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eFXdata reports that analysts at Credit Agricole CIB Research offer their USD outlook and maintain a bullish bias and a long USD/JPY exposure in the spot targeting a move towards 115.

"The recent resignations of the two non-voting FOMC members Robert Kaplan and Eric Rosengren should not impact the Fed’s decision to start tapering potentially as soon as November. That said, given that both policymakers were leaning hawkish, their departures could influence the debate at the Fed over the pace and aggressiveness of policy normalisation in the medium term."

"We, therefore, prefer to express any bullish USD view over the medium term via a long position in USD/JPY. In the near term, the growing prospect for Fed taper could boost US rates & UST yields and further weigh on risk sentiment."

The U.S. Energy Information Administration (EIA) reported on Wednesday that crude inventories surged by 4.578 million barrels in the week ended September 24, following a decrease of 3.481 million barrels in the previous week. Economists had forecast a draw of 1.652 million barrels.

At the same time, gasoline stocks rose by 0.193 million barrels, while analysts had expected a gain of 1.400 million barrels. Distillate stocks increased 0.385 million barrels, while analysts had forecast a decline of 1.648 million barrels.

Meanwhile, oil production in the U.S. climbed 500,000 barrels a day to 11.100 million barrels a day.

U.S. crude oil imports averaged 6.6 million barrels per day last week, up by 87,000 barrels per day from the previous week.

The National Association of Realtors (NAR) announced on Wednesday its seasonally adjusted pending home sales index (PHSI) surged 8.1 percent m-o-m to 119.5 in August, after a revised 2.0 percent m-o-m decrease in July (originally a 1.8 percent m-o-m decline).

Economists had expected pending home sales to increase 1.4 percent m-o-m in August.

On y-o-y basis, the index plunged 8.3 percent after an unrevised 8.5 percent tumble in July. 

According to the report, all four regional indices recorded m-o-m gains in August, but each index showed a decline from a year ago.

The Northeast PHSI rose 4.6 percent m-o-m to 96.2 in August, a 15.8 percent decrease from a year ago. In the Midwest, the index surged 10.4 percent m-o-m to 115.4, down 5.9 percent from August 2020. Pending home sales in the South jumped 8.6 percent m-o-m to an index of 141.8 in August, down 6.3 percent from August 2020. The index in the West climbed 7.2 percent m-o-m in August to 107.0, but still down 9.2 percent from a year prior.

"Rising inventory and moderating price conditions are bringing buyers back to the market," noted Lawrence Yun, NAR's chief economist. "Affordability, however, remains challenging as home price gains are roughly three times wage growth."

• Says he would support starting taper as soon as November and finishing by mid-2022
• Does not expect a rate hike until late 2022 or early 2023
• Expects GDP growth to come in around 6.5% in 2021 before moderating to about 3.5% in 2022
• Inflation should come in around 4% for 2021 and a bit over 2% for 2022
• Failure by Congress to raise the debt ceiling could harm economic growth significantly
• Does not see potential changes in Fed leadership really changing the course of monetary policy

Before the bell: S&P futures +0.41%, NASDAQ futures +0.56%

U.S. stock-index futures rose on Wednesday, pointing to higher open after Wall Street’s worst selloffs this year on Tuesday, which was sparked by a surge in Treasury yields.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, notes that gold (XAU/USD) is grinding lower and sees support at $1722 as the last defence for the $1692 August low.

“Gold is grinding lower and will shortly encounter the 78.6% retracement at $1722. The new low has not been confirmed by the daily RSI and we may see some near-term consolidation.”

“Below $1722 support is found at $1679.80/$1677.83 and is reinforced by the $1670 June 2020 low. Below $1670 would target the 2018-2021 uptrend at $1600.”

“We have extensive resistance from $1795 to $1834 (55, 200-day moving averages and highs since July) and we look for rallies to struggle on moves into this band. The 55-week ma also is found at $1822.” 

Freeport-McMoRan (FCX) resumed with a Buy at BofA Securities; target $30

HP (HPQ) downgraded to Neutral from Overweight at JP Morgan; target lowered to $30

Boeing (BA) upgraded to Outperform from Mkt Perform at Bernstein; target raised to $279

FXStreet reports that analysts at Credit Suisse continue to look for further corrective weakness for the S&P 500 Index and a fall back to 4306/01 and ideally 4238/30.

“We look for a clear break of near-term support at 4348 for a fall to 4318, then a retest of the recent low and 78.6% retracement of the July/September rally at 4306/01. 

“Our bias is for a break below 4306/01 in due course for a fall to 4262/58 next, then what we look to still ideally be better support at 4244/30 – the July low, May high and 23.6% retracement of the bull leg from last September. We would look for an attempt to find a floor here.”

