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Cable accelerated lower and cracked psychological 1.30 support, to hit the lowest in almost two months in early Wednesday.

Sterling was down 0.8% in immediate reaction to economic data which showed that UK inflation fell more than expected in September and dipped below BoE’s 2% target, adding to bets for more rate cuts towards the end of the year.

Fresh weakness generates an initial signal of continuation of a downtrend from 1.3434 (2024 high of Sep 26), with close below 1.30 required to validate the signal.

Sustained break of 1.30 trigger to expose targets at 1.2958/52 (Fibo 61.8% of 1.2664/1.3434/100DMA) and more significant daily cloud base (1.2941) and 200DMA (1.2792).

Technical picture is bearishly aligned with strong negative momentum and the latest formation of 10/55DMA’s weighing on near-term action, however, bears would face a difficult task to clearly break 1.30 level (the last attack on Sep 11 was strongly rejected).

Potential upticks should be ideally capped by cloud top (1.3054) and not to exceed falling 10DMA (1.3076) to keep bears intact.

Res: 1.3049; 1.3071; 1.3113; 1.3140.
Sup: 1.3000; 1.2982; 1.2952; 1.2941.

The British pound fell below the 1.30 level against the dollar after weak inflation data across indicators. This sent the pound to a two-month low on speculation that the Bank of England will cut interest rates further in the coming months.

The consumer price index changed little in September, slowing to its slowest pace since April 2021 at 1.7% year-on-year from 2.2% previously and 1.9% expected. Price growth was below the Bank of England’s 2% target, allowing for an acceleration of policy easing to stimulate the economy. The core consumer price index last month was 3.2% higher than a year earlier, down from 3.6% in August. And it has been the lowest since September 2021.

Another bearish factor for the pound is the acceleration of the decline in producer prices. The Input Producer Price Index lost 1% over the month after five months of continuous decline of 2.5% and 2.3% over the past year. The output PPI lost 0.5% in September, after 0.4% previously, bringing the annual trend back into negative territory at -0.7%. In both cases, the figures were well below average expectations.

Only house prices managed to beat expectations, accelerating from 1.8% y/y to 2.8% y/y in August instead of the expected 2.5%. Still, this acceleration was at least partly because of the low base that lasted until last December.

GBPUSD downplayed the news classically, with an impressive sell-off of 0.7% within an hour of the data release. The pound briefly dipped below 1.30, a key round level, where it found buyers. Sterling also predictably rebounded from the previous day’s upbeat employment data but failed to convert the rebound into gains.

GBPUSD met strong technical resistance at 1.3110, where the 50-day moving average and the first correction retracement (of decline from 26 September to 10 October) are centred. The pair also fell below the area of the local lows from 11 September, which gives the sellers the upper hand.

A potentially important downside target is the 1.2800 area, near the 161.8% Fibonacci extension level from the initial decline and the 200-day moving average.

• Trump’s trade war 2.0 narrative & steep sell-off in ASML spooked the performances of the major US stock indices on Tuesday, 15 October.
• Implied volatility in the US stock market, measured by the VIX tends to be highest in October based on data during past US presidential election years since 1992.
• VIX/MOVE ratio has started to show outperformance of VIX.
• The S&P 500’on-going 4-week rally has flashed out exhaustion conditions.

The S&P 500 shed 0.75% on Tuesday, 15 October after it printed its 46^th record high for 2024 on Monday.

Yesterday’s daily loss of 0.75% was the largest seen in the past two weeks and attributed to the underperformance of the artificial intelligence (AI) juggernaut, Nvidia (second largest market cap stock in the S&P 500) which tumbled by 4.68% after a related bellwether semiconductor chip-making equipment firm, ASML issued a downgrade to its revenue guidance for 2025 that saw its share price plummeted by 16%, its worst daily performance since 12 June 1998.

In addition, an adverse macro factor also attributed to yesterday’s weakness inflicted in all the major US stock indices except for the Russell 2000 which closed almost unchanged; Nasdaq 100 (-1.37%) and Dow Jones Industrial Average (-0.75%).

