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Daily Pivots: (S1) 0.9855; (P) 0.9903; (R1) 0.9972; More...

USD/CHF retreated ahead of 0.9964 resistance as range trading continues. Intraday bias remains neutral first. Further rally is in favor as long as 0.9694 support holds. On the upside, above 0.9964 will resume the rally from 0.9369 to retest 1.0063 high. On the downside, however, break of 0.9694 support will extend the corrective pattern from 1.0063 with another falling leg, towards 0.9478 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) 1.1159; (P) 1.1247; (R1) 1.1408; More...

Intraday bias in GBP/USD remains on the upside as rise from 1.0351 short term bottom is in progress. Further rally would be seen to 61.8% retracement of 1.2292 to 1.0351 at 1.1551. Strong resistance could be seen around 55 day EMA (now at 1.1614) to limit upside on first attempt. On the downside, below 1.1023 minor support will turn intraday bias neutral first.

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) 0.9770; (P) 0.9808; (R1) 0.9862; More...

With break of 0.9863 support turned resistance, intraday bias in EUR/USD is back on the upside for 55 day EMA (now at 1.0033). Considering bullish convergence condition in Daily MACD, sustained break there will raise the chance of medium term bottoming at 0.9534. Further rally should then be seen to 38.2% retracement of 1.1494 to 0.9534 at 1.0283. On the downside, though, break of 0.9734 minor support will bring retest of 0.9534 low instead.

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 1.0197 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish even with strong rebound.

European majors are trading generally higher today, as led by Euro this time. In particular, Euro looks set to reclaim parity against Dollar with current rebound. On the other hand, commodity currencies are trading lower together with Yen. Aussie is under renewed selling pressure, as traders continue to assess RBA's smaller than expected rate hike. Meanwhile, Kiwi is also weak ahead of tomorrow's RBNZ rate decision. A 50bps is expected for RBNZ, but could they miss? Dollar is mixed for now, with traders continue to lighten up long position. The greenback will need some support from ISM services tomorrow and NFP on Friday, if it is to resume recent up trend.

Technically, Gold is also worth a watch today, as it's heading back to 55 day EMA (now at 1718.59), which is close to medium term channel resistance. Sustained break there will confirm medium term bottoming at 1614.60, on bullish convergence condition in daily MACD. Strong rise would be seen to 38.2% retracement of 2070.06 to 1614.60 at 1788.58, even as a corrective rise.

In Europe, at the time of writing, FTSE is up 2.04%. DAX is up 2.84%. CAC is up 3.35%. Germany 10-year yield is down -0.0487 at 1.864. Earlier in Asia, Nikkei rose 2.96%. Japan 10-year JGB yield dropped -0.0125 to 0.232. Singapore Strait Times rose 1.02%. China and Hong Kong were on holiday.

ECB Villeroy: Should continue rate hike to neutral by year end

ECB Governing Council member Francois Villeroy de Galhau said in a Dutch newspaper NRC interview, "we will raise interest rates as much as necessary to bring core inflation down."

Villeroy added that ECB should continue raising interest rates, "without hesitation", to neutral "by the end of the year". He estimates that neutral a somewhere "below or close to 2%".

"I don't say that rate hikes will stop there, but we will have to comprehensively assess the inflation and economic outlook," he added.

Eurozone PPI up 5.0% mom, 43.3% yoy in Aug

Eurozone PPI rose 5.0% mom 43.3% yoy in August. For the month,industrial producer prices increased by 11.8% in the energy sector, by 0.8% for non-durable consumer goods, by 0.4% for capital goods, by 0.3% for durable consumer goods and by 0.1% for intermediate goods. Prices in total industry excluding energy increased by 0.3%.

EU PPI rose 4.9% mom, 43.0% yoy. The highest monthly increases in industrial producer prices were recorded in Ireland (+28.4%), Bulgaria (+12.5%) and Hungary (+10.6%), while the only decreases were observed in Luxembourg (-1.8%), Portugal (-0.6%) and Czechia (-0.1%).

RBA hikes by only 25bps, maintain tightening bias

RBA raises the cash rate target by only 25bps to 2.60%, smaller than expectation of a 50bps hike. Tightening bias is maintained as the board "expects to increase interest rates further over the period ahead". The size and timing of future hikes will continued to be determined by incoming data and the board's assessment of inflation and labor market outlook.

In the accompanying statement, RBA said inflation is expected to "further increase" over the coming months. CPI would be around 7.75% over 2022, a little above 4% over 2023, and around 3% over 2024. The economy is "continuing to grow solidly" with national income boosted by a "record level of the terms of trade". Labor markets is "very tight". Wages growth is "continuing to pick up" but "remains lower than in other advanced economies" with high inflation.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 0.9770; (P) 0.9808; (R1) 0.9862; More...

With break of 0.9863 support turned resistance, intraday bias in EUR/USD is back on the upside for 55 day EMA (now at 1.0033). Considering bullish convergence condition in Daily MACD, sustained break there will raise the chance of medium term bottoming at 0.9534. Further rally should then be seen to 38.2% retracement of 1.1494 to 0.9534 at 1.0283. On the downside, though, break of 0.9734 minor support will bring retest of 0.9534 low instead.

