Sample Category Title

Daily Pivots: (S1) 0.6352; (P) 0.6447; (R1) 0.6503; More...

Intraday bias in AUD/USD remains neutral as consolidation from 0.6362 could extend. Another recovery cannot be ruled out, but upside should be limited well below 0.6698 support turned resistance. Break of 0.6362 will resume larger down trend to 100% projection of 0.7660 to 0.6680 from 0.7135 at 0.6155.

In the bigger picture, down trend form 0.8006 (2021 high) is expected to continue as long as 0.7135 resistance holds. With 61.8% retracement of 0.5506 (2020 low) to 0.8006 at 0.6461 firmly taken out, next target is 0.5506 low. Medium term momentum will now be closely monitored to gauge the chance of break of 0.5506.

The forex markets are still staying in consolidative mode for now, awaiting guidance from US non-farm payrolls. For now, some Fed hawks are rather clear that there's seeing no case for slowing down tightening yet. Fed fund futures are pricing in over 70% chance of another 75bps hike in November. But such expectations could be changed by today's job report, as well as next week's CPI data.

Technically, Yen would be an interesting one to watch today. Strong job data, including wage growth, could prompt US treasury yields higher, which might take USD/JPY through 145.89. Yet, firstly, risk-off sentiment in that case (good news is bad news for stock) could give Yen a floor. Secondly, and more importantly, Japan might intervene again to cushion Yen's decline. The net result could mean deeper selloff in other Yen crosses. Let's see.

In Asia, at the time of writing, Nikkei is down -0.74%. Hong Kong HSI is down -1.32%. Singapore Strait Times is down -0.14%. Japan 10-year JGB yield is up 0.003 at 0.247. Overnight, DOW dropped -1.15%. S&P 500 dropped -1.02%. NASDAQ dropped -0.68%. 10-year yield rose 0.0067 to 3.826.

Fed Waller and Mester not seeing case for slower rate hike

Fed Governor Christopher Waller said in a speech yesterday, "Inflation is far from the FOMC's goal and not likely to fall quickly. This is not the inflation outcome I am looking for to support a slower pace of rate hikes or a lower terminal policy rate"

Separately, Cleveland Fed President Loretta Mester echoed and said, "We have to bring interest rates up to a level that will get inflation on that 2% path, and I have not seen the compelling evidence that I need to see that would suggest that we could start reducing the pace at which we're going,"

Chicago Fed President Charles Evans said, "We have to look at the momentum in sort of that central component of inflation, and that's really the part that I believe has most of my colleagues and myself nervous about." Be he declined to comment on whether Fed would continue with 75bps hike and noted, we "will have a discussion about that."

Fed Kashkari: We're quite a ways away from a pause

Minneapolis Fed President Neel Kashkari said, "Until I see some evidence that underlying inflation has solidly peaked and is hopefully headed back down, I'm not ready to declare a pause. I think we're quite a ways away from a pause."

"I fully expect that there are going to be some losses and there are going to be some failures around the global economy as we transition to a higher-interest rate environment, and that's the nature of capitalism," Kashkari said.

"We need to keep our eyes open for risks that could be destabilizing for the American economy as a whole. But to me, the bar to actually shifting our stance on policy is very high," he said. "It should not be up to the Federal Reserve or the American taxpayer to bail people out."

BoC Macklem: Simply put, there is more to be done

BoC Governor Tiff Macklem said in a speech yesterday, "We know we are still a long way from the 2% (inflation) target. We know it will take some time to get there. We also know there could be setbacks along the way, and we can't afford to let high inflation become entrenched."

"Simply put, there is more to be done. We will need additional information before we consider moving to a more finely balanced decision-by-decision approach," he noted.

"We can't control global developments. But we can use monetary policy to influence the balance between demand and supply in the Canadian economy and therefore ease domestic inflationary pressures over time," Macklem also said.

US and Canada employment awaited, USD/CAD ready for breakout

Focus turns to employment data from US and Canada today. US non-farm payroll report is expected to show 265k growth in September. Unemployment rate is expected to be unchanged at 3.7%. Average hourly earnings is expected to rise 0.3% mom in September.

