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The British Pound may turn volatile ahead of a report showing house prices rose at the fastest pace in over 2 years in December despite a weak foundation behind the outcome as thin pre-holiday liquidity conditions persist.

Key Overnight Developments

• Australian Rate Outlook Dims as Private Sector Credit Falters
• Euro Recovers Above 1.43, British Pound Consolidates Gains

Critical Levels

The Euro corrected higher in overnight trading, adding 0.2% and recapturing the 1.43 level against the US Dollar. The British Pound consolidated US-session gains in a narrow 50-pip range below 1.61. We remain short EURUSD at 1.4881 and short GBPUSD at 1.6648.

Asia Session Highlights

Australia’s Private Sector Credit grew at an annual pace of 0.8% in November, the least in nearly 17 years, threatening to undermine a self-sustaining economic recovery after the boost from government stimulus abates and arguing against another interest rate increase when the Reserve Bank of Australia holds their next policy meeting. Indeed, the softer tone of recent economic data has forced an aggressive reduction in the market’s RBA yield forecast, with a Credit Suisse gauge of priced-in rate hike expectations showing traders now see a 41% chance of additional tightening in February as compared to 80% just two weeks ago.

Euro Session: What to Expect

The Nationwide Building Society is set to report that UK House Prices rose at the fastest pace in over two years, adding 5.6% in the year to December. The outcome may not be as encouraging as the headline figure suggests however, after analogous data from Hometrack released earlier this week showed that shallow supply rather than recovering demand were behind the rebound in home values. That said, a potential for knee-jerk volatility remains amid increasingly thin liquidity in the final day of trade ahead to the New Year holiday. We will continue to hold our long-term positions but would certainly lean against taking on any new exposure in this environment.

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