Market Drivers September 11, 2015

EUR takes out 1.1300 as risk off flows dominate
UK Construction falls
Nikkei -0.19 % Europe -1.20%
Oil $44/bbl
Gold $1106/oz

Europe and Asia:
GBP UK Construction -1.0% vs. 0.5%

North America:
USD PPI 08:30

USD UoM 10:00

It’s been a quiet rangebound night of trade in the currency market with a slight risk off bias pushing euro through the 1.1300 figure but that has failed to hold that level after several attempts to breach it.

With very little newsflow in the market today, most the major currencies remained in tight ranges, showing lackluster action as traders in Asia and Europe saw little need to move prices ahead of the weekend.

In UK the construction output came in at -1.0% versus 0.5% eyed in just the latest example of softening UK data. Yesterday cable got a lift from relatively hawkish BOE statement, with the MPC members suggesting that the recent global slowdown will not have much of an impact on the bank’s decision to move off QE. The unit rallied more than 150 points off its lows as traders took the message to heart.

We think the optimism of cable bulls may be premature. Despite the BOE’s tough talk on monetary policy the facts on the ground show that UK economy has hit a brick wall as the global slowdown is clearly taking a toll on demand. Today’s construction output report is only the latest data point to demonstrate this dynamic. Next week the market will get the CPI figures as well as UK Labor data and if both of the releases surprise to the downside cable could tumble back towards the 1.5200 level as the week progresses.

The US calendar only carries PPI and U of M Consumer sentiment survey. The market is looking for softer PPI readings at 0.1% versus 0.3% – which will only lend credence to the dollar bear argument that the Fed has no reason to hike rates amidst such modest inflation readings. The U of M data is expected to remain relatively unchanged at 91.4 versus 91.9 the month prior.

With little meaningful data on the docket today the North American trade will likely be driven by equity flows. If the stock market takes a swoon ahead of the weekend euro is very likely to push through the 1.1300 level and hold its gains. With US monetary policy looking less and less certain the euro remains in a stubborn uptrend and could challenge the 1.1400 level next week if markets remain jittery.

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