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Iran nuclear deal in focus as oil and commodity currencies sold off.

By Alex Edwards

It was a public holiday in the UK yesterday but despite this the pound was one of the better performing major currencies. GBP/USD has recovered after breaking below the 200 day moving average for the first time since April 2017 on Friday, having been under continued selling pressure last week amid growing Brexit worries, political concerns, poor economic data and increasing expectations that the Bank of England will leave interest rates on hold at Thursday’s MPC meeting.

The Bank of England meeting will be the main focus for GBP market participants this week. While it’s now almost a foregone conclusion that interest rates will remain on hold, investors will be paying close attention for any signs that the bank plans to raise rates as soon as August, or this year at least. Any hint towards August will likely be a good excuse for a bit of profit taking on those shorter pound positions that built up throughout the week last week, so good for the pound.

Currency markets are fully focused on the Iran nuclear deal at the moment, with Trump’s decision due at some point today, the likelihood being that the U.S. will withdraw from the agreement, despite pressure from European governments to stay in. The oil market is seemingly pricing in a withdrawal, with WTI crude trading above 70.00. Either way Trump decides to go, we should see some form of volatility not only in oil prices, but the dollar index and commodity linked currencies at some point this afternoon.

In other slightly older news, non-farm payrolls data was released on Friday printing slightly weaker than expectations, weighing on the greenback initially. It didn’t take long to bounce back though, as investors took a chance to look more closely at the numbers and the fact that the unemployment rate had fallen below 4%, a number that suggests that the Fed will have to hike interest rates maybe twice this calendar year.

Later on in the week this week, US consumer and producer inflation data is released along with unemployment claims and consumer sentiment. Other than that it’s a fairly quiet week as far as U.S. data is concerned.

The euro has traded a fairly narrow range over the last 24 hours, no doubt a result of London being out of action on Monday. It continues to trade sub 1.20 vs. the US dollar, with the greenback gaining good ground against the single currency through most of last week. In fact, EUR/USD traded to a new 2018 low yesterday, not helped by the release of weaker than expected German factory orders on Monday as well as a stronger dollar, of course.

In other news, negotiations between political parties in Italy have failed again in forming a coalition government, meaning that a snap election this year is becoming increasingly probable, which in turn will likely put the euro under renewed selling pressure.

The data docket in Europe is looking a bit bare this week. ECB President Draghi will be speaking on Friday, and so trading will likely be dominated by international rather than domestic events, the Iran deal being a prime example.

The Australian dollar offered little throughout trade on Monday, failing to make any significant gains. A stronger than anticipated NAB business confidence report helped bolster support for the beleaguered AUD and despite touching intraday lows at 0.7494, it rebounded and traded above .75 for most of the early morning Sydney session.

Weaker than expected Australian retail sales data, released overnight, has weighed on the local unit since, however. Month on month retail sales came in at 0.0% vs. 0.2% and AUD/USD broke back below .75. The sell-off is continuing into the London morning session.

The loonie has been following WTI crude prices recently, and it was off to a good start this week with crude oil prices breaking above $70 per barrel. As we get closer to Trump’s announcement, we are now witnessing a sell-off in crude and an associated sell-off in the CAD. USD/CAD has made a convincing break above 1.29 in the last few hours and is now looking like it could break through the big 1.30 figure.

With little on the domestic agenda for Monday, the New Zealand Dollar traded sideways for most of the early part of the week. NZD/USD then fell slightly following the release of NZ Inflation Expectations, which showed a dip in the June quarter; The Reserve Bank's survey of expectations showed that firms see the consumer price index reaching 1.8 percent over the coming year.

NZD, a commodity linked currency, is now in sell-off mode as WTI crude is sold ahead of Trump’s speech later today. NZD/USD opens in London at .6995.

News on the Iran deal is the focus for markets currently, but as far as the NZD is concerned attention will no doubt turn to the RBNZ cash rate decision on Wednesday, albeit the central bank are expected to maintain a neutral monetary policy bias. The RBNZ has long warned of needing a pickup in inflation levels and wage growth before there is any change to its current policy – Inflation Expectations released overnight will not help change this.