- USD: Lower, trade balance widens most in 10 years on higher imports, Michigan consumer confidence falls
- JPY: Higher, Yuan revaluation rumors, sharp upgrade of September industrial production
- EUR: Higher, EU economy emerges from recession in Q3, Q3 GDP rise was less than expected
- GBP: Higher, supported by merger rumors, gains limited by uncertainty about BOE asset purchase plan
- CAD and AUD: AUD & CAD higher, Canada's trade balance improves, tracking stocks
USD traded lower Friday with JPY supported by Yuan revaluation rumors, EUR supported by report that EU economy emerged from recession in Q3, GBP supported by merger rumors and the AUD supported by a statement from Australia's trade minister that strong AUD is not limiting Australian export sales. CAD was supported by report of better than expected Canadian trade data and a surge in exports. US economic data was mixed with import prices higher than expected, and the trade deficit rising much more than expected. The rise in the trade deficit reflects a sharp increase in imports and a smaller rise in export sales. The rise in imports is further confirmation of improving outlook for the US domestic economy. The widening of US trade balance may generate concern about global trade imbalance and increase pressure on G-20 nations to take action on rebalancing. Widening of the US trade balance is attributed to higher oil prices and demand for imports from China. A weaker USD and stronger Yuan will be needed to help foster rebalancing of global trade. Michigan consumer sentiment fell more than expected. USD price direction will likely continue to you track risk sentiment and equities with investors looking at upcoming data for clues to the shape of the global recovery. US equities rallied despite weaker Michigan consumer sentiment. Japan's Q3 GDP and US Empire Manufacturing and retail sales on tap Monday.
Today's US data:
October import prices rose by 0.7%, a 0.5% rise was expected. September trade deficit widened to -36.4 7bln, a deficit of 30bln was expected. November Michigan consumer sentiment falls to 66 from 70.6 in October, a reading of 71 was expected.
Upcoming US data:
Next week's US economic calendar includes November 16th release of November Empire State manufacturing index expected at 31 compared to 34.5 last month. October retail sales and business inventories will also be released on November 16th with retail sales expected to rise by 0.8% compared to -1.5% last month and business inventories expected to fall by 0.6%. On November 17th October PPI will be released expected to rise by 0.4% compared to -0.6% last month. October industrial production, capacity utilization and the November NAHB index will also be released on November 17th. Industrial production is expected to rise by 0.4% compared to 0.7% last month, capacity utilization is expected at 70.8 compared to 70.5 last month and the NAHB index is expected 19 compared 18 in October. On November 18th October CPI will be released expected unchanged at 0.2% along with October housing starts and building permits. The housing starts are expected to rise to 600k from 590k last month and building permits are expected at 580k compared to 573k last month. On November 19th initial jobless claims for week ending the 11/14 will be released expected at 497k compared to 502K last month. October leading indicators and November Philly Fed will also be released on November 19th. Leading indicators are expected to rise by 0.4% compared to 1% last month and the Philly Fed is expected at 12.5 compared to 1.5 last month.
JPY traded higher Friday supported by a sharp upward revision in Japan's industrial production and Yuan revaluation rumors. Japan's September industrial production was revised to 2.1% from 1.4% and capacity utilization rose by 1.6%. Rumors are circulating that China may be considering a one time Yuan revaluation and JPY benefits as a proxy for the potential that the Yuan revaluation may lead to a rise in Asian currencies. Despite today's upward revision in Japan's industrial production Japan's finance minister said that the Japanese economy remains unstable. Focus turns to Monday's release of Japan's Q3 GDP. The GDP report is expected to show that Japan's experienced back to back quarters of growth. In light of the upward revision in the industrial production data the GDP may actually come in above expectations. Market consensus is that Q3 GDP will rise by 0.7% and 2.9% annualized basis.
Next week's Japanese economic calendar includes the November 16th release of preliminary Q2 GDP expected at 7% compared to 0.5% last month. On November 17th September tertiary activity will be released expected at 0.4% compared to 0.3% last month. On November 18th revised September leading indicators will be released expected at 0.8% compared to 2% last month. On November 19th September all industry activity will be released expected at 0.6%.
