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Daily Pivots: (S1) 1.3335; (P) 1.3384; (R1) 1.3465; More...

Intraday bias in GBP/USD remains neutral first, but further rally is expected as long as 1.3265 resistance turned support holds. Above 1.3429 will extend larger rally to 100% projection of 1.2664 to 1.3265 from 1.3000 at 1.3601 next. Nevertheless, break of 1.3265 will turn bias to the downside for deeper pullback.

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) 0.8438; (P) 0.8477; (R1) 0.8501; More…

No change in USD/CHF's outlook as range trading continues. 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. However, break of 0.8548 resistance will turn bias back to the upside for 0.8747 resistance.

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).

The Canadian economy grew by 0.2% month-on-month (m/m) in July after June's flat reading. This print landed ahead of Statistics Canada's advanced guidance and consensus expectations. Early guidance from Statistics Canada points to no growth in August.

May's reading was broad-based, with output expanding in 13 of 20 industries. Growth in services-producing industries (0.2% m/m) advanced at a slightly faster pace than in goods-producing industries (0.1% m/m).

On a weighted basis, the retail trade sector contributed most to the overall gain in July's GDP, and was up for a second consecutive month (+1.0% m/m). Elsewhere on the services side, gains in the finance and insurance industry (+0.5% m/m) and the public administration sector (+0.4% m/m) were offset partially by a drag in the transportation sector (-0.4% m/m) that were impacted by wildfires.

On the goods side, utilities (+1.3% m/m) did most of the heavy lifting on the back of increased demand for electricity. Meanwhile, the manufacturing sector reversed some of last month's slide and the construction sector slumped for a third straight month, down 0.4% m/m.

Behind the advanced reading of stalled growth in August is an increase in oil & gas and public sector activity offset by pullbacks in the manufacturing and transportation & warehousing sectors.

Key Implications

GDP data for July came in stronger than expectations, but the momentum should be short-lived. With the current guidance for flat industry-GDP growth next month, third quarter GDP is tracking just north of 1.0% quarter-on-quarter (q/q) annualized, significantly below the Bank of Canada's (BoC) 2.8% forecast, but broadly in line with our recent forecast update.

The BoC next rate decision is in late October and more cuts are certainly on the table. The BoC has shifted their tone as of late, putting more emphasis on their fears around a weakening economy. For what it's worth, we don't think today's data tips the scales any more-or-less in favour of a potential 50 basis point (bps) interest rate cut, which would follow the recent move from the Federal Reserve. Instead, more emphasis will be placed on upcoming labour market data as well as inflation data, where the Bank will be looking for signs that price growth can remain durably at 2%.

Daily Pivots: (S1) 144.21; (P) 144.71; (R1) 145.31; More...

USD/JPY's break of 142.89 minor support suggests that recovery fro 139.57 has completed at 146.48 already. Intraday bias is back on the downside for 139.57 low. Strong support is still expected from 139.26 to contain downside to bring another rebound. But decisive break there will carry larger bearish implications. On the upside, above 146.48 will resume the rebound to 38.2% retracement of 161.94 to 139.57 at 148.11.

In the bigger picture, fall from 161.94 medium term top is seen as correcting 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. But in any case, risk will stay on the downside as long as 149.35 resistance holds. Sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Risk-on sentiment returned to global markets again in early US trading, driven by lower-than-expected inflation data. While annual PCE core inflation edged up to 2.7%, the monthly increase was a modest 0.1%. This tamer monthly inflation growth suggests that underlying price pressures would, at least, not obstruct Fed's to another aggressive rate cut at its next meeting. However, upcoming non-farm payrolls and CPI data will still play a decisive role in Fed’s final decision.

In Japan, Yen staged a sharp turnaround after Shigeru Ishiba unexpectedly secured leadership of the ruling Liberal Democratic Party, setting him on the path to become the next Prime Minister. Known for his hawkish monetary stance, Ishiba's ascent has intensified speculation that BoJ may implement another rate hike in December. However, the political landscape remains uncertain. There is a possibility that Ishiba may call for a snap general election to secure a stronger mandate from voters, and that could delay any BoJ action until 2025.

For the week, Kiwi and Aussie remain the top performers, with the Swiss Franc catching up as the third strongest due to today's rebound. Dollar has become the weakest currency as Yen recovers. Euro and Sterling are also underperforming, while Yen and Loonie are positioned in the middle of the currency spectrum.

In Europe, at the time of writing, FTSE is up 0.34%. DAX is up 1.20%. CAC is up 0.59% UK 10-year yield is down -0.0528 at 3.964. Germany 10-year yield is down -0.054 at 2.130. Earlier in Asia, Nikkei rose 2.32%. Hong Kong HSI rose 3.55%. China Shanghai SSE rose 2.88%. Singapore Strait Times fell -0.25%. Japan 10-year JGB yield fell -0.0239 to 0.807.

US PCE inflation falls to 2.2% in Aug, core PCE ticks up to 2.7%

US personal income rose USD 50.5B or 0.2% mom in August, below expectation of 0.4% mom. Personal spending rose USD 47.2B or 0.2% mom, below expectation of 0.3% mom.

