• USD: Higher, profit-taking ahead of this weeks US economic data, JPY cross gains
  • JPY: Higher, Finance Minister Fujii says he is opposed to intervention then backpedals, repatriation flows
  • EUR: Lower, German CPI falls 0.4%, ECB's Nowotny sees no need to raise interest rates anytime soon
  • CHF: Lower, pressured by threat of intervention selling in cross trade to JPY
  • GBP: Lower, BOE remuneration rate cut speculation, Hometrack house prices rise most in two years
  • CAD and AUD: AUD & CAD higher tracking commodities and stocks, Canada's job insurance claims fall

Overview     
The main focus of Monday's trade was confusion over Japan's JPY policy and uncertainty about the global economic outlook as equity markets decline in Asia. JPY traded at an eight month high versus the USD and firmed in cross trade in reaction to a statement from Japan's Finance Minister Fuji that the Japanese government would not intervene in currency markets. As the JPY rallied and the Nikkei closed sharply lower Fujii backpedaled and said that he would refrain from commenting on whether the government would intervene in foreign exchange markets. Fujii said his recent comments that on the Forex markets have been distorted. Fuji went on to say that he told the US Treasury Secretary Geithner that he had never said he approved of a strong JPY. JPY cross gains boosted USD demand versus European and dollar bloc currencies. The dollar bloc currencies turned higher in US session tracking firmer US equity market trade.  USD ended last week's trade slightly higher as the Fed took a more up beat outlook towards the US economy. The trade will be monitoring this week's US economic calendar to gauge the US economic outlook with focus on Tuesday's release of consumer confidence, Wednesday's final US Q2 GDP, Thursday's ISM manufacturing index and jobless claims and Friday's unemployment and nonfarm payroll. USD upside was limited by strong US equity market gains. JPY consolidated overseas gains.

Today's US data:
No major US economic data was released in today's trade. The Chicago Fed's Activity Index dropped to 0.90 from 0.54 last month.

Upcoming US data:
This weeks US economic calendar includes the September 29th release of July Case Shiller House Price Index expected at -14.3 compared to -14.3, compared to -15.4 last month. September consumer confidence will also be released on September 29th expected at 56.5 compared to 54.1 last month. On September 30th September ADP employment will be released expected at -212k compared to -298k last month. Final Q2 GDP will also be released on September 30th expected at -1.1% along with September Chicago PMI expected 51.2 compared to 50 last month. On October 1st initial claims for the week ending 9/26 will be released expected at -525k compared to -530k last week. August personal income and consumption will also be released on October 1st expected at 0.1% and 1% respectively. August construction spending, September ISM index and pending home sales index will also be released along with September domestic auto sales on October 1st. Construction spending is expected unchanged  at -0.2%, the ISM index is expected 54 compared to 52.9 last month, pending home sales are expected at 99.1 compared to 97.6 in July. On October 2nd September unemployment will be released expected 9.8% compared to 9.7% with nonfarm payrolls at -188k compared to -216k last month. August factory orders will also be released on October 2nd expected at 1.1% compared to 1.3% last month.

JPY
JPY traded at an eight month high versus the USD and surged in cross trade supported by a statement from Japan's Finance Minister Fujii that he opposes intervention in foreign exchange markets. JPY was also supported by safe haven flows sparked by a sharp decline in the Nikkei. The Nikkei was pressured by a selloff in exporter shares in reaction to the new Japanese government's apparent tolerance of a stronger JPY. JPY rally stalled in reaction to new comments made by Japan's Finance Minister Fujii attempting to clarify his position on intervention. Fujii said that he never favored a strong JPY. Fujii went on to say said that he was making general remarks about intervention not Japans intervention policy. Fuji has been inconsistent in his statements about intervention in Forex markets. Confusion over Japan's intervention policy is likely to continue as the new Japanese government plans to transition Japan's economy from dependence on exports and focus on boosting domestic demand. This shift in focus means that the new Japanese government will rely less on a weak JPY and intervention to boost export competitiveness. Investors will debate at what level Japan's finance minister and the new government would consider intervening. According to former vice Finance Minister Sakakibara if USD/JPY trades below 80 it could trigger intervention. JPY was also supported by repatriation flows in front of Japan's fiscal year-end on September 30th. Seasonal repatriation flows in front of Japan's fiscal year should continue to boost demand for the JPY. USD traded   as low as 88.24 Monday .This is the lowest level since January when USD/JPY traded at 87.10. EUR/JPY traded below 132, GBP/JPY traded below 143 and AUD/JPY traded will below 7700.

