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The euro is back under heavy selling pressure against the US dollar after a minor technical correction above the 1.1400 resistance level. The recent rejection above the 1.1400 level has created a bearish triple top pattern, putting further downside pressure on the EURUSD pair. Sellers are now increasingly likely to test the 1.1335 support level, while buyers need to once again move price back above the 1.1400 resistance level.

The EURUSD pair is strongly bearish while trading below the 1.1335 level, key support is found at the 1.1300 and 1.1220 levels.

If the EURUSD pair trades above the 1.1400 level, key resistance is now found at the 1.1411 and 1.1431 levels.

The British pound is attempting to correct higher against the US dollar after sellers failed to break below the key 1.2785 support level. GBPUSD buyers now need to move price above the 1.2866 level to change the intraday bias surrounding the pair to bullish. Sterling traders await key inflation data from the United States economy and next directional move in the US dollar index.

The GBPUSD pair remains bearish while trading below the 1.2866 level, key support is found at the 1.2800 and 1.2785 levels.

If the GBPUSD pair moves above the 1.2866 level, buyers are likely to test towards the 1.2900 and 1.3055 resistance levels.

German Groko coalition under threat

Following weaker PMI in manufacturing and composite (i.e. industry and services) given at multi-year low and an unexpected slowdown in Ifo business climate indicator for the month of October, it appears that German GDP growth stagnated in the second half of 2018, after Q2 y/y figure estimated at 2.30%.

Indeed, as the Eurozone is facing the same downward trend due to continued drop in exports along with continued geopolitical issues, German politics is showing signs of exhaustion. After losing more than 10% of suffrages in Bavarian state election two weeks ago, the big coalition “Groko” ( composed of CDU/CSU and SPD) lost a significant amount of votes in Hesse, losing more than 20% of prior year votes (CDU/CSU: -11.30%, SPD: -10.90%), putting additional pressure on German Chancellor Angela Merkel and undermining the Berlin coalition. This ultimately raises questions from investors who wonder whether Germany will be able to maintain a stable government.

However, despite current situation, there is a rather small likelihood to see left- or right- populist party taking the lead, unlike Italy’s anti-establishment coalition, thus not causing systemic risk for the monetary union.

Accordingly, the EUR/USD current drop remains mainly German state election induced. We therefore expect the single currency to weaken further along 1.1360 short-term.

Brazil shifts to the right - Will BRL gain momentum ?

It has been a slow start to the week in the FX market as most currency pairs were little changed during the Asian session. With the exception of the New Zealand dollar that rose 0.70% against the buck. NZD/USD jumped back to 0.6550, up 1.30% from yesterday’s low. Elsewhere, the single currency was trading sideways around $1.1390; the pound sterling eased 0.09% to $1.2815, while the Japanese yen moved back and forth around the neutral threshold with USD/JPY stabilising around 111.95.

Today, most of the attention will shift towards Brazil. Indeed, to no one’s surprise, Jai Bolsonaro beat Fernando Haddad (left wing) and won Brazil’s presidency on Sunday. Financial markets didn’t wait Sunday’s result to start pricing in the election of a market friendly president – or a lest more friendly that its opponent. On Friday, the Brazilian real rose 1.70% against the greenback as USD/BRL hit 3.6416, the lowest mark since May 24. Since mid-September, the Brazilian currency surged more than 15% against the buck, with USD/BRL falling from 4.21.33 to 3.6421, as investors gradually ruled out the possibility of Haddad election. It is difficult to say how much juice is left in the real rally. In our opinion, the most of the recovery is done as the political factor that weighted on the BRL has been priced out. The global environment will remain challenging for EM countries as the trade war between China and the US will continue to weight. In addition, rising yields in the US will increase the pressure on those countries.

It's reported that German Chancellor Angela Merkel will not run for Christian Democratic Union leadership again in the December convention. Though, she intends to serve out her term as Chancellor through 2021. Merkel is expected to hold a media conference at 1pm Berlin time.

