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AUD/NZD hits correction target, takes a breather before next move

    By
    ActionForex.com
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    AUD/NZD could be an interesting cross to note in the upcoming two weeks. Risk markets are now preparing for the next move after US election. The development in the cross would provide the guidance on which currency to move “faster” next. Additionally, how RBA is going to fulfil market expectations of easing on November 3, also next week, would be another factor.

    The corrective fall from 1.1043 has hit target of 38.2% retracement of 0.9994 to 1.1043 at 1.0642. Downside momentum is diminishing as seen in 4 hour MACD, and we’d not anticipate any reacceleration for now. Sustained break of 1.0565 key support would indicate completion of the whole three-wave rebound from 0.9994 to 1.1043. That will open up deeper fall back to 61.8% retracement at 1.0395 and below. Nevertheless, break of 1.0727 will be the first sign of bottoming and will retain near term bullishness, with a retest on 1.1043 resistance in the cards.

    New Zealand trade deficit widened to NZD -1B in Sep

      By
      ActionForex.com
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      New Zealand goods exports dropped NZD -350m, or -8.0% yoy to NZD 4.0B in September. Goods imports also dropped NZD -643m, or -11.0% yoy, to NZD 5.0B. Trade deficit came in at NZD -1017m, narrowed from August’s NZD -282m, largely inline with expectations. Imports from all top trading partners decline, including China, EU, Australia, US and Japan. Exports to all top trading partners also declined, except to US.

      For the quarter, exports rose 0.7% qoq to NZD 14.8B in Q3. Imports rose 3.3% qoq to NZD 13.6B. Trade balance for Q3 was a surplus of NZD 1.2B.

      Full release here.

      DOW lost -650 pts on triple whammy of stimulus, coronavirus and elections

        By
        ActionForex.com
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        US stocks were knocked down by triple whammy of stalled stimulus talks, record coronavirus infections, and election uncertainties. Traders are clearly reducing risk exposures. DOW closed down -650 pts, or -2.29%, at 27685.38. The break of 55 day EMA should now confirm rejection by 29199.35 resistance on the prior up move. Corrective pattern from 29199.35 should have started the third leg. Deeper fall is likely towards 26537.01 support for the near term. That might happen even by the end of the week if selling intensifies.

        Break of 26537.01 could complete a double top reversal pattern. But we believe the key support lies in cluster at 24971.03, which is close to 25000 psychological level, and more importantly 38.2% retracement of 18213.65 to 29199.35 at 25002.81. This level is not expected to be tested before the result of the election is cleared. It’s more of an indication of overall reactions to the results. So, watch out… next week.

        Bundesbank: German economy recovery likely to continue in Q4, albeit a much slower pace

          By
          ActionForex.com
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          Bundesbank said economic output in Germany is “likely to have increased sharply” in Q3. In terms of quarterly GDP, the economy “could have made up for a little more than half of the drastic slump” in 1H. But it’s still around -5% below pre-crisis level at Q4 2019. From today’s perspective, “the economy recovery is likely to continue in the current quarter, albeit at a much slower pace”.

          Industry “caught up remarkably” with mood improving. But That for service companies was “clouded a little”, affected by recent sharp rise in coronavirus infections and containment measures. The “slight recovery” on the labor market “has recently continued”. Consumer prices fell slightly and will fall significantly below previous year’s level “due to the lower oil prices and base effects”.

          Full report here.

          Germany Ifo business climate dropped to 92.7, first decline after five months of rises

            By
            ActionForex.com
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            Germany Ifo Business Climate dropped slightly to 92.7 in October, down from 93.2, matched expectations. That’s the first decline after five consecutive rises. Current Assessment rose to 90.3, up from 89.2, beat expectation of 89.7. Expectations Index dropped to 95.0, down form 97.4, missed expectation of 96.0.

            Ifo President Clemens Fuest said: “Companies are considerably more skeptical regarding developments over the coming months. In contrast, they gave a slightly more positive assessment of their current situation than last month. In view of rising infection numbers, German business is becoming increasingly worried.”

            Looking at some details, manufacturing rose from -.5 to 1.6. That’s the first positive reading since June 2019. Services dropped from 6.9 to 3.9. Trade dropped from 0.3 to -0.1. Construction also dropped from 3.3 to 0.8.

            Full release here.

            WTI dives on demand concerns, extending the correction back to 35.98 first

              By
              ActionForex.com
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              While the forex markets are relatively steady today, oil price is suffering steep decline in the early part of European session. Demand concern is seen as a reason for the sell-off. The US reported its highest number of new coronavirus infections in the two days through Saturday. Numbers in Europe are also making record runs. The resurgence comes at a rather bad time when the Northern Hemisphere is now entering into winter.

