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EUR/USD has edged higher in the Thursday session. Currently, the pair is trading at 1.1546, up 0.23% on the day. On the release front, French Final CPI declined 0.2%, matching the forecast. The ECB will release the accounts of the August policy meeting. In the U.S, the key indicators are CPI reports. We’ll also get a look at unemployment claims and the Treasury currency report. On Friday, Germany releases Final CPI and the eurozone publishes Industrial Production. The U.S releases UoM Consumer Sentiment.

With bonds yields continuing to rise, investors have reacted negatively and stock markets continue to spin lower. The U.S dollar often is the winner in times of crisis, providing a safe haven for nervous investors. However, the euro has weathered this latest crisis, holding its own against the greenback this week. On Thursday, German 10-year bonds fetched 0.55%, marking a 6-month high. The markets will be keeping a close eye on U.S consumer inflation data – strong numbers would likely increase the likelihood of a December rate hike in the U.S and reinvigorate the dollar.

Investors will be keeping a close eye on the ECB policy meeting accounts, looking for hints as to the timing of a rate hike next year. The ECB has stated that it will not raise rates before the “end of the summer”, which many analysts have interpreted as September 2019. However, that time period is not etched in stone, and the ECB could opt to raise rates earlier, if warranted by economic conditions. Besides inflation, ECB policymakers will have to weigh other factors such as the U.S-China trade war when deciding when to raise interest rates.

EUR/USD

Current level - 1.1538

The violation of 1.1550 signals a reversal at 1.1430 and the outlook is rather positive above 1.1510, for a rise towards 1.1640.

USD/JPY

Current level - 112.25

The test of 112.40 was successful and the outlook remains negative, for a dip to 111.65 zone. Crucial resistance lies at 112.80.

GBP/USD

Current level - 1.3186

The rise since 1.2920 low is still intact, heading towards 1.3295 peak. Crucial on the downside is 1.3130 static support.

While stocks turned down there was some support on EURUSD which actually turned up in five waves from 1.1427, so I see pair pair establishing a new base which means more upside can be coming after a pullback. There is a chance that pair will resume trend to 1.1650 area while is trading above Oct 09 low.

EURUSD, 1h

GBPUSD is also in uptrend and may see more upside after a-b-c set-back in wave four. Support for this one is at 1.3160.

GBPUSD, 1h

Notes/Observations

• European underlying inflation remains a headwind for key European countries
• Hotter-than-expected Swedish inflation data creates rising expectations for a Dec rate hike by Riksbank
• Turkey registers its 1st current account surplus since Sept 2015 (+$2.6B v +$2.5Be)
• Focus turns to key US CPI data for Sept
• European Indices registers multi month lows as selling intensifies

Asia:

• BOJ Sakurai reiterated need to continue with easing persistently, needed to continue easing cautiously
• DoJ charged alleged Chinese govt spy of economic espionage for theft of trade secrets from leading US aerospace cos

Europe:

• UK and EU are said to have agreed in principle on an all-UK backstop plan. 'Removed final major obstacle blocking a withdrawal agreement'. PM May to ask Brexit 'war cabinet' to keep UK in EU customs union until permanent deal can be agreed
• EU Brexit Negotiator Barnier: Brexit deal within reach if PM May agrees on customs union. could be within reach by next Wednesday EU Leader Summit
• Sun's Political Editor Dunn: "A lot of conflicting reports around tonight, but I am still told by a senior Govt source that any deal with the EU is 'still some way off'

Americas

• President Trump: "Fed is going loco, no reason for them to do it"; "Fed is going wild, don't know what their problem is"; "the problem is the Fed" - Fox interview
• Treasury Sec Mnuchin stated that he et with PBOC Gov Yi Gang and discussed important economic issues. Was not surprised market was having somewhat of a correction but nothing specific occurred today for market to react. Reiterated US was concerned about yuan currency depreciation. Market handling supply from Fed unwinding 'very well'

