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Daily Pivots: (S1) 1.3010; (P) 1.3046; (R1) 1.3077; More...

USD/CAD formed a temporary after hitting 1.3081 and intraday bias is turned neutral first. Further rally is expected as long as 1.2971 minor support holds. For now, 1.2879 key fibonacci level remains intact and thus, larger rise from 1.2061 is expected to resume after consolidation from 1.3385 completes. Break of 1.3081 will target 1.3225 resistance structure resistance next. On the downside, however, break of 1.2971 minor support will turn focus back on 1.2879 fibonacci level.

In the bigger picture, focus is back on 38.2% retracement of 1.2061 to 1.3385 at 1.2879 key fibonacci level. As long as it holds, rise from 2017 low at 1.2061 is still in progress. Break of 1.3384 should target 61.8% retracement of 1.4689 (2015 high) to 1.2061 (2017 low) at 1.3685. However, sustained break of 1.2879 will dampen his bullish view and turn focus back to 61.8% retracement at 1.2567, which is close to 1.2526 support.

Daily Pivots: (S1) 0.7183; (P) 0.7226; (R1) 0.7248; More...

Intraday bias in AUD/USD remains on the downside for 0.7143 support. As noted before, whole corrective rebound from 0.7084 has completed at 0.7314. Break of 0.7143 will likely resume larger down trend from 0.8135 through 0.7084 low. On the upside, in case of another rise, upside should be limited below 0.7361 resistance to complete the correction and bring down trend resumption.

In the bigger picture, rebound from 0.6826 (2016 low) is seen as a corrective move that should be completed at 0.8135. Fall from there would extend to have a test on 0.6826. There is prospect of resuming long term down trend from 1.1079 (2011 high). Current downside momentum as seen in weekly MACD support this bearish case. Firm break of 0.6826 will target 0.6008 key support next (2008 low). On the upside, break of 0.7361 resistance, however, argues that a medium term bottom is possibly in place, and stronger rebound could follow. We'll assess the medium term outlook later if this happens.

General Trend:

• Australian banks rise as interim government report makes no specific recommendations
• Bank of Japan expected to announce Oct bond buying schedule later today
• BoJ Q3 Tankan Survey due for release on Monday (Oct 1st )
• China and Hong Kong to be closed on Monday due to holiday
• China markets to be closed next week for holiday (Oct 1-5th)

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.1%
• (AU) Australia Banking Misconduct Inquiry Interim Report: No specific recommendations were made
• (AU) AUSTRALIA AUG PRIVATE SECTOR CREDIT M/M: 0.5% V 0.4%E; Y/Y: 4.5% V 4.3%E
• (NZ) NEW ZEALAND SEPT ANZ CONSUMER CONFIDENCE:117.6 V 117.6 PRIOR; CONSUMER CONFIDENCE M/M: 0.0% V -0.7% PRIOR
• (NZ) New Zealand Aug Building Permits M/M: +7.8% v -10.3% prior
• (NZ) New Zealand sells NZ$150M v NZ$150M indicated in April 2025 bonds, bid to cover: 4.8x

China/Hong Kong

• Shanghai Composite opened +0.1%, Hang Seng +0.6%
• (CN) China Commerce Min spokesperson: extreme pressure from US will not cripple the Chinese economy
• (CN) China said to plan to launch additional policy to support private companies - US financial press
• (CN) China Senior Diplomat Wang Yi: Willing to expand finance cooperation with Japan
• (CN) China PBoC set yuan reference rate: 6.8792 v 6.8642 prior (weakest CNY fix since Aug 17th)
• (CN) China PBoC Open Market Operation (OMO): Skips OMO v skipped prior: Net: CNY40B drain v CNY60B drain prior (drains liquidity for the 6th straight session)
• (CN) China Finance Ministry (MOF) said to hire banks for possible US dollar denominated bond sale - US financial press

