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Daily Pivots: (S1) 1.1351; (P) 1.1387; (R1) 1.1438; More....

Intraday bias in EUR/USD remains neutral for consolidation above 1.1335 temporary low. On the downside, below 1.1335 will target 1.1300 key support first. Decisive break will resume whole down trend from 1.2555 and target 1.1186 fibonacci level next. On the upside, however, break of 1.1621 resistance will extend the consolidation pattern from 1.1300 with another rise before larger down trend resumption.

In the bigger picture, corrective pattern from 1.1300 could have completed at 1.1814 after hitting 38.2% retracement of 1.2555 to 1.1300 at 1.1779. Decisive break of 1.1300 will resume the down trend from 1.2555 to 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. On the upside, break of 1.1814 will delay the bearish case and extend the correction from 1.1300 with another rise before completion.

Commodity currencies are trading mildly higher today as Asian markets turned mixed. Australian Dollar is the stronger one, followed by New Zealand. On the other hand, Swiss Franc is the weakest, followed by Euro and Yen. Reactions to S&P's rating review on Italy were rather muted. Sterling is also slightly firmly as Hammond' budget speech is awaited. And, like most Mondays, the picture could change drastically as volatility kicks in during the European session. Additionally, we'll also have some important economic data for almost every major currencies in the week ahead.

Technically, a key to watch this week is whether Dollar would lose near term upside momentum further, or even reverse. AUD/USD led the way last Friday with the strong rebound and focus will be back on 0.7159 resistance. Meanwhile, EUR/US is now very close to 1.1300 key support level, which is equivalent to 96.98 key support in dollar index. Another focus is how deep Yen crosses will fall to. For now, downside momentum in EUR/JPY, GBP/JPY and even USD/JPY remain rather solid.

In other markets, Nikkei is trading up 0.53% at the time of writing, Singapore Strait Times up 0.56%. But Hong Kong HSI and China Shanghai SSE are down -0.07% and -1.47% respectively. Japan 10 year JGB yield is down -0.0012 at 0.114. Gold is hovering around 1233 and there is no follow through buying through 1240 handle yet.

S&P projects 2.7% debt-to-GDP for Italy in 2019, government's growth forecasts overly optimistic

Last Friday, S&P kept Italy's sovereign debt rating unchanged at BBB, two notches above junk. However, outlook was lowered to negative from stable. Nonetheless, the result of the view was already better than Moody's, which downgraded Italy to a notch above junk with stable outlook.

S&P said in the statement that "the Italian government's economic and fiscal policy settings are weighing on the country's economic growth prospects, a critical driver of government debt-to-GDP trajectory." Also, "the government's planned economic and fiscal policy settings have eroded investor confidence, as reflected by a rising yield on government debt."

S&P projected Italy 2019 budget deficit at 2.7% of GDP, higher than the government's own forecast and pledge of 2.4%. The rating agency noted that the government's forecasts for economic growth of 1.5% in 2019 and 1.6% in 2020 were "overly optimistic". And it projected 1.1% growth for both year, even downgraded from 1.4%, as "the demand stimulus from the government's budgetary measures will likely be short-lived."

Though, S&P also hailed that Italy "continues to be supported by its wealthy and diversified economy and its strong external position, with the economy close to becoming a net creditor in the context of its net international investment position."

UK Hammond: A different budget strategy needed in case of no-deal Brexit

UK Chancellor of the Exchequer Philip Hammond will deliver his budget speech today. He told Sky News that in case of a no-deal Brexit, "we would need to look at a different strategy and frankly we'd need to have a new budget that set out a different strategy for the future." And the government would have to " see how markets and businesses and consumers responded to that." And then, "we would take appropriate fiscal measures to protect the economy, to prepare us for the future and to strike out in a new direction".

Separately, he pledge to BBC that he will maintain fiscal buffers, a reserve of borrowing power against my fiscal rules, so if the economy, as a result of a no-deal Brexit or indeed because of something else that we haven't anticipated, needs support over the coming months and years I have the capacity to provide that support." And he emphasized "the important point is that I have got fiscal reserves that would enable me to intervene."

BoJ and BoE to meet, along with something important for almost every major currencies

Two central banks will meet this week, BoJ and BoE. Both are expected to keep monetary policies unchanged. At the same time, focuses will be on new economic projections from both central banks.

