From a volume perspective yesterday was in the lower ends of activity, with both the US and the UK on holidays equity markets were quiet but in the currency world there were some interesting movements. The Euro found itself under some selling pressures following comments from the ECB’s Mario Draghi, the ECB president suggesting they were in no great rush to raise interest rates from current record low levels, pointing out that the recent recovery in the Eurozone as being unsustainable. There were some other Euro negative headlines crossing wires, one suggesting Greece may opt out of their next payment didn’t help matters. GBP was on the back foot to welcome in Monday but recovered against the weaker Euro, while also managing to stage a rebound from Fridays lows against the USD, rebounding from 1.2780 to 1.27980 this morning. Overnight Asian markets were quiet, Chinese are on a holiday while the Nikkei traded more or less flat, with JPY advancing against the Euro, USD and GBP.
GBP is looking very political at the moment and all focus around GBP movement appears to stem from election news flows rather than anything else. Anything Brexit related has taken a back seat and all eyes are on the battle between May and Corbyn. After a significant dent was made in her lead, May has looked to come out fighting and following a round of questioning (separately) on TV last night it would appear there was no clear victor. In terms of the polls the conservatives still appear to maintain a healthy lead of 7 points and GBP appears to be finding its feet in tandem with the end of the slide in their popularity. GBPUSD broke to the low end of its range last week however and while we are looking at a slight rebound, failure to gain traction back above 1.2930 will likely favour a drop back lower, with support at 1.2775. EURGBP quickly found sellers above .8700 and we are now back towards support around the .8640/50 area, a break below there should see a move back towards .8600 area.
The USD has rebounded from last week’s lows and continues to grind higher as the hawkish tone from last week’s FOMC minutes have helped keep focus on June for the nest possible rate hikes from the US. With this in mind over the next couple of weeks US data will carry even more weight than usual, as will the general tone of FOMC speakers as they look to broadcast Fed intentions. Our view remains that unless a rate hike is well priced in, then the Fed will be hesitant to hike and create any form of shock/panic, thus focus on data and Fed speaks is key to see where the USD is pricing rate hikes. With that in mind we have a whole host of key data today, with focus on personal consumption expenditure data, as well as consumer confidence. Tomorrow is the Fed’s beige book of economic activity, while NFP data on Friday will be the real tone setter. EURUSD failed to hold above 1.1250 an several attempts last week and has now fallen back towards support around 1.1100 area. A decline below 1.1080 would be required to see a larger move lower bud for now EURUSD looks set to test 1.1175 resistance