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The Australian Dollar depreciated about 100 base points against the US Dollar on Wednesday. The currency pair was located near the 0.7077 area during the first part of today's session.

By and large, it is likely that the exchange rate will continue its downside momentum and potentially target the lower boundary of a descending channel at 0.6950 during the next hours.

Although, a support level formed by the monthly S3 at 0.7070 could hinder the AUD/USD currency exchange rate from reaching the target as mentioned earlier today

The US Dollar appreciated by 80 pips against the Canadian Dollar on Wednesday. The currency pair was trading between the 100-hour SMA which is located below at 1.2854 and the 200-hour simple moving average at 1.2918.

As for the near future, it is likely that the exchange rate continues moving north towards the monthly resistance level at 1.2966 during the following trading session.

However, a resistance line formed by the 200-hour simple moving average at 1.2918 could hinder the bullish traders from pushing the USD/CAD currency exchange rate from hitting the target as mentioned above.

Downside risks prevailed in the market on Wednesday, thus sending the New Zealand Dollar to plunged about 80 base points against the US Dollar. As a result, the currency pair broke the three weeks descending channel.

Given that the exchange rate is trading below the lower boundary of the three weeks descending channel, it is expected that the price target the weekly S2 at 0.6410 within this session.

However, if the support level at 0.6485 holds, a reversal north towards the 50-hour simple moving average at 0.6550 will be the realistic target for the Kiwi during the following trading session.

The US Dollar has been appreciating against the Mexican Peso after the currency pair reversed from the lower boundary of a medium-term ascending channel.

Currently, the rate is trading near the support level formed by the monthly PP at 19.03. If given support level holds, it is expected that the pair will aim for the upper channel line located circa 19.65. Important resistance level to look out for is a combination of the weekly R2 and the Fibonacci 38.20% retracement at 19.21.

If given resistance level holds, the pair might make a reverse and go downside to re-test the lower channel line located circa 18.70.

The Turkish Lira has been appreciating against the Japanese Krone since the pair reversed from the 2017/2018 low at 15.91. This movement has been bounded in a medium-term ascending channel.

As apparent on the chart, the exchange rate is testing the lower trend line at 18.42. Also, the pair is supported by the 100-period (4H) SMA at 18.27. From the theoretical point of view, the currency pair should make a reverse and go upside. Potential target could be the 19.20/19.40 range.

However, if given channel does not hold, a breakout might occur in the nearest future, and the rate might aim for the weekly PP at 18.10.

Entering into US session, Australian and New Zealand Dollar remain the weakest one for today. But it's followed by Dollar as the third weakest. On the other hand, Sterling and Yen are the strongest ones, followed by Euro. The Pound is apparently lifted by news that news that UK is making progress on Brexit and the supposed new Irish border proposals is a "step in the right direction". But so far no detail is leaked, and thus, the gain is limited in Sterling too. Yen is, on the hand, boosted by both risk aversion and strong rally in 10 year JGB yield.

Overall, we'd like to emphasize that USD/CHF and USD/JPY are merely in tight range and Dollar digests yesterday's strong rally. But EUR/USD and GBP/USD strengthen today, they're in nothing more than a corrective recovery. Over the week, Canadian and Dollar are still the two strongest ones.

Stocks markets are generally in risk aversion today. AT the time of writing, DAX is down -0.07%, which is rather resilient. But CAC is down -0.95% and FTSE is down -0.91%. In Asia, Nikkei closed down -0.56%, Hong Kong HSI down -1.73%, Singapore Strait Times down -1.1%. China is still on holiday. US futures point to slightly lower open.

Global treasury yields follow US higher today. German 10 year bund yield is currently up 0.0567 at 0.534. UK 10 year gilt yield is up 0.074 at 1.517. Also, Japan 10 year JGB yield is up 0.0178 at 0.159. US 10 year yield took out key resistance at 3.115 yesterday with strong momentum. We might see the rally continues today.

 

The DAX index is trading sideways in the Thursday session. Currently, the index is at 12,295 points, up 0.07% on the day. In economic news, there are no German or eurozone events on the schedule. On Friday, Germany releases Factory Orders and PPI. In the U.S, the key event is nonfarm payrolls.

The DAX is in red territory on Thursday, but German banks are showing strong gains, boosted by higher eurozone bond yields. On Wednesday, U.S services sector data improved sharply, which boosted U.S treasury bills to their highest level since 2011. This in turn has boosted eurozone bond yields on Thursday. On the DAX, Commerzbank has jumped 3.25% and Deutsche Bank has climbed 2.00%.

