US markets took a little bit of a pause yesterday ahead of today’s Thanksgiving holiday weekend with the Dow and S&P500 closing slightly lower, even if the Nasdaq did post a new record high, helped by  a similar record close for Amazon.

There was nothing in last nights Fed minutes to suggest a US rate rise next month was any less likely than it was at the beginning of the week, and based on the discussions that were being had Fed officials did nothing to row the market back from that impression. A December rate move remains a done deal in the eyes of the markets. It’s what comes after that which is becoming less clear. There were positive views about the jobs market as well as general economic activity across the board, however there was some concern about the lack of inflation, and there appeared to be a number of diverging views on this.

The lack of consensus on this combined with the fact that after December the FOMC will have an altogether different look and feel to it, makes it that much more difficult to assess the potential future path of future rate rises in 2018, and it is this that has seen the US dollar slip back.

While markets may look at pricing the prospect of two to three rate rises next year, the ability to judge a consensus is becoming much more difficult given how different the FOMC will look when it looks to make its next rate decision.

This lack of visibility or clarity with respect to next year’s policy outlook along with some discussion amongst Fed officials about market valuations saw yields and the US dollar slip back sharply, with the US dollar index hitting a one month low.

European markets had a more mixed day with the FTSE100 managing to close higher despite a rally in the pound, however the German DAX slid sharply after two successive days of gains, and we look set for a broadly lower open today.

Yesterday’s UK Autumn budget didn’t offer up too much in the way of surprises though the Office for Budget Responsibility’s pessimistic view of growth prospects out to 2022 did prompt a sharp intake of breath and a bout of the vapours across social media, bemoaning the weak outlook for the economy.

Sure they’re not great looking numbers but they are forecasts and looking back over the last few years the forecasting record of the OBR, like the Bank of England hasn’t exactly been stellar, missing on the upside as well as the downside, yet every time we afford them an importance they scarcely deserve. 

The pound did slip back initially on the GDP downgrades but soon recovered and the Chancellor did loosen the purse strings slightly announcing a couple of measures to deal with the housing market, along with some small tax changes for small businesses.

Today’s second iteration of Q3 GDP is expected to show the UK economy grew at 0.4% unchanged from the first iteration. Business investment is expected to slow to 1.4% from 2.5% on an annualised basis.

Later in the morning the latest CBI retail sales figures for November are expected to show a modest recovery to the dreadful October numbers of -36, coming in at 5.

The recovery in the euro area with respect to manufacturing and services PMI’s in Germany and France has seen France outperforming Germany on some measures, however the German economy continues to remain the powerhouse of Europe with expectations that Q3 GDP will be confirmed at 0.8%, annualised at 2.8%.

The latest preliminary manufacturing and services PMI’s for November  are expected to show economic activity remains at decent levels of 60.3 and 55 respectively.

France manufacturing and services PMI’s are expected to moderate slightly to 55.9 and 57 respectively.

EURUSD – continues to push higher, heading back towards the October peaks just below 1.1880 and previous right shoulder. If we break through here 1.2000 could come back into play. Support remains back down near 1.1720. 

GBPUSD – the pound has rallied for seven days in a row and has traded back towards 1.3340, with a break potentially retargeting a test of the 1.3450 area. Support remains back down towards the 1.3150 area. Only a move below 1.3120 opens up the prospect of a retest of the range lows at 1.3030.

EURGBP – the euro appears to have found some support in the past couple of days but we need to see a move back through 0.8900 to argue for a retest of 0.8940. While below the risk is for a move 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 through 112.00 to stabilise.

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