Market Drivers Nov 24, 2015
Euro pops through 1.06050 on better IFO
USD/JPY strengthens on risk off fear after Russian plane shot
Nikkei 0.23% Eurostoxx -1.53
Europe and Asia:
EZ IFO 109.00 vs. 108.30
USD GDP 8:30
USD Consumer Confidence 10:00
For the second day in a row better economic data out of Germany helped keep EUR/USD afloat pushing the pair above the 1.0650 level in morning European trade. The IFO survey of business sentiment printed at 109 versus 108.3 eyed indicating that business demand in Europe’s largest economy remains strong.
This was the best IFO reading in more than a year and and a second consecutive monthly rise.
After taking a steep dive in the wake of geopolitical tensions with Russia, business sentiment in Germany has improved markedly on the back of lower exchange rates and lower oil prices both of which are helping German businesses to compete locally and abroad.
According to IFO economist Wohlrabe German economy does not appear to be affected by weak data from emerging markets with export demand remaining positive. Neither the diesel scandal nor the influx of refugees or the recent terrorist attacks in Paris have dented business sentiment as consumer demand remains stable.
Meanwhile in UK the commentary from monetary officials sent cable tumbling towards the 1.5100 level as speech by MPC member Andy Haldane sent tremors through the market. Mr. Haldane noted that inflation risks were skewed to the downside and most importantly stated that the central bank must be prepared to act in either direction in order to combat any weakness in the economy.
Although Mr. Haldane is the most dovish of BOE members, even a mere suggestion of possible easing at a time when the market anticipates only tightening from the BoE sent cable lower creating jitters amongst currency traders. Governor Carney offered no help to cable bulls when he reaffirmed that rates are likely to remain low for a considerable period of time. With UK monetary officials striking a decidedly dovish posture in their most recent comments to the market the prospect of further losses in GBP/USD is high and the pair could test the 1.5000 level before the week is over.
Lastly some geopolitical tensions sent USD/JPY lower as well after Turkey announced that it shot a Russian air force plane after it violated its airspace. Both pilots ejected but one of them is presumed dead. Russia called the incident extremely serious but called for calm. It’s difficult to ascertain the fallout from this incident, but the market could remain cautious for the rest of the day with risk off flow weighing on USD/JPY as it trades near the 122.50 level.
On the economic front the market will be focused on the 2nd revision of US Q3 GDP with expectations of a 2.1% print. Anything less than that could put further pressure on USD/JPY and possibly push the pair towards the 122.00 figure as risk off flows continue to dominate the day.