There was a slight recovery through yesterday’s session but still an air of caution prevails across markets. Sadly is was too late for the European session to fully recover as it finished yesterday at two week lows but in the US, stocks turned slowly positive throughout the session to close marginally higher. The USD also managed to recover following 5 straight days of decline, although the phrase “dead cat bounce” was thrown around plenty of times.
GBP outperformed through much of the day following far stronger retails sales, however flash selling of sterling saw a crash of 100 pips in GBPUSD and saw EURGBP rally some 68pips yesterday evening without much of an explanation. The Euro held firm throughout the day. We’ve seen several technical breaks in recent days for the single currency but yesterday’s ECB minutes failed to provide anything new and both EURUSD and EURGBP retreated slightly on the day.
The US is not the only nation facing political turmoil. In the case of Brazil it would appear far more serious and evidence more concrete that their President participated in fraud and a cover up causing Brazilian stocks to plummet and the Brazilian Real to decline by more than 10%, with trading on the Brazilian stock market halted. Overnight we saw some tentative trading with the Nikkei following the US with some modest gains while the JPY gave back a moderate amount of its safe haven rally.
One of the interesting currencies yesterday was GBP. We highlighted yesterday that a break of the 1.3000 figure would likely result in a quick rally higher but that stalled out at 1.3050 following a run of stop loss bids. Failure to extend saw GBPUSD drift gradually lower through the day and as the USD woke up, GBPUSD came under pressure and traded back below 1.3000. This is where things get interesting, at 6.32pm on the dot a bout of GBP selling crossed markets dropping GBPUSD from 1.2991 to 1.2887. EURGBP had faced pressure from the stronger GBP as pound was supported by retails sales having traded above .8600 yesterday morning, sterling recovered back down to .8524 but also fell afoul of the heavy GBP selling at 6.32 and rallied back to .8614. The pound has since recovered from lows and while this is by no means a “flash crash”, it certainly highlights the fragility around GBP despite its 2 month surge higher. Interestingly for the UK, Moody released a report suggesting the economy has seen some growth shift away from services to drivers led by industry which is positive news for Brexiteers.
We are very light on data today, GBPUSD will still find topside resistance around yesterday’s highs at 1.3050 with sellers from 1.3030 up to that mark while we see support and bids around 1.2900. EURGBP finds upside resistance around .8600 area while support at .8550, .8530 and the big figure .8500 should hold any moves lower.
The USD found some support on the back of stronger than expected data and Trump coming out fighting. He made the point yesterday that the US needs to focus back on the growth agenda, I am sure everyone is in agreement here and while it may feel like a constant witch-hunt against him much of it is his own doing. There are obviously arguments from both sides but I would be very interested to hear what Trump would have to say in a parallel universe where “crooked Hilary Clinton” won the elections, then sacked the FBI director who investigated her having previously asked him to drop all investigations in relation to her campaign.
As I have said before this is a side show and the issue for the USD is it is greatly impacting the huge growth plans we’ve all been waiting to hear about. If Trump can deliver on what he has promised then almost certainly everything will be forgotten about however, many doubted the ability to deliver such grand plans and a trillion dollar investment into the economy while cutting taxes for all, as America sits on the $19.9 trillion in debt, seems a little audacious. The USD is painting this picture for us as it now sits at levels not seen since Election Day, and over 6.3% off its January highs. Very little data today and EURUSD will be focused on the breakout range that is upside resistance at 1.1172 with support around 1.1100/1.1110 zone.