Another interesting day yesterday and markets traded a mixed bag. Oil prices failed to rally off the lows and that put pressure on energy stocks, while financial stocks also felt some selling. The combined negativity pulled indices lower with the pan European Stoxx 600 closing down .2%. The US session was also mixed, the Dow and S&P both traded lower, while the Nasdaq bucked the trend and pressed higher on the day. Overnight a stronger JPY saw selling in the Nikkei amidst some profit taking, although declines were limited to .1%, while outside of Japan most indices including Australia pressed higher.
Most of the currency action was in GBP yesterday and much of the market focus was on the Queen’s speech in the afternoon, we highlighted to you yesterday, Andy Haldane of the BOE was the interesting action to watch as he spoke earlier in the day. His comments sent GBP rallying almost 1%, as he suggested he would favour withdrawing some stimulus in the second half of the year. Haldane, who traditionally has been a more dovish MPC member, went directly against Governor Mark Carney’s address the previous day. The USD index was marginally lower on the day as it consolidates around 1 month highs, while overnight the NZD was an outperformer as less dovish comments from the RBNZ encouraged some buyers to step in for the kiwi.
The Euro has been playing second fiddle of late. With much more action in other areas, Euro crosses have tended to be a follower rather than a leader and after a dovish ECB and notably dovish comments from several ECB players, the expectations of tapering before year end has subsided somewhat. That does not mean the single currency has changed course however, and with much of the election risk that’s carried through the first half of the year now out of the way, attention will be back on the fundamental performance of the region.
Consumer confidence headlines today’s calendar, but PMI’s coming from across the region. As it stands it would now appear likely that both the BOE and Fed will raise rates this year, which should see some Euro weakness spread into these crosses. Needless to say that’s on the assumption the ECB remain cautious about winding down easing. EURUSD still needs to breakdown below 1.1100-1.1125 area which has provided support since mid-May, while 1.1210/50 area acts as loose resistance with sellers lined up within that range. EURGBP was pressing back to test highs around .8865 which is firm resistance but fell short and dropped from .8849. Support to the downside comes in around .8730 area, with firmer bids below at .8647.
Looking at both USD and GBP, we are in a whirlwind of central bank comments. And while Fed rhetoric appears to somewhat more aligned, the growing discord amongst the MPC is quite interesting. Mark Carney went out of his way to slap down any expectations of a BOE rate hike after last week’s MPC saw three members vote to raise the benchmark rate from record lows. One would have thought that was it, however the BOE’s chief economist Andy Haldane has a very different view and feels that a rate hike later in the year will be warranted. Given the pound is already trading with hair trigger volatility as a result of ongoing Brexit talks, the added uncertainty of BOE directions adds some fuel to an already volatile currency. But inside of all that noise we can at least turn to the charts. GBPUSD has been trending lower for the last month and any rallies higher have quickly run into sellers, downside was limited to 1.2640, however that support gave way with lows around 1.2590 now offering next support. 1.2810 and above 1.2915 are areas of interest for me where I’d expect to find some sellers.