Last Updated: 02 April 2014
By Rob Samson
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"Recent turmoil in major EM countries has weighed on global risk sentiment, putting equity markets in developed countries under pressure. In USD terms, the US equity market has posted the largest decline in market value, while Japan’s bond market outperformed the rest, helped by heightened risk aversion as well as JPY’s appreciation on the month (Figure 1). Given the relative underperformance of US equity markets, our month-end fixing model is showing a strong USD buy signal against EUR and JPY and a modest USD buy signal against GBP, CAD and AUD."
"The British pound gave up close to 1 percent to the USD following the Fed decision and weaker-than-expected domestic money supply data that showed a cooling in business investment.
However, sterling found some support in the 1.6400 region and now traders are looking ahead to next week’s ECB meeting and Bank of England (BoE) meeting, where Draghi is expected to strike a dovish tone which should put a further bid into the pound.
"GBPCAD remains capped under 1.8550 (tested five times over the last six days) but the short-term trend higher remains constructive and the broader trend is bullish — we continue to target higher levels (towards 1.92). Corrective, near-term weakness may extend below short-term trend channel support at 1.83 but losses are unlikely to extend below 1.80/1.81, we feel. Clear gains through 1.8550 from here should trigger another fairly rapid advance towards 1.90."
Note that tomorrow we get Canadian GDP, expectations are for +0.2% - a miss could be what is required to crack the ceiling.
Markets are also turning more chipper with some good earnings out of some big name US stocks like Facebook.
On the macro front we see the USD has been supported:
"Data from the US showed that US jobless claims increased more than forecast over the past week, climbing by 19,000 to 348,000. Adding to negativity, US GDP data came in slightly less than expected with the economy growing 3.2% versus the 3.3% expected. Although the figure didn’t meet expectations, the figure was the highest in three years, laying the ground for further improvement in 2014." - Lee Mumford at Spreadex.
"GBP is lower this morning, with the Cable rate largely driven by selling in EUR/USD. Through 1.6500, the pair remains heavy into support at 1.6470-75 levels, and with stops reported from 1.6460 lower down, these look pretty vulnerable for now.
"As such, EUR/GBP is getting a small bid, as Swiss supranational buying in EUR/USD is presumed to be on behalf of an Asian central bank - no change there then. EUR/GBP stops assumed through .8260 - the high from Wednesday. UK lending data was pretty healthy, though money supply dropped significantly on the month, and was much lower than expected."
"As bullish conditions persist, there’s further upside potential to resistance at 1.6747. A break above which would open the way to 1.7043. Support is at 1.6447 ahead of 1.6310."
Forex.com:
"GBP/USD edging lower for a second day as price continues to fail to hold above 1.6600 - potentially in the process of forming a reversal despite solid fundamentals. But bullish trend ~1.6380 still intact."
David Song, Currency Analyst and Daily FX Research, reckons 2014 will see Sterling advance at a steady pace vs the euro:
"Even though the EURGBP is a slower‐burning trade, the long‐term outlook remains tilted to the downside as it retains the bearish trend dating back to 2009. However, a steeper decline appears to be take shape as Mark Carney’s BoE moves away from the easing cycle. With that said, we will continue to look for a series of lower highs to sell the EURGBP, and the pair remains poised to face a pronounced decline in 2014 as the ECB prepares to implement more non‐standard measures in the coming months."
"Pressure on Sterling builds and a move below 1.21 is in sight." - Caxton FX.
"GBPUSD testing 1.6450 support - break below here paves the way for 1.6380." - Forex.com.
EU Consumer Confidence improves to -11.7 in January from -13.5 in December.
EU January Economic Sentiment Indicator increase to 100.9 vs 100.4 (December).
EU Services Sentiment up to 2.3 in January from 0.4 in December.
"US 10Y yields have been dragged even lower but we think this is likely to correct in the near future offering both USD-JPY and USD-CHF some relief," say UniCredit Bank.
Despite GBP/USD being lower, Lloyds Bank don't expect any major moves lower:
"Today’s domestic releases look unlikely to trigger much market reaction. The consumer credit and mortgage lending numbers are expected to further highlight the resilience of the consumer sector helped by a pickup in housing activity and easier credit conditions. We expect GBP to remain well supported reflecting the recent run of decent domestic releases. GBP/USD looks likely to remain within the recent 1.6530-1.6630 range."
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