Markets calmer but still with a fragile backstory
Tuesday 27 September 2022
The Pound has made some good gains from yesterday's historic lows but there is still concern over the government's fiscal plans and yesterday the Bank of England didn't intervene but said they wouldn't hesitate to do so, appearing to rule out inter-meeting hikes although still within their power of course so some caution required. Talk is cheap and the initial reaction was to knock the currency lower again but we've seen some bounce and stability since.
This current fragile mood is definitely not over but we have seen equities, gold and oil rally off their lows amid some general USD supply following yesterday's wobble. Still diffcult days and weeks ahead for both UK government and BOE not to mention consumer as mortgage companies start to withdraw certain prodcts amid the rising rate uncertainty and I expect some volatility/two-way business to continue across the board.
Yesterday saw some inflation-hawkish comments from Lagarde including blaming a weak Euro and she's up to the rostrum again today at 11.30 GMT then ECB VP De Guindos speaking at 13.00 GMT. Fed's Powell chairs a panel at 13.50 GMT and BOE's Pill speaks at 13.35 GMT. Lots of US Fed heads talking yesterday with one pointing a finger across the pond at UK policy but essentially all just part of the global blame game by governments and CBs alike.
GBPUSD: No point me talking you through all the moves yesterday (too numerous!), but I welcomed back some ol' fashioned volatility. Cross flows still having a big impact too as well as the UK govt/BOE fallout. Interesting GBP dip into yesterday's 4pm London fix suggesting real-money outflows. 1.0850-60 area now pivotal after yesterday's cap at 1.0930. EURGBP: Settling into a 0.8850-0.9050 range after yesterday's fun n games. Can't rule out more two-way business still given the Eurozone is hardly in a great place either. GBPJPY: Support building at 153.50 but equally sellers poised into 157.00 after yesterday's running around and I expect more two-way business as USDJPY remains underpinned but sellers at 145.00 still, quite apart from the GBP and sentiment risks.
EURUSD: 0.9580-0.9680 seems to cover it for the moment and I remain a rally seller as my preferred side. Cross flows, Ukraine and ECB conjecture all in the frame quite apart from USD flows. USDJPY: Capping around 144.80 in the latest rallies with breaching 145.00 a step too far at the moment with some rally-tempering from the fragile risk JPY demand yesterday but holding 144.00 in the retreat so far. Still not convinced the bullish trend has ended but definitely expecting more 2-way business. EURJPY: Flatlining amid the variable risk tones underpinned at 138.50-75 but sellers poised still though. USDCHF: Capped at 0.9970 yesterday but support notable around 0.9850 for the moment amid the general USD demand and EURCHF flatlining as EURUSD bounces too. Some natural CHF demand still but SNB will be keeping an eye on matters. EURCHF: Now 0.9525-75 as core pairs journey up and down.
AUDUSD: Holding 0.6435 in the extended retreat after capping at 0.6530 yesterday with those 0.6550 casting a shadow but back up testing 0.6520 again this moring amid the USD supply and some AUDJPY demand. GBPAUD capping at 1.6800 but holding 1.6500 in the retreat as markets calm a little. NZDUSD still soggy overall but holding 0.5625 in yesterday's extended retreat on the USD demand and bouncing to 0.5730 again. GBPNZD also flatlining now for the moment after capping at 1.9025 but holding 1.8875.USDCAD: Decent support coming at 1.3630-40 now after the retreat from 1.3800 amid the firmer oil/softer USD tones.
Let's continue to be careful out there.
Interbank rates: 08.20 BST