Mid-Day Report

Dollar Rebounds as Continuing Jobless Claims Hit 44 Year Low, Sterling Pressured as Brexit Talks Hit Deadlock

Typography

Dollar rebounds in early US session as boosted by solid economic data. Initial jobless claims dropped 15k to 243k in the week ended October 7, as impacts of hurricanes faded. That's also notably better than expectation of 253k. Four week moving average of initial claims also dropped 9.5k to 257.5k. Continuing claims dropped 32k to 1.89m, hitting lowest in 44 years since 1973. Headline PPI rose 0.4% mom, 2.6% yoy in September, up from 0.2% mom and 2.4% yoy in August, met expectations. Core CPPI rose 0.4% mom and 2.2% yoy, up from 0.1% mom and 2.0% in August, and beat expectation of 0.2% mom, 2.0% yoy. The set of data helps greenback regains some of yesterday's post FOMC minutes losses.

More on FOMC Minutes

Sterling weakens broadly as Brexit negotiation hits deadlock

EU chief Brexit negotiator Michel Barnier expressed his frustrations after completing the fifth round of talks with UK. Barnier said that the issue of the divorce bill has reached a "state of deadlock which is very disturbing for thousands of project promoters in Europe and it's disturbing also for taxpayers." And, EU will be "ready to face any eventualities and all eventualities". And he also said clearly that "I am not able in the current circumstances to propose next week to the European Council that we should start discussions on the future relationship."One the other hand, UK Brexit Secretary David Davis insisted that "to provide certainty, we must talk about the future."

It now clear that the EU summit on October 19/20 next week won't result in a "go" signal for trade agreement discussions. The next key milestone will be the December 14 EU summit.

Staying in UK, a BoE survey showed that lenders reported biggest cut to unsecured loan availability since 2009 due to lower risk appetites and deteriorating economy outlook. Net balance of lenders reporting higher availability of unsecured loans dropped to -13 in Q3, down from -10.3. Meanwhile, net expectations for the availability of unsecured lending over the next three months dropped to -28.6, down from -16.2.

ECB Praet repeats his comments on asset purchases

ECB chief economist Peter Praet said that recovery in Eurozone remains "solid, broad-based and resilient". But it has "yet toe make sufficient progress towards a sustained adjustment in the path of inflation" to the central bank's target. ECB is indeed "some distance" away from hitting the target. Hence, monetary policy accommodation is still needed. Nonetheless, he also repeated earlier comments regarding the time and pace of asset purchase. He noted that "in more normal market conditions... investors may become 'more patient', or, in other words, better able to evaluate the stimulus that can be expected to come from a purchase plan that is to be executed over a more extended time interval." 

ECB is widely expected to "recalibrate" its asset purchase program this month on October 26. There are talks that ECB would lower the monthly purchase amount next year but extend the program. And various policymakers are clear that there won't be rate hikes before stopping asset purchases.

Elsewhere

Japan domestic CGPI rose 3.0% yoy in September. Tertiary industry index dropped -0.2% mom in August. Australia consumer inflation expectation rose 4.3% in October, home loans rose 1.0% in August. UK RICS house price balance was unchanged at 6 in September.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3187; (P) 1.3211; (R1) 1.3247; More....

GBP/USD's rebound was limited at 1.3264, below 1.3291 resistance and reverses. At this point, it's staying above 1.3026 temporary low and intraday bias remains neutral first. Deeper fall is mildly in favor as long as 1.3291 minor resistance holds. Below 1.3026 will target 1.2773 key support level. Decisive break there will affirm the bearish case of medium term reversal. Nonetheless, break of 1.3291 will suggest that the pull back from 1.3651 is completed and turn bias back to the upside.

In the bigger picture, while the medium term rebound from 1.1946 was strong, GBP/USD hit strong resistance from the long term falling trend line. Outlook is turned a bit mixed and we'll turn neutral first. On the downside, decisive break of 1.2773 key support will argue that rebound from 1.1946 has completed. The corrective structure of rise from 1.1946 to 1.3651 will in turn suggest that long term down trend is now completed. Break of 1.1946 low should then be seen. On the upside, break of 1.3835 support turned resistance will revive the case of trend reversal and target 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466 .

GBP/USD 4 Hours Chart

GBP/USD Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:01 GBP RICS House Price Balance Sep 6.00% 4.00% 6.00%
23:50 JPY Domestic CGPI Y/Y Sep 3.00% 3.00% 2.90%
00:00 AUD Consumer Inflation Expectation Oct 4.30% 3.80%
00:30 AUD Home Loans Aug 1.00% 0.50% 2.90% 2.80%
04:30 JPY Tertiary Industry Index M/M Aug -0.20% 0.10% 0.10%
09:00 EUR Eurozone Industrial Production M/M Aug 1.40% 0.60% 0.10% 0.30%
12:30 CAD New Housing Price Index M/M Aug 0.10% 0.30% 0.40%
12:30 USD PPI M/M Sep 0.40% 0.40% 0.20%
12:30 USD PPI Y/Y Sep 2.60% 2.60% 2.40%
12:30 USD PPI Core M/M Sep 0.40% 0.20% 0.10%
12:30 USD PPI Core Y/Y Sep 2.20% 2.00% 2.00%
12:30 USD Initial Jobless Claims (OCT 07) 243K 253K 260K 258K
14:30 USD Natural Gas Storage 74B 42B
15:00 USD Crude Oil Inventories -1.9M -6.0M