- USD: Higher, investors are reducing risk exposure & deleveraging as equity markets trade lower
- JPY: Higher, Japan's economy is back in deflation, BOJ upgrades its assessment of Japan's economy
- EUR: Lower, Trichet says too early to say if the crisis is over
- GBP: Lower, CBI warns on UK public debt, calls on the government to balance the budget by 2016
- CAD and AUD: AUD & CAD lower, tracking weaker equity and commodity prices, Canada's Q3 growth slows
The USD continued to rally into the weekend supported by deleveraging as investors are reducing risk exposure in reaction to a drop in equity and commodity markets. Weaker than expected earnings at Dell, coupled with a statement from ECB President Trichet that it's too early to tell if the financial crisis is over and fresh warnings about UK debt appear to be the catalyst for the latest wave of selling in global equity markets and liquidation of high yield currencies. It's not clear whether this weeks recovery in USD is a reflection of liquidation and booking of profits by investors and funds for year-end or if the USD recovery reflects concern about strength and sustainability of the global recovery. Next week's focus turns to the release of US preliminary Q3 GDP and the FOMC minutes for this month's policy meeting. US Q3 GDP is expected to see a downward revision from the advanced report of a 3.5% rise. The FOMC minutes are expected to confirm that the Fed is not yet ready to signal a timeframe for tightening of monetary policy. The Fed's Plosser says now is not the time for the Fed to begin to hike rates. The FOMC minutes are expected to confirm that he Fed will maintain low yields for an extended period. The question is whether the continuation of low Fed yields will encourage more participation in USD funded carry trades before year end or if Fed policy outlook has been discounted by the sharp rallies in the equity and commodity markets since March of this year. Pimco's Gross is recommending that investors move to defensive sectors of the economy because of expectation that growth will be sluggish at best.
Today's US data:
There were no major US economic reports released in today's trade.
Upcoming US data:
Next week's US economic calendar includes the November 23rd release of existing home sales for October expected at 5650k compared to 5570K last month. FOMC minutes for the October meeting are also due for release on the 23rd.On November 24th Q3 preliminary GDP will be released expected at 3.3% compared to 3.5% in the advanced report. September Case Shiller house price index and November consumer confidence will also be released on November 24th. The Case Shiller index is expected at -9.9 compared to -11.3 last month and consumer confidence is expected to improve to 49 from 47.7 in October. On November 25th initial jobless claims for week ending 11/21 will be released expected at 501k compared to 505k last month along with personal income and personal consumption expected at 0.1% and 0.4% respectively. November final University of Michigan sentiment and October new home sales will be released on November 25th as well. Michigan consumer sentiment is expected unchanged at 66 and new home sales are expected at 410k compared to 401k a last month.
JPY edged higher supported by safe haven flows sparked by a drop in global equity markets. The BOJ elected to hold rate policy unchanged as expected and upgraded its economic assessment of Japan's economy. The BOJ statement said that the economy is picking up and the decline in CAPEX spending continues to slow. The BOJ expects a moderate recovery in 2010/11 JPY gains were limited by report that the Japanese government says that the Japanese economy is back in deflation and by diminished Yuan revaluation speculation as China's Zhou says that the Chinese government is passive on the USD value. Japan's Finance Minister Fujii is encouraging the BOJ to maintain accommodative monetary policy and expressed concern that deflationary pressures will hinder the Japanese government's efforts to boost the economy. JPY firmed in cross trade gaining over 1% versus the GBP with GBP pressured by concern about rising UK government debt and gaining against the AUD as investors continue to deleverage positions in high-yield assets.
Next week's Japanese economic calendar includes the November 25th release of the October trade balance expected at 165bln compared to 521bln last month. On November 27th, October CPI will be released expected at -0.4% compared to flat last month. On November 27th October household spending will be released expected at -0.5% compared to 0.1% along with October unemployment expected unchanged at 5.3% and October retail sales expected at -0.7% compared to 0.9% last month.
Key technical levels to watch in USD/JPY include support at 88.01 the October 7th low with resistance at 90.40 the November 13th high.
EUR traded lower pressured by the weaker equity markets, a statement from ECB President Trichet that it's too early to declare the crisis over and in reaction to weaker German producer prices. Trichet's comments contributed to diminishing risk appetite and demands for riskier assets. German producer prices were flat in October. This report confirms that inflationary pressures are well in check in Germany. There was limited reaction to Trichet's comments that the ECB will gradually withdraw from its covered bond purchases and he restated commitment to quickly remove nonconventional policy measures that threaten price stability. Recent EU economic data points to a continuation of steady ECB policy outlook. Wednesday, the EU reported that the current account slipped to deficit last month and construction output fell sharply since in September. These reports suggest that the EU recovery is likely to be weak. Thursday a German think tank warned Germany may face a double dip recession in late 2010. The OECD expects the US economy to expand by 2.5% in 2010 in the EU economy to expand by 0.9%. The EUR may be horrible to speculation that the US economy will expand faster than the EU economy in 2010 according to the OECD. In addition, the OECD says that the ECB should maintain accommodative policies in 2010 and withdraw the emergency support measures gradually as the economy recovers. The German Finance Minister Schauable says that the global economy is far from self sustainable recovery.
