Does the Past Experience Still Work?

Peterson

Commodity

Energy

Bond

Economic

Summary:

The hottest topics these days are the U.S. Treasury Securities and crude oil. The yield of the U.S. Treasury Securities continues to rise, but the inverted phenomenon has improved. The price of crude oil continues to rise, while the price of copper keeps falling. The "copper-to-oil ratio" hit a new low in the past year. Does it indicate the risk of recession?

In the past, from historical experience, the inversion of yields of the U.S. Treasury Securities is often an important signal of economic recession, but it seems to have great limitations. For example, this round of interest rate hikes by the Federal Reserve has caused the 10-year and 2-year yields of the U.S. Treasury Securities to remain inverted for 13 months since July last year, but the U.S. economy does not seem to show signs of recession. On the contrary, the market generally expects that the U.S. economy will have a "soft landing".

In the past 43 years, there has been a statistical correlation between the inverted yields of the U.S. Treasury Securities and the economic recession. At present, the phenomenon of inversion has improved, and as long as it is based on the resilience of economic fundamentals, the long-term yield will rise sharply. This inversion improvement is more like the economic crises in 1980 and 1982, but it is different from the subsequent four economic crises, mainly because the short-term yield driven by the Fed's interest rate cut is down, and the interest rate cut generally means the Fed's confirmation of the deterioration of economic prospects, and the inversion improvement is more regarded by the market as a signal that the economy is about to fall into recession. At present, if there is a rate cut and a short-term downtrend, it will be closer to the signs of recession.

At present, another leading indicator "copper-oil ratio" reveals the risk of recession again. As a "global economic barometer", the price of copper has fallen by nearly 10% since the end of July, while the ratio of copper to oil has been falling to around 88.0 since June, the lowest since November last year. According to historical experience, whenever the ratio of copper to oil goes down, it will warn the risk of economic recession like the index of "the yield curve of the U.S. Treasury Securities is inverted". So, has the classic "leading indicator" of the U.S. recession failed? Is it still instructive?

We will not discuss its effectiveness for the time being, but given the current situation, it is foreseeable that with the further reflection of the lag of monetary tightening in Europe and the U.S., the economic prospects in Europe and the U.S. will cause demand-side concerns. At the same time, the "grey rhinos" such as the possible U.S. government shutdown in mid-November, the U.S. auto workers' strike that continues to grow, and the uncertainty over China's economic recovery, as well as the risks that might be masked rather than disappear, so we have to be cautious. Even if there is no so-called recession risk, the U.S. Dollar Index soars and non-US currencies depreciate sharply, and if the oil price climbs to US$100+ again, the impact on the global economy will be far greater than that of last year, which will hit the demand side hard, and it is also doomed that the oil price will not go far further. Perhaps OPEC countries will stop reducing their holdings or even increasing their production earlier.

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Owen Li

Commodity

Energy

Energy - Steady OPEC output

The oil market struggled yesterday. ICE Brent settled a little more than 1.6% lower on the day as rising treasury yields and USD strength proved to be too much of an obstacle for the market. Technically, the Brent December contract still needs to fill the gap left following the November contract expiry on Friday. If that happens, it would take the front-month contract back above US$95/bbl.

Preliminary OPEC production data for September is starting to come through. The Bloomberg survey showed that output increased by 50Mbbls/d MoM to 27.97MMbbls/d. Nigeria showed the largest increase over the month. Their supply grew by 60Mbbls/d, while Iran saw a marginal pullback in output of 50Mbbls/d. Output is likely to remain relatively steady over October. Further out, the market will be focused on any sign that Saudi Arabia is starting to unwind its voluntary additional supply cuts.

There was a bit more noise yesterday around the resumption of Northern Iraqi oil flows through the Ceyhan pipeline. Turkey has said that flows could resume this week. However Iraqi officials have thrown cold water on the idea, saying that there are still some issues that need to be resolved before this can happen. The pipeline can carry almost 500Mbbls/d of crude oil from the Kurdish region to the Ceyhan export terminal. Flows were suspended back in March after the Iraqi government won an international arbitration ruling, stating that these flows were occurring without approval from the Iraqi government.

