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Daily Pivots: (S1) 0.9376; (P) 0.9399; (R1) 0.9431; More....

Range trading continues in EUR/CHF and intraday bias remains neutral first. On the downside, break of 0.9305 will resume the fall from 0.9579 to retest 0.9209 low. On the upside, above 0.9506 will resume the rebound from 0.9305 to 0.9579 resistance.

In the bigger picture, medium term corrective pattern from 0.9407 (2022 low) might have completed with three waves to 0.9928. Decisive break of 0.9252 (2023 low) will confirm long term down trend resumption. Next target will be 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. For now, outlook will stay bearish as long as 0.9928 resistance holds, even in case of strong rebound.

Global headlines were shaken yesterday by the news that Israel is considering striking Iran’s oil facilities, and that Joe Biden may let Israel do it. This comes after Iran’s latest attack, which was in response to a Hezbollah strike on Israel. And that, of course, followed Israel’s ongoing conflict in Gaza. It’s a complex chain of events, but the possibility of Israel targeting Iran’s oil infrastructure is definitely raising eyebrows around the world and giving a decent energy boost to oil prices. The barrel of US crude closed yesterday nearly 4% higher and above the critical Fibonacci resistance of $72.85pb, the major 38.2% retracement on July to September retreat. As such, US crude has now left its bearish summer trend and stepped into the medium-term bullish consolidation zone. The next resistance stands at $75pb, the 50% retracement, then $77 and $80pb levels. The upside potential is clearly present, the rising tensions if coupled with the threat of lower Iranian supplies, should give a further reason to the oil bulls to extend their tactical long positions. But it’s important to keep in mind that the gains that are made on the back of geopolitical tensions will – sooner rather than later – be given back. Tactical longs will benefit from the rising tensions as long as they last, and until the focus will return to the market fundamentals of ample global supply and prospects of slowing global demand.

Rising energy prices, US threat to supply chains increase inflation outlook

Even though the rising oil prices should not last long (hopefully), they may have an impact on the short and medium-run inflation outlook. That, combined with strikes in US East and Gulf coasts are inflationary. The spike in energy prices and supply chain disruptions were the main responsible for the soaring global inflation after the 2020s. Of course, today’s situation is not comparable to the pandemic period, but could – maybe - get the Federal Reserve (Fed) members question their overly optimistic view on inflation, and their overly dovish stance on rates.

The expectation of another jumbo rate cut is melting by the day. Activity on Fed funds futures gives less than one third chance of another 50bp cut from the Fed in the November meeting. Especially given that the recent data hasn’t been *that* bad, really. Released earlier this week, both the jolts and the ADP reports have surprised to the upside. The ISM manufacturing index showed further weakness in both activity, prices and employment, but yesterday’s ISM services revealed a stronger expansion both in terms of activity and prices; the prices component of the index soared to nearly 60! All looked well besides employment. And overall, Citi’s US Surprise Index -which has hit a bottom this summer – rebounded strongly since then, and stepped into the positive territory lately, meaning that there are more positive surprises to the data these days than negative surprises and that the Fed doves have probably went far ahead of themselves.

US jobs watch

Today’s jobs data will be very important in providing a final conclusion to the week’s so far stronger-than-expected US jobs figures. The US economy is expected to have added near 147K new nonfarm jobs in September, the unemployment rate may have steadied near 4.2% and wages may have grown slightly slower than they did last month, but still by 3.8% on a yearly basis. A set of soft jobs report from the US has the potential to fuel the dovish Fed expectations, weigh on the US yields, the dollar and perhaps keep appetite in equities robust. A stronger-than-expected set of figures, on the other hand, should bring the Fed doves back on earth, lead to a further rebound in the US yields and the dollar and probably weigh on equity investors’ appetite.

The dollar, on the other hand, will likely remain under the pressure of softening majors elsewhere. After the yen selloff earlier this week, the British pound took a severe hit yesterday, after the Bank of England (BoE) Governor Bailey, said in an unusually dovish statement that the Bank could become a ‘ bit more aggressive’ and a ‘but more activist’ in its approach to cutting the rates. Cable tumbled more than 1% in a single session and remains under pressure. The BoE’s hawkish stance – and its surprisingly strong economic performance in H1 – were the major drivers of the sterling bulls this year, and both look like they are in jeopardy at this point.