Japan

• Nikkei 225 opened +1.2%
• (JP) JAPAN AUG PRELIMINARY INDUSTRIAL PRODUCTION M/M: 0.7% V 1.4%E; Y/Y: 0.6% V 1.5%E
• (JP) JAPAN AUG JOBLESS RATE: 2.4% V 2.5%E
• (JP) JAPAN AUG RETAIL SALES M/M: 0.9% V 0.5%E; RETAIL TRADE Y/Y: 2.7% V 2.0%E
• (JP) JAPAN AUG ANNUALIZED HOUSING STARTS: 957K V 947KE; Y/Y: 1.6% V 0.4%E
• (JP) Japan Sept Tokyo CPI Y/Y: 1.3% v 1.1%e; Core CPI (Ex Fresh Food) Y/Y: 1.0% v 0.9%e
• (JP) Bank of Japan (BoJ) Summary of Opinions for Sept 18-19 Monetary Policy Meeting: Reiterates must maintain powerful easing patiently
• (JP) Japan MoF sells ¥2.1T v ¥2.1T indicated in 0.10% 2-yr JGBs, avg yield -0.1120% v -0.1120% prior, bid to cover 4.37x v 5.26x prior

Korea

• Kospi opened flat
• (KR) South Korea Sept Consumer Confidence: 101.7 v 99.2 prior
• (SK) South Korea Aug Dept. Store Sales Y/Y: 2.4% v 2.9% prior; Discount Store Sales Y/Y: -1.2% v -2.5% prior

North America

• US equity markets closed mostly higher: Dow +0.2%, S&P500 +0.3%, Nasdaq +0.7%, Russell 2000 -0.1%
• (CA) Bank of Canada (BOC) Gov Poloz: higher rates wll be warranted to achieve inflation target
• (US) US Senator Cornyn: Senate Judiciary Committee to vote tomorrow (Friday) on Supreme Court Nominee Kavanaugh

Europe

• (IT) Italy Interior Min Salvini: tax cuts and pension reforms are agreed upon; will not raise sales tax in budget plan; agreed on 2019 deficit at 2.4% of GDP
• (IT) Italy Pres said to have requested that Fin Min Tria stay on as finance minister - Italian press
• (EU) ECB's Praet (Belgium, chief economist): there are signs that valuations are stretched in specific market sectors
• (UK) Germany Chancellor Merkel: UK needs to clarify its proposals in Brexit talks; Have not ruled out Weidmann ECB President candidacy; have a high opinion of Weidmann
• (UK) UK Citizens would vote 52% to 48% to remain in the EU in a new Brexit referendum - Poll by Natcen
• (UK) UK Sept GfK Consumer Confidence: -9 v -8e

Levels as of 01:30ET

• Nikkei 225, +1.3%, ASX 200 +0.8%, Hang Seng +0.4%; Shanghai Composite +0.9%; Kospi -0.4%
• Equity Futures: S&P500 +0.1%; Nasdaq100 +0.1%, Dax flat; FTSE100 +0.1%
• EUR 1.1650-1.1631; JPY 113.65-113.33 ; AUD 0.7219-0.7201 ;NZD 0.6620-0.6598
• Dec Gold flat at $1,187/oz; Oct Crude Oil +0.2% at $72.27/brl; Dec Copper +0.4% at $2.787/lb

Market movers today

Market focus will continue to be on Italy and the official release of the Italian growth, debt and deficit projections for 2019 , which were supposed to have been released yesterday. Last night, the Italian government said that they have reached an agreement that the budget deficit will be 2.4% of GDP in 2019, which is well above market consensus and in the upper end of our 2.0-2.4% of GDP range.

In the euro area, HICP figures for September are due today. In August, headline inflation fell to 2.05% y/y and we expect the September print to slow further to 2.01% y/y, still driven by a lower contribution from both food and energy prices. Although we saw negotiated wages pick up in Q2, core inflation disappointed at 0.96% y/y in August from 1.07% y/y in July and we expect September's figures to linger at 0.97% y/y, as the feed through from higher wages materialises only gradually. However, there might be upside to today's number after the higher-than-expected German inflation number yesterday.

In the US, PCE core inflation numbers for August are due today. Based on CPI, which rose less than expected last month, we expect PCE to rise +0.1% m/m, which leaves y/y unchanged at 2.0%.

Danmarks Nationalbank will release data on foreign portfolio investments and securities statistics for August.

Selected market news

The Italian government said last night that it has reached an agreement that the budget deficit will be 2.4% in 2019. It is well above market consensus, which was probably around 2% or maybe even lower after the comments over the last week from FM Tria. It was also in the upper end of our own 2.0-2.4% range.