Metals - Gold plunges to seven-month low

Gold plunged to its lowest level since March yesterday - edging closer to US$1,800/oz, as treasury yields continued to move higher and the USD also strengthened. The higher-for-longer narrative has been putting significant pressure on gold, which is leading to a significant reduction in investment appetite reflected by the large declines in gold ETF holdings in recent months. Fed policy will remain key to the outlook for gold prices in the months ahead.

Source: ING

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Alex

Economic

Governor Bullock has made absolutely minimal changes in her first Statement despite evidence of higher inflation in the September quarter. She is likely to make her mark in November when the staff refreshes their forecasts for growth and inflation.

As expected, the Reserve Bank Board decided to leave the cash rate target unchanged at 4.1% at its October meeting.

While the decision was widely anticipated the issue for markets was whether new Governor Bullock would decide to send some different messages than had been signalled in previous Statements under Governor Lowe.

For instance, these messages may have indicated a greater concern around achieving the inflation target in the appropriate time frame; more concern about the underperforming Australia economy; the resilience of the labour market; or, the surprise recovery in house prices.

There were no such changes in the Statement.

The inflation issue was the most likely "candidate" for a revised approach.

However, as with the other key topics the Governor chose to almost exactly stick to the script that had been established by Governor Lowe.

The most contentious issue is around the implications of the August Inflation Indicator for the September quarter Consumer Price Index.

Westpac has lifted its forecast for Trimmed Mean Inflation from 0.8% to 1.1%, mainly due to higher inflation in the services sector for which the August report provides valuable information for the whole quarter.

The Governor's Statement refers to "the prices of many services are continuing to rise briskly" although this is little changed from the September Statement "the prices of many services are rising briskly."

As a result of our increase in our forecast for the Trimmed Mean in September we have lifted our forecast for annual Trimmed Mean inflation in 2023 from 3.8% to 4.1%.

Services plus higher fuel prices have lifted our September quarter forecast for headline inflation from 0.9% to 1.1% and annual inflation in 2023 from 3.9% to 4.3%.

The RBA is currently forecasting inflation by end 2023 at 3.9% (Trimmed Mean) and 4.1% (Headline).

Presumably the RBA forecasters would also be revising their own forecasts on the basis of the August Inflation Indicator but there is no such indication in the Statement.

In the Governor's Statement the sentence "The central forecast is for CPI inflation to continue to decline and to be back within the 2–3% range in late 2025.

Despite our slightly higher profile for inflation in 2023 our forecasts are still in line with the RBA achieving their 2025 target.

The Governor chose not to react to those possible upgrades to the inflation forecasts – better to await the official September quarter CPI report which will be a key input into any forecast revisions.

Governor Bullock has opted to maintain the status quo prior to reviewing her position once the staff's revised forecasts are available for the November meeting.

On the basis of our revised inflation forecast we expect the September Inflation Report will provide grounds for the staff inflation forecasts for the end of 2023 to be revised a little higher but not threaten the key goal of reaching the inflation target by 2025.

We do not see such revisions as providing sufficient evidence for a rate hike at the November meeting.

Source: Westpac Banking Corporation

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IC Markets

Cryptocurrency

Stocks

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DXY

The DXY chart currently demonstrates a bullish momentum, with the possibility of a short-term drop to the 1st support level before potentially bouncing and rising towards the 1st resistance level.

The 1st support at 106.19 is identified as an overlap support, which may provide a level of price stability. The 2nd support at 105.68 is also considered an overlap support, potentially offering additional support to price declines.

On the resistance side, the 1st resistance at 107.13 is crucial, with the presence of the 127.20% Fibonacci Extension, indicating its significance as a potential barrier to price increases. Beyond this, the 2nd resistance level at 107.91 is recognized as a swing high resistance

EUR/USD

The EUR/USD chart currently exhibits bearish momentum, with the potential scenario of a short-term rise towards the 1st resistance level before reversing and moving towards the 1st support.

