Bitcoin’s price is flirting with a break above the 200-day moving average and the 65k handle. However, downside risks persist, including profit-taking potential and concerns about Mt. Gox repayments impacting Bitcoin’s supply. Technically, a daily candle close above the 200-day MA and 65k handle could trigger a bullish breakout, while a rejection might lead to a correction. Most Read: Swiss franc edges lower after Swiss central bank cuts rates Bitcoin prices have held the high ground over the past 7 days flirting with a break of the 200-day MA and the psychological 65k handle. Acceptance above the 200-day MA could be a catalyst for further gains as ETF flows remain positive. According to SoSoValue, the total daily net inflow for BTC ETFs surpassed $100 million for the second consecutive day, marking a five-day streak of positive net inflows for these funds.  Data from CryptoQuant reveals that this has turned the 30-day net holdings indicator for ETFs positive for the first time in September, indicating a growing trend of accumulation rather than sales. Source: CryptoQuant Optimism continues to grow that the world’s largest cryptocurrency is ready for a bullish breakout as global Central Banks step up policy easing. Will a break above the 65k handle improve market sentiment and propel Bitcoin back above the 70k threshold? Downside Risks – Profit Taking and Mt. Gox Still in Focus As much as optimism has risen, this would not be the first attempt to break above crucial resistance areas in the last few weeks. Previous attempts have been futile, will this attempt be any different?  My main concern is profit taking with Bitcoin’s Unspent Transaction Outputs (UTXOs) showing 84% profitability if price languishes above the $63800 handle. An increase in UTXO is usually seen as a sign of improving investor confidence.  Looking at the crypto fear and greed index however, the story is a bit different. The index dropped around 10 points from yesterday to languish in neutral territory. Source: FinancialJuice Failure to push on and break above the 65k handle may see some short-term speculators cash in and look to enter on a pullback which could lead to a correction and scupper attempts at a run toward the 70k handle. Mt Gox Repayments Back in Focus Mt Gox repayments are back in focus this week as the wallet appears to have shown signs of movement.On Wednesday the bust crypto exchange emptied four of their wallets after receiving funds from the Kraken exchange.  Arkham intelligence asking the correct question, does this mean more repayments are on their way soon? The Mt Gox wallets hold 44,899 BTC worth $2.85 billion with any significant repayments likely to stoke concern of an oversupply as creditors look to sell their Bitcoin. Such a move could exert downward pressure on Bitcoin prices and are definitely worth monitoring. Technical Analysis BTC/USD Bitcoin is currently trading around 3.5% up on the day and above the psychological 65k handle. A daily candle close above the 200-day MA and 65k handle may embolden bulls and be the catalyst for a push higher. A close above the 65350 handle may open up a clear run toward resistance at 68350 before the 70000 handle comes into focus. There is a descending trendline around the 70000 mark which could prove a stubborn hurdle but beyond that a clear run to the all-time high is a real possibility. Given the downside risks present, let’s take a look at the alternative. A rejection of the 200-day MA and a return of selling pressure could lead Bitcoin back toward support at the 100-day MA languishing at 61000. The area between the 100 and 50 day MA at 59900 is a key area of confluence and support and could keep any attempted push lower at bay. This area could form the base for a move beyond the all-time highs if it is able to hold firm. Bitcoin (BTC/USD) Daily Chart, September 26, 2024 Source: TradingView.com (click to enlarge) Support 61000 59900 58000  Resistance 65350 68350 70000  Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

The Australian dollar has edged lower on Wednesday, after surging 1.1% since the start of the week. In the European session, AUD/USD is trading at 0.6879, down 0.18%. Earlier, the Australian dollar rose above the 0.69 level for the first time since February 2023. Australia’s CPI drops to 2.7% Australia released August CPI on Wednesday, a day after the Reserve Bank of Australia held the cash rate at 4.35%. Headline CPI rose 2.7% y/y, down sharply from 3.5% in July. This was very close to the market estimate of 2.8% and the Australian dollar’s reaction to the release was muted. The decline was driven by a sharp drop in electricity and fuel prices. The markets may not have been impressed but the inflation reading was the lowest since August 2021 and the first time since then that inflation has fallen to the RBA’s target range of 2%-3%. Significantly, core CPI also fell within the target range, easing from 3.7% to 3.0%. In an odd twist, the inflation report came a day after the RBA meeting, with the rate statement noting that inflation remains too high. Governor Bullock reiterated in her press conference that there would be no rate cuts in the “near term”, but if inflation continues on its downward path, the central bank will be under strong pressure to reconsider. The US Conference Board consumer confidence index is usually not a market-mover but a very soft reading on Tuesday sent the US dollar sharply lower against most of the major currencies. The index slipped to 98.7 in September, down sharply from a revised 105.6 in August and below the market estimate of 103.8.The Australian dollar, which showed little movement after the RBA decision, climbed after the consumer confidence release and closed on Tuesday up 0.86%. AUD/USD Technical AUD/USD is putting pressure on support at 0.6866. Close by, there is support at 0.6840 There is resistance at 0.6919 and 0.6945

