Markets have had plenty to focus on in recent weeks but it’s really the lack of any clear guidance that has been the driver of recent moves. Janet Yellen’s failure to address monetary policy in Jackson Hole on Friday saw the USD sell off and losses increased after the weekend as both stocks and the USD traded lower following the huge devastation of Hurricane Harvey.
It was almost the opposite for the Euro. Markets were expecting to see the ECB’s President Mario Draghi talk down the single currency but his failure to do so has just resulted in the grind higher for Euro once again with EURUSD trading above 1.2000 (31 month highs) this morning while EURGBP has traded to highs of just below .9300. Overnight geopolitical tensions have risen once more with North Korea firing a missile over Japan which has seen sentiment sour and JPY has rallied on the back of some risk aversion flows while major indices have traded lower with gold also extending its gains, now up almost 4% since Friday and trading at three month highs.
We’re coming to the end of the summer markets and it has been anything but a lull, especially for the Euro. The single currency has rallied over 11% against the USD and just over 10.5% against GBP in the same time frame and the ECB is showing no indication of looking to talk the single currency down yet. The lack of direction from Jackson Hole over the weekend was enough for bulls restart Euro demand but the Euro is sitting in extreme levels with EURUSD and EURGBP now sitting in heavily overbought territory technically, and yet the grind higher continues. There is no doubting that these levels offer considerable opportunity for Euro sellers. French GDP highlights the calendar but most attention this week will be on CPI figures from Germany tomorrow and Eurozone regional print on Thursday. In EURUSD 1.2100/50 offers next area of resistance to moves higher. In EURGBP we’re looking at the post GBP flash Crash highs towards .9365/9400 area for next resistance, while all-time record highs for EURGBP are just above .9800
Markets are now predicting the Fed will not raise US rates until September 2018, which is some considerable way from the dot plot guidance provided by the Fed and behind the decline in USD over the last few months. The USD is almost 12% down from its year’s highs despite hiking rates twice in that time frame. The expectations of additional rate hikes have diminished as data from the region has subsided, while the Presidential administration has also had its own issues distracting it from major projects that had been forecast to help boost the economy.
Current attention in the US will be focused on the fallout from Hurricane Harvey, while geopolitical tensions may also rise once more following the missile launch over Japan. US consumer confidence headlines today’s data, but this is not likely to provide and sustainable recovery for the greenback. GBPUSD has rallied on the weaker USD, back above 1.2900 with designs for 1.3015 area once more. Light support around 1.2940 provides some levels for GBP buyers, but 1.2800 area is where we see most offers lines up.