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The Swiss franc softened after the Swiss National Bank pledged to keep its policy loose.

The US dollar saw an acceleration in its momentum after it cleared the daily resistance at 0.9260. The RSI’s double top has triggered a pullback to let the bulls catch their breath.

The pair has found bids at the 61.8% (0.9220) Fibonacci retracement level. A break above 0.9280 would resume the rally towards April’s peak at 0.9460.

A bearish breakout could send the greenback to 0.9160, a key floor to keep the uptrend afloat.

The pound surged after the Bank of England raised its inflation forecast.

The pair has met strong buying interest at the triple bottom (1.3600) on the daily chart. A bullish RSI divergence was an indication that the sellers have taken their feet off the pedal.

A subsequent rally above 1.3690 would prompt more bears to cover. An overbought RSI may temporarily limit the initial impulse.

Patient buyers would be waiting for a pullback before jumping in. A rebound above 1.3800 would challenge the September high at 1.3900.

Markets

It took markets an overnight sleep to realize that the Fed on Wednesday set out the framework for a new era in monetary policy. European yield markets showed some hesitation as EMU PMI’s printed softer than expected. Growth activity is over its peak momentum (composite index eased from 59.0 to 56.1). Supply bottlenecks are further complicating the post-corona rebound, but this also applies to sharp price rises. Bond market bears took control as US traders joined the fray. The Bank of England policy statement only reinforced the idea that policy normalization might come sooner rather than later. UK economic growth recently lost some momentum and the labour market remains a source of uncertainty. Still, accelerating prices made Bailey an Co conclude that some developments since the August meeting strengthened the case for some modest tightening over the policy horizon. Combined with a further risk rebound on global equity markets, this provided the trigger for an impressive broad based bear steepening move. US yields jumped between 2.5 bps (2-y) and 13 bps (10 and 30 y) mainly driven by a rise in real yields. The 1.37% resistance for the 10-y yield, which looked far out of reach post-Fed, was simply blown away (currently 1.44%).The German curve showed a similar, albeit more modest steepening trend with yields rising between 2 bps (2-y) and 6.6 bps (10-y). For now, intra-EMU government yields were little affected. US equities still closed with solid gains (about 1.0%/1.5%), but the rally lost momentum as the bond sell-off accelerated. The dollar throughout the session lost its post-Fed gain (DXY close 93.08). EUR/USD rebounded even as interest rate differentials widened in favour of the dollar (EUR/USD close 1.1739). The yen was the main victim on higher real yields and a global risk-on. USD/JPY extended its rebound north of 110 (110.33 close ). EUR/JPY jumped sharply after recent tests of the 128 support area (close 129.5). Sterling outperformed as markets see an ever growing chance of a BoE rate hike in Q1 next year. After a test of the 0.8610/15 resistance, EUR/GBP returned back in the established 0.8450/0.8615 range (close 0.8556).

Asian equities showed a mixed picture this morning as next steps in the Evergrande saga remain uncertain. Japanese equities outperform (weaker yen). Japanese August inflation data (0.0% Y/Y core ex-fresh food) were close to expectations. US yields are still marginally higher and so is the dollar. The eco calendar is thin today. German IFO business climate remains interesting but will probably confirm the trends visible in the PMI’s. Key question is whether the repositioning in the bond markets continues. We think it can. Next technical reference in the US 10-y yield near 1.45%1.47% (50% retr/previous lows) is already within reach. For the German 10-y yield -0.15% is a next reference. European bond and FX markets for sure will keep a close eye on the German elections. An outcome that would open the door for more fiscal support might propel European yields and the euro. EUR/USD at least took some further distance from the 1.1664 support area.

News headlines

House Speaker Nancy Pelosi said that Democrats are ready to pass a stopgap spending bill without a debt ceiling increase to avert a government shutdown at the start of next month. The current proposal which passed Democraticled House on Tuesday includes suspending the debt limit until December 16 2022. Republicans vowed to block it in the split Senate though where 60 out of 100 votes are needed. By passing a so-called continuing resolution, they allow time to find a deal on the debt limit which is expected to be hit by the end of October. The US risks default without agreement.

