USD rose against a number of currencies yesterday, as the US financial data released were quite favorable. However other factors were also in play, as the US treasury 10 year bond yield rose to one of its highest levels in a number of years and the Fed’s Chairman Jerome Powell, made some comments interpreted as hawkish by the market. Fed Chairman Powell commented that the Fed may raise interest rates above an estimated “neutral” setting as the “remarkably positive” US economy continues to grow. We see the case for the stakes to have been raised for Friday’s US Employment report and should there be further indication that the US labour market remains tight we could see the USD strengthening. The rise of the USD could also be a result of the market trying to position itself ahead of the US employment report, hence we could see volatility rising.

AUD/USD dropped yesterday breaking consecutively the 0.7160 (R1) and the 0.7115 (R2) support levels (now turned to resistance). The pair could continue to trade in a bearish market today, ahead of the release of the US employment report tomorrow and as the financial releases today could support the USD. It should be noted though, that the RSI indicator in the 4 hour chart is below the reading of 30, implying a rather overcrowded short position and that the pair has reached one of its lowest prices in three years. Should the pair continue to be under selling interest we could see the pair breaking the 0.7060 (S1) support line and aim for the 0.7000 (S2) support barrier. Should the pair come under buying interest we could see it breaking the 0.7115 (R1) resistance level and aim for the 0.7160 (R2) resistance hurdle.

Italy compromises in budget deficit level

According to media, Italy intends to keep its budget deficit at 2.4% for 2019, however compromises to lower it to 2.1% in 2020 and 1.8% in 2021. The compromise came after criticism from the EU and pressure from the markets, as the country’s high debt level is expected to rise along with the budget deficit. It should be noted though that the growth assumptions on which the budget deficit relies on, have not been released yet and are expected within the next few days if not today. Should the underlying estimates be perceived by the market as unrealistic, we could see the Italian government come under renewed criticism and volatility for the common currency could rise again.

EUR/USD dropped heavily yesterday, as it broke all three of our support levels and landed just below the 1.1480 (R1) support line (now turned to resistance). The pair could continue to trade in a bearish market, ahead of the release of the US employment report tomorrow and as the Italian budget deficit issue could increase volatility for the EUR side. Tough technically, it should be noted that the pair’s RSI in the 4 hour chart remains near the reading of 30 implying a rather overcrowded short position. Should the bears continue to dictate the pair’s direction, we could see it breaking the 1.1420 (S1) support line and even aim for the 1.1360 (S2) support zone. Should on the other hand the bulls be in charge, we could see the pair breaking the 1.1480 (R1) resistance line and aim for the 1.1525 (R2) resistance barrier.

In today’s other economic highlights:

In a rather quiet Thursday, in the American session from the US we get the initial jobless claims figure for this week and the factory growth rate for August, while from Canada we get the Ivey PMI for September. The market’s attention could be shifted towards tomorrow’s US employment report for September, as it is considered the next major financial release and a market mover.

AUD/USD 4H

Support: 0.7060 (S1), 0.7000 (S2), 0.6950 (S3)

Resistance: 0.7115 (R1), 0.7160 (R2), 0.7200 (R3)

EUR/USD 4H

Support: 1.1420 (S1), 1.1360 (S2), 1.1300 (S3)

Resistance: 1.1480 (R1), 1.1525 (R2), 1.1577 (R3)