Barca to give Spain the Spanish Archer (El Bow)
There was a lack of UK economic data or developments on Friday but Sterling/Euro yield spreads widened to a 10-year high supported a Sterling lift higher to break the 1.1300 level. The Pound declined to lows around 1.3070 against the Dollar, the weakest level for three weeks, before recovering back above 1.3100.
Although expectations are high that the Bank of England (BoE) will hike interest rates by 0.25% on Thursday, there are also expectations that a dovish statement will accompany it, limiting potential Sterling support. The Pound would likely move lower if there were either more than two dissenters or an explicit statement ruling out another rate hike in the near term. In each case, we would see the UK rate curve flatten as markets price out additional BoE tightening.
The Office of Budget Responsibility also continued to warn that weak productivity would undermine growth. Markets will be wary of potential month-end position adjustment early in the week which could undermine Sterling.
The US Dollar index relinquished ground over the weekend albeit at very slow pace on Monday. The US economy continues to motor along at a fair pace. That’s according to the first third quarter growth estimate which has come in better than expected at 3%.
The GDP report brought a positive surprise as the economy is still expanding at a solid pace despite the disruptions caused by recent storms. The underlying trend remains good for the Dollar, still above potential with further expansion due in Q4 as reconstruction will follow.
The Market continues to adjust to the likelihood that Federal Open Market Committee’s (FOMC) J.Powell could lead the Federal Reserve when Chief J.Yellen finishes her term in February. Recent news cities President Trump could be favouring the current FOMC governor and permanent voter Powell.
Internal disputes in the Republican party threatens to plot against any progress on the tax reform proposed by President Trump. It is worth mentioning that the House of Representatives narrowly passed the blueprint of the budget for Fiscal Year 2018, somewhat paving the way for the tax reform to be implemented at some point by year-end.
In the US today, we see personal income/spending is due along with inflation figures tracked by the PCE.
Catalonia continued to cause concern after the regional parliament declared independence and Madrid imposed direct rule in retaliation, dissolving the regional parliament and calling for fresh elections.
The dovish European Central Bank (ECB) rhetoric compounded the Catalan situation in undermining the Euro, especially after the Dollar had broken significant support near 1.1660 on Thursday. EURUSD briefly hit lows of 1.1580 before regaining 1.1600, its sharpest weekly decline for 2017.
There is the potential for long Euro (bets Euro will rise in value) to be reversed, as we approach month-end, especially with adverse yield differentials still an important negative factor.
Data To Watch:
07:00 EUR Retail Sales (MoM) (Sep) – Germany
07:00 EUR Retail Sales (YoY) (Sep) – Germany
09:30 GBP Consumer Credit (Sep)
09:30 GBP Mortgage Approvals (Sep)
10:00 EUR Industrial Confidence (Oct)
10:00 EUR Business Climate (Oct)
10:00 EUR Economic Sentiment Indicator (Oct)
10:00 EUR Services Sentiment (Oct)
12:30 USD Core Personal Consumption Expenditure – Price Index (YoY) (Sep)
12:30 USD Personal Consumption Expenditures – Price Index (MoM) (Sep)
12:30 USD Personal Spending (Sep)
12:30 USD Personal Consumption Expenditures – Price Index (YoY) (Sep)
12:30 USD Core Personal Consumption Expenditure – Price Index (MoM) (Sep)
12:30 USD Personal Income (MoM) (Sep)
14:30 USD Dallas Fed Manufacturing Business Index (Oct)