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Turkey's central bank held its main interest rates steady this morning, in line with expectations.

The Monetary Policy Committee (MPC) kept the one-week repo rate at +8%. It held the overnight lending rate at +9.25% and held the overnight borrowing rate at +7.25%.

Note: Policy makers also kept the late-liquidity lending rate at +12.25% – the surcharge premium charged to domestic banks to borrow.

"The central bank will continue to use all available instruments in pursuit of the price stability objective. Tight stance in monetary policy will be maintained until inflation outlook displays a significant improvement," the central bank said in a statement.

Investors who were anticipating that soaring inflation in the UK would convert some BoE doves, were left slightly disappointed on Thursday, after the MPC voted 7-2 in favor of keeping the rate unchanged.

The initial disappointment triggered a knee-jerk reaction lower on the GBPUSD, before prices rebounded higher, as market players digested the hawkish policy statement. With the central bank stating that it could "reduce stimulus in the coming months" if inflationary pressures continue to mount, Sterling is likely to remain supported this week.

While the Bank of England has indicated that interest rates could rise faster than markets expect, if the economy keeps growing, actions will always speak louder than words. It should be kept in mind that the unsavory combination of rising inflation, subdued wage growth and Brexit uncertainty has placed the central bank in a very tight spot. It becomes a question - will the BoE eventually raise rates to tame inflation, which is currently squeezing UK household? Or will tepid wage growth, concerns over the health of the UK economy and Brexit uncertainty keep the central bank on standby?

Things could get more interesting for Sterling moving forward, with more volatility expected as the currency becomes increasingly sensitive to monetary policy speculation.

From a technical standpoint, the GBPUSD bulls have won the battle this week, as the currency trades to a fresh yearly high above 1.3320. Prices are bullish on the daily charts, with today's hawkish boost by the BoE likely to support a further incline towards 1.3400. This bullish setup remains valid, as long as prices can keep above the 1.3150 higher low.

The GBPUSD pair has moved to trendline resistance, hitting 1.3310, after the Bank of England Minutes revealed that BOE policy makers think that 'some withdraw of monetary stimulus will likely be appropriate over the coming months'.

Sterling had earlier spiked lower to 1.3153, as the BOE kept interest rates on-hold, with Monetary Policy Committee members voting 7-2, which was in-line with most economist's expectations.

The GBPUSD pair has regained bullish momentum, with traders now looking for further daily time-frame price closes above the key 1.3268 level, for further confirmation of continued upside.

Key technical resistance above the 1.3310 level is located at 1.3328, 1.3348 and 1.3380. Above the 1.3380 level, the GBPUSD pairs 100-week moving average is located at 1.3398.

Key intraday GBPUSD technical support below the key 1.3300 level is located at 1.3289, 1.3268 and the pairs daily pivot point, at 1.3252.

The USDJPY recent risk-reversal remains intact, with price-action still well bid around the 110.40 level, after the pair moved to its highest trading level since July 16th, hitting 110.73 during the Asian session.

Traders will now look to next large directional move in the U.S dollar index, following the upcoming release of key U.S inflation and weekly jobs data.

The USDJPY pair is starting to make a bullish inverse head and shoulders pattern on the lower time frame price charts, with a three-hundred and fifty pip upside projection.

Key intraday technical resistance is found at the 100-day moving average, at 110.82 and the July swing high, at 111.04. Further resistance is found at the 200-day and 200-week moving average, at 111.53-54.

Key intraday technical support is located at the USDJPY 50-day moving average, at 110.25, and the pairs daily pivot point, at 109.90.

Once below the 109.90 level, further support is located at the 100 and 200-hour moving averages, at 109.47 and 109.47.

Chinese growth data disappointed overnight pointing to weaker growth in both industrial production, fixed investment and retail sales. While we have expected China to slow down this year, I believe there are reasons to take the data with a grain of salt as they do not fit with what you see in for example PMI manufacturing and metal prices, which both pointed to a rebound into the summer. As often the case, Chinese data seems to be pointing in different directions at the moment.

We do expect growth to slow in China over the next 12 months as housing - and most likely infrastructure investment - cools on the back of policy tightening. But we are not sure the slowdown is happening already as the official data today says.

So what did the data say: Industrial production fell to 6.0% y/y in August (consensus 6.6% y/y) from 6.4% y/y. Fixed asset investments (in current prices) fell to 7.8% y/y in August (consensus 8.2% y/y) from 8.3% y/y. Retail sales dropped to 10.1% y/y in August (consensus 10.5% y/y) from 10.4% y/y. So disappointments across the board pointing to more slowdown than expected.

However, the reason we are a bit sceptical is illustrated below.

