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• GBP/USD is currently range-bound, consolidating within a narrow 30-pip range.
• US CPI and PPI data releases on Thursday and Friday could introduce some volatility.
• From a technical standpoint, the medium-term outlook still favors USD bulls, but a short-term bounce in GBP/USD is looking appealing.

GBP/USD is in uncharted territory if i may so with the pair confined to a 30 pip range since early Monday morning. Cable is notorious for its significant moves in comparison to its major counterpart, EUR/USD.

However, As markets have grappled with shifting rate cut expectations from both the Federal Reserve (FED) and the Bank of England (BoE), GBP/USD has been relatively subdued to say the least. Of course the lack of high impact UK data releases has not helped matters, while a strong US Dollar and lack of US Data in the early part of the week have contributed as well.

Markets have already started preparing for the first budget from new Chancellor Rachel Reeves, expected October 30. Given the changes of late on the outlook for both Central Banks it appears the US Dollar will continue to find support ahead of the US election. This may leave cable vulnerable to further downside in the coming weeks.

Economic Data Ahead

There is quite a bit of data ahead this week which could impact GBP/USD. A busy end to the week starts with the Fed minutes release later in the day which to me seems to be shaping up as a non-event.

Market participants may be keen to gauge the debates that led to a 50 bps cut in September, however the minutes are unlikely to have an impact moving forward. Given that the jobs data sent markets on a 360 roundabout, the entire narrative has since shifted, rendering the minutes somewhat irrelevant at this stage.

Thursday and Friday will bring US CPI and PPI data which could stoke a bit of volatility. Barring any significant uptick in inflationary pressures, this release is unlikely to alter the medium term narrative.

Technical Analysis

Looking at GBP/USD from a technical standpoint, the four-hour chart below shows the red box within which price has been confined since Monday morning.

A four-hour candle close to either side of the box could be seen as a potential breakout. However, given the fact that the US Dollar has been on a tear this week, could we be in for a potential midweek reversal?

Should a midweek reversal come to fruition on the US Dollar, then we could see GBP/USD break to the upside. Any rally higher does face significant hurdles but my gut says that this could materialize in the next day or two.

Immediate resistance on the upside rests at 1.31050 before the 1.3143 handle and the 200-day MA at 1.3200 come into focus. Conversely, a move lower here needs to navigate past the previous swing low around 1.3040 before the psychological 1.3000 handle is reached.

All in all the medium term outlook still favors USD bulls. However, looking at the price action picture and a short-terms retracement higher is beginning to look more and more likely.

GBP/USD Four-Hour H4 Chart, October 9, 2024

Source:TradingView.com

Support

• 1.3040
• 1.3000
• 1.2942

Resistance

• 1.3100
• 1.3143
• 1.3200 (200-day MA)

In a speech today, Dallas Fed President Lorie Logan emphasized the need for a "more gradual path" in reducing the fed funds rate following last month's 50bps cut. She stated that this approach would better balance the dual mandate of controlling inflation while maintaining healthy employment levels.

“Inflation and the labor market are in striking distance of our goals rather than seriously overheated,” Logan noted, explaining “less-restrictive policy" would help avoid overcooling the job market while bringing inflation sustainably back to target.

Logan also expressed concerns over uncertainties surrounding inflation, consumer spending, and economic activity, which remain robust despite ongoing monetary tightening. “I continue to see a meaningful risk that inflation could get stuck above our 2% goal,” she said.

“These risks suggest the FOMC should not rush to reduce the fed funds target to a ‘normal’ or ‘neutral’ level but rather should proceed gradually while monitoring the behavior of financial conditions, consumption, wages and prices,” Logan said.

