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EURGBP downside

Fairly narrow ranges in FX over the past day, but the end of the week ahead of a long weekend in both the US and UK brings with it greater risk of volatility as larger players look to square up positions ahead of the long weekend. On the data front, the main focus is with the German IFO data at 08:00 GMT, which is seen moderating a touch from the 111.2 reading seen on the April numbers.  The series is still near highs last seen 3 years ago and as the PMI data illustrated yesterday, the issue of divergence between Germany and the rest of the Eurozone remains pertinent, after the French PMI numbers moved back into negative territory.

In Europe, the main themes for non-USD FX continue to be the potential for a weaker euro into the ECB meeting next month and the strength of sterling and the policy responses to a strengthening housing market. This allowed EURGBP to move below the 0.8100 level on Wednesday, a move which has been sustained into the end of the week.  If this is sustained over the long weekend, then the cross will be set-up for a move towards the 0.80 level before long, especially if the ECB deliver with further policy easing in June. In the US, there is just new home sales data today at 14:00 GMT, but still worth keeping an eye given that the Fed has become more concerned with the state of the housing market recently. The dollar has managed to recover a little this week, above the 80.0 level on the dollar index, but the overall performance has still lagged behind expectations. 

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