Sentiment was to the downside through much of yesterday. In Europe, stocks traded lower led mostly by energy and banking stocks, while the FTSE in the UK dropped back from the record highs achieved last Friday. In the US, it was a similar story with major indices trading lower but losses across major indices were limited and by no means a sign of a shift in upward bias or panic selling.
In currencies the USD managed to grind out some moderate gains rebounding from Fridays NFP sell off, while GBP was also an out-performer on the day as it advanced against the USD, EUR and JPY. Overnight however sentiment has continued to be weak, the general tone saw JPY pick up demand and the stronger Yen also led to selling in the Nikkei and across the Pan-Asian indices. To kick off the European session we’ve seen some Euro selling, some USD selling and some small GBP buying but JPY remains highest in demand.
In the UK the election campaign is back on following the weekend attacks and markets are looking towards Thursday’s vote as a deciding factor as to where the Pound will go next. The polls would suggest the gap continues to close between Labour and the Conservatives. Given the huge lead Theresa May has entering this campaign, there has been some considerable mis-steps along the way from both sides to be fair but it feels like GBP is not taking sides right now with most in the market waiting for a result before making a move.
Fundamentally GBP saw some early selling yesterday as services PMI data was weaker than expected but quickly recovered eventually rallying over .6% on the day and back above the 1.2900 area. GBPUSD range therefore is back in play albeit slightly wider, 1.3040 should cap moves higher until the election at least, and moves lower will find support around 1.2850/65 area and below is key support at 1.2770. EURGBP tested below .8700 several times yesterday and thus far has failed to hold those moves lower, this area coincides with the 200hr moving average which has acted as support since May 12th, a break below here should see additional downside towards .8640 area.
Today’s calendar is quite light and risk appetite seems to be the primary driver to watch. With that in mind we’ll be keeping an eye on the UK elections news, developments from the Middle East and growing tensions around Qatar, as well as issues developing in Spain’s banking industry. Eurozone retails sales are on tap but the OECD’s economic outlook release likely highlights the morning’s calendar. EURUSD still running into sellers above 1.1275, will run into light support on the downside around 1.1235 but 1.1205 is the primary area I’m looking at, need a break below there to accelerate EURUSD selling.