• Euro pressured lower as traders step up ECB rate cut odds for October
• France September flash services PMI 48.3 vs 52.5 expected
• Germany September flash manufacturing PMI 40.3 vs 42.4 expected
• Eurozone September flash services PMI 50.5 vs 52.1 expected
• UK September flash services PMI 52.8 vs 53.5 expected
• UK September CBI trends total orders -35 vs -21 expected
• Weekly update on interest rate expectations
• Fed’s Kashkari: 50 bps rate cut was the right decision

Markets:

• AUD leads, EUR lags on the day
• European equities mixed; S&P 500 futures up 0.1%
• US 10-year yields up 2.3 bps to 3.750%
• Gold flat at $2,622.69
• WTI crude up 0.4% to $71.31
• Bitcoin down 0.1% to $63,489

The focus of the session was on PMI releases in Europe and it did trigger a modest reaction in markets.

Coming into today, traders were pricing in ~61% odds of an ECB rate cut for October but stepped that up to ~80% now. That of course coming after poor PMI prints in both France and Germany, which also highlighted a softening of price pressures.

EUR/USD fell from 1.1145 to a low of 1.1083 before recovering some ground back to 1.1120 now, still down 0.4% on the day.

That comes as euro area bond yields fall with market players stepping up calls for the ECB to cut rates next month.

US futures also briefly slid into negative territory from the data releases but are now holding marginally higher on the day. European equities remain more mixed in general.

Looking to other major currencies, GBP/USD did fall alongside the euro to 1.3250 before recovering back some ground to 1.3315 now – near flat on the day. Meanwhile, USD/JPY is seeing an up and down day with the pair trading up to 144.45 in early Asia trading before being down by 0.3% now to 143.50.

The dollar is trading more mixed but only marginally lower at the balance, if not for the euro’s plunge. This comes as Treasuries are not offering all too much to start the new week. 2-year yields are still pressured near the 2023 low near 3.55%, seen currently at 3.57%. Then, we have 10-year yields sitting higher closer to 3.75% on the day.

It’s now over to the US session where we will also be getting the US PMI data. So, let’s see how that plays into the post-Fed picture.

This article was written by Justin Low at www.forexlive.com.

• It reflects progress on inflation, softening of labour market
• Sees year-end rate at 4.4% and end of 2025 rate at 3.4%; same as median of Fed policymakers
• Balance of risks have shifted towards risk of further labour market softening
• Too soon to declare victory on inflation but disinflation process is on track
• Policy remains tight, though uncertain on how tight that may be
• Fed rate path will depend on totality of incoming data
• Signals on economic strength has been ‚confusing‘, with consumer spending surprisingly resilient
• Little evidence that recessionary forces are building or that inflation could surprise to the upside

As you would expect, they will be out to vindicate themselves in moving by 50 bps last week. Traders are now seeing ~51% odds of another 50 bps rate cut in November. But after having caved to market pricing last week, it will be a bit hypocritical for the Fed to suddenly try and talk that down – for now at least.

This article was written by Justin Low at www.forexlive.com.

This is just a bit of a heads up as the economic calendar on Thursday will be highlighted by a speech from Fed chair Powell. He will be delivering the opening remarks at the 10th annual US Treasury Market Conference. However, his remarks will be ones that are pre-recorded. And based on the agenda, is only scheduled for 5 minutes.

There will be a host of other Fed policymakers involved with the conference though, so there’s that. But as for Powell, it is more than likely that we won’t be getting any significant policy comments given the above backdrop.

This article was written by Justin Low at www.forexlive.com.

• Prior -22

UK factory order book balance fell to the lowest since November 2023 as export demand is also seen falling at the fastest pace since December 2020, according to CBI. The export order book balance plunged to a reading of -44, down from -22 in August, highlighting continued woes in the manufacturing sector.

This article was written by Justin Low at www.forexlive.com.

Last week, the Fed finally started its easing cycle and decided to do it with a 50 bps
cut. The market was already leaning towards a 50 bps move, so it wasn’t a
surprise.

The larger cut was framed
as kind of a risk management move with the dot plot showing two more 25 bps
cuts by the end of the year and less than the market expected in 2025.

The US Dollar weakened
initially but eventually shot higher as Treasury yields rallied on a less
dovish than expected Powell with the market pricing out the aggressive rate
cuts expected in 2025.

Now that the decision is
behind us, the focus will be on the economic data. If we start to see an
improvement, then Treasury yields will likely continue to rise and drive USDCHF
higher. Conversely, if the data weakens significantly, the market will start to
worry about a recession and take USDCHF lower.

For the CHF, this week the
SNB is expected to cut rates by 25 bps and bring the policy rate to 1.00%. The
market is assigning a 46% probability of a larger 50 bps cut. The reason for
this is because inflation has been surprising to the downside with the last release showing a drop to 1.1%, which is
much lower than the SNB’s 1.5% projection for Q3.

Moreover, SNB’s Jordan said in late
August that the
continued strength of the Swiss Franc has been hurting the Swiss industry.
Therefore, there’s a high chance that the central bank either delivers a 50 bps
cut (especially after the recent Fed’s move) or jawbones the currency by
threatening intervention.

USDCHF
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDCHF is approaching the key 0.8555 resistance. That0s where we can expect the
sellers to step in with a defined risk above the level to position for a drop
back into the 0.84 handle. The buyers, on the other hand, will want to see the
price breaking higher to increase the bullish bets into the 0.87 handle.

USDCHF Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the price recently broke above the major downward trendline with the buyers piling in to target
a rally into the 0.8555 resistance. Overall, we remain in the range between the
0.8555 resistance and the 0.8400 support. The market participants will likely
keep on playing the range until we get a breakout.

USDCHF Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have a minor resistance zone around the 0.8515 level where the price
got rejected from several times in the past days. The buyers will want to see
the price breaking higher to increase the bullish bets into the 0.8555
resistance targeting a breakout.

The sellers, on the other
hand, will likely keep on defending the level to position for a drop back into
the support. The red lines define the average daily range for today.

Upcoming
Catalysts

Today we have the US Flash PMIs. Tomorrow, we get the US Consumer Confidence
report. On Thursday, we have the SNB Rate Decision and the US Jobless Claims. On
Friday, we conclude the week with the US PCE.

This article was written by Giuseppe Dellamotta at www.forexlive.com.