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Daily Pivots: (S1) 1.3195; (P) 1.3222; (R1) 1.3261; More...

GBP/USD's rise from 1.2921 is still in progress. Intraday bias remains on the upside for 1.3297 resistance. At this point, we'd still expect upside to be limited by 1.3316 key fibonacci level to limit upside to bring down trend resumption eventually. On the downside, below 1.3132 minor support will turn bias back to the downside for 1.2921 first. However, sustained break of 1.3316 would pave the way to next fibonacci level at 1.3721.

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 (now at 1.4062). 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.

Markets

Calm returned on global core bond markets yesterday as US Treasuries moved sideways throughout the day, while Bunds couldn't sustain early session gains. The US curve flattened with changes ranging from +0,6 bps (2-yr) to -2,4 bps (30-yr). German yields lost ground in an order up to -3,4bps (10-yr). Equity markets continued their losing streak while slight weaker than expected US inflation had little influence on trading. This morning, media report the US Treasury Department's staff advised Secretary Steven Mnuchin that China isn't manipulating the yuan, improving risk sentiment. US Treasuries open today's session lower on the news. An improved sentiment on global markets will probably put some pressure on the German Bunds as well. Asian equities try to rebound as do US equity futures. Today's eco calendar contains no primary data that has the ability to steer trading. The University of Michigan sentiment index is expected to gain some ground. Fed governors Evans and Bostic are set to speak. Interesting to see if they have something to say on Trump's repeated criticism on the Fed's rate hike path. Major banks (JPMorgan Chase, Wells Fargo & Co and Citigroup inc.) release their third quarter earnings.

Yesterday, risk sentiment remained negative. However, European equities soon set a tentative bottom. This brought some calm on the bond markets. Dollar didn't profit from the risk-off correction on Wednesday and this pattern continued. This time, the euro maintained the benefit of the doubt. The Minutes of the September ECB meeting showed that the Bank was aware of the risks related to the trade war, but Draghi and Co remain confident that underlying inflation will pick up. This message was slightly euro constructive, but EUR/USD trading was mostly a USD story. US Inflation data were slightly softer than expected and propelled EUR/USD closed to 1.16. In nervous US equity trading, the dollar hovered up and down. President Trump said that the dollar is ‘very strong, very powerful' and that this causes difficulties for doing business. The quotes had only little direct impact on USD trading. EUR/USD closed the session at 1.1593. USD/JPY finished a rather calm day at 112.16. Overnight, Asian equities try a cautious comeback, but sentiment stays fragile. Still, this tentative improvement in risk sentiment isn't outright USD-positive. EUR/USD is holding in the 1.16 area. USD/JPY gains slightly ground above 112. Later today, there are few eco data. US consumer confidence (U. of Michigan) maybe has most market moving potential. Of late, we left our ST USD positive bias and turned neutral on EUR/USD. The pair rebounded off the 1.1432 correction low. Italy remains a source of uncertainty. However, for now, some further EUR/USD gains in the 1.1432/1.1815 ST range are possible.

Yesterday, EUR/GBP finally regained some ground after a 6-day losing streak. Investors maybe grew a bit nervous as there was too little concrete news on Brexit progress ahead of next week's EU summit. EUR/GBP closed the session at 0.8762. Today, Brexit will continue to dominate sterling trading. This morning, headlines give a bit more attention to the internal division in May's coalition. The wind can turn, but is might be slightly?/temporarily? GBP-negative. More erratic sterling trading might be on the cards.

News Headlines

Canada announced new volume quotas and tariffs (25%) on certain overseas steel imports on Thursday. The measure aims to prevent excessive dumping from China and other low-cost producers. Countries have been diverting steel shipments to Canada from the US after the latter imposed its own import duties.

The US and Turkey might be close to a deal to end their dispute over Andrew Brunson, the American pastor held in Turkish custody. Tensions between both nations peaked in August when US Treasury Mnuchin threatened to impose more sanctions on Turkey if they did not quickly release Brunson. The Turkish lira rallied on the report.

Chinese trade data showed exports picking up unexpectedly to 14.5% YoY in September. Its trade surplus with the US reached a record, which could further add fuel to the trade conflict. On a different note, the US Treasury staff has advised Mnuchin that China is not manipulating its currency. The country will remain on a monitoring list, however.

