US-China Optimism Fades, GBP Gains on Brexit Hopes

Stocks Pull Back as Trade-Deal Optimism Wanes

The dollar traded higher against most of the other G10 currencies on Monday and during the Asian morning Tuesday. It gained the most against NOK, AUD, NZD and CAD, while it underperformed only fractionally against GBP and JPY. The greenback was found virtually unchanged against EUR.

Euro Stoxx 50 — Technical Outlook

After a strong run to the upside in the end of last week, the Euro Stoxx 50 index managed to correct back down a bit on Monday. But in the second half of the day, the buyers managed to fix the situation slightly and pushed the price to the upside, closer to the high of last week, at 3572. The index is trading above its short-term tentative upside support line drawn from the low of October 4 th. Even though we could see another move lower, as long as the price remains above that upside line, we will stay positive, at least for now.

Pound the Main G10 Winner on Increased Brexit-deal Hopes

Flying to the UK, the British pound was the main gainer among the G10s. Over the weekend, headlines that the UK and the EU still have a lot of work to do before securing a Brexit agreement casted doubts over the possibility of such an outcome. This gave a reason for GBP traders to liquidate some of the long positions they initiated in the end of last week, thereby allowing the British currency to pull back during the Asian morning Monday. However, the retreat was short-lived, and the pound rebounded again after the UK Telegraph reported that a Brexit deal appears to be taking shape, with sources saying that negotiations have yielded a possible solution with regards to the Irish backstop.

GBP/AUD — Technical Outlook

Last week, on Thursday and Friday, GBP showed spectacular performance against other major currencies, including its Australian counterpart. GBP/AUD moved sharply to the upside, but found resistance near the 1.8682 zone, from which it corrected back down. The pair tried to move above it yesterday, where it managed to break that level, but was unsuccessful to stay above it. This morning we are seeing another move towards that barrier. We need to see another clear break above that area before examining a further directional move, hence why we will stay cautiously-bullish for now.

As for Today’s Events

During the European morning, we get the UK employment report for August. The unemployment rate is expected to have remained unchanged at 3.8%, while average weekly earnings, both including and excluding bonuses, are expected to have slowed to +3.9% yoy and +3.7% yoy from +4.0% and 3.8% respectively. According to the IHS Markit/KPMG & REC Report on Jobs for the month, starting salaries for permanent workers rose at the slowest since December 2016, while temporary pay growth slid to a five-month low. This supports the case for lower official wage rates. Having said all that, even if the pound reacts to the data, we stick to our guns that the main driver behind the currency remains Brexit.

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