Looking at related data, ISM manufacturing employment dropped from 54.2 to 48.7, back into contraction region. But ISM services employment rose from 50.2 to 53.0. ADP private employment grew a solid 208k, up from prior month's 185k. Four-week moving average of initial claims dropped notably from 246k to 207.

Overall, the headline print and unemployment rate are unlikely to deviate much from expectations. The surprise factor is probably in wage growth.

Meanwhile, from Canada, employment is expected to rebound and grow 22.5k in September, with unemployment rate unchanged at 5.4%.

USD/CAD's pull back from 1.3832 might have completed at 1.3501, after hitting 38.2% retracement of 1.2952 to 1.3832. An upside breakout looks ready after the above mentioned event risks are cleared. Nevertheless, even in case of another fall to extend the corrective pattern, downside should be contained by 1.3501.

Elsewhere

Japan labor cash earnings rose 1.7% yoy in August, above expectation of 1.4% yoy. Household spending rose 5.1% yoy, below expectation of 6.8% yoy.

Swiss unemployment rate and foreign currency reserves, Germany import price and retail sales, France trade balance, and Italy retail sales will be released in European session. Job data from the US and Canada will be featured later in the day.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6352; (P) 0.6447; (R1) 0.6503; More...

Intraday bias in AUD/USD remains neutral as consolidation from 0.6362 could extend. Another recovery cannot be ruled out, but upside should be limited well below 0.6698 support turned resistance. Break of 0.6362 will resume larger down trend to 100% projection of 0.7660 to 0.6680 from 0.7135 at 0.6155.

In the bigger picture, down trend form 0.8006 (2021 high) is expected to continue as long as 0.7135 resistance holds. With 61.8% retracement of 0.5506 (2020 low) to 0.8006 at 0.6461 firmly taken out, next target is 0.5506 low. Medium term momentum will now be closely monitored to gauge the chance of break of 0.5506.

Economic Indicators Update

GMT	Ccy	Events	Actual	Forecast	Previous	Revised
23:30	JPY	Labor Cash Earnings Y/Y Aug	1.70%	1.40%	1.80%
23:30	JPY	Overall Household Spending Y/Y Aug	5.10%	6.80%	3.40%
05:00	JPY	Leading Economic Index Aug P	100.9%	99.20%	98.90%
05:45	CHF	Unemployment Rate Sep		2.10%	2.10%
06:00	EUR	Germany Import Price Index M/M Aug		2.20%	1.40%
06:00	EUR	Germany Retail Sales M/M Aug		-1.00%	1.90%
06:45	EUR	France Trade Balance (EUR) Aug		-13.2B	-14.5B
07:00	CHF	Foreign Currency Reserves (CHF) Sep			860B
08:00	EUR	Italy Retail Sales M/M Aug		1.00%	1.30%
12:30	USD	Nonfarm Payrolls Sep		265K	315K
12:30	USD	Unemployment Rate Sep		3.70%	3.70%
12:30	USD	Average Hourly Earnings M/M Sep		0.30%	0.30%
12:30	CAD	Net Change in Employment Sep		22.5K	-39.7K
12:30	CAD	Unemployment Rate Sep		5.40%	5.40%
14:00	USD	Wholesale Inventories Aug F		1.30%	1.30%

USD/JPY:

On the H4 chart, USDJPY is in a bullish trend. In addition, the price is above the ichimoku cloud, indicating that the market is bullish. Price bounced off the second support level at 143.519, which also happens to coincide with the 38.2% Fibonacci line. Price broke over the first resistance level at 144.952, where the important 145 level is placed, overnight. Price may continue to rise towards the first resistance level at 145.900.

Areas of consideration:

• H4 time frame, 1st resistance at 145.900
• H4 time frame, 1st support at 144.952

DXY:

DXY has a bearish bias on the H4 chart. In addition, price has closed below the Ichimoku cloud, indicating a bearish market. Price has risen overnight, approaching the first resistance level at 122.572, where the 50% Fibonacci line is placed. Price is expected to test the first resistance level and may reverse to the downside.

