Good morning,
As the shutdown of parliament commences, the focus for today shifts over to the euro area, and the European Central Bank meeting.
With markets all but pricing in an interest rate cut, the key focus will be around the narrative that accompanies this, the extent of the cut and future quantitative easing guidance. Analysts are predicting a pretty wide range of possibilities around the cut, anywhere from 10 basis points to beyond 20. With much anticipation, the EURUSD is primed to move significantly, so expect a huge amount of volatility around midday release as the key volatile pair of the day.
Casting our eyes over to the US/China developments, markets were beginning to price in a risk-off sentiment around the start of this week, with expectations of delayed tariff hikes. Trump’s announcement overnight confirming Octobers tariff hikes being delayed will likely instigate further market shift away from haven assets, and possibly into higher-yielding emerging markets, as JPY extends its losses into the trading session this morning.
As usual, the exchange rates have painted the clearest picture of conditions. With August showing a CNH depreciation of 3% on the USD, whilst Septembers more optimistic environment has seen a 1% increase thus far.
Markets expect continued softening on the US side around trade developments, as, although Trump paints an optimistic picture of the economic stability, recent softer data readings are causing the need to tread carefully around anything that may beckon a recession.
Core Inflation data will be released 13:30 this afternoon in the US. With surprises on the upside recently with this reading, markets will keep an eye on this as a pivotal read prior to the Federal Reserve rate decision and discussions next week.
The recent pound drive this week has been supported by pricing in less possibility of a no-deal from the political minefield the UK has been stepping through for the past few weeks. However, as we have seen, this narrative can change within seconds of announcements or developments.
It’s key to understand your exposure in the short term and ensure you have a stable strategy and price targets to work with.
We are available till 20:00 throughout the week to support any requirements, risk mitigation and hedging discussions needed.
Have a great day ahead,