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US ISM Services PMI dropped from 56.7 to 54.4 in October, below expectation of 55.2. That's also the lowest reading since May 2020. Looking at some details, business activity/production dropped from 59.1 to 55.7. New orders dropped from 60.6 to 56.5. Employment dropped from -3.9 to 53.0. Prices rose from 68.7 to 70.7.

ISM said: "Growth continues at a slower rate for the services sector, which has expanded for all but two of the last 153 months. The sector had a pullback in growth for the second consecutive month in October due to decreases in business activity, new orders and employment."

"The past relationship between the Services PMI and the overall economy indicates that the Services PMI for October (54.4 percent) corresponds to a 1.5-percent increase in real gross domestic product (GDP) on an annualized basis."

Full release here.

The British pound is sharply lower today. In the European session, GBP/USD is trading at 1.179, down 1.83%. It has been a dreadful week for the pound, which has declined by 3.7%.

Bank of England delivers 75 bp hike

The Bank of England delivered as advertised, raising rates by a super-size 75 basis points today in a 7-2 vote. This was the sharpest rate hike since 1989 and brings the cash rate to 3.0%.

The jumbo rate hike comes at a delicate time, with the BoE warning that the UK is in a “prolonged recession”. The BoE is projecting inflation will hit 11% before the end of the year and estimates that the recession could last two years. The Bank said that further rate hikes would be needed, but the terminal rate would be lower than what the markets have priced in, which is 5.2%.

The BoE has not only witnessed a tumultuous period since the last meeting in September, but had to make its rate decision and forecasts without knowing government policy. A budget was supposed to be released last week but has been delayed until November 17th. Former Prime Minister Liz Truss’ ill-fated mini-budget led to a near financial crisis and forced the BoE to buy massive amounts of bonds. Thankfully, stability has returned and the BoE began selling bonds earlier this week.

The BoE’s message to lower expectations about future rate hikes runs contrary to what Fed Chair Powell said at the Fed meeting on Wednesday. Powell warned that there were no signs that inflation had peaked and said that rates will peak at a higher level than previously expected. This hawkish message sent equity markets sharply lower and boosted the US dollar against all the major currencies.  The double-barreled punch of a hawkish Fed and grim warnings from the BoE have sent the pound reeling close to 2% today.

GBP/USD Technical

• There is resistance at 1.1346 and 1.1506
• 1.1118 and 1.1045 and providing support

EURUSD came under strong selling pressure yesterday following Fed Chair Powell’s hawkish remarks, breaking back below the medium-term downtrend line drawn from the high of February 10. The pair extended its slide today, breaking a short-term upward sloping support line taken from the low of September 28. These technical signs suggest that the bears are back in the driver’s seat.

Our short-term oscillators are detecting strong downside speed, which adds more credence to that notion. The RSI is lying below 30 and still pointing down, while the MACD is running below both its zero and trigger line, pointing south as well.

The bears could challenge the 0.9700 territory soon, marked by the low of October 21, and if they prove strong enough to overcome it, they may put the 0.9630 zone on their radars. If they are not willing to quit around there either, the slide may extend towards the 20-year low of 0.9535, hit on September 28.

On the upside, a break back above the medium-term downtrend line could invite some more bulls into the action, who could get encouraged to climb towards the 0.9950 barrier, or even try another test at parity. Should they manage to breach parity as well, the door towards the high of October 27 at 1.0095 could be opened.

To recap, EURUSD has been under strong pressure since yesterday, returning below the medium-term downtrend line and breaking a short-term upward sloping support line. This suggests that the bearish bias has intensified.

Daily Pivots: (S1) 146.27; (P) 147.32; (R1) 148.97; More...

Outlook in USD/JPY is unchanged as consolidation from 151.39 is continuing. Intraday bias stays neutral for the moment. Deeper decline cannot be ruled out, but downside should be contained by 38.2% retracement of 130.38 to 151.93 at 143.69 to bring rebound. On the upside, above 149.69 minor resistance will bring stronger rebound back towards 151.93 high. But upside should be limited there to continue the corrective pattern.

