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Currency Outlook: US Manufacturing Strong, UK Uncertain



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In this week's forex highlight, we see some positive performance from the US manufacturing sector. Conversely, European countries have experienced setbacks accompanied by the growing geopolitical instability in Ukraine. UK manufacturing also looks uncertain given the weakening manufacturing performance data.

Today, we see that the UK Factory Index fell to a 14 month low. Markit economics said its factory gauge dropped to 52.5, the lowest since June 2013.These problems are further compounded by geopolitical risks and a weaker demand for the Euro. After the annoucement of this news, prices for the GBP/USD fell sharply below the 1.6613 and 1.66058 support levels. However, strong demand for the GBP drove prices above those two levels. Given the daily downward channel of the currency pair and bearish news, the trend remains bearish. The bears weren't able to gain much monentum so we will remain flat for the week until we see more momentum of a downward movement.

Likewise in the European sector, manufacturing growth has slowed down due to the increasing tensions in Ukraine. Markit's final August manufacturing Purchasing Manager's Index came in at 50.7 , the lowest in a year. The EUR/USD outlook remains bearish as daily price continue in a downward channel supported by fundamentals. On the H4 chart, we see a slight pull back as prices have yet to push through the 1.31137 support. We will remain flat/bearish on our outlook for this currency pair.

The outlook for the USD this generally bullish. Given the weakening of the Euro, the USD is performing very well. The ISM Manufacturing PMI (Purchasing Manager's Index). The index rose to 57.1 points last month. The bullish dollar is supported by fundamentals as there is a healthy optimism towards the manufactuing sector. From a technical perspective, both the EUR/USD and the GBP/USD are in a daily downward channel, reflecting the strength of the USD.

The outlook on the Japanese Yen is generally bullish. This view is supported by both fundamental and technical analysis. Japanese manufacturing business conditions improved during August with both output and new orders rising fastest since April. From a technical perspective, the EUR/JPY is in a daily downward channel. It is finding support around the 136.471 level, if we continue to see strong fundamentals from the Japanese fundamentals and a weakening of the European manfacturing sector, we should a price break through the above support level and retest the 135.940 lows made in August.

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