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Poundsterling

EURGBP:Look for dips!EURGBP Intraday - We look to Buy at 0.8685 (stop at 0.8640) Although the bears are in control, the stalling negative momentum indicates a turnaround is possible. Indecisive price action has resulted in sideways congestion on the intraday chart. Previous support located at 0.8690. We look to buy dips. Our profit targets will be 0.8820 and 0.8930 Resistance: 0.8815 / 0.8930 / 0.9070 Support: 0.8705 / 0.8565 / 0.8340 Please be advised that the information presented on TradingView is provided to Vantage (‘Vantage Global Limited’, ‘we’) by a third-party provider (‘Signal Centre’). Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Signal Centre.
Long
by VantageMarkets
1
GBP/USD analysis: BoE hikes needed to curb gilts' term premiumFinally unveiled, the UK government's Autumn Budget was conservative and cautious, in line with market expectations. A fiscal consolidation of £55 billion has been announced, to be split evenly between more taxes and lower spending. From the next year until 2028, windfall taxes on oil and gas companies will increase from 25% to 35%, while the Energy Price Guarantee programme (EPS) has been revised to cut down on government spending. These two measures dominate the UK's fiscal adjustment. But now that the threat of losing the anchor of fiscal credibility has ended, sterling investors are once again confronted with the reality of the UK economic outlook. Inflation is expected to average 7.4% in 2023, but GDP will shrink 1.4% due to the recession. A higher and more persistent inflation rate requires the Bank of England to maintain its restrictive stance for a longer period of time. Furthermore, the longer inflation stays high, the more difficult it will be for gilts to lure buyers to these negative real yields, especially since the BoE will restart quantitative tightening in late November. GBP/USD has risen from 1.036 to 1.203 following the reversal of September's mini-budget, primarily due to lower gilt yields, as recovered market confidence in fiscal policy has stimulated demand for UK sovereign bonds. Gilt yields likely bottomed out before the UK Autumn Budget, as the market had largely anticipated the fiscal consolidation, and could now resume a natural upward repricing, not in a disorderly fashion, but adequately to reflect a high inflation/high interest rate environment. The outlook for the pound is now dependent on the Bank of England's policies. Hawkish BoE = Neutral/bullish scenario for the pound If the BoE turns out to be more hawkish than expected – markets are currently pricing in 60bps in December and terminal rate of 4.5% next year – it can better control inflationary expectations and pressures. In this scenario, UK interest rates will increase quicker than UK 10-year gilt yields, limiting the term premium and enhancing policy credibility. This is a favourable scenario for the pound, as it can restrict the downside and discourage speculators from shorting a currency with a high yield. Dovish BoE = Bearish scenario for the pound In contrast, if the BoE delivers fewer rate hikes than the market currently predicts, inflation expectations will not be restrained and long-term gilt yields would rise faster than UK interest rates, effectively placing downside pressure on the pound.
by Capitalcom
GBPJPY: Sterling inflation pressure?!GBPJPY Intraday - We look to Sell at 167.15 (stop at 168.30) We are trading at overbought extremes. Although the bulls are in control, the stalling positive momentum indicates a turnaround is possible. This is negative for short term sentiment and we look to set shorts at good risk/reward levels for a further correction lower. Preferred trade is to sell into rallies. Our profit targets will be 163.80 and 161.05 Resistance: 168.70 / 172.10 / 181.15 Support: 164.40 / 161.05 / 158 Please be advised that the information presented on TradingView is provided to Vantage (‘Vantage Global Limited’, ‘we’) by a third-party provider (‘Signal Centre’). Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Signal Centre.
Short
by VantageMarkets
2
ERUGBP: Euro stronger?!EURGBP Intraday - We look to Buy at 0.8685 (stop at 0.8645) There is no sign that this bullish momentum is faltering but the pair has stalled close to a previous swing high of 0.8828. A lower correction is expected. With the Ichimoku cloud support below we expect dips to be limited. We therefore, prefer to fade into the dip with a tight stop in anticipation of a move back higher. Our profit targets will be 0.8800 and 0.8930 Resistance: 0.8815 / 0.8930 / 0.9070 Support: 0.8705 / 0.8565 / 0.8340 Please be advised that the information presented on TradingView is provided to Vantage (‘Vantage Global Limited’, ‘we’) by a third-party provider (‘Signal Centre’). Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Signal Centre.
Long
by VantageMarkets
1
GBPJPY:Buying dips worthwhile!GBPJPY Intraday - We look to Buy at 164.85 (stop at 163.65) Buying pressure from 164.36 resulted in prices rejecting the dip. The current move higher is expected to continue. The hourly chart technicals suggests further downside before the uptrend returns. We therefore, prefer to fade into the dip with a tight stop in anticipation of a move back higher. Our profit targets will be 168.30 and 168.70 Resistance: 168.70 / 172.15 / 174.20 Support: 164.00 / 161.10 / 158.70 Please be advised that the information presented on TradingView is provided to Vantage (‘Vantage Global Limited’, ‘we’) by a third-party provider (‘Signal Centre’). Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Signal Centre.
Long
by VantageMarkets
1
EURGBP:Look for dips!EURGBP Intraday - We look to Buy at 0.8650 (stop at 0.8600) Buying pressure from 0.8690 resulted in prices rejecting the dip. Although the bulls are in control, the stalling positive momentum indicates a turnaround is possible. The hourly chart technicals suggests further downside before the uptrend returns. Further upside is expected although we prefer to buy into dips close to the 0.8650 level. Our profit targets will be 0.8800 and 0.8930 Resistance: 0.8815 / 0.8930 / 0.9070 Support: 0.8565 / 0.8340 / 0.8200 Please be advised that the information presented on TradingView is provided to Vantage (‘Vantage Global Limited’, ‘we’) by a third-party provider (‘Signal Centre’). Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Signal Centre.
Long
by VantageMarkets
GBP/USD -8/11/2022-• Bearish picture still intact for the pound • Dovish BOE, recession risks weigh on the sentiment • Technical picture points towards weaker pound in the period ahead • Bulls and bears fighting around the resistance line dating back to Feb 2022 highs around 1.36 • As long as bears are able to defend the trend line resistance, they still got the upper hand • Bulls need to regain 1.164-1.174 levels to turn the odds in their favor • Next support at 1.114-5 where strong demand was found
by RamziAbouAbdallah-CMT
GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL OUTLOOK: WEAK BEARISH BASELINE A looming recession has been a key source of Pound weakness and has kept pressure on Sterling despite ongoing BoE hikes. But there is a new threat in focus. It seems the PM’s new fiscal plan, even though putting downside pressure on inflation and lowering growth risks, has drastically increased debt concerns. The disorderly move in Gilt yields were enough to force the BoE’s to step in with a limited (both in time and size) bond buying intervention plan. This has brought some calm to the angst but being limited won’t be enough to fix the fiscal concerns. POSSIBLE BULLISH SURPRISES With recession the base assumption, any incoming data that surprises meaningfully higher could trigger relief for the GBP. With focus on stagflation, any downside surprises in CPI or factors that decrease inflation pressures are expected to support the GBP and not pressure it. Fiscal plans from the new PM that calms investor nerves about the fiscal situation could provide some support for Sterling. POSSIBLE BEARISH SURPRISES With recession the base assumption, any material downside surprises in growth data can still trigger short-term pressure. With focus on stagflation, any upside surprises in CPI or factors that increase more inflation pressures are expected to weigh on the GBP and not support it. Fiscal plans from the new PM that increases investor fears about the fiscal situation could provide downside for Sterling. BIGGER PICTURE The fundamentals for Sterling remain bearish . Recession is around the corner (might be in one already), but the new PM has provided enough calm to the fiscal situation and political uncertainty which has seen Sterling overall well supported. There is still a lot of pain for the economy ahead so we remain cautious of the bearish fundamental outlook. USD FUNDAMENTAL OUTLOOK: BULLISH BASELINE With headline CPI above 8% and Core CPI seeing another acceleration in the SEP CPI data, the Fed is under pressure to continue hiking rates and ramping up QT. Markets expect another 75bsp hike in NOV and currently prices the terminal rate at 4.89%. The Fed is on a data-dependent (meeting-by-meeting) policy stance, meaning incoming growth, inflation and jobs data remains a key driver for short-term USD volatility where we expect a cyclical reaction with incoming data for both the USD and US10Y (good data expected to be supportive for the USD while bad data is expected to pressure the USD). POSSIBLE BULLISH