Market Drivers November 26, 2014

UK GDP in line but underlying data shows some weakness in investment
AUDUSD break 8500 as major support broken
Nikkei -0.14% Europe .24%
Oil $73/bbl
Gold $1197/oz.

Europe and Asia:
GBP UK GDP 0.7% vs. 0.7%

North America:
USD PS/PI 08:30

USD Durable Goods 08:30

USD Weekly Jobless 08:30

USD New Home Sales 10:00

Australian dollar fell below the key 8500 support level for the first time since July 2010 as technical selling weighed on the currency after it broke below the 200 day moving average. The pair has been under constant pressure this week, falling sharply yesterday when RBA Assistant Governor Lowe intimated that the central bank may consider further easing actions if the economy does not pick up pace early next year.

The fall in Aussie however was hastened by momentum selling as the pair broke one key technical support level after another finally crashing through the 8500 barrier. Just last week it appeared that the Aussie may stabilize as investors parked their funds in unit hoping to collect some yield in quiet pre-holiday markets. However, the events of the past few days have dislodged much of the speculative capital from the currency and helped to accelerate the selling today.

The decline in the Aussie will be seen as welcome news by the RBA which has been trying to talk the unit down for the better part of this year. The RBA would prefer to see the exchange rate below the 8500 barrier and ideally closer to 8000 in order to adjust Australia’s terms of trade and help the ailing resource sector. For now the pair appears to have stabilized near the 8480 level but may drift lower towards the 8450 target if US data proves to be better than forecast.

Elsewhere the second release of UK GDP came in line at 0.7% as expected but the underlying data was not nearly as sanguine with a large part of the gain coming in from government spending which rose 1.1% vs. 0.2% eyed while business investment fell 0.7% vs. 2.3% forecast.
Cable dropped on the news falling to a low of 1.5678 but the pair quickly stabilized and rose to a 1.5725 on a short covering rally that was primarily driven by EUR/GBP flows.

The euro made a sharp reversal in mid morning European dealing after ECB Vice President Vitor Constancio intimated that the central bank may start QE in Q1 of 2015 but not before then. He noted that the ECB would consider buying sovereign debt on the secondary market which in turn would influence inflation expectations and exchange rates. Euro was making a run towards the 1.2500 level prior to his remarks, but quickly fell below 1.2450 in the aftermath.

In North America today the market will get a slew of second tier data including jobless claims as New Home Sales. USD/JPY has ignored positive US data since the start of the week as the pair corrects its highly overbought position. Today’s price action may be similar with the pair finding resistance once again at the 118.00 barrier.

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