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San Francisco Fed President Mary Daly signaled in a speech overnight that additional rate cuts are in the pipeline for this year, suggesting that "one or two" further reductions would be a "reasonable thing to do."

Daly emphasized that the primary focus now is on determining "how quickly to adjust," rather than where the ultimate destination of the easing cycle will be.

She also acknowledged that “the economy is clearly in a better place,” pointing to significant progress in reducing inflation pressures. She also highlighted that the labor market is now on a more sustainable path, which was a key concern earlier this year. With both inflation and employment showing healthier trends, Daly noted, “the risks to our goals are now balanced.”

Summary

• Today's release of Canada's September CPI offers a decisive data point, in our view, that should see the Bank of Canada (BoC) step up the pace of monetary easing next week.
• In addition to headline inflation surprising to the downside, broader underlying inflation pressures also remained contained. With activity data subdued overall, and with policy interest rates still some way above neutral and next week's announcement accompanied by fully updated economic projections, we now forecast the BoC to cut its policy rate by 50 bps to 3.75% at its October 23 meeting.
• We expect the BoC to revert to 25 bps rate cuts at its December, January, March and June meetings, for a terminal policy rate of 2.75% by the middle of next year. Relative to our prior forecast, we see the central bank lowering interest rates more quickly and, moreover, view the risks as tilted to even faster monetary easing if growth in economic activity disappoints.

Ongoing Disinflation Points to Faster Bank of Canada Rate Cuts

Today's release of Canada's September CPI offers a decisive data point, in our view, that should see the Bank of Canada (BoC) step up the pace of easing, and lower its policy interest rate by 50 bps at next week's monetary policy announcement. September headline inflation slowed more than consensus economists expected to 1.6% year-over-year, and while that deceleration was driven by an 8.3% decline in energy prices, there were also indications that underlying price pressures are contained. Services inflation slowed to 4.0%, the smallest increase in services prices since September of last year. Meanwhile, the average core CPI remains close to the central bank's 2% inflation target, rising 2.4% over the past 12 months, by a 2.4% annualized pace over the past six months, and by 2.1% annualized over the past three months.

Meanwhile, while Canadian activity data is a bit more mixed, we also believe it is consistent with a 50 bps rate cut next week. July GDP rose 0.2% month-over-month, although the advance estimate is for a flat outcome in August, which, if realized, would leave the level of July-August GDP just 0.25% above its April-June average—tracking well below the Bank of Canada's Q3 growth forecast of around a 0.7% quarter-over-quarter (not annualized) gain. More recent activity and survey data are not quite as soft. September employment rose by 46,700, driven by full-time jobs, and the unemployment rate fell to 6.5%. Offsetting that strength to some extent, the labor report also showed that wage growth eased by more than expected, to 4.5% year-over-year. Finally, the BoC's Q3 business outlook survey showed a modest improvement in expectations for future sales, and the headline business outlook indicator improved to -2.3, although that reading for the business outlook indicator is still reflective of overall net pessimism rather than net optimism.

A couple of other factors are also supportive of a larger rate cut at next week's announcement. First, the policy interest rate remains some way above neutral, which the BoC estimates to be in a range of 2.25% to 3.25%. In addition, next week's announcement will also be accompanied by fully updated economic projections. Both of these factors argue for a larger rate cut, considering the subdued economic backdrop. Accordingly, we now forecast the BoC will lower its policy rate by 50 bps to 3.75% at its October 23 announcement, and by a further 25 bps to 3.50% in December. In 2025, we expect 25 bps rate cuts in January, March and June, which would bring the policy rate to 2.75% by middle of next year. Among the factors we think will see the Bank of Canada revert back to smaller 25 bps increments following the October move are policy interest rates that are moving somewhat closer to neutral, hints of improvement in some of the more recent activity data, and the potential for (and desire to avoid) excessive Canadian currency weakness. That said, relative to our prior forecast we see the Bank of Canada lowering interest rates more quickly to the same 2.75% terminal rate we had previously anticipated. Moreover, we view the risks as still tilted toward even faster monetary easing should inflation remain contained, and if growth in economic activity disappoints.

