Yesterday the ECB cut its Depo rate by 25bps as widely expected but the pace of future cuts is still uncertain. The US data also came in near expectations which initially reduced the market appetite for a 50bps FOMC cut next Wednesday. We saw equities dip to start with but then a decent rally which underpinned risk and with it USDJPY with JPY supply underpinning other core pairs too from the crosses.
Then later in the day came an article from WSJ Fed-watcher Timiraos which gave hope that a 50bps cut wasn't totally off the table. Cue further equity strength and USD decline which ultimately spread to USDJPY despite the better risk tones and we've now seen a drop to recent lows around 140.65 from 142.65 in the sharp reversal amid softer US yields even if risk-tones remain steady. Yesterday's NY session certainly brought confusing signals and price action and we can expect the jury to remain out until next Wednesday and beyond as these markets remain even more fickle, if that's possible !
Today's data slate brings US Michigan Consumer Sentiment which could impact given the market's current fragile state. The Fed is in blackout so no FOMC speakers until next week's announcement. While the CB, political and currency second-guessing continues, not to mention the geopolitical tensions, remember you need to identify your preferred risk reward levels and let the algos do their thing along with the natural and speculative flows. Don't get greedy or over-analyse.
Equity markets once again found some dip demand per my summary above and still steady this morning so far albeit off their highs amid the uncertainty. WTI also found some dip demand at $67.30-50 but capping at $68.80-00 this time in the better-risk rally. Gold rallied strongly on the rate cut conjecture and geopolitical tensions coming out of the Ukraine-Russia war, ignoring the better risk appetite elsewhere and has posted fresh highs of $2572 having held $2530-50 once broken.Dip demand should remain but sellers still poised amid all the uncertainty.
GBPUSD: Support at 1.3030-50 yesterday once broken and a rally back to 1.3090-00 which capped for a while but then finally broke to test 1.3150 amid the USD supply with the ongoing GBPJPY cross flows continuing to provide impact. I remain a rally-seller still overall but good two-way business to be had. EURGBP: Finding support at 0.8425-30 after capping at 0.8450 post-ECB. ECB/BOE rate cut conjecture continues too still as well as all the various cross flows. GBPJPY: Another roller-coaster ride on the fragile market sentiment and then rapid USDJPY retreat but holding 184.50 after capping at 186.75.Two-way pips to be had still. Expect more of the same.
EURUSD: A hold of 1.1020 yesterday in the initial ECB-led dip and with the very large option interest duly playing out and capping at 1.1040 but then the USD supply finally kicked in and we've seen 1.1094. I remain a rally seller overall even if the ECB rate cut picture is unclear. USDJPY: Capping at 142.60-70 before a brief look below 142.00 only to rebound back to the highs on the better-risk JPY supply despite USD selling elsewhere and sending confusing signals per my summary above. Then a rapid retreat into recent lows this morning before a rapid bounce into 141.50 before falling just as quick. Good two-way business whatever your preference but caution required in these ever-fickle times. I prefer playing the rally-sell side still. Entry level/patience remains key for both sides. EURJPY: Finding support around 155.75-80 in the extended retreat after sellers prevailed around 157.50-60 again amid the ongoing JPY and USD variables.
USDCHF: Support at 0.8475-80 this morning in the retreat from 0.8550 amid the USD supply but tempered by the better risk tones initially. Expect more two-way. EURCHF: Capping into 0.9435 as EURUSD rally fades and USDCHF retreat continues amid the softer USD tones but risk appetite off its highs too. Expect more two-way business.
AUDUSD: Holding 0.6680-00 on the softer USD tones but capping into 0.6735 helped by the AUDJPY and AUDCHF supply returning. Expect more two-way business in these ever-fickle markets. I prefer rally-sell side still. GBPAUD: Holding 1.9480-00 again but capping at 1.9580-00 still amid the core and cross pair variables. NZDUSD: Capping into 0.6195 on the softer USD rally from 0.6140 and holding 0.6175 now as we continue to range amid the variable USD and risk flows. GBPNZD: Holding 2.1200-20 but currently capping at 2.1280 yet again with other cross flows in play still.
USDCAD: Holding 1.3565 agin this morning in the retreat from 1.3600 on the softer USD/firmer oil double whammy but with CADJPY flows in play too as ever. Expect two-way business still.
Traders - For more detailed analysis across a larger number of FX pairs including market order flows and options expiries email mike@mspfx.co.uk
Let's continue to be careful out there.
Interbank rates: 08.50 BST
GBPUSD 1.3145
EURUSD 1.1091
EURGBP 0.8437
GBPEUR 1.1850
USDJPY 140.83
GBPJPY 185.09
GBPCHF 1.1149
GBPZAR 23.3286
GBPHKD 10.2361
USDCHF 0.8481
EURCHF 0.9407
EURHKD 8.6380
AUDUSD 0.6717
NZDUSD 0.6183
USDCAD 1.3572