- USD: Higher, jobless claims fall more than expected, China may allow gradual Yuan appreciation
- JPY: Lower, MOF official warns that Japan's domestic economy remains weak, corporate outlook poor
- EUR: Lower, EU industrial production rises less than expected, upgrade of EU GDP outlook
- GBP: Lower, pressured by King's statement that weak GDP will boost UK growth
- CAD and AUD: AUD & CAD lower, Australia posts better job growth, Canada's house price index rises
USD traded higher Thursday supported by a dip in risk appetite as equities decline and China's PM Wen warns that the global economic recovery will be uneven. EUR traded lower despite positive EU industrial production data and of an upgrade of EU 2010 GDP outlook. AUD rallied to a new 15 month high in overseas trade supported by report better than expected Australian employment growth. AUD turned lower tracking weaker equity markets and a drop in the price of crude and gold. There is increased speculation that China may allow the Yuan to gradually appreciate. This could have significant implications for rebalancing of the global economy and help take some of the pressure off of the EUR and other currencies that are bearing the brunt of rebalancing. In addition there are reports that a number of central banks including Russia, Korea, the Philippines, Brazil and Thailand are buying USD to try and hold down the value of their currencies as USD weakness spreads. U.S. Treasury Secretary Geithner continues to try to talk the USD higher. Geithner said that the Obama administration is committed to a strong dollar and will take actions to reduce US deficits. Clearly intensified focus on Yuan appreciation and US deficits comes as President Obama heads to China but if China allows its currency to appreciate global rebalancing wont be solely dependent on a weaker USD. There was little reaction to the report that the IMF is reviewing possible reserve alternatives to the USD and may be looking at a basket of currencies to try to help reduce reserve accumulation. US jobless claims dropped to their lowest level since January and the four-week average is at its lowest level since November 2008. USD gave back some of its early gains after the release of the better than expected jobless claims but remained higher as stocks gold and crude oil trade lower.
Today's US data:
Jobless claims for week ending 11/07 fell 12k to 502k, a reading 510k was expected. Continuing claims also declined to 5.63mln. Continuing claims were expected to fall by 5.7mln.
Upcoming US data:
On November 13th October import prices will be released along with September international trade and November University of Michigan consumer sentiment. Import prices are expected to rise 0.5% compared to 0.1% last month. The trade balance is expected to improve -30.71bln compared to -31.50bln last month. Michigan consumer sentiment is expected at 73 compared to 73.7 last month.
JPY traded lower pressured by a statement from a senior MOF official that Japan cannot consider an exit strategy now because of the weak domestic economy and poor corporate outlook. JPY was also pressured by reports that Japan's October corporate goods prices declined by 0.7%, a 0.1% decline was expected. The decline in Japan's corporate good price contributes to concern about continued deflationary pressures in Japan. Speculation that China may allow the Yuan to gradually appreciate helped support broad based USD demand in Thursday's trade. JPY extended its overseas decline after the release of better than expected US jobless claims. The jobless claims report helps limit early equity market weakness. JPY experienced gains in early overseas trade sparked by a weaker equities and a statement from China's PM that the world faces an uneven recovery. Bloomberg reports that analysts at Mitsubishi UFJ Bank are forecasting that JPY will trade at 85 by the end of March as the global economy heads for a second bottom and risk aversion re-emerges.
A November 13th revised September industrial output will be released expected at 1.4% compared to 1.6%.
Key technical levels to watch in USD/JPY include support at 89.18 the November 2nd low with resistance at 90.86 the November 6th high.
EUR traded lower despite report of improving EU industrial production and an upgrade of German and EU GDP outlook. EU September industrial production rose by 0.3%, a 0.5% rise was expected. A German economic adviser forecast 1.6% GDP for Germany in 2010 and the French finance minister says that Friday's EU GDP release may confirm that economic expansion has accelerated in the EU. The ECB monthly survey says that EU 2010 GDP is now expected to grow by 1% compared to original forecast of 0.3%. The EUR abruptly turned lower in Wednesday's trade despite stronger equity markets and the decline has left many analysts uncertain about the rationale for the drop. Some analysts attribute the decline to liquidation pressures and profit-taking others are talking about the possibility that China may allow the Yuan to gradually appreciate. A gradual appreciation of the Yuan could take some of the upward pressure of global rebalancing off the EUR. The Yuan is basically controlled by China's central bank and the central bank limits Yuan appreciation. A stronger Yuan would help to reduce trade imbalances by making China's exports more expensive and increasing import demand in China. China had allowed the Yuan to gradually rise before the global financial crisis. As a global financial crisis worsened China limited Yuan gains to protect exporters. Focus turns to Friday's release of EU GDP. The trade will be looking to the EU GDP report for confirmation that the EU economy is expanding.