Energy

• Weekly API Oil Inventories: Crude: +9.8M v +0.9M prior
• Goldman Sachs analyst: US oil production can continue to grow 1M bpd annually until 2021

Macro

• (UK) UK: The EU's chief negotiator Barnier reiterated during his speech yesterday a rejection of the UK government's Chequers plan, arguing that it would give the UK a competitive advantage over remaining EU member nations. He also re-outlined the EU's backstop plan for the Irish border problem. The third area Barnier addressed was how the future framework would be negotiated after the legal Brexit date on March 29th next year during a two-year transitional period. The speech will have been a major concern for PM May just a week out from the EU leaders' summit in Brussels. It now looks more likely as ever that she will have no choice but to back down from her demands for partial access to the single market. The Irish border backstop remains a significant hurdle, as the only acceptable solution to the Ireland, and thereby the EU, thus far involves running a border down the Irish Sea, which the DUP party continues to object to.
• (ES) Spain: Local press report the government and Podemos have sealed a budget pact. Soon after taking office, the government had said it wanted to run bigger deficits than the previous administration and targeted 1.8% of GDP for next year, up from 1.3%. It’s due to send its draft budget to the European Commission by Oct. 15, but the real hurdle is within the Spanish parliament where PSOE only commands a quarter of the seats. Facing a veto in the Senate from the conservative PP over fiscal rules, any proposal with looser targets will be a hard sell. The PP and market friendly Ciudadanos have vowed to reject the budget proposal, leaving PM Sanchez relying on hard-left Podemos and smaller, regional parties including pro-independence parties in Catalonia to get the budget through. If Sanchez, who has seen support rise in recent polls, judges the political price of his options is too high, like rolling over the existing PP budget or reverting to the their deficit target, then he could call a snap election and try to get a full mandate for his vision for Spain.
• (EU) ECB: The final reading for French HICP was confirmed at 2.5% y/y & Spanish HICP inflation was revised up to 2.3% y/y. Headline rates are way above the ECB's upper limit for price stability but, with energy price inflation the main factor, underlying inflation remains low. ECB officials have admitted that tight labor markets and slow wage growth will eventually push up core rates.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -1.7% at 361, FTSE -1.7% at 7020, DAX -1.2% at 11572, CAC-40 -1.4% at 5133, IBEX-35 -1.4% at 9030, FTSE MIB -1.4% at 19449, SMI -2.2% at 5697, S&P 500 Futures -0.9%]

Market Focal Points/Key Themes:

• European Indices trade sharply lower across the board following on from sharp losses on Wallstreet overnight, and weaker Asian Indexes, as European Indices hit mutli month lows. The DAX and FTSE MIB trade at new 20 Month lows as continued macro economic tensions weigh.
• On the corporate front Dialog Semiconductor bucks the trend rising over 25% after it announces a deal with Apple; Dunelm also trades higher after a trading update with Ingenico a notable riser after reports its drawing interest from Edenred. Notable fallers include Keller Group down over 25% after a profit warning; Suedzucker, Hays, WH Smith, GEA Group are other earnings related decliners.
• Looking ahead notable earners include Delta, Walgreens Boots Alliance and Commerce Bank shares.

Equities

• Consumer discretionary: Kappahl Holdings [KAHL.SE] -12% (earnings), Ingenico [ING.FR] +11%, Natixis [KN.FR] -5%, Edenred [EDEN.FR] -2% (Natixis confirms discussions regarding combining payment activities; Ingenico said also to draw preliminary interest from Edenred), WH Smith [SMWH.UK] -13% (earnings), Hays [HAS.UK] -11% (earnings; CEO comments on exchange rate headwinds), Dunelm [DNLM.UK] +4.4% (earnings), Brown (N) Group [BWNG.UK] -22% (Earnings)
• Consumer staples: Suedzucker [SZU.DE] -0.7% (earnings)
• Financials: Hargreaves Lansdown [HL.UK] -6% (trading update)
• Industrials: GEA Group [G1A.DE] -4.4% (outlook cut)
• Technology: Dialog Semiconductor [DLG.DE] +26% (deal with Apple), Keller Group [KLR.UK] -27% (trading update)

