• USD: Higher, stocks slide, consumption slows, Chicago PMI strong, consumer confidence dips
  • JPY: Higher, BOJ holds monetary policy steady and begins its exit strategy
  • EUR: Lower, consumer prices fall ,unemployment rises, German retail sales slip
  • GBP: Lower, Consumer confidence rises, Fitch downgrades seven UK building societies
  • CAD and AUD: AUD & CAD lower, Australia's credit demand slows, Canada's GDP declines, CRB drops

Overview     
USD and JPY edged higher Friday supported by a modest drop in risk appetite as the equity market rally stalls. JPY rallied in reaction to report that the BOJ will end its bond support plan. EUR was pressured by report that EU inflation outlook remains negative and unemployment continues to rise. GBP failed to hold early gains sparked by report of improving consumer confidence pressured by a Fitch down grade of seven UK building societies. Commodity currencies traded lower with AUD pressured by report of weaker private sector credit and CAD pressured by report of an unexpected a decline in Canada's GDP. US economic data was mixed with personal income flat and personal consumption declining, labor costs remain soft, Chicago PMI came in much higher than expected and Michigan consumer sentiment was revised lower.

Next week's focus turns to the conclusion of the Fed's policy meeting Wednesday and Friday's release of US unemployment. The trade will be looking to see if the Fed begins an exit strategy and drops language about keeping interest rates low for an extended period. Risk sentiment remains the driving factor for FX trade with USD consolidating Thursday's sharp losses sparked by report of better than expected US advanced Q3 GDP. US Treasury Secretary Geithner says the US economy is in the early stages of recovery but risks remain. Next week's US unemployment report will be key to investor risk sentiment and speculation about whether the US recovery is sustainable. Reuters reports that George Soros says that the global recovery may run out of steam and the risk of a double dip recession is real. FX price direction remains closely correlated to equities and risk sentiment.

Today's US data:
September personal income flat, a rise of 0.1% was expected September consumption declined by 0.5% as expected. Chicago PMI rose to 54.2, a reading of 49.1 was expected Michigan consumer sentiment was revised to lower to 70.6 from 73.5, a reading 69.4. Q3 employment cost index was unchanged at 0.4%.

Upcoming US data:
Next week's US economic calendar includes the November 2nd release of September construction spending expected at -0.3% compared to 0.8% last month. October ISM and September Pending Home Sales Index will also be released on November 2nd. The ISM is expected at 53 compared to 52.6 last month and pending home sales index is expected at 105.7 compared to 103.8 last month. On November 3rd September factory orders will be released expected at 1% compared to -0.8% last month along with domestic auto sales for October. The FOMC begins a two policy meeting on November 3rd. On November 4th October ADP employment and nonmanufacturing ISM Index will be released. The ADP report is expected at -188k compared to -254k last month and nonmanufacturing ISM is expected at 51.8 compared to 50.9 last month. On November 5th initial jobless claims for week ending 10/31 will released expected at 521k compared to 530k last week. Q3 productivity and unit labor costs will also be released on November 5th. Q3 productivity is expected at 5.5% compared to 6.6% last month and unit labor costs are expected at -4.5% compared to -5.9% last month. On November 6th October nonfarm payroll and unemployment will be released. The nonfarm payroll is expected at -175k compared to -263k last week and the unemployment rate is expected to rise 0.1% to 9.9%.

JPY
JPY traded higher supported by report that the BOJ plans to end its corporate bond support plan and begin its exit from the credit markets. The BOJ elected to hold monetary policy unchanged Friday and began withdrawing from the credit market. The BOJ said it will extend its low interest rate loans by three months from December to March but then would end the loan program. The BOJ will end its corporate bond and commercial paper buy plan in December. Japanese economic data was mixed with September unemployment improving to 5.3% from 5.5 last month, core CPI falls 2.3% y/y household spending rose by 0.1%, housing starts fall by 37% y/y and October manufacturing PMI dipped to 54.3 from 54.5 in September. Today's Japanese economic data confirms that the Japanese economy is recovering and deflationary pressures continue. In the BOJ's half yearly report the BOJ said that Japan will experience three years of deflation and the pace of price decline slow gradually. The BOJ also sees improving economic outlook for Japan.

