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Pound Gets Small Boost From Data Beat And Hawkish BOE Comments.

By Alex Edwards

Risk is back on this morning and so the pound has climbed higher vs. the US dollar. With Merkel compromising on the EU migration deal, and in so doing securing her political future, at least in the short term, sentiment started to turn more positive throughout the day yesterday. There were fewer trade war headlines too, which helped. Sterling got a further boost from the Bank of England’s member Michael Saunders who said that interest rates may have to rise faster than markets are pricing. A small beat in UK Construction PMI yesterday morning also lent some support.

Looking ahead to today we have UK Services PMI due for release at 9:30, but as far as data is concerned, that’s about it. It’s a US public holiday today and so ranges may be relatively steady as a result.

The greenback is weaker across the board this morning, a result of the improvement in risk demand. Signs of some political stability within Germany and lessening trade war rhetoric ahead of today’s US public holiday have lured investors into riskier assets. The trade war headlines haven’t completely disappeared, however as news broke late in the New York session that Micron, the American chipmaker, had been issues with a temporary sales ban in China according to sources at one its Taiwanese competitors.

There wasn’t really that much US data to make mention of yesterday and there’s non due out today as US markets are closed for Independence Day. Although there isn’t any data due out, that’s not to say that the trade war headlines will dissipate, so although ranges are likely to be steady there is a chance that one tweet or comment may have an impact, especially so in thinner trading conditions.

EUR/USD has pushed higher, like GBP/USD, amid an improving risk environment. This improving risk environment was more or less a direct result of Angela Merkel’s deal on immigration with her coalition partners, the Bavarian CSU, to tighten controls at the Austrian border and to stop people who have applied for asylum in other EU countries from entering Germany.

EUR/USD hasn’t quite made a break of the 1.17 figure yet but has come close in the last hour or so. Services PMI from Europe are due out any minute now, and if positive, may help traders push the pair through this level.

AUD popped higher overnight following the release of better than expected Australian economic data. International trade data showed exports were at a record high in May 2018. Retail Sales also beat market forecasts by 0.1%, with both sets of data helped AUD/USD gap higher from .7390 to .7425.

AUD/USD has fallen back slightly since. There’s no data due for release later tonight and so risk sentiment looks likely to drive near term direction in the pair.

USDCAD was down 0.40% to around 1.3138 following a better than expected Canada manufacturing PMI index for June. The probabilities for a Bank of Canada rate hike on July 11th continue to edge higher and are now sitting at 83%, supporting the loonie.

The loonie couldn’t break below the 1.3125 support level which will continue to act as first short-term support for the USDCAD. Resistance should also continue to sit around 1.3225 (Monday’s high).

From a data point perspective, we will have to wait until Friday to get unemployment and trade numbers but keep an eye on Oil prices and trade war headlines coming from Washington.

The New Zealand dollar clambered higher through trade on Tuesday bouncing off 2 year lows below 0.66 to edge back through 0.6750 as an improved appetite for risk leant support to the beleaguered unit. Market attentions drifted away from trade hostilities as investors looked to square positions and take profit on recent USD gains ahead of today’s Independence Day celebrations. Adding to market confidence, assurances from the Peoples Bank of China that it would intervene to keep the Yuan at reasonable and stable levels helped fuel a shallow relief rally. With little of note on the domestic docket today and through the back of the week attentions turn to US Labour market data and the FOMC meeting minutes for broader macroeconomic direction with trade dominating risk demand and broader directional flows.