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No help for sterling

Plenty of Strong Economic Data Overnight from Down Under, the Far East and the UK with differing outcomes for the respective currencies. Starting with last first, we got some very strong UK numbers with the British Retail Consortium reporting like-for-like retail sales +2.8% year-on-year in September with total sales at 4.9% y/y (the components showing the best improvement since early 2008) and the RICS house price balance at +22 in September (against a consensus of +16) versus +10 in August. This figure was the highest since May 2007 and goes along with the increase in approved mortgages for homebuyers (as opposed to remortgages) reported by the Council of Mortgage Lenders. Did this help Sterling? Not a bit of it. The market preferred to concentrate on the big red numbers and the shortening time scale to do something about them for UK plc and kept up the selling pressure. The long term outlook for interest rates doesn't help, neither do the recent short term projections for Sterling going into next year's General Election. According to figures from the Chicago futures exchange, net short Sterling positions on the exchange jumped to a record level last week. Elsewhere, reaction to positive data was more predictable with reasonably strong numbers from New Zealand underpinning the Dollar and leading to forecasts of the currency out-performing on both a regional and global scenario by 7% next year. The Australian NAB business survey for September showed that confidence and conditions slipped a little from a strong recent showing although companies remain very upbeat and the results are still consistent with a robust recovery. Kiwi/Aussie cross trading might very well become a favourite trade for 2010. Equity markets remained buoyant with UK, European and US indices continuing to set new highs as strong data continued to argue for increased risk appetite. Added to this factor of course is the seemingly endless supply of cheap money from global central banks which needs to be invested somewhere because it doesn't appear to be filtering through to the economy ….. yet. The game here however is to try and work out where the correction / profit taking comes. This week, as mentioned yesterday, we are due to get a raft of corporate and financial institutions 3rd Qtr earnings numbers from the US and given the recent pick up in activities, these should support the risk trade and send equity markets higher - probably at the expense of the US Dollar. Reporting today we have Intel and Johnson & Johnson. Elsewhere, the Canadian Dollar looks to be a strong contender for hot money with expectations that the stronger commodity markets will lead to monetary tightening from the Bank of Canada stimulating a rush for yield.

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