US Treasury Yields continued their march higher with the 10 year pushing above 3.10%, thus favouring a stronger USD on the day, with the trade weighted USD index seeing its highest levels since before Christmas up over 1.4% this week alone. This saw GBPUSD test back below 1.3500 and lows around 1.3450 supported which we highlighted yesterday. There was a slight recovery there late in the day as the greenback gave back some its days gains but for now GBPUSD just holding back above 1.3500. The euro was broadly weaker on the day, to be fair to the single currency the slide had started earlier in the day but accelerated as news filtered out the future Italian government would seek debt forgiveness from the ECB. EURUSD dropped back below the 1.1800 level to lows of 1.1763 and fresh 2018 lows. It wasn’t just the dollar but also the euro suffered, EURGBP dropped over .75% from the mornings highs, while EURCHF now finds itself down almost 2% this week alone and option market volatility would suggest the market is favouring additional downside bias for the euro . General sentiment was firmer in the US session with stocks grinding out gains helped by some firmer lower tier data and some better than expected earnings reports. US/China trade talks kick off today so anything can come from that, we’ll be keeping a firm eye on the headlines. Overnight equities were mixed, the USD gave back some of yesterday’s gains while GBP has been whip swing around all morning.
The initial rally in GBP first thing this morning was on the back of a Telegraph report suggesting PM May and co have come to an agreement and will look to stay in the customs union beyond 2021 while also working on a backstop to avoid a hard Irish boarder, so all in all sounding like a very soft Brexit and thus sterling rallied. Sadly as has been the case in this apparent ongoing circus, these reports were quickly rubbished by the PM’s office. We remain in the exact same position as always and that’s wedged tightly between a rock and a hard place. PM May appears to still be struggling to get any form of unity or support, we’ve highlighted before that no matter what she finally decides to do there will be one side not happy, and all this would be before they present to the EU, who thus far have been less than impressed with unworkable UK suggestions. PM May and the EU’s Donald Tusk will be having an informal catch up today so watch this space.
We are pretty light on major data today, the ECB’s Constancio speaks on a couple of separate occasions this morning, its unlikely he’ll be rocking the boat too much after Mario Draghi offered up nothing worthy of comment yesterday. Eurozone inflation was as expected yesterday and a dull schedule today should see recent ranges holding. The afternoon session is similarly light of major data, jobless claims and the Philly Fed survey the highlight but unlikely to rock the greenback too much.
So EURUSD 1.1765/1.1800 support for now, while any rally getting close to 1.2000 area should find sellers.
EURGBP broke back below some key support yesterday and we re-enter the lower range back below .8780 which provides resistance, with support at around .8710 thus far today. GBPUSD range is 1.3450 up to 1.3610, only a break either way will see something new happen today.