It was a mixed day yesterday. Fears of a government shutdown in the US weighed on the USD and US stocks, yet US 10 year yields rose to their highest level since Trump was elected. The dollar index languishes around its recent 3 year low print and the one up day on Wednesday was followed by two down days (today’s session starting weak). GBP traded to just shy of 1.4000 and to levels last seen on the night the Brexit vote came in. Sterling also touching the low end of its 1 months EURGBP range, just above .8800 EUR and JPY also took advantage of the weaker USD, while the antipodeans in Kiwi and AUD are both up around 4 month highs vs the USD.
The focus today will obviously be stateside. Trump has already said that should the government shut down it will be the democrats fault but it’s not quite that simple or clear cut. The fact is, we’ve been in this exact position a number of times over the last 5 years and the apportion of blame does not sit within one political party. The bill has been passed to the senate and the republicans need at least 12 democrats to support it to avoid the shutdown. There has certainly been an air of caution in the second half of the week and while US stocks are still up on the week, the greenback is showing more concern. University of Michigan consumer confidence is due later today on the data front and a decent uptick is expected so may well help the USD if it’s not been flattened by shutdown concerns.
The euro will be looking towards Germany and there may be some volatility for the single currency when the market opens late Sunday night. The SPD vote on a coalition is expected on Sunday afternoon and a failure for a coalition to be formed will see euro weakness to welcome in the week. German PPI and current account data released this morning saw little change in the reaction of the euro. EURUSD 1.2330/1.2300 caps moves higher, while 1.2165/88 provides support.
In the UK retail sales was the prime release of the morning session and showed the high street underperforming vs expectations. The headline figure was down to 1.6% growth from 2.6% expected year on year, with sales actually down 1.6% through December. Needless to say the reaction was some selling across GBP pairs. EURGBP looks to have decent support just above .8800 area while any rally higher towards .8900 should also find sellers as we maintain the 1 month range. GBPUSD support sits just below 1.3950.