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The Sterling appreciated against the US Dollar, as the UK manufacturing sector reported a stronger-than-expected growth in August. GBP/USD rose to the 1.2930 mark to sustain the appreciation up until the US economic reports.

The weakness in the British Pound resulted in a boost of new orders coming from the US and Europe, which supported expansion of the UK manufacturing sector. Markit reported that the country’s Manufacturing PMI rose to the 56.9 mark in August, though remained below the 57.4 figure registered in the Euro zone. However, the sector is still expected to maintain positive growth in the near term given support from a solid recovery in the EZ and higher export competitiveness.

Investors shelter in safe-haven assets amid North Korea concerns

Once again investors started the week on the back foot as geopolitical tensions escalate over the week-end. With the exception of Chinese equities, which enjoyed a smooth session on Monday, global equities slid in negative territory. The Nikkei was off 0.93%, while the broader Topix index fell 0.99%. European equities followed Japanese ones lower. The Euro Stoxx 50 was down 0.50%, while S&P 500 futures tumbled 0.47%.

North Korea announced it conducted sixth nuclear test on Sunday, triggering another rush for safe haven investments. As usual gold, the Swiss franc and the Japanese yen were better bid, rising 1%, 0.80% and 0.75% respectively. Other precious metals were also in demand with silver climbing 0.80% and palladium rising 0.90%.

Volatility indexes such as the Euro Stoxx volatility index gapped at opening, jumping from 14.7% on Friday to 16.4% on Monday morning. Demand for bonds also surged sending rates lower. German Bunds yields continued to move lower with the 10-year sliding to 0.36%, while on the short-end of the curve the 2-yeat yield reached -0.73%.

EUR/USD edged up in early European session and erased partially Friday’s losses. The single currency rose to $1.1915. The pair is still trading within its multi-month range of 1.1662-1.2070. We do not expect a significant change of behaviour before Thursday’s ECB meeting.

Fundamentals build on GBP reversal

The GBP fall against the Euro continued today reversing last week’s marginal bullish reversal. The sterling verse the euro is now close to its historical low in trade related term. A reality that is not lost on the Bank of England. The MPC has indicated that a 20% decline in the GBP could equal as much as 1.5% increase in inflation depending on the issue. BoE Governor Carney in the past has suggested that exchange rates considerations must be a part of central bank’s policy setting. Should the cause be a decline in relative growth verse global competitors rather than Brexit connected fears then the BoE is more likely to act with higher policy rates. We suspect the current GBP deprecation is a blend of the two increasing the likelihood the BoE will be forced to act.

Economic data from the UK has been on the soft side causing the market to discount potential tighten. However should the domestic inflation and activity suddenly pick up the BoE will quickly shift policy stance. The market is clearly underpricing this potential scenario, yet the probably of a 4Q jump in activity has increase significantly partially due to the weaker sterling. Our bullish GBP call has been under heavy pressure but conditions are pointing to a December move in banks rate will catch the GBP bears short.

Spot Gold spiked to new 11-month high at $1339 on Monday, in reaction on North Korea's nuclear probe over the weekend.

Renewed uncertainty on rising geopolitical tension prompted investors to exit riskier assets and jump into safe haven instruments.

Gold opened with $9 gap higher on Monday, breaking above the upper boundary of short-term bull-channel and extended the wave C, on which the price is riding, through its FE 123.6% at $1337 (also spike high of 09 Nov 2016). The wave may extend towards $1347 (FE 138.2%) as strong safe-haven demand keeps the yellow metal well supported.

Overbought conditions of daily studies have so far been ignored but some corrective action could be anticipated in coming sessions.

Res: 139, 1343, 1347, 1352
Sup: 1331, 1329, 1325, 1316

Cable traded within narrow range in Asia and eased to session low at 1.2936 after UK Manufacturing PMI fell to 51.1 in August, undershooting expectation at 52.0 and July’s release at 51.9.

Weak Manufacturing numbers are seen as negative factor for the near-term action which is holding within daily cloud for the fourth straight day.

The action is capped by daily cloud top / falling 30SMA which keep psychological 1.3000 intact for now and maintains negative near-term tone while the price stays below.

No clear direction while the price holds within the cloud, with the notion supported by mixed daily studies.

Extension below 1.2914 (converged 10/20SMA’s) would risk break below daily cloud base (1.2906) and daily Tenkan-sen (1.2884) break of which will be bearish.

Conversely, sustained break above daily cloud / 30SMA and 1.3000 barrier would signal fresh extension of recovery leg from 1.2773, through 1.3020 (daily Kijun-sen) towards 1.3080 (Fibo 61.8% of 1.3268/1.2773 descend.

