Yesterday raised another question about the resilience or perhaps stubbornness of equity markets, particularly those in the US. Despite the steady grind higher, markets have been trading in record low ranges, and even the threat of nuclear war was not enough to knock risk confidence too much in US markets, where the biggest declines were seen in the NASDAQ, a whopping .28% (sense the sarcasm). The S&P was down just .04%.
Elsewhere stocks reacted a little more as one might expect in such a situation, European shares traded lower with the pan European Stoxx 600 down .7%, the DAX off over 1%. It’s tough to figure out whether this is just complacency in US markets and simply many do not believe that tensions will escalate but despite warning signs of overbought and extended indices, a weaker than expected economy and even concerns raised on valuations by the Feds, along with the threat of nuclear war, and markets are hardly moved. This creates a risk should we see further escalation and the reaction will likely be swift. The USD has also maintained its strength, the dollar index touching 2 week highs after the Feds Evans suggested September was a suitable time to start balance sheet reduction and outlines that a December hike may well still be possible. The Euro faced selling across the board EURUSD dropping below 1.1700 briefly, while EURGBP touched off .9009.
GBP had started the day on the back foot ahead of a whole host of data. Industrial and manufacturing production figures were just released and both showed far stronger than expected industrial production at .3% year on year, up from -.1% while manufacturing was as expected at .6% year and year but up from .3%. Trade balance figures however were slightly weaker and GBP has been in a chop ever since the release. EURGBP is likely to finds resistance to moves higher at .9055 and .9088 above that, while moves lower will run into support around yesterday’s lows at .9009. A break below there will look to target a drop towards .8934. GBPUSD in a range between 1.2952 and 1.3053, we’ll need to see a break out either side for a new direction, otherwise we’ll likely see this pair continue to chop around inside that range.
EURUSD looking at setting in a reversal pattern for the week but we’ll need to see a close back below 1.1610 to confirm that. For now 1.1700 provides light support while any rally towards 1.1812 should find sellers. Momentum is behind the greenback for now, the Feds Dudley crosses the wires later today as well but overall risk appetite likely to remain the key driver for currencies today.