Cable Comes To Life

Market Drivers for October 7, 2015

  • GBP through 1.5300 as better data and M&A help
  • Risk-on fuels rallies in Commodity dollars
  • Nikkei 0.75% Europe 1.11%
  • Oil $49/bbl
  • Gold $1149/oz

Europe and Asia JPY: BOJ stays on hold EUR: GE IP -1.2% vs. 0.3% GBP: IP 1.0% vs. 0.3%

North America CAD: Building Permits 8:30

Cable came to life today, breaking through the 1.5300 barrier in early London session trade as combination of renewed M&A news and better Industrial Production data helped to fuel a rally in the pair.

Anheuser-Busch Inbev SA (NYSE:BUD) renewed its offer to buy SABMiller (LONDON:SAB) this time for 104 Billion dollars as the beer giant made another play to consolidate its business. The massive deal, if consummated, would merge the number 1 and number 2 players in the industry to create a massive conglomerate that would dominate the beer business. More importantly from an FX point of view, such a transaction would create massive capital flows into cable and could support the currency for weeks to come.

The pound also benefited from better economic data as UK Industrial Production and Manufacturing Production both beat their mark printing at 1.0% vs. 0.3% and 0.5% vs, 0.4% respectively. Both of these gauges have turned up after sliding lower for the past few months suggesting that UK manufacturing may be benefiting from improved demand and better currency exchange rate.

Cable, which has been badly beaten over the past few weeks dropping 8 out 9 days in a row, appears to have finally found a bottom near the 1.5100 level and could begin to stage a recovery rally towards the 1.5500 level over the next few weeks.

Elsewhere, the news for the euro was not nearly as favorable with German Industrial Production sliding down -1.2% versus 0.3% and that may be only the start of bad news for the engine of Europe as the VW (OTC:VLKPY) troubles are sure to weigh on data in the months to come. The euro drifted towards the 1.1225 level as the bad economic news and better risk appetite drove it lower.

Better risk flows also helped to move the commdollars with the Aussie clearing .7200 and kiwi rising above .6600 and the loonie testing the key 1.3000 support. Commodity dollars have been the stars of the show this week so far as commodity prices have firmed markedly with crude trading near the $50/bbl level this morning. If equities see further gains during the North American session today, that rally could extend as short covering will begin to kick in in earnest.

With no data due on the US calendar today, risk flows are likely to dominate trade once again. With currencies appearing to come out of their torpor, the challenge to recent range highs and lows could very well be in play as the day proceeds.

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