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• Jobs Report Eyed as Fed Gets New Chair;
• GBP Vulnerable Ahead of Services PMI Data.

It's been a very busy week for financial markets in which the Bank of England has raised rates for the first time in a decade, Donald Trump has elected a new Fed Chair and his long awaited tax reform has been unveiled, among many other things.

The US jobs report is widely regarded as the most important economic report each month and yet, in a week that's been packed full of other major announcements, it's not attracted the same kind of attention it usually would. Still, with the Fed now poised to raise interest rates again in December having passed up the opportunity to earlier this week, focus will be on the jobs data for signs of weakness.

As has been the case for quite a while now, the job creation and unemployment figures will likely draw the immediate attention of traders and could even trigger the early moves in markets, but it's the wages that will likely have a larger influence on Fed policy. An unusually large number of jobs is expected to have been created last month – 312,000 – which follows the decline the month before following the hurricanes in September. While this rebound in jobs will come as a relief, it's unlikely to trigger the same kind of move that it normally would in the absence of the previous month's decline.

The appointment of Jerome Powell to succeed Janet Yellen as Fed Chair is widely regarded as a continuity play by Trump, which means markets are still behind the curve when it comes to US rate hikes next year. With other spots on the Board of Governors still up for grabs, Trump's other appointments may offer more insight into the future direction of the Fed but this should give a good indication of the direction he's headed. With that in mind, wages should be important today as improvements here could offer the clearest indication that inflation will follow.

The European session will likely be a little quieter this morning, with the only notable data being the services PMI from the UK. The services sector is hugely important for the UK economy, accounting for more than three quarters of total output, which would explain why GDP has slowed in recent quarters in line with the decline in this figure despite other areas, such as manufacturing, having improved.

The pound may be vulnerable to further downside today in the event of a weaker reading, having fallen more than 1% following yesterday's rate hike. The increase itself was almost entirely priced in but traders were clearly not prepared for the dovish statement that accompanied it triggering some profit taking. A weaker PMI number today could see 1.30 come under pressure in GBPUSD.

Daily Pivots: (S1) 147.91; (P) 149.71; (R1) 150.76; More

The break of 148.88 minor support argues that choppy recovery from 146.92 has completed at 151.92 already. Intraday bias is turned back to the downside for 146.92 first. Break will resume the decline from 152.82. But at this point, we'd expect strong support from 61.8% retracement of 139.29 to 152.82 at 144.45 to contain downside and bring rebound. On the upside, above 151.92 will retest 152.82 high instead.

In the bigger picture, medium term rebound from 122.36 is still expected to resume after corrective pull back from 152.82 completes. Firm break of 38.2% retracement of 196.85 to 122.36 at 150.43 will carry long term bullish implications. In that case, GBP/JPY could target 61.8% retracement at 167.78. However, break of 139.29 will indicate rejection from 150.43 key fibonacci level. And the three wave corrective structure of rebound from 122.36 will argue that larger down trend is resuming for a new low below 122.26.

Daily Pivots: (S1) 132.66; (P) 132.90; (R1) 133.24; More....

Intraday bias in EUR/JPY remains neutral for the moment.On the downside, decisive break of 131.65 will confirm rejection from 134.20 fibonacci level. That will also complete and double top pattern (134.39, 134.48) and confirms near term reversal. 55 day EMA will also be firmly taken out. In that case, deeper decline should be seen back to 127.55 key support. On the upside, decisive break of 134.39/48 resistance zone is needed to confirm up trend resumption. Otherwise, even in case of rebound, near term outlook is neutral at best.

In the bigger picture, medium term rise from 109.03 (2016 low) is seen as at the same degree as the down trend from 149.76 (2014 high) to 109.03 (2016 low). 61.8% retracement of 149.76 to 109.03 at 134.20 is already met. Sustained break there will pave the way to key long term resistance zone at 141.04/149.76. However, break of 127.55 support will argue that the medium term trend has reversed and will turn outlook bearish for deeper fall back to 114.84/124.08 support zone at least.

Daily Pivots: (S1) 1.5081; (P) 1.5117; (R1) 1.5148; More....

EUR/AUD is staying in consolidation from 1.5392 and outlook is unchanged. As long as 1.4949 support holds, outlook remains bullish. Medium term rally from 1.3624 is in favor to continue. On the upside, break of 1.5392 will resume medium term rise from 1.3624 and target 61.8% projection of 1.3624 to 1.5226 from 1.4949 at 1.5939 first. However, decisive break of 1.4949 will carry larger bearish implication and turn bias to the downside.

