HotForex Forex News

09:19 ECB, Riksbank and Norges Bank s amongst market movers this week Danske Bank

In a week relatively quiet on data releases, the main focus in financial markets will be on the ECB, Riksbank and Norges Bank's meetings on Thursday, suggests the research team at Danske Bank.

Key Quotes

“We expect the ECB to announce a QE extension of nine months at a pace of EUR30bn, while we do not expect any changes to the bank's forward guidance. In terms of the Riksbank meeting, we expect an unchanged inflation and rate path as well as no news on the QE programme, while we expect Norges Bank to try to say as little new as possible as is the tradition at these interim meetings and given the scarcity of significant new information - although financial market participants will have a slightly dovish expectation of the meeting given the notably weak inflation print. Focus this week will also be on the ending of the Chinese Political congress.”

“In terms of economic releases today, there is very little in the calendar but watch out for Japan PMI manufacturing number for October on Tuesday morning.” 


09:14 NZD/USD rebounds sharply from 5-month lows, 0.70 mark back on sight

The NZD/USD pair reversed an early dip to 0.6930 area and has now recovered around 60-pips from fresh 5-month lows touched earlier today.

NZ First leader Peters announced last week that his party would form a coalition with Labour and the market greeted the new government by sending the domestic currency sharply lower across the board. 

Adding to this, persistent US Dollar buying interest, supported by reviving tax-reform hopes, further contributed to the pair's fall at the start of a new trading week. 

Meanwhile, a subdued action around the US Treasury bond yields, and a modest greenback retracement, extended some support to higher-yielding currencies and helped the pair to rebound sharply from its lowest level since May 22. 

It, however, remains to be seen if the up-move is backed by any genuine buying or is solely led by short-covering, amid near-term oversold conditions. In absence of any relevant macroeconomic releases, the US bond yield dynamics would continue to act as an exclusive driver of the pair's movement on Monday.

Technical levels to watch

Recovery momentum beyond the key 0.70 psychological mark could get extended towards 0.7025 horizontal resistance, above which a fresh bout of short-covering could lift the pair back towards 0.7060 hurdle.

On the flip side, 0.6950 level now becomes immediate support to defend, which if broken would turn the pair vulnerable to aim towards testing the 0.6900 handle with some intermediate support near the 0.6930 region.


09:12 Nickel: Deficits not enough to prevent slide in prices - TDS

Analysts at TDS, explain that Nickel prices rallied above the $12,000/t mark on Friday amid reports of widening deficits, news that production at Brazil’s Vale fell 4.3 percent year on year in the last quarter and dropping LME/Shanghai on warrant inventories, all of which led to a bout of short covering.

Key Quotes

“Short Nickel, Enter: $12,050/t, Stop: $12,800/t, Target: $10,250/t”

“Some players also went long on the belief that the coming steel cuts will boost margins and will increase smelter's ability to pay for feed. Nickel investors took a shine to the metal amid expectations NPI production cuts in China will tighten the market, after Golden Week and ahead into the 19th Congress.”

“In sharp contrast to the most recent rally, we see rising Indonesian NPI production, less Chinese steel smelting during the winter months and massive excess inventories along with still hefty spec long liquidations as being factors pulling nickel back down toward the mid-$10,000/t in the not too distant future.”

“Latest price action has added to the gains made through the earlier part of October, after hitting a low of 10,215/t and can be traced to short-covering. Chinese environmental planned capacity cuts for some 400kt of nickel pig iron ("NPI") capacity during the winter months have sparked a round of short-covering associated with the recent rally in prices. Market participants believed that, should the cuts result in a tighter NPI market, producers would substitute it for refined nickel, which would positively impact demand for refined nickel. Moreover, NPI production is increasing elsewhere, in particular in Indonesia, suggesting that Chinese stainless producers can import NPI if need be. Thereby, NPI cuts should have a limited impact on the market.”

“Further, as steel prices have rallied since the summer, strong margins have fueled a ramp-up in production ahead of the anticipated winter cuts, leading to a buildup in inventories. And considering the impending the arrival of stainless imports from a large producer in Indonesia, we expect a further buildup in stainless inventories. That being said, enduse demand is unlikely to keep up the pace. The slowdown in China Q3 GDP to 6.8% from 6.9% was largely due to lower property investment and construction, which does not bode well for white product demand. Continued deceleration of property prices in major cities should see the construction boom cool, and thus we expect less demand for white goods and other household appliances that include nickel content.”

“Although modest deficits are expected in nickel, global stocks remain at an extremely bloated 225 days of consumption, suggesting that the metal is far from scarce. And, as we previously noted, Indonesian producers continue to have ample room to grow their nickel ore exports. In fact, at refined prices above $11,000/t, production at mines and smelters in Indonesia is viable, suggesting that we will likely see an increase in Chinese imports originating from Indonesia as producers take advantage of their granted export permits. At the same time, we expect that permitted allowances may well grow in the near term.”

“Therefore, considering that we expect Indonesian ore to return to market, that both stainless steel and end-use demand is on the wane, the balance of risks remains to the downside and shorts could very well get back in at these prices.”


09:08 Saudi state media: Saudi and Iraq satisfied with oil market recovery - RTRS

Reuters reports a story from Saudi Arabia’s state media, citing that the Kingdom and Iraq expressed satisfaction with the ongoing global oil market recovery, in the wake of the OPEC output cut deal extension.

 

 


09:02 EUR/USD bounces off lows near 1.1750

After briefly testing session lows in the mid-1.1700s, EUR/USD managed to grab some attention and is now flirting with the 1.1770 area.

EUR/USD focused on USTs, Catalonia

Spot is extending the leg lower from last Friday and trading just pips away from last week’s lows in the 1.1735/30 band amidst a persistent bid mood surrounding the greenback.

USD has been gathering extra traction since Thursday, after the US Senate approved a blueprint of the federal budget that could fast-track the long-waited tax reforms promised by the Trump’s administration.

The down-move in spot has been in tandem with a healthy improvement in yields of the key US 10-year benchmark, trading around the critical 2.40% handle.

On the positioning front, EUR speculative net longs retreated to 4-week lows in the week ended on October 17, according to the latest CFTC report.

In the data space, the European Commission will publish its advanced gauge of consumer confidence for the month of October later today, while flash PMIs in the region are due tomorrow ahead of the ECB meeting on Thursday.

EUR/USD levels to watch

At the moment, the pair is losing 0.10% at 1.1772 facing the next support at 1.1730 (low Oct.18) seconded by 1.1686 (low Oct.6) and finally 1.1662 (low Aug.17). On the upside, a break above 1.1858 (high Oct.20) would target 1.1882 (high Oct.12) en route to 1.1911 (high Aug.2).


09:00 ECBs Praet and UKs CBI industrial orders in focus today - TDS

Analysts at TDS, outline that markets are looking for UK’s CBI industrial orders to rise from +7 to +9.

Key Quotes

“Recently we’ve seen the patterns from earlier this year reverse, with the manufacturing PMI deteriorating but actual manufacturing activity finally showing some growth, so we’ll be looking for a confirmation in either direction from the CBI survey.”

The ECB’s Praet is speaking at an ECB conference on Credit, Banking, and Monetary Policy at 8am. We wouldn’t normally expect him to say anything policy relevant since we’re well inside the ECB’s blackout period now, but the ECB has bent the blackout rules more than once recently, so we’ll be keeping our eyes on headlines anyways. Later this evening, the ECB’s Nouy is speaking on regulation and supervision at 6:30pm.”

 


08:56 Japan s Nishimura: Abe, Trump agree to raise pressure on North Korea - RTRS

Yasutoshi Nishimura, a Japanese deputy chief cabinet secretary, said on Monday, Japan’s PM Abe and US President Trump agreed to work together to raise pressure on North Korea in a telephonic conversation, after  Japanese premier’s ruling  party scored a big win in an election on Sunday.

Nishimura also told reporters that Abe and Trump were planning to play golf together on Nov. 5, when Trump makes his first visit to Japan, Reuters cited.


08:45 USD/JPY looking to close the bullish opening gap?

The bid tone around the Yen is seen growing bigger, as we head into early Europe, now pushing the USD/JPY further southwards in a bid to close in the bullish opening gap witnessed in Asia.

