eFXplus DATA

CIBC Research discusses AUD outlook and flags a scope for rally over the coming months.

"We’re still maintaining our optimistic outlook on the AUD over the next 12 months. Yes, we understand that there are concerns related to the Chinese economy and that domestic wages are still far from levels that would worry the RBA about policy being too loose.

Additionally, credit conditions have tightened, causing private sector credit growth to slow. Still, the market has already priced out the RBA until at least next autumn. Additionally, for all the headlines on trade and a slowing Chinese economy, implied demand for iron ore is still at reasonable levels. The RBA has taken pains to point out that it views wages as having ‘troughed’ already while domestic growth is expected to be above 3% for both 2018 and 2019.

Markets are extremely short AUD in the proxies that we use. Crowded positions should beget an AUD rally over the coming months with Q3 CPI (October 30th), Wage prices (November 13th) and Q3 GDP (December 4th) among the key risk events to monitor," CIBC argues. 

• GBP/USD ends NorAm 1.3070 +0.39%; NY range 1.3021-1.3105
• Pair rallied in NY aft on BBG report UK dropping demand on Irish border
• GBP/USD rallied to 1.3105, near 30-DMA resistance fell back to 1.3070
• Supt hold by daily cloud top 1.3013, stops tipped below 1.2922 Oct 4 low
• EUR/GBP ends NY +0.07% at 0.8807, Fri range 0.8831-0.8778

EUR/USD has plenty of reason to sink, but it just keeps popping to the surface, suggesting risks are tilted toward gains.
Contentious budget rhetoric between Brussels and Rome sent Italian-German and German-U.S.
yield spreads to new wides, and EUR/USD to a 10-day low. But it held above the 76.4 percent Fib of the 1.1301-1.1815 rally and 1.1410/30 support, then later turned positive.
Solid gains in EM -- especially China's yuan -- and high beta currencies versus the dollar, have put the greenback on the defensive.
Unwinding of long-dollar positions could be limiting the downside as well.
Short-term interest rate markets still do not reflect the hawkish rhetoric from the Fed minutes.
Profit taking for dollar longs could be a theme going forward unless a new dollar bullish catalyst emerges.
For now, two attempts to probe the 1.1410/30 zone have failed. If a bounce ensues and EUR/USD breaks above the Oct 16 high, a case could be made for a short-term double bottom.
Completion of the double bottom would suggest a move toward 1.1760 is possible.

Danske Research discusses UDSD/JPY outlook and adopts a neutral bias in the near-term.

"The range for USD/JPY has shifted upwards as the flow picture has become less JPY supportive and as 10 year US yields now effectively has settled above the 3% level.

FX positioning remains stretched short JPY and given the overall fragile risk environment, we expect USD/JPY to continue to trade mostly sideways with in a 110114.50 range in the near term with risk appetite and yields on 10Y UST as main drivers.

We target 112 in 1M and 113 in 3M (previously 112)," Danske argues. 

USD/JPY has rebounded in response to yuan stability and Chinese officials' efforts to talk up their stock market nL3N1WZ25R, but rallies in this currency pair will remain hamstrung until the risks of trade war escalation diminish. That might require patience.
Presidents Trump and Xi will reportedly nS0N1QH009 meet on the sidelines of the Nov 30 G20 meeting. Since it's unlikely the Chinese will deliver the broad and structural changes the U.S. wants, the best outcome of this meeting might be an agreement to resume talks and postpone year-end increases in the rates and scope of U.S.
tariffs.
Failing that, global deleveraging flows into the yen amid fears of Fed tightening will resume and USD/JPY may break this month's 111.63 low and other supports nearby, putting August's 109.78 low in play.
In the interim, USD/JPY needs a close above 112.74 to mark a reversal in risk aversion with 113.00/43 targets.

MUFG Research adopts a tactical bearish bias on the EUR into next week's ECB meeting, while sees a scope for AUD to recover further from current levels.

"The euro could prove more sensitive to developments if tensions between the EU and Italy continue to build. It is likely to be one of the main focus points at the upcoming ECB policy meeting. We are not expecting the ECB to materially alter their outlook for the euro-zone economy and policy, although they could signal more concern over downside risks posed by Italy," MUFG argues. 

