Market Drivers October 18, 2012
Chinese data shows soft landing
UK Retail Sales rebound, Spanish auction goes well
Nikkei up 2.00% Europe flat
Oil $92.20/bbl
Gold $1749/oz.

Europe and Asia:
AUD NAB Business Confidence -2 vs. -3
GBP Retail Sales 0.6% vs. 0.4%

North America:
USD Leading Indicators 10:00
USD Philly Fed 10:00
CAD Wholesales Sales 8:30

Risk FX was well bid in Asian and early European session tonight following solid economic data from China, a strong bond auction out of Spain and a rebound in UK retail sales. The EURUSD recovered off session lows to trade above the 1.3100 level in morning European dealing while Aussie took out the 1.0400 figure as investor concerns about China’s slowdown eased significantly.

Chinese GDP printed in line at 7.4% as expected both Retail Sales and Industrial Production beat forecasts suggesting that economic activity continues to expand at a healthy pace. Retail Sales rose 14.2% versus 13.2% eyed and Industrial Production increased to 9.2% from 9.0% anticipated.

The news put to rest for the time being any fears that China’s economy will continue to contract further as both consumer and manufacturing guages of activity reversed their slides. The Aussie responded well to the news rising above the 1.0400 level in European trade and the pair may challenge the 1.0450 resistance later today if US flows prove supportive.

Meanwhile in Europe the Spanish bond auction went off well as it sold more than 4.6 billion euros of 3, 4 and 10 year bonds. This was above the 4.5 Billion target with yields improving on all fronts. The easing of Spanish yields should provide a double boost to Iberian economy as it decreases funding costs while at same time allowing the government to make smaller cuts in fiscal spending.

In UK retail sales beat expectations rising by 0.6% versus 0.4% eyed as pent up demand and higher prices helped retailers in September. Cable surged to session highs taking out the 1.6150 level on investor optimism over the prospects of the UK economy.

UK retail sales rebounded in September boosted by sales in clothing and school uniforms due to the start on a unusually late autumn school term. Clothing sales rose by 2.0% contributing a lion’s share of growth to the number. Overall retail sales rose by 1.0% after slumping the month prior as Britons stayed home to watch the Olympics.

This was the second major economic beat this week for UK after yesterday’s better than expected labor data indicating that the economy is continuing to rebound. The news has been helping to keep the pound bid with the pair holding steady above the 1.6100 for most of this week. If risk flows remain positive into North American trade the pair will likely challenge the 1.6200 figure as it slowly makes its way towards the swing highs on 1.6300 on improving economic conditions and better investor sentiment.

In North America today all eyes on jobless claims after last weeks large decline that may have been caused by reporting delays. The market is looking for a rebound to 367K but if the data prints anywhere north of 360K it will be viewed as yet another bullish confirmation of improving US economy and should help risk assets rise further as the day proceeds. The EURUSD has been capped by the 1.3165 swing highs so far and will need to break through that level today. Otherwise it is in danger of setting up a double top as its rally runs out of steam.

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