The EUR/USD continued to move higher and is now approaching the 50% Fibonacci retracement level, which is a new bounce or break spot.

The EUR/USD break above the 50% Fib could see price move towards the 61.8% whereas a bearish bounce and breakout could see start a retracement.

The EUR/USD is probably close to completing a wave 5 (green) of wave A (blue) but a price could extend the wave 5 to higher Fib levels. A break below the channel support line (blue) could see price move lower and test the Fibonaccisupport levels of wave B (blue).

Daily Pivots: (S1) 0.9860; (P) 0.9892; (R1) 0.9927; More...

No change in USD/CHF's outlook. Intraday bias stays mildly on the downside a pull back from 0.9954 could extend lower. But we'd expect strong support from 38.2% retracement of 0.9541 to 0.9954 at 0.9796 to bring rebound, and then rise resumption. On the upside, break of 0.9954 will resume the rally from 0.90541 and target 1.0067 resistance next.

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.

Stocks pare losses as we head into the weekend

Investors look set for a day of reprieve on Friday, as futures and Asian trade overnight suggest we're not on course for a third day of a selling frenzy.

Stock markets in Asia overnight have rebounded fairly well, with indices posting decent gains, although this does little to change the narrative of the week which has been quite brutal for investors. While everyone has been desperately trying to explain what the catalyst for the sudden and sharp sell-off was, the fact is that there is clearly underlying vulnerabilities and it didn't take much for investors to flood for the exit.

Perhaps this is just a necessary and normal correction but the scale of the losses in such a short period of time are worrying. We may be seeing a paring of those losses heading into the weekend but that doesn't give me any real confidence that markets won't start next week in much the same manner as they've spent much of this.

Oil 1% higher as traders test the water following 8% decline from last week's peak

Oil has been fully caught up in the frenzy over the last couple of days, with the sell-off possibly providing an ample opportunity for those that have profited from its more than 20% gains over the last couple of months alone, to lock in some profits. I don't think it's changed the view of many that oil could have further to run, rather they may see the last couple of days as being a blessing given the levels we're now at.

Brent and WTI are around 1% higher on the day after falling around 8% from last week's peak. Whether they can build on these gains will depend on how risk appetite holds up over the course of the day and, more importantly, on Monday once everyone has had an opportunity to absorb the events of this week and decide whether there's any substance to the sell-off or it's just a knee-jerk overreaction that presents opportunities.

China posts record trade surplus of $34.13 billion with the US in September

For all the talk of trade wars being easy to win, the trade data we've seen this morning suggests it may not be quite so straightforward. It would appear that when you throw a floating exchange rate into the mix – a sensitive issue in itself after the Treasury department found China not to be a currency manipulator, despite Trump's constant claims to the contrary - the surplus country can be quite well shielded from tariffs while the deficit country will face quite the opposite reality.

This would appear to be particularly true when the deficit country's economy is boiling hot and tax reforms mean the consumer has a few extra dollars in their pocket to throw around. While this trend isn't expected to continue as the tariffs become increasingly harsh, more consumer goods are thrown into the mix and pre-emptive order flow passes, it will no doubt be infuriating Trump and pleasing those that oppose such measures.

General Trend:

• Equity markets in Asia rise after Thursday's sell-off
• China Customs official said Q4 trade growth may slow
• PBoC set yuan at weakest level since March 2017
• China sold US dollar denominated bonds at tighter spreads
• Singapore Central Bank tightens policy again, local currency rises
• US corporate earnings are expected from companies including JPMorgan and PNC

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.5%
• (AU) RESERVE BANK OF AUSTRALIA (RBA) FINANCIAL STABILITY REVIEW: TRADE TENSIONS, SLOWDOWN IN CHINA COULD TRIGGER GLOBAL ECONOMIC DOWNTURN
• (AU) AUSTRALIA AUG HOME LOANS M/M: -2.1% V -1.0%E; INVESTMENT LENDING: -1.1% V -1.3% PRIOR
• (AU) Australia Labor Party said to support fast-tracking of corporate tax cuts - US financial press
• (NZ) New Zealand Sept Business Manufacturing PMI: 51.7 v 52.0 prior

