It has been a rather mixed bag across the last 24 hours both in equities and currencies. Yesterday kicked off with some risk aversion, even the unshakable US indices showed some vulnerability early in the day. The USD found itself under some early selling, a slide that started with losses vs JPY, continued as EUR then pressed higher driving additional USD selling through the morning. There was suggestion the negative view of the USD wasn’t helped by talk of China reducing their USD reserves as talks with the US on trade become ever more contentious. However by the time US markets came out to play some normality was being restored, the USD index bottomed out and the greenback began rallying, first gaining on JPY before then clawing back gains vs the euro, while equites still closed the day lower they were well above lows. Sterling struggled however through much of the day yesterday, we flagged the potential for manufacturing production upside however that was not enough to overcome far weaker trade balance data, and while the NIESR GDP estimate for three months through December was slightly higher than expected at .6%, annual growth is expected to be about 1.8%.
Finally we have some interesting data points and central bank commentary to finish off the week. Today the highlights will come from the minutes of the ECB meeting, where the ECB are expected to be positive on growth but cautious on outlook. Euro has started the day weaker vs the USD (stronger dollar taking control here) while EURGBP is trading slightly higher. German GDP data was slightly weaker, at 2.2% vs 2.4% expected, albeit up from 1.9%. Eurozone industrial production is up before the ECB minutes, although follow through from that print is unlikely to have a last impact on the single currency. EURUSD still holding in its 1.1900 to 1.2091 range. While EURGBP is looking at a range between .8800 and .8875, a break above that topside should see progression towards .8900/8920 area.
Later in the US session the Fed’s William Dudley speaks on economic recovery and outlook, any indications on his bias for rate hikes could see the USD rally further. Otherwise PPI data and weekly jobless claims will welcome in early US trading. The dollar index is back testing resistance, a break above Tuesday highs could see broader USD demand across the board. GBPUSD certainly feeling pressure, sterling now back below 1.3500 and this opens up the potential for a drop back towards 1.3315/20 area.