- USD: Higher, equities reverse early gains, China may shift some reserves to EUR and JPY
- JPY: Lower, Japan's PM says the economy appears to have bottomed
- EUR: Lower, German consumer confidence weakens, supported by China reserve story
- CHF: Lower, supported by improving risk appetite, risk of intervention rises near parity
- GBP: Higher, business confidence rises to an 18 month high, BOE warned not to overreact to Q3 GDP
- CAD and AUD: AUD & CAD lower, IMF warns strong CAD may slow Canada's recovery, lower crude
USD traded mixed Monday initially pressured by optimism about the global recovery and a report that a researcher at China's central bank has recommended China increase its reserve holdings of JPY and EUR. Chinese officials state that diversifying FX reserves is a long term goal and should not contribute to short term volatility. USD recovered in reaction to the report that China's FX reserve diversification is a long term goal. GBP traded mixed with upside limited to speculation the BOE may expand asset purchases in response to Friday's release of worse than expected UK Q3 GDP. GDP downside is limited by report that UK business confidence rose to an 18 month high. Commodity currencies were mixed with the AUD supported by stronger global equity market trade. CAD drifted lower pressured by IMF report warning that strong CAD may hurt Canada's economic recovery. Focus turns to this week's US earnings reports and Thursday's Q3 advance GDP. The trade will be looking at the earnings reports and the GDP for further confirmation that the US economy has bottomed. USD firmed mid-session as stocks turn lower.
No major data was released in Monday's trade.
Upcoming US data:
This week's US economic calendar includes the October 27th release of Case Shiller August home price index expected at -12.1% compared to -13.3% last month. October consumer confidence will also be released on October 27th expected at 54.3 compared to 53.1 last month. On October 28th September durable goods will be released expected at 1.3% compared to -2.6% last month. September new home sales will also be released on October 28th expected 444k compared to 429k last month. October 29th initial jobless claims for the week ending 10/24 we released expected that 525k compared to 531k Last week. Advanced Q3 GDP will also be released on October 29th expected at 3.2% compared to -0.7% last quarter. On October 30th September personal income and consumption will be released expected that 0.1% and -0.5% respectively along with Chicago October PMI expected 49.1 compared to 46.1 last month's and final October Michigan sentiment expected unchanged at 69.4.
JPY initially traded higher supported by positive comments from Japan's PM and report that China may consider increasing its reserve holdings of JPY. Japan's PM Hatoyama says the Japanese economy seems to have bottomed. A research analyst at China's central bank recommends China increase its holdings of JPY and EUR. China reported that it foreign reserves holdings rose to a record 2.273 trln in September from 2.132 trln at the end of June. Two thirds of China's foreign reserves are believed to be held in USD. JPY was also supported by a Kyodo news report that Japan, China and South Korea may be considering a trilateral trade deal. Focusing more on Japanese trade with Asia was one of PM Hatoyama's election pledges. If Japan shifts focus of trade more towards its Asian trading partners, Japan may be less concerned about firmer JPY. USD was also pressured by comments from China's vice Premier Li. Li said that the Chinese economic recovery is solid and China will stick to active fiscal policy and maintain loose monetary policy. These comments helped to boost Asian equity markets and risk appetite. JPY turned lower mid session pressured by selling in cross trade to GBP and AUD.
This week's Japanese economic calendar includes the October 28th release of September retail sales expected at -0.2% compared to 1% last month. On October 29th September industrial output will be released expected at 1% compared to 1.6% this last month. On October 30th September CPI will be released expected at -0.1% compared to 0.3% last month along with September household spending, unemployment housing starts and construction orders. Household spending is expected to fall 1% compared to a 1.9% rise last month. The unemployment rate is expected to rise to 5.7% from 5.5%. Housing starts are expected to rise 4% compared to -9.4% last month, and construction orders are expected to fall 30% and -25.2% last month.
Key technical levels to watch in USD/JPY include support at 90.77 the October 22nd low with resistance at 92.55 the September 21st high and 9330 the September 7th high.
EUR traded at a new high for 2009 of 1.5063 supported by positive comments about the global recovery from the ECB's Noyer and report that China may increase its reserve holdings of EUR. Noyer said that the world economy is recovering faster than expected. His comments contribute to firmer equity market trade and improving risk appetite. As noted above, a Chinese research analyst at China's central bank is recommending China up its reserve holdings of EUR and JPY. EU economic data was mixed with November GFK reported 4 compared to 4.2 in October. EUR traded higher despite report of weaker German consumer confidence. EUR benefits from Friday's report that EU flash composite PMI rose to its highest level in 22 months. The PMI report suggests that the EU economy will experience 0.4% GDP growth in Q4. The trade will continue to monitor statements from EU and ECB officials about the strength of the EUR. ECB's Constanacio says that the exchange rate is not objective policy strong in EUR helps to control inflation. His comments appear to reduce the risk that the ECB will intervene to slow the EUR rally. EUR turned lower midsession pressured by selling in cross trade to GBP and by reversal of US equity gains.
On October 27th EU M3 for September will be released expected 2.7% compared to 2.5% last month. On October 29th, German September retail sales will be released expected at 0.2% compared to -1.5% last month along with German October unemployment expected unchanged at 8.2%. EU October business climate will also be released on October 29th expected at -2.50 compared to -2.07 last month. On October 30th EU October HICP will be released along with October unemployment. The HICP is expected unchanged a -0.3% with the unemployment rate rising to 9.7% from 9.6% last month.
