The S&P500 index closed Thursday with the biggest gain in seven months, adding 1.7%. In a sharp move, the index managed to get back above the 50-day average and maintained its position above that line as of Friday morning.
Traders should pay attention to the trading around this level, which acted as support since November 2020 and turned into resistance in September 2021. The regular session and the weekend promise to set the tone for the next few days and even weeks.
The Japanese market in the form of the Nikkei 225 supports America’s optimism by adding 1.7% since the beginning of the trading session on Friday and surpassing the 29000 level and its 50- and 200-day moving averages. The weakening Japanese yen against its major rivals are keeping interest in shares of the Land of the Rising Sun alive. They also benefit from some pullback in energy prices, which are mainly imported.
Traders should pay attention to the trading around this level, which acted as support since November 2020 and turned into resistance in September 2021. The regular session and the weekend promise to set the tone for the next few days and even weeks.
The Japanese market in the form of the Nikkei 225 supports America’s optimism by adding 1.7% since the beginning of the trading session on Friday and surpassing the 29000 level and its 50- and 200-day moving averages. The weakening Japanese yen against its major rivals are keeping interest in shares of the Land of the Rising Sun alive. They also benefit from some pullback in energy prices, which are mainly imported.
The weakening of the yen overnight fits well with the persistent inverse relationship between its exchange rate and the demand for risk: low-yielding Japanese bonds are used as funding for purchasing risky assets such as stocks or high-yielding currencies. This factor has added to yen weakness as the trade balance shifts towards higher imports due to a jump in energy and metals prices.
Having surpassed 114 this morning, the USDJPY was near the upper end of its trading range since early 2017. On the charts up to the weekly timeframes, there is a clear overbought situation in the pair. The same is largely true for GBPJPY, which, having risen to 156.5, is testing its highest levels since mid-2016.
Having surpassed 114 this morning, the USDJPY was near the upper end of its trading range since early 2017. On the charts up to the weekly timeframes, there is a clear overbought situation in the pair. The same is largely true for GBPJPY, which, having risen to 156.5, is testing its highest levels since mid-2016.
Since early October, the yen’s dip has appeared too fast and abrupt, and the move could potentially be even stronger. In the coming days, we may see the sellers surrender on the rise above the turning points of recent years. Or, on the contrary, an increase in bear’s grip. Either way, there will be no dullness in the yen.
A further weakening of the Japanese currency would inflate the stock market’s sails and support a further strengthening of commodities and high-yielding currencies. Having started at the beginning of October, this momentum is relatively new and therefore, its potential is far from exhausted. On the other hand, there are also questions about its sustainability because massive bond placements from the US Treasury should be on the horizon, drawing liquidity from the market and supporting the demand for the dollar.
A further weakening of the Japanese currency would inflate the stock market’s sails and support a further strengthening of commodities and high-yielding currencies. Having started at the beginning of October, this momentum is relatively new and therefore, its potential is far from exhausted. On the other hand, there are also questions about its sustainability because massive bond placements from the US Treasury should be on the horizon, drawing liquidity from the market and supporting the demand for the dollar.
Rising euro zone imports weaken EUR
The eurozone's trade surplus is under pressure this year, reducing support for the single currency against rivals. Data published today showed a reduction in the seasonally adjusted trade surplus to 11.1bn, compared with the expected 14.1bn and 13.5bn a month earlier.
Except for April and May 2020, these are the lowest levels since October 2018, when oil and gas prices also rallied violently.
Admittedly, energy prices have risen more dramatically between August and now, promising an even more significant jump in the cost of imports.
It is also noteworthy that exports seem to be hitting a glass ceiling close to EUR 200 billion, chipping away at it from 2019.
The weakening trade surplus underlines the difficulties for the region's economy amid rising commodity prices. This is a new batch of bad news for the Euro, whose dynamics this year are closely mirroring those of the trade surplus.
