Sterling stands out amongst majors

15 May, 2017

Our prop desk remains active in trading Yen crosses, with long GBP/JPY and EUR/JPY both producing some notable profits. Some short CHF positions have also been closed out profitably in the last few hours, although attempts to pick off short EUR/USD trades have been less successful.

Data out of Beijing overnight once again served to suggest that Chinese economic expansion continues to slow, albeit gradually, whilst the market has offered a relatively sanguine response to those latest missile tests out of North Korea, too. It could be said that there’s a degree of risk aversion in play, but for now this appears minimal and with little on the agenda in the coming hours, meaningful direction could prove difficult to find.

Yet again, GBP crosses are providing the most interest with the pound continuing to work to recover last week’s losses against the likes of the US dollar and the Euro. Mark Carney successfully talked the currency lower on Thursday with a downbeat assessment over consumer spending in the months ahead, but markets appear to be pushing back against this assessment. Yes, there’s the growing certainty that next month’s general election will produce a clear-cut result, but with no meaningful economic data from London today, these gains could prove difficult to sustain.

The US dollar continues to falter, with Friday’s weak inflation print helping unsettle the DXY dollar index. We have a couple of low level readings on the agenda today that could provide some fresh support here with the Empire manufacturing index at 12.30pm GMT and NAHB housing data at 2pm GMT, and against what is otherwise a quiet backdrop for fundamentals, anything that looks a shade better than had been expected has the potential to see the greenback post some gains, at least in the short term.

1.30am GMT tomorrow (Tuesday) sees the release of the latest meeting minutes from the Reserve Bank of Australia, so this could offer some fresh direction for the Aussie dollar. Given the big jump in AUD/NZDwe saw last week after the RBNZ flagged a downbeat inflation outlook, this could be a pair worth watching with the potential for it to post something of a reversion. There’s already been a modest retracement from recent highs, but anything that reinforces the idea interest rates aren’t at risk of moving higher in the next 18 months will again have the potential to contribute AUD weakness.

Oil prices have started the week with something to cheer following reports of positive comments from Russia and Saudi Arabia over extending the production quotas implemented at the start of this year until March 2018. Any such deal should be ratified at the next Opec meeting, which takes place in Vienna later next week, but the fact we have seen this price rally at a time when US production continues to rise too suggests that there may be a degree of resilience emerging to further downside pressures.

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