Will US Retail Sales Boost the Buck?

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Market Drivers for October 15 2014

UK Employment Data mixed

Chinese Inflation tame

Nikkei 0.92% Europe -.70%

Oil $81/bbl

Gold $1223/oz.

Europe and Asia:

CNY CPI 1.6% vs. 1.7%

UK Claimant count -18K vs. -35K

North America:

USD Retail Sales 08:30

USD PPI 08:30

USD Empire Manufacturing

Currency markets were relatively steady today with little news action to drive prices in Asian and early European trade. The biggest event of the night was UK jobs data which provided mixed to slightly positive results that helped steady the pound around the 1.5900 level.

UK unemployment rate declined to 6% – the lowest level since the credit crisis of 2008. However, the headline data masked the fact that the claimant count declined only to -18K from -35K eyed indicating a slowdown in the reduction of jobless rolls.

On the other hand wage growth perked up a bit with average wages ex bonus rising 0.9% from 0.8% the 3 months prior indicating that the pickup in economic activity is slowly but surely starting to translate into better wage gains.

Overall it was a steady but unspectacular jobs report that showed no serious inflation pressures in the UK economy and therefore is unlikely to expedite any BoE action. Nevertheless, the data calmed market fears of any material slowdown in the UK economy which remains one of the best performing in the G-7 universe.

Cable which has been pounded mercilessly over the past week sliding to a low of 1.5877, recovered in the aftermath of the release rising above the 1.5900 level and could push higher towards the 1.5950 area as the day progresses. After such relentless selling, the pair is due for some short covering bounce and the 1.5800 area represents long term triple bottom support from 2013 and therefore should provide some comfort for bargain hunting longs.

Elsewhere, the Canadian dollar hit fresh yearly lows today rising to 1.1375 before pausing a bit. The loonie has been the weakest of all the commodity dollars as its lack of yield and the near vertical decline in oil prices has send the unit plunging. Oil is now dangerously close to the $80/bbl level which is considered to be the breakeven point for much of the tar sands oil production. Further decline in crude price could push the loonie towards the 1.1500 figure – a level it hasn’t seen in more than 5 years.

Finally, the marquee event of the day will be US Retail Sales, with markets anticipating a decline of -0.1% from 0.6% the month prior. With US yields having fallen more than 30bps in the past month and with risk aversion running rampant, USD/JPY pair has seen a swift decline breaking below 107.00 in yesterday’s North American trade. However the Retail Sales report could stauch the decline in USD/JPY. If the numbers surprise to the upside then the theme of lower oil prices and resurgent US consumer spending could put the bid back into the buck. But if the data once again misses to the downside the market is going to unwind the USD/JPY longs even more and the pair could test the 106.00 level next.

Boris Schlossberg
Managing Director

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