Maximize Trading opportunities with market insights to start the NA session

The forex markets are showing ups and downs after the USD moved higher yesterday helped by rising interest rates . Currently rates are of modestly higher the front end and down modestly near the end of the yield curve. US stocks are lower as geopolitical risks of tensions between Iran and Israel increase. Oil is higher. Gold is on pace for a record close.

Fed speakers in the early week have expressed a desire to recalibrate, but how far and how fast is still a question for debate.

Late yesterday, Federal Reserve Bank of Kansas City President Jeffrey Schmid is advocating for a cautious approach to interest rate cuts, emphasizing the need for gradual and deliberate adjustments. He believes the current policy isn’t very restrictive and that the labor market is normalizing, rather than deteriorating. Schmid is “reasonably confident” that inflation is heading in the right direction, but wants to avoid making oversized rate cuts that could contribute to financial market volatility. Instead, he suggests lowering rates gradually, allowing time to observe the economy’s reaction and assess the optimal interest rate level.

Schmid also expressed his preference for a relatively aggressive approach to balance sheet reduction and noted that interest rates will likely settle above pre-pandemic levels ¹. This cautious stance on rate cuts might even lead to a pause in November, according to some analysts ¹. Overall, Schmid’s approach prioritizes stability and careful observation over rapid rate cuts.

Mary Daly, President of the Federal Reserve Bank of San Francisco, shared her thoughts on the recent rate cut, calling it a “close call” . She strongly favored the 50 basis point (bps) cut, emphasizing that it was necessary to avoid overtightening and potentially losing jobs ¹. Daly believes the current policy is still tight and is cautious about slowing down the labor market .

Key Takeaways from Daly’s Comments:

• Future Rate Cuts: Daly expects additional cuts going forward, as the Fed will continue to adjust policy .

• Data-Dependent Approach: The Fed’s November meeting will be guided by data, and so far, there’s no indication to stop cutting rates .

• Neutral Rate Estimate: Daly estimates the neutral rate to be around 3%, with a reasonable range between 2.5 and 5% .

• Soft Landing: To achieve a soft landing, the policy rate needs to adjust as inflation falls.

• Open-Minded Approach: Daly is open to continuing to ease policy if inflation keeps falling, even with a strong economy .

Daly’s views diverged slightly from other Fed officials, such as Schmid, who advocated for a more cautious approach to rate cuts . However, all officials expressed support for further interest-rate cuts .

Feds Harker speaks later today at 10 AM. The return Fed manufacturing index will also be released at that time. Canada producer price data will kick things off at 8:30 AM ET with expectations of -0.5% versus -0.8%.

BOE’s Bailey and MPC Greene are scheduled to speak at 9:25 AM ET and 9:45 respectively.

In the forex, a summary with key technical levels shows:

• EURUSD: The EURUSD held below the 200 day MA and 61.8% of the move up from the June low near 1.0874 yesterday (bearish). The price low yesterday and today is pushing toward the low from last week at 1.0810. Move below would target 1.07767.
• GBPUSD: Traders have been targeting the 100 day MA and the 61.8% of the move up from the August low at 1.2962 and 1.2958. The low price today reached within 3 pips of the 100 day MA at 1.2965 and bounced to 1.2984. Break below targets 1.2938 followed by 1.2844 to 1.2867. The overhead resistance is at 1.3000 where the low from September 11 bottomed (before bouncing). PS the price did break above the 1.3000 but the high price today also stalled at the falling 100 hour MA. That level come comes in at 1.3010 so 1.3000 to 1.3010 is really my best topside resistance/bias defining level.
• USDJPY:The USDJPY has broken above the 100 day MA at 150.75 and the 50% of the move down from the July high at the same level. The price trades at 150.83. Staying above keeps the buyers in firm control (look for more upside probing – the 200 day MA is up at 151.345 as an intermediate target). Move below with momentum and we should see buyers turn to sellers.
• USDCHF: The USDCHF remains above the 38.2% of the move down from the July high at 0.86318. Yesterday support buyers came in against the level increasing its importance going forward. Stay above is bullish. Move below and I would expect some selling on the disappointment. On the topside, the highs from last week remain a hurdle at 0.86684. Get above and traders will look toward the falling 100 day MA at 0.8698 as the next key target.
• USDCAD: The USDCAD reached a swing area target between 1.38337 and 1.3847 and stalled. The price trades just below that level with a low today at 1.3820. The range today is only 17 pips versus 1 month average of 56 pips. There is room to roam higher or lower. The buyers have been in control but overbought. Nevertheless if get above 1.3847 don’t mess with the trend. I would rather wait for a failure if can’t buy USDCAD, but buyers are in control folks.
• AUDUSD: The 50% midpoint of the move up from the August low comes in at 0.6645 and the low reached 0.6650 at the start of the new trading day today. The bounce higher has moved to a swing area between 0.6685 to 0.6695. At the 0.6695 level is also the key 100 day MA. The price needs to stay below that level today and going forward if the sellers are to remain more in control. The high today reached 0.66918. So support and resistance held the range today.
• NZDUSD: The NZDUSD broken below a swing area target between 0.60313 and 0.60387. The failed break turned sellers into buyers with the pair moving back above the broken 61.8% at 0.60509. The price is trading above and below that level as traders ponder the next move.

