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After a quiet day on Tuesday, the euro has resumed its losing ways in the Wednesday session. Currently, the pair is trading at 1.1405, down 0.53% on the day. On the release front, German and Eurozone Manufacturing PMIs slowed in October and missed expectations. German Manufacturing PMI dropped to 52.3, short of the estimate of 53.4 points. The eurozone release fell to 52.1, down to 53.0 points. German and Eurozone Services PMIs followed a similar trend. Still, the manufacturing and services releases all indicated expansion. The ECB is holding its policy meeting and will set the main financing rate.

All eyes are on the ECB, with policymakers widely expected to hold the course with interest rate levels, which have been pegged at a flat 0.00% for almost three years. However, there are no shortage of geopolitical hot spots, including the spike in Italian bond yields, the Brexit impasse and continuing volatility in global equity markets. Despite these issues, the ECB is expected to end its massive stimulus program in December. The markets are now looking ahead to 2019, focusing on the timing of a rate hike. The ECB has adhered to the line that rates will stay on hold “through the summer of 2019”. However, it’s unlikely that policymakers can ignore the issue of a rate hike, which would be a historic move, as the bank last raised rates in 2011. The head of the Dutch central bank, Klaas Knot, recently said that the ECB will have to initiate discussions over the timing of a rate hike in January. Investors will be listening closely to ECB members, as any hints of an interest rate move could send the euro upwards.

EURUSD Forecast

The EURUSD was indecisive yesterday. The bias is neutral in nearest term. Overall price is still in a bearish phase after printed two important bearish pin bars at the EMA 200 and 1.1610/20 resistance area as you can see on my daily chart below but need a clear break below 1.1430 support area to resume the bearish phase targeting 1.1300 region. Immediate resistance is seen around 1.1530. A clear break and daily close above that area would be a serious threat to the bearish outlook retesting 1.1610/20 resistance area.

GBPUSD Forecast

The GBPUSD attempted to push higher yesterday, slipped above 1.3000 psychological level but closed lower below 1.3000, printed a bearish pin bar as you can see on my daily chart below. The bias is bearish in nearest term retesting 1.2925 key support. Immediate resistance is seen around 1.3044. A clear break above that area would invalidate the bearish pin bar scenario testing 1.3100 or higher. On the downside, a clear break and daily close below 1.2925 would expose 1.2800 region.

USDJPY Forecast

The USDJPY had a bearish momentum yesterday bottomed at 111.95 but closed higher at 112.43. The bias is neutral in nearest term but as long as stay above the trend line support the major bullish trend should remain valid. Immediate resistance is seen around 113.00 region. A clear break and daily close above that area would retest 114.00/70 key resistance area. On the downside, 112.00 – 111.60 region remains a key support and good place to buy with a tight stop loss as a clear break below 111.60 would invalidate the major bullish trend.

USDCHF Forecast

The USDCHF had another indecisive movement yesterday. There are no changes in my technical outlook. The bias remains bullish in nearest term as a part of the bullish flag scenario but note that we need a clear break above 0.9980 resistance area to resume the bullish run testing 1.0055 area. Immediate support is seen around 0.9940/10 region. A clear break below that area could lead price to neutral zone in nearest term as direction would become unclear testing 0.9850/25 region.

WTI oil consolidates above two-month low at $65.73, posted on Tuesday, when oil price fell nearly 5% in the biggest one-day loss since 11 July.

Strong negative sentiment was additionally boosted by latest comments from Saudi Arabia's energy minister who said that the OPEC will act proactively and increase production in order to prevent any supply shortage.

On the other side, rising US crude inventories point to excessive supply that adds to negative stance, as concerns about potential stronger impact on global supply once US sanctions on Iran start, having showed mild impact so far.

US API crude stocks report released on Tuesday, showed massive build in crude inventories (9.88 million barrels vs previous week's 2.1 million barrels draw), with focus turning towards EIA weekly crude inventories report, due today and forecasted for 3.69 million barrels build after crude stocks rose 6.49 million barrels last week.

Another rise in crude inventories would further pressure oil prices and risk final push towards key support at $64.43 (16 Aug low/top of rising weekly cloud) as recent fall from $76.88 (03 Oct peak/near four-year high) retraced the largest part of $64.41/$76.88 rally in nearly 14% dip.

Overextended daily studies suggest that bears may take a breather before continuing, with selling upticks strategy being favored.

Broken 200SMA ($67.44) should ideally cap and keep bears firmly in play, however, extended upticks cannot be ruled out and would face strong resistance at $69.60 (converging 10/100SMA's).

