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For the 24 hours to 23:00 GMT, Silver rose 0.34% against the USD and closed at USD14.65 per ounce on Friday.

In the Asian session, at GMT0300, the pair is trading at 14.68, with silver trading 0.20% higher against the USD from Friday’s close.

The pair is expected to find support at 14.59, and a fall through could take it to the next support level of 14.51. The pair is expected to find its first resistance at 14.75, and a rise through could take it to the next resistance level of 14.83.

The white metal is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, Crude Oil rose 0.71% against the USD and closed at USD69.27 per barrel on Friday, amid concerns over the impact of US sanctions on Iran’s oil exports on crude supply.

Meanwhile, weekly figures from Baker Hughes disclosed that the number of active oil rigs advanced by 4 at 873, registering its highest level since March 2015, in the week ended 19 October.

In the Asian session, at GMT0300, the pair is trading at 69.31, with oil trading 0.06% higher against the USD from Friday’s close.

The pair is expected to find support at 68.66, and a fall through could take it to the next support level of 68.00. The pair is expected to find its first resistance at 69.87, and a rise through could take it to the next resistance level of 70.42.

Crude oil is showing convergence with its 20 Hr and 50 Hr moving averages.

Daily Pivots: (S1) 0.7089; (P) 0.7120; (R1) 0.7150; More...

Intraday bias in AUD/USD remains neutral at this point, with focus on 0.7088 minor support. Break there should indicate completion of the corrective rise from 0.7040 and bring retest of this low. Firm break there will resume recent down trend to 61.8% projection of 0.7676 to 0.7084 from 0.7314 at 0.6948 next. On the upside, above 0.7159 will extend the correction. But upside should be limited well below 0.7314 resistance to bring down trend resumption eventually.

In the bigger picture, fall from 0.8135 is tentatively treated as resuming long term down trend from 1.1079 (2011 high). Decisive break of 0.6826 will target 0.6008 key support next (2008 low). However, break of 0.7500 support turned resistance will argue that the corrective pattern from 0.6826 is going to extend with another rising leg before completion.

Asian stocks are in full risk-on mode as the week starts. China's Shanghai SSE leads the way by rising 4.56% at the time of writing, back above 2600 handle at 2666. Some attribute the rebound to words of top Chinese official, including President Xi Jinping who vowed to "unwavering" support for the private sector over the weekend. But it's equally possible a result of intervention of the "National Team" of state-backed funds. Hong Kong HSI follows and is trading up 2.47%. Nikkei and Singapore Strait Times lag behind and are both up 0.4% only.

The currency markets are rather quiet though, with most pairs stuck in Friday's range. For the moment, Aussie is the weakest one, getting no lift from China. And Yen follows as the second weakest, the Swiss Franc. Canadian Dollar is the strongest one, as it recovers from Friday's steep loss. Sterling follows as the second weakest. But after all, the picture the could change drastically as the day goes.

Technically, EUR/USD drew support from 1.1432 and recovered as Moody's Italy downgrade was well received. It's also firm so far as Italy's Di Maio showed some willingness to communicate with EU on budget. More upside is mildly in favor for 1.1621 resistance but this level will likely cap EUR/USD. 0.7088 minor support is a focus today as AUD/USD's recovery lost steam. Break there will bring retest of 0.7040 low and possibly resume larger down trend.

Italy to response to EU on budget today, Di Maio pledged to stay in Euro

Italian Deputy Prime Minister Luigi Di Maio said the government is going to send EU a formal response on the "serious concerns" over its draft budget today. The response will provide explanations on raising budget deficit to 2.4% of GDP next year. Di Maio hoped that would provide "over a long discussion process ... could lead the Commission to share the goals we have set."

Di Maio, leader of the 5-star movement, reiterated that there is a concern of Italy leave the Euro or the EU, based on the jump in yield spreads. But he emphasized that "there is no Plan B (to leave Europe) but only Plan A which is to change Europe." And he pledged that "As long as I'm head of this movement and a minister of this government I'll always guarantee that Italy remains within the euro and in Europe."

