There has been more talk about the weather than markets in Clear HQ over last 24 hours but judging by some of the predictions by our amateur meteorologists, we should focus on the day job. Broadly speaking FX pairs have remains in recent ranges but a notable move was EURUSD testing the lower bound of its 7 week range, ahead of growing event risk with Italian elections at the weekend and of course month end rebalancing flows today. The Euro dropped in line with the snow across Europe as weaker inflation prints for Germany weighed on the single currency and ECB rate hike expectations, some Euro supply into month end is also suggested by our models so potential for more selling through the day. Eurozone inflation is expected to slow to 1.2% from 1.3% and could well keep downside pressure on the Euro as well.
The USD was an outperformer on the day and looking for a press higher, the Dollar Index which measures the greenbacks performance against a basket of currencies traded near 7 week highs and just needs a moderate push higher to break some key technical levels and perhaps signal a bottom in place. Testimony from the new Fed Chair Powell stoking some USD demand and while some of the key data points were weaker than expected from the US, it was consumer Confidence that really buoyed markets. Consumer confidence near all times highs, the measure of 130.8 far higher than expected and at levels only previously seen in 2007 and 2001. For the USD to remain supported however we need to see data to continue to remain firm today attention will focus on the final reading of PCE (inflation) for Q4, with Q4 GDP also expected to be finalized for the US. Models suggest USD will be in demand for month end flows so the risk for the greenback is a sell off after the 4pm fix. EURUSD support now at 1.2164/73 while any rally high should be held below 1.2345.
Another round trip day for GBP. GBP pairs just covering ranges on news flow and with PM May up later in the week and the EU set to release its draft on negotiations, we’re sure to see more volatility. Unless we see something concrete however the pound remains range bound, and a new direction is unlikely to be set unless the Brexit tone shifts dramatically. The EU are expected to take a hard line stance on the usual issues. The Irish boarder, EU citizens already in the UK, and usual transition debates. We’re light in data from the UK today but keep an eye out for the Brexit headlines, they’ll continue to set the tone for sterling. EURGBP dropping back below .8800, support toward .8860 should hold unless we see a big shift. Rallies higher face resistance towards .8842 intraday.