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GBP gains on inflation, EUR, JPY rallies
Overnight trading hinted that the appetite in the yen has not been fully exhausted. The USDJPY extended losses to 100.13 as the US dollar weakened against all of its major peers.

The yen has been among the biggest winners. The 100 level against the US dollar is just around the corner and certainly seems increasingly appetising for JPY-longs. Stops are presumed below the 100 mark and could accelerate a potential sell-off in the dollar against the yen. Put options in USDJPY abound below the 100 level, suggesting that in case of a break, the recovery could be compromised in the short-term.

The euro is the trending story of the day. The single currency is well bid. The aggressive rally in euro against the pound sent the cross to a one-year high. The EURUSD surfed on a wave triggered by a stronger euro and took over the 1.1250 resistance. The fading Fed rate hike expectations before Wednesday’s Federal Reserve (Fed) minutes could also give a hand to support the positive momentum in the single currency.

The inflation in the UK accelerated at a slightly higher than expected pace of 0.6% year-on-year in July. The core inflation eased to 1.3% from 1.4% y/y. As a knee-jerk reaction, Cable recovered to 1.2981. The stronger inflation data gave the heavily short-GBP market the opportunity to attempt an upside correction. The 1.30 level has acted as a solid resistance following the data. Clearing the 1.30 could pave the way for a further correction, while a failure to successfully fight back the 1.30 barrier should encourage the sellers on the rally and keep the bias on the downside.

FTSE started the session downbeat in London. All sectors opened in the red. Buyers have moved to the sidelines, giving the FTSE room for digesting its recent rally. The 6900 handle is under pressure.

Breaking below the 6900 support could encourage a deeper downside correction in the FTSE as global risk appetite deteriorates. Energy stocks are among the top losers as stabilising oil prices somewhat dented investors’ appetite.

Royal Dutch Shell (-0.72%) and BP (-0.56%)

WTI consolidates gains above $45 as comments from Saudi suggested there is quite a strong will for a supply deal on August 26 – 28 OPEC meeting in Algeria. Short-term traders could find interest in buying at dips for a further rise in oil prices into the meeting. Yet, it is worth keeping in mind that OPEC could fail to seal a satisfactory deal should the output freeze expectations rise too much.