The Australian dollar has edged higher on Tuesday. In the European session, the Australian dollar is trading at 0.6845, up 0.12% on the day. Earlier today, AUD/USD climbed as high as 0.6869, its highest level this year. The Reserve Bank of Australia maintained the cash rate at 4.35% in a widely expected decision. This was the seventh consecutive time that the central bank has held rates, which are at a 12-year high. The Australian dollar is showing little movement in response to the rate announcement. RBA says inflation still too high The RBA statement acknowledged that inflation has fallen substantially but was “above target and proving persistent” and that the central bank’s highest priority remains bringing inflation back down to the target range of 2%-3%. RBA members voiced concern about the uncertain economic conditions, noting that GDP was soft in the second quarter and the slowdown in China has hurt commodity prices. Governor Bullock reiterated in her press conference after the meeting that the RBA is unlikely to lower interest rates in the “near term”. In August, she explained that “near term” meant for six months, which means that the RBA doesn’t expect to trim rates before early 2025. Bullock said that the RBA did not consider hiking rates at today’s meeting which was perhaps a slightly dovish shift. In previous meetings, the RBA discussed raising hikes, saying that inflation was not falling as fast as expected. In an odd twist, the August inflation report will be released tomorrow. Headline inflation is expected to ease to 3%, compared to 2.8% in July. If inflation does fall as expected or lower, it will support for the case for the RBA to lower rates at the next meeting in November. AUD/USD Technical AUD/USD tested resistance at 0.6865 earlier. This line had held in resistance since December 2023. Close by, there is resistance at 0.6886 0.6830 and 0.6806 are the next support levels        

The People’s Bank of China (PBoC) has unveiled a stimulus package aimed at boosting economic growth. Key measures include a cut in the 7-day repo rate, a reduction in the required reserve ratio (RRR), and support for the mortgage market and property sector. Asian and European stock markets have reacted positively to the stimulus as markets welcomed the news. Oil prices have risen as well and could benefit from the stimulus package. Will the Oil price recovery continue? Most Read: USD/JPY Technical: Mean reversion rebound in progress within a medium-term downtrend The People’s Bank of China (PBoC) in a surprise briefing this morning unveiled a massive stimulus package in an effort to reach its growth targets. The jury is out on whether these measures will suffice but the initial reaction has been a positive one.  Asian stocks rose to a two and half year high with the Hang Seng Index rising as much as 3.2% and the blue-chip CSI 300 Index rising around 2.4%. The effect has filtered through to the European open as well with stocks in the luxury goods and mining segments in particular benefitting. Overall this is a positive for market sentiment at an important time.  The most important announcement by the PBoC is probably the 20bps cut to the 7-day repo rate. This would make it cheaper for banks to borrow money and thus businesses and individuals will benefit as well. The idea would be that cheaper loans could help boost spending on goods and services.  The other notable measures from the PBoC: A 50 basis point reduction in the required reserve ratio (RRR) lowers the RRR for major banks from 10.0% to 9.5%. (This move in conjunction with the others could help spur on weakening credit activity moving forward.) Support mortgage market. Outstanding mortgage rates to be cut. Second home purchases min downpayment from 25% to 15%. Funding support to be increase from 60% to 100% for property. Central support will increase for unsold homes. Will establish new monetary policy rules to support the stability and development of the stock market. Companies to have increased access to liquidity. The property market has been a particular area of focus for Chinese authorities and global market participants. Last months weak property price data further exacerbated those concerns so it is no surprise that the PBoC has made an effort to bring back stability to an important pillar of the economy.  Moving forward it will be important to see some stability and potential recovery in property prices. Housing inventories also need to begin moving down as this will be a sign that the stimulus measures are having the desired effect. Failure of the above may lead to further concerns and affect market sentiment which would leave the PBoC in a tough spot.  Source: LSEG Market Reaction As we touched on earlier, the initial reaction has been a positive one with the Hang Seng and CSI 300 Index benefitting. European equities have also experienced a slight bounce at the open with the DAX rising and individual stocks in certain sectors benefiting. Market sentiment in general may receive a boost today following the PBoC announcement and risk assets could be the beneficiaries. Hang Seng (Hong Kong 33) Daily Chart, September 24, 2024 Source: TradingView (click to enlarge)  From a commodity perspective, Oil prices may be one to watch. Chinese growth has been an anchor on Oil prices of late and the move could help oil prices continue its recent rally. Tensions in the Middle East and the PBoC stimulus could be just what the doctor ordered for Oil prices to continue their ascent. Other commodities such as copper, silver etc may also benefit from the announcement. If markets expect the stimulus to boost spending and demand this could result in an uptick across the commodity space. Brent Crude Daily Chart, September 24, 2024 Source: TradingView (click to enlarge)  Support 74.00 72.38 70.00 Resistance 76.30 78.90 80.00 Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

