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• GBP/USD has broken below a long-term ascending trendline, signaling potential further downside.
• UK budget concerns and a drop in manufacturing PMI have contributed to the Pound’s struggle.
• UK budget concerns and a drop in manufacturing PMI have contributed to the Pound’s struggle.

Cable has struggled this week following the UK budget. Pound Sterling should have appreciated against the greenback considering the paring back of rate cut expectations from the Bank of England (BoE).

Following the UK budget expectations for the Bank of England to lower interest rates have dropped. This change came after the UK Chancellor announced the biggest tax increase since 1993, worth 40 billion pounds, along with plans to increase government spending and investment by raising the fiscal deficit. Additionally, the Office for Business Responsibility predicted higher inflation rates of 2.5% in 2024 and 2.6% in 2025, leading traders to reduce their bets on rate cuts by the Bank.

There are some other concerns around the UK budget which was raised by Moodys as well and could explain the British Pounds struggle. There are concerns that the added borrowing will impact the UKs ability to bring their finances in order. Moodys also stated that the UK budget creates challenges and cautioned that we could see muted growth from the UK moving forward.

The continued selloff in the US Dollar was not enough to arrest the slide in GBP/USD before a bounce occurred this morning. The release of the S&P Global Flash UK Manufacturing PMI dropped to 49.9 in October 2024, down from 51.5 the previous month. This was lower than expected and shows the first drop in factory activity since April. New orders decreased as clients waited for the UK budget.

Orders from abroad also fell for the 33rd month, with fewer orders from Europe, China, and the US. Production increased slightly as factories worked through their backlog of orders. Manufacturing jobs grew for the third time in four months, but more slowly because of fewer new orders. Costs for materials dropped to their lowest in ten months, and selling prices went up the least since February. Business optimism improved a little from a nine-month low in September. The data however appeared to have little impact on GBP/USD ahead of the US session

Source: FinancialJuice (click to enlarge)

A batch of US data awaits later in the day with the US jobs report chief among them. Markets are anticipating a strong number following labor data seen earlier in the week and should this come to pass, it will be interesting to gauge if cable can shrug off the US data and continue its move higher today.

GBP/USD Technical Analysis

GBP/USD is now at an interesting place as it has broken below the long-term ascending trendline which began back in April.

This trendline break opens up a host of scenarios and potential opportunities in cable moving forward.  I could see a retest of the trendline developing before a continuation of the move lower with a deeper pullback to the 1.300 handle also a possibility.

Any such pullback may be preferred for any would-be-shorts looking to get involved. A break and daily candle close above the 1.30150 handle would invalidate the bearish setup.

Looking at the downside, support rests at the 200-day MA around 1.2800 before the 1.2750 and 1.2681 handles come into focus.

GBP/USD Daily Chart, November 1, 2024

Source: TradingView.com (click to enlarge)

Support

• 1.2845
• 1.2800
• 1.2750

Resistance

• 1.2942
• 1.3000
• 1.3033

• Bearish reversal detected below 5,930 key medium-term resistance of the SPX 500.
• Market breadth indicator (% of component stocks above 20-day and 50-day moving averages) has deteriorated.
• The odds have increased for a medium-term corrective decline on the SPX 500 as the key US presidential election risk event looms on 5 November.

Since our last publication, the S&P 500 has reversed down by 3% from its current all-time high of 5,878 printed on 17 October, and right below the 5,930 key medium-term resistance highlighted earlier. It also ended October with a monthly loss of almost 1% dragged down by lackluster revenue guidance from three mega-cap technology stocks: Microsoft, Meta Platforms, and Apple.

Market breadth has turned weak

Fig 1: % of S&P 500 & Nasdaq 100 component stocks trading above 20-day & 50-day moving averages of 31 Oct 2024 (Source: TradingView)

One of the market breadth measurements on the S&P 500 has turned weak where the percentage of its component stocks trading above their respective 20-day and 50-day moving averages have turned southward bound.

The percentage of S&P 500 component stocks trading above their 20-day moving averages has declined sharply from 72% to 32% within two weeks.

A similar observation can also be seen in the percentage of S&P 500 component stocks trading above 50-day moving averages as it dropped from 77% to 47% over the same period (see Fig 1).

The rapid deterioration seen in these market breadth indicators of the S&P 500 to breach below their respective 50% levels has suggested that the medium-term uptrend phase of the S&P 500 has been damaged ahead of next week’s key US presidential election polling day on 5 November.

