Major Currency Pairs Analysis: GBP At Strongest Level In Two Months

Euro-area factory output expanded at a faster pace than initially estimated in August, driven by resurgence in Italy and Spain, as the 17-nation currency bloc’s recovery began to build momentum. An index based on a survey of purchasing managers in the manufacturing industry increased to a 26-month high of 51.4 from 50.3 in July, London-based Markit Economics said today. That’s above an estimate of 51.3 published on Aug. 22. A reading above 50 indicates growth. The euro was lower against the dollar after the data were released, trading at $1.3180.

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GBP/USD
The pound in the strongest level in two months after an index of U.K. manufacturing expanded to the most since February 2011, adding to signs the economy is recovering. Gilts fell, pushing 10-year yields to the highest in more than two years, as the gauge, based on a survey of purchasing managers, damped demand for the safety of government debt. Sterling rose for the first time in five days against the dollar before the Bank of England meets this week. The central bank will keep its asset-purchase program and benchmark interest rate unchanged, menwhile the pound little changed.

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USD/JPY
The yen touched a one-month low as signs of economic improvement across the globe damped demand for refuge assets, while data from Japan signaled progress in the central bank’s easing efforts. Japan’s currency slid versus all its 16 major peers after data showed the nation’s monetary base expanded in August, the most in 40 years, as the Bank of Japan policy makers prepare to meet this week. The dollar touched a six-week high against a basket of its main counterparts ahead of a U.S. report that may signal growth in factory output, fanning speculation the Fed will start to taper its quantitative-easing program as early as this month.

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USD/CAD
The Canadian dollar did almost nothing during the session on Monday as one would expect. After all, this pair is more heavily traded during North American trading hours, and both the Americans and Canadians were celebrating Labor Day. Because of this, the pair would’ve been thin most of the session, if not the entire Forex trading day. However, we are still looking rather supported at the 1.05 handle, and a move above the 1.06 handle has it buying market hand over fist. As far as selling is concerned, we think there is far too much support all the way down the 1.04 in order to think about it. The economy grew more than forecasted in the second ,even after shrinking in June, which is the most since 2009.

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