Fundamental
Overview

It looks like the market is
taking some breather after an incredible rally in the US Dollar. This week was
pretty empty on the data front, and we haven’t got any meaningful catalyst. The
main culprit for the US Dollar strength has been the rally in long term
Treasury yields.

The yield curve has been
bear-flattening which is what you would expect with higher growth and
potentially higher inflation expectations. There’s been a good argument that
the markets have been already positioning for a Trump victory which is expected
to strengthen the higher growth and less rate cuts expectations.

For now, this is the trend
and it’s generally a bad idea to fight such trends without a strong catalyst.
Unfortunately, we don’t have much left for October as the main events will be
in the first weeks of November when we will get the top tier economic reports,
the US elections and the FOMC decision.

On the CAD side, the BoC
cut interest rates by 50 bps as expected and signalled more rate cuts to
come with the size of the cuts being guided by incoming data. The market sees
an 85% probability of a 25 bps cut in December (15% for a 50 bps cut) and then three
more 25 bps cuts in 2025.

USDCAD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDCAD is testing the key resistance zone around the 1.3860 level. This
is where we can expect the sellers to step in with a defined risk above the resistance
to position for a drop back into the 1.36 support. The buyers, on the other
hand, will want to see the price breaking higher to increase the bullish bets
into new highs.

USDCAD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the momentum got weaker around the key resistance as the price action
formed a rising
wedge right at the resistance. This generally signals a pullback or even a
reversal.

In this case, it gives the
sellers a bit more confidence to target at least a pullback into the 1.3750
level with a break below the bottom trendline
increasing the conviction. The buyers, on the other hand, will likely lean on
the bottom trendline to position for a break above the resistance and the top
trendline.

USDCAD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see more clearly the recent price action with the rejections around the
resistance. There’s not much else we can add here, but from a risk management
perspective, the buyers will have a better risk to reward setup around the
bottom trendline where the sellers will look for a break lower to increase the
bearish bets into the 1.3750 level. The red lines define the average daily range for today.

Upcoming
Catalysts

Today we get the Canadian retail sales data.

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

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This article was written by FL Contributors at www.forexlive.com.

Headlines:

• Euro takes a ride on the PMI seesaw
• ECB’s Holzmann: A 25 bps rate cut is probable in December
• ECB’s Holzmann says will cut rates if circumstances, inflation allow for it
• ECB’s Vasle says should keep cutting rates in „measured steps“
• France October flash services PMI 48.3 vs 49.9 expected
• Germany October flash manufacturing PMI 42.6 vs 40.8 expected
• Eurozone October flash services PMI 51.2 vs 51.5 expected
• UK October flash services PMI 51.8 vs 52.4 expected
• UK October CBI trends total orders -27 vs -28 expected
• German wages continuing to grow despite economic headwinds – Bundesbank

Markets:

• JPY leads, USD lags on the day
• European equities higher; S&P 500 futures up 0.5%
• US 10-year yields down 5 bps to 4.192%
• Gold up 0.7% to $2,735.56
• WTI crude up 1.0% to $71.49
• Bitcoin up 0.7% to $67,071

Bond yields are coming off the boil and that’s the main driver leading markets so far today.

USD/JPY is down 0.6% as such to 151.90, pushing lower in European morning trade from around 152.20 earlier. The greenback surrendered some of its gains from earlier in the week as well given the circumstances.

10-year Treasury yields are marked down by 5 bps to under 4.20% and that’s giving broader markets a bit of a breather.

The euro was in focus amid PMI data, which saw mixed fortunes for France and Germany. That resulted in a bit of a seesaw action with EUR/USD falling initially to 1.0771 before climbing back up to around 1.0790 levels now. Large option expiries at 1.0800 is helping to keep price action in check.

As yields are keeping lower, equities are also looking to seek some relief. Tech shares led gains early on after Tesla’s earnings beat overnight. But that eventually translated to broader bids in European morning trade with regional indices also nudging higher.

S&P 500 futures are up 0.5% as stocks look to bounce back later in Wall Street trading.

All in all, that is pinning the dollar down a little across the board as the gains cool off. GBP/USD is up 0.4% to 1.2975 and AUD/USD up 0.3% to 0.6650 as the greenback’s run pauses ahead of the jobless claims and US PMI data later.

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

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This article was written by Jeff Patterson at www.forexlive.com.

• Collective wage agreements in Germany were up 6.2% y/y between January and August
• These findings do not fundamentally call into question the expected disinflation process
• But labour market situation is of great importance for the speed and extent of disinflation
• GDP likely shrank again in Q3 but should avoid a significant and broad-based decline in output

Just a couple of small notes but as mentioned by the Bundesbank, the higher wages are not quite reflected in the consumer prices presently. That said, it is still a spot worth keeping an eye out for just in case.

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

• Prior -35

UK factory order book balance holds in negative territory in October, keeping not much changed to the month before. The volume of new orders, measured quarterly, declined to -11 from +1 previously and that hints at softer sentiment with the reading being the weakest since October 2020.