Areas of consideration:

• H4 time frame, 1st resistance at 112.572
• H4 time frame, 1st support at 110.459

EUR/USD:

On the H4, price is moving within the descending trendline but in an ascending manner, with the price above ichimoku cloud,- we are slightly bullish biased. Price may test the first resistance at 0.99215 where the overlap resistance sits. If price breaks this level, it may test the second resistance at 1.00545, where the 78.6% fibonacci retracement sits. Alternatively, the overall bearish momentum could bring price back to test the first support at 0.97418 where the previous swing low and 38.2% retracement sits. If it breaks this level, we have a strong bearish confirmation to bring price down to 0.95506 where the swing low sits

Areas of consideration :

• H4 1st resistance at 0.99215
• H4 2nd resistance at 1.00545

GBP/USD:

On H4, the price is at corrective wave B, and showing a retracing trend. With the price is above ichimoku cloud , we could expect the price drop to the 1st support at 1.09391, which is in line with the 50% fibonacci retracement , and then rise to the 1st resistance at 1.14897, where the swing high and the end of wave A sit. Alternatively, the price may break the 1st support and then drop to the 2nd support at 1.06347, where the 78.6% fibonacci retracement is.

Areas of consideration:

• H4 1st support at 1.09391
• H4 1st resistance at 1.14897

USD/CHF:

USDCHF is in a strong bullish trend on the H4 chart. To add to this bias, the price is above the Ichimoku cloud, indicating a bullish market. Price closed above the first support level at 0.98720, where the 100% Fibonacci line is placed, overnight. Price is expected to continue rising towards the first resistance level at 0.99853, which contains the 127.2% Fibonacci extension and the 0% Fibonacci line.

Areas of consideration

• H4 1st support at 0.98720
• H4 1st resistance at 0.99853

XAU/USD (GOLD):

On the H4, price continues to trade along the 1712 level which is the 61.8% fibonacci retracement level and maintains above the ichimoku cloud. We have a neutral bias, as price could trade lower to the 1st support of 1685, which is in line with the 50% fibonacci retracement level and previous swing high from 22 September. Alternatively, if the price trades higher to break above the 1st resistance of 1733, which is the 78.6% fibonacci retracement level and previous swing high, the price could rise towards the 2nd resistance of 1764, the previous swing high from August 2022.

Areas of consideration:

• H4 time frame, 1st resistance at 1733.39
• H4 time frame, 1st support at 1685
• H4 time frame, 2nd resistance at 1764

AUD/USD:

On the H4, the price is below ichimoku cloud and testing the 1st support at 0.63890, which is in line with the swing klow. The price is showing a retrace trend now. The previous support is still held, and the current resistance is at 0.65503, where the previous swing high, 23.6% fibonacci retracement and 78.6% fibonacci projection are.

Areas of consideration

• H4, 1st support at 0.63890
• H4, 1st resistance at 0.65503

NZD/USD:

On the H4, with the price moving below the ichimoku cloud, we have a bearish bias that the price may retrace to the 1st resistance at 0.57312, which is in line with the swing highs and then drop to the 1st support at 0.55942, where the swing low is. Alternatively, the price may break the 1st resistance, and rise to the 2nd resistance at 0.58143, where the 38.2% fibonacci retracement and 78.6% fibonacci projection are.

Areas of consideration:

• H4 time frame, 1st resistance at 0.57312
• H4 time frame, 1st support at 0.55942

USD/CAD:

On the H4, the price trades higher near the 1st resistance of 1.3832 which is the previous swing high level. With the price entering the ichimoku cloud, we have a short term bearish bias that price could reverse to trade lower. The price could fall to the 1st support of 1.34 which is in line with the 50% retracement level and the previous swing low. Alternatively, if price breaks above the 1st resistance level, the USDCAD could trade higher towards the 2nd resistance of 1.4 which is the swing high from May 2020.

