Pound Boosted by PMI Ahead of BoE; Euro Struggles Before ECB
ASIA/EUROPE FOREX NEWS WRAP
Mixed data overnight has thrown the majors for a loop, with recent underperformers the Australian Dollar and the British Pound as top performers by mid-morning in Europe, while the recently strong Euro and Japanese Yen are the worst performers. As always, the start of a new month brings about the ever-important PMI surveys. Here’s where they fell to provoke a shuffle among recent best/worst performers in FX:
While the Australian and Chinese data have produced only a modest move higher by the Australian Dollar, focus today is centered around the British Pound and the Euro ahead of the Bank of England and European Central Bank policy meetings today, respectively. Both currencies were hampered by the introduction of “forward guidance” at the July meetings, and today could see similar results, depending on what point of view each central bank takes.
Overall, for the both the BoE and the ECB, it boils down to this: will the focus be on the upswing in recent growth prospects (bullish for the EUR and GBP); or will it be on ensuring interest rates stay lower for an extended period of time (bearish for the EUR and GBP).
Taking a look at European credit, peripheral yields continue to edge lower ahead of the ECB – a sign of dovish expectations. The Italian 2-year note yield has decreased to 1.523% (-2.1-bps) while the Spanish 2-year note yield has decreased to 1.858% (-2.0-bps). Similarly, the Italian 10-year note yield has decreased to 4.369% (-3.2-bps) while the Spanish 10-year note yield has decreased to 4.618% (-2.1-bps); lower yields imply higher prices.
RELATIVE PERFORMANCE (versus USD): 09:30 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.08% (+0.81% prior 5-days)
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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TECHNICAL ANALYSIS – CHART OF THE DAY
GBPUSD – My focus remains on the GBPUSD with the BoE policy meeting today. The key support noted yesterday – “that guided the pair off of the March lows, coinciding with the 23.6% Fibonacci retracement of the yearly high/low move…at $1.5150/75” – has held and now back-to-back daily Hammers might potentially evolve.
However, I find that risk remains skewed to the downside, as the Fed couldn’t knock back the US Dollar; the BoE should strike a dovish tune; and US NFPs on Friday look to be strong after the strong private sector jobs report yesterday.
I thus maintain: “A break below eyes a move to 1.5000 as former daily RSI trend support comes under pressure. Overall, the big picture calls for a move lower into 1.4225/40, the 100% extension off of the yearly high to the March low, extension drawn to the June high; the 61.8% extension at 1.4816 held as support on July 9 (low was 1.4815).”
--- Written by Christopher Vecchio, Currency Analyst
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