Sample Category Title

USD/JPY is showing little movement in the Monday session. In North American trade, the pair is trading at 112.71, up 0.22% on the day. On the release front, Japan released the Tankan Manufacturing and Non-Manufacturing indices for the third quarter. The manufacturing index jumped to 22, easily beating the forecast of 18 points. On the services front, the Non-Manufacturing index remained unchanged at 23 points, just shy of the estimate of 24 points. In the US, ISM Manufacturing PMI accelerated to 60.8, beating the forecast of 57.9. This was the indicator's highest level since April 2011. On Tuesday, Japan releases BOJ Core CPI and Consumer Confidence.

Japanese manufacturing data has been pointing upwards, so it should come as a surprise that the Tankan Manufacturing Index, which measures confidence levels among large manufacturers, continues to accelerate in 2017. The indicator came in at 12 points in Q1, 14 points in Q2 and an impressive 22 points in Q3, its highest level since 2007. The manufacturing sector has benefited from a stronger global economy, as the demand for Japanese products remains strong. The weak Japanese currency has also helped strengthen the manufacturing and export sectors.

Inflation levels are mired at low levels, but traders shouldn't expect the Bank of Japan to tighten its monetary policy anytime soon. The Bank is currently purchasing assets at a rate of JPY 80 trillion per year, and BoJ Governor Haruhiko Kuroda has essentially ruled out any tapering of stimulus before inflation moves closer to the BOJ target of just below 2 percent. The Bank does not appear concerned that inflation is unlikely to rise in the near future, as the Bank's most recent forecast noted that this target would not be met until 2020. The BoJ released the minutes of its August policy meeting last week, with policymakers expressing optimism that inflation will move higher. There's no arguing that the economy has rebounded in 2017, but it's questionable whether stronger economic growth will trigger higher inflation – this has clearly not been the case in the eurozone or the US, where inflation levels remain well below the 2 percent mark.

Price drops and resumes the minor corrective phase. We had a false breakout above the 151.66 static resistance and now should drop further in the upcoming period. Is trading in the red and approaches an important horizontal support.

The GBP/JPY drops as the Nikkei has slipped lower in the last hours and tries to close the morning gap up. The JP225 moves sideways and stays in the buyer's territory, is trading above the 20320 previous high, signaling a further increase in the upcoming period. The sellers failed to keep the price under the 20320 static support (resistance turned into support).

Technically, the Nikkei should climb much higher after the failure to come back down to retest the 20058 horizontal support, but will receive a confirmation only after will jump and will close above the 20498 previous high.

Price drops further after the false breakout above the 151.66 level, you can see that has come back to retest the horizontal resistance, but failed to close near this upside obstacle.

A valid breakdown below the 150% Fibonacci line will send the rate towards the 148.46 static support, where he may find support again. Only a valid breakdown below the mentioned static downside obstacle will confirm a major drop. Support can be found at the first warning line (WL1) as well.

However, an accumulation above the 148.48 static support could signal another leg higher in the upcoming period.

The EUR/CHF opened with a gap down the trading session and it seems poised to resume the bearish movement. Is trading in the red on the short term, signaling that the bears are in control. Price is facing a tough support, is pressuring the WL4, but is somehow expected to drop further in the upcoming period.

Technically, it should be attracted by the median line (ml) of the descending pitchfork, only a failure to reach this level will signal another increase towards the upper median line.

Price increased and is almost to reach the third warning line (WL3) of the descending pitchfork. It seems like we had a false breakdown below the 100% Fibonacci level, but only a valid breakout above the WL3 will confirm a further increase towards the median line (ML) of the ascending pitchfork. Price is somehow expected to climb much higher after the failure to reach the median line (ML) of the descending pitchfork.

China PMI mixed. The official NBS manufacturing PMI for September was very strong, rising to the highest level since 2012, whereas the private Caixin PMI manufacturing fell back (Chart 1). The picture was even more pronounced in new orders (Chart 2).

Caixin PMI more credible. Normally, the two indices move in line, but this month there was an unusually big divergence. We have a bit more faith in the Caixin index this month as it fits better with what we have seen in commodity markets. As Chart 4 and 5 show, PMI is quite correlated with commodities and the decline we have seen in metal prices in September (not least in iron ore) clearly points to somewhat slower activity. One could have a suspicion that the companies when answering the official PMI survey have painted a slightly more positive picture than what is the real picture, because of the Congress in the Communist Party coming up this month.

PMI heading lower. We expect the PMI to head lower over the coming quarters for several reasons: (1) steel production seems to have been boosted over the past few months ahead of the new curbs on production that will be implemented over the winter due to pollution issues (Chart 6). Hence, the ramp-up in production is likely to be replaced by a big decline over the winter. (2) The housing market has started to slow already due to tighter conditions for home purchases. We expect this to feed increasingly into slower construction activity over the next year.

