Nothing too ground breaking in markets yesterday as the summer lull continues. The Russian rouble was one of the more interesting as its woes continues, the announcement of additional US sanctions on Russia weighed as the States confirmed their punishments for the suspected involvement of Russia in a chemical attack on UK soil. Interesting given the love/hate relationship currently between the White House and Putin, at a time when a former Trump aid and former lawyer are currently involved in corruption and tax evasion trial relating to Russian contacts.
The pound struggled under the heavy weight of Brexit, Liam Fox’s comments hanging in the air all week helping EURGBP to rally to its highest levels since October last year, while GBPUSD dropped back below 1.2900 and the lowest levels seen since last August. The USD itself remained firm, the USD index sitting just below 12 month highs and unless we see some comments from Trump to knock this back (as he certainly won’t be happy if we get a break out higher) and it will be interesting to see if the dollar’s 8% rise through the year begins to weigh on the economy at all, as the President suggests. The fact is a stronger USD has always been the long term objective of the US, the issue for Trump and co is that it does not help their “Make America Great Again” objective, making US exports expensive for other nations, and imports cheaper – and that’s not even factoring in trade wars and tariffs.
We mentioned the rally in EURGBP as the pair now finds itself at the very top of its 12 month range. Interestingly we saw a very similar price action last year when EURGBP rallied from .86335 to just above .9300 from May to the end of August, EURGBP is still on the rise having rallied from .8620 in mid-April, to above .9000 today, with time still left for the pound to lose out further. What happens next May will very well take its lead from tomorrows data dump from the UK, and while politicians are still sunning themselves, markets will be looking to more fundamental drivers for near term direction. Trade balance data, industrial and manufacturing production figures and of course the big hitting UK GDP figures for Q2 are all on tap. GDP will be the primary focus, growth is expected to rise to 1.3% from 1.2% on the year but any sign of weakness will almost certainly be a nail in the coffin for GBP. GBPUSD traded down towards 1.2850, this provides light support with the next level down at 1.2778 the real line in the sand for me, but some offers around 1.2800 may just hold it off those low levels.
The euro itself is mixed, the single currency is struggling versus the stronger USD, and while much is being made of the 10.5% decline in GBPUSD since April, EURUSD has dropped almost 8% since February. The drop may not be as large or as steep but there’s little doubt the trend is the stronger greenback, while the euro and pound struggle themselves. The ECB publishes its economic bulletin today, we’ll be looking for any developments here, particularly downside risks but for markets and the euro the focus continues to be 12 months out, when the ECB is expected to raise interest rates and unless that curve moves higher in the near end, euro weakness could well prevail. EURUSD holding below 1.1600 this morning, 1.1630 is resistance to the topside, while move slower will be looking at support around 1.1530, but again a break below the 1.1500 level could signal another significant leg lower for the EURUSD.