Another week and the same themes are still in play for FX markets. US trade tariffs, Emerging Markets and UK politics to name just a few.
For the US dollar, the greenback extended gains on Friday and over the weekend, as President Trump further threatened to step up a trade showdown with China. Trump signalled that he’s ready to target a sum of goods equal to virtually all imports from China. So far European equity markets are showing a mixed response this morning with the leading indices such as the FTSE100 and Dax showing marginal losses so far. The dollar was further supported on Friday from a more fundamental place as wage inflation figures showed that average hourly earnings on a YOY basis rose to 2.9% versus 2.7% expected. This should clear the way for two further Fed interest rate hikes this year.
EURUSD broke as low as 1.1528 this morning with the next lines of support being 1.1518, 1.1500 and then 1.1465/55. GBPUSD is a slightly different pair after we witnessed a mini sterling rally on Friday which was more a case of the pound getting caught oversold and some short term profit taking kicking in. Cable found a high at 1.3025 on Friday but the broad dollar strength eventually overwhelmed the mini GBP rally, with GBPUSD moving back to 1.2920. The pair has now failed again to take out the August 30th high of 1.3045/50 and with both negative Brexit news and Conservative Party infighting headlining likely to continue to dominate, the pound is liable for further downside. Within this scenario, a revisit to .9000 for EURGBP (1.1111 for GBPEUR) is a possibility which presents potential opportunities for both sterling sellers and buyers. For sterling sellers, the opening level this morning may represent some good value. On the flip side, a revisit to 0.9000 will present opportunities for GBP buyers, as EURGBP has continually failed to establish a sustained break above that pivot rate.
Data wise this week, we see a light start with the primary events taking place on Thursday and Friday. Thursday is the biggest day with the ECB meeting coming to a conclusion. No change is expected to policy but the central bank are scheduled to publish their macro-economic projections which always gives an insight to the data the ECB are using when making key monetary policy decisions. In the US we have key CPI and more wage inflation data too.