Yesterday proved difficult for GBP, unemployment dropped to 4.2% and wage growth grew at one of its fastest paces in 2 years (2.8%) but it still missed expectations by over .2% and that caused some sterling selling in the markets, with EURGBP bouncing from lows and GBPUSD dropping back from highs around 1.4376 to trade back sub 1.4300 this a.m. It was a slightly different story for the greenback, USD finally found some footing as a whole host of data released proved to be on the positive side including housing starts and industrial production data as well. General risk sentiment remains well supported, some firmer earnings releases helping to erode any nervousness in markets that may be caused by geo-political frictions and considering we’ve seen very little escalation on that front, markets have opted to continue as they were. It was a similar risk positive tone overnight with the Nikkei up 1.42% and this morning I’ve been greeted by a sea of green with European equity indices all positive.
The selling in the pound came despite some strong data. The reason this happened was because wage growth missed expectations and at 2.8%, but focus on today’s CPI reading which is expected to come in at 2.7%, meaning UK households real wages are set to return to positive wage growth. This positive progression in the labour market has not been matched by other areas of the UK economy which has shown considerably weakness, including PMI data and its impact on GDP. CPI inflation is due this morning and a reading of 2.7% is expected, anything higher will almost certainly see an acceleration in GBP selling. Yesterday’s high point of 1.4376 now forms resistance and any selling should find support back towards 1.4220/30 area. EURGBP support holds at .8620, with resistance at .8670, a break above there favour progression back towards .8700/.8720 range.
Eurozone inflation is across the wires as well and while no change is expected with core at 1.0% and headline at 1.4%, anything weaker will be a concern for the ECB. They’ve continued to flag their concerns on inflation in the last ECB meeting in which they highlighted the impact that the strong euro is having on this and as we mentioned yesterday, they may not be willing to remain quiet if it continues to be a concern. The German ZEW survey was well short of expectations yesterday and that also falls in line with some signs Eurozone data has topped out. EURUSD continues to find sellers above 1.2400, light support will hold at 1.2323, however 1.2300 area marks the strong uptrend support in place for a year.