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In focus today

The most important event today will be the Riksbank's rate decision at 9.30 CET. On the back of a slightly weaker economy and lower inflation than expected, we expect Riksbank to cut the repo rate by 25bp and reduce the repo rate path by some 40bp compared to the June forecast. Such a downward correction, however, is not sufficient to match market pricing of 99bp for the coming three meetings including today's decision. Market pricing for today is 32bp or a 28% chance of a 50bp cut.

Economic and market news

In China, the PBOC followed Tuesday's stimulus package with a 30bp cut to the medium-term lending facility rate, as expected. The move supported the momentum in Asian equities with the Hang Seng index up 1.9% this morning following yesterday's 4.1% gain.

In the US, rates slid after a weak conference board sentiment print where labour market metrics suggested a continued softening. In response, markets slightly raised the implied probability of a 50bp cut in November, which as of this morning sits at 60%.

Oil found support from both supply- and demand-side factors, as continued tensions in the Middle East sowed fears of supply disruptions, while a monetary stimulus package by the PBOC raised prospects for demand. Brent almost reached 76 USD/bbl. but ended at about 74.96 which was still in the positive.

The RBA left rates unchanged as expected by markets and us. The forward guidance remains hawkish compared to the Fed and most other G10 central banks as it still sees underlying inflation stabilizing close to target only in late 2025. AUDUSD shifted higher after the announcement and was also supported by the Chinese stimulus package announced, the cross ended the day up some 0.5%.

Equities: Global equities were higher yesterday, led by China following a broad spree of monetary and fiscal stimulus. That said, all regions posted gains yesterday, with the S&P 500 marking its 41st all-time high this year. Looking at sector performance, we also see the effects of the Chinese stimulus, as materials was the best performing sector (though the worst performing YTD). It can be challenging to separate hot and cold water, but macro data was not the driver yesterday. In our opinion, the macro data suggested a very different outcome from what we observed in the equity markets yesterday. In the US yesterday, the indices showed modest gains: Dow +0.2%, S&P 500 +0.3%, Nasdaq +0.6%, and Russell 2000 +0.2%. China is continuing its stimulus efforts this morning, which has led to a sharp rise in Chinese stocks again today. The rest of Asia is more mixed, while European and US futures are lower this morning.

FI: 10Y Treasuries seem to be stabilising after having risen some 13bp since Monday last week. We have a string of US data this week, where the US inflation data (US PCE price index) published on Friday is the main event. If the data is weaker than expected the market will focus on the possibility of a 50bp rate cut at the next FOMC meeting.

FX: While EUR/SEK has kept within a tight range through September, yesterday saw a tentative break below the lower end of the 11.30-11.40 interval and starts Wednesday at 11.2950. Focus on the Riksbank decision at 09:30 CET where we and consensus expect 25bp. EUR/NOK downside rejected at 11.60, trades at 11.6450. EUR/DKK fell to 7.4570, its lowest point since March. EUR/USD erased losses that followed weak European PMIs earlier this week and gained further after soft US consumer confidence. This morning the cross tests August highs at 1.12. Weak dollar pulled USD/JPY lower to trade around 143.30. Yesterday we booked profit on our long GBP/CHF.

Let’s continue to count. 41. The S&P500 celebrated its 41st record high yesterday. Even though yesterday’s session began on a softish note – after the data showed the biggest drop in the US consumer sentiment since August 2021, another one revealing that Jensen Huang is done selling his Nvidia shares outshined the doom and gloom of the consumer sentiment and sent Nvidia 4% higher and the S&P500 to 5735. Nasdaq 100 added on to its gains, the Dow Jones traded at an ATH even though Visa tumbled 5.5% after being sued by the DoJ for illegally monopolizing the debit card market. Small caps eked out small gains. In summary, investors sentiment is far better than your average consumer’s, and the fact that consumer sentiment is weak contributes to inflating the dovish Federal Reserve (Fed) expectations. Swap markets now price in more than 75bp cut from the Fed for the remainder of this year and activity on Fed funds futures assesses more probability to another 50bp cut in November (58%) than a 25bp cut.