The 1st support at 1.0459 is considered significant due to the presence of the 61.80% Fibonacci Projection and the 127.20% Fibonacci Extension, suggesting Fibonacci confluence and making it a noteworthy level for potential price reversals. Additionally, the 2nd support at 1.0395 is identified as a swing low support, further reinforcing its importance as a potential support level.

On the resistance side, the 1st resistance at 1.0500 is characterized as an overlap resistance, indicating its potential role as a barrier to price increases. Furthermore, the 2nd resistance at 1.0395 is recognized as a swing high resistance, emphasizing its significance in potential price reversals.

EUR/JPY

The instrument being analyzed is EUR/JPY, and the current overall momentum of its chart is bullish.

There is a potential scenario where the price could make a bullish bounce off the 1st support level, which is at 156.75, and head towards the 1st resistance level at 158.50.

The 1st support at 156.75 is considered significant because it acts as a multi-swing low support.

Additionally, there is a 2nd support level at 155.82, which is also valuable due to its status as a multi-swing low support. It aligns with a 161.80% Fibonacci Extension level, adding to its importance.

On the resistance side, the 1st resistance level at 158.50 is considered important because it represents a multi-swing high resistance.

Moreover, there is a 2nd resistance level at 159.42, which holds importance as a pullback resistance in the chart analysis.

EUR/GBP

The instrument being analyzed is EUR/GBP, and the current overall momentum of its chart is bearish.

There is a potential scenario where the price could make a bearish reaction off the 1st resistance level, which is at 0.8671, and subsequently drop to the 1st support level at 0.8635.

The 1st support at 0.8635 is considered significant because it acts as an overlap support and corresponds to a 61.80% Fibonacci Projection.

Additionally, there is a 2nd support level at 0.8614, which is also valuable due to its status as an overlap support.

On the resistance side, the 1st resistance level at 0.8671 is considered important because it represents an overlap resistance. Furthermore, this level aligns with a 61.80% Fibonacci Retracement, adding to its significance.

Moreover, there is a 2nd resistance level at 0.8701, which holds importance as a multi-swing high resistance in the chart analysis.

GBP/USD

The GBP/USD chart currently maintains a bearish momentum, with factors contributing to this momentum being its position below the bearish Ichimoku cloud.

There is a potential scenario of a bullish bounce off the 1st support level at 1.2067, which is supported by the presence of the 127.20% Fibonacci Extension, indicating a possible reversal point. Additionally, the 2nd support at 1.2011 is identified as a swing low support and aligns with the 161.80% Fibonacci Extension, further emphasizing its significance.

On the resistance side, the 1st resistance level at 1.2124 is recognized as an overlap resistance, suggesting it may act as a barrier to bullish movements. Beyond this, the 2nd resistance at 1.2265 is also categorized as an overlap resistance.

GBP/JPY

The instrument being analyzed is GBP/JPY, and the current overall momentum of its chart is bullish.

There is a potential scenario where the price could drop further to the 1st support level, which is at 180.59, in the short term before bouncing from there and rising to the 1st resistance level at 181.87.

The 1st support at 180.59 is considered significant because it acts as a multi-swing low support and corresponds to a -27% Fibonacci Expansion.

Additionally, there is a 2nd support level at 179.73, which is also valuable as it functions as a pullback support and aligns with a 161.80% Fibonacci Extension.

On the resistance side, the 1st resistance level at 181.87 is considered important because it represents a pullback resistance.

Moreover, there is a 2nd resistance level at 182.90, which holds significance as a swing high resistance in the chart analysis.

USD/CHF

The USD/CHF chart currently exhibits a bullish momentum.

There's a potential scenario of a bullish continuation towards the 1st resistance level at 0.9211. The 1st support at 0.9095 is identified as a swing low support, indicating a potential level where the price might find support. Additionally, the 2nd support at 0.9016 is categorized as a pullback support, further strengthening its significance.

On the resistance side, the 1st resistance level at 0.9211 is recognized as a swing high resistance and marks a potential point where the price could face resistance initially. Beyond this, the 2nd resistance at 0.9263 is notable for the convergence of the 161.80% Fibonacci Extension and the 61.80% Fibonacci Retracement, indicating a Fibonacci confluence and underscoring its importance as a potential resistance zone.

