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• GBPUSD eases a bit after strong rally
• Technical oscillators move slightly down

GBPUSD skyrocketed to a fresh two-and-a-half-year high of 1.3365 earlier today, adding almost 3% after the bounce off the 1.3000 round mark. The technical oscillators indicate an overstretched market. The stochastic is turning slightly lower in the overbought territory, while the RSI is pointing down following the pullback at the 70 level. Moreover, the 20-day simple moving average is losing its positive momentum, showing some downside pressure.

If the market retreats, then the pair could open the door for the immediate 1.3265 support level before meeting the 20-day SMA at 1.3170. Moving lower, the 23.6% Fibonacci retracement level of the upward wave from 1.2300 to 1.3365 at 1.3113 could come next before plunging to 1.3000, which coincides with the 50-day SMA.

On the other hand, in case of an upside pressure again, the price could enter the 1.3400 territory ahead of the 1.3640 resistance, achieved back in February 2022.

All in all, GBPUSD has been in a significant bullish tendency since April and only a dive beneath the uptrend line and more importantly below the 200-day SMA may change the current outlook.

Daily Pivots: (S1) 1.1073; (P) 1.1121; (R1) 1.1158; More....

Intraday bias in EUR/USD remains neutral as consolidations continues below 1.1200. Further rally is expected as long as 1.1001 support holds. On the upside, above 1.1200 will target 1.1274 high. Firm break there will resume larger up trend. However, firm break of 1.1001 will indicate near term bearish reversal.

In the bigger picture, prior break of 1.1138 resistance indicates that corrective pattern from 1.1274 might 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. This will now be the favored case as long as 1.0947 resistance turned support holds.

Daily Pivots: (S1) 143.02; (P) 143.74; (R1) 144.32; More...

Further rally is still expected in USD/JPY. Rebound from 139.57 short term bottom should extend to 38.2% retracement of 161.94 to 139.57 at 148.11. On the downside, below 141.73 minor support will turn bias to the downside for retesting 139.57 instead.

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.

Daily Pivots: (S1) 1.3278; (P) 1.3318; (R1) 1.3389; More...

GBP/USD's rally is still in progress and intraday bias stays on the upside. Decisive break of 61.8% projection of 1.2664 to 1.3265 from 1.3000 at 1.3371 will pave the way to 100% projection at 1.3601 next. On the downside, below 1.3247 minor support will turn intraday bias neutral and bring consolidations first. But outlook will stay bullish as long as 1.3000 support holds.

In the bigger picture, up trend from 1.0351 (2022 low) is in progress. Next target is 38.2% projection of 1.0351 to 1.3141 from 1.2298 at 1.3364. Decisive break there will target 61.8% projection at 1.4022. For now, outlook will stay bullish as long as 1.2892 resistance turned support holds, even in case of deep pullback.

Daily Pivots: (S1) 0.8449; (P) 0.8484; (R1) 0.8510; More…

No change in USD/CHF's outlook as range trading continues. Intraday bias stays neutral at this point. 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, considering bullish convergence condition in 4H MACD, break of 0.8548 resistance will confirm short term bottoming, and 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).

Markets

Horrible European PMI business confidence (September) triggered a textbook bull steepening. German rates dropped between -2.8 (30-yr) and -8.1 (2-yr) bps. The spread between the 10-yr and 2-yr hit a milestone by turning positive for the first time since November 2022. Swaps did so already last Friday. Front-end outperformance rooted from increased ECB easing bets. An October cut – which president Lagarde and other policymakers all but ruled out – is about 40% discounted. US rates eked out less than 1 bp across the curve. They were on track for larger gains (up to 6 bps intraday) but another escalation in the Middle East conflict caused some safe haven flows in late European afternoon trading. The topic increasingly grabs (media) attention and bears following up. Several Fed governors including Atlanta’s Bostic, Minneapolis’ Kashkari and Chicago’s Goolsbee signaled openness (though did not commit) to back-to-back 50 bps moves if warranted by the data. Their comments perhaps readied US Treasuries for lift-off, all they needed was a trigger. The euro greatly underperformed G10 currency peers. EUR/USD temporarily dropped sub 1.11 before closing at 1.1111, down from 1.1159. The common currency’s slid all day long against sterling. EUR/GBP tanked from 0.838 to 0.832, dropping below the previous YtD low and interim support at 0.834 (August 2022 interim low). UK PMI’s (52.9 composite), even though easing from the August readings, contrasted starkly with the European ones as they suggested still-decent growth. Today’s advanced economy calendar is pretty meagre with only US consumer confidence (Conference Board) scheduled for release. Fed Bowman’s speech on the monetary and economic outlook is worth watching since she dissented last week by voting for a 25 bps cut. Turning to markets, we are on the lookout whether yesterday’s sharp European yield drop may ease. The German 2-yr yield is near an important support zone just north of 2% (March 2023 low). Longer maturities trade a bit more comfortable above the first support levels. US short-term yields continue to consolidate while the long-end forces out a bottoming out. EUR/USD’s decline yesterday had no technical implications but the move in EUR/GBP, if confirmed in coming days, paves the way for a return to the 2022 low (0.8203).