First, headline industrial production has not been in line with the signals from PMI manufacturing since 2012. And according to these numbers Chinese manufacturing has seen broadly flat growth since 2015 (apart from a temporary lift higher) although there is plenty of evidence that activity has gone up. PMI is up, profits are up, producer prices are sharply up and not least global metal prices (of which China consumes 50%) are much higher since early 2016. Metal prices have increased a lot over the summer as well.

Second, we trust more some of the sub-components in the industry numbers. For example steel production. This has increased a lot in recent months in line with the increase in PMI and metal prices.

Third, electricity generation has rebounded again lately after falling earlier in the year. Hence, the same picture as PMI and steel production as well as metal prices.

So where does this leave us? We are sceptical that China has really slowed during the summer - even though it would have been better in line with our own scenario. But it simply doesn't fit with all the indicators we trust the most when it comes to China? Why do we trust them more? Because they are statistics that are independent of each other yet highly correlated and painting a similar picture - and in line with what we see in commodity markets that tend to be correlated with activity in China.

When it comes to overall fixed asset investments they have shown a steady decline since 2010. It fits well into a rebalancing story in China, but it does not fit well with the indicators I mention above. A lot suggests that investments in construction and infrastructure have driven a pick-up in overall investments over the past year. Something we expect to fade soon due to the tightening measures from PBoC and the regulators.

The retail sales data also disappointed today - but overall the numbers have been moving sideways for the past 2-3 years. So not worsening but also not improving.

The aussie was hovering around a 10-day low of $0.7970 during early Asian hours when upbeat labor figures out of Australia for the month of August lifted the currency slightly above the $0.80 key-level. However, improving conditions in the labor environment are said to do little for interest rates to rise from record-low levels as price pressures remain subdued. According to the Australian Bureau of Statistics, the economy added 54,200 jobs in August instead of the 15,000 expected and almost twice the previous mark, posting an increase for 11 months in a row. Regarding full-time positions, those jumped by 40,100 after falling by 19,800 in July (downwardly revised from 20,300). Although 269,000 positions were created this year, the unemployment rate in August remained flat at 5.6% as the labor force also rose by a similar amount of 257,000. The participation rate picked up by 0.2 percentage points to a 5-year high of 65.3%, surprising analysts who anticipated the rate to stand flat at July's mark of 65.1%.

Despite the labor market building momentum, recent figures showed that wage growth was stuck at a record-low level of 1.9% y/y in the second quarter. In the same timeframe, inflation dropped unexpectedly to 1.9% y/y, far below the RBA's target range of 2-3%. A reasoning behind this could be that jobs are mostly rising in service sectors (which represent two-thirds of the labor market), where firms tend to pay less. Moreover, consumers are seeing their disposable incomes squeezed as they are struggling to repay their record level of mortgage debts. Therefore, a rate hike in October is unlikely to emerge given the weakness in prices and the record-high household debts even though the economy has been growing for 26 years without a recession. In the forex markets, the aussie partially reversed Wednesday's losses, jumping by 0.56% to $0.8015 during the Asian trading hours. However, a stream of disappointing Chinese data published a few hours later weighed on the currency, driving it lower to $0.8005.

Yields on U.K. government bonds have rallied across the curve as the Bank of England adopts a more "hawkish" tone.

The majority of Monetary Policy Committee members think "some withdrawal of monetary stimulus is likely to be appropriate over the coming months."

Also supporting yields is the BoE now expects inflation to rise above +3% in October.

Two-year gilt yields have rallied to +0.32%, their highest level since July and sharply up since levels of +0.13% only last week. Five, 10 and 30-year yields are also backing up.

The FTSE 100 is trading down -0.36% as GBP/USD trades up +0.8% at £1.3320 and EUR/GBP is down -0.82% at €0.8926.

Cable spiked lower to session low at 1.3148 on knee-jerk reaction after BoE's left no surprise on 7-2 vote for rate hike on today's meeting. The Bank of England left interest rates and QE unchanged at 0.25% and 435 billion pounds respectively, which disappointed traders who expected more hawkish voting configuration. However, comments from BoE sounded optimistic and inflated pound for strong acceleration which returned above 1.3300 barrier and probes above yesterday's high at 1.3328. BoE MPC's policymakers said their first interest rate rise in more than a decade, was likely to be needed in coming months if economy growth and inflationary pressures continue to build. Markets took BoE's message as hawkish that sent pound into strong bullish acceleration, signaling that corrective phase off 1.3328 high is over. Bullish techs and renewed positive sentiment after BoE are supportive for acceleration towards target at 1.3473, provided by weekly cloud top.

