Global risk appetite was slightly more fragile on Thursday amid near-term reservations over the economic outlook.

Global risk appetite was slightly more fragile on Thursday amid near-term reservations over the economic outlook.

US equities rallied to post slight gains on fiscal hopes, but futures dipped on Friday after the US Treasury announced that several Fed support schemes would not be extended. Asian equities were mixed with expectations of regional out-performance providing net support.

After initial gains, the US dollar gradually lost traction to post net losses amid a lack of confidence in the outlook. EUR/USD rallied from 1.1820 lows to near 1.1880 despite a lack of positive EU developments, but was held below 1.1900.

Sterling recovered losses triggered by news that a coronavirus positive test triggered a suspension of EU trade talks. Commodity currencies gradually regained ground as the US dollar faded.

The Euro was held in tight ranges ahead of Thursday’s New York open with a more defensive tone surrounding risk continuing to limit potential currency support.

Initial US jobless claims increased to 742,000 in the latest week from 711,000 previously and above consensus forecasts of 710,000. Continuing claims declined to 6.37mn from 6.80mn the previous week and below expectations and there was also a net decline in pandemic assistance claims for the latest week.

The Philly Fed manufacturing index declined to 26.3 for November from 32.3 in October, although this was above market expectations of 22.0. There was further strong growth in new orders, while unfilled orders increased at a faster pace. There was also a stronger pace of employment growth and prices increased at a faster pace. Companies remained optimistic over the outlook, but market concerns were focussed more on the services sector.

Existing home sales increased to an annual rate of 6.85mn for October from 6.57mn and above expectations as the housing-sector data remained extremely strong.

The dollar continued to gain an element of support in early US trading as risk appetite faded. Commodity currencies also faded and EUR/USD retreated to lows just below 1.1820. There was, however, a gradual reversal with the US currency retreating and the pair strengthened to around 1.1880.

There were concerns over a record number of German coronavirus cases and the EU was unable to resolve the long-term budget dispute with Poland and Hungary. The Euro, however, was resilient and EUR/USD traded around 1.1875 as the dollar was unable to secure significant support amid US economic concerns.

Overall risk conditions were slightly more fragile during Thursday which continued to provide an element of yen protection. Although USD/JPY moved above the 104.00 level with a peak around 104.30, it was unable to sustain the gains as yields tended to drift lower.

Equities rallied late in New York following reports that Republican Senate majority leader McConnell and Democrat minority leader Schumer would resume coronavirus support package talks. The dollar, however, was unable to make any headway as uncertainty prevailed.

After the New York close, Treasury Secretary Mnuchin stated that support programmes from the Federal Reserve would not be extended beyond the end of 2020. The corporate credit, municipal lending and Main Street lending programme will not be extended. Other support measures will continue, but the move triggered fresh concerns over the outlook for early next year. There was an angry response from the Federal Reserve and equity futures moved lower, although the overall reaction was relatively muted.

There were reports that Pennsylvania, Georgia and Michigan would certify their Presidential election result by Monday.

The Chinese yuan held firm after the central bank held its lending rate steady with USD/JPY around 103.80 as US sentiment remained fragile.

The UK CBI industrial orders index declined to -40 for November from -34 previously and marginally below consensus forecasts of -39. Export orders also declined, although overall output declined at the slowest rate since September 2019. Overall confidence in the economic outlook remained fragile, especially with unease over the services sector amid coronavirus restrictions. The UK economy also remains dependent on services to an important extent.

Sterling dipped briefly following reports that Brexit trade talks had been halted due to a positive coronavirus case for one of EU Chief Negotiator Barnier’s team.

The UK currency was also hampered by pressure for a correction with the less confidence tone surrounding risk appetite also acting as a drag on the currency. GBP/USD dipped to the 1.3200 area while EUR/GBP secured limited gains to 0.8960.

UK consumer confidence edged lower for November although October retail sales was stronger than expected with a 1.2% increase while there was a narrowing in the government borrowing requirement. Markets were on high alert for Brexit comments with GBP/USD around 1.3275 against the weaker dollar with GBP/EUR just above 1.1200. Position adjustment will also trigger choppy trading during Friday.

Economic Calendar

Expected Previous
07:00 EUR German PPI (Y/Y)(OCT) -0.70% -1.00%
07:00 EUR German PPI (M/M)(OCT) 0.10% 0.40%
07:00 GBP Retail Sales ex-Fuel (Y/Y)(OCT) 5.90% 6.40%
07:00 GBP Retail Sales ex-Fuel (M/M)(OCT) 0.10% 1.50%
07:00 GBP Retail Sales (Y/Y)(OCT) 4.20% 4.60%
07:00 GBP Retail Sales (M/M)(OCT) 0.10% 1.40%
08:15 European Central Bank President Lagarde Speaks
13:30 CAD Retail Sales Ex Autos (M/M)(OCT) 0.90% 0.50%
13:30 CAD Retail Sales (M/M)(OCT) 0.40%
13:30 CAD New Housing Price Index (M/M)(OCT) 1.20%
15:00 Euro-Zone Consumer Confidence(NOV) ########
22:00 NZD Employment Change (Q/Q) -0.80%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.