SURPRISES With the Fed signalling a data dependent policy stance, we expect a cyclical reaction from the USD with incoming US data. Thus, extremely good growth, inflation or jobs data is expected to trigger short-term bullish reactions in the USD. If the cyclical outlook continues to weaken, the USD’s safe haven status still matters. Any incoming catalysts that increase deep recession fears and triggers strong moves lower in risk assets & bonds can trigger safe haven flows into the USD. With a lot priced for the Fed and USD, the bar is high for hawkish Fed surprises, but any aggressive Fed speak talking up a >5.0% terminal rate can trigger further USD upside. POSSIBLE BEARISH SURPRISES With the Fed signalling a data dependent policy stance, we expect a cyclical reaction from the USD with incoming US data. Thus, extremely bad growth, inflation or jobs data is expected to trigger short-term bearish reactions in the USD. If the cyclical outlook starts to improve, the USD’s safe haven status still matters. Any incoming catalysts that decrease deep recession fears and triggers strong moves higher in risk assets & bonds can trigger safe haven outflows out of the USD. With a lot priced in for the Fed and the USD, it won’t take much to disappoint on the dovish side. Any big concerns about growth from Fed speakers could trigger outflows. BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays hawkish and cyclical concerns put pressure on risk sentiment. The data dependent stance from the Fed means that short-term data surprises can pull the USD either way and would be our preferred way of trading the Dollar right now. We have a very excited economic calendar for the US in the week ahead, with lots of important economic data and the FOMC meeting. For the econ data our expectation is for a cyclical reaction where very good data is expected to support the USD and very bad data expected to pressure the USD.
by thunderpips
1
GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL OUTLOOK: WEAK BEARISH BASELINE A looming recession has been a key source of Pound weakness and has kept pressure on Sterling despite ongoing BoE hikes. But there is a new threat in focus. It seems the PM’s new fiscal plan, even though putting downside pressure on inflation and lowering growth risks, has drastically increased debt concerns. The disorderly move in Gilt yields were enough to force the BoE’s to step in with a limited (both in time and size) bond buying intervention plan. This has brought some calm to the angst but being limited won’t be enough to fix the fiscal concerns. The reduction of political uncertainty with Rishi Sunak becoming PM provided us with a good GBPUSD at the start of the week, but opportunities after that was thin with mostly choppy price action. All eyes turns to the BoE policy decision on Thursday. POSSIBLE BULLISH SURPRISES With recession the base assumption, any incoming data that surprises meaningfully higher could trigger relief for the GBP. With focus on stagflation, any downside surprises in CPI or factors that decrease inflation pressures are expected to support the GBP and not pressure it. Fiscal plans from the new PM that calms investor nerves about the fiscal situation could provide some support for Sterling. POSSIBLE BEARISH SURPRISES With recession the base assumption, any material downside surprises in growth data can still trigger short-term pressure. With focus on stagflation, any upside surprises in CPI or factors that increase more inflation pressures are expected to weigh on the GBP and not support it. Fiscal plans from the new PM that increases investor fears about the fiscal situation could provide downside for Sterling. BIGGER PICTURE The fundamentals for Sterling remain bearish . Recession is around the corner (might be in one already), but the new PM has provided enough calm to the fiscal situation and political uncertainty which has seen Sterling overall well supported. There is still a lot of pain for the economy ahead so we remain cautious of the bearish fundamental outlook, but with a lot of bad news priced in we are looking for short-term upside opportunities. In the week ahead the main highlight will be the BoE policy decision. With 70bsp priced (at the time of writing), the size of the hike and the forward guidance could offer short-term tradable volatility for Sterling, but the bigger focus for markets will arguably be on the new PM’s budget which is set to be revealed in mid-Nov. USD FUNDAMENTAL OUTLOOK: BULLISH BASELINE With headline CPI above 8% and Core CPI seeing another acceleration in the SEP CPI data, the Fed is under