Last week heralded one of the best opening weeks of the year since 2006 for global equities with the US leading the charge higher. Friday was no different and record highs were posed once again in the US across all major bourses. Not to be left out, the UK’s FTSE pressed record highs, extending even higher again on this morning’s open, while European stocks traded just below record highs with the German DAX falling just short of November highs while the pan European STOXX 600 was just short of three years (and record) highs. All is well in the world…..or so it would seem at least. Friday’s release of data not as positive however, in the US the NFP print was significantly below expectations, as was services data in the form of non-manufacturing ISM, that didn’t stop the dollar recovering from a week of selling however the USD index is up .6% from Friday’s lows, EURUSD failed the break above highs at 1.2091 and has since pulled right back below 1.2000, suggesting we may have further to drop in the coming days.
EURGBP is still struggling to hold above .8900 area and thus far any progression above that level runs into euro sellers and we see the rate drop back towards .8860, where we sit this morning. Overnight USDJPY pressed towards one month highs but since the European open the greenback has been under some slight selling pressures vs the yen, but advancing again most other G10 counterparts.
Eurozone data released this morning was better than expected with retail sales, Sentix investor confidence and consumer confidence for the region all better than expected. The reaction in the single currency has been limited however and the euro remains down on the morning. The focus for the week for the euro in an otherwise lackluster week for data comes from the ECB minutes on Thursday. I’ve stated last week that the ECB will be uncomfortable with the current level of the euro and while they rarely comment directly on the value of the single currency, they can certainly imply in other ways its impact. Given the ECB’s now looking at a new program of asset purchases, markets will be looking for indication on how the ECB may end QE, or even if they will look to begin tapering any earlier than September. At this point we think this is very doubtful, and given the euro’s recent surge in strength, downside risks outweigh the prospects for a surge in euro values.
PM May is expect to announce a cabinet reshuffle if The Times is to be believed and GBP itself is rather mixed. The FTSE’s surge higher has been interesting and the pound is maintaining strength vs the USD, while its trade vs the euro has been relatively neutral and confined to a very tight range. We’ll have to wait until Wednesday before we get any meaningful data from the UK but as always Brexit headlines carry greater weight for the pound than anything else.
The USD rally was interesting on Friday. All week the USD sold off on far stronger data, yet on Friday where data was below expectations we saw the greenback rally. Tax plans, regulation and earnings season will all play their part in the coming weeks and while Trump and his administration are currently fighting fires from a tell-all book, whether its fiction or fact remains to be seen, but it is just another distraction.
We’re light on major data this week so headlines and Fed speak will likely be the primary drivers of USD direction. Given the dollar’s 4% sell off since the beginning of November there is plenty of scope of a rally higher. The Fed’s John Williams voiced his bias for three rate hikes over this year while has played into some USD strength this morning.