Late last night, the euro jumped as EU leaders reached a deal on migration. European Union leaders agreed to a package of measures to stem the flow of migrants, easing concern over a standoff between Italy and the rest of the trading block. The agreement hopefully will also appease the German Chancellor’s coalition partners. Currency markets quickly reacted with EURUSD moving back towards the higher levels seen on Wednesday, hitting overnight highs of 1.1670. Recent trading ranges for the currency pair would suggest that the 1.1500 level is going to act as a base for now after several failed attempts to push lower through it. The dollar was generally weaker too as unsurprisingly, confusing signals on global trade keep coming from the White House, which yesterday appeared to step back from an all-out confrontation with China after economic adviser Larry Kudlow to later say that President Donald Trump’s wasn’t softening his stance. In China, which Trump previously branded a currency manipulator, the yuan’s fastest fall since 2015 is threatening to heighten tensions.
As I noted above, the US Dollar was generally weaker across core currencies however it remained neutral against the pound which too felt some pressure against the single currency. EURGBP has closed above the .8800 line for most of the week and so a strong base was forming which allowed the currency pair to push high over the past 24 hours, and currently sits around .8865. We need to a sustained break above key resistance at .8881 to see whether EURGBP is moving into a higher range from the one currently in place since March.
Overall financial markets are in a strange place with a lot of the usual correlations breaking down. Currently this morning major European equity indices are showing gains of over 1% following on from strong gains in US markets too. However this is against a backdrop of Chinese equity markets entering bear market territory, substantial yuan deprecation along with an emerging market sell off with the likes of the Indian Rupee being a particular looser. At the same time, we are contrasting moves in the oil market. Oil is poised for the longest run of quarterly gains in eight years as fears over global supply disruptions overshadow OPEC’s decision to ease its historic output curbs.
Getting back to basics and the highlight on the economic calendar will be lunchtime’s US PCE core inflation reading which as has been noted here before, is the Federal Reserve’s preferred measure of inflation. A rise to 1.9% is expected. Before then, we the final Q1 reading of UK GDP which is expected to be confirmed at 1.2%. Whilst today is a month end, it also signals the start of the summer lull for markets as schools start to close and people take holidays including leading central bankers. With little expected on that front, political stories like Trump’s tariff battles with China, the EU, Mexico and Canada, German coalition government discourse and of course Brexit, are likely to dominate news flow for now.