Brextention? Cable Bides its Time

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Market Drivers October 18, 2018
Aussie labor data beats
UK Retail Sales miss
Nikkei -0.80% Dax 0.24%
Oil $69/bbl
Gold $1222/oz.
Bitcoin $6700

Europe and Asia:
AUD Uemployment rate 5.0% vs. 5.3%
GBP UK Retail Sales -0.8% vs. -0.4%

North America:
USD Weekly Jobless 8:30
USD Philly Fed 8:30

The majors were better bid in Asia and early European trade with EURUSD climbing back above 1.1500 while USDJPY stalled at the 112.60 level.

Cable continued to hug the 1.3100 mark as the wrangling in Brussels persisted. PM May suggested that the transition period to Brexit could be extended by a few months in order to negotiate a deal, but so far parties appear far apart on key issues of Irish border and customs union.

On the eco front, UK Retail Sales missed badly coming in at -0.8% versus -0.4% as the consumer ardor post World Cup died down. According to ONS, the monthly drop in food sales was the biggest since October 2015. The data showed positive revisions to August making Q3 retail sales +1.2% q/q and +3.4% y/y. This was the strongest annual calendar quarter growth since Q4 2016, but the number still raises questions as to whether demand may have peaked. At the very least combined with yesterday’s soft CPI readings it clamps down on any speculation for a rate hike from BoE.

Unless we get positive noises from Brussels, the impasse on Brexit and softer eco data suggest that GBPUSD could underperform for rest of the day. The pair was having a hard time climbing above 1.3100 figure and could dip below as the day proceeds.

Meanwhile, in Australia, the employment data continued to show underlying strength. Full-time jobs rose by 21K while the unemployment rate dipped to 5.0%. Overall, trend employment trend participation rate remained steady at 65.6 percent. Over the past year, trend employment increased by over 290,000 persons or 2.4 percent, which was above the average year-on-year growth over the past 20 years (2.0 percent).

The labor data suggests that growth Down Under remains surprisingly resilient despite risk off and trade war woes and AUDUSD is responding in kind as the pair looks to recapture .7150 level and push towards key resistance at .7200.

In North America today the eco calendar is quiet with only Philly Fed on the docket. USDJPY has stalled at the 112.50 level as equity flows have cooled overnight and further dollar strength will only resume if equities continue to recover as the day proceeds.

Boris Schlossberg
Managing Director

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