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EUR/USD

Current level - 1.1602

Sellers prevailed during yesterday’s session and the EUR/USD dropped to the lowest levels since November 2020 and tested the support at 1.1600. During the early hours of today`s trading, the pair is trading steadily around the mentioned zone. If the breach is confirmed, this could easily lead to new losses for the common european currency against the greenback and could continue the bearish trend towards the support zone at 1.1521. In the upward direction, if bulls re-enter the market, the correction should be limited to the first resistance level at 1.1686. Today, the investors` attention will be focused on the announcement of the data for Initial Jobless Claims in the USA (13:30 GMT).

USD/JPY

Current level - 111.81

After the rally of the USD/JPY was limited to the last resistance at 112.00, the currency pair is holding steadily just below the mentioned level. If bulls remain in control and the level at 112.00 is breached, it is highly probable that we will witness new gains for the dollar against the yen. If buyers lose momentum, bears could lead the pair to a test of the support at 111.63. However, only a successful breach of the target at 110.00 could lead to a change of the current sentiment of the market participants.

GBP/USD

Current level - 1.3448

The sell-off for the GBP/ USD continues and the pair tested the support zone at 1.3422. A breach of the aforementioned will most likely deepen the decline towards the zone at 1.3360, coming from the higher time frames and would strengthen negative expectations for the future path of the currency pair. Better than expected data for UK’s GDP (today;06:00 GMT) could help buyers to lead the GBP/USD to a test of the first resistance zone at 1.3520. Successful breakthrough would pave the way to the next target at 1.3609.

Upside risks dominated the USD/CAD currency pair on Wednesday. As a result, the US Dollar edged higher by 99 pips or 0.78% against the Canadian Dollar during Wednesday's trading session.

As for the near future, the exchange rate could continue to trend higher. Bullish traders are likely to target the resistance level at 1.2850 during Thursday's trading session.

However, the currency exchange rate might make a brief pullback towards the 50– hour simple moving average at 1.2683 within this session.

On Wednesday, the British Pound declined by 108 pips or 0.71% against the Japanese Yen. A breakout occurred through the lower boundary of an ascending channel pattern during Wednesday's trading session.

All things being equal, bearish traders are likely to continue to drive the exchange rate lower during the following trading session, The potential target for sellers would be near the 149.00 area.

However, the GBP/JPY currency exchange rate could find support at 149.92 within this session.

On Wednesday, the Australian Dollar declined by 85 pips or 1.17% against the US Dollar. The currency pair breached the 0.7180support level during Wednesday's trading session.

Technical indicators suggest selling signals on the 4H, daily and weekly time-frame charts. Most likely, the AUD/USD exchange rate could continue to trend lower within Thursday's trading session.

However, the currency exchange rate might find support at 0.7172 during the following trading session.

On Wednesday, the common European currency declined by 71 pips or 0.54% against the Japanese Yen. A breakout occurred through the lower boundary of an ascending channel pattern during Wednesday's trading session.

Given that a breakout has occurred, bears could continue to pressure the exchange rate lower during the following trading session. The potential target for the EUR/JPY pair would be near the 129.00 area.

However, a support line at 129.40 could provide support for the currency exchange rate within this session.

Markets

It seems like market pockets need some time to digest news or market events these days. Last week’s delayed FI reaction to the Fed’s hawkish normalization turn served as a point in case. Yesterday, the FX market (dollar) responded with a one-day delay to Tuesday’s huge sell-off in both stocks and bonds (with US Treasuries underperforming German Bunds). The FX response seemed outsized given equities’ and bonds’ intraday gains while lacking additional news/eco data. In any case, the dollar made up for Tuesday’s “off-day”. The trade-weighted greenback surged above 94 to close at the highest level (94.34) since September last year. Huge resistance is nearby in a combination of 38% retracement on the March2020/January2021 decline (94.47), the March 2020 pandemic low (94.65) and the September 2020 top (94.74). It’s clear that currencies from countries/economic zones who continue to play the ostrich in light of inflation developments get punished the hardest this year. This accelerating dynamic won’t change until they start facing the facts. USD/JPY kissed the psychological 112 mark and looks against important resistance in the form of the 2020 top (112.23) and the 2019 high (112.40). EUR/USD set a new YTD low after giving away the August bottom (1.1664) and is currently testing minor support at 1.1603 (November 2020 low). The more high profile reference is 1.1495 (March 2020 spike) to 1.1493 (50% retracement on March 2020/January 2021 rise). Friday’s September CPI inflation numbers might serve as a new wake-up call for the euro/ECB part of the equation. Sterling for a long time managed to keep up with the dollar but a slower reaction function after the normalization start now weighs. GBP/USD sets new YTD lows below 1.35 and has quite some way to go towards 38% retracement on the March 2020/February 2021 rise (1.3158).

