EUR/USD probes resistance ahead of CPI, Fed speakers: European open – 18/10/2023

Asian Indices:

• Australia's ASX 200 index rose by 12.4 points (0.18%) and currently trades at 7,068.50
• Japan's Nikkei 225 index has fallen by -26.31 points (-0.08%) and currently trades at 32,013.98
• Hong Kong's Hang Seng index has fallen by -18.09 points (-0.1%) and currently trades at 17,755.25
• China's A50 Index has fallen by -6.16 points (-0.05%) and currently trades at 12,168.24

 

UK and Europe:

• UK's FTSE 100 futures are currently up 7.5 points (0.1%), the cash market is currently estimated to open at 7,682.71
• Euro STOXX 50 futures are currently up 1 points (0.02%), the cash market is currently estimated to open at 4,153.32
• Germany's DAX futures are currently up 13 points (0.08%), the cash market is currently estimated to open at 15,264.69

 

US Futures:

• DJI futures are currently down -13 points (-0.04%)
• S&P 500 futures are currently down -5 points (-0.11%)
• Nasdaq 100 futures are currently down -22.5 points (-0.15%)

 

 

It seems that all of that stimulus is finally beginning to take effect, with a data from China showing that GDP, retail sales,  industrial production and unemployment beat expectations. Fixed asset may have disappointed, but you rarely get them all. But on the back of such disappointing Q2, I think Beijing will be happy with the progress, even if it means they’ll likely still miss their 5% target for the year. Still, perhaps the World Bank and IMF may have to lift their recently downgraded forecasts for China if the trend persists.

President Biden is due to arrive in Israel today to support for the country, as the world waits to see if the conflict draws in other nations from the Middle East.

US yields were slightly lower during Wednesday’s Asian session, although it does little to remove the fact that they’re either at or just below multi-year highs. Strong US retail sales and output served as a reminder that the Fed may need to do more to fight inflation, sending US yields broadly higher on Tuesday.  Yet US and European indices continued to hold their ground despite being alarmed just two weeks ago that yields traded at similar levels. It seems equities are more focussed on the fact the Middle East conflict in in a holding pattern whilst Joe Biden makes his way to Israel to show US support.

Take note that today’s UK inflation report could be the decider as to whether the BOE opt to bike once more at their next meeting. If inflation data from Canada and New Zealand are anything to go by, perhaps we’ll get off likely and the BOE could pause. But until we see wage and employment data falter, the BOE are not likely to remove the threat of further hikes.

 

 

Events in focus (GMT+1):

• 07:00 – UK CPI, PPI
• 10:00 – Eurozone CPI, ECB president Lagarde speaks
• 13:30 – US building permits
• 17:00 – Fed Waller Speaks
• 17:30 – FOMC member Williams speaks
• 18:00 – FOMC member Bowman speaks
• 20:15 – FOMC member Harker speaks

 

 

EUR/USD technical analysis (daily chart):

I outlined a bias for AUD/USD and EUR/USD to bounce from their cycle lows and, so far, so good. EUR/USD reached the initial target near trend resistance and last Wednesday’s low, and it is now down to today’s eurozone inflation and comments from Fed members as to which side of it EUR/USD closes today.

 

 

EUR/USD technical analysis (1-hour chart):

Similar to GBP/USD, it’s possible that the US dollar advance is overstretched and needs to extend is retracement lower, which could see EUR/USD complete an ABB correction against its bearish trend. Clearly, a fly in the ointment is stronger US yields. But if euro CPI and Fed comments stack the correct way, a move higher for EUR/USD is not as far fetched as it may seem – given the depth of its losses in H2.

If we see wave equality (A + C) then the retracement may stall around 1.0680, but also take note that the 138.2% projection resides near a 61.8% retracement level. Still, we need to at least see it break above 1.0600 to break trend resistance, otherwise a move to 1.05 could be on the cards.

 

 

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge