Market Drivers October 14, 2015

Cable labor data mixed but pair rallies
Comm dollars turn around
Nikkei -1.89% Europe -0.76%
Oil $47/bbl
Gold $1174/oz

Europe and Asia:
CNY CPI 1.6% vs. 1.8%
GBP Uk Labor Wages 3.0% vs. 3.1%
EUR Industrial Production -0.5% in line

North America:
USD Retail Sales 8:30 AM

USD Biege Book 14:00

UK labor data boosted cable in morning European dealing today sending the pair to a high of 1.5367 despite headline results that were somewhat mixed.

Cable saw an almost mirror reversal of yesterday’s trade as it pivoted sharply higher in the wake of UK labor release that showed unemployment at multi-year lows. The unemployment data came in at 5.4% – the lowest level since 2008 as labor markets continue to show little slack. The claimant count numbers were a bit more disappointing at 4.6K versus -2.2K forecast while the average earnings rose by 3.0% versus 3.1% eyed.

Although the data was slightly weaker than expected it nevertheless showed underlying strength in the labor market and more importantly health growth in wages. Wage growth is absolute key as BoE considers its exit from QE especially in light of the fact that inflation reading remains muted.

Yesterday cable dropped sharply on speculation that low inflation data would keep BoE on the sidelines for some time to come. Today however the sentiment shifted squarely in favor of sterling bulls as wage growth continues to point to higher consumer income and therefore better ability on the part of UK workers to absorb any possible rate hike.

The pound is likely to outperform for the rest of the day, with EUR/GBP likely to test the key support at 7400 after yesterday’s near vertical rise towards the 7500 figure.

In North America today, the focus will fall on US Retail Sales report due at 12:30 GMT. The market is looking for a contraction to -0.2% from 0.1% the month prior. If the numbers to do come in weak the dollar decline is likely to continue as traders will persist in selling the greenback in assumption that Fed will remain stationary through 2015. This trading theme has been the dominant driver of flows since the publication of FOMC minutes last week and any disappointment on the consumer front will only serve to reinforce that dynamic.

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