A potentially significant day for the market, as the bullish USD theme was put to the test by another strong US data read – this time with US retail sales coming in stronger across the board to lift GDP projections from most corners. The USD pushed higher in response, with USD/JPY testing towards 109.00, but holding off the figure level. We now see some exhaustion in the market, with the USD index pulling back off the highs above 100.00 as calls for moderation may finally come to fruition.
Notable was the steady 10yr yield, with held off yesterday’s 230bp highs, which in turn could prompt a deeper retracement in the greenback across the board. EUR/USD found support ahead of 1.0700 Monday, and again today, and despite limited traction on the upside, we could be in for some consolidation above the figure before we test key levels on the downside towards the mid 1.0600’s at the very least. Earlier in the morning, UK inflation data came in softer than expected despite the anticipated impact from GBP devaluation, though notable was the higher PPI, which will eventually feed through to the headline rate(s).
Even so, EUR/GBP was given a timely boost having fallen to overextended levels. While many expect to see further losses here over coming weeks, for now, some form or pullback looks likely. This should pull Cable lower in its wake, but strong support from the mid 1.2300’s could limit the downside, with more calls for levels closer to 1.2800-1.2900 being cited. WTI has recovered through $45.0, and with the US election now out of the way, this is having more of an impact on USD/CAD.
We met with stern resistance ahead of 1.3600 yesterday, and we are already back in the mid 1.3400’s. AUD/USD dipped towards .7500 but held, while NZD saw limited reaction to the lower than expected GDT auction which saw WMP up 3.2% vs 5% reflected in the futures market. In other data releases, we saw prelim Q3 growth for Germany lower than expected at +0.2%, 1.5% y-o-y.