FOREX: Equity Bounce Prompts Solid Greenback Recovery
- USD: Dented risk sentiment only remains seen through the lens of the crypto markets Monday, as the bounce back for equity indices across the US session sees both the e-mini S&P and Nasdaq futures rise back into positive territory. Rather than providing a specific bid to risk-tied currencies in G10, the moves have bolstered a solid recovery for the US dollar. ISM manufacturing data came in a touch below expectations, not garnering any market reaction.
- JPY: Given the prior volatility for USDJPY, this has translated in a notable 80 pip bounce for the pair. Earlier, we noted how USDJPY had traded below its 20-day EMA and below the prior breakout point at 155.00. Despite this, the solid recovery may create some false breaks on the chart, keeping bullish conditions intact, for now.
- Many had cited the yen’s outperformance as a reaction to BOJ Governor giving slightly more of a nod to a December rate hike. In our view, the slight adjustment between Jan and Dec pricing should have little impact on short-term yen sentiment, with domestic fiscal developments and China-Japan tensions more likely to drive he narrative.
- GBP: Elsewhere, GBPUSD has had a similar sized turnaround, falling sharply from 1.3275 post-budget highs to now edge closer to 1.32. The resignation of the head of the UK OBR, fiscal uncertainties and a likely December rate cut from the BOE remain headwinds for sterling, and could keep a move back towards 1.3010 for cable on the cards. In sympathy EURGBP, has traded in a constructive manner, edging back towards 0.88.
- Commodity currencies saw little interest to start the week, allowing NZDUSD to consolidate its recent rally back above 0.5700, still signalling scope for a stronger recovery to the medium-term pivot at 0.5800. For Aussie, Q3 GDP data are due on Wednesday.
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