The IMF said in its concluding statement of the 2021 Article IV discussions that Australia should employ macroprudential measures to address incipient risks stemming from surging house prices which raise concerns about affordability and financial stability. Potential action includes increasing interest serviceability buffers and instituting portfolio restrictions on debt-to-income and loan-to-value ratios.

EUR/USD

Current level - 1.1744

During yesterday's trading session, the currency pair tested the support zone at 1.1680 but the bulls managed to prevail and the U.S. dollar lost quite a bit of ground against the single European currency, with the pair moving towards the resistance at 1.1750. At the time of writing, the EUR/USD is consolidating just below the mentioned level and the sentiment is rather positive – for a test of the next more significant resistance at 1.1780. In the negative direction, the first support lies at the aforementioned level of 1.1680.

USD/JPY

Current level - 110.36

The bulls took control over the market and the pair successfully violated the resistance zone at 110.20. If the Ninja continues to gain positions and successfully breaches the resistance at 110.40, an upward movement towards the next level at 110.70 will be the most likely scenario. However, if the resistance at 110.40 withstands the pressure of the bulls and limits the impulsive upward movement, then the pair would most probably make a corrective move towards the support at 110.00.

GBP/USD

Current level - 1.3730

The sterling appreciated against the U.S. dollar and reached the resistance at 1.3750. The bulls gained enough momentum and managed to gain control of the market and, at the time of writing, the pair is trading just below the mentioned significant resistance. A breach of this level would pave the way for the currency pair towards a test of the next resistance at 1.3800. If the bears enter the market and manage to breach the support at 1.3692, then a test of the next support level at 1.3600 will become likely.

US stocks rebound accelerated in the overnight session as investors ignored the crisis presented by Evergrande. According to the Wall Street Journal (WSJ), Beijing has asked local governments to prepare for the potential downfall of the second-biggest real estate company in the country. The government has asked local governments and other state-owned entities to step up and handle the crisis in an orderly fashion. The stocks rallied after Salesforce boosted its full-year guidance. It expects to make between $26.25 billion and $26.35 billion this year. Also, they rose as investors reflected on the hawkish Federal Reserve decision.

The British pound rally continued in the overnight session as investors reflected on the Bank of England (BOE) interest rate decision. The bank decided to leave interest rates and quantitative easing policies unchanged. It also warned that the recent energy price surge will likely push inflation to more than 4% in the near term. In a statement, Andrew Bailey said that a modest tightening was necessary. Therefore, analysts expect that the central bank will hike interest rates in its March meeting. At the same time, some analysts are warning about stagflation after data showed that private-sector output was starting to slow down

The economic calendar will be relatively muted today. Besides, the most powerful central banks in the world like the Fed, BOE, BOJ, BOC, and ECB have already delivered their September verdict. The main key numbers to watch today will be the IFO business climate numbers from Germany and the Mexican retail sales numbers. Also, investors will focus on a speech by Jerome Powell, the Federal Reserve chair. He will likely provide more clarity about when the bank will move.

EURGBP

The EURGBP pair declined sharply after the latest BOE decision. It tumbled from a high of 0.8615 to a low of 0.8540. On the four-hour chart, the pair has moved between the 50% and 38.2% Fibonacci retracement levels. It has also moved below the neckline of the double-top pattern. It has also formed a double-top pattern while the Relative Strength Index (RSI) has moved to 41. Therefore, the pair will likely keep falling as bears target the key support at 0.8550.

EURUSD

The EURUSD pair rose to a high of 1.1745 as the US dollar remained under pressure after the Fed decision. This price was along the upper line of the descending channel. It also moved below the 25-day moving averages while the Relative Strength Index (RSI) and MACD have risen. Therefore, a bullish breakout will be confirmed if it moves solidly above the upper trendline.

