Cable Flirts with 1.2900

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Market Drivers August 8, 2018
Fresh multi-month lows for GBPUSD
Risk FX wobbles
Nikkei -0.08% Dax -0.20%
Oil $69/bbl
Gold $1212/oz.
Bitcoin $6400

Europe and Asia:
CNY Trade 28B vs. 39B

North America:
No Data

Cable was hit hard by risk-off flows in early London dealing today dropping to within 1 pip of the 1.2900 figure before finding a modicum of support.

The pair hasn’t been below the 1.2900 in nearly 12 months and today’s slide is indicative of market’s growing concern over the slow pace of Brexit negotiations and the dire prospect of a hard Brexit that could leave UK cut off from the European common market.

Cable was particularly weak on the crosses as EURGBP climbed towards .9000 and GBPCHF dropped towards 1.2800. The unit is now trading on momentum as lack of news has emboldened the shorts to probe the lower edges of long-term support, but the trade in the pair is highly susceptible to headline risk, so any hint of compromise could quickly push it above the 1.3000 level in a furious short covering rally.

Elsewhere the flows were dominated by equity price action. With Chinese equities once again sliding to the downside USDJPY followed, breaking below the 111.00 barrier in late Asian session trade. Although risk-off flows were the dominant factor, yen strength may be also coming from a slightly more hawkish tilt of the BOJ. The latest discussion of the central bank revolved around the idea of expanding the JGB yield band from the current -0.1 – 0.1% level to double that indicating that the central bank may be willing to tolerate higher yields in the JGB market. For now, JGBs remain near the top of their 10 basis point band as investors are clearly anticipating a rise in yields.

With no US data on the docket, the US session will likely be driven by equity flows as well. Although USDJPY remains under pressure, the pair appears to have support around the 110.50-111.00 level and if US equities remain steady the pair could try to climb once again. A break below 110.50 however, would be very negative as it would suggest that markets may be sensing peak growth and are starting to price in a correction in financial assets.

Boris Schlossberg
Managing Director

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