Pound tumbles then recovers but jury still firmly out
Monday 26 September 2022
No prizes for guessing the main event as markets open for another week of fun and games in the ever-fickle world of Forex. The Pound took another beating in Asian thin-liquidity trading triggering further stops that saw GBPUSD down to 1.0337 in rapid fashion. Markets began selling the Pound on Friday showing a complete no-confidence vote in the new government's fiscal policy of tax cuts to promote growth without appropriate funding plans. Further comments from Fin Min Kwarteng saying there was more to come just added fuel to the fire.
We've seen a decent recovery since though this morning with GBPUSD heading back toward 1.0750 (from where it fell so rapidly a few hours ago) with the Pound generally erasing those latest losses but the pressure remains. Lots of talk about emgergency BOE rate hikes to stem the outflows but that will just reek of panic. Gilt yields are still flying higher making government funding more expensive in addition to the inflationary pressures of a weaker Pound. Diffcult days and weeks ahead for both UK government and BOE.
The Greenback remains top dog as the Fed seem determined to stay hawkish in a mission to drive out inflation with seemingly little concern for the economic fallout. Equities, gold and oil all in rapid retreat amid the very fragile back-drop still. Ukraine/Russia not going away any time soon either. Italy appear to have their first female PM and arguably the most far-right government in many a year but not exactly a surprise.
Conjecture remains in these ever-fickle markets so don't over-analyse but be ready with your preferred levels/strategy. Look for appropriate risk verus reward. Discipline is key as always but equally hesitation can often ruin a great idea.
GBPUSD: Lows of 1.0337 in Asia per my opening comments, now back up to 1.0740 as I type in an ever-moving frenzy still. Re-sells made last night in the early Asia bounce to 1.0845 and pips banked in the retreat while I slept thanks to wish-list orders placed and I'm looking to re-sell initially between 1.0750-00 . Patience a virtue still but I prefer that side still. Cross flows still having a big impact too as well as BOE emergency hike speculation to keep in mind. EURGBP: Found a cap at the heady heights of 0.9300 in the GBP crash but now testing 0.9000 in the retreat as I type. Can't rule out some good two-way business still given the Eurozone is hardly in a great place either. GBPJPY: A rapid retreat since Friday's GBP fallout but holding 148.50. Rallying to 154.60 as I type in what will be a lively day/week ahead as USDJPY remains underpinned but sellers at 145.00 still quite apart from the GBP and sentiment risks.
EURUSD: Had a dip of its own on Friday and more rapidly in Asia amid the general USD demand but holding 0.9550 then 0.9600 but still looking fragile. I remain a rally seller as my preferred side. USDJPY: Failing to hold above 144.25 in the latest rally helped by risk-off JPY demand but holding 143.50 in the retreat underpinned by USD demand, GBPJPY bounce and BOJ repeating dovish mon pol tones. Still not convinced the bullish trend has ended but still preferring the rally-sell side overall supporting my fragile-risk plays. Definitely expecting more 2-way business. EURJPY: Support at 137.50 area tested in Asia amid the soggy risk tones but an impressive rally since to 139.25 as I type. USDCHF: Capped at 0.9875 but holding 0.9800 in the retreat amid the general USD demand and EURCHF rally as EURUSD bounces off it thin-liquidity Asian lows. Some natural CHF demand still but SNB will be keeping an eye on matters. EURCHF: Now broken back up through 0.9530 after the retreat into 0.9400 on the soggy risk and EURUSD thin-liquidity tumble.
AUDUSD: Holding 0.6480 in the latest retreats amid the USD demand but capping into 0.6550 where we have some decent option interest today. GBPAUD capping at 1.6600 and testing that area again after holding 1.6000 in the GBP crash. NZDUSD still soggy amid the USD demand and risk-off tones but holding 0.5680-00 so far and bouncing to 0.5730 as I type. GBPNZD capping at 1.8850 and heading back up there again after the 1.8175 GBP-crash lows. USDCAD: Decent support coming at 1.3560 again amid the softer oil/firmer USD tones after the retreat from 1.3640. Expecting some two-way business overall still amid the fickle variables but underpinned.
A great result for the mighty Shrimpers away on Saturday. Onwards n upwards !
Let's continue to be careful out there.
Interbank rates: 08.05 BST