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USD/CHF is trading within uptrend channel, Hourly support stands at 0.9712 (12/10/2017 low). The technical structure suggests an improving short-term buying interest. Expected to show continued bullish pressures within uptrend channel.

In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

USD/JPY has failed to hold above former resistance given at 113.26 (27/09/2017 low). Support is located at 111.99 (16/10/2017 low). Downside risks are rising as markets may soon take some short-term profit.

We favor a long-term bearish bias. Support is now given at 99.02 (10/08/2013 low). A gradual rise towards the major resistance at 125.86 (05/06/2015 high) seems unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

GBP/USD continues to rise after the break of falling channel. A support can be found at 1.3237 (intraday low). Hourly resistances stand at 1.3265 (intraday high).

The long-term technical pattern is reversing. The Brexit vote had paved the way for further decline. Long-term support can be found at 1.1841 (07/10/2017 low). Long-term resistance given around 1.35 is at stake and indicates a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

EUR/USD continues to improve and is now close to the key resistance at 1.1890 (25/09/2017 high). Strong support is given at a distance at 1.1662 (17/08/2017 low). Expected to show some short-term consolidation.

In the longer term, the momentum is now turning largely positive. We favour a continued bullish bias. Key resistance is holding at 1.2252 (25/12/2014 high) while strong support lies at 1.0341 (03/01/2017 low).

GBPJPY holds a neutral bias in the near term after stalling its decline from 152.85 to 146.93. Short-term trend and momentum signals are highlighting the lack of direction in the market and point to a consolidation phase between the key levels of 147 and 149. On the 4-hour chart, RSI and MACD are flat, while the 20 and 50-period moving averages are horizontal.

Immediate support is expected at 146.65. The market is expected to remain well supported at this level but a break it would open the way towards 144 and then 140. To the upside, resistance is seen at 150. Another push higher would see a re-test of the 152.85 peak before the resumption of the August to September uptrend.

The neutral to bearish phase is expected to remain intact in the short term. Fibonacci analysis shows price action around the 38.2% retracement. While risk is to the downside, only a drop below the 50% retracement level at 146.17 would reverse the 139.30 – 152.85 uptrend.

Concerns on the inflation path and questions on the future of tax plans continued to weigh on the dollar on Friday, while the pound drifted higher on reports that the UK may get a 2-year transitional period before it exits the EU.

Although yesterday's encouraging data on US producer prices and initial jobless claims helped the dollar to gain some ground against its major counterparts, markets remained cautious on the timing of another interest rate hike in 2017 after the Fed's September meeting minutes released on late Wednesday raised concerns on whether factors weighing on price growth are more persistent after all.

Optimism on Trump's proposed tax overhaul was somewhat fading as Trump showed some opposition to certain aspects of the tax plan this week after he was informed that the plan would hurt middle-class families according to sources familiar with the matter. Also noteworthy is that on Tuesday Republican Senator Todd Young said he would not support any tax overhaul plan that would “blow a hole in the budget”.

Later in the day, markets will keep a close eye on the US CPI readings to get more insights on the inflation path.

The dollar index broke below the 93-key level it reached yesterday to trade at 92.79 during the Asian session. The yen saw some moderate gains on the news of a small earthquake near the area where North Korea conducted nuclear tests in the past. South Korea's weather agency said though that this was a natural phenomenon. Dollar/yen was 0.25% down at 111.99.

Gold made a fresh two-week high at $1,298.94 per ounce, gaining 0.30%.

A report by the German newspaper Handelsblatt on Wednesday, stating that the EU's Brexit negotiator Michel Barnier might offer the UK a two-year transitional period during a meeting of EU ambassadors today, boosted the pound to a 1 ½-week high of $1.3311. The offer, however, would be under the condition that the UK will meet its EU financial obligations and will give up its voting rights. This came a few hours after Barnier said that the Brexit divorce bill was in a “deadlock”, driving the pound to a three-day low of $1.3143.

