We all know that for the Fed to keep with its higher rates for longer policy, it needs the US economy to keep as solid as it is now in the months or even year ahead. In that lieu, I would argue that the most confounding thing about the US economy in the last year has been the resilience of the US consumer. But is all that about to change?

This is pretty great chart (h/t @ Mayhem4Markets) and it speaks to how the pandemic savings is quickly depleting in the US and already has for the lower and middle income households i.e. bottom 80%.

For one, that could translate to weaker spending in the months ahead as consumers run out of excess savings to spend – especially for non-essential goods.

In the face of more subdued consumption and spending, that will in turn impact businesses and spill over to softer labour market conditions perhaps. So, don’t underestimate the chain effect this may have.

Essentially, the US consumer is the ribbon that ties everything together for the Fed right now. If that comes undone and the economy starts to weaken significantly, that will throw the Fed into a bit of a disarray in trying to manage its higher for longer narrative.

And the key question now is, as pandemic savings run out, how soon will this turn into material weakness in the US consumer?

So far, we’re not seeing much signs of that but it is worth keeping an eye out for just in case. It’s all about the data right now but it is important to recognise the potential drivers and forces that may come into play in the months ahead and this is one of that. And a rather critical one at that I might add.

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

Momentum trading is grounded in the idea that securities
that have recently performed well will continue to do so in the short term,
while those that have underperformed will continue to lag.

A key issue in momentum trading is to identify the trend as
early as possible to maximize the strategy’s returns and avoid entering close
to a trend reversal when the returns would be negative. As such using intraday data indicators as opposed to end-of-day
indicators is essential in generating trade entry and exit alerts.

Price Patterns and Breakouts

Technical traders and analysts use chart patterns,
indicators, and technical analysis tools to identify and confirm these
breakouts.

Resistance or Support Level: A breakout occurs when the
stock price breaches a well-defined resistance level or support level.
Resistance levels are price points where selling pressure has historically been
strong, preventing the stock from moving higher. Support levels, on the other
hand, are price points where buying interest has historically been strong,
preventing the stock from moving lower.

Symmetrical Triangle Breakout: This occurs when the stock’s
price moves out of a symmetrical triangle pattern, which typically signals a
continuation of the prevailing trend.

Head and Shoulders Breakout: A head and shoulders pattern
is a reversal pattern. A breakout below the neckline of this pattern can
indicate a bearish reversal.

Cup and Handle Breakout: This pattern resembles the shape
of a tea cup. A breakout above the handle portion is considered bullish.

Double Bottom or Double Top Breakout: These patterns
indicate potential reversals. A breakout above the double top or below the
double bottom can signal a change in trend direction.

Volume Confirmation: One of the critical
aspect of a breakout is that it should be accompanied by an increase in trading
volume to confirm that there is significant momentum behind the move.

This is typically done on a very granular level using
shorter timeframes than the indicator timeframe. For example, if a derivatives trader was generating signals using
5-minute options data bars then the volume analysis should be
using 1-minute or even tick-level data to ensure there was sustained volume
during the period and not just a single large trade.

Moving Averages

Moving averages help traders in filtering out the noise of
trading patterns and identifying key trend lines. A typical setup is to
generate a fast a slow-moving MA (the slow MA should be approx. 5x the fast MA)
and use the crosses as signals.

For example, the 5-minute moving average and a 30-minute
moving average (calculated using 1-min bar data) with a buy signal generated
when the 5-min average crosses above the 30-min average. It is important to use
the spot the clarifying the trade signals, so the spot should always be above both
moving averages for a buy signal.

Relative Strength Index (RSI)

RSI is a momentum oscillator that measures the speed and
change of price movements. It is the ratio of the total gains versus losses in
a given period (typically 14-time units such a 1-minute or 30-minute
bars).

A ratio
above 70 typically indicates an overbought situation and below 30 an oversold
situation.

RSI is
often combined with moving averages to confirm a signal and avoid trading just
prior to a trend reversal.

Overall,
momentum trading is most effective during periods when there is little news
driving market moves and the trading is driven more by intraday supply and
demand imbalances.