Res: 1.3336; 1.3385; 1.3457; 1.3473
Sup: 1.3268; 1.3200; 1.3148; 1.3121

Daily Pivots: (S1) 1.3150; (P) 1.3240; (R1) 1.3297; More...

GBP/USD's rally resumes after brief retreat, breaking 1.3328 to as high as 1.3336 so far. Intraday bias is back on the upside for 1.3444 key resistance next. Still, we'd maintain that price actions from 1.1946 are still seen as a corrective pattern. Hence, we'd expect strong resistance from 1.3444 to limit upside to bring larger down trend reversal eventually. Break of 1.3153 support will raise the chance of reversal and turn bias to the downside for 55 day EMA (now at 1.2987) first. However, on the upside, firm break of 1.3444 will carry larger bullish implication and target 1.3835/5016 resistance first zone next.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern. While further rise cannot be ruled out, larger outlook remains bearish as long as 1.3444 key resistance holds. Down trend from 1.7190 (2014 high) is expected to resume later after the correction completes. And break of 1.2773 support will be the first sign that such down trend is resuming. However, considering bullish convergence condition in monthly MACD, firm break of 1.3444 will argue that whole down trend from 2.1161 (2007) has completed. And stronger rise would be seen back to 38.2% retracement of 2.1161 to 1.1946 at 1.5466.

Quick update: Dollar regains some strength after better than expected data. Headline CPI rose 0.4% mom, 1.9% yoy in August, above expectation of 0.3% mom, 1.8% yoy. Core CPI rose 0.2% mom, 1.7% yoy versus expectation of 0.2% mom, 1.6% yoy. Initial jobless claims dropped to 284k in the week ended September 9. Also, Canada new housing price index rose 0.4% mom in July.

The British Pound surges sharply as markets perceive BoE announcement today as a hawkish ones. There is no surprise from the policy decision, nor the vote split. The key is that BoE now indicated that stimulus exit could start in the coming "months". Swiss Franc stays soft after SNB left interest rates unchanged and sounds less concerned with the exchange rate in the statement. Meanwhile, Dollar is struggling to extend yesterday's tax reform new triggered gain after US President Donald Trump denied a DACA deal with Democrats. That raises the doubt again on whether Trump is working on bipartisan solutions with Democrats which leads to speedy approval of tax reforms.

BoE: Some withdrawal of monetary stimulus likely appropriate over the coming months

BoE left monetary policies unchanged today as widely expected. Bank rate is held at 0.25% by 7-2 vote with the usual hawks Ian McCafferty and Michael Saunders maintained their vote for a 25bps hike. Asset purchase target is kept at GBP 435b unanimously. Markets seen the announcement as a hawkish one though. The minutes noted that if the economy develops as expected, the majority believed "some withdrawal of monetary stimulus was likely to be appropriate over the coming months in order to return inflation sustainably to target." At the same time, BoE also reiterated the warning that policy tightening could happen "by a somewhat greater extent" than market rates imply. Nonetheless, such rate increases would be "at a gradual pace and to a limited extent."

PM May to deliver Brexit speech in Europe's historical heart in Florence

UK Prime Minister Theresa May announced that she will deliver a speech in Florence on September 22 "to update on Brexit negotiations so far". That will be just a few days ahead of the fourth round of Brexit negotiation, which is postponed to the week of September 25. May's spokesman said that "she will underline the government's wish for a deep and special partnership with the European Union once the UK leaves the EU." And May "wanted to give a speech on the UK's future relationship with Europe in its historical heart". UK also has had "deep cultural and economic ties spanning centuries with Florence, a city known for its historical trading power."

SNB Appears Less Concerned About CHF

As widely expected, SNB decided to keep the sight deposit rate unchanged at -0.75%, while the target range for the three-month Libor stayed at between -1.25% and -0.25%. The central bank also reiterated the pledge that it would intervene in the foreign exchange market if needed. Yet, SNB's sight deposit and FX reserve data indicate that less intervention has been adopted recently. Also Swiss franc's depreciation against the over the past few months has offered some reliefs to the policymakers. At the the members acknowledged the franc is not as overvalued as before. Nonetheless, weak economic and inflation have led the members to remain cautious and maintain the monetary policy unchanged. More in SNB Appears Less Concerned About CHF.

ECB Jazbec: More evidence needed before stimulus withdrawal

ECB governing council member Bostjan Jazbec said that more evidence is needed before the central bank decides to withdraw from the massive monetary stimulus. Jazbec noted that "we are still closely monitoring all developments, which are clearly going the way we expected." However, "the timing for the decision (on reducing bond purchases) has been postponed mainly because developments are in our view still not confirming the decision which will inevitably follow." And, "we need more data and more confirmation that what we are doing is in line with fulfilling our mandate." Strength of Euro is reported to be a major concerns among policy makers. But Jazbec sounded calm on it and note that the strong euro was a "a reflection of the robustness of growth development" in the euro zone.

