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The Institute for Supply Management (ISM) manufacturing fell 2.1 points to 58.7 in October, the fourteenth consecutive monthly expansion. Markets expected a smaller pullback to 59.5.

All components except customers' inventories (+1.5 points to 43.5) and imports (no change at 54) lost some ground in the month. Notable declines occurred in inventories (-4.5 to 48), supplier deliveries (-3.0 to 61.4), prices (-3.0 to 68.5), and orders backlog (-3.0 to 55).

The decline in new orders and inventories pushes up the spread between the two - useful as a leading indicator of activity - to 15.4 (+3.3 points). This remains consistent with a view of manufacturing activity holding or strengthening in coming months.

Sixteen of the eighteen manufacturing industries reported expansion in October, with paper products, nonmetallic mineral products, and machinery registering the strongest advances. No industry recorded a contraction in activity in October.

Key Implications

The key subcomponents affected by hurricanes in August and September were largely responsible for the pullback in October. Namely, supplier inventories, prices, and, to a lesser extent, backlog of orders fell back after recording strong, hurricane-related advances in September. Comments by survey participants suggest that operations impacted by the hurricanes are recovering on schedule, although component shortages remain with price increases expected as a consequence.

Abstracting from the storm-related impacts, small declines in new orders, production, and employment are likely more a reflection of monthly noise rather than the start of a new trend. All three categories have held near cycle highs since mid-year, and hurricane rebuilding efforts are likely to provide ongoing support over the next few months. Overall, this report remains consistent with a resilient and robust U.S. manufacturing sector supported by strong foreign demand that is helping to offset domestic policy uncertainty and U.S. dollar volatility.

The price of the common currency is consolidating today in anticipation of the FOMC statement on monetary policy at 18:00 GMT. While an interest rate hike in the US is not expected at this meeting of the Committee, the rhetoric of Fed chairwoman Janet Yellen may lead to significant moves of the EUR/USD quotes. In case of hawkish rhetoric, the price is likely to move further down. Good news for the greenback came today from the ADP employment growth of 235,000 in October against the 200,000 expected. This was shortly followed up by positive construction data that showed construction spending had increased to 0.3% against the 0% expected. Construction plays a key role on the state of the US economy. The only sour note in this afternoon's data for the US was in the less than expected ISM manufacturing data that was reported at 58.7 versus the 59.5 expected. Volatility is likely to increase during the week due to the Fed's statement and the market's reaction to it and the NFP jobs report due to be released on Friday.

The British pound is rising in anticipation of the release of the statement of the Bank of England on monetary policy tomorrow. The main focus will be on further plans of the British regulator regarding the tightening of monetary policy.

The NZD/USD was supported by strong labour market data according to which the unemployment rate in New Zealand fell by 4.6% in the third quarter which is 0.1% below the expected figure and growth of employment of 2.2%. The positive impulse was short lived and the decline is expected to resume.

The USD/JPY keeps rising despite positive news from manufacturing PMI growth in Japan by 0.3 to 52.8 in October. Traders are also waiting for the consumer confidence data in Japan that will be released tomorrow morning, but its impact will be restrained by more important news from the US.

EUR/USD

The EUR/USD is moving around the important 1.1620 level and the rise of volatility is highly anticipated after the end of the current consolidation. The fall within the descending channel is possible to its lower boundary and the psychologically important 1.1500 mark. On the other side, positive moves are likely to be restrained by 1.1730.

GBP/USD

The GBP/USD is trying to gain a foothold above the upper boundary of the descending channel and the important 1.3250 line. In case of success the closest targets will be at 1.3400 and 1.3600. On the other hand, the pound may retreat down on the background of fixing positions after strong growth and ahead of important events.

USD/JPY

The USD/JPY was able to reach the inclined resistance line and may continue to move upwards along it to the closest objective at 114.70, and overcoming it may become a trigger for further price increases up to 116.00 and 117.70. The RSI on the 15-minute chart is in the overbought zone which points to a potential price correction to the SMA100.