In the bigger picture, up trend from 101.18 is still in progress, as part of the whole up trend from 75.56 (2011 low). 147.68 (1998 high) was already met and there is no clearly sign of topping yet. In any case, break of 140.33 support is needed to be the first sign of medium term topping. Otherwise, further rise is in favor to next target at 160.16 (1990 high).

Daily Pivots: (S1) 0.9949; (P) 0.9995; (R1) 1.0079; More...

Intraday bias in USD/CHF stays on the upside at this point. Firm break of 1.0146 will resume larger up trend. Next target is 1.0283 projection level. On the downside, below 1.0003 minor support will turn intraday bias neutral first. But outlook will stay bullish as long as 0.9840 support holds, in case of retreat.

In the bigger picture, current development suggests that up trend from 0.8756 (2021 low) is still in progress. Next target is 100% projection of 0.9149 to 1.0063 from 0.9369 at 1.0283, and then 1.0342 (2016 high). For now, this will remain the favored case as long as 0.9779 support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.9761; (P) 0.9868; (R1) 0.9924; More...

Intraday bias in EUR/USD remains on the downside at this point. Corrective pattern from 0.9534 should have completed with three waves up to 1.0092. Deeper decline would be seen to 0.9534/9630 support zone. On the upside, above 0.9872 minor resistance will turn intraday bias neutral again first.

In the bigger picture, medium term term bearishness is retained with failure to sustain above 55 day EMA (now at 0.9930). That is, larger down trend from 1.2348 (2021 high) is still in progress. Firm break of 0.9534 low will confirm this bearish case. For now, risk will stay on the downside as long as 1.0092 resistance holds, in case of recovery.

Daily Pivots: (S1) 1.1330; (P) 1.1447; (R1) 1.1507; More...

GBP/USD's break of 1.1256 suggests that rebound from 1.0351 has completed with three waves up to 1.1644, ahead of 1.1759 support turned resistance. The development retains larger bearishness. Intraday bias is back on the downside for 1.0922 support first. Break there will target a retest on 1.0351 low. For now, risk will stay on the downside as long as 1.1644 resistance holds, in case of recovery.

In the bigger picture, fall from 1.4248 (2018 high) is part of the long term down trend from 2.1161 (2007 high). Outlook will stay bearish as long as 1.1759 support turned resistance holds. Parity would be the next target on resumption. Nevertheless, firm break of 1.1759 will confirm medium term bottoming, and open up stronger rise back to 55 week EMA (now at 1.2392).

Sterling dives sharply after dovish BoE rate hike, which saw two doves dissented. Aussie and Kiwi are following as next weakest as risk-off sentiment persists. Dollar's post-FOMC rally is accelerating, partly supported by expectation of a higher terminal rate for Fed, and partly by risk aversion. Yen is following as next strongest, and then Canadian, while Euro and Swiss Franc are mixed.

Technically, as Sterling's selloff picks up, focus will be on 0.8779 minor resistance in EUR/GBP, 164.95 minor support in GBP/JPY, and 1.1283 resistance turned support in GBP/CHF. Firm break of these levels will at least trigger squaring of position built up from the spike low during Liz Truss's era in September. In particular, for GBP/CHF, that would set up deeper decline to 1.0893 support.

In Europe, at the time of writing, FTSE is down -0.72%. DAX is down -1.67%. CAC is down -1.27%. Germany 10-year yield is up 0.143 at 2.281. Earlier in Asia, Nikkei dropped -0.06%. Hong Kong HSI dropped -3.08%. China Shanghai SSE dropped -0.19%. Singapore Strait Times dropped -1.23%. Japan 10-year JGB yield is down -0.0052 to 0.247.

US initial jobless claims dropped to 217k

US initial jobless claims dropped -1k to 217k in the week ending October 29. Four-week moving average of initial claims dropped -500 to 219k. Continuing claims rose 47k to 1485k in the week ending October 22. Four-week moving average of continuing claims rose 30k to 1418k.

Non-farm productivity rose 0.3% in Q3, versus expectation of -0.1% . Unit labor costs rose 3.5%, versus expectation of 4.0%.

US trade deficit widened to USD -73.3B in September, larger than expectation of USD -70.3B.

