HotForex Forex News

16:08 Spain s Constitutional Court declares Catalan referendum law void - RT

"The Spanish Constitutional Court has unanimously annulled the Catalan Referendum Law, approved by the region’s government ahead of the recent independence vote, according to a court spokesman," RT news noted.

Reporting on this development, El Pais, a Catalan newspaper, wrote, "The judgment states that during the parliamentary procedure of the law the Parliament committed "very serious bankruptcies of the legislative procedure", which affected "the formation of the will of the House, the rights of minorities and the fundamental rights of all citizens to participate in public affairs through representatives."


15:57 Iraqi OilMin: All oil facilities in Kirkuk province now under government control - Sky

"Iraqi oil ministry confirms all oil facilities in Kirkuk province now under government control following clashes with Kurdish forces," Sky news recently tweeted out. 

At the moment, the barrel of West Texas Intermediate is trading at $52 still up 0.2% on the day.


15:56 United States Redbook index (YoY) climbed from previous 3.2% to 3.6% in October 9


15:55 Fed: Market is fickle about the next Fed chair - BBH

Analysts at BBH suggest that the market is fickle as it has jumped from one candidate to another as the most likely Fed Chair.  

Key Quotes

“Until his belated and mild criticism of the President dealing with race issues, economic adviser Cohn was regarded as the most likely successor to Yellen at the head of the Fed.  When Cohn fell out of favor, it was seen as a contest between Yellen and former Fed Governor Warsh.”  

“Powell's stock rose recently, and there have been reports that Treasury Secretary Mnuchin favors him.  Yellen has slipped in the betting markets, as president-as-disrupter has little time for tradition or the fact that Yellen has steered the Fed quite remarkably through tapering, rate hike and now balance sheet reduction with very little drama.”  

“Yesterday, reports suggesting that Trump was enthusiastic after meeting with Taylor saw his stock rise in the betting websites and may have prompted a reversal in the yields.  The US 10-year yield closed higher, and the December futures contract surrendered the gains scored in the wake of the disappointing CPI report before the weekend.  The 2-10 curve did not change; yields rose nearly uniformly by three basis points.”    

“We caution against reading too much into the process whereby the Trump meets the different candidates for the post that his staff have identified.  Also, although the Taylor rule would suggest higher rates may be appropriate, Taylor himself is opposed to blindly following any model.  The US-German 2-year spread is 227 bp today, the cycle high.”  

“PredictIt has Powell as the most likely nominee, with a little more than a one-in-three chance.  A week ago, his chances were even-money.  The new new thing is that Taylor's odds have improved to one-in-five from one-in-ten.  It is pretty much a dead heat between Taylor and Warsh, with Yellen in fourth place.”  


15:55 United States Redbook index (MoM): -1.4% (October 9) vs -1.5%


15:54 USD/CHF inches higher toward 0.98 on upbeat US-data

After losing its momentum in the early European session and retreating from its weekly high of 0.9792, the USD/CHF pair gained traction at the beginning of the NA session and is now rising towards the 0.98 handle. At the moment, the pair is at 0.9788, adding 0.35% on the day.

The pair's recent upsurge seems to be fueled by a fresh USD-buying wave that hit the markets following the macroeconomic data releases from the United States. According to the data released by the U.S. Bureau of Labor Statistics, import prices increased 0.7% on a monthly basis in September and lifted the annual rate to 2.7% from 2.1% in August. "The last time import prices advanced by more than 0.7 percent was a 1.2-percent increase in May 2016," the report noted. Moreover, export prices edged higher to 0.8% from 0.6% on a monthly basis in September.

  • US: Import prices rise 0.7% in Sept on higher fuel prices; export prices increase 0.8%

Boosted by the data, the US Dollar Index advanced to its highest level since October 10 at 93.45. At the moment, the index is at 93.44, up 0.33% on the day.

Later in the session, the economic docket in the United States will feature industrial production and capacity utilization. A higher-than-expected reading could allow the DXY push higher and help the pair crack through the 0.98 handle.

Technical outlook

With today's modest rise, the RSI indicator on the daily graph turned north above the 50 mark, suggesting that the bullish momentum is building up. A decisive advance above 0.9800 (psychological level) could open the door for further gains toward 0.9835 (Oct. 6 high) and 0.9900 (psychological level). On the downside, the first technical support aligns at 0.9775 (200-DMA) ahead of 0.9700 (psychological level) and 0.9640 (100-DMA).


15:51 USD/CAD near 1.2550 on US data, NAFTA

The greenback keeps the positive note vs. its Canadian peer during the first half of the week, with USD/CAD now hovering over the 1.2530/35 band.

USD/CAD flirting with multi-day tops

The pair is up for the second straight session so far today amidst a continuation of the healthy rally in the greenback.

Adding to the bid tone around the buck, both import prices and export prices rose above estimates in September, at a monthly 0.7% and 0.8%, respectively.

CAD’s source of weakness comes mostly from heightened concerns over the future of the NAFTA amidst a complicated fourth round of negotiations and the omnipresent threats from President Trump to terminate the agreement.

In the meantime, CAD keeps ignoring the rally in crude oil prices, where the West Texas Intermediate surpassed the $52.00 mark per barrel, recording at the same time fresh 3-week peaks.

Ahead in the session, September’s capacity utilization, industrial and manufacturing production are next on tap, followed by the NAHB index and TIC flows. In addition, Philly Fed P.Harker (voter, hawkish) is also due to speak.

USD/CAD significant levels

As of writing the pair is gaining 0.20% at 1.2543 facing the next up barrier at 1.2558 (high Oct.16) seconded by 1.2599 (high Oct.6) and finally 1.2664 (high Aug.31). On the downside, a drop below 1.2510 (10-day sma) would aim for 1.2431 (low Oct.12) and then 1.2253 (low Sep.22).


15:37 EUR/USD keeps the red near one-week lows post-US data

The EUR/USD pair maintained it’s offered tone through early NA session and has now dropped to fresh one week low post-US data

The pair traded with bearish bias for the fourth consecutive session and was further weighed down by today's weaker German ZEW economic sentiment survey, which largely negated mostly in-line final Euro-zone CPI print for September. 

Meanwhile, data released from the US showed import prices increased 0.7% m-o-m during September, with the yearly rate jumping to 2.7% during the reported month. The reading surpassed even the most optimistic and provided an additional boost to the already stronger US Dollar

   •  US: Import prices rise 0.7% in Sept on higher fuel prices; export prices increase 0.8%

Today’s US economic docket also features the release of industrial production and capacity utilization data, while Philadelphia Fed President Patrick Harker is due to speak later during the NY trading session.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet writes: "Next short term supports stand at 1.1720, 1.1690 and 1.1660, being this last a line in the sand for longer term bulls. The 1.1780/90 region is the immediate resistance ahead of 1.1830, with steady gains beyond this last required to change to ongoing negative tone."


15:33 Japan: Election uncertainties but little impact on JGBs HSBC

According to Dayeon Hong, Rates Strategist at HSBC, while uncertainties still persist with a large number of undecided votes for the upcoming election as indicated by the latest polls, so long as there is a comfortable lead for Abe JGB yields are unlikely to budge prior to the election.

Key Quotes

“In a scenario of an LDP win, market participants are likely to expect the BoJ to maintain its easy monetary policy stance particularly in regards to its commitment to yield curve control (YCC) policy. While the polls show a win by the Party of Hope is unlikely, any unexpected result could heighten volatility in the bond market. JGB yields could initially rise sharply. However, the central bank is highly likely to initiate a fixed rate operation in order to cap 10yr JGB yields at 0.1% under the YCC policy framework as previously done on 7 July 2017 when the 10yr JGB yield nudged higher above 0.1%.” 

“The BoJ’s monthly JGB purchases have indeed declined lately. In September, only JPY7.9trn was bought compared with the monthly average of JPY9.9trn in 2016. Moreover, the BoJ’s net monthly purchase amount fell into negative territory for the first time in September i.e. the redemption amount from the stock of the central bank’s JGB holdings was larger than the total amount of JGBs purchased by the BoJ. Despite the ongoing reduction in the central bank’s bond purchase amount, the 10yr JGB yield has been well-anchored around 0%. This suggests that market participants’ focus has already been shifted towards the YCC policy rather than the quantity of BoJ’s bond purchases.” 

“In the absence of an immediate change in monetary policy stance by the BoJ, JGB volatility would likely remain low in the near term allowing investors to reach for duration. The latest auctions have already revealed investors’ appetite for super-long JGBs. For example, the 30year JGB auction on 11 October recorded the highest bid-to-cover ratio since March 2016. Note that in March 2016, the 30-year JGB auction incurred a c25bp intra-day drop in yield as a result of the negative interest rate policy introduced on 29 January 2016. This was also the strongest bid seen since the introduction of the yield curve policy in September 2016 and reflects investor confidence that the BoJ will continue to cap bond yields.” 

“Abe’s pledge for a fiscal boost has little bearing on JGBs Abe’s plan to spend an additional JPY2trn should not have a material impact on JGBs given that it accounts for less than 0.2% of the total outstanding JGBs (including T-bills) which stands at JPY1036trn currently. With ongoing efforts for fiscal consolidation, including a possible consumption tax hike in October 2019, JGB supply is unlikely to rise significantly, in our view. Even in the case of a larger fiscal boost in the medium term, the supply of bonds available for purchase by investors is expected to reduce as the central bank continues to ramp up its ownership of JGBs, albeit at a marginally slower pace.”


15:33 US: Import prices rise 0.7% in Sept on higher fuel prices; export prices increase 0.8%

"U.S. import prices increased 0.7 percent in September, after advancing 0.6 percent in August. The price index for U.S. exports rose 0.8 percent in September, after increasing 0.7 percent the previous month," the U.S. Bureau of Labor Statistics announced on Tuesday.

Key highlights:

  • The last time import prices advanced by more than 0.7 percent was a 1.2-percent increase in May 2016.
  • Higher prices for both fuel and nonfuel imports contributed to the overall rise in import prices for September.
  • Prices for U.S. imports also increased on a 12-month basis, advancing 2.7 percent.
  • Fuel prices increased 3.9 percent in September, after rising 4.4 percent in August.
  • The monthly movements were the first advances since the index rose 0.3 percent in February, and the August rise was the largest advance since the index increased 6.1 percent in January. 
  • The price index for nonfuel imports advanced 0.3 percent in September, following an identical increase in August. 

15:32 United States Import Price Index (YoY) registered at 2.7% above expectations (2.6%) in September


15:32 United States Import Price Index (MoM) above expectations (0.5%) in September: Actual (0.7%)


15:31 United States Export Price Index (YoY) climbed from previous 2.3% to 2.9% in September


15:31 United States Export Price Index (MoM) above expectations (0.4%) in September: Actual (0.8%)


15:27 UK: Highest reading for headline inflation since April 2012 - BBH

UK reported September CPI and the headline came in as expected 3.0% y/y, as did CPIH at 2.8% y/y, which is the highest reading for headline inflation since April 2012, and will feed the notion that the BOE is close to starting the tightening cycle, explains the analysis team at BBH.  

Key Quotes

“UK jobs and retail sales data tomorrow and Thursday will round out the macro picture.  Many economists still expect UK inflation to peak here in Q4, while the economy continues to gradually slow.”

“The next BOE policy meeting is November 2.  Bloomberg’s WIRP page puts the odds of a hike then at 84%.  However, we warn of potential disappointment and market positioning suggests the reaction may be dramatic to anything that would justify waiting an extra month before hiking rates.”    


15:21 Powell likely next Fed chief, though Yellen best suited - Reuters poll

"Jerome Powell likely will be the next Federal Reserve chairman, according to a slim majority of economists in a Reuters poll," Reuters reported on Tuesday.

Key quotes:

  • Just over half the 40 economists who participated in the survey, taken in the past few days, tipped Fed Governor Powell to be appointed chair by U.S. President Donald Trump.
  • Most of them said current Fed Chair Janet Yellen would be the best option.
  • “The most continuity between Fed chairs would be Yellen to Powell. Given where we are in the tightening cycle some consistency would be welcomed by financial markets,” Ryan Sweet at Moody’s Analytics told Reuters.
  • The next most likely choice was Kevin Warsh, who served as a Fed governor during the financial crisis, with 13 forecasts. Yellen received only four.

15:09 US: Industrial production forecasted to post a mild rebound in September - TDS

US industrial production is forecasted to post a mild rebound in September from the Harvey-induced drop the prior month, suggests the analysis team at TDS.

Key Quotes

 “While Hurricane Irma will once again distort the data, TD looks for a 0.2% m/m increase (market: 0.3%), led by the normalization of energy output, while Florida power outages offset the impact of unseasonably warm weather for utilities. Manufacturing production should post a more modest 0.1% gain on the month (market: 0.2%). Harvey’s impact on gasoline will also affect import prices for September; the market expects import prices to rise by 0.6% though the consensus for ex-petrol prices is for a more moderate 0.2% gain. Lastly, Philadelphia Fed President Patrick Harker (voter) will give a speech at 13:00 ET.”


15:04 BOEs Carney: Bank rate, not QE, will be relevant instrument for policy for some time to come

Additional comments from the BOE Governor Carney from his testimony before the TSC:

   •  We don’t have to go as close to 2% inflation to start QE unwind
   •  2016 round of QE had a sizeable impact on UK economy
   •  Challenges for UK housing market are structural
   •  Govt's help to buy scheme is not material for overall UK housing market
   •  In a perfect world we would not be using QE just interest rates


14:59 NZD/USD stays neutral between 0.7130 and 0.7240 UOB

The outlook on the Kiwi Dollar remains neutral for the time being, likely to gravitate in the 0.7130/0.7240 range vs. the buck, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “NZD traded in a relatively narrow 0.7163/0.7196 range yesterday before surging higher to hit a high of 0.7217 after the release of NZ inflation data. The sharp and rapid drop from the high suggests that NZD is trying to form a short-term top. From here, allow for a bounce to 0.7205 but 0.7220 is expected to cap for a deeper pullback to 0.7155”.

Next 1-3 weeks: “NZD edged above the strong 0.7200 resistance and hit a high of 0.7217 early this morning. The up-move appears to be running ahead of itself and we do not anticipate further sustained NZD strength from here. Despite the positive undertone, NZD is more likely to consolidate its recent gains and trade sideways at these higher levels, likely within a 0.7130/0.7240 range”.


14:58 USD/JPY in search of a firm direction, stuck in a narrow range

The USD/JPY pair reversed an early dip to the 112.00 neighborhood and now seems to have entered a consolidation phase within a 15-pips narrow trading range. 

Currently trading around the 112.20-15 region, the pair lacked any firm directional bias and has failed to build on overnight strong recovery move from 3-week lows, despite a strong follow through US Dollar buying interest. 

A mildly softer tone around the US Treasury bond yields and the prevalent cautious tone around equity markets, which tends to benefit the Japanese Yen's safe-haven appeal, has been contributing towards keeping a lid on the pair's up-move. 

From a technical perspective, the pair's overnight recovery clearly indicated the bulls ability to defend the very important 200-day SMA. Hence, a follow through up-move, led by additional short-covering, now seems a distinct possibility.

On the economic data front, the release of import/export prices, industrial production and capacity utilization data are due for release from the US. Later during the day, a scheduled speech by Philadelphia Fed President Patrick Harker might also help traders grab some short-term trading impetus. 

Technical levels to watch

On a sustained momentum above 112.30 level, the pair is likely to jump towards 112.60 horizontal level before eventually darting towards the 113.00 handle. Alternatively, weakness back below the 112.00 handle might find support near the 111.80-75 region, below which the pair could fall to its next support near mid-111.00s.

   •  USDJPY: Scope for Japanese politics to get some traction in the currency markets - HSBC


14:58 EUR/JPY downside pressure intact below 133.50 Commerzbank

In view of Senior Analyst at Commerzbank Axel Rudolph, the offered bias around the cross remains unchanged as long as it trades below 133.50.

Key Quotes

EUR/JPY is drifting back towards the 55 day moving average at 131.19. Should it be slipped through, the mid-September low at 130.64 would be in focus. Below it lies the September low at 129.40 and the August low at 127.57. Immediate downside pressure will be maintained while the cross continues to trade below the current October high at 133.50”.

“A move above the 134.58 November 2015 high would target the 2008-2017 resistance line at 140.90”.


14:38 USDJPY: Scope for Japanese politics to get some traction in the currency markets - HSBC

In view of Daragh Maher, FX Strategist at HSBC, the key driver of USD-JPY over the last year has been cyclical rather than political, although the exchange rate has been more attuned to the US economic cycle than Japan’s with the USD-JPY highly correlated to US Treasury yields.

Key Quotes

“Still, there is scope for Japanese politics to get some traction in the currency markets if the polls affect the probability the markets attach to the continuation of the BoJ’s ultra-accommodative monetary policy under Abenomics. Anything that suggests the policy might come to a premature end would likely see USD-JPY drop. For now, however, the opinion polls suggests little threat to the policy status quo. Yet even if this snap election does not rattle the currency market, it serves as a reminder that politics cannot be ignored and we continue to believe the failure of Abenomics to generate lasting inflation creates a gravitational pull for USD-JPY to fall back towards 100.”

