The biggest headline in yesterday’s business news (outside of the royal baby) was the rally in USD and the constant press towards 3% yields in US treasuries. Many are suggesting a move above 3% would create a shift in the market and investing environment but there are plenty out there who don’t believe above 3% is sustainable at this point in time. That all remains to be seen but the USD has been the benefactor, the USD index trading to the highest level since Jan 12th in overnight trade. EURUSD broke back below a rising trend channel that has been in place since April 2017, we’ve also seen it drop back below the 100 day moving average (ema) and technically this would signal that there is yet more to go in the EURUSD drop. It’s not just the euro under pressure from the rampaging USD, USDJPY traded up towards 11 week highs, while GBPUSD also continued to break down under pressure, holding back below 1.4000 this morning with 1.3900 in sight. The antipodean’s have also been facing heavy selling vs the greenback, AUDUSD and NZDUSD down over 3% and almost 4% respectively.
Stronger than expected composite and services PMI data from across the Eurozone region couldn’t support the euro in trade yesterday as the weight of a stronger USD and general sentiment ahead of Thursday’s ECB pressed the single currency lower. German IFO data is the pick of the fundamental data today and expected deterioration will not help the euro’s sentiment ahead of Thursday. The ECB’s Coeure spoke yesterday but he wasn’t giving away too much and the headlines stayed relatively quiet as he failed to discuss monetary policy. Outside of that we’ll have to wait until Thursday before we get any more gritty detail from the Eurozone. EURUSD will be looking to trade to first support towards 1.2154, below there we are looking at 1.1.2088/95 area for support. EURGBP caught in a narrow range yesterday, .8744 up to .8780. That top end resistance has been an area for sellers before and likely to remain that way today.
There is plenty on the calendar in terms of GBP risk in the coming days, some fundamental, some from the BoE and some Brexit related as a (non binding vote) in the House on Thursday could create some volatility. We have no less than 5 BOE speakers due across the wires in the next two days and while none of them are scheduled to speak on policy directly, any insights into BoE thinking following Mark Carney’s comments last week will almost certainly impact the pound. On Thursday MPs will have a chance to debate and vote on whether the UK should form a customs union, as mentioned this is non-binding and non-legislative and for the most part won’t change a single thing. However, it will convey sentiment ahead of actual legislation which is due to be discussed in coming months.
Home sales data and consumer confidence tops the US docket this afternoon and will be unlikely to cause any great shock across USD pairs. Our main point will be on whether the USD can sustain its technical break higher, and what this means for EUR, GBP, JPY and many others. GBPUSD key support not in place until we get back towards 1.3700 area. While any rally higher will likely run into sellers towards 1.4030.