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The S&P 500 shot up as a hot CPI reading had previously been priced in. The index has given up all previous gains after it came to a halt at 3800. The supply area may have been the last chance to get out for those who bought the dips last summer. This also means that there could be more room on the downside. In the meantime, 3500 at the base of a bullish breakout in November 2020 saw an inflow of buying interests. A pop above 3630 may prompt more intraday sellers to cover and 3730 is the next resistance.

Silver steadies as the greenback consolidates across the board. The price has been struggling to consolidate its latest gains after meeting strong selling interest in the supply zone around 21.00. The precious metal is at a crossroads as it falls back to the origin of the rally at 18.50. The bulls may find relief in a bounce above 19.60. That would bring back the fading optimism and pave the way for recovery to 20.50. A bearish breakout, however, would invalidate the rally and extend losses below the daily support at 18.00.

The US dollar whipsawed as high inflation persisted in September. On the daily chart, the pair has taken a breather after the RSI went deeply into the oversold area. Sellers’ profit-taking would not be enough to lift the kiwi in a meaningful manner. Stiff pressure could be expected near the support-turned-resistance at 0.5700 which sits on the 20-day moving average, making it a congestion area. Sentiment would turn around only if 0.5810 is out of the way. On the downside, March 2020’s low at 0.5500 is a critical floor.

Markets

This week’s long-drawn countdown to the US September CPI finally resulted in a few hours of extremely volatile trading annex a historic intra-day market reversal, in particular in US equities. Hoped for signals of inflation topping out again didn’t materialize. Headline inflation hardly eased (0.4% M/M and 8.2% Y/Y, from 8.3%). US core inflation (6.6% Y/Y) even jumped to the highest level since 1982 as the monthly pace (0.6%) stays uncomfortably elevated. In a first logical Pavlov reaction, the US yield curve inverted with the 2-y jumping north of 4.50% while 10 & 30y yields tried to take out the 4.0% barrier. Money markets embraced the idea of two additional 75 bps Fed rate hikes in November and December. The S&P opened about 2.50% lower. However, technical factors came into play. Amongst others, the S&P touching the 50% retracement of the post-corona rally triggered a squeeze on recent bearish positioning. In an impressive comeback, US indices closed up to 2.60% (S&P) and 2.83% (Dow) higher. US yields also eased back below above mentioned high profile levels. In the end US yields rose ‘modestly’ between 8.3 bps (5-y) and 4.2 bps (30-y). In a flattening move, German yields closed 9.4 bps higher for the 2-y but eased 5.5 bps for the 30-Y. USD gains already stayed relatively modest immediately after the CPI release and the US currency even fell prey to profit taking as the risk rally unfolded. The DXY index eased back to close at 112.36. EUR/USD also easily stayed away from the cycle low to close at 0.9776 (open 0.9703). USD/JPY spiked to test the 147.66 1998 top, but no sustained break occurred. For now there is no communication on interventions. UK markets also had a good run yesterday. Persistent BOE presence in the bond market and headlines on the UK government downscaling fiscal spending pushed UK yields more than 20 bps lower across the curve. Sterling outperformed (EUR/GBP close 0.8632).

This morning, Asian markets joined the risk rebound from WS yesterday. The Nikkei and the Hang Seng are outperforming with gains of 3.0%+. US Treasuries gain marginally. The dollar eases against the likes of the Kiwi and the Aussie dollar. USD/CNY trades modestly lower at 7.166. EUR/USD also gains modestly (0.978). The yen stays in the defensive. At USD/JPY 147.45, the pair is holding near the multi-year peak. Later today, the market focus stays on the US with the US September retail sales and the U. of Michigan consumer confidence (including inflation expectations measures). Control group retail sales are expected at 0.3% M/M. Yesterday’s post CPI market reaction suggests that data probably will have to be extremely strong to push US yields sustainably beyond the 4.50% (2-y)/4.0% (10/30-y) barriers. That said, there is evidently also no reason of the Fed to backtrack on its anti-inflationary rhetoric. In this context, US yields might consolidate near recent highs. Aside from further technical repositioning, equities from now on will have to cope with the Q3 earnings (major US banks today) and probably even more with enterprises’ guidance. Here we are not convinced on sustained reversal in sentiment for the better yet. The dollar recently could have gained more given the overall risk sentiment and developments on interest rate markets. Here some consolidation might be on the cards, with EUR/USD looking for a short-term equilibrium in the 0.95/1.00 trading range.

