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Quite busy for a quiet day

Quite busy for a quiet day

With no U.S. economic reports scheduled for release and bond markets closed for Columbus Day, the liquidation of long Dollar positions continued. Technically, the Dollar has fallen too far fast against commodity currencies (AUD,CAD, ZAR, NOK) and is trading near key support levels versus the Euro, Sterling and Yen.

In other words, the charts tell us the downside for the Dollar is limited but fundamentally this week’s U.S. retail sales and consumer price reports pose a big risk to the Greenback. Slower job growth and stagnant wages are likely to reduce consumer spending and, according to an earlier Redbook survey, national chain store sales fell 1.6% in September.

Only one piece of data from the UK yesterday, British Retail Sales, which came out better than expectations – writing a figure of 2.6 against an expected 1.5. With a lack of data releases yesterday Sterling was still able to make a small recovery against the Euro and the Dollar in subdued conditions. Bank of England Monetary Policy Committee (MPC) member Weale said that there were some tentative signs of improving productivity to the economy. This could diminish the possibility of an interest rate hike. MPC member Vlieghe will be in front of the Treasury Select Committee on Tuesday as markets look for perceptions as to where he is likely to be on central bank policy views. The latest inflation and unemployment data will be watched closely over the next couple of days. They will enable the market to assess the domestic case for an interest rate hike in the UK and are likely to cause volatility in GBP/EUR too.

A quiet day for the Euro yesterday, but much of the focus will be on Europe today pending the German and European ZEW Survey. The survey, which monitors business conditions and confidence in Germany and the Eurozone, is expected to print lower this month on the back of the challenging conditions in Europe and the news of the German VW scandal. As a consequence the Euro is likely to come under pressure and some of the strength it has gained over the past week against both the Dollar and Sterling could be eroded.

The Aussie Dollar’s relentless run higher seen over the past two weeks has been brought to an abrupt halt by the latest batch of weak data from China – trade data showing imports slumped by 20% in year-on-year terms, after a 14% decline in the previous month. Although impacted by the recent fall in commodity prices, the data reflects the view that domestic demand is also weakening. As for the Aussie, it’s not a surprise to see the recent run of form fizzle out.

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