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The Euro dipped to new nine-week low at 1.1370, maintaining strong bearish bias and lacking stronger excitement as unchanged ECB was in line with expectations and balanced comments of President Mario Draghi offered nothing new. The single currency accelerated lower after recovery attempts were capped at initial barrier at 1.1432 (former base). There are no significant obstacles on the way towards targets at 1.1317 (200WMA) and 1.1300 (15 Aug low), which could be retested in coming sessions, as completion of asymmetric H&S pattern on daily chart adds to negative outlook. Meanwhile, bears may show hesitation on approach to 1.1301/00 targets as daily slow stochastic is oversold, but continues to point lower and for now lacking positive signals.

Res: 1.1422; 1.1432; 1.1476; 1.1488
Sup: 1.1370; 1.1335; 1.1317; 1.1300

DOW rebounds rather strongly in early session, up more than 200 pts. It's not unexpected as DOW hit 61.8% projection of 26951.81 to 24899.77 from 25817.68 at 24549.51 yesterday. It's also trying to draw support from 55 week EMA (now at 24565).

We'll have to see whether such rebound can gather sustainable momentum. But for now, with the index staying well below 55H EMA (now at 25252), more decline is expected. Break of 24533.19 will target 100% projection at 23765.64 next.

A break of 55H EMA will indicate short term bottoming and bring stronger rebound, possibly through 25817.68 resistance. But that doesn't change the outlook in the bigger context.

That is, fall from 26951.81 is seen as correcting whole up trend from 15450.56. Further decline is expected to 38.2% retracement at 22558.33 before completion. It's just a matter of going straight to this fibonacci level, or have an interim rebound first.

The Japanese yen has edged lower in the Thursday session. In North American trade, USD/JPY is trading at 112.50, up 0.22% on the day. On the release front, Japanese SPPI ticked lower to 1.2%, matching the forecast. We’ll get another look at Japanese inflation, with the release of Tokyo Core CPI. The key indicator is expected to remain pegged at 1.0%. In the U.S, durable good orders were a mixed bag. Core durable goods orders remained stuck at 0.1%, missing the estimate of 0.5%. There was better news from durable goods, which fell to 0.8%, but was well above the forecast orders of -1.3%. Unemployment claims rose to 215 thousand, a shade above the forecast of 214 thousand. On Friday, the U.S publishes Advance GDP and UoM Consumer Sentiment.

The Japanese economy is heavily dependent on exports, so the simmering trade war between the U.S and China remains a serious headache for Japanese policymakers. A Japanese government report released this week sounded pessimistic about the export sector. The report lowered its forecast for exports, due to the ongoing trade war. The report said that exports were flat, but also noted that the Japanese economy continued to recover at a moderate pace. President Trump has spared Japan’s auto sector from tariffs for now, but that could easily change with an unpredictable President Trump. Chinese growth slipped in the third quarter, which is bad news for Japan, as China is Japan’s largest trading partner.

Will we see a fourth rate hike in 2018 from the Federal Reserve? The odds of a December hike stand at 70%, according to the CME Group. As for next year, the general consensus is that there will be three rate increases. This sentiment was reinforced on Wednesday by Dallas Federal Reserve Bank President Robert Kaplan on Wednesday. Kaplan said he expects rates to rise into a range of 2.5% to 2.75%, or more likely, into a range of 2.75% to 3.00%. Kaplan noted that his estimate of a “neutral rate’ is slightly below 3% – anything above this level would move rates into a “restrictive’ stance, which could hamper economic growth and push inflation lower. The stock markets received a jolt this week as Chinese growth slipped to a 10-year low in the third quarter, and further weak numbers out of China could affect the U.S economy and cause the Fed to scale back its rate hike plans for 2019.

Daily Pivots: (S1) 1.2983; (P) 1.3041; (R1) 1.3113; More...