Bearish breakdown of “Ascending Wedge”

Fig 2: Medium-term & major trends of the US S&P 500 CFD Index as of 1 Nov 2024 (Source: TradingView)

Thursday, 31 October price actions seen on the US S&P 500 CFD Index (a proxy of the S&P 500 E-mini futures) have staged a bearish breakdown below the bearish reversal “Ascending Wedge” support from 5 August 2024 swing low now turns an intermediate pull-back resistance at 5,811.

In addition, the MACD trend indicator traced out a prior bearish divergence condition earlier on 23 October after a similar bearish divergence flashed out on the leading MACD Histogram a week earlier on 14 October.

These observations suggest that the US S&P 500 CFD Index may have formed a medium-term top and is in the process of shaping a potential medium-term (multi-week) corrective decline sequence.

Watch the 5,930 key medium-term pivotal resistance, and a breakdown with a daily close below 5,675 (close to the 50-day moving average) sees the next medium-term supports coming in at 5,390 (also the 200-day moving average) and 5,100.

On the other hand, a clearance with a daily close above 5,930 invalidates the bearish tone to expose the next medium-term resistances at 6,110/130 and 6,390 (also the upper boundary of the major ascending channel from March 2020 low).

Market Picture

The crypto market stumbled on the last day of October, losing over 5.5% in 24 hours as investors turned to profit-taking. The drop coincided with the stock market entering a period of high uncertainty ahead of a mix of influential events: the NFP on Friday, the US election results on Wednesday and the Fed meeting on Thursday.

The total crypto cap rolled back to $2.33 trillion, where the market consolidated in the 10 days to 25 October. While painfully sharp, it fits well with the upward trend that has been building since early September.

Bitcoin has fallen back just below the $70K area, temporarily turning support into former resistance. After an impressive and rather unexpected attack on all-time highs, Bitcoin is now in news-waiting mode, ready to move either way from current levels. There will be no shortage of volatility and sharp reversals.

At the end of October, bitcoin was up 9.7% at $70K. In terms of seasonality, November is considered a successful month for BTC. Over the past 13 years, bitcoin has ended the month with a gain 8 times, with an average rise of 22% and an average fall of 17%.

News background

Crypto investment firm Canary Capital has filed an S-1 with the SEC to register a spot ETF based on Solana. Solana’s advanced DeFi ecosystem ensures sustained on-chain activity, as evidenced by the number of daily transactions and active and new addresses, while keeping user fees low, the company said in a statement.

In its Q3 report, MicroStrategy unveiled a plan to raise $42 billion to continue its bitcoin acquisition strategy. Since August 2020, the company has spent $6.9 billion to buy 252,220 BTC.

According to its quarterly report, social network Reddit sold nearly $6.9m of its BTC and Ethereum reserves in the third quarter. The company noted that fluctuations in crypto-asset exchange rates have negatively impacted its financial performance, as has the lack of a clear tax regime for cryptocurrencies.

The growth of the stablecoin market has led to increased demand for short-term Treasury securities, the US Treasury Department said in a report. The department estimates that stablecoin issuers have invested $120 billion in US debt.

31 October marked the 16th anniversary of the Bitcoin White Paper. The technical document described the working principles of the peer-to-peer payment system that went on to revolutionise the world of financial technology. Donald Trump congratulated the crypto community on the occasion.

The BTC/USD chart shows the following:

→ Bitcoin’s all-time high is around $73,750 per coin, set on March 14, 2024, amid peak investor interest after the SEC approved a Bitcoin ETF on January 11.

→ This autumn, Bitcoin’s price is exhibiting positive momentum, partly fueled by the potential for Donald Trump to win the U.S. presidential election (with results expected on November 6). At a July cryptocurrency conference in Nashville, Trump promised support for the industry, raising hopes among crypto investors that his victory could drive Bitcoin prices to $100,000 or higher. Standard Chartered’s analyst has predicted that BTC/USD could reach $125,000 if Trump wins.

→ This week, Bitcoin’s price approached its all-time high but turned downward (as indicated by the arrow) just shy of reaching it, and has since fallen below the psychological level of $70,000 per coin.

What’s next?

