Daily Key points: Pound rebounds yet UK credibility still is in the balance

The pound continued to strengthen against the USD yesterday, yet the pound’s strengthening is also clear against the EUR and JPY in a sign of broader strength for the sterling. Nevertheless, despite the strengthening of the pound, the credibility of the UK government is still low with the markets despite Prime Minister Truss performing a humiliating U-turn yesterday in regard to the possibility of scrapping a tax rate hike. Overall, the UK Government’s plans to cut welfare and public spending in order to provide a tax cut to the richest was considered a giveaway and created turmoil in the markets as well as an outcry among UK citizens, thus increasing uncertainty also on a political level. On the other hand, UK finance minister Kwarteng is to bring forward the publication of the UK Government’s plans to cut UK debt, in order to restore reliability among the markets, yet UK’s credibility may well remain in the balance for now. Across the world the Aussie took a beating during today’s Asian session as RBA proceeded with a 25-basis points rate hike as we had mentioned yesterday and disappointed Aussie traders. Overall, the bank’s hawkishness in Governor Lowe’s statement, seems to have eased as the bank stated that its intentions is still to curb inflationary pressures in the Australian economy yet also underscored that the outlook for the global economy is uncertain and has deteriorated. At the end the bank reiterated that “The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market”. During tomorrow’s Asian session we note the release from New Zealand of RBNZ’s interest rate decision and the bank is expected to proceed with a 50-basis points rate hike, as NZD OIS imply a probability over 70% currently for such a scenario to materialize. Even should the bank proceed with a 50-basis points rate hike as expected, for the Kiwi to get some substantial support, the bank may also have to adopt a hawkish, confident tone, while anything less could weaken NZD.

Cable continued to rise yesterday breaking the 1.1275 (S1) resistance line, now turned to support. We tend to maintain a bullish outlook for the pair as long as it remains above the upward trendline incepted since the 26 of September. Should the bulls actually maintain their dominance over the pair’s direction as expected, we may see GBP/USD breaking the 1.1460 (R1) resistance line, thus paving the way for the 1.1610 (R2) level. Should on the other hand the bears say enough is enough and take over, we may see the pair reversing course breaking the 1.1275 (S1) support line, the prementioned upward trendline and aim for the 1.1095 (S2) support level.

NZD/USD seems to remain in a sideways motion and currently seems to be hitting a ceiling at the 0.5730 (R1) resistance line. We tend to maintain our bias for the sideways motion to continue, while note that the RSI indicator, below the 4-hour chart remains near the reading of 50 also implying a rather indecisive market. Should the pair find fresh buying orders along its path we may see it breaking the 0.5730 (R1) resistance line and aim for the 0.5810 (R2) level. Should a selling interest be expressed we may see NZD/USD dropping breaking the 0.5630 (S1) support line and aim for the 0.5560 (S2) level if not even lower.

Other highlights for the day

Today in the European session we note the release of Eurozone’s producer prices and in the American session we get from the US the factory orders growth rate and the JOLTS Job Openings figure, all being for August. Oil traders on the other had may be interested in the release of the EIA weekly crude oil inventories figure. On the monetary front we note NY Fed President Williams, Dallas Fed President Logan, Cleveland Fed President Mester, Fed Board Governor Jefferson and San Francisco Fed President Daly speaking. During tomorrow’s Asian session besides RBNZ’s interest rate decision we also note the release of Australia’s and Japan’s services PMI figures for September.