Areas of consideration:

• H4 time frame, 1st resistance at 1.3832
• H4 time frame, 1st support at 1.34
• H4 time frame, 2nd resistance at 1.40

OIL:

On the H4 chart, oil is in a bearish trend. However, price began to rise a week ago and is currently above the Ichimoku cloud, signaling that the market has begun a medium-term bullish trend. Price has also closed above the first support level, denoted by the 78.6% Fibonacci line, at 93.381. Price has maintained its positive trend overnight. Price is predicted to rise to the first resistance level at 96.538, which contains the 100% and 0% Fibonacci lines.

Areas of consideration:

• H4 time frame, 1st resistance at 96.538
• H4 time frame, 1st support at 93.381

Dow Jones Industrial Average:

On the H4 chart, price is bearish. However, a short-term bullish trend has emerged over the last week. Price reclaimed the first support level at 29653.29, corresponding to the last swing low. If the short-term bullish momentum continues, price will go towards the first resistance level at 32026.06, which contains the 61.8% Fibonacci line and the 38.2% Fibonacci projection line.

Areas of consideration:

• H4 time frame, 1st support at 29653.29
• H4 time frame, 1st resistance at 32026.06

DAX:

On the H4, with the price moving below ichimoku cloud and long term descending trendline, we have a bearish bias that the price may drop to the 1st support at 12388.84, which is in line with the 38.2% fibonacci retracement. If the 1st support is broken, the 2nd support could be at 11857.67, which is in line with the swing low. Alternatively, the price may rise to the 1st resistance at 12904.82, which is in line with the 100% fibonacci projection and 61.8% fibonacci retracement.

Areas of consideration:

• H4 time frame, 1st support at 12388.84
• H4 time frame, 2nd support at 11857.67

ETHUSD:

On the H4 chart, ETHUSD is bearish. Price has closed above the Ichimoku cloud, signaling a bullish market in the immediate term. Overnight, the price has continued to rise in a bullish trend. Price is projected to continue rising until the first resistance level at 1420.74, which corresponds to the last swing low.

Areas of consideration:

• H4 time frame, 1st resistance of 1420.74
• H4 time frame, 1st support at 1279.00

BTCUSD:

On the H4, price is showing a short term ascending trendline and testing the 1st resistance at 20427.23, where the overlap resistance and 50% fibonacci retracement are. If the 1st resistance is broken, the next resistance could be at 21864.11, which is in line with the 78.6% fibonacci retracement. Alternatively, the price may pull back from the 1st resistance and drop to the 1st support at 18527, which is in line with the swing lows and 61.8% fibonacci projection. Take note the 19105.38 could be the intermediate support.

Areas of consideration:

• H4 time frame, 1st resistance at 20427.23
• H4 time frame, 2nd resistance at 21864.11

S&P 500:

On the H4, with the price showing a potential reversal from the 1st resistance of 3762, which is in line with the 23.60% fibonacci retracement level and 78.6% fibonacci extension level, we continue to have a bearish bias. The price could trade lower to the 1st support of 3586 which is the previous swing low. Alternatively, the price could reverse back into the descending channel to trade lower towards the 2nd support level, which is at the previous swing low of June 2022.

Areas of consideration:

• H4 time frame, 1st resistance at 3762
• H4 time frame, 1st support at 3586
• H4 time frame, 2nd resistance at 3887

Focus turns to employment data from US and Canada today. US non-farm payroll report is expected to show 265k growth in September. Unemployment rate is expected to be unchanged at 3.7%. Average hourly earnings is expected to rise 0.3% mom in September.

Looking at related data, ISM manufacturing employment dropped from 54.2 to 48.7, back into contraction region. But ISM services employment rose from 50.2 to 53.0. ADP private employment grew a solid 208k, up from prior month's 185k. Four-week moving average of initial claims dropped notably from 246k to 207.

Overall, the headline print and unemployment rate are unlikely to deviate much from expectations. The surprise factor is probably in wage growth.

Meanwhile, from Canada, employment is expected to rebound and grow 22.5k in September, with unemployment rate unchanged at 5.4%.