This week's Japanese economic calendar includes the September 29th release of August CPI expected at -0.3% compared to 0.3% last month. On September 30th August industrial output will be released expected at 1.9% compared to 2.1% last month. Housing starts and construction orders for August will also be released on September 30th.  Housing starts are expected to fall 0.8% compared -0.4% last month. Construction orders are expected to fall by 24.5% compared to -42.8% last month. On October 1st the September Tankan Index will be released expected at -35 compared to -48 last quarter with CAPEX spending expected at -11%. August retail sales will also be released on October 1st expected at 0.4% compared to -0.2% in July. On October 2nd August unemployment and household spending will be released. The unemployment rate is expected to rise to 5.8% from 5.7% and household spending is expected to rise by .3% compared to a 1.3% decline last month.

Key technical levels to watch in USD/JPY include support at 88.24 the September 28th low with resistance at 91.63 the September 24th high.

EUR
EUR initially traded higher after the announcement of German election results and the Merkel victory. Merkel's conservative party won a parliamentary majority with the pro-business free Democrats. The election results were widely expected and the impact of the election news quickly faded. The Merkel coalition government is expected to seek tax cuts to boost growth. EUR was also supported by report that EU August leading index rose 1.8%. EUR reversed overseas gains pressured in cross trade to the JPY and GBP and in reaction to a statement from ECB President Trichet that EU 2009 growth will be very negative and 2010 could be slightly positive. EUR/GBP surged above 9300 after Merkel election victory and in reaction to report that the BOE is considering cutting its remuneration rate on commercial bank deposits. EUR/GBP then sold of sharply as BOE Governor King says that his weak GBP comments were not a signal that BOE wants a weak GBP. EUR/JPY selling was attributed to speculation that the new Japanese government is abandoning weak JPY policy. German CPI was reported at

-0.4%. The weaker German CPI may have also added additional pressure to the EUR. ECB's Nowotny said EU recession is over but growth will remain sluggish and there is no need to raise interest rates anytime soon. He went onto say that inflation price growth will remain below the ECB's 2% target for the next two years. EUR traded to new highs for the year last week but ended the week lower as the global equity market turned down. This price action may be a sign of technical reversal for the EUR.EUR direction will key on risk sentiment in the direction of equities.

On September 29th EU business climate will be released expected at -2.01 compared -2.21 last month. EU money supply is also expected to be released on September 29th expected at 4%. On September 30th German unemployment rate will be released expected at 8.4% compared to 8.3% last month. On October 2nd EU PPI will be released expected at -0.6% compared to -0.8% last month.

The technical outlook for the EUR is mixed as EUR fails to hold last weeks rally 4700. Expect EUR support at 1.4561 the September 15th low with resistance at 1.4800.

CHF
CHF traded lower Monday pressured by threat of intervention and selling in cross trade to the JPY. Last week the SNB gave an upbeat outlook for the Swiss economy and said that interest rates could not remain low indefinitely. SNB's Jordan said that the SNB will take decisive action to stop CHF appreciation versus the EUR. The SNB is expected to defend the 150 level in EUR/CHF.EUR/CHF traded at 1.5107 at the time of this writing. Focus turns to Tuesday's release of the August UBS Consumption Index, on Wednesday September KOF leading indicator will be released and on Thursday September PMI is due for release. The Consumption Index is expected at 0.800 compared to 0.766 last month. The KOF index is expected to improve to 30 from -04 last month. The purchasing manager index is expected at 51 compared to 50.2 last month. Expect USD/CHF support at 1.0170 the September 23rd low with resistance at 1.0467 the September 10th high.