Speakers

• ECB's Rehn (Finland) reiterated that core inflation remained still rather weak, so accomodative policy was still necessary
• ECB's Hansson (Estonia): Happy with where we stand with forward guidance. Could have a further discussion about level of precision, ambiguity
• Sweden Central Bank (Riksbank) Dep Gov Skingsley: Negative rate policy to be exited in 2019; inflation and inflation expectations were on target
• Bank of England (BOE) Credit Conditions & Bank Liabilities Surveys noted that overall demand for unsecured lending increased significantly in Q3; this was solely driven by a significant increase in demand for credit card lending
• Ireland Foreign Min Coveney: no agreement yet on Brexit; still a lot work to be done on deal
• Italy Dep PM Salvini reiterated Italy govt would not backtrack on its budget; rating agencies would not make the govt change its mind
• Italy League party official Borghi (budget committee) said to expect EU rejection of italy 2019 fiscal plan
• ESM's Regling stated that saw no immediate danger of Italy losing market access nor being downgraded below Investment Grade
• German Economic Ministry said to seek €20B in annual corporate tax cuts
• India Economic Affairs Sec Garg: Current account deficit not expected to cross the 3% level
• China PBoC Gov Yi Gang: Macro economy was stable and able to achieve 2018 growth target. Monetary policy was based upon the domestic economy. Financial risks were controllabl with macro leveraging ratio being stabilized
• China Commerce Ministry (MOFCOM)rReiterated its stance that US must stop its unilateralism and protectionism; reiterated its willingness to resume trade talks
• India Finance Ministry official: Working on finalizing a 2nd list of import curbs; to make an announcement soon
• OPEC Sec Gen Barkindo: oil market is steadily seeing brighter path ahead. Oil market balance continuously being tested and noted that Russia and Saudi Arabia to work with OPEC to ensure there was no shortages
• UAE Energy Min Mazrouei (OPEC president): UAE began to increase its oil production in Q3. Expects to further increase its production levels in Oct and Nov. Production capacity by year-end 2018 will be 3.5M bpd

Currencies

• USD was at multi-week lows as risk off sentiment continued to simmer and push US Treasury yields lower.
• EUR/USD holding onto slight gains in session but analysts noted that underlying inflation still lacked vigor thus providing time before ECB gets the job done. Italian budget concerns also continue to be a headwind as various Italian officials reiterated the stance that they will not be pressured into change the 2019 fiscal plan.
• Despite optimism on the Brexit front, the GBP/USD saw its initial gains evaporate with the pair back below the 1.32 level just ahead of the NY morning.
• Higher-than-expected Swedish CPI data prompted the markert to push forward its expect 1st rate hike by the Riksbank to Dec (from Feb). EUR/SEK fell 1% in the aftermath of the data to test the 10.40 area.

Fixed Income

• Bund Futures trades at 158.41 up 29 ticks as the 10-year Bund falls back below the 0.50% level. A downside break of 157.25 sees 155.69 initially. To the upside 158.50 remains initial resistance.
• Gilt futures trades at 119.61 down 13 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.
• Thursday's liquidity report showed Wednesday's excess liquidity rose from €1.892T to €1.897T. Use of the marginal lending facility stayed fell from €40M to €35M.
• Corporate issuance saw 4 issuers raise $5.4B in the primary market

Economic Data:

