• USD: Lower, rising US unemployment reduces the odds of a mid-2010 Fed tightening, stocks mixed
  • JPY: Higher, September leading indicator rises, safe haven demand on weak US jobs data
  • EUR: Mixed, German industrial orders rise, ECB signals the start of its exit strategy
  • GBP: Mixed, PPI rises, BOE may be nearing final stages of quantitative ease
  • CAD and AUD: AUD higher & CAD lower, hawkish RBA policy statement, Canada lost jobs in October

Overview     
US October unemployment came in worse than expected with headline unemployment rising above 10% and the nonfarm payrolls reported below 200k. The nfp decline was less than 219k last month but higher than most economists had expected. The BLS also revised down September job losses from 263k to 219k and August job losses from 201k to 154k. The USD and JPY traded higher after the release of today's US employment data as equity markets weakened. The report raises concerns about the current improvement in risk sentiment. USD reversed early gains as equities turn positive. The downward trend in nfp in the September and August revisions are the main bright spots in today's report. However, most of the improvement reflects an increase in government workers. The private sector continues to loose jobs The October employment report will reduce the likelihood of an early Fed rate hike. The FOMC indicated at this week's meeting that the Fed is unlikely to consider a hike until the US starts to produce jobs. The unemployment report may deflate optimism about the US recovery but the likelihood of the Fed maintaining low yields for an extended period should keep the USD well offered on rallies. The price of gold rallied to a new record high today which may increase concern about that central bank liquidity is creating a bubble in a number of asset markets including gold.

The USD traded mixed ahead of the release of US October unemployment with the AUD supported by the release of the RBA policy statement and the CAD pressured by report of an unexpected loss of jobs in October. The RBA policy statement said that said that interest rates will need to gradually rise. The RBA also raised its growth and inflation forecasts. Canada posted an unexpected loss of jobs in October and the unemployment rate rose to 8.6%. European currencies were mixed with GBP supported by report of rising output prices and the CHF supported by report of unchanged unemployment in Switzerland. JPY traded higher supported by report a rise in leading indicators.

Today's US data:
October unemployment rose to 10.2% and nonfarm payrolls declined by 190K. The unemployment rate was expected to rise to 9.9% and nonfarm expected to fall by 175k. September wholesale inventories declined by 0.9%, a 1% decline was expected.

Upcoming US data:
Next 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 sharply higher supported by a spike in risk aversion as equities markets decline in reaction to a report of worse than expected US October unemployment. The US unemployment data generates concern about the outlook for US recovery and may reduce demand for high risk assets. JPY was also supported by report that Japans September leading indicators rose 3.2 points and the coincident indicator rose 1.3 points. The rise in Japans leading indicators is another sign that Japan's economy is recovering. A record rise in the price of gold also contributed to dollar selling pressure. The rising price of gold may partly reflect the outlook for continuing stimulus from the Fed and concern about risks that Fed policy of maintaining low yields for an extended period presents to the USD as the global economy emerges from recession. The BOJ announced the start of its exit strategy from its corporate bond purchase last Friday. Today's US unemployment data will likely handcuff the Fed from starting its exit strategy from stimulus. The divergence in the outlook for BOJ and Fed policy on exit strategies may be the best explanation for today's surge in the JPY as JPY remained strong despite a recovery in US equities.

Next 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 90.81 the November 6th high.

EUR
EUR traded mixed as the trade digests today's US unemployment report. The worse than expected rise in US headline unemployment was partly offset by downward revisions in the September and August nfp and speculation that the continued rise in US unemployment will prevent the Fed from hiking interest rates before mid-2010. The rise in the headline US unemployment may also encourage the administration to press for an additional stimulus package. Some analysts may argue that because unemployment is a lagging indicator today's numbers may be actually closer to the peak and equity markets erased early losses turning higher for the day. Today's price action in US equities and the gold market may revive fears that easy monetary policy may be creating bubbles and the number of asset markets and that the improvement in risk sentiment is fueled more by liquidity then is economic optimism. Gold traded at a new record high. The only economic data from the EU is report the German industrial orders rose 0.9% in September. There was little reaction to a comment from the ECB's Nowotny that he believes FX rates are risks of economic development. EUR downside may be limited by speculation that the ECB is set to exit from unconventional monetary measures. The ECB elected to hold rate policy unchanged at 1% Thursday and signaled that it will begin its exit strategy. EUR traded higher as US equity markets erase early losses EUR turned lower as stock returned to the red.