The technical outlook for the EUR is positive as EUR trades above 1.5000. Expect EUR support at 1.4943 the October 23rd low and 1.4880 the October 20th low with resistance at 1.5200.
CHF is approaching parity supported by improving risk sentiment as global equity markets continue to firm. As the CHF nears parity, the risk of intervention will likely increase. EUR/CHF cross continues to hold above 1.5100. The SNB is thought to be comfortable with the cross holding above this level and this may reduce near-term risk of SNB intervention if the cross continues to hold. Last week's Swiss economic data was mixed with exports reported down 2.3% in September and imports rising 3.1%. The decline in Swiss exports partly reflects the impact of strong CHF on Swiss export competitiveness. This week's Swiss economic calendar includes Tuesday's release of the UBS consumer indicator survey expected at 0.691 compared to 0.658 last month and Friday's release of the KOF leading indicator expected at 1.10 compared to 0.85 last month. Swiss economic data has not been a major driver for the CHF trade and these reports are important only in how they may influence SNB intervention policy outlook. Expect USD/CHF support at 1.0015 the September 15th 2008 low with resistance at 1.0360 the October 5th high.
GBP traded higher rebounding from Friday's sharp selloff. GBP traded sharply lower Friday pressured by report of an unexpected decline in UK advanced Q3 GDP. UK Advanced Q3 GDP declined by 0.4%, a 0.2% rise was expected. The UK GDP report indicates that the UK economy has yet to emerge from recession and the data has significant implications for BOE policy outlook. The GDP report may increase pressure on the BOE to expand its asset purchase program. The BOE's Blanchflower said that the BOE may expand its asset purchase program by another £50 bln. The Sunday Times however carried a piece warning the BOE not to panic over Friday's GDP report. GDP is seen as a lagging indicator GBP downside was limited by report that UK business confidence rose to its highest level in 18 months according to KPMG. The GBP was supported earlier last week by the BOE's decision to maintain its current level of asset purchases and interest rates and by the MPC minutes which seemed to reduce the risk that the BOE will expand quantitative ease. But BOE policy outlook and decision on whether to maintain or expand the size of its asset purchase program will be key to the direction of the GBP. The MPC minutes indicated that the BOE will be closely looking at upcoming inflation data to assess whether quantitative ease is maintained or expanded. Key focus will be the November 5th BOE policy meeting. Weak UK Q3 GDP has increased the risk that BOE will expand QE at the November meeting.
CBI distributive trades for October will be released on October 27th expected at 1% compared to 3% last month. On October 29th September consumer credit, money supply mortgage applications and mortgage lending will be released. The consumer credit is expected at -0.299 bln compared to-0.309 bln last month with mortgage approvals expected at 50k and mortgage lending expected at 1.0210 bln. On October 30th, October GFK is expected at -14 compared t o-16 in September.
The technical outlook for GBP is mixed as GBP trades below 1.6400. Expect near-term support at 1.6240 the October 19th low with resistance at 1.6500.
CAD traded lower pressured by a statement from the IMF warning that CAD strength could slow the Canadian recovery and by weaker oil prices. The IMF expects Canada's economy to contract by 2.5% 2009 and grow by 2% in 2010. The IMF noted that the Canadian economy has shown resilience even in the face of strong CAD. CAD was also pressured by report that Canada's August budget deficit rose to 5.3 bln. Canada's Finance Minister Flaherty pledged to reduce the deficit in the near-term without relying on tax hikes. CAD has been underperforming since last week's BOC policy meeting and the release of the Monetary Policy Report Thursday. The BOC elected to hold rate policy unchanged at 0.25% and expressed concern that the strength of the CAD has offset the recent recovery in the Canadian economy. In a press conference following the release of the Monetary Policy Report BOC Governor Carney said that intervention is an option. Verbal intervention has helped to slow the CAD rally. CAD price direction remains closely correlated to the price of crude
This week's Canadian economic calendar includes the October 29th release of September IPPI and RMPI expected that 0.3% and 2.8% respectively. On October 30 of August GDP will be released expected at 0.1% compared to flat last month.
The technical outlook for CAD is negative as USD/CAD trades above 1.0500. Look for near-term support at 1.0400 with resistance at 1.0650 the October 7th high.
AUD traded mixed to higher supported by firmer equity markets and positive outlook for China's economy. Equity markets traded higher fueling risk appetite and demand for high yield currencies. Last week China reported strong Q3 GDP retail sales and loan activity. The strong data form China sparked speculation that China may begin to withdraw fiscal and monetary stimulus. These fears were partly allayed by a statement Monday from China's vice Premier LI that China's recovery is solid and China will stick to active fiscal and accommodative policy. Li comments are positive for the AUD because China is a major export destination for Australia. China has been leading the global recovery and a slowdown in China's growth could hurt the outlook for the global economy. There was limited reaction to report that Australia's Q3 final goods rose by just 0.1%. AUD is consolidating near a 15 month high supported by optimism about the global recovery, rising commodity prices and speculation that the RBA will continue to hike rates into year-end. This week's key focus will be Wednesday's release of Australia's CPI. Australian press carried a report which suggests the RBA may pause its rate hike cycle if CPI comes in weaker than expected.
Next week's the Australian economic calendar includes the October 26th release of Q3 PPI expected at -2.5% compared to -2.7% last month. On October 28th Q3 CPI will be released expected at 0.8% compared to 0.5% last month. On October 30th September private credit will be released expected at 0.2% compared to 0.1% last month.
The technical outlook for the AUD is positive as AUD holds above 9200. Expect AUD support at 9181 the October 20th low with resistance at 9312 the October 20th 2008 high.