Asian stock markets mostly trade positive this morning as disappointing Chinese PMI’s are met with PBOC easing rumours. The dollar takes five after yesterday’s impressive rally. US Senate Majority Leader Schumer said that lawmakers across the aisle reached an agreement to avoid a government shutdown with a stopgap spending bill which should keep operations running until December 3rd. The legislation is expected to pass both chambers today. The deadlock on raising or suspending the debt limit remains in place though with US Treasury Secretary Yellen warning for a October 18 default without a deal. Today’s eco calendar contains US weekly jobless claims, Chicago PMI, EMU unemployment rate, and German CPI numbers. The latter will set the tone for tomorrow’s EMU reading. Dominant market trends remain higher rates, lower stocks and a firmer dollar.

News headlines

The Official Chinese September PMI’s showed a divergent picture on the state of the economy. The manufacturing PMI unexpectedly dropped in contraction territory from 50.1. to 49.6. Most sub-indicators on activity, including production, new orders, and employment stay below the 50 boom/bust mark and are declining further. Price subindices remain firmly upwardly oriented. Activity is feeling an immediate impact from higher energy prices/shortages that are weighing on high-energy consuming industries, the NBS said. The setback in manufacturing was balanced by a better than expected performance of the non-manufacturing sector. This PMI rose from 47.5 to 53.2, with services rising from 45.2 to 52.4, but construction easing from 60.5 to 57.5. The rise in services amongst other was due to travel-related sectors rebounding from a sharp fallback in august. The private Caixin manufacturing PMI showed a more benign picture rebounding from 49.2 to 50. The yuan is trading stable near USD/CNY 6.47 as the PBOC continues to inject liquidity in the market to address end of quarter market tensions.

According to governor Kganyogo of the Reserve bank of South Africa, South Africa’s target range for inflation at 3%-6% is too wide and too high. He considers an inflation target closer to 3.0% as more appropriate. The central bank governor already made this call earlier, advocating that a lower inflation would help to keep interest rates lower. South Africa headline inflation was 4.9% in August. Core CPI printed at 3.1%, with the SARB policy rate at 3.5%.

Technical analysis

The RSI is below 50

The Stochastics crossed the overbought zone and points downwards.

Most likely scenario - SELL

Target prices: 1,721.04 1,712.81

Alternative scenario - BUY

Target prices: 1,734.59 1,735.75

Key levels

Support 1,721.04 1,712.81

Resistance 1,734.59 1,735.75

The US dollar index jumped sharply in the overnight session as the rising global risks continued. The index rose to $94.40, which was the highest level since November last year. Investors are generally worried about a prolonged period of high consumer prices, which will likely push the Federal Reserve to hike move sooner than expected. Also, there are ongoing risks about the upcoming government shutdown and the potential default of the American government. Later today, the US dollar will react to the latest US GDP and initial jobless claims numbers.

The British pound crashed against key currency pairs as investors remained concerned about the state of the UK economy. The economy is facing a major petrol shortage as a driver shortage persists. At the same time, the price of cooking and heating gas has jumped substantially in the past few days. As a result, many retailers have started warning that they will start hiking prices. This, in turn, will lead to higher consumer prices in the country. The sterling will likely react mildly to the latest UK GDP numbers.

The economic calendar will have some key events today. Earlier on, data from China showed that the manufacturing and non-manufacturing PMIs declined slightly in September as challenges remained. Chinese companies are facing higher costs of doing business and power shortages. The UK will publish the latest GDP and house price index (HPI) data. Other key numbers to watch will be the German unemployment and inflation data.

