eFXplus DATA

• Wed saw biggest one-day fall of Oct when EUR/USD closed down 72 pips on EBS
• Registered close below cloud base at 1.1546 and 2 Fibos at 1.1528 and 1.1505
• 1.1528/1.1505 Fibos: 50%/61.8% retraces of 1.1433 to 1.1622 recent recovery
• This confirms bearish outlook, looking to fade recovery near to cloud base
• Scope growing for further losses through the 1.1433 October low
• Large upper candlestick shadow signals a top ,

• AUD/USD bounces after unemployment rate falls to 5.0%, lowest since 2012
• Asian range has been 0.7105/37, last at 0.7134 with 10y UST yields up 3 BPs
• Tech signals mixed, s/t MAs still biased higher but momentum studies turn
• Support is at the 10 DMA at 0.7103, close below would be bearish
• Resistance is at Wednesday's high and 21 DMA at 0.7160/61
• Close above 21 DMA needed for another leg higher

• Australia added 5.6k jobs in Sept, vs +15k forecast and +44k in August
• Unemployment rate falls to 5.0%, vs 5.3% fcast and prior, lowest since 2012
• AUD/USD spikes to 0.7130 on the report, trading at 0.7120 now
• Resistance is found at the 21 DMA at 0.7161, close above bullish
• A close below the 10 DMA at 0.7102 opens a move to the trend low at 0.7041
• Full details: nS9N1VJ00N

• Flat after closing -0.6%, the Italian budget & FOMC led USD strength weighed
• PM Conte firm on budget nL8N1WX6EX - ECBs Weidmann critical nF9N1U500N
• No Brexit progress, despite a positive attitude also negative nL8N1WX5ZQ
• Dip leaves momentum studies, 5, 10 & 21 DMAs gently edging lower
• 1.1422, 76.4% Aug/Sep climb & 1.1624, 50% Sep/Oct fall pivotal levels
• 1.1500 1.1BLN strikes a magnet in Asia if it's quiet - 1.1550 1.2BLN cap

• Tight early - closed -0.5% on broad USD strength after the FOMC held course
• Bearish outside day and potential key day reversal on a close below 0.7106
• Weekly falling trend channel remains in place since May - 0.7243 top today
• Mixed momentum studies and 5, 10 & 21 DMAs - positive setup now neutral
• Close above 0.7160/78, 21 DMA and 50% Sep/Oct fall would be bullish
• Jobs lead data expecting +15K - full polls Click here

SEB Research discusses its reaction to today's FOMC minutes from the September meeting.

"The minutes from the September meeting state that almost all participants saw little change in their assessment of the outlook. The minutes indicate that the Fed is prepared to press on with rate hikes for now and most participants seem to agree that the fed funds rate should be pushed above the neutral level. However, there is disagreement about the level to which the policy rate should be hiked," SEB notes. 

"We are sticking to our forecast of another hike in December followed by two additional hikes in 2019 (March and June) and one hike in 2020," SEB adds. 

Corrects time reference for rise

USD/JPY's rebound from Monday's low is early confirmation that it is repeating a well-defined seasonal pattern of mid-October bottoms, suggesting the potential for substantial gains by year-end.
This bullish view is reinforced by how well aligned USD/JPY price action since June has been with the historical pattern over the preceding five years.
This year's early October pullback to Monday's seasonal low was more forceful than usual, largely because the advance off the August seasonal low was also outsized.
Over the preceding five years, USD/JPY has rallied 6.8 percent on average between Oct 15 and year-end.
It has ended the year above the Oct 15 low each year.
Far less upside is likely this year given that the Fed is no longer calling its policy accommodative and the BOJ is in stealth QQE tapering and limited bear curve steepening guidance mode.
A big USD/JPY Q4 rise this year would require a reversal of recent global deleveraging tied to trade conflicts, supposedly overly aggressive Fed tightening, Brexit and Italy's budget dispute with Brussels.
And strong U.S. Q3 and Q4 GDP gains will be needed to limit risk aversion over rising Treasury yields.