pressure to continue hiking rates and ramping up QT. Markets expect another 75bsp hike in NOV and currently prices the terminal rate at 4.89%. The Fed is on a data-dependent (meeting-by-meeting) policy stance, meaning incoming growth, inflation and jobs data remains a key driver for short-term USD volatility where we expect a cyclical reaction with incoming data for both the USD and US10Y (good data expected to be supportive for the USD while bad data is expected to pressure the USD). Our expectation for a softer USD this past week played to our advantage with a punchy move lower in the Dollar. The week ahead is filled with lots of US economic data and the FOMC policy decision which will all be important drivers for the USD. POSSIBLE BULLISH SURPRISES With the Fed signalling a data dependent policy stance, we expect a cyclical reaction from the USD with incoming US data. Thus, extremely good growth, inflation or jobs data is expected to trigger short-term bullish reactions in the USD. If the cyclical outlook continues to weaken, the USD’s safe haven status still matters. Any incoming catalysts that increase deep recession fears and triggers strong moves lower in risk assets & bonds can trigger safe haven flows into the USD. With a lot priced for the Fed and USD, the bar is high for hawkish Fed surprises, but any aggressive Fed speak talking up a >5.0% terminal rate can trigger further USD upside. POSSIBLE BEARISH SURPRISES With the Fed signalling a data dependent policy stance, we expect a cyclical reaction from the USD with incoming US data. Thus, extremely bad growth, inflation or jobs data is expected to trigger short-term bearish reactions in the USD. If the cyclical outlook starts to improve, the USD’s safe haven status still matters. Any incoming catalysts that decrease deep recession fears and triggers strong moves higher in risk assets & bonds can trigger safe haven outflows out of the USD. With a lot priced in for the Fed and the USD, it won’t take much to disappoint on the dovish side. Any big concerns about growth from Fed speakers could trigger outflows. BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays hawkish and cyclical concerns put pressure on risk sentiment. The data dependent stance from the Fed means that short-term data surprises can pull the USD either way and would be our preferred way of trading the Dollar right now. We have a very excited economic calendar for the US in the week ahead, with lots of important economic data and the FOMC meeting. For the econ data our expectation is for a cyclical reaction where very good data is expected to support the USD and very bad data expected to pressure the USD. As for the Fed, the main focus will be on whether the FOMC confirms a downshift in the pace and size of hikes.
by thunderpips
2
Today’s Notable Sentiment ShiftsGBP – Sterling dropped on Thursday after the Bank of England’s November meeting. The BoE said borrowing costs were likely to go up less than markets expect and warned that the economy was heading for a protracted recession even as it raised rates by the most in three decades. Summarising the meeting, Reuters noted: “The BoE raised Bank rate by 75 basis points (bps) in an effort to tame double digit inflation, taking it to a 14 year high of 3%. It was the biggest rate hike since 1989, apart from a failed attempt to boost sterling on Black Wednesday in 1992. In a highly gloomy message, the BoE said Britain which is grappling with a sharp rise in energy and mortgage costs has probably tipped into a recession. It said the downturn could cause the economy to shrink in both 2023 and 2024. Analysts said sterling was reacting to the much less aggressive tone of the BoE compared to the Fed, as well as the dire economic outlook.”
by thunderpips
GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL OUTLOOK: WEAK BEARISH BASELINE A looming recession has been a key source of Pound weakness and has kept pressure on Sterling despite ongoing BoE hikes. But there is a new threat in focus. It seems the PM’s new fiscal plan, even though putting downside pressure on inflation and lowering growth risks, has drastically increased debt concerns. The disorderly move in Gilt yields were enough to force the BoE’s to step in with a limited (both in time and size) bond buying intervention plan. This has brought some calm to the angst but being limited won’t be enough to fix the fiscal concerns. The reduction of political uncertainty with Rishi Sunak becoming PM provided us with a good GBPUSD at the start of the week, but opportunities after that was thin with mostly choppy price action. All