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Daily Pivots: (S1) 1.1507; (P) 1.1544; (R1) 1.1584; More.....

EUR/USD recovers after hitting 1.1504 and formed a temporary low there. Intraday bias is turned neutral for consolidation first. Stronger recovery could be seen to 4 hour 55 EMA (now at 1.1643). But upside should be limited well below 1.1814 resistance to bring another decline. We maintain the view that corrective rise from 1.1300 has completed with three waves up to 1.1814 already. Below 1.1504 will target a test on 1.1300 low first.

In the bigger picture, a medium term bottom should be in place at 1.1300, on bullish convergence condition in daily MACD and some consolidations would be seen. But still, note that EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. That carries some long term bearish implications. Thus, we'd expect fall from 1.2555 high to resume after consolidation completes. Below 1.1300 should send EUR/USD through 61.8% retracement of 1.0339 to 1.2555 at 1.1186. And, in that case, EUR/USD would head to retest 1.0339 (2017 low).

For the 24 hours to 23:00 GMT, the USD rose 0.10% against the CAD and closed at 1.2823.

In the Asian session, at GMT0300, the pair is trading at 1.2819, with the USD trading slightly lower against the CAD from yesterday’s close.

The pair is expected to find support at 1.2800, and a fall through could take it to the next support level of 1.2780. The pair is expected to find its first resistance at 1.2840, and a rise through could take it to the next resistance level of 1.2860.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

Euro recovers broadly today on new that the final version of Italy's budget could be less worse than originally reported. More details could be published today and we'll see how the common currency, as well as German and Italian yield react. Meanwhile, Sterling also recovers as markets prefer for UK PM Theresa May's speech at the Conservative Party Conference in Birmingham. For now, New Zealand and Australian Dollar are the weakest ones today, followed by Swiss Franc.

Asian markets continue to trade in risk averse mode today. Hong Kong HSI is extending yesterday's steep decline and is down -0.52% at the time of writing. Nikkei is down -0.71%. But Singapore Strait Times is up 0.80%. Overnight, DOW made record high at 26824.78 before closing at 26773.94, up 0.46%. However, S&P 500 dropped -0.04% while NASDAQ lost -0.47%. Treasury yield also closed lower with 10-year yield down -0.024 at 3.056. Gold on the other hand, rebounded strongly and is back above 1200 at 1205.7.

Technically, the triangular relationship of Dollar, Euro and Yen is a development to watch today. EUR/USD's break of 1.1525 support yesterday was bearish. EUR/JPY breached 130.86 support but quickly recovered, maintaining near term bullishness. USD/JPY lost momentum after hitting 114.05 and is now in near term consolidation. It remains to be see if deeper pull back in USD/JPY would drag down EUR/JPY. Or rebound in EUR/JPY would lift USD/JPY, in push EUR/USD higher instead. It's very interactive.

Euro recovers as Italy may tame their budget deficit target after 2019

Euro recovers broadly today on news that the detailed version of Italy's budget is not as bad as it's initially reported. 5-Star Movement leader Luigi Di Maio has made himself clear that the coalition government is "not not turning back from the 2.4 percent target" referring top budget deficit in terms of GDP. However, it's reported the coalition has tweaked to plan to cut percentage down the road.

The final version could be budget deficit at 2.4% of GDP in 2019, then 2.2% in 2020 and 2.0% in 2021. That would be, at least gesturally, better than the reported plan of 2.4% through the next three years. Though, firstly, whether the eurosceptic coalition would do it is in question. And, whether EU would accept it is another question.

Di Maio has indicated that some details on the so-called Economic and Financial Document would be defined on Wednesday morning. So we'd expect volatility in Euro to continue.

Fed Powell: Remarkably positive economic outlook to continue

Fed Chair Jerome Powell said in a speech yesterday there's a "remarkably positive outlook" in the economy. And the forecasts are "not too good to be true". The US is now in favorable condition with unemployment rate at near 20-year low at 3.9%. And Inflation is running near Fed's target of 2%. A wide range of data and prices also supports a positive view while these favorable conditions are forecast to continue.

Powell added that the "historically rare pairing of steady, low inflation and very low unemployment is testament to the fact that we remain in extraordinary times". And, Fed's policy of "gradual interest rate normalization" showed the effort to balance the risks to extend the expansion, maintain maximum employment, low and stable inflation.

Fed Kaplan not advocating a pause after interest rate hits neutral

Dallas Fed President Robert Kaplan said he's based case is for Fed hike once more this year and twice next year. And he added that "mathematically there's at least a couple more increases" to get to his neutral rate of 2.50-2.75%. He also noted that he "not advocating a pause" from there. But rather, he'll "make that judgment as we go; I haven't decided yet."

Additionally he reiterated his view that GDP will grow 3% this year and slow to 2.5% next as impact of fiscal stimulus fades. Also, he warned that the tailwind from debt-funded stimulus could turn into a headwind in the out years.

On the data front

Australia AiG performance of services index rose 0.3 to 52.5 in September. Building approvals dropped sharply by -9.4% mom in August. UK BRC shop price index rose 0.2% yoy in September.

Services data will be major focuses today. Eurozone will release PMI services final and retail sales. UK will release PMI services. US will release ISM non-manufacturing as well as ADP employment.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1507; (P) 1.1544; (R1) 1.1584; More.....

