Profit taking pauses Dollar
Global trends dictated the Pound’s movements on Friday in the absence of any domestic data or stimulus. Whilst the week’s data releases had improved Sterling sentiment, concerns surrounding no-deal Brexit prevented any meaningful rally. The Euro managed highs around 1.1140 against the Pound, but Sterling managed to gain on the Dollar to peak near 1.2750. Overall, Sterling still registered a sixth consecutive weekly decline against the Dollar
for the first time in over three years.
CFTC data revealed short Sterling positions (bets GBP will fall) rose to fresh 15-month highs, maintaining the potential for a short squeeze (rapid buying, causing the price to rise) if sentiment reverses.
Overnight, Rightmove reported a 2.3% fall in August’s New House Prices and the year-on-year increase declined to 1.1% from 1.4%. Sterling opens at 1.2740 against the Dollar and 1.1162 versus the Euro.
The Euro seemed to capitalise on a slightly weaker Dollar on Friday, when prices reached a high of 1.1451. Having said this, the S&P cut Turkey’s credit rating, which did little for confidence. From Tuesday, there is a 3-day holiday in Turkey, which may help cool tensions in Europe. However, the Italian conflict with the EU Commission keeps rumbling on.
Today is a comparatively light day for data, with German producer inflation for July first out this morning. The EU’s Commission reports on construction output for June, which is expected to grow by 0.2% for the month and 1.6% annually.
This week, the main point of interest for the Euro will be preliminary manufacturing and services PMIs for August, due out on Thursday. So far this year, the PMIs have been in steady decline, so a continuation of this trend would reinforce the negative sentiment for the Eurozone. Also on Thursday, we will see the release of the ECB’s minutes, with traders looking for hints as to the ECB’s stance on bonds and interest rates.
Hopes that global trade tensions would ease in talks between the US and China – pencilled in for August 22nd to 23rd – triggered an increase in risk appetite, and in Dollar sales, as investors banked profits from long Dollar positions (bets price would rise). University of Michigan consumer confidence failed to meet expectations of 98.0, with a figure of 95.3 in August. The current conditions component weakened, while one-year inflation expectations held steady at 2.9%.
After the European markets closed, reports that the US and China have a road map for talks and a summit meeting in November hit the wires, but internal US political conflicts meant US Dollar demand dropped further.
Data to watch:
17:00 USD Fed’s Bostic speaks
00:00 AUD RBA Gov. Philip Lowe speaks