The crisis over Italy’s budget continues to weigh on European stock markets. Last week, the new populist government proposed a controversial budget which increases spending, lowers taxes and set the budget deficit at 2.4% of GDP for the next three years. Italy has a massive debt, and the European Union doesn’t want Rome to expand the current deficit, which stands at 1.6% of GDP. The populist Italian government appeared to backtrack on Wednesday, and has now said that the budget deficit could be lowered in 2020 and 2021. Still, the budget remains a sore point for the EU, and the risk appetite could slide if the EU and Italy remain at loggerheads over Italy’s fiscal policy. The budget must first be approved by Italy’s parliament and then by the European Commission, so this crisis could continue for some time.

Notes/Observations

Asia:

World Bank maintained its China 2018 GDP growth forecast at 6.5%

Moody's saw a stable outlook for New Zealand banking system

Japan said to consider a reduced sales tax for convenience store food

US Secretary of State Pompeo to visit China on Oct 8th

Europe:

Italy PM Conte: Italy's debt/GDP Target is below 130% in 2019, and down to 126.5% in 2021

Americas

Fed Chair Powell: Needed to keep moving rates gradually toward normal; policy was still accommodative; rates might go past 'neutral'

Fed's Barkin (Voter, Leaning Hawk): Policy rate was still below neutral; supported gradual path so long as data complied

Fed's Evans (non-voter, dove): Policy to turn mildly restrictive in 2019

Energy

Russia Energy Min Novak: there's always the risk of oil prices going too high; oil prices were probably a bit too high already

Macro

(UK) United Kingdom: Reports Ireland are backing PM May's plan for all-UK Customs Union with the EU. If this is confirmed it could become a big turning point in the negotiations. It pitches Brussels against Dublin and Belfast making the EU responsible for risking the Good Friday Agreement, not the UK.

(IT) Italy: Overnight the government agreed to budget deficit targets of 2.4% in 2019; 2.1% in 2020 and 1.8% in 2021. The government is balancing its proposal for a bigger deficit with a promise of lower deficits in subsequent years. They are effectively proposing a tighter fiscal policy when growth is forecast to fall in exchange for an immediate increase in spending. It is looking increasingly likely that the deficit number itself is nothing more than a political football between Italy & the European Commission with the market skeptical of their validity.

(EU) ECB: The QE program is legal according to a non-binding opinion published by the Advocate General Wathelet, an adviser to the EU's Court of Justice, who said the "Court of Justice should rule that the decision of the ECB establishing a program for the purchase of government bonds on secondary markets is valid". Germany's Federal Constitutional court referred the case to the EU's top judges last year and the opinion.

(DE) Germany: VDMA machinery orders increased 7% y/y, with export orders up 6% y/y and the three months trend rate also improved. Export demand may not have rolled over yet, although recent confidence data highlights that companies are increasingly concerned about the outlook for trade and exports.

(JP) Japan: 10Y yield hit 0.145%, a level that reportedly spurred BOJ buying. Now the Bank of Japan may or may not be tapering but that may soon be a moot point because by the time Kuroda decides whether he will buy less bonds, the bond market may no longer work. While the BOJ ponders its next step, the Japanese rates market is becoming increasingly paralyzed.

(SK) South Korea: BOK Governor Lee reportedly gave a strong signal for a possible rate hike later this month aimed at reducing adverse effects brought about from years of low rates. In a meeting in Seoul with business leaders he highlighted imbalances in many sectors and called for a need to create an investment-friendly environment. The probability of a rate hike has actually fallen this year as the South Korean economy shows signs of weakening so it would be a big surprise for the market.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.8% at 380.9, FTSE -0.9% 7441, DAX -0.3% at 12248, CAC-40 -1.0% at 5436, IBEX-35 +0.0% at 9363, FTSE MIB -0.4% at 20645, SMI -0.5% at 9129, S&P 500 Futures -0.5%]

Market Focal Points/Key Themes: European Indices trade lower across the board tracking Asian and US indices lower as rising yields put pressure on stocks. UK retail names among some of the worst performers with DFS, Ted Baker trading lower following earnings, Easyjet also declining following its September Metrics. Swedish banks were in focus after sharp declines yesterday of money laundering allegations, which has subsequently been denied; whilst Danske Bank trades lower after suspending its share buyback and a US investigation into suspicious Estonian accounts. Looking ahead notable earners include Constellation Brands and International Speedway.

