- Yen consolidating gains against the greenback as USD/JPY traded sideways around 101 in overnight trading. Pair likely to stabilise around the 100 level
- EURUSD to continue trading with a negative bias and test closest support at 1.1170, while in the short term the pair is set to remain stable around 1.1200
- GBP/USD buying interest will remain modest ahead of the BoE meeting on Thursday
- Risk is on the upside for GBP/USD and despite strong expectations we still believe the BoE will stick to its "wait and see approach" rather than pushing ahead with an increase in monetary stimulus
- Both crude and Brent will likely break to the downside as supply glut looms
Asian stock markets closed in negative territory for a second straight day leading investors to wonder whether the rally has officially running out of steam. In Japan, the Nikkei was off 1.88%, while the broader Topix index slid 2.17% as the yen consolidated gains. After showing signs of strong improvement over the last two weeks, the Japanese yen consolidated gains against the greenback as USD/JPY traded sideways around 101 in overnight trading. The currency pair will likely stabilise around the 100 level. On the upside, the closest resistance lies at 107.49 (high from July 21st).
The US dollar was the best performing currency on Wednesday as it reversed yesterday’s sharp loses. The single currency fell 0.18% against the greenback after testing the 1.1231 resistance level (Fibonacci 61.8% on June debasement), the pair eased to 1.12 in Tokyo and will likely continue to trade with a negative bias. The closest support can be found at 1.1170 (Fibonacci 50%).
GBP/USD has moved towards the top of its monthly range. Buying interest will remain modest ahead of the BoE meeting on Thursday. The risk is on the upside for GBP/USD as the market expects the BoE to further ease its monetary policy. Even though the market has fully priced in a rate cut, we still believe the central bank will stick with its cautious approach with regards to a potential increase in monetary stimulus as the available data does not suggest a substantial deterioration of the UK economy since the July meeting. Therefore, they will likely try to buy time by being very dovish but a rate cut is not a done deal in our opinion.
The Australian and New Zealand dollar both experienced rough sessions in overnight trading as energy prices fell further. AUD/USD slid 0.30% in Sydney, down to 0.7585, while the Kiwi fell 0.70% against the US dollar down to 0.7190. Crude oil prices struggled to keep above water with the West Texas Intermediate up 0.10% after falling more than 2% to $39.55 a barrel on Tuesday, while the international gauge, the Brent crude, edged down 0.05% to $41.78. Both are currently testing their 200dma and will likely break to the downside as the supply glut looms.
In the equity market, European futures did not follow the negative lead from Asia. The Footsie is up 0.21%, the DAX +0.02%, the SMI +0.26%, while the CAC rose 0.15%. In the US, futures on the S&P 500 are down 0.12%, while those on the Nasdaq edged down 0.06%.
Today traders will be watching ADP employment change, MBA mortgage application and crude oil inventories from the US; Markit PMIs from Brazil, the UK, the euro zone, France, Germany, Spain, Italy and the US.