There was plenty of action throughout yesterday to keep markets on their toes, at times it felt very much like a normal FOMC waiting game but there was bursts of volume throughout the day and much of it was headline generated. GBP was one currency exposed to such moves, after PM May launched a verbal attack on the EU for trying to influence the upcoming elections and to hold the UK to ransom over Brexit negotiations. Sterling quickly ran into selling but as soon as May stopped speaking the pound re-found its footing and covered back as demand came back. It does give some warning however, even with the election poised for June, and should May have a majority in Parliament, Brexit negotiations will still be fraught with risks and have the ability to rock GBP sentiment.
Next we go to the US and the FOMC meeting yesterday evening which passed without much drama. As expected there was no change in policy and the take away was that the Fed still remain relatively hawkish, with rate hikes for June still potentially on the table. The USD index had its biggest rally in almost a month, while risk sentiment remained supported and stocks edged ever higher once more.
In Europe all eyes are on France and the elections, Macron appears to have a comfortable lead in the polls at this stage and Eurozone indices including the CAX and DAX continue to press higher confirming the positive sentiment. For the USD we will still be looking at the labour market figures due tomorrow, the ADP employment report was more or less as expected and the greenback was little changed until the Fed came to town. Now, if we are to see the Fed hikes rates in June I would expected to see Fed speakers actively promoting rate hikes as we have seen in the past. Markets are currently pricing a 66% chance of a June rate hike, they’ll need more convincing if they are to price more in.
Keeping focus on GBP today we have the release of the UK’s services PMI figure. Thus far this week we have seen better construction and manufacturing data but it’s the service industry that supports the bulk of UK GDP so should we see a print better than the 54.5 expected, then we’ll likely see a larger rally in GBP. GBPUSD will be looking to target 1.3000 area where we have significant resistance lined up above, while 1.2775 area holds for now. GBP pairs now showing some overbought signals as well so some caution is warranted around these sterling highs particularly in GBPUSD and GBPJPY. EURGBP is slightly more balanced, the Euro holding firm for now and the pair holds just below .8500 while .8440 offers light support for now.
The Euro will be almost totally focused on what happens this weekend in France. Le pen and Macron went head to head yesterday in debate and things appeared to get rather heated at times but Macron came out on top on some polls now suggest a 63% /37% lead for the centrist candidate. 1.0950 holds any moves higher for now but expect volatility over the weekend, especially into the open on Sunday evening and we may well see a significant ranges in play in thin liquidity. So be careful of any orders in the markets as we may see significant gaps at Sunday evening’s open.