Movers

Consumer Discretionary Kingfisher [KGF.DE] +1.1% (Reportedly considering break up), ed Baker [TED.UK] -11% (Earnings), B&O [BO.DK] -5.1% (Earnings), Easyjet [EZJ.UK] -2.6% (Sep Traffic)

Industrials Salini Impregilo [SAL.IT] +1.2% (Contract, consolidation talk), Continental [CON.DE] -4.3% (Analyst downgrade)

Financials Danske Bank [DANSKE.DK] -3.5% (To suspend Buyback)

Healthcare AMBU [AMBUB.DK] -8% (Mid term outlook)

Speakers

ECB's Rehn (Finland) reiterated guidance that key interest rates would remain at their present levels at least until Sep 2019. Market expectations for the 1st potential rate hike was consistent with ECB statements. As monetary policy was normalized the ECB would gradually reduce the use of non-standard measures and that the need for forward guidance to diminish as inflation made progress towards the target

UK PM May was to be planning on "rushing" Brexit deal through parliament to head off a rebellion in her own Tory party

Italy Govt said to be targeting 2019 GDP growth of 1.5% - Italy Dep Fin MIn Garavaglia: Targeting 2019 GDP growth of 1.6%

Spain Budget Min Montoro said to be planning to raise tax rate for individuals earning over €140,000 (**Note: in-line with recent speculation on move)

Italy Dep PM Di Maio reiterated govt stance that Finance Minister Tria would remain in his position

EU source said to refute reports that the EU Commission had drafted a letter that rejected the Italian budget plan

French Gov't said to consider a large cabinet reshuffle (*8Note: Have seen the resignation of several members in recent weeks)

Greece said to mull asset protection scheme for Non-performing Loans (bad loans) with soured debt (NPL) transferred to Special Purpose Vehicles

Turkey Central Bank provided an assessment of Sept Inflation data that noted that it saw a very harsh worsening in main inflation trend as price gains were broad-based during the month

IMF on Japan: Downside risks to Japan's economy have increased. BOJ monetary policy remained supportive but low interest rates could exacerbate ongoing challenges in the financial sector. Abenomics remained appropriate but reinvigorated and credible policies were needed. Rising global interest rates could amplify market spillovers for the country

Saudi Oil Min Al-Falih: OPEC had spare capacity of 1.3M bpd - comments from Russia conference

Russia Energy Min Novak: OPEC + to likely move closer to 100% compliance in Oct (**Note: Aug compliance was at 129%)

Currencies

USD consolidated its recent gains with EUR/USD holding just under the 1.15 level.

GBP was slightly firmer on reports that UK PM May was planning on "rushing" Brexit deal through parliament to head off a rebellion in her own Tory party. GBP/USD at 1.2970 just ahead of the US morning.

USD/JPY holding below the pivotal 115 level as the IMF noted that the downside risks to Japan's economy had increased

Fixed Income

Bund Futures trades at 157.97 down 40 ticks as the relationship between Bunds and European stocks is broken. A downside break of 157.25 sees 155.69 initially.

Gilt futures trades at 121.15 up 28 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 €1.870T to €1.889T. Use of the marginal lending facility stayed fell from €91M to €88M.

Corporate issuance saw 5 high grade issuers raise funds in the primary market

Economic Data:

(IN) India Sept Services PMI: 50.9 v 51.5 prior; PMI Composite: 51.6 v 51.9 prior

(DE) Germany Sept Construction PMI: 50.2 v 51.5 prior - (UK) Sept New Car Registrations Y/Y: -20.5 v +23.1% prior (**Note: data distorted from recent emission regulations)

Issuance

(RO) Romania opened its book to sell EUR-denominated 10-year and 20-year notes

(ES) Spain Debt Agency (Tesoro) sold total €4.645B vs. €4.0-5.0B indicated range in 2021, 2028, and 2029 Bonds

Sold €2.72B in 0.05% Oct 2021 SPGB; Avg yield: +0.126% v -0.061% prior, Bid-to-cover: 1.77x v 2.73x prior

Sold €1.04B in 1.40% Apr 2028 SPGB; Avg yield: 1.540% v 1.493% prior, Bid-to-cover: 2.38x v 1.49x prior

Sold €885M in 6.0% Jan 2029 SPGB; Avg Yield: 1.538% v 1.867% prior, bid-to-cover: 1.96x v 2.5x prior

(ES) Spain Debt Agency (Tesoro) sold €410M vs. €250-750M indicated range in 0.15% Nov 2023 Inflation-Linked bonds (SPGBei; Real Yield: -0.730% v -0.792% prior; Bid-to-cover: 4.85x v 1.69x prior

