Morning Report: GBP Stronger On Quiet Session

Key Data Releases Today

0830GMT – GBP Public Sector Net Borrowing (SEP) exp 9.4B v 10.9B
1400GMT – USD Existing Home Sales ( SEP) exp 1.0% v -1.8%


Overview:

A quiet day yesterday in light of recent volatility.

  • USD is mixed and markets are nervous as we enter the Fed quiet period, aside from CPI data on Wednesday, USD free to trade off broad themes
  • CAD is entering an important week with BoC statement, MPR, news conference
  • EUR is still range bound we await new signals
  • GBP is staging a minor correction after stronger than expected housing data
  • JPY struggles to sustain levels above 107 – remain long but cautious
  • AUD is trading in middle of multi‐week range
  • NZD up on the day yesterday though still moving in tight congestion at consolidation from summer sell off

Key Trades

  • USDCAD: Short Term Bullish – No Change
  • EURUSD: Stand Aside – Revised (closed shorts)
  • GBPUSD: Short Term Bullish – No Change
  • USDJPY: Bullish – No Change
  • AUDUSD: Stand Aside – Revised (closed shorts)

Analysis

GBPUSD: Short Term Bullish – No Change

Cable put in a strong day Yesterday covering 100pips to the upside, mainly on the back of strong housing data. BoE minutes later this week are expected to provide further volatility in the pair with current expectations that they will demonstrate further confidence from the dovish camp with rates rise expectations now being pushed out to late Q1/Q2 2015. UK Retail Sales & Q3 GDP could reinforce the sense that UK economy has lost momentum.

  • Price is now very close to challenging the descending trendline from summer highs.
  • Daily Order Flow Indicators are firmly to the upside here and unless bearish rejection candle materialise you should remain long from lows. 
  • Strong rejections and further GBP weakness on overly Dovish minutes could provide short plays towards recent lows

000g

USDCAD: Short Term Bullish – No Change

  • Currently holding longs in the pair despite the aggressive pin bars from last. 
  • The lack of any immediate follow through reduces the probability of these Bearish candlestick formations and with Order Flow remaining to the upside we hold our longs through the chop for the time being

BoC rate decision on Thursday will prove key to the direction we take from these levels. Inflation coming in inline last week leaves the BoC plenty of scope to maintain a stable and cautious tone and market currently pricing in just an 8% probability of a rate hike in next 12 months.

000c

AUDUSD: Stand Aside – Revised

  • Currently waiting for confirmation of upside flow, given recent support
  • If buyers fail to materialise we would expect to see a strong test of recent lows

No significant surprises form the RBA minutes with the board till confident that rates will remain unchanged for some time.

Mixed data out of China where GDP fell slightly less than expected to 7.3% y/y from 7.5% and Industrial Production advanced more than expected to 8.0% whilst finally, Retail Sales eased to 1..6% from 11.9%. Growth in China still seems to be slowing but not so severely as private consumption remains resilient.

The mixed Chinese data and no news from the RBA does little to resolve AUDUSD current consolidation. See my AUDUSD Analysis post for a full picture.

000a

USDJPY: Bullish – No Change

  • We remain long from Thursday’s bullish bar at the 105.40s breakout retest and are currently still holding the trendline higher.
  • Daily Order Flow Indicators still to the upside here supporting view

Renewed speculations that Japanese Government Pension Investment Fund (GPIF) will increase its allocation  target for domestic shares and foreign assets should continue to support the pair though is intended to act more as a long term driver for domestic stocks and USDJPY instead of having impact as a market driver. However,  An official confirmation over coming days should push the pair higher.

000j

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