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Daily Pivots: (S1) 150.90; (P) 151.88; (R1) 152.42; More...

GBP/JPY's break of 151.39 minor support argues that rebound from 149.16 has completed at 152.82, well ahead of 153.42 resistance. Intraday bias is back on the downside for 148.43/149.16 support zone. Decisive break there will resume whole decline from 156.05 high, and carry larger bearish implications. On the upside, though, break of 152.82 will resume the rebound to 153.42 near term structural resistance.

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 be at least correcting the whole rise from 123.94. Deeper fall would be seen back 38.2% retracement of 123.94 to 156.05 at 143.78 first.

The impact of slowing in US inflation was rather short-lived as major indexes turned red after initial rise. Sentiment is further weighed down by poor retail sales data from China. Yen notably overnight on mild risk-off sentiment while Dollar also regained some ground. On the other hand, Australian and New Zealand Dollar resumed recent near term decline. As for the week, Yen is currently the strongest one, followed by Canadian. Aussie and Kiwi are the worst performing. Focus will now turn to CPI from UK and Canada.

Technically, AUD/JPY is the biggest mover for the week for far. 38.2% retracement of 77.88 to 82.01 at 80.43 was taken out as fall from 82.01 extended. Deeper decline is now in favor as long as 4 hour 55 EMA holds. Further break of 61.8% retracement at 79.45 could pave the way to retest 77.88 low. In addition, EUR/JPY's break of 129.57 support opens the way to retest 127.91 low. GBP/JPY's break of 151.39 support could also bring retest of 149.16 low. A focus is on whether USD/JPY would also break out from near term range, to the downside.

In Asia, at the time of writing, Nikkei is down -0.38%. Hong Kong HSI is down -0.95%. China Shanghai SSE is up 0.31%. Singapore Strait Times is down -0.65%. Japan 10-year JGB yield dropped -0.0062 to 0.039. Overnight, DOW dropped -0.84%. S&P 500 dropped -0.57%. NASDAQ dropped -0.45%. 10-year yield dropped -0.047 to 1.277.

China retail sales grew only 2.8% yoy in Aug, way below expectation

China retail sales growth slowed sharply to 2.8% yoy in August , down from July's 8.5% yoy, well below expectation of 7.1% yoy. China industrial production growth slowed further to 5.3% yoy, below expectation of 5.8% yoy. Fixed asset investment rose 8.9% ytd yoy, below expectation of 9.1%.

In a released, the National Bureau of Statistics said, "generally speaking, in August, the national economy maintained the trend of recovery. However, we must be aware that the international environment is still complicated and severe. At home, it has been felt that the sporadic outbreak of COVID-19 and natural disasters such as floods had caused impact on the economy, and the foundation for the economic recovery still needs to be consolidated".

Australia Westpac consumer sentiment rose to 106.2, strong resilient despite lockdown

Australia Westpac-MI consumer sentiment rose 2.0% to 106.2 in September. The index remained comfortably above the levels five years prior to the pandemic. Confidence in New South Wales rose 5.3% while Victoria was steady at 104.1, despite extended lockdown in both states. Queensland jumped 8.4% to 111.6. Overall, the data indicates strong resilience of consumer sentiment and positives reactions to vaccination progresses.

Westpac added that given that RBA has already defer the next review of the asset purchase program to February, it's highly unlikely that there will be any policy changes before that meeting. Nevertheless, it added, "with the US Federal Reserve likely to have begun its tapering program by then and the economy likely to be bouncing back as high vaccination levels see easing restrictions, we expect the Board to further taper its bond purchases in February."

OECD downgrades Australia growth forecast, urge broad RBA review

In the latest Economy Survey of Australia, OECD downgraded the country's GDP growth to 4.0% in 2021 and 3.3% in 2022, from May's forecast of 5.1% and 3.4% respectively. It said the upcoming post-restriction recovery may be "more gradual than in past episodes", as it will "occur in an environment of higher virus transmission". COVID-19 outbreaks in other states than New South Wales and Victoria, could deepen the economic shock. "Any ratcheting up of tensions with China could further weaken trade activity."

OECD also pointed out that underlying inflation has undershot RBA's target band for an extended period of time. It suggested that RBA should "conduct a monetary policy framework review that is broad in scope, transparent and involves consultation with a wide variety of relevant stakeholders."

In response, Treasurer Josh Frydenberg said, "it's something I will give consideration to in terms of looking at the RBA, looking at the monetary policy settings and learning from the experience through the pandemic. The RBA has performed very well through this crisis, its policy response has been in sync and coordinated with the government's fiscal response."

