Market News & Insights
20 March 2017

Markets Take Stock

There was an awful lot of information to process last week, from major central bank meetings and policy changes, an ever shifting political environment and of course the regular fundamental data releases. Our job is to put this all together into a big picture and to then assess where the risks lie. Our concerns last week was that with so much positivity priced into the USD, even if the Fed delivered their expected hike, the USD could face selling pressure if the FOMC meeting was not notably hawkish. This was the case and the USD index has traded down almost 1.75% since last week’s FOMC meeting, a case of “buy the rumor, sell the news”.

Looking back to Europe and to the UK first where focus has been firmly on Article 50 and Brexit talks, thus sentiment towards GBP was very negative through the first two weeks of March. BOE delivered very little on Thursday and with data beginning to show some signs of faltering, the pound is looking for an excuse to continue its climb back from last Mondays lows. It may well get an opportunity with the release of tomorrow’s CPI inflation data. In the Eurozone, Dutch elections passed without too much drama, Geert Wilders, the far right candidate may have lost the election, but voting did confirm a rise in popularity for far right movements across Europe. Focus now turns to French elections, and while the Euro has maintained strength, geopolitical risks still pose some downside risks.

Overnight trading was light, stocks traded lower last Friday and general risk sentiment was mixed, if not slightly cautious, and it appears to have been a similar open to the Asian session overnight, news over the weekend was that the G20 had dropped its 15 year pledge to avoid protectionism likely adding to subdued sentiment. There is very little of interest in major data today, so we’ll take a quick look a key levels in major pairs for today, and some risk events that may come into play this week.

First up is GBP, the pound has been in rally mode since last week, helped by a weaker USD and some expectations the BOE may still be forced to raise rates as inflation continues to rise. The next confirmation of this will be tomorrow’s release of CPI figures, with headline inflation due to rise to 2.1%, above the BOE’s 2% target. GBPUSD continues to find plenty of support between 1.2090/1.2110 area and this is likely to be a key area of support for the pair with 1.2109 trading last Tuesday before we witnessed a 2.5% rally above 1.2400 where we sit today. There is likely some selling interest (resistance) Towards 1.2470 area where we see confluence of technical indicators of resistance. 1.2560 provided the next resistance above and should cap any moves higher this week.

The pound also recovered against the Euro, with EURGBP dropping from just below .8800, this now offers topside resistance while we have found support around .8665 since last Wednesday. Should that break progression back towards .8600 area is likely where once again we have 50 and 100 day moving average lining up either side of the round figure.

EURUSD is up 2.7% from the March lows experienced at the beginning of the month but any rally towards 1.0800 is falling short and finding sellers around the 1.0775/80 area. Moderate support can be found at 1.0730 area, while a break below there would likely see EURUSD look to return back towards 1.0638 and 1.0615 below that.