Importantly, it is also above the assumption used by Fitch when Italy was put on negative outlook. A one-notch downgrade by Fitch will now be difficult to avoid. Moody's also has a lower assumption and has Italy on 'negative watch', and could come out anytime (deadline end of October) with a potential downgrade. At the time of writing we have few details, but it seems that several of the many election promises have been fully or partly fulfilled. Hence, it might indicate that the 2.4% estimate is in fact too optimistic. We will probably get the official Economic and Financial Document today.

2.4% is of course well below the important 3% EU limit. But few expected that Italy would dare to breach the 3% level. Hence, we should expect quite a negative opening for BTPs this morning. Adding to the negative sentiment will be that it is hard not to see this as a clear sign that the 'market-friendly' FM Tria has been pushed aside.

Daily Pivots: (S1) 1.1601; (P) 1.1680; (R1) 1.1721; More.....

EUR/USD's fall from 1.1814 is still in progress and intraday bias remains on the downside for 1.1525 support first. As noted before, corrective rise from 1.1300 should have completed at 1.1814, after meeting strong resistance from 38.2% retracement of 1.2555 to 1.1300 at 1.1779. Break of 1.1525 support will confirm this bearish view and target a test on 1.1300 low. On the upside, above 1.1650 minor resistance will turn intraday bias neutral and bring recovery. But upside should be limited well below 1.1814 to bring fall resumption.

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).

Rates: German 10-yr yield to close above key 0.52%?

Italian party leaders convinced technocrat FM Tria into granting more fiscal leeway next year which risks triggering downgrades by Moody’s and Fitch. BTP’s will suffer in the opening, providing a bid for the Bund. Inflation numbers in EMU and the US could limit the upside though. We expect the German 10-yr yield to close above the key level of 0.52%.

Currencies: Will higher EMU inflation block post-Fed EMU decline

The reaction of the interest rate markets and the dollar to Fed decision was slightly different. The dollar gained traction even as US yields stayed relatively immune. The euro suffered from uncertainty on Italy and ignored higher German inflation. Will this pattern be confirmed today or will a jump in EMU inflation finally give the euro some downside protection?

The Sunrise Headlines

• US equity markets closed yesterday’s trading session in green, with technology shares outperforming (NASDAQ +0.65%). Asian exchanges are mostly gaining ground as well, with Japan and China outperforming (around +1%)
• Italy’s ruling populist parties, Five Star Movement and the League, have convinced Finance Minister Tria into providing more funds for their election promises, agreeing on a budget deficit target at 2.4% of GDP in 2019.
• Iran is ready to accept international rules on financial crimes to tackle money laundering and terrorism financing. The country is seeking new ways to maintain connections to the global financial system as the US still imposes sanctions.
• The EU is preparing a five-day plan to cope with the consequences of a no-deal Brexit. The plans contains temporary fail safes to prevent chaos. However, Brussels made clear it still hopes to strike a deal with the UK.
• Japan printed strong eco data .Core inflation rose unexpectedly to 1.0% (YoY) in September. Jobless rate fell from 2.5% to 2.4%. Industrial production grew softer (0.6% YoY), but retail sales noted the fastest rise in 8 months (0.9% MoM)
• German Chancellor Angela Merkel will have talks with Turkey’s President Erdogan today and tomorrow. Both countries are seeking to repair relations, a year after Erdogan accused Germans of using Nazi methods.
• Today’s eco calendar contains the PCE Deflator and the Chicago Purchasing Manager index for the US and the aggregate EMU inflation number for September. BoE’s Ramsden and Fed’s Williams speak today

Currencies: Will Higher EMU Inflation Block Post-Fed EMU Decline

Will higher EMU inflation block euro decline?

