GBP/EUR 1.1988 (0.8342)
We released a research note last week highlighting areas of vulnerability should the situation in Crimea escalate and yesterday pointed towards rising investor concerns as tensions build once again in the region. Traditional safe havens like JPY and USD saw flows while US equities faced further losses, dropping away from last week’s record highs. European stocks ebbed between gains and losses as the Euro’s recent bullish strength also showed some signs of wavering as it faced its largest daily drop in a week yesterday, with European regional safe havens like CHF seeing positive flows. That being said we did not see rising price pressures on commodities like oil to indicate the dampened tone was totally Crimean related.
The muted tone was perhaps more apparent as data from Europe and the UK indicated that in some areas the right steps are being made towards growth. German trade data was far stronger than expected while UK manufacturing production grew at .4% vs .3% expected in Jan. The recent run of mixed data from both regions highlighting different paces of recovery was evident as Italian GDP figures pointed to a 4Q year on year decline of .9% vs .8% expected, whilst UK Industrial production only grew .1%, vs .2% expected.
Today’s European calendar remains light with just Eurozone Industrial production on the cards, expected to have expanded by .5% through January. This will draw attention to a busy ECB speaker calendar. As mentioned yesterday the ongoing details of the bank stress tests will be closely watched as will any indication of changing ECB rhetoric with regard to policy. There are five central bank speakers due on the wires today and if yesterday’s comments are anything to go by the EUR could face further selling pressures.
ECB Vice President Vitor Constancio said he and his colleagues highlighted “slack” in the economy at the March policy meeting, reminding markets that the ECB still has tools it can use to deliver stimulus. These comments were echoed by board member Lautenschlaeger. If this turns out to be a fresh communication policy from the ECB we’d expect more of the same again today.
Data from the US remains light through today so we would expect larger risks trends to dictate USD flows. Taking a look at GBPUSD we have seen a considerable break down from recent highs below 1.6800. This is the fourth time this year this pair has reversed from these levels and we will be looking for a break below 1.6575 to see larger moves back towards the critical 1.6250 region.
EURUSD has traded back from 2.5 year highs above 1.3900 and is currently trading just above resistance turned support at 1.3828, a break below here will see this pair back into its lower range between 1.3650 and 1.3830.
EURGBP decline has been halted after multiple attempts at breaking below the yearly trend support below .8200. The reversal has taken us back to 2014 highs with resistance at .8350. A break above here target .8465 but for now this move remains contained.