XTIUSD

The XTIUSD pair jumped to a high of 73.67 as optimism returned to the market. The pair rose above the key resistance level at 73.23, which was the previous highest point in September. The bullish trend is being supported by the 25-day and 50-day moving averages while the Relative Strength Index has risen to the overbought level. Therefore, the bullish trend will likely continue if it is above the two moving averages.

In a CNBC interview, ECB President Christine Lagarde said policy makers try to asses the situation "based on figures, on data, on facts", rather than on basis of "hearsay, assumption here, price increases there."

She noted, things have "picked up faster" for growth, inflation and employment, and it's a "package of good news". For prices, ECB thought "there will be a return to much more stability in the year to come because many of the causes of higher prices are temporary.".

Full interview here.

Technical analysis

The RSI(14), the RSI(3) and the CCI point to a possible upwards correction.

The Ichimoku indicator displays a prevailing downtrend.

Most likely scenario - BUY

Target prices: 1,755 1,758

Alternative scenario - SELL

Target prices: 1,749 1,745

Key levels

Support 1,755 1,758

Resistance 1,749 1,745

Market movers today

• After an unusually busy week on the central bank front, today is set to be quieter in terms of scheduled releases. That said, there will be plenty of market developments to look out for especially given yesterday's shift towards reflation-sensitive assets (see below).
• Today's key releases include the German IFO survey and US new home sales.
• Fed Chair Jerome Powell and Fed Vice Chair Richard Clarida are also speaking today.
• Besides that we continue to follow the development in China with Evergrande.
• We do not expect the weekend's general election in Germany to be a major market mover.

The 60 second overview

Markets and reflation: Yesterday's session was characterised by a sharp steepening of global yield curves and subsequent performance of the typical value and reflation sensitive assets in energy, industrial, materials and financials. The broad USD weakened, commodities gained and inflation expectations moved higher on both sides of the Atlantic. In our view, the sudden performance of reflation trades should be seen in light of Wednesday's FOMC meeting where the Fed clearly signalled forthcoming tightening of monetary conditions via both tapering and interest hikes next year, see Fed Research - Review: Fed is about to start a tightening cycle, 22 September. For the same reasons we are also a little sceptical on how long this can run as tighter global monetary conditions amid a global manufacturing slowdown often constitute an investment environment of heightened drawdown risk.

Norges Bank: Yesterday Norges Bank hiked policy rates by 25bp lifting the sight deposit rate from the COVID-19 induced 17 months at zero. This makes Norges Bank the first G10 central bank to hike policy rates amid the global recovery. Norges Bank is also very likely to deliver the second hike among G10 central banks as guidance from the Executive Board pointed to December as the timing of the next rate hike. Overall, the Norwegian central bank signals 4 additional hikes by end-2022 and a total of 6 hikes by end-2024.

Evergrande: The last week has been dominated by fears of a Lehman-style default event out of China from its second biggest property developer. Over the last days big global banks have all assured investors that their risk is not material. That leaves some uncertainty as to who actually sits with the exposure in case of default but the market narrative is that most of the liabilities are held by domestic firms. Overall, we expect the turmoil related to Evergrande to get worse before it gets better. But we believe the Chinese government will eventually intervene as the alternative could be a financial crisis with very severe effects on the Chinese economy and the Chinese people, for more details see Research China - The Evergrande situation and what we expect, 21 September. Short-term markets will look for any comments from Evergrande on the USD-denominated interest payment that was due yesterday.

Turkey: In a highly surprising move the central bank of Turkey yesterday cut policy rates by 100bp brining the one week repo rate to 18%. It has long been known how President Erdogan has put pressure on the central bank to ease monetary conditions despite high inflation with the core measure currently at 17% Y/Y. Yesterday's decision challenges the central bank's independence and lead to a sharp FX market sell-off in TRY.

