Thursday AM: GBP Nervous | USD: Retail Sales | EUR: Robust | AUD: Blowout Jobs Data

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Foreign exchange report and preview for Thursday, November 15.

GBP

Political intrigue grips Westminster and the Pound is seen treading water at familiar levels as traders adopt a wait-and-see mode as to whether or not Theresa May will ultimately succeed in getting her Brexit deal through parliament.

The first source of uncertainty to overcome is a vote of no confidence: we believe Conservative party Brexiteers might make a move soon.

We argue that the move can't come soon enough as May will win the vote and with it overcome a source of uncertainty weighing on Sterling.

Ultimately though a vote of no confidence is a sideshow and it is the passing of Brexit through parliament where the real test lies.

"The biggest hurdle the agreement faces is the “meaningful vote” in the Commons, which would likely be between the EU Council in late Nov and Christmas, if the EU Council meeting passes without problems. The prospect for this vote and the noise from the backbenches should be where attention focuses as it drives the risk between orderly exit/disorderly exit/second referendum," says Sue Trinh, Head of Asia FX Strategy with RBC Capital Markets.

At 09:30 G.M.T. we will be watching retail sales data to see how the U.K. consumer is holding out.

With wages rising faster than inflation it could be a good end to the year for consumer spending.

Retail sales are forecast to have grown 0.2% month-on-month in October, overturning the previous month's 0.8% decline.

We would expect any impact from the data to be short-lived as focus remains on political developments.

AUD

The Australian Dollar was an outperformed overnight on blowout labour market data.

Employment increased 32.8K in October, well ahead of the 19.9K markets had been expecting.

The participation rate nudged higher once more to record 65.6%, up from 65.5% previously while the unemployment rate unexpectedly stayed at 5.0% and did not rise to 5.1%.

Concerning the outlook for the Australian Dollar, the data certainly helps.

"We don’t think the employment report has any implications for the RBA, other than reinforcing the Bank’s bullish outlook," says economist David Plank with ANZ.

The Australian Dollar will remain tied to global sentiment going forward: expectations for improved relations between China and the U.S. over trade has certainly helped the currency of late.

We are wary however that Trump, weakened at home after mid-term losses, looks to escalate tensions with China as an exercise in strength. This could well reverse the recent improvement in Aussie Dollar performance.

CAD

Politics appear to be back in the pipeline for the Canadian Dollar.

In the U.S., Congress is calling for changes to be made to the new trade deal between the U.S., Mexico and Canada.

New Jersey Republican Bill Pascrell, the presumptive next head of the influential Ways and Means Trade subcommittee, is the latest member of the newly reconfigured House of Representatives to warn that it’s not about to rubber-stamp the U.S.-Mexico-Canada Agreement (USMCA).

"Democrat demands to make changes to the USMCA trade agreement weighed on CAD," says RBC Capital's Trinh.

It appears that until USMCA is signed and ratified it will continue to be a lingering source of uncertainty for the Canadian Dollar and we will watch Congress for further developments on the matter.

USD

In the U.S. we get a number of data points to chew over.

Core retail sales are out at 13:30 G.M.T. and markets are looking for month-on-month growth of 0.5% in October.

Headline retail sales are forecast to show 0.6% growth.

Watch the release of the Philadelphia Federal Reserve's Manufacturing Index out at the same time; markets are forecasting a reading of 20.7.

EUR

The Euro bumbles along without any major news events or data releases to fix on.

"Frankly, I’m perplexed by the good performance of the EUR. Given the problems with Italy, I would’ve thought it would be lower. But it looks like what’s happening is that USD is trading as a safe-haven currency, and EUR is trading as the opposite of USD," notes Marshall Gittler, a foreign exchange strategist with ACLS Global.

Gittler says Chinese officials have reportedly outlined some concessions that they could make to the US to resolve the trade dispute, and while these concessions fall short of what the administration is demanding, they’re a start. "It may be that this move triggered a “risk on” sentiment that depressed USD and boosted EUR."

Italy refused to capitulate on its budget plans and reaffirmed its excessive 2.4% budget target for next year based on an unrealistic 1.5% growth forecast (the market is looking for 1.0%).

Italian stocks fell 0.8% yesterday (vs a 0.5% fall for the Euro Stoxx index) and Italian bond spreads over Germany widened out.

"CDs rates are not back to their recent peak, but they’re still well above the average for the last few years, which suggests that the market sees increased risk of Italy defaulting or perhaps leaving the euro. I think this risk should be negative for EUR in coming days," adds Gittler.

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