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Eurozone unemployment rate dropped to 7.4% in September, down from August's 7.5, matched expectations. EU unemployment rate also dropped to 6.7%, down from 6.9%.

Eurostat estimates that 14.324 million men and women in the EU, of whom 12.079 million in the Eurozone, were unemployed in September. Compared with August, the number of unemployed decreased by 306 000 in the EU and by 255 000 in the euro area. Compared with September 2020, unemployment decreased by 2.054 million in the EU and by 1.919 million in the euro area.

Full release here.

• Bond yields pressured amid risk of Fed following RBA in pushing back on early rate hike
• Softer start for stocks after Wall Street notches up another record close
• Aussie and kiwi recoup losses but pound mired in BoE uncertainty
• Oil skids on inventories build-up, mounting pressure on OPEC

Bond markets choppy as Fed awaited for liftoff clues

Markets are gearing for the Fed’s long-anticipated taper announcement on Wednesday when the world’s most important central bank will formally call time on its pandemic-era stimulus. However, with markets having had plenty of time to digest the expected tapering decision, the real focus in today’s meeting will be on the post-tapering policy path, specifically, how soon the Fed will begin to raise interest rates once bond purchases have been wound down.

Investors are on the lookout for two possible giveaways that could reveal the timeline for a rate increase. First is the possibility that the Fed could end its asset purchases much sooner than the middle of 2022 that Chair Powell had hinted at the last meeting. The second clue could come from remarks about the inflation outlook. Powell will probably do his best to steer clear of talking about liftoff but his views on inflation will be crucial as should he suggest that the Fed is getting more worried about the threat of persistently high inflation, short-dated Treasury yields could spike up again.

In the most dovish scenario, Powell could take his cues from his Aussie counterpart and rule out an early rate hike, although unlike for the RBA, a 2022 liftoff is firmly on the cards for the Fed. The question is whether policymakers will rush to raise rates soon after tapering has ended or wait a few months.

The RBA’s pushback yesterday has certainly instilled some doubt into the markets about pre-emptive tightening to fight off inflation, pulling government bond yields lower globally. Two-year US Treasury yields attempted to bounce higher today before giving up, indicating investor caution going into the FOMC meeting and Powell’s press conference.

Stocks still riding high, mostly, as some nerves set in

Nevertheless, the US dollar was in no mood to hand back some of its recent gains and held steady against a basket of currencies on Wednesday. But weaker yields were clearly positive for Wall Street as all the three main indices ended Tuesday in record territory.

Minus some disappointments, the Q3 earnings season has been exceptional, allaying concerns about profits taking a big hit from the supply shortages and soaring raw material prices. Some of the highlights on today’s earnings roster are Roku, Qualcomm and Electronic Arts.

However, some caution can be detected in equity markets too today, with Asian stocks slipping and a mixed start in Europe. Wall Street futures were also mixed as Nasdaq 100 e-minis were the only ones in positive territory.

Lingering worries about a slowdown in China amid a fresh jump in Covid cases, regulatory crackdowns and only measured support from policymakers are weighing on Asian markets as the region couldn’t be farther from the record highs being recorded in Europe and America.

Aussie and kiwi rebound but pound lags, oil tumbles

In the currency markets, the Australian and New Zealand dollars were recovering from yesterday’s RBA-led plunge, though the loonie remained on the backfoot. The euro and pound were up too, but only just. The pound has slumped by about 200 pips since late last week, only just holding above the $1.36 level, as investors think the Bank of England is on the verge of making a policy mistake by hiking rates prematurely at its meeting on Thursday.

In contrast, there’s less panic about the RBNZ raising interest rates as the New Zealand economy appears to be roaring despite months of lockdown. The country’s unemployment rate unexpectedly fell to a record low of 3.4% in the third quarter, bolstering expectations of a rate hike later this month and lifting the kiwi.

The yen was mixed after Tuesday’s impressive gains, while tumbling oil prices dragged the Canadian dollar lower.

