Pound Sterling Looks for a Correction

Analisi Giornaliera - 11/11/2015

Markets Quiet Ahead of UK Data With Many Financial Centers Experiencing Partial Closures for Holidays

After the Pound Sterling dived to a 6-month low on a dovish Bank of England inflation report and strong payroll numbers, today’s labour data from the UK could be critical to offering support to the British Pound. Average earnings are expected to accelerate to 3.20% and the unemployment rate is expected to remain steady at 5.40%.

Kiwi Recovers After RBNZ Report

During the overnight trading session, the Reserve Bank of New Zealand released its financial stability report, which is published semiannually. The report highlighted the increase in financial risks, noting that there were strong headwinds from the downturn in dairy prices and higher housing prices in Auckland. China's economic headaches were mentioned, being cited as having a major impact on New Zealand's economy in terms of lower commodity prices. The RBNZ noted that there was less scope of monetary policy easing which could offset the rise in funding spreads. On the exchange rate, the report noted that the weakness in NZD was important to acting as a buffer for the economy. The Kiwi dollar reacted strongly to the fact that the report mentioned less scope for monetary easing. NZDUSD closed with a doji candlestick pattern at 0.6528 with a bullish close today potentially leading to a short-term correction.

BoJ Comments Send Yen Volatility Higher

Bank of Japan board member Harada's comments hit the newswires in early Asian trading today, sending the Yen on a volatile path. Harada stated that the BoJ does not see a need to ease monetary policy now merely to quicken the pace of inflation. He further remarked that the BoJ would not want to exhaust its monetary policy tools given that inflation has been low on account of the underlying weakness in energy prices, even if there is a delay in reaching the inflation target. He also downplayed the risks of missing the inflation target, noting that it would not hurt the Central Bank's credibility. The Yen is currently trading lower at 122.90 after trending in a tight range for two sessions. Prices have formed a short-term reversal pattern, but a strong bearish close today is needed to confirm further downside weakness.

UK Jobs in Focus

The monthly jobs numbers from the UK are due today at 09:30 UK local time. The median consensus estimates are for the average hourly earnings to have increased to 3.20%, up from 3.00% previously. The forecasts remain the same as of last month. On the unemployment rate, expectations are for no change to the number, estimated to hold steady at 5.40%. A pick up in wages could potentially help the UK's inflation to stabilize which is anticipated to remain at or below 1.00% into 2016 according the BoE's quarterly inflation report. Despite the strong selloff after the report, markets continue to remain optimistic, expecting a BoE rate hike around the second quarter of 2016. GBPUSD closed with a doji candlestick pattern yesterday, coming off Monday’s bullish close. GBPUSD ended the session at 1.5110 and is currently pushing higher ahead of the jobs numbers due later.

US Markets Partial Closure

Certain US financial markets are partially or fully closed on account of Veterans Day. Liquidity is likely to stay thin with no major economic releases scheduled during the US trading session. ECB President Mario Draghi is due to speak later in the evening at the BoE's open forum in London but besides his speech, the markets are likely to take a breather for the remainder of the session. Focus will be on whether Draghi will shed light on reports of the ECB considering taking the deposit rate further into negative territory as reported by Reuters earlier this week. EURUSD closed yesterday at 1.0720 but not before testing a new 6-month low at 1.0674. Yesterday’s US wholesale inventories recorded a 0.50% increase for the month, beating estimates of 0.00% with gains coming from the non-durable goods sector.