Since the multi-month run higher in the dollar ended in March of this year, the single currency has always struggled to pull off a sustained move above the 1.15 level against the dollar. We’ve seen this May, June, August, and September, together with yesterday. The reversal has sometimes been assisted by comments from ECB leaders on the currency. Yesterday, we didn’t have direct comments on the currency, but were reminded by Nowotny that the central bank was clearly missing its inflation target, bringing to the fore expectations of further possible QE from the ECB. In a similar manner, EURGBP has also struggled for a strong foothold above the 0.74 level, with yesterday’s euro move seeing the cross move back below this key level. We’re going to see the final print of CPI data in the Eurozone today at 09:00 GMT, with confirmation of -0.1% YoY reading. The US data is confined to industrial production at 13:15 GMT and Michigan confidence data at 14:00 GMT, neither major releases in terms of dollar impact. In the wider picture, we have seen stocks recover well from the end of September lows, the major US index up nearly 8%. The recovery in emerging market indices has been even stronger at over 11%. The pace of recovery in emerging market currencies has been the strongest seen this year, but this must be remembered that this has come after a sustained period of weakness, characterised by limited and marginal periods of correction. The GDP data from China early next week will be crucial in setting the tone for both EM and developed markets, with move below the 7.0% level anticipated. Retail sales and industrial production data are also released at the start of the week. Weaker data across the board could well test the recent emerging market rally.
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