Another day and another rally to fresh record highs in US equity markets which appear to only be able to go one way at this point. Nothing appears to be able to knock them out of their bull run and all three major indices posted record closes. In Europe, small gains were also seen across major indices but later in the session there was some selling. Political risk is the key concern across Europe and while French elections are most pressing, markets will also be looking towards Germany and of course debt talks in Greece continue to simmer in the background, and we may well be seeing talk of Grexit once more as the July deadline for maturities falls due.
It was a poor week for GBP as data from the UK has started to show some signs of weakness. We have warned that the Brexit fallout would take some time to filter through and while the economy has looked resilient to this point, we are now facing some areas of concerns and with Article 50 and the real Brexit talks about to begin, GBP may find itself under some pressure. Sentiment has been slightly softer at the beginning of this week with the Asian session posting some moderate declines while JPY traded relatively flat.
It’s a quiet start to the week and US markets are closed for President’s Day so that will likely keep action to a minimum today. Data overnight from the UK suggests house prices were weaker than expected with house price data from Rightmove indicating the pace of growth is slowing. There is a whole host of data coming from the UK throughout the week however and Mark Carney will also be getting some attention as he speaks in UK Parliament tomorrow. GDP data is due for release on Wednesday along with public finance figures. GBP has started the day somewhat firmer at least and EURGBP is looking like it wants to break back below .8500 area once again. The larger range for EURGBP continues to be .8460/80 area up to .8570, we need to see a break out of this range and some confirmation of continuation if we are to avoid the chop inside the range. GBPUSD finds itself support around the 1.24000 level, and while it is not a clean support, any move below 1.2400 has quickly found buyers driving GBPUSD higher once again. 1.2510 offers first resistance
There is not too much from Europe across the wires today but focus for the region continues to be less economic and more political and that is unlikely to shift any time soon. Data for the region has been somewhat concerning of late and given a notably dovish ECB press conference and the potential and increasing political instability around elections, we would not be too surprised to see the ECB maintain and extend their accommodative position. Draghi was been a master at “verbal easing” in the past, he may be happy to try that playbook once again rather that outright commitment, either way we still see any euro strength as fleeting and likely risk aversion driven rather than fundamental strength. EURUSD remains supported above 1.0600 region, but the principal area of support is below towards 1.0525/50 area where we have seen continued support buying over the last 3 months, a break below that is required to see continuation lower.