Overhauling Bank Regulation Will Boost Liquidity of Government Bonds

Central Bank

Economic

Summary:

Hedge funds should be free to act as primary dealers in Europe.

Liquidity in the European government bond market has returned to levels from before the Covid-19 pandemic, but it could be improved further. The biggest barrier to this is the heavy regulation and balance sheet constraints that have been imposed on financial institutions since the financial crisis of 2008.

Liquidity was a central topic of discussion at the European sovereign, supranational and agency forum hosted by OMFIF’s Sovereign Debt Institute in Luxembourg. This exclusive event brought together leading European sovereign debt management offices and issuers, along with banks, investors and other market participants, to discuss the key issues facing this market.

One head of a western European debt management office said at the forum that liquidity levels were back to around 2019 levels, but the regulation of banks was a key factor in hindering even stronger liquidity conditions in the European government bond market. He said that, while greater regulation in the wake of the financial crisis had ‘brought a lot more solidity to the banking system’, it had also ‘moved part of the risk from the banking system and intermediaries to the markets’, which has affected the level of liquidity.

‘In this respect, an analysis of how some of these regulations should be adjusted is probably worth looking at,’ he added.

Bankers at the forum echoed the impact of bank regulation on the ability to provide strong levels of liquidity in the European government bond market.

‘If you look at the growth of the European debt markets, in particular the government bond market, we’re talking about 130% since the financial crisis,’ said a head of SSA debt capital markets. ‘That is basically an average growth rate of 7% per year. At the same time, the collective balance sheet that is committed to trading this debt has, at best, remained constant but in many cases, it has actually declined.’

An SSA debt capital markets head said regulation was the reason liquidity provisions from balance sheets had not kept up with the growth of the European government bond market, highlighting the leverage ratio of banks. ‘The most painful is the leverage ratio, which is a very crude measure that does not differentiate between the riskiness of your assets on the book,’ he said.

It does seem odd that, as a business opportunity grows, banks are being forced to cut back on their ability to take advantage of it. This has particularly affected banks with smaller balance sheets, causing them to quit their roles as primary dealers. ‘Overall, the cost of regulation and complying with regulation has set a very high barrier for small institutions to be active,’ said the banker. ‘Trading government bonds is not profitable enough for them anymore’.

Another DCM official echoed these concerns. ‘Warehousing is becoming a lot more expensive. Regulation is really becoming a problem for us, whether it’s the leverage ratio or incremental risk capital models that are being introduced,’ he said.

As a result, banks are stuck between trying to serve both regulators and issuers. ‘We find a disconnect between our clients at the DMOs asking us to provide more liquidity but, on the flip side, the regulators are putting more costs on providing that liquidity,’ said the DCM official.

Another option to overhaul the regulation of banks is to allow non-banks, such as hedge funds and fast money accounts, to enter the European government bond market as primary dealers. In a poll of attendees at the OMFIF forum, 70% said this was a good idea to boost liquidity in the market.

Currently, only financial institutions with a banking licence can act as primary dealers in the European government bond market. However, hedge funds have been boosting their involvement with the US Treasury market since the financial crisis as traditional banks have pulled back due to heavy regulation. Hedge funds are now an essential part of the US Treasury market in providing prices and market-making activities. The European government bond market could take note.

Source:Burhan Khadbai

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Alex

Political

"There has to be an adult in the room," declared House Speaker Kevin McCarthy, explaining why he finally decided to ignore the handful of extremists within his Republican House of Representatives caucus and partner with Democrats to continue to fund the U.S. government for another 45 days.

Republicans were going to face a huge blowback for an unnecessary shutdown because a small group of them simply would not agree with anyone, or even each other, about what they wanted. Their endless grievances changed daily. It was, as I noted in these pages last week, a government shut down over nothing.

Such a total meltdown within Republican ranks, would undermine claims that the House should remain in Republican hands, let alone the Senate or the White House.

Mr McCarthy, and almost all Republicans, are aware that historically the party forcing the shutdown has paid the political price. As Representative Patrick T McHenry of North Carolina, a staunch ally of the Speaker, explained with evident exasperation: "It's been tried before."

The extremists, however, were utterly unmoved. While Democrats naturally spun the 45-day funding extension as a victory, Republican extremists painted it as a pathetic cave-in by Mr McCarthy and most other Republicans, and a victory for the "uni-party", which they claim unites other Republicans and all Democrats in a de facto coalition representing the wealthy and elites.

The Republican extremist fringe was so outraged that they've decided the Speaker hast to go. It's a confrontation they've been longing for.