China/Hong Kong

• Shanghai Composite opened -0.4%, Hang Seng +0.5%
• (CN) CHINA SEPT TRADE BALANCE: $31.7B V $19.2BE
• (CN) China Customs: Impact from US trade friction 'controllable', Q4 trade growth may slow down; Sept exports to the US +16.6% y/y, imports from the US+1.6% y/y
• (CN) US Treasury staff finds China is not manipulating currency – press
• (CN) Pres Trump reportedly will hold a meeting with China Pres Xi at G20 Summit in Nov – press
• (US) Pres Trump: tariffs on China are having a big impact; my policies have hurt China and I have "a lot more to do" - Fox interview
• (CN) China Finance Ministry (MOF): Sold total of $3.0B in US dollar denominated 5,10 and 30 year bonds (as indicated) at yields of 3.25-4.00%; Total orders ~$13.2B vs >$15B speculated
• (CN) China govt reportedly is mulling joining the Comprehensive and Progressive TPP (CPTPP) trade pact - China press
• (CN) China PBoC set yuan reference rate: 6.9120 v 6.9098 prior (weakest CNY fix since March 10 2017)
• (CN) China PBoC Open Market Operation (OMO): Skips OMO v skipped prior: Net: nil v nil prior

Japan

• Nikkei 225 opened -1.2%
• (JP) Nikkei 225 options said to settle at ~22,313
• (JP) BoJ announcement related to daily bond buying operation: unchanged
• (JP) Japan Fin Min Aso: Japan govt is carefully watching financial market moves, including the FX market
• (JP) IMF Official: Too early to discuss normalization of monetary policy in Japan

Korea

• Kospi opened +0.1%
• (KR) South Korea Sept Unemployment Rate: 4.0% v 4.1%e
• (KR) South Korea Financial Regulator: 'Sharp' foreign capital outflow unlikely from domestic bond market

Other

• (ID) Indonesia President Widodo calls on finance ministers and central bank governors to cushion blows from trade wars, tech disruption and market turmoil; warns risk of 'winter is coming' for global economy
• (SG) SINGAPORE MONETARY AUTHORITY (MAS): SEMIANNUAL MONETARY POLICY STATEMENT: TO INCREASE SLIGHTLY THE SLOPE OF S$NEER POLICY BAND, maintains the width and center of currency band (2nd straight tightening move)
• (SG) SINGAPORE Q3 ADVANCE GDP Q/Q: 4.7% V 5.0%E; Y/Y: 2.6% V 2.4%E
• (TW) Taiwan sells TWD25B vs. TWD25B indicated in 10-Year Bonds; Yield: 0.925% v 0.830% prior; bid-to cover 1.6x

North America

• US equity markets ended lower: Dow -2.1%, S&P500 -2.1%, Nasdaq -1.3%, Russell 2000 -1.9%
• (US) DOE CRUDE: +6.0M V +1.5ME
• Ecuador Oil Min: Expects crude output of 540K bpd by the end of 2018, sees increase to 590K bpd in 2019; Supports crude output increase by OPEC at Dec meeting, sees reasonable crude price of $70-80/bbl

Europe

• (UK) Prime Min May reportedly told cabinet during meeting today that Brexit deal is close
• (IT) Reportedly ECB indicating it will not rescue Italy government or banks unless a bailout program is in place, OMT is conditional on a program - press
• (DE) Germany Finance Min Scholz: Italy should be 'careful' given its refinancing needs; US-EU talks suggest trade-war escalation won't happen
• (G20) Finance leaders Meeting Chairman: Agreed that trade is important engine of growth
• (EU) ECB Weidmann (Germany): Slower euro-area growth not consequence of trade war, but normalization of expansion; Correction in US market not sign of insecure times
• (DE) Germany Bundesbank Wuermeling: Market volatility is a result of monetary normalization
• (TR) US State Dept spokesperson: not aware of any deal to secure release of Pastor Brunson from Turkey

Levels as of 01:30ET

• Nikkei 225, +0.4%, ASX 200 +0.2%, Hang Seng +1.5%; Shanghai Composite +0.9%; Kospi +1.8%
• Equity Futures: S&P500 +1%; Nasdaq100 +1.3%, Dax +0.9%; FTSE100 +0.5%
• EUR 1.1610-1.1584 ; JPY 112.42-112.00 ; AUD 0.7132-0.7115 ;NZD 0.6534-0.6516
• Dec Gold -0.3% at $1,223/oz; Oct Crude Oil +1% at $71.70/brl; Dec Copper +0.9% at $2.800/lb

Market movers today

Market focus continues to be on equity market sentiment, developments in Italy and the US-China trade war, which got a slight relief from the message yesterday that US President Donald Trump and Chinese President Xi Jinping will meet at the end of November during the G20 Summit in Buenos Aires.

