USD Bulls maintain the initiative

The USD continued to strengthen against its counterparts yesterday as the release of the ADP national employment figure for September rose beyond market expectations. The release implied a tight US employment market in the past month, dampening expectations for the Fed to proceed with another double rate cut until the end of the year. The release tended to gain attendance in anticipation of the US employment report for the same month with its NFP figure tomorrow. Today we highlight the release of the ISM non-manufacturing PMI figure and a possible drop of the indicator’s reading could weigh on the USD while a drop of the initial jobless claims figure could support the USD. 

JPY on the other hand weakened across the board yesterday as newly elected PM Ishida stated that the Japanese economic environment isn’t ready for another rate hike by BoJ. The comment was followed by an answer by BoJ Governor Ueda, expressing some caution for further rate hikes, which in turn tended to fall in line with PM Ishida’s comment. Hence the prospect of an easing of BoJ’s hawkishness weighed on JPY. The event highlighted BoJ’s intentions as maybe the main factor behind JPY’s direction and we expect further comments of BoJ policymakers to be closely watched.

USD/JPY abandoned its sideways motion yesterday, rising and breaking the 146.00 (S1) resistance line, now turned to support. Also the RSI indicator has risen above the reading of 50 in a sign that the bullish sentiment intensified among market participants for the pair. Hence we tend to switch our sideways motion bias in  favour of a bullish outlook. Yet, on a more cautious tone for the pair’s ascent, we note that the price action has breached the upper Bollinger band which may slow down the bulls or even cause a correction lower. Should the bulls maintain control over the pair we may see it aiming for the 149.40 (R1) resistance line. Should the bears take over we may see the pair breaking the 146.00 (S1) support line, reversing yesterday’s gains, breaking the upward trendline guiding the pair since the mid of September and reaching the 143.40 (S2) support level. 

In Europe the common currency seems to have been adversely affected by ECB board member Schnabel’s comment that The ECB can’t ignore the headwinds to economic growth, said Isabel Schnabel, adding that a sustainable fall in inflation to the 2% target is becoming more likely, as per Bloomberg. The news tended to reaffirm market expectations for another rate cut by the bank and should we see more ECB policymakers making dovish comments ECB’s monetary outlook could weigh on EUR.

EUR/USD continued to fall yesterday and during today’s Asian session, aiming for the 1.1000 (S1) support line. We tend to maintain a bearish outlook for the pair given also that the RSI indicator has broken below the reading of 50, implying the slow built up of a bearish sentiment for the pair among market participants. Please note the double top formation in the making which necessitates a clear break of the 1.1000 (S1) neckline to be verified. Should the bears maintain control as expected EUR/USD may break the 1.1000 (S1) support line setting in its sights the 1.0890 (S2) support level. Should the bulls take over, we may see EUR/USD reversing course, breaking the  1.1100 (R1) resistance line and start aiming for the 1.1240 (R2) level. 

Last but not least we also note in the UK the drop of the pound across the board just before today’s European session began as BoE Governor Bailey stated to the Guardian that BOE may become a bit more aggressive in cutting rates if news on inflation continues to be good.

Other highlights for the day:

Today we get Switzerland’s and Turkey’s CPI rates, Eurozone’s producer prices rate for August and the US factory orders rates for August. On a monetary level, Atlanta Fed President Bostic and Minneapolis Fed President Kashkari speak.

USD/JPY Cash Daily Chart

• Support: 146.00 (S1), 143.40 (S2), 140.30 (S3)
• Resistance: 149.40 (R1), 152.00 (R2), 155.20 (R3)

EUR/USD Daily Chart

• Support: 1.1000 (S1), 1.0890 (S2), 1.0775 (S3)
• Resistance: 1.1100 (R1), 1.1240 (R2), 1.1385 (R3)

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