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

US:

• The Fed left interest rates unchanged as
  expected.
• The macroeconomic projections were revised higher
  as the economy showed much stronger resilience than expected and the Dot Plot
  showed that the majority of members still expects another rate hike by the end
  of the year with less rate cuts in 2024.
• Fed Chair Powell
  reaffirmed their data dependency but added that they will proceed carefully as
  they are trying to find the optimal level of rates. Powell also added that the
  soft landing is not the base case at the moment, although they are aiming for
  it.
• The latest US CPI came
  in line with expectations, so the market’s pricing remained roughly the same.
• The labour market
  displayed signs of softening although it remains fairly solid as seen also last
  week with the strong beat in Jobless Claims.
• The market doesn’t expect the Fed to hike again at
  the moment.

Australia:

• The
  RBA kept its cash rate unchanged as expected at the last meeting as
  they are seeing signs that the economy is indeed slowing and that will help to
  return inflation back to target.
• The
  data is supporting the RBA’s stance as the Australian jobs, wages and inflation data all remain lacklustre.
• The
  Australian Manufacturing PMI fell further into contraction while
  the Services PMI jumped back into expansion.
• RBA
  Governor Lowe in his speech reaffirmed that if inflation remains sticky, they
  will have to tighten more.
• The
  market expects the RBA to hold rates steady at the next meeting as well.

AUDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that the AUDUSD pair
eventually rallied back into the 0.65 resistance and then
sold off following the more hawkish than expected FOMC dot plot. The price
bounced on the support, but it’s now rolling over again as the sellers continue
to be in charge. A break below the support should open the door for a fall into
the 0.62 handle.

AUDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the recent
bounce got rejected from a broken trendline which
acted as resistance and started to fall again. The moving averages are
crossed to the downside, so the momentum remains bearish, and the natural
target should be the support of the range at 0.6370. That’s where we can expect
the buyers to pile in again with a defined risk below the support to target a
rally into the 0.65 resistance. The sellers, on the other hand, will want to
see the price breaking below the support to pile in even more aggressively and
target the 0.62 handle.

AUDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price got rejected from the downward trendline and the 61.8% Fibonacci
retracement level recently. The trend on this
timeframe is clearly bearish as the price has been printing lower lows and
lower highs. The break below the most recent lower low at 0.6404 suggests that the
sellers are likely to take the pair into the 0.6370 support. On the other hand,
if the price breaks above the trendline, we should see the buyers piling in to
target the 0.65 resistance.

Upcoming Events

Today we will see the latest US Consumer Confidence
report which surprised to the downside the last time and weighed on the USD in
the short term as Treasury yields fell. On Thursday, we will have another US
Jobless Claims data which keeps on showing strength in the labour market
maintaining the hawkish pricing in interest rates expectations. Finally, on
Friday, we will get the latest US PCE data.

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

• „In monetary policy making, uncertainty tends to lead to policy paralysis,“
• „If it’s a full government shutdown, then you don’t really get any of the government data,“

• „And so if we’re lacking data that the Fed can officially sink its teeth into, then that’s going to lead to an inability to make a decision about the path for rates. The lens of the Fed becomes foggy.“

The comments are from MS‘ Ellen Zentner in a Bloomberg TV interview.

Congress will shut down next weekend a deal is not struck. Hardline Republicans are calling for tighter spending controls, a significant hurdle in reaching an agreement to get the legislation passed.

This article was written by Eamonn Sheridan at www.forexlive.com.

Last week the Fed kept interest rates unchanged as
expected while striking a hawkish tone via the Dot Plot. In fact, the Fed not
only sees another rate hike by the end of the year, but also much less rate
cuts by the end of 2024. Fed Chair Powell has also
admitted that the soft-landing scenario is not his base case at the moment and
stronger than expected economic data may require additional tightening. For
now, the economic data remains strong with Jobless Claims crushing
expectations last week, which is not what the Fed wants to see.

Nasdaq Composite
Technical Analysis – Daily Timeframe

On the daily chart, we can see that we had a big
selloff following the FOMC meeting and the Nasdaq Composite has now reached a
key support zone
around the 13174 level where we have the confluence with the
major trendline and the
38.2% Fibonacci retracement level.
This is where we can expect the buyers to step in with a defined risk below the
trendline to position for a rally into the highs.

