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• Australian dollar falls below 0.6400
• MI Inflation Gauge comes in at 0%
• RBA expected to hold rates at 4.1%

The Australian dollar has started the week considerably lower. In the European session, AUD/USD is trading at 0.6397, down 0.55%.

MI Inflation Gauge comes in at 0%

The Melbourne Institute’s Inflation Gauge was flat in September after 12 straight months of increases. This follows a 0.2% m/m in August and missed the consensus estimate of 0.4% m/m. This reading follows last week’s CPI release, which showed that consumer inflation rose to 5.2% y/y in August, up from 4.9% m/m a month earlier. The spike in inflation is unlikely to concern the Reserve Bank of Australia, as the rise was related to higher energy and housing costs.

The RBA meets on Tuesday, and the markets are expecting the central bank to pause rates at 4.1% for a fourth straight time. According to the ASX 30-day interbank cash rate futures as of 28 September, there is a 93% probability of a pause at the meeting, with a 7% chance of a quarter-point trim.

Tuesday’s meeting will be the first chaired by Michele Bullock, who so far hasn’t veered from the stance of her predecessor, Philip Lowe. Bullock has said that rate hikes remain on the table, but it appears a safe bet that the RBA will remain on the sidelines tomorrow, especially with the economic slowdown in China, Australia’s largest trading partner. Bullock has said that the RBA will make its rate decisions based on the data, and with third-quarter inflation not coming out until later this month, that would push any rate moves to at least November.

In the US, manufacturing has been in a deep hole, with the PMI reeling off 10 straight declines. The trend is expected to continue on Tuesday, with the ISM Manufacturing PMI for September expected at 48.9, compared to 47.9 in August..

AUD/USD Technical

• AUD/USD is testing support at 0.6423. The next support line is 0.6345
• There is resistance at 0.6514 and 0.6592

• Upbeat longer-term inflationary expectations and business sentiment of large Japanese corporations could not derail the relentless up move of USD/JPY.
• Momentum factor and further potential 10-year US Treasury/JGB yield spread premium are supporting this current bout of rallies seen in USD/JPY at least in the short-term.
• The key resistances to watch will be at 150.00/150.30 and 150.80/150.90.

The bulls of USD/JPY have continued to charge forward and broke above last week’s high of 147.71 in today’s (2 October) Asian session as it printed a current intraday high of 149.82 at this time of the writing, just a whisker away from the key psychological level of 150.00.

This current bout of relentless up move of USD/JPY has come despite a better-than-expected Q3 Tankan survey report that indicated sentiment of both large manufacturers and non-manufactures have improved significantly.

The large manufacturers’ sentiment climbed to 9 points in Q3 from 5 points recorded in Q2 which was the highest print since Q2 2022 and surpassed consensus of 6 points. Similarly, the large non-manufacturers index rose to 27 points to a 32-year high in Q3 from 23 points in Q2, above the consensus of 24 points.

In addition, the Q3 Tankan survey report has also highlighted most Japanese firms expect an elevated inflationary trend where consumer prices are likely to stay above the Bank of Japan (BoJ) target of 2% for the next three to five years.

Fundamentally speaking, this latest set of key economic data should encourage some signs of intraday JPY strength to put a breather to the ongoing major uptrend of USD/JPY in place since mid-January 2023. But price actions have decided to move in the opposite direction against the latest fundamental factors and the latest round of “verbal interventions” out this morning’s Asian session from Japan’s Finance Minister Suzuki and Chief Cabinet Secretary Matsuno in an attempt to talk down the strength of USD/JPY.

Therefore, it seems that the current short-term bullish trend of USD/JPY seems to be supported by the momentum factor & the 10-year US Treasury yield premium expansion over the 10-year Japanese Government Bonds (JGBs).

US 10-year US Treasury/JGB yield spread is looking to eye 3.99% next

Fig 1: JGB yields medium-term trends with 10-year US Treasury/10-year JGB yield spread as of 2 Oct 2023 (Source: TradingView, click to enlarge chart)

Despite the current sticky rally seen in the 10-year JGB yield since ex-post 28 July 2023’s BoJ newly adjusted “flexible yield curve control” policy has hit 0.77% today, close to a 10-year high but the 10-year US Treasury yield has risen by a higher magnitude.

Therefore, the yield premium between the 10-year US Treasury and 10-year JGB has continued to expand in a steady uptrend and now looking to test the major resistance level of 3.99% with the current yield spread trading at 3.85% at this time of the writing. Hence, another potential positive 14 basis points (bps) up move in the yield premium may occur which in turn is able to support a further potential rally in the USD/JPY at least in the short term.

