- USD: Higher, core PPI falls more than expected, industrial production & capacity use rise less than expected
- JPY: Lower, tertiary index activity drops more than expected, concern about deflationary pressures
- EUR: Lower, trade surplus widens as exports rise, pressured by a drop in risk appetite
- GBP: Lower, consumer inflation rises more than expected, tracking risk appetite
- CAD and AUD: AUD & CAD lower, RBA may pass on a December rate hike, crude, gold stocks lower
USD traded higher Tuesday as risk appetite takes a sudden turn down as equity markets decline in reaction to a warning from the IMF that the global recovery will be sluggish. The USD may be also benefiting from comments from Fed Chairman Bernanke that Fed would help ensure that the USD is strong and a source of global financial stability and comments from ECB President Trichet calling on the US to confirm that strong USD is in the best interest of the US. Bernanke also said that the Fed is watching USD price movements closely. Commodity currencies were pressured by today's setback in risk appetite and weaker crude and the price of gold. AUD traded sharply lower in reaction to the release of the RBA minutes which seemed to suggest that the RBA may pass on a December rate hike. Global economic data was mixed with the EU trade balance posting a modest improvement and UK consumer inflation rising more than expected. The rise in UK consumer inflation helped limit GBP downside. USD was also supported by report that Russian officials said they do not plan to further diversify reserves. USD was also supported by report that net capital inflows to the US surged by 133.5bln in September as investors grew more confident in the US recovery. Today's US economic data was mixed with PPI rising less than expected and core PPI posting an unexpected drop, industrial production and capacity utilization also rose less than expected. Today's drop in US core PPI may heighten fears of deflationary pressures and encourage the Fed to maintain ultra accommodative monetary policy. Despite today's USD rebound the underlying negative USD theme will likely to continue as investors track low US yields and risk sentiment.
Today's US data:
October PPI rose by 0.3%, a 0.4% rise was expected. Core PPI declined by 0.6%, the core PPI was expected to rise by 0.1%. October industrial production rose by just 0.1%, a 0.4% rise was expected. October capacity utilization rose to 70.7, a reading of 70.8 was expected.
Upcoming US data:
On November 18th October CPI will be released expected unchanged at 0.2% along with October housing starts and building permits. The housing starts are expected to rise to 600k from 590k last month and building permits are expected at 580k compared to 573k last month. On November 19th initial jobless claims for week ending the 11/14 will be released expected at 497k Compared to 502K last month. October leading indicators and November Philly Fed will also be released on November 19th. Leading indicators are expected to rise by 0.4% compared to 1% last month and the Philly Fed is expected at 12.5 compared to 1.5 last month.
JPY traded lower pressured by broad USD gains sparked by weaker global equity markets and a drop in risk appetite. The IMF's warning that the global economic recovery may be sluggish and weaker than expected tertiary activity report from Japan sparked selling of the JPY. Japan's September tertiary activity declined by 0.5% m/m, a 0.4% rise was expected. Monday Japan reported that Q3 GDP rose at its fastest pace in more than two years but Japanese officials downplayed the Q3 GDP rise and warned that downside risks remain for the Japanese economy. Tuesday, a Japanese cabinet official expressed concern about deflation and said that additional stimulus may be needed to boost growth in Japan. JPY downside was limited by gains in cross trade to the EUR and AUD as the IMF warning on growth discourages demand for higher-yielding currencies. GBP/JPY edged higher with GBP supported by report of higher than expected UK consumer inflation.
On November 18th revised September leading indicators will be released expected at 0.8% compared to 2% last month. On November 19th September all industry activity will be released expected at 0.6%.
Key technical levels to watch in USD/JPY include support at 88.35 the October 9th low with resistance at 90.86 the November 6th high.
EUR traded sharply lower pressured by a shift in risk appetite as equity markets give back some of Monday's gains. Equity markets were pressured by concern about the strength of the global recovery. EUR traded lower despite report of improving trade balance and rising exports. EU September trade surplus widened to 3.7bln, compared to 2.3bln deficit last month. The improvement in the trade surplus reflects a 5.5% rise in exports. The export rise suggests that the EU economic outlook continues to improve. The report also confirms that the EU economic recovery remains highly dependent on export sales. The improvement in export sales could quickly evaporate if the global recovery stalls and global growth is sluggish as the IMF suggested. Last Friday the EU reported that Q3 GDP rose by 0.4%. The rise in the GDP confirms that the EU economy is emerging from recession but there remain concerns about the sustainability of the EU economic recovery. The improvement in EU export sales coupled with the rise in Q3 GDP may encourage speculation that the ECB will begin to consider its exit plan from its extraordinary monetary measures implemented earlier in the year to boost lending activity and growth. Despite the improvement in EU economic outlook ECB officials indicate that they are in no hurry to raise interest rates and that withdrawal of stimulus and tightening of monetary policy are two separate considerations. Because of the uncertain outlook for the pace of the global recovery the ECB may maintain current interest rate policy through most of 2010. Swiss retail sales declined more than expected in September falling by 1.6%. SNB's Roth says it will take time to take time for the Swiss economy emerged from recession. The weaker than expected Swiss retail sales report may add additional note of caution about the potential strength of the economic recovery in continental Europe. EUR traded to the lows of the day pressured by a report that Russia is not considering more reserve diversification at this time and in reaction to report of a sharp rise in foreign investment flow to the US during September.
