Risky assets came off a little overnight but nothing too serious after US banks reported robust earnings yesterday. Today all the focus will be on the signing ceremony of phase one of the US/China trade deal and the details released thereafter. These details will be very important to the market and Mnuchin was verbally watering down expectations overnight, saying that tariffs on China to remain in place until phase 2. Could it be a case of buy the rumour and sell the fact. The market has been very upbeat about this phase one deal and if details are omitted then we may see risk being sold off. As mentioned yesterday USDJPY struggled to break above the 110.25 area and is now sitting around 109.80, it needs to be seen what comes out after this deal is signed. We now believe there may be a chance that we test 109.00 as feel the euphoria surrounding the deal has very much come and gone. US core CPI came in a little weaker than expected yesterday 0.1% vs 0.2% expected which weighed somewhat on the greenback.
EURUSD enjoyed a move higher yesterday to 1.1140 (50 dma) on the back of the weaker US CPI however, it failed to continue higher and is now around middle of the range at 1.1120 ish. We are still of the belief that the single currency will be in a range 1.1140/1.1060 with the bias still tilted to the downside. Today we have EZ industrial production figures which will show us whether there has been any improvement in manufacturing.
GBPUSD like EURUSD enjoyed a good move higher yesterday testing a high of 1.3042 overnight. This is as a result of the weaker US data and probably weak longs as we mentioned in our Monday report. However, this morning cable has subsequently come lower again down to 1.2985 on the back of comments from BoE’s Saunders (who is a dissenter) who said “it probably will be appropriate to maintain an expansionary monetary policy” and “possibly cut rates further”. He also suggested that should economic data continue to deteriorate then he would expect more MPC members to join in. Immediate range remains 1.3040/70 and 1.2955. GBPEUR is 1.1675.