GBP/EUR 1.2640 (0.7916)
Despite several days facing selling pressures the USD has regained some poise following better than expected retail sales data, the bigger picture for the USD at the moment continues to be on next week’s FOMC meeting and debate is focused on the Fed’s rhetoric and whether or not they will remove their “considerable time” guidance on when they will look to raise rates. Overall the major themes remain in play, with falling oil prices putting downward pressure on prices while concerns on Chinese growth are having a knock on effects to global growth outlooks. Russia raised interest rates by 100bps but this had little impact on the Ruble which continues to lose ground with sellers pushing the value of the Ruble to fresh record lows. In Europe data continues to struggle to the downside while markets continue to look towards the ECB for expectations of additional easing. Yesterday’s ECB TLTRO program saw some €150bln in uptake, marginally lower than expectations, potentially leaving more room for an ECB QE program. Overnight in Australia the RBA’s Governor Stevens played his part in keeping the value of the Aussie under pressure, suggesting the exchange rate would be “better” around the .7500 level (with USD, currently sub .8300).
In trading today the European session will be focused on data from the Eurozone with October industrial production figures due to have grown at .7% versus .6% through September. Later in the morning we also have details of LTRO repayment due across the wires. Despite yesterday’s TLTRO take up the expectations is the ECB will still have to act further in order to expand their balance sheet to approx €1 trillion. EURUSD continues to be attracted towards 1.2500 but that figures continues to cap any meaningful move back higher with December highs just marginally above the figure. The larger EURGBP range that has been in place since June continues to be in play between .8060 and lows below .7900. This morning we have seen the EUR in demand with GBP rallying off lows below .7880.
Retail sales in the US grew .7% versus an expected .4% while business inventories were as expected at .2%. The pickup in retails sales was enough to help lift USD which has faced selling pressures through the previous couple of days. Looking towards today’s release and the only major point of note comes from PPI data and the U of Michigan consumer confidence report. Consumer confidence in the US has been trending higher and with the labour market posting healthy figure and gas pricing on the decline there is plenty for the US consumer to be confident about. Next week will set the Final direction for USD into the year end and markets are looking for the FOMC to end the “considerable time” rhetoric on rates, should the FOMC do this we are likely to see USD strength into the end of the year, while anything slightly more dovish may well see additional USD selling on profit taking before year end. GBPUSD has remained on bullish trend this week and while moves back above 1.5700 have been sold a break higher and weekly close above 1.5760 could well provide GBPUSD with additional lift.