              WTI crude oil’s decline is accelerating lower as seen in 4 hour MACD, with break of its trend line. The development now argues that price actions from 35.98 are a consolidation pattern completed with three waves to 41.62. That is, medium term correction from 43.50 is extending with another falling leg. Deeper fall would be seen, possibly through 35.98 low to 100% projection of 43.50 to 35.98 from 41.62 at 34.10. We’d expect strong support from there, which is close to 34.36 support to bring rebound. Meanwhile, near term downside risk will be erased if WTI could reclaim 40 handle.

              ECB to prepare markets for more stimulus as recovery falters

                By
                ActionForex.com
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                The Eurozone economic is facing much risk of double-dip recession with the resurgence of coronavirus infections. Tens of millions people are returning to restrictions which would hit the services industry particularly hard. Recent PMIs have already shown that recovery is faltering. Inflation has also turned into negative. ECB policymakers are clear that they’re ready for more stimulus.

                Yet, Thursday is not seen as the time to deliver any new measures yet. After all, less than half the money allocated to the pandemic emergency purchase program has been spend. There won’t be need economic projections before December. By then, economists could finally factor in the results of US elections and Brexit negotiations. So December would be the better timing to gauge the stimulus needed next year. We might get some indication from President Christine Lagarde to prepare the markets for the move later.

                While Euro might be firm against Dollar, the picture in EUR/CHF is not looking too well for the near term. As long as 1.0749 resistance holds (which is close to 55 day EMA), we’d expect fall from 1.0877 to extend lower. Such decline is seen as the third leg of the pattern from 1.0915 and would target 1.0602 support and even below. EUR/CHF will need to overcome 1.0749 resistance to clear near term bearishness.

                BoJ might downgrade inflation forecasts, AUD/JPY waiting for downside breakout

                  By
                  ActionForex.com
                  -

                  BoJ is widely expected to keep the parameters of the yield curve control unchanged this week. Short term policy rate would be held at -0.10%. JGB purchases will continue without upper limit to keep 10-year yield at around 0%, with fluctuations allowed to some extent. Goushi Katakoa will continue to be the sole dissenter, pushing for more monetary easing.

                  Governor Haruhiko Kuroda would maintain the assessment that the economy is on track to recovery from the coronavirus pandemic. Yet the path would remain highly depend on infections. There are, though, some expectations that BoJ would downgrade inflation forecasts. for the current fiscal year. With new Prime Minister Yoshihide Suga’s Go To Travel campaign that offers subsidized domestic travel, there is downward pressure on prices. But the temporary move in prices wouldn’t alter BoJ’s plan for now.

                  Back in June, BoJ forecasts GDP to contract -5.7% to -4.5% in fiscal 2020, then rebound by 3.0% to 4.0% in fiscal 2021. Core CPI (all item less fresh food) was forecast to be at -0.6% to -0.4% in by the end of fiscal 2020, and then at 0.2% to 0.5% by the end of fiscal 2021.

                  Yen’s path has decoupled from US treasury yield recently. But the next move would still be in-sync with overall risk markets, which is heavily affected by the outcome of US election. AUD/JPY is staying in the corrective pattern from 78.46. While selling hesitated ahead of 73.97 support, we’d anticipate an eventual break to the downside for 38.2% retracement of 59.89 to 78.46 at 71.36.

                  BoC to stand pat while EUR/CAD preparing for bullish breakout

                    By
                    ActionForex.com
                    -

                    BoC is widely expected to keep the overnight rate unchanged at the effective lower bound of 0.25% this week. Bank rate and deposit rate will be kept at 0.50% and 0.25% respectively. Meanwhile, as the central has already been tweaking its asset purchases program, there might be some more changes to be announced at the meeting. Though, they shouldn’t be viewed as a change in the monetary stance, but just some adjustments to fine-tune the program.

                    Forward guidance would be kept unchanged too as policy rate will be kept at the “effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved”. “QE program will continue until the recovery is well underway”. The question is, whether Governor Tiff Macklem would take the opportunity to start push the message that BoC would not hike before the Fed.

                    EUR/CAD is building the case of a bullish break out. EUR/CAD’s price action from 1.5978 are clearly corrective, which could have completed at 1.5389. Break of 1.5738 resistance would confirm this view and bring resumption rise from 1.5054 through 1.5978. Meanwhile, USD/CAD’s downside attempt has been contained well above 1.2994 low so far. Break of 1.3529 resistance would extend the pattern from 1.2994 with another rising leg through 1.3418 resistance. If BoC announce this week is going to trigger some selloff in the Canadian, we’d prefer to see the break of these two levels together to double confirm.

