GBPUSD TECHS: Approaching The Bear Trigger

Wednesday's release of the Chicago Fed's National Financial Conditions Index (NFCI) for the week ending Oct 17 was another reminder that overall financial conditions remain loose and should generally be thought of as a tailwind to US economic growth. 

• Per the Chicago Fed, "The NFCI was unchanged at –0.55 in the week ending October 17. Risk indicators contributed –0.27, credit indicators contributed –0.17, and leverage indicators contributed –0.10 to the index in the latest week."
• That's the most negative the index has printed since the beginning of 2021 and has progressively moved lower since mid-April.
• Negative values in the index have been historically associated with looser-than-average financial conditions, while negative values in the adjusted NFCI (also -0.55) are associated with financial conditions that are looser than what would be typically suggested by prevailing macroeconomic conditions. Only 1 of the 105 series used to construct the NFCI was tighter than average.
• The NFCI as well as multiple other indicators of financial stress and overall conditions reflect multiple factors: equities near all-time highs, long-end yields (real and nominal) at the lowest levels in a year, the dollar down 3% Y/Y and credit spreads near all-time tights.
• The Fed's recent re-prioritization of labor market conditions over price stability in terms of the balance of risks suggests little resolve to lean against looser conditions (though there are some relatively hawkish holdouts - the September minutes: "Some participants noted that, by several measures, financial conditions suggested that monetary policy may not be particularly restrictive, which they judged as warranting a cautious approach in the consideration of future policy changes")
• Indeed, quite the opposite: there's a good chance the Fed will cut twice more this year including next week, and end QT by year-end.
• The likely imminent end of QT is not intended by the FOMC shift the monetary policy stance but it will temper risks of market liquidity issues and the associated financial condition tightening.

• Date $MM Issuer (Priced *, Launch #)
• 10/22 $2B #Softbank $900M 35.5NC5.5 7.625%, $1.1B 40NC10 8.25% (includes E750M 37NC7)
• 10/22 $1.6B #Dominican Republic 10Y 5.875%
• 10/22 $1.5B #Alberta 10Y SOFR+81
• 10/22 $1B Rep of Korea WNG 5Y +17
• 10/22 $1B #GM Financial 3Y +78
• 10/22 $Benchmark Pershing Square 7Y investor calls

• RES 4: 0.8835 High May 3 2023  
• RES 3: 0.8800 Round number resistance 
• RES 2: 0.8769 High Jul 28 and the bull trigger 
• RES 1: 0.8725/8751 High Oct 10 & 17 / High Sep 25  
• PRICE: 0.8689 @ 15:28 BST Oct 22
• SUP 1: 0.8678/8656 50-day EMA / Low Aug 10
• SUP 2: 0.8633 Low Sep 15 
• SUP 3: 0.8597 Low Aug 14 and key support 
• SUP 4: 0.8562 50.0% retracement May 29 - Jul 28 upleg

EURGBP traded higher on the soft UK inflation print Wednesday, tipping price toward the top end of the recent range. This keeps the underlying trend condition as bullish, with support to monitor at the 0.8678 50-day EMA. It has been pierced, a clear break of this level would signal scope for a deeper retracement towards 0.8633, the Sep 15 low. Key trend support lies at 0.8597, the Aug 14 low. On the upside, key resistance and the bull trigger remains at 0.8769, the Jul 28 high.