The month and quarter ended with the dollar stronger as the Fed looks to continue on its path to hike rates, the euro was weaker as concerns about the Italian budget weighed, while GBP continues to ebb and flow on Brexit related news. While the greenback finished the month in demand it still remains some way off its August highs and despite the Fed’s tightening path remaining resolute, the dollar could still experience some downside should US President Trump continue to weigh in on rate hikes. His comments last week, criticising the Fed’s rate hikes went unnoticed. Another area of concern is the growing weight of trade wars and tariffs, the big question is are these enough to cause the Fed to change tact? Thus far the easy answer is no, but we’re a long way from the end of this saga.
There were several ECB speakers with comments in the press over the weekend. Couere and Rehn both said the Eurozone interest rates would remain at current level at least until the end of summer 2019. Now, for me the “at least” part is interesting, we’ve heard it said from individual ECB members but I’d be interested to see if that will be the new rhetoric, and if that’s the case it would be a dovish shift in language from the central bank. There are still plenty of larger risks and the region will find itself exposed to a no deal Brexit, while there are already some signs of slowing in the pace of broader growth. Manufacturing PMI’s from Europe looked poor this morning, Italy is on the verge of contraction in manufacturing while France and Germany are only just slightly healthier. Italy is certainly beginning to cause larger problems across the Eurozone, rumours this morning suggesting European leaders would reject Italy’s recent budget proposals, concerns the free spending nature of the budget would impact the nation’s ability to service its debts well founded.
Brexit means Brexit. Unless it doesn’t. And then of course we have everything in between and Boris Johnson’s recent fantasy Brexit proposals. The way things are going it’s hard to see anything getting sorted, again from my perspective it’s not May versus the EU, it’s May versus her own government first and the EU are just waiting to be tagged in. All the major issues remain to be sorted, the Irish border still being the most sticky of topics but with her leadership under constant threat May’s focus is likely spread quite thin.
Looking at today Eurozone unemployment and UK Manufacturing headlines the morning data, while this afternoon in the US session ISM manufacturing and employment data crosses the wires.
EURUSD looking at support back down towards 1.1560/70 area, with upside resistance is coming in around the 1.1645/50 area. EURGBP finds support towards .8872 all the way down to .8848 area. .8920/30 provides some light sellers, while a push towards .9000 area will almost certainly see larger euro sellers emerge.
GBPUSD just holding above 1.3000, 1.2990 is the 50 day EMA and that line holding any move lower for now. 1.3170 should cap any moves higher in the shorter term.