Today’s technical analysis of the BTC/USD chart suggests:

→ Bitcoin’s autumn price fluctuations are forming an upward channel (shown in blue), constructed using linear regression. Currently, BTC’s price is positioned in the channel’s lower half.

→ The $69k level, which previously acted as resistance, now serves as support, though it may be breached, in which case the price may move toward the channel’s lower boundary.

The Crypto Fear and Greed Index currently stands at 75, indicating a “Greed” sentiment. Given this high level of emotional volatility, it’s possible that:

→ The recent drop represents a short-term correction after the RSI indicator flagged the market as overbought in the lead-up to the election and the approach of the all-time high.

→ The overall uptrend may persist, potentially pushing Bitcoin toward a new record high.

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The AUD/USD pair fell to 0.6566 on Friday, marking its lowest since early August. The US dollar continued to strengthen last night, bolstered by signs of resilience in the US economy. Additionally, investors hold significant expectations for Donald Trump’s success in the upcoming presidential election next week.

Meanwhile, an unexpected improvement in Chinese manufacturing activity provided noticeable support for the Aussie. Given that China is Australia’s key trade and economic partner, the Australian dollar is highly responsive to developments in China.

Annual inflation in Australia eased to 3.5% in Q3 but remains above the Reserve Bank of Australia’s target range of 2.0-3.0%. Producer prices rose more than expected in the third quarter, while retail sales declined in September. These mixed signals are keeping the Aussie under pressure.

Baseline expectations suggest the Reserve Bank of Australia will leave the interest rate unchanged at 4.35% at its meeting next week.

Technical analysis of AUD/USD

On the H4 chart, the AUD/USD market completed a wave of decline to 0.6536. Today, the market is forming a consolidation range above this level. An upward breakout would signal the development of a growth wave towards 0.6656, viewed as a correction to the previous downtrend. Once this correction is completed, we may see a new decline towards 0.6492. Technically, this scenario is supported by the MACD indicator, with its signal line below zero near the lows and preparing to turn upwards.

On the H1 chart, the AUD/USD market has formed a consolidation range around 0.6561, with a potential extension towards 0.6530. After this, we may see the beginning of an upward wave targeting 0.6655 as the first objective. This growth structure is expected to be part of a broader correction. Technically, this scenario is also confirmed by the Stochastic oscillator, with its signal line below the 20 mark and preparing to rise towards 80.

UK’s PMI Manufacturing was finalized at 49.9 for October, down from September's 51.5, marking the first contraction since April.

Rob Dobson, Director at S&P Global Market Intelligence, noted that the sector has entered Q4 on an "uncertain footing," as businesses adopt a wait-and-see approach amid policy speculation leading up to the recent Budget. This cautious stance has weighed on investment and spending, with business optimism hovering just above September’s nine-month low.

However, there was positive news on inflation. Input costs dropped to a 10-month low, with inflation easing significantly—one of the largest declines in the survey’s 33-year history. Selling price inflation also moderated, giving BoE additional flexibility to support growth should demand weaken further.

Looking forward, Dobson noted that November’s PMI release will be closely watched for signs of how the Budget impacts business conditions and confidence level.

Full UK PMI manufacturing final release here.

• WTI crude oil runs to 71.00 critical level near downtrend line
• Momentum oscillators reflect positive bias

WTI crude oil prices recovered the bearish gap that was created in the preceding week and is currently testing the medium-term downtrend line near 71.00.

The price has added more than 6% over the last couple of days with the technical oscillators mirroring the latest upward wave. The MACD oscillator jumped above its trigger line beneath the zero area, while the stochastic is heading north after the bullish crossover within its %K and %D lines above the 20 zone.

An extension to the upside and above the 71.00 key level could meet the area between the 20- and the 50-day simple moving averages (SMAs) at 71.80. Further up, resistance could run towards the 72.95 bar, which is taken from the latest high. Steeper increases could also reach the 76.65 hurdle ahead of the significant flat 200-day SMA at 77.60.

On the other hand, if the commodity weakens, the 67.00 round number could provide immediate support ahead of the 17-month low of 65.70. Even lower, the April 2023 trough at 63.60 could attract a greater attention as any leg lower could worsen market’s bearish outlook.

Regarding the medium-term picture, given that bearish sentiment deteriorated after the downfall toward 65.70 only a move above 78.75 could now help the market return to neutrality.

