• USD: Lower, ADP employment comes in near expectation, non- manufacturing ISM drops
  • JPY: Lower, pressured by improving risk appetite
  • EUR: Higher, EU PPI declines for the ninth straight month , services PMI rises
  • GBP: Mixed, services PMI rises to a two-year high
  • CAD and AUD: AUD & CAD higher, crude prices rise above $80 a barrel, gold hits fresh record high

Overview     
USD and JPY traded lower ahead of today's FOMC policy decision pressured by a rebound in risk appetite as global equity markets rally. Global equity markets were supported by report of improving US October auto sales, an upgrade of China's growth outlook from the World Bank and firmer bank stocks. GBP was supported by report the UK services PMI rose to its best level in two years. EUR traded higher with gains limited by report that EU PPI declined for its ninth straight month and in reaction to report that Fitch cut Ireland's rating. Fitch said the rationale for the Ireland rating cut was weak GDP and rising government liabilities. Commodity currencies traded higher tracking the rise to a record level in the price of gold and crude prices rising above $80 a barrel. AUD gains were limited by report of weaker than expected Australian retail sales. The retail sales decline may make a December RBA rate hike less likely. October ADP employment declined for the seventh straight month and Challenger October job cuts were 51% lower than a year ago. These reports suggest that the pace of US nonfarm job losses likely slowed in October. Non-manufacturing ISM came in slightly lower than expectation.

The ECB and BOE meet on Thursday. The ECB is expected to leave monetary policy unchanged. There is great uncertainty over whether the BOE will elect to expand its asset purchase program as UK GDP posted a negative result. US October unemployment will be released Friday. US unemployment is expected to rise to a new 26 year high but nonfarm payroll job losses will likely be less than 200k. The US unemployment report will be key to investor risk sentiment and speculation about whether the US recovery is sustainable. FX price direction remains closely correlated to equities and risk sentiment.

Today's US data:
October ADP employment declined by 203k, a reading of -190k was expected. October non manufacturing ISM came in at 50.6 compared to 50.9 last month, a reading of 51.8 was expected. FOMC statement will be released at 19:15GMT.      

Upcoming US data:
On November 5th initial jobless claims for week ending 10/31 will released expected at 521k compared to 530k last week. Q3 productivity and unit labor costs will also be released on November 5th. Q3 productivity is expected at 5.5% compared to 6.6% last month and unit labor costs are expected at -4.5% compared to -5.9% last month. On November 6th October nonfarm payroll and unemployment will be released. The nonfarm payroll is expected at -175k compared to -263k last week and the unemployment rate is expected to rise 0.1% to 9.9%.

JPY
JPY traded lower pressured by improving risk appetite as global equity markets rally and in reaction to a statement from BOJ's Shirakawa that interest rates will remain low. Shirakawa went onto say that deflationary pressures will likely continue and the BOJ will maintain very easy monetary policy as the BOJ ends its corporate bond support plan. JPY was also pressured by a statement from Japan's Finance Minister Fujii that the Japanese government will have to issue more bonds to cover this year's tax shortfall which resulted from the weaker economy. JPY weakened in cross trade. AUD/JPY and GBP/JPY traded over 1% higher with gains fueled by improving risk appetite and GBP supported by report that UK services PMI rose to a two-year high. There was little reaction to a report in Japan's press that Japan's Cabinet Office will confirm that the Japanese economic recovery is underway in a report to be released on Friday. Japan's October monetary base rose by 4.4% y/y.

On November 6th September leading indicators will be released expected at 1% compared to 0.8% last month.

Key technical levels to watch in USD/JPY include support at 89.18 the November 2nd low with resistance at 91.80 the October 28th high.

EUR
EUR traded higher supported by improving risk appetite as global equity markets rally and in reaction to report that EU services PMI continued to improve in October. As noted above, global stock markets rallied Wednesday partly in reaction to an upgrade of China's growth forecast by the World Bank and in reaction to Tuesday's report of improving US housing, manufacturing and auto sales data. EU October services PMI composite index rose to 53 from 51.1 in September. EUR gains were limited by report that EU PPI declined for its ninth straight month and in reaction to report that Fitch downgraded Ireland's rating. EU September PPI declined by 0.4%. Continued deflationary pressures in the EU make it unlikely that the ECB will be in any hurry to tighten monetary policy. Focus turns to Thursday's ECB meeting. The ECB is expected to hold interest rate policy unchanged at 1% and maintain a neutral policy bias through the end of the year. The ECB is also expected to note the improving outlook for the economy and may begin to lay out the details of its exit strategy from unconventional policy measures. ECB's Weber says that liquidity measures will be allowed to expire on their own. The trade will be monitoring the press conference following the ECB policy meeting for clues as to the timing of when the ECB plans to begin its exit strategy or any change in policy bias. The EUR is holding key trend line support above 1.4600. A break of this level could signal a deeper downside technical correction for the EUR.

