Sentiment remained heavy to close off a week that was dominated by risk aversion. All in all, the Pan-European Stoxx 600 was down over 1.3% on the week, it’s second consecutive down week. It was a similar picture in the US where major indices posted red closes on Friday, having rallied higher on Thursday. The DOW and S&P both traded lower on the week and the first two week losing streak since August for US indices. The USD was also struggling to hold any advance and for much of last week the USD index preferred to consolidate around one month lows.
Mario Draghi spoke on Friday and while he came across relatively upbeat on the economy, the euro only took some of the shine and traded slightly higher on the day against both USD and GBP. The focus for GBP traders is on Brexit this week and the pound has already started the week on the front foot on hopes some progress will be made towards an agreeable divorce bill. Ministers are scheduled to meet today and it is hoped this will provide PM May the backing she needs to increase her offer to the European Union. It hasn’t been all plain sailing in the EU either as Angela Merkel failed to secure a coalition as the FDP walked away from talks which saw the euro trade lower to welcome in the week but all the single currency’s early losses have since been covered following a pickup in euro demand at the European open. Overnight the Nikkei maintained the generally weaker tone from Friday’s market close while most European indices are in the red to open the week.
There is very little in the way of major data due across the wires today but we do have notable speakers from the ECB, including President Mario Draghi who actually speaks twice today, markets will be closely watching his comments for anything related to ECB policy. Not even a month has passed from the last ECB meeting where we finally got some detail on how the ECB planned to facilitate additional easing and their open ended approach resulted in euro selling. The single currency has since managed to recover some footing, although it would appear that the euro’s position as a funding and safe haven currency has been behind its recent rise, rather than any shift in fundamental data. We’re unlikely to see Draghi shift his stance too much in this narrow time frame and if anything we’re more than likely to see the ECB President tow the party line.
EURGBP traded back to support at .8875 overnight, an area that has previously provided support/resistance over the previous three months. A break below .8850 is really needed if we’re to look for a move back towards the recent lows towards .8730. As always a rally higher towards .9000 provides euro sellers the opportunity to buy GBP at range highs. As of the market open last night EURUSD was trading back towards 1.1725 area having extending as high as 1.1860 last week. 1.1680 area provides another area of support for EURUSD for now, with firmer support towards 1.1595/1.1600 area.
There really is very little of note from the UK or from the US today and with that headlines will likely play a larger part in the days price action across both GBP and USD. Sterling’s focus will be on Brexit talks and what ministers can agree on, or not as the case may be. The EU is awaiting a substantial offer from the UK before it will agree to move forward with talks and up until this point we have been in deadlock, with markets beginning to fear the worst. Headlines over the weekend suggested that UK politicians will be ready to provide an updated offer before the two week deadline, ahead of a crunch summit. Thus far GBP has been on a more positive footing this morning and we could well see addition sterling upside on the back of good news.
There is nothing of note coming from the US calendar either. Wednesday sees the release of the FOM minutes so we’ll be closely watching that for any indication on the December rate hike, while headlines from government on tax plans will also take some of our attention over the coming days. GBPUSD is now pressing to the top of its two month range, a break above 1.3340 would favour a rally back towards GBPUSD’s recent highs. 1.3190/94 provides light support on trade today but the real levels to watch on the downside this week is towards the 1.3030/50 area which has provided support and resulted in GBPUSD bouncing for the last two months.