The USD has been an outperformer over the last few days and we’ve seen the greenback advance against the EUR, GBP, AUD and CAD (amongst others) over the last 3 consecutive days while over the last 12 or so hours it has also advanced against the safe haven JPY which was in demand itself following the general risk adverse sentiment. Speaking of sentiment, there was some recovery from the broader risk off environment yesterday with European stocks recovering from early losses as the euro depreciated through the day, thus making Europe attractive to overseas buyers. As the dust settled, Europe’s major bourses were either side of flat but all in all the recovery through the day was enough to see a positive open this morning and much of Europe is in the green as I type.
It was almost the reverse in the US where a strong opening to the day saw some late selling caused by falling oil prices weighing on the energy sector but all in all losses were limited on the day. Broader optimism on the US tax reform favoured both US stocks and the USD. Overnight trade saw Japan’s Nikkei rise and the USD maintained its bid tone
In relation to CAD it was a major underperformer yesterday as the BOC held rates at 1% and warned of raising rates too quickly despite improving data. This carries weight not just for those with exposures but should also be taken into account when looking at all major central banks as this cautious approach has already been outlined by the BOE and ECB, and the Fed as well. While the ECB are continuing with easing, the fact other major central banks are concerned about tightening too fast highlighting the general dovish, or certainly less hawkish stance from most major central banks. Once again the “new norm” for rates will be some way off pre crisis levels. The only major bank breaking the norm here appears to be the Fed and with yesterday’s ADP figures coming in as expected at 190k, market now turns to Friday’s NFP figures, but in reality the key print with be the average earnings figure. Elsewhere US tax bill headlines and potential geopolitical concerns will likely shape the USD’s outlook.
It is a quiet enough calendar from Europe this morning and the final print of Q3 GDP is expected to be the main data print of the morning. Annualised growth of 2.5% is expected to be confirmed and shouldn’t really shape the euro too much unless we get a surprise beat to the upside. In the UK, struggling Brexit negations are not helping GBP ahead of next week’s EU summit. One step forward and two steps back seems to be the general path these negotiations have taken and while they continue the pound remains exposed and vulnerable to volatility around news flow.
EURUSD is back below 1.1800 this morning and we see plenty of support down as far as the 1.1700 area so progress lower will likely be a grind however, any rally higher should fall short of 1.1900. EURGBP still coming into major support above .8730 while any rally this week has been capped at .8870, that’s the narrow range but real resistance to moves higher comes in from .8960 to .9000 area. GBPUSD 1.3360 acts as yesterday and today’s low level and support, firmer support below there towards 1.3300, while 1.3500 should cap any rally higher unless we see material progress on Brexit talks.