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Stronger US ISM Further Boosts Greenback, GBP Underperforms

FOREX
  • The US dollar continued to edge higher on Wednesday, boosted by an-above estimate US ISM Services index, with both prices paid and employment advancing from the prior read. Bank of America highlighted that “while the data flow last week showed some signs of moderation in the U.S., the theme of U.S. relative economic strength continues to dominate market narratives, particularly in the face of ongoing softness out of Europe and China.”
  • GBP underperformed on the session, extending Tuesday’s weakness and reinforcing the bearish outlook. Support at 1.2548, the Aug 25 low, has been breached, confirming a resumption of the trend and cable has narrowed the gap with 1.2480, a Fibonacci projection, which has held for now. Below here, the most obvious targets are 1.2433 and 1.2369, lows from early June.
  • USDJPY was pulled in both directions on Wednesday, as the nation’s top currency official said he won’t rule out any options if current moves in the exchange rate continue. The comments prompted downward pressure on the pair from the 147.82 highs down to 147.02 session lows. However, the firmer US data kept USDJPY weakness short-lived, with the pair trading back above 147.50 as we approach the APAC crossover.
  • Weakness for global stocks continued to weigh on EMFX with the JPMorgan emerging market currency index registering a further 0.3% decline. Noteworthy pressure on the Polish Zloty stands out on Wednesday as the central bank significantly surprised the market by delivering a 75bp rate cut compared to the surveyed median estimate of a 25bp reduction. Strength for USDMXN (+1.00%) should also be highlighted, extending the most recent bounce to reach 3-month highs.
  • Speeches from both RBA Governor Lowe and BOC Governor Macklem will be in focus on Thursday. Australian trade data, Swiss currency reserves and German industrial production highlight the data docket.
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