In recent trading sessions, European currencies have shown mixed performance. The EUR/USD pair found support just below the 1.0800 level, while GBP/USD plunged below the critical 1.2900 support. Today, investors and market participants are awaiting U.S. labour market data, while next week’s U.S. election adds to the anticipation. This could lead to sharp increases in volatility for both pairs, with current trends potentially either intensifying or shifting dramatically.

EUR/USD

Recent macroeconomic data from the Eurozone has been relatively positive this week. For instance, Germany’s GDP for Q3, released on Wednesday, posted a 0.2% growth, beating the forecasted -0.1%. Similarly, the Eurozone’s GDP and the October Consumer Price Index (CPI) both showed positive trends.

Technical analysis of EUR/USD suggests the possibility of an upward movement, provided the price remains above 1.0800. If the U.S. Nonfarm Payrolls data proves positive, the pair could retest recent lows around the 1.0780-1.0760 range.

Key events for EUR/USD today:

• 15:30 (GMT +3:00) – U.S. ADP Non-Farm Employment Change;
• 15:30 (GMT +3:00) – U.S. Average Earnings data;
• 16:45 (GMT +3:00) – U.S. Manufacturing PMI for October.

GBP/USD

At the start of the current trading week, GBP/USD managed to strengthen to 1.3000. However, following the release of the UK’s Autumn Budget on Wednesday, the price saw a sharp decline, breaking through the crucial support level of 1.2900. Currently, the pair is testing this level as a resistance. A rejection at this point could push the downward trend towards 1.2800-1.2700. Conversely, a hold above 1.2900 could see the pair retest the 1.3000 level.

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Switzerland’s CPI decreased by -0.1% mom in October, missing expectations of flat growth. Core CPI, which excludes fresh and seasonal products, energy, and fuel, edged up by 0.1% mom. Prices for both domestic and imported products each declined by -0.1% month-over-month.

On an annual basis, headline CPI dropped to 0.6% yoy from 0.8% yoy, falling short of the anticipated 0.8% yoy increase. Core CPI similarly softened, slipping from 1.0% yoy to 0.8% yoy. Domestic product prices grew at a slower pace, declining from 2.0% yoy to 1.8% yoy, while imported product prices saw a deeper contraction, from -2.7% yoy to -3.1% yoy.

Full Swiss CPI release here.

In focus today

In the US, focus will be on US October Jobs Report. We think non-farm payrolls growth slowed down to 130k (Sep: 254k) both due to weather-related distortions and less favourable seasonal adjustment. Average monthly earnings growth likely slowed down to 0.2% m/m s.a. and unemployment rate remained steady at 4.1%. Later, markets will also closely follow the ISM Manufacturing index for October, the flash PMIs pointed towards still stagnating growth in the manufacturing sector.

In Sweden, PMI for the manufacturing sector is due at 08:30 CET. The overall index has hovered above the 50 level for most of the year and at 51.3 in September. However, the very weak NIER survey alongside declining new orders and rising delivery times suggest that there could be a setback in PMI as well, possibly below the 50-threshold. If PMI drops, it will add another 'soft activity' argument for the Riksbank to cut by 50bp next week.

In Norway, we receive the unemployment rate for October. The Norwegian labour market remains relatively tight, with continued growth in employment and only a moderate rise in unemployment, even though growth has been weak for more than a year. This is resulting in productivity growth being weak, and partly negative. We expect that unemployment will continue to rise moderately beyond 2025 even if growth picks up as productivity picks up. We also believe that this tendency was visible in the October figures, but the unemployment rate was most likely unchanged at 2.1% s.a.

In Switzerland, inflation figures for October will be released at 08:30 CET. Consensus expects headline to remain unchanged at 0.8% in October (vs the SNB Q4 forecast at 1.0% y/y) and similarly for core to stay put at 1.0%.

Economic and market news

What happened overnight

In China, Caixin PMI rose to 50.3 in October (cons: 49.7, prior: 49.3) largely helped by stimulus measures helping pick up the economy. The manufacturing activity expanded for the first time since April, indicating signs of economic stabilization. This supports the picture painted by the official PMIs for October, which also suggested economic recovery.

