GBP/EUR 1.3884 (0.7195)
Overall global data was on the weak side through much of yesterday, PMI’s from Asia through Europe to the US were to the low side of expectations for the most part, almost all US data missed to the downside of expectations and the US was on the back foot as a result. In the US earnings reports have continued to highlight the negative impact the USD is having on earnings. Overall markets traded to the upside as some solid earning reports, coupled with weak data saw demand for equities, as expectations once again see USD rate hikes favour later in the year, rather than June hikes. Despite weaker than expected data the EUR outperformed both USD and GBP and the single currency has continued its rally higher this morning on news Greece has managed to come up with an additional £450 mln in funding. The USD, as mentioned above, has been facing additional selling pressure and GBPUSD has taken advantage confirming a break out of the pre-election range to the topside with a break above 1.5100 this morning.
The only major release of the European session is the German IFO survey of business confidence, the fact is that this outcome of this poll will do very little to deter the stance of the ECB, the report itself was marginally weaker than expected but the single currency is still firmer this morning on news Greece secured some €450 million in funding. It appears Greece’s cap in hand performance during the week has resulted in an additional €450 million being raised from local authorities, institutions etc. A Eurogroup meeting between finance ministers in Riga will also capture some attention but it appears Greece will not be the centre point of discussion, but there will no doubt still be headlines from the meeting. While it remains in the best interest of both sides to come to an accord the onus is on Greece to provide reforms that meet EU/IMF creditor’s demands, in order for Greece to achieve further funding. Greece bond yields have dropped in the last two days indicating markets are now showing some signs of hope a resolution will be found – at least to keep Greece afloat for another few months.
US data was not pretty yesterday, jobless claims were worse than expected for the third consecutive week, new homes sales declined 11.4% and manufacturing PMI posted 54.2 vs 55.7 expected, indicting the slowing pace of growth in manufacturing. The USD did not take the news well with the USD index dropping close to March lows, a break of which will likely start a larger selling trend in the USD. Today’s focus will be on the US durable good figure which headlines the US session, durable good represent larger ticket items purchased, usually this rises when economic confidence is on the rise and the consumer has more disposable income, however the durable goods figure has been another consistently disappointing reading from the US, a weaker reading will encourage further USD selling.
GBPUSD has broken out of the pre-election range that held it for since the beginning of March. The break above 1.5000 area has been confirmed with a move above 1.5100 this morning, with resistance around the 1.5140/50 area in the form of the 100 day moving average which has held GBPUSD moves higher since August 2014. Further gains in GBPUSD will likely be restricted as uncertainty surrounding the election outcome grows into polling, it appears to be unanimous that a Labour victory will generate the most negative outcome for GBP.