A volatile end to the week both in FX and other asset classes. In the end the closes were ok in terms of EURUSD bouncing back quite significantly from Friday’s intraday low and equities in the U.S. closing unchanged having been down during the session.
Overall the grind continues, accelerated slightly by month end flows on Friday which were primarily purchases of GBP. When we broke above 1.5530 I stated that I thought we would move slowly up to a target of 1.5800-50. EUR/GBP is similar, with GBP quietly bid and up against technical resistance at 0.8300. Risk sentiment has improved also in the overnight session despite the weaker GDP print/revisions buoyed by the better than expected China PMI data and components and the dollar is trading on the back foot in particular vs. non-japan asia and commodity currencies.

Overnight comments from the Fed’s Bullard about increased risks of deflation and the possible need for further QE measures have added to the pressures on the dollar. It hit an eight month low to the yen overnight, hit also by selling by Japanese exporters. While the dollar has edged off its lows, sentiment remains against the US currency as markets await today’s important advance reading of Q2 GDP. This is attracting considerable attention given concerns about the fragility of the US recovery. Annualised growth of 2.5% is expected for the quarter, which is considerably lower than had been forecast some weeks ago.

Sterling has also maintained its recent positive trend against the dollar continuing to take support from recent stronger than expected UK economic numbers. Yesterday it hit a fresh 5 month high against the broadly weaker dollar, though slightly lower against the strong euro. While most UK data have been good, yesterday again saw evidence of renewed weakness in the UK housing market. Mortgage approvals came in below expectations on top of the earlier news from Nationwide of a monthly decline in house prices. Meanwhile, news overnight shows a slump in consumer confidence to an 11 month low in the wake of the June budget leaving sterling again with a slightly weak tone against the euro.

Buyers into the Euro may want to consider the overnight upside movement with the Pound as the market presents a good buy between 1.1950 – 1.20 today. USD Sellers should consider getting out of the market asap as further bullish movement with the Pound is likely with target points between 1.58 – 1.60 likely to be tested. AUD buyers may also want to consider short/medium term requirements as the AUD strengthens in overnight trade ahead of tomorrows RBA interest rate decision.

If you would like to discuss your requirement with me further or if you would like a live trading quotation against of the 16 most actively traded currencies do not hesitate to give me a call.

Tom Trevorrow, Currency Analyst at Tor FX – +44 (0) 1736 335264