The pound is rising strongly and breaking the 1.30 level after Barnier, chief negotiator of the European Union, said he was ready to provide an unprecedented partnership with Britain
Sterling stole the limelight, spiking to the biggest daily rise in 2 months as speculative shorts scrambled for the exits. Brexit lead negotiator Michel Barnier said that the EU is prepared to offer the UK an unprecedented partnership with Britain after it leaves the trading block. The Euro rallied while the Aussie fell. Turkey’s Lira dropped 3%.
Outlook: While the Dollar Index (USD/DXY) slipped 0.19% (94.539 from 94.709), its performance was mixed. The second reading of Q2 US GDP was revised up to 4.2% (from 4.1%). While the Dollar has steadied, there may be room for further correction. Current market positioning sees the speculative community long of Dollar bets against the Majors, particularly Sterling and Aussie.
Trading View: The short squeeze in Sterling lifted the Major European currencies against the US Dollar. The Swiss Franc rallied 0.62% against the Dollar. EUR/USD ended up 0.13%.
Emerging Market currencies fared differently following a further drop in the Turkish Lira. USD/CNH (offshore Yuan) was up 0.25% after steadying yesterday. The US Dollar climbed 1% against South Africa’s Rand.
The Australian Dollar ended lower after one of the major Australian banks hiked its mortgage rate, independent of the RBA.
Start Trading Today USD/DXY – The Dollar Index slipped 0.19% to close at 94.539. Most of the fall was a result of the rally in Sterling and the Euro which have a combined weight of 69.5% in the USD/DXY basket. The Dollar Index traded to an overnight low of 94.527. Immediate support lies at 94.40, followed by 94.10. The 94.00/10 level continues to be strong support. USD/DXY overnight high traded was 94.932. Immediate resistance today can be found at 94.80-90, followed by 95.10. Look to trade a likely range today of 94.40-94.90. Neutral here, just trade the range shag.
AUD/USD – The Aussie slipped 0.48% to finish as worst-performing major currency against the Dollar. AUD/USD closed at 0.7308 in New York from 0.7340 yesterday. Westpac Bank, one of the 4 biggest banks in Australia, raised their variable mortgage rate by 14 basis points (5.38%). The other major banks are expected to follow. The move makes an RBA rate hike less likely and raises worries about the Australian economy. The Aussie traded to a low of 0.72748 before rallying at the close. Immediate support lies at that 0.7275 level. Overnight high traded was 0.73489. Immediate resistance today lies at 0.7325, followed by 0.7350. Australian Capital Expenditure Data for Q2 is released later today with traders keeping a keen eye on this. Likely trading range today 0.7275-0.7345. Prefer to buy dips, the speculative community is short Aussie bets.
GBP/USD – The Pound bit the shorts in the bum, climbing to an overnight high of 1.30323, to finish at 1.3027, up 1.24%. This is the highest finish since August 3. Optimism rose after Barnier’s remarks which saw a spike in UK yields. Barnier said that the EU was prepared to offer Britain an unprecedented close partnership that no other third country has. The prospect of no-deal has risen in recent weeks and this has weighed on the Pound. With the shorts already so crowded a spike was inevitable. The yield on the UK 10-year Gilt climbed 4 basis points to 1.49%. The US 10year bond yield was flat at 2.88%. GBP/USD overnight high traded was at 1.30323, which puts the immediate resistance at 1.3040 today, followed by 1.3060/70 and then 1.3100. Immediate support lies at 1.3000, followed by 1.2950/60, then 1.2910.
USD/JPY– rallied 0.47% to close at 111.67 from 111.17 yesterday. Rising risk appetite saw Wall Street stocks rallied to fresh highs. The Japanese Nikkei rose to near 2018 highs. USD/JPY traded to an overnight high of 111.826. Immediate resistance lies at 111.80/90, followed by 112.10. Immediate support can be found at 111.50, followed by 111.20. Look for a likely trading range of 111.20-111.90. Prefer to sell rallies. Any slip in risk appetite could see the Yen soar.
EUR/USD – closed with modest gains to 1.1707, up 0.13% (1.16978 yesterday). The Euro traded to an overnight low of 1.16518 where it found a good base between 1.1650/60. Overnight high traded was 1.1710. Immediate resistance today lies at 1.1710/20. The next resistance level is at 1.1740/50 which remains strong. Tomorrow sees Euro Zone Preliminary CPI data. Likely range today 1.1660-1.1720. Look to trade this range.
USD/ZAR – The rand fell more than 1.5% on Wednesday on continued concerns over SA’s land reform policy. In the previous session the rand had a knee-jerk reaction to news that the land expropriation bill was provisionally withdrawn from Parliament, but the market soon realised it was a separate process to changing the Constitution to allow for land expropriation without compensation.
The local unit was trading 1.52% weaker at R14.44 to the greenback by 16:52 in Johannesburg after flirting with the R14.50-level earlier in the session seo.
On Tuesday the rand broke below R14.00/$ to trade at R13.96 shortly after the news that the expropriation bill had been withdrawn.
Events and economic data releases today: New Zealand ANZ Business Confidence Index; Australia Q2 Private Capital Expenditure and August Building Approvals; German Preliminary August CPI and Unemployment Rate and Unemployment Change; Canadian Q2 and August GDP; US July Core Personal Consumption Expenditure Price Index, US Personal Spending and Personal Income.
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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.
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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