06.11.2014 - The victory of the Republican party leads to increased dollar
The price of euro yesterday again dropped below important level of 1.25 and continues to consolidate in this range. Negative for the market has become the data on reduction of retail sales in the euro area by 1.3% in September, which is 0.7% worse than the forecast. It is also worth noting the growth of dollar quotations amid buying by Japanese traders, as well as in connection with the Republican victory in the elections in the US. This event resulted in the growth of speculation about more support for business from the government. Today will be issued a statement of the ECB on monetary policy (12:45 GMT). Moreover it is worth paying attention to the data on industrial orders in Germany (07:00 GMT). We maintain a medium-term negative outlook for the euro.
The volatility of the British pound rose strongly yesterday, but after a sharp decline, the price went back up to previous levels around which continues to consolidate now. The reason for the fall was the news on reducing the service PMI for October to 56.2, compared with an expected 58.5. Today, the central event of the day will be a statement of the Bank of England on monetary policy (12:00 GMT). The special attention should also be paid to the data on industrial production in the country (09:30 GMT). We maintain a positive medium-term outlook for the British Pound and expect increased volatility today.
The Japanese yen continues to fall against the strengthening of the US dollar in relation to the speculations regarding the earlier increases in interest rates after the victory of the Republican Party in the elections in the US. It is worth noting that the main reason for the rapid decline of the yen is the decision to increase the volume of purchases of government securities to 80 trillion yen. The fall has stopped after the publication of minutes of meetings of the Bank of Japan that showed a positive impact of a weaker yen on the economy. Rising volatility is expected tomorrow after the release of data on the US labor market. Our outlook remains negative in the medium term.
The price of the Australian dollar fell, despite the data on the labor market in the country. For example, the unemployment rate remained at around 6.2%, while the number of employed increased by 24.1 thousand in October, compared with an expected growth of 20.3 thousand. The reason for the fall was the decline in iron ore prices to five-year low. In the coming days, the dynamics of trading will depend on the statistics on the labor market in the US and data on China's trade surplus. We maintain a medium-term negative view on the Australian dollar and recommend holding short positions.
The New Zealand dollar continued its decline against the strengthening of the US currency and following the Australian dollar. Data on the growth of employment in the country, which have been published earlier this week was not able to change the negative mood of investors regarding the New Zealand currency. Currently there are no drivers that could lead to the trend change and sustainable growth of the New Zealand currency, which is under the pressure of weak data on the trade balance of the country and the risk of slowing growth of the Chinese economy. We maintain a medium-term negative view.