Res: 1.2965, 1.2980, 1.3000, 1.3020
Sup: 1.2936, 1.2906, 1.2884, 1.2852

We see GBPUSD unfolding a new bearish reversal, away from the 1.3264 level, where resistance and a probable top was found. That said, ideally a bigger corrective wave IV) was completed and now a minimum three-wave reversal lower is expected to follow, with first wave 1 already completed. A later breach below the 1.2591 swing low would confirm a change in trend.

GBPUSD, Daily

On the 4h chart however we see price trading bullish, but beware this bullish activity from 1.2773 level may be only temporary as we think it can be a higher degree wave two. Ideally this corrective wave two will search for a top near the Fibonacci ratio of 50.0/61.8 and near the former swing high of wave 2) at 1.3023 level and there make a new reversal lower.

GBPUSD, 4H

The NZD/USD has developed a Falling Wedge pattern, which could be validated very soon if the rate will climb above the 50% Fibonacci line again. Price will drop much deeper if will stay under the 50% Fibonacci line. The next downside target will be at the 61.8% retracement level and lower at the fifth warning line (wl5).

Gold rallies and seems unstoppable on the short term. You can see on the Daily chart that has opened with a gap up and now is approaching the 1348 horizontal resistance, where he could find supply again. Is strongly bullish after the impressive breakout above the WL1. Resistance can be found also at the lower median line (LML) of the major ascending pitchfork.

Price increased in the early morning, but stays much below the 0.7994 Friday's high. The perspective remains bullish on the daily chart as the uptrend is still intact. Is premature to talk about a corrective phase because it is located above some important support levels.

Is very important to see how the USDX will react in the upcoming period, it's still under massive selling pressure because is trapped under major resistance levels. USDX decreased in the morning and should retest the 92.49 horizontal support, could still start a leg higher as long as it stays above this obstacle.

The Aussie increased on the mixed Australian data, the Company Operating Profits dropped by 4.5% in the second quarter, more versus the 3.9% estimate, the indicator plunged after the 5.8% growth in the former reading period. Moreover, the ANZ Job Advertisements rose by 2.0%, beating the 1.6% in the previous reading period, while the MI Inflation Gauge rose by 0.1%.

Price looks a little exhausted after the failure to reach and retest the median line (ml) of the minor ascending pitchfork. Now is retesting the upper median line (uml) of the minor descending pitchfork, could come to retest the confluence area formed at the intersection between the lower median line (lml) with the upper median line (uml).

The major upside target remains at the 0.8065 static resistance, will approach it if will stay within the ascending pitchfork's body. A major drop will come only if the rate will make a valid breakdown below the median line (ML) of the major ascending pitchfork.

GOLD - The commodity continues to retain its upside as it close on a rally the past week. On the downside, support comes in at the 1,320.00 level where a break will turn attention to the 1,320.00 level. Further down, a cut through here will open the door for a move lower towards the 1,300.00 level. Below here if seen could trigger further downside pressure targeting the 1,330.00 level. Conversely, resistance resides at the 1,340.00 level where a break will aim at the 1,350.00 level. A turn above there will expose the 1,360.00 level. Further out, resistance stands at the 1,370.00 level. All in all, GOLD looks to weaken further.

Gold is bullish both in the short and medium-term and has approached its highest level since September 2016 at 1339.64. The broader undertone remains strong and there is little sign that the uptrend will change in the near term.

However, the short-term momentum oscillators are indicating the market has reached overbought levels.

Following a jump higher above the key 1330 level today, RSI rose above 70 and the stochastic is above 80, both indicating an overbought market. (4-hour chart)

The odds are high for a pause in the uptrend and for prices to begin a consolidation phase with strong immediate support at 1330 and resistance at 1340. A break below 1330 would target the September 1 low at 1316.37 ahead of key support at 1300. Below this psychological level, a dip lower to 1280 is likely. From here the outlook would turn more bearish for gold to slip towards 1251.49. Then an extension to 1204.79 cannot be ruled out for a complete reversal of the uptrend from the July 10 low.

A sustained break above 1340 on the 4-hour chart would trigger a rally to 1352.57, which was a high from a year ago in September 2016. Such a move would strengthen the underlying uptrend with scope for another leg higher to the next major peak at 1375.

The short-term picture is bullish based on the positive alignment of the moving averages on the 4-hour chart. The 20 SMA has crossed above the 50 SMA. Meanwhile, the medium-term outlook is also bullish with the uptrend from 1204 still intact.