Following my morning article on Friday, the dollar did continue to gain ground into the month end. The breakdownin the EURUSD, through the support at 1.1050 that has held all year, did later lead to a monthly close below 1.10 for thefirst time in over two years, when the price posted a closing rate of 1.0982.
The price had fallen to as low as 1.0963 earlier in the session.
So, from a purely technical perspective this price development does open up further downside and the next important support area at 1.0864 looks in the crosshairs now as you can see from the chart below. This chart tracks the price of the EURUSD from the 1.0341 January 2017 low, to the 2018 high at 1.2555.
The corresponding move in the USD index on Friday saw that rise to fresh 2019 highs, lifting to 99.02 ahead of the close.However, the higher dollar was perhaps more about the EUR really because the USDJPY couldn’t hold any gains beyond 106.50 and the GBPUSD didn’t lose that much ground either,later closing at 1.2156, although granted that was still well south of its earlier intraday high at 1.2225.
Consequently, the GBPEUR managed to grind its way to as high as 1.1086, before later closing for the month at 1.1069. So, on the face of it there didn’t appear to be any month end demand for the EUR on this pairing. However, that’s not to say it won’t show up because these days’ that order doesn’t need to be transacted on the exact last day of any month.
As far as my previous interim outlook for the GBPUSD and the GBPEUR are concerned, the fact that the GBPUSD stalled last week at 1.2310 last Tuesday fully endorses what I said previously about any potential rebound for that pair. However, the GBPEUR is yet to rebound to levels above 1.1100 that I also identified, but it may still yet do so.
Data released over the weekend from China provided further evidence that the economy there is still slowing with the latest manufacturing PMI data falling to 49.5 in August from 49.7 in July. The latest batch of US tariffs also came into effect yesterday in the absence of little apparent progress with the US on trade, or certainly scant news to suggest such.
This week sees the release of some important economic data and central bank policy decisions, from the Reserve Bank of Australia (03/09) and the Bank of Canada (04/09). Neither are expected to lower rates, but ruling that out entirely under the current backdrop might be unwise. The latest US ISM manufacturing index will be watched very closely tomorrow by the markets to see if there is any evidence that demand stateside is slowing. What could turnout to be a busy week is capped off with the latest US and Canadian jobs reports on Friday. Market participation rates should be back to near normal levels now that most will have returned from their summer holidays and that includes British MPs’ too of course.
So, quite what will emerge on the UK political front is hard to predict. There are still a good many potential possibilities forhow this saga may finally play out. Certainly the chances of a no confidence motion are now higher than they have ever been and that’s exactly what we might get this week. At the very least we might see some sort of motion to try and block a ‘no deal’.
The latest EU rhetoric would suggest that the commission isno nearer reopening the withdrawal agreement than at any time previously. Besides, its surely too early in the deadline schedule for any compromise on that front yet. In any case I’m certain the EU will wait on UK political developments first before even considering their next move.
Japan is due to release their latest FX reserves data this coming Friday. Reserves did drop by around $5 billion in July, but the overall level of official FX reserves has been rising steadily throughout this year. Hence it could be very interesting to see if there was a sizeable increase in August. Moreover, where any increase went to in terms of direction is of particular note to me. Right now my guess is that it was mostly into USTs, but we shall just have to wait and see what is revealed at the end of the week.
Overnight Asian equity markets futures did open markedly lower, but have recovered most of the implied losses and that’s helped US futures rebound too ahead of the European re-opening this morning. However, US markets are closed today for the ‘Labour Day’ holidays. As to whether or not hurricane Dorian will have an impact on US markets in the coming days is hard to determine right now, but certainly something to be aware of.
That leads me onto add a final note about the S+P 500 which is currently slap bang in the middle of its most recent 2825-3025 range, give or take. Looking at the charts on this one, I think a break ether side of that range now could prove decisive. I’m not going to call it, but I think regular readers here will know my side of the fence! So, looking at how things are poised as the new month commences, it could easily be a very different vista come the end of the week.
Important Economic Releases/Events Due This Week
02/09- 9.30am UK August Manufacturing PMI
03/09- 5.30am Australia- RBA Monetary Policy Decision
(consensus benchmark rate to remain unchanged at 1%)
03/09- 1.30pm Canada August Manufacturing PMI
03/09- 3.00pm US- August ISM Manufacturing Index
04/09- 2.30am Australia Q2 Annualized GDP Estimate
04/09- 9.30am UK August Services PMI
04/09- 3.00pm Bank of Canada Monetary Policy Decision
(consensus benchmark rate to remain unchanged at 1.75%)
05/09- 6.45am Swiss Q2 Annualized GDP Estimate
05/09- 3.00pm US July Factory Orders
05/09- 3.00pm US August Non-Manufacturing ISM Index
06/09- 1.30pm Canadian August Unemployment Report
06/09- 1.30pm US August Unemployment Report