FOREX: GBP Sinks as UK Markets Rush to Price Greater Cut Risk
- GBP is weaker against all others in G10 as markets rush forward BoE easing pricing after UK CPI surprised to the downside, notably on the back of lower food inflation. This means the prospect of Governor Bailey supporting a Q4 cut has risen, which is well reflected by SONIA pricing. Money markets now price 17bps of easing through year-end, up from 10bps yesterday. The MPC are particularly focused on food inflation driving inflation expectations and leading to inflation persistence. As such, if today's data marks the peak for the category, then those concerns can recede a little and combine with the softer wage data seen last week.
- Inflation numbers drove GBPUSD to lose around 70 pips to print 1.3316, strengthening the narrative that the recent recovery in the pair appears corrective. Key support and the bear trigger lies at 1.3249, the Oct 14 low. A break of it would resume the recent bear leg. There are no MPC appearances scheduled ahead of the November MPC meeting (although the blackout period doesn’t start for a while so there is plenty of time for unscheduled media appearances).
- After some potential profit taking in the early morning, EURUSD continues its downward trajectory seen during the last two sessions, narrowing the gap to the 1.1542 bear trigger in the pair. E1.47bln of EURUSD options expire today around the 1.1600 handle, which may act as a magnet for price action for the pair. French politics may move back into focus towards the end of the week, with the National Assembly set to begin debate on the 2026 budget on Friday.
- Ahead of tomorrow's inaugural SNB meeting minutes, EURCHF consolidates yesterday's bounce from key clustered support between 0.9206/21. Tomorrow's minutes will signal how far the SNB was away from cutting into negative territory in September, and we specifically look for any indication of whether Schlegel's decision not to mention of negative side effects of NIRP was a deliberate move, with potential commentary here posing two-way risks for Swiss STIR and subsequently EURCHF.
- More ECB speakers are on the schedule today but they are mostly expected to reiterate the previous "rates are in a good place" rhetoric. The data calendar is light given the continued US government shutdown until Friday's flash PMIs as well as the rescheduled US CPI.
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COMMODITIES: Gold Trades to Fresh High, Remains in a Clear Bull Cycle
The trend condition in WTI futures is unchanged - a bear cycle remains intact and the latest recovery is considered corrective. The pullback from the Sep 2 high highlights a possible reversal and the end of a corrective phase between Aug 13 - Sep 2. Initial resistance to watch is $66.03, the Sep 2 high. Key short-term resistance has been defined at $69.36, the Jul 30 high. A stronger resumption of weakness would open $57.71, the May 30 low. Gold remains in a clear bull cycle and short-term pullbacks are for now, considered corrective. A fresh all-time high, once again last week, confirms a resumption of the primary uptrend and an extension of the sequence of higher highs and higher lows. The next objective is $3744.2, a Fibonacci projection. Initial firm support lies at $3577.9, the 20-day EMA. Note that MA studies are in a bull-mode position, highlighting a dominant uptrend.
- WTI Crude up $0.36 or +0.57% at $63.04
- Natural Gas up $0.04 or +1.49% at $2.931
- Gold spot up $35.04 or +0.95% at $3720.5
- Copper up $1.4 or +0.3% at $464.25
- Silver up $0.61 or +1.42% at $43.6868
- Platinum up $16.54 or +1.17% at $1425.4
EQUITIES: E-Mini S&P Targets Fibonacci Projection Point at $6748.50 Next
Eurostoxx 50 futures recently traded through resistance around the 20-day EMA - a bullish development - and the subsequent rally reinforces a bullish theme. The move signals potential for a climb towards 5525.00, the Aug 22 high and a bull trigger. On the downside, key support has been defined at 5302.00, the Sep 2 low. Clearance of this level is required to reinstate a bearish theme. A bull cycle in S&P E-Minis remains intact and the contract traded to a fresh cycle high on Friday. Price has breached the 6700.00 handle and this signals scope for an extension towards 6748.50, a Fibonacci projection point. Moving average studies remain in a bull-mode position, highlighting a dominant uptrend and positive market sentiment. Initial support to watch lies at 6602.01, the 20-day EMA.
- Japan's NIKKEI closed higher by 447.85 pts or +0.99% at 45493.66 and the TOPIX ended 15.49 pts higher or +0.49% at 3163.17.
- Elsewhere, in China the SHANGHAI closed higher by 8.487 pts or +0.22% at 3828.576 and the HANG SENG ended 200.96 pts lower or -0.76% at 26344.14.
- Across Europe, Germany's DAX trades lower by 107.8 pts or -0.46% at 23531.47, FTSE 100 higher by 6.99 pts or +0.08% at 9223.57, CAC 40 down 11.22 pts or -0.14% at 7842.68 and Euro Stoxx 50 down 8.52 pts or -0.16% at 5450.29.
- Dow Jones mini down 117 pts or -0.25% at 46534, S&P 500 mini down 14 pts or -0.21% at 6708.5, NASDAQ mini down 60.5 pts or -0.24% at 24806.25.
FOREX: Latest NZDUSD Leg Lower Renews Focus on 0.5800
- NZDUSD tracks a 0.07% lower to start the week, relatively underperforming its G10 peers as the likes of EUR and GBP trade on a surer footing. Kiwi weakness was well documented last week following the much weaker-than-expected GDP figures that have raised the odds of the RBNZ more aggressively easing in Q4.
- Notably, Kiwibank now expect a 50bp cut in October followed by a 25bp cut in November so that the cash rate ends the year at 2.25%. They note "It has become crystal clear that the Kiwi economy is not recovering" and "the Reserve Bank needs to do more." Additionally, ongoing leadership woes add to urgency for kiwi dollar and rates traders to closely scrutinize the changing of the guard at RBNZ, according to TD.
- For NZDUSD, the sharp reversal from 0.6000 to current spot levels renews the focus on a significant pivot point at 0.5800, which coincides with the 50% retracement of the year’s range. Furthermore, the pair is currently trying to break a trendline drawn from the year’s lows, which may bolster the bearish momentum in coming sessions. Below 0.5800, 0.5728 and 0.5636 would be the most obvious targets for a deeper selloff.
- A lot of focus in recent weeks has been on the impressive breakout for AUDNZD, emboldened last week by the cross breaking to near 3-year highs above 1.1180, despite softer Australian jobs data. Since then, spot has been consolidating around 1.1250. Resistance appears scant until the 2022 highs, located at 1.1491.
- The domestic calendar is light this week, with ANZ consumer confidence for September due Friday.
Source: Bloomberg Finance L.P. / MNI
