There was some interesting price action across asset classes in markets yesterday. Equities continue to plough higher, the unrelenting climb saw fresh highs across a host of indices. In Europe, stocks were higher on the day helped by some better than expected Services and Composite PMI data for the region and surging oil prices which were up over 3% on the day. The German DAX pushing record highs once again this morning, the UK’s internationally focused FTSE also had a look at record highs this morning while overnight the three major US bourses also closed at record highs.
The rally in oil prices was very interesting, especially coming off the back of a major clampdown by the Saudi Crown Prince on bribery and corruption, resulting in the arrest of a number of the extended royal family.
In currency markets, GBP was a notable firm performer on the day, the pound has clawed back two days of gains since Thursday’s drop and thus far has covered about half its post BOE losses. The euro is under pressure technically and fundamentally and despite some better data prints yesterday the single currency was under selling pressure, this morning breaking below recent EURUSD lows and to 4.5 month lows with 1.1424/35 now firmly in focus. The USD was slightly softer in trade yesterday having lost ground, the JPY felt almost like some risk-off plays especially with gold rallying over 1%,. While CHF also saw some demand, another known safe haven player. This was interesting because these flows were happing while stocks remained well supported so no all-out risk aversion.
The euro continues its move lower this week having paused somewhat last week and while data was supportive, the fact it is unlikely to shift the ECB’s outlook means that the single currency remains under pressure. German industrial production data was weaker this morning which hasn’t helped matters and the regions retail sales figures are also due for release this morning. The larger focus however, is on the ECB’s Mario Draghi who is currently speaking in Frankfurt. I’ve half an eye on Draghi as he currently speaks, and his dull monotonous droll is providing little support for the euro thus far. Draghi has highlighted the pressure imposed on European banks by negative interest rates and how they undermine profitability and while two weeks ago this would likely have been good for at least a .5% rally in the euro, this morning it can’t find any bid. EURUSD will be looking for any rally higher to be capped ahead of 1.1680, while 1.1530 may provide some light support ahead of the larger levels at 1.1424/35. EURGBP light support at .8800 is just holding, a break below their targets .8770 and then the key .8730. .8880 offers resistance to any move higher.
The USD has found itself under the bid today with the USD index already up .45% from yesterday’s close. The greenback pushing gains against the euro and JPY most notably. Markets are now pricing in a 90% chance of a rate hike from the Fed in December and as we highlighted yesterday that may leave the dollar exposed to weaker data points.
There is little in the way of major data from the US today but we are sure to see plenty of headlines. Trump’s trip to the Far East continues and he has progressed onto South Korea where he held a press conference this morning outlining their hopes for a fair trade deal between Korea and the US, while also saying they hope to resolve issues with N. Korea through peaceful negotiation. I am sure President Trump will have something else to say over Twitter that’s a little less diplomatic regarding North Korea but for now risk favours support and US futures and the USD are both reflecting that. GBPUSD is slightly weaker this morning, dropping back from opening highs at 1.3174, with support likely between 1.3100 and 1.3122.