Friday AM: GBP Pensive | EUR: PMI Day | CAD: Inflation, Retail Sales | USD: PMIs | ZAR: Ratings Review

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Look at the leaderboard on Friday, November 23 it is actually the Euro that is outperforming rivals but this could all change later in the morning when PMI data is released.

Weakness in Chinese equities (Shanghai Composite was seen over 2.0% down) gives the market a slight risk-off tone this morning, which is helping the safe-haven Yen and ensuring the Australian Dollar is one of the worse performing currencies.

It is important to emphasise however that moves in currency markets are relatively contained and all could change into the weekend.

GBP

The data calendar is empty leaving the currency to trade in familiar territory as markets digest the latest Brexit developments.

At present, negotiations with the E.U. are going well with the Brexit deal set to get approved by European leaders at a summit on Sunday.

However, the big problem lies with the U.K. parliament where it remains clear the government does not command the numbers required to vote the deal into law, thus the transitional period that the Pound expects to come into force in 2019 is not guaranteed.

Here lies the big risk for Sterling: What will markets do when they start to fully discount this outcome?

We believe markets are in wait-and-see mode at present, neither willing to bid or bet against Sterling until more clarity emerges.

Should the domestic political situation deteriorate (for instance, with the resignation of the Prime Minister) and the odds of a 'no deal' Brexit rise, we would expect Sterling to correct sharply and more sustainably lower.

We expect recent ranges to be respected into the weekend.

EUR

November PMIs are released.

German PMIs are out at 08:30 G.M.T. and markets are looking for a reading of 52.3 on the manufacturing PMI with the composite forecast to come in at 53.2.

"A downside miss to consensus in Germany would be worrying, suggesting that growth prospects in the euro area are on a weaker trend and not as closely related to auto sector volatility as previously thought," says a note from TD Securities.

Eurozone manufacturing PMI is out at 09:00 G.M.T. with a figure of 52.0 being forecast. The services PMI is forecast at 53.6 while the composite is forecast to read at 53.0.

Concerning the outlook for EUR/USD, technical analyst Karen Jones at Commerzbank says:

"EUR/USD is trying to recover from its 20 day ma at 1.1368 very near-term. Once the current November high at 1.1500 has been bettered on a daily chart closing basis, we will become bullish again and look for gains to 1.1607/22 (2018 downtrend and 16th October high). Currently dips lower will find initial support somewhere around the 20 day ma at 1.1369 and are likely to now be well supported around 1.1300."

CAD

The Canadian Dollar commands focus at 13:30 G.M.T. when a slew of data is released.

Inflation numbers are forecast to deliver a headline CPI 0f 2.2% year-on-year; a reading that automatically justifies the Bank of Canada's current policy of raising interest rates. However, the month-on-month movement will be important as it will show near-term momentum for prices.

Markets are forecasting a reading of 0.1%, up on the previous month's -0.4%.

TD Securities is above-consensus for CPI and looks for headline inflation to rebound to 2.4% year-on-year on strength in food and energy, the latter of which is expected to print above 8% year-on-year.

Much attention will be paid to measures of core inflation where TD Securities see scope for a rebound to an average of 2.0% year-on-year, up 0.1pp from September.

Retail sales are out at the same time with monthly sales forecast to have risen by 0.1%.

Retail sales should prove more downbeat with TD Securities looking for a flat print for the headline index due to a drag from weaker motor vehicle sales. Ex. auto sales should see a 0.3% gain while volumes should print at or slightly above the nominal print owing to a weaker seasonally adjusted consumer prices.

USD

Trading conditions in the U.S. will likely remain thin considering Thanksgiving was held the day prior.

Nevertheless, manufacturing PMI data is released at 14:45 G.M.T. with markets forecasting a reading of 44.8.

The services PMI is forecast to read at 55 and the composite PMI at 56.

These would all be consistent with robust growth in the U.S. economy and if met or bettered should prove supportive of the U.S. Dollar.

However, given the ongoing decline in stock markets it could be that traders will be increasingly wary of any declines which we would imagine would hurt the Dollar.

ZAR

S&P is due to review South Africa's BB (stable) rating for foreign currency denominated sovereign debt.

The local currency rating is BB+.

Fitch has a foreign currency rating of BB+ while Moody's has Baa3.

S&P cut the rating by one notch in November of last year in the wake of a negative MTBPS and political turbulence.

"Since then the political landscape has improved considerably with Ramaphosa's election, although growth remains weak, with negative consequences for the fiscal position. We think that S&P will keep the rating and outlook unchanged," say TD Securities.

The review will come a day after an interest rate rise was delivered by the South African Reserve Bank; a proactive move designed to keep inflation in check by supporting the currency.

The markets clearly liked the decisive and forward-looking move and rewarded the SARB with the stronger Rand they desire. Recall, a stronger Rand makes imports, such as fuel, cheaper and is ultimately supportive of economic growth.

SARB policy is one positive factor ratings agencies will take into account when assessing the country's outlook.