Equities: Equity markets resumed the rebound rally on Thursday. Cyclicals beat defensives and value vs growth, although gains was broad based with most sectors and styles in green. Energy led the market, followed by financials, materials and industrials. Defensives were the worst performers with bond proxies the only decliners. In total, S&P500 1.2%, Dow 1.5%, Nasdaq 1% and Russell 2000 1.8%. VIX fell south of 20. Asian markets are more mixed this morning after Evergrande appears to have missed the crucial interest payment deadline. US futures roughly unchanged, suggesting that the rebound rally could be over as well.

FI: Fixed income markets had a tough day yesterday as they were digesting the FOMC decision from Wednesday night, and subsequently the BoE meeting yesterday. The long end in US led the sell-off by 12bp with 10y UST reaching 1.42%. In Europe 10y Bunds rose almost 7bp to -0.26%, a highest level since mid-July. The front end only suffered a minor loss of just 2bp. The weaker than expected PMIs did not materially lead to a sustainable rally in bonds. Also the positive headlines of Evergrande also contributed to higher yields. Intra-euro area spreads to Bunds tightening across the board lead by the periphery.

FX: Both EUR/NOK and EUR/GBP moved lower on hawkish messages from Norges Bank and the Bank of England, respectively, but as importantly also the boost to global reflation-assets. EUR/USD moved back above 1.17.

Credit: Credit markets remained positive yesterday and iTraxx Xover tightened 3bp (taking it to 239bp) and Main 1bp (to 48.5bp). HY bonds tightened around 1bp and IG 0.5bp.

General trend

• AU and NZ 10-year yields rise after gain in UST yields.
• Modest volatility seen for Copper FUTs.
• Financials advance in AU and JP after US gains and rise in 10-yr UST yields; China and HK financials trade mixed amid focus on Evergrande.
• Cautious trading seen thus far in China and Hong Kong; Sportswear firms drop amid guidance from Nike.
• Nikkei outperforms after holiday [Topix Marine Transportation and Banks indices are among the gainers].
• S&P ASX 200 has traded modestly lower [Resources index lags].
• (CN) PBOC to auction CNY70B in Ministry of Finance Deposits on Sept 26th (Sunday).

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened flat.
• (AU) IMF: cuts Australia 2021 GDP forecast to 3.5%, increases 2022 GDP forecast to 4.1% - Article IV Mission.
• (NZ) New Zealand Aug Trade Balance (NZ$): -2.1B v -0.4B prior (record monthly deficit) [Stats Agency: The decrease in the value of aircraft and parts exports was due to the export of planes to the United States in August 2020 for long-term storage as a result of New Zealand’s border closure].

China/Hong Kong

• Hang Seng opened -0.1%, Shanghai Composite -0.1%.
• Evergrande [3333.HK]: USD BONDHOLDERS SAY HAVE NOT YET RECEIVED INTEREST PAYMENTS [in line with report that circulated during the NY morning on Thurs] (Note: Company would have a 30-day grace period before any missed payment would constitute a default).
• (HK) Hong Kong Fin Sec Chan: Chance of Evergrande setting off systemic risk in Hong Kong is ‘low’; Have been monitoring development and carried out constant stress tests on banks and stock market.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY0B in 7-day reverse repos v CNY60B in 7-day reverse repos prior; injects CNY120B in 14-day reverse repos v CNY60B prior; Net inject CNY70B v Net inject CNY110B prior.
• (CN) Shenzhen (China) Municipal Gov't: To issue up to CNY5.0B in 2-year, 3-year and 5-year CNY-denominated muni bonds in Hong Kong in Oct.
• (CN) PBoC confirms implementing policy for relending quota of CNY 300B to support micro, small and medium-sized enterprises (MSMEs).
• (CN) China Econ Daily: China should control imported inflation risks; currently imported inflation is only impacting raw material costs; However, should remain alert to delayed price transmission.
• (CN) China State Planner NDRC: Told PetroChina, CNOOC, and Sinopec to strictly fulfill gas supply contracts to fertilizer companies; Permitting that Yunnan, Guizhou, and Hubei to increase Phosphate Ore Production.
• (CN) Financial press comments on the first oil reserve auction by China: a total of ~4.43M barrels of oil was auctioned; China did not auction 2.95M bbls of Murban crude, cited the lack of bidders.
• (CN) China PBOC sets Yuan reference rate: 6.4599 v 6.4749 prior.

