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Daily Pivots: (S1) 128.42; (P) 129.19; (R1) 129.59; More....

Intraday bias in EUR/JPY is mildly on the downside as fall from 139,45 extends through 129.36 minor support. Deeper fall would be seen to retest 127.91 support. Firm break there will resume larger fall from 134.11 to 127.07 resistance turned support next. On the upside, though, break of 130.73 resistance will argue that 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) 149.47; (P) 150.22; (R1) 150.62; More...

Intraday bias in GBP/JPY remains on the downside for retesting 149.03 key support level. Firm break there will carry larger bearish implications. Deeper fall would be seen towards 143.78 medium term fibonacci level. On the upside, above 150.92 minor resistance will turn bias back to the upside for 152.54 resistance instead.

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. 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.

Yen recovered much ground as US stocks tumbled steeply overnight. Meanwhile, Dollar remains generally firm, as partly supported by resilient treasury yields. Selling in Euro and Sterling slowed a little bit while commodity currencies are turning softer. ISM manufacturing and PCE inflation will come into spotlight today. But overall directions in the currency markets will remain largely driven by stocks and yields.

Technically, Yen crosses will be the focuses today. In particular, GBP/JPY and EUR/JPY are heading back to127.91 and 148.93 support respectively. Sustained break there could reaffirm overnight risk-off developments in stock markets. That, if happens could set the tone for the initial part of October.

In Asia, at the time of writing, Nikkei is down sharply by -2.52%. Japan 10-year JGB yield is down -0.017 at 0.053. Singapore Strait Times is down -1.15%. China and Hong Kong are on holiday. Overnight, DOW dropped -1.59%. S&P 500 dropped -1.19%. NASDAQ dropped -0.44%. 10-year yield dropped -0.012 to 1.529.

BoJ opinions: No significant change in the situation in Japan

In the Summary of Opinions of BoJ's September 21-22 meeting, it's noted, "since there is no significant change in the situation in Japan where economic activity, such as of firms, has been supported by accommodative financial conditions, it is appropriate for the Bank to maintain the current monetary policy measures".

One opinion also noted, "although financial markets have been stable on the whole, it is necessary to be vigilant in closely monitoring economic and financial developments, including the impact of developments in the Chinese real estate sector on global financial markets, and be ready to respond promptly if necessary."

Japan Tankan large manufacturing index rose to 18, highest since 2018

Japan's Tankan large manufacturing index rose from 14 to 18 in Q3, above expectation of 13. That's the highest level since 2018. Large manufacturing outlook rose from 13 to 14, below expectation of 15. Non-manufacturing index rose from 1 to 2, above expectation of 0. Non-manufacturing outlook was unchanged at 3, below expectation of 5.

Large companies expected to expand capital investment by 10.1% in the fiscal year started April, risen from prior indication of 9.6%. Inflation is expected to be 0.7% a year from now, slightly higher than 0.6% as expected in prior survey.

Japan PMI manufacturing finalized at 51.5

Japan PMI Manufacturing was finalized at 51.5 in September, down from August's 52.7. Markit noted renewed reductions in production and incoming business. Cost burdens has the sharpest rise in 13 years amid supply chain disruption. Businesses confidence, however, strengthened for the first time in three months.

Also released, unemployment rate was unchanged at 2.8% in August.

Australia AiG manufacturing dropped to 51.2, recovery all-but-stalled

Australia AiG Performance of Manufacturing Index dropped from 51.6 to 51.2 in September. Looking at some details, production rose 2.9 to 53.1. Employment dropped from -4.3 to 47.1. New orders dropped -5.1 to 52.0. Exports rose 6.8 to 51.9.

Ai Group Chief Executive Innes Willox said: "The recovery in the manufacturing sector over the past year all-but-stalled in September as the impacts of lockdowns and border closures constrained activity in the two largest states.... Manufacturers are hoping that the prospect of restrictions being wound back will see a strong lift in performance over coming months."

Looking ahead

Germany retail sales, Eurozone PMI manufacturing final and CPI flash, UK PMI manufacturing final and Swiss PMI will be released. Later in the day, Canada will release GDP and PMI manufacturing. US will release persona income and spending, ISM manufacturing and construction spending.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 149.47; (P) 150.22; (R1) 150.62; More...

