Cable and Eurodollar slip

Both the Cable and Eurodollar have slipped in trading so far on Thursday, after benefiting from some risk appetite in the currency markets following investors taking some profit on the US Dollar. The EURUSD has moved around 60 pips lower, falling as low as 1.2467 with investors remaining wary that the European Central Bank (ECB) could spring a surprise next week. ECB President Mario Draghi put the markets on high alert with some dovish comments but he has appeared to change his tune somewhat by earlier indicating that further time is needed for the effects of current stimulus to have an impact.

Elsewhere, the economic sentiment in Germany received a further boost when it was announced German unemployment reached its lowest level in three years during November. Following an enhanced ZEW survey, stronger IFO data, improved exports and the employment report, repeated indications are surfacing that Germany has entered the final part of the year with some momentum. This is only going to lead to increased opposition from the Bundesbank for more stimulus, which makes me further doubt the ECB acting next Thursday. It would require an unexpected misfire with German inflation data this afternoon to put the Euro bears on full alert and encourage downside moves towards support at 1.2430.

It appears likely that the USDJPY is set to record its first three consecutive days of losses in nearly six weeks, but if you take a look at Nikkei extending below its rising wedge formation pattern, a period of JPY strength could be forthcoming. The combination of the Bank of Japan (BoJ) unexpectedly boosting QE alongside Japan entering a recession inspired many investors to price in JPY weakness, but that momentum might now be slowing. Recent Japanese data has shown expenditure is returning to Japan’s economy, which means this the world’s third largest economy should be in a short recession. Additionally, the BoJ minutes showed that the central bank are far less dovish than some believed, meaning the unexpected boost to QE last month was a one-off.

Both Brent and Crude Oil prices have continued to crumble on Thursday, with investors rushing in to price in the expectation that there will not be a cut in production from the OPEC meeting. Brent has now dropped to as low as $75.79, while Crude has declined to $71.58. Although there were strong rumours yesterday regarding Venezuela being against a cut in production, reports today are stating the opposite. This is leading to both Brent and Crude attempting to gain some earlier losses, and I expect volatility in the oil markets to continue today.

After approaching $1185 a few hours ago, Gold has since progressed to $1199 with caution being shown ahead of the Swiss Referendum on Sunday. With the downside risks to the Eurodollar still remaining, I can’t foresee the Swiss giving up their commitment to the 1.20 EURCHF floor. Therefore, it looks more probable that the Swiss will vote against buying Gold this Sunday. This would pressure metals, but we require a break below $1175 before Gold can approach the $1160 and $1131 areas we saw the metal approach in early November.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

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