EUR/GBP is testing the key 0.7929 resistance

V Dollar outperforms

On Wednesday the dollar remained well bid. Amongst other factors, the US currency was supported by a correction in commodities (especially gold and oil). At the end of the session, US bond yields declined despite some hawkish Fed comments of late, but it didn’t hurt the dollar much. EUR/USD closed the session at 1.1181 (from 1.1217 on Tuesday). USD/JPY finished the session almost unchanged at 112.38.

This morning, Asian equities show moderate losses, joining the US correction yesterday evening. Chinese PM Li indicated that China has enough tools to stabilize the economy, even as it faces structural problems. He reiterated that the Chinese currency doesn’t need to depreciate in the longer term. Even so, the PBOC set the yuan fixing weaker at 6.51502 against the dollar. USD/JPY rebounded this morning as BOJ’s Kuroda defended the negative rates policy. The pair trades currently around 112.80. The dollar remains well bid across the board as commodities stay in the defensive. EUR/USD changes hands in the 1.1175 area. The trade-weighted dollar holds also near the recent highs. Commodity currencies continue to cede ground.

Ahead of the long weekend, the eco calendar contains the US jobless claims and US durable goods orders. Fed’s Bullard is scheduled to speak. The consensus is looking for a further, limited increase of initial jobless claims to 268 000. We see risks for an upward surprise. The US durable goods orders are forecast to have dropped by 3.0% M/M following a 4.7% M/M increase in January. Excluding transportation, durables are forecast to have dropped by a more limited 0.3% M/M. Regarding durables ex-transportation, we see risks for an upward surprise after the improvement in survey data recently. The US data might be neutral to slightly supportive for the dollar. Earlier this week, commodities, especially oil and gold, were an important guide for the dollar. Commodities show no signs of a rebound this morning. So, this factor might again be slightly supportive for the dollar. Of course, trading might become thin and more erratic ahead of the long Easter weekend.

Before the FOMC decision, we advocated sideways EUR/USD trading in the 1.1200/1.0810 range. This range top was broken after last Wednesday’s soft FOMC outcome. It will take some time for the dollar to digest the U-turn in the Fed’s interest rate assessment. Still, we don’t expect a big sustained jump higher in EUR/USD. 1.1376 is a first resistance. 1.1495 is the key line in the sand medium term. The soft Fed approach pushed USD/JPY temporary below the 110.99/114.87 sideways range, but the move was countered by warnings from the BOJ. These warnings will probably continue in case of a drop below 111. Yesterday’s rebound is promising and leaves the downside of USD/JPY better protected, unless risk sentiment turns outright negative again. The jury is still out, but the correction low of 110.67 looks more solid now.

EUR/GBP is testing the key 0.7929 resistance

There was very little to tell on sterling trading yesterday. Cable declined slightly in line with the overall price move of the dollar. EUR/USD and cable moved in very close lockstep, especially during the European morning trade keeping EUR/GBP in a tight sideways range, close to, mostly slightly below the 0.79 barrier. Sterling again underperformed during the US session as sentiment on risk deteriorated. EUR/GBP finally tested the 0.7929 resistance. The pair closed the session at 0.7921 (from 0.7895). Cable finished the session at 1.4117 (from 1.4208).

Today, the UK February UK retail sales, the BBA loans of Home Purchases and the CBI distributive trades will be published. Retail sales are expected to decline-1.0% M/M after a very strong January figure. We don’t have strong arguments to take a different view from consensus. Of late, UK eco data had often no big impact on trading . Data will have to yield a big positive surprise to improve sentiment on sterling. We don’t expect that to happen. So, we don’t row against the sterling negative tide.

Last week, sterling selling eased slightly, as Brexit-fears moved (temporary) to the background. For cable, the hypothesis of a bottoming out process remains in place. For EUR/GBP the picture was damaged by the post-ECB euro rebound. A first test of the 0.7929 resistance was rejected, but the test continues. A sustained break above this level would damage the picture of sterling further and open the way to the 0.8000/0.8066 area.

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