“For a brief period, PM Abe’s decision to call a snap general election looked like it could echo the struggles experienced by the UK’s Prime Minister Theresa May with the result of the snap election there, earlier in the year. The sudden possibility that the Party of Hope could effectively utilise the Democratic Party’s political infrastructure to mount a potent challenge to Abe’s LDP saw USD-JPY weaken. The simple logic is that any challenge to Abe is a challenge to the mandate for Abenomics and, by extension, to the BoJ’s monetary stance. This FX market reflex is likely to remain in play throughout the election campaign and should also dictate the reaction to the actual result.”

“Opinion polls however suggest the challenge to Abe from the new make-up of the opposition is not likely to be strong. Perhaps the opinion polls will be proven wrong, in which case the surprise nature of an Abe defeat would see USD-JPY materially lower. If the picture painted by the opinion polls is borne out by the election results then the currency market will look for continuity in BoJ policy over the next couple of years (whoever is at the helm) and will not need to re-price the JPY. It is possible that the margin of any Abe victory could have some bearing on the currency. The narrower an Abe victory, perhaps the greater the question over the public’s support for Abenomics. Alternatively, retention of a super-majority for another parliamentary term might embolden JPY bears.”

“Yet beyond the knee-jerk JPY takeaway from the election result and what it signals in terms of support for Abenomics and continuity in BoJ policy, the greater issue for the currency is that Abenomics is simply not working. The timing of when the 2% inflation target will be hit has been snow-ploughed ever further into the future. The promises made back in 2012 of sustained inflation have not been met and the depreciation that the JPY underwent in anticipation of higher inflation looks excessive.”

“The BoJ has successfully massaged the 10Y JGB yield to zero, but this is not the target of policy, it is only the tool of policy to achieve the target of 2% inflation. There are no signs that focussing on the price of bonds rather than the quantity of bond bought is proving any more effective for the BoJ, and it also means that tapering is already underway in Japan. The policy failure and ongoing tapering creates a gravitational pull lower for USD-JPY, perhaps not all the way back to the starting point of 80 when those promises were first made. But a move back to 100 looks plausible and the snap election may merely determine how long it takes us to get there.”


14:35 EUR/GBP regains 0.89 and above, Brexit weighs

The increasing selling bias around the Sterling is now lifting EUR/GBP to fresh daily highs above the key 0.8900 handle.

EUR/GBP boosted by GBP selling

The European cross is picking up extra upside pace today in response to a sharp decline in the British Pound despite some hawkish comments by Governor Carney at the Treasury Committee Hearings.

Heightened concerns over Brexit keep weighing on GBP as of late despite the Bank of England left the door open for a rate hike in the near term, likely at the November meeting as per consensus among investors.

Also collaborating with the pullback in the Sterling, UK’s inflation figures failed to surprise investors in September, where consumer prices rose at an annualized 3.0%, matching previous estimates.

Looking ahead, UK’s labour market figures are due tomorrow ahead of Friday’s public sector’s finance results.

EUR/GBP key levels

The cross is now up 0.11% at 0.8911 facing the next hurdle at 0.8926 (10-day sma) seconded by 0.9012 (55-day sma) and then 0.9034 (high Oct.12). On the other hand, a breach of 0.8855 (low Oct.16) would expose 0.8745 (200-day sma) and finally 0.8744 (low Sep.27).


14:35 GBP/USD tumbles to lows, below 1.32 handle

The GBP/USD pair came under some intense selling pressure and tumbled to sub-1.3200 level in absence of any fresh BOE hawkish tones. 

The pair reversed UK CPI-led modest uptick to session high level of 1.3287 and drifted into negative territory for the second consecutive session, even as the BoE Governor Mark Carney reaffirmed a rate hike in coming months may be appropriate. Bulls, however, seemed disappointed by the fact that there was nothing too hawkish from Carney. 

   •  BOE’s Carney: BOE rate hike in coming months may be appropriate

Meanwhile, a strong follow through greenback buying interest, with the key US Dollar Index placed at 7-day tops, further aggravated the selling pressure and collaborated to the pair's sharp slide to a 3-day low, near the 1.3190 region.

Next on tap would be the US economic docket, featuring the release of import/export price index and industrial production data, which along with Fedspeak would now be looked upon for some fresh impetus. 

Technical levels to watch

Immediate support is pegged near 1.3175 area, below which the pair is likely to accelerate the fall towards 1.3125-20 intermediate support ahead of the 1.3100 handle.

On the upside, any up-move now seems to confront fresh supply near mid-1.3200s and is followed by a strong hurdle near the 1.3300 handle. Only a convincing break through the mentioned hurdle would negate any near-term bearish bias.


14:17 BoJ to stay the course HSBC

Policy continuity is key for the BoJ and any doubts about the direction of Abenomics, especially its monetary easing, could have severe repercussions in the markets and for the economy, suggests the analysis team at HSBC.

Key Quotes

“The general election results will reveal how much support the Abe government has for its economic policies, often summarized by the three arrows, and thus will shed some insight into their durability.”

“We believe the BoJ is likely to stay on hold for an extended period of time, as inflationary pressures are likely to be weighed down by structurally low wage growth. Even though the BoJ has started tapering JGB purchases, this should not impair its ability to control the 10y JGB yield and the loose monetary stance should stay broadly unaffected. If the general election result points to a continuation of Abenomics, such as the LDP and its coalition partner securing at least an absolute majority as the polls suggest, this would reduce the uncertainty around our the BoJ outlook, as PM Abe could give the current BoJ governor Haruhiko Kuroda another term or succeed him with a new face but similar mind-set regarding expansionary policy when the governor's term ends in April next year.”

“The names that have been speculated by local media reports (e.g. Sankei News), apart from Kuroda himself, are Etsuro Honda (PM Abe's economic adviser), Hiroshi Nakaso (deputy governor of BoJ), Takatoshi Ito (professor at Columbia), and Masayoshi Amamiya (executive director of BoJ).” 

“On the other hand, if the current government wins a weak mandate or even loses the election, uncertainty around the medium-term monetary policy outlook will increase notably, although the chance of any immediate change seems thin. Under the assumption that the LDP wins a weak mandate, PM Abe could face internal pressures ahead of the party's leadership election in September 2018. Still, this would allow Abe to appoint the central bank governor before then. Even if the PoH were to get a surprise in in the elections – the more extreme case, according to recent media surveys –party leader Yuriko Koike has said that a sudden change in monetary policy is not preferred and that an exit strategy must be done very carefully. This suggests some short-term stability, given the circumstances, although the mention of an exit strategy itself increases the uncertainty around the medium-term outlook and could reduce the effectiveness of BoJ's policy through weaker expectations.”


14:16 UK Chancellor Hammond: can create certainty for UK businesses by avoiding cliff-edge Brexit

UK Chancellor of the Exchequer, Philip Hammond, is out on the wires now, saying that by avoiding cliff-edge Brexit, we can create certainty for UK businesses

Additional quotes (via LiveSquawk):

   •  Will consider the OECD's recommendations and act where we can

   •  Boosting productivity will be a theme of the budget.

Meanwhile, the GBP/USD pair extended its post-Carney slide and is currently flirting with session lows near the 1.3200 handle. 


14:12 GBP futures: upside appears limited

According to preliminary figures from CME Group for GBP futures markets, investors added more than 1.1K contracts to their open interest positions on Monday vs. Friday’s 182,229 contracts. On the opposite side, volume decreased by more than 33.2K contracts.

GBP/USD rallies could struggle around 1.3320

Cable is extending the downside for the second consecutive session so far today. The decline continues to be fuelled by increasing Brexit concerns, while UK’s inflation figures failed to ignite fresh buying interest around GBP.

Softer price action in combination with a pick up in open interest signals the likeliness of further pullbacks ahead. The backdrop of declining volume, however, prompts some caution over the bearish view.


14:05 BRL: Can flows pick up the baton from carry? Deutsche Bank

The BRL’s recent outperformance on the back of the Brazilian government’s successful auctions of exploration rights and energy concessions are not due to a one-off, suggests Sebastian A. Brown, Strategist at Deutsche Bank.

Key Quotes

“BRL drivers: from carry to capital flows

Our expectation of an increase of growth-driven capital flows into Brazil lead us to believe that BoP strength rather than the BRL’s carry could now hold the baton as a driver of the BRL’s strength.”

“Significant FDI inflows in the pipeline

We expect FDI inflows into Brazil to remain positive and even strengthen further if China’s plans to invest over USD 20bn next year comes to fruition.”

“Increasingly stable external financing mix

As FDI inflows strengthen portfolio flows have weakened significantly which (at least on the fixed income front) has been surprising. Yet the end result has been an improvement of the stability of Brazil’s external financing profile.”

“Light foreign positioning on equities and improving growth prospects

The economic upturn and the under-allocation of foreigners into Brazil’s local equity markets are together likely to result in further foreign inflows into Brazil especially as the BCB continues easing monetary conditions.”

“Long BRL, pick your funding

We recommend being long BRL/CLP as the CLP’s rally has the peso well above estimated fair value especially as inflation weakens. Also, if the EUR resumes an appreciation phase we think the USD/BRL could test 3.0. A more conservative implementation would fund a long BRL position with a basket of USD and EUR.”


13:56 China: PBoCs Zhou points to 7% GDP in 2H ING

According to Iris Pang, Economist at ING, twin growth engines, consumption and infrastructure investments, make China’s 7% GDP growth in 2H more possible, imparting upside risk to ING’s 6.8% forecast for 3Q.

Key Quotes

“Why does PBoC’s Zhou suggest 7% GDP in 2H? If we read the whole speech of Zhou then we can easily discover his analysis.”

“Zhou emphasised the need for deleveraging. And this time his focus is not only corporate leverage but also local government leverage. These two have a very different nature. The market or even the local governments themselves almost always believe that there are implicit guarantees on local government debts. If this conception is true then local government debts should be in the central government’s contingent liability account. Of course, the central government has highlighted to the market that this is purely a misconception.”

“But why is local government debt linked with the 7% GDP growth in 2H? That’s because local governments like infrastructure projects. Look at Xiong An New District, and the north-west part of China, where there is lots of infrastructure spending happening. So if there was a 7% surprise in 2H, it would probably be the effect of infrastructure growth.”

“We are not arguing that China has abandoned the consumption growth path. But we have to admit that potentially China could have twin growth engines, consumption and infrastructure investments. That makes 7% GDP growth in 2H more possible, imparting upside risk to our 6.8% forecast for 3Q.”

“Is local government debt worrisome? Yes and no. Depending whether the local government realises that it has to bear the repayment. If the central government is backing up the debts then local government debts would boom (because they don’t think they need to repay the debts), a real risk scenario. But, the central government has the upper hand, just like the first SOE bond to default recently, it could allow a local government debt to default as a wake-up call for local government borrowers before it’s too late.”


13:50 Japan: Polls point to a comfortable lead for Abe, but still a large number of undecided voters- HSBC

Analysts at HSBC note that the Japanese opinion polls suggest the LDP and its coalition partner Komeito are likely to secure at least a stable majority and potentially preserve their super majority of two-thirds, if the LDP wins tightly contested constituencies. However, surveys reveal a high number of undecided voters, they further adds. 

Key Quotes

“Before the lower house was dissolved, the LDP held 287 seats and Komeito 35, giving them a super majority (i.e. two-thirds of the total) out of a total 475 seats. Although PM Abe has said his target is to secure a simple majority with Komeito, and that he will step down if the coalition fails to do this, a key goal for the LDP is to win a two-thirds majority in the lower house. This will allow it to initiate a bill to make changes to the constitutional amendment, which also requires a majority vote in a national referendum. The coalition also holds a super majority in the upper house, with LDP holding 125 seats and Komeito 49 out of a total of 242.” 

“Separate surveys from Kyodo, Sankei, and Nikkei have the LDP and Komeito winning 294-325 seats out of a total of 465. This implies the LDP and coalition would secure an absolute stable majority of 261 seats, which would allow the ruling party to chair and have an absolute majority in every standing committee of the lower house. Meanwhile, according to the surveys, Tokyo Governor Koike's PoH may win around 57-69 seats, which would make it the main opposition party. Such a result would likely be something of a disappointment for the new party, given the high expectations when the PoH was founded a couple weeks ago. The slowing in momentum implied by the polls could reflect the split with the CDP.”


13:46 Venezuela: Opposition defeat or electoral fraud? Deutsche Bank

In view of analysts at Deutsche Bank, it is still too early to ascertain the political and market consequences of the Venezuela’s regional elections with preliminary results (with 96% of votes tallied) beating expectations on both sides.

Key Quotes

“The ruling coalition (PSUV) obtained 54% of the national vote and 17 of the 23 governorships in dispute, 7 more than president Nicolas Maduro forecasted last week. The opposition alliance (MUD) increased its states under control to 5 from 3 in the 2012 election, however it fell short of the 13 – 18 governorship victories predicted by most local pollsters. The MUD did not recognized the results, alleging procedural irregularities, including misleading errors in the opposition candidates appearing in the ballots, as well as last minute changes and communication problems in voting centers.”

“MUD leaders refrained from denouncing systematic fraud before its electoral witnesses finish a full audit of voting certificates. The hypothesis of an electoral defeat cannot be discarded until the audits are completed. A strong incumbent advantage, fragmented leadership and a disenfranchised base of supporters after the heavily repressed demonstrations of April/July could have hurt the electoral chances of the opposition, as was the case during the primaries on September 10th. Base on the preliminary results, the MUD could only get 45% of the national vote, although turnout increased to 61% on Sunday, higher than the historical average of 54%.”

“The market reaction to the election has been negative so far. Prices for Venezuela/ PDVSA bonds in the short-end of the USD curve dropped between $1 and $2.5 on Monday. However, it is difficult to disassociate this correction from the fact that the two issuers now accumulate $322 million in interest payment delays and the 30-day grace period in the first of these four coupons will expire on November 12th. We have long argued that a proven fraudulent election could pull the trigger on trade restrictions from the US and persuade regional blocks (Europe and Latin America) to suspend ongoing mediation efforts and enforce similar sanctions at the multilateral level. Both the National Electoral Council (CNE) and the MUD will announced the results of their respective audits this week.”


13:42 NZ CPI: Close to target HSBC

Analysts at HSBC note that New Zealand’s Q3 inflation was slightly stronger than expected, with the headline CPI up 1.9% y-o-y and inflation has now been close to the RBNZ's 'near 2%' target for three consecutive quarters.

Key Quotes

Facts

- Headline CPI was up 0.5% q-o-q in Q3 (market expected 0.4%, HSBC expected 0.3%), with the annual rate of inflation lifting from 1.7% to 1.9%.

- Tradable inflation was 0.2% q-o-q, with the annual rate lifting from 0.9% to 1.0%. Non-tradable inflation rose 0.7% q-o-q and 2.6% y-o-y, up from 2.4% previously.

- Measures of underlying inflation were mostly slightly stronger. The CPI excluding petrol rose by 1.8% y-o-y, up from 1.7% in the previous quarter, while CPI excluding food and energy lifted from 1.4% y-o-y to 1.5%. Trimmed mean inflation (30% trim) was 2.1% y-o-y, rebounding from 1.9% previously. The RBNZ’s factor model estimates of underlying inflation will be published later today (3pm NZT).”

“Implications

  • Inflation continues to bounce around close to target, suggesting that New Zealand's long period of below-target inflation appears to be behind us. However, much of the recent strength has been due to higher prices for food (partly weather-related and most likely temporary) and petrol, although the latter did drop back a little in Q3. Once those volatile items are stripped out of the measures, the lift in inflation is less impressive, but there is still an undeniable gradual pick-up in price pressures. For example, the CPI excluding food and energy stands at 1.5% y-o-y, up from 1.0% y-o-y in mid-2016.
  • Non-tradable inflation is also picking up pace, lifting to 2.6% y-o-y, which is the strongest reading since Q2 2014. Much of the cost pressures remain centred around housing. While the rate of inflation in construction costs actually eased a little in Q3 (down from 6.4% y-o-y to 5.4%), this was offset by stronger-than-expected increases in local authority rates and dwelling insurance.”

13:41 BOEs Carney: BOE rate hike in coming months may be appropriate

Additional comments from the BOE Governor Carney from his testimony before the TSC:

Latest revisions to UK current account deficit is consistent with previous FPC concerns

Sterling largely driven by expectations for Brexit deal

Monetary policy is stimulative, UK fiscal policy is restrictive and UK faces variety of headwinds

BOE rate hike in coming months may be appropriate

'Building a war chest' in interest rate terms for future shocks would not be in line with inflation target


13:39 Trump plans to meet Yellen Thursday to discuss her possible renomination - WSJ

The Wall Street Journal (WSJ) quoted a person familiar with the matter, citing that the US President Trump plans to meet Thursday with the Fed Chairwoman Janet Yellen to discuss the possibility of re-nominating her for a second term as central bank head.

Yellen’s four-year term as chairwoman expires in early February.


13:29 USD/JPY treading water above 112.00

The greenback is trading around yesterday’s close vs. the Japanese currency, taking USD/JPY to the 112.10/15 band.

USD/JPY looks to USTs, US data

The pair is struggling to add gains to yesterday’s advance against the backdrop of a consolidative theme in yields of the US 10-year benchmark, currently hovering over the 2.31% area.