• (FR) France Sept Final CPI M/M: -0.2% v -0.2%e ; Y/Y: 2.2% v 2.2%e
• (FR) France Sept Final CPI EU Harmonized M/M: -0.2% v -0.2%e ; Y/Y: 2.5% v 2.5%e , CPI Ex-Tobacco Index: 103.25 v 103.28e
• (ES) Spain Sept Final CPI M/M: 0.2% v 0.2%e ; Y/Y: 2.3% v 2.2%e
• (ES) Spain Sept Final CPI EU Harmonized M/M: 0.6% v 0.6%e ; Y/Y: 2.3% v 2.2%e
• (ES) Spain Sept CPI Core M/M: 0.0%v 0.1% prior; Y/Y: 0.8% v 0.9%e
• (ES) Spain Aug House transactions Y/Y: 7.4% v 16.2% prior
• (TR) Turkey Aug Current Account: +$2.6B v -$2.5Be (1st surplus since Sept 2015)
• (SE) Sweden Sept CPI M/M: 0.5% v 0.3%e ; Y/Y: 2.3% v 2.2%e
• (SE) Sweden Sept CPIF M/M: 0.5% v 0.3%e ; Y/Y: 2.5% v 2.3%e, CPI Level: 331.14 v 330.46e
• (SE) Sweden Sept Average House Prices (SEK): 2.770M v 3.010M prior
• (GR) Greece July Unemployment Rate: 19.0% v 19.1% prior

Fixed Income Issuance

• (SE) Sweden sold SEK500M in I/L 2032 bonds; Avg Yield: -0.8752% v -0.7603% prior; Bid-to-cover: 2.69x v 3.14x prior
• (IT) Italy Debt Agency (Tesoro) sold total €6.5B vs. €5.0-6.5B indicated range in 2021, 2025, 2033 and 2037 BTP bonds
• Sold €3.5B vs. €3.0-3.5B indicated rangein new 2.30% 2021 BTP; Avg Yield: 2.51% v 1.20% prior; Bid-to-cover: 1.26x (lowest since Apr 2017) v 1.67x prior
• Sold €1.5B vs. €1.0-1.5B indicated range in 2.50% Nov 2025 BTP; Avg Yield: 3.28% v 2.55% prior; Bid-to-cover: 1.90x v 1.28x prior
• Sold €942M in 2.45% Sept 2033 BTP; Avg Yield: 3.66% v 3.04% prior; Bid-to-cover: 1.41x v 1.46x prior(
• Sold €558M in 4.00% Feb 2037 BTP; Avg Yield: 3.79% v 2.93% prior; Bid-to-cover: 1.90x v 2.15x prior

Looking Ahead

• (PT) Bank of Portugal Releases October Economic Bulletin
• (UK) May's to hold inner cabinet meeting with ministers (rather than all top ministers)
• (PT) Bank of Portugal October Economic Bulletin
• (AR) Argentina Aug Capacity Utilization: No est v 60.1% prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell Bonds (3 tranches)
• 06:00 (IE) Ireland Sept CPI M/M: No est v 0.3% prior; Y/Y: No est v 0.7% prior
• 06:00 (IE) Ireland Sept CPI EU Harmonized M/M: No est v 0.3% prior; Y/Y: No est v 0.9% prior
• 06:00 (PT) Portugal Sept Final CPI M/M: No est v 1.1% prelim; Y/Y: No est v 1.4% prelim
• 06:00 (PT) Portugal Sept Final CPI EU Harmonized M/M: No est v 1.5% prior; Y/Y: 1.8%e v 1.8% prior
• 06:00 (IL) Israel Sept Trade Balance: No est v -$2.2B prior
• 06:00 (RO) Romania to sell Bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (ZA) South Africa Aug Manufacturing Production M/M: -0.3%e v +1.6% prior; Y/Y: 1.2%e v 2.9% prior
• 08:00 (BR) Brazil Aug Retail Sales M/M: +0.2%e v -0.5% prior; Y/Y: +1.4%e v -1.0% prior
• 08:00 (BR) Brazil Aug Broad Retail Sales M/M: +2.4%e v -0.4% prior; Y/Y: 5.1%e v 3.0% prior
• 08:00 (BR) Brazil CONAB Crop Report
• 08:15 (UK) Baltic Dry Bulk Index
• 08:30 (US) Sept CPI M/M: 0.2%e v 0.2% prior; Y/Y: 2.4%e v 2.7% prior
• 08:30 (US) Sept CPI Ex Food and Energy M/M: 0.2%e v 0.1% prior; Y/Y: 2.3%e v 2.2% prior
• 08:30 (US) Sept CPI Index NSA: 252.697e v 252.146 prior, CPI Core Index SA: 258.629e v 258.141 prior
• 08:30 (US) Initial Jobless Claims: 209Ke v 207K prior; Continuing Claims: 1.66Me v 1.650M prior
• 08:30 (US) Sept Real Avg Weekly Earnings Y/Y: No est v 0.5% prior; Real Avg Hourly Earning Y/Y: No est v 0.2% prior
• 08:30 (CA) Canada Aug New Housing Price Index M/M: 0.1%e v 0.1% prior; Y/Y: 0.5%e v 0.5% prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e Oct 5th: No est v $461.1B prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (US) Weekly DOE Crude Oil Inventories
• 11:00 (US) Treasury announcement for upcoming 30-year TIPS reopening for Oct 18th
• 12:00 (US) USDA World Agricultural Supply and Demand Estimate (WASDE) Crop Report
• 13:00 (US) Treasury to sell 30-Year Bonds Reopening
• 19:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to leave Reference Rate unchanged at 2.75%