EURUSD

The EURUSD pair declined sharply in the overnight session. On the daily chart, the pair managed to move below the key support level at 1.1663, which it has struggled to move below several times before. The pair also moved below the short and longer-term moving averages. The Chaikin oscillator dropped below the neutral level. Therefore, the pair will likely keep falling today.

USDCHF

The USDCHF pair jumped sharply as the US dollar maintained its bullish trend. The pair managed to move above the key resistance level at 0.9330, which was the highest level since September 20. On the four-hour chart, the pair moved above the 25-day and 50-day moving averages. Oscillators like the Relative Strength Index (RSI) have also jumped sharply. Therefore, the pair will remain in a bullish trend if the price is above the moving averages.

XAUUSD

The XAUUSD pair also declined to the lowest level since August. It is trading at 1,723, which is significantly below September’s high of 1,833. On the four-hour chart, the pair dropped below the short and longer-term moving averages. It also moved below the 61.8% Fibonacci retracement level while oscillators have also dropped. Therefore, the pair will likely keep falling as bears attempt to move below 1,700.

Market movers today

• We expect the US Congress to pass a short-term funding bill before the deadline at midnight US time today, which would avert a government shutdown on Friday.
• On economic data, we will get both the German inflation and unemployment figures for September. The weekly jobless claims are released for the US and the KOF leading indicator is up from Switzerland.
• From central banks, we will get the minutes of the last week's Riksbank meeting. We also have a range of Fed speakers coming up today, including Williams, Bostic, Evans and Bullard.

The 60 second overview

Looming government shutdown: Last night the House passed a bill to suspend the debt limit through December 2022. However, the bill is widely expected not to pass the Senate given the republican opposition as 60 votes out of 100 are needed to pass most legislation. Hence, the deadlock is still unresolved and the clock is ticking and a government shut-down is getting closer (US midnight today). See also Research US: Government shutdowns are usually short-lived and no is interested in a default by the end of the day that we published yesterday. In that report we also discuss what happens if the so-called X-day is passed when the US treasury would need to prioritize, delay and ultimately default on payments. US Treasury has said that X-day is October 18 - others have argued that it could be early November.

Evergrande crisis: While markets have quickly moved to other issues, we would warn against too much complacency on China's property crisis. In a new paper we describe the perfect storm facing Chinese developers and what is needed from the government to contain the crisis, see Research China - 'No 'Lehman moment' but financial stress is not over.

Central banks: In a virtual panel debate with Powell from the Fed, Lagarde from ECB, Kuroda from BoJ and Bailey form BoE all basically repeated that the current supply disruptions and high inflation will be temporary. But still it cannot conceal that global central banks have started the - though very cautious - process towards a post-corona normalisation of monetary policy with BoE and Fed taking the lead. Recent market moves show that market believe that eventually the ECB will also follow suit.

Gas, electricity and oil prices: European spot natural gas prices rose to a new record high yesterday with the 1M TFF forward in the Netherlands rising EUR 9 to EUR 86.5 EUR/Mwh. In the UK, three smaller energy companies targeting the retail market collapsed yesterday due to the recent spike in natural gas prices. 10 power suppliers have so far collapsed in the UK. Oil prices edged lower yesterday as the market is awaiting the OPEC+ meeting next week.

Equities: It felt like equities made a comeback yesterday. In Europe equities were higher, but globally equites were flat, measured by the MSCI world indices. Interesting to see defensive/value/large cap continuing to outperform and tech sector continuing to underperform despite risk appetite improving and yields being flat. In US, Dow +0.3%, S&P 500 +0.2%, Nasdaq -0.2% and Russell 2000 -0.2%. This morning Asian markets are spilt with Hong Kong underperforming and most other markets in green. European and US futures are higher.

FI: For the first time since the FOMC meeting last week, yields ended lower on the day. Periphery led the risk on mood, with BTPs-bund spreads tightening 2.3bp, just shy of the 100bp mark. Bund yields declined 1bp. A similar performance was observed in the US. European inflation continues to rally with 5y5y touching 1.82% yesterday amid market speculation of central bank behavior in response to higher inflation. We expect notably ECB to take a patient approach before acting.

