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On Monday, the US Dollar declined by 86 pips or 0.68% against the Canadian Dollar. The currency pair tested the lower boundary of a descending channel pattern at 1.2566 during Monday's trading session.

All things being equal, the exchange rate could continue to edge lower in a descending channel pattern within the following trading session. The potential target for sellers would be near the 1.2540 level.

However, given that the currency exchange rate has bounced off the lower line of the channel pattern, the next target for the USD/CAD pair would be near the 1.2640 area.

The GBP/JPY currency pair bounced a support level formed by the 50– hour simple moving average at 150.23 on Monday. As a result, the British Pound surged by 118 pips or 0.79% against the Japanese Yen.

All things being equal, the exchange rate could continue to edge higher during the following trading session. The potential target for bullish traders would be near the 152.50 area.

However, the currency exchange rate could encounter resistance at 151.41 during Tuesday's trading session.

On Monday, the Australian Dollar surged by 44 pips or 0.61% against the US Dollar. A breakout occurred through the upper boundary of a descending channel pattern during Monday's trading session.

Given that a breakout has occurred, bullish traders could continue to pressure the exchange rate higher during the following trading session. The potential target for bulls would be near the 0.7320 area.

However, if the currency exchange rate breaks the 50– hours SMA support level at 0.7260, a decline towards the 0.7220 area could be expected within this session.

Daily Pivots: (S1) 150.27; (P) 150.90; (R1) 151.58; More...

Intraday bias in GBP/JPY is now mildly on the upside for 152.54 resistance. Firm break there will suggest that whole correction from 156.05 has completed, and turn near term outlook bullish for retesting this high. On the downside, however, sustained break of 149.03 key support will carry larger bearish implication and target 143.78 fibonacci level.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). As long as 149.03 support holds, such rise would still resume at a later stage. However, sustained break of 149.03 support will indicate rejection by 156.59 (2018 high). Fall from 156.05 would at least be correcting the whole rise from 123.94 (2020 low). Deeper fall would be seen back 38.2% retracement of 123.94 to 156.05 at 143.78 first.

During the first half of yesterday's trading session, the common European currency surged by 68 pips or 0.53% against the Japanese Yen. However, the currency pair erased the earlier profit by the end of the day.

Everything being equal, the exchange rate is likely to maintain the descending channel pattern within this session. The potential target for sellers would be near the 128.40 area.

Although, given that the EUR/JPY currency exchange rate is currently trading near the upper line of the channel pattern, a breakout could occur within this session.

Daily Pivots: (S1) 128.55; (P) 128.96; (R1) 129.31; More....

Intraday bias in EUR/JPY stays mildly on the downside for retesting 127.91 support. Firm break there will resume the whole decline from 134.11 to 127.07 resistance turned support next. On the upside, though, break of 130.45 resistance will now argue that whole correction from 134.11 has completed and turn near term outlook bullish for retesting this high.

In the bigger picture, rise from 114.42 is seen as a medium term rising leg inside a long term sideway pattern. As long as 127.07 resistance turned support holds, further rise is still expected to retest 137.49 (2018 high). However, firm break of 127.07 will argue that the medium term trend has reversed, deeper fall would be seen to 61.8% retracement of 114.42 to 134.11 at 121.94.

Daily Pivots: (S1) 0.8522; (P) 0.8547; (R1) 0.8564; More...

Intraday bias in EUR/GBP remains neutral first. On the upside, sustained break of 0.8668 will be a strong sign of larger bullish reversal. Next target will be 161.8% projection of 0.8448 to 0.8612 from 0.8499 at 0.8764. On the downside, though, break of 0.8499 will bring retest of 0.8448 low instead.

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.

Markets

Equities faced a sell-off at the start of the week. The trigger came from reports that Chinese developer Fantasia missed a $206 million debt payment, sparking fears that the unfolding real estate crisis is spreading. A flurry of other risks and uncertainty only added to the risk-off. These include the debt ceiling and spending plans in the US, the raging energy crisis with searing commodity prices as a result (Brent oil back above $80/b after amid OPEC+ refrained from accelerating output) and inflation. (Big) tech (Nasdaq -2.14%) underperformed amid a global outage of several social media platforms and whistle-blower accusations of disregarding user’s safety. European stocks finished <1% in red. Core bond yields faced contradictory drivers from sentiment and jumping commodities. The US yield curve eventually added 1.4-1.8 bps across the curve. German yields inched 1-1.2 bps higher (10y-30y). The dollar extended Friday’s correction though recouped some of the losses during a grimier US session. USD/JPY lost the 111 and DXY the 94 nevertheless. EUR/USD closed north of 1.16 though it surely isn’t thanks to the euro. EUR/GBP went south to 0.854 even as sentiment was hurt and Lord Frost raising the stakes. At the Tory party conference, the UK Brexit minister threatened to trigger Article 16 as the UK and EU fail to agree on how to replace the NI Protocol with a permanent solution.