Markets

The announcement that Chinese Finance Minister Lan Fo’an will hold a briefing on fiscal policy on Saturday to shore up growth only briefly supported Chinese stocks. They succumbed into the close, ending 6% to 8% lower. Unlike yesterday, this Chinese setback didn’t hurt general risk sentiment. Key European stock markets are currently mixed. US stock markets opened near flat. Core bond markets also showed little momentum. US yields added 1.1 bp (2-yr) to 3.3 bps (30-yr) with the long end of the curve preparing for the continuation of the US Treasury’s mid-month refinancing operation ($39bn 10-yr Notes tonight and $22bn 30-yr Bond tomorrow). Fed comments all point in the same direction: delight about the market repricing towards a 25 bps rate cut in November. “What’s the rush? 2.0”. FOMC Minutes will tonight deliver more insights on the internal Fed debate which culminated in a near-consensus decision to lower the policy rate by 50 bps in September. Tomorrow’s September US CPI inflation has the potential to spark some new volatility though we think investors won’t be easily tempted into moving back in 50 bps rate cut bets. German Bunds outperform US Treasuries with daily changes on the German yield curve ranging between +0.6 bps (2-yr) and -0.6 bps (30-yr). The German government downgraded this year’s growth forecast from +0.3% to -0.2%, hoping that a revival in domestic consumption, international demand for industrial goods and a resurgence in investment activity would result in a +1.1% growth recovery next year and 1.6% in 2026. If the projections come true, it would be the only G7 member to post shrinking output in a copy paste of 2023. The last time the German economy declined for two years in a row was in 2002-2003, which in turn was the first occurrence since the reunification. Inflation over the 2024-2026 period should ease from 5.9% in 2023 to 2.2%-2%-1.9%. ECB members profited from the final day before the start of the blackout period in the run-up to next Thursday’s policy meeting to give some final comments. ECB Stournaras in an FT article this morning argued in favour of cutting the policy rath both in October and December. Most of his colleagues just stick with backing (Kazaks, Patsalides, Villeroy) or in any case not ruling out (Nagel, Schnabel, Wunch) such action next week. ECB Kazimir is the only one to offer some counterweight: “It’s considered a done deal in the media that rates should be lowered. But I have to say I’m not completely convinced that we should make decisions based on one good (inflation) number.” In FX space, the US dollar finally manages to build on Friday’s technical break through resistance levels. The relative yield dynamic and neutral risk management outweigh a new decline in oil prices (Brent crude $76/b from $78/b). The trade-weighted greenback changes hands at 102.75, the best level since mid-August, from a start at 102.48. EUR/USD mirrors the move, changing hands at 1.0950. That’s the lowest level since that same reference period.

News & Views

The Hungarian economy minister Nagy declared victory over inflation today. The country posted the fastest price growth in the EU with a peak in early 2023 of a whopping 25.7%. Inflation since then eased back towards the 3% +/- 1 ppt tolerance range of the central bank. Nagy appeared to focus on headline inflation only, which came in at 3.4% in August. Analysts expect tomorrow’s September update to have further dropped to 3.1%. However, the Hungarian central bank (MNB) has been telling for several months that inflation in Q4 will reaccelerate to 4%+. The same goes for core measures, which currently still hover well north of 4%, and are expected to fluctuate around 5% for the rest of the year. For Nagy, though, it’s time to focus on reviving economic growth amid a weaker-than-expected recovery. PM Orban some weeks ago already hinted at increased fiscal spending in 2025 in the run-up of the 2026 election year, potentially complicating matters for the central bank which is already walking a tightrope. The MNB has cut rates to 6.5% over the past year. While its vice-governor Virag back in September said there could be cuts at all three of the remaining meetings in 2024, he backtracked yesterday. Virag said he sees less chance of an October cut after recent forint weakness pushed EUR/HUF north of 400 for the first time since March of last year. EUR/HUF in the meantime pared some of the gains to 398.

Graphs

NZD/USD: combination of RBNZ-triggered NZD weakness and USD strength

EUR/USD: dollar finally building on post-payrolls technical break

Brent crude prices correct further towards to previous neckline of double bottom formation ($75/b)

Bond volatility index: investors reckon that it’s data dependece to the fullest these days for central banks

The yen has edged lower on Thursday in what has been a quiet week. In the European session, USD/JPY is trading at 148.72, up 0.36%.

Will Fed minutes provide clues for November meeting?

The Federal Reserve will release the minutes of the September meeting later today. That meeting was a milestone as the Fed delivered an oversized rate of 50 basis points, the first cut in over four years. The minutes should provide some insights into the Fed’s reasoning for the jumbo rate cut and perhaps clues as to its rate path. The September cut came after back-to-back employment reports were weaker than expected.

What can we expect from the Fed moving forward? Last week’s nonfarm payroll report of 254 thousand was much stronger than expected and the unemployment rate ticked lower to 4.1%. These latest figures have put Fed policy makers in a bind – employment is showing resilience while inflation has been falling. Fed member Philip Jefferson said on Tuesday that the risks to inflation and employment were evenly balanced. Jefferson added he was making decisions on a monthly basis and it’s likely that other Fed members are doing the same.

Market rate pricing continues to swing and currently, the probability of a 25-bps stands at 86%. That could change after Thursday’s inflation report, which is expected to fall to 2.3% in September, down from 2.5% in August.

In Japan, voters will head to the polls on October 27. New Prime Minister Shigeru Ishiba called the election just eight days after taking office. The yen has slumped during his short tenure, as Ishiba has backtracked on monetary policy, saying there is no need to raise interest rates.

