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Daily Pivots: (S1) 1.3664; (P) 1.3697; (R1) 1.3735; More...

GBP/USD is staying in range of 1.3608 and 1.3749 and intraday bias remains neutral first. On the upside, above 1.3749 will target a test on 1.3912 resistance. Firm break there will argue that consolidation pattern from 1.4248 has completed and stronger rally to retest this high. On the downside, however, break of 1.3570 support will target 1.3482 key support level. Sustained break there will carry larger bearish implication and target 1.3163 fibonacci level.

In the bigger picture, as long as 1.3482 resistance turned support holds, we'd still treat price actions from 1.4248 as a corrective move. That is, up trend from 1.1409 (2020 low) is in favor to resume. Decisive break of 1.4376 key resistance (2018 high) would indeed carry long term bullish implications. However, sustained break of 1.3482 will at least bring deeper fall to 38.2% retracement of 1.1409 to 1.4248 at 1.3164, or even further to 61.8% retracement at 1.2493.

Daily Pivots: (S1) 0.9236; (P) 0.9264; (R1) 0.9285; More....

Intraday bias in USD/CHF remains neutral as consolidation from 0.9331 is extending. Overall, further rally is expected as long as 0.9162 support holds. On the upside, break of 0.9331 will target 0.9471 key resistance. Sustained break there will carry larger bullish implications. However, break of 0.9162 will turn bias back to the downside for 0.9017 support instead.

In the bigger picture, the strong rally above 55 week EMA (now at 0.9175) now tilts favor to the case of bullish trend reversal. That is, decline from 1.3042 (2016 high) is probably completed at 0.8756 already. Sustained break of 0.9471 resistance should confirm this case and pave the way to retest 1.0342 ahead. However, rejection by 0.9471 will mix up the outlook again and retain some medium term bearishness.

Technical analysis

The RSI is below 50

The Stochastics indicates a downwards direction.

Most likely scenario - SELL

Target prices: 1,740.10 1,737.05

Alternative scenario - BUY

Target prices: 1,754.48 1,761.47

Key levels

Support 1,740.10 1,737.05

Resistance 1,754.48 1,761.47

Germany Gfk consumer confidence for October rose to 0.3, up from -1.1. For September, economic expectations rose from 40.8 to 48.5. Income expectations rose from 30.5 to 37.4. Prospensity to buy rose form 10.3 to 13.4.

"At the time of the survey, the incidence increase had noticeably slowed and currently, values are even declining slightly. As a result, consumers are more optimistic that the fourth wave will be less pronounced than many feared. That is why many consumers can once again see scope for restrictions to be eased further" explains Rolf Bürkl, GfK consumer expert.

"Even if the consumer sentiment has almost reached its pre-crisis level, it is still too early for talk of a fundamental trend shift. Instead, we must first see how the infection situation develops in the winter months and if new restrictions become necessary."

Full release here.

The price of crude oil jumped in the overnight session as investors optimism about demand rose. Brent, the global benchmark, rose to $79, the highest level in about three years. Similarly, West Texas Intermediate (WTI) rose to more than $75. Recent data by both OPEC and the International Energy Agency (IEA) said that demand will keep soaring in 2022. Indeed, the IE reported said that demand will move to more than 100.8 million barrels per day, which will be higher than where it was before the pandemic started.

US stocks wavered in the overnight session as investors reflected on the rising Treasury yields. The yield on the 10-year US Treasury note rose above 1.5% for the first time since June. The yield has risen from a low of 1.25% in the past few weeks. This trend is mostly because of the hawkish Federal Reserve decision. The bank said that it will start tapering its asset purchases in the coming year. It also expects to increase interest rates 7 times by 2024. In a statement on Monday, Fed’s John Williams said that the bank should start winding down its accommodative policies.

The economic calendar will have minimal events today. The most important will be the latest American consumer confidence data by Conference Board. The data is expected to show that the country’s consumer confidence rose slightly in September. The next key event will be a testimony by Jerome Powell. He will likely be asked to talk about last week’s decision, the ongoing trends of inflation, and the looming government shutdown.

XTIUSD

The XTIUSD rocketed higher in the overnight session as investors remained optimistic about demand. It rose to a high of 75.76, which was the highest level in three years. On the four-hour chart, the pair managed to move above the key resistance level at 75.0. It is also slightly above the short and longer-term moving averages. The price is also along the upper side of the Bollinger Bands. Therefore, the pair will likely keep rising as bulls target the next key resistance at 77.