On November 13th German Q3 GDP will be released expected at 0.3% along with EUQ3 GDP expected to rise by 0.6%.
The technical outlook for the EUR is mixed as the EUR trades below 1.5000. Expect EUR support at 1.4810 the November 5th low with resistance at 1.5017 the November 12th high.
GBP drifted lower pressured by a statement Wednesday from BOE Governor King that weak GDP will help boost UK growth and that he is open to expansion of BOE asset purchases. GBP was also pressured by release of the September inflation report. The September BOE inflation report states that the UK is expected to have a slow recovery and that consumer prices will rise above the 2% target in the near term. The BOE however expects inflation to remain below its target over the next two years with inflation rate at 1.6% in Q3 2011. Governor King said that weak GBP will help the UK balance exports and imports and may boost the economy. King also said that he has an open mind about expanding the asset purchase plan if needed and that 25bln November expansion of asset purchases was not a step towards ending the program. King was clearly sending a signal that the BOE intends to maintain low yields for sometime to come and that they central bank is a long way from considering withdrawing stimulus. GBP is faced with a number of negative factors which include a dovish BOE inflation report and Tuesday's report that the UK is most at risk of losing its AAA rating among major economies. No major UK economic data was released in today's trade.
The technical outlook for GBP is mixed as this weeks rally failed to hold above 1.6600. Expect near-term support at 1.6400 the November 3rd low with resistance at 1.6740.
CAD traded lower pressured by weaker crude and gold prices and mixed equity market trade. CAD downside was limited by report of better than expected US jobless claims and Canadian house prices. US jobless claims came declined by 12k. Canada's house price index rose by 0.5% in September. The improving US jobless claims data and strong Canadian housing report should contribute to improvement in risk sentiment but demand for the CAD was limited. Analysts seem to be somewhat at a loss to explain CAD price action as well as the weakness in the EUR and this raises some suspicions of possible stealth intervention in support of the USD. CAD may also have been pressured by comments from China's PM wind warning that they global recovery will be bumpy and uneven. The trade continues to try and balance the uncertain outlook for Canada economic recovery with the strong influence of risk appetite. The IMF say Canada must maintain accommodative and strong CAD is a risk to Canada's recovery. Focus turns to Friday's release of Canadian trade balance. The data may give indications of how the strong CAD has impacted Canada's export sales.
Canada's trade and balance will be released Friday expected to widen to -2.6bln on compared to -2.0 bln last month.
The technical outlook for CAD is positive as USD/CAD trades below since 1.0600. Look for near-term support at 1.0375 the October 21st low with resistance at 1.0610 the November 10th high.
AUD traded at a new high for 2009 supported by report of stronger then expected Australian job growth but the gains were erased into the US session with the AUD pressured by weaker equities and commodities prices. Australia's October unemployment rate rose 0.1% to 5.8% with jobs growth rising by 24.5k. The trade had expected a 10K loss of jobs in Australia last month. The better than expected jobs growth in Australia may intensify speculation that the RBA will hike rates in December. A couple articles suggest that if the RBA continues to hike rates it could put the recovery in jeopardy. The fact that headline Australian unemployment continues to rise may encourage the RBA to pause. Australia's treasurer says stimulus will not be withdrawn too soon. AUD decline may also be attributed to comments from China's PM about the uncertain outlook for the global recovery. China's PM suggested that global recovery will be bumpy and uneven. AUD downside was limited by improving US jobless claims report. China is a major export destination for Australia. AUD will continue to track the direction of equities and risk sentiment with downside likely limited by RBA rate hike speculation. Last week, the RBA upgraded its outlook for Australia's growth and inflation and indicated that interest rates will need to gradually rise. The trade expects the RBA to hike rates 25bps in December.
The technical outlook for the AUD is positive as the AUD rallies above 9200. Expect AUD support at 9185 the November 9th low with resistance at 9400.