Bullish momentum breakout seen in daily RSI of USD/JPY

Fig 2: USD/JPY major & medium-term trends as of 2 Oct 2023 (Source: TradingView, click to enlarge chart)

The daily RSI indicator of the USD/JPY, a gauge of momentum has shaped a bullish momentum breakout on 26 September 2023 from a former consolidation in place since 16 August 2023 near its overbought zone.

These observations suggest that medium-term upside momentum remains intact which in turn supports a further potential up move in USD/JPY.

Oscillating within a minor ascending channel

Fig 3: USD/JPY minor short-term trend as of 2 Oct 2023 (Source: TradingView, click to enlarge chart)

As seen on the shorter-term 1-hour chart of the USD/JPY, its price actions have oscillated within a short-term minor ascending channel in place since the 1 September 2023 low of 144.44.

Watch the 149.16 key short-term pivotal support to maintain a potential short-term impulsive up leg sequence in the USD/JPY to see the next intermediate resistance coming at 150.00/150.30, and a break above it may see a further push up towards 150.80/150.90 major resistance (21 October 2022 swing high area & a cluster of Fibonacci extension levels).

On the other hand, a breakdown below 149.16 put the bullish tone in jeopardy for a corrective pull-back to expose the next intermediate support at 148.40/148.05 (also the 20-day moving average).

EURUSD accelerated lower in early Monday trading, generating initial signal that two-day recovery is likely over, and larger bears are regaining control.

The notion is supported by the long shadow of Friday’s daily candle, which indicated strong upside rejection (recovery was capped by broken Fibo 38.2% of 0.9535/1.1275 rally, reverted to solid resistance and reinforced by falling 10DMA).

Larger downtrend (the pair has registered eleven consecutive weekly losses) paused for a brief consolidation on oversold daily studies but persisting strong downside pressure limited recovery attempts.

Technical studies remain in full bearish setup on daily chart, adding to signals of possible bearish continuation scenario, with break of 1.0488 (new nine-month low) to expose target at 1.0405 (50% retracement) and risk deeper drop on break.

Near-term bias is expected to remain with bears while 1.0611 barrier caps the action.

Busy calendar for this week suggests that volatility is likely to increase, with release of US Sep Manufacturing PMI being the highlight today.

The activity in manufacturing sector is expected to show slight improvement in September (47.7 f/c vs 47.6 in Aug) though the sector remains in a contraction (below 50 threshold) since November 2022, but initial signals of reversal might be developing, as the indicator gradually recovered from June’s multi-year low in past two months.

Investors will be also closely watching series of releases of reports from the US labor sector this week (JOLTS; ADP; NFP) which will provide more evidence about the conditions in the sector and contribute to Fed’s creation of the monetary policy in coming months.

Res: 1.0598; 1.0617; 1.0652; 1.0700.
Sup: 1.0483; 1.0405; 1.0284; 1.0200.

Unemployment rate in Eurozone has seen a drop from 6.5% to 6.4% in August, aligning with market expectations. Similarly, the broader EU reported a decrease in its unemployment rate, ticking down from 6.0% to 5.9%.

Eurostat, provided further details on this development. As of August 2023, an estimated 12.837m individuals in EU were unemployed. Out of these, Eurozone accounted for 10.856m jobless persons. When juxtaposed with the data from July, there's a marked decrease of -112k unemployed persons in EU, with Eurozone contributing a decline of -107k to this number.

An even more pronounced positive trend emerges when the data is analyzed year-on-year. From August 2022 to August 2023, EU saw a reduction in unemployment by -335k individuals, while Eurozone alone experienced a decline of -407k unemployed persons.

Full Eurozone unemployment release here.

Gold keeps negative tone at the beginning of the week and fell to new lowest in almost seven months ($1839) in early European trading on Monday.

The metal extends steep fall into sixth straight day after registering weekly loss of 4% last week (the biggest weekly drop since mid-June 2021).

Gold was down 4.7% in September, mainly driven by stronger dollar, but recent weak US economic data signal that tight Fed monetary policy started to bite, which may result in fresh demand for safe-haven yellow metal.

Data on Friday showed that underlying US inflation eased last month (PCE index, closely watched by Fed), adding to signals that the central bank might be done with rate hikes, though percentage of expectations for another hike is still significant.