EURUSD

The EURUSD pair was relatively unchanged even as US Treasury yields rose. It is trading at 1.1705, which was slightly above the upper side of the descending channel. On the hourly chart, the pair is slightly below the 25-day moving average while the MACD is slightly below the neutral line. The Average True Range (ATR) has declined, which is a sign of falling volatility. Therefore, the pair will likely remain in this range today.

USDJPY

The USDJPY pair maintained bullish momentum in the overnight session. It rose to a high of 111.05, which was the highest level since July 7. On the four-hour chart, the pair is along the upper side of the Bollinger Bands and above the moving averages. The MACD and Demarker indicators have also risen. Therefore, the path of the least resistance for the pair is upwards.

Market movers today

• Tuesday marks another light day in terms of economic data releases. August retail sales will be released for both Sweden and Norway, while Richmond Fed Manufacturing Index is due for release from the US.
• ECB's annual Forum begins today, and while the agenda is not focused on the near-term monetary policy outlook, markets will follow Lagarde's opening speech at 14:00 CET. A number of Fed speakers are also on the wires in the evening.

The 60 second overview

US yields jump: US treasuries came under renewed pressure yesterday. Ten-year yields hit 1.51% and five-year yields traded as high as 0.99%, the highest level since February 2020. The fixed income sell-off accelerated last week as Fed pointed to tapering later this year, as Bank of England opened the door to early rates hikes and as Norges Bank hiked its policy rate as the first G10 central bank.

The jump in 5y UST yields came ahead of 2 and 5-year treasury auctions. They were both well received, but only after the run-up in yields ahead of the auctions. It seems that investors now demand a higher return to absorb the high supply as we are approaching the start of tapering later this year.

There is also a lot of focus in the market on whether the abrupt move higher in yields has triggered or will trigger convexity hedging (selling of US treasuries to bring to portfolio duration) as the duration in the mortgage market lengthens as refinancing by borrowers slows. These hedging dynamics can exaggerate any move higher in yields.

Finally, inflation expectations (break-evens) also moved higher as Brent oil surpassed USD 80 a barrel. All in all, it seems that the market no longer fully buys into the Fed narrative that the elevated inflation is 'temporary'. For more on the outlook for European and US yields see Yield Outlook that we published 21 September. We have a 2022 target of 2% for 10Y US treasury yields.

Oil: Brent oil is trading above USD 80 a barrel this morning as the lack of natural gas is spreading across the globe triggering use of oil as an alternative for power generation. This 'natural gas demand effect' comes simultaneously with the economic recovery, and rising airline traffic is boosting demand and depleting global crude oil inventories. Note that later today OPEC will publish its World Oil Outlook. The outlook comes ahead of the OPEC+ meeting next week. There is a growing concern that the cartel will be reluctant or even unable to rise production enough to stop oil from going higher, as demand peaks during the winter season on the Northern hemisphere.

Debt ceiling: The vote in the Congress on the bill to extend the US debt limit until December next year failed to pass last night as Republicans rejected it. The rejection comes as the government shutdown deadline approaches on Friday. The log-rolling will continue the coming days, but a government shutdown cannot be ruled out. Yesterday, Fed's John Williams warned of catastrophic consequences if the US defaults on its government debt and that investors might become 'extremely nervous', which could lead 'extreme' market reactions.

Fed resignation: The presidents of the Boston and Dallas Fed branches Rosengren and Kaplan steeped down yesterday after it was disclosed earlier this month that they had been involved in controversial personal trading activities during the height of the pandemic last year. It leaves no less than six seats to be filled over the coming months.

Powell: Fed President Powell will in his testimony in Congress today (released yesterday) repeat his message from last week that inflation should be elevated for months but that it should later moderate. We should expect a lot of questions on the outlook for inflation after the testimony.

