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Asian equity markets mostly traded with mixed results amid uncertainty in global markets. Japan's Nikkei 225 showed slight gains, while Hong Kong's Hang Seng outperformed due to strength in various sectors. Market sentiment remained cautious as investors awaited the release of the US Non-Farm Payrolls report, which is closely watched for its impact on economic conditions and interest rate expectations. The report could provide clues about the Federal Reserve's future policy decisions and the trajectory of interest rates. Additionally, a potential meeting between US President Biden and Chinese President Xi Jinping added to hopes of stabilising US-China relations, although no confirmation was available.

Stateside, the US labor market report is expected to be a key event, as it could influence the Fed's monetary policy decisions. The market was particularly interested in whether the Fed would raise interest rates again in the near term and whether concerns about a more prolonged period of higher rates were valid. The report was likely to be pivotal in determining whether the Fed would hike rates at its next policy meeting in November. However, uncertainties regarding the longer-term rate outlook were expected to persist. The labor market report is expected to show continued strength, with forecasts of moderate job growth, a decline in the unemployment rate, and modest wage growth. These factors would provide some justification for another rate hike by the Fed but may not offer a clear-cut decision, especially considering recent increases in bond yields, which could be perceived as tightening financial conditions. The reaction of Fed policymakers to the report's data in the coming days would be closely monitored, as it could provide insights into the central bank's intentions for the November interest rate update.

Canada's labor market data is also scheduled for release, presenting a similar dilemma for the Bank of Canada (BoC). While the BoC left rates unchanged at its last policy meeting, policymakers have expressed concerns about persistent inflationary pressures. There was a roughly 30% probability in the markets of a rate hike at the upcoming BoC update, making the labor market data significant in shaping future policy decisions.

The speaker's schedule includes remarks from Fed Governor Christopher Waller, who is considered to be on the more hawkish end of the Federal Open Market Committee (FOMC) policy spectrum. Hawkish policy makers typically advocate for tighter monetary policy, including higher interest rates, to combat inflationary pressures. Therefore, Waller's remarks could provide insights into his stance on inflation, interest rates, and the overall economic outlook. Market participants will likely closely monitor his comments for any signals regarding the direction of future Fed policy.
 

FX Positioning & Sentiment 

The shifting trajectory of U.S. interest rates, marked by a decreasing likelihood of further hikes, counter to what currency traders initially anticipated, is poised to weaken the U.S. dollar. Following the Federal Reserve's September meeting, where traders initially focused on the prospect of additional rate increases, there was substantial demand for the dollar, propelling it to its highest point this year. However, this bullish sentiment has been overshadowed by a significant drop in the probability of an impending interest rate hike. Instead, the prevailing expectation is that the next move in interest rates will be a cut, anticipated to occur in the summer of 2024. The probability of a rate hike has receded notably, now standing at a mere 35% chance for December, representing a significant departure from previous expectations.

Conversely, the probability of a rate cut has shifted closer to June from July, reflecting the evolving sentiment and outlook for U.S. monetary policy. This shifting landscape is expected to have implications for the strength of the U.S. dollar in the currency markets.
 

CFTC Data As Of 26-09-23

• Net USD G10 long grew slightly to $5.1bn in Sep 20-26 period, $IDX +1.01%
• EUR$ -1.01% in period specs -3,582 contracts now +98,399
• $JPY +0.81%, specs -7,893 contracts now -109,512; USD longs eye 150
• GBP$ -1.92% in period, specs -18,014 contract, long cut to 15,669
• Specs wary of diminishing BoE hike outlook, falling UK growth
• CAD, AUD buck the trend specs +15k CAD, +10k oz as commodities rise, oil abv $90
• BTC -3.82% in period specs +197 contracts on dip, now +1,794; central banks near end of hike cycle supports BTC. (Source Reuters)
   