Intraday bias in GBP/JPY remains on the downside for retesting 149.03 key support level. Firm break there will carry larger bearish implications. Deeper fall would be seen towards 143.78 medium term fibonacci level. On the upside, above 150.92 minor resistance will turn bias back to the upside for 152.54 resistance instead.

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. 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.

Economic Indicators Update

Australia AiG Performance of Manufacturing Index dropped from 51.6 to 51.2 in September. Looking at some details, production rose 2.9 to 53.1. Employment dropped from -4.3 to 47.1. New orders dropped -5.1 to 52.0. Exports rose 6.8 to 51.9.

Ai Group Chief Executive Innes Willox said: "The recovery in the manufacturing sector over the past year all-but-stalled in September as the impacts of lockdowns and border closures constrained activity in the two largest states.... Manufacturers are hoping that the prospect of restrictions being wound back will see a strong lift in performance over coming months."

Full release here.

Japan PMI Manufacturing was finalized at 51.5 in September, down from August's 52.7. Markit noted renewed reductions in production and incoming business. Cost burdens has the sharpest rise in 13 years amid supply chain disruption. Businesses confidence, however, strengthened for the first time in three months.

Usamah Bhatti, Economist at IHS Markit, said:

"September data indicated a softer improvement in the health of the Japanese manufacturing sector, as the latest Manufacturing PMI signalled that firms began to feel the impacts of the resurgence in COVID-19 cases related to the Delta variant and ongoing supply chain disruption.

"Japanese firms recorded renewed declines in both output and new orders, as businesses succumbed to disruption caused by strict pandemic restrictions and raw material shortages. Positively, external markets reversed the decline seen in August to return to expansion territory, although the rate of growth was only mild.

"Supply chain disruption continued to dampen activity and demand during September. Firms noted a sharp deterioration in vendor performance as supplier delivery times lengthened to the greatest extent since April 2011.

"Yet, Japanese goods producers were confident that these challenges would lift in the near term and noted stronger optimism regarding the year ahead outlook. Confidence was underpinned by hopes that the end of the pandemic would trigger a broad recovery in demand, and encourage a number of new product launches. IHS Markit estimates that industrial production will rise by 8.2% in 2021, though this will not fully recover the output lost to the pandemic last year."

Full release here.

Japan's Tankan large manufacturing index rose from 14 to 18 in Q3, above expectation of 13. That's the highest level since 2018. Large manufacturing outlook rose from 13 to 14, below expectation of 15. Non-manufacturing index rose from 1 to 2, above expectation of 0. Non-manufacturing outlook was unchanged at 3, below expectation of 5.

Large companies expected to expand capital investment by 10.1% in the fiscal year started April, risen from prior indication of 9.6%. Inflation is expected to be 0.7% a year from now, slightly higher than 0.6% as expected in prior survey.

Full release here.

Key Highlights

• USD/JPY started a decent increase above the 111.50 resistance.
• It broke a key bearish trend line at 109.85 on the 4-hours chart.
• The US GDP grew 6.7% in Q2 2021 (market forecast was 6.6%).
• The US ISM Manufacturing Index could decline from 59.9 to 59.6 in Sep 2021.

USD/JPY Technical Analysis

The US Dollar formed a base above 109.00 and started a major increase against the Japanese Yen. USD/JPY broke many hurdles near 109.80 and 110.00 to enter a positive zone.

Looking at the 4-hours chart, there was a break above a key bearish trend line at 109.85. The pair gained pace above 111.00, and settled above the 100 simple moving average (red, 4-hours) and the 200 simple moving average (green, 4-hours).

The pair even climbed above the 111.50 resistance and spiked above 112.00. A high was formed near 112.07 before it started consolidating gains.

An initial support on the downside is near the 111.50 and 111.40 levels. The 23.6% Fib retracement level of the upward move from the 109.12 swing low to 112.07 high is also near the 111.38 level.

The next key support is near 111.20, below which the pair may possibly dive towards 110.50. On the upside, an initial resistance is near the 112.00. The first major resistance is near 112.20, above which USD/JPY could continue higher towards 113.00.

The US Gross Domestic Product for Q2 2021 was released yesterday by the US Bureau of Economic Analysis. The market was looking for a rise of 6.6%.

The actual result was better than the forecast, as the US Gross Domestic Product grew 6.7%. Looking at the GDP index, there was a 6.2% rise, up from the last 6.2%.