Mr McCarthy agreed that any individual House member could bring a "motion to vacate", which could remove him from the Speaker's chair. One of his most voluble detractors, Representative Matt Gaetz of Florida, has vowed to do just that. Yet party establishment figures and their media allies are now asking if Mr Gaetz is secretly working for the Democratic Party.

The most substantive issue in this sorry spectacle is increased aid to Ukraine, which is anathema to pro-Moscow Republicans. Mr Gaetz accused Mr McCarthy of making a secret deal with Democrats for additional aid for Ukraine in the near future, which the Speaker flatly denies. But this strongly pro-Russia sentiment among Maga Republicans is why Mr McCarthy inexcusably barred Ukrainian President Volodymyr Zelenskyy from addressing the House last month. Yet most Republicans, even in the House, and certainly in the Senate, and the overwhelming majority of Democrats favour the funding that the Biden administration has prepared to provide to Ukraine.

The 45-day stopgap spending bill is an obvious victory for U.S. President Joe Biden and the Democrats and seems to usher Mr McCarthy into the realm of governance-minded American leaders, aka "the adults". The conclusion is unmistakable: not only did he find it impossible to work with the radical fringe of the Republicans, but he also ultimately preferred to partner with Democrats to keep the government funded and prevent the Republican Party from incurring yet another brutal self-inflicted wound.

The outcome raises two important questions. Can Mr McCarthy remain in power? And what will happen in 45 days when the stopgap spending measure expires?

If Mr McCarthy remains Speaker, he has a solid coalition of Democrats and Republicans that do not wish to see a shutdown in 45 days or at any other time. But preventing a replay of the bizarre near-miss last week depends on a Republican Speaker being willing to partner with Democrats in passing rational spending bills acceptable to the Senate and the White House.

Mr McCarthy will effectively be at the mercy of Democrats if the extremists present a motion to vacate. Democrats might vote to keep him in place in order to repeat avoiding a shutdown when the next deadline approaches. However, Mr McCarthy has caved to the extreme right at every stage, including recently launching a baseless impeachment inquiry into Mr Biden. So, there are ample reasons for Democrats to relish watching him suffer the disaster he allowed to be baked into his, from their perspective, corrupted at birth, speakership.

But the national interest, and the agenda of the administration, militates towards keeping Mr McCarthy in place, rather than allowing the extremists to oust him and sending the House into even greater chaos. Nonetheless, Mr McCarthy may be even more disliked by most Democrats than his internal Republican opposition. So, even if Mr Biden pushes for it, as he likely will, it might be difficult for House minority leader Hakeem Jefferies to get Democrats to support Mr McCarthy even if that's what the party hierarchy decides it wants.

But even if Mr McCarthy remains in place, with an overwhelming majority of Republicans and Democrats who wish to see the U.S. government continue to function without a shutdown, nonetheless the biggest bone of contention remains aid to Ukraine. That's categorically opposed by the proto-fascist Maga Republicans, plus a handful of neo-isolationist leftist Democrats and Republican libertarians who oppose almost all U.S. international engagement.

Both parties, particularly Republicans, walked right to the edge of a shutdown last week but ultimately concluded they wanted no part of it because of the political consequences, not to mention the national interest involved. The U.S. economy has recovered to an amazing extent, but most credible economists agree that the recovery is fragile. The country simply cannot afford a shutdown at this crucial stage, which could, especially if it were protracted, send the whole economy into a tailspin and ruin a remarkable comeback.

Do the Republican extremists really deliberately intend to sabotage the national economy for political purposes, either to attack their own party leadership and/or try to bring down Mr Biden and help their hero, Donald Trump? Alas, even such cynical machinations may be beyond the infantile calculations of these nihilistic radicals, who simply seem bent on pointlessly defying everyone else and demagoguing in their own personal interests as much as possible.

Thus, the most likely scenario going forward is that Mr McCarthy will remain Speaker with some Democratic support to defend the coalition that prevented the absurd Seinfeld-like "shut down over nothing" and keep the status quo alive in the interest of both the Republican Party establishment, and Mr McCarthy, as well as Mr Biden, the White House, and, ironically, the President's re-election bid. The old adage holds that "politics makes strange bedfellows". But it becomes even stranger when the strangest characters make a plausible, narrowly averted bid to take over America's national political theatre.

Source: The National News

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Damon

Bond

Economic

The world's biggest bond markets are in the throes of another rout as a new era of higher for longer interest rates takes hold.

