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<Back to Latest Research
London Session: USD higher as sentiment deteriorates ahead of holidays

Updated Dec 21, 2012 11:00:00 AM By Eric Viloria, CMT

Risk sentiment soured overnight after House Speaker Boehner cancelled the vote on “Plan B” as it would have failed to pass by a few votes. Boehner ended a press conference and the House Speaker said that he will continue to work on a fiscal cliff deal but that “trying to bridge these differences” is difficult. He reiterated that the House, Senate, and Obama need to work together. Equities and US treasury yields are lower and the dollar is higher as policymakers struggle to reach an agreement on the budget. The risk that a deal is not struck before the end of the year is increasing which is putting pressure on sentiment.

 

EUR correcting lower


Also making headlines were reports that Italian Prime Minister Monti is planning his resignation today after the budget vote. Confidence readings in Italy and France were marginally higher and in Germany, the GfK consumer confidence reading unexpectedly fell to 5.6 from the prior 5.8. Sovereign yields are higher and the common currency is trading softer. EUR/USD continued to correct lower after failure to hold above 1.33 in recent days and the pair is currently trading below the 1.32 figure. The 200-hour SMA and 38.2% Fibonacci retracement of the December range converge around 1.3145 as a downside pivot in the near term.

 

GBP weak after GDP


The GBP is notably weaker following a downward revision to 3Q GDP and after being rejected from the 1.63 level. Broader risk aversion is also weighing on the pound. Cable is currently below the 1.62 figure and testing the convergence of the 200-hour SMA and 23.6% retracement of the rally from November lows to December highs. 3Q GDP was revised lower to 0.9% q/q from 1.0%, public sector net borrowing jumped to 15.3B from 6.0B and the 3Q current account deficit came in at -12.8B.


Canadian CPI lowest since 2009

 

There was a slew of economic data out of Canada and the US this morning. Canada’s October GDP figures were slightly softer than expected with yearly growth of 1.1% vs. expectations of 1.2%. Monthly GDP growth was as anticipated at 0.1%. Consumer prices unexpectedly fell in November on the headline print with a -0.2% drop in m/m CPI from +0.2% (cons. 0.0). Core readings were also softer than expected with no change on the month (cons. 0.2%, prior 0.3%). Yearly headline inflation rose by 0.8% which was the lowest in three years and below the Bank of Canada’s target range. The decline in inflation and softer than expected economic growth weighed on the Loonie as it brings the BoC’s hawkish stance into question. Earlier this week, the IMF suggested that the BoC keep rates low for now. USD/CAD is currently trading above key daily SMA’s and is testing the 50% retracement of the decline from November highs to December lows. The next level of notably resistance is around parity which is also a Fib level as well as the 55-week SMA.


US data was mixed; durable goods order were much stronger than expected, consumer confidence surprisingly dropped in December, the Chicago Fed national activity index rose back into positive territory and the PCE softened which is supportive of continued QE from the Fed. November personal income and spending figures were also released with income rising by twice the market consensus while spending was in line with forecasts. Despite the numerous economic data reports, markets remained driven by headlines regarding the fiscal cliff. In a headline driven environment as liquidity thins ahead of the holidays and year-end position squaring, traders should be cautious and focus on risk management as always.

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