STERLING RISES AS HOPES FOR A BREXIT BREAKTHROUGH INCREASE
The USD strengthened against the Japanese Yen after a report said that South Korea was thinking of withdrawing some of its sanctions against her Northern neighbour. This happened as the relations between the two countries improved under the leadership of the new South Korean president. In recent months, the two leaders have communicated and met regularly. However, observers say that this will be a symbolic gesture of goodwill but will change nothing. This is because the sanctions by South Korea overlap with the sanctions by the international community. The yen tends to weaken when the tensions in the Korean peninsula ease. In fact, starting from April, the yen has fallen by more than 7% against the USD. Meanwhile, data from the Labour Department showed that the PPI rose by 2.6%, which was lower than the expected 2.8%.
The sterling continued the upward trend started yesterday. Today’s gains came as the data from the ONS showed that the economy grew at the fastest rate since the end of 2016 in the third quarter. In the quarter, the economy rose by 0.7%. This was better than the 0.6% that traders were expecting. However, in August, the GDP stagnated after a 0.4% gain in July. In the past, the ONS had warned investors against paying close attention to the monthly GDP numbers because they tend to fluctuate. In addition, the manufacturing production in August slumped by minus 0.2%. This was lower than the growth of 0.1% that traders were expecting. On a positive side, the industrial production number increased by an annualized rate of 1.3% which was higher than the 1.0% growth traders were expecting.
The euro was little moved today as traders waited for signs of the Brexit negotiations. Yesterday, it was reported that the EU and UK were close to announcing a deal by Monday. Today, traders were upbeat about Italy after the country released positive economic numbers. The numbers showed that the industrial production rose by a MoM rate of 1.7% which was higher than the expected 0.8%. On a YoY basis, the drop of minus 0.8% was smaller than the 2.0% traders were expecting.
In the final week of September, the EUR/USD pair started to decline after reaching a high of 1.1815. Today, the pair reached a month-to-date low of 1.1430 where it found significant support. It is now trading at 1.1490, which is slightly higher than the day’s low. The 14-day EMA is attempting to cross the longer-dated 28-day EMA which, if it happens, will be a sign that an upward trend could be about to start. This is confirmed by the MACD indicator which is currently moving up as shown below.
The GBP/USD pair continued the upward momentum today and reached an intraday high of 1.3185. This price is along the upper band of the Bollinger Bands. It is also along the 23.6% Fibonacci Retracement line. The path of least resistance for the pair is upwards until it reaches the important resistance level of 1.3220. As you can see below, the recent low of 1.2920 was the end of the cup and handle pattern that had been forming.
The USD/JPY pair started to fall on Thursday last week after reaching a high of 114.545. Today, the pair reached an intraday low of 112.815. It is now slightly higher at 113.200. In the chart below, the 14-day double EMA is trying to cross the 29-day double EMA, which is a sign that the downward trend will not continue. This is confirmed by the Average Directional Index indicator which is currently at 18, an indication that the downward momentum is not very strong. Further, this downward momentum was expected to happen once the pair reached the one-year high.