Res: 66.65, 67.44, 68.46, 69.60
Sup: 66.03, 65.73, 64.84, 64.43

The mood early Wednesday suggests that financial markets are attempting to return to an air of calm following another round of heavy losses yesterday, and an emotional roller-coaster ride in Wall Street. When you consider the heavy rounds of selling that the financial markets have encountered over the past two weeks, I would expect an air of nervousness to remain for a while yet.

The exact catalyst behind the sudden shift in momentum for global stock markets still remains unclear.But emerging market currencies across Asia once again dipped against the Dollar in early trade today, and with Oil tumbling by an astounding 5% yesterday, this suggests that there is a coordinated hesitance from investors to take on risk.

Dollar Index hovers around 96.00

The Dollar Index is trading higher against a basket of major currencies this morning amid the cautious trading environment.

The Dollar maintains its title as a safe-haven currency, but the repeated weakness seen in the US stock markets over the past couple of weeks has shifted an encouragement from traders to move back towards the Japanese Yen and Gold.

Focusing on the technical picture, the Dollar Index could switch to higher gears if bulls are able to achieve a solid weekly close above the 96.00 level.

EU rejects Italy's budget, Euro wobbles

The political developments in Italy will certainly remain in focus after the European Union rejected the nation's 2019 draft budget. According to the EU, the budget which would push the country's deficit to 2.4% poses “unacceptable risks” to both Italy and the Eurozone. With the Italian government given just three weeks to revise the budget or suffer the consequences of violating EU fiscal law, political tension around the situation in Italy remains on the radar.

Away from the Italian budget drama, investors will keep a close eye on tomorrow's European Central Bank meeting which is widely expected to conclude with interest rates left unchanged. Rather than seek guidance from Draghi on when the ECB could potentially raise interest rates, traders will instead monitor if the ECB president's comments on the situation in Italy. This is seen as a serious risk for the Eurozone and it wouldn't be a surprise if it weighs on the minds of ECB policymakers when providing guidance on a future increase in EU interest rates.

It has not been the best of trading weeks for the Euro thus far with prices trading around 1.1460 against the Dollar this morning. An intraday breakdown below 1.1440 risks opening a path towards 1.1410 and potentially even 1.1300 for the first time since mid-August ahead of tomorrow's ECB meeting.

Commodity spotlight – WTI Oil

Oil prices fell under extreme selling pressure yesterday as the steep selloff across stock markets fueled fears over a possible drop in oil demand growth. Indications from Saudi Arabia that it will not “weaponize” Oil in light of the recent geopolitical tensions has also encouraged traders to sell the commodity.

With geopolitical risk factors raising concerns over global instability and other external uncertainties risking demand for Oil to take a hit, it would not be a surprise if WTI and Brent Crude hold onto their recent losses.

Notes/ObservationsAsia:

• Major European PMI Manufacturing data misses expectations; Germany and Euro Zone new orders components contracts for the 1st time in almost 4 years
• Sweden Central bank keeps policy steady and maintains its rate guidance (1st hike seen in either Dec or mar)

Asia:

• Japan Oct Preliminary Manufacturing PMI: 53.1 v 52.5 prior (highest since April)

Europe:

• EU's Moscovici: Italy public debt might not go down in next 2 years; strong risk Italy 2019 deficit would be above 2.4%. Italy's targeted 1.5% GDP growth in 2019 was optimistic. Reiterated that door was always open for constructive dialogue on Italian budget
• UK Cabinet reportedly warned that Brexit transition to last for years; could have long-running multi-year transition; Northern Ireland to be in separate VAT area (Reminder: PM May on possible transition extension promised that it would only last a few months if enacted at all)
• PM May to meet with backbench Tories (her critics). Reportedly the cabinet meeting on Tuesday (Oct 23rd) was heated and she was challenged by more than half a dozen ministers to set an end date for leaving the customs union after the transition period end

Americas:

• President Trump reiterated criticism of Fed Chairman Powell, says too early to tell if he regretted hiring Powell. Reiterated view that Fed was biggest risk to the economy

