Politics remains to the fore thus far this week as major data has been lacking. Markets instead looking towards French elections, Brexit votes in the House of Lords and of course stateside as markets await plans for Trump’s huge infrastructure and tax plan amongst other initiatives. The Euro continues to trade on the weak side this week, it got off to a rocky start with weaker factory orders from Germany, while the final release of Q4 GDP was as expected. The single currency did experience some gains against a weaker CHF and GBP through yesterday but faced selling against the USD and JPY amongst others, as polls suggest Le Pen will get 26% in the first round of the French elections with Macron 25% and Fillon 20%. These are just prelims and in the outright race Le Pen is still expected to be less than a 30% chance but after last year’s election results nothing will be written off at this early stage, meaning the Euro may still find itself under pressure around election news. There is nothing in the way of major data again today and the Euro will likely still be looking at France for guidance on direction. EURUSD remains mid-range between 1.0500/30 support zone, and resistance and sellers lined up above 1.0625/30 area.
In the UK the House of Lords voted to reject an amendment to grant rights to EU citizens already in the UK, while PM May reiterated that she wanted to proceed with an un-amended Brexit bill. It was not all plain sailing for May however, as the House voted to have the power to reject the final terms and markets took this as a negative. This simply creates uncertainty, the expectations of a hard Brexit have already been sown but should the House effectively have a veto, then May and Co’s negotiating position is likely weakened. It is most likely the PM will get this overturned but it distracts focus and creates uncertainty, which is never good for any currency.
We also have the Chancellor’s budget due today, where tax increases are expected to be passed. GBP sentiment remains subdued and for now sterling faces downside pressure. GBPUSD is lacking support and while we remain below 1.2250 area, 1.2080 attracts where we have a confluence of support and likely some buying interest. EURGBP has resistance around yesterday highs just above .8680, but for me .8700 to .8740 area is where sellers will re-emerge and we may see a spike there around the budget. We’ll need a fall back below .8624 for any downside momentum to resume.
The USD is on track for three consecutive days of gains, and has almost recovered all of Friday’s declines. In the US, Trump took the wind out of stocks sails as he commented on competition within the pharmaceutical industry, this weighed on sentiment and dragged indices lower once again, albeit declines remain moderate and nothing close to a panic sell off. Trump also announced that the House is ready to approve his new Healthcare Bill, which will replace Obamacare, he has stated that once that is addressed he can then return focus to his Tax plan where he has stated he will roll out huge cuts for businesses and workers, this will also clear the path for his $1 trillion infrastructure plan.
We will have some focus on data from the US today as well. The ADP employment report will set the tone for Fridays NFP release. 185k jobs are expected to have been added, down from the bumper 256 in last Jan. In reality anything above 115k jobs should be acceptable for a March rate hike to remain priced and markets will be more focused on wage growth than anything else. USD remains in demand and it will only take a big data shock, or a comment from Trump on USD strength, to get markets to shift their expectations.