US markets once again managed to set new record highs yesterday, before slipping back into the close, helped in part by retail stocks on reports that sales volumes over the holiday weekend had surged, though progress remained limited ahead of this week’s key US Senate vote on tax code reform.

These retail reports estimated that Black Friday sales posted a 17% rise from a year ago, however the big question with respect to this increase in sales is likely to be whether they have been achieved at the cost of margins. If they have been then the recent rally in retail stocks could well be rather short-lived.

A lot of traditional US retail stocks have had a tough time of it this year with names like JC Penney, Nordstrom and Macy’s all suffering significant declines year to date, so while the rebounds being seen here in recent days are welcome, they are a mere bagatelle to where they started this year.

The US dollar, which had earlier posted fresh two month lows yesterday found some support to post its first positive day in a week as traders covered positions ahead of today’s testimony by Fed chief elect Jerome Powell to the Senate Banking Committee later this afternoon, and this week’s Senate tax code vote.

This morning’s Bank of England stress test results could prompt some movement in UK banking stocks on the open. Last year’s tests saw Royal Bank of Scotland come up short, and it could well do so again, given that it still has to settle its multibillion dollar dispute with the US Department of Justice. Despite last year’s stress test failure the bank has still seen the best share price performance year to date outperforming all its peers, its share price up over 20%.

There has been rising concern in recent months over the build-up in consumer credit levels, which prompted the Bank of England to insist in the summer that UK banks set aside extra capital in response to concerns about an increase in consumer indebtedness.

According to Bank of England figures it is estimated that total UK credit card debt is around £67bn, while car finance is just below £60bn, across the whole of the UK, which means that aside from RBS we can expect to see attention to also fall on Lloyds Banking Group particularly since it recently took on the MBNA credit card business and Barclays as well.

Later in the day markets will get to assess Jerome Powell in his new role as Fed chair elect when he testifies to the Senate Banking Committee later today, as part of the confirmation process.

It seems likely that he may have to field some questions about inflation and why on official measures it has continued to come up short of expectations.

Recent comments by departing Fed chief Janet Yellen that Fed officials are puzzled as to why its key measure of assessing prices had remained so weak this year are likely to be a topic for discussion, given her previous confidence that weak inflation was transitory.

It seems likely that he’ll be asked if he shares this concern among some on the FOMC that something else might be at work with respect to the weak inflation outlook.

He may also get asked about banking regulation, given his previous life as an investment banker, particularly since some on the committee would like to see some of it rolled back.

EURUSD – ran out of steam at 1.1965 yesterday before slipping back. A test of the 1.2000 level remains a possibility while above the 1.1870 area. A fall below 1.1850 retargets the 1.1720 level. 

GBPUSD – remains well supported and on course for the 1.3450 area, while above the 1.3280 area. Only a move below 1.3120 opens up the prospect of a retest of the range lows at 1.3030.

EURGBP – currently struggling to get above the 0.8960 area and 100 day MA. A break here targets a retest of the 0.9020 area. While below the risk is for a move back towards the 0.8820 level. We could see a test of major support near the November lows at 0.8735.

USDJPY – has fallen through the 111.80 area as well as the 200 day MA and looks set to for a move down towards the 110.30 area. This negative development could see a revisit of the range lows. We need to see a move back above 112.00 and the 200 day MA to stabilise.

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