The Euro continued to march higher on Friday especially against the Yen which has been losing ground against most major currencies. Tepid growth and weak inflation expectations has generated headwinds for the Yen providing traders with an opportunity to short the Asian currency. The stronger than expected unemployment also lifted the Euro, as yields increased relative to the dollar and the yen.
Euro zone unemployment unexpectedly fell to 12.1% from 12.2% in September, while euro zone preliminary consumer prices accelerated to 0.9% year over year from 0.7% in September. Analysts had expected Euro zone CPI to remain unchanged at 0.7% last month. The ECB meets next week, and the data will likely give the bank leeway to wait until 2014 to change policy.
German unemployment data for November showed a fourth consecutive monthly increase. Unemployment increased by 10K to nearly 3 million, though the rate remains at 6.9%. Import prices were lower than expected, at -0.7% month over month compared to expectations of -0.3%.
German retail sales were weak, falling 0.8% month over month in October instead of rising 0.5%, as expected. This reflects a cautious consumer which could allow the ECB to ease rates in the coming months. September was revised to -0.2% from -0.4% originally. French consumer spending was also weak, falling 0.2% month over month after a 0.1% drop in September, while PPI contracted 1.4% year over year in October.
On Thursday investors absorbed confidence data that was in line with expectations. Eurozone’s consumer confidence data for November came in at e -15.4. Economic confidence rose to 98.5, slightly higher than the 98.0 expected, while the services and industrial indicators beat estimates at -0.8 and -3.9, respectively.
The Euro continued to climb relative to the Yen on Friday notching up a 52-week high and poised to test the 5-year highs at 160.00. Support is seen near the 10-day moving average at 137.00. Momentum on the currency pair is strong with the MACD (moving average convergence divergence) index printing at its highest levels in the past 6-months. The trajectory of the MACD is also positive, reflecting acceleration in momentum. The relative strength on the other hand is flashing a warning sign to traders by printing at 71, which is above the 70 overbought trigger level and could signal that a short term correction in the currency pair is imminent.
Next week the markets will be watching:
Monday – December 2, 2013 – Chinese HSBC PMI (145 GMT), UK PMI (945 GMT), US ISM PMI (1500 GMT)
Tuesday – December 3, 2013 – RBA Interest Rate Decision (330 GMT), UK PMI Construction (930 GMT)
Wednesday – December 4, 2013 – Australian GDP (0030 GMT), EU GDP and Retail Sales (1000 GMT), US ADP Employment (1315 GMT), CAD Interest Rate Decision (1500 GMT), US Beige Book (1900 GMT)
Thursday – December 5, 2013 – BOE Interest Rate Decision (1200 GMT), ECB Interest Rate Decision (1245 GMT), US GDP (1330 GMT)
- Friday – December 6, 2013 – US Employment Report (1330 GMT), CAD Employment Report (1330 GMT)