The British pound is starting to correct lower against the US dollar, after finding strong technical resistance from the 1.3243 level earlier today. The GBPUSD pair is being driven lower by bearish Brexit headlines but retains a strong intraday bullish bias while trading above the 1.3160 level. Buyers will likely aim for the 1.3300 level, while sellers need to move price back under the 1.3122 level.

The GBPUSD pair is strongly bullish while trading above the 1.3160 level, key resistance is now found at the 1.3243 and 1.3300 levels.

If the GBPUSD pair moves below the 1.3160 level, key support is found at the 1.3122 and 1.3055 levels.

The US dollar has moved away from the worst levels of the day against the Japanese yen after sellers failed to break through the 112.00 support barrier during the European trading session. The reaction from US equity markets today and US CPI inflation data are likely to be the main directional drivers for the USDJPY pair. Sellers will once again attempt to break the 112.00 support level, while intraday buyers need to push price above bearish head and shoulders pattern neckline, at 112.55 level.

The USDJPY pair is strongly bearish while trading below the 112.00 level, key support found at the 111.60 and 111.10 levels.

If the USDJPY pair trades above the 112.55 level, buyers will likely test towards 112.90 and 113.55 resistance levels.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.14884
Open: 1.15188
% chg. over the last day: +0.37
Day's range: 1.15158 – 1.15723
52 wk range: 1.0571 – 1.2557

The EUR/USD currency pair has started recovering. During yesterday's and today's trading, the growth of quotes exceeded 70 points. The trading instrument has updated local highs. At the moment, the euro is testing local support and resistance levels: 1.15350 and 1.15700, respectively. Today, investors will assess the ECB account of the last meeting and statistics on inflation in the United States. We recommend opening positions from the key levels.

The news feed on 2018.10.11:

The ECB account of monetary policy meeting at 14:30 (GMT+3:00);

Report on inflation in the US at 15:30 (GMT+3:00).

The price has fixed above 50 MA and 200 MA, which indicates the power of buyers.

The MACD histogram is in the positive zone and above the signal line, which indicates the bullish sentiment.

Stochastic Oscillator is in the neutral zone, the %K line is below the %D line, which gives a signal to sell EUR/USD.

Trading recommendations

Support levels: 1.15350, 1.15000, 1.14600
Resistance levels: 1.15700, 1.16150, 1.16500

If the price fixes above the resistance level of 1.15700, a further increase in the EUR/USD quotes is expected. The movement is tending to 1.16000-1.16250.

An alternative may be a decrease in the EUR/USD currency pair to the level of 1.15000-1.14750.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.31411
Open: 1.31880
% chg. over the last day: +0.46
Day's range: 1.31625 – 1.32441
52 wk range: 1.2361 – 1.4345

The GBP/USD currency pair continues to show positive dynamics. Demand for the pound is still high in the hope that the UK and the EU would soon conclude an agreement on Brexit. At the moment, the key support and resistance levels are: 1.31750 and 1.32350, respectively. Positions should be opened from these marks. We recommend paying attention to the news feed on the US economy.