Energy

• Weekly API Oil Inventories: Crude: +9.9M v -2.1M prior

Macro

• (DE) Germany: The national manufacturing PMI fell back to a 29-month low of just 52.3 from 53.7, while the services reading dropped to 53.6, leaving the composite output index at a 41 month low. The French reading by contrast was boosted by a stronger than expected services reading, which left the composite output index at a 2-month high of 54.3 in October, despite a correction in the manufacturing reading. More signs then that geopolitical tensions are increasingly weighing on the German economy, with growing political uncertainty at a domestic level not helping. Weak German & French manuf. PMIs in Oct. are in part due to a transitory hit to car makers & their supply chain (from WLPT), but also reflect weaker global trade. The real worry is the tumbling German services PMI, that may question the ECB's conviction in domestic resilience.
• (EU) Eurozone: Preliminary October PMI readings hit a 4 year low, with the flash readings pointing to the slowest growth rate for over two years with an export-led slowdown continuing to broaden out into the services sector. So far remaining order levels are sufficient to keep employment growth going, but the rate is slowing down. At the same time price pressure remain close to a seven year high. Geopolitical trade tensions as well as Brexit uncertainty were likely a big part of the negative backdrop. The balance of risks continues have veered sharply to the downside and while they won't prompt Draghi to reverse the decision to phase out QE by the end of the year, it will keep him very cautious on the timing of rate hikes.
• (EU) Eurozone: Annual M3 growth ticked up to 3.5% in September. Adjusted loan growth to households increased 3.1% y/y, while the annual rate of loans to non-financial corporations increased to 4.3%. No evidence as yet to point to the gradual reduction of monetary stimulus is prompting a trend reversal in loan growth. On balance the counterparts suggest that despite the dip in the headline M3 rate, the numbers are no reason for the ECB to rethink its gradual exit from stimulus measures. On the contrary, the renewed acceleration in the growth rate of loans for house purchases will add to concerns that the very expansionary policy is laying the grounds for new imbalances and financial stability risks further down the line.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.3% at 355, FTSE +0.3% at 6975, DAX +0.1% at 11287, CAC-40 +0.4% at 4987, IBEX-35 +0.4% at 8757, FTSE MIB +0.1% at 18814, SMI +0.3% at 8796, S&P 500 Futures -0.8%]
• Market Focal Points/Key Themes: European Indices trade mostly higher across the board rebounding from yesterdays sharp falls after a rebound from lows on Wallstreet overnight and a mixed session in Asia. European prelim PMI data came in weak with German and French prelim Manufacturing PMI missing estimates and marking multi month lows. On the corporate front, shares of Kering in France trade higher after strong sales numbers, with Safran and Vinci among other notable risers after results. Shares of Deutsche Bank decline sharply following a sharp fall in profits; Volkswagen also falls after cutting there China outlook weighing on the Dax. In the tech space ST Micro declines almost 10% after guidance is said to be on the light side. Looking ahead, expecting another busy day for corporate earnings with notable earners including Boeing, AT&T, UPS and Ingersoll Rand among others.

Equities

• Consumer discretionary: Heineken NV [HEIA.NL] -1.5% (reports organic volume), Kering [KER.FR] +8%, LVMH [MC.FR] +3%, Burberry [BRBY.UK] +1.5%, Hermes [RMS.FR] +3%, Moncler [MONC.IT] +3% (Kering earnings)
• Energy: Saipem [SPM.IT] +7% (earnings), Fortum [FUM1V.FI] -1.5% (earnings)
• Financials: Deutsche Bank [DBK.DE] -3.3% (earnings; guides FY18 Rev slightly lower y/y), Barclays [BARC.UK] +1% (earnings), Metro Bank [MTRO.UK] -6.4% (earnings), DWS [DWS.DE] +3% (earnings)
• Healthcare: Novozymes [NZYMB.DK] -4% (earnings; Rev outlook cut), Bayer AG [BAYN.DE] -1%, Orion [ORNBV.FI] +8% (positive results of Phase III trial)
• Industrials: Antofagasta [ANTO.UK] +1% (reports production), Vinci [DG.FR] +3.6% (earnings), Air Liquide [AI.FR] +1.5% (earnings), Safran [SAF.FR] +3.2% (earnings), Volkswagen [VOW3.DE] -2.5% (cut China outlook)
• Technology: Dassault Systems [DSY.FR] +1.5% (earnings; raises outlook), STMicroelectronics [STM.FR] -8% (earnings; guidance seems to be on light side)
• Telecom: Royal KPN [KPN.NL] +3.5% (earnings)
• Utilities: Iberdrola [IBE.ES] +1.5% (earnings)
• Materials: Fresnillo [FRES.UK] -1.5% (reports production; cut outlook on silver)

