Daily Forex Fundamentals – November 12, 2013

London Session Recap

  • U.K. CPI falls short of expectations at 2.2% vs. 2.5% expected
  • Chinese 3rd plenum plans disappoint

Updates from China’s 3rd plenum failed to impress traders, as the plans focused on land and social security reforms instead of more aggressive strategies to boost economic growth. This led to further losses for the Australian dollar, as AUD/USD slipped below .9350 while AUD/JPY was unable to budge from the 93.00 handle.

Furthermore, U.K. data turned out weaker than expected, as the annual CPI for October landed at 2.2%. This was lower compared to the 2.5% estimate and the previous month’s 2.7% reading, suggesting that the BOE has room to ease if needed. The core CPI, along with medium-tier inflation indicators, also came in below consensus. These bleak figures were enough to push GBP/USD to the 1.5900 area and GBP/JPY down to 158.00.

There are no reports due from the U.S. economy for the rest of the New York session so price action of major currency pairs could be driven mostly by risk sentiment. Expect stronger moves, as U.S. traders return from their Veterans’ Day holiday.

Asian Session Recap

  • Fed official Fisher’s speech sparks taper talks again
  • Japanese consumer confidence weakened in October
  • U.K. CPI report to show weaker inflation of 2.5% vs. 2.7% previous

The U.S. dollar drew support from comments from Dallas Fed President Fisher who emphasized that quantitative easing “can’t go on forever,” reviving talks of a Fed taper before the end of the year. EUR/USD broke below its consolidation at 1.3400 while USD/JPY edged past 99.50.

Part of the yen’s weakness to its counterparts can also be attributed to the weak data from Japan earlier today. Consumer confidence slipped from 45.4 to 41.2 in October yet the Nikkei still managed to post some gains, both providing support for USD/JPY. Meanwhile, news of the PBOC conducting reverse repo operations weighed on AUD and NZD pairs in the past few hours.

Up ahead, we have the U.K. annual CPI release which could show a slowdown in inflation, confirming the BOE’s stance that they have room to ease further if necessary. Core inflation is expected to slip from 2.2% to 2.0% in October while other inflation indicators, such as PPI and RPI, are also likely to show subdued price pressures. Weaker than expected results might spark downside breaks for GBP/USD and GBP/JPY.

U.S. Session Recap

  • Quiet trading conditions on Veterans’ Day
  • Australian NAB business confidence down from 12 to 5
  • Japanese tertiary industry index down by 0.2%

After last week’s volatile moves, major currencies were off to a slow start on Monday since several banks were on holiday and there wasn’t much in terms of economic data. EUR/USD cruised around the 1.3400 handle while USD/JPY slowly edged above the 99.00 mark.

Earlier in today’s Asian session, Japan printed a weaker than expected tertiary industry activity figure of -0.2% for September versus the estimate of a 0.2% uptick. This was also weaker than the previous month’s 0.6% increase. This release sparked a small yen selloff, particularly against the U.S. dollar and the British pound.

Australia’s freshly released NAB business confidence report reflected a drop in optimism, as the index slipped from 12 to 5 in October. This could mean further Aussie weakness for the rest of the day, as AUD/USD already slipped below the .9350 level while AUD/JPY stayed below 93.00.

Only medium-tier reports from Japan are left to be released for the rest of today’s Asian session, as consumer confidence and preliminary machine tool orders are due. Japan is also set to hold its 30-year bond auction in the next few hours so expect a little more volatility among yen pairs such as EUR/JPY and AUD/JPY.

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