No hard landing. While we expect a slowdown and for Caixin PMI manufacturing to fall below 50 in coming quarters (51.0 in September), we do not look for a hard landing: (a) housing inventories are low generally, putting a floor under how much construction growth should slow and (b) we expect export growth to stay robust due to the ongoing recovery in the euro area and the US.

Slower Chinese activity to weigh on EM assets. Even though China is not headed for a hard landing, even a moderate slowdown means that the tailwind to emerging markets assets so far this year could turn into a moderate headwind. However, emerging markets are still supported by search for yield, only very gradual rate hikes from the Fed and generally improving fundamentals. See Emerging markets at a crossroads - mind the risks, 29 September 2017.

Crude oil made a perfect drop lower, which we now see it as wave c of a three-wave decline. Ideally this three-wave decline will now come to an end and a new turn up will be seen around the former swing low at 50.35 level and near the Fibonacci ratio of 100.0, where measurement of equality of waves a and c comes in play.

Crude oil, 1H

The cross extends strong recovery rally from 0.8745 low (27 Sep) into the second day.

Fresh bullish acceleration on Monday, driven by weaker pound, broke above 10 SMA at 0.8813 and hit high at 0.8868 (the highest since 22 Sep).

Bulls can extend to next barriers at 0.8893/98 (100SMA/19 Sep higher low), where the price may face stronger headwinds.

Overall picture is bearish, with current rally seen as correction of larger 0.9306/0.8745 descend and positioning for fresh downside.

Corrective rallies should be ideally capped at 0.8900 zone before bears resume, however, stronger correction cannot be ruled out as daily indicators are heading north and showing further space at the upside. Sustained break above 0.8900 barrier would generate bullish signal for stronger correction, while break above 0.8960 (Fibo 38.2% of 0.9306/0.8745) is needed to confirm scenario and put underlying bears on hold. Broken 10SMA marks pivotal support (currently at 0.8813) and return below here would signal an end of corrective phase and shift focus towards key supports at 0.8742/45 (14 July trough/27 Sep low).

Res: 0.8868; 0.8898; 0.8915; 0.8960
Sup: 0.8841; 0.8800; 0.8742; 0.8719

• European equities showed modest gains in an uneventful session. Madrid (-1.5%) bucked the trend due to the Catalonian issue. US equities opened marginally higher too.
• Spanish bonds, stocks and the euro came under pressure on Monday after more than 2m Catalans voted for the region's independence, deepening a political crisis in one of the eurozone's best-performing economies. The Spanish government drew condemnation from some parts of Europe after police hit people with truncheons and fired rubber bullets in an attempt to stop the referendum
• The unemployment rate in the eurozone has stuck at 9.1% in August, slightly disappointing the Reuters consensus forecast for a further small decline but still at the lowest point since February 2009. The rate is down from 9.9% per cent a year beforehand.
• Conditions in the UK's manufacturing sector worsened in September, according to a closely-watched business survey, which pointed to a further growth slowdown, in contrast to hopes of a boost from the weak pound. The PMI index slipped from 56.7 to 55.9, worse than consensus economist forecasts of 56.4.
• Eurozone manufacturing firms reported their strongest month of job creation on record in September, according to a closely-watched series of PMI surveys which will provide further weight to central bank hawks hoping that the region's recent economic recovery is stable enough to begin normalising monetary policy
• At least 50 people have been killed and 200 injured after a gunman opened fire on the crowd at a country music festival in Las Vegas on Sunday evening local time, mowing down concert goers and triggering panic around the city's famous gambling strip
• US ISM business sentiment improved sharply in September, suggesting activity in the sector is accelerating. The headline index rose to 60.8 from 58.8 previously, exceeding the consensus estimate of 58.1. All key sub-indices like new orders, employment and prices went up and are above the 60 threshold.

Rates

Core bonds modestly higher; Spanish bonds sell-off

The Catalonian election result and the reaction of the Madrid government injected some risk off sentiment regarding Spanish assets at the start of European trading, but impacted the Bund or euro area equities only marginally. The Bund opened weak and it took some time to find its exposure, as euro area equities opened constructive due to a carry-over of positive Asian equity sentiment. However, when equities turned south, the Bund took the opposite direction and more than erased opening losses. However, soon both moved sideways, but still into positive territory, even as gains were modest. EMU PMI was revised marginally lower (58.1 from 58.2), but was of course ignored and so was the news of the repulsive mass shooting in Las Vegas. Going into the ISM release, core bonds gain a tad more ground, but gains remain modest.

