Key Points
• USD strength slowly returning – EUR-USD pressuring 50-day moving average.
• Further USD-JPY stabilisation likely today.
• NZ current account deficit bad but fairly well anticipated.
• UK MPC minutes, CBI trade survey, Canadian retail sales feature today.

Market Outlook
EUR-USD moved sharply lower yesterday although as yet it has failed to sustain the initial move below the 50-day moving average at 1.1873. The crossing of the 50-day moving average has been the trigger for some sizeable short-term moves this year. Indeed, the move above it on Dec 12 (it was 1.1890 at the time) was a key factor motivating the break higher prior to the FOMC meeting.

Downside is favoured in the weeks ahead on the basis of US data support but a move today would depend upon it breaking free of the 50-day moving average. Below the 1.1840 low seen in the NY afternoon yesterday would be a sign that it has done this. The rest of the week’s US data including new home sales and durable orders will also be important.

USD-JPY also looks better and this could extend to 117.60 today. 118.20 and 119.50-120.00 are the next significant levels/areas after this.

The New Zealand current account deficit came out higher than the consensus, but the NZD has failed to sustain the losses seen initially after the release. This was probably due in part to the fact that the market had been fretting about this number all week and the NZD had already given up some ground ahead of it. Still, the deficit reading of 8.5% of GDP for the 12-months ending Q3 is not a pretty sight and will maintain market worries about the sustainability of NZD strength, especially if cyclical factors also start to turn. Above 0.6840 is required today to offer hope of some stabilisation – support is at 0.6780 ahead of 0.6740 and then the 2005 low (July) at 0.6685. Upside is tentatively favoured near-term, but this could easily be short-circuited if the USD starts to advance against the EUR. New Zealand GDP is due tonight and while ‘old’ being for Q3 an unusual number could influence sentiment.

Day Ahead
UK – MPC minutes are likely to show a 9-0 vote in favour of unchanged rates and there is unlikely to be much guidance about future biases. Previous backers of a rate cut e.g. Walton, Barker turned less dovish in public comments in the second half of November and this may be reflected in the minutes. Of course, things have already moved on since the Dec meeting, with weaker inflation numbers – CPI, PPI and average earnings – but strength in the housing market. The CBI retail trades survey is also due today although this can be volatile in the Nov-Jan period, evidence of which may already have been seen in the very weak number for November. Indeed, arguments relating to pure statistical noise would suggest the possibility of a decent rebound today. If this is the case it could offer some help for GBP initially, although the number will still likely be deep in negative territory and uncertainty will remain about what the official numbers will reveal.

US – the final estimate of Q3 GDP is unlikely to cause any drama in the market, while Q3 core PCE prices are also likely to remain subdued.

Canada – retail sales are out today and there is a risk of a weaker number on the ex-autos category after the sharp 1.7% m/m gain seen last month. Overall BoC rate hike expectations will likely remain intact.

Diary
Data/event BST Consensus*
IT Consumer confidence (Dec) 08.30 108.5
GB MPC minutes (Dec 7-8 meeting) 09.30
GB CBI retail trades survey (Dec) 11.00 -35 last
US GDP (Q3, final) saar 13.30 4.3%
US Core PCE prices (Q3) saar 13.30 1.2%
CA Retail sales (Oct) m/m 13.30 0.3%
CA Retail sales ex-autos (Oct) m/m 13.30 -0.4%
NZ GDP (Q3) q/q 21.45 0.3%
JP Tertiary index (Oct) m/m 23.50 0.7%
JP All-industry index (Oct) m/m 23.50 0.5%
JP Trade balance (Nov, sa) 23.50 ?807bn

Latest data Actual Consensus*
NZ Current account (Q3) -NZ$5.1bn -NZ$4.8bn
US ABC consumer conf (w/e Dec 18) -11 -13 last
FR H’hold consumption (Nov) m/m 1.1% 0.5%
* Consensus unless stated