The eurozone's trade surplus is under pressure this year, reducing support for the single currency against rivals. Data published today showed a reduction in the seasonally adjusted trade surplus to 11.1bn, compared with the expected 14.1bn and 13.5bn a month earlier.
Except for April and May 2020, these are the lowest levels since October 2018, when oil and gas prices also rallied violently.
Admittedly, energy prices have risen more dramatically between August and now, promising an even more significant jump in the cost of imports.
It is also noteworthy that exports seem to be hitting a glass ceiling close to EUR 200 billion, chipping away at it from 2019.
The weakening trade surplus underlines the difficulties for the region's economy amid rising commodity prices. This is a new batch of bad news for the Euro, whose dynamics this year are closely mirroring those of the trade surplus.
US retail sales significantly exceeded expectations, continuing a series of healthy data supporting global risk demand. US Census Bureau reported a 0.7% rise in sales for September after a 0.9% (revised from 0.7%) increase a month earlier.
Sales excluding autos added 0.8% after jumping 2% earlier. This is solid data and has the potential to allay some fears that the impending Fed stimulus rollback will come as a shock to equity markets. Investors may well be satisfied with the report and strengthened in the belief that demand will continue to enhance soon.
Strong retail sales are also good news for the Dollar, as markets continue to put an increasingly early hike in interest rates into quotes. The latest data indicates that the first rate hike is already priced in as early as September next year, although only a couple of months ago, no one was expecting a hike before 2023. The approach of the projected rate hike date is pushing the Dollar upwards.
Sales excluding autos added 0.8% after jumping 2% earlier. This is solid data and has the potential to allay some fears that the impending Fed stimulus rollback will come as a shock to equity markets. Investors may well be satisfied with the report and strengthened in the belief that demand will continue to enhance soon.
Strong retail sales are also good news for the Dollar, as markets continue to put an increasingly early hike in interest rates into quotes. The latest data indicates that the first rate hike is already priced in as early as September next year, although only a couple of months ago, no one was expecting a hike before 2023. The approach of the projected rate hike date is pushing the Dollar upwards.
#NZDCAD broke key resistance level 0.8714
• Likely to reach resistance level 0.88001
NZDCAD currency pair continues to rise inside the corrective wave 2, which previously broke the key resistance level 0.8714 (former minor support from the end of September).
The breakout of this resistance level coincided with the breakout of the 50% Fibonacci correction of the downward impulse from the start of October.
NZDCAD can be expected to rise further toward the next resistance level 0.8800 (previous minor reversal high from the start of October).
• Likely to reach resistance level 0.88001
NZDCAD currency pair continues to rise inside the corrective wave 2, which previously broke the key resistance level 0.8714 (former minor support from the end of September).
The breakout of this resistance level coincided with the breakout of the 50% Fibonacci correction of the downward impulse from the start of October.
NZDCAD can be expected to rise further toward the next resistance level 0.8800 (previous minor reversal high from the start of October).
#Copper broke resistance zone
• Likely to test resistance level 480.00
Copper continues to rise after the price broke through the resistance zone lying between the two strong resistance levels – 462.00 and 468.00.
The breakout of these resistance levels accelerated the active multi-impulse upward impulse sequence made out of the impulse waves (iii), 3 and (3).
Copper can be expected to rise further toward the next resistance level 480.00 (former major resistance from May and the target for the completion of the active impulse wave 3).
• Likely to test resistance level 480.00
Copper continues to rise after the price broke through the resistance zone lying between the two strong resistance levels – 462.00 and 468.00.
The breakout of these resistance levels accelerated the active multi-impulse upward impulse sequence made out of the impulse waves (iii), 3 and (3).
Copper can be expected to rise further toward the next resistance level 480.00 (former major resistance from May and the target for the completion of the active impulse wave 3).
#EURGBP broke support level 0.8450
• Likely to fall to support level 0.8400
EURGBP continues to fall after this currency pair broke the key support level 0.8450 (previous monthly low from August).
