Friday 17 December 2021
Yesterday the BOE finally raised rates by 0.15% to 0.25% after much conjecture over the past month or so citing rising inflation/decent economic data as their focus but recognizing Omicron concerns too.
The next meeting is February and the MPC said "the Committee continued to judge that there were two-sided risks around the inflation outlook in the medium term, but that some modest tightening of monetary policy over the forecast period was likely to be necessary to meet the 2% inflation target sustainably". So markets are pricing in further hikes to maybe 0.5% but a lot will depend on Omicron fall-out. The Pound initally rallied but the jury remains out. The UK Tory government have notably lost a by-election which must be seen as a protest vote and will give Johnson plenty to think about as the political/COVID uncertainty continues.
Meanwhile the ECB left rates on hold as expected but were not quite as dovish as markets had priced in so we saw a Euro relief rally too. Sellers capped that move too but underpinned still by the risk-off sentiment demand currently.
Equity, commodity markets and yields have had another wobble and that's helped to undermine risk appetite, bringing a return of JPY and CHF demand amid some softer USD tones generally. Lots of option interest in play again today and we should expect ranges to remain contained. Next week could be interesting as all this interest rolls off today and desks wind down for Xmas.
As always, don't over-analyze or second-guess but keep your focus on price action in core and cross-pairs and identify recent ranges to see whether we hold or break and what levels present value for money. If in doubt, stay out. Patience will invariably be a virtue but don't confuse patience with being stubborn. Let the algos do their work and have orders in or fingers poised to take advantage.
GBPUSD: Basing at 1.3300 now helped by some option interest after its extended rally to, and retreat from, 1.3376 and pips banked. Good two-way pips to be had if you're not greedy still. GBPUSD rally sellers, including me, ever poised while keeping one eye at least on the EURGBP and GBPJPY cross flows. EURGBP: A good hold of 0.8450 yesterday per my tweet but equally capping at 0.8515 as we continue to range. Expect more 2-way business. GBPJPY: 151.00 still providing the support in the retreat from failure around 152.50 amid the softer risk tones.
I remain a GBP rally seller across the pairs overall as my preferred trading side but being patient as ever. These markets are ever-fickle so good/tight position management essential.
EURUSD: 1.1300 now providing good support but equally capped at 1.1360 contained by the large option interest.
USDJPY: Duly capping again at 114.20-30 where I highlighted we had those large options yesterday and a solid retreat to 113.45 so amid the risk-off JPY demand and USD supply. Contained now by more large options. EURJPY: 128.50 support now but rallies capping into 129.60 and retreating toward the lows amid the risk-off supply. USDCHF: Support now at 0.9175-80 after failing above 0.9260 in the risk-off/softer USD retreat but with the SNB ever vigilant. EURCHF: Back down testing 1.0400 again after capping into 1.0430 but with SNB shadow lurking still.
AUDUSD: 0.7150 support now in place but being tested again after the retreat from 0.7220 helped by the risk-off AUDJPY selling. USDCAD: Capped now at 1.2840 but holding 1.2760 helped by softer oil and CADJPY supply. Option interest in play should we rally further.
Let's continue to be careful out there in all things. Staying safe must be our main priority still.
Interbank rates: 08.36 GMT