Looking at EUR/USD, the pair extended its decline and traded below 1.1600. On the other hand, GBP/USD managed to recover a few points from 1.3410.

Economic Releases

• Germany's Manufacturing PMI for Sep 2021 - Forecast 58.5, versus 58.5 previous.
• Euro Zone Manufacturing PMI for Sep 2021 – Forecast 58.7, versus 58.7 previous.
• UK Manufacturing PMI for Sep 2021 – Forecast 56.3, versus 56.3 previous.
• US Manufacturing PMI for Sep 2021 – Forecast 60.6, versus 60.5 previous.
• US ISM Manufacturing Index for Sep 2021 – Forecast 59.6, versus 59.9 previous.

In the Summary of Opinions of BoJ's September 21-22 meeting, it's noted, "since there is no significant change in the situation in Japan where economic activity, such as of firms, has been supported by accommodative financial conditions, it is appropriate for the Bank to maintain the current monetary policy measures".

One opinion also noted, "although financial markets have been stable on the whole, it is necessary to be vigilant in closely monitoring economic and financial developments, including the impact of developments in the Chinese real estate sector on global financial markets, and be ready to respond promptly if necessary."

Full Summary of Opinions here.

STOCKS

Equities are trading lower globally but the Indian equity indices seem to be outperforming the other indices globally. We look for more bearishness in most indices. Dow and Dax can test 33750/600 and 15200-15000 respectively while Nikkei can test 28500-28000. Shanghai looks bullish while above 3500. Nifty and Sensex have fallen too but the downside could be limited just now.

Dow (33843.92, -546.80, -1.59%) bounced slightly in a corrective move yesterday but has then come off sharply breaking below 34000. We would now wait to see if support at 33750/600 holds to produce a bounce else a further decline to 33190 is possible.

DAX (15260.69, -104.58, -0.68%) has fallen back to 15246 and may test 15200/00 in the near term before bouncing back towards 15500 or higher.

Nikkei (28861.83, -590.83, -2.01%) has fallen sharply and can test the level of 28500 or even 28000 in the coming sessions. 28000 is a strong support which can hold for now and produce a bounce towards 29000 again in the medium term.

Shanghai (3568.17, +31.87, +0.90%) has risen slightly today. As mentioned yesterday while above 3500, the view is bullish to see a test of 3600 and 3700 in the coming sessions.

Nifty (17618.15, -93.15, -0.53%) has closed above the crucial support at 17600 after testing the low of 17585 yesterday. The range of 17600-17800/850 mentioned previously can hold for now while above 17600. However, a break below 17600 can take Nifty down towards 17400/200 levels.

Sensex (59126.36, -286.91, -0.48%) has come down further to test the level of 59000. The index can bounce from the level of 59000 and can rise steadily towards 60000. Else a decline towards 58000 can be possible soon.

COMMODITIES

Crude prices have risen as compared to levels seen yesterday. But we need to see a fall in Brent below 76 and below 74 in WTI to ensure a top and expect bearishness from current levels. Gold has risen well from support near 1700/20 and has cope to rise towards 1800/50 on the upside before coming off from there. Silver could trade within 21-23.50 for the next few weeks. Copper may test support near 4.0 before bouncing back from there towards 4.30/40 in the next 1-2 weeks.

Brent (78.23) and WTI (74.98) have come down a bit although trade above levels seen yesterday. We need to see some more fall in crude prices below 76 and 74 respectively to ensure a top is in place and that the medium term view is bearish. We wait to watch price action for a few more sessions.

Gold (1754) rose sharply as support near 1700/20 has held well. We may look for an eventual rise to 1800/50 on the upside before again facing a rejection from there. Broad range of 1700-1850 may hold for the next few weeks.

Silver (22.09) has recovered to rise above 22 and needs to sustain in order to move further up from here. A broad range of 21-23.50 may hold on Silver for the next couple of weeks.

Copper (4.0720) has declined sharply and is heading towards support near 4.00 which if holds can produce a bounce back to 4.30/40 in the near term. Watch price action near 4.00 for now.

FOREX

Dollar continues to trade higher above 94. Euro has been dragged lower below 1.16 and could head towards 1.15-1.1459, while USDJPY has also declined sharply from resistance at 112 despite strength in Dollar Index. EURJPY has been dragged into the 128-130.50 range again and Aussie and Pound look bearish just now. USDCNY needs to hold above 6.44 to rise back to 6.47/48, else a fall to 6.41/40 is possible. USDINR may try to bounce from 74.10/00 towards 74.30. We do not negate a rise towards 74.50 in the coming week.