"The Australian dollar has been unloved of late with the 2-year spread in favour of the US at a level last seen in 1997. That lack of appetite for AUD could prompt a squeeze higher over the coming weeks. CPI data on 31st October is when we have the next key data from Australia," MUFG adds. 

• Offers expected at 0.7150-60 if AUD/USD extends north from 0.7089
• 0.7089 was one-week low in Asia amid risk aversion. 0.7120 = ensuing high
• Ascent from 0.7089 aided by China shares surge: SSEC closed up 2.6 pct
• See: nL3N1WZ1AA. Large 0.7150 option expiry today, A$920mn strike
• 0.7151 = Tuesday/Thursday highs. 0.7160 = Wednesday's two-week high
• AUD might react on Monday to Wentworth weekend by-election nL3N1WW1IN

• Cable met headwind pre-1.3050 after pushing recovery envelope from 1.3012
• 1.3012 was early Ldn two-week low, courtesy of Brexit concerns
• Lift from 1.3012 aided by some profit-taking on short positions and UK data
• UK government's Sept budget deficit was smaller than expected nL9N0PR02N
• 1.3065, 23.6 pct of 1.3235-1.3012, is a resistance level beyond 1.3050
• BoE Governor Carney to speak at the Economic Club of New York at 1610GMT

Hedging for 2.9 billon-euro option expiries between 1.1400-20 today may exert a magnetic pull on EUR/USD.
It's likely to trigger a break to new October lows and closes below some key techs.
Should the 1.1400 options pull EUR/USD lower, the pair will probably close below the 100-WMA at 1.1519 and 1.1448, 50 percent of the 1.0340-1.2556 rise.
Traders, reluctant to acknowledge interest rate moves are weighing on EUR/USD but reaching new extremes, are more likely to react to developing bearish techs.
Little data is due today to divert focus from techs, and the influence of the big option interests and with China stocks rebounding strongly today, no need for the euros safety.
There will be stops below prior weekly lows at 1.1388 and 1.3494 and while a close below the 200-WMA at 1.1322 or test of 1.1300 barriers is not likely today, a probe under 1.1400 is, although hedging for the expiries will arrest a move below.

• 20 pip cable range thus far Friday, 1.3018-38, after drop to 1.3017 Thursday
• 1.3017 = low since Oct 5. Drop to 1.3017 was fuelled by Brexit concerns
• Barnier: Ireland issue could derail Brexit deal nP6N1WB00B nL8N1WY1X5
• GBP/USD could extend south to/through 1.2922 if no-deal Brexit fears rise
• 1.2922 was Oct 4 low--before GBP rose over three cents on Brexit deal hope
• UK Sept public sector finance data due 0830GMT. Carney speaks in NY 1610GMT

• EUR/USD bias is squarely on the downside, the risk grows for further losses
• Test of the 1.1422 Fibo, a 76.4% of the 1.1433 to 1.1622 (EBS) rise, likely
• Wed's long black candlestick weighs heavily on the market
• Looking to get short at 1.1510 in anticipation of the next bearish move
• An overshoot to the upside will likely be halted by the daily cloud base
• Biggest Oct one-day drop Wednesday ends under cloud, Fibos

• AUD/USD gyrates around par in Asia, last up 0.1% at 0.7108
• China GDP misses fcasts but authorities finally drag SSEC into +ve territory
• AUD/USD has neutral setup as momentum studies mixed, s/t MAs flatten
• Clear close below 10 DMA at 0.7106 would be bearish, target 0.7041 trend low
• Close above 21 DMA @ 0.7151 needed for move higher, targets 55 DMA @ 0.7230
• Stocks and yields to be the main drivers for the AUD later in the day

EUR/USD: Neutral (since 21 Aug 18, 1.1485): The major 1.1400 support appears to be ‘vulnerable’.