USD/JPY

The USD/JPY chart currently has a bullish momentum, but there's a potential scenario of a short-term drop to the 1st support level at 148.44 before bouncing and rising towards the 1st resistance.

The 1st support at 148.44 is identified as an overlap support, making it a significant level for potential price support. Additionally, the 2nd support at 147.80 is categorized as a pullback support, further reinforcing its importance as a potential level where the price might find support.

On the resistance side, the 1st resistance level at 149.90 is crucial, with the presence of the 127.20% Fibonacci Extension, indicating its significance as a potential resistance zone. Beyond this, the 2nd resistance at 150.42 is marked by the 161.80% Fibonacci Extension, further underlining its importance as a potential barrier to upward movements in the price.

USD/CAD

The USD/CAD chart currently has a bearish momentum, and there is a potential scenario of a bearish reaction off the 1st resistance level, leading to a drop towards the 1st support.

The 1st support at 1.3633 is considered a good support level, characterized as a pullback support. Additionally, the 2nd support at 1.3575 is identified as an overlap support, which offers another potential zone where the price might find necessary support.

On the resistance side, the 1st resistance level at 1.3693 is crucial, being a swing high resistance. Beyond this, the 2nd resistance level at 1.3745 also serves as a swing high resistance, representing a barrier for potential upward movements in the price.

AUD/USD

The AUD/USD chart currently has a bearish momentum, but there is a potential scenario of a bullish bounce off the 1st support level, heading towards the 1st resistance.

The 1st support at 0.6334 is considered significant as it is a swing low support level. Additionally, the 2nd support at 0.6291 is identified as a level where the price aligns with the 127.20% Fibonacci Retracement, which enhances its role as a key support level.

On the resistance side, the 1st resistance level at 0.6387 is categorized as a pullback resistance, which might initially limit upward movements. Beyond this, the 2nd resistance at 0.6456 also serves as a pullback resistance

NZD/USD

The NZD/USD chart is currently exhibiting a bearish momentum, and there's a potential scenario of a bearish continuation towards the 1st support level.

The 1st support at 0.5902 is considered significant as it is a multi-swing low support level. Additionally, the 2nd support at 0.5860 is identified as a multi-swing low support and is further reinforced by the presence of the 127.20% Fibonacci Extension, making it an important level for potential price support.

On the resistance side, the 1st resistance level at 0.5983 is marked as a pullback resistance, which might initially limit upward movements. Beyond this, the 2nd resistance at 0.6035 is identified as a swing high resistance, representing another potential barrier to bullish advancements in the price.

DJ30

The instrument being analyzed is DJ30, and the current overall momentum of its chart is bullish.

There is a potential scenario where the price could make a bullish bounce off the 1st support level, which is at 33280.79, and head towards the 1st resistance level at 33713.99.

The 1st support at 33280.79 is considered significant because it acts as an overlap support.

Additionally, there is a 2nd support level at 32722.19, which is also valuable as it functions as a swing low support.

On the resistance side, the 1st resistance level at 33713.99 is considered important because it represents a swing high resistance. Furthermore, this level aligns with both a 61.80% Fibonacci Retracement and a 78.60% Fibonacci Projection, indicating Fibonacci confluence and adding to its significance.

Moreover, there is a 2nd resistance level at 34055.99, which is deemed important as it represents an overlap resistance and corresponds to a 50% Fibonacci Retracement, contributing to its significance in the analysis.

GER40

The instrument being analyzed is GER40, and the current overall momentum of its chart is bullish.

There is a potential scenario where the price could make a bullish bounce off the 1st support level, which is at 15137.90, and head towards the 1st resistance level at 15295.20.

The 1st support at 15137.90 is considered significant because it acts as a multi-swing low support.

In addition, there is a 2nd support level at 15029.70, which is also notable due to its status as a 127.20% Fibonacci Extension.

On the resistance side, the 1st resistance level at 15295.20 is considered important because it represents a pullback resistance. Furthermore, this level corresponds to a 38.20% Fibonacci Retracement, adding to its significance.

