Market News & Insights
30 November 2016

Markets on Edge Ahead of Key Vote

Main currency pairs continue to trade within recent ranges despite several key stories evolving. Firstly, the results of the latest Bank of England’s bank stress test were released earlier this morning with the headline development being RBS failing multiple hurdles. So far in the FX world, this has had differing impact on sterling versus the US Dollar. We’ve seen another surge towards that key 1.25 mark in the past hour where once again, as we have flagged several times this week, we are meeting key resistance again. Versus the single currency, we saw the pound fall over the same period breaking above the .8500 mark (GBPEUR 1.1765) since. We retain our downside bias on EURGBP/upward GBPEUR with the key levels we flagged yesterday still firmly in place, i.e. resistance at .8570 and .8600 and favouring a retreat to recent low of .8460 and then the 200 Day Moving Average of .8400.

Today is also a key day for oil prices with OPEC ministers meeting in Vienna after weeks of tense negotiations trying to cut oil production and prop up prices. It would appear, members are looking for an ideal scenario of relatively restrained price increases created by supply cuts but not creating a price jump of a magnitude that would be attractive for the US shale producers to come back online. The risk barometer currency pair of USDJPY is the one most likely to reflect any developments in Vienna with the US Dollar jumping above the 113 mark suggesting a cut in production could be on the cards.

These market developments could well be shadowed by this weekend’s Italian referendum which represents significant event risk for the single currency. The referendum is a vote on curtailing the power of the Senate and has turned into a judgment on Prime Minister Matteo Renzi’s leadership and the latest potential banana skin for investors. All major polls before a two-week blackout showed Renzi losing by a narrow margin. With another significant political event that could have further ramification for the currency markets and the euro in particular, we would urge clients to review their currency requirements and plans and look to have at least some contingency plans in place.

From a data perspective today, the highlights to keep an eye on will Eurozone CPI at 10am. The US releases will be a heavier session with ADP employment figures out at 1.15pm. Whilst not a key gauge of employment, it tends to act as a precursor to the Friday’s key Non Farm Payroll figures and may provide some indicative trends. Soon after we then have Personal Consumption Expenditure, one of the Fed’s key measure in analysing and forecasting inflation. Market consensus is expecting on unchanged year on year figure for the month of October of 1.7%.