In the U.S. Treasury market, the bedrock of the global financial system, 10-year bond yields have shot up to 16-year highs. In Germany, they touched their highest since the 2011-euro zone debt crisis. Even in Japan, where official rates are still below 0 per cent, bond yields are back at levels seen in 2013.

Because government borrowing costs influence everything from mortgage rates for homeowners to loan rates for corporates, there's plenty of reason for angst.

Here's a look at why the bond rout matters.

Why are global bond yields rising?

Markets are increasingly reckoning with interest rates staying high.

With inflation excluding food and energy prices elevated and the U.S. economy resilient, central banks are pushing back against rate cut bets.

Traders now see the Fed cutting rates to only 4.7 per cent from 5.25 per cent-5.50 per cent currently, up from the 4.3 per cent they anticipated in late August.

That's compounding worries about the fiscal outlook following August's Fitch U.S. rating downgrade citing high deficit levels. Highly-indebted Italy raised its deficit target last week.

Higher deficits mean more bond sales just as central banks offload their vast holdings, so longer-dated yields are rising as investors demand more compensation.

Many investors were also betting bond yields would drop, so are extra sensitive to moves in the opposite direction, analysts say.

How far could the selloff go?

U.S. data remains resilient with Monday's upbeat manufacturing survey pushing Treasury yields up again.

That is no surprise, and analysts do not rule out a rise in 10-year Treasury yields to 5 per cent, from 4.7 per cent now.

When a bond yield rises, its price falls.

But Europe's economy has deteriorated, so selling should be more limited there, as bonds typically do better when an economy weakens, and most big central banks have signalled they are done with rate increases.

Germany's 10-year yield, at 2.9 per cent, could soon hit 3 per cent - another milestone considering yields were below 0 per cent in early 2022.

Why does it matter and should we worry?

U.S. 10-year Treasury yields have risen to their 230-year average for the first time since 2007, Deutsche Bank data shows, highlighting the challenge of adjusting to higher rates.

Bond yields determine governments' funding costs, so the longer they stay high, the more they feed into the interest costs countries pay.

That's bad news as government funding needs remain high. In Europe, slowing economies will limit how much governments can unwind fiscal support.

But higher yields are welcome to central bankers, doing some of their work for them by raising market borrowing costs.

U.S. financial conditions are at their most restrictive in nearly a year, a closely-watched Goldman Sachs index shows.

What does it mean for global markets?

The ripple effects are broad.

First, rising yields set the stage for a third straight year of losses on global government bonds, hurting investors long betting on a turnaround.

As for equities, the bond yield surge is starting to suck money away from buoyant markets. The S&P 500 is down roughly 7.5 per cent from more than one-year peaks hit in July.

Focus could turn back to banks, big holders of government bonds sitting on unrealised losses, a risk put on the radar by Silicon Valley Bank's March collapse.

"(The bond selloff) will have a strong impact on banks that hold long end Treasuries," said Mahmood Pradhan, head of macro at Amundi Investment Institute. "The longer it persists the more sectors it will hit."

Higher U.S. yields also mean an ever stronger dollar, piling pressure on other currencies, especially Japan's yen.

Should emerging markets be worried?

Yes. Rising global yields have ramped up the pressure on emerging markets, especially higher-yielding riskier economies.

The additional yield junk-rated governments pay on their hard-currency debt on top of safe-haven U.S. Treasuries has risen to over 800 basis points, according to JPMorgan, more than 70 bps higher from their Aug. 1 trough. "The intensification of the higher-for-longer narrative, along with the rise in oil prices, has also been the primary driver of broad U.S. dollar strength," said Andrea Kiguel, head of FX and EM macro strategy, Americas at Barclays.

"The speed of the move has lead to weaker currencies within the region, a violent sell-off in local rates and wider EM credit spreads."

Source: Reuters

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Economic

Bond

Yields heeding the higher for longer message

Yields on government bonds are flying again as central banks are all singing from the same hymn sheet lately, flagging that interest rates will stay high for a longer period of time. This isn't exactly a new revelation for investors but more recently, the message has started to sink in deeper as the combination of persistent price pressures and resilient economies has taken everyone by surprise.

As US Yields Surge, How High Can They Go?_1

With rates potentially yet to peak in the United States and elsewhere, government bond yields have been rallying since May when the U.S. banking turmoil began to dissipate. However, this latest leg of the rally isn't so much driven by expectations of where interest rates will peak but more about how long they will stay at elevated levels.