Nasdaq Composite Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that the Nasdaq
Composite broke out of the bearish flag defined
by the minor counter-trendline, and fell all the way down to the support level.
The target for the pattern is generally the equal extension of the first leg
which stands roughly around the major trendline. At this point, the sellers
will want to see the price breaking below the trendline to pile in with even
more conviction and extend the fall into the 12274 support.

Nasdaq Composite Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that in
case we get a bounce around the support or the trendline, the sellers will have
an opportunity to sell the pullback around the black trendline where they will
have the confluence with a previous swing level, the Fibonacci retracement levels
and the red 21 moving average. The
buyers, on the other hand, will want to see the price breaking above the trendline
to invalidate the bearish setup and position for a rally.

Upcoming
Events

This week is pretty bare on the data front with just a
couple of notable economic releases. Tomorrow, we will get the latest US
Consumer Confidence report while on Thursday we will see again the US Jobless
Claims data. On Friday, we conclude the week with the US PCE data.

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

• S&P says pronounced downturn in labour market could push eurozone economy into recession
• ICYMI – HSBC have boosted its Brent oil forecasts higher for 2023 an 2024
• Dow Jones Technical Analysis – Key trendline got breached
• HSBC cut its forecast for China GDP growth in 2023 and 2024 – see the PBOC easing further
• Japan PM Kishida says excessive FX moves are undesireable
• Japan PM Kishida says on Tuesday he’ll instruct ministers to prepare an economic package
• US equity index futures getting smashed in Europe morning time
• Barclays month end rebalancing model is expecting solid US dollar buying
• Russell 2000 Technical Analysis – Key support got breached
• Germany’s 10-year bond yield rises to its highest since July 2011
• News wires reporting that the Russian government approves tweaks to fuel export ban
• Germany September Ifo business climate index 85.7 vs 85.2 expected
• ECB Villeroy: rates says should remain at this level for sufficiently long period of time
• Bank of Japan Gov Ueda says the Bank won’t directly target FX in guiding monetary policy
• ECB’s De Cos says must avoid both insufficient and excessive tightening
• ECB Villeroy: risk of doing too much & risk of doing too little now symmetrically balanced
• Coal mine fire in Southern China’s Guizhou Province kills 16 people
• Gold Technical Analysis – The uncertainty remains very high
• Bank of Japan Governor Ueda says important for FX to move stably reflecting fundamentals
• European Central Bank’s Kazaks says Bank’s hike in September may allow a pause in October
• BOJ Dep Gov Uchida says need to closely watch FX markets
• More from Bank of Japan Governor Ueda: Aware of the impact of weak yen on firm earnings
• Brent oil price could surge as high as US $150 / barrel says JP Morgan
• Goldman Sachs says in the middle of the worst seasonal equity period of the year right now
• S&P 500 Technical Analysis – Key levels in play
• ECB speakers for Monday 25 September include Villeroy, Schnabel, and President Lagarde
• Bank of Japan Governor Ueda speech, full text. Patiently maintaining monetary easing.
• Beijing-based developer China Oceanwide Holdings declared bankrupt in Bermuda
• Singapore August inflation data: Headline CPI +4.0% y/y (expected was also +4.0%)
• FT reports that a senior Nomura banker has been banned from leaving mainland China
• FX option expiries for 25 September at the 10am New York cut
• Trade ideas thread – Monday, 25 September 2023 – Europe / UK session
• Forexlive Asia-Pacific FX news wrap: China property worries return

Rising
yields once again sent equity indexes lower. After a small gain
during Asia time US equity indexes tumbled sharply lower during the
European morning. The USD rose, most notably against EUR, GBP, CHF
and JPY. AUD, NZD and CAD didn’t drop nearly as much.

Data
flow was very light. We did get the September update for the German
Ifo indexes, still at very subdued levels.

There
were plenty of central banker comments, Villeroy, de Cos, and Kazaks
from the European Central Bank while Bank of Japan Governor Ueda
and Deputy Governor Uchida hit the news wires also. Ueda and Uchida
made some remarks aimed at supporting the yen. They were joined by
Japanese Prime Minister Kishida attempting the same. USD/JPY shrugged
all of it off to trade higher.