The Australian dollar has started the week with gains. AUD/USD touched a high of 0.6850, its highest level this year. In the North American session, the Australian dollar is trading at 0.6842, up 0.51% on the day. Reserve Bank expected to hold rates The Reserve Bank of Australia is expected to maintain the cash rate at 4.35% at Tuesday’s meeting. The RBA has held rates since November, making it an outlier among the major central banks, most of which have lowered interest rates. Underlying inflation is at 3.9%, much higher than the target of between 2% and 3%. Australia releases August CPI on Wednesday, with headline CPI expected to fall to 2.8%, compared to 3.5% in July. The RBA was more cautious than other central banks during the rate-tightening cycle and its cash rate peaked one percent below the Federal Reserve. The flip side is that the RBA has been less aggressive as far as cutting rates and Governor Bullock has said that there are no plans to cut before February 2025. The RBA’s rate hikes have chilled economic growth as consumption has fallen sharply and GDP grew by only 1% in the second quarter. Still, the labor market has remained robust and unemployment is at 4.2%, as large-scale immigration has boosted the economy and helped avoid a recession. In the US, today’s PMIs had no impact on AUD/USD. The manufacturing PMI slipped to 47.0 in September, down from 47.9 in August and well off the market estimate of 48.5. This was the lowest level in thirteen months as new orders fell sharply. The services sector is in better shape as the PMI ticked lower to 54.4, compared to 54.6 in August and slightly above the market estimate of 54.3. AUD/USD Technical 0.6865 has held in resistance since December 2023. Above, there is resistance at 0.6923 0.6781 and 0.6723 are the next support levels

The US dollar has posted sharp gains on Friday. In the European session, USD/JPY is trading at 143.85, up 0.88% at the time of writing. The yen hit a 14-month high on Monday but the dollar has rebounded and is up 2.1% this week. It’s an unusually quiet Friday with no US events on the calendar. Bank of Japan stays on sidelines The Bank of Japan held its rate decision just after the Federal Reserve, but there was little drama at the BoJ meeting. The markets had expected that central bank to maintain rates at “around 0.25%” and the BoJ didn’t provide any clues about future hikes. The rate statement didn’t reveal much, stating that the economy had “recovered moderately” but some weakness remained. The statement noted concern over “developments in financial and foreign exchange market and their impact on Japan’s economic activity and prices”. Governor Ueda said last month that the BoJ would raise rate if the economy and inflation were in line with the Bank’s projections. If key data, particularly inflation, is stronger than expected in the coming weeks, we could see a rate hike at the October meeting. With inflation in the US largely under control, the Federal Reserve is keeping a worried eye on the labor market, as job growth as deteriorated quickly. That slide has unnerved financial markets and may have been a key factor in the Fed’s jumbo rate cut of 50 basis points this week. Thursday’s unemployment claims for the period ending Sept. 14 were better than expected, at 219 thousand. This was well below the revised 231 thousand reading a week earlier and beat the market estimate of 230 thousand. USD/JPY Technical USD/JPY pushed above resistance at 142.41 earlier. The next resistance line is 144.55 There is support at 142.41 and 141.00

The British pound has extended its gains on Thursday. In the European session, GBP/USD is trading at 1.3282, up 0.53% on the day. The pound has been on a tear against the US dollar and hit a six-month high on Wednesday, climbing to 1.3297. Bank of England expected to hold rates The Bank of England meets later today and is widely expected to maintain the cash rate at 5%. The BoE joined the rate-cutters club in August with a 25-bps cut, the first time it lowered rates since 2020. Inflation has finally dropped to the BoE’s 2% target but the Bank is expected to remain cautious on rate policy. The markets are looking at another rate cut before year’s end and will be sniffing for clues about future rate policy from the rate statement and Governor Bailey’s press conference. There are upside risks to UK inflation and these were reflected in the August inflation report on Wednesday. Headline inflation was unchanged at 2.2% but core inflation rose from 3.3% to 3.6%. Services inflation, which the BoE closely watches, rose from 5.2% to 5.6%. In addition, wage growth has eased but remains high and is contributing to inflationary pressures. Fed delivers oversize cut The Federal Reserve put its stamp on one of the most dramatic rate meetings in years on Wednesday. The Fed was virtually guaranteed to deliver a rate cut of at least 25 basis points but there was a strong likelihood of a jumbo 50-bps cut and the suspense lasted right up to the wire. In the end, 11 of the 12 FOMC members were on board for the deeper cut, likely over concern about the deteriorating US labor market. The US dollar has responded with losses against most of the major currencies, and the Australian dollar has surged 1.07% today, as risk appetite has jumped. GBP/USD Technical GBP/USD has pushed above resistance at 1.3221 and is putting pressure on resistance at 1.3290 1.3145 and 1.3076 are providing support  

