The dominant theme of the week has been risk off, although markets are certainly not in any form of panic. Losses have been controlled and limited and even despite escalating tensions between Russia and almost everyone else, we’ve yet to see mass panic selling. So while that geopolitical minefield continues to be an area of concern it is not one markets are taking a lead from. Another day and another bout of rumours from the US administration which question the stability of Trump’s office. It was reported overnight that Trump fired his national security advisor H.R. McMaster and even though the Whitehouse issued a statement denying the rumours, it was not enough to change sentiment direction. This actually caused a larger bout of risk aversion than any Russian sanctions and overnight the JPY was an outperformer as is benefits from safe haven flows.
The European session has kicked off a little firmer today however and I’m seeing green lights indicating a higher opening in major indices. As we always say however, risk can happen in a second, as can risk off and with the GPR (geopolitical risk index) currently sitting at its highest level since the 2003 invasion of Iraq it would be folly to ignore these pending risks. We’ll be keeping an eye on the safe havens for any signs of increased flow throughout the day. The USD index was stronger on the day yesterday despite negative details from the Whitehouse and even some weaker data, while GBP also found itself in favour as we are in a cycle of apparent progress in Brexit talks. Stateside this afternoon and we only have sentiment data to watch for. GBPUSD continues to bounce on any dip below 1.3800, while 1.4000 remains difficult to break above.
The euro has found itself under some pressures through this week, EURGBP has been steadily dropping from key resistance above .8960 and confirming that we’re in this larger range for another cycle. Top of the data this morning will be Eurozone CPI figures for February, the headline figure is expected to drop to 1.2% from 1.3% and this may see additional pressures on the single currency. The ECB were quite clear on their plans for continued easing as long as inflation remains subdued, we know they expect inflation growth to be weaker through the rest of the year and this is likely to be the largest risk to the euro’s value. EURGBP now testing familiar mid-range support around the .8810/30 area, a break below there opens a larger move back towards .9760. EURUSD consolidation in getting tighter as the pair trades itself into a wedge, meaning a larger breakout is growing in potential. For now however the key support I’d be watching is back below 1.2200, as low as 1.2160/75 area. A break below their and EURUSD has room to drop further. Any upside today should be limited ahead of 1.2450.