Pound strengthens on better than expected UK retail sales

Fundamental View

A heavy day’s trading yesterday as we saw not only a full complement of data from the Eurozone but the FOMC December meeting and the first round of Greek Presidential elections. The Greek election proceeded as expected with results in-line with our expectations. Samaras’ candidate failed to secure the 180 votes required, obtaining 155 from the coalition but only 5 votes from the opposition parties. This was eclipsed by the importance of the FOMC as we finally saw the removal of the “considerable time” language from the Fed’s forward guidance, opting to utilise the phrase “patience” instead. This implies that the interest rate moves will be more data-dependent than previously. An interesting takeaway from the meeting was also the implication that higher inflation was not a requirement for interest rate hikes, as flagged by Citigroup FX analyst Steve Englander. There were 3 dissenters on the FOMC, Fisher voted to hike sooner, Plosser disagreed that the new “patience” language was consistent with the old, a point which Yellen attempted to calm the markets with, but Kotcherlakota was keen to swing the other way and do more to counteract low inflation. It appears that Yellen has managed to satisfy both camps as we have seen dollar strength off of the hawkish commentary but equities have remained buoyant, with the S&P 500 having its best session of the year.

Today’s View

In the currency space we saw the Ruble strengthen yesterday as many traders began to take profit ahead of further RCB intervention. The move higher was also assisted by the move higher in crude which tested the $59 handle this morning. In the Sterling space we saw strength enter the pound as retail sales beat expectations; we saw a typical Cable retracement back to pivot before returning towards the highs. Ahead we have several tier 2 data sets; Initial Jobless Claims are expected at 1330 with an expected reading of 295k, continuing claims with 2435k expected. We also have preliminary Services PMI for December at 56.3 and Philadelphia Fed readings for December expected at 26.

Alternative View

Strategies are dependant on US data. If required, utilise aggressive but technical entries lower on trend following strategies