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  • GBP/USD has nose-dived and keeps bleeding whereby the DXY is taking up its leadership role on the currency board in style, rallying from a firm base at 95 the figure and as high as 95.37, matching the 28th Sep highs so far. Subsequently, the euro is at a three week low and taking cable along for the ride downtown.
  • Brexit Sec. Raab is making comments, most of which the market is ignoring and leaning on the side of scepticism on anything positive.  
  • GBP/USD is now trading at 1.3028 and headed for a challenge of the 1.3012 October low printed in London.

The markets are centred around politics with respect to both the UK and Italy. The Italian government now faces the task of selling its budget to Brussels which still leaves time for plenty of noise between now and when the full proposals are due to be submitted to the European Commission for review on October 15 – for instance, analysts at Rabobank pointed out that, “there is some expectation that comments from the Commission could arise from the sidelines of today’s Eurogroup meeting.”

Domestically, for the pound, the first day of the Conservative conference produced some juicy headlines over the weekend. The UK former Foreign Minister Johnson called PM May’s Brexit Chequers plan “deranged” and the Foreign Secretary Hunt compared the EU to the USSR, warning Brussels that it cannot keep the UK as a prisoner. We can expect to see some further volatility when May is scheduled to deliver her conference speech on Wednesday.

Recent comments from the Brexit secretary:

  • We need political decisions, not more time.
  • We are not going to see the UK carved up.
  • Northern Ireland is outstanding issue.
  • We need an openness of spirit from the EU.
  • We will not extend Article 50.

UK Brexit Sec. Raab: It is crucial that any Irish backstop has an endpoint

UK Brexit Sec. Raab: EU tends to look at the N. Irish border issue as if from an ivory tower, it has to be workable

(In other politics driving sentiment, ongoing dramas in the White House could play out into theDemocrats favour with the midterms coming up around the appointment of Judge Brett Kavanaugh to the Supreme Court).

As far as data goes, we have seen the final read of UK Q2 GDP was downgraded to 1.2% YoY while the quarterly figure was confirmed at 0.4%. The UK manufacturing PMI for September was, however, better than expected, lifted by growth in output and new orders. On the other side of the pond, the manufacturing data arrived mixed. “Despite the decline in the September ISM reading, it remains close to a 14 year high. Manufacturing and factory employment will continue their substantial contribution to US economic growth in the fourth quarter,” Joseph Trevisani, Senior Analyst at FXStreet explained, who also commented earlier on the NAFTA optimism, (now USMACA optimism), whereby the US/China trade spat is likely to persist and a risk that investors will need to endure for the long haul – “While the new US, Mexico and Canada trade deal does not directly affect the American dispute with China it underlines how difficult it will be for Beijing’s to replace access to US markets. With China’s manufacturing sector headed toward contraction President Xi may be running out of options.”

US Pres. Trump: Too early to talk with China over trade

Coming up this week from the UK:

UK PMI services and composite surveys, Sep (Weds 3 Oct): “We expect the business activity index of the PMI services survey to remain a little below its long-run average (by around a point at 54.0). While the global services index did not rise as much as the manufacturing index during last year’s stronger growth outturns, neither has it fallen as much as the global economy slows. The same pattern can be seen in the UK data,” analysts at Nomura explained.  

IMM Net Speculators’ Positioning as at September 25, 2018:

“GBP shorts have been choppy in recent weeks. This no doubt reflects uncertainty regarding Brexit and the UK political backdrop. As it stands shorts dropped last week and GBP/USD is currently holding its ground in the spot market,” analysts at Rabobank highlighted.

GBP/USD levels

If bears can get below 1.3000, eyes will be on a breakdown to 1.2976/58 July low and August 3rd low that guard 1.2930, (the double top highs of 21st August and 27th August).   1.2902 is the 38.2% of the recent 1.3290 high to 14th Aug low at 1.3053. A break of the 1.2662 (Aug low level on the wide), then the bears can target 1.2589 as being the June 2017 low. 1.1985 is the H&S objective on the wide.