Speakers

• Sweden Central Bank (Riksbank) Policy Statement reiterated view that saw the Repo Rate being raised by 25bps at either in December or February meeting. Decision to keep policy steady was not unanimous; Deputy Govs Floden and Ohlsson advocated raising Repo Rate by 25bps to to -0.25%. Since Sept developments had been mostly as expected; forecasts are largely unchanged. If economy continued to support inflation prospects, then it would soon be appropriate to start raising rate at a slow pace
• Sweden Central Bank (Riksbank) Gov Ingves post rate decision press conference reiterated that the development were largely the same as expected back in Sept. Interest rates could be raised in the coming months. Domestic economy remained strong but underlying inflation remained a little weak. Price pressures were seen rising
• Italy Fin Min Tria said to seek more prudence from Cabinet and must be ready to respond to markets
• Italy Dep PM Salvini reiterated view that Italian economy will grow. Believed that if Italy followed EU rules then GDP growth would be lower like 0.9%
• Italy Cabinet Undersecretary Giorgetti reiterated govt view that BTP/Bund 10-year spread near 400bps would mean bank recapitalization (**Note: The Italian govt has previously stated that If Bund to BTP spread hit 400bps then spending plan could change)
• Italy official Siri (adviser to Dep PM Salvini): Reiterates govt stance that seeks dialogue with EU without prejudice
• Czech Central Bank's Nidetzky: Domestic economy and weak CZK currency (Koruna) allowed for more rate hikes
• India govt official stated that could infuse more capital into State banks this year

Currencies/ Fixed Income

• Disappointing PMI data out of Europe sent the EUR/USD lower to test 2-month lows in the lower end of the 1.14 area. Dealers noted that the business activity in Germany's private sector grew at the slowest pace for almost three-and-a-half years
• The GBP/USD was lower as as the EU's reported offer on the Irish border seemed to have been met by little enthusiasm by the British government. PM May to meet with the 1922 committee of Conservative MPs (her critics).

Economic Data:

• (FI) Finland Sept PPI M/M: 0.1% v 0.1% prior; Y/Y: 5.9% v 6.2% prior
• (FR) France Oct Business Confidence: 104 v 106e; Manufacturing Confidence: 104 v 107e, Production Outlook Indicator: 7 v 9e, Own-Company Production Outlook: 10 v 9 prior
• (FR) France Oct Business Survey Overall Demand: 2 v 9 prior
• (CZ) Czech Oct Business Confidence: 16.8 v 16.8 prior; Consumer Confidence Index: 9.5 v 8.5 prior, Consumer & Business Confidence (Composite): 15.4 v 15.2 prior
• (FR) France Oct Preliminary Manufacturing PMI: 51.2 v 52.4e (25th month of expansion but lowest since Sept 2016), Services PMI: 55.6 v 54.7e, Composite PMI: 54.3 v 53.9e
• (DE) Germany Oct Preliminary Manufacturing PMI: 52.3 v 53.4e (46th month of expansion and lowest since May 2016), Services PMI: 53.6 v 55.5e, Composite PMI: 52.7 v 54.8e
• (SE) Sweden Central Bank (Riksbank) left its Repo Rate unchanged at -0.50% (as expected); maintains its guidance on the rate path
• (EU) Euro Zone Oct Preliminary Manufacturing PMI: 52.1 v 53.0e (63rd month of expansion), Services PMI: 53.3 v 54.5e, Composite PMI: 52.7 v 53.9e
• (EU) Euro Zone Sept M3 Money Supply Y/Y: 3.5% v 3.5%e
• (ZA) South Africa Sept CPI M/M: 0.5% v 0.4%e; Y/Y: 4.9% v 4.9%e
• (ZA) South Africa Sept CPI Core M/M: 0.5% v 0.4%e; Y/Y: 4.2% v 4.2%e
• (TW) Taiwan Sept M2 Money Supply Y/Y: 3.3% v 3.4% prior; M1 Money Supply Y/Y: 5.2% v 5.2% prior
• (UK) Sept BBA Loans for House Purchases: 38.5K v 39.0Ke

Fixed Income Issuance

• (DK) Denmark sold total DKK2.855B in 2020 and 2027 DGB Bonds
• (IN) India sold total INR150 vs. INR150B indicated in 3-month, 6-month and 12-month bills
• (SE) Sweden sold SEK5.0B in 3-month bills; Avg Yield: -0.8399% v -0.7952% prior; Bid-to-cover: 2.19x v 2.34x prior

