Market Drivers for December 19, 2013
UK Retail Sales as expected
EUR Current Account much larger than forecast
Nikkei 1.74% Europe 1.66%
Oil $97/bbl
Gold $1203/oz.

Europe and Asia:
EUR Current Account 21.8B vs. 14.2B
GBP UK Retail Sales 0.35 vs. 0.3%

North America:
USD Existing Home Sales 10:00
USD Philly Fed 10:00

Currency markets were considerably calmer in Asian and European trade today after yesterday’s tumultuous North American session which saw the key FX pairs make major reversals against the greenback. The downside move in EUR/USD continued in Asian session today with the pair testing the 1.3650 level, but it found support at that barrier and was trading back to 1.3680 in morning London dealing.

On the economic front the only release of note was the UK Retail Sales report which came in a bit softer than expected at 2.0% on year over year basis versus 2.2% eyed. Ex-fuel the reading came in at 0.4% versus 0.3% eyed. After yesterday’s blockbuster labor data report the market was expecting a stronger consumer spending number out of UK and cable sold off slightly in the aftermath of the report, although the headline number was quite respectable.

In Europe, the economic calendar was barren with exception of the Current Account report which printed much stronger than forecast at 21.8B versus 14.2B forecast. The strong CA data confirmed the positive capital flows to the region which have kept the single currency propped up despite lackluster economic growth.

Yesterday’s taper announcement by the Fed was no doubt a significant change of course in US monetary policy and should in the long run prove positive for the dollar, assuming US growth remains on track. However, but maintaining a resolutely dovish bias towards rates and by stressing their concern over disinflation, the Fed muted the impact of their actions on the FX market and limited the downside in EUR/USD and GBP/USD for the time being.

In North American trade today the markets will get a glimpse of the Existing homes sales data and the Philly Fed readings. Expectations are for a stronger reading in Philly Fed numbers and a slight decline in Existing Home Sales. However, if the housing data surprises to the upside it could provide further boost to the greenback especially in USD/JPY which has stalled ahead of the 104.50 level. Of all the pairs USD/JPY should respond most positively to the change of US monetary policy and if US economic data proves supportive it could break the 105.00 barrier before the year end.

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