Sterling Free Fall Continues Even Against Weak Euro

Sterling’s free fall continues into the Asian session today, even against the weak Euro, which is under pressure against all other major currencies. The dollar is currently the strongest and would likely remain so for now. Yen, Swiss Franc and Canadian Dollar are also firm. Australian and New Zealand dollars are mixed for now, but both are vulnerable to renewed selling in risky markets.

Technically, apart from the pound’s fall, there is some attention as to whether the sell-off in the euro would intensify. EUR/CHF has already broken the 0.9464 support to continue the recent downtrend. EURCAD corrective recovery from 1.2867 may be complete with today’s sharp drop at 1.3332. There is no follow-through descent yet. But a retest of the 1.2867 low is now favorable and the break will confirm the downtrend resumes.

In Asia, the Nikkei is down -2.58% at the time of writing. The Hong Kong HSI is up 0.17%. China Shanghai SSE is down -0.08%. The Singapore Strait Times is down -1.04%. The 10-year Japanese JGB yield is up 0.0094 to 0.254.

Fed Bostic: The economy can slow down in a relatively orderly manner

Atlanta Federal Reserve Chairman Raphael Bostic said on CBS’s Face the Nation: “Inflation is high. It’s too high. And we have to do everything we can to bring it down.”

He added that the US needs a “slow down” but “we will do everything we can at the Federal Reserve to avoid deep, deep pain.”

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“We’re still creating a lot of jobs monthly, so I actually think the economy is somewhat able to absorb our measures and slow down in a relatively orderly way,” he said.

Japan FM Suzuki: Will act against yen speculation if necessary

Japanese Finance Minister Shunichi Suzuki reiterated that the government is “very concerned” about unilateral rapid yen moves.

“We have taken appropriate action against excessive volatility driven by speculators. The intervention had some effect,” he said, referring to last week’s intervention in support of the yen. “There is no change in our position that we will take (further) measures if necessary.”

“Governor Kuroda expressed strong concern over the rapid depreciation of the yen in his speech on Thursday. We have a common view on this with the BOJ,” Suzuki added.

However, former top currency diplomat Naoyuki Shinohara said, “It is unlikely that Japan will continue to intervene to defend a specific line like 145 yen to the dollar… It is impossible to reverse the general trend of the market with intervention alone.” Shinohara oversaw Japan’s monetary policy during the global financial crisis in 2008.

Japan manufacturing PMI fell to 51.0, services sector rose to 51.9

Japan’s manufacturing PMI fell slightly to 51.0 in September from 51.5, below expectations of 51.1. That’s the lowest reading since January 2021. The Manufacturing Output Index fell to 48.9 from 49.2. The Services PMI, on the other hand, rose to 51.9 from 49.5. The PMI Composite rose to 50.9 from 49.4.

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Joe Hayes, senior economist at S&P Global Market Intelligence, said: “Companies are reporting concerns about the economic outlook amid severe cost pressures and the increasing likelihood of a global economic downturn. The yen’s notable weakness year-to-date adds to pricing pressures as companies struggle to fully pass on these higher cost burdens to customers. Business confidence then plummeted to a 13-month low.”

US consumer confidence and Eurozone CPI highlight of the week

The economy should be back in focus this final week of the quarter. US consumer confidence, personal income and spending could trigger the most volatility. But orders for consumer goods are also monitored. Germany Ifo Business Climate and Gfk Consumer Confidence and Eurozone CPI Flash will also attract much attention. Other data includes Japan Manufacturing PMI, Japan Industrial Production and Retail Sales, Canada GDP, Australia Retail Sales, New Zealand and ANZ Business Sentiment and China PMIs.

Here are some highlights of the week:

  • Monday: Japan PMI manufacturing; Germany ifo business climate.
  • Tuesday: Japan Corporate Service Prices; euro area M3 money supply; US Durable Goods Orders, Home Price Index, Consumer Confidence, New Home Sales.
  • Wednesday: BOJ Minutes; New Zealand ANZ Business Confidence; Australia Retail; Germany Gfk consumer climate; US goods trade balance, pending home sales.
  • Thursday: CPI Flash Germany; Canada GDP; Final US GDP, Unemployment Claims.
  • Friday: New Zealand Building Permits, Japan Industrial Production, Retail Sales, Unemployment Rate, Consumer Confidence, Housing Starts; China PMI’s; Final UK GDP, M4 Money Supply, Mortgage Approvals; Retail sales in Switzerland, KOF economic barometer; Germany unemployment; Eurozone CPI Flash, Unemployment Rate; Personal Income & Expenditure in US, with PCE Inflation, Consumer Sentiment in U of Michigan.
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EUR/GBP daily outlook

Daily Pivots: (S1) 0.8784; (P) 0.8860; (R1) 0.9008; More…

EURGBP rally continues to accelerate to previous levels of 0.9267. There is no sign of a topping yet. Intraday bias remains on the upside for 200% forecast 0.8201-0.8720 from 0.8338 at 0.9376. Firm break there will target 0.9499 long term resistance. On the downside, minor support below 0.8959 will tend to turn neutral and provide consolidation first before staging another rally.

Broadly, a move higher from 0.8201 is underway, targeting 0.9499 (2020 high) next. Based on the current momentum, such a rally should continue the uptrend from 0.6935 (2015 low). 0.9499 firm break targets 61.8% forecast 0.6935 to 0.9499 from 0.8201 at 0.9786 which is close to 0.9799 (2008 high). This will now remain the preferred case as long as the resistance at 0.8720 turned support holds.

Update of economic indicators

Greenwich Mean Time Ccy events Indeed forecast previous Revised
00:30 JPY Manufacturing Purchasing Managers Index Sep P 51 51.1 51.5
08:00 EUR Germany IFO Business Climate Sep 87.1 88.5
08:00 EUR Germany Current IFO Rating Sep 96 97.5
08:00 EUR Germany IFO Expectations Sep 78.6 80.3

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