FX: Yesterday's session in FX markets was all about the USD appreciating and EUR/USD moving close to a full figure lower. On the other end of the spectrum, NZD, MXN and NOK all posted losses in excess of 1% vs the greenback while JPY and CAD proved more resilient.

Credit: On the back of better overall risk sentiment, credit also improved yesterday. Both Xover and Main tightened c.0.5bp. HY bonds tightened 4bp while IG just tightened marginally.

Nordic macro

The Swedish National Institute of Economic Research's (NIER) released new forecasts yesterday. The NIER foresees a further relatively sharp rise in CPIF-inflation in coming months - to a peak at 3.5% in November - to a large extent driven by energy prices. However, energy prices (electricity) is expected to fall in 2022 as a result of two factors. First, according to the Swedish energy agency, production by wind-mills will rise by 30% in 2022, secondly a Finnish nuclear power plant is expected to be started in 2022 with production amounting to 14% of electricity usage. Since the Nordic electricity markets are integrated this will put pressure on prices in Sweden too.

The Riksbank minutes from the September policy meeting are released today. After the policy announcement there has been some discussion if there has been a change of mind regarding the size of the balance sheet or more specifically if the Riksbank after all might not re-invest all maturing securities in 2022, in effect a QT (quantitative tightening). We doubt it.

General trend

• US equity FUTs rise.
• China official manufacturing PMI comes in lower than expected and contracts, Caixin manufacturing PMI rises back to 50.
• Chinese markets rise headed into 7 day holiday for Golden Week, will watch for spending over the period amid expectations for weaker H2 growth.
• Shanghai Banks index declined in early trading, Evergrande uncertainty lingers.
• Casino's in Macau could be impacted over the holiday after Guangdong govt imposed a 14-day compulsory quarantine for all arrivals from Macau, after finding 2 cases during mass testing. New cases extended restrictions to Oct 30th. If lifted in time for holiday, may see the expected rebound in visitors, but analysts remain skeptical.
• Nikkei has pared drop.
• Japan shippers trade lower for a second day, some cite concerns for future growth under new leadership.
• S&P ASX 200 rises amid gains in the Energy, Financial and Resources indices.
• China Iron Ore FUTs rise by 7%, CN Thermal Coal FUTs drop; China State Planner (NDRC) said to increase coal imports moderately; Certain China provinces.
• (including Shanghai and Guangdong) have increased prices for electricity.
• BOJ may release bond buying schedule at 8 GMT [Rinban announcement].
• China’s Commerce Ministry (MOFCOM) sometimes holds weekly news conferences on Thurs.
• Shanghai markets will be closed for holiday from Oct 1-7 (Fri-Thurs); HK will be closed on Oct 1st.

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.1%.
• (AU) AUSTRALIA AUG BUILDING APPROVALS M/M: +6.8% V -5.0%E; Private Sector Houses Approvals M/M: +3.5% v -5.5% prior.
• (NZ) Reserve Bank of New Zealand (RBNZ): Seeking public input on how we should perform our role as steward of money and cash, and how we should assess the case for central bank money in a digital form alongside cash.
• (AU) Australia Treasurer Frydenberg and Attorney General Cash to announce a draft bill that would restrict class action funders and lawyers to a maximum of 30% of any payout – AFR.
• (NZ) New Zealand Sept Final ANZ Activity Outlook: 18.2 v 18.2 prelim; Confidence Index: -7.2 v -6.8 prelim.
• (NZ) New Zealand PM Ardern: Auckland boundary is likely to remain even if restrictions ease.
• (AU) Australia Aug Job Vacancies: -9.8% v 23.4% prior.

