It was the calm before the storm indeed yesterday. Another selloff in US and Asian markets meant another rally for the EUR and JPY as these currencies are inversely correlated to stock markets performance. Speculators often use low yielding currencies to fund positions in higher yielding currencies and equities so a worsening outlook for equity markets tends to boost currencies such as the EUR and JPY. As to why equity markets in US and China dropped again? In the US, the stock market is not happy for the possibility of a rate increase soon, and in China, well, it’s because its China. It doesn’t really need any reason to drop or rise anymore. Nevertheless, PMI numbers in china in August declined to 47.9 from 50.0 in July (lowest level in 3 years).

Notable market mover was oil (+8.8%) which’s move was missed if you blinked as it happened rapidly. Price rose after a government report showed a roughly 1% decline in June crude production and a bulletin from the Organization of the Petroleum Exporting Countries expressing the group’s concerns over the low price of oil.
Looking ahead, PMI data will be the main focus today. In particular UK PMI manufacturing and US ISM manufacturing. Other data to be watched include PMIs in Eurozone, unemployment rate, Canada GDP and construction spending.

Trading quote of the day:

“It is not enough to have a good mind. The main thing is to use it well.”

– Rene Descartes

EURUSD
Pivot: 1.12
Likely scenario: Long positions above 1.12 with targets @ 1.131 & 1.135 in extension.
Alternative scenario: Below 1.12 look for further downside with 1.1155 & 1.11 as targets.
Comment: The RSI is bullish and calls for further upside.

 

GBPUSD
Pivot: 1.5445
Likely scenario: Short positions below 1.5445 with targets @ 1.5335 & 1.5265 in extension.
Alternative scenario: Above 1.5445 look for further upside with 1.55 & 1.557 as targets.
Comment: As long as the resistance at 1.5445 is not surpassed, the risk of the break below 1.5335 remains high.

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