On November 5th EU September retail sales will be released expected at 0.3% compared to -0.2% last month. ECB meet on November 5th. No policy change expected.

The technical outlook for the EUR is mixed as the EUR holds above key trend line support above 1.4600. Expect EUR support at 1.4626 the November 3rd low with resistance at 1.4860 the October 30th high.

GBP
GBP traded higher supported by improving risk sentiment and report that UK consumer confidence rose to its highest level since April 2008 and October services PMI rose to a two-year high. UK October consumer confidence rose to 72, BRC October shop price index was unchanged and October services PMI rose to 56.9 from 55.3 last month. These reports suggest that the UK economy is recovering and this may reduce pressure on the BOE to aggressively expand its asset purchase program. Focus turns to Thursday's BOE policy meeting. It remains unclear whether the BOE will elect to expand quantitative ease. In light of last week's report of a surprise decline in UK Q3 GDP the BOE may elect to expand its asset purchase plan at Thursday's policy meeting. The BOE meet on November 5th and are expected to decide whether to extend the current size of the asset purchase plan of £175bln. Based on the UK GDP report it may be difficult for the BOE to refrain from adding additional stimulus. Recent GBP price action has found that the GBP benefits on BOE decision to hold the current level of asset purchases and weakens if the BOE elects to expand quantitative ease. According to a Bloomberg survey the median of 48 analysts predict that the BOE will expand asset purchases by £50bln to £225bln.  The impact of the BOE decision may be limited as focus returns to risk appetite.

On November 5th September industrial production will be released expected at -1% compared to -2.5% last month. The BOE meet on November 5th and it is uncertain whether the BOE will elect to expand its asset purchase program and if so by how much. On November 6th October PPI will be released expected unchanged at 0.5%.

The technical outlook for GBP has improved on today's rally above 1.6400. Expect near-term support at 1.6251 the October 26th low with resistance at 1.6580 the October 30th high.

CAD
CAD traded higher supported by rally to fresh record high in the price of gold, higher crude prices which traded above $80 a barrel in reaction to improving risk appetite as global equity markets rally. The rally in equities encourages demand for risk. The World Bank's upgrade of China's growth outlook coupled with improving US manufacturing and housing data and stronger October auto sales contributes to optimism about the global recovery and fuels demand for commodity currencies. There were no major economic releases from Canada today. This week the focus will be Friday's release of US and Canadian unemployment. The US report is expected to show that the pace of US job losses continues to slow. Canada is expected to have added 10,000 more jobs last month according to a Bloomberg survey of 22 economists. 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. The GDP report may encourage speculation that the BOC will have to maintain accommodative policy for a longer period and that's BOC officials may step up for more intervention. CAD price direction will continue to track crude and equity markets.

This week's Canadian economic calendar includes the November 5th release September building permits expected at 2% compared to 7.2% last month along with IVEY PMI index for October expected at 62 compared to 61.7 last month. On November 6th October unemployment will be released expected unchanged at 8.3% with employment growth at 6K compared to 31k last month.

The technical outlook for CAD is mixed as USD/CAD falls below 1.0600. Look for near-term support at 1.0502 the October 26th low with resistance at 1.0872 the November 2nd high.

AUD
AUD traded higher as global equity markets rise investors take on risk. Australia's economic data was mixed. September retail sales posted an unexpected 0.2% decline, building approvals rose 2.7% and the PSI rose by 5.5 points to 54.8. The PSI rise added additional support to today's AUD rally. Some analysts suggest that the weaker retail sales will lessen the chance of another RBA rate hike in December. AUD was also supported by rising commodity prices as gold trades in a new record high crude prices top $80 a barrel. Although the rise in the price of gold is attributed to yesterday's announcement that the IMF will sell 200 tons of gold to the reserve Bank of India there are additional reports that gold may be benefiting from competition with the USD for safe haven flows concerns and rising US deficits may put the USD reserve currency status at risk. Tuesday the RBA elected to hike rates 25 bps and gave no indication whether interest rates will be hiking in December. Uncertainty about RBA policy outlook may limit demand for the AUD but AUD price direction will continue to closely track risk appetite equities in the direction of commodity prices.

The technical outlook for the AUD is mixed as hold AUD rallies above 9100. Expect AUD support at 8961 the November 4th low with resistance at 9175 the October 30th high.