On the data front, there are at least something important for almost every major currencies. US will release PCE, ISM and NFP. Eurozone will release GDP, CPI and unemployment rate. UK will release PMI. Swiss will release KOF and CPI; Canada will release GDP and employment. Australia will release CPI and trade balance. China will release PMIs. So, be prepared for a very busy week.

Here are some highlights:

• Monday: Japan retail sales; UK mortgage approvals, M4 money supply, CBI realized sales; US personal income and spending, PCE inflation
• Tuesday: Japan unemployment rate; Australia building approvals; France GDP; German CPI, unemployment; Italy GDP; Eurozone GDP; Swiss KOF economic barometer; US S&P Case-Shiller house price, consumer confidence
• Wednesday: New Zealand building permits; Japan industrial production, consumer confidence, housing starts, BoJ rate decision; Australia CPI; China PMIs; UK BRC shop price, Gfk consumer confidence; German retail sales; Eurozone CPI, unemployment rate; US ADP employment , employment cost index Chicago PMI; Canada GDP, IPPI and RMPI
• Thursday: Australia trade balance, import price; China Caxin PMI manufacturing; Swiss SECO consumer climate, CPI, manufacturing PMI; BoE rate decision and inflation report, UK PMI manufacturing; US non-farm productivity, jobless claims; ISM manufacturing, construction spending
• Friday: New Zealand ANZ business confidence; Australia retail sales, PPI; German import prices; Eurozone PMI manufacturing final; Swiss retail sales; UK construction PMI; Canada employment, trade balance; US non-farm payrolls, trade balance, factory orders

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1351; (P) 1.1387; (R1) 1.1438; More....

Intraday bias in EUR/USD remains neutral for consolidation above 1.1335 temporary low. On the downside, below 1.1335 will target 1.1300 key support first. Decisive break will resume whole down trend from 1.2555 and target 1.1186 fibonacci level next. On the upside, however, break of 1.1621 resistance will extend the consolidation pattern from 1.1300 with another rise before larger down trend resumption.

In the bigger picture, corrective pattern from 1.1300 could have completed at 1.1814 after hitting 38.2% retracement of 1.2555 to 1.1300 at 1.1779. Decisive break of 1.1300 will resume the down trend from 1.2555 to 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. On the upside, break of 1.1814 will delay the bearish case and extend the correction from 1.1300 with another rise before completion.

Economic Indicators Update

Two central banks will meet this week, BoJ and BoE. Both are expected to keep monetary policies unchanged. At the same time, focuses will be on new economic projections from both central banks.

On the data front, there are at least something important for almost every major currencies. US will release PCE, ISM and NFP. Eurozone will release GDP, CPI and unemployment rate. UK will release PMI. Swiss will release KOF and CPI; Canada will release GDP and employment. Australia will release CPI and trade balance. China will release PMIs. So, be prepared for a very busy week.

Here are some highlights:

• Monday: Japan retail sales; UK mortgage approvals, M4 money supply, CBI realized sales; US personal income and spending, PCE inflation
• Tuesday: Japan unemployment rate; Australia building approvals; France GDP; German CPI, unemployment; Italy GDP; Eurozone GDP; Swiss KOF economic barometer; US S&P Case-Shiller house price, consumer confidence
• Wednesday: New Zealand building permits; Japan industrial production, consumer confidence, housing starts, BoJ rate decision; Australia CPI; China PMIs; UK BRC shop price, Gfk consumer confidence; German retail sales; Eurozone CPI, unemployment rate; US ADP employment , employment cost index Chicago PMI; Canada GDP, IPPI and RMPI
• Thursday: Australia trade balance, import price; China Caxin PMI manufacturing; Swiss SECO consumer climate, CPI, manufacturing PMI; BoE rate decision and inflation report, UK PMI manufacturing; US non-farm productivity, jobless claims; ISM manufacturing, construction spending
• Friday: New Zealand ANZ business confidence; Australia retail sales, PPI; German import prices; Eurozone PMI manufacturing final; Swiss retail sales; UK construction PMI; Canada employment, trade balance; US non-farm payrolls, trade balance, factory orders

STOCKS

Resistance in Dow (24688.31, -1.19%) near 25000-25250 continues to hold, keeping the Dow in a near term downtrend. Break above 25250 is needed to initiate an upmove towards 25750 or higher in the longer term. While below 25000, chances of testing 24000 are higher.

