Friday’s end of month/quarter saw some squaring through the day but for much of the session there was little to get excited about. GBP was probably the best performer on the day, those expecting a major negative move from a fallout from Article 50 were left sadly disappointed and GBP had little to do but resume its uptrend in the form of a relief rally. That is not to say GBP is out of the woods by any means, this will be a long drawn out process and the pound will continue to be susceptible to any hurdles to negotiations or slowdown in the UK economy as a result of uncertainty.
The USD traded flat on the day through much of Friday, there was little in the way of major moves and with a host of Fed speakers remaining hawkish and one Fed statement last week, the USD index closed the week 1.8% higher. The Euro was one of the weaker performer across the G7 currencies last week, highs on Monday were quickly sold before weaker inflation data and a leaked report citing concerns over the markets interpretations of the last ECB meeting statement sent Euro lower and a flurry of selling after the European close dropped EURGBP below .8500, while EURUSD held firm below 1.0700. Overnight Japanese stocks traded slightly higher following an upbeat BOJ survey, while the JPY was marginally weaker as a result.
We start the week/month with the usual flurry of monthly data to assess what directions markets will be looking to go. The US will be all about the economic data as long as Fed speakers continues with their current rhetoric, should US data prove supportive then the greenback will have scope to continue higher. Today we have ISM manufacturing data and several Fed speakers, factory orders and durable goods orders headline the US session tomorrow, while Wednesday we have services PMI’s and the minutes from the march FOMC meeting, while on Friday the NFP release will headline the end of the week.
Plenty of major market moving events in here for USD, but looking at specific pairs we see EURUSD still in the larger range between 1.0500/30 area up to 1.0830/1.0900. Current mid-range support around 1.0655 is holding the pair for now, a break below there opens up potential back to major support at the low end of the range. GBPUSD see’s intraday support around 1.2425 area, this is not so firm but as long as we hold above 1.2400 on a daily basis upside potential remains.
There is plenty of data coming from the Eurozone this week as well and today is no different. Markets appear somewhat confused, they appear keen to focus on when tapering may occur, they want to know when the ECB will intend on scaling back their easing program, while the ECB want to reassure market confidence suggesting that data (most notably inflation) is overstating the health of the region, and that they will look to remain accommodative until the current QE program runs its course into December this year. Talk of “tapering” would therefore require the ECB to scale back their current monthly purchases (€60bln) before December’s end and that would obviously be positive for the Euro. Any extension of asset purchases beyond December would be just that, and extension of easing and should be negative for Euro but with market so focused on “tapering” and extension, even at lower levels, may initially be seen as tapering.
We remain cautious of this view and for now we expect no such “tapering” to occur, as such we see Euro rallies as an opportunity to sell the single currency. ECB’s Couere crosses the wires today, while President Mario Draghi is due to speak tomorrow and Wednesday and the ECB minutes are due Thursday. We’ll be keeping an eye closely on the speakers and data to get a feel for the next direction in Euro pairs. As it stands EURGBP finds support towards .8460/80 while resistance topside should find sellers towards .8600/.8620.