eyes turns to the BoE policy decision on Thursday. POSSIBLE BULLISH SURPRISES With recession the base assumption, any incoming data that surprises meaningfully higher could trigger relief for the GBP. With focus on stagflation, any downside surprises in CPI or factors that decrease inflation pressures are expected to support the GBP and not pressure it. Fiscal plans from the new PM that calms investor nerves about the fiscal situation could provide some support for Sterling. POSSIBLE BEARISH SURPRISES With recession the base assumption, any material downside surprises in growth data can still trigger short-term pressure. With focus on stagflation, any upside surprises in CPI or factors that increase more inflation pressures are expected to weigh on the GBP and not support it. Fiscal plans from the new PM that increases investor fears about the fiscal situation could provide downside for Sterling. BIGGER PICTURE The fundamentals for Sterling remain bearish. Recession is around the corner (might be in one already), but the new PM has provided enough calm to the fiscal situation and political uncertainty which has seen Sterling overall well supported. There is still a lot of pain for the economy ahead so we remain cautious of the bearish fundamental outlook, but with a lot of bad news priced in we are looking for short-term upside opportunities. In the week ahead the main highlight will be the BoE policy decision. With 70bsp priced (at the time of writing), the size of the hike and the forward guidance could offer short-term tradable volatility for Sterling, but the bigger focus for markets will arguably be on the new PM’s budget which is set to be revealed in mid-Nov. USD FUNDAMENTAL OUTLOOK: BULLISH BASELINE With headline CPI above 8% and Core CPI seeing another acceleration in the SEP CPI data, the Fed is under pressure to continue hiking rates and ramping up QT. Markets expect another 75bsp hike in NOV and currently prices the terminal rate at 4.89%. The Fed is on a data-dependent (meeting-by-meeting) policy stance, meaning incoming growth, inflation and jobs data remains a key driver for short-term USD volatility where we expect a cyclical reaction with incoming data for both the USD and US10Y (good data expected to be supportive for the USD while bad data is expected to pressure the USD). Our expectation for a softer USD this past week played to our advantage with a punchy move lower in the Dollar. The week ahead is filled with lots of US economic data and the FOMC policy decision which will all be important drivers for the USD. POSSIBLE BULLISH SURPRISES With the Fed signalling a data dependent policy stance, we expect a cyclical reaction from the USD with incoming US data. Thus, extremely good growth, inflation or jobs data is expected to trigger short-term bullish reactions in the USD. If the cyclical outlook continues to weaken, the USD’s safe haven status still matters. Any incoming catalysts that increase deep recession fears and triggers strong moves lower in risk assets & bonds can trigger safe haven flows into the USD. With a lot priced for the Fed and USD, the bar is high for hawkish Fed surprises, but any aggressive Fed speak talking up a >5.0% terminal rate can trigger further USD upside. POSSIBLE BEARISH SURPRISES With the Fed signalling a data dependent policy stance, we expect a cyclical reaction from the USD with incoming US data. Thus, extremely bad growth, inflation or jobs data is expected to trigger short-term bearish reactions in the USD. If the cyclical outlook starts to improve, the USD’s safe haven status still matters. Any incoming catalysts that decrease deep recession fears and triggers strong moves higher in risk assets & bonds can trigger safe haven outflows out of the USD. With a lot priced in for the Fed and the USD, it won’t take much to disappoint on the dovish side. Any big concerns about growth from Fed speakers could trigger outflows. BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays hawkish and cyclical concerns put pressure on risk sentiment. The data dependent stance from the Fed means that short-term data surprises can pull the USD either way and would be our preferred way of trading the Dollar right now. We have a very excited economic calendar for the US in the week ahead, with lots of important economic data and the FOMC meeting. For the econ data our expectation is for a cyclical reaction where very good data is expected to support the USD and very bad data expected to pressure the USD. As for the Fed, the main focus will be on whether the FOMC confirms a downshift in the pace and size of hikes.