USD/JPY: Sell the fact on Abe’s landslide victory

The outcome of the Japanese election, with Abe emerging victorious with a Supermajority in the Lower House, had an initial knee-jerk reaction on the USD/JPY pair, as it opened with a 50-pips bullish opening gap and went onto print fresh 3-month peaks at 114.10 levels.

Japan: Abe kept its two-thirds “super-majority” in Sunday’s snap election - TDS

The spot rallied on the back of Abe-win induced renewed risk-on wave triggered across the financial markets, which took the greenback broadly higher alongside the Treasury yields.

However, the spike above 114 handle soon faded and the Yen managed to regain lost footing amid profit-taking, as markets resorted to ‘Sell the fact’ trading strategy, with the election outcome already priced-in.

Later today, it remains to be seen whether the pair closes in the opening gap, as the sentiment remains buoyed amid firmer US dollar and higher global equities.

USD/JPY Technical View

Jim Langlands at FX Charts offers key technical levels: “There is not a lot of resistance ahead of 114.00, above which there is again very little to be seen until 114.50.On the downside, minor support today should arrive at 113.20/00 below which 112.80 and Friday’s low of 112.50 should provide decent backup. Below there, the 19 Oct low at 112.30, and the 18 Oct low at 112.12 would attract.”


08:32 Japans Abe: Got a better result than targeted

Japanese PM Shinzo Abe is on the wires now, via Reuters, speaking on his landslide election victory.

Key Points:

Got a better result than targeted

Will hold thorough debate with President Trump on North Korea during his visit to Japan

Will try to reach cross-party consensus on constitution

People will decide on new constitution in referendum

Will begin to consider new cabinet

Wants to manage administration with more humility


08:30 BoC: Another surprise could temporarily boost the CAD - BNPP

The Bank of Canada (BoC) meets this week after it surprised markets by hiking rates in September, but subsequent comments expressing concern about the impact of currency gains have seen pricing for the October meeting fall to just under 25% chance of a hike, notes the analysis team at BNP Paribas.

Key Quotes

“If the Bank does deliver a third hike, we would expect USDCAD to test lower back towards 1.23. However, with Fed pricing also adjusting higher now, we would expect the pair to stabilize and recover, with markets likely to continue to price in a similar degree of tightening for the Fed and BoC over the next 18 months.”


08:25 Japan: Abe kept its two-thirds super-majority in Sundays snap election - TDS

Japanese PM Abe’s ruling bloc kept its two-thirds “super-majority” in Sunday’s snap election, points out the research team at TDS.

Key Quotes

“The result boosts the likelihood of Abe securing a third three-year term as the Liberal Democratic Party’s (LDP) leader, which would set him up to be Japan’s longest-serving PM. It also means “Abenomics”, his platform of fiscal spending and monetary easing, would likely continue.”


08:21 ECB tapering well anticipated - BNPP

Analysts at BNP Paribas suggest that the ECB is likely to take centre stage this week with its scheduled meeting on Thursday when it is widely expected to announce plans for asset purchases beyond December and BNPP’s economists forecast a commitment to purchase EUR 30bn per month (down from EUR 60bn) for a period of six months.

Key Quotes

“With recent reports suggesting that a 9-month extension was under discussion, a result in line with our expectation might be viewed as marginally hawkish. However, we see limited scope for the EUR to benefit from the announcement given the extent to which tapering of purchases has already been priced in.”


08:08 Forex Today: Yen weaker, despite Abes big win, a light session ahead

Forex today was mainly driven by risk-on flows, triggered by a strong Abe win in the Japanese elections, which sent the Nikkei to fresh two-decade highs. However, the Yen failed to benefit from Abe’s landslide victory, as the outcome was already priced-in by the markets, while persisting risk-on trades also added to the weight on the safe-haven Yen. Gold also lost ground and hit 2-week lows amid broad USD strength. Meanwhile, the Antipodeans remained better bid amid better risk sentiment and higher oil prices.

Main topics in Asia

JPY: Another landslide victory for Abe: more of a relief yen-cross rally to go? - Nomura

Analysts at Nomura noted that the snap election result saw the ruling coalition (the LDP and Komeito) achieve another landslide victory - According to NHK, as of 2:00am local time 10 seats are still unknown.

Gold hits 2-week lows as risk-on prevails at full steam

Gold futures on Comex meander near the lowest levels seen since Oct 6th on Monday, extending selling-off seen last Friday, as the yellow metal continues to face double whammy…

Nikkei clocks two-decade high as Abenomics prevails

Japan's benchmark equity index Nikkei jumped to a two-decade high of 21,712.9 as Yen weakened to a three-month low following Abe's win in the snap elections.

US to put nuclear bombers on high alert - UK Mirror

UK Mirror is reporting that US is preparing for nuclear war readiness amid North Korea crisis. 

Key Focus ahead

Heading into Europe on Monday, the economic calendar has very little to offer, except for the German Buba monthly report and UK CBI industrial orders data. Meanwhile, the NA session also remains data-light, with only the Eurozone consumer confidence due to be reported.

Looking ahead, we have a busy week ahead, with the Eurozone flash manufacturing PMIs, Australian CPI report, UK and US GDP data due on the cards.

EUR/USD - Strong EUR call bias & vols pick up, eyes Catalan crisis & ECB

EUR/USD was offered at the 50-day moving average hurdle on Friday as renewed hopes of tax reform in the US put a bid under the US dollar. The currency pair fell to 1.1762 on Friday and extended losses to 1.1751 in Asia.

GBP/USD: Will the buyers retain control above 1.3200?

The GBP/USD pair gradually extends its bounce from a dip to 1.3170 levels and looks to take on the recent upmove beyond 1.32 handle, in the wake of broad USD correction.

ECB to announce extension of APP at lower pace of EUR30bn/ month - Barclays

Barclays’ Research Team out with its brief preview on what to expect from the ECB monetary policy meeting due later this Thursday.

The week ahead: a busy calendar, including ECB, US/ UK GDP, Aussie CPI- Nomura

Analysts at Nomura offered a preview of the week's key events.


08:05 Japan Leading Economic Index climbed from previous 106.8 to 107.2 in August


08:04 Japan Coincident Index up to 117.7 in August from previous 117.6


08:01 Singapore Consumer Price Index (YoY) below forecasts (1.4) in September: Actual (0.4)


07:52 Globally wages, CPI unlikely to rise sharply - Nomura

According to Takahide Kiuchi, Research Analyst at Nomura, the failure of wages and CPI to rise as much as generally expected amid tightening of labor supply-demand is a puzzle that perplexes not just Japan but the world’s other major economies as well.

Key Quotes

“In Japan, companies’ diminishing longer-term growth expectations have been a structural depressant on increases in the basic pay of regular employees since around the turn of the century. This structural factor makes a rise in the overall pace of wage increases unlikely. Considering this factor, wages and consumer prices are unlikely to rise at a faster pace even if supply-demand in the labor market and the overall economy continues to tighten.”

“In this environment, the economy is unlikely to heat up and the financial markets are likely to remain optimistic that monetary policy normalization will move forward cautiously and gradually. In other words, the economy is likely to remain in a Goldilocks state, or a moderate economic climate in which growth is neither too hot nor too cold. However, amid this optimism, one should also be aware of the potential for excessive risk taking and mounting imbalances in the financial markets.”


07:50 Moodys: Australian banking system outlook stable

US ratings agency Moody's published a review on the Australian banks, highlighting the following:

Australian banks funding and liquidity levels will stay stable

Stable outlook underpinned by favourable domestic economic trends and strengthening capital positions, stable profitability

Home loan re-pricing will prop up net interest margins and profitability


07:34 Nope, not the BoJ - HSBC

Frederic Neumann, Co-head of Asian Economics Research at HSBC, explains that the Fed is doing it and the ECB may soon, but don’t count on the BoJ to start exiting its ultra-loose policy for the foreseeable future.

Key Quotes

“It matters for the rest of Asia: as others gently apply the brakes, Japan’s central bank at least provides a little buffer. Still, questions abound: the country’s upcoming general election might raise worries about the BoJ’s commitment. Plus, look closely, and monetary officials have already tapered their JGBs purchases.”

“All signs of an impending shift in policy? Nope. A premature end to the current stimulus would put at risk the small, though meaningful, gains already attained. Even the opposition agrees that the BoJ should stay its course for now.”

