The second half of the year began on a stronger footing as stocks in Europe traded higher with the Pan European STOXX 600 up over 1% and rallying off two month lows as oil and banks stocks across the region helped raise general sentiment. In the US this positivity carried through into the open, the DOW hit a fresh record intraday high while the S&P rallied through much of the day before selling off into the early close in US markets.
Overnight the Nikkei rallied higher before details emerged, with reports suggesting a North Korean missile launch was in fact an intercontinental ballistic missile, their first launch of this kind. JPY found itself benefitting from safe haven demand in overnight trade while the USD was an outperformer through much of yesterday, the USD index was up .72% this morning from Fridays close.
Some wind was taken out of GBP’s sails yesterday as weaker than expected manufacturing data saw some profit taking in GBPUSD rally higher, while EURGBP failed the break through key support and thus further gains for the pound were limited. Manufacturing expansion dropped to 54.3 from an expected 56.3 so a rather large miss on a data point that has been improving since Brexit.
Today we’ll have an eye on the construction PMI due for release but most attention will be on the FPC record of the June 21st BOE meeting, where we saw three members vote to hike rates, two more than the previous meeting. This is quite hawkish for GBP and given recent BOE comments, which have helped the pound rally over 3.5% since the last meeting, expectations are for the minutes to support this view. Major levels remain the same, GBPUSD will need to break above 1.3040/60 area for another leg upside to begin, while EURGBP will need to break below support around .8750/60 area which holds for now.
It’s a US holiday today so we’d expect afternoon trading to be light but just after 1.30pm (GMT) the ECB’s Praet speaks in Rome. Given the recent rally higher in Euro pairs, buoyed by comments from the ECB president Mario Draghi that suggested the central bank may look to begin discussion on how to scale back easing, the Euro could find itself under some selling pressure of Praet does not conform to this perceived hawkish stance.
We already saw some step back from the ECB, suggesting markets had misinterpreted Draghi’s comments, so any more of this and the Euro will almost certainly face additional selling as it struggles to hold ground just below recent highs. EURUUSD continues to see sellers above 1.1400, with light support holding the pair around 1.1334 area, with 1.1210/1.1200 the next major support zone below.