The day started on a high yesterday but sentiment began to turn notably sour as the US came to markets and after pressing higher at the open, US indices quickly ran into sellers with stocks then facing their biggest daily decline since October. There have been some sell offs in that time frame but nothing of note, and certainly nothing where I have seen the perma-bull market suddenly looking so fragile as stocks failed to hang on to record highs and even the most adamant of stock market bulls were saying a larger pull back may be due (but would provide buying opportunities).
The sentiment appeared to be US driven, concerns US President Donald Trump’s proposed policies are taking longer than expected, with little concrete information on any of his plans, markets are beginning to turn somewhat skeptical on his ability to deliver, and with the President appearing to be under pressure from other avenues, markets are content to take some risk off the table with major indices down between 1 to 2%.
Europe had started the day positively, French polls suggested Macron was taking a comfortable lead, while he also dominated a televised debate however, the negativity filtered from the US and European stock erased gains into the afternoon, closing the day lower by about .6% on average. Overnight sentiment remained to the downside with Asian indices taking their lead from the weak US close, the Nikkei at the lowest levels since mid Feb with declines of 2%, while Australian stocks were down 1.6%.
We discuss equities quite regularly here, simply because they provide a quick snapshot of market sentiment, and that can be key to currency direction. JPY was the dominant player in yesterday’s trade, the safe haven yen advancing across the board, even against a dominant GBP which surged following far stronger inflation figures. USDJPY dropped to the lowest levels since November, JPY approx. 1% stronger against USD, GBP and EUR from the day’s highs. GBP also has its time in the sun, a bumper inflation reading showing UK prices rising at the fastest pace since 2013 at 2.3% (vs 2.1% expected) saw increased speculation the BOE may be forced to raise rates, rather than cut them. GBPUSD traded to 1.2510 this morning but is approaching overbought territory around key resistance, so we may see a pull back from here.
There is very little in the way of UK data today and markets will likely be more inclined to turn to focus back towards Brexit sentiment and with Carney speaking yesterday as well, suggesting markets should not get carried away with one data set, it would seem that for now, the BOE does not want markets to get ahead of itself in pricing rate hikes.
The Euro also struggled to contain the surging pound, EURGBP dropping from highs of .8730 to sit on key support around .8650 area. A break below here should see a move back towards .8620 area and that’s where the bull/bear battle for EURGBP will really emerge. The Euro has regularly been a benefactor of risk aversion/safe have demand but the single currency’s gains were restricted to USD, NZD and AUD in the G7. EURUSD traded back above 1.0800 but ran into sellers ahead of 1.0830 key resistance. 1.0722/34 zone offers the first major level of support on the way down for EURUSD.
There have been several comments from ECB members this week, with tapering and tightening the general tone of these comments helping the euro to maintain some strength. There are several other ECB speakers due today and further talk like that may well give the Euro another bid tone. Elsewhere data is quiet, with nothing major due from the US session either. All in all it appears broader market sentiment will dictate the flow of major currencies today.