Is was a mildly positive day in markets yesterday. In Europe stocks edged higher but gains were limited, while in the US it was a similar story with markets also pressing higher but certainly nothing to get carried away with. GBP rebounded from the pre Article 50 selloff before selling from early this morning brought GBPUSD back to more or less flat for 48 hours, while EURGBP managed break below .8600/30 support area and accelerated lower towards .8550. It was not just GBP strength driving this decline, the Euro was weak across the board after selling began following weaker than expected CPI figures from Germany, while comments from the ECB’s Notwotny suggesting ECB policy for 2017 is fixed, adding to the dovish comments from ECB members earlier in the week.
EURUSD is down over 2% from Mondays highs thus far with several ECB speakers due across the wires later. It was a good day for USD, a pick up in the Q4 GDP figures and better consumer spending data buoyed sentiment for the greenback, which was further supported by hawkish commentary from Fed officials who have been on the offensive all week.
Overnight stocks in Asia failed to carry the sentiment from the US close, JPY weakened through much of the session but has since recovered as sentiment remains subdued into the European open. Month and quarter end today but it FX flows for quarter/month end rebalancing appear to be relatively neutral according the Barclays model so no real supply/demand bias on any currency in particular.
I guess it wouldn’t be a morning commentary these days without some mention of Brexit/Article 50. Focus will be on the EU’s response today as they are expected to release draft negotiating guidelines, headlines are crossing the wires as I speak with Donald Tusk outlining focus on minimizing uncertainty and damage control, EU 27 will not look to pursue a punitive approach, Brexit is already punitive enough. The UK will also see the final estimate of Q4 GDP cross the wires with growth expected to be confirmed at .7% for Q4 and 2% annually. Upside is likely to see a bigger reaction from GBP but for now its trades quite flat. EURGBP now looking at support at .8546, with .8515 and .8460 likely to be the max downside for now. GBPUSD find support around 1.2400 while topside moves will likely find sellers between 1.2600 and 1.2700.
There has been plenty of dovish talk from ECB members with the Euro facing selling as a report suggested tapering will not occur in 2017. Data has also not been on the single currencies side, inflation in Germany was to the downside of expectations with the Eurozone figure due this morning, and Euro could find further sellers. The ECB have been stating that inflation reading are overstating the real inflation picture, should we see a decline in inflation once again, then talk of taper may well turn to an extension of easing past December, and that will only put downside pressure on the Euro. The big range in play continues 1.0500/30 up to sellers above 1.08030/1.0900, only a break out of this range will dictate clearer direction, otherwise we will continue to chop around in the middle.