Summary

High profile policy announcements from China have captured financial markets' attention over the past few weeks. China's central bank eased monetary policy, while the Ministry of Finance deployed fiscal resources to aid the property sector and local banks. However, with few fiscal resources deployed toward supporting broader domestic demand, we don't think the growth impact of the latest stimulus announcements will be any different for China. We believe that utilizing the policy support playbook from the last fifteen years will not be enough to change China's short or long-term economic trajectory, and that policy measures that are not aimed at generating consumer spending will ultimately fall short of authorities' intentions. China's economy, in our view, is still staring down at annual GDP growth in the 4.5% range for the next few years. We also expect the recent burst of market optimism around China to fade, and a range of systemically important emerging market nations could be at risk of sentiment swings. With China's policy support announcements missing the mark, combined with a Federal Reserve taking a more gradual approach to easing, 2025 could be a year defined by significant emerging market currency depreciation.

The Time Has Come For China to Change

Chinese authorities have now hosted two highly publicized stimulus announcements over the past few weeks. The announcement in September was particularly focused on easing monetary policy, but also other actions designed to help China's economy achieve the government's 5% growth target. This past weekend, China's Ministry of Finance (MoF) followed up September's announcement with a stronger effort toward economic support. The latest policy support is more centered around fiscal stimulus. China's Finance Minister communicated a willingness to take on more debt and expand government fiscal deficits (general and local), allowed for greater usage of local government bond issuance proceeds, dedicated support to China's local real estate sector and offered additional support to local governments to recapitalize bank balance sheets. While details of MoF stimulus are still somewhat vague, Chinese authorities are once again adjusting policy settings in a more accommodative direction in an effort to support China's economy. The shift to policy accommodation is notable. Essentially since the Global Financial Crisis in 2008-2009, Chinese authorities have attempted to balance supporting economic growth with reducing financial stability risks. This balance has been a challenge that has seen authorities at times dip into stimulus by allowing increased leverage, and at other times aim to deleverage by sacrificing economic growth. For the most part, authorities have leaned in favor of supporting activity, which has seen system-wide debt rise significantly over the past fifteen years (Figure 1). Following a brief period of striving for deleveraging post-pandemic, authorities are now clearly more committed to sparking growth than deleveraging China's economy, again opening the tap to policy support, both monetary and fiscal. Historically, Chinese authorities flipping to stimulus has supported growth and led to China's economy being one of the largest single contributors to global GDP growth.

However—and this is where our “This Time is Not Different” title comes into play—all the above mentioned policy support draws from a playbook that is outdated and no longer able to provide material long-lasting momentum to China's economy. In our latest International Economic Outlook we dedicated specific commentary to China's September policy actions with the takeaway being that we were underwhelmed. Gradual monetary easing combined with vague commitments to limited future fiscal stimulus was a policy communication that we believe missed the mark. We have similar takeaways from the latest MoF announcement. Fiscal stimulus, so far, is primarily aimed at China's real estate sector and improving local bank balance sheets. While we acknowledge the local property sector and bank balance sheets need support, targeting fiscal resources solely toward these issues is merely a band-aid for China's economy. In our view, consumer confidence is too weak to make this kind of fiscal support, by itself, impactful. Meaning, fiscal stimulus needs to be primarily deployed toward generating domestic demand and improving consumer sentiment (Figure 2). Any policy adjustments that do not include specific stimulus to spark domestic consumption in our view miss the mark and will ultimately not match authorities' intentions. As of now, MoF fiscal stimulus has little dedicated toward reviving domestic demand. Cash handouts are slim, subsides slimmer, the social safety net shallow, and authorities have provided little to reverse deflationary pressures and create justification for households to deploy cash savings. President Xi and his closet advisors continue to push back on these types of support policies, consistently saying “welfarism policies” are not an appropriate policy response to subdued consumer activity. But with the old blueprint for economic success expired, China's policy response to deteriorating conditions this time needs to be different to have a meaningful growth impact.