US trade tensions with China narrative is now back on the radar of market participants after US Republican presidential nominee Donald Trump reaffirmed his preference for higher tariffs on China and the rest of the world’s exports to the US as he remarked that “tariffs are the most beautiful word in the dictionary” during yesterday’s live in-person interview with Bloomberg News organized by The Economic Club of Chicago.

With less than four weeks to go before the 5 November US presidential election day, betting markets are now indicating Trump has a lead of 56% over Democratic presidential nominee Harris (43%) according to betting average data as of 15 October compiled by Real Clear Politics.

October recorded the highest level of VIX during past US presidential election years

Fig 1: Average monthly VIX during US presidential election years since 1992 as of 2 Aug 2024 (Source: TradingView)

Regardless of who wins the White House race, based on past data during US presidential election years since 1992, the VIX, a measurement of the implied volatility of the US S&P 500 has increased in the four months (July to October) before the election month of November; a jump of around 40 percent, and reach an average monthly high of 25.97 in October (see Fig 1).

Hence, the S&P 500 now faces an increased risk of a jump in the VIX which in turn may spark a multi-week risk-off episode in the global financial markets.

VIX is now showing outperformance conditions over the MOVE Index

Fig 2: Major trends of MOVE Index, VIX & VIX/MOVE ratio as of 16 Oct 2024 (Source: TradingView)

The Merrill Lynch Option Volatility Estimate (MOVE) Index reflects the level of volatility in U.S. Treasury futures. The index is considered a proxy for term premiums of U.S. Treasury bonds (the yield spread between long-term and short-term bonds).

The movement of the MOVE Index has a strong direct correlation with VIX (implied volatility of the US stock market; S&P 500) since 2018 (see Fig 2).

Since the week of 16 September 2024, the MOVE Index has surged upwards significantly and cleared above a key medium-term resistance of 112.80.

The VIX has tagged along as well but has yet to break above its key medium-term resistance of 23.38 (currently trading at 20.80).

Interestingly, the ratio of VIX/MOVE has printed a series of “higher lows” and staged a bullish breakout from a major descending trendline resistance on the week of 15 July 2024 which suggests outperformance conditions of the VIX over MOVE Index have surfaced.

All these observations suggest a potential imminent jump in the VIX.

Watch the 5,930 key resistance on the S&P 500

Fig 3: Medium-term & major trends of the US S&P 500 CFD Index as of 16 Oct 2024 (Source: TradingView)

In the lens of technical analysis, the price actions of the US S&P 500 CFD Index (a proxy of the S&P 500 E-mini futures) have started to show signs of fatigue despite a string of record highs reached in the past four weeks.

Since 22 August 2024, the US S&P 500 CFD Index has evolved into a bearish “Ascending Wedge” configuration coupled with a bearish divergence condition sighted on the MACD Histogram in the same period which suggests its medium-term upside momentum has started to wane.

5,930 key medium-term pivotal resistance on the Index and a break below 5,675 key intermediate support (also the 50-day moving average) is likely to trigger a medium-term (multi-week) corrective decline sequence to expose the next medium-term supports of 5,390 (close to the 200-day moving average) and 5,100 (see Fig 3).

On the flip side, a daily close and a clearance above 5,930 invalidate the bearish scenario for a continuation of the impulsive upmove for the next medium-term resistances to come in at 6,110/130 and 6,390 (also the upper boundary of the major ascending channel in place since March 2020 pandemic low).

EUR/USD has sustained its position below the EMA-200 line, indicating a potential shift into a more defined downtrend. Recent comments from Raphael Bostic, head of the Atlanta Federal Reserve, have influenced this movement. Bostic suggests a modest 25-basis-point cut in interest rates this year – contrary to earlier predictions of a more aggressive 50-point reduction. Federal Reserve officials have underscored that any policy easing would be contingent on upcoming economic data.