The British pound has gained ground on Wednesday. In the European session, GBP/USD is trading at 1.3224, up 0.48% on the day. UK core inflation surprises to the upside First, the good news. UK headline inflation remained unchanged at 2.2% y/y in August, and matched the market estimate. The Bank of England had estimated that inflation would rise by 2.4%. Gasoline prices fell but this was offset by an increase in air fares. Monthly, headline inflation rose to 0.3%, up from -0.2% in July and in line with the market estimate. The core inflation rate, which is a better gauge of inflation trends, showed a significant increase. Yearly, core inflation rose to 3.6%, up from 3.3% and above the market estimate of 3.5%. Monthly, the core rate climbed 0.4%, up from an upwardly revised 0.1% in July and matching the market estimate. Services inflation, which the Bank of England closely watches, rose from 5.2% to 5.6%. The mixed inflation data isn’t expected to change minds at the BoE, which meets on Thursday. The central bank kicked off the new rate-cutting cycle on August 1 but is expected to maintain rates on Thursday. Inflation is moving in the right direction but services inflation remains a serious concern, given that the BoE’s inflation target is 2%. All eyes on Mr. Powell There’s little doubt that the Federal Reserve will finally join the rate-cutting club at today’s meeting, but will the cut be 25 or 50 basis points? Market pricing has been all over the map, which has only added to the anticipation and the suspense. A week ago, the odds of a 50-bps cut were just 14%; that has flipped to 65% currently, according the CME’s FedWatch. Investors will also be keenly interested in the ‘dot plot’ a projection of the FOMC’s outlook for interest rates. GBP/USD Technical GBP/USD has pushed above resistance at 1.3178 and 1.3260 1.3127 and 1.3094 are providing support    

The Dow Jones Industrial (DJIA) has managed to print a fresh all-time high in September while the S&P 500 and Nasdaq 100 have yet to break above their July all-time highs. The US Treasury yield curve bull steepener has reinforced a defensive rotation play in the US stock market. Watch the key medium-term support of 40,030 on the DJIA. This is a follow-up analysis of our prior report “US DJIA: UST yield curve un-inversion may help the laggard to catch up” published on 4 July 2024. Click here for a recap. Since our last publication, the Dow Jones Industrial Average (DJIA) has rallied by 6%, surpassing the first 41,440 medium-term resistance mentioned in our report. Also, it printed a fresh all-time closing high of 41,622 on Monday, 16 September before the key US Federal Reserve monetary policy decision outcome due later today. The Fed has been widely expected to kickstart its interest rate cut cycle by either 25 basis points (bps) or 50 bps cut on the Fed funds rate, currently at 5.25%-5.00% after it increased the rate to their highest level in nearly two decades and held it constant for 13 months. 50 bps cut is now baked into the interest rates market Fig 1: FOMC meetings aggregated probabilities of cuts/hikes as of 18 September 2024 (Source: CME FedWatch tool, click to enlarge chart) The Fed funds futures market based on data from the CME FedWatch tool has priced in a high odd (65% chance) at this time of the writing that the Fed is likely to enact a jumbo cut of 50 bps today and the expectations of a larger size of cut have increased from a probability of just 14% seen a week ago (see Fig 1). Overall, the Fed funds futures market is also pricing in a potential 250 bps rate cut in total by the Fed from a year now to bring down the Fed funds rate to 2.75%-3.00% by the 17 September 2025 FOMC meeting from the current rate of 5.25%-5.50%. Bull steepening US Treasury yield curve reinforces a defensive sector rotation play Fig 2: Relative strength of key S&P sectors, Magnificent 7 plus Netflix, US Semiconductors & DJIA against S&P 500 as of 18 Sep 2024 (Source: TradingView, click to enlarge chart) The expected pace of cuts to bring down the Fed funds rate to 2.75%-3.00% from a year now to just a whisker above the 2.5% median long-run projection pencilled in the previous economic “dot-plot” projections released on the prior June FOMC meeting suggests a recessionary environment in the US. The US Treasury yield curve (10-year minus 2-year) has un-inverted from more than two years of inversion on 6 September where the 2-year US Treasury yield fell at a faster pace versus the drop of the longer-term10-year Treasury yield. Concurrently, since the current all-time high of the S&P 500 printed on 16 July 2024, the higher beta Information Technology sector, mega-cap seven cohort plus Netflix, and Semiconductor industry group that were leaders in the past two years of bull run seen in the S&P 500 have now underperformed (see Fig 2). In contrast, the defensive sectors; Utilities, Real Estate, Consumer Staples, and Health Care have outperformed the S&P 500, together with the Dow Jones Industrial Average which has a lower combined weightage in three of the mega-cap seven stocks (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla) that represents a significant weightage in the S&P 500, and Nasdaq 100. The impulsive upmove sequence from the 5 August low remains intact in DJIA   Fig 3: US Wall Street 30 major & medium-term trends as of 18 Sep 2024 (Source: TradingView, click to enlarge chart) Based on the current price actions of the US Wall Street 30 CFD Index (a proxy of the DJIA futures), the impulsive upmove sequence from the 5 August 2024 low of its major uptrend phase in place since the 27 October 2023 low remains intact. In addition, the daily RSI momentum indicator has continued to flash out a bullish momentum condition that reinforces the impulsive price action movements. If the 40,030 key medium-term pivotal support holds, the Index may see the next medium-term resistances coming in at 42,900/43,170 and 43,930 next (also the upper boundary of the major ascending channel from the 27 October 2023 low) (see Fig 3). On the other hand, a break below 40,030 invalidates the bullish scenario to trigger a potential medium-term corrective decline that may expose the next medium-term supports at 38,390 and 37,165.