Next week's Japanese economic calendar includes the November 6th release of September leading indicators expected at 1% compared to 0.8% last month.

Key technical levels to watch in USD/JPY include support at 90.24 the October 29th low with resistance at 92.55 the September 21st high and 9330 the September 7th high.

EUR
EUR traded lower as investors assess risk and debate the outlook for the global recovery. Weaker equity market trade sparked selling of the EUR. EUR staged the sharp rally in Thursday's trade supported by improving its risk appetite sparked by report of better than expected US Q3 GDP. The question now is whether the improvement in US GDP is sustainable and what does the report mean for the global economy. The US and global recovery will likely be uneven and weak. EUR was also pressured by report that EU inflation rate remains negative unemployment continues to rise and German retail sales dropped in September. This means that risk sentiment will ebb and flow and we could see increased FX volatility and more two way trade. EU October CPI declined by 0.1%. The EU September unemployment rate rose to 9.7% from 9.6% last month. German September  retail sales declined by 0.5%.These reports suggest that EU inflation remains in check, the recovery is fragile and that the ECB is likely to elect to maintain steady rate policy at next Thursday's policy meeting. Yesterday, the ECB's Weber said that the ECB will soon announce its exit strategy. The trade will be monitoring the press conference following the ECB policy meeting for clues as to the timing of when the ECB plans to begin its exit strategy. The EUR has failed to rise back above 1.5000. This generates speculation that the EUR may be vulnerable to further weakness. The trade is closely watching uptrend support around 1.4600. A break of this level could signal a deeper downside technical correction for the EUR.

Next week's EU economic calendar includes the November 2nd release of October manufacturing PMI expected at 50 compared to 49.6 last month. On November 4th September PPI will be released expected at 0.2% compared to 0.4% last month. On November 5th EU September retail sales will be released expected at 0.3% compared to -0.2% last month. ECB meet on November 5th. No policy change expected.

The technical outlook for the EUR is mixed as the EUR fails to hold above 1.5000. Expect EUR support at 1.4685 the October 29th low with resistance at 1.4928 the October 27th high.

GBP
GBP traded mixed erasing gains that were inspired by report of improving UK consumer confidence. UK October GFK consumer confidence rose by three points to -13. GBP gains were limited by report that Fitch has downgraded seven UK building societies. The downgrade raised concern about the outlook for economic recovery in the UK. GBP posted strong gains versus the EUR this week supported by report of improving UK consumer confidence and a rise in UK house prices. The trade will turn focus to the November 5th BOE policy meeting and whether the BOE elects to maintain its current level of asset purchases or to expand those measures. Central banks are beginning their exit from extraordinary monetary policy measures with the BOJ announcing today that they have started their exit strategy and ECB officials indicating that they may soon announce their exit plans. Because of the uncertain outlook for the UK recovery the BOE is expected to be the last to exit accommodation and may actually be forced to expand policy measures. The main focus for GBP trade apart from the risk appetite is BOE policy outlook. In light of last week's report of a surprise decline in UK Q3 GDP the BOE may elect to expand its asset purchase plan at next week's policy meeting. The BOE meet on November 5th and are expected to decide whether to extend the current size of the asset purchase plan of £175 bln. The BOE's decision will be crucial to the outlook for the GBP because a number of central banks and governments are preparing to withdraw stimulus. Based on the UK GDP report it may be difficult for the BOE to refrain from adding additional stimulus. Recent GBP price action has found that the GBP benefits on BOE decision to hold the current level of asset purchases and weakens if the BOE elects to expand quantitative ease. A Reuter's poll of 62 economists shows that 19 expect no change in BOE asset purchases, 22 look for an increase of £25 bln and 21 look for 50 bln.

