GBP/EUR 1.3807 (0.7242)
Risk continued to be mixed through yesterday’s trading session. Despite some better than expected US data stocks in the US faced their second day of selling pressures, the ADP employment report, which was worse than expected but still on trend, and the ISM non-Manufacturing print which was better than expected helped increase expectations of a US rate hike before the end of summer for many analysts. This resulted in rising treasury yields and in turn a stronger USD which advanced against it major counterparts. EURUSD was pushed to fresh 12 year lows and broke below January support just below 1.1200. USD strength remains in place and despite data being mixed from the US the positivity surrounding the USD right now is difficult to ignore.
With the end of the week approaching we continue to see investors trade cautiously, most sitting on their hands waiting for this week’s storm to settle. This storm comes in the form of what many perceive as a gentle wind from the BoE’s policy decision, which is not expected stir any hairs. The market is expecting no changes here and with no planned press conference or statement we don’t expect to gain any insight here. However as has been the case in recent months, it will be the ECB’s President Marion Draghi who ruffles the feathers as we await further details on the new €1 trillion quantitative easing program, which is due to begin next month. Friday afternoon may prove to be the eye of the storm as we have the all-important US Non-Farm Payrolls and the unemployment rate. Yes, I expect some volatile conditions over the next couple of days!
GBP struggled on the day following a worse the expected Services PMI print. We mentioned yesterday that the pounds failure to rally this week on strong data prints left it vulnerable to further selling should the services PMI print be below expectations and despite much of the underlying data in the services print being rather supportive, the headline decline to 56.7 from 57.5 was enough to send GBPUSD plummeting back from above 1.5350 to trade back below 1.5250. The BOE are due to meet today but we expect no change, with the MPC expected to keep rates at .5% and their asset purchase target unchanged, as it has for a number of years. In All likelihood this event will pass without much fanfare with much of the mornings focus now on the ECB’s policy announcement and oppress.
In the Eurozone area, it is difficult to know what to expect from the ECB today but judging by the fall in the euro so far this week, analyst and investors are perhaps expecting some negativity here for the single currency. Yesterday we saw EUR/USD fall to its lowest level since December 2003, while GBPEUR advanced to a fresh 7 year high.
We have already seen Draghi aiming and firing his bazooka earlier this year in the form of the QE announcement, so it would be very unlikely that we see any additional stimulus announced here but we are looking for additional details on the program. That being said Draghi and his silver tongue have often caused pandemonium in the markets without him actually saying anything of substance. We may see a different tone in his speech however as since the announcement of QE we have seen some changes in the euro area. Yields on Eurozone debt has fallen, with some of these bonds trading in negative yields, while economic data has also shown signs of improvement including the latest inflation figures which increased to -0.3% from -0.6%. Perhaps we may see a more upbeat Draghi today which would likely see euro take back some of its recent losses.
Aside from the BoE and ECB’s policy decisions, there are a few data releases from the US today including jobless claims, factory orders and productivity reports. The big news out of the US however will come tomorrow.