Risk off sentiment prevails after Trump’s healthcare repeal bill was pulled from the house vote as support could not be found. This represents a huge failure for the Trump administration and markets are reflecting these concerns with selling. European indices closed lower on Friday as investors were kept on edge with the “will they, won’t they” jig but by the time the US session ended, stocks had put in their worst weekly performance since Trump was elected. The USD has also been struggling, the USD index is down over 3% from its March highs now back to levels seen as the Presidential election was in the final run in. Fed officials are now sounding less hawkish so the greenback needs to get some data releases on side to regain some strength. Trump has said he will now move on to his Tax plans, this might help support markets a little more but for us this week, Fed speakers and key data points are likely more important. Fed speakers have thus far continued to support the Fed line, that there is still a chance of another 2/3 rate hikes this year, some want more even but we are not seeing a unified stance from all members, some now happy to see how the recent hikes bed in. There are several voting and non-voting Fed speakers across the wires today, but Janet Yellen is due tomorrow, along with Trade balance and Consumer confidence data and the USD may well struggle for any meaningful traction until then.
GBP has outperformed despite the UK governments plan to announce Article 50 on Wednesday, this in itself is causing some concern in markets but it will provide some colour to a market anxious to know what shape this divorce process will take. GBPUSD now up almost 4% from March lows and looking to trade towards 1.2600, while EURGBP has dropped almost 2% from high towards .8800 area, and we traded back towards .8600 support last week. We still see these GBP rallies as an opportunity to sell sterling, certainly around the higher levels seen since last October and any progress above 1.2550a area provides this, a move towards 1.2700 is not off the cards but we are still very cautious about sentiment around GBP and the slow grind higher over the last two weeks can be quickly reversed should markets feel negotiations are going against the UK.
Amidst plenty of uncertainty it is no surprise to see that the JPY was one of the best performers of the week, the safe haven has advanced almost 5% against the US since March 10th. It was a similar story overnight, markets opened weaker and the JPY rallied, the USD faced selling from the open and since 7.00am GBP has been in rally mode. The Euro has also been in favour as a safe haven over the last few years, and a combination of firmer data and safe haven demand has also helped EURUSD recover, now up over 3.5% from its March lows, we broke above the key 1.0830 resistance that held EURUSD all last week but for me, I see plenty of sellers and orders towards 1.0880/1.0900 area, should we manage to break above there and form a base above 1.0900, only then will I be looking at a potential move back into the higher range above 1.1000 towards 1.1450 area. German IFO data released this morning continues the trend of Improving Eurozone sentiment, however we’d need to see the ECB really shift gears for Euro to get its restrictors removed.