“Meanwhile, the framework of ‘yield curve control’ means that JGB purchases are no longer the measure by which the central bank’s stance should be judged. It’ll keep its foot firmly on the gas for a long time to come.”


07:29 Australia: Consumer Sentiment Index back in optimistic territory - Westpac

Australia’s Westpac–Melbourne Institute Consumer Sentiment Index has rallied 4.9% since Jul to be at 101.4 in Oct, back in optimistic territory above the 100 line for the first time since Nov last year, notes Matthew Hassan, Senior Economist at Westpac. 

Key Quotes

“An improving global economy, easing concerns about interest rates and overheating housing markets and an ongoing lift in labour market conditions have been the main positives.”  

“Despite the lift, sentiment remains near average levels rather than strong. Views on family finances remain a clear weak spot, a concern given the clear links this sub-index has with actual household finances and spending decisions.”   

“Updated responses on where consumers see the ‘wisest place for savings’ show risk aversion continuing to rise, the proportion nominating ‘pay down debt’ rising to 23.5% and the proportion nominating ‘real estate’ falling to a new 40yr low.” 

“The Westpac Risk Aversion Index edged up from 44.2 in Jun to 47.5 in Sep, a new record high. Despite this, there are so far no signs of an increase in precautionary saving or moves to reduce leverage.”

“CSI±, our modified sentiment indicator that we favour as a guide to actual consumer spending, posted a more muted 1.1% gain between Jul and Oct and continues to point to significant downside risk to demand near term.”

“The sub-index on ‘time to buy a major item’ is largely unchanged after a choppy few months. It suggests the sluggish spending growth evident through most of 2017 is likely to extend through to year end.”

“Consumer views around housing remain downbeat. The ‘time to buy a dwelling’ index has stabilised at weak levels, the state measures pointing to more weakness ahead in NSW and Vic.”

“The Westpac-Melbourne Institute Consumer House Price Expectations Index dipped 1% to 140.5. The index still shows price expectations in firmly positive territory but the state breakdown shows cooling expectations in NSW and WA.”

“In contrast to the weak detail elsewhere, consumer expectations for the labour market continue to improve and are again hinting at a ‘break-out’, The Westpac-Melbourne Institute Unemployment Expectations Index fell 5% over the 3mths to Oct (recall that lower reads mean more consumers expect unemployment to fall in the year ahead). At 129.2, the index is at its lowest level since Jun 2011 with gains broadly based.”


07:23 NZ: Market has voted against NZD Deutsche Bank

The market has greeted New Zealand’s new government by sending the NZD to an 18-month low vs AUD, and a 5-month low vs USD, points out Tim Baker, Strategist at Deutsche Bank.

Key Quotes

“What now? As our economist points out, a lot of policy uncertainty remains. A few thoughts: 

  • Migration cuts. This seems to be one area of ready agreement across Labour, NZ First and the Greens. While this would obviously weigh on growth, there are mitigating factors to consider. Firstly, NZ’s population growth has been exceptionally strong, which can create issues of its own (eg, infrastructure constraints). NZ’s population growth has been more than double the G10 average in recent years. Secondly, the proposed cuts amount to less than 40% of net migration, and coupled with robust natural increase (delivering ½% population growth on its own), NZ population growth should still be quite solid – likely close to 1½%. Thirdly, lower population growth weighs on labour supply – wage growth may be more likely to emerge given the tightness of the labour market, with hawkish implications for the RBNZ. 

“The above notwithstanding, the historical evidence is that lower migration means a lower NZD. But the NZD is already entirely pricing the government’s planned cuts.” 

  • Confidence and spending. The confidence channel is an important one to watch, as businesses generally don’t favour governments shifting to the left (though we’d note that left-of-centre parties often moderate their policies upon entering office). And in this case, the largest bloc of voters opted for National, suggesting consumer confidence could be affected. Offsetting this to some extent is a likely fiscal boost, which could entail higher minimum wages, support for students, and the building of affordable homes. Much of this would be focused on low/middle income earners, who have a higher marginal propensity to consume. 
  • Restrictions on foreign investment in housing. This would weigh on capital flows, so again a negative for the currency. Still, NZ’s house price boom seems largely behind it anyway – national house prices have barely grown over the past year.”

“In sum, while it’s not hard to list policy changes that would weigh on growth and the currency, it’s not hard to exaggerate the ultimate effect either. And the currency is already down plenty – the worst performer in G10 by a large margin since end July. We see a consolidation around current levels, and ultimately see the NZD solidly higher as policy certainty emerges.”  

 


07:21 GBP/USD: Will the buyers retain control above 1.3200?

The GBP/USD pair gradually extends its bounce from a dip to 1.3170 levels and looks to take on the recent upmove beyond 1.32 handle, in the wake of broad USD correction.

GBP/USD: All eyes on UK, US GDP

The spot finally brought an end to its overnight consolidative mode towards Asia close, as the bulls regained poise amid better sentiment towards risk assets such as the equities, GBP etc.

More so, expectations of upbeat UK CBI industrial orders data combined with a broad based USD retreat from two-week tops, also helped push the major back onto 1.32 handle. Meanwhile, the USD index eases to 93.63, having posted 2-week highs at 93.78 levels.

Cable staged a solid comeback on Friday, as markets looked past poor UK retail sales report and cheered renewed optimism witnessed, following the comments from the UK PM May, citing that the UK is ready to honor the financial commitment made to the EU at a joint press conference with European Commission President Jean-Claude Juncker.

Meanwhile, the pound remains on the front foot heading into a big week ahead, with a plenty of risk events up on the sleeves, including the UK prelim GDP report, US durable good and advance GDP releases.

GBP/USD Technical View

Valeria Bednarik, Chief Analyst at FXStreet noted: “From a technical point of view, the daily chart shows that the recovery was not enough to change the latest negative bias, as the pair continues developing below a sharply bearish 20 DMA, whilst technical indicators hold below their mid-lines, although with no clear directional strength. In the 4 hours chart, the pair presents a neutral stance, trading a couple of pips above the 50% retracement of its latest bullish run and a flat 20 SMA, while technical indicators turned flat around their mid-lines. Support levels: 1.3145 1.3090 1.3050 Resistance levels: 1.3220 1.3260 1.3300.”


07:16 Australia: Household finances stagnate - Westpac

While Australian consumer sentiment has recovered in recent months, views around family finances remain a stand out weak spot and in particular, the ‘finances, last 12mths’ sub-index is down 6.1% vs a year ago and well below long run average levels, explains Matthew Hassan, Senior Economist at Westpac.

Key Quotes

“These readings are of real concern. This backward looking component is already known to have close links with actual spending – something the RBA has noted in the past. Westpac’s latest analysis also confirms the component contains genuine information about current finances. The ‘finances, last 12mths’  sub-index is closely correlated with growth in labour income, disposable income (i.e. all income after tax and interest) and household net worth with correlations evident at both the national and state level.”

“Current readings point to significant added pressure on finances over the last 6mths – our combined per capita measure essentially stalling flat. Aside from weak wages growth and slowing housing markets, higher mortgage rates for ‘interest only’ and investor loans and associated switching to loans with higher monthly repayments may be impacting.”

“While some of these drags will dissipate the wider picture suggests family finances will remain under pressure heading into 2018.”


07:12 AUD/NZD in the new political landscape ANZ

Following the formation of the coalition government in New Zealand, AUD/NZD has made a definitive break higher and will form a range around fair value (1.1250), according to Daniel Been Head of FX Research at ANZ.

Key Quotes

“A sustained move higher from there will be contingent on factors on both sides of the Tasman: relative business confidence, migration and the stance of the two central banks.”

“While risks are tilted higher, we are not yet convinced that these factors have fallen into place.”

“Uncertainty will continue to mount until the policies of the new coalition government have been made clear. FX markets will particularly focussed on what happens to the Reserve Bank Act, how business confidence reacts to the government and what the housing and immigration policies look like. Offsetting this will be how much the impending fiscal expansion surprises positively. How these factors balance will be critical to the RBNZ’s outlook and, by extension, the NZD.”

“For the cross, given the near-term uncertainty, further immediate upside is possible. However, we think that, for now, 1.1350 could act as a level of resistance, and a range between that and 1.11, will likely ensue.”

“Beyond this, we see upside risk for the cross and suggest that any dips towards the 1.11 level should be used as a buying opportunity.”


