USD appreciates on lower risk sentiment, GBPUSD, EURUSD making new three months lows

Good morning

What a spectacular day it was yesterday weather-wise and we are looking forward to more of the same through the rest of the week. Kids are returning to school, the lucky ones will have an extra day or two but I know many go back today. Typical really, I do feel a bit sorry for them given much of the weather through the summer holidays was a bit miserable.

It was a fairly quiet day in the markets yesterday, the sunshine may be to blame but the reality was it was a US holiday which meant a lot of the market were out for much of the day. GBPUSD spent much of the day within a few points of 1.2625, EURUSD just a touch below 1.0800. This morning however a bit of USD strength has pushed those pairs to 1.2575 and 1.0760 respectively, to be honest I haven’t seen the catalyst for this move but we’ll put it down to overall softer risk sentiment which seems reasonable after a generally weak Asian equity session.

This marks quite a big level in GBPUSD, this area has offered support for a while now, I’d mentioned 1.2620 a few times recently, now its more 1.2565 but we have to go back to June to see levels much below there. A while ago that I suggested that anywhere between 1.2500 and 1.3000 seemed reasonable for now, however we do have FOMC and BoE rate announcements in a couple of weeks, and ECB next week so would expect a degree of volatility as we approach those.

On the subject of rates, RBA kept their rates unchanged overnight. AUD had already lost ground before the announcement on softer China PMIs and weaker China equities, AUDUSD now down at 0.6380, part of that will be down to this USD strength this morning. GBPAUD much higher at 1.9715, almost 250 points higher than the low yesterday morning. RBA have kept the door open for future rate rises if required but for now they are happy to wait and assess the impact of previous rate rises.

Not a particularly busy calendar today but for now we’ll be watching GBPUSD and EURUSD closely to see if they continue to suffer at the hands of the USD. Just as I am about to send this it looks like they will both make new three months lows….watch this space.

- 10.00 EU PPI

- 15.00 US factory orders

- 02.30 AUS GDP