The positive start to yesterday’s session didn’t last too long as geopolitical tension rose with news North Korea was moving missiles to the coast. The threat of war continues to hang over markets and while we certainly hope the threat is not realised, there is no doubting the extremely volatile situation we are in and markets are reflecting this nervousness.
In Europe, stocks turned lower through mid-morning, led by financial stocks initially as doubts creep in ahead of tomorrow’s ECB meeting. US markets returned from holiday with one of their worst performances in several weeks while the USD also has a tough day following some weaker data prints, which saw the USD index drop back towards 2.5 year lows. It was a day for the risk adverse and JPY, CHF, gold, and other safe havens found themselves in demand. That tone has continued overnight and we have seen a weaker open this morning. It was a mixed day for the Euro, higher against the weaker USD but losing ground against GBP which has been one of the strongest performers this week.
There has not been much joy for the USD since last week’s NFP print. The greenback initially shook off the weaker labour market data but yesterday’s bout of substandard releases knocked the greenback, which was further dampened by rather downbeat Fed rhetoric from Kaplan and Kashkari. Durable goods orders dropped by -6.8% vs the -2.9% dip expected and while factory orders were as expected, it was not enough to raise the dollar’s spirits. It’s not just weak data that’s impacting the USD, the reality of Hurricane Harvey is beginning to settle in will almost certainly have an impact on output for the US. Several Fed speakers didn’t help matters either. Kashkari suggested the US has more labour market slack than most appreciate, while also saying the Feds rate hikes could be doing the real harm to the economy. Today we’ll be looking at services data in the form of ISM non-manufacturing figures and the Markit PMI. If these prove to be weaker than expected then recent USD index lows could well be targeted.
Draft proposals suggest the UK will look to end the free movement of people immediately after Brexit, reducing the rights to lower skilled immigrant workers, while also reducing the rights of skilled EU workers, almost ending the rights of EU citizens to live in the UK. These are early drafts and have no ministerial approval and until most of the Brexit chat has been hot air, both sides posturing for control over an unwinnable situation. GBP not bothered however, we saw EURGBP drop back below .9150 late yesterday while GBPUSD rallied above 1.3000. EURGBP really needs a break below .9020 area if we are to see a real run to the downside, Draghi tomorrow likely holds the key to this move. Any moves higher today will likely stop ahead of .9215/25 resistance. GBPUSD now finds itself above 1.3000, sellers around 1.3055/60 area offer first resistance to moves higher while 1.2955 offers firm support.