Right now, there are a few possible candidates for the party leadership. Jens Spahn, Ralph Brinkhaus, and Annegret Kramp-Karrenbauer are among the possible ones.

Market reaction is rather muted to the news though. It's believed that even if Merkel would be replaced as Chancellor, there won't be much change to the coalition's policies, which will still be dominated by CDU/CSU and the SPD.

The Australian dollar stands at the front foot on Monday and cracked key barriers at 0.7095/97 (converged falling 10/20SMA's), following strong downside rejection on Friday, when the pair spiked to new low at 0.7020 (the lowest since late Jan 2016), but losses were short-lived. Close above MA's and Fibo barrier at 0.7106 (61.8% of 0.7159/0.7020) would generate bullish signal for further recovery. Conflicting daily indicators (north-heading slow stochastic/weakening momentum) and mixed setup of daily MA's, so far lack stronger direction signal. Broken 5SMA (0.7081) marks initial support, loss of which would weaken near-term structure.

Res: 0.7108, 0.7126, 0.7147, 0.7159
Sup: 0.7081, 0.7055, 0.7040, 0.7020

Monday October 29: Five things the markets are talking about

Euro equities are small better bid, ignoring Asia's mixed market overnight and slightly weaker U.S futures on concerns about corporate earnings and global growth.

U.S Treasuries remain well supported as a majority of the market rein in their expectations for tighter Fed policy. The EUR is steady despite Germany's governing coalition falling to its worst regional election results in decades.

The ‘big' dollar has found some support while gold prices ease. Oil trades below $68 a barrel as the market assesse “mixed supply signals.”

It's a busy week on the data front. Two central banks – Bank of Japan (BoJ) and Bank of England (BoE) – meet and neither are expected to make any changes to their monetary policy.

Elsewhere, France, Italy and the Eurozone release flash estimates of Q3 GDP, while down-under, Australia reports Q3 consumer and producer price indexes.

In North America, the final U.S jobs report before the November mid-term elections is delivered on Friday along with Canada's employment data.

1. Stocks mixed results

In Japan, stocks slipped overnight as further weakness in Chinese equities diminished investor sentiment, although some bargain hunting limited losses. The Nikkei ended the session down -0.16%, after posting their biggest weekly loss in more than eight-months, while the broader Topix was down -0.4%.

Down-under, Aussie shares outperformed, ending a six-session run lower, with gains across each sector of the market. Despite the S&P/ASX 200 climbing +1.1% overnight, the index is still on track for a loss of more than -7% this month. In S. Korea, the Kospi stock index fell -1.5% overnight, extending its decline into a fifth consecutive session and hitting its lowest in almost 23-months, on continued selling by foreign and local investors.

In China, stocks again saw red as weak profits for industrial and consumer firms added to concerns over a slowing economy. Another negative session highlights the markets doubt over the effectiveness of Beijing's attempts to stabilize its own equity markets. The blue-chip CSI300 index closed -3.0% lower, while the Shanghai Composite Index ended down -2.2%. In Hong Kong, the Hang Seng closed up +0.38%.

In Europe, regional bourses trade higher across the board starting the week on a positive note.

U.S stocks are set to open in the ‘black' (+0.3%).

Indices: Stoxx600 +0.9% at 355.6, FTSE +1.3% at 7030, DAX +1.1% at 11324, CAC-40 +0.3% at 4980, IBEX-35 +1.1% at 8826, FTSE MIB +2.2% at 19102, SMI +1.4% at 8790, S&P 500 Futures +0.3%

2. Oil prices fall as markets worry about trade slowdown, gold lower

Oil prices have eased overnight amid a cautious market sentiment, coupled with a stronger U.S dollar underscores concerns that growth may be slowing, especially in Asia's emerging economies.

Brent crude oil futures are trading down -46c, or -0.6%, at +$77.16 a barrel, while U.S West Texas Intermediate (WTI) crude futures are at +$67.19 a barrel, down -40 cents, or -0.6%.