What happened yesterday

In euro area, HICP inflation in October came in at 2.0% in October (cons: 1.9%, prior: 1.74%). The increase was driven by energy inflation and food prices while core inflation was unchanged at 2.68% y/y (cons: 2.6%, prior: 2.66%). The increase in core inflation of 0.20% m/m s.a. was mainly driven by service prices rising 0.3% m/m with goods prices unchanged at 0.0% m/m. The October release mimics the picture we saw in the recent months (except September) of underlying inflation slowly moving lower amid a still elevated services price pressure but clearly absent goods price inflation. It shows that the very soft data in September was only a "blip". As momentum in inflation is still heading in the right direction, but not as fast as the September data suggested, today's inflation data supports the case for a 25bp cut by the ECB in December against a "jumbo" cut.

The unemployment rate declined to an all-time low of 6.3% in September (cons: 6.4%, prior: 6.4%). However, the number of unemployed persons rose slightly by 13k indicating an overall stagnant labour market but at a historically strong level. The small increase in the number of unemployed persons was due to France while the number in Germany surprisingly fell in Eurostat's measure. The hard data on labour market remains strong also supporting the case for gradual cuts by the ECB.

In the US, the September PCE data came out close to expectations, with core PCE price index increasing by 0.3% m/m (cons: 0.3, prior: 0.1%). Core services PCE inflation picked up slightly from the previous month with 0.3% m/m s.a. (prior: 0.2%) but nothing dramatic. We also got the latest weekly jobless claims surprising to the strong side with 216k (prior: 227k) and the Q3 Employment Cost Index surprising to the downside (wages and salaries up +0.8% q/q, from +0.9%). Even if the decline in jobless claims could reflect fading weather-effects, the data overall supports the soft-landing story. Cost pressures are fading but broader labour market conditions remain solid.

In the UK, in response to UK budget concerns GBP was one of the big losers yesterday, with EUR/GBP breaking through the 0.84 mark, and UK yields continued climbing. We think that ultimately concerns will fade, and markets will calm with BoE meeting coming up on Thursday. However, we acknowledge that the expansionary budget, primarily funded through increased borrowing coupled with recent rise in borrowing costs makes the case for fiscal sustainability increasingly difficult. This may lead to a pull-back on certain measures from the Labour government.

In the Middle East, while there seems to be some optimism around a 60-day pause in fighting for Lebanon, Hamas announced yesterday that they will reject any offer that would not bring a permanent end to the war in Gaza. Meanwhile, in Iran, two top officials said that the country plans to respond to Israel's missile attack. Whether and how Iran would respond, remains unclear. Israel's recent attack severely damaged Iran's defence capabilities, and hence, it is now more vulnerable to any attacks coming from Israel. Anonymous government sources in Iran said that they are preparing a list of military targets in Israel but that the attack would very likely happen only after US election.

Equities: Global equities declined yesterday, marking the first significant drop in a while, with pronounced sector disparities and again not driven by macroeconomic factors. Although realized earnings data remains solid, this have not sufficed to meet the elevated outlook expectations, particularly for technology companies. The global technology sector experienced a 3% decrease yesterday, with the US suffering the most significant losses in the regional comparison. It is also noteworthy that the VIX index escalated to 23 and the MOVE index reached a new year-to-date high, despite yields being relatively flat yesterday. Given the massive influx of macro and micro news we are currently receiving, investors are evidently anxious, particularly with the impending 5 November US election, leading to derisking and event hedging. In the US yesterday, the Dow fell by 0.9%, the S&P 500 by 1.9%, Nasdaq by 2.8%, and the Russell 2000 by 1.6%. Asian markets are in the red this morning, led by Japan, which is down approximately 2.5%, while Chinese markets are bucking the trend. US and European futures are trading higher this morning, ahead of another eventful day.

FI: Yesterday's session was a bit volatile with 10Y US Treasuries rising 5bp early in the day, before falling back to the starting point yesterday at 4.30%. We saw almost the same picture in the European market, where government bond yields initially rose before declining in the afternoon. The Bund ASW-spread continues to grind tighter and as discussed in our weekly, a test of the 0bp-level seems reasonable.

FX: EUR/USD drifted to the upper end of the 1.08-1.09 range. USD/JPY declined following a BoJ hold with a slightly hawkish tone. EUR/GBP rose above 0.84, as GBP was among the big losers in yesterday's session, with UK budget concerns continuing to weigh on the currency. EUR/SEK remains around 11.60. October was an abysmal month for SEK, with losses close to 3% vs. EUR and over 5% vs. USD. EUR/NOK is approaching the 12.00 mark, trading just below.