Market News & Insights
20 July 2018

Trump Dumps on USD

I appreciate this week’s commentary has been heavily weighted towards GBP but there is very little doubt that GBP has been one of the worst performers of the week and while the USD is just struggling to break out (to a fresh leg higher) the pound may not be as fortunate and the potential for additional selling remains. EURGBP rallied up to high of .8957, and is currently holding just below that key resistance at .8960 we flagged yesterday. GBPUSD dropped as low as 1.2957 yesterday but has since recovered back above 1.3000. That’s the level we find ourselves this morning but sterling has been under some early selling, and if anything the rally higher from the lows in GBPUSD was on the back of USD weakness from Trump’s comments. Yesterday’s UK retail sales figures missed the mark to the downside, and while there was an uptick in food and drink expenditure thanks to the world cup and the heatwave, others areas of the high street suffered due to decreased footfall. UK public finances headline today’s UK data releases and are unlikely to carry too much weight in dictating the pound’s direction, which may in fact give it a reprieve.

It’s not just a weak economy that is impacting the pound. The ongoing struggles around Brexit are causing rising concern. This has been the constant cycle since the vote was passed and the UK began their Journey to divorce the EU. It was never going to be easy, there have certainly been times when it seemed like both sides could part on good terms, a soft Brexit that would disturb as little trade as possible. The pound was a happy child in that scenario. Then there was the darker times, when it seemed like neither side could agree and from the UK’s perspective at times it seems like they don’t even know what they want. At this stage we are heading towards an acrimonious split and while there’s a whitepaper the EU can discuss, “it’s not the 10 commandments” on Brexit as one senior EU official pointed out. GBPUSD is looking at yesterday’s lows for support and any rally should come in to selling resistance around 1.3100, with 1.3240 offering strong cover to the topside.

We’ve not had too much to say about the Eurozone in recent days. Simply because there really hasn’t been too much to talk about. The drop in core inflation was interesting, but given the notably dovish minutes from the last ECB meeting and their constant rhetoric focusing on the end of next summer for raising interest rates – the market’s mind is focused and as such the euro remains underpinned by the prospect of long term low interest rates. EURUSD traded as low as 1.1575 yesterday and entered a very strong support zone, we’ve seen this pair bounce from this area a number of times and it may well happen again unless we can see some USD strength There’s really not much in the way of data from the Eurozone either, some PPI data will not impact the single currency too much. We could well be in for a very boring Friday in summer time markets. Looking at key ranges EURUSD resistance at 1.1765 should hold moves higher, with support below towards yesterday lows down to 1.1550.

Stateside and Donald Trump took aim at the Fed last night. The US President took his swinging mace to Fed interest rate hikes and complained about the strength of the USD. The US President and The Federal reserve are meant to act independent of each other but we’ve learned by now that President Trump does not follow the status quo and at times appears the most dangerous when he’s backed into a corner. He’s been facing heavy criticism all week following his summit with Vladimir Putin and I’m sure at this point anything that could distract attention away from that would be welcomed by him. EURUSD jumped some 70 pips on the news and the trade weighted USD Index dropped .6%. A full report of Trumps’ comments is expected later today, for what it’s worth it nothing new from the Trump who’s regularly made his stance known, throughout his election campaign and even in his first few months as President. That being said markets cannot ignore such comments and the USD will be vulnerable, especially considering Trumps’ comments coincided with a fresh push to 12 month highs for the greenback.