We saw a surge in risk appetite on Friday afternoon with US indices notably higher as both the NASDAQ and S&P closed at record high levels. The USD was a little more mixed on Friday, some USD selling earlier in the day covered end of month flows but once the European session closed the USD tracked higher, the USD index closing Friday more or less flat. The euro is an under-performer to welcome in the week, the “unofficial” Catalonian independence vote and related violence not helping the single currency which may also face additional selling through the week ahead of the ECB’s meeting on Thursday and should the ECB fail to taper as much as markets expect, then we will almost certainly see the single currency lower into the weekend. GBP closed the week slightly off highs, the pound giving back some of September’s gains with GBPUSD heading back towards 1.3300 this morning with EURGBP holding just above .88.
The probability of a Fed rate hike in December has risen to above 70% over the last week and up from below 50% at the beginning of September. So what’s changed? Well very little to be fair, its simply the upbeat rhetoric we have seen from the Fed as their guidance remains very much on track for a year end increase in rates. This should favour the USD in the final run to year end and as long as US data remains somewhat decent, the greenback has plenty of scope to trade higher.
ISM manufacturing data headlines the US calendar today and while we have seen an uptick in manufacturing data across the globe though much of 2017, the US figure is expected to slow slightly.
First up this morning however and the GBP will be looking for a lift from manufacturing figures. One of the better data points since Brexit, manufacturing has shown signs of rising however, the figure is expected to have slowed for the first time in three months. UK data has managed to hold relatively firm in recent week’s vs expectations so another beat to the upside could well provide GBP with some lift. Some manufacturing data from the Eurozone headlines today’s European calendar but it’s unlikely to shift the dynamic of the single currency ahead of this week’s ECB meeting. The ECB’s Praet crosses the wires later in the afternoon so any comments on tapering will be closely watched.
Some levels to watch:
EURGBP trading back above .8800, light resistance to moves higher at .8840 but stronger resistance higher towards .8885/.8900 will likely provide euro sellers a better opportunity. Support holds around .8800, and below that last week’s lows below .8750 attract.
EURUSD looking towards last week’s lows for support around 1.1720/25 area, any rally higher will run into resistance at 1.1833
GBPUSD breaking down towards 1.3300. Plenty of levels from there down to 1.3268 to provide support so we’ll continue to monitor price action around those levels. Any rally higher will likely find sellers ahead of 1.3400