Merkel and May to influence the EUR and the Pound

Earlier in the Day:

Key stats out of Asia were limited to New Zealand’s October trade figures this morning. While the numbers were worse than had been forecasted, the trade deficit narrowed from NZ$1,143m to NZ$871m month-on-month, while largely unchanged year-on-year. The Kiwi Dollar’s response was relatively muted, moving from NZ$0.68888 to NZ$0.68904 upon release, before easing to NZ$0.68786 at the time of writing.

Elsewhere, the U.S Dollar managed to recover some of its recent losses against the Yen, up 0.21% to ¥111.45 at the time of writing, while the Aussie Dollar was down 0.04% at $0.7622.

Trading volumes were on the lighter side with U.S and Japanese markets having been closed for Thanksgiving on Thursday, leaving little direction for the markets, particularly with a lack of economic data to digest.

In the equity markets, it was a mixed day. The ASX200 closed out the day in the red, while the Nikkei and the Hang Seng were in positive territory at the time of writing. For the CSI300, a 0.45% decline through the morning was perhaps better than some would have hoped for, following Thursday’s rout.

While there will be some concerns over the sharp reversal seen in the Chinese markets this week, we’ve yet to see any particularly troubling data out of China to lead to investors running for cover. It could be a different story next week, should private sector PMI figures disappoint.

The Day Ahead:

Following some pretty impressive stats out of the Eurozone on Thursday, it’s a quieter day on the data front, with economic data limited to Germany’s Ifo Business Climate Index numbers. While the numbers tend not to have a particularly significant impact, the markets will be keen to assess whether Merkel’s inability to form government has had any impact on business confidence and whether businesses see slower growth in the coming months.

For Merkel, there’s been plenty of noise over what’s next, but with the CDU standing behind the Chancellor in the wake of Sunday’s breakdown in talks, there will be some comfort in the level of support she has received. It’s still unclear what lies ahead and whether the SDPs will ultimately agree to reform the grand coalition, but things will become clearer through today and the weekend on which path the German Chancellor will need to take.

At the time of the report, the EUR was flat at $1.1851, with any downside through the day dependent on whether the German elections have had an impact on the economy.

Across the Channel, there are no material stats scheduled for release this morning, with the Pound having eased back through the Asian session. With the Dollar steadying, the markets will be looking towards the EU negotiating table to assess whether there has been any progress on Brexit talks. Theresa May is due to meet EU Council President Tusk in Europe today and there could be some news on how much the UK government is willing to pay the EU. While the size of the bill will be relevant, how the EU negotiators respond will be key for the Pound. If the British Prime Minister can get trade talks scheduled for next month, it would be a positive.

At the time of writing, the Pound was down 0.14% at $1.329, with noise from Europe and Tory party woes likely to be the key drivers through the day.

Across the Pond, it’s a half day for the U.S and trading volumes will be on the lighter side following yesterday’s holiday.

Economic data out of the U.S is limited to November prelim private sector PMI numbers. Forecasts are Dollar positive and with Capitol Hill likely to be on the quieter side, the Dollar could certainly do with a boost following the FOMC meeting minutes released on Wednesday.

At the time of writing, the Dollar Spot Index was down 0.08% at 93.148, with any upside hinged on today’s stats and whether there is any evidence of a pickup in price pressures across the manufacturing and services sectors.