Japan

• Nikkei 225 opened +1.7% [following holiday].
• (JP) JAPAN AUG NATIONAL CPI Y/Y: -0.4% V -0.3%E; CPI EX-FRESH FOOD (CORE) Y/Y: 0.0% V 0.0%E.
• (JP) JAPAN SEPT PRELIMINARY PMI MANUFACTURING: 51.2 V 52.7 PRIOR (8th month of expansion); PMI Services: 47.4 v 42.9 prior (20th month of contraction).

Korea

• Kospi opened +0.4%.
• (KR) Bank of Korea (BOK) said another rate hike is 'manageable' for households and businesses - Financial Stability Report.
• (KR) South Korea Aug PPI Y/Y: 7.3% v 7.4% prior.

Other Asia

• (SG) Singapore Aug Industrial Production M/M: 5.7% v 3.1%e; Y/Y: 11.2% v 8.2%e.
• (TH) Thailand Aug Customs Trade Balance: -$1.2B v +$0.9Be; Exports YoY: 8.9% v 15.1%e.

North America

• (US) House of Representatives sets Sept 25th as date for markup of Build Back Better Act.
• (US) Fed Chair Powell and Treasury Sec Yellen to appear before Senate Banking Committee on Tuesday at 10ET [Sept 28th].
• Nike [NKE]: Reports Q1 $1.16 v $1.12e, Rev $12.2B v $12.5Be; Expects Q2 Rev growth to be flat to down low single digits as factory closures impact production and delivery for the holiday and spring seasons.

Europe

• (EU) ECB chief Lagarde: Many causes of higher prices are temporary; not tapering stimulus but recalibrating program- press interview.
• (UK) Sept GfK consumer Confidence: -13 v -7e.

Levels as of 01:20 ET

• Nikkei 225, +2%, ASX 200 -0.4% , Hang Seng -0.1%; Shanghai Composite -0.2% ; Kospi -0.2%.
• Equity S&P500 Futures: flat; Nasdaq100 -0.2%, Dax -0.2%; FTSE100 flat.
• EUR 1.1747-1.1737 ; JPY 110.44-110.25 ; AUD 0.7317-0.7288 ;NZD 0.7081-0.7059.
• Gold +0.1% at $1,751/oz; Crude Oil flat at $73../brl; Copper +0.2% at $4.2412/lb.

Short Term view in GBPUSD suggests the decline from September 14, 2021 peak unfolded as a 5 waves impulse Elliott Wave structure. Down from September 14, wave ((i)) ended at 1.3793 and rally in wave ((ii)) ended at 1.3854. Pair resumes lower in wave ((iii)) towards 1.3616 with internal subdivision as 5 waves impulse in lesser degree. Down from wave ((ii)), wave (i) ended at 1.3806, and rally in wave (ii) ended at 1.3841. Pair resumes lower in wave (iii) towards 1.3641 and rally in wave (iv) ended at 1.3693. Final leg lower wave (v) of ((iii)) ended at 1.3616.

Rally in wave ((iv)) ended at 1.3690 and turned lower in wave ((v)) ending at 1.3610 and completing wave 1. We are currently calling 3 waves up to correct as wave 2. Internal subdivision of wave 2 is unfolding as an ((a)), ((b)), ((c)) zigzag structure. Wave ((a)) ended at 1.3751 and we are developing wave ((b)) in 3 swings which it should bounce as wave ((c)) to complete wave 2. As we stay below 1.2913 we expected further downside in the pair. Near term, as far as pivot at 1.3913 high stays intact, expect rally to fail in 3, 7, or 11 swing for further downside.

GBP/USD 60 Minutes Elliott Wave chart