The US economic data to be released this week, are expected to provide more details, with today’s speech by Fed Chair Powell to be followed by job openings, private sector hiring and non-farm payrolls.

Technical picture on daily chart is bearish but deeply oversold, which suggests that bears may start to face headwinds.

Fresh weakness broke below $1848 (50% of $1616/$2080 rally) and eyeing $1823 (weekly Ichimoku cloud base) which may mark a strong obstacle and pause larger bears.

Slower pace ahead of key US labor data is likely and a partial profit taking after a steep fall could be a likely near-term scenario, with overall bearish bias to remain intact while the price stays below former low at $1885 (Aug 17).

Caution on return above $1900 zone (former strong support, now reverted to significant resistance) which would put larger bears on hold.

Res: 1848; 1866; 1885; 1895.
Sup: 1839; 1823; 1814; 1804.

UK PMI Manufacturing experienced a slight uptick, finalized 44.3 in September from the previous month's 39-month low of 43.0. However, despite this marginal improvement, an in-depth examination of the five sub-indices of the PMI - new orders, output, employment, stocks of purchases, and supplier delivery times - revealed a consistent downturn in the sector's performance.

Rob Dobson, Director at S&P Global Market Intelligence, portrayed a challenging scene for the UK's manufacturing industry. "September saw the manufacturing sector still mired in contraction territory," he noted. This is attributed to weakened conditions both domestically and internationally that have negatively impacted new order intakes, leading to reduced production volumes.

One of the significant factors exacerbating the situation is the ongoing cost-of-living crisis in the UK. A rapid increase in interest rates is further pressuring the manufacturing sector. Producers have explicitly linked these developments to the troubles they are encountering.

Full UK PMI Manufacturing release here.

• EURUSD stuck in a clear downward path, posting a fresh 8-month bottom of 1.0487
• Formation of a death cross between 50- and 200-day SMAs could spell more trouble
• Despite latest rebound the momentum indicators remain skewed to the bearish side

EURUSD has been in a steady retreat after peaking at the 18-month high of 1.1275 on July 18, generating a series of lower highs and lower lows. Even though the pair managed to find its feet at the eight-month bottom of 1.0487, the bearish short-term structure remains in place.

Should the bears attempt to push the price lower, the March bottom of 1.0515 could prove to be the first barrier for the pair to clear. A violation of that floor could pave the way for the recent eight-month low of 1.0487. Piercing through that region, the price might then slide towards the November 2022 support zone of 1.0289.

On the flipside, if the pair reverses back higher, initial advances could be rejected at the recent resistance region of 1.0614 before the 1.0765 hurdle gets tested. Even higher, the June-July support of 1.0832 may serve as strong resistance in the future. Failing to halt there, the pair could then ascend towards the February peak of 1.1032.

In brief, despite the latest bounce, EURUSD remains stuck in a steep downtrend. Looking forward, the recent completion of a death cross between the 50- and 200-day simple moving averages (SMAs) could induce further downside pressures.

September Eurozone PMI Manufacturing shows a persistent trend of contraction, finalizing at 43.4, a marginal decline from August's 43.5. This marks a continuous 15-month spell where the headline index has been below the 50.0 threshold, indicating contraction.

Excluding Greece, which barely recorded expansion with Manufacturing PMI of 50.3, every other country monitored in the survey showed downturns. A country-wise breakdown ranks Greece at the top, followed by Ireland (49.6), Spain (47.7), Italy (46.8), France (44.2), Netherlands (43.6), Austria (39.6), and Germany (39.6).

Cyrus de la Rubia, the Chief Economist at Hamburg Commercial Bank, painted a clear picture of the current manufacturing scenario. He stated, "We are feeling pretty certain that the recession in manufacturing continued during this period." He also added that a significant pickup might only materialize with the advent of the new year. However, he expressed optimism by highlighting the possibility of reaching the lowest point in the current economic cycle.

Drawing parallels with past recessions, de la Rubia remarked, "With the exception of the great recession in 2008/2009, output prices have never decreased at a pace faster than the current three-month average." He emphasized the rarity of such sharp falls and indicated the likelihood of a rebound.

France and Germany led the downturn, while Spain and Italy showed relative resilience. However, when viewed through the lens of ongoing slowdown duration, Italy emerged as the poorest performer. Its manufacturing sector has been in recession since the latter half of 2022, with Germany joining the downturn in the second quarter of the current year.

