There was little in terms of major data yesterday but there was plenty of ongoing issues to take our attention. Broader sentiment remained fragile in the European session as concerns and political uncertainty stemming from Germany was enough to see an already cautious market tread carefully, at least when it came to the euro. In fact, it was a whipsaw day for the single currency which opened the week under pressure following the breakdown in Merkel’s coalition plans. The euro then found buyers as the European session came to the floor but the optimism didn’t last long. The euro once again ran into a heavy flow of selling through the afternoon. The concern in Germany is that without a collation in place voters will have to return to the polls, Merkel has already stated that she would prefer to avoid such a scenario, as I am sure the voters would, so focus is on a resolution for now.
The euro was also helped lower by some accommodative comments stemming from the ECB President Mario Draghi’s address in Brussels. Draghi’s comments were interesting and while he sounded positive on the outlook for the region, highlighting expectations of a recovery in inflation to target once labour market stats continued to improve, he also continues to tow the party line that considerable accommodation was still required. This was enough to drive EURGBP and EURUSD back lower, along with most other euro crosses. EURUSD has made several attempts back above 1.1800 over the last week and every rally higher has found sellers more than happy to drive the pair back lower. 1.1861 marks last week’s high point but the psychological barrier appears to be at 1.1800 which offers Euro sellers an opportunity to buy some USD. EURUSD is now sitting just above 1.1730 area which had previously provided support, a break back below 1.1680 will once again target a move sub 1.1500. EURUGBP is sitting in the middle of its wider range between .8730 and .9030. The bias is for a re-test back towards .8730 once more as EURGBP feels overvalued but as often happen s in the middle of a range, some chop around is expected.
In the UK focus was also on politics as PM May and government ministers met to discuss and hopefully agree on settlement terms with the EU, where headlines suggested the UK are willing to improve on their previous offers. Attention in the UK will also be on Wednesday’s budget, traditionally the budget brings some light volatility to sterling although the ability to totally shift the currencies direction is limited unless the Chancellor brings out some shock changes. The pound broadly outperformed in yesterday’s trade and was the best performing of the G7 currencies.UK public finance data headlines the calendar today, along with some BOE testimony due to begin mid-morning.
The USD also had a good day yesterday, data was light and with the US focused on Thanksgiving holidays towards the second half of the week much of the data is expected to be front loaded into today/tomorrow. The USD index rose to fresh 1 week highs and attention today will be on some second tier home sales data. Nothing much to get excited about to be fair and focus will likely remain on tomorrows FOMC minutes due to be released ahead of the US holiday. GBPUSD still looking to press back towards 1.3300 but running into selling anytime we get near that level.