Looking ahead

UK CPI, RPI and PPI will be released in European session while Eurozone industrial production will be featured. Later in the day, Canada CPI will take center stage. US will release Empire State manufacturing, import price index and industrial production.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 150.90; (P) 151.88; (R1) 152.42; More...

GBP/JPY's break of 151.39 minor support argues that rebound from 149.16 has completed at 152.82, well ahead of 153.42 resistance. Intraday bias is back on the downside for 148.43/149.16 support zone. Decisive break there will resume whole decline from 156.05 high, and carry larger bearish implications. On the upside, though, break of 152.82 will resume the rebound to 153.42 near term structural resistance.

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 be at least correcting the whole rise from 123.94. Deeper fall would be seen back 38.2% retracement of 123.94 to 156.05 at 143.78 first.

Economic Indicators Update

Short-term Elliott wave view in S&P 500 Futures (ES_F) suggests cycle from September 24, 2020 low has ended with wave ((3)) at 4549.74. The Index has turned lower in larger degree 7 swing in wave ((4)) to correct cycle from September 24, 2020 low. The first 3 swing WXY is currently in progress within wave (W) as a double three Elliott Wave structure. Down from wave ((3)), wave ((a)) ended at 4485.50 as an impulse. Wave (i) of ((a)) ended at 4519.25 and rally in wave (ii) of ((a)) ended at 4548. Index then resumed lower in wave (iii) of ((a)) towards 4492. Wave (iv) of ((a)) ended at 4514.75, and wave (v) of ((a)) ended at 4485.50.

Correction in wave ((b)) ended at 4529.50 and Index has resumed lower in wave ((c)) towards 4434.50. This completed wave W of (W). Wave X rally is proposed complete at 4479.50. Index has resumed lower in wave Y. While rally fails below 4479.50, and more importantly below 4549.72, expect the Index to extend lower. Potential target lower is 100% – 123.6% Fibonacci extension from wave ((3)) peak towards 4337.1 – 4364.21. Near term, as far as pivot at 4549.2 high remains intact, expect rally to fail in 3, 7, or 11 swing for further downside.

S&P 500 Futures 45 Minutes Elliott Wave Chart

China retail sales growth slowed sharply to 2.8% yoy in August , down from July's 8.5% yoy, well below expectation of 7.1% yoy. China industrial production growth slowed further to 5.3% yoy, below expectation of 5.8% yoy. Fixed asset investment rose 8.9% ytd yoy, below expectation of 9.1%.

In a released, the National Bureau of Statistics said, "generally speaking, in August, the national economy maintained the trend of recovery. However, we must be aware that the international environment is still complicated and severe. At home, it has been felt that the sporadic outbreak of COVID-19 and natural disasters such as floods had caused impact on the economy, and the foundation for the economic recovery still needs to be consolidated".

In the latest Economy Survey of Australia, OECD downgraded the country's GDP growth to 4.0% in 2021 and 3.3% in 2022, from May's forecast of 5.1% and 3.4% respectively. It said the upcoming post-restriction recovery may be "more gradual than in past episodes", as it will "occur in an environment of higher virus transmission". COVID-19 outbreaks in other states than New South Wales and Victoria, could deepen the economic shock. "Any ratcheting up of tensions with China could further weaken trade activity."

OECD also pointed out that underlying inflation has undershot RBA's target band for an extended period of time. It suggested that RBA should "conduct a monetary policy framework review that is broad in scope, transparent and involves consultation with a wide variety of relevant stakeholders."

In response, Treasurer Josh Frydenberg said, "it's something I will give consideration to in terms of looking at the RBA, looking at the monetary policy settings and learning from the experience through the pandemic. The RBA has performed very well through this crisis, its policy response has been in sync and coordinated with the government's fiscal response."

OECD press release, blog post, and report.

Australia Westpac-MI consumer sentiment rose 2.0% to 106.2 in September. The index remained comfortably above the levels five years prior to the pandemic. Confidence in New South Wales rose 5.3% while Victoria was steady at 104.1, despite extended lockdown in both states. Queensland jumped 8.4% to 111.6. Overall, the data indicates strong resilience of consumer sentiment and positives reactions to vaccination progresses.

Westpac added that given that RBA has already defer the next review of the asset purchase program to February, it's highly unlikely that there will be any policy changes before that meeting. Nevertheless, it added, "with the US Federal Reserve likely to have begun its tapering program by then and the economy likely to be bouncing back as high vaccination levels see easing restrictions, we expect the Board to further taper its bond purchases in February."

Full release here.

