Market News

Yesterday’s Durable Goods orders from the US were in line with forecasts, and sales of new homes jumped 13% to a new record for October. Consumer confidence was also firm, giving investors a good indication that Xmas sales will be strong.

The dollar reacted predictably to these reports, undoing a large part of Monday’s rally in the cable and eurusd rates. Further reports from the US this afternoon should help to give further direction.

UK CPI this morning (09:30) is unliekly to give the market any clear view on interest rates, unless it is well out of the expected range of 2.3% – 2.5%.

GBP EUR – Support 1.4580, 1.4535/50 then 1.4500
Resistance 1.4650 then 1.4742

GBP USD – Support 1.7160, 1.7140 then 1.7050
Resistance 1.7270/85, then 1.7345

DATA: UK CPI (09:30)
EMU Q3 GDP (10:00)
UK Consumer Confidence (10:30)
US Q3 GDP (13:30)
Chicago PMI (15:00)

Weak sales of existing homes (down 2.7% for October) drove the dollar lower yesterday, despite an otherwise robust housing sector, with prices up 16% on the year. The dollar fell to 1.7340 overnight. Most analysts are nevertheless brushing off yesterday’s rally, saying that the market will bring interest rates back into focus, and that the dollar’s yield advantage will provide support.

The slew of data out this week should tell us whether the dollar will remain weak or rebound against the euro and sterling. The most important figures out will be US Durable Goods orders (today 13:30), Q3 GDP (Wed, 13:30), Chicago PMI (Wed 15:00) and ISM Manufacturing (Thursday 15:00).

UK House Prices were flat on the month in data releases at 07:00 this morning.

GBP USD – Support 1.7210 then 1.7150
Resistance 1.7300, then 1.7345

GBP EUR – Support 1.4535/50 then 1.4500
Resistance 1.4650 then 1.4742

DATA: UK Consumer credit and Mortgages (09:30)
US Durable Goods (13:30)
US Consumer Confidence (15:00)

After a quiet one last week I am expecting more movement for the week ahead, and we have plenty of data to drive the markets from Wednesday onward.

The ECB meet on Thursday (1st December), and the market is pricing in a strong probablity of a 0.25% interest rate hike, bringing Euro rates to 2.25%. Despite this expectation, the Euro contines to slump against the Dollar today, though it gains versus Sterling.

GBP EUR – Support 1.4535/50 then 1.4500
Resistance 1.4650 then 1.4742

GBP USD – Support 1.7000 then 1.6935
Resistance 1.7100 then 1.7230

DATA: US Leading Indicators 15:00

A boring day as expected yesterday, and most Americans will be sleeping it off today so I expect a relatively inactive dollar.

Sterling may see some movement on the release of revised Q3 GDP, with some analysts expecting a slight upward revision.

Here’s a snippet from yesterday’s testimony by BOE govenor Mervyn King, given to the Treasury Select Committee on the November Inflation report.

MERVYN KING

“We will set interest rates on the basis of the outlook for inflation. Nothing more, nothing less.”

“So far the committee has drawn great comfort from the fact that we have not seen second round effects so far.”

“It is important that there are not these second round effects because if there were that would help to push up inflation relative to our central projection, our central projection does not include any second round effects in the future. If there were to be any, that would push up our inflation projection and other things being equal, which of course in practice they never are, but other things being equal would make it more likely than not that policy would be tightened. That is higher interest rates. And that point is made absolutely explicit in the Inflation Report.”

“The Chancellor is certainly right to draw attention to the need in both public and private sectors for earnings growth not to try and compensate for that part of the pick up in inflation that corresponds to higher energy prices.”

On export outlook: “Given the exchange rate and the very solid growth of world trade we would expect to see continuing growth in exports.”

“We are beginning to see now in the euro area some signs that growth is likely to pick up towards trend.”

On housing market: “I think our view is that the housing market is continuing to be broadly stable in terms of prices.” He said activity had picked up and that prices had risen a little faster than expected.

GBP USD – Support 1.7200 then 1.7150 and 1.7062
Resistance 1.7260 then 1.7285

GBP EUR – Support 1.4600 then 1.4535/40
Resistance 1.4660/75 then 1.4740

DATA: UK GDP 09:30
US Jobless Claims 14:45

*****It’s Thanksgiving today in the US, so we may have a relatively inactive day on the markets.*****

A quiet day yesterday, with not much in the way of data. All nine MPC members voted to keep interest rates steady at 4.5% in the November meeting, a clear indication that we shouldn’t be expecting any change for December/January. The Bank is in “wait and see” mode.
Cable and EuroDollar spent the day in tight ranges following Tuesday’s big rally, and SterlingEuro remains weak.

In terms of today’s data there is the German IFO survey at 09:00 which could impact the Euro.

GBP EUR – Support 1.4550 then 1.4530
Resistance 1.4600, 1.4655 then 1.4675

GBP USD – Support 1.7200, 17150 then 17062
Resistance 1.7260 then 1.7302

Cable briefly made new lows yesterday but there didn’t seem to be any appetite for further downside and the market swiftly rebounded above 17100.

