Today’s macro highlights:
Cable tests fresh lows for the year before staging rebound
GBP/USD dipped lower once again during yesterday’s session as US treasury yields forged their way higher, but a combination of lacklustre economic data from across the pond and hopes that the UK would make some progress with regard to the post-Brexit customs deal subsequently served to buoy the Pound. Cable continues to trade around the 1.35 mark but the reaction to the potential of progress with the EU was certainly notable. This points back to the old line about markets detesting the uncertainty, so whilst any fresh detail about what we should expect after March 2019 has the potential to cheer the Pound, there’s also the risk that if these latest proposals are called into question, Sterling’s sell-off will be reignited.
We have a relatively quiet day ahead in terms of economic data, but the Eurozone Construction Output reading due at 10am BST may provide some fresh direction for the common currency. Markets are likely expecting the worst here with the cold weather set to take a toll, so the potential could well be on the upside for the Euro, especially given the protracted sell-off we’ve seen over the last month on crosses like EUR/USD.
US weekly jobless claims will also be in focus this afternoon. We are seeing some softening of US economic data right now, with housing starts and capacity utilisation prints both disappointing yesterday. US treasury yields continue to march higher and this metric is instrumental in terms of what is driving dollar appreciation right now, but any suggestion that the Federal Reserve may need to slow the pace of interest rate hikes has the potential to initiate a degree of dollar selling.
There’s nothing of note on the UK economic calendar today, but we should expect the Brexit debate to remain very much at the top of the agenda. With questions being asked over the simple legality of the proposed customs compromise, the details here will need to be dissected yet again.
Yet again cable hit fresh lows for the year during yesterday’s session although that downbeat US economic data was sufficient to initiate something of a rally. The pair has however been trading in a relatively narrow range since the start of the month with the market seemingly failing to find any real value even at these depressed levels. More bad news over Brexit or monetary policy could easily open the door to the low 1.30’s.
Similarly, the pair also posted fresh lows for the year yesterday and with Eurozone economic data failing to improve, the risk here is that downside pressures will continue to prevail. So long as yields continue to diverge then a return to the November lows around 1.16 remains possible. Graph below.
The short-term uptrend continues for the pair, with the potential to see a return to recent highs around 1.16. However this is likely dependent on acceptable progress being made over post-Brexit customs arrangements and continued belief that we’ll see a BoE rate hike in August. As we’ve seen recently, the pair has great potential to break sharply lower in reaction to ‘bad’ news from the UK.