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For the 24 hours to 23:00 GMT, the AUD rose 0.81% against the USD and closed at 0.7124.

LME Copper prices declined 2.2% or $139.0/MT to $6155.0/MT. Aluminium prices declined 0.3% or $5.0/MT to $2024.0/MT.

Overnight data showed that Australia’s seasonally adjusted home loan approvals eased 2.1% on a monthly basis in August, more-than-anticipated and compared to an advance of 0.4% in the previous month.

Elsewhere, in China, Australia’s largest trading partner, trade surplus widened to $31.69 billion in September, more than market expectations and compared to a surplus of $27.89 billion in the previous month.

In the Asian session, at GMT0300, the pair is trading at 0.7121, with the AUD trading slightly lower against the USD from yesterday’s close.

The pair is expected to find support at 0.7082, and a fall through could take it to the next support level of 0.7042. The pair is expected to find its first resistance at 0.7146, and a rise through could take it to the next resistance level of 0.7170.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, Gold rose 2.45% against the USD and closed at USD1226.90 per ounce, amid weakness in the greenback.

In the Asian session, at GMT0300, the pair is trading at 1224.30, with gold trading 0.21% lower against the USD from yesterday’s close.

The pair is expected to find support at 1203.00, and a fall through could take it to the next support level of 1181.70. The pair is expected to find its first resistance at 1237.80, and a rise through could take it to the next resistance level of 1251.30.

The yellow metal is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, Silver rose 1.85% against the USD and closed at USD14.62 per ounce, tracking gains in gold prices.

In the Asian session, at GMT0300, the pair is trading at 14.59, with silver trading 0.14% lower against the USD from yesterday’s close.

The pair is expected to find support at 14.36, and a fall through could take it to the next support level of 14.13. The pair is expected to find its first resistance at 14.74, and a rise through could take it to the next resistance level of 14.88.

The white metal is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, Crude Oil declined 2.12% against the USD and closed at USD71.17 per barrel, after the Energy Information Administration (EIA) report indicated that US crude oil stockpiles rose by 6.0 million barrels to 410.0 million in the week ended 05 October 2018. Additionally, the Organisation of the Petroleum Exporting Countries (OPEC) stated that its crude production rose by 132,000 bls to average 32.76 million barrels per day last month.

In the Asian session, at GMT0300, the pair is trading at 71.21, with oil trading 0.06% higher against the USD from yesterday’s close.

The pair is expected to find support at 70.28, and a fall through could take it to the next support level of 69.34. The pair is expected to find its first resistance at 72.38, and a rise through could take it to the next resistance level of 73.54.

Crude oil is trading below its 20 Hr and 50 Hr moving averages.

Key Highlights

• The US Dollar started a major downside correction from the 114.50 resistance against the Japanese Yen.
• There was a break below a major bullish trend line with support at 113.55 on the 4-hours chart of USD/JPY.
• Recently in the US, the CPI posted an increase of 0.1% in Sep 2018 (MoM), less than the 0.2% forecast.
• Today, the US Import Price Index for Sep 2018 will be released, which is forecasted to increase 0.2% (MoM).

USDJPY Technical Analysis

After a major upward move, the US Dollar found resistance near 114.50-55 against the Japanese Yen. The USD/JPY pair started a downside correction and broke the key 113.00 and 112.80 supports.

Looking at the 4-hours chart, the pair trimmed most of its gains and broke the 50% Fib retracement level of the last major wave from the 110.38 low to 114.53 high. Moreover, there was a close below the 113.00 support and the 100 simple moving average (red, 4-hours).

To move into a bearish zone, there was a break below a major bullish trend line with support at 113.55 on the same chart. The pair tested the 112.00 support and later started consolidating losses.

At the outset, the pair is under pressure below the 113.00 level and a connecting bearish trend line on the same chart with resistance at 112.75.

As long as the pair is below 113.00, it could slide towards the 111.40 support and the 76.4% Fib retracement level of the last major wave from the 110.38 low to 114.53 high.

