Majors in Melt Up as Investor Sentiment Soars

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Market Drivers for November 27, 2013
Stops tripped all over as risk flows accelerate
Merkel reaches deal
Nikkei 0.88% Europe 0.26%
Oil $93/bbl
Gold $1252/oz.

Europe and Asia:
AUD Construction Work Done 2.7% vs. 0.6%
EUR GFK Consumer 7.4 vs. 7.1
GBP UK GDP 0.8% vs. 0.8%

North America:
USD Weekly Jobless 8:30
USD Durable Goods 8:30
USD Chicago PMI 9:15
USD U of M 10:00

A deal in Germany, announcement of deposit insurance in China, strong consumer sentiment readings out of Europe and steady growth from UK all combined to create positive sentiment in capital markets today and sent majors on a melt-up as EUR/USD and GBP/USD blasted through stops and set fresh weekly highs in morning London dealing.

In Germany the government of Angela Merkel came to a deal with SPD agreeing on such details as enacting Germany’s first ever minimum wage and putting toll taxes on foreign traffic going through the country. The details of the deal were relatively minor, but the markets were encouraged by the fact that Germany should now have a stable governing coalition within the Bundestag that will enable Germany to maintain its leadership role in Europe.

EUR/USD broke through the key 1.3600 barrier in London and remained near the highs of the session ahead of North American trade. The pair has shown remarkable resilience largely due to the fact that German economy continues to perform well even as the the rest of the EZ languishes.

Today’s strong GFK consumer sentiment numbers were just the latest datapoint to confirm that thesis as reading rose to 7.4 from 7.1 the period prior. This was the best sentiment reading out of Germany in more than 4 years and it demonstrated that the consumer in Europe’s largest economy is feeling increasingly confident ahead of the key Christmas spending season.

The pound also saw a massive move higher as the unit took out the 1.6300 figure on a flurry of stop activity. The UK economy continues to record some of the best performance in the G-7 universe and today’s second reading of the GDP came in line at 0.8% as expected. Although Business Investment was lower than forecast at 1.4% versus 2.3% the markets ignored the miss and focused instead on the fact the Index of Services rose to 0.7% from 0.4% eyed.

Todays positive price action in the high beta currencies could spill over into North American trade especially if US data proves supportive. With Durable goods, weekly jobless claims and Chicago PMI on the docket traders will have plenty of opportunity to gauge the state of the US recovery and if the number surprise to the upside the rally in risk could roll on. USD/JPY has traded well throughout the night as it erased all of yesterday’s losses and is now within striking distance of the 102.00 figure. If US numbers beat the consensus that barrier could fall as trading comes to a crawl ahead of the US Thanksgiving holiday.

Boris Schlossberg
Managing Director

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