OPEC and its allies are due to decide on Thursday whether to increase output by the predetermined quota of 400,000 barrels per day or cave in to US demand and boost supply by a much bigger amount. So far, there has been no indication that OPEC countries are willing to do that but mounting pressure from President Biden has made oil markets nervous. WTI futures were last down 1.9%, as rising US crude inventories had already put a dent in oil prices yesterday.

Dollar eyes FOMC meeting

The pre-FOMC jostling continues with the US dollar rising overnight, despite US yields heading slightly lower. The dollar index rose 0.24% to 94.10, easing slightly to 94.07 in Asia. With a pile of US data to come before the FOMC later, I expect the index to trade in a choppy 93.80 to 94.20 range. A USD 15 bio per month Fed taper looks to be priced in now and the greenback could fall if the FOMC announces that and stubbornly clings on to their transitory inflation and 2023 hiking path. A higher monthly taper could frighten markets though and see US yields and the US dollar move sharply higher. It is very much a binary outcome tonight.

EUR/USD has eased to 1.1580 in Asia and the single currency should range ahead of the FOMC although it remains highly vulnerable to a hawkishly dovish Fed. Support is at 1.1520, failure of which signals more losses to 1.1400. Resistance remains at 1.1700. Sterling has retreated again overnight, falling to 1.3610 in New York before recovering to 1.3630 in Asia. The crowded BOE hiking trade unwinding has continued and I am beginning to wonder if a 15bps hike tomorrow is no longer priced in. A dovish Bank of England can still see sterling retest the 1.3400 region, but equally, a rate hike and a hawkish outlook could see it jump to 1.3700 and 1.3750.

USD/JPY is locked in a narrow range each side of 114.00 once again. Trading volumes are lower due to a Japanese holiday. It remains a slave to the US/Japan rate differential and as such, will not see much movement until tonight’s FOMC announcement. USD/JPY has support at 113.40 while a rise through 114.70 signals more gains above 115.00. A hawkish FOMC opens a test of 116.00.

AUD/USD and NZD/USD have been punished after a dovishly tiny bit hawkish RBA decision yesterday, and RBNZ warnings over the pace of rate hikes and reopening headwinds and asset prices. AUD/USD has collapsed by 1.25% overnight to 0.7440 today, while NZD/USD retreated by 1.0% to 0.7120. A dovish FOMC will lift both currencies, but any signs of hawkishness risks both extending much deeper losses. AUD/USD has closed below support at 0.7450 and risks testing 0.7300 if the FOMC blinks on inflation. Similarly, NZD/USD has closed below support at 0.7130 overnight and risks a larger fall to 0.7000.

The PBOC set a slightly weaker yuan setting today at the USD/CNY fixing, and combined with pre-FOMC nerves, the KRW, THB, MYR and TWD have fallen 0.20% against the US dollar. Regional Asia has a much higher beta to the US monetary policy than most parts of the world, especially with interest rates at record lows in the region and unofficial pegs to the greenback. If US monetary policy is set to diverge from regional Asian policy, my base case, we are likely to see a wave of selling across regional currencies. That is unless the region’s central banks decide to start spending foreign reserves to defend the currencies. With high energy prices and the northern hemisphere winter to come, that may well be the preferred option initially, rather than in imported inflationary shock further down the road. The FOMC tonight should help answer these questions.

Asian markets mixed after gains on Wall Street

US earnings propelled Wall Street’s main indexes to another record close overnight, with the FOMO gnomes either complacent or totally ignoring the event risk into tonight’s FOMC policy decision. The S&P 500 rose 0.37%, the Nasdaq gained 0.34%, and the Dow Jones climbed by 0.39% with Pfizer and Avis star performers. US futures are steady in Asia.

