The U.K. pound finally rose through the 1.400 level versus the U.S. dollar on Tuesday, GBP/USD rose to the critical handle for first time since the Brexit referendum decision was voted for in June 2016. In late trading the currency pair, referred to as cable, was trading at just below the intraday Lehigh at 1.400, up approx. 0.2% on the day. Sterling has appreciated versus many of its peers over recent days and weeks, as a consequence of optimism rising that the U.K. will experience a soft Brexit, on favourable economic terms. However, the rise versus USD must be taken in the context of an extremely week USD, not necessarily pound strength, EUR/GBP is still circa 16% above the pre referendum level.
In an ironic twist, relating to the U.K.’s relationship with the European Union, a £1.2b rebate from the E.U. helped deliver an improvement for the U.K. public finances in December. Official figures showed public sector net borrowing fell to £2.6bn, the lowest December reading since 2000, far better than the forecast. Public finances were also boosted by VAT receipts, up by 4.9% to £12.3bn according to the Office for National Statistics. Borrowing for the financial year to date (since April last year) stood at £50bn, which is approx. 12% lower than in the same period a year earlier. The U.K. trade body the CBI also chipped in with encouraging soft data regarding business optimism; rising from -11 to 13 in January, CBI orders beat forecast by coming in at 14 ahead of 12, with CBI trend sales prices rising to 40 from 23, the latter sales price data could indicate increasing RPI, over the coming months.
The euro area sentiment data delivered by ZEW was positive for the single currency bloc area’s economy; the German current situation rose to 95.2, survey expectations for Germany to 20.4 and Eurozone economic sentiment came in at 31.8. Added to progress over Germany’s proposed coalition between the CDU and SDP, and the euro area consumer confidence reading rising to 1.3, beating the expectation of 0.6, the overall mood of optimism helped the euro rise versus several of its peers; EUR/USD reaching R2 during the New York trading session. Germany’s DAX index rose by 0.71% on the day, setting a new record high.
Yen rose during the day’s trading sessions, as a consequence of the BOJ keeping the rate at -0.10% and the central bank projecting 1.4% growth for the fiscal year that starts in April. Certain economic indicators for Japan missed forecasts; machine orders came in unchanged at 38.3% growth, with nationwide and Tokyo store sales falling dramatically. The all industries activity index for November did beat forecast; coming in at 1.0%, ahead of the 0.8% prediction and beating October’s 0.6% reading. USD/JPY rose by approx. 0.5%, the highest level in approx five months.
USA economic calendar news was thin on the ground during Tuesday’s sessions, earnings season begins this month and this year’s results figures cannot reflect Trump’s tax reform programme. However, analysts will be looking towards earnings to establish if the anticipation of the tax cuts led to increased business performance and investment from major corporates in the USA. The dollar index fell by circa 0.2% on the day, SPX rose by 0.22%, WTI oil rose through R2 to reach an intraday YoY high of 64.73, whilst gold breached the 1,340 handle, the highest level reached since September 2017.
U.S.DOLLAR.
USD/JPY fell to a level not witnessed since mid September 2017, the major currency pair whipsawed in the Asian and morning session, falling through S1, rising through the daily PP, thereafter price action was contained in a bearish range and a defined channel, pushing down through S1 to approach S2, closing out the day down circa 0.5%. USD/CHF rose above the daily PP during the early part of the European session, to then reverse and fall through the first two levels of support, ending the day down circa 0.5% at 0.957, similar to USD/JPY the pair fell to a level not seen since September. USD/CAD whipsawed in an initially bullish trend to then reverse direction to end the day close to S1, down circa 0.3% on the day at 1.242.
EURO.
EUR/GBP traded in a very narrow range of circa 0.2% on the day, closing out flat close to the daily PP at 0.878. EUR/USD whipsawed through initially bearish conditions, falling to S1, to then reverse direction, closing out up circa 0.6% on the day close to R2 at 1.229, setting a new three year high. EUR/CHF traded in a tight range with a bias to the downside, still at highs not seen since January 2015, the currency pair closed the day out near to the PP, flat on the day at 1.117.
STERLING.
GBP/USD initially fell through the daily PP, to then reverse direction, closing out up circa 0.2% at 1.400, cable is now at its highest level since June 2016. GBP/JPY initially fell through the first level of support at S1, to then recover moderately, down circa 0.2% on the day at approx. 154.3.
GOLD.
XAU/USD rose through R1, to collapse back through the daily PP, to then regain bullish momentum to close out at circa 1,340, above R2 and up circa 0.6% on the day. Gold priced in dollars is now at an approx five month high.
EQUITY INDICES SNAPSHOT FOR JANUARY 23rd.
- DJIA closed down 0.01%.
- SPX closed up 0.22%.
- FTSE 100 closed up 0.21%.
- DAX closed up 0.71%.
- CAC closed down 0.12%.
KEY ECONOMIC CALENDAR EVENTS FOR JANUARY 24th.
- EUR. Markit/BME Germany Composite PMI (JAN P).
- EUR. Markit Eurozone Composite PMI (JAN P).
- GBP. Weekly Earnings ex Bonus (3M/YoY) (NOV).
- GBP. ILO Unemployment Rate 3Mths (NOV).
- USD. Markit US Composite PMI (JAN P).
- NZD. Consumer Price Index (YoY) (4Q).