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

Fundamental
Overview

The USD has been on a hell
of a run recently despite the lack of catalysts and no major repricing in interest
rates expectations.

The main culprit for the
recent strength in the US Dollar has been the rally in long term Treasury
yields. The yield curve has been bear-flattening which is what you would expect with
higher growth and potentially higher inflation expectations.

There’s been a good
argument that the markets have been already positioning for a Trump victory
which is expected to strengthen the higher growth and less rate cuts
expectations.

For now, this is the trend
and it’s generally a bad idea to fight such trends without a catalyst.
Unfortunately, we don’t have much left for October as the main events will be
in the first weeks of November when we will get the top tier economic reports,
the US elections and the FOMC decision.

On the GBP side, we got the
UK
Flash PMIs this morning and the data missed expectations slightly across
the board. The market’s pricing didn’t change much though as the market
continues to expect a 25 bps cut at the upcoming meeting followed by another
one in December.

GBPUSD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that GBPUSD eventually reached the major trendline
and bounced off of it as the buyers stepped in. The first target for them
should be the 1.31 handle. The sellers, on the other hand, will want to see the
price breaking below the trendline to increase the bearish bets into the 1.27 handle.

GBPUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that we have a minor downward trendline defining the current bearish
momentum. If the price gets there, we can expect the sellers to lean on it to
position for a break below the major trendline. The buyers, on the other hand, will
look for a break above the downward trendline to increase the bullish bets into
the 1.31 handle.

GBPUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have another minor trendline defining the bearish momentum on this timeframe.
The buyers will want to see the price breaking higher to increase the bullish
bets into the next trendline, while the sellers will likely lean on it to
position for a break below the major trendline. The red line define the average daily range for today.

Upcoming
Catalysts

Today we have the US Jobless Claims and the US Flash PMIs.

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

• I’m pretty confident inflation will hit 2% in 2025.

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

Headlines:

• USD/JPY extends gains to nearly 1% on the day now
• USDJPY Technical Analysis – Higher Treasury yields revive the carry trade
• Equities stay more sluggish as rising yields keeps optimism in check
• EUR/USD continues its descent to test the early August low
• ECB reportedly starting to debate whether rates need to go below neutral in latest cycle
• Germany turns to India as their next bet to reduce China reliance
• US MBA mortgage applications w.e. 18 October -6.7% vs -17.0% prior

Markets:

• USD leads, JPY lags on the day
• European equities lower; S&P 500 futures down 0.2%
• US 10-year yields up 1.4 bps to 4.219%
• Gold up 0.1% to $2,752.09
• WTI crude down 1.9% to $70.38
• Bitcoin down 1.5% to $66,491

The standout mover on the day is the Japanese yen as it stumbled lower, after an early move in Asia trading as well.

USD/JPY nudged up to near 152.00 in the handover from Asia to Europe and built on that during the session. The pair is now up over 1% to 152.80, holding near the highs. It wasn’t just USD/JPY that moved as it was broad-based yen weakness that prevailed.

Higher yields during the week were a catalyst but that has now led to key technical breaks across multiple yen charts as seen here.

Besides that, the dollar kept firmer across the board as it continues to enjoy a good run in October. EUR/USD dipped lower to test its early August low, not helped by a Reuters report highlighting the potential for the ECB to cut rates quicker and by more than anticipated.

The antipodeans also struggled amid a more dour risk backdrop. Higher yields is weighing on stocks and that in turn is pushing the aussie and kiwi lower. AUD/USD is down 0.5% to 0.6650 with NZD/USD down 0.4% to 0.6020 currently.

Coming up, we have the Bank of Canada policy decision to look out for. The central bank is expected to cut rates by 50 bps to 3.75%, with market odds showing a ~91% probability of such a scenario playing out.

USD/CAD is not too fazed on the day even with oil prices falling further though. The pair is little changed, up just 0.1% to 1.3830 currently and stuck in a 16 pips range.

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

The break below the 200-day moving average (blue line) last week turned the bias in the pair to being more bearish. And sellers reaffirmed that by holding at the key level amid some pushing and pulling towards the end of last week. Flip over to the new week and it’s been rather one-way traffic with the dollar also keeping firmer.

For today though, the euro is also not really helped by this earlier report by Reuters here.

It’s not a direct shift in policy signal by the ECB but it certainly add to the recent dovishness. Money market odds are now showing near 40% probability of a 50 bps rate cut for December. That’s where we’re at right now.

As for the overall outlook, traders are still anticipating roughly five more 25 bps rate cuts by the ECB in the next five meetings through to June next year. So, that is the baseline scenario.

But if economic data continues to worsen and pressure the ECB to pick up the pace on rate cuts, don’t expect the euro to find much comfort amid a divergent outlook with the dollar.

Going back to EUR/USD, the pair is now circling back towards the 1 August low of 1.0777. A break there will see little else standing in the way of a push towards 1.0700 next. The June lows around the region of 1.0666-76 will also be a potential downside target to watch out for.

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