CFTC data on Friday showed hedge funds slashed their “bullish” bets on U.S crude to the lowest level in more than a year – they cut their combined futures and options position in New York and London by -42,644 contracts to +216,733 in the week to Oct. 23.

There are also signs of a slowdown in global trade, with rates for dry-bulk and container ships – which carry most raw materials and manufactured goods – coming under pressure.

On the supply side, oil markets remain tense ahead of forthcoming U.S sanctions against Iran's crude exports, which are set to start on Nov. 4 and are expected to tighten supply, especially to Asia, which takes most of Iran's shipments.

According to Baker Hughes data last Friday, in North America there is no oil shortage. Production is set to rise further as U.S drillers added two oil rigs in the week to Oct. 26, bringing the total count to +875, the highest level since March 2015.

Ahead of the U.S open, gold prices have eased a tad, inching away from its three-month high print in Friday's session, pressured as the ‘big' dollar firms. Spot gold is down -0.1% at +$1,232.54 an ounce – on Friday, it touched its highest since July 17 at +$1,243.32. It climbed +0.6% last week in its fourth straight weekly gain, its longest such streak since January. U.S gold futures are down -0.1% at +$1,234.70 an ounce.

3. S&P ratings relief lifts Italy's bond market

Italy's 10-year BTP bond yield has fallen to a one-week low this morning, narrowing the gap to the German Bund, on relief that ratings agency Standard & Poor's left the country's credit rating unchanged.

Note: On Friday, S&P left Italy's rating at BBB, two notches above junk, but lowered its outlook to negative from stable, saying that the “new government's policy plans were weighing on the country's growth and debt prospects.”

Yields along the Italian curve are down -6 to -16 bps – 10-year BTP are at +3.33%, while the BTP/Bund spread is at +299 bps from +306.

Elsewhere, the yield on U.S 10's has eased -1 bps to +3.06%, the lowest in almost a month. In Germany, the 10-year Bund yield has increased less than +1 bps to +0.36%, the biggest increase in more than a week, while in the U.K, the 10-year Gilt yield has fallen -1 bps to +1.372%, hitting the lowest in two-months with its sixth straight decline.

4. U.S dollar stands tall

The ‘big' dollar trades atop of its 10-week high against G7 currency pairs as concerns about global growth perseveres.

The safe haven yen (¥112.16) has benefited from the global sell-off in riskier assets as the market unwound its ‘carry' trade exposures. Last week it gained +0.6% outright, this morning, with a stronger USD, its down -0.2%. The market will be watching the BoJ's monetary policy announcement, due on Wednesday for short-term guidance.

EUR (€1.1389) is trading atop its two-month low outright. Investors have seen some relief after German Chancellor Merkel's junior coalition partners gave her conservatives until next year to deliver more policy results. However, there are concerns over her future after both parties suffered in a regional election on the weekend.

Sterling (£1.2821) is trading near its two-month low of £1.2775 before today's annual budget presentation. Finance Minister Philip Hammond is likely to urge his Conservative Party to back the government's plan for Brexit, or put at risk a long-awaited easing of austerity.

5. Chancellor Merkel may not run for re-election of CDU

In Germany yesterday, in the central state election in Hesse, it was another test for the Germany's coalition partners.

Merkel's Christian Democrats (CDU) came home first in Sunday's election, but support fell and the disappointing outcome will certainly undermine her coalition, as well as her own political standing.

The ruling CDU lost -11.3% and SPD lost -10.9%, while the Green Party and AfD meanwhile gained +8.5% and +9.0% compared to the previous state election in 2013.

In the end, the old regional coalition of CDU and Green Party is likely to remain in office. But, despite the status quo, the CDU and SPD party leaders are under pressure, and the risk that the coalition will break up and that Germany will face new elections odd's are now higher.