The breakout of the support level 0.8450 accelerated the active impulse waves (iii), 3 – which belong to the extended impulse wave (3) from April.
Given the strong downtrend and high sterling bullishness – EURGBP can be expected to fall further toward the next support level 0.8400.
• Likely to fall to support level 0.8400
EURGBP continues to fall after this currency pair broke the key support level 0.8450 (previous monthly low from August).
The breakout of the support level 0.8450 accelerated the active impulse waves (iii), 3 – which belong to the extended impulse wave (3) from April.
Given the strong downtrend and high sterling bullishness – EURGBP can be expected to fall further toward the next support level 0.8400.
#NZDCAD broke resistance area
• Likely to rise to resistance level 0.8900
NZDCAD currency pair earlier broke the resistance area lying between the resistance level 0.8800 (which stopped the previous minor correction (iv) at the start of October) and the 38.2% Fibonacci correction of the downward impulse from September.
The breakout of this resistance area accelerated the active impulse wave (c) of the long-term ABC correction 2 from the start of October.
NZDCAD can be expected to rise further toward the next resistance level 0.8900 (target price for the completion of the active ABC correction 2).
• Likely to rise to resistance level 0.8900
NZDCAD currency pair earlier broke the resistance area lying between the resistance level 0.8800 (which stopped the previous minor correction (iv) at the start of October) and the 38.2% Fibonacci correction of the downward impulse from September.
The breakout of this resistance area accelerated the active impulse wave (c) of the long-term ABC correction 2 from the start of October.
NZDCAD can be expected to rise further toward the next resistance level 0.8900 (target price for the completion of the active ABC correction 2).
#Nasdaq100 broke resistance area
• Likely to rise to resistance level 15750.00
Nasdaq-100 index recently broke the resistance area lying between the round resistance level 15000.00 (which stopped the previous impulse wave (i) at the start of October) and the 50% Fibonacci correction of the ABC correction 4 impulse from the start of September.
The breakout of this resistance area accelerated the active impulse wave (iii), which belongs to the higher-level impulse waves 3 and (3).
Nasdaq-100 index can be expected to rise further toward the next resistance level 15750.00 (target price for the completion of the active impulse wave (iii)).
• Likely to rise to resistance level 15750.00
Nasdaq-100 index recently broke the resistance area lying between the round resistance level 15000.00 (which stopped the previous impulse wave (i) at the start of October) and the 50% Fibonacci correction of the ABC correction 4 impulse from the start of September.
The breakout of this resistance area accelerated the active impulse wave (iii), which belongs to the higher-level impulse waves 3 and (3).
Nasdaq-100 index can be expected to rise further toward the next resistance level 15750.00 (target price for the completion of the active impulse wave (iii)).
UK CPI data surprised with weakness, with the year over year price growth slowing to 3.1%.
Looking back at the rate of PPI performance, it would not be surprising if the pullback in inflation was temporary and illusory, as we have already seen in July. Most likely, the peak is yet to come as it will take a few more months before the double-digit rise in Input PPI is passed down the chain to consumers.
However, the signals of easing inflation ahead. Input PPI rose by only 0.4% MoM, the smallest monthly increase since last October. The YoY growth rate accelerates to 11.4%, but nearly plateaued, which suggests stabilising. It is still too early to talk about a slowdown in inflation, so the current figures should not be seen as a signal for the Bank of England to stop raising rates as early next month, which would make them the first of the G7 to do so.
Looking back at the rate of PPI performance, it would not be surprising if the pullback in inflation was temporary and illusory, as we have already seen in July. Most likely, the peak is yet to come as it will take a few more months before the double-digit rise in Input PPI is passed down the chain to consumers.
However, the signals of easing inflation ahead. Input PPI rose by only 0.4% MoM, the smallest monthly increase since last October. The YoY growth rate accelerates to 11.4%, but nearly plateaued, which suggests stabilising. It is still too early to talk about a slowdown in inflation, so the current figures should not be seen as a signal for the Bank of England to stop raising rates as early next month, which would make them the first of the G7 to do so.