In the meantime, spot appears to have found some decent support in the 111.70 region, all amidst the resurgence of dip-buyers, easing concerns over North Korea and the (high) probability of an LDP victory at the Sunday elections in Japan.

On the data front, US export/import price index is next on tap, seconded by September’s capacity utilization, industrial and manufacturing production, the NAHB index and TIC flows.

USD/JPY levels to consider

As of writing the pair is retreating 0.01% at 112.18 facing the immediate support at 111.78 (200-day sma) seconded by 111.66 (low Oct.16) and then 111.11 (38.2% Fibo of 107.33-113.44). On the other hand, a break above 112.43 (10-day sma) would test 112.83 (high Oct.10) and finally 113.44 (high Oct.6).


13:24 BOEs Carney: Monetary policy is not principle instrument for financial stability

It’s the BOE Governor Mark Carney’s turn now to testify before the Treasury Select Committee (TSC), in London.

Key Headlines via Reuters:

Monetary policy is not principle instrument for financial stability

Expect inflation to peak around 3% level about Oct/Nov time

More likely than not that I will need to write letter explaining inflation exceeding 3%

We still face a trade-off between inflation above target and supporting jobs and economic activity

Also read:

BOE’s Tenreyro: MPC far from the point at which we will unwind QE

BOE’s Ramsden: Loss of market confidence could lead to higher BOE rates, weaker GBP


13:14 GBP/USD drops back to test 1.3250 ahead of Carney

The GBP/USD pair popped to 1.3290 levels after the UK CPI met estimates, but quickly reversed the rally on the back of BOE-speaks.

GBP/USD back below 5-DMA at 1.3269

The spot is seen flirting with the midpoint of 1.32 handle over the last hour, as markets digest the latest comments on the monetary policy and inflation outlook, delivered by the newly appointed BOE PMC members Ramsden and Tenreyro during their testimony before the Treasury Select Committee.

BOE’s Tenreyro: MPC far from the point at which we will unwind QE

BOE’s Ramsden: Loss of market confidence could lead to higher BOE rates, weaker GBP

The major remains little impressed by the UK inflation report, as the core figures disappointment roil the sentiment around the pound, while a lack of clarity on the Brexit negotiations adds to the bearish undertone seen around Cable.

Further, the latest leg down can be also attributed to a pick-up in buying interest seen around the greenback across the board, as Treasury yields re-attempt gains amid expectations of a hawkish Fed Governor to be appointed by Trump.

The pair now eagerly awaits the BOE Governor Carney’s speech for fresh insights on the interest rates outlook.

GBP/USD Technical View

FX Strategists at UOB group noted: “GBP traded sideways for most part of yesterday before dropping sharply during late NY hours to hit a low of 1.3225. The decline appears to be running ahead of itself but another leg lower towards 1.3190/95 seems likely. That said, a sustained move below this level is not expected. Resistance is at 1.3290 ahead of the high seen near 1.3315 early yesterday”.


13:05 EUR futures: downside picking up pace

CME Group’s preliminary data for EUR futures markets saw open interest declining by just 272 contracts on Monday from Friday’s final 448,936 contracts. On the other hand, volume rose sharply by more than 72.4K contracts.

EUR/USD re-focused on 1.1660

EUR/USD is extending its decline after being rejected from last week’s tops in the 1.1880 area. Declining prices in tandem with falling volume is a bearish sign, while the recent activity in open interest remains marginal.

The continuation of the selling bias around the shared currency prompted investors to start re-shifting their focus on the key 1.1660 area (August’s low).


12:43 BOEs Tenreyro: MPC far from the point at which we will unwind QE

The Bank of England (BOE) MPC new member Silvana Tenreyro is on the wires now testifying before the TSC. 

Key Points:

GBP depreciation has created stronger inflation and weak demand

My vote will depend on incoming data

Wage growth has been very very weak

Most measures of domestically generated UK inflation have been below target-consistent levels

If economy consistent with Aug central projection, policy could need to be tightened greater extent than markets expect

With long-term equilibrium lower, monpol need to set nominal interest rates at lower level to meet inflation target

Rise in UK net exports after currency fall may not happen

Some evidence that premature rate increase that turns out to be a mistake could need more cuts in future

MPC far from the point at which we will unwind QE

Agrees with MPC stance on timing of unwinding QE

Should proceed very gradually when BOE starts to unwind QE

 


12:40 Japan election preview: Polls suggest Abenomics is here to stay HSBC

Opinion polls suggest PM Abe and his LDP will secure an absolute majority in the lower house and BoJ set to maintain an extremely easy policy as underlying price pressures weaken due to structurally low wage growth, according to analysts at HSBC.

Key Quotes

Economics: Voters head to the polls on 22 October, with opinion polls showing Prime Minister Shinzo Abe and his Liberal Democratic Party (LDP) likely to secure at least an absolute majority, and perhaps preserve their two thirds majority. A strong showing would make it easier for the prime minister to push ahead with his economic reforms, widely known as Abenomics. For example, he has pledged to roll out a JPY2trn fiscal package to support education, to be funded by a higher rate of consumption tax scheduled to be introduced in October 2019. If the LDP and its coalition partner, Komeito, do secure a strong majority, we think the Bank of Japan (BoJ) will maintain its extremely easy monetary policy stance.” 

FX: Politics has come into focus, but cyclical drivers will soon take over. We see USD-JPY falling to 107 by year-end and further to 100 by Q2 2018.”

Rates: In the absence of an immediate change in BoJ’s monetary policy, JGB yields are unlikely to budge. Bond market participants’ focus remains on the central bank’s commitment to the yield curve control (YCC) policy.”


12:28 WTI catches fresh bid, regains $ 52 mark ahead of API

Having rallied almost 1% on Monday, WTI (US oil futures on NYMEX) corrected lower in the overnight trades, only to find fresh bids near $ 51.65 levels, now pushing the rate back above $ 52 threshold.

The renewed uptick in the black gold can be attributed to increased risk premium on the back of escalating geopolitical tensions around Iran and Iraq. Escalating tensions between the Iraqi government and Kurdish forces continue to threaten supply, with Goldman Sachs noting: “In the case of Kurdistan, the 500,000 bpd Kirkuk oil field cluster is at risk with initial reports that 350,000 bpd has shut in, although this remains unclear.”

Moreover, the political tensions between the US and Iran over the nuclear deal and looming concerns over potential sanctions over Iran, also collaborates to the buoyant tone seen around oil prices. The US President Trump refused to continue to certify the 2015 Iran nuclear deal on Friday.

Furthermore, oil prices got a lift on the back of the IEA Head, Faith Birol’s optimistic remarks, citing that he sees OPEC cut compliance higher at 86%. All eyes now remain on the US API crude stockpiles report for the next direction on the prices. At the time of writing, WTI advances +0.64% to $ 52.20, while Brent rises +0.54% to $ 58.20.

WTI Technical Levels

Higher-side levels: 52.43 (Sept 26 high), $53.21 (Apr 16 high), $ 54 (round number)

Lower-side levels: 51.85 (daily pivot), 51.50/ 51.59 (psychological levels/ 5-DMA), 51.07 (20-DMA)


12:20 EUR/USD around 1.1760 on ZEW, CPI

The shared currency stayed apathetic following the release of the ZEW survey, keeping the trade in the 1.1760 area for the time being.

EUR/USD unchanged on data

The pair kept the familiar range today after the ZEW survey disappointed expectations in both Germany and the euro area.

In fact, German current conditions dropped to 87.0 for the current month and the economic sentiment came in at 17.6 vs. 20.0 initially forecasted.

In the euro area, economic sentiment fell to 26.7 for the same period, down from September’s 31.7 and 34.2 previously estimated.

Still in the bloc, final CPI prints saw consumer prices rising 1.5% in a year to September and 0.4% inter-month. Core prices rose 1.1% YoY and 0.4% on a monthly basis.

In the meantime, the pair stays depressed around session lows in the 1.1760/50 band amidst a broad-based demand for the greenback.

Ahead in the session, US export/import price index is due, seconded by September’s capacity utilization, industrial and manufacturing production, the NAHB index and TIC flows.

EUR/USD levels to watch

At the moment, the pair is losing 0.31% at 1.1760 and faces the initial support at 1.1686 (low Oct.6) followed by 1.1662 (low Aug.17) and finally 1.1638 (100-day sma). On the upside, a breakout of 1.1843 (55-day sma) would target 1.1882 (high Oct.12) en route to 1.1911 (high Aug.2).


12:11 Spain 3-Month Letras Auction increased to -0.431% from previous -0.485%


12:11 Spain 9-Month Letras Auction: -0.329% vs -0.368%


12:09 BOEs Ramsden: Loss of market confidence could lead to higher BOE rates, weaker GBP

Reuters reports more comments delivered by the BOE MPC member Ramsden from his testimony before the UK parliament.

Key Points:

If there were a loss of confidence by markets in the UK, you would see yields go up very sharply

Loss of market confidence could lead to higher BOE rates, weaker sterling


12:05 German Oct ZEW economic sentiment improves slightly, but misses estimates

The German ZEW  headline numbers for October, showed that the headline economic sentiment extended its recovery mode in Sept, coming in at 17.6 versus 20.0 expectations and 17 seen last. While the sub-index current conditions unexpectedly dropped to 87.0 versus 89.0 expected and 87.9 booked previously.


12:05 European Monetary Union ZEW Survey - Economic Sentiment came in at 26.7, below expectations (34.2) in October


12:03 European Monetary Union Consumer Price Index - Core (YoY) came in at 1.3%, above forecasts (1.1%) in September


12:03 European Monetary Union Consumer Price Index - Core (MoM) in line with forecasts (0.4%) in September


12:03 European Monetary Union Consumer Price Index (MoM) meets forecasts (0.4%) in September


12:01 European Monetary Union Consumer Price Index (YoY) meets forecasts (1.5%) in September


12:01 Germany ZEW Survey - Economic Sentiment below forecasts (20) in October: Actual (17.6)


12:01 Germany ZEW Survey - Current Situation below expectations (89) in October: Actual (87)


12:00 UK inflation now very close to the peak - ING

James Smith, Economist at ING explains that whilst they expect the Bank of England to hike rates in November, they think a lack of domestically-generated inflation means that any subsequent tightening will be limited.

Key Quotes

“At 3%, September’s UK inflation rate is the highest it has been in five years and will continue to test the patience of the hawks at the Bank of England. But the key question is how much of this spike is domestically-generated.”

“Well, firstly the latest headline figures were boosted by a 2.1% pick-up in fuel costs as pump prices respond to the recent increase in oil prices. But more importantly, it is clear that the impact of the pound’s post-Brexit plunge is still very much at play. Food prices, which are highly influenced by import costs, increased sharply by 0.8% on the month.”

“But neither of these factors tell us much about underlying momentum in prices. One way of stripping out these drivers is to look solely at the basket of goods that have a low import content (less than 20%) – and by this measure, inflation would actually be below target if the impact of sterling and energy are ignored.”

“It’s likely to be a similar story in tomorrow’s jobs report. Wage growth – a crucial input into the Bank’s decision making process – is likely to dip back to 2% and we think is likely to stay at, or below, this level for the next few months.”

“It’s also worth noting that this is probably about as high as inflation will go. We may see a slight pick-up to 3.1% in October, but thereafter headline CPI should gradually start to ease back.”

“So whilst we think a November rate hike is highly likely, for now we think the lack of domestically generated inflation combined with a sluggish growth outlook (and don’t forget all the noise surrounding Brexit) mean that any subsequent tightening is likely to be very limited.”


11:57 RBA Minutes: Limited new information and no surprises RBC CM

There were no surprises and only limited new information in today's RBA minutes as the RBA's generally positive global and domestic assessment remains largely unchanged leaving it comfortable with its base case view for a return to trend growth, reduced excess capacity in the labour market, and firmer wages and inflation over the medium-term, explains the analysis team at RBC Capital Markets.

Key Quotes

“It remains mindful of risks with notable discussion around AU household indebtedness and Chinese financial risks at last week’s FSR. The challenges to household consumption from "slow growth in real wages" were repeated.  Our economists argue that the key domestic data since the Oct board meeting - another very weak retail sales print for August and July - suggest that the RBA may be underestimating some of these risks. Also noteworthy was the feedback from a "number of firms" from the RBA's business liaison program that they were "largely absorbing increases in energy costs into margins rather than passing them through to final prices" suggesting Q3 headline CPI (due 25 Oct) may not jump by as much.  Key for policy deliberations in the near term will be the upcoming Q3 CPI and Q3 Wage Price Index (16 Nov).  We are long AUD/CAD in our trade of the week.”

 


11:53 ECBs Constancio: Monpol, when recalibrated, will continue to keep a very accommodative stance

ECB Vice President Constancio is out on the wires now, making a scheduled speech titled ‘The Evolving Risk Landscape In The Euro Area’.

Summary:

Monpol, even when recalibrated, will continue to keep a very accommodative stance

Europe will have to take macro prudential policy much more seriously or risk financial crises


11:47 BOEs Ramsden: No QE reduction until bank rate at higher level

Additional headlines crossing the wires from the BOE MPC member Ramsden, as he testifies before the TSC:

Sees real risk that Brexit uncertainty means business investment could turn out weaker than in BOE central forecast

Business investment growth might not compensate for sluggish consumption growth over the forecast

Resilience of consumers may surprise BOE again over forecast horizon as squeeze in real incomes eases

Measures of domestically generated inflation are consistent with there still being some slack in the economy

Measures of domestically generated inflation generally remain a little below levels consistent with the 2% target

No sign of second round effects onto wages from higher recent inflation

Inflation expectations appear well anchored, despite the sharp rise in headline inflation

When time to unwind QE, it will be a priority to ensure it's done to ensure gilt market continues to function smoothly

No QE reduction until bank rate at higher level


11:46 GBP/JPY clings to gains near 149.00 mark post-UK CPI, Carney s testimony awaited

After an initial dip to 148.35 area, the GBP/JPY cross regained traction but struggled to move past the 149.00 handle following the release of latest UK inflation figures.

The UK headline CPI came-in to show that consumer prices increased 0.3% m-0-m in September, with yearly rate ticking higher to 3%. The readings were mostly in-line with expectations but failed to provide any fresh bullish impetus to the British Pound as investors seemed disappointed by a slightly softer PPI and core CPI prints.

Although today's reading did little to influence market expectations for a possible BoE rate hike move in November but traders seemed reluctant to initiate aggressive bets ahead of the BoE Governor Mark Carney's testimony before the Treasury Select Committee. 

Technical levels to watch

A follow through buying interest beyond the 149.00 handle has the potential to lift the cross towards 149.30 level en-route the key 150.00 psychological mark. 

On the flip side, weakness below 147.35 level could get extended towards the 147.00 handle, which if broken would turn the cross vulnerable to head towards testing sub-146.00 level.


11:41 GBP/USD spiked to 1.3290 on CPI

GBP/USD briefly tested the vicinity of the 1.3290 handle following the release of inflation figures in the UK for the month of September.

GBP/USD stays bid on data

Cable keeps the proximity to session peaks after UK’s inflation figures showed headline consumer prices rising at an annualized 3.0% and 0.3% inter-month, both prints matching previous estimates.

Additionally, prices stripping food and energy costs rose 2.7% over the last twelve months, also in line with prior surveys.

In the meantime, spot keeps the positive tone and is reverting Monday’s pullback, although weekly gains are still capped around 1.3220, coincident with the 21-day sma.

Later in the session, Governor M.Carney and MPC members S.Tenreyro and D.Ramsden are due to speak at the Treasury Committee Hearings.

In the US docket, export/import price index is due, seconded by September’s capacity utilization, industrial and manufacturing production, the NAHB index and TIC flows.

GBP/USD levels to consider

As of writing the pair is advancing 0.14% at 1.3271 facing the next resistance at 1.3324 (21-day sma) seconded by 1.3338 (high Oct.16) and finally 1.3548 (2014-2017 down trend). On the flip side, a breakdown of 1.3205 (10-day sma) would aim for 1.3145 (55-day sma) and then 1.3121 (low Oct.12).


11:35 UK annualized CPI meets estimates in Sept, core figures disappoint

The UK consumer prices stagnated in the month of Sept, ticked slightly higher and matched estimates at 3.0% y/y, the Office for National Statistics (ONS) revealed on Tuesday.

While the core inflation gauge steadied in Sept, coming in at +2.7 y/y. Markets had predicted the core figures to come in a tad firmer at +2.8%.

On monthly basis, the UK inflation figures decelerated, coming in at 0.3% last month, as compared to 0.6% previous and expectations of 0.3%. 

ONS reports, “the main contributors to the increase in the rate were rising prices for food and recreational goods, along with transport costs, which fell by less than they did a year ago. These upward effects were partially offset by downward contributions from a range of goods and services, in particular clothing prices, which rose by less than they did a year ago.”


