Morning Comment 22.02.21
EUR/USD once again found support at 1.2050 last week before trading back above 1.21 later in the week. The cross has traded in a 2% range between 1.1950 and 1.22 over the last 5 weeks. A break of the topside of this range at 1.2160 would open the gateway towards the early January highs at 1.2350, while a break below 1.1950 would see some selling towards the 1.17 area. PPI along with the Manufacturing PMI for February was also stronger than expected in Germany on Friday, while the services PMI was marginally weaker owing to restrictions. This week will see the release of the IFO survey, along with Q4 GDP from Germany.
EUR/GBP remains under pressure, and sank below support at 87p in last week’s trading to its lowest level since March 2020. Optimism continues around the rollout of the Covid-19 vaccination in the UK; the next target for the UK government is another 17 million shots by the end of April. Chancellor Rishi Sunak look sets to extend the furlough scheme in the upcoming UK budget on March 3rd. GBP/USD set another cycle high this week moving above the psychological 1.40 level; it has traded back below the figure this morning on the back of equity weakness. Retail sales for January were very weak last Friday, but February PMIs for Manufacturing and Services beat expectations.
Last week, the USD showed bouts of strength before ultimately finishing weaker even as equity markets came under a small bit of pressure from rising US interest rates. The Fed Minutes from the January FOMC meeting stressed the importance of a “patiently accommodative” monetary policy. We are due to hear from Powell tomorrow when he delivers the semi-annual monetary policy report while Clarida and Brainard speak on Wednesday on the US economic outlook and the Fed’s maximum employment mandate. On Friday The US House will vote on the $1.9trn fiscal aid package which is expected to pass before moving to the Senate where it may see some opposition from the more conservative leaning democrats.
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19 Feb 2021
Morning Comment 19.02.21
EUR/USD found support at 1.2050 yesterday before trading back above 1.21 this morning. The pair has traded in a 2% range between 1.1950 and 1.22 over the last 5 weeks. A break of 1.2160 would open the gateway towards the January highs at 1.2350, while a break below 1.1950 would see some selling towards 1.17. German PPI this morning came in stronger than expected this morning while February manufacturing and services PMIs printed stronger for manufacturing, but weaker for services owing to continued restrictions and lockdowns across Germany, and wider Europe. There is no other data of note this week; next week will see the release of the German IFO survey, final CPI for January, German Retail sales for January along with German GDP for Q4.
EUR/GBP remains under pressure, and sank below key support at 87p in yesterday’s trading to move to its lowest level since April 2020. Optimism continues around the rollout of the Covid-19 vaccination in the UK; having met their first target of administering 15 million shots to the most vulnerable groups by the end of February, the next target for the UK government is give a further 17 million people their first shot by the end of April. GBP/USD set another cycle high this week at 1.3985 and the cross has the psychological 1.40 level firmly in sight. Retail sales for January were very weak owing to the increased restrictions while flash services/manufacturing PMIs for February are due to be released later this morning.
The Dollar has shown intermittent bouts of strength this week but failed to sustain a move higher so far as US equities have come under a small bit of pressure due to rising US interest rates. PPI/Retail Sales for January printed very strong numbers midweek – the retail sales release in particular showed the strong impact of the most recent round of stimulus cheques. Today will see the release of February Manufacturing/Services PMIs. The main data point of note next week is consumer confidence for February while the House are due to vote on Biden’s $1.9trn stimulus package on February 26th, where it is expected to pass, before moving on to a vote in the Senate which will prove challenging given opposition from the more moderate democratic senators.
17 Feb 2021
Morning Comment 17.02.21
The Euro was under pressure yesterday as rising US interest rates meant EUR/USD found resistance once again at 1.2160, before trading back below 1.21. The European economy continues to struggle under the weight of Covid-19, but there was some positive news on Tuesday in the shape of stronger than expected readings on the German ZEW economic sentiment survey. The survey noted that “consumption and retail trade in particular are expected to recover significantly, accompanied by higher inflation expectations”. The key support for EUR/USD remains at 1.1950, below which opens a move back towards 1.17 while the aforementioned 1.2160 level should provide topside resistance, above which a move towards 1.235 would be on the cards. German flash PMIs for February are due to be released on Friday.
EUR/GBP has traded down to its lowest level since April 2020, and sits on key support at 87p, as optimism continues around the rollout of the Covid-19 vaccinations in the UK continues, and the expectation that the UK will exit restrictions and begin to re-open the economy towards the end of this month and into March. GBP/USD set another cycle high this week at 1.3950, but did come under pressure yesterday afternoon when the dollar began to stage a comeback on the back of rising interest rates in the US. CPI for January was released this morning and printed slightly higher than expectations at 0.9 % YoY. Inflation looks set to rise a bit more sharply from the end of Q1/early Q2 as energy price base effect push up headline numbers. BoE member Ramsden speaks this afternoon on Quantitative Easing, while Retail Sales numbers for January are due to be released on Friday.
