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Markets

The Bank of England’s ‘intrinsically dovish hold’ sharply contrasted with broader market trends since the Fed’s message that interest rates will be ‘higher for (very much) longer’. In the close 5-4 vote, governor Bailey’s MPC after kept the policy rate unchanged at 5.25%. Softer than expected August CPI data published on Wednesday (headline 6.7%, core 6.2%) convinced the majority for MPC members that enough policy tightening has been put in place to further facilitate the disinflationary process. Slower than expected growth can amplify early signs of some cooling in the labour market. The BoE maintained its conditional commitment that ‘further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures’. However a comment from BoE governor Bailey after the meeting (“cutting interest rates would be very, very premature”) was a better implicit pointer of the direction the BoE is contemplating from now. UK yields already made most of the dovish repositioning on Wednesday after the CPI data. After some intraday volatility around the BoE decision, UK yields mostly followed the broader trends rising between 2.5 bps (2-y) and 9 bps (10-y). Sterling evidently paid the price. EUR/GBP briefly spiked to just below the 0.87 barrier (close 0.867). On other markets, the higher for (much) longer repositioning continued, with especially the long end of the curve hard hit. The 2-y US yield eased slightly (3.2 bps) but the 10-y (6.75 bps) surpassed the 4.5% barrier for the first time since 2007, mainly driven by a further rise in the real yield (10-y + 6.6 bps at 2,11%). The 30-y even jumped an astonishing 12.8 bps. Yield rises in Europe/Germany remained more modest (10-y + 3.5 bps). Given the widening interest rate differential and the rise in the US real yield, gains in the dollar could have been bigger. At 105.39, DXY closed well off the intraday top. EUR/USD temporary dropped below the 1.0635 support area but also closed at 1.066. USD/JPY even closed at 147.6 after touching 148.45 earlier in the session. Some squaring of positions ahead of today’s BOJ meeting was in play. Higher (real) yields caused big damage on equity markets (S&P -1.64%, Nasdaq -1.82%, Euro Stoxx 50 -1.48%). At 4330, the S&P is testing key support (4335/4328) as do many other indices.

The BoJ left its policy unchanged this morning even as national inflation data suggested persistent above target inflation (CPI ex fresh food 3.1%, core 4.3%). The 10-y Japanese government bond yield (0.75%) is holding near its recent top. USD/JPY returns to the 148 area. Regional equities are holding up rather well given the WS sell-off. Later today, US and EMU PMI’s will give a new update on regional activity. The EMU composite PMI is seen bottoming (46.5) after a protracted decline. For the US, markets will look for confirmation on recent eco resilience. We don’t expect the data to provide much of a trigger to reverse the strong uptrend in yields. Yesterday’s USD performance was a bit disappointing, but we still see more upside with a sustained break of EUR/USD below the 1.0635/17 area.

News and views

UK-based Growth for Knowledge’s (GfK) consumer confidence indicator jumped from -25 to -21, its best level since January 2021 whereas consensus expected a slight deterioration to -26 in September. UK consumers turned less pessimistic on both the economic situation (-24 from -30) and their personal finances (-2 from -3) in the next 12 months. They also believe that the climate for major purchases has improved (-20 from -24). Saving intentions were unchanged (27) at the best level since April 2008. GfK added that this month’s improved headline score is good news, but it’s important to note many households are still struggling with the cost-of-living crisis and that economic conditions are tough. The financial mood of the nation is still negative.

The Turkish central bank raised its policy rate yesterday as expected by 500 bps, from 25% to 30%. Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved. Higher-than-expected inflation readings in July and August (59% Y/Y) imply that year-end inflation will be close to the upper bound of the CBRT’s forecasts (>60%) with additional upside inflation risks coming from strong domestic demand, sticky services inflation, higher oil prices and the ongoing deterioration in inflation expectations. The Turkish lire holds steady just below EUR/TRY 29.

Daily Pivots: (S1) 180.43; (P) 181.80; (R1) 182.79; More...

Intraday bias in GBP/JPY is turned neutral first as it recovered after dipping to 180.78. Further decline is expected as long as 183.34 support turned resistance holds. Below 180.78 will resume the fall from 186.75, as a larger scale correction, to 176.29 support next.

In the bigger picture, as long as 176.29 support holds, larger up trend from 123.94 (202 low) should still be in progress. Break of 186.75 will target 195.86 (2015 high). Nevertheless, firm break of 176.29 will confirm medium term topping, and turn outlook neutral for lengthier and deeper consolidations.

Daily Pivots: (S1) 156.86; (P) 157.50; (R1) 157.96; More....

Intraday bias in EUR/JPY stays neutral for the moment. Risk will be mildly on the downside as long as 158.64 resistance holds. Break of 156.57 support, and sustained trading below 55 D EMA (now at 156.80) will argue that fall from 159.75 is a larger scale correction. Deeper decline would be seen back towards 151.39 support. Nevertheless, above 158.64 would bring retest of 159.75 high instead.

In the bigger picture, as long as 151.39 support holds, rise from 114.42 is still expected to continue. Next target is 100% projection of 124.37 to 148.38 from 139.05 at 163.06. Sustained break there will pave the way to retest long term resistance at 169.96.

