Yesterday’s price action saw the recent US dollar rebound prove to be very short-lived, as market scepticism about a possible Fed move in September outweighed the initial Stanley Fischer inspired rebound seen earlier in the week, and the US dollar slipped back, though a disappointing August manufacturing PMI number also helped.
For most of this year the Federal Reserve and the markets have been indulging in what I would call a shadow boxing match as to when we can expect to see the next rate rise, and whether or not we get more than one.
Current market scepticism is well founded, as on a number of occasions this year Fed officials of various guises have suggested a rise might well be coming and that the markets need to prepare, and each time they have failed to deliver on it.
This means that the Fed need to be absolutely certain on this occasion if they do raise expectations that they are able to deliver on them, and with the committee seemingly so split it’s going to be difficult to deliver on that currently.
The slide in the US dollar appears to have also helped stock markets regain the losses seen on Monday, though some fairly upbeat economic reports also helped, as services PMI data for August for the Eurozone showed a slight improvement on July.
The pound also continued its recent recovery helped by some more decent trading updates from UK house builder Persimmon (LON:PSN), who reported that, despite Brexit, orders were holding up fairly well. Manufacturers reported their best export order performance in two years for August in the latest CBI survey out yesterday.
On the retail front the latest Kantar supermarket data also showed that consumers weren’t being deterred from enjoying the hot British summer weather, with UK consumers deciding to defer or defy the Brexit doom and gloom and get on with their summer holidays.
Crude oil prices, which slid back on Monday, continued to fall early Tuesday before rebounding strongly after reports surfaced that Iran was sending positive signals that it might feel inclined to support some form of joint action to prop up the oil market.
While history suggests that this is no more than the usual smoke signals, the fact that Iranian production is starting to approach the 4m barrels a day level that predated sanctions suggests there is a chance that any proposal might well get a hearing.
This is because in March this year, Iranian oil minister Bijan Zanganeh stated that they might consider a proposal when output gets back to that level.
On the data front there’s little of significance, with German Q2 GDP expected to be confirmed at 0.7%, while UK BBA mortgage approvals for July are expected to slow slightly in July to 38.5k from 40.1k in June.
EUR/USD – the risk remains for a move back towards 1.1400 and the June highs while above the 1.1250 level. It seems likely that we will continue to remain range bound with only a move below the 1.1200 area arguing for a move back towards 1.1120.
GBP/USD – the pound has managed to meet its 1.3200 target, and could well extend further towards 1.3500. We need to push through 1.3300 first and some trend line resistance there. Support should come in around the 1.3020 area, with the previous lows at 1.2860 below that.
EUR/GBP – continues to look soft breaking below the 0.8610 area, which suggests we could well see a deeper push towards the 0.8490 area. A move back through the 0.8620 area could see a return to 0.8700
USD/JPY – the US dollar needs to see a move back through the 101.30 level to stabilise and mitigate the risk of a move towards the recent lows at 98.95 the main focus. The risk remains skewed for a move through these lows at 98.90, and potentially lower towards 95.00, and levels last seen in June 2013.
FTSE100 is expected to open 18 points lower at 6,850
DAX is expected to open 7 points lower at 10,586
CAC40 is expected to open 7 points lower at 4,414
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