Market News & Insights
17 November 2014

Japan Confirms Recession Stoking Global Growth Concerns

EUR/USD 1.2489
GBP/USD 1.5633
GBP/EUR 1.2517 (0.7990)
EUR/CHF 1.2012
GBP/CHF 1.5035
GBP/AUD 1.7875

Despite some better than expected data on Friday market appetite remained relatively neutral, in Europe a better than expected GDP print helped lift the Euro higher while European stocks traded only marginally higher. Better than expected data from the US also did little to stoke equity demand as markets continued to trade around all-time highs despite failing to push much higher. In the US consumer confidence and retail sales figures bested expectations and helped lift the USD on the day helping USDJPY reach its highest level in seven years. Over the weekend Russian tensions with the west were little improved following a meeting of G20 leaders, where Putin departed early after Russia were on the receiving end of a number of comments surrounding their conflict with the Ukraine, while leaders have suggested that further sanctions may be on the way.

Overnight the big shock came from a weak Japanese GDP print, despite PM Abe firing several of his arrows and continued easing, Japan posted a contraction of 1.6% through Q3 versus 2.2% growth expected. This pushed USDJPY above 117.0 until risk aversion and a heavy sell off in Japanese stocks saw the JPY benefit from safe haven flows. The USD has been facing selling pressure in early trading, while GBP continues to feel the pressure following last week’s dovish inflation report. The decline in the USD overnight tracked falling yields in US treasuries, recession in Japan adding to concerns on global growth impacting the outlook for US growth, the Fed have been ready to point out that lower global growth is a risk to Fed rate hike expectations. The AUD rallied to fresh monthly highs against the greenback while NZD also rallied higher following better than expected retail sales data from New Zealand.

There are a large number of big name speakers crossing the wires throughout the day today and central bank policy will be the main areas traders will be looking towards for an indication on direction. The ECB will announce the size of their covered bond purchases last week, thus far ECB intervention into the market has been underwhelming, that being said markets expect the ECB to ramp up their measures as required and as such the EUR remains vulnerable. The ECB’s Mersch has already been across the wires this morning suggesting the ECB could buy state bonds or other assets like gold, stocks and ETF’s. This all adds to the potential scope of ECB easing and as such adds to potential EUR downside. ECB’s Mario Draghi will also provide testament to European parliament in a quarterly review, again any suggestion of methods of ECB easing will likely impact the Euro to the downside. EURUSD tested November highs around 1.2578 overnight before reversing this morning and falling back to test support just below 1.2500. EURGBP has benefited from a weaker GBP but long term trend line resistance comes in between .8000-.8020 and is expected to hold, a break above there this week will open up further upside potential for EURGBP.

Industrial and manufacturing production data is due for release from the US this afternoon, manufacturing growth is expected to have slowed to .3% from .5% while the pace of industrial production growth is also expected to slow to .2% from 1.0% in September. Should we receive confirmation of a slowdown we may well see USD losses accelerate across the board however EUR and GBP still remain more susceptible to losses against the greenback as their outlook remain skewed to growth risks. GBPUSD closed the week below 1.5700 and technically looks like a fall to 1.5300 may well be on the cards, overnight lows were just below 1.5600.