Euro rises due to strong GDP figures, sterling initially falls as inflation misses forecast, casting doubts on further BoE rate rises
Tuesday proved to be an incredibly busy day for high impact economic calendar news events, with the majority of the Eurozone hard data releases either meeting or beating forecasts, ensuring that the euro rose significantly versus its major peers. EUR/USD rose by circa 1.5% on the day, its largest one day gain since June 27th (with the currency pair breaking through the highly significant 100 DMA) and EUR/GBP rising by circa 0.7%.
Germany’s YoY Q3 GDP came in at 2.8%, rising from 2.3% in Q2, whilst also rising by 0.8% MoM for October. Italy’s GBP beat the forecast, coming in at 1.8% YoY and the wider Eurozone Q3 GDP reading came in right on forecast at 2.5% YoY, actually beating USA annualised growth. The favourable GBP figures for the region were matched by industrial production and ZEW surveys also beating their forecasts. Despite the encouraging figures the leading EZ indices sold off, partly as a consequence of the euro rise correlation, as opposed to a lack of investor confidence in the region.
Sterling initially fell versus its main peers during Tuesday’s European session, as inflation (CPI) remaining at 3% created doubts that the BoE will have the necessary motivation to raise the U.K. base rate, beyond 0.5% early in 2018, in order to counter inflation. Based on input price inflation, which has cooled considerably to 4.6%, the BoE base rate rise earlier this month may now prove to be opportune. GBP/USD initially fell by circa 0.4%, to then recover, ending the day up approx. 0.2%. RPI came in at 4% YoY, whilst house price inflation in the U.K. rose to 5.4% in September, from 4.8% in August.
An apparent commodities glut caused a leading commodities index produced by Bloomberg, to fall by its largest margin in circa six months, as a consequence WTI oil sold off sharply, helping to drag down the main USA equity indices and the U.S. dollar. The uncertainty still surrounding the proposed tax cuts, have also caused a lack of investor optimism over recent days, with the SPX closing down in three out of the last four trading days. However, there are suggestions that a vote may take place on Trump’s tax cut reforms as early as Thursday, indicating that (if passed) by lawmakers, the revisions, including the headline reduction from 35% to 20% for corporations, may come into existence by early 2018.
Lacklustre Chinese data published earlier in the day, may have added to Wall Street doubts and a general feeling of apathy; retail sales and industrial production both missed forecasts and direct foreign investment into China slumped markedly; coming in at 5% YoY, shrinking from the 17.3% recorded in September. These poor Chinese metrics also directly affected the value of the kiwi, as New Zealand’s economic performance is intrinsically wedded to that of China, NZD sold off sharply versus all its peers. WTI also sold off sharply, down by approx. 2.6%, at $55.10 per barrel. USD/JPY fell by circa 0.2% on the day. Gold rose by approx. 0.3% on the day, after initially falling through S2, shortly after the European markets opened.
EURO
EUR/USD rose by circa 1.5% on the day, ending the day at circa 1.798. With R3 sited at 1.171 and breached at circa 10am GMT, the leading currency major continued its aggressive momentum whilst breaching the critical 100 DMA at 1.173. The pair breached the moving average to the downside on October 26th. EUR/GBP also breached the 100 DMA sited at 0.894 to the upside during the day, closing the day up circa 0.6% at 0.896, resting on R2. Versus: AUD, NZD, CAD and CHF euro also registered considerable gains, EUR/JPY ended the day up circa 1% at 133.8 and breaching R3.
STERLING
After initially falling by approx. 0.2% in the London/European session, GBP/USD recovered to breach R1 during the New York session, to then give up some gains closing out up circa 0.2%, at 1.316. With the 100 DMA sited at 1.311 the currency pair is failing to develop any sentiment momentum to move away from this critical and much watched moving average, measured on a daily time frame. GPB/CAD moved up through the critical 200 DMA during Tuesday’s sessions, closing out up circa 0.4%, resting on R1. Sterling’s only fall of any significance (other than versus the euro) came versus the Swiss franc, with GPB/CHF ending the day down circa 0.3% at 1.302, having earlier in the day breached S1.
U.S.DOLLAR
USD/JPY whipsawed through bearish and bullish conditions during Tuesday’s sessions, originally rising through R1 as European markets opened, ending the day down circa 0.2% at 113.4. In its normal negative correlated trading behaviour v EUR/USD, USD/CHF fell by circa 1% on the day, breaching S3, ending the day at 0.989. USD/CAD also whipsawed through a range with a bullish bias; falling through the daily pivot point, then breaching R1 mid afternoon as New York opened, to them slip back, closing out up circa 0.2% on the day, at 1.273.
GOLD
XAU/USD whipsawed through a wide range during Tuesday’s sessions; experiencing bearish conditions in the European session, falling through S2 and down circa 0.6% on the day, to then reverse direction breaching R2, to then recede and close the day out at circa $1280 per ounce, resting close to R1. The 100 DMA is still highly significant, with the precious metal failing to move away from the moving average’s apparent gravitational pull over recent weeks.
EQUITIES SNAPSHOT FOR NOVEMBER 14th
• DJIA closed down 0.13%.
• SPX closed down 0.23%.
• FTSE 100 closed down 0.01%.
• DAX closed down 0.31%.
• CAC closed down 0.49%.
KEY ECONOMIC CALENDAR EVENTS FOR NOVEMBER 15th
• GBP Average Weekly Earnings (3M/YoY) (SEP).
• GBP ILO Unemployment Rate 3Mths (SEP).
• USD MBA Mortgage Applications (NOV 10).
• USD Consumer Price Index (YoY) (OCT).
• USD Retail Sales Advance (MoM) (OCT).
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