Equities: Global equities traded lower yesterday but with huge regional and sector differences. The cyclical value trade continuing to perform as investors see higher yields lowering the value of future cash flows but they do not see yields as a constraint to the economic backdrop or equities in general. We need to see a more abrupt rise in yields of more than 50bp higher yields before it should have a material impact on risk appetite. In addition, before yields become a challenge to the TINA argument, we need to see at least the long end rising 100bp or more from current level. For now, the energy sector is benefiting from higher oil prices while banks are the biggest beneficiary of higher yields. Healthcare and tech the biggest losers in the current environment. In US yesterday, Dow +0.2%, S&P 500 -0.3%, Nasdaq -0.5% and Russell 2000 +1.5%. Asian equities are mixed this morning. Hang Seng outperforming as property developers rally following reassuring comments from major developer Sunac. US and European futures are flat.

FI: Global bond yields continue to rise and 10Y US government bond yields are testing the 1.5%-level on the back of more hawkish comments from Federal Reserve officials. Hence, the US yield curve 2-10Y is steepening but the 10Y-30Y curve continues to flatten. We see a similar move in the German and EUR swap curves. Furthermore, Bund ASW-spreads have been remarkably stable for the past weeks despite the rise in yields and the string of new syndicated deals and supply of EGBs, financial and corporate bonds during September.

FX: It's been a fairly quiet start to the week for FX markets. EUR/USD remains little changed while oil exporting currencies have been the big winners in FX majors space. That said, NOK has been underperforming on a relative oil-FX basis with EUR/NOK erasing losses from early trading Monday. EUR/SEK has been one of the strongest performing crosses and now trades close to the 10.20 threshold.

Credit: Credit markets saw only small moves yesterday where the low-beta segment outperformed high-beta. iTraxx Xover widened marginally to 242bp while Main tightened 0.2bp to 48.9bp. HY bonds closed 1bp wider and IG was unchanged.

General trend

• Evergrande’s near-term debt payments remain a focal point.
• USD/JPY extends rise amid higher UST yields; AU and NZ bond yields rise.
• BTC dropped at 40-year JGB auction, the yield also rose.
• WTI Crude continues to rise, Brent trades above $80/bbl.
• Hang Seng has extended gain [Property developers Sunac and Evergrande rise in early trading].
• Shanghai Property index rose by over 4% during the morning session; Banks index also outperformed.
• US equity FUTs pared declines.
• Nikkei has moved off of the session lows and remained above 30K.
• S&P ASX 200 declines after prior rise [Resources index declines with the drop in Iron Ore FUTs; Analysts comment on the impact of power cuts in China, CN property sector also remains in focus].

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.0%.
• (AU) Reserve Bank of Australia (RBA): Excess cash at exchange settlement (ES) accounts at A$369.3B (record high).
• (AU) Australia says it will start an A$2.0B loan facility for critical minerals.

Japan

• Nikkei 225 opened -0.3%.
• (JP) Bank of Japan (BOJ) July Meeting Minutes (two decisions ago): Japan's economy had picked up as a trend, although it remained in a severe situation due to the impact of COVID.
• (JP) Japan Econ Min Nishimura: Will continue to have eateries keep shorter hours, will ease curbs in about a month in stages.
• (JP) Japan Fin Min Aso: Does not believe pent up demand will emerge too easily; Will take time for demand to return after state of emergency ends.
• JGB (JP) Japan MoF sells ¥600B v ¥600B indicated in 0.70% 40-year JGBs, Yield at lowest accepted price 0.7700% v 0.7350% prior, bid to cover: 2.53x v 2.72x prior (btc multi year low).

Korea

• Kospi opened 0.0%.
• (KR) South Korea Sept Consumer Confidence: 103.8 v 102.5 prior (1st increase in 2 months).
• (KR) US State Dept: US is prepared to meet with North Korea without any conditions – Yonhap.
• (KR) North Korea fires unidentified projectile into East Sea – Yonhap.
• (KR) Bank of Korea (BOK): To gradually apply ESG elements to all of its foreign currency assets, while it continues to increase allocations in ESG bonds and stocks in the near term.

