Daily Commentary | 02/10/2019
USD weakens as US Mfg data hit lowest level in ten years
The USD weakened yesterday during the American session after a shockingly low reading on the ISM Mfg PMI for September was released. The indicator had a reading of 47.8 which was the lowest in ten years and well below the cut-off point of 50.0, implying a contraction of economic activity in the US manufacturing sector. After the release worries for a slowing US economy increased weakening the USD as arguments for further possible rate cuts by the Fed multiplied. Analysts tend to note that the low PMI reading may be also foreshadowing weaker employment data on Friday for the US economy. It should be noted that the USD against a number of other currencies as measured by USD DXY retreated from a two year high after the release. We expect the next big stop for the USD to be Friday’s employment data for September as well as Fed Chair Powell’s speech. In the meantime, we tend to focus on the release of the ADP employment figure today and the ISM non Mfg PMI for September on Thursday. The USD could be data driven in the next few days and if arguments about a slowing US economy grow further, we could see the greenback weakening. USD/JPY experienced substantial volatility yesterday as it dropped from the highs of the 108.35 (R1) resistance line to the lows of the 107.75 (S1) support line. As the pair’s upward trendline was broken and should the US financial releases weaken the USD today, we could see the pair dropping further. Should the bears actually take control of the par’s direction, we could see it breaking the 107.75 (S1) support line and aim for the 107.20 (S2) support level. Should the bulls take over, we could see the pair aiming if not breaking the 108.35 (R1) resistance line.
Brexit uncertainty maintains volatility for the pound
Brexit uncertainty seems to continue to dominate the pound, which experienced substantial volatility yesterday against the USD and the EUR. Media reported that the EU may be considering time limit in the Irish backstop as a concession in the negotiations with the UK yesterday. Later though new headlines came out indicating that UK’s PM Boris Johnson was to reveal his own plans about Brexit which are to pull out the UK of the EU with or without a deal by October 31st o and the pound relented any gains made. It should be noted that the Boris Johnson is to send his final offer to the EU today and media state that UK’s PM warned that should the EU not engage on the offer, he would leave the negotiations table. We could see the pound, remain Brexit driven and volatility may be maintained today. Despite the sudden rally of cable yesterday, briefly breaking the 1.2310 (R1) resistance line, the pair corrected lower later on. As long as the pair remains under the spell of the downward trendline incepted since the 20th of September, we maintain a bearish outlook for the pair. Should the pair remain under the selling interest of the market, we could see cable breaking the 1.2205 (S1) support line and aim for lower grounds. Should the pair’s long positions be favored by the market on the other hand, we could see it breaking the downward trendline, the 1.2310 (R1) resistance line and aim for the 1.2400 (R2) resistance level.
Other economic highlights today and early tomorrow
In a rather slow Wednesday, during the European session, we get UK’s construction PMI for September. In the American session, we get from the US the ADP national employment figure for September and the EIA weekly crude oil inventories figure. During the Asian session we get Australia’s trade data for August. As for speakers ECB’s De Guindos, Philadelphia Fed’s Harker, New York Fed’s John Williams, BoJ’s Yukitoshi Funo speak. Also don’t forget that China is still on holiday.
• Support: 107.75 (S1), 107.20 (S2), 106.60 (S3)
•Resistance: 108.35 (R1), 108.90 (R2), 109.60 (R3)
• Support: 1.2205 (S1), 1.2110 (S2), 1.2015 (S3)
•Resistance: 1.2310 (S1), 1.2400 (S2), 1.2510 (S3)