Moreover, there is a 2nd resistance level at 15505.60, which holds importance as a swing high resistance. This level aligns with a 78.60% Fibonacci Projection, contributing to its significance in the analysis.

US500

The instrument being analyzed is US500, and the current overall momentum of its chart is bearish. Several factors contribute to this bearish momentum.

There is a potential scenario where the price could make a bearish reaction off the 1st resistance level, which is at 4292.4, and subsequently drop to the 1st support level at 4259.7.

The 1st support at 4259.7 is considered significant because it acts as a swing low support and corresponds to a 78.60% Fibonacci Retracement level.

Additionally, there is a 2nd support level at 4234.1, which is also notable because it functions as an overlap support.

On the resistance side, the 1st resistance level at 4292.4 is considered important because it represents an overlap resistance. Furthermore, this level aligns with a 38.20% Fibonacci Retracement, adding to its significance.

Moreover, there is a 2nd resistance level at 4333.6, which holds importance as a swing high resistance. This level coincides with both a 78.60% Fibonacci Projection and a 38.20% Fibonacci Retracement, indicating Fibonacci confluence and further enhancing its significance in the analysis.

BTC/USD

The instrument being analyzed is BTC/USD, and the current overall momentum of its chart is bullish. Several factors contribute to this bullish momentum.

There is a potential scenario where the price could make a bullish bounce off the 1st support level, which is at 27412, and head towards the 1st resistance level at 28586.

The 1st support at 27412 is considered significant because it acts as an overlap support and coincides with a 61.80% Fibonacci Retracement level, adding to its importance in the analysis.

Additionally, there is a 2nd support level at 26774, which is also valuable as it functions as an overlap support.

On the resistance side, the 1st resistance level at 28586 is considered important because it represents an overlap resistance. Furthermore, this level aligns with a 61.80% Fibonacci Projection, contributing to its significance in the analysis.

ETH/USD

The instrument being analyzed is ETH/USD, and the current overall momentum of its chart is bullish.

There is a potential scenario where the price could make a bullish bounce off the 1st support level, which is at 1649.76, and head towards the 1st resistance level at 1689.42.

The 1st support at 1649.76 is considered significant because it acts as an overlap support and corresponds to a 50% Fibonacci Retracement level.

Additionally, there is a 2nd support level at 1633.77, which is also valuable as it functions as a pullback support and aligns with a 61.80% Fibonacci Retracement level.

On the resistance side, the 1st resistance level at 1689.42 is considered important because it represents a pullback resistance. Furthermore, this level coincides with both a 50% Fibonacci Retracement and a 61.80% Fibonacci Projection, indicating Fibonacci confluence and adding to its significance.

Moreover, there is a 2nd resistance level at 1735.23, which holds importance as a multi-swing high resistance in the chart analysis.

WTI/USD

The WTI chart currently has a bearish momentum, and there's a potential scenario of a bearish continuation towards the 1st support level.

The 1st support at 85.57 is considered significant as it's identified as an overlap support, making it an important level where the price might find some support. Additionally, the 2nd support at 84.03 is categorized as a pullback support, further underpinning its role as a key level for potential price support.

On the resistance side, the 1st resistance level at 87.53 is marked as a pullback resistance, potentially limiting upward movements. Beyond this, the 2nd resistance at 90.75 is identified as an overlap resistance, representing another potential barrier to bullish advancements in the price.

XAU/USD (GOLD)

The XAUUSD chart currently exhibits a bearish momentum, with a potential scenario of a bearish continuation towards the 1st support level.

The 1st support at 1806.00 is considered significant as it's identified as an overlap support, making it a crucial level for potential price support. Furthermore, the 2nd support at 1777.59 is also categorized as an overlap support, reinforcing its importance as a potential zone where the price may find support.

On the resistance side, the 1st resistance level at 1856.47 is marked as a pullback resistance, potentially limiting upward movements. Beyond this, the 2nd resistance at 1887.35 is identified as a swing high resistance.

