Yesterday sees slight euro gains as market remains poised on today's release of BOE and Fed minutes
20/Nov/2013 • Currency Updates•
No data out of the U.K yesterday set the stage for a fairly mundane day of trading. Accordingly, the recent run of strong data out of the UK has buoyed the pound to solid levels of support and across the board it has been trading at high levels. This means resistance levels are increasingly coming into play. London closed with sterling up marginally against the greenback. Slightly down against the euro with the euro again taking leverage from surprisingly good data releases, specifically German ZEW which clocked in at a 4 year high.
There is growing noise that the market has mostly now priced in sterling gains stemming from the run of solid data. Further pivots will stem from fresh releases. Data released yesterday confirmed that the UK is experiencing the quickest pace of recovery amongst not only the G7 nations, but also the developed world. Naturally, this is cause for celebration amongst U.K investors. On the flip side the market is now waiting for an insight into the inner thoughts of the BOE and MPC. Chatter over an alteration of QE is ever present. Today will again stoke this excitement. BOE minutes are due for release which will display in greater detail their thoughts on U.K growth, interest rates and quantitative easing. An alteration of stance amongst the BOE is unlikely, more so the retort and tone of the minutes will come under the microscope, with the market keen to ascertain where the scales are tipping amongst BOE members.
BOE minutes and MPC votes will be released 9.30 GMT.
Overall a mixed day for the eurozone, although a good day for the euro. Surprisingly strong data out of the EU yesterday gave the euro leverage to further climb from this months shock lows and experience needed gains against its most traded pairs. Headline news was the euro hitting a 3.5 year high against the yen. The Euro index saw a slight spike and the euro traded up against the dollar and sterling. Trading ranging in the Asian session, London opens with the euro well supported. German ZEW roared in at a 4 year high. ZEW for the Eurozone as a whole also saw notable gains. The ZEW is a survey of investor confidence and gauges the 6-month economic outlook for a region. Therefore it’s a key indicator for the markets thoughts on future euro growth prospects.The ZEW economic sentiment index came in at 60.2, up 1.1 from 59.1 in October.This survey reflects wider optimism for Eurozone growth and will be a relief for the ECB. The ECB stimulus to the eurozone recovery is huge. However it’s tentacles are only so far reaching and organic growth is vital.
Eurozone construction data was less rosy. Although increasing 0.7, when looked at over an annual basis it is actually a 4.7% drop from levels seen last year. Overall building output has fallen to -4.3% Construction is a key component for recovery and these figures raised a few eyebrows. However the pace of construction last year was incredibly high and it was unlikely that such cadence would be sustained. The remainder of 2013 may be challenging for the sector to keep up its positive results. The next release of construction data will show figures for September and a slight rise is called.
Data of note out of the eurozone today includes German PPI.
The Greenback was caught slipping yesterday with losses mainly stemming from fresh dovish comments from the FED. At times the FED seems to sound like an aviary of doves; we are yet to see a FED member openly challenge the views of Bernanke or Yellen. Clearly, or at least in the public eye, the FED is still comfortable with the state of monetary policy.
The Dollar index slipped 0.4% against its basket, hitting a 2 week low. The dollar also came under pressure from China, who yesterday signalled they are willing to tolerate a stronger yuan, thus decreasing Chinese dollar exposure. China is the U.S.’s second biggest trading partner and holds the biggest USD foreign exchange reserves in the world. It is also the biggest holder outside the U.S. of U.S. T-bills. Therefore, such a move by China is always going to produce a pivot. The shift is part of a wider effort by China to open up to more of a free market.
The U.S Redbook index and employment cost data gave little surprises; both came in relatively flat and in line with expectations. Employment cost seems to be running in tandem to the drop in unemployment. U.S. unemployment is at 7.3%, and the market is poised for any move towards 7% as this is when the FED anticipates beginning to alter monetary policy. Aside from monetary policy, the short term market concern is focused on the relation between a rise in employment and the effect it may have on inflation.
Markets will be poised today on the release of the FED minutes; if the MPC walls could speak everything would be far easier, constant Dollar debates focus on the perceived sentiment of the FED towards the U.S. recovery and monetary policy.
Key data out of the U.S today includes- CPI, Retail sales and existing home sales.