The Japanese yen is down sharply on Tuesday. USD/JPY is up 0.73% today, trading at 141.64 in the North American session at the time of writing. On Monday, the yen pushed below 140 per dollar for the first time since July 2023. The yen has looked razor sharp, gaining 2.9% in the month of September alone. The yen has surged a massive 15% in the third quarter, the best-performing G-10 currency. The Federal Reserve is virtually certain to raise interest rates by at least 25 basis points on Wednesday. The Bank of Japan, which meets on Friday, is expected to keep rates on hold. The BoJ has been an outlier among the major central banks and is expected to continue tightening, which has boosted the yen. The BoJ has signaled that further rate hikes are coming and this could occur as soon as December. US retail sales slip but beat estimate In the US, today’s retail sales release was the final key event ahead of the Federal Reserve meeting. Retail sales softened in August but the decline wasn’t as sharp as expected. Monthly, retail sales posted a small gain of 0.1% in August, down from a revised 1.1% in July but still better than the market estimate of -0.2%. On an annualized basis, retail sales eased to 2.1%, down from 2.9% in July and just below the forecast of 2.2%. The retail sales release is not expected to impact the Federal Reserve decision on Wednesday. The rate cut odds for a half-point cut stand at 67% according to the CME’s FedWatch tool, unchanged by the retail sales release. USD/JPY Technical USD/JPY pushed above 141.17 earlier and is testing resistance at 141.72 There is support at 140.37 and 139.82

The Canadian dollar is showing limited movement on Tuesday. Early in the North American session, USD/CAD is trading at 1.3601 at the time of writing, up 0.10% today. Canada’s CPI declines more than expected Canada’s inflation rate dropped to 2% in August. This was down sharply from 2.5% in July and below the market estimate of 2.1%. Monthly, inflation declined by 0.2%, down from a 0.4% gain in July and shy of the market estimate of zero. The core rate declined to -0.1% down from 0.3% in July. Yearly, the average of two key core indicators eased to 2.35%, down from 2.55% in July. The Bank of Canada has done a good job bringing down inflation and today achieved its target of 2%. The central bank has already cut rates three times as part of the new rate-cutting cycle in response to falling inflation and today’s CPI report lends support to further rate cuts. The battle with inflation is largely over and the BoC has shifted its primary focus away from inflation onto the labor market. The August jobs report was a mix, as job growth rebounded with a 22.1 thousand gain in August after a decline of 2.8 thousand in July, which was within expectations. However, the unemployment rate rose to 6.5%, up from 6.4% and above the market estimate of 6.5%. In the US, today’s retail sales report marked the final tier-1 event before the key Federal Reserve meeting on Wednesday. Retail sales lost steam in August but the drop wasn’t as bad as expected. Monthly, retail sales posted a small gain of 0.1% in August, down from a revised 1.1% in July but above the market estimate of -0.2%. On an annualized basis, retail sales eased to 2.1%, down from 2.9% in July and just below the forecast of 2.2%. The retail sales release is not expected to impact the Federal Reserve decision on Wednesday. The rate cut odds for a half-point cut stand at 67% according to the CME’s FedWatch tool, unchanged by the retail sales release. USD/CAD Technical USD/CAD is testing support at 1.3585. Below, there is support at 1.3547 1.3624 and 1.3662 are the next resistance lines

The euro has posted strong gains on Monday. EUR/USD is trading at 1.1126 in the North American session at the time of writing, up 0.49% today. The euro is at its highest level since Sept. 6. It’s a quiet day on the data calendar, with no tier-1 events. In the US, the Empire State Manufacturing index rebounded to 11.5 in September, much higher than the August reading of -4.7 and the market estimate of -3.9. This was a shocker as the manufacturer index had contracted nine straight times before today’s reading. Tuesday will be busier, with German ZEW economic sentiment index and US retail sales. German ZEW economic sentiment plunged to 19.2 in August, down from 41.8 in July. The market estimate for September stands at 17.1. US retail sales are expected to fall to 2.2% y/y in August, down from 2.7% in July. Fed faces a tough choice – 25 or 50? This week’s key event is the Federal Reserve meeting on Wednesday, with a 25 basis-point cut practically guaranteed. Will the Fed opt for an oversize 50-bps cut or play it safe with a 25-bps move? The rate cut odds continue to swing wildly. After last week’s producer price index reading, the odds of a 50-bps point cut soared to 41%, up from just 13% before the release, according to the CME’s FedWatch tool. That has increased to 59% today. The uncertainty over what the Fed will do could last right up to the wire. The Fed is in a quandary as it needs to balance the risk of inflation moving higher against the recent weakness in the labor market. A modest 25-bps cut may not be sufficient to improve the employment picture, while a 50 bps cut might send a message that the Fed believes the economy is in deep trouble. EUR/USD Technical EUR/USD is testing resistance at 1.118. Above, there is resistance at 1.1160 There is support at 1.1060 and 1.1018  

