Yesterday had very little in the way of major data to attract our attention and as such major currency pairs were focused on their recent trends and the broader risk environment. Appetite for risk remained firm and once again we saw fresh record highs printed on major US indices. In Europe the tone was slightly less bullish with stocks hovering around 3 months highs but some concern resonates with Spanish indices and the overnight announcement that Catalonia will declare independence from Spain once the votes have been counted.
In currency markets the USD gave back some of its recent gains. Some concerns arose around the viability of Trump’s tax plan as investors continue to dissect its ramifications and probability of it being delivered as guided, while concerns over the Fed. The euro was relatively flat on the day, EURUSD broke lower to fresh 7 week lows, while EURGBP pressed slightly higher, helped by a weaker pound. It is a holiday week in China so markets there are closed while Japan’s NIKKEI just slightly higher while JPY has also been under selling pressure.
The USD gave back some of its recent gains yesterday as some slight uncertainty creeps in. The greenback has been on a 3 week uptrend and yesterday the USD index was at 7 week highs but there are some concerns on the horizon. President Trump is expected to announce a new Fed Chair and while there is a shortlist in place with current Chair Janet Yellen still in the running for another term, some fear Trump may favour the less hawkish Jerome Powell. This afternoon we’ll be looking towards services data from the US, with the Markit Services PMI and ISM non-manufacturing prints due out, the latter expected to show a slight increase in the pace of growth.
GBP has found itself under some selling this week and Brexit headlines and political infighting amongst the Tories cast some doubts over the Brexit process. That’s actually an understatement, almost everyone I speak to on Brexit has no indication as to how things will proceed and no one believes the UK will be in a position to move forward with a deal by the deadline data. We certainly would not be surprised to see some shake up in the coming weeks/months within the Tory party and many feel Theresa May signed her own marching papers with the catastrophic general election, while Boris Johnson looks to rock the boat on almost any occasion he can. Back to the data however and we’ll be looking at services PMI figures, expected to be unchanged. Any sign of weakness here and the pound could well face further selling. GBPUSD has basically give back all its post BOE gains now, with support at 1.3225/35 area now holding. And rally towards 1.3400 will run into selling.
The euro has been slightly stronger to start the day, which is somewhat surprising given the news coming from Spain and some weaker PMI services prints from Italy, France and a weaker composite print from Germany. August retail sales figures also cross the wires this morning and no change is expected from the 2.6% posted in July. EURUSD now looking to be in consolidation within a range between 1.1700 area and 1.1840 so for now the low end of the range offers euro buyers some opportunity, while the top will favour euro sellers. EURGBP still looking to press higher, currently held up at resistance but feels like its looking to break higher. UK data today could be the deciding factor, a break above .8900 target s .8930 first resistance, with .8985/95 area above.