Market Drivers for October 25, 2013
IFO bit worse than last month, but EURUSD holds above 1.3800
Core inflation in Japan turns positive for first time since 2008
Nikkei -2.75% Europe -0.55%
Oil $97/bbl
Gold $1350/oz.

Europe and Asia:
JPY Core CPI 0.7% vs. 0.7%
EUR IFO 107.4 vs. 108.2
EUR M3 2.1% vs. 2.3%
GBP UK GDP 0.8% vs. 0.8%

North America:
USD Durable Goods 8:30 AM
USD U of M 9:55 AM

The euro remained generally well bid despite a weaker than expected IFO reading as currency market traders continued to make it their favorite anti-dollar trade. The IFO report printed at 107.4 versus 108.2 eyed while the current conditions component slipped slightly to 111.3 vs. 111.4 the period prior.

It is very likely that the protracted budget battle in US last month had a negative impact on German business sentiment, but the drop was relatively small and IFO remains near yearly highs as conditions in Europe’s largest economy remain stable.

The EUR/USD shrugged off the initial news reaction and remained above the 1.3800 level in morning European dealing as traders continue to favor the currency in light of expectations that the FED will continue its QE program well into the start of next year. The single currency continues to power higher because market participants see no change in policy from EZ monetary officials.

We noted yesterday that ECB Chief Mario Draghi remained surprisingly nonchalant about the strength of the currency at the last ECB press conference. Today ECB member Jorg Asmussen reaffirmed that stance noting that the euro “in nominal and real terms is in a range that we have seen over the last 10 years”. These comments come despite a slew of warnings from European corporates that the higher exchange rates may affect their profitability going forward.

In UK today the first print of Q3 GDP came in line at 0.8% which was the best reading in a year. The boost in GDP growth came mainly from construction which saw a jump to 2.5% from 1.9% in Q2. The UK economic recovery is showing real momentum according to the country’s Treasury and the expectation is that growth will continue on pace into the year end.

Cable saw a small bounce on the news but remained below the 1.6250 level. The pair continues to struggle with making new highs as it faces a wall of resistance around the 1.6300 figure. At the same time however, the pair has held up remarkably well above the 1.6000 level and if it can sustain that support it may make another run on the yearly highs over the next few days.

In North America today the calendar has US Durable Goods and the revised U of M consumer sentiment reading. Neither report is expected to have much of an impact on trade and barring any exogenous news we could continue to tread water into the weekend with most of the trading at the moment driven more by technical rather fundamental considerations.

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