EUR/GBP - 0.8766

Original strategy  :

Sell at 0.8885, Target: 0.8755, Stop: 0.8915

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.8850, Target: 0.8735, Stop: 0.8890

Position : -

Target :  -

Stop : -

 
As the single currency has recovered after falling to 0.8733, suggesting minor consolidation above this level would be seen and corrective bounce to 0.8820-25 cannot be ruled out, however, reckon upside would be limited to 0.8850 and bring another decline later, below said support would add credence to our view that the decline from 0.9033 top is still in progress and extend further weakness towards 0.8700, however, oversold condition should limit downside to 0.8670-75. 

In view of this, we are looking to sell euro again on recovery, above 0.8800 would bring corrective bounce to 0.8850 where renewed selling interest should emerge and bring another decline later. Only above resistance at 0.8902 would abort and shift risk to upside for test of 0.8976 but reckon upside would be limited to 0.9000 and said resistance at 0.933 should remain intact.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.2891

Trend:  Near term up

 
Original strategy       :

Buy at 1.2755, Target: 1.2955, Stop: 1.2695

Position: -

Target:  -

Stop: -

 
New strategy             :

Buy at 1.2755, Target: 1.2955, Stop: 1.2695

Position: -

Target:  -

Stop:-

Current firmness after recent rally adds credence to our view that the rise from 1.2061 low is still in progress and bullishness remains for this move from there (wave iii trough) to extend gain to 1.2950, having said that, as we are still treating this rebound from 1.2061 as wave iv, reckon 1.2975-80 (61.8% Fibonacci retracement of wave iii) would limit upside and 1.3000 should hold, bring selloff later in wave v. We are keeping our count that wave v as well as wave (C) ended at 1.3794 and impulsive wave (i ii, i ii) is now unfolding with minor wave iii ended at 1.2414, followed by wave iv correction ended at 1.2778, wave v has reached our indicated downside target at 1.2100 and may extend to 1.2000.

In view of this, we are looking to reinstate long on subsequent pullback as 1.2750-55 should limit downside and bring another rise. Below 1.2725-30 would defer and suggest a temporary top is possibly formed, bring correction to 1.2690-00 but break of support at 1.2635-40 is needed to confirm, bring weakness to 1.2610-15, then test of 1.2591. 

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

Quick update: Dollar softens mildly as ISM manufacturing index missed expectation and dropped to 58.7 in October. Price paid dropped to 68.5 but beat expectation. Also, employment component dropped slightly to 59.8, from 60.3, but stayed strong.

Dollar strengthens mildly in early US after after stronger than expected job data. ADP report shows 235k growth in private sector jobs in October, above expectation of 200k. But upside is limited at the time of writing. There a number of key events for the rest of the week. Fed is widely expected to keep interest rate unchanged today and save the move for December. US President Donald Trump will announce his nomination for the next Fed chair tomorrow. Republicans will also reveal the details of the tax plan tomorrow after a day of delay. Finally, non-farm payroll report will be released on Friday.

Trump will not visit the border of North and South Korean during his visit to the latter as were traditionally done by US presidents. The visit to Asia will begin with Japan on Sunday. And the schedule of the 12-day trip is too tight, according to an unnamed official. South Korean President Moon Jae-in said today that "according to the joint denuclearization declaration made by North and South Korea, we cannot tolerate or recognize North Korea as a nuclear state. We too, will not develop nuclear (weapons) or own them." And he emphasized that "our government was launched in the most serious of times in terms of security. The government is making efforts to stably manage the situation it faces as well as to bring about peace on the Korean peninsula."

UK PMI manufacturing add to expectations of BoE hike

UK PMI manufacturing rose to 56.3 in October, up from 55.9 and above expectation of 55.9. Markit noted that
"the UK manufacturing sector continued to expand at a solid clip during September, with production and new orders both rising at above long-run average rates." However, "latest survey signalled that cost inflationary pressures surged higher" reflection "combination of rising commodity prices, the exchange rate and increased supply-chain pressures." Markit director Rob Dobson said in the release that "on balance, the continued solid progress of manufacturing and export growth is unlikely to offset concerns about a wider economic slowdown, but the upward march of price pressures will add to expectations that the Bank of England may soon decide that the inflation outlook warrants a rate hike." Also from UK, BRC shop price index dropped -0.1% yoy in October.

