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UK PMI hints at contraction post-Brexit
The UK released July preliminary PMI figures as a first piece of economic data after the Brexit vote. The outcome has been quite dramatic as data suggested a significantly worse-than-expected contraction in both manufacturing and services sectors following the UK’s decision to exit the European Union. Concerns regarding the economic future may have deteriorated drastically and could further dent the appetite in UK assets and the sterling.

As a knee-jerk reaction, the sterling slipped below the 1.32 against the US dollar, yet found support at hourly uptrend channel base, 1.3180. A slide below this level could encourage a fresh wave of sell-off aiming the 1.30 support.

FTSE opened in the red. UK miners and energy stocks are leading losses in London, as energy markets are set to close the week lower.

BHP Billiton (-1.86%), Rio Tinto (-1.05%), Anglo American (-1.73%), BP (-0.75%), Royal Dutch Shell (-0.77%).

The EIA reported that, although crude inventories fell 2.34 million barrels last week, US’ oil inventories are at historical highs for this time of the year, with supplies of crude and refined fuels at a record 1.385 billion barrels amid higher gasoline stocks.

Confusion on Bank of Japan’s stimulus plans

Japanese stocks saw little demand as Nikkei (-1.19%) and Topix (-1.03%) eased from six-week highs on confusion about the Bank of Japan’s (BoJ) stimulus plans.

Nikkei reported that Japanese PM Shinzo Abe is pressuring for 30 trillion yen worth of additional stimulus to boost growth and inflation, while BoJ Governor Kuroda said there is no need for helicopter money, however, in an interview recorded by mid-June, bringing us to the pre-Brexit era.

We will soon have more clarity, as the BoJ is due to announce its latest decision next Thursday.

The USDJPY remains in a bullish trend above the 104.60, major 38.2% retracement. Resistance is eyed at 107.00 (hourly Ichimoku cloud top) before 107.40 (100-day moving average).

Quick take on ECB meeting

As expected, the European Central Bank (ECB) left its monetary policy unchanged at yesterday’s meeting. The ECB President Mario Draghi sounded as confused as many of us regarding the economic and financial implications of the Brexit. The ECB, of course, left the door open for additional monetary support. The probability of a rate cut by December slightly increased to 55.7%. The EURUSD tested the critical 38.2% retracement on July rise, 1.1050, while the failure to break through this resistance dragged the single currency shortly below the 1.10 level. Clearing 1.1050 is needed for a fresh bullish signal in EURUSD.

The single currency holds the ground in Frankfurt on strong PMI read from Germany and France despite Brexit. According to Markit, ‘strong tailwinds from a healthy labour market and rising demand are propelling the German economy forward’. Unfortunately, the Eurozone manufacturing PMI fell short of expectations, while the services sector across the union remained resilient according to early July data.