Manufacturing activity contracted further last month in the United States, reaching its lowest level since July 2009. The indicator also proved to be well below expectations on the service side. The American president obviously accuses the FED, which he believes is guilty of letting the dollar appreciate. For Trump, the equation is simple: the good news is the result of an intelligent and courageous policy he has been pursuing for nearly three years, the bad news is a direct consequence of the incompetence of Jerome Powell, President of the Federal Reserve, whom he himself appointed. Simple.
In Europe, German inflation slowed in September: +1.2% year-on-year compared to +1.4% in August and +1.7% in July. After already alarming PMI indicators, markets are worried about Angela Merkel's inflexibility on the country’s budget. For the Chancellor, it is out of question to return to deficit despite Berlin's ability to borrow at negative market rates. Philip Lane, the ECB's chief economist, is trying to reassure by saying that the monetary authority has a margin to lower rates again.
On the Brexit front, Boris Johnson presented a final "compromise" to the EU to avoid a no-deal Brexit, but Brussels does not seem to be satisfied with a proposal without real progress. With less than a month to go, a further postponement extending the uncertainties therefore still appears to be the most likely scenario.
In Australia, the central bank lowered its key interest rate by a quarter of a point to 0.75%, a new all-time high. The institution is thus adapting its strategy to commercial tensions and in particular to the economic slowdown of the Washington scapegoat and Canberra's main customer, China. The members of the RBA Council are also ready to do more to support growth and employment in the island continent.
On Friday, traders will read the latest monthly US employment report, which is the focus of attention after the ISM indices. They will be watching a speech by Jerome Powell on the same day before a rather calm start to the following week until the FED minutes are published on Wednesday evening.
Graphically, the Euro is taking advantage of the decline in the Dollar to offer itself a technical rebound, but the trend remains largely downward across all horizons. We are selling in contact with USD 1.1002, even USD 1.1143, with a return to 1.0727 in sight, with a view to filling the Macron gap.
Meanwhile, the cable struggled to recover from its 20-day moving average but found more support under 1.23. Once again, we do not believe in the no-deal scenario and in this sense, the price of the Sterling is particularly attractive in a long-term perspective. In the shorter term, a probable postponement of the Brexit contributes to the uncertainties and prevents the parity from making any significant progress. We are on the sidelines but keep an eye on USD 1.2523, a key level.
The Australian Dollar is adjusting in response to the RBA's falling interest rate on money and is now at its lowest levels in more than a decade. We are of course bearish on the pair but we prefer sales on rebound. In the short term, 0.6797 could serve as the first resistance.
On the safe haven side, the Swiss Franc is losing ground against the Euro but the Yen is strengthening, mainly due to the relevance of the levels mentioned last week (CHF 1.0823 and JPY 108.60). The EUR/CHF pair will now have to close above 1.0996 in daily to allow itself more ambitious targets (1.1243 and 1.1450). In the event of a closing below 107.10, which seems to be taking shape, the USD/JPY pair could, on the other hand, accelerate its decline to 105.90 and then 104.80.