Daily Pivots: (S1) 0.8634; (P) 0.8665; (R1) 0.8703; More....

Immediate focus is now on 0.8700 resistance in EUR/GBP. Rejection by this resistance will maintain bearish outlook that larger down trend is not over. Break of 0.8625 minor support will turn bias back to the downside for 0.8568 support first. However, sustained break of 0.8700 will carry larger bullish implication and bring stronger rally.

In the bigger picture, the down trend from 0.9267 (2022 high) is seen as part of the long term range pattern from 0.9499 (2020 high). Fall from 0.8977 is seen as the third leg. As long as 0.8700 resistance holds, further decline is still expected. Break of 0.8491 will resume the fall towards 0.8201 (2022 low). Nevertheless, firm break of 0.8700 will now be a sign of bullish reversal.

Daily Pivots: (S1) 1.6536; (P) 1.6594; (R1) 1.6677; More...

Intraday bias in EUR/AUD stays neutral for the moment and consolidation from 1.6452 could extend further. But further decline is expected with 1.6793 resistance intact. Fall from 1.7062 is seen as a larger scale correction. Below 1.6452 will target 1.6000 fibonacci level. Nevertheless, firm break of 1.6793 will dampen this view and bring retest of 1.7062 instead.

In the bigger picture, current development argues that fall from 1.7062 is probably correcting whole up trend from 1.4281. Deeper decline would be seen to 38.2% retracement of 1.4281 to 1.7062 at 1.6000. Strong support should be seen there to bring rebound, at least on first attempt.

Daily Pivots: (S1) 0.9579; (P) 0.9628; (R1) 0.9693; More...

Intraday bias in EUR/CHF stays on the upside for the moment. Rise form 0.9513 short term bottom would target 38.2% retracement of 1.0095 to 0.9513 at 0.9735. Sustained break there will target 61.8% retracement at 0.9873. On the downside, below 0.9602 minor support will turn intraday bias neutral first.

In the bigger picture, medium term outlook is staying bearish as the cross is capped well below falling 55 W EMA (now at 0.9804). Down trend from 1.2004 (2018 high) could still resume through 0.9407 (2022 low). However, sustained trading above the 55 W EMA will raise the chance that 0.9470 is already a long term bottom. Further rise would then be seen to 1.0095 resistance to confirm bullish trend reversal.

Daily Pivots: (S1) 0.6382; (P) 0.6419; (R1) 0.6453; More...

Intraday bias in AUD/USD stays neutral as range trading continues. Outlook stays bearish with 0.6520 resistance intact. On the downside, break of 0.6356 will resume larger down trend to 100% projection of 0.7156 to 0.6457 from 0.6894 at 0.6195.

In the bigger picture, down trend from 0.8006 (2021 high) is possibly still in progress. Decisive break of 0.6169 will target 61.8% projection of 0.8006 to 0.6169 to 0.7156 at 0.6021. This will now remain the favored case as long as 0.6894, in case of strong rebound.

Daily Pivots: (S1) 1.0627; (P) 1.0651; (R1) 1.0684; More...

Intraday bias in EUR/USD is turned neutral again first. Sustained break of 1.0609/34 support zone will carry larger bearish implication. Fall from 1.1274 should then target target 1.0515 support next. Nevertheless, strong rebound from current level, followed by break of 1.0767 resistance, should confirm short term bottoming. Intraday bias will be back on the upside for 1.0944 resistance.

In the bigger picture, fall from 1.1274 medium term top is seen as a correction to up trend from 0.9534 (2022 low). Strong support could be seen from 1.0634 cluster support (38.2% retracement of 0.9534 to 1.1274 at 1.0609) to bring rebound, at least on first attempt. However, sustained break of 1.0609/0634 will raise the chance of bearish trend reversal, and target 61.8% retracement at 1.0199.

Daily Pivots: (S1) 1.2237; (P) 1.2293; (R1) 1.2352; More...

Intraday bias in GBP/USD remains on the downside as this point. Current fall from 1.3141 should target 1.2075 fibonacci level. On the upside, above 1.2423 minor resistance will turn intraday bias neutral again. But near term outlook will stay bearish as long as 1.2618 support turned resistance holds, in case of strong recovery.

In the bigger picture, fall from 1.3141 medium term top is seen as a correction to up trend from 1.0351 (2022 low). Deeper decline would be seen to 38.2% retracement of 1.0351 to 1.3141 at 1.2075. Strong support would be seen there to bring rebound on first attempt. However, sustained break of 1.2075 will raise the chance of bearish trend reversal.

Daily Pivots: (S1) 0.8991; (P) 0.9035; (R1) 0.9090; More....

Intraday bias in USD/CHF remains on the upside at this point. Current rise from 0.8551 is in progress for 0.9146 cluster resistance. On the downside, break of 0.8982 minor support will turn intraday bias neutral first. But further rally will remain in favor as long as 0.8874 resistance turned support holds, in case of retreat.

In the bigger picture, rebound from 0.8551 medium term bottom is currently seen as a correction to the downtrend from 1.0146 (2022 high). Further rally would be seen to 0.9146 cluster resistance (38.2% retracement of 1.0146 to 0.8551 at 0.9160). Strong resistance could be seen there to limit upside, at least on first attempt.