STIR: Sharp Dovish BoE Repricing On Soft UK CPI, Market Leans Towards 3 Cuts

GBP STIRs consolidate Friday’s hawkish repricing with nothing in the way of major weekend headline cues (TY & Bund futures little changed vs. levels that prevailed at Friday’s SONIA settlement, UK fiscal speculation focused on smaller taxes, see recent bullet).

• 18bp of easing priced for December, 26.5bp through February & 34bp through March.
• SONIA futures flat.
• BoE MPC member Mann will speak this afternoon (13:20 London). A reminder that we have previously suggested that speeches from MPC members outside of Governor Bailey are likely to have less impact for markets in the run up to the December decision (given their entrenched views).
• Wednesday’s CPI data headlines in the UK this week.
• There is more uncertainty than usual around the CPI print. We have seen sell-side estimates for headline CPI that are both above and below the BoE's updated +3.60% Y/Y forecast (BBG survey consensus +3.5% at typing).
• Markets will assess whether the print will push Governor Bailey to support a December cut.
• Given current market pricing we think that there is potential for a larger move if the data comes in higher than expected.

• RES 4: 123.14 1.764 proj of the Sep 3 - 11 - 25 price swing
• RES 3: 122.81 1.618 proj of the Sep 3 - 11 - 25 price swing
• RES 2: 122.53 1.500 proj of the Sep 3 - 11 - 25 price swing
• RES 1: 121.94 High Oct 17 / 22 and the bull trigger  
• PRICE: 120.72 @ 07:20 GMT Nov 17
• SUP 1: 120.53 Low Nov 14           
• SUP 2: 120.15 50.0% retracement of the Sep 3 - Oct 17 bull leg 
• SUP 3: 119.73 61.8% retracement of the Sep 3 - Oct 17 bull leg
• SUP 4: 119.07 Low Sep 25

The trend set-up in BTP futures is bullish and the latest pullback is considered corrective. Note that the contract has breached support at 120.74, the Aug 5 high, and pierced the 50-day EMA, at 120.76. A continuation lower would highlight potential for a deeper correction and expose 120.15, a Fibonacci retracement. Key resistance and the bull trigger has been defined at 121.94, the Oct 17 high. A break of this hurdle would resume the uptrend

• RES 4: $4404.9 - 3.500 proj of the May 15 - Jun 16 - 30 price swing
• RES 3: $4400.0 - Round number resistance
• RES 2: $4381.5 - High Oct 20 and bull trigger
• RES 1: $4264.7 - 76.4% retracement of the Oct 20 - 28 correction                  
• PRICE: $4075.8 @ 07:27 GMT Nov 17 
• SUP 1: $4032.3 - Low Nov 14  
• SUP 2: $3927.5 - 50-day EMA
• SUP 3: $3886.6 - Low Oct 28 and a reversal trigger  
• SUP 4: $3751.3 - 3800.00 Round number support

Gold is trading below last week’s high. The downleg between Oct 20 and 28, appears to have been a correction and has allowed an overbought condition to unwind. Recent gains suggest that correction is over. Key support lies at the 50-day EMA, at $3927.5. Clearance of this EMA would signal scope for a deeper retracement. For bulls, a resumption of gains would pave the way for a test of $4381.5, the Oct 20 high and bull trigger.