Asian markets (ex. China) copy WS’s performance. Japan and South Korea underperform with losses mounting to 2%+. Core bonds decouple and are headed south. Energy prices take a breather after yesterday, giving the opportunity for the USD to fully bank on its safe haven status. EUR/USD risks losing 1.16 again already. DXY doesn’t lose sight of the 94. The Aussie dollar loses marginal ground in the wake of the RBA policy decision (see below).

Today’s economic calendar contains final PMIs in Europe (including UK) and the US services ISM which is seen easing from 61.7 to 59.9. Last week’s manufacturing ISM showed an unexpected rise but almost solely on the back of lengthier supplier delivery times. This particular subseries might also affect today’s reading as it accounts for 25% in the composite number. We expect the market reaction to be muted ahead of Friday’s September payrolls report anyhow. Sentiment will continue to play a crucial role in trading. Equity futures suggest some of the dust has settled after yesterday but it’s still early. In such a case we’re looking for yields to recover further from their (minor) repositioning last week. EUR/USD doesn’t look good technically. It still struggles with first resistance around 1.1603.

News headlines

The Reserve Bank of Australia (RBA) kept its policy rate unchanged at 0.1%, while maintaining the 0.1% target on the Apr2024 government bond under its yield curve control programme. The RBA will continue buying government bonds at a weekly pace of €4bn until at least mid-February 2022. The forward guidance remains very dovish with the RBA committing to highly supportive conditions until actual inflation is sustainably in the 2%-3% target range. The central bank doesn’t expect that to happen before 2024 as this requires the labour market to be tight enough to generate sufficient wage growth. The economic assessment takes into account a Q3 GDP decline because of the Delta-outbreak. The bounce back afterwards will be slower than earlier this year with the economy expected to be back around its pre-Delta path in H2 2022. The RBA flags continuously rising housing prices, but hints at macroprudential action to tackle the issue. The Aussie dollar trades a tad weaker this morning near AUD/USD 0.7265 after failing to recapture 0.73 yesterday.

US Senate Majority Leader Schumer said he will proceed with a vote on suspending the debt limit until December 2022 this week. Senate GOP leader McConnell said that Republicans by no means would help Democrats get the required 60 votes in the split Senate. He told US President Biden that Democrats should raise the debt limit on their own, using the same filibuster-bypassing reconciliation procedure used to enact the $1.9tn pandemic-relief bill and they intend to use for the proposed (but likely be watered-down) $3.5tn social-spending bill. Lawmakers have until October 18 to solve the issue or risk facing a (technical) default.

Daily Pivots: (S1) 1.5912; (P) 1.5961; (R1) 1.5990; More...

Intraday bias in EUR/AUD stays neutral and outlook is unchanged. As long as 1.5898 holds, larger rise from 1.5250 is still in favor to continue. Break of 1.6232 will turn bias to the upside for retesting 1.6434 high first. However, sustained break of 1.5898 will argue that rise from 1.5250 has completed, and turn near term outlook bearish for 1.5614 support first.

In the bigger picture, rise from 1.5250 medium term bottom is currently seen as a correction to the down trend from 1.9799 first. Stronger rise could be seen to 38.2% retracement of 1.9799 to 1.5250 at 1.6988 next. We'd tentatively expect strong resistance from there to limit upside, at least on first attempt. Meanwhile, break of 1.5898 support will indicate that the rebound has completed. Larger down trend from 1.9799 might be ready to resume through 1.5250 low.

Technical analysis

The RSI(14) and the RSI(3) point to a possible downwards movement

The Ichimoku indicator displays a prevailing downtrend

The CCI suggests a possible upwards correction.

Most likely scenario - SELL

Target prices: 1.15749 1.15661

Alternative scenario - BUY

Target prices: 1.16095 1.16308

Key levels

Support 1.15749 1.15661

Resistance 1.16095 1.16308