by thunderpips
7
GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL OUTLOOK: WEAK BEARISH BASELINE A looming recession has been a key source of Pound weakness and has kept pressure on Sterling despite ongoing BoE hikes. But there is a new threat in focus. It seems the PM’s new fiscal plan, even though putting downside pressure on inflation and lowering growth risks, has drastically increased debt concerns. The disorderly move in Gilt yields were enough to force the BoE’s to step in with a limited (both in time and size) bond buying intervention plan. This has brought some calm to the angst but being limited won’t be enough to fix the fiscal concerns. It was another volatile week for Sterling as a result of the political uncertainty with the resignation of PM Truss. In the week ahead we only have S&P Global PMIs to watch on the data side, but all focus and attention will be on the leadership race to see which 2 or 3 candidates will meet the minimum 100 nominations to put their names in the hat. POSSIBLE BULLISH SURPRISES With recession the base assumption, any incoming data that surprises meaningfully higher could trigger relief for the GBP. With focus on stagflation, any downside surprises in CPI or factors that decrease inflation pressures are expected to support the GBP and not pressure it. If massive disorderly moves in Gilts forces the BoE to step up as the buyer of last resorts that could trigger GBP upside. If either Johnson or Sunak gets enough nominations that could ease some of the pressure from the Pound. POSSIBLE BEARISH SURPRISES With recession the base assumption, any material downside surprises in growth data can still trigger short-term pressure. With focus on stagflation, any upside surprises in CPI or factors that increase more inflation pressures are expected to weigh on the GBP and not support it. If we have big disorderly moves in Gilts but the BoE reiterates, they won’t intervene again that could put pressure on GBP. Any outcome that increases the likelihood of a general election should increase the risk premium in the GBP. BIGGER PICTURE The fundamentals for Sterling remain bearish . Recession is around the corner (might be in one already), and the new fiscal plan has failed to provide any assurances for investors (even though we think the negative reaction is not completely warranted). Even though flash PMI data will be important to watch as always, the political situation will likely overshadow the econ data as all eyes will be on the leadership race to see who will win the race as the UK’s next PM. USD FUNDAMENTAL OUTLOOK: BULLISH BASELINE With headline CPI above 8% and Core CPI seeing another acceleration in the SEP CPI data, the Fed is under pressure to continue hiking rates and ramping up QT. Markets expect another 75bsp hike in NOV and currently prices the terminal rate at 4.8%. The Fed is on a data-dependent (meeting-by-meeting) policy stance, meaning incoming growth, inflation and jobs data remains a key driver for short-term USD volatility where we expect a cyclical reaction with incoming data for both the USD and US10Y (good data expected to be supportive for the USD while bad data is expected to pressure the USD). Even though the USD had good composure for the majority of the week, the WSJ article, BoJ intervention and less hawkish comments from Fed’s Daly saw a strong push lower in the DXY . Given what has been priced for the USD and yields, the Daly comments and WSJ article gives us a short-term downside bias for the USD in the week ahead. POSSIBLE BULLISH SURPRISES With the Fed signalling a data dependent policy stance, we expect a cyclical reaction from the USD with incoming US data. Thus, extremely good growth, inflation or jobs data is expected to trigger short-term bullish reactions in the USD. If the cyclical outlook continues to weaken, the USD’s safe haven status still matters. Any incoming catalysts that increase deep recession fears and triggers strong moves lower in risk assets & bonds can trigger safe haven flows into the USD. With a lot priced for the Fed and USD, the bar is high for hawkish Fed surprises, but any aggressive Fed speak talking up a >5.0% terminal rate can trigger further USD upside. POSSIBLE BEARISH SURPRISES With the Fed signalling a data dependent policy stance, we expect a cyclical reaction from the USD with incoming US data. Thus, extremely bad growth, inflation or jobs data is expected to trigger short-term bearish reactions in the USD. If the cyclical outlook starts to improve, the USD’s safe haven status still matters. Any incoming catalysts that decrease deep recession fears and triggers strong moves higher in risk assets & bonds can trigger safe haven outflows out of the USD. With a lot priced in for the Fed and the USD, it won’t take much to disappoint on the dovish side. Any big concerns about growth from Fed speakers could trigger outflows. BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays hawkish and cyclical concerns put pressure on risk sentiment. The data dependent stance from the Fed means that short-term data surprises can pull the USD either way and would be our preferred way of trading the Dollar right now. The econ calendar is slightly more exciting compared to last week with S&P Global PMI, Consumer Confidence and Core PCE, but after the Fed Daly comments and the WSJ article we suspect the USD could trade softer next week as the Fed enters their blackout period from Saturday.
by thunderpips
2
Today’s Notable Sentiment ShiftsGBP – Sterling rallied to a six week high on Tuesday on improved risk sentiment as Rishi Sunak became Britain’s latest prime minister. Nevertheless, risks for GBP remain tilted to the downside, as the UK’s bleak economic outlook is ultimately likely to dominate the currency’s long term performance. Indeed, Convera succinctly argues: “Beyond a brief honeymoon phase rally, I think the daunting road ahead for the UK economy is likely to cap sterling gains.”