"Given our forecast that the global manufacturing sector is bottoming out, these countries may be spared from a downturn lasting longer than two quarters," de la Rubia added, hinting at a silver lining in the looming clouds of economic contraction.

Full Eurozone PMI Manufacturing release here.

On Friday, silver was trading at USD 23.5 per ounce, but on Monday morning it dropped below USD 21.7 – a difference of 7.5%.

Fundamental influencing factors are not clearly identified, but it can be assumed that the sharp drop was facilitated by:

→ the fact that a shutdown of US government agencies was avoided, since the authorities reached a budget agreement – albeit a temporary one;

→ high yield on bonds;

→ at the end of the Q3, the long-term portfolios of large market participants were rebalanced.

Factors could put pressure on gold (it also shows a negative trend, falling below USD 1,850 per ounce for the first time since March of this year), and more volatile silver rushed after gold.

Technical analysis adds more information about the nature of the fall. In mid-July, we wrote that the price of gold had approached the upper limit of the long-term downward channel (shown in yellow), from which resistance could be expected.

However, the strength of demand was exhausted earlier, around the level of USD 25 per ounce, it turned out to be an unbearable barrier for the bulls, which is noticeable in the price action in July and August.

But what next?

Bearish arguments:

→ a long upper shadow on the Friday candle indicates strong selling pressure;

→ the price has dropped below the median line of the long-term yellow channel – now it can act as resistance (after serving as support in September);

→ resistance may also come from the median line of the red channel, where the psychological level of USD 23 per ounce also passes.

Bullish arguments:

→ the psychological level of USD 21 can provide support;

→ also in this area there is the lower border of the red channel;

→ after a sharp drop, the market looks oversold, and if sellers want to take profits, this should bring positivity to the price action.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

GBP/USD is struggling below the 1.2235 resistance zone. EUR/GBP is rising and might climb above the 0.8675 resistance.

Important Takeaways for GBP/USD and EUR/GBP Analysis Today

• The British Pound is showing bearish signs below 1.2235 and 1.2270.
• There is a key bullish trend line forming with support near 1.2160 on the hourly chart of GBP/USD at FXOpen.
• EUR/GBP is rising and trading above the 0.8660 zone.
• There is a major bearish trend line forming with resistance near 0.8675 on the hourly chart at FXOpen.

GBP/USD Technical Analysis

On the hourly chart of GBP/USD at FXOpen, the pair attempted a fresh increase above 1.2235. However, the British Pound failed above 1.2270 and started a fresh decline against the US Dollar.

There was a clear move below the 1.2235 support and the 50-hour simple moving average. The pair even traded below the 50% Fib retracement level of the upward move from the 1.2110 swing low to the 1.2271 high.

The pair is now showing bearish signs below 1.2200. On the downside, there is a key support forming near 1.2160 or the 76.4% Fib retracement level of the upward move from the 1.2110 swing low to the 1.2271 high.

There is also a key bullish trend line forming with support near 1.2160. If there is a downside break below the 1.2160 support, the pair could accelerate lower.

The next major support is near the 1.2110 zone, below which the pair could test 1.2050. Any more losses could lead the pair toward the 1.2000 support. On the upside, the GBP/USD chart indicates that the pair is facing resistance near the 50-hour simple moving average at 1.2200.

The next major resistance is near 1.2235. A close above the 1.2235 resistance zone could open the doors for a move toward 1.2270. Any more gains might send GBP/USD toward 1.2350.

EUR/GBP Technical Analysis

On the hourly chart of EUR/GBP at FXOpen, the pair started a steady increase from the 0.8630 zone. The Euro traded above the 0.8660 pivot level to enter a positive zone against the British Pound.

The EUR/GBP chart suggests that the pair settled above the 50-hour simple moving average and the 50% Fib retracement level of the last main decline from the 0.8705 swing high to the 0.8629 low. It is now eyeing more upsides.

Immediate resistance is near a major bearish trend line at 0.8675. It coincides with the 61.8% Fib retracement level of the last main decline from the 0.8705 swing high to the 0.8629 low.

The next major resistance could be 0.8700. A close above the 0.8700 level might accelerate gains. In the stated case, the bulls may perhaps aim for a test of 0.8750. Any more gains might send the pair toward the 0.8800 level.

Immediate support sits near the 50-hour simple moving average at 0.8660. The next major support is near 0.8630. A downside break below the 0.8630 support might call for more downsides. In the stated case, the pair could drop toward the 0.8600 support level.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.