Buoyant buck boosted by data; ECB to remain in cutting mode

* ECB cuts rates for third time to prop up weakening economy

* EUR/USD accelerates its losses and challenges 1.08 post-meeting

* Treasury yields climb as retail sales confirm more strong US data

* Gold hits record high on US election uncertainty, policy easing

FX: USD made more gains with a beat in both retail sales and the Philly fed survey, while weekly employment numbers were better with lower initial jobless claims. The Q3 Atlanta Fed GDPNow tracker was revised higher on account of the strong retail sales to 3.4% from 3.2%. 

EUR slid again and below the 200-day SMA at 1.0872. The 61.8% retracement level of the year-to-date low to high sits at 1.0832. The ECB cuts rates as expected and didn’t offer too much about future decisions. It is still data dependent but that likely means more policy easing is on its way. There is a chance (approx. 20%) of a 50bps move in December, but it seems more likely to be reductions at every meeting, potentially into the second half of 2025.

GBP outperformed every major apart from the aussie. That meant prices hovered around the increasingly important 1.30 level. Retail sales are released today, which are normally a volatile set of data. A decent summer typically sees a retracement, which matches the sharp fall in consumer confidence in September.

USD/JPY edged higher as the yen succumbed to rising US Treasury yields. Resistance resides around 150, and then the 100-day and 200-day SMAs sit just above at 150.81 and 151.29. Focus turns to Japan CPI data released today.

AUD made back some of its breakdown from Wednesday.  Better than predicted jobs data helped. The headline was a strong beat and above the upper bound of the forecast range, while the unemployment unexpectedly fell to 4.1% from 4.2%. This bolstered bets on a delay to the RBA rate cut cycle.

US Stocks were mixed and again proved choppy. The S&P 500 closed 0.02% lower to settle at 5,841. But it did make a new intraday all-time top at 5,878. The tech-dominated Nasdaq 100 added 0.08% to finish at 20,190. The Dow settled up 0.37% at 43,239 and a fresh record closing high. Tech, energy and financials were the only sectors in the green. Strong TSMC earnings helped Nvidia to make a new record top. Financials were buoyed by a strong earnings report form Blackstone. Netflix jumped close to 4% after it reported its Q3 earnings after the US closing bell. The company outperformed on both the top and bottom lines on strong membership growth. The all-time high hit a week ago last Friday was $736.

Asian stocks: Futures are mixed. Asian stocks were mostly positive after Wall Street’s positive lead. The ASX 200 posted a record high as financials, real estate and industrials led the gains. The Nikkei 225 underperformed again on muted trade data. The Hang Seng and Shanghai Composite made ground but the latter lost its gains on property stock weakness after the uninspiring press briefing by government agencies.

Gold made more new highs closing just off its record peak set at $2696. Some cited Chinese buying as they looked to the precious metal instead of the local stock market. Uncertainties around the US election and fiscal instability are other reasons for the ongoing bid in gold, even though yields and the dollar are relatively strong.

Day Ahead – Japan CPI and China data dump

Japan September inflation is likely to have declined sharply from 2.8% in August as an early Tokyo release also indicated. The BoJ’s preferred measure of inflation (CPI excl. fresh food) stood at 2.8% in August and should remain above the 2%-target. Core price pressures have largely aligned with 2% inflation recently. With the October yen slide in mind, there may be an opening for another BoJ hike in either December or January after the dust has settled upon the general election on 27 October.

China releases its monthly data on home sales, house prices, retail sales, industrial production, as well as Q3 GDP figures. The latter is forecast to remain below the key 5% target. Retail sales are expected to stay sluggish, with the housing construction side still weighing on overall fixed asset investment. This weak picture of China is likely to highlight the need for the increased stimulus that is starting to be announced. 

Chart of the Day – Dollar riding high

The greenback continues to enjoy solid data, reinforced by retail sales and the improved weekly job numbers. The Trump trade and a red sweep is also getting some airtime, which supports USD. That has seen rate cut pricing for the December FOMC meeting reined in. There are 43bps of cuts currently priced in versus around 50bps at the start of the week.  

The Dollar Index has posted seven straight days of gains, which hasn’t been since April 2022. Prices are through the 50% recovery of the year-to-date high to low at 103.34, with the 200-day SMA just above at 103.77. The next upside level is the 61.8% mark at 104.08. Prices are overbought on the daily RSI and outside the upper Keltner band, so warning of a correction.