Thanksgiving: expect thin market conditions

Market Brief

With the exception of the Australian dollar, trading volumes were ridiculously small in the Asian session as traders anticipated today’s Thanksgiving holidays. EUR/USD traded within a 10 pips range between 1.0615 and 1.0625. Similarly, GBP/USD traded sideways between 1.5115 and 1.5131. Moreover, the calendar is pretty light today.

In Sydney, AUD/USD dropped 0.60% as private capital expenditure disappointed substantially, contracting another 9.2%q/q in the third quarter after shrinking 4.4% in the previous one as business investment expected expenditure in mining contracted significantly more than expected. However, it appears that the low interest rate environment is giving a little boost to sector other than the commodity linked ones.

To get back briefly on yesterday’s main events, data from the US painted once again a mixed picture of the world’s biggest economy. Personal income rose 0.4%m/m in October (matching forecast), up from an upward revision of 0.2% in the previous month while personal spending printed flat compared to previous reading at 0.1%m/m, missing median forecast of 0.3%. After Tuesday’s weak consumer confidence index reading, this is another sign that American households are still worried about the outlook as they rather pocket the savings stemming from low energy prices.

Separately, first estimates showed durable goods orders jumped 3% in October while economists were looking for an increase of 1.7%m/m. However, the gauge received a big boost from the transport industry as the gauge ex transportation printed at 0.5%m/m versus 0.3% consensus. Finally, and this perhaps the most important point, inflation pressures are once again subdued. The Fed’s preferred gauge of inflation remained desperately flat in October at 1.3%y/y (Core PCE). However traders are turning a deaf ear, preferring to bet that the Federal Reserve will start lift-off at its next meeting in December. The probability of a rate hike in December rose above 70% while one month ago the market was pricing a 10% chance.

In Brazil, the BCB left rate unchanged at 14.25% yesterday in spite of rampant inflation. The latest economic survey by the central bank showed that inflation expectation are not anchored yet as it is expected to reach 10.33% by year-end and 6.64% by the end of 2014. Nevertheless, it the BCB is is willing to have a balanced approach in the way it fights inflation expectations in order to limit the damage to the economy. USD/BRL remains within its declining channel and is currently at around 3.75. A strong support can be found at around 3.4358.

Today traders will be watching PPI from South Africa; GFK consumer confidence from Germany; current account and foreign direct investment from brazil.

Currency Tech

EURUSD
R 2: 1.1387
R 1: 1.1095
CURRENT: 1.0610
S 1: 1.0458
S 2: 1.0000

GBPUSD
R 2: 1.5659
R 1: 1.5529
CURRENT: 1.5101
S 1: 1.5027
S 2: 1.4566

USDJPY
R 2: 135.15
R 1: 125.86
CURRENT: 122.60
S 1: 120.07
S 2: 118.07

USDCHF
R 2: 1.1138
R 1: 1.0676
CURRENT: 1.0230
S 1: 0.9739
S 2: 0.9476

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot