Trade wars weighed on sentiment throughout yesterday and for the most part we saw red across major indices throughout the day, although there was a recovery from the lows. It’s a somewhat mixed picture this morning as overnight Asian bourses pressed higher. The major indices in Europe are holding slight gains but there is some red in smaller national bourses. In currency markets it was an in interesting day. The euro had a round trip, some mixed headlines coming from ECB speakers causing the euro to rally as they suggested that perhaps rates could potentially rise a little earlier than the end of last summer. That was quickly discounted and now many are begging to question if the ECB will even end QE as they’ve guided thus far. In contrast the USD had one of its best days in over two weeks. The USD index rallied over .7% from the lows bringing the week’s gains up over 1.15%, EURUS broke back through that 1.1700 area we highlighted yesterday and losses accelerated to 1.1672. EURGBP got as high at .8860 before pulling back towards .8833. GBPUSD holing just above 1.3200 for now.
Politically our eyes were focussed towards the NATO meeting, where US President Trump unleashed an unprecedented attack on NATO allies, claiming Germany was in Russia’s pocket due to agreements between the nations on gas, while accusing other NATO members of failing to meet their commitments. I’ve seen videos of the attack on Germany and to say it looked uncomfortable would be an understatement. Trump is certainly not making any friends and while he feels he is doing the right thing for America, he’s certainly creating broadening tensions amongst his supposed allies. Again, there are plenty of valid points President Trump makes but some diplomacy is still required when you are in a position such as his. Trump will be moving on the UK soon, where I am sure things will be just as awkward but the key to look out for will be any opinions voiced on Brexit. Suggestions that Trump will voice his bias for a hard Brexit and the UK turning their back on the EU could shake already loose foundations but let’s wait and see what happens.
USDJPY broke above key resistance, 111.45/50 area has kept the pair pinned since early Jan and while we had an attempt higher in May it failed to break out and quickly retreated. USDJPY is now up over 2% this week and this is helping broader USD demand. It’s not the only thing favouring the greenback, the Feds Charles Evans has been an avid dove in the FOMC camp but comments from him yesterday helped drive additional demand for the dollar as he is comfortable with an addition 2% rate hikes this year. When the doves are calling for two rate hikes you need to sit up and listen. PPI inflation readings were also broadly firmer yesterday but focus will likely turn to the CPI reading today, expected at 2.9% up from 2.8%. Rising price growth will support the Feds argument to raise interest rates and with the economy looking firm for now, there’s no reason the Fed can’t keep on their current guided trajectory. A weaker CPI reading today however will certainly see USD selling.
Thus far this morning German CPI has come out as expected at 2.1% and industrial production for the Eurozone is the only other economic print of note from the region this morning. Attention will be focused on the release of PM Mays’ whitepaper, we’re unlikely to see anything ground-breaking in this versus what we heard last weekend and at the end of the day it’s all pretty irrelevant what’s in that paper unless it can actually be delivered, and accepted by the EU.
Major ranges unchanged from yesterday aside from EURUSD. Light resistance now at 1.1700 while 1.1660 makes support. A break below there should progressing back towards 1.1624.
EURGBP will be .8820/30 area up to .8850/60.
GBPUSD trying to press below 1.3200, which should see 1.3180 very quickly and then 1.3080 is the mark below there.