Despite hitting three month lows last week European stocks managed to stage a late recovery at the back end of last week, and though they did finish the week lower, the late momentum gained is set to translate into a strongly positive start to the new week, as we head into the final furlong of what has been a long, negative and divisive EU referendum campaign, where we have also had to deal with the horrific circumstances of the murder of Labour MP Jo Cox.
With the IMF repeating its warnings about the economic consequences of a “Brexit” over the weekendand the polls starting to shift back towards the “Remain” camp the hope is that this week’s campaigning will have a less strident tone to it, though given some of the comments over the weekend that does seem a rather forlorn hope.
The pound also rebounded strongly at the end of last week despite hitting its lowest levels since April, finishing the week higher in line with the shifting polls, though we’re still getting some rather ludicrous predictions of what the pound might do in the event of a “leave” vote, which to some extent has caused some rather extreme positioning, and will likely contribute to a lot more choppiness in the coming days, as this morning’s Asia surge catches an awful lot of people the wrong way round.
The US dollar has had a rather choppy last few days and starts the new week on the back foot after last week’s comment from St. Louis Fed President and FOMC voting member James Bullard that he could only now see one more Fed rate rise between now and the end of 2018.
As one of the more hawkish members of the committee last year, this seems a remarkable about turn for someone who had set the pace regarding last year’s rate rise. It was tantamount to an admission by a senior Fed policymaker that this was likely to be as good as it got for the US economy in the weeks and months ahead, which would appear to suggest that the next rate rise remains some way off.
Last week Fed President Janet Yellen gave the impression of being rather concerned about the recent slowdown in the pace of jobs growth and her discomfort about committing to the next meeting or two about the prospects of a rate rise were in stark contrast to recent comments that a rate rise would probably be appropriate in the coming months. Tomorrow she will be giving testimony to the Senate banking committee and we could well see some extra colour on last weeks Fed meeting, about her caution with respect to the US economy, when she is questioned by US lawmakers.
This week’s economic data is likely to play second fiddle to this week’s UK referendum on EU membership, but we will be getting the latest June manufacturing and services flash PMI data from France and Germany as well as the most recent May public finance numbers from the UK economy which are due tomorrow.
EURUSD – rebounded from trend line support at 1.1100 from the December lows last week which keeps the current uptrend intact. Having pushed back through the 1.1300 level and last week’s high we now looks set for a move towards the range highs near 1.1500.
GBPUSD – having found support at the April lows around 1.4010 last week this remains a key level. While the subsequent rebound has seen us pull back through 1.4330 last week and this morning’s push back above 1.4400 and 1.4500 we could well head towards the 1.4700 level. Below the 1.4000 level argues for a retest of the lows this year at 1.3835.
EURGBP – the inability to close above the 200 week MA last week, despite pushing up to the 0.8000 level keeps the pressure on the downside. The push back below the 0.7930 area keeps the pressure on for a return towards the 0.7760 level.
USDJPY – having broken below the 105.50 area as well as the 200 week MA, the US dollar looks set for a move towards 100.70 and the 2014 lows. We need a recovery through the 105.50 area to help stabilise.