(FR) France Debt Agency (AFT) sold total €8.862B vs. €8.0-9.0B indicated range in 2028, 2034 and 2048 Oats

Sold €4.645B in 0.75% Nov 2028 Oat; Avg Yield: 0.86% v 0.71% prior; Bid-to-cover: 1.59x v 1.95x prior

Sold €1.42B in 1.25% May 2034 Oat; Avg Yield: 1.23% v 1.11% prior; Bid-to-cover: 1.59x v 1.60x prior

Sold €2.797B in 1.75% May 2066 Oat; Avg Yield: 1.70% v 1.81% prior, Bid-to-cover: 1.39x v 1.69x prior

Looking Ahead

(RU) Russia Sept Light Vehicle Car Sales: 11%e v 11% prior

05:30 (EU) ECB's Nouy (SSM chief) speaks in Vienna

05:30 (UK) DMO to sell £3B in 1.00% May 2024 Gilts

05:30 (HU) Hungary Debt Agency (AKK) to sell 12-Month bills - 05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Rate Bonds

05:30 (PL) Poland to sell Bonds (5 tranches)

06:00 (IL) Israel July Manufacturing Production M/M: No est v 0.2% prior

06:00 (IE) Ireland Sept Live Registry Monthly Change: No est v -6.8K prior; Registry Level: No est v 209.9 prior (**Note: Ireland Sept Unemployment Rate: 5.4% v 5.6% prior)

06:45 (US) Daily Libor Fixing

07:00 (ZA) South Africa Aug Electricity Production Y/Y: No est v 2.2% prior; Electricity Consumption Y/Y: No est v 2.7% prior

07:30 (US) Sept Challenger Job Cuts: No est v 38.5K prior; Y/Y: No est v 13.7% prior

07:30 (TR) Turkey Sept Effective Exchange Rate (REER): No est v 64.82 prior

08:05 (UK) Baltic Dry Bulk Index

08:30 (US) Initial Jobless Claims: 215Ke v 214K prior; Continuing Claims: 1.67Me v 1.661M prior

08:30 (US) Weekly USDA Net Export Sales

09:00 (RU) Russia Gold and Forex Reserve w/e Sept 28th: No est v $462.0B prior

09:00 (MX) Mexico Sept Consumer Confidence: 102.9e v 103.9 prior

09:15 (US)Fed speaker: Quarles (Voter, Neutral) about Trends in Community Banks

09:30 (EU) ECB speaker: Nowotny (Hawk) at Conference in Vienna

10:00 (US) Aug Final Durable Goods Orders: 4.5%e v 4.5% prelim; Durables Ex-Transtportation: No est v 0.1% prelim

10:00 (US) Aug Factory Orders: +2.1%e v -0.8% prior

10:00 (CA) Canada Sept Ivey Purchasing Managers Index (Seasonally Adj): No est v 61.9 prior

10:20 (BR) Brazil Sept Vehicle Production: No est v 291.4K prior; Vehicle Sales: No est v 248.6K prior; Vehicle Exports: No est v 56.1K prior

10:30 (US) Weekly EIA Natural Gas Inventories

11:00 (US) Treasury announcement for upcoming 3-year, 10-year and 30-year bond issuance for week of Oct 8th

12:00 (EU) ECB speaker: Coeure (Leaning Hawk)

14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to leave Overnight Rate unchanged at 7.75%

15:00 (AR) Argentina Central Bank (BCRA) Interest Rate Announcement: No analysts' expectations: Current LELIQ Rate at 71.267%

15:00 (AU) Argentina Sept Industrial Production Y/Y: No est v -5.7% prior; Construction Activity Y/Y: No est v -5.7% prior

The gold price depreciated 0.42 % since Wednesday's session. During Thursday's morning hours, the yellow metal was supported by the 200-hour simple moving average to allocate the rate at the 1,200.37 mark

In regards to the near-term future, most likely, the yellow metal will trade upwards to the upper boundary of the small pattern line at the 1,208.00 level. The simple moving averages will support the surge during the day.

Besides, the surge cannot be prevented due to lack of significant fundamental news on Thursday!

The US Dollar appreciated 0.61% against the Japanese Yen since Wednesday's session. On Thursday morning, the US Dollar was traded between the weekly R1 and the weekly R2 at the 114.22 mark.

During Thursday's trading session, most likely the rate will be traded sideways at the medium ascending pattern at the 114.40 level. The SMAs will try to catch the rate to give additional support for the currency pair.

On the other side, the rate might take the support of the pattern line to break the weekly R2 at the 114.56 mark to trade near the 114.60 level during the day.