The New Zealand dollar is slightly lower on Friday after sharp gains a day earlier. NZD/USD is trading at 0.6163 at the time of writing, down 0.27% on the day. On Thursday, the New Zealand dollar jumped 0.76% as the US producer price index fell more than expected. US PPI softer than expected The Federal Reserve meets on Sept. 18 and the meeting is live, as it’s unclear how deep the Fed will cut interest rates. This will mark the first interest rate cut since March 2020. The Fed is late to join the rate-cutting club, as most major central banks have already commenced a rate-cutting cycle in response to lower inflation. The Fed has widely telegraphed a rate cut but it will be a momentous event, all the more so given the uncertainty of the extent of the cut. Market pricing of a rate cut continues to swing wildly. Thursday’s US producer price index dropped to 1.7% in August, down from a downwardly revised 2.1% in July and below the market estimate of 1.8%. This sent the odds of a 50-basis point cut surging to 41%, compared to 13% prior to the release. The Fed would probably prefer to start the new rate-cutting cycle with a modest 25 bps move, but ever since the market meltdown in early August, an oversize 50 bps cut has become a strong possibility. The US labor market is showing clear signs of weakness and this has raised market fears that the US economy could enter a recession. New Zealand’s manufacturing PMI remained in contraction mode in August. The PMI improved to 45.8, up from a revised 44.4 but shy of the forecast of 47. All of the key sub-indexes showed contraction. The manufacturing sector continues to struggle and has contracted for 18 straight months. NZD/USD Technical NZD/USD is putting pressure on support at 0.6164. Below, there is support at 0.6142 There is resistance at 0.6205 and 0.6223

The CME FedWatch tool has suggested a total of 250 bps Fed funds rate cuts through September next year, to bring the Fed funds rate to 2.75%-3.00%. An upbeat BoJ’s monetary policy statement next Friday may trigger another round of JPY strength. Watch the key levels of 83.80 and 91.60 on the NZD/JPY. This is a follow-up analysis of our prior report “JPY crosses face another round of potential downside pressure as NFP looms” published on 6 September 2024. Click here for a recap. Since our last publication, an equal-weighted basket of Japanese yen crosses Index that consists of the G-10 currencies (AUD, NZD, CAD, SEK, NOK, EUR, GBP, CHF, and USD) continued to tumble and recorded a week-to-date loss of -1.24% at this time of the writing. Also, it is just a whisker away of 1.5% from its key 5 August 2024 swing low. NZD/JPY is the third worst-performing JPY cross pair Fig 1: 3-month rolling performances of G-10 JPY crosses as of 13 Sep 2024 (Source: TradingView, click to enlarge chart) The current leg of the Japanese yen crosses’ weakness has taken form since 2 September. Based on a three-month rolling performance basis as of 13 September, the NZD/JPY is ranked the third worst performer with a loss of 10.25% before USD/JPY (-10.26%), and NOK/JPY (-11.18%) (see Fig 1). Key pivotal week ahead for global financial markets Next Wednesday, 18 September, the US Federal Reserve is likely to kickstart its interest rate cut cycle after a pause of close to a year, and the expectations of 25 basis points (bps) cut on Fed funds rate to bring it lower to 5.00%-5.25% has already been fully priced in based on data from CME FedWatch tool. Also, the aggregated probabilities calculation from the CME FedWatch tool suggests a likely 50 bps cut each for the next FOMC meeting on 11 November and 12 December to bring the Fed funds rate to 4.00%-4.25% before 2024 ends (a total of 125 bps cut). In the upcoming year of 2025, another series of potential Fed funds rate cuts are expected to amount to 125 bps from January to September and the Fed funds rate may end at 2.75%-3.00% on the 17 September 2025 FOMC meeting; close to the 2.5% median long run projection pencilled in the previous “dot-plot” released on the June FOMC meeting. The current pricing odds obtained from the CME FedWatch tool suggest that the 30-day Fed funds futures market is highlighting an increased risk of a recessionary environment in the US, and the Fed may be forced to respond with deeper cuts down the road. Hence, Fed Chair Powell’s press conference and the latest “dot-plot” of Fed officials’ economic projections on growth, inflation, and Fed funds rate are likely to be scrutinized to decipher the Fed’s current view on the state of the US labour market and other economic growth-related variables such as consumer spending. Any hints that indirectly point to softness in the US labour market may see another round of sell-off in the US dollar. In contrast, a stamp of “confidence” on the state of the US economy from Fed Chair Powell is likely to trigger some form of short covering on the US dollar where JPY weakness may resurface in the short term. BoJ is on the horizon as well Fig 2: Japan Citigroup Economic Surprise Index of 12 Sep 2024 (Source: MacroMicro, click to enlarge chart) The Bank of Japan (BoJ) will set its monetary policy decision next Friday, 20 September after the release of the national-wide Japan inflation rate for August on the same day. Japan’s core inflation rate (excluding fresh food) is expected to inch higher for the fourth consecutive month to 2.8% y/y in August from 2.7% in July. Also, recent key economic data from Japan has improved (beat expectations on the average) in the past two weeks where the Citigroup Economic Surprise Index has jumped to 7.30 as of 12 September from -2.30 on 30 August, and it is on a steady path of uptrend since Jun 2024 low of -43.80 (see Fig 2). The consensus forecast is no rate hike by BoJ next Friday but in its monetary policy statement, BoJ may take the opportunity to sound more upbeat on Japan’s economic growth prospects and a firmer inflationary trend in Japan and set the stage for another rate hike in either October or December to bring the overnight policy interest rate to 0.50%. If such hawkish guidance from the BoJ materializes, the JPY may see another leg of strength which in turn led to more potential weakness in the JPY crosses. Technical conditions in the NZD/JPY have deteriorated significantly Fig 3: NZD/JPY medium-term & major trends as of 13 Sep 2024 (Source: TradingView, click to enlarge chart) The long-term secular uptrend of the NZD/JPY has been damaged as price actions have retested and traded below the former long-term ascending trendline from the 19 March 2020 pandemic low and the 200-day moving average on 2 September 2024. The daily RSI momentum indicator has continued to display a bearish momentum reading coupled with the 2-year yield spread of the New Zealand Government Bond and the Japanese Government Bond continued to slip to a new low at 3.5%, below the 5 August print of 3.84% which suggests the attractiveness to use the Japanese yen as a funding currency to invest in New Zealand Government Bonds have been reduced (see Fig 3). These observations suggest the NZD/JPY may be undergoing a multi-month medium-term downtrend phase. A break below the 83.80 key intermediate support exposes the next medium-term support at 81.00 in the first step. However, a clearance above 91.60 key medium-term pivotal resistance invalidates the bearish scenario for the next medium-term resistance to come in at 95.40.