Japan markets are closed for a holiday today, with Wall Street’s overnight gains lifting Asia cautiously higher ex-China and South Korea. The Kospi has fallen 1.15% this morning, as the Prime Minister said the government couldn’t afford another round of universal Covid-19 relief grants. Elsewhere, the picture is mixed. Singapore is 0.25% lower despite positive big bank earnings, and Kuala Lumpur is down 0.25% as lower oil prices and government tax measures weigh. Taipei has risen by 0.30%, with Jakarta up 0.15%, while Bangkok is flat.

China markets are mixed despite the positive Caixin Services PMI data today. That has a higher beta to the CSI 300 which has duly risen by 0.25% this morning, but the Shanghai Composite has fallen by 0.45%. Hong Kong has tumbled by 0.90%. China markets are reacting cautiously thanks to government warnings to households to stockpile essentials, and with tightening Covid-19 restrictions in parts of the country. Throw in two Evergrande offshore payments due on the 6th, and an FOMC tonight, and there are not many reasons for mainland investors to be excited. China’s “national team” is likely to appear on the bid if the equity retreat accelerates, however.

Downunder, Australian yields and the Australian dollar have fallen after the RBA policy decision yesterday. That has shrugged off the gloom of lower iron ore prices and a Kiwi horse winning yesterday’s Melbourne Cup. With the RBA still in dovish mode, the ASX 200 has risen by 0.85%, with the All Ordinaries climbing by 0.80%.

We have probably seen the best of the gains to be had in Asia today already, as investors in the region adopt a cautious stance into the FOMC. US monetary policy has a very direct impact on the Asian market, especially with their plethora of dirty US dollar pegs. Similarly, European equities are likely to have a neutral open with an empty data calendar ahead of some blockbuster US releases culminating in the FOMC decision.

UK PMI Services was finalized at 59.1 in October, up sharply from September's 55.4. PMI Composite was finalized at 57.8, up from September's 54.9. Markit said cost inflation accelerated to its strongest in over 25 years. Average prices charged also increased at survey-record pace.

Tim Moore, Economics Director at IHS Markit: "Looser international travel restrictions and greater domestic mobility helped to lift the UK service sector recovery out of its recent malaise in October. Business activity expanded at the fastest pace since July, driven by the first acceleration in new order growth for five months. The latest survey also pointed to the best month for export sales since June 2018.

"Tight labour market conditions persisted in October... Average prices charged increased at a survey-record pace, reflecting across the board pressures on operating expenses... Record rates of input price and output charge inflation appear to have dampened business optimism, which eased to its lowest since January."

Full release here.

US earnings continue to roll

US stocks have ground higher to another record close, showing no pre-FOMC nerves as US earnings continue to impress. Avis rose 108.0% overnight, dragging Hertz with it, after releasing blockbuster results. Twenty one per cent of Axis’ free float is shorted and the unexpectedly impressive results appear to have set off the mother of all short squeezes. Their CEO also used that most magic of words “EV” (I think we can call it a word these days), which also attracted the Elon Musk meme-disciples from their Reddit burrows.

Hopefully, it doesn’t end like the Squid Game crypto, but one thing is clear to me, words like digital, online, and especially EV are good for a CEO’s stock price. Bed, Bath & Beyond also came up smelling of roses and lavender overnight by mentioning “online store “at their earnings call, and for once, it wasn’t investors taking a bath, the stock rising 9.60%. If Meme-sters are the new Team-sters, such is their effectiveness, it did have me thinking I need to use the same strategy in our forthcoming year-end reviews and salary assessments. “Dear Mel, after a heavily engaged year in the digital space where I massively increased our online presence, I am going to buy an EV. Please adjust my salary accordingly. Regards, Jeff.” I am looking forward to my 108% pay rise.

Australasian markets are still reacting to yesterday’s RBA policy decision with both AUD and NZD under pressure overnight. The RBA chose to keep its AUD 4 billion a week bond-buying programme in place until February 2022, while ending its yield curve control 0.10% target for the April 2024 CGB, deeming it past its sell-by date. That was a pragmatic decision, with Governor Lowe sticking doggedly to his benign inflation and wage growth targets and 2024 rate hike schedule. Although he did throw a bone to the crowds by saying a 2023 hike was possible. Having piled into short bond long AUD positions ahead of the decision, markets send bond yields and the AUD lower after it, as the dovishly hawkish statement left investors in “damp squib” mode.

