Market Drivers for October 23 2014

EZ PMIs rebound sparking short covering in EUR/USD

UK Retail Sales miss sending cable below 1.6000

Nikkei -0.37% Europe 0.32%

Oil $80/bbl

Gold $1240/oz.

Europe and Asia:

CNY HSBC PMI 50.4 vs. 50.2

EUR PMI Manufacturing 50.7 vs. 50

EUR PMI Services 52.4 vs. 52.0

GBP UK Retail Sales -0.3% vs. -0.1%

North America:

USD Jobless claims 8:30

USD Flash PMI 9:45

USD LEI 10:00

Euro and pound went their separate ways in early European trade today as better PMI data sent EUR/USD higher while cable tumbled on weaker Retail Sales. In the EZ the flash PMI readings sent a mildly positive message to the market suggesting that economic activity in EZ was stabilizing and no longer contracting.

Overall EZ PMI Manufacturing rose to 50.7 from 50.3 the period prior led by the rebound in German PMI readings which popped to 51.8 from 49.9 in September. The German data was particularly encouraging because it suggests that the dip in September was temporary caused by the geopolitical tensions in the region rather than a secular decline in demand. The data also dovetailed with slightly better Chinese PMI readings today indicating that global demand remains stable.

The EUR/USD which dropped to as low as 1.2613 in jittery earling morning European dealing popped back above 1.2650 as short covering kicked in. The pair remains under heavy selling pressure from both specs and investors as sentiment toward the EZ economy is highly negative. However, so far the region has been able to avoid an outright recession and that has helped to stabilize the EUR/USD which remains supported near the 1.2600 figure.

In UK meanwhile the economic news was not nearly as sanguine with Retail Sales declining by -0.3% versus -0.1% eyed while BBA mortgage applications slipped to 39.3K vs. 41.5K eyed. This was the weakest Retail Sales number since January with big fall coming from footwear and clothing.

The UK news clearly signals a slowdown in consumer demand despite the fact that labor conditions in the region remain strong.Given the already dovish rhetoric from the BoE this report only confirms the fact that UK monetary authorities are likely to remain stationary for the foreseeable future. Cable dipped below 1.6000 but found bids there and was trading just above that level in mid morning London trade.

In North America today the calendar is relatively quiet with only jobless claims and flash PMI readings on the docket. USD/JPY has been considerably better bid as risk sentiment has improved over the past few days and the pair is now trading above the 107.50 level targeting 108.00 if the risk appetite continues to rise as the day proceeds.

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