Yesterday’market action
Since last week we have seen a plethora of corporate earnings reporting negative results, linked to a stronger dollar. 66% of firms have struggled due to the strengthening greenback and this is only set to continue for the quarters ahead. We had, overnight, the pressure of poor trade data out of China. Exports fell to -14.6% against the expected 8.2%; imports fared little better as we saw imports print -12.3% on the year, below the expected -11.3%. This does not bode well for Chinese GDP due on Wednesday and market participants are already calling further monetary easing from the PBOC; Nomura has reportedly called three further interventions by the end of 2015. This has loosely translated as equity weakness as we have seen US bourses drift lower in overnight actions. Looking ahead this week has a host of inflationary data from Europe and the US, with the UK on the brink of her first deflationary number since 1960. This, coupled with the anti-Labour attitude that markets have taken has highlighted the importance of not only the data-dependency of the direction of GBPUSD but also the effect that the uncertainty surrounding the UK General Elections next month will have.
Today’s View
Looking ahead to this afternoon’s session we have very little in the way of headline data. We are therefore looking for a continuation of Euro weakness with some dollar strength thrown in on the side. We have seen a disparity between GBPUSD and EURUSD and, although in the medium term we are likely to see GBPUSD resume its decline; for today market participants are happy to remain forcing the Euro weakness trade, evident as we can see the fall in EURGBP implying Sterling strength against the Euro.
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