BREXIT IN THE HEADLINES ON MONDAY
The pound is down following a report by PricewaterhouseCoopers (PwC) and the Confederation of British Industry (CBI) which revealed Brexit insecurities. According to the quarterly survey of the British financial services sector, many executives and a third of banks surveyed were “not so confident” of implementing Brexit plans by March 2019.
The report will be in the mind of Theresa May, who will meet with her divided cabinet on Friday to try and come up with a consensus proposal. In recent weeks, a number of significant manufacturers like BMW and Airbus have said that they would consider leaving the UK if a deal is not found.
Shifting gears to America, the dollar index is rising, ignoring a new report by Axios. On Friday, Axios reported that Donald Trump was considering leaving the World Trade Organisation (WTO). Today, the outlet published a proposal ordered by the president. The report, which is titled, United States Fair and Reciprocal Tariff Act, would give the president the freedom to raise tariffs at will. Traders believe that it is unlikely that the president will exit the WTO, which has been favourable to the United States. Senators from the president’s party have considered authoring a bill to prevent the president from raising tariffs.
In Japan, a report by Markit showed that the Purchasing Managers Index (PMI) was at 53.0. This was lower than the expected 53.1 but higher than May’s PMI of 52.8. On the negative side, the new order growth declined to a ten-year low and export sales fell for the first time since 2006. This could be a reflection of the ongoing trade conflict, which is affecting trade around the world. In China, data showed the manufacturing PMI at 51.0, which is the lowest level since April. Meanwhile, the Tankan Large Manufacturers Index for the second quarter was 21, which was worse than the expected 22 while the non-manufacturers index was 24, which was better than expected.
Key data is expected throughout the day from the European Union and the United States. In the EU and the UK, traders will be eagerly waiting for the manufacturing PMI data. In the US, details regarding the manufacturing PMI, construction spending, and new orders will be released.
The EUR/USD pair is currently trading at 1.1660, which is 20 basis points lower than Friday’s close. The price is also in line with the 14-day moving average. Today, the key drivers for the pair will be the PMI data from the US and the EU. A stronger dollar could see the pair test the 1.1627 level which is the 61.8% Fibonacci Retracement level. If it tests this support, it could also attempt to reach the next support of 1.1608, which is the 50% Fibonacci Retracement level. On the other hand, if the dollar weakens, the pair could test the support of 1.1690.
The USD/JPY pair is continuing the rally which started on Tuesday last week. The mixed data from Japan has contributed to the rally. The pair is now trading at 110.91, which is slightly above the 14-day moving average. The focus will now be on data from the United States because no major releases from Japan are expected. A better-than-expected outlook from the US will provide a catalyst for a further rally on the pair. This could see the pair testing the 111.40 resistance level. Weak data could see it drop to the 110.65 level.
The GBP/USD pair is currently trading at 1.3176, which is slightly lower than Friday’s close. The decline is mostly because of the dollar strength and the uncertainty of Brexit. In recent days, the pair has been moving up and forming a cup and handle pattern. The likely scenario today will be that the pair will fall to the 1.3164 level, which is also the 61.8% Fibonacci Retracement level. If it reaches this level, it could reverse and move higher today.