USD/CAD's strong rebound today dampens the bearish case and intraday bias is turned neutral first. On the upside, break of 1.3132 resistance will also have near term falling channel taken out. That will add to the case that whole fall from 1.3385 has completed. Intraday bias will be turned back to the upside for 1.3225 resistance for confirmation. On the downside, break of 1.2969 should finally confirm completion of rebound form 1.2781. Intraday bias will be turned back to the downside for this 1.2781 support.

In the bigger picture, rejection from the channel resistance from 1.3385 suggests that such corrective fall is not completed yet. And, a new low below 1.2781 would likely be seen. Nevertheless, we'd expect strong support inside 1.2527/1.2723 zone to contain downside to resume the up trend from 1.2061. The support zone represents 50% and 61.8% retracement of 1.2061 to 1.3385. On the upside, break of 1.3132 resistance will target a test on 1.3385 high.

Markets

The ECB kept its monetary policy and forward guidance on interest rates, reinvestments and asset purchases unchanged. The ECB anticipates APP to end by December 2019. The economic and inflationary assessment stayed unchanged even if ECB President Draghi admitted that incoming data were somewhat weaker than expected. Risks to the eco outlook are still broadly balanced, but protectionism, financial market volatility and emerging markets remain prominent. Draghi stressed that it’s totally about a weaker momentum and not a downturn. He referred to country specific factors (eg car sector in Germany), a return to normal from the exceptional growth/export performance last year while the trade conflict, Italy and brexit cause some uncertainty. He didn’t take a strong position on the weaker eco data and referred on several occasions to the new December GDP and inflation forecasts. They will point out whether or not the ECB becomes more cautious. The inflation chorus was unchanged. Core inflation is expected to pick-up towards the end of the year because of the ongoing economic expansion, the ECB’s monetary policy and wage inflation. Asked about the next steps for the ECB, Draghi said that two members raised the issue of TLTRO’s, which huge redemptions due by the end of 2019. The December meeting could also in this respect turn out to be very interesting. The ECB chair got a lot of question on the Italian-EU standoff, but he kept his cards close to his chest expressing hope that reason will conquer in the end. He declined to make what-if analyses for what might happen to Italian debt and how the central bank’s reaction function would then look like.

European equity markets decoupled from the sell-off yesterday in the US and in Asia this morning. The intraday swings in equities had only modest impact on core bond yields and on EUR/USD. The Bund contract lost a few ticks. EUR/USD settled in a tight range in the low 1.14 area. A soft German IFO release was also largely ignored. Investors looked forward to the US equity performance and to Draghi’s press conference after the ECB policy decision. At the ECB press conference, president Draghi confirmed the economic assessment from September. The ongoing mildly positive tone from the press conference caused a negligible rise in core European yields. EUR/USD temporary gained a few ticks, but soon reversed this gain. US eco data were mixed with also no clear guidance for markets. The risk rebound caused a modest rise in core US and European yields at the time of writing, US yields rise between 1.3 bps (30-y) and 3.5 (5yr). Changes on the European yield curve are negligible (<1 bps across the curve). Peripheral spreads are narrowing in line with an overall better risk sentiment with the Italian bond outperforming (10y spread narrowing 9 bps). Changes in the major FX cross rates remain modest for now. EUR/USD reversed minimal gains and trades again near recent lows (1.1385 area). USD/JPY returned to the 112.35 area. So, if anything, there are is a slight tendency toward USD strength as US equities are rebounding after yesterday’s sell-off.

News Headlines

The Norwegian central bank kept its policy rate as widely expected unchanged at 0.75%. Economic growth is slightly below forecasts while inflation is somewhat higher. Overall conditions remain broadly in line with the scenario plotted in September, setting the central bank on course for a second rate hike by early 2019. The Turkish central bank held its policy rate steady at 24%, following the impressive September hike (from 17.75%) and said that upside risks on pricing behavior continue to prevail.

German IFO business sentiment disappointed in October (102.8 from 103.7), like PMI’s did yesterday. Details showed both a deterioration in the current assessment and in the forward looking expectations component. US eco data printed mixed. Weekly jobless claims continue hovering near multi-decade lows (215k). US durable goods orders increased by 0.8% M/M in September (vs -1.5% M/M), but capital goods order nondefense ex aircraft, which is a proxy for investments in US GDP, unexpectedly declined, but the September number was upwardly revised.

