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May-be we’ll be okay

May-be we’ll be okay

GBP
Sterling dropped to a low of 1.3087 before a sharp move higher to 1.3201 against the Dollar. While the rapid up-move appear to be getting ahead of itself, a move towards 1.3220 would not be surprising.

Sterling made a solid comeback on Friday against the Greenback as markets looked past the poor UK retail sales report and there was renewed optimism following the comments from the UK Prime Minister. Theresa May cited that the UK is ready to honour the financial commitment made to the EU at a joint press conference with European Commission President Jean-Claude Juncker.

Expectations of upbeat UK Confederation of British Industry (CBI) industrial orders data, combined with a broad-based USD retreat from two-week tops, also helped push the major currency pair back onto 1.3200 handle.

Meanwhile, Sterling remains on the front foot heading into a big week ahead, with plenty of risk events, including the UK prelim Gross Domestic Product (GDP) report.

USD

The Greenback, tracked by the US Dollar Index, is trading on a sturdy note this morning following Friday’s gradual rebound after a Senate budget vote that might also pave the way for US tax reform. The Dollar traded hesitantly over the weekend, capturing a wave of momentum during US trading at the end of last week. Interest rate differentials moved only marginally in favour of the Dollar too.

The Dollar’s momentum remains underpinned by the healthy strengthening in yields of the key US 10-year benchmark, currently just off recent tops. In addition, expectations of the implementation of the tax reform proposed by the White House at some point in Q4 keep sustaining the Buck following the US Senate approval of the federal budget last Thursday.

With regards to US data, only the Chicago Fed index is expected today, followed by tomorrow’s flash manufacturing PMI and durable goods orders on Wednesday.

EUR

The end of last week saw little data to move the Euro market. Instead, the main focus lies on the main event this week come Thursday when the European Central Bank (ECB) Interest Rate Decision will be announced.

The Euro did see weakness against its peers Friday as, against the Pound, the rate rose an entire cent, stretching to the 1.12 region. Against the Dollar, similar weakness was seen as nearly as a cent was lost for the Euro as levels of 1.1850 dropped to 1.1769.

Draghi, at his press conference last month, sent mixed signals to the market keeping them on their toes for the decision this Thursday. Inflation readings from September indicate there is still pressure on the ECB to maintain its stimulatory stance as inflation targets have not been hit. On the other hand, general economic improvement may prompt Draghi to announce a drop in his bond purchasing programme which will take place at the beginning of next year.

This, therefore, leaves the markets in anticipation for Thursday and takes more of the limelight away from the Catalan referendum where their parliament will meet throughout this week to agree on its response to the Spanish government. Unilateral independence from President Puigdemont can be expected.

Data To Watch:

08:00 EUR ECB’s Praet Speech,
11:00 GBP CBI Industrial Trends Survey – Orders (MoM) (Oct)
13:30 USD Chicago Fed National Activity Index (Sep)

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