GBP/EUR 1.1780 (0.8480)
The JPY has been the biggest loser to the start the week, down across the board as the Nikkei advances over 2.7% on the first trading day of the week. The USD put a halt to a 5 day losing streak on Friday, ahead of this week’s FOMC meeting, but the USD still remains under pressure and last week’s move pushed the greenback through some key technical levels that may leave further downside ahead for the USD- The FOMC will be the deciding factor this week.
Friday data saw Eurozone inflation figures come in as expected and some 3.19 bln repaid to the ECB for early repayments of LTRO. Data from the US was a little less positive as industrial production was weaker than expected and the U. Of Michigan consumer confidence survey fell back from its recent highs, posting 82.7 versus 84.5 expected. This bucks the trend of recent strong confidence data from the US and could be further indication of a slower US recovery than expected.
Today’s calendar is relatively light aside from the G8 summit starting in Northern Ireland this morning. European and UK data has little to offer and later in the US session some housing data is the most exciting release on the docket, but unlikely to impact currencies too much given the event risk ahead this week. This should give the market time to consolidate ahead of tomorrow’s FOMC meeting the first of a two day meet ahead of Wednesday’s policy decision.
We would expect Ben Bernanke to continue to reiterate last month’s comments that, subject to the pace and depth of recovery, the FOMC will consider reducing the pace of bond purchases. As with last month’s meeting this will be very balanced and highlight that monetary policy should remain accommodative for the time being and will only be removed or tapered at a cautious pace, meaning it will not be a knee-jerk exit of policy, but carefully planned and executed…..we hope.
EURUSD has failed a number of time around 1.3360/80 and the USD may get some reprieve ahead of this week’s meeting, this pair continues to be sold around last week’s highs with support below towards 1.3300 and 1.3220 below that. We favour a move lower here after EURUSD broke to the downside of its rising trend channel in place since the 29th May but beware the FOMC.
GBPUSD also faces some selling pressure above 1.5700 although that selling pressure is not enough to drive this pair back lower as it trades around its 200 day moving average. The lack of follow through here suggests there is still interest in buying GBP and pushing this pair higher, but we feel a top is not too far away and as such still favour to see this pair lower in our medium term view, although we do not rule out test towards fresh highs in the near term.
EURGBP has been grinding slowly lower, although there has been a lack of follow through towards .8400. EURGBP remains very much in the middle of its range from March 14th, between .8600 and .8400. There is plenty of event risk for the pound this week and should data continue to show gradual signs of improvement then we may finally see this push towards .8400 which we have been looking for.