To stay updated on all economic events of today, please check out our Economic calendar

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Samantha Luan

Central Bank

Economic

Forex

Australian Dollar is facing heavy downward pressure, emerging as the most underperforming currency this week so far. The weak under tone is maintained following RBA's decision to hold interest rates steady. Both Aussie and Kiwi have relinquished the gains made the previous week, a reversal exacerbated by an evident risk aversion in Asia.

Significant decline is seen in Hong Kong stocks post-long weekend. Despite a dramatic over 40% surge in China Evergrande as trading of its shares resumed from last week's halt, the overall market sentiment remained uninspired. The embattled property developer's spike did little to alleviate the prevailing bearish outlook.

Contrarily, Dollar has emerged robust, spearheading the near-term rally against Euro and Sterling. The buoyancy can be attributed to a "relatively" upbeat ISM manufacturing data that has incrementally heightened the prospects of another Fed hike, now hovering around 45% likelihood in December. This positive data concurrently propelled 10-year yield and the greenback upwards. However, impending ISM services and non-farm payroll data are anticipated to be crucial determinants in Dollar's continued ascendancy.

Elsewhere in the currency markets, Yen is tailing Dollar as the second strongest, keeping market participants and analysts vigilant due to potential interventions by Japan close to the 150 handle against Dollar. Among European majors, Sterling is the laggard.

On the technical front, GBP/USD is now pressing an important fibonacci level at 38.2% retracement of 1.0351 to 1.3141 at 1.2075 Sustained break there will align the outlook will EUR/USD. That is, fall from 1.3141 in GBP/USD, whether it's a correction or reversing whole trend form 1.0351, would target 61.8% retracement at 1.1417. Aussie Faces Headwinds Post-RBA Hold Amid Asian Market Jitters and Dollar Power_1

Aussie Faces Headwinds Post-RBA Hold Amid Asian Market Jitters and Dollar Power_1

In Asia, at the time of writing, Nikkei is down -1.43%. Hong Kong HSI is down -3.03%. Singapore Strait Times is down -0.81%. Japan 10-year JGB yield is down -0.0123 at 0.764. China is on holiday. Overnight, DOW dropped -0.22%. S&P 500 rose 0.01%. NASDAQ rose 0.67%. 10-year yield rose 0.110 to 4.683, after hitting as high as 4.703.

RBA holds rates steady, maintains hawkish bias

In what was Michelle Bullock's inaugural meeting as Governor, RBA opted to maintain its cash rate target at 4.10%, aligning with broad market expectations. The central bank's statement carried a hawkish tone, noting that "some further tightening of monetary policy may be required. The exact course of such adjustments, however, would be determined by "the data and the evolving assessment of risks."

While RBA acknowledged that inflation had passed its pinnacle, the levels remain uncomfortably elevated. It observed a decline in goods price inflation but pointed out the brisk rise in service prices, as well as notable increases in fuel and rent prices.

The central bank projects a gradual return of CPI inflation to its 2-3% target range by the end of 2025. This aligns with their prediction of sustained below-trend growth for the economy, expecting this trend to persist. Consequently, they anticipate the unemployment rate to inch up, reaching approximately 4.5% towards the end of the following year.

Outlook is shrouded in "significant uncertainties." These encompass variables like service price inflation, delays in monetary policy transmission monetary policy, and businesses' reactions in terms of pricing and wages. Consumer behavior, particularly household consumption patterns, also remains an unpredictable factor.

On a global scale, RBA expressed concerns over China's economy, especially given the prevalent disturbances in its property market.

NZ NZIER survey shows mild recovery in business sentiment

NZIER Quarterly Survey of Business Opinion reveals a modest improvement in business confidence for the September quarter, climbing to -52.7 from its previous position at -60.3. However, it's evident that overall sentiment within the business community remains pessimistic. Trading activity for the next three months improved from -16.6 to -14.2.

One major positive shift observed was the pronounced decrease in reported labour shortages. Fewer businesses now list the challenge of finding labour as their principal operational bottleneck, shifting their concerns instead to a softer demand environment. This transition in concerns implies that the recent hikes in interest rates may be suppressing economic demand in the country.