US equity index futures were slammed lower:

This article was written by Eamonn Sheridan at www.forexlive.com.

Reuters conveying just the headline with not further detail at this stage.

This article was written by Eamonn Sheridan at www.forexlive.com.

• forecast is $90/bbl in Q4 2023
• forecast is $82.50 for the 2024 year, that’s up $7.50

Citing:

• Oil demand from China will continue to support the price
• Saudi supply cuts will remain unit Q2 2024

This article was written by Eamonn Sheridan at www.forexlive.com.

Week Ahead 25-29th September

• Mon: German Ifo (Sep), US National Activity Index (Aug), German State CPIs (Sep)
• Tue: Swedish PPI (Aug), US Consumer Confidence (Sep), New Home Sales (Aug) Richmond Fed (Sep)
• Wed: Spanish Parliament PM Vote re. Feijoo (TBC), CNB Policy Announcement, BoJ Minutes (Jul); German GfK (Oct), Swedish Consumer Confidence (Sep), EZ M3 (Aug), US Durable Goods (Aug)
• Thu: Banxico Policy Announcement, CBRT Minutes (Sep); EZ Consumer Confidence Final (Sep), German HICP Prelim. (Sep), US PCE Prices Final (Q2), IJC (w/e 18th Sep)
• Fri: Chinese Caixin PMIs (Sep), UK GDP (Q2), German Import Prices & Retail Sales (Aug), Swiss KOF (Sep), German Unemployment (Sep), Norwegian Unemployment (Sep), EZ Flash HICP (Sep), US PCE Price Index (Aug)

NOTE: Previews are listed in day order

Spanish Parliamentary Vote (Tue/Wed): People’s Party leader Feijoo has been given the first mandate by the King to attempt to form a government following the July election when neither Feijoo nor incumbent PM Sanchez were able to get near a working majority. As it stands, Feijoo is unlikely to have the 176 seats required for an outright majority within Congress and therefore his opportunity looks forlorn. If he does fail, then incumbent Sanchez will be provided with a chance to form a government in October/November, but again the PSOE leader is not expected to be able to hit the majority mark. In the scenario that both challengers fail, then the King could give others a mandate to form a government or allow one/both of them to try again. If a second attempt occurs, then the threshold is lowered to just a simple majority, but this is still deemed to be unlikely unless Feijoo can secure the 172 votes he is targeting vs. the opposition’s likely 170, writes Politico, and convince the Junts separatists to abstain. Given the uncertainty in projecting how many seats each camp will be able to secure and whether any of the separatist groups can be convinced to come on side or at least abstain, the most probable next course of action is another general election, which would likely occur in the first few months of 2024.

Banxico (Thu): The prior Banxico meeting saw the central bank leave rates unchanged, as expected, while it reiterated its guidance that it considers it will be necessary to maintain the reference rate at its current level for an extended period. Therefore, it is likely that Banxico will keep rates unchanged at 11.25% once again on Thursday. However, there will be particular attention to the guidance at this meeting. The latest August inflation data saw the 12-month headline and core metrics cool from the prior, in line with expectations. Meanwhile, the latest half month September data saw headline M/M cool marginally from the prior, as did the Y/Y. The M/M core however accelerated a touch but was in line with expectations, while the Y/Y core eased from the 1st half of August. Economic activity in July meanwhile slowed and missed analyst expectations. Analysts at Pantheon Macroeconomics expect Banxico guidance to change on the back of the data, and they see the September meeting as a prime opportunity for them to do so. Pantheon also believes that the Banxico will be able to start cutting rates gradually in late Q4.

CBRT Minutes (Thu): The CBRT opted to match market expectations with a 500bps hike to 30%. The Bank said tightening will continue until a significant improvement to the inflation outlook is achieved, and will be further strengthening as much as needed in a timely and gradual manner. The CBRT also said it will continue to simplify and improve the existing micro and macroprudential framework. The release noted inflation readings were above expectations in July and August. Analysts at CapEco suggest the central bank is “now doing what many investors had hoped they would by raising interest rates sharply and taking a more serious stance against inflation”, and “All of this is helping to maintain investor optimism in the policy shift and keeping Turkey’s sovereign dollar bond spreads near multi-year lows.” CapEco suggests a lot more tightening needs to be delivered, as the desk expects rates to rise to at least 35% by year-end.

