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GBP/USD recovers off 3 week lows ahead of May’s closing conference speech

By Alex Edwards

It was “risk off” yesterday and the greenback was bid across the board. GBP/USD slipped below 1.30 to a three week low. GBP traders are also perhaps a little cautious and concerned by the threat of negative Brexit related headlines emanating from the Tory party conference this week. The big risk event for the pound is today, with PM May due to make her closing speech.

GBP/USD has since recovered as global risk appetite has improved in the last 12 hours or so. It’s trading close to and around the 1.30 figure. Services PMI is due today from the UK but it’s unlikely to have much of an impact in lieu of the PM’s speech.

The dollar strengthened against most major currencies yesterday as investors shunned risk, evidenced by the sell-off in Asian equities, and made worse by the developing situation in Italy. It’s given up some of these gains overnight as risk appetite has improved a little since.

US Federal Reserve chairman Jerome Powell in his speech in Boston overnight remained positive on the outlook for the US economy, as the Fed looks to continue its gradual interest rate normalization policy.

Traders and investors will now turn their attention to ISM Non-Manufacturing PMI and ADP Non-Farm Employment, both sets of data being due for release today.

The euro downturn continued through trade on Tuesday touching six week lows, as the war of words between Italy and the wider European community escalated. The 19 nation combined unit fell through 1.1550 to touch intraday lows at 1.1507 following comments from a senior Italian lawmaker suggesting Italian debt issues could be resolved should it roll back the Euro and adopt a national currency. The comments compounded concerns surrounding the unity of the wider Eurozone and ensures headline risk remains a driving force governing broader Euro direction.

The euro found support later on following Prime Minister Conte’s denouncement of the comments and confirmation that the euro was “un-renounceable”. The currency remains largely well supported on moves approaching 1.15, a key technical retracement marker. In fact, EUR/USD has bounced in early Europe as overnight reports suggest that Italy is now planning to cut back its budget deficit to 2% by 2021, due to pressure from the EU. However, a move and extension of recent downside could prompt a deeper correction and opens the door for moves toward 1.13.

AUD/USD has continued to fall over the last 24 hours, for a few different reasons. Weaker than expected economic data from China over the weekend didn’t help, followed by no change in language of policy from the RBA, followed by a weak set of Building Approvals data from Australia overnight. The risk off conditions have unquestionably weighed on the unit too and the AUD/USD is now approaching a break below .7150.

Trade balance is due from Australia later tonight but the AUD is more likely to take its direction from US economic data over the next few days, as well as the prevailing risk conditions.

The loonie remains relatively flat against its US counterpart. The initial drivers of Canadian dollar strength were felt earlier in the week with the re-negotiated NAFTA and appreciation in the price of oil being the main catalysts. There was little significant fundamental data on Tuesday to move the CAD in either direction.

There was some news from south of the border however with FOMC chair Jerome Powell delivering a speech in Boston. Powell’s speech reiterated the case for gradual rate hikes in the US which will allow them to “balance the inevitable risks that come with extraordinary times, so as to extend the current expansion, while maintaining maximum employment and low and stable inflation”.

Moving into Wednesday, the CAD traders enjoy another quiet day on the domestic calendar. Attentions now turn to the United States with a few Fed speeches lined up, as well as PMI readings and employment figures.

The New Zealand Dollar seesawed its way through Tuesday’s day of trade. Having initially opened at 0.6619, the kiwi came under pressure touching 0.6592 on the back of NZIER Business confidence, which reported a drop in the third quarter to its lowest level in nine years. The survey showed 30% of firms surveyed expected dire business conditions in NZ over the next year. The survey shows firms are worried about government policy, labour costs and availability of labour operating margins, showing these factors were key considerations for businesses when it came to assessing general economic conditions. The kiwi managed to claw back losses as the day went on but unfortunately, the greenback overshadowed and pulled the NZD back down to 0.6575 in the early European session touching a two-week low. The kiwi was unable to break 66c as the latest Global Dairy Trade (GDT) auction revealed the downtrend continues concluding with the GDT Price Index down 1.9% on the previous sale. The average price was US$2,901 a tonne, compared with US$2,934 a tonne two weeks ago. Some 41,981 tonnes of product was sold, up from 39,143 tonnes two weeks ago. Whole milk powder fell 1.2 % to US$2,753 a tonne.