Time to check out progress for the four primary currencies on the daily timeframes, as market sentiment continues to ebb and flow largely driven by the fourth dimension of politics which is increasingly taking centre stage and relegating fundamental data to second place in terms of importance and impact.
And there is nowhere better to start than with the British pound which has seen the rally of August and September, driven on the hope of a Brexit deal now starting to reverse and weaken as these hopes fade once more with the prospect of a no deal now rising rapidly as the deadline of 31st October approaches with the war of words rising in crescendo as it does so. If the result is indeed a no deal, expect to see the GBP weaken further with a retest of the 108.50 low of August in due course. Since writing this earlier today we have seen a classic example of politics driving currency flows and sentiment as the index has risen sharply to reflect the possibility of a potential Brexit deal. This is as a result of a meeting between the Irish Taoiseach Leo Varadkar and Boris Johnson. This bilateral meeting is also significant as until today such a meeting was unlikely.
From the UK it’s across the Channel to Europe and the single currency which has problems of its own as the German economy flounders, and with the ECB launching more stimulus for the ailing EU zone, this has also increased the war of words with the US. Furthermore, a no deal Brexit would bring further problems for Europe should the UK break away and develop it’s own trade deals. All of this has been reflected in the daily chart with the currency continuing to move lower throughout August and September and building a base of support in the 126.50 which if breached will see the currency continue to weaken.
Next comes the Yen index, which reflects global market sentiment, with the weakness in September confirming the positive sentiment for equity markets to the middle of the month, before risk on appetite evaporated as US markets weakened on trade wars concerns once more before finding some resistance in the last few days in the 9200 region. Should US equities continue to weaken, expect to see the yen index return to the 9300 area of early September. However, once again, as with the British pound it is politics driving the narrative with positive signals on the US China trade tariff talks and a possible ‘currency pact’ stepping in to drive the indices higher and the yen lower turning market sentiment positive once again.
Finally to the US dollar which refuses to weaken much to the annoyance of the US President with a base now building in the 12360 area as it approaches the 12,460 ceiling once more, and continuing to remain rangebound between these two levels.