Daily Key points: USD recovers some ground

The USD seemed to be struggling to remain at high levels against its counterparts yesterday, also supported by wider expectations in the markets that the Fed is to continue on its aggressive rate hiking path. It should be noted that San Francisco Fed President Daly once again underlined the bank’s commitment in fighting inflationary pressures in the US economy and that more rate hikes lie ahead. It should be noted that the US data yesterday also showed that the expansion of economic activity in the US services sector was better than expected according to the ISM non-manufacturing PMI figure for September, while also on the positive side the US trade deficit narrowed and the ADP figure for September rose slightly more than what was expected, all contributing to the USD’s rise. On the other hand, US stockmarkets halted their rise with all three main US stock market indexes, the Dow Jones, Nasdaq and S&P 500, ending their day near the same levels they had begun, yet today seem to be finding fresh support.

Across the pond we note that the pound seems to have ended its 6-day rally against the USD as UK Prime Minister Truss spoke before the Conservative Party conference  in Birmingham, as she supported the notion of further tax cuts. Yet the situation for the UK economy remains dire and its outlook negative for the time being hence we tend to expect more weakness for the pound in the coming months as the worst does not seem to be over yet. Similarly we do not expect substantial strengthening of the EUR in the coming months should the economic outlook for the Eurozone remain dim. On the commodities front we note that oil prices found some support as OPEC decided to proceed with rather deep oil production cuts, as the output of oil production is to be curtailed by 2 million barrels per day (bpd). It should be noted though that oil production had allready problems, hence the actual production cuts are being estimated at around 1 million bpd but nevertheless a possible rise of oil prices could also have a wider inflationary effect on consumer prices. 

The USD index rose yesterday yet seemed to hit a ceiling at the 111.50 (R1) resistance line. We do expect the index to stabilize for now and a range bound motion to prevail as the upward momentum seems to have been stopped. Should the index find fresh buying orders along its path we may see it breaking the 111.50 (R1) resistance line and aim for the 112.60 (R2) level. Should on the other hand a selling interest be expressed, we may see the index breaking the 110.50 (S1) support line and aim for the 110.00 (S2) support level.

Cable dropped from the highs of the 1.1460 (R1) resistance line and tested the 1.1275 (S1) support line before correcting higher. The main element of cable’s movement yesterday may have been the breaking of the upward trendline guiding it since the 26^th of September, which forces us to switch our bullish outlook for the pair in favor of a bias for a sideways movement initially. Should the bulls take over we may see cable breaking the 1.1460 (R1) resistance line, thus paving the way for the 1.1610 (R2) resistance level. On the other hand should the bears take over, we may see cable breaking the 1.1275 (S1) support line and aim for the 1.1095 (S2) support level.  

Other highlights for the day

Today in the European session, we note the release of Germany’s industrial orders, Sweden’s GDP rates for August and the construction PMI figure for September of the UK and the Eurozone. In the American session we note the release of the weekly US Initial jobless claims figure. On the monetary front we note the planned speeches of Cleveland Fed President Mester, Fed Board Governor Cook, Chicago Fed President Evans, BoC Governor Tiff Macklem and BoE MPC member Haskel. During tomorrow’s Asian session we get Japan’s All household spending growth rate for August, while Fed Board Governor Waller and Cleveland Fed President Mester are scheduled to speak while RBA is to release its Financial Stability review.

USD Index H4 Chart

Support: 110.50 (S1), 110.00 (S2), 109.00 (S3)

Resistance: 111.50 (R1), 112.60 (R2), 113.70 (R3)

GBP/USD H4 Chart

Support: 1.1275 (S1), 1.1095 (S2), 1.0925 (S3)

Resistance: 1.1460 (R1), 1.1610 (R2), 1.1745 (R3)

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