Notes/Observations

• German Chancellor Merkel not to run for re-election to head the CDU party; questions emerge if she serve out her term as Chancellor

Asia:

• BOJ said to be looking at slightly adjusting bond buying program to allow the government debt market to better reflect fundamentals. The central bank said to consider making its bond purchases two days after new debt is auctioned (currently at 1 day). Any decision on the timing or the frequency of bond purchases would not represent a monetary policy change

Europe:

• S&P revised Italy sovereign rating outlook to Negative from Stable; affirmed BBB rating (in-line with speculation)
• S&P affirmed Germany sovereign rating at AAA; outlook Stable
• S&P affirmed United Kingdom sovereign rating at AA; outlook remains Negative
• Fitch affirmed United Kingdom sovereign rating at AA; outlook Negative
• Germany Hesse regional elections saw Chancellor Merkel CDU party's support declined to from 38% to 28% for its worst result since 1966
• UK Chancellor of the Exchequer Hammond (Fin Min) said has money buffer in case of 'Brexit shock'
• Italy Fin Min Tria: BTP/Bund spread at the current levels is damaging (Note: spread recently test 330bps area)
• France Finance Min Le Maire: No risk of contagion from budget crisis in Italy, euro zone is not prepared enough to deal with new economic crisis

Americas:

• Brazil Presidential Candidate Bolsonaro wins presidential elections; Brazilian equity ETF trades higher by over 10%
• Brazil'sPaulo Guedes (advisor to President-elect Bolsonardo): Aiming to get rid of budget deficit within one year; first priority is pension reform, second major item is interest payments, unreasonable to spend $100B/yr on interest

Energy:

• Russia Energy Min Novak: No reason for Russia to freeze or cut its oil production level. OPEC+ needed to wait and see the risks emerging in Nov before deciding on any further joint steps.

Macro

• (DE) Germany: Sunday's election in Hesse was another test for the coalition partners in Berlin and the result will destabilise Merkel's coalition as well as her own political standing. In the end the old regional coalition of CDU and Green Party is likely to remain in office, but CDU lost 11.3% points and SPD lost 10.9%. Green Party and AfD meanwhile gained 8.5% points and 9.0% points compared to the previous state election in 2013. So while the status quo remains CDU and SPD party leaders in Berlin are under pressure and the risk that the coalition will break up and that Germany will face new elections as Merkel's potential successors are being lined up in the German press are higher than ever.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.9% at 355.6, FTSE +1.3% at 7030, DAX +1.1% at 11324, CAC-40 +0.3% at 4980, IBEX-35 +1.1% at 8826, FTSE MIB +2.2% at 19102, SMI +1.4% at 8790, S&P 500 Futures +0.3%]

Market Focal Points/Key Themes:

Equities

• European Indices trade higher across the board starting the week on a positive note; Euronext Indices had seen a delayed opening due to technical issues. Asia saw a mixed session, while US futures have reversed earlier losses to trade higher. FTSE MIB outperforms with Banking names rebounding. On the corporate front HSBC beat on both the top and bottom line with shares trading sharply higher helping the FTSE outperform. Bankia, GEA Group, ITM Power among other names trading higher after earnings, with Kuka and Gama Aviation among the names lower after results. On a busy morning on the M&A space, Ansaldo trades higher Hitachi launched a tender offer for the company; in the US IBM is to acquire Redhat for $190/shr in a $34B deal; Penn Virginia Corp to be acquired by Denbury in a $1.7B deal. Novartis trades higher helping the Swiss SMI outperform after positive trial data. Looking ahead notable earners include Cooper Tire, First Data Corp and Booz Allen.
• Consumer discretionary: International Workplace Group [IWG.UK] +2.5% (reportedly held talks with Terra Firms on possible sale of Spaces), Gama Aviation PLC [GMAA.UK] -20% (trading update; outlook cut)
• Energy: ITM Power [ITM.UK] +7% (trading update
• Financials: HSBC Holdings [HSBA.UK] +4.5% (earnings), Bankia [BKIA.ES] -5.5% (earnings),
• Healthcare: Novartis [NOVN.CH] +2% (study met primary endpoint), Grifols SA [GRF.ES] +14% (announces positive results of study), Vifor Pharma [VIFN.CH] +3.5% (study met primary endpoint), Essity AB [ESSITY-A.SE] -1.5% (earnings)
• Industrials: GEA Group [G1A.DE] +2% (earnings; affirms outlook), Kuka [KU2.DE] -4.5% (earnings; outlook cut), Ansaldo STS [STS.IT] +9% (deal announcement), Leonardo-Finmeccanica Spa [LDO.IT] -2.5% (The Leicester City FC crash was company's AW169 helicopter)
• Telecom: MASmovil [MAS.ES] -3.5% (earnings; raises outlook),

