Market News & Insights
2 January 2018

Euro Firmer to Start The Year

The final trading day of the year last Friday saw US stocks face some heavy selling with the S&P down over .5%, one of its worst days in the month of December, that being said stocks still closed the year near record highs with the S&P having its best trading year since 2013, while the NASDAQ traded higher in 11 of the 12 months of the year. The final day of trading in currency markets saw EUR pressing higher, while USD weakness was also telling and despite a late rally into the close on Friday the greenback has started the year under selling pressures with the USD index down over .35% from Friday’s close. EURUSD has jumped back higher and today broke to 3 month highs and back above the 1.2000 handle to kick start the year. Usually this is an area that the ECB start to get uncomfortable so it will be interesting to see if we have any central bank comments so early in the year.

EURGBP is little changed, .8900 holding any advance for now. Needless to say most of the focus for GBP will be on the progress (or lack of) around Brexit talks, apparently the “easy part” has been done, considering how that went I wouldn’t be holding my breath for the hard part around trade negotiations and as such sterling remains exposed to volatility around Brexit sentiment. Overnight trade saw the euro continue higher vs a weaker USD, GBP was also an outperformer versus the struggling greenback and while japan was close, Chinese bourses surged higher up over 1% on average helped higher by a firmer Caixim Manufacturing survey.

Data is relatively light today but the UK will be in the firing line first with Manufacturing PMI data, this is one area where the UK has seen a significant uptick since the Brexit vote and while a slight decline in the pace of manufacturing growth is expected, down to 57.9 from 58.2, anything weaker may well see GBP under a little more selling pressure. Later in the afternoon we’re looking at some light US manufacturing data, PMI’s expected to be unchanged from 55 here.

EURGBP been trading in a tight range since Dec 20th, support at .8862 with resistance ahead of .8900, a breakout either side of that should see some continuation but as always with EURGBP from .8960 up to .9000 there is plenty of selling interest and orders are lined up at these levels.

EURUSD is up over 2% since the Christmas break, progression above 1.2000 certainly brings the ECB to mind as they have appeared uncomfortable around these levels. That being said, for euro this year if markets takes the same positioning as last year and of the view the ECB will be tapering from September onwards and eventually raising interest rates then the rise in the value of the Euro will not stop here.

GBPUSD is heavily linked to Brexit outlook put for now the weaker USD is playing into sterling’s hand, November highs above 1.3550 have been broken and we’re formerly back into the immediate post Brexit vote area. Last year’s highs above 1.3655 area should cap any move higher for now, while support back towards 1.3300 area will offer the first level on any move back lower.