset by increases for food and non-alcoholic drinks, the first time that food price inflation has strengthened since early last year. “Meanwhile the cost of raw materials for businesses fell again, driven by lower crude oil prices.”

NZ CPI falls to 2.2% in Q3, back in RBNZ's target band

New Zealand's CPI rose 0.6% qoq in Q3, slightly below market expectations of 0.7% qoq. Annually, inflation slowed sharply from 3.3% yoy to 2.2% yoy, in line with forecasts.

This marks the first time since March 2021 that annual inflation has returned within RBNZ’s target range of 1 to 3%. The result was also softer than RBNZ’s own forecast of 0.8% quarterly and 2.3% annual inflation.

Rent prices were the largest contributor to the annual inflation figure, rising by 4.5%. Nearly 20% of the overall inflation increase came from rent.

On the other hand, lower fuel costs, with petrol prices dropping -8.0%, helped balance rising costs, alongside a notable -17.9% drop in vegetable prices following last year’s spike in potato, kūmara, and onion prices.

RBA’s Hunter: Monitoring China’s stimulus and inflation expectations closely

RBA Assistant Governor Sarah Hunter emphasized today the importance of China’s economic stimulus measures for Australia, noting that the central bank is actively assessing their local implications.

In a Bloomberg interview, Hunter explained, “We are factoring it into our forecasts going into November," as China remains a key player in Australia’s economy. "China’s still very important, and we put a lot of our time and attention into thinking through what’s happening there and what it means for the economy here."

In a separate speech, Hunter also addressed the importance of keeping inflation expectations anchored within RBA’s 2-3% target range.

She noted that “the fact that expectations feed into actual inflation outcomes means de-anchored expectations typically lead to greater inflation volatility.”

RBA remains vigilant to ensure inflation expectations remain steady, as de-anchoring could cause significant economic disruption. Hunter stressed the need to constantly track and understand how inflation expectations are evolving to mitigate any risks to the broader economy.

Australia’s Westpac leading index ticks up to -0.15%, growth outlook remains subdued

Australia’s Westpac Leading Index showed a slight improvement, rising from -0.26% to -0.15% in September. However, the index remains in negative territory, indicating "below-trend momentum" that is expected to carry into 2025.

Westpac maintains that while growth will improve next year, it will remain "relatively subdued," with GDP growth forecasted to gradually rise from annualized 1% currently to 1.5% by the end of 2024, reaching 2.4% by the end of 2025—still below the long-term trend of slightly above 2.5%.

As for monetary policy, RBA is not expected to change its cash rate target at the upcoming meetings in November and December.

However, Westpac anticipates a shift in RBA's messages, moving away from its 2024 focus on "inflation vigilance."

Key data releases, including Q3 CPI on October 30 and national accounts on December 4, are likely to confirm a subdued growth environment and provide RBA with enough confidence to start considering less restrictive policies in 2025.

BoJ's Adachi warns against premature rate hikes, urges most conservative approach

In a speech today, BoJ Board Member Seiji Adachi suggested that Japan's economy has met the conditions for beginning to normalize its ultra-loose monetary policy. He pointed to the firm economic outlook and broadening price increases as positive signs.

However, Adachi emphasized the need for caution, stating that until underlying inflation sustainably reaches the 2% target, Japan must maintain an "accommodative" financial environment. He added that any interest rate increases should be at a "very moderate pace."

Adachi also stressed the importance to "avoid raising rates prematurely", suggesting that BoJ should use the "most conservative estimate" when considering policy adjustments.

"Given high uncertainty surrounding global developments, there is significant uncertainty over next year's wage developments in Japan. We must carefully monitor the situation," Adachi added.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3039; (P) 1.3071; (R1) 1.3106; More...

GBP/USD is still defending 1.3000 cluster support (38.2% retracement of 1.2298 to 1.3433 at 1.2999) for now. On the downside, decisive break of 1.2999/3000 will argue that whole rise from 1.2298 has complete,d 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.

Canada's manufacturing sales fell -1.3% mom to CAD 69.4B in August, better than expectation of -1.5% mom decline, but marked the lowest level since January 2022.

The decline was mainly driven by lower sales in the primary metal (-6.4%) and petroleum and coal product (-3.7%) subsectors. Meanwhile, production of aerospace products and parts (+7.3%) and sales of wood products (+3.8%) increased the most.

With the decrease in August, monthly sales were down -4.4% on a year-over-year basis.

Full Canada manufacturing sales release here.

Gold price came just ticks ahead of new record high ($2685) during European trading on Wednesday, in fresh extension of bull-leg from $2602 higher low of Oct 10 and the bottom of corrective phase from $2685.

The metal remains strongly supported by growing prospects for global monetary policy easing, geopolitical tensions and uncertainty surrounding nearing US election.

Although the Fed officials are divided on the number of rate cuts until the end of the year, the central bank remains on track for more policy easing, with markets awaiting coming economic data from the US to get clearer picture about Fed’s rate cut trajectory.

Bulls are likely to retest $2685 peak, but overbought conditions on daily chart and 14-d momentum in neutral mode suggest that price may hold at this zone for consolidation, before resuming higher.

Converged 10/20DMA’s contribute to such scenario, with dips expected to find ground at $2640 zone to mark a healthy correction however, larger bulls should stay intact while pivotal $2600 support holds.

Round-figure $2700 and Fibo projection at $2705 (123.6%) mark immediate targets, ahead of projected levels at $2717 (138.2%), $2736 (161.8%) and $2748 (176.4% of the upleg from $2602).

Res: 2685; 2700; 2705; 2717.
Sup: 2658; 2645; 2633; 2621.