GBP/EUR 1.1961 (0.8364)
The Dollar continued to have its day yesterday as the prospect of rates rising sooner than expected saw investor demand pick up for the greenback, helping the USD rally to its best week in two months versus majors. In equity markets Europe closed relatively flat as early losses were erased later in the day and US markets rose as leading indicator data suggested the economy has come out of the cold weather slump and is growing faster than expected. Overnight Asian markets followed the US higher, but some EM currencies were vulnerable yesterday. The Crimean situation continues to simmer in the background, both Europe and the US have agreed to further sanctions against Russia, although economic sanctions have yet to be approved.
On the data front it has been a quiet week for the Euro but the single currency has shown little weakness, except to the USD. Even yesterday despite broader USD moves EURUSD remained in a tight range from 10.00am on. The little data that was released yesterday saw Producer Price Inflation stagnate at 0% for Feb, an early warning sign for CPI inflation and should Germany begin to feel pressures from falling inflation we may eventually see the ECB act on the concerns. The European calendar remains quiet today, later in the afternoon Consumer Confidence is expected to improve moderately but it is unlikely to provide the Euro with any lasting strength.
Likewise the GBP calendar was quiet as markets absorbed Wednesday’s budget, GBPUSD fell to fresh monthly lows as it declined towards the key 1.6500 level, there is plenty of support for GBPUSD below there to hold any move lower for now. UK public finance data due out this morning is unlikely to cause any major moves in GBP pairs and as such we expected a further day of consolidation for GBP.
The US calendar is light on the data front but it does have plenty of Fed speakers and after Janet Yellen’s press conference on Wednesday comments will be closely watched. The Minneapolis Fed President is likely to be the main focus as he was the only member of the rate setting committee to go against the Fed’s latest decision, but any comments around the pace of rate increases is likely to set US rates markets a flurry, and give some volatility to US pairs.
On the technical front EURGBP has been rejected from its first attempt at .8400, falling back just shy of support at .8325, light resistance at .8376 with major resistance ahead at .8400.
GBPUSD has a number of support levels but most notable below is 1.6417 area which hold the 100 day moving average and has supported GBPUSD since last July. A break below here could start a larger route in GBPUSD.
EURUSD is back below 1.3800 but the recent range remains in play with firm resistance at 1.3950 area and support at 1.3750 area.