UK DATA: Downside surprise to food in particular increases prospect of Q4 cut
- Food and non-alcoholic beverages are the biggest surprise here, down to 4.53%Y/Y and 0.48ppt below the BOE's forecast. That contributed 0.06ppt to the downside surprise to headline CPI. Alcohol and tobacco were also softer than expected. Overall FAT had been expected to contribute a positive 0.03ppt to headline CPI but it contributed negative 0.06ppt. So that accounts for around 0.09ppt of the 0.21ppt downside surprise.
- Cultural services contributed -0.06ppt to headline CPI (and around double that to services CPI). That wasn't expected to be as soft. Banking services also contributed -0.02ppt to headline CPI. They appear the biggest surprises in services.
- Note that air fares were marginally softer than expected at -28.8%M/M - it had been expected in the mid -20s so it's not the biggest driver of the softness here. There was also no upside from education, which came in a little softer than expected rising 7.2%Y/Y (down from 7.5%Y/Y in August).
- Still looking through the details but the food surprise is significant here.
- Some of the services downside might be a little reversed next month (through cultural services) but its hard to make a case for the weakness seen elsewhere.
- GBPUSD has fallen more than 50 points since pre-data levels now and the prospect of Bailey supporting a Q4 cut seems as though it would be higher.
- Recall how focused the MPC is on food inflation driving inflation expectations and leading to inflation persistence. If this is the peak, then those concerns can recede a little and combine with the softer wage data seen last week.
- We would expect to see SONIA rally on the open and probably take GBP FX weakness another leg.
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BRENT TECHS: (X5) Bear Threat Still Present
- RES 4: $79.16 - 2.618 proj of the Apr 9 - 23 - May 5 price swing
- RES 3: $77.28 - 2.382 proj of the Apr 9 - 23 - May 5 price swing
- RES 2: $76.39 - High Jun 23 and a bull trigger
- RES 1: $69.53/71.93 - High Sep 2 / High Jul 30 and a key resistance
- PRICE: $67.07 @ 07:10 BST Sep 22
- SUP 1: $64.50 - Low Jun 30 and a key short-term support
- SUP 2: $60.82 - Low May 30
- SUP 3: $58.37 - Low May 5
- SUP 4: $57.81 - Low Apr 9 and a key support
Brent futures remain above the Sep 5 low. Recent short-term gains are for now, considered corrective and a bear cycle remains intact. Sights are on $64.50, the Jun 30 low, where a clear break would confirm a continuation of the bear leg. This would open $60.82, the May 30 low. Key short-term resistance has been defined at $71.93, the Jul 30 high. Clearance of this level is required to cancel a bear theme.
EURJPY TECHS: Trend Needle Points North
- RES 4: 177.08 2.000 proj of the Feb 28 - Mar 18 - Apr 7 price swing
- RES 3: 175.43 High Jul 11 ‘24 and a key medium-term resistance
- RES 2: 174.86 1.764 proj of the Feb 28 - Mar 18 - Apr 7 price swing
- RES 1: 174.50 High Sep 19
- PRICE: 173.98 @ 07:15 BST Sep 22
- SUP 1: 173.01/171.83 20- and 50-day EMA
- SUP 2: 170.97 Low Aug 14
- SUP 3: 169.73/45 Low Jul 31 / 23.6% of the Feb 28 - Jul 28 bull leg
- SUP 4: 168.46 Low Jul 1
The trend set-up in EURJPY is unchanged, it remains bullish and last Thursday’s gains reinforce current conditions. The cross breached resistance at 173.97, the Jul 28 high and a bull trigger. This confirms a resumption of the medium-term uptrend and maintains the price sequence of higher highs and higher lows. Sights are on 174.86, a Fibonacci projection. On the downside, first support to watch lies at 173.01, the 20-day EMA.
BTP TECHS: (Z5) Bull Trigger Remains Exposed
- RES 4: 122.56 0.764 proj of the Apr 9 - May 8 - 14 price swing (cont)
- RES 3: 121.88 0.618 proj of the Apr 9 - May 8 - 14 price swing (cont)
- RES 2: 121.00 Round number resistance
- RES 1: 120.74 High Aug 5 and the bull trigger
- PRICE: 119.73 @ Close Sep 19
- SUP 1: 119.06/118.36 Low Sep 4 / 3
- SUP 2: 118.00 Round number support
- SUP 3: 117.70 2.236 proj of the Aug 5 - 12 - 14 price swing
- SUP 4: 117.36 2.500 proj of the Aug 5 - 12 - 14 price swing
The primary trend condition in BTP futures is unchanged, the set-up remains bullish. The strong rally that started Sep 3 reinforces this theme and signals the end of the recent corrective pullback between Aug 5 - Sep 3. Key resistance and the bull trigger is 120.74, the Aug 5 high. A break of this hurdle would confirm a resumption of the uptrend. Key support has been defined at 118.36, the Sep 3 low.
