The end of the month is turning into a tough one for GBP naysayers as cable sales higher. Meanwhile, Draghi drags Euro lower, and Trump threatens to terminate, again.
Month end flows should always be taken with a grain of salt, as institutions rebalance international portfolios or do last minute hedging etc. These execute at best once a month flows may or may not fit in with the general theme of the week or month, especially ahead of an almost global long weekend.We can also expect to see a lot of large options expiries and that dirtiest of words, “fixings”, throughout the London and New York sessions.
Month end noise aside and somewhat belying the timid ranges we have seen in the G-10 universe over the last 12 hours quite a lot is actually going on. Setting the scene nicely for a rather more frisky FX market next week with the FOMC and Non-Farms on Friday.
GBP continued to rule the waves, moving higher against the USD and the EUR. We will look at this in a bit more detail later but needless to say, it still feels as if some structural shorts are yet to be unwound.
President Trump set a few cats among the pigeons this morning by threatening to either renegotiate or terminate South Korea’s trade deal with the U.S. and in a Mexico moment, handing the South Korean armed forces a $1 billion bill for the installation of their THAAD system around Seoul.
The two interesting things that came out of this were that a. Neither the Kospi nor the Korean Won reacted at all to the statement, suggesting that the President’s modus operandi with regards to negotiations is starting to fall on deaf ears globally. The carrot and the stick approach is refreshing, it is just not very subtle.
Secondly, in an equally Mexican response, the South Korean Defence Ministry said they had absolutely no intention of paying for it and the greenback started weakening.
Starting with the ECB overnight, Mr Draghi has most certainly caused a drag on Euro with some decidedly dovish comments overnight.
“We have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook — which remains conditional on a very substantial degree of monetary accommodation.”
“Interest rates will “remain at present or lower levels for an extended period of time, and well past the horizon” of asset purchases.”
This saw EUR/USD drift lower by over nearly a 100 points in yesterday’s session although Mr Trumps terminating comments have seen the single currency make some ground back. The Euro is delicately poised on the charts as we head into the long weekend, sitting midrange at 1.0895.
As highlighted by the yellow circle, the EUR has formed a double top at 1.0950 and has made a series of lower highs since the start of the week. This becomes the closest major resistance.
Support is denoted by a clear double bottom at 1.0850 with the 200-day moving average (DMA) just below there at 1.0841. A close below here could set the EUR up for a correction to fill its Monday gap to 1.0730 early next week. Longer term trendline support and the 100-DMA lie below in the 1.0640/50 area.
Her Majesty’s British Pound has enjoyed an excellent week. Consolidating its gains post the snap election announcement and on the charts looking like it may be getting ready to move higher. U.K GDP has just come out.
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