EURGBP, Daily               

UK labour data was better than expected with September claimant rate rising 0.7k versus the expected 3.0k gain, while the claimant count rate was unchanged at 2.3% from an upwardly revised 2.3% rate in August. The lagging August unemployment rate was unchanged at 4.9%, while average household income in the three months to August came in with a 2.3% y/y rise in both the ex-bonus and with-bonus figures, perkier than the 2.1% median forecast in the case of the ex-bonus number. Inflation, which leapt to a 22-month high of 1.0% in September, is expected to soon exceed income growth and put a squeeze on many households.

GBP perked up on the release and hit eight day highs.  Following yesterday’s rebound which was extended on news that the UK government may have to give parliament a vote on the Brexit deal (which is something the government has been against, arguing that referendum is mandate enough). However, the vote was reported to be after negotiations have finished, by which time parliament will be powerless to stop Brexit. The issue is in the High Court now and will likely move to the Supreme Court. This is a shaping up to be a big constitutional issue, if not crisis, for Britain. Parliamentary involvement in drawing up the negotiating position for the EU exit is seen by markets as increasing the odds for a “soft” Brexit rather than the government-favoured “hard” Brexit. Cable logged an overnight low of 1.2256, but with this release it spiked pair north of 1.2300 again. Technically the pound’s downside momentum has waned significantly and we remain Long GBPUSD and Short EURGBP from yesterday’s analysis.   

EURGBP, Daily               

Sterling has perked up today following a stop-loss driven short squeeze in Asia ahead of UK inflation data today, the actual headline figured showed September cpi data at 1.0% beating expectations of 0.9%. Cable immediately rallied to 1.2273 (also its Asian session high) on expectation that higher inflation would make the possibility of an interest rate cut next month less likely, before settling back to 1.2245.

While the pound remains comfortably above the flash-crash lows of October 6, it is still lower by an average of about 18% against the G3 currencies since the Brexit vote. Downside momentum may abate as speculative accounts are running a record net short position in the pound (as interpolated by CFTC futures data), while the currency’s losses are already near historical extremes for sterling bear markets. But Brexit-related uncertainties remain a concern. The Autumn report from the independent economic forecast group ITEM, released yesterday, found that “many firms have put investment and recruitment on hold,” and while detailing various post-EU opportunities, forecast that a “WTO-based Brexit” would likely “take about 4% off Britain’s GDP by 2030. The UK Treasury’s recently leaked estimates regarding the coast of leaving the EU and switching to WTO rules was a loss of GDP of between 5.4% and 9.5% after 15 years.

Along with a possible SHORT position in EURJPY yesterday the EURGBP looks to be rolling over too in the short term down to the 0.8900 area (Target 1) from an entry at 0.9016. The tweezer top last week has been followed by some consolidation around the 0.9000-9050 level.  MACD, RSI and the Parabolic SAR suggest a further move lower.  The 10 DMA is providing support around 0.8960 with the 20 DMA further down at 0.8810 and Target 2.

Thursday this week remains key for the EURO this week. With growth indicators suggesting ongoing momentum and inflation starting to move higher, the ECB clearly is reluctant to add even more stimulus to an already very expansionary policy. Still, in order to keep the current program on track and to allow for a follow up program even at reduced levels, the ECB has to address the issue of dwindling supply. After the central bank tasked committees with examining tweaks to the program Reuters sources suggest that first proposals may already be discussed at this week’s meeting, but it seems more likely that any changes will be announced in December, when the decision about QE, which currently is set to end in March next year, will also be on the agenda. So, the most likely scenario is an unchanged policy stance and a pretty uneventful press conference with the ECB repeating its calls on politicians to step up structural reforms in order to boost the Eurozone’s growth potential and help to bring up inflation.

Chief Market Analyst

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EURGBP, Daily              

The third of the GBP short positions that had been initiated earlier in the month also hit Target 2 yesterday (September 20).  The EURGBP LONG entry at 0.8460 from September 12 spiked to Target 2 (0.8624) yesterday as the woes continued for sterling.  These three trades have netted in excess of 770 pips.

Meanwhile, an interesting piece in the Wall Street Journal suggests what the Fed signals today will be more important than the headline policy decision. According to a WSJ report, especially in the summary of economic projections and the press conference. The WSJ takes a look at 5 areas specifically: 1) A December Signal? 2) The Path Forward? 3) What’s the Risk? 4) Where’s Full Employment? and 5) Dissents? These are mostly self-explanatory, but highlight whether Yellen and Co. will give a more concrete signal about December, how they will characterize the rate path (dots), if they reassess the balance of risk, how they define full employment, wage trends and explain low inflation, and will they keep everyone on board in doing so? This is a good framework for considering the aftermath of the decision.

The USD currently trades at EURUSD 1.1142, USDJPY 100.76 and GBPUSD 1.2960 before the announcement and the following press conference.

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.