Market News & Insights
24 May 2017

Mixed Signals from ECB

Recent ranges remained in play for the most part yesterday with the exception of EURGBP, which continued its rally higher to a peak of .8675 before running into selling into the afternoon. EURUSD tried to press above Mondays highs around 1.1262 but quickly found sellers. GBPUSD continued its consolidation between 1.2900 and 1.3040, a rally into the 4.00pm fix saw a break above 1.3000 and that grew legs with a spike above 1.3030 but for the 5th time in as many days that level brought the sellers out in force, dropping GBPUSD right back down to 1.2960.

Risk appetite remained positive across the broader market despite some early jitters deriving from the Manchester terror attack. PM Theresa May has put the UK on a “critical” terror alert, meaning another attack is imminent and tensions remain high in the UK.

US stocks showed no sign of jitters and pressed higher. The sell off from last week and fears Trump would be impeached have abated and stocks are right back where they started before that sell off. Overnight we saw the Nikkei trade up almost .7%, USDJPY also traded higher and broadly the USD index has rallied off Mondays 6 month lows.

There is plenty of action in the market today to focus on. In the early session yesterday we saw the Euro press higher following better than expected data on the whole, however there was a slight miss in German GDP and Eurozone services PMI which did set some negative undertone in the single currency. The surge higher for the Euro has been based on the expectations the ECB will look to scale back easing but there is some disagreement amongst senior ECB officials as to when exactly that should happen, or so it appears.

The ECB’s Coeure suggested yesterday that now was not the appropriate time to change policy sequencing, while later today we have the ECB’s Praet and Mario Draghi due across the wires. It’s also worth noting that twice over the last week German leaders have suggested the Euro is too weak for Germany and undervalued. EURGBP currently finds resistance to moves higher around .8667/75 while support around .8610 /.8600 area hold for now, a break below there will favour further progression back lower to .8570. EURUSD upside capped around 1.1270 with light support around 1.1160 while firmer support will be found on the downside towards 1.1100.

The USD has had a bad run of things lately but that may well change with the FOMC minutes due for release this afternoon. At the last meeting the Fed were still very much of the view that the June meeting would be “live” for potential rate hikes and just after we saw the probability of a June rate hike rise above 75%. That has since changed but the minutes will reflect to previous sentiment and thus should well prove supportive of the USD. The USD index rallied off six month lows yesterday and remains bid today.

UK data is on the light side and the election campaign is on hold for now so its wait on see for GBP. GBPUSD finds resistance above 1.3030, while support will be offered by bids from 1.2950 right down to 1.2900, only a break of that range will change the consolidation in GBPUSD.