From Canada, trade surplus narrowed to CAD 1.1B in September, matched expectations.

BoE hikes 75bps, two doves dissented

BoE raises Bank Rate by 75bps to 3.00%. The decision was made by 7-2 votes. Swati Dhingra voted for 50bps hike while Silvana Tenreyro voted for just 25bps hike.

Tightening bias is maintained as "should the economy evolve broadly in line with the latest Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets."

But there are "considerable uncertainties" around the outlook. If outlook suggests more persistent inflation pressures, the Committee will "respond forcefully".

In the updated central economic projections, four-quarter GDP is projected to contract -.19% in 2023 Q4, and then -0.1% in 2024 Q4, before growing again in 2025 Q4. CPI is projected to peak at 10.9% in 2022 Q4, then slow to 5.2% in 2023 Q4, and 1.4% in 2024 Q4. Unemployment rate is projected to rise notably from 3.7% in 2022 Q4 to 4.9% in 2023 Q4,5.9% in 2024 Q4, and then 6.4% in 2025 Q4.

UK PMI services finalized at 21-mth low

UK PMI Services was finalized at 48.8 in October, down from September's 50.0. PMI Composite was finalized at 48.2, down from prior month's 49.1. Both readings were the lowest levels since January 2021.

Tim Moore, Economics Director at S&P Global Market Intelligence:

"UK service providers reported the steepest drop in business activity for 21 months in October as household spending cutbacks and shrinking business investment combined to dent new order volumes... Stubbornly high inflation, increased borrowing costs and worries about the UK economic outlook all contributed to weaker business optimism in October... Aside from the slump at the start of the pandemic, the degree of confidence across the service economy is now the lowest since December 2008."

ECB Lagarde: We cannot progress at same pace as Fed

ECB President Christine Lagarde said the central bank cannot just mirror Fed's policy moves.

"We have to be attentive to potential spillovers," said. "We are not alike and we cannot progress either at the same pace (or) under the same diagnosis of our economies."

"But we are also influenced by the consequences particularly through the financial markets, and to a lesser extent, through trade as well, because clearly the exchange rate matters and has to be taken into account in our inflation projections," Lagarde said.

ECB Panetta: Policy calibration must avoid tripping over unintended effects

ECB Executive Board member Fabio Panetta said in a speech, "at present, the direction of monetary policy is clear". And, a "further policy adjustment is warranted in order to keep inflation expectations anchored and stave off second-round effects."

However, "the calibration of our stance should not rely on a one-sided view of risks − especially as we continue normalising our monetary policy in a highly uncertain economic environment," he added. "And it should remain focused on medium-term inflationary developments."

"Our policy stance must remain evidence-based and adapt to changes in the medium-term inflation outlook, avoiding an excessive focus on short-run developments and fully taking into account the risks emanating from the domestic and global economic and financial environment," he emphasized.

"This approach will allow us to successfully navigate the risks we face while avoiding the danger of tripping over unintended effects."

ECB Kazaks: There's no need to pause at the turn of the year

ECB Governing Council member Martins Kazaks said, "it's clear that interest rates will need to rise much higher to bring inflation down to the target of 2% over medium term."

"There's no need to pause at the turn of the year. The rate increases must continue into the next year -- until inflation, especially core inflation, shows a visible slowdown," he said.

"In my view, recession in the euro area is a baseline scenario, but so far it's likely to be relatively shallow and brief," Kazaks said. "And hence insufficient to break the backbone of inflation persistence."

Swiss CPI slowed to 3.0% yoy in Oct, core CPI down to 1.8% yoy

Swiss CPI rose 0.1% mom in October, below expectation of 0.2% mom. Core CPI (excluding fresh and seasonal products, energy and fuel) was flat at 0.0% mom. Domestic products prices dropped -0.1% mom. Imported products prices rose 0.4% mom. Goods prices rose 0.4% mom while services produces dropped -0.2% mom.

