It was a quiet session through much of yesterday and most of the action happened in the early morning following news of the North Korea missile launch, there were some data releases in the European session to get our teeth into while the US was on holiday for July 4th making for a very quiet afternoon. The day started somewhat risk adverse, again geopolitical concerns were the primary cause of this. European stocks traded marginally lower, with the Stoxx 600, the FTSE, CAC and DAX all posting moderate declines.
In currency markets GBP faced some selling as construction PMI’s were considerably weaker than expected, adding to Monday’s weaker manufacturing, which will put the spotlight firmly on today’s services and composite release. The antipodeans have been under selling pressure this week, initially a perceived dovish RBA stance saw AUD selling after interest rates were maintained but the downside has continued into the overnight session, while NZD has been weakening through the week. The USD drifted slightly higher yesterday as the USD index traded marginally firmer with the dollar advancing against GBP, AUD, NZD. JPY and the Euro – although gains were limited.
GBP is interesting at current levels, there is no doubt the BOE seem split on what direction policy should be going. Inflation continues to show upside pressures yet other major data points are turning south and focus for today will be heavily on the services PMI print. The reading is expected to show a slight slowdown in growth with a print of 53.5 down from 53.8, while the composite PMI figure is expected to slow to 53.9 from 54.4. Given we have already seen construction and manufacturing PMI’s miss by quite a margin to the downside, a miss in the services figure will almost certainly result in further GBP selling. 1.2915 offers support for GBPUSD and that’s where we find ourselves sitting just before this morning data releases with a break below suggesting a move towards 1.2831 area, while upside resistance remains at the following levels – 1.2975/1.3000/1.3055. EURGBP continues in the range between .8815 and .8763, topside to there we see sellers around .8880 again, while a break below .8750 should see progression towards .8640 area.
We have already seen some better than expected Services PMI data from the Eurozone this morning but that has failed to provide much lift for the Euro thus far with EURUSD trading some 30 pips off the open, EURGBP slightly higher 16 pips above the open. Retails sales are also due but major euro crosses will likely find themselves led by other currencies. EURUSD currently finds some light support at 1.1336, while 1.1295 offers slight firmer levels below. Any rally above 1.1400, as high as 1.1450 will likely favour sellers re-emerging.
The US returns from holiday today and the FOMC minutes will be in focus late this evening. Any signs the FOMC remain on track for additional rate hikes should favour USD strength considering the greenback is sitting just above 9 month lows after rallying higher through the first two days of this week. The issue in the US however has been the data, and as policy has tightened, the consistency of data has somewhat deteriorated. Factory orders and durable goods orders may set the tone for the USD into the FOMC meeting this afternoon, but we may well find ourselves facing another dud evening.