Markets calmed somewhat through yesterday and thus far TRY has also recovered 10% from its lows printed in early trade this week. Certainly not to say that everything is fine but things are a little more “normal”. Risk appetite has also picked up, the JPY and USD have both given back some so of the last few day’s gains and the resulting USD weakness has seen some slight recovery in EURUSD and GBPUSD, while EURGBP looks to continue to press lower as it eyes support below .8900. There’s little doubt that the situation in Turkey will continue to have the ability to impact market direction, especially with both the President and the Finance Minister due to speak today but in the shorter term we get to focus back on some hard fundamentals, the euro and GBP will both be in focus for us this morning
German GDP data released this morning was slightly weaker than expected and CPI inflation was as expected but the focus for markets should be on the Eurozone figures at 10.00am, with annualised GDP through Q2 expected to be confirmed at 2.1%, anything weaker will almost certainly put pressure back on the single currency. Industrial Production Data and the German ZEW business sentiment survey also crosses the wires. The ZEW won’t have taken into account any concerns on Turkey and industrial production data is expected to remain unchanged but all in all the regions data has tended to be somewhat stale in recent months. It’s not bad but the regions expansion has slowed in its space of growth, albeit still growing at a moderate pace. The ECB have stated as such in its recent meetings so it’s worth noting that anything on the weak side could well encourage some additional euro selling. EURUSD finds light support at 1.1370, while any rally higher will find sellers into the 1.1500 area. EURGBP has light support at .8915/20 area, with firmer support below towards .8880, again the key point for EUR sellers to get active is back towards .9000 area.
Looking back into the UK now and we have labour market data. While people love to shout about the headline figure in unemployment which currently sits at 4.2%, it’s the makeup of the labour market that has been concerning me. UK productivity is at a record low, we’ve more people working less hours for less money and as a whole this is not a strong contributor to GDP growth. The headline figure is unlikely to be the main point for us today however and the focus continues to be on wage growth which is expect to be at 2.7% ex-bonus which at least keeps real wage growth in positive territory. Again any sign of weakness in this area will favour GBP selling but a firmer print should favour a rally in the pound, especially considering it’s still sitting in some heavily oversold conditions, a rebound is due and today’s earning could provide the catalyst. GBPUSD is looking to press back above 1.2800 area and a good labour market print overall could see a quick pop back towards 1.2880 area.