• USD: Lower, recovery concerns, US nonfarm payrolls job losses accelerated in September, ECRI rises
  • JPY: Higher, Fujii says JPY will not be discussed at this weekend's G-7 meeting
  • EUR: Higher, producer prices post unexpected rise, talk of earlier ECB rate hike
  • GBP: Mixed, construction PMI posts an unexpected decline, home prices rise for the fifth consecutive month
  • CAD and AUD: AUD & CAD mixed, erasing early losses as US equities stabilize and US inflation rises

Overview     
The USD traded mixed ahead of today's release of US unemployment with the USD supported by safe haven flows as global equity markets continued to decline, JPY supported by a statement from Japan's finance minister that JPY strength will not be distressed at this weekend's G-7 meeting in Istanbul, and commodity currencies pressured by concern that the global economic recovery will be slow. EUR traded higher supported by report of rising EU producer prices and ECB rate hike speculation. GBP drifted lower pressured by report of a decline in UK construction PMI with downside limited by report that UK house prices rose for the fifth month in a row. There was a lot of rhetoric ahead of the G-7 meeting with US Treasury Secretary Geithner stating that a strong USD is important to the US. Reuters reports that EU officials applaud US statements favoring a strong USD. Thursday Fed Chairman Bernanke said Bernanke's there is no immediate risk to USD reserve status and that a strong USD is very important to the US. Over the past few days EU officials have expressed concern about EUR strength versus the USD. French Finance Minister Legarde says that the USD will be discussed at this weekend's G-7 meeting. US September unemployment rate rose to its highest level in 26 years to 9.8%. September nonfarm payrolls declined by a larger than expected 263k. The largest jobs losses were in construction, manufacturing retail trade and government. Since the start of the recession in December 2007 the number of unemployed has increased to 15.1 mln. The USD extended early gains in reaction to the worse than expected nonfarm payrolls as the data generates concern about the potential strength of the US economic recovery. USD gains were limited by statement from Pimco's Gross that he believes the US wants a weaker USD. USD traded lower in reaction to the release of the Economic Cycle Research Institute (ECRI) inflation index which showed a sharp rise in September. The ECRI gauge hit an 11 month high. The ECRI says that US inflation is on the cusp of a cyclical upswing. The ECRI yearly growth rate hit a record high last week. The ECRI says US recovery is unlikely to falter anytime soon. August factory orders posted an unexpected decline. Today's USD price action is difficult to explain and as recovery doubts contribute to rising risk aversion. In the past the USD has benefited from risk aversion. Today's USD price action may be signaling a delinking form the correlation to risk sentiment.

Today's US data:
September unemployment rose to 9.8%. September nonfarm payrolls declined by 263k, a 180k decline was expected. August factory orders declined by 0.8%, a 0.7% rise was expected. This marked the first decline in factory orders since March. Today's US economic data suggests that the road to US economic recovery will be bumpy and recovery may be weak.

Upcoming US data:
Next week's economic calendar includes the October 5th release of September non-manufacturing ISM expected at 50 compared to 48.4 last month. On October 7th August consumer credit will be released expected at seat -8.9 bln compared to -21.6 bln in July. On October 8th initial jobless claims for the week ending 10/03 will be released expected at -545k compared to -551K last week. August wholesale sales and inventories will also be released on October 8th with wholesale sales expected at 0.6% and inventories expected at -0.5%. October 9th August trade balance will be released expected at -32 bln compared to -31.92 bln last month.

JPY
JPY traded higher supported by a statement from Japan's Finance Minister Fujii that the JPY strength will not be discussed at this weekend's G-7 meeting in Istanbul and by safe haven demand as global equity markets decline. The Nikkei closed 246 points lower and equities in Europe and the US also weakened pressured by concern that the global economic recovery will be slow. Fuji's comments reduce the risk of intervention. The weakness in equity markets generates risk aversion and liquidation pressures of higher yielding assets. JPY was also supported by gains in cross trade with the AUD/JPY trading as much as 1.5% lower in early trade. Japan's economic data was generally positive with August unemployment posting an unexpected drop to 5.5% from 5.7% last month and household spending rose by 1.9%. Today's Japanese economic data follows Thursday's release of report of improving business sentiment in Japan. JPY extended early gains after the release of worse than expected US September nonfarm payrolls report. If equity markets continue to slide and Japanese officials reject intervention as a way weaken the JPY the JPY is likely to extend recent gains.

Next week's Japanese economic calendar includes the October 7th release of August preliminary leading indicators expected at 2.2% compared to 2% last month. On October 8th August current account will be released expected at ¥0.12 trln compared to ¥1.27 trln last month. On October 9th August machinery orders will be released expected at 3.2% compared to -9.3% 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 traded higher despite falling equity prices and fresh concern about the potential strength of the global recovery. EUR was supported by ECB rate hike talk and report of higher than expected EU August producer prices. European press (MNI) reports that ECB officials are discussing possible timing of rate hike in a coordinated exit from unconventional monetary policy. The report goes on to say that this is unlikely to happen anytime soon. EU August producer prices rose by 0.4%, a 0.6% decline was expected. The ECB has tied the timing of the end of its accommodative monetary policy to price stability. If EU prices continued to rebound it may increase speculation earlier exit by the ECB. EUR gains were impressive in light of today's spike in risk aversion and a statement from the IMF that Europe's economy may recover more slowly than other nations. EUR rallied despite comments from US Treasury Secretary Geithner and Bernanke that strong USD is important to the US. EU officials have expressed concern about EUR rise versus the USD and the French Finance Minister Lagarde said that the USD will be discussed at this weekend's G-7 meeting. EUR rallied to the day's highs in reaction to a statement from Pimco's chief investment officer Gross that he thinks the US wants a weak USD.

