Sample Category Title

The cross rallied on Tuesday and retested Monday's high at 0.8868, as pound was hit be weaker than expected UK data.

Bulls extend for the third straight day and set for further advance towards key near-term barrier at 0.8900 zone (19 Sep correction high / converged sideways-moving 100SMA / falling 20SMA).

Current recovery rally is seen as correction of broader downtrend which should be ideally capped at 0.8900 zone before bears resume.

Slow stochastic is entering overbought territory and supports scenario, with falling 20SMA on track to form bear-cross with 100SMA and produce additional pressure.

Alternative scenario requires sustained break above 0.8900 barrier to ease bearish pressure, but break above 0.8960 (Fibo 38.2% of 0.9306/0.8745 fall) is needed to confirm reversal and open way for further recovery.

Res: 0.8878, 0.8900, 0.8960, 0.9000
Sup: 0.8821, 0.8808, 0.8745, 0.8725

Tuesday October 3: Five things the markets are talking about

Ahead of the U.S open, investors appear to be taking a breather after the themes of tighter U.S monetary policy, a potentially more 'hawkish' Fed chief and stronger U.S data helped to drive recent gains for both the 'mighty' dollar and equities.

The EUR (€1.1737) is facing ongoing pressure from Spain's biggest constitutional crisis in decades, after last weekends violent 'illegal' independence referendum in Catalonia may have opened the door for the region to move for separation as early as this week.

In the U.K, GBP (£1.3247) continues to trade under pressure in the midst of this week's U.K Conservative Party's annual conference where there could be challenges to PM Theresa May's leadership. Boris Johnston, Davis, Rudd and Fox are all scheduled to speak today – U.K's foreign minister Johnston in particular could cause a ripple effect for the pound.

Weaker U.K construction PMI this morning (see below) is also providing the pound some problems and in mainland Europe some E.U officials have reiterated their views of insufficient progress in Brexit talks.

U.S. data this week include trade, durable goods and Friday's September non-farm payroll (NFP) report, which may be distorted from hurricanes that hit stateside from late August.

1. Stocks mostly in the 'black'

Stateside Monday, all three major indexes posting record-high closes after the ISM index of U.S manufacturing surged to just shy of a four-year high in September.

In Japan, the Nikkei stock index ended up +1.1% as a tailwind from a weaker yen (¥113.00) helped power it to its highest levels in two-years. The broader Topix gained +0.7%, also the highest closing level since mid August 2015.

Note: Markets in China, S. Korea and Germany are closed for holidays.

In Hong Kong, the blue-chip Hang Seng index rallied +1.9% as trading resumed following a public holiday on Monday, led by mainland banks and insurers after the People's Bank of China (PBoC) cut reserve ratios (RRR) over the weekend to encourage lending. The Hong Kong China Enterprises Index rallied +3.2%.

Down-under, Australia's S&P/ASX 200 slipped -0.5%, pressured by financial and energy shares.

Note: As widely expected, the Reserve Bank of Australia (RBA) kept interest rates on hold at a record low of +1.5%. The RBA said a stronger AUD (A$0.7800) would slow the economy and restrain price pressures.

In Europe, regional bourses have opened higher and continue to trade in positive territory. Materials are underperforming on drop in commodities, while energy is also under pressure from oil price. Uncertainty over Catalonia continues to weigh on risk sentiment and especially Spanish stocks.

U.S equities are set to open little changed.

Indices: Stoxx50 +0.1% at 3,599, FTSE +0.1% at 7,433, DAX closed, CAC-40 +0.2% at 5,359, IBEX-35 -0.1% at 10,245, FTSE MIB -0.2% at 22,777, SMI +0.2% at 9,258, S&P 500 Futures -0.05%

2. Oil prices fall on oversupply concerns, gold at seven week low

Oil futures have extended their losses after tumbling yesterday, as a rise in U.S drilling and higher OPEC output stalls the recent rally and rekindled concerns about oversupply.