AUD/USD's pullback from today's two-week high could become a broader retreat if it cracks the 10-DMA and Oct 12 low around 0.7100/02, but caution is advised to anyone betting on a weaker aussie.
Losses in emerging market currencies and a widening of Australian-U.S.
bond yields contributed to AUD/USD's about-face. Considerable bullish risks remain, however, including extreme net-short aussie and net-long U.S. dollar positions.
An unwinding of those positions would seriously buoy AUD/USD, especially if Fed rhetoric fails to advance already aggressive expectations for U.S. monetary policy tightening. Technicals also suggest AUD/USD gains are possible.
The pair is consolidating recent gains, while holding above the 10-DMA.
Consolidation typically resolves in the direction from which the phase was entered so a break higher should be expected.
The long lower wick on the October monthly candle supports bullish views.
A break above 0.7160 and the 21-DMA would put the 2018 down trend and September high in play.

Barclays Research discusses its expectations for the Brexit deal on the EU Summit On Thursday.

"A formal agreement already at this week’s EU summit (Thursday) would be a positive surprise, but is unlikely, given procedural considerations, in our view. In particular, a staff level agreement should have already been reached by now to allow for final document at this week’s EU summit.

Nonetheless, we expect EU leaders to demonstrate concrete progress this week and finalize the agreement next month at an extraordinary EU summit, leading to some further GBP gains versus EUR and USD and pricing out of the negative-tail in GBP option markets," Barclays argues. 

"An alternative scenario, not part of our base case, in which the UK leaves the EU in March 2019 without a Withdrawal Agreement, is one in which the BoE would have to ease policy by 50bp and GBP would depreciate by 5-10%," Barclays adds. 

The impasse in Brexit talks nL8N1WW73K and unexpectedly weak UK inflation are hitting the pound where it hurts: the outlook for rate hikes from the BoE. GBP/USD is hovering at session lows by 1.3100, just above 30-DMA support near 1.3095.
The pound rallied to 1.3235 Tuesday, after UK wage data indicated the strongest pay growth in nearly a decade nL8N1WW27W, lifting BoE rate hike sentiment.
But today's weak inflation release, as well as Brexit friction, has dialed back those BoE expectations.
The affects these issues have on UK rates is the prime driver for GBP/USD, which is currently under pressure.
However, a deal that extends the Brexit start date nFWN1WW0XT or keeps the UK in the EU customs union hardly resolves PM May's mandate to extricate Britain from the union, which could increase political risks and downward pressure on the pound.
Today's Fed minutes release is likely to reinforce its hawkish bias, in contrast to the cautious BoE. This could push GBP/USD toward testing the August low of 1.2662.

 NAB discusses AUD/USD technical outlook and flags a scope for a near-term bullish reversal on a daily close above 0.7200/25.

"Series of lower highs / lower lows (MT downtrend structure) has again been confirmed in October with a new 2018 low in October. Bounces in Q3/Q4 have been capped by the 50 day MA and daily cloud base, now at 0.7200/25.

Interim correction has a high risk of testing 0.7200/25 in the coming one to two weeks. A daily close above 0.7200/25 will target a likely test of 0.7315, the break of which threatens the MT downtrend structure," NAB argues. 

"Only a monthly close above 0.7423 would complete a bullish LT reversal pattern, above key MT/LT trend lines and place the LT downtrend on hold," NAB adds. 