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 1.0197 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish even with strong rebound.

Economic Indicators Update

ECB Governing Council member Francois Villeroy de Galhau said in a Dutch newspaper NRC interview, "we will raise interest rates as much as necessary to bring core inflation down."

Villeroy added that ECB should continue raising interest rates, "without hesitation", to neutral "by the end of the year". He estimates that neutral a somewhere "below or close to 2%".

"I don't say that rate hikes will stop there, but we will have to comprehensively assess the inflation and economic outlook," he added.

European markets flashed green on Tuesday, building on the previous session’s strong start to the final quarter of the year, as weakening US economic data raised hopes of a less aggressive stance by the Fed on rates. US futures are pointing to a higher open with the positive momentum from Europe potentially finding its way into Wall Street. Global equities could be offered further support if soft economic data fuels speculation around doves infiltrating central banks across the globe.

In the currency space, king dollar extended losses this morning as U.S Treasury yields dipped with the risk-on sentiment and softer US data. After clawing its way out of the abyss last week, sterling continues to recover, hitting a two-week high at 1.1430 this morning before paring back. A weaker dollar gave gold bugs the thumbs up to conquer $1700 while oil prices remain steady ahead of the OPEC + meeting on Wednesday.

In other news, Australia’s Reserve Bank surprised markets by raising interest rates by a smaller than expected 25 basis points this morning. Although the central bank had flagged in the past a possible slowdown in the pace of hikes, this surprise move sends an important message about the size of future hikes.

Despite the improving market sentiment, a sense of caution continues to linger in the air as investors brace for another busy week for global markets. The numerous speeches from Fed officials should keep market players well occupied ahead of the highly anticipated US jobs report on Friday. If hawks dominate the scene once again, this could fuel bets over more aggressive rate hikes by the Fed. Alternatively, any hint of more caution may stimulate speculation around the central bank adopting a softer stance on rates resulting in a weaker dollar.

All eyes on the US jobs report

Given how markets remain highly sensitive to anything relating to rate hikes, Friday’s non-farm payrolls report could set the tone for markets this month.

According to Bloomberg, consensus is expecting jobs growth to slow from 315k in August to 250k in September. The unemployment rate is projected to remain at 3.7% while wage growth is seen hitting 0.3%. If the jobs data exceeds market expectations, this boosts the chances around the Fed firing another monetary bazooka in the form of a 75-basis point hike. Alternatively, a disappointing report may reduce the odds of another super-sized move, ultimately weakening the dollar while supporting equity bulls.

Currency spotlight – GBP/USD

GBPUSD has staged an incredible rebound over the past few days, continuing its bounce from the all-time low of 1.0350. Sterling has drawn strength from the government’s U-turn to cut the top-rate tax for higher earners and a softer US dollar. While prices could edge higher in the short term, sterling is not out of the woods yet. Concerns over rising inflation, the gloomy economic outlook, and political noise are likely to haunt investor attraction towards the British pound. Looking at the GBPUSD through a technical lens, prices could sink back to 1.0850 if 1.1300 proves to be unreliable support. If bulls can stay in the driving seat, the next key level of interest can be found at 1.1600.

Commodity spotlight – Gold

Gold has kicked off the final quarter of 2022 on a positive note thanks to a softer dollar and subdued Treasury yields.

Market speculation around the Fed adopting a less aggressive approach on rate hikes has also sweetened appetite for zero-yielding gold. While prices may push higher over the next few days, the metal's outlook will be influenced by the US jobs report on Friday.

Looking at the technical picture, the breakout above $1700 may open the doors towards $1724 and $1760, respectively. Should prices dip back under $1700, the next key levels of support can be found at $1680 and $1655.

The precious metals have shone again in the last seven days. Gold has gained over 5% in that time, while Silver gained 18% from last Wednesday’s low, including yesterday’s 8% surge.

Such a powerful uptrend encourages thoughts of a reversal of the two-year downtrend. We also draw attention to additional factors setting up a positive outlook.

An ounce of Silver is close to $21 – surpassing August peaks and recovering to late June levels. However, we also note that the increase did not come suddenly. In September, there was a shift in balance to buyers when Silver did not mirror the dollar’s strong growth and the stock indices’ fall.

Last week there was a market reversal, which could be attributed to the desire to balance portfolios for the end of the quarter and the financial year in the USA. However, yesterday’s movement in Silver went far beyond balancing. Such strong moves against the trend often act as the start of a new direction.

A bullish divergence in price and RSI was triggered on the weekly charts as the new price low corresponded to higher local lows in the Relative Strength Index.

A sharp spike in the price of Silver brought it back above the 200-week average. A close of the week above $20.8 would confirm the breaking of the downtrend.

However, the upside path should be broken down into multiple phases, at which a brisk ascent may experience significant difficulties. The opposite is also true: the easy climbing to each new level will further encourage buyers.

The next significant hurdle looks to be $22, the lower boundary of the former trading range that operated from September 2020 to May 2022. The 200-day moving average, a meaningful trigger for banks and funds, also lies close to this level.