China/Hong Kong

• Hang Seng opened +0.5%; Shanghai Composite opened -0.1%.
• (CN) China Aug Industrial Profits Y/Y: 10.1% v 16.4% prior (6th consecutive slowdown).
• (CN) China considering curbing coal prices in order to ensure steady electricity supply for factory production - Global Times.
• (CN) Goldman cuts China 2021 GDP outlook to 7.8% (prior 8.2%); Cuts Q3 GDP to 0%.
• (CN) China PBOC sets Yuan reference rate: 6.4608 v 6.4695 prior.
• (CN) China PBOC Open Market Operation (OMO): injects CNY100B in 14-day reverse repos v CNY100B prior; Net Inject CNY100B v Net inject CNY100B prior.
• 1918.HK Clarifies Wechat post related to Sunac Shaoxing seeking financial assistant from local government; Sunac Shaoxing is only seeking support to solve the problem relating to the online settlement, the company has never had, nor has any need or willingness to submit a similar report to the government.
• (CN) China State Planner NDRC: Will expand supply of non-basic public services, lower cost, and improve quality; Will expand public services using private businesses.
• (HK) Hong Kong Monetary Authority (HKMA) Yuen: Banks in Hong Kong have limited exposure to 'stressed' China property developers.
• (CN) China PBOC quarterly monetary policy meeting statement: Reiterates stance that domestic economy recovery remains fragile and 'unbalanced' (yesterday after the close).

North America

• (US) Fed Chair Powell: Fed would act against 'sustained' high inflation; Bottleneck effects were larger and more persistent than expected - Senate testimony.
• (US) Fed's Bostic (FOMC voter, hawk): Not convinced we are facing a lengthy bout with troublesome inflation; Without clear data demonstrating inflation has arrived and is likely to last, we will allow labor markets to run their course.
• (US) Dallas Fed's Kaplan to retire on Oct 8th; Rosengren, Sept 30th; Fed's Kaplan and Rosengren will sell all individual stocks they own by Sept 30th and reinvest in diversified index funds or cash; The move is meant to address ethics concerns.
• F Announces Electric Vehicles Mega Campus in Tennessee and Twin Battery Plants in Kentucky; $11.4B Investment to Create 11,000 Jobs and Power New Lineup of Advanced EVs.
• (US) Procedural vote on debt limit and Govt funding bill, looks like it will not pass, GOP has enough to block.
• JNJ Jury finds not responsible for woman's ovarian cancer tied to talc powder.

Europe

• (FR) France President Macon approval rating +3ppt to 42% - Odoxa poll.

Levels as of 01:00ET

• Hang Seng +1.2%; Shanghai Composite +0.5%; Kospi -1.0%; Nikkei225 -0.3%; ASX 200 -1.3%.
• Equity Futures: S&P500 +0.0%; Nasdaq100 -0.2%, Dax +0.0%; FTSE100 +0.1%.
• EUR 1.1699-1.1685; JPY 111.25-110.93; AUD 0.7307-0.7266; NZD 0.7023-0.6999.
• Commodity Futures: Gold -0.1% at $1,750/oz; Crude Oil +0.9% at $76.09/brl; Copper +0.5% at $4.29/lb.

Daily Pivots: (S1) 110.68; (P) 110.87; (R1) 111.21; More...

USD/JPY's rally is still in progress and intraday bias stays on the upside for retesting 111.65 high. Larger up trend from 102.58 might be ready to resume. Decisive break of 111.65/71 will confirm this case and carry larger bullish implication. Nevertheless, on the downside, below 110.52 will delay the breakout and turn intraday bias neutral first.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. The pattern from 101.18 could still extend with another falling leg. Sustained trading below 55 day EMA will bring deeper fall to 107.47 support and below. Nevertheless, strong break of 111.71 resistance will confirm completion of the corrective decline from 118.65 (2016 high). Further rise should then be seen to 114.54 and then 118.65 resistance.

Strong rally in treasury yields is currently the main theme driving the markets. On the back on hawkish Fed rhetorics, 2-year yield rose to 18-month high, above 0.3%. Benchmark 10-year yield also breaks above 1.5% handle. Yen is currently the worst performing one, with persistent selling pressure. Euro and Swiss Franc are also weak. On the other hand, commodity currencies are the better performers, as led by Canadian, with WTI oil breaching 76 handle. Dollar is mixed for the moment, partly supported by the strength in yield.

Technically, CAD/JPY's break of 87.87 resistance, as well as the sustained trading above 55 day EMA, suggests that correction from 91.16 has completed at 84.65. Immediate focus is now on 88.44 resistance. Decisive break there will further affirm this bullish case and bring retest of 91.16 high. At the same time, USD/JPY is also accelerating up towards 111.65/71 key resistance zone. Sustained break there will carry larger bullish implication. We'll see if Yen's selloff would extend, or even accelerate, for the rest of the week.