Dax (11200.62, -0.94%) is trading above 11000 for now and could possibly stabilize a bit in the near term. The weekly support is likely to hold and produce a bounce towards 11600-11800 again in the longer run.

Nikkei (21176.69, -0.037%) too is trading above immediate support near 20800-21000 and while the support holds, Nikkei could either see some ranged movement or rise towards 21800-22000 levels in the near term. A break below 21000 could take it lower towards 20800 but if the index manages to remain above 21000, there could be a sideways range followed by an upmove towards 22000.

Shanghai (2553.08, -1.76%) could see a fall from 2650-2600 levels just now and has scope f re-testing 2450-2400 on the downside. Overall near term trade is likely to range in the 2650-2400 region.

The fall in Nifty is not over yet. Although Nifty (10030, -0.94%) may see some interim corrective upmoves from 10000, there is scope for a fall towards 9800-9700 or even lower towards 9500 in the longer run. We need to remain cautious at current levels and be careful before calling a bottom just now.

COMMODITIES

A corrective fall is likely to be seen in the crude prices for the near term within an overall longer term uptrend. Gold and Copper are likely to remain stable.

Brent (77.62) has immediate channel resistance at 78 as seen on the daily candles chart which if holds, could push the Crude price back towards 76-75 levels in the near term. At the same time looking on the 3-day and weekly charts, long term trend support near 74-76 region looks strong and could eventually take the prices higher back towards 80 in the longer run.

WTI (67.64) also has similar resistance near 68 and while that holds, a near term fall back towards 65 is possible. For the near term we do not look at a fall below 64 on the WTI.

Gold (1235.90) and Copper (2.7450) are trading almost stable. Gold is unable to break above 1240 and Copper is trading in the 2.65-2.80 region, slightly tilting towards the downside. The momentum is very low for both the metals just now but we could see a sharp movement soon on either side from the current levels.

FOREX

Euro, Pound and Aussie could all see an upmove early in the week towards 1.145, 1.305 and 0.715 and then come off from there. USDINR has crucial support near 73.10-72.90.

Euro (1.1395) closed above 1.14 last week after having seen a low of 1.1336 - this has kept open the possibility of a rise towards 1.145, which could happen in the next couple of sessions. Resistance on daily candles at 1.145 could then make Euro come off towards 1.13 again.

Dollar Index (96.44) could dip towards 96.2 in the early part of the week and then rise back again later. On weekly line chart, it still looks bullish in the weeks ahead.

Dollar Yen (111.85) has broken support at 112 and could now move down in this week towards lower support on daily candles near 111.25-50.

Euro-Yen (127.45) tested crucial support near 126.6 on weekly candles last week and is currently trading slightly above that support. While below 128.5-129.0, it could break 126.6 and test lower support near 125.5-126.0 in this week/by next week. Dollar Yen @ 111.25 and Euro-Dollar @ 1.13 gives 125.71 on Euro Yen.

Pound (1.2833) : There are immediate supports at 1.28 and lower down at 1.27 (on daily line chart) which could restrict the downside in this week. It might range for a few sessions between 1.305 and 1.28. A break above 1.305-1.310 would be required to negate the downside in the near term.

Aussie (0.7099) had broken below the crucial support at 0.705 to see a low of 0.702 on Friday but closed above the support near 0.7089. It is now breaking above resistance near 0.708 on daily candles - if this break sustains, it could move up to test higher resistance near 0.7150-0.7175 in this week.

Dollar Rupee (Friday on shore closing: 73.46; current offshore NDF: 73.09) – A break below 73.10-72.90 could lead to a deeper correction. If Euro weakens towards 1.13 again, the support at 73.10-72.90 might hold for USDINR.

INTEREST RATES

The US 10-5 yr yield spread (0.17%) is trading at immediate resistance near current levels and if that holds the spread could come off towards 0.15% or lower in the coming sessions. This indicates a sharper rise in the 5Yr yield (2.91%) compared to the 10Yr (3.08%) in the next few sessions.

