Market News & Insights
7 October 2013

Markets Remain Cautious with Little Progress from the US

EUR/USD 1.3580
GBP/USD 1.6064
GBP/EUR 1.1824 (0.8462)
EUR/CHF 1.2266
GBP/CHF 1.4493
GBP/AUD 1.7097

Today is relatively quiet on the data front from both Europe and the US, which means the shutdown in the US, budget negotiations and the debt ceiling are likely to take centre stage. The USD fell for a 5th consecutive week last week, despite seeing some gains late Thursday and into Friday. The lack of non farm payrolls perhaps benefiting the USD as without negative jobs data the greenback could pick up some of its lost ground.

There has been little real progress on budget negotiations, all in all this is a minor issue and it is expected to be resolved, the bigger issue and where this shutdown is leading is the US debt ceiling due to expire around October 17th. We see a breach of the debt ceiling as the bigger risk here and would expect the risk environment to diminish as we approach the breach date.

The current shutdown has the potential to knock approx .1% from US GDP per week, which will accelerate the longer this goes on, however over the weekend news emerged that the government would be calling back workers from furlough, and pay them for last week’s absence. The now partial shutdown means that once again this week’s US data releases are likely to be disrupted, my calendar is showing Non farm payrolls to be released this Tuesday but we’ve yet to receive confirmation on this.

The EUR traded firmer last week post ECB meeting where Mario Draghi remains cautiously optimistic about the region’s recovery. Q3 has shown indication that we have seen a bottoming out in the region with a return to very modest growth experienced across most of the region. That being said real organic growth appears to be a long way off and there remain a number of risks to recovery, meaning the ECB are standing ready to act. This leaves the EUR trading firmer for now, but with a risk off environment looking to be USD supportive and the very real threat of a Greek debt restructuring on the horizon, the single currency still remains vulnerable in our eyes.

The pound faced some selling pressure last week and this week it will face the BOE and also industrial and manufacturing production data. Following on from last week’s disappointing PMI’s we see risks on production data missing to the low side and as such we will continue to monitor GBP for further selling pressure. We expect to see no change from the BOE and as such it is likely we will have to wait for the minutes to be released in two weeks for some further detail.

Risk remains somewhat mixed as overnight the Asian session was flat to lower, with Japan a noticeable under-performer, European stocks have started the day well in the red and Futures are pointing to a lower open in the US. As mentioned the calendar is light with only Eurozone Sentix Investor confidence on tap, expected to rise from 6.5 to 8.5.

Looking at currency crosses EURGBP put in a weekly reversal on the charts indicating that we may have seen a bottom at .8330 as the pair tested back above .8400 on Friday. Resistance to the top comes in at Friday’s high at .8475 with stronger selling interest above ahead of .8500. Support at .8450 has held any attempt lower since Friday morning, with further support at .8425.

EURUSD fell back from 1.3646 which coincides with February daily opening/closing highs. Much of this fall came in late US trading. EURUSD is likely to remain volatile as US issues continue, but any form of positive news flow from the US is likely to be very supportive of the US and bring EURUSD back lower towards 1.3470 support.

GBPUSD also put in a big technical reversal on the charts last week and we may have seen the 2013 top reached. As mentioned above this week is key for GBP but for now we are well off recent highs with resistance at 1.6070 and firmer resistance at 1.6145. Support below comes in ahead of 1.6000 with the next level down at 1.5960.