The dollar traded higher or unchanged against the other G10 currencies during the European morning Friday.
This article is originally referred from IronFX Intraday Comment.
• The dollar traded higher or unchanged against the other G10 currencies during the European morning Friday. It strengthened against JPY, GBP and CAD, while it remained virtually unchanged against the others.
• Ahead of the official UK PMIs for July, due out on the 2nd of August, today Markit published preliminary data for the first and only time. The report showed that in the aftermath of the “Brexit” vote, the manufacturing PMI fell to 49.1 from 52.1 in June, while the service-sector index slid to 47.4 from 52.3 previously. Expectations were for both the indices to fall, but to a lesser degree. The alarming point is that both PMIs fell below the boom-or-bust zone of 50, showing signs that the economy has started contracting in the post-referendum era. The pound plummeted at the time the data were out and continued to trade lower in the following hours as these figures clearly reinforce the case for the BoE to loose police when it meets in August. However, given that the Bank has already stated that even the immediate post-referendum data may carry distortions, these prints may still not be enough to convince the two hawks, Forbes and Weale, who wanted more evidence of the vote impact. In any case, given that after the vote Governor Carney warned that easing will likely be needed over the summer, and bearing that the statement of the latest BoE gathering showed most Committee members expecting policy to be loosened in August, we believe that the Bank will indeed pull the easing trigger when it meets next. The exact size and the nature of the measures will likely be determined by the updated economic projections in the quarterly Inflation Report, which is published at the same day as the policy decision. In our view, more disappointing post-referendum data combined with increased expectations for August easing could keep the pound under selling interest. Cable now looks to be headed towards the 1.3070 support zone, where a decisive dip could set the stage for extensions towards the 1.2875 area.
• EUR/GBP edged north during the European morning Friday following the worse-than-expected UK PMIs for July. The pair strengthened after it hit support at 0.8300 (S2) and managed to overcome the resistance (now turned into support) barrier of 0.8380 (S1). However, the rate remains within the sideways range it has been trading since the 15th of July, between 0.8300 (S2) and 0.8430 (R2). Therefore, I would hold a flat stance for now with regards to the short-term outlook. A break above 0.8430 (R1) is needed to turn the picture positive, something that may initially aim for the next resistance of 0.8470 (R2). A break above 0.8470 (R2) though is the move that is possible to carry larger bearish implications as it could open the way for the 0.8580 (R3) zone, marked by the peak of the 11th of July. Zooming out to the daily chart, I still see a longer-term uptrend. A break above 0.8430 (R1) may confirm that the 6th – 14th of July slide was just a corrective move and that the broader trend is back in force.
• Support: 0.8380 (S1), 0.8300 (S2), 0.8260 (S3)
• Resistance: 0.8430 (R1), 0.8470 (R2), 0.8580 (R3)
Original Source: IronFX Intraday Comment