07:05 Australia: Expect headline CPI to rise 0.8% q/q and 2.0% y/y - NAB

Analysts at National Australia Bank (NAB) offer their thoughts on the Australian consumer prices data due later on Wednesday.

Key Quotes:

“Hefty increases in electricity and gas prices are expected to be the defining feature for headline inflation, but how much it could flow to underlying measures in this quarter and in the quarters ahead is more uncertain and dependent on the ability of firms to pass on higher costs to consumers.

NAB expects headline CPI to rise 0.8% q/q and 2.0% y/y 

Higher electricity and energy prices will contribute the lion's share (adding some 0.4% points to growth in the quarter)

Acting as some offset is a fall in petrol prices and a decline in vegetable prices... There may be some downside risk to our forecast if retail vegetable prices fall as far as wholesale prices; wholesale vegetable prices fell 16% which we moderated to a 4% decline in the CPI

Core inflation is likely to remain stable

with the Trimmed Mean (0.5% q/q and 2.0% y/y)

and the Weighted Median (0.4%/1.9%) both mirroring recent growth

Q3 CPI along the lines we are expecting is broadly on track with the RBA's August Statement of Monetary Policy forecasts”


07:00 EUR/USD - Strong EUR call bias & vols pick up, eyes Catalan crisis & ECB

EUR/USD was offered at the 50-day moving average hurdle on Friday as renewed hopes of tax reform in the US put a bid under the US dollar. The currency pair fell to 1.1762 on Friday and extended losses to 1.1751 in Asia.

One-week risk reversals rise, vols pick up

  • The one-week 25-delta risk reversals ticked higher to 0.40 on Friday; the highest since September 2016. It shows a strong EUR call (bullish bets) bias.
  • One-week at the money (ATM) option volatility rose to 9.325; the highest level since Sep. 19

The strong call bias shows could be a sign of complacency in the market. Catalonia parliament is set to meet over the coming days to decide its response to the Spanish government’s unprecedented decision to impose direct rule. The crisis looks poised to escalate further.

Focus on ECB

Kathy Lien from BK Asset Management writes, " we believe that the central bank will opt for a dovish taper - cutting bond purchases by only 20B and extend it to September or beyond because they can always adjust it later and right now there's too much political uncertainty.  If we are right, the euro will fall and if we're wrong and the ECB marries a more aggressive reduction with hawkish comments from Draghi, EUR/USD will hit 1.20 easily."

The increase in demand for EUR calls indicates that investors believe the ECB would deliver a hawkish taper. If the ECB disappoints and/or Catalan crisis escalates, the resulting unwinding of long call positions could feed into the spot (aggravate the drop in the EUR/USD).

EUR/USD Technical Outlook

Friday's move appears to have opened doors for a sell-off to head and shoulder neckline level of 1.1660. A break below the neckline would signal the rally from the January low of 1.0341 has ended. As per the measured height method, the spot could then target 1.1228 levels.

 


06:36 EUs Juncker: Despondent May losing sleep on in-fighting - FAZ

Reuters out with a report from the German newspaper, FAZ (Frankfurter Allgemeine Zeitung), citing comments from the EU Chief Jean-Claude Juncker to his aides, after dining with the UK PM May last week.

Key Quotes via FAZ:

 “She indicated that back home friend and foe are at her back plotting to bring her down.”

“May said she had no room left to maneuver. The Europeans have to create it for her.”

“May’s face and appearance spoke volumes, Juncker later told his colleagues.”

“She has deep rings under her eyes. She looks like someone who can’t sleep a wink.”

“Now she needs all her strength not to lose her poise.”


06:25 UKs FCA to reveal new fee disclosure standards by year end - FT

Livesquawk reports the latest headlines from the Financial Times (FT), citing that the UK regulator, Financial Conduct Authority (FCA), is likely to reveal new fee disclosure standards by year end.


06:22 AUD/USD struggling to regain the bids above 0.7820

The AUD/USD pair has entered a phase of consolidation near 0.7820 levels, as the bulls gather pace further upside, following the latest rebound from near one-week lows of 0.7802

AUD/USD: Eyes on Aus CPI

The Aussie staged a solid comeback post-Tokyo open, after the renewed risk-on wave gripped the markets, as the Japanese traders cheered the news of Abe’s victory with ‘Supermajority’ in Sunday’s snap election.

Moreover, a retreat in the US dollar against its main competitors from two-week tops of 93.78, also collaborated to the renewed buying interest seen around AUD/USD. The greenback rallied hard last Friday, in sync with Treasury yields, on the news of 2018 budget bill passed, which will pave the way for Trump’s tax overhaul plans.

However, further upside appears to lack follow-through amid renewed signs of a property slowdown in China, after the all new home prices arrived at 0.2% m/m and 6.3% y/y. Further, increased nervousness heading into the Australian Q3 CPI release due later this Wednesday, also keep the bulls on a cautious footing.

Focus now shifts towards the US economic releases due tomorrow amid a data-empty US calendar today, while risk-on/off sentiment will also remain the key driver for the major.

AUD/USD Levels to consider                                                                              

 Jim Langlands at FX Charts noted: “After an early move up to 0.7881 on Friday, the Aud remained heavy into the rest of the session  and closed just above the day’s lows of 0.7808, placed under pressure as the US$ & Treasury yields rallied broadly.  Having been looking positive, the dailies now seem to be running out of steam on the topside, and with the short term momentum indicators also looking heavy at test of 0.7800 and lower seems imminent. Below 0.7800, the next targets would be 0.7770 and the 0.7732. On the topside, resistance will be seen right here, at 0.7820, above which could squeeze towards 0.7850 and even back to 0.7880 although this looks rather doubtful.”


06:17 Oil ticks higher on tighter US market, supply concerns in the Middle East

Oil prices rose in Asia on both sides of the Atlantic on concerns of supply disruptions in the middle east and on signs of tighter US market.

At the time of writing, WTI oil is up 0.40 percent or 21 cents at $52.05/barrel. Brent is up 16 cents or 0.28 percent at $57.90/barrel.

The Baker Hughes data released on Friday showed oil rigs drilling for new production fell by 7 to 736 in the week ended Oct. 20. As per Reuters report, the rig count was the lowest since June.

Meanwhile, the threat of possible supply disruptions in the Kurdish region of Iraq is also keeping the oil prices well bid.  


05:57 ECB to announce extension of APP at lower pace of EUR30bn/ month - Barclays

Barclays’ Research Team out with its brief preview on what to expect from the ECB monetary policy meeting due later this Thursday.

Key Quotes:

“At the October ECB meeting, we expect President Draghi to announce a nine-month extension of the APP at a lower pace of EUR30bn per month

We do not expect the ECB to commit to tapering towards zero at the end of the extended programme

We think QE will continue at least until the end of 2018

We expect no change in the forward guidance in the near term

We think the first depo rate hike will occur in 18 Q4”


05:57 USD/JPY drops - Profit taking or hedge demand for JPY?

Failure to hold above 114.00 handle in early Asia has proved to be a costly exercise for the bulls as USD/JPY is now fast losing height.

Currently, the pair is trading at 113.76, having clocked a session low of 113.73.

Profit taking/Sell the fact underway?

The decline from the high of 114.10 could be due to profit taking on the JPY short initiated ahead of Sunday's Japanese elections. Moreover, the majority of the financial markets had already seemingly priced in the victory.

Hedge demand for JPY?

An argument could be put forward that the decline from the session high of 114.10 is due to increased demand for the JPY, courtesy of cold war like situation between the US and N. Korea and worsening of the political crisis in Spain.

However, the odds are low that the fresh bids are pushing the Yen higher as there no signs of risk-off in the equity markets. The decline appears to be led by unwinding of Yen shorts/Sell the fact trade.

USD/JPY Technical Levels

Jim Langlands from FX Charts writes, "US$Jpy finally took out the recent highs on Friday and traded up to 113.56 and now, having broken decent downtrend resistance, looks capable of heading higher. There is not a lot of resistance ahead of 114.00, above which there is again very little to be seen until 114.50.On the downside, minor support today should arrive at 113.20/00 below which 112.80 and Friday’s low of 112.50 should provide decent backup. Below there, the 19 Oct low at 112.30, and the 18 Oct low at 112.12 would attract. Looking for levels to buy dollar again seems to be the plan but the market is already short of Yen and so caution is warranted as any need for safe haven demand could see some very quick and painful dips."