A consolidation above the $22 level would confirm the idea of breaking the downtrend for broader investors. If successful, the following technical target for the bulls is $28, where Silver reversed from rising to falling in the last two years. Breaking this mark opens a long way to the area of 50, which could take up to two years.

We see Silver as a key to precious metals market sentiment and a precursor to a bullish reversal in gold and overall demand for risky assets.

Stock markets recovered earlier losses on Monday and are adding to that in early trade on Tuesday, with Asia also posting strong gains.

The turnaround in risk appetite appears to have been driven by another deterioration in PMI surveys as traders speculate that such weakness could be a precursor to slower monetary tightening. If that sounds like straw clutching, it's probably because it is but then, equity markets have had a rough ride of late and that can't last forever.

The deceleration begins

The RBA became the first major central bank to slow the pace of tightening overnight, hiking rates by only 25 basis points against expectations of another 50. After four consecutive super-sized hikes, the RBA determined it can start to ease off the brake and is on course to hit its inflation target over the medium term.

Of course, this had nothing to do with weak PMI surveys but it will probably assist the narrative that a global deceleration in rate hikes is underway, which could boost risk appetite further. Markets do love to set themselves up for disappointment. The jobs report on Friday could quickly put an end to that.

Damage control

The pound has continued its recovery this week amid reports that UK Chancellor Kwasi Kwarteng will shortly unveil his second u-turn in 24 hours. Despite repeatedly insisting otherwise, Kwarteng is poised to announce that the government's debt-cutting plan will be brought forward - perhaps later this month - alongside OBR forecasts in a bid to calm the markets.

While the damage to the pound can be undone, the needless reputational harm the government has suffered won't be as easily repaired. The Chancellor has shown a flagrant disregard for the markets - and the general public for that matter - and that will take time to undo. The move is a welcome first step, now he must convince everyone that his plan is credible and won't come at a significant economic cost. ​ ​

All eyes on OPEC+

Oil prices are continuing to creep higher ahead of the OPEC+ meeting on Wednesday. Markets are now expecting a large output cut in excess of one million barrels per day, for which there is seemingly plenty of support. But with the economic outlook becoming gloomier by the day, will the alliance go far enough to achieve the $90-100 oil they so clearly desire? I suspect any cut will be accompanied by strong language over the prospect of further action which may make up for any shortfall, should they take a more conservative approach.

A hot jobs report may spoil the party

All this talk of peak rates has excited the gold bulls, with the yellow metal leaping above $1,700 and gaining momentum. The sustainability of any rebound will ultimately depend on how long traders can convince themselves peak rates are priced in. Looking back at past periods of optimism, we may be on borrowed time. Of course, rates can only go so far and the RBA has already taken the decision to take its foot off the brake. But I'm not convinced the Fed is there yet and a hot jobs report may spoil the party once more.

Less enthusiasm for Bitcoin

The risk relief rally is extending to bitcoin but perhaps to a lesser extent, with the cryptocurrency up a little over 1%, but still shy of $20,000. The slight disconnect between bitcoin and other risk assets recently has been interesting. We've seen more resilience during downturns and seemingly less enthusiasm during rallies. It will be interesting to see whether this relationship holds and what that means going forward.

Eurozone PPI rose 5.0% mom 43.3% yoy in August. For the month,industrial producer prices increased by 11.8% in the energy sector, by 0.8% for non-durable consumer goods, by 0.4% for capital goods, by 0.3% for durable consumer goods and by 0.1% for intermediate goods. Prices in total industry excluding energy increased by 0.3%.

EU PPI rose 4.9% mom, 43.0% yoy. The highest monthly increases in industrial producer prices were recorded in Ireland (+28.4%), Bulgaria (+12.5%) and Hungary (+10.6%), while the only decreases were observed in Luxembourg (-1.8%), Portugal (-0.6%) and Czechia (-0.1%).

Full release here.

EURJPY notches a fifth day of gains, having retraced more than half of the latest bearish wave to climb to a two-week high of 142.89 on Tuesday.

From a technical perspective, the bullish mode could persist in the short term, given the positive slope in the RSI and the MACD. However, with the latter fluctuating below its red signal line and the stochastics losing pace above the 80 overbought level, traders may preserve some skepticism.

Moreover, the 20-day simple moving average (SMA), has been capping upside pressures over the past three days and may remain an area of caution at 142.16. If the bulls close above that line, crossing above the 143.00 round level too, the key 144.00 resistance territory could immediately block the way higher. If not, upside pressures may intensify, towards the long-term ascending line drawn from August 2020, seen around 147.00. Beyond that, the rally could pick up steam to meet the 2014 top of 149.76 and the 150 psychological mark.

In the event the price pulls below the 20-day SMA, support could initially develop around the 50-day SMA at 139.00. Driving lower, sellers may encounter the tentative descending trendline near 137.50 before they challenge the 200-day SMA and the surface of the broken bearish channel both at 136.00.

Summarizing, EURJPY has the potential for further bullish development, though only an extension above 147.00 would re-activate the long-term uptrend.