Today, the publication of important statistics from the UK is not planned.

The price has fixed above 50 MA and 200 MA, which indicates the power of buyers.

The MACD histogram is in the positive zone, but below the signal line, which gives a weak signal to buy GBP/USD.

Stochastic Oscillator is in the neutral zone, the %K line is below the %D line, which indicates the bearish sentiment.

Trading recommendations

Support levels: 1.31750, 1.31300, 1.31000
Resistance levels: 1.32350, 1.32750

If the price fixes above the resistance level of 1.32350, further growth of the GBP/USD quotes is expected. The movement is tending to 1.32750-1.33000.

An alternative may be the decrease of the GBP/USD currency pair to the level of 1.31400-1.31200.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.29462
Open: 1.30601
% chg. over the last day: +0.82
Day's range: 1.30329 – 1.30640
52 wk range: 1.2059 – 1.3795

The bullish sentiment is still prevailing on the USD/CAD currency pair. Yesterday, aggressive purchases were observed. The growth of quotes exceeded 100 points. At the moment, the trading instrument is consolidating. Local support and resistance levels are: 1.30300 and 1.30650, respectively. In the near future technical correction is not excluded.

The news feed on the economy of Canada is calm.

Indicators point to the power of buyers: the price has fixed above 50 MA and 200 MA.

The MACD histogram is in the positive zone, but below the signal line, which gives a weak signal to buy USD/CAD.

Stochastic Oscillator is in the neutral zone, the %K line is above the %D, which indicates the bullish sentiment.

Trading recommendations

Support levels: 1.30300, 1.30000, 1.29500
Resistance levels: 1.30650, 1.31000

If the price fixes above the local resistance of 1.30650, further growth of the USD/CAD quotes is expected. The movement is tending to 1.31000-1.31250.

Alternative option. If the price fixes below 1.30300, it is necessary to look for entry points to the market to open short positions. The target movement level is 1.30000-1.29750.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 111.259
Open: 111.921
% chg. over the last day: +0.68
Day's range: 111.786 – 112.077
52 wk range: 104.56 – 114.74

Sales are prevailing on the USD/JPY currency pair. During yesterday's trading session, the USD/JPY quotes fell by more than 80 points. The trading instrument has formed new local lows. At the moment, the safe haven currency is in a sideways trend. Local support and resistance levels are: 112.000 and 112.350, respectively. Positions should be opened from these marks.

Publication of important economic reports from Japan is not planned.

The price has fixed below 50 MA and 200 MA, which indicates the power of sellers.

The MACD histogram is in the negative zone, but above the signal line, which gives a weak signal to sell USD/JPY.

Stochastic Oscillator is in the neutral zone, the %K line is crossing the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 112.000, 111.500
Resistance levels: 112.350, 112.800

If the price fixes below the round level of 112.000, a further fall in the USD/JPY quotes is expected. The movement is tending to 111.600-111.400.

Alternative option. If the price fixes above the local resistance of 112.350, we recommend looking for market entry points to open long positions. The target movement level is 112.750-113.000.

Global stock market rout continues in European session. At the time of writing, DAX is down -1.21%, CAC down -1.41%, FTSE down -1.74%. German 10 year bund yield is dropping -0.048 at 0.508. We'll see if it can defend 0.5 handle. Italian yield rises 0.089 to 3.593. That is, German-Italian spread is back above 300 again.

In the currency markets, despite risk aversion, Australian and New Zealand Dollar are the strongest one today. One explanation is that due to global stock market turmoil, there is less risk of monetary policy divergence between AU/NZ and the rest of developed world. Of course this one is a bit far fetched. On other hand, Dollar is the weakest one, followed by Yen and Sterling.

