Asian stocks extended gains to one-year highs, as oil consolidated gains. Nikkei and Topix added 0.26% and 0.65% respectively; Hang Seng gained 0.44% as Shanghai’s Composite rose into the close and registered a pleasing advance of 0.61%.

Despite a good trading session in Asia, the sentiment regarding FTSE stocks remains mixed. The 2% recovery in the barrel of WTI and the stabilisation in copper prices at two-month lows keep the UK’s mining and energy stocks well bid in London. The appreciation in the pound is, however, disquieting and continues pressuring the FTSE on the downside.

The strong UK manufacturing and services PMI hint at the possibility of a positive surprise in the UK’s July production data due on Wednesday.

The improvement in the post-Brexit sentiment and the recovery in the economic activity suggest softer Bank of England (BoE) action in the coming months, hence a further appreciation in the pound is on the menu after it has been aggressively sold-off during the two months following the Brexit referendum (June 23rd). Combined with a softer US dollar, the upside potential in GBPUSD is solid, yet should be supported by the macroeconomic data.

The daily bias in the pound remains positive. If Wednesday’s production data proves satisfactory, the GBPUSD would have no further barriers on its way to 1.3500 (psychological resistance) and 1.3640 (major 38.2% retracement on post-Brexit sell-off, mid-term resistance to the post-Brexit bearish trend).

Intraday support is seen at 1.3300 (minor 23.6% retracement on Aug 29th – Sep 2nd advance) and 1.3255 (major 38.2% retrace)

AUD gains post-RBA

As expected, the Reserve Bank of Australia (RBA) maintained the status quo at Governor Stevens’ final meeting. Despite inaction, the RBA warned that a stronger Aussie could complicate the rebalancing and kept the door open for more easing if needed. The Aussie lead gains against the US dollar in Sydney (+0.57%) and the AUDUSD recovered half of losses recorded on the period from August 16th to August 31st. Combined with the fading expectations of a September Fed rate hike, the rate differential should encourage fresh carry inflows into the Aussie and push the AUDUSD toward the 0.7700/0.7750 area.

Written by Ipek Ozkardekaya from London Capital Group