                    US PMI composite rose to 55.5, 20-month high

                      By
                      ActionForex.com
                      -

                      US PMI Manufacturing rose 0.1 to 53.3 in October, matched expectation. PMI services also rose to 56.0, up from 54.6, beat expectation of 54.5. PMI Composite rose to 55.5, up from 54.3, hit a 20-month high.

                      Chris Williamson, Chief Business Economist at IHS Markit, said:

                      “The US economy looks to have started the fourth quarter on a strong footing, with business activity growing at a rate not seen since early 2019. The service sector led the expansion as increasing numbers of companies adapted to life with COVID-19, while manufacturing continued to report solid growth amid rising demand from households and businesses.

                      “A slowdown in hiring and weaker new order inflows were in part attributable to hesitancy in decision making ahead of the presidential election. More encouragingly, business optimism surged higher, indicating that firms have become increasingly positive about prospects for the coming year amid hopes of renewed stimulus, COVID-19 containment measures gradually easing and greater certainty for businesses and households after the presidential elections.”

                      Full release here.

                      UK PMI composite dropped to 52.9, Q4 to slow sharp, risk of a renewed downturn risen

                        By
                        ActionForex.com
                        -

                        UK PMI Manufacturing dropped to 53.3 in October, down from 54.1, above expectation of 53.1. PMI Services dropped to 52.3, down from 56.1, missed expectation of 54.0. PMI Composite dropped to 52.9, down from 56.5, a 4-month low.

                        Chris Williamson, Chief Business Economist at IHS Markit, said: “The slower growth of output, the renewed fall in demand and further deterioration in the labour market suggest the economy started the fourth quarter on a weakened footing. While Brexit preparations may cause a short-term boost to some parts of the economy ahead of 31st December, rising COVID-19 cases and the imposition of local lockdown measures bode ill for the near-term economic outlook. While the fourth quarter still looks likely to see the economy expand, the rate of growth looks to have slowed sharply and the risk of a renewed downturn has risen.”

                        Full release here.

                        Eurozone PMI composite back in contraction, diverging sectors and countries

                          By
                          ActionForex.com
                          -

                          Eurozone PMI Manufacturing rose to 54.4 in October, up from 53.7, beat expectation of 53.1. That’s also the highest level in 26 months. PMI Services dropped to 46.2, down from 48.0, missed expectation of 47.0. PMI Composite dropped to a 4-month low at 49.4, down from 50.4.

                          Chris Williamson, Chief Business Economist at IHS Markit said:

                          “The eurozone is at increased risk of falling into a double-dip downturn as a second wave of virus infections led to a renewed fall in business activity in October. The survey revealed a tale of two economies, with manufacturers enjoying the fastest growth since early-2018 as orders surged higher amid rising global demand, but intensifying COVID-19 restrictions took an increasing toll on the services sector, led by weakening demand in the hard-hit hospitality industry.

                          “The divergence is even starker by country. While Germany is buoyed by its manufacturing sector booming to a degree exceeded only twice in almost 25 years of survey history, the rest of the region has sunk into a deepening downturn.

                          “While the overall downturn remains only modest, and far slighter than seen during the second quarter, the prospect of a slide back into recession will exert greater pressure on the ECB to add more stimulus and for national governments to help cushion the impact of COVID-19 containment measures, which not only tightened across the region in October but look set to be stepped up further in November.”

                          Full release here.

                          German PMI manufacturing hits 30-month high, but services contract

                            By
                            ActionForex.com
                            -

                            Germany PMI Manufacturing rose to 58.0 in October, up from 56.4, above expectation of 55.5. That’s also the highest level in 30 months. However, PMI Services dropped to 48.9, down from 50.6, missed expectation of 49.0. PMI Composite hit a 2-month low at 54.5, down from 54.7.

                            Phil Smith, Associate Director at IHS Markit said: “Encouragingly, the German economy is showing a degree of resilience in the face of a second wave of coronavirus cases, October’s flash PMI data suggests. While some services firms in Germany have been hit by new restrictions and increased uncertainty around a ‘second wave’, the decline in service sector activity has so far been quite limited, whilst at the same time the country’s economic performance is being buoyed by a strong showing from manufacturing.”

                            Full release here.

                            France PMI composite dropped to 47.3, notable negative impact from rise in COVID

                              By
                              ActionForex.com
                              -

                              France PMI Manufacturing dropped slightly to 51.0 in October, down from 51.2, matched expectations PMI Services dropped to 46.5, down from 47.5, below expectation of 47.0. PMI Composite dropped to 47.3, down form 48.5, hitting a 5-month low.

                              Eliot Kerr, Economist at IHS Markit said: “The results suggest that the recent rise in COVID-19 cases and subsequent tightening of restrictions has had a notable negative impact on business conditions… With the European winter fast approaching, the prospect of a sharp drop in new positive cases and a full reopening of the economy seems unlikely. The festive period, usually so important for wide range of business, is set to be a difficult one.”