There may be more tightening to come

The Federal Reserve and even the European Central Bank may yet have to tighten further, but it's unlikely this would involve anything more than a 25-basis-point hike. What's gotten markets so jittery is the prospect of rates staying near current levels for an extended duration. That is why long-dated government bonds have borne the brunt of the latest selloff, pushing 10-year yields to more-than-decade highs.

The last time the 10-year Treasury yield was above 4.8% was at the onset of the global financial crisis in the summer of 2007. Not long after that, rock-bottom rates became the norm. This highlights just how markedly the inflation picture has altered since the pandemic, with the supply and energy shocks irreversibly lifting prices.

Job not done yet on inflation

However, falling inflation has been the big story of 2023 – so why are the Fed and other central banks still thinking about hiking further? The problem is that despite good progress, inflation in most places has some distance to cover before reaching the 2% target. In the U.S., the core PCE measure of inflation stood at 3.9% in August – almost double the Fed's objective.

As US Yields Surge, How High Can They Go?_2

Inflation may have come down sharply over the past year as the energy crisis subsided, but the next phase may take a lot longer. There are several factors that could prevent inflation from dropping all the way down to 2% in a quick manner and they vary in each country. In America, it is the tight labour market and robust consumer spending.

The elusive soft landing

The Fed is in a tricky spot at the moment when it comes to correctly gauging how restrictive policy has become. It risks tightening more than it has to should it act solely on the actual data, or doing too little should its caution on the basis that there are transmission lags in monetary policy prove to be a miscalculation. With various measures of inflation expectations converging slightly above 2% and hiring slowing down lately, the Fed seems to be taking its chances with the latter option.

But this is not the entire explanation. The Fed is desperate to engineer a soft landing for the economy, which comes at a price as it would necessitate taking a more patient approach to hitting the 2% target in a sustainable manner. Policymakers are thus effectively making a conscious decision to let inflation run above target for longer so as not to choke off economic growth.

What this means for monetary policy, however, is that whilst rates would peak somewhat lower, they're less likely to be cut sooner. For the U.S. where the economy continues to display remarkable resilience, this is even more significant as any cut would risk fuelling renewed inflationary pressures.

Is the only way up for yields?

The recent gains in Treasury yields may be a reflection of this realisation by investors. The question now is, can yields rise further, and if so, at what point will higher yields inflict some serious damage on the economy?

For the moment, neither consumption nor the labour market are showing any major signs of cracks. Should this still be the case by December, the Fed may well end the year with another rate increase. Not only that, but the Fed might also lift its projected rate path again, spurring another rally in long-term yields.

As US Yields Surge, How High Can They Go?_3

Assuming that the outlook in Europe and elsewhere doesn't improve, the U.S. dollar would be in a position to appreciate further, while there could be more pain in store for U.S. equities. So far though, the upside surprises in the economic data, the artificial intelligence (AI) mania as well as the defensive nature of many tech stocks have all contributed to driving Wall Street indices higher even as financial conditions have tightened.

Small cracks are appearing in the economy

But it's hard to see this picture lasting once the 10-year yield nears the 5.0% level. Looking under the hood, there are several signs of trouble brewing. The manufacturing sector is contracting, and banks are lending less, hitting struggling businesses and new investment. Households have almost drawn down on their excess savings and this coincides with an increase in the number of households unable to pay their credit card debts. In addition, Americans will soon have to start repaying their student loans as the pandemic support expires.

As US Yields Surge, How High Can They Go?_4

Resurgent oil prices are another worry as they threaten to push up costs again just as the pain was easing. Not to forget the slowdown in Europe and China that's bound to affect the earnings for U.S. multinationals, all this could yet kill any momentum in the economy, if not tip it into recession.

Is a recession only delayed, not cancelled?

For now, the expectation of a soft landing is maintaining the upward pressure on yields, while the deluge of new debt issuance by the Treasury Department is worsening the rout in the bond market. Unless there's a sharp deterioration in the outlook, it is difficult to envisage bond yields retreating substantially in the near future.

As US Yields Surge, How High Can They Go?_5

The danger is that the risk of a recession may not be as low as policymakers and investors would like to believe. The inverted yield curve continues to flash red even though the gap between long- and short-term yields has narrowed over the last few months. The other cause of concern is that in the past, calls for a soft landing have often tended to precede recessions and what may be happening now is simply the timing of one being pushed further and further back.

Yields vs stocks

Adding to the confusion is the broken negative relationship between Treasury yields and the stock market. When yields reach a cycle peak, stocks traditionally enter a bear market. However, during the post-pandemic recovery, the S&P 500 and the 10-year yield rallied in tandem. As US Yields Surge, How High Can They Go?_6

As US Yields Surge, How High Can They Go?_6

The negative relationship corrected itself last year when Wall Street declined and yields kept rising, but it broke again in the first half of 2023. Since September, however, yields and stocks have gone their opposite ways once more, in a possible sign that yields may have already reached the pain threshold for Wall Street. Does this hold true for the economy as well?