Next weeks UK economic calendar includes the November 2nd release of CIPS PMI for October expected at 50 compared to 49.5 last month. On November 4th October consumer confidence Index will be released expected at 71.3 compared to 71 last month along with October's CIPS services PMI expected at 55.9 compared to 55.3 last month. On November 5th September industrial production will be released expected at -1% compared to -2.5% last month. The BOE meet on November 5th and it is uncertain whether the BOE will elect to expand its asset purchase program and if so by how much. On November 6th October PPI will be released expected unchanged at 0.5%.

The technical outlook for GBP has improved as GBP trades above 1.6500. Expect near-term support at 1.6335 the October 29th low with resistance at 1.6694 the October 23rd high.



CAD
CAD traded sharply lower pressured by report of an unexpected decline in Canadian GDP and weaker crude prices. Canada's August GDP declined by 0.1%, 0.1% is rise was expected. This marked the first monthly GDP drop since May and signals weaker outlook for Canada's recovery. The GDP decline reflects weaker demand for energy and manufacturing and the impact of strong CAD on Canada's export demand. The GDP report may encourage speculation that the BOC will have to maintain accommodative policy for a longer period and that's BOC officials may step up for more intervention. The trade continues to debate whether the BOC will continue to try and talk CAD lower. Over the past few weeks BOC officials have expressed concern that the strength of the CAD is a threat to the Canadian recovery. CAD traded lower to start the week pressured by a statement from the IMF warning that CAD strength could slow the Canadian recovery 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.

Next week's Canadian economic calendar includes the November 5th release September building permits expected at 2% compared to 7.2% last month along with Ivey PMI index for October expected at 62 compared to 61.7 last month. On November 6th October unemployment will be released expected unchanged at 8.3% with employment growth at 6K compared to 31k last month.

The technical outlook for CAD is negative as USD/CAD trades above 1.0600 and breaks trend line resistance. Look for near-term support at 1.0590 the September 17th low with resistance at 1.0825 the October 5th high.



AUD
AUD traded lower pressured by weaker equity market trade and report of slowing credit demand. AUD has experienced choppy price action over the last few days with the price moves dovetailing the direction of global equity markets and risk sentiment. Weaker than expected inflation and employment data from the EU and comments from U.S. Treasury Secretary Geithner that risks remain for the US recovery injected some sobriety into the enthusiasm generated by Thursday's release of better than expected US Q3 GDP. US equities traded lower. Australia's September private sector credit falls by 0.2%. The trade will turn focus to next week's RBA policy meeting. Thursday Australia's finance minister said that interest rates won't stay at current emergency levels. His comments suggest that the RBA will continue to hike rates into year-end. Recent statements from the RBA indicate that this inflation outlook will be one of the key determinants of rate policy. Australian Q3 CPI was released Wednesday. The headline CPI came in slightly above expectations but the annual rate posted the smallest gain since second quarter of 1999. It can be argued that the CPI data makes it unlikely that the RBA will make aggressive rate hikes in the months ahead. The CPI report is unlikely to sway RBA policy decision in next week's meeting. The RBA was the first major industrial nation's central bank to hike rates as the global recession appeared to be ending. RBA rate hike speculation and risk sentiment are the key drivers for AUD trade. The RBA raised rates 25bps to 3.25% at the start of October and AUD has been trading near a 14 month high supported by speculation that the RBA would continue to hike rates in November and December with a number of analysts looking for possible 50bps as early as November RBA watcher McCrann sees less of a chance 50bps rate hike from the RBA if inflation remains in check. Australia's CPI report suggests that RBA rate hikes may less aggressive. The next RBA policy meeting will be held on November 3rd. A 25bps rate hike is expected but the CPI report may contribute to uncertainty about the RBA policy outlook.

Next week's Australian economic calendar includes the November 2nd release of Q3 house price is expected at 4.5 % compared to 4.2% last month. RBA meet and November 3 and a 25bps rate hike to 3.50% is expected. On November 4th September building approvals will be released expected 2.5% compared to-0.1% last month along with September retail trade expected at 0.6% compared to 0.9% last month.  

The technical outlook for the AUD is mixed to as AUD fails to hold above 9200. Expect AUD support at 8943 the October 29th low with resistance at 9207 the October 28th high.