The continuation of the rebound in the pound this week was at first sight most noticeable in
the GBPUSD which lifted above 1.33 on Wednesday with the price peaking at 1.3350, before
drifting back a bit into the month end yesterday. However, that’s not actually where the
pound has performed best of all this week. It has been the GBPJPY that has recorded the
biggest move of all the G7 pairings, rising to above 148 this morning-more on that move in a
second.
Firstly, a word about the pound elsewhere. The GBPEUR did eventually break above that
1.1540 level and as I suggested; after doing that, it soon took out 1.16 and in fact has risen
to its best level in almost 2 years this week with the price pushing past 1.17, reaching a high
of 1.1724. Granted, it has backed off a bit since and now stands around 1.1650 as I write this
update.
I said previously that I thought the next serious upside level of any note was around 1.20 on
this pairing (200 weekly moving average is at 1.2023) and that notion appears to be
unchanged still, but of course its going to be down to what breaks next on the Brexit front
as to whether or not the price can get that high. On a personal note, I hope that it can, as I
would very much like to sell some pounds up there!
So, turning back briefly to the GBPJPY; the price has risen near enough 400 pips so far this
week, breaking well through its 200 daily moving average (currently at 144.63) and from a
low near 144.40 and close to 148.30 this morning. However, its not just the pound that has
fuelled this surge because the JPY has played a big part in that move too, with the USDJPY
nudging its way towards 112, having also broken above, and closed above, its 200 daily
moving average (at 111.34) yesterday.
The immediate reason for the JPY weakness this morning is down to news from China that
the Caixin (private barometer) manufacturing PMI number came out seriously above market
expectations which in turn has helped Nikkei continue to move higher. This was widely
anticipated to register a reading of 48.5 today, but actually recorded a rise to 49.9. This
news seriously contradicts the main PMI number which was released yesterday, showing a
continued fall to 49.2 from the previous reading of 49.5. As to which one of these
barometers is the most accurate reflection of activity there? Well, in truth your guess is as
good as mine quite honestly because I don’t know which one to believe.
Anyway, irrespective of that, the Asian equity markets have all lifted on this news today
following a slightly nervous and entirely opposite reaction this time yesterday. The impact
of that has helped to further boost US yields which also got a fillip yesterday from data
showing the US economy growing at a faster pace than previously expected in Q4 2018,
rising by 2.6% against a consensus for a 2.2% increase. Furthermore, the Chicago PMI index
came in way above expectations yesterday too. That showed an increase to 64.7 in February
from January’s 56.7 reading.
Consequently, all of this data has helped to push the dollar higher over the past 24 hours
and the JPY has been the one currency to suffer the most from all the news. So with the JPY
lower it should come as little surprise to note that gold has finally given up some ground too
with the price dropping below $1310 this morning. That’s quite some way back from the
peak last week at $1346.80. Naturally higher US yields this morning are fuelling this move
too with the US 10year note back above 2.7% today. Perhaps therefore the usual Gold/JPY
correlation will continue move back into line, having drifted apart for much of the past few
weeks? I did say a couple of weeks back that it was only a question of time before this
happened.
As for the EUR? Well, that failed again to grab any sustained traction from touted US dollar
month end sales yesterday as the EURUSD, didn’t make any headway beyond 1.1425 before
turning south again, towards 1.1350. The major problem for the EUR right now is that it has
no fundamental basis to rise other than perceived relative valuation opinion. All the time
serious doubts exist on the economic outlook and interest rates remain negative it simply
cannot get the support it needs for a sustained upside move.
Furthermore, and as far as I can tell, its only that fear of selling EURUSD at what are
perceived low levels that’s actually stopping it from dropping quite a bit further. Having said
that, the longer it fails to rebound the more chance there is that eventually ‘forced’ sellers
will have little choice but to bite the bullet!
Important Economic Releases Due today
01/03- 8.55am German February unemployment report
01/03- 10.00am Eurozone Final February CPI reading
01/03- 3.00pm US February ISM Manufacturing Index