EURUSD unimpressed with German CPI; USDCLP hits new ATH

Summary:

• Mixed German CPI data send Euro lower

• USDCLP at new record high as protests intensify

• Pound pares gains after election poll

• US stocks near all-time peak in quiet session

Preliminary German CPI data for November was released at 1:00 pm GMT. The reading can be considered mixed as the headline measure came in at 1.1% YoY - below expected 1.2% YoY - and harmonized consumer price growth turned out to be 1.2% YoY while market expected 1.1% YoY. However, both month-over-month metrics disappointed with headline coming in at -0.8% MoM (expected -0.6% MoM) and harmonized at -0.8% MoM (expected -0.7% MoM). The EURUSD dipped in the initial reaction but has held above prior support around 1.0990 and the market remains in its prior range. 

The situation in Chile is not calming down and investors are clearly losing patience. Protests that started in October have turned violent with at least 23 reported dead and above 2000 injured. These protests have intensified this week as authorities chose to confront the protesters and human rights organizations alarm about a growing number of violations. Uncertainty about the situation and severity of impact on the economy exerts a downward pressure on the currency that is down another 2% today. USDCLP is nearly 14% up last month and was trading close to 840 today – the highest level in history.

After a solid day of gains for sterling there were further gains late last night, when the release of an eagerly anticipated election poll pointed to a sizable majority for the Conservatives. This would give the Conservatives a majority of 68, with the bulk of the gains coming at the expense of the main opposition party, Labour. There are obvious caveats which should be mentioned with this result, such as that it was conducted before the recent slight narrowing of the Tory lead in other polls and that 30 of the Conservative seats are predicted have a winning margin of less than 5%. However, it’s quite clear that they are in a commanding position at present and it would take a fairly dramatic swing to see them fail to pick-up a majority. The relative reduction in uncertainty under a Conservative government is seen as greater than that under other possible outcomes and therefore this latest development has seen further gains in sterling, with the pound moving up to its highest level against the Euro in just under 7 months in response.  Since then sterling has pulled back a little but remains fairly well supported across the board even if it trades a little lower on the day. 

There was a gap lower in US indices overnight and news that president Trump had signed the Hong Kong bill caused a quick spate of selling. The move was fairly measured however and only amounted to around 15 points from high to low but it still represented a relatively rare occurrence of late. Since then the markets have ground back higher in a steady fashion and with both the New York Stock Exchange and NASDAQ closed for the Thanksgiving holiday the current price action has a fairly sleepy feel. One thing to possibly note is the move in the US 10-year bond which while not dramatic has been pretty clear. The government bond market trades inversely to stocks around periods of risk-off flows, such as that seen on the Hong Kong news, and there was a gap higher seen overnight.