With our view that recent policy actions are insufficient, we are not adjusting our 2024 nor 2025 China GDP growth forecasts. We continue to believe China's economy will grow just 4.6% this year and 4.3% next year, and will continue to decelerate over the medium term as imbalances persist. We also believe that the current rally in China's local financial markets is overdone and a correction is likely to occur in the near future. Local equity indices have already started to unwind the latest gains, but going forward, unless policies aimed at domestic demand are announced and implemented in the coming weeks, we would expect benchmark indices to slip further and for sentiment toward the Chinese renminbi to soften. China plays an important role in the global economy as well as global financial markets, and if sentiment toward the second largest economy in the world turns more negative, we would expect spillovers to reach other parts of the world, particularly the emerging markets. In that sense, we updated and refreshed our “China Sensitivity” framework to get a sense of which developing nations could be most at risk of a reversal in sentiment toward China. To identify at-risk nations, our framework incorporates trade linkages between China and peer emerging market nations—both from an export and import perspective. Countries with an elevated dependency on demand from China, such as South Korea, Thailand and South Africa, can see their respective economies come under pressure, while nations still overly dependent on China from a supply chain perspective, such as South Korea, Thailand and Singapore, could be impacted if manufacturing and production out of China softens. Our framework also includes financial markets indicators, more specifically “betas”, to measure how sensitive peer nation benchmark equity indices and currencies are to moves in China's local equity market and the renminbi. For example, if China's Shanghai Composite equity index sells off 1%, equity indices of countries our framework identify as “highly sensitive” can experience a selloff greater than 1%. Same idea for a depreciation of the renminbi. A 1% depreciation in the renminbi could lead to a greater selloff for highly sensitive currencies, including but not limited to the South African rand, Chilean peso and Brazilian real.

Taking trade and financial market linkages in aggregate, our framework suggests South Korea, Thailand, South Africa, Chile and Peru are most sensitive, and in turn most at risk, to the reversal in sentiment that we believe will unfold. On the other hand, economies and financial markets in countries such as India and the Philippines may not be impacted as significantly by a selloff in China's equity indices or depreciation pressures building on China's currency that we expect. In these latter cases, trade linkages are modest, and while Indian equities may be overly sensitive to Chinese equities, other measures of sensitivity suggest India's economy and the rupee may be relatively insulated from developments in China. As far as how we utilize this sensitivity analysis, in our October International Economic Outlook we will incorporate a softening in China sentiment into our emerging markets, and possibly broader currency forecasts. In that sense, while we already forecast most emerging market currencies to weaken in 2025, countries associated with elevated degrees of sensitivity toward the renminbi could see their respective currencies come under more pressure than we initially expected. Unless additional Chinese stimulus is offered, and that stimulus is more geared toward domestic demand, we plan on baking a China-induced depreciation into many of the highly and moderately sensitive currencies on top of what we already forecast. 2025 could be a year of significant stress in the emerging markets. We have already scaled back the amount of easing we expect from the Federal Reserve, which should lead to broad U.S. dollar strength and emerging market FX weakness. Tack on trouble in China, and emerging market currencies may be in for a rough ride next year.

• Consumer prices rose by 0.6% in the September quarter. That saw annual inflation fall to 2.2%, the first time it’s been in the RBNZ’s target band since 2021.
• Inflation has been pulled down by a sharp fall in imported prices. Domestic inflation has been easing, but more gradually.
• While there were some large quarter-toquarter swings (in part related to policy changes), the broader trend in inflation is down. Inflation is set to track close to 2% over the coming year.
• We continue to expect a 50bp cut from the RBNZ at their 27 November meeting.

Inflation is back inside the RBNZ’s target band for the first time since 2021.

Consumer prices rose 0.6% in the September quarter. That saw the annual inflation rate fall to 2.2%, down from 3.3% in the year to June.

The result was a little below our forecast and was also lower than the RBNZ’s last published forecast.

What underpinned inflation in the September quarter?