On the flip side, the easing of capacity pressures hasn't provided much respite to businesses in terms of costs. A significant 68.2% of respondents noted a rise in their operating costs over the past three months, only a minor reduction from the prior quarter's 67.1%. Moreover, the inclination to transfer these cost pressures to consumers has subsided, with 57.3% of businesses raising output prices in the recent quarter, down from a previous 68.8%.

Fed's Barr eyes restrictive policy duration over rate height

Fed Vice Chair Michael Barr advocated for a cautious approach to monetary policy adjustments during his speech yesterday. While discussions surrounding interest rate hikes are paramount, Barr's concern is primarily anchored on the duration for which these elevated rates should be maintained.

Speaking on the current tightening cycle, Barr highlighted the progress made and expressed that it's a juncture where meticulous decision-making is essential. He stated, "Given how far we have come, we are now at a point where we can proceed carefully as we determine the extent of monetary policy restriction that is needed."

Perhaps most notably, he reframed the ongoing debate on rate adjustments by remarking, "The most important question at this point is not whether an additional rate increase is needed this year or not, but rather how long we will need to hold rates at a sufficiently restrictive level." This perspective places a clear emphasis on policy duration, suggesting a prolonged period of elevated rates may be more impactful than further substantial hikes in the near term.

On the economy, Barr's baseline is for real GDP growth to "moderate to somewhat below its potential rate over the next year" as restrictive monetary policy and tighter financial conditions restrain economic activity." He anticipates this deceleration in growth to be concomitant with "some further softening in the labor market".

Fed's Bowman flags energy as potential setback to disinflation progress; advocates more hike

Fed Michelle Bowman has made her hawkish stance clear on the pressing issue of inflation that continues to grip the U.S. economy. In a speech yesterday, Bowman emphasized the persistence of inflationary pressures, signaling the need for a more restrictive monetary policy to anchor inflation back to the Fed's 2% target.

"Inflation continues to be too high, and I expect it will likely be appropriate for the Committee to raise rates further and hold them at a restrictive level for some time to return inflation to our 2 percent goal in a timely way," Bowman stated.

Bowman pointed to the latest inflation reading based on the PCE index, noting a rise in overall inflation driven, in part, by escalating oil prices. "I see a continued risk that high energy prices could reverse some of the progress we have seen on inflation in recent months," she warned.

Also, Bowman cited the Summary of Economic Projections released during the September FOMC meeting, where "the median participant expects inflation to stay above 2 percent at least until the end of 2025." This expectation of prolonged inflationary pressures aligns with Bowman's perspective that "further policy tightening" will be instrumental in steering inflation back towards target.

Fed's Mester suggests another rate hike needed

Cleveland Fed President Loretta Mester acknowledged in a speech yesterday the robust state of the economy with a cautious stance on inflation and interest rates. She signaled the possibility of another rate hike this year.

"I suspect we may well need to raise the fed funds rate once more this year and then hold it there for some time," she said.

However, Mester also underscored the contingent nature of future monetary policy decisions, stating, "whether the fed funds rate needs to go higher than its current level and for how long policy needs to remain restrictive will depend on how the economy evolves relative to the outlook."

Inflation, according to Mester, continues to pose a significant challenge. She plainly remarked that inflation remains "too high". Though she expects some easing of price pressures, she cautioned that "the risks to the inflation forecast remain tilted to the upside."

On a positive note, Mester expressed optimism about the broader economic picture. "The economy is on a good path," she observed. Delving into labor market dynamics, she pointed out that while conditions remain robust, the disparity between labor demand and supply is shrinking, indicating that "firms are finding it easier to find the workers they need."

Looking ahead

The economic calendar is ultra-light today with only Swiss CPI featured.