Nonetheless, European Commission is expected to formal reject Italy's budget tomorrow, and ask for a resubmission. In a letter to Italy last week, EU described Italy's draft budget as an "obvious significant deviation" of the recommendations adopted by the European Council" and "size of the deviation (a gap of around 1.5% of GDP) are unprecedented".

Moody's downgraded Italy to Baa3, with stable outlook

Last Friday, Moody's lowered Italy's credit rating to Baa3, from Baa2, on notch above junk status. Also rating outlook was assigned as "stable". The rating cut was generally expected and indeed, markets were calmed by the stable outlook.

Moody's expressed concern over the budget deficit target of 2.4% of GDP in 2019, which is three times higher than prior target of 0.8%. The shift towards an expansionary fiscal policy would make "Italy vulnerable to future domestic or externally-sourced shocks, in particular to weaker economic growth." Also, "most of the government's spending increases are structural in nature, implying that they will be difficult to reverse,"

In addition, Moody's warned that "the economic plans of the government, while supportive of growth in the near term, do not amount to a coherent program of reforms that will lift Italy's mediocre growth performance on a sustained basis."

Though, with a stable outlook, "Italy still exhibits important credit strengths that balance the weakening fiscal prospects."

UK Raab open to Brexit transition extension only if it's short and solves Irish backstop issue

UK Brexit Minister Dominic Raab said he's open to the so called transition extension if it could salve the Irish border backstop problem. Raab told BBC TV that "If we need a bridge from the end of the implementation period to the future relationship ... I am open minded about using a short extension of the implementation period." But he also added that it's possible "as long as it is short, perhaps for a few months" and it "has to solve the backstop issue".

Raab also said it's now the "end stage" of the negotiation, and there will be "jitters on all sides of this debate". But he also emphasized thtat it's "time to play for the team".

The week ahead - BoC, ECB and US GDP

Bank of Canada rate decision is a major focus of the week. Despite disappointing CPI as released last week, BoC is widely expected to continue with this week's rate hike. Indeed, markets are still pricing in over 90% chance of that. However, the path ahead is less certain after the sharp slow down in headline CPI from 2.8% to 2.2% in September. So, BoC's statement will be crucial in gauging market expectations.

ECB will also meet this week but it's unlikely to provide anything new. The central bank is a master of forward guidance. The asset purchase program was halved to EUR 15B per month this month. And it's expected to stop after December. Interests rate are going to stay at present levels at least through summer of 2019. That's it. Fed will also release Beige book economic report.

On the data front, Eurozone PMIs and German Ifo will catch a lot of attention. US will also release durable goods and trade balance too. But the most market moving one would likely be Friday's US Q3 GDP.

Here are some highlights of the week:

• Monday: Japan all industry index; Canada wholesale sales
• Tuesday: German PPI; UK CBI trends total orders; Eurozone consumer confidence
• Wednesday: Japan PMI manufacturing; Eurozone PMIs flash, M4 money supply; UK BBA mortgage approvals; US house price index, PMIs, new home sales, Fed's Beige Book; BoC rate decision
• Thursday: New Zealand trade balance; German Gfk consumer climate, Ifo business climate; ECB rate decision; US durable goods orders, trade balance, wholesale inventories, jobless claims, pending home sales
• Friday: Japan Tokyo CPI; US Q3 GDP

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7089; (P) 0.7120; (R1) 0.7150; More...

Intraday bias in AUD/USD remains neutral at this point, with focus on 0.7088 minor support. Break there should indicate completion of the corrective rise from 0.7040 and bring retest of this low. Firm break there will resume recent down trend to 61.8% projection of 0.7676 to 0.7084 from 0.7314 at 0.6948 next. On the upside, above 0.7159 will extend the correction. But upside should be limited well below 0.7314 resistance to bring down trend resumption eventually.

In the bigger picture, fall from 0.8135 is tentatively treated as resuming long term down trend from 1.1079 (2011 high). Decisive break of 0.6826 will target 0.6008 key support next (2008 low). However, break of 0.7500 support turned resistance will argue that the corrective pattern from 0.6826 is going to extend with another rising leg before completion.

