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WORLD MARKETS: Maybe the GBP bulls will fight back?

04 August, 2014

By Jameel Ahmad, Chief Market Analyst at FXTM

Economic news from both the United States and EU was light yesterday, which resulted in the EURUSD being traded in a very narrow 20 pip range. The pair concluded trading at 1.3421, surrendering a small fraction of the 40 pips gained last Friday.

This pair should encounter additional volatility today, with quite a wide variety of economic data released from both sides of the Atlantic. From the European Union we await June’s annualised Retail Sales, alongside the finalized Markit Eurozone Services PMIs. In regards to the United States, the latest ISM Non-Manufacturing Composite and Factory Orders are announced. As long as the US data continues to suggest that the economy is improving, this should place pressure on the EURUSD. Current support levels can be found at 1.3403 and 1.3386. If the market reaction to the US data is slightly unfavorable (like Friday, when the US unemployment rate was announced as having risen to 6.2%) investors could be encouraged to purchase the EURUSD once again. If this occurs, EURUSD resistance levels can be found at 1.3450 and 1.3486.

Meanwhile, there were some indications of GBP bulls attempting to retrieve recent losses on Monday. The latest UK Markit Construction PMI surpassed expectations, being declared at a yearly high 62.4. This calmed down some suggestions following Friday’s Manufacturing PMI being recorded at a yearly low that the UK fundamentals might have plateaued. Overall, the GBPUSD gained around 50 pips throughout the day, before concluding trading at 1.6861.

In addition to the US economic data released in the afternoon, the latest UK Services PMI are announced this morning. The UK’s economy is very reliant on services, with this sector being the UK’s main GDP contributor. Additionally, the services sector employs around 80% of the UK labour workforce. At present, the expectations for this release is for an improvement on June’s 57.7, with a 58 expectation. Confirmation of this should provide a further reason for the GBPUSD bulls to rebuild some lost momentum, with resistance currently located at 1.6872, 1.6894 and 1.6913.

The USDJPY also traded in a very narrow range yesterday, concluding Monday a marginal few pips higher than where it opened, 102.556. Bearing in mind the USDJPY failed to close above the psychological 103 resistance level last week, the pair is susceptible to a slight pull back. In the longer term, we are now noticing some of the detrimental impacts an April sales tax is having on Japanese expenditure, but an upside break above 103 is required to be confident that this pair is set to progress. In the meantime, support can be found at 102.335 and 102.070. Current resistance is located at 102.636 and 102.798.

The AUDUSD continued to recover some of last week’s losses, with the Aussie being boosted by the news that domestic Retail Sales impressed last month. Retail Sales jumped 0.6% in July, double the expectations and cooled down fears following last week’s Building Approvals decline that the Australian economy was struggling to transition towards domestic consumption. The AUDUSD concluded the day at 0.9333.

There were further indications of a consolidation period commencing for the NZDUSD, after the previous few weeks of heavy selling. The NZDUSD gained around 20 pips yesterday, concluding trading at 0.8522.

Volatility should increase tonight though, with the latest New Zealand employment change announced. When the Reserve Bank of New Zealand (RBNZ) moved to raise interest rates for four consecutive months, there were some concerns that this might have a detrimental impact on business confidence levels, which should in effect impact business hiring. Tonight’s employment report should provide some clarity regarding this possibility. Current NZDUSD support can be found at 0.8501 and 0.8489, while resistance is located at 0.8534 and 0.8555.

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