GBP Pares Gains as PM May Rejects EU Barnier’s Offer - US Market Open

2018-09-19 13:37:00 Justin McQueen

MARKET DEVELOPMENT – GBP CHOPPY, AUD OUTPERFORMS

GBP: A rather choppy session for the Pound, which initially touched 2-month highs after a surprise jump in the latest inflation report, whereby the headline figure rose 0.2ppts to 2.7%, marking a 6-month high. In reaction, GBP rose above 1.32 against the greenback, however, the gains had later been pared after UK press reports noted that PM May was to reject EU Barnier’s improved offer on the Irish border. As such, this suggests that headline risk remains elevated with regard to Brexit reports, given today’s choppy price action.

AUD: The Australian Dollar has continued to extend on its recovery from last week’s 2.5yr low (0.7085) with the currency back above 0.7250. Overnight, Chinese Premier Li vowed that no competitive devaluation will take place, consequently providing a lift to the Aussie. Alongside this, the boost in risk sentiment with oil prices tracking higher and a further pullback in the greenback have contributed to the lift in the Australian Dollar.

USD: A relatively quiet session for the USD, which has oscillated between gains and losses. The Dollar continues to trade heavy, however, the rise in US bond yields keeps the DXY afloat for now.

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IG Client Sentiment Index: AUDUSD Chart of the Day

AUDUSD: Retail trader data shows 37.7% of traders are net-long with the ratio of traders short to long at 1.65 to 1. The number of traders net-long is 4.1% lower than yesterday and 65.9% lower from last week, while the number of traders net-short is 8.5% higher than yesterday and 27.9% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUDUSD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUDUSD-bullish contrarian trading bias.

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