Economic Indicators Update

UK Brexit Minister Dominic Raab said he's open to the so called transition extension if it could salve the Irish border backstop problem. Raab told BBC TV that "If we need a bridge from the end of the implementation period to the future relationship ... I am open minded about using a short extension of the implementation period." But he also added that it's possible "as long as it is short, perhaps for a few months" and it "has to solve the backstop issue".

Raab also said it's now the "end stage" of the negotiation, and there will be "jitters on all sides of this debate". But he also emphasized thtat it's "time to play for the team".

The CFTC Commitments of Traders report in the week ended October 16 indicates that positioning on major currencies lowered as a whole. Speculative long positions for USD index futures dropped -2 635 contracts while shorts fell -2 802, sending the NET LENGTH higher, by +167 contracts, to 37 876 contracts. US dollar fell across the board last week.

NET SHORTS for both European currencies remained. For EUR futures, speculative long positions plunged -21 498 contracts while shorts plunged -8 296 contracts, deepening NET SHORT to  29 344 for the week. NET SHORT for GBP futures decreased -10 154 contracts to 50 353, thanks to the -8 187 units drop in speculative shorts positions. Bears might overwhelm next week as mass protest requesting second Brexit referendum might increase volatility in GBP.

On safe-haven currencies, Net SHORT for CHF futures gained +3 721 contracts to 16 524 while that for JPY futures fell, by -14 580 contracts, to 100 621 during the week.

All commodity currencies stayed in NET SHORT positions. NET SHORT for AUD futures dropped -1 793 contracts to 71 491, while that for NZD futures gained +1 592 contracts to 35 412. NET SHORT for CAD futures dropped -1 126 contracts to 11 019. Note that traders, both bulls and bears, reduced bets on the above currencies as uncertainty of global economic growth intensified.

Italian Deputy Prime Minister Luigi Di Maio said the government is going to send EU a formal response on the "serious concerns" over its draft budget today. The response will provide explanations on raising budget deficit to 2.4% of GDP next year. Di Maio hoped that would provide "over a long discussion process ... could lead the Commission to share the goals we have set."

Di Maio, leader of the 5-star movement, reiterated that there is a concern of Italy leave the Euro or the EU, based on the jump in yield spreads. But he emphasized that "there is no Plan B (to leave Europe) but only Plan A which is to change Europe." And he pledged that "As long as I'm head of this movement and a minister of this government I'll always guarantee that Italy remains within the euro and in Europe."

Nonetheless, European Commission is expected to formal reject Italy's budget tomorrow, and ask for a resubmission. In a letter to Italy last week, EU described Italy's draft budget as an "obvious significant deviation" of the recommendations adopted by the European Council" and "size of the deviation (a gap of around 1.5% of GDP) are unprecedented".

According to the CFTC Commitments of Traders report for the week ended October 16,  NET LENGTH for crude oil, heating oil and gasoline futures all dropped. This happened in line with the ongoing correction oil prices. Speculative long positions of crude oil futures declined -18 694 contracts, while shorts rose 16 128 contracts, resulting in a fall in NET LENGTH, by -34 822 contracts, to 493 229 contracts. For refined oil products, Net LENGTH for heating oil futures plunged -4 392 contracts to 43 385, while that for gasoline was down -9 173 contracts to 99 792. During the reporting week, correction in oil prices continued, with the front month WTI crude oil contract sinking -4.06%. The corresponding Brent contract plunged -4.22%.  Net SHORT for natural gas slipped -18 contracts, to 4 534 contracts for the week. The Nymex natural gas contract pulled back after weeks of rally. US EIA reported that weekly natural gas inventory rose above 3 trillion cubic feet for first time since December 2017.

On the precious metal complex, gold futures reverted to NEW LENGTH while silver futures stayed in NET SHORT. Speculative long positions for the former jumped +9 454 contracts, while shorts sank -46 388, resulting in a NET LENGTH 17 667 contracts. The benchmark Comex contract jumped more than +3% during the week in concern, as the pullback in US Treasury yields drove safe-haven demand to gold. Festive season in India also offered modest help. For the latter, speculative long positions added +68 contracts while shorts plunged -7 355, trimming NET SHORT, by -7 423 contracts, to 14 827 contracts. For PGMs, NET LENGTH of Nymex platinum futures rose +4 854 contracts to 13 080 while that for palladium gained +165 contracts to 11 526.