Similarly, the New Zealand dollar followed its big brother south despite Unemployment massively beating forecasts, falling to 3.40% this morning. Although the NZD traced small gains, the RBNZ Financial Stability Report poured water on more aggressive hikes. Highlighting risks to asset prices from higher offshore interest rates, a delta-induced slowdown as New Zealand fully reopens and a plethora of other standard global central bank lines from their joint playbook. The Deputy Governor also said that RBNZ will only hike in 0.25% increments. The first one should be this month, by the way, followed by February.

If the words of the RBA and RBNZ are anything to go by, tonight’s FOMC policy decision could also be another dovishly hawkish affair. US yields have hit a ceiling in recent sessions, suggesting that’s what bond markets believe as well. The FOMC should announce a USD 15 bio per month taper to their USD 120 bio per month QE programme. Anything less will be interpreted as dovish, buy everything and sell US dollars, anything more is likely to be sell everything and buy US dollars. Chairman Powell could surprise the street and give a more compressed timeline for either the end of the taper and future hikes, but I can’t help feeling he’ll hedge his bets, even though he shouldn’t. Still, I continue to believe that once the initial dust settles, the reality of the Fed taper will sink into global markets, especially Asia, and we can look forward to more US dollar strength and a lot more two-way volatility in equity markets. Mr Powell may cling to his transitory inflation raft this evening, but it is going to keep taking on water in the months ahead.

China released October Caixin Services PMI this morning, which rose to 53.8 from 53.4 in September. With the manufacturing sector struggling with the plethora of well-documented issues ailing the rest of the world, China markets will draw a small sigh of relief from today’s number. The afterglow is probably going to be short-lived though, with the government’s request that households stockpile household essentials like vegetables for the winter. Widening Covid-19 restrictions and potential winter energy crunches appear to be weighing on sentiment and could be behind the government’s announcement yesterday. Reports that iron ore stocks have markedly increased in China as mill output and manufacturing output falls on power restrictions amongst other drivers have seen iron ore futures fall around 20% in the past week. Another headwind for Australian markets and the AUD, but also another sign that risks remain in China as well. The Communist Party Central Committee meeting, starting on the 8th, probably means China’s “national team” will be out and about to support local equity markets, but we should expect too many upside fireworks either.

Although Asia and Europe already look to be in pre-FOMC wait-and-see mode, US markets are likely to have a choppy session. ADP Employment, Markit and ISM Non-Manufacturing PMIs, Factory Orders, ISM Non-Manufacturing Activity and the EIA Crude Inventories all hit the wires pre-FOMC. And post-FOMC, the show continues with Norges Bank and Bank of England policy decisions tomorrow, US Initial Jobless Claims and an OPEC+ meeting tomorrow. Friday sees the monthly US Non-Farm Payrolls arrive once again. The list of possible outcomes from that rogue’s gallery is already giving me a headache, but one thing we won’t be short of is volatility.

Notes/Observations

• Focus on FOMC and the expected taper announcement. Market will look for any clarity on the timing of the first interest rate rise.
• Companies due to report during the NY morning include Broadridge Financial, BorgWarner, CDW Corp, Clean Harbors, Capri Holdings, Charles River Labs, CVS, Discovery, NOW Inc, Brinker International, Emerson Electric, Entergy, EVO Payments, Cedar Fair, Humana, Jones Lang LaSalle, LL Flooring, Marriott International, Norwegian Cruise Line, NiSource, New York Times, Office Depot, Owens & Minor, Pitney Bowes, Progressive Corp, Playtika, PROG Holdings, Radware, Steven Madden, Siteone Landscape Supply, Scotts Miracle-Gro, Spirit Aerosystems, Trane Tech, Tupperware, United Therapeutics, Wingstop.

