Another choppy day for GBP, but the split in the MPC has taken another twist as a little over 24 hours after governor Carney’s dovish tilt on policy stance was voiced in the Mansion House speech, fellow member Haldane threw the cat amongst the pigeons by siding with the hawks. He (Haldane) voted to keep rates unchanged last week, but pointed to a switch towards reining in stimulus in H2 as he cited resilient growth alongside higher inflation. His current stance was based on weak wage growth, but with the current vote split at 5-3, the mathematics are simple enough looking forward.
Cue the rally in the pound, where cable was already finding a base under 1.2600. a tentative recovery into the previous support zone was then given the fuel for a full-blown push higher, where we now see the low 1.2700’s being tested. We still see these moves here well contained by the outer limits at 1.2400 and 1.3000, so anything in between offers little on the future direction with the Brexit talks yet to get under way in earnest.
For those looking to maintain their bearish take on the UK prospects ahead, EUR/GBP is again showing its familiar resistance to the downside, and as German Finance Minister Schauble highlighted today, Brexit has bolstered sentiment towards Europe as have the recent run of encouraging data. Support levels seen stretching all the way from the low 0.8700’s down to the mid 0.8500’s, and unless there is something material that impacts on or through the EU talks ahead, there is little to displace these on the horizon.
For EUR/USD, traders have taken strong note of the 1.1100-1.1300 parameters, but with the USD perspective improved by sentiment at the Fed, we have to be wary of a break lower to some degree. It is hard to see this transform into a wholesale change in direction, as the mid term view on QE tapering from the ECB hard to ignore. September is when many expect the governing council to act on their positive observations on the Euro zone economy, with inflation the fly in the ointment, but which is clearly a global phenomenon.
Looking to the overnight session coming up, the theme will be dictated by the NZD pairs to a larger degree as the RBNZ will call on rates (to stay unchanged, OCR 1.75%) will be complimented by the statement (and commentary) which should see which way their bias lies. Domestic finances have allowed for fresh reinvestment, and this has bolstered the outlook on the economy, but we feel a sizeable chunk of this has been reflected in the NZD rise across the board. This could lead to comments over exchange related headwinds, and longs (vs the USD) have been modestly trimmed accordingly.
However, against the AUD we are back in the mid 1.0400’s, and as such, the key weekly trend line cutting in around 1.0350-70 is still vulnerable. When we look to the frailty in metals, pressured by (Dalian) iron ore, the prospects for the AUD higher from current levels look slim but having weathered a range of negatives including the downgrade on Australian banks at the start of the week as well as the ongoing concerns over demand from China, a period of consolidation looks more likely near term. The RBA are also comfortable with the current policy stance and as we have seen today, rate pricing has strong implications.
On this basis, the change in outlook at the BoC has also served the CAD well at a time when oil prices are doing the currency few favors. WTI is struggling to find a base, and despite all the efforts of the leading producers to address the supply side, production out of the US shows no sign of abating as their endeavours towards self sufficiency continues. Reports suggest there are likely to be talks on deeper cuts, but this had a modest impact on price (at the time), but for CAD, this is of little relevance yet. I suspect this may change if WTI were to test USD40.00. Canadian retail sales for Apr due out tomorrow.
The DoE report provided some much-needed support, coming off the back of the APIs Tuesday night as wells as compliance cited at 106% by OPEC/non OPEC yesterday. The build in crude was a little above expectation at 2.45mln barrels, with refinery utilization down 0.4%.
Back to the USD, the JPY rate remains confined to the 109.00-112.00 range to a larger degree, with the topside capped by the 10yr UST yields stalling ahead of 2.20%. Existing home sales for May were better than expected, adding to the pressure on the upside limits near term. If we do break 112.00, plenty more resistance to contend with through here, so expect little in the way of momentum near term above the figure. Weekly claims and the Kansas City manufacturing index due for Thursday
Finally, in the early European session we have the Norges bank decision to look to, though in spite of the relaxed mood among the members and a generally improved outlook, there are enough concerns, not least of all Oil to keep the rate stance unchanged in the interim. NOK/SEK is still well placed to test the downside, and with respect to the above, the chance of a range-breaker (outside 1.0150-1.0450) looks unlikely in the current light. We trade in the middle of this range as I write.