The euro edged down by 0.08% to 1.1821 following a report overnight that the ECB policymakers agreed to extend the 2.3 trillion asset purchases program into next year. Particularly sources with knowledge of the matter said that the ECB is considering reducing asset purchases from the current 60 billion euros to 30 billion euros in January and maintain the program for at least nine months. ECB policymakers are expected to meet on October 26 to decide on whether they will tighten monetary policy before the quantitative program expires in December.

In other currencies, the aussie gained 0.22%, rising to an eight-day high of $0.7843 despite lower than expected trade data out of China. Still, export figures remained strong. The kiwi was up by 0.21% at $0.7142, with New Zealand's kingmaker First party holding a board meeting on Monday.

Regarding energy markets, a larger than expected reduction in US oil inventories as per the EIA report pushed oil prices higher. US crude oil inventories declined by 2.747 million barrels, while analysts expected a fall of 1.1991 million barrels. WTI crude jumped by 1.32% to $51.27 per barrel and Brent increased by 1.28% to $56.97.

The Aussie remains firm on Friday and extends the succession of higher highs and higher lows this week.

The pair holds in green for the fourth consecutive day and probes again into daily cloud, following repeated failure to close above the base of rising daily cloud (currently at 0.7818).

Today's fresh advance emerged above falling 4-hr cloud and generated bullish signal for extension towards key near-term barriers at 0.7865/74 (20SMA / Fibo 38.2% of 0.8102/0.7732 / 04 Oct high).

Eventual close above cloud base will be bullish signal while sustained break above 0.7874 would spark further retracement of 0.8102/0.7732 fall.

Key supports at 0.7800 zone (converged 10/100SMA's / daily Tenkan-sen) are expected to contain and keep the downside protected.

US data are in focus today and near-term bias is expected to be determined by the outcome.

Res: 0.7845, 0.7874, 0.7917, 0.7929
Sup: 0.7814, 0.7803, 0.7782, 0.7748

EURUSD is moving lower, can be already in wave-c, final leg of a corrective set-back that can stop at 1.1800 level or even at 1.1760; near 61.8% Fib. level. But important is that this is a corrective decline; a temporary downward move that may see limited downside.

EURUSD, 1H

Crude oil is making a sharp rise, now back above 51.00 after a nice three wave set-back yesterday that found a low near 50.10 as expected. Current rise is strong and breaking above the channel resistance line so new highs are likely coming, up to around 52.00.

Crude OIL, 1H

Key points

• Global central bankers are busy on the news wires but new research indicates that the accuracy of forecasting financial and macroeconomic variables has not improved.
• Market to focus on what 'QE path' the ECB will choose on 26 October, when it is due to reveal the bulk of its decisions regarding the future of the QE programme.
• It seems that two 'paths' are on the table. Either an extension for six months with EUR40bn a month in purchases or purchases for nine/12 months but only EUR20bn or EUR30bn a month.
• We believe for now in the first 'path' but acknowledge that the purchase constraints that make it more and more difficult for the ECB to buy according to the 'Capital Key' makes a 'longer, but smaller' monthly amount 'path' more likely.

The art of Kremlinology

This week has been full of speeches from global central banks. According to Bloomberg alone, 14 speeches from the ECB and 17 speeches from Fed members were scheduled. On top of this we had FOMC minutes. The reasons are that the important 26 October ECB meeting, where the board has promised to outline the future for the ECB QE programme, is drawing closer; the Fed is widely discussing balance sheet reduction and low inflation versus a low unemployment rate and, not least, that we have the annual IMF meeting in Washington this week.

However, there is still plenty of information for central bank watchers to scrutinise. Central bank watching is sometimes referred to as the new art of 'Kremlinology', a term applied to Western analysts during the cold war who were trying to figure out what was really going on behind closed doors at the Kremlin. Even small changes in wording, the removal of certain people from the public and the way articles were arranged in Pravda were scrutinised. The question is whether these signals were intentional and indeed they were probably often misinterpreted by analysts.

Forecasting capabilities have not improved

The uncertainty is how much value we can actually derive from central bank watching. It has been best practice among central banks for years to provide information about monetary policy in order to increase its effectiveness.

