EURGBP
Although not known for topping movers on the day, the EURGBP currency cross moved 0.4 percent to the downside as traders became bearish on the Euro preceding tomorrows sentiment report. Expected to follow the previous ZEW release, tomorrows IFO institutes business report is likely to reflect mild pessimism following the recent rate hike decision in the first half of the year throughout the Euro zone. Additionally supporting the notion was this mornings release of the Belgian confidence survey. Declining on the month, the survey results serve as a well-to-do precursor to the subsequent IFO report. As a result, speculation is now mounting of a potential halt in the current effort to tighten monetary policy by central bankers.
Comparatively, even as no UK data was released on the day, the pound sterling gained as traders continued to see opportunity in underlying currency. The pound sterling still offers a higher rate at this point and looks to continue higher by at least another 25 basis points by year end. Subsequently, traders look to also be positioning themselves ahead of the CBI industrial trends survey scheduled for release in the overnight. Should the report print solid results, bidders are likely to return as central bankers will likely respond with a rate hike.
Currently consolidating ahead of the Asian session, the cross continues to bear a negative short tone as major support at the 0.6768 figure has been broken to the downside. Further momentum seems increasingly imminent as we approach a retest of the 0.6750. Capping is likely to emerge at the 0.6720 spike low on August 13th.
EURCAD
Coupled with dour Euro data, traders bid the EURCAD lower on Canadian dollar strength following yesterdays inflationary report and todays leading indicators survey. For the month, leading indicators were in line with estimates, furthering the notion that positive expansion is likely for the worlds ninth largest economy. Coupled with continually tight productive capacity and an equally slackless labor market, the report continues to purport speculation on short term interest rate increases. Although the scenario remains highly unlikely in the near term, potential still exists for such a decision come year end. With wage costs likely to continue their lofty status, Governor David Dodge will have no choice but to consider the aforementioned as he is required to keep monetary policy and inflationary pressures in check.
On the flip side, bears had no trouble taking the pair lower for a third consecutive session as the IFO survey in tomorrows release is expected to add to overall pessimism in the Euro zone. The survey results are likely to reflect a bleak picture for the near future as businesses are likely to prepare for an end of the year slow down. The notion will likely purport lessened hiring by companies and reluctant spending by consumers as the region continues to face relatively high unemployment levels. As a result, central bankers may be reconsidering their steadfast hawkish approach as of late to ensure the viability of the current turnaround.
Following the break of the lower trendline in the two month old channel, further downward momentum looks likely in the pair even as positive consolidation is taking place. A key close of the previous 240-minute session at 1.4157, would increase the likelihood of a test of the 1.4097 July 5th spike low. Comparatively, to the upside, the former support at 1.4311 remains a key resistance ceiling with failure to the upside leading to a highly probable 1.4450 test.
GBPCHF
Traders bid the GBPCHF currency cross higher to round out the top three market movers on the day as the market continues to see a spill over of pessimism from the Euro zone into Swiss fundamentals. Following the less than exemplary Belgian business survey results, mounting speculation sided with a more than likely halt consideration as the consensus remains negative over near term future growth in the region. The notion is quite the contrary in the Swiss economy as the region sports a positive trade surplus, record employment and rising inflationary pressures. Nonetheless, the market remains convinced that trade relationships are likely to thin between the two economies as the Euro zone demand dips on lowered productivity.
As a result, the market remains bullish on the carry trade notion with the British pound still offering a considerable advantage on the higher rate of return. With one more 25 basis point rate hike in being priced in for the Pound, the advantage is likely to grow. In addition, prospects are looking optimistic for the upcoming CBI industrial trends survey. Although expected to reflect a still tepid manufacturing and industrial sector, expectations are for the survey to show some optimistic suggestions in line with earlier consensus figures. The aforementioned is likely to support speculation of another 25 basis point rate hike towards year end.