More China boost

The People’s Bank of China (PBoC) cut its repo, RRR and existing mortgage rates earlier this week, and announced a 30bp cut to their MLF rate today. The latter further fueled the Chinese equity rally. The CSI 300 which rallied more than 4% yesterday, added another 2% this morning. The Hang Seng index recorded about the same rally and is now testing the May highs. And wait, Nasdaq’s Golden Dragon China index jumped 9% yesterday in the US. Alibaba advanced nearly 8% while PDD jumped 11% on hope that the latest stimulus measures will bring investors back to China. The problem is, the stimulus measures will take time to show in the economic data. And more worryingly, they won’t do much to fix the country’s deepest issues – they won’t reverse local governments’ heavy debt burden, China’s aging population, and will hardly boost the demand-led growth. As such long-term investors appreciate the efforts but prefer to watch from a distance for now.

This being said, the Chinese stimulus measures help improve mood among global mining companies. BHP for example jumped 3% yesterday and another 3% today in Australia, Rio Tinto and Glencore jumped 4% yesterday and will probably continue their journey to the north today. The commodity friendly Aussie remains bid – somehow retained by the fact that inflation in Australia hit a 3-year low. But the Aussie bulls now set their eyes on the 70 cents level against the US dollar as the next natural target, and the prospects for the FTSE 100 are improving.

Doom and gloom

The EURUSD is testing the 1.12 offers again this morning. But the US dollar’s weakness has more to do with the EURUSD’s gains than the European fundamentals themselves. Germany’s business outlook deteriorated further in September and reinforced fears of possible recession. That, combined to soft PMI figures released earlier this week boost the probability of another European Central Bank (ECB) cut in October. If there is no surprise in the upcoming inflation updates, there will be a strong case for a 25bp cut from the ECB next month. And the latter should limit the euro’s upside potential.

Elsewhere, the USD remains broadly under pressure, the dollar index continues to push toward this year’s lows as investors increase Fed cut bets. The price of an ounce runs from record to record, in the overbought territory, with the rising tensions between Israel and Lebanon giving an additional hand from those who fly to safety.

In this context, crude oil is also better bid. The rising geopolitical tensions and the Chinese stimulus measures strengthen the oil bulls hands, but the $72.85pb level is yet to be cleared to send the price of a barrel into the medium term bullish consolidation zone. Soft global demand prospects and amply supply keep the topside limited.

Daily Pivots: (S1) 191.19; (P) 192.26; (R1) 193.17; More...

Intraday bias stays not the upside with 190.11 minor support intact. GBP/JPY's rise e from 183.70, as the third leg of the corrective pattern from 180.00, is in progress for 193.45 resistance. Firm break there will target 61.8% retracement of 208.09 to 180.00 at 197.35. On the downside, though, below 190.11 minor support will turn intraday bias neutral first.

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) 159.20; (P) 160.15; (R1) 161.07; More....

Intraday bias in EUR/JPY remains neutral and some consolidations could be seen below 161.17 temporary top. But further rally is expected as long as 155.14 support holds. Above 161.17 will resume the rise from 155.14, as the third leg of the corrective pattern from 154.40, to 163.86 resistance. Break there will target 61.8% retracement of 175.41 to 154.40 at 167.38.

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) 0.8302; (P) 0.8345; (R1) 0.8366; More...

Intraday bias in EUR/GBP is turned neutral as it recovered after hitting 61.8% projection of 0.8624 to 0.8399 from 0.8463 at 0.8324. Some consolidations would be seen first, but outlook will remain bearish as long as 0.8399 support turned resistance holds. On the downside, below 0.8316 and sustained trading below 0.8324 will pave the way to 100% projection at 0.8237 next.

