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Retail traders are very bullish on the GBPUSD as UK GDP rises.

The forex moves have been more risk-on today at the start of the London session. The risk remains that US politics and central bankers could undo any positivity if they fail to convince the markets that all is functioning well.

Market Brief

In the second quarter of 2021, the British economy grew by 5.5% over the previous quarter, exceeding initial estimates of 4.8% growth. Following the easing of Coronavirus restrictions, household consumption rose the most and in today's house prices data for the United Kingdom, Nationwide HPI rose by 10% year-on-year in September. On a monthly basis, the index was up 0.1%. The average house price in the country now stands at $248,742 in September, a slight drop from $248,857 in August.

Robert Gardner, Nationwide's Chief Economist, said: “Annual house price growth remained in double digits for the fifth month in a row in September, though there was a modest slowdown to 10.0%, from 11.0% in August. House prices rose by 0.1% month-on-month, after taking account of seasonal effects. As a result, house prices remain c13% higher than before the pandemic began in early 2020.”

The ActivTrades sentiment indicator has shifted to the extreme bullish reading for the GBPUSD which means that I start to look for contrarian trades.

The break of 1.3500 yesterday was significant and whilst the price action is under that level I will be looking for old support to become resistant. 1.3450 looks like it may hold prices down today but if there is a sudden move lower in the US dollar the previous support of 1.3590-1.3600 will be a hard nut to crack.

There seems to be a risk-on trend in the forex heatmap, so the equities could reverse during the London session. Chuck Schumer, the United States Senate Majority Leader, announced that lawmakers reached an agreement on a two-month stopgap funding bill. This might also contribute to a turnaround in the markets.

"We have an agreement on the CR, the continuing resolution to prevent a government shutdown, and we should be voting on that tomorrow morning," said Schumer.

A government shutdown is expected if lawmakers do not agree on funding by today (September 30), which is the end of the US fiscal year.

The Australian dollar has caught a bid along with the other commodity pairs following on from good data in the Asia-Pac session. Australian building approvals and private credit rose, and Chinese Caixin Manufacturing PMI moved back to 50.0, showing the sector is expanding again. A softer drop in output and a new upturn in total sales contributed to the improved headline reading. Additionally, purchasing activity began to grow, while confidence for the upcoming year also increased. There were still reports of material shortages and delayed supply chains persisted.

For me, the rest of the day will rest on the movement of the US dollar, the benchmark treasury yields, and the outcome of the political grandstanding. The DXY is at a key level of resistance, so a break higher and a test of that level as support will lead to bigger moves in the greenback. Similarly, if this $94.50 holds as resistance we could be back to $90.00, and the pattern drawn with the yellow trendlines would play out as the expanding triangle with 5 internal waves. Today is the last day of the fiscal year and the US economy has received over $7.5trln which is about $1trln more than the previous year. If there is a government shutdown these flows will diminish, we could have a debt default and from there US10Y yields could collapse. It may be best to sit today out and wait for the politics and central bankers to conclude their business.