• USD: Lower, G-7 does not call for support of USD, nonmanufacturing ISM beats expectations
  • JPY: Mixed, Fujii says Japan will intervene if FX moves excessive
  • EUR: Higher, Sentix index rise to its highest level since July of 2008
  • CHF: Higher, Swiss growth outlook mixed, KOF index at a one year high, consumption index falls
  • GBP: Mixed , services PMI rises to a two year high , gains limited by remuneration rate cut speculation
  • CAD and AUD: AUD & CAD higher, RBA rate hike speculation, firmer equities

Overview
USD traded lower Monday pressured by the G-7 communiqué which expressed concern about excessive FX volatility but stopped short of calling for support of the USD. AUD was the strongest performer supported by RBA rate hike speculation. The RBA meet Tuesday and two influential columnists from Australia have written that the RBA would raise interest rates 25 basis points to 3.25% at Tuesday's policy meeting. The EUR and GBP were supported by improving economic data with UK service sector PMI rising more than expected in the EU Sentix index rising to a 15 month high. JPY traded mixed with gains limited by increasing the risk of intervention as Japan's Finance Minister Fuji said that Japan would take action against excessive one-sided moves in the JPY. Today's release of US nonmanufacturing ISM helped fuel weaker dollar trade as the index rises above 50 and US equities trade higher.

This week's US economic calendar is relatively light and focus will turn to central bank policy meetings in Australia Tuesday and in the UK and EU Thursday. The trade will be looking for possible tightening from the RBA, for clues to possible timing of an exit strategy from the ECB and there is uncertainty as to whether the BOE may cut its remuneration rate paid on commercial bank deposits. The trade will also be monitoring the direction of equities and risk sentiment. Part of today's weaker dollar trade was attributed to firmer equity market trade in the US and Europe.

Today's US data:
September nonmanufacturing ISM rises to 50.9 from 48.4 in August, a reading of 50 was expected.

Upcoming US data:
On October 7th August consumer credit will be released expected at seat -8.9 bln compared to -21.6 billion 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 -32bln compared to -31.92bln last month.

JPY
JPY traded mixed initially pressured by a statement from Japan's Finance minister Fujii that Japan would intervene against excessive JPY price moves. Fuji went on to say that competitive currency devaluation is not good, that actually reflect fundamentals and the economy is not ready for exit strategies. For the past few weeks Japanese officials have been sending mixed signals about intervention and today's comments from Fuji put the trade on notice that Japanese officials are closely watching JPY price rise. The Nikkei stock index closed 57 lower Monday, following a 246 point lower close Friday. Japanese exporter shares had been pressured by the rise in the JPY as the stronger JPY generates concern about Japan's export sales. Japan's domestic economy shows signs of improvement with last weeks report that Japan's unemployment rate posts an unexpected decline but Japan also reported that housing starts were weak and Capex spending fell to a 10 year low. Japan's PM Hatoyama says he does not think the economy has turned around yet despite last week report drop unemployment. JPY price direction will key on risk sentiment. Risk of intervention remains low unless JPY rise become excessive.

This 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 ¥0.12trln 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 88.60 the October 2nd low with resistance at 90.63 the September 25th high.

 

EUR
EUR traded higher supported by report that the Sentix index improved to 15 month high at -12.6 and in reaction to a statement from the ECB's Nowotny that he sees no need to take action on the EUR exchange  level. Nowotny's comments seem to be at odds with a statement from ECB President Trichet. Trichet said that the need to rebalance the global economy does not mean the dollar should weaken versus the EUR. ER gains were limited by report that EU August retail sales declined by 0.2%. This week's main focus will be Thursday's ECB policy meeting. The ECB is widely expected to hold a policy steady and the trade will be looking to the press conference following the ECB meeting for the ECB's outlook for the EU economy and for possible clues to the timing of an exit strategy from unconventional policy measures. The ECB is expected to acknowledge that the EU economy is improving but that the growth outlook remains uncertain. The ECB has tied the timing of the end of its accommodative monetary policy to price stability. Last week the reported that unemployment rose to a 10 year high at 9.6% and inflation data from Germany remained negative.

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 12.8bln compared to 12.4bln 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.

