Market News & Insights
16 February 2017

Dollar Finds No Love on Valentines Week

Another interesting day across markets, risk appetite shows no sign of waning in equity markets as once again stocks surged higher in the US up .5%, the S&P rising for its seventh consecutive day to once again post record levels as markets react to headlines on Trumps’ proposed tax cuts in the US. There was not just positivity in the US, Europe saw higher closes with the StoXX 600 up .3%, while the FTSE bucked the trend and the UK based index closing lower driven by late selling. Overnight there was similar positivity in Chinese indices however, the Nikkei sold off as a stronger JPY favored profit taking in equities. It was a very interesting day for the USD as well, the greenback had looked set for a resurgence following hawkish Fed comments on Tuesday and then better data yesterday saw the USD index surge to 6 week highs, this quickly ran out of steam however and the USD totally reversed its day, currently down 1% from yesterday’s high levels. It was a mixed bag for GBP, slightly weaker against the Euro and JPY yet stronger against USD. EURUSD traded to 6 week lows at one stage before closing the day higher, the Euro and JPY both stronger across the board in the afternoon session, suggesting some risk aversion, and yet equity indices were higher.

It was an interesting round trip for USD yesterday. Fed members are trying to be as hawkish as possible, several Fed speakers once again highlighting the need to raise rates and focus on March but it does not appear the market is buying it yet, pricing in approx. a 43% probability of a rate hike (nothing near the 90% + seen last two hikes). Data was also favorable and yet the dollars initial surge quickly found sellers. A stronger empire manufacturing survey, CPI inflation posting 2.5% vs 2.4% and retails sales up .45% vs .1% were not enough to keep demand for the greenback. This presents an interesting situation for the USD and it’s difficult to assess rationale as to why the market is so cautious against USD strength, it may well lie in the outspoken stance of the US president on USD strength. Weekly jobless claims and housing starts cross the wires today, while the Philly Fed business outlook with also take some attention.

There is very little data from the European session, as always we’ll be keeping an eye on any Article 50/Brexit chat, and anything ECB or European election related. But for me the key today will be technical ranges. EURGBP trades between .8530 and .8455/70, a break either side of this range should see continuation in that direction, otherwise we remain in chop in the middle.

EURUSD rebounded from key support area yesterday, 1.0525/50 area has previously provided support and yesterday was no different. These seem to have set itself up as a key area to break but the reaction in EURUSD around that zone and the subsequent bounce higher looks like a firm rejection. Downside risk is not over just yet, 50 day moving average and retracement resistance between 1.0640 and 1.0655 will need to be broken before upside can continue.

GBPUSD looked like it had given up on my 1.2400 bull/bear area, a break towards 1.2380 looked like we were going for more downside but this was a false break and the daily close 1.2460 was well above. We’ve now seen three considerable attempts in the last 2 weeks to break below here and each time its quickly reversed, for me that shows where the market wants to go and that suggests back towards 1.2700 area. 1.2550 area will be the first major test.