The minutes the last Federal Reserve meeting caused a serious stir last night as it was revealed that Fed givernors had debated a slight change in the language used to accompany the last rate hike. While the Fed remain of the opinion that inflation is the biggest threat to the US economy, they discussed a possible slow down in the “measured pace” of rate rises that we have seen in place since June 2004. This may not sound massively significant, but it represents that first sign of cold feet from the Fed in the current cycle, and with traders having had a “green light” to buy the dollar for the last few months it caused a big move in the markets, driving cable from 17100 to 17250, and Euro from 11720 to 11860 overnight.

****We have the MPC minutes from the 10th November meeting (no change) this morning at 09:30.***

GBP USD – Support 1.7200, 17150 then 17062 (yesterday’s low)
Resistance 1.7260 then 1.7302

GBP EUR – Support 1.4532 then 1.4500
Resistance 1.4600, 1.4657 then 1.4675

DATA: MPC Minutes 09:30
Michigan confidence index 14:45

The ECB is going to run into credibility problems if they keep giving the markets such a unclear steer on interest rates. It seems that while the bank is prepared to raise rates in the near term, they are trying to give the impression that “monetary policy accomodation” (economic speak for low rates!) will not be removed entirely, and that they can contain inflation with a gentle programme of rate rises while also allowing the Eurozone to grow and access capital relatively cheaply. That’s the overall impression I get anyway! The market did not like it, and sent the Euro plunging back toward recent lows. It also served to stem Sterling’s slide against the Euro, putting in a nice reversal for the day witha close above the psychological 1.4600 level.

GBP EUR – Support 1.4600 then 1.4545
Resistance 1.4660-70 then 1.4745

GBP USD – Support 1.7135 then 1.6994
Resistance 1.7225-45 then 1.7302

DATA: FOMC minutes 19:00 (expect to see unanimous vote!)

The ECB president is getting into the habit of surprising the markets. Only two weeks ago he made unexpectedly dovish comments at the ECB press conference, describing the current interest rates at 2.0% as “appropriate”. Then on Friday he said almost the exact opposite, indicating that the ECB is ready to raise rates at the December or January meeting. Trichet said the ECB is ready ‘to moderately augment the present level of interest rates in order to take into account the level of risks to price stability’.

The market will be watching his testimony to the European Parliament today in which he’s expected to reaffirm his intention to raise rates.

With a Euro rate rise in the pipeline the market is likely to test the Euro’s strength against the dollar early this week, with cable likely to be dragged along also.

The Yen continues to fall agaisnt the dollar as the interest rate differential persists (4.25% USD and 0.0% JPY), with Japanese politicians leaning heavily on Bank of Japan to maintain zero rates.

GBP USD – Support 1.7150 then 1.7100
Resistance 1.7225 then 1.7300

GBP EUR – Support 1.4555 then 1.4500
Resistance 1.4600 then 1.4675

DATA: US Leading Indicators 15:00

We were hoping that yesterday’s Bank of England report would give sterling some direction, well it certainly did that! The bank lowered its inflation expectations over the next two years, resulting in the conclusion that there is no chance of an interest rate rise in the New Year as the market was coming to expect in recent weeks. This was bad news for sterling, and after pausing briefly at the 14750 support, we continued to trade lower.

Today we have UK Retail Sales at 09:30, then the usual Thursday releases from the US at 13:30. See below.

GBP EUR – Support 1.4680, 1.4650 then 1.4600
Resistance 1.4780 then 1.4810-25

GBP USD – Support 1.7137 then 1.7080
Resistance 1.7200 then 1.7302

DATA: UK Retail Sales 09:30
US Housing starts, Jobless claims, Industrial Production and Philly’ Fed’ all at 13:30. The Industrial Production will be the most important figure today.

A rather mixed bag yesterday, with sterling trading weaker after lower than expected inflation figures. Today’s Bank of England Inflation Report sound gives an idea of their revised targets and view on interest rates, and will hopefully give sterling some direction.

The US PPI was also uninspiring, and the dollar reacted with the usual bout of extreme volatility before settling relatively unchanged on the day. Economists agree that despite the decline in core inflation, the Federal Reserve will still continue its measured pace of rate rises, although there is little evidence to suggest that inflation is spreading from the energy sector to other products. Retail sales fell a less than expected 0.1%.

French non-farm payrolls were slightly below expectations this morning, but the Euro has not reacted.

GBP EUR – Support 1.4780 then 1.4750
Resistance 1.4830 then 1.4865

GBP USD – Support 1.7325, 1.7301 then 1.7270
Resistance 1.7397 then 1.7497

DATA: UK unemployment and average earnings 09:30
BOE Inflation Report 10:30
US CPI (consumer price index, following on from yesterday’s producer prices) 13:30
US Net Foreign Securities Purchases 14:00 (this figure came out at $90Bn+ last month versus expectations of $60Bn, which goes a long way to explaining the dollar’s strength. Asian investors are the most prolific buyers of US treasuries as they seek better yields. Rates in Japan are nearly zero!)