Week Opens with Dollar Strength

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Market Drivers Nov 30, 2015

Week opens with USD Strength
EZ GE Retail Sales miss
Nikkei 0.20% Eurostoxx -0.69%
Oil $41.5/bbl
Gold $1055/oz

Europe and Asia:
AU Co Operating Profits 1.3% vs. 1.1%
EUR GE Retail Sales -0.4% vs. 0.3%
GBP Net Lending 3.62 vs. 3.45

North America:
CAD Current Account 8:30

USD Chicago PMI 9:45

USD Pending Homes 10:00

With US holidays finally over, currency markets returned to full strength on an event packed week that could see the dollar extend its gains.

The greenback remained bid in Asian and early European trade aided by end of month flows and lackluster data out of Europe. The euro slid to a low of 1.0563 testing its recent multi month lows as German Retails Sales missed their mark and German inflation data hovered near the 0% level on month over month basis.

German Retail Sales came in at -0.4% versus forecast of 0.3% gain. The number is notoriously volatile but was nevertheless the third consecutive month of missed expectations suggesting that some of the momentum in German final demand may be slowing. Still the year to date growth in Retail Sales has risen by 2.8% – its best showing since 1994 as strong labor demand and refugee influx are having a positive impact on spending.

On the inflation front the various CPI releases from German states showed little improvement as price levels remain essentially flat at 0.0% on a month over month basis. That’s likely to spur further QE at this week’s ECB meeting and the only question for the market is whether Mr. Draghi and company will choose to accelerate the already aggressive plans to expand credit.

Meanwhile in UK the credit picture continues to expand. UK Mortgage Lending rose to 3.62B GBP from 3.45B GBP but mortgage approvals ticked slightly lower to 69.6K vs. 70K eyed. Still this was the largest expansion of growth in consumer credit in more than 9.5 years and should serve as warning to MPC officials who remain steadfastly dovish in their posture towards monetary policy. Over the week-end BoE’s Vlieghe reiterated the majority view that he wants to see stronger UK growth before committing to a rate hike cycle.

Cable tumbled to within 1 pip of the 1.5000 level and may break that barrier later in North American trade, but the pair is now approaching strong support near the 1.4800 level and with credit expansion continuing at a healthy pace the BoE rhetoric may turn more hawkish towards the year end. The MPC will wait for the Fed to make its move, but once it does the pressure on Mr. Carney to follow suit will rise markedly.

The US calendar is relatively quiet as we start the week with only Chicago PMI and Pending Homes on the docket, but dollar strength is likely to persist as North American dealing opens for trade.So far the EUR/USD has been able to hold off the bear runs towards the 1.0550 level, but as North American corps comes back to its full strength the pair may finally give up that barrier especially if US data surprises to the upside.

Boris Schlossberg
Managing Director

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