We found ourselves in the middle of another mixed day in markets on Friday. In equities it was a flat to slightly positive day through the European session while in the states, some poor data and concerns on trade wars meant that selling pushed markets to close lower on the week, albeit still up off the week’s lows. The big headline grabber was the weaker Non-Farm Payrolls figure, new jobs added to the US economy came in at only 103k vs the 185k expected and down from 326k the previous month. A bad figure no doubt, but the three month average remains strong and while the USD did face some selling, it was by no means a rout. The only solid bit of information from the labour market report was that wage growth came in as expected, likely the greenback’s saving grace. GBP had the best of reactions to the weaker NFP print, GBPUSD rallying from 1.3980 to back above 1.4100 this morning.
Sterling has shown impressive resilience as it shrugged off a week of PMI misses, the stronger pound now looking at pushing EURGBP back to lows towards .8665/70 area (GBPEUR highs approx 1.1535). However should the BOE fail to hike rates then sterling is vulnerable to selling and considering expectations for Q1 GDP have deteriorated and Brexit talks continue to rumble on – will the BOE hike in the face of such uncertainty? Especially with Inflation dropping back towards target.
Trump continues to take a tough stance on trade talks, suggesting more tariffs on China, however over the weekend escalating tensions around Syria have resulted in escalating words between Trump and Russia so trade wars have taken a back seat for now. Asian stocks opened the week in positive territory, the USD is unchanged, GBP slightly stronger and the euro neutral. Overnight news suggesting China may look to depreciate the yuan once more has sent some shockwaves across markets, AUD and NZD dropping on the news in the last few hours.
There’s not much in terms of major data today. German trade data already released was weaker than expected, the headline for the euro today likely two ECB speakers due across the wires in the afternoon with Contancio speaking in Brussels and Praet in Frankfurt. Markets will be looking for any indication on policy and with ECB data appearing to top out, we’ll be looking for further guidance on the ECB’s appetite for additional easing, although we may have to wait until Thursday and the release of the ECB minutes on the March meeting for that. There’s very little in the way of major data this week, Draghi speaks on Wednesday, while German CPI on Friday will get some attention. EURUSD has failed to break below 1.2220 highlighted last week, its back within range, back above the 100 day moving average (EMA) and back on the upwards sloping trend line from April last year, meaning a bounce as high as 1.2415/20 is possible.
There’s not much to sink our teeth into today from the UK or US either, so headlines and technical levels will likely dictate flow. EURGBP will find very firm support towards .8660/70 area, and a bounce from there is very likely. Resistance to moves higher should come into play around .8780/90 area once more. GBPUSD has already topped above last week’s highs, progress higher may well be limited however and 1.4240/45 will be a tough level to break above. We may need to wait until Wednesday to see real GBP movement, with manufacturing data, Industrial production data, as well as trade balance data all due from the UK.