- Weak Chinese GDP and industrial production data impacted market sentiment during the Asian session.
- The Q3 spike in New Zealand inflation lent support to the kiwi dollar.
- ECB President Christine Lagarde insists that "inflation is largely temporary."
- Minutes from the RBA’s October meeting confirm that the 2-3% inflation target will not be reached until 2024.
- US industrial production unexpectedly dropped in September.
- The euro broke out of the 1.1625 resistance level.
- The S&P 500 index rose to a high of 4,483.40.
The EURUSD pair rose 0.08% to 1.1610 on Monday, October 18. During the Asian session, the key pair fell to 1.1572 amid rising US10Y yields. Market sentiment was impacted by China's sluggish Q3 GDP and September industrial production reports. These data points came as a disappointment to investors, reducing the demand for risk-sensitive assets.
During the European session, the euro drew support from the recovery of the EURGBP cross pair. The gains picked up during the New York trading session. The dollar came under pressure following the release of weak industrial production data stateside. US industrial production unexpectedly fell by 1.3% in September compared to the market consensus of 0.2%. In addition, the August reading was revised to 0.1%, down from an increase of 0.4%. On an annualized basis, the metric decreased from 5.66% to 4.6%.
Investors were also focused in a decrease in the US capacity utilization rate. In September, it dropped to 75.2% from the revised August level of 76.2%.
The US10Y yield fell to 1.577% on the back of lackluster macro data. Major currencies immediately reversed to the upside. The euro recovered to 1.1623, while the DXY index slid to 93.86.
Today’s macro agenda (GMT 3)
- 13:00 UK: BoE MPC member Catherine Mann speech
- 14:10 Europe: ECB Governing Council member Frank Elderson speech
- 15:00 Europe: ECB Governing Council member Fabio Panetta speech
- 15:05 UK: BoE Governor Andrew Bailey speech
- 15:30 US: building permits and housing starts (September)
- 18:00 US: San Francisco Fed President Mary Daly speech
- 20:15 US: Fed member Michelle Bowman speech
- 21:50 US: Atlanta Fed President Raphael Bostic speech
- 22:00 US: Fed member Christopher Waller speech
Current outlook
By the time of writing, major currencies were trading in positive territory, with Antipodeans topping the leaderboard. Gains in the aussie and kiwi dollar point to rising risk appetite.
The upward trend reflects a number of factors:
1. Asian indices rose following a strong handover from Wall Street, with the S&P 500 soaring to all-time highs on strong Q3 financials.
2. A rebound in Chinese equities despite the critical situation surrounding Evergrande. China Evergrande Group's negotiations for the sale of a 51% stake in its Evergrande Property Services Group to Hopson Development Holdings have been put on hold.
3. Boris Johnson promised to fix Brexit’s Northern Ireland Protocol.
4. Decline in US10Y yields.
Today there is a big lineup of central bank speakers. FOMC members urge the US central bank to start winding down QE in November amid galloping inflation. ECB representatives believe that inflation is transitory and it is too early to tighten monetary policy. Andrew Bailey said on Sunday that the BoE is starting to consider a rate hike. It’s hard to say what other surprise could also be in the cards.
Technical analysis
Buyers breached the 1.1625-1.1640 resistance zone, opening the door for a leg up to 1.1690 (135-degree angle of the Gann fan). The next resistance level is located at 1.1665 (the upper line of the channel and the 112-degree angle). An upward correction could persist until the end of the month. If the EURGBP cross continues to climb at yesterday's pace, nothing prevents it from reaching 1.1690 by the close of today’s trading session.