The pressure on the pound at the start of Wednesday shouldn’t be attributed to lower-than-expected inflation. It is more a reaction to rising yields in the debt markets, which is boosting interest to the dollar, keeping risk demand in check, and preventing the FTSE100 from updating its post-pandemic highs.
Energy prices halted their growth, while optimism in global markets continued to gain momentum. In this environment, the Turkish Lira (TRY) has paused its weakening, closing Tuesday with gains against the Dollar and Euro after eight consecutive sessions of decline.
In addition, the break in the Lira sell-off may continue in anticipation of Thursday’s Bank of Turkey meeting. Last time, the central bank cut its key rate by one percentage point. However, since then, new data has pointed to a further acceleration in inflation. In addition, rising energy prices and a weaker lira are further pushing up prices due to higher import costs.
Under such circumstances, it is logical to expect that the Turkish central bank, which managed to surprise with a rate cut last time, will not cut its funding costs this time and could signal that it is set to fight against rising prices, or at least show concern about it.
In addition, the break in the Lira sell-off may continue in anticipation of Thursday’s Bank of Turkey meeting. Last time, the central bank cut its key rate by one percentage point. However, since then, new data has pointed to a further acceleration in inflation. In addition, rising energy prices and a weaker lira are further pushing up prices due to higher import costs.
Under such circumstances, it is logical to expect that the Turkish central bank, which managed to surprise with a rate cut last time, will not cut its funding costs this time and could signal that it is set to fight against rising prices, or at least show concern about it.
USDMXN on track below 20
In response to inflation threat, emerging market central banks are forced to actively raise key interest rates to stem capital outflows from the country.
Active monetary policy tightening keeps EM currencies from weakening, and the global recovery of risk demand further supports Latin American currencies. A remarkable turnaround is seen in the Mexican Peso. The USDMXN pulled back from levels near 20.90 just over a week ago to 20.20 on Wednesday, near average levels for the past year. A further step down the road may increase the bullish stance for the MXN.
Despite accelerating inflation, the currency market is signalling confidence that Mexican price growth remains under control as the Bank of Mexico is actively raising rates with its latest tightening in late September.
Further recovery in demand for risky assets leaves the potential for a short-term strengthening of the Mexican peso to 19.9 per dollar before the end of the month.
In response to inflation threat, emerging market central banks are forced to actively raise key interest rates to stem capital outflows from the country.
Active monetary policy tightening keeps EM currencies from weakening, and the global recovery of risk demand further supports Latin American currencies. A remarkable turnaround is seen in the Mexican Peso. The USDMXN pulled back from levels near 20.90 just over a week ago to 20.20 on Wednesday, near average levels for the past year. A further step down the road may increase the bullish stance for the MXN.
Despite accelerating inflation, the currency market is signalling confidence that Mexican price growth remains under control as the Bank of Mexico is actively raising rates with its latest tightening in late September.
Further recovery in demand for risky assets leaves the potential for a short-term strengthening of the Mexican peso to 19.9 per dollar before the end of the month.
#NZDUSD broke resistance area
• Likely to rise to resistance level 0.7300
NZDUSD currency pair earlier broke the resistance area lying between the pivotal resistance level 0.7170 (previous monthly high from September) and the resistance trendline of the daily down channel from May.
The breakout of this resistance area accelerated the active impulse waves (iii), 3 and (C).
NZDUSD can be expected to rise further toward the next resistance level 0.7300 (former monthly high from March and May).
• Likely to rise to resistance level 0.7300
NZDUSD currency pair earlier broke the resistance area lying between the pivotal resistance level 0.7170 (previous monthly high from September) and the resistance trendline of the daily down channel from May.
The breakout of this resistance area accelerated the active impulse waves (iii), 3 and (C).
NZDUSD can be expected to rise further toward the next resistance level 0.7300 (former monthly high from March and May).
