Yesterday was very much a USD story and it was a day of two halves for the greenback. Focus stateside was on the CPI release and with inflation expected to confirm what markets feared, that is the return to some sort of normality and thus the removal of large scale accommodative policy and a faster path to higher interest rates. CPI inflation was actually firmer than expected, causing a quick rally in the USD and a selloff in stocks but this quickly shifted direction and a weaker than expected retail sales print saw the USD advance halt. Then as cash equities opened in the US the buy the dip crowd had emerged and despite USD 10 year yields pushing through 2.9% the USD began to sell, and fast, while stocks pressed higher. This was a breakdown in the recent price action we’ve seen and the USD has continued lower, the USD index now down over 1.5% from yesterday’s highs, while EURUSD is up near 2% with GBPUSD trading up 1.85% form yesterday lows. This brings the USD index back to recent lows, eroding all of the gains since the beginning of the month in 4 short days. There is no doubt about that heightened volatility has returned to markets, the USD experiencing huge sentiment swings over the last two weeks.
The broader market tone is focused to risk on, major indices have traded higher over the last 24 hours and it is green all across the board. Major currency pairs have remained in recent technical ranges and we do not really have anything on the data front due today. There is some second tier data in the form of Eurozone trade balance figures this morning and Empire Manufacturing data from the US this evening, along with Industrial and manufacturing production data also due. This may give the USD some chance to recover should figures support US expansion, but the dollar remains weak.
EURGBP still holding just below key resistance at .8930, a break above that level should see rapid progression towards .8980 and then above there is where the upside in EURGBP will really be tested. We’ll need to see a break back down below .8840 area to really break the upside bias in this pair. EURUSD is now once again testing topside resistance and three year highs. Currently holding just below 1.2500, resistance between 1.2523 and 1.2538 should hold for now unless we see accelerated USD selling. 1.2215 is now support to the downside. GBPUSD support to downside around 1.3765/85 region, while rallies to 1.4080 should find the first area of resistance.