Focus Turns to UK and Germany Data, as Yen Pares Loss

The forex markets turn into consolidative mode in Asian session. Yen recovers mildly, digesting the recent steep selloff. But there is no clear sign of bottoming in the Japanese currency yet. Commodity currencies are also retreating mildly, following some mild selloff in stocks. Euro and Dollar are mixed while Gold is struggling in tight range around 1750. WTI crude oil is also paring some gains but stays firm above 80 handle.

Technically, as Yen crosses are probably turning into consolidation, focus will be turned to interplay between Euro and Sterling. Some movements could be triggered in EUR/GBP buy UK job data and German ZEW today. EUR/GBP has lost some downside momentum after edging lower to 0.8471, kept well above 0.8448 low. Recovery from the current level and break of 0.8525 minor resistance would bring stronger rebound. The question is, if that happens, whether EUR/USD would rebound through 1.1539 minor resistance, or GBP/USD would drop through 1.3542 minor support.

In Asia, at the time of writing, Nikkei is down -0.93%. Hong Kong HSI is down -1.12%. China Shanghai SSE is down -1.13%. Singapore Strait Times is down -0.64%. Japan 10-year JGB yield is down -0.005 at 0.092. Overnight, DOW dropped -0.72%. S&P 500 dropped -0.69%. NASDAQ dropped -0.64%. 10-year yield rose 0.009 to 1.614.

Japan wholesale prices rose 6.3% yoy in Sep, highest in 13 years

Japan corporate goods price index, a PPI equivalent, rose 6.3% yoy in September, above expectation of 5.9% yoy. That’s also the highest level in 13 years. Yen based wholesale import prices rose a record 31.3% yoy. Petroleum and coal costs rose 32.4% yoy. Wood products spiked 48.3% yoy.

Some analysts noted that the surge in wholesale prices would be absorbed mainly by businesses, with little impact on consumers. But according to a BoJ survey published on Monday, 68.2% of Japanese households are expecting prices to rise a year from now, up from 66.8% three months ago. Median projection of inflation a year from now rose to 3.0%, up from June’s 2.0%.

Australia NAB business confidence jumped to 13, but condition tumbled to 5

Australia NAB Business Confidence jumped sharply from -6 to 13 in September. Strong improvement was seen in New South Wales (up 52 pts to 27) and Victoria (up 16 pts to 5). Business Conditions, however, dropped from 14 to 5. Trading condition dropped from 20 to 10. Profitability condition dropped from 15 to 2. Employment confidence dropped from 9 to 1.

NAB said, “Interpreting this month’s results really depends if you are an optimist or a pessimist. Businesses are really looking forward to reopening, and confidence increased markedly on the back of NSW and Victoria’s reopening roadmaps. The rise in confidence suggests they see the roadmaps that have been announced as sufficient to allow activity to really rebound in the coming months.”

“Still, confidence is more about hope for the future than what is happening in the present. On that front, conditions really deteriorated which shows that lockdowns are taking a toll, despite the resilience the economy has shown through this period.”

Looking ahead

UK employment and Germany ZEW economic sentiment are the main focuses for today.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.3562; (P) 1.3618; (R1) 1.3651; More

Intraday bias in GBP/USD is turned neutral as it lost momentum again after hitting 1.3672. On the downside, break of 1.3542 minor support will suggest that rebound from 1.3410 has completed, and fall from 1.4248 is ready to resume. Intraday bias will be turned back to the downside for 1.3410 and below. On the upside, though, above 1.3672 will resume the rebound to 55 day EMA (now at 1.3717) first.

In the bigger picture, fall from 1.4248 is at least a correction to the up trend from 1.1409 (2020 low). Such correction could extend to 38.2% retracement of 1.1409 to 1.4248 at 1.3164 before completion. However, considering the rejection by 1.4376 key resistance (2018 high), sustained trading below 1.3164 will argue that it’s indeed a bearish trend reversal and would target 61.8% retracement at 1.2493. Nevertheless, break of 1.3912 resistance will revive medium term bullishness and target 1.4248/4376 resistance zone again.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:01 GBP BRC Like-For-Like Retail Sales Y/Y Sep -0.60% 1.50%
23:50 JPY Bank Lending Y/Y Sep 0.60% 0.80% 0.60%
23:50 JPY PPI Y/Y Sep 6.30% 5.90% 5.50% 5.80%
00:30 AUD NAB Business Confidence Sep 13 -5 -6
00:30 AUD NAB Business Conditions Sep 5 14
06:00 GBP Claimant Count Change Sep -58.6K
06:00 GBP ILO Unemployment Rate (3M) Aug 4.50% 4.60%
06:00 GBP Average Earnings Including Bonus 3M/Y Aug 8.40% 8.30%
09:00 EUR Germany ZEW Economic Sentiment Oct 20.4 26.5
09:00 EUR Germany ZEW Current Situation Oct 29.5 31.9
09:00 EUR Eurozone ZEW Economic Sentiment Oct 26.5 31.1
10:00 USD NFIB Business Optimism Index Sep 99.7 100.1

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