Sterling dips in consumer confidence

Today's Highlights

Sterling dips in consumer confidence

UK GDP may show upward adjustment

FX Market Overview

What to do about ISIS seems to be as polarising as Marmite although perhaps not as divisive as Katie Hopkins. Phew. Everyone is in agreement that something must be done but are they are also completely undecided over what that something looks like. I am sure a fudge of some description will be achieved but, whilst it may be the right thing for Britain, is it the right thing for the poor innocents of Iraq and Syria who just want to get on with their lives without facing death at every street corner. Let's hope they are not forgotten in this power struggle.

But no one wants to think about that when we can have Black Friday do they. Another marketing initiative that is already losing ground in the UK as ASDA and others turn their back on the US invention. What is pretty certain is that, if the marketeers can make Black Friday 'a thing' in the UK, it will skew the retail sales figures but will it make us buy more? Who knows.

Either way, as much of America and some of the UK goes shopping, the financial markets are more focussed on the 2nd release of UK economic growth data for the third quarter of the year. The first estimate put that growth rate at an annualised 2.3% and there are some who think that will be revised to a slightly higher number. If it is, Sterling, which has slipped on the week, will rebound in a healthy manner. However, the pound took a knock first thing this morning when the consumer confidence index slipped to levels we last saw in May as consumers worried about the future of the economy. That wasn't a dramatic move; the Pound dropped by half a cent against the Euro, but the consumer sector is such a massive part of the UK economy, that any downturn is significant.

We also get Eurozone consumer and industrial confidence indices this morning. There is a chance we will see an uptick in the industrial one but consumers in Europe are still concerned about the state of the Eurozone economy and unemployment is still horribly elevated. The Euro-US Dollar rate is tenuously holding on to the $1.06 level but we have to wonder how long that would last if today's data is poor on both fronts. Traders also have an eye on the European Central Bank which is likely to broaden the money supply and move their already negative deposit rate into further negative territory next week. Whilst these moves are widely expected, the reality of such a move will be a forthright message that all is not well in the Eurozone 8 years after the credit crunch.

Knock knock

A guy hears a knock on his door. He opens the door but there is no one around, just a snail on his porch. He mutters something about ‘damned kids’, and in his anger, he kicks the snail down the garden before slamming the door. About 6 weeks later there is a knock at the door and when he answers it, there is no one around but he sees the same snail on his doormat. The snail looks up at him and says, "What the hell was that all about?"

Currency - GBP/New Zealand Dollar

It has been a relatively quiet week in terms of data releases from the UK and NZ this week. Sterling has struggled to maintain the gains of last week and has come under pressure once more. This has largely been due to weaker than expected data from the UK (namely retail sales) and shifting UK interest rate expectations. The Bank of England re-iterated the sentiment of the Inflation report at the Inflation Report Hearing earlier this week. With some members of the Monetary Policy Committee (MPC), actually suggesting the next move in UK interest rates will be lower. From a technical stand point, we are currently trading below the long term trend line (green diagonal line on the chart) which has been in place since April. This is a concern and we need to see where we close the week as a close below this trend line (currently 2.30 or so) would be significant. If this trend line support is broken, then it would suggest that the corrective phase that we have been in has further to run and the trend is changing. The recent highs of 2.36 would be a target if the current move proves to be false break of the long term trend.

Currency - GBP/Canadian Dollar

The Canadian Dollar has been relatively volatile again this week amid continued fears of the global price of oil, although picked up on Tuesday as Saudi Arabia pledged to help to stabilise the price of oil. CAD has also strengthened a little on the back of USD strength, as a rate hike from the FED is almost a formality. GBPCAD started the week around 2.03 and following the upbeat news on oil and from the US, has currently dropped to just above 2.0050. On the data front, it has been an exceptionally quiet week for Canada with no economic releases of note. That changes next week, as the BoC release GDP data as well as an interest rate decision and statement on Wednesday.

Currency - GBP/Australian Dollar

After topping out in August GBPAUD has been trading in a down channel with lower highs and lower lows. Currently support comes in at 2.0750 level but the price may continue to fall to test uptrend support (T3 and T1) so downside targets are 2.05 and onto 2.0250. On topside, target 2.10-2.12 on a bounce. Next week’s RBA interest rate meeting on Tuesday is not expected to have any surprises, whilst analysts are split 50:50 as to whether the next RBA interest rate move will be up or down, I don’t think any change is expected as early as next week. Keep an eye out for the ECB’s interest rate meeting on Thursday, they’ve signalled further interest rate cut is likely, which would lead to a rally in stocks and commodities and boost risk-on currencies like the Aussie, so GBPAUD may well struggle through next week, particularly if the RBA are upbeat in their statement.

Currency - GBP/Euro

Sterling Euro has consolidated for the most part of the week despite breaking the steep uptrend. The currency pair was buoyed after George Osborne increased the government’s forecast for UK growth next year and reports of an unnamed ECB member who suggested that ECB policy makers were thinking about widening the scope of their bond buying program or implementing a two-tier penalty charge on banks that leave cash with the central bank.

Sterling Euro is likely to continue to consolidate as we draw closer to the ECB decision next Thursday. The market has almost fully priced in more accommodative measures, so if the market left disappointed with the measure we could see an aggressive correction lower. Particularly as the UK has entered its second month of deflation and as more dovish remarks emerge from the Bank of England - which are shifting the market expectations of when we will see an initial rate rise. With the exchange rate so close to the recent highs it may be prudent for Euro buyers to reduce any near term exposure close to current levels.

Currency - GBP/US Dollar

The sterling dollar exchange rate has remained largely range bound this week despite the bullish comments emanating from the Chancellor during his budget statement. The report was probably neutral on balance although he did confirm that UK plc was in fairly good shape. Of more importance in the short term will be interest rate expectations from the Federal reserve and the Bank of England. Noises emanating from over the pond would suggest that an increase in the fed funds rate is imminent and that should help keep the dollar supported. The Pound is currently trading just above psychological support of 1.5000 and it would not be a surprise if this is tested in the near future.