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Daily Pivots: (S1) 1.0886; (P) 1.0911; (R1) 1.0935; More....

EUR/USD's fall from 1.1213 resumed after brief consolidations and intraday bias is back on the downside. Sustained trading below 38.2% retracement of 1.0447 to 1.1213 at 1.0920 will argue that fall from 1.1213 is the third leg of the corrective pattern from 1.1274. In this case, deeper decline would be seen to 61.8% retracement at 1.0740 next. On the upside, above 1.0953 minor resistance will turn intraday bias neutral again first.

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.

Daily Pivots: (S1) 1.3035; (P) 1.3054; (R1) 1.3077; More...

Outlook in GBP/USD remains unchanged and intraday bias stays neutral first. Strong support should be seen from 1.3000 cluster support (38.2% retracement of 1.2298 to 1.3433 at 1.2999) to complete the correction from 1.3433. On the upside, break of 1.3174 minor resistance will turn bias back to the upside for retesting 1.3433. However, sustained break of 1.3000 will carry larger bearish implications and target 61.8% retracement at 1.2732.

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.

Risk sentiment in Asia was mixed today. Japan's Nikkei 225 index extended its rally and broke above the 40k mark for the first time in three months. This momentum firstly follows another record close on Wall Street overnight. Secondly, contributing to the optimism are growing expectations that BoJ may hold off on implementing another rate hike by the end of the year. The latest Reuters poll indicates that a slim majority—25 out of 49 economists surveyed—expect BoJ to maintain its current policy rate at 0.25% through December. Nevertheless, tightening is going to continue, with 87% of respondents, or 39 out of 45, anticipate a rate increase to 0.50% by the end of Q1 next year.

In contrast, equities in Hong Kong and mainland China are struggling. Unconfirmed media reports suggest that China might raise an additional CNY 6 trillion (approximately USD 820 billion) through treasury bonds over the next three years to bolster its slowing economy with fiscal stimulus. The proposed funds are intended to assist local governments in resolving off-the-books debts. However, the absence of official confirmation has left investors uneasy. Investors are clearly dissatisfied with the lack of concrete information, causing hesitation in committing to positions in Chinese assets.

In the currency markets, Dollar remains the strongest performer so far this week, although its momentum is moderate. Notably, USD/JPY pair is grappling with the psychological barrier at the 150 level. Traders are cautious that breaching this threshold could trigger intensified verbal intervention from Japanese authorities, aiming to prevent excessive Yen depreciation. British Pound is currently the second strongest, with market attention focused on this week's key UK economic data releases, starting with today's employment and wage growth figures. Canadian Dollar ranks third in strength, ahead of Canada's CPI release today. On the weaker side, Swiss Franc leads the decline, followed by Australian Dollar and New Zealand Dollar. Euro and Japanese Yen are occupying middle positions.

Technically, as USD/CHF's rebound from 0.8374 short term bottom extends, focus is now on 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. The term trend should have reversed in this case, targeting 61.8% retracement at 0.8899 and above.

In Asia, at the time of writing, Nikkei is up 1.26%. Hong Kong HSI is down -1.55%. China Shanghai SSE is down -0.84%. Singapore Strait Times is up 0.30%. Japan 10-year JGB yield is up 0.0167 at 0.969.

Overnight, DOW rose 0.47%. S&P 500 rose 0.77%. NASDAQ rose 0.87%. 10-year yield rose 0.0250 to 4.098.

Fed’s Waller advocates for caution in policy easing amid solid economic conditions

In a speech overnight, Fed Governor Christopher Waller provided noted that recent economic data has been "uneven," with both positive signals and areas of concern, but emphasized that the US economy remains on "solid footing." Employment is near the Fed’s maximum objective, and inflation is approaching the target, despite some disappointing recent inflation figures.

In light of this, Waller expressed caution about the pace of monetary easing, noting that while the September 50bps cut was necessary, the Fed should now proceed with "more caution on the pace of rate cuts." He reaffirmed his view that the Fed would reduce the policy rate "gradually over the next year."

Looking ahead, Waller's baseline forecast still calls for a gradual reduction in the policy rate over the next year. However, he acknowledged uncertainty about the "final destination" for interest rates, with projections for the long-run federal funds rate varying significantly among Fed officials. The range extends from 2.4% to 3.8%, with the median estimate sitting at 2.9%.

