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Daily Pivots: (S1) 0.9694; (P) 0.9755; (R1) 0.9874; More...

Intraday bias in EUR/USD remains neutral at this point, and outlook stays bearish with 0.9863 support turned resistance intact. Break of 0.9634 will suggest that larger down trend is ready to resume. Intraday bias will be back on the downside for 0.9534 and below. However, sustained break of 0.9863 will confirm short term bottoming, and bring stronger rally back to 1.0197 resistance 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.

Dollar is lifted mildly after stronger than expected core PCE inflation reading. But overall markets are relatively quite in quarter-end trading. Sterling is still keeping its place as the strongest one for the week, but rebound appears to be losing some momentum. Euro is following as second, and then Swiss Franc. Yen is among the worst performers with commodity currencies. The question is whether risk aversion could give Dollar and Yen a lift in the final hours.

Technically, Euro's rebound is also momentum as seen in both EUR/USD and EUR/JPY. There's just isn't enough follow through buying to push the pairs through 0.9863 and 142.28 resistance respectively. Rejection by these levels, followed by a reversal, will keep near term outlook bearish for another fall through this week's lows, at a later stage.

In Europe, at the time of writing, FTSE is down -0.15%. DAX is up 0.27%. CAC is up 0.38%. Germany 10-year yield is down -0.089 at 2.089. Earlier in Asia, Nikkei dropped -1.83%. Hong Kong HSI rose 0.33%. China Shanghai SSE dropped -0.55%. Singapore Strait Times rose 0.49%. Japan 10-year JGB yield dropped -0.0074 to 0.252.

US PCE price slowed to 6.2% yoy, core PCE rose to 4.9% yoy

US personal income rose 0.3% mom or USD 71.6B in August, matched expectations. Personal spending rose 0.4% mom or USD 67.6B, above expectation of 0.2% mom.

PCE price index rose 0.3% mom, matched expectations. PCE core price index, ex-food and energy, rose 0.6% mom, above expectation of 0.5% mom. Prices for goods dropped -0.3% mom while prices for services rose 0.6% mom. Food prices rose 0.8% mom. Energy prices dropped -5.5% mom.

From the same month a year ago, PCE price index slowed from 6.4% yoy to 6.2% yoy, below expectation of 6.6% yoy. PCE core price index, ex-food and energy, accelerated from 4.7% yoy to 4.9% yoy, above expectation of 4.7% yoy. Goods prices rose 8.6% yoy while services prices rose 5.0% yoy. Food prices jumped 12.4% yoy and energy prices jumped 24.7% yoy.

Eurozone CPI rose to 10% yoy in Sep, energy up 40.8% yoy, food up 11.8% yoy

Eurozone CPI accelerated further from 9.1% yoy to 10.0% yoy in September, above expectation of 9.1% yoy. CPI core (ex-energy, food, alcohol & tobacco) also rose from 4.3% yoy to 4.8% yoy, above expectation of 4.7% yoy.

Looking at the main components , energy is expected to have the highest annual rate in September (40.8%, compared with 38.6% in August), followed by food, alcohol & tobacco (11.8%, compared with 10.6% in August), non-energy industrial goods (5.6%, compared with 5.1% in August) and services (4.3%, compared with 3.8% in August).

Also released, Eurozone unemployment rate was unchanged at 6.6% in August, matched expectations.

Swiss KOF edged up to 93.8, still augurs a cooling of economy

Swiss KOF Economic Barometer rose slightly from 93.5 to 93.8 in September, better than expectation of of 86.2. yet, the reading remains below its long-term average, "augurs a cooling of the Swiss economy for the end of 2022."

The slight increase is "primarily attributable to bundles of indicators from the manufacturing and other services sectors". On the other hand, "indicators from the finance and insurance sector and for foreign demand are sending negative signals."

Also from Swiss, retail sales rose 3.0% yoy in August, above expectation of 2.8% yoy.

Japan industrial production rose 2.7% mom in Aug, to grow further in Sep and Oct

Japan industrial production rose 2.7% mom in August, much better than expectation of -0.2% decline. That's also the third consecutive month of growth. The Ministry of Economy, Trade and Industry expects production to rise further by 2.9% mom in September and then 3.2% mom in October.

Retail sales rose 4.1% yoy in August, well above expectation of 2.8% yoy. Unemployment rate dropped from 2.6% to 2.5%, matched expectations. Housing starts rose 4.6% yoy in August, versus expectation of -4.1% yoy. Consumer confidence index dropped from 32.5 to 30.8, below expectation of 33.6.

China PMI manufacturing rose to 50.1, but Caixin PMI manufacturing dropped to 48.1

China's official PMI Manufacturing rose from 49.4 to 50.1 in September, above expectation of 49.2. PMI Non-Manufacturing dropped from 52.6 to 50.6, below expectation of 52.0.