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Thomas

Economic

Bond

A sell-off in global bond markets gathered pace, driving yields to the highest level in more than a decade, as traders braced for an extended period of tight monetary policy.

The yield on 30-year U.S. Treasuries hit 5% for the first time since 2007 on Wednesday, while the German 10-year benchmark rate climbed to 3% — a level unseen since 2011. In Japan, the 10-year overnight-indexed swaps jumped to 1% for the first time since January.

Investors are demanding ever higher compensation to hold long-dated debt after major central banks made clear they were unlikely to ease policy any time soon. Concerns about increased Treasury issuance to fund swelling budget deficits have also weighed on longer securities.

"U.S. yields at highs for the year are starting to look disruptive for other regions and sectors in global fixed income," HSBC Holdings plc strategist Steven Major wrote in a note to clients.

The volatility has also spilled over into equities and is spreading to corporate notes, with at least two borrowers standing down from issuing on Tuesday, as blue-chip yields reached a 2023 high of 6.15%. The largest speculative-grade bond exchange traded fund was hit by the biggest two-day slump this year.

"These moves are starting to cause worries across all asset classes," said James Wilson, a money manager at Jamieson Coote Bonds Pty in Melbourne. "There's a buyer's strike at the moment, and no one wants to step in front of rising yields, despite getting to quite oversold levels."

Bond losses accelerated on Tuesday after an unexpected jump in job openings reinforced speculation that the U.S. Federal Reserve isn't done raising interest rates. The term premium on 10-year U.S. notes turned positive for the first time since June 2021.

Global bonds are now down 3.5% in 2023, while ICE's BofA MOVE Index for Treasuries volatility jumped to the highest since May on Tuesday. The average price of bonds in the Bloomberg U.S. Treasury Index has tumbled to 85.5 cents on the dollar, half a cent above the record low in 1981.

Global Bond Rout Upending Markets Shows No Signs of Abating_1

European yields followed their U.S. counterparts higher, with the correlation between Bloomberg's gauge of global securities and an index of Treasuries reaching the highest since March 2020.

"U.S. treasury and European sovereigns are correlated," says Althea Spinozzi, a senior fixed income strategist at Saxo Bank. "A move higher in U.S. yields will push higher European sovereign yields as well, despite Europe's recession deepening."

Yields on some of Asia's emerging-market bonds were also dragged higher. The Indonesian benchmark climbed to levels last seen in November.

"Long emerging-market durations are a pain trade for most real money investors," analysts including Min Dai, the head of Asia macro strategy at Morgan Stanley, wrote in a note. Such positioning "increases the vulnerability of the market, especially if U.S. Treasury rates continue to march higher".

Global Bond Rout Upending Markets Shows No Signs of Abating_2

But the very shortest end of the Treasury market still looks attractive to some. An enlarged 52-week bill sale on Tuesday attracted record demand from non-dealers, as investors locked in a yield above 5% for the next year.

Current yield levels will "suck capital away from the more risky asset classes, as investors do not need to move along the risk spectrum to generate attractive returns", Wilson from Jamieson Coote said.

"Ultimately, we believe in the path higher, but it's unlikely to be linear," said Scott Solomon, a money manager at T Rowe Price, who last week flagged the potential for 10-year yields to test 5.5%. "There's a bit of a back and forth between some traditional bond buyers who have been forced into a bit of a buyers' strike when it comes to duration versus those who view the yield levels as a good long-term opportunity."

Global Bond Rout Upending Markets Shows No Signs of Abating_3

The rout has also sent so-called real yields to multi-year highs, with the 10-year U.S. inflation-adjusted rate climbing above 2.4% to the sort of levels reached in 2007 just before U.S. equities topped out.

"Sharp moves upwards in real yields always lead to deratings of the equity market," said Amy Xie Patrick, the head of income strategies at Pendal Group in Sydney. Cash is the best place to seek protection, she said.

Source: Bloomberg

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IC Markets

Forex

Stocks

Cryptocurrency

DXY

The DXY chart currently has a bearish overall momentum. There's a potential scenario of price fluctuating between the 1st resistance and 1st support levels.

The 1st support at 106.83 is considered a pullback support, while the 2nd support at 105.68 is an overlap support.