Speakers

• (ZA) South Africa Sept M3 Money Supply Y/Y: 7.0% v 6.8%e; Private Sector Credit Y/Y: 6.3% v 6.4%e
• (FI) Finland Oct Consumer Confidence Index: 16.8 v 20.2 prior; Business Confidence: 9 v 11 prior
• (AT) Austria Oct Manufacturing PMI: 53.8 v 55.0 prior
• (CH) SNB Total Sight Deposits for Week Ended Oct 26th (CHF): 578.0B v 577.9B prior; Domestic Sight Deposits: 470.1B v 471.6B prior
• (IT) Italy Sept PPI M/M: 0.4% v 0.6% prior; Y/Y: 5.6% v 5.2% prior
• (UK) Sept Net Consumer Credit: £0.8B v £1.2Be; Net Lending: £3.9B v £2.9Be
• (UK) Sept Mortgage Approvals: 65.3K v 64.7Ke
• (UK) Sept M4 Money Supply M/M: -0.3% v +0.1% prior; Y/Y: 0.9% v 1.1% prior; M4 Ex IOFCs 3M Annualized: 1.1% v 0.6% prior

Currencies/ Fixed Income

• USD remained on firm ground as the new trading week begun. Dealers noted that the greenback continued to benefit from while the global sentiment remained fragile
• EUR/USD was lower by 0.3% to remain under the 1.14 level. German Chancellor Merkel govt suffered another regional loss (German state of Hesse). The Italian budget remained an issue with the government due to submit another proposal to the EU in coming weeks. Euro unable to benefit from the tightening of the 10-year Italian-German government bond yield spread to under 300bps.
• Chancellor of the Exchequer Philip Hammond is expected to announce this afternoon during the Autumn Budget a decline in the country's borrowing needs of around £6.3B. GBP/USD

Economic data

• (ZA) South Africa Sept M3 Money Supply Y/Y: 7.0% v 6.8%e; Private Sector Credit Y/Y: 6.3% v 6.4%e
• (FI) Finland Oct Consumer Confidence Index: 16.8 v 20.2 prior; Business Confidence: 9 v 11 prior
• (AT) Austria Oct Manufacturing PMI: 53.8 v 55.0 prior
• (CH) SNB Total Sight Deposits for Week Ended Oct 26th (CHF): 578.0B v 577.9B prior; Domestic Sight Deposits: 470.1B v 471.6B prior
• (IT) Italy Sept PPI M/M: 0.4% v 0.6% prior; Y/Y: 5.6% v 5.2% prior
• (UK) Sept Net Consumer Credit: £0.8B v £1.2Be; Net Lending: £3.9B v £2.9Be
• (UK) Sept Mortgage Approvals: 65.3K v 64.7Ke
• (UK) Sept M4 Money Supply M/M: -0.3% v +0.1% prior; Y/Y: 0.9% v 1.1% prior; M4 Ex IOFCs 3M Annualized: 1.1% v 0.6% prior

