Risk appetite remains the persistent driver of FX markets, with a deluge of encouraging Chinese data released overnight continuing to stoke sentiment into the middle of the week. Trade balance figures highlighted that the surplus grew yet again in October, a fact which will likely bring calls for Yuan appreciation back to the fore. Against this backdrop, Retail Sales were shown to have grown an impressive 16.2% YoY against estimates of 15.7% (15.5% prior), and Industrial Production yet again trumped expectations, growing 16.1% YoY compared to forecasts for a 15.5% gain. As the economy largely credited with driving the global recovery from recession, China’s consistent growth will encourage markets that the return to trend is well underway, and this has played out accordingly in FX markets this morning with widespread USD-selling in favour of higher yielding risk-assets. Most currency pairs have been range-bound in the early part of the week with very little economic data to spur prices through key technical levels. However with this morning’s bout of USD weakness pushing currencies to within touching distance of breaking through last USD supports, and the US holiday likely to produce unpredictable patches of thin liquidity, we could see a breakout materialize from a seemingly innocuous triggers. This morning we have seen the release of the UK’s ILO Unemployment figures which showed a surprise 7.8% reading against forecasts for 8.0%. Last month’s levels were also revised lower from 7.9% to 7.8%, causing the GBP to rally to highs of 1.6779 ahead of the BoE’s Quarterly Inflation Report. Although the impending release of the Inflation Report has subdued GBPUSD’s rally compared to other majors this morning, we feel the risks are biased towards further GBP upside when the details are published. Bear in mind that the BoE already had this report at their disposal at the recent rate meeting on November 5th, and the MPC stated then that inflation could rise sharply in the short term as a consequence of GBP weakness. In addition, any potential indicators that the UK economy is likely to need no further QE injections will also be a catalyst for GBP to rally, but we remain cautious that of the world’s major economies, Japan and the UK remain the two that seem most susceptible to a double-dip scenario.
My hitcounter
Wednesday, November 11, 2009
FX market
Risk appetite remains the persistent driver of FX markets, with a deluge of encouraging Chinese data released overnight continuing to stoke sentiment into the middle of the week. Trade balance figures highlighted that the surplus grew yet again in October, a fact which will likely bring calls for Yuan appreciation back to the fore. Against this backdrop, Retail Sales were shown to have grown an impressive 16.2% YoY against estimates of 15.7% (15.5% prior), and Industrial Production yet again trumped expectations, growing 16.1% YoY compared to forecasts for a 15.5% gain. As the economy largely credited with driving the global recovery from recession, China’s consistent growth will encourage markets that the return to trend is well underway, and this has played out accordingly in FX markets this morning with widespread USD-selling in favour of higher yielding risk-assets. Most currency pairs have been range-bound in the early part of the week with very little economic data to spur prices through key technical levels. However with this morning’s bout of USD weakness pushing currencies to within touching distance of breaking through last USD supports, and the US holiday likely to produce unpredictable patches of thin liquidity, we could see a breakout materialize from a seemingly innocuous triggers. This morning we have seen the release of the UK’s ILO Unemployment figures which showed a surprise 7.8% reading against forecasts for 8.0%. Last month’s levels were also revised lower from 7.9% to 7.8%, causing the GBP to rally to highs of 1.6779 ahead of the BoE’s Quarterly Inflation Report. Although the impending release of the Inflation Report has subdued GBPUSD’s rally compared to other majors this morning, we feel the risks are biased towards further GBP upside when the details are published. Bear in mind that the BoE already had this report at their disposal at the recent rate meeting on November 5th, and the MPC stated then that inflation could rise sharply in the short term as a consequence of GBP weakness. In addition, any potential indicators that the UK economy is likely to need no further QE injections will also be a catalyst for GBP to rally, but we remain cautious that of the world’s major economies, Japan and the UK remain the two that seem most susceptible to a double-dip scenario.
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