 


05:46 Japans Suga: We want to speed up Abenomics with economy the Govts top priority

Japanese Chief Cabinet Secretary Suga is out on the wires now, via Livesquawk, noting that, “We want to speed up Abenomics with economy the government’s top priority”.


05:42 UK households morale and rate hike expectations rise - IHS Markit survey

Results of the latest survey conducted by Markit, as reflected by the IHS Markit Household Finance Index, showed that the UK households’ increased optimism about the economic outlook for the next year, despite expectations of Bank of England (BOE) rate hikes and a reliance on borrowing to make up for falling employment income, as cited by Reuters.

Key Findings:

“The IHS Markit Household Finance Index rose to 43.8 in October from 42.8 in September, its highest since June, and marking a recovery from a third quarter which was the weakest since 2014.

Since its launch in 2009, the survey has never exceeded the 50 mark that would indicate an improved financial situation.

The report read: “The gap between rising spending and falling income may have been bridged with increased borrowing, Latest data also suggested easier access to unsecured debt.”

The Markit report - based on a poll of 1,500 Britons between Oct. 11 and Oct. 15 - showed the public are also revising their expectations for a rate rise.

Some 40 percent expect rates to rise in the next three months, up from 12 percent in September’s survey, while 63 percent see a rate rise within six months.”


05:38 GBP/JPY erases gains, but defends 150.00 handle

GBP/JPY has faded the spike to three-week high of 150.49, but holds above 150.00 handle for now.

Focus on Brexit

As per BBC report, Prime Minister May due to update the Commons on Monday on the progress made during last week's summit of EU leaders in Brussels.

Top business lobbies in the UK have called for a swift Brexit transition deal. It is widely believed that "a no deal" scenario would be bad for the UK. The markets seem to agree with this line of thinking as Pound usually drops on heightened odds of 'no deal' or 'hard Brexit' scenario.

May's comments are likely to influence demand for the Pound. Meanwhile, the JPYmay catch bid if the equity markets react negatively to the geopolitical concerns.

GBP/JPY Technical Levels

The pair currently trades at 150.10. A break below 150.00 (zero figure) would open up downside towards 149.26 (Oct 13 high) and 148.98 (5-DMA). On the other hand, a break above 150.49 (session high) could yield rally to 151.00 (zero levels) and 151.60 (Sep 27 high).

 


05:34 Gold hits 2-week lows as risk-on prevails at full steam

Gold futures on Comex meander near the lowest levels seen since Oct 6th on Monday, extending selling-off seen last Friday, as the yellow metal continues to face double whammy from broad based US dollar strength on one hand, while risk-on market profile collaborates to the weakness on the other hand.

Gold: Losing sight of $ 1300 mark?

The yellow metal kicked-off this week on a bearish note, as Japanese election outcome remained the main catalyst driving risk sentiment, with news of Abenomics to continue, pushed the Japanese stocks to fresh two-decade highs and further fuelled bullish moods across the financial markets. Persistent risk-on sentiment added to the weight on the non-interest bearing gold.

Moreover, the 2018 US budget approval on Friday pushed the US rates across the horizon, resulting in renewed broad USD strength, which also triggered a sell-off in the USD sensitive gold. Stronger USD makes the dollar-denominated gold more expensive for the holders in foreign currencies and vice-versa.

Over the last hour, however, gold prices are seen making minor-recovery attempts from two-week lows of $ 1275.70 amid the latest headlines that the US is preparing for nuclear war readiness amid North Korea crisis. 

Later today, gold will continue to get influenced by the USD dynamics and risk trends amid a lack of fresh fundamentals due out from the US docket.

Gold: Key Levels

To the downside, support levels might be located at $1,275.70 (2-week low), $1,270 (Oct 4 low) and $1,265. On the upside, immediate resistance is seen at $1,282 followed by $1,291 (Oct 20 high) and the $1,300 (psychological mark). 

 


04:57 NZ politics in the spotlight - ANZ

Analysts at ANZ noted that the NZ Prime Minister-designate Ardern will announce portfolio positions for the cabinet this week, and ministers will be sworn in shortly afterwards. 

Key Quotes:

"NZ First leader Peters announced late last week that his party would form a coalition with Labour after an election in which neither of the major parties won a majority.

NZ first will have four cabinet positions and the Green Party will hold three ministerial positions, while Labour MPs will hold the remainder."


04:54 GBP/USD: a mixed outlook fundamentally, but technically negative below 20 DMA circa 1.3250

GBP/USD is currently trading at 1.3185, with a high of 1.3193 and a low of 1.3170 having opened at 1.3186 and closed NY at 1.3185.

Sterling has been a rollercoaster since the double top highs of the business done on the 18th Oct last week. There are a number of fundamentals that traders are having to attend to, from Brexit, BoE sentiment and US politics. On Friday, traders were at the mercy of all of the above which made for plenty of two-way business. 

The week ahead: a busy calendar, including ECB, US/ UK GDP, Aussie CPI- Nomura

GBP/USD, at the start of this week, is relatively steady ahead of European open and the UK CBI quarterly Industrial Trends survey on Monday. However, the main focus will stay with the first print of GDP, albeit which is only based on a limited amount of information (40% of what is typically needed to produce a final estimate of GDP) and is, as a result, often revised as noted by analysts at Nomura. 

Brexit: Britain's five biggest business lobby groups call for swift transition deal

Meanwhile, echoes of sentiment for a soft Brexit will underpin the upside and the recovery in the pound vs the bearish backdrop on the flipside of a dovish BoE and a stronger dollar on Trump's tax reform policies that are getting a lot of attention and is a driving force for a resurgence in the greenback. 

GBP/USD levels

  • Support levels: 1.3145 1.3090 1.3050
  • Resistance levels: 1.3220 1.3260 1.3300

Valeria Bednarik, chief analyst at FXStreet explained that, from a technical point of view, the daily chart shows that the recovery was not enough to change the latest negative bias:

 "The pair continues developing below a sharply bearish 20 DMA, whilst technical indicators hold below their mid-lines, although with no clear directional strength. In the 4 hours chart, the pair presents a neutral stance, trading a couple of pips above the 50% retracement of its latest bullish run and a flat 20 SMA, while technical indicators turned flat around their mid-lines," Valeria added.
 


04:54 AUD/JPY clocks one-month high, yield differential widens

AUD/JPY clocked a one-month high of 89.07 this Monday morning in Asia as Yen dropped on Abe's victory in snap elections.

Yield differential ticks higher

The spread or the difference between the Australia 10-year government bond yield and the Japanese government bond yield ticked higher to 275 basis points (bps) from Friday's level of 271 bps. The recent low is 266 bps.

The uptick in the yield differential adds credence to the AUD/JPY rally, however, geopolitical tensions may spoilsport.

UK media reported earlier today that US is preparing for nuclear war readiness. Meanwhile, a constitutional crisis in Spain seems to have worsened. Thus, the Yen may find bids, especially if the equity markets react negatively to the geopolitical risks.

AUD/JPY Technical Levels

Currently, the cross trades at 88.96, having clocked a daily high of 89.07 and low of 88.87. A break above 89.07 (session high) would open up upside towards 89.42 (July 27 high), above which a major resistance is lined up at 90.30 (Sep 21 high).

On the other hand, a break below 88.74 (Oct 5 high) would expose support at 88.59 (5-DMA) and 88.20 (10-DMA).  

 


04:32 Nikkei clocks two-decade high as Abenomics prevails

Japan's benchmark equity index Nikkei jumped to a two-decade high of 21,712.9 as Yen weakened to a three-month low following Abe's win in the snap elections.

At the time of writing, the Nikkei is trading 1 percent or 224 points higher at 21,667 levels.

Abe's win clears the uncertainty surrounding BOJ's mandate following the elections. Abe's rival party, rival Kibō no Tō, had made it clear early on that it would work with the BOJ on exit strategy. It meant that under the new government, the BOJ's hands would be tied.

A victory for Abe is being taken as a victory for 'Abenomics', which is pretty much centered around currency devaluation and fiscal stimulus.

Still, Nikkei bulls need to be cautious as an escalation of tensions in the Korean Peninsula and the political crisis in Spain could strengthen Yen and derail the stock market rally.