PCE price index rose 0.1% mom, matched expectations while core PCE (excluding food and energy)price index rose 0.1% mom,m below expectation of 0.2% mom. Good prices fell -0.2% mom while services prices rose 0.2% mom. Food prices rose 0.1% mom and energy prices fell -0.8% mom.

From the same month a year ago, PCE price growth slowed from 2.5% yoy to 2.2% yoy, below expectation of 2.3% yoy. Core PCE price growth accelerated fro 2.6% yoy to 2.7% yoy, matched expectations. Prices for goods decreased -0.9% yoy and prices for services increased 3.7% yoy. Food prices increased 1.1% yoy and energy prices -decreased 5.0% yoy.

Canada's GDP grows 0.2% mom in Jul essentially unchanged in Aug

Canada's GDP grew 0.2% mom in July, above expectation of 0.1% mom. Services-producing industries grew 0.2% mom while goods- producing industries rose 0.1% mom. Overall, 13 of 20 sectors expanded in July.

Advance information indicates that real GDP was essentially unchanged in August. Increases in oil and gas extraction and the public sector were offset by decreases in manufacturing and transportation and warehousing.

Eurozone economic sentiment dips slightly to 96.2

Eurozone Economic Sentiment Indicator fell slightly from 96.5 to 96.2 in September. Employment Expectations Indicator ticked up from 99.4 to 99.5. Economic Uncertainty Indicator rose from 17.5 to 17.8. Industry confidence fell from -9.9 to -10.9. Services confidence rose from 6.4 to 6.7. Consumer confidence rose from -13.4 to -129. Retail trade confidence fell from -7.9 to -8.5. Construction confidence rose from -6.3 to -5.8.

EU Economic Sentiment Indicator was unchanged at 96.7. For the largest EU economies, the ESI worsened markedly in France (-1.4) and Germany (-1.2), while it improved significantly in Poland (+2.0), Spain (+1.9), Italy (+1.2) and, more moderately, in the Netherlands (+0.5).

Japan's Tokyo core inflation slows to 2%, supporting BoJ's cautious approach

Japan's Tokyo CPI core (excluding fresh food) slowed from 2.4% yoy to 2.0% yoy in September, aligning with expectations and marking its lowest level since May. Headline CPI dropped to 2.2% yoy from 2.6% yoy , while CPI core-core (excluding food and energy) remained stable at 1.6% yoy.

The primary driver of the deceleration in inflation was reduction in electricity and gas prices, influenced by government energy subsidies reintroduced by outgoing Prime Minister Fumio Kishida. These subsidies helped alleviate the impact of a particularly hot summer, shaving 0.5 percentage points off overall inflation.

This data, especially the stable core-core inflation, supports BoJ's cautious stance regarding more tightening. BoJ Governor Kazuo Ueda recently noted that inflationary risks have diminished, particularly with Yen's recent gains. BoJ is likely to remain on hold during its upcoming policy meeting on October 31.

PBoC cuts RRR and repo rate

In a follow-up to Governor Pan Gongsheng's earlier remarks this week, the People's Bank of China announced today a 50bps cut in the reserve requirement ratio and a 20bps reduction in the seven-day reverse repurchase rate.

This move is intended to release approximately CNY 1T in long-term liquidity, enabling banks to lend more and increase purchases of government bonds aimed at funding infrastructure projects. With the cut, the weighted average RRR will drop to around 6.6%. The central bank also lowered the seven-day reverse repo rate from 1.7% to 1.5%.

Further fiscal measures are anticipated before China's National Day holiday on October 1, as the Politburo has signaled a heightened focus on addressing economic pressures.

Reports indicate that the government will raise CNY 1T via special bonds, which will fund consumer goods subsidies, upgrades to business equipment, and provide a monthly allowance of CNY 800 yuan per child for households with multiple children. Additionally, another CNY 1T in special sovereign debt could be issued to help local governments manage their mounting debt burdens.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 144.21; (P) 144.71; (R1) 145.31; More...

USD/JPY's break of 142.89 minor support suggests that recovery fro 139.57 has completed at 146.48 already. Intraday bias is back on the downside for 139.57 low. Strong support is still expected from 139.26 to contain downside to bring another rebound. But decisive break there will carry larger bearish implications. On the upside, above 146.48 will resume the rebound to 38.2% retracement of 161.94 to 139.57 at 148.11.

In the bigger picture, fall from 161.94 medium term top is seen as correcting 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. But in any case, risk will stay on the downside as long as 149.35 resistance holds. Sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Economic Indicators Update

Canada's GDP grew 0.2% mom in July, above expectation of 0.1% mom. Services-producing industries grew 0.2% mom while goods- producing industries rose 0.1% mom. Overall, 13 of 20 sectors expanded in July.

Advance information indicates that real GDP was essentially unchanged in August. Increases in oil and gas extraction and the public sector were offset by decreases in manufacturing and transportation and warehousing.

Full Canada GDP release here.

US personal income rose USD 50.5B or 0.2% mom in August, below expectation of 0.4% mom. Personal spending rose USD 47.2B or 0.2% mom, below expectation of 0.3% mom.

