Tuesday 18th November: European Open Briefing

Global Markets:

• Asian stock market: Nikkei up 2.10 %, Shanghai Composite down 0.90 %, Hang Seng declined 1.10 %, ASX dropped 0.20 %
• Commodities: Gold at $1187 (+0.30 %), Silver at $16.14 (+0.50 %), Crude Oil at $75.25 (-0.60 %)
• Rates: US 10 year yield at 2.328, UK 10 year yield at 2.119, German 10 year yield at 0.803

News & Data:

• Australia CB Leading Index -0.3 %, Previous: -0.1 %
• China House Prices -2.6 %, Previous: -1.3 %
• China FDI -1.2 %, Previous: 1.40 %
• RBA: AUD offering less assistance than usual to balance growth and the AUD is above most estimates of fundamental value
• RBA: Stronger Housing Market to spur activity in other areas, house price growth still high in Sydney, Melbourne
• RBA: Low income growth to weigh somewhat on consumption, considerable uncertainty on outlook for Chinese property
• RBA: Domestic inflationary pressures expected to stay subdued, forward-looking indicators point to modest job growth

Markets Update:

USD/JPY bounced off the 115.50 support level yesterday and extended gains towards 116.80 overnight. After the disappointing GDP data, a delay of the planned sales tax hike seems almost certain. Normally, such news would lead to further JPY weakness, but the risk of a snap election in Japan led to nervousness in the market. Flow-wise, corporate names were sellers of USD/JPY, while leveraged names had demand for EUR/JPY and GBP/JPY. The key levels to watch in USD/JPY are 116.20 & 115.50 and 117.00 & 117.95 to the topside.

EUR/USD fell sharply from the 1.2575 high, reaching a low of 1.2440 in the late NY session, as the USD caught a bid again. The pair recovered somewhat in Asia and is consolidating around 1.2475 as we are heading into the European open. While the overall downtrend remains intact, the risk of a short squeeze is high amid crowded positioning. Decent bids reported in the lower 1.24s, with stops heavy through 1.2385/75. Intraday resistance noted at 1.2505 and 1.2540, with 1.2575 now the pivotal s/t resistance level.

GBP/USD remains heavy. The pair looks ripe for a bit of a retracement, but whether we will get that will depend on the inflation figures later. The headline number is expected to arrive at 1.2 % year-on-year and 0.1 % month-on-month. Should the figures disappoint, Cable is likely to breach the 1.5590 support and head towards a test of 1.55. Stronger than expected data should help the pair recover towards the 1.5730 resistance area.

Meanwhile, the commodity currencies remain well-bid, with the New Zealand Dollar the outperformer yesterday. The RBA minutes were released overnight, but it did not contain any surprises, so the reaction in AUD/USD was minimal.

Upcoming Events:

• 08:25 GMT – RBA Governor Stevens speaks
• 09:30 GMT – UK CPI (0.1 % m/m, 1.2 % y/y)
• 09:30 GMT – UK Core CPI (1.6 % y/y)
• 10:00 GMT – German ZEW Economic Sentiment (0.9)
• 10:00 GMT – German ZEW Current Conditions (1.3)
• 10:00 GMT – Euro Zone ZEW Economic Sentiment (4.3)
• 13:30 GMT – US PPI (-0.1 % m/m, 1.2 % y/y)

Source:: Tuesday 18th November: European Open Briefing