Yesterday, the dollar gained traction during the day. US interest rates and the dollar didn’t rise on Wednesday even as the Fed signaled further gradual rate hikes. US yields still stayed away from recent peaks, but the dollar was in better shape. At the same time, the euro struggled, pressured by uncertainty on the Italian budget. FX markets were also a bit selective in their assessment. German inflation was much higher than expected, but didn’t help the euro despite hawkish inflation comments from ECB’s Draghi of late. Later in the session, the Italian government agreed on a 2.4% budget deficit. EUR/USD finished the session at 1.1641, almost at the session low. USD/JPY cleared 113.17 resistance and closed the day at 113.38. Overnight, Asian equities mostly show modest gains. Korea underperforms. EUR/USD hovers near recent lows (1.1640 area) as Asian markets await the European reaction to the Italian budget agreement. This time, USD strength doesn’t cause any material unrest amongst Asian EM currencies. The yen declined further even as most Japanese eco data (including inflation) were mostly higher than expected. USD/JPY is changing hands in the 113.50 area. Today, investors look out whether yesterday’s rise in German inflation will also be copied in other countries and in the EMU CPI. We are keen to see whether it will raise EMU interest rates or the euro. At the same time, European markets will also make their assessment on the Italian budget. In the US, PCE/PCE deflator and the Chicago PMI have market moving potential. Italy remains a wildcard, but we assume that yesterday’s euro decline will at least temporary slow if (especially core) EMU inflation would jump sharply higher. In LT perspective, we maintain the view that Fed-guidance on a (protracted) continuation of the hiking cycle should protect the USD downside. It won’t be easy for EUR/USD to rebound beyond 1.1815/1.1851 ST. The technical picture of USD/JPY improved, but we are not convinced that this rally will continue.

Yesterday, sterling mostly followed the broader moves in the euro and the dollar. EUR/GBP dropped below the 0.89 big figure and trades still in that area this morning. Today, UK eco data (current account final Q2 growth) probably will only be of second tier importance for sterling trading. BoE’s Ramsden will speak. The conservative Party Conference early next week is the next political milestone

EUR/USD tumbles back lower in the range on USD strength and uncertainty on Italy

Daily Pivots: (S1) 1.3040; (P) 1.3114; (R1) 1.3153; More...

Intraday bias in GBP/USD remains neutral at this point, with focus on 1.30423 resistance turned support. Outlook is unchanged that corrective rise from 1.2661 could have completed at 1.3297, ahead of 1.3316 key fibonacci level. Hence, risk will stay on the downside as long as 1.3297 resistance holds. On the downside, break of 1.3042 resistance turned support will bring deeper fall to 1.2784. Break there will argue that larger down trend from 1.4376 is resuming for a new low below 1.2661.

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.

The US dollar has moved to a fresh 2018 trading high against the Japanese yen currency, as the greenback strengthens across the board. Buyers have now broken above the 113.17 level, triggering the bullish inverted head and shoulder pattern with a two hundred pip upside projection. Given the bullish price-action, the USDJPY pair could soon test towards the 114.10 level.

The USDJPY pair is strongly bullish while trading above the 113.17 level, key resistance is now found at the 113.80 and 114.10 levels.

If the USDJPY pair moves below the 113.17 level, key support is found at the 113.00 and 112.70 levels.

The euro remains under heavy downside pressure against the greenback, amidst US dollar strength and financial market concerns about the Italian government larger than expected budget plan. The EURUSD pair has now broken below the 1.1650 level, turning the short and medium-term trend to bearish. Sellers will likely target the 1.1553 level while buyers need to stabilize price above the 1.1650 level.

The EURUSD pair is strongly bearish while trading below the 1.1650 level, key support is now found at the 1.1600 and 1.1553 levels.

If the EURUSD pair moves above the 1.1650 level, price may correct back towards the 1.1680 and 1.1714 resistance levels.

Daily Pivots: (S1) 0.9685; (P) 0.9734; (R1) 0.9822; More...

USD/CHF rises to as high as 0.9782 so far today as rebound from 0.9541 extends. Intraday bias stays on the upside for 0.9866 key resistance level, 61.8% retracement of 1.0067 to 0.9541 at 0.9866. Decisive break there will bring retest of 1.0067 high. On the downside, below 0.9700 minor support will turn intraday bias neutral first.

In the bigger picture, rise from 0.9186 low has completed at 1.0067, after failing to sustain above 1.0037 resistance. Fall from 1.0067 could extend to 61.8% retracement of 0.9816 to 1.0067 at 0.9523 and possibly below. But for now, we don't expect a break of 0.9186 low. On the upside, firm break of 0.9866 support turned resistance will suggest that fall from 1.0067 has completed and rise from 0.9186 is resuming.