STOCKS

Some recovery is visible in the stock indices which had all declined sharply on Friday. While immediate supports hold, at least some ranged trade is possible if not an immediate upmove from current levels.

Dow (25444.34, +0.26%) was not able to rise sharply beyond 25750 last week and instead fell back from there to re-test 25250. Ranged trade between 25750-25000 is possible in the near term. 25000 is a crucial support which may hold and push back the price towards 25750 and maybe higher in the medium term.

Dax (11553.83, -0.31%) is trading stable just now. Note important support in the 11300-11400 region which could produce some bounce in the near term. While 1300 holds, Dax could again attempt to move up towards 11700-11900 in the medium term.

Nikkei (22461.77, -0.31%) has been attempting lows below 24000 in the last couple of weeks and another attempt to break below 22400 would make the index vulnerable to a further fall in the medium term. On the weekly chart, 22400-22200 is the zone above which the long term uptrend in Nikkei would continue to exist. A break below 22200, if seen, would initiate fresh weakness in Nikkei.

Support near 2450 on Shanghai (2636.88, +3.39%) mentioned last week has held well as the index has bounced back sharply to trade higher. While the index trades above 2600, a move towards resistance near 2750-2800 could be seen while the upside momentum remains intact.

Nifty (10303.55, -1.43%) could trade in the 10100-10700 region for some time while immediate resistance near 10700-10800 holds. A break above 10800 is need for the index to again start moving up. Some range-trade looks possible in the near term.

COMMODITIES

WTI (69.44) is trading above support at 67-68 levels and while that holds, Crude could bounce back in the near term towards 71-72 again. Brent (79.87) also has support near 78 and lower at 75 which could produce a near term bounce in the crude prices.
Brent-WTI (10.53) spread is trading at resistance level on the 3-day chart and if that holds, could come off towards 9 in the medium term. This could be bearish for the Crude prices in the near term.

Gold (1231) continues to trade in the narrow 1220-1235 region. As mentioned earlier, 1240 is an immediate resistance and that needs to break on the upside for the rally to continue in Gold. Gold/WTI ratio (17.75) has dipped a bit from 18. While there is scope of testing 19 at least in the near term, this could be bullish for Gold as well.

Copper (2.7925) has bounced well from levels near 2.738 seen on Friday. This can be attributed to the bounce in Shanghai. While above 2.70, range trade in the 2.70-2.85 region is likely to continue. In the longer term Copper looks bullish.

FOREX

Euro-Dollar and Pound-Dollar could rise towards 1.1568 and 1.32 respectively in this week. Watch crucial resistance near 0.715-0.720 on Aussie. Chances of bullishness in USDINR while above 73.25.

Euro (1.1508) bounced from support on daily line chart near 1.143 on Friday and could now rise towards the 21 days MA at 1.1568 in the next couple of sessions, which has provided resistance in the past and could again do so. Only on a break above the 21 days MA can we look at higher levels of 1.165-1.170.

Dollar Index (95.70) could dip towards support near 95.3 on daily candles in this week, while it stays below 96.

Dollar Yen (112.57) – While above the support at 112, it could rise towards the 21 days MA near 112.95 in this week where it could find some resistance. If it breaks above that, there is higher (and stronger) resistance near 114 (as seen on 3 day line chart).

Euro-Yen (129.56) couldn't close below the 21 weeks MA (129.45) last week, which we have been saying, is necessary for bearishness towards 127. A rise to 112.95 and 1.1568 on Dollar-Yen and Euro-Dollar this week suggests that Euro Yen could rise towards the 21 days MA at 130.67.

Pound (1.3062) has risen from crucial support at 1.30 and could again rise towards resistance near 1.32 on daily candles in this week. The 89 weeks MA (1.3208) might also provide some resistance at that level.

Aussie (0.7110) – On weekly line chart, Aussie seems to have bounced from long term support near 0.7053. However, it has crucial resistances in the 0.715-0.720 region and then higher up at 0.7299 (21 weeks MA). There could be a rise towards 0.715 in the next couple of sessions.