Asia

• China Oct Caixin PMI Services registered its 2nd consecutive expansion (53.8 v 53.1e).
• New Zealand Q3 Unemployment Rate hit a 14-year low (3.4% v 3.9%e).
• RBNZ Financial Stability Review (FSR) noted that the financial system was well placed to support economic recovery.

Americas

• Republican Glenn Youngkin projected to win in the Virginia Governor's race.
• House Ways and Means Chair Neal stated that Reconciliation bill negotiators were still struggling on the SALT state tax provisions. Reports circulated that Democrats were considering a 5-year SALT deductibility cap delay, though that plan remained tentative.

Energy

• Weekly API Crude Oil Inventories: +3.6M v +2.3M prior (6th straight weekly build.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 +0.07% at 479.86, FTSE -0.15% at 7,263.90, DAX -0.05% at 15,946.80, CAC-40 +0.01% at 6,927.54, IBEX-35 -0.43% at 9,066.50, FTSE MIB +0.14% at 27,229.00, SMI -0.02% at 12,293.35, S&P 500 Futures +0.02%].
• Market Focal Points/Key Themes: European indices open mixed but slipped to trade with a negative bias later in the session; better performing sectors include materials and technology; while sectors leading to the downside include energy and utilities; oil and gas subsector lower following drop in crude prices; IFIS acquires NPL portfolio from Cerberus; Bouygues confirms binding offer for Engi’s Equans; focus on upcoming FOMC meeting; earnings expected during the upcoming US session include Cenovus, BorgWarner, CVS and Humana.

Equities

• Consumer discretionary: Lufthansa [LHA.DE] +4% (earnings), Next [NXT.UK] -3.0% (trading update).
• Healthcare: Novo Nordisk [NOVOB.DK] +1% (earnings).
• Industrials: BMW [BMW.DE] +1% (earnings).
• Technology: TeamViewer [TMV.DE] +7% (final results).

Speakers

• ECB Vasle (Slovenia) reiterated Council view that sees growing risk inflation will stay elevated for longer.
• Malaysia Central Bank (BNM) Policy Statement reiterated that policy stance was accommodative. Remained committed to utilize its policy levers as appropriate to enable conditions for sustainable recovery. Growth momentum to improve in 2022. Reiterated that Headline inflation would remain within the 2.0-3.0% target range.
• China PBOC Digital Currency chief Mu Changchun: 140M people have opened up a digital Yuan account.

Currencies/Fixed Income

• Focus on FOMC and taper announcement. The USD has firmed up in the days ahead of the Fed decision. Dealers noted that any further dollar strength to depend on whether the Fed hints at the timing of a first interest-rate increase.
• Recent ECB data confirmed that ECB slowed its PEPP bond buying with Oct having the central bank purchase €67.8B in assets vs. €75.0B m/m. Recent inflation data has market betting that the ECB would be forced into a swifter policy turn after ECB recently noted that any abating of inflation would take longer than previously thought.
• GBP/USD trading at 1.3615 area ahead of BOE’s rate decision on Thursday. GBP has retreated in recent days as some speculation that BOE could push back against the pricing of interest-rate increases.

Economic data

• (RU) Russia Oct PMI Services: 48.8 v 49.7e (moved back into contraction); PMI Composite: 49.5 v 50.5 prior.
• (MY) Malaysia Central Bank (BNM) left Overnight Policy Rate unchanged at 1.75% (as expected).
• (UK) Oct Nationwide House Price Index M/M: 0.7% v 0.3%e; Y/Y: 9.9% v 9.2%e.
• (TR) Turkey Oct CPI M/M: 2.4% v 2.8%e; Y/Y: 19.9% v 20.4%e; CPI Core Index Y/Y: 16.8% v 17.9%e.
• TR) Turkey Oct PPI M/M: 5.2% v 2.7%e; Y/Y: 46.3% v 41.4%e.
• (SE) Sweden Oct PMI Services: 68.0 v 69.6 prior (17th month of expansion); PMI Composite: 67.0 v 68.2 prior.
• (FR) France Sept YTD Budget Balance: -€175.1B v -€178.0B prior.
• (RU) Russia Narrow Money Supply w/e Oct 29th (RUB): 14.29T v 14.36T prior.
• (ES) Spain Oct Net Unemployment Change: -0.7K v +20.0Ke(8th straight monthly decline).
• (BR) Brazil Oct FIPE CPI (Sao Paulo) M/M: 1.0% v 1.0%e.
• (IT) Italy Sept Unemployment Rate: 9.2% v 9.3%e.
• (UK) Oct Final PMI Services: 59.1 v 58.0e (confirmed 8th month of expansion); PMI Composite: 57.8 v 56.8e.
• (UK) Oct Official Reserves Changes: -$0.1B v -$0.9B prior.