In focus today

This week's most important macro release, the US September Jobs Report, is due at 14.30 CET. We forecast non-farm payrolls growth at +160k, slightly above consensus. We foresee average hourly earnings growth at +0.2% m/m SA and unemployment rate steady at 4.2%. A solid print in line with our call would ease the Fed's pressure for further large rate cuts. We still expect only 25bp reductions at the upcoming meetings.

Economic and market news

What happened yesterday

In the US, ISM services for September printed stronger than expected at 54.9 (cons: 51.7), driven by upticks in all subcomponents except employment. The Challenger report showed declining layoffs in September. This week's labour market data has generally surprised positively, while leading indicators such as ISM and PMI have signalled cooling employment growth. All in all, it suggests that labour market conditions are relatively robust.

In the euro area, the September euro area services PMI was revised up to 51.4 (flash: 50.5), and the composite PMI to 49.6 from 48.9. Thus, services continue to expand, though at a lower pace, while manufacturing remains below 50. The upward revision driven by Spain and France, while German services PMI was steady at 50.6 and a slight downward revision for Italy. With the service sector holding up growth, we estimate that euro area GDP continued to expand in Q3 thanks to the Southern European economies holding the average composite PMI above 50 in Q3.

In Norway, the seasonally adjusted house prices rose 0.4% m/m in September, coming in just below Norges Bank's forecast of 0.3%. However, we do not see this as a deciding factor for the rate setting and our call of a pause in November and December.

In Switzerland, the inflation figures for September surprised markedly to the downside. Headline came in at 0.8% y/y (cons: 1.0%, prior: 1.1%), core likewise dropped to 1.0% (cons: 1.1%, prior: 1.1%), and monthly pressures fell into negative territory. We have two more prints until the SNB December meeting, but with inflation now in lower part of the target range this should increase the probability of 50bp cut in December. While SNB updated their inflation forecasts last week, inflation once again undershoot the projections.

In Sweden, the September services PMI surprisingly dropped below 50 (49.1 from 52.4), as all subcomponents are now below the neutral level. This contradicts last week's NIER business survey, which showed improved sentiment in the services sector. That said, it remains to be seen if this is a one-off or a shift in the trend.

In the UK, Bank of England (BoE) Governor Bailey noted, in an interview with the Guardian, that if the news on inflation continued to be good there was a chance of BoE becoming "a bit more activist" in its approach to cutting interest rates. While the comments reinforce that Bailey is in the dovish camp (opposed to chief economist Pill, who will give a speech today) a gradual pace of cutting remains the BoE base case. Bailey's comments largely drove the sharp weakening of GBP yesterday vs both EUR and USD. We think the large move lower vs EUR and USD likely reflects some profit taking. Additionally, we are inclined to think the market may be overreacting, placing too much emphasis on a single comment given the limited MPC communication. The MPC showed a strong preference for the gradual approach with an 8-1 vote favouring an unchanged decision in September coupled with hawkish commentary.

In commodities space, oil prices jumped 5% during yesterday's session due to growing concerns over potential Israeli retaliation against Iran's oil industry amid comments from US President Biden.

Equities: Global equities were lower yesterday, with most regions, excluding Japan, experiencing declines. Defensive stocks outperformed, though not in a full-blown risk-off manner, and notably, the technology sector in the US registered gains yesterday. We are currently on course for a modest weekly decline in equities; however, much could change following the non-farm payrolls (NFP) release today. More notably, the implied volatility is on the rise, with the VIX escalating from 18 to 21 this week. This increase signals heightened uncertainty rather than a shift in the prevailing narrative. Investors continue to anticipate a soft landing, yet the array of factors at play currently contributes to significant uncertainty. In this late-cycle phase, where growth is improving and operating above potential, we typically advocate for the VIX to be in the 15-17 range. Consequently, the current level of risk and uncertainty is curbing optimism and limiting equity performance. In the US yesterday, the indices closed as follows: Dow -0.4%, S&P 500 -0.2%, Nasdaq -0.04%, and Russell 2000 -0.7%. Asian markets presented a mixed picture this morning, with Chinese stocks in Hong Kong notably outperforming. Futures in the US and Europe are marginally higher.

