Daily Key points: UK’s GDP rates expected

The pound is set to end the week in the greens after a dramatic turn of events, with the cable falling to its all-time lows on Monday after the announcement of the details of the mini budget last Friday, which includes £45 billion in unfunded tax cuts, but since then it climbed 7% against the dollar. Mid-week the Bank of England announced that it will proceed with the purchase of long-dated gilt bonds to restore orderly market conditions and the market appears concerned as to whether the decision to proceed with quantitative easing amidst a quantitative tightening cycle, will not break the economy. During the previous week, BoE raised its key interest rate by 50-basis points and pushed borrowing costs to the highest since 2008. Today we highlight the release of UK the quarter-on-quarter GDP rate for the second quarter and the pound traders will be looking closely. According to forecasts the quarter-on-quarter GDP rate for Q2 is expected to remain stagnant at -0.1%. Given the estimate, should the rate remain in the negatives for a second consecutive quarter, that would practically confirm that the UK economy is in a recession, and it could thus weaken the sterling.

Eurozone’s preliminary HICP rate out today

The EUR strengthened yesterday against the dollar and the yen but weakened against the surging pound. Today the market braces for the inflation print out of the Eurozone at a particularly harsh period for the continent, being devasted by a worsening energy crisis. Euro traders will be looking closely at the year-on-year preliminary HICP rates for September and according to forecasted data, rate is expected to rise to 9.7% compared to the 9.1% of the previous period. Should the actual rate meet the forecast, we may see Euro strengthening, as it could indicate that inflationary pressures remain sky-high, thus it could force the ECB to opt for a bigger rate hike. Currently the EUR OIS implies a 74.2% for 25 basis points rate hike from the ECB in October’s meeting.

Manufacturing PMI’s from Japan to hit the markets

During Monday’s early Asian session, we expect a series of Manufacturing PMI releases coming out from Japan. The Tankan All Big Capex for quarter three is expected to rise to 18.8% compared to 18.6% of the previous quarter and should the actual figure rise as expected we may see JPY get support since that could imply an improvement of economic activity in the Japanese manufacturing sector. As for the final JibunBK PMI for September, any figure above 51.0 level, could grant support for the JPY. Overall, the expectations point to a betterment of Japan’s manufacturing sector.

GBP/USD rose significantly yesterday, breaking above 1.0927 (S1) resistance level now turned support. We hold a bullish bias for the short term ,given the move however we highlight the possibility that the move might have been just a correction. The RSI indicator points to a reading of 61 indicating bullish sentiment. Should the bulls reign over, we may see the break of 1.1200 (R1) resistance line and move near 1.1333 (R2) resistance level. Should the bears take over, we could see the break below the 1.0927 (S1) level and move near the 1.0794 (S2) support base.

USD/JPY hovers near its highs closing in the 145.00 (R1) line. We hold a sideways bias for the pair. The RSI indicator below the chart currently registers a value of 53 indicating indecision surrounding the pair. Should the pair encounter buying orders we may the break the 145.00 (R1) line and aim for the 146.00 (R2) resistance base. Should a selling interest overwhelm, we may see the break of the 143.20 (S1) line and move close to the 142.00 (S2) support level.

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Today we note the release of the KOF Indicator for September from Switzerland, out of US the final University of Michigan Sentiment figure for September and the scheduled speeches by Richmond Fed President Barkin, Fed Board Governor Bowman and New York Fed President Williams and ECB’s board member Schnabel. On Monday’s early Asian session, we note the release of Australia’s final manufacturing PMI for September.