News & Views

The Central bank of China this morning announced a broad set of measures to support economic growth and help to address the crisis in the property market. The package comes after a series of disappointing eco data indicating that this year’s growth target of about 5% is at risk. The measures also aim to boost consumer confidence. The PBOC will reduce the reserve requirement ratio (RRR) by 0.5%pts, freeing 1 trillion yuan of liquidity. Depending on the liquidity situation, the RRR might be further reduced by 0.25-0.50 ppts later its year. It will lower the 7-day reverse repo rate by 0.2%pts to 1.5%. The interest rate on the medium term lending facility will be reduced by about 30 bps. Measures to support the property market include an on average 50 bps reduction on the interest rate of existing mortgages and a reduction of the minimum downpayment requirement to 15%. The PBOC announced tools to support capital markets by providing easier access to funds, brokers, insurers and commercial banks to directly or indirectly support buying of equities. The CSI 300 index adds 3.4%. China’s 10-yr yield initially declined a few bps but currently trades near 2.06% again. The yuan gains from opening levels near USD/CNY 7.06 to 7.035.

The Reserve bank of Australia today as expected kept its policy rate unchanged at 4.35%. The RBA maintains a rather hawkish stance. Inflation as fallen substantially from the 2022 peak, but with underlying inflation still at 3.9% in June, it is still some way above the 2-3% target. Even as headline inflation may fall further temporarily, it is not expected to sustainably return to target until 2026. Growth was weak in Q2, but labour market conditions remain tight, despite some signs of gradual easing. Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority. Recent data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range. Despite the hawkish stance the 3-y Australian government bond yields eases slightly to 3.5%. Markets still see about 50% change of a first rate cut in December. The AUD/USD cross rate is nearing the December 2023 top (0.687).

Graphs

GE 10y yield

The ECB cut policy rates by 25 bps in June and in September. Stubborn inflation (core, services) make follow-up moves less evident. We expect the central bank to stick with the quarterly reduction pace. Disappointing US and unconvincing-to-outright-weak EMU activity data dragged the long end of the curve down. The move accelerated during the early August market meltdown.

US 10y yield

The Fed kicked off its easing cycle with a 50 bps move. It is headed towards a neutral stance now that inflation and employment risks are in balance. Conservative SEP unemployment forecasts risk being caught up by reality and with it the dot plot (50 bps more cuts in 2024). We hold our call for two more 50 bps cuts this year. Pressure on the front of the curve and weakening eco data keeps the long end in the defensive for now as well.

EUR/USD

EUR/USD moved above the 1.09 resistance area as the dollar lost interest rate support at stealth pace. US recession risks and bets on fast and large rate cuts trumped traditional safe haven flows into USD. EUR/USD’s recent dollar-driven ascent stumbled into resistance around 1.12. The ailing euro(pean economy) is offsetting some of the general dollar weakness.

EUR/GBP

The BoE delivered a hawkish cut in August. Policy restrictiveness will be further unwound gradually on a pace determined by a broad range of data. The strategy similar to the ECB’s balances out EUR/GBP in a monetary perspective. But the economic picture is increasingly diverging to the benefit of sterling. EUR/GBP succumbed to horrible European September PMI’s. Support at 0.84 broke and brings the 2022 low (0.8203) on the radar.

Daily Pivots: (S1) 0.6806; (P) 0.6830; (R1) 0.6862; More...

Intraday bias in AUD/USD remains on the upside as rise from 0.6348 is in progress. Next target is 61.8% projection of 0.6348 to 0.6823 from 0.6621 at 0.6915. On the downside, below 0.6736 minor support will turn intraday bias neutral first. But outlook will remain cautiously bullish as long as 0.6621 support holds, in case of retreat.

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 6870 resistance will target 100% projection of 0.6269 to 0.6870 from 0.6340 at 0.6941. In case of another fall, strong support should be seen from 0.6169/6348 to bring rebound.

Daily Pivots: (S1) 1.3493; (P) 1.3538; (R1) 1.3588; More...

USD/CAD's break of 1.3532 support suggests that corrective recovery from 1.3439 has completed at 1.3646 already, after rejection by falling 55 D EMA. Intraday bias is back on the downside for retesting 1.3439 low first. Firm break there will resume the decline from 1.3946, and target 61.8% projection of 1.3946 to 1.3439 from 1.3646 at 1.3333. For now, risk will stay on the downside as long as 1.3646 resistance holds, in case of recovery.

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) 0.9385; (P) 0.9443; (R1) 0.0.9476; More....

A temporary top is formed at 0.9502 with current retreat and intraday bias in EUR/CHF is turned neutral first. On the upside, above 0.9502 will resume the rally from 0.9305, as the third leg of the pattern from 0.9209, to 0.9579 resistance. However, break of 0.9305 will resume the decline from 0.9579 towards 0.9209 low.

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.

Daily Pivots: (S1) 190.41; (P) 191.42; (R1) 192.71; More...

No change in GBP/JPY's outlook and intraday bias stays on the upside. Rise from 183.70, as the third leg of the corrective pattern from 180.00, is in progress for 193.45 resistance. Firm break there will target 61.8% retracement of 208.09 to 180.00 at 197.35. On the downside, though, below 190.11 minor support will turn intraday bias neutral first.

In the bigger picture, price actions from 208.09 are seen as a correction to whole rally from 123.94 (2020 low). The range of consolidation should be set between 38.2% retracement of 123.94 to 208.09 at 175.94 and 208.09. However, decisive break of 175.94 will argue that deeper correction is underway.