Brent crude has slipped -0.4% to +$55.90 a barrel, after marking a third-quarter gain of about +20%, while U.S light crude (WTI) has fallen -0.3% to +$50.42.

Note: Iraq indicated yesterday that exports rose slightly last month from its southern oilfields, while a Reuters survey indicated that OPEC boosted output in the month.

Expect investors to take their cues from this week's inventory reports.

Ahead of the U.S open, gold trades atop of its seven-week low, as equities and the dollar remain somewhat buoyed by upbeat U.S economic data and stronger treasury yields. Spot gold is down -0.1% at +$1,269.71 an ounce.

3. Sovereign yields back up

Firming expectations that the Fed will hike rates in December coupled with domestic data pointing to steady growth in the U.S and talk of a potentially more hawkish successor to Fed Chair Janet Yellen is helping to push U.S yields higher.

Ten-year yields are trading atop of +2.35%; it's highest yield since mid-July, which has also pushed the dollar higher against G10 currencies.

Note: Speculation that President Trump could choose former Fed Governor Kevin Warsh, who is considered more 'hawkish' than Yellen, to replace her as head of the Fed.

Elsewhere, Germany's 10-year Bund yield has rallied +2 bps to +0.47%, while the U.K's 10-year Gilt yield has climbed +3 bps to +1.359%.

Note: The BoE has sent repeated signals that it is readying its first interest-rate increase in more than a decade as the U.K.'s looming departure from the E.U weighs on the economy. Fixed income dealers are pricing in a November hike.

4. Dollar remains better bid on rate differentials

A higher U.S yield again is providing support for the 'mighty' dollar across the board. Dealers are pricing in +70% odds that the Fed would resume rate hikes in December following a recent spat of stronger U.S data.

The EUR (€1.1742) trades atop of this week's lows, as divergence trades between the Fed and ECB remain intact. The pair had some technical resistance just above the psychological €1.2000 print last month, while short-term support is featured around €1.1700.

In the U.K, Sept PMI Construction data (see below) slipped into contraction territory for the first-time in 13-months and is providing some additional headwind for the pound (£1.3245).

Down-under, AUD is trading atop of its two-month low outright (A$0.7800) after the Reserve Bank of Australia (RBA) left interest rates unchanged and gave a cautious assessment of the local economy

5. UK construction PMI falls

There was more downbeat news on the U.K economy this morning as the purchasing managers' index on U.K. construction activity fell below the 50 level in September, marking contraction rather than expansion for the first time in 13-months.

The index dropped to 48.1 last month, from 51.1 in August. The market had expected the reading to remain above 50.

The headline fall is being attributed to a drop in new orders, with respondents reporting “fragile confidence and subdued risk appetite among clients, especially in the commercial building sector.”

Note: A lower construction PMI, which follows yesterday's smaller U.K manufacturing PMI, highlights concerns about a weakening U.K economy just as the BoE is expected to raise interest rates in November.

The euro is almost unchanged in the Tuesday session, after starting the week with considerable losses. Currently, EUR/USD is trading at 1.1736, up 0.03% on the day. German banks are closed for a holiday, so we’re unlikely to see much movement from the pair during the day. The eurozone will release PPI, which is expected to post a weak gain of 0.1%. There are no major US releases on the schedule.

The Spanish region of Catalonia was a scene of chaos and violence on the weekend. The Catalan regional government attempted to hold a referendum on independence, but the national government was adamantly opposed to the move and banned the vote. When voters showed up at polling stations, the police moved in with force, injuring close to 900 civilians. Catalonian officials claimed that 90 percent of voters had voted for independence, setting the stage for a full-blown crisis with Madrid. The Spanish constitution prohibits any region from seceding, but Catalan Carles Puigdemont has not showed any intent to back down, and has called for a general strike on Tuesday. Although the euro lost ground on Monday, the crisis is not expected to continue to weigh on the currency, given that the referendum is viewed as an issue local to Spain, and not to the eurozone in general. As well, the Spanish economy is in good shape, so a constitutional crisis is unlikely to affect the country’s economic growth.