USD rose against most of its major rivals in the European session on Wednesday, as demand for safe-haven currencies was strong amid lingering growth concerns, linked to both power-supply crunch in China and growing energy prices in Europe, and anxiety about accelerated near-term inflation and looming taper of the Fed's asset purchases.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, increased 0.19% to 93.94.

Meanwhile, the further growth of the U.S. currency was capped by a pull-back in the U.S. Treasury yields and mounting fears about potential U.S. government shutdown later this week and debt ceiling chaos.

The yield on the benchmark 10-year Treasury note fell 3 basis points to 1.511% in the morning after hitting 1.541% at yesterday’s close.

Another Democrats’ effort to break a Senate stalemate failed to advance last night, raising worries about a potential U.S. credit default. In her congressional testimony on Tuesday, U.S. Treasury Secretary Janet Yellen warned that the Treasury's resources will likely be exhausted by October 18 if the debt limit isn't raised.

The Democratic lawmakers had hoped to avoid the government shutdown and to suspend the U.S. $28.4-trillion debt ceiling with a single vote, but the Senate Republicans refused to fast-track such a package. Later today, the Senate is to vote on the continuing resolution without a debt-ceiling attached to the government funding through December 3, aiming to avoid the shutdown.

FXStreet reports that economists at Credit Suisse expect the cable to move lower with the next support seen at 1.3451/35 and eventually a more important cluster of supports at 1.3189/35.

“We look for the trend to stay directly lower and look for a quick break of potential trend support from March at 1.3520/05 for a fall to the ‘neckline’ to the 2019/2020 base at 1.3451/35.”

“Whilst we see scope for a hold at 1.3451/35 at first, big picture, we continue to look for an eventual fall to a more important cluster of supports at 1.3189/35. Our bias would then be for a floor to be found here.” 

“Resistance for a rebound is seen at 1.3571 initially, then 1.3601/09, which we look to try and cap.”

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. fell 1.1 percent in the week ended September 24, following a 4.9 percent climb in the previous week. This marked the first decline in total mortgage application volume in three weeks.

According to the report, applications to purchase a home fell 1 percent, while refinance applications also declined 1 percent.

Meanwhile, the average fixed 30-year mortgage rate surged from 3.03 percent to 3.10 percent, the highest level since early July.

“Increased optimism about the strength of the economy pushed Treasury yields higher following last week’s Federal Open Market Committee meeting,” noted Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Mortgage rates in response rose across all loan types.” Kan added that the advance in rates - mostly later in the week - led to a drop in both purchase and refinance applications, with a prominent decline in government loan applications. At the same time, conventional loan applications rose, driven by an increase in conventional refinances.

FXStreet reports that economists at Société Générale note GBP/USD's downward momentum has resumed and expect the cable to plunge to the 1.33 level.

“The GBP/USD pair looks poised to head lower towards 1.3480/1.3470 with possibility to extend the down move towards next projections at 1.3300.”

“First hurdle is at 1.3620; reclaiming short-term moving averages near 1.3750 would be essential to denote a meaningful rebound.”

Micron (MU) reported Q4 FY 2021 earnings of $2.42 per share (versus $1.08 per share in Q2 FY 2020), beating analysts’ consensus estimate of $2.34 per share.

The company’s quarterly revenues amounted to $8.274 bln (+36.6% y/y), being roughly in line with analysts’ consensus estimate of $8.212 bln.

The company also issues downside guidance for Q1 FY 2022, projecting EPS of $2.00-2.20 versus analysts’ consensus estimate of $2.48 and revenues of $7.45-7.85 bln versus analysts’ consensus estimate of $8.49 bln.

MU fell $70.70 (-3.28%) in pre-market trading.

FXStreet reports that FX Strategists at UOB Group suggest that a break above 6.4880 should motivate USD/CNH to advance further in the next weeks.

24-hour view: “While USD subsequently closed at 6.4665, it traded on a firm note during early Asian hours. Rapid improvement in upward momentum indicates that USD could strengthen to 6.4830. The major resistance at 6.4880 is unlikely to come into the picture.”

Next 1-3 weeks: “We have expected USD to consolidate and trade between 6.4530 and 6.4880 since Friday (24 Sep, spot at 6.4610). While there is no change in our view, shorter-term upward momentum is beginning to improve. That said, USD has to close above 6.4880 before a sustained rise can be expected. At this stage, the odds for USD to close above 6.4880 are not high but it would remain intact as long as USD does not move below 6.4600 within these couple of days.”

• ECB will not respond to a temporary shock in inflation
• Economic outlook is optimistic
• But must be aware of possibility that supply disruptions may keep persisting

FXStreet reports that economists at MUFG said that it has just been confirmed that Fumio Kishida has won the LDP leadership election effectively confirming him as Japan’s next PM. But the yen will continue to weaken due to rising US bond yields.