Underpinning September’s rise in consumer prices was another big increase in local council rates (+12.2%) and a large increase in food prices (+1.3%, including a seasonal rise in vegetable prices). There was also an increase in healthcare costs related to the reintroduction of prescription fees, with the price of pharmaceutical products rising 17%.

On the housing front, rents were up 0.9% in the September quarter, leaving them up 4.5% over the past year. Housing construction costs were up only 0.1%, with competitive pressures one factor contributing to the low result.

Balanced against those increases, the September quarter saw a 6.5% fall in petrol prices. There has also been softness in the prices of a range of imported durable consumer goods. Notably, new and used motor vehicle prices were down 0.6% and 2.8% respectively. There has also been softness in apparel prices.

Inflation in the September quarter was also pulled down by the introduction of the FamilyBoost early childhood education rebate scheme which began on 1 July 2024.

• This policy allows eligible families to claim up to 25% of their weekly childcare fees (up to a maximum of $975 every three months).
• Early childhood education costs account for 0.6% of the CPI, and the 22.8% reduction in those costs shaved 0.3ppts off inflation in the September quarter.
• If not for that policy change, the quarterly inflation rate would have been 0.9%.
• This policy change will dampen the annual inflation figures over the next few quarters, before dropping out of the calculations in September next year.

Annual and core inflation: trending back to target.

Of more note than the quarter-to-quarter swings in prices is the continued downtrend in annual inflation, which has been steadily falling for around two years now.

The downtrend in headline inflation is mainly due to the low level of tradables prices (mainly imported retail goods).

• Tradable prices fell by 0.2% this quarter, leaving them down 1.6% over the past year. The drop in tradables inflation has been stark – this time last year annual tradables inflation was running at +4.7%.
• The fall in tradables prices has in part been due to falls in global prices as international supply conditions have improved over the past couple of years.
• The downward pressure on prices has been somewhat amplified by the pressures on household budgets and the related weakness in discretionary spending. That’s resulted in softness in the prices of a range of consumer goods.

Domestic (non-tradable) price pressures have also been easing, but more gradually.

• Non-tradable prices rose 1.3% in the September quarter, with the annual rate slowing to 4.9%. While that’s down from 5.4% last quarter, it’s still well above long-run averages.
• Notably, non-tradables inflation has been pulled down by the change to early childcare costs (If not for that change, annual non-tradables inflation would have been 5.2%). However, the impact of that policy change is balanced against the reintroduction of prescription fees, which had a similar sized impact.
• Under the surface, we are seeing some notable differences in domestic costs. Inflation in service sectors is easing back, consistent with the downturn in economic growth and softening in the labour market. But at the same time, we’re still seeing continued large increases in some non-discretionary expenses, like local council rates. That mix of conditions is likely to continue for some time, meaning that overall non-tradable inflation will remain at firm levels for a while yet.

Even with the ‘stickiness’ in domestic prices, overall inflation is trending down. That was reflected in the various measures of core inflation (which smooth through volatile quarter-to-quarter price movements, and instead track the underlying trend in prices). Most measures of core inflation have been dropping back and are now close to 3%, or in some cases a little below.

• Inflation excluding food, fuel and energy costs eased from 3.4% to 3.1% previously.
• 30% trimmed mean inflation fell from 3.8% to 2.7%
• Weighted median inflation fell from 3.5% to 2.8%

Implications.

Inflation is at long last back in the RBNZ’s target band, and it looks set to track close to 2% over the year ahead. Consistent with that more-contained inflation outlook, we expect that the RBNZ will deliver another jumbo-sized 50bp cut in November, with further but more gradual cuts next year.

But although the RBNZ will now be feeling more comfortable about how inflation is tracking, the underlying details of today’s inflation report highlight some key areas to watch that could be important for the stance of monetary policy.

First, domestic inflation is still elevated, and not just because of items like council rates. That ‘stickiness’ in domestic prices will be important for how far and fast inflation eases, especially with interest rates now moving down.