While much of the market focus is on the size of rate cuts in the near term, Waller pointed out that the "larger message" from Fed’s economic projections is the extent of policy tightening that still needs to be reversed. If the economy continues its current stable performance, Waller expects that easing will occur gradually over time.

Cryptocurrencies surge amid optimism over US regulatory outlook post-election

Cryptocurrencies rallied overnight on growing optimism that regulatory environment for digital assets in the US may improve following the upcoming presidential election in November. This boost in sentiment was initially driven by a rise in Donald Trump's standing in prediction markets and some polls, as he is perceived to be more pro-crypto compared. Later, the market received another push after Kamala Harris’ campaign made supportive comments, pledging to support a regulatory framework for cryptocurrencies.

Technically, however, Bitcoin is still stuck in medium term consolidation pattern from 73012 (March high). The range is pretty much set between 50% retracement of 24896 to 37812 at 49354, i.e. between 49k and 74k in short.

Further near term rise is in favor as long as 58846 support holds. Break of 66854 will target a test on 73812 high. However, there is so far no indication of sustainable momentum through to new record.

Ethereum's outlook is worse. Current bounce might be just a leg of the consolidation pattern from 2084.52 low. Further decline will remain in favor as long as 2797.60 resistance holds. Break of 20845.71 will resume the larger down trend from 4092.55 (March high).

Looking ahead

UK employment data is the main focus in European session. Germany will publish ZEW economic sentiment while Eurozone will release industrial production.

Later in the day, Canada CPI will take center stage while US Empire State manufacturing index will also be featured.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.3035; (P) 1.3054; (R1) 1.3077; More...

Outlook in GBP/USD remains unchanged and intraday bias stays neutral first. Strong support should be seen from 1.3000 cluster support (38.2% retracement of 1.2298 to 1.3433 at 1.2999) to complete the correction from 1.3433. On the upside, break of 1.3174 minor resistance will turn bias back to the upside for retesting 1.3433. However, sustained break of 1.3000 will carry larger bearish implications and target 61.8% retracement at 1.2732.

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.

Key Highlights

• GBP/USD started a fresh decline below the 1.3120 support zone.
• A connecting bearish trend line is forming with resistance at 1.3070 on the 4-hour chart.
• EUR/USD extended losses and traded below the 1.0920 support.
• Bitcoin rallied above the $63,500 and $64,000 levels.

GBP/USD Technical Analysis

The British Pound started a fresh decline from the 1.3440 resistance against the US Dollar. GBP/USD traded below the 1.3250 and 1.3120 support levels to enter a bearish zone.

Looking at the 4-hour chart, the pair settled below the 1.3100 level, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). The pair even tested the 1.3015 zone. A low was formed at 1.3014 and the pair is now consolidating losses.

On the downside, immediate support sits near the 1.3020 level. The next key support sits near the 1.3000 level. Any more losses could send the pair toward the 1.2880 level.

On the upside, the bears might be active near the 1.3070 level. There is also a connecting bearish trend line forming with resistance at 1.3070 on the same chart. The first major resistance might be near the 1.3120 level. It is close to the 23.6% Fib retracement level of the downward move from the 1.3434 swing high to the 1.3014 low.

A close above the 1.3120 level could set the tone for another increase. The next major resistance could be 1.3175. A clear move above the 1.3175 level might send GBP/USD toward 1.3220. Any more gains might call for a test of the 1.3320 zone.

Looking at EUR/USD, the bears remained active and were able to push the pair below the 1.0940 and 1.0920 support levels.

Upcoming Economic Events:

• UK Claimant Count Change for Sep 2024 – Forecast 20.2K, versus 23.7K previous.
• UK ILO Unemployment Rate for August 2024 (3M) – Forecast 4.1%, versus 4.1% previous.

Cryptocurrencies rallied overnight on growing optimism that regulatory environment for digital assets in the US may improve following the upcoming presidential election in November. This boost in sentiment was initially driven by a rise in Donald Trump's standing in prediction markets and some polls, as he is perceived to be more pro-crypto compared. Later, the market received another push after Kamala Harris’ campaign made supportive comments, pledging to support a regulatory framework for cryptocurrencies.

Technically, however, Bitcoin is still stuck in medium term consolidation pattern from 73012 (March high). The range is pretty much set between 50% retracement of 24896 to 37812 at 49354, i.e. between 49k and 74k in short.