China Caixin PMI (Fri): The PMIs will be released at a time when Chinese markets will be enjoying an 8-day-long holiday for the Mid-Autumn Festival, spanning from September 29th to October 6th. Thus, Chinese assets will not receive a chance to react to the data, although the surveys could have a macro impact as another gauge of economic conditions. In terms of the August PMIs, Manufacturing printed at 51.0, Services at 51.8, and the Composite at 51.7. The release also comes after a slew of stimulus to prop up the ailing economy. In terms of recent commentary, the NBS stated that the economy saw accelerated demand, but added that domestic demand remains insufficient and the foundation of economic recovery needs to be consolidated, whilst adding that the domestic economy is recovering, but still faces difficulties and China should focus on expanding domestic demand.

EZ Flash CPI (Fri): Expectations are for September Y/Y HICP to fall to 4.6% from 5.2%, with the super-core metric seen slowing to 4.9% from 5.3%. The prior report saw headline Y/Y HICP decline to 5.2% from 5.3% as energy prices prevented a more meaningful drop, whilst the super-core reading eased to 5.3% from 5.5%. This time around, Moody’s expects that energy prices will act as the “main downward pull on the headline rate”, whilst the core should also see declines on account of an unwinding of base effects in the transport services segment. From a policy perspective, the release will be unlikely to have a significant impact on pricing for the October meeting which assigns a circa 90% chance for the deposit rate to be held at 4.0%. However, should the release come in below expectations, and given the soft September PMI metrics, markets could begin to bring forward expectations of ECB rate cuts with the first 25bps reduction currently priced in by July next year.

US PCE (Fri): Analysts expect core PCE prices will rise by 0.2% M/M in August, matching the rate seen in July. Traders will be framing the data within the context of Fed policy to judge whether the central bank will follow through on its projections of another rate hike this year. While the Federal Reserve stood pat on policy at its September confab, it has retained the option of raising rates further. The central bank slightly raised its PCE projection for this year (from 3.2% Y/Y to 3.3% vs the 3.3% printed in the July data), but lowered its core PCE outlook (to 3.7% Y/Y from 3.9% vs the 4.2% in the July data). It is not until 2026 that the central bank sees both headline and core inflation back at 2.0%. Chair Powell said that while inflation has moderated somewhat, and expectations remain well anchored, the process of getting inflation down to 2.0% has a long way to go, and he said that the central bank would keep rates in restrictive territory until it is confident that inflation is moving back down to target. The central bank chief also warned that getting inflation back down would likely require a period of below trend growth, and some softening of labour markets. Powell was encouraged by the last three inflation reports, which he said were very good, but he wants to see more than just three good readings.

This article originally appeared on Newsquawk.

This article was written by Newsquawk Analysis at www.forexlive.com.

• Stocks can’t hold gains and close down. S&P and NASDAQ have worst week since March
• WTI crude oil futures settle at $90.03
• Stallantis: We have a real soluton on the table
• GM: We do have contingency plans, and will do what’s best for the company, and customers:
• The Fed’s Daly (non-voting member): We are closer to our destination
• Baker Hughes oil rig count versus last week.
• Shawn Fain: Biggest objective now is ending pay tiers
• European indices close mostly lower on the day. UK’s FTSE 100 ekes out a small gain.
• Feds Bowman: Further interest rate increases likely appropriate with inflation still high
• UAW to announce more strikes at GM and Stallantis parts and distribution centers
• Fed Collins: Despite encouraging recent data, inflation remains too high
• S&P global manufacturing PMI flash for September 48.9 versus 48.0 estimate
• ECB’s de Cos: Underlying inflation is now easing
• ECB’s Lane: 4% rate will do quite a bit to bring inflation to 2%
• Kickstart your trading day: A technical look at the EURUSD, USDJPY and GBPUSD
• Canada July retail sales 0.3% versus 0.4% expected
• Canada retail sales will be released at the bottom of the hour.
• The NZD is the strongest and the JPY is the weakest as the North American session begins
• ECB’s de Guindos: Risks to inflation are now balanced
• ForexLive European FX news wrap: Euro, pound drop on PMI misses
• BOJ’s Ueda: Sustainability of wage hikes the most important thing for inflation outlook
• BOJ’s Ueda: Could consider easy policy exit when achievement of 2% inflation is in sight