Fixed income Issuance

• (DK) Denmark sold total DKK2.45B in 2024, 2031 and 2052 DGB bonds.

Looking Ahead

• (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to raise Base Rate by 25bps to 0.75% (no set time).
• 06:00 (EU) Euro Zone Sept Unemployment Rate: 7.4%e v 7.5% prior.
• 06:00 (BE) Belgium Sept Unemployment Rate: No est v 6.4% prior.
• 06:00 (BR) Brazil Central Bank (BCB) Oct Minutes.
• 06:00 (EU) Daily Euribor Fixing.
• 06:00 (EU) ECB, BOE and SNB hold weekly 7-day USD Liquidity Tender.
• 06:00 (UK) DMO to sell £2.5B in 0.5% Jan 2029 Gilts.
• 06:15 (NL) ECB’s Elderson (Netherlands, SSM).
• 06:25 (EU) Daily ECB Liquidity Stats.
• 06:30 (DE) Germany to sell €4.0B in 0% Oct 2026 BOBL.
• 06:30 (GR) Greece Debt Agency (PDMA) to sell 13-week Bills.
• 06:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).
• 07:00 (US) MBA Mortgage Applications w/e Oct 29th: No est v 0.3% prior.
• 07:00 (IE) Ireland Oct Unemployment Rate: No est v 6.4% prior.
• 07:00 (EU) EU Commission to sell combined €3.0B in 3-month and 6-month bills.
• 07:00 (RU) Russia to sell OFZ Bonds.
• 07:55 (US) Daily Libor Fixing.
• 08:00 (MX) Mexico Sept Leading Indicators M/M: No est v 0.01 prior.
• 08:00 (UK) Weekly PM Question time in House.
• 08:15 (US) Oct ADP Employment Change: +400Ke v +568K prior.
• 09:00 (HU) Hungary Central Bank Oct Minutes.
• 09:00 (UK) Daily Baltic Dry Bulk Index.
• 09:00 (FR) ECB's Villeroy (France).
• 09:45 (US) Oct Markit Final PMI Services: 58.2e v 58.2 prelim; PMI Composite: No est v 57.3 prelim.
• 10:00 (US) Oct ISM Services Index: 62.0e v 61.9 prior.
• 10:00 (US) Sept Factory Orders: 0.1%e v 1.2% prior; Factory Orders (ex-transportation): 0.0%e v 0.5% prior.
• 10:00 (US) Sept Final Durable Goods Orders: -0.4%e v -0.4% prelim; Durables (ex-transportation) No est v 0.4% prelim; Capital Goods Orders (non-defense/ex-aircraft): No est v 0.8% prelim; Capital Goods Shipments (non-defense/ex-aircraft): No est v 1.4% prelim.
• 10:30 (US) Weekly DOE Oil Inventories.
• 10:30 (NL) ECB’s Elderson (Netherlands, SSM).
• 10:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (7-20 years).
• 11:00 (MX) Mexico Weekly International Reserve data.
• 12:00 (RU) Russia Oct CPI M/M: 1.0%e v 0.6% prior; Y/Y: 8.0%e v 7.4% prior.
• 12:00 (RU) Russia Oct CPI Core M/M: 0.9%e v 0.8% prior; Y/Y: 7.9%e v 7.6% prior.
• 14:00 (US) FOMC Interest Rate Decision: Expected to leave Interest rates unchanged between 0.00%-0.25%; Expected to leave IOER unchanged at 0.15%.
• 14:00 (BR) Brazil Oct Trade Balance: $2.4Be v $4.3B prior; Total Exports: $23.0Be v $24.3B prior; Total Imports: $20.6Be v $20.0B prior.
• 14:30 (US) Fed Chair Powell post rate decision press conference.
• 20:00 (NZ) New Zealand Oct ANZ Commodity Price M/M: No est v 1.5% prior.
• 20:30 (AU) Australia Sept Trade Balance: A$12.4Be v A$15.1B prior.
• 20:30 (AU) Australia Q3 Retail Sales (ex-inflation) Q/Q: -5.0%e v +0.8% prior.
• 21:00 (PH) Philippines Sept Unemployment Rate: No est v 8.1% prior.
• 23:00(TH) Thailand Oct Consumer Confidence: No est v 41.4 prior; Economic Confidence: No est v 35.5 prior.
• 23:35 (JP) Japan to sell CPI Linked 10-Year Bonds.

