GBP/EUR 1.1720 (0.8532)
The yields on US treasuries continue to pick up following last weeks Fed announcement and higher yields are proving favourable for the USD as it strengthens across the board. The remaining summer months will likely see the US QE exit debate continue as the markets try to time the pending wind down in Fed bond purchases.
US economic data will likely be scrutinised even further based on tapering requirements and as such labour market, housing and inflation data will continue to provide increased volatility around USD pairs as the greenback gets shifted around by tapering sentiment. That being said, the larger trend will be for a stronger USD as the drag from payroll taxes and the sequester feed their way out of economic data and the US prepare to remove current stimuli.
Even a strong LTRO repayment figure was not enough to help lift the EUR against the USD on Friday but todays releases may provide the single currency with a boost. The German IFO survey of Business confidence tops a quiet Monday Calendar with a slight increase in the headline business climate index expected, reaching a three month high of 109.6.
There is no news from the UK for the first couple of days of the week and will leave GBP vulnerable to its most immediate counterparts. The US calendar is also very light this afternoon with only relatively low impact data due, although the Feds Fisher will be speaking in London so any QE exit comments will be watched by the markets.
EURGBP continues its slow progress back towards .8500 from last week’s highs but the lack of data supporting GBP for the first couple of days this week may well halt its progress. EURGBP support between .8475 and .8500 with stronger resistance coming in ahead of .8600, holding any move to the topside for now.
EURUSD has reached our post FOMC target of 1.3100, pressure remains to the downside here but the EUR has approached oversold territory so string confidence data will likely be enough to start a small EURUSD rally, resistance to the top comes in just above 1.3200.
GBPUSD has been under pressure and last week’s highs above 1.5750 are a world away now. Support back below 1.5300 is our target as we expect GBPUSD to drift back towards 1.5000 by September. 1.5400 acts as near term resistance with 1.5440 just above.