 

 


04:32 China House Price Index down to 6.3% in September from previous 8.3%


04:25 EUR/USD: things about to get serious for the euro s downside?

EUR/USD is currently down -0.20% at 1.1760 with a high of 1.1774 and a low of 1.1752 having opened at 1.1765, closed NY at 1.1778.

The dollar was strong on Friday against nearly all in the G10's, with US 10 years rising as much as 7bps to 2.38%, while the 2 year climbed 4bps to 1.57%. Yields in Europe also steepened, but to a lesser degree. 

Why was the dollar bid?

"The market ran with the passage of the 2018 budget, anticipating tax reform getting through Senate. Passing a budget unlocks reconciliation, which enables the GOP to pass a tax bill with a simple 51- vote majority in the Senate, negating a possible Democratic filibuster. US Treasuries bear steepened, the dollar rallied, equities spiked and commodities were mixed," explained analysts at ANZ.

EUR/USD events this week?

Meanwhile, for the week ahead, all eyes are with the ECB, Euro area PMIs and the US Q3 GDP, the advance estimate. The ECB is widely expected to announce that the monthly pace of asset purchases will be reduced from the beginning of next year. "However, the bigger issue here is whether the ECB keeps the programme open-ended or sends a firm signal about ending it," explained analysts at Nomura. 

EUR/USD levels

  • Support levels: 1.1760 1.1720 1.1690
  • Resistance levels: 1.1835 1.1865 1.1890

Valeria Bednarik, chief analtst at FXStreet explained that EUR/USD's the daily chart shows that, while the upward potential has receded, a downward movement is still not confirmed:

"The price hovers around a horizontal 20 DMA but above bullish 100 and 200 DMAs, this last well below the current level. Technical indicators have turned south, but the Momentum is still above its 100 level whilst the RSI is now at 46, both within neutral territory," Valeria explained.

Shorter term, and according to the 4 hours chart, Valeria argued that the scale leans towards the downside, as the early recovery from the 61.8% retracement of its latest bullish run met selling interest around a bearish 200 SMA, with the price currently below all of its moving averages, the Momentum indicator about to cross its 100 level, and the RSI indicator directionless around 44:

"The pair has an immediate support at 1.1760, where it bottomed on Friday, followed by 1.1720. Below this last, the downward potential will become more serious, with scope for a downward move towards 1.1660 a major static support area." Valeria added.

 


04:16 PBOC sets the Yuan reference rate at 6.6205

The People's Bank of China (PBOC) sets the Yuan reference rate at 6.6205 vs. Friday's fix of 6.6092


03:57 Brexit: Britain s five biggest business lobby groups call for swift transition deal

A BBC report says, "Britain's five biggest business lobby groups are calling for an urgent Brexit transition deal, or they warn the UK risks losing jobs and investment."

The group includes the British Chambers of Commerce, the Federation of Small Businesses, Institute of Directors, CBI and the EEF manufacturing body. The group will send a letter to Brexit Secretary David Davis, asking for a swift Brexit transition deal. 


03:57 USD/CNY fix: projection: 6.6290 - Nomura

Analysts at Nomura offered their model projection for the USD/CNY fix.

Key Quotes:

"Our model1 projects the fix to be 198 pips higher than the previous fix (6.6290 from 6.6092) and 90 pips higher than the previous official spot USD/CNY close of 6.6200. The basket implied change is 108 pips higher than the previous official spot USD/CNY close (6.6308 from 6.6200)."


 


03:49 US to put nuclear bombers on high alert - UK Mirror

UK Mirror is reporting that US is preparing for nuclear war readiness amid North Korea crisis. 

The report says, "the US air force is preparing to put nuclear bombers back on 24-hour ready alert for the first time since the Cold War. B-52 planes loaded with nuclear weapons would be positioned to take off at any moment, with crews on standby at a base in Louisiana."

 


03:37 EUR/JPY: struggles to get through 134 and hold, eyes for 134.40 on Abe victory?

EUR/JPY, at 134.06, is up +0.24% on the session so far on the back of Abe's convincing victory.

USD/JPY peeps above 114.00 on Abe win, higher yields

EUR/JPY made an early high of 134.00 right off the bat in a bullish gap when early birds noted the obvious outcome of the voting in Japan today and bought the yen crosses. 

The yen bears have the green light to continue pursuing the downside in the Japanese currency on the back of Abenomics and big easy monetary policy from the BoJ under the regime. Meanwhile, however, the greenback was holding the bulls up, although 134.12 was the proceeding high in early Asia before offers took the cross down to 133.88 only to find further demand back to the 134 handle as the Tokyo open approach. 

The week ahead: a busy calendar, including ECB, US/ UK GDP, Aussie CPI- Nomura

The yen is being spun and passed around in the Tokyo open, but the dominant theme of a stronger dollar is keeping it on the backfoot as well, which may translate into minimum gains through the cross while the euro is already starting out the week on the backfoot, down - 0.25% in Asia at the lows vs the greenback. 

EUR/JPY levels

Analysts at Commerzbank noted that the EUR/JPY rallied above its previous October high at 133.50 last week and has eyed up the September peak at 134.40: 

"Below good support at 131.75/68, where the last month’s lows were made, lies the 55 day moving average at 131.33. 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. A move above the 134.58 November 2015 high would target the 2008-2017 resistance line at 140.90," the analysts argued.


03:33 USD/JPY peeps above 114.00 on Abe win, higher yields

The USD/JPY pair rose to three-month high of 114.10 in Asia as Yen selling gathered pace following Abe's victory in snap elections.

Abe's victory - Icing on the cake for USD bulls

  • JPY: Another landslide victory for Abe: more of a relief yen-cross rally to go? - Nomura

Japanese Prime Minister Shinzo Abe's ruling party scored a big win in Sunday's election. His coalition has retained its two-thirds "super majority" in the lower house. Though LDP win is not a surprise, still, it puts to rest the fears of change in Bank of Japan (BOJ) mandate.  

The outcome of the election is a sort of icing on the cake for USD bulls, given the American dollar was already on the front foot, courtesy of renewed US tax reform hopes and the resulting rise in the treasury yields.

At the time of writing, the pair is trading around 114.00 levels. The 10-year Treasury yield is up one basis point at 2.39%.

Gains capped by geopolitical concerns?

Reports hit the wires in early Asia that US is preparing to put nuclear bombers on 24 hour alert for the first time in 26 years. This clearly represents escalation of tensions between US, North Korea and Russia and could be the reason for the pair's failure to capitalize on the break above 114.00 levels.

USD/JPY Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes, "The pair seems poised to extend its advance according to technical readings in the daily chart, although momentum is still scarce. The chart shows that the price settled well above its 100 and 200 DMAs which stand horizontal and within a tight range around 111.20/40, as technical indicators head north, the Momentum within neutral territory, but the RSI currently at 63. Shorter term, and according to the 4 hours chart, the downward potential is well limited as the price develops well above its 100 and 200 SMAs, but further gains are still unclear, as indicators lost bullish strength, holding anyway within positive territory. An upward acceleration through 113.60, however, could lead to a test of the major resistance area around 114.40, where the pair topped in May and July."

            


02:32 Price action in gold and base metals? - ANZ

Analysts at  ANZ noted the price action in base metals and gold.

Key Quotes:

"Base metals were weaker across the board as investors sold on the back of the stronger USD. 

There were also signs of technical selling, with several metals bouncing of key resistance levels. This came after strong gains earlier in the week had been driven by positive economic data in China.

Gold was also weaker, as the stronger USD weighed on investor demand. The renewed momentum of President Trump’s tax plan was the main instigator of the selling, with signs that plan could make it through the Senate. The policy implications of a possible new chair of the Federal Reserve also put pressure on the precious metal. Reports suggest Trump is leaning towards John Taylor, which would likely lead to a stronger USD, thus weighing further on gold prices."
 


02:25 The week ahead: a busy calendar, including ECB, US/ UK GDP, Aussie CPI- Nomura

Analysts at Nomura offered a preview of the week's key events.

Key Quotes:

United States | Data preview

For the advance estimate of Q3 real GDP, we expect above-potential growth despite the negative impact from the recent hurricanes.

