Daily FX Wrap: GBP pushes against the data and risk events ahead. AUD gains on Qatar woes, but RBA meeting ahead. USD still on the back foot, but EUR also slipping a touch as we look to the ECB on Thursday.
There were a number of key events to direct FX trade today, though the terrorist attacks in London did not have much bearing on GBP, which on the face of it proved reverent under the circumstances. However, the resilient tone seems to be flying in the face of the election polls, which may be overstating the Labour catch-up to what is widely perceived to be an uninspiring Tory campaign under the leadership of Theresa May. As such, Cable levels may be underpricing the event risk here, with EUR/GBP also heading lower to trade sub 0.8700, but the USD rate has led trade today.
This is also comes against the softer than expected services PMI release this morning which saw the index dropping back off 55.8 by 2.0 points. As such, we can only put today’s price action down to scepticism over the polling results of late, with the consensus base case scenario that of a Conservative win on Thursday. Cable took out initial resistance at 1.2930, but unconvincingly so as yet.
EUR/GBP support seen lower down at 0.8650, but price action shows reluctance in achieving these levels, as EUR traders look to the ECB meeting this week. Expectations for QE taper signals have largely been priced for later this year, but outlying calls for rhetoric suggesting as much this time around has the market sticking with EUR longs, so we expected limited pullback until the press conference on Thursday.
From the USD side, we have had much of the data for the week out today, where the headline non-manufacturing ISM was only a touch off expectations, but where the bulk of components show growth. Factory orders fell 0.2%, but the previous month was revised up to a 1.0% gain, and we also saw non farm productivity was flat rather than the 0.2% fall predicted. None of this aided USD sentiment, with the market still eyeing the Jun FOMC meeting next week producing a dovish hike at best.
Apr JOLTS due out tomorrow to give us a little more light on Friday’s employment report after the headline number fell alongside the unemployment rate. Little respite for USD/JPY as a result, but the downside is running into good demand ahead of
110.00, not least of all the options market, but risk sentiment reflected on Wall Street is not being matched here. However, you only have to look at some of the cross JPY rates to see where the support is coming from, notably EUR/JPY, GBP/JPY and NZD/JPY of late, as Japanese investment continues to diversify.
AUD was a major beneficiary of the allegations levelled at Qatar over suspected terrorism links. Australia and Qatar are both key Liquified Nat Gas providers and the belief is that the former will attract more demand; this lifting AUD/USD to the upper 0.7400’s and coinciding well with the key support under 1.0400 in AUD/NZD. A bounce off the lows in iron ore and Copper have also added to the bid tone, but to a very modest degree.
Caution required at these elevated levels however, as we have the RBA meeting in the overnight session ahead. Vol rates are not pricing in too much volatility, as the data suggests little prospect of policy change anytime soon, but we will be better placed to judge on Wednesday after the release of Q1 GDP.
Ivey PMIs of note in Canada on Tuesday, but it is Oil price driving trade in the CAD, and we see the lead spot rate confined by demand ahead of 1.3400 while the run up through the 1.3500’s stopped well short of 1.3600. WTI and Brent prices are looking very heavy at the moment, and despite the recent output extension and some of the latest inventory levels, traders continue to jump on modest recoveries as the US shale production rise offsets OPEC (and non OPEC) efforts.