GBP Gains. Yen Rallies as US Manufacturing Shrinks Most Since 2009

Asia Pacific Market Open Talking Points

  • GBP/USD eyes resistance as Merkel cools no-deal Brexit worries
  • S&P 500 wobbles, manufacturing contracts first time since 2009
  • Markets may consolidate before highly-anticipated Powell speech

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The British Pound rose against its major peers over the past 24 hours on the latest Brexit developments. According to reports from The Hague, German Chancellor Angela Merkel noted that they could work on finding a “regime” that keeps the Good Friday Agreement…while also finding a backstop solution by the end of October. This helped to cool fears of a “no-deal” Brexit after the UK economy contracted in Q2.

Meanwhile, the anti-risk Japanese Yen outperformed as Wall Street went for a roller coaster ride on Thursday. After an upside gap, the S&P 500 fell as much as 0.9 percent before trimming losses and ending little changed. The deterioration in sentiment weighed against the pro-risk Australian and New Zealand Dollars while the haven-linked US Dollar aimed cautiously higher.

Dismal US economic data and less-dovish Fed commentary drove markets towards the latter half of Thursday. US Manufacturing PMI (49.9) contracted for the first time since September 2009, following the trend of a global slowdown in factory output amid trade wars. Philadelphia Fed President Patrick Harker then spoke and said he “reluctantly” supported July’s cut, adding that they should stay where they are for now.

Friday’s Asia Pacific Trading Session

A lack of prominent event risk during Friday’s Asia Pacific trading session places the focus for currencies on sentiment. Regional bourses may consolidate ahead of the second day of the Fed’s Annual Economic Policy Symposium in Jackson Hole. All eyes are on commentary from Chair Jerome Powell where markets at risk to overestimating the central bank’s dovish tilt.

British Pound Technical Analysis

Focusing on the British Pound and its recent performance, GBP/USDsurged higher out of a quiet consolidative range since the end of July. This followed fading downside momentum, as indicated by positive RSI divergence. But, Pound Sterling has more room to go before overturning the dominant downtrend. That is defined by the descending channel of resistance from May – red parallel lines on the chart below.

GBP/USD Daily Chart

Chart Created in TradingView

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— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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