Durable goods orders (Wednesday): We expect a solid 1.0% m-o-m increase in durable goods orders excluding transportation, following a 0.5% increase in August. September industrial production data suggest that production of durable goods increased at a healthy pace. Further, survey-based measures of new orders improved strongly in September, pointing to healthy gains in ex-transportation durable goods orders. On noncore components, September industrial production indicates a decent increase in vehicle assemblies, which points to a steady increase in new orders for motor vehicles and parts. Aircraft manufacturers reported a decent increase in new orders in civilian aircrafts, but after seasonal adjustment, we expect some decline in nondefense aircraft and parts orders following a sharp 44.8% jump in August. For defense aircraft and parts orders, we expect a steady increase. Altogether, we expect a 1.0% m-o-m increase for total durable goods orders.

New home sales (Wednesday): We expect new home sales to have fallen slightly by 0.9% m-o-m to 555k in September, reflecting disruptions to sales activity brought by Hurricane Irma. Moreover, Hurricane Harvey affected the Census Bureau’s data collection in the South in August. As delayed data become available, August sales estimates could be revised in the September report. Incorporating the negative impact from the recent hurricanes, it appears likely that residential investment will subtract from real GDP growth in Q3. Looking ahead, recovery work after the recent storms could boost construction modestly in the South, which will likely be smoothed out over next couple of quarters. However, shortages of skilled labor and of developable lots could continue to weigh on inventory growth, constraining sales.

Initial jobless claims (Thursday): Initial unemployment claims reached the lowest point since March 1973 in the week ending 21 October as the transitory impact caused by the recent hurricanes subsides. However, power outages in Puerto Rico and the Virgin Islands after Hurricane Maria disrupted the electronic filing process, which would have significantly delayed increases in unemployment claims. Although we continue to expect initial claims remain low given strong labor market conditions, delayed filling in affected areas could increase uncertainty on upcoming readings.

Advance goods trade balance (Thursday): We expect the goods trade gap to have widened to $64.6bn in September, from $63.3bn in August. Based on container data at sea ports so far, both nominal imports and exports appeared to have increased, but imports likely exceeded exports. However, uncertainty is high due to disruptions to supply chains and ports in the Gulf Coast area caused by the recent hurricanes.

Pending home sales (Thursday): With strong job markets, consumer demand likely remained firm. However, disruptions brought by the recent hurricanes may have depressed the sales of previously-owned homes, which fell 2.6% in August. Another weak print of pending home sales in September may imply weak existing home sales numbers, which track contract closings. Besides hurricane-related disruptions, the markets for previously-owned homes have been constrained by shortages of homes for sale. These negative factors may have weighed on Q3 residential investment. 

Q3 GDP, advance estimate (Friday): In the advance estimate of Q3 real GDP, we expect the BEA to report growth of 2.7% q-o-q saar. Despite the negative impact from the recent hurricanes, we think the US economy continued to grow above potential in Q3. Incoming data on personal spending suggest steady growth. On the business side, reflecting healthy growth in new domestic orders of core capital goods, we expect steady gains in equipment investment. Inventory investment likely contributed strongly to Q3 growth as businesses build up inventories in the face of better demand. Although the recent hurricanes may have disrupted production in affected areas, incoming data suggest resilient growth in inventory investment. Further, exports in recent quarters have been strong. We expect this trend to have continued in Q3, reducing the drag from net exports, despite hurricane-related disruptions to global shipments. On the downside, we expect some drag from business investment in structures, likely reflecting the negative impact from the hurricanes, tighter credit standards for commercial real estate loans, and plateauing oil and gas well drilling activity. Residential investment likely remained sluggish in Q3. Residential construction has been soft, constrained by a lack of developable lots and skilled labor. Further, the recent hurricanes severely interrupted housing sales activity in August and September, lowering our expectations on brokers’ commissions.

University of Michigan consumer sentiment (Friday): Consumer sentiment improved further in the University of Michigan’s October preliminary consumer survey with broadbased strength across demographic groups and political affiliations. It appears unlikely for this measure to be revised significantly in the final print of this survey for October. Increases in short-term (one-year) and medium-term (5-10 year) inflation expectations seen in September appeared transitory in the preliminary estimates for October with both measures falling back to 2.3% and 2.4%, respectively, below the levels seen in August.

Euro area | Data preview

ECB policy meeting, Euro area PMIs and UK GDP data are in focus this week. 

UK CBI quarterly Industrial Trends survey (Mon): This survey provides a rich database of firms’ responses to various questions, including on capital spending, employment, spare capacity and factors limiting activity – as well as the usual monthly indicators of orders, output and prices. The monthly survey has held up well in the recent past, in line with other reports such as the PMI manufacturing survey. A weak sterling is likely to remain supportive.

Euro area August flash PMIs (Tues): We expect the euro area composite PMI to increase to 56.9 in October from 56.7 in September. At the sector level, we expect the regional manufacturing PMI to rise to 58.5 from 58.1, reflecting a strengthening global economy. Leading indicators such as capital goods orders and world trade growth suggest a strong global economy. Meanwhile, we forecast the services PMI to increase to 55.9 from 55.8 as financial market conditions remain accommodative. 

German Ifo (Wed): We expect the German Ifo business climate index to increase to 115.8 in October from 115.2 in September. We forecast the current situation and expectations indices to pick up to 124.1 (from 123.6) and 107.6 (from 107.4) respectively.

UK GDP (Wed): The first print of GDP is based on only limited information (40% of what is typically needed to produce a final estimate of GDP) and is, as a result, often revised. Industrial production looks set to have rebounded well in Q3, while there is much uncertainty about how swiftly services output will have recovered from its fall in July. We look for a 0.4% q-o-q rise, which would be an improvement on the 0.3% growth rates in the first half of the year.

ECB policy announcement and press conference (Thu): The ECB is widely expected to announce that the monthly pace of asset purchases will be reduced from the beginning of next year. As far as the parameters of the APP are concerned, in our base case we expect monthly purchases to be cut by EUR20bn to EUR40bn per month from January to June 2018. We further expect the forward guidance on interest rates and the APP to remain unchanged. However, the bigger issue here is whether the ECB keeps the programme open-ended or sends a firm signal about ending it. And with no change expected in the forward guidance we are in the former – and thus the more dovish – camp. Preventing a sharp market response that would tighten financial conditions and potentially destabilise economic activity are clearly a key priority for the ECB at present in its wish to see firmer inflation data in the period ahead.

UK CBI distributive trades survey (Thurs): Consumer spending has generally slowed thanks to the sterling-induced rise in inflation. However, recent surveys – including this one and that of the British Retail Consortium – have been more upbeat. We doubt that this survey will be able to sustain the exceptionally high readings of September, however, and see some payback in the October report.

Japan | Data preview

We expect an all-Japan core inflation rate of 0.7% y-o-y, 0.0% m-o-m in September. We expect the Tokyo area core inflation rate to rise 0.1 percentage point m-o-m in October.

September all-Japan core CPI (ex-fresh food) (Friday): We forecast the all-Japan core CPI (ex-fresh food) was 0.7% y-o-y in September, unchanged from August. We expect a brief softening in the boost to prices from the recovery in energy prices and weakening of JPY. We forecast all-Japan core core CPI (CPI ex-energy and food (except alcoholic beverages)) was 0.0% y-o-y in September, again unchanged from August, and we forecast CPI less fresh food and energy (known as the BOJ version of core core CPI) was 0.2% y-o-y in September (also unchanged from August).

We expect Tokyo area core CPI of 0.6% y-o-y in October, up 0.1pp from September. We look for higher costs stemming from JPY weakness and other factors to contribute again to the elevation of prices. We expect Tokyo area core core CPI of 0.0% y-o-y in October, up 0.1pp from September. We expect Tokyo area CPI less fresh food and energy (the BOJ’s version of core core CPI) to be 0.1% y-o-y in October, up 0.1pp from September.

Asia | Data preview

Australia: We expect headline CPI inflation to rise by 0.7% q-o-q in Q3, boosted by seasonal rises in property rates and charges, overseas travel and accommodation costs, and by a sharp jump in the price of electricity and gas – while a ~3% fall in the fuel price provides only a partial offset. Underlying (trimmed) CPI inflation is expected to rise by a more modest 0.5% q-o-q, highlighting ongoing fierce retail competitive pressure. 


02:17 Australian employment growth is robust, AUD/USD supportive - Westpac

Analysts at Westpac explained that the September labour force release continued to show robust momentum in employment. 

