GBP/EUR 1.4151 (0.7067)
There has been a notable lack of volume this week but that is to be expected in the height of summer. The larger market themes remain in play, precious metals and other commodities such as oil continue to face selling pressure, the USD was marginally stronger on the day yesterday following better than expected jobs data and as such increased hopes the Fed will look to raise rates sooner rather than later. The Euro was also an outperformer yesterday, as it has been for much of the week. EURUSD briefly traded back above 1.1000 at times yesterday and overnight, but weaker than expected PMI data from France has knocked the shine off the single currency this morning. In overnight markets the AUD was one of the worst performing of the G10 currencies, weaker than expected Chinese manufacturing data resulted in the Aussie feeling the pinch from the Chinese slowdown. General risk appetite remains mixed, if not subdued, European stocks rallied higher through yesterday before selling off following some weaker than expected earnings results, while in the US stocks declined for the third straight day, again driven by some weaker than expected earnings.
Better than expected jobless claims figures from the US helped lift the USD from 1 week lows. This weekly release saw Jobless claims drop to 225k, this was an amazing 43 year low but as always with such data releases we need to look at the bigger picture. The four week average figure on jobless claims declined slightly but remains in the same ballpark, around 278,500 and the real indicator will be the NFP release the first week of August. Overall US data was positive yesterday with both the leading Indicators figure and Chicago Fed Activity index also both beating expectations. New Home Sales data headline today’s US releases, as always these will be watched closely, housing data has been exceptionally mixed month on month. New homes sales are expected to have declined by .1%. We continue to look at the data with a view to further USD strength, but as we have been saying for the last couple of months, we still need to see greater consistency from US data before we think the Fed will look to raise rates, and start a fresh USD bull leg. GBPUSD continues to be a trade-off over interest rate expectations and who (Fed or BOE) will raise rates first. 1.5320 still holds moves to the downside, while 1.5660 area caps moves higher in the short term, we’ll need to see a break of either of these levels to initiate a fresh GBPUSD move, otherwise the range will remain in play.
The EUR has had a good week, with Greece more or less out of the headlines and some questionable releases from the UK and US, the single currency has managed to stage somewhat of a relief rally. EURUSD traded to one week highs above 1.1000 at stages yesterday, the larger range on EURUSD remains 1.1150 to 1.0800. Unless we see a significant advance in US fortunes we are unlikely to break to the downside of that range in the near term, however as we get closer to year end and US rate hikes, I would expect to see EURUSD back towards the 1.0500 level. EURGBP has had similar fortunes this week, rallying back from fresh 8 year lows below .6950, to test as high as .7100 in trade yesterday. The EUR was helped by news Greece had passed further measure of the bailout in Parliament, while weaker retail sales knocked GBP slightly. Any advance in the EUR is likely to be limited and again any move above 1.1150 area will likely find plenty of selling interest in the EUR.