- The pound sterling should continue to trade with a negative bias as the BoE has opened the road for further monetary stimulus
- GBP/USD: On the downside a key support can be found at 1.2798, further south a support lies at 1.20
- Australia: Latest RBA cut has put an end to the Aussie rally. We maintain our bearish view on the Australian dollar even though the search for yields that has been driving financial markets for the last few weeks may continue to fuel the commodity currency rally
- After increased Swiss unemployment rates EUR/CHF’s response was muted with the currency pair trading in a very tight range since yesterday
- The single currency is now about to test 1.0919 against the swissie - a consequence of its boosted safe haven status in the wake of the Brexit vote
The pound sterling resumed its debasement on Tuesday as Ian McCafferty, one of the most hawkish MPC members, declared that the central bank should be ready to deliver more easing in the event that the UK economy slows according to the initial surveys. GBP/USD fell 0.50% in Tokyo and moved as low as 1.2973. On the downside a key support can be found at 1.2798 (low from July 6th); further south a support lies at 1.20 (low from April/May 1985). The pound should continue to trade with a negative bias as the BoE has opened the road for further monetary stimulus.
The Australian dollar was the second worst performer amongst the G10 complex. It fell 0.25% against the greenback, sliding as low as $0.7622. Overall, it seems that last week’s RBA’s rate cut has put an end to the Aussie rally. Moreover, the NAB business conditions report (released last night), weakened to 8 in July from a downwardly revised figure of 11 in the previous month suggesting that the Australian economy is struggling to keep the pace after a strong start to 2016. Business confidence eased to 4 from a downwardly revised figure of 5. AUD/USD failed for the second time since Friday to break the strong 0.7650-76 resistance to the upside. We maintain our bearish stance on the Aussie, even though the search for yields that has been driving financial markets for the last few weeks may continue to fuel the commodity currency rally.
In Switzerland the unemployment rate remained roughly unchanged in July as it printed at 3.3% in July. Compared to July last year, the unemployment rate rose by 4.2% to 139k persons as the strength of the Swiss franc persistently weighs on the entire Swiss economy. EUR/CHF’s response was muted with the currency pair trading in a very tight range since yesterday. The single currency broke the 50dam to the upside (currently at 1.0876) and is now about to test the 200dma (currently at 1.0919). In the wake of the Brexit referendum, the Swiss franc has found some solid buying interest as investors flee the resulting uncertainty by selling the single currency and the pound sterling. The Swiss franc is not out of the woods just yet and should remain under substantial upside pressure as investors get better clarity about the UK and EU outlook.
In the equity market, Asian regional indices are trading broadly high even though we are seeing early signs that the rally is running out of steam. In Japan the Nikkei is up 0.69%, while in mainland China the CSI 300 rose 0.61%. Hong Kong’s Hang Seng was off 0.21%, while in Australia the ASX rose 0.27%. However, in emerging Asia, the Jakarta Composite Index fell 0.35%, while the Indian Sensex slid 0.58% suggesting that the risk rally is coming to an end. In Europe, equity futures are trading mostly in negative territory.