Last week ended on an interesting note, as the University of Michigan Consumer survey dropped for the second straight month (66.0 vs. 71.0 exp, 70.6 prior), however, the market reacted in selling USD. The move that was also interesting, considering the risk APEC's weekend meeting posed to short USD positions. The markets reaction of selling the greenback, anecdotally suggests that the tight correlation between soft USD data and risk appitite might not only be shifting, but reversing. While basing conclusions on a 2nd tier data point, on a slow Friday is always treacherous, we will continue to monitor and given the US important event calendar this week, we should have plenty of opportunities to judge what corrolation is correct. Last week, a core driver of USD rally, was concerns that the Chinese authorities might opt of a sudden revaluation of the CNY, bowing to EM and developed countries pressure, at this weekend APEC summit. We continued to believe that China is content with the current status/effectiveness of their exchange rate policy and any one-off is doubtful. Not surprisingly, the APEC communiqué, issued yesterday, failed to mention currencies while the chairman of the APEC summit, Singapore’s Prime Minister, Lee Hsien Loong, stated that there was no extended discussion on FX pricing. The removal of an FX event risk in Singapore has allowed the risk correlated fx trade to remerge at the start of this trading week. The EURUSD is trading nearly a figure above Friday's highs, while Gold built new at time highs at $1132.00oz. Adding to the optimism was Japanese GDP growth data, which surprised the market significantly to the upside, printing at 1.2% vs. 0.7% q/q exp. The USDJPY crept ever closer to that critical 89.30 support, while JPY cross found their sea legs, trading higher across the board. Eurozone CPI final estimate (should support that energy effects are causing inflation trend to slope upwards) should take a back seat to the US retail sales today as the key event. October's Advanced Retail Sales is expected to rebound to 0.9%, after a dismal prior reading of -1.5% (due primarily to the end of the “cash for clunkers” scheme). Just as important as the release, traders will be focused on the markets reaction. Given recent relationships, a strong surprise release would equate to a weaker USD. However, as we had stated earlier there are early signals that the winds could be shifting. In the EM space, USDZAR crashed below 7.3800 support today. The Rand strength has been making SA officials very uncomfortable and this morning South African trade Minister Davies says a strong ZAR is a killer for the economy and the AFC led government must talk it down. On the event risk front, the meetings between US President Obama and China’s President Hu could reenergise the CNY story and cause some random FX volatility. However, baring anything major we expect risk correlated trades to continue to appreciate this week.

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Today's Key Issues (time in GMT):

00:00 EUR BIS , ECB & World Bank conference on Portfolio and risk management for central banks and sovereign wealth funds
08:00 EUR Nowotny Speaking
10:00 EUR HICP Last Flash -0.1 Y/Y Exp 0.3 M/M -0.1% Y/Y 10.00 EU HICP Index Last 107.91 Exp 118.21 10.00
11:30 USD Tumpel Guggerel Speaking
13:30 USD Retail Sales Last -1.5% M/M -5.7% Y/Y Exp 0.9% M/M -2.0% Y/Y 13.30
13:30 USD US Retail Sales (Ex Autos) Last 0.5% M/M -0.3% Y/Y Exp 0.0% M/M 0.2% Y/Y 13.30
13:30 USD US Empire state Last 34.57 Exp 27.00
15:00 USD Business Inventories Last -1.5% M/M -13.4% Y/Y Exp -0.9% M/M -13.6% Y/Y
17:15 USD Bernanke Speaking at the Economic club of New York
18:15 USD Fisher (FOMC Non - Voter) Speaks on the Economic Outlook
23:15 JPY Kohn ( FOMC Voter) Speaks on Federal reserve policy changes
23:50 AUD Tertiary Industry Index Last 0.3 Exp 0.1
00:30  RBA Board meeting Minutes

The Risk Today:

EurUsd The bearish double top formation scenario seems to be loosing momentum, and the pair is again heading towards 1.50 levels. A break above 26thOct High at 1.5062, for further bullishness targeting 1.52 –1.53 area. Support for pullbacks is located around the 1.4810/50 area. 

GbpUsd After the 300 pips fall from 1.6842 the pound was able to find support at the uptrend line which rejected further fall in the pair. This indicates that further bullishness could be seen in the near term testing 1.6842 resistance (,9thNov High), and a break above could lead the pair to a test for 1.70 area. 

UsdJpy The USDJPY pair tested the upper part of the declining triangle, were strong resistance there rejected further appreciation. We expect further pair consolidating within the triangle back to 90.05. Failure to hold above 89.30 will be looking for support at 88.85 

UsdChf Markets seem to be demanding a test of parity. USDCHF pair had made the inverse formation to that of EUR/USD pair “Double Bottom”. Again the Swiss Franc strengthened upon reaching resistance level at 1.0190 diminishing the double bottom bearish reversal scenario, 1.0034 would be a critical key support, where a break below could send the pair below 1.00 psychological support. 

Resistance and Support

EURUSDGBPUSDUSDJPYUSDCHF
1.5100 1.7400 93.50 1.0290
1.5062 1.7041 91.50 1.0200
1.5046 1.6900 90.05 1.0190
1.4971 1.6702 89.48 1.0076
1.4910 1.6400 89.30 1.0034
1.4810 1.6260 88.85 1.0000
1.4626 1.6200 88.00 0.9890
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot