FOREX: USDJPY Extends Bounce Amid Stabilising Risk Sentiment
- With little meaningful data on the global economic calendar Tuesday, risk sentiment has stabilised, with the major equity indices in the US tilting in the green. Furthermore, roughly 6% gains for bitcoin and general crypto advances have added to the overall optimistic backdrop. These dynamics have done little to move the needle for the USD index, which has spent the session consolidating the strong reversal off the lows yesterday.
- Price action across G10 FX has been muted, keeping volumes light across the board (EUR futures had posted ~65% of the volumes you'd expect to see towards the European close), contrasting with Monday's busier price action. After printing within 4 pips of key 1.1656 resistance yesterday, EURUSD has pulled back towards the 1.16 handle, of which we have been oscillating around on Tuesday.
- The Japanese yen is the weakest currency across the G10 amid the firmer risk backdrop, allowing USDJPY to consolidate its near 1% recovery from yesterday’s lows. The price action this week has created some false breaks on the chart, keeping bullish Cross/JPY conditions intact, for now. We pointed out that the adjustment of rate hike pricing between Jan and Dec meetings should have little lasting impact on yen sentiment, with broader risk conditions, domestic fiscal developments and China-Japan tensions more likely to drive the narrative.
- AUD's moderate strength is worth noting, and means AUDUSD has printed seven consecutive sessions of higher highs, narrowing the gap with 0.6580 in the process - the next notable resistance. One primary driver of AUD strength is the continued pullback in front-end vols. G10 FX vol has been sold firmly off the November peak, but 1m implied AUD vols are now the lowest of the year and the second lowest level since the onset of COVID in 2020.
- It’s a busier docket on Wednesday, with RBA Governor Bullock speaking before Australian Q3 GDP. Swiss CPI will then precede US ADP employment and ISM Services PMI data.
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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.
