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Retail sales had another strong month in September, defying market expectations for a giveback. Sales rose 0.7% month-on-month (m/m) after increasing 0.9% m/m in August. The level of sales was also revised 0.4% higher in August.

The gains in retail sales were broad based in September. Despite unit auto sales falling, sales at motor vehicle and parts dealers rose 0.5% m/m, up for the first time since April. Sales excluding autos were up a healthy 0.8% m/m.

Gasoline station receipts were up 1.8% m/m, boosted by higher prices. Sales at building materials and garden equipment held on to their August gains (+0.1% m/m).

Retail sales in the "control group," which exclude autos, gas stations and building materials rose a solid 0.8% m/m. Sales were up strongly for clothing (+1.1% m/m), sporting goods and hobbies (+3.7% m/m) and general merchandise (+2.0% m/m).

Food services and drinking places made only modest gains in September (+0.3% m/m), as fears of the Delta variant likely kept some customers at home. This category has been posting growth since February 2021.

Key Implications

September's retail sales report was a pleasant surprise. Consumer demand is proving resilient to the Delta-wave of Covid-19, and the winding down of more generous pandemic unemployment benefits.

Over the coming months, there are a couple of forces that are expected to weigh on retail sales. First off, services spending has significant pent up demand, and consumers are expected to shift spending towards services and away from retail goods. Second, supply constraints, most notably for motor vehicles, but also other tradable goods, are preventing people from making purchases. The latter was evident in falling vehicle sales in September. The first is expected to be a force restraining spending on goods over the medium term, and is why we have very little growth in durables spending in our forecast.

Daily Pivots: (S1) 1.1580; (P) 1.1602; (R1) 1.1620; More...

Intraday bias in EUR/USD remains neutral for the moment. Further fall is still in favor as long as 1.1639 resistance holds. Break of 1.1523 will resume larger fall from 1.2265 to 1.1289 medium term fibonacci level next. On the upside, break of 1.1639 resistance, however, will indicate short term bottoming. intraday bias will be turned back to the upside for stronger rebound, to 55 day EMA (now at 1.1721).

In the bigger picture, sustained break of 1.1602 will argue that rise from 1.0635 (2020 low) has completed at 1.2348. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289. Note also that rejection by 55 week EMA (1.1830) also carries medium term bearish implication. Firm break of 1.1289 will pave the way to retest 1.0635 low. On the upside, though, break of 1.1908 resistance will revive medium term bullishness and turn focus back to 1.2348 high.

Daily Pivots: (S1) 1.3641; (P) 1.3688; (R1) 1.3720; More...

Intraday bias in GBP/USD remains on the upside as rebound from 1.3410 is still in progress. Sustained trading above 55 day EMA (now at 1.3712) will target 1.3912 key structural resistance next. On the downside, however, break of 1.3567 minor support suggest that rebound from 1.3410 has completed, and fall from 1.4248 is ready to resume. Intraday bias will be turned back to the downside for 1.3410 and below.

In the bigger picture, fall from 1.4248 is at least a correction to the up trend from 1.1409 (2020 low). Such correction could extend to 38.2% retracement of 1.1409 to 1.4248 at 1.3164 before completion. However, considering the rejection by 1.4376 key resistance (2018 high), sustained trading below 1.3164 will argue that it's indeed a bearish trend reversal and would target 61.8% retracement at 1.2493. Nevertheless, break of 1.3912 resistance will revive medium term bullishness and target 1.4248/4376 resistance zone again.

Daily Pivots: (S1) 0.9205; (P) 0.9225; (R1) 0.9255; More....

Further fall is still expected as long as 0.9312 resistance holds. Decline from 0.9367 would target 0.9162 support first. Firm break there will target 0.9017 support next. On the upside, break of 0.9312 support will bring retest of 0.9367 resistance instead.

In the bigger picture, the corrective structure of the rebound from 0.8925 argues that fall from 0.9471 is not completed yet. It could either be the second leg of pattern from 0.8756 (2021 low), or resuming larger down trend from 1.0237 (2018 high). We'd pay attention to the downside momentum of assess the odds later. But for now, medium term outlook will be neutral at best as long as 0.9471 resistance holds.

Daily Pivots: (S1) 113.35; (P) 113.54; (R1) 113.86; More...

Intraday bias in USD/JPY remains on the upside. Current up trend should target 61.8% projection of 102.58 to 111.65 from 109.11 at 114.71. Firm break there will target 100% projection at 118.18 next. On the downside, below 113.20 minor support will turn intraday bias neutral and bring consolidations again, before staging another rally.