Changed premium to 38 pips from 35 in last sentence

A top may have formed in EUR/USD, as Tuesday's candlestick line left a large upper shadow, a sign that the upside is being rejected.
October's recovery was halted at 1.1622 on Tuesday, ahead of the key 1.1624 Fibonacci level, a 50 percent retrace of 1.1815 to 1.1433 (September to October) fall, according to prices on the EBS.
EUR/USD is therefore at risk of breaking back below the daily cloud base at 1.1546.
A close below would increase the odds of a deeper fall to test the month's 1.1433 low.
Those worried about the growing downside risk can allay their fears by taking out one-week insurance, by buying a one-week 1.1560 put option for a cost of 38 pips.
Profit potential is unlimited, if spot collapses below the 1.1522 break-even point before the Oct.
24 expiry.
The 38- pip premium should be worth paying, considering the dollar could go either way once the FOMC minutes are released and losses would be limited to the premium paid.

Short-covering has lifted AUD/USD, but the move is unlikely to develop into a squeeze, and a longer-term decline will probably follow the short-term rally.
This is not a squeeze, fuelled by distressed positions, but an orderly rise as specs book profits.
Profits booked, specs will probably sell again.
Sustainable gains over 0.7300, a 23.6 percent retrace of 2018's drop, are unlikely.
When spec bets get large they often lead to corrections that strengthen a trend.
AUD shorts are big and AUD/USD -- down 0.8136-0.7041 this year -- is weak, but not without reason.
Interest rates have swung so far that the USD is now the asset to hold.
Data and stocks suggest China is losing a trade war with the U.S., undermining Asian currencies and emerging markets and putting pressure on trading partners like Australia.
China's tolerance of a weak yuan has weakened Asian currencies, and AUD, which has many of the shortcomings of an emerging-market currency but lacks the support of high interest rates, should suffer.

• More AUD/USD short positions squeezed during rise to 0.7160 (two-week high)
• 0.7130-0.7146 was Asia range nZZN2RF300. 0.7151 was Tuesday's high
• IMM speculators very long USD/very short AUD in week to Oct 9
• AUD helped by positive day for Asian stocks: SSEC closed up 0.6 pct
• See: nZZN2RF300. Nikkei closed up 1.29 pct, KOSPI closed up 1.04 pct
• Australia says trade agreement with Indonesia on track nL3N1WX2HY

• Recovery attempts maybe coming to an end as 30-DMA, now at 112.53, weighs
• Daily momentum remains negative, reinforcing the bearish market structure
• We have now gone short at 112.30 for 111.05, our stop is now at 113.10
• Stop has been placed above the 113.09 Fibonacci level
• 113.09 Fibo is a 50% retrace of the 114.55 to 111.63 October EBS fall
• Bears need to overcome downside key Fibo to force big drop

• A new top is forming on EUR/USD, bulls are in some difficulty
• Tuesday's candlestick left a large upper shadow = upside being rejected
• Also the market failed ahead of the key 1.1624 Fibonacci level
• 1.1624 is a 50% retrace of 1.1815 to 1.1433 (Sept to Oct) fall
• Bears need a daily close below the daily cloud base, now at 1.1546
• Bulls had been focused on 1.1624 Fibo ,

• AUD/USD trades a quiet 0.7130/46 range in Asia, last down 0.13%
• Once again the AUD/USD unable to clearly break the 0.7150 level
• Momentum studies and s/t MAs support, as does risk mood
• Close above 0.7145/50 targets 50% retrace at 0.7178 and higher levels
• Support at 10 DMA at 0.7101, close below targets trend low at 0.7041
• Asian stocks in positive territory but market eyes SSEC pm session

EUR/USD: Neutral (since 21 Aug 18, 1.1485): Clear break above 1.1620 would shift focus to 1.1700.

EUR tried but failed to maintain a toehold above 1.1600 for the third consecutive day yesterday (16 Oct). That said, it managed to touch a fresh 2-week high of 1.1621. We have held the same view that “a clear break above 1.1620 would shift the focus to 1.1700” since last Friday (12 Oct, spot at 1.1590). The prospect for a clear break above 1.1620 has diminished but only a move below 1.1520 (no change in ‘key support’ level) would indicate that the current upward pressure has eased. Meanwhile, further attempts to break above 1.1620 are not ruled out but time is not on the side for those looking for a higher EUR. Looking ahead, a break of the ‘key support’ would not change the current neutral outlook but suggest the start of a period of sideway consolidation.

GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP is expected to trade sideways.

GBP moved above the top of our previously expected 1.3040/1.3220 range yesterday as it briefly hit a high of 1.3235. Despite the overall positive price action, we continue to view the current movement as part of a sideways consolidation range and we have doubts about the sustainability of further short-term GBP strength. That said, GBP could probe last week’s top near 1.3260 but at this stage, we view any advance as part of a higher 1.3080/1.3260 range and not the start of a sustained up-move.

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD likely to trade within a broad range.

AUD edged to a 2-week high of 0.7152 yesterday before ending the day on a firm note (NY close of 0.7142, +0.15%). The up-move lacks momentum and while further AUD strength is not ruled out in the coming days, we view any up-move as part of a broad 0.7040/0.7200 consolidation range. The overall price does seem to suggest that AUD is attempting to base out (from a mid-term perspective) but as highlighted in recent updates, this process could take up to a few weeks.

NZD/USD: Neutral (since 20 Aug 18, 0.6625): A sustained rebound only if above 0.6630. No change in view, see update from yesterday below. However, ‘key support’ has moved higher to 0.6530 from 0.6500.

While we expect NZD to trade sideways, we highlighted last Friday (12 Oct, spot at 0.6525), “the prospect for a break above 0.6560 has increased but the next resistance at 0.6600 is likely strong enough to thwart any further advance in NZD (at least for another one week or so)”. NZD hit a high of 0.6557 during NY hours yesterday before blasting above 0.6560 after the release of the stronger than expected NZ inflation data earlier this morning. The high at the time of writing is 0.6598 and in view of the vastly improved momentum, a break above 0.6600 would not be surprising. That said, we have doubts about the sustainability of the current NZD strength and in our view, only a clear break of 0.6630 would indicate that NZD is ready for a stronger recovery towards the September’s peak near 0.6700. All in, NZD is expected to stay underpinned from here as long as the ‘key support’ at 0.6500 is intact.

USD/JPY: Neutral (since 09 Oct 18, 113.10): Prospect for a break of 111.50 has increased.

Despite the strong rebound in USD yesterday (NY close of 112.25, +0.43%), we still chance that it could break below the strong 111.50 support (as highlighted yesterday, 16 Oct). Only a break of the ‘key resistance’ at 112.70 (no change in level) would indicate that the correction phase that started last Tuesday (09 Oct, spot at 113.10) has ended. That said, in order to the revitalize the current waning momentum, USD has to move and stay below 111.85 within these 1 to 2 days or the odds for a dip below 111.50 would diminish quickly. Looking forward, a break above the ‘key resistance’ would not change the overall neutral outlook but suggest USD would trade sideways at a higher range.

• Flat - closed +0.2%, as endgame approaches on a Brexit deal nL8N1WW6C1
• A Brexit backstop deal may not be passed by the UK parliament nL3N1WW4XZ
• EU expects May to break the Brexit deadlock tonight - unlikely nL8N1WW5PT
• Major breakthrough will be needed to avoid hard Brexit, currently 25% chance
• Momentum studies, 5, 10 & 21 DMAs show little bias - neutral setup
• NY 1.3172/1.3235 range initial support/resistance - Asia likely cautious

• Flat after closing a shade softer - stalled amid Italy & Brexit uncertainty
• Upbeat market response to Italy nL8N1WW1CU, Macron manoeuvres nL8N1WW1SA
• 1.1500 713M, 1.1520-25 550M strikes support - 1.1575 750M a magnet if quiet
• Momentum studies flat line, 5, 10 & 21 DMAs conflict - neutral setup
• Close above 1.1605/24, 21 DMA & 50% Sep/Oct fall would be positive
• 1.1566 London low and 1.1622 NY high initial support resistance