Trade of the Day

EUR: German industrial production unexpectedly rose by 0.3% m/m in August, but that isn’t strong enough to change the economic picture of recession, with manufacturing still looking to be a drag on Q3 GDP. Talks between UK PM Boris Johnson and German Chancellor Angela Merkel were tense over disagreement about whether Northern Ireland should be kept in a customs union after Brexit. Johnson said a deal is “essentially impossible”. Continued Brexit concerns weighed on both the EUR & GBP

USD: US PPI inflation came in significantly weaker than expected, with the core measure down 0.3% m/m, the largest fall in more than four years and the annual gain of 2.0% the weakest in two years. The data suggest little inflation in the pipeline. The only “positive” feature was a rise in health care costs that feeds into the more important core PCE deflator. US small business sentiment also underwhelmed expectations, falling to an 8-month low. A renewed risk-off tone besetting the markets, stemming from Brexit headlines and Sino-US developments, saw the USD’s risk-off properties activated. The greenback marked gains against the European complex and the cyclicals. Overall, havens (JPY and CHF) outperformed, while the GBP slumped (and dragging the EUR with it) on the back of breakdown of talks between the UK and EU. 

From a technical and trading perspective, trailing stops on long positions were triggered yesterday for a net gain of 100pips,  whilst I remain structurally bearish the USD you can fight the tape and the Dollar has yet to demonstrate significant impulsive qualities during its corrective pullback. The EURUSD looks vulnerable as highlighted by the continued failure to take out stops above the 1.10 level and the daily tails on the prior four days prints , yesterdays key reversal flipped the daily chart bearish, todays consolidation within yesterday’s range could provide the fuel for another leg lower as such I will venture short through yesterday’s lows using today’s high as a stop targeting monthly trendline support and the ‘open gap’ towards 107 as the downside objective.

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