However, what about the art of forecasting financial and macroeconomic variables? In a working paper from the Swiss National Bank (SNB), the authors Thomas Lustenberger and Enzo Rossi argue, based on a large sample of data, that increased central bank communication does not improve the accuracy of private forecasts. Furthermore, they argue that more frequent communication increases both forecast errors and their dispersion. So, perhaps 'speech is silver, silence is golden' when it comes to forecasting on the back of central bank speeches.

But we still keep an eye on ECB and Fed speeches

With these academic findings in mind, we should probably end this document here. However, we stick to our Kremlinology business and give our interpretation of the latest communication from the ECB and the Fed.

If we start with the ECB, it seems that at the forefront of the discussion is not so much whether the QE programme should be extended into 2018 but rather what the ECB thinks is the most appropriate way to move forward when the Governing Council makes the bulk of its decisions regarding the future of the QE programme at its 26 October meeting. In the minutes from the 6-7 September ECB meeting, the ECB said 'within the framework of the Governing Council's forward guidance, the benefits from a longer intended purchase horizon, combined with a greater reduction in the pace, were compared with those from a shorter period of purchases and larger monthly volumes'.

It appears there are two options now on the table: either an extension for six months, with EUR40bn a month in purchases or purchases for nine/12 months but at only EUR20bn or EUR30bn a month. It is also noteworthy that the ECB minutes state that 'the monetary policy stance would remain highly accommodative in either scenario on account of the range of policy instruments in place, most notably the reinvestment of the principal of maturing securities, the liquidity related to the targeted longer term refinancing operations, and the forward guidance on the ECB's key policy rates'.

In particular, the discussion regarding the reinvestment flows, which could be as high as EUR15-20bn a month in 2018, is attracting increasingly more attention. It is likely the reinvestment flows will be an important part of the exit discussion that the ECB will, in our view, try to sell as a very 'soft exit'.

We plan to publish an in-depth ECB preview ahead of the 26 October meeting but for now we stick with the view that the ECB will announce a six-month extension with a monthly pace of EUR40bn. We expect a 'small' three-month EUR20bn extension after that. That said, the purchase constraints that make it more and more difficult for the ECB to buy according to the 'Capital Key' in the low-debt countries make a 'more months but smaller monthly amount path' more likely.

Fed: on track for a December hike

In respect to the Fed, it also released minutes this week. Here, we already know the different positions among the FOMC members. The most dovish FOMC members (Lael Brainard, Charles L. Evans and Neel Kashkari) argued that the Fed should not hike further this year, as low inflation may not be just transitory due to low inflation expectations and labour market slack. The core FOMC members on the other hand think it is appropriate to tighten monetary policy further, as above-trend growth tightens the labour market further, which eventually leads to higher wage growth and hence higher inflation; in other words, they still have a strong belief in the Phillips curve. In our view, they are likely to feel relieved about the latest average hourly earnings figures, which came out much higher than expected in September.

All in all, it remains our base case that the Fed will hike in December, as the core voting FOMC members put more weight on labour market data than current inflation data, although we agree with the dovish camp that low inflation may not be temporary due to low inflation expectations. For more, see FOMC minutes: Core members still want to hike in December, 11 October.

The USDJPY pair is attempting to break below narrowing range of past couple of days and probed below initial support at 112.00 for the first time since 26 Sep. Recent several attempts lower failed to break lower, but near-term action remains in red and holding at the edge, ahead of key support at 111.80 (200SMA). Sustained break here is needed for bears to take control and signal reversal after repeated upside failures above 113.00. Break below 200SMA would expose supports at 111.40 (30SMA) and 111.10 (100SMA/Fibo 38.2% of 107.31/113.43) which marks next trigger. Daily indicators are heading south with 14d momentum holding at the midline and showing scope for probe into negative territory which is supportive for further downside. Also, reversal pattern is forming on weekly chart and supports the notion. At the upside, 20SMA (112.35) marks initial resistance, followed by 10SMA (112.47) which is expected to cap upside attempts. Return above daily Tenkan-sen (112.64) and psychological 113.00 barrier would neutralize bearish threats and shift near-term bias higher. US data today would give more clues about near-term direction.

Res: 112.35, 112.47, 112.64, 113.00
Sup: 111.80, 111.40, 111.10, 110.70