Sterling is also supported by expectation of some kind of breakthrough in Brexit negotiations. UK Brexit Secretary David Davis told a House of Lords committee yesterday that "the withdrawal agreement, on balance, will probably favour the [European] Union in terms of things like money and so on. Whereas the future relationship will favour both sides and will be important to both of us." This is taken as an signal that the UK team is finally ready to clear out all the smokescreens to move on quickly with the talks. And that would likely raise the chance of making sufficient progress by EU summit in December to move on to trade talks afterwards.

Also from Europe, Swiss PMI manufacturing rose to 62.0 in October, above expectation of 61.4.

China Caixin PMI manufacturing unchanged

China Caixin PMI manufacturing was unchanged at 51.0 in October, meeting expectation. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, a Caixin subsidiary, noted in the release that "the stringent production curbs imposed by the government to reduce pollution and relatively low inventory levels have added to cost pressures on companies in midstream and downstream industries, which could have a negative impact on production in the coming months."

Kiwi rebounds after solid job data

New Zealand Dollar rebounds notably today after solid job data. Employment rose 2.2% qoq in Q3, well above expectation of 0.8% qoq. Unemployment dropped to 4.6%, down from 4.8%, better than expectation of 4.7%. That's also the lowest level since 2008. Nonetheless, the support to Kiwi could be temporary as there shouldn't be any change in RBNZ's neutral stance. The central bank is far from hiking interest rate from the current 1.75% level.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9945; (P) 0.9969; (R1) 1.0001; More....

USD/CHF recovers further in early US session but stays below 1.0037 temporary top. Intraday bias remains neutral and more consolidation could be seen. In case of another retreat, downside should be contained above 0.9835 resistance turned support and bring rally resumption. Since 61.8% retracement of 1.0342 to 0.9420 at 0.9990 is already met, break of 1.0037 will turn bias to the upside for 1.0342 key resistance next.

In the bigger picture, current development suggests that USD/CHF has defended 0.9443 (2016 low) key support level again. Rise from 0.9420 could is a medium term up move and should target a test on 1.0342 high. This represents the upper end of a long term range that started back in 2015. On the downside, break of 0.9736 support is now needed to indicate completion of the rise from 0.9420. Otherwise, further rally will remain in favor in medium term.

Economic Indicators Update

USD/JPY continues to gain ground and has punched above 114 yen in the Wednesday session. In the North American session, USD/JPY is trading at 114.02, up 0.34% on the day. Today's highlight is the FOMC rate statement, with no change expected in the benchmark interest rate. ADP Nonfarm Employment Change jumped to 235 thousand, easily beating the estimate of 202 thousand. The ISM Manufacturing PMI slowed to 58.7, short of the estimate of 59.5 points. Later in the day, Japan release Monetary Base. On Thursday, Japan publishes consumer confidence and the US releases unemployment claims.

There were no surprises from the Bank of Japan, which released its rate statement on Tuesday. The BoJ maintained its commitment to guide interest rates at -0.10% and 10-year bond yields around zero percent. Despite weak inflation and wage growth, there has not been much pressure on the BoJ to change policy, as the Japanese economy has performed well in 2017. GDP expanded at an annualized 2.5 percent in the second quarter, buoyed by solid numbers from the manufacturing and export sectors. Consumer spending has improved, and retail sales in September improved 2.3%, compared to 1.7% a month earlier. Retail sales have risen for 11 consecutive months, as consumers appear more confident in the economy and have opened their purse strings.

