GBP/EUR 1.2135 (0.8240)
Yesterday’s markets traded very much in consolidation with GBPUSD, EURUSD and EURGBP all managing to cover their weekly ranges whilst avoiding any breakout. Equity markets in Europe were lower whilst the S&P in the US held below Monday’s all time record high. Overnight the AUD and Chinese Yuan were notable under performers with concerns now rising that the Yuan could face further losses through further currency liberalisation.
The UK had a number of positive economic releases yesterday, albeit not from market moving data points. The CBI reported sales index jumped to 37 from 15, confirming the high street is seeing somewhat of a resurgence and the BBA home loans indicator saw the highest number of mortgage applicants since 2007. The pound was little changed from recent ranges and the interest rate curves showed no sign of change.
They are likely awaiting today’s updated release of Q4 GDP figures which headline the economic releases in European trading. January’s initial estimate saw the economy grow .7% in Q4, and 2.8% year on year. This is expected to be confirmed and as such should not have any impact on GBP, but with the 2 year guilt curve priming for a breakout, a surprise either side could well set the trend of GBP going forward. We have seen some calls this morning for an upward revision to .8% which will likely see GBP rally towards fresh highs, especially with GBPUSD and EURGBP poised close to recent highs/lows respectively.
There are concerns rising that US economic performance will impact the Fed’s taper decision and we are seeing market action very similar to that of last September after the Fed pushed the taper back from its original guidance. It is difficult to argue a rationale for higher stocks given the last two months data from the US, however if it means the fast cheap money supplied by the Fed via QE will be continuing then stocks are likely to continue to rally as banks and funds put the cash to use, while the USD will continue to depreciate.
The big event of the week in terms of Fed policy will be Janet Yellen’s testimony to the senate tomorrow but later today we have January home sales data as well as a Fed speaker later in the evening. Forecast are pointing towards a decline of 3.4% in home sales through January, coincidently (or not) the lowest reading since August before the first expected Fed taper. It will also reflect the third consecutive month of a slowdown and if any worse than expected we would expected to see the USD sell off continue. The presented of the Boston CB and Fed member Eric Rosengren is due to speak this evening. He has been a supporter of “gradual” tapering but on the doveish spectrum of the Fed.
The Euro continues to act as if it is on valium with little effect on the single currency. Perceived bad news has little effect and the threat of Central Bank intervention does not appear to be an immediate concern. The EUR appears to simple move towards each monthly ECB meeting en trend, with little effecting it outside of what the ECB may do. With that in mind we look towards the March ECB decision, and what may prove to finally be a catalyst for some EUR selling.