Market News & Insights
3 May 2018

US Not Fed Up

The headline event of yesterday was always going to be the FOMC meeting but with little change expected, the potential for a volatile reaction was limited to some surprise news. Yesterday evening we received confirmation the voting members of the Fed opted to keep rates unchanged as expected, citing strong unemployment and moderate growth in the US economy. There were some comments highlighting that inflation has come closer to the Fed’s 2% target, the inclusion of the word “symmetric” was one of the few changes but outlines the Fed are willing to accept inflation at 2% or above in the shorter term. They still maintained the target for a further two rate hikes this year, with risks to the economy broadly balanced. The Greenback started selling on the inflation comments however, and much of the gains we saw through yesterday’s session have been retraced overnight. EURUSD has bounced from lows just below 1.1940 to trade just below 1.2000 this morning, while GBPUSD is back above 1.3600

Focus now for the US will be towards Friday’s NFP figures, yesterday’s ADP was slightly stronger than expected at 204k, while the NFP figure on Friday is expected to rebound from 103k in March, up 191k through April, while unemployment is set to drop to 4% from 4.1%. Up today and there is plenty of other points with ISM Non-Manufacturing/Services Composite. We also have trade balance data and some jobless claims figures to sink our teeth into. Key levels to watch in EURUSD are resistance around 1.2025/30 and 1.2100. To the downside the 2018 lows towards 1.1916 still attract with yesterday’s lows 1.1938 the first objective to a stronger USD move. GBPUSD rallies should find themselves capped ahead of 1.3700 now as market appears content to sell into any rally higher. The 200 day moving average at 1.3540/50 area now providing some support for GBP.

It’s been a tricky couple of weeks for the pound, Mark Carney’s strong words to the market about positioning for a rate hike were well heeded and the resulting decline was only the beginning in the pounds slide. GBPUSD is down over 5.5% while GBPEUR is down over 2.3% in just over two weeks. Carney’s warning was followed by a far weaker inflation reading, followed by a weaker GDP print and the market now has reversed from above 84% probability of a May 10th rate hike to less than 25%. This week however the pound has been feeling the weight of Brexit. PM May is facing pressures from inside her own cabinet and there appears to be no workable solution (still) to keep both sides of the Brexit debate happy. The UK are struggling to agree amongst themselves on how to proceed, so what happens when the EU have their say remains to be seen but May is between a rock and a hard place at the moment and there appears to be little respite for the pound. The only solace may come from the beast rebound, last month’s PMI data felt the pressure from the “beast from the east” and while manufacturing was slow to recover, there was a decent rebound in construction PMI’s and the services figure is expected to rebound as well, however failure to rally above 53.5 will almost certainly see GBP selling accelerate. EURGBP supported at .8780 area, while strong resistance towards .8830 should hold moves higher.