The pound is falling to its lowest level after the resignation of the British foreign minister after having reached the level of 1.3362

The turmoil surrounding Brexit and the May government sent Sterling on a wild ride before ending little-changed

The pound is falling to its lowest level after the resignation of the British foreign minister after having reached the level of 1.3362

Increasing Yuan

The Turmoil surrounding Brexit and the May government sent Sterling on a wild ride before ending little-changed. The Dollar was mixed against its Major rivals. China’s Yuan rebounded 0.6% for its biggest gain in over three months, leading Asian EM currencies higher. The Aussie was the best performer among the Major currencies, finishing 0.57% higher. Turkey’s Lira tumbled 3.7% against the Dollar after President Erdogan named his son-in-law as economics minister.

Outlook:

The Brexit turmoil overshadowed trade concerns while equities rose on strong mining and energy shares. Metal prices bounced back while Treasuries sold off. The yield on the US 10-year treasury rose 4 basis points to 2.86%. Germany’s 10-year Bund yield was up 1 basis point to 0.3%. Japan’s 10-year JGB yield rose to 0.03% from 0.02%. Market positioning was little changed in the latest CFTC report for the week ended July 5.

Trading View

The big mover yesterday was the Pound which went on a roller coaster ride. Sterling initially rose on the overall weaker US Dollar before slumping to an 8-month low. Reports that the UK Conservatives won’t launch a leadership challenge to PM May saw the Pound bounce back to close little-changed from yesterday. UK Foreign Secretary Boris Johnson was the last among 5 members of the UK government to resign over the state of Brexit negotiations. Expect more volatility in the Pound ahead. 

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The Dollar Index (USD/DXY) was mildly higher, it ended up 0.08% at 94.067 (93.95 yesterday). The Greenback ended flat against the Euro and Sterling, up versus the Yen, while it was lower against the Chinese Yuan, Aussie and most Asian currencies.
While global yields were all higher, the rise in the US 10-year bond was not matched by its other peers. This should provide the Dollar support from current levels. When its back to basics, yields and differentials matter. The big event will be the US CPI data which is released on Thursday.

On the trade front, China and Germany signed a raft of agreements worth EUR 20 billion. China pressed the European Union to issue a strong joint statement against US President Trump’s trade policies. Trade issues, while ignoring for now, are not going away. And will provide a headwind for any substantial Dollar gains.

USD/DXY – The Dollar Index bounced off its lows to close mildly up at 94.067. The strong support at 93.70/80 held (overnight low traded 93.713). Immediate resistance lies at 94.20/30 and then 94.50. We had a big corrective move down to 93.71, last night’s low from 95.30 last Friday (29 June). We should see the Dollar Index consolidate from here. Immediate support can be found at 93.80. Expect a slow grind up with today’s likely range 93.95-94.35.

GBP/USD – Sterling initially rose to 1.33626, its highest in 3 weeks on the softer Greenback before plummeting to 1.3189 lows on the Boris Johnson resignation. GBP/USD then bounced back to close at 1.3260 (1.3275 yesterday). Reports that PM May’s Conservative Party will not issue a challenge to her leadership lifted the British currency. Today sees the release of first-tier UK economic data with UK May GDP among them. GBP/USD has immediate resistance at 1.3280 and then 1.3310. Immediate support can be found at 1.3220 and then 1.3190. The Pound will continue to gain if the USD Dollar weakens further. Political uncertainty has always and will continue to hurt Sterling. The yield on the UK ten-year Gilt slipped 2 basis points to 1.25%. Expect more volatility ahead with today’s likely range 1.3180-1.3320. Look to trade this range.

GBP/USD

AUD/USD – best-performing currency, lifted to close at 0.7465, up 0.57%. The Aussie benefited from stronger metals led by a rise in Copper, as well as a rebound in the Chinese Yuan. AUD/USD traded to 0.7484 highs before settling. The Aussie hit a low of 0.7428 following yesterday’s move up from the 0.7380 area. Immediate resistance lies at 0.7480 with strong resistance at 0.7500. A softer Greenback could see the 0.75 cent area tested. But with US yields climbing back, that level should hold. AUD/USD has rallied well since it tested 0.7330 at the end of June. We would need to see further sustained USD weakness to get past 0.7500 cents. Likely range today 0.7440-0.7490. Prefer to sell rallies to 0.7500.

AUD/USD

USD/JPY – mildly higher to 110.81, up 0.37% from yesterday’s 110.49. The Dollar traded to an overnight high of 110.90. Immediate resistance can be found today at 111.10 and then 111.30, which is strong. Immediate support lies at 110.50 and then 110.3. The rise in the US ten-year yield should continue to support USD/JPY. That said, we are near A strong resistance level and any rise in trade tensions/risk aversion could send the Dollar back down again. Likely range today 110.40-111.10. Prefer to sell rallies above 111.00.

USD/JPY

USD/ZAR – The rand (USD/ZAR), which made some gains on the back of dollar weakness last week, was trading below the R13.40/$ level by mid-morning on Monday.

The local currency opened at R13.47 and by 12:21 it was trading 0.7% stronger at R13.37/$.

USD/ZAR

Events and economic data releases today:

Australia NAB Business Confidence Index; China CPI and PPI (annual); Japan Machinery Tool Orders; French and Italian Industrial Production; UK May GDP, Manufacturing Production, Goods Trade Balance, and Industrial Production; German ZEW Economic Sentiment Index; Euro-Zone ZEW Economic Sentiment Index; US JOLTS Job Openings.

 

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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.

 

HIGH-RISK WARNING:

Trading Forex (Foreign Exchange) and Contracts for Differences (CFD’s) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.

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