USD/CAD's pull back from 1.3832 might have completed at 1.3501, after hitting 38.2% retracement of 1.2952 to 1.3832. An upside breakout looks ready after the above mentioned event risks are cleared. Nevertheless, even in case of another fall to extend the corrective pattern, downside should be contained by 1.3501.

Fed Governor Christopher Waller said in a speech yesterday, "Inflation is far from the FOMC's goal and not likely to fall quickly. This is not the inflation outcome I am looking for to support a slower pace of rate hikes or a lower terminal policy rate"

Separately, Cleveland Fed President Loretta Mester echoed and said, "We have to bring interest rates up to a level that will get inflation on that 2% path, and I have not seen the compelling evidence that I need to see that would suggest that we could start reducing the pace at which we're going,"

Chicago Fed President Charles Evans said, "We have to look at the momentum in sort of that central component of inflation, and that's really the part that I believe has most of my colleagues and myself nervous about." Be he declined to comment on whether Fed would continue with 75bps hike and noted, we "will have a discussion about that."

BoC Governor Tiff Macklem said in a speech yesterday, "We know we are still a long way from the 2% (inflation) target. We know it will take some time to get there. We also know there could be setbacks along the way, and we can't afford to let high inflation become entrenched."

"Simply put, there is more to be done. We will need additional information before we consider moving to a more finely balanced decision-by-decision approach," he noted.

"We can't control global developments. But we can use monetary policy to influence the balance between demand and supply in the Canadian economy and therefore ease domestic inflationary pressures over time," Macklem also said.

Full speech here.

Key insights from the week that was.

The RBA surprised markets this week by slowing the pace of rate hikes, opting for a 25bp move against expectations of a 50bp increase. Meanwhile, the RBNZ continued to show a heavy hand against domestic inflation pressures, having delivered a fifth consecutive 50bp rate hike.

In explaining their decision to raise the cash rate by only 25bp to 2.60% at their October policy meeting, the RBA referenced the considerable amount of financial tightening that has already been implemented, a total of 250bps to date. While the Board were cognisant of the domestic risks around inflation; consumer spending; housing and the labour market, a greater emphasis was placed on concerns around the deterioration in the global economy, likely in response to recent volatility within financial markets. As discussed by Chief Economist Bill Evans, we saw that developments in the global economy actually favoured a larger increase at the October meeting, given the strength of US consumer inflation and it’s expected consequences of a more aggressive tightening cycle from the Federal Reserve, and hence further upward pressure on global interest rates.

The Board has clearly signalled the need for further increases in the cash rate over the period ahead, the pace of which will remain at 25bp increments given that policy has now reached a broadly neutral level. This will allow the RBA to more closely assess the impacts of the cumulative rate hikes to date as monetary policy continues to lift further into contractionary territory. We continue to expect a peak cash rate of 3.60%, to now be achieved with 25bp rate hikes over the next four policy meetings, reaching that level by March 2023 (prev. February 2023).

Having said that, we believe that the effects of financial tightening will be much greater than the RBA expects. This will materialise in 2023 as a slowdown in consumer spending to an anaemic rate (1.2%yr), a sharp turnaround in business investment (-1.0%yr) and a notable decline in dwelling construction (-4.0%). Ultimately, growth is expected to decelerate sharply in 2023 (to 1.0%yr) and the unemployment rate will continue to rise through 2023 and 2024 (to around 5%). A detailed exploration of our own views on Australia and the global economy will be released today in the October edition of Westpac’s Market Outlook available on Westpac IQ.

Housing data released for Australia this week was mixed but consistent with our overall view of the economy. The correction in house prices was shown to have deepened and broadened across the country, with capital city prices falling by 1.4% in September, rounding out a 4.3% decline in Q3. Indeed, housing finance approvals also continued to mirror the broader correction to date, with further declines across investor and owner-occupier loans signalling a clear moderation in housing credit moving into year-end. In contrast, the often volatile dwelling approvals data surprised to the upside in September, more than reversing July’s 17.2% decline with a 28.1% rebound. Given the extreme volatility of this series, the focus needs to be on quarterly trends. The September result was not only driven by a surge in the volatile high-rise units segment, but also an unexpected resilience among non-high rise segments which are at the centre of many cost and profitability issues facing the housing sector. Pipeline delays are likely providing some near-term support to building activity, though the RBA’s tightening cycle will begin to act as a drag on new dwelling investment into the medium-term.