At the same time, we are seeing weakness in the prices of imported consumer goods and household spending is still weak. With tradable prices heavily influenced by offshore conditions, the RBNZ often tends to de-emphasise surprises on this front in their policy deliberations. However, continued softness on this front would raise the risk of inflation falling below 2% next year.

• EURJPY reversed from the resistance zone
• Likely to fall to support level 160.90

EURJPY currency pair recently reversed down from the resistance zone located between the key resistance level 163.00 (which has been reversing the price from the end of September), the upper daily Bollinger Band and the 38.2% Fibonacci correction of the downward impulse from July.

The downward reversal from this resistance zone stopped the earlier short-term impulse waves iii, 3 – which belong to the impulse wave (C) from August.

Given the overbought daily Stochastic, EURJPY can be expected to fall further to the next support level 160.90 (former minor support from the start of October).

• Wall Street indexes showed positive momentum, driven by strong bank earnings reports.
• Tech sector earnings, expected later in October, could further boost US indices.
• S&P 500 technical analysis suggests potential bullish continuation with key resistance levels identified.

The major Wall Street Indexes took a breather this morning following a stellar rally yesterday. The Dow Jones Industrial Index touched the 43000 handle for the first time while the S&P and Nasdaq 100 both continued to advance as well. The Nasdaq 100 continues to lag its peers however and still remains around 300 points of its all time highs of 20790.

Earnings season got underway last week with major banks JpMorgan Chase JPM.N and Wells Fargo WFC.N both posting surprisingly positive results. This week however steps things up a bit with 41 S&P 500 companies scheduled to report earnings, which could stoke a lot of volatility in US indices.

Earnings from Bank of America today were not as upbeat as some of its peers but the share price has recovered from an initial drop to trade in green for the day. Goldman Sachs and CitiGroup however smashed estimates with their earnings releases which could be the reason for the recovery in US indexes this morning. Johnson and Johnson were another name that beat estimates on both profits and sales forecasts as well as the expectations by Wall Street.

On the flip side, Oil stocks were lower today as Crude Oil prices plummeted on hopes that supply disruptions in the Middle East would not materialize. Exxon Mobil XOM.N, Occidental Petroleum OXY.N, and Chevron all falling between 2.5% and 3% on the day.

It has been an interesting start to earnings with the banks surprising thus far. Given that markets are expecting the Technology and Communication sectors to boom and post their largest YoY growth, this could set up US indices for further gains. The tech heavyweights are scheduled to report toward the backend of October and thus could propel US indexes higher just before the US election.

This is intriguing to say the least given that markets do usually experience a ‘Santa Rally’ in December meaning that US Indices could continue their upward trend heading into 2025.

NAS 100 Early Session Heatmap

Source: TradingView.com (click to enlarge)

Looking ahead to the rest of today’s session, US data is sparse. All earnings releases are also out of the way with nothing scheduled after market close which shifts the focus to comments from Federal Reserve policymakers.

On the docket we have comments from Fed policymaker Mary Daly and Adriana Kugler which may provide further insights into policy making heading into the November meeting and beyond. Barring any surprise comments I do not expect any material change to market expectations around the upcoming Fed meetings.

Technical Analysis

S&P 500

From a technical standpoint, the S&P is continuing its long term move to the upside. For those who have followed my previous articles, the S&P 500 broke out of a triangle pattern a few weeks back. As technical patterns go, the potential targets following the breakout rest around the 5910 handle 6169 handle with the index reaching a fresh high of 5872 yesterday.

However, given the amount of movement we have already had the opportunity for would be bulls to get involved may be gone by now. There is a possibility of getting one or two small scalps in before the index reaches its first potential target at 5910.

A break above the 5910 handle will lead to a run toward the psychological 6000 handle which could prove a stubborn stumbling block. This could mean that a retracement may take place before the index makes a run for the 6169 handle.