FI: Global rates moved higher through yesterday's session as inflation expectations rose in tandem with energy prices following Biden's comments of a potential Israeli strike on Iranian energy facilities. Brent is now trading at USD77.5/barrel vs USD72/barrel at the start of the week. Yesterday's move in rates was especially evident in the long end, where 10Y yields rose 5bp in Germany and 7bp in the US. With markets now pricing 33bp ahead of the November FOMC meeting, today's NFP release has the potential to push market volatility substantially higher.

FX: Yesterday's strong ISM services print pushed US yields higher, acting as a tailwind for the greenback with EUR/USD edging closer to one-month lows around 1.10. Oil prices continue to climb on the back of heightened geopolitical risks, with Brent reaching the highest levels since late August. GBP and JPY were among yesterday's losers, whereas Scandies were little changed on the day. We decided to book a profit on our long NOK/SEK as the cross edged above 0.97.

Daily Pivots: (S1) 1.1008; (P) 1.1030; (R1) 1.1052; More....

Intraday bias in EUR/USD remains neutral, with focus on 1.1001 cluster support (38.2% retracement of 1.0665 to 1.1213 at 1.1004). Strong rebound from this level will retain near term bullishness. Above 1.1082 minor resistance will turn bias to the upside for 1.1213 and then 1.1274 high. However,decisive break of 1.1001/4 will confirm near term bearish reversal. Intraday bias will be turned back to 61.8% retracement at 1.0874.

In the bigger picture, corrective pattern from 1.1274 should have completed at 1.0665 already. Decisive break of 1.1274 (2023 high) will confirm resumption of whole up trend from 0.9534 (2022 low). Next target will be 61.8% projection of 0.9534 to 1.1274 from 1.0665 at 1.1740. However, decisive break of 1.1001 will argue that corrective pattern from 1.1274 is extending with another falling leg.

Daily Pivots: (S1) 1.3050; (P) 1.3166; (R1) 1.3241; More...

GBP/USD's fall from 1.3433 short term top is in progress. Intraday bias remains on the downside for deeper decline. But strong support is expected from 1.3000 cluster (38.2% retracement of 1.2298 to 1.3433 at 1.2999 to bring rebound. On the upside, above 1.3236 minor resistance will turn intraday bias neutral first.

In the bigger picture, up trend from 1.0351 (2022 low) is in progress. Next target is 61.8% projection of 1.0351 to 1.3141 from 1.2298 at 1.4022. For now, outlook will stay bullish as long as 1.3000 support holds, even in case of deep pullback.

Daily Pivots: (S1) 0.8499; (P) 0.8521; (R1) 0.8551; More…

Intraday bias in USD/CHF stays neutral as range trading continues. On the upside, firm break of 0.8548 will argue that it's correcting whole fall from 0.9223. Intraday bias will be back on the upside for 38.2% retracement of 0.9223 to 0.8374 at 0.8698 at least. On the downside, break of 0.8374 will resume the fall from 0.9223 to retest 0.8332 low. Decisive break there will indicate larger down trend resumption.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with fall from 0.9223 as the second leg. Strong support could be seen from 0.8332 to bring rebound. Yet, overall outlook will continue to stay bearish as long as 0.9243 resistance holds. Firm break of 0.8332, however, will resume larger down trend from 1.0146 (2022 high).

Daily Pivots: (S1) 146.37; (P) 146.80; (R1) 147.40; More...

Intraday bias in USD/JPY stays on the upside as rebound from 139.57 short term bottom is in progress for 38.2% retracement of 161.94 to 139.57 at 148.11. Decisive break there will argue that whole fall from 161.95 has completed ahead of 139.26 fibonacci level. Further rally should then be seen to 61.8% retracement at 153.39. However, break of 141.63 support will bring retest of 139.57 low instead.