#EURNZD broke support area
• Likely to fall to support level 1.610
EURNZD currency pair earlier broke the support area lying between the key support level 1.6345 (previous multi-month low from February) and the support trendline of the daily down channel from August.
The breakout of this support area accelerated the active impulse wave (iii), which belongs to the higher-level impulse waves 3 and (C).
EURNZD can be expected to fall further toward the next support level 1.610 (target price for the completion of the active impulse wave (iii)).
• Likely to fall to support level 1.610
EURNZD currency pair earlier broke the support area lying between the key support level 1.6345 (previous multi-month low from February) and the support trendline of the daily down channel from August.
The breakout of this support area accelerated the active impulse wave (iii), which belongs to the higher-level impulse waves 3 and (C).
EURNZD can be expected to fall further toward the next support level 1.610 (target price for the completion of the active impulse wave (iii)).
Flash UK PMIs for October beat expectations after a weak retail sales report earlier today. The manufacturing PMI rose from 57.1 to 57.7, and the service sector index rose from 55.4 to 58.0. Both were expected to show slowing growth, with indices forecasted to fall to 56.1 and 54.5, respectively.
Businesses reported a recovery in consumer activity “due to roll back of pandemic restrictions”. Besides, a jump in the input price component supported the rise in the indices. Although technically, a rise in input prices boosts PMIs, it should be attributed to bad inflation, which creates a short-term rush for some commodities but subsequently eats away at corporate profits and activity.
Thus, the stock market should look through this better than forecasted data, as it is unlikely to translate into profit growth. But it is good news for the Pound, as accelerating inflation increases the chances of a rate hike by the Bank of England soon.
Businesses reported a recovery in consumer activity “due to roll back of pandemic restrictions”. Besides, a jump in the input price component supported the rise in the indices. Although technically, a rise in input prices boosts PMIs, it should be attributed to bad inflation, which creates a short-term rush for some commodities but subsequently eats away at corporate profits and activity.
Thus, the stock market should look through this better than forecasted data, as it is unlikely to translate into profit growth. But it is good news for the Pound, as accelerating inflation increases the chances of a rate hike by the Bank of England soon.
The British Pound has been flirting with levels above 1.3800 this week, repeatedly pulling back from resistance in the form of the 200-day moving average. Most likely, traders are waiting for signals from the BoE that it is ready to raise rates in the coming months. If such calls come shortly, the Pound could finally shake off the June-September correction sentiment. And this looks like the most likely scenario. Should the Fed show more vigour, GBPUSD runs the risk of being pushed back to the September lows at 1.34.
Euro: slightly better than USD but worse than its European peers
Business activity in the euro zone avoided a sharp decline despite a surge in energy prices in September and October. As a result, the euro is developing a rebound from multi-month lows against the franc and Pound. There is also a notable buying interest in EURUSD after a dip to 1.1620 with the start of active trading in Europe.
Preliminary PMI estimates indicate that the eurozone economic recovery is cooling down, but not as fast as might have been expected amid energy price spike and frightening headlines about production stoppages.
The growth rate of the eurozone’s manufacturing engine, Germany, is exceeding expectations with the corresponding PMI falling from 58.4 to 58.2 against expectations of 56.4, pulling up the eurozone-wide index. Despite the downturn, these levels are well above the 10-year average of 52.4.
Business activity in the euro zone avoided a sharp decline despite a surge in energy prices in September and October. As a result, the euro is developing a rebound from multi-month lows against the franc and Pound. There is also a notable buying interest in EURUSD after a dip to 1.1620 with the start of active trading in Europe.
Preliminary PMI estimates indicate that the eurozone economic recovery is cooling down, but not as fast as might have been expected amid energy price spike and frightening headlines about production stoppages.
The growth rate of the eurozone’s manufacturing engine, Germany, is exceeding expectations with the corresponding PMI falling from 58.4 to 58.2 against expectations of 56.4, pulling up the eurozone-wide index. Despite the downturn, these levels are well above the 10-year average of 52.4.