Good morning,

Circling in the skies

In a fair few major markets out there, we are waiting on events to take place for a newfound impetus to price action; that may be an election, a central bank meeting, a political decision or further data to flesh out economic performance. Unfortunately for watchers of the world’s major currencies, those events are not taking place this week and therefore we remain set for a week that is equal parts listless and uneasy.

Round 1 of Trump vs Clinton tonight

The event that will gain the most coverage this week is likely the first debate of the US Presidential contest overnight tonight. Polls are starting to tighten up between Clinton and Trump and while we believe that the Electoral College – states voting counting towards a targeted number of electoral votes – works in Clinton’s favour, the past month or so has seen a surge in Trump’s popularity.

Some are ascribing this to the fears surrounding Hillary Clinton’s health while there is also a typical tightening of the polls as time decays towards Election Day. 20% of voters are said to be undecided as it stands at the moment compared to around a 12% average usually this long before votes are cast. Debates can change minds at the margin and tonight’s is the first opportunity to do that. There will be fireworks; Trump is expected to come out swinging.

Electoral market movements are interesting and, as we pointed out last week, dollar strength has been seen in sporadic bursts following polls showing Trump gains.

Sky News will be broadcasting the debate here in the UK which begins at 2am BST.

Fed speakers keep USD supported

For now the USD is still the focus currency following last week’s Fed meeting with one of the dissenters who called for higher rates explaining his views. Eric Rosengren believes that the US should be undergoing a gradual, modest tightening of interest rates and that ‘significant balances’ are at risk as a result of not doing so.

Other Fed speakers who took to the stage post-purdah were unable to back up Rosengren’s hawkishness and the USD rally fizzled.

Pressure back as GBP steps out of limelight

Last week was not a great week for sterling and some of the post-referendum GBP negativity is creeping back into analysts’ thoughts. As we open up this week GBPUSD is really knocking on some support levels that have emerged since June 23rd; breaking those in the next few sessions will see calls for tests of the post-vote lows of 1.2798.

Similarly, GBPEUR came lower on Friday as Single Farm Payments – yearly stipends from the EU to UK farmers – cleared through the market. Normally we see this impact wash out of markets fairly soon but an inability for GBP to regain the post-Friday levels will be seen as a sign of implicit weakness.

The UK data calendar is a rather sparse affair this week with Friday’s GDP reading and, most importantly, the latest Index of Services numbers due. As far as concrete output data goes we have not heard from the UK’s largest sector post-Brexit vote; this is the first opportunity to do so.

Monetary Policy Committee member Shafik speaks on Wednesday but we envisage little market movement as a result.

Up Ahead

Looking forward to today we have the latest mortgage numbers in the UK – post-vote and interest rate cut – as well as the German IFO which may back up last week’s poor preliminary PMI numbers from the Eurozone.

Have a great day.

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