- The British pound remained under pressure on reports that the UK government were looking at ways override parts of the Brexit agreement via new legislation. Whilst Boris Johnson’s government denied the rumours, the EU sent a stark warning to the UK to “not tinker” with the agreement or face a no deal exit. Sterling broadly weakened with GBP/USD, GBP/JPY and GBP/AUD leading the losses.
- The USD dollar index (DXY) notched up a fifth consecutive bullish close with USD/CAD and USD/CHF trading around 0.4% higher and EUR/USD down -0.3% for the session.
- The ASX200 is expected to start on a positive note today on news Australians could receive their first batch of the Covid-19 vaccine in January, after striking a deal with CSL to manufacture them.
- Japan’s household spending fell -6.5% MoM versus -4.2% expected and GDP was revised lower to -7.9%, which was not quite as bad as the -8.1% forecast.
- German trade data and European GDP revisions make up the baulk of data, although we may find Euro pairs to be rangebound ahead of Thursday’s ECB meeting.
- US traders will be back behind their desks after the long weekend for Labor Day, so trading volumes will hopefully increase throughout the US session.
GBP/JPY Sits at a Technical Juncture
- Brexit headlines sent GBP/JPY to an 8-day low overnight, closing the session above a pivotal level of support around 139.74 (bullish trendline and prior swing high).
- A bearish divergence has also formed to show that momentum of the bullish trend is waning.
- Brexit headlines will continue to be a main driver over economic data for GBP pairs for the foreseeable future. Therefore, if relations between UK and EU continue to deteriorate, bearish setups are favoured. If progress is made, bullish setups are preferred.
- We now wait to see if GBP/JPY can bounce form current levels and retest the 142.70 highs or break the trendline and head towards 138.25 and lower.
GBP/CAD: Bears Eye a Break of 1.7200 Support
- GBP/CAD fell to a 2-week low overnight and stopped just shy of 1.7200 support, a key level to keep track of.
- A bearish momentum accelerated towards support we favour an eventual downside break of this key level.
- A break beneath 1.7200 brings the lows around 1.7000 into focus for bears, whilst a break above 1.7342 invalidates the bearish setup.
EUR/NZD Could Extends its Counter-Trend Rally
- Whist we were bearish on EUR/NZD last week, it achieved both targets before the trend reversed.
- Prices have since pulled back to the weekly pivot and may have formed a higher low.
- A bullish outside candle is now forming on the H4 chart – although we need to wait for the H4 candle to close at the time of writing.
- Bulls could consider long setups with a break above the correction line. We may also find that prices continue to coil into a small triangle pattern.
- For now, the bias remains bullish whilst prices hold above the weekly pivot point. Bulls could target the resistance zones near the weekly R1 and R2.
NZD/JPY: Bias Remains Bearish Below 72c
- The two-bar reversal below 72c marks a potential swing high. We are now waiting for bearish momentum to return to break NZD/JPY to new lows.
- A break beneath Friday’s low assumes bearish trend continuation, whilst a break above 72c invalidates the bearish bias.
- Given the two previous declines around similar levels resulted in losses of over 4%, we could consider a wider stop and target the lows around 69c near the 200-day eMA.
- Keep a close eye on risk sentiment via equities as NZD/JPY can rise during periods of risk-on, or fall in times of risk-off.