We saw some notable moves around event risk yesterday and the first currency in the crosshairs was GBP. We mentioned that while the vote count was not necessarily binary relating to the outcome for GBP, there certainly was a very strong bias for GBP direction depending on voting direction. In yesterday’s case the fact one additional member of the MPC opted to vote for a rate hike, changing the vote to 6-3 vs the previous and expected account of 7-2 meant that the outlook for UK rates turned more hawkish and GBP rallied immediately. We saw EURGBP drop straight to support towards .8730 area (lows of .8728) printed from the morning highs just below .8800, before the pair quickly recovered back up to trade towards .8780. Again this range is all too familiar for EURGBP. GBPUSD immediately jumped over 1% towards 1.3300, a level we currently sit just below. That move was also assisted by a generally weaker USD, the greenback sold off following a weaker bout of data from home sales to the Philly Fed survey. Nothing really game changing in either of those releases but as highlighted USD was in overbought territory thus vulnerable to any weaker data prints, so not too shocking to see the decline but losses were limited for USD.
It was a mixed day for the euro yesterday, the single currency had initially started the day on the back foot on the back of dovish comments from the ECB’s Nowotney, followed by more comments from the ECB’s Weidmann stating that ending QE is only the beginning of a multiyear process of normalisation, while political uncertainly and concerns on Italy led to heavy euro selling through the morning casing EURUSD to drop to 1.1505 and its lowest level since last July. We have however highlighted this a key support region and for the 7th day in 7 months the drop towards 1.1500 was short lived and thus far the bounce higher has accelerated back above 1.1650, over 1% from the lows. This press higher has continued this morning following some better than expected PM data prints. Manufacturing was weaker than expected in both Germany and France but composite reading were higher as were services and the composite reading for the Eurozone. That’s the end of data from the Eurozone this am and above range remain in play for EURGBP, while looking at EURUSD 1.1720 offers some light resistance but any aggressive rally higher should fall short of 1.1850.
It’s a quiet enough afternoon stateside but PMI data will certainly carry enough weight to impact USD direction. The dollar is already lower across the board this morning, PMI’s in manufacturing and services are both expected to be very slightly weaker than previous and given the reaction to yesterday’s data should PMI’s miss expectations to the downside we’ll almost certainly see additional USD selling in the afternoon, while a print higher than 57.0 in the PMI composite reading should see the greenback rally higher. GBPUSD was another pair bouncing off some key support, we highlighted this yesterday as all and all the warnings were there for a larger bounce, but moves higher should find themselves capped ahead of 1.3500.