GBPJPY’s decline may have recently taken a breather but bearish signals suggest the pair’s downward path may resume in the near-term. While the 200-period simple moving average (SMA) remains an upside defence for the positive structure, the slowing incline of the 100-period SMA and the fresh bearish crossover of it by the 50-period SMA, are hints that the bearish trend is gaining pace again.

The Ichimoku lines are indicating the pause in negative forces, while the short-term oscillators, which are conveying mixed messages in directional momentum, appear may soon side with the negative outlook. The MACD, although having recovered, remains in the negative area beneath its red trigger line, while the RSI is struggling to make progress in the bearish zone. More credence to the downside is being endorsed by the stochastic %K line, whose positive incline is starting to show signs of waning.

If sellers retake the lead, initial downside hindrance could arise from the 154.76 level and the 154.65 nearby trough, the former being the 38.2% Fibonacci retracement of the up leg from 149.21 until 158.20. Gliding lower, the bears may target the 50.0% Fibo of 153.71, where the 200-period SMA also resides, before tackling the 153.26-153.47 support border moulded over the mid-July to mid-August period. Successfully sinking the pair past these obstacles, sellers may then aim for the 152.56-152.84 boundary prior to the 152.08 barrier.

Otherwise, if buyers power up and push over the red Tenkan-sen line at 155.20, the next resistance could transpire from the 155.51-155.77 barrier. However, should the price overshoot this region and the adjacent blue Kijun-sen line, a fortified resistance zone may then develop between the 23.6% Fibo of 156.08 and the 156.48 high. Should buying interest persist and lift the price above the Ichimoku cloud, the adjoining 156.95-157.28 barricade could impede buyers reaching the 157.75 and 158.20 highs, the latter being a more than 5-year high.

Summarizing, GBPJPY is exhibiting a bearish demeanour below the Ichimoku lines and the 156.48 barrier.

The Australian dollar is consolidating in early Wednesday following 1.2% drop previous day after dovish stance from the Reserve Bank of Australia cooled expectations for earlier than expected rate hike.

Tuesday’s fall marks the biggest one-day loss since May 12 and weighs on near-term structure, as reversal pattern has formed on daily chart, following a double rejection at 200DMA (0.7556) and subsequent weakness.

South-heading momentum is approaching the border of negative territory and 5/10DMA’s converged in attempt to form a bear-cross, generating negative signal, however, fresh bears need repeated close below 20DMA (0.7431) and break below Fibo pivot at 0.7408 (38.2% of 0.7170/0.7555) to confirm reversal and open way for further easing.

An end of Fed policy meeting and central bank’s decision, is the key event today and expected to spark fresh volatility in the markets.

