Risk is well and truly back on, US stocks are almost 9% up from last week’s lows and all is well in the world. Ok the last part may not quite be true but you have to look at equites with some admiration at their resilience. The VIX (measure of market volatility) has dropped back below 20 in trade yesterday, from above 40 at the height of last week’s sell off. We pointed to a breakdown in recent correlations yesterday and while last week’s rationale for plunging markets was rising rates, global indices now appear comfortable with the idea, everything in front of me is green this morning across all major global indices. Sadly, in the currency world the same cannot be said for the USD. Despite US 10 year T’s holding above 2.9%, the USD saw fresh three year lows we’re posted overnight, the USD index dropping back below .8800 briefly. USDJPY traded below 105.50, EURUSD traded above 1.2550 and GBPUSD is back above 1.4100, and it is the same story across the board for the greenback. Overnight the RBA governor testified in front of parliament, but his comments were mainly unnoticed despite suggesting the next rate move would be higher, albeit with no requirement to change policy at the minute.
GBP was firmer throughout yesterday. The pound took advantage of USD weakness and cable pressed higher and faced with decent resistance towards .8930 in EURGBP gravity took control and pulled the rate back from range highs. Focus this morning will be on retail sales data. The high street has been a bastion of hope for the post Brexit UK, where debt fueled buying has helped keep figure buoyant even despite negative wage growth. Decembers figures missed their mark, early buying in November account for this miss as consumers were enticed by early sales however this morning figures are expected to show a pick up and may well help GBP extend its rally into the end of the week. A headline figure (ex fuel) of 2.4% or more should favour additional GBP buying. However, given the selloff in GBP over the last 30 minutes I would not be surprised to see a weaker figure. This will result in GBP selling bringing EURGBP back to the top of its range, and GBPUSD back towards 1.4000.
Aside from UK retail sales we have a lackluster morning or data. That will take focus to the afternoon session where we have some housing data and more important U. of Michigan consumer Sentiment data. None of this really seems to matter for the USD at the moment, and selling continues. To be honest all this USD selling is hard to justify, the Fed still seem very much on track to raise rates three times this year. Some argue that the rise in inflation will put pressure on GDP growth, in fact there have been some downward revisions of growth as a result but if the USD is the press higher we will need to see a more vocal FOMC, and next hike could well be a hawkish one and signal the bottom for USD. EURUSD broke topside on USD weakness and we saw resistance up to 1.2540 breached, the lack of follow through however would suggest that these levels won’t hold for long, technically we could be looking at a double top and next week’s FOMC minutes could well be the signal for USD rally.