“A Kishida victory was the scenario that would mean the least potential for JPY reaction given he is seen as the candidate least likely to instigate any dramatic near-term changes in policy. This Kishida victory should see the emphasis on policy continuity which should limit JPY volatility.”

“It goes without saying that what is happening with UST bond yields and global yields matter more for near-term JPY direction – which is currently supportive of JPY weakness.”

Reuters reports that according to a draft of a forecasting document to be published by the Treasury at 1400 GMT, Italy will sharply lower its target for the public debt on Wednesday to 153.5% of national output from a previous goal of 159.8%. The draft of the new Economic and Financial Document (DEF) is currently being discussed by the cabinet ahead of approval. The latest debt target would mark a decline from the post-war record of 155.6% registered in 2020.

The draft of the DEF forecasts economic growth of 6.0% this year, slowing to 4.7% in 2022, and targets the budget deficit at 9.4% of gross domestic product this year, falling to 5.6% in 2022.

According to the report from the European Commission, in September 2021, the Economic Sentiment Indicator (ESI) remained unchanged in the EU (at 116.6) and broadly stable also in the euro area (+0.2 points to 117.8). Economists had expected an decrease to 116.9 in the euro area. The Employment Expectations Indicator (EEI) increased further (+1.0 point to 113.6 in the EU and +0.8 points to 113.6 in the euro area) reaching its highest level since summer/autumn 2018 in both areas.

In the EU, the stability of the ESI in September resulted from improving confidence in construction and among consumers being offset by worsening confidence in services and retail trade. Industry confidence remained unchanged. Amongst the largest EU economies, the ESI rose in Spain (+1.7), Germany (+0.8), the Netherlands and Poland (both +0.6), while it worsened in France (-1.3) and Italy (-0.9).

According to the report from the Bank of England, individuals borrowed £5.3 billion of mortgage debt on net in August, following a net repayment in July of £1.8 billion. Mortgage approvals for house purchase ticked down further to 74,500 in August, from 75,100 in July. Economists had expected a decrease to 73,000.

Consumers borrowed an additional £0.4 billion in consumer credit, on net. The effective rate on new personal loans remained below the January 2020 level at 5.87%, but was the highest since March 2020.

Households’ net flow in to deposit accounts increased in August, to £9.1 billion. Deposit interest rates fell slightly further, to new historically low levels.

Large businesses repaid £2.1 billion in loans from banks in August, whilst small and medium sized businesses repaid £1.0 billion. Private non-financial companies redeemed £1.1 billion in net finance from capital markets in August, compared to a monthly average net issuance of £2.8 billion since March 2020.

FXStreet reports that economists at Charles Schwab expect higher yields due to sticky inflation rather than Fed’s tapering.

“Despite concerns that the Fed is pulling back on its bond-buying program and may raise rates sooner than expected, policy is still accommodative. Growth and inflation expectations may have peaked, but are likely to settle at an above-average level. Higher growth and inflation expectations are a catalyst for higher long-term yields.”

“We see the potential for yields to move higher, due more to inflation becoming ‘stickier’ versus the Fed reducing the pace of its bond buying program.”

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, discusses AUD/USD prospects.

“AUD/USD charted an outside day to the downside yesterday and we can only assume it is ready for another leg lower.”

“The aussie recently failed at the four-month downtrend at 0.7400 and we will retain a negative bias while capped here.”

“Minor support at 0.7222/20, the 27th August low guards 0.7106, the August low. Key support remains at 0.7062/0.6991. This represents the September and November 2020 lows.”

During today's Asian trading, the US dollar traded steadily against major currencies.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.06%.

At the same time, the index remains near the maximum value since the beginning of November 2020 against the background of rising US Treasuries yields due to increased expectations of the imminent start of the curtailment of stimulus measures by the US Federal Reserve.

Fed Chairman Jerome Powell said yesterday that the regulator had fulfilled almost all the criteria to start curtailing stimulus measures. At the same time, he expressed confidence that inflation will begin to slow down over time.

Powell noted that US inflation is likely to remain high in the coming months, but then will begin to slow down. The increase in inflation caused by problems in supply chains and other factors related to the recovery of economic activity after the coronavirus pandemic turned out to be longer and more significant than expected, the head of the Fed said. Nevertheless, Powell stressed that he was confident that inflation could return to the Fed's 2% target.

Meanwhile, US Treasury Secretary Janet Yellen said that the US economy is in the process of a "fragile but rapid recovery" after the recession caused by the coronavirus pandemic. Despite the current slowdown in employment growth and consumer spending due to the spread of a new strain of coronavirus, she still expects that the labor market will return to full employment next year.

RTTNews reports that data published by the British Retail Consortium (BRC) showed that UK shop prices declined at a slower pace in September.