S&P 500 Daily Chart, October 15, 2024

Source: TradingView (click to enlarge) 

Support

• 5757
• 5669
• 5613

Resistance

• 5913
• 6000
• 6169

Market Picture

The cryptocurrency market rose 1% in 24 hours to $2.28 trillion. The market cooled off somewhat during the day, moving away from local highs above $2.30 trillion, which were the highest in more than two weeks. Sentiment jumped sharply to ‘greed’, reaching the 65 level, the highest since late July.

The price of Bitcoin traded above $66.5K for a while on Tuesday, matching the high of 30 July. This is a very nominal break above the previous high and an attempt to consolidate above the resistance of the descending channel. An important driver is the continued optimism in the US equity markets. Barring any sudden bouts of profit-taking, Bitcoin could consolidate the breakout from the multi-month downtrend. The potential first target of the new bull rally looks to be the area of historical highs as it approaches $74K, with a more distant target of $80K by the end of the year.

News Background

According to CoinShares, global crypto fund investments increased by $407 million last week, following outflows of $147 million the week before. Bitcoin investments increased by $419 million, Solana investments increased by $0.6 million, and Ethereum investments decreased by $10 million.

According to experts, BTC’s growth is being fuelled by expectations of new stimulus measures in China. Over the weekend, Chinese Finance Minister Lan Fo’an said that the country will soon introduce a package of additional fiscal measures to support economic development.

Searches for Bitcoin on Google fell to an annual low. Searches for altcoins show a similar dynamic. At the same time, user interest in meme coins remains relatively stable. The segment is recovering despite the massive failure of new coins and the disappointment of some traders.

The UAE Central Bank has approved the launch of a dirham-based stablecoin, the AED stablecoin. This coin is leading the race to become the first issuer of a regulated stablecoin.

Markets

The release of labour market data kicked off a triptych of key UK data that should help clarify whether the time is right for the BoE to move to a ‘more activist approach’ when it comes to reducing policy restriction. The employment report didn’t change (money) markets’ positioning in any profound way (> 90% chance of a 25 bps cut in November and slightly less than 50% chance on an additional step in December). The unemployment rate declined to 4% from 4.1%. Employment growth in the 3M to August accelerated to 373k (from 265k), but a preliminary figure for September (payrolled employees) shows signs of a slowdown (-15k). Average weekly earnings (ex-bonus) as expected eased to 4.9% from 5.1%, but this is probably still too high to sustainably return inflation back to 2%. Tomorrow’s price data and/or Friday’s retail sales could still provide a more straightforward narrative. UK bond yields basically follow the broader decline in US Treasuries and Bunds. Sterling again outperforms (cable 1.3085; EUR/GBP 0.8335, nearing the October 01 correction low of 0.831).

US interest rate markets reopened after the Columbus Day holiday. Yesterday’s sharp drop in oil prices limited any tentative further upside pressure in inflation expectations and in US (and other core) yields. A weak NY Fed Empire Manufacturing survey (-11.9 from +11.5 vs 3 expected) pointed in the same direction. For now, the ‘hawkish’ repricing after stronger than expected early month US data has run its course. US yields decline between 3 bps (2-y) and 6.5 bps (30-y). German Bund yields are easing 4 to 5 bps across the curve. The expectations index of ZEW German investor sentiment improved slightly more than expected from 3.6 to 13.1, but understandably had hardly any impact on market pricing. After yesterday’s record levels for the Dow and the S&P 500, US equities show no clear trend even as US banks’ earnings published today mostly beat market expectations. After yesterday’s setback, Brent holds below $75/b. Lower core yields also prevent the dollar from building on its recent uptrend. DXY eases slightly (103.05) as nearby resistance (103.34, 50% retracement on April-September decline) is in play. The comparable level in EUR/USD (1.0907) looked like being broken this morning, but EUR/USD intraday also got some reprieve from lower US yields (1.0915 currently). Still the picture remains fragile.

