Market Drivers December 09, 2016
Europe and Asia
AUD: AU Home Loans -0.8% vs. -1.0%
GBP: UK Trade Balance -9.71B vs. -11.8B
North America
USD: U of M 10:00
It's been a relatively subdued night of trade in the FX market with most of the pairs tracing out very narrow ranges on the final trading session of the week.
Both euro and cable were pushed and pulled by EUR/GBP flows with the later rising above the 1.2600 level in the wake of better than expected Trade Balance data that showed a deficit of -9B vs. -11B eyed. The news should help assuage fears that Q4 UK GDP will miss forecasts as the positive contribution from trade should offset any negative impact from misses in Industrial Production earlier this week.
Elsewhere the euro appeared to find some stability at the 1.0600 figure after taking a massive beating in yesterday's trade. As many analysts have pointed out Mario Draghi did a masterful job, jawboning the currency lower as he promised to extend QE to 2017 and buy an additional 540 Billion EUR of bonds versus 480 Billion eyed. In addition he noted that ECB stood ready – if need be – to buy bonds below the central bank's deposit rate of -0.4%.
All of this news saw the EUR/USD sell-off hard yesterday dropping more that 280 points off the highs. But despite Mr. Draghi's dovish posture the pair remains well anchored around the 1.0500 level and the data from the region continues to show improvement in both growth and inflation.
The only way the EUR/USD sees further liquidation is if the Fed next week paints a very hawkish picture for 2017, signaling that it may hike 3 to 4 times. That scenario appears unlikely as the forward guidance from Fed officials has actually been very restrained, indicating that most members are more than willing to wait and see for a quarter or more before hiking rates further. Therefore a dovish FOMC next week could fuel a move in EUR/USD right back to the 1.0800 figure.
In the meantime today the only report of note is the U of M data expected to rise 94.5 from 93.8 the month prior. There is a good chance the number could surprise to the upside given the rally in the equity market and the more upbeat mood of Trump voters. A print of 95 or better could spur a push higher in USD/JPY, but the pair remains capped by the 115.00 figure for the time being, although a stop running break of that level would not be out of the questions if the data proved supportive. With 10 year yields comfortably ensconced above the 2.40% level USD/JPY has scope to run today.