To start a fresh upward move, USD/JPY must settle above the 113.00 level and the 100 simple moving average (red, 4-hours).

Fundamentally, the US Consumer Price Index for Sep 2018 was released by the US Bureau of Labor Statistics. The market was looking for an increase of 0.2% in the CPI in Sep 2018 compared with the previous month.

However, the actual result was lower than the forecast as the CPI increased 0.1%. The yearly change was 2.3%, less than the forecast of 2.4% and also less than the last 2.7%. Looking at the CPI ex Food an energy, there was a rise of 2.2% (YoY), similar to the last reading.

The report added that:

The index for all items less food and energy rose 0.1 percent in September, the same increase as in August. The shelter index increased 0.2 percent, and the indexes for apparel, motor vehicle insurance, recreation, and airline fares also rose.

Overall, the US Dollar could correct further in the short term and pairs like EUR/USD and GBP/USD may recover.

Economic Releases to Watch Today

• German Consumer Price Index for Sep 2018 (YoY) – Forecast +2.3%, versus +2.3% previous.
• German Consumer Price Index for Sep 2018 (MoM) – Forecast +0.4%, versus +0.4% previous.
• US Import Price Index Sep 2018 (MoM) – Forecast +0.2%, versus -0.6% previous.
• US Export Price Index Sep 2018 (MoM) – Forecast +0.2%, versus -0.1% previous.

STOCKS

Sharp and strong movements in almost all the equity indices is seen. While the equities look weak, the correction mode could last for another week possibly. There are important supports coming up near current levels and if they break, a sharp bearish trend could set in. We wait for confirmation if the price breaks below immediate supports.

Dow (25052.83, -2.13%) has fallen about 2% in a single session, indeed a sharp 1-day down move. There is support near current levels which if holds could take the index upwards; else the fall could continue towards 23500 in the medium term.

Dax (11539.35, -1.48%) has broken below important weekly support near 11600 and if the index does not recover immediately to rise above current levels, Dax could be vulnerable to a fall towards 11200-11100 levels soon. The falling momentum like strong just now.

Nikkei ( 22493.65, -0.43%) has important support near 22450-22430 levels and while that holds, Nikkei could bounce back towards 24000 in the medium term. It would be important to see if the support holds, else the index could be vulnerable to a sharp fall towards 22000.

Shanghai (2562.56, -0.81%) has fallen and come down to test support near 2550 mentioned yesterday. If support in the 2500-2550 zone holds, some recovery could be expected next week. Only if the index breaks below 2500, we would focus on lower support at 2450.

Nifty (10234.65, -2.16%) fell to 10138 yesterday and bounced back a bit to close above 10200. While there is still some scope of testing 10000 on the downside, we could see a sharp bounce next week. A possible wedge like formation looks likely on the daily chart which if holds could bring a sharp bullish reversal in the near term.

COMMODITIES

Brent (80.63) has seen a decent fall. As mentioned in yesterday's edition, we may look for a fall towards 78-77 region in the near term. View is bearish for the next 3-4 sessions.

WTI (71.22) has come closer to testing important support near 70-71 region. This could be tested by mid-next week and the support if holds could take the price upwards later on. For now, WTI looks bearish.

Gold (1222.50) has risen sharply in line with our expectation. Yesterday we had mentioned that the Gold price seemed to be forming a sideways base before starting a fresh upmove. For now, this seems to have begun. But a sustained movement above 1210 would give us some confirmation of further rise towards 1230-1250 in the medium term. Overall near term trend remains bullish.

Copper (2.7910) is almost stable ranged within the 2.70-2.85 zone. As mentioned yesterday, there is some scope of falling towards 2.65 in the near term. Overall the next few sessions could continue to remain ranged below 2.85

FOREX

Euro could pause in its rise near 1.162. A break below 74 on USDINR today could confirm further Rupee strength in the near term.

Euro (1.1604) could pause at resistance near 1.162 (provided by the 21 days MA). A break below 1.158 could lead to a retest of 1.155 in today's session. An ultimate test of 1.165-1.170 in the next 1-2 weeks is likely.