Japan

• Nikkei 225 opened +0.1%.
• (JP) JAPAN AUG PRELIMINARY INDUSTRIAL PRODUCTION M/M: -3.2% V -0.5%E; Y/Y: 9.3% V 12.1%E; METI forecasts improvement in Sept and Oct production.
• (JP) JAPAN AUG RETAIL SALES M/M: -4.1% V -1.7%E; Y/Y: -3.2% V -1.0%E; Dept. Store, Supermarket Sales Y/Y: -4.7% v -1.4%e.
• (JP) Bank of Japan (BOJ) Gov Kuroda: Japan economy is gradually picking up; Consumption is still 'very weak'; Exports are 'firm' - comments at ECB forum.
• (JP) JAPAN ELECTION RESULTS: KISHIDA TO BECOME NEXT JAPAN PM AFTER VOTE RUNOFF (yesterday after the close).
• (JP) Japan MOF sells ¥3.0T v ¥3.0T indicated in 0.00% 2-year JGBs: avg yield: -0.115% v -0.1290% prior; bid to cover 4.24x v 4.50x prior.

Korea

• Kospi opened -0.2%.
• (KR) North Korea Leader Kim: North Korea is stepping up new weapon developments, willing to restore inter Korea hotline starting in Oct.
• (KR) South Korea Fin Min Hong: Will discuss financial imbalances with BOK Gov Lee; Global inflation concerns are increasing.
• (KR) South Korea Aug Industrial Production M/M: -0.7% v +0.3%e; Y/Y: 9.6% v 8.0%e.
• (KR) South Korea Aug Retail Sales M/M: -0.8% v -0.6% prior; Y/Y: 3.8% v 7.9% prior.
• (KR) South Korea to prepare measures against household debt in October - press.

China/Hong Kong

• Hang Seng opened -0.7%; Shanghai Composite opened +0.2%.
• (CN) CHINA SEPT MANUFACTURING PMI (GOVT OFFICIAL): 49.6 V 50.0E (1st contraction in 18 months); Non-manufacturing PMI: 53.2 v 50.0e (Moves back into expansion).
• (CN) CHINA SEPT CAIXIN PMI MANUFACTURING: 50.0 V 49.5E.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY100B in 14-day reverse repos v CNY100B prior; Net Inject CNY40B v Net inject CNY40B prior.
• (CN) China PBOC sets Yuan reference rate: 6.4854 v 6.4662 prior.
• (CN) Reported that certain China provinces have increased prices for electricity – press.
• (CN) China PBOC and CBIRC held property financial work meeting on Wed (Sept 29th); officials reiterated that housing is not for speculation, urged banks to keep property market 'healthy' and protect the legitimate rights of home buyers.
• (CN) China FX regulator SAFE said to tighten control over interbank currency trade and urge market makers to narrow the bid/ask spread – press (yesterday after the close).

Other

• (TW) Said that Taiwan Central Bank is still in talks with US on Currency Report – press.
• (TW) Taiwan Central Bank: Will consider tightening of monetary policies of advanced countries when raising interest rates.

North America

• (US) Speaker Pelosi: To send stopgap funding bill to House for Thursday, vote on infrastruce to take place same day.
• (CN) Pentagon Official: Held frank in depth talks with China Military official head on range of issues affecting US-China defense relationship.

Europe

• (UK) Aug Car Manufacturing 37.2K unit, -27% y/y – SMMT.
• (UK) Sept Lloyds Business Barometer: 46 v 36 prior.
• (DE) GERMANY SEPT CPI NORTH RHINE WESTPHALIA M/M: 0.0% V 0.1% PRIOR; Y/Y: 4.4% V 4.2% PRIOR.
• (RU) Said that Russia may increase duties on EU Wine, Beer, and Perfume imports - press.

Levels as of 01:15ET

• Hang Seng -1.0%; Shanghai Composite +0.5%; Kospi +0.5%; Nikkei225 +0.2%; ASX 200 +1.8%.
• Equity Futures: S&P500 +0.6%; Nasdaq100 +0.7%, Dax +0.7%; FTSE100 +0.6%.
• EUR 1.1609-1.1596; JPY 112.01-111.80; AUD 0.7207-0.7173; NZD 0.6887-0.6865.
• Commodity Futures: Gold +0.5% at $1,732/oz; Crude Oil -0.0% at $74.81/brl; Copper +0.6% at $4.20/lb.