11:32 United Kingdom Core Consumer Price Index (YoY) in line with expectations (2.7%) in September


11:31 United Kingdom DCLG House Price Index (YoY) came in at 5%, below expectations (5.4%) in September


11:31 United Kingdom PPI Core Output (MoM) n.s.a registered at 0%, below expectations (0.1%) in September


11:30 United Kingdom Producer Price Index - Input (MoM) n.s.a below expectations (1.2%) in September: Actual (0.4%)


11:30 BOEs Ramsden: There are signs that Brexit uncertainty is now weighing on business activity

The Bank of England (BOE) MPC member Ramsden is on the wires now, via Reuters, testifying on his appointment before the Treasury Select Committee (TSC), in London.

Key Headlines:

Productivity growth not picking up as forecast is the biggest risk I see to the outlook

There are signs that Brexit uncertainty is now weighing on business activity


11:30 United Kingdom Producer Price Index - Output (MoM) n.s.a came in at 0.2% below forecasts (0.3%) in September


11:30 United Kingdom Consumer Price Index (YoY) in line with forecasts (3%) in September


11:30 United Kingdom PPI Core Output (YoY) n.s.a below forecasts (2.6%) in September: Actual (2.5%)


11:30 United Kingdom Producer Price Index - Output (YoY) n.s.a in line with forecasts (3.3%) in September


11:30 United Kingdom Consumer Price Index (MoM) meets forecasts (0.3%) in September


11:30 United Kingdom Retail Price Index (YoY) came in at 3.9% below forecasts (4%) in September


11:30 United Kingdom Producer Price Index - Input (YoY) n.s.a registered at 8.4% above expectations (8.3%) in September


11:30 United Kingdom Retail Price Index (MoM) came in at 0.1%, below expectations (0.3%) in September


11:25 EUR/USD likely to hover over 1.18 Danske Bank

The pair is seen gyrating around the 1.1800 handle in the near term, suggested Mathias Mogensen, Analyst at Danske Bank.

Key Quotes

EUR/USD ended the day on a slightly heavy note yesterday on the back of a stronger-than-expected Empire manufacturing index”.

“With a relatively thin data calendar today we are probably in for yet another quiet session before the series of speeches from the Fed and ECB officials on Wednesday”.

“We expect EUR/USD to trade around the 1.18 figure in coming weeks ahead of the ECB meeting on 26 October”.


11:23 EUR/USD neutral, could still test 1.1930 UOB

According to FX Strategists at UOB Group, spot could still reach the 1.1930 area in the next weeks.

Key Quotes

24-hour view: “While we expected a lower EUR yesterday, we were of the view that the 1.1760 support “is unlikely to yield so easily”. The anticipated weakness only managed to touch 1.1779. The undertone is still on the weak side and barring a move back above 1.1835, a test of 1.1760 still seems likely before a more sustained recovery can be expected (next support is at 1.1730)”.

Next 1-3 weeks: “The rapid and sharp pull-back in EUR last Friday came as a surprise. However, as highlighted in recent updates, as long as the key short-term support at 1.1760 support is intact, there is room for the current recovery to extend higher to 1.1930. That said, EUR has to reclaim 1.1880 within these 1 to 2 days or the odds for further EUR strength would diminish quickly. A move back below 1.1760 would suggest that the mild upward pressure has eased and EUR is then expected to trade sideways”.


11:22 USD/JPY constructive above 110.78 Commerzbank

In view of Axel Rudolph, Senior Analyst at Commerzbank, there is still room for a recovery in the pair as long as it trades above the 110.80 area.

Key Quotes

USD/JPY’s correction lower paused along the 200 day ma at 111.78, a fall through which would leave the 55 day ma at 110.78 exposed. While above here it will remain well placed for a recovery from a slightly longer term perspective. Above the 113.44 current October high will trigger further gains to the top of the range at 114.38/49. It is where the May and July highs were made”.

“The 55 day ma guards the 109.55 mid-September low and in turn this support guards the 108.81/13 April and June lows as well as the September low at 107.32”.


11:13 NZD/USD surrenders upbeat NZ CPI-led gains to 2-week tops

The NZD/USD pair faded NZ CPI-led bullish spike and has now surrendered majority of its early strong gains to near two-week tops. 

Earlier on Tuesday, the pair built on last week's strong recovery move from 4-month lows and got an additional boost from today's domestic data, showing consumer prices increased 0.5% in the third quarter. 

   •  NZ: CPI rose 0.5% in Sep quarter, annual inflation 1.9% - Westpac

The up-move, however, faced rejection near the 0.7200 handle and was being capped by persistent US Dollar buying interest. Meanwhile, a subdued action around the US Treasury bond yields extended some support to higher-yielding currencies and helped limit the downslide, at least for the time being. 

Today's US economic docket features the release of import/export price index, along with industrial production and capacity utilization data, albeit the key focus would remain on the NZ GDT price index.

   •  NZD/USD: Upside risks - Westpac

Technical levels to watch

A follow through retracement back below the very important 200-day SMA support near the 0.7160 region could accelerate the slide towards 0.7130-25 intermediate support en-route the 0.7100 handle.

On the upside, the 0.7200 handle remains a key hurdle and is closely followed by 50-day SMA resistance near the 0.7225-30 region.


11:12 EUR/USD buyers appeared near 1.1750, ZEW eyed

The selling bias stays unchanged around the European currency on Tuesday, with EUR/USD now bouncing off the 1.1750 region and flirting with 1.1780.

EUR/USD now looks to ZEW

The continuation of the buying interest around the greenback keeps the pair under pressure so far this week, extending the leg lower for the fourth session in a row after the recent rejection from the 1.1880 zone.

Expectations of the implementation of the Trump’s tax reform by year-end, the likelihood of an upcoming hawkish Fed Chairman (J.Taylor) and (almost priced in) extra tightening by the Federal Reserve in Q4 are all drivers underpinning the upside momentum in the greenback, and thus exerting further downside pressure on spot.

Looking ahead, the German ZEW survey for the current month is expected ahead of the final prints of inflation figures in the euro bloc during last month.

Across the pond, industrial and manufacturing production figures are next on tap, seconded by capacity utilization, the NAHB index, TIC flows and the speech by Dallas Fed R.Kaplan (voter, hawkish).

EUR/USD levels to watch

At the moment, the pair is losing 0.19% at 1.1774 and faces the initial support at 1.1686 (low Oct.6) followed by 1.1662 (low Aug.17) and finally 1.1638 (100-day sma). On the upside, a breakout of 1.1843 (55-day sma) would target 1.1882 (high Oct.12) en route to 1.1911 (high Aug.2).


11:11 Italy Global Trade Balance below expectations (4.23B) in August: Actual (2.769B)


11:10 Italy Trade Balance EU down to 0.242B in August from previous 2.028B


11:01 US Sullivan: US doesn t rule out possibility of direct talks with N. Korea

US Deputy Secretary of State Sullivan crossed the wires earlier today, via Reuters, commenting on the US- North Korea relationship.

Key Points:

US doesn't rule out possibility of direct talks eventually with North Korea

US is focused on diplomacy with North Korea but must be prepared for worst


10:58 UK: CPI inflation to have hit 3.0% y/y in Sept RBC CM

Analysts at RBC Capital Markets forecast UK CPI inflation to have hit 3.0% y/y in Sept, up from 2.9% y/y last time and a full percentage point above the BoE’s target, though just short of the level required to write a letter discussing corrective action.

Key Quotes

“Our economists expect that letter to have to be written after the next inflation print, but in any case given the BoE is effectively priced for a hike in November, the corrective action is already en route to being taken and unlikely to support GBP further.”


10:40 NAFTA: USD/CAD will move on headlines but is not as vulnerable as MXN - Rabobank

Christian Lawrence, Senior Market Strategist at Rabobank, explains that CAD and MXN are sitting at the bottom of the pack in terms of FX performance both overnight and over the past week and the fourth day of the fourth round of NAFTA negotiations highlighted that discussions are becoming increasingly difficult.

Key Quotes

“Our base case is that NAFTA will not be terminated but it is a risk that cannot be ruled out.”

“We expect volatility in USD/MXN to pick-up heading into year-end and as such, we expect USD/MXN to head higher. USD/CAD will move on headlines but is not as vulnerable as MXN.”

“Looking forward Round 5 of the negotiations will be held in Mexico City in early November and we are of the view that MXN is likely to remain on the back foot as we head into year end. Indeed, our end of year forecast for USD/MXN currently stands at around 19.50 although should talks sour substantially during round 5 then we could be looking at a 20 handle much sooner.”

“A look at the daily USD/MXN chart shows resistance at 19.2956 which coincides with the highs from back in April. Above there, the psychological 20 handle comes into play before prior support at 20.13 becomes resistance.  The next level to look at to the upside beyond there is the all-time high of 22.0385.  In terms of support, the 200 day moving average that USD/MXN recently traded through should turn to support at 18.9596 and below there we would highlight likely support at 18.4614. In terms of momentum, figure 1 shows that we remain in neutral territory in terms of Rabo’s  Daily Momentum Model but with the RSI in overbought territory we should keep an eye on any dip in that indicator.”

“Turning to USD/CAD, it is interesting to note that the latest release of CFTC data showed net speculative longs are at the most stretched levels seen since October 2012. These data are for the week up to Tuesday 10th October and we are likely to see some paring back of positioning in the next set of data due for release on Friday. Despite this, these data do still tell us a story; the market is largely long CAD and given diminishing expectations with respect to further rate hikes from the Bank of Canada this year, we could still see some further unwinding of long CAD positioning provide support for USD/CAD.  That said, we expect the BoC to retain a hawkish bias heading into 2018 and foresee USD/CAD trading back down to 1.23 as we head into 2018.”

“In terms of USD/CAD daily technicals, we are currently in neutral territory with the September bull run stalling. The 50 day moving average at 1.248 should offer near term support before 1.2414 comes into play. Below there is weak support at 1.237 but if we see a continued move lower then there are no major support levels until 1.2111 and 1.2062. Below there it is the 1.20 handle that will be the main focus. On the upside, look for resistance at 1.2563 before the 1.26 level comes into focus.”


10:32 EUR/GBP hangs closer to 2-week lows, UK/EZ CPI and Carney in focus

The EUR/GBP cross came under some renewed selling pressure on Tuesday and has now eroded all of the previous session's modest recovery gains.

The shared currency held defensive in wake of the latest political developments in the Euro-zone and has been one of the key factors weighing on the cross through early European session. 

Meanwhile, the market seems to have digested Monday's report, via Bloomberg, noting that the Brexit negotiations could be headed for a catastrophic breakdown if the EU refuses to compromise. Hence, a modest uptick in the GBP/USD major further collaborated to the pair's offered tone on Tuesday.

Currently trading around 0.8875-70 band, back closer to near two-week lows, investors now look forward to the latest UK inflation figures, due in a short while from now, for some fresh impetus. 

   •  UK: Expect headline inflation to be 2.9% for September - TDS

Today's CPI print, along with BOE Governor Mark Carney's testimony before the Treasury Select Committee, would influence investors' expectations over a possible BoE rate hike move in November and act as an important catalyst that would drive the British Pound in the near-term.

Also in focus would be the German ZEW economic sentiment survey and the final Euro-zone CPI print, which would also be looked upon to grab some short-term trading opportunities. 

   •  UK and Eurozone inflation figures amongst market movers today – Danske Bank

Technical levels to watch

Immediate support remains near mid-0.8800s, below which the cross is likely to accelerate the fall towards 0.8815 intermediate support ahead of the 0.8800 handle and 0.8775 horizontal support.

On the upside, the 0.8900 handle now seems to have emerged as immediate strong resistance, above which a bout of short-covering could lift the cross back towards 0.8930 horizontal barrier.


10:21 US Dollar advances to daily highs near 93.40

The greenback is prolonging its upside momentum during the first half of the week, now sending the US Dollar Index to the upper end of the range near 93.40.

US Dollar bid on USTs

The index regained buying interest following the positive performance in yields of the key US 10-year reference, moving to fresh 3-day tops above the 2.31% handle.

USD remains underpinned by Sunday’s comments by Chief J.Yellen, while the potential appointment of J.Taylor as the next Fed’s Chairman lent renewed oxygen to the index. According to market participants, Taylor has a more hawkish message and could surely be a source of potential upside for the buck.

In today’s US data space, industrial and manufacturing production figures are due, seconded by capacity utilization, the NAHB index, TIC flows and the speech by Dallas Fed R.Kaplan (voter, hawkish).

US Dollar relevant levels

As of writing the index is gaining 0.18% at 93.22 and a break above 94.03 (23.6% Fibo of the 2017 drop) would expose 94.27 (high Oct.6) and finally 95.90 (38.2% Fibo of the 2017 drop). On the downside, the immediate support lines up at 93.10 (21-day sma) seconded by 92.92 (55-day sma) and then 92.75 (low Oct.13).


10:20 NZD/GBP: Risk of a downside break - Westpac

NZD/GBP continues to consolidate around 0.54, with arguably more risk of a downside break than a rebound, according to Imre Speizer, Research Analyst at Westpac.

Key Quotes

“PM May has survived her immediate post- conference leadership challenge, but remains vulnerable. Brexit talk tensions and a lowering of growth projections as the autumn budget approaches are likely to weigh on GBP.”

“The UK event calendar this week includes housing surveys, CPI/PPI (17th), labour data (18th), retail sales (19th), and public finances (20th).”

3 months ahead: Medium term direction depends largely on whether the uncertainty from Brexit eventually causes a slowdown in activity. If so, NZD/GBP is likely to trade in the high 0.50s by year end. Alternatively, should the economy shrug off Brexit, then NZD/GBP could test the low 0.50s.”


10:17 GBP long positions eased, short USD positions edged higher - Rabobank

According to the IMM net speculators’ positioning as at October 10, 2017, net GBP long positions eased last week in response to political tensions within the UK’s ruling Tory party. 

Key Quotes

“PM May appears to have held onto her job – at least for now. This likely limited the impact on positioning. News that Brexit talks have reached an impasse could weigh on long positions going forward.”

Speculators’ net short USD positions edged a little higher but remain essentially consolidative. In late September they had increased to their highest level since April 2014 despite the hawkish signals from the Fed. Concerns that a December Fed rate hike will weigh on inflation expectations further out is weighing on yields and has implications for USD potential.”

On the back of good growth expectations, EUR longs crept higher for a third consecutive week. This is despite concerns regarding divisions in the Eurozone that followed the Catalan referendum and the reduction of Merkel’s standing at the German election. EUR longs have now surpassed their early September high.”

Net JPY short positions climbed for a third consecutive week suggesting that the market’s desire to hold JPY for safe haven reasons is dwindling. Strong levels of world growth are attracting funds into higher yielding destinations. That said, shorts are still well below the recent highs seen in July.”

CHF positions remained in negative territory for a tenth consecutive week. The increase in short positions last week appears consistent with the increase in EUR longs and a general preference for higher yield.”

CAD longs ticked higher again reaching their best levels since October 2012 following a good set of September jobs data. AUD longs dropped back for a second consecutive week consistent with the lack of hawkish rhetoric from the RBA. Chinese economic data and prices of iron ore and coal also remain in focus.”

 


10:12 NZD/EUR: 0.60-0.62 likely during the week ahead - Westpac

After dipping briefly below 0.60 last week, NZD/EUR appears in need of consolidation, with 0.60-0.62 likely during the week ahead, according to Imre Speizer, Research Analyst at Westpac.

Key Quotes

“A light week for data keeps politics to the fore. Spain’s semi-autonomous Catalonia (20% of Spanish economy) continues to face off against the central government. A declaration of independence might be illegal, but could still trigger constitutional crises in Spain and EU. Catalonia would need to apply for EU membership and await entry into the Eurozone.”

“The event calendar this week includes EZ final CPI (17th), and the ZEW survey (17th). There’s also negotiations with Catalonia to watch.”

“3 months ahead: European economic data is improving, witness sentiment surveys at multi-year highs. However, after easing recently, political tensions in the EU could still resurface, with disconcerting rises in periphery parties in Germany and the prospect of Italian elections in H1 18. A German coalition may take months to form. Barring political shocks, though, NZD/EUR should gravitate lower to the high 0.50s.”


10:02 Austria HICP (YoY) rose from previous 2.1%to 2.6% in September


10:01 Austria HICP (MoM) climbed from previous 0% to 1.4% in September


10:00 USD/CAD jumps to mid-1.2500s, back closer to one-week tops

The USD/CAD pair caught some fresh bids on Tuesday and jumped back to mid-1.2500s, back closer to one-week tops touched in the previous session.

Despite yesterday's late pull-back, led by BoC's Q3 Business Outlook Survey, the pair managed to hold its neck above the key 1.2500 psychological mark, supported by stronger US Dollar buying interest and weaker oil prices. 

Persistent greenback demand, accompanied with a follow through profit taking slide in crude oil prices was seen weighing on the commodity-linked currency - Loonie and helped the pair to regain some fresh traction on Tuesday. 

Today's US economic docket features the release of import/export prices, industrial production and capacity utilization data, which along with a scheduled speech by Philadelphia Fed President Patrick Harker would now be looked upon for some fresh impetus.

Technical levels to watch

Bulls would be eyeing for a sustained move beyond 1.2560-65 hurdle, above which the pair is likely to accelerate the up-move towards the 1.2600 handle before eventually darting towards 100-day SMA barrier near the 1.2700 region.

