Cable makes a reentry to 1.56

There was always an upside chance for Sterling bulls to receive a boost from Thursday’s UK retail sales, and a boost they received. After commencing the European session agonizingly close to its current yearly low of 1.5548, the Cable has since charged around 80 pips higher following monthly UK Retail Sales for November coming in at 1.6%, which was much higher than expectations of 0.4%.

We are already noticing the positive impact lower fuel prices are having on consumers’ disposable income, which is great news for UK retailers and the strong retail sales performance for November just highlights the high potential for this trend to continue throughout December. The drop in oil prices could not have come at a better time for UK consumers, and there are high expectations for UK retailers to enjoy strong Christmas sales.

With the bears still unable to dig themselves a floor in the oil markets, UK inflation levels are expected to continue to drift lower in the near term and this will strengthen the Bank of England’s (BoE) strong views on weak price pressures. This also means that the BoE will likely move even further away from raising interest rates, with attraction to GBP becoming muted as a result. However, with interest rates remaining at record lows and the simultaneous combination of average wage growth outgrowing inflation and the decline in oil prices, increased UK expenditure looks like it will become a trend. As early as February, we may even see extra consumer spending boosting UK inflation once again. As long as this happens, investor attraction should return to the GBP.

The USDCHF appreciated to its highest level since August 2012 at 0.9847, following the Swiss National Bank (SNB) introducing negative interest rates. The SNB had been threatening this since the summer with its resilient commitment to maintaining the EURCHF floor no lower than 1.20 remaining its focus.

The confirmation from the Federal Reserve overnight that it intends to raise US rates next year, alongside the long held expectation that the European Central Bank (ECB) will need to do more to combat low inflation, further supports the evidence that the longer term EURUSD risks point further south.

Traders should keep an eye out for any Euro weakness, because it will more likely than not also result in CHF weakness. The correlation is strong between the two currencies and with the risks for the Euro remaining firmly to the downside, I expect further action from the SNB will be coming in 2015.

It does appear more and more likely that Gold is being directed by the technicals at present. The yellow metal bounced off its psychological $1180 support level once again last night and not only has this level been tough to break through previously, but it also represents the 23.6 fib level from the previous high in July ($1344) to the low in November ($1131). Strong resistance for Gold can be found at $1238 and the likelihood is that Gold will continue ranging between here and the $1180 region. Aggressive USD strength is required to send Gold back below $1180.