USD/JPY Technical

• USD/JPY tested resistance at 148.61 earlier. Above, there is resistance at 149.01
  147.97 and 147.57 are providing support

Daily Pivots: (S1) 147.57; (P) 147.97; (R1) 148.61; More...

Intraday bias in USD/JPY stays neutral for the moment. More consolidations could be seen below 149.11 temporary top. But further rise is expected as long as 141.63 support holds. Rise from 139.57 is seen as the second leg of the corrective pattern from 161.94. Break of 149.35 resistance will target 61.8% retracement of 161.94 to 139.57 at 153.39 next.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should now be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.8541; (P) 0.8562; (R1) 0.8595; More…

Intraday bias in USD/CHF stays neutral at this point. More consolidations could be seen below 0.8606 temporary top. But further rally is in favor as long as 0.8499 minor support holds. Above 0.8606 will target 38.2% retracement of 0.9223 to 0.8374 at 0.8698. Sustained break there will argue that fall from 0.9223 has completed after defending 0.8332 low. Next target will be 61.8% retracement at 0.8899. On the downside, break of 0.8499 will turn bias back to the downside for retesting 0.8374 low instead.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with fall from 0.9223 as the second leg. Strong support could be seen from 0.8332 to bring rebound. Yet, overall outlook will continue to stay bearish as long as 0.9243 resistance holds. Firm break of 0.8332, however, will resume larger down trend from 1.0146 (2022 high).

Daily Pivots: (S1) 1.3074; (P) 1.3094; (R1) 1.3124; More...

Intraday bias in GBP/USD Remains neutral at this point. While corrective fall from 1.3433 might extend lower, strong support should be seen from 1.3000 cluster support (38.2% retracement of 1.2298 to 1.3433 at 1.2999) to contained downside. Above 1.3174 minor resistance will turn bias back to the upside for stronger rebound. However, decisive break of 1.3000 will carry larger bearish implications.

In the bigger picture, as long as 1.3000 support holds, the up trend from 1.0351 (2022 low) is still in progress. Next target is 61.8% projection of 1.0351 to 1.3141 from 1.2298 at 1.4022. However, considering mild bearish divergence condition in D MACD, decisive break of 1.3000 will argue that a medium term top is already in place, and bring deeper fall back to 1.2664 support next.

Daily Pivots: (S1) 1.0962; (P) 1.0980; (R1) 1.0998; More....

EUR/USD dips mildly today but stays above 1.0950 temporary low. Intraday bias remains neutral at this point. Further decline is expected as long as 1.1043 resistance holds. Below 1.0950 will target 38.2% retracement of 1.0447 to 1.1213 at 1.0920. Sustained break there will argue that fall from 1.1213 is the third leg of the corrective pattern from 1.1274. In this case, deeper decline would be seen to 61.8% retracement at 1.0740 next.

In the bigger picture, rejection by 1.1274 resistance suggests that corrective pattern from 1.1274 (2023 high) is not completed yet. Instead, decline from 1.1213 might be another falling leg. Sustained break of 55 W EMA (now at 1.0877) will validate this case, and bring deeper fall towards 1.0447 support again.

Dollar is broadly stronger today, though the momentum behind the move is not particularly robust. Markets are awaiting insights from several Fed officials and the release of September FOMC minutes later in the US session. While Fed's direction on monetary easing is well understood, the pace of future rate cuts remains uncertain and is unlikely to be definitively answered by today's minutes.

At present, Fed funds futures suggest an 86.6% likelihood of a 25bps rate cut at the November meeting, with a slim 13.4% chance of no change. However, these probabilities could be significantly altered by tomorrow’s US CPI report. While today’s FOMC minutes are important, the inflation data is expected to carry much more weight in shaping near-term expectations about Fed’s next steps.

So far this week, Dollar is currently the strongest currency, followed by Swiss Franc and Yen. On the other end, Kiwi has been the weakest, trailed by Aussie and Canadian Dollar. It should be noted that, Dollar, Euro, Sterling, Swiss Franc, and Yen are holding within last week's ranges against each other. Commodity currencies, on the other hand, have broken to the downside. It's more about risk aversion for now.

The direction of Aussie and Kiwi will largely depend on upcoming developments in Asia, particularly in China and Hong Kong. The markets were left unimpressed by the lack of concrete stimulus measures from China’s National Development and Reform Commission earlier this week. Attention is now shifting to a press conference from China’s finance ministry, expected on Saturday, where more fiscal stimulus could be announced.

Technically, HSI is now eyeing a key cluster support level at around 20k mark. There lies 38.2% retracement of 14794.16 to 23241.75 at 20014.76, and 19706.12 resistance turned support is not far away. Strong bounce from this zone will keep near term outlook bullish for another rise through 23241.74 at a later stage. However, decisive break of 20k mark would sign that whole rise from this year's low at 14794.16 might be over.

