Catalonia, Austrian Elections and German Coalition Talks Trails the Euro

The GBP was first in line for the release of economic data for the week. Rightmove Housing Permit Index (HPI) showed improvement as it rose to 1.1% in October from -1.2% the prior month. This signals investors’ appetite for buying houses in the UK is growing given lower prices, a spin off from the uncertainty generated by Brexit. It is pertinent to note that the Sterling performed best amongst its pairs in the prior week. This comes on the back of the news that the EU could give a 2 year Brexit extension to UK under the conditions that the latter will fulfill all obligations as a member country, however, UK will be required to give up its voting rights. It was reported that the draft paper submitted by European Council President Donald Tusk indicates that talks on free trade could start as soon as December. This redeemed the pound from the sell off brought about by Brexit negotiations deadlock. During the Asian section today, the GBP traded flat against the dollar on the back of low volumes. We expect the GBP will have a noiseless day, the release of CPI and PPI numbers will shake up the currency.

AUD was headed south against the dollar during the first 4 hours of trading despite positive data coming from China during the section. Usually AUD feeds off positive news from China given Australia’s strong trade relations with the Asian giant. China's Consumer Price Index (CPI) was in line with analyst expectations rising 1.6% y/y while Producer Price Index (PPI) surpassed forecast by 0.6 percentage points, rising to 6.9% in September. The People’s Bank of China Governor Zhou Xiaochuan, at a seminar in Washington on Sunday, however highlighted huge corporate debt as a challenge. S & P recently downgraded China to A+ on the back of its huge debt profile. Though Monetary Policy minutes from the Reserve Bank of Australia will come in tomorrow it is expected to be uneventful given the effect of low wage rate growth and high level of household debt on interest rate. GDP numbers from China later this week will however impact the AUD more. Analysts expect a 6.8% rise in China's GDP, while People’s Bank of China Governor Zhou Xiaochuan has predicted a 7% rise in GDP.

The dollar suffered a big sell off last week on the back of dovish FOMC minutes and soft CPI numbers. It dropped to 1.247 against the Canadian dollar, also trading low against the Australian dollar to close at 0.789 the prior week. Though expectations of a rate hike for December still holds as reiterated by the Fed's head, Janet Yellen on Sunday, it is dependent on economic data to be released before December. The dollar's week will be trailed with volatility given the decertifying of the Iranian deal by President Trump and the continued face off with North Korea.

The Euro shone the prior week as Catalonia eased its reins on declaring Independence hence, putting investors at ease. The currency gained over a 100pips rising to 1.188 against the dollar. But investor's breathe will be held on the Euro till 10am this morning, when Catalonian president Carles Puigdemont is expected to give a clear yes or no to the declaration of Independence to the Spanish government. Catalan television station TV3, which is controlled by the regional government, said Puigdemont will not give Rajoy (the Spanish Prime Minister) a clear ‘Yes’ or ‘No.’

This may result in tensions in Catalonia as the Spanish government is ready to sideline the authorities in Catalonia and take over the administration of the region if independence is declared. Elections results in Austria which is tilting in favour of the Freedom Party and coalition talks in Germany will weigh heavily on the Euro this week.

In other news, New Zealand's CPI q/q data will be released later in the day. Analyst forecast show a 0.4% rise. While Canadian m/m CPI data is expected later in the week.

On the commodities side, Gold rebounded in the prior week trading above the 1.300 psychological level. This comes on the back of the volatility in the market in the course of the week, as the yellow metal is seen as a safe haven. Continued sell off on the dollar will aid Gold's upward trend. OPEC remains bullish on oil demand, predicting a healthy growth of crude demand over the next 5 years. Iraqi forces however moved to take over oil fields in the northern city of Kirkuk from Kurdish forces on Sunday, pushing up crude prices amid reports of deadly clashes. Brent Crude stood at $57.81 rising by 1.12%.