US markets have continued to make new record highs today after today’s Q3 GDP revision to an annualised 5%, the best performance since 2003, helped by increases in personal consumption and increased investment.
It wasn’t all good news with durable goods orders for November posting a surprise slide of 0.4% excluding transports, which confounded expectations of a rise of 1%.
This part of the US economy remains a concern with domestic and consumer numbers like retail sales and durable goods lagging behind the broader economic data, though we have seen some evidence of some pick up in the Q4 data on the consumer side with retail sales for Q4 on course for their best quarter this year.
What this data does do is raise expectations that the Fed might find it much more difficult to resist calls for tighter policy
as we head into 2015 irrespective of the deflationary effects of the recent falls in the oil price.
The performance of the US dollar would also appear to reflect that with the US dollar index posting its best levels since 2006, and the EURUSD
and USDJPY looking to test and potentially break some very important technical levels.
Against the Euro we’ve seen a break below the 200 month moving average for the first time since late 2003. We’ve also broken below trend line support at 1.2220 from the 2010 lows at 1.2040. If we close below this key moving average level of 1.2220 at the end of December
then the likelihood of a technical move below the 2010 lows is likely to increase sharply with the potential for a further move towards 1.1600 and the 2005 lows.
With the European Central Bank coming under increasing pressure to embark on further easing
measures the policy divergence between the central banks
is only likely to increase in the coming months.
If you also look at pricing in political risk then the potential upside could well be limited
particularly if the economic data continues to disappoint in a year which has the potential to see elections in Greece and Portugal as well as Spain return an increasing presence of anti-euro parties which could well impact on social cohesion in these countries.
Turning our attention to the Japanese yen we also look set to retest the highs of this year at 121.85
and here again we are looking at test of a key resistance level with the currency set to close in on trend line resistance at 122.60 from the 1989 highs at 160.30.
A break through this important level could well see a rapid retest of the 2007 highs at 124.20 and possible further gains towards 130.00.
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