Senior NBS statistician Zhao Qinghe said, "In September, with a series of stimulus packages continuing to take effect, coupled with the impact of hot weather receding, the manufacturing boom has rebounded. The PMI returned to the expansionary range... [The non-manufacturing index] remained above the threshold, with the overall expansion of the non-manufacturing sector decelerating."

On the other hand, Caixin PMI Manufacturing dropped from 49.5 to 48.1, below expectation of 49.9. Caixin said production fell for the first time in four months amid quicker dropped in sales. Firms cut back on purchasing activity and inventories. Selling prices fell at quickest rate since December 2015.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 0.9694; (P) 0.9755; (R1) 0.9874; More...

Intraday bias in EUR/USD remains neutral at this point, and outlook stays bearish with 0.9863 support turned resistance intact. Break of 0.9634 will suggest that larger down trend is ready to resume. Intraday bias will be back on the downside for 0.9534 and below. However, sustained break of 0.9863 will confirm short term bottoming, and bring stronger rally back to 1.0197 resistance 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

US personal income rose 0.3% mom or USD 71.6B in August, matched expectations. Personal spending rose 0.4% mom or USD 67.6B, above expectation of 0.2% mom.

PCE price index rose 0.3% mom, matched expectations. PCE core price index, ex-food and energy, rose 0.6% mom, above expectation of 0.5% mom. Prices for goods dropped -0.3% mom while prices for services rose 0.6% mom. Food prices rose 0.8% mom. Energy prices dropped -5.5% mom.

From the same month a year ago, PCE price index slowed from 6.4% yoy to 6.2% yoy, below expectation of 6.6% yoy. PCE core price index, ex-food and energy, accelerated from 4.7% yoy to 4.9% yoy, above expectation of 4.7% yoy. Goods prices rose 8.6% yoy while services prices rose 5.0% yoy. Food prices jumped 12.4% yoy and energy prices jumped 24.7% yoy.

Full release here.

GBPUSD climbed higher on Thursday but met resistance today at 1.1228, still below the short-term downtrend line drawn from the high of August 10 as well as below the longer-term downside line taken from the high of March 23. This keeps the prevailing downtrend intact but given that the pair has been forming higher lows on the 4-hour chart this week, a break below 1.0765 may be needed to signal that the bears are back in full control.

The RSI lies near its 70 line but it has shifted down lately, while the MACD remains above both its zero and trigger lines, still pointing up. The mixed indications provided by the oscillators enhance the view that traders may need to wait for clearer signals before they become confident on a downtrend continuation.

A dip below 1.0765 could confirm the break below the line connecting the higher lows formed this week and may encourage the bears to dive towards Wednesday’s low of 1.0540. If they don’t exit the action from around there, a break lower could carry the losses towards Monday’s low of 1.0325.

On the upside, a break above 1.1465 could confirm the break above the 200-period exponential moving average (EMA) as well as the breach of the downtrend line drawn from the high of August 10. That said, this may only signal a larger upside correction, perhaps towards the high of September 13 at 1.1735 or the longer-term downside line taken from back in March. A trend reversal might be put on the table upon a decisive break above the 1.1900 area, marked by the high of August 26.

In brief, GBPUSD extended its latest recovery but remained below two important downside lines, something that keeps the prevailing downtrend intact. Nonetheless, the fact that the pair has been printing higher lows this week, likely paints a neutral picture in the short run.

Market picture

Bitcoin has remained in position for the past few days, trading at $19,500 on Friday morning. As in previous days, the attempt to sell the cryptocurrency following the stock market was met with buying.

This neat bottom-drawing by Bitcoin could show a wait-and-see stance and consolidation before the next move. However, crypto optimists are now siding with the positive momentum in gold and sector stocks. Investors have probably recalled them as a store of value amid the volatility in the currency market.

Among the closest key levels, the $20.8K where the 50-day moving average is located is worth mentioning. It has been active as resistance for more than a month. Local support is near $18.8K. A move outside this range could signal the end of the current consolidation.

News background

Billionaire Stanley Druckenmiller expects the US economy to deteriorate significantly by the end of next year. That’s when cryptocurrencies could make a resurgence.

Alexander Hoptner, CEO of cryptocurrency exchange BitMEX, said he does not see any decline in institutional investor interest in the crypto industry, despite the bearish trend.

Lastly, BlackRock has launched on Euronext, an exchange-traded fund (ETF) focusing on blockchain and cryptocurrency companies.

The yen has been drifting for most of the week and the trend is continuing today. USD/JPY is almost unchanged at 144.32.

Japanese data surprises on the upside

Japan has released strong industrial production and retail sales data, a further indication that the Japanese economy is improving. Industrial production rose for a third straight month in August, climbing 2.7% MoM. This was up from 0.8% in July and crushing the consensus of 0.2%. Retail sales for August jumped 4.1% YoY, above the consensus of 2.8% and higher than the 2.4% gain in July. Retail sales have posted 10 gains in the past 11 months, indicative of solid consumer spending, despite Japan’s weak economy and households grappling with relatively high inflation.