by thunderpips
4
GBP AUD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL OUTLOOK: WEAK BEARISH BASELINE A looming recession has been a key source of Pound weakness and has kept pressure on Sterling despite ongoing BoE hikes. But there is a new threat in focus. It seems the PM’s new fiscal plan, even though putting downside pressure on inflation and lowering growth risks, has drastically increased debt concerns. The disorderly move in Gilt yields were enough to force the BoE’s to step in with a limited (both in time and size) bond buying intervention plan. This has brought some calm to the angst but being limited won’t be enough to fix the fiscal concerns. It was another volatile week for Sterling as a result of the political uncertainty with the resignation of PM Truss. In the week ahead we only have S&P Global PMIs to watch on the data side, but all focus and attention will be on the leadership race to see which 2 or 3 candidates will meet the minimum 100 nominations to put their names in the hat. POSSIBLE BULLISH SURPRISES With recession the base assumption, any incoming data that surprises meaningfully higher could trigger relief for the GBP. With focus on stagflation, any downside surprises in CPI or factors that decrease inflation pressures are expected to support the GBP and not pressure it. If massive disorderly moves in Gilts forces the BoE to step up as the buyer of last resorts that could trigger GBP upside. If either Johnson or Sunak gets enough nominations that could ease some of the pressure from the Pound. POSSIBLE BEARISH SURPRISES With recession the base assumption, any material downside surprises in growth data can still trigger short-term pressure. With focus on stagflation, any upside surprises in CPI or factors that increase more inflation pressures are expected to weigh on the GBP and not support it. If we have big disorderly moves in Gilts but the BoE reiterates, they won’t intervene again that could put pressure on GBP. Any outcome that increases the likelihood of a general election should increase the risk premium in the GBP. BIGGER PICTURE The fundamentals for Sterling remain bearish . Recession is around the corner (might be in one already), and the new fiscal plan has failed to provide any assurances for investors (even though we think the negative reaction is not completely warranted). Even though flash PMI data will be important to watch as always, the political situation will likely overshadow the econ data as all eyes will be on the leadership race to see who will win the race as the UK’s next PM. AUD FUNDAMENTAL OUTLOOK: NEUTRAL BASELINE Ongoing issues with China’s economy remain a question mark for the AUD. As long as China’s potential for recovery remains uncertain, the path for the AUD remains the same. The RBA surprised this past week with a 25bsp hike, sparking some speculation that the bank could be finalizing their hiking cycle sooner than expected (STIR markets priced out close to 75bsp from the terminal rate after the decision). As always risk sensitivity needs to be kept in mind for the AUD, and that means Q3 earnings season needs to be kept on the radar this incoming week. On the data side markets will be eyeing the QQ CPI print as well. POSSIBLE BULLISH SURPRISES Data showing China’s growth outlook is improving or surprise announcement at the CCP congress that Covid-zero will end could provide upside for the AUD. As a risk sensitive currency, catalysts that causes big bouts of risk on sentiment could trigger bullish reactions in the AUD. Catalyst that triggers recovery in key export commodities (China stimulus, lifting covid restrictions, new infrastructure projects in China) should be supportive for the AUD. The RBA caught markets by surprise with their 25bsp hike this past week. Any push back from the RBA stressing a smaller hike doesn’t mean a lower terminal rate can be AUD positive. POSSIBLE BEARISH SURPRISES Data showing China’s growth outlook is deteriorating or strong affirmation that the covid-zero policy is here to stay could add additional pressure on the AUD. As a risk sensitive currency, catalysts that causes big bouts of risk off sentiment could trigger bearish reactions in the AUD. Catalyst that triggers further weakness in key export commodities (additional China restrictions, demand destruction) could be negative for the AUD. The RBA caught markets by surprise with their 25bsp hike this past week. Any push back from the RBA stressing a smaller hike doesn’t mean a lower terminal rate can be AUD positive. BIGGER PICTURE The AUD’s outlook remains neutral but is largely dependent on China and whether key commodities like Iron Ore and Coal can stop their bleeding. Until the covid situation and property issues in China improves materially, and until commodities and China’s growth stabilizes, the AUD is best suited for short-term trades in line with strong short-term sentiment. For the week ahead the focus is threefold with earnings season in the US an important risk sentiment driver, secondly, we have quarterly CPI data due on Wednesday and the Federal Budget due on Tuesday.
