Originally updated: 08:00
Trading Bias: bearish GBP
Currency pair: short GBP/USD, GBP/JPY
In today’s trading session we will be focusing on trading opportunities on GBP/USD and GBP/JPY currency pairs.
Friday’s session saw some strength come back through into the USD. Cable dropped 280 pips as election uncertainty came back into focus. We will follow the news to guide any new entries.
GBP should weaken against both the USD due to its relative fundamental strength and against the JPY on safe-haven flows. Pullbacks on either of these pairs will provide good entry points. Be cautious entering at market as price is already oversold on the shorter time frames. As it is a bank holiday in UK today, the European session may be relatively light in volumes.
AUD Building Approvals came in better than expected, but this is not a high impact release in the current economic climate. China HSBC Final Manufacturing PMI showed a contraction which led to further talk of easing by the PBOC.
The USD remains the strongest currency in the longer term, but the medium-term direction depends on data.
The EUR remains fundamentally weak and the Greek debt issue, although seems to have taken a back seat, is ongoing.
GBP is starting to see the downward pressure exerted from election uncertainty. Expect a huge amount of volatility on GBP pairs and protect any trades with stops and smaller trade sizes if unsure.
AUD is weaker as traders speculate about an RBA cut tomorrow.
NZD is relatively neutral with an easing bias. We will watch data to indicate the chance of a cut in the near-term.
CAD remains on the weaker side of neutral until we see more data or direction from the BOC. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil.
JPY remains weak but the market will likely need a new bout of easing to sustain another fall. In the meantime, the sentiment on the JPY can turn bullish very quickly if there is uncertainty in the markets. Watch GBPJPY for the elections.
CHF is a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%. CHF may also strengthen on uncertainty.
Levels of resistance confluence on Cable and Pound-Yen will likely provide good entry points for shorts, provided there is a decent pullback. The daily pivot line on both GBPUSD and GBPJPY will provided a good entry area to short. It is likely that cable will continue to depreciate into elections.
Other Market Moving News:
FOMC Member Evans will speak late in the North American session. Keep an ear out for any reference to rate hikes. Be careful for any comments which may cause moves against a short position in Cable.
Tomorrow we have RBA rate decision where the OIS market is expecting a cut with 80% probability.