On the downside, any pull-back from higher levels now seems to find immediate support near the 1.25 handle, which if broken could drag the pair back towards mid-1.2400s ahead of 1.2415-10 strong support.


09:58 Trump to visit Seoul Nov 7, leave Nov 8 - Yonhap

The South Korean news agency, Yonhap, out with the latest headlines citing that the US President Trump is expected to reach Seoul on Nov 7th and leave on the following day, Nov 8th.


09:55 USD/JPY stays vigilant on the upcoming elections Danske Bank

Mathias Mogensen, Analyst at Danske Bank, gave his views on the prospects for the pair and Sunday’s elections.

Key Quotes

USD/JPY gained last night with the cross rising above 112 on reports that US and North Korean diplomats may meet in Moscow later this week”.

“Financial markets seem very complacent that Shinzo Abe will remain as Japan’s Prime Minister after the general election on Sunday, and there is hardly any election risk premium priced into the FX option market”.

“The ruling LDP party´s strong lead in the polls stands in contrast to the latest cabinet survey, which showed another decline in Abe´s cabinet approval rating from 44% in September to 37% in October. Moreover, we note that a large share of the voters have still not decided who to vote for”.

“Hence, from a risk/reward perspective, we see value in buying USD/JPY put options with expiry on 23 October after the latest bounce in the cross to position for a possible increase in implied volatility and/or decline in spot in the event of renewed election uncertainty”.


09:54 GBP/USD sticks to the neutral bias UOB

In view of FX Strategists at UOB Group, Cable’s neutral outlook should improve while it trades above 1.3190.

Key Quotes

24-hour view: “GBP traded sideways for most part of yesterday before dropping sharply during late NY hours to hit a low of 1.3225. The decline appears to be running ahead of itself but another leg lower towards 1.3190/95 seems likely. That said, a sustained move below this level is not expected. Resistance is at 1.3290 ahead of the high seen near 1.3315 early yesterday”.

Next 1-3 weeks: “GBP edged above the top end of our expected 1.3100/1.3330 consolidation last Friday and touched a high of 1.3337. The undertone has improved considerably but we think it is too early to expect a sustained up-move in GBP. There is another strong resistance at 1.3380 and only a daily closing above this level would indicate the start of a bullish phase. To put it another way, the odds for such a move are not high at this stage but would continue to improve as long as GBP can hold above 1.3190 in the coming days”.


09:52 EUR/USD still capped by 1.1880 Commerzbank

Senior Analyst at Commerzbank Axel Rudolph noted the pair is expected to keep the trade below the 1.1880 area for the time being.

Key Quotes

EUR/USD’s rebound from the 1.1669/62 August and current October lows is taking a breather below last week’s high at 1.1880. While we would allow for an extension to the August 2 high at 1.1910 to be seen, we believe that it would struggle there. This level guards the 1.2092 September high”.

“We would treat a break below the 1.1662 August low as the completion of a top formation. Such a move would trigger a sell-off to the mid-June high at 1.1296 and the more important 1.1110 end of May low”.

“Above 1.2092 would target the 50% retracement from the move down from the 2014 high at 1.2168 and the 1.2383 200 month ma, but if seen, that is expected to hold”.


09:41 FX option expiries for Oct 17 NY cut

FX option expiries for Oct 17 NY cut at 11:00 Eastern Time, via DTCC, can be found below.

EUR/USD: $1.1760 (E415mn)

USD/JPY: 112.00 ($111mn)

AUD/USD: $0.7920 (A$605m), $0.7810 (A$330m)


09:36 UK: Expect headline inflation to be 2.9% for September - TDS

Analysts at TDS suggest that UK’s September headline inflation is likely to edge up close to the BoE’s 3% threshold, though they see weaker core inflation holding back an outright 3-handle this month.

Key Quotes

“Markets expect headline at 3.0% y/y and core at 2.8%, but we expect headline to be 2.9% and core quite a bit weaker at 2.6% y/y.”

“This morning at 9:15 BST also sees the newest intake of MPC members, Silvana Tenreyro & David Ramsden, make their public debuts before the Treasury Select Committee to discuss their views on the economy, followed afterwards by Governor Carney. While neither of the new MPC members have dissented in their policy votes to date, we think on balance they are likely to sound a dovish tone on the economy, principally over Brexit concerns. The session should provide clarity on how big a majority the MPC will have when it hikes rates in November as we expect – overly dovish tones from both could suggest a closer vote, but ultimately we think the BoE will hike.”


09:35 Gold extends overnight sharp pull-back from 3-week tops

Gold remained under some selling pressure for second consecutive session and extended previous session's sharp retracement from 3-week tops. 

On Monday, the precious metal initially added on to Friday's softer US CPI-led up-move beyond $1300 mark and was being supported by ongoing geopolitical uncertainty. However, a strong US Dollar rally prompted profit taking, especially after the commodity's recent rally of over 3.5% from near two-month lows touched on Oct. 6.

Fading safe-haven demand, accompanied with a follow through greenback buying interest, continued weighing on the yellow metal through early European session on Tuesday. Meanwhile, physical demand in India for the holiday season has also failed to lift sentiment and stall the metal's retracement to 4-day lows, marginally below $1290 level.

In absence of major market moving economic releases, broader market risk sentiment and the USD price dynamics would remain key determinants of the metal's movement on Tuesday.

Technical levels to watch

Weakness below $1287 level could get extended towards $1284 horizontal support, below which the commodity could drop back below $1280 level and head towards retesting 100-day SMA support near the $1276-75 region.

On the upside, $1293 level now becomes immediate hurdle and is followed by a strong resistance near the $1300 handle. A convincing move back above the mentioned barriers might now lift the metal towards $1308-10 strong resistance.


09:28 When are German ZEW surveys and how could they affect EUR/USD?

German ZEW surveys Overview

The ZEW will release its Economic Sentiment Index for the next six months for Germany, as well as the Current Situation Index at 0900GMT in the EU session later today, reflecting institutional investors’ opinions.

The headline economic sentiment index is seen edging higher to 20.0 in October after a 17.0 reading registered in September. While the current situation sub-index is also expected to improve to 89.0 versus 87.9 booked previously.

How could affect EUR/USD?

A positive headline reading may rescue the EUR bulls, sending the EUR/USD closer to 1.1800 levels. However, if the readings disappoint, the rate could drop back towards mid-1.17s.

Jim Langlands at FX CHarts noted: “EurUsd was choppy but has finished the day looking a little bit heavy, closing towards the bottom end of the day’s 1.1780/1.1820 range. The ZEW, EU CPI and the US Industrial Production will be the drivers today, but with the short term momentum indicators looking a bit soft we might expect further downside momentum, possibly towards 1.1700.  The topside looks capped at 1.1820 and selling rallies is preferred.” 

Key notes

EUR/USD headed to 1.1750 on political uncertainty, ZEW eyed

About German ZEW Surveys

The Economic Sentiment published by the Zentrum für Europäische Wirtschaftsforschung measures the institutional investor sentiment, reflecting the difference between the share of investors that are optimistic and the share of analysts that are pessimistic. Generally speaking, an optimistic view is considered as positive (or bullish) for the EUR, whereas a pessimistic view is considered as negative (or bearish).


09:17 NZD/JPY: 79 and 81 levels likely to contain prices - Westpac

NZD/JPY remains in a year-long contracting range, with 79 and 81 likely to contain prices during the week ahead, suggests Imre Speizer, Research Analyst at Westpac.

Key Quotes

“The event calendar highlights this week is Sep trade data due Thursday.”

3 months ahead: The BOJ’s defacto tapering of its asset purchases should be yen supportive. In addition, the Japanese economy is seeing a pickup in consumer activity, mitigating any slippage in external demand. The 84 area should cap this cross during the quarter ahead.”


09:14 Germany: Downside risks for ZEW index TDS

The German ZEW index for October is out, and analysts at TDS see downside risks, with a decline in the Current Situation index to 87.2 and an unchanged reading of 17.0 for the Expectations index, against market consensus of an improvement in both indexes.

Key Quotes

“The final September CPI print for the euro area is also released. Two ECB speakers are up today: Constancio speaks on financial stability at 8am BST, while Praet appears on a panel on “Europe matters” at 10:30am.”


09:11 NZD/AUD: Corrective rise appears complete - Westpac

The NZD/AUD cross’s recent corrective rise appears complete, and a retest of the 0.90 area is expected during the weeks ahead, suggests Imre Speizer, Research Analyst at Westpac.

Key Quotes

“Iron ore prices have risen during the past few days, and NZ remains no closer to knowing who its government will be.”

“The event calendar highlight this week is the jobs data. The unemployment rate has been hovering around 5.6% since mid-year, and that’s where markets expect it to be this week too.”

3 months ahead: Fair value for the cross is around 0.89. We see that as a fair target for the remainder of 2017. Supportive of the AUD are the rebound in iron ore prices and positive Chinese economic data, while the RBNZ’s on-hold stance (arguably even more entrenched than the RBA’s) is chipping away at NZ’s yield advantage.”


09:08 UK and Eurozone inflation figures amongst market movers today Danske Bank

Analysts at Danske Bank, point out that in the euro area, we are due to get the final HICP figures for September and they do not expect any changes from the preliminary release with regard to headline and core inflation, which reported a decline to 1.1% y/y.

Key Quotes

“It will be interesting to see which components caused the fall in service price inflation and whether they point towards any sustained upwards or downwards trend in core inflation, which will be important for ECB policy normalisation going forward.”

“In the UK, we are due to get the CPI inflation print for September but the release should not alter the Bank of England's members' views on the economy significantly and hence we still expect a 25bp Bank Rate hike next month.”

“Bank of England Governor Mark Carney, Deputy Governor Sir David Ramsden and MPC member Silvana Tenreyro are due to testify before the UK's Treasury today. We will look for any hints on whether they have changed their mind on a November hike.”

“In the US, we expect that the relatively muted growth in industrial production continued in September although the recent hurricanes increase uncertainty around the release.”

“We will also have the ECB's Vitor Constancio speaking at a conference in Lisbon and German ZEW expectations for October are due to be released.”


09:05 When are UK CPIs and how could they affect GBP/USD?

UK Sept CPI Overview

The UK docket has the CPI report, which will be published later this session at 0830GMT. The consumer prices in the British economy are expected to tick higher to 3.0% in Sept y/y. While core figures, excluding volatile food and fuel costs, are also expected to accelerate slightly to 2.8% in the reported month.

On monthly basis, the consumer prices are expected to arrive at 0.3%, when compared to 0.6% seen in the month of August.  

Deviation impact on GBP/USD

Readers can find FX Street's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 15 and 60 pips in deviations up to 2 to -3, although in some cases, if notable enough, a deviation can fuel movements of up to 75 pips.

 How could affect GBP/USD?

On a positive print, we could see Cable attempt a bounce back towards 1.3300 (round number), beyond which 1.3338/40 resistance area (weekly highs) could be tested, opening doors towards 1.3400 levels.

Conversely, an unexpected drop in the CPI figures will cause GBP/USD pair to break below the key support located near 1.3230, below which a test of 1.3206/01 (10 & 50-DMA confluence) will be imminent.

Key notes

GBP/USD - Will UK CPI lift Sterling?

GBP/USD unchanged around 1.3250 ahead of UK CPI

About UK CPI

The Consumer Price Index released by the National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).


09:05 USD: Upside potential depleting? - Westpac

Following a 4% gain in the US dollar index (DXY) since early September (its largest monthly gain this year), last week witnessed a 2% pullback, leaving the chances of a sustained recovery uncertain, according to Imre Speizer, Research Analyst at Westpac.

Key Quotes

“While there was ample upside potential for the USD as recently as a couple weeks ago, that has been depleted somewhat, with a Dec FOMC hike now almost fully priced in, and opposition among key Senate Republicans to a large tax cut on cost grounds becoming more apparent.”

“The event calendar highlights this week are the first of the Oct surveys, Empire, Philly and NAHB, none of which should ruffle the USD too much.”

3 months ahead: Beyond a near term stumble, the USD remains in good shape. Accommodative financial conditions point to yet more upside surprises in coming months while yield spreads should gravitate in the USD’s favour as the Fed Funds rate extends its glacial ascent above other countries’ key cash rates and as the Fed’s balance sheet shrinks relative to the ECB and the BoJ’s balance sheets.”


09:04 When are UK CPIs and how could they affect GBP/USD?

UK Sept CPI Overview

The UK docket has the CPI report, which will be published later this session at 0830GMT. The consumer prices in the British economy are expected to tick higher to 3.0% in Sept y/y. While core figures, excluding volatile food and fuel costs, are also expected to accelerate slightly to 2.8% in the reported month.

On monthly basis, the consumer prices are expected to arrive at 0.3%, when compared to 0.6% seen in the month of August.  

Deviation impact on GBP/USD

Readers can find FX Street's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 15 and 60 pips in deviations up to 2 to -3, although in some cases, if notable enough, a deviation can fuel movements of up to 75 pips.

 How could affect GBP/USD?

On a positive print, we could see Cable attempt a bounce back towards 1.3300 (round number), beyond which 1.3338/40 resistance area (weekly highs) could be tested, opening doors towards 1.3400 levels.

Conversely, an unexpected drop in the CPI figures will cause GBP/USD pair to break below the key support located near 1.3230, below which a test of 1.3206/01 (10 & 50-DMA confluence) will be imminent.

Key notes

GBP/USD - Will UK CPI lift Sterling?

GBP/USD unchanged around 1.3250 ahead of UK CPI

About UK CPI

The Consumer Price Index released by the National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).


09:02 India: Twin-deficit problem seems to be resurfacing - ING

Prakash Sakpal, Economist at ING suggests that ING is forecasting a range trading in USD/INR around 65.00 over the next 12 months.

Key Quotes

“Exports surged by 25.7% YoY and imports by 18.1% in September, data over the weekend showed. It was a strongest export print in the current financial year started in April 2017, putting 1HFY18 growth at 12.0% YoY, an acceleration from -1.7% a year ago. But 25.2% 1HFY18 import growth was an even bigger positive swing from -13.2% a year ago, of which more than a fifth was oil-related. The trade balance posted a US$72.1bn deficit in 1HFY18, US$28bn wider on the year.”

“One of the twin-deficits, the fiscal deficit started thrashing Indian financial assets in September. And the other one, the current account deficit seems to be popping its head up again. At US$14.3bn in 1QFY18 the current deficit was the largest in four years and it came off the US$39.9bn customs trade deficit, which continued to widen in 2QFY18. We expect close to 1.5% of GDP current account deficit and about 4% of GDP fiscal deficit in FY2018 (cons: 1.5% and 3.6%, FY2017: 0.7% and 3.5%).”

“Better activity data last week has driven USD/INR below 65.00 (spot 64.93). We think it would take continued good economic news or a dramatic weakening in the USD for the pair to retest the August low of 63.58. We forecast range trading around 65.00 over the next 12 months.”


09:01 AUD/USD sticks to RBA minutes-led weakness below mid-0.7800s

The AUD/USD pair stalled RBA minutes-led slide and has managed to rebound around 10-pips from session lows touched earlier. 

The Australian Dollar came under some pressure after minutes of the RBA's October policy meeting revealed that any policy change would be dependent on domestic economic conditions and will not be influenced by tighter monetary policy elsewhere.

The central bank took yet another chance to raise concerns about the effects of excessive Aussie strength and dragged the pair to an intraday low level of 0.7835. 

   •  RBA Minutes: Step up in the exchange rate rhetoric - TDS

However, a subdued action around the US Treasury bond yields extended some support to the higher-yielding currencies and helped limit deeper losses, at least for the time being. 

It would now be interesting to see if the pair is able to maintain its neutral bias or turns for the worst amid a strong US Dollar buying interest. 

Later during the NA session, the US economic data - import/export prices, industrial production and capacity utilization data, would now be looked upon for some fresh impetus.

Technical levels to watch

Immediate support is pegged near 0.7825 level, below which the pair is likely to accelerate the fall towards 100-day SMA, currently near the 0.7800 handle, before eventually dropping to an important horizontal support near mid-0.7700s.

On the upside, momentum beyond 0.7860 level might confront fresh supply near the 0.7885-90 region, above which the pair is likely to surpass the 0.7900 handle and head towards testing 50-day SMA hurdle near the 0.7910 region.


08:59 NZ Q3 CPI: housing-led pressures dont justify RBNZ neutral stance TDS

Analysts at TDS note that New Zealand’s Sep qtr CPI rose by +0.5%/qtr, mid-way between TD at +0.6% and mkt at +0.4%, and above that expected by the RBNZ (+0.2%).

Key Quotes

“Annual inflation rose from 1.7% to 1.9%/yr, closer to the RBNZ’s 2% mid-point target.”

“The RBNZ under Wheeler shocked the markets a few times this year by remaining neutral despite bouts of data-led market bullishness. We don’t expect Spencer to maintain this artificial neutrality for much longer.”

“A flat 1.75% OIS does not reflect our view, and so any hawkish tones from Spencer will be a surprise for rates, and the NZD.”

“In the meantime, we are still waiting for the NZ First Board to announce which major party they will support in the wake of the inconclusive 23 September election. This uncertainty is capping NZD gains for now.”