Further near term rise is in favor as long as 58846 support holds. Break of 66854 will target a test on 73812 high. However, there is so far no indication of sustainable momentum through to new record.

Ethereum's outlook is worse. Current bounce might be just a leg of the consolidation pattern from 2084.52 low. Further decline will remain in favor as long as 2797.60 resistance holds. Break of 20845.71 will resume the larger down trend from 4092.55 (March high).

In a speech overnight, Fed Governor Christopher Waller provided noted that recent economic data has been "uneven," with both positive signals and areas of concern, but emphasized that the US economy remains on "solid footing." Employment is near the Fed’s maximum objective, and inflation is approaching the target, despite some disappointing recent inflation figures.

In light of this, Waller expressed caution about the pace of monetary easing, noting that while the September 50bps cut was necessary, the Fed should now proceed with "more caution on the pace of rate cuts." He reaffirmed his view that the Fed would reduce the policy rate "gradually over the next year."

Looking ahead, Waller's baseline forecast still calls for a gradual reduction in the policy rate over the next year. However, he acknowledged uncertainty about the "final destination" for interest rates, with projections for the long-run federal funds rate varying significantly among Fed officials. The range extends from 2.4% to 3.8%, with the median estimate sitting at 2.9%.

While much of the market focus is on the size of rate cuts in the near term, Waller pointed out that the "larger message" from Fed’s economic projections is the extent of policy tightening that still needs to be reversed. If the economy continues its current stable performance, Waller expects that easing will occur gradually over time.

Full speech of Fed's Waller here.

• S&P 500 index broke resistance level 5785.00
• Likely to rise to resistance level 5985.00

S&P 500 index under the bullish pressure after the price broke resistance zone located between the pivotal resistance level 5785.00 (which stopped wave 1 last month) and the resistance trendline of the daily up channel from last year.

The breakout of this resistance zone accelerated the active short-term impulse wave 3 of the higher extended impulse wave (3) from the start of September.

Given the clear daily uptrend, S&P 500 index can be expected to rise further to the next resistance level 5985.00 (target for the completion of the active impulse wave (3)).

• USDJPY broke resistance zone
• Likely to rise to resistance level 152.00

USDJPY currency pair recently broke through resistance zone located between the key resistance level 149.30 (former top of wave b from the middle of August) and the 61.8% Fibonacci correction of the downward impulse wave from July.

The breakout of this resistance zone continues the active short-term impulse sequence (c) of the B-wave from the middle of September.

Given the rising bullish US dollar sentiment, USDJPY currency pair be expected to rise further to the next resistance level 152.00 (which is the former minor support from July).

The past few days have been packed with economic news from China, from inflation figures to a press conference on stimulus measures. While market reaction to the data has been relatively mixed, there is a lingering sense of disappointment that may well build over the coming days.

The CPI slowed to 0.4% y/y versus the expected previous 0.6%. While prices have risen year-on-year for the past seven months, the pace has been very close to zero. CPI growth has not exceeded 2% for almost two years.

The calm in the CPI broke with the start of the trade wars, when prices spiked initially, notwithstanding the fall in producer prices. The pandemic and further isolation have pushed final prices down in China and up in the US.

Producer price dynamics suggest that this trend will continue. PPI in September was 2.8% lower than a year earlier, remaining in contractionary territory since October 2022 and accelerating losses in the last two months. The latter is a clear signal of the need to increase the economy’s stimulus.

A similar conclusion can be drawn from the external trade data, where the surplus fell to $81.7bn, compared with $91.0bn a month earlier and $91.5bn expected. This is the smallest surplus since April but is the result of a rebound in imports. The trade data may be providing early signals of a recovery in Chinese economic activity. However, it will only be possible to talk about a change in market sentiment if there are reliable signs of stronger final demand in the form of retail sales or higher exports.

Monetary dynamics data released on Monday already showed that money is still flowing into the economy. The M2 growth rate stopped declining in July and reached 6.8% y/y in September.

The data is mostly negative for the Chinese currency. Weak inflation creates room for monetary or fiscal easing, while the shrinking trade surplus points to a slowdown in money inflows.

The USDCNH is trading at 7.09, up 1.75% from its late September lows—almost half the rise in the Dollar Index over the same period. Technically, the pair’s advance could accelerate as it enters the area above 7.10, close to the 50-day MA, and has few obstacles until 7.20, the next round-trip level, and the 200-day MA.