20140117

Good morning,

Risk taking was subdued and the US dollar advanced on back of relatively weak Q4 earnings from the US. Earlier, the December US CPI and weekly job figures were released, but no real market action occurred as the figures were in line with expectations. A better than expected Dec Philly Fed outweighed a weak Jan NAHB Housing Market index. Overall, the expectations are still positioned towards a stronger US Dollar with a bullish pressure on interest rates, which most likely would support a stock market correction. Dow Jones and the S&P both closed in red, while the Nasdaq managed a small gain. Overnight, Asian stocks followed the relative negative environment and the Nikkei and Australian ASX in currently in negative whereas the Hang Seng i up 0.7%.

Earlier in Europe, the December CPI figures were released, showing a drop in the yearly Core CPI to 0.7% from 0.9% prior. The lower inflationary pressure should allow for the ECB to consider additional measures to stimulate the economy, but that could be a dual-edged sword, given the debt burden on the European member states. Spanish 3-year bond auction came out at 1.595% vs. 2.182%, so investors demanded a lower premium to hold Spanish government assets. EURO Stoxx 50 closed down 0.6% for the day.

Today, we should see some action in the Sterling at 09:30GMT, when the UK December Retail Sales are released. Expectations are for a modest increase in the yearly figure, which could trigger a rally in Cable. This pair has been under pressure in the past week and yesterday, we saw a close below the 50-day SMA as well as testing the 38.2% Fibo in recent wave. A weak Retail Sales figure could be a catalyst for additional selling.

Later today, the US December Housing Starts and Building Permits will receive market's attention and the week will end with December Industrial Production and January Michigan Consumer Confidence. All but the Michigan Confidence are expected to drop from prior figures, which could send the USD on the offer, given the speculation about timing of additional tapering measures from the Fed.

Have a nice weekend!