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The astonishing bull flattening trend on core bond markets continued yesterday, especially in Europe. German yields fell by 2.5 bps (2-yr) to 6.1 bps (30-yr). Bond gains on the US curve were less ebullient, but recall that the bond rally in the US started already on Tuesday whereas Europe only joined on Wednesday. Daily US yield changes varied between +0.2 bps (2-yr) and -2.5 bps (10-yr) with the belly of the curve outperforming the wings. The moves once again lacked clear-cut drivers, but was mainly inspired by lower real yields. If any, it suggests that any future tightening cycle will be short-lived as central bankers might face a balancing act between inflation fighting and supporting a potential growth slowdown. Equities rallied in lockstep with bonds while oil prices remain near recent highs. Main stock indices bounced up to 1.5% in Europe and over 1.5% in the US. Yesterday’s moves make a (technical) end to the end September/early October weakness and remind us that the buy-on-dip pattern still holds. Since the November 2020 vaccination rally, the EuroStoxx50 countered 6 corrections to the tune of 5%. We admit though that the recovery time is lengthening with each and every correction. The dollar didn’t really benefit from US Treasuries’ underperformance. EUR/USD is trying to make way above the 1.16 big figure. Recapturing 1.1664 would be a first signal that the September faint is over and that the technical picture could become somewhat more neutral. As for now, the euro doesn’t get any support whatsoever with the EUR/USD bounce mainly inspired by the dollar losing momentum. The trade-weighted greenback (DXY) returned to the 94 big figure after failing to take out 94.47/74 resistance. USD/JPY remains exemption to the rule. JPY up until two days ago proved vulnerable to the rising (real) yield environment. The Japanese currency failed to recover over the past two days though as bonds rallied in lockstep with stocks. USD/JPY trades above 114 for the first time since end 2018. The 2018 top (resistance) stands at 114.55. EUR/GBP in a technical move tested the downside of the EUR/GBP 0.8450/0.8719 trading range in place since April. A break didn’t occur with the pair currently changing hands around 0.8485. Today’s European and UK eco calendars are empty. The failed test might trigger some return action higher. The US eco calendar contains retail sales, the empire manufacturing business survey and University of Michigan consumer confidence. The focus in the data might gradually shift from focusing on price pressure to focusing on indications about (future) growth. Overall, we don’t expect them to be key for trading dynamics. We look out whether the slowdown of the bond rally in the US yesterday spills to Europe today with yields arriving at first technical support levels.

News headlines

BoC governor Macklem said he still expects inflation to be transitory but it’s likely to be more persistent than previously thought. Should, however, the current price increases create ongoing inflation, the BoC will do its job and take action, he added. The governor lauded the fact that Canadian employment surpassed the pre-pandemic peak with last week’s blowout labour report but said it’s not “the destination” as the labour force has grown during the pandemic, meaning there’s still some slack. The BoC overall continues to anticipate a good economic rebound though it may not be as fast as it forecasted in July. The next policy meeting takes places on October 27. The Canadian loonie had another good run against the USD and euro yesterday (USD/CAD sub 1.24, EUR/CAD sub 1.44) and sticks to those gains after Macklem’s speech.

The Securities and Exchange Commission may allow the first US Bitcoin futures ETF to begin trading as soon as this month, Bloomberg reported. That’s a reversal of earlier decisions to reject other BTC ETF applications with a variety of different structures of which the SEC then said they didn’t provide sufficient investor protections. One of the key hurdles was the cryptocurrency’s notorious volatility and worries about insufficient liquidity. With the mood now shifted, the $6.7tn ETF industry is ready for launch. Bitcoin in recent weeks surged and adds another 4% today after the SEC report to trade just shy of $60 000.

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

Intraday bias in USD/CHF stays on the downside and outlook is unchanged. Current development suggests that rise from 0.9017, and that from 0.8925, has completed at 0.9367. Deeper fall would be seen to 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...

USD/JPY's rally resumed after brief consolidations and intraday bias is back on the upside. Current rise 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) 0.7383; (P) 0.7405; (R1) 0.7438; More...

Intraday bias in AUD/USD remains on the upside for 0.7477 resistance. Sustained break there will argue that larger decline from 0.8006 has completed and turn near term outlook bullish. Next targets will be 100% projection of 0.7105 to 0.7477 from 0.7169 at 0.7541, and then 161.8% projection at 0.7771. On the downside, though, below 0.7322 minor support will dampen the bullish case and turn intraday bias neutral again first.

