FOREX: Cross/JPY Slumps as US Yields & Equities Decline on Limited Weak US Data
- Both US yields and equities have fallen sharply on Thursday, reflective of the poor alternative US jobs data released (Revelio, Challenger, Chicago Fed), painting a relatively bleak picture of the US economy in the absence of the tier one figures.
- The dollar index is tracking 0.45% in the red today as the broader dollar rally that has been playing out following the FOMC is showing signs of fatigue. The DXY reaching its initial objective at the August highs (~100.25) may have also contributed to the reversal lower on Thursday.
- These dynamics have significantly boosted the Japanese Yen, a clear outperformer in the G10 FX space, while the likes of AUD and NZD have been particular laggards. AUDJPY and NZDJPY are currently down 1.4% on the session, echoing the two percent losses for the Nasdaq as we approach the APAC crossover. USDJPY has also slipped below 153.00 to new weekly lows.
- AUDJPY has not closed below its 50-day EMA since August 22, and therefore a close below 98.50 will be closely eyed. For NZDUSD (-0.60%), the pair has extended the break of trendline support (drawn from the April lows) to print fresh cycle lows below 0.5630.
- Although CAD losses are of a smaller magnitude, USDCAD notably rose back to an important level on the chart, the top of the bull channel, drawn from the July 23 low. While the resistance has held again, the pair is now on a 6-session winning streak. This week’s extension for USDCAD highlights a clear reversal of the corrective bear leg between Oct 14 - 29. 1.4167 is the next level of note, the 50.0% retracement of the Feb 3 - Jun 16 bear leg.
- An dovish hold from the Bank of England did little to move the needle for GBP, with potential positioning dynamics contributing to sterling outperformance today. Note that the cable downtrend was in oversold territory and a recovery would allow this condition to unwind. Initial resistance is at 1.3142, the Aug 1 low.
- Canada jobs data highlights the G10 calendar on Friday. Currently a -5k change in employment is expected, with the unemployment rate seen remaining steady at 7.1%.
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GBPUSD TECHS: Short-Term Bear Cycle Still In Play
- RES 4: 1.3789 High Jul 1 and key resistance
- RES 3: 1.3726 High Sep 17
- RES 2: 1.3661 High Sep 18
- RES 1: 1.3537 High Sep 23 and a pivot level
- PRICE: 1.3439 @ 16:37 BST Oct 7
- SUP 1: 1.3324 Low Sep 25 and the bear trigger
- SUP 2: 1.3282 Low Aug 6
- SUP 3: 1.3254 Low Aug 4
- SUP 4: 1.3144 38.2% retracement of the Jan 13 - Jul 1 bull cycle
Short-term bearish conditions in GBPUSD remain in place - for now. Initial key resistance to watch is unchanged at 1.3537, the Sep 23 high and a near-term pivot level. Clearance of this hurdle would signal a potential reversal. Recent weakness resulted in the break of a trendline drawn from the Aug 1 low. A support at 1.3333, the Sep 3 low, has been pierced. A clear breach of this support would open 1.3282, the Aug 6 low.
US: FED Reverse Repo Operation - New Multi Year Low
RRP usage retreats to new multi-year low of $4.622B (lowest level since early April 2021) with 14 counterparties this afternoon from $21.776B on Monday. Compares to this year's high usage of $460.731B on June 30.
SECURITY: US Opinion Shifts In Favour Of Ukraine Ahead Of Trump-Stubb Meeting
US President Donald Trump will welcome Finnish President Alexander Stubb to the White House on Thursday for a working meeting. Stubb has one of the closest personal relationships with Trump of any European backer of Ukraine.
- Last week, Stubb told reporters in Helsinki that he believes it is only a matter of time before Trump takes action to penalise Russian President Vladimir Putin for his failure to agree to ceasefire proposals Trump laid out during their meeting in Alaska.
- Stubb said, “Having seen that carrots rarely work with the Russians, he has moved to the stick stage. Now it’s just a question of how big the stick is going to be.”
- Politico notes that options for Trump “range from tighter sanctions, including secondary sanctions, to higher tariffs and even making greater use of the U.S. military’s arsenal of weapons that can penetrate deep into Russian territory.”
- A new YouGov survey has found that US adults increasingly support more US military aid to Ukraine. 33% of US adults now believe the US should increase military aid, a reversal from earlier this year when a plurality of US adults believed the US should decrease the level of military aid provided. The survey shows a trend reversal among Republicans, with only 35% of Republican adults supporting decreasing/cutting aid to Ukraine, down from 60% in March.
Figure 1: Do you favour the US ...? (% of US adult citizens)
Source: YouGov