Dollar Rupee (73.325): Advisable to stay guarded for a possible rise in this week while it stays above 73.25. A break below 73.25 opens up 73 and lower.

INTEREST RATES

India 10 year yield (7.92%) has risen slightly above resistance (earlier support ) near 7.90%. While above this level, there could be some chances of another rise towards 8% in the near term. A break back below 7.90% would however open up support near 7.80%-7.75%.

The US 10 Year (3.19%) : Support to watch out for is now slightly higher near 3.17%. While above that, there are chances of a rise towards the previous high of 3.25%-3.26%. A break below 3.17% could take it towards 3.10%. Given below are some of the recent US data releases which have been important for US yields:

US Industrial production increased 0.3% in Sep, in line with expectations (this is the 4th straight month of increase). However, the 3rd quarter growth in Industrial production of 3.3% (annualized) is much lesser than the 5.3% growth in the 2nd quarter.

Moreover, Capacity Utilization stayed unchanged at 78.1% slightly below the expected 78.2%.

US Retail Sales data showed that the growth in Sep (0.1%) was much lower than the expected 0.6%.

These 3 data points could have had some bearish impact on yields but three other factors seem to be keeping yields elevated –

increased supply of US treasury bonds

US jobs report showing job openings at a record high, indicating further tightening in the job market

The FOMC minutes turning out to be hawkish

10 Year German-US spread (-2.73%) looks bearish towards long term support near -2.80%. A break below -2.80% (if it happens) would be very bearish.

German 10 year yield (0.46%) – While below 0.55%-0.60%, it could fall towards support near 0.35%-0.30% in the near term. A break of 0.30% (if it happens) would be very bearish.

Key Highlights

• The Euro declined recently and tested the 1.1430 support area against the US Dollar.
• There is a major bearish trend line in place with resistance at 1.1570 on the 4-hours chart of EUR/USD.
• The US Existing Home Sales in Sep 2018 declined 3.4% (MoM), more than the forecast of -0.7%.
• Today, the Chicago Fed National Activity Index for August 2018 will be released, which is forecasted to decline to 0.17.

EURUSD Technical Analysis

This past week, the Euro failed to clear the 1.1620 resistance area against the US Dollar. As a result, there was a sharp decline and the EUR/USD pair tested the 1.1430 support area.

Looking at the 4-hours chart, the pair clearly failed to settle above 1.1620 and the 200 simple moving average (green, 4-hours). It declined heavily and broke the 1.1500 support level along with the 100 simple moving average (red, 4-hours).

The pair traded as low as 1.1432 and later started a short term recovery. The pair moved above the 23.6% Fib retracement level of the last decline from the 1.1621 high to 1.1432 low.

However, there are many hurdles for buyers near the 1.1570, 1.1600 and the 100 SMA. Moreover, there is a major bearish trend line in place with resistance at 1.1570 on the same chart.

Therefore, the pair must break the trend line, 1.1600, and the 1.1620 resistance to move into a positive zone. On the downside, the 1.1430 level is a decent support, below which the pair could test 1.1400.

Fundamentally, the US Existing Home Sales report for Sep 2018 was released by the National Association of Realtors. The market was looking for a decline of around 0.7% in sales compared with the previous month.

The actual result was lower than the forecast as there was a sharp decline of 3.4% in the US Existing Home Sales to 5.15M. The previous reading was revised down from 5.34M to 5.33M.

The report added:

Total housing inventory at the end of September decreased from 1.91 million in August to 1.88 million existing homes available for sale, and is up from 1.86 million a year ago. Unsold inventory is at a 4.4-month supply at the current sales pace, up from 4.3 last month and 4.2 months a year ago.

Overall, the US Dollar may correct a few points in the near term, but it won’t be easy for the Euro buyers to clear the 1.1570 and 1.1620 resistance levels.

Economic Releases to Watch Today

Chicago Fed National Activity Index for August 2018 – Forecast 0.17, versus 0.18 previous.

Canadian Wholesale Sales for August 2018 (MoM) – Forecast +0.5%, versus +1.5% previous.