News & Views

Canadian inflation just missed the bar in September. Headline prices dropped 0.4% m/m (-0.3% expected), bringing Y/Y reading down from 2% to 1.6%. That’s below the 1.8% estimate and the lowest since February 2021, after which the post-pandemic inflation surge began to materialize. Core readings (ex gasoline, median, trimmed) matched the August readings of 2.2-2.4%, compared with expectations for a slight acceleration in one of the three key metrics. Statistics Canada attributed the sharp drop of the headline Y/Y figure to energy (gasoline, -7.1% m/m following a 2.6% decline in August). Shelter price rises decelerated from 0.4% to 0.1% m/m. Clothing & footwear (+0.9% m/m) and health & personal care (+0.5%) printed some of the largest monthly gains. In sectoral terms, goods prices dropped for a second month straight by 0.6%, joined by a second consecutive easing in services prices (-0.2%). The CPI news comes after last week’s solid labour market report. In the end, it didn’t change much to market expectations (+/- 50%) of the Bank of Canada moving ahead in bigger steps, something governor Macklem didn’t rule out in September. Conviction grows today to more than 75% of a 50 bps move on October 23. The Canadian Loonie is headed for a tenth day of losses. USD/CAD pushes beyond 1.38(3).

The Polish government today launched a dual EUR-denominated bond sale. Its return to the FX bond market after several months of silence comes after the draft 2025 budget showed a jump in bond sales (net borrowing needs rise from PLN 215.7bn to PLN 366.9bn) in that presidential pre-election year. By tapping the international bond market, the Ministry of Finance seeks to further diversify funding. Poland successfully raised €1.75bn at MS+85 bps for its 7-yr (Oct 22, 2031) bond and €1.25bn for the 15-yr one (Oct 22, 2039) at MS+140. Books ran above €8.9bn for the former and €6.5bn for the latter. The sale follows the biggest EUR-denominated one (dual-tranche) ever in early January, tapping a combined €3.75bn. It raised $8bn from a sale in US dollars back in March.

Graphs

USD/CAD: Loonie stays in the defensive as markets see growing chance of 50 bps BoC rate cut

EUR/GBP nears YTD low as UK data provide ‘final input’ for November 07 BoE meeting.

US 10-y yields: decline in oil prices caps rebound in inflation expectations (yellow).

S&P 500 continues record race on combinaition of solid US growth and hoped for easing of financial conditions.

USD/JPY has been struggling to break past the resistance level at 149.55 despite repeated attempts over the past five trading sessions. The Japanese yen remains under pressure as the Federal Reserve signals a more moderate approach to interest rate cuts in its upcoming meetings, contrasting with the broader expectations of more aggressive rate reductions.

Further complicating the currency dynamics, recent fiscal stimulus announcements from China have yet to manage to bolster market confidence. Over the weekend, China's Finance Minister Lan Fo'an detailed plans for additional capital injections into state-owned banks and measures to support the property market. However, the lack of specific details regarding the spending amount and the precise nature of these measures left investors feeling uncertain about the effectiveness and scale of the proposed stimulus.

In Japan, dovish comments from Bank of Japan Governor Kazuo Ueda and opposition from new Prime Minister Shigeru Ishiba against further rate hikes have added to the pressure on the yen. Earlier this month, Ishiba expressed concerns that the current economic conditions do not warrant additional rate increases. However, other senior officials later softened this stance, indicating some internal conflict or reassessment within the Japanese government regarding monetary policy.

Technical analysis of USD/JPY

The USD/JPY pair is currently within a broad consolidation range around 149.22. The range has expanded to 149.96, and the market is now forming a downward movement towards 149.22, testing this level from above. If the market rebounds from here, we might see an ascent towards 150.22. A break above this level could signal a continuation towards 153.22. Conversely, a drop below 148.88 could lead to a further correction down to 147.47. The MACD indicator supports this view, with the signal line high above zero but starting to descend towards it, suggesting a potential shift in momentum.

On the hourly chart, USD/JPY has completed a growth wave to 149.96 and is undergoing a correction to 149.22. Following this corrective phase, the market is expected to resume its upward trajectory towards 150.22. This movement aligns with the Stochastic oscillator's current trajectory, which shows the signal line moving upwards from 50 towards 80, indicating potential for further gains in the short term.