USDJPY & EURGBP

The rally in US Equities in yesterday’s session coincided with flows out of bonds and into equities as funds rebalance ahead of the end of the month. The European session had seen equities fall through support levels and consolidate as the UK’s PM decided to prorogue parliament in September, limiting the opportunity for discussion on Brexit ahead of the October deadline. The British pound fell to supporting levels with the GBPUSD pair moving from 1.2283 to 1.2155. This decision has further divided the UK and legal challenges are being mounted in Edinburgh and London. More than a million signatures have been gathered, calling on the PM not to suspend the parliament and protests have been held outside. Protests are also ongoing in Hong Kong with the police deciding to ban a planned protest on Saturday citing heightened safety concerns after violence escalated at events last week. China has reportedly rotated its Hong Kong garrison as part of routine annual deployments. It was reported that the troops will make “new” contributions to maintain Hong Kong’s prosperity and stability, creating a wave of risk of selling in markets. Gold pushed up on the news while equities sold off from their overnight highs. China was at the centre of new events overnight as they announced a military parade to mark the celebration of the 70th anniversary of the establishment of the PRC. It was also reported that a US Navy destroyer sailed near islands claimed by China in the South China Sea on Wednesday. The US claims freedom of navigation, while the Chinese claim that the vessel entered Chinese territorial waters. Tension between the two superpowers has been increasing in recent weeks and hit a new level after they increased tariffs on each other on Friday. The GBPUSD pair has stabilised following its fall yesterday and is now trading around 1.2200.  EURUSD is trading between 1.1095 and 1.1070.

On the calendar today, German Preliminary CPI is expected to show a decline to -0.1% from 0.5% previously. In the afternoon US Preliminary GDP is expected to show a slight drop to 2.0% from 2.1% previously. US Pending Homes Sales are forecast to fall to 0.1% from 2.8% previously.

USDJPY

The USDJPY pair has fallen back under the support area around the 106.000 level over the course of the last week. The pair dropped on Friday with the tariff increases between the US and China, and is now trading and consolidating around the 106.000 mark. A loss of this level may result in a push lower towards the 105.600 or 105.250 levels. Below these levels, the 105.074/105.000 was used as support earlier this month and may be leaned on again. The 104.843 level broken as the week resumed but in conjunction with 105.000 this level was quickly re-established. A move under the low at 104.455 potentially opens up the 104.000 level.

Resistance for the pair may be forming as a series of lower highs on the chart. A break above the 106.500 area may progress price action towards a test on the 107.000 level, which has been used as support and resistance in June and August. A break out above this area might result in a rally towards the 108.000 level followed by 109.000, where support was found in May and subsequently resistance was tested in July. The August high around 109.320 may present resistance against a march towards the 110.000 round number level.

EURGBP

The EURGBP pair has continued its spill lower falling under the 0.9100 support area last week. The pair is now testing its rising trend line support which it broke on Tuesday and is attempting to stay above today. The line is positioned around the 0.9067, with price attempting to build a base for an attempt on 0.9100 once again. Beyond this level, resistance may be positioned around this week’s high of 0.9123. A break above this area might allow price to move up to retest the 0.9200 area. Further potential resistance above this area may be found around 0.9264 and 0.9300 followed by the high at 0.9325.

Support around the 0.9000 area was used to prevent a further decline at the 0.9015 level. The support area of the round number remains broad and can attract attention as an important milestone on the chart. The price action on the move up through the level was forced to create a bull flag in order to develop sufficient momentum to break higher. A loss of 0.9000 may result in a break down towards the 0.8900/0.8890 area followed by 0.8791 in the event of further declines taking hold.

Phillip Konchar

Core Spreads

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