MARKETS: Decline in UK CPI exposes GBP to pressures

The GBP may be exposed to further losses and the risk-off environment which has been a product of market instability will continue to leave the GBP vulnerable moving forward. Market participants will digest this weak inflation reading as a signal that the BoE will not be raising rates until at least the second half of next year and because of this, the GBP may continue to decline heavily against most of its counterparts.
An unappetising trade balance from China illustrating a decline in imports has shaken investor confidence. With concerns over the health of the economy renewed, a fresh wave of risk aversion rippled through Asia. The world’s second largest economy is still facing difficulties with trade growth and this may result in additional downward pressures. Most Asian equities that had enjoyed an extended period of gains last week have ventured back into red territory with the Shanghai Composite meandering between gains and losses concluding +0.17% higher. Sentiment for the China markets remains bearish and if CPI y/y for China fails to meet expectations on Wednesday, this may lead to additional vulnerability which offers a compelling argument as to why further monetary policy from China may be impending in the near future.
Declining commodity prices complimented with the slowdown in Asia has punished the cultivation of Europe’s 2% inflation target. Tuesday’s unimpressive German ZEW Sentiment of 1.9, which has drawn closer to zero, indicates that the European economy may be under pressure. Additional Dollar weakness derived from the diminishing expectations of a 2015 US rate hike has resulted in the EUR appreciating against the USD which has mounted more pressure on the ECB. The unexpected weakness in inflation from Europe in August and September may act as a reason for the ECB to induce additional QE measures in the near future.
USDCAD: The USDCAD is technically bearish. Prices are trading below the 20 Daily SMA and the MACD has crossed to the downside. A break below the 1.2900 support may open a path to the next relevant support at 1.2650.
EURGBP: The EURGBP remains technically bullish as long as prices can keep above the 0.7330 support. A breakout above the 0.7450 resistance may open a path to the next relevant resistance at 0.7600.
EURAUD: The EURAUD is technically bearish. Prices are trading below the daily 20 SMA and the MACD has crossed to the downside. Previous support may become resistance which should aid a decline to the next relevant support at 1.5250. A move back above 1.5800 suggests bearish weakness.
GBPAUD: The GBPAUD is technically bearish. A breach below the 2.0800 support may open a path to the next relevant support at 2.0500.

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