In the bigger picture, corrective decline from 118.65 (2016 high) should have completed at 101.18 already. Rise from the 102.58 is seen as the third leg of the up trend from 101.18. Next target is 114.54 resistance and then 118.65 high. This will now be the preferred case as long as 108.71 support hold, even in case of pull back.

Daily Pivots: (S1) 0.8461; (P) 0.8476; (R1) 0.8498; More...

EUR/GBP's break of 0.8448 low confirms resumption of whole down trend from 0.9499. Intraday bias stays on the downside, and deeper fall would be seen towards 0.8276 key long term support. For now, break of 0.8516 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8668 resistance holds, towards long term support at 0.8276. However, firm break of 0.8668 resistance would argue that a medium term bottom was already formed. Stronger rise would be seen to 0.8861 support turned resistance to confirm completion of the corrective pattern.

Dollar index on mute today; US retail sales surprised

The dollar index is hovering around 94.00 today, following two red days; however, dollar/yen is heading sharply higher towards a fresh three-year high around 114.20 due to a weakened Japanese yen. US retail sales unexpectedly rose 0.7% for September versus an upwardly revised 0.9% the prior month. A dovish Bank of Japan and growing 2-year U.S.-Japan rate differentials continue to be important factors. US futures are suggesting another positive day, after strong earnings releases.

The single currency has remained heavy, as it attempts to gain traction above $1.1600. With the BoE lift-off date approaching, sterling continues to outperform, and a clean break over $1.3750 lays the stage for a challenge of the 200-day simple moving average (SMA) around $1.3545. Pound/yen is flirting with a 44-month high near 157.30.

Considering the Fed's readiness to soon begin to taper, the US dollar is likely going through a correction within the longer-term upswing.

Consumer inflation figures for September were alarming. The PPI numbers came in lower than expected, but that doesn't mean inflation is no longer a concern. The Fed is not panicking yet like the BoE, but it is proceeding cautiously in removing accommodation with a view toward ultimate rate lift-off, which is most likely to occur in the latter half of 2022. Today, Bullard and Williams will make speaking appearances to discuss various topics.

Commodities and commodity currencies under the microscope

Oil prices continue to rocket higher, although they are lagging the extraordinary surge in other energy commodities. WTI hit another multi-year peak earlier today as demand continues to surpass supply following OPEC's decision not to provide a life jacket to the market. The yellow metal is lifting again after the pullback off $1,800/per ounce.

Antipodean currencies are gaining ground again. Aussie and kiwi are advancing beyond $0.7400 and $0.7000 respectively, while dollar/loonie is meeting its three-month low at $1.2335.

Daily Pivots: (S1) 154.80; (P) 155.27; (R1) 155.91; More...

GBP/JPY accelerates up to as high as 157.16 so far today. The break of 156.05/59 key resistance zone confirms resumption of medium term up trend from 123.94. Intraday bias stays on the upside for 61.8% projection of 136.96 to 156.05 from 148.93 at 160.72. On the downside, below 155.32 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). Sustained break of 156.59 (2018 high) would affirm the case of long term bullish reversal, and pave the way to 61.8% retracement 195.86 (2015 high) to 122.75 at 167.93 next. For now, this will be the favored case as long as 148.93 structural support holds, even in case of deep pull back.

Sterling steals the show today breaking through key resistance levels the Japanese Yen, and a near term low against Euro too. Dollar is trying to strengthen against Euro and Swiss Franc on strong retail sales, but momentum is sluggish elsewhere. There is no change in the selloff in Yen, just some more accelerations. Aussie and Kiwi are firm and are both set to end the week as the best performers.

Technically, NZD/JPY has finally taken out 80.17 high to resume the up trend from 59.49. Next target is 61.8 projection of 59.49 to 80.17 from 74.54 at 87.32. We'd see when AUD/JPY would follow and break through 85.78 high eventually.

In Europe, at the time of writing, FTSE is up 0.28%. DAX is up 0.52%. CAC is up 0.42%. Germany 10-year yield is up 0.0293 at -0.157. Earlier in Asia, Nikkei rose 1.81%. Hong Kong HSI rose 1.48%. China Shanghai SSE rose 0.40%. Singapore Strait Times rose 0.29%. Japan 10-year JGB yield dropped -0.0048 to 0.081.

