USD pauses, stocks mixed in the calm before the storm

* Dollar falls with T-Note yields and stronger stocks, euro and yen climb

* Gold trades higher as US initial claims and USD ease

* Gaza ceasefire and hostage deal gets renewed push after recent deadlock

* German business morale set to edge higher after ECB rate cut

FX: USD sold off after making multi-week highs on Wednesday. There is a major Fib retracement level (61.8%) of the June-October sell-off at 104.08. Any pullbacks could be mild with US data still relatively exceptional (or probably being looked through due to weather related distortions) and Trump 2.0 potentially on the horizon. Loose fiscal and tighter monetary policy is expected from him, so supporting the buck. There’s also now only near a coin flip chance of a 25bps December rate cut, after one in November which is still virtually fully priced in. Liquidity may dry up slightly heading into November 5.

EUR headed higher for only the second session in 12. It seems like prices would need to get above the 200-day SMA at 1.0869 at a minimum to pause the bear trend. October PMIs were mixed with French data weaker while German figures were the opposite. That helped the region’s figures remain broadly stable. The surveys are in line with a soft economic environment with slowing inflation.

GBP climbed back to its 100-day SMA at 1.2964. UK PMIs were broadly in line with estimates, staying above the contraction/expansion level of 50. Governor Bailey said recently that inflation was falling faster than expected. Two 25bps rate cuts seem likely in November and December.

USD/JPY sold off after hitting a high of 153.18 on Wednesday. Treasury yields turned down after posting three-month highs at 4.27% on the 10-year. We had some jawboning as we predicted earlier in the week. Finance minister Kato warned against currency speculation, expressing concern over “one-sided, rapid” moves. BoJ Governor Ueda was also on the wires, warning of the cost of moving policy too slowly, which could encourage speculators to push the yen lower.  

AUD steadied around the 200-day SMA at 0.6627 as it printed an inside day. The aussie (and kiwi) have been in the crosshairs of the Trump Trade with his protectionist pledges expected to hit China and those dependent economies. USD/CAD moved higher once more to new highs at 1.3867. Rate differentials between Canada and the US are widening further with more BoC rate cuts predicted. The August spike high is 1.3946.

US Stocks settled mixed as Tesla surged. The S&P 500 closed 0.21% higher to settle at 5,809. The tech-laden Nasdaq 100 gained 0.83% to finish at 20,232. The Dow settled down 0.33% at 42,374. Consumer cyclicals were the standout performer with defensives healthcare, materials, utilities and industrials all in the red. Tesla jumped 22% after the EV maker posted a surprise gain in Q3 earnings and also issued a bullish outlook on 2025 volume growth. On the flip side, IBM dropped over 6% as it missed estimates with declines in consulting and infrastructure segments.

Asian stocks: Futures are mixed. Asian stocks were cautious on mixed earnings releases. The ASX 200 was helped by tech and defensives which offset the sell-off on the disappointing manufacturing PMI data. The Nikkei 225 was subdued as its PMI figures contracted. The Hang Seng and Shanghai Composite were both under pressure due to tech and property weakness.  

Gold steadied, putting in a solid day and clawing back losses from the prior session. Wednesdays’ record peak was at $2758.

Day Ahead – German IFO Business Survey data to add to the ECB decision

German data has generally been poor and stagnant, adding to the ECB rate cut policy mix. In September, IFO business climate fell sharply as current conditions deteriorated across all sectors, with services posting the largest decline. For October, a small improvement is forecast. The announcement of stimulus packages in China should raise the export outlook, as do decent growth signals from the US.

Meanwhile, a looming third policy rate cut by the ECB should ease financing conditions. But economists say a stream of negative headlines out of the auto sector and the timing of school holidays will likely put a damper on production which won’t help the numbers. In general, expectations for German data seem so depressed that any upside surprise may help sentiment, especially as the euro remains deeply oversold. That said, ECB officials seem set on a path of back-to-back rate cuts in the foreseeable future.

Chart of the Day – Gold steadies near record highs

Gold has been shining this year – surely, you’ll excuse the pun – with the precious metal up more than 30% year-to-date, with only minor corrections seen during this extended bullish move. Prices took their time to decisively break the April, May, July and August highs around $2431. But gold has powered ahead with the de-dollarisation and US debt sustainability key drivers most recently, as the Trump Trade gains traction. De-dollarisation has been highly politicised in recent years, with some observers linking it to deteriorating foreign relations between the US and some of its counterparts, including trade wars and weaponisation of the dollar through sanctions. It is a very nuanced and interesting topic, but for now is a potential factor in dollar flows, and topical too with the recent BRICS+ meeting.

The 21-day SMA is as good an indicator as any for support in a strong bull trend. That resides at $2669, near the September high at $2685. As wrote last time when commenting on gold, “an ascending channel has developed and…the Middle East tensions saw more haven buying. Last week’s record high at $2685 is in sight and waiting to be conquered.”

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