The euro has extended its gains on Friday. EUR/USD is trading at 1.1091 in the European session at the time of writing, up 0.13% today. The euro has climbed 0.7% since the ECB’s rate cut on Thursday. ECB lowers rates to 3.5% The European Central Bank delivered as expected on Thursday, trimming the key interest rate by 25 basis points to 3.5%. This was the second rate cut in the current rate-lowering cycle, as the ECB responded to falling inflation and a deteriorating eurozone economy. The war against inflation is largely won, which enabled the ECB to deliver the rate cut. Inflation in the eurozone has dropped to 2.2%, close to the target of 2%. The ECB updated inflation forecast was unchanged from June, with inflation expected to average 2.5% in 2024 and 2.2% in 2025 At a press conference, ECB President Lagarde reiterated that rate decisions would be made “meeting by meeting” based on economic data, essentially ditching forward guidance. Lagarde sounded somewhat hawkish, noting that wage growth remains high and the labor market is still resilient. The ECB is being cautious and has signaled it will take a slow approach to further cuts and the markets are looking at a cut in December. If economic conditions suddenly worsen, the central bank would have to consider a rate cut next month. The Federal Reserve meets next week and rate cut odds continue to swing wildly. The US producer price index eased to 1.7% y/y in August, down from a downwardly revised 2.1% in July and below the market estimate of 1.8%. This sent the odds of a half-point cut soaring to 41%, up from just 13% yesterday, according the CME’s FedWatch. The Fed meeting is live, with plenty of uncertainty as whether the Fed will cut by 25 or 50 basis points. EUR/USD Technical EUR/USD faces resistance at 1.1099 and 1.1123 There is support at 1.1052 and 1.1028

The recent rebound from its 10 September low of 18,186 has faced a hurdle to clear above its 20-day moving average. Several key elements are advocating for a potential short to medium-term bearish reversal. Watch the key resistance at 18,660. After the 9.4% drop seen in the Germany 30 CFD Index (a proxy for the DAX futures) from the 12 July 2024 high to the 5 August 2024 low, its price actions have recouped all its prior losses and revisited its current all-time high area at 18,930/18,994. Since 3 September, it has faced a hurdle to clear above the 18.930/18,994 critical resistance zone, declined, and broke below its 20-day moving average on 6 September. These observations suggest that the short-term uptrend and recovery phase from the 5 August low to the 3 September high is in jeopardy of reversing its course. Several elements hint at a potential bearish reversal scenario at this juncture. Bearish key elements The recent 2.3% rebound from its 10 September low of 18,186 has reached the 61.8% Fibonacci retracement of the prior decline from the 3 September high to the 10 September low, and confluences with 4/6 September swing highs that is acting as an intermediate resistance at 18,660. The rebound mentioned above has taken the form of a potential “bearish flag” chart configuration pattern that implied a “dead cat bounce”. The 4-hour Stochastic oscillator has almost reached an extreme overbought level of 99 where past price actions of the Index on several occasions saw a short to medium-term bearish reversal in price actions thereafter. 18,660 and18,390 are the two key levels to watch Fig 1: Germany 30 medium-term trend as of 13 Sep 2024 (Source: TradingView, click to enlarge chart) The key medium-term pivotal resistance for the Germany 30 CFD Index stands at 18,660 which also coincides closely with the 20-day moving average that it has faced a challenge to reintegrate above it in the past four days. A break below 18,390 (the lower boundary of the “bearish flag”) may trigger a potential fresh short to medium-term impulsive downmove sequence to expose the medium-term supports of 18,160 and 17,820 (also the 200-day moving average) (see Fig 1). On the flip side, a clearance above 18,660 invalidates the bearish scenario for the next medium-term resistance to come in at 18,930/18,994 in the first step.

