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European and US bond markets yesterday temporarily tried a cautious countermove on recent relentless sell-off. A lower than expected French CPI and soft US ADP private job growth at first looked a good enough reason for a pause in the bond market sell-off. However, hawkish headlines soon caused the forces of gravity to again take hold on interest rate markets. Despite the below-expectations French CPI, the EMU flash CPI estimate printed higher and stronger than expected at a record 9.1%. Core inflation accelerated to 4.3% from 4.1%. In a data-depended policy approach, these kind of data only reinforce the case for bold action, especially as there is little prospect for a reversal in the inflation trend anytime soon. ECB hawks including Nagel and Holzmann scored the open goal. The market almost fully discounts a 75 bps rate hike at next week’s ECB meeting. German yields again rose between 2.4 bps (30-y) and 5 bps (5-y). After a cautious start, US yields finally closed between 9.1 (10-y) and 5.1 bps higher. The move was again mainly driven by a sharp jump in real yields (+16 bps for 10-y). Fed’s Mester reiterated recent almost unequivocal hawkish MPC rhetoric as she sees a good reason for the Fed fund rate to be raised north of 4.0% early next year. She also strongly pushed back against expectations for a 2023 rate cut. The decline in oil prices (and European natural gas prices) eased financial inflation expectations, but this wasn’t enough to counterbalance the strong jumped in real yields. The 2-y yield touched 3.50% for the first time since late 2007. Tighter conditions via higher (real) yields caused US equities to further lose up to 0.88% (Dow). The EuroStoxx50 lost another 1.25%. On FX, USD gains remained modest given the rise in (real) yields and the global risk-off. DXY again failed to break the 109.30/47 cycle highs. After some nervous intraday swings, EUR/USD still closed north of the parity (1.0054).

Asian markets stay in risk-off mode this morning, with losses of up to 2.0% (Korea, Nikkei). China announcing a new regional lockdown (Chengdu) doesn’t help to restore confidence. Contrary to a rather mediocre performance yesterday the dollar outperforms this morning. USD/JPY (139.55) is nearing the 140 mark, touching the strongest level since 1998. EUR/USD eases to trade in the 1.002 area. USD/CNY is holding near 6.90 despite recent PBNOC action to support the yuan. Today, the US weekly jobless claims and the US manufacturing ISM might give some insight on US economic activity. However, given recent hawkish Fed guidance, a big negative surprise is probably needed to the question the strong uptrend in yields. The dollar and the euro recently found some kind of short-term balance as markets finally expect some bold anti-inflation steps from the ECB. A sustained EUR/USD rebound probably needs the prospect of an improvement in the region’s energy crisis. We’re not there yet. Still the 0.99 area proved a solid support for now.

News Headlines

South Korea’s trade deficit hit a new record of $9470bn in August, a near-doubling of the July deficit. A 6.6% y/y gain in exports was eclipsed by surging imports of 28.2%. The most important export driver, semiconductor shipments, fell 7.8% last month, the first decline in more than two years. Imports meanwhile soared due to elevated energy and commodity prices with SK being a net energy-importer. The rising trade deficit combined with the aggressive Federal Reserve inflation campaign help explain the South Korean won’s poor track record. USD/KRW rose 12.5% in 2022 and extended gains to 14%+ following the SK trade data this morning. USD/KRW is trading at a new record high (low for the won) around 1354.

Britain’s Resolution Foundation said UK citizens are set for the biggest squeeze on living standards in a century if no measures are taken by the soon-to-be-announced new prime minister. The think tank warned that real disposable incomes could fall 10% over two years as energy costs soar. This is increasingly driving consumer protests. One grassroots movement, Don’t Pay, hopes to amass a million supporters who will cancel payments to energy companies on October 1, when the price cap is set to rise 80% to £3600. Don’t Pay is just one of a number of similar protests against the soaring cost of living and attracted more than 130.000 supporters since mid-June.

Daily Pivots: (S1) 160.96; (P) 161.43; (R1) 161.97; More...

Range trading continues in GBP/JPY and intraday bias remains neutral. Corrective pattern from 168.67 would extend for a while. On the upside, break of 163.91 will bring stronger rise to 166.31 resistance. On the downside, below 160.07 will turn bias to the downside for 159.42 and below.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress. Sustained break of 61.8% retracement of 195.86 (2015 high) to 122.75 (2016 low) at 167.93 will be a long term bullish signal, and could pave the way back to 195.86 high. This will remain the favored case as long as 155.57 support holds, even in case of deep pull back.

Daily Pivots: (S1) 138.74; (P) 139.24; (R1) 140.19; More....

Intraday bias in EUR/JPY remains on the upside. Rise from 133.38 should target 100% projection of 133.38 to 138.38 from 135.50 at 140.50. Decisive break there will indicate upside acceleration, and raise the chance of up trend resumption through 144.26 high. On the downside, below 138.24 minor support will turn intraday bias neutral again.