In the bigger picture, we're holding on to the view that corrective decline from 1.6587 medium term top has completed at 1.3624. Rise from 1.3624 is expected to extend to retest 1.6587. However, break of 1.4949 support will dampen our view and argue that rise from 1.3624 has completed. In that case, EUR/AUD would turn southward for retesting 1.3624 low.

Market movers today

In the US, the labour market report for October is due out . We estimate employment growth in October was 300,000, as other indicators have shown the labour market has recovered following the hurricanes. Note the very strong wage growth of 0.5% m/m in September was due partly to compositional effects, as the ‘leisure and hospitality' sector (typically low wage growth jobs) was the sector most severely hit by the hurricanes. This could potentially have added up to 0.1pp to wage growth and we expect this effect was reversed in October. Hence, we expect a correction, now people have returned to their jobs, so we think wages rose 0.1% m/m in October.

In the UK, PMI services for October will give us more information about economic growth at the beginning of Q4. We estimate the index was more or less unchanged at 53.6 but see risks skewed on the downside as the index is a bit higher than suggested by the most recent business confidence indicators.

In Norway, house price data are due out today (see overleaf).

Selected market news

Asian shares and US equities were mixed after yesterday's announcement of the House Republican's tax plan in the US. The plan was in line with details leaked earlier. The tax plan costs USD1,500bn (in line with what the Republicans have made room for in the budget ), implying higher government deficits and public debt if passed. It means there is little room for disagreement on changes to tax revenues/cuts. House Republicans hope to pass the plan quickly so it can move to the Senate later this month. Senate Republicans are working on their own tax plan, which they hope to unveil next week. The aim is still to have tax reform done by year-end, which is probably a bit optimistic (for more detail see POLITICO). The USD has weakened and Asian currencies were generally stronger overnight, as traders are sceptical the tax plan will pass in its current form without being watered down.

Furthermore, yesterday Donald Trump nominated Jerome Powell (current Fed governor) as the next Fed chair. He is still subject to Senate approval (simple majority) but we think this will happen relatively easily – this is also the signal Senate majority leader Mitch McConnell has sent . Powell is considered a centrist in terms of his views on monetary policy stance (much like current Fed chair Janet Yellen) and will therefore most likely continue the current monetary policy strategy of hiking Fed rates gradually. Also Mr Powell may be more dovish on financial sector regulation, in line with Trump's wish and the new Fed vice chair for supervision Randal K. Quarles.

Yesterday, the Bank of England (BoE) raised the Bank Rate by 25bp from 0.25% to 0.50%, with the vote count 7-2 in line with our expectation but against consensus of a 6-3 vote count (see Bank of England Review: BoE keeps its flexibility on further rate hikes, 2 November). The BoE has stopped commenting on current market pricing (two hikes over three years), maintaining its flexibility on further rate hikes. Overall, the signal is neutral, which was more dovish than expected by the market but in line with our expectation. We believe the BoE will stay on hold in 2018 and not hike again before 2019, while the market is more hawkish, expect ing the next hike in November 2018.

Yesterday, it was announcd Danish foreign reserves remained DKK464bn in October. This is the seventh month in a row that Danmarks Nationalbank refrained from intervening in the FX market

Daily Pivots: (S1) 0.8741; (P) 0.8762; (R1) 0.8791; More...

Intraday bias in EUR/GBP is mildly on the upside for 0.9032 resistance. Firm break there will indicate near term reversal and target a test on 0.9305 high. But before that, the fall from 0.9305 could still resume. And break of 0.8732 will target 0.8303 key support.

In the bigger picture, there are various ways to interpret price actions from 0.9304 high. But after all, firm break of 0.9304/5 is needed to confirm up trend resumption. Otherwise, range trading will continue with risk of another fall. And in that case, EUR/GBP could have a retest on 0.8303. But we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside.

Daily Pivots: (S1) 1.1628; (P) 1.1646; (R1) 1.1666; More...

No change in EUR/CHF's outlook as consolidation from1.1709 continues. Intraday bias remains neutral at this point. Overall, near term outlook remains bullish as long as 1.1483 support holds. Break of 1.1709 will extend the medium term up trend towards 1.2 key level. However, break of 1.1483 will be an early sign of reversal. In that case, deeper decline should be seen back to 1.1355 support.

In the bigger picture, long term rise from SNB spike low back in 2015 is still in progress. EUR/CHF should now be heading back to prior SNB imposed floor at 1.2000. For now, this will be the favored case as long as 1.1355 support holds. However, break of 1.1355 will indicate medium term topping. In that case, EUR/CHF should head back to 55 week EMA (now at 1.1067) and possibly below.