EUR/USD recovers after hitting 1.1504 and formed a temporary low there. Intraday bias is turned neutral for consolidation first. Stronger recovery could be seen to 4 hour 55 EMA (now at 1.1643). But upside should be limited well below 1.1814 resistance to bring another decline. We maintain the view that corrective rise from 1.1300 has completed with three waves up to 1.1814 already. Below 1.1504 will target a test on 1.1300 low first.

In the bigger picture, a medium term bottom should be in place at 1.1300, on bullish convergence condition in daily MACD and some consolidations would be seen. But still, note that EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. That carries some long term bearish implications. Thus, we'd expect fall from 1.2555 high to resume after consolidation completes. Below 1.1300 should send EUR/USD through 61.8% retracement of 1.0339 to 1.2555 at 1.1186. And, in that case, EUR/USD would head to retest 1.0339 (2017 low).

Economic Indicators Update

For the 24 hours to 23:00 GMT, the AUD declined 0.51% against the USD and closed at 0.7188.

LME Copper prices rose 1.7% or $102.0/MT to $6274.0/MT. Aluminium prices rose 1.6% or $32.5/MT to $2080.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7184, with the AUD trading 0.06% lower against the USD from yesterday's close.

Overnight data indicated that Australia's seasonally adjusted building approvals plunged 13.6% on an annual basis in August, dragged down by the decrease in apartments being approved. In the prior month, building approvals registered a revised fall of 5.4%, while market participants had envisaged for a drop of 2.5%. Meanwhile, the AiG performance of services index rose to 52.5 in September, from 52.2 in the previous month.

The pair is expected to find support at 0.7151, and a fall through could take it to the next support level of 0.7119. The pair is expected to find its first resistance at 0.7227, and a rise through could take it to the next resistance level of 0.7271.

Looking ahead, investors would await Australia's CBA services PMI and trade balance data for September, both slated to release overnight.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, Gold rose 1.25% against the USD and closed at USD1208.10 per ounce, as risk appetite improved among investors.

In the Asian session, at GMT0300, the pair is trading at 1211.00, with gold trading 0.24% higher against the USD from yesterday’s close.

The pair is expected to find support at 1198.30, and a fall through could take it to the next support level of 1185.60. The pair is expected to find its first resistance at 1218.00, and a rise through could take it to the next resistance level of 1225.00.

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

For the 24 hours to 23:00 GMT, Silver rose 1.48% against the USD and closed at USD14.75 per ounce, tracking rise in gold prices.

In the Asian session, at GMT0300, the pair is trading at 14.82, with silver trading 0.47% higher against the USD from yesterday’s close.

The pair is expected to find support at 14.54, and a fall through could take it to the next support level of 14.27. The pair is expected to find its first resistance at 15.02, and a rise through could take it to the next resistance level of 15.23.

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 0.37% against the USD and closed at USD75.20 per barrel, after the American Petroleum Institute (API) reported that US crude oil inventories rose by 0.9 million barrels to 403.3 million barrels in the week ended 28 September.

In the Asian session, at GMT0300, the pair is trading at 75.22, with oil trading a tad higher against the USD from yesterday's close.

The pair is expected to find support at 74.79, and a fall through could take it to the next support level of 74.37. The pair is expected to find its first resistance at 75.78, and a rise through could take it to the next resistance level of 76.33.

Crude oil is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

Euro recovers broadly today on news that the detailed version of Italy's budget is not as bad as it's initially reported. 5-Star Movement leader Luigi Di Maio has made himself clear that the coalition government is "not not turning back from the 2.4 percent target" referring top budget deficit in terms of GDP. However, it's reported the coalition has tweaked to plan to cut percentage down the road.

The final version could be budget deficit at 2.4% of GDP in 2019, then 2.2% in 2020 and 2.0% in 2021. That would be, at least gesturally, better than the reported plan of 2.4% through the next three years. Though, firstly, whether the eurosceptic coalition would do it is in question. And, whether EU would accept it is another question.

Di Maio has indicated that some details on the so-called Economic and Financial Document would be defined on Wednesday morning. So we'd expect volatility in Euro to continue.

GOLD - looks to break key resistance located at 1,214.28 zone. This is coming following its corrective recovery off the 1,180.75 low. On the downside, support comes in at the 1,200.00 level where a break will turn attention to the 1,190.00 level. Further down, a cut through here will open the door for a move lower towards the 1,180.00 level. Below here if seen could trigger further downside pressure targeting the 1,170.00 level. Conversely, resistance resides at the 1,210.00 level where a break will aim at the 1,220.00 level. A turn above there will expose the 1,230.00 level. Further out, resistance stands at the 1,240.00 level. Its daily RSI is bullish and pointing higher suggesting further strength. All in all, GOLD looks to strengthen further towards its key resistance but with caution.

Fed Chair Jerome Powell said in a speech yesterday there's a "remarkably positive outlook" in the economy. And the forecasts are "not too good to be true". The US is now in favorable condition with unemployment rate at near 20-year low at 3.9%. And Inflation is running near Fed's target of 2%. A wide range of data and prices also supports a positive view while these favorable conditions are forecast to continue.

Powell added that the " historically rare pairing of steady, low inflation and very low unemployment is testament to the fact that we remain in extraordinary times". And, Fed's policy of "gradual interest rate normalization" showed the effort to balance the risks to extend the expansion, maintain maximum employment, low and stable inflation.

Full speech here.