Fed is expected to give the green light to reducing a massive bond purchases (about $120 billion a month), with increased expectations among investors that the central bank would signal earlier than expected rate hike, pressured by stubbornly high inflation.

Stronger than expected hawkish tones from Fed would give fresh boost to the US dollar and further deflate the Aussie.

Res: 0.7451, 0.7464, 0.7490, 0.7535.
Sup: 0.7420, 0.7408, 0.7363, 0.7317.

In the American session today, we highlight the release of the Fed’s interest rate decision. The bank is widely expected to remain on hold at the range of 0.0%-0.25% and the market is preparing to see whether it’s going to announce the tapering of its QE program and at what pace, which currently is at the level of US$120 billion per month. In a recent statement last week, the last by any Fed Policymaker before November’s meeting, Fed Chairman Powell implied that it would be time for the bank to start tapering its QE program, yet raising rates is still a long way off, which tended to weaken the USD. It should be noted that the bank is under pressure to start tightening its monetary policy in order to tame inflationary pressures within the US economy, yet at the same time could undermine the recovery of the US economy, which seems to be slowing. Should the bank actually announce the start of the tapering of its QE program and the reduction of asset purchases being performed at a fast pace we may see the USD gaining at the tightening of the bank’s monetary policy and vice versa. On a second note, we would like to mention that the time for US President Biden to choose the next Chair of the Fed is nearing and may partially be clouding the monetary policy outlook for the bank. Volatility could be very high at the time of the release and could be extended during Fed Chairman Powell’s press conference later on and the USD’s price action could turn to either direction depending on the announcement.

The USD index rose yesterday testing the 94.10 (R1) resistance line. We expect USD’s direction to be influenced by the Fed’s interest rate decision, which could lead it to an alteration of its current sideways movement. Should the bears take over, we may see the USD Index aiming if not breaking the 93.70 (S1) support line, thus paving the way for the 93.20 (S2) level. Should the bulls take over we may see the index breaking the 94.10 (R1) resistance line and aim for the 94.60 (R2) level.

Kiwi gains on solid employment data, RBA weighs on AUD

AUD remained soft yesterday against the USD as RBA’s dovishness as displayed in yesterday’s monetary policy decision seemed to continue to weigh on the Australian currency. Fundamentally the tensions in the French-Australian relationships made headlines, yet that seemed not to worry the markets. It should be noted that Aussie traders during tomorrow’s Asian session are to have a busy day as we note the release of September’s trade data as well as the retail trade growth rate for Q3. On the other hand, the Kiwi got some support against the USD during today’s Asian session as Q3’s employment data were quite solid with the unemployment rate dropping beyond expectations and job growth rate accelerating instead of slowing down. It should be noted that RBNZ Governor Adrian Orr is reported to have stated earlier today that global inflationary pressures could lead to higher interest rates, which could underscore the bank’s hawkish profile and support NZD.

AUD/USD seems to have halted its downward motion at the 0.7420 (S1) support line. We tend to maintain a bearish outlook for the pair, yet the Fed’s decision could send it to either direction. Should buyers have the upper hand we may see it reversing course and reaching if not breaching the 0.7475 (R1) line aiming for the 0.7540 (R2) level. Should the selling interest be renewed we may see the pair breaking the 0.7420 (S1) support line and aim for the 0.7365 (S2) level if not even lower.

Today’s events and expectations

Today in the European session we note the release of Turkeys’ CPI rates for October and UK’s final Services PMI figure for October. In the American session from the US we note the release of the ADP national employment figure for November, factory orders growth rate for September and the ISM non-manufacturing PMI figure for October.

USD Index H4 Chart

Support: 93.70 (S1), 93.20 (S2), 92.75 (S3)

Resistance: 94.10 (R1), 94.60 (R2), 95.10 (R3)

AUD/USD H4 Chart

Support: 0.7420 (S1), 0.7365 (S2), 0.7310 (S3)

Resistance: 0.7475 (R1), 0.7540 (R2), 0.7600 (R3)