The dollar's strength is further bolstered by the Empire Manufacturing Index for New York State, which sharply declined to -11.9 in October, a significant drop from 11.5 in September, marking the lowest level since May. This unexpected downturn, which contrasts with analyst expectations for a slight positive reading of 3.8, highlights a deterioration in regional manufacturing activity. While this data suggests potential headwinds for the US economy, it could paradoxically support the USD if it fuels speculation about a less aggressive rate-cutting strategy by the Fed.

Market participants eagerly anticipate further economic reports, including data on retail sales, industrial production, and the upcoming manufacturing data from FRB Philadelphia. These indicators will be crucial in painting a more comprehensive picture of the US consumer sector and overall industrial conditions, potentially guiding the next moves for EUR/USD.

Technical analysis of EUR/USD

EUR/USD is entrenched downward, aiming for the 1.0777 target level. The currency pair is currently consolidating around 1.0888. A break below this consolidation to 1.0860 could further propel the pair towards 1.0777. Upon reaching this level, a corrective phase towards 1.0996 might be anticipated. The MACD indicator, positioned below zero and poised to reach new lows, supports this bearish outlook.

On the hourly chart, EUR/USD has formed a consolidation range just above 1.0888. A downward break from this range is expected, which could extend the decline towards 1.0857 and potentially continue the downtrend to 1.0777. This scenario is reinforced by the Stochastic oscillator, whose signal line is below 50 and trending downwards towards 20, indicating the likelihood of continued bearish momentum.

The British pound has finally showed some movement on Wednesday after a week of limited movement. In the European session, GBP/USD is trading at 1.2992, down 0.62% on the day. The pound fell below the symbolic 1.30 level for the first time since August 20.

UK inflation drops more than expected

The UK inflation report for September was projected to hit a milestone and fall below the BoE’s 2% target, but the reading exceeded expectations. CPI fell to 1.7% y/y, down from 2.2% in August and below the market estimate of 1.9%. This was the lowest level since April 2021 and was driven by lower prices for petrol and airfares.

Services inflation, which has been stubbornly high, dropped from 5.6% y/y to 4.9%, its lowest level since May 2022. Monthly, CPI was flat, below 0.3% in August and below the market estimate of 0.1%. Core CPI also decelerated in September and was lower than expected (3.2% y/y and 0.1% m/m). As well, wage growth slowed to 4.9% in the three months to August, down from 5.1% previously.

The Bank of England will be encouraged by the drop in inflation and in wages. The UK economy is groaning under the weight of a cash rate of 5% and the markets are looking at a rate cut in November as a done deal, while a December cut is a strong possibility. Many major central banks have shifted their primary focus from inflation risks to the labor market, and we could see the same with the BoE, now that inflation is back below the BoE’s target.

GBP/USD Technical

• GBP/USD has pushed below support at 1.3071, 1.3039 and 1.3004. The next support level is 1.2972
• 1.3106 and 1.3138 are the next resistance lines

Market Picture

The crypto market cap rose by 1.4% to $2.31 trillion. Cryptocurrencies and equities are now out of sync (there was profit-taking in equities), but they maintain a general upward bias. The crypto market is forming an uptrend, which will be confirmed if local highs exceed the previous high of $2.32 trillion.

Bitcoin received a jolt on Tuesday, first jumping 4% in four hours to almost $68K and then losing over 4.6% to $64.7K. The market digested this influx of stop orders and soon began to rise again, trading near $66.8K at the time of writing. It will be interesting to see the bulls and bears continue to battle on a retest of $68K. The first cryptocurrency was not allowed to go higher in July, but now the bulls have the breakdown of the descending channel and an active pullback from the 200-day moving average on their side. At the same time, the RSI on the daily timeframe is not yet in the overbought territory, leaving room to run.

Ethereum looks weak now, approaching $2,700—the area of previous peaks—but it needs to break through. Perhaps a return of risk appetite in the equity markets will spark new momentum for the second-largest cryptocurrency to rise towards $3,000.

News background

The funding rate for perpetual bitcoin contracts has hit a multi-month high, indicating bullish sentiment and a growing influx of liquidity, notes The Block.

