There’s little doubt we’re sitting in a summer lull period for markets and everything just feels lacklustre and laboured. USD remains well supported and despite US President Donald Trump’s comments a couple of weeks ago (citing concerns on USD strength) and some weaker labour market figures on Friday, the USD index still sits at the top end of its 13 month range and just below recent highs. The same can’t be said for GBP however, GBPUSD sits below 1.3000 and really looks like support towards 1.2800 will be tested in the coming weeks. Last week’s rate hike from the BOE had very little impact, unfortunately the BoE had talked themselves into a corner and the risk of them not raising rates last week would have been a very heavy GBP sell off. However Carney’s dovish commentary and even suggestions they could yet cut rates again proved enough to start GBP selling and with Brexit negotiations still up in the air the pound sits exposed. It’s Brexit related comments that are causing this morning’s weakness for GBP. Liam Fox who had previously claimed an EU/UK Brexit deal would be the easiest negotiations in history suggested that no deal was looking like the most likely outcome, truly inspiring leadership once more from the UK (sense the sarcasm).
Weaker than expected NFP figures failed to dent demand for the greenback on Friday. The fact is that once we see NFP’s between 150k to 250k the impact that the headline figure has on the greenback will be limited. As it stands most reaction or directional bias tends to be coming from the wage growth aspect of the labour market figures and with that coning out as expected (2.7%) there was enough to stay positive. Over the weekend Trump made further comments about tariffs. The US President once again opting to threaten in order to make deals saying that unless other nations make favourable agreements with the US they will have to pay more via tariffs. Markets are getting immune to this aggressive posturing and the threat of “trade wars” doesn’t quite have the same shock impact in market reaction anymore. However, we are beginning to see concerns creep into earnings and sentiment and this could well feed through into the USD. Data wise this week and there is very little to get excited about from the US, we’ll have to wait until Friday for CPI data so focus will be back on tariffs and comments around trade.
It’s a similar story in the UK with nothing to focus on until Friday’s data releases. Last week’s weaker PMI’s hasn’t helped the pound and once again begs the question as to why the BOE felt raising interest rates was necessary, aside from the obvious goal to help with the inflation figures. But at what greater cost? Second quarter GDP is expected from the UK on Friday, with the UK economic growth expected to have picked up from 1.2% to 1.3% year on year – not exactly something to get excited about and again the pound will be vulnerable to any sign of weakness. Trade balance data as well as industrial and manufacturing production figures also cross the wires on Friday so we’ll have something to focus on, but could be a long week for the pound given MP’s are still away sunning themselves despite the rapidly approaching Brexit deadline.
There’s not too much to get excited about from the Eurozone this week either so I get the feeling we are in for a long slow week. Sentix investor confidence headlines this morning but unlikely to give much colour or shift the ECB expectations and is unlikely to have too much of an impact on euro pairs. Eurozone economic bulletin on Thursday might provide some more colour but again it’s unlikely to give anything new or ground breaking with focus still on next summer to begin raising interest rates. EURUSD still finding support towards 1.1550m with 1.1500 firmer below that, this is a huge level and should that give way we could well see a move back towards 1.1000/1.1100 area. EURGBP still capped ahead of .9000 area as well, but pound looking fragile this morning. Intraday we’re looking at some sellers around .8930a area, and again towards .8960.