Next week's EU economic calendar includes the November 23rd release of EU flash manufacturing and service PMI. The Manufacturing PMI is expected at 51.5 compared to 50.7 last month and service PMI is expected at 53 compared to 52.6 last month. On November 24th German November IFO index will be released expected at 92.1 compared to 91.9 last month. Also on November 24th, EU September industrial orders will be released expected at 0.7% compared to 1% last month. On November 26th,EU October M3 will be released expected 2% compared to1.8% last month along with German November CPI expected unchanged at 0.1%.
The technical outlook for the EUR is mixed as the EUR falls below is 1.4900. Expect EUR support at 1.4702 the November 4th low with resistance at 1.4999 the November 17th high.
GBP traded sharply lower pressured new concerns about the UK budget outlook and sell stops triggered on the break of 1.6500. Officials at the Confederation of British Industries (CBI) are calling on the UK government take aggressive steps to reduce the budget deficit. The CBI warns that if the UK government does not take action to reduce its debt, the UK debt rating will be at risk of a downgrade and the BOE may not be able to maintain yields at record low levels. Thursday the UK reported that public sector borrowing rose sharply. The UK public sector borrowing rose to £11.4bln in October, a rise to 6.1 billion was expected. Earlier in the quarter ratings agencies warned that the UK AAA debt rating may be at risk if debt continues to rise. UK budget data may revive fears about the UK government debt rating. The MPC minutes for the November BOE policy meeting were released Wednesday and the minutes showed that the BOE is split on whether to expand its asset purchases or leave the asset purchases at the current level. BOE board member Myles called for a £40bln expansion in asset purchases to help ensure UK economic recovery. BOE board member Dale warned about the risk of expanding purchases and how it may be costly to undo the impact of the additional stimulus. The OECD says that the BOE should hold rates at record low level until 2011 to ensure a sustainable recovery.
Next week's UK economic calendar includes the November 25th release of revised Q3 GDP expected at -0.4%.On November 26th November CBI distributive trade will be released On November 26th expected at 5% compared to 8% last month.
The technical outlook for GBP is negative as GBP trades below 1.6500. Expect near-term support at 1.6400 the November 3rd low with resistance at 1.6725 for November 19th high.
CAD traded lower pressured by a spike in risk aversion as equity markets slide and in reaction to a statement from the BOC that Canadian growth was softer in Q3. The BOC went on to say that the strength of the CAD is slowing growth and CAD strength could cause further setbacks in Canada's recovery. Thursday, Canada's Finance Minister Flaherty said that the Canadian economy has not yet recovered. BOC governor Carney gave no indication whether the BOC will take action to try to slow the rate of the CAD rally. The BOC however expects that the economy will expand in the fourth quarter and went on to say that it will keep rates at record low until June 2010. The OECD says they expect Canada's Q3 GDP flat. BOC Governor Carney also said that he expects the USD to remain the global reserve currency for the foreseeable future. This week's Canadian economic data was mixed with report of a sharp increase in investment flows to Canada and a slight uptick in Canada's core inflation. Net investment flows to Canada rose by 13.6bln, an inflow of just 3bln was expected. Wednesday, Canada reported that core inflation rose for its first time in five months. BOC members are focused on Canada's core inflation rate attorneys statements indicate that the BOC has no plans to change monetary policy at this time
No major Canadian economic data is due this week.
The technical outlook for CAD is mixed as USD/CAD trades above 1.0600. Look for near-term support at 1.0547 the November 19th low with resistance at 1.0780 the November 9th high.
AUD traded sharply lower pressured by weaker equity market trade and stop loss selling triggered on the break of 9100. As noted above, equity markets and commodities traded lower pressured by concern about UK debt outlook and weaker than expected earnings at Dell. In addition, the Fed's Fischer warned that unemployment in the US was unlikely to fall below 10% for some time. AUD has been weakening for most of the week pressured by a drop in risk appetite and deleveraging of high-yield assets as investors question the sustainability of the global recovery and look to book profits before year end. Uncertainty about RBA policy outlook is an additional source of selling pressure for the AUD. The RBA policy minutes released Tuesday appeared to have a less hawkish bias. The RBA policy minutes released suggest that the pace of tightening is open to question. RBA rate hike speculation is already discounted by the recent rally in AUD. Cash sources note that demand for the AUD appears to be re-emerging above 9000. Focus turns to next week's release of Australia's auto sales and CAPEX spending. AUD price direction will hinge on whether investor deleveraging continues.
Next week's Australian economic calendar includes the November 23rd release of October new car sales expected at 1% compared to 2.9% last month. On November 26th Q2 Capex will be released expected at 4% compared to 3.3% last month.
The technical outlook for the AUD is mixed as the AUD drops below 9100. Expect AUD support at 8951 the November 4th low with resistance at 9216 the November 20th high.