The US 5YR (2.91%) is trading at current support levels and could see a bounce back towards 3% or higher just now. A break below the current support is needed to bring in a bearish view for the medium term. The 10Yr (3.08%) and the 30Yr (3.32%) yields had fallen sharply last week and look weak for the longer term. While there could be some immediate corrective bounce from current levels, the yields look weak in the longer run. The 10yr could head towards 3% on a break below 3.08% if seen in this week.

The Japan yields are trading low. The 5YR (-0.08%) could come off towards -0.098% while the 10YR (0.12%) and the 30YR (0.87%) could also come off towards 0.10% and 0.85% in the next couple of days. Near term looks weak.

The UK yields continue to fall sharply. The 10Yr (1.24%) has been falling from resistance near 1.60% to current levels in October and while the immediate support near 1.25% has broken, the yield may head towards 1.16% in the near term. The 5Yr (0.98%) and 20Yr (1.78%) also looks weak for the next few sessions.

UK Chancellor of the Exchequer Philip Hammond will deliver his budget speech today. He told Sky News that in case of a no-deal Brexit, "we would need to look at a different strategy and frankly we'd need to have a new budget that set out a different strategy for the future." And the government would have to " see how markets and businesses and consumers responded to that." And then, "we would take appropriate fiscal measures to protect the economy, to prepare us for the future and to strike out in a new direction".

Separately, he pledge to BBC that he will maintain fiscal buffers, a reserve of borrowing power against my fiscal rules, so if the economy, as a result of a no-deal Brexit or indeed because of something else that we haven't anticipated, needs support over the coming months and years I have the capacity to provide that support." And he emphasized "the important point is that I have got fiscal reserves that would enable me to intervene."

Key Highlights

• The Euro declined further and traded towards 1.1340 against the US Dollar.
• There is a major bearish trend line formed with resistance at 1.1460 on the 4-hours chart of EUR/USD.
• The US Gross Domestic Product for Q3 2018 (Preliminary) increased 3.5%, better than the 3.3% forecast.
• Today, the US Personal Income for Sep 2018 (MoM) will be released, which is forecasted to increase 0.3%.

EURUSD Technical Analysis

After forming a top near the 1.1550 level, the Euro started a major downside move against the US Dollar. The EUR/USD pair broke the 1.1460, 1.1440 and 1.1400 support levels and traded towards 1.1340.

Looking at the 4-hours chart, the pair faced a lot of selling interest below the 1.1440 level. It declined sharply and traded as low as 1.1337 low. Later, after the US GDP release, there was an upside correction from the 1.1337 low.

The pair climbed above the 23.6% Fib retracement level of the recent decline from the 1.1550 high to 1.1337 low. However, there are many barriers on the upside near the 1.1440 and 1.14460 levels.

Moreover, there is a major bearish trend line formed with resistance at 1.1460 on the 4-hours chart of EUR/USD. Below the trend line, the 50% Fib retracement level of the recent decline from the 1.1550 high to 1.1337 low is near 1.1445.

On the downside, an initial support is near the 1.1360 level followed by the 1.1340 level. A break below the recent low at 1.1337 could push the price towards the 1.1310 level in the near term.

Fundamentally, the US Gross Domestic Product for Q3 2018 (Preliminary) was released by the US Bureau of Economic Analysis. The market was looking for a grow rate of 3.3%, less than the last 4.2%.

The result was positive as the US GDP grew 3.5% in Q3 2018 as per the according to the “advance” estimate.

Moreover, the report added that:

The price index for gross domestic purchases increased 1.7 percent in the third quarter, compared with an increase of 2.4 percent in the second quarter.

Overall, the US Dollar remains in an uptrend, but there could be a short term recovery in EUR/USD and GBP/USD in the coming sessions.

Economic Releases to Watch Today

• US Personal Income for Sep 2018 (MoM) – Forecast +0.3%, versus +0.3% previous.
• US Core Personal Consumption Expenditure for Sep 2018 (MoM) – Forecast +0.1%, versus 0% previous.
• US Personal Spending for Sep 2018 (MoM) – Forecast +0.4%, versus +0.3% previous.

The CFTC Commitments of Traders report in the week ended October 23 shows that all major currencies (except USD) were in NET SHORT positions. Bets on USD index increased on both sides. Speculative longs gained +2 989 contracts while shorts added +2 837, sending the NET LENGTH higher, by +152 contracts, to 38 028 contracts. The greenback strengthened across the board during the week.