President Trump has set is sight on tax reform, but the tax proposal, called the Unified Tax Reform Framework, has been sketchy and short on specifics. Under the proposal, corporate tax would be lowered from 35 percent to 20 percent, and there would be deep cuts in personal income tax as well. However, it’s not clear how the government would pay for these cuts, with Trump saying that the cuts will trigger strong economic growth. Moody’s, the well-respected credit rating company, isn’t buying what Trump is selling. On Monday, Moody’s said that the tax plan is “likely credit negative”, arguing that tax cuts would not be offset in spending cuts, which would result in a higher federal budget deficit and debt. The reduction in federal government revenue would negatively affect the US credit rating. Some republican lawmakers have already come out against the plan, so it appears that the proposal will have an uphill battle to pass through the House of Representatives and the Senate.

EUR/USD

Current level - 1.1699

The outlook is bearish below 1.1670 minor resistance, for a break through 1.1660, towards 1.1480 zone. Key hurdle on the upside is 1.1830.

USD/JPY

Current level - 113.11

My outlook remains positive, for a rise towards 113.80, en route to 114.50 zone. 

GBP/USD

Current level - 1.3246

Yesterday's slide tested precisely 1.3220 support area, so allow a brief corrective rebound before breaking lower, towards 1.3150. Key resistance lies at 1.3340.

EURUSD

The EURUSD had a bearish momentum yesterday bottomed at 1.1730 and hit 1.1707 earlier today in Asian session. The bias is bearish in nearest term testing 1.1600 region. Immediate resistance is seen around 1.1750. A clear break above that area could lead price to neutral zone in nearest term testing 1.1800 region but as long as stay below 1.1850 price is still in a bearish correction phase. On the downside, a clear break and daily close below 1.1600 would expose 1.1450 area. Overall I remain bullish.

GBPUSD

The GBPUSD had a significant bearish momentum yesterday broke below 1.3330 support area, bottomed at 1.3256 and hit 1.3241 earlier today in Asian session. Price is in a bearish correction zone now. The bias is bearish in nearest term testing 1.3150 region. Immediate resistance is seen around 1.3300 – 1.3330 region. A clear break above that area could lead price to neutral zone in nearest term testing 1.3400 area. Overall I remain bullish but need a clear break at least above 1.3400 to potentially end the current bearish correction phase.

USDJPY

The USDJPY was indecisive yesterday. The bias is neutral in nearest term but overall price is still in a bullish phase targeting 113.50 area. Immediate support is seen around 112.66 (current low). A clear break below that area could trigger further bearish pressure testing 112.35 – 111.65 key support area which remains a good place to buy with a tight stop loss. Overall I remain neutral but as long as stay above 111.65 the H1 chart bias should remain bullish.

USDCHF

The USDCHF had a bullish momentum yesterday topped at 0.9754 and hit 0.9770 earlier today in Asian session. Price revisits the daily EMA 200 as you can see on my daily chart below. The bias is bullish in nearest term but 0.9765 – 0.9807 area remains a key resistance and good place to sell with a tight stop loss above 0.9807. Immediate support is seen around 0.9730. A clear break below that area could lead price to neutral zone in nearest term testing 0.9650 region. Overall I remain neutral.

Growing risk in Catalonia

We continued to see an underpricing of Catalonia risk. Partially since markets tend to expect the least intrusive outcome and partially the market rumors that, this is merely a domestic issue. Meaning should Spain break up the EU will deal with both parties as separate entities. This is fake news and massive miscalculation. European commission issued a statement, which indicated should Catalonia ever leave Spain in a legal referendum; it would immediately be thrown-out of the EU. In a massive error, the callousness of the EU government by siding with Madrid despite the brutality on referendum Sunday, is likely to have Catalonia's loyalty to the EU weaken. In our view the strongest argument for Catalonia to remain a part of Spain, a unified Europe, has now been squandered. Removing this logical argument opens up this struggle to extremes.

