Daily Report: Not such a quiet Monday

The second story making the rounds on Monday involved noticeable profit taking on the Greenback (USD) taking place. Although the US employment report impressed and led to increased expectations that the Federal Reserve might move towards monetary tightening sooner rather than later, the latest FOMC Minutes are released on Wednesday evening. Investors are probably aware that it is unlikely the Fed will be hurried into putting a potential timeframe on a US rate rise and Wednesday’s FOMC minutes might not be as hawkish as optimists hope. Therefore, traders were taking profit on recent USD gains.

The Eurodollar recovered the majority of Friday’s losses and concluded trading on Monday at 1.2654. Although the EURUSD appreciated yesterday, the economic sentiment remains bleak for the Euro-Zone and I am not expecting a bullish reversal anytime soon. In fact, the EU economic sentiment might have become even bleaker following further dismay from Germany data. German Factory Orders contracted by 5.7% on a monthly basis in August, its largest decline since the peak of the financial crisis in 2009. Not only does faint optimism that Germany could return to economic consistency continue to be quashed by poor data, but there are now concerns among economists that the German economy might contract again in Q3.

After falling below 1.60 for the first time since November 2013 on Friday, the Cable also recovered a proportion of its losses and concluded trading at 1.6098. In the early hours of Tuesday morning, the pair is attempting to make an upside break towards 1.61 but whether it has the legs to be successful and surpass 1.61 is dependent on the upcoming Industrial and Manufacturing Production release. It should be noted that the major contributing factor behind last week’s downside acceleration in the Cable was encouraged by the Markit Manufacturing PMI missing expectations, due to EU economic problems weakening demand for UK manufacturing goods.

Bank of England (BoE) Governor, Carney has always said any UK rate rises would be “gradual and limited” and the manufacturing PMI provided an insight into how the UK economy can be affected by woes in the Euro-Zone. On Friday, Chancellor George Osborne attracted attention for stating EU economic problems pose the greatest threat to the UK economy and if the industrial and manufacturing data further suggests a slowdown in UK sector growth, I wouldn’t be surprised if the bears awake again. Potential GBPUSD support can be found at 1.6056, 1.6025 and 1.5953.

The USDCAD is not the most talked about major currency pair, but it was among the most volatile on Monday. The pair approached a yearly high on Friday afternoon but formed a classic “double top” pattern on the Daily timeframe and pulled back by as many as 130 pips yesterday. The Canadian economic sentiment was provided a boost when the latest IVEY PMI climbed to an 11-month high, while investors were taking profit on the USD ahead of Wednesday’s FOMC Minutes. At the moment, I am not expecting this pair to move heavily today with reduced data being released from both Canada and the United States. However, if the improved Canadian economic sentiment carries into Tuesday and more profit taking is noticed in the Greenback, we may encounter a downside move towards support around 1.1110.

In line with expectations, the Bank of Japan (BoJ) failed to increase stimulus in October, which encouraged the USDJPY to continue its pullback. Although the USDJPY surpassing 110 on two occasions last week caught attention, the pair failed to reach resistance at 110.270 and has substantially pulled back both times since reaching 110. The JPY should continue to strengthen with the BoJ leaving monetary policy unchanged, so whether this pair will continue to pullback is dependent on whether any more profit taking on the Greenback is noticed. If the pullback continues, USDJPY support can be found at 108.290 and 108.002.

By Jameel Ahmad, Chief Market Analyst at FXTM

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