In the bigger picture, with 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051) intact, we're seeing price action from 0.8006 as a correction only. That is, up trend from 0.5506 low would resume after the correction completes. In that case, main focus will be 0.8135 key resistance (2018 high). Sustained break there will carry larger bullish implications. However, sustained break of 0.6991 will argue that the whole medium term trend has indeed reversed.

Daily Pivots: (S1) 1.2334; (P) 1.2391; (R1) 1.2428; More...

Intraday bias in USD/CAD remains on the downside for the moment. Current fall from 1.2947 should target 161.8% projection of 1.2947 to 1.2492 from 1.2894 at 1.2158 next. On the upside, above 1.2497 minor resistance will turn intraday bias neutral and bring consolidations. But risk will now remain on the downside as long as 1.2592 support turned resistance holds.

In the bigger picture, current development suggests that rebound from 1.2005 has already completed after rejection by 38.2% retracement of 1.4667 to 1.2005 at 1.3022. That in turn argues that down trend form 1.4667 (2020 high) is not completed. Medium term bearishness is also affirmed by the failure to sustain above 55 week EMA. Break of 1.2005 will resume the down trend to next long term fibonacci level at 61.8% retracement of 0.9406 to 1.4689 at 1.1424.

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

Further fall is expected in EUR/GBP despite loss of downside momentum. Sustained break of 0.8448 low will resume larger down trend from 0.9499, towards 0.8276 key support. On the upside, break of 0.8516 resistance will indicate short term bottoming, and bring stronger rebound towards 55 day EMA (now at 0.8543).

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.

Daily Pivots: (S1) 1.5593; (P) 1.5657; (R1) 1.5702; More...

EUR/AUD's decline resumed after brief consolidation and intraday bias is back on the downside. Current fall from 1.6434 should target 161.8% projection of 1.6434 to 1.5907 from 1.6232 at 1.5379 next. On the upside, above 1.5753 minor resistance will turn intraday bias neutral again. But near term outlook will remain bearish as long as 1.5907 support turned resistance holds.

In the bigger picture, rise from 1.5250 medium term bottom is seen as a correction to the down trend from 1.9799 (2020 high) only. With 38.2% retracement of 1.9799 to 1.5250 at 1.6988 intact, such down trend is expected to resume at a later stage. Firm break of 1.5250 will target 61.8% retracement of 1.1602 (2012 low) to 1.9799 at 1.4733. In any case, sustained break of 1.6988 fibonacci level is needed to indicate long term reversal.

Technical analysis

The RSI(14) points to an uptrend while the RSI(3) suggests a potential downwards correction.

The price is in the uptrend Fibonacci fan channel which is advantageous for bulls.

Most likely scenario - BUY

Target prices: 1.16134 1.16189 1.16236

Alternative scenario - SELL

Target prices: 1.16067 1.16028 1.15990

Key levels

Support 1.16067 1.16028 1.15990

Resistance 1.16134 1.16189 1.16236

Daily Pivots: (S1) 1.0689; (P) 1.0703; (R1) 1.0725; More....

Further fall is expected in EUR/CHF with 1.0750 resistance intact, despite loss of downside momentum. Whole decline from 1.1149 should target 61.8% projection of 1.1149 to 1.0694 from 1.0936 at 1.0655. Sustained break there will pave the way towards 100% projection at 1.0481. On the upside, break of 1.0750 will indicate short term bottoming and bring stronger rebound first.

In the bigger picture, the rejection by 55 week EMA maintains medium term bearishness. Fall from 1.1149 (2021 high) is currently seen as the second leg of the patter from 1.0505 (2020 low) first. Hence, in case of deeper fall, we'd look for strong support from 1.0505 to bring rebound. However, sustained break of 1.0505 will resume the long term down trend from 1.2004 (2018 high). Also, medium term outlook will now be neutral at best as long as 1.0936 resistance holds.

Daily Pivots: (S1) 131.45; (P) 131.66; (R1) 132.04; More....

EUR/JPY's rally continues today and reaches as high as 132.47 so far. Intraday bias remains on the upside for retesting 134.11 high. Decisive break there will resume larger up trend from 114.42. Next target is 61.8% projection of 121.63 to 134.11 from 127.91 at 135.62. On the downside, below 131.48 minor support will turn turn intraday bias neutral and bring consolidation first, before staging another rally.

In the bigger picture, rise from 114.42 (2020 low) is still in progress and the strong support support from 44 week EMA affirms medium term bullishness. Further rise would be seen to retest 137.49 (2018 high). Decisive break there will resume the whole long term rise from 109.03 (2016 low). Next target will be 100% projection of 109.03 to 137.49 from 114.42 at 142.88. This will now remain the favored case as long as 127.91 support holds.