USD/CHF –  0.9995

 
The greenback has maintained a firm undertone after recent anticipated rise to 1.0039, adding credence to our bullish view that low has been formed at 0.9421 and upside bias remains for this rise from there to extend further gain to 1.0050, then towards previous resistance at 1.0100, however, near term overbought condition should prevent sharp move beyond 1.0150 and reckon 1.0200-10, risk from there is seen for a retreat to take place later.

Our preferred count on the daily chart is that early selloff to 0.9630 is an end of the larger degree wave III and major correction is unfolding from there with a leg ended at 1.2298 (Nov 2008 with (a): 1.0625, (b):1.0011 and (c):1.2298), wave b ended at 0.9910 with (a): 1.0370, (b): 1.1967, (c): 0.9910. The rise from there to 1.1730 is the wave c which also marked the end of wave IV and wave V has possibly ended at 0.7068.


On the downside, whilst initial pullback to 0.9940-50 cannot be ruled out, reckon renewed buying interest would emerge above 0.9865-70 and bring another rise later. Below previous resistance at 0.9837 (now support) would defer and risk correction to 0.9795-00 but downside should be limited to 0.9755-60 and support at 0.9737 should remain intact, bring another rise. Only a drop below 0.9737 would signal top is formed instead, bring test of key support at 0.9705 which is likely to hold from here.
 
Recommendation: Buy at 0.9875 for 1.0075 with stop below 0.9775.

Dollar's long-term downtrend started from 2.9343 (Feb 1995) and it was unfolding as a (A)-(B)-(C) with (A): 1.1100, (B): 1.8310 (26 Oct 2000), then followed by another impulsive wave (C) with wave III ended at 0.9630 (Mar 2008). Under this count, correction in wave IV has possibly ended at 1.1730 and wave V already broke below support at 0.9630 and met indicated downside target at 0.7500 and 0.7400. The reversal from 0.7068 suggests the wave V has possibly ended and the breach of resistance at 0.9595 add credence to this view and indicated upside target at 1.0000 had been met, however, the sharp retreat from 1.0296 to 0.7401 suggests choppy trading would be seen but price should stay above said record low at 0.7068.

EUR/JPY - 132.94

Original strategy:

Sold at 132.70, Target: 130.70, Stop: 133.30

Position: - Short at 132.70
Target: - 130.70
Stop: - 133.30

New strategy :

Hold short entered at 132.70, Target: 130.70, Stop: 133.30

Position: - Short at 132.70
Target:  - 130.70
Stop:- 133.30

Although the single currency has continued trading with a firm undertone and marginal gain from here cannot be ruled out, as this move from 131.45 is viewed as retracement of the fall from 134.50, reckon upside would be limited and resistance at 132.96 should hold, bring retreat later, below 132.25-30 would bring weakness to 131.90-95 but break of latter level is needed to signal the rebound from 131.45 has ended, bring retest of this level, below there would extend the fall from 134.50 for a correction of early upmove to 131.00, then towards 130.50-60.

In view of this, we are holding on to our short position entered at 132.70. Above 133.10 would defer and suggest first leg of corrective decline from 134.50 top has ended, risk a stronger rebound to 133.50-60 but still reckon upside would be limited to 133.95-00, price should falter well below said last week’s high at 134.50, bring another selloff later.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7680

Original strategy:

Sold at 0.7720, Target: 0.7550, Stop: 0.7780

Position: - Short at 0.7720
Target:  - 0.7550
Stop:- 0.7780

New strategy :

Hold short entered at 0.7720, Target: 0.7550, Stop: 0.7735

Position: - Short at 0.7720
Target:  - 0.7550
Stop:- 0.7735

As aussie met resistance at 0.7730 yesterday and has retreated, retaining our bearishness and signals the rebound from 0.7625 has ended there and bearishness remains for weakness to 0.7650-60, break there would confirm the rebound fro 0.7625 has ended, bring retest of this level, below there would extend recent decline from 0.8125 top to 0.7600, having said that, loss of downward momentum should prevent sharp fall below 0.7550 and reckon 0.7500 would hold from here, bring rebound later. 

In view of this, we are holding on to our short position entered at 0.7720. Above said resistance at 0.7730 would defer and risk a stronger rebound but only break of previous support at 0.7770 would abort and suggest a temporary low has possibly been formed, bring rebound to 0.7800 and then towards 0.7825-35 later.

On the 4-hour chart, recent upmove from 0.7329 is unfolding as an impulsive rise with wave 3 as well as smaller degree wave (iii) extending, only minor wave v of (iii) has ended at 0.8125, hence bullishness remains for this move to extend headway to 0.8200, then towards 0.8300, however, reckon upside would be limited to 0.8400 and the final wave 5 should falter below 0.8500, bring correction later.