                              Full release here.

                              Australia CBA PMI composite rose to 53.6, but subdued new business casts doubts of upturn durability

                                By
                                ActionForex.com
                                -

                                Australia CBA PMI Manufacturing dropped to 54.2 in October, down from September’s 55.4. PMI Services rose to 53.8, up from 50.8. PMI Composite rose to 53.6, up from 51.1.

                                Bernard Aw, Principal Economist at IHS Markit, said, business confidence strengthened as ” firms expect the eventual return of normal market conditions” after restrictions easing. But “subdued ” new business growth casts doubts on the “durability of the current upturn”. Firms are “saddled with unused capacity” while companies “reduced their workforce” again.

                                Full release here.

                                New Zealand CPI rose 0.7% qoq in Q3, missed expectation and RBNZ’s forecast

                                  By
                                  ActionForex.com
                                  -

                                  New Zealand CPI rose 0.7% qoq in Q3, turned positive from Q2’s -0.5% qoq, but missed expectation of 0.9% qoq. Annually, CPI slowed to 1.4% yoy, down from Q2’s 1.5% yoy, missed expectation of 1.7% yoy. Separately released, RBNZ core CPI based on sectoral factor model was unchanged at 1.7% yoy.

                                  The inflation readings are substantially below RBNZ’s own forecast of 1.1% qoq and 1.8% yoy as presented in the August MPS. While the economy appeared to be rebounding well from pandemic slump, risks to inflation outlook are clearly to the downside. As inflation is expected to slow further ahead, the case for more RBNZ easing continues to build up. It’s just a matter of time when negative rates will be adopted.

                                  Full CPI release here.

                                  NZD/USD continues to gyrate around 55 day EMA for now and upside momentum for rebound has been limited. Price actions from 0.6511 are more likely forming the second leg of the pattern from 0.6797 high. That is, we’d expect the corrective fall from 0.6797 to resume sooner or later to 38.2% retracement from 0.5469 at 0.6290, sooner or later.

                                  Japan PMI manufacturing edged up to 48.0, slow-going recovery could remain

                                    By
                                    ActionForex.com
                                    -

                                    Japan PMI Manufacturing rose slightly to 48.0 in October, up from 47.7, but missed expectation of 48.4. Markit noted that was the “slowest deterioration in the health of the manufacturing sector since January”. PMI Services dropped to 46.6, down from September’s 46.9. PMI Composite rose 0.1 to 46.7.

                                    Bernade Aw, Principal Economist at IHS Markit, said: “recovery is slow-going and could remain so in the coming months as a global resurgence of COVID-19 cases could weigh on Japanese economic activity, particularly in the external facing sectors”.

                                    Full release here.

                                    Japan CPI core ticked up to -0.3% yoy, no price growth for six months

                                      By
                                      ActionForex.com
                                      -

                                      Japan CPI core (all item ex-food) ticked up to -0.3% yoy in September, from August’s -0.4% yoy, better than expectation. Still, core CPI hasn’t be positive for six months since May. The negative reading was caused largely by the government’s travel discount campaign. Yet, taking that facto out, core CPI was just flat. All item CPI dropped to 0.0% yoy, down from 0.2% yoy. CPI core-core (all item ex-food and energy) ticked up to 0.0% yoy, from -0.1% yoy.

                                      BoJ will release its quarterly economic outlook along with policy statement on October 29. No policy change is expected at the meeting. Though, inflation forecasts could be downgraded to reflect the temporary downward price pressure of Prime Minister Yoshihide Suga’s Go To Travel campaign.

                                      UK signs trade deal with Japan, opens a pathway to TPP

                                        By
                                        ActionForex.com
                                        -

                                        In Tokyo today, UK International Trade Secretary Liz Truss and Japan Foreign Minister Toshimitsu Motegi formally signed a trade agreement, putting in pen the deal they agreed in principle back in September. That’s the first major trade deal UK came to since Brexit. The deal is seen as largely preserving the terms which UK traded with Japan as part of the EU. UK expected it to boost GDP by 0.07% over the next 15 years.

                                        The deal “has a much wider strategic significance”, Truss hailed . “It opens a clear pathway to membership of the Comprehensive Trans-Pacific Partnership — which will open new opportunities for British business and boost our economic security.”

                                        US initial jobless claims dropped to 787k, continuing claims down to 8.4m

                                          By
                                          ActionForex.com
                                          -

                                          US initial jobless claims dropped -55k to 787k in the week ending October 17, better than expectation of 860k. Four-week moving average of initial claims dropped -21.5k to 811.3k.

                                          Continuing claims dropped -1024k to 8373k in the week ending October 10. Four-week moving average of continuing claims dropped -1094k to 10086k.

                                          Full release here.

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