CryptoQuant notes that demand for Bitcoin has surged, rising at the fastest monthly pace since April 2024. Open interest (OI) in derivatives rose to a record $19.8 billion.

Standard Chartered predicts that Bitcoin could hit an all-time high ahead of the US election. Donald Trump’s increased odds of victory, significant inflows into spot bitcoin ETFs, and increased activity in the BTC call options market are fuelling sentiment.

MicroStrategy shares are a leading indicator of a potential bullish breakout, according to Bernstein. They are up 190% year-to-date, while BTC is up just 55%.

The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) fined TD Bank a record $1.3 billion for facilitating money laundering through cryptocurrencies.

• USDJPY extends consolidation around August’s bar
• Technical signals weaken, cannot warrant a bullish trend reversal
• US retail sales, jobless claims due on Thursday at 12:30 GMT

USDJPY reached a two-month high of 149.96, but it couldn’t hold its strength above the 200-day exponential moving average (EMA) at 149.40 on Tuesday.

Over the past few days, the pair has been struggling for a bullish breakout, leaving investors wondering whether it’s time for a negative pivot. The slowdown in the technical indicators reflects persisting reluctance among traders as the price hovers around August’s bar. Note that the MACD has reached its ceiling from July and April.

Still, with the RSI hanging comfortably above its 50 neutral mark and the 20-day EMA set to cross above the 50-day EMA, buying appetite may not entirely disappear. In this case, the pair may again attempt to stretch towards the 150.75-151.55 border. The 50% Fibonacci retracement of the July-September downtrend and the crucial support-turned-resistance line from the 2023 bottom are in that price neighborhood. Hence, a breach of that wall could excite buyers, speeding up the recovery process towards the 61.8% Fibonacci mark of 153.40 and the 154.00 barrier. Another success there could trigger a faster rally towards the 157.00 round level.

Should the bears take charge immediately, the 38.2% Fibonacci of 148.11 may provide some protection ahead of the 20- and 50-day SMAs at 147.00. A move lower could stall within the 144.85-145.60 territory formed by the 23.6% Fibonacci and the ascending line from July. If selling forces persist, they could forcefully press the price towards the 141.60 base.

In brief, USDJPY is trading near a decisive territory that could determine its next direction. For a bullish trend reversal, the pair must close above August’s bar of 149.40 and more importantly sustain buying interest above 151.55.

Daily Pivots: (S1) 194.59; (P) 195.17; (R1) 195.70; More...

Intraday bias in GBP/JPY stays neutral at this point. On the upside break of 195.95 will resume whole rise from 180.00 to 61.8% retracement of 208.09 to 180.00 at 197.35 next. Sustained break there will target 208.09 high. On the downside, break of 189.54 will turn bias back to the downside for 183.70 support instead.

In the bigger picture, price actions from 208.09 are seen as a correction to whole rally from 123.94 (2020 low). The range of consolidation should be set between 38.2% retracement of 123.94 to 208.09 at 175.94 and 208.09. However, decisive break of 175.94 will argue that deeper correction is underway.

Daily Pivots: (S1) 162.10; (P) 162.77; (R1) 163.20; More....

Intraday bias in EUR/JPY remains neutral for the moment. On the upside, firm break of 163.47/86 resistance will resume the rebound from 154.40 to 61.8% retracement of 175.41 to 154.40 at 167.38. On the downside, break of 158.09 will bring deeper fall back to 154.40/155.14 support zone instead.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). The range of consolidation should have been set between 38.2% retracement of 114.42 to 175.41 at 152.11 and 175.41 high. However, decisive break of 152.11 would argue that deeper correction is underway.

Daily Pivots: (S1) 0.8316; (P) 0.8339; (R1) 0.8352; More...

EUR/GBP rebounds strongly today, but stays well inside 0.8309/8433 range. Intraday bias remains neutral for the moment, and further decline is still in favor. On the downside, firm break of 0.8309 will resume larger down trend to 0.8201 key support next. However, decisive break of 38.2% retracement of 0.8624 to 0.8309 at 0.8429 will pave the way to 61.8% retracement at 0.8504 and possibly above.

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.