On November 18th EU September current account will be released expected at -4.8bln and compared to -5bln Last month.
The technical outlook for the EUR is mixed as the EUR fails to trade back above 1.5000. Expect EUR support at 1.4810 the November 5th low and 1.4740 with resistance at 1.4999 the November 17th high.
GBP traded lower with downside limited by report of higher than expected UK consumer inflation. GBP was pressured by a down turn in risk appetite as global equity markets decline in reaction to IMF statement that the global recovery may be sluggish. UK October CPI rose by 0.2%m/m and 1.5% y/y. The rise in UK CPI does not come as a complete surprise as the BOE indicated in its prior policy statements that near-term inflationary pressures were likely to increase. The BOE however indicated that inflation is expected to remain below target over the next two years. UK inflation outlook coupled with the strength of the UK economic recovery are the two key factors that the BOE will consider in its upcoming monetary policy decision-making process. Monday the UK reported an unexpected drop in the November Rightmove house price index. The decline in UK house prices generates concern about the outlook for recovery in the UK economy and the report will likely encourage speculation that the BOE may consider expanding of its asset purchase plan. In contrast, today's report of rising consumer prices may encourage the BOE to maintain its current level of asset purchases as inflationary pressures appear to be rebounding. On November 18th, the BOE will release the minutes from its November policy meeting. The BOE elected to expand its asset purchases by £25bln at the November policy meeting. The trade will look at the minutes for clues to whether the BOE is considering further expansion of its asset purchase plan.
On November 18th September CBI orders will be released expected at this -50 compared to -51 last month. On November 19th October money supply and public-sector borrowing will be released. The money supply is expected is to rise by 0.9% compared to 0.8% last month. Public-sector borrowing is expected to widen to 15.062bln from 14.812bln last month. Also on November 19th, October retail sales will be released expected at 1% compared to 2.4% last month.
The technical outlook for GBP is positive as GBP trades above 1.6700. Expect near-term support at 1.6670 the November 16th low with resistance at 1.6875 for November 16th high.
CAD traded lower pressured by a drop in risk appetite and weaker price of crude and gold. The IMF warning that the global economic recovery may be sluggish appeared to dent enthusiasm about the global recovery and sparked liquidation of higher yielding assets including CAD. Monday, CAD surged supported by higher commodity prices and global equity markets as APEC members pledged to maintain fiscal and monetary stimulus. US equities rallied to new highs for 2009 and price of gold rallied to a record high in Monday's trade with gains fueled by improving risk sentiment and anticipation of continued fiscal and monetary stimulus. CAD was also supported by report at 1.4% rise in Canada's September Manufacturing shipments. Last week, Canada reported a sharp improvement in its trade deficit with exports rising despite strong CAD. The fact that Canada's export sales are and manufacturing shipments are rising despite strong CAD may reduce the risk of intervention. CAD price direction will continue to track the direction of commodities and equities.
On Wednesday November 1th8 October CPI will be released expected to rise 0.1% compared to flat last month. On November 19th September net foreign investment will be released expected at 3.06bln compared to 5.08bln last month along with October leading index expected at 0.7% compared to 1.1% last month and September wholesale sales expected at 1% compared to -1.4% last month.
The technical outlook for CAD is positive as USD/CAD trades below since 1.0600. Look for near-term support at 1.0465 the November 17th low with resistance at 1.0610 the November 10th high and 1.0700.
AUD traded sharply lower pressured by weaker equity market trade and concern about global growth outlook as the IMF warns that global recovery may be sluggish. AUD was also pressured by what were perceived as less hawkish RBA policy minutes. The RBA policy minutes state that the pace of tightening is open to question and that further gradual rate hikes are likely. The minutes also state that strong AUD may help contain inflation but slow growth. RBA must consider balancing the risks of maintaining yields at a low-level for extended periods versus the risk of hiking rates too soon. RBA watcher McCrann suggests that the RBA may be comfortable with one more 25 bps rate hike in December and then pause. Uncertainty about RBA policy contributes to today's AUD selloff but the driving force appears to be some second guessing about the outlook for the global recovery. AUD has been supported by optimism about global recovery and speculation that he RBA will hike rates in December. This speculation sparked an AUD rally to a new high for 2009 last week. Last week Australia reported an unexpected rise in new jobs created. Jobs growth rose by 24.5k in October. The better than expected jobs growth in Australia may intensify speculation that the RBA will hike rates in December. However Australia also reported last week that consumer confidence posted a decline and inflation fell by more than expected. These reports may temper speculation about RBA rate hikes. Focus turns to this week's release of Australia's labor price index. Stronger Australian labor costs would increase speculation that the RBA will hike rates in December. AUD price direction will continue track is the direction of equities and risk sentiment.
This week's Australian economic calendar includes the November 18th release of Q3 labor price index expected unchanged at 0.8%.
The technical outlook for the AUD is positive as the AUD rallies above 9200. Expect AUD support at 9210 the November 12th low with resistance at 9377 the November 17th high.