New York Forex Report: Sterling Stabilises Post GDP Reprieve

New York Forex Report: Sterling Stabilises Post GDP Reprieve

New York Forex Report: The looming US budget crisis (a budget must be passed by 1st October and the debt ceiling raised by mid-October) has come more into focus, after President Trump’s comments highlighted the risk of a government shutdown. Until resolved this is likely to limit upside potential in US yields and potentially the currencies most associated with them as we head into and through the Jackson Hole summit tomorrow Fed Chair Yellen speaks at 15:00BST and ECB President Draghi 20:00 BST. GBP remains weakest G10 currency year to date vs the USD as we headed into the second reading of Q2 UK GDP. Growth as expected was unchanged from the initial estimate of 0.3% and Sterling has staged a small recovery. Surprises to June data for construction and industrial production, compared to the ‘guestimates’ in the first reading, were largely offsetting. However, June services may still spring a surprise. This second estimate also contained the first readings of expenditure growth for the quarter. Consumer spending remained the main driver of activity, while stronger net trade growth may have contributed to the modest acceleration in growth compared to Q1.

USD data remained mixed, manufacturing softened vis-à-vis a pickup in services while housing numbers continued to disappoint. PMI manufacturing index hit a two-month low at 52.5 in August as production and new orders slowed, against expectations for a slight uptick. On the contrary, the services PMI jumped more than expected to 56.9 from 54.7, its highest since Apr-15. The composite PMI, which combines manufacturing and services, edged up to 56.0 from 54.6, indicating continued recovery in the US economy in 3Q. In a separate release, new homes sales staged a surprised decline of 9.4% MoM to a seven-month low level of 571k in July while MBA mortgage applications fell 0.5% WoW in the week ended 18 August, underscoring renewed weakness in the US housing market amid low supply and a higher interest rate environment.

EUR PMI manufacturing surprisingly expanded at a faster pace while the services sector decelerated in August, indicating the Eurozone economy will continue to recover in 3Q. The PMI manufacturing index climbed to 57.4, matching a record high seen in June while the services index softened to 54.9, its lowest in seven months. Consumer confidence also turned in less pessimistic, ticking up slightly to -1.5 in August, bolstering hopes improving consumer spending will help spur growth in the region.

GBP testing fresh lows under 1.28 at levels not seen since late June. There has been no domestic data releases and weakness has been driven by sentiment following the publication of the UK government’s position paper on the future role of the ECJ. U.K. bond yields have softened marginally and the U.K.-U.S. 2Y yield spread has widened to the lower end of its August range. Focus shifts to this mornings GDP data.

JPY Nikkei PMI also showed the manufacturing sector picking up steam to 52.8 in August, its best in three months. Equally upbeat was the final print of machine tool orders that came in higher than initially estimated, at 28.0% YoY in July. This marked its fifth straight month of hefty double-digit gains reflecting improving business spending mainly from the foreigners.

EURUSD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Bullish consolidation continues tests of bids just below 1.17 attract buyers, as this level contains downside reactions bulls look for a retest of cycle highs en route to 1.20, near term upside hurdle sited at 1.1850, only a daily close below 1.1620 concerns the near term bullish bias setting a top for a test of 1.1440.

1-3 Week View – 1.1876 achieved focus shifts to 1.20 . Weekly close below 1.14 neutralises bullish objectives.
Retail Sentiment: Bearish
Trading Take-away: Long

GBPUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Expected retest of 1.28 plays out, near term resistance is sited at 1.2910 and as this contains upside reaction 1.26 is the next downside objective, only a close over 1.3030 reestablishes near term bullish tone

1-3 Week View – The weekly close above 1.3045 targets the broader symmetry swing objective sited at 1.3263 only a close back below 1.28 would jeopardise the bullish advance.
Retail Sentiment: Bullish
Trading Take-away: Short

USDJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – Near term resistance sited 109.50 over this hurdle opens a move to test 110.60 ahead of pivotal 111.65 a close over here neutralises downside pressure, near term support sited at 108.73

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Bullish
Trading Take-away: Short

EURJPY
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Support at 128.00 under pressure again the failure to recapture 1.30 on a closing basis sets up a retest of 126.90 and failure here sets a top for retest of 125.80. The daily close over 128.80 stabilises the pair and resets attention on upside objectives over 1.30

1-3 Week View – The weekly close above 118.50 arrested the immediate downside risk, 129.44 upside objective achieves as 128 supports bulls look for a move to test 133.36 as the broader upside objective.
Retail Sentiment: Bearish
Trading Take-away: Long