Next week's EU economic calendar includes the October 5th release of EU September services PMI expected at 50 compared to 49.3 last month. October Sentix Index will also be released on October 5th expected of -13.8 compared to -14.6 last month along with October retail sales expected at -0.1% compared to 0.2% last month. On October 7th Q2 GDP will be released expected at -2%. On October 8th German September CPI will be released expected at -0.1%. German August trade balance will be released on October 9th expected at 12.8 bln compared to 12.4 bln Last month.

The technical outlook for the EUR is mixed as EUR fails to hold last weeks rally above 1.4700. Expect EUR support at 1.4465 the September 9th low with resistance at 1.4668 the October 1st high.

   

GBP
GBP traded mixed to lower pressured by report of an unexpected decline in UK construction PMI and selling in cross trade to the JPY. UK September construction PMI declined to 46 and seven and 47.7 last month. The decline in UK construction PMI follows yesterday's report of weaker than expected UK manufacturing PMI. GBP downside was partly limited by report that UK nationwide house prices rose by 0.9% last month. This marked the fifth consecutive monthly rise for UK house prices. The IMF raised its UK 2010 GDP forecast to 0.9% from 0.2%. The IMF also says that the UK is facing a 2009 financing gap of £215 bln which is 15% of UK GDP. GBP has been underperforming partly because of concern about rising UK government debt along with speculation that the BOE may soon reduce its remuneration rated pays on commercial bank holdings. GBP initially traded lower after the release of worse than expected US nonfarm payrolls and then firmed. The reason for the GBP recovery was unclear but it appeared to be related to the fact that US equity markets erased part of early losses and Pimco's Gross said he believes the US wants a weaker USD. Next week's main focus will be Thursday's BOE policy meeting. The trade will be looking to see whether the BOE is considering cutting its remuneration rate paid to commercial banks or decides to expand quantitative ease. Market consensus is that the BOE is leaning towards cutting the remuneration rate.

Next week's UK economic calendar includes the October 5th release of September services PMI expected at 54.3 compared to 54.1 last month. On October 7th August industrial production will be released expected at 0.3% compared to 0.5% last month. The BOE meet on October 8th. On October 9th September PPI will be released expected flat compared to 0.2% last month. August trade balance will also be released on October 9th expected at -6.234 bln compared to-6.479 bln last month.

The technical outlook for GBP is negative as GBP trades below 1.6000. Expect near-term support at 1.5770 the October 28th low with resistance at 1.6127 September 30th high.

CAD
CAD started the session sharply lower in reaction to weaker global equity and commodity markets. CAD extended its decline after the release of worse than expected US nonfarm payrolls. CAD erased early losses as US equity markets stabilize and in reaction to a statement from Pimco's Gross that he believes the US wants a weaker USD. CAD rally was also attributed to concern that the US recovery may not be recovering as fast as some have expected. This could diminish fears that the Fed will be considering a rate hike anytime soon. Today's CAD rebound is hard to explain because the Canadian economy is highly dependent on export sales to the US and weaker US economic outlook may threaten the outlook for Canada's economic recovery. Another and opposing explanation is that today's rise in the US ECRI inflation gauge confirms that the recovery of the economy is contributing to higher inflation. The ECRI index rose to 90.6 from 89.7 in August. CAD remains vulnerable to comments from Canadian officials expressing concern that strong CAD is a threat to the Canadian economic recovery. In a speech Tuesday, BOC Governor Carney said that strong CAD is a major risk for the Canadian economy and outlook for inflation. Focus turns to next week's release of Canadian unemployment.

Next week's Canadian economic calendar includes the October 6th release of August building permits expected at 3% compared to -1.4% last month. Ivey PMI for September will also be released on the 6th expected at 53.5 compared to 55.7 last month. On October 8th September housing starts will be released expected at 152k compared to 150.4k last month. On October 9th September unemployment will be released expected to rise 0.1% to 8.8% to fund growth at 5k compared to 27k last month.

The technical outlook for CAD is mixed as USD/CAD trades back above 1.0800. Look for near-term support at 1.0660 the September 23rd low with resistance at 1.10959 the October 2nd high.

AUD
AUD traded higher erasing overseas losses as US equity markets stabilize and the trade shrugs off today's report of worse than expected US nonfarm payrolls and weaker than expected US factory orders. AUD started the session sharply lower pressured by falling equity and commodity markets. AUD weakened after the release of the US nonfarm payrolls report then staged an impressive rebound to trade higher for the day. It's not clear if the AUD rally reflects bargain-hunting or came in reaction to comments by Pimco's Gross that he believes the US wants to weaker USD. In addition, as noted above the ECRI index shows that US inflation is at an 11 month high. Rising US inflation may revive the Fed rate speculation. Thursday the Fed's Kohn said the Fed was may have to begin raising rates even as the economy is weak. AUD traded at a 13 month high Wednesday supported by RBA rate hike speculation. Earlier in the week, RBA Governor Stevens said that interest rates will eventually need to rise and RBA watcher McCrann said he expects the RBA hike rates in November or December. AUD downside should be limited by RBA rate hike speculation provided upcoming economic data does not intensify concern about the strength of the global recovery.

Next week's Australian economic calendar includes the October 5th release of ANZ jobs ads expected at 3 compared to 4.1 last month. On October 6th August trade balance will be released expected at -1.83 bln compared to -1.56 bln last month. On October 7th August housing finance will be released expected at -0.5% compared to -2% last month. On October 8th September employment will be released expected to rise 0.1% to 5.9% with employment growth at -10k compared to -27.1k last month.

The technical outlook for the AUD is positive as AUD trades at a new high for 2009. Expect AUD support at 8528 the September 8th low with resistance at 8833 the October 1st high.