STOCKS

Dow fell sharply after the US CPI data release yesterday but Dax trades in the green and test 15800. Nikkei and Shanghai need to remain above 30500 and 3700 to move up else a corrective fall can be seen. Nifty and Sensex look overall bullish.

Dow (34577.57, -292.06, -0.84%) fell sharply after the US CPI data came out lower yesterday. The index surprised with a fall to 34510 but while support at 34500 holds, the index may turn to rise in the near term. Failure to bounce from 34500 can bring in a fall towards 34000 in the medium term. Note that 34500 now acts as a “stop loss” for bullishness.

DAX (15722.99, +21.57, +0.14%) has risen slightly and could be headed towards 15800 and eventually towards 16000.

Nikkei (30510.05, -160.05, -0.52%) has reversed contrary to our expectation of a rise to 30700. Note that 28000 is an important support and while above that the index is bullish with some interim corrective dips. The fall seen yesterday may be short lived and can bounce from 30000.

Shanghai (3666.08, +4.18, +0.11%) is stable around 3700 and needs to sustain a break on the upside to turn bullish for the medium term. While below 3700, a fall back to 3600 looks possible.

Nifty (17380, +24.70, +0.14%) surged up to test the intraday high of 17438.55 and has come down. The consolidation mentioned between 17250-17500 is still holding well. Nifty can consolidate between 17250-17500 for some more time before we see an eventual rise above the level of 17500 and a test of 17800 levels.

Sensex (58247.09, +69.33, +0.12%) is rising steadily towards 59000.A strong break above 59000 is needed for the view to be bullish, else Sensex can consolidate for some time between 58000-59000.

COMMODITIES

Brent and WTI are stable but have resistance near 74/75 and 72 respectively that could produce a fall. Gold has risen well and needs to sustain above 1800 in order to move up further from here. Silver looks stable but is bullish while above 23.50. Copper may test 4.20 before rising from there. Failure to bounce from 4.20 can drag it towards 4.00.

Brent (73.89) and WTI (70.79) are stable near levels seen yesterday. We continue to expect immediate resistance near 74/75 on Brent and 72 on WTI to hold and produce a slight rejection from there.

Gold (1805.30) has risen slightly to break above 1800 and this needs to sustain for the price to move up towards 1820 or higher eventually. Else a fall back to 1780 cannot be negated. Watch price action near current levels.

Silver (23.84) is trading near the lower end of the 23.50-25 range. Within the range a bounce towards 24 and eventually 25 is possible. Any break below 23.50 would negate our bullish view and instead take the prices down towards 23-22. Watch price actions near current levels.

Copper (4.2995) fell sharply in line with expectations and can be headed towards 4.20 before a bounce is seen. Failure to bounce from 4.20 can drag it lower towards 4.00.

FOREX

Fluctuation seen in Dollar Index and most other currencies after a lower US CPI data release yesterday. Euro has fallen back to 1.18 and looks bearish towards 1.1775/50 from here a bounce is expected. Dollar Index is ranged. Aussie and Pound look strongly bearish while USDCNY can head towards 6.40/3750. EURJPY has fallen sharply and can test 129-128.50 soon. USDINR is also likely to fall towards 73.50/40. USDJPY looks weak and bearish towards 109.40/20.

Dollar Index (92.66) is fluctuating within 92.90 and 92.30 and unless a break on either side is seen it is ranged for the next few sessions. The index fell sharply to 92.32 after the US CPI release yesterday but recovered during the session and bounced back sharply. We would be in wait and watch mode for now.

Euro (1.1804) came down sharply from 1.1850. A range of 1.19-1.1750 looks possible for the near term. Unless a sharp and sustained break on either side is seen, it is difficult to project further movement. We would wait and watch price action for now. Expect a bounce from 1.1775/50 in the very near term.

EURJPY (129.41) tested 130.20 yesterday but fell back sharply from there contrary to our expectation of a further rise towards 131 and higher. While below 130.70, we may expect a range of 130.70-129/128.50 to hold. Broad range of 128/128.50-130.50/70 may hold for the next 1-2 weeks

Dollar-Yen (109.62) fell sharply from 110.20 testing our mentioned support at 109.60. If the pair breaks lower, it can fall further towards 109.40/20-109.00. Immediate view is bearish within the broad range of 110.40-109.20/00

Aussie (0.7316) fell sharply to test 0.73 before bouncing slightly from there. While above 0.73, a rise to 0.7350 cannot be negated but the currency may soon break below 0.73 to head downwards.

Pound (1.3797) fell sharply from levels above 1.39 and could be headed towards 1.3750-1.3700 in the coming sessions. View is bearish.

