- USD: Mixed, Fed's Fisher and Lacker said that interest rates will remain low because of weak US economy
- JPY: Lower, core machinery orders rise more than expected, bond redemptions limit downside
- EUR: Lower, tracking equity markets and US yield outlook, pressured by a wave of profit taking
- GBP: Lower, BOE Governor King says weak GDP will help exports, open to expanding asset purchases
- CAD and AUD: AUD lower & CAD higher, tracking stocks & commodities, Chinese data mixed
USD traded at a 15 month low Wednesday pressured by a statement from Fed officials which indicates the Fed plans to continue to maintain low interest rates for some time to come. The Feds Fisher said that that the weak US economy calls for lower rates and he sees the prospect for a weak US recovery. Fisher went on to say that he's aware that Fed policies are pressuring the USD but that the USD decline has not been disorderly and inflation remains subdued. USD was also pressured by a continued rally in global equity markets and firmer commodity prices with crude trading higher and gold at a new record high. The Feds Lacker said it's too soon to say when the Fed will hike interest rates and that the Fed can begin to reduce its balance sheet before it begins to raise interest rates. Mixed to generally positive economic news from China helped to boost risk appetite and global equity market trade and demand for commodity currencies. AUD gains were limited by report of a dip in consumer confidence. China's industrial output for October rose to 19 month high but loan and investment growth slowed in imports and exports lower pressured by the statement from BOE Governor King that a weaker GDP will help rebalancing exports and that he has an open mind about expanding asset purchases if needed. No major US economic data was released today due to Veterans Day holiday. Risk sentiment and the direction of equity markets remain the main market drivers for the Forex trade. Fed officials indicate they are not ready to take away the punch bowl just yet. USD rallied midsession supported by liquidation and profit-taking as holiday thinned markets exaggerated price action.
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 traded lower pressured by firmer equity market trade and improving risk appetite. A statement from the Feds Fisher confirming that US yields will remain low and positive economic data from China fueled demand for equities and commodities. JPY was also pressured by selling in cross trade to the EUR and AUD sparked by improving risk appetite. Japan's economic data was positive with September core machinery orders reported a 10.5%, the trade was looking for 2.9% rise. Japanese officials continue to monitor the rise and JGB yields. Furukawa says that he is carefully watching long-term interest rate moves. The Japanese government plans to increase spending to boost domestic growth and this has generated concern that Japan will have to issue a large amount of debt to finance the new spending. Concern about new debt issuance has sparked a rise in JGB yields. Japan's Finance Minister Fujii tried to dampen investor fears about Japan's debt issuance. Fujii said that Japan will look for ways to cut spending and acknowledged that the rise in long-term bond yields reflects concerns about its increased issuance of JGB's. The Fitch rating agency said it is unlikely that the Japanese government can meet its goal of limiting bond issuance to ¥44trln, and warned that if the debt issuance rises above that level the Japanese credit rating may be at risk of downgrade. JPY downside may be limited by repatriation flows sparked by Japanese bond redemptions.
On November 12th October corporate goods prices will be released expected flat compared to 0.1% last month. On 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 traded higher supported by dovish comments from Fed officials and improving risk sentiment as equity markets and commodities rally. The Feds Fisher and Lacker indicated that the Fed will continue to maintain low yields because the outlook for the US recovery remains weak and inflation low. These Fed officials expressed concern about US jobs outlook and consumer spending. In addition, Fisher downplayed concern about the decline of the USD and indicated that the drop in the USD was orderly and that inflation remains low. The Fed is clearly not ready to take action in support of the USD. EUR was also supported by gains in cross trade with EUR/GBP supported by comments from the BOE Governor King's endorsing weak GDP and by his open mind about expanding of BOE asset purchases if needed. This week's EU economic data has been mixed with report of a slight drop in German business optimism continued low inflation and report of improving German industrial production and export sales. These reports are likely to encourage the ECB to maintain current monetary policy and be in no hurry to raise interest rates. This week's main focus will be Friday's release of EU GDP. The trade will be looking to the EU GDP report for confirmation that the EU economy is expanding.
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 1.4938 the November 10th low with resistance at 1.5065 the October 23rd high and 1.5130.
GBP traded lower pressured by release of the BOE inflation report and comments from the BOE Governor King. The BOE inflation report states that the UK is expected to have a slow recovery and that consumer prices will rise above the 2% target in the near term. The BOE however expects inflation to remain below its target over the next two years with inflation rate at 1.6% in Q3 2011. Governor King said that weak GDP will help the UK balance exports and imports and may boost the economy. King also said that he has an open mind about expanding the asset purchase plan if needed and that the 25bln November expansion of asset purchases was not a step towards ending the program. 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. The trade ignored report of better than expected UK employment data. The rise in UK claimant count was less than expected at 12,900k. The claimant count was expected to rise by 20k. The unemployment rate rose 0.1% September to 7.8%. GBP is faced with a number of negative factors which include today's dovish BOE inflation report and Tuesday's report that the UK is most at risk of losing its AAA rating among major economies. It would be impressive if the GBP can recover from this recent negative fundamental news.
The technical outlook for GBP is mixed as this weeks rally failed to hold above 1.6700. Expect near-term support at 1.6600 the November 10th low with resistance at 1.6800.
CAD traded higher tracking stronger equity markets and higher commodity prices. Gold traded at a new record high Wednesday .Equity markets were supported by speculation that there will be no imminent withdrawal of stimulus by the Fed and in reaction to generally positive economic data from China. Although today's economic data from China was mixed on balance the Chinese recovery continues. China reported strong industrial output and retail sales growth in October but loan demand and investment slowed. There were no major economic reports from Canada today. China's October industrial production rose 16.1% and retail sales rose 16.2%. The trade continues to try and balance the uncertain outlook for Canada's economic recovery with the strong influence of risk appetite. Last Friday Canada reported an unexpected loss in jobs and a rise in October unemployment. The unemployment rise generates questions about the Canadian economic recovery. Canadian officials have expressed concern that strong CAD may choke off recovery. This weeks CAD rally may increase the risk of verbal intervention. Focus turns to Friday's release of Canadian trade balance. The data may give indications of how the strong CAD has impacted Canada's export sales.
Canada's trade and balance will be released Friday expected to widen to -2.6bln on compared to -2.0 bln 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 at a new high for 2009 supported by rising commodity prices and stronger equity markets with gains limited by report of a drop in Australia's consumer confidence and mixed economic data from China. Australia's November Westpac consumer confidence declined by 2.5%. China reported strong industrial output and retails sales data along with a drop in investment and loan demand. It can be argued that the drop in China's investment and loan demand is a threat to the Chinese recovery on balance Chinese economic data points to continued recovery. China is a major export destination for Australia. AUD upside was partly limited by selling in AUD/JPY cross sparked by rumors of Japanese bond repatriation. AUD will continue to track the direction of equities and risk sentiment with downside likely limited by RBA rate hike speculation. Tuesday after they reported a sharp improvement in business confidence and industry minister suggests that Australian manufacturers prepare for AUD strength. 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 trade will closely monitor this week's release of Australian unemployment data for clues to whether the RBA will be encouraged to hike rates next month.
On November 12th October unemployment we released expected unchanged at 5.7% and jobs growth at10k.
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.