Market News & Insights
9 October 2017

Politics Trumps Data for Now

There continues to be plenty of political noise to distract markets from their fundamental performance. In the UK, political infighting which appears to have become the norm within the UK Government is creating a sideshow and distracting from the main issue at hand and that is Brexit. As a result we’ve seen GBP slide as concerns grow that the government is running out of time and there is a real risk that no deal could send GBP lower.

In Europe, eyes are cast towards Spain where Catalonia continues to seek independence from Spain, creating uncertainty for the region and we look across the water to the US and President Trump is once again threatening North Korea with war. Fundamentally we aren’t looking too far away from central bank guidance for direction. GBP has given back all its post BOE gains as UK data slides, while we have not heard much from Carney or the BOE. The euro had very little in the way of major data to absorb last week and as such really found itself at the mercy of moves in other currencies, while the USD rallied to near three month highs before weaker than expected labour market data knock the shine from the greenback.

We’ll take a look at the USD first this morning where despite a dismal NFP print on Friday, the dollar has stemmed its losses, for now. Friday’s labour market data was always expected to be on the weak side given the impact of two major hurricanes in the US, however a print showing the US actually lost 33 thousand jobs during September vs the 80k that was expended to have been added was enough to see the USD selling begin, bringing the USD index back from three month highs and dropping it back some .5%. The decline was actually quite subdued given the reading but as mentioned weakness was expected. There was some upside however, the unemployment rate dropped to 4.2% while wage growth accelerated to 2.9% from 2.7% year annualised. The main focus for us at the moment will be on the likelihood of the US raising rates again this year. Fed rhetoric has picked up in recent weeks which has helped the dollar higher, however it hasn’t been one way traffic from Fed members. Over the weekend the Fed’s Bullard was one of the dissenters, highlighting some concern on the link between unemployment and inflation. Highlighting concerns the Fed could make a policy mistake raising rates without proof of rising inflation. USD is steady to open the week, there’s not much data today so recent ranges will be watched.

There’s a similar lack of data from Europe this morning, with the UK and Eurozone data not likely to stir too much reaction. Our focus will be on the technical for now with EURGBP rallying back higher. We highlighted the likelihood of a bounce towards .9000 should resistance at .8880/.8900 give way, that happened on Thursday last week and we quickly traded higher to .9000, which now offers resistance. Sellers were ready at .9000, EURGBP quickly dropping back to .8940 area where we currently find ourselves this morning.

EURUSD focus remain on last week’s range. Support at 1.1665/75 area needs to break if we are to see accelerated moves lower. While any rally towards 1.1825 will run into resistance and sellers. A break would be needed to see a shift in direction.

GBPUSD finds light support at 1.3070 area, however a break back below 1.2900 area would be concerning and put the pound at risk of further losses. And rally higher will likely be limited to 1.3250 area where sellers and orders are in place.