The price action was interesting yesterday. Participants were clearly adding to risk as the S&P 500 made an intra-day high, but the euro was weak. And it dragged the other European currencies along with it. Cable yet again dipped below its support zone, although I see it hovering just above again. The real action was in the crosses.. from EUR/GBP to EUR/ZAR the euro was weaker across the board. As I’ve said before, the trend in EUR/GBP is a thing of beauty at the moment! For now I don’t see any sticky zone for the cross until we get to the 0.7755 – 70 zone. In trader speak there’s nothing but free space from here to there. Of course it doesn’t mean it gets there, but if you’re looking for a potential target zone that would be a good area. The ECB has got to like this euro weakness, but the irony is that it’s very existence might reduce the odds of them doing something to justify it (Werner would be so proud! *)… let’s not forget that from a trade flow perspective the force remains with the euro!
US inflation numbers were benign yesterday, which happily for Mr Market doesn’t aid the exit strategy narrative. But of course that’s inflation in the narrow sense of the word… asset price inflation is inflation in my book! Emerging market currencies certainly had their fun with USD/ZAR getting to within a pip of a double top confirmation, it will be interesting to see what happens if it gets below 10.53, technicians would probably target a move down towards 10.20 in that scenario, but from a fundamental perspective the lower than expected inflation numbers – this morning – probably don’t help the cause.
Another interesting move in risky FX space has been AUD/USD overnight. Probably on the back of the higher than expected inflation numbers (at least on the basis of the trimmed mean). The price action yesterday in full risk on was uninspiring but that’s certainly changed with the surge this morning. I’m not sure it alters the bigger picture dynamic for the currency pair, but at least we could see a test of recent range highs.
Bank of England minutes today might enable sterling to differentiate itself from the euro, apart from Canadian retail sales later on, I struggle to find anything else interesting data-wise. So we’ll just keep an eye on EUR/USD and see if it has any legs.
(*) Werner Heisenberg