It was a relatively quiet session on the data front, with US housing data being the major release. September and October building permits beat estimates, while the Case-Shiller home price index also showed strong signs of improvement, coming in ahead of consensus. Unfortunately consumer confidence was a bit of a disappointment and resulted in a reversal of USD gains.
This mixed data was responsible for the disjointed moves in the major FX pairs. A standout was GBP/USD, which gained ground despite BoE Governor Carney saying 7% unemployment was not an automatic trigger to tighten policy. There seems to be a general consensus that the UK economic recovery will continue, and as a result, every piece of data will have to impress to keep the pound bid. Later today we have revised GDP and business investment due out.
Cable bullish price action
The price action on GBP/USD is getting increasingly intriguing after trading back above 1.62 overnight. The pair traded as high as 1.624 which is just shy of October highs at 1.626. Cable rallied to a high of 1.638 and that will be the next level to look out for once October highs are cleared. For the rest of the week we have the BoE financial stability report along with BoE Governor Mark Carney’s speech to look out for on Thursday. Once again, any hawkish comments or further signs that the UK economy will continue to improve rapidly will push the pair higher.
AUD continues to slide
The AUD remains one of the big movers as it tracks commodities at the moment. AUD/USD dipped below A$0.91 for the first time since September, with traders continuing to favour selling it into strength. Some better-than-expected housing data released locally hasn’t really given AUD/USD the kick we’d expect to see and I suspect this is still to do with the bearish risk tone particularly with commodities struggling. Near term support is at the overnight lows in the A$0.909 region. A break of this will leave it open for a potential move back towards A$0.90. Tomorrow’s capex numbers will be the key reading for the AUD this week and could be a binary event.