BRITISH POUND, GBP/USD, BOE, FED, USD/CAD, CSI 300, PBOC - TALKING POINTS

• The British Pound is making new lows for the year as Covid bites
• APAC equities were mixed with Chinese indices up on lower volatility
• A backfooted BOE is likely to be cautious. How low will GBPUSD go?

 

The British Pound weakened as new restrictions to combat the spread the Omicron variant of Covid-19 were announced by the Prime Minister Boris Johnson.

Sterling has been weakening since May as the handling of the pandemic by the government appears to have disappointed markets. Expectations of the first rate hike by the Bank of England have been pushed back to February next year according interest rate pricing.

The Canadian Dollar weakened overnight after the Bank of Canada left rates unchanged. G-10 currencies were generally very quiet through the Asian session.

However, stocks were a different story as risk appetite resumed on the back of reports that the Pfizer booster shot might be highly effective against the Omicron variant. This saw volatility decrease significantly as measured by the VIX index moving below 20 after trading above 35 on Tuesday.

Chinese equities roared higher with the CSI 300 index up over 2% at one stage. Other APAC equites were mixed, with Japan down a touch while Australia and Hong Kong markets saw modest gains.

Data out of China saw CPI for the 12 months to the end of November came in at 2.3% against 2.5% forecast. PPI printed at 12.9 % over the same period, higher than 12.1% anticipated.

The RRR cut yesterday shows the difference between the Fed and the PBOC. After last weeks’ hawkish comments from Federal Reserve Chair Jerome Powell, the Fed has now got the inflation fire hose out, while the PBOC has the matches in hand for stoking growth.

US Treasury 10-year yields went above 1.50% after an auction added supply overnight. There will be a 30-year Treasury auction today and the outcome could have further impact yields.

Looking ahead, the US will see initial jobless claims numbers followed by wholesale inventory data.

GBP/USD TECHNICAL ANALYSIS

GBP/USD has been trending lower since the high seen in May. Last week it breached below a descending trend-line.

Recently, the price has been edging lower but has failed to close below the lower band of the 21-day simple moving average (SMA) based Bollinger Band. This might indicate that the market is accommodative of the move for now as volatility is reducing at a time when new lows are being made.

The lows from December 2020 could provide support at 1.3188 and 1.3135. The former was breached briefly but there was no follow through.

On the topside, previous highs of 1.3371, 1.3514 and 1.3607 may offer resistance.

Chart created in TradingView

Written by Daniel McCarthy, Strategist for DailyFX.com. 9th December 2021.