GBP
GBP traded lower pressured by speculation that BOE may be considering lowering the remuneration rate that it pays on commercial bank holdings. A report that BOE Governor King met with officials at Sweden's Riksbank last week sparked speculation that the BOE is seriously considering cutting its remuneration rate. The Riksbank was the first bank to cut its deposit rate to negative and Kings meeting at the Riksbank is seen as a fact-finding mission on the implications of lowering the remuneration rate. A cut in the remuneration rate will make it more difficult for the commercial lenders to make a profit but it will also help to boost liquidity and encourage lending. GBP was also pressured by a statement from the BOE's Dale that UK employment could fall further. GBP downside was limited by report that UK house prices rose the most in two years and a statement from BOE Governor King that his comments about weaker GBP would help to rebalance the UK economy were misinterpreted. King tried to discourage speculation that the BOE is seeking a weaker GBP. GBP was pressured last week by King's comments and speculation that the BOE has endorsed weaker GBP. GBP continues to underperform and weakened over last few days with selling pressure attributed to a Daily Telegraph report that the BOE has called an emergency meeting next Tuesday with major economists to discuss financial crisis. BOE officials denied that the meeting to be held Tuesday would be a crisis meeting and said that the meeting was to update on the impact of quantitative ease. Focus turns to Tuesday's release of final UK Q2 GDP.

This week's UK economic calendar includes September 29th release of August consumer credit expected at -0.151 compared to -0.217. Final Q2 GDP will also be released on September 29th expected at -0.7% along with mortgage applications, lending and CBI distributive trades for September. CBI Index is expected at -12 compared to -16 last month. On September 30th September GFK survey will be released expected at -20 compared to-25 last month. On October 1st September CIPS PMI manufacturing index will be released expected at 50.2 compared to 49.7 last month.

The technical outlook for GBP is negative as GBP trades below 1.6000. Expect near-term support at 1. 1.5770 the September 28ht low with resistance at 1.6140.

CAD
CAD traded mixed with downside limited by a rebound in crude prices and stronger US equity market trade. CAD was also supported by report that July Canadian job insurance claims fell by 8.5% m/m. This may be an indication that the Canadian employment situation has improved. Last week Canada's PM Harper said the Canadian economic recovery remains extremely fragile and he is concerned that the weak labor market will weigh on economic activity. Last week Canada reported an unexpected decline in July retail sales. BOC Governor Carney expressed concern that the strength of the CAD is a risk for the Canadian recovery. BOC last week reaffirmed its commitment to keep interest rates at their current level through mid-2010. Focus turns to BOC Governor Carney's speech later today in Victoria, British Columbia. The trade will be monitoring the speech for comments on CAD strength and risk of intervention. No major Canadian economic data was released in today's trade. CAD will continue to track the direction of equity and oil markets. Focus turns to this week's release of Canada's producer prices and GDP.

This week's Canadian economic calendar includes the September 30 release of August IPPI and RMPI.IPPI is expected to fall by 0.1% compared to -0.5% last month and RMPI is expected at -2% compared to -3.8% last month. July GDP will also be released on the 30th expected at 0.1%. 

The technical outlook for CAD is negative as USD/CAD trades above 1.0900. Look for near-term support at 1.0860 the September 25th low with resistance at 1.1075 the September 3rd high.

 

AUD
AUD traded mixed initially pressured by selling in cross to the JPY sparked by speculation that the new Japanese government opposes intervention to weaken the JPY. Commodity prices were mixed, and equity markets traded lower in Asia but recovered in Europe and the US. The recovery in US equity markets helped to limit AUD downside along with a statement backpedaling on his opposition to intervention comments by Japans finance minister. There was limited reaction to comments from RBA Governor Stevens. Stevens repeated his previous statement that interest rates will eventually need to rise and inflation target would be the guide for future rate adjustments. Stevens is not sure if interest rates will be hiked before the jobless rate peaks. Last week Australia reported 11.4% surge in new home sales. The strong rise in Australian new home sales is further confirmation of improving domestic economic outlook in Australia. The home sales report may encourage RBA rate hike speculation, AUD price direction will continue to track risk sentiment .Investors will be looking for signs of whether governments are moving closer to withdrawing stimulus and how the withdrawal my impact the global economy. AUD traded at a one year high last week of 8778 supported by RBA rate hike speculation and improving optimism about the global recovery. AUD has not taken out the 8778 level and has failed to hold above 8700. Failure to take on the 8778 level could signal a technical divergence and lack of upside confirmation for the AUD rally.

This week's Australian economic calendar includes the September 30th release of August building approvals expected at 2% compared to -3.9% last month. August retail trade also be released on September 30th expected at 1% compared to -1% last month. On October 1st August trade balance will be released.

The technical outlook for the AUD is mixed as AUD trades below 8700. Expect AUD support at 8585 the September 21st low and 8528 the September 8th low with resistance at 8714 the September 25th high and 8820 the August 22nd 2008 high.