In geopolitics ,concerns remain a focus after Israeli Prime Minister Benjamin Netanyahu was the target of an assassination attempt involving a drone launched from Iran, as reported by various sources, including Saudi Al-Hadath. Israeli security officials are conducting investigations to confirm Iran’s involvement in the incident. Hezbollah is claiming “full responsibility for the attack.

Additionally, Netanyahu held consultations with specific cabinet ministers at the Ministry of Defense in Tel Aviv, according to reports from Al Jazeera and Israeli media. Netanyhu and U.S. Secretary of State Antony Blinken are meeting now.

In earnings released this morning:

• Lockheed Martin (LMT) Q3 2024: EPS 6.84 vs estimate of 6.50 (BEAT), Revenue 17.10bn vs estimate of 17.35 bn – MISS
• Fiserv Inc (FI) Q3 2024: EPS 2.30 versus estimate of 2.26 (BEAT), Revenue 5.215bn versus estimate of 4.91bn – BEAT
• Sherwin-Williams Co (SHW) Q3 2024: EPS 3.37 versus estimate of 3.54 (MISS), Revenue 6.16bn versus estimate of 6.20bn – MISS
• Philip Morris Inc (PM) Q3 2024: EPS 1.91 versus estimate of 1.82 (BEAT), Revenue 9.91bn versus estimate of 9.69bn – BEAT
• Invesco Ltd (IVZ) Q3 2024: EPS 0.44 versus estimate of 0.83 (MISS), Revenue 1.51bn versus estimate of 1.61bn – MISS
• RTX Corp (RTX) Q3 2024: EPS 1.45 versus estimate of 1.34 (BEAT), Revenue 20.6bn versus estimate of 19.08bn – BEAT
• Quest Diagnostics Inc (DGX) Q3 2024: EPS 2.00 versus estimate of 2.28 (MISS), Revenue 2.49bn versus estimate of 2.42bn – MISS
• General Motors Co (GM) Q3 2024: EPS 2.06 versus estimate of 2.43 (MISS), Revenue 48.76bn versus estimate of 44.88bn – MISS
• PulteGroup Inc (PHM) Q3 2024: EPS 3.35 versus estimate of 3.31 (BEAT), Revenue 4.31bn versus estimate of 4.26bn – BEAT
• 3M Co (MMM) Q3 2024: EPS 1.98 versus estimate of 1.90 (BEAT), Revenue 8.04bn versus estimate of 8.05bn – MET
• GE Aerospace (GE) Q3 2024: EPS 1.15 versus estimate of 1.14 (BEAT), Revenue 9.84bn versus estimate of 9.02bn – BEAT
• Danaher Corp (DHR) Q3 2024: EPS 1.71 versus estimate of 1.57 (BEAT), Revenue 8.58bn versus estimate of 8.50bn – BEAT

A snapshot of the other markets as the North American session begins shows:

• Crude oil is trading up $0.53 or 0.77% at $70.58. At this time yesterday, the price was at $70.20.
• Gold is trading up $14.73 or 0.54% had $2734.11. Is on target for a new record close. At this time yesterday, the price was at $2735.
• Silver is trading up $0.63 or 1.88% at $34.38. At this time yesterday, the price is at $34.01. Silver is trading at the highest level since December 2012
• Bitcoin is trading at $67,191. At this time yesterday, the price was at sea thousand $200
• Ethereum is trading at $2634.90. At this time yesterday, the price was at $2703.10

In the premarket, the snapshot of the major indices are lower after mixed results yesterday with the NASDAQ index rising, but the Dow industrial average falling on the back of AMEX, Merck, Goldman, Home Depot each falling over 2%. The NASDAQ closed at its highest level (at 18540.01) since its all time high close on July 10 (at 18647.45). Today the price is lower in premarket trading.

• Dow Industrial Average futures are implying a decline of -140.60 points. Yesterday, the index fell -344.31 or -0.80% at 42931.60
• S&P futures are implying a loss of -20.50 points points. Yesterday, the index fell -10.69 points or -0.18% at 5853.98
• Nasdaq futures are implying a loss of -84.10 points. Yesterday, the index rose 50.45 points or 0.27% at 18540.01

European stock indices are trading mixed:

• German DAX, -0.04% %
• France CAC, -0.30%
• UK FTSE 100, -0.54% %
• Spain’s Ibex, -0.95%
• Italy’s FTSE MIB, -1.00% (delayed by 10 minutes)

Shares in Asian Pacific session shares were mostly lower:

• Japan’s Nikkei 225, -1.39%
• China’s Shanghai Composite Index, +0.54%
• Hong Kong’s Hang Seng index, +0.10%
• Australia S&P/ASX index, -1.66%

Looking at the US debt market, yields are trading modestly higher

• 2-year yield 4.034%, +1.0 basis points. At this time yesterday, the yield was at 3.989%
• 5-year yield 3.986%, +1.1 basis points. At this time yesterday, the yield was at 3.931%
• 10-year yield 4.187%, +0.6 basis points. At this time yesterday, the yield was at 4.134%
• 30-year yield 4.488%, +0.0 basis points. At this time yesterday, the yield was at 4.442%

Looking at the treasury yield curve close steeper on Friday. At the close

• The 2-10 year spread is at +14.5 basis points. At this time Friday morning, the yield spread was +15.3 basis points.
• The 2-30 year spread is at +45.3 basis points. At this time Friday morning, the yield spread was +45.2 basis points.

This article was written by Greg Michalowski at www.forexlive.com.