AUD/USD Daily Report

AUD/USD's breach of 0.6330 support indicates resumption of recent down trend. Intraday bias is back on the downside. Current fall from 0.7156 should target 100% projection of 0.7156 to 0.6457 from 0.6894 at 0.6195. On the upside, break of 0.6500 resistance is needed to indicate short term bottoming. Otherwise, outlook will stay bearish in case of recovery. Aussie Faces Headwinds Post-RBA Hold Amid Asian Market Jitters and Dollar Power_2

Aussie Faces Headwinds Post-RBA Hold Amid Asian Market Jitters and Dollar Power_2

In the bigger picture, down trend from 0.8006 (2021 high) is possibly still in progress. Decisive break of 0.6169 will target 61.8% projection of 0.8006 to 0.6169 to 0.7156 at 0.6021. This will now remain the favored case as long as 0.6894, in case of strong rebound. Aussie Faces Headwinds Post-RBA Hold Amid Asian Market Jitters and Dollar Power_3

Aussie Faces Headwinds Post-RBA Hold Amid Asian Market Jitters and Dollar Power_3

Source: ActionForex

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Commodity

Economic

U.S. Nonfarm payrolls --> USD/JPY

U.S. lawmakers passed a last-minute deal during the weekend to avert a government shutdown until mid-November.

With fiscal risks moving temporarily out of the spotlight, the focus will turn back to interest rates as the U.S. dollar is stubbornly trying to revive its uptrend against the battered Japanese yen. The price went up to 149.81 on Monday, which is almost a one-year high. However, traders are waiting for the Fed chief and his colleagues to give their thoughts about the economy later in the day, so the momentum is weak.

Technically, it’s worth watching whether the pair can find enough buyers to breach the tentative resistance trendline from March at 150.75 and rally beyond the 2022 top of 151.93. If that proves to be the case, USD/JPY could speed up towards the upper band of a short-term bullish channel at 154.50. Whether that happens will depend on the outlook for the U.S. economy and interest rates, starting with the ISM business surveys and the nonfarm payrolls report this week.

Analysts expect jobs growth to ease back to 163k, though a lower unemployment rate of 3.7% and a rebound in average earnings could still maintain confidence in the U.S. economy and therefore in the greenback.

RBNZ policy meeting --> NZD/USD

The antipodean currencies could make headlines this week as central banks in Australia and New Zealand are scheduled to announce their rate decisions on Tuesday and Wednesday, respectively. Although no changes are expected, investors would like to know whether additional tightening is possible in the year ahead, especially in New Zealand, where projections point to two more rate increases.

NZD/USD is still struggling to surpass September’s bar of 0.6000, but the improvement in the technical signals sustains optimism for a bullish breakout. The bulls will also need a victory within the 0.6100 region to enhance buying appetite.

Treasury yields --> Gold

U.S. Treasury yields continued to trend higher for another month in September, making gold less attractive to investors who sought higher dividends and interest rates in alternative markets. The precious metal started October’s session on the wrong foot on Monday, sliding to 1,839. Although the downfall looks overdone, there is no important support region until 1,800 or lower at 1,773.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Damon

Stocks

Economic

Manufacturing PMIs released throughout the day have made for pretty miserable reading and even those in China barely registered any growth after a lengthy period of contraction.

The Chinese data did offer some cause for hope at least, despite ultimately barely sitting in growth territory. The trajectory is positive and boosted by targeted stimulus measures that are seemingly working. External demand remains a problem but a bump in domestic demand is promising.

The sector in Europe is looking particularly grim with demand remaining extremely weak, backlogs falling and layoffs expected to accelerate over the months ahead. That's unless we can see a rebound in activity which is looking very unlikely at this stage with the global economy struggling for any positive momentum against the backdrop of high interest rates.

The PMIs from the US were a little better, particularly the ISM reading which significantly beat expectations but even here, it remains below 50 and therefore in contraction territory. With interest rates set to remain "higher for longer", things aren't likely to dramatically improve for the sector.

A very bearish signal for the DAX

The DE30 turned lower again today after staging a mild recovery in recent sessions and the move could reinforce bearish views on the index.

Source – OANDA on Trading View

The reason is that the move lower came after a retest of the 200/233-day simple moving average band, following the breakout last week. The rotation lower now could be viewed as confirmation of the breakout and therefore a bearish signal.

The next potential area of support could be seen around 15,000 where prior support and resistance falls around the bottom of the descending channel.