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Market Brief
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It was a quite Asia-Pac session and most securities traded within tight ranges following on from yesterday’s pause in counter trend moves. The US dollar index is still showing the recent levels as resistance and we could be on our way back down to test the FOMC candle low, which would be a good place to assess what is materially different a week on from the Fed meeting. The reverse repo market is the biggest change since the Fed raise IOER and RRP interest rates by 5 basis points. The RRP facility could be up to $1 trillion by the end of the week as money managers push their cash onto the Fed balance sheet overnight to earn the interest available. Those holding the highly sort after T-Bills is being encouraged to cash them in as the rates are near 0% and a 5-basis points interest rate on cash means their money is doing something rather than diminishing under the higher inflation. Other than that sentiment around longer inflation is fading, and the worry of stagflation is rising.
Major stock markets in Asia were little changed overnight, and the Shanghai Stock Exchange fell amid lingering Sino-US tensions. The European equities at the London open are positive and trading in-line with their larger trends ahead of the Bank of England rate decision and monetary policy announcements.
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Both the German DAX and UK FTSE100 have recently found daily support at the 50 exponential moving averages and if they can close green above the daily 20 ema they could easily retest the recent swing highs.
Sentiment in the forex markets around the single currency and the pound is currently bullish the euro. 82% of traders on the ActivTrader platform feel the EURGBP will rise, even though the ECB are very dovish still and the BOE are more likely to tighten monetary policy before their European peer.
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The EURGBP has been trading a very tight down trend, with price and momentum looking likely to continue lower. However, a falling trend channel does usually break to the upside and currently a measure move higher would coincide with a test of the daily 200 ema.
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The GBPUSD is also in a consolidation period but moving sideways. It did not test the daily 200 ema on the most recent drive down and the 20 & 50 ema could act as overhead resistance if we see a spike higher this afternoon. A weaker US dollar would be good for both the EURUSD and GBPUSD which could keep the EURGBP within its tight range.
Since the last BOE meeting year-on-year CPI has risen above target to 2.1 and Aprils GDP of 2.3% marked the fastest monthly pace of growth since July 2020. Employment is growing though the recent lockdown extensions will add to worries that even further measures could be extended, and business confidence could subside. Finger crossed England win the Euro2020 football competition and the country can have something to get excited about.