In the bigger picture, down trend from 0.9267 (2022 high) is resuming. Next target is 0.8201 (2022 low), but strong support should be seen there to bring rebound. Outlook will remain bearish as long as 0.8624 resistance holds even in case of strong rebound.

Daily Pivots: (S1) 1.6167; (P) 1.6241; (R1) 1.6295; More...

Intraday bias in EUR/AUD stays mildly on the downside with 1.6315 minor resistance intact. Current fall is part of the whole decline from 1.7180 and should target 61.8% projection of 1.7180 to 1.6256 from 1.6629 at 1.6058, which is close to 1.5996 key support level. On the upside, above 1.6315 minor resistance will turn intraday bias neutral first. But outlook will remains bearish as long as 1.6629 resistance holds.

In the bigger picture, outlook is mixed up by the deeper than expected fall from 1.7180. Yet as long as 1.5996 support holds, up trend from 1.4281 (2022 low) is still in favor to resume at a later stage. Firm break of 1.7180 will pave the way to 61.8% projection of 1.4281 to 1.7062 from 1.5996 at 1.7715.

Daily Pivots: (S1) 0.9401; (P) 0.9429; (R1) 0.9456; More....

Intraday bias in EUR/CHF remains neutral for the moment, and another rally is still in favor as long as 0.9305 support holds. On the upside, above 0.9502 will resume the rally from 0.9305, as the third leg of the pattern from 0.9209, to 0.9579 resistance. However, break of 0.9305 will resume the decline from 0.9579 towards 0.9209 low.

In the bigger picture, medium term corrective pattern from 0.9407 (2022 low) might have completed with three waves to 0.9928. Decisive break of 0.9252 (2023 low) will confirm long term down trend resumption. Next target will be 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. For now, outlook will stay bearish as long as 0.9928 resistance holds, even in case of strong rebound.

Daily Pivots: (S1) 1.3389; (P) 1.3473; (R1) 1.3515; More...

USD/CAD's break of 1.3439 support confirms resumption of whole fall from 1.3946. Intraday bias remains on the downside for 61.8% projection of 1.3946 to 1.3439 from 1.3646 at 1.3333. On the upside, above 1.3486 minor resistance will turn intraday bias neutral for consolidations. But outlook will remain bearish as long as 1.3646 resistance holds, in case of recovery.

In the bigger picture, corrective pattern from 1.3976 (2022 high) is extending with another falling leg. While deeper decline could be seen, strong support should emerge above 1.2947 resistance turned support to bring rebound. Rise from 1.2005 (2021 low) is still in favor to resume at a later stage.

Daily Pivots: (S1) 0.6840; (P) 0.6866; (R1) 0.6919; More...

Intraday bias in AUD/USD remains on upside at this point. Firm break of 61.8% projection of 0.6348 to 0.6823 from 0.6621 at 0.6915 will pave the way to 100% projection at 0.7096 next. On the downside, below 0.6813 minor support will turn bias neutral and bring consolidations first. But outlook will remain cautiously bullish as long as 0.6621 support holds, in case of retreat.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with rise from 0.6269 as the third leg. Firm break of 0.6870 resistance will target 100% projection of 0.6269 to 0.6870 from 0.6340 at 0.6941, and then 138.2% projection at 0.7179. This will now remain the favored case as long as 0.6621 support holds.

Daily Pivots: (S1) 142.67; (P) 143.67; (R1) 144.23; More...

Further rally remains in favor in USD/JPY with 141.73 minor support intact, despite loss of upside momentum as seen in 4H MACD. Rebound from 139.57 short term bottom should extend to 38.2% retracement of 161.94 to 139.57 at 148.11. On the downside, below 141.73 will turn bias to the downside for retesting 139.57 instead.

In the bigger picture, fall from 161.94 medium term top is seen as correcting whole up trend from 102.58 (2021 low). Strong support could be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to contain downside, at least on first attempt. But in any case, risk will stay on the downside as long as 149.35 resistance holds. Sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.