The New Zealand dollar is showing little movement on Thursday. NZD/USD is trading at 0.6139 at the time of writing, up 0.05% on the day. New Zealand’s Manufacturing PMI expected to improve New Zealand’s manufacturing sector has been in the doldrums, as the manufacturing PMI has posted 17 consecutive declines. Friday’s PMI is expected to improve to 47 in August, up from 44 in July (a reading below 50 points to contraction). The New Zealand economy has deteriorated and in August the Reserve Bank of New Zealand responded with its first rate cut since March 2020. The RBNZ has joined the club, as most major central banks have lowered rates and the Federal Reserve is poised to do so next week. The RBNZ will be looking to continue lowering rates, as the cash rate of 5.25% remains high and is weighing on economic activity and households. Inflation has dropped to 3.3%, which is close to the target of between 1% and 3%. The central bank meets next on Oct. 9 and there is pressure on the RBNZ to follow up with a second straight rate cut. In the US, today’s inflation numbers were a mix. Headline producer prices rose 1.7% Y/Y in August, following a downwardly revised 2.1% gain in July and just below the market estimate of 1.8%. However, core PPI rose from 2.3% to 2.4%, below the estimate of 2.5%. Today’s PPI data didn’t budge the market pricing of a Fed rate cut, with an 87% probability of a 25-bps cut next week, according to the CME FedWatch tool. Still, not everybody is on board for small cut – JP Morgan is projecting that the Fed will deliver a jumbo 50-bps reduction. NZD/USD Technical NZD/USD is testing resistance at 0.6134. Above, there is resistance at 0.6160 There are support lines at 0.6110 and 0.6084

The Australian dollar has posted slight gains on Thursday. In the European session, AUD/USD is up 0.16%, trading at 0.6684 at the time of writing. Australia’s inflation expectations dip to 4.4% Australia’s consumer inflation expectations eased to 4.4% in September, down slightly from 4.5% in August but above the forecast of 4.1%. The small decline reflects the path of inflation, which is moving lower but at a slow pace, a source of concern for the Reserve Bank of Australia. The RBA has made considerable progress in the battle with inflation but inflationary pressures remains sticky despite elevated interest rates. Most major central banks have cut rates in the new era of lower inflation but the RBA is yet to join the club. Inflation fell to 3.5% in July, down from 3.8% but above the market estimate of 3.4%. This remains well above the RBA’s target of between 2 and 3 percent. Governor Bullock has said that it’s too early to consider lowering rates but the markets are more dovish and expect an initial rate cut later in the year. The RBA meets next on Sept. 24 and is expected to maintain the cash rate at 4.35%, although an unexpected figure from next week’s employment report could mean some suspense before the rate announcement. The Federal Reserve meets on Sept. 18 and the markets have fully priced in a rate cut. The Fed has held rates at the 5.25-5.50% target for over a year and this initial cut could have a significant impact on the financial markets. The most likely scenario is a modest 25-bps cut but JP Morgan is projecting a jumbo 50-bps cut. AUD/USD Technical AUD/USD is testing resistance at 0.6693. Above, there is resistance at 0.6711 0.6657 and 0.6639 are the next support levels

The Japanese yen has extended its gains on Wednesday. USD/JPY fell as low as 140.70, its lowest level this year, before paring much of the losses. In the North American session, USD/JPY is trading at 141.71 at the time of writing, down 0.52% on the day. US inflation continues to fall The hotly-anticipated US inflation report didn’t shake up the markets as it was pretty much as advertised. Headline CPI eased to 2.5% y/y in August, down from 2.9% in July and matching expectations. This was the fifth straight decline in headline inflation. Monthly, CPI was unchanged at 0.2%, in line with the market estimate. Core CPI was unchanged at 3.2% y/y, matching the market estimate. Monthly, the core rate ticked up to 0.3%, up from the July gain of 0.2% and the market estimate of 0.2%. The inflation report comes just one week before the Federal Reserve meeting on Sept. 18. Market rate cut odds have been swinging wildly as it remains unclear whether the Fed will cut by a modest 25 basis points or a jumbo 50-bps cut. The odds of a 50-bps move surged to 59% after the soft nonfarm payroll report on Friday, but were down to 27% just prior to today’s inflation report and have fallen to 15% following the release, according to the CME’s FedWatch. This puts the likelihood of a 25-bps cut at 85%, although we’re likely to see the odds continue to shift in the days ahead. The Bank of Japan meets on Sept. 20, two days after the Fed meeting. The BoJ is looking to continue tightening but will likely stay on the sidelines next week, as BoJ officials have ruled out a rate hike while the financial markets are unsteady. That could mean that the BoJ will push off a rate hike until December or January. USD/JPY Technical USD/JPY tested support at 141.54 earlier. Below, there is support at 140.79 There is resistance at 142.80 and 143.31