Currency market. Weekly review (25.11 – 29.11.2013)

The euro popped to its best level in a month against the dollar on Thursday.

Earlier the euro was supported by news from Germany, when Chancellor Angela Merkel reached a coalition agreement with the Social Democrats. The pact put her on track for a third term leading Europe’s biggest economy until 2017. It also means Merkel will continue her European policies including a rejection of joint liability for euro-area nations’ debt.

Standard & Poor's on Friday revised up its outlook on Spain to stable from negative, and affirmed its BBB sovereign-debt rating.

S&P said it sees improvement in Spain's external position as growth resumes, and expects GDP will contract by 1.2% in 2013, but then slowly recover, with 0.8% growth in 2014 and 1.2% in 2015, helped largely by robust exports.

S&P also said Spain's government will broadly meet its budgetary deficit target of 5.8% of GDP in 2014.

EURO

The euro managed to rise after the economic activity in Spain expanded 0.1% inter-quarter and contracted at an annual pace of 1.1%, bettering Q2’s -0.1% and -1.6%, respectively. Still in Spain, consumer prices gauged by the flash HICP rose 0.3% on a yearly basis for the month of November, surpassing the median and previous print at 0.0%.

The euro holds stable after of key releases in the EMU: flash consumer prices (0.9%) and the unemployment rate during October (12.1% exp.). 

Earlier released data showed German retail sales unexpectedly dropped in October, indicating that business has remained slack ahead of the Christmas season.

Retail sales declined 0.8% from September and sales volumes hit the lowest level since December 2012, falling short of economists' forecasts for an increase of 0.5% on the month.

However, the overall trend remains slightly positive, with German retail sales in the first 10 months of the year up 0.2% on the year.

EUR/USD consolidates below session highs on $1.3620 (61.8% Fibo of the $1.3830 - $1.3300 decline). Above resistance placed at $1.3650 (channel line from Nov 7). Further resistance is around $1.3700 (Oct 18 highs). Initial support is around $1.3560/40, then - at $1.3480 (50% Fibo of Thursday’s lows), $1.3400/90 (Nov 13 lows) and $1.3300/90 (Nov 7 lows).

POUND

The pound strengthened for a third day against the dollar as signs the U.K. economy is improving boosted demand for the currency before the central bank releases its outlook for financial-sector stability.

BOE announced key decisions on bank capital standards:

- Banks must meet minimum 4% pillar capital in 2014

- Banks must meet minimum 4.5% pillar capital in 2015

- 2014 pillar tier capital ratio will need to be 5.5%

- 2015 pillar 1 tier capital ratio will need to be 6%

- Total pillar 1 capital remains at 8 %

GBP/USD retreats from session highs on $1.6370. Strong resistance comes at $1.6410 (channel resistance line from Nov 12). Initial support is around recent lows on $1.6280, then - at $1.6230/20 (channel line from Nov 12 and earlier broken resistance line from Apr 24’2011) and $1.6130 (Nov 25 lows).

YEN

The upcoming US employment report may provoke dollar buying versus the yen to the 103 if the recent average gain in employment remains close to 200k.

USD/JPY holds below session highs on Y102.60. Above resistance comes at Y102.90/00 (channel resistance line from Nov 7), extending to Y103.70 (May 22 high). Initial support comes at Y101.50 (channel line), then - at Nov 15 highs on Y100.40.

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