In Asia, at the time of writing, Nikkei is down -0.42%. Hong Kong HSI is up 1.46%. China Shanghai SSE is up 0.53%. Singapore Strait Times is down -0.48%. Japan 10-year JGB yield is up 0.0101 at 0.066. Overnight, DOW rose 0.21%> S&P 500 dropped -0.28%. NASAQ dropped -0.52%. 10-year yield rose 0.024 to 1.484.

Fed Brainard: Bar much higher for rate hike than tapering

Fed Governor Lael Brainard said "employment is still a bit short of the mark on what I consider to be substantial further progress.. But if progress continues as I hope, it may soon meet the mark," for tapering asset purchases.

"The forward guidance on maximum employment and average inflation sets a much higher bar for the liftoff of the policy rate than for slowing the pace of asset purchases," she added. "I would emphasize that no signal about the timing of liftoff should be taken from any decision to announce a slowing of asset purchases."

Fed Williams: Moderation of asset purchase pace may soon be warranted

New York Fed President John Williams said, "assuming the economy continues to improve as I anticipate, a moderation in the pace of asset purchases may soon be warranted."

Williams expected the economy to grow between 5.5% to 6% this year. Inflation will drop back to 2% next year.

"There is still a long way to go before reaching maximum employment," Williams said. "And over time it should become clearer whether we have reached 2 percent inflation on a sustained basis."

Fed Kashkari and Bostic focus on employment

Both Minneapolis Fed President Neel Kashkari and Atlanta Fed President Raphael Bostic appeared to be more concerned with getting the job market back to normal, than the higher transitory inflation.

Kashkari said yesterday, "putting Americans back to work...to me that's our highest priority." He also emphasized "we don't want to overreact to short-term price movements."

Separately, Bostic said, "without clear data demonstrating that an inflationary problem has arrived and is likely to last, we will allow labor markets to run their course, which can further our pursuit of long-run maximum employment."

BoJ minutes: Full-fledged recovery to be delayed

In the minutes of BoJ's July meeting, a few members said "the timing of a full-fledged recovery in Japan's economy was likely to be somewhat delayed" comparing with the expectations in April.

Many members warned of the high uncertainty on overseas outlook. In particular, one member noted the deceleration in China's economy "should be born in mind." Also, one member warned, "if the rise in U.S. long-term interest rates accelerated, we must be vigilant to the risk of capital outflows from emerging economies."

Australia retail sales dropped -1.7% mom in Aug, negatively impacted by lockdown restrictions

Australia retail sales dropped -1.7% mom in August, better than expectation of -2.5% mom. It's the third consecutive monthly fall after -2.7% in July, and -1.8% in June.

Ben James, Director of Quarterly Economy Wide Surveys, said: "Retail turnover continues to be negatively impacted by lockdown restrictions, with each of the eastern mainland states experiencing falls in line with their respective level of restrictions. In direct contrast, states with no lockdowns performed well with Western Australia and South Australia enjoying strong rises as physical stores were open for trade."

Looking ahead

Germany will release Gfk consumer sentiment. US will release goods trade balance, house price index, and more importantly, consumer confidence.

USD/JPY Daily Outlook

Daily Pivots: (S1) 110.68; (P) 110.87; (R1) 111.21; More...

USD/JPY's rally is still in progress and intraday bias stays on the upside for retesting 111.65 high. Larger up trend from 102.58 might be ready to resume. Decisive break of 111.65/71 will confirm this case and carry larger bullish implication. Nevertheless, on the downside, below 110.52 will delay the breakout and turn intraday bias neutral first.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. The pattern from 101.18 could still extend with another falling leg. Sustained trading below 55 day EMA will bring deeper fall to 107.47 support and below. Nevertheless, strong break of 111.71 resistance will confirm completion of the corrective decline from 118.65 (2016 high). Further rise should then be seen to 114.54 and then 118.65 resistance.

Economic Indicators Update

In the minutes of BoJ's July meeting, a few members said "the timing of a full-fledged recovery in Japan's economy was likely to be somewhat delayed" comparing with the expectations in April.

Many members warned of the high uncertainty on overseas outlook. In particular, one member noted the deceleration in China's economy "should be born in mind." Also, one member warned, "if the rise in U.S. long-term interest rates accelerated, we must be vigilant to the risk of capital outflows from emerging economies."

Full minutes here.