Key Quotes:

"The 20k headline gain combined with the dip in the unemployment rate to 5.5% was an unquestionably strong update. This is particularly the case given it is the 12th consecutive positive reading for employment – the strongest run of outcomes since 1994. 

The leading indicators we track for employment suggest that annual employment growth will largely be sustained into year end. However, to our mind the bigger question is the degree of spare capacity that remains in the economy and the industry mix for employment. 

On underemployment, the latest data point we have is for August. At 8.6%, it is little changed from a year ago despite 3% jobs growth. On the mix of employment, a piece in the latest edition of Market Outlook highlights that job gains have been heavily concentrated in health, education and construction. With the latter sector to slow, this mix of job creation combined with still significant slack will keep a lid on wage gains and thus on household demand."


01:46 USD/JPY at a three-month high, time to sell the fact?

USD/JPY is currently up 0.32% at 113.84 and a three-month high having opened at closed NY at 113.51, a bullish gap on the Abe victory before official voting ends at 11.00GMT.

  • Abe: on track for a big majority, 1hr to the official voting ending 11.00GMT
  • JPY: Another landslide victory for Abe: more of a relief yen-cross rally to go? - Nomura
  • US wrap: DXY rallied against nearly all in the G10 - ANZ
  • Japan Elections: Look for a higher USD/JPY – Danske Bank

However, when Australia/ Tokyo full markets come online, will there be a covering on a take profit scenario, considering the majority of the financial markets had already seemingly priced in the victory, selling the fact scenario?

This is seen with the Nikkei 225 already up to 21 plus year high. For the Yen, it is not a favourable scenario so USD/JPY, in theory, should remain on the front foot at the start of the week, so levels will be key. 

USD/JPY levels

Support levels: 113.10 112.60 112.20

Resistance levels: 113.60 114.00 114.40

Valeria Bednarik, chief analyst at FXStreet explained that the chart shows that the price settled well above its 100 and 200 DMAs which stand horizontal and within a tight range around 111.20/40, as technical indicators head north, the Momentum within neutral territory, but the RSI currently at 63. 

"Shorter term, and according to the 4 hours chart, the downward potential is well limited as the price develops well above its 100 and 200 SMAs, but further gains are still unclear, as indicators lost bullish strength, holding anyway within positive territory. An upward acceleration through 113.60, however, could lead to a test of the major resistance area around 114.40, where the pair topped in May and July," Valeria added. 


01:35 JPY: Another landslide victory for Abe:more of a relief yen-cross rally to go? - Nomura

Analysts at Nomura noted that the snap election result saw the ruling coalition (the LDP and Komeito) achieve another landslide victory - According to NHK, as of 2:00am local time 10 seats are still unknown.

Key Quotes:

"However, the LDP has won 283 seats, securing a single-party majority (233) easily again. 

Its junior coalition partner, Komeito, has secured 29 seats and in total, the ruling coalition has 312 seats. The coalition has achieved a super majority (310) again. Momentum in the new party created by Tokyo Governor Koike, the PoH, has not recovered, as the number of its seats has fallen to around 50 from 57 before the dissolution. 

Another new party created by the left-wing lawmakers of the DP, the CDPJ, has performed more strongly than the PoH, likely becoming the second biggest party.

The result of the LDP’s single-party majority with a large margin will reduce investor concerns about the domestic political situation significantly. When Prime Minister Abe called a snap election, he said he would step down if the ruling coalition failed to achieve a majority. Investor concerns over PM Abe’s early resignation and/or a lame duck status would have risen if the LDP had failed to secure a single-party majority. The outcome is more than sufficient for PM Abe’s survival, and his power inside the LDP stays strong.

The latest opinion polls already suggested a strong possibility of a ruling coalition landslide victory and thus, the outcome is likely unsurprising to the market. The options market still showed small hedging demand on Friday and thus, there is likely to be a small relief rally in USD/JPY. Historically, yen crosses tend to perform well after a snap election.


In the medium term, the outcome reduces the risk of a sudden change in economic policy stance. After the strong victory, the likelihood of PM Abe winning a third term as LDP leader has risen, and the LDP leadership election next September would be a smaller risk event. The ruling coalition’s strong victory also means PM Abe will very likely maintain his status to appoint the next BOJ leadership (governor and two deputy governors). Over the next six months, the BOJ leadership nominations will be a major risk factor for JPY trading, and the election outcome has reduced the tail risk of a hawkish shift significantly.

We believe the outcome will lead to further monetary policy divergence between the ECB and BOJ, and continue to recommend EUR/JPY long exposure."


01:25 US wrap: DXY rallied against nearly all in the G10 - ANZ

Analysts at ANZ offered a market wrap from the NY closing session.

Key Quotes:

"The market ran with the passage of the 2018 budget, anticipating tax reform getting through Senate. 

Passing a budget unlocks reconciliation, which enables the GOP to pass a tax bill with a simple 51- vote majority in the Senate, negating a possible Democratic filibuster. US Treasuries bear steepened, the dollar rallied, equities spiked and commodities were mixed. 

US 10 year rose as much as 7bps to 2.38%, while the 2 year climbed 4bps to 1.57%. Yields in Europe also bear steepened, but to a lesser degree. 

Yields briefly fell from the highs on news that Yellen was at the Whitehouse; however, after it was reported that it was a routine meeting, yields returned to highs. 

The dollar rallied against nearly all in the G10 with CAD underperforming, after CPI disappointed and retail sales collapsed. NZD continued to fall, down 1% to 0.6970. GBP rose 0.2% against the dollar on the second day of a European Union summit. 

US equites rallied 0.6%, printing new records yet again. European bourses were largely unchanged. Gold fell back to USD1280/oz driven by the dollar strengthening and oil climbed 0.4%."
 


00:59 Abe: on track for a big majority, 1hr to the official voting ending 11.00GMT

While we are an hour away from the official voting ending, at 8 p.m local time and 11:00 GMT and further exit polls thereafter, the public broadcaster NHK reported that Abe's Liberal Democratic Party along with its coalition partner (Komeito) look on track for a big majority, at this stage likely above 310 seat threshold in the 465-seat House.

The final official results will be early European trade on Monday, so there could well be some moves on the back of this, although the market has mostly factored in the continuation of Abenomics and big easy money with the Nikkei 225 already up to 21 plus year highs. For the Yen, it is not a favourable scenario so USD/JPY, in theory, should remain on the front foot at the start of the week.

It has just been reported that Abe will reappoint all Cabinet Members after the election victory says Yomiuri. In respect to BoJ Governor Haruhiko Kuroda, whose term is up in 2018, it is a coin toss as to whether he will stay on for a second term, but his successor will likely remain to maintain the central bank's dovish stance considering the subdued inflation.


00:17 This week s key event for AUD/USD traders: Aussie CPI - Westpac

Analysts at Westpac offered their preview of this week;s key event for AUD/USD traders.

Key Quotes:

"Australian Q3 CPI preview: 0.7%qtr/1.9%yr
 
Outside of energy it is hard to find any sign of broader inflationary pressures.

September is normally a seasonally strong quarter due to the post June 30 price resetting of many administered prices. The ABS seasonal factors moderate our estimate to a seasonally adjusted 0.4%.

Key factors in Q3 are: ongoing grocery competition holding back food prices; annual repricing of the tobacco excise; surging electricity prices and further gains in dwelling purchase costs (Sydney and Melbourne); almost flat rents; and, falling health, transport (including fuel) and communication prices.

There is a lot of interesting in energy prices and we have estimated a national average rise in electricity bills of 13% and a 12% rise in gas bills. Ex gas & electricity we are forecasting a 0.27% rise in the CPI.

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 and –0.6%yr, while non-traded prices are forecast to rise 1.0%qtr/3.2%yr driven by rising housing and energy costs.

This is a soft update as outside of electricity, gas and dwelling purchases it is hard to find any signs of broader inflationary pressure with many consumer goods captive to a competitive deflationary cycle. Ex housing (which includes energy bills) the CPI is forecast to rise 0.1%.

The upcoming re-weighting of the CPI is only going to increase the emphasis of the disinflationary sectors making it even harder to generate an acceleration in inflation as we move through 2018."


00:02 South Korea Producer Price Index Growth: 0.5% (September) vs 0.3%


00:02 South Korea Producer Price Index Growth (YoY): 3.6% (September) vs 3.2%


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