Morning Brief – T’was 33 nights before Christmas..

T’was 33 nights before Christmas..

When all through the foreign exchange market not a cross was stirring, not even the Pound. Sterling longs were hung by the CME with care, in the hopes that Mr (Lord) Frost would be there soon.

That’s enough poetic parody from me for this year, but Clement Clarke Moore’s scene of tranquility can be likened to the European open yesterday. The Pound was one of the only decisive movers anticipating a potential Brexit breakthrough over the next few days and optimistic about the UK’s new AstraZeneca-Oxford coronavirus Vaccine. The rest of the market displayed below average volatility and price change. The rally in the Pound too was ultimately contained short of three month highs despite several attempts to break higher.

Data yesterday should have been of relatively low salience limited to European and US Purchasing Managers’ indices (PMIs) that provide a timely reading of sentiment and confidence in underlying segments of an economy. The European PMIs came and went showing deteriorating confidence and optimism in the Eurozone economy both in manufacturing and services. The data follows rising numbers of infection on the continent and a slowdown in Q3’s swift economic rebound. Despite the downbeat data the Euro continued to find higher grounds also supported by optimism on securing a Brexit deal and tested another psychological level in EURUSD. The PMIs were largely ignored or discounted therefore.

We might have expected a similar reaction to US PMIs but the morning’s snowy scene of tranquility and calm was ripped apart by the US data. Instead of contracting as per the forecasts both manufacturing and services PMIs came in considerably better than expected (56.7 vs. 53 & 57.7 vs. 55 respectively). The psychological levels that the Dollar has weakened to throughout the morning’s trade against both the Pound and the Euro were rapidly retreated from. The data also stood in sharp contrast to a deteriorating economic backdrop across much of Europe and Asia and therefore invited optimistic assessments of the US’ near-term economic fortunes, pushing USD higher. Despite having steadied overnight and throughout today’s session so far, the severe price movements are a reminder of how quickly markets can move even within major pairs. Profit and loss orders proved their worth yesterday with the short-term moves allowing our customers to realise their FX goals.

Discussion and Analysis by Charles Porter

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