Key Overnight Developments
• Japanese Consumer Confidence Drops More Than Expected
• British Pound Gains, Euro Range-Bound in Overnight Trading
Critical Levels
The Euro traded sideways in a well-defined range above 1.47 through the overnight session. The British Pound trended higher, testing as high as 1.6347 in Asian trading. We remain short EURUSD at 1.4881 and short GBPUSD at 1.6648.
Asia Session Highlights
Japanese Consumer Confidence fell for the first time this year in November and printed lower than economists had forecast, slipping to 39.9 from 40.8 in the previous month. Metrics tracking consumers’ income and employment expectations as well as their willingness to spend on big-ticket purchases all slipped to multi-month lows. The markets looked past the announcement having had ample opportunity to price in sluggish performance for the world’s second-largest economy after GDP disappointed in the third quarter and the government introduced a 7.2 trillion yen stimulus package in an effort to prevent a backslide into recession.
Euro Session: What to Expect
The economic calendar is fairly tame in European hours, with November’s UK Producer Price Index rounding out scheduled event risk. Expectations call for the annual pace of wholesales inflation to rise to 2.9%, the highest since February. Machinery prices have seen standout gains over recent months; most of the goods that fall into this category are imported from the Euro Zone, hinting that much of the rebound in producer prices since the low in July can be traced to gains in the EURGBP exchange rate. While higher PPI readings hint at future gains in consumer inflation as input costs are passed on into the final price tag, the implications for monetary policy are fairly limited considering the central bank pushed on with expanding quantitative easing measures despite its own predictions of a near-term upswing in prices in the latest quarterly inflation report published in November. Policymakers expect the program to be completed by February and, as illustrated by yesterday’s interest rate announcement, are likely to remain in wait-and-see mode for the time being.
On balance, risk appetite is likely to be the primary driver for price action yet again, with the release of US Retail Sales and University of Michigan Confidence figures lining up as important catalysts late into the session with traders still looking to the health of the world’s largest consumer market as a proxy for the overall pace of global recovery.
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