Market Drivers for December 17, 2013
UK CPI cooler at 2.1% vs. 2.2%
EU ZEW 68.3 vs. 60.9
Nikkei .83% Europe -.74%
Oil $97/bbl
Gold $1238/oz.

Europe and Asia:
AU RBA Minutes less dovish than thought
GBP UK CPI 2.1% vs. 2.2%
EUR 68.3 vs. 60.9

North America:
USD CPI 8:30
USD Current Account 8:30
USD NAHB 10:00

UK inflation surprised to the downside printing at 2.1% versus 2.2% eyed which sent cable tumbling through the 1.6300 figure in morning London session trade. This was the lowest year over year rise since 2009 suggesting that pricing pressures which have plagued the UK economy despite lackluster growth may be finally easing.

The ONS reported that the largest contributions to the fall in price levels were food and utilities as commodity costs declined. On the producer level prices were lower as well with PPI Output declining to -0.2% while PPI Input prices collapsed -0.7%.

Overall the data price data from UK suggests that the BOE can remain accommodative for the foreseeable future as inflation risk have actually decreased despite much better than anticipated economic growth in H2 of this year. Cable responded in kind to the data dropping to a low of 1.6283 before finding some bids.

The pair has been relatively weak over the past several days with every rally meeting stiff resistance above the 1.6400 level. It may see one final burst higher on any dovish commentary from the the Fed, but over the intermediate term the pair looks ready to correct towards the 1.6100 level after posting such a strong rally this quarter.

Meanwhile in Europe the ZEW survey printed at 68.3 versus 60.9 eyed which was highest reading for the index in more than 7 years as investors in Germany were buoyed by the prospects of US recovery and better global growth next year. The ZEW economists noted that the recession in the EZ appears to be bottoming out and there could be more upside potential for German growth in 2014. Indeed yesterday the latest PMI figures from the periphery confirmed an uptick in activity and today the IFO institute raised its forecast for Germany to 1.9% in 2014.

The EUR/USD however was unfazed by the news trading around 1.3765 as it remained in very tight range for most of the night. The pair is likely to remain quiet today as well with US docket only carrying the CPI data as focus remains on the FOMC meeting tomorrow. The US inflation figures may have some impact in early trade today, as low inflation rates is one of the key arguments of dollar bears for why the Fed is likely to delay any taper until March at the earliest. If the CPI numbers print cooler than expected then EUR/USD could make another run at the 1.3800 level as the day proceeds.

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