In the bigger picture, fall from 161.94 medium term top is seen as the first leg of the correction to whole up trend from 102.58 (2021 low). Strong support could be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to contain downside, at least on first attempt. Firm break of 149.35 resistance will indicate that the second leg has started. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 1.3508; (P) 1.3534; (R1) 1.3581; More...

Intraday bias in USD/CAD is back on the upside as rebound from 1.3418 resumed by breaking through 1.3538. Further rally would be seen to 1.3646 resistance. Decisive break there will indicate that whole fall from 1.3946 has completed, and turn near term outlook bullish. However, break of 1.3471 will turn bias back to the downside, to resume the fall from 1.3946 through 1.3418.

In the bigger picture, corrective pattern from 1.3976 (2022 high) is extending with another falling leg. While deeper decline could be seen, strong support should emerge above 1.2947 resistance turned support to bring rebound. Rise from 1.2005 (2021 low) is still in favor to resume at a later stage.

Daily Pivots: (S1) 0.6818; (P) 0.6853; (R1) 0.6877; More...

Intraday bias in AUD/USD remains neutral for the moment. Further rally is still in favor as long as 0.6823 resistance turned support holds. Above 0.6941 will resume the rise from 0.6348 to 100% projection of 0.6348 to 0.6823 from 0.6621 at 0.7096. However, firm break of 0.6823 will indicate rejection by 0.6941 medium term fibonacci level. Intraday bias will be turned back to the downside for 55 D EMA (now at 0.6742) and possibly below.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with rise from 0.6269 as the third leg. Firm break of 0.6870 resistance will target 100% projection of 0.6269 to 0.6870 from 0.6340 at 0.6941, and then 138.2% projection at 0.7179. This will now remain the favored case as long as 0.6621 support holds.

Dollar continues to dominate the currency markets this week, holding its position as the strongest performer as focus shifts to the upcoming non-farm payroll report from the US. Market reactions to this data will be crucial in shaping financial movements leading up to FOMC rate decision in November. If the employment figures support a standard 25bps rate cut by Fed, risk markets may respond negatively, giving a significant boost to the greenback. Dollar is attempting to reverse its third-quarter losses against major rivals, and supportive NFP data could further enhance this momentum.

Overall in the currency markets, Yen remains the weakest currency this week, influenced by diminishing expectations of a December rate hike by BoJ. Kiwi follows as the second weakest, pressured by firm expectations of a 50 bps rate cut by RBNZ next week. Sterling is the third worst performer after BoE Governor Andrew Bailey raised the possibility of aggressive rate cuts ahead. However, there is prospect for the Pound to rebound significantly if BoE Chief Economist Huw Pill sings a different tune in his speech today.

On the other hand, Canadian Dollar stands as the second strongest currency after the greenback, supported by the rally in oil prices. Developments in the Middle East—specifically whether the US and Israel would strike Iranian oil facilities—are critical factors that could influence the next move in oil prices and, consequently, the Loonie. Aussie is the third strongest, although its upward momentum has slowed as the rally in Hong Kong stock markets pauses. Aussie would await guidance from the reopening of Chinese markets after the holiday next week. Meanwhile, Swiss Franc and the Euro are positioned in the middle of the pack.

Technically, EUR/USD is sitting on an important cluster support level at 1.1001 (38.2% retracement of 1.0665 to 1.1213 at 1.1004). Strong bounce from current level will retain near term bullishness for rallying through 1.1213 and 1.1274 high in the near term. However, decisive break of 1.1001/4 will argue that whole rise from 1.0665 has completed, and risk deeper fall to 61.8% retracement at 1.0874, and possibly below. The market's reaction today will likely set the tone for EUR/USD's next major move.

In Asia, at the time of writing, Nikkei is up 0.20%. Hong Kong HSI is up 1.79%. China is still on holiday. Singapore Strait Times is up 0.17%. Japan 10-year JGB yield is up 0.0509 at 0.878. Overnight, DOW fell -0.44%. S&P 500 fell -0.17%. NASDAQ fell -0.04%. 10-year yield rose 0.065 to 3.850.

