It was a positive start to kick off the week in markets as oil prices rallied from the seven month lows touched last week, while in Italy a deal to wind up two failed regional banks saw broader positivity around financial stocks across Europe, helping to raise broader risk appetite with major indices posting gains between .6% and .8%. Data was light but a better than expected German IFO release helped lift the Euro through much of the morning, before most of the gains were given back into the late evening session as US markets closed.
In the US, stocks took their lead from Europe and began the day trading higher although gave back most of that through the US session to close the day moderately higher to flat. The USD also underperformed through much of the day, the USD index touching off one week lows but the trade weighted index, heavily skewed by EUR managed to rally higher later in the session. Sentiment has since soured overnight and this morning most indices are showing red, with JPY outperforming the greenback as risk aversion appears to be the main play thus far.
The Euro had started the day under some pressure with early selling seen across crosses this morning, and looking at rising trend support for the last week in EURGBP and EURUSD, so a breakdown there could see a move back towards last week’s lows for the single currency. The rally from yesterday’s better than expected German IFO was short lived and EURUSD quickly found sellers above 1.1200 as we have been highlighting, while in EURGBP .8800 area was also defended.
Mario Draghi crosses the wires this morning discussing economic recovery and we’re keenly watching his comments on policy. Thus far he has highlighted the effectiveness of current policy which helped the Euro off lows this morning and gave EURUSD a rally from 1.1186 to 1.1218. He highlighted the deflationary pressures will be replaced by reflationary pressures but that a considerable degree of stimulus is still required to eventually get inflation back towards 2%.
Overall Euro is on the rise but thus far not exactly hearing anything new. EURUSD back above 1.1200 and into resistance around 1.1230/40 area with firmer resistance above 1.1275/1.1300 area where larger sellers are lines up. Downside 1.1185 offers support, but the real area of interest is the larger range and a breakdown below 1.1100 is needed should EURUSD really extend any decline. Otherwise we remain range bound. EURGBP has popped above .8800 and into resistance around .8820/25, while firmer resistance remains above towards .8870.
Draghi is not the only central bank speaker today and both Mark Carney and Janet Yellen will be due across the wires today. First up will be Carney, who is due to speak following the release of the UK’s Financial Stability report. Given current loose credit conditions in the UK, there have been some concerns around malinvesment and recent discussions in markets have been around the potential removal of some stimulus as provided by the BOE since last year’s Brexit vote. Any indication on a removal if any stimulus will no doubt be favorable for GBP pairs.
While looking towards the US, Janet Yellen speaks this evening on global economic issues as she visits London. Again we are looking for anything outside of the norms of recent Fed rhetoric, the USD index still sits around seven month lows despite two rate hikes in that time frame. Should Yellen remain hawkish on further rate increases this year, then there is certainly scope for the USD to trade higher. We also have plenty of data from the US in the form of consumer confidence and house price data. GBPUSD is looking towards 1.2800 area for real resistance, while 1.2760 area offers some intermediate resistance in the meantime, while 1.2645 are offers some support to moves lower.