08:56 NZD/USD: Upside risks - Westpac

Following a 7% fall since August, NZD/USD rebounded 2% last week, mostly reflecting a 2% fall in the US dollar index last week and for the week ahead, the USD could fall even further, posing upside risks for NZD/USD, according to Imre Speizer, Research Analyst at Westpac.

Key Quotes

“Regarding local factors, we have NZ CPI, which we expect to register a temporary spike and thus pose upside risks for the NZD. Same goes for the GDT dairy auction (2% gain in WMP priced by futures). In addition, there’s the government formation announcement, which poses two-way risks.”

Three months ahead: Our medium term outlook for NZD/USD is largely dependent on the outlook for the US dollar. A persistent rebound in the US dollar by year end is needed to pull NZD/ USD back to the 0.70 area.”


08:53 RBA Minutes: Step up in the exchange rate rhetoric - TDS

The RBA minutes were released today, and we spied a step up in the rhetoric in relation to the exchange rate, points out the research team at TDS.

Key Quotes

“We ploughed through all the 2017 policy statements and minutes and the RBA today added “material further” to the usual ”appreciation would slow down the expected pickup in growth and inflation”.”

“The RBA timeline and AUD at the time is in the attached, but the summary is:

From February to July, the RBA claimed “The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment”.

In August, when the working AUD assumption for the RBA forecasts was lifted to $US0.80, the RBA noted that the higher AUD “It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.

  • The minutes added “a further appreciation of the exchange rate….”

In September the RBA repeated the August message word for word, including adding “further” in the Minutes.

For October, the RBA repeated “An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

  • Today’s Minutes, however, added “A material further appreciation of the exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

“Conclusion: At the risk of over-analysis, we conclude that the RBA could be comfortable with the exchange rate at current levels of $US0.78-79. This cannot be a surprise if the RBA's own August projections achieve above trend-growth and inflation back in the band with a working AUD assumption of $US0.80. Perhaps the AUD needs to be $US0.83+ before the Bank downgrades its growth and inflation projections.”


08:52 EUR/USD headed to 1.1750 on political uncertainty, ZEW eyed

The EUR/USD pair extends its retreat from two-week tops into a fourth day today, as uncertain political environment around the EU continues to dampen the sentiment around the Euro.

EUR/USD awaits fundamental drivers

The spot remains vulnerable amid rife political jitters, in the wake of Catalonia stand-off and Merkel defeat in the lower Saxony regional election.

The Catalan leader Puigdemont failed to offer clarity on his independence campaign yesterday, following which the Spanish government has offered him some time until Thursday to decide on whether he wants to declare independence or not.

On the other side, Germany's Social Democrats (SPD) beat Angela Merkel's Conservatives in a vote in the northern state of Lower Saxony on Sunday, implying Merkel’s weaker stance on the coalition talks, following last month’s disappointing election outcome.

More so, renewed upside seen in the US dollar in the overnight trades, tracking higher Treasury yields after the reports cited that the US President Trump was impressed by with Stanford University economist John Taylor and hence, Taylor could be the next Fed Governor. Taylor is known for his hawkish tilt on the monetary policy.

Moving on, focus now remains on the economic releases for fresh impetus on the major, with the German ZE surveys and Eurozone final CPI report eagerly awaited. Meanwhile, the US industrial output and Fedspeaks will emerge the market movers in the American session.

EUR/USD Technical View

Haresh Menghani, Analyst at FXStreet notes: “From a technical perspective, the pair is currently placed near its immediate support near the 1.1780-70 region, marking 23.6% Fibonacci retracement level of its recent slide from 1.2092 to 1.1669. A clear break below the mentioned support would confirm a fresh bearish break down and turn the pair vulnerable to head back towards retesting the 1.1700 handle with some intermediate support near mid-1.1700s.” 

“On the flip side, 1.1800 handle now seems to act as immediate resistance and any subsequent recovery attempts might now be capped at 38.2% Fibonacci retracement level near the 1.1830 region,” Haresh adds.


08:50 GBP/USD unchanged around 1.3250 ahead of UK CPI

The Sterling is alternating gains and losses on Tuesday vs. the greenback, taking GBP/USD to the mid-1.3200s ahead of the publication of UK’s inflation figures.

GBP/USD steady ahead of data

Cable is so far holding on to the lower end of the weekly range following yesterday’s pullback, although decent contention seems to have emerges around the 1.3250 region.

Renewed Brexit jitters are dominating the sentiment around the British Pound at the beginning of the trading week, while UK officials and EU negotiators continue to blame each other for the lack of significant progress (if any, at all) in the ongoing talks.

Looking ahead, UK’s inflation figures are due later followed by the Treasury Committee Hearings, where Governor M.Carney and MPC members S.Tenreyro and D.Ramsden are due to speak.

In the US docket, export/import price index is due, seconded by September’s capacity utilization, industrial and manufacturing production, the NAHB index and TIC flows.

GBP/USD levels to consider

As of writing the pair is advancing 0.02% at 1.3256 facing the next resistance at 1.3324 (21-day sma) seconded by 1.3338 (high Oct.16) and finally 1.3548 (2014-2017 down trend). On the flip side, a breakdown of 1.3205 (10-day sma) would aim for 1.3145 (55-day sma) and then 1.3121 (low Oct.12).


08:46 China: September credit was above expectations - Westpac

Elliot Clarke, Research Analyst at Westpac, explains that credit provision in China occurs through both the core and shadow banking systems – the latter is a network of trusts; investment funds; and intermediaries and September itself was above expectations and stronger than August.

Key Quotes

“For the September quarter, the increase was in line with the average through 2014– 2016 (excluding the outsized March quarter increase seen in each year).”

“Aggregate financing is up 16%ytd in 2017 compared to 12%ytd in September 2016. Bank loans have risen 15%ytd (11%ytd in 2016) while other finance has gained 22%ytd (15%ytd in 2016). Through 2015–17, around 74% of total aggregate financing has been supplied by the banks.”

“In the September quarter itself, over 61% of bank loans went to households. This share is up from 56% over the prior twelve months (to June 2017) and around 40% in the first half of 2016 – a share broadly sustained since 2010.”

“This highlights two salient points: (1) corporates demand for credit is modest versus history; (2) persistent house price gains and, to a lesser extent, consumption are boosting the demand for credit from consumers.”

“Authorities are not directly targeting or limiting growth in household leverage. But their governing of property markets seeks to manage how debt is used and, through stronger bank regulation, the terms on which funds are lent.”

“The use of wholesale funding by banks to expand their balance sheet is a trend that warrants close monitoring. To ensure financial stability amid rapid growth, high quality funding is as important as asset quality. This is even more true of the non-banks, who are increasingly turning to short-term interbank funding.”

“On non-bank lending more broadly, there has been a sharp pull back since the March quarter surge. In part this is because of greater corporate bond issuance, but it also looks as though demand has abated. Notably, entrusted loans (from one company to another) have been negligible. This could be due to a lack of demand and/ or large firms wishing to hold onto their capital.”

“All told, the September quarter highlights that momentum has been sustained in China’s economy in the second half of 2017. There is no immediate financial system risk, but close supervision is necessary to make sure none arise.”


08:40 China: A busy week ahead - ING

Iris Pang, Economist at ING sees the 19th Congress as likely to consolidate Xi Jinping’s power in the party, which is positive for the sustainability of future economic growth.

Key Quotes

“This week sees the start of China’s week-long 19th Congress. We sees this as likely to consolidate Xi Jinping’s power in the Party, which means reforms and anti-corruption campaigns should continue. This is positive for the sustainability of future economic growth. If Xi fails to line up party members in his camp to the top of the Party then anticorruption exercises would likely stop. On economic targets, China achieved 90% of the GPD target set for 2020 in 2016. So we expect a more aggressive target on growth to “around 6.5%” pa to 2025. If there is no GDP target then the tone would change to highlighting reforms, which is good for longer term growth.”

“This is also a busy week for Chinese data, with GDP, Industrial production, fixed asset investment data and retail sales all released. We expect some weakening momentum from previous data as the negative impact from cutting overcapacity in cement and other sectors is balanced against the positive impact from results on coal and steel from overcapacity reform and the emergence of new sectors.”

“Released yesterday, CPI and PPI were 1.6% and 6.9%YoY in September against our forecast of 1.5% YoY and 6.5% YoY respectively. As there are a lack of direct channels for PPI to shape CPI, the two are expected to continue to diverge. PPI has been dominated by a surge in LNG prices and coal prices. But metal prices have shown some loss of momentum. CPI inflation should be fairly stable if there is no adverse weather in the October.”

“On Thursday, China will release 3Q17 GDP. We expect the economy to grow 6.8% YoY (prior: 6.9% YoY), which is consistent with the consensus. So far, we are optimistic on China growth, especially the result from the still ongoing overcapacity cutting exercise.”

“We also believe that new growth areas, for example, innovative technology platforms, new energy cars, and the manufacturing of robots will support September industrial production growth at 6.2% YoY (consensus: 6.4%; prior: 6.0%).”

“Infrastructure investment has continued to be the main demand driver for commodities while residential property construction is under tightening measures. This should bring fixed asset investment to 7.8% YoY YTD growth (consensus: 7.7%: prior: 7.8%).”

“The middle class will continue to support retail sales, which we expect to grow 10.3% YoY in September (consensus: 10.2%; prior 10.1%). This figure does not count summer holiday spending abroad. Overall, this means the spending power of the growing middle class is large.”

“Overall, Chinese GDP should hold up well at 6.8% YoY in Q3 but the divergence of investment and retail sales still means China is continuing to evolve into a consumption economy. More importantly, we anticipate activity data to hold up pretty well through the rest of the year. The higher M2 growth at 9.2%YoY in September (prior: 8.9%), means loan growth is still high, and this higher liquidity will be supportive to the coming months’ economic activity. We forecast 2017 GDP to be 6.8%.”


08:34 AUD/JPY: Another test of 90 multi-week? - Westpac

Sean Callow, Research Analyst at Westpac, noes ha AUD/JPY is little changed over the past month or so, though the intervening failed probe of 90 may be instructive.

Key Quotes

“While there should be caution ahead of the Japanese elections on Sunday, our underlying inclination is for another test of 90 multi-week, so long as global risk appetite remains positive.”

“Beyond 90 however, the pair could lack fresh fuel to overcome Japanese investor profit-taking.”

“AUD should find ongoing support from reasonable domestic growth momentum (especially job creation) and the RBA’s patience with sluggish inflation, which keeps markets debating the point in 2018 when interest rates will be raised.”

“JPY in contrast seems likely to retain an underlying depreciation bias, with the Bank of Japan committed to buying enough JGBs to keep the 10 year at 0%, in a world where many key central banks are moving towards tighter policy.”

“As usual, there are ongoing downside risks on AUD/JPY from any deterioration in risk sentiment, with major stock indexes near record highs and volatility low. Spec positioning (long AUD/USD, long USD/JPY) implies substantial fuel for AUD/JPY selling in the event of a “risk off” event.”


08:30 Italy: Getting closer to a new electoral law - ING

According to Paolo Pizzoli, Senior Economist at ING, while addressing the issue of dis-homogeneity between chambers which affects the current Italian law, the new one would do little to improve governability, in their view and they expect intensified parliamentary activity to have it approved by early November.

Key Quotes

“After a parliamentary acceleration, made possible by the resort to confidence votes, the Italian Chamber of Deputies approved a new electoral law last Thursday. The new law was supported by the PD and AD (its centrist allies in the current government) and by opposition parties Forza Italia and the Northern League. It was opposed by the 5-Star Movement, by Fratelli d’Italia and by MDP, the party which was originated by the split of the leftist side of the PD last February. Starting this week, the new law will undergo examination by the Senate and, eventually, the vote of the Senate between end-October and the first week of November.”

A mixed system

The new electoral law, which will be applied to both branches of the Italian parliament, foresees a mixed system, with two-thirds of the seats allotted with a proportional system, and one-third with a first-past-the post system, with blocked lists. It introduces the same entry thresholds in both houses, which are set at 3% of votes for single lists and at 10% for coalitions. The possibility of forming coalitions for the first-past-the post part is the most relevant factor of the new system. However, coalitions will be loose in nature, as the law does not foresee the presentation of a common programme nor the indication of a common PM candidate. Still, the possibility to form coalitions will by itself affect the shaping-up of the campaign in view of the 2018 vote.”

Any impact on governability?

In our view, the introduction of the new law would not impart a dramatic change in terms of post-election governability.

The good news is that the new law would manage to harmonize the electoral system in the two Chambers, one of the main drawbacks of the so-called Consultellum, the current asymmetric system which emerged from two separate rulings of the Constitutional Court. As dis-homogeneity within the Consultellum was possibly the main concern of President Mattarella, we believe that the new scheme approved at the Chamber of Deputies might represent for him an acceptable compromise. Should the law also pass in the Senate in its current version, we believe it would not meet any resistance from the Italian Presidency.”

Next steps

The new law will now have to pass the test of the Senate, after which a full month will be needed to re-design constituencies. If no amendment will be made in the discussion, the vote of the Senate should mark the final approval of the law. Press reports indicate the intention of the government coalition to have the electoral law approved before the final vote of the Senate on the Budget law. This would impose an acceleration of parliamentary works and a possible vote of the law at the Senate in the first week of November at the latest. This would leave the parliamentary approval of the budget in December as the last relevant passage of the current legislature.

President Mattarella would then be in the position to dissolve the parliament early in January 2018. According to the Italian Constitution, the polling date has to be set at least 45 days and within 70 days after the parliament’s dissolution. Our current best guess is that, should the law be passed by the Senate, elections would take place in the first half of March 2018.”


08:13 IEAs Birol: OPEC compliance with oil output cut deal at 86% - RTRS

More comments crossing the wires from the IEA head Birol, via Reuters, as he speaks on the sidelines of the World Knowledge Forum (WEF) in Seoul.

Key Quotes:

“Their compliance is about 86 percent, higher than in the past... whether or not they will continue with this plan in November it’s up to them.” 


08:01 Forex Today: AUD slips on RBA minutes, CPIs, ZEW and Carney in focus

Risk-aversion emerged the main theme in Asia this Tuesday, with the Yen regaining ground against its American counterpart, following the warning issued by the North Korean UN ambassador. As a result, the Antipodeans also traded on the back foot, with the Aussie facing double whammy amid dovish RBA minutes.

Meanwhile, the US dollar extended its bid tone and went on to hit fresh five-day tops at 93.27, before entering a phase of consolidation near the last. The Asian equities picked-up strength over the last hour, while oil prices traded largely subdued, despite escalating Iraq tensions.

Main topics in Asia

RBA minutes: rate change timing here dependent on local economic conditions

The RBA minutes were released and the Aussie dropped a handful of pips with the minute not showing any surprises…

North Korean UN envoy says 'nuclear war may break out at any moment' - Guardian

North Korea’s deputy UN ambassador has warned that the situation in the Korean Peninsular has reached "the touch-and-go point and a nuclear war may breakout at any moment".

RBA's Ellis - Starting to see spill over effect from public infrastructure spending

Comments from RBA Assistant Governor Ellis crossing the wires via Reuters.

NZ CPI first thoughts - Westpac

Analysts at Westpac's first thoughts on the NZ CPI data that arrived as follows..

US, Japan fail to bridge gap on trade in economic talks - RTRS

Reuters out with the latest reports, citing that the US Vice President Mike Pence and Japanese Finance Minister Taro Aso failed to bridge the differences on issues of trade during economic talks on Monday. 

Key Focus ahead

Traders are poised for a busy calendar ahead, with plenty of risk events from the European calendar, viz., UK CPI, German ZEW surveys and Eurozone final CPI. Also, of significance remains the speeches by the BOE Governor Carney and board members Ramsden and Tenreyro. In the NA session, a fresh batch of US macro data are up for grabs, including the industrial production, import prices and capacity utilization. Besides, FOMC member Harker’s speech and NZ GDT price index data will also hog the limelight later on Tuesday.

GBP/USD - Will UK CPI lift Sterling?

GBP/USD fell to a low of 1.3225 on Monday after reports hit the wires that that unless the European Union concedes on some key issues, Brexit talks could collapse.

EUR/USD - Bond market sending mixed signals, focus on the Spanish / Catalonia standoff

The EUR/USD pair fell to a 5-day low of 1.1775 in Asia on reports that US President Donald Trump was impressed with Stanford University economist John Taylor during an interview for Fed Chair. 

Topsy Turvy Tuesday?

Dealers have spent the last 24 hours digesting Friday’s CPI fallout while keeping an eye on geopolitical risk amidst the deluge of Fed chair speculative headlines.

GBP - Will Hope for BoE Overshadow Brexit?

There was very little movement in currencies on Monday and this lack of volatility could be indicative of trading for the rest of the week.

 


07:50 Australia Q3 CPI Preview: No sign of inflation - Westpac

According to Justin Smirk, Analyst at Westpac, despite the surge in electricity and gas prices it is hard to find any broader inflationary pressure in Australian economy.

Key Quotes

“September is a seasonally strong quarter due to the post June 30 price resetting of many administered prices and as such, the ABS seasonal factors moderate our estimate to a seasonally adjusted 0.4%.”

