GBP: Spot Weakness Adds to Evidence of Fading GBP Resilience
Oct-10 11:08
GBP/USD returning lower in recent trade, with spot slipping through mild intraday support at 1.3280 with relatively little difficulty. GBP is now among the poorest performers in G10 - adding to the evidence that GBP resilience earlier this week has begun to fade.
- GBP/JPY is reversing hard: price is near 1.5% off the week's highs and through 202.67 support. Signs of a coalition breakdown in Japan (Komeito demanding concessions to reassess the long-lasting coalition) remain JPY positive - lessening the chances of Takaichi forming a dominant pro-easing force in parliament. Should Takaichi's negotiations with other opposition parties fail to succeed - she may face a difficult time in office proceeding with her preferred policy set.
- While JPY is the dominant leg in the cross, GBP/USD's close below the support zone of 1.3324-40 yesterday is a bearish sign - despite very few signs in BoE speeches this week that influential MPC members are considering more easing this year.
- We noted yesterday that moves in the GBP 1y1y chart are relatively contained, despite the hawkish shift, signalling a stickiness in terminal rates pricing that could signal GBP upside is limited despite the phase-out of rate cut pricing this year.
- This makes 1.3142 the broader downside GBP/USD target, however markets generally remain of the view that EURGBP upside is an easier expression of GBP weakness into year-end.
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OUTLOOK: Price Signal Summary - EURUSD Trend Theme Remains Bullish
Sep-10 11:02
- In FX, the trend theme in EURUSD remains bullish. Resistance at 1.1743, the Aug 22 high, has been cleared reinforcing a bull cycle. This signals scope for an extension towards 1.1829, the Jul 01 high and bull trigger. Clearance of this hurdle would confirm a resumption of the primary uptrend. Support to watch is around the 50-day EMA, at 1.1628.
- GBPUSD is holding on to its gains since rallying off the Sep 3 low. The climb has retraced the steep sell-off on Sep 2 and highlights a stronger bullish development. This also suggests the corrective cycle between Aug 14 - Sep 3 is over. Sights are on resistance at 1.3595, the Aug 14 high and a bull trigger. A break would strengthen a bullish condition. Initial support to watch is 1.3465, the 50-day EMA.
- USDJPY continues to trade inside a range. Attention is on key short-term support at 146.21, the Aug 14 low and a bear trigger. A break of this level would signal a stronger bearish threat and highlight a range breakout. This would expose 145.40, 50% of the Apr - Aug upleg. On the upside, clearance of 149.14, the Sep 3 high is required to reinstate a bullish theme.
MNI: US MBA: MARKET COMPOSITE +9.2% SA THRU SEP 05 WK
Sep-10 11:00
- MNI: US MBA: MARKET COMPOSITE +9.2% SA THRU SEP 05 WK
ECB: Analysts' EUR STIR Views Ahead Of Thursday’s Decision (2/2)
Sep-10 10:56
Summarising some select EUR STIR views ahead of Thursday’s decision:
- Bank of America maintain their “received Oct ECB €str recommendation (Entry 1.765, target 1.565, current 1.905)". Even though they "see little chance of a rate cut by October given the lack of data between the two meetings, given only 2 bp are priced, we view the trade at this stage as a tail risk hedge”
- RBC believe that if the ECB will remain on hold going forward, it “makes sense to take short volatility positions on near-term Euribor options, for example being short straddles”. They note that “these positions are short gamma and short vega and hold positive carry since the term structure of Euribor option volatility is still upward sloping”.
- Morgan Stanley “find it unlikely that the ECB meeting will result in a hawkish enough outcome to further challenge the easing currently priced in”. They think that “short-dated rates have room to reprice lower” and “continue to favour Oct-Dec flattening given the low implied probability of a 25bp cut for December”.
- Santander instead believe “the risk bias across the EUR curve remains tilted to the upside, though it may take until later in the year for materially higher rates to materialise. Paying fixed in the front end still makes sense, but it will likely take several weeks before the trade pays off clearly.”
- MNI's full ECB preview is here.