There is not much on the data front today. Euro industrial production and US import prices are not likely to move the markets.

Selected market news

The sell-off in global equities continued last night and all the major indices in the US ended the day with sizeable losses. The slump in US equities is now the biggest under Trump's presidency. Volumes continue to be very high and the VIX index surged further to a level not seen since February when we had the last stock rout. The verdict is still out as to why global equity markets are under pressure. Is this 'just' a correction, especially in tech stocks, after the strong rally earlier this year or is the Fed to blame as Trump claims?

The answer is probably that equities face a wave of negative factors at the moment. Global trade jitters continue, Italy continues to spook investors and the Fed seems inclined or forced to hike as the labour market continues to tighten. Furthermore, US treasury yields are being pushed higher by weak international demand due to the expensive FX hedge and supply is booming and will continue to do so as the growing US budget deficit needs to be funded.

One of the factors that can probably stabilise risk markets is a setback or at least a stabilisation in US longer yields. Ten-year yields moved above the psychologically important 3% level at the beginning of October and have stayed there since, despite the recent turmoil. This said, note that equities in Asia are more stable and that US equity futures are now in green. These could be the first signs that the worst of correction is now behind us. Also noteworthy is that Bloomberg is reporting that the US Treasury department will not label China a currency manipulator when the semi-annual report on trading partners is due next week. This should ease trade concerns, together with news that Trump and Chinese president Xi Jinping will meet at end-November.

One comforting signal that should ease concerns that US yields will end the year significantly higher was the muted US CPI data that came in 0.1 percentage point below consensus. If we look at the annualised level for the past three to six months, it is well below 2%. In contrast to the 10Y US treasury auction on Wednesday, yesterday's 30Y treasury auction was characterised by strong demand.

In the European market, Italy continues to take centre stage. Last night, Reuters reported from 'ECB sources' that the ECB will not come to the rescue if the Italian government or bank sector runs out of money as the article puts it, unless the country secures a bailout from the EU. This is nothing new but underlines the current stand-off between Italy and first and foremost the EU, as the new budget is up for approval in Brussels next week.

Daily Pivots: (S1) 111.82; (P) 112.18; (R1) 112.53; More...

Intraday bias in USD/JPY is turned neutral for consolidation with a temporary low in place at 111.82. But further decline is expected as long as 113.28 resistance holds. Fall from 114.54 is seen as correcting whole up trend from 104.62, after rejection by 114.73 resistance. Below 111.82 will target 38.2% retracement of 104.62 to 114.54 at 110.75. 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) 0.7070; (P) 0.7100; (R1) 0.7153; More...

No change in AUD/USD's outlook as consolidation from 0.7040 is extending. Intraday bias remains neutral first. Stronger recovery could be seen but upside should be limited well below 0.7314 resistance to bring down trend resumption eventually. On the downside, firm break of 0.7040 will resume whole down trend from 0.8135 to 61.8% projection of 0.7676 to 0.7084 from 0.7314 at 0.6948 next.

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.

Daily Pivots: (S1) 1.3010; (P) 1.3041; (R1) 1.3068; More...

USD/CAD failed to break through 1.3081 resistance and retreats with 4 hour MACD crossed below signal line. Intraday bias is turned neutral again. On the upside, decisive break of 1.3081 will be the first sign of completion of whole choppy fall from 1.3385. In that case, near term outlook will be turned bullish for 1.3225 resistance for confirmation. On the downside, below 1.2886 minor support will turn bias to the downside for 1.2781 first.

In the bigger picture, corrective rebound from 1.2061 could have completed at 1.3385 already. Deeper fall is mildly in favor to 61.8% retracement of 1.2061 to 1.3385 at 1.2567, which is close to 1.2526 support. For now, we're not seeing fall from 1.3385 as resuming larger down trend from 1.4689 (2015 high) yet. Thus, we'll look for bottoming signal again below 1.2567 . On the upside, though, break of 1.3081 resistance will argue that the pull back from 1.3385 is completed and rise from 1.2061 is resuming for another high above 1.3385.