The Dollar rose to its strongest level in over a week on Tuesday against the G10 as US interest rates rose to the highest level in almost a year as a result on the back of improving inflation expectations, and optimism around the economic recovery. The reflation theme has gripped markets since the US Presidential Election last year, and has been more pronounced in the US due to the expansive fiscal policy currently being engaged in, while the US are further along the road in terms of the vaccine rollout, and struck an agreements buy an additional 200 million doses by July. Fed regional governor Bullard noted that the US is in good shape with regards to inflation at the moment, while US economic data with the Empire Manufacturing Index for February beating expectations. Today sees the release of PPI and Retail Sales for January; tonight we get the minutes from the January FOMC meeting.
16 Feb 2021
Morning Comment 16.02.21
The Euro was one of the weakest currencies in G10 last week as the single currency continued its recent fall, but has traded up to 1.2140 this morning. Much of the focus last week was on Italy where Mario Draghi gathered enough support form Italian lawmakers and is now highly likely to lead Italy’s next government; the next steps include a confidence vote in parliament this week, along with presenting his new cabinet to President Mattarella. In Germany, Chancellor Merkel looks set to extend current restrictions until March 7th, after which a cautious reopening can take place. Elsewhere, the EU revised down the 2021 growth forecast to 3.8%, and expected level of inflation to 1.4%. This week will see the release of EZ GDP, German ZEW, and the latest PMI numbers.
EUR/GBP has dipped below last week’s low this morning as the reflation trade continues to roar on; 87p remain the key support level to watch. GBP/USD set cycle highs last week at 1.3880, and moved beyond 1.39 this morning. Brexit reared its head again last week with EU negotiator Barnier noting that the EU needs a bit more clarification from the UK before it makes any decision on equivalence for UK financial institutions. UK vaccinations continue at lightning speed with Boris Johnson announcing at the weekend that the UK had met its goal of vaccinating 15 million of the most vulnerable by the end of February – he will now layout plans for a gradual reopening, starting with schools on March 8th. Economic data this week includes CPI and Retail Sales for January.
Dollar weakness continued last week and has accelerated early this morning; the Dollar Index has fallen almost 1.5% in recent weeks and looks set to retest the lows below 90. Last week Federal Reserve Chairman Jerome Powell said that inflation is likely to remain subdued, and any rise in prices is likely to be transient. Chair Powell also stressed the importance of “patiently accommodative” monetary policy while the FOMC continue to see downside risks to the outlook. President Biden have presented a $1.9 trillion Covid-19 response package with some hoping it can be passed by the end of the month. This week will see the release of US PPI and the latest Retail Sales numbers for January. Today is a US national holiday – President’s Day, so there is no economic data due for release.
8 Feb 2021
Morning Comment 08.02.21
The Euro was one of the weakest currencies in G10 last week as both Sterling and the Dollar gained further ground. The main focus on the political side saw former ECB President Mario Draghi accept a mandate to form a new Government in Italy; and while some parties including Lega and 5 Star initially looked hesitant to support Mr Draghi, as the week wore on pessimism turned to optimism for a new period in Italian politics. Much of the move in the single currency was driven by fundamentals in other markets – see UK and US sections – with the Euro becoming a ‘funding’ currency for other positions in currency markets. This morning German Industrial Production was largely in line with expectations.
Sterling strength was evident for much of last week leading into the main event of the Bank of England Meeting. The BoE MPC kept policy rates unchanged, and signaled that negative policy rates are off the table for the current downturn, but are asking for preparations to made in case they need to be deployed as a contingency in the future. Despite lowering its outlook for the year, the central bank sounded an optimistic note on its hopes of a strong rebound in the coming quarters which gave the Pound a further boost. Euro/Sterling is below 88p while Cable is testing the recent range highs; this week will see the release of Industrial Production along with GDP for the final quarter of last year.
Last week was another strong week for the Dollar as US Interest Rates pushed higher, supported by improving economic expectations, the potential for further fiscal stimulus and rising Oil prices – see more in the ‘Caught the Eye’ section. The Dollar Index reached its highest level since early December before dropping slightly on Friday afternoon. Over the weekend, US Treasury Secretary Janet Yellen said that “the U.S. can return to full employment in 2022 if its aid plan is robust enough”. Elsewhere on the domestic front, last week’s economic data was broadly better with PMIs showing strong expansion and the latest Employment numbers showing a drop in the Unemployment Rate from 6.7% to 6.3%.