“Key factors in Q3 are: the ongoing grocery competition holding back food prices; the annual repricing of the tobacco excise; surging electricity prices but decent gains in dwelling construction costs (especially in Sydney and Melbourne); almost flatrents; falling health; transport (including fuel) and communication prices.”

“There is a lot of interest in the impact of rising electricity prices in the September quarter CPI. Our forecast for a 16%qtr rise in electricity prices is based on an 18% to 20% surges in electricity bills in Sydney and Adelaide respectively, Melbourne had just a 5% increase as the price adjustment tends to be spread over the September and March quarters while Brisbane is looking at a 12% rise. Perth is not on the national electricity grid and had more modest 10% rise.”

“Considering our forecast headline inflation estimate of 0.74%; we estimate that 0.46 percentage points are contributed by energy costs, indicating that (ex- energy) headline inflation only increased by 0.27%.”

“Core inflation is forecast to print 0.3%qtr (0.29% at two decimal places) holding the annual rate flat at 1.8%yr. The trimmed mean is forecast to rise 0.27% while the weighted median forecast is 0.32%. The two quarter annualised pace of core inflation is forecast to decelerate to 1.7%yr from 2.1%yr - well below the bottom of the RBA’s target band.”

“Traded prices are forecast to be flat in the quarter –0.6%yr, while non-traded prices are forecast to rise 1.0% in Q3, 3.2% driven by rising housing and energy costs.”


07:48 NZ Firsts Peters: There is serious consensus on policy work but not on final outcome

New Zealand First Party leader Peters was on the wires earlier today, via Reuters:

There is serious consensus on policy work but not on final outcome

No decision made yet on who to back after NZ elections

Discussions still need to be had with labour and national parties

First party board members returning home after two days of meeting

The board and caucus has spent a couple of days on "very comprehensive discussions and preparations" for the party to make a final decision.

The board's work is complete at this point but more work needs to be done on "differences of calculations" and other things before they finalise a decision


07:38 Australia: Gradual non-mining recovery increasingly synchronised across the states - NAB

In view of analysts at NAB, the gradual non-mining recovery of Australian economy is becoming increasingly synchronised across the states and territories. 

Key Quotes

“Economic growth in most states is expected to strengthen somewhat in 2017-18 before moderating a little in 2018-19 as dwelling investment and LNG exports peak. The unemployment rate is forecast to decline in most states and territories with the exception of the ACT and the NT.”

Victoria and New South Wales will remain ahead of the pack in terms of state final demand growth, as non-mining business investment, infrastructure spending and services spending support growth as dwelling construction peaks. However, Victoria is forecast to experience the strongest growth in Gross State Product (just!) in 2017-18, thanks to faster population growth, despite the closure of key automotive manufacturing plants this year. Queensland and WA will also experience very strong growth in 2017-18 in particular as exports surge. NSW however will see a lower rate of unemploymentbettered only by the NT and the ACT (although unemployment is forecast to rise in both territories).” 

LNG exports will add significantly to growth in both Queensland and Western Australia, especially in 2017-18. There are also signs of stabilisation in WA as mining projects reach completion, although a pick up towards solid domestic demand growth remains someway off. Domestic demand in Queensland meanwhile has rebounded strongly, although will slow somewhat now that the 3 large LNG projects have completed construction and support from dwelling investment starts to wane.”

Not only has the recovery in growth broadened across the states, it has also broadened across industries in most jurisdictions. This is particularly the case in NSW and Victoria, but also in South Australia where state final demand and business conditions have rebounded strongly. Tasmania and South Australia now boast the strongest business conditions.”

The outlook for investment has improved the most for NSW and Victoria, with private capex expectations higher for 2017-18. Government infrastructure spending is also running at record levels in NSW, Victoria and SA, although will add less to growth from 2018-19 based on the current pipeline.”

Consumer spending is outpacing household income growth across all states and territories, as wages growth remains weak across the country, suggesting that households are dipping into their savings to fund spending (with the notable exception of Tasmania). With wages growth to pickup only gradually, we expect only gradual acceleration in consumer spending growth in most states, despite the widespread pick up in employment growth. Consumer spending is strongest in the NT, but likely to weaken there as population growth slows as the Icthys LNG project is completed. Meanwhile, high household debt levels will also be cause for consumer caution, particularly in the largest south-eastern states.”

Tourism spending (both domestic and international) and education exports will continue to expand in most states, particularly if our forecasts for renewed AUD depreciation prove correct.”

After shooting the lights out in 2016, agricultural conditions are likely to be much more challenging this year. Parts of NSW and Queensland have seen record breaking temperatures in close proximity to frosts, while southern WA, and more recently south-east Queensland, have seen soaking rains. We have again cut our wheat production forecast to 18.7 million tonnes – the lowest in a decade.”

 


07:28 NZ: CPI rose 0.5% in Sep quarter, annual inflation 1.9% - Westpac

New Zealand’s Consumer Price Index (CPI) rose by 0.5% in the September 2017 quarter as both headline and underlying measures showed inflation close to, but slightly to the lower side of, the Reserve Bank’s target midpoint, according to Michael Gordon, Senior Economist at Westpac.

Key Quotes

“Consumer prices rose 0.5% in the September quarter, right in line with our expectations. The result was slightly above the median market forecast of a 0.4% rise, and quite a bit higher than the 0.2% increase that the Reserve Bank had forecast in its August Monetary Policy Statement.”

“The annual inflation rate rose from 1.7% to 1.9%, putting it just a touch below the 2% midpoint of the Reserve Bank’s target band. Various measures of core inflation, which adjust for one-offs and volatile items, all tell a similar story: annual inflation was either steady or up slightly for the quarter, and generally sitting at 2% or a little below.”

“We wouldn’t make too much of the RBNZ’s forecast ‘miss’, for two reasons. One is that most of the difference was on the tradables side of the CPI, most likely reflecting developments in food and fuel prices in the two months since the RBNZ made its forecast. These prices tend to be volatile from one quarter to the next, and while the RBNZ can’t ignore them altogether, it has scope to look through any price changes that appear to be driven by temporary factors.”

“The second reason is that, in one respect, this was actually a helpful result for the RBNZ. In August the RBNZ was forecasting inflation to fall below 1% again next year, albeit briefly, as the weather-related spike in food prices early this year dropped out of the calculation. This wouldn’t have been a breach of the inflation target by any stretch, but it might have required some uncomfortable explaining. With today’s result, the RBNZ is less likely to find itself in that position (we expect annual inflation to bottom out at 1.1% next year).”

“Housing-related prices continue to rise, but their impact on inflation may have passed its peak.”

“Without stronger sources of price growth elsewhere, the risks around the Reserve Bank’s medium-term inflation target lie to the downside.”


07:24 BOE to hike rates in November BBG Survey

According to the latest Bloomberg Survey, a majority of the economists expect the Bank of England (BOE) to hike rates next month, when the central bank meets on November 2.

Key Findings of the survey:

76% of economists expect a rate hike in Nov

Up from just 22% in September

The majority of economists then see the bank on hold until Q1 of 2019

87% chance of hike next month

And fully pricing another hike by August 2018


07:15 USD/JPY takes a sharp U-turn on N. Korea risks, attacks 112.00

The USD/JPY pair stalled its 2-day recovery mode and turned back into the red zone amid renewed risk-off trades, sparked by fresh North Korea threat.

USD/JPY rejected at 10-DMA of 112.31

The safe-haven Yen is back in demand across the board, after the Gaurdian reported the North Korean UK envoy, as warning that the situation in the Korean Peninsular has reached "the touch-and-go point and a nuclear war may breakout at any moment".

The North Korean headlines triggered a renewed bout of risk-aversion across the board, boosting the demand for the safe-havens at the expense of the higher-yield/risk assets such as the US rates, Asian equities and oil prices.

Moreover, latest headlines citing that the US and Japanese trade talks failed during the economic talks on Monday, also added to the jitters surrounding the economic relationship between the two nations.

Meanwhile, the bulls appear to guard the 112 barrier, as the US dollar index defends bids above 93 handle, up 0.10% on the day. On Monday, the greenback derived support from higher Treasury yields on reports that John Taylor could be the next Fed Governor.

Focus now shifts towards the US dataflow and Fedspeaks for fresh impetus on the buck, while markets will pay close to attention to any N. Korea headlines for further momentum

USD/JPY Technical View

Jim Langlands at FX Charts lays out the preferred strategy: “The dollar traded down to Friday’s lows, today reaching 111.64, before bouncing strongly on news that the supposedly hawkish John Taylor had a positive interview with Donald trump regarding the upcoming Fed Chair vacancy. Currently near session highs of 112.28, the short term momentum indicators now appear set to allow further dollar gains, where 112.75 would be the first real hurdle ahead of 113.00, and 113.43 (6 Oct high). Good support now seen at 111.60/70, and buying dips is preferred today. Further out, the dailies look less positive, so further range trade between 112.00/113.00 may be in store. Buy US$Jpy @ 111.85. SL @ 111.45, TP @ 112.75.”


07:03 GBP/USD - Will UK CPI lift Sterling?

GBP/USD fell to a low of 1.3225 on Monday after reports hit the wires that that unless the European Union concedes on some key issues, Brexit talks could collapse.

The currency pair kept a low key in Asia, as it traded largely in the sideways manner below 1.3268 (38.2% Fib retracement of Sept. 20 high - Oct. 6 low).

All eyes on inflation

Kathy Lien from BK Asset Management writes, "according to the PMIs, price pressures accelerated in the month of September".

The UK consumer price index due for release at  08:30 GMT is expected to show the cost of living jumped to 3% y/y in September from 2.9% in August. A rise to 3% or more would improve the odds of a rate hike in 2018. As of now, the economists expect the BOE to hike rates in November and then maintain the status quo throughout 2018. Thus, British Pound would gain if the CPI prints at 3% or above 3%.   

However, the gains may not be sustainable as fears are mounting that a "no deal Brexit" could see Pound drop to parity with the Euro.

On the other hand, the odds of a BOE rate hike in 2018 would drop if the CPI prints below the August figure of 2.9%. In this case, Sterling could revisit 50-day moving average level of 1.3149.

GBP/USD Technical Levels

A break above 1.3268 (38.2% Fib retracement of Sept. 20 high - Oct. 6 low) could see the pair test supply around 1.3338 (Oct 13 high). A cut through the same would validate the argument that the pair has bottomed out at 1.3027. The subsequent move higher could be extended to 1.3443 (Sep 29 high).

On the downside, breach of support at 1.3251 (1-hour 100-MA) could yield a pullback to 1.3197 (1-hour 200-MA). A violation there would mean the corrective rally from the low of 1.3027 has topped out at 1.3338 (Oct 13 high). The spot could then re-test 1.31 handle.

 


06:36 Economists don t expect another BOE hike after November - Bloomberg

Economists believe the Bank of England (BOE) will hike rates in November and would maintain the status quo till the first quarter of 2017.

The UK’s first interest-rate hike in over a decade will take place at the BOE’s Nov. 2 meeting, according to 76 percent of those surveyed by Bloomberg, up from 22 percent of respondents in September.

Bloomberg report says, "Economists' prediction is at odds with the market's view. While money-market traders are pricing in an 87 percent chance of the Monetary Policy Committee lifting rates from a record-low 0.25 percent next month, they are fully pricing in another hike by August 2018."


06:22 EUR/USD - Bond market sending mixed signals, focus on the Spanish / Catalonia standoff

The EUR/USD pair fell to a 5-day low of 1.1775 in Asia on reports that US President Donald Trump was impressed with Stanford University economist John Taylor during an interview for Fed Chair. Taylor is widely believed to be more hawkish than Yellen.

US-German 10-yr yield spread rises

The spread or the difference between the US 10-year treasury yield and German 10-year bund yield currently stands at 192 basis points; the highest level since mid June. The widening of the spread adds credence to the drop in the EUR/USD pair.

However, the treasury yield curve (difference between the 10-year yield and the 2-year yield) fell to 76 basis points; the lowest level since August 2016. Flattening of the yield curve is dollar bearish.

On the surface, it does appear that the bond markets are sending mixed signals. As of now, the flattening of the yield curve is being overshadowed by  the widening of the US-German yield spread.

Looking ahead - Eyes will be on the Spanish/Catalonia standoff whereby the Spanish has given Catalonia until Thursday to drop their independence campaign. On the data front, German and Eurozone survey and US industrial production could move the market.

EUR/USD Technical Outlook

FXStreet Chief Analyst Valeria Benarik writes, "from a technical point of view, the pair has made little progress during the last two sessions, still trading in the red when compared to Friday's close. In the 4 hours chart, the price has managed to regain ground above a bearish 100 SMA, but still below the 20 and 200 SMAs, while technical indicators remain within negative territory, losing the limited upward strength they presented earlier today. The upward scope seems limited by selling interest on approaches to 1.1820, and seems there won't be today a trigger that can push the level beyond it. If it happens, however, the pair has scope to extend its gains up to the 1.1850 region. To the downside, the 50% retracement of the latest bullish run stands at 1.1775,  while the pair has a static support a few pips below the level, in the 1.1760 region. Below this last, the 1.1720 comes next ahead of the critical 1.1660 region."

 


05:41 IEA s Birol - With current policies, oil market may rebalance in 2018

Dr. Fatih Birol, Executive Director of the Paris-based International Energy Agency (IEA) says the oil market could rebalance in 2018 if the current policies (global output deal) are maintained, but warns that geopolitical factors may play spoilsport.


05:24 USD/JPY- Investors hedge against Japanese election risk

USD/JPY one-week risk reversals fell to -3.41 yesterday, its lowest level since May 1 while the one-week at-the-money option volatility rose to a 11-day high of 8.05.

The decline in the one-week risk reversals indicates that investors are hedging against the yen strengthening i.e. low cost out of the money (OTM) USD/JPY puts or JPY calls are in demand ahead of Sunday's Japanese elections.

There is widespread belief in the market that Abenomics weakened the Yen, thus a weak victory for Abe could put pressure on the USD/JPY (strengthen the Japanese Yen). Meanwhile, the new Kibo no To (Party of Hope) has said that it would work with the Bank of Japan (BOJ) on a smooth (QQE) exit strategy.

Hence, premium on the USD/JPY puts (risk reversals dropped) has jumped as investors hedge against Kibo no To's strong performance in the elections.


04:56 AUD/JPY dips below 88.00 after RBA minutes, risk reversal drop

AUD/JPY fell to a session low of 87.88 after the RBA minutes showed policy makers are in no rush to hike rates.

The minutes also talked about the disinflationary impact of the strong Aussie, low wage growth and subdued price pressures. The minutes also softened the language on the strong Aussie by adding the word "material" to its warning on the currency, however, the change in the language has gone unnoticed.

One week risk reversals drop, Vols pick up

The one-week 25-delta risk reversals fell to -2.20; the lowest level since September 8. Meanwhile, the one-week ATM volatility currently stands at 8.20; the highest since September 29.

The drop in the one-week risk reversals indicates out-of-the money JPY calls/AUD puts are in demand ahead of the Japanese elections.

AUD/JPY Technical Levels

A break below 87.84 (10-DMA) would open doors for 87.62 (50-DMA) and 87.25 (Oct 10 low). On the higher side, breach of resistance at 88.15 (session high) would open up upside towards 88.31 (Oct 13 high) and 88.48 (Sep 12 high).  

 

 


04:55 S&P: China is running unconventional monetary policy

The US ratings agency, Standard and Poor’s (S&P) is out with its take on monetary policy stance adopted by the Chinese central bank (PBOC).

Main Points:

China is running unconventional monetary policy


04:48 US, Japan fail to bridge gap on trade in economic talks - RTRS

Reuters out with the latest reports, citing that the US Vice President Mike Pence and Japanese Finance Minister Taro Aso failed to bridge the differences on issues of trade during economic talks on Monday. However, they agreed to cooperate on the North Korean nuclear risks.

Key Points:

“Japan agreed to streamline noise and emissions testing procedures for U.S. auto exports, while the two countries lifted trade restrictions on U.S. potatoes and Japanese persimmons.

But the United States and Japan remained at logger-heads on how to frame future trade talks with Tokyo pushing back against U.S. calls, made by Pence, to open up talks for a bilateral free trade agreement (FTA).”


04:40 Australias PM Turnbull announces National Energy Guarantee

Australia’s PM Turnbull is out on the wires now, via Reuters, announcing the National Energy Guarantee programme, which will deliver affordable and reliable electricity.

Key Details:

Reliability guarantee to ensure energy is always available

Emissions guarantee to contribute to Australia's international commitments

It’s meant to ensure ensuring energy retailers offer consumers a better deal

More gas for Australians before it's shipped offshore

Building Snowy 2.0 (expansion of pumped hydro capability within the Snowy Scheme) to stabilise the system

Stopping network companies gaming the system    


04:35 IEAs Birol: US shale output to match Iraq production in 7 years

Livesquawk reports comments from Dr. Fatih Birol, Executive Director, International Energy Agency (IEA), predicting that the US shale oil output will match Iraq production in seven years.

