The pound attempts another recovery in the consolidation markets

Currency markets are generally in consolidation mode today. Risk sentiment is slightly negative, but there is no stock sell-off. Yields on Treasuries in the US, Germany and the UK are trading slightly higher, putting some pressure on the Yen. But commodity currencies are the weakest. On the other hand, the dollar is firmer with the euro and the pound sterling.

Technically, the British pound is again trying to extend the rally today, but the upside so far is very limited. Some attention will be focused on the minor resistance of 1.0794 in GBP/CHF. A break there would extend the rebound from 1.0183 towards 1.1146, the key near-term resistance. If that happens, it could be an early signal for a stronger rise in the pound against the euro and the yen, and possibly against the dollar as well.

In Europe, at the time of writing, the FTSE is down -1.27%. The DAX is down -1/.53%. The CAC is down -1.37%. Germany’s 10-year yield is up 0.0109 at 2.230. The yield on UK 10-year gilts is up 0.117 at 4.130. Earlier in Asia, the Nikkei rose 0.95%. Hong Kong’s HSI index fell -0.49%. China Shanghai SSE fell -0.13%. The Singapore Strait fell -0.04%. Japan 10-Year Jiggled rose from 0.0079 to 0.249.

US initial jobless claims fell to 193,000

Initial jobless claims in the United States fell -16,000 to 193,000 in the week ending September 24, below expectations of 213,000. The four-week moving average for initial claims fell from -9000 to 207.

Continuing claims fell -29,000 to 1,347,000 in the week ending September 17. The four-week rolling average for continuing claims fell -22.5,000 to 1,381,000.

Also released, Q2 GDP contraction finalized at -0.5% annualized, GDP price index finalized at 9.0%

Canada’s GDP rose 0.1% m/m in July, stable in August

Canada’s GDP rose 0.1% m/m in August, better than expected from a contraction of -0.1% m/m. Goods-producing industries increased by 0.5% m-o-m while services-producing industries contracted by -0.1% m-o-m. 11 of the 20 industrial sectors increased.

Early information indicates that real GDP remained essentially unchanged in August. Increases in retail and wholesale trade, as well as in agriculture, forestry, fishing and hunting were offset by declines in manufacturing and oil and gas extraction.

BoE Ramsden: strictly time-limited Gilt operation

BoE Deputy Governor Dave Ramdsen reiterated in a speech that the target purchases of gilts announced this week, after a severe revaluation of assets, are “strictly limited in time until October 14”.

“They are intended to solve a specific problem in the long-term government bond market,” he added. “Purchases will be unwound in a smooth and orderly manner once risks to market functioning are deemed to have subsided.

Eurozone economic sentiment fell to 93.7, EU to 106.4

The economic sentiment indicator for the euro zone fell from 97.3 to 93.7 in September. The job expectations indicator rose from 107.9 to 106.7. The economic uncertainty indicator fell from 25.4 to 29.3.

Eurozone industrial confidence fell from 1.0 to -0.4. Confidence in services fell from 8.1 to 4.9. Consumer confidence fell from -25.0 to -28.8. Retail confidence fell from -6.5 to -8.4. Construction confidence fell from 3.4 to 1.6.

The EU ESI fell from 96.1 to 92.6. Among the largest EU economies, the ESI fell significantly in Germany (-4.8), the Netherlands (-3.7), Italy (-3.7), France (-3 .2), in Poland (-2.4) and, to a lesser extent, in Spain (-1.0).

ECB Simkus: my choice is 75 basis points for the next hike

ECB Governing Council member Gediminas Simkus said his pick for the next rate hike was 75, adding that “a few options may be on the table, but 50 is the minimum.” He said the ECB should aim “as soon as possible” to reduce its balance sheet.

At the same event, another member of the Governing Council, Madis Muller, said that “inflation calls for significant rate hikes”, but that it is “too early to say how many in basis points”.

Mario Council, a member of the governing account, also said: “At this time, rushing further debate can, in my opinion, have a destabilizing effect which we really must avoid. We have a path to monetary policy normalization and that is the goal right now.

Australia’s monthly CPI slowed to 6.8% YoY in August due to fuel costs

In its first monthly release, Australia’s CPI rose 6.8% y/y in June, accelerated to 7.0% y/y in July and slowed to 6.8% y/y in August.

The monthly CPI excluding fruit, vegetables and fuel increased by 5.5% YoY in June, accelerated to 6.1% YoY in July, then 6.2% YoY in August.

David Gruen, an Australian statistician, said: “The slight decline in the annual inflation rate from July to August was mainly due to a drop in motor fuel prices. This saw the annual movement of auto fuel fall from 43.3% in June to 15.0% in August.

New Zealand ANZ business confidence rose to -36.7, a temporary reprieve

New Zealand ANZ business confidence fell from -47.8 to -36.7 in September. The outlook for own activity fell from -4.0 to -1.8. investment intentions went from -2.0 to 1.8. Hiring intentions went from 3.4 to 5.9. Price intentions fell from 68.0 to 70.1. The cost forecast dropped from 90.9 to 89.8. inflation expectations fell from 6.13% to 5.98%.

ANZ said: “It is fair to say that demand has not yet risen as feared as the Reserve Bank has raised interest rates. But to the extent that the RBNZ can just keep going until it sees the cooling in demand it needs to get inflation under control, it’s likely to be a temporary reprieve, or even a sword to double-edged sword for heavily indebted companies.

“Inflationary pressures are easing, but painfully slowly. It is not enough for the RBNZ to see inflationary pressures plateauing and gradually falling. They will worry that wage and price setting behavior may change structurally, making it more difficult to reduce inflation. We expect the RBNZ to offer a policy rate closer to 5% than 4% to contain inflationary pressures.

GBP/USD mid-day outlook

Daily Pivots: (S1) 1.0648; (P) 1.0782; (R1) 1.1023; After…

The intraday bias on GBP/USD remains neutral for now as the recovery from 1.0351 extends. While a stronger rally cannot be ruled out, the upside should be capped by the 4:55 EMA (currently at 1.1017). On the downside, the breakout of 1.0351 will then resume a larger downtrend towards parity. Nonetheless, sustained trading above the 4:55 EMA will bring a stronger bounce towards 1.1404 support-turned-resistance.

Overall, the fall from 1.4248 (2018 high) resumes the long-term downtrend from 2.1161 (2007 high). The next target is a 100% projection of 2.1161 to 1.3503 from 1.7190 to 0.9532. There is no medium term rebound potential as long as 1.1759 support becomes resistance.

Economic Indicators Update

GMT Ccy Events Real Provide Previous amended
09:00 USD Eurozone Economic Sentiment Indicator Sept. 93.7 95 97.6 97.3
09:00 USD Euro zone industrial confidence sept. -0.4 -1 1.2 1
09:00 USD Eurozone Services Sentiment Sept. 4.9 seven 8.7 8.1
09:00 USD Eurozone Consumer Confidence Sep F -28.8 -28.8 -28.8
12:00 USD Germany IPC M/M Sep P 1.90% 1.60% 0.30%
12:00 USD Germany CPI Y/Y Sep P 10.00% 9.50% 7.90%
12:30 BODY GDP M/M Jul. 0.10% -0.10% 0.10%
12:30 USD Initial jobless claims (September 23) 193K 213K 213K 209K
12:30 USD Q2 annualized GDP F -0.60% -0.60% -0.60%
12:30 USD Q2 GDP price index F 9.00% 8.90% 8.90%
2:30 p.m. USD Natural gas storage 93B 103B

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