PCE price index rose 0.1% mom, matched expectations while core PCE (excluding food and energy)price index rose 0.1% mom,m below expectation of 0.2% mom. Good prices fell -0.2% mom while services prices rose 0.2% mom. Food prices rose 0.1% mom and energy prices fell -0.8% mom.

From the same month a year ago, PCE price growth slowed from 2.5% yoy to 2.2% yoy, below expectation of 2.3% yoy. Core PCE price growth accelerated fro 2.6% yoy to 2.7% yoy, matched expectations. Prices for goods decreased -0.9% yoy and prices for services increased 3.7% yoy. Food prices increased 1.1% yoy and energy prices -decreased 5.0% yoy.

Full US personal income and outlays release here.

• Cryptos benefit from the improved risk sentiment
• Ethereum is trading above the 50-day SMA
• Momentum indicators remain bullish

Ethereum is recording a green session today, recovering its mid-week weakness and testing the resistance set by the 2,667 level. The improved risk sentiment in equity markets has boosted demand for cryptocurrencies, helping ethereum to quickly bounce back from its early September trough and to climb above its 50-day simple moving average (SMA).

In the meantime, the momentum indicators remain mostly bullish. The RSI is edging higher, but a possible failure to record a new higher high could mean that the current upleg is losing its strength. Interestingly, the stochastic oscillator is hovering inside its overbought territory (OB), battling with its moving average. It can stay in the OB region for a while before signaling the potential completion of the current rally.

Should the bulls remain confident, they would try to lead Ethereum above the 2,667 level and try their luck and resolve against the 61.8% Fibonacci retracement level of the October 13, 2023 – March 12, 2024 uptrend at 2,811. Even higher, the May 27, 2024 trendline might prove a stronger obstacle for the bulls than currently anticipated.

On the other hand, the bears are attempting to retake market control and keep ethereum below the 2,667 level. They could then try to push it below both the 50-day SMA and 61.8% Fibonacci retracement at 2,527 and 2,507 respectively. If successful, the path then looks clear until the recent trough at 2,149, where the bears could have the change to record a new 2024 low.

To conclude, ethereum is benefiting from the improved risk appetite but some key resistance areas have to be broken for the prevailing bearish trend to be reversed.

The Canadian dollar is steady on Friday. In the European session, USD/CAD is trading at 1.3476 at the time of writing, up 0.08%.

Canada’s GDP expected to remain unchanged

Canada’s GDP for July is expected at 0.1% m/m, unchanged from June. The economy managed a respectable gain of 2.1% y/y in the second quarter but the third quarter is likely to be much weaker, barring a spectacular turnaround.

The Bank of Canada has been at the forefront of the major central banks in the new rate-cutting cycle. The BoC has already cut three times this year but the economy has been slow to respond. Exports fell in the second quarter and manufacturing and construction continue to weigh on the economy, which is being driven by the services sector.

The BoC, like the Federal Reserve, is expected to remain aggressive and continue trimming rates. With the tough battle against inflation largely won, there is room for further cuts and the markets anticipate cuts of 150 basis points by late 2025. The BoC meets next on October 23. The BoC will be keeping a close eye on the Fed’s rate path, as it doesn’t want Canadian rates to diverge widely from those in the US. Currently, rates in Canada are at 4.25% and 5%-5.25% in the US.

The US will release Core PCE Price Index today, which is considered the Fed’s favorite inflation gauge. The index has hovered at 2.6% for the past three months and is expected to tick up to 2.7% for August. Monthly, the Core PCE is expected to remain at 0.2%. A surprise reading could shake up the US dollar and the rate-cut odds for the Fed’s November meeting. The odds of a 50-basis point continue to swing and are currently at 50%, with a 50% chance of a modest 25-bps reduction.

USD/CAD Technical

• USD/CAD is testing resistance at 1.3474. Close by, there is resistance at 1.3491
• 1.3449 and 1.3432 are the next support levels

Gold price eased on Friday after the metal hit new record high on Thursday, with end-of-week partial profit taking being behind the move.

Pullback was so far shallow and the price unlikely to make a stronger dip, but rather consolidation and positioning for fresh push higher.

Sentiment remains firmly bullish in current circumstances of growing expectations for further rate cuts by major central banks and heated geopolitical situation which threatens to escalate, keeping investors in safety.

The latest rally neared initial target at $2700, where bulls may face headwinds. However, bullish structure is expected to remain firm in persisting supportive fundamentals.

Daily studies are overbought that contributes to correction scenario, but initial supports at $2655 (Thursday’s low / 5DMA) and $2650 (100HMA) are still intact.

Rising thick hourly Ichimoku cloud ($2660/$2646) also makes significant support and likely to provide additional headwinds.

Dips should be ideally contained above $2620 (rising 10DMA) to keep bulls intact and guard pivotal $2600 support zone (Fibo 38.2% of $2471/2685 / psychological) violation of which would risk deeper correction.

The yellow metal is on track for the third consecutive weekly gain which adds to bullish outlook, though technical selling on overbought weekly studies should be considered.

Res: 2675; 2685; 2700; 2714.
Sup: 2655; 2650; 2635; 2620.