We have pretty much focused on political factors and their potential impacts across broader markets the last few days and really that scope is unlikely to change too much. We’ve entered the summer months and from this point on markets get a little thinner, but that doesn’t mean the action stops. In fact sometimes in thinner markets moves can be exaggerated as there is not quite the usual market depth to absorb flows. That’s something to watch over the next couple of months in terms of volatility risk.
Back to business now and I’ve resisted the temptation to use a pun relating to the England win last night, and while we have seen a stronger pound in the last 24 hours its wasn’t on jubilation that football’s coming home. It started early yesterday with better than expected construction PMI data, posting 53.1 vs 52.5 expected, the sector showing a decent bounce back from a weather impacted Q1. It wasn’t just data helping the pound, known BOE hawk Michael Saunders had some comments suggesting spare capacity is being used up and rates may need to rise faster than markets expected. Interesting to note that while the comments were very hawkish, markets reaction was only moderate sterling strength, not a surge as we might have expected, markets not quite believing Saunders perhaps but we’re still seeing a 60% chance of a rate hike from the BOE. We had services PMI data just released at 55.1 vs 54.0 expected and topping off a solid Q2 for PMI data for the UK, and that’s enough to give GBP another leg up this morning.
The US is off today and it was a shortened session for them as well yesterday as they look to celebrate their Independence Day today. The afternoon session will no doubt be a dull affair today but it would be worthwhile keeping an eye on President Trump’s twitter. Elsewhere Merkel managed to keep the coalition intact with some concession on immigrant numbers while this morning weaker French PMI data was outweighed by stronger German and the Eurozone composite was also stronger. Hasn’t helped the single currency thus far this morning and its traded lower vs USD and GBP already.
EURUSD range looking at a move back towards 1.1600 while 1.1685/1.1700 should cap moves higher. The real mark in the sand for EURUSD remains back towards 1.1500/1.1550 area with momentum lower.
EURGBP resistance to moves higher comes in around .8875/80 area, with .8800 likely to offer support on the way down.
GBPUSD also pretty boring, 1.3075/1.3100 offering support while rallies higher are stalling at 1.3225 first, with 1.3465 area far stronger resistance.