EUR and GBP continue to lose against the USD and the poor economic data further weaken the GBP
Sterling’s sell-off extended after the EU’s Michel Barnier rejected the UK’s Brexit proposal. UK manufacturing PMI in August fell to its lowest in 2 years. Sterling dropped 0.65%. Net speculative short GBP bets had their biggest jump in 7 months. Emerging Markets were lower. South Africa’s Rand slumped 1.2% to its weakest close in over 2 years. The Aussie rebounded after hitting December 2016 lows. US markets were shut for a holiday.
Outlook: The outlook for international trade remains murky. Global manufacturers are seeing order growth slow markedly as worries over trade hit confidence. US and Canadian manufacturing PMI’s are due later today.
Emerging Market woes persist and have kept the Dollar near weekly highs. Expectations of a Fed rate hike this month will keep the EM countries and their currencies pressurized.
Trading View: The Dollar Index (USD/DXY) ended flat in subdued trading with the US markets closed. Trading in the Majors was subdued due to the US holiday. It was more about the EM markets and currencies yesterday.
The Turkish Lira fell 1.44% despite government measures to support the currency. The Dollar rose 0.92% against the Russian Rouble. The EM sell-off extended to Asia with the Indian Rupee hitting all-time lows and the Indonesian Rupiah at its weakest in 20 years. The USD/CNH (Dollar/Offshore Chinese Yuan) steadied to close 0.15% lower at 6.8350 (6.8440).
The latest CFTC Commitment of Traders report (week ended 28 August) saw a continuation of long Dollar bets with notable increases against the British Pound and Swiss Franc. Net speculative Aussie short bets were trimmed although they remain at their largest since December 2015.
Market positioning will continue to be a factor in trading this week.
USD/DXY – The Dollar Index closed virtually flat at 95.134 (95.099 yesterday). The fall in Sterling was countered by the Euro’s modest gain. Overnight high traded was 95.222 while the overnight low was 95.009 in subdued trading. Immediate resistance remains at the 95.20/30 level for today, while immediate support can be found at 95.00. Further support is at 94.80. The next resistance level for USD/DXY is at 95.50. The latest CFTC/Reuters report (week ended 28 August), saw a slight paring of net speculative long USD/DXY bets to + USD 34,639 contracts from the previous week’s +USD 35,063. In a table provided by Markets Now, we see that the percentage of longs as a proportion of Open Interest (total positions) is at a whopping 65.44%. Talk about crowded positions. Gotta sell rallies on that. Likely trading range today 94.90-95.40. Look to sell rallies.
GBP/USD – extended its losses following the rejection of the UK’s Brexit proposal by the EU and the big miss in UK manufacturing PMI. GBP/USD traded to an overnight low of 1.2855 before rallying at to close at 1.2873. Immediate support lies near the overnight lows of 1.2855, followed by 1.2835. Overnight high traded was 1.2934. Immediate resistance on the day can be found at 1.2900, followed by 1.2930. Look to trade a likely range today of 1.2860-1.2960. Prefer to buy dips.
AUD/USD – The Aussie plummeted to 0.7166 overnight, its lowest since December 2016. Australian Retail Sales for August were flat, missing forecasts, following a previous rise of 0.4%. However higher Australian Company Q2 Operating Profits which beat forecasts which may boost the GDP reading tomorrow lifted the AUD/USD to finish up 0.4% at 0.7215. The RBA is not expected to change its policy at its meeting today and keep its cash rate at 1.50%. RBA Governor Philip Lowe speaks after. The next resistance level lies at 0.7260. Immediate support can be found at 0.7180 followed by 0.7160. Strong support lies at 0.7125. Look to trade between 0.7180-0.7280. Prefer to buy dips.
EUR/USD – closed with modest gains at 1.1618 after trading to a low of 1.1589 overnight. Euro area Manufacturing PMI’s were for the most part flat, although they remain at over 2-year lows. The Euro rose against the Pound with EUR/GBP climbing 0.8% (0.9025 from 0.8957). The rise in the cross provides support for the EUR/USD. Immediate support for the EUR/USD lies at 1.1590/00. The next support level is at 1.1560. Immediate resistance can be found at 1.1630 (overnight high 1.1628), followed by 1.1660. Look to trade a likely range of 1.1600-1.1660. Just trade the range shag on this one.
USD /JPY – virtually flat in quiet trading, close at 111.10 (111.13). The Dollar traded a narrow range of 110.85 to 111.186. Immediate resistance lies at 111.20 followed by 111.50. Immediate support can be found at 110.85. The next support level is 110.60 followed by 110.20. Overnight the yield on Japan’s 10-year JGB rose 2 basis points to 0.11%. The US 10-year yield was flat at 2.86% with the US holiday. Risk appetite remains fragile with the EM sell-off extending. Look to sell USD rallies with a likely range of 110.60-111.20 today.
USD/ZAR – The rand is starting the week on the back foot against the dollar, as emerging market currencies again gear up for economic news out of Turkey, while on the local front markets await the release of GDP data on Tuesday.
The local currency was changing hands at R14.75/$ at 08:47 on Monday, down 0.5% on the day. It opened at R14.67 to the greenback. By 12:42, the rand was trading at R14.82/$, down 0.9%.
Events and economic data releases today: Australia Q2 Current Account, RBA Rate Policy Meeting, Cash Rate and Statement, RBA Governor Philip Lowe speaks at an RBA Board Meeting in Perth; UK Inflation Report Hearings; Canada August Manufacturing PMI; US August Final Manufacturing PMI, US August ISM Manufacturing PMI and Manufacturing Prices, August Construction Spending.
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