On the resistance side, the 1st resistance at 107.13 is marked as a multi-swing high resistance with the presence of the 127.20% Fibonacci Extension and 78.60% Fibonacci Projection, suggesting Fibonacci confluence. Additionally, the 2nd resistance at 107.75 is a swing high resistance with the 100% Fibonacci Projection.

EUR/USD

The EUR/USD chart currently shows a bearish momentum, and there is a potential scenario of a bearish continuation towards the 1st support level at 1.0349. This support level is significant as it aligns with the 127.20% Fibonacci Extension, indicating potential support.

Additionally, the 2nd support at 1.0478 is identified as a swing low support, further reinforcing its importance as a potential support level.

On the resistance side, the 1st resistance level at 1.0633 is categorized as an overlap resistance, which could act as a barrier to upward movements.

Moreover, the RSI is displaying bullish divergence versus price, suggesting the possibility of a bounce in the near future. This indicates that despite the bearish momentum, there might be a temporary reversal or retracement.

EUR/JPY

The EUR/JPY chart currently demonstrates bullish momentum, indicating the potential for a bullish bounce off the 1st support level towards the 1st resistance. The 1st support at 155.91 is considered significant, marked as an overlap support. Additionally, the 2nd support at 154.41 serves as a swing low support, further emphasizing its importance as a potential price support level.

On the resistance side, the 1st resistance at 156.75 is characterized as a pullback resistance, potentially limiting further upward movements. The 2nd resistance at 158.49 is identified as a multi-swing high resistance, suggesting it may act as a significant barrier to bullish price movements.

EUR/GBP

The EUR/GBP chart is currently showing neutral momentum, suggesting a potential scenario where the price could fluctuate between the 1st support and 1st resistance levels. The 1st support at 0.8659 is considered significant as it's identified as an overlap support, making it a crucial level for potential price support. Similarly, the 2nd support at 0.8635 is also categorized as an overlap support, reinforcing its importance as a potential support zone.

On the resistance side, the 1st resistance level at 0.8684 is recognized as an overlap resistance and is associated with the 78.60% Fibonacci Retracement, suggesting it may act as a barrier to price increases. The 2nd resistance at 0.8703 is identified as a multi-swing high resistance, emphasizing its significance in potential price reversals.

GBP/USD

The GBP/USD chart currently exhibits a bullish momentum, and there is a potential scenario of a bullish bounce off the 1st support level at 1.2067. This support level is considered significant as it aligns with the 127.20% Fibonacci Extension. Furthermore, the 2nd support at 1.2011 is identified as a swing low support and coincides with the 161.80% Fibonacci Extension, reinforcing its importance.

On the resistance side, the 1st resistance at 1.2124 is characterized as an overlap resistance, suggesting it may act as a barrier to bullish movements. Beyond this, the 2nd resistance at 1.2273 is recognized as a swing high resistance, indicating its significance in potential price reversals.

Additionally, the RSI is displaying bullish divergence versus price, implying the possibility of a forthcoming bounce.

GBP/JPY

The GBP/JPY chart currently has a bullish momentum, indicating a potential scenario where the price could experience a bullish bounce off the 1st support and move towards the 1st resistance level. The 1st support at 179.89 is considered significant as it aligns with a swing low support level. Additionally, the 2nd support at 178.05 is another swing low support, further reinforcing its importance as a potential area of price support.

On the resistance side, the 1st resistance level at 180.89 is identified as a pullback resistance, potentially limiting upward movements. Beyond this, the 2nd resistance at 182.48 is categorized as an overlap resistance, suggesting it may act as a barrier to further bullish movements.

USD/CHF

The USD/CHF chart currently has a bearish momentum, and there is a potential scenario of a bearish reaction off the 1st resistance level at 0.9226, which is supported by the presence of the 50% Fibonacci retracement. This resistance level could lead to a drop towards the 1st support at 0.9157, which is considered significant due to its alignment with the 61.80% Fibonacci retracement.

Additionally, the 2nd support at 0.9104 is identified as an overlap support, reinforcing its importance as a potential zone for price support. On the other hand, the 2nd resistance at 0.9263 is noteworthy as it exhibits Fibonacci confluence, with both the 161.80% Fibonacci Extension and 61.80% Fibonacci retracement indicating its significance in potential price reversals.

USD/JPY

The USD/JPY chart currently exhibits a bullish momentum, and there is a potential scenario of a bullish continuation towards the 1st resistance level at 149.90, which is considered significant as it's marked as a swing high resistance. This resistance level may act as a barrier to further upward movements.