USDCNY (6.4435) tested 6.4350 falling sharply from 6.45 yesterday. The pair has risen slightly from 6.4350 but may not sustain for long. An eventual fall to 6.40/3750 could be on the cards in the next 1-2 weeks.

USDINR (73.6825) is likely to dip towards 73.50/40 initially before again bouncing back to higher levels of 73.65/80. Immediate view is bearish while below resistance at 73.80.

INTEREST RATES

The US Treasury yields have dipped across tenors after the US inflation data release yesterday showed a slowed down in the pace of rise. The US Headline CPI rose 5.2% (YoY) in August compared to 5.28% in July. A further fall in the yields from current levels will negate our view of seeing a rise and in turn can drag it lower in the coming days. The German yields have dipped slightly but still have room on the upside to test their resistances before seeing a strong reversal. The 5Yr and 10Yr GoI have risen back well from their day’s low and can move up further if they manage to break above their key immediate resistance.

The US 2Yr (0.20%), 5Yr (0.78%), 10Yr (1.28%) and the 30Yr (1.86%) Treasury yields have come down across tenors. A further fall from here can drag the 10Yr lower to the 1.2%-1.18% support zone. It will also negate the chances of seeing 1.45%-1.5% that we had been mentioning. While below 1.9%, our earlier view of seeing 2%-2.1% may not happen and in turn a fall to 1.8% is possible.

The German 2Yr (-0.71), 5Yr (-0.65%), 10Yr (-0.34%) and 30Yr (0.15%) yields have dipped slightly. We retain our view of the current corrective rally extending upto -0.30%/-0.25% (10Yr) and 0.20% (30Yr) in the coming days. Thereafter a reversal to resume the broader downtrend is possible.

The Indian 10Yr GoI (6.1982%)has risen back well from the day’s low of 6.1741% yesterday. A break above 6.2% will be bullish to test 6.22%-6.24% on the upside and will negate our earlier view of seeing a fall to 6.1%.

The 5Yr GoI (5.6363%) on the other hand can rise to 5.66%-5.68% on a break above the immediate resistance level of 5.64%. That in turn will prove our view of seeing a fall to 5.55%-5.5%.

Key Highlights

• Crude oil price started a fresh increase from the $67.50 support zone.
• There was a break above a key bearish trend line at $69.60 on the 4-hours chart of XTI/USD.
• EUR/USD stayed above the 1.1780 support, and GBP/USD was rejected near the 1.3900 resistance.
• The US CPI increased 5.3% in August 2021 (YoY), down from 5.4%.

Crude Oil Price Technical Analysis

After forming a support base above $67.50, crude oil price started a fresh increase against the US Dollar. The price broke the $68.500 resistance zone to move into a positive zone.

Looking at the 4-hours chart of XTI/USD, the price even climbed above the $69.50 resistance zone. There was a clear break above a key bearish trend line with resistance at $69.60.

The bulls were able to clear the $70.00 barrier and the last swing high at $70.70. The price also settled well above the 100 simple moving average (4-hours, red) and the 200 simple moving average (4-hours, green).

On the upside, an initial resistance is near the $71.45 level. It is near the 1.236 Fib extension level of the last key decline from the $70.70 swing high to $67.61 low.

The next major resistance is near the $72.00 level, above which the price could rise towards the $73.50 level. On the downside, an immediate support is near the $70.00 level. The first major support is near $68.50 and the 100 simple moving average (4-hours, red). Any more losses could open the doors for a move towards $67.80 support zone.

Looking at EUR/USD, the pair corrected lower, but the bulls were able to protect the 1.1780 support zone. Besides, GBP/USD was able to spike above the 1.3900 resistance zone before it corrected gains.

Economic Releases to Watch Today

• UK Consumer Price Index for August 2021 (YoY) – Forecast +2.9%, versus +2.2% previous.
• UK Core Consumer Price Index for August 2021 (YoY) – Forecast +2.9%, versus +1.8% previous.
• Canadian Consumer Price Index for August 2021 (MoM) – Forecast +0.1%, versus +0.6% previous.
• Canadian Consumer Price Index for August 2021 (YoY) – Forecast +3.9%, versus +3.7% previous.
• US Industrial Production for August 2021 (MoM) – Forecast 0.5%, versus 0.9% previous.

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Gold's break of 1803.61 resistance suggests that correction from 1833.79 has completed at 1779.44. 38.2% retracement of 1682.60 to 1833.79 was well defended, maintaining near term bullishness. Further rise is now in favor to retest 1832.47/1833.79 resistance zone. Sustained break there will raise the chance that whole corrective pattern from 2074.84 has completed too. Further rally would then be seen to 1916.30 resistance for confirmation.