It was a rather dull day in markets yesterday, there was nothing major on the economic calendar and there was little in the way of headline grabbing news. Broadly speaking, markets were erring towards risk aversion, in Europe major bourses traded lower while at the same time, the Euro found itself under some selling pressures. Mario Draghi was across the wires and responded to US claims of German currency manipulation. In France, Marian Le Pen also began her campaign trail for French elections, the anti globalisation stance of her rhetoric is not exactly market supportive. There are also pending elections in Germany and with Europe’s core leaderships facing pressure from the right, there is certainly the case for increased uncertainty.
The USD however was happy to take some demand heat, after a strong headline but weaker wage growth figure on Friday the USD sold off, however markets appear to have come around and without major catalyst, the USD index finds itself up over 1% on the week already, although US stocks were less impressive with a blanket of red across markets on the close. GBP also found itself wanting, again little was in the way of major drivers but sterling sentiment has been generally weak since last Thursday and Brexit concerns continue to play their part. Given the broader risk off theme, the JPY was a dominant performer across markets throughout yesterday, helping press the Nikkei to two week lows overnight. There is very little in the way of major data once again today, the only premium piece of data came overnight with the RBA rate decision, the Australian central bank very much meeting market expectations with no change to their 1.5% interest rate, although AUD has found some sellers.
The USD rally is lacking any major driver for us here, there have been several notable hawkish comments from some Fed members which has likely helped greenback demand, with Harker also suggesting a March rate hike was still on the table and he supported three hikes over the year but economic data would be the determinant. Politically, US President Donald Trump continues to try and push back against a judge that overruled his immigration ban, and while he continues with his headline grabbing tweets and delivering on what many thought were exaggerated election promises, the one area markets really care about has been neglected. We remain none the wiser on his Fiscal plans, how exactly he will go about delivering his promises from the vague information we have and for those of us in currency, his intentions for the USD. Thus far today however USD is surging, EURUSD dropped lower and broke below 1.0730/1.0680 support we highlighted yesterday, progression now eyes the 50% retracement of the Jan lows to Feb highs which is towards 1.0585. We have also seen GBPUSD break back below 1.2400. For me, this is short term bearish for GBPUSD and likely to see a drop towards 1.2200 area. 1.2485 area should see hold any rally higher for now.
Very little coming our way in terms of UK data until the end of the week and it looks unlikely that we’ll see a major shift in the negative sentiment around the pound for now. The third tier data thus far this week has not been great but the only potential for a shift before Friday’s productions and trade balance figures will be an appearance from the BOE’s Deputy Governor who speaks tomorrow in Birmingham. It’s unlikely we’ll hear any major update from last week’s surge of BOE policy data, and growth and inflation figures, but we can dream. Similar story in Euroland, political concerns weighing more on the single currency this week and unlikely to go away any time soon, while Mario Draghi also rebutted Trumps adviser’s accusations that Germany was a major currency manipulator, with further comments today from ECB members suggesting the Euro is currently at a fair value. EURGBP had a roller coaster day yesterday, covering much of last week’s range, .8580 needs a break on the downside while .8643 needs to break if we are to go higher.