The NZD and the AUD are ending the day as the strongest of the major currencies. The JPY is the weakest. The latest central bank decision came before the US open, when the Bank of Japan in The rates unchanged but did say that they would consider easy policy exit 1 achievement 2% inflation is in sight and that sustainability of wage hikes the most important thing for the inflation outlook.

The USD end of the day mixed with gains versus the JPY (+0.55%), GBP (+0.45%), CHF and EUR, and losses vs the NZD (-0.49%), the AUD (-0.41%). The greenback was nearly unchanged versus the CAD.

For the trading week, the dollar index closed the week marginally higher by +0.27%. The DXY is a weighted currency index heavily weighted toward the EUR (57.6%), JPY (13.6%) and GBP (11.9%).

Looking at the major indices versus the US dollar, the green was mixed.

The USD was stronger vs the:

• EUR, +0.16%
• JPY, +0.38%
• GBP, +1.15%
• CHF, +1.07%

The USD was weaker vs. the:

• CAD, -0.33%
• AUD, -0.21%
• NZD, -1.08%

Versus the offshore yuan, the USD rose 0.27% this week.

The Federal Reserve this week kept rates unchanged at 5.5%. However, they did keep the additional tightening expectations for 2023, and raise the expected end-of-year rate for 2024 to 5.1% from 4.6% in June.

In the UK, the Bank of England came into the week with market traders expecting a 25 basis point hike. However, after lower-than-expected inflation data on Wednesday, the odds of a hike decreased to 50/50. The Bank of England did keep rates unchanged by a 5 – 4 vote margin. That helped to weaken the pound vs. the USD this week.

The Swiss National Bank was also expected to raise rates by 25 basis points at their quarterly meeting, but they too kept rates unchanged and that helped to weaken its currency versus the US dollar this week.

In the US debt market this week, yields moved higher for the 3rd consecutive week as traders priced in „higher for longer“ for the Fed funds target:

• 2-year yield rose 7.5 basis points to 5.112%
• 5-year yield rose 10.2 basis points to 4.569%
• 10-year yield rose 10.4 basis points to 4.438%
• 30-year yield rose 11.1 basis points to 4.529%

Although the longer end moved up the most, the 2-10-year spread still remains at -67 basis points continuing to signal a recession down the road. The 2 – 10-year spread has been negative since July 2022, reaching a low of -109 basis points in July 2023. Will it ever go positive? If the Fed is higher for longer, the logical way would be for the longer end to go up. The problem is mortgage rates are already up to 7.40%. If the 10-year yield rises another 67 basis points, you are talking about over 8% for mortgage rates all things equal. That would truly send the US economy into a recession which would then lead to lower short-term rates as the Fed is forces to ease.

A recession seems the only way out of the negative yield curve.

In the US stock market this week, the S&P and NASDAQ index had their worst week since March. With the NASDAQ index tumbling by 3.62%. The S&P fell -2.93%.

Crude oil prices this week closed down -0.54% or $-0.48 after extending to the highest level since November 2022 at $92.43.

Spot gold rose $1.37 or 0.07% (call it unchanged). Silver rose $0.52 or 2.276%.

There are some big stories still to be resolved including:

• The auto workers‘ strike
• The potential for a government shutdown at the end of the month

Each of these will get resolved at some point. The question is when and at what cost. Economically, the US PCE data will be released next Friday with core PCE expected to rise by 0.2%.

Adam is back next week. Thanks for your support and tolerance this week. Hope you have a great weekend.

Go Ducks beat the Buffs.

Go Tigers beat the Seminoles.

This article was written by Greg Michalowski at www.forexlive.com.