All eyes are on the Federal Reserve, which releases a rate statement later on Wednesday. The Fed is widely expected to maintain the benchmark rate at 1.25%, but the statement could provide clues about future rate policy. The markets have priced in a December rate at 98.5%, which would mark a third rate for 2017. What can we expect in 2018? That depends to a large degree on the new chair of the Fed. Janet Yellen will wind up her 3-year term in February, and she is not expected to be reappointed by President Trump. The front runner is economist Jerome Powell, who is a proponent of much higher rates – his "Taylor Rule", which calls for higher rates when inflation is high or the labor market is at full capacity. Trump is expected to make his choice on Thursday, ahead of his trip to Asia.

USD/CHF - 1.0016

Original strategy :

Buy at 0.9915, Target: 1.0030, Stop: 0.9880

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9980, Target: 1.0080, Stop: 0.9945

Position : -

Target :  -

Stop : -

As the greenback has continued moving higher after breaking indicated level at 1.0000, suggesting the pullback from 1.0038 has ended at 0.9938 and a retest of this level would be seen, break there would confirm recent upmove from 0.9421 low has resumed and may extend further gain to 1.0050-55, then towards 1.0075-80 but price should falter below 1.0100 resistance.

In view of this, we are looking to buy dollar again on pullback as 0.9975-80 should limit downside, bring another rise later. Below 0.9960 would prolong consolidation and risk weakness towards support at 0.9938, however, reckon downside would be limited to 0.9920-23 (38.2% Fibonacci retracement of 0.9737-1.0038) and 0.9885-90 (50% Fibonacci retracement) should remain intact. 

GBP/USD - 1.3293

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As cable has surged again and broke above indicated previous resistance at 1.3279-87, suggesting early erratic rise from 1.3027 low is still in progress and near term upside risk remains for this move to bring retracement of early decline to 1.3310, then towards resistance at 1.3338, however, as broad outlook remains consolidative, reckon upside would be limited and price should falter below 1.3380-90, bring retreat later.

In view of this, would not chase this rise here and would be prudent to stand aside for now. below the Kijun-Sen (now at 1.3246) would bring pullback to 1.3215-20 but only break of minor support at 1.3196 would signal top is formed, bring further fall to 1.3170, then test of the lower Kumo (now at 1.3143) which is likely to hold from here.

EUR/USD - 1.1620

Original strategy  :

Sell at 1.1700, Target: 1.1595, Stop: 1.1735

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1700, Target: 1.1595, Stop: 1.1735

Position : -

Target :  -

Stop : -

Euro’s near term sideways trading is likely to continue and although initial upside risk remains for the rebound from 1.1574 low to extend gain to 1.1670-75 (38.2% Fibonacci retracement of 1.1837-1.1574), as this move is still viewed as retracement of recent decline, reckon upside would be limited to 1.1700-05 (50% Fibonacci retracement) and bring retreat later, below 1.1600-05 would signal the rebound from 1.1574 low has ended, bring retest of this level first. A drop below said support at 1.1574 would extend recent decline from 1.2093 top to 1.1550-55 but loss of downward momentum should prevent sharp fall below 1.1520-25 and reckon 1.1500 would hold.

In view of this, we are looking to sell euro on further subsequent recovery as 1.1700-05 should limit upside and bring another decline. Only above previous support at 1.1725 (now resistance) would signal low is formed instead, bring retracement of recent decline to 1.1750-55 first. 

USD/JPY - 114.27

New strategy  :

Buy at 113.75, Target: 114.75, Stop: 113.40

Position :  -

Target :  -

Stop : -

As the greenback has continued moving higher after staging a strong rebound from 112.96 in part due to active cross-selling in yen, suggesting the retreat from 114.45 has ended at 112.96 and a retest of 114.45-50 strong resistance would be seen, however, break there is needed to retain bullishness and confirm early upmove has resumed for headway to 114.75-80 and later towards 115.00 but near term overbought condition should limit upside.

In view of this, we are looking to buy dollar on pullback as the upper Kumo (now at 113.71) should limit downside and bring another rise later. Below 113.35-40 would abort and suggest an intra-day top is formed, bring weakness to 113.20, then towards said support at 112.96 which is likely to hold from here.