Recession fear is currently the main theme in the markets, with Euro and Sterling hardest hit in the currency markets. Canadian Dollar is somewhat a distant third weakest, as dragged down by oil prices. Nevertheless, Aussie and Kiwi are relatively resilient. Yen and Dollar are at par in strength for now. But they could soon decide which one would be the runner winner. Also, some focuses will turn to US ISM services and FOMC minutes today. But overall sentiment will remain the key driver in the markets.

Technically, one focus is now on 134.25 minor support in USD/JPY. Break of this level is the first sign that 136.99 is a medium term top on bearish divergence condition in daily MACD. In this case, USD/JPY should have a deeper correction back into 126.35/131.34 support zone. If happens, that would be a signal of a larger, broad based come back of Yen, after being sold of for nearly the whole of the first half of the year.

In Asia, at the time of writing, Nikkei is down -1.04%. Hong Kong HSI is down -1.88%. China Shanghai SSE is down -1.48%. Singapore Strait Times is down -0.04%. Japan 10-year JGB yield is up 0.328 at 0.251. Overnight, DOW dropped -0.42%. S&P 500 rose 0.16%. NASDAQ rose 1.75%. 10-year yield -0.08 to 2.809.

BoE Tenreyro: QT won’t have material impact on economy

BoE MPC member Silvana Tenreyro said “I wouldn’t expect the effect of the unwind, of QT (quantitative tightening), to have a material impact on the economy. So far our experience with the beginning of the shrinking of the portfolio is consistent with that.”

“We have been shocked by the biggest shock imaginable. Not only the pandemic but the build up to the war, the war itself, new waves of Covid affecting supply. These are called shocks because they are not anticipated. They are deviations from the model,” she noted.

“Even if it would have been possible to predict the evolution of the pandemic, the war and so on I would not have thought we would have struck a materially different policy. Policy has to address the trade off.”

WTI oil breaches 100, heading to 93 and below

Oil prices tumbled sharply this week, together with some commodities, on as recession fears mounted. WTI crude oil price have briefly breached 100 handle and remains soft.

Technically, the fall in oil price is not a surprise. Decline from 124.12 is seen as the third leg of the corrective pattern from 131.82. For now, as long as 55 day EMA (now at 110.15) holds, more downside is expected to 93.47 support, and possibly through 55 week EMA (now at 91.22).

Nevertheless, strong support should be seen at around 85.92 resistance turned support, which is close to 100% projection of 131.82 to 94.37 from 124.12 at 85.77 to complete the correction.

Looking ahead

Germany factory orders, Eurozone retail sales and UK PMI construction will be released in European session. Later in the day, US ISM services and FOMC minutes will take center stage.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.1862; (P) 1.1993; (R1) 1.2088; More…

Intraday bias in GBP/USD remains on the downside as medium term down trend is in progress. Next near term target is 100% projection of 1.2666 to 1.1932 from 1.2405 at 1.1671. Break could prompt further acceleration to 161.8% projection at 1.1217. On the upside, break of 1.2164 minor resistance will delay the bearish case and turn intraday bias neutral first.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2666 resistance holds. Next target is 1.1409 low. However, firm break of 1.2666 will bring stronger rise back to 55 week EMA (now at 1.3103).

Economic Indicators Update