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EUR GBP - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL OUTLOOK: WEAK BEARISH BASELINE Inflation >9% saw a 75bsp ECB hike in September. Post-meeting sources noted the bank is planning to discuss QT at their October meeting. The President showed more communication tact by not giving any clues on estimates for the terminal rate. On spread fragmentation, the bank didn’t provide any new info or clarity on how the eligibility might impact countries like Italy and Spain. Until the BTP/Bund spread breaches 2.55%, markets will have to wait and see whether TPI can make a difference. The main driver for the EUR is the economic outlook, but there are a few different conflicting drivers. Gas supply from Russia remain closed, but energy reform plans have seen EU gas prices lose ground. The war in Ukraine remains a risk, but recent victories by Ukraine has been a more positive development. Flash PMI data will be important to watch, but Thursday’s ECB meeting might get the most attention. STIR markets have priced 76bsp for the meeting, which means a 75bsp won’t be enough to get markets excited and focus will fall to the ECB’s tone. POSSIBLE BULLISH SURPRISES De-escalation or cease fire in Ukraine. Stagflation risks remains, but with lots of bad news priced any materially better-than-expected data could spark some relief. Any TPI comments that convinces markets it can solve spread fragmentation issues should be supportive for the EUR. Resumption of Nord Stream gas flows or if gas storage can see Europe through winter, would ease some of the pressure. Given the EUR’s DXY weighting, better overall risk sentiment that pressures the USD should be supportive for the EUR. POSSIBLE BEARISH SURPRISES Escalation in Ukraine war that risks NATO involvement. Stagflation risks remains, even with lots of bad news priced any materially worse-than-expected data could see more pressure. If ECB fails to act on the TPI when we see big jolts higher in the BTP/Bund spread could trigger bearish reactions in the EUR. Announcements that Europe gas storage won’t make it through the winter without resumption of gas flows. Given the EUR’s DXY weighting, continued sour risk sentiment that supports the USD should be negative for the EUR. BIGGER PICTURE The fundamental outlook remains bearish with recent data pointing to a higher likelihood of a EZ recession. Current bearish drivers (geopolitics, stagflation, spread fragmentation, energy supply) outweigh the positives. Recession risks remain high and means incoming data like growth & inflation will be watched closely. For now, the focus for the EUR is on multiple fronts from energy to policy to geopolitics, which means we don’t want to be hasty with looking for new EUR trades and want a very clear reason and catalyst to trade the currency in the short-term. With markets fully priced for another 75bsp hike, the attention will fall on the tone and language of the statement and press conference. GBP FUNDAMENTAL OUTLOOK: WEAK BEARISH BASELINE A looming recession has been a key source of Pound weakness and has kept pressure on Sterling despite ongoing BoE hikes. But there is a new threat in focus. It seems the PM’s new fiscal plan, even though putting downside pressure on inflation and lowering growth risks, has drastically increased debt concerns. The disorderly move in Gilt yields were enough to force the BoE’s to step in with a limited (both in time and size) bond buying intervention plan. This has brought some calm to the angst but being limited won’t be enough to fix the fiscal concerns. It was another volatile week for Sterling as a result of the political uncertainty with the resignation of PM Truss. In the week ahead we only have S&P Global PMIs to watch on the data side, but all focus and attention will be on the leadership race to see which 2 or 3 candidates will meet the minimum 100 nominations to put their names in the hat. POSSIBLE BULLISH SURPRISES With recession the base assumption, any incoming data that surprises meaningfully higher could trigger relief for the GBP. With focus on stagflation, any downside surprises in CPI or factors that decrease inflation pressures are expected to support the GBP and not pressure it. If massive disorderly moves in Gilts forces the BoE to step up as the buyer of last resorts that could trigger GBP upside. If either Johnson or Sunak gets enough nominations that could ease some of the pressure from the Pound. POSSIBLE BEARISH SURPRISES With recession the base assumption, any material downside surprises in growth data can still trigger short-term pressure. With focus on stagflation, any upside surprises in CPI or factors that increase more inflation pressures are expected to weigh on the GBP and not support it. If we have big disorderly moves in Gilts but the BoE reiterates, they won’t intervene again that could put pressure on GBP. Any outcome that increases the likelihood of a general election should increase the risk premium in the GBP. BIGGER PICTURE The fundamentals for Sterling remain bearish . Recession is around the corner (might be in one already), and the new fiscal plan has failed to provide any assurances for investors (even though we think the negative reaction is not completely warranted). Even though flash PMI data will be important to watch as always, the political situation will likely overshadow the econ data as all eyes will be on the leadership race to see who will win the race as the UK’s next PM.
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