Looking Ahead

• (IT) Italy PM Conte meets Russia President Putin in Moscow
• (UK) PM May to address the 1922 committee of Conservative MPs
• 05:30 (DE) Germany to sell €3.0B in 0.0% Oct 2023 BOBL
• 06:00 (CZ) Czech Republic to sell 2025 Bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (RU) Russia to sell combined RUB20B in 2024 and 2034 OFZ bonds
• 07:00 (US) MBA Mortgage Applications w/e Oct 19th: No est v -7.1% prior
• 07:00 (BR) Brazil Oct FGV Consumer Confidence: No est v 82.1 prior
• 07:30(CL) Chile Central Bank Traders Survey
• 08:00 (CL) Chile Sept PPI M/M: No est v -1.4% prior
• 08:00 (ZA) South Africa Fin Min Mboweni presents the Medium term Budget Policy Statement
• 08:05 (UK) Baltic Dry Bulk Index
• 09:00 (US) Aug FHFA House Price Index M/M: 0.3%e v 0.2% prior
• 09:00 (MX) Mexico Sept Unemployment Rate: 3.5%e v 3.5% prior; Unemployment Rate (Seasonally Adj): 3.3%e v 3.3% prior
• 09:00 (BE) Belgium Oct Business Confidence: 0.5e v 1.2 prior
• 09:30 (BR) Brazil Sept Tax Collections (BRL): 112.1Be v 109.8B prior
• 09:45 (US) Oct Preliminary Markit Manufacturing PMI: 55.3e v 55.6 prior, Services PMI: 54.0e v 53.5 prior; Composite PMI: No est v 53.9 prior
• 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to raise Interest Rate by 25bps to 1.75%
• 10:00 (US) Sept New Home Sales: 625Ke v 629K prior
• 10:30 (US) Weekly DOE Crude Oil Inventories
• 11:30 (US) Fed's Bullard (dove, non-voter)
• 11:30 (US) Treasury to sell 2-Year Floating Rate Notes
• 13:00 (US) Fed's Bostic (dove, voter)
• 13:00 (US) Treasury to sell 5-Year Notes
• 13:10 (US) Fed's Mester (hawk, voter)
• 14:00 (US) Fed's Beige Book
• 15:00 (CO) Colombia Sept Retail Confidence: No est v 26.6 prior; Industrial Confidence: No est v 5.3 prior

During Tuesday's session, the currency pair was resisted by the 55-hour and the 100-hour SMAs to stop the trade at 1.4678. On Wednesday morning, the rate passed through the 50.00% Fibo and the bottom boundary of the medium ascending pattern to trade at 1.1433.

In regards to the near-term future, most likely, the rate will trade downside towards the monthly S2 at 1.1359 due to the resistance of the medium pattern line at 1.1445.

On the other side, the weekly S1 at 1.1425 might support the rate to push the rate to trade upwards to stay at the 1.1440 level during the trading session.

During Tuesday's trading session, the British Pound was supported by the weekly S1 at 1.2974 to stop the trade at 1.2980 mark. On Wednesday morning, the rate broke the support of the weekly S1 to trade at 1.2951.

In regards to the near-term future, most likely, the British pound will trade downwards to stay at the 1.2900 level during the trading session. Meanwhile, the 55-hour simple moving average will try to catch up the rate to give resistance to the rate on Wednesday.

On the other side, the British pound could trade sideways to stay at 1.2920 level due to a lack of fundamental news for the currency pair during the trading session on Wednesday.

During Tuesday's trading session, the currency pair broke most of the technical indicators, such as SMAs and the 50.00% Fibo to stop the trade at 112.67 . On Wednesday morning, the US Dollar broke was trading between the 55-hour and the 100-hour SMAs at the 112.45 mark.

In regards to the near-term future, most likely, the US Dollar will trade sideways to stay at 112.40 level due to the resistance of the monthly PP at 112.60 mark and the support of the 200-hour SMA at 112.32 mark on Wednesday.

On the other hand, today's US Crude Oil Inventories data release at 14:30 GMT might break the prediction for the currency pair. Watch out for the news!

During Tuesday's trading session, the yellow metal surged to the 1,240.00 level, breaking resistances of the most technical indicators to stop the trade at 1,231.04 mark. On Wednesday morning, the gold was trading at the 1,232.16 mark.

In regards to the near-term future, most likely, the gold will surge towards the upper boundary of the dominant ascending pattern line at 1,238.00 mark due to the support of the simple moving averages on Wednesday.

However, the yellow metal could break the support of the simple moving averages if the US Dollar will surge during the trading session.

The Australian Dollar has declined massively against the Japanese Yen after the currency pair reversed from the upper boundary of a three-week descending channel pattern at 82.50 on October 2.

The exchange rate was trading near the upper border of the channel pattern at 79.76 during the morning hours of Wednesday's trading session. From a theoretical point of view, a breakout could be expected within this session.

If this breakout occurs, the currency exchange rate will target a resistance cluster formed by the 200-hour simple moving average and the weekly R1 near the 80.61 regions.

However, technical indicators on the daily and the weekly time frames suggest that a reversal south is likely to occur during the following trading session.