Annually, CPI slowed from 3.3% yoy to 3.0% yoy, below expectation of 3.2% yoy. Core CPI slowed form 2.0% yoy to 1.8% yoy. Domestic products prices slowed from 1.8% yoy to 1.7% yoy. Imported product prices slowed from 7.8% yoy to 6.9% yoy. Goods inflation slowed from 5.9% yoy to 5.7% yoy. Services inflation slowed form 1.2% yoy to 0.9% yoy.

RBNZ Orr: Significant shocks still arriving through the global economy

RBNZ Governor Adrian Orr told a parliamentary committee that the central bank has "laser-like focus" on bringing inflation down to target. Yet, he admitted that, "the (inflationary) shocks still arriving through the global economy are significant and this is where people need to think about their own ability to weather an enormous amount of unanticipated activities."

"Meanwhile around our confidence of having inflation under control – that is very high, because we control the end outcome through the interest rate environment. So, that's a guessing game. That's about the things we will have to do to achieve low and stable inflation, subject to the continuing buffering of shocks left right and centre. Resilience and humility," he added.

China Caixin PMI services dropped to 48.4, lowest since May

China Caixin PMI Services dropped from 49.3 to 48.4 in October, below expectation of 49.2. PMI Composite dropped from 48.5 to 48.3. Both were the lowest readings since May.

Wang Zhe, Senior Economist at Caixin Insight Group said: "Both supply and demand contracted to different degrees. The overall employment level increased slightly thanks to an expansion in employment of the services sector. Input costs for all surveyed enterprises rose slightly, while prices charged remained stable. Market sentiment improved but was still below the long-term average.

"Overall, the negative impact of Covid controls on the economy lingered, and the economy was faced with increasing downward pressure. In October, activities in the manufacturing and services sectors continued to shrink, while supply and both domestic and overseas demand contracted. Business costs increased. Service providers were in a better position than manufacturers in terms of prices charged and employment."

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1330; (P) 1.1447; (R1) 1.1507; More...

GBP/USD's break of 1.1256 suggests that rebound from 1.0351 has completed with three waves up to 1.1644, ahead of 1.1759 support turned resistance. The development retains larger bearishness. Intraday bias is back on the downside for 1.0922 support first. Break there will target a retest on 1.0351 low. For now, risk will stay on the downside as long as 1.1644 resistance holds, in case of recovery.

In the bigger picture, fall from 1.4248 (2018 high) is part of the long term down trend from 2.1161 (2007 high). Outlook will stay bearish as long as 1.1759 support turned resistance holds. Parity would be the next target on resumption. Nevertheless, firm break of 1.1759 will confirm medium term bottoming, and open up stronger rise back to 55 week EMA (now at 1.2392).

Economic Indicators Update

US initial jobless claims dropped -1k to 217k in the week ending October 29, slightly above expectation of 215k. Four-week moving average of initial claims dropped -500 to 219k.

Continuing claims rose 47k to 1485k in the week ending October 22. Four-week moving average of continuing claims rose 30k to 1418k.

Full release here.

The Euro extend a steep fall from 1.0090 zone double top, falling around 0.8% on Thursday, in extension of post-Fed acceleration.

The sentiment soured further after the US central bank delivered the fourth straight 75 basis points rate hike and kept hawkish tone, although chief Powell signaled further hikes may come in smaller increments, he also signaled that the ultimate level of the benchmark policy rate would be likely higher than previously estimated, as policymakers remain firmly on track to bring red-hot inflation under control.

Pullback from 1.0090 zone tops extends into sixth straight day and broke through pivotal supports at 0.9768/48 (trendline support / Fibo 61.8% of 0.9535/1.0093), adding to signals that recovery phase off 0.9535 (Sep 28 low) might be over.

Bears need a daily close below these levels for confirmation, with further weakness to focus next key supports at 0.9667/0.9631 (Fibo 76.4% / Oct 13 trough).

Daily studies turned bearish as MA’s are in negative setup and falling 14-d momentum is attempting to break into negative territory that supports the action, although deeply oversold stochastic may produce headwinds.

The base of thick daily cloud (0.9829) reverted to solid resistance, which should cap upticks and keep bears intact.

Res: 0.9769; 0.9814; 0.9829; 0.9880.
Sup: 0.9730; 0.9704; 0.9667; 0.9631.