In the bigger picture, up trend from 114.42 (2020 low) is seen as the third leg of the pattern from 109.30 (2016 low). Further rally is in favor as long as 134.11 resistance turned support holds, even in case of deep pull back. Next target is 149.76 (2015 high). However, sustained break of 134.11 will be a sign of medium term bearish reversal and turn focus to 124.37 support for confirmation.

Daily Pivots: (S1) 0.8596; (P) 0.8625; (R1) 0.8679; More...

EUR/GBP's rally from 0.8338 is in progress and intraday bias stays on the upside for 0.8720 resistance. Decisive break there will carry larger bullish implications. Next target is 100% projection of 0.8201 to 0.8720 from 0.8338 at 0.8857. On the downside, below 0.8570 minor support will turn intraday bias neutral and bring consolidations first.

In the bigger picture, focus is back on 38.2% retracement of 0.9499 to 0.8201 at 0.8697. Sustained break there will argue that rise from 0.8201 is a medium term up trend, rather than a correction. Next target is 61.8% retracement at 0.9003. Rejection by 0.8697 again will maintain medium term bearishness, for extending the down trend from 0.9499 (2020 high) at a later stage.

Daily Pivots: (S1) 1.4574; (P) 1.4636; (R1) 1.4752; More...

Focus is now on 1.4712 resistance in EUR/AUD. Sustained break there will turn bias to the upside, for stronger rebound back to 1.5396 resistance. On the downside, firm break of 1.4318 low will resume larger down trend to medium term projection level at 1.3623.

In the bigger picture, down trend from 1.9799 is still in progress. Break of 1.4318 low will target 61.8% projection of 1.9799 to 1.5250 from 1.6434 at 1.3623, which is close to 1.3624 long term support (2017 low). This will remain the favored case now as long as 1.5396 resistance holds.

Daily Pivots: (S1) 0.9769; (P) 0.9801; (R1) 0.9864; More....

Intraday bias in EUR/CHF stays on the upside as rebound from 0.9550 is in progress for EMA (now at 0.9840) and above. But upside should be limited by 38.2% retracement of 1.0512 to 0.9550 at 0.9917 to bring down trend resumption. On the downside, below 0.9696 minor support will turn bias back to the downside for retesting 0.9950 low.

In the bigger picture, long term down trend from 1.2004 (2018 high) is still in progress. Next target is 138.2% projection of 1.2004 to 1.0505 to 1.1149 at 0.9033. On the upside, break of 0.9970 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of strong rebound.

Daily Pivots: (S1) 1.3085; (P) 1.3113; (R1) 1.3162; More...

Intraday bias in USD/CAD stays on the upside for 1.3222 resistance first. Firm break there will resume larger up trend from 1.2005. Next target is 100% projection of 1.2005 to 1.2947 from 1.2401 at 1.3343. On the downside, below 1.3062 minor support will delay the bullish case and turn intraday bias neutral first.

In the bigger picture, down trend from 1.4667 (2020 high) should have completed at 1.2005, after defending 1.2061 long term cluster support. Rise from there should target 61.8% retracement of 1.4667 to 1.2005 (2021 low) at 1.3650. This will remain the favored case now as long as 1.2516 support holds.

Daily Pivots: (S1) 0.6817; (P) 0.6861; (R1) 0.6885; More...

AUD/USD's fall from 0.7135 is in progress and intraday bias stays on the downside. As noted before, corrective rebound from 0.6680 could have completed with three waves up to 0.7135. Retest of 0.6680 should be seen next. Firm break there will resume larger down trend. However, break of 0.7008 will turn bias back to the upside for 0.7135 resistance instead.

In the bigger picture, price actions from 0.8006 (2021 high) is seen more as a corrective pattern to rise from 0.5506 (2020 low). Or it could also be a bearish impulsive move. In either case, outlook will remain bearish as long as 0.7282 resistance holds. Next target is 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Daily Pivots: (S1) 0.9990; (P) 1.0035; (R1) 1.0097; More...

EUR/USD is still bounded in consolidation from 0.9899 and intraday bias remains neutral. Further decline is expected with 1.0094 resistance intact. On the downside, break of 0.9899 will resume larger down trend to 61.8% projection of 1.0773 to 0.9951 from 1.0368 at 0.9860. Firm break there should prompt downside acceleration to 100% projection at 0.9546. However, firm break of 1.0094 minor resistance will dampen this bearish view, and turn bias back to the upside for 1.0368 resistance instead.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, outlook will stay bearish as long as 1.0368 resistance holds, in case of strong rebound.

Daily Pivots: (S1) 1.1584; (P) 1.1639; (R1) 1.1679; More...

Intraday bias in GBP/USD remains on the downside at this point. Current down trend should target 1.1409 long term support. On the upside, above 1.1759 minor resistance will turn intraday bias neutral for consolidations. But outlook will stay bearish as long as 1.2292 resistance holds, in case of recovery.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2292 resistance holds. Next target is 1.1409 low. However, firm break of 1.2292 will bring stronger rise back to 55 week EMA (now at 1.2859).