Market Drivers Aug 28, 2015

Equities sell off bringing risk aversion back to EUR/USD
UK GDP bit better but cable cant rally
Nikkei 3.03% Europe -0.27%
Oil $42/bbl
Gold $1128/oz

Europe and Asia:
JPY CPI 0.0% vs. -0.2%
JPY Unemployment 3.3% vs. 3.4%
GBP UK GDP 0.7% vs. 0.7%

North America:
USD Trade 08:30

USD U of M 10:00

It’s been a seesaw night of trade on the final session of the week in the currency market with risk pairs getting a bit of a lift in early Asian trade as follow through from US only to give up those gains as European stocks sold off.

Both Aussie and kiwi were well bid in early morning Asia rising to 7200 and 6500 respectively, but the rallies fizzled as equities gave up gains into the European open which in turn also prompted a rally in EUR/USD through the 1.1300 figure. Much like a tail wagging the dog, FX continues to be led by equity flows as markets remain jittery despite recovering some of its losses from earlier this week.

The economic calendar was relatively light with only UK GDP on the docket and the second revision came in line at 0.7% with the underlying data showing very good strength. Preliminary Business investment rose a whopping 2.9% versus 1.6% while exports shot up 3.9% versus 2.0% eyed. Overall the numbers suggest that UK economy continues to be one of the best performers in the G-10 universe and that BOE policy path will likely turn to tightening early next year should the momentum continue.

Cable however, saw no love from the market selling off on the news in a sharp spike lower towards 1.5365. Part of the reason for the move may have been end of the month flows especially in EUR/GBP which has been extraordinarily volatile this week due to the turmoil in equity markets. With sterling showing strong support at the 1.5350 level the pair may stabilize as the day progresses and may rally towards 1.5450 as traders turn their focus back to fundamentals.

In North America today the calendar carries only Trade data and U of M survey as well PCE and Personal Spending figures. Consensus view is not looking for much change from the month prior and the data is unlikely to have much impact on trade. Most likely the focus will turn to the Jackson Hole symposium, although with Janet Yellen not attending it is highly improbable that policymakers will offer any concrete clues to their actions going forward.

At the end of the day the the price action in FX will likely depend on equity flows. If stock traders find the confidence to rally into the weekend, risk currencies like Aussie and kiwi will likely revisit their session highs, while euro could retest support at the 1.1200 level, On the other hand if we end the week on another sharp selloff the EUR/USD could squeeze all the way to 1.1400 while USD/JPY could quickly give up the 120.00 figure.

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