Dollar Index (95.04) is coming near to support at 94.98 (21 days MA). After pausing there for sometime, it is likely to drop to lower support near 94.5 by next week.

Dollar Yen (112.27) has important supports coming up : 55 days MA giving support near 111.78, trendline support in the 111.5-111.0 region. A break below 111 could be very bearish.

Euro-Yen (130.19) has immediate channel resistance at 130.20-30, which if broken could change the bias towards the upside in the next few sessions. The 21 weeks MA near 129.16 continues to be an important support to watch out in the near term.

Pound's (1.3236) upmove has paused at resistance near 1.325 on daily candles. However a break of that level to target 1.33-1.34 could happen in the next week. A close below the 21 weeks MA (1.309) today would however negate the upside bias for next week.

Aussie (0.7121) hasn't been able to break below 0.705 yet. There is good chance of an upmove towards resistance near 0.715-0.720 in the coming week. A break above that would be required to negate the possibility of a downside below 0.705.

Dollar Rupee (74.125): Factors could be aligning for Rupee strength. But need confirmation by way of break below 74.00 today. NDF trading @ 73.86 - hence, chances of a break of 74 in onshore markets is high.

INTEREST RATES

India 10 year yield (7.98%) has again broken below Support @ 8%. If this break sustains, then lower support near 7.90% could be approached.

The US 10 Year (3.16%) and 30 year (3.34%) : While below 3.2% and 3.4%, there are chances of a further near term downmove to 3.10% and 3.30% respectively.

The US 30-5 yield differential (0.32%) has started rising and could move up further towards resistance near 0.50% in the near term.

10 Year German-US spread (-2.64%): As expected, resistance near -2.60% on medium term chart is holding for the spread. It could drop to -2.70% again over the next week.

German 10 year yield (0.52%), as expected, is dipping from resistance on medium term chart and could target 0.40% next week.

Japan 30-5 year yield spread (0.97%) has broken above long term resistance near 0.95%. If this break persists, it could imply that the 30-10 (0.76%) could also break above resistance near 0.82%. If that happens, it could be very bullish for bond yields globally.

However, the Japanese 10 Year yield (0.14%) has support at current level - if it rises from here, then the above bullish possibility stays intact.

In the regional outlook report released today, IMF downgraded Asia growth forecasts in 2019 due to financial market stress and trade tensions. But it maintained that "near-term outlook for Asia remains positive, supported by steady global momentum and broadly accommodative policies". Also, "Asia continues to be the main growth engine of the world".

Overall Asian growth is projected to be at 5.6% in 2018 and 5.4% (downgraded by -0.2%) in 2019. For 2019, four of the seven advanced economies got growth projections downgraded, including Australia at 2.8% (-0.3%), Hong Kong 2.9% (-0.3%), Korea 2.6% (-0.3%), Singapore 2.5% (-0.2%). Taiwan got an upgrade to 2.4% (+0.4%), so did New Zealand at 3.0% (+0.1%). Japan's forecast was unchanged at 0.9%. Overall emerging Asian economies was downgraded to 6.3% (-0.3%) in 2019. China's growth was downgraded to 6.2% (-0.2%), India to 7.4% (-0.4%).

Additionally, IMF cited the following near-term downside risks to the forecasts:

• Escalating trade tensions
• Tighter global financial conditions
• Homegrown risks

And it urged the following policy actions:

• strengthen macro building blocks
• liberalize trade and investment
• strengthen productivity prospects
• seize the opportunities of, while addressing the spillovers from, the digital economy

IMF's release and full report.

There are media reports came out yesterday saying that US Treasury is not going to name China a currency manipulator in the upcoming report to be released later in the month. Though China will remain on a monitoring list due to the huge trade surplus with the US.

That could put Treasury Secretary Steven Mnuchin under even bigger pressure from Trump and the trade hawks in his administration. Mnuchin is clearly the one who preferred to and tried to line up restart of negotiation with China. But he has been receiving cold shoulders from his colleagues.