FX Options Expiries For 10am New York Cut 

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

• EUR/USD: 1.0450 (3.4BLN), 1.0500-10 (2.5BLN), 1.0550-60 (2.7BLN)
• 1.0575-80 (1.2BLN), 1.0600 (900M), 1.0640-50 (3.4BLN), 1.0685 (2.8BLN)
• USD/CHF: 0.9030 (825M), 0.94100 (200M), 0.9160 (600M), 0.9250 (301M)
• EUR/GBP: 0.8610 (347M), 0.8785 (400M)
• GBP/USD: 1.2100 (400M), 1.2175 (814M), 1.2200 (851M), 1.2225 (1BLN)
• 1.2250 (485M)
• AUD/USD: 0.6300 (1.5BLN), 0.6350 (722M), 0.6380-85 (1.3BLN)
• 0.6390-0.6400 (4.3BLN)
• NZD/USD: 0.5880-90 (641M), 0.5940 (200M), 0.5990-95 (578M)
• USD/CAD: 1.3625 (1.5BLN), 1.3665 (680M), 1.3750 (336M)
• USD/JPY: 147.65 (435M), 148.50 (550M), 148.75 (360M)
• 149.00 (895M), 149.35-50 (2.5BLN), 150.00 (2.1BLN)
   

Overnight Newswire Updates of Note

• Fed Officials Largely Sanguine About Rise in US Bond Yields: Federal Reserve officials seem relatively calm about the recent increase in US bond yields. 
• Biden Plans November Meeting with China's Xi: There are plans for a meeting between US President Joe Biden and Chinese President Xi Jinping in November. 
• Japan's Finance Minister Suzuki on FX Movements: Japan's Finance Minister Taro Aso Suzuki commented that there are many factors to consider if foreign exchange (FX) movements become "excessive." 
• BOJ's Potential Move: There is speculation that the Bank of Japan (BOJ) could raise its 1% yield cap as its next policy move. 
• Japan's Inflation-Adjusted Wages: Japan's inflation-adjusted wages extended their declines in August. 
• MUFG's Concerns on Japan's Fiscal Discipline: Mitsubishi UFJ Financial Group (MUFG), one of Japan's top banks, has raised concerns about Japan's fiscal discipline. 
• RBA Financial Stability Review (FSR): The Reserve Bank of Australia (RBA) has expressed concerns about mounting risks in global financial markets, as well as challenges related to the property market in China. 
• EU Leaders to Debate Economic Security: European Union (EU) leaders are set to discuss economic security in the context of global tensions.

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
 

Technical & Trade Views

SP500 Bias: Bullish Above Bearish Below 4270

• Above 4280 opens 4315
• Primary resistance  is 4400
• Primary objective is 4190
• 20 Day VWAP bearish, 5 Day VWAP bearish

(Click on image to enlarge)

EURUSD Bias: Bullish Above Bearish Below 1.0610

• Above 1.0610 opens 1.0650
• Primary resistance is 1.0760
• Primary objective is 1.0450
• 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

GBPUSD Bias: Bullish Above Bearish Below 1.22

• Above 1.22 opens 1.23
• Primary resistance  is 1.2450
• Primary objective 1.2060
• 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

USDJPY Bias: Bullish Above Bearish Below 148.50- 150 Target Hit, New Pattern Emerging

• Below 148 opens 147.50
• Primary support 144.50
• Primary objective is 150
• 20 Day VWAP bullish, 5 Day VWAP bearish

(Click on image to enlarge)

AUDUSD Bias: Bullish Above Bearish Below .6450

• Above .6475 opens .6525
• Primary resistance  is .6620
• Primary objective is .6270
• 20 Day VWAP bearish, 5 Day VWAP bearish

(Click on image to enlarge)

BTCUSD Bias: Bullish Above Bearish below 27500

• Above 28600 opens 30000
• Primary resistance  is 28175
• Primary objective is 23300
• 20 Day VWAP bullish, 5 Day VWAP bullish

(Click on image to enlarge)

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