Next week's EU economic calendar includes the November 9th release of EU November Sentix index expected at -10 compared to -12.6 last month. German September trade balance and industrial production will be released on November 9th as well. The trade balance is expected at 12bln compared to 10.6 bln last month and industrial production expected at 1.3%, compared to 1.7% last month. 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%.

The technical outlook for the EUR is positive as the EUR trades above 1.4900. Expect EUR support at 1.4810 the November 5th low with resistance at 1.5065 the October 23rd high.

GBP
GBP traded mixed and showed limited reaction to today's US unemployment report and weaker US equity market trade. GBP was supported by report of improving UK output and input prices and speculation that the continued rise in US unemployment will prevent the Fed from hiking interest rates anytime soon. Liquidity remains the main driver in financial markets and the Fed is unlikely to withdraw stimulus anytime soon. UK October output prices rose to 0.2% and input prices rose 2.6%. 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. Focus turns to next week's release of BOE inflation report Wednesday.

Next 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 1.6467 the November 5th low with resistance at 1.6694 the October 23rd high.

CAD
CAD traded lower pressured by report of an unexpected loss of jobs in Canada last month and rising unemployment in the US and Canada. 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%. Late yesterday Canada's Finance Minister Flaherty said that he expects to see more job weakness until economy the economic recovery takes hold. His comments made today's Canadian unemployment report less of a surprise helping to dampen the impact of the data. CAD was also pressured by concerns about Canada's export outlook. The rise in US unemployment may dampen hopes for US recovery and limit demand for Canadian exports. 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% 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. Today's Canadian unemployment report and last week's GDP report may encourage speculation that the BOC will have to maintain accommodative policy for a longer period outlook.

Next week's Canadian economic calendar includes the use November 12th release of September new housing Price Index expected unchanged at 0.1%.

The technical outlook for CAD is negative as USD/CAD trades above 1.0700. Look for near-term support at 1.0608 the November 6th low with resistance at 1.0872 the November 2nd high.

AUD
AUD traded higher supported the RBA policy statement, an upgrade of Australia's growth and inflation forecasts and a record rise in the price of gold. The RBA said that interest rates will need to gradually rise. The RBA upgraded its outlook for growth next year to 3.25% citing improving conditions in trade investment and rising population trends. The RBA also expects inflation to rise to 2.25%. AUD was also supported by report that Australian October construction activity rose to 50.9. AUD rallied despite today's weaker US equity market trade and report that US unemployment rose to 10.2%. The best explanation for the AUD outperformance is yield and growth differential trumped concern about risk appetite. The US unemployment rate rise generates concern about the US recovery and the report will prevent the Fed from raising interest rates any time soon. The trade expects the RBA to hike rates 25 bps in December and the odds of the Fed rate hike before mid-2010 have been greatly diminished by today's US unemployment report. The trade will be closely monitor next week's release of Australian unemployment data for clues to whether the direction of growth in the Australian and US economy continue to diverge.

Next week's Australian economic calendar includes the November 9th release of October ANZ jobs ads expected at 5% compared to 4.4% last month along with September housing finance expected at 0.5% compared to -0.6% last month. On November 12th October unemployment we released expected unchanged at 5.7% and sixth jobs growth at 10k.

The technical outlook for the AUD is positive as the AUD rallies above 9100. Expect AUD support at 9096 the November 6th low with resistance at 9275 the October 26th high.