Headlines

*Dollar edges up but gains in check as risk appetite rebounds

*GBP is pushing lower, EUR holds steady around 0.9850

*US stocks rise after earnings after Goldman Sachs posted better earnings

*BoE’s first gilt sale operation to take place on November 1st

FX: USD printed a small doji candle near the recent range lows. The DXY remain below the 21-day SMA at 11.242.

GBP fell back below trendline resistance and below other key resistance.   EUR/GBP pushed up above 0.86. Prices are still trading just above the 50-day SMA at 0.8655 but still below 0.8721 resistance. EUR also printed a very narrow doji in quiet trade.  USD/JPY made another new multi-decade high at 149.38 with ongoing broad-based yen weakness.

NZD/USD pushed higher above the 21-day SMA at 0.5673 and out of recent consolidation. AUD/USD remains stuck below a key low at 0.6363.  USD/CAD is touched its 21-day SMA at 1.3671 and rebounded mildly.   Gold remained rangebound hovering just above recent lows.

Stocks: US equities rose again extending gains from the previous session. The S&P 500 was up by 1.1% and the Nasdaq 100 added 0.9%. Better earnings are helping the risk mood. Goldman Sachs was the latest bank to post better than expected quarterly results.

The latest Bank of America survey showed that 72% of fund managers anticipated a weaker economy in a year’s time.

Day Ahead – UK CPI in focus

Whilst fiscal measures and policies have been under the spotlight recently, it is rampant price pressures which have really driven markets over the past few months. Attention today will turn back to economic data, and we get the latest CPI figures released Wednesday. Expectations are for annual CPI to climb to 10.1% from 9.9% with the core metric set to rise to 6.4% from 6.3%. Economists forecast upside pressure from food prices battling with falling petrol prices, similar to the figures in August. Going forward, inflation is expected to remain in double digits in the next few months. Sterling weakness may push up imported costs, especially food. This tends to react quickly to changes in the exchange rate. The energy cap U-turn also risks higher inflation.

This key piece of data will inform the next Bank of England rate decision in early November. Money markets price in roughly a two-in-three chance of a 75bp rate hike. There are still around 175bps of increases by the end of the year though has come down from a previous top near 280bps.

Chart of the Day – GBP/JPY fails at long-term resistance

The commotion is easing, at least relatively, in GBP markets with sterling now coming off its recent highs. But both political and economic risks remain elevated with PM Truss’s position still extremely tenuous. The new Chancellor’s decision to limit the time of the energy support scheme has also meant there is a risk of renewed inflation next April.

GBP/JPY has seen a mammoth 20 big figure move since the flash crash lows. That was in the early hours of that Monday morning after the “mini-budget” in late September. Long-term support at 148.45 held and prices have bounced strongly. The latest bullish move took prices to highs from spring. We are now trading just above this critical area of support/resistance around 168.43. We are not overbought yet.