GBPUSD Dumps While USDJPY Pumps

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Market Drivers June 10, 2019
UK data disappoints
Cap open in USDJPY
Nikkei 1.20% Dax 0.77%
Oil $53/bbl
Gold $1326/oz.

Europe and Asia:
GBP UK GDP -0.4% vs. -0.1%
GBP UK MP -3.9% vs. -1.1%

North America:
No data

Latest UK economic data missed the mark by a wide margin showing a serious deterioration in business activity sending cable back below the 1.12700 figure in morning London dealing.

UK eco news missed on all fronts with GDP contracting 0.4% versus 0.1% while Manufacturing Production declined by a whopping -3.9% versus forecasts of -1.1% drop. Part of the reason for such unexpected decline was the sharp falloff in UK car production due to a planned shutdown of plants linked to Brexit uncertainty, so the shocking surprise could be due to one-off effects. However the overall results paint a picture of UK manufacturing in a state of near paralysis as the Brexit pressures have clearly had negative impact on both supply and demand.

Cable plunged on the news dropping through the 1.2700 figure and could grind its way back down to 1.2650 as the day proceeds. The UK political climate looks to be in utter chaos with Boris Johnson now the early favorite for the Tory lead. But even if he were to win the leadership role, his chaotic and divisive rhetoric is almost certain to trigger a new election which will only add to the Brexit uncertainty for now.

Cable appears to have found near term support at the 1.2550 level but remain vulnerable to further economic shocks and could slip below that threshold if markets start to price in a recession in UK. EURGBP remains perched at .8900 after a record-long rally last month and could continue its march higher toward .9000 if the news does not improve.

Elsewhere, the open today saw some strong risk-on moves after Trump reneged on his threat to put tariffs on Mexico sending USDJPY to 108.50 at the start of Asian session trade. The pair has been grossly oversold over the past few weeks pushed into the start of the year lows on the decline in US yields below the 2.10% level. The US 10 year yields have recovered somewhat and could push higher as the week proceeds if as is seemingly likely, the Trump administration begin to issue more soothing tones regarding Chinese trade negotiations. If the past actions have proven anything, its that Trump loves to resolve the crisis he creates for dramatic effect. With G-20 meeting coming up at the end to the month, the US administration may begin to offer more soothing rhetoric in hopes of stoking market expectations of progress on the trade front, all of which could prove more positive for risk and push USDJPY back above 109.00 as the week proceeds.

Boris Schlossberg
Managing Director

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