Oil prices rise as US strikes on Iran oil sites, but no runaway rally yet

Oil prices surged as escalating tensions in the Middle East have raised fears of supply disruptions. US President Joe Biden confirmed that he is considering airstrikes on Iran’s oil facilities in retaliation for Tehran’s missile attack on Israel. The growing conflict, already being described as the most severe in the region since the Gulf War, has fueled a sharp rise in oil prices throughout the week. However, the rally has yet to become "runaway", largely due to OPEC+ holding significant spare capacity, which could be deployed to stabilize the market if needed.

Technically, while WTI's breach of 55 D EMA is a near term bullish sign, the upside is so far capped by 10% projection of 65.63 to 73.23 from 66.97 at 74.57. Rebound from 65.63 is still seen as a corrective recovery for now. Break of 70.47 minor support will argue that the recovery has completed, and the larger down trend is ready to resume through 65.63 low.

However, decisive break of 74.57 could prompt upside acceleration through key fibonacci level at 38.2% retracement of 95.50 (2023 high) to 65.63 at 77.04. In this case, WTI could be reversing the whole fall from 95.50 and target 61.8% retracement at 84.08.

NFP to back 25bps Fed rate cut in Nov?

The September non-farm payroll report is in sharp focus today, as it plays a critical role in shaping expectations for Fed's upcoming monetary policy decisions. Currently, markets are pricing in 33% probability of a 50bps rate cut in November, with 67% chance of a 25bps cut. These odds have shifted notably from a week ago, when the probability of a 50bps cut stood at 50%, following comments from Fed Chair Jerome Powell, who indicated two more "normal-sized" cuts are likely by year-end.

It's important to recall that Fed's larger-than-usual 50bps rate cut in September was primarily a "catch-up) to their inaction in July. Many Fed officials believed that July would have been a more opportune time to initiate the easing cycle, had they had access to subsequent economic data. Therefore, barring any significant negative surprises in today's NFP report, Fed is likely to adhere to its current plan outlined in the dot plot, implementing two additional 25 bps cuts in November and December respectively.

NFP is expected to show an increase of approximately 140k in September, with the unemployment rate remaining steady at 4.2%. Average hourly earnings are projected to slow to a month-over-month growth of 0.3%.

Recent related data offers mixed signals: ISM Manufacturing Employment Index declined sharply from 46.0 to 43.9, and ISM Services Employment Index also fell from 50.2 to 48.0. ADP employment report showed private sector job gain of 143k. Four-week moving average of initial jobless claims decreased slightly from 230,000 to 224,000.

Overall, these indicators suggest that while job growth remains robust, the likelihood of a significant upside surprise in today's NFP release is low.

Risk sentiment and the market’s reaction to the NFP will be pivotal in shaping financial markets for the remainder of October, including currency movements.

Technically, NASDAQ is clearly losing momentum, as seen in 55 D MACD, after hitting 18327.33. Decisive break of 55 D EMA (now at 17587.55) will argue that rebound from 15708.53 has completed. In the bearish case, the corrective pattern from 18671.06 high could have already started the third leg, back towards 15708.53 and possibly below.

Looking ahead

Swiss unemployment rate, France industrial production, Italy retail sales, and UK PMI construction will be released in European session. Later in the day, US NFP will take center stage. Canada will release Ivey PMI.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6818; (P) 0.6853; (R1) 0.6877; More...

Intraday bias in AUD/USD remains neutral for the moment. Further rally is still in favor as long as 0.6823 resistance turned support holds. Above 0.6941 will resume the rise from 0.6348 to 100% projection of 0.6348 to 0.6823 from 0.6621 at 0.7096. However, firm break of 0.6823 will indicate rejection by 0.6941 medium term fibonacci level. Intraday bias will be turned back to the downside for 55 D EMA (now at 0.6742) and possibly below.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with rise from 0.6269 as the third leg. Firm break of 0.6870 resistance will target 100% projection of 0.6269 to 0.6870 from 0.6340 at 0.6941, and then 138.2% projection at 0.7179. This will now remain the favored case as long as 0.6621 support holds.