A new day and a new trading year but not a new market. The first trading day of the year was celebrated by once again pressing stocks to record highs, in the US at least, while in Europe stocks also advanced following a record manufacturing PMI print, the highest reading since records began. It might be a new year but market dynamics certainly haven’t changed yet and the apparently endless grind higher in equities continues. A new day and a new trading year but not a new market. The first trading day of the year was celebrated by once again pressing stocks to record highs, in the US at least, while in Europe stocks also advanced following a record manufacturing PMI print, the highest reading since records began. It might be a new year but market dynamics certainly haven’t changed yet and the apparently endless grind higher in equities continues.
The USD however found itself very much on the back foot, rising yields in EM already had the dollar rattled to welcome in the year and as the day progressed the greenback lost ground against all its G10 counterparts as well. EURUSD briefly traded to 1.2081, just 9 pips from three year highs posted last August. While fundamentally data hasn’t changed very much, we’ll certainly be keeping a close eye on how the USD reacts in coming months, especially should we begin to see larger corporate flows back towards the US on the back of Trump’s tax incentives. In Europe the pound was mixed on the day, firmer against the greenback and we briefly traded above 1.3600 this morning and again near the highest levels in 4 months, while we saw the pound drop to 5 week lows vs the euro, albeit briefly. The biggest move overnight was probably in GBP. EURGBP dropped almost .8% from yesterday’s highs while GBPUSD is up .75% from yesterday’s lows. The stronger pound coming on the back of headlines suggesting the UK would join the TPP (Trans Pacific Partnership) after Brexit. We can’t stress enough that most of the pound’s direction will be derived from Brexit bias in the shorter term, perceived good progress around Brexit favors a stronger pound, while anything negative suddenly sees GBP weaken. This may sound basic and common sense but it’s really where the market is focused. Fundamental data is more or less ignored or overlooked as we saw with yesterday’s weaker manufacturing CPI print which came and went with little fanfare. The slight reaction in EURGBP was compounded by the better Eurozone print and weaker European print, which gave a slight technical break of the short term range above .8900. Our focus for EURGBP remains on the bigger range, .8730 up .9000. We continues to see chop within this area and no clear bias for EURGBP as long as that range holds. Construction PMI data headlines today but we don’t expect much directional shift from that release, expect to show a print of 53.1.
Not much else to focus on in Europe but later in the US we have some decent releases to sink our teeth into. The minutes of the last FOMC meeting likely carrying the biggest weight following the Feds perceived dovish hike in December. Any suggestion however the Fed plan to continue raising rates through 2018 would favour a firmer USD, especially considering the greenback has been sold almost every day since the meeting, the USD index is now down almost 2.25% since the Fed raised rates. Up ahead of that we see ISM manufacturing and employment data, which should give us a little bit of colour on the labour market ahead of Friday’s NFP print. Once again the key here is not the actual headline figure, but the rate wages are rising.
EURUSD will have topside resistance at August highs art 1.2091, with first area of support around the 1.1940 area. That appears to be the range for now. EURGBP back looking at .8900 to .8850 which has been the range for three weeks, any break either side has quickly found itself coming back into the mid-range. .8960 attracts with a daily close above .8910, while a daily close below .8835 would favour progress back towards .8760. GBPUSD resistance around 1.3615/50 area, while support is likely back towards 1.3500.