On the support side, the 1st support at 148.44 is categorized as a pullback support, potentially providing necessary support in case of pullbacks. Additionally, the 2nd support at 147.80 is also identified as a pullback support, indicating its importance for potential price reversals. Furthermore, there is an intermediate resistance at 149.60, which is marked as a pullback resistance, contributing to potential price movements.

USD/CAD

The USD/CAD chart is currently showing bullish momentum, and it suggests the possibility of a bullish continuation towards the 1st resistance level. The 1st support at 1.3693 is considered a significant level of potential price support, characterized as an overlap support. Additionally, the 2nd support at 1.3634 acts as a pullback support, further reinforcing its importance.

On the resistance side, the 1st resistance at 1.3806 is a swing high resistance, which may hinder further upward movement. Intermediate resistance at 1.3736 holds significance due to its alignment with the 61.80% Fibonacci Projection, indicating its potential role in price reversals.

AUD/USD

The AUD/USD chart currently has a bullish momentum, and there is a potential scenario for a bullish bounce off the 1st support level at 0.6289. This support level is considered significant as it aligns with a multi-swing low support and the 127.20% Fibonacci Extension, indicating it could provide strong support for price movements.

Additionally, the 2nd support at 0.6291 is also noteworthy, as it coincides with the 161.80% Fibonacci Extension, reinforcing its importance as a potential support level.

On the resistance side, the 1st resistance level at 0.6335 is categorized as a pullback resistance, which could potentially limit further upward movements. Beyond this, the 2nd resistance at 0.6396 is marked as a pullback resistance and aligns with the 50% Fibonacci Retracement, further emphasizing its significance in potential price reversals.

NZD/USD

The NZD/USD chart currently exhibits a bearish momentum, with a potential scenario of a bearish continuation towards the 1st support level at 0.5863. This support level is significant as it aligns with a multi-swing low support and the 127.20% Fibonacci Extension, suggesting it could act as a strong support zone.

Furthermore, the 2nd support at 0.5810 is also noteworthy, as it is identified as a multi-swing low support and coincides with the 161.80% Fibonacci Extension, reinforcing its importance as a potential price support level.

On the resistance side, the 1st resistance level at 0.9520 is categorized as an overlap resistance, which could potentially hinder bullish movements. Additionally, the 2nd resistance at 0.5984 is marked as a pullback resistance and aligns with the 61.80% Fibonacci Retracement, further emphasizing its significance in potential price reversals.

DJ30

The DJ30 (Dow Jones 30) chart currently exhibits a bearish momentum, driven by its position below the bearish Ichimoku cloud. There is a potential scenario of a bearish continuation towards the 1st support level at 32700.36, which is identified as a swing low support, making it a significant level for potential price support.

On the resistance side, the 1st resistance at 33282.07 is considered a pullback resistance, indicating its potential to limit upward movements. Beyond this, the 2nd resistance at 33806.14 is categorized as an overlap resistance, suggesting it may act as a barrier to further bullish movements.

GER40

The GER40 (Germany 40) chart currently maintains a bullish momentum. There is a potential scenario where the price could experience a bullish bounce off the 1st support level at 15016.30, which is noted for its 127.20% Fibonacci Extension, highlighting its significance as a potential reversal point. Additionally, the 2nd support at 14913.30 is identified as a swing low support and aligns with the 161.80% Fibonacci Extension and the 78.60% Fibonacci Projection, further emphasizing its importance as a potential support level.

On the resistance side, the 1st resistance level at 15161.70 is characterized as a pullback resistance, indicating its potential role as a barrier to further upward movements. Beyond this, the 2nd resistance at 15299.50 is also identified as a pullback resistance, potentially adding further resistance to the price's upward movement.

US500

The US500 (S&P 500) chart currently exhibits a bearish momentum, and there is a potential scenario where the price may fluctuate between the 1st resistance and 1st support levels.

The 1st support level at 4211.1 is considered significant due to its designation as a swing low support and the presence of the 127.20% Fibonacci Extension, suggesting it could act as a crucial level for potential price support. Additionally, the 2nd support at 4155.4 is identified as a swing low support and aligns with the 161.80% Fibonacci Extension as well as the 61.80% Fibonacci Projection, further reinforcing its importance as a potential support zone.

On the resistance side, the 1st resistance level at 4236.3 is recognized as an overlap resistance, indicating it may act as a barrier to further upward movements. Beyond this, the 2nd resistance at 4269.9 is categorized as a pullback resistance, potentially providing additional resistance to the price's upward movement.