The regional government of Catalonia has issued general demonstrations for today, which is likely to harden both sides rather than relieve tensions. Empowered by the lack of consideration for the democratic process radical members of Catalonia government has called for unilateral declarations of immediate independence. The outlook for Span has got4en considerably more uncertain. Our expectation is for call for independence this week and possibly will trigger Article 155were the Madrid Government where they would take over regional policy and fiscal tasks. We remain bearish on the Euro in light of events in Spain and expect things to get worse before they improve. Break of 5-month uptrend at 1.1836 indicate bearish extension to 1.1660 August low.

RBA holds rate at record low

Earlier last night, the Reserve Bank of Australia has held rates unchanged AT 1.5% and this has triggered some slight weakness for the Aussie. It is the 14th consecutive months that rates remain unchanged. Central bankers declared that there are confident about growth picking up within a near future. RBA is definitely not in a hurry to tighten its monetary policy, especially since the Aussie stays strong.

Fundamentals remain somewhat mixed with low wages growth, which concerns the central bank's members. Inflation is currently standing below 2%, just under the long-term inflation target of 2%-3%. Q2 growth printed at 0.8% q/q, which was a good improvement.

The AUD keeps on being strong. The pair dipped below $0.78 which is the lowest level in the last two months. Yet, we believe that upside pressures on the Aussie are set to continue due to the improving nature of the Australian economy and their strong exposure to gold & metals. Indeed, we consider that the precious metals' prices are going to be driven higher because of increasing global inflation.

Risk of an RBI rate cut

On Wednesday the Reserve Bank of India (RBI), policy meeting will be key to EM pricing. It's widely expected the RBI to hold rates unchanged however, there is a high probability of a surprise rate cut. India's economic expansions has slowed significantly causing concern with policy makers. While drop in real interest rates despite rise in upward pressure on inflation, will force the RBI to act. Should the policy meeting stick expectations the tone of the statement will likely indicate that additional policy rate cut is on the table. Shift in tone or cut combined with narrowing US-India rate spread and uncertainty over EM reaction of fed policy will keep INR weak.

Daily Pivots: (S1) 148.98; (P) 149.97; (R1) 150.66; More

GBP/JPY's consolidation from 152.82 is still in progress. In case of deeper fall, downside should be contained by 38.2% retracement of 141.17 to 152.82 at 148.36 to bring rebound. Break of 152.82 will extend the larger rise from 122.36 to 61.8% projection of 122.36 to 148.42 from 139.29 at 155.39 next.

In the bigger picture, medium term rebound from 122.36 is in progress. 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. For now, the bullish scenario is preferred as long as 139.29 support holds.

Bitcoin is still on a strong momentum. Strong support is given at 2975 (22/08/2017 low). Sell walls around $4000 have been broken. Key resistance can be located at 4921 (01/09/2017 high). The road is wide open for further increase.

In the long-term, the digital currency has had an exponential growth. There are decent likelihood that the asset will reach $10'000.

Crude oil is consolidating above the $50 level. Key support is given at 45.40 (17/08/2017 high). Strong resistance found at 52.43 (26/09/2017) has been broken. Expected to show another leg higher.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. Strong support lies at 35.24 (05/04/2016) while resistance can now be found at 55.24 (03/01/2017 high).

Silver has reversed and has broken uptrend channel by breaking support implied by its lower bound. Strong resistance is given at 18.65 (17/04/2017 high) while support found at 16.58 (15/08/2017 high) has been broken. Expected to show further bearish move.

In the long-term, the trend is rater negative. Further downsides are very likely. Resistance is located at 25.11 (28/08/2013 high). Strong support can be found at 11.75 (20/04/2009).