• USD: Lower, IMF says USD still on the strong side, G-20 pledged to maintain stimulus, low Fed yields
  • JPY: Higher, Japan tops China as biggest buyer of US debt, reserves rise to a new record
  • EUR: Higher, EU Sentix rises, German exports surge, strong German industrial output
  • CHF: Higher, unemployment at 11 year high, consumer prices fall, rising risk of intervention
  • GBP: Mixed, supported by improving risk appetite
  • CAD and AUD: AUD &CAD higher, tracking stocks, risk appetite, higher crude and record price of gold

Overview     
USD traded sharply lower Monday pressured by a number of factors which included, stronger global equity markets, a pledge by the G-20 to continue with stimulus and a statement from the IMF that the USD is overvalued. The USD was also pressured by G-20 silence on USD decline. Speculation that the Fed will maintain low yields for an extended period coupled with the G-20 pledge to not withdraw stimulus until the global recovery is secure fueled demand for equities and sparked an improvement in risk appetite. The Feds Bullard said that a strong recovery is needed before the Fed tightens policy. His comments coupled with Friday's report that US unemployment rate is above 10% will encourage the Fed to maintain low yields. The USD has emerged as the global funding currency because of low US yields. The IMF says that the USD is the global funding currency and despite recent weakness may still be overvalued. EUR traded above 1.5000 supported by strong EU industrial output data and rising German exports. Commodity currencies traded higher supported by improving risk appetite, higher crude prices and a new record high in the price of gold. Risk sentiment and the direction of equity markets remain the main market drivers for the Forex trade.

Today's US data:
No major US economic data was released in today's trade.

Upcoming US data:
This week's US economic calendar includes the November 12th release of initial jobless claims for the week ending 11/07 expected at 510k compared to 512k last week. October Treasury budget will also be released on November 12th expected at -180bln compared to -155.53bln last month. 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
JPY traded mixed with gains limited by selling in cross trade and in reaction to improving risk appetite as global equity markets surge. EUR/JPY rally is attributed to report of stronger than expected EU industrial output and German trade data. AUD/JPY traded more than 1% higher with the AUD supported by rising commodity prices and improving risk appetite with gold trading at a new record high. JPY was initially supported by a statement from Japan's Finance Minister Fujii that Japan should stop relying so much on exports. In the past Japan has relied heavily on exports for growth and this has encouraged the Japanese government to pursue a weak JPY policy to increase Japan's export competitiveness. Fujii's comments may reduce the risk of intervention should the JPY continue to strengthen. There was limited reaction to report that Japan's October foreign reserves rose to a record 1.05trln. The size of Japan's foreign reserves holdings could become an issue if Japan becomes concerned about the outlook for US deficit. Current data suggest that the Japanese government has not yet moved to significantly diversify USD reserve holdings. Chinese diversification of reserves may reemerge as an issue for the Forex trade. Sunday, China's Premier Wen called on the US to keep its deficit under control to stabilize the USD exchange rate. Bloomberg reports that Japan now tops China as the best buyer of US treasuries.

This week's Japanese economic calendar includes the November 10th release of October money supply expected unchanged at 0.2%. September current account will also be released on November 10th expected at ¥1.34trln compared to ¥1.17trln. On November 11th September machine orders will be released expected at 1% compared to 0.5% last month. On November 12th October corporate goods prices will be released expected flat compared to 0.1% last month. 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
EUR traded sharply higher Monday supported by improving risk sentiment as global equity markets surge and by stronger EU and German economic data. As noted above, the G-20 made no mention of recent USD weakness and pledged to continue to provide stimulus for the global economy. The G-20 pledge to maintain stimulus fueled demand for global equities and sparked selling of the USD. EU November Sentix index improved to its best level since June of 2008 at -7 compared to- 12.6 last month. German September industrial production rose by 2.7% and the German September trade surplus widened to 10.8bln with exports up 3.8%. The German industrial output was expected to rise by 1% .The positive surprises in EU and German economic data helped to boost the EUR to trade over 1.5000. ECB's Bini -Smaghi said he expects strong EU economic rebound in the last quarters of 2009. Improving EU economic outlook may encourage speculation that the ECB will move the timeframe forward for tightening of policy. At last week's ECB policy meeting the ECB signaled that it will soon begin an exit from its unconventional policy measures. EUR was also supported by speculation that the Fed will maintain low yields in light of Friday's report of worse than this unexpected rise in US headline unemployment. The IMF noted that low yields encourage funding of the carry trade in the USD. According to the IMF the carry trade may still be overvalued despite recent weakness of the USD. This week's main focus will be Friday's release in EU GDP. The trade will be looking to the EU GDP report for confirmation that the EU economy is expanding.

On November 10th German October CPI will be released expected unchanged at -0.4% German November 2nd index also be released on November 10th expected at 57 compared to 56 last month. On November 12th EU September industrial production will be released expected at 1% compared to 0.9% last month. 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 positive as the EUR trades above 1.5000. Expect EUR support at 1.4851 the November 9th low with resistance at 1.5065 the October 23rd high.

CHF
CHF traded sharply higher Monday supported by a G-20 pledge to maintain stimulus and an IMF statement that USD may still be overvalued. CHF continues to track risk sentiment shrugging off negative Swiss fundamental data. Last week Switzerland reported that the October unemployment rate rose to its highest level in 11 years and consumer prices continued to fall for the eighth month in row. The strong CHF contributes to deflationary pressures in Switzerland and weaker Swiss export trade. The strength of the CHF may increase the risk of SNB intervention but stability in the EUR/CHF cross may encourage the SNB stands sidelines. SNB's Jordan will speak Tuesday in Zürich and Thursday in Geneva. The trade will be looking for comments from Jordan about the potential for intervention. This week's Swiss economic calendar includes Thursday's release of November Zew index expected at 67 compared to 65 last month. On Friday, October producer prices will be released expected at -4.7% and -4.9% last month. Expect USD/CHF support at 1.0015 the July 15th 2008 low with resistance at 1.0275 the November 4th high.

GBP
GBP edged higher with gains limited by last week's decision from the BOE to expand its asset purchase plan and report that the Kraft did not raise its bid for Cadbury. GBP rallied to its best level in three months versus the USD in overseas trade supported by improving risk sentiment as equity markets rally. GBP has held up remarkably well in light of Thursday's decision by the BOE to expand its asset purchase plan by £25bln to £200bln. One explanation for the GBP price action is speculation that the BOE may be getting closer to the end of its expansion of asset purchases as recent UK economic data including housing, consumer sentiment in today's output data points to the beginning of recovery for the UK economy. BOE noted that the UK recovery is starting to take hold. Last week the UK reported that manufacturing for September rose 1.7% .CFTC commitment of traders released Friday indicated that speculators continue to reduce short GBP positions on the IMM. Focus turns to Wednesday's release of the BOE inflation report.

This weeks UK economic calendar includes the November 10th release of October BRC retail sales expected at 1.8% compared to 2.8%. September trade balance will also be released on November 10th expected at -6.11bln compared to 6.24bln last month. On November 11th September unemployment will be released expected 8% compared to 7.9% of average earnings unchanged at 1.6% and the claimant count at 27k.

The technical outlook for GBP has improved on today's rally above 1.6500. Expect near-term support at 1.6617 the November 9th low with resistance at 1.6800.

CAD
CAD traded sharply higher supported by a rise in equities, higher commodity prices and strong Canadian housing data. Gold rallied to a new record high reflecting the G-20 pledge to maintain fiscal and monetary stimulus and in reaction to weaker USD. Canada's October housing starts rose to 157.2k, a reading of 155k was expected. Today's rally in the CAD is impressive in light of Friday's release of weaker than expected Canadian employment data. Canada unexpectedly lost 43,200k jobs in October and the unemployment rate rose 0.2% to 8.6%. The trade had expected Canada to create 10K jobs last month with unemployment rising to 8.5%. Canadian manufactures said that the worst of the Canadian recession is over but they are concerned that recent CAD strength is a hindrance to recovery. Last week, Canada reported that 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. Mondays' CAD rally may increase the risk of intervention and encourage BOC officials to threaten action to weaken the CAD.

September housing price index will be released on November 12th expected at 0.2% compared to 0.1% last month. Canada's trade and balance will be released Friday expected to widen to -2.6bln on compared to -2.0bln last month.

The technical outlook for CAD has improved as USD/CAD trades below 1.0600. Look for near-term support at 1.0502 the October 26th low with resistance at 1.0748 the November 9th high.

AUD
AUD traded sharply higher supported by improving risk sentiment and rising commodity prices. As noted above, equity markets surged in reaction to the G-20 pledge to maintain fiscal and monetary stimulus. Gold traded a record high and crude oil prices also rallied supported by G-20 liquidity pledge. Australian economic data was mixed with October job ads down 1.7% in September housing finance rising by 5.1%. 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 odds of the Fed rate hike before mid-2010 have been greatly diminished by Friday's US unemployment report. Last week Australia reported that business confidence rose to its highest level in 15 years but new home sales weakened and inflation declined to its lowest level in a decade. The weaker inflation outlook and Australia may temper is hike speculation. Yield and growth differential continue to move in favor of the AUD. The trade will closely monitor this week's release of Australian unemployment data for clues to whether the direction of growth in the Australian and US economy continue to diverge.

This On November 12th October unemployment we released expected unchanged at 5.7% and jobs growth at 10k.

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 9345 the August 4th 2008 high.