Across in New Zealand, the RBNZ’s laser-focus on domestic inflationary pressures was again evident at their October policy meeting, having delivered a fifth consecutive 50bp rate hike. As detailed by our New Zealand economics team, despite the lack of clarity around the expected peak in the Official Cash Rate, the Committee noted a debate between a 50bp or 75bp rate hike, a more hawkish shift which signals a higher peak for the cycle. Westpac continues to expect a peak in the Official Cash Rate of 4.50%, involving two further 50bp rate increases in November and February.

On the international front, data releases were relatively light. Markets’ attention was therefore centred on the US labour market in anticipation of September’s employment report, due for release later tonight. Partial data received this week produced relatively mixed signals though: JOLTS job openings posted a sharp decline in August, albeit from still elevated levels; meanwhile, the ISM services PMI reported a strengthening in employment in services, a sector which constitutes a consistently significant portion of the payrolls data. On balance, broader labour market indicators suggest that momentum in the labour market has begun to ease from the considerable strength seen earlier this year. However, with the FOMC set to deliver a further 150bps of tightening to a peak fed funds rate of 4.625% that will be held through next year, the labour market will exhibit a clear weakening in 2023 and 2024 with the unemployment rate to rise in the order of 2ppts.

Key Highlights

• USD/JPY started a fresh increase above the 144.50 resistance.
• It broke a key declining channel with resistance near 144.80 on the 4-hours chart.
• EUR/USD started a fresh decline after it failed to clear the 1.0000 resistance.
• The US nonfarm payrolls could increase 250K in Sep 2022, down from 315K.

USD/JPY Technical Analysis

The US Dollar remained well bid above the 142.00 zone against the Japanese Yen. USD/JPY formed a base and started a fresh increase above the 142.50 resistance.

Looking at the 4-hours chart, the pair was able to climb above the 143.20 and 144.00 resistance levels. There was a clear move above the 50% Fib retracement level of the downward move from the 145.90 swing high to 140.33 low.

Besides, there was a break above a key declining channel with resistance near 144.80 on the same chart. The pair is now trading above the 144.50 resistance and the 100 simple moving average (red, 4-hours).

An immediate resistance is near the 145.40 level. The next major resistance is near the 146.00 level. A clear move above the 146.00 level might send the pair towards the 147.50 level.

The next major hurdle could be near the 148.00 level. On the downside, an initial support is near the 144.20 level. The main support sits at the 143.50 level. A downside break below the 143.50 zone might send the pair towards the 142.50 level.

The next major support is near the 141.20 level, below which the pair could even test the 140.00 support zone.

Looking at EUR/USD, the pair failed to clear the key 1.0000 resistance zone and started a downside correction.

Economic Releases

• US nonfarm payrolls for Sep 2022 – Forecast 250K, versus 315K previous.
• US Unemployment Rate for Sep 2022 - Forecast 6.8%, versus 7.0% previous.
• Canada’s employment Change payrolls for Sep 2022 – Forecast 20K, versus -39.7K previous.
• Canada’s Unemployment Rate for Sep 2022 - Forecast 5.4%, versus 5.4% previous.

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Minneapolis Fed President Neel Kashkari said, "Until I see some evidence that underlying inflation has solidly peaked and is hopefully headed back down, I'm not ready to declare a pause. I think we're quite a ways away from a pause."

"I fully expect that there are going to be some losses and there are going to be some failures around the global economy as we transition to a higher-interest rate environment, and that's the nature of capitalism," Kashkari said.

"We need to keep our eyes open for risks that could be destabilizing for the American economy as a whole. But to me, the bar to actually shifting our stance on policy is very high," he said. "It should not be up to the Federal Reserve or the American taxpayer to bail people out."