FOREX: Two-Way JPY Vol As Japan's Komeito Want to 'Reset' Coalition
- The USD is lower headed into the Friday crossover for the first time this week, aiding a shallow recovery off lows for both EUR/USD and GBP/USD. The greenback fade means the USD Index has retraced ~10% of the month-to-date rally, exposing 99.067 as first major intraday support - the 23.6% retracement of the bounce.
- Japanese politics remains a key focus for markets. JPY (briefly) rallied following headlines that Japan's Komeito Party wish to 'reset' the governing coalition following talks with Takaichi, stating that they cannot support her premiership without alignment.
- The initial JPY strength came on an unwind of expectations on the Takaichi trade (pro-fiscal, monetary easing), who may now face an uphill struggle to be confirmed as PM in a 20 Oct parliamentary session, let alone enact her expansionary policy agenda. The situation is evolving, with higher political risk premia having the potential to work against the JPY as other coalition options are investigated.
- From a technical perspective, bullish trend conditions in USDJPY remain intact, and sights are on 154.39, a Fibonacci retracement point. Initial support to watch lies at 150.92, the Aug 1 high.
- NOK underperforms following this morning’s lower than expected Norwegian inflation data. While the release was dovish on net, Norges Bank may need to see more evidence of declining underlying price pressures before deviating from its cautious stance, particularly with mainland demand still relatively resilient. SEK meanwhile is the strongest in G10 as August Swedish GDP rose much more than expected, supporting analyst, Riksbank and Government expectations for a cyclical recovery in activity going forward. The Riksbank is likely to remain at 1.75% for the foreseeable future, with the risk of a hike back to 2.00% outweighing the risk of another cut - an outlook which today's release supports.
- The combination of these data led NOKSEK 0.45% lower on the day at 0.9430. The cross remains on a sideways trend, with support located at 0.9399, the October 6 low, and key resistance seen around 0.9500.
- Canadian jobs data and the prelim October UMich sentiment release are the market focus Friday. Consensus looks for Canada to have added 5k jobs over September, while seeing consumer sentiment fade in the US.
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COMMODITIES: WTI Futures Extend Recovery Off Last Week's Lows
The trend condition in WTI futures is unchanged - a bear cycle remains intact. The pullback from the Sep 2 high highlights a possible reversal and the end of the corrective phase. Initial resistance to watch is $66.03, the Sep 2 high. Key short-term resistance has been defined at $69.36, the Jul 30 high. A stronger resumption of weakness would pave the way for a move towards $57.71, the May 30 low. Gold remains in a clear bull cycle and last week’s gains plus this week’s bullish start to the week, reinforce current conditions. The yellow metal has traded to a fresh all-time high. The break also confirms a resumption of the primary uptrend and an extension of the sequence of higher highs and higher lows. The next objective is $3674.8, a Fibonacci projection. Initial firm support lies at $3474.7, the 20-day EMA.
- WTI Crude up $0.63 or +1.01% at $63.27
- Natural Gas down $0.01 or -0.26% at $3.11
- Gold spot up $18.52 or +0.51% at $3646.06
- Copper down $0.05 or -0.01% at $456.75
- Silver up $0.21 or +0.51% at $41.0884
- Platinum up $14.11 or +1.03% at $1388.95
EQUITIES: Corrective Bear Cycle in Eurostoxx 50 Futures Remains in Play
A corrective bear cycle in Eurostoxx 50 futures remains in play. Recent weakness resulted in a breach of 5369.17, the 50-day EMA. The clear break of this average strengthens a short-term bearish threat and signals scope for a deeper retracement towards 5166.00, the Aug 1 low and a key support. On the upside, the contract has recovered above the 20-day EMA - a bullish development. A stronger reversal would open 5445.00, the Aug 26 high. A bull cycle in S&P E-Minis remains intact and the latest pullback has once again proved to be a shallow correction. The contract traded to a fresh cycle high last week, breaching the Aug 28 high of 6523.00. This confirmed a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. Sights are on 6543.75 next, a Fibonacci projection. Initial support to watch is 6456.35, the 20-day EMA.
- Japan's NIKKEI closed higher by 378.38 pts or +0.87% at 43837.67 and the TOPIX ended 18.85 pts higher or +0.6% at 3140.97.
- Elsewhere, in China the SHANGHAI closed higher by 4.929 pts or +0.13% at 3812.221 and the HANG SENG ended 262.13 pts higher or +1.01% at 26200.26.
- Across Europe, Germany's DAX trades higher by 38.44 pts or +0.16% at 23759.92, FTSE 100 higher by 14.85 pts or +0.16% at 9257.45, CAC 40 up 16.64 pts or +0.21% at 7765.54 and Euro Stoxx 50 up 14.72 pts or +0.27% at 5382.97.
- Dow Jones mini down 92 pts or -0.2% at 45665, S&P 500 mini up 10.75 pts or +0.16% at 6532.5, NASDAQ mini up 22.5 pts or +0.09% at 23896.75.
GILT AUCTION RESULTS: Strong 4.00% Oct-31 gilt auction
- Strong gilt auction with the largest volume of bids for the 4.00% Oct-31 gilt since that issue was launched (even thought the prior auction was larger) and seeing a strong bid-to-cover of 3.27x.
- The LAP was above the level seen in the last 40 minutes of the auction window.
- No wider impact on gilt futures, however.