In Europe, at the time of writing, FTSE is up 0.13%. DAX is up 0.14%. CAC is up 0.22%. UK 10-year yield is down -0.011 at 4.176. Germany 10-year yield is down -0.003 at 2.247. Earlier in Asia, Nikkei rose 0.87%. Hong Kong HSI fell -1.38%. China Shanghai SSE fell -6.62%. Singapore Strait Times rose 0.56%. Japan 10-year JGB yield rose 0.0076 to 0.934.

ECB's Kazaks reaffirms call for further rate cuts

ECB Governing Council member Martins Kazaks reiterated his support for lowering interest rates further, pointing to the ongoing economic weakness in the Eurozone.

Speaking during a webcast, Kazaks emphasized the need for continued monetary easing, suggesting that rates should be adjusted step by step.

“If inflation in the next year really returns to a sustainable 2%, interest rates have to be on a neutral level,” he said.

ECB’s Kazimir not completely convinced on Oct rate cut

ECB Governing Council member Peter Kazimir struck a cautious tone today, signaling that while a rate cut next week is possible, he remains "not completely convinced" that ECB should move based on just one positive inflation reading.

Speaking to reporters, Kazimir acknowledged that September’s CPI dip below 2% for the first time since 2021 has fueled expectations of a rate cut, but he emphasized the need for a more comprehensive view of the economic data. "And we’ll have that key information in December," he added

He also downplayed concerns about the risk of inflation undershooting the 2% target, stating, "I definitely don’t wake up in a sweat thinking that the inflation rate should be well below 2%."

“On the contrary, we still lack sufficient confidence that we’re out of the woods and that the goal of sustainably being at 2% is entirely realistic," he warned.

ECB’s Villeroy signals likely rate cut next week, more to follow gradually

ECB Governing Council member François Villeroy de Galhau indicated today that a rate cut is "very probable" at the upcoming meeting next week.

Speaking on Franceinfo radio, Villeroy emphasized that this move "won’t be the last" in the current easing cycle. However, he added that the pace of future cuts will depend on how inflation evolves over time.

Villeroy stressed ECB’s commitment to gradual policy adjustments, saying the central bank will avoid making any "volatile moves." He remarked, "We are used to acting with gradualism, which means resolutely but without making too significant steps."

On inflation, Villeroy expressed confidence that price levels will stabilize at ECB's 2% target by early next year in France, and later in 2025 across Europe. However, he noted that fluctuations could still occur in the coming months.

RBNZ cuts rates by 50bps, citing weak economic conditions and excess capacity

As widely expected, RBNZ cut its Official Cash Rate by 50bps to 4.75%. In its accompanying statement, the central bank emphasized that this move was deemed "appropriate" to achieve and maintain low, stable inflation while minimizing "unnecessary instability" in output, employment, interest rates, and the exchange rate.

RBNZ highlighted that economic activity in New Zealand remains "subdued," with both business investment and consumer spending showing signs of weakness. Employment conditions are also softening, and low productivity growth is acting as a further constraint on activity.

The central bank pointed out that the economy is now in a state of "excess capacity," which is encouraging adjustments in price- and wage-setting behavior, aligning with a low-inflation environment. Falling import prices are aiding the disinflation process.

Additionally, RBNZ noted that despite the rate cut, OCR of 4.75% is still "restrictive" and leaves monetary policy well-positioned to handle any near-term surprises.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0962; (P) 1.0980; (R1) 1.0998; More....

EUR/USD dips mildly today but stays above 1.0950 temporary low. Intraday bias remains neutral at this point. Further decline is expected as long as 1.1043 resistance holds. Below 1.0950 will target 38.2% retracement of 1.0447 to 1.1213 at 1.0920. Sustained break there will argue that fall from 1.1213 is the third leg of the corrective pattern from 1.1274. In this case, deeper decline would be seen to 61.8% retracement at 1.0740 next.

In the bigger picture, rejection by 1.1274 resistance suggests that corrective pattern from 1.1274 (2023 high) is not completed yet. Instead, decline from 1.1213 might be another falling leg. Sustained break of 55 W EMA (now at 1.0877) will validate this case, and bring deeper fall towards 1.0447 support again.

ECB Governing Council member Martins Kazaks reiterated his support for lowering interest rates further, pointing to the ongoing economic weakness in the Eurozone.

Speaking during a webcast, Kazaks emphasized the need for continued monetary easing, suggesting that rates should be adjusted step by step.

“If inflation in the next year really returns to a sustainable 2%, interest rates have to be on a neutral level,” he said.