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Euro, Pound, Aussie and Gold gain on weak US data

Poor US retail sales in September combined with Walmart’s profit warning sent USD lower against the majority of G10 and EM currencies as the prospects of a rate hike from the Fed in the near term were scaled back.

Investors were clearly left unhappy with lower sales forecast although the heavy investment in e-commerce to face the increasing competition had to be done for the business continuity in the long-term. From a strategic point of view, Walmart does what it has to do. The fast changing consumer habits and the necessity to modernise and adopt the business could soon attract investors back on board.

Still, investors said the last word. Walmart lost $20 billion dollars as its stock tumbled by 10% yesterday. Hence, the US’ biggest employer’s market cap fell below $200 billion and boosted up the opinion that the Fed could no longer consider hiking its rates any time before March 2016.

Looking at the US sovereign bond activity, the probability for a December Fed rate hike fell to 27%.

The US will report its September inflation figures today (at 1330 BST). Given the cheap energy prices and meagre retail sales, the expectation of a deeper deflation on the month seems feasible. Given the ‘data dependency’ of the decision to hike rates, each notch is taking the Fed one step away from the policy normalisation. Credibility, or the lack thereof in the  Fed’s ability to pull the trigger in 2015 is also starting to become a problem in itself.

EURUSD rallied to 1.1495. The appreciation in the euro increases the level anxiety at the heart of the ECB. Should the euro continue its advance past 1.15 against the US dollar, the ECB will certainly be tempted to intervene, either verbally or concretely, to announce plans to expand its QE program. Draghi is certainly ready to do whatever it takes, which is the major downside risk to positive trend currently building in the euro.

In the UK, GBPUSD reversed gains on the good jobs data as anticipated. The 3% y/y progress in wages has especially revived the BoE hawks again, and broad based USD weakness has sent Cable to 1.5497. 

The Australian economy lost 5,100 jobs in September; mostly full-time jobs.  Little reaction to jobs data was seen in AUDUSD. AUDUSD is rather bid on the back of soft USD and a minor sense of stability in base metal prices. On the technical front, the 0.7380 remains the key level (Fib 38.2% retrace on May-Sep decline). Below 0.7380, the mid-term bias remains negative and be another opportunity for AUD-bears to sell the top betting for a setback to 0.7195 (minor 23.6% retrace) before 0.7107/0.7042 (Fib 50% and 61.8% retrace on Sep 29-Oct12 rise). If however the AUDUSD successfully breaks above the 0.7380, then the pair will step in bullish consolidation zone and extension to 0.7500/30 could then be considered.

Finally, gold stretched to $1190. Although the yellow metal price action presently trades very close to the overbought territory, the weakness in USD has whetted the appetite for gold. The daily pivot is at $1165, which should distinguish between a further advance to $1200 and correction down to $1155/50 area. Weekly support remains at 1135/40.