And Trump seemed to have gotten impatient with Mnuchin. If should be reminded that Trump didn't just complained Fed for rate hikes. In his words, he said earlier "The problem [causing the market drop] in my opinion is Treasury and the Fed. The Fed is going loco and there's no reason for them to do it. I'm not happy about it."

In a Bloomberg interview yesterday, Mnuchin declined to comment and only said "We are concerned about the depreciation" of the yuan, he said, "and want to make sure that it's not being used as a competitive devaluation."

USD/CNH (offshore Yuan) was rejected from 6.9586 high yesterday, mainly thanks to Dollar's broad based selloff. It's technically still bounded inside a near term rising channel. Thus, more upside (that is more downside in Yuan) could be seen. But the corrective structure of the choppy rise from 6.7776 warrants that 6.9586 won't be broken even in case of another rise.

The recovery attempt in the US stock markets failed overnight. DOW lost another -545.91 pts or -2.13% to close at 25052.83. S&P 500 dropped -57.31 pts or -2.06% to 2728.37. NASDAQ fell -92.99 pts or -1.25% to 7329.06.

DOW move further away from 55 day EMA affirms the case that it's in medium term correction. That is, fall from 26951.81 is corrective the up trend from 15450.56, in a less bearish case. Eventually, it might decline to 38.2% retracement of 15450.56 to 26951.81 at 22558.33 before forming a real bottoming. Nonetheless, the next line of defense come is between 23997.21 structural support and 55 week EMA (now at 24512.04). Some interim support could be seen there. But looks like there's some more downside for the near term.

However, S&P 500 is already in proximity to equivalent support zone. That is, 2691.99 structure support and 55 week EMA (now at 2713.94).

NASDAQ is well above equivalent structure support at 6926.97. But it's already pressing 55 week EMA (now at 7306.12).

So, the conditions are starting to be in place for an interim rebound, before weekly close or next week. (Well admittedly, it actually sounds rather trivial after the steep losses this week, stocks are ready for short covering recovery.)

Not quite Goldilocks

Not to state the apparent but markets are finding themselves in a total state of discombobulation as we mercifully head towards the weekend. There have been multiple train wrecks over the past 24 hours, and the continuous wall of worry around US yields and US-China tension still weighs on equity sentiment.

Goldilocks? Yes and No

Not quite the Goldilocks narrative that we are so accustomed to after a weaker than expected inflation print (CPI) as those three bears are not so good-natured or harmless and are forever prowling looking for the opportunity to drive risk lower. The more moderate inflation prints only provided a modicum of repose and far from the antacid “plop- plop fizz-fizz ” oh what a relief it is, the market so desperately needed. Wall Street recorded its second day of steep declines. But there is one positive, however, as the overnight session came to a gruelling finale, New York traders could finally catch their breath. !!

However, some of my colleagues are suggesting EM FX rallied in response to the CPI data – implying that at least for some, the read on the data did that confirm markets are in the so-called Goldilocks zone where the US economy is – not too hot or cold, and just right. But I think the improving EM sentiment has more to do with the RMB complex.

Chinese Yuan

USDCNH sprung a leak through 6.88 overnight triggered by a Politico article which stated the internal report to Treasury Secretary Steven Mnuchin did not recommend that Beijing is labelled a currency manipulator and continued to place China on a monitoring list.

But adding to the momentum f China’s Ministry of Commerce issuing some comments regarding the arrest a technology spy, reports that China-US trade talks will resume and chatter that Xi and Trump will indeed be meeting at the G-20 sidelines next month. Trump is willing to meet with Chinese President Xi, but Beijing needs to show openness to compromise.

