There was very little data of worth in yesterday’s session and for the most part there was very little going on. The euro was an under performer on the day, nothing major really diving euro selling but last week’s failure for EURUSD to extend beyond three year highs, resulted in selling which then filtered through other euro crosses. USD traded as low as 1.1932 this am, from highs at 1.2089 last week. EURGBP also dropped lower, this was less on GBP strength but more on euro weakness, while markets were focused on UK PM May’s cabinet reshuffle. USD was the outperformer on the day, starting the week where it left off, the USD index now up .85% from last week’s lows.
GBPUSD was just slightly lower yesterday but some sterling selling has welcomed in the day today and GBPUSD has dropped below yesterday’s lows and looks to be targeting support towards 1.3510. The big story from overnight was an advance in JPY as the BOJ announced it would be looking to “taper” its bond purchases, USDJPY dropping .65% immediately after the announcement before recovering in the last couple of hours now holding just below 113.00 which now turns resistance.
We are quite light on major data until the back end of the week where ECB minutes highlight. We have been highlighting the importance of ECB commentary and guidance as this will be the real direction setter for the single currency, above and beyond what fundamental data might suggest. The Eurozone is performing well and we’d expect the ECB to address this, but they will do so cautiously and highlight the importance of easing policy to this recovery and will almost certainly address Inflation as a concern.
Another area in the post-easing environment that will certainly create substantial issues for the region will be the unwinding, while some governments can handle the unwinding, there are still a number of nations with very high government debt and any tightening will put them under pressure. Fitch have highlighted this as a risk and there is no doubt the ECB will be closely monitoring the situation but if these governments have to go back to market for funding and not the ECB, the costs will be far higher. EURGBP has dropped back below the 200 day moving average, should we close the day below there the technical would suggest progression lower towards .8760 first and 8730 below. EURUSD trading back lower and will finds light support around the 1.1900 area, while 1.1880/85 should provide firmer support. 1.2091 capping any moves higher for now.