Overnight Headlines

*US stocks eased last week to break a string of gains

*USD comes off 16-month highs at 95.26

*China data beat expectations as spending, power supply picks up

*Gold is consolidating just below five-month highs near $1860

US equities closed up on Friday, but lower on the week. This broke a five-week winning streak as US inflation spooked markets. Tech led the way on Friday. Asian markets are mixed this morning, despite strong Chinese macro data. The Nikkei is in the green after softer than expected GDP reinforced the case for more aggressive fiscal stimulus. US and European futures are firmer.  

USD rose for the third straight week to new cycle highs last week. DXY is currently trading just off the new top below 95. EUR is trading just above Friday’s low (1.1432). GBP has bounced back more strongly. Sterling is now trading above previous support of 1.3411. Rate sensitive currencies are rebounding after touching one-month lows. USD/CAD is on the 50-day and 100-day SMAs around 1.2535.

Market Thoughts – Busy data week across the globe

A quiet start to the risk calendar today picks up Tuesday with US retail sales and UK jobs data. There will also be a range of Fed speakers to watch out for and any hints on their next policy moves.

Investors will focus on US consumer behaviour with rising incomes and household wealth expected to underpin the data. Sentiment dropped to a decade low in a report last week. Numbers will be lifted by the strong increase in new vehicle sales.

UK job numbers are set to push the BoE closer to a December rate hike. Key for policymakers is how the employment market is looking after the end of furlough. Early evidence points to no major spike in redundancies. Wednesday’s UK inflation data is only going one way for now. It is forecast to top out above 4.5% in springtime next year.

Chart of the Day – EUR/GBP capped by 200-day SMA

This pair temporarily dropped below the bottom of the longstanding 0.8450 – 0.8719 sideways trading range last month. The BoE stepped up its hawkish rhetoric, only to pull the “unreliable boyfriend” card out at its last MPC meeting. The bank didn’t deliver on its guidance for a potential November rate hike. Much now depends on this week’s data.

EUR/GBP peaked above the 200-day SMA at 0.8594 a few weeks ago after the BoE meeting. Prices have since consolidated above the 50-day and 100-day SMA at 0.8530 and 0.8516. If this support gives way, 0.8472 is next support.