 

CHF
CHF edged higher supported by a modest improvement in risk sentiment as global equities rise in Europe and the US.CHF gains were limited by the threat of SNB intervention. The SNB was reported to have intervened twice last week to try and curb CHF appreciation versus the EUR. SNB intervention is having less of an impact because it is no longer a surprise .The intervention has helped to stabilize the EUR/CHF cross around 1.5100. It appears that the SNB is comfortable with EUR/CHF cross at the 1.5100. Swiss economic outlook is mixed with last week's report that the KOF leading index rose to its highest level in over a year in and PMI was at its best level in 15 months. However, Swiss consumption index hit its worst level since December 2003. Last week  the SNB raised its 2009 GDP forecast to -1.7 % from -2.7%  and its 2010 forecast to 0.4% This week Swiss economic calendar includes Tuesday's release of the September CPI expected unchanged at -0.8. On Wednesday, the September unemployment rate will be released expected at 3.9% compared to 3.8% last month. Expect USDCHF support at 1.0207 the September 24th low with resistance at 1.0490 the September 9th high.

 

GBP
GBP traded mixed supported by report that UK September services PMI rose to two year high at 53.3 compared to 54.1 last month. The rise in the services PMI contrasts with Friday's report of an unexpected decline in UK construction PMI and weaker than expected UK manufacturing PMI released last Thursday. Recent UK economic data has been mixed with last week's report that UK house prices rose for the fifth consecutive month the main bright spot. 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 £215bln 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 paid on commercial bank holdings. This week's main focus will be the BOE policy meeting Thursday. The BOE is expected to hold a policy unchanged but there is an outside chance that the BOE may cut its remuneration rate it pays on commercial deposits. The trade will be looking to see whether the BOE decides to expand quantitative ease. Market consensus is that the BOE is leaning towards cutting the remuneration rate. The shadow MPC committee says the BOE should extend quantitative ease beyond November. GBP rallied after BOE elected to maintain the current level of its quantitative ease in September. A decision to expand quantitative ease could spark significant selling of the GBP.

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 9 expected at -6.234bln 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 September 28th low with resistance at 1.6127 September 30th high.

 

CAD
CAD traded higher mainly supported by firmer equity market trade and spillover from strength in the commodity currencies in particular a sharp rally in AUD.CAD was also supported by the fact that the G-7 communiqué did not include language singling out USD weakness. The G-7 communiqué repeated its concern about excessive FX volatility and that disorderly movements in exchange rates could threaten the global recovery but made no mention of the USD. US equities rallied in reaction to report that US nonmanufacturing ISM index came in above 50. A reading above 50 means that this sector of the US economy is expanding. Weaker crude prices limit CAD gains. There were no major Canadian economic reports released in today's trade and little reaction to report that Canada's international reserves rose 4.59bln in September to 58.162bln.CAD remains vulnerable to comments from Canadian officials expressing concern that strong CAD is a threat to the Canadian economic recovery. In a speech last Tuesday, BOC Governor Carney said that strong CAD is a major risk for the Canadian economy and outlook for inflation. Focus turns to Friday's release of Canadian unemployment and trade balance.

This 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 6thexpected 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 along with August trade balance expected at-0.95bln compared to -0.750bln 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 1.1095 the September 28th high.

 

AUD
AUD traded sharply higher supported by report of 4.4% rise in Australia's September jobs ads and by RBA rate hike speculation. Two noted RBA watchers published articles in today's Australian press stating that they expect the RBA to raise rates 25bps to 3.25% at Tuesday's RBA policy meeting. One of these writers, Mitchell focused on the improvement domestic economic outlook Australia as his rationale for why the RBA would raise rates Tuesday. It's interesting to note that Australia's inflation index declined to a record low last week and retail sales posted the first rise in three months. AUD was also supported by a sharp rally in cross trade to the JPY with the rally attributed to a statement from Japan's Finance Minister Fujii that Japan would intervene if JPY FX moves are excessive. This week's main focus will be Tuesday's RBA policy meeting. It seems that the market may be set up for disappointment as the RBA will need to consider the current state of the global economy and whether it's wise to raise rates with the current uncertain outlook for global growth. AUD traded at a 13th month high last Wednesday supported by RBA rate hike speculation. 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. The trade will focus on the RBA statement accompanying the rate decision Tuesday for clues to whether the RBA maintains a hawkish bias. It seems like the AUD may be in a lose lose situation as rate hike has been priced in and a failure to hike rates Tuesday would be a significant disappointment.

On October 6th August trade balance will be released expected at -1.83bln compared to -1.56bln 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 mixed with back above 8700. Expect AUD support at 8528 the September 8th low with resistance at 8833 the October 1st high.