GBP in the limelight in early Asia but rejects key resistance level


MAJOR HEADLINES – PREVIOUS SESSION

  • CA Aug. Manufacturing Sales out at -2.1% m/m vs. -1.6% expected and revised +5.2% prior

  • US Sep. CPI out at +0.2% m/m, as expected, vs. +0.4% prior

  • US Sep. CPI ex-Food/Energy out at +0.2% vs. +0.1% expected and +0.1% prior

  • US Oct. Empire Manufacturing Index out at 34.57 vs. 17.25 expected and 18.88 prior

  • US Weekly Initial Jobless Claims out at 514k vs. 520k expected and revised 524k prior

  • US Weekly Continuing Claims out at 5992k vs. 6000k expected and revised 6067k prior

  • US Oct Philadelphia Fed Index out at 11.5 vs. 12.0 expected and 14.1 prior

  • NZ Sep. Non-resident Bond Holdings out at 72.1% vs. 74.5% prior

  • SI Sep. Non-oil Domestic Exports out at -14.4% y/y vs. -13.5% expected and -13.7% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Swiss Retail Sales (0715)

  • EU ECB’s Bini-Smaghi to speak (0800)

  • EU Euro-zone Trade Balance (0900)

  • CA CPI (1100)

  • US Long-term TIC Flows (1300)

  • US Industrial production (1315)

  • US Capacity Utilization (1315)

  • US Univ. of Michigan Confidence (1400)

  • US Fed’s Fisher to speak (1410)

Market Comments:

Having been a laggard for many a week, GBP found its running shoes overnight and powered higher on the back of stop-loss triggers, comments with a slightly more hawkish tone from BOE’s Fisher in the FT and talk of M&A activity involving UK corporates. A dramatic shift lower in EURGBP exacerbated the move and GBP was able to recoup some of the ground lost over the past three weeks.

On the dollar-front it was a more mixed session with the two business surveys from the US for October offering conflicting views. First off the empire manufacturing survey rose strongly to 34.6 (consensus 17.3 from 18.9 previously) which tipped bond prices lower, helping USDJPY to climb through the 90.40 resistance level en-route higher. EURUSD saw an early sell-off after ECB’s Trichet said the EUR had not been created to be the world’s reserve currency. However, reserve managers were seen buying into the dip (funnily enough) and the better US data helped EURUSD back above 1.49. Later, a slightly softer Philly Fed index (11.0 vs. 12.0 expected and 14.1 last) pulled the pair back from the day’s highs. In other data releases, CPI held no surprises but the weekly jobless claims improved to 514k (520k consensus), the lowest in 40 weeks while continuing claims dipped below the 6 mln mark for the first time since late March.

The Asian session had precious little in data events to focus on so it was news and flows that dictated direction. GBP again grabbed the headlines with another strong rally towards 1.64, EURGBP gravitating towards 0.91 and GBPJPY towards 149 after an ambitious bullish call for GBP from a leading investment house.

AUD markets could have had a bit of a shock from what might be termed “creative journalism” after the Australian reported that RBA Governor Stevens had commented that AUDUSD could reach 1.10. In essence, when asked if the RBA had measures to prevent speculators driving the AUD up to 1.10 against the dollar, Gov. Stevens said there were other reasons to drive FX movements apart from speculators, even fundamentals, growth dynamics and trade dynamics. AUDUSD certainly tried higher, hitting new 14-month highs but, in line with other currencies, retreated lower soon after.

A few interesting data points today with European trade data on tap. North America sees US industrial production, capacity utilization and Univ. of Michigan confidence index while Canada releases CPI data.

Nice weekend.