Aug 2nd 2016: UK Manufacturing Shrinks

• This morning, the British pound remains under pressure following worse than expected UK manufacturing PMI yesterday. It is one of the first real post-Brexit data points and the initial signs are not good. The pound has continued to underperform the euro and made further losses against the yen. It’s notable that these losses have been controlled, possibly due to traders holding off on larger positions on the pound until the Bank of England meeting on Thursday.

• Elsewhere, the US dollar is pulling back after US ISM manufacturing also dropped more than expected.

• Meanwhile, the yen and yen pairs are on the back foot.

• On a positive front, the Australian and New Zealand dollar are on the rise after the RBA kept rates on hold.

• Coming up today, we have UK construction PMI at 09.30.
• Following this, we get US core PCE price index and personal spending at 13.30.

Trade Idea: 

• Markets appear to be pricing in at least one rate cut for the British pound, putting pressure on the GBP/JPY. The question is – where does the BOE go from here? Given recent data points, it could well be lower.

• A good way to play this is a LOWER trade predicting that the GBP/JPY will close below 134 in 14 days for a potential return of 123%

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