Trump denied a DACA deal with Democrats

US President Donald Trump pushed back against claims from top Democrat lawmakers that a deal was made over the so called DACA (Deferred Action for Childhood Arrivals ) program. Trump tweeted that "no deal was made last night on DACA". And, massive border security would have to be agreed to in exchange for consent. Would be subject to vote."

Yesterday, Democrat leaders of the House and Senate, Nancy Pelosi and Chuck Schumer, said that yesterday that after a "very productive dinner" with Trump, "we agreed to enshrine the protections of DACA into law quickly and to work out a package of border security, excluding the wall, that's acceptable to both sides".

The White House issued a statement yesterday that the topics at the dinner with Democrats include tax reform, border security, DACA, infrastructure and trade. And the statement noted that "this is a positive step toward the President's strong commitment to bipartisan solutions for the issues most important to all Americans.

Also, House Ways and Means Committee Chairman Kevin Brady, the chief house tax writer, said the tax overhaul framework will be released in the week of September 25. Brady said that's a "consensus" of the so called Big Six including Speaker Paul D. Ryan, Senate Majority Leader Mitch McConnell, Senate Finance Committee Chairman Orrin G. Hatch, Treasury Secretary Steven Mnuchin, and White House economic adviser Gary Cohn.

There was hopes that Trump's change in his "strategy" in engaging the Democrats would speed up the progress to get tax reform through the Congress. Dollar surged as a result of this expectation. But markets will be cautious, at least until Trump delivers something concrete. And, time is needed to see whether Trump is really willing to work with the Democrats for so called "bipartisan solutions" for the good of Americans.

Aussie lifted mildly by strong job data

Australian job market expanded by 54.2k in August, nearly triple of expectation of 19.2k. That consists of decent growth in full-time jobs by 40.1k and part-time jobs by 14.1k. Unemployment rate was unchanged at 5.6%, in line with consensus. Participation rate also rose to 65.3%. There is slight change in expectation of RBA policies after the data. Markets are pricing in roughly 50% chance of a hike in June 2018.

RBA board member Ian Harper said yesterday that while there is "terrific" full time job growth, it's a "concern" to see sluggishness in underemployment. And, the Australian economy is still "operating below its potential". And it cannot justify a rate hike yet. Nonetheless, improvements in the economy prompted market analysts to reverse their forecast of RBA rate path. National Australia Bank predicted two rate cuts by RBA in 2017 earlier this year. But now's NAB is expecting a total for four rate hikes by RBA over the next two years. Stronger employment, GDP growth and investment are the main reasons for the change in NAB's forecast.

Disappointing August Data Evidenced That Chinese Growth Peaked In 1H17

August data further evidenced that China's economic growth has peaked in the first quarter. Following the sharper-than-expected slowdown in growth in July, the latest set of macroeconomic data also surprised to the downside. The moderation was a result of the government's tighter monetary policy in an attempt to curb excessive investment in certain areas, such as real estate. Renminbi's appreciation against US dollar since the beginning of the year probably has weighed on exports. This leads the PBOC to loosen capital control which has been adopted over the past years to prevent renminbi from severe depreciation. More in Disappointing August Data Evidenced That Chinese Growth Peaked In 1H17.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3150; (P) 1.3240; (R1) 1.3297; More...

GBP/USD's rally resumes after brief retreat, breaking 1.3328 to as high as 1.3336 so far. Intraday bias is back on the upside for 1.3444 key resistance next. Still, we'd maintain that price actions from 1.1946 are still seen as a corrective pattern. Hence, we'd expect strong resistance from 1.3444 to limit upside to bring larger down trend reversal eventually. Break of 1.3153 support will raise the chance of reversal and turn bias to the downside for 55 day EMA (now at 1.2987) first. However, on the upside, firm break of 1.3444 will carry larger bullish implication and target 1.3835/5016 resistance first zone next.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern. While further rise cannot be ruled out, larger outlook remains bearish as long as 1.3444 key resistance holds. Down trend from 1.7190 (2014 high) is expected to resume later after the correction completes. And break of 1.2773 support will be the first sign that such down trend is resuming. However, considering bullish convergence condition in monthly MACD, firm break of 1.3444 will argue that whole down trend from 2.1161 (2007) has completed. And stronger rise would be seen back to 38.2% retracement of 2.1161 to 1.1946 at 1.5466.

Economic Indicators Update