 


04:21 RBA s Ellis - Starting to see spill over effect from public infrastructure spending

Comments from RBA Assistant Governor Ellis crossing the wires via Reuters-

  • Starting to see spillover effect from public infrastructure spending onto non-mining private sector
  • Watching energy policy developments in Australia
  • Expect retail electricity prices will add to CPI in coming quarters
  • Electricity prices not a dominant factor in household spending, but will add to headline inflation

04:16 PBOC sets the Yuan reference rate at 6.5883

The People's Bank of China (PBOC) set the Yuan reference rate at 6.5883 vs. Monday's fix of 6.5839 


03:57 North Korean UN envoy says nuclear war may break out at any moment - Guardian

North Korea’s deputy UN ambassador has warned that the situation in the Korean Peninsular has reached "the touch-and-go point and a nuclear war may breakout at any moment".

North Korea deputy United Nations ambassador Kim In-ryong  said his country has the right to possess nuclear weapons in self-defense after being subjected to “such an extreme and direct nuclear threat” from the United States since the 1970s.

On Monday, Russian President Vladimir Putin said his nation was curtailing economic, scientific and other ties with North Korea in line with UN sanctions. Elsewhere, the European Union announced new sanctions on Pyongyang.

 


03:45 AUD/USD drops as RBA sees no reason to follow global rate hikes

AUD/USD fell to a session low of 0.7838 after the Reserve Bank of Australia (RBA) minutes showed the policy makers see no reason to follow global rate hikes.

The minutes said-

  • Rate change timing here dependent on local economic conditions 
  • Rate hikes abroad did not have "Mechanical" implications for Australian rates

The minutes also took note of the disinflationary impact of the strong Aussie dollar, subdued price pressures, low wage growth and spare capacity in the labor market.

Thus, AUD dipped across the board, although it could rebound if markets take into account the fact that the RBA has softened its language on the strong Aussie by adding the word "material" to its warning on the currency.

  • "A material further appreciation of the exchange rate would be expected to result in a slower pick-up in economic activity and inflation," the minutes showed

AUD/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes, "The technical picture is bullish as the pair settled above the 38.2% retracement of its latest slump from 0.8098. In the daily chart, indicators maintain sharp bullish slopes, entering bullish territory straight from oversold readings while the price settled above an anyway bearish 20 DMA. In the 4 hours chart, the price accelerated sharply above a now bullish 20 SMA, while technical indicators regain their upward strength within overbought readings.  The next Fibonacci resistance comes around 0.7920, with gains above it opening doors for a steeper recovery."

 


03:40 USD/CNY projection: 6.5965 - Nomura

Analysts at Nomura offered their model's projections for today's USD/CNY fix.

Key Quotes:

"Our model1 projects the fix to be 126 pips higher than the previous fix (6.5965 from 6.5839) and 53 pips higher than the previous official spot USD/CNY close of 6.5912. The basket implied change is 61 pips higher than the previous official spot USD/CNY close (6.5973 from 6.5912)."


03:37 RBA minutes: rate change timing here dependent on local economic conditions

The RBA minutes were released and the Aussie dropped a handful of pips with the minute not showing any surprises:

  • RBA removes high household debt mention in pol stance judgment 
  • Move to higher rate abroad has no direct implication here 
  • Economic conditions globally, locally more positive since 2016 
  • Asset valuations generally quite high 
  • Rate change timing here dependent on local economic conditions 
  • Further "Material" AUD rise wouldn't hurt economic activity, inflation 
  • Slow wage growth, high household debt could constrain spending 
  • Members noted policy had been eased significantly more in other advanced economies 
  • Judged steady policy consistent with growth and inflation targets 
  • Members discussed importance of risks in household balance sheets 
  • Rise in a$ driven by fall in us$, weighing on domestic inflation 
  • A "Material" further rise in a$ would result in slower pick-up in growth, inflation 
  • Increase in q2 gdp consistent with forecasts for gradual acceleration in growth 
  • Public infrastructure spending rising very strongly, last for a couple of years more 
  • Data pointed to subdued price pressures across economy in q2 
  • Liaison suggested firms absorbing higher energy prices into margins 
  • Recent strong jobs growth across states to support household incomes, spending 
  • Jobs gains had been well above level needed to absorb population growth 
  • Leading indicators pointed to slightly above-average job growth for rest of 2017 
  • Labour market still has spare capacity, wage growth to remain low for some time 
  • Housing markets had continued to ease in sydney and melbourne 

03:33 Australia New Motor Vehicle Sales (YoY) fell from previous 1.7% to -0.8% in September


03:33 Australia New Motor Vehicle Sales (MoM) down to -0.5% in September from previous 0%


03:29 USD/JPY: bears attempting to cap rallies on 112 handle

Currently, USD/JPY is trading at 112.24, up 0.06% on the day, having posted a daily high at 112.28 and low at 112.10.

USD/JPY is better-bid in the Tokyo open while there is a lack of volatility in the market and the dollar remains robust. There are plenty of risks ahead this week and the yen will trade in the broader theme of spreads and safe haven play while bears attempt to try cap rallies. 

Japan's Aso: Threat from N. Korea has heightened to levels never seen before

US 10yr treasury yields ranged between 2.28% and 2.30% before jumping to 2.31% and 2yr yields rose from 1.51% to 1.54%. The Fed fund futures yields firmed, now pricing the chance of a December rate hike at 87%. The US dollar index is 0.2% higher on the day, possibly forming H&S bottom.

USD/JPY levels

Meanwhile, Valeria Bednarik, chief analyst at FXStreet explained that in the 4 hours chart shows that the price remains near its daily low, trading within the 100 and 200 SMAs:

"Technical indicators are heading nowhere but within a negative territory, keeping the risk towards the downside for the upcoming sessions. The 111.60 level is quite a strong static support, with a break below it needed to confirm a steeper slide ahead, firstly towards 111.20, another relevant static support area," Valeria explained further.


03:15 PBOC should tighten monetary policy - China State Economist

Comments from Zhu Baoliang, economist at State Information Center crossing the wires via 21st Century Business Herald-

  • Monetary policy was "too loose" in the past and the PBOC should tighten monetary policy
  • No room for easing next year
  • Favors fiscal easing and strengthening of property controls

 

 


02:59 When are the RBA minutes and how could they affect AUD/USD?

RBA minutes overview

The RBA minutes are due today at 1230GMT after the RBA, as widely expected, left the official cash rate at 1.50% at its latest meeting, unchanged yet again. 

The RBA's October Statement was just as neutral in tone and it is unlikely that there would be a shift in tone from the Central Bank's outlook within the minutes. 

Analysts at TD Securities, however, suggested to look out for some of the inclusion of some "member discussion" about the main conclusions from the semi-annual Financial Stability Review.

How could the minutes affect AUD/USD?

AUD/USD has been under pressure to test below the 0.7850 mark with a daily close. However, the price is yet to reverse the traction that was found until a few pips below 0.7900. Therefore, on any bullish surprise or a hawkish hint within the minutes, the bulls are likely to take on 0.7870 resistance level just ahead of the 38.2% retracement currently at 0.7883. There is scope for recovery into the 0.7920/60 thereafter. To the downside, the 200 hourly SMA is located at 0.7809.

Key notes:

AUD/USD could re-test 0.7950 – UOB

AUD: 0.80 level an anchor point amid lack of catalysts - ING

About the RBA minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.


02:30 Two Catalan separatists have been taken into custody

According to BBC, Jordi Sánchez and Jordi Cuixart, two key members of the Catalan independence movement, are being held without bail while they are under investigation for sedition.

During the last days, Sanchez and Cuixart have been accused of encouraging protesters as they blocked officials from entering Catalonia's regional government offices on 20 and 21 September. Following the news crossed the wires, pro-independence supporters have now called for further protests, demanding their release.

As FXStreet Political Analyst remarks, the imprisonment of the leaders of two pro-independence civil organizations, accused of seditious acts, will make more difficult a political dialogue with Rajoy's government.


02:21 US key empire states data reviewed - Nomura

Analysts at Nomura noted that the New York Fed’s Empire State Survey reported healthy manufacturer sentiment in October.

Key Quotes:

"The general business conditions index increased 5.8pp to 30.2, the highest reading since September 2014. The new orders subindex remained elevated at 18.0, indicating steady momentum in the months ahead. Moreover, the shipments index increased to 27.5, the highest reading since October 2009. The number of employees index increased 5pp to 15.6, pointing to continued employment growth in the New York state manufacturing sector."

"The prices paid index moderated somewhat to 27.3, but remains elevated overall, indicating some upstream price pressure. Finally, the forward-looking general business conditions index for October increased 5.5pp to 44.8. Overall, today’s report is consistent with other strong readings from regional manufacturing surveys and points to sustained momentum to start Q4. We will receive more information about manufacturing activity in October with the Philly Fed survey’s release on Thursday."


01:22 NZ CPI first thoughts - Westpac

Analysts at Westpac's first thoughts on the NZ CPI data that arrived as follows:

  • NZ Consumer Price Index, September quarter 2017
  • Quarterly change: 0.5% (Westpac: 0.5%, market: 0.4%, RBNZ: 0.2%)
  • Annual change: 1.9% (Westpac: 1.9%, market: 1.8%, RBNZ: 1.6%)

Key Quotes:

Consumer prices rose 0.5% in the September quarter, in line with our forecast and slightly above the market median. The result was stronger than the 0.2% rise that the Reserve Bank forecast in its August Monetary Policy Statement. However, most of the difference was on the tradables side, which includes relatively volatile items such as food and fuel prices.

For now, inflation sits comfortably in line with the Reserve Bank’s target. However, there is little that suggests a risk of inflation breaking higher, particularly with the New Zealand economy seemingly entering a slower growth phase.

Tradables prices rose 0.2% for the quarter. Food prices rose by 1.1%, with vegetable prices edging back from a previous weather-related spike, but grocery prices picking up. Petrol prices rose strongly during the quarter, but they were still down by 1.7% on average. The disinflationary impact of the strong New Zealand dollar is waning, although the effects on import prices were mixed. Car prices were higher than we expected, but household goods prices were lower than forecast.

Non-tradables prices rose 0.7% for the quarter, a little stronger than we and the RBNZ expected. Looking at the details suggests that the surprise wasn’t widespread, with an element of government charges driving the move higher. Increases in alcohol excise duty, and the fire service levy on insurance premiums, had a larger effect on prices than we had assumed.

The annual inflation rate rose from 1.7% to 1.9%. A range of core inflation measures all told a similar story, with the annual rate either holding steady or ticking slightly higher, and sitting within a range of 1.7% to 2.0%. 

Market reaction:

The NZD/USD rose 1/3 of a cent on the result. There was no reaction on interest rate markets.


01:20 NZD/USD back below the 0.72 handle post CPI knee-jerk spike

Currently, NZD/USD is trading at 0.7190, up 0.26% on the day, having posted a daily high at 0.7212 and low at 0.7167.

New Zealand Consumer Price Index (YoY) came in at 1.9%, above expectations (1.8%) in 3Q

NZD/USD has settled back below the 0.72 handle after the initial CPI spike to the aforementioned highs. The CPI data was for Q3 and arrived at 0.5% q/q vs the expected 0.4%. This came in substantially higher than the RBNZ forecasts. However, markets are also watching out for the NZ government formation announcement to watch out for.

New Zealand Consumer Price Index (QoQ) came in at 0.5%, above forecasts (0.4%) in 3Q

NZD/USD 1-3 month:  

"If the RBNZ remains firmly on hold, as we expect, and the US dollar rises on a delivery of a Fed interest rate rise in December, then NZD/USD could fall to 0.70 by year end," argued analysts at Westpac.

NZD/USD levels

The bird really needs to get through 0.7240 to confirm that a significant correction of the 20th Sep highs is in place - a subsequent break of there could open doors towards 0.7315. 

0.7370 (the 9th Aug high) is the next key hurdle on the upside and a break there would solidify a bullish trend back towards 0.7522 and the YTD highs so long as there are closes on the 0.74 handle and beyond the post FOMC kneejerk highs of 0.7434. To the downside, 0.7052, a 19-week low, guards the psychological 0.7000 level to target 0.6908, 11th April low. 


00:56 Financial markets traded sideways overnight - ANZ

Analysts at ANZ noted that the financial markets traded sideways overnight with equities marginally higher, treasury yields bear flattening, and the USD mixed against the G10.

Key Quotes:

"With a plethora of central bank speakers over the weekend, the market took Monday to digest their views.

Yellen continued to view the slowdown in inflation as temporary and continues to believe in a gradual rate hike path, sending front-end yields a little higher today. US 2 year yields rose 3bps to 1.53% and 10-year yields were up 2bps to 2.29%.

Yields in Europe fell 3 (France, Germany, UK) to 5 (Spain, Italy) bps.

The US survey data (Empire Manufacturing) to kick off the October dataflow had a firm headline, but underlying details were a little softer. European bourses were little changed with Spain’s issues kicked down the road, while in the US equities were up 0.1-0.3%. GBP fell on reports that the Brexit negotiations are heading for a breakdown unless the EU signals compromise.

Oil lifted more than 1% as military moves in Kirkuk raised fears of supply disruption. Copper lifted to a 3-year high and palladium to a 16-year high. Gold has been steady trading just above USD1300/oz." 


00:46 New Zealand Consumer Price Index (YoY) came in at 1.9%, above expectations (1.8%) in 3Q


00:46 New Zealand Consumer Price Index (QoQ) came in at 0.5%, above forecasts (0.4%) in 3Q


00:24 AUD/NZD: risks are to the downside - Westpac

Analysts at Westpac offered their outlook for the Antipodean cross and rates.

Key Quotes:

"AUD/NZD 1 day: Yesterday’s technically bearish reversal pattern tilts risks to the downside for the day ahead, although there is plenty of AU and NZ event risk on the day.

AUD/NZD 1-3 month: September’s downward correction should give way to a resumption of the trend rise which started in June, and test 1.12, contingent on AU commodity prices recovering and risk sentiment remaining elevated. (4 Oct)

AU swap yields 1 day: The 3yr should open around 2.15%, the 10yr around 2.93%.

AU swap yields 1-3 month: Our RBA outlook (on hold throughout 2018) is anchoring short-maturity interest rates and should keep 3yr swap rates in a 1.80% to 2.30% range, as long as core inflation remains below 2%. Longer maturity rates will largely follow US rates. (4 Oct).

NZ swap yields 1 day: NZ 2yr swap rates should open up 1bp at 2.19%, the 10yr up 1bp at 3.20%, in response to AU and US interest rates movement overnight.

NZ swap yields 1-3 month: Our RBNZ outlook (on hold throughout 2018) is anchoring short-maturity interest rates and should keep 2yr swap rates in a 2.10% to 2.50% range, as long as inflation remains below 2%.  Longer maturity rates will largely follow US rates. (4 Oct)"


00:04 Forex today: dollar firmer on the macro news wires

Forex today was mixed with some headlines grabbing the attention and causing a bit of a stir in sterling and the dollar.

For the dollar, it was mostly political with a hint of the Fed. There were mixed rumors around US and N.Korean diplomats moving towards talks that were initially supportive of the dollar, but that seemed to fall apart along the same news wire. US yields popped on the idea that John Taylor could become the next Fed chairman who is second place behind Powell in the betting markets. Yellen was bullish at the IMF today, reported to be saying that low inflation will not persist. subsequently, this underpinned the dollar's strength. At the same time and in the same consequence, Trump alluded to an economic development bill.

US 10yr treasury yields ranged between 2.28% and 2.30% before jumping to 2.31% and 2yr yields rose from 1.51% to 1.54%. The Fed fund futures yields firmed, now pricing the chance of a December rate hike at 87%. The US dollar index is 0.2% higher on the day, possibly forming H&S bottom.

The euro was caught between a 1.1780 and 1.1820 range but pressured was by the Austrian election threatening the EU status quo. Catalan leaders failed to clarify their stance on independence, while the Spanish have given them until Thursday to drop the campaign. 

Cable was lower on the back of speculation that Brexit talks were breaking down ahead of the EU summit on Thursday, falling from 1.3311 to 1.3225. USD/JPY held the 200 DMA for another day and popped to test the 100-D SMA at 112.16 with a lack of commitment from the bears below 111.65. The antipodeans struggled with a firm greenback even after a strong move in metals, with copper exploding to its highest in more than three years on an expanding macro theme. AUD/USD held at 0.7843 and the Kiwi at 0.7161. 

Key events ahead

Analysts at Westpac offered the key events for the forthcoming Asian session:

"NZ: Q3 CPI is expected to rise 0.4%, for an annual pace of 1.8% (Westpac estimates 1.9%, RBNZ 1.6%). This will be mainly due to temporary effects such as food and fuel.

Australia: The RBA minutes are released and will provide the Board’s opinion on the key topics of housing, jobs and the consumer. RBA Assistant Governor Ellis participates on a panel at the Australia & New Zealand Investment Conference.

Key notes from US session

  • Catalonia doesn’t plan to respond to govt demand on Thursday - TV3
  • Wall Street ends day at all-time highs led by financials and energy
  • Market wrap: dollar slightly higher with a lack of catalysts - Westpac
  • John Taylor "impresses" Donald Trump for Fed chairman - BBG
  • North Korea rejects diplomacy with US for now - CNN
  • Fed communications in the spotlight - UOB
  • US Pres. Trump: Total termination of Iran nuclear deal is a very real possibility
  • US: More (positive) surprises in store? - ING
  • NY Fed: Business activity grew at a robust pace in New York State

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