BTC/USD

The BTC/USD chart currently maintains a bullish momentum, with a potential scenario of a bullish bounce off the 1st support level at 27206, which is supported by its designation as an overlap support and the presence of the 50% Fibonacci Retracement.

Additionally, the 2nd support at 26784 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 28332 is marked as a swing high resistance, potentially limiting further upward movements. Beyond this, the 2nd resistance at 28808 is identified as a pullback resistance, indicating it may provide additional resistance to the price's upward movement.

ETH/USD

The ETH/USD chart currently maintains a neutral momentum, with a potential scenario of price fluctuation between the 1st support level at 1629.32 and the 1st resistance level at 1668.07.

The 1st support is considered significant as it's identified as an overlap support, making it a crucial level for potential price support. Additionally, the 2nd support at 1582.82 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 1668.07 is recognized as an overlap resistance, suggesting it may act as a barrier to price increases. Beyond this, the 2nd resistance at 1736.51 is identified as a multi-swing high resistance, emphasizing its significance in potential price reversals.

WTI/USD

The WTI chart currently shows a bearish momentum, and there is a potential scenario of a bearish reaction off the 1st resistance level at 88.49, which is identified as an overlap resistance and is reinforced by the presence of the 23.60% Fibonacci Retracement.

On the support side, the 1st support at 86.88 is considered a swing low support, and the 2nd support at 85.48 is categorized as an overlap support, highlighting their significance as potential zones for price support.

XAU/USD (GOLD)

The XAUUSD chart currently has a bearish momentum, and there is a potential scenario of a bearish continuation towards the 1st support level at 1805.64, which is identified as an overlap support, indicating its significance as a potential zone for price support.

On the resistance side, the 1st resistance level at 1856.47 is marked as a pullback resistance, potentially limiting upward movements.

Risk Warnings and Disclaimers

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Swissquote

Economic

Forex

This is why the stronger than expected job openings data from the U.S. spurred panic across the global financial markets yesterday. Although hirings and firings remained stable, the financial world was unhappy to see so many job opportunities offered to Americans as the data hinted that the U.S. jobs market could be going back toward tightening, and not toward loosening. And that means that Americans will keep their jobs, find new ones, asked better pays, and keep spending. That spending will keep U.S. growth above average and continue pushing inflation higher, and the Federal Reserve (Fed) will not only keep interest rates higher for longer but eventually be obliged to hike them more. Alas, a catastrophic scenario for the global financial markets where the rising U.S. yields threaten to destroy value everywhere. PS. JOLTS data is volatile, and one data point is insufficient to point at changing trend. We still believe that the U.S. jobs market will continue to loosen.

But the market reaction to yesterday's JOLTS data was sharp and clear. The U.S. 2-year yield spiked above 5.15% after the stronger than expected JOLTS data, the 10-year yield went through the roof and hit the 4.85% mark. News that the U.S. House Speaker McCarthy lost his position after last week's deal to keep the U.S. government open certainly didn't help attract investors into the U.S. sovereign space. The U.S. blue-chip bond yields on the other hand have advanced to the highest levels since 2009, and the spike in real yields hardly justify buying stocks if earnings expectations remain weak. The S&P500 is now headed towards its 200-DMA, which stands near the 4200 level. The more rate sensitive Nasdaq still has ways to go before reaching its own 200-DMA and critical Fibonacci levels, but the selloff could become harder in technology stocks if things got uglier.

In the FX, the U.S. dollar extended gains across the board. The Reserve Bank of New Zealand (RBNZ) kept the interest rate steady at 5.5% as expected. Due today, the ADP report is expected to show a significant slowdown in U.S. private job additions last month; the expectation is a meagre 153'000 new private job additions in September. Any weakness would be extremely welcome for the rest of the world, while a strong looking data, an – God forbid – a figure above 200K could boost the Federal Reserve (Fed) hawks and bring the discussion of a potential rate hike in November seriously on the table.

The EUR/USD consolidates below the 1.05 level, the USD/JPY spiked shortly above the 150 mark, and suddenly fell 2% in a matter of minutes, in a move that was thought to be an unconfirmed FX intervention. Gold extended losses to $1815 per ounce as the rising U.S. yields increase the opportunity cost of holding the non-interest-bearing gold.

The barrel of American crude remains under pressure below the $90pb level. U.S. shale producers say that they will keep drilling under wraps even if oil prices surge to $100pb, pointing at Joe Biden's war against fossil fuel. A tighter oil supply is the main market driver for now, but recession fears will likely keep the upside limited, and September high could be a peak.

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

Risk Warnings and Disclaimers

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