We indicated yesterday (18 Oct, spot at 1.1505) EUR could “weaken further in the coming days” but highlighted “strong support is expected at 1.1430”. However, the subsequent decline was more rapid and ‘impulsive’ than expected as EUR plummeted to a low of 1.1447. The price action not only suggests a break of 1.1430 seems likely now but also the next support at 1.1400 is ‘vulnerable’. Looking ahead, a clear break of 1.1400 would be a good indication that EUR could threaten the year-to-date low near 1.1300. All in, we expect EUR to stay on the defensive in the coming days unless it can reclaim 1.1540 (‘key resistance’ was at 1.1590 yesterday).

GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): Break of 1.3000 would shift focus to 1.2920/25.

GBP plunged and lost -0.70% yesterday as it closed at 1.3019 in NY. While the bottom of our expected 1.3000/1.3250 consolidation range is still intact, the impulsive decline suggests further GBP weakness is likely in the coming days. As highlighted yesterday (18 Oct, spot at 1.3110), “a break of 1.3000 would suggest that GBP is ready to tackle the 1.2922 low seen earlier this month” (even though the anticipated price action has evolved much faster than expected). In other words, instead of trading sideways, GBP has likely moved into a ‘negative’ phase. Only a break of the ‘key resistance’ at 1.3125 would indicate that the current downward pressure has eased.

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

There is not much to add as AUD hardly budged and remains within a 0.7095/0.7160 range since late last week. The underlying tone has weakened somewhat but at this stage, we are comfortable in holding the same view (since last Friday, 12 Oct, spot at 0.7120) wherein AUD is trading within a broad 0.7040/0.7200. From here, 0.7040/0.7160 is likely enough to contain the movement in AUD, at least for the next one week or so.

NZD/USD: Neutral (since 20 Aug 18, 0.6625): Upward pressure has eased, NZD to trade sideways for now. No change in view.

In our update on Tuesday (16 Oct, spot at 0.6575), we highlighted “a break above 0.6600 would not be surprising” but added, “only a clear break of 0.6630 would indicate that NZD is ready for a stronger recovery”. NZD touched a 2-week high of 0.6602 yesterday (17 Oct) but succumbed to selling pressure and ended the day on a weak note (NY close of 0.6550, -0.57%). While the ‘key support’ at 0.6530 is still intact, the weak daily closing is enough to indicate that the recent upward pressure has eased. That said, there is no change to the overall neutral outlook but NZD is expected to trade sideways from here, likely within a 0.6480/0.6600 range.

USD/JPY: Neutral (since 09 Oct 18, 113.10): USD has moved into a consolidation phase.

There is not much to add to yesterday’s (18 Oct, spot at 112.65) update. As highlighted, the 111.61 low registered on Monday (15 Oct) is likely a short-term bottom and USD has moved into a 111.80/113.30 consolidation range. Looking ahead, the risk of a break of the bottom of the range appears to be higher but even then, any decline has to contend with the rather strong support zone between 111.50 and 111.60.

• Shade firmer - closed -0.7%, leading USD strength, as Brexit impasse extends
• Some Brexit optimism, but the major issues remain unresolved nL8N1WY1X5
• Two day fall leaves momentum studies heading south, 5, 10 & 21 DMAs crest
• Bearish setup would be confirmed by a close below 1.3002, 76.4% Oct bounce
• 1.3131 London high then Wednesday's 1.3149 NY high first resistance
• 1.3002 Fibo then 1.2975 242M strikes initial support

• Shade softer - closed -0.1%, but resilient against risk off USD strength
• Soft close does leave a bearish key day reversal on Wednesday
• There is no Aus data today, but a slew of Chinese releases will drive risk
• Mixed momentum studies and 5, 10 & 21 DMAs coil - a neutral setup
• 0.7150 794M strikes and 0.7151 London high are initial resistance
• Earlier 0.7091 base then 0.7086, 61.8% of the October bounce first support

Danske Research discusses GBP outlook in light of of today's EU Summit.

"At the moment, it seems likely we will have to wait for the EU summit in December before a deal can be signed (and we cannot rule out that we have to wait until January). We are simply too far away from Brexit day for the politicians to make the necessary compromises.

