GBPUSD after 'manic monday'

Who would have thought a weak Non-Farm Payrolls report could have caused so much market angst? For its part the Bank of Japan may have started the ball rolling with an interest rate hike into economic weakness and a declining core CPI, that could have caught some investors unawares. Then the Bank of England cut rates and gave GBPJPY longs another push lower. It may have been that the biggest Yen carry trades were in GBPJPY with UK rates at 5.25% previously, the same as the US$ but the Pound not experiencing central bank selling intervention, which USDJPY did. Investors could have sold GBPJPY directly as well as through the US$ legs. I.E. Selling USDJPY and then GBPUSD. If so, these sales could have easily slowed down GBPUSD's strength, allowing EURUSD to move higher quicker than GBPUSD, possibly unsettling EURGBP short positions.

To precis the above, it could be that GBPUSD has faced a wave of selling from various avenues as the market reacted to a rate hike from the BoJ and a rate cut from the BoE. This has led to GBPUSD trading below support at 1.2700 and now facing a band of support between 1.2670 and 1.2500.

On a fundamental basis the Fed is under pressure to cut rates from various market participants. JP Morgan is suggesting two 0.5% US rate cuts in September and November. So Sterling may have a 0.5% premium for investors by Christmas time. The US economy will also have to deal with uncertainty around the US November election. Although the UK government's honeymoon period may well be ending soon business does still seem to be in a positive mood regarding the future. UK GDP is released on August 15th so we can check this. Also, we note that the Olympics end on August 11th. They have been great watching, but at their close the market may well turn its attention to the struggles that France has as it tries to produce a government. Remembering that whichever French government is elected will have to cut the budget deficit by September/October in accordance with European Commission rules.

Could GBPUSD support levels remain intact and encourage further strength with the Fed now expected to cut rates in September? Lets see.