The shop price index dropped 0.5 percent on a yearly basis in September after easing 0.8 percent in August.

Food prices edged up 0.1 percent and non-food prices were down 1 percent annually.

"There are now clear signs the months-long cost pressures from rising transport costs, labour shortages, Brexit red-tape, and commodity costs are starting to filter through to consumer prices," Helen Dickinson, chief executive at BRC, said.

Food prices rose for the first time in six months and some non-food products, such as DIY & gardening, are seeing the highest rate of inflation since summer 2018, Dickinson noted.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1807 (1069)

$1.1767 (544)

$1.1736 (1249)

Price at time of writing this review: $1.1680

Support levels (open interest**, contracts):

$1.1658 (4206)

$1.1628 (1170)

$1.1589 (6529)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 8 is 73707 contracts (according to data from September, 28) with the maximum number of contracts with strike price $1,2200 (8607);

GBP/USD

$1.3804 (703)

$1.3757 (171)

$1.3713 (258)

Price at time of writing this review: $1.3553

Support levels (open interest**, contracts):

$1.3511 (447)

$1.3475 (645)

$1.3447 (1472)

Comments:

- Overall open interest on the CALL options with the expiration date October, 8 is 12338 contracts, with the maximum number of contracts with strike price $1,4150 (2064);

- Overall open interest on the PUT options with the expiration date October, 8 is 18303 contracts, with the maximum number of contracts with strike price $1,3800 (1774);

- The ratio of PUT/CALL was 1.48 versus 1.48 from the previous trading day according to data from September, 28

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.

FXStreet reports that in the opinion of FX Strategists at UOB Group, EUR/USD risks further decline in the next weeks.

Next 1-3 weeks: “Yesterday, we highlighted that ‘downward momentum is showing tentative signs of building and a daily closing below 1.1680 would indicate that EUR could break August’s low at 1.1662 and head towards 1.1630’. EUR subsequently dropped to 1.1666 before closing at 1.1681 (-0.11%). While we prefer a weaker daily closing, the price actions suggest that EUR is likely to trade with a downward bias from here. That said, downward momentum still appears to be a bit tentative and the major support at 1.1630 may not come into the picture so soon. On the upside, a break of 1.1745 (no change in ‘strong resistance level from yesterday) would indicate that the current downward bias has eased.”

According to the report from the Federal Statistical Office (Destatis), the index of import prices increased by 16.5% in August 2021 compared with the corresponding month of the preceding year. This has been the highest year-on-year change since September 1981 (+17.4% on September 1980). Economists had expected a 16.1% increase. In July 2021 and in June 2021 the annual rates of change were +15.0% and +12.9%, respectively. From July 2021 to August 2021 the index rose by 1.4%. Economists had expected a 1.2% increase.

In August 2021 energy imports were 93.6% more expensive than in August 2020. The largest influence on the year-on-year rate of energy price increase in August 2021 had natural gas with a plus of 177.5% and crude oil with a plus of 63.6%.

The index of import prices, excluding crude oil and mineral oil products, increased by 13.8% in August 2021 compared with August 2020 and in comparison with July 2021 it rose by 1.6%.

The index of export prices increased by 7.2% in August 2021 compared with the corresponding month of the preceding year. This has been the highest year-on-year-change since September 1981 (+7.3% on September 1980). In July 2021 and in June 2021 the annual rates of change were +6.3% and +5.0%, respectively. From July 2021 to August 2021 the index rose by 0.7%.

Bloomberg reports that according to economists at Goldman Sachs Group Inc., China’s hidden local government debt has swelled to more than half the size of the economy. 

The total debt of local government financing vehicles rose to about 53 trillion yuan ($8.2 trillion) at the end of last year from 16 trillion yuan in 2013, the economists wrote in a report. That’s equal to about 52% of GDP and is larger than the amount of official outstanding government debt. Goldman’s calculation is based on an analysis of more than 2,000 LGFVs’ statements of their interest-bearing debt, including bonds and bank loans. 

The LGFVs are a tool for governments to borrow money without it appearing on their balance sheets, but it is seen as the same as a government liability by financial markets. 

There were some signs earlier this year that government was making inroads in cutting this debt as the economy’s rebound gave room to focus on tackling financial risks. Now with growth facing more headwinds including reluctant consumers, a housing market crisis which has caused demand for land to slump, power shortages, and supply chain disruptions, markets are looking for signals of a rethink of that hawkish policy stance.

Land sales are a major source of revenue for local governments and sales have slowed down as the crisis at property developer China Evergrande Group worsens. To make up the funding gap left by shrinking land sales revenue, Goldman recommended the government increase the bond quota for 2022 by more than 500 billion yuan from this year’s level of 3.65 trillion yuan.