Our base case remains a 'decent Brexit' (75% probability), where the UK leaves the EU on orderly terms. The real test for PM Theresa May is still when the withdrawal deal is put forward for a vote in the House of Commons, as there are enough hardliners to vote it down, unless PM Theresa May persuades Labour MPs to vote in favour. We expect that to be the case.

We assign 15% probability of a 'no deal Brexit' , as PM Theresa May is still under pressure from Brexit hardliners and the supporting party from Northern Ireland, the DUP. The likelihood of a general election or a call for a second referendum before 29 March is low. A soft Brexit keeping the UK in the single market also seems unlikely," Danske argues. 

"Brexit remains the key driver for GBP and uncertainty related to the outcome is likely to keep the GBP volatile and undervalued in the coming months. We still expect EUR/GBP to trade lower eventually, driven by Brexit clarifications and fundamental valuations. We target EUR/GBP at 0.84 in 3M and 0.83 in 6M and 12M," Danske adds. 

• GBP/USD falls to 10-day low 1.3025 as Brexit deal hopes fading
• Pair eyes daily cloud top support by 1.3013, then 1.2922 Oct 4 low
• Irish border backstop resolution elusive, May rejects EU proposals
• Post-Brexit implementation extension talk gaining traction nB5N1U601X
• EUR/GBP rises 0.34% to 0.8800, weak UK RS and Brexit overhang favors EUR

Markets' hawkish view on the Fed minutes and fresh weakness in the Chinese yuan have increased immediate downside risks for EUR/USD, which may now be on track to test October's low. The Fed's suggestion that rates might rise above neutral helped push German-U.S.
yield spreads wider, hurting the EUR/USD.
Meanwhile, yuan weakness is pushing USD/CNH near its 2018 high, adding to the dollar's allure and weighing further on EUR/USD.
But there are also reasons for bears to temper their enthusiasm. The Fed minutes showed discussion among members about the potential downside risks from further dollar strength , suggesting that an extended rally in the greenback from here could alter the FOMC's tightening plans.
The fed funds futures market could also stymie bearish EUR/USD sentiment since it is not buying into the more hawkish minutes and is suggesting instead that hikes will halt toward the end of 2019.
They also indicate that the fed funds rate will just barely reach 3 percent by that time.
While the immediate EUR/USD risks might be bearish, longer-term they may be bullish.
This suggests EUR/USD's broad 1.1300/1.1850 range is unlikely to break for now.

NAB discusses NZD/USD technical outlook and highlights a scope for a multi-days correction if the pair manage to register a daily close above 0.6610/30 over the coming days.

"2018 has produced an impulsive downtrend, confirmed by a series of lower highs / lower lows, trapped in a downtrend channel since late April.  2018 downtrend channel has support / resistance at 0.6300/25 and 0.6610/30. 

Multiple daily / weekly momentum indicators failed to make new lows with price in September and again in October, highlighting MT correction risk.  

A daily close above 0.6610/30 will target a likely test of 0.6800/50 and risk breaking the MT downtrend structure," NAB argues. 

The negative feedback loop developing between rising U.S. rates and falling financial assets is making USD/JPY rallies harder to sustain.
The latest rebound is a perfect example.
USD/JPY stopped at the 38.2 percent retracement of the 114.55-111.63 Oct 4-15 fall with today's 112.74 high on EBS as yesterday's hawkishly interpreted Fed minutes weighed on stocks.
Seasonally, USD/JPY looks well supported into December , though IMM specs are already heavily long.
Also, a breakout above today's high and nearby kijun and 21-DMA at 112.78/97 -- local offers noted into 113 -- will require risk aversion to at least diminish. One source of anxiety is the possibility of a Chinese economic slowdown, due to the trade war with the U.S., that compounds emerging markets weakness.
Chinese government spending surged in September nL3N1WY3PD as a bulwark against rising trade tariffs, but this hasn't stopped the rot in the Shanghai index or downward pressure on the yuan.
If China can't prevent a USD/CNY rise above the pivotal 7 level, derisking and JPY haven buying will accelerate.
The assumption, for now, is 7 will be defended to reduce capital flight risks.