The USD’s rally higher lasted little more than a few hours post FOMC. The greenback had already started yesterday off the post FOMC highs and things didn’t get much better through the day as USD selling accelerated through the afternoon, the USD index now sitting pretty much where we opened the week. The sell-off in USD was somewhat surprising given data was more or less as expected, with a slightly better print from the Philly Fed survey but USD supply was prominent yesterday and once again this morning the USD finds itself under some pressure.
The euro was slightly more neutral yesterday. The single currency benefitting from the weaker USD and bouncing off rising trend support as EURUSD rallied back above 1.1900, the euro getting a further leg higher through this morning following very strong PMI figures from Germany. Stocks in Europe traded firm yesterday but in the US session sentiment shifted and major US bourses closed the day in the red, putting stop to a 5 day winning streak amidst some post FOMC profit taking and rising concerns over North Korea. This continued overnight with Kim Jong Un pushing back on Trump’s threats calling them a war declaration, as concerns grow into the weekend we may well see additional nuclear tests from North Korea over the weekend. This will likely keep sentiment somewhat subdued and thus far today safe havens appear in demand with JPY, gold and CHF all on the rise.
The euro has responded to far stronger French and German manufacturing and services PMI data this morning and we have seen the euro finding bids ahead of ECB’s President Mario Draghi who is due to speak in Dublin this morning before participating in a round table event. We’ll be looking for any indication on the ECB’s plans to taper or more specifically for me I’d be interested on how long the ECB plan on extending their asset purchases for (even if it is at a smaller level). I find myself going back to the old mantra from the Fed’s “taper tantrum”, in that tapering in not tightening. The ECB extending purchases beyond December 2017 amounts to an extension of its asset purchase program (even if it is a lower volume) and while the market expects this to happen should the ECB not allocate an end date to their program then the single currency has space to fall. EURUSD bounced of rising trend support and a key demand/supply area, so for now the pair looks to tackle the 1.2000 area once again. Any move towards 1.2020 has found euro sellers this week and that remains the play for the week. EURGBP playing tight range thus far this week, between .8900 and .8790. We may well see the top of that narrow range tested once more, a break above targeting a move back towards .9050. We still see additional EURGBP downside as long as we hold below the .9050 area.
GBP will likely have its part to play however as PM May takes to the podium today to try and reignite her Brexit plan. The UK leader has been facing some considerable criticism in recent months. The snap election was a poorly timed and an ill-informed decision to make and since then the UK and EU have struggled to make any progression on talks, while May faces revolt in her ranks. It really does feel that after over a year, we are none the wiser on how Brexit will proceed and on what terms. The lack of progress is starting to be felt and we are seeing early signs of businessES beginning to get a little nervous this week we have seen a number of large UK based business looking to lobby government for some progression and even suggesting alternative plans or hedges as fears grow. GBPUSD trades at the highest levels we’ve seen in over a year however, rallies above 1.3600 provide good levels for GBP sellers, while support at 1.3498/75 area holds any moves lower.