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Heading towards the Fed release on Wednesday a sense of caution prevails. Despite the market looking for a pivot, the Fed has maintained an aggressive stance.
Whilst the core PCE came in under expectations, we are cautious. On Friday, wage inflation printed 0.6% MoM, double the monthly forecast of 0.3% MoM. This surprise means that average hourly earnings are up 5.1% YoY compared to last month's 4.9%.
The EURUSD has pushed higher into the daily chart's bullish channel between the upper blue and red bands. The hourly chart shows bullish developments too. Its trend-following EMAs have developed angle and separation to the upside, and the stochastic is looking to cross up (black ellipses). If the stochastic pushes above 80 and maintains, an underlying bullish momentum will be building, which may take EURUSD passed its R2 pivot level.
Bond market participants have made their move. Given the decimation of bond prices for 2022, value investors were bound to come in at some stage. It looks as if today is that day.
This development comes as Rishi Sunak takes over as the new UK PM. As a result, politically uncertainty has waned, which looks to be translating into lower volatility in the near term. However, the UK economy still faces headwinds, and cable requires watching as policymakers manage these.
This resilience is despite further action today by the BoE to stabilise British gilts. The central bank broadened its emergency bond-buying to include inflation-link gilts to keep markets functioning normally.
The BoE has announced an increase in its daily gilt purchases and will implement measures to ensure calm prevails as its emergency bond-buying programme winds up. The central bank intervened in the bond market after the government's mini-budget sparked a sell-off, threatening the UK's pension sector. The emergency intervention is due to end on Friday, 14 October.
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The pair extends this week’s rally to levels not seen since August 1998, as USD strength persists and markets brush aside JPY verbal intervention
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