The moves lower on USDCNH have eased some anxiety, especially for EM Asia FX that that had been building in worst case scenarios that China could let the Yuan fall. But even more significantly for global markets is that the US Treasury Department’s staff has advised Secretary Steven Mnuchin that China isn’t manipulating the yuan as the Trump administration prepares to issue a closely watched report on foreign currencies, according to two people familiar with the matter. So, if Trump and Munichin accept these finding at face value, which the market agrees with, it could avert an EM Asia currency meltdown and would forestall an escalation of the U.S.-China trade war.

Positioning was heavy long USDCNH in Asia yesterday, and a cascade of stops losses have triggered on the move lower. At least this should offer a glint of relief for Asian capital markets.

USD Asia was under intense focus overnight Overall FX interbank volumes were approximately 45% higher across spot G10 & EM, as the upshot of US CPI, CNH headlines and continued cross-asset volatility and vital focal points USDJPY, EURJPY USDCNH and HKD experienced a two-fold increase in trading volumes. But none the less US-China relations remain to be the focal point for markets. There is some nervousness about the US Treasury Currency Report due to be released the week, but sentiment has thankfully improved for regional investors.

A Bullish Glint?

The overnight chatter does suggest that at a minimum there will be a softer tone on the currency manipulator theme, although the unpredictable nature of commander and chief Donald Trump does raise the level of uncertainty, and there could be more risk-reduction into the weekend as investors position more defensively. But this does offer a significant window of opportunity for the not so meek of heart.

Oil Markets

In the near term, crude oil traders will likely focus on global equity markets looking for any signs stability to conceivably mount a recovery for the current headwinds.

But oil markets are indeed going through an inflexion point of their own. OPEC’s Monthly Oil Market Report has followed the DOE Short-Term Energy Outlook reporting supplementary non-OPEC production growth, with a 200,000 bpd increase from a month ago which lessens demand for OPEC barrels.

The oil markets are sagging as more bullish bets performed a ” cut and run ” after Energy Information Administration showed Crude inventories rose by 6 million barrels in the week to Oct. 5, as analysts again wholly missed the dartboard expecting a build 2.6 million barrels. The EIA data came in lower than the eye-watering API build but its still a larger-than-expected increase for last week as refinery runs continue to fall due to seasonal maintenance work as another increase in Cushing WTI NYMEX delivery hub just added to the negativity.

With supply worries now gripping markets after this bearish EIA report, supply-side anguish has slinked into the equation as oil traders remain on the defence. Indeed, it’s hard to sugar coat this week’s inventory data, but for perpetual bulls like my self, if risk stabilises around improving US-China tension, there are some very cheap entry points on offer. And given positions are much cleaner after the latest ” Porthole” effect, there should be good support near and around $80 prompt Brent.

Gold Markets

This global market tumult was the opportunity that gold Bulls had been waiting for since last Wednesday when nascent sings of and impending equity market meltdown started to ferment as both US -Yields and US-China trade tensions were creating some significant headwinds. As the playbook suggested Gold markets finally showed some of life, but it took an absolute pummeling on equity markets to trigger demand as market lolloped towards critical l $1200 level. But on the break, buying accelerated as near-term stop-loss triggers came into play once the 50-day moving average gave way. But it was the softer than expected CPI print and with risk aversion remaining front and centre, it provided the catalyst to test the significant resistance level at $1225.

Currency Markets

Granted there’s always that initial shock factor when the Presidents preaches Tumpanomics especially when his views challenge the world’s most powerful central bank. But these types of outlandish remarks tend to have few lasting effects from my seat.

The Euro

The EURUSD has been driven by USD sentiment more than EUR itself. Both of Italy’s houses of parliament have voted in favour of the government’s fiscal outline, so it is only a matter of time before it goes to the EU. Political uncertainty and Italian politics that usually runs at a heightened emotional state, there enough uncertainty around this Budget that should keep the Euro lower view attractive.

The Malaysia Ringgit

Weaker oil prices will be offset by lower USDCNH. However, traders remain incredibly defensive on the MYR due to the escalating budget noise. While the could be some topside USD reprieve, the next big hurdle for regional currencies is the US Treasury report regarding currency manipulation on Monday as everyone is focusing on the US treasury view about China.