Bring on the BOE and ECB
Thursday 3 February 2022
No prizes for guessing today's major focal points as we wait on the latest decisions from the BOE and ECB.
Markets have priced in a 0.25% hike from the Old Lady but not ruling out 0.5% which would certainly liven up the algos if so. Prior to that we have UK fin min Sunak announcing energy price measures and it's difficult to believe government and central bank would not have had a few conversations on this in recent days which leads me to think tha the MPC will decide to go for the lesser hike but make clear they are ready to act again. It is the tone of this guidance, and how hawkish (assuming they don't go the full 0.5%) that will be key in the subsequent price action once the initial algo-led knee-jerk is out the way.
ECB expected to remain cautious with no tightening or hike but they too are going to have to justify that stance amid spiralling inflation. The 13.30 GMT presser should be lively if Lagarde gets asked the right questions. Risk is to the hawkish side as markets are least expecting that.
Risk sentiment remains bouyant as markets wait on these next CBs off the block and US NFPs tomorrow. FX ranges remain tight as the jury remains out with the Greenback soft still. As with all key events we'll only know what's factored in after the facts are known.
GBPUSD: Support now at 1.3540 after a failure at 1.3580-85 as we wait on the BOE. Option contract interest in play too. EURGBP: Also still tightly bound as we wait on both BOE and ECB so good two-way business to be had still meanwhile and during the fallout. Option interest in play. GBPJPY: Support now at 154.80-00 and testing 155.50 this time as core pairs find dip demand amid steady risk tones.
EURUSD: 1.1280 support now amid the softer USD tones but offers prevailing around 1.1320 and 1.1300 where we also have large option interest today. ECB in focus. USDJPY: Found support around 114.20 in yesterday's further retreat amid the softer USD tones but that dip demand and JPY supply I highlighted here duly kicking in. EURJPY: 129.00-20 the support area now but sellers around 129.60 this time as jury remains out. ECB in focus of course.
USDCHF: 0.9180 support line now with SNB ever vigilant despite saying they're not quite so active at the moment as CHF strength serves to help combat inflation. EURCHF: Further retreat to test 1.0360 but a decent hold ahead of the ECB position squaring. SNB ever-vigilant but see above for current stance.Sellers still poised.
AUDUSD: Failure at 0.7180 and then 0.7140 as the latest rally runs out of steam but still got aupport 0.7100-20 amid the softer USD tones, AUDJPY demand and some commodity currency love. USDCAD: 1.2650 now providing support but rallies limited to 1.2700-10 still as oil remains underpinned and with CADJPY demand still on the firmer risk tones.
Let's continue to be careful out there in all things. Staying safe must be our main priority still.
Interbank rates: 08.43 GMT