As expected, price volatility calmed overnight and ranges in equity and currency markets have tightened relative to what was seen in recent weeks. Currencies are mostly unchanged from yesterday while stock markets saw a slow drift lower. Some of this activity could be explained by the fact that Federal Reserve comments (from New York President Dudley) were supportive of the Euro and made the suggestion that we will not see any of the member countries abandon the currency.
Headlines, though, were mostly inconsequential but there was the Senate confidence vote in Italy, which passed, and showed the government’s approval of the new Prime Minister (Mario Monti). Another vote is scheduled for the lower house (the Chamber of Deputies) but most analysts expect this vote to pass as well. There are still internal disagreements that are being voiced but these mostly relate to taxes on the wealthy so at the moment it appears Italy has a cohesive majority body in the leadership role.
In the US, macro data came in strongly, as housing starts and jobless claims managed to beat market expectations. Other market chatter centered on an interview from Bank of England member Weale who showed support for renewed injections of quantitative easing, in the form of Gilt purchases through 2012 if we continue to see weakness in the economic data. The GBP met some selling overnight as Weale’s comments also suggested that the UK economy might have already entered into recessionary territory.
We did have some UK macro releases, which helped stall some of the pressure on the GBP, as October Retail Sales showed improvements at 0.6% for the monthly figures and 0.9% for the yearly data. The upside impact of the data was limited, however, because of the volatile nature of the report and the fact that we could be seeing some unnatural distortions as consumers make more purchases in anticipation of the Christmas holiday season.
Looking ahead today, we should see some additional price activity after the release of German Producer Prices, Canadian CPI and Leading Indicators out of the US. US data has been coming in positively this week so with the low market expectations for this last report (a rise of 0.6%) we will mostly likely see similar results.
The AUD/USD has broken its daily support levels, confirming the recently seen head and shoulders pattern on the longer term charts and prices have since retreated to below parity. Aussie managed to find some support at 0.9960 before making a modest bounce but momentum indicators are bearish and firmly into negative territory so it is most likely that this bounce is of the “dead cat” variety. Selling rallies is preferred, first resistance comes in at 1.0090.
The FTSE 100 continues to operate within the confines of its 4H descending triangle and while this is bearish for the index, we still have not had a clear break at 5330, which can now be viewed as a quadruple bottom. Given the lasting nature of this pattern, is it unlikely that we will see a false break once one of the major trendlines does give way, so the prudent move is to sit on the sidelines and wait for markets to show a clearer direction.