Durable Goods Contraction Provides Welcomed Relief to Battered Market Sentiment
The latest data shows that US Durable Goods Orders fell by 0.8% in September, marking the second consecutive month of contraction after a sharp downward revision of the previous month's figure from 0% to -0.8%. While the headline number was better than economists' forecasts, the underlying trend points to weakening demand in the manufacturing sector.
The consecutive declines suggest that businesses may be scaling back on capital expenditures due to economic uncertainties.
Equity markets embraced the softer Durable Goods data, rallying on rising implied odds of additional Fed rate cut in December. Interest rate futures price in a 97% probability of a 25 basis point rate cut at the upcoming FOMC meeting on November 7.
The US Dollar Index (DXY) is at a critical juncture, testing support at the 104.00 level. A close above this threshold could pave the way for a rally toward 105.50, especially as uncertainties surrounding the upcoming US presidential election begin to intensify:
The Pound Sterling has gained traction against the US Dollar, approaching the psychological resistance level of 1.3000. This movement is supported by hawkish comments from Bank of England Monetary Policy Committee member Catherine Mann and stronger-than-expected economic data.
The preliminary S&P Global/CIPS Purchasing Managers' Index (PMI) for October indicates continued expansion in both manufacturing and services, outperforming the US and Eurozone counterparts.
The GBP/USD technical chart shows a clear ascending trendline, which has been respected multiple times, acting as a strong support level. However, the price is currently testing this trendline, and a break below it could signal a bearish reversal. If the price breaks decisively below the trendline, it may open the door for further downside towards the 1.2800 level. The RSI is trending lower, indicating weakening momentum, which supports the potential for a breakdown. A failure to hold this key support could attract more selling pressure, potentially accelerating a bearish move:
Later today, the University of Michigan will release its final Consumer Sentiment reading for October. Expectations are modest, with a slight uptick to 69.0 from the preliminary 68.9. The 5-year inflation expectations are projected to remain steady at 3%.
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