Sentiment remained to the downside through most of yesterday’s session, stocks in Europe traded lower through the morning with lingering concerns on Syria and North Korea, US and Russian relations, and also French elections were all hanging over markets. It was a similar story in the US where futures had held moderately negative before a post lunch sell off welcomed US cash markets which saw rapid selling across the majority of major indices before a recovery, the day ending only slightly negative. The UK’s FTSE broke the trend, rising almost .5%, which was at odds to other markets but also at odds to the recent negative correlation as GBP was also stronger on the day.
The big winner on the day was JPY. USDJPY dropped through key support around 110.00 as highlighted yesterday with the pair down almost 2% this week thus far, this opened up further downside for the pair as JPY continues to benefit from safe haven flows, while the USD faced selling across the board as falling bond yields drove USD sellers. The greenback also lost ground against GBP and EUR, inflation expectations keeping sterling supported while narrowing yield differentials favored the EUR vs USD.
GBP rallied above recent resistance as inflation figures came out as expected with the headline reading at 2.3%, while the core reading dropped to 1.8%. There was notable whipsaw action on GBP pairs around the release but once the dust settled sterling began to advance.
Producer price data was stronger than expected and despite the weaker core CPI reading, the shortened Easter week would have had a negative impact on figures, with many economists suggesting that inflation was understated as a result. Higher inflation and the BOE raising rates would appear to be the pounds best avenue for strength, while it still remains exposed to downside shocks around Brexit.
The big focus will be today, as labour market data is due across the wires, our focus will be on wage growth, as rising inflation and low slower wage growth will put pressure on consumers already beginning to feel the pinch. BOE’s Mark Carney is also due to speak at an event in London. EURGBP broke back through support around .8520 area, and pressed back below .8500 to lows and additional support towards .8485 marking March lows. A break back below their targets .8460 where we run into the higher lows trend line in place since December. Any rally higher should find sellers ahead of .8600. GBPUSD will run into its first level of resistance higher towards 1.2558, while intraday support at 1.2487 should hold moves lower for now.
The rest of the European calendar is empty while there is some lighted data on the US calendar later today but broader risk sentiment will likely play a bigger role in markets than anything else. EURUSD still has major support downside towards 1.0500/30, while and rally higher should finds sellers around 1.0690 for now.