The pound was an outperformer in trade yesterday. GBPUSD welcoming in the week with a press to fresh highs (post Brexit) as we saw the 1.4000 handle trade. EURGBP also notably broke below its 1 month range as the pound put pressure on the single currency, pressing back below support (which sat just above .8800) and to previously highlighted support just above .8760 where we find ourselves this morning.
The USD has also managed a recovery overnight. The greenback found itself under pressure through much of the day yesterday as negotiations to end the Government shutdown saw little progress, this was rectified later in the day however as the house passed a short term funding agreement, a stop gap in place now until February 8th. Needless to say this was enough to send US stocks to record highs once again, not like they were too shook in the first place as they started the day pressing higher anyway, before any resolution was made. Sentiment remained firm across the board and European indices were also higher on the day as the IMF revised up their global growth expectations .2%, forecasting global growth as 3.9% vs 3.7% for 2018 and 2019, pointing to higher growth in the US and Eurozone. The euro showed little sign of positivity however, it languishes just shy of 3 year highs, consolidating between 1.2200 and 1.2300 for the most part of the last 4 trading sessions, while EURGBP, EURJPY and EURCHF have all been fairly muted the last few sessions.
Much of GBP positivity has come from favorable comments over the weekend which supported a softer Brexit. The weaker USD has also been aiding GBPUSD which has transferred across other sterling crosses. The question is, do we now move into a new rage for the pound, or do we still watch Brexit news carefully? While GBPUSD has certainly pressed higher ranges, much of this has been on broader USD weakness and without any major fundamental change it’s difficult to see sterling advancing much further. We would need to see further weakness in counter currency (so USD, EUR. JPY etc), or a major shift in UK fundamental data for the pound to continue its progression. Sadly the IMF report yesterday was less positive about the outlook for the UK and as always, despite sterling enjoying some Brexit positivity the last few days, there will almost certainly be further dark days and hard Brexit fears and as such this leaves the pound vulnerable.
UK finance data headlines this morning’s releases but it’s unlikely to shift GBP dynamics too much. Greater focus will be on tomorrow’s release of labour market data, specifically wage growth numbers. EURGBP support at .8760, additional support below there around .8725/30 area. Any rally higher should see some resistance and euro sellers favouring the .8810/30 area.
The German ZEW survey and Eurozone consumer confidence data both also headline today’s releases, yet euro continues to look heavy. The key focus no doubt will be later in the week, as we await Thursday’s ECB meeting as markets await a potential change in forward guidance communication. The euro is up over 5% since the ECB announced they would extend QE until September (at least) and while a taper was expected, an open ended extension was not. Since the ECB minutes were released this month, the market has been expecting and building into a change in tact from the ECB. Many are now expecting an end to the program to be announced for September, but with greater focus on when the ECB will then look to raise rates, should this week’s ECB fail to deliver on these lofty expectations, then the euro certainly has more scope to fall than it does to rally further. EURUSD faces resistance up to 1.2300 area, while 1.2200 is holding any move lower for now so consolidation within that range continues.
The USD has started the day on firmer footing, the USD index is up .4% from overnight lows. The weakness in the USD is a little unusual, the Fed are still expected to raise rates three times through 2018, this hasn’t changes since December yet the USD index is down over 4.5% in that time frame. The IMF revised up their growth expectations for the US for 2018 and 2019, to 2.7% and 2.5% respectively (almost .5% improvements).
Data is light enough today from the US, new Fed member Marvin Goodfriend will have his confirmation hearing, while Evans also speaks. PMI data will be the focus for tomorrow’s releases.