Fixed Income Issuance

• None seen

Looking Ahead

• 06:00 (EU) Daily Euribor Fixing - 06:00 (LT) Lithuania to sell Bonds
• 06:00 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays)
• 06:00 (IT) Italy Debt Agency (Tesoro) to sell €6.0B in 6-month Bills
• 07:00 (IL) Israel Aug Manufacturing Production M/M: No est v 2.5% prior
• 07:00 (BR) Brazil Oct FGV Inflation IGPM M/M: 0.9%e v 1.5% prior; Y/Y: 10.8%e v 10.0% prior
• 07:00 (RO) Romania to sell Bonds
• 07:00 (IL) Israel to sell Bonds
• 07:25 (BR) Brazil Central Bank Weekly Economists Survey
• 07:45 (US) Daily Libor Fixing
• 08:00 (IN) India announces details of upcoming bond sale (held on Fridays)
• 08:30 (US) Sept Personal Income: 0.4%e v 0.3% prior; Personal Spending: 0.4%e v 0.3% prior; Real Personal Spending: 0.3%e v 0.2% prior
• 08:30 (US) Sept PCE Deflator M/M: 0.1%e v 0.1% prior; Y/Y: 2.0%e v 2.2% prior
• 08:30 (US) Sept PCE Core M/M: 0.1%e v 0.0% prior; Y/Y: 2.0%e v 2.0% prior
• 09:05 (UK) Baltic Dry Bulk Index
• 09:30 (BR) Brazil Sept Primary Budget Balance (BRL): -22.3Be v -16.9B prior; Nominal Budget Balance: -62.5Be v -76.9B prior; Net Debt to GDP Ratio: 51.6%e v 51.2% prior
• 09:45 (US) Fed's Evans (non-voter, dove)
• 09:55 (FR) France Debt Agency (AFT) to sell combined €3.6-4.8B in 3-month, 6-month, 9-month and 12-month BTF Bills
• 10:00 (BE) Belgium Q3 Preliminary GDP Q/Q: No est v 0.4% prior; Y/Y: No est v 1.4% prior
• 10:30 (US) Oct Dallas Fed Manufacturing Activity Index: 28.1e v 28.1 prior
• 10:30 (EU) ECB announces Covered-Bond Purchases
• 10:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
• 11:30 (UK) Chancellor Philip Hammond's Budget Statement
• 11:30 (US) Treasury to sell 3-Month and 6-Month Bills
• 16:00 (US) Weekly Crop Condition Report

The pair probes above 112 handle on Monday, following strong downside rejection on Friday and failure to take out cracked key supports – daily cloud, Fibo 61.8% of 109.77/114.54, rising 100SMA.

Friday's long-tailed candle is initial signal bears' stall, with strengthening momentum on daily chart, supporting recovery attempts.

Fresh strength needs close above 55SMA (112.01) to generate fresh bullish signal, with extension through 10SMA (112.34) to confirm scenario.

On the other side, bearishly aligned daily techs keep the downside in focus for renewed attempt at key 111.60 support zone,

Eventual break here and close below daily cloud base (111.47) would generated strong bearish signal for extension of pullback from 114.54 (04 Oct low).

Res: 112.34, 112.52, 112.76, 112.88
Sup: 110.77, 110.60, 110.47, 110.00

EUR/USD

Current level - 1.1399

The reversal at 1.1335 looks like an minor one and while 1.1430 resistance  is intact, the risk of a tighter 1.1300 attempt will remain valid. Crucial hurdle on the senior frames is 1.1550.

USD/JPY

Current level - 111.98

The dip below 111.60 signals a negative bias, for another dive towards 111.10 area. Initial intraday hurdle lies at 112.30 and crucial on the upside is 112.65.

GBP/USD

Current level - 1.2833

The reversal at 1.2770 is weak and it should meet a strong resistance at 1.2870-2940 area, for another leg downwards.

The EUR/CAD has formed a flat top triangle below the trend line that coincides with both Murrey Math and Camarilla bearish levels.

The price is below W H3 and trend line, while at the same time is rejecting the 5/8 Murrey Math Sell zone. A successful rejection should target 1.4892 followed by 1.4840-30 confluence point. The target confluence is W L3 and 3/8 zone. The MACD indicator also signals a possible downtrend cont based on MTF calculations.