Market News & Insights
25 June 2013

USD Rally Takes a Breather

EUR/USD 1.3134
GBP/USD 1.5434
GBP/EUR 1.1753 (0.8508)
EUR/CHF 1.2265
GBP/CHF 1.4411
GBP/AUD 1.6646

There are a number of concerns around Global markets, our focus has been very much the expectations of a shift in policy in the US, and this is likely to be a main headline point throughout Summer, however another issue that has been taking press headlines is the concerns of a contraction of credit in China. This has been part of the global sell off but comments from the PBOC have supported markets somewhat and risk is slightly more positive this morning.

A possible slowdown in China has always had global implications and we have already seen knock on effects feed through to some of their closest trading partners, Australian data has shown signs of deteriorating as lack of demand from China filters through, Australia has cut interest rates and in their last comment the RBA alluded to having scope to cut rates further. China could yet hamper global recovery.

As we discussed yesterday the Economic calendar left a lot to be desired on Monday and the headline event for the Eurozone, the German IFO business climate painted a mixed picture. The current assessment index was slightly worse than expected whilst the expectations index was slightly better. Equity markets still posted losses yesterday as they saw little to be positive about, Germany may be growing and whilst this is great for the region as a whole the divergence between the core and the periphery could well bring financial concerns once again. The yield on 10 year Spanish debt is up over 13% in three days while Greece is above 11%.

US stocks followed the global theme lower and the USD put an end to its six day advance, its strongest run since September 2011. This halt of the dollar rally is a little surprising given stocks had continued their decline and two Fed speakers made comments supporting the Feds approach to winding in easing but every good run has to come to an end, or at least take a breath. The USD advance is expected to be slow and steady as the US improves and will not all be all one way traffic.

Data from the UK is light but we still have a couple of events over the next two days that will get our interest. Mervin King is set to testify to lawmakers today on monetary policy, his final appearance before them in capacity of BOE Governor. Tomorrow makes the release of the BOE Financial Stability report, which incoming Governor Marc Carney will preside.

Today’s calendar is equally light, only a Draghi conference in Berlin takes focus during the European session. The US has some stronger releases, Durable goods orders, US consumer confidence and house price data all provide good indication of consumer appetite in the US and will be a decent barometer of US recovery.

EURGBP continues is move lower, we did break back below .8500 yesterday and we’ll look for further progression towards recent support at .8475 for this pair to continue lower. Resistance should come in above around .8520/25 and stronger resistance at .8550.

EURUSD broke back above recent resistance as the USD rally halted somewhat, support now comes at 1.3114, resistance to the top comes in at 1.3228, last week’s lows may come under pressure later in the day around 1.3080.

GBPUSD rallied from lows below 1.5350, coming into resistance just short of 1.5470. A break above this level should see this pair move higher towards last week’s post FOMC highs at 1.5523.