Daily FX Wrap: Choppy trade for month end, with GBP reversing losses to see Cable eyeing 1.2900 again. USD also losing out against the EUR, CHF and JPY, but CAD the big loser on the day despite some healthy GDP stats for Q1, but Oil price drop did not help!
Wednesday saw a continued frustration (and confusion) in the markets, but in fairness, month end can be like this at the best of times, with some of the currency drivers overlapping – as it were! We expect the larger (volume) traders are sitting it out until the US data releases tomorrow and Friday, with intra-day traders more comfortable with the established ‘narratives’.
The initial mover (from Asia) was GBP, which turned lower on YouGov forecasts suggesting the possibility of an erosion in a Tory majority should they win. Corbyn’s Labour campaign has been gaining a little traction, if one is to believe the polls and the media, but GBP resilience is down to scepticism over these supposed developments.
The broader perspective over the Brexit negotiations, which are shaping up to be a frosty affair at the very least, are the major driving force in the market and has been key in containing the Cable move ahead of 1.3100. This does not preclude a retest to 1.2900-1.3000 levels, but with the USD suffering – largely at the hands of the EUR, CHF and JPY – Cable may be living a charmed life for now.
Against the EUR, life is not so good, and despite the heavy resistance anticipated ahead of 0.8800, the slow grind higher is set to continue as expectations of the ECB signalling a QE taper – some now looking for as soon as the June meeting – later this year. The latest inflation figures may have tailed off, but this was discounted after the German CPI numbers misses by the same amount. EU wide data otherwise has been improving, but we expect wobbles along the way, but we still see the positive outlook on the region perhaps a little overdone in some of the EUR based moves – not least of all in the spot rate. Back through 1.1200 there looks to be limited momentum, and higher up,. 1.1280-1.1300 is still an area of heavy congestion.
Elsewhere, the CAD failed to capitalise on the healthy growth stats for Q1. We find it hard to fathom traders pushing the spot rate higher due to the miss on the annualised Q1 rate expected at 3.9%, as a 3.7% print is more than respectable in the current climate, with Mar recording a 0.5% gain. Q4 2016 was also revised up from 0.6% to 0.7%, but as Oil prices also took a dip (on Libyan production levels in the Sharara field), USD/CAD pressed back towards 1.3500 with another test on the low 1.3400’s running into buyers still seeing ‘opportunity’ in ‘the dip’. Nevertheless, underlying commodities and sentiment dictate to a larger degree.
AUD also suffered late in the day as risk and the major equity indices dipped into the red, but losses were measured with the move into the low 0.7400’s cushioned by the shorter end rate differentials. Copper was also relatively stable, but with AUD/NZD now in the mid 1.0400’s, we may see demand in the cross rates aiding the spot tone. NZD/USD again failed to maintain a foothold above 0.7100, but we feel there is a little more upside here as the domestic fundamentals have been supported by the latest announcement of the budget surpluses.
For the USD, is was another day of losses, with the DXY moving back towards the lows from yesterday, tempered only by the losses seen in the CAD and to a modest degree the AUD. USD/JPY has now tested the 110.50 level, but the price action points to a move on 110.00 if now lower, especially with the current mood affecting risk assets.
Looking to Thursday’s session, we have the familiar precursor to the official jobs report on Friday in the form of the ADP survey. Later in the day, the ISM manufacturing PMIs are also due out in the afternoon, but this is a running theme through the day with focus on the UK and Germany. Swedish and Norwegian PMIs will also be worth watching, as will Swiss GDP for Q1. Capital spending data in Japan and Australia as well as their respective manufacturing PMIs, but China’s Caixin manufacturing PMIs will garner much of the attention. Australian retail sales also due.