Yesterday was quiet in terms of news flow and data and despite it also representing the beginning of Brexit talks, news from negotiations was light. Major currency pairs remained in tight ranges, there was some movement in GBP pairs but little to get excited about in a currency that will no doubt be exposed to volatility within its ranges, while the USD took the day to rally higher, supported by some hawkish Fed comments from Bullard.
Broadly speaking it was a day for risk appetite. European stocks started on a firm footing following confirmation of Macron’s easy victory over the weekend and record highs were posted early in the US session for both the S&P and the Dow. That firm sentiment continued overnight, as the Nikkei probed towards its highest levels in two years, as USDJPY pressed just short of key resistance ahead of 112.00. It was a day for the dollar however, with EURUSD down over .5% from Fridays close and running into support around 1.1140 area, this zone has held moves lower for the last 4 weeks and 1.1130 would need to break to see progression back towards 1.1106.
This morning GBP has found itself under pressures following comments from the BOE’s Mark Carney, who spoke at a Mansion House breakfast this earlier. The key notes suggest Carney does not see now as being appropriate for raising interest rates, despite the closer vote from the BOE last week. Carney see’s diminishing upside inflationary pressures, likely as we have seen GBP stabilise in recent months, while he also cites ongoing Brexit negotiations as rationale for holding on rates for now. Carney also acknowledged that the weaker pound and rising inflation had led to weaker real income growth, in effect people are poorer, thus now is not the time to raise interest rates. GBPUSD dropped some 60 pips almost immediately, GBPUSD should find some support towards 1.2633/40 area, while a break below there will favour progression lower, down to 1.2500 area. 1.2800 area offers sellers an opportunity to get back into the market but for now, unless we see some SUD weakness creep in, looks set to cap and rallies higher.
EURGBP stayed in a 35 pip range for much of yesterday, while sellers look to take advantage of any move above .8800 up to .8850, as long as we hold below there downside is favorable. I will be keeping an eye on the .8730 level, which offers trend support from the rally from .8385 in early May, that should see some move lower towards .8650, which will be key to should we want to see increased downside once again.
Data remains light today but focus in the evening will be on Fed speak. There are several FED members due across the wires this evening and it will be interesting now to see how hawkish they remain on policy and the US economy. The USD index appears to have bottomed out for now and the greenback is regaining some traction across various crosses with GBP and Euro under recent pressure, while JPY has also been feeling some heat from USD demand. EURUSD will need to break below 1.1100 to confirm further downside acceleration which should see pr4essure towards 1.1000 are quite quickly. To the upside 1.1200/30 area should offer resistance to rallies.