Another interesting day in markets as the Euro extended its surge higher, while GBP also managed to benefit from some hawkish commentary from Mark Carney. Stocks in Europe traded more or less flat on the day, while in the US a broad based rally saw major indices close higher. The USD continued its decline with the dollar facing selling pressures from almost every angle at this point. The USD index now down at levels not seen since October 3rd last year and at this point there appears to be little to help back of the greenback. The rally in risk appetite overnight also fed through to the Asian session, with stocks trading higher. The usually risk averse JPY raced selling across the board and currently trades back above 112.50 at one month highs.
I spoke yesterday that Euro was approaching overbought conditions and the case remains the same. We did see ECB officials look to scale back on Draghi’s initial comments suggesting the markets have misinterpreted him which suddenly saw Euro pairs drop to .75%, but as Draghi did not address the issue himself at a round table discussion with other central bankers, markets took it as a green light to start buying the euro again.
EURUSD rallied some 1.25% from yesterday’s lows, yet news flow from the region has been muted outside of focus on Draghi commentary. EURUSD is at an overbought condition across all major time frames out as far as a week, yet a huge proportion of the speculative market remains short. We’ve rallied into key resistance here, since the beginning of 2015 1.1400 to 1.1600 has always seen EURUSD reverse lower and as it stands we certainly feel EURUSD will face selling pressures. Again this offers excellent levels to sell Euro to buy USD as we sit around some of the highest levels in 2.5 years. Confidence data and German CPI figures headline today’s calendar for the region, with a slight decline expected in the annual figure to 1.4% from 1.5% which may see some pressure on Euro.
GBP got a huge boost yesterday, as Mark Carney suggested stimulus may be removed should slack in the economy diminish. Appearing to go back against what he said last week, the BOE head has been providing markets with plenty of mixed signals of late and yesterday’s comments were more in tune with comments last Wednesday from the BOE’s chief economist Andy Haldane. Carney was speaking at the round table discussion with other central bank heads and his about-turn was by far the most interesting thing to come from the discussion, GBPUSD has now rallied 3.24% from last week’s lows and 1.3006 should offer first resistance, but sellers have order from 1.3000 right up to 1.3050 area. 1.2930 offers support to the downside for now. EURGBP was one of the few crosses where the single currency struggled yesterday, the stronger pound driving the pair back down from highs at .8880, to lows at .8771. This provides the range and support resistance for now as we wait and see how this pair plays out.