US stock markets continued to lose ground

The USD weakened against its counterparts yesterday, despite the US GDP advance rate being robust. The rate accelerated and was even higher than economists’ expectations yet failed to reach the Fed’s target for Q3, thus spreading some bearish tendencies for USD. Focus today is being placed on the release of the US Core PCE price index and, on a second note, on the consumption rate, both being for September. A possible slowdown of the rates could weaken the USD as it would imply further easing of inflationary pressures in the US economy and a slowing of the demand side. The release gained traction given also the Fed’s interest rate decision next week, while US Stock Markets may also react sharply depending on whether the data confirm or challenge the current narrative around slowing inflation and demand.

US stock markets ended their days in the reds as, despite the better-than-expected earnings and revenue figures of major tech companies, market worries for their outlook tend to persist. The bearish effect was more evident on the tech-sector sensitive Nasdaq, yet was visible also on Dow Jones and S&P 500. We see the case for further bearish tendencies regarding US stock markets should the cautious sentiment intensify.

Nasdaq on a technical level continued to fall yesterday aiming for the 13920 (S1) support line. We note that the slope of the downward movement steepened in the past 48 hours and the RSI indicator has neared the reading of 30, implying a strong bearish sentiment, hence we expect the downward movement to continue. Yet the price action broke below the lower boundary of the Bollinger bands something that may slow down the bears or even cause a correction higher. Should the bears maintain control, we may see the index breaking the 13920 (S1) support line and we set the next possible target for the bears considerably lower at the 13200 (S2) support level. For a bullish outlook, we would require the index to reverse course, break the 14450 (R1) resistance line, break the downward trendline guiding it, in a first signal that the downward motion was interrupted and start aiming for the 15300 (R2) resistance nest. 

Back in the FX market we note that JPY got some respite against the USD, yet remains at dangerously weak levels, with the possibility of a market intervention by BoJ and/or the Japanese Government being still present. Characteristically, Japan’s Finance minister Suzuki stated that the Japanese government is watching “with a strong sense of urgency” highlighting the possibility of a market intervention.

USD/JPY edged lower curbing any bullish tendencies yet remained just above the 150.10 (S1) support line. Given the interruption of the upward movement and that the RSI indicator is currently near the reading of 50, implying a rather indecisive market, we adopt temporarily a bias for a sideways motion. Should a selling interest be expressed  by the market, we may see USD/JPY breaking the 150.10 (S1) support line and aim for the 148.00 (S2) support level. Should buyers be in charge of the pair’s direction, we may see USD/JPY aiming for the 151.90 (R1) resistance line.   

The common currency weakened yesterday as the ECB, as was widely expected, remained on hold. In its accompanying statement, reiterated that the current level of rates is sufficient to bring inflation back down to its 2% target while also mentioning that it intends to remain data-dependent. We expect the bank’s stance to continue to weigh on the EUR.           

Other highlights for the day:

Today in the European session we get France’s consumer confidence for October, while ECB President Lagarde is to attend the Euro Summit. In the American session, we note the release from the US of the consumption rate and the Core PCE price index, both being for September and the final University of Michigan consumer confidence for October, while on the monetary front, Fed Vice Chair Barr is scheduled to speak. During tomorrow’s Asian session, we note the release of Australia’s retail sales for September. 

USD/JPY 4 Hour Chart

Support: 150.10 (S1), 148.00 (S2), 146.10 (S3)

Resistance: 151.90 (R1), 153.50 (R2), 155.00 (R3)

US 100 Daily Chart

Support: 13920 (S1), 13200 (S2), 12700 (S3)

Resistance: 14450 (R1), 15300 (R2), 15950 (R3)

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