The pound edged lower after the second quarter GDP estimate showed that the private consumption eased to the weakest level since 2014. The business investment plunged to 0.0% year-on-year from 0.7% printed previously. The government spending and capital formation were better-than-expected and compensated for the slower business and household spending. Exports rose less-than-expected despite the soft pound, imports retreated from 1.7% to 0.7% on the quarter. The final figure matched the expectation of 0.3% quarter-on-quarter GDP growth, yet the composition displeased.
The GDP data weighed on pound traders' mood, which was already spoiled after Theresa May said there will be no European Court Jurisdiction (ECJ) after the Brexit. The GBPUSD could extend losses toward the 200-day moving average (1.2684). Resistance is eyed at 1.2890 (minor 23.6% retracement on August retreat).
The FTSE 100 extended gains beyond the 7400p (100-day moving average), softer pound helped.
Energy stocks remained flat regardless of the encouraging EIA (Energy Information Administration) data.
The US crude oil inventories contracted by 3.3 million barrel last week to the lowest level in nineteen months. WTI crude recovered past $48/barrel, yet could fail to hold the ground due to the quiet OPEC and its allies.
Lower euro rates encourage rapid profit taking
The euro sentiment remains positive despite the negative break in the short end of the euro yield curve. German 2-year yield fell to a two-month low due to the global rush to safe haven assets.
Lower euro rates don’t discourage the euro-bulls from buying the dips, yet invite them to realize profits hurriedly.
As such, the EURUSD is following a short-term mean reversion trend, trapped in the hands of dip buyers and top sellers.
Though, the euro bulls dominate on hawkish expectations before the European Central Bank (ECB) President Mario Draghi’s Jackson Hole speech due on Friday. Although Draghi will unlikely let out any crunchy details regarding the future of the ECB’s bond purchases program, an optimistic view on the Eurozone’s economy would enhance the chances of a hawkish policy action in September 7 meeting and keep the bulls in charge of the market.
The EURGBP went up to the roof on the back of a simultaneously stronger euro and softer pound. The pair is preparing to test 0.9257 level (October 7 peak after the pound flash crash). The daily relative strength index (81%) warns that the euro may have rallied too fast in a short period of time and the overbought market condition could necessitate a short-term downside correction. Sellers could come into play at 0.9250/0.9300.
US dollar, equities edge lower as US political risks escalate
The US dollar and the US equities sold off under the pressure of a Federal government shutdown threat. The Dow Jones (-0.40%), S&P500 (-0.35%) and NASDAQ (-0.30%) traded lower in New York, though the VIX index (12.15%) indicated a reasonable price volatility.
The US stock futures are better bid, hinting at a firmer open in New York.
Meanwhile, money flows into the safe haven assets as the relationship between President Trump and the Republicans deteriorates and the fiscal deadline approaches at a dangerous speed. The US 10-year yields are down to 2.17%.
Gold demand remains tight above the $1’278 (minor 23.6% retracement on July – August rise). The solid positive trend suggest that the second attempt could clear the $1’300 resistance, especially if the tensions in the US government escalate.
The USDJPY was offered in Tokyo; Nikkei (-0.42%) and Topix (-0.49%) fell on stronger yen. Foreign investors divested $185.1 billion Japanese bonds and $300.1 billion Japanese stocks last week. Call options trail from 109.30 to 110.00 at today’s expiry. Option barriers stand at 110.50.