Tricky trading conditions my friend.
German IFO just been published at 109.70 from 110.40 last reading. EUR reacted initially by falling 10 pips ONLY. It has now recovered back to where we opened this morning at 1.3605. As if nothing has happened and yet German confidence has taken a knock!! Who said FX markets were not easy to interpret.
From what I can see I get the feeling the market is looking to take the USD (ag the € and £ especially) higher so that it can then re-enter long USD positions. There seems to be a great deal of talk around this subject now. There is no good reason for the EUR to rally, which tells me the market is hell bent on shorting the EUR, but not “happy” to do this at these levels. If they can muster enough rhetoric the market (they hope) will gradually drift higher giving the market markers the opportunity they are seeking. That of course is the ideal situation though whether it happens is of course another thing completely. Truth is we are trading in such narrow ranges right now, people are looking for any sign to make money.
GBP – The market is waiting for Several members of the MPC (Carney, Bean, Miles to address the treasury select committee from 9.30 am London time to discuss and explain the May Inflation Report. As previously mentioned the market is looking for sign posting towards the timing and size of any rate hike and I would believe that the outcome of this will be GBP positive. GBP volatility has been very low over the past few days but this could be the jump start required to push Cable towards 1.7100 and EURGBP towards 0.7950. After this morning IFO coming out weaker, EUR/GBP seems to have the most potential, looking for the market to breach the downside 0.7950 and break down towards 0.7900-10 and only re-think above 0.8040. Cable support at 1.7000 and 1.6935-40 Resistance at 1.7100 (barrier and retail sellers).
Plainly put the divergent Monetary Policy’s between the ECB and BOE are likely to keep EUR/GBP somewhat offered. The comments at 9.30 are going to be paramount and should reinforce Gov. Carney’s recent comments that the Bank rate will rise sooner than the market expects.
I will write more AFTER the meeting at 9.30am – Good luck