The sentiment in financial markets has been switching on and off during this year, and it continues to do that. In the last few days, the sentiment has been positive, with the USD climbing higher, while safe havens have been retreating lower. But, the US ISM manufacturing PMI report yesterday turned the sentiment around once again. Expectations were that this indicator would climb above 50 points again yesterday, meaning that the manufacturing sector would turn into expansion again after a small contraction in August.

Instead, the ISM manufacturing PMI indicator declined further to 47.8 points, which means deeper contraction for manufacturing. This sector is in great difficulty across the globe. In Germany and in the Eurozone, manufacturing has been in recession throughout this year and things are getting worse. Now, fears that US manufacturing might join in recession have increased and the risk sentiment has been switched off again. Stock markets and the USD have turned bearish now, while safe havens have been surging, especially Gold.

The European Session

• EU Doesn’t Like BoJo’s Plan – This morning we heard EU sources comment on Boris Johnson’s Brexit plan announced yesterday. They said that the only option for Brexit deal before October 31 is return to N.Ireland-only backstop, otherwise extension is likely. If this is final UK Brexit plan, it won’t work. -would then move to discussing extension of deadline. Not clear if UK PM Johnson positioning himself for blame-game over failed negotiations. A time -limit to backstop impossible under Brexit proposal, as reported by media: Merkel and Macron would not bully Varadkar into it. UK Brexit proposal, as reported by media, would effectively erect Irish border.
• UK Construction PMI – Construction has been one of the strongest sectors in the UK even during the 2009 crisis. But, this sector fell in contraction in May and things have been getting worse since then. Today’s report was expected to remain unchanged from the last month at 45.0 points, but it showed a deeper decline as this indicator fell to 43.3 points.
• UK PM Johnson Speaking at the Tory Conference – Johnson continued in his path today at the Conservative Party conference,saying that coming out of EU on Oct 31, come what may. The Parliament refuses to deliver Brexit, do anything  constructive or have an election. We will work for a deal with our EU friends. Things have not been made easier by the ‘surrender Bill’ (Benn act). Johnson saya a second referendum on the EU? Can you imagine another three years of this? People are starting to suspect that there are forces in this country that simply won’t deliver Brexit. If they turn out to be right it will have grave consequences for trust in democracy. We will respect the peace process ad Good Friday agreement. We will compromise and allow the UK – whole and entire – to withdraw from the EU, with control of our own trade policy from the start. Let us be in no doubt that the alternative is a ‘no-deal’. Not an outcome we ‘seek’ , but one for which we are ready. Delivering Brexit will address those that feel ignored and left behind.
• Germany’s Finance Minister Feels Confident – Germany’s Scholz said a while ago that they can counter an economic crisis if there is one. he does not expect crisis as bad as 2008/2009 and forecasts points to improvement.

The US Session

• Russia’s Putin Speaking on the Gas Pipe Plans –  The Russian Prime Minister Vladimir Putin said on Reuters earlier that the US is rudely intervening into European affairs over Nord Stream. US policies of using dollar as a political tool will back fire.
• US ADP Non-Farm Employment Change – The ADP employment report has been released. The actual number missed expectations of 140k and came in at 135k for September. August’s number was revised lower as well, from 195k to 157K. Service providing jobs increased by 127K. Goods producing jobs increased by 8K. Natural resources jobs came in at -3K, Construction increase by 9K, Manufacturing increased by 2K. It’s a small miss but the revisions lower for August are hurting the USD slightly, which has lost around 20 pips.
• DUP Party Is Not Making Things Easier for Brexit – The leader of the DUP Party of Northern Ireland commented on Brexit and the backstop awhile ago. She said that if EU rejects ‘sensible and balanced’ deal, we will be entering realm of no-deal.

Trades in Sight

Bearish AUD/USD

• The trend is bearish n the H4 chart
• Fundamentals point down for the Aussie
• The 20 SMA is providing resistance

The 20 SMA is providing resistance again today

AUD/USD has been bearish for quite some time and it turned even more so after the third rate cut from the Reserve Bank of Australia earlier this week. The trend is pretty strong as the smaller period moving averages have been providing resistance recently. Today, we are seeing a retrace higher as the USD declines on the softer US ISM manufacturing figures from yesterday, but the 20 SMA is still holding as resistance. But, things are much worse for the AUD, so we decided to take this opportunity and go short on this pair.

In Conclusion

Things have taken another turn for the worse now after the ISM manufacturing figures yesterday showed that this sector is heading into recession in the US, just like in Europe. This has brought back ghosts of another global economic recessions, so stock markets are slipping lower.