Market Afternoon Recap – November 18th

Key Notes for November 18th 

• RBA Governor Stevens speech, talks down the Aussie
• UK CPI y/y 1.3% vs. 1.2% consensus; Core CPI y/y 1.5% vs. 1.6% consensus
• Japanese Premier Shinzo Abe calls for elections; delays sales tax hike by 18 months
• German ZEW Economic sentiment 11.5 vs. 0.9 consensus
• Eurozone ZEW Economic sentiment 11 vs. 4.3 consensus
• US PPI m/m 0.2% vs. -0.1% consensus; PPI y/y 1.5% vs. 1.3% consensus

The forex markets saw the volatility return in a busy European trading session along with the rising speculation of Shinzo Abe’s press conference.

Putting to rest all speculation, Japanese Premier confirmed that he would be delaying the sales tax hike to 10%, due for October 2015, to be postponed to 2017, or an 18 month delay. He also confirmed dissolution of parliament later this week, preparing ground for snap election. The markets were expecting the above decisions and the Yen initially weakened only to hold back ground. There weren’t much of any major changes noted in the Yen crosses.

Earlier in the day, RBA Governor Stevens made a speech at a dinner event in Melbourne. He mentioned that the yields on Australian assets were attractive to foreign investment but that the RBA could slash interest rates if need be. He also underlined the risk of underestimating the Aussie decline in the forex markets and hinted to further declines in the Aussie dollar. While the AUDUSD made an intra-day low towards 0.8682, the most noticeable change came in the AUDNZD which was already drifting lower for the past week.

UK’s CPI data was mixed but showed signs of stabilization. Headline CPI y/y was unchanged from the previous month at 1.5%, while core CPI ticked a notch higher to 1.3%. The GBP’s reaction was mostly muted as the Cable eventually settled to drift lower after the news.

The major event of the day was the German ZEW economic sentiment, which was widely expected to come out positive after last month’s decline. The headline reading beat estimates, rising 11.5 against consensus of 0.9. The Eurozone’s ZEW economic sentiment was also broadly lifted, coming out at 11 beating estimates calling for 4.3. While the Euro crosses managed to stage a rally, there weren’t any significant changes. The EURUSD managed to make an intra-day high to 1.254 before retreating modestly lower ahead of the US data.

The Greenback was mostly steady during the early European trading session, ahead of the PPI data from the US. The US Dollar was relatively mixed across the board with pairs such as USDCHF and USDCAD declining during the European trading session.

The US Producer Price index beat estimates with the PPI m/m up 0.2% beating estimates of -0.1% while PPI y/y increased 1.5% above 1.3% estimates. PPI excluding food and energy m/m is up 0.4% while on a yearly basis was up 1.8%. The Greenback was initially bullish across the board on the news but most of the pairs remained fairly muted. The GBPUSD, at the time of writing is still trading near the handle of 1.565 while EURUSD was seen trading near 1.25.