The euro traded slightly firmer through much of yesterday and this morning it continues a slow press higher, not much has changed in the fundamental or economic landscape for the single currency, it would just appear some euro buying vs the USD below 1.1800 pushed it higher, likewise euro demand on the rebuke of the customs unions story saw the euro rally higher vs GBP, and that broader demand just helping the single higher across the board. We had several ECB speakers out during the week but their comments made no headlines and as such the euro feels a little directionless at the moment, being driven by its counter currency, even overnight comments from the ECB’s Nowotny, a vocal hawk, stating the ECB should not wait too long before raising interest rates. GBP had a roller coaster day, the early rally yesterday quickly eroded and pound gave back any gains from the apparently misinformed newspaper article stating the UK would be agreeing to a customs union, the headline grabbing misinformation stories just continue to roll out from all side of this ongoing Brexit saga, sadly this continues to leave GBP exposed as well.
It’s not just Brexit where we are seeing false statements. The USD continues a slow grind higher despite US treasury yields dropping back from levels not seen since 2011, however the main even was the US/China trade talks. Trump started the verbal battle saying pre-meeting that he doubted their talk would be successful (he also took pot shots at Europe and Canada on trade issues). The next bout of information on trade talks was some emerging details that China would agree to reduce the US/China trade deficit by €200 bln. This has since been refuted by the Chinese Foreign Ministry and the USD has faced some early selling this morning.
There really is so much going on politically at the moment that it feels that markets are unwilling to conform to any major directional bias. The global growth story remains a positive one, but there is some indications of slowing in Europe and the UK, the US and elsewhere. Trump and the US are at the centre of much of this, and while the administration in the US is trying to deliver on election promises they are currently to focal point for NAFTA talks, Chinese trade talks, EU trade takes, NATO responsibilities, Israel/Iran frictions. It’s clearly not just the US and Trump, as the UK and EU continue to trade blows (on trade), it still really feels like there is no solution in sight. Broader markets by their nature will likely grind higher, oil prices continue to surge on the oversupply concerns and Iranian frictions, equities while hardly soaring have failed to accelerate selling and a slow grind back to recent highs can’t be ruled out.
1.1765 now offers support for EURUSD, while 1.1850 provides light resistance to moves higher but it’s really all about that 1.2000 area and right now EURUSD looks like it has little interest in going back there, while short term option vols would suggest the market is positioning itself for another move lower in the EUR/USD.
GBPUSD is in a tight range, 1.3500 is the big round number but spike as low as 1.3450/56 area mark low support while highs have been limited to the 1.3600 area. Not much to say really here unless we break out of that range otherwise we’ll just be up and down in less than a 1% cycle.
EURGBP was interesting yesterday, over the last several months we’ve seen support from .8710 to .8730 area provide a bounce, yesterday was no different and now we find ourselves looking back at .8780/90 area, with moves high finding resistance around .8830, the real danger area is a press above .8850 or so, that’s when we’ll remove our downside bias in EURGBP.