NET SHORTS for both European currencies remained. For EUR futures, speculative long positions gained +8 768 contracts while shorts rose +9 728 contracts, deepening NET SHORT to 30 304 for the week. NET SHORT for GBP futures decreased -3 356 contracts to 46 997.

On safe-haven currencies, Net SHORT for CHF futures added +581 contracts to 17 105 while that for JPY futures fell, by -7 817 contracts, to 92 804 during the week. Bets on the latter dropped on both sides but the decline in speculative shorts (-7 991 contracts) overshadowed that in the longs.

All commodity currencies stayed in NET SHORT positions. NET SHORT for AUD futures dropped -1 123 contracts to 70 368, while that for NZD futures gained +2 364 contracts to 33 048. NET SHORT for CAD futures dropped -3 791 contracts to 7 228. BOC raised the policy rate by +25 bps to 1.755 last week. It also replaced the "gradual" monetary policy language by "neutral", raising hopes for further rate hikes. This should help support the loonie.

Last Friday, S&P kept Italy's sovereign debt rating unchanged at BBB, two notches above junk. However, outlook was lowered to negative from stable. Nonetheless, the result of the view was already better than Moody's, which downgraded Italy to a notch above junk with stable outlook.

S&P said in the statement that "the Italian government's economic and fiscal policy settings are weighing on the country's economic growth prospects, a critical driver of government debt-to-GDP trajectory." Also, "the government's planned economic and fiscal policy settings have eroded investor confidence, as reflected by a rising yield on government debt."

S&P projected Italy 2019 budget deficit at 2.7% of GDP, higher than the government's own forecast and pledge of 2.4%. The rating agency noted that the government's forecasts for economic growth of 1.5% in 2019 and 1.6% in 2020 were "overly optimistic". And it projected 1.1% growth for both year, even downgraded from 1.4%, as "the demand stimulus from the government's budgetary measures will likely be short-lived."

Though, S&P also hailed that Italy "continues to be supported by its wealthy and diversified economy and its strong external position, with the economy close to becoming a net creditor in the context of its net international investment position."

According to the CFTC Commitments of Traders report for the week ended October 23,  NET LENGTH for crude oil, heating oil and gasoline futures all continued to drop. Oil prices dived during the reporting week, with the front-month WTI crude oil contract sinking -7.63% while the Brent contract was down -6.1%. Speculative long positions of crude oil futures declined -29 011 contracts, while shorts rose +8 940 contracts, resulting in a fall in NET LENGTH, by -37 951 contracts, to 455 278 contracts. For refined oil products, Net LENGTH for heating oil futures plunged -5 538 contracts to 37 847, while that for gasoline was down -7 587 contracts to 92 205. During the reporting week, correction of prices of refined oil products was remarkable. the front-month RBOB gasoline contract plunged -7.11% while the heating oil contract dropped -3.92%.  Net SHORT for natural gas increased +8 659 contracts, to 13 193 contracts for the week.

On the precious metal complex, NEW LENGTH for gold futures increased while silver futures stayed in NET SHORT. Speculative long positions for the former gained +3 378 contracts, while shorts sank -8 343, resulting in a NET LENGTH 29 388 contracts. The benchmark Comex contract climbed +0.5% during the week in concern. For the latter, speculative long positions added +2 813 contracts while shorts plunged -6 835, trimming NET SHORT, by -9 648 contracts, to 5 179 contracts. For PGMs, NET LENGTH of Nymex platinum futures dropped -1 418 contracts to 11 662 while that for palladium gained +1 725 contracts to 13 251.

GOLD rejects higher prices and faces further price consolidation with downside threats. On the downside, support comes in at the 1,230.00 level where a break will turn attention to the 1,220.00 level. Further down, a cut through here will open the door for a move lower towards the 1,210.00 level. Below here if seen could trigger further downside pressure targeting the 1,200.00 level. Resistance resides at the 1,240.00 level where a break will aim at the 1,250.00 level. A turn above there will expose the 1,260.00 level. Further out, resistance stands at the 1,270.00 level. All in all, GOLD looks to hesitate further lower.