If Monday was a lull of data, then yesterday was an overload. Between some key data releases from Europe and the US, as well as several key note speakers from the Fed, there was more than enough detail to get our attention. First up was UK CPI, which was moderately lower than expectations and send GBP pairs tumbling lower. In euroland, weaker than expected Italian and German GDP prints put the single currency under some pressures as the region wide GDP was also weaker, while the ZEW Economic Sentiment Survey also missed expectations to the downside. It was the US hawkish commentary from Janet Yellen and some firmer data points that helped support USD demand through much of the session although the greenback did close off its highs. Once again it was a day favouring risk appetite, European shares closed flat to moderately higher while in the US early equity selling quickly reversed, once again providing us with warning flashes of fresh record highs. This somewhat calmed over night with Asian bourses trading more or less flat.
GBP selling started as the headline inflation figure posted a 1.8% rise in price growth annually through January, lower than the 1.9%. GBP immediately ran into sellers, GBPUSD dropping 100 pips but failing to break below 1.2440 which marks Friday’s lows and for me, as we remain above 1.2400 area upside, potential remains. While the headline figure was slight weaker, once again we saw a record rise in the prices producers are paying, up 20.5%. We keep highlighting, hedges at pre Brexit levels are running out and direct costs for UK importers are on the rise, this will continue to feed through to the UK consumer over the coming months and this may be why GBPUSD barely flinched as the USD rally took over in the afternoon, but a catalyst will be required to set some direction once again. With that we’ll be looking towards labour market data, unemployment is expected to be at 4.8% but wage growth is what is in focus, with weekly earnings due to remain at 2.8% growth. While GBPUSD was knocked, EUR failed to take advantage of sterling weakness and although we saw a rally back above .8500, this quickly reversed into lunch time and we are looking at targeting this week’s lows below .8460 and confirming a break of the 200 day moving average which will favour a targeting of the lows just above .7300 once again.
The euro is struggling once again today as despite continued ECB easing and record low interest rates, systematic weakness is causing issues. There is only trade balance data due today but sentiment for the single currency is looking weak and we may see a press towards the recent long terms lows in EURUSD back towards 1.0340, while post Brexit lows between .8250/.8300 should find some euro buyers re-emerge. Mario Draghi has warned that recent pick up’s in inflation have been overstating the real picture and now with data beginning to slide for the region some concerns may well spike once again. And it is not just economically the region is facing some questioning, major elections in France and Germany this year are expected to cause great uncertainty while Greece debt talks continue to just simmer on in the background and in reality will struggle for a solution. EURUSD looking at major support between 1.0525 and 1.0550 area, a break targets above mentioned lows.1.0645 will likely hold any moves higher.
Focusing on the USD and Janet Yellen was chirping some notably hawkish notes, trying her best to convince markets that rates will be rising again in 2017 and potentially up to three times. The USD certainly did rally and was the most in demand currency through yesterday’s session. Yellen noted that it would be waiting too long to tighten “would be unwise”. Quite firm words and she pointed to all upcoming meetings as being live, suggesting they still could hike rates. There was some caution in there and uncertainty around the new Presidents fiscal and growth plans forms part of this. USD is stronger, but I still think markets need more convincing rates will rise in March, and we’ll be looking at some big hitting data today to try and assess. CPI inflation readings, advance retails sales and round two from Janet Yellen will all be in focus.