News Headlines

ECB sources are in full swing. After yesterday’s leaked details on final options to change TLTRO modalities, Bloomberg now reports on growing consensus on the process of shrinking the balance sheet. Discussions started at last week’s meeting in Cyprus. Officials favor letting bonds mature rather than resorting to debt sales, though that option shouldn’t be entirely excluded. They could also envisage keeping up some reinvestments to moderate the pace of unwinding. ECB members want to wait until policy rates hit neutral (December) before starting the portfolio roll-off. This implies that the second pillar of normalization/tightening will most likely come into effect early 2023.

Chinese inflation accelerated less than forecast in September, rising from 2.5% Y/Y to 2.8% Y/Y. Underlying core inflation even slowed from 0.8% Y/Y to 0.6% Y/Y. Underlying Chinese demand remains weak as shown for example by consumer discretionary prices or services inflation (0.5% Y/Y). The strict zero Covid-policies are one of the main culprits. Chinese producer price inflation slowed from 2.3% Y/Y to 0.9% Y/Y.

Daily Pivots: (S1) 0.9671; (P) 0.9739; (R1) 0.9845; More...

Intraday bias in EUR/USD is turned neutral first with break of 0.9773 minor resistance. For now, outlook will remain bearish as long as 0.9998 resistance holds. Below 0.9630 will bring retest of 0.9534 low first. Firm break there will resume larger down trend.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, break of 0.9998 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish even with strong rebound.

Daily Pivots: (S1) 1.1133; (P) 1.1257; (R1) 1.1455; More...

Intraday bias in GBP/USD remains on the upside for 1.1494 resistance. Firm break there will confirm resumption of whole rebound from 1.0351. Next target is 61.8% projection of 1.0351 to 1.1494 from 1.0922 at 1.1628. On the downside, below 1.0922 will turn bias back to the downside for 1.0351 low instead.

In the bigger picture, fall from 1.4248 (2018 high) is resuming long term down trend from 2.1161 (2007 high). Next target is 100% projection of 2.1161 to 1.3503 from 1.7190 at 0.9532. There is no scope of a medium term rebound as long as 1.1759 support turned resistance holds.

Daily Pivots: (S1) 0.9958; (P) 1.0016; (R1) 1.0072; More...

USD/CHF retreated again after hitting 1.0072 and intraday bias is turned neutral first. on the upside, break of 1.0072, and sustained trading above 1.0063, will confirm larger up trend resumption. Next target is 1.0283 projection level. However, break of 0.9914 support will indicate rejection by 1.0063, and turn bias back to the downside for 0.9779 support first.

In the bigger picture, current development suggests that up trend from 0.8756 (2021 low) is still in progress. Sustained break of 1.0063 will target 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 0.9369 support holds, even in case of deep pull back.

Daily Pivots: (S1) 146.58; (P) 147.12; (R1) 147.78; More...

Intraday bias in USD/JPY stays on the upside at this point. Firm break of 147.68 long term resistance will target 149.26 projection level, and possibly to 150 psychological level. Nevertheless, firm break of 145.89 resistance turned support should indicate rejection by 147.68, and bring deeper fall back to 140.33 support instead.

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). Further rise should be seen to 147.68 (1998 high), and possibly to 100% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 149.26, For now, break of 130.38 support is needed to be the first indication of medium term topping. Otherwise, outlook will stay bullish even in case of deep pull back.

Daily Pivots: (S1) 1.3650; (P) 1.3813; (R1) 1.3920; More...

USD/CAD retreated notably after rising to 1.3976 and intraday bias is turned neutral first. Outlook will stay bullish as long as 1.3501 support holds. Firm break of 1.3976 will target 200% projection of 1.2005 to 1.2947 from 1.2401 at 1.4285. However, considering bearish divergence condition in 4 hour and daily MACD, break of 1.3501 will confirm short term topping,and bring deeper pull back to 55 day EMA (now at 1.3337).

In the bigger picture, up trend from 1.2005 (2021 low) is still in progress. Based on current impulsive momentum, it could be resuming long term up trend from 0.9056 (2007 low). Whether it is or it isn't, retest of 1.4689 (2016 high) should be seen next. This will now remain the favored case as long as 1.3222 resistance turned support holds.

Daily Pivots: (S1) 0.6206; (P) 0.6261; (R1) 0.6352; More...

In temporary low is formed at 0.6169 in AUD/USD, just ahead of 100% projection of 0.7660 to 0.6680 from 0.7135 at 0.6155. Intraday bias is turned neutral first but outlook will stay bearish as long as 0.6539 resistance holds. Firm break of 0.6155 will target 138.2% projection at 0.5781. Nevertheless, firm break of 0.6539 will confirm short term bottoming and bring stronger rebound.

In the bigger picture, down trend form 0.8006 (2021 high) is expected to continue as long as 0.6680 support turned resistance holds. Next target is 0.5506 low. Medium term momentum will now be closely monitored to gauge the chance of break of 0.5506.