At the time of writing, the German yields are 1.2 (2-yr) to 2.3 bp (30-yr) lower, while US yields fall between 0.5 and 1.3 bp. throughout the curve. In the intra-EMU bond market, the Catalonian election result and the stand-off with the central government weighs on Spanish and to a lesser extent other peripheral bonds. Spanish 10-yr yield spreads widened 10 bps, while Portugal and Italy widen 4-to-5 bps.

Currencies

EUR/USD loses a few ticks after Catalan referendum

The dollar initially traded with a cautiously positive bias today as global investors were inclined to extend the last week's reflation trade. At the same time, the euro faced some headwinds from the uncertainty on Catalonia. However, the USD rebound lost momentum in the afternoon trade. USD/JPY trades in the 112.60 area. EUR/USD hovers in the 1.1760 area, awaiting the US manufacturing ISM.

Overnight, the Japan Tankan confidence was constructive with especially manufacturing and smaller non-manufacturing firms more optimistic. The headline index improved from 17 to 22. There was no reaction of the yen. USD/JPY profited from overall USD strength as markets pondered the potential impact of a US tax cut. EUR/USD declined to the 1.1775 area. USD strength prevailed, but there was also a minor fall-out from the tensions in Catalonia.

The negative impact from the Catalan vote was mostly limited to Spanish assets. Spreads on Spanish government bonds widened up to 10 bps (10-y) and Spanish equities declined (about 1.8%) while other European markets gained. Bunds outperformed US Treasuries, widening the interest rate differential in favour of the dollar. EUR/USD started a new intraday downleg early in Europe. The move was probably more or less evenly due to euro weakness and USD strength. A cautious continuation of the reflation trade supported the likes of USD/JPY and other USD cross rates. The EMU manufacturing PMI was revised marginally lower from 58.2 to 58.1, but at this lofty level it was no negative factor for the euro.

Sentiment remained cautiously risk-on as US traders joined the fray, but didn't help the dollar. On the contrary , the US currency returned part of this morning's gain. EUR/USD trades in the 1.1755 area. USD/JPY is changings hands in the 112.60 area. Today's price action is modestly constructive from a dollar point of view. However, dollar bulls might still be slightly disappointed that EUR/USD didn't decline a bit more. After the closure of this report, the US manufacturing ISM will still be published. A modest decline from a 58.8 to 58.1 is expected. A figure in line with consensus might be slightly USD supportive (58.1 is still a very high level).

Sterling extends decline

The pound ceded further ground today. Sterling declined against an overall stronger dollar, but also against the single currency, which was under slight pressure from the independence vote in Catalonia. EUR/GBP initially hovered in the low 0.88 area, but came gradually under pressure as the UK manufacturing PMI was slightly softer than expected at 55.9 from 56.7 (56.2 was expected). This remains a healthy level. Still it kick-started a gradual decline of sterling. The political bickering on the Brexit strategy between Foreign Secretary Boris Johnson and PM May also weighed on the UK currency. UK Chancellor of the Exchequer Hammond listed a series of Challenges for the UK economy post Brexit at the Conservative Party conference in Manchester. EUR/GBP trades currently in the 0.8860 area, drifting further away from the 0.8742/0.8774 support area. The loss of cable is quite substantial. The pair trades in the 1.3275 area compared to levels near 1.34 late last week and this morning in Asia.

The currency pair is trading in the green and seems motivated to climb higher in the upcoming period. Price is challenging a very strong dynamic resistance right now, a valid breakout will announce a further increase. Remains to see what will happen in the upcoming hours because United States data could shake the markets a little bit.

Technically, is somehow expected to climb much higher as the Yen could take a hit from the Nikkei's further increase, while the USD should increase as the USDX rallies again. The index is trading right above the 93.60 level and approaches the 93.68 former high and a dynamic resistance.

The dollar index should climb much higher in the upcoming period as the behavior changed and because the Federal Reserve is still expected to hike the interest rate in December.

The price increased and resumed the Friday's minor bullish candle. Is trading in the green and tries to take out the dynamic resistance from the median line (ml) of the minor ascending pitchfork. USD/JPY moves in range on the Daily chart.

Price increased after the failure to retest the median line (ml) of the minor descending pitchfork. It was attracted by the confluence area formed between the median line (ml) of the ascending pitchfork with the upper median line of the minor descending pitchfork.

A valid breakout through the mentioned confluence area will accelerate the bullish momentum, while a false breakout followed by a rejection will send the rate towards fresh new lows.

The Brent plunges and extends the last week's sell-off. Technically, we could have a major drop in the upcoming period if the rate will come higher to retest the median line (ML) of the major ascending pitchfork. A false breakout above the ML announced a major drop in the upcoming period. Support can be found at the downside line of the ascending channel.