US retail sales rose 0.7% mom in Sep, ex-auto sales up 0.8% mom

US retail sales rose 0.7% mom to USD 625.4B in September, much better than expectation of -0.2% mom decline. Ex-auto sales rose 0.8% mom, above expectation of 0.4% mom. Ex-gasoline sales rose 0.6% mom. Ex-auto, ex-gasoline sales rose 0.7% mom.

Also released, import price index rose 0.4% mom in September, versus expectation of 0.5% mom. Empire State Manufacturing index dropped to 19.8 in October, down from 34.3, below expectation of 27.8.

Eurozone exports rose 18.2% yoy in Aug, imports rose 26.6% yoy

Eurozone exports of goods to the rest of the world rose 18.2% yoy to EUR 184.3B in August. Imports rose 26.6% to EUR 179.5B. Trade surplus came in at EUR 4.8B. Intra-Eurozone trade also rose 21.2% yoy to EUR 155.5B.

In seasonally adjusted term, Eurozone exports rose 0.3% mom to EUR 200.6B. Imports rose 1.6% mom to EUR 189.4B. Trade surplus narrowed to EUR 11.1B. Intra-Eurozone trade rose from 179.4B to 181.2B.

ECB Wunsch: We could afford some second-round effects, but not too much

ECB Governing Council member Pierre Wunsch told Bloomberg TV that the economy is " on the right path. But medium term inflation goal is not met yet. "It seems that we are at some kind of inflection point," Wunsch said. "We are below our objective, so we could afford some second-round effects, but not too much."

Wunsch also said the central bank will maintain a "very supportive monetary policy," even after the end of its emergency bond-buying program in March.

BoJ Amamiya urges vigilance to supply chain disruptions in Asia

BoJ Deputy Governor Masayoshi Amamiya reiterated that the economy is "picking up as a trend", which will become clearer as pandemic impact subsides. He added that the price trends remains "solid" and the financial systems is "stable" as a whole.

But he also acknowledged that consumptions continues to "stagnate". Exports and outputs are being affected by "supply constraints". Ad emphasized that the central bank must be vigilant to the impact that of supply chain disruptions in Asia.

Japan Cabinet Office said exports increasing at a slower pace

In the October Monthly Economic Report, Japan's Cabinet Office downgraded assessment on exports to "increasing at a slower pace", from "continue to increase moderate". That's the first downgrade in seven months.

Overall, the economy is "picking up although the pace has weakened in a severe situation due to the Novel Coronavirus." Private consumption "shows weakness further". Business investment is "picking up". Industrial production is "picking up". Corporate profits are "picking up". Employment situation "shows steady movements in some components". Consumer prices show "steady movements".

As the government lifted state emergency, it will "develop a new economic stimulus package" to address the issues of reopening. It expects BoJ to "pay careful attention to the economic impact of the infections and conduct appropriate monetary policy management".

New Zealand BusinessNZ manufacturing rebounded to 51.4

New Zealand BusinessNZ Performance of Manufacturing rebounded strongly from 39.7 to 51.4 in September. Looking at some more details, production rose from 27.2 to 49.9. Employment ticked up from 54.3 to 54.5. New orders rose from 44.1 to 54.3. Finished stocks rose from 45.9 to 50.1. Deliveries also jumped from 33.1 to 47.8.

BNZ Senior Economist, Craig Ebert stated that "the rebound the PMI experienced in September was encouraging, although the survey is not without some still‐frayed parts.  Credit where it's due though, as the NZ PMI traced much less of a contraction, and quicker stabilisation, compared to what it went through during the initial outbreak of COVID‐19."

GBP/JPY Mid-Day Outlook

Daily Pivots: (S1) 154.80; (P) 155.27; (R1) 155.91; More...

GBP/JPY accelerates up to as high as 157.16 so far today. The break of 156.05/59 key resistance zone confirms resumption of medium term up trend from 123.94. Intraday bias stays on the upside for 61.8% projection of 136.96 to 156.05 from 148.93 at 160.72. On the downside, below 155.32 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). Sustained break of 156.59 (2018 high) would affirm the case of long term bullish reversal, and pave the way to 61.8% retracement 195.86 (2015 high) to 122.75 at 167.93 next. For now, this will be the favored case as long as 148.93 structural support holds, even in case of deep pull back.

Economic Indicators Update

US retail sales rose 0.7% mom to USD 625.4B in September, much better than expectation of -0.2% mom decline. Ex-auto sales rose 0.8% mom, above expectation of 0.4% mom. Ex-gasoline sales rose 0.6% mom. Ex-auto, ex-gasoline sales rose 0.7% mom.

Full release here.