ECB to decide on stimulus next week. ECB Chief Mario Draghi spoke yesterday and mentioned the “encouraging resilience” of the post-Brexit Euro area; however he commented that stalling recovery would be a huge risk to the Euro Area, underscoring the bank’s commitment to supporting growth ahead of the Bank’s policy decision on December 8. The bank will decide on whether to extend their bond buying programme, widely criticised for creating bond and property bubbles. Draghi also commented on the “sustainable” level of Italian debt, and highlighted concerns on the sustainability of Greek public debt.  

Looking ahead. US GDP figures are out later today, expected to rise to 3.0%from 2.9% annualised with personal consumption also set to rise to 2.3% from 2.1%. Consumer confidence is out later in the day expected at 101.5 from 98.6, a notable gain. The US has had a run of strong data out, further reaffirming the prospects of a December rate hike and assuring markets that whilst his policies remain unclear, Donald Trump is inheriting a strong economy on an upward trajectory. The probability of a rate hike remains at 100%. Japanese industrial production figures are out later tonight, expected to drop to 0.0% MoM and -1.3% YoY. This will follow Japanese unemployment figures released overnight showing no change in the unemployment rate at 3% but a welcome rise in the jobs to applicants ratio. USDJPY trades at the 112.3 level following highs of 113.8 seen last week.  

 

Oil volatile ahead of meeting. The price of oil has moved lower overnight as investors doubt whether OPEC will be able to reach an agreement on an output cut during tomorrow’s meeting in Vienna. There is large uncertainty surrounding the deal going into the last 24 hours meaning oil could be susceptible to large price swings. It appears that there are still disagreements between members over how much each country should cut, as well as whether Russia will participate. Russian Energy Minister Alexander Novak has confirmed today that he will not be attending the OPEC meeting on Wednesday, as Russia does not take part in OPEC meetings. According to news reports, the meeting between OPEC and non OPEC members is still being discussed.
Dollar regains ground – worries for the euro? The US dollar has regained some of its ground as US treasury yields move away from their recent highs, whilst the Euro is susceptible to pressure as investor’s eye immediate political risks in Italy. The possibility that Prime Minister Matteo Renzi steps down if there is a ‘No’ vote this weekend has weighed on the single currency, whilst the woes of Italy’s largest lender, Monte dei Paschi di Siena has furthered added to concerns. Meanwhile US equity markets finally broke their post-US Presidential Elections rally yesterday, as technical retracements ensued, with markets posting their worst daily performance in nearly a month.

 

FX Commentary.

EURUSD. The euro rallied late last night after falling from a high of 1.0685, and whilst it stays around the 1.06 level it has the potential to move back above 1.07. It looked to move above this level overnight but has since settled around 1.06. A move below 1.4060 could well be the catalyst for a move towards parity, which could all be kicked started by the political votes from the continent over the coming months, starting with this weekend’s Italian referendum.

 

GBPUSD. Sterling has struggled to make a move above the 1.25 level, however the recent attempts have not knocked the currency much lower meaning we could see a further attempt to move above 1.25 towards 1.2585. Immediate support lies at 1.2410 and 1.2330 in extension, if the pair can maintain these levels, we could see a move higher into the 1.28 and above region, whilst a break below 1.23 will likely see a move back towards its post Brexit lows of 1.21.