Crude oil is currently recovering, ideally unfolding final leg within a corrective wave iv that can look for resistance and a reversal lower near the Fibonacci ratio of 50.0 or 61.8. Also at the same area, we see the upper channel line which can react as a resistance for the energy. That said, a drop below the 66.02 level will confirm more weakness, while a decisive rally above the upper channel line will confirm a low in place and more gains.

Crude oil, 1h

Daily Pivots: (S1) 111.98; (P) 112.36; (R1) 112.63; More..

Despite dipping to 111.82, USD/JPY recovered well ahead of 111.62 support. Intraday bias is turned neutral again. On the upside, break of 112.88 resistance will resume the rebound from 111.62. But upside should be limited by 61.8% retracement of 114.54 to 111.62 at 113.42 to bring another decline. On the downside, break of 111.82 will likely resume the fall from 114.54 to 38.2% retracement of 104.62 to 114.54 at 110.75. As the fall from 114.54 is viewed as part of medium term correction, we'll look for bottoming signal above 109.76 key support.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds. However, decisive break of 109.76 will dampen this bullish view and turns outlook mixed again.

Daily Pivots: (S1) 0.9949; (P) 0.9970; (R1) 0.9998; More...

USD/CHF's rally re-accelerates to as high as 1.0015 in early US session and intraday bias stays on the upside for 1.0067 resistance next. Decisive break there will confirm resumption of larger rise from 0.9186 and should target 1.0342 key resistance next. On the downside, below 0.9955 minor support will turn intraday bias neutral first. But near term outlook will remain bullish as long as 0.9848 support holds.

In the bigger picture, the pullback from 1.0067 has completed at 0.9541 already. And rise from 0.9186 is likely resuming. Firm break of 1.0067 will pave the way to retest 1.0342 key resistance. We'd be cautious on strong resistance from there to limit upside to bring another medium term fall to extend long term range trading.

Daily Pivots: (S1) 1.2832; (P) 1.2915; (R1) 1.2963; More...

GBP/USD's fall is still in progress and intraday bias remains on the downside for 1.2784 support first. Break will target 1.2661 low next. Decisive break of 1.2661 will resume larger down trend from 1.4376. On the upside, break of 1.3044 minor resistance is needed to indicate short term bottoming. Otherwise, outlook will remain mildly bearish even in case of recovery.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend. And this will be the preferred case as long as 38.2% retracement of 1.4376 to 1.2661 at 1.3316 holds. However, firm break of 1.3316 would bring stronger rebound to 61.8% retracement at 1.3721. And, the eventual depth of the fall from 1.4376, and the chance of hitting 1.1946 low, will depend on the strength of the interim corrective rebound from 1.2661.

The Turkish lira firmed on Thursday after the CBRT left interest rates unchanged at 24%, as expected. The USDTRY pair holds in red for the second straight day after corrective action from new 10-week low at 5.5182 (18 Oct) stalled at 5.8735. Base of thick daily cloud (5.8097) marks very strong barrier which limited recovery attempts, keeping short-term bears intact. The pair moves within bear-channel off 6.8379 (30 Aug high), maintaining bearish bias and focusing pivotal supports at 5.5341 (100SMA) and 5.5035 (Fibo 61.8% of 4.5121/7.1074), break of which would generate fresh bearish signal for further extension of pullback from new record high at 7.1074. The central bank kept policy unchanged and said would keep tight policy until inflation outlook improves, with further tightening possible if situation worsens. Stronger lira comes as a result massive rate hike in September, which was described as appropriate action to keep double-digit inflation controlled and regained confidence of traders. Bearish momentum continues to strengthen and daily MA's (10;20;30;55) are in bearish setup and supportive for further descend.

Res: 5.6988; 5.8097; 5.8735; 5.8433
Sup: 5.5341; 5.5182; 5.5035; 5.3336