GBP/USD Stabilises Awaiting UK GDP and Jobs

The GBP/USD traded quietly around 1.3440[1] in Tuesday's Asian session, pausing after two consecutive days of gains. The consolidation is believed to occur as the traders take a conservative position before the publication of the second quarter Gross Domestic Product (GDP)[2] figures in the UK. Market reports[3] state that the Office for National Statistics is set to release the report, and the consensus is that the growth will remain at 0.3% quarter-over-quarter and 1.2% year-over-year. Analysts[4] anticipate that any surprise would establish the short-term trend of sterling.

Analysts[5] indicate that the dampened price performance also represents the rest of the market uncertainty which is sourced in the United States. Fears of a possible government shutdown[6] and slow economic reporting press on sentiment, and investors hold their breath, awaiting the publication of the September Nonfarm Payrolls (NFP) release, job openings, private payrolls and the ISM manufacturing PMI. Labour market updates continue to be important in understanding the policy direction of the Federal Reserve (Fed)[7], particularly since poorer-than-anticipated US statistics in the past few weeks have cast doubt on the sustainability.

To the background, the threat by US President Donald Trump[8] of mass layoffs of federal employees should a funding agreement not be reached, combined with new tariff announcements, has further destabilized markets. Intention to make a 100% tariff[9] on branded pharmaceutical imports and other duties on furniture and trucks underline renewed trade policy riskiness that would dampen business sentiments and dollar demand over the short run.

Technically, GBP/USD[10] is technically resisted at first at 1.3470, and the firming upside resistance is indicated at 1.3520. On the down side, the immediate support is located at 1.3400 and subsequently 1.3360. Analysts[11] state that the recent consolidation of the pair indicates that traders await a catalyst, and UK GDP and the state of the US labour market would likely be able to give short-term guidance for the GBP/USD exchange rate.

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AUD/USD Extends Gains as Bullish Momentum Builds

The AUD/USD pair traded around 0.6580[12] in Tuesday's early session, extending its advance for a third consecutive session. The pair have emerged out of their downward channel pattern[13], indicating a change over to neutral phase to bullish on the daily chart. Market reports point out that the 14-day Relative Strength Index (RSI)[14] is trading around the 50 midpoint that gives the market a balanced momentum as the traders await a better directional signal.

Market commentators[15] indicate that the nine-day Exponential Moving Average (EMA) at 0.6582 is to be resisted immediately. Any prolonged pause above this would then be a welcome sign of new upside momentum[16] leading to the September 17 peak of 0.6707, the highest point in 11 months. On the negative side, the first support is observed at the 50-day EMA at 0.6554. Any decisive action of this magnitude would result in a loss of medium-term momentum and reveal a lower boundary of the channel at 0.6490.

Market commentators[17] point out that fundamentals are lending modest support to the Australian Dollar. The NBS Manufacturing PMI[18] increased to 49.8 in September, compared to August 49.4 and improved over the forecast of 49.6, and the Non-Manufacturing PMI declined slightly to 50.0. Domestically, sentiment was also supported by stronger Building Permits data and the Reserve Bank of Australia (RBA)[19] maintained its Official Cash Rate at 3.6%, as expected. The consistent position of the central bank corresponds to the opinion that the policy is in a holding position until additional indicators are provided on inflation and growth.

Analysts expect that the movement of the US dollar[20] can be affected by new economic releases. The ISM Manufacturing PMI[21] and labour market indicators are also part of the focus this week and will give hints of momentum of US growth. The possibility of a more cautious Fed[22] has found favour in markets recently with signs of softer US data capping upside on the greenback. Further signs of decelerating economic activity may restrain demand of the dollar and work in favour of short-term profits in AUD/USD.

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GBP/JPY Holds Firm as Yen Weakens Further

The Japanese yen remained under pressure on Monday, allowing GBP/JPY to extend modest gains above the 191.00[23] handle. Market reports point out that the relocation is indicative of both internal divisions within the Bank of Japan (BoJ)[24] regarding the speed of policy normalization, as well as the publication of weaker-than-anticipated domestic data, which solidified the view that the recovery of Japan was still shaky.

Market commentators[25] point out that price action indicates that sterling is in a constructive tone with the yen, short term support is being formed around 190.50 with resistance around 192.00. The market sentiment remains in support of the pound relative to others in terms of yield spreads and the careful approach of the BoJ[26] on removing stimulus. Nevertheless, the cross is still exposed to changes in the world risk appetite, which may curtail the upward momentum in case the overall market situation worsens.

In the case of the pound, analysts[27] believe that the near-term picture will be dependent on future US macroeconomic releases, such as the Friday Nonfarm Payrolls report, and the ISM manufacturing release. A softer US run would further weaken the dollar, albeit indirectly, in favour of sterling. Meanwhile, the UK's poor domestic economic indicators[28], specifically declining growth momentum, have continued to bias short-term risks in a downward direction against the currency.

Market commentators[29] indicate that GBP/JPY can get space to compress short term profits because the yen faces policy head winds. However, the medium-term risks are not to be overlooked: in case the UK growth figures remain unsatisfactory or the risk mood gets worse, the strength of sterling may be weakened, and the cross will remain open to a corrective pullback. The way of least resistance seems to be up until that point where traders are observing a continued break above 192.00 as the next positive trigger.

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USD/CAD Steady Amid Political Uncertainty and Oil

The USD/CAD pair stayed steady near 1.3920[30] in Tuesday’s Asian trading hours after modest losses in the previous session. Price action[31] is believed to be in check as market participants are cautious of increasing levels of political and economic uncertainty in the United States.

Market commentators[32] point out that speculation is growing that the US nonfarm payrolls report could be delayed as the government moves closer to shutdown. Market reports[33] state that the US President Donald Trump has increased the level of political gridlock by threatening to cut thousands of jobs at the federal level should Congress not pass a funding bill. Compounding market volatility, the administration intends to introduce sweeping tariffs, a 100% tariff on brand pharmaceutical imports[34] beginning October 1 in addition to other tariffs on household goods and trucks. These actions add more uncertainties to US growth and inflation.

Market reports[35] point out that statistically, on the Canadian side, the growth of July GDP was revised upwards by Statistics Canada to 0.2, and August activity on the Canadian side rose by neither more nor less, which indicates resilience in the domestic economy, and calms down recession fears. The Canadian dollar[36] is however still under pressure due to a drastic fall in crude oil prices that dropped over 3% as the Kurdistan region re-exported to the Ceyhan port in Turkey. As more supply is introduced into the market, the commodity-linked CAD is once again confronting the crosswinds of weaker Oil fundamentals.

Technically[37], USD/CAD is compressing just under 1.3950 resistance zone with first support established around 1.3880. Sustained trading below this level may open the door to 1.3820 whereas a rise above this will re-focus towards the 1.4000 psychological line. Traders[38] are expected to pay special attention to forthcoming US labour market data, should it be released, in order to receive an indication on the direction Fed policy takes. Any labour market weakness would weigh on a Dollar over the medium term but political uncertainty and risk aversion might continue to provide near-term USD/CAD[39] support.

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