The USD strengthened against its major counterparts yesterday, on the back of strong US financial releases and rising treasury yields.
Almost every US release outperformed expectations and analysts seem to highlight rise of housing starts, the drop of unemployment claims and the rise of the Philly Fed business index. Following the robust data, the US treasury yields albeit at low levels, rose slightly, providing an extra push for the greenback. It should be noted that analysts mention the possibility the USD may also be getting stronger due to trade tension in the global market. We maintain the view that the weakness displayed by the Euro and the pound, continues to highlight the greenback’s relative stability. The USD is expected to remain data driven for a while and should there be no major fundamental issues surprising the markets, we could see it being affected by today’s releases. Please do not forget that in the sidelines of the Eurogroup meeting today, some comments about the Italy’s intentions to break the EU budget rules, could slip out and create volatility for the EUR. Also bear in mind that the Trump administration is expected to make an official announcement on whether it will impose tariffs on European cars or not by tomorrow Saturday. EUR/USD maintained a wide sideways movement yesterday, testing the 1.1220 (R1), dropping and testing the 1.1175 (S1) support line and stabilising just above it. We could see the pair, maintaining the sideways movement mentioned, yet should the pair’s long positions be favoured by the market, we could see the pair breaking the 1.1220 (R1) resistance line and aim for the 1.1260 (R2) resistance level. Should the pair come under the selling interest of the market, we could see it breaking the 1.1175 (S1) support line and aim if not break the 1.1125 (S2) support barrier.
GBP drops even lower on inner UK political instability
The pound weakened even further against the USD yesterday, as pressure keeps rising for Theresa May to leave office. As Theresa May fights to keep her Brexit deal in place, fears of a disorderly Brexit seem to be rising. MPs in the Tory party seem to be questioning her leadership as recent polls showed very low support for the conservatives among the voters. Hence pressure within the Tory party is rising for her to resign or else there is the possibility that a new confidence vote may take place. The market seems to be reacting negatively to the prospect of Theresa May leaving, as fears grow that such a scenario could enhance the probability of a disorderly Brexit. As long as the negative headlines continue to reel in, the pound could continue to weaken as at the current stage seems to be Brexit driven. Cable dropped even lower yesterday, aiming for the 1.2775 (S1) support line and stabilising just above it. We maintain a bearish outlook for the pair and for us to switch it in favor of a sideways motion, we would require the pair’s price action to break the downward trendline incepted since Monday. Please be advised that the RSI indicator in the 4 hour chart is still below the reading of 30, implying a rather overcrowded short position. Should the bears maintain control over the pair’s direction, we could see it breaking the 1.2775 (S1) support line and aim for the 1.2665 (S2) support level. If the bulls take over, we could see the pair breaking the 1.2875 (R1) resistance line and aim for higher grounds.
Other economic highlights, today and early tomorrow
During today’s European session, we get from the Eurozone the final CPI rates for April. In the American session, we get from the US the preliminary University of Michigan Consumer sentiment indicator for May and the Baker Hughes active oil rig count figure. During Monday’s Asian session, we get Japan’s preliminary GDP growth rate for Q1. As for speakers NY Fed President John Williams and Fed’s Richard Clarida speak.