But again, the weekly picture is usually more accurate. Yen is the strongest one followed by New Zealand Dollar and then Sterling. Canadian Dollar is the worst performing, followed by Dollar and then Euro.

In Asia, Nikkei lost -3.89% to 22590.86. Singapore Strait Times lost -2.69% to 3047.39. Hong Kong HSI fell -3.54% to 25266.37.

China Shanghai SSE dropped -5.22%, to close at 2583.46. Remember that PBoC announced some surprised measures during the last Sunday. Clearly, they're no able to stop China from following global trend. The SSE has now closed below key support level of 2638.3 (2016 low). The whole down trend from 5178.28 is resuming. Barring any government intervention, the index will likely head towards 61.8% projection of 5178.19 to 2638.30 from 3587.03 at 2017.37 in medium term. It's just the beginning of a serious down turn in China.

The US currency weakened against a basket of major currencies. The US dollar index (#DX) closed in the negative zone (-0.18%). Yesterday, the US producer price index was published, which counted to 0.2% in September, as investors expected.

Today, investors will assess a report on inflation in the United States, which may affect the Fed's views on further interest rate raising, as well as the dynamics of currency majors in the short term.

The British pound strengthened against the US dollar in the hope that the UK and the EU would soon conclude an agreement on Brexit. Weak economic data from the UK did not prevent the growth of the pound. Thus, the UK GDP counted to 0.0% and was worse than the forecasted value of 0.1%. The volume of production in the UK manufacturing industry fell by -0.2% in August, while investors expected a growth of 0.1%.

The "black gold" prices have been declining. At the moment, futures for the WTI crude oil are testing a mark of $72.20 per barrel. At 18:00 (GMT+3:00) a report on the US crude oil inventories will be published.

Market Indicators

Yesterday, aggressive sales were observed in the US stock market: #SPY (-3.17%), #DIA (-3.09%), #QQQ (-4.40%).

The 10-year US government bonds yield moved away from local highs. At the moment, the indicator is at the level of 3.16-3.17%.

The news feed on 2018.10.11:

Publication of the ECB account of monetary policy meeting at 14:30 (GMT+3:00);

Report on inflation in the US at 15:30 (GMT+3:00).

Fed will raise sooner

The collapse of risk appetite continued today with selling across the board. Global equity indices, crude, USD and bond yields are all weaker. The Shanghai composite fell 5.22% and the Nikkei declined 3.89%. There is indiscriminate selling, rather than a traditional risk-off trade. Perhaps the clearest signal of a risk aversion trade is the decline of USD/JPY, which had recently reconnected with interest-rate differentials but now decoupled.

Expectations of higher US inflation is the likely cause. This, plus strong growth, will push the Fed interest rate path higher. The Fed Fund rate remains under-priced compared to “dots.” Repricing of the US yield curves has equity investors concerned that dot yields and stocks historically don't move in tandem. Not helping is US President Trump's statement blaming the Fed for the sell-off. "The Fed is making a mistake," Trump told media, after the markets posted their biggest pullback in more than seven months. "I think the Fed has fallen on its head." Markets are clear that an independent central bank is critical to overall market stability.

Brexit deal within reach?

A recent statement from EU chief negotiator Michel Barnier says an agreement could be reached by next Wednesday: this pushed the British pound higher. According to Barnier, 85% of the divorce is already agreed. Nevertheless, optimism might be short-lived as further uncertainty is coming. Prime Minister Theresa May is expected to submit the Brexit deal to Parliament in December – and the vote could go against her, as several of her own colleagues are willing to vote against the deal. The key remaining issue is that of border checks and free frontiers between the UK and Ireland, keeping EU and UK negotiators in intense day and night talks. The deadline of 18 October, when the future EU–UK trade deal must be submitted to all remaining 27 EU members, is nearing.

The cable continues to gain ground this week (+0.53% week-to-date), approaching the 1.3245 USD range. The 3-months 25 delta risk-reversal jumped by 4.40% since the beginning of the week, signalling further optimism.