Ivan Delgado
Independent Analyst
Main market focus
The Sterling has taken the spotlight early in the week, under-performing it peers. The currency is likely to remain jittery on UK politics as up to 40 Tory MPs may threat May's leadership by signing a letter of no confidence.
UK Brexit negotiations, with UK Brexit Sec Davis noting that Westminster is to have a full vote on final Brexit deal this month, and UK's inflation data, will also get in the mix for the Sterling this Tuesday.
The US tax reform remains at a pivotal point, with the Senate due to initiate its debate on the proposed tax bill to ultimately vote in the last week of November.
A full House vote in the US tax bill is scheduled for this Thursday. Headlines around the US tax overhaul are the dominant factor on the US Dollar performance in coming weeks.
Oil saw a minor setback following news that the Iraqi Kurdistan will boost supply. OPEC has recently anticipated a larger oil supply deficit next year on tighter conditions.
Upcoming events
In Australia, Oct NAB business conditions and confidence are due. While in China, a data dump day also awaits, with the publication of Oct urban investment, industrial output and retail sales. Watch the Australian Dollar in Asian hours for some short term volatility; the currency broke lower on Monday as worries over carry trades mount in anticipation of higher global yields.
During the next European session, ECB's Draghi, Fed's Yellen, BoE's Carney and BoJ's Kuroda are due to speak in Germany. From the ECB, board member Sabine Lautenschlaeger and ECB Chair of the supervisory board Daniele Nouy are also due. Chicago Fed President Charles Evans i also speaking in Germany. Later in the US, St. Louis Fed President Bullard speaks in Louisville, ECB board member Benoit Coeure speaks in Brussels, while Atlanta Fed President Raphael Bostic speaks in Alabama.
An important day to get an update on the state of the economy in Germany; inflation figures, Q3 GDP and the ZEW economic survey are due in early hours of Europe, with expectations for flat numbers in the first two, while a slight improvement in the latter. In Spain, we will also get the release of CPI data to help traders complement the ruling German news.
In the UK, a full set of inflation figures are set to inject short term volatility in the Sterling. The majority of key data are expected to come slightly above its previous readings as a lower Sterling adds upward pressure on inflation.
A look at forex majors
EUR/USD: Yet another low key day to trade the Euro, with the rate barely experiencing any changes around 1.1665 at the NY close. The intrinsic valuation picture remains a mix-bag, with the 10y German vs US yield spread limiting the move up, while the 10y-2y yield curve remains at multi-year highs for the interest of Euro buyers. A resolution above 1.17 or sub 1.16 is needed.
GBP/USD: The dip failed to close sub 1.31, which based on the UK political jitters, should be seen as a moral victory for the bulls. The drop also came on low vol, yet accompanied by a lower UK vs US 10y yield spread, although within familiar ranges. Technicals will play a secondary role this week, with Brexit talks, a potential leadership challenge to UK's May and the US tax reform playing a much more important role to determine the next move.
USD/JPY: As seen last Friday, the recovery in the pair, which occurs within the context of an existing uptrend, yet on multiple failures to break above 114.50 critical resistance, saw the 10y US vs JP yield spread to widen, supporting the USD. At this stage, with a NY close above 113.50 confirmed, the 114.00 handle is exposed, although only an end-of-day close above 114.20/30 will cement buyers' confidence on higher prices.
AUD/USD: The Aussie broke lower in sync with a declining AU vs US 10Y yield spread, with bears now targeting the 0.76 and potentially lower levels, with today's Aus/China data dump to determine how much further downside exist. A break and acceptance sub 0.76 exposes an acceleration towards 0.75 this week, while any bounce should be seen as a selling opportunity.
What happened?
Trump's travel ban comes partially into effect after US court ruling.
IMF sounds optimistic on Europe's growth prospects, but downbeat on potentially 'disruptive' Brexit consequences.
BOJ's Kuroda keeps the same mantra on over-optimistic inflation for 2019 fiscal year, while reinforces the idea of the BOJ to extend its ultra-loose monetary policy.
NY Fed consumer inflation expectations 1y ahead comes at 2.6% vs 2.5% prev.
Philly Fed survey expects Q4 GDP at 2.6% vs 2.3% prev.
Economic calendar
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