Dollar Index (94.30) holds above 94 but can fairly remain below 94.60 for the near term, ranging within 94.60-94.00 before a sharp fall is seen.

Euro (1.1577) has broken below 1.16 as warned on our Oct’21 monthly report. We would now be cautious to see a fall towards 1.1500-1.1459 before a short rise is seen. Overall view is bearish while below 1.16.(Get our Euro monthly report for October’21 here: https://kshitij.com/eurusd-forecast-payment-details/oct-21 )

EURJPY (128.82) has been pulled into the earlier range of 128-130.50 and can test the lower end of the range before rising back again in the medium term.

Dollar-Yen (111.26) has declined sharply from 112.079, the immediate crucial resistance despite the Dollar trading higher and while that holds a fall to 111-110.80 looks possible before again bouncing back from there.

Aussie (0.7222) is stuck within 0.7160-0.0.7264 region and may remain so for sometime before breaking on either side of the range.

Pound (1.3455) bounced to 1.3517 but has fallen back again today, heading towards 1.34 on the downside. We may expect a bounce from 1.34 soon.

USDCNY (6.4452) has fallen sharply to test the lower end of the 6.47/48-6.44 range that we have been mentioning for quite a few days. We need to see if the pair breaks below 6.44 to head towards 6.41/40 or bounce back from 6.44 back towards resistance near 6.48. For now, the momentum looks strongly bearish.

USDINR (74.23) came off from 74.3550 yesterday contrary to our expectation of a rise to 74.45/50. While the corrective fall continues, we may expect a dip to support at 74.10/00. However, we do not negate a test of 74.45/50 again in the coming week. Watch price action near current levels.

INTEREST RATES

The US Treasury yields have dipped further. A sustained fall in the coming days can drag the yields lower from here itself without seeing a test of the resistances on the upside that we had mentioned earlier. The German yields have room to move up further and test their key resistances before reversing lower again. The 5Yr and 10Yr GoI are holding well above their immediate supports and can see a rise in the near-term.

The US 2Yr (0.28%), 5Yr (0.96%), 10Yr (1.48%) and the 30Yr (2.04%) have dipped further. While the dip below 1.5% in the 10Yr sustains, the fall-back to 1.4%-1.3% can happen from here itself without seeing 1.6% on the upside. The 30Yr still has room to move up to 2.1% while it sustains above 2% before reversing lower to 1.9%-1.8% again.

The German 2Yr (-0.70), 5Yr (-0.56%), 10Yr (-0.20%) and 30Yr (0.27%) yields remain higher and keep our bullish view intact. The 30Yr is heading up towards 0.3%-0.35% in line with our expectation. The 10Yr can rise to -0.1% on a break above -0.2%. Thereafter the yields can reverse lower again.

The Indian 10Yr GoI (6.2147%) sustains above 6.2% and keeps alive the chances of seeing 6.25%-6.26% on the upside in the near-term. The 5Yr GoI (5.6674%) on the other hand is bouncing from the support at 5.64% and can test 5.68%-5.70%. As mentioned yesterday, a consolidation between 5.64% and 5.70% is possible in the near-term.

Further to go?

Cable finally broke through its summer lows on Tuesday and further losses may be on the cards.

The pair appeared to be shaping up for such a move last month after bouncing off a key fib level and breaking through the 200/233-day SMA band. But it dragged its feet a little after failing to make new lows on multiple occasions.

Still, the move finally came as the dollar soared in recent weeks on rising US yields and increased risk aversion in the markets. And now the question becomes how much further it will fall?

It's worth remembering at this point that the Bank of England is among those looking to tighten monetary policy soon, with two rate hikes priced in next year, which may still make declines hard-fought.

From a technical perspective, 1.33-1.34 has long been an awkward level for the pair. It was a massive area of resistance between mid-2018 and late-2021.

So it will be interesting to see what kind of a test it provides from above and we may not have to wait long. The stochastic and MACD on the 4-hour chart indicate there's plenty of momentum in the sell-off still.

The consolidation we're currently seeing appears to be a continuation pattern and has already seen resistance around 1.35, a level that was clearly strongly rejected. It could be an interesting few weeks for the pair.