It was a wild week for most of the majors, but the Japanese yen has settled down after USD/JPY pushed close to the 145 line on Monday. Japan’s stunning currency intervention has kept the yen below the 145 line, but it’s difficult to imagine that unilateral action will succeed in stemming the yen’s prolonged descent, for two reasons.

First, the Federal Reserve is likely to deliver large rate increases in October and November. With the Bank of Japan showing no indication that it will ease up on yield curve control, the US/Japan rate differential will widen and send the yen lower. Second, the yen is caught in a tug-of-war between the MoF, which wants to see a stronger yen, and the BoJ, which is focused on maintaining an ultra-accommodative policy, which has kept JGB yields at low levels and weighed on the yen. If the yen does fall below 145, things will get very interesting, as the ball will be squarely in the court of the MoF, which will have to decide whether to balk or step in with another intervention.

USD/JPY Technical

• There is resistance at 144.81 and 146.06
• USD/JPY has support at 143.21 and 141.88

The Euro started a recovery wave from the 0.9550 zone against the US Dollar. The EUR/USD pair wave able to rise above the 0.9580 and 0.9600 resistance levels.

There was close above the 0.9700 level and the 50 hourly simple moving average. The pair is now consolidating gains near the 0.9820 zone. An immediate resistance on the upside is near 0.9815 and a connecting bearish trend line on the hourly chart. The first major resistance is near the 0.9840 level.

A break above the 0.9840 resistance level could start a decent upward move. In the stated case, it could even surpass 0.9900 on FXOpen.

Conversely, the pair might start another decline below 0.9780. The next key support is near 0.9760, below the pair could decline towards the 0.9720 level. Any more losses might send the pair towards the 0.9680 level.

Eurozone CPI accelerated further from 9.1% yoy to 10.0% yoy in September, above expectation of 9.1% yoy. CPI core (ex-energy, food, alcohol & tobacco) also rose from 4.3% yoy to 4.8% yoy, above expectation of 4.7% yoy.

Looking at the main components , energy is expected to have the highest annual rate in September (40.8%, compared with 38.6% in August), followed by food, alcohol & tobacco (11.8%, compared with 10.6% in August), non-energy industrial goods (5.6%, compared with 5.1% in August) and services (4.3%, compared with 3.8% in August).

Full release here.

GBPJPY has experienced some large moves in the short term, with the price losing around 10% before it recovers back above the 160.00 mark. Moreover, the technical picture is currently endorsing the resumption of the rebound as the pair has forcefully crossed above the ascending 200-day simple moving average (SMA).

The momentum indicators suggest that near-term risks are tilted to the upside. Specifically, the stochastic oscillator is ascending near the 80-overbought region, while the RSI has rebounded from the oversold zone, currently touching the 50-neutral threshold.

If buying pressures persist, the pair could initially challenge the 50-day SMA, currently at 162.30. Surpassing this zone, the bulls might aim for the recent resistance region of 164.40 before the September peak of 167.50 appears on the radar. A break above the latter may bring the June high of 167.83 under examination.

To the downside, should the price decline below its 200-day SMA, the recent low of 159.10 could act as the first line of defense. Sliding beneath that floor, the pair might descend towards 158.00, which has acted both as support and resistance during 2022. Failing to halt there, the May low of 155.58 could then provide significant downside protection.

Overall, GBPJPY has been exhibiting huge volatility in the short term, with the pair managing to erase a huge chunk of its steep decline within four daily sessions. For the recovery to continue, the pair must decisively cross above its 50-day SMA.

British pound calm after tumultous week

The British pound has posted slight gains, after a spectacular showing on Thursday. In the European session, GBP/USD is trading at 1.1145, up 0.26%.

For anyone looking for lots of volatility, look no further. The pound has taken riders on a wild ride, with GBP/USD surging 2.1% on Thursday. On Monday, the pound traded in a stunning 500-point range, which saw GBP/USD touch a record low of 1.0359. Since then, the pound has padded on 800 points, in what has been a truly remarkable week.

The driver behind the pound’s volatility was Chancellor Kwarteng’s mini-budget, which included tax cuts and increased borrowing. The package was roundly criticized, with even the IMF and US officials panning the plan. This led to a near-crash in the UK bond market, forcing the Bank of England to take emergency measures and pledge unlimited purchases of securities. The bailout will continue for over two weeks and could cost up to 60 billion pounds. The BoE’s intervention has reassured investors and stabilized the bond market. The pound continued to swing wildly, but it has recovered almost all of the losses triggered by the mini-budget.

What happens now? The government clearly was not expecting a financial tsunami after a mini-budget, which are usually tame affairs that don’t affect the financial markets. Prime Minister Truss is under pressure to shelve or at least make changes to the mini-budget, but so far Truss is holding firm and insisting that she will stick with the plan. If she does, we can expect inflation, which is running at a 9.9% clip, to climb even higher.

GBP/USD Technical

• GBP/USD has support at 1.1144 and 1.1052
• There is resistance at 1.1265 and 1.1384