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 higher supported by report that EU GDP expanded in Q3. EU Q3 GDP rose by 0.4%. The rise in the EU GDP was slightly less than expected as market consensus expected a 0.5% rise. Nevertheless the rise in EU Q3 GDP confirms that the EU economy is emerging from recession. The EU Q3 GDP report may encourage speculation that the ECB will begin to remove stimulus and consider a timeframe for hiking interest rates. The ECB monthly bulletin says that the EU is likely to see 1% growth in 2010 compared to the original forecast of just 0.3%. Recent statements from ECB officials indicate that the ECB will begin to allow emergency support programs to expire. ECB officials have given no indication that they are in any hurry to raise interest rates.
Next week's EU economic calendar includes November 16th release of EU HICP for October expected at 0.9% compared to 1.1% last month. On November 17th EU September foreign trade balance will be released expected at -2bln compared to -4bln last month. On November 18th EU September current acount will be released expected at -4.8bln and compared to -5bln Last month.
The technical outlook for the EUR is mixed as the EUR fails to trade back above 1.5000. Expect EUR support at 1.4810 the November 5th low with resistance at 1.5017 the November 12th high.
GBP traded higher supported by merger rumors and short covering inspired by optimism about the global recovery as EU GDP data indicates that the EU economy has emerged from recession. Rumors that British Airways may merge with Iberia sparked modest demand for the GDP. GBP has been weakening since Wednesday's comments from BOE Governor King that a weak GBP will help to boost the UK economy and that he is open-minded about expanding BOE's asset purchases. 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. No major UK economic data was released in today's trade. Focus turns to next Wednesday's release of the minutes for the November 4/5th policy meeting and Friday's retail sales. At that November meeting the BOE elected to expand its asset purchases by £25bbln. The trade will be looking at the minutes for clues to whether the BOE plans to again soon expand its asset purchase plan. GBP generally weakens in reaction to news that the BOE is expanding or plans to expand its asset purchase plan. The retail sales report will be important to the debate about whether the UK economy is about to emerge from recession. The trade may also take a look at next week's report of UK public sector borrowing. Moody's indicated that the UK's most at risk for a ratings downgrade because it's rising government debt.
Next week's UK economic calendar includes the November 17th release of October CPI expected at 0.2% compared to flat last month. On November 18th September CBI orders will be released expected at this -50 compared to -51 last month. On November 19th October money supply and public-sector borrowing will be released. The money supply is expected is to rise by 0.9% compared to 0.8% last month. Public-sector borrowing is expected to widen to 15.06bln from 14.812bln and last month. Also on November 19th October retail sales will be released expected at 1% compared to 2.4% last month.
The technical outlook for GBP is mixed on today's rally back above 1.6600. Expect near-term support at 1.6467 the November 5th low with resistance at 1.6799 for November 11th high.
CAD traded higher supported by optimism about the global recovery as the EU economy emerges from recession US trade data showed a sharp increase in demand for imports and Canada's trade deficit shrank. The Septmeber trade deficit narrowed to .927mln from 2.7 bln last month. Canada's September trade deficit improved despite strong CAD. The fact that Canada's export sales are rising despite strong CAD may reduce the risk of intervention. The improvement in Canada's trade balance may be somewhat overstated because a large part of the decline in the deficit was due to improvement in automotive sales reflecting the US government's cash for clunkers program which has expired. Stock markets rallied in reaction to today's economic data from the US and EU that suggests the global economy is expanding. CAD benefits from optimism about the global recovery.
Next week's Canadian economic calendar includes the November 16th release of September manufacturing shipments expected at -0.2% compared to -2.1% 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 higher supported by Yuan revaluation rumors, optimism about the global recovery and in reaction to statement from Australia's trade minister that strong AUD is not limiting Australian export sales. As noted above a combination of factors including rising EU Q3 GDP, strong US import demand and this week's economic data from China which included report of strong industrial and retail sales data fuels optimism about global recovery. Today's AUD rally was impressive in light of the fact that crude oil traded lower and stocks struggled in early trade. Thursday the AUD traded at a new high for 2009 supported by report of an unexpected improvement in Australian jobs growth. 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's last month. The better than expected jobs growth in Australia may intensify speculation that the RBA will hike rates in December. 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 25 bps in December.
Next week's Australian economic calendar includes the November 18th release of Q3 labor price index expected unchanged at 0.8%.
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.