Dollar Pulls Back With Market Caution Rising Before Critical US Events

The forex markets have shifted into consolidation mode today, with Dollar’s rally slowing as profit-taking sets in. Traders are showing caution ahead of two critical events that could reshape the near-term outlook: the upcoming non-farm payroll report next Friday, and the US presidential election the following week. NFP data is expected to set the stage for November and December FOMC rate decisions. Meanwhile, the presidential election carries broad economic implications, as shifts in administration priorities could impact both US and global markets.

Despite some pullback, Dollar remains the strongest performer this week. Swiss Franc and Euro follow behind. Japanese Yen remains the weakest currency this week. Both New Zealand Dollar and Australian Dollar also lag. Pound and Canadian Dollar are holding in middle ground.

In Europe, at the time of writing, FTSE is down -0.03%. DAX is up 0.07%. CAC is down -0.19%. UK 10-year yield is down -0.0324 at 4.213. Germany 10-year yield is up 0.007 at 2.279. Earlier in Asia, Nikkei fell -0.60%. Hong Kong HSI rose 0.49%. China Shanghai SSE rose 0.59%. Singapore Strait Times fell -0.32%. Japan 10-year JGB yield fell -0.006 to 0.952.

US durable goods orders down -0.8% mom in Sep, ex-transport orders up 0.4% mom

US durable goods orders fell -0.8% mom to USD 284.8B in September, better than expectation of -0.9% mom. Transportation equipment, drove the decrease, -3.1% mom to USD 95.4B Both were down three of the last four months.

Ex-transport orders rose 0.4% mom to USD 189.3B, much better than expectation of -0.1% mom decline. Ex-defense orders fell -1.1% mom to USD 264.9B.

Canada’s retail sales rises 0.4% mom in Aug, vs exp 0.6% mom

Canada’s retail sales grew 0.4% mom to CAD 66.6B in August, worse than expectation of 0.6% mom. Sales were up in four of nine subsectors and were led by increases at motor vehicle and parts dealers. Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—were down -0.4% mom.

Advance estimate suggests that sales increased 0.4% mom in September.

German Ifo rises to 86.5, stops declining for the time being

Germany’s Ifo Business Climate index improved in October, rising from 85.4 to 86.5 and exceeding expectations of 85.4. Current Assessment index also showed an uptick from 84.4 to 85.7, surpassing the forecasted 84.1, while Expectations index rose from 86.4 to 87.3, above the anticipated 86.6.

Sectoral data further underscores this cautious optimism, with manufacturing inching up from -21.4 to -20.6, services edging into positive territory from -3.5 to 0.1, and trade posting an improvement from -29.8 to -29.3. Construction sector, however, slipped from -25.3 to -25.7.

This data signals a stabilization in Germany’s economic outlook, with Ifo commenting, “The German economy stopped the decline for the time being.”

Tokyo CPI core dips to 1.8% in Oct on lower energy prices

Japan’s Tokyo CPI core (excluding food) dropped from 2.0% yoy to 1.8% yoy in October, slightly above market expectations of 1.7%. This marks the first time in five months that inflation has dipped below BoJ’s 2% target. Headline CPI also slowed from 2.1% yoy to 1.8% yoy.

The deceleration was largely driven by a slowdown in energy prices, with government subsidies for energy costs contributing to a 0.51 percentage point reduction in the overall index.

Despite this, underlying inflationary momentum ticked up, as core-core CPI (excluding food and energy) rose from 1.6% yoy to 1.8% yoy. Services prices also saw an uptick, increasing by 0.8% yoy compared to 0.6% yoy in the prior month.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0789; (P) 1.0810; (R1) 1.0848; More…

Intraday bias in EUR/USD stays neutral for consolidation above 1.0760 temporary low. Further decline is expected as long as 1.0871 resistance holds. Below 1.0760 will resume the fall from 1.1213 to 1.0601 support next. However, considering bullish convergence condition in 4H MACD, break of 1.0871 will indicate short term bottoming, and turn bias back to the upside for 55 D EMA (now at 1.0963).

In the bigger picture, price actions from 1.1274 (2023 high) are seen as a consolidation pattern to up trend from 0.9534 (2022 low), with fall from 1.1213 as the third leg. Downside should be contained by 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404, to bring up trend resumption at a later stage.