Daily FX Wrap: USD upturn stalls, but traders selective as EUR and GBP targeted. Commodity USD’s benefiting near term, and more so late in the day as the DoE reported a larger than expected draw down then expected. All eyes on the BoE tomorrow.
Thursday is a ‘Super’ one in the UK, with the BoE announcement accompanied by the minutes tomorrow, which in itself could be influential on the pound given the ‘moderately hawkish leanings’ at the MPC. To add further volatility to the proceedings, we have the Quarterly inflation report, which will be keenly eyed given the recent developments in the pound.
We have seen a near 6% rally in cable since the last meeting, and this may be enough to tame fears of an inflation overshoot. In light of this, some MPC members and central bank pundits have previously called for a rate hikes to be expedited as a result of this.
Consequently, we expect any shift from 7 – 1 higher will see the spot rate pushing through 1.3000, if we have not breached the figure level before. Early London markets attempted a push on this level, backed up by some M&A speculation surrounding Unilever (LON:ULVR) and a sale of their spread division, but the shallow pullback suggest the pound is very likely to stay bid into the midday announcement tomorrow.
We have some hard data out of the UK ahead of the main event however, with March industrial and manufacturing production and trade date due out at the 09.30 slow in London.
EUR/GBP has tested through 0.8400 accordingly, but with a large helping hand from USD bulls pushing the lead EUR spot rate back into the 1.0880-50 zone which carries some large buying interest. Speaking at the Dutch Parliament today, the ECB’s Draghi reiterated that now was not the time to exit QE, but this has been factored in. EUR buyers are looking to the longer term, which bodes well after a run of encouraging data reads, from both the core and periphery alike.
We also have central bank risk to contend with in the overnight session as the RBNZ is set to communicate its latest deliberations. The pick-up in inflation and improvement in the jobs report have led many to believe the central bank sound a little more optimistic in their statement, but no change due this time around. NZD has weakened considerably since its last meeting, and this may have implications on inflation ahead.
The move against the AUD tempers some of this. NZD/USD has been trading close to, but below 0.6900 for most of the session today, but we do not expect any positive reaction to achieve much yardage beyond 0.7000 if at all – 0.7050 notable resistance near term. Governor Wheeler is due to speak later on in the session.
AUD will be led by events dictating the NZD as a result, but we have seen a healthy recovery against the greenback today, as USD bulls have targeted the major counterparts. We expect reclaiming 0.7400 will be a tough ask as copper prices continue languish near the 2017 lows.
For USD/CAD, dip buyers refuse to allow any leeway on the downside, though we are testing initial support at 1.3650-60 at time of writing, despite the clear resistance ahead of 1.3800. This is all down to oil price, and correlation traders are concerned that WTI/Brent is not ‘responding’ to the rhetoric from the major oil producers hinting at an extension to the production cut agreement.
Late in the day, the DoE report backed up the large draw from the API Tuesday night recording a fall of 5.247mln barrels, but the upturn in oil price was/is sluggish in the initial stages of what is a modest recovery as yet. The NY session ahead could be interesting.
Thursday sees the BoC’s quarterly review late in the day, with the new housing price index